Victorian Civil and Administrative Tribunal|2007-09-19

Campbell v Hamlan Homes Pty Ltd (Domestic Building) [2007] VCAT 1974 (19 September 2007)

Domestic building - Engineer - Professional Indemnity insurance - Exclusion - Non-disclosure - Rule in Jones v Dunkel

Greg Campbell (Struck out from proceeding 21/3/07), Devina Campbell (Struck out from proceeding 21/3/07)

Vero Insurance Ltd (Struck out from proceeding 21/3/07)

Campbell v Hamlan Homes Pty Ltd (Domestic Building) [2007] VCAT 1974

2 Reserve liberty to the First Joined Party to apply for costs.

Direct that this matter be listed before me on 5 October 2007 at 2.15 p.m. at 55 King Street Melbourne. Allow half a day.

This claim raises interesting and significant questions.
It arose for hearing before me following orders made on 21 March 2007 wherein the following question was fixed for hearing:

"Whether the Second Joined Party is obliged to provide indemnity to the First Joined Party under the relevant policies of insurance for the years 2004/2005 and 2005/2006 and any consequential costs orders".

There are certain matters which were common ground between the parties. I take as an accurate summary of the same the following from paragraphs 5 and 6 of the written submissions of the Second Joined Party:
1. The Applicants (Owners) claimed against the First Respondent (Builder) by Points of Claim dated 20 May 2005. By their Amended Points of Claim dated 22 December 2005, the Owners alleged that they had entered into a domestic building contract with the Builder on or about 30 October 1997 which the Builder had breached, inter alia, by reason of foundation movement.
2. By its Amended Points of Claim for Joinder of the Insured dated 31 May 2006, the Builder claimed that it was entitled to indemnity or contribution from the Insured (Claim). The Builder noted that the Owners alleged faults in the building and design including a failure to incorporate the garage into the main slab, no connectivity between the main slab and the strip footing system for the garage despite a recommendation in the site investigation report and insufficient stiffness in the slab design to resist expected ground movements. The Builder claimed that if the faults existed they existed by reason of the Insured's breach of contract and breach of duty of care to certify plans for the house to be erected on the Owners' property in Muhlebachs Road Sutherlands Creek (Property) exercising the reasonable care, skill and diligence of a competent consulting engineer.
I also take as common ground between the parties the following from paragraphs 2 and 3 of those submissions:
1. It is common ground that CGU issued:

(a) Civil Liability Professional Indemnity Insurance Policy No. 03CON0473413 on or about 21 March 2004, for the period from 21 March 2004 to 21 March 2005 (04/05 Policy); and

(b) Civil Liability Professional Indemnity Insurance Policy No. 03CON0525526 on or about 21 March 2005, for the period from 21 March 2005 to 21 March 2006 (05/06 Policy).

Both the 04/05 Policy and the 05/06 Policy (Policies) are "claims made and notified" policies. A notification was made during the period of insurance cover under the 05/06 Policy (on 8 March 2006) but no "claim", as defined by clause 12.2 of the Policies, was made against the Insured until May 2006. Nevertheless, in accordance with s 40(3) of the ICA, GCU has not denied liability on that ground.
The issue I agree turns on the question of whether the First Joined Party (which is the Insured) made necessary disclosures to the Second Joined Party (which is the Insurer) of circumstances prior to the inception of the 04/05 policy - if they were necessary, or if it was obliged to do so. If the Second Joined Party is not liable it will be because of the operation of the policy or by operation in particular of s28 of the Insurance Contracts Act 1984. The latter reads as follows:
- (1) This section applies where the person who became the insured under a contract of general insurance upon the contract being entered into:
  - (a) failed to comply with the duty of disclosure; or
  - (b) made a misrepresentation to the insurer before the contract was entered into;

but does not apply where the insurer would have entered into the contract, for the same premium and on the same terms and conditions, even if the insured had not failed to comply with the duty of disclosure or had not made the misrepresentation before the contract was entered into.

(2) If the failure was fraudulent or the misrepresentation was made fraudulently, the insurer may avoid the contract.

(3) If the insurer is not entitled to avoid the contract or, being entitled to avoid the contract (whether under subsection (2) or otherwise) has not done so, the liability of the insurer in respect of a claim is reduced to the amount that would place the insurer in a position in which the insurer would have been if the failure had not occurred or the misrepresentation had not been made.

The matter remains in the Tribunal only with respect to this insurance question arising between the First and Second Joined Parties. On 21 March 2007, the date already referred to, the matter was settled as between the Applicants, the Respondent and the First Joined Party. By consent, the Tribunal ordered that the proceeding be struck out between those parties (and also the Respondent's Insurer) with no orders as to costs.
The only issue remaining is, therefore, this indemnity dispute.
And at that, I believe it is only the costs of the First Joined Party in defending the proceedings which is in issue.

Following on from paragraph 5 above it seems to me there are two principal issues:

(a) Whether the Second Joined Party is not liable to indemnify the First Joined Party under the terms of the policy; and

(b) Whether the Second Joined Party is not liable to indemnify the First Joined Party by reason of section 28.

There are other issues in the case (including issues of a subsidiary kind) but these, it seems to me, are the two principal ones - without intending thereby to compress Counsel's submissions to me unduly.

The hearing took place over several days during a period commencing on 9 July 2007 and concluding on 19 July 2007.
The First Joined Party called only one witness to give evidence. This factor is of some significance as will be seen.
The Second Joined Party called witnesses including the following: Nieta Adine Tanian, underwriter whose witness statement confirmed in evidence with minor alterations is dated 21 May 2007; and Dina Rekas, also an underwriter, whose witness statements (again confirmed in evidence with minor amendments) are dated also 21 May 2007 and 4 July 2007.
As well, the Second Joined Party called evidence from Mr Donald Peter Haworth, whose witness statement is dated 20 May 2007. Mr Haworth is a consulting civil/structural engineer and his evidence was directed to the conduct or to what is alleged should have been the conduct of Mr Fallaw on behalf of the First Joined Party. This must be seen in the light of the provisions in the policy in question - in particular exclusion 6.1 and the definition in clause 12.14. By the former the policy excludes:

(a) Known Claims (or losses) as at the inception date of this Policy, or

(b) Claims (or losses) arising from a Known Circumstance(s), or

(c) Claims (or losses) directly or indirectly based upon, attributable to, or in consequence of any such Known Circumstance or known Claims (or losses).

(a) an Insured knew before this Policy began; or

(b) a reasonable person in the Insured's professional position would have thought, before this Policy began

might result in someone making an allegation against an Insured in respect of a liability, that might be covered by this Policy.

The final day of the hearing was devoted to the submissions of the parties.
Those submissions were carefully prepared by each and I have found both very helpful. Also helpful I have found the various authorities to which my attention was directed. Where appropriate I have referred to them. I have referred, however,also to a couple of other authorities out of my own researches.
I should mention that during the hearing I did not allow the Second Joined Party, for reasons I gave at the time, to call evidence from Mr Campbell (the First Applicant) who was in attendance at the Tribunal. He had only recently offered his support to the Second Joined Party. He had been sitting in the hearing room, moreover, listening to the case. In summary, it seemed to me that the Second Joined Party could have made arrangements to call him long before the hearing. And, as it turns out, I think it should have done so.
Further, I should mention that I overruled objection to the reception of Mr Haworth' s evidence. It seemed to me, upon even a casual reading of his witness statement, that he did have expertise in the area of engineering he claimed. I considered that I could rightfully receive evidence from him (as a general proposition) about what a reasonable person in the First Joined Party's professional position (as an engineer) would or should have thought. I indicated, though, that, as to what "might" result from someone making an allegation, I did not consider this was something an expert necessarily could give expert evidence about - anyone, even without expertise, could form a view about what "might" result from something, I recall I may have commented. In any event, I explain this further on.

The First Joined Party submits it must show a prima facie entitlement to indemnity under the policy and it submits that it has done so.
Then it submits that the onus shifts to the Second Joined Party to establish any of the following:
- (a) that exclusion 6.1, set out above, applies;
- (b) that the First Joined Party failed to comply with its duty of disclosure prior to inception of the 04/05 policy
- (c) that the First Joined Party misrepresented the risk prior to inception of the 04/05 policy;
- (d) what it would have done had the disclosure been made or the misrepresentation not occurred.
The First Joined Party's Contentions are supported by detailed analysis of the evidence in the case with due reference to authorities.
Critical to its Contentions is the proposition that the onus of proof shifted to the Second Joined Party. The point being made is that the First Joined Party bears no onus of disproof. This was something seriously canvassed.

If I should accept the submissions of the First Joined Party then I should answer the question set out in paragraph 2, above, "Yes".
However, if I should accept the Second Joined Party's submissions then I should answer that question "No".
The Second Joined Party submits, in effect, that it will be liable to indemnify the First Joined Party if I find that, of the circumstances which existed prior to the inception of the policy on 21 March 2004, there were no relevant known circumstances or there was no non-disclosure. But if I find there were known circumstances or there was non-disclosure, then the Second Joined Party's liability will be excluded pursuant to clause 6.1 of the policy - the exclusion set out above - or pursuant to s28 of the Insurance Contracts Act 1984, also set out above.
The Second Joined Party's Contentions are also supported by detailed analysis of the facts - the evidence in the case - and authorities.
It is not unfair to observe that, mostly, reliance was placed on clause 6.1 (and clause 12.14) although as I have noted s28 also was relied upon. I consider clause 6.1 attracted most focus in the case from the Second Joined Party's point of view. Significant reliance is placed upon the rule in Jones v Dunkel (1959) 101 CLR 298 given that Mr Fallaw - whom I identify with the First Joined Party (see H L Bolton (Engineering) Co Ltd v T J Graham & Sons Ltd [1957] 1 QB 159 at 172) - was not called to give evidence.

I consider the first issue I must decide is whether, indeed, the First Joined Party does bear an onus of disproof, as it were. If it does, then it must be for it to show that the Second Joined Party may not avoid liability by reference either to clause 6.1 (and clause 12.14) or to s28. Should it fail to show this, after having heard from the Second Joined Party, then I must find in favour of the latter and hold that it is not liable to indemnify. However, should it not fail to show this - that is, if it should follow that the Second Joined Party may not avoid liability - then the First Joined Party succeeds and the Second Joined Party is liable to indemnify.
On the other hand if the First Joined Party does not bear an onus of disproof then the Second Joined Party will succeed, and not be liable to indemnify, if it establishes that it may avoid liability by reference to clause 6.1 (and clause 12.14) or to s28. If, however, it does not establish that it may avoid liability by reliance upon either then I must find in favour of the First Joined Party and hold that the former is bound to indemnify the latter.
Who bears the onus of proof or of disproof, should the latter arise, is, thus, a critical factor. For, depending on this question also are issues in relation to the rule in Jones v Dunkel, above.
It would be unusual in a civil proceeding for a party to bear an onus of disproof. If the matter were one which was undefended by the Second Joined Party I cannot think it would be for the First Joined Party to prove, as part of its case, that the Second Joined Party had no viable defences. If the matter was undefended, a sufficient case is one only which the First Joined Party would need to raise - one where one could be properly satisfied that orders should be made in its favour. But to arrive at that point one would not need to run the case for the absent Second Joined Party, as it were. If the matter were undefended it would be no part of the business of the First Joined Party to argue against itself and present the Second Joined Party defences.
I am satisfied that the First Joined Party bears an onus of proof only and not an onus of disproof. And I am satisfied that its onus of proof is one which must raise a case sufficient to call upon the Second Joined Party to answer if it wishes to do so. The First Joined Party called this a "prima facie" case. I am not certain that I would agree with that description. It seems to me to set the bar far too low. I consider the First Joined Party should be called upon to raise a case sufficient for it to found a liability in the Second Joined Party should the latter happen not to call any evidence, or, in other words, in the absence of any further evidence.
This, I think, is in accordance with established principles of law going back a very long way. See remarks of Viscount Maugham in Joseph Constantine Steamship Line Ltd v Imperial Smelting Corporation Ltd [1942] AC 154 at 174. See also Lord Esher M R's observation in The Glendarroch [1894] P 226 at 231 - "according to the ordinary course of practice each party [must] prove the part of the matter which lies upon him".
As I view it, then, the First Joined Party bears an opening onus. It must point to facts which would entitle it to an order in its favour if nothing was to be placed before the Tribunal by the Second Joined Party.
Having done that, it is then for the Second Joined Party to establish no responsibility or an absence of liability to indemnify by reference to the matters it places before the Tribunal. In this case that includes clause 6.1 (and clause 12.14) and s28. It is then for the First Joined Party to reply if it will.
This means I must identify, first off, whether the First Joined Party has raised such a case. I then must look to see whether the Second Joined Party's material is such as to satisfy me it should be excluded from liability. Then, I consider, I may hear anything in reply by the First Joined Party.
As it happens, this indeed is how the case was run by Counsel for the parties.
This approach is one well supported in authority. I refer, for instance, to the judgment of Sholl J in Alex Kay Pty Ltd v General Motors Acceptance Corpn [1963] VicRp 66; [1963] VR 458 at 461 where his Honour said: "I agree with the argument of counsel for the defendant insurer that the plaintiff, in order to recover on the policy, must prove that the loss of the Holden motor car arose out of accident, damage or theft, for I agree that the introductory provision to that effect governs all that follows under the heading 'Loss or Damage'. On the other hand, once the plaintiff so proves, the onus is on the insurance company to establish the application of the exceptive proviso on which it relies in order to avoid paying under the policy".
- (ii) First Joined Party's case
I consider, on the basis of the materials submitted, that the First Joined Party has raised a case such that it would be entitled to an order in its favour if there were nothing placed before the Tribunal by the Second Joined Party. As it happens, it seems, many of those materials consist of facts and matters which either are admitted or conceded or which are, in the scheme of things, uncontroversial in any event.
Adding to the background facts set out in paragraph 3 above, and to the common ground between the parties mentioned in paragraph 4 above, or, in amplification of both, I recite also these facts from the First Joined Party's submissions:
- (a) the First Joined Party ("Fallaw") has carried on business as a professional structural and civil engineer at all material times;
- (b) in October 2007 Fallaw was retained by the first respondent ("Hamlan") to certify the design of a slab and footings for a house to be constructed at Lot 1 Muhlebachs Road, Sutherland Creek ("the house"). Fallaw did certify the design;
- (c) the house was built and owned by the applicants;
- (d) early in 2004, Fallaw effected professional indemnity insurance with the Second Joined Party ("CGU"). Under that insurance, CGU promised to indemnify Fallaw against claims for civil liability arising from the conduct of its professional business practice which were made and notified to CGU whilst the policy was in force. The policy was initially in effect for the 12 month period ended on 21 March 2005, and was renewed for the 12 months ended on 21 March 2008;
- (e) on 20 May 2005 the applicants issued this proceeding. In their amended points of claim, they accused Hamlan of failing to build properly and in accordance with the relevant Australian Standard;
- (f) by facsimile message of 2 March 2006, Hamlan's solicitor put Fallaw on notice that Hamlan intended to seek contribution from it. Fallaw gave notice of this to CGU on 8 March 2006;
- (g) Hamlan joined Fallaw to the proceeding in May 2006. By its amended points of claim it alleged, inter alia, that if the applicants' complaints regarding the adequacy of the design of the foundations of the house were made out, Fallaw had breached its retainer and was liable for them;
- (h) although CGU through its solicitors in this proceeding, Deacons, initially conducted the defence of Hamlan's claim on Fallaw and filed a Defence in Fallaw's behalf, it subsequently denied liability for it;
- (i) following that denial, Fallaw retained its present solicitors to defend Hamlan's claim;
- (j) Hamlan's claim upon Fallaw has been resolved on the basis that each party bears its own costs
Plainly, these facts indicate that a claim of the type against which Fallaw was insured by CGU has been made upon it, i.e. a claim for civil liability arising from the conduct of the insured professional business practice.
On the basis of paragraphs 3, 4 and 39, all above, I am satisfied, as I say, that the First Joined Party has, in effect, and to this point, established a case sufficient in law against the Second Joined Party if nothing further was to be heard. The substance of it is that, in the events set out, the First Joined Party has sought indemnity from the Second Joined Party, in respect of its costs only, and the Second Joined Party has declined to provide any such indemnity on the grounds advanced. If there were to be no other evidence in the case I could be satisfied I should make orders in favour of the First Joined Party.
- (iii) Clause 6.1
The next question I must decide, as I see it, is whether the Second Joined Party has established to my satisfaction that it is not liable to indemnify the First Joined Party on the ground of the exclusion in clause 6.1, set out above. I leave aside, to later, the question of s28 of the Insurance Contracts Act 1984.
It is apparent that clause 6.1 deals with both known claims and known circumstances. A "known claim" is a claim "known" at the inception date of the policy (clause 6.1(a)). A "known circumstance" (clause 6.1(b)) may be one of two kinds: either any fact, situation or circumstance which the Insured (whoever it may be) "knew" before the policy began might result in someone making an allegation against that Insured in respect of a liability that might be covered by the policy (clause 12.14(a)) or which a reasonable person in the Insured's professional position "would have thought" might result in someone making an allegation of that kind that might be covered by the policy (clause 12.14(b)). I call the latter "stipulated" knowledge. Claims (or losses) arising from a known circumstance, so defined, are excluded: clause 6.1(b). Also excluded are claims (or losses) directly or indirectly based upon, attributable to or in consequence of any such known circumstance or known claims (or losses): clause 6.1(c).
Despite the confusing terminology, at some point within clause 6.1, and within the definition of known circumstance in clause 12.14, an Insured's actual knowledge is dealt with and included. I would not expect it to be otherwise. Why would an Insurer bother to exclude stipulated knowledge yet fail to exclude itself from liability in the event of actual knowledge on the part of an Insured? So, actual knowledge on the part of an Insured is within the provision in some fashion - the Insurer is excluded from liability in the event of its Insured having actual knowledge of a claim or of a prescribed fact, situation or circumstance. I see this as arising under clause 6.1(a) and under the former part of "known circumstances" in clause 12.14(a). In other words, in the application of clause 6.1 in this respect, as extended also by clause 12.14, the onus is on the Second Joined Party to prove actual knowledge on the part of the First Joined Party. The actual knowledge, to be proven, to the requisite degree - that is, on the balance of probabilities - must be either of a claim or of a defined fact, situation or circumstance. But the knowledge which must be proven is actual, in this regard, and nothing less. Stipulated knowledge (as I call it) I deal with later in the course of these Reasons.
I say it is "actual" knowledge which must be proven by the Second Joined Party because this is what, in my view, these provisions of its excepting conditions require. It was open to the Second Joined Party to specify something less than that, but it has not chosen to do so. Knowledge, as such, is the requirement. And to prove knowledge on the part of the First Joined Party it is not enough for the Second Joined Party to prove that it had the means of knowledge at its disposal. As was said by Lord Goddard C J in John T Ellis Ltd v Hinds [1947] 1 KB 475 at 482: "If a man deliberately shuts his eyes to the obvious, he has as much knowledge as if he were expressly told the fact to which he has closed his eyes. But it is quite another thing to say that because a man has means of knowledge of which he does not avail himself, therefore he has knowledge".
The Second Joined Party's Amended Points of Defence dated 4 April 2007 do not adequately separate out these two questions - actual knowledge and stipulated knowledge. In fact, its Amended Points of Defence conflate the two such that the Particulars given for one are supplied as informing both. I am referring in particular to paragraph 7 of the Amended Points of Defence and the Particulars set out thereunder. That paragraph repeats both clauses 6.1 and 12.14. I shall not repeat them again in setting it out. Nor, in doing so, shall I repeat struck out words or any underlinings. Paragraphs 7(5), (6) and (7) otherwise read as follows:
- (5) It says further that the First Joined Party knew prior to the commencement of the 04/05 CGU policy, and further or alternatively a reasonable person in the First Joined Party's professional position would have thought, prior to the commencement of the 04/05 CGU policy, that:
  - (a) the damage to the Applicants's property (that had been inspected by Mr Fallaw, director on behalf of the First Joined Party):
  - (b) the dispute between the Applicants and the First Respondent regarding the Applicants' property (of which Mr Fallaw and therefore the First Joined Party had knowledge); and
  - (c) the First Joined Party's role as designer, endorser and certifier of the elements of the Applicants' property which were claimed to be defective

might result in allegations being made against the First Joined Party and that such allegations in respect of a liability that might be covered by the 04/05 CGU policy or the 05/06 policies.

On or about 13 October 1997, the First Joined Party designed and endorsed plans for a concrete foundation slab and strip footings for the Applications' home to be constructed at Lot 1 Muhlebachs Road Sutherland Creek.

In April 2002, Mr Charles Fallaw, as director of the First Joined Party, was contacted by the First Respondent regarding cracking that had occurred at the Applicants' home.

Mr Fallow inspected damage to the Applicants' property on or about 4 April 2002 at which time he inspected cracked brickwork and control joints and heaving or warping of the slab, the design of which had been endorsed by First Joined Party.

On 15 November 2002, Mr Fallaw again inspected damage to the Applicants's property, noting lifting and warping in the levels of the concrete foundation slab, the design of which was had been endorsed by the First Joined party.

On 11 March 2003, Mr Fallaw prepared a report for the First Respondent which documented warping in the concrete slab foundation of the Applicants' home.

During or about July 2003 Mr Fallaw attended a further inspection of the Applicants' property.

On 28 January 2004, Mr Fallaw and the First Joined Party certified underpinning and root barrier rectification works for the Applicants's property.

On 18 February 2004, Mr Fallaw inspected the Applicants's property and noted cracking continuing in the garage and recommended that the underpinning work be completed and that the garage be demolished and rebuilt using a strip footing.

On 27 February 2004, the First Joined Party sent a letter to the First Respondent stating inter alia that the cracking in the garage of the Applicants' home had increased since the inspection carried out by the First Joined Party in July 2003 and in the opinion of the First Joined Party the garage blockwork and strip footing should be demolished and replaced.

(6) It says further that the claim against the First Joined Party in this proceeding is a claim arising from the Material Known Circumstances or a claim directly or indirectly based upon, attributable to, or in consequence of the material Known Circumstances.

(7) Accordingly, it says that by the operation of clause 6.1 in the 04/05 CGU policy and the 05/06 CGU policy, the First Joined Party is not entitled to indemnity from CGU in this proceeding.

In reference to these Particulars and the allegations they contain I was taken to various documents in the Tribunal book and to other documents. I have read and noted each of the documents in question. In particular I have noted the contents of a letter from the First Joined Party to the First Respondent dated 11 March 2003. Of particular significance also is the Proposal for Insurance apparently submitted by Bovill Risk & Insurance Consultants Pty Ltd containing a Claims Addendum Declaration dated 4 February 2004 (and which is stamped as "Received" on that date). I have especially noted Question 15 relating to Claims and Circumstances, and the Answers given in relation to its parts, and the Claims Addendum. I pass by the accusation of Mr Fallaw concerning the Tribunal.
These various documents (and the two I have emphasized) are indicative of a state of information on the part of the First Joined Party. But that state of information is not, in my view, to be equated to the knowledge which must be shown. They do not go so far as to show, in my view, the actual knowledge required by either clause 6.1 or clause 12.14 insofar as either or both require actual knowledge to be shown. I am appreciative of the fact however that such knowledge must only be shown on the balance of probabilities.
What is relied on as actual knowledge in this case is the evidence - consisting of those documents and that given by the witnesses together with common or admitted facts. Mr Fallaw did not give evidence. I am asked to find that the First Joined Party had actual knowledge of the kind required to by clause 6.1(a) or had actual knowledge of the kind contemplated by the first portion of clause 12.14. As to the latter, this means, as I discuss below, knowledge that a claim might result as a realistic or reasonable possibility. This follows from the decision in CGU Insurance Ltd v Porthouse [2007] NSW CA 80 which I consider later.
Nothing prevents me from finding that Mr Fallaw had actual knowledge of either kind (that is, under clause 6.1(a) or under clause 12.14(a)) out of the fact that he was not called to say what his knowledge was. I can make findings about his knowledge in the absence of him being called. That is because, as I note, I am required to be satisfied on the balance of probabilities. To be so satisfied, I do not need to hear from him. The other evidence in the case may be sufficient to satisfy me. I do not need to be certain.
Although the evidence in this case - particularly the documentary evidence - is suggestive of knowledge of the required kind on the part of the First Joined Party (particularly as regards clause 12.14(a)), in my view, it does not extend beyond that, as I say. In my view, it is not more probable than not that the First Joined Party had knowledge of the required kind. Knowing of the applicant's complaints about cracking, designing rectification works or making recommendations do not mean the First Joined Party had actual knowledge of the kind required relating to claims or possible or reasonably possible claims. Why should I infer that these matters lead to the conclusion of knowledge on its part of a claim or possible claim? Nothing, in my view, reasonably leads me to do so. The case is simply not strong enough for me to feel I can safely conclude that actual knowledge of the kind required was possessed, more probably than not. In particular, there is nothing I can draw upon of substance to say that the First Joined Party, on the balance of probabilities, actually knew a claim might result as a realistic or reasonable possibility. No doubt there may have been steps which the First Joined Party could have taken to find out - if I assume that that is so - but that is not itself knowledge as Lord Goddard C J says.
Of course, if Mr Fallaw had given evidence I would be in a much better position to say one way or the other. He might, for instance, admit in evidence, or under cross-examination, that he did indeed have the actual knowledge required (insofar as it is required). But short of that I am unable to see inside his mind to determine whether he had knowledge. Knowledge of something is not information about something per se and vice versa. The documents do not carry the day and Mr Fallaw did not give evidence. Nor, for reasons I give later on, can I regard the evidence of the witnesses as satisfactorily detailing to me - insofar as the same was suggested they did - what his actual knowledge was. And as I have said there is nothing which is "obvious" to me which would enable me, at once, or immediately, to agree with the Second Joined Party. The documentation is suggestive - but that is all.
Mr Fallaw as I say did not, and did not have to, give evidence. The Second Joined Party asks me to infer from this, based on Jones v Dunkel, above, that I should find adversely to the First Joined Party that it did know - insofar as actual knowledge is requisite. That is, Mr Fallaw was present in the hearing room, and available to be called, yet was not called and this is something I should view unfavourably and adversely to the First Joined Party. In other words the omission by the First Joined Party to call him supplies the omission which is lacking in the proofs assembled by the Second Joined Party of actual knowledge on its part insofar as the same is required. I am referred to O'Donnell v Reichard [1975] VicRp 89; [1975] VR 916 at 929; Ronchi v Portland Smelter Services Ltd [2005] VSCA 83 at [32] per Eames J A.
I would agree that this is an argument which is open, except for the rejoinder supplied by the First Joined Party's Counsel which I think is correct. That is, that the Second Joined Party also failed to call Mr Fallaw to give evidence when he was clearly compellable and able to do so. The Second Joined Party, no less than the First Joined Party, could have called Mr Fallaw to give evidence concerning his actual state of knowledge at material times. Yet it failed to do so too. But he was present and available to be called by it also. Therefore, Jones v Dunkel justifies me in drawing an adverse inference against the Second Joined Party. The inference is that, had he been called, the evidence he may have given could have been unfavourable to that party.
In terms of Jones v Dunkel it seems to me that both parties, in effect, cancel one another out. The First Joined Party could have called Mr Fallaw but did not do so. That justifies me drawing an adverse inference. But the Second Joined Party also failed to call him when it could have done so. That also justifies me in drawing an adverse inference. Each adverse inference it seems to me is of equal weight and, in my view, one cancels the other out.
I am left then only with the documentation and the other witnesses and the common or conceded facts. And if I should conclude there was knowledge on the part of the First Joined Party, what would it be knowledge of? It could not be knowledge, I would think, of any actual claim (clause 6.1(a)). And why should I hold it would be knowledge of a known circumstance (clause 12.14(a))? What makes it a reasonable possibility or a realistic one (see discussion below) that the First Joined Party knew that some fact, situation or circumstance might result in someone making an allegation against it? I have nothing of substance as I have indicated in the facts enabling me to make that as a finding on the balance of probabilities. Once more, the documentation, in my view, is merely suggestive. Moreover, how could I know that the First Joined Party had this kind of knowledge "before [the] Policy began" as is mentioned by clause 12.14(a)? I might be able to infer a state of some knowledge, based on suggestiveness or other, in a general kind of way but on what basis could I hold, on the balance of probabilities, that it existed "before [the] Policy began" and not later?
It is not in my view more likely than not that actual knowledge of the required kind did exist. The case is no more than suggestive. But that, in my view, is not enough to justify a finding in the Second Joined Party's favour.
It follows that I consider this part of clause 6.1 or 12.14 is not satisfied by the Second Joined Party which carries the onus. Because I cannot be satisfied of "known circumstance" actual knowledge, a pre-condition to both clauses 6.1(b) and 6.1(c) is not met - no matter how widely otherwise they are expressed.
These considerations relating to the rule in Jones v Dunkel, and others, also lead me to find that the Second Joined Party has failed as well to establish its case, on the balance of probabilities, on the stipulated knowledge aspect of Clause 6.1. For, it will be recalled that Clause 6.1, and Clause 12.14, deal not only with "actual" knowledge but also with "stipulated" knowledge - that is to say with knowledge of any fact, situation or circumstance which a reasonable person in the First Joined Party's professional position would have thought. Some might call this "objective" knowledge as opposed to "subjective" knowledge which is actual knowledge. Of course, "objective" knowledge is merely a convenient way of saying a person should have had knowledge of something or other. Strictly it is not knowledge at all. Actual knowledge of something, however, is knowledge. In terms of the Second Joined Party's policy, objective knowledge refers to what the First Joined Party should have known - as defined by the limits of both clauses 6.1 and 12.14.
These provisions of those clauses are very broad. Counsel for the First Joined Party suggested even that they could be so broad that the insurance bargain, whereby the Second Joined Party could be called upon to provide indemnity, was no bargain in reality at all- the obligation on the Second Joined Party being illusory by what it could call up under the provisions. He repeated the terms of clause 12.14 - what a reasonable person "would have thought" before the policy began "might result" in someone making an allegation that "might be covered" by the policy. I agree that the reach of this exclusion is amazing. I go so far as to think it unfair or unconscionable in equity. It is not only what a reasonable person "would have thought"; but it is what they would have thought "might result" and it is sufficient if what might result is an allegation that "might be covered". It is not a requirement even that the allegation be one about a liability that is in fact covered by the policy or is likely to be covered by it. Nor is it a requirement that the reasonable person would have thought that the allegation be one which "could be likely to result" - it is sufficient that the reasonable person would have thought it "might result".
It is very tempting to say that clause 12.14 is so uncertain that I should not have regard to it - or that it does, indeed, render the bargain illusory to the extent indicated. A clause of this nature, as wide and unwieldy as it is, is, arguably, unconscionable as I say. It enables an Insurer to draw upon the remotest of possibilities to avoid meeting an indemnity obligation which it has undertaken and for which it has been paid a premium. In this case, I note, the premium has never been returned. Clause 12.14 enables an Insurer, in dealing with a client, to keep an upper hand from a superior bargaining position - there may be something remotely it can point to which enables it to escape a liability. It enables it to trawl for ways in which to avoid meeting a liability it has undertaken to meet. In view of the provisions of s28 of the 1984 Act, what good reason is there for allowing an Insurer to impose a clause of this nature?
That, though, is not this case. The facts in this case are much closer to home, as it were. They are not merely the remotest of possibilities. Moreover, as was pointed out to me, a clause in the terms of Clause 12.14 fell to be considered in CGU Insurance Ltd v Porthouse above and was not disallowed. In that case (at [30]) Hodgson J A said: "I think the primary judge was correct to consider that the combination of the words 'thought' and 'might' does cover a spectrum, albeit, in my opinion, a spectrum not going as high as 'considered as almost certain'. I think the spectrum ranges from something like 'believe that the circumstance might as a realistic possibility result in an allegation 'down to' fleetingly thought that the circumstance might as a remote possibility result in an allegation'; and in my view, the primary judge correctly construed the provision against CGU as requiring the former rather than something like the latter". He also said (at [31]): "In my opinion, conclusions about whether a reasonable person would have thought something can be approached by considering what an actual person did think and asking if this was unreasonable, so long as this does not distract attention from the ultimate question, whether a reasonable person in the Respondent's position 'would have thought' it".
In that case Young C J in Eq agreed with Hodgson J A while Hunt A J A dissented. Young C J said (at [44]) "a 'reasonable person' ... denotes an ordinary person, a person on the Bondi bus". This is specifically where he differed with Hunt A J A. Young C J (at [46]) said that what must be shown is "that the reasonable person would have considered that there is a reasonable possibility that an allegation might be made". He said (at [51]) that in this respect an objective test must be applied: "However, when considering the objective standard, how people in the relevant industry are accustomed to act and even how the actors in the drama before the court behaved forms part of the material to be considered by the tribunal of fact in making the objective assessment". Thus he said (at [52]) "what the insured in fact thought provides some material from which one can work out what an objective observer would expect the ordinary person in the insured's professional position to have thought".
One of the actors in the drama before me - Mr Fallaw - has, of course, not given evidence. I have no idea what his evidence would be if he were to give it under oath or affirmation and be tested upon it. He could give evidence entirely consistent with facts and matters set out in the documentation before me, or he might not do so. Some of those facts and matters in the documents relied on by the Second Joined Party might bear an entirely different complexion in the light of evidence given by him. I simply do not know and cannot say. Once more the documentation is no better than suggestive.
Again the rule in Jones v Dunkel becomes an issue. From the failure of the First Joined Party to call Mr Fallaw to give evidence, when he was available to be called, I could draw adverse inferences about what the state of what his knowledge should have been. This would be unfavourable from the First Joined Party's point of view. Equally, however, Mr Fallaw could easily have been called by the Second Joined Party yet it has failed to do so. From this failure I could draw adverse inferences about what might be the state of what his knowledge should have been from the Insurer's perspective.
Young C J in CGU Insurance Ltd v Porthouse indicates that in determining the objective question of what the reasonable person (or the ordinary person on a Bondi bus) would have thought I am entitled to have regard to what the Insured in fact thought. But I cannot do that in this case except from the documents and any other evidence because Mr Fallaw himself did not give evidence. Nor do I consider I can draw any adverse inferences against the First Joined Party out of him failing to do so. The rule in Jones v Dunkel, in my view, works both ways. Its application in favour of the Second Joined Party from Mr Fallaw not giving evidence is cancelled out, equally, in my view, by its application in favour of the First Joined Party arising from the failure of the Second Joined Party also to call him.
On the question of the stipulated knowledge aspect of clauses 6.1 and 12.14 I have, therefore, only the evidence (apart from the documentation and common facts) of those who gave evidence before me - Mr Terrill; Ms Tanian; Ms Rekas; and, most important of all, Mr Haworth. Mr Terrill was called by the First Joined Party and I can say immediately that his evidence is not relevant to this point.
I consider Ms Tanian and Ms Rekas both gave truthful evidence. I shall not re-repeat the contents of their respective witness statements each of which was verified. Ms Tanian said she was an underwriter at CGU Professional Risks Insurance which is a division of the Second Joined Party. She said she had been in the underwriting department of the former since March 2002 and had been an actual underwriter since October 2004. She said John Harry of the former had advised her of certain matters relating to the First Joined Party and had these been disclosed to her by Bovill Risk & Insurance Consultants Pty Ltd she would have referred the case to Ms Rekas: the final decision would have been the latter's but her recommendation would have been either to decline the risk or write a specific exclusion. Ms Rekas said she was the Victorian manager of CGU Professional Risks Insurance. She said she holds Arts and Law degrees and that she has been employed effectively by the Second Joined Party (at any rate, by CGU) as a claims controller/officer and underwriter since 1994. She had been senior supervising underwriter during 2004 and 2005. She said she was informed by John Harry that the First Joined Party's circumstances have been investigated by or on behalf of the Second Joined Party. She said that had the First Joined Party made disclosures she would have initially declined to underwrite the risk. Had the First Joined Party made disclosures, she would have initially declined to underwrite the risk. But had Aon Risk Services Limited pressed the matter she would have agreed to underwrite the risk but subject to specific exclusions.
Both Ms Tanian and Ms Rekas gave evidence that they were informed of various matters by Mr John Harry and that, for the purposes of making their statements, they had sighted various documents. It is apparent to me, though, that what he informed them about figured importantly in what each said as regards knowledge, and knowledge of "Known Circumstances", on the part of the First Joined Party. Yet why did the Second Joined Party fail to call evidence from him? Presumably, he was available and able to be called to give evidence. But why was he not called? Why should I not apply Jones v Dunkel in such circumstance to drawn an inference adverse to the Second Joined Party that he, if called, may have given evidence unfavourable to that party? I expect the position, in reality, is that his evidence may not have been unfavourable if I accept as valid the first premises, namely, that both such witnesses were telling the truth. But I still think that the point is one which is fairly open to be made: perhaps evidence by him may not have supported either Ms Tanian or Ms Rekas.
As to that last point, I have indicated I am satisfied both of them were telling the truth in the evidence they gave. But that is not to say I should place undue weight on what they said. I find it implausible that they could speak of the First Joined Party's or Mr Fallaw's "knowledge". They have the same limitations as myself in that regard. I take his knowledge to be that of the First Joined Party but I am unable to say, except suggestively, what his knowledge either is or was. They, of course, have the added advantage of having been informed of matters by Mr Harry. But that is not an advantage which the Second Joined Party secured for me. And it may even be a disadvantage for them in the evidence they gave (in terms of its weight) in that what they were saying was related to them by someone else - namely Mr Harry. As I say I do not know for a fact what else he may have said to them or how he may have said to them what he said. Evidently too, in reference to investigations having taken place, there may be others further back in the Second Joined Party or in some other entity who informed Mr Harry himself of matters which are not disclosed to me. In other words, the sources of his information would appear to be not merely documentary. Yet neither he nor they, if they did inform him, was or were called to give evidence. Irrespective of the rule in Jones v Dunkel as affecting the evidence of the Second Joined Party in this regard, I simply have these misgivings about the soundness of the evidence given by both Ms Tanian and Ms Rekas or at least about the weight I can give it.
Of the two, of course, Ms Rekas has considerably more experience than Ms Tanian and is indeed her superior. But neither impressed me as having spent a long period of time in the insurance industry. Further, it seemed to me that each gave their evidence from an insurance industry perspective. That is to say, on a question on which I must form an objective view, I gained a distinct impression, out of listening to both of them, and observing their demeanours, that the evidence they were giving me was weighted in favour of the industry they work in and must be seen in that light. Further, I consider that much of their evidence, in material regards, was a case of ex post facto rationalisation. In other words, having been called to give evidence by the Second Joined Party, of course they were going to give the evidence in substance they gave. And looking back in time, the matter of the First Joined Party's cover would have been dealt with as they said. But this was something they knew now with the benefit of considerable hindsight. I confess that listening carefully to their evidence I began to wonder, at times, whether anyone taking out a policy with the Second Joined Party or perhaps other Insurers could feel safe and secure in the knowledge that they would be covered and indemnified if an insured event occurred.
I expect the real issue here is this. As regards stipulated knowledge I am required on the authorities to be objective about what the reasonable person would have thought. Yet I am not assisted in that task by evidence of persons who are employed by the Second Joined Party - the very party whose decision to refuse cover on this ground is in issue. They are employees of the Second Joined Party - they are not independent of it. They purport to be giving me their views as to what the Second Joined Party would have done in certain circumstances but they are not experts, and they are not at arm's length from that party. Because they were not proffered as experts - although, at times, I consider the Second Joined Party was inviting me to regard them as such - they did not have to observe a duty of objectivity in the evidence they gave on what would have happened if certain facts were known and what should have been disclosed. Yet, in dealing with this aspect of both clause 6.1 and 12.14 I must maintain strictly a position whereby I look to the objectivities.
In this way, in addition to any other, the evidence of neither Ms Tanian nor Ms Rekas I found greatly helpful to me. Their evidence told me what the Second Joined Party would have done in certain circumstances. It did not help me beyond that. I decline to draw the inference that if the Second Joined Party says something should have been disclosed it is something, objectively, which should indeed have been disclosed. It can hardly be regarded as an impartial observer in this. The Second Joined Party does not win its case by producing two employees who give evidence in its favour on this point. Further evidence of some other kind is required before I could contemplate approaching making a finding of that nature.
This raises the evidence given to me by Mr Haworth - who, very considerately, attended the hearing on several days only to have to wait outside. I have already indicated, above, that I ruled he did have the expertise in his chosen area of engineering sufficient for me to regard him as an expert in that area. And, at that, as an expert on what a reasonable person in the First Joined Party's professional position would have thought. This calls up the terms in which clause 12.14(b) is expressed. Even so, however, I am not bound to say that I must accept what he says even in his expert opinion. In the end, the decision I must make is mine, and mine alone.
Mr Haworth's Expert Report is dated 20 May 2007. It is a lengthy printed document, single spaced. I shall not set it out in its entirety. In paragraphs 1.1, 1.2 and 1.3 he provides the following introduction:
- 1.1 Deacons acts on behalf of CGU Insurance Ltd. (CGU) in relation to a VCAT Proceeding involving it and C.W. Fallaw & Associates Pty. Ltd. (Fallaw). The Proceeding concerns an indemnity dispute arising from CGU's denial of coverage to the insured Fallaw.
- 1.2 Deacons advised that the dispute arises from a claim made by Fallaw under its CGU policy in relation to allegations that it negligently designed and certified the foundation slab and control joints of a family home and garage at Sutherlands Creek owned by Greg and Devina Campbell (the Owners). I understand that Hamlan Homes Pty Ltd. (the builder) constructed the house for the Owners and that it appointed Fallaw as its Consulting Civil/Structural Engineer for the project. Mr Charles Fallaw is a Principal of Fallaw and is a professional engineer and a Registered Building Practitioner.
- 1.3 Deacons has asked that Mr. Peter Haworth of Haworth Consulting Engineers Pty. Ltd (the author of this report) should provide his opinion as to whether a reasonable person in Mr. Fallaw's professional position as an engineer would have thought that the circumstances known to him prior to 21st March 2004 regarding problems at the Sutherland Creek property might have resulted in someone making an allegation against Fallaw in respect of a liability that might be covered by Fallaw's CGU professional indemnity policy. In making the assessment as to what might be covered under the policy, we are to assume that the policy covers claims of professional negligence and breach of duty against Fallaw.

In paragraphs 3.2 and 3.3 he deals with his views about an engineer answering questions posed by an insurer:

3.2 Prior to such insurance being provided by a potential Insurer - for the first time or prior to each renewal of an existing insurance - a consulting engineer is required to complete a questionnaire issued by the Insurer that solicits answers to a series of questions. The full completion of the questionnaire is, in my experience, mandatory. The seeking of the information from the applicant engineer appears to be part of the risk assessment undertaken by the potential insurer. These questions normally include one (or more) that requires the applicant engineer to state whether he/she has been involved in previous insurance claims against him/her or him/her firm. Another question normally asks that any possible claims relating to current or past projects undertaken by the applicant engineer of which he/she is aware shall be divulged.

3.3 In my experience as a consulting civil/structural engineer, I have formed an understanding that, under the terms of the insurance policies to which I have been privy, it is necessary for an applicant consulting engineer to respond to the above question in the affirmative if he/she believes that a project upon which he/she has provided consulting engineering services, has experienced (or is experiencing) defects that are in any way relating to the engineering components of the project for which he/she or his/her firm have responsibility and which are likely to involve remedial work. I nevertheless believe that if the problem was due (say) to a failure of the air conditioning system, then that would not necessitate the consulting structural engineer associated with that project needing to advise his/her Insurer. In the event that recognition of a potential problem is made by a consulting engineer during the term of an existing insurance (normally 12 months), it is my understanding that the Insured engineer is similarly required to advise the Insurer of this occurrence. In so doing, the engineer need not consider himself/herself to be responsible for the reported occurrence - rather such notification enables the Insurer to make financial provision for a potential claim (should it later be successful) or it enables the Insurer to make a commercial decision whether to insurer the engineer in the future and, if so, upon what terms. Another objective of appropriately notifying the Insurer is to obtain expert advice from the Insurer as how best to proceed and how to avoid advertent potential further exposure. If necessary the Insurer might obtain legal assistance and the legal practice then appointed might also be called upon to represent the engineer's interests.

In paragraphs 5.6, 5.7 and 5.8 sets out his opinion as follows:

5.6 I believe that, by using a similar thought process to that described in clauses 5.3 to 5.5 inclusive, Mr Fallaw could have reached the same conclusion - despite not necessarily agreeing that he or his company was responsible for the observed defects. In my opinion, he should then have notified his current Insurer of a potential claim being made against his professional indemnity insurance. I am unaware whether or not such notification was given.

5.7 When Mr Fallaw completed the CGU insurance questionnaire form whilst applying for new insurance on 27th January 2004, he had already issued (on 28 November 2003) his sketches illustrating the required remedial works. For the same reasons as explained in the preceding clauses, I therefore believe he - as a reasonable professional engineer - should have recognised his duty to alert CGU to the possibility that a potential claim by others might be made against Fallaw due to the defects found in the Sutherland Creek property and the resulting cost of their rectification.

5.8 Mr. Fallaw subsequently (on 18th February 2004) again inspected the property and noted increased cracking of the garage. Its extent resulted in him recommending (on 27th February 2004) the demolition and reconstruction of the garage - partially supported upon the isolated concrete underpins. Such work would have involved further expense. Because CGU did not issue Fallaw's insurance policy until 21st March 2004, Fallaw appears to have had further opportunity to notify CGU of the apparently on-going problem at the Sutherlands Creek property.

In his declaration of expertise at the conclusion to his report he says that: "having been a Principal in two consulting engineering practices, I have been required to complete insurance application and renewal forms and to advise of any potential claims that I considered might possibly be made against the companies that I represented. On that basis, I believe I have adequate expertise to provide this report indemnity under clauses 6.1 and 12.14".

Once more I must indicate my view that evidence by Mr Haworth about Mr Fallaw's actual knowledge is opinion by an expert about the latter's state of mind. I can accept that an expert can give evidence of an expert nature as to what a person should have known or perhaps what they are likely to have known but I cannot accept an expert can give evidence about a person's actual knowledge without being privy to more information than that available in this case. Or, at least, I consider Mr Haworth cannot give evidence of that without being given a great deal more information than he was. As I have said Mr Fallaw was not called by either party to give evidence and Mr Haworth, to my knowledge, has never spoken to him.
In accordance with his declaration, and in accordance with his evidence, I am quite satisfied that Mr Haworth, unlike Ms Tanian and Ms Rekas, is truly independent. I am satisfied also that he can call upon expertise in engineering and related matters which they do not possess. Further, I am satisfied that the opinions he gives in his report, and that in his evidence, are honestly held.
I am not satisfied, however, that I should accept his evidence on the question I must decide - whether the Second Joined Party was rightfully able to decline - so as to make a finding, overall, in favour of that party. All Mr Haworth has before him about Mr Fallaw's actual knowledge is the documentation he was given, the evidence he was told about, and the surmises he is able to make based upon his expertise. There are also the facts which are common between the parties. But I reject any evidence by him - as well as by Ms Tanian and Ms Rekas - as sufficient about what Mr Fallaw actually knew. There is no reason for me to believe that Mr Haworth is an expert on Mr Fallaw's state of actual knowledge. See Ocean Grove Bowling Club v Victorian Commission of Gambling Regulation [2006] VCAT 1422 at [7], [8]. I do so insofar as clauses 6.1 and 12.14 are based on this requirement and insofar as he gave any evidence to that effect. He simply cannot know what Mr Fallaw's knowledge was - nor can I. All he can do, and I can do, is guess what it was. But the onus is on the Second Joined Party to establish that clauses 6.1 and 12.14 operate in its favour - and guess work does not suffice. It is not safe to act on innuendo and suggestion. As I say, the Second Joined Party could have specified something other than "knowledge" but it did not do this.
I expect that clause 12.14 in particular extends to stipulated knowledge as well because of the difficulty on the part of an Insurer of proving an Insured's actual knowledge on some point. Be that as it may, Mr Haworth's evidence was, I consider, at its highest on the question of the First Joined Party's stipulated knowledge.
It was argued I should not consider his evidence as determinative of the issue because his evidence was only the evidence of one expert and that I should not generalize from one to all. Presumably this is on the basis that as the proverb goes - one swallow doth not make a summer. I agree that I would feel more comfortable relying on Mr Haworth's opinion if I had evidence before me that it was shared by another or preferably by others. That tends to affect the probabilities. His opinion, in these proceedings, stands alone. There is nothing else supporting it - if I exclude inferences, for example, possibly able to be drawn from documentation and the common facts and if I exclude the evidence of Ms Tanian and Ms Rekas. In that way it tends to be vulnerable for lack of backing anywhere. Then, again, it is not opposed by any expert evidence. In the end, I must decide the case on the evidence presented and if the only expert evidence I have is that of Mr Haworth then so be it - I have no other expert evidence to base myself on. That really becomes an answer in part to the point raised by the First Joined Party in criticism of Mr Haworth's evidence - it was open to the First Joined Party itself to call expert evidence to the contrary of that of Mr Haworth and it has not done so for reasons I know nothing about. It could have called rebutting expert evidence - if minded still not to call Mr Fallaw himself.
However, even relying on the evidence of Mr Haworth as the only expert evidence I have to rely on I am unable to be satisfied that the Second Joined Party has established its case under this aspect of clause 12.14 to the required degree. Out of cross-examination of Mr Haworth it seemed to me there were matters relating to the Applicant's premises, and their condition, which he could not blame on either the First Respondent or the First Joined Party. Inadequacies on site could have been due to the Applicant's own activities (drainage works, for example) but Mr Haworth could not express a view about these matters because he did not know about them. For example, he said this of air conditioning works as a hypothetical example but the real example in this case is drainage works. He could not claim to be able to blame the First Joined Party about those because he simply did not know. But without being able to exclude that circumstance how can I be satisfied that he has not put himself, in expressing his views, in the position of the First Joined Party as a party responsible for more in reality than it is - assuming responsibility at all in the first place? In other words, how can I be satisfied that Mr Haworth has not attributed an excess of blameworthiness to the conduct of the First Joined Party? For, if he has, this must significantly affect his views as to what a reasonable person would have thought in the position of the First Joined Party. A reasonable person in the position of the First Joined Party may not have thought at all what Mr Haworth gave evidence about it would or should have thought. This consequence affects how much weight I can give to his views.
I consider also that much of Mr Haworth's evidence was not to the effect of what a reasonable person in the First Joined Party's professional position would have thought when looking ahead. It was, in my view, what that party would have thought looking ahead only with the advantage of hindsight. As I said at the hearing he was positing foresight based on hindsight. This affects the weight I can give to his opinion as to what the reasonable person would have thought "before the [Policy] began" which is the critical time. That is the time which the Second Joined Party itself has fixed as critical. It could have selected some other time but it has not done so. Except by leaps of faith I consider I am unable to rely upon Mr Haworth's opinion expressed in 2007, as to what the reasonable person would have thought in 2004 or 2005. In my view, although he may have maintained the contrary, he was expressing a view as to what a reasonable person would have thought in 2004 or 2005 based on the knowledge that person would have in the light of subsequent events taking place taking that person up to 20 May 2007 - the date of Mr Haworth's report. But the critical time I need to know about is "before the [Policy] began" for that is how the exclusion is phrased and that is what must be proven by the Second Joined Party to my reasonable satisfaction. In my view, it has not done this.
Of course all experts, to a greater or lesser degree, report with the benefit of hindsight. And there is nothing in Mr Haworth's report to indicate he was given any documents relating to subsequent matters. Then, again, he was asked by Deacons to express an opinion in the matter and was advised by them of certain events. I see nothing to indicate that Deacon's confined itself in what it said to him to a time "before [the] Policy began". Indeed, the contrary is evident. For instance, it referred to the VCAT proceedings. In any event, though, I need in this case to be clear that I can safely act on the basis of his evidence as being evidence of what the First Joined Party would have thought "before [the] Policy began". I must be satisfied that I can apply his views to that time - for that is the time fixed in the Policy. And I am unable to do so comfortably in light of the matters I have mentioned.
Even if I am not correct in this, there were other aspects of Mr Haworth's evidence which I found unsatisfactory. It seems to me that while his evidence was advanced by the Second Joined Party as expert opinion it was, in the ultimate analysis for much of its content, not based on theory or derived from engineering knowledge, but was, rather, the product of what Mr Haworth had to admit was "common sense". At one stage, in my view, he transposed this into claiming he was calling on "practical experience" and he was disposed to put it that way. The one thing which is clear about common sense is that it is often not shared because it is not common. Another thing which is clear about it is that it is not expertise. I do not think Morris J (as he then was) in the Ocean Grove case - which is not binding on me in any event - was intending to allow experts simply to rely on common sense, for that would make a mockery of the expert evidence rule. "In the area of common knowledge there are no degrees of common expertise" quoted Pincus J in R v Australian Red Cross Society [1991] FCA 603; (1991) 31 FCR 299 at 334. I may be able to inform myself on any matter as I see fit under s98 of the Victorian Civil and Administrative Tribunal Act 1998 but this is a different matter. In drawing upon common sense for his views, in my opinion, Mr Haworth, to the extent to which he did so, strayed from being an expert and went into matters anyone perhaps might have views about. To the extent to which this is so his evidence offends the opinion evidence rule - which by an exception allows experts to express an expert opinion.
Finally, having regard to the authority of CGU Insurance Ltd v Porthouse I am not satisfied on the balance of probabilities that I can rely upon the expert evidence of Mr Haworth as eliciting what must be shown in order for the exclusion defined in clause 12.14 to operate. Hodgson J A in that case (at [20]) speaks of a "realistic possibility" being the criterion of what "might result"; Young C J in Eq (at [46]) speaks of a "reasonable possibility"; Hunt A J A, dissenting, (at [91]) speaks of a "real possibility". Whichever formulation is adopted, it seems to me that the opinion given by Mr Haworth was focused on what "might result" - not on what might result as a "realistic possibility" or a "real possibility". His report speaks only of a "potential claim by others [that] might be made against Fallaw due to the defects found in the Sutherland Creek property and the resulting cost of their rectification" (paragraph 5.7). But the meaning of this is not further explored in the report in any meaningful way in my view. He does not elaborate on what a "potential" claim" is and when it is that it "might be made". What exactly is a "potential" claim? A potential claim is one, I assume, that might be made by someone, one day, into the future. A potential claim that might be made on this basis could thus include an entirely hopeless one by no one entitled to bring it. In re-examination (in my view, not without some suggestion) he indicated that by the word "might" he meant a "possibility". But the New South Wales Court of Appeal, it appears clear to me, despite their Honours differing formulations, never said that a "possibility" suffices. For, it seems to me, a "possibility" can include a mere possibility and a mere possibility is neither a "realistic" one nor a "reasonable" one. Nor is it a "real" one. The impression I gained from his evidence is that it could be any claim at all. A "possibility" does not have the dimension to it of "reasonable" or "realistic" or "real".
I therefore reject the analysis that, based on Mr Haworth's expert opinion, the Second Joined Party has established on the balance of probabilities that it was entitled to act under either clause 6.1 or clause 12.14 to refuse indemnity. Once more this means a pre-condition to clauses 6.1(b) and 6.1(c) has not been established.
I also reject the analysis that it has established an entitlement so to act based on the evidence given by Ms Tanian and Ms Rekas, for the reasons I have given.
The onus, I consider, is on the Second Joined Party to establish its entitlement to act under clause 6.1 and 12.14.
For the reasons I have given, in my view, this it has failed to do.
It is not for me to say how it might have improved its situation. But it could have done so. For example it would have been helpful for it to have taken the initiative and actually called Mr Fallaw to give evidence - even if this exposed it to Counsel for the First Joined Party being able to cross-examine his own client. It could also have been helpful to call others from outside the Second Joined Party itself. Finally it could have been assisted by having other expert evidence to rely upon also- other than only Mr Haworth's - and perhaps consideration could have been given to calling Mr Harry and, at a much earlier time, to calling Mr Campbell (the First Applicant). Calling the latter - which I ruled against as so late in the piece - could have assisted in determining responsibility (if any) on the part of the First Joined Party for drainage works.

The matter before me, as I see it, has run principally on the basis of the applicability of Clauses 6.1 and 12.14 of the Policy. However, reliance also was placed on s28 of the Insurance Contracts Act 1984 which is set out above in paragraph 5.
Section 28's reference to the insured's duty of disclosure must be seen in the light of s21 of the Act which reads as follows:

(1) Subject to this act, an insured has a duty to disclose to the insurer, before the relevant contract of insurance is entered into, every matter that that is known to the insured, being a matter that:

(a) the insured knows to be a matter relevant to the decision of the insurer whether to accept the risk and, if so, on what terms: or

(b) a reasonable person in the circumstances could be expected to know to be a matter so relevant.

(2) The duty of disclosure does not require the disclosure of a matter

(a) that diminishes the risk;

(b) that is of common knowledge;

(c) that the insurer knows or in the ordinary course of the insurer's business as an insurer ought to know; or

(d) as to which compliance with the duty of disclosure is waived by the insurer.

(3) Where a person:

(a) failed to answer; or

(b) gave an obviously incomplete or irrelevant answer to;

a question included in a proposal form about a matter, the insurer shall be deemed to have waived compliance with the duty of disclosure in relation to the matter.

In many ways I consider that the Clauses in the policy are more stringent than the statutory provision - at least so far as Clause 12.14(b) and s21(1)(b) are concerned. The former, it seems to me, is more far-reaching in what an Insurer may rely upon to avoid liability.
My analysis above under Clause 6.1, I consider, applies with equal force to s28 of the Act. That is to say, I have considered Clause 6.1 and 12.14 as dealing with both actual knowledge and stipulated knowledge. But an insured's duty of disclosure under s28(1)(a) deals with both such kinds of knowledge - by virtue of s21(1)(a) dealing with actual knowledge and s21(1)(b) dealing with stipulated knowledge.
However, for the reasons I have given, I have rejected an analysis that it can be said I can find on the balance of probabilities that the First Joined Party had actual knowledge of relevant matters. I shall not go through that analysis again. I am unable to make any finding on the balance of probabilities about the state of the First Joined Party's actual knowledge. I can only surmise. But my surmising does not take me to a view that I can be satisfied on the balance of probabilities about the matter. The problem distinctly here is that Mr Fallaw was not called to give evidence. But neither party, as I have pointed out, called him, and the rule in Jones v Dunkel, I consider, applies equally adversely to each whereby one's failure cancels out the other's. I am left only to speculate. But speculation on the documentation, and the other evidence, when the individual in question is not called, I consider, makes it unsafe for me to conclude that the Second Joined Party has proven its case on the balance of probabilities. In my view, on this aspect of the matter, it plainly has not. I therefore reject a contention that s28(1)(a), as amplified by s21(1)(a) of the Act, applies for me to be able to say that the Second Joined Party has proven, on balance, that the First Joined Party has failed to comply with its duty of disclosure. I simply do not know what the Insured's knowledge was and that is a fundamental problem for the Second Joined Party.
Nor am I satisfied that the Second Joined Party has sufficiently proven a case under s28(1)(a) as amplified by s21(1)(b). This relates to what a reasonable person in the circumstances could be expected to know was relevant. But the relevant time is "before" the relevant contract of insurance is entered into. In that regard I have indicated that the expert evidence of Mr Haworth has certain inadequacies. It is his evidence alone (there being no other expert evidence) that can provide me with independent assistance on what the reasonable person could be expected to know. But I consider his evidence on that point is flawed in several ways. In summary, I consider his evidence arguably provides me with a 2007 view of what a reasonable person in the case could be expected to know in 2004 or 2005. Further I consider, in summary, that his analysis of what a reasonable person could be expected to know (or in policy terms "would have thought") is very much open to question on an excess of blame attributed or believed by him to be attributable to the First Joined Party. There are, however, other reasons I have for believing it to be unsafe to rely on his views on the question and I set them out earlier in these Reasons. I therefore reject the analysis also that I have evidence before me, which I can safely act on, to hold that the First Joined Party, on the balance of probabilities, is in breach of s28(1)(a) considered in the light of s21(1)(b). I shall not recount how I think that Second Joined Party could have improved its position in this regard. But my remarks made earlier apply here also.
I am unable to find on the balance of probabilities that the Second Joined Party has made out a case of misrepresentation. I have indicated I can draw inferences from some of the documentation but those inferences are not enough in my view to justify me saying that the Second Joined Party can, in justice, succeed on this basis. It is not plain to me why the answer "No" to question 15(b) in the proposal form dated 27 January 2004 leads to a conclusion of misrepresentation or does not bear another characterization such as may depend on which words in the question are emphasized. The exact terms of the question are these: "Are there any circumstances not already notified to Insurers which may give rise to a Claim against you or any prior corporate practice or any of the present or former Principals?" The words I highlight in this respect are "any circumstances", "may give rise" and "a Claim". But I cannot see how this question can be answered without the importation of knowledge: how can one report or declare on the circumstances enquired after unless one knows of them? Therefore I consider it would not be unreasonable to import some such requirement of knowledge into the question and I have already indicated my views on that. If a case for misrepresentation were at all sought to be raised on the basis of what a reasonable person would have thought, I have sufficiently indicated my views already on this point also. If it was sought to be raised based on the First Joined Party's actual knowledge I must repeat I am unable to make any findings about that which do not extend beyond surmise. In either situation, whether intentionality is required or not, I am unable to be satisfied of a misrepresentation on the First Joined Party's part.
Nor, if a case of non-disclosure or misrepresentation is made out by the Second Joined Party, am I able to say what that party has established as its entitlement considering the terms of s28(3). The evidence of Ms Tanian and Ms Rekas in particular was in my view, in this regard, at best, ambiguous. I note, too, that, the premium has never been returned. The onus being on the Second Joined Party I am unable to say on the evidence that it has established, to my satisfaction, its entitlement to a remedy under s28(3).
For the reasons I have given I am unable to agree that the Second Joined Party is not liable to indemnify the First Joined Party under the policy.
Nor am I able to agree that the Second Joined Party is not liable to indemnify the First Joined Party by reason of s28 of the Insurance Contracts Act 1984.
The First Joined Party having made out a case to the extent I have mentioned, it follows the Second Joined Party is liable to indemnify it.

The answer to the question posed for my consideration is - "Yes".
I reserve liberty to the First Joined Party to apply for other orders and costs.
I direct this matter be listed for directions.

Campbell v Hamlan Homes Pty Ltd

At a glance

Court

Decision date

Source

Judgment (56 paragraphs)

Campbell v Hamlan Homes Pty Ltd (Domestic Building) [2007] VCAT 1974 (19 September 2007)

Parties

Cases Cited (2)