Cutting Edge Services Pty Ltd v Raymond & Therese Penfold; Raymond & Therese Penfold v The Hollard Insurance Company Pty Ltd

Catchwords

[1993] FCA 559 Bunnings Group Ltd v Giudice [2018] NSWCA 144 Caltex Refineries (Qld) Pty Ltd v Stavar (2009) 75 NSWLR 649[2009] NSWCA 258 CGU Insurance Limited v Porthouse (2008) 235 CLR 103[2008] HCA 30 CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384[2011] HCA 11 McCann v Switzerland Insurance Australia Limited (2000) 203 CLR 579(2018) 360 ALR 92 Origin Energy LPG Ltd v BestCare Foods Ltd [2012] NSWCA 407 Oshlack v Richmond River Council (1998) 193 CLR 72[1998] HCA 11 Pebsa Pty Ltd v McNaughton Gardiner Insurance Brokers Pty Ltd [2002] WADC 190 Pennington v Norris (1956) 96 CLR 10[1956] HCA 26 Podrebersek v Australian Iron & Steel Pty Ltd [1985] HCA 34[1998] HCA 28 Reid Crowther & Partners Ltd v. Simcoe & Erie General Insurance Co. [1993] 1 S.C.R. 25299 D.L.R. (4th) 741 Roads and Traffic Authority of NSW v Refrigerated Roadways Pty Limited (2009) 77 NSWLR 360[2009] NSWCA 263 Uniting Church in Australia Property Trust (NSW) v MillerMiller v Lithgow City Council (2015) 91 NSWLR 752

Judgment (67 paragraphs)

[1]

demnity Insurance Co v Excel Cleaning Service (1954) 2 DLR 721 Indigo Mist Pty Limited v Palmer [2012] NSWCA 239 Junemill Ltd (in liq) v FAI General Insurance Co Ltd [1999] 2 Qd R 136 Kuhl v Zurich Financial Services Australia Ltd (2011) 243 CLR 361; [2011] HCA 11 McCann v Switzerland Insurance Australia Limited (2000) 203 CLR 579; [2000] HCA 65 MOS Beverages Pty Ltd v Insurance Australia Ltd trading as CGU Insurance [2020] FCA 1716 Neill v NSW Fresh Food & Ice Pty Ltd (1963) 108 CLR 362; [1963] HCA 4 NH Ins Co v Abellera 6 Wn.App 650, 495 P.2d 668 (1972) Ohlstein v E&T Lloyd trading as Otford Farm Trail Rides [2006] NSWCA 226 Onley v Catlin Syndicate Ltd as the Underwriting Member of Lloyd's Syndicate 2003 [2018] FCAFC 119; (2018) 360 ALR 92 Origin Energy LPG Ltd v BestCare Foods Ltd [2012] NSWCA 407 Oshlack v Richmond River Council (1998) 193 CLR 72; [1998] HCA 11 Pebsa Pty Ltd v McNaughton Gardiner Insurance Brokers Pty Ltd [2002] WADC 190 Pennington v Norris (1956) 96 CLR 10; [1956] HCA 26 Podrebersek v Australian Iron & Steel Pty Ltd [1985] HCA 34; (1985) 59 ALJR 492 Pollard v Baulderstone Hornibrook Engineering Pty Ltd [2008] NSWCA 99 Port Macquarie-Hastings Council v Diveva Pty Limited [2017] NSWCA 97 Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355; [1998] HCA 28 Reid Crowther & Partners Ltd v. Simcoe & Erie General Insurance Co. [1993] 1 S.C.R. 252; 99 D.L.R. (4th) 741 Roads and Traffic Authority of NSW v Refrigerated Roadways Pty Limited (2009) 77 NSWLR 360; [2009] NSWCA 263 Uniting Church in Australia Property Trust (NSW) v Miller; Miller v Lithgow City Council (2015) 91 NSWLR 752; [2015] NSWCA 320 Walz Construction Company Pty Ltd v ASP Ship Management [2002] QCA 136 Watson v Foxman (1995) 49 NSWLR 315 Texts Cited: D Derrington and R Ashton, The Law of Liability Insurance (3rd ed, 2013 LexisNexis Butterworths) Category: Principal judgment Parties: Cutting Edge Services (Aust) Pty Ltd (Plaintiff) Raymond Mark Penfold (First Defendant/Cross-Claimant) Ruth Therese Penfold (Second Defendant/Cross-Claimant) The Hollard Insurance Company Pty Ltd (Cross-Defendant) Representation: Counsel: Mr G Carolan (Plaintiff) Mr J Drummond with Mr P Boncardo (Defendants/Cross‑Claimants) Ms E Peden SC with Mr P Mann (Cross-Defendant)

[2]

Solicitors: Baldock, Stacy and Niven (Plaintiff) Campbell Paton & Taylor (Defendants) McMahons Lawyers (Cross-Defendant) File Number(s): 2018/00033995 Publication restriction: Nil.

[3]

Background

On 18 December 2016, Raymond Penfold was welding on a silo on one of his farms near Barmedman known as "Maryvale". A spark from the welder started a grass fire which spread and destroyed a large number of timber railway sleepers then stored on Maryvale. The sleepers were the property of a company owned by his sister Janine Brus and her husband Dean Brus known as Cutting Edge Services (Aust) Pty Ltd ("Cutting Edge"). By arrangement between Cutting Edge and Mr Penfold, the sleepers had been taken to Maryvale in June 2015 for storage.
By statement of claim filed on 1 February 2018 the plaintiff, Cutting Edge, seeks damages arising from the destruction of what it alleges were approximately 32,865 wooden railway sleepers stored at Maryvale. The proceedings are brought against both Mr Penfold and his wife Ruth Penfold because the farming business on Maryvale was conducted by them both under a partnership arrangement entered into in 2011.
Cutting Edge brings its case in negligence. It claims that the defendants owed it a duty of care because "the plaintiff entrusted the sleepers to the defendants, to be kept by them safely and then to be returned on demand". The particulars of breach of the duty of care included that Mr Penfold failed to identify the potential hazards in carrying out welding on a hot and dry day; failed to ensure that the welding would not start a fire; and failed to ensure that he had appropriate fire-fighting equipment nearby.
Cutting Edge pleaded its damages case as follows: "(a) The estimated value of the destroyed sleepers was $872,894.40 excl. GST (b) Recovery and stockpile costs thrown away - $221, 838.75 excl. GST (c) Further particulars of the damage will be provided in evidence."
The defendants deny liability and, additionally, have cross-claimed against their insurer, the Hollard Insurance Company Pty Ltd ("Hollard") who has denied liability in excess of $100,000. In a defence filed on 1 May 2018, the defendants pleaded that the agreement between Mr Brus, on behalf of Cutting Edge, and Mr Penfold was a "bare licence agreement" to store the sleepers "at no cost". It is contended that at all times, Cutting Edge retained "the care, custody and/or control of the railway sleepers". The defendants further allege that Cutting Edge caused its own loss by failing to act on Mr Penfold's instructions to store the sleepers in a location that would enable the construction of a firebreak.

[4]

Issues in dispute

Almost every factual and legal issue pertinent to the determination of both the statement of claim and the cross-claim were in dispute. The most significant issues in dispute were as follows: 1. Did Mr Penfold owe Cutting Edge a duty of care? 2. Was there a not insignificant risk of harm in welding the silo? 3. What were the precautions a reasonable person in the position of Mr Penfold would have taken? 4. Did Mr Penfold fail to take those precautions? 5. Is the question of the precautions a reasonable person in the position of Mr Penfold would have taken a matter of expert evidence or common sense? 6. If Mr Penfold was negligent, was Cutting Edge also contributorily negligent in not moving the sleepers when asked to do so in mid-2016? 7. If Cutting Edge was contributorily negligent by how much should any damages be reduced? 8. How many sleepers were stored on Maryvale as at 18 December 2016? 9. What is the explanation for the difference between the number of sleepers set out in the contracts with JHR and the number paid for by Cutting Edge? 10. Why was the contract for removal of the sleepers performed so slowly? 11. What was the quality of the sleepers stored at Maryvale as at 18 December 2016? 12. Was the quality of the sleepers stored at Maryvale on 18 December 2016 equivalent to those stored at Access Recycling in Barmedman as at that date? 13. Did Dean Brus select the better quality sleepers to store at Access Recycling and store the lesser quality sleepers at Maryvale? 14. Was the quality of the sleepers stored on both the Barmedman to West Wyalong and the Temora to Barmedman corridors consistent throughout? 15. Can sleepers be graded based on photographs? 16. How much would it cost to transport the sleepers from Maryvale to Orange? 17. Should Cutting Edge have sought to mitigate its loss by obtaining further contracts whilst they were still available? 18. Should the sleepers be replaced at wholesale market value given there are no new contracts available to Cutting Edge? 19. Can sleepers be sold as firewood? The cross-claim 1. Whether the correct Product Disclosure Statement was that dated 1 July 2012 or 19 October 2012? 2. Were the sleepers under the physical and legal control of Raymond and Ruth Penfold as at 18 December 2016?
In respect of a number of significant conversations and events, the witnesses for the various parties gave very different versions. It was necessary for me to make a number of credit findings in relation to the evidence of Dean, Janine and Peter Brus and Raymond and Ruth Penfold. The evidence of these witnesses did not always correspond to the contemporaneous documents. In that respect, I have had regard to the observations of Hallen J in Evans v Braddock [2015] NSWSC 249 at [74] where his Honour observed: "A court, in cases involving events which occurred long before the litigation, usually prefers to rely upon contemporaneous, or near contemporaneous, documents, which will often provide valuable and, usually, more revealing, information than what may be flawed attempts at recollection of those facts by persons with an interest in the outcome of the litigation: Bathurst Regional Council v Local Government Financial Services Pty Ltd (No 5) [2012] FCA 1200, per Jagot J, at [1247]. Greater weight is usually accorded to such documents, as often they provide a safer repository of reliable fact, particularly when it is clear that they have been prepared by a person with no reason to misstate those facts in the documents and where there is no suggestion that the documents are other than genuine: Hughes v St Barbara Mines Ltd [No 4] [2010] WASC 160, per Kenneth Martin J, at [157]."

[5]

Railway sleepers

A large part of this case concerns the value of railway sleepers. Expert evidence was adduced concerning the business of recycled timber railway sleepers. The use of sleepers depends on their grade. The expert witnesses agreed that there is no industry standard grading system and that the assessment as to which grade is applicable is based on a visual assessment including an inspection of all four sides and both ends of the sleeper and verification by an accredited independent party. They agreed that the characteristics of sleepers in each grade were as follows: 1. AA grade: high quality with little to nil structural damage or deterioration in wood fibre quality, square on all sides and both ends, would pass assessment for re-use as a railway sleeper and could be used in high end structural landscaping, decking, flooring, cladding and furniture; 2. A grade: sound quality, with minor structural damage or deterioration in wood fibre quality, reasonably square and consistent in sizing, would pass the assessment for structural load bearing application and could be used in load bearing retaining walls and fence posts; 3. B grade: minimum of one sound face and edge, other faces and edges have structural damage or deterioration in wood fibre quality, suitable for garden edging and non-critical retaining walls; 4. C grade: three or more sides and ends have structural damage and/or deterioration in wood fibre quality, suitable for decorative applications only such as landscape rustic features and embedded timber steppers; 5. D grade: all sides have significant structural damage and/or deterioration in wood fibre quality and would only be suitable for decorative purposes or firewood. As stated above, there was some disagreement over whether sleepers were classified as contaminated and thus not able to be sold as firewood.

[6]

The dramatis personae

Cutting Edge is a company based in Orange that sells landscaping and garden supplies. In 2015 it became involved in the purchase and removal of timber railway sleepers from John Holland Railway Network Pty Ltd ("JHR" or "John Holland") for the purpose of supplying them to wholesale and retail markets or as firewood.
Dean Brus is the sole director of Cutting Edge. He is married to Janine Brus. Raymond Penfold is his brother-in-law.
Janine Brus is the company secretary of Cutting Edge. She is married to Dean Brus. Raymond Penfold is her brother.
Peter Brus is the son of Dean and Janine Brus. He was a casual employee of Cutting Edge as at December 2016.
Raymond Penfold is married to Ruth Penfold. Janine Brus is his sister and Dean Brus his brother-in-law. The Penfolds carried out a farming business at the relevant time and owned a number of farming properties. They lived at "Millara", a property near Quandialla. Another of their farms was a property known as "Maryvale", located approximately 20km from Barmedman. The fire the subject of this litigation occurred at Maryvale. Mr Penfold had been a member of the Rural Fire Service ("RFS") for over 30 years.
Ruth Penfold is married to Raymond Penfold.
Hollard is the insurer of Raymond and Ruth Penfold's farm properties.
Adam Perry is the director of Access Trading Pty Ltd t/as Access Recycling Services ("Access"), a company in Barmedman that specialises in providing materials, recovery and recycling services to the rail industry. He provided both lay evidence and expert evidence about railway sleepers for the plaintiff.
Michael Kennedy is the CEO of Kennedy's Timber, a company based in Queensland. He gave expert evidence for the defendants.
Leonie Emmott is the NSW branch manager of Timber Recycling Pty Ltd t/as Recycled Timbers, a company that deals in the sale of second-hand railway sleepers. That company was acquired by Kennedy's Timber in 2016. Her evidence was relevant to some of Mr Kennedy's evidence about pricing.
Mark Antunac is the managing director of Outback Timber Supplies Pty Ltd, a company that was involved in the sleeper replacement program and sold recycled timber sleepers in the retail and wholesale markets.

[7]

The lay evidence

Given the significant number of issues in dispute, it is necessary to summarise the evidence leading up to the fire in some detail. I will start with the background to the contracts for the removal of the sleepers, the process of removal, how it was that the sleepers came to be stored at Maryvale for such a long period of time and, finally, the circumstances of the fire itself.

[8]

Cutting Edge's contracts

The practice of JHR was to invite companies such as Cutting Edge to submit tenders for the removal of timber sleepers and other steel components ("jewellery") from certain sections of the railway line. When JHR upgraded sleepers along a particular railway corridor it would remove the old sleepers and stack them along the corridor before replacing them with steel or concrete sleepers. The agreement would be that a company such as the plaintiff would bid for contracts to remove the sleepers and the jewellery and then sell those components at a profit. The price per sleeper that JHR charged its contractors pursuant to these agreements was far below the wholesale value because the cost of removing, transporting, storing, grading and selling the sleepers was borne by the successful bidder. In this way JHR had old sleepers and jewellery removed from the railway corridors and the contractor had the opportunity to make a profit on the sleepers and steel it removed.
On 10 March 2013, Cutting Edge entered into a contract with JHR, No. CRN-SuB-0201314 ("the Head Contract"), to dismantle and remove sleepers and the railway jewellery from disused rail lines.
Under the Head Contract, Cutting Edge could be issues Work Orders ("WOs") for the removal of sleepers and steel from a specified section of railway corridor at an agreed price. Pursuant to the Head Contract JHR issued six WOs to Cutting Edge between 10 March 2013 and 30 July 2015. The work orders which pertained to the sleepers the subject of the fire were WOs No 5 and 6.
WO No 2 was issued on 23 May 2014, for the removal of 60,000 sleepers between Bathurst and Orange. That contract provided that Cutting Edge would remove all items from the corridor but stated that "sleepers that are in pieces will not attract any charge but must be removed by the purchaser". Cutting Edge was required to maintain documentary evidence of each load of material taken from the site. The tender price was $6.10 per sleeper and the contract stipulated that the planned finish was three months from the date of signature.
Mr Brus was cross-examined about WO 2. It was put to him that the price was higher than subsequent work orders because those sleepers were of higher quality than the Temora to Barmedman and Barmedman to West Wyalong lines, for which he paid $2.75 per sleeper. He denied that they were of higher quality and maintained that they were more valuable to him because they were "closer to home" (Mr Brus' home base being in Orange).

[9]

Record Keeping: Removal of sleepers in 2015-2016

WO No 5 required the removal of up to 22,365 sleepers from the railway corridor between Temora and Barmedman starting on 20 April 2015 and finishing on 15 May 2015. WO No 6 required the removal of up to 17,000 timber sleepers from the Barmedman to West Wyalong rail corridor starting on 10 April 2015 and finishing on 15 May 2015.
It was common ground that the contracts were not completed during these times and dragged on until early 2017. It was not common ground as to how many sleepers were in fact removed under WOs 5 and 6 prior to the fire. I propose to proceed on the basis that the best evidence is that contained in the various records tendered in these proceedings.
Mr and Mrs Brus both accepted in cross-examination that they did not keep records of the numbers of sleepers extracted on each day that Cutting Edge worked in the corridor (or the total number extracted), despite this being a condition of each of the WOs. Mr Brus stated that he kept a "mental tally" of the truck movements each day to keep track of how many kilometres of the corridor had been covered.
The plaintiff's case was that all the sleepers in WOs 5 and 6 were recovered, that being 22,365 from the Temora to Barmedman corridor and 17,000 from the Barmedman to West Wyalong corridor. This was the basis of the pleaded claim for 39,365 sleepers (less 6,155 sleepers stored at Access which will be considered further below). By the close of its case the plaintiff had reduced that amount by 10% given the volume of evidence about the prevalence of theft in the railway corridor. Both Mr and Mrs Brus accepted in cross-examination that there were no records to confirm the number of sleepers they claimed to have collected. They relied on the accuracy of the JHR records and their assertion that they collected all the sleepers left in the corridor.
A difficulty for the plaintiff is that the contemporaneous records do not support this assertion.
The only documents evidencing how many sleepers were retrieved by Cutting Edge under WOs 5 and 6 were the invoices sent by JHR to Cutting Edge seeking payment for the sleepers retrieved. The invoices were accompanied by emails from Cutting Edge stating how many sleepers had been collected. Cutting Edge also tendered "TRAB" sheets (explained below) recording the days on which work was performed in the corridors and whether steel or sleepers were recovered. Those documents disclosed the following.

[10]

Emails and invoices

Mr Brus gave evidence that Cutting Edge first commenced work on the Barmedman to West Wyalong corridor and completed those works on 26 February 2016. On 13 March 2016, Mr Brus emailed Nolan Press at JHR in these terms: "We are on schedule for the forecast time frame as discussed, we are now working through Dripstone to Wellington, I will keep Eddie informed of our progress. We have 2 small bundles of sleepers between Barmedman and West Wyalong to collect. The numbers collect[ed] from this section are as follows 9400 sleepers 3700 redundant broken/part sleepers 85 tonnes steel. I will keep you informed with our progress…" (emphasis added)
Thus, at the conclusion of WO 6 (the contract for the removal of up to 17,000 sleepers) Mr Brus told JHR that Cutting Edge had retrieved 9,400 sleepers and 3,700 "redundant" sleepers. There was some dispute as to what the word "redundant" meant which I address below at [69]-[76]. JHR invoiced Cutting Edge for 13,100 sleepers at $2.75 each (a total of $36,025).
No other invoices relating to the Barmedman to West Wyalong corridor were ever produced by the plaintiff. Mr Brus claimed in cross-examination that Cutting Edge must have collected more sleepers in 2015. He could not produce any further invoices to support this. When asked why he did not include that fact in his affidavits, he stated that he did not know how much detail was required for an affidavit. Thus, despite the fact that the plaintiff bore the burden of proving that it collected more than 13,100 sleepers, it could produce no evidence to support this beyond the claim that Cutting Edge would have collected all 17,000 sleepers under WO 6.
Mr Brus gave evidence that after completing WO 6 in February 2016 Cutting Edge then commenced work on WO 5, the Temora to Barmedman corridor. It is to be noted that the terms of WO 5 required Cutting Edge to remove the sleepers between 20 April 2015 and 15 May 2015.
On 28 June 2016, Mr Brus emailed Nolan Press of JHR, stating the following: "Thought it would be self explanatory regarding any delays as Barmedman to Temora is a flood zone as you could imagine. To date we have collected between Barmedman and Temora 52 tonne of steel, 4500 sleepers and 8500 redundant sleepers with only approximately 8km to go. Temora to Griffiths we have picked up 45 tonne of steel and 2000 redundant sleepers only. Theft has been ramped [up] in this area, we heard whilst visiting West Wyalong over the weekend conducting a site survey that 8 people are required to attend court this week over theft of railway sleepers. I will keep you and Eddie posted upon our immediate start, hopefully we get a window with this weather soon." (emphasis added)

[11]

The TRAB sheets

Mrs Brus, as protection officer for the railway corridor, was required by JHR to maintain Task Risk Assessment Briefing Notes (referred to as "TRAB sheets") for every day on which Cutting Edge worked in the corridor. The TRAB sheets were in evidence. When confronted in cross-examination with the fact that the TRAB sheets did not reflect their evidence, both Mr and Mrs Brus speculated that there may have been additional TRAB sheets that were not produced which showed that Cutting Edge performed more work in the corridors. No additional TRAB sheets were ever produced to support this. The TRAB sheets that were tendered at the hearing disclosed the following: 1. Cutting Edge commenced steel recovery between Barmedman and West Wyalong on 27 April 2015. Works were carried out over four days from 27-30 April 2015. 2. Cutting Edge began sleeper recovery between Barmedman and West Wyalong on 3 June 2015 and continued on 4 June 2015, with three people working on each day. 3. Steel recovery took place between Barmedman and West Wyalong on 25-26, 28-30 June and 1-3 July 2015 (a total of eight days) with between two and five people working each day. 4. Cutting Edge performed steel and sleeper recovery between Barmedman and West Wyalong on 6-10 July 2015 (five days total) with three or four people working each day. 5. Cutting Edge performed steel recovery on 14, 15, 16 and 21 July 2015 between Barmedman and West Wyalong, with three or four people working each day. 6. Cutting Edge performed scrap recovery between Barmedman and Temora on 17-19 and 22-26 February 2016 (eight days total) with four to six people working each day. 7. Cutting Edge performed scrap recovery between Barmedman and Temora between 28-30 November, 1-2 December and 7-8 December 2016 (seven days total) with one to three people working each day. 8. Cutting Edge performed sleeper recovery between Temora and Barmedman on 12-14 and 19-22 December 2016 (seven days total, four of which occurred after the fire) with two to four people working each day. 9. Cutting Edge performed scrap recovery on 2-5 January 2017 (four days) on both lines (West Wyalong to Barmedman and Barmedman to Temora) with three or four people working each day.
The TRAB sheets are consistent with the invoices and emails and do not support the plaintiff's contention that more sleepers were retrieved in 2015 than those recorded on the invoices.

[12]

Evidence about the meaning of "redundant sleepers"

As discussed above at [51], an issue arose as to the meaning of "redundant" sleepers, given that Mr Brus informed JHR in his emails that 3,700 sleepers from West Wyalong to Barmedman and 8,500 from Temora to Barmedman were "redundant broken/part sleepers" which should have been "nil charge".
In cross-examination Mr Brus denied that the "redundant" sleepers which he claimed he should not have to pay for were "worthless". He stated that "redundant" was a "common term" used by JHR and all the sleepers under the contract were "redundant". Mr Brus claimed that it was used in the tender documents, although he accepted that it did not appear anywhere in JHR's contracts with subcontractors. Cutting Edge did not produce any of the tender documents said to refer to "redundant" sleepers.
Mr Brus went on to state that "redundant" referred to anything less than an "A" grade sleeper (i.e. the B, C and firewood grade sleepers). He said that JHR "appreciated" Cutting Edge collecting the "redundant" (less than A grade) sleepers as they were very thorough in cleaning up the corridor. Mr Brus agreed that JHR did not accept that Cutting Edge was not obliged to pay for "redundant broken/part" sleepers and charged Cutting Edge $2.75 per sleeper including for those which Cutting Edge claimed were redundant.
When asked why he claimed that Cutting Edge was not obliged to pay for "redundant" sleepers, Mr Brus stated that: "the previous manager of the John Holland contracts allowed that to go through and considered the double As and As the sleepers and the other grades and firewood as redundant. I followed suit. The new guy looked at it through a different view and we - and he'd invoiced us for the lot."
Mr Brus went on to say that: "sometimes the sleepers are split lengthways in half or cracked across, so then you're saying that you would expect me to pay twice as much for that part sleeper…"
He agreed that a B, C or D grade sleeper is a "whole" sleeper with varying grades of deterioration and when it was put to him that the contract provided that broken sleepers did not have to be paid for but had to be disposed of at Cutting Edge's expense he said that: "We willingly picked up all the pieces of sleeper… because they all are of value. Even a broken sleeper we saw as firewood, so it's still a valuable commodity to our business."

[13]

The agreement to place sleepers on Maryvale

A key factual dispute in this matter which depends largely on credit findings is as to the terms of the agreement made between Mr and Mrs Brus and the defendants to store sleepers retrieved under WOs 5 and 6 at the defendants' property, Maryvale.
Mr Brus' evidence was that shortly after Cutting Edge obtained these two contracts he had the following conversation with Mr Penfold: "[Dean Brus]: We have won a contract for the sleepers on the Temora to Barmedman and Barmedman to West Wyalong line. [Ray Penfold]: What are the plans? It's a long way to haul them back to Orange. [Dean Brus]: Yes, it's too far. [Ray Penfold]: You could store them on 'Maryvale'. [Dean Brus]: Where exactly is 'Maryvale'? [Ray Penfold]: It's about 18-20 km out on the Grenfell Road from Barmedman. [Dean Brus]: Where on the property do you want me to put them? [Ray Penfold]: Up near the house in the paddock with the dirt track leading out to Rees Road. The main driveway onto the property is very stony and rough, so you'd be better to use Rees Road. [Dean Brus]: Oh, that would be good. We will take you up on that offer if that's OK. [Ray Penfold]: That's OK. [Dean Brus]: There will be 30,000 to 40,000 sleepers and they will be there for some time, like a number of years. [Ray Penfold]: Not a problem, that won't worry me."
Mrs Brus deposed that she was present for that conversation along with Mrs Penfold and that she may have spoken to Mr Penfold about the sleepers.
Mr Penfold denied such a conversation ever occurred. He denied ever being informed that Cutting Edge intended to store 30,000-40,000 sleepers or that Cutting Edge intended to store the sleepers for more than three months. His recollection was that in late April or early May 2015 he had a conversation with his sister, Mrs Brus, in which the following was said: "[Ray Penfold]: I heard from Mum and Jodi that you and Dean have won the railway contract and [Mum has] asked me if we can store them on Maryvale. [Janine Brus]: Yes, that is correct, but we only need a place to leave them for about three months, as that should give us enough time to grade and sell them. Would it be possible to store them on 'Maryvale'? [Ray Penfold]: Yes you can store them on 'Maryvale' if you would like. [Janine Brus]: Okay, leave it with me, I need to talk to Dean, but that would be great, thank you. [Ray Penfold]: As I am only out there every so often, if you want to store them on Maryvale, then you will have to be fully responsible for them as I won't have any time to look after them. [Janine Brus]: Yes, I understand that. We will look after them. We are just now arranging the transport for them."

[14]

Initial transport of sleepers in June 2015

Mr Penfold's evidence was that several days prior to the first delivery of sleepers to Maryvale, his sister telephoned him and asked where the sleepers should be placed. Mr Penfold then spoke to Mr Brus about the placement of sleepers in these terms: "[Dean Brus]: Ray, we are about to start transporting the sleepers. What is the best access to 'Maryvale'? [Ray Penfold]: When you come out on the Mary Gilmour Way, the turn into the main entrance to 'Maryvale' is too tight for trucks, so I think you would be better going further along until you come to Rees' Lane and then access the property from that lane. Although it is only a gravel road, it is much easier to turn into Maryvale from Rees' Lane than Mary Gilmour Way. [Dean Brus]: Okay, we will use the access from Rees' Lane. Where do you want the sleepers to go? [Ray Penfold]: I think the best place to put them is up beside the house and away from the work shed. [Dean Brus]: Okay, we'll do that. As I am a bit short staffed at the moment, would you be able to help us and drive one of the trucks so you can show us where the sleepers are to go? [Ray Penfold]: I'm pretty busy at the moment, but if I can sort things out, I'll give Janine a call."
Mr Penfold said that early the next day or several days later his sister called him and asked if he could help by driving a truck from Barmedman to Maryvale.
Mrs Brus denied calling Mr Penfold to ask where to place the sleepers. Her evidence was that she only called to inform him that they were going to start transporting the sleepers to Maryvale. Mr Brus also denied that the above conversation occurred and said that the only conversation about the placement of sleepers was that extracted below at [86].
Mr Brus said that he had the following conversation with Mr Penfold at Maryvale shortly after 2 June 2015: "[Ray Penfold]: Your best access is the one off Rees Road. The access from Grenfell Road is pretty rough. [Dean Brus]: We'll need up to a couple of acres. Where's our spot? [Ray Penfold]: Between the track here and the fence and you can go to the road if you want. [Dean Brus]: So we stack them in rows up as high as our machine will reach. Here, I'll show you."
A drawing annexed to Mr Brus' affidavit indicated that the track ran closely to the north of the new fence line, with the track and fence running along either side of where the sleepers were stacked prior to the fire. He stated that there was no conversation about proximity to the fence or firebreaks. Mr Brus deposed that he showed Mr Penfold photos of sleeper stacks from other properties. Mr Penfold denied that the above conversation occurred and stated that he was never shown photos of sleeper stacks.

[15]

Storage of sleepers from June 2015 to 18 December 2016 (relevant to contributory negligence)

As set out above at [67], the TRAB sheets recorded that sleepers were recovered from Temora to Barmedman and Barmedman to West Wyalong on 3-4 June 2015, 6-10 July 2015, 17-19 and 22-26 February 2016, 28-30 November 2016, 1-2, 7-8 and 12-14 December 2016.
After 4 June 2015, at which time Mr Penfold said he became aware the transportation of sleepers to Maryvale commenced, he did not return to Maryvale for two or three weeks. His evidence was that he had no conversations with Mr or Mrs Brus during that time. He returned to Maryvale after two or three weeks and observed that a large number of sleepers had been stacked immediately to the north of the new fence line. The stacks were approximately 10 feet high, with the western stack being 46 metres long and the eastern stack 41 metres long. The two stacks were approximately 15 metres apart and only one metre from the fence at the closest point. He observed that some of the sleepers had fallen off the stacks and damaged the new fence.
Mr Penfold said that he was surprised by the number of sleepers and said that he had never been notified of the number of sleepers Mr Brus intended to store on Maryvale. He said that he did not discuss the number of sleepers or their location with Mr or Mrs Brus in mid-2015 because he understood that they would only be there for three months (while they were graded) and would be removed before the next fire season.
Mr Brus' evidence was that on the first occasion he visited Maryvale after June 2015 he called Mr Penfold and said he was going to the property. He stated that Mr Penfold said "[j]ust do what you gotta do" and that after that he did not consider it necessary to contact Mr Penfold each time he visited Maryvale. Mr Penfold denied having that conversation with Mr Brus.
Mr Brus stated that after late June 2015 all retrieval was difficult because of the wet conditions but that some additional sleepers were retrieved in the weeks after 17 February 2016 and again from 28 November to 2 December and on 7-8 and 13-14 December 2016. He agreed that no sleepers were delivered to Maryvale between February and November 2016.
As to why some sleepers were stored on Maryvale and others at Access, Mr Brus' evidence was that due to heavy rain in July 2015 he could not access Maryvale so he arranged to store sleepers at Access in Barmedman. Around 6,155 sleepers were stored at the Access facility.

[16]

The sleepers at Access Recycling

As stated above, Mr Brus claimed that 6,155 sleepers were stored at Access Recycling in Barmedman from mid-2015. Mr Brus explained that this occurred when Maryvale became inaccessible due to wet weather. As set out above at [94], Mr Penfold claimed that Mrs Brus told him on 4 June 2015 that the best sleepers had already been extracted and placed at Access. The TRAB sheets reflected that Cutting Edge performed steel retrieval from 27-30 April 2015 and sleeper recovery from 3-4 June and 6-10 July 2015.
Mr and Mrs Brus denied in cross-examination that the best sleepers were extracted on 27-30 April 2015 and stored at Access. The TRAB sheets do not record the retrieval of sleepers in April 2015. As set out above, Mrs Brus denied ever telling Mr Penfold that the best sleepers had been placed at Access.
There was no evidence, other than the recollections of Mr and Mrs Brus, about when the sleepers were transported to Access. A notice to produce dated 8 February 2019 sought all documents relating to the transportation, delivery, storage and costs of storage of railway sleepers removed by the plaintiff, including any invoices or receipts for the storage of railway sleepers. No documents were ever produced to substantiate the plaintiff's claims about when the sleepers were taken to Access, nor did Adam Perry from Access keep or produce any records about this.

[17]

Conversations about construction of a firebreak and removal of the sleepers (relevant to contributory negligence)

Mr Penfold's evidence was that in late 2016 he and Mrs Penfold were considering selling Maryvale to fund the purchase of a property known as Wallaroi. He said that he had a conversation with Mrs Brus in which he explained this and said that the sleepers would have to be removed from Maryvale in the event that it was sold. He said that Mrs Brus said it would cost a fortune to move them back to Orange. Mr Penfold said that he said, "they were only meant to be there for three months. They have now been there for about 15 months. If I've got to sell Maryvale… [t]hey will just have to go."
Mrs Brus deposed that she had a conversation with Mr Penfold about the purchase of a new property, which she recalled as occurring in harvest season in 2015. She recalled Mr Penfold saying that the sleepers would have to be moved if the property was sold. She recalled saying, "[i]t won't be a problem Ray. We will do what we have to do. We won't hold you back."
Mr and Mrs Penfold purchased Wallaroi in November 2016 but did not sell Maryvale.
The need for a firebreak was raised during the conversation in late July or early August extracted above at [109]. Mr Brus denied that conversation and stated that Mr Penfold was "never, ever… concerned about [a] firebreak at all". He said that it would have been a big job to move the four stacks of sleepers that were located adjacent to the fence, but that it would have been "doable". He denied that there was a need for firebreaks, stating that there was about 150 to 200 metres of buffer and "plenty of room" between the south paddock and the sleepers in the north paddock.
Ms Brus had no recollection of being at Maryvale with her husband and Mr Penfold in late July or early August 2016. She did not recall having a conversation with her brother about moving the sleepers to enable the construction of a firebreak and denied having any conversations about where the sleepers should be placed.
On or about 30 or 31 October 2016 Mr Penfold attended Maryvale to arrange for the cutting of firebreaks. This was done by a contractor using an implement that created a firebreak of 15-16 feet per pass. Four passes were done by the machine to the north side of the sleepers in the north paddock, to separate the sleepers from the wheat crop. That firebreak was cut on 30-31 October and 1 November 2016. It was approximately 20 metres wide and was located to the north of the track between Rees Lane and the home on Maryvale (the sleepers were placed south of the bare earth track, between the track and the fence).

[18]

Evidence about the shortfall and delay in recovery

There was significant delay in retrieving the sleepers under the contract. This was explained by Mr and Mrs Brus as being the result of rain which meant that that could not access the railway corridor (including apparently from February to November 2016). The defendants suggested that the delay was due to the fact that Mr and Mrs Brus went through the corridors and collected the best quality sleepers and stored them at Access and were slow to retrieve the sleepers of a lesser quality. Mr Brus denied storing higher quality sleepers at the Access facility.
As set out above, there was a shortfall between the number of sleepers estimated by JHR and what Cutting Edge told JHR it had retrieved. The defendants' (and cross-defendant's) case was that the shortfall was due to theft, primarily because Cutting Edge left the sleepers unattended in the corridor for up to 20 months. As stated above, emails between Mr Brus and Nolan Press on 28 June 2016 and 30 September 2016 confirm that Mr Brus complained to JHR about theft of sleepers being "ramped" up in the area and said that that eight people were required to attend court over theft of railway sleepers.
Mr Antunac gave evidence that he was involved in the sleeper replacement program from Barmedman to West Wyalong in 2002 and in 2010 and also lodged tenders with JHR for the collection of sleepers from Temora to Barmedman and Barmedman to West Wyalong sections in 2015. Before submitting the tenders for those sections, he inspected the entirety of the track by driving along the length of the corridor. He recalled that the contract stipulated collection of up to 17,000 sleepers for the Barmedman to West Wyalong section of the track and 22,365 sleepers for the Temora to Barmedman section. He did not believe that those estimates were accurate.
Mr Antunac believed that 10% would have been pilfered by the time the job began. He also stated that theft was more of an issue when the subcontractor for retrieval was not working alongside the re-sleepering teams, as that meant that the sleepers were left sitting beside the track for months, allowing for a greater proportion of loss due to pilfering. Mr Antunac stated that he believed when he surveyed the corridor in 2015 that the sleepers had been pilfered because the good sleepers had been removed, leaving a flat spot in each pile with a "whole heap of rubbish right at the front".

[19]

Weather conditions in December 2016

A key issue, relevant to the assessment of risk on the day of the fire, was the weather conditions on Maryvale in the days leading up to and on the day of the fire, 18 December 2016. Mr Penfold's evidence was that the ground was wet on 18 December due to rainfall in the preceding days. The plaintiff disputed this.
Mr Penfold's evidence was that due to the wet weather conditions on Maryvale the harvest did not commence until 14 December 2016. By 16 December 2016 the harvest in the north paddock was complete, and the harvest in the south paddock had commenced. His evidence was that on 16 December 2016 Maryvale received between 25-30mm of rainfall, causing the harvest to cease. The staff employed to complete the harvest were given the weekend off due to the wet weather. Mr Penfold's evidence was that on 17 December 2016 the weather remained foggy, misty and overcast and no further harvesting took place on that date.
Mr Penfold produced a rainfall chart from his property at Millara where he lived with his wife, located near Quandialla, around 30km north-east of Barmedman. Maryvale was described as being 20km east of Barmedman. That rainfall chart disclosed that Millara received significant amounts of rain from June to October 2016. The total monthly rainfall was 115mm in June, 67.5mm in July, 75.5mm in August, 155mm in September and 16.5mm in October. The monthly total for December was 26mm of which 21mm fell on 16 December (and the remaining 5mm on 8 December).
Cutting Edge tendered Bureau of Meteorology (BoM) data for Barmedman Post Office, Temora Airport and West Wyalong Airport. Those records indicated the following in relation to rainfall in December 2016: 1. Barmedman Post Office recorded 0.5mm of rainfall on 7 December, 4mm on 9 December, 2.4mm on 15 December, 17.6mm on 16 December, and 4.3mm on 30 December 2016. The monthly total was 28.8mm; 2. Temora Airport recorded 2.4mm on 9 December, 7.8mm of rainfall on 15 December, 4.4mm on 16 December, 9.4mm on 17 December, 0.2mm on 18 December, 2.4mm on 25 December, 0.2mm on 26 December, 6.4mm on 30 December, and 0.8mm on 31 December 2016 (monthly total 34mm); 3. West Wyalong Airport recorded 0.4mm on 6 December, 0.2mm on 7 December, 3.8mm on 9 December, 11.2mm on 15 December, 7.8mm on 16 December, 17.8mm on 17 December, and 1.4mm on 30 December (monthly total 42.6mm).

[20]

The fire on 18 December 2016

On 18 December 2016, Mr Penfold travelled to Maryvale from Millara to perform maintenance on a silo. Upon arriving at approximately 10:45am he first performed a service and repair work on the header before proceeding to the silo at approximately 11:30am. He climbed on top of the silo furthest to the south in the shed paddock to weld around a crack in the main shaft of the auger. The auger was full of grain and unable to be moved. He estimated that it took one or two minutes to perform the welding and that he started welding around midday. He said that he usually used his phone as a watch and believed his time estimates were accurate to around 10 minutes.
Mr Penfold said that it had been a "very still" morning but a breeze sprung up around lunch time (around the time he was welding). He stated that a southerly breeze came up around that time.
He began welding using an arc welder. He acknowledged in cross-examination that arc welders throw more spatter than other types of welders. He said that he had never taken a formal course in welding and only had experience performing welding on the farm including on gates and posts. He did not use any protective equipment to prevent hot spatter from being thrown from the weld site.
In cross-examination Mr Penfold was asked whether he took any steps to clear the grass around the base of the silo. He said he did not as he did not believe it was necessary. He said that it was "very still" and the grass had been "very dewy" in the morning. He said he considered clearing the grass but decided not to. He also decided that it was not necessary to further dampen the grass around the silo.
He stated that he did not have a fire extinguisher with him but did have a water cart which was at the wool shed while he was welding. He estimated that the wool shed was around 80 metres from the silo.
After finishing the welding and turning off the generator, Mr Penfold heard a crackle and realised that a grass fire had started at the base of the silo on the eastern side (the side of the silo closest to the sleepers). He estimated that the fire was about three or four square metres in size and that the flames were around 20 or 30 centimetres high. He extinguished the small grass fire with a "rag" from the back of his ute. He then realised that there was another grass fire five to eight metres behind him, to the north. That fire had larger flames, around 45 centimetres high.

[21]

What time did the fire start?

Mr Penfold gave evidence that it took him a while to get any phone service after the fire started and he ended up getting reception after driving to the landing of the wool shed. He then called his wife asked her to contact the neighbours while he went to get the water cart. He did not accept that his phone call to his wife could have been later than 12:30pm or 1:15pm even though it was put to him in cross-examination that the RFS was not called until 2:34pm.
Mrs Penfold said that she received the call from her husband, contacted the neighbours and then left for Maryvale. She estimated that she received the call from her husband around 12:30pm and then immediately called the two neighbours and left Millara, arriving at Maryvale around 1:00pm or 1:15pm. She said that when she arrived there was no strong wind blowing, but there was some breeze. She said that Mr Penfold told her that a "whirly-whirly" had caught the grass fire and spread it.
Mr Penfold's evidence was that the two neighbours, Neil and Mark, arrived around 12:45pm and assisted him to extinguish the fire in the north paddock. He estimated that it took 20 minutes to extinguish that fire and said that when he had finished there was no sign that the sleepers were on fire, even though the fire had passed underneath the sleepers.
The third person to arrive at the scene, after the two neighbours, was Trevor Penfold, the local fire captain (it was not suggested that he was related to Mr Penfold). Mr Penfold estimated that Trevor Penfold arrived shortly after 1:00pm. He discussed with Trevor Penfold how to manage the fire. Trevor Penfold wanted to drive around and have a look at the fire. After observing the fire, he decided that the best course would be to create a back burn in the north paddock to prevent the fire from spreading, before applying water to the smoking sleepers.
When Mrs Penfold arrived at Maryvale, which she estimated was at 1:15pm, Mr Penfold was driving around the north paddock with the fire captain, Trevor Penfold, in a Rural Fire Service ("RFS") truck and other RFS volunteers were arriving. The RFS volunteers then completed the back burn, starting deep in the north paddock and burning back to the point at which Mr Penfold and the two neighbours had extinguished the grass fire in the north paddock.
Mr Penfold estimated that the back burn was completed at around 1:30pm or 1:45pm and at that point the RFS volunteers positioned the fire trucks next to the sleepers and commenced applying water to the sleepers. Mr Penfold said that at around 2:00pm he observed smoke rising from the sleepers.

[22]

The arrival of Dean and Peter Brus

After the sleepers caught fire Mr Penfold said that he called Mr Brus and told him that the sleepers had caught fire due to the welding. Mr Brus said that he had already heard about the fire and was on the way to Maryvale in his helicopter with his son, Peter Brus. Mr Brus was 45 minutes away.
Mr Penfold stated that at around 2:45pm Trevor Penfold instructed him to call Mr Brus and say that the helicopter was not required. Mr Penfold relayed this to Mr Brus. Mr Brus told Mr Penfold that he was five to ten minutes away and: "If I can't use the helicopter, try and save the sleepers at the western end of the stack closest to the house because they are the 'A' grade top grade ones."
Mr Penfold deposed that at around 3:00pm Mr Brus arrived in his helicopter and they had a conversation in the following terms: "[Dean Brus]: They won't let me use my helicopter to save my own sleepers. I need to save the ones closest to the house as they are A grade sleepers. I'm not worried about the rest, if we can save them. Who is the fire captain and where is he?"
Mrs Penfold recalled a conversation shortly after Mr Brus arrived in very similar terms.
Peter Brus took five photographs depicting the fire from the helicopter on approach at 2:58pm and 2:59pm and from the landing site at 3:00pm. He denied that any conversations took place suggesting that grading of the sleepers had already occurred or that only the better sleepers should be saved.
Mr Penfold directed Mr Brus to speak to Trevor Penfold. Mr Penfold said that Mr Brus returned around 3:30pm and was "visibly upset and angry". Mr Penfold said that Mr Brus said words to the following effect: "They are not doing anything to save the sleepers. They are just letting them burn. A big fire needs big water. If they would just let me use my helicopter, I can dump water on the western end and save all the better A grade sleepers. Once I have done that, Peter can use the excavator to push them away so that we can try and save some of [them]. We've got to save the sleepers on the western end, as they are all top A grade sleepers. I'm not worried about the rest."
Mrs Penfold recalled a conversation between her husband and Mr Brus in very similar terms.
Mr Brus then spoke to Trevor Penfold and received authorisation to use his helicopter at around 3:45pm or 4:00pm. Mr Penfold said that at around 4:00pm or 4:30pm Mr Brus dumped water from the dam on the western end of the pile and his son Peter used an excavator to push some of the sleepers on the western end away from the burning pile. They were pushed around 20 to 30 metres from the main stack, towards the homestead. Some of the sleepers that were removed from the pile by the excavator continued to burn while others were saved. All the sleepers that remained in the main pile were destroyed. The fire on Maryvale burned for three days.

[23]

The RFS report

The report of the RFS was in evidence. It showed that the incident time was 2:33pm, that a call was received at 2:34pm and the relevant brigades advised at 2:35pm. The first crew arrived at 2:41pm and left at 7:30pm, while two other crews were recorded as arriving at 3:00pm and 3:41pm and departing at 5:24pm and 7:15pm respectively.
The site visit comments noted the destruction by fire of approximately 30,000 sleepers stacked in a timber pile approximately 140 metres long and 7 metres wide. In the summary of findings it was noted that Mr Penfold was using a welder above his silo which spark ignited the grass below and travelled to the sleepers; that there were bare earth breaks between the sleepers and the silo area; and that there was a water cart nearby but due to the wind speed it was difficult to extinguish the fire. The report concluded that "given the response times of the initial brigades, wind speeds and that the sleepers were old and dried" it would have taken minutes for them to ignite.
The report noted that the fire was an accident and that the fire crossed the bare earth track due to weather conditions on the day.

[24]

Removal of sleepers after 18 December 2016

The TRAB sheets disclosed that sleepers were retrieved between Temora and Barmedman from 19-22 December 2016 and sleepers and steel from 2-5 January 2017 on both lines. Email correspondence between Cutting Edge and JHR indicated that an additional 1,500 sleepers were retrieved from the Barmedman to Temora line between 1 September 2016 (email extracted above at [577]) and 10 January 2017 (see above at [583]) along with 6 tonnes of steel from Barmedman to West Wyalong. No additional sleepers were retrieved between Barmedman to West Wyalong.
Cutting Edge also commenced work on the Temora to Ariah Park line on 31 January 2017 and Mr Brus claimed that some of the sleepers placed on Maryvale after the fire came from that contract. No records were produced to substantiate his evidence about the origins of the sleepers placed on Maryvale after the fire.
Mr Brus deposed that on 19-21 December 2016 he retrieved the 500 to 1,000 "inferior quality" sleepers referred to above at [111] and deposited them at Maryvale. He said that this was done with Mr Penfold's knowledge and implied consent as Mr Penfold was at Maryvale at that time. Mr Brus said that he had lunch with Mr and Mrs Penfold on one of those days at Maryvale.
Mr Brus estimated that there were 7,000 to 8,000 sleepers on Maryvale at that date but stated that only 500 to 1,000 were from the Temora to Barmedman and Barmedman to West Wyalong lines, and that all the other sleepers were from the railway corridor between Temora and Ariah Park. He also estimated that the number of sleepers dumped between the homestead and the dam was only 200 prior to the fire and that all the rest were deposited after the fire from the Temora to Ariah Park line (Mr Penfold stated that there were 455 to 520 sleepers in that area before the fire).
Mr Penfold estimated that there were between 15,150 and 15,900 sleepers stored on Maryvale after the fire (that were not destroyed), in the following locations: 1. 11,600 sleepers stacked in rows immediately to the north of the original rows of sleepers that were destroyed in the fire; 2. 100 sleepers adjacent to the machinery shed; 3. 1,050-1,200 sleepers between the homestead and the dam; 4. 2,400-3,000 sleepers east of the homestead towards Rees Lane.
He estimated that the sleepers delivered to Maryvale by 22 December 2016 comprised the following: 1. The sleepers adjacent to the machinery shed (100); 2. One half of the sleepers deposited between the homestead and the dam (455 to 520); 3. The sleepers deposited east of the fire zone in the North paddock towards Rees Lane (2,400-3,000).

[25]

Factual findings relevant to negligence

Several aspects of the fire were not in dispute including how it started and where it spread. The main disputes in relation to the fire were what time it started and what the weather conditions were at that time.
The factual findings necessary to consider the plaintiff's claim in negligence are: 1. What were the weather conditions? 2. Was the grass still wet? 3. What time did the fire start?
On behalf of the plaintiff it was submitted that I would not accept Mr Penfold's evidence that the grass was "dewy". It was noted that the Barmedman Post Office only recorded 17.6mm of rain on 16 December and no rain on 17 or 18 December 2016. It was submitted that even if it had been dewy in the morning, any dampness would have evaporated by midday, by which time the temperature was in the mid-20's and there was some wind.
The defendants submitted that the best evidence of the conditions on Maryvale was that of Mr Penfold. His evidence was that the rain on 16 December was sufficient to stop the harvest, that it was foggy and misty on 17 December and that the ground was dewy on the morning of 18 December. It was submitted that although the weather reports from nearby on that day were broadly consistent with Mr Penfold's evidence, due to their lack of proximity to Maryvale, Mr Penfold's evidence should be accepted.
I have considered the evidence and the submissions of the parties. I am satisfied that it rained on 16 December and was overcast and possibly "foggy" on 17 December. Mr Penfold did not say that it rained on 18 December 2016 and, given the weather records, I am satisfied that it did not. I am satisfied that it may well have been dewy early on the morning of 18 December 2016, but the grass would not have been wet by the time of the fire given the fact that it had not rained that day or the day before, that the temperature reached a maximum of 26 degrees and the fire was clearly able to spread over the grass quickly once it started. Further, the weather in December had generally been quite hot. The weather reports from Temora Airport showed that between 1 and 18 December there were 11 days of temperatures over 30 degrees with a maximum temperature of 38.6 degrees on 13 December. On 17 December, the day before the fire, the maximum temperature was 31.3 degrees. Similarly, the weather reports from West Wyalong airport recorded 11 days of temperatures over 30 degrees with a maximum temperature of 38.7 degrees recorded on 13 December. The maximum temperature on 17 December was recorded as 30.9 degrees. The high temperatures in December, including on the day before the fire, make it even less likely that the ground and grass would have still been "dewy" or "wet" by lunchtime on 18 December 2016.

[26]

NEGLIGENCE

The plaintiff pleaded its case in negligence. It did not plead its case in bailment. Part 1A of the Civil Liability Act 2002 (NSW) ("CLA") sets out the statutory principles governing the law of negligence in NSW. Section 5A(1) provides that Part 1A applies to any claim for damages for harm resulting from negligence, regardless of whether the claim is brought in tort, in contract, under statute or otherwise. The CLA is not a complete code. As Campbell JA (McColl JA agreeing), observed in Roads and Traffic Authority of NSW v Refrigerated Roadways Pty Limited (2009) 77 NSWLR 360; [2009] NSWCA 263 at [173], it is a piece of legislation which exists in the context of the tort of negligence and the common law of negligence which has developed over time.

[27]

Duty of care

Although not expressly stated in the CLA, the starting point for the consideration of whether the defendants were negligent is whether they owed the plaintiff a duty of care in relation to the sleepers.
The plaintiff relied upon the nature of the arrangement between Mr and Mrs Brus and the Penfolds to store the sleepers at Maryvale for safe keeping as giving rise to a duty of care.
The defendants denied owing any duty of care to the plaintiff. They relied on the initial conversation in which Mr Penfold told the Bruses that the sleepers would be their responsibility. They also relied on the decision in Caltex Refineries (Qld) Pty Ltd v Stavar (2009) 75 NSWLR 649; [2009] NSWCA 258 and submitted that any duty of care would be a novel one. The defendants referred to Allsop P's analysis in Caltex Refineries as to the proper approach in relation to novel duties. It was submitted that the following factors demonstrated that no duty of care was owed: 1. That the defendants had no control over the location of the sleepers in circumstances where Mr Penfold's instructions were ignored; 2. That the defendants had no control over the harm because they could not create firebreaks due to the placement of the sleepers; 3. That Cutting Edge understood and accepted the risk of fire due to the wheat crops in the north and south paddocks and the active use of Maryvale, and could have acted on the risk but chose not to; 4. That there was no evidence that Cutting Edge was reliant on the defendants to protect the sleepers including from risk of fire; 5. That Mr Penfold made it clear to Cutting Edge that they were to have full responsibility for the sleepers and that there was no assumption of responsibility on the defendants' part, either actual or constructive; 6. That Cutting Edge and defendants did not enter into a contract for valuable consideration and that the defendants did not undertake any obligation to ensure the safekeeping of the sleepers; 7. That if it were determined that the defendants owed a duty of care to Cutting Edge there would be a risk of indeterminacy of liability in circumstances where the defendants did not undertake to do anything in relation to the sleepers except permit them to be stored on Maryvale; and 8. That such a duty would restrict the autonomy of a property owner who permits someone to place goods on their property gratis and without valuable consideration but otherwise does not undertake to ensure the safety or care of those goods.

[28]

Conclusion: Duty of care

The farming business on Maryvale was conducted by Mr and Mrs Penfold under a partnership arrangement entered into in 2011. Accordingly, they were both liable for anything that occurred on the farm in connection with that farming business. The second defendant did not submit otherwise Mr Penfold used an arc welder in close proximity to where Mr and Mrs Brus had stored a large number of sleepers. The sleepers were on the defendants' land. Mr Penfold had permitted the plaintiff to store them there for safekeeping. I am satisfied that the defendants owed a duty of care to the plaintiff in relation to those sleepers..
I am not satisfied that the question of any "novel" duty of care arises in this matter. The defendants' submission to this effect is based on their case that the sleepers were not in their physical control at the relevant time. I make detailed findings about that question below in connection with the cross-claim. I am not satisfied that the defendants had "no control" over the sleepers for the reasons provided below at [471]-[473]. Those reasons should be taken to apply to this argument as well.

[29]

Breach of duty

The relevant provisions of the CLA are ss 5B and 5C. Although they appear beneath the heading "Duty of Care", they are clearly directed to questions of breach of duty: Adeels Palace Pty Ltd v Moubarak (2009) 239 CLR 420; [2009] HCA 48 at [13].
Sections 5B of the CLA provides: 5B General principles (1) A person is not negligent in failing to take precautions against a risk of harm unless: (a) the risk was foreseeable (that is, it is a risk of which the person knew or ought to have known), and (b) the risk was not insignificant, and (c) in the circumstances, a reasonable person in the person's position would have taken those precautions. (2) In determining whether a reasonable person would have taken precautions against a risk of harm, the court is to consider the following (amongst other relevant things): (a) the probability that the harm would occur if care were not taken, (b) the likely seriousness of the harm, (c) the burden of taking precautions to avoid the risk of harm, (d) the social utility of the activity that creates the risk of harm.
Section 5C of the CLA provides: 5C Other principles In proceedings relating to liability for negligence: (a) the burden of taking precautions to avoid a risk of harm includes the burden of taking precautions to avoid similar risks of harm for which the person may be responsible, and (b) the fact that a risk of harm could have been avoided by doing something in a different way does not of itself give rise to or affect liability for the way in which the thing was done, and (c) the subsequent taking of action that would (had the action been taken earlier) have avoided a risk of harm does not of itself give rise to or affect liability in respect of the risk and does not of itself constitute an admission of liability in connection with the risk.
As stated by Leeming JA (Basten and Simpson JJA agreeing) in Uniting Church in Australia Property Trust (NSW) v Miller; Miller v Lithgow City Council (2015) 91 NSWLR 752; [2015] NSWCA 320 ("Miller") at [102]: "Central to the determination of civil liability for failure to exercise reasonable care and skill is the identification of risk. In Roads and Traffic Authority of NSW v Dederer [2007] HCA 42; 234 CLR 330, Gummow J, with whom Heydon J agreed, observed at [59] that it is 'only through the correct identification of the risk that one can assess what a reasonable response to that risk would be'. His Honour had earlier observed that 'the assessment of breach depends on the correct identification of the relevant risk of injury': at [18]. Although Mr Dederer's diving injury was suffered before the Act had commenced, it is easily seen that those statements remain applicable to actions for a failure to exercise reasonable care and skill to which it does apply."

[30]

Precautions against risk

The plaintiff identified the precautions that Mr Penfold failed to take in the statement of claim as: 1. Failing to identify potential hazards in carrying out the welding on the silo on a hot and dry day and failing to ensure that a means of managing the hazard was in place; 2. Failing to ensure that another person was located on the ground near the silo to observe the welding and ensure that sparks or debris did not cause a grass fire; 3. Failing to take any or adequate steps to ensure that the welding he was conducting on the silo would not start a fire; 4. Failing to clear an area beneath the silo or to wet the area to prevent the outbreak of a grass fire; and 5. Failing to ensure that he had appropriate firefighting equipment or an extinguisher located within 10 metres of the work area in order to extinguish any fire.
The plaintiff did not adduce any expert evidence on this issue. Mr Carolan submitted that the relevant assessment was one of common sense. He relied upon Mr Penfold's evidence on this issue.
Mr Drummond for the defendants submitted that it was a flaw in the plaintiff's case that no expert evidence was adduced by the plaintiff on the issue of negligence and that this was a category of negligence which required expert evidence. He submitted that the plaintiff should have adduced evidence as to what someone in Mr Penfold's position, that being a farmer with 30 years' experience in the RFS, would have done: per Ipp JA in Ohlstein v E&T Lloyd trading as Otford Farm Trail Rides [2006] NSWCA 226 ("Ohlstein").
As for the precautions identified by the plaintiff, the defendants relied on Mr Penfold's evidence about the "whirly wind" to submit that even if someone had been on the ground they would not have been able to extinguish the fire before it spread.
Reliance was also placed on Mr Penfold's evidence that he assessed the conditions and considered that the ground was mostly bare earth and still dewy. It was further submitted that there was no evidence that a reasonable person would have placed the water cart closer to the silo.

[31]

Conclusion: Failure to take precautions

Under s 5B(2) of the CLA, in determining whether a reasonable person would have taken precautions against a risk of harm, I am required to consider, amongst other relevant things: 1. The probability that the harm would occur if care were not taken; 2. The likely seriousness of the harm; 3. The burden of taking precautions to avoid the risk of harm; 4. The social utility of the activity that creates the risk of harm.
I do not accept the defendants' submission that an expert was required in this matter to establish that a reasonable person in the defendants' position would have taken the precautions identified. Any lay person would be able to identify the sort of precautions a reasonable person in Mr Penfold's position would have taken. He was not a professional welder. He was a farmer who was required to do "odd jobs" around his farms, including welding. It was not suggested that any particular trade qualification was required to use such a welder. In those circumstances there was no requirement for any expert evidence about welding.
I note on this issue that at the end of the evidence the plaintiff sought to tender the relevant industry standard in relation to welding: Australian Standard, Safety in welding and allied processes, Part 1: Fire precautions (AS 1674.1-1997). The defendants objected to the tender of the Australian Standard. I indicated at the time that I did not consider it was necessary to rely on the relevant Australian Standard given the facts and circumstances in this case.
The defendants relied upon the decision in Ohlstein but that case does not assist them. That case concerned whether the owners of a trail riding business were negligent when one of their horses bit another horse which galloped away injuring its young rider. The Court of Appeal in Ohlstein was satisfied that it was within the ordinary knowledge and understanding of members of the community generally, including members of the Court, that there are risks and uncertainties involved in riding and controlling horses and that the capacity of young children to control unexpected situations is limited. As Ipp J observed at [151]: "The expert evidence as to industry practice … is relevant, but not conclusive as to the issue of negligence. While expert evidence may be of assistance to a court, the ultimate value judgment and the question of negligence is for the court alone. It is to be emphasised, however, that this rule does not expand the ambit of the doctrine of judicial notice. The evaluation must be undertaken by reference to the evidence and the legal principles applicable, and must not be influenced by the judge's personal, subjective views about the issues before the court."

[32]

Contributory negligence

The defendants submitted that in the event they were found to be negligent, any damages ought to be reduced due to the plaintiff's contributory negligence. In particular, reliance was placed on Mr Penfold's evidence that the plaintiff placed the sleepers too close to the fence, preventing the construction of a firebreak and later failed to move the sleepers to a safer place when asked to do so. Both matters are disputed by the plaintiff. Resolving these questions involves making factual findings on five separate matters. 1. Did Mr and Mrs Brus place the sleepers where they were told to by Mr Penfold? 2. Did Mr Penfold ask Mr Brus to move the sleepers to allow the construction of a firebreak? 3. Did Mr Brus refuse to move the sleepers? 4. Could a firebreak have been cut in the shed paddock without moving the sleepers? 5. Would a firebreak have prevented the spread of fire in any event?
I have already summarised the evidence relevant to these questions.
The first dispute concerns where it was that Mr Penfold told Mr and Mrs Brus to store the sleepers. Mr Brus claimed that Mr Penfold told him to store the sleepers in a line "between the track and the fence", extending from the homestead to Rees Lane. This was disputed by Mr Penfold, who said that he told them to place the sleepers in rows extending east of the homestead on Maryvale, north of the bare earth track some 20 metres from the new fence line (rather than south of the bare earth track, immediately adjacent to the new fence).
The second dispute concerns whether Mr Penfold asked Mr Brus to move the sleepers to allow the construction of a firebreak. Mr Penfold asserts that he did while the Bruses deny this.
The third dispute is whether Mr Brus refused to move the sleepers. Mr Penfold's evidence is that he did whereas Mr Brus denied ever being asked to do so.
The fourth dispute is whether a firebreak could have been cut in the shed paddock without moving the sleepers. Cutting Edge submitted that it would have been possible despite the presence of trees in that area. It was submitted that the area was "relatively clear of trees" and there was no obvious reason why a firebreak could not have been cut.
The defendants submitted that there was not enough space between the fence and the sleepers to cut a firebreak. It was further submitted that had the plaintiff moved the sleepers when asked to do so, Mr Penfold would have cut a firebreak between the sleepers and the new fence line in late October 2016 (when the other firebreaks were cut) which would have prevented the fire spreading to the sleepers.

[33]

Should I apportion liability on the basis of contributory negligence?

Section 5R(1) of the CLA provides that the relevant principles for determining negligence also apply in determining whether the person who suffered harm has been contributorily negligent in failing to take precautions against the risk of that harm. Section 5R(2) goes on to provide that: (2) For that purpose - (a) the standard of care required of the person who suffered harm is that of a reasonable person in the position of that person, and (b) the matter is to be determined on the basis of what that person knew or ought to have known at the time.
McColl JA set out the proper approach to assessment of contributory negligence in Pollard v Baulderstone Hornibrook Engineering Pty Ltd [2008] NSWCA 99 at [13]-[14]: "At common law, a plaintiff is guilty of contributory negligence when the plaintiff exposes himself or herself to a risk of injury which might reasonably have been foreseen and avoided and suffers an injury within the class of risk to which he or she was exposed: Joslyn v Berryman [2003] HCA 34; (2003) 214 CLR 552 (at [16]) per McHugh J. As the primary judge recognised, the issue of contributory negligence was governed by s 5R of the Civil Liability Act … The words 'reasonable person in the position of that person' in s 5R are equivalent to the words 'a reasonable person in the plaintiff's position': Waverley Council v Ferreira [2005] NSWCA 418; (2005) Aust Torts Reports ¶81-818 (at [87]); Carey v Lake Macquarie City Council [2007] NSWCA 4 (at [10]). Section 5R reflects 'the expectation that, in general, people will take as much care for themselves as they expect others to take for them': Consolidated Broken Hill Ltd v Edwards [2005] NSWCA 380; (2005) Aust Torts Reports ¶81-815 (at [70]) per Ipp JA (Giles JA and Hunt AJA agreeing)."
Apportionment is an evaluative process. The High Court described the process in this way in Podrebersek v Australian Iron & Steel Pty Ltd [1985] HCA 34; (1985) 59 ALJR 492 at 494: "The making of an apportionment as between a plaintiff and a defendant of their respective shares in the responsibility for the damage involves a comparison both of culpability, i.e. of the degree of departure from the standard of care of the reasonable man … and of the relative importance of the acts of the parties in causing the damage … It is the whole conduct of each negligent party in relation to the circumstances of the accident which must be subjected to comparative examination. The significance of the various elements involved in such an examination will vary from case to case; for example, the circumstances of some cases may be such that a comparison of the relative importance of the acts of the parties in causing the damage will be of little, if any, importance."

[34]

Conclusion: Negligence

I am satisfied that the plaintiff has established that Mr Penfold was negligent in starting the fire on 18 December 2016 which destroyed the sleepers and that the plaintiff was contributorily negligent to the extent of 20%.

[35]

DAMAGES

The next question is to determine the quantum of damages the defendants are liable for. The majority of the hearing focussed on this issue. The question was complicated by the unsatisfactory state of the evidence as to how many sleepers were destroyed and what percentage of them could be considered to be graded as AA, A, B, C or firewood grade given they were not graded prior to the fire. This was an important matter given the significantly different prices for sleepers of each grade. Although the parties relied to a significant extent upon expert evidence to answer the damages claims, the most significant question is a factual one: how many sleepers were burned? The remaining questions stand to be determined based on a combination of lay, documentary and expert evidence.

[36]

How many sleepers were destroyed?

Cutting Edge submitted that the starting point for the quantity of sleepers destroyed was the number particularised in WOs 5 and 6: up to 17,000 sleepers for the Barmedman to West Wyalong section and up to 22,365 sleepers for the Temora to Barmedman section, totalling 39,365 sleepers.
It was submitted that these numbers were exact figures based on the number of steel sleepers replaced by JHR. The plaintiff also relied on the expert evidence of Mr Antunac, who said that it was a simple calculation based on a fixed number of sleepers per kilometre.
The plaintiff accepted that Mr Brus' emails to JHR established that he only collected 27,600 sleepers but it was submitted that Mr Brus explained the discrepancy. His evidence was that the emails did not include sleepers collected in 2015.
In relation to Barmedman to Temora corridor, it was submitted that the figure in the email was unlikely to be accurate. It was also accepted that Mr Brus' method of keeping track (a "mental tally") each day was not accurate which could explain why the figures in the emails were less than the amount quoted.
The plaintiff conceded that it was difficult to accurately assess the total number of sleepers extracted from the two corridors. It was also conceded that the amount quoted by JHR would have been reduced by theft. Cutting Edge put this figure at 10% based on the evidence of Mr Perry and Mr Antunac, particularly the latter who estimated that the overall number would have been reduced by 10%.
The plaintiff's position was that only 500 to 1,000 sleepers from the two relevant corridors were extracted after the fire. It was contended that the bulk of the sleepers placed on Maryvale after the fire came from the Temora to Griffith line and thus were not relevant to the calculation of how many sleepers were destroyed in the fire.
The plaintiff's position, based on these calculations, was that the total number of sleepers destroyed in the fire was 28,074. This was calculated in the following way: Total number quoted by JHR: 39,365 Less 10% for pilfering: 3,936 Less the sleepers at Access: 6,155 Less sleepers removed after the fire: 1,000 Less sleepers not destroyed: 200
The defendants submitted that the Court would find that a maximum of 27,600 sleepers were extracted from the two corridors, based on Cutting Edge's correspondence with JHR and the fact that Cutting Edge only paid for 27,600 sleepers. The defendants submitted that no more than 21,445 were placed on Maryvale (27,600 less the 6,155 stored at Access).

[37]

Conclusion: number of sleepers destroyed

I am satisfied that the starting point for this calculation is how many sleepers Cutting Edge told JHR they had collected. The invoices issued and emails sent by Mr and Mrs Brus is the best evidence of this.
I reject the evidence of Mr and Mrs Brus that there must be other invoices and TRAB sheets not in evidence that would support their assertions that they "would have" collected all of the sleepers as set out in WOs 5 and 6. In any event, it is the plaintiff's case. The onus was on Cutting Edge to produce all of its documents.
One matter that was never adequately explained by the plaintiff was the extraordinary delay in retrieving the sleepers. The explanation given was wet weather. There was evidence of wet weather in mid-2015 and mid-2016 but no evidence was adduced to suggest that there was a sustained period of wet weather from February to November 2016, the same period in which there was no activity on the corridor. I further note that in the contractor review minutes of 1 May 2017, JHR noted that the wet weather had not created similar delays for other contractors in nearby portions of the corridor. I am satisfied that while the wet weather in the winter months partially explains the delay, it does not fully do so. The problems with the delay were recorded in the 1 May 2017 progress report in which JHR raised concerns about the plaintiff's unsatisfactory performance of the contract.
The delay is relevant for a number of reasons. Mr Antunac's evidence was that his practice was always to retrieve the sleepers as soon as possible to avoid pilfering. The fact that the plaintiff did not do this no doubt explains the significant shortfall between what JHR estimated would be the yield from the contracts and what the plaintiff actually claimed to have collected.
Delay is also relevant to the question of whether the plaintiff selected some of the better sleepers and delayed the collection of those of a lesser quality, an issue I will consider further below when addressing the question of the purported grading of the ungraded burned sleepers.
The plaintiff relied upon the contemporaneous diary note made by Mrs Penfold on 18 December 2016 noting that 33,000 sleepers had been destroyed and on the RFS report recording that 30,000 sleepers were destroyed. No evidence was provided as to the source of these figures. I am not satisfied it would have been possible to have made that calculation on the day based on a visual inspection of the stacks of burning sleepers. I am satisfied that the likely source of that number was what Mr Brus told the RFS and Mrs Penfold and that, like most of his estimates, it was not reliable.

[38]

The expert evidence

Having arrived at the number of sleepers burned, the next question is as to their quality. The question of the quality of the sleepers at Maryvale (in particular, in comparison to the sleepers at Access) required reference to both the lay and expert evidence and raised a number of sub-issues including whether the quality was consistent across the corridor, whether any grading occurred in the corridor, whether the best sleepers were stolen, the meaning of "redundant" sleepers and the circumstances in which certain sleepers were placed at Access and others at Maryvale.

[39]

What was the quality of the sleepers destroyed in the fire?

The parties disagreed as to the appropriate method of assessing the quality of the sleepers destroyed in the fire.
The plaintiff relied on Mr Perry's expert evidence about the quality of the sleepers at Access and submitted that this was representative of the quality of the sleepers at Maryvale. Mr Perry assessed the sleepers at Access as falling into the following grades: "AA grade: 25% A grade: 25% B grade: 29% C grade: 12.5% Firewood grade: 8.3%"
The plaintiff's case, in reliance upon Mr Perry's evidence, was that the sleepers were of consistent quality across the corridor and they were not removed selectively. Accordingly, it was suggested that the quality of the sleepers at Access was representative of the sleepers stored at Maryvale.
The defendants relied on Mr Kennedy's expert evidence about the grades of the sleepers on Maryvale that were not destroyed in the fire, based on photographs taken by Mr Penfold after the fire. Mr Kennedy assessed photographs of the sleepers that were stacked and dumped on Maryvale and graded them as follows: 1. Sleepers that were stacked on Maryvale: "AA grade: 5% A grade: 10% B grade: 20% C grade: 25% D grade: 40%" 1. Sleepers that were dumped on Maryvale: "AA grade: Nil A grade: 5% B grade: 10% C grade: 20% Firewood grade: 65%"
The defendants submitted that these assessments were consistent with Cutting Edge's claims in its email to JHR that 47.7% of the sleepers collected were "redundant", assuming that meant firewood grade.
The plaintiff's expert, Mr Perry, estimated the value of the sleepers as being significantly higher than Mr Kennedy did. Cutting Edge took issue with Mr Kennedy's report on the basis that the photographs could have included sleepers from the Temora to Griffith line. As set out above, the defendants submitted that this was not possible as extraction on that line commenced after the sleepers were placed on Maryvale in early January 2016.
For the purposes of the joint expert report and the concurrent evidence in this Court, the experts agreed on the process required to grade sleepers, namely a visual inspection of all four sides and an assessment of the deterioration or lack thereof. They agreed that there is no industry standard for grading as it is based solely on visual assessment. The difference between the experts was that Mr Perry did not believe it was possible to grade from photographs unless there was a series of photographs showing all four sides of each sleeper. Mr Kennedy believed that sleepers could be graded based on photographs.

[40]

"Redundant sleepers"

I have summarised the evidence about this above at [69]-[76]. The confusion around the meaning of the word "redundant" in connection with the sleepers arose from Mr Brus' answers in cross-examination.
Mr Brus stated in his emails of 13 March and 28 June 2016 that of the 13,100 sleepers from WO 6, 3,700 were "redundant broken/part sleepers" and that of the 14,000 from WO 5, 8,500 were "redundant broken/part sleepers".
On its face, the description "redundant broken/part sleepers" could only mean that the sleepers were of a very poor quality. This assessment is confirmed by Mr Brus' assertions to JHR that he should not have to pay for "redundant" sleepers at all.
The plaintiff adduced evidence that in an earlier contract there had been an arrangement that he was not required to pay for "redundant" sleepers. The sub-contract for WO 2 (between Bathurst and Orange) stated that "sleepers that are in pieces will not attract any charge but must be removed by the purchaser". An invoice from JHR dated 30 May 2016 was said to indicate that JHR did not charge for "redundant" sleepers on the Dubbo to Orange contract. This was said to reflect the practice of the "previous manager" at JHR.
The significance of the meaning of the word is that the description of such a large percentage of the sleepers as being "redundant" cannot sit with Mr Perry's evidence about the high quality of the sleepers at Access (which in turn was said to be consistent with the quality across the corridor). It is also relevant for the next matter I address below: how would Mr Brus know what percentage of the sleepers were "redundant" if he had not undertaken at least a cursory grading of the sleepers whilst they were in the railway corridor.
Mr Perry was asked about his understanding of this term. His evidence was that he could not make any assumptions as to whether emails sent by Mr Brus to JHR indicated that some grading had been undertaken in the corridor. He said it was reasonable to conclude that the sleepers were of low value or that Cutting Edge was attempting to lower the price for commercial advantage.
Mr Kennedy's evidence was that it was reasonable to conclude that the "redundant" sleepers were of no commercial value.
The plaintiff submitted that "redundant" meant B grade or lower and relied on the evidence of Mr Perry and Mr Antunac and their assessment of the quality of the sleepers at Access and in the corridors generally.

[41]

Conclusion: "redundant" sleepers

I have already found at [250] above, that Mr Brus' evidence about this issue did not reflect well on his general credibility. He described a significant portion of the sleepers as "redundant broken/part sleepers" yet explained that this meant B grade or below. The experts agreed that a B grade sleeper had at least one sound face and edge and the other faces and edges could have some structural damage or deterioration in wood fibre quality. The experts agreed that B grade sleepers were suitable for garden edging and non-critical retaining walls. I am unable to accept that a sleeper that could be used for a non-critical retaining wall would ever be described as a "broken/part sleeper".
In his explanation for what was meant by a "redundant" sleeper (for which he believed he did not need to pay), Mr Brus relied on the previous practice of JHR. But that previous practice under the contract was that there was no requirement to pay for sleepers that were "in pieces". That is consistent with a "redundant" sleeper meaning one that was broken or in parts. Based on the evidence of both experts, these would be D grade sleepers or firewood.
I do not accept Mr Brus' evidence that "redundant" meant B grade or less. Consistent with the grading on which both experts agreed, it could only mean D grade with possibly some C grade. This is a significant issue when I turn to determine how the burned sleepers are to be graded for the purpose of assessing damages.

[42]

Was the quality consistent across the corridor?

The plaintiff's case was that the quality of sleepers was consistent across both sections of track and that the sleepers at Access Recycling were a representative sample of the whole of the corridor.
The defendants' case was that the overall quality was low, and some sections had higher quality sleepers which were selectively removed and placed at Access.
Mr Brus accepted in cross-examination that the tender price of $2.75 per sleeper was representative of the average grade of sleeper across the corridor. He accepted that he had paid a price of $6.10 per sleeper in an earlier contract but explained that was because he was willing to pay more not to have to travel as far to the relevant corridor. He denied the tender prices had anything to do with the quality of the sleepers.
Mr Brus did acknowledge that there were about 5,000 "inferior" sleepers in the Barmedman to West Wyalong corridor, which were less accessible and more deteriorated than the others because they were in a low-lying area and had not been replaced as recently. Of these, 500 to 1,000 were left in the corridor to be collected at a later time. These sleepers were retrieved after the fire, on 19-20 December 2016 and placed on Maryvale.
Mr Antunac had in fact surveyed the relevant corridors in 2015 because his company submitted a tender for the contracts (his bid was unsuccessful). He described the condition of the stacked sleepers in those sections of the corridor as a "mixed bag". He had assessed both sections of corridor for the purposes of that tender.
In the joint expert report, Mr Kennedy and Mr Perry disagreed as to whether the sleepers retrieved from different sections of the track would be of similar grades.
Mr Perry inspected the corridor in 2015 and believed at the time that the quality of the sleepers was "consistent from one end of the section to the other, in that each pile of sleepers inspected contained similar number of sleepers in each grade, proportionally". He said that both corridors would be of the same quality.
Mr Kennedy said it would be reasonable to assume that sleepers are of the same grade if all the variables are the same across different sections, including the date of installation, original species and grade of the timber, drainage, rainfall, presence of pests, timber treatment, rail traffic and maintenance. Mr Perry in his oral evidence agreed with this but said that in his experience, living nearby to the rail corridors in question, there were no drainage or pest issues that would affect the quality unevenly.

[43]

Conclusion: consistency along the corridor

Given that both Mr Perry and Mr Antunac surveyed the corridor at the relevant time, I prefer their evidence to that of Mr Kennedy, who did not directly contradict their opinions in any event. Mr Kennedy could only provide a general opinion about factors that could cause inconsistency across corridors generally. Mr Antunac described it as a "mixed bag". I am satisfied that he was the most reliable witness on that topic.
There were two aspects of Mr Perry's evidence that led me to find him to be a less reliable witness. The first was his inability to explain when or why the 6,155 sleepers came to be stored at Access. He had no records of this and became defensive when questioned about it. The second was his refusal to engage at all in the process of grading the sleepers by looking at photographs. When he was asked to do so he refused. Given that I am satisfied that it is possible to undertake that process to some extent, his refusal to assist the Court when asked to do so did not reflect well on him.

[44]

Why were some of the sleepers stored at Access?

Another aspect of the evidence which was unsatisfactory was that surrounding why, prior to the fire, Mr Brus took the bulk of the sleepers to Maryvale but decided to store 6,155 sleepers at Access Recycling in Barmedman.
Mr Brus' evidence was that he did this in mid-2015 when the trucks could not access Maryvale due to wet weather. It was submitted that this was the only reason some sleepers were stored at Access and that the quality of the sleepers at Access was the same as those placed on Maryvale.
The defendants submitted that this explanation was inconsistent with other evidence. The defendants relied on the Millara rain chart which showed that the July rainfall commenced on 10 July 2015. After the sleeper collection on 6-10 July 2015, Cutting Edge did not collect any more sleepers until February 2016. It was submitted that wet weather could not explain when and why sleepers were delivered to Access instead of Maryvale.
It was further submitted that the Court would not find that the sleepers at Access were delivered because of the wet weather and it would instead find that they were either placed there from other corridors or placed there prior to 4 June 2015, consistent with what Mrs Brus told Mr Penfold on 4 June 2015.
Mr Brus was unable to provide any evidence as to when he delivered the sleepers to Access. Based on the TRAB sheets, he had collected sleepers on 3-4 June and 6-10 July prior to the rain commencing on 10 July 2015. That is consistent with what Mrs Brus told Mr Penfold - the better sleepers were taken to Access early on in the retrieval process.
The plaintiff's case on this issue was not assisted by the fact that neither Mr Perry nor Mr Brus could produce any records explaining when or how 6,155 sleepers came to be stored at Access when all of the others were taken to Maryvale.
Having regard to the evidence of Mr Penfold, the TRAB sheets, the evidence about when the wet weather commenced and the delay between the early collections and the subsequent collections, I am not satisfied that the plaintiff took 6,155 sleepers to Access because of wet weather.

[45]

Was Cutting Edge "cherry-picking" higher quality sleepers to place at Access?

The defendants' case that Mr Brus initially selected some of the better quality sleepers and placed them at Access, either leaving the lesser quality sleepers in the corridor or taking them to Maryvale, was another basis upon which it was submitted that the grading of the sleepers at Access was not an accurate reflection of the sleepers destroyed in the fire.
Mr Brus denied that any grading took place in the corridor. His evidence was that this would be "impossible" and would have to take place at a storage site at a later date. When he was questioned as to why, if that was so, he was able to inform JHR shortly after collecting the sleepers that 3,700 and 8,500 sleepers were redundant under the respective contracts (and 80% of the sleepers under the Temora to Griffith contract), his reply was as follows: "I analysed the sleepers as I was loading them. To grade the sleeper properly, you need to be able to look at all sides of the sleeper. So as I was loading the sleepers - and the half pieces and the quarter pieces and things - I made an estimate as I was doing the loading." (emphasis added)
It was put to Mr Brus that even if a full, technical grading process was not undertaken in the corridor, Cutting Edge was nevertheless able to separate the AA and A grade sleepers from the lower grades. Mr Brus denied this.
Mr Antunac's evidence was that it was "not impossible" but "highly improbable" to move along the corridor, remove the best sleepers and store them in a safe place, before picking up the remainder. Despite this, he accepted that it was possible to conduct a visual evaluation of the quality of a stack of sleepers.
Mr Perry's evidence was that the sleepers brought to Access had a mix of low quality sleepers throughout each pile. He stated that this led him to conclude that "they were working from one end of the corridor to the other and not just, for example, picking their way through and selecting them."
Cutting Edge submitted that the evidence about sleepers being graded in the corridor was "scant". It was noted that the alleged conversation between Mr Penfold and Mrs Brus on 4 June 2015 was denied by Mrs Brus. It was further submitted that it was unlikely that sleepers were "cherry-picked" because 20% of the sleepers at Access were C grade or lower and it would not make sense for low grade sleepers to be stored at Access on the "cherry-picking" hypothesis.

[46]

Conclusion: was there cherry-picking?

I am not satisfied that the sleepers at Access were a representative sample of the sleepers at Maryvale. Their quality is wildly inconsistent with Mr Brus' estimates of how many of the sleepers were redundant and also significantly different to the assessment made by Mr Kennedy of the sleepers stored at Maryvale after the fire.
For the reasons I have already provided, I prefer the evidence of Mr and Mrs Penfold to that of Mr and Mrs Brus in relation to any relevant conversations. Despite Mrs Brus' denials, I accept that she did tell her brother on 4 June 2015 that the best sleepers had been placed at Access so that they would not be stolen. I also accept the evidence of both Mr and Mrs Penfold that on the day of the fire Mr Brus told them that he wanted to save the sleepers at the western end of the stack because they were the AA and A grade sleepers. That evidence is consistent with the earlier conversation. In this regard I note that Peter Brus, the son of Mr and Mrs Brus, also gave evidence in similar terms to his father and denied any such conversations at Maryvale on the afternoon of 18 December 2016. I am unable to accept his evidence. His evidence was of narrow compass. Given that I have already found that when confronted with a dispute between the plaintiff's lay witnesses (Mr and Mrs Brus) and the defendants' I prefer the latter, there was nothing said by Peter Brus on this discrete issue which would lead me to resile from that.
I have already found that it was possible to grade the sleepers in a limited way in situ. I am further satisfied that that is in fact what was done by the plaintiff.

[47]

Conclusion: quality of the sleepers destroyed at Maryvale

Given that I am not satisfied that the sleepers stored at Access were representative of the sleepers along both corridors, I am unable to accept the evidence of Mr Perry as to the grading of the burned (ungraded) sleepers. I am not satisfied that his suggestion that the fact that 20% of the sleepers stored at Access were C or D grade contradicts the defendants' assertion of cherry-picking should be accepted. It is consistent with some degree of grading being undertaken, albeit imperfect, which is consistent with the expert evidence about the difficulty of properly grading in the corridor.
There were also a number of difficulties with Mr Kennedy's evidence on this issue. His business was based in Queensland and he had never been to the railway corridors the subject of these proceedings. Nor did it reflect well on him that he failed to produce the material sought under subpoena. In particular, the evidence of Ms Emmott was of little value given that it ended up not being as independent as it purported to be. I have factored all of these matters into my assessment of his evidence. His assessment distinguished between the sleepers that were stacked and those that were dumped.
I have determined that the sleepers that were stacked (rather than dumped) better reflect what would have been the quality of the sleepers that were burned as they too were stacked before the fire. An inference arising from the fact that some of the sleepers taken to Maryvale after the fire were dumped rather than stacked is that the last sleepers retrieved were those of the lowest quality in relation to which there was less concern on the part of the plaintiff about theft.
I am satisfied that the photographs of the sleepers stored at Access show sleepers of significantly better quality than those that were on Maryvale after the fire. Mr Brus' evidence was that he did not cherry-pick, he did not leave the lower quality sleepers until last to collect and that the quality was uniform. I have accepted the evidence of Mr and Mrs Penfold, that Mr Brus was particularly concerned about the sleepers at the western end of the stack as they were the "A grade" sleepers. The stacking of sleepers at Maryvale commenced at the western end, moving east towards Rees Lane. Given that I am satisfied that the better sleepers were retrieved from the corridors first, with significant delay until the remaining sleepers were retrieved, it follows that the better quality sleepers were stacked at the western end.

[48]

What was the replacement cost of the sleepers and the cost of transportation to Orange?

Cutting Edge accepted that the appropriate measure of damages was the cost of the replacement of the sleepers, as determined by the number and grades of the sleepers destroyed and the wholesale market price for sleepers at the time of the loss. Neither the defendants nor Hollard suggested otherwise.

[49]

Availability and cost of replacement sleepers

Cutting Edge submitted that the best evidence of the replacement cost was the quote provided by Mr Antunac of Outback Timbers. His evidence was that during the period December 2016 to December 2017 his company had in stock approximately 350,000 second-hand railway sleepers stored at various locations throughout New South Wales. The wholesale prices for those sleepers were as follows: "AA grade: $42 A grade: $32 B grade: $21 C grade: $13 D grade (firewood): $120 per cubic metre (10 sleepers)"
Mr Kennedy's report included prices from other companies including Ironbark Demolition and Timber Recycling. Those prices were as follows in 2017/18: 1. Ironbark Demolition: "A grade: $20 B grade: $15 C grade: $10 D grade: $2" 1. Timber Recycling: "A grade: $19.50 B grade: $15 C grade: $9.50 D grade: N/A"
The defendants also relied upon the evidence of Leonie Emmott. She stated in her affidavit that in the period from December 2016 to 31 December 2017 her company, Recycled Timbers, had about 20,000 second-hand railway sleepers available for immediate purchase and it could purchase or acquire second-hand railway sleepers from another wholesaler if it did not have a sufficient quantity in stock. Ms Emmott also provided wholesale prices in 2016, which were much lower than those quoted by Mr Antunac.
In cross-examination, Ms Emmott agreed that she had not independently prepared her affidavit and that all of the information in it had been provided by Mr Kennedy because her company, Recycled Timbers, had in fact been purchased by Mr Kennedy in 2016. She did not independently know what the retail prices were in 2016 or 2017.
Cutting Edge submitted that Mr Kennedy's evidence about the cost of sleepers should be rejected because the prices were "approximate" and did not distinguish between Queensland and NSW sleepers, which are of different sizes. It was further submitted that the prices apparently supplied by Ms Emmott from Timber Recycling were in fact supplied by Mr Kennedy.
The plaintiff submitted that the evidence of Ms Emmott should be rejected for four reasons: the wholesale prices were based solely on what Mr Kennedy told her; the prices were based on the cost of whole packs from contractors and wholesalers and thus would need to be adjusted by approximately 50%; Ms Emmott and Mr Kennedy refused to produce documents in response to a subpoena seeking to establish prices for second-hand sleepers; and her evidence was unreliable generally.

[50]

Conclusion: price per sleeper

The plaintiff accepted the evidence of the defendants' witness, Mr Antunac. I too am satisfied that his evidence was the most reliable on this issue. He bid (unsuccessfully) for the same contract and thus would have had a sound understanding of what he could sell the sleepers for at that time. His estimates were slightly below those of Mr Perry but higher than those of Mr Kennedy. I have already provided my reasons for concluding that there were difficulties with certain aspects of the evidence of both of those witnesses.
Accordingly, I am satisfied that the loss should be assessed on the basis that the wholesale prices of the sleepers in 2017 were as follows: "AA grade: $42 A grade: $32 B grade: $21 C grade: $13 D grade (firewood): $120 per cubic metre (10 sleepers)"

[51]

Does firewood have a resale value?

Mr Kennedy, whose business was based in Queensland, gave evidence that in some states it had become difficult to sell sleepers as firewood due to new regulations around contaminants in firewood. He believed these restrictions applied in NSW and the ACT and that in some instances contaminated sleepers had to be diverted into landfill at the owner's cost. Mr Perry did not believe there were any such restrictions and said that less than 5% of sleepers would be classified as contaminated in any event.
There was no direct evidence that the sleepers were contaminated. I am not satisfied that there was sufficient evidence on this issue to reduce the value of the D grade sleepers below that advanced by Mr Antunac.

[52]

Cost of transportation and grading (savings for Cutting Edge)

Cutting Edge accepted that if it had purchased replacement sleepers in the wholesale market, for example from Outback Timbers, it would have been spared the cost of transporting the sleepers from Maryvale to Orange and then grading them before selling them at retail prices.
As for the cost of transportation, Robert Bennie gave evidence for the defendants and provided a quote estimating that the transportation of 18,000 sleepers from Barmedman to Orange would require 54 full trailer loads at a cost of $1,200 + GST per load, giving a total cost of $71,280.
In cross-examination Mr Bennie was asked to break down the price quoted. He explained that it was based on one truck with one driver at an hourly rate of $150, allowing three hours for travelling in one direction with one hour each to load and unload. He put his fixed cost at around $120 per hour, that being with wages of $70-$80 per hour plus fuel and other maintenance costs, leaving a profit of around $30 per hour.
The defendant further submitted that Cutting Edge would have received a total of $111,317 in benefits from purchasing the sleepers from suppliers such as Outback Timbers, calculated as follows: 1. Costs saved from not grading 18,100 sleepers ($2.49 per sleeper plus GST, as per the evidence of Mr Brus): $45,069; 2. Costs saved from not loading the sleepers at Maryvale, plus GST (per the affidavit of Mr Brus): $1,448; 3. Costs saved from not transporting the sleepers from Maryvale to Orange, plus GST: $64,800.
Hollard submitted that Cutting Edge gained the benefit of $21,318 in costs spared from grading and loading the sleepers (based on the evidence of Mr Brus) and $30,000 in transporting the sleepers from Maryvale to Orange (based on the evidence of Mr Bennie).
The plaintiff submitted that this was not an appropriate reduction. It was submitted that Mr Brus would have been able to use his own trucks and that the quote provided by Mr Bennie was not relevant to the costs Cutting Edge would have incurred. Mr Carolan submitted that the plaintiff's costs would be limited to fixed costs, deterioration, fuel and labour and that there was no evidence of what those would be.
I am not satisfied that there is no evidence of Cutting Edge's costs of transporting sleepers. In a different factual context, Mr Brus deposed that Cutting Edge's costs of retrieval included the use of a semi-trailer and driver at a rate of $120 per hour. This was consistent with Mr Bennie's evidence. His quote was based on a rate of $150 per hour for the truck and driver, of which he estimated $30 per hour was profit. Mr Bennie estimated that it would take 54 full loads to transport the sleepers at a cost of $1,200 per load + GST. Thus, at Mr Brus' estimate of $120 per hour rather than $150 per hour, the cost of transport would be $51,840. No GST would apply if Mr Brus used his own trucks.

[53]

Mitigation of loss

Expert evidence was adduced as to the availability of other contracts for the retrieval of railway sleepers after December 2016. Generally, most railway lines had been refurbished with steel or concrete sleepers. There were far fewer contracts available in 2017 and thereafter.
This evidence appeared to have been adduced by plaintiff, to show that the price of sleepers was rising due to a decrease in supply and by the defendants as part of their argument on mitigation of loss.
By their amended defence filed on 25 June 2021 the defendants claimed that Cutting Edge failed to adequately mitigate its loss by the retrieval and/or acquisition of readily available second-hand railway sleepers in 2017. In their final written submissions, the defendants initially referred to the retrieval and/or purchase but by the conclusion of the hearing appeared to resile from the former contention at [24(vi)] of their final written submissions and rely only on the purchase of sleepers in the wholesale market.
In his final oral submissions, Mr Drummond submitted that the primary distinction was between wholesale and retail prices and that while there were two ways of mitigating the loss, "the primary position [was] he could have just picked up the phone and bought them [at wholesale prices in January 2017]".
The defendants' schedules of damages did not address a scenario in which Cutting Edge obtained further contracts and then sold those sleepers at retail prices over several years. Thus, I am satisfied that when it was agreed that the appropriate measure of damages was the cost of obtaining sleepers of equivalent grades in the wholesale market in January 2017, this argument was abandoned.
Based on these findings, I would assess the damages at $221,612. I would apportion 80% of that to be payable by the defendants leaving them liable to pay the plaintiff $177,290.

[54]

THE CROSS-CLAIM

In 2016, Mr and Mrs Penfold took out an insurance policy for their farming properties with Allstate Underwriting Agency Pty Ltd as the authorised representative of Hollard for a period from 13 July 2016 to 13 July 2017. The farm insurance policy covered "all of the properties at Quandialla and Maryvale and Wallaroi". The policy was varied on two occasions before the fire on the basis of information provided by the defendants relating to changes to the insured property.
The Penfolds lodged a claim under this policy the day after the fire. By letter dated 9 March 2017, the insurer denied liability in excess of $100,000 on the basis that the sleepers insured on Maryvale were in the physical and legal control of the defendants.
I will consider the relevant clauses in that policy in some detail below but in summary, the dispute as to indemnity concerns the meaning of the phrase "physical and legal control" in the relevant exclusion clause. The defendants claim that the sleepers were not in their "physical and legal control" at the time of the fire whereas the insurer asserts that they were. Despite this, the insurer agreed to pay up to $100,000 under an additional benefit clause which provided for limited cover in respect of property not in the defendants' "physical or legal care, custody or control".
The nub of the cross-claim turned on whether, as a matter of evidence and proper construction of the policy, the sleepers were in the physical and legal control of the defendants. I shall first summarise the evidence as to the making of the claim and the terms of the arrangement by which the defendants agreed to store the plaintiff's sleepers.

[55]

Filing the claim

Mr Penfold agreed that he and his wife submitted the claim the day after the fire because Mr Brus was demanding that he pay for them. Mrs Penfold submitted the claim form based on information provided by her husband. In answer to the question "[h]ave you admitted responsibility of the liability for the damage or injury?" Mrs Penfold ticked "[y]es" box and provided the following details, "[t]he initial grass fire was started by us." In answer to the question "[d]o you consider that you are responsible for the damage or injury sustained by the other party?" Mrs Penfold ticked "[y]es" and stated, "[i]f there wasn't a fire there wouldn't be the loss of the sleepers."
Mrs Penfold was cross-examined on the answers she provided in the insurance claim. She accepted that when she answered "yes" to the question whether liability is admitted she could have meant "no" and said she was not sure if they had told anyone that it was their fault the sleepers were destroyed. Her evidence was that it was her husband who had told her that he noticed a "crackle" of grassfire beneath him when he was welding on top of the silo and that he tried to put it out. She accepted that the other details in the claim about the water cart and the whirly wind were based on what her husband told her.
She accepted that as at 13 July 2016, when the certificate of insurance was issued, she knew that Mr and Mrs Brus had already stored sleepers at Maryvale. She also accepted that they were not included in the types of property specifically insured and that nowhere in the document had she disclosed that there were railway sleepers stored on Maryvale that belonged to someone else.
Mrs Penfold acknowledged that during the same period of insurance they were issued with updated certificates on 31 October and 12 December 2016 because they notified the insurer of new vehicles they had purchased. She could not recall whether either she or her husband asked Mr and Mrs Brus whether they had insured the sleepers on Maryvale. She also could not recall whether Mr Brus demanded at the time of the fire that they pay for the sleepers, although she accepted that he did make that demand at some stage.

[56]

What was the nature of the arrangement to store the sleepers?

I have summarised the evidence of Mr and Mrs Brus and Mr and Mrs Penfold as to the nature of the agreement above at [77]-[82]. As with much of the evidence, there was little common ground between the respective cases. Mr and Mrs Brus claimed that Mr Penfold expressly offered the use of his land for the storage of 30,000 to 40,000 sleepers for a number of years. Mr Penfold denied this. His recollection was that his mother told him about the contract and had asked whether they could be stored at Maryvale. He was told it was for three months - enough time to grade and sell the sleepers. He told Mrs Brus that he did not go to Maryvale very often so the Bruses would have to be fully responsible for the sleepers. Mrs Brus denied this conversation.
Mr Penfold's evidence was that he never asked his sister and/or Mr Brus whether they had insured the sleepers. Mr Brus was asked about his understanding of the Penfolds' insurance cover as well. He acknowledged that there was some risk to the sleepers on the property given that there would be harvesting on the property. He was asked why, in those circumstances, he did not insure the sleepers to which he responded, "[i]t's difficult to insure something on someone else's property." He stated that he did ask about it but never lodged an application for insurance. He was then asked this: "Q. And when you knew that it would be very difficult for you to insure these sleepers, did you speak to Ray Penfold and say, 'I hope you've insured my sleepers that I'm storing on your property'? A. No, I did not."
I have considered the relevance of Mr Brus' evidence that he was told that it would be difficult to insure his property while it was stored on someone else's land. There was however no identified impediment to the defendants insuring the sleepers under their policy. The defendants never did this. Although it is not necessary for me to make any finding about this, it seems that both parties failed to turn their minds to the question.
I have already found that many aspects of Mr Brus' evidence were unsatisfactory; in particular he did not always do his best to answer questions and seemed quite annoyed to have to explain himself, even when his answers were contradicted by his own contemporaneous documents. The nature of the family dynamic prior to the fire was never explored in the evidence but it seems to me somewhat unlikely that Mr Penfold would have offered, without any encouragement from anyone (such as his mother) to allow up to 40,000 sleepers to be stored on his property for a period of years.

[57]

The terms of the policy: The 2012 and 2015 PDSs

A significant amount of court time was spent on the factual dispute as to whether the applicable farm insurance Product Disclosure Statement ("PDS") was the 1 July 2012 version produced by Mr Penfold or the 19 October 2015 version produced by the insurer. The insurance contract was entered into in 2016 so, on the face of it, the relevant PDS at that time was the 19 October 2015 version.
Mrs Penfold's evidence in cross-examination was that she could not recall whether they received the 2015 PDS before they took out their insurance in 2016 nor whether they received a PDS with any policy over the years. She stated that the PDS that was attached to her husband's affidavit would have come from their insurance broker, however she was unsure whether it bore a 2012 date nor whether she read the words regarding farm liability in a PDS before taking insurance policy in 2016. The following exchange took place in cross-examination: "Q. If you turn over the page to page 79, under the heading, Farm Liability, did you understand that this part of the certificate related to the terms and conditions of the policy, or the PDS? A. Which section? Q. Farm Liability, well, in fact, all of them. You understood that this certificate had to be read together with the product disclosure statement, or the policy, didn't you? A. I - I'm unsure of that. Q. If I take you back to page 78. A. Yeah. Q. At the very top, under, 'Insurance certificate applicable from 22/07/2016,' it says: 'Please read carefully the important notices attached, including your duty of disclosure. This insurance certificate should be read in conjunction with the product disclosure statement, PDS. If you do not have a copy of the PDS, contact us to obtain another copy.' DRUMMOND: Your Honour, can I object? HER HONOUR: Yes, Mr Drummond? DRUMMOND: Your Honour, there is no pleaded case, as I understand it, from the cross‑defendant who makes these questions relevant. HER HONOUR: I must say, I was wondering that myself. Ms Peden, what do you say? PEDEN: Your Honour, if I might be given some leeway. It's not going to go very far, rather than asking the witness to step outside so we can have that conversation."
There was no further discussion about the PDS following the cross-examination of Mrs Penfold. I pause here to note that I understood the basis of the objection to be relevance given that Hollard had not raised a breach of the duty to disclose in its defence to the cross-claim. That was the basis upon which I upheld this objection.

[58]

The differences between the 2012 and 2015 PDS

Both PDSs set out certain definitions in cl 1. "Policy" is defined in both PDSs as meaning "this document together with the insurance certificate and any applicable endorsements". "Insurance Certificate" (which is the insurance certificate applicable as at 12 December 2016) is defined as meaning "the current insurance certificate which has been numbered and issued by or on behalf of us". "Property damage" is defined in the farm liability section of the policy to mean "physical damage to, loss or destruction of tangible property including any resulting loss of use of that property".
The 2015 PDS uses slightly different language to the 2012 PDS as to what is covered and not covered under the heading "Farm Liability" in the policy. Clause 2 pertains to "what we cover" and clause 3 pertains to "Additional Benefits". The differences in clauses 2 and 3 are set out below.
The wording in the 2012 PDS is as follows: "2. What we cover We will cover your legal liability to pay compensation for: - personal injury; - damage to property that is neither owned by or leased or rented to you or not in your physical control; which happens withing the geographic limits during the period of insurance and is caused by an occurrence in connection with your farm business. We do not cover damage to property: - owned by or leased or rented to you; - not belonging to you but in your physical and legal control." (emphasis added)
The key words are whether the railway sleepers were in the "physical control" or the "physical and legal control" of the defendants. For reasons I have provided below, I am satisfied that the terms of cl 2 must be read with those of cl 3, on the same page, which provides an additional benefit, inter alia, of up to $100,000 for "property in your physical and legal control". That clause is in these terms: "3. Additional benefits … Property in your physical and legal control We will cover your liability for damage to: 1. premises (including landlords fixtures and fittings) which are leased or rented to you; 2. premises (or their contents) not owned, leased or rented by you but temporarily occupied by you for work therein; 3. vehicles (not belonging to or used by or on your behalf) in your physical or legal control where the property damage occurs while the vehicles are in a car park owned by you, unless you own or operate the car park for reward; 4. property (excluding any vehicle which is registered or which is required under any legislation to be registered or property under any lease or rental agreement or property which is in temporary hire of loan to you for a period exceeding 30 days) in your physical or legal control. Property includes livestock not owned by you but in your possession for the purpose of agistment. The maximum amount payable for any one animal is $10,000. The maximum indemnity payable for any one occurrence will be $100,000 or the amount stated on your Insurance Certificate." (emphasis added)

[59]

Which is the applicable PDS?

There was a belated objection to Hollard's tender of the 2015 PDS by Mr Drummond for the defendants in closing submissions.
As is the usual practice, a court book was provided to my chambers prior to the hearing and was used for the purposes of cross-examination and submissions. Objections to evidence were also emailed to my chambers prior to the hearing. I dealt with those objections on the first day of the hearing. No objection was made on behalf of the defendants to the 2015 PDS. In opening submissions Ms Peden SC relied on the wording in the 2015 PDS and Mr Drummond relied on the wording in the 2012 PDS.
I indicated during the hearing that I would need to know before the hearing finished whether the parties relied upon all of the documents in that court book and that I would deal with additional objections at the end of the evidence. Both the 2012 and 2015 PDSs were in the court book.
As soon as the evidence closed, Mr Drummond objected to Hollard's tender of the 2015 PDS. He contended, for the first time, that the insurer could not establish that the 2015 PDS was the relevant document. He also objected to the insurer being given leave to re-open its case to meet his belated objection.
Mr Drummond relied upon ss 11(9),(10) and 58(2) of the Insurance Contracts Act 1984 (Cth) ("ICA") to submit that the applicable PDS was the 2012 version. He submitted that Hollard had failed to establish that the 2015 PDS was ever issued or served on the defendants. He noted the terms of s 58 of the ICA which provide as follows: 58 Insurer to notify of expiration of contracts of general insurance … (2) Not later than 14 days before the day on which renewable insurance cover provided under a contract of general insurance (in this section called the original contract ) expires, the insurer shall give to the insured or a person acting as agent for the insured a notice in writing informing the person to whom the notice is given of the day on which and the time at which the cover will expire and whether the insurer is prepared to negotiate to renew or extend the cover. (3) Where: (a) an insurer has failed to comply with subsection (2); and (b) before the original contract expired, the insured had not obtained from some other insurer insurance cover to replace that provided by the original contract; then, by force of this section, there exists between the parties to the original contract a contract of insurance that provides insurance cover as provided by the original contract… … (emphasis in original)

[60]

Were the sleepers under the "control" of the defendants at the time of the fire?

[61]

Defendants'/cross-claimants' submissions

The defendants' denied liability to the plaintiffs on the basis that the agreement to store the sleepers was a "bare licence agreement", "at no cost" and that they were at all times in "the care, custody and/or control" of Mr Brus and Cutting Edge.
Similarly, the cross-claim is brought against the insurer on the basis that the defendants assert that the sleepers were not in their physical legal control or their physical and legal control at the time of the fire.
The insurer, on the other hand, claims that the sleepers were clearly in the custody and control of the Penfolds as operators of the farming business on Maryvale. The insurer accepts that it is liable up to $100,000.
Mr Drummond relied on the evidence that the Penfolds never attempted to remove any of the sleepers in support of its contention that never exercised any legal and/or physical control over them. Although it was accepted that the defendants had rights as the operators of the farming business on Maryvale to touch, move or relocate the sleepers, they did not. Nor, it was submitted, did they seek to exercise their right to dispose of or remove any of those sleepers from Maryvale.
As for the relevant principles for construing insurance contracts, Mr Drummond relied upon the decisions in McCann v Switzerland Insurance Australia Limited (2000) 203 CLR 579; [2000] HCA 65 per Gleeson CJ at [22] and CGU Insurance Limited v Porthouse (2008) 235 CLR 103; [2008] HCA 30 per Gummow, Kirby, Heydon, Crennan and Kiefel JJ at [43]-[44] in support of a general submission that construction of the insurance contract must give effect to the purpose of the policy, the commercial circumstances which the policy addresses and the objects which the contract of insurance intends to secure.
Mr Drummond also relied upon Junemill Ltd (in liq) v FAI General Insurance Co Ltd [1999] 2 Qd R 136 at 268; [1997] QCA 261 in which Fryberg J (with whom Fitzgerald P and McPherson JA agreed) applied and approved the following passage from the judgment of McLachlin J in Reid Crowther & Partners Ltd v. Simcoe & Erie General Insurance Co. [1993] 1 S.C.R. 252 at 268-9; 99 D.L.R. (4th) 741 at 751-752: "In each case the Courts much examine the provisions of the particular policy at issue (and the surrounding circumstances) to determine if the events in question fall within the terms of coverage of that particular policy. This is not to say that there are no principles governing this type of analysis. Far from it. In each case, the courts must interpret the provisions of the policy at issue in light of general principles of interpretation of insurance policies including but not limited to: (1) the contra proferentem rule; (2) the principle that coverage provisions should be construed broadly and exclusion clauses narrowly; and (3) the desirability, at least where the policy is ambiguous, of giving effect to the reasonable expectation of the parties."

[62]

Insurer's submissions

Ms Peden, on behalf of the insurer, submitted that the sleepers stored on Mr Penfold's land were in the defendants' "physical and legal control" and their "physical or legal care, custody or control". She submitted that these expressions, properly construed and applied, are relevantly congruent and co-extensive. It was submitted that the cl 2 exception operated to exclude property damage to the sleepers and that the item 4 benefit provided limited cover for property not in the defendants' "physical or legal care, custody or control".
As for the relevant principles to apply in construing an insurance contract, it was submitted that the principles relied upon by the defendants as to the proper construction of an insurance contract (extracted above at [441], [444]) had been superseded in the last 22 years. Ms Peden submitted that the relevant principles were to be derived from the decisions of the High Court concerning the construction of commercial agreements. The insurer noted the summary of principles set out in Electricity Generation Corporation v Woodside Energy Limited (2014) 251 CLR 640; [2014] HCA 7 at [35] per French CJ, Hayne, Crennan and Kiefel JJ, the principles in Onley v Catlin Syndicate Ltd as the Underwriting Member of Lloyd's Syndicate 2003 [2018] FCAFC 119; (2018) 360 ALR 92 at [33] and MOS Beverages Pty Ltd v Insurance Australia Ltd trading as CGU Insurance [2020] FCA 1716 per Allsop CJ at [18].
As to the meaning of "control" and "care", Hollard relied upon passages from D Derrington and R Ashton, The Law of Liability Insurance (3rd ed, 2013 LexisNexis Butterworths) at [10.86]-[10.88].
Ms Peden also noted the similarity with the facts in NH Ins Co v Abellera 6 Wn.App 650, 495 P.2d 668 (1972), which is discussed further below.
Hollard further relied upon the fact that on 18 October 2019, after these proceedings were commenced by the plaintiff, Mr Penfold demanded the removal of the sleepers, threatening legal action under the Uncollected Goods Act 1995 (NSW). The letter requested the removal of the sleepers from Maryvale by 31 October 2019 and stated that an order would be sought pursuant to the Uncollected Goods Act to remove the sleeper's at Cutting Edge's cost should it fail to do so. Cutting Edge responded on 23 October 2019 requesting an extension of time, which was given until 15 November 2019. I shall consider the relevance of this below.

[63]

Consideration

I am satisfied that the relevant principles are those identified by the insurer. The preferred construction is that which supplies a congruent operation to the various components of the whole of a policy of insurance. As French CJ, Hayne, Crennan and Kiefel JJ observed in Electricity Generation Corporation v Woodside at [35]: "… The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean. That approach is not unfamiliar. As reaffirmed, it will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract. Appreciation of the commercial purpose or objects is facilitated by an understanding 'of the genesis of the transaction, the background, the context [and] the market in which the parties are operating'. As Arden LJ observed in Re Golden Key Ltd, unless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption 'that the parties … intended to produce a commercial result'. A commercial contract is to be construed so as to avoid it 'making commercial nonsense or working commercial inconvenience'." (footnotes omitted)
As the Federal Court relevantly observed in Onley v Catlin Syndicate at [33]: "It goes without saying that a construction that avoids capricious, unreasonable, inconvenient or unjust consequences, is to be preferred where the words of the agreement permit."
More recently, Allsop CJ in MOS Beverages Pty Ltd v Insurance Australia Ltd trading as CGU Insurance [2020] FCA 1716 provided a useful summary of the principles in the context of insurance policies at [18]. After referring to the relevant authorities, including Wilkie v Gordian Runoff Limited (2005) 221 CLR 522; [2005] HCA 17 ("Wilkie") his Honour noted the importance of the commercial purpose in the interpretation and construction of a policy and went on to state: "The principles need not be restated fully here, but it is important to note that the Policy is to be given a businesslike interpretation, paying attention to the language used by the parties in its ordinary meaning, and to the commercial purpose and object of the contract, in the context of the surrounding circumstances, including the market or commercial context in which the parties are operating, by assessing how a reasonable person in the position of the parties would have understood the language."

[64]

Interest

The insurer submitted that I should not award interest on any damages payable. Section 100 of the Civil Procedure Act 2005 (NSW) provides the Court with a discretion to award interest. It was submitted that the unreasonable delay in this matter militated against such an order. That delay was occasioned by the plaintiff requiring further time to source expert evidence on its loss of profit, which was never adduced. I granted an adjournment based on the plaintiff's need to obtain this evidence which led to an earlier trial date of 17 August 2020 being vacated: Cutting Edge Services Pty Ltd v Raymond & Therese Penfold [2020] NSWSC 1012.
It was submitted that the significant delay and vacation of the first hearing date ought not be a burden imposed on the defendants/cross-defendant by way of an award of interest. It was further submitted that the cross-defendant ought not be liable for interest on any sum up to $99,000 by reason of its admission of liability to that sum.
Given the findings I have made, I do not need to consider the second part of this submission but the question of interest payable on the amount owed by the defendants to the plaintiff remains relevant.
The defendants made no submission either way as to whether they should be liable for any interest payable on the damages sum beyond the date of the hearing that was vacated. In those circumstances I propose to hear the parties further on that issue.

[65]

Costs

The final question is that of costs. Section 98(1)(a) of the Civil Procedure Act provides that costs are in the discretion of the Court. Section 98(1)(b) provides that the Court has "full power to determine by whom, to whom and to what extent costs are to be paid". This discretion is subject to the qualification that it "must be exercised judicially in accordance with established principle and factors directly connected with the litigation": Oshlack v Richmond River Council (1998) 193 CLR 72; [1998] HCA 11 at [65], per McHugh J. Among the fetters on the discretion to award costs are the rules of the court contained in Part 42 of the Uniform Civil Procedure Rules 2005 (NSW) ("UCPR"). The usual rule is that costs follow the event, unless it appears to the Court that some other order should be made: UCPR, r 42.1.
On this basis, I would order that the cross-claimant pay the cross-defendant's costs and, in the absence of evidence of any rejected offers of compromise, costs would be payable on the ordinary basis.
As for the payment of costs by the defendants to the plaintiff, I have ordered damages in an amount less than $500,000. Rule 42.34 of the UCPR provides that where a plaintiff in Supreme Court proceedings obtains judgment for less than $500,000, the Court may make an order for costs but ordinarily will not unless the Court is satisfied that the commencement and continuation of the proceedings in the Supreme Court, rather than the District Court, was warranted. The relevant principles concerning this rule were discussed by the Court of Appeal in Benson v Rational Entertainment Enterprises Ltd (No 2) [2018] NSWCA 148 (Beazley P, Leeming JA, Emmett AJA) and Port Macquarie-Hastings Council v Diveva Pty Limited [2017] NSWCA 97 the Court of Appeal (Payne JA, Beazley A/CJ and Simpson JA agreeing).
In the absence of any submissions on this question, I propose to hear the parties further on the question of costs as well.

[66]

ORDERS

The Court orders: 1. Judgment for the plaintiff against the defendant in the amount of $177,290 plus interest. 2. The cross-claim against the cross-defendant is dismissed. 3. All questions of costs and interest are reserved pending written submissions by the parties.

[67]

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: 15 October 2021

(2009) 75 NSWLR 649

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