Camellia Properties Pty Ltd and Ors v Wesfarmers General Insurance Ltd

Supreme Court of NSW|2013-10-31|Before: Sackar J

Background facts 6The house was built in about 1911. There are only twenty-six houses in Martin Road, Centennial Park, each of which has uninterrupted views of the park. Mr and Mrs Libling bought the house in about December 1985. 7When Mr and Mrs Libling purchased the house, it was not in very good condition and they decided to undertake extensive alterations and additions to it. Architects were engaged, and building renovations undertaken, for a two-year period from about 1987. Renovations were completed in early 1989 and then Mr and Mrs Libling moved into the house. 8In about 1992, Mr and Mrs Libling further refurbished the house by building a pool and a garage, among other works. 9In about April 1999, Sydney was hit by a hailstorm and the house was one of many damaged during that time. It was at this point that Mr Libling first met Mr William Lloyd (Mr Lloyd), who was an assessor engaged by the insurance company with which Mr Libling had insured the house at that time, being Mansions of Australia. Under the supervision of the insurer, protective work was carried out on the roof, which had been severely damaged in the storm, and storage was arranged for the plaintiffs' artworks, furniture and other furnishings, in order to enable parts of the house to be rebuilt as a result of the damage occasioned. 10On 27 August 2008, the Manorhouse policy for the property was renewed with Lumley Insurance Limited (now known as Wesfarmers General Insurance Limited), covering the period 13 February 2008 to 13 February 2009. The total premium payable in 2008 was $20,356.44 (with an additional $2,727.58 as commission for the broker). 11On 30 September 2008, the house was damaged by a fire which had started in the attic. The damage was significant. The incident report contains the following descriptions: Fire in attic and roof space of 4 level house. Attic on L3, roof had collapsed onto attic level floor. Fire contained to floor level of attice [sic] and surround roof space. Severe water damage to basement, L1 & L2. EXCAVATION: Could not be conducted due to instability of attic floor. A slight V pattern observed from the outside on the tiles on the W side which pointed to roughly the middle third of the attic... INTERNAL: Large amount of water damage on basement, L1 & L2. All fire damage on L3-Attic. Fire penetrated L2 ceiling in various areas, but did not move down to this level. Most fire damage in L2 ceiling was above stairwell and bedroom to the S of the stairwell, relates roughly to the middle section of the attic. The stiarwell [sic] to L3 also showed severe charring at its upper areas, debris on the stairs. EXTERNAL: Approx 90% roof collapse onto the floor area of attic. The timber ceiling of the front balcony area (S side) showed charring to middle section, fire appeared to come from above. No signs of suspicious activity. OWNER: Mrs Sandy LIBLING. Was in kitchen with her son, hears a crackling and a bang, goes to L2 door to attic L3 open. Looks up and sees rolling orange flame at floor height. Exits house with son and dog. No smoke alarms. Attic was bedroom for other son, departed OS yesterday, not a smoker... NSWFB: SO Craig Bishop (39D). Black smoke seen departing station - 2nd Alarm. Fire through the roof prior to arrival. Crews entered with 38, got to L2 at the base of stairs to L3 and could go no further, roof started to collapse. Fire involved whole attic, moved from room to room to fight from L2. L11 also used from above. SO Stubbs (13D): Isolated electricity, none of the CB had tripped, he moved them all down. 12From about 1 October 2008, Mr and Mrs Libling commenced populating, and since then have maintained, a spreadsheet recording expenses related to the fire. 13On 2 October 2008, Mr and Mrs Libling had a meeting onsite with Mr Lloyd (then employed by GAB Robbins), a Mr Nigel Day (the insurer's then claims manager, Mr Day), a Mr Rod Chacana (a senior claims adjuster at Lumley General), a Mr Don Hutton (an insurance broker) and a Ms Gray (the underwriter of the insurer). Mr Chacana and Mr Hutton do not feature subsequently in the case. During the meeting on 2 October 2008, Mr Lloyd, on behalf of the insurer, indicated that there would have to be a forensic investigation of the fire before liability would be accepted by the insurer, but that in the meantime payment of some $100,000 would be made to Mr and Mrs Libling (which would need to refunded if liability was not accepted) to cover urgent out of pocket expenses. 14On 3 October 2008, the Council issued an emergency order (Emergency Order), pursuant to s 121B of the Environmental Planning and Assessment Act 1979, which included the following terms: 4. All work shall be completed to the satisfaction of Council. 5. On completion of work, obtain certification from a registered practicing [sic] structural engineer certifying that the temporary work is in a structurally sound condition. Note: A Development application and Construction Certificate will be required to be submitted and approved prior to the reconstruction of a new roof to the premises. 15Mr or Mrs Libling (or both) consulted an architect, a Ms Kerry Fyfe (Ms Fyfe), in early October 2008 to advise or represent them in drawing up a specification for the restoration works. 16On 7 October 2008, Mr Lloyd informed Mr Libling that the insurer would appoint MCS Consulting (MCS). In a report of that date, he said: MCS other building consultants instructed by us on behalf of Lumley initially to provide a scope for the demolition and make safe works and also to obtain the necessary council permission. Their future involvement would include preparation of the repair specification and tender documentation as submission of the DA to the council and obtaining the construction certificate. You will no doubt wish to engage your own engineer or architect to be involved the process and Lumley have confirmed that these costs will be recoverable under the policy. 17Later that day, Mr Libling responded as follows: We look forward to the meeting on Friday with Nigel and yourself. The matters that are weighing on my mind in anticipation of the meeting are: #whether MCS have the skill set and inclination to develop the specifications and then manage the tender process for the level of finishes and quality that was in our house. I would be more comfortable if we commissioned an architect experienced in comparable houses to develop the specifications.... 18Mr Day, who had been copied in on Mr Libling's email of 7 October 2008, responded on 8 October 2008 in the following terms: Whilst the matter would be best for greater discussion on Friday, in brief William's and my thought is to have an engineer and architect of your choosing draw up the necessary requirements managing the tender process etc. Lumley will pay the relevant reasonable costs. MCS will simply be there to check the scopes etc at the various stages required (with William and/or I plus you and your specialists in attendance) so that what is needed at each stage (including demolition and drying) is agreed by all prior to each stage. Lumley also recognise all work has to be in keeping with the qualities of your home prior to this unfortunate event and in accordance with your Policy with us, rest assured we will all work together closely to ensure that is achieved. 19On 10 October 2008, Mr Libling and his wife met with Mr Day at the insurer's office. In the course of the meeting, Mr Libling informed Mr Day that he had retained Ms Fyfe as an architect. Mr Day informed Mr Libling that he intended to continue to use a Mr McNamara of MCS to provide technical support and advise the insurer on quantification. 20The sketch plans prepared by Ms Fyfe in October 2008 indicate that Mr and Mrs Libling were considering some changes to the building during the course of reinstatement. 21On 14 October 2008, Munters (a firm retained by the insurer to conduct preliminary works for the building in order to render it safe for access) commenced the make-safe works at the house. 22On 21 October 2008, Mr Lloyd informed Mr Libling that the insurer accepted liability under the policy. 23In late October 2008, Mr and Mrs Libling decided to no longer retain Ms Fyfe. They had heard some unfavourable reports from their neighbours and had formed the view that the type of architecture that Ms Fyfe was likely to recommend would not suit their taste. 24By late October 2008, Mr and Mrs Libling had decided to retain Mr Luigi Rosselli (Mr Rosselli) as their architect. 25However, on 2 November 2008, Ms Fyfe provided to Mr Libling a letter from RBV Builders Pty Ltd, providing a quote for the reinstatement of the house. A Mr Rod Verduci, a principal of that firm, had visited the house on 30 October 2008. His letter stated, amongst other things: The home has been subjected to a major fire and started in the roof and worked its way down to the 1st floor level. It was evident in much of the remaining building materials that the home is now more damaged by the use of water to expel the fire than the fire it's self [sic]. In doing my inspection I noticed that all timber floors were excessively cupped and warped, skirting's [sic] and architraves are also cupped and have moved from their original fixings, the internal stair case has excessively moved and warped, the doors have also swelled, the ceilings to the ground floor are missing due to the water causing them to sag and collapse, the joists have also been exposed to the saturation which will be hard to correct. In homes of this period, it was common practices to "socket" the floor joists into the brickwork for support. If the joists have been compromised by the water there is also the possibility that it will weaken the brickwork at that point due to the expansion properties in the timber once wet. It would be my recommendation that the brickwork to the 1st floor be removed as the mortar in the joints would now be weaker due the heat experienced during the fire. ... ... When reviewing a proposal it is hard to pinpoint the exact period required to complete all the works. When a home has been damaged it would be even harder. I would have to allow an additional 6 months to the contract to cover us for the unforeseen. It is impossible when giving an estimate to repair a home of this scale due to damage the water and fire has caused. I would not be confident or guarantee that by performing the rectification we can eliminate the odor [sic] left by the fire. I understand that the carbon should neutralise after a period of six months; however I am not sure what happens to the carbon and soot if it comes into contact with water or dampness. Without doubt the cavities would be containing the majority of the carbon and soot. There would be a method to clean the cavities; however it would involve the re-introduction of water and several penetrations to the solid brick walls, both inside and external. Based on the plans you have supplied and inspecting the high level of finishes to the home I can give two estimates to construct the home. The first would be to repair and renovate the existing with a generous contingency for the unforeseen, the second based on an average square metre rate based on similar homes we have built:

The policy and its proper construction 80The principles governing the construction of insurance policies were recently stated by the Court of Appeal in Horsell International Pty Ltd v Divetwo Pty Ltd [2013] NSWCA 368 (at [151]-[157] per McColl JA with whom Beazley P and Meagher JA relevantly agreed). I do not need to recite the principles in any detail, as there is no disagreement between the parties as to the principles or their application to the construction of the policy. It is only necessary to set out the clauses of the policy relevant to the dispute between the parties and to make a few observations along the way. 81Immediately following the definitions section of the policy, there appears the following clause: THE AGREEMENT BETWEEN YOU AND US (YOUR POLICY) In return for your payment of the Premium or your agreement to pay it to us within the time we require, we agree to indemnify you against loss, damage or liability caused by a covered event occurring during the Period of Insurance, subject to the terms, conditions and exclusions of your Policy. 82Relevantly, the schedule to the policy states that the cover includes "Building Cover" (Section 1) and "Contents Cover" (Section 2). 83The indemnifying clause in respect of "Building Cover" provides: 1.2 Accidental loss or damage cover We will cover you for accidental loss or Accidental damage to your Building occurring at the Situation and during the Period of Insurance. 84Clause 1.3 then sets out the procedure for handling a valid Building Cover claim: 1.3 How we settle any valid claim (a) We will, at out option: (i) repair, replace or rebuild or pay you the reasonable cost to repair, replace or rebuild, the damaged part of the Building up to its Replacement Cost; or (ii) pay you up to the Building Sum Insured [which is specified in the schedule as $3,946,000]. (b) If we choose to repair, replace or rebuild or pay you the reasonable cost to do so and you do not: (i) commence repairing, replacing or rebuilding your Building within 6 months of the loss or damage; or (ii) wish to repair, replace or rebuild your Building, we will: (i) deduct an amount from any claim settlement for depreciation, wear and tear, based on the age and condition of the Building immediately before the loss or damage; or (ii) pay you up to the Building Sum Insured [which is specified in the schedule as $3,946,000]. (c) We will pay for the damaged portion of fixed coverings to walls, floors and ceilings, only in the room, hall or passage where the loss or damage occurred. [Own interpolations in square brackets] 85The term "Replacement Cost" (which appears in clause 1.3(a)(i)) is defined as follows: DEFINITIONS ... "Replacement Cost" means the cost of replacing, rebuilding or repairing the Building and/or Contents to a condition substantially the same as their condition when new. If the Building is Heritage or the architectural features and/or structural materials of the Building possess an ornamental, antiquarian or historical character, or the original materials are not available when the Building/Contents are lost or damaged, Replacement Cost shall mean the rebuilding or replacement or repairing or restoring to a reasonably equivalent appearance and capacity using original design and suitable equivalent materials. 86The insurer may therefore handle a claim in one of a number of ways. First, the insurer may repair, replace or rebuild the damaged part of the house up to its Replacement Cost (clause 1.3(a)(i)). Secondly, it may pay the insured the reasonable cost of repairing, replacing or rebuilding the damaged part of the house up to its Replacement Cost (clause 1.3(a)(i)). Thirdly, it may pay the insured up to the Building Sum Insured, being $3,946,000 (clause 1.3(a)(ii)). 87By reference to the definition of "Replacement Cost", clause 1.3(a)(i) of the policy plainly affords more than a "true indemnity", as it is aimed at bringing the house to a substantially new condition, rather than to a pre-fire condition. Therefore any assessment of value, for the purpose of clause 1.3(a)(i), should not have regard to depreciation for wear, tear and the age of the building immediately before the fire. That is in contrast with an assessment under clause 1.3(b) (addressed in the next paragraph), which is more favourable to the insurer, as it provides for a reduction based on wear, tear and the age of the building. 88Two further options are open to the insurer, but only in limited circumstances. Where the insurer chooses to proceed under one of the two options in clause 1.3(a)(i), but then the insured either fails to commence work within six months from the date of the damage or does not wish to repair, replace or rebuild, then the insurer may take up either a fourth option of paying out the claim after making a deduction to account for depreciation, wear and tear, based on the age and condition of the building immediately before the damage (clause 1.3(b)(i)), or a fifth option of paying the insured up to the Building Sum Insured (clause 1.3(b)(ii)). 89The insurer is not seeking to rely on clause 1.3(b). The plaintiffs asserted that the amount the insurer was liable to pay to the plaintiffs was a figure calculated by reference to the reasonable cost of reinstating the house to its original condition, without the alterations and additions that were implemented in the actual rebuild. The principal disagreement between the parties related to arriving at the correct figure for the cost of such reinstatement. 90As I have observed above, although the house underwent renovations on at least two occasions after Mr and Mrs Libling purchased it, its original build is dated 1911. Unsurprisingly, the regulatory landscape for planning and development has changed. Relevantly, the Building Cover section of the policy includes a clause dealing with the costs of complying with local government regulatory requirements: 1.4 Additional Benefits and Limitations ... (c) Additional Building Costs We will cover the additional cost of complying with any government or local authority by-laws that regulate the repair, rebuilding or demolition of your Building made necessary by loss or damage covered under Section 1.2 above, provided you repair or rebuild your Building at the same Situation. We will only pay costs which relate to the damaged parts of the Building. Payment is limited to a maximum of 20% of the Building Sum Insured [which is specified in the schedule as $3,946,000]. We will not pay any extra costs if you receive notice of any building regulation requirements you must comply with before the date when the loss or damage occurred. [Own interpolation in square brackets, emphasis added] 91The plaintiffs, unsurprisingly, placed emphasis on the enlarging effect of the words "relate to". There is authority explaining the breadth of that expression (Horsell International Pty Ltd v Divetwo Pty Ltd at [165]) and comparable terminology (see discussion of authorities in Kelly & Ball Principles of Insurance Law at [8.0020]). The significance of this clause 1.4(c) becomes apparent when one learns that the position at common law is as stated by Beach J in Schultz v New Zealand Insurance Co Ltd [1983] 1 VR 189 at 192 (citing E R H Ivamy, Fire and Motor Insurance, 4th ed (1984) Butterworths): the author, when considering rules for calculating the value of the subject matter of the policy, stated: "Where the cost of reinstatement is taken as the basis of calculation, the reinstatement contemplated is a reinstatement sufficient to restore the property insured to the condition in which it was at the time of the loss. Therefore, the amount of the indemnity will not include increased cost of reinstatement due to the fact that local by-laws or Building Acts prevent the property being rebuilt in the same style or without improved means of exit or safety precautions, for example, in the case of a theatre, unless such increase is specifically insured." In my opinion, that is a correct statement of principle in relation to the matter and one I adopt in the present case. It follows, therefore, that the liability of the defendant is to pay to the plaintiffs the cost of reinstatement of the damage caused by the fire, not the cost of reinstatement of the damage caused to other parts of the house by termites, borer or dry rot. 92In D'Aloia v Colonial Mutual General Insurance Co Ltd [1987] VR 807 (at 812), Nicholson J cited Schultz v New Zealand Insurance Co Ltd [1983] 1 VR 189 with approval, but noted that the particular policy before his Honour specifically provided coverage for extra costs necessary to comply with building regulations or local authority by-laws (at 812) and said (at 813): ... the effect of the present policy [is] that the defendant will pay the extra costs of reinstatement necessary to comply with statutory building regulations or municipal or local authority by-laws. ... I should have thought that the very purpose of a clause such as this was to enable the insured to recover these extra costs, and which obviously contemplates the possibility that the building constructed may be larger and of a better standard than that which it replaced. 93In that case, Nicholson J ultimately found that "the plaintiff [had] done no more than the regulations required of him" (at 814), and in the course of forming that view, said (at 814 and 815): It seems to me that if the defendant considers it appropriate to insure buildings of this age and type upon the basis of a policy such as this one, then it cannot be heard to complain when the cost of reinstatement of the same to comply with modern building and planning regulations proves to be expensive. ... [Counsel for the defendant] next argued that the insured should not be able to recover the cost of providing car parking and landscaping, as these were matters unrelated to the reinstatement of the building. However, I think it clear enough that they were costs necessarily incurred to comply with the relevant town planning requirements and fall within the terms of the policy. 94Under "Building Cover", cover is also provided for professional fees incurred: 1.4 Additional Benefits and Limitations: ... (b) Architects and other fees We will cover architects, surveyors, consulting engineers and legal fees following loss or damage covered under Section 1.2 above up to a maximum of 10% of the Building Sum Insured. 95Cover is also provided for alternative accommodation: 1.4 Additional Benefits and Limitations: ... (n) Alternative accommodation when principal residence becomes uninhabitable If the Building is owned and occupied by you as your principal place of residence and it becomes uninhabitable following loss or damage covered by Section 1.2, we will cover the additional cost of reasonable temporary accommodation for you and your household pets for up to 24 months or the period it takes to make the Building inhabitable, whichever is lesser. Payment is however limited to a maximum of 20% of the Building Sum Insured. 96In the definitions area of the policy, the word "you" is defined as follows: "you" and "your" means the person(s) named as the Insured in the Schedule and those persons who live with the named Insured(s) permanently who are any of the following:

their legal spouse or defacto, or
any member of the named insured's own family and their spouse's defacto's family. 97The second type of cover under the policy is "Contents Cover". The indemnifying clause, which is not the subject of any controversy, provides: 2.2 Accidental loss or damage cover We will cover you for Accidental loss of or Accidental damage to your Contents occurring during the Period of Insurance: (a) whilst contained at the Situation; or (b) whilst temporarily removed from the Situation to anywhere in Australia or elsewhere in the world. 98Cover is also provided for commercial storage costs, in these terms: 2.4 Additional Benefits and Limitations: ... (b) Commercial storage We will cover your Contents in a commercial storage facility or furniture repository but only when moved from any Situation listed on the Schedule to a commercial storage facility or furniture repository within Australia, including transit to and from, but only when being moved by road, up to a maximum of $50,000 during any one Period of Insurance unless otherwise agreed. 99Again, there is no disagreement between the parties about the proper construction of these clauses. The only dispute is whether there was a variation or an estoppel effectively varying the terms, or the basis, on which cover would be provided or assessed.

Conventional estoppel 100As stated by Brereton J (in Moratic Pty Ltd v Gordon [2007] NSWSC 5; (2007) 13 BPR 24,713 at [32]) and accepted by the Court of Appeal (in Ryledar Pty Ltd v Euphoric Pty Ltd [2007] NSWCA 65; (2007) 69 NSWLR 603 at [200] per Tobias JA with whom Mason P and Campbell JA agreed), in common law conventional estoppel, a plaintiff needs to establish: (1) that it has adopted an assumption as to the terms of its legal relationship with the defendant; (2) that the defendant has adopted the same assumption; (3) that both parties have conducted their relationship on the basis of that mutual assumption; (4) that each party knew or intended that the other act on that basis; and (5) that departure from the assumption will occasion detriment to the plaintiff. 101The doctrine of conventional estoppel applies to post-contractual (not just pre-contractual) assumptions (Legione v Hateley [1983] HCA 11; (1983) 152 CLR 406 at 432). The former requirement that the assumption be as to a state of facts (as distinct from law) has been discarded (see the authorities cited in Waterman v Gerling Australia Insurance Co Pty Ltd [2005] NSWSC 1066; (2005) 65 NSWLR 300 at [79] per Brereton J). In this case, as the alleged facts on which the plaintiffs base their estoppel claims all took place following entry into the relevant contract, I do not need to enter into the debate in the authorities as to whether parol evidence of pre-contractual negotiations which culminate in a written contract may be relied upon to set up alleged estoppels by convention (Ryledar Pty Ltd v Euphoric Pty Ltd [2007] NSWCA 65; (2007) 69 NSWLR 603 at [204]-[214] per Tobias JA with whom Mason P and Campbell JA agreed). Whatever the true position, that restriction (if it exists) does not apply in respect of post-contractual conduct (Waterman v Gerling Australia Insurance Co Pty Ltd at [81]-[82]). 102Perhaps one further point which needs emphasis for the purpose of this case is, as stated by Gibbs CJ, Mason, Wilson, Brennan and Dawson JJ in Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Aust) [1986] HCA 14; (1986) 160 CLR 226 (at 244): ... there is no estoppel unless it can be shown that the alleged assumption has in fact been adopted by the parties as the conventional basis of their relationship... In the absence of proof of custom, there is no evidence that the parties adopted the alleged assumption. 103In DHJPM Pty Ltd v Blackthorn Resources Ltd [2011] NSWCA 348; (2011) 83 NSWLR 728, Meagher JA indicated (albeit in the slightly different context of an equitable estoppel), that there must be some objective basis for concluding that there was the adoption of the relevant assumption, such as a "communication", or a relevant "conversation", and that there needed to be something more than a "hope" or even a "confident expectation" (at [67], Macfarlan JA agreeing).

The duty of utmost good faith 104The alleged factual bases of the plaintiffs' claims that the defendant breached its duty of utmost good faith, are, in summary, that the insurer conducted itself in a manner inconsistent with the existence of (what I will call) the "KCJ estoppel" (at [47(c), (e) and (f)] of Commercial List Statement), that the insurer delayed in expressing any concerns it had about the KCJ estimate (at [47(d)]), that the insurer sought to rely on particular documents which the insurer knew did not reasonably reflect the nature and cost of the work that would be required for a notional reinstatement of the house (at [48(a), (c)]), and that it did so for the purpose of negotiating a smaller payout to the plaintiffs (at [48(e)]). The insurer denies breaching its duty of utmost good faith to the plaintiffs, and alleges that the plaintiffs have engaged in conduct in breach of their obligations of good faith to it by insisting on obtaining from the Council development consent when no such application was necessary (at [C28(3)] of the Commercial List Response). 105When considering the duty of utmost good faith, there arise, in my mind, two areas for consideration. The first is the scope of the duty (i.e. to what aspect or aspects of the insurance relationship does the duty attach), and the second is the content of the duty (i.e. what exactly does it mean). 106In relation to the scope of the duty, the common law requirement that insurer and insured act in the utmost good faith towards each other was usually recognised in connection with the duty of disclosure, at or before the formation stage of the contract of insurance. The classical statement of the duty and reason for its imposition was made by Lord Mansfield in Carter v Boehm (1766) 3 Burr 1905 at 1909: Insurance is a contract upon speculation. The special facts, upon which the contingent chance is to be computed, lie most commonly in the knowledge of the insured only: the under-writer trusts to his representation, and proceeds upon confidence that he does not keep back any circumstance in his knowledge, to mislead the under-writer into a belief that the circumstance does not exist, and to induce him to estimate the risque, as if it did not exist. 107It was noted in the Law Reform Commission Report published prior to the enactment of the Insurance Contracts Act 1984 (Cth), that there was then "no reported decision in Australia applying the duty to the payment of claims" (Law Reform Commission Report No. 20, 1982 at [328]), but that there was merely an opinion expressed by Stephen J in his judgment in Distillers Co Bio-Chemicals (Aust) Pty Ltd v Ajax Insurance Co Ltd [1974] HCA 3; (1974) 130 CLR 1 (at 31) to the effect that the duty of utmost good faith should apply to all aspects of the insurance relationship. The authors of the report then said: The position must, therefore, remain in some doubt. That doubt should be resolved. Legislation should make it clear that the duty of good faith applies to all aspects of the relationship between insurer and insured, including the settlement of claims. 108The Insurance Contracts Act 1984 (Cth) s 13(1) provides: The duty of the utmost good faith (1) A contract of insurance is a contract based on the utmost good faith and there is implied in such a contract a provision requiring each party to it to act towards the other party, in respect of any matter arising under or in relation to it, with the utmost good faith. 109The utmost good faith requirement therefore applies "in respect of any matter arising under or in relation to" the contract of insurance. The broad language of s 13 makes it clear that the duty of utmost good faith applies not only in the formation stage of the contract of insurance, but extends for the duration of the contract, including when a claim is made, and how a claim is handled. But despite the breadth of the language and the requirement not to "[limit] or [restrict] in any way by any other law" (s 12) the effect of the utmost good faith provisions, it is clear that the duty of utmost good faith does not impose "on an insured, in relation to the disclosure of a matter to the insurer, a duty other than the duty of disclosure" (s 12). The "duty of disclosure" referred to in s 12 is defined in s 21 as a duty only applying "before the relevant contract of insurance is entered into". The duty of utmost good faith therefore cannot be used to extend the statutory duty of disclosure past the formation stage of the contract. However, the insured may include in the terms of the insurance contract a "continuous disclosure" requirement, a breach of which could amount to a breach of the duty of utmost good faith, for which the insurer may seek a relevant remedy. 110That construction of the provisions of utmost good faith is consistent with Rogers J's observations in NSW Medical Defence Union Ltd v Transport Industries Co Ltd (1985) 4 NSWLR 107 that the good faith duty applies as between the parties at all material times and in all material particulars throughout the term of the insurance (at 110), but does not require disclosure whenever a fact is known to the insured which would be material to an insurer in the making of a decision (at 111). Therefore in that case it was held that where an insurance policy did not impose upon the insured any obligation, to which the continuing duty of good faith could attach, of supplying information, there was no breach of the continuing duty of good faith arising out of the insured's failure to volunteer to the insurer during the term of the insurance information material to whether the insurer would terminate the policy on notice, or material to whether the insurer would obtain facultative reinsurance. 111I turn then to consider the content of the duty of utmost good faith. Although the Insurance Contracts Act delineates the scope of the duty, it sheds little light on its content. The difficulty of identifying what "utmost good faith" means was noted in the English text, P M Eggers, S Picken and P Foss, Good Faith and Insurance Contracts, 2nd ed (2004) LLP (at [1.12], footnotes omitted): What is meant by "good faith" or its sterner apparition, "utmost good faith"? It is an expression which everyone who turns their mind to it will believe they can define in a particular setting; no doubt everyone's view will be different, at least in their application. "Good faith" connotes a measure of honesty and fairness. The question is whether it is a dram or a noggin. Does it require us merely to watch what we do? Or does it require us to play nursemaid for others, at least those less well placed than ourselves? 112The concept of utmost good faith is probably the same under the Act as it is at common law (see Kelly & Ball at [5.0250], in particular footnote 75). 113The appropriate starting point in Australia is the decision of the High Court in CGU Insurance Ltd v AMP Financial Planning Pty Ltd [2007] HCA 36; (2007) 235 CLR 1. The facts are sufficiently stated in the headnote to the report. The insured, AMP, provided unsatisfactory financial advice to investors, and informed the insurer, CGU, that it had become aware of several possible claims by investors. CGU advised AMP that, given the potential number and magnitude of the claims, CGU would take some time to determine whether the policy responded. During that period of time, AMP developed a "protocol", for managing possible investors' claims, which was agreed to in principle by the insurer, and CGU also advised AMP to act as a prudent uninsured when handling claims. AMP considered that it had a liability towards a number of investors and, without any of those investors making a claim as defined under the policy, proceeded to enter into settlements with those investors. CGU later denied liability to indemnify AMP under the policy. AMP sued CGU, claiming that it had relied on the protocol in settling with the investors, that those settlements were reasonable, and that CGU was estopped from denying indemnity under the policy in respect of those settlements. Alternatively, AMP claimed that CGU's denial of liability was a breach of the statutory requirement of utmost good faith. 114The insurer succeeded. In arriving at this outcome, Gleeson CJ and Crennan J said (at [15]-[16], footnotes omitted): [15] We accept the wider view of the requirement of utmost good faith ... in preference to the view that absence of good faith is limited to dishonesty. In particular, we accept that utmost good faith may require an insurer to act with due regard to the legitimate interests of an insured, as well as to its own interests. The classic example of an insured's obligation of utmost good faith is a requirement of full disclosure to an insurer, that is to say, a requirement to pay regard to the legitimate interests of the insurer. Conversely, an insurer's statutory obligation to act with utmost good faith may require an insurer to act, consistently with commercial standards of decency and fairness, with due regard to the interests of the insured. Such an obligation may well affect the conduct of an insurer in making a timely response to a claim for indemnity. [16] However, the Act does not empower a court to make a finding of liability against an insurer as a punitive sanction for not acting in good faith. If there is found to be a breach of the requirements of s 13 of the Act, there remains the question how that is to form part of some principled process of reasoning leading to a conclusion that the insurer is liable to indemnify the insured under the contract of insurance into which the parties have entered. 115Callinan and Heydon JJ said (at [257]): [257] At the outset we should say that we agree with the Chief Justice and Crennan J that a lack of utmost good faith is not to be equated with dishonesty only. The analogy may not be taken too far, but the sort of conduct that might constitute an absence of utmost good faith may have elements in common with an absence of clean hands according to equitable doctrine which requires that a plaintiff seeking relief not himself be guilty of tainted relevant conduct. We have referred to the doctrine of clean hands because, as with another equitable doctrine, that he who seeks equity must do equity, it invokes notions of reciprocity which are of relevance here. That is not to say that conduct falling short of actual impropriety might not constitute an absence of utmost good faith of the kind which the Insurance Act demands. Something less than that might well do so. Utmost good faith will usually require something more than passivity: it will usually require affirmative or positive action on the part of a person owing a duty of it. It is not necessary, however for the purposes of this case, to attempt any comprehensive definition of the duty, or to canvass the ranges of conduct which might fall within, or outside s 13 of the Insurance Act. 116It is worth pausing here to make some observations. In the case before me, each side of the record alleges that the other has breached the duty of good faith in one or more respects. There appears to be a qualified suggestion by Callinan and Heydon JJ that a party to an insurance contract may be disqualified from relying on a breach of the duty of utmost good faith if that party is itself also in breach of that duty. The absence of reciprocity of good faith appears to have informed (in part) their Honours' conclusion that even if there had been a breach by CGU of its duty of utmost good faith, that should not sound in any remedy for AMP (at [261]). However, their Honours' suggestion of some requirement of mutuality has been described as "unhelpful" and "contrary to the legislative requirement" (Kelly & Ball at [5.0270]). 117Kirby J said (at [130]-[131]): [130] No one doubts that the absence of honesty on the part of an insurer (or insured) will, if proved, attract the provisions of s 13 of the Act. However, this does not mean that a want of honesty is a universal feature of a want of the utmost good faith in this context... [131] ... In my view, the criteria of dishonesty, caprice and unreasonableness more accurately express the ambit of what constitutes a breach of s 13 of the Act. 118Although that case involved an allegation only that the insurer breached its duty of good faith to the insured, I understand the above comments to describe the content of the duty generally, not just as owed by the insurer to the insured. The language of s 13 does not discriminate between the stringency of the duty owed by the insurer to the insured (on the one hand) and the stringency of the duty owed by the insured to the insurer (on the other). Nonetheless, some of the decided cases indicate that a less stringent standard of conduct applies to an insured (only honesty is required) as opposed to an insurer (reasonable conduct is required). This apparent difference was noted in Kelly & Ball (at [5.0250]). It is difficult to find a basis for that distinction either in the language of s 13 or in High Court authority. Some cases indicate that honesty is not always sufficient, and that an insured is required, as a manifestation of the principle of utmost good faith, to take reasonable steps to reduce or minimise the liability of the insurer (see for example the observations of Derrington J in Newnham v Baker [1989] 1 Qd R 393 at 398-399). 119These general statements are sufficient for the purpose of determining whether, as the insurer claims, the plaintiffs would be in breach of their duty of utmost good faith if they obtained development consent from the Council when it was not strictly necessary to do so. However, it is helpful, in the particular circumstances of this case, to consider the content of the duty on an insured as applied to claims. This is because the insurer suggests that Mr and Mrs Libling sought impermissibly to inflate the quantum of their claim. 120When comprehensively considering the content of the duty as applied to claims, the House of Lords in Manifest Shipping Co Ltd v Uni-Polaris Shipping Co Ltd; The Star Sea [2001] UKHL 1; [2001] 2 WLR 170 made it clear that, on the part of the insured, the duty of utmost good faith is no wider than a duty not to make or present a fraudulent claim. 121Exaggerated claims may or may not amount to fraud. In the English case of Orakpo v Barclays Insurance Services Co Ltd & Anor [1994] CLC 373, the Court of Appeal considered when an exaggerated or inflated claim would amount to fraud, or to a breach of the duty of utmost good faith, by the insured. In that case, insurance covered damage to a building. The insurance contract was in any event voidable since it had been induced by material misrepresentation, but the defendant insurance company had also relied upon the defence that the claim was grossly exaggerated and fraudulent. The Court of Appeal dismissed the insured's appeal holding unanimously that there had been a misrepresentation. But, in obiter, there was a difference of opinion on the fraudulent claim defence. Staughton LJ, dissenting, thought that any breach of an implied term or the duty of good faith would not have been so fundamental as to entitle the insurer to be discharged from liability. Staughton LJ said (at 383): Other aspects of the claim, such as the items of dry rot and damage to furniture were so implausible as to cast doubt on their integrity. Of course, some people put forward inflated claims for the purpose of negotiation, knowing that they will be cut down by an adjuster. If one examined a sample of insurance claims on household contents, I doubt if one would find many which stated the loss with absolute truth. From time to time claims are patently exaggerated; for example, by claiming the replacement cost of chattels, when only the depreciated value is insured. In such a case, it may perhaps be said that there is in truth no false representation, since the falsity of what is stated is readily apparent. I would not condone falsehood of any kind in an insurance claim. But in any event I consider that the gross exaggeration in this case went beyond what can be condoned or overlooked. Nor was it so obviously false on its face as not to amount to a misrepresentation. 122The majority, Hoffmann LJ and Sir Roger Parker, held that the insurer would on that ground as well have had a defence to the whole of the claim. Hoffmann LJ said (at 384-385): One should naturally not readily infer fraud from the fact that the insured has made a doubtful or even exaggerated claim. In cases where nothing is misrepresented or concealed, and the loss adjuster is in as good a position to form a view of the validity or value of the claim as the insured, it will be a legitimate reason that the assured was merely putting forward a starting figure for negotiation... ... The judge found that the plaintiff had dismissed his first surveyor, Mr Newbury, because he was unwilling to say that all the damage in the house had been caused by the burst pipes and storm. He instructed the next surveyor to proceed to produce a priced schedule of all the works required for the reinstatement of the premises. He then put this forward as the basis of his claim, the implication being that the items requiring reinstatement had been caused by insurable risks. It was only as a result of the size of this claim that the Commercial Union made its own enquiries into the previous state of repair of the property and found that it had been the subject of local authority notices. 123That view appears to be consistent with older authority. In Ewer v National Employers' Mutual General Insurance Association Ltd [1937] 2 All ER 193, MacKinnon J described the insured's claim under a fire policy as "preposterously extravagant", but nonetheless said (at 203): I do not think he was doing that as in any way a fraudulent claim, but as a possible figure to start off with, as a bargaining figure. The plaintiff knew the claim would be discussed, and probably drastically criticised, by the assessors; he had been asked for invoices, and he started the bargaining with them by putting down the cost price of these articles as if they were new. 124Similarly, in London Assurance v Clare [1937] 57 Lloyd's Rep 254, Mr Justice Goddard said (at 268): Mere exaggeration was not conclusive evidence of fraud, for a man might honestly have an exaggerated idea of the value of the stock, or suggest a high figure as a bargaining price. 125Although the insurer does not allege the plaintiffs acted fraudulently, I think these authorities are nonetheless relevant to determining whether Mr Libling or the plaintiffs breached their duty of utmost good faith to the insurer. This is because there were references by the insurer during the course of the proceedings, and in written submissions, that by his private communications with Mr Martin of KCJ, Mr Libling attempted to (or did) suborn the process of arriving at a fair assessment of the reasonable cost of reinstatement. 126Even if a breach of good faith is found (whether on the part of the plaintiffs, the insurer or both sides), it remains of course necessary to identify precisely what damage or loss flowed from such a breach. As Gleeson CJ and Crennan J said in CGU Insurance Ltd v AMP Financial Planning Pty Ltd (at [16]): the Act does not empower a court to make a finding of liability against an insurer as a punitive sanction for not acting in good faith. If there is found to be a breach of the requirements of s 13 of the Act, there remains the question how that is to form part of some principled process of reasoning leading to a conclusion that the insurer is liable to indemnify the insured under the contract of insurance into which the parties have entered...

Environmental planning regulatory requirements 127One of the issues in the proceedings is whether development consent was required from the Council, and if so, exactly what it was required for. The insurer alleged in its Commercial List Response (at [C28(3)]) that the plaintiffs breached their duty of utmost good faith by insisting on obtaining from the Council development consent when it was unnecessary to do so. 128The plaintiffs' position is that development consent was necessary in order to commence the reinstatement works. The defendant submits that the development application was only necessitated by Mr and Mrs Liblings' alterations and additions to the pre-fire state of the house. Additionally, the defendant submits that it cannot seriously be suggested that a development application, which would take weeks to prepare and months to be considered, was required for the permanent replacement of a fire-damaged roof or for the immediate construction of a temporary structure better than the tarpaulins actually used. The defendant submits that had the plaintiffs done so, further water ingress and exposure to the weather would have been avoided, and therefore any additional damage to the house resulting from the plaintiffs' decision to pursue a development application in respect of the alterations and additions without making any attempt to either reinstate the roof (including asking for Council permission to do so) should not be borne by the insurer. 129The parties' submissions inevitably raise a number of questions. First, although it is tolerably clear that a development application would have been necessary in order to effect the alterations and additions desired by the plaintiffs, would a development application have been necessary for a reinstatement of the house to its pre-fire state (i.e. without the alterations and additions)? Secondly, even if development consent was required for the reinstatement of the house to its pre-fire state, was it possible to erect only a permanent (or better temporary) roof structure prior to receiving development consent for the reinstatement of the entire house to its pre-fire state? Thirdly, even if it was possible to erect a permanent (or better temporary) roof structure prior to receiving development consent, would that have lessened the insurer's liability? Fourthly, assuming it was necessary to lodge a development application for the reinstatement of the house to its pre-fire state, precisely to what extent did that trigger an obligation on the part of the plaintiffs to upgrade non-damaged parts of the house to comply with regulatory requirements (such as the BCA and BASIX)? Fifthly, assuming that the lodgement of a development application (for the reinstatement of the house to its pre-fire state) necessitated the upgrade of some or all non-damaged parts of the house to make them BASIX and BCA compliant, are the costs of such upgrades covered by the policy? It is necessary to address each question. 130The first question is whether development consent was required to reinstate the house merely to its pre-fire state, without any alterations and additions. The insurer approached this question as an entirely factual one, to be determined on the basis of the advice and opinions of witnesses experienced in dealing with local councils. The plaintiffs also adduced evidence on that basis, but also addressed the question as a matter of law, by reference to the relevant legislation, regulations and planning instruments. For the reasons which follow, I have formed the view that development consent was either required to reinstate the house to its pre-fire condition (without alterations and additions), and that this course was in any event an open, and perfectly reasonable, course to take to effect such reinstatement. 131The relevant regulatory framework for environmental planning is identified in a note at the commencement of Part 4 of the Environmental Planning and Assessment Act 1979 (EPA Act). It comprises three elements, namely, the EPA Act, the relevant environmental planning instruments and the Environmental Planning and Assessment Regulation 2000 (EPA Regulation) made under the EPA Act. An "environmental planning instrument" is defined in s 4 of the EPA Act as: a State environmental planning policy, a regional environmental plan, or a local environmental plan, and except where otherwise expressly provided by this Act, includes a deemed environmental planning instrument. 132Although it is not referred to in the note at the commencement of Part 4, and does not feature in the definition of an "environmental planning instrument" under s 4, the EPA Act provides, under Division 6 of Part 3, that a relevant planning authority may prepare a further regulatory instrument, namely a "development control plan", if that planning authority considers it necessary or desirable to (among other things) make more detailed provision with respect to development to achieve the purpose of an environmental planning instrument applying to the land concerned (ss 74C(1) and 74B(1)). A development control plan therefore provides greater detail to, but is subject to (s 74C(5)), environmental planning instruments. 133Apart from the EPA Act and Regulation, the plaintiffs have identified two instruments affecting the proposed demolition and reinstatement of the house. The first is a local environment plan, named the South Sydney Local Environment Plan 1998 (Amendment No 5) - Exempt and Complying Development (the LEP), and the second is a development control plan, named the South Sydney Development Control Plan 1999 - Exempt and Complying Development (the DCP) and made for the purposes of the LEP. 134The starting point in the analysis of the regulatory framework is Part 4 of the EPA Act. It divides development into three classes, namely development that does not need consent (s 76), development that needs consent (s 76A), and development that is prohibited (s 76B). There are two or three further subcategories, but it is unnecessary to identify them. The relevant provisions can be briefly quoted: 76 Development that does not need consent (1) General If an environmental planning instrument provides that specified development may be carried out without the need for development consent, a person may carry the development out, in accordance with the instrument, on land to which the provision applies. ... 76A Development that needs consent (1) General If an environmental planning instrument provides that specified development may not be carried out except with development consent, a person must not carry the development out on land to which the provision applies unless: (a) such a consent has been obtained and is in force, and (b) the development is carried out in accordance with the consent and the instrument. ... 76B Development that is prohibited If an environmental planning instrument provides that: (a) specified development is prohibited on land to which the provision applies, or (b) development cannot be carried out on land with or without development consent, a person must not carry out the development on the land. 135It is immediately apparent that to determine the question of whether or not a particular development requires development consent, the EPA Act directs attention to the relevant environmental planning instrument. A "development" is defined in s 4 of the EPA Act to include "the erection of a building" (s 4(1)(c)), "the carrying out of a work" (s 4(1)(d)), and "the demolition of a building or work" (s 4(1)(e)). In turn, "building" is defined to include "part of a building" (s 4(1)) and any "part of a structure" (s 4(1)). The term "erection of a building" is further defined (s 4(2)(b)(i)) to include "rebuilding of, the making of alterations to, or the enlargement or extension of, a building". Likewise, the term "carrying out of a work" is further defined (s 4(2)(c)(i)) to include "the rebuilding of, the making of alterations to, or the enlargement or extension of, a work". Therefore, relevantly, any rebuilding or demolition of part of a building fits within the definition of "development" for the purpose of the EPA Act. 136I am prepared to accept that the extent of the fire and water damage to the house was such that even a reinstatement of the house to its pre-fire state, without alternations and additions, would have involved works which could easily be described as "development" for the purpose of the EPA Act. Accordingly, it is necessary to turn to the terms of the LEP and DCP to determine whether development consent would have been required for this particular development. 137At all relevant times, the house was (and remains) zoned as "Zone No 2 (a) Residential (Low Density) Zone". At the relevant time, clause 11 of the LEP relevantly provided: 11 Zoning controls for Zone No 2 (a)-the Residential (Low Density) Zone ... (2) What does not require development consent? Exempt development referred to in clause 10A. (3) What requires development consent? Development for the purpose of: boarding houses; child care centres; dwelling houses; educational establishments; home industries; local businesses; professional consulting rooms; roads; temporary buildings. Any other development not included in subclause (2). 138Clause 10A bears the heading "What is exempt and complying development", and identifies exempt and complying developments by reference to the DCP. 139Before turning then to the relevant provisions DCP to determine whether the work that would have been required to reinstate the house to its pre-fire condition qualifies as exempt or complying development, one further clause in the LEP affecting heritage conservation areas, under Part 4 (Special provisions), Division 1 (Heritage conservation), should be noted: 23A Protection of heritage conservation areas and heritage streetscapes (1) A person must not: (a) demolish or alter a building or work within a heritage conservation area or heritage streetscape area, or ... (e) erect a building or subdivide (otherwise than by a strata plan) within any such area, ... except with the consent of the consent authority. 140Martin Road, Centennial Park (where the house is located) is identified as a heritage conservation area, and is therefore subject to the restrictions in clause 23A. The DCP is (as previously explained) subject to the LEP, and contains no provision alleviating the restriction imposed by clause 23A of the LEP. 141Nonetheless, I will turn to the DCP (which was in force at the relevant time) to identify, for the purpose of clause 10A of the LEP, whether the works required for the reinstatement of the house to its pre-fire state (without the alterations and additions) qualifies as exempt or complying development, and may therefore not have required development consent. 142The DCP is divided into four parts. Relevantly, Part A (Introduction) confirms, in effect, that the house is in a location to which the DCP applies. Part B (Exempt Development) includes a schedule, which sets out the types of developments which are exempt, and Part C (Complying Development) includes a further schedule, setting out the types of development which qualify as a complying development. Part D (Conditions of Consent for Complying Development) is irrelevant for present purposes. 143Part B of the DCP commences with the following preamble: Exempt development is development that may be carried out without the need for development consent. Exempt development relates to minor works, which have minimal environmental impact and satisfy the requirements specified in Schedule 1 of this DCP. Development listed in Schedule 1 to this plan is exempt development only if: [There is then a list of twelve conditions] Development is not exempt development if it is carried out on land that: [There is then a list of seven types of land] 144There are three items in the schedule under Part B of the DCP which appear, on their face, to be potentially relevant. The first is headed "Minor building works and internal alterations to dwelling houses and residential flat buildings". The text beneath the heading is lengthy, and need not be quoted in full. Having read the text, I have formed the view that, having regard to the extent of the fire and water damage to the house, the type of work required to reinstate it to its pre-fire condition (without alterations and additions) is far more substantial than the type of work described under this particular subheading of the DCP. 145The second potentially relevant heading in the schedule under Part B of the DCP is "Re-Cladding of Roofs or Walls or repair/maintenance of damaged materials". When one reads further, it becomes apparent that this section has no relevance as it specifically does not apply to "buildings within a conservation area". 146The third potentially relevant heading in the schedule under Part B of the DCP is "Demolition". However, the works that would have been necessary for the reinstatement of the house to its pre-fire condition obviously involved more than just demolition works, and therefore this exemption could not, it seems, have provided a sufficient basis for the reinstatement works. 147The apparent result of this analysis is consistent with the views expressed by the Council in its Emergency Order, issued pursuant to Order 4(a) under s 121B of the EPA Act, dated 3 October 2008, where it was noted: A Development application and Construction Certificate will be required to be submitted and approved prior to the reconstruction of a new roof to the premises. 148The "Emergency Order" effectively permitted and required the carrying out of specific works, only of a temporary nature, and only for the purposes of preventing injury from, and further deterioration to, the building. 149Part C of the DCP commences with the following preamble: Complying Development may be carried out if a Complying Development Certificate is obtained. The certificate may be obtained from either the Council or an accredited private certifier. The development specified in column 1 of Schedule 2 to this plan is Complying Development only if: [There is then a list of eleven conditions] 150In my view, it is fairly clear that the works listed in Schedule 2 of the DCP fall short of the substantial works that would be required for a reinstatement of the house to its pre-fire condition. I am therefore not satisfied that the development that would have been necessary for a reinstatement of the house to its pre-fire condition could be described as a complying development. 151Therefore, in answer to the first question I posed, I would find that, on the balance of probabilities, development consent was required in order to carry out the works for the reinstatement of the house to its pre-fire condition (without any alterations and additions). 152Additionally, insofar as the parties treated the question as entirely one of fact, I consider the evidence to favour the plaintiffs' view, namely, that development consent was required. That is consistent with the views of Mr Hassall, who gave evidence that he formed his view after conducting research, and consulting with the Council. Mr Rosselli's view was based on Mr Hassall's. The witnesses called by the insurer who gave evidence that development consent was not a necessity, based their views on a combination of factors, including their experiences with local councils, their ability to "negotiate" with local councils, the use of emergency orders, and taking advantage of the exempt development provisions to the maximum extent possible. However, it emerged in cross-examination that, in forming their views, none of these witnesses had actually consulted with the Council, nor it seems, had they given sufficiently (or any) detailed consideration to the precise terms of the EPA Act, the LEP or the DCP. 153As to the second question, having considered the terms of the EPA Act, the LEP, the DCP and the Council's Emergency Order of 3 October 2008, the better view is that the reconstruction of a new roof would have required lodgement with, and approval by, Council of a development application. The terms of the Emergency Order contemplated an only temporary structure, and only "to enable a tarpaulin to be erected in order to water proof and protect the contents of the building". It is difficult to find any proper legal basis to justify the insurer's assertion that it was possible to construct either a permanent replacement to the fire-damaged roof or a temporary structure better than the tarpaulins actually used, without any development consent. 154In any event, the answer to the second question may be utterly inconsequential. That is because if Dr Kemp's evidence is accepted, it would follow that the construction of any temporary roof would probably not have lessened the cost of the mould remediation work, unless it was done extremely quickly after the fire to prevent further water ingress, and remediation had also commenced extremely quickly (T1095.31-T1096.37). In my view, the evidence indicates that the answer to the third question is that the cost of remediation was not likely to be lessened if the plaintiffs (assuming they could) had decided to construct a permanent roof or a temporary roof better than the tarpaulins. 155The fourth question relates to the regulatory consequences flowing from the requirement to lodge with the Council a development application for the reinstatement of the house to its pre-fire condition. The insurer asserts that the plaintiffs are impermissibly seeking cover for the costs of upgrading non-damaged parts of the building which were not required to be upgraded under any legislation, regulations or codes. The plaintiffs' position is that it is incorrect to say that BASIX compliance would have been unnecessary if there were no alterations and additions to the house. Rather, the lodgement of the development application triggered the requirement to obtain a BASIX certificate, and that certificate may require works to be performed anywhere on the site of the building, in order to meet benchmarks. 156As stated in the preamble note to Part 4 of the EPA Act, the EPA Regulation contains much of the detail of the various processes relating to the preparation and lodgement of development applications. Regulation 50(1) of the EPA Regulation relevantly provides: 50 How must a development application be made? (1) A development application: (a) must contain the information, and be accompanied by the documents, specified in Part 1 of Schedule 1... 157Item 2A in Part 1 of Schedule 1 of the EPA Regulation relevantly provides: 2A BASIX certificate required for certain development (1) In addition to the documents required by clause 2, a development application for any BASIX affected development must also be accompanied by a BASIX certificate or BASIX certificates for the development, being a BASIX certificate or BASIX certificates that has or have been issued no earlier than 3 months before the date on which the application is made. 158In turn, a "BASIX affected development" is relevantly defined in Regulation 3 as follows: BASIX affected development means any of the following development that is not BASIX excluded development: (a) development that involves the erection (but not the relocation) of a BASIX affected building... ... (c) development that involves the alteration, enlargement or extension of a BASIX affected building, where the estimated construction cost of the development is ... $50,000 or more... 159I note that the extent and nature of the work required to reinstate the house means that the development cannot be characterised as a "BASIX excluded development" (as defined in Regulation 3). "BASIX affected building" is defined in Regulation 3 as: any building that contains one or more dwellings, but does not include a hotel or motel. 160The house is a "BASIX affected building". Given the significant extent of the fire damage and therefore work that would be required to reinstate the house to its original condition, it seems to me that the development should be characterised as a "BASIX affected development", and therefore a BASIX certificate would have been required. Mr Bullen accepted that the online BASIX assessment tool is a checklist that assesses the whole site for which development consent is sought, not only the works strictly the subject of the development application. Indeed, regulation 94 of the EPA Regulation contemplates, in circumstances which appear to be common to the present ones, that: 94 Consent authority may require buildings to be upgraded ... (2) In determining a development application to which this clause applies, a consent authority is to take into consideration whether it would be appropriate to require the existing building to be brought into total or partial conformity with the Building Code of Australia 161Insofar as the question should be determined as one of fact, I have no hesitation in accepting the evidence of Mr Hassall and Mr Rosselli. Their evidence was to the effect that as soon as a development application is lodged with the Council, a BASIX certificate would be required (T354.29-T354.32 and T521.46). Apart from their relevant experience, my acceptance of Mr Hassall and Mr Rosselli's evidence on this aspect of the case is based on the fact that, of all the witnesses called in the case, only Mr Hassall, at the direction of Mr Rosselli, actually conducted research to determine whether a BASIX certificate would be required. This included contacting the Council.

Issues of credit and witnesses 162Before making general remarks about the evidence of the witnesses called by the parties, I wish to make a few introductory observations. I am mindful of the comments of Gleeson CJ, Gummow and Kirby JJ in Fox v Percy [2003] HCA 22; (2003) 214 CLR 118 (at [30]-[31]) when they remarked (citations omitted): [30] It is true, as McHugh J has pointed out, that for a very long time judges in appellate courts have given as a reason for appellate deference to the decision of a trial judge, the assessment of the appearance of witnesses as they give their testimony that is possible at trial and normally impossible in an appellate court. However, it is equally true that, for almost as long, other judges have cautioned against the dangers of too readily drawing conclusions about truthfulness and reliability solely or mainly form the appearance of witnesses. Thus, in 1924 Atkin LJ observed in Societe d Avances Commerciales (Societe Anonyme Egyptienne) v Merchants Marine Insurance Co (The "Palitana"): "... I think that an ounce of intrinsic merit or demerit in the evidence, that is to say, the value of the comparison of evidence with known facts, is worth pounds of demeanour." [31] Further, in recent years, judges have become more aware of scientific research that has cast doubt on the ability of judges (or anyone else) to tell truth from falsehood accurately on the basis of such appearances. Considerations such as these have encouraged judges, both at trial and on appeal, to limit their reliance on the appearances of witnesses and to reason to their conclusions, as far as possible, on the basis of contemporary materials, objectively established facts and the apparent logic of events. This does not eliminate the established principles about witness credibility... 163Furthermore, a trial judge is in no way restricted in his or her assessment of a witness; he or she is not bound to accept any of that which the witness attests to or indeed may only accept part thereof (Cubillo v Commonwealth of Australia [2000] FCA 1084; (2000) 174 ALR 97 at [188] to [123]). 164In the recent decision of McGraddie v McGraddie and another [2013] UKSC 58; [2013] 1 WLR 2477, the UK Supreme Court emphasised that, especially in cases where a trial judge is faced with a stark choice between irreconcilable accounts, the credibility of the parties' testimony, and the trial judge's assessment of the character of witnesses and the manner in which the witnesses give evidence, is of primary importance.

Plaintiffs' lay evidence - Mr and Mrs Libling 165Mr Libling is a former lawyer, a businessman and property developer. There are some aspects of his evidence which I later refer to which I found unsatisfactory. There is little doubt that the events surrounding the fire were extraordinarily traumatic for him and his wife. On balance I thought he made a genuine attempt to assist the court. He did I think make appropriate concessions in respect of documents and propositions put to him as to his conduct in relation to the insurer. He did his best to recollect key conversations but I think he gave a number of passionate answers which were clearly designed to assist him in the litigation. 166He was perfectly entitled to rely upon the advice of Mr Rosselli and Mr Hassall and in particular take their advice as to whether or not a development application was necessary. I have made quite specific findings later in this judgment in relation to his conduct and behaviour, especially his alleged reliance upon what he said came out of the meeting on 10 February. It is unnecessary to rehearse it. 167Whilst he could and should have acted more appropriately in relation to the preparation of KCJ's estimates in the early part of 2009, I do not think he was driven by any dishonest motivation, rather he was over-anxious, on his own behalf and that of his wife and family, to ensure that if the insurer was to cash out its liability, every conceivable contingency was covered. In principle I see nothing wrong with that, but his methodology leaves a little to be desired and I have commented on this in more detail. It may be that his anxiety caused him to be far more meddlesome and intrusive than either was appropriate or frankly required. 168Mrs Libling unsurprisingly I think was simply unable to distinguish her role as a witness as opposed to an advocate. She too was passionate about the events and took every opportunity to voice her opinion whether or not it was in fact responsive to a question. Again I deal with a number of aspects of her evidence in some little detail later but it is unnecessary for me to say any more than that I found aspects of her evidence unsatisfactory. Her attitude was unsurprising in all the circumstances although I did not find her evidence particularly helpful.

Plaintiffs' lay and technical evidence - Mr Rosselli and Mr Hassall 169These witnesses gave important evidence and I have to say I accept their evidence unequivocally. 170As an example, I think Mr Rosselli's evidence as to the reasons he disagreed with Mr Knox who wanted to replace the roof immediately are compelling and to be preferred over Mr Knox. Both his and Mr Hassall's view ultimately about the need for a development application was not only a position open to them to take but one which I accept was reasonable and there is simply no evidence to the contrary in my view which is credible. 171There is no doubt that Mr Rosselli and for that matter perhaps Mr Hassall had disagreements from time to time with Mr and Mrs Libling. 172The defendant submits that neither Mr Rosselli nor Mr Hassall were ever instructed to prepare a scope of works and plans for the reinstatement of the house "as was". That strictly may be true, but what Mr Rosselli was doing under the very nose of the defendant was precisely what everyone thought was reasonable, namely to address in a professional and prompt and efficient way in collaboration with Mr Hassall and other experts a basis upon which the cost of reinstatement could be grappled with in a practical sense within a time frame desired by the relevant parties. In my view no criticism can be levelled at either Mr Rosselli or Mr Hassall, the activities they undertook or indeed the way in which they undertook them.

Mr O'Hearn 173The plaintiffs called Mr Matthew O'Hearn. He is a civil and structural engineer. He made inspections of the house on 11 and 12 November 2008, and again on 14 November 2008. 174He prepared a report as to the structural defects of the house as a result of the fire. He also gave some short evidence about a discussion he had with Mr Knox during 2009. 175He also gave evidence of a further meeting he had on site on 22 June 2009 with Mr Martin and others. 176He was very briefly cross-examined. In my opinion, nothing he said in any way alters the various views expressed in his written material, and insofar as they are relevant, I accept them.

Mr David Martin 177I accept that Mr Martin did his very best in difficult circumstances to provide for the parties a most comprehensive analysis, admittedly on a worst case scenario of what the costs of reinstatement would be. I deal in greater detail with Mr Martin's evidence below and although there are some criticisms of both him and his methodology which I think are fair I found him otherwise to be a witness who genuinely attempted to assist me to understand precisely what had been done and why.

Mr Rhodes-White 178I have expressed views about Mr Rhodes-White later, but again I am satisfied he attempted to assist the Court and on balance I accept his evidence for the reasons I later set out.

Defendant's lay evidence - Mr Day 179I found Mr Day in many respects an unsatisfactory witness. At times I think he engaged in historical revision and again I deal with his evidence in greater detail below. For whatever reason, perhaps other work commitments, he became disengaged and I think let the claim as it were get away from him. Nonetheless he was acutely aware at all times as to what Mr Rosselli and others were doing, or at least should have been. He well knew that Mr Martin was not preparing an assessment of the costs of reinstatement in anything like a competitive environment. 180Faced with the embarrassment of what was an entirely unexpected and substantial amount which emerged with the KCJ estimate in part I think he quite unfairly tried to point the finger at Mr Lloyd for failing to properly control the process. Not only do I not think that is unfair, but if any fault is to be attributed to anybody for either misunderstanding what was occurring or simply miscalculating the likely outcome, Mr Day should quite frankly accept a substantial amount of the blame himself. He did not appear to me to be ready to do so. 181It is true he relied upon Mr Knox and his somewhat aggressive style which he may have favoured. Again I say a little more about this further on in the judgment. 182On balance I have to say I found Mr Day somewhat unsatisfactory as a witness. On occasions he gave inconsistent answers and I think was unprepared to make appropriate concessions when reasonably he should have.

Mr Lloyd 183On balance I found Mr Lloyd to be a satisfactory witness who I think genuinely attempted to assist the Court. Again, I suspect work commitments in late 2008 and early 2009 caused him to be less involved than perhaps a claim of this size deserved.

Ms Gray 184Ms Heather Gray filed an affidavit on 20 March 2012 on behalf of the defendant. Ms Gray is an underwriter at Lumley Insurance. In the end, she was not required for cross-examination, and I do not consider her evidence to have any bearing on the issues in the case.

Defendant's lay and technical evidence - Mr Knox and Mr McNamara 185On balance I did not find either witness particularly satisfactory. In Mr Knox's case although I think he was expressing strident and genuinely held views especially in relation to avoiding a development application, his inflexibility in relation to those views I think unreasonably caused Mr Day's view on settlement to harden somewhat. I do not mean to suggest that Mr Day should have rejected Mr Knox's views. However well-intentioned and firmly held, Mr Knox's views caused Mr Day to adopt a particular approach which I regard untenable. When he had an opportunity to sit down with Mr David Martin to try to understand precisely what Mr Martin had done and why, he modified his views accordingly.

Mr Meredith 186Mr John Meredith filed an affidavit on 24 April 2012 on behalf of the defendant. Mr Meredith is a quantity surveyor. He was not required for cross-examination, and again I do not consider his evidence to have any bearing on the issues in the case.

The parties' experts 187For reasons which emerge later in the judgment it is clear that I prefer on balance the experts called by the plaintiffs as opposed to those called by the defendant. My reasons are developed in detail below and it would do an injustice to all concerned to attempt a summary here. However, I should make the observation upfront, that the content of the written material produced as a result of the expert conclaves is dealt with indirectly in my analysis of the cross-examination and evidence of each of the experts. 188In dealing with the expert evidence it is important to acknowledge the conclaves which have taken place both before and during the trial and the effect of them. 189A number of the conclaves occurred in August 2013 and prior to the trial there was an amendment to the expert's conclave report dated 1 October 2013. There was also a conclave during the course of the trial, which resulted in a joint conclave report in late October 2013.

The estoppels 190As is plain from what I have said previously, the plaintiffs, in broad terms, pleaded three estoppels. 191In relation to the cost of repair, replacement or rebuilding it is alleged that the defendant did not object to the content of the November and December 2008 reports and that both the plaintiffs and the defendant adopted an assumption that the benefits under the policy would be determined with reference to the reports that were obtained in that period. The plaintiffs allege that a detriment would be suffered if there was a departure from that assumption and the defendant is thereby estopped from denying the plaintiffs' entitlement to reinstatement and benefits otherwise under the policy by reference to those reports. 192In addition it is asserted that the plaintiffs and the defendant adopted a mutual assumption that the plaintiffs' entitlement to benefits under the policy would be satisfied by a cash payment of an amount to be determined by the KCJ quotation and again, after the usual pleading of detriment and/or that the defendant induced or acquiesced in the plaintiffs' adoption of that assumption, the defendant is otherwise estopped from denying that the benefits under the policy would be satisfied by such a cash payment. 193Lastly, the plaintiffs plead that the defendant agreed to vary the terms of the policy in respect of the indemnity for alternative accommodation and lead the plaintiffs to assume it would provide flexibility in this regard and not hold the plaintiffs to the 24-month period under the policy. 194In final submissions, the plaintiffs sought to clarify a number of aspects about the estoppel and good faith cases. In paragraph 4B of final written submissions, the plaintiffs stated: The estoppel and good faith cases. So that there is no misapprehension as to way these cases are put by the plaintiffs, it is relevant to make the point that the pleaded case is not constrained as the defendant contends. First the estoppel cases. Paragraph 31, for example, of the CLS, refers to the determination of benefits by reference to the November/December reports. It does not plead a case that the determination of benefits was to be determined solely by reference to those reports. The point is that the documents formed part of an agreed framework. In a similar way, paragraph 39, for example, identifies the KCJ quotation based on the Rosselli specification, not solely based upon the Rosselli specification. Again, the point being that the Rosselli specification was to provide a framework for the task, not to straight-jacket the task. Secondly the utmost good faith case. The good faith case is not constrained by the estoppel cases. It directs attention to the conduct of Lumley after its receipt of the KCJ estimate. [Emphasis in original]

The KCJ estoppel 195Whichever estoppel is being considered requires a detailed analysis of the relevant factual context. There is certainly an inter-relationship between the estoppel (so called) which relies upon the November/December 2008 reports and the KCJ estoppel. 196Shortly after the fire on 2 October 2008, Mr Libling, his wife, Mr Lloyd, Mr Day and others had a meeting. Following that meeting, Mr Day arranged for the transmission of $100,000 into Mr Libling's account as was discussed. Initially after the insurer was notified of the claim unsurprisingly it reserved its rights under the policy subject to an investigation. 197On or about 3 October 2008, Mr and Mrs Libling had consulted a Ms Kerry Fyfe, an architect in order to discuss drawing up some plans which in turn involved changing certain aspects of the house. Ms Fyfe promptly produced some plans although it is fair to say they are not very detailed. 198On 7 October 2008, the defendant informed Mr Libling that MCS were being retained on behalf of "Lumley" initially to provide a scope of works for the demolition and make-safe and also to obtain the necessary Council permission. He was informed quite clearly that their future involvement would involve preparation of a specification and tender documentation. The defendant was however prompt to acknowledge that Mr and Mrs Libling may wish to engage their own engineer or architect to be involved in the process and that they would pay such costs associated therewith pursuant to the policy. 199On the very same day Mr Libling responded somewhat diplomatically but raised the question of whether MCS had the relevant skill set and inclination to develop specifications and then manage the tender process for the level of finishes and quality "that was in our house". He clearly wanted to commission an architect who he regarded as experienced in comparable houses to develop the specifications. As I have already noted, MCS was a firm retained by the insurer to conduct preliminary works for the building in order to render it safe for access. This involved scaffolding the perimeter and demolition of unsupported eaves which might have posed some risk of collapse. 200On 8 October Mr Day was at pains to assure Mr Libling about covering the costs of his choice of engineer and architect but reiterated that MCS would continue to be retained by the insurer to check the scope of work. 201At the time Ms Fyfe was Mr Libling's preferred architect and as far as the defendant was aware Mr Libling was providing instructions to her at least during the month of October. However by the end of that month Mr and Mrs Libling had decided they wished to change architects. They had heard from a neighbour that Ms Fyfe was not a great administrator and that she did not meet her commitments on time. They also formed the view that she had what was described Mr Libling in his evidence as a "very minimalist style of architecture" which was not to his or his wife's taste. On the other hand they had heard some glowing reports of Mr Rosselli who had designed houses for friends of theirs. 202Mr Libling and his wife were obviously concerned about whether MCS had the requisite skill set. Mr Libling was also concerned about the nature of the work that might be undertaken by Munters and perhaps the manner in which they would carry it out. Mr Lloyd suggested that Mr Libling simply sign the letter of instruction to Munters. 203On 12 October, Mr Libling responded to this suggestion by preparing what he described as a "simple letter of Agreement". Mr Libling drafted a nineteen-paragraph agreement. The document is a concise and if I may say so rather sophisticated form of agreement to which Mr Lloyd on behalf of the insurer agreed. Mr Lloyd forwarded the letter agreement to Munters indicating that the works to be carried out by them were to be funded by the insurers. 204On 4 November, Mr Libling sought Lumley's approval for an approach he thought appropriate to progress re-instatement. He wanted a professional assessment of how much of the building could be retained. Mr Day considered the proposition a sensible course. As a result he instructed Mr Rosselli to either prepare or to obtain a number of reports. It would appear that Mr Libling instructed Mr Rosselli to prepare a BCA compliance report in respect of the entire house, not just in respect of the fire damaged roof/attic or other water damaged parts of the house. 205It must be acknowledged that the Liblings unsurprisingly were intensely occupied during the latter part of 2008 in discussing matters with Mr Rosselli and others and for example in putting together lists concerning lost and damaged contents and items for the purposes of progressing their contents claim. However, by the third week of November their contents claim had been resolved. 206By early November/December 2008 the various reports had been prepared with drafts being reviewed from time to time by Mr Libling. 207The defendant alleges that in October 2008, through its consultant Mr McNamara of MCS, it was suggested that Mr and Mrs Libling take steps to immediately put the roof back on the property. The defendant contends that this would have had the effect of stopping any water entering the building and allowing proper drying out of the building. They assert that Mr Libling rejected this approach basically on the basis that it did not suit him or his wife to do so at the time because they had in mind making planned changes to the building including the attic which would have involved the roof. Part of the defendant's resistance to both the extent and size of the claim for remediation costs for example stems from its assertion that Mr and Mrs Libling as I apprehend it were largely the authors of their own misfortune in this regard by not permitting a roof to be constructed promptly and that remediation costs could and should have been minimised and those claimed are excessive. 208It is worth observing that as early as 2 October 2008, Mr McNamara of MCS sought permission to proceed with a proposed temporary roof by using a tarpaulin. It is clear that both Mr McNamara and Mr Knox who had also been retained by the insurer were hopeful as indeed was Mr Lloyd that a DA would not be necessary for the purposes of the new roof. The difficulty from the insurer's point of view was the emergency order of the Council. The Council stated in the order unequivocally that a development application and construction certificate was required to be submitted prior to reconstruction of a new roof. The emergency order remained in place until at least some time in mid November. When and how the defendant became aware of such an order will feature later. 209There is no doubt on the evidence that at the relevant time Mr Rosselli and Mr Hassall held the view that a safe course would be to proceed only with a development application. Mr Hassall was the person charged and primarily responsible for ascertaining what approvals, if any, were necessary for the reinstatement of the house but certainly in relation to the roof. Mr Hassall undertook a good deal of activity including preparing a BCA compliance report following a most detailed inspection of the house with Mr Rosselli. Not only did he undertake his own research in relation to planning requirements but he consulted a Mr Paul Aramini, a private certifier and in addition reviewed the local environmental plan applicable to the house. Ultimately he concluded that a DA was required. Indeed on 25 November, Mr Hassall prepared a letter advising Mr and Mrs Libling of various options but concluded that a development application was the preferred course because it was going to be more efficient from the point of view of time, cost and the structural integrity of the house. There is no doubt on the basis of Mr Hassall's evidence that of course as soon as a development application was lodged with council a BASIX assessment was required regardless of whether the work the subject of the DA was for reinstatement as was. Mr Rosselli thought a BASIX report was necessary as a matter of practical reality. 210It must be said that the defendant never insisted upon the roof being reconstructed without development approval being obtained and never took any steps to make any election to take over the reinstatement to ensure that the roof went on at an earlier point than it did. In this regard I agree entirely with the submission on behalf of the plaintiffs that in any event the roof issue is indeed a non-issue because of the evidence of Dr Kemp as to the very small timeframe within which the roof needed to be constructed to materially reduce the mould and hence the costs of remediation work for the house. I will return to this aspect of the matter later in some detail. 211To return to the narrative. The insurer well knew by the late part of 2008 that reports were being prepared by a number of persons and indeed had agreed to meet their costs. However, they were being gathered to jointly assist the insured and the insurer put the claim into perspective. Mr Day gave evidence that he thought it was Mr Lloyd's responsibility to read the reports and indeed make recommendations to him and that at this stage at least he did not seek to review the reports when they were received. He did accept that at some point he read them but he could not place any particular date on that. 212At this stage, there is little doubt that the defendant was doing everything it thought possible and I consider reasonable to provide maximum comfort to Mr and Mrs Libling at a point of crisis. There is also little doubt that this is what motivated the defendant in my view to appease Mr Libling's request not only in terms of retaining his own architect and engineer but inviting him to literally dictate the terms of Munters' retainer. Equally when Mr Libling indicated that he and his wife wanted to use the opportunity to make some changes to the property the insurer again responded in my view reasonably by indicating that it had no objection but indicating that it would only be paying for the reasonable costs of reinstatement of the property as was. 213I am also satisfied however that apart from giving comfort to the Liblings the insurer was looking for the most cost efficient and expeditious way forward. I accept at all relevant times it was going to retain its own consultant or consultants but was nonetheless prepared to bear the additional costs associated with Mr Libling retaining consultants of his choice. 214On 15 December 2008, Mr Knox provided a critique to the defendant via Mr Lloyd of the various reports (Mr Rosselli's report of 24 November, KCJ's report of 25 November, KCJ's report of 2 December, Mr Rosselli's further report of 3 December, and O'Hearn Consulting's report of 1 December). Mr Knox informed the defendant in each case where he considered the report purported to cover those matters which in Mr Knox's opinion either were not damaged as the result of the fire or would not need some form of replacement or reinstatement. Mr Knox also thought that the attic should be reinstated on a "like for like basis with any new design to be "cut in" at the appropriate time". I infer he did exactly what he was asked to do. 215On 16 December 2008 (and presumably prior to receiving the report from Mr Knox) Mr Lloyd reported to Mr Day. He said: Following completion of the debris removal and the strip out of the Insured's premises, your Insured's architect engineer and building consultant have now completed their inspections of the premises and have provided Scope of Work documentation. This is attached for your attention. On the whole the Scope appears to be in order although there are some elements which represent maintenance and are unrelated to the fire. We have forwarded the documentation to DW Knox & Associates and we are awaiting their report. In the meantime your Insured is overseas until 21 December and it is proposed that a meeting will take place shortly after their return in order to agree the methodology of the Tender process. In the meantime we are awaiting your Insured's architects advice in relation to discussions with Council and we will comment further in the near future. 216Somewhat surprisingly in his evidence Mr Day said that he probably read Mr Lloyd's report when he received it but accepted that after mid December he did not receive any other report which expressed any different view from Mr Lloyd prior to June 2009. He certainly did not appear to be aware or remember that Mr Knox had ever expressed a different view to the one expressed by Mr Lloyd. 217Notwithstanding the fact that Mr Knox had informed the defendant of areas in which he thought various reports of consultants had gone beyond the items in the house damaged by fire no attempt was made by Mr Lloyd or for that matter Mr Day during the December/January period to raise any questions in relation to scope with either Mr or Mrs Libling. 218Mr Libling asserts that on or about 5 January 2009 having not received any response from the defendant he telephoned Mr Lloyd to enquire how the claim was progressing. He asserts that he asked Mr Lloyd whether he had considered the reports to which he alleges Mr Lloyd indicated they were in order. He told Mr Lloyd about the changes he and his wife were considering. Mr Lloyd said that the insurer would pay for the cost of reinstatement. Mr Libling asked how that figure would be determined to which Mr Lloyd said "we have professional advisors and we will come to an agreement". Mr Lloyd has no recollection of this conversation (but does not deny that it took place) but does agree that he and Mr Libling would have discussions about a cash settlement of parts of the claim. I am satisfied that such a conversation took place. 219On 28 January, Mr and Mrs Libling met with Mr Day. Mr Libling says that during the meeting he offered to send Mr Day a copy of Mr Rosselli's plans and a list of the changes that he and his wife were considering making. Mr Day thought that might be helpful. Mr Libling recalls Mr Day however indicating that it would be good if a complete specification for rebuilding the house was available which could then be costed. Mr Libling also recalls Mr Day indicating that the reports which had thus far been received (indicating those of Mr Rosselli, the builder and the engineer) were insufficient to come to any view about costs. Discussion then ensued on how much it might cost to provide a full set of specifications and Mr Libling indicated that he proffered a view that it could cost as much as $60,000 to do so. Mr Libling says that during the course of the meeting a number of approaches were discussed and as a result Mr Day indicated that he was thinking more in terms of a cash pay out figure. 220Mr Day accepts that he attended a meeting with Mr and Mrs Libling on 28 January and recalls saying that he required a scope of works as regards to the reinstatement of the property in accordance with the policy. He also accepts Mr Libling indicated that he and his wife wanted to make some changes and that Mr Libling would provide details of those changes. Mr Day does not recall Mr Libling referring to the possible cost of $60,000 for the purposes of obtaining a full set of specifications. Mr Day said he understood that the insurer was in the process of obtaining a scope of works to be checked by either Mr Knox and/or MCS so that a final scope of works could be agreed and the job could be put out to tender and costed accordingly. 221I do not think very much turns on the slight if any differences between those two versions of the conversation. 222Neither Mr Day nor Mr or Mrs Libling made any notes of their conversation during the course of this meeting, but insofar as it is relevant I would prefer the version given by Mr Libling as to what he says occurred. 223However the next day Mr Libling sent an email to Mr Day and Mr Lloyd with copies to Mr Rosselli, Mrs Libling and his own personal assistant. The email is fully set out above (at [48] above). It clearly confirms what Mr Libling says occurred in my view at the meeting. He attached drawings from Mr Rosselli in relation to the proposed changes. He expressly told the defendant that his aim was to lodge a DA within the next ten days and he specifically identified the changes that he and his wife were proposing to make. He also outlined quite explicitly the three options as ways forward. 224I am satisfied that both Mr and Mrs Libling clearly wanted a swings and roundabouts approach. In other words they wanted to try to persuade the insurer if they could that the cost of reinstatement notwithstanding the changes that they had intended to make on balance would cost no more than the insurer was obliged to pay in any event under the policy as a result of the fire. 225Mr Day agreed that he was prepared to allow the Liblings to proceed with the proposed changes. He accepted when he received the email from Mr Libling on 29 January that there were three ways forward being suggested although he did not feel constrained to accept any one of those options. He certainly understood that Mr Libling wanted the defendant to agreed to the "swings ad roundabouts" approach which necessarily involved making some assessment of the difference in cost in not reinstating what was asserted were expensive attic finishes as against other changes which were being proposed. However it is fair to say that the exercise was going to be a potentially complex one on any view of it. For the defendant to consider making a cash payment it really had to make a decision of what was its obligation under the policy to reinstate irrespective of the changes being suggested and then compare the two. 226On 3 February 2009, Mr Libling obtained an estimate of the replacement costs of the house from BMT and Associates, Quantity Surveyors, including consultant fees in the sum of $2.657 million to $2.922 million. It is apparent that in the meantime Mr Rosselli continued to work on preparing materials for the DA. 227On 6 February 2009, Mr Rosselli advised Mr Libling on his estimate of the costs of the project referring to a total figure of $3 million and suggesting that the sum of $950,000 should be specified in the DA as it should cover only the changes to the pre-existing structure and not the replacement of existing structure and finishes. 228A meeting then took place on 10 February. Present at the meeting were Mr and Mrs Libling, Mr Day, Mr Lloyd, Mr Rosselli and Mr Hassall. The only person at the meeting who took any notes was Mr Hassall and I will return to his evidence and his notes later. 229Mr Libling asserts that at some point during the meeting he ventured the view that the proposed changes to the house would probably result in an overall saving and wished to persuade Mr Day and Mr Lloyd to accept a swings and roundabouts approach. According to Mr Libling, Mr Day responded by simply asserting that he needed to know what it would cost to restore the house and "that is our obligation". Mr Libling proposed that it might be convenient if at the same time some exercise could be undertaken in order to work out the cost incurred or saving that would be made from the changes that he and his wife were proposing, to which Mr Day indicated that was a matter for Mr Libling but he did not want to be involved in a rebuilding and he wanted to find out what the cost of reinstatement would be so as to pay the Liblings out. Mr Libling accepts that Mr Day suggested that one way of attempting to do this costing was to obtain the services of a quantity surveyor. Mr Libling asserts that he told Mr Day that from his experience the use of a quantity surveyor would be unproductive to which Mr Lloyd indicated that the use of quantity surveyors was a standard tool. Mr Libling responded by saying that that was all very well if one was looking at a "standardised product", however here his house was quite individual. In the course of the meeting Mr Libling also asserts that Mr Day indicated that the insurer would pay for the costs of obtaining a costing. 230Mr Libling then asserts that the conversation turned to the question of how the costing would be obtained and Mr Day suggested that a builder should be retained to give a "fair and impartial assessment of the cost of restoration". Mr Lloyd suggested Mr David Martin. After further discussion Mr Day indicated that retaining Mr Martin was the way "we should proceed". Mr Libling recalls Mr Rosselli saying prior to his leaving the meeting that he wanted Mr Martin to be retained directly by the insurer and that he wanted a formal engagement letter. 231Mrs Libling's account of this meeting is much less detailed than that of her husband. Her evidence is that she can recall Mr Day being present but she cannot recall whether either Mr Rosselli or Mr Lloyd were at the meeting. She makes no reference to Mr Hassall at all. She does not recall the words used at the meeting but had an understanding that what was expected was that an "exact costing" was to be obtained and KCJ was to undertake the task. She does recall however asking how Mr Day would deal with contingencies to which she asserts he indicated "we will be generous with contingencies". 232Mr Rosselli recalls on the other hand attending two meetings on 10 February. The first meeting was with Mr and Mrs Libling and Mr Hassall and the second meeting was with the Liblings and representatives of the insurer. He recalls during the meeting with Mr and Mrs Libling, one or other of them said that they were going to negotiate a lump sum payment and that Mr Libling wanted to have some costings for this purpose. 233At the meeting Mr Rosselli recalls discussing the cost involved in putting prices out to tender and that it would normally involve about three months in the preparation of documents and in the end would account for about 3.5% of building costs. He recalled Mr Lloyd indicating that the insurer did not wish to undertake that process and instead it would like to obtain a cost for the reconstruction of the house as soon as possible. At the end of the meeting Mr Rosselli recalls that there was an accord between all parties present that the Liblings would obtain a costing from KCJ based on drawings which he had already prepared but not on the basis of what might be described as full documentation. He recalls Mr Day indicating that "the architects can prepare specifications for the reconstruction of the house". Mr Day also wanted fee proposals from Mr Rosselli, the builder and the engineer for undertaking the costs estimate. Mr Rosselli also recalled an understanding to the effect that any costings prepared by KCJ should include a provision for remediation in relation to mould and soot. 234Mr Hassall gave evidence as to his recollection of the meeting of 10 February. Before he went to the meeting he wrote a check list of items to be discussed with Mr and Mrs Libling. He had very little if any independent recollection of the meeting but indeed he did take notes during the course of it. He recalled that there were in fact two meetings on the day, one with himself, Mr Rosselli, Mr and Mrs Libling and the second with Mr Lloyd, Mr Day, Mr Knox and others. 235He gives no detailed account of the meeting which took place between himself, Mr Rosselli and the Liblings. However he does recall during the course of a meeting with Mr Day and others that Mr Day indicated that the insurer wanted somebody to give it a costing for the reconstruction of the house. He recalls Mr Lloyd saying that he wanted a builder to cost the whole of the house old and new, but that he did not want a price per square metre to rebuild the old house but he did want BCA upgrades as part of the report that would include a contingency amount and include schedules and P.C. cost plans. 236Although cryptic, his notes which appear to relate to the second meeting of day with the insurer read as follows: 237Mr Day has some recollection of the meeting on 10 February 2009. He believed he said to Mr Rosselli that he needed him to prepare a "scope of works to reinstate" in accordance with what was there at the time "without the amendments". Mr Day also asserts that he said that the usual process was that a scope would be obtained and then agreed by the insurer's advisors and that then would be sent out to competitive tender but he was quite happy for KCJ to provide costing for the reinstatement, but said "however we would need to check that using our own consultants". 238Mr Day recalls Mr Lloyd suggesting engaging a quantity surveyor to which he does recall Mr Libling saying that in his experience quantity surveyors are often less than cost to which Mr Lloyd indicated that in his opinion quantity surveyors are usually a lot more expensive because there is no competition. 239As he has no detailed independent recollection (or so it seems) of the meeting he was not in a position to deny much of what Mr Libling asserted was said during the course of the meeting. Mr Day denies that Mr Libling discussed the possible delay in preparing detailed drawings and specifications. He indicates that he did not consider what had been produced by Mr Rosselli as a scope of works. 240On the other hand Mr Lloyd in his evidence agrees with Mr Libling that he did say that the simplest way would be to get a quantity surveyor. However he denies that he said anything at any time to Mr Libling which would suggest that KCJ's assessment of costs would be accepted by the insurer as a matter of course. Further he indicated that it was always his understanding that the KCJ assessment would be used as a starting point for negotiations to agree on a lump sum payment under the policy. 241Mr Knox has no independent recollection of what occurred at the meeting. However, he does have a diary attachment for the meeting together with an email of 10 February to Mr O'Hearn which is the summary of the issues he says he discussed with Mr O'Hearn on that day. 242It seems clear to me that on the one hand the insurer was anxious to close out the claim as soon as it could, and on the basis of a cash payment. To do so it was prepared to take what it thought was an expedient course of both appeasing its client by permitting him to retain his own builder, engineer and architect but at the same time maintain its own consultants for the purposes of deciding ultimately what cash payment would be made. There is no doubt on the other hand that Mr Libling and his wife unsurprisingly wanted the matter resolved quickly and to their satisfaction including changes they wished to make to the house. It was also clear that the insurer was prepared to meet the cost of Mr Rosselli and others as it did not wish to incur the cost of a competitive tender but instead was content with Mr Libling's suggestion that Mr Martin of KCJ prepare a cost estimate. 243I accept Mr Libling and Mr Rosselli when they say that the question of the expense and delay involved in a proper tender process was discussed. In that regard I reject Mr Day. 244Equally however it was plainly obvious by the presence of Mr Knox at the meeting and/or from what Mr Libling had previously been told, that the insurer was going to maintain its own consultants to perform whatever role it wished them to perform. That role was not made clear at the meeting but after all it was entirely a matter for the insurer what role he or others played. 245I am satisfied Mr Day and Mr Lloyd for that matter well knew that what was being discussed at the meeting of 10 February was nothing remotely approaching a competitive tender, nor was it expected that Mr Rosselli and others would be paid for and/or would prepare detailed specifications. Indeed whilst on the one hand Mr Day rejected the swings and roundabouts proposal, as I understand his evidence ultimately he accepted as at the 10 February meeting he did not want to proceed with an entirely documented tender package. Whilst I accept his evidence that the understanding or at least his position was that he wanted to have a look at the KCJ estimate and seek advice as to the reasonableness of it (in order to save time) I reject Mr Day's assertion that he asked for or indeed every expected a detailed specification. That was antithetical to the rather pragmatic process that he and for that matter the insured sought to adopt during and following the meeting of 10 February. 246Equally Mr Libling as a former practising lawyer, experienced and sophisticated businessman and property developer could not reasonably have assumed in my view that the KCJ estimate would issue and in effect the insurer would simply pay on the faith of it, merely having checked the arithmetic. I note of course the plaintiffs do not rely upon any actual representation made by the defendant to that effect in any event. 247Given the so called importance of the arrangement and the process and his background as a former practising lawyer, businessman and property developer I find it inconceivable that he would not have sent an email given his bent shortly on or after 10 February confirming the agreement. In his email of 10 June, he asserts in my view quite correctly that Mr Martin was appointed to give a "fair and impartial estimate of the cost of restoration". 248There is no doubt that whatever scope issues may or may not have been thought to exist as a result of the various reports obtained in November/December 2008 the insurer raised none with Mr Libling or anyone on his behalf. Whether that was because they were distracted with other business or because there were none is perhaps of no moment. They did not take the opportunity to raise any matters at all. 249There is no doubt in my mind that both sides wanted to move the matter along as soon as possible. In particular I am satisfied that the insurer wanted expedition because as Mr Day conceded in cross-examination the longer the process went it was likely to cost more and for a variety of reasons he wanted to move quickly to resolve the outstanding question of costs. As I have already said I entirely reject his evidence that he was expecting a full specification. I regard that as very much an after-thought. 250I also accept that Mr Day may not have been aware of who KCJ were but on any view he was clearly prepared to accept the recommendation of Mr Rosselli, Mr Hassall and others in that regard. 251Mr Day understood precisely it seems to me what he was agreeing to, so far as Mr Rosselli was concerned. For example on 12 February 2009, Mr Rosselli sent his proposed retainer to Mr Lloyd. Mr Rosselli stated in express terms in (vi) of that letter: Provide a specification (extract of other jobs specification) to set at the workmanship standards, and the preliminaries requirements, etc (council's requirements for surveys dilapidation reports, insurances etc). 252It would be clear to anyone reading what Mr Rosselli proposed, and particularly given the time frame in which it was hoped such exercise would be completed, that he was going to use specifications from other jobs as opposed to the creation of a detailed specification for the particular job at hand. Mr Day obviously saw the proposal because he made specific reference to it in an email to Mr Rosselli of 23 February. Mr Lloyd said that he reviewed both the retainers from Mr Rosselli and in turn from Mr Martin and indeed assumed that Mr Day had, and accepts that he may have, recommended their acceptance. In any event Mr Lloyd signed Mr Rosselli's retainer. He accepted that he would not have done so had he not carefully read the documents before signing them and sought instructions from the defendant before doing so. 253I think it is fair to say that neither Mr Day, nor for that matter perhaps Mr Lloyd gave any careful consideration to precisely what checking process would occur after Mr Martin had provided his report. That said, I have also no doubt that Mr Day, and for that matter Mr Lloyd were looking to Mr Martin to provide an independent, impartial and fair estimate of the reasonable costs of reinstatement on an as was basis. I do not believe that Mr Day for example had any particular time frame in his mind except that clearly he wanted the matter resolved promptly so that a cash settlement could be arrived at with the Liblings. There is equally no doubt in my mind that he had proposed (even though I do not think he had set down any particular detailed regime) to have Mr Lloyd or Mr Knox or Mr McNamara consider the KCJ assessment. Whilst the insurer and indeed the insured hoped KCJ would provide a way forward, I am not satisfied there was any agreement that whatever KCJ estimated would be accepted subject only to checking of the arithmetic. Nor do I consider anyone assumed it would do any more that provide a basis hopefully for a case settlement to be arrived at. 254Mr Libling says that at the meeting of 10 February he made the point at a time when both the insurers representatives were present and also Mr Rosselli and Mr Hassall, that "we all want an independent and professional assessment of reinstatement cost". 255For reasons which I will come to Mr Libling wittingly or unwittingly engaged in a process which may well have had the effect in my view of rendering the KCJ assessment somewhat less than an independent, impartial and fair estimate of the costs of reinstatement. 256Mr Day has been criticised for not having suggested which consultants might perform the alleged checks which he said in his evidence he expected would take place. Again I do not regard this as a matter of any moment. The simple reason is that I do not accept that at any point Mr Day or for that matter Mr Lloyd said or gave the impression that they would simply rubber stamp whatever KCJ had to say subject to arithmetical errors. 257Neither Mr Day nor Mr Lloyd took any steps to retain any person other than Mr Knox and Mr McNamara with the view to checking what was being done by KCJ. There was no request for access for any consultant (new or old) to view the house, nor was there any discussion with any timeframe after the meeting about what may be an appropriate process. Mr Day did not at any point identify (so far as Mr Rosselli was concerned) any additional consultant he was planning to retain. 258Mr Day, I have already observed, approved the retainer of Mr Rosselli, but he also approved the retainer of Mr Martin. Mr Day said and I accept that he expected a fair summary from Mr Martin and also accepted that any bias would defeat the purpose of the exercise. He relied upon the professionalism of both Mr Rosselli and Mr Martin. To that extent at least Mr Day, I accept, did make enquiry of Mr Libling to determine whether Mr Martin had been promised the job and was informed that he was not. To that limited extent he obviously obtained comfort about Mr Martin's role. There was certainly no doubt that Mr Day expected that Mr Rosselli would not only work with KCJ but with Mr Lloyd as well. This is again made clear in Mr Day's email to Mr Rosselli of 23 February. I note that the email of 23 February was also sent to Mr Libling. 259I note that Mr Lloyd's version of what occurred on 10 February does not corroborate Mr Day but rather more corroborates Mr Libling, but that does not affect my view on what occurred in any material respect. 260As I have now said on a number of occasions I have little doubt Mr Lloyd was hoping and expecting that the approach which he was at least agreeing to would provide a result which would lead to a compromise in relation to the cash payout. I also accept that Mr Libling proceeded on the same basis. Mr Libling indeed provided comfort to Mr Day that the process would be independent and fair in a number of respects. First of all he told Mr Day he did not know Mr Martin of KCJ which was of course true. He also confirmed that Mr Martin had not been promised the job. It was Mr Libling in my mind who allowed Mr Day to proceed upon the assumption that the process would be conducted fairly and if I may say so, openly. 261I am satisfied that it was in this context that the discussion of contingencies took place at the meeting of 10 February 2009. Although Mr Day claims to have no recollection of the discussion on that topic he had to accept that he was in no position to deny Mrs Libling's version of the discussion on that topic. I have little doubt that Mr Day as part of a public relations exercise attempted on 10 February to assure Mr and Mrs Libling that there would not be undue confrontation or delay about a whole number of things including contingencies. 262As I have already noted, I am satisfied that Mr Day did not seriously contemplate a competitive tender process and he knew fully well KCJ was to be the only builder (unless he sought to retain one himself) to provide the costing for the purpose of the hoped compromise. It is true as I have already observed that Mr Libling does not purport to recall any express promise on the part of the defendant to pay the amount of the estimate given by KCJ but rather implied that that would be the fact. Importantly however he himself relies upon Mr Day asserting that what was needed was a builder to give a fair and impartial estimate. That is what Mr Libling was equally, it seems to me, agreeing to ensure occurred. 263Mr Libling strongly disputed the proposition that Mr Day had suggested that the builder would be retained by Mr Libling and that the defendant would retain its own consultants. On that point Mr Libling already knew that the defendant had retained Mr Knox (who was present at the meeting of 10 February) and Mr Meredith. He was also aware of the terms of Mr Day's email to Mr Rosselli which was copied to him, namely that Mr Day was emphasising that Mr Libling was Mr Rosselli's client and "will always remain so". 264In short the insurer agreed to a somewhat short back and sides method for the costing exercise. Mr Rosselli would attend to architectural matters and Mr Martin of KCJ would prepare an "independent and fair" estimate of costs. This was done in order to save time and money and the whole notion of a competitive tender process. With the delay and costs involved I am satisfied this was simply not in the contemplation of the parties as a result of the discussion at the meeting of 10 February. 265Insofar as Mr Libling had that understanding, namely that KCJ was to provide a fair and impartial estimate of the cost of restoration, as I have already observed, wittingly or unwittingly his conduct placed at least the appearance of that outcome in jeopardy. 266I do not ignore the fact that neither Mr Day, Mr Lloyd nor any other consultant retained by the insurer took an active role in the costing process. I also take into account that the documents from Mr Rosselli upon which the KCJ costing was to be based were provided to Mr Lloyd on 2 April 2009. This was of course five weeks prior to the costing actually issuing. On that day Mr Hassall provided Mr Lloyd with the documents which had been sent to Mr Martin on or about 5 March which again amongst other things made it plainly apparent that the specification which Mr Martin was asked to take into account was for a property at 12 Martin Road which obviously had been prepared by Mr Rosselli in relation to that job. I am not satisfied as I have already said that their attitude was provoked by an acceptance or an assumption that they would have no opportunity to make any comment as to costs or scope when finally the KCJ estimate emerged. 267The defendant contends that on any view of it Mr Martin's assessment could not be described as independent, impartial or fair. It points out that Mr Martin agreed that prior to producing his first estimate he considered that he was apprised of all information necessary to produce an estimate in accordance with instructions and that he had properly undertaken the work and complied with the process in terms of producing the estimate. 268He then increased his estimate by $800,000, and I agree with the defendant's submission that a comparison between the first and final report reveals little if any change apparently to the work undertaken. There seems little doubt that the changes were made as a result of requests or suggestions by Mr Libling. For example, Mr Martin agreed that he added a 15% contingency to every item irrespective of what contingency he had used for the purpose of preparing his first estimate on Mr Libling's instructions. The defendant contends that if as Mr Martin agreed he did increase his estimate by 15% on the instructions of only one party without reference to the other then his estimate could not be considered an independent, fair and/or impartial estimate. 269Whilst Mr Libling apparently expected the insurer to be bound by the KCJ estimate because it would be produced in a fair and impartial environment, somewhat curiously he instructed both Mr Hassall and Mr Martin not to provide the initial report or it seems any information at all to the defendant until he said so. He appreciated that Mr Lloyd was asking both Mr Martin and Mrs Libling for information but it seems deliberately instructed that no information be provided at that point. The insurer went as far as to suggest that Mr Libling had effectively suborned Mr Martin. I would not go that far. In any event, such an allegation is not pleaded. Although it is unnecessary to do so, I merely observe that to the extent that any analogy can be drawn from the criminal context (s 333 of the Crimes Act 1990) or from the duties imposed on legal practitioners (r A43 of the Revised Professional Conduct and Practice Rules 1995 (NSW)), I am entirely unpersuaded that Mr Libling's conducted amounted to a subornation of this particular process. However Mr Martin was compliant both in respect of not sending materials to the insurer and seemingly adding a 15% contingency. I will however return to Mr Martin and his conduct later. 270The defendant also points out that Mr Libling agreed that it was not fair to the defendant not to provide it with the first KCJ report. If I may say so, Mr Libling must have appreciated that at the time. If he thought the process was one agreed to by the defendant on the basis that the exercise was to be fair, impartial and independent and if all he was doing, as he suggests he was, was out of abundance of caution making sure that Mr Martin at least gave consideration to all relevant issues, it seems rather strange he was not prepared to subject the entire process to total scrutiny if the insurer so decided. Whether it might or might not have wished to comment is not to the point. 271In my view the defendant was entitled on any understanding reached at the meeting of 10 February to be privy to the evolutionary process which was occurring and which Mr Libling was centrally involved with. There was no doubt that Mr Libling made no attempt whatever to inform the defendant he had given instructions or made requests or made submissions to Mr Martin as to why Mr Martin should increase his estimate. In my view the insurer was entitled to participate in that process if they chose to do so. They were simply denied any opportunity which has impacted a number of areas. I will consider in due course whether or not the conduct of Mr Libling gives rise to a breach of s 13 of the Act. At the very least his covert meddling caused its own delays which in my view cannot be visited upon the defendant. Further, it seems rather at odds with the process he asserts was agreed to or assumed at the 10 February 2009 meeting. 272I am prepared to accept that Mr and Mrs Libling were unsurprisingly suffering from a good deal of stress as a result of the fire and during the months that followed as a result of the process that they felt obliged to undertake for the purposes of substantiating their claim in relation to the costs of reinstatement. I am also satisfied and accept that if a cash settlement was to be the outcome, they wanted to ensure that if a deal was done once and for all they were covered for all legitimate contingencies. 273The defendant relies upon two meetings which took place on 12 March and 23 March 2009 as supporting Mr Libling's attempt as was put in written submissions to "suborn the process". I have already indicated that I do not accept that characterisation of what he did. In particular, what occurred on 12 March 2009, whilst not supporting an allegation of subornation, does give I think an insight into what Mr and Mrs Libling thought was the status of the 10 February 2009 meeting. At a meeting on 12 March 2009 between Mr and Mrs Libling, Mr Rosselli and Mr Hassall, Mr Hassall records the following as having been said apparently by Mrs Libling: SL - Up-shot was builder to price what is possible plus on purpose leaving out items he cannot price so insurer is left with a partial price uncompleted so they will be forced to see its not possible to price plus settle or negotiate settlement... 274There then follows a further remark which may or may not be attributable to Mr Rosselli as follows: Our approach heavily loads price in Libling's favour, even in excess of high end jobs, this will place the builder's figure much higher plus bargaining down from a high fixed figure will result in a better settlement sum than a low incomplete figure with unresolved areas. 275I should observe that Mr Rosselli had no recollection at all of anything that happened at the meeting, but Mr Hassall agreed that he would have recorded matters as he heard them and had no reason to think that his diary note was anything other than accurate. Otherwise he had no recollection of the conversations. 276At first it was put to Mr Libling that he made the remarks attributed to "SL" but he denied that. It was then put to Mrs Libling that she made the remarks, but she said she could not recall making such remarks. 277I regard the note as important in this sense. It is reasonably open to infer that at this meeting there was a discussion about precisely what approach should be adopted in terms of the insurer. One approach was that if prices could not be fixed for all items then blanks should be left indicating a level of uncertainty which would aid a compromise. The alternative approach perhaps proffered by Mr Rosselli was that figures should be placed on all items even though it may lead to a larger figure but that that would provide a better guide for negotiation. It matters not which approach was being discussed, it seems to me that such notions would only have been discussed if Mr Libling believed that the KCJ estimate was being obtained for the purposes of discussion and negotiation if necessary as opposed to the prelude to the writing of a cheque. 278It is submitted correctly that none of the persons cross-examined on the note had any effective memory of the meeting. It is further submitted that the outcome of the meeting as described in Mr Hassall's affidavit was to cost every item. It is further contended by the plaintiffs that this outcome is not consistent with the two ideas recorded in Mr Hassall's note which appear to concern on the one hand not costing items and leaving gaps and on the other hand simply relying on PC Schedules. The fact that the process then followed was quite different to the notes it is submitted suggests that the discussion did not ultimately lead anywhere. I accept that that may well be the case but nonetheless it is a very good insight in my view into the fact that neither Mr nor Mrs Libling as I say regarded the KCJ estimate which was being procured to be one unequivocally accepted by the insurer subject to a merely arithmetical check. Indeed it is entirely consistent with what I regard Mr Libling would reasonably have believed would occur following the issue of the KCJ estimate, namely a negotiation, followed by a compromise as he had reached on contents. 279In the process that followed, it is understandable why Mr Libling would have communications with Mr Martin and others about the composition of the estimate. He wanted, I am certain, to ensure that all possible costs were identified. To that extent his reason for specifically requesting that the draft KCJ quotes not be provided to the insurer can be understood. He said in terms he wanted to ensure that the documents covered everything. However for reasons I have already adverted to this was clearly contrary to what Mr Libling must have understood the process would or should involve as a matter of basic fairness. It is of course entirely understandable on the basis that he wanted to play his cards close to his chest because he fully appreciated at all relevant times that he would be in a position where he would have to negotiate some form of compromise. To that extent his conduct in directing Mr Martin for example not to provide his quote until Mr Libling had an opportunity to carefully consider it I think is again only consistent with him regarding the process as one involving negotiation in the end. 280On 4 May, Mr Hassall sent Mr Martin an email setting out a number of queries to which Mr Martin responded. Mr Hassall did not recall how the 15% contingencies suggested in the email came about but he did not think he had put it forward. Clearly he did not. He stated that the suggestions made in the email could have come from a combination of people including him or Mr Rosselli. Mr Hassall's evidence was that the emails passing between Mr Libling, Mr Martin and him commencing on 5 May were notated up to three or four times with everyone's comments. The last email in the chain was not put to Mr Hassall. That email contains a number of acknowledgements of decisions taken by Mr Martin. Mr Hassall does not recall whether he or Mr Rosselli expressed views in the correspondence. I think what is clear however is that the 15% contingency does not appear to have spontaneously arisen from either Mr Rosselli, Mr Hassall nor Mr Martin. Again, in the end, nothing in my view turns on that point. 281Indeed Mr Libling accepted that the inclusion of a contingency allowance within a fixed price was his idea. He accepted that he raised the issue of contingency not in order to have Mr Hassall specify a contingency but because he thought that the builder should determine the level of contingency for the risks he was undertaking for the building works. Further he thought the contingency was necessary because it had not been possible to cover absolutely everything within the quote. 282Further, Mr Libling agreed that he suggested that the builder needed to have regard to the risk of underpinning the walls and he advised of this risk because the costing was proceeding on the basis that the work was to be done in any event. There are other items, for example the cost of obtaining imported timbers which he thought should involve a cost for bringing them onto the site. Further, he suggested Mr Martin should consider an extension of the building programme on the basis that he would otherwise be liable for a sum in respect of liquidated damages. In the end it was submitted that Mr Libling went through the quote with a view to ensuring that the quote was accurate regardless of whether the inclusion or exclusion of items favoured the insurer or Mr Libling and his wife. Indeed all he was trying to ensure, he contended, was that the quote contained as much specificity as was humanly possible. 283Mr Libling rejected the proposition that it was inappropriate for him to have made suggestions to KCJ in the course of preparing the quote. I agree with him. However I think it was incumbent upon him to be open and transparent in what he was doing. To do otherwise was certainly no part of any agreement that he alleged he had reached in my view on 10 February 2009. It was accepted that Mr and/or Mrs Libling would supply particular material to Mr Martin especially in relation to finishes, but that was all. 284For him to say as he did in his evidence that he was not aware whether Mr Lloyd was having discussions with Mr Rosselli or Mr Martin was quite frankly disingenuous. He had to agree unsurprisingly that his suggestions about the estimation process should have been copied to Mr Lloyd. Indeed I consider it was in his interests that the insurer was actively engaged in the process. There is no doubt that Mr Libling was trying to cover every contingency especially in circumstances where there was to be a once and for all cash payout. His approach, I consider, as I have said, is consistent with him ensuring that the best position was put forward to achieve the optimum outcome in negotiations. 285Earlier, on 23 April 2009, KCJ provided its first estimate to Mr Libling and others. It was between this period and 6 May 2009 that Mr Libling, Mr Martin and others met and discussed the process, scope and cost. The difference between the first and final estimates is approximately $800,000. I will return to this later. 286The final KCJ estimate was issued on 8 May 2009. 287On 11 May 2009, it was sent to Mr Meredith and Mr Knox. 288On 21 May 2009, Mr Libling wrote to Mr Lloyd asking how he was progressing. 289On 28 May 2009, Mr Day wrote to Mr Libling expressing his surprise at the estimated cost. 290Following Mr Day's email of 28 May 2009, Mr Libling said he had a conversation with Mr Day in which he indicated that he was concerned that Mr Day was not going to accept Mr Martin's assessment as "we had agreed would be done". Mr Day, according to Mr Libling, indicated that he was proceeding on that basis that the sum involved needed to be verified. Mr Libling asked why that had not been done at the time, to which Mr Day said that he did not think it would need to be done as the number was a surprise to him. Mr Libling complained about the delay and asked how long it would take for things to be resolved. Mr Day reiterated that the exercise would not be repeated he was just checking that KCJ had "not made any major mistakes". 291Mr Libling and his wife were due to go overseas on 11 June 2009 for their son's graduation. He says he cannot now recall how it was that he discovered the fact, but that on or by 10 June 2009 he had learned that the defendant as he put it had "engaged a quantity surveyor". As a result he says he became extremely concerned by reason of what he asserted was the prior agreement he had made with the defendant. He asserts he had a conversation with Mr Day in which he accused Mr Day of going back on the agreement that Mr Martin was to assess the costs of restoring the house. He asserts Mr Day rejected that and said that they need to get David Martin's numbers checked. Mr Libling raised with Mr Day the question of the defendant's use of a quantity surveyor and how he believed that a quantity surveyor would not pay attention to the "uniqueness of the house". I must say I have difficulty accepting this aspect of Mr Libling's evidence. He knew at all times that Mr Knox for example had been retained. 292Mr Day indicated however that he would make sure that any quantity surveyor understood what he was dealing with and that he did not expect that the process of "checking" would take two weeks but, according to Mr Libling, Mr Day reassured Mr Libling that the defendant had not changed its mind but was simply wanting to check that KCJ had applied the November/December reports correctly and given the amount that was being claimed a check would be necessary. 293Importantly in my mind Mr Libling himself asserts that during the course of this call he made the following statement to Mr Day: Well in February we agreed that we would rely on KCJ's assessment but if you want to verify scope and individual items I have no choice and have to accept that. 294Mr Day agrees that he had a telephone conversation with Mr Libling on 10 June. However he does not agree with the conversation set out in the paragraph although he did not recall the precise terms of the conversation. Mr Day asserts that Mr Libling had been aware since 10 February that the defendant was proposing to retain a quantity surveyor. Mr Day denies that he agreed at any stage to be bound by the figure assessed by Mr Martin as to the cost of the reinstatement. I accept Mr Day on this aspect and I reject Mr Libling's account of this particular conversation. 295No doubt Mr Day and Mr Libling had a conversation on 10 June 2009. It may well be that Mr Libling believes he made an assertion about a prior agreement but if he did I do not accept that he could have believed that there was one. The better view is that he is mistaken in his belief as to what he said. 296Mr Libling sent an email on 10 June to Mr Day. It is set out in detail at [60] above. This email of 10 June I consider is quite contrary to any suggestion that the KCJ estimate would be binding on the parties after an arithmetical checking by the insurer, followed by the issuing of a cheque. Mr Libling in his email of 10 June asserts that Mr Day had informed him that the engagement by the defendant of a quantity surveyor was "not for the purpose of putting forward their own figure". He then went on of course to acknowledge that Lumley wanted to verify that the estimate was not in error as to scope and cost of individual items. Whilst the terminology he chose in relation to costs might on one view be consistent with the defendant seeking only to check the arithmetic, his apparent acceptance of the checking of the "scope" is quite inconsistent it seems to me with the kind of arrangement Mr Libling asserts came into place on 10 February. If, as he asserts in his affidavit, he had come to the view that Mr Day was substantially departing from the agreement they had reached in February, his email of 10 June did not candidly confront that issue. 297In the circumstances I am by no means satisfied that the understanding which was said to have been arrived at in February was any more than an agreement on the part of the defendant to permit Mr Libling with the choice of his own engineer, architect and builder to construct a framework within which the parties could then negotiate the level of cash payment by way of compromise. I am satisfied that all parties wanted a negotiated outcome. 298Somewhat ironically, in his email of 10 June, when confronted with the insurer wanting to check KCJ's cost and scope, Mr Libling requested the insurer keep him informed of any communication between itself and Mr Martin. It is a pity he did not attend to that level of candour and transparency when he himself was dealing with Mr Martin a little earlier in the year. 299Whilst I am not satisfied that there was any agreement understanding or conduct on the part of the defendant so as to give rise to the estoppel asserted, it will be necessary however to consider in much more detail the conduct of the defendant particularly after 10 June on the question of whether or not it breached its duty of good faith to the plaintiffs.

The alternative accommodation estoppel 300Additional benefit clause 1.4(n) provides an indemnity in respect of the additional costs of reasonable temporary accommodation for the insured and their household pets for up to 24 months or the period it takes to make the building inhabitable, whichever is the lesser. The defendant in its submissions accepts that it should pay for the 24-month period. 301In addition to the temporal limit, there is a limit of 20% of the "Building Sum Insured" also provided by the clause. That would translate into an amount of $789,000. 302I think the plaintiffs correctly identify the real issue in dispute as whether the insurer agreed with the insured to an arrangement whereby the insured would accept a lesser standard of accommodation during the indemnity period, saving the costs in that period, on the basis that the insurer would agree to meet accommodation expenses incurred after the indemnity period subject to the maximum cap. In other words, whether by agreement or operation of an estoppel the insurer is not entitled to now limit the benefit to 24 months. 303The plaintiffs contend that the evidence is that the plaintiffs have incurred accommodation and related costs in the 24-month period of $527,653.13 (being $464,525.25 for accommodation and $63,127.88 for related costs). 304The post period claim is for a further $137,876.86. Again I think the plaintiffs correctly contend that it is not in issue but that these amounts as identified were in fact expended. 305On 2 October 2008, Mr Libling had a discussion with either Mr Day or Mr Lloyd in which he gave an estimate of the likely rent for the house of between $6,000 and $8,000. I should observe that neither Mr Day nor Mr Lloyd has any recollection of such a conversation but certainly do not deny it. 306On 29 October 2008, Mr Day sent an email to the managing agent of a proposed rental property in Point Piper which was then under consideration. He indicated that the amount of $6,000 per week "falls within the allowance" under the policy. That email was forwarded to Mr Libling's then personal assistant. 307The context in which the estoppel is said to have arisen is in relation to the Liblings' decision to rent a property at 40 Martin Road, described by the plaintiffs as a house of considerably less amenity than their damaged house which they submit is evidenced by the fact that the asking rent was $3,000 per week. 308Mrs Libling's evidence was that the house was not her preferred option because it was smaller than they wanted and the living areas were not ideal. However it had the advantage of being close to their house so she could more comfortably supervise the rebuild. I am satisfied that this frankly was the predominant if not sole reason why they chose to live at 40 Martin Road. 309Mr Libling wrote to Mr Lloyd on 6 November. He outlined that 40 Martin Road was available from 19 January at $3,000 a week but that (as I have already pointed out) one of the major disadvantages was that it could not accommodate the whole of his family over the Christmas/New Year period. 310In that email, Mr Libling went through a number of possibilities and calculations but at the end asked for the defendant's approval to go ahead with the proposed arrangement for a short term lease (18 December 2008 to 19 January 2009) at Victoria Street, Watsons Bay and thereafter a one-year lease at 40 Martin Road. He then concluded by saying: We are also hoping that should the restoration of the house take longer than 2 years the insurer will take into account this saving and slightly extend the period of accommodation cover 311The plaintiffs contend and I agree that what was in fact being put was an invitation at least from Mr Libling that the accommodation benefit be dealt with in a pragmatic fashion. Apart from the short period over the Christmas/New Year, Mr and Mrs Libling were content to live at 40 Martin Road which would arguably cost the insurer less than it was potentially obliged to pay under the policy. On the basis that the rebuilding took more than two years the insurer was being asked to take this into account and give consideration (if need be) to slightly extending the period of accommodation cover. Mr Libling asserts that he had a conversation with Mr Lloyd shortly after his email of 6 November, in which he asserts that he was at pains to emphasise the potential need for flexibility beyond the two year period if the rebuilding had not finished. He acknowledges that Mr Lloyd expressed the view that he thought Mr Libling would not need the period and that he would not be prepared as it were to give Mr Libling a blanket extension. Again Mr Libling acknowledges Mr Lloyd re-emphasised that he thought the rebuilding would occur within two years but agreed that he would recommend "the arrangement" to Nigel. 312Mr Libling followed Mr Lloyd up in an email dated 12 November 2008. Mr Libling again indicated clearly to Mr Lloyd that on the basis of their conversations he had gone ahead and rented the Watson Bay house but wanted a formal response from Mr Lloyd "for the files". 313It is possible that when Mr Libling used the word "conversations" he was in part at least referring to his earlier conversation about his concerns about the rebuilding taking in excess of the two year period. 314Mr Lloyd responded on 14 November 2008. He said: I refer to previous correspondence in relation to this matter. As discussed, I confirm that it is in order to proceed with your proposal for accommodation. 315Mr Lloyd disagrees with the conversation deposed to by Mr Libling relevantly in his affidavit and says that he recalled that Mr Day had proposed a cash settlement for alternative accommodation costs for the period to January 2009. He also recalled Mr Libling wanted a cash settlement calculated on the basis the full two year period being the limit applicable to alternative costs under the policy. He recalled however that Mr Day favoured a settlement of the claim based on actual expenditure. 316Mr Lloyd says he recalls Mr Libling did indicate that his old house had accommodated extended family over Christmas but that 40 Martin Road would not suffice for that period. He said he wanted to rent an alternative place and the figure of some $64,000 was considered. Mr Lloyd also recalls telling Mr Libling that he would not give him a blanket amount to cover alternative accommodation as he did not believe the rebuilding would take two years and that he wanted to base any cash payment on the actual rental value of the current property and the amount of time it would take to rebuild the home. 317I agree with the plaintiffs submission that as Mr Lloyd accepts that he can recall expressing the view that he thought the rebuilding would take no more than two years, it is likely that the question of whether it might exceed that period had been the subject of discussion. 318Mr Libling's email of 12 November dealt with two discrete topics. First the Watson Bay rental over the Christmas/New Year period and the agreement, although not formally documented, with the owner of 40 Martin Road. There is no doubt that Mr Libling was looking for a response in relation to both matters and fairly construed I think Mr Lloyd's email did just that. However, what it did not do on its face was to address the question of whether and if so how the defendant would approach the two year limitation in the event that the process exceeded two years. It must be recalled that these were very early days. The fire had only occurred a short time before. 319However, the plaintiffs rely upon the context in which the conversation and/or the emails took place. It is submitted that this was at a time when the defendant had already shown a preparedness to be flexible in relation to the application of policy benefits especially given the changes which Mr and Mrs Libling had anticipated they may wish to make to the house. It is submitted that flexibility with the accommodation benefit would be consistent with that general approach. 320In addition the plaintiffs rely upon an email from Mr Lloyd to Mr Day dated 6 November 2008. It states: The insured is firmly of the view that the reinstatement would take more than 24 months and would be willing to discuss a cash settlement on that basis - $600k. I therefore suggest that we deal with actuals and accept DLs proposal. 321I should say in passing that the email of course corroborates Mr Lloyd insofar as he asserted that there was a discussion with Mr Libling about the possibility of a cash payout. However as is correctly pointed out by the plaintiffs the figure of $600,000 is approximately two years at $6,000 per week in circumstances where Mr Libling was going to rent 40 Martin Road at $3,000 per week. 322In addition the plaintiffs rely upon a report dated 12 November from Mr Lloyd to Mr Day. Under the heading "Alternative Accommodation" Mr Lloyd wrote: Your insured has now reviewed their requirements for alternative accommodation and has decided that it is convenient for them to lease a property on Martin Road, at a cost of $3,000 per week, rather than lease the premises at Point Piper for $6,000 per week. The will have the convenience of being near the home not withstanding "that the Martin Road premise is significantly smaller than 44 Martin Road". In order to this (sic) they will require some additional accommodation at various points during the year but have calculated that the overall cost of the second option will be around $287,000 to January 2010 as compared to the amount of $320,000 for the Point Piper premises. As discussed with your office we have agreed that your insured should proceed on this basis. 323Further the plaintiffs rely upon Mr Lloyd's Report 9 dated 15 June 2009. This in relation to the building costs was at a time when the insurer was looking to cash out Mr and Mrs Libling. Mr Lloyd made a recommendation to make payment of an accommodation figure calculated at a rate of $6,000 for 78 weeks. There was no indication of how the 78 week figure was determined but it is submitted by the plaintiffs that on any view this runs past the date of expiration of the 40 Martin Road tenancy and that the calculation is much more consistent with flexibility rather than an attempt to calculate payment of actual costs for a period. 324The defendant submits that properly construed the email exchanges culminating with Mr Lloyd's email to Mr Libling of 14 November do not amount to an agreement to vary the terms of the policy. The defendant submits that an expression of hope by Mr Libling in his email of 6 November does not constitute an agreement to vary the term. Further the defendant submits that estoppel cannot arise conventionally and/or by silence. The defendant further submits that the evidence does not support any representation by either Mr Lloyd or Mr Day in terms of that which is pleaded. 325I think the defendant correctly points out that Mr Lloyd did make it clear that he would not give Mr Libling a blanket amount to cover alternative accommodation. Mr Libling of course accepts in his evidence that is precisely what Mr Lloyd said. 326The defendant also points out that there is no email from Mr Libling or if I may interpolate for that matter from Mr Lloyd or Mr Day, confirming Mr Lloyd's alleged agreement to any proposal. 327The defendant points out that Mr Lloyd asserted in his evidence that he was proposing a cash settlement for the alternative accommodation costs for the period to January 2009. 328There is no doubt as is submitted by the defendant that Mr Lloyd recommended to Mr Day as early as 6 November that the defendant deal with "actuals", meaning thereby I presume actual rent paid. There is also no doubt that Mr Lloyd was suggesting to Mr Day that a cash settlement be discussed with Mr Libling and the figure of $600,000 "was identified accordingly". 329In addition the defendant submits that it makes no sense for a chartered loss adjustor such as Mr Lloyd to agree to vary the terms of a policy to extend an indemnity period in advance of the end of the indemnity period based on untested or unchecked assertions by the insured either as to the rental value of his home or alternatively as to the length of time it might take to engage in the refurbishment or restoration of the house. On the other hand the plaintiffs assert that Mr Lloyd's understanding of the alleged agreement that it is asserted he reached with Mr Libling is best indicated by his calculations it is said in Report 9. 330It must however immediately be observed that this report is dated 15 June 2009 and needs to be viewed in context. In my mind it has limited value in terms of trying to work out if at any relevant earlier point in time an agreement was reached for example. The report after all was a private communication between loss adjustor and insurer. That said Mr Lloyd did make an allowance of $468,000 which is calculated by reference to 78 weeks at $6,000 per week. Clearly Mr Lloyd had to accept as he did in cross-examination that the $6,000 bore no relationship to the amount then being incurred by the Liblings which was $3,000 per week for 40 Martin Road. He also accepted that the $6,000 figure was the figure that he had in mind from discussions he had had with Mr Libling in November 2008. Again accepting the plaintiffs' submissions and indeed the evidence of Mr Lloyd I am still not satisfied this necessarily is determinative of whether there was an agreement as alleged and/or is conduct sufficient to give rise to an estoppel. 331Mr Lloyd also accepted in his evidence that the 78 week figure which he used represented a time frame up to the notional completion of work. That is the period up until the time that the notional build would be complete. He also accepted that if the projected time frame by Mr Meredith was longer than 40 weeks his figure would have been higher. He however suggested that the amount reserved represented the upper limit on the rental claim. 332The plaintiffs submit therefore that the calculation in Report No 9 is only consistent with the Liblings' version of the agreement that Mr Lloyd agreed to pay $6,000 per week multiplied by the weeks it took to commence residence back as their home at 44 Martin Road. It is submitted that it was not a calculation capable of being reconciled with any actual rental period being incurred plus a $64,000 allowance at each Christmas. 333On balance I am simply not satisfied that the evidence supports an agreement as asserted by the plaintiffs nor am I satisfied that the conduct relevantly relied upon would give rise to an estoppel. 334I consider that the better view of the evidence is that there was no agreement. There is simply no material that sufficiently gives rise to any notion of offer and acceptance. Although Mr Libling was obviously concerned in the latter part of 2008 that the building work might exceed two years Mr Lloyd never agreed with that proposition and thought that it was not feasible. 335In the November/December period of 2008 and into early 2009 whilst Mr and Mrs Libling necessarily had to find and occupy alternative accommodation the parties on both sides became entirely distracted by trying to agree on a sum of money for the building works. The process undertaken on both sides again in engaging with Mr Rosselli, Mr Hassall and Mr Martin was not only hugely time consuming but in my opinion occupied the parties almost entirely through 2009. Although the parties had applied their minds early to the question of alternative accommodation I do not think any agreement was ultimately reached in terms of the precise amounts claimed or alternatively nothing more than a vague arrangement that if the period was exceeded, namely the 24 months, some consideration to flexibility may be given. There is absolutely no doubt that the Liblings decided to occupy the property at 40 Martin Road for their own reasons. They were not doing the insurer any favour. Mr Libling and his wife were vitally concerned to ensure that the rebuilding of their house occurred as promptly as it could and with a minimum of expense incurred by them personally. It was most convenient they could live so close. I therefore reject the claim that there was an agreement as to alternative accommodation or that in the circumstances there should be any estoppel.

The November/December 2008 reports estoppel 336As I have identified above, the plaintiffs allege that the insurer is estopped from denying that the plaintiffs' entitlement to reinstatement and associated benefits under the policy would be determined by reference to (among other things) the information contained in certain reports, advices and architectural drawings and plans obtained in late November to early December 2008 (I have identified these reports above). 337In my view, the insurer agreed for Mr Libling to obtain reports from consultants of his own choice in order to appease the plaintiffs and to attempt to reach a settlement. The insurer likewise had its own consultants. 338The fact is, at the time the reports were obtained, it was an investigative period. I have formed the view that in and of themselves, the various reports certainly do not support any agreement or estoppel. The manner in which the plaintiffs conducted the case, and the content of their final submissions, indicated the same.

Did the plaintiffs breach their duty of utmost good faith? 339As I have previously identified, the only pleaded case of bad faith as against the plaintiffs is that they obtained from the Council a development consent when it was unnecessary to do so (see [C28(3)] of the Commercial List Response). In particular, the insurer alleges the plaintiffs represented to the insurer that a development application would be necessary to reinstate the house to its "as was" condition, when in fact a development application was only required as a result of proposed changes required by the plaintiffs. Accordingly, the defendant alleges it may have been prejudiced and borne costs unassociated with the reinstatement required under the policy. 340In the light of the conclusions I have arrived at following my previous analysis of the relevant planning requirements (and the evidence relevant to this aspect of the case), I am satisfied that the plaintiffs simply accepted the advice of Mr Rosselli and Mr Hassall (whose evidence I accept) in lodging a development application, and accordingly reject any allegation that the plaintiffs breached their duty of utmost good faith in the manner pleaded. 341However the defendant in the running of the case asserted that the plaintiffs, in particular Mr Libling, breached his duty of good faith towards the defendant as I understood it by reason of his conduct in relation to the KCJ report. Somewhat curiously in their final written submissions the defendant identifies under the heading "Issues for Determination" those matters which presumably it intended to have me address as discrete topics. Notwithstanding the fact that one of the topics raised by the defendant is whether or not it acted in breach of its duty of good faith it does not raise expressly the issue of the allegation of the plaintiffs' lack of good faith. However the assertion is made expressly under the heading "Reason 4" as a justification as to why the plaintiffs' claim in estoppel fails in relation to the KCJ report. A similar theme is articulated under what is said to be "Reason 3" in the same section of submission under the guise again of why it is that the KCJ report should not be regarded as "independent, fair or impartial estimate". 342Indeed the same theme is perpetuated in what is said to be "Reason 5". 343Although I have made a number of comments which are adverse to Mr Libling in relation to his conduct I am by no means satisfied that what he did amounts to a breach of s 13. More to the point it is by no means clear to me, even if I had come to the view that he had breached that section, precisely what remedy if any the defendant would be entitled to. 344Notwithstanding Mr Libling's concession in cross-examination that he should have provided copies of documents to Mr Lloyd and that had he done so he would have given the defendant an opportunity to appropriately consider the material, to find that his conduct amounted to subornation is difficult to say the least. That he was trying to achieve the best outcome for he and his wife cannot be gainsaid. However I am not prepared to find that in participating in the exercise, to the extent that they did, they did so dishonestly or otherwise than to provide the most accurate but nonetheless the most comprehensive estimate available; in particular, one that would be quite luxurious perhaps in relation to contingencies. In any event as is pointed out by the plaintiffs suborning the process forms no part of the defendant's pleaded case. 345More to the point I accept Mr Martin's evidence which I think is consistent with a diligent approach. He certainly suggested that what he thought he had to do, and indeed did, was to price in a realistic manner. In particular, his affidavit evidence, which was not relevantly the subject of challenge, was, it seems to me, to the effect that he made changes to his pricing in response to suggestions only where satisfied that it made the costing more accurate. True it is he accepted that his quotation was undertaken on the basis of a "worst case scenario" but I do not think that meant any more than he understood that he was preparing a fixed price and wanted to take account of every risk which is precisely what Mr and Mrs Libling wanted given the fact that the process they were undertaking was to provide the most comprehensive assessment that could stand scrutiny for the purposes of negotiations. Importantly, Mr Martin described that in effect conceptually once he took into account what his task involved, namely allowing for up front assessment of all possible latent conditions imaginable and allowing for possible variations on the same basis, he did think the course he took was fair and reasonable. 346On the question of the contingency of 15% he agreed that he adopted that between his first and second reports on instructions but that upon reflection he thought that it was appropriate. It must be said that Mr Martin's exercise was done in an utterly artificial environment. Everyone knew that including him. But this was on one view a once-off opportunity to obtain a compromise and I am satisfied Mr and Mrs Libling wanted to put the most favourable and most comprehensive position forward. I however do not think (even if it were part of the pleaded case) that on balance Mr Martin was in fact suborned. He was clearly influenced, but it seems to me as a professional he did not give me the impression that anything he ultimately agreed to was contrary to his firmly held professional views. It is true he was looking at perhaps what may be described as an optimal amount, but that does not lead to a finding, even if it were pleaded, of subornation. 347In addition I think it is fair to take into account Mr Hassall's view which supports not necessarily the ultimate figure for a number of reasons, but at least because of the methodology adopted by Mr Martin. Mr Hassall understood that KCJ was providing its quote based on the BCA compliance report but at the same time as an "independent professional builder". He was resistant to the suggestion that a 25% margin applied in the quote was excessive without reviewing the quote but he observed that the quote was prepared as an estimate rather than a tender and the margin may have been covering other unknown items. Mr Hassall was also of the view that the adoption of the BCA compliance report by Mr Martin was governed by those parts of the site that required attention based on his observations of the site. Mr Hassall also thought that the difference between the first and final draft of the KCJ quote was that a greater amount of detail was adverted to in the second report. 348It seems to me that given the gravity of the allegation and the test that one must apply (Briginshaw v Briginshaw [1938] HCA 34; (1938) 60 CLR 336) the allegation here that Mr Libling suborned the process (leaving aside the absence in any pleading) requires in my view strong evidence. 349Whilst in my view it must have occurred to Mr Libling that what he was doing was somewhat inappropriate by keeping the estimation process out of the view of the defendant, on balance I consider that his motives in doing so, whilst in part to avoid scrutiny as the process evolved, were nonetheless out of a desire to legitimately encourage Mr Martin to consider every conceivable permutation and combination when arriving at his estimate. Clearly it would be the maximum amount arguably which Mr Libling was able to achieve by way of a payout. But in the end ultimately it would have to be scrutinised, as I have found Mr Libling could not and did not believe in my view that the insurer would merely pay a cheque upon the presentation of the KCJ estimate. For those reasons I do not think, based on the authorities at least and on my findings, that Mr Libling has breached his duty of utmost good faith pursuant to s 13.

Did the insurer breach its duty of utmost good faith? 350Somewhat ironically the plaintiffs rely upon Mr Day's perception that good faith required open and transparent conduct. They also rely upon the fact that Mr Day accepted that the duty also required the defendant to consider the interests of the insured insofar as it could not act solely considering its own interests. 351I have already adverted to the fact that as a result of the KCJ estimate being significantly higher than what Mr Day was expecting to see he and Mr Lloyd were obviously embarrassed. I observe of course that I have also rejected any notion of any agreement however to pay on the faith of the KCJ estimate alone as at 10 February. 352Equally there is no doubt that both in its own interest and I do believe in the interests of the insured, the defendant wanted to adopt a cost effective way to arrive at a position in order to achieve a compromise on a payout figure. To that extent it goes without saying that both Mr Day and Mr Lloyd had been quite prepared in both November and December 2008 and in the early part of 2009 to leave Mr and for that matter Mrs Libling to their own devices in respect of their dealings with Mr Rosselli and Mr Martin in particular. It is to be noted that they did not ask for Mr Meredith or anybody else to work in association with Mr Martin and/or Mr or Mrs Libling. It is further to be noted that Mr Meredith's first report was sent to Mr Libling on 18 June, only four days before Mr Meredith was given access to the house on 22 June and only briefly before Mr Meredith and Mr Martin had any contact. There is no doubt these steps could have been taken earlier. Again but perhaps in passing it is relevant to note that Mr Meredith's first costing was a ground up effort and he did not engage in a process of a detailed checking of KCJ's figures, nor did he seek apparently access to any of Mr Martin's spreadsheets. 353Mr Day in my view somewhat unfairly makes reference to a lack of control of the matter by Mr Lloyd. Mr Day accepted in his evidence that he was complaining about what he perceived to be Mr Lloyd's failure proactively to control the costing process that had occurred. I have to say however that he must have been clearly privy to the fact that his own consultants which he asserted he would always retain had not been directed by him, or for that matter anybody else, to involve themselves in the process prior to the estimate being produced. I think it probably was reasonable to an extent for him to have expected Mr Lloyd and Mr Libling to have cooperated with each other. 354I have little doubt that Mr Day's reaction was merely to the size of the estimate when he first saw it. It was simply out of kilter with what he obviously had in his mind given his estimates and what the defendant may well have contemplated making by way of cash payment. In particular, the materials which he had at an earlier time, costed the building costs at around $1.8 million. 355He accepted, quite fairly in my view that his perception at the relevant time when the KCJ estimate was produced was that the Liblings would have an expectation of being paid out on that basis. The plaintiffs criticise Mr Day on this basis saying that he could not possibly have held such a perception unless it was a procedure that he had agreed to. I do not accept that as a matter of logic, apart from anything else. 356It is submitted that Mr Lloyd's attempt as it were to have the KCJ estimate second guessed by a quantity surveyor as apposed to a high-end builder was because he was not interested and/or that it did not suit the defendant's agenda. However much of the criticism of Mr Day is predicated upon the existence of an agreement/estoppel from February 2009 which I found did not exist at least as asserted by the plaintiffs. I am satisfied that neither Mr Day nor Mr Lloyd anticipated such a wide disparity between the assessments which had been made internally by them as to the likely costs of reinstatement and that produced by KCJ. They were simply nonplussed. To a large extent it was their own doing by the manner in which the process was undertaken, in particular by them not retaining early a high-end builder to be used as a sounding board as opposed to the likes of Mr Knox and/or Mr Meredith. But it is equally clear they had used Mr Knox before and trusted his judgment for which I do not consider they can be criticised. In part they may well have been distracted or disengaged by reason of work pressure. In part however I think their attitude is explained by them perhaps not quite understanding the market in which this policy had been sold and/or the type of work that Mr Rosselli and others traditionally did with this type of house. 357Mr Day certainly was gripped by embarrassment and as I have observed sought I think unfairly to blame Mr Lloyd. Equally he must have been concerned about how his judgment might appear internally. He was provoked to take a much more hands on approach than he had previously (and arguably should have always taken), directly communicating for example with Mr McNamara for his "urgent input". 358I have little doubt that Mr Day was attempting as best he could to buy some time to try to deal with this rather unexpected event. He clearly felt at a disadvantage in any negotiations going forward given the fact he and/or Mr Lloyd had allowed the process to a large extent to get away from them. They were simply not in a position as it were to match like for like in any negotiations. 359The plaintiffs contend that Mr Day was less than frank with Mr Libling about precisely what he was doing particularly in relation to retaining Mr McNamara. First I do not think as I have already found it came as any surprise in reality to Mr Libling that the defendant would want to check both the scope and costing of the KCJ estimate. As a businessman, as experienced as he was, he would have expected nothing less. I am certainly not satisfied that Mr Day was obliged to foreshadow every move he was then seeking to undertake in order to both understand and come to terms with the magnitude of the KCJ estimate. That it was partly his own fault that the process had got away from him I do not think obliged him on the eve of the negotiation to portray his every thought and/or concern. 360It is pointed out by the plaintiffs that Mr Day accepted in cross-examination that Mr Libling may have enquired of him as to why the defendant was not paying on the KCJ estimate and further accepted that Mr Libling "might have" told him that he was concerned that the defendant was not accepting that estimate. In my view nothing in particular turns on that. Mr Libling was being robust in his negotiations and as I have already found I do not accept that he could legitimately have expected a cheque subject only to arithmetical checking. 361The plaintiffs correctly point out that there appears to have been a meeting at Mr Lloyd's office between Mr Day, Mr Lloyd, Mr Knox, Mr Meredith and Mr McNamara on 3 June 2009. Mr Lloyd of course claims not to have been at that meeting although he is recorded as an attendee on Mr Knox's note. The plaintiffs correctly again point out that there is simply no evidence as to what discussions took place at the meeting. Mr Lloyd however appeared to accept that it was at this meeting that an agreed approach in relation to the KCJ costing was conceived. At the end of the day however to say more about the meeting would be simply to speculate. 362In addition the plaintiffs rely upon the report from Mr Lloyd to Mr Day of 10 June 2009. The plaintiffs submit that the report was likely provoked by an email of the same date from Mr Day to Mr Lloyd. That may well be so. In any event the email from Mr Day to Mr Lloyd was sent approximately an hour after they had both received Mr Libling's email of the same date. 363Mr Day's email makes a number of points. First, it is clear that at a meeting with the MCS quantity surveyor and the engineers "all expressed considerable surprise " at the building quotation. It is clear that each had given their estimate of the likely building cost; MCS at $1.3 million, and the engineer at $1.5 million to $2.194 million. It is also clear that Mr Day asked Mr Lloyd to immediately request the quantity surveyor to quote on a number of components. Material would then be required by KCJ to make some comparison. 364Later that day Mr Lloyd provided a report to Mr Day. The plaintiffs submit that it is evident from both Mr Day's email and the report from Mr Lloyd that the quantity surveyor was known to have a costing role not a checking role. For reasons I have already adverted to, in my view nothing turns on this. 365In any event Mr Lloyd said that his preliminary review suggested that "the contractor's quote [$4,183, 667] is excessive both in terms of scope and costing". Further, he did note that there was to be a meeting arranged with KCJ to take place in the week beginning Monday, 15 June with a view to pinpointing differences in scope and costings. Mr Lloyd did go on to say that he was arranging for an appropriately qualified contractor to provide a second quote. 366In his earlier email, Mr Day, as the plaintiffs point out, did suggest a revised reserve for building of $3.3 million. Again, as the plaintiffs point out, Mr Day gave somewhat unsatisfactory evidence as to where this came from but it does appear to have been as a result of his discussions with Mr Knox. However, Mr Day also expressed the view in that email that he thought Mr Libling was likely to be confrontational and possibly litigious and not only was the quote from KCJ unexpected but according to Mr Day "without foundation". I think it is fair to say however, as the plaintiffs invite me to find, that as at the date of his email Mr Day was prepared at least to contemplate $3.3 million as a reserve for settling the building claim. 367The plaintiffs submit that when Mr Libling said in his email of 10 June that he accepted that the scope of the quote would be checked he meant merely testing whether items of work needed to be done by reference to whether they were damaged by the fire. I am of the view that that was a perfectly reasonable understanding for him to have had at the time. 368Mr Day accepted in evidence that Mr Libling did raise the question of the use of a quantity surveyor and further that Mr Libling told him that he thought the defendant was going back on its agreement reached with him that KCJ was to be the person used by the parties to assess costs. For reasons I have already expressed I pay little regard to Mr Day's concession as it is clear to me that he really did not have a recollection of what was or was not said during the course of this conversation. 369The plaintiffs also refer to Mr Lloyd's report of 15 June 2009. It is pointed out that the reserve recommendation was increased, including an increase in the building figure to $3.3 million. Mr Day accepted as it seems to me is reasonably obvious that that increase was as a result of his recommendation. Mr Lloyd expressed the view that although on the current figures the defendant's experts and those of the insured were about $2 million apart, he expected that Mr Meredith may well revise his figures once he has reviewed "additional documentation"; specifically when additional information may be forthcoming in relation to what was described as the "high quality finishes". The plaintiffs rely upon these statements to submit that it indicates a consciousness of a deficient briefing of Mr Meredith. That may well be so. It also seemed to be correct that Mr Meredith never did produce a further detailed costing following receipt of information about finishes. Further there does not appear to be any evidence that Mr Meredith was required to give such an estimate. 370The report also and not for the first time involved Mr Lloyd again indicating that a "high end contractor" would be retained to provide a second costing on the basis of reduced scope. There was no evidence that the defendant ever actioned that recommendation nor did Mr Lloyd so it seems make any enquiries of who might be a suitable person to retain. 371It must also be noted however that Mr Martin who was to be available for the week of 15 June would not be available until Monday, 22 June. 372The plaintiffs submit that Mr Day did not ask Mr Martin to take him or any consultant through Mr Martin's spreadsheets to explain his position, nor was Mr Meredith ever asked to go through the house with Mrs Libling. The defendant says these steps were plainly available if the insurer had any real intention of checking the figures or obtaining an accurate figure from Mr Meredith. These steps would have been necessary, the plaintiffs submit, if the defendant had any interest in taking steps which may increase the figure. I am unable to accept this submission. It is clear that the defendant found itself in a difficult situation. It was ill-prepared for the KCJ quote. To some extent it could be said to be the author of its own misfortune in that although it had Mr Knox and Mr Meredith potentially available neither were fully armed or perhaps able to provide relevant expert advice to the defendant. 373The plaintiffs submit that because Mr Day accepted that his preferred course was to continue to rely however on Mr Meredith when making offers to Mr and Mrs Libling, that in some way is evidence that the defendant was not genuinely engaged in a process of attempting to work out the true costs of reinstatement. It was put squarely to Mr Day that increasing the reserve in the manner in which he did led inexorably to the conclusion that he was no longer relying upon Mr Meredith's figure. Again I am unable to accept that criticism. It is clear to me what Mr Day was attempting to achieve was a pragmatic outcome but a lot of time had passed and he was clearly at a commercial disadvantage by reason of the particular process that had ensued. 374It is further submitted that Mr Knox upon whom the defendant relied had not made any elementary investigations into the DA issue such as reviewing legislation, planning instruments or the extent of existing consents. He certainly never spoke to anyone at the City of Sydney Council and never had any past experience in negotiating with that Council. That said, the defendant was in fact faced with Mr Knox's letter of 15 June. It stated in emphatic terms that as "project managers and structural engineers with 30 years experience in the insurance sector industry" a project such as the reinstatement of 44 Martin Road can in "our view" be undertaken in accordance with the previous DA approval. Mr Knox went on to indicate that he has successfully completed many projects as a result of negotiations with council. He went on further to express the view that "a significant amount of scope as documented on the architectural drawings may be deleted as it does not relate to the fire damaged portions of the building". The plaintiffs contend that Mr Day deployed as it were Mr Knox's letter in circumstances where Mr Day plainly knew that Mr Knox was not a specialist in the field. Further, that these views were plainly inconsistent with the views of Messrs Rosselli and Hassall. The plaintiffs therefore submit that this was a mere ploy used by the defendant to chisel the KCJ estimate in an aggressive and argumentative way. Further support for Mr Knox's role as an advocate is said to be gained by reference to his letter of 10 August 2009 in which he undoubtedly supports the review undertaken by RLB. 375Mr Knox agreed in cross-examination (a matter to which I will return) that the bulk of his letter did amount to commenting on someone else's costings but he was not sure whether the letter was actually going to be sent to Mr and Mrs Libling or not. It was put directly to him that what he was doing was advocating a position that he thought was in the interests of the insurer. He rejected that notion and simply said he was responding to a request. I accept that evidence. The mere fact that Mr Knox may have had strong and arguably ill-informed views is frankly a matter for him. Mr Rosselli, Mr Hassall and for that matter Mr and Mrs Libling had strong views. 376The plaintiffs complain that the whole approach of the defendant was in a sense an adversarial one and not one whereby they attempted to determine whether or not what had been done fell within a range of reasonable opinion. Further that the defendant took no steps to make sure that the opinion was not reasonable before raising contrary argument. In addition the defendant, it is submitted, was simply arguing for a different and in many instances an ill-informed view. As a result it was unreasonable on the part of the defendant to persist in such an approach. Again I cannot accept that as a proper characterisation of what was occurring. 377The plaintiffs also contend that the process by which the defendant made offers to plaintiffs smacks of unreasonableness. It contends that the figure first offered was substantially below the reserve that had been set and that it was put forward in circumstances where Mr Day had not reviewed the spreadsheet which was being maintained whereas a simple and logical step would have been to have done so. Criticism is made of Mr Day's methodology in attributing to buildings figures from Mr Meredith with adjustment for an environmental estimate. It is submitted that no allowance for error in Mr Meredith's figure was provided. Further the plaintiffs submit that there is no evidence that Mr Day had even personally sighted the documents from Mr Rosselli and in the circumstances it could not possibly be a genuine assessment and hence a genuine offer. In my view Mr Day was doing the best he could. He had limitations; his own, and the fact as I have said before that the process had really got away from either him or Mr Lloyd or both. He was doing his best to salvage a situation. He did, for better or worse, have the likes of Mr Knox telling him the KCJ estimate was just too high and I consider legitimately believed that. 378It is true, as the plaintiffs point out, that one of the issues the defendant raised in its first offer was the question of whether a DA was required for reinstatement. On 8 October, Mr Libling sent an email to Mr Day, Mr Lloyd and others indicating that it was simply not possible to restore the house without a DA and that the information had been communicated to Mr Lloyd who it was said had agreed that "it would not be safe" to try to reinstate without a DA. What was attached to Mr Libling's email were communications between Mr Libling and Mr Hassall that Mr Hassall had made enquiries of both a private certifier and a council officer for Centennial Park who is a town planner, both of whom confirmed a DA would be required. The plaintiffs point out that Mr Day confirmed that he read the email around about the time of its receipt but apparently it did not cause him to lose confidence in his advisors. It is therefore suggested that Mr Day in preferring his own advisors was not genuinely trying to come up with a realistic costing and he could have made a simple enquiry of a certifier and/or the Council at issue. Again I am not satisfied that Mr Day was obliged unequivocally to accept what he was being told Mr Libling. True it is Mr Libling was attempting as best he could to persuade Mr Day, that Mr Hassall had made all the relevant enquiries and that the position was clear. On the other hand Mr Day had an equally clear and emphatic position from Mr Knox. Whilst it was not informed on one view by any relevant enquiry at the time, it was based, so said Mr Knox more than once, on "30 years experience". 379The second offer was made by the defendant on 19 October 2009. Mr Day accepted that the offer involved an increase in the figure by $650,000. The process by which that offer occurred followed undoubtedly Mr Day personally sitting down with Mr Martin to review his spreadsheet. Mr Day gave some somewhat unsatisfactory evidence as to why he had not instructed his retained consultants to undertake the same exercise at an earlier point in time. The increased figure represented an increase over that which had been previously suggested by Mr Meredith of about $600,000. Mr Day continued to assert that he had confidence in Mr Meredith's figures and was again challenged as to why he had not at an earlier point in time reviewed the position with Mr Martin which could have led to an increased offer being made much earlier. It was therefore suggested that Mr Day was plainly acting in a way inconsistent with a belief of the accuracy of Mr Meredith's estimate. I do not agree. He clearly wanted to resolve the claim and he was conscious in my view of trying to avoid litigation and I daresay he was trying to be pragmatic. 380Next the plaintiffs complain that Mr Day's email contains arguments that could only be consistent with him seeking to convince Mr Libling to accept the offer. I see nothing wrong with that. Mr Day did somewhat disingenuously I accept complain that the KCJ estimate had not been procured in a competitive environment. He knew that and knew that from the outset but nonetheless it was never intended to be procured in such an environment. That was, if I may say, a somewhat limp negotiating ploy. Assuming it was I do not think that amounts to an act of bad faith under the authorities. 381It is true as the defendant points out that if there was a breach of the duty of good faith on its part, it only occurred post-30 June 2009. It is also true as the defendant points out that much of the criticism levelled at the defendant in the latter part of 2009 is predicated of course upon the alleged agreement reached in February of 2009 which I do not accept occurred. 382The defendant rightly points to the fact that it paid in any event the sum of $2.5 million together with an amount of $400,000 which had already been paid plus other amounts and that that action on the part of the defendant should be seen in context as neither derisory or in bad faith. Further, to have relied upon Mr Meredith, it is submitted, could not amount to bad faith notwithstanding criticisms that have been made by the plaintiffs. 383The defendant submits that on a proper analysis the handling of the claim lends no support to any valid criticism that could be levelled at the defendant. I am not entirely sure I agree with that, but was can be said is that from the very outset the defendant did attempt to appease Mr and Mrs Libling in the appointment of their initial architect and the appointment of Mr Rosselli and others. It agreed to pay the costs along the way of these retained consultants. It was Mr Libling the defendant points out who wanted to make changes to the house to which the defendant had no difficulty provided those costs were met by Mr and Mrs Libling. 384There can be no criticism it is said in my view correctly that the defendant opted to attempt to achieve a cash payout as being the most efficient way forward in the particular circumstances especially where Mr and Mrs Libling wanted to change the house. It is pointed out again correctly that Mr Libling himself with Mr Rosselli and Mr Martin took three months to provide the defendant with Mr Martin's estimate. Three days after the estimate was received the defendant appointed its own consultants to review and prepare their own analysis. There is certainly no doubt that Mr Meredith and Mr Knox disagreed with Mr Martin's approach and his overall assessment. Whether they were acting beyond their true areas of expertise or not, in my view, I agree with the defendant that it was entitled to rely upon those views and deploy them in order to achieve a cash compromise with Mr and Mrs Libling. I am not persuaded as I have already indicated that there was some conspiracy theory in which Mr Knox and/or Mr Meredith considered that they should do the insurer's bidding as opposed to putting forward views that they genuinely held in the circumstances. That their views may well be wrong is not to the point. 385I therefore reject the allegation of bad faith in relation to the defendant.

Building costs - what was reasonable? 386I am obliged to consider this aspect of the claim because I have rejected the plaintiffs' claim as to the estoppel which they said occurred as a result of a meeting on 10 February 2009. It is therefore necessary to consider the principles relevant to the assessment of damages, particularly in circumstances where it is difficult to do so, and then the lay and expert evidence in relation to the building issues. 387Courts are frequently confronted with difficulties in the assessment of quantum in a variety of contexts. Examples include the assessment of damages in a cause of action arising out of personal injury, the assessment of damage flowing from a breach of contract, the assessment of amounts payable pursuant to provisions of a contract and the assessment of loss flowing from breaches of consumer protection laws. The appropriate approach a court should take in assessing damages depends on the reason for which the difficulty exists. 388Difficulty in the assessment exercise often, though not always, arises by reason of the nature of what the court seeks to quantify. Perhaps the most common or obvious examples are the assessment of earning capacity by reference to future economic loss especially where the injured person is young (State of New South Wales v Moss [2000] NSWCA 133; (2000) 54 NSWLR 536 at [66]-[87] per Heydon JA), the assessment of employer contributions to future superannuation (Zorom Enterprises v Zabow [2007] NSWCA 106; (2007) 71 NSWLR 354 at [82]-[84] per Campbell JA), the assessment of "probable future [but as yet unincurred] damage arising from a breach of contract" (Bowen v Blair [1933] VLR 398 at 401 per Mann ACJ), the assessment of a potential loss resulting from a breach of the equitable duty of confidence (Talbot v General Television Corporation Pty Ltd [1980] VR 224 at 250-251 per Young CJ), the valuation of a lost of a chance to participate in a competition (Chaplin v Hicks [1911] 2 KB 786; [1911-13] All ER Rep 224), and the assessment of damages for the wrongful detention of a racehorse (Wilson v Matthews [1913] VLR 224). 389As far I as I can detect (though I am hesitant to state this absolutely), the common feature in cases of this nature is that the loss depends on events which are either hypothetical (i.e. events that allegedly would have occurred but cannot now occur due to the relevant breach) or prospective (i.e. events which might occur). That appears to be the view reached by McLure JA (with whom Steytler P and Murray AJA agreed) in Durban Roodepoort Deep Ltd v Newshore Nominees Pty Ltd [2005] WASCA 231 (at [39]), and is consistent with views expressed by Deane, Gaudron and McHugh JJ in Malec v J C Hutton Pty Ltd [1990] HCA 20; (1990) 169 CLR 638 (at 643). 390In these cases, where, as Gleeson CJ put it, damages are "inherently difficult to quantify" because they involve "estimating a risk, measuring a chance, or predicting future uncertain events" (Troulis v Vamvoukakis [1998] NSWCA 237), the court must "do the best it can" to assess damages. In these situations, when the law takes account of future or hypothetical events in assessing damages, it does so by reference to the degree of probability of events occurring in a range from "just above the speculative" to "just below the certain" (State of New South Wales v Moss at [71] per Heydon JA). This process has been described as "imprecise", "indeterminate", "speculative", based on "slender materials", based on "thin evidence", involving "guesswork", and a matter of "prophecy or judicial guesses" (State of New South Wales v Moss at [71]; Zorom Enterprises v Zabow at [82]). However, the word "guess" in this context "should not be taken as detracting from the obligation of the judge to adopt a reasoning process that has a rational basis, to the extent that the evidence presented, and the intrinsic nature of the materials and subject matter under consideration, permit" (Zorom Enterprises v Zabow at [84]). 391Other times, the difficulty in assessment arises because the party seeking to prove loss could have provided better evidence, but failed to do so. I think an analysis of the authorities reveals that a different principle applies in such a case. By reference to the decision of Gleeson CJ in Troulis v Vamvoukakis, the Court of Appeal in McCrohon v Harith [2010] NSWCA 67 said that "where the damages were susceptible of evidentiary proof, and there was 'an absence of the raw material to which good sense may be applied ... [j]ustice does not dictate that ... a figure should be plucked out of the air'". Gleeson CJ in Troulis v Vamvoukakis was concerned with the valuation of the goodwill of a business, and considered that the plaintiff could have provided better evidence as to the valuation of the goodwill of the business, but failed to do so. In such cases, courts have frequently awarded either no, or nominal, damages (see digest of cases in JLW (Vic) Pty Ltd v Tsiloglou [1994] 1 VR 237 at 241-246 per Brooking J). 392Although in the frequently cited case of Fink v Fink [1946] HCA 54; (1946) 74 CLR 127 Dixon and McTiernan JJ said (at 143) that "[w]here there has been an actual loss of some sort, the common law does not permit difficulties of estimating the loss in money to defeat the only remedy it provided for breach of contract, an award of damages", the view has been expressed (consistent with the circumstances of that case) that this passage "may be intended to refer to inherent difficulties as opposed to difficulties resulting from the plaintiff's failure to call available evidence" (JLW (Vic) Pty Ltd v Tsiloglou at 246). Indeed, Hayne J (with whom Gleeson CJ, McHugh and Kirby JJ agreed) in Placer (Granny Smith) Pty Ltd v Thiess Contractors Pty Ltd [2003] HCA 10; (2003) 196 ALR 257 identified (at [38]) the distinction between cases where a plaintiff cannot adduce precise evidence of loss, and cases where the plaintiff was able to do so but did not. Consistent with the views expressed above, Hayne J said that "estimation, if not guesswork" may be necessary in assessing damages in the former type of case, but perhaps not so in the latter. 393Plainly, it is artificial to attempt to draw a bright-line distinction between cases of the former type and cases of the latter type (JLW (Vic) Pty Ltd v Tsiloglou at 243). However, this does not mean that the distinction, drawn as a guiding principle, is otiose. As Gleeson CJ observed (albeit extra-curially and in an entirely different context), "[t]wilight does not invalidate the distinction between night and day" (A M Gleeson, "Judicial Legitimacy" (2000) 20(1) Australian Bar Review 4 at 11). It is a matter of degree. For cases which do not clearly fit within one or the other of the categories, or cases which are borderline, I think a more flexible approach is warranted, such as that expressed by McPherson J in Nilon v Bezzina [1988] 2 Qd R 420 (at 424), namely that "[t]he degree of precision with which damages are to be proved is proportionate to the proof reasonably available". This approach was approved by Heydon JA in State of New South Wales v Moss (at [72]). Heydon JA also approved the stricter approach stated by Bowen LJ in Ratcliffe v Evans [1892] 2 QB 524 at 532-533, namely that "[a]s much certainty and particularity must be insisted on ... in ... proof of damage, as is reasonable, having regard to the circumstances and the nature of the acts themselves by which the damage is done". Referring to this English authority, Brooking J in JLW (Vic) Pty Ltd v Tsiloglou, said "the amount of damage must be proved with certainty, but this only means as much 'certainty' as is reasonable in the circumstances" (at 241). 394Sometimes, however, the difficulty in assessment arises because the wrongdoing party alone possesses, and in its own interest obscures, the means of proof of loss. In those circumstances, doubtful questions should be resolved against the party whose actions have made an accurate determination so problematic (Houghton v Immer (No 155) Pty Ltd (1997) 44 NSWLR 46 at 59, Handley JA, with Mason P and Beazley JA agreeing), and inferences may be drawn in favour of the party seeking to prove loss (State of New South Wales v Burton [2008] NSWCA 319 at [107]-[108]). 395In the present case, by reason of the arrangements between the parties, I am required to form a view as to the reasonable cost of reinstatement of the house to its pre-fire condition. This assessment is necessarily based on events which are hypothetical, as the actual rebuilding of the house involved alterations and additions. However, there is clearly a great body of evidence, both expert and lay, of varying reliability, by reference to which I am able to form that view. In these circumstances, I consider that the authorities require me, having regard to all of the evidence before me, to do my best to arrive at a figure representing the reasonable cost of reinstatement. 396There is however one further principle which needs to be taken into account. The defendant brought to my attention the decision of Hyder Consulting (Australia) Pty Ltd v Wilh Wilhelmsen Agency Pty Ltd [2001] NSWCA 313; (2002) 18 BCL 122. The first thing to observe is that this was not an insurance case. In that case, an owner sued an engineer and architect after certain pavement works deteriorated and collapsed after only four years' use, due to a failure of communication of particular specifications between the architect and engineer. Subject to some adjustments (which are not presently relevant), the primary Judge, awarded to the owner (against the architect and engineer apportioned on a 50/50 basis) an amount of $566,560 which was assessed by reference to a quotation for the rectification work, rather than the actual cost of rectification of $354,281. On an appeal by the engineer, one of several grounds of appeal was that the primary Judge erred in failing to accept, as the correct amount to award by way of damages, the actual costs of rectification as opposed to the tender or quotation. 397The owner argued that the decision in Belgrove v Eldridge [1954] HCA 36, (1954) 90 CLR 613 (and other decisions) required the primary Judge to accept the figure of $566,560. Each member of the Court of Appeal (Meagher JA, and Giles JA with whom Sheller JA agreed) rejected that submission. Meagher JA said (at [19]): [19] What is surprising is that his Honour stated "in the absence of any alternative method of calculating rectification costs or any expert evidence on the point" he would accept the figure of $566,560. It seems almost too simplistic to point out the actual cost was an impeccable alternative method of calculating cost. The owner's counsel suggested that the $566,560 figure was mandated by the High Court's decision in Bellgrove v Eldridge (1954) 90 CLR 613 at 617-8. In my view, this is simply not so. The ratio of that case is that where the price of rectification is ascertained, that price cannot be discounted because of the fact that the plaintiff will not, or might not, spend all the money on the rectification in question. 398Giles JA said (at [96] and [99]): [96] In my opinion his Honour was in error. Neither Bellgrove v Eldridge (1954) 90 CLR 613 nor the other cases cited supported damages based on the theoretical cost of reconstruction of the pavement when the actual cost of reconstruction of the pavement was known, and the actual cost was powerful evidence of an alternative method of calculating rectification costs. ... [99] This does not mean that a theoretical reasonable cost is to be preferred over the actual cost where the actual cost is known and can be taken as the reasonable cost. If the rectification work has not been carried out, then a theoretical reasonable cost must be found and, because damages must be assessed once and for all, must be awarded even though the rectification work might not be carried out. (I have held that, if it is found that the rectification work will never be carried out, no damages should be awarded: see Central Coast Leagues Club Ltd v Gosford City Council 9 June 1998, unreported). But if the rectification work has been carried out and the actual cost is known, that provides sound evidence of the reasonable cost and should ordinarily provide the basis for damages. [Emphasis added] 399Although these observations were made in a case of a different context, I am presently engaged in a comparable task to that undertaken in Hyder Consulting (namely assessing the reasonable cost of reinstatement). However, a main point of difference is that whereas the owner in Hyder Consulting had actually rectified the damaged work, the plaintiffs in this case have not performed a "faithful restoration" of the house, but have made a significant number of alterations and additions in the actual "rebuild" of their house, as compared to the house in its pre-fire state. Accordingly, it remains necessary for me to have regard to the expert and other evidence before me as to the reasonable costs of reinstatement. 400I note that the actual cost to rebuild with alterations and additions was in excess of $4.8 million. The plaintiffs accept that if the cost of reinstatement without changes is less, then it is only entitled obviously to claim the lesser amount. 401As I have found against the plaintiffs on their estoppel claim in relation to the building costs as the result of the KCJ estimate of 6 May 2009, I have to determine what if any amount the defendant was obliged to pay pursuant to the policy terms. Any amount I ultimately determine in this regard or indeed in respect of other categories of claimed loss has to take into account the amount already actually paid by the insurer. 402The defendant submits that if rectification work is being carried out the actual cost is known and that that provides sound evidence of the reasonable cost and should ordinarily provide the basis for damages. In this case however the plaintiffs assert that they have in fact expended something in the order of $4.8 million but do not make a claim on that basis. That work included clearly alterations and additions. The plaintiffs contend that their claim as I have adverted to earlier should be based on any one of a number of estimates. 403However it must be acknowledged that he who asserts must prove and that although it may be a difficult task the court has to use such available evidence to assess the damages. It is only when that task is undertaken that an assessment can be made as to whether the insurer has in fact underpaid under the policy. 404The defendant submits that it is only obliged to pay the reasonable costs to repair, replace or rebuild damaged parts of the house. It further submits that the plaintiffs have improved their house and they have not used finishes of a lesser quality. Although the envelope of the house remains the same they submit it has been updated to cater for Mr and Mrs Libling's needs and it has been modernised in terms of many items. They further submit that rooms have been changed and better windows have been put in (i.e. steel windows). There are many additions to the house which no doubt improve the house. On that basis the defendant submitted that the available evidence as to those parts which were damaged and required replacement and repair consist of the November 2008 reports and other lay evidence. 405The defendant submitted that the court should approach the task in the same way as a quantity surveyor in the sense that it would undertake an item by item method of assessment. The defendant points out that a number of items have been agreed between Mr Douglas Martin and Mr Batger both as to rates and scope. There are a number of items on which the Court is invited to take a "middle approach". Equally the defendant invited the Court on a number of items to adopt a "sensible compromise". 406In commenting on the quantity surveyor's evidence the defendant accepts that Mr Martin is a more experienced quantity surveyor and more familiar with the house. Further they concede that he knows more about joinery and painting. These are some of the reasons why as will be clear I much prefer the evidence of Mr Douglas Martin and his approach than that of Mr Batger. Quite frankly the defendant recognised the substantial deficiencies in both Mr Barger's experience in their final written outline. 407The theme which constantly ran through much of what the defendant said and did in the case was directed to what it said was the uncertainty about whether various items were or were not damaged and did or did not require replacement. I should make it clear that I accept Mr David Martin's evidence as to the scope of work to be undertaken. He gave extensive evidence in chief as to the damage he observed on site, including his detailed report dated 25 November 2008 followed by a detailed costing based on his observations and expertise. Leaving to one side what I have otherwise said about Mr Martin and why I do not accept his ultimate assessment of costs of reinstatement, nonetheless he was not seriously challenged in respect of his observations. His report is a perfectly appropriate basis to be accepted for the purposes of others, including Mr Rhodes-White, preparing their estimates of the work that had to be done as a result of the fire.

The plaintiffs' lay and expert witnesses on technical matters 408The plaintiffs still as their primary position however put forward the KCJ estimate which was issued on 8 May 2009 as their primary claim. They contend that each of Mr Martin, Mr Rosselli and Mr Hassall had the opportunity to observe the house in its damaged state so as to make appropriate assessments on damage and risk. Of course each of them was intimately involved in the various reports of November/December 2008. 409The plaintiffs contend that the KCJ estimate is in the range of every other builder or architect that prior to the litigation expressed a view on the cost of rebuilding either on a preliminary or more informed basis. The plaintiffs point to Ms Fyfe the original architect retained who thought a restoration could be in the order of $4.004 million as opposed to a clean site and a new build at $3.5 million. 410The plaintiffs also call in aid RBV Builders Pty Limited who gave an early estimate of somewhere between $3.5 to $4.5 million. Initially Sydcon gave a range of $3 to $4.2 million. 411Lastly the plaintiffs point to Alvaro Brothers, at $3.5 million. 412Later in a competitive environment Sydcon quoted at $4.3 million. 413The plaintiffs submit that I should infer comfortably that if the insurer had engaged a suitably qualified builder to estimate, having seen the house in the state that it was in, the figure would likely have been in the same range. I consider there is much force in this submission. 414The plaintiffs contend that the figure provided by Mr Martin requires adjustment to accommodate for the actual costs of remediation. I agree. Mr Martin provided an estimate of $219,439 as an allowance only. I will have something more to say about the remediation issue later but the actual cost of remediation I note is $582,386.

Mr David Martin 415The plaintiffs submit that Mr Martin's figures should be accepted as he fulfilled his task professionally and they submit accurately. The task was described as to provide an "accurate quotation" to rectify and rebuild the fire damaged home at 44 Martin Road, Centennial Park to its condition immediately prior to the fire. 416It is submitted by the plaintiffs and I agree that he spent considerable time in the preparation of costing and he did pay close regard to the state of the premises at the time it was compiled. The plaintiffs submit and again I agree that as an example of the care that he took is evidenced by his compilation of the costing by reference to the state of the windows. Some but not all of the windows were suffering from rot. The spreadsheet prepared by him nominates each window separately and costs on the basis of the work required for each window. 417The plaintiffs also contend that it is important to note, the windows being a good example, that the condition of the building at the time of his 2009 inspections was most likely different in some respects to the condition of the building he inspected at the time of his reports in November/December 2008. The building was five to six months further along in its state of disrepair meaning that the effects for example of cross-contamination of mould were likely to be more advanced. 418The plaintiffs assert and again I think there is much force in the proposition that his initial observations in November/December are not an entirely reliable guide as to what reinstatement was necessary. The unsatisfactory nature of the photographic material is pointed to in this regard. 419It is further submitted that as an experienced builder and having had the advantage of careful observation of the building first hand, his costing is the best evidence of what was needed to be done to reinstate the premises on the basis described in his retainer. 420There is little doubt that he sets out in his affidavit in some detail many of his observations as to the state of the premises. He was requested and indeed supplied a draft of his costing. The affidavit filed in the proceedings details the process he went through including a consideration of all matters raised with him by Mr Libling and others. 421He said quite candidly in his evidence that he considered suggestions made by Mr Libling and determined whether they justified any change to his estimate to make the pricing more accurate. Where he thought the suggestion made the costing more accurate he adopted it in his quote. Further he said if he was not satisfied with the suggestion's accuracy he did not include it. In particular he asserted that the prices he included in his estimate were only after he was satisfied that the items priced reflected the items that had been destroyed or damaged by the fire and that the price was within the range of what one would expect to pay for an item of that quality. Further he considered the margins and contingencies applied in the quotation were reasonable and appropriate in the circumstances. He stated that in his experience they reflected the margin and contingency that a builder specialising in prestige homes would apply when asked to provide a fixed cost estimate on reinstatement of the kind he was dealing with. 422The plaintiffs lay substantial emphasis on the fact that Mr Martin was in a position to be able to perceive the entirety of the state of the premises at the time and hence was in the best position to perceive the risks involved in the task of rebuilding both in terms of builder's loadings and variations. 423The plaintiffs also point out in my view correctly that Mr Martin was costing from the perspective of a builder familiar with the standards of Mr Rosselli. He had the benefit of the documents that had been prepared by Messrs Hassall and Rosselli both of whom had had considerable exposure to the house. 424In any event the plaintiffs submit that use of the KCJ estimate and the work identified in it is sufficient to discharge the plaintiffs' onus that the work and cost for the rebuilding of the premises to its condition immediately prior to the fire is to be found comfortably within that estimate. Alternatively they submit those figures are at least an appropriate starting point by which the defendant then carries an evidential onus of satisfying the court that certain items of work were not required or obviously inappropriately costed from the perspective of what a high-end builder would charge. 425The defendant of course is highly critical of Mr Martin's estimate. It submits, for example, that the percentages attributable to contingencies, however they came about, are not in accordance with the project architect specification. 426The defendant also points to the fact that some of Mr Martin's estimates are not consistent with the specifications and in particular the measured drawings. Reference is made to the cost he included for cement rendering of the whole of the outside of the premises where, it is contended, no such suggestion had been made in the November/December 2008 reports. Mr Rosselli, the defendant contends, was content with patching were necessary. Other errors in measurement are said to lead to an over-estimation of the amount of work necessary to be done. 427Further, the defendant submits unnecessary replacement of air conditioning and other matters points to error on the part of Mr Martin. 428The defendant also points to the fact, as it asserts, that Mr Martin was unable to offer any explanation for his significant increase in the estimate other than pointing to emails from Mr Hassall and Mr Libling. 429While some of the defendant's complaints have substance the real reason why I do not think Mr Martin's assessment of May 2009 should be accepted is that although the defendant well knew that there was no competitive tender and although I accept that Mr Martin did his very best, he was attempting to include every conceivable item he could imagine, and I am of the view this likely led to an inflated figure. As he said himself unlike the real world he had to include up front as it were allowances for all latent defects and variations he could imagine. Some of his explanations during the course of his giving evidence confirmed my view that although he made a genuine and independent attempt to come to an assessment, wherever he was in any doubt he erred on Mr Libling's side. In addition, although it was not put to him, I cannot help but observe that in many of the letters he sent to various trades for the purposes of obtaining quotations for his estimate he used the following formula: Please note that we are supplying this price to the insurance company to bring the house back to a pre-fire condition. This is a very up market house and the client is insistent we allow for only the very best of finishes. 430Although I do not suggest that the persons responding to that invitation did anything other than provide their best estimate, I have to say that they were certainly on any view being invited to somewhat luxuriate. The countervailing argument is that all they were being invited to do was to appropriately provide a commensurate to the quality of the house. But the mention of it being an insurance claim in and of itself may well have had the effect of inflating the quotations received. That only adds to the artificiality of the environment in which I think these quotations were being received and upon which to some extent the ultimate estimate rested. 431Mr Martin made it clear that he was not happy simply to go along with suggestions because they had been raised. He did agree however that he was asked to supply a fixed lump sum price and to allow for a worse case scenario. Mr Libling did suggest some things needed to be replaced. However, he only included it if he thought it was appropriate. I am prepared to accept his evidence on that. 432Mr Martin well understood that he was not being asked to participate in a competitive tender process and that there was no other builder (or other person) providing an estimate of the costs. He also understood that the process was being undertaken for the purposes of putting it to the insurer. He also made it clear, which evidence I accept, that when he went through the items he formed an opinion as to whether they were referable to damage caused by the fire. 433It was put forcefully to Mr Martin that his approach to contingencies particularly by his adding 15% to the second total simply on instructions led to an excessive estimate. A number of specific items were put to Mr Martin including what, for example, was a rather exceptional allowance for inclement weather. He agreed that his allowance in that regard was out of the ordinary and not something he would normally do. 434Mr Martin rejected any notion of excessive estimation and asserted that he was trying to come up with a realistic estimate. In relation to instructions he might have been given in relation to contingencies he said that he was given guidelines to follow but at the end of the day he had to make a commercial decision as to the basis upon which he might be prepared to sign a contract regardless of what an architect may ask. He reiterated again that upon reflection after his first estimate and taking into account latent conditions and possible variations he was satisfied that an increase in the estimate was warranted. 435I regard Mr Martin gave his evidence candidly. I am satisfied he approached a very difficult task professionally.

The Sydcon tender 436In the alternative to relying upon the KCJ estimate the plaintiffs rely upon the estimate obtained from Sydcon and in particular the evidence of Mr Rhodes-White. 437Mr Rhodes-White has been in the building industry since 1981 and his company specialises in building, renovating and repairing large high quality residential houses. 438His initial contact with the Liblings' house was in October or early November of 2008 when he was contacted by Ms Fyfe. Mr Rhodes-White had previously worked in the area and had indeed repaired and rebuilt a house at 12 Martin Road, Centennial Park. He used that as a guideline for working out his estimate. He thought at that stage at least that for prestige homes of a similar character somewhere between $5,000 to $7,000 per square metre might be an appropriate range. However in the latter part of 2008 he accepted that there was a lot of information that he would need. He provided a costing to Ms Fyfe in 2008 but heard nothing further at that stage. 439His next contact with the property was in or about 29 October 2009 when he received two letters from Mr Rosselli. He had worked with Mr Rosselli on other projects. 440Mr Rosselli requested a tender for the proposed reconstruction of the existing house which involved a faithful restoration of the house as it was prior to the fire and subject to regulatory requirements, and a further tender in relation to alterations and additions which involved some minor changes in the envelope of the building and more extensive differences in terms of internal design and finishes. 441For the purposes of preparing the tender he went and inspected the house. He also had regard to the November and December 2008 KCJ reports and he considered a number of photographs which had been provided to him. He also took into account issues which had been suggested in documents he received from Mr Rosselli. 442He said he had difficulty in costing the environmental remediation works as he was not familiar with such work to be conducted in a house damaged by a fire, and even though he did consider the report prepared by Mr Gale of Hibbs and Associates he nonetheless felt unable to provide a fixed quote on this part of the works. 443He had regard to the BCA and its application to those parts of the house that were damaged in part and would need in his view to be replaced. The contingency rate he applied took into account what he perceived to be the difficulties in the building process. For various reasons, partly due to the fact that he could not get accurate prices from suppliers on some finishes, he allowed an overall contingency level of 15% on the reconstruction. 444His tender to rebuild the house on the basis of alterations and additions was accepted and he signed a contract in December 2009. 445In his evidence Mr Rhodes-White stated that he did not know why he was being asked to tender on two different bases and assumed once the quotes had been received from the various tenderers the owners would in fact decide on what build they wanted to go ahead with. 446He was asked in cross-examination about the process he undertook and the materials he considered for the purposes of putting his quotes together. I am satisfied having heard his answers that he approached the tender process entirely professionally and took into account appropriate materials. 447It was put to Mr Rhodes-White on a number of occasions and perhaps in different ways that he should have regarded the request for the tender for the reinstatement as not a serious request. In particular it was put to him that the way in which the documents were presented to him should have indicated to him that the owners were really not intending to go ahead with the reconstruction. He rejected that notion. He said and I accept his evidence that it simply did not occur to him that they were not serious about asking for a genuine quote in relation to the reconstruction tender. 448In particular, the defendant's counsel put to Mr Rhodes-White: Q. Now first of all you say you treated both tenders seriously, is that right? A. That is right, Yes Q. And you say that when you completed your process you believed that if you tendered on your reconstruction if your price was right the owners might give you the job and you would get on and do the reconstruction, Is that right? A. Yes 449A little further on the following question was posed: Q. Did it occur to you that the reconstruction tender was for the purposes of an insurance estimate or something like that A. No Q. Never thought of that? A. No 450These questions were presumably designed to obtain a concession that Mr Rhodes-White was undertaking an artificial exercise for the purposes of sustaining a submission that his quotation in that regard was unreliable. In passing I observe that Mr Rosselli's letter to Mr Rhodes-White of 29 October 2009, in inviting a price to be provided for Tender A and Tender B, advised that one of the two tenders would proceed. There is no reason why Mr Rhodes -White or for that matter any other tenderer would disbelieve such an assertion. 451Not only did I find Mr Rhodes-White a credible witness but I accept his evidence unequivocally. Although he was taken to certain matters of detail, he answered each question to my satisfaction and I do not think his answers detracted from any aspect of the process he undertook in respect of either tender, but certainly in relation to the tender for reconstruction. 452It is plainly apparent, as the plaintiffs point out, from the flow of the evidence in the case that different builders had different perceptions as to what work may or may not be required, the time that it might take, the costing structures for various items, and the risk factors that ought to be applied. 453What must be said however is that unlike the context in which Mr David Martin provided his assessment Mr Rhodes-White responded in what I regard to be a competitive environment. In addition of course Mr Rhodes-White also had the opportunity to observe the house in its fire damaged state so as to make appropriate assessments on damage and risk. 454The defendant urges me not to accept the Sydcon tender as an appropriate basis upon which to assess its liability for the costs of reinstatement in the event that I were to reject the KCJ estimate as the appropriate figure. A number of reasons are put forward for this. 455The defendant submits that Mr Rhodes-White was not presented as an expert witness. It follows according to the defendant that his position is no different to that of Mr David Martin, Mr Rosselli or Mr Hassall. In and of itself I do not regard that reason as having any substance. 456It is submitted that the Sydcon reinstatement process, or the assumptions on which the estimate has been prepared, were not set out in any or sufficient detail to enable the court to understand how the total or underlying figures have been arrived at. It is submitted that I should not receive the material as evidence of the reasonableness or otherwise of the amount appearing in the estimate but only as evidence of Mr Rhodes-White's belief to that effect. I am not satisfied that that is an appropriate objection. It will be necessary of course in turn to deal with that evidence which was otherwise called by the defendant. 457The defendant also submits that his estimate should be received as only an expression of his belief as it were and not as evidence of the reasonableness of the amounts appearing in the estimate. I should observe in passing that such objection as was taken at the trial to Mr Rhodes-White's materials and annexures; but the objection to his expression of opinion was ultimately it seems withdrawn (MFI10). 458Whilst I accept Mr Rhodes-White's evidence, as I have already indicated, caution would suggest that it be considered in the context of other evidence, both corroborative and countervailing. 459The defendant also objected to Mr Rhodes-White's material on the basis that, it submits, assumptions were clearly put forward by Mr Libling and not the architects. I must say, I do not consider anything turns on that. 460In written submissions the defendant asserted that it did not appreciate that the Sydcon tender might be relied upon by the plaintiffs as an alternative to the KCJ estimate as a reasonable cost for the reinstatement. I am not certain that could be a legitimate position to take given the conduct of the trial. The defendant however chose to make its objections entirely in writing and did not seek to have the matter re-listed for the purposes of ventilating any further its objections to the Sydcon tender. 461It should be observed however that counsel for the defendant cross-examined Mr Rhodes-White on a number of issues. The principal challenge was aimed at exposing his quote as not being genuine. It was plain that a deliberate forensic choice was made to cross-examine Mr Rhodes-White on for example his contingency figure which he chose, the methodology in general terms that he adopted including specific items such as the cost for demolition, cement rendering, who might control excavation and the cost of structural steel. Indeed the cross-examiner went further to cross-examine on certain variations delays occasioned in the performance of the contract. That approach was only consistent with challenging the reasonableness of Mr Rhodes-White's estimate. 462It is further submitted that Mr Rhodes-White allowed for a sum of $547,176 for provisional sums, which was excessive. It is further submitted that there is no means of testing what allowances have been made for what provisional sums and whether they all related to the damaged part or parts which were replaced or other parts of the house which were not damaged but which have been upgraded. The problem with this submission quite frankly is that Mr Rhodes-White stated in his affidavit that what he was doing in preparing the estimate for the proposed reconstruction was costing for a "faithful restoration" of the house as it was prior to the fire subject to regulatory requirements. He admitted that there were some matters that he had difficulty in fixing prices for given the level of finishes prior to the fire. In such cases he provided an estimate based on his experience. He explained that process with clarity. Indeed the cross-examiner chose to ask him in particular precisely how he approached the question of costing red tulip oak given it was no longer available. I see no reason why I would not comfortably draw the inference that the amounts which Mr Rhodes-White included in the sum for provisional items involved only those matters which involved a restoration of the house as described by him but which may or may not involve regulatory obligations as well. 463Further criticism is levelled at Mr Rhodes-White in the sense that it is suggested that he has included items which are not said to be referable to the reinstatement works such as excavation, termite control and concrete and further that the cost of demolition for both tenders is the same at $60,000. I am not entirely certain that those criticisms are valid and in any event again the cross-examiner made a deliberate forensic choice as to which matters he put or did not put to Mr Rhodes-White. I accept his evidence and his explanations. 464It is further submitted that the reason those additional items were involved in the costing at all is that there was no separate specification for the reconstruction tender and that those items would have been included in any event in relation to the tender for alterations and additions. With respect that does not really answer the matter and again I am not entirely satisfied that is a valid criticism for the simple reason that, for example, the amounts attributed to excavation and concrete are $27,585 and $10,300 respectively. Also, the amount attributable to termite control in relation to the reconstruction is $14,700; however in relation to the alterations and addition estimate the amount is only $11,200. From this comparison, although limited, I would draw the inference that although the estimates were for different types of activities independent and separate consideration was given to the items in each estimate. In other words a reasonable inference (perhaps the only one) is that Mr Rhodes-White approached his tasks carefully, taking into account the discrete nature of each tender. A comparison of other items in the trade summary for example indicates that some items such as structural steel may well be identical for both estimates but other items vary as one would expect accordingly. 465The defendant also complains that what Mr Rhodes-White did could not be described as engaging in a proper competitive tender because it included specifications for another project. If I may say so I do not regard that as a complaint of any substance. It is clear that the specification which was being provided was a guide only and it did deal sufficiently with matters of substance that one would expect to find otherwise in such a document. The better view in my opinion on the evidence is that when one contrasts, as I have already done to some extent, the trade summaries attached to either tender the only conclusion that is reasonably open is that Mr Rhodes-White applied himself to the task of what was the precise object and purpose of each tender, and dealt with each accordingly. 466Further complaint is made by the defendant that it is not possible to analyse every item in the Sydcon tender as no worksheets were provided and the task of going through each item and making deductions for items that were not damaged or have not been replaced or were the subject of upgrades could not be undertaken by any lawyers. I would simply say Mr Rhodes-White's statement was filed somewhere around 19 December 2011. If that submission had substance then it could be fairly said that the defendant had taken no independent steps by way of subpoena or otherwise to consider whether for example the arithmetical calculations were correct or whether Mr Rhodes-White should be accepted when he purported to quote in relation to the reconstruction of the damaged house as it was prior to the fire. 467For the reasons I have articulated I regard the tender by Mr Rhodes-White as the most reliable assessment of the costs of reinstatement although I will need to consider the topic of remediation separately. Having said that, I will, as I have said, consider other evidentiary materials of relevance.

Mr Douglas Martin 468Again in the alternative the plaintiffs, whilst accepting it as less reliable than either Mr David Martin or Mr Rhodes-White, would if needs be, rely upon the expert report of Mr Douglas Martin. As I have observed, the plaintiffs concede quite fairly Mr Martin's evidence is less reliable for a number of reasons. First, he did not have the benefit of actually seeing the house in its damaged state and therefore was at a material disadvantage to others who did. Secondly, the plaintiffs confront the obvious difficulty for a quantity surveyor in evaluating the high-end custom built nature of the house and the likely perceptions of risk that a builder may apply to it. It follows according to the plaintiffs' submission that given the fact that such houses by their very nature are not finished with standardised products in standardised configurations the usual reliance upon the views of persons who actually build as opposed to those experienced in elemental costs is an unsurprising approach. 469The plaintiffs point out that Mr Martin's present position is a figure less than the KCJ and Sydcon tenders. Nevertheless it is submitted that the figure is sufficiently comparable to the other two tenders and indeed corroborative of them. 470Mr Martin prepared two reports; his initial report and a report commenting in effect on reports of Mr Batger, a quantity surveyor, and Mr Bullen, an architect. 471The question posed in his first report was to estimate from the vantage point of a quantity surveyor the cost of replacing, repairing or rebuilding the house to a condition substantially the same as when new, as at 8 May 2009. He was then asked to compare the difference in the cost if any in relation to the same exercise between May and December of that year. 472Mr Martin is a quantity surveyor of some thirty-seven years' experience who has had (which was not challenged in cross-examination) experience in preparing costs and estimates for what he described as a number of very high standard multi-million dollar residential properties. 473He made it clear that he measured quantities based upon drawings (architectural and structural) and descriptions of work he had received from various reports identified in paragraph 6.2 of his report. Further, he indicated he had received information from Mrs Libling about a host of matters set out in some detail in paragraph 6.3. He made it clear (at 6.4.1) that he was careful to identify whether an item needed to be removed or replaced. Further (at 6.4.3) he determined the costings in part by reference to the Rawlinsons Construction Handbook 2009 where relevant, the PC items supplied by Mr Rosselli, his experience, and for some items that were not able to be readily costed he used descriptions in the information for estimator and estimated the costs as best he could. 474In some instances he used Rawlinsons and in some he built "his own rates" using his experience. In particular he took into account the high standard of work required and the attention to detail in such a house. 475He sets out then in some detail how he approached demolition costs, carpentry, joinery, PC costs, preliminaries and contingencies. In preparing his report, in relation to mould removal and/or remediation he was simply asked to assume and accept the costs of More Contracting, Sydcon and also Hibbs and Associates. 476In his second report he sets out in some detail the difference between himself and Mr Batger on the one hand and Mr Bullen on the other. Very briefly he was critical of Mr Batger's calculation in relation to preliminaries and said that he regarded Mr Batger's approach as incorrect. Again he disagreed with Mr Batger in relation to demolition. He acknowledges that it is no part of the work of a quantity surveyor to express any view as to BCA compliance requirements. On remediation he makes it clear that the difference is that he has been asked to assume the costs I have already referred to whereas Mr Batger relied upon a quote from Munters dated 9 June 2009. 477He sets out the reasons why there is a difference between himself and Mr Batger on carpentry. In effect it turns upon different assumptions as to the nature of some of the floors (concrete as opposed to timber). He sets out other differences between himself and Mr Batger again based upon underlying assumptions as to what needed to be replaced or not. 478Many of the other differences described by Mr Martin such as for tiling, electrical, architect fees, contingencies and the like turn in my view ultimately upon what each of Mr Martin and/or Mr Batger regard as fair and reasonable in the circumstances. Central of course to the exercise is a house of a particular quality. I will return to this theme when I come to deal separately with the defendant's witnesses and experts. But there is, I think, a fundamental philosophical difference between those persons called by the defendant and what I think is the reality. The reality so described is that the house was of a particular quality and the policy accordingly was taken out in the context of an upmarket home which had expensive finishes. Mr Batger, to whose evidence I will return, is not alone in my view in somewhat trivialising the extent to which this factor was both central in my view to the assessment of any costs of restoration and an important driver in the approach that should reasonably have been taken in assessing such costs. 479Mr Martin addressed the question of the utility of the Rawlinsons Construction Handbook. Again it must be said philosophical differences emerge. Mr Martin, whose views on this topic I accept, regarded the handbook as a document designed to provide basic costings applicable across the spectrum of building works including public buildings, commercial buildings and residential buildings of different quality. It is not a statute. It is no more than a guide and I am satisfied that Mr Martin has put the Handbook in its proper context in using it as a guide, but only as a guide. The document clearly does not intend nor could it speak at anything other than a general level perhaps. On the other hand and again I will return to this theme in due course, a view has been expressed by Mr Batger that the Handbook should be more or less slaveishly followed. 480Mr Martin also responds to Mr Bullen's report which I shall deal with separately when I deal with his evidence. Before I come to deal with the cross-examination of Mr Martin I should comment a little further about my views of Mr Batger. There is no doubt in my mind that Mr Martin is a person with much greater exposure to houses of the type in question. Mr Batger's experience in that regard is plainly inferior and I will return to the detail of this. His notion that he was able to call in aid similar projects to the Liblings' house in my view was and should have been the source of some embarrassment for him. His so called analogies were, in relation to the Liblings' house, chalk and cheese. 481Mr Martin's approach in the preparation of his report was on a ground-up costing which, as the plaintiffs submit, would involve consideration of the manner in which the installation of building elements together would follow. 482Mr Batger's approach was entirely responsive using Mr Martin's work as his starting point and therefore really not approaching the matter independently or in my view objectively. His particular approach (and it was somewhat consistent with others called by the defendant) was rather carping. 483As a result of the experts' conclave it should be noted that Mr Batger revised his view of reasonableness upwards by about $500,000, again a matter to which I will return. 484Mr Martin was cross-examined. One of the early topics Mr Martin was taken to in cross-examination was the relevance and utility of the Rawlinsons guide. He made it plain that in many instances he thought the guide was totally inappropriate given the task he was asked to undertake although he did use it to some extent. He thought the guide was largely inappropriate where the bulk of the items were to be custom made. I am satisfied that that was a reasonable approach for him to take given the status of the guide and his expertise. 485Somewhat curiously the cross-examiner put to Mr Martin (as if it was for some reason a source of criticism) that he had not compromised quite as much as Mr Batger had in the experts' conclave. Mr Martin said, in my view convincingly, that in a number of respects he did not do so because he firmly believed that either his position and/or the percentage that he and Mr Batger were then talking about was correct. I am satisfied that Mr Martin was entitled to take the view that he did and I do not think that any criticism direct or indirect could be levelled at him for the attitude he adopted in the conclave. 486As I have already pointed out above Mr Martin and Mr Batger were in parallel universes in a sense. Their experience was quite different and it is unsurprising that they approached the task from different vantage points. 487At one point it was put rather directly to Mr Martin in effect that he was not going to be convinced by anything Mr Batger had to say to "bring your figure down in the second report; is that correct?" If that was meant to be an allegation in some form or other of bias I reject it. As I have said the respective experience of the two persons concerned is vastly different and I would expect nothing less from an expert if he or she firmly believed that the position they adopted was correct not to compromise simply for the sake of it. He was also criticised for not changing his opinions as a result of his conclave with Mr Bullen. He said, somewhat insightfully in my view: Well I was of the opinion that they did not appreciate the nature of the building they were trying to price. 488Some of the questions put in cross-examination appeared to me at times to involve an entire misconception of the role of the expert. The expert is neither a battering ram nor a person sent in merely to barter on behalf of the party he or she is retained by. The paramount duty of an expert pursuant to the Code is to the court and not as an advocate for one or other of the parties. 489Mr Martin conceded that at the time he prepared his initial report he allowed a contingency of 17.5% as if the works had not actually been undertaken. He realised that that was an error and quite frankly thought it appropriate that it should be deleted. I accept his explanation in that regard and I do not think that having included that percentage in the first place (although the contrary proposition was put to him in cross-examination) detracts in any way from the potency of his views. 490It was next put to Mr Martin that an appropriate way of estimating preliminaries would be by way of a percentage on trade items. He rejected that that was an appropriate approach, notwithstanding it was put to him that Mr Bullen had at an earlier point apparently suggested that that would be an appropriate way of doing it. Again I am inclined to accept Mr Martin's view of that. 491Although in one sense confined to carpentry work, at one point in cross-examination Mr Martin said (which I think underscores his philosophy) that he was talking about a job that is custom built. He described it as at the high-end of the market. He said there was going to be an award-winning architect and a need to retain a builder who could perform to a high degree of excellence in building and then he said: And what that translates into is extra money to ensure that that high degree of building excellence is maintained. And that can be in the form of extra house, maybe - some builders even employ a finishes foreman, that is what he is called. 492I did not regard this evidence as Mr Martin either being in awe of Mr Rosselli or quite frankly being a little too precious. I regarded it as the reality which at so many turns in the case the insurer seemed determined in my view to rail against. 493Mr Martin accepted that he did not see it as his role to determine what may or may not be BCA compliant but he merely made assumptions to that effect. 494Although the cross-examination took some little time I am satisfied Mr Martin's views are those which I should accept. I regard his methodology as appropriate and the various assessments that he made equally appropriate. It must be said that although a quantity surveyor, his estimation was largely corroborative of both Mr David Martin and Mr Rhodes-White.

The defendant's lay and expert witnesses on technical matters 495It is important to carefully consider the witnesses both lay and expert who were called on technical matters on behalf of the defendant.

Mr Knox 496Mr Knox is a civil and structural engineer. He has had approximately 40 years' experience and is currently employed by D W Knox and Partners as a consultant. 497It is plain from what I have already said that as a result of receiving instructions from Mr Lloyd in early November 2008 he inspected the premises. He made notes of what he observed and took photographs. 498In a somewhat defensive fashion in his statement he expresses some resentment at being described as an "insurer's man" and not neutral. One reason for which he was called, was to respond to certain aspects of conversations which Mr Libling alleged had taken place in the latter part of 2008. In the course of his evidence he however dealt with a number of other topics including a report that he provided to the defendant as a result of having been provided with certain structural drawings by Mr Hassall and copies of reports from Mr Rosselli and KCJ. 499In chief, on the question of whether a DA was necessary, he did express the view that he had found that councils would permit reinstatement work to be carried out under an emergency order if the work is to reinstate what was in place before the fire. He also expressed the view the view that a DA was usually not required unless changes were to be made to the design. His statement dealt with a number of critical meetings in which he added the benefit of his recollections and then he commented briefly on the affidavits of Messrs Rosselli, David Martin and Mathew O'Hearn. 500In cross-examination he accepted that he thought Mr O'Hearn had done a reasonable job in analysing what the relevant issues were immediately after the fire. He accepted however that he had a different view to that of Mr O'Hearn as to what might be needed. 501Mr Knox in cross-examination again expressed the view that he thought at the relevant time that the Council may allow the reinstatement work to be carried out either under an emergency order or by negotiation. Either, he thought, were avenues which could be exploited. He accepted however that he did not feel it necessary to have a look at the relevant legislation to see where the limits on powers of councils may be in relation to emergency orders. He reiterated he simply was not aware of the precise legislation or the regulations. His comments in relation to negotiation were based on past experience and having negotiated "successfully" with councils. He accepted at the time that he thought negotiations could take place but that it was dependent upon an appreciation that all the work to be undertaken would be covered by some past approval. However, upon questioning, it was plain that Mr Knox had no real idea for example that part of the building which dated from 1910 and had never been the subject of development consent nor was he aware of the detail of the development consent. He was aware that there were some alterations and additions in 1986, but he had to accept however that at no stage did he study the terms of the development consent issued in 1986; however he did view the architectural drawings and structural drawings so far as he could recall. 502However, further in cross-examination, he was simply unable to comment in relation to a proposition that the vast bulk of the roof had never had a development consent attached to it. Nonetheless he held apparently the view that a rebuild under the prior development consent in the 1980s could still take place. He agreed that at the time he was giving thought to this matter he did not have any understanding of the type of work that was classified as "development" for the purposes of the EPA Act. Whilst conceding that the prospects were that the 1986 consent for example would not cover the work required for demolition after the fire, Mr Knox expressed the view that he could negotiate with the Council to undertake the reinstatement. It was plain that he gave no real consideration to the detail of precisely what the 1986 consent involved and although suggested he could negotiate it seemed to me a rather curious proposition if he did not know from what basis he was negotiating. He suggested that his firm was not in charge of the matter, and he accepted readily that he had never spoken to anyone at the Council. 503He also accepted that nobody made him aware of the fact that an emergency order had been issued by the Council or indeed by implication its terms. He dismissed out of hand the need to have any knowledge of the content of the order by reason of some recent experience in the last six months in negotiating emergency orders with Woollahra Council. When pressed he did concede however that if there was an emergency order issued by the Council it would be relevant for him to consider its terms. When shown the emergency order issued by the Council in 2008 he reaffirmed he had never seen it in 2008 nor in 2009. 504Notwithstanding his being shown the emergency order he asserted that had he been informed about it, it would not have changed his view and he still would have regarded himself as capable of negotiating with the Council. He accepted of course that it would be "hugely" risky course to take steps to reinstate the house without having detailed discussions with the Council. He also accepted that he was in no position at any stage in 2008 or 2009 confidently to say that the matter could proceed by way of a complying development because there had been no discussions with Council. 505Mr Knox did not agree that the letter he produced on 15 June 2009 following a meeting with Mr Lloyd and others was in aggressive tones. After some toing and froing he did agree however that the point he was trying to make in the letter was that a DA was not necessary. He also agreed that what he was conveying in the letter was that there did not need to be compliance with the BCA except in relation to the attic. He again disagreed that that was an aggressive position to take. He agreed however that he was advancing such a proposition never having spoken to the Council, viewed the relevant environmental planning instruments, or gone back and reviewed the EPA Act provisions that may be relevant. 506In answer to the proposition that he had no proper basis for putting the views he expressed in the letter as "uncontroversial" he retorted that it was simply based on his experience. 507He knew at the time the position he was putting was contrary to that articulated by Mr Rosselli and he also appreciated at the time there was still a controversy about the question of the DA. He accepted that he did not think the first step he should take was to make enquiries as to whether Mr Rosselli had a reasonable basis for expressing view that a DA was required. 508On another topic, he accepted that what he was suggesting in relation to painting (namely three coats) would reflect a minimum approach that most paint manufacturers would specify and he agreed that it was more appropriate for a budget house. Ultimately though he did accept that if he was looking for a high quality finish a six-coat process would be in the range. He agreed that by offering a three-coat as opposed to a six-coat system (which had been specified by the builder he was looking for a cheaper alternative). 509He was taken to other topics such as the level of investigation undertaken to check whether pipes were blocked, the state of the pool and whether or not attitudes had changed in relation to pool fencing. He thought no regard should be had to the fencing of the pool because it was not necessary as a result of fire damage. He rejected the proposition that he deleted the pool fence because he did not think the insurer had to pay for it but rather because it was not related to the fire. 510He also agreed that he had expressed a different view to that of Mr Martin for example in relation to the percentage for contingencies. He did so on the basis that he did a lot of project management on major projects and his opinion was based on his experience. Again he rejected that he did so simply to reduce costs. He agreed that costing was not in fact one of his specialties. Although he did not check what instructions had been given to Mr David Martin he took it upon himself to make a comment on the cost of each of the PC items. He did so not to reduce costs again but simply to make the figure more accurate. He rejected the notion that what he was trying to do in the letter was to "chisel away" at the costs identified and said that that was never his intention. 511I have absolutely no doubt that that Mr Knox felt it his duty to be critical of the KCJ materials and anything else put forward by the insured. It appears to be his instinct. However, whilst he may have thought that he could confidently base the views he expressed on the some 40 years as a civil and structural engineer, his approach, in my view, went quite beyond what he was actually equipped, by way of expertise, to express views about. The insurer listened to him, perhaps because of the rather forceful and confident way in which he expressed his opinions. Sadly, I was not impressed with him as a witness. He would not make concessions when in my view they should have been made. He was prepared to venture a view about the lack of the need for a DA in circumstances where the absence of his knowledge and enquiries in relation to relevant matters was frankly breathtaking. That view was based on his apparent confidence at the negotiating table. It may be that the defendant in one guise or other had had a long association with Mr Knox and trusted his judgment. So much is the pity.

Mr McNamara 512Mr McNamara is a construction manager employed by Sydney Design and Construction Pty Limited and was formerly a building consultant with MCS Group Holdings Pty Limited. He is a qualified craftsman, carpenter and joiner and a licensed builder with some 40 years' experience. He is also a qualified building surveyor. His affidavit in part responded to aspects of conversations which allegedly took place with Mr and/or Mrs Libling. Briefly he responded to one aspect of Mr Rosselli's affidavit. 513His cross-examination was brief but telling. First he accepted that the initial report he had prepared was not a detailed measure or an estimate of the cost of the work; it was merely a preliminary elemental cost plan. It was not intended to be a bill of quantities. He did agree that the allowances however that he had adverted to were based upon his perception of the work that he thought needed to be done. For example he thought the hot water system needed replacement as did the air conditioning. In addition he thought the whole house would probably need to be rewired. He also agreed that after he provided his preliminary report he was not thereafter asked to provide an updated opinion with better information. 514Whether McNamara was seen at the time as being too generous in his assessment of things which may have needed to be done as a result of the fire or not, he certainly provides an element of support for the plaintiffs in a number of contentions (albeit his report was made a very early stage).

Mr Batger 515Mr Batger provided a very detailed report in which he commented on what was said to be the "Rosselli scope of works", the KCJ quotation, the Rider Levett Bucknall reports, the Sydcon quotation, the Alvaro Brothers quotation and the reports of Mr Douglas Martin and Dr Kemp. As I have already observed Mr Batger participated in a conclave with other experts. 516I think it is fair to say, without intending any injustice to Mr Batger, that he was critical of almost everybody in one way or another. In relation to Mr Rosselli's scope of work he thought it was not reasonably reflective of the work required for notional reinstatement and it was severely lacking in any event in a number of crucial areas. Of KCJ, amongst other things, he expressed the view that the assumptions adopted by KCJ were in excess of the definition of notional reinstatement and not a true reflection of the costs to be associated with such an exercise. 517On the other hand he thought the Rider Levett Bucknall reports prepared by Mr Meredith were reasonable given the documentation available to him although he did not agree with some of the calculations undertaken. However he thought that the RLB reports genuinely attempted to reflect a true estimate of the costs of notional reinstatement. 518So far as the Sydcon tender was concerned (using similar formulae to that which he had used in respect of KCJ and Mr Rosselli) he expressed the view that the scope of works which formed the basis for the Sydcon quotation was in excess of the definition of notional reinstatement and hence not a true reflection of the costs associated with that exercise. He was similarly dismissive of the Alvaro Brothers quotation. 519In relation to Mr Douglas Martin, again using a familiar formula, he described the views expressed by Mr Martin as not representative of the scope of works required for a notional reinstatement and hence the costs were not reflective of that activity. 520Notwithstanding that he expressed the view that he was unable to comment on the costs of removal of mould and remediation (as he had no experience in pricing such works and was therefore not qualified to comment on whether the stated works either in Dr Kemp's or Mr Gale's reports were reasonable), he became a little unstoppable at this stage and he did venture the opinion that the costs stated by Hibbs and Associates seemed to him disproportionately high in relation to other consultants. 521Lastly he had his own attempt at an assessment of the costs of notional reinstatement forming the view ultimately that as at 8 May 2009 the costs ought properly to have been $2,496,060 (inclusive of GST) or if one were to go to December of that year one would add a further 2.6%. 522He was asked in cross-examination to confirm that the task that he believed he was performing was to work out what he thought were the reasonable costs of reinstatement. In order to do so he had to identify the work required to fix the house and the cost of doing so. He accepted that a professional judgment may need to be exercised in such an approach and that minds on the topic may differ. He agreed candidly that he was never in a position to carefully assess the state of all building elements in the house after the fire. All he could do was to work from reports with which he had been provided. He also agreed that in his first report he thought the cost of reinstatement exclusive of GST would be around $2.27 million and that following the first conclave with Mr Martin he changed his mind and increased it to around $2.7 million. He agreed that the change in his position amounted to a material change as to what he had originally conceived was the appropriate cost for reinstatement. 523Mr Batger would not accept that as Mr Douglas Martin had undertaken his exercise as a ground-up costing he should be seen to be at a material advantage in assessing the true cost. 524He accepted that logically whenever he expressed the view that certain work was not required he was in substance challenging the view of Mr Rosselli and Mr David Martin, the builder, and he accepted they had seen the house and he did not, and he accepted also their expertise in making such assessments. He rejected the notion that in preparing his report he had gone outside the zone of his expertise to suit the interests of the insurer. He did however agree that physical inspection may well be required of some items prior to making a decision on whether or not they needed replacement. 525The methodology that he apparently used in order to delete items or disallow items was if he found notations or comments which he construed in other writings suggesting there was no damage he disallowed it. In amplifying that answer he said that if he found an express statement to the effect that something had not been damaged he disallowed it. He readily agreed that he found the task a very difficult one; to actually work out what work was required to be undertaken. Also he agreed that he found himself under a significant disadvantage to people who had actually been able to observe the house at the time. 526He was unsure whether he saw any spreadsheet prepared by Mr David Martin but he accepted such documents may well have been of assistance in giving him at least an understanding of the thinking of the builder who was actually costing the job. 527So far as Rawlinsons guide was concerned he agreed it was generic. He also agreed that the guide makes it plain that one needed to adjust rates to suit the circumstances. 528Although he accepted a large amount of the house involved custom built finishes he resisted the notion that Rawlinsons would not be an appropriate guide. As he put it at one point "a marble tile is a marble tile". He rejected the notion that he has misused Rawlinsons as it were. 529He was asked however a number of pointed questions about precisely how he understood air conditioning might be delivered to certain rooms of the house, and where and how lighting switches were mounted on the walls . Unsurprisingly he was both unaware and unfamiliar with a number of these items. He agreed however that in a number of instances the rate that he chose was by no means at the top of the Rawlinsons rates. 530He was asked to confirm he had implied that he had been associated with similar houses to that of the Liblings, and he made reference to high quality architect-designed houses. He accepted that none, however that he had in mind had suffered from significant fire or water damage. He was then taken to a series of houses with which he had had an association. A number of the cases were rather modest both in design and in size. A number he had chosen simply because he had some involvement with the house in relation to a legal dispute. Mr Batger suggested however that the houses to which he was taken were in expensive areas and he described many as very high quality with unique features in respect of which he thought that provided him with an ability to gauge his pricing in relation to the Liblings' house. I must confess that although what Mr Batger was taken to what may well only be a sample, my perception is that the various properties to which he was taken bore little if any relationship to the kind of home owned by Mr and Mrs Libling. 531He was again asked questions about why it was that he moved some $500,000 between his first and subsequent report after the conclave. He commenced one answer by suggesting that in effect he did not think the move provided a reasonable figure. He then slightly recanted indicating that the first figure was within the range, but ultimately he thought adding the $500,000 put the second figure within the upper limit of a reasonable range. 532Without going into all of the detail of the cross-examination, he was asked a question which I believe exposed a real inconsistency in his report. At one point in the report he criticises the documentation provided from Mr Rosselli as being general and requiring an estimator to make a series of assumptions to fill in gaps as it were. Indeed he agreed that in Section 5 of his report he sought to set out a number of problems which he perceived existed in relation to Mr Rosselli's documentation. He agreed that the substance of what he was saying was that the documentation was simply not up to scratch. However as against that he was only prepared to make an allowance of 5% for contingency and he resisted the notion that that was far too low against what he otherwise described as insufficient or inadequate documentation. In short although he thought the documentation was severely lacking in a number of crucial areas he thought a 5% contingency was nonetheless appropriate. He also agreed that the notion of contingency turned upon the perception of risk in the particular circumstances of the building work required. He also agreed that the drawings of a house may not do justice to small variations in dimensions of the house and that photographs may not capture the full extent of the damage which had occurred. He also agreed that from his experience the cost of a renovation to an existing house was inevitably more expensive than the cost of the same work when undertaken on a vacant site. 533It became obvious that his costings were based upon a value judgment on what he thought did not need doing. It was clear to me that in many cases he came to an assessment of what could only be described as an artificial exercise, never having seen the property. Further it also appeared to me during the course of his cross-examination that he had been very much affected and influenced by views expressed by Mr Bullen when in the conclave. 534For example, on the question of what cement render may or may not be necessary he agreed that one would have to have a pretty clear view on the level of damage before one could express a view about that. He agreed that he was never placed in that position. Although this is but one example, the impression I have, having carefully considered his evidence, is that whenever possible he erred on the abstemious side both in relation to the rates he used whether from Rawlinsons or otherwise and certainly was quite, I think, inflexible about the nature of the work likely to be needed to be done particularly as a result of water and soot damage. 535Mr Batger certainly did his best in my view to assist the Court to understand the task that he had performed. He was not able in my view satisfactorily to explain why he increased his estimate by $500,000. Nor was he prepared I think to candidly engage in a discussion with counsel as to what his true view was as to the possible upper range reasonably open. He was also possibly influenced by Mr Bullen in a number of respects. I am not entirely sure what he thought his role was but I venture the view that he did in relation to mould remediation display a significant misunderstanding what role he was in fact entitled, indeed obliged, to fulfil. On balance I found his evidence quite unsatisfactory and not really helpful in terms of assisting the Court to understand the true but more importantly reasonable costs of reinstatement.

Mr Bullen 536Mr Bullen is an architect in private practice and provided an expert report for the purposes of the proceedings. His experience as outlined in his curriculum vitae would suggest that a preponderance of the work he has undertaken both recently and over the years involve residential apartments by and large, or large scale developments for, for example, the Defence Housing Authority. He has also had experience in association with some heritage buildings, such as the kitchen refit of the Women's College at the University of Sydney, an upgrade and change of use for the superintendent's residence at the Oxford Street Gates and the Wirriway Aboriginal Refuge in Moree, as examples. 537In the letter of instruction which he received he was asked to express views in relation to a number of matters including whether Mr Rosselli's scope of works as described reasonably reflected the work required for a notional reinstatement; whether for example he thought a development consent or a DA was required for that reinstatement. He was also invited to comment on the assumptions and methodology of the KCJ quote and the Sydcon and Alvaro tenders. He was also invited to comment on the assumptions and methodology employed by Mr Douglas Martin and Dr Kemp. 538It is rather curious, if I may say, how it could be that the solicitors for the defendant might have imagined that Mr Bullen as an architect would have felt able to answer questions posed in relation to the evidence of a quantity surveyor or remediation expert. Unsurprisingly, his views in that regard were qualified but nonetheless proffered. 539In broad terms he expressed the view that Mr Rosselli's scope of works did not reasonably reflect the work required for the reinstatement. He also formed the view that the development consent was not required for the reinstatement; however as he thought Mr Rosselli's scope of works went beyond a reinstatement, he thought a DA would be required for those works. In addition he formed the view that the assumptions and methodology adopted by KCJ in its quotation of May 2009 was not reasonable and did not reflect the true costs of reinstatement. He also formed the view that the Sydcon and Alvaro Brothers tenders were not reasonable in part and did not reflect the true cost of reinstatement. 540In relation to Mr Douglas Martin's report, Mr Bullen conceded he was not a quantity surveyor or costs planner and purported to offer no opinion on costs. He nonetheless went on to express views which are undoubtedly intended to either explain why it would be that Mr Martin could not have arrived at an accurate assessment or alternatively to be quite critical of the methodology adopted by Mr Martin particularly in relation to the percentage allowance for contingencies and matters of that sort. Having made some rather pointed and express criticisms of Mr Martin he then concluded by saying that he offered no further opinion for "lack of time and expertise". 541In relation to Dr Kemp again he accepted he had no expertise in costings or mould remediation and again purported to offer no opinion. Apparently in the context of not offering an opinion he was nonetheless, as I read it, critical of a number of aspects of the remediation costs. Indeed in the body of his report when purporting to discuss the scope of works outlined by Mr Rosselli in passing perhaps he describes the Hibbs recommendations as simplistic, and likely excessive and the report, he goes on to say, fails to evince the damp and mould damage to the joinery. 542Mr Bullen was party to conclaves. 543It was put directly to Mr Bullen in cross-examination that he had not in fact embraced the expert Code at all but simply behaved as an advocate on behalf of the defendant. He responded by simply saying he was instructed to answer certain questions and he gave those answers but qualified them when he felt he was stepping outside the areas of his expertise. 544He was taken to a number of statements he made in his report; one in particular that in passing he made the comment that KCJ apparently thought it was "free to price the reinstatement work as it pleased". His first response was that it was an unintended reference. It was put further to him that it was in effect a very serious allegation for which had no foundation. He resisted that proposition and tended to justify his position on the basis that he had performed a thorough review of the manner in which KCJ assembled its quotation. He accepted however that he did not have the slightest foundation to express any view on the state of mind of KCJ. Indeed leaving all else aside it was clearly outside his expertise. 545He was asked the following question: Q. Can I suggest to you that your sole object in making that comment was to advocate reasons as to why the court may wish to sideline the KCJ estimate as reliable, Correct? A. That was not the purpose. That was the result. 546He also accepted that he suggested that KCJ was not independent and he considered it likely that KCJ considered it had the opportunity to gain the contract for the rebuilding work. 547It was put to him quite expressly that he did not have the slightest foundation to express views as to the independence or otherwise of KCJ to which he responded emphatically that he thought he did. Part of the foundation, he thought, was that the correspondence which he had read between KCJ and various trades would not be the sort of communications he thought a builder would commonly have in order to arrive at a competitive price. 548Further it was suggested to him that the object in writing part of his report (e.g. at paragraph 244) was to advocate a position that Mr Rhodes-White for example was not taking the reinstatement tender as seriously as the other tender. Mr Bullen somewhat robustly said that it was correct that Mr Rhodes-White had not done so. Again in defence of his position Mr Bullen sought to explain that he had ample material and that Sydcon was not taking the tender seriously. 549An expert should use language which is appropriate to his or her style and experience and the context. It is simply not appropriate for experts to do what they think is the right thing by those who are paying them or in a misguided fashion to think somehow they are impressing a court by entering the arena and become an advocate. This is expressly excluded by the Code. It had never occurred to Mr Bullen that some of the language he chose in fairness to him was not just inelegant it was frankly uncalled for. In one sense I have some sympathy for Mr Bullen's views which are reflected to some extent in comments I have made earlier in this judgment in relation to letters sent to tradespersons. That said, in my view it is simply no business of an expert such as Mr Bullen to try to second guess the motives or strategies of fellow professionals. Why he thought that was part of his role mystifies me but it has no place in a court room and no place coming out of the mouth of an expert who frankly the court has to rely upon in order to obtain an objective, impartial and unemotional analysis. 550He accepted Mr Rosselli to be an architect with particular expertise in high-end custom built houses. He also readily accepted he did not have the same experience as Mr Rosselli and that his experience was in an entirely different segment of the market. He nonetheless asserted that he was able to criticise Mr Rosselli in relation to the PC allowances made by him. He had to concede of course that Mr Rosselli had had the advantage of being able to witness the house at the relevant time, which opportunity clearly he did not have, and therefore Mr Rosselli was, and he was not, able to look at most of the visible PC items. 551So far as contingencies was concerned he agreed he was not a builder and that he never had the need to cost a fire damaged house. He resisted the proposition however that it would be unbelievably difficult for an architect to predict a builder's perception of risk when looking at a fire and/or water damaged house. He agreed that a builder's perception when he is looking at a fire and water damaged house as to what risk he is bearing is quite different to working out the risk between the owners and the builder. Mr Bullen agreed that he was stating quite expressly (in paragraph 59(a)) that KCJ was engaged in exaggeration in allowing a percentage to be accounted for by reason of the fact that some work may need to be redone because of the demands of Mr Rosselli as architect. 552It appeared to me that he was suggesting in the course of his evidence that it would not be uncommon for builders to seek to exploit perceived deficiencies in documentation to their advantage and that that was something he was wary of. He really had little explanation however for the proposition that a builder who was regularly retained by a particular architect could not be expected to be retained for further jobs if he was obviously exploiting a situation. This to me again somewhat underlines the apparent readiness of Mr Bullen to make comments critical of fellow professionals without necessarily thinking the criticism through. 553He was asked questions about his views about the need for development consent. I think a fair construction of his evidence is that he held firm to the view that in the circumstances he thought it was unnecessary for reinstatement but a different situation arose in relation to alterations and additions. It was put to him however that the course taken to apply for a DA was an entirely reasonable stance appreciating that he had a different view. He accepted that there was nothing preventing application for the DA and so he thought it was reasonable. He did accept however that the work could not have been done under an emergency order. He also accepted that work done under a complying development would still need council satisfaction on BASIX requirements. 554I have to say that on balance I again did not find Mr Bullen a satisfactory witness. I think he overstepped the mark in a number of respects. First his report tended to use language which on occasions was unnecessarily judgmental and emotive. He ventured into areas notwithstanding the fact that he clearly had no expertise but curiously thought that by saying that he had none or little, he was entitled to then go on to express views directly or indirectly or in some instances snidely. 555In particular I do not accept his evidence as to whether or not a DA was required. In any event as I have already said I think that view which was adopted by Mr Rosselli and Mr Hassall was perfectly reasonable in the circumstances. 556I have already said that I have (for not entirely dissimilar reasons) some sympathy for his views in relation to an aspect of the KCJ methodology. However I do not accept much of the criticism, direct or indirect, that he levelled at Mr Martin. It was not only unwarranted but entirely unhelpful from my point of view. 557In addition I am certainly not satisfied that his criticisms of the costings or estimates undertaken by Mr Rhodes-White in particular were justified. His criticism in any event seems to have been driven by an assumption that Mr Rhodes-White could not or did not take the process seriously. I reject that notion, and in any event it is no part of Mr Bullen's expertise or indeed business to be making such insinuations. 558The criticism of Mr Rosselli's scope of works is equally misplaced largely because and (perhaps through no fault of Mr Bullen) it fails to appreciate the historical context in which that matter arose. In purely technical terms it was not what an architect might be expected to prepare either in a tender process or if he was asked to provide a detailed specification. It was as I have otherwise described a short back and sides exercise to meet the circumstances all parties but more importantly the insured and insurer were then facing. Whilst the criticism may be valid at a technical level, it is what it is, and Mr Bullen in my view is certainly in no position to do anything more than theorise from his rather limited professional background as to what he thinks may or may not have been the appropriate approach for Mr Rosselli to adopt or indeed what the proper assessment of reinstatement costs ought to be. In regard to the latter item I regard him as unreliable and I do not accept his evidence, more particularly his criticism, which unsurprisingly not having been exposed to the house at any point in time placed him at significant disadvantage.

Allowances / contingencies 559Although what I am about to say is somewhat repetitive, I consider I should collect in one place my views on these topics. 560The extent of allowances for variations and contingencies to be applied to works was a matter of debate before me. 561Although I do not prefer Mr David Martin's estimate as the appropriate one ultimately to adopt in relation to the appropriate costs for reinstatement he did give evidence which I think is important in terms of the extent to which his findings, observations and analysis can otherwise be used to corroborate work undertaken by others including Mr Rhodes-White and Mr Douglas Martin. 562Mr Martin said that the documentation that he was provided with did not cause him any uncertainty as to how a costing exercise was to be undertaken. He found that the kind of documentation that he and indeed others looked at did not cause him any greater uncertainty than any other tender other than the absence of a detailed specification. Mr Martin as I have already observed rejected suggestions that he had on instructions costed for upgrades to achieve BCA compliance for all items irrespective of damage. 563Mr Martin's evidence was that he adopted a 15% contingency on the costings between the time of his first report and the second report on instructions, and on reflection he considered that was the appropriate course. His reasons for adding the separate contingency did not appear to me to be explored or tested in cross-examination. In response to the suggestion that he had departed from the instructions in Mr Rosselli's documentation he simply responded by saying they were guidelines and in the end he had to form his own view. 564Certainly Mr Rosselli observed that the suggested contingency was above the normal but seemed to accept that it was chosen to accommodate the absence of information in the tender documents. Indeed Mr Rosselli went one step further and suggested the contingency may not have been generous enough. 565Mr Martin indicated that he added separate contingencies for some items based on a value judgment for each item. The total contingency however which he had averaged across all items was 1.6%. 566Insofar as the cross-examiner purported to suggest that the "Information for Estimator" documents directed a 15% builder's profit figure, I think a fair reading of those documents suggest that that percentage only related to variations. Mr Rosselli's evidence was that tendering builders are permitted a huge variation in profit and overhead and he thought that that could typically exceed 15%. Mr Rosselli appeared unperturbed as to the inclusion of a 25% profit and overhead loading. 567Mr Martin did include an allowance for inclement weather but it is plain to me that from the documents this was not an allowance for the entire estimated period of the build. He based the allowance on the percentage provided for in the labour award and adopted an allowance admittedly contrary to his usual practice because the quote was undertaken on a fixed cost basis. 568I do not think it is fair to suggest that Mr Hassall supported any criticism of Mr Martin's adoption of a 25% margin in the quote as excessive. He observed that the quote was prepared as an estimate rather than a tender and that the margin may have been covering other unknown items. 569Mr Batger considered a 5% contingency allowance, and $20,000 variation allowance for the removal of asbestos, were appropriate. Mr Douglas Martin considered a 10% contingency allowance to be appropriate and a 7.5% allowance for variations. 570Mr Martin's views were based on his experience that it was common for domestic building projects governed by contracts where the contract price is subject to variations for unforeseen work to provide for variations and extensions of time with the owner reserving a sum outside the contract to cover that risk. He also expressed the view that even when a sum is reserved against variations it was common for the contract price to include a percentage for contingencies (meaning the risk of additional costs arising from difficulties working with the existing building). 571As a result of the conclave it appears to be accepted by each of Mr Martin, Mr Batger and Mr Bullen that generally renovation works within existing buildings of this age would command a substantial contingency. 572Mr Batger thought however, having considered the original expert reports from the plaintiffs, drawings and specifications, that the level of risk for unknowns, that is for latent conditions should be minimal. He thought in fact that the risk should be further reduced because a considerable amount of the internal structure from level one above was new and therefore the unknown factor of dealing with existing walls and floors would be eliminated. 573Mr Douglas Martin whose evidence I accept and prefer suggests that Mr Batger was understating the problems. He suggested that there would remain problems because of the prospect that existing masonry walls may be out of square, and there may be a need to adjust new finishes to line up with existing ones, and restricted working conditions. He also points out that it would appear that Mr Batger had not appreciated that external walls and internal masonry walls and the chimney was to be retained. 574The basic difference however between Mr Batger and Mr Martin is that Mr Batger makes no reference to matters the subject of variation, that is latent conditions elsewhere in his report. In other words his 5% allowance is to cover both contingency and prospect for variations. This is rather difficult to reconcile with his view on the one hand that reinstatement work would command a healthy contingency but on the other the contingency should be somewhere less than 5%. 575Mr Batger maintained the position that a further percentage allowable for variation would amount to a duplication of the contingency. Mr Martin on the other hand says that there is a universally accepted range for variations of 5 - 10% and he has taken the midpoint of 7.5%. 576Mr Bullen on the other hand suggests that for reinstatement work it would be prudent to provide an allowance and normally he would consider something of the order of 10% as sufficient. He does not however suggest a fire and water damaged house is in any way a usual situation. 577He argued that it would be appropriate to have 5% if Mr Rosselli's scope sufficiently identified the work to be performed which of course he suggests it did not. In the end I am not entirely sure there is any real difference between Mr Bullen and Mr Martin on this point. 578Seemingly however the experience of Mr Bullen on the one hand and Mr Martin on the other does make Mr Batger's position difficult to reconcile. 579Mr Bullen seems to largely agree with the range suggested by Mr Martin for variations. Neither Mr Bullen nor Mr Batger disagree with Mr Martin's claim that variations are commonly dealt with in the range of 5 - 10%. Mr David Martin on the other hand included in his assessment of risk the possibility of having to re-do work because of demanding architects. Mr Bullen certainly does not accept this as a real risk. 580Mr David Martin gave evidence about his experience of tendering for work and the range of figures he is familiar with. True it is they far exceed anything that Messrs Bullen, Batger or Douglas Martin suggest. However Mr Martin's view is something which cannot be ignored. On the other hand one has the evidence of 15% initially provided in the costs estimate by Mr Rosselli. 581Quite frankly neither Mr Batger nor Mr Bullen had exposure to the house at the relevant time nor in my view professed sufficient experience with rebuilding fire damaged houses. They were never confronted with having to provide an estimate in circumstances such as those confronted by Mr David Martin or for that matter anybody else in this case. Indeed the kinds of experience they have had on one view simply would not equip them to do any more than theorise. That is not to say that I would ignore entirely anything they said. However their lack of expertise is another reason why I more favourably approach the issue of contingencies from the evidence of both Mr David Martin, Mr Rhodes-White and for that matter Mr Douglas Martin.

The adequacy of the estimation documentation prepared by Mr Rosselli 582In a sense I regard this as a non-issue. The reason I do that is that it is clear that Mr Rosselli's documentation was not the only material taken into account by Mr Martin of KCJ and others. 583Mr Martin and for example Mr Rhodes-White had the benefit of inspection of the house. Equally all witnesses have had the opportunity of reading the testimony of eyewitnesses and contemporaneous documents including a multitude of photographs recording the damage. 584Mr Douglas Martin expressed the view that the information contained in the Information for Estimator documents provided sufficient information for him to create an accurate costing. Quite frankly there is no reason why I should reject that. It was necessary in his case to obtain further information in relation to some elements such as the attic details and finishes and the precise location and specification for windows, doors and shutters. To the extent that he relied upon Mrs Libling's material I regard that as both unsurprising and unexceptional. 585Not that this is an entire answer to the issue, but Mr Rosselli's documents were provided with some haste and in an atmosphere where expedition was essential.

Costs of remediation 586I agree with the plaintiffs' contention that it is appropriate for a number of reasons to look at the actual costs of remediation. 587So far as the KCJ report was concerned and for that matter the Sydcon tender neither were able to give on any view accurate indications of the likely cost of remediation. Ultimately as it turned out the remediation process undertaken by Sydcon caused delay to the building work because of the extent of remediation required. 588Remediation of course concerned entirely latent conditions, which is in quite a different category to matters which can clearly be discerned and quoted upon with some degree of accuracy.

Mr Gale 589Prior to the KCJ estimate, Hibbs and Associates provided a quotation on 30 April 2009. That report sets out in some little detail what Mr Gale proposed. There were two items of work identified; first a hazardous material survey which was going to cost $3,000 and secondly hygiene and environmental consulting services totalling $116,743. That latter amount is identified in some detail in Section 5, Fee Structure, in the report. 590Those two amounts related to a nominated approach to testing, not remediation work that would follow testing or further environmental work that may be revealed as necessary through the nominated testing process. Mr Martin placed those two figures in his estimate as provisional costs. 591It is pointed out by the plaintiffs that a further amount is included of $25,000. As the plaintiffs suggest, and it would seem to be correct, this was a further amount for the undertaking of additional analysis prior to the commencement of the actual remediation work. 592Mr Gale the operations manager of Hibbs and Associates, gave evidence. He is a qualified occupational hygienist and chemist. His experience extends to having worked on buildings which were damaged by fire. His affidavit deals with the history of his involvement with the Liblings' house and he describes both the manner in which he made the assessment and the methodology he employed in preparing his quote. He describes the circumstances in which he prepared various reports and recommendations in the latter part of 2009 and how he formed the view that an additional consultant, More Contracting Services, should be retained to undertake cleaning of wall cavities as they were the persons in his view with the most appropriate expertise. He then describes the activities of working with the builders and gives some considerable detail of the actual work he undertook, his observations, and the activities undertaken to both treat and eradicate the mould. 593Mr Gale accepted in his cross-examination that he was first approached to give a quote in relation to mould remediation in April 2009. He agreed that a delay in undertaking remediation work could exacerbate the problem. He was asked whether, if the work referred to in his quotation had been carried out at or about the time of the quotation, the work of the remediation which commenced in 2010 would have been less. He said quite candidly he would be unable to answer that question. He did say that the quicker you get to the problem and mitigate it, the better. But he then indicated that he thought there were a lot of variables including climatic conditions but in general terms he accepted that to approach a problem as soon as possible would be best. He thought however the main problem was water ingress into the property. 594It was certainly put to Mr Gale that there had been a previous problem with damp in the basement. Mr Gale did not recall Mr Libling informing him of that matter. He also accepted that he had found some difficulties with the existing damp course, part of which was broken and at least part of which was below ground level. He accepted that he had recommended replacement of the damp course. 595Some considerable time was taken by the cross-examiner walking Mr Gale as it were through his reports, and either asking him to confirm statements he made which in most cases he was able to do. In some cases he had no recollection. 596At the end of what was a particularly lengthy and uneventful cross-examination Mr Gale was simply asked whether he thought he had done more remediation work than was necessary, which proposition he did not accept. In re-examination he confirmed that all of the work he did was directed to removing mould or other contaminants from the house. I accept his evidence in its entirety. 597I am not satisfied that the defendant has shown in any respect that the remediation work undertaken by Mr Gale or those associated with him was unreasonable or extravagant. I say that for two reasons. First, I do not think any concessions of any relevance were extracted in cross-examination. Secondly, the approach undertaken by Mr Gale it seems to me is wholly corroborated and supported by the expert Dr Kemp. (The only expert in remediation called in the case, and by the plaintiffs.)

Dr Kemp 598Dr Kemp provided an expert's report to the court. She is a person of some considerable expertise and experience. For example she has been involved in the inspection and remediation of over 4,000 buildings in Australia and overseas in the period up to 2011. These included commercial, government, medical and private residential buildings. Twelve were fire affected residential buildings. 599In Dr Kemp's opinion the temperature and precipitation levels in Sydney during the relevant period together with the degree of water ingress as a result of extinguishing the fire and the availability of burnt materials (which operate as an additional catalystic factor in sustaining mould growth) created an ideal environmental condition for fungal growth within the house. She expressed the view that the conditions for mould development within the house were therefore ideal. 600Further she expressed the view that in order to minimise the mould proliferation it was necessary to take action to dry the structure and prevent further moisture ingress immediately. Her view was that the critical period in which this should have commenced was within the first 24 hours. She went on to say however that even if this step was taken in the conditions present within the house some mould growth would be expected and would require remediation. 601Attempting to keep the structure dry, sealing the building, attempting structural drying of internal structures, removing of building materials and content, removing fire damaged materials, ensuring adequate ventilation together with regular monitoring are some of the measures to be undertaken in order to address and/or reduce the effect of mould growth. The most critical aspect of all of this was to ensure as best one could that the structure and "internals" are dry. Ideally within 24 hours the building envelope she thought should be made safe from further environmental water intrusion. 602She however expressed the view that the construction or installation of a permanent or temporary roof is not per se necessary provided there are other means to prevent moisture ingress into the building. She thought the use of the tarpaulins was probably inadequate in the circumstances and a temporary roof, if that could be achieved, would be better to facilitate drying. She was asked to assume that the tarpaulins were not placed over the roof until 15 October, some two weeks after the fire. She further expressed the view that the moisture resulting from the fire fighting efforts alone was probably likely sufficient to result in the present scope of remediation work. 603She was asked to review the mould remediation process undertaken by Mr Gale. She thought the work performed by his company was necessary to assess and remediate the property. She had no criticism of what Mr Gale had said or done and she thought the recommendations for remediation he made were both reasonable and necessary. Further she agreed with his recommendation as to the removal of gyprock, water affected render, timber flooring fixtures and fittings and tiling insulation and duct work to gain access to the substratum beneath to facilitate effective drying. 604Unsurprisingly she agreed with the proposition that the longer a house such as this was left the worse it would become. She however said that the environmental factors were important so that the wetter something is the more aggressive fungus will grow. Mould in fact grows extremely fast. 605She expressed the view that the fungi would start to grow within a short period of time because of the inundation of the house with water and that it would grow exponentially until it ran out of nutrients. 606She was asked whether, if steps had been taken at any time during the year after the fire to place a structure whether it be a temporary roof or a tarpaulin, that would have resulted in the amount of time and money being spent on the removal of mould being lessened. She did not agree with that proposition. The reason she would not accept that proposition is that one could not ignore the number of litres of water within the structure of the house as a result of at least the fire fighting activities. She thought that a roof would have to have been put on within the first 48 hours and structural drying commenced and in that event one might have prevented mould from growing in the first place. However she further went on to explain that once mould had started to grow and every surface is covered it actually does not matter any more how quickly you take other actions because once every surface is covered the damage is there after a certain amount of time and it cannot be made better. 607Again she further explained that once mould is established and even if a drying process begins the mould will not automatically disappear. The process may be slowed but you then must commence remediation processes. In addition she expressed the view that once the mould had reached a particular stage structural drying and putting a roof on would not lessen the amount of remediation work that would have to be done. 608It was put to Dr Kemp that the ongoing introduction of water into the house would have led to greater moisture in the house and thereby would have made the task of remediation effectively more difficult. She thought that was a rather more speculative proposition because in her view once the house was wet and once the mould has grown it does not get worse. What gets worse over time is if remediation is delayed, materials may decompose and/or surfaces may be stained. 609She thought remediation work on the house could cost as much as $700,000. She came to that view after visiting the house and having read the various reports of Mr Gale and his observations at the time. 610However she firmly repeated her views that if you missed the first couple of days, which she described as the window of opportunity to prevent mould in the first place, and subject to environmental conditions and the type of mould and nutrients, then within a period of 14 days every surface would in fact be covered with mould and remediation would obviously be necessary. Indeed she went as far as to suggest that even if in October 2008 the house was all sealed up and dried within two weeks of the fire that it is possible that as much as $700,000 may still be needed to remediate the house because of mould infestation. In particular she thought that after a very short time every single surface could be contaminated and once contaminated especially in the cavities and gyprock then the exercise of remediation is necessarily going to be expensive. 611Having considered the evidence of both Mr Gale and Dr Kemp I am satisfied about a number of matters. First, I do not think there was very much or anything at all that could reasonably have been done to prevent the amount of mould that grew in this house as a result of the ingress of water. In addition of course as the house was damaged by fire it had the disadvantage of the catalyst of soot and burnt materials together with furnishings and gyprock walls. I accept Dr Kemp's evidence that the window of opportunity is very limited and whether one put a tarpaulin or a temporary roof is really not to the point. As I have already indicated earlier in the judgment, a temporary roof could not indeed have been erected without a DA and the window of opportunity on any view, given how long that process might have taken even if some expedition were applied, would have been lost. 612Further I am simply unconvinced that Mr Gale and anyone associated with him undertook excessive work in the circumstances and I am satisfied that the costs incurred in relation to remediation both by his company and others was entirely reasonable in the circumstances.

Conclusion on mould remediation costs 613The defendant seeks to attack the costs claimed by the plaintiffs in relation to the mould remediation. The submission as I have already indicated is to the effect that the costs were not reasonable. I reject that and I am satisfied that the plaintiffs have comfortably discharged any evidentiary burden they have in relation to these costs. I will briefly restate my views. 614Mr Gale's evidence was that the house had reached a grade four level of contamination. Dr Kemp agreed with that. I accept both of their evidence. 615Dr Kemp's evidence was that if one was faced with a grade four classification then the remediation work required would involve the removal of mould from every surface in the house. Further, Dr Kemp gave evidence which I accept that there is not necessarily a relationship between mould and pre-existing damp or ventilation issues in the house. 616Despite extensive cross-examination the defendant elicited no real evidence that there was mould of any degree in the house before the fire. Indeed on one view of the evidence insofar as there might have been some damp in the house it had been previously treated, although there is some question mark over the effectiveness of the treatment. The degree of mould however that grew by reason of a combination of the fire, the water, the soot and the burnt debris in the house was clearly and obviously most extensive. 617The action taken to remove damp from the house such as correcting the damp proof course, or ventilation was a necessary step taken to deal with the extent of mould contamination in the house and one that was taken on the recommendation of Mr Gale. That is so inextricably bound up with the mould remediation that I see no difficulty in such a cost being borne by the insurer. 618Mr Rhodes-White was clear in his evidence that a significant proportion of the delay claims related to the mould remediation work and he apportioned the time spent on this issue in his evidence. I accept his evidence on that matter. 619Mr Gale's evidence which I also accept was that the removal of mould and other contaminants was the objective of any work he did on the site. 620It follows that the whole of the costs incurred as identified by the plaintiffs in their claim should be awarded and the defendant should be obliged to pay them.

Assessment of damages for individual items 621The submissions of the defendant in relation to individual items in part invite me to accept the views of Mr Batger over those of Mr David Martin and others. For the reasons I have stated, I prefer and accept as a reasonable estimate the evidence of Mr Rhodes-White, providing, as it does in my opinion (with the exception of those matters I have excised such as remediation) an appropriate basis for the cost of reinstatement. 622As many, if not all, of the individual items do not emerge from Mr Rhodes-White's assessment (or other witnesses' assessments) it is perhaps unnecessary for me to deal with the individual items canvassed between the parties. However, out of abundance of caution, I regard it prudent to do so. Some of the reasoning process I adopt in the course of dealing with these individual items reflects reasons already otherwise given in this judgment as to why I prefer, for example, Mr Rhodes-White's assessment in the end. 623The defendant makes a series of detailed submissions in respect of individual items. The plaintiffs in their written material are quite critical of this approach, in my view, with some justification. I will deal with each of these items. 624The defendant is critical of the plaintiffs' claim for preliminaries. On the one hand the plaintiffs claim $466,650; the defendant submits on the other hand the amount should be $312,262. The defendant asserts that at least $90,000 was in respect of items not actually incurred by way of expenditure. The defendant points to Mr Rhodes-White's evidence. 625In addition, the defendant points out that the remaining differences are to be accounted for by different views adopted by experts as to the likely length of notional reinstatement and minor issues such as scaffolding and rates. 626The plaintiffs dispute the defendant's interpretation of the evidence given by Mr Rhodes-White. I have to say I agree with the plaintiffs. Mr Rhodes-White gave no evidence to the effect that his total preliminaries were as set out in the tender. Having regard to the extent of the delay claims on the project there is no realistic way that that could be in any event. Mr Rhodes-White was simply not asked whether he employed a carpenter or an additional supervisor. His evidence was that he employed labourers and subcontractors and that he was not on site. 627The plaintiffs also complain that Mr Martin was not cross-examined on what the defendant sought to raise in written material including scaffolding, rates and project length. I agree and I do not think it is appropriate in the closing stages of the case that these matters be raised by the defendant. 628I also agree with the plaintiffs that the length of the building programme is a matter entirely for the judgment of the builder. 629The defendant seeks to contrast the two demolition costs of $114,068 on the one hand as opposed to $72,704 on the other. It submits that the evidence establishes that the costs of demolition was in fact $60,000. It further submits that it is a certain and specific item which does not change irrespective of whether the project is for reinstatement or involving alterations and additions. It invited me to allow that sum. In the alternative it invited me to find Mr Batger's estimate to be significantly closer to the real costs. 630In addition it complained about Mr Martin's estimate which included allowances for demolishing a number of items which in fact it submits were not demolished such as tiles on the first floor balcony, the waterproof membrane and the joists on the first and ground floors. It submits that this is apparent from photographs in the Hibbs reports. 631The plaintiffs on the other hand submit that Mr Rhodes-White did not give evidence that the actual demolition costs for the rebuilding work was $60,000. They submit that this was merely his tender allowance. I consider that as correct. Further they submit that Mr Rhodes-White was never asked whether the costs allowed in the tender represented the real building costs incurred by him on the project. Further they submit there is no evidence as to whether he made a profit or a loss on various trade items. 632The plaintiffs also submit that it is unreasonable to suggest that the demolition costs are certain and specific and that it is invariably the case that all demolition takes place before other building work on site. They point to Mr Rhodes-White's evidence that the preliminary demolition work was confined to joinery items; otherwise he did not recall the process in detail. I agree. 633The plaintiffs also point to Mr Martin's evidence that the front balcony was completely damaged by fire. The roof was completely burnt out and the base of the verandah was covered in soot, ash and debris. Mr Martin also gave evidence that he observed a large crack in the verandah tiles. His evidence was that it was necessary to replace the membrane because when the tiles that are glued to the waterproof membrane are removed it cannot be guaranteed that the membrane will not be damaged in that process. The plaintiffs point out correctly in my view that the damage was referred to in his fire damage report including tile damage and also damage to the ceiling of the library below. 634The plaintiffs also point to the report prepared by O'Hearn Consulting which in items 14 and 15 identified that the timber flooring of the ground level was to be completely removed and the sub-floor dried and the sub-floor framing to be replaced as required due to water damage. 635The plaintiffs also point to the KCJ fire damage report of November 2008 which indicated that the floors on the bearers and joists showed some bounciness. It was expected that the surface would be damaged and it was suffering from surrounding swollen timber floors. Mr Martin identified the ground floor timber joists as being swollen and formed the judgment that the risks of reinstallation were too great and hence priced for replacement. Mr Gale in addition identified that in his view the floor joists could not be properly cleaned as they were, and they were eventually replaced. 636On that basis I think the figure put forward by the plaintiffs in relation to demolition should be preferred. 637The defendant also complains about the costs of carpentry which it identifies as providing for the most significant difference between various experts. 638The defendant relies upon Mr Batger who says that his costings were based on an analysis of items which he regarded as having been damaged. 639The defendant submits that the costs of replacing the whole staircase should not be allowed. It submits that it is known that this did not occur because a variation was allowed during the course of the project when Mrs Libling requested an upgrade of the Pine to American Oak. It was not therefore demolished and replaced; it was simply being upgraded, it is submitted. 640It is further submitted by the defendant that Mr Martin allowed for the costs of replacing the first and ground floor joists. Again the defendant points to the Hibbs reports to demonstrate that this did not happen. Indeed it is pointed out that a number of the reports establish that charges were made for the costs of remediating the joists. 641Similarly, the defendant submits that photographs of at least one of the first floor balconies shows tiling and a balustrade in place, and further points to Hibbs charging for remediating those items. It points to the fact that Mr Martin however had included costs for the replacement of the first floor balustrade, demolition, removal and replacement of tiles etc. 642The defendant also points to Mr Martin having included in his costings the cost of replacing the balustrades of the external balconies and the carpentry. It submits however that there is no evidence to support the need for its replacement because of the fire or exposure to water. Complaint is made in respect of Mr Martin including the cost of installing four sets of retractable louvres at a cost of $36,000 under carpentry. It is submitted there is no evidence that the louvres were on the house prior to the fire. Mr Martin it is pointed out by the defendant agreed that he could not find them on any photographs. However it is submitted by the defendant that Mr Martin was instructed to cost based on drawings and documents which themselves did not include only items which had been damaged in the fire or items which were present prior to the fire. The defendant submitted that the plaintiffs had not established that the defendant should bear the cost ($36,000) in respect of the four retractable louvres merely because Mr Douglas Martin suggested that he found them on some drawings for the purposes of a development application which was included in a letter to Mr Martin of 5 March 2009. The defendant submits that there is simply no evidence that they existed at the time of the fire and they should not be allowed merely because they are included in the Rosselli scope of works. 643The defendant also complains that Mr Martin included in his costings the cost of replacing all of the shutters at ground level. It points to the fact that the KCJ fire report specifically noted that shutters were not damaged. 644Further the defendant complains that Mr Martin included not only the costs of removing and cleaning some of the windows but the costs of replacing a large number of windows at a total of $70,000. It submits that he was unable to identify where these windows were and said that he simply based the estimate on the KCJ schedule of windows. The defendant also submitted that there is no suggestion in the KCJ fire damage report that the windows were damaged or needed replacement. It also points to the fact that Mr Martin specifically points to some windows having evidence of rot and prior patching. The defendant submitted that the rot referred to by Mr Martin in this context could not be caused by mould as explained by Dr Kemp. 645Lastly on this topic the defendant submitted that Mr Martin allowed for the cost of replacing timber floors in some tiled areas and as I understand it, submits such costs should equally not be allowed. 646On the basis of its submissions the defendant put forward suggested reductions in various amounts for the items identified. 647The plaintiffs submit and I agree that there is an abundance of evidence which would suggest that the main staircase required a significant amount of work. Mr Martin identified damage to the main staircase in his fire report in November 2008. There is also mention of extensive water damage to the stairs. In the later report he prepared in December he expressed the view that the stairs needed to be stripped on the underside and/or wedges to be re-seated and glued. 648The plaintiffs point to Mr Hassall who observed damage to the balustrade of the main stairs and in particular some of the vertical balustrades were broken and some were missing. Further observations indicated some were loose. 649Mr Douglas Martin concluded that the requirement for removal of the main staircase arose from the need to remove the ground floor joists. The plaintiffs also point to Mr Gale who confirmed in his evidence that the main staircase needed to be removed due to mould contamination. I think the plaintiffs have amply proved the costs associated with the work identified in relation to the main staircase. 650In relation to the first floor balcony balustrade there seems little doubt that it was affected by rot. I think the evidence especially that of Dr Kemp (which I accept) leads me to conclude that either the rot was caused by the fire or was certainly made worse as the result of water and soot damage. Mr David Martin gives evidence of the extent of the damage to the first floor balcony and I think there is ample evidence to suggest that the rot was at least related to the fire and therefore it was necessary to replace the balustrade accordingly. 651So far as the retractable louvres are concerned it is true that they were included in the BASIX certificate for the DA. I otherwise accept the need for BASIX compliance. The plaintiffs point out that the louvres were indicated in drawings prepared by Mr Rosselli in the knowledge of the obligation to include them. The plaintiffs submit that the mere suggestion that they should not be allowed because they are included in Mr Rosselli's scope of work ignores the fact that Mr Rosselli and Mr Hassall had seen the house and therefore had the advantage of assessing the requirements for BASIX. The plaintiffs point out that it was simply not put to either witness that they had inappropriately included the items as part of the scope to reinstate them. It is also pointed out by the plaintiffs that there was no suggestion made to either of them that the louvres did not replace a damaged substitute. 652In addition Mr Libling gave evidence that timber louvres existed outside "before the fire". Although he deferred to his wife as to the precise details his memory was that there were timber louvres at least on the western side of the house though he was not entirely sure how they operated; they may well have been he thought "hand operated" or they could have been electrically operated. 653I think the evidence produced by the plaintiffs is more than sufficient to justify the inclusion of the costs of the retractable louvres referred to. 654In relation to the ground level shutters Mr David Martin indicated in his costings spreadsheet precisely which shutters required replacement as a result of damage, namely a single shutter number S15. This formed the basis of Mr Douglas Martin's costing. It is submitted by the plaintiffs that what is in fact recorded in the KCJ fire damage report (item 9.2.2) is that the timber shutters appear to be intact. However what is also noted is that all the paint was stained by soot and smoke. The plaintiffs submit that it can be inferred and I think correctly that following inspection some months later Mr David Martin identified one shutter as sufficiently damaged to require its replacement and costed it accordingly. In my view there is ample evidentiary support for this and I think the plaintiffs' submission on this point is correct. 655So far as windows are concerned Mr David Martin identified the windows which he thought required replacement in his spreadsheet. He made it clear in his fire damage report that all windows required repainting and that all windows were stained by water plus deeply ingrained soot and smoke. His evidence was that he would not repaint a surface affected by rot without repair of the rotted areas. I do not think any criticism can be levelled at Mr Martin because it does seem to me to be a perfectly reasonable approach to adopt. 656Given the extent of fire and water damage in the house I do not think it is unreasonable to infer (which I do) that the windows were affected by rot either caused or exacerbated by the fire. Again in this regard I accept the evidence of Dr Kemp as to the effects of fungal rot and the time after which it will have effect. Her evidence of course was that the house was in a state of high-level contamination from four to six weeks after the fire. Further she gave evidence of the high level of penetration of the mould types that cause fungal rot. Her evidence went further in that she expressed a view that rough wood or wood with porous openings would be penetrated quicker but that sealed wood, that is varnished or treated in any other way by painting for example, can equally be penetrated by mould. Further Mr Gale's evidence was that the mould contamination was extensive in the house. Further I think there is ample evidence to suggest that a number of windows were in fact replaced due to mould contamination. The better view on the evidence which again I accept is that windows that were replaced indeed required replacement and hence reinstatement. The defendant's attempt to minimise the obvious extent of rot either caused or exacerbated by the fire simply has no evidentiary basis whatsoever. The evidence provided by the plaintiffs provides more than ample and sufficient evidence from which I can comfortably draw an inference that the rot in the windows for example and other parts of the house was either caused or exacerbated by the fire. 657The plaintiffs in my view rightly point to other items such as the chimney, Japanese style doors and whether it is necessary to remove the timber floors sitting underneath the tiled floors and further the alleged overestimation of the area of the first floor by Mr David Martin. This latter criticism is on the basis that no account was taken of the need to make allowance for wastage. 658In relation to these specific items I cannot detect from the defendant's written materials precisely the reasoning or evidence to dispute why they should not form part of the reinstatement costs other than perhaps to suggest that they were not intended to be replaced. I think that criticism or objection is, to correctly distil the defendant's position, in my view misconceived. 659The defendant also complains about tiling costs. It submits that Mr Martin includes in his costing the labour costs of replacing all the Burlington slate when it is clear that the plaintiffs never intended to replace the slate and the costs of timber under the slate. The defendant also complains that Mr Martin includes the costs of laying new floor tiles on the balconies and replacing the water proof membranes underneath. In each case it submits that the items have been included as PC items. 660The plaintiffs I think correctly point out that there does not really appear to be any contest but that the tiles to the dining room, laundry and cellar were damaged as a result of the fire. They point out again correctly that this was recorded in the KCJ fire damage report in November. Further they point to evidence of Mr David Martin and Mr Libling that the tiles were chipped, delaminated and swollen and that Mr Libling observed no drumminess or such condition prior to the fire. 661The mere fact that Mr and Mrs Libling elected not to replace the slate during the rebuild I think again is a misconception of the policy obligations of the defendant. 662The defendant contrasts the amount for cement rendering; on the one hand $45,269 and on the other $26,098. It submits that Mr Rosselli said that the external walls were not stripped and re-rendered. Further it submits that the evidence supports that patching was applied and again invites the court to take account of the fact that the actual cost was $36,000 and that this should be taken into account. 663There does not appear to be any real dispute that work needed to be done to the external render as a result of the fire. Mr Martin's evidence was that he considered that patching the render created problems in that the patch is visible unless it has been a hard set. He costed for re-rendering the external cement render on that basis. The mere fact that it may not have been done in the actual rebuild does not in my view detract from the reasonableness of the assumption that it was required for reinstatement. I do not regard the defendant's criticisms as valid. 664The defendant complains about the costs of air conditioning. It submits that there is ample evidence that Mr Libling wished to upgrade the air conditioning throughout the house and did so. This even involved the engagement of an acoustic engineers to reduce the sound and the erection of a concrete wall to prevent the sound from going into the neighbour's property. 665The defendant submits that there is no evidence that anything other than the air conditioning unit for the attic was damaged in the fire. It submits the KCJ fire report mentions the air conditioning on two occasions and specifies only that the ducting was damaged. It submits Mr Hassall agreed that the damage was limited only to the ducting. Further it submits there is no inspection analysis or report by any other person to the effect that the first floor, ground and basement air conditioning units were damaged. It submits that in all probability they were not. In addition, the main air conditioning unit, it contends, was housed in a timber box situated externally on top of the laundry. This fact, it submits, tends to suggest either it was protected from the elements by the box or it was designed not to be damaged by the elements such as water. The defendant points to an email from Mr Libling dated 16 October 2010 in which he specifically queries whether the existing air conditioning unit for the cellar/basement would be satisfactory. It submits this material should be used to infer that he was still using the existing basement unit in 2010. Further, it submits there is no evidence that the main and first floor units were damaged. I am urged not to allow the cost of $96,000 which accounts for three out of four of the air conditioning units but rather I should adopt Mr Batger's estimate of $13,570. 666The plaintiffs submit that the two relevant witnesses would be Mr David Martin and Mr Hassall. They submit that it was only Mr Hassall who had it put squarely to him that there was no damage to the air conditioning units and that he did not remember. The plaintiffs also accept that the KCJ fire report only refers to ducting but that in and of itself does not invite the inference that there was no damage to the first and ground floor air conditioning units. 667The plaintiffs point to Mr Lloyd's reports in which he specifically made mention as part of his assessment that the electrical, hydraulic and mechanical installations had been severely damaged and he anticipated an effective strip out of the dwelling as warranted. He made clear in his evidence that that description included air conditioning units. In addition the plaintiffs point to Mr McNamara having made an allowance for air conditioning in his initial costs plan based on his observations at the time. Likewise Mr Meredith, the plaintiffs contend, makes an allowance for an air conditioning unit in his costing, I am asked to infer, having made an inspection of the house. 668The plaintiffs further suggest that the fire incident report discloses evidence of damage to multiple air conditioning units. Indeed the fire incident report refers to "1AC" motor found under debris and another found in "NW" corner bedroom. In respect of both units there is the comment that there was extensive fire damage. 669The plaintiffs accept that the primary claim made is on the basis of the allowance in the KCJ quote. For various reasons I have not accepted that that is an appropriate basis. However they point out that what was in fact put into the house by way of a new air conditioning system was "comparable to what was there before". The plaintiffs further content, I think correctly that the requirement to get an acoustic engineer was a condition of the DA. Again the plaintiffs contend, correctly in my view, that the fact that the installation of replacement air-conditioning created additional compliance obligations is nonetheless a matter which falls within the policy. 670I am satisfied that the plaintiffs have proved the reasonableness of these costs and again I reject the defendant's criticisms.

Appropriate amount for alternative accommodation 671There does not appear to me to be any issue as to the plaintiffs' entitlement to claim an amount for accommodation and incidental expenses incurred by them up to 2 October 2010 which is two years after the fire. 672The primary basis upon which this claim of course was put was that there was either was an agreement and/or the defendant was estopped from subjecting the plaintiffs to the maximum period. The cap, by reason of the terms of the policy is $789,000. 673The evidence is that the plaintiffs incurred accommodation and related costs of $527,653.13 in the 24-month period immediately following the fire. This amount is made up of $464,525.25 for accommodation and $63,127.88 for related costs. There does not again appear to be any issue but that these amounts were expended. 674Unsurprisingly the defendant accepts that it should pay for the 24-month period. It is disputed by the defendant however that the use of the term "you" in clause 4.1(n) is defined to mean the persons named as the insured in the schedule as those persons who lived with the named insureds permanently. 675The defendant submits that there were three people living in the house at the time of the fire. Although Mr and Mrs Libling had another son, it is contended I think correctly by the defendant that there is no suggestion at any time that accommodation was required for him. 676The defendant also contends that the policy would not respond to every personal expense incurred by Mr and Mrs Libling in the two year period. Only the reasonable costs of alternative accommodation are required. The defendant further contends that the defendant has in fact paid the sum of $450,000 already. 677The defendant accepts that it should pay Mr and Mrs Libling's expenses in staying in a hotel up to the time they went overseas on 5 December 2008. Further the defendant accepts that it should be responsible for additional charges which might be viewed as personal expenses for Mr and Mrs Libling but not the hotel expenses referable to Mr Libling's friend. I think that contention is correct. 678The defendant also contends in my view correctly that it should pay the rental which Mr Libling informed Mr Lloyd he would be incurring in the period from Christmas to 19 January 2009. Albeit expensive, the insurer was fully informed by Mr Liblng as to what he thought he had to do and in my view agreed to meet that expense. 679The defendant also contends which I think is correct that is by no means clear what other expenses are in fact claimed for in the period from Christmas to 19 January 2009. I observe of course that the status of the spreadsheet remained subject to a s 136 qualification. It was certainly not admitted on the basis that any of the amounts expended were referable to and/or accepted as reasonable expenses pursuant to the policy. I was not addressed orally or in writing by the plaintiffs in respect of these expenses. That not only covers the current period I am discussing but any other period. 680The defendant correctly submits that between 19 January 2009 until 12 April 2010, Mr and Mrs Libling resided at 40 Martin Road at a rent of $13,000 per month including GST. The defendant accepts it should pay that amount. Further, from 19 April to the end of the two year period in early October 2010, Mr and Mrs Libling resided at 120 Hopeton Avenue, again at a rent of $13,000 per month. The defendant again accepts it should pay that amount. 681The defendant contends that it should not be required to pay amounts for gardeners and pool maintainers at 44 Martin Road. I think that is right. I do not see how it could be regarded as costs of reasonable temporary accommodation consistent with the clause. The clause is predicated of course upon the original residence being uninhabitable. 682The defendant contends that it should not be required to pay for the costs of cleaning the fishpond at 40 Martin Road. Such a cost may or may not have been a term of the lease Mr and Mrs Libling entered into with the owners. I am not in a position on the state of the evidence to know one way or the other and consequently I am not satisfied that the plaintiffs have proven that such is recoverable under the clause. 683The defendant also submits that it is not or should not be required to pay for the additional items of furniture which Mr and/or Mrs Libling may have decided to purchase during their stay in the houses. Again I am simply not satisfied on the state of the evidence, first as to precisely what was purchased and when and/or why. Why may be easier to answer than the other questions. Many of the items may well have been damaged or destroyed by water, soot or for that matter fire. Again no attention has been paid by the plaintiffs to the precise items that are claimed apart from tendering the spreadsheet. 684The defendant rejects any obligation to pay for the upgrading of security systems, from the security systems which were present in the houses. I do not agree. The clause is directed to reasonable temporary accommodation. But for most persons especially in areas like Centennial Park, or Vaucluse burglary is a real threat and an upgrading of the security system at least as a matter of general principle I do not find is unreasonable. Likewise the changing of locks is clearly in my view a reasonable cost and should be paid for by the insurer pursuant to the clause. 685The insurer objects to paying for the internet and phone adjustment costs, the cost of an additional fly screen for the spare bedroom or the cleaning of a garage. Additionally the insurer objects to the payment of some $4,000 for the storage of wine and costs associated with having wine delivered to Mr Libling's house. Though it is true that the clause does not anticipate perhaps that the temporary accommodation will in all respects be identical with the "principal place of residence" but I think it is reasonably clear that albeit temporary there has to be something a little more than a tent and small wooden boxes to sit on. Such a policy is clearly intended to maintain reasonably to a large extent the environment in which the insured previously enjoyed his or her home. In his previous home for example Mr Libling had internet and phone connections of his choice. Likewise he stored wine at his home. I see none of these expenses as unreasonable and I think the insurer should pay for them. So far as costs associated with delivery of wine to Mr Libling's house as opposed to storage, I think it is open to argument that that would fall outside what is reasonable; I think to that limited extent I would disallow that expense. 686Insofar as the plaintiffs' claim expenses associated with hotel accommodation for friends and relatives, I agree with the defendant that this would and should fall outside the scope of the policy. It is quite immaterial whether Mr and Mrs Libling on a regular basis or otherwise entertained friends and relatives. The policy is confined to providing temporary accommodation for members who permanently reside at the residence. Such persons however close they may be as relatives would obviously fall outside what in my view the clause is intended to deal with. 687The plaintiffs make a claim in relation to the kennelling of their dog up to 5 December 2008. The defendant apparently does not object to payment for that period. Thereafter the defendant submits that the plaintiffs went overseas and from the time they returned they were living in houses where they could have kept the dog. There is actually no evidence one way or other on that item but more to the point I am not satisfied that the plaintiffs have substantiated a claim for the housing of the dog otherwise for that earlier period when Mr and Mrs Libling from time to time may have gone overseas. 688Apart from the amounts that I have referred to above the status of the spreadsheet does not permit me together with the evidence otherwise to be satisfied that other than those amounts I have dealt with specifically the plaintiffs are entitled to any monies pursuant to the clause during the 24 month period. A calculation will need to be undertaken before I can make any orders finally in relation to this aspect of the matter.

Professional fees 689The limit on this claim pursuant to clause 1.4(b) is $394,600. 690The evidence put forward by the plaintiffs is that they have expended $394,953.25 in professional fees in respect of the reinstatement of the premises which included the minor alterations and additions. 691The plaintiffs point out that the professional fees are not dealt with by the builders who have costed. There is however, both sides accept, no dispute between Mr Martin and Mr Batger as to the appropriate percentages to be applied for professional fees. Mr Martin and Mr Batger agreed on 12%. The defendant points out that Mr Rosselli in fact charged on the work he did at approximately 9.6%. The defendant therefore submits that the defendant should not be liable to pay at a rate higher than Mr Rosselli actually charged. In my view that does not really address the issue satisfactorily. 692On Mr Martin's costings, the professional fees are $424,301.97 which of course exceed the indemnity limit. The plaintiffs therefore submit that the appropriate figure in all the circumstances is the indemnity limit. I agree.

Storage 693Under the policy the maximum benefit is $50,000 pursuant to clause 2.4. Only the plaintiffs have addressed this item and in writing. The actual costs incurred are $40,311.48. I do not detect any opposition from the defendant in relation to this and I think that is the appropriate amount to be awarded.

Interest 694The plaintiffs claim interest pursuant to s 57 of the Insurance Contracts Act. Pursuant to that provision interest runs from the day from which it was unreasonable for the insurer to have withheld payment of the amount. The amount is that prescribed by the Insurance Contracts Regulations 1985. 695The plaintiffs contend that the largest items to which interest is attracted are the cash amount attributable to the building claim and the professional fees applicable. They submit that the timing of the accrual of interest will in part depend on the nature of the agreement that the insurer has or has not bound itself to. 696I have found that the insurer did not bind itself to either the process or the estimate provided by KCJ. 697The plaintiffs submit that on any view the alternative approach is that interest should run at the latest from the time that the insurer made its first offer of settlement to the plaintiffs. The defendant submits on the other hand that Mr Libling used the money advanced by the defendant in 2008 and 2009 by depositing it in accounts of one of his various companies and then transferring it back by way of some form of loan agreement when necessary. It is further submitted that the evidence records Mr Libling having received interest of in excess of $50,000 on these amounts by March 2010. The defendant submits that if the defendant has underpaid and the plaintiffs are entitled to damages then any consideration as to interest must have regard to the fact that payment is in respect of an amount which the defendant was not actually liable to pay until the reinstatement work was undertaken. The defendant therefore submits that this may be an issue on which further submissions can be made depending on the terms of any judgment. I am content to leave this matter for the moment on that basis. I would therefore reserve to both parties in the light of my findings an opportunity to make further submissions about this.

Distress and inconvenience 698Certain types of contracts have as one of their objects the provision of peace of mind, convenience and freedom from distress to a party. Where such a contract is breached in a manner causing distress, pain, suffering or physical inconvenience, the court may award a sum as compensation. Although certain types of insurance contracts clearly fit within that class of contract, there are types of insurances which do not (for example in Ventouris v Mountain (The Italia Express (No 2)) [1992] 2 Lloyd's Rep 281 at 293, Hirst J found that a contract of marine insurance was not one to provide peace of mind or freedom from distress). 699In my view, the plaintiffs correctly submitted, and there is plenty of authority to support the proposition, that the type of contract in this case is recognised as one which has as one of its objects the provision of peace of mind to the insured (Stuart v GRE Ltd (1988) 5 ANZ Ins Cas 60-844 at 75,281-75,282; South Pacific Manufacturing Co Ltd v New Zealand Security Consultants & Investigations Ltd; Mortensen v Laing [1992] 2 NZLR 282 at 313; Edwards v AA Mutual Ins Co Ltd (1985) 3 ANZ Ins Cas 60-668; Johnson v Australian Gas Co Ltd (1992) 7 ANZ Ins Cas 61-109; Motor Accident Mutual Insurance Pty Ltd v Kelly (1998) 10 ANZ Ins Cas 61-420 at 74,719). 700The plaintiffs submit that I should make an award for damages which is based upon the delay in the insurer meeting its promise. As I have not been satisfied that any of the promises asserted were in fact made nor estoppels created I do not think this is an appropriate case to award any damages under this head.

Failure to mitigate 701The defendant submitted that the plaintiffs have failed to mitigate. 702They submit that they raised the issue of a temporary roof to protect the home in October 2008. The matter was further raised but the defendant submits that Mr and Mrs Libling simply did not want to do this because they wanted to make changes to their house. 703It is submitted by the defendant that as Mr and Mrs Libling did not accede to the defendant's requests to put a permanent or temporary roof on, that there is a relevant failure to mitigate. 704I have already dealt with the issue of mould remediation and it does not seem to me that as a matter of reality the roof issue is a real one. I have dealt with this earlier in the judgment. It is simply a red herring. 705Whilst I have not found any of the promises alleged by the plaintiffs, given the nature and complexity of the task (which both sides were using their best efforts to grapple with) I think such a submission is entirely misconceived. 706I reject the submission that the plaintiffs failed to mitigate.

Conclusion 707To summarise, I have rejected each of the variation and/or estoppel claims advanced by the plaintiffs. I have also rejected every claim of breach of the duty of utmost good faith made by the parties. Accordingly, it was necessary for me to assess the reasonable cost of reinstatement of the house to its "as was" state, by reference to the evidence before me. For the reasons I have given, I prefer the estimation of Mr Rhodes-White, subject to an adjustment to take into account the actual cost of remediation rather than the estimated cost. As I have rejected the estoppel covering the claim for alternative accommodation, it was necessary to make an assessment of what should be allowed. The parties will need to collaborate, given my rulings, to work out precisely and mathematically where my reasons place them on this issue. In relation to professional fees, I have come to the view that the appropriate figure is the indemnity limit. In relation to storage costs, I have formed the view that the plaintiffs should receive the amount I understand they seek. I have rejected the plaintiffs' claim for damages for distress and inconvenience. I have also rejected the defendant's allegation of a failure to mitigate on the part of the plaintiffs. On the question of interest under s 57 of the Insurance Contracts Act, I would allow the parties to provide further submissions, in the light of my reasons in this judgment. 708Clearly, an adjustment should be made to take into account amounts already paid by the insurer to the plaintiffs. In this regard, I would accept what I understand to be the uncontested approach proposed by the plaintiffs. That would involve applying the insurer's funds against benefits that were never the subject of any controversy first, leaving the balance to be adjusted against the three main items in controversy in the case. 709I invite the parties to prepare and send to my Associate short minutes of order giving effect to these reasons, and to arrange with my Associate for a suitable time to have this matter re-listed to be heard on costs and interest, unless the parties reach a consensual position on those questions. 710Given the length and complexity of the judgment, I think it is also appropriate to give liberty to the parties to apply to have the matter re-listed if it becomes necessary to do so.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 07 January 2014

Exempt and Complying Development Insurance Contracts Act 1984(Cth)

Insurance Contracts Regulation 1985(Cth)

Revised Professional Conduct and Practice Rules 1995(NSW)

London Assurance v Clare [1937] 57 Lloyd's Rep 254 Malec v J C Hutton Pty Ltd [1990] HCA 20; (1990) 169 CLR 638 Manifest Shipping Co Ltd v Uni-Polaris Shipping Co Ltd; The Star Sea [2001] UKHL 1; [2001] 2 WLR 170 McCrohon v Harith [2010] NSWCA 67 McGraddie v McGraddie and another [2013] UKSC 58; [2013] 1 WLR 2477 Moratic Pty Ltd v Gordon [2007] NSWSC 5; (2007) 13 BPR 24,713 Motor Accident Mutual Insurance Pty Ltd v Kelly (1998) 10 ANZ Ins Cas 61-420 Newnham v Baker [1989] 1 Qd R 393 NSW Medical Defence Union Ltd v Transport Industries Co Ltd (1985) 4 NSWLR 107 Nilon v Bezzina [1988] 2 Qd R 420 Orakpo v Barclays Insurance Services Co Ltd & Anor [1994] CLC 373 Placer (Granny Smith) Pty Ltd v Thiess Contractors Pty Ltd [2003] HCA 10; (2003) 196 ALR 257 Ratcliffe v Evans [1892] 2 QB 524 Ryledar Pty Ltd v Euphoric Pty Ltd [2007] NSWCA 65; (2007) 69 NSWLR 603 Schultz v New Zealand Insurance Co Ltd [1983] 1 VR 189 South Pacific Manufacturing Co Ltd v New Zealand Security Consultants & Investigations Ltd; Mortensen v Laing [1992] 2 NZLR 282 State of New South Wales v Burton [2008] NSWCA 319 State of New South Wales v Moss [2000] NSWCA 133; (2000) 54 NSWLR 536 Stuart v GRE Ltd (1988) 5 ANZ Ins Cas 60-844 Talbot v General Television Corporation Pty Ltd [1980] VR 224 Troulis v Vamvoukakis [1998] NSWCA 237 Ventouris v Mountain (The Italia Express (No 2)) [1992] 2 Lloyd's Rep 281 Waterman v Gerling Australia Insurance Co Pty Ltd [2005] NSWSC 1066; (2005) 65 NSWLR 300 Wilson v Matthews [1913] VLR 224 Zorom Enterprises v Zabow [2007] NSWCA 106; (2007) 71 NSWLR 354 Texts Cited: A M Gleeson, "Judicial Legitimacy" (2000) 20(1) Australian Bar Review 4 E R H Ivamy, Fire and Motor Insurance, 4th ed (1984) Butterworths Kelly & Ball Principles of Insurance Law P M Eggers, S Picken and P Foss, Good Faith and Insurance Contracts, 2nd ed (2004) LLP Category: Principal judgment Parties: Camellia Properties Pty Ltd (First Plaintiff) SA Matthews Holdings Pty Ltd (Second Plaintiff) Lithgow Properties Pty Ltd (Third Plaintiff) David Ferdynand Libling (Fourth Plaintiff) Sandra Anne Libling (Fifth Plaintiff) Wesfarmers General Insurance Ltd (Defendant) Representation: Counsel: M Jones SC and C Gleeson (Plaintiffs) R Cavanagh SC and S Walsh (Defendant) Solicitors: Corrs Chambers Westgarth (Plaintiffs) Turks Legal (Defendant) File Number(s): 2010/302314

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