Bakerland Pty Ltd & Anor v Coleridge

CITATION : Bakerland Pty Ltd & Anor v Coleridge [2002] NSWCA 30 FILE NUMBER(S) : CA 40407/01 HEARING DATE(S) : 29 November 2001 JUDGMENT DATE : 25 March 2002

PARTIES : Bakerland Pty Ltd & Bakerland No 1 Pty Ltd - Appellants Davan Ean Coleridge - Respondents JUDGMENT OF : Giles JA at 1; Heydon JA at 78; Grove J at 79

LOWER COURT JURISDICTION : District Court LOWER COURT DC 9589/97 FILE NUMBER(S) : LOWER COURT Coleman DCJ JUDICIAL OFFICER :

COUNSEL : S J Motbey - Appellant G Burton - Respondent SOLICITORS : Norwoods - Appellant Phillips Fox - Respondent CATCHWORDS : INSURANCE - storm damage - collapse of part of building - whether insured entitled to indemnity value of building viewed alone as distinct from together with the land on which it stood - whether insured worse off as result of the collapse - whether errors in evidentiary rulings - whether insured had proved costs of removal of debris - entitlement to interest. D. Bennett v Jones (1977) 2 NSWLR 355; British Traders' Insurance Co Ltd v Monson (1964) 111 CLR 86; CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384; The Commonwealth v McLean (1996) 41 NSWLR 389; CASES CITED: General Accident Insurance Asia Ltd v Sakr (2001) NSWCA 402; re Gordon, Official Trustee in Bankruptcy v Pike (Beaumont J, 1 September 1995, unreported); NRMA Ltd v Morgan (Giles J, 28 August 1998, unreported); Papakosmas v The Queen (1999) 196 CLR 297; Wentworth v Wentworth (Santow J, 17 April 1997, unreported). DECISION : (1) Appeal allowed in part; (2) Set aside the verdict and judgment for the defendant against the plaintiffs and in lieu thereof verdict and judgment for the plaintiffs against the defendant for $30,388.93; (3) Set aside the order that the plaintiffs pay the defendant's costs and in lieu thereof order that the plaintiffs pay three-quarters of the defendant's costs; (4) Order that the appellant pay three-quarters of the responent's costs of the appeal.

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL

CA 40407/01 DC 9589/97 GILES JA HEYDON JA GROVE J

Monday 25 March 2002 BAKERLAND PTY LTD & ANOR v COLERIDGE

Judgment 1 GILES JA: This is an appeal from a verdict for the insurer in District Court proceedings brought by the insured claiming recovery under an insurance policy.

The policy 2 The second appellant and four other persons were joint owners of the Coogee Palace Aquarium at 169-173 Dolphin Street, Coogee in Sydney. The first appellant managed the property on behalf of the owners. In 1983 the first appellant obtained insurance on the property for the period 24 August 1983 to 24 August 1984 from Lloyds Underwriters, of whom the respondent is the representative for the purpose of the proceedings. In May 1984 the second appellant acquired the other owners' interests in the property. The proceedings have been conducted on the basis that the appellants sufficiently represent the insured parties to the contract of insurance. Unless there is reason to do otherwise, I will refer to the appellants as the insured and the respondent as the insurer. 3 The insurance was first by a cover note. A proposal was then completed and submitted, a statement for the premium was issued, the premium was paid, and a certificate of insurance dated 3 November 1983 was issued. The policy dated 7 August 1984 was issued after the loss the subject of the proceedings, but it was common ground that, subject to a question concerning an average clause, it embodied the contract of insurance relevant to the proceedings. 4 The certificate of insurance in the policy recorded that the underwriters were "bound … to assure in accordance with the terms and conditions contained herein or endorsed hereon". The conditions which followed included that any proposal "is hereby agreed to be the basis for this contract and to be considered as incorporated herein". The insured placed some reliance on this condition, saying that in the construction of the policy regard should be had to the proposal so far as the box in the proposal headed "Property to be insured" included "Buildings - indemnity value" with an adjacent sum proposed for insurance of $130,000. 5 By the insuring clause in the policy the underwriters agreed "to insure the property specified in the Schedule against loss or damage sustained during the period specified in the Schedule from the following perils …". It was common ground that the perils included storm and tempest. It was also common ground that an endorsement provided insurance - "On the cost of Removal of Debris, demolition and any temporary repairs necessary (including the Insured's legal liability for the cost of removal of debris, demolition and temporary repairs in regard to adjoining premises, roadways, or waterways, as well as on site), consequent upon the destruction of or damage to any property insured by the Insured's Fire Policy(ies) occasioned by Fire or any other Peril thereby insured against." 6 The policy document included the average clause. It is not easy to see why it was not part of the contract of insurance, but as will appear it is not necessary to decide that question. 7 The Schedule in the policy relevantly read - "Interest Buildings $130,000 Removal of debris $20,000 Buildings: Walls concrete and timber. Floors timber and roofs tin. Occupied by tenants for the purpose of various occupations. Policy additions: Optional extensions & endorsement No. 15 as per wordings. Situation: 169-173 Dolphin St Coogee Excess as per policy wording

Period of insurance: From 24/8/83 to 24/8/84 (at 4 p.m.)" The property 8 The Coogee Palace Aquarium was constructed in the 1880's in the colonial classic style. It featured a large central space beneath an octagonal dome. The trial judge's description of the building included that fish tanks were built in around the perimeter of the space and that there were associated grottos, imitation waterfalls and caves, and elaborate and artistic furnishings. The central space was used as a room for instrumental and vocal concerts and other entertainments. 9 At about the turn of the century verandahs were added to the original cruciform plan. Over the next hundred years, in the trial judge's words, "the building and the site were gradually dismembered through sale and demolition". By the early 1980's the building was being used for retail and residential purposes. There were retail facilities on the ground level, varying from a brasserie to a shoe shop and from a barber to a motor repair shop, and there were residential facilities on the upper level where some of the colonnade had been enclosed. 10 By this time the dome was in poor condition. In February 1979 consulting engineers reported that the dome was structurally unsound and that its deterioration was likely to accelerate. It was suggested that it be dismantled and re-erected or alternatively that it be supported by scaffolding and props while columns and beams were repaired and replaced. In October 1979 other consulting engineers reported that the dome was badly corroded and weakened by termites and removal of some supports. According to the engineers, a strong wind could cause the dome to collapse as a whole or blow out sections of the wall or roof, and it was their opinion that the dome was close to collapse and that it would be cheaper to re-build it than repair it. 11 An inquiry in 1982 in connection with the making of a conservation order with respect to the building found that some internal walls had collapsed, that the dome was in a severe state of dereliction with sections open to the elements, and that only partial restoration would be possible. Notwithstanding this, in May 1982 a permanent conservation order was made.

The proceedings 12 On 19 June 1984 the dome collapsed during a fierce storm. The entire central roof and domed structure fell to the ground and were destroyed, together with the abutting low level roof structures. 13 The insured claimed from the insurer $130,000 in respect of the damage to the building, particularising in its statement of claim a cost of reconstruction of the dome and low level roof structures as at 3 July 1984 of $135,500. The $130,000 was claimed as an agreed value or alternatively as the amount necessary to provide indemnity against loss. The insured also claimed from the insurer $12,000 for removal of debris. 14 The insured denied that the contract of insurance was for an agreed value; admitted that it provided for indemnity but denied that the collapse of the dome caused loss to the insured; and in the event that loss was suffered relied on the average clause. 15 The trial judge held that the contract of insurance was not for an agreed value: this was not challenged on appeal. He held that there had been "no loss established on an indemnity value basis in relation to the damage caused to the building", so that the insured could not recover the $130,000 or any part of it. He also held that the insured could not recover the $12,000 because he was "not satisfied that [the insured] suffered any damage from the collapse of the dome occasioned by rubbish removal".

The appeal 16 The grounds of appeal as filed were -

"1. The trial judge erred in failing to notice and decide the appellants' argument on the true construction of the insurance policy that the building only was insured and for its indemnity value.

2. The trial judge erred in holding that the policy for debris removal insurance was an indemnity policy in respect of which the appellants had sustained no loss.

3. The trial judge erred in misinterpreting the valuation evidence: (a) in thinking that it was necessary to provide an indemnity value for the dome, as an item in itself;

(b) in not accepting that it showed that the storm damage to the dome had diminished the indemnity value of the building from $110,000 (or $80,000) to zero;

(c) in failing to notice and act upon the circumstance that the respondent's value conceded that the highest and best use was for a heritage redevelopment with the result that on any view of it the land was diminished in valuer [sic] without the dome as insured.

4. The trial judge erred in rejecting from evidence telex 29/8/84, MFI 17, letter from defendant's Sydney officer (Dickinson) to London officer (Harverson) dated 7/8/84 (ie defendant's discovered doc No 40), supplementary evidence of Architect Corkhill [sic] and part of statement of architect Moffitt [sic]."

17 At the commencement of the hearing of the appeal the insured applied to add a further ground of appeal - "5. The trial judge erred in finding that the figures of $130,000 and $20,000 originated with the insured." 18 In the proceedings the insured had claimed damages from its broker in the alternative to claiming recovery under the policy. The claim against the broker failed, and was not the subject of appeal. Notwithstanding this, the insured's written submissions on appeal dealt with a number of matters relevant only to the trial judge's determination of the claim against the broker. The question of the origin of the figures of $130,000 and $20,000 in the policy was one of the matters, being relevant, if at all, to the claim against the broker. Save arguably in the manner next indicated, it was not relevant to the claim against the insurer, and accordingly there was no purpose in the amendment. 19 The insured's submission included that in determining the origin of the figures the trial judge took an erroneous view of the credit of Mr Baker of the insured, and that the trial judge's failure to be satisfied in relation to removal of debris was affected by the erroneous view On that limited basis the further ground of appeal was really an adjunct to the second ground of appeal. Assuming all in the insured's favour, the result could not be a verdict for the insured for the cost of removal of debris, but only a new trial as to the cost of removal of debris, because this Court could not substitute a view of Mr Baker's credit. The amount affected by any view taken of Mr Baker's credit was very small. When these matters became apparent in the course of the hearing, the insured understandably said that it did not wish to undertake the new trial. Accordingly, even on the limited basis the amendment was not pressed. 20 At the conclusion of the hearing of the appeal the Court stated the conclusion to which it had come, namely, that the appeal succeeded to the extent that the insured was entitled to a verdict for the cost of removal of debris for $8,959 plus interest but no further. The Court said that the reasons for that conclusion and the formal orders would be published and made at a later date. There were then submissions in relation to costs, and the Court's decision on costs was reserved. 21 The first, third and fourth grounds of appeal were in relation to the claim to the $130,000, save in the case of the fourth ground of appeal as to rejection of supplementary evidence of Mr Corkill: in fact that part of the ground of appeal was not taken up. The second ground of appeal was in relation to the claim to the $12,000. It is convenient to deal with the claim to the $130,000 and then the claim to the $12,000.

The indemnity value of the building 22 The insured's submission purported to take up the first ground of appeal and paras (a) and (b) of the third ground of appeal. It submitted that what was insured was the building viewed alone, as distinct from the building viewed together with the land on which it stood. According to the submission, there should be recovery under the policy because the underwriters were obliged to pay the indemnity value of the building viewed alone, "the sum of money that could be said to be the value of the building considered as an item of property separate from the land". As put on appeal, this was not the cost of replacing or repairing the building but "the sum of money [the building was] contributing to the market value of the total asset comprised of the land and building". On the evidence, it was said, the indemnity value of the Coogee Palace Aquarium was $80,000 or $110,000. 23 Mr Dundas, a valuer called for the insured, valued the property before the collapse of the dome at $500,000, which he dissected into land value of $420,000 and improvements of $80,000. It appears that he arrived at a value of $500,000 from the price paid by the second appellant to the other owners and at an unimproved value of $420,000 from a comparable sale, in both cases with qualifications, and that the $80,000 was the balancing figure. He said that following the collapse of the dome "the improvements added no value to the land". Mr Gothard, a valuer called for the insurer, valued the property before the collapse of the dome at $260,000 on the basis of capitalisation of rental income. He agreed in cross-examination that $110,000 was "the amount of money that was subtracted from [the] land as a result of the storm", but the cross-examination was very obscure. The insured placed greater reliance on Mr Dundas' figure, while submitting that Mr Gothard's agreement endorsed his methodology. 24 Whatever be the merit of the methodology and the concept of value added to land by a building in other contexts, I do not agree that the underwriters were obliged to pay the indemnity value of the building viewed alone. Counsel for the insured was unable to refer to a case in which recovery for destruction of or damage to a building had been approached in that way, and the approach can not stand with counsel's forthright assertion that he "utterly eschew[ed] any suggestion that my client would be entitled to $80,000 for the building, if the land and buildings went up in value as a result of the event". 25 The insurance was relevantly against loss from storm and tempest damage to the Coogee Palace Aquarium. The Schedule in the policy referred to "buildings" as an interest insured and the insured amount, and if it be appropriate to go to the proposal it referred to "buildings" as property to be insured accompanied by "indemnity value" and the insured amount. "Indemnity value" distinguished the insurance from payment of an agreed sum or provision of reinstatement. It made plain the normal principle that the contract of insurance was one of indemnity, under which the insured was to be fully indemnified but not more than fully indemnified, see British Traders' Insurance Co Ltd v Monson (1964) 111 CLR 86 at 92-4. But it must be asked how the amount payable to provide indemnity is to be ascertained. The building could not be separated from the land, and could not sensibly have a value as something separated from the land. It had a value as a building on the land, but the value came from both land and building. The policy did not look to the building alone. Indemnity to the insured, and no more than indemnity, meant that the value of the land and building, before and after the collapse of the dome, had to be assessed in order to see how much worse off the insured was as a result of the loss from storm and tempest damage.

Indemnity to the insured 26 The insured's submission purported to take up para (c) of the third ground of appeal. It was predicated on the failure of the submission last considered, and was that the trial judge was in error in finding that the injured was not worse off as a result of the collapse of the dome and that in truth it was worse off. 27 Sometimes the cost of reinstatement can be a proper measure of indemnity, see CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384 at 397; General Accident Insurance Asia Ltd v Sakr (2001) NSWCA 402 at [61]-[64]. The insured's particularisation in the statement of claim was of a cost of reconstruction. The trial judge recorded a submission that the measure of indemnity was the cost of rectification with a discount for betterment, but the evidence concentrated on whether as a result of the collapse of the dome the value of the property had fallen or risen. It is evident that the insured's principal case became that the collapse of the dome had left it worse off in a manner measured otherwise than by a cost of reconstruction: its submissions to the trial judge included that "[t]he storm damage converted the asset from an income-producing asset providing a gross rent of $38,565.80, to an untenantable non-income producing asset in respect of which Bakerland remained liable to pay outgoings land tax and interest charges to CBA etc". 28 The trial judge implicitly rejected the cost of rectification as the measure of indemnity and expressly rejected the insured's principal case. In short, he accepted the evidence of Mr Gothard that the property had a value of $1,000,000 after the collapse of the dome and that compared with the pre-collapse value of $260,000 the insured was better off. There was nothing to indemnify. 29 The insured acknowledged that it would not succeed in the appeal by persuading this Court of a matter or matters which left untouched Mr Gothard's core opinion, that the collapse of the dome was beneficial and left the property worth more than before. It accepted that it was necessary to show that Mr Gothard's methodology was so flawed and/or his evidence so unreliable that this opinion should be rejected, and further that it had to show positively that the collapse of the dome was detrimental and left it worse off. 30 The insured's primary attack on Mr Gothard's evidence was concerned with the effect of the permanent conservation order. 31 Mr Gothard provided a report in which, after arriving at the value of $260,000 before the collapse of the dome, he considered the value after the collapse of the dome on the alternative assumptions that the permanent conservation order might be removed and that it was removed. On the first assumption the hypothetical purchaser would hope to have the permanent conservation order removed and would intend then to redevelop the property; Mr Gothard considered that the value on this basis was $1,000,000. On the second assumption the hypothetical purchaser would intend immediately to redevelop the property; Mr Gothard considered that the value on this basis was $2,000,000. The permanent conservation order inhibited the profit-making use of the property, and hence its value; the collapse of the dome provided the opportunity to do away with the permanent conservation order, and so the collapse of the dome was beneficial and left the property worth more than before. Mr Gothard considered that the hypothetical purchaser would assess the likelihood of the removal of the permanent conservation order at 50 per cent, hence the doubling of the value from $1,000,000 to $2,000,000 when the removal was assumed as a certainty. For both assumptions Mr Gothard had regard in striking the value to the insured's sale of the property in November 1985, prior to the removal of the permanent conservation order in November 1986, for $1,750,000. 32 Mr Logan, a heritage architect called for the insured, provided a report in which he detailed concessions available to a developer carrying out a heritage development (for example as to floor space ratios and parking contribution). In effect, through Mr Logan the insured suggested that the permanent conservation order enhanced the value of the property because it made the concessions available, rather than inhibited its profit-making use. 33 In a second report Mr Gothard responded to Mr Logan's report. He said that his value of $260,000 with the permanent conservation order in place did not take account of the concessions because there would be no redevelopment, and that his value of $1,000,000 had regard to the concessions because it used the sale in November 1985 when the concessions were available. He suggested an alternative to his value of $2,000,000 on the basis that without the permanent conservation order in place the concessions would not be available and the guidance from the sale in November 1985 would not be appropriate. The alternative value was $830,000. 34 The insured submitted that Mr Gothard agreed in cross-examination that because of the concessions the property was worth more with the permanent conservation order than without it. While Mr Gothard accepted that it was a "perfectly respectable view" that the highest and best use of the Coogee Park Aquarium was for a heritage development, it was not squarely put to him that his values were accordingly unsound - indeed, as he had explained in his second report the basis on which he came to his value of $1,000,000 did pay regard to such a development. I do not think that Mr Gothard did retract his evidence of that value. He remained of the view that the highest and best use of the property was without the permanent conservation order. 35 It is rather incongruous that a property which according to Mr Dundas had a value of $500,000 in June 1994 was worth less as a result of the collapse of the dome, when the property was sold for $1,750,000 in November 1985. In my opinion this attack on Mr Gothard's evidence has not been made good. 36 A second attack on Mr Gothard's evidence was that he had failed to pay proper regard to the income from the property prior to the collapse of the dome. Mr Gothard accepted that the hypothetical purchaser would see an advantage in an income stream while designing and obtaining approvals for a redevelopment, and that all other things being equal the purchaser would be prepared to pay less for the property after the collapse of the dome because the income stream would not be available or would be reduced. It was not put to him that he had failed to pay regard to this. The sale at $1,750,000 was with a reduced income stream, and so it must have been taken into account. I do not think regard to loss of an income stream provides reason to doubt Mr Gothard's opinion. 37 A third attack on Mr Gothard's evidence was that he had used an inappropriate capitalisation rate. I do not think it was put to him that he did, and he certainly did not agree that he did, but the effect would not have significantly closed the gap between $260,000 and $1,000,000. A fourth attack on Mr Gothard's evidence was that he had wrongly put aside the price paid by the second appellant to the other owners when arriving at his pre-collapse value of $260,000. Mr Gothard had explained why he thought the price paid was not a proper guide. He was not challenged in cross-examination. Again, the effect could only be to narrow the gap: it would not have closed it. 38 The insured's submissions included that Mr Gothard had begun with a preconception that the permanent conservation order depressed the value of the property, and that he had been influenced by that preconception. On my reading of the evidence on which this was founded, Mr Gothard was at pains to explain that he had approached this property with an open mind and was not inappropriately influenced. There is no reason to conclude that he was. 39 The insured suggested that because in these various respects Mr Gothard's evidence was unsatisfactory his opinion should not have been accepted even though the gap between $260,000 and $1,000,00 was not closed. This Court was taken at some length to Mr Gothard's evidence, and was asked to "cast a somewhat sceptical eye" over its quality. In my opinion the trial judge was entitled to accept and act upon Mr Gothard's opinion that the collapse of the dome was beneficial and left the property worth more than before. The insured failed to establish that it was worse off as a result of the loss from storm and tempest damage.

The evidentiary rulings 40 The fourth ground of appeal identified five items of evidence, which can be enumerated as (i) a telex of 29 August 1984; (ii) MFI 17; (iii) a letter of 7 August 1984; (iv) supplementary evidence of Mr Corkill; and (v) part of a statement of Mr Moffatt. Items (i) and (iii) were related. Neither the written nor the oral submissions of the insured put any argument that the trial judge was in error in rejecting the supplementary evidence of Mr Corkill; instead, it was submitted that the trial judge had erred in declining to accept, in the sense of believe, different evidence of Mr Corkill. The insured's written submissions also included a complaint that MFI 23 had been rejected. This was not within the grounds of appeal and was not mentioned in oral submissions, and should not be considered: in any event, it appears that MFI 23 was relevant, if at all, only to the claim against the broker.

(i) and (iii) The letter of 7 August 1984 and the telex of 29 August 1984 41 The underwriter's representative's claims officer in Sydney reported to London. He provided, amongst other things, a copy of a loss adjuster's report speculating on ways of valuing loss and contemplating "exploratory discussions with the Assured concerning their expectations as far as a settlement is concerned". The claims officer said that, for various reasons, he "could not see any recommendation from us exceeding 30% of the Reinstatement Costs". London's response was that underwriters would wait for the loss adjuster's further report but thought there had been "bad underwriting". The insured tendered the claims officer's report and London's response as "material relevant to the calculation of the damages claimed in the statement of claim and … to the loss which the plaintiff claims, arising as a result of the breach of contract". The trial judge rejected the tender, saying - "The claim pleaded is one for damages arising from breach of contract. The question of whether or not those damages will be payable will be determined in accordance with the contract, which is the policy, and I do not see how these documents are relevant to those issues"

42 It was submitted on appeal that the documents were evidence that the insured was entitled to indemnity calculated as 30 per cent of the replacement cost. That could be so only by way of admission. Assuming that evidence of an admission of such a matter would be admissible, the documents did not approach admitting an entitlement. At best, they were the claims officers' musings on what might be, which underwriters refrained from endorsing. For that reason alone, the documents were not relevant.

(ii) MFI 17 43 I have already referred to Mr Dundas. MFI 17 was his report dated 29 September 1999. 44 Mr Dundas provided a valuation report dated 23 June 1997, and then a report dated 5 March 1999 commenting on the reports of Mr Gothard and Mr Logan. On 30 September 1999, after the trial had proceeded on 27 July 1999 and 20 to 24 September 1999 and when it was to continue on 6 October 1999, the insured served his report of 29 September 1999. At that time all the insured's witnesses except Mr Dundas had given their evidence and had been cross-examined. 45 In the report of 29 September 1999 Mr Dundas relevantly said - "In my initial report I assessed the market value of the land and buildings at $500,000 immediately prior to the storm, and $420,000 after the storm. I considered the improvements added a value before the storm of $80,000, and for them to have been effectively rendered of no added value after the storm. In providing that valuation I was attempting to assess the realistic market value of the Coogee Palace building before the storm. In my view a reasonably well informed purchaser, contemplating purchasing the Coogee Palace in the 1984/5 period, with a view to carrying out a restoration-type development of the sort approved in 1985, and ultimately carried out, would be willing to pay more for the property with the building in the condition it was in before the storm, than he would have been prepared to pay for the property in the condition it was in after the storm. It would be common ground the building, in order to be redeveloped, would require Randwick Council approval and Heritage Council approval. Obtaining such approvals would take time. Therefore, if undamaged the building would continue to generate income, where as in its damaged state, no income was being generated. Further, upon redevelopment it would be preferable to commence redevelopment of the building with a complete, useable structure, with identifiable materials, rather than a damaged structure. The increase in the value of the property would depend upon the time frame required to obtain the necessary development approvals and arrange finance, construction contract, etc. A minimum time for such works is considered to be at least one year. Any damage to the building would tend to increase costs in that actual construction could not be witnessed first hand (and so duplicated), and it would be simpler to replace what is already in situ, rather than rebuild from scratch. Thus the minimum increase in value of the site would be one year's gross rental plus an allowance for the reduced costs and ease of rebuilding."

46 The report of 29 September 1999 was tendered on 6 October 1999. The insurer objected. After extensive submissions the trial judge rejected the tender, saying - "No notice was given of the intention to tender that report in the letter which the plaintiffs' solicitors wrote to the defendants' solicitor of 21 September 1999 which is MFI 8. It in fact refers to evidence to be led from Mr Korkill [sic]. The material contained in the report goes beyond that which is contained in either of Mr Dundas' preceding reports which have been admitted into evidence as exhibits P1 and P2. Apparently by a facsimile dated 30 September 1999 the solicitors for the underwriters were given notice of the intention of the plaintiff to tender the report and they objected, and in particular detailed their objections in para 2 of MFI 15. The document sought to be tendered makes a case which has not been particularised and which has not been the subject of cross-examination or issue in this case until the present time, except in the most indirect way. The report is new material outside the particulars. I acknowledge the need for flexibility in a case such as this, but this material coming after on earlier adjournment for the purpose of amendment of pleadings and balancing the material against the possible prejudice to the defendants if it is tendered, I am of the view that it is not relevant and in any event deals with matters beyond the qualification of Mr Dundas in relation to progress of applications for approval through the council and the heritage council." 47 The insured submitted that the case to which Mr Dundas' report went had been "telegraphed to the other side", although it had not been particularised, in an earlier statement of Mr Baker in which Mr Baker expressed the opinion that he would have been able to get a higher price for the building when sold in November 1986 had it not been in a damaged condition. That part of Mr Baker's statement had been objected to and rejected: how it could amount to making the higher price part of the insured's case in the proceedings I fail to see. 48 The insured also submitted that the case to which Mr Dundas' report went had been telegraphed in an earlier report of Mr Corkill. Mr Corkill, an architect called by the insured, provided a report addressing the impact of the collapse of the dome on the restoration and redevelopment of the building proposed at the time of the collapse of the dome. He had been engaged in 1983 for the restoration and redevelopment, and said that by June 1984 the plans were well advanced "generally based on the existing building fabric and utilising as much as possible the existing framework". He said that the collapse of the dome "had a significant impact on the progress of then project" and briefly stated why that was so. 49 That evidence was quite insufficient to convey a case that, apart from additional costs of the proposed restoration and redevelopment, the value of the property had been adversely affected by the collapse of the dome. Further, what Mr Dundas said in the report of 29 September 1999 did not go so far as quantifying the difference in value which he put forward. At that stage in the trial the report of 29 September 1999 did open up a new case, and in my opinion no error has been shown in its rejection for that reason. It is not necessary to go to the question of Mr Dundas' qualification in relation to progress of applications.

(iv) Supplementary evidence of Mr Corkill 50 In the absence of argument, this need not be considered.

(v) Evidence of Mr Moffatt 51 Mr Moffatt was an architect. He swore an affidavit dated 11 October 1999. It included that he had been telephoned by Mr Corkill that morning "who requested some information from me concerning the Coogee Palace and the Heritage Council during the early 1980's", and that he told Mr Corkill that he was due to leave Sydney on a three month sailing trip the next day. 52 On 13 October 1999, the penultimate day of the trial, the insured tendered the affidavit on the basis that Mr Moffatt was not available for cross-examination. The insurer objected to the reception of the last two sentences of para 9 without Mr Moffatt being available. Those sentences expressed Mr Moffatt's belief that rebuilding the domed roof in a manner acceptable to the Heritage Council would have been more easily and less expensively achieved with the old roof structure in situ than with a collection of debris on the ground, and that this would have been readily ascertainable after the storm. 53 The trial judge rejected the two sentences. His reasons were not transcribed, and by agreement there was placed before us counsel's note of his reasons. The note was at times elliptical, but it is tolerably clear that whatever else he said the trial judge ultimately rejected the sentences in the exercise of the discretion under s 135 of the Evidence Act 1995, on the ground that the inability to cross-examine meant that the probative value of the evidence was substantially outweighed by the danger of the evidence being unfairly prejudicial to the insured and possibly of it being misleading or confusing. 54 Under the District Court Rules an order could be made that evidence of particular facts be given by affidavit (Pt 28 r 2(2)), and in that event if notice requiring attendance for cross-examination were given the affidavit could not be used without the leave of the court (Pt 30 r 9(1), (3)). Mr Moffatt's affidavit was not put forward or dealt with under this regime. It must have been tendered as an out of court statement by Mr Moffatt. The evidence in the affidavit fell within the hearsay rule. Section 63 of the Evidence Act provided an exception to the hearsay rule, but only if the notice requirements of s 67 were satisfied. The trial judge had a discretion to admit the affidavit although the notice requirements were not satisfied. It is not clear that the trial judge considered those matters, but he appears to have decided that the affidavit was admissible but that it should nonetheless be rejected in the exercise of the different discretion under s 135 of the Evidence Act. 55 In the absence of the transcribed reasons any further explanation the trial judge gave is not available. However, it can readily enough be seen that the insurer would have wished to cross-examine Mr Moffatt. What did he know of the Heritage Council's requirements, how did he contemplate re-building with the old roof structure in situ, and on what basis did he conclude that this would be cheaper and easier than after the collapse of the dome? Mr Corkill had earlier given evidence in the insured's case that in the restoration and redevelopment the old dome would have to be dismantled and reconstructed with new materials. At this late stage, if the sentences were admitted the insurer would have to open up in cross-examination what this evidence amounted to and then respond to it. This could be prejudice within s 135, (re Gordon, Official Trustee in Bankruptcy v Pike (Beaumont J, 1 September 1995, unreported); Wentworth v Wentworth (Santow J, 17 April 1997, unreported); NRMA Ltd v Morgan (Giles J, 28 August 1998, unreported); see also The Commonwealth v McLean (1996) 41 NSWLR 389 at 401-2, and the reservations of McHugh J in Papakosmas v The Queen (1999) 196 CLR 297 at 325-6). In my opinion, it has not been shown that the trial judge erred in the exercise of his discretion.

The evidence of Mr Corkill 56 Although it did not fall within a ground of appeal, the Court permitted the insured to put the submission to which I have earlier referred. Even if the submission were accepted, it is not easy to see how that would result in disturbance on appeal of the result at the trial.

57 I have already referred to the report of Mr Corkill in which he said that the collapse of the dome had a significant impact on the progress of the then project. In cross-examination Mr Corkill was shown a letter he had written to the insured about the restoration and redevelopment shortly after the collapse of the dome, in which he said that the collapse "has caused a little setback because, generally, it would have enabled a more expedient restoration of the building". He was taxed in cross-examination with the inconsistency between a significant impact and a little setback. He said that in the letter he meant significant and "it's more a vernacular way of talking". 58 The trial judge came to this when dealing with removal of debris. He referred to evidence that it would be cheaper to rebuild or build a replica of the domed roof than to reconstruct it and evidence of Mr Corkill that in the restoration and redevelopment the old dome would have had to be dismantled and reconstructed with new materials. He continued - "In his statement Mr Corkhill[sic] was of the view that the collapse of the dome was a significant set back to the progress of the architectural plans however this was at odds with his statement in a letter in 1984 that the collapse of the dome 'has caused a little set back.' I do not accept Mr Corkhill's assertion that when he wrote 'little' that could be interpreted as 'significant'. It has not been established that there was any additional cost to be incurred in the refurbishment of the dome occasioned by the collapse during the storm. Demolition and associated rubbish removal would have been required as party [sic] of any intended redevelopment. There is no salvage value in the materials. Even if the cost of removal could be estimated on the material which is available I am not satisfied that the Plaintiffs suffered any damage from the collapse of the dome occasioned by rubbish removal." 59 The insured submitted that the trial judge should not have found Mr Corkill's response in cross-examination unsatisfactory; it further said that he should not, because of the response, have "damn[ed] all of what Mr Corkill says" and "knocked him out completely". 60 The trial judge was quite entitled to find an inconsistency between Mr Corkill's contemporaneous assessment and his 1999 assessment of the impact of the collapse of the dome on the proposed restoration and redevelopment of the building. He was entitled to decline to accept the reconciliation put forward. There is no proper basis on which this Court can take a different view. In any event, a different view would not affect the trial judge's reasoning to his conclusion in relation to removal of debris, and there is nothing in the reasons warranting the conclusion that he had been led by finding Mr Corkill's response unsatisfactory to reject Mr Corkill's evidence in its entirety.

The result as to the claim to the $130,000 61 The grounds of appeal in relation to the claim to the $130,000 are unsuccessful, and the insured can not recover the $130,000 or any part of it. Hence it is not necessary to go to the average clause, which was not said to extend to removal of debris.

Removal of debris 62 I have indicated the trial judge's reasoning to his conclusion in relation to removal of debris in the preceding part of these reasons dealing with the evidence of Mr Corkill. 63 The insured submitted that the trial judge was in error in treating the endorsement as providing for indemnity against an overall diminution in the insured's position caused by the collapse of the dome, when it provided for indemnity specifically against the costs of removal of debris and the associated matters incurred by the insured. In my opinion the trial judge's reasoning was erroneous. The insured may have intended to restore and redevelop the building, and maybe as part of that the domed roof would have been dismantled and reconstructed with new materials. But that may not have happened, or may not have happened for a long time. Following the collapse of the dome it was appropriate for the insured to remove the debris and carry out works to make the site safe and secure. It was entitled to recover the cost of doing so. 64 When stating his conclusion the trial judge said, "Even if the cost of removal could be estimated on the material which is available … ". The parties agreed that this Court should address that matter, rather than send it back to the District Court. 65 The trial judge said - "The evidence relating to the cost of removal of debris and the extent of work done on the site immediately after the storm is confined to two quotations and the general recollection of Mr Baker that a former footballer Mr O'Neil was involved in the work. Mr Baker's recollection was that he and Mr Page paid $12,000 out of their own pockets. This was not supported by any documentary evidence." 66 One of the quotations to which the trial judge referred was that of R J Brady Pty Ltd, for "the removal and clean up of all the debris on the corner of Dolphin and Beach Streets, Coogee" for $6,500. The loss adjuster's report earlier mentioned included that tenders had been called and that the lowest tender of $6,500 was considered reasonable. There was evidence from which it is sufficiently apparent that work of removal of debris was carried out. It should be found that the quotation was accepted and the $6,500 was paid. The loss adjuster's report also included that $2,459 had been spent by the insured "to make the building safe and to provide temporary hoardings and carry out other work necessary as a result of the roof collapse". The evidence established the total sum of $8,959 for removal of debris. 67 The insured submitted that a greater amount should be found. Mr Baker gave evidence that the total expenditure was $12,000. That came down to his recollection, and although in a different connection the trial judge said that Mr Baker "did not impress me as a witness who was doing his best to tell the truth" and that during his cross-examination "it became clear that he appreciated the issues in the case and was seeking to tailor his evidence to meet what he perceived to be those requirements". I do not think that this Court can act upon Mr Baker's evidence that the total expenditure was $12,000. 68 It follows that if the insured is to recover more than $8,959 there would have to be a new trial as to the cost of removal of debris. As I have indicated, when this became apparent in the course of the hearing of the appeal the insured did not wish to undertake the new trial.

The result as to the claim to the $12,000 69 The insured can recover the cost of removal of debris and proved an amount of $8,959. It was not suggested that there was an applicable excess. The insured is entitled to interest on the $8,959. The interest is that available under s 83A of the District Court Act 1978, since the contract of insurance was entered into prior to the commencement of the Insurance Contracts Act 1984 (C'th) and interest is not available under s 57 of the latter Act. 70 The insurer submitted that the insured should not have interest for the full period from 1984 because of delay in bringing the proceedings to a hearing. There was a remarkable and regrettable lapse of time, but the insured has not had money to which it was entitled and what caused it was not gone into in a manner or to an extent showing that the insured so conducted itself that it should be deprived of interest (see Bennett v Jones (1977) 2 NSWLR 355 at 367-71). Interest should be calculated from 31 August 1984 to the date of these reasons at the rates in Schedule J to the Supreme Court Rules. The calculated amount is $21,429.93.

Costs 71 The trial judge ordered that the insured pay the insurer's costs, and that must be revisited in the light of the result on appeal. 72 The insured submitted that the costs of the trial should take into account that the insurer persisted in a non-disclosure defence for many years, and only gave notice that it withdrew the defence some months before the hearing. Whatever account was to be taken of that was a matter for the trial judge, and he was not asked to take account of it. I do not think that this Court should now do so, even if it were in possession of sufficient knowledge of what occurred, which it is not. Taking account of the insured's limited success and the confined basis of that success, I consider that the appropriate order is that the insured pay three-quarters of the insurer's costs of the trial. 73 By far the greater attention on the appeal was given to the grounds of appeal in relation to the $130,000, on which the insured failed. In my opinion the same order should be made as to the costs of the appeal. 74 It is then necessary to refer to the Calderbank letter sent by the insurer to the insured on 10 March 1998, offering $20,000 inclusive of costs in settlement of the claim to recover the cost of removal of debris. Interest on the $8,949 to 10 March 1998 is $17,770,88. The insurer submitted that, although less than the insured's entitlement as now held, the offer should bring costs orders more favourable to the insurer. I do not think that the insured acted unreasonably in failing to take the amount offered, and do not think that the costs orders otherwise appropriate should be varied. 75 The insured rather diffidently sought a Bullock order as to the costs payable by it to the broker. There is no proper basis on which such an order could now be made, nor is it apparent why it should be made. That was a matter for the trial judge: if he was asked to make such an order, he did not do so. A discrete ground of appeal was necessary, and there was no ground of appeal. 76 The insured paid money into court in compliance with an order for security for costs of the appeal. The insurer asked for an order by which that money could be paid out in satisfaction of the costs of the trial. Assuming it could be made, I see no reason why such an order should be made; it would alter without justification the entitlements of the parties pursuant to the order by which the money was paid into court, and would give the insurer the retrospective benefit of an order for security for the costs of the trial which it does not have.

1. Appeal allowed in part. 2. Set aside the verdict and judgment for the defendant against the plaintiffs and in lieu thereof verdict and judgment for the plaintiffs against the defendant for $30,388.93. 3. Set aside the order that the plaintiffs pay the defendant's costs and in lieu thereof order that the plaintiffs pay three-quarters of the defendant's costs. 4. Order that the appellant pay three-quarters of the respondent's costs of the appeal. 78 HEYDON JA: I agree with Giles JA. 79 GROVE J: I agree with Giles JA.

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