El-Kabbout v Insurance Australia Ltd t/as NRMA Insurance

Supreme Court of NSW|2016-02-25

Judgment

HER HONOUR: This is an appeal from the decision of her Honour Local Court Magistrate O'Sullivan dated 17 June 2014. In the Local Court proceedings, the plaintiff sued the defendant, Insurance Australia Ltd, because it denied an insurance payout to him for a claim made after he drove his Lexus vehicle into an area that was affected by flash flooding. The Magistrate entered judgment in favour of the defendant.
By summons filed 20 April 2015, the plaintiff relevantly seeks the following orders: firstly, that leave to appeal from the whole of the decision of Magistrate O'Sullivan be granted; secondly, that the appeal be allowed; thirdly, that the judgment of the Magistrate be set aside; fourthly, verdict for the plaintiff in the Local Court proceedings; fifthly, that the defendant pay to the plaintiff the sum of $60,000; sixthly, interest pursuant to s 100 of the Civil Procedure Act 2005 (NSW); and finally, in the alternative to the fourth and fifth orders, that the proceedings be remitted to the Local Court to be determined in accordance with law.
The plaintiff in this court is Wassim El-Kabbout, who was the plaintiff in the Local Court proceedings. The defendant in this court is Insurance Australia Ltd t/as NRMA Insurance, who was the defendant in the Local Court proceedings.
The plaintiff relied upon four affidavits of his solicitor Saba El-Hanania dated 17 April 2015, 30 June 2015, 9 July 2015 and 15 July 2015 and the affidavit of Mohamad Issa dated 14 July 2015.

The explanation for delay

On 17 June 2014, the Magistrate handed down her decision. On 20 April 2015, the summons was filed. Allowing for the filing period of 28 days, the delay was approximately nine months. The explanation for the delay has been provided by the plaintiff's solicitor, not the plaintiff himself. This is not satisfactory as the plaintiff should have personally provided the explanation as he is the one in the best position to do so. The solicitor only can explain the matters that are within his knowledge. The explanation is summarised below.
On 23 June 2014, the plaintiff's solicitor, Mr El-Hanania, prepared a notice of change of solicitor. On 2 July 2014, Mr El-Hanania's firm, Saba Lawyers, sent an email to the plaintiff's former solicitor, Mr Carmody, seeking an itemised invoice and copy of the fee agreement between the plaintiff and Mr Carmody's firm. Mr Carmody exercised a lien over the file. On 8 July 2014, the plaintiff provided Mr El-Hanania with a copy of the insurance policy and record of interview with the defendant's representative.
Between 11 September 2014 and 11 October 2014, the plaintiff was overseas. During October 2014, the plaintiff's solicitor tried unsuccessfully to obtain the transcript of the proceedings in the Local Court.
On 31 October 2014, the plaintiff obtained the file from Mr Carmody but the transcript of the proceedings in the Local Court of 27 March 2014 was missing. On 11 November 2014, that transcript was ordered. During November 2014, Mr Byrne of counsel was asked if he was able to assist with the appeal. On 14 December 2014, Mr Byrne emailed the plaintiff's solicitor setting out the procedure on appeal and what steps would be required to be taken.
In January 2015, the transcript of 27 March 2014 became available to Mr El-Hanania. On 13 March 2015, a draft opinion with regard to the prospects of the appeal was forwarded by Mr Byrne to Mr El-Hanania. On 25 March 2015, a telephone conference between the plaintiff, Mr El-Hanania and Mr Byrne took place.
On 10 April 2015, a draft summons for leave to appeal with a draft affidavit was provided by Mr Byrne to Mr El-Hanania. On 20 April 2015, the summons was filed together with Mr El-Hanania's affidavit of 17 April 2015 explaining the delay.
Counsel for the defendant submitted that there is little, if any, explanation for the delay. So far as prejudice is concerned, the defendant submitted that the prejudice to it is having the finality of the decision undermined. While the plaintiff's solicitor in his explanation set out what he has done, there is no explanation from the plaintiff as to when he gave instructions concerning why there was a delay of nine months. In my view this delay is a lengthy one. The plaintiff's approach to lodging an appeal can best be described as a casual one. It is my view that the plaintiff's explanation for delay is not satisfactory.
I turn to consider whether the plaintiff has a reasonably arguable case on appeal.

Grounds of appeal

The plaintiff appeals from the whole of the decision of her Honour Magistrate O'Sullivan on the following grounds:
The court below erred in law by failing to provide any or sufficient reasons for holding that: (a) the plaintiff breached: i. the express condition of the policy of insurance between the plaintiff and defendant ("the policy") that he be truthful and frank in connection with the claim he made on the policy; and ii. the statutory term incorporated in the policy pursuant to s 13 of the Insurance Contracts Act 1984 (Cth) that he act with the utmost good faith; and (b) in accordance with s 54(1) of the Insurance Contracts Act, the defendant's liability should be reduced to nil. (Failure to give reasons).
The Court erred in law in holding that the plaintiff failed to satisfy the onus of proving his claim in the Local Court proceedings by: (a) misapplying the decision of the Court of Appeal in Hammoud Brothers v Insurance Australia Ltd [2004] NSWCA 366; and (b) taking into account irrelevant matters.
The court below erred in law by failing to provide sufficient reasons for holding that the plaintiff failed to satisfy the onus of proving his claim in the proceedings below. (Failure to give reasons).
Counsel for the defendant submitted that all the grounds of appeal have low prospects of success.

The Local Court proceedings

By statement of claim filed in the Local Court, the plaintiff sued the defendant because it denied an insurance payout to him for a claim he made after he drove his Lexus vehicle into an area that was affected by flash flooding (J [1]). On 24 August 2012, the defendant denied indemnity. The plaintiff's statement of claim in the Local Court proceedings was before this Court, however the defendant's defence was not.
According to the statement of claim, the plaintiff was the owner and driver of a Lexus vehicle. On 29 January 2012, the plaintiff entered into a comprehensive motor insurance policy with the defendant in relation to the Lexus vehicle. The agreement provided cover for the Lexus vehicle for accidental damage caused by a flood or storm and that the defendant would pay the plaintiff an agreed value on the policy statement if the vehicle was a total loss. On 18 April 2012, the Lexus vehicle became stranded in flash flood waters at Ashford Road, Milperra and was subsequently flooded. On 19 April 2012, the plaintiff lodged an insurance claim with the defendant under the policy of insurance. On 24 August 2012, the defendant denied the plaintiff's claim. The plaintiff claimed $60,000 pursuant to the contract, plus interest and costs.

The Lexus

In February 2011, the plaintiff purchased a 2007 Lexus GS45h ("the Lexus") from Thoai Nguen. The Lexus was bought in a stripped condition. Registration papers indicated a sale price of between $5,000 and $10,000, although the plaintiff suggested a sale price of $15,000. In July 2011, the plaintiff's father acquired the Lexus from the plaintiff allegedly for $50,000. In January 2012, the plaintiff re-purchased the Lexus from his father allegedly for $60,000. On 29 January 2012, the plaintiff entered into a policy of insurance with the defendant for insuring the Lexus for an agreed amount of $60,000 (J [2]). Thus the Lexus had increased in value from January 2011 to January 2012 from between about $5,000 - $10,000 to $60,000.

The hearing in the Local Court

The proceedings were heard in the Local Court on 11 December 2013, 7 February 2014 and 27 March 2014.
At trial, it was common ground that there was a flash flood on Ashford Road, Milperra on 18 April 2012 (J [2]). While the experts agreed that there was fluoride in the water in the car, they were unable to conclude that the water was Sydney tap water (J [4]).

The Magistrate's reasons

In her written reasons dated 17 June 2014, the Magistrate set out the law, saying the Court could only award a remedy under a contract, including a policy of insurance, after it had been satisfied that the plaintiff had established his entitlement on the balance of probabilities (J [5]). Her Honour also stated that the Court must also be satisfied, on the balance of probabilities, that the plaintiff had made his claim and that the circumstances leading up to the claim were truthful and credible (J [6]).
So far as truthfulness and credibility of the plaintiff was concerned, her Honour recorded, at [9] and [10]: "9 It has been submitted on behalf of the Defendant that the Court cannot be satisfied that the Plaintiff's claims are truthful and credible because throughout his cross-examination, the Plaintiff: (i) framed vague responses; (ii) demonstrated selective memory recollection; (iii) gave inconsistent evidence with matters he had deposed on other occasions; (iv) when asked innocuous questions, evaded giving truthful, frank and reliable answers; and (v) demonstrated to have behaved dishonestly in respect of matters not germane to the litigation but significant enough to treat his motivations with scepticism. 10 The Defendant took the Court to the following examples: The source of the car: (i) Throughout the cross-examination the Plaintiff often framed vague responses, but with regard to the source of the car, he was particularly evasive. (ii) The Plaintiff stated both to investigators and during cross-examination that he could not remember how he had discovered that the Lexus was for sale. (iii) … Mr El-Kabbout is particularly evasive about whether or not he called Mr Nguen in relation to information he received that the parts missing from the Lexus may have been the subject of a failed insurance claim. Mr El-Kabbout made no attempt to call Mr Nguen to give evidence in these proceedings. The purchase price of the car: (i) On the application for registration for the Lexus, the recorded sale price or market value of the vehicle was noted as $10,000. Mr El-Kabbout's signature also appears under a price recorded as $5,000 (Ex.4). The Plaintiff's statement indicated the purchase price of the vehicle was $15,000. No attempt was made to call any evidence to corroborate details regarding the purchase of the car. The selling and repurchase of the car from the father: (ii) (i)The Plaintiff's evidence in relation to selling the car to his father for $50,000 and then repurchasing it approximately 6 months later for $60,000 is implausible and not supported by any corroborating evidence whatsoever. No attempt was made to call any evidence to corroborate details regarding the sale or repurchase of the car. (iii) (ii)The Plaintiff gave vague responses to any questions regarding the amount the car was bought for and has no record of any receipts revealing the exact or even estimated value of any repairs. No attempt was made to call any evidence to corroborate the value of the repairs carried out on the Lexus. The route taken and the reason for being in the area on the day of the incident: (i) The Plaintiff was vague and evasive during question about the route he took on the night of the incident and hi (sic) reason for being in the area. When asked about why he took an indirect route to Green Street, the Plaintiff said that he had missed the turn because of the weather and the fact it was dark. He was also vague about what route he would normally take to his brother's workshop, a place he should have been very familiar with. Despite having been interviewed twice by investigators, it was not until the Plaintiff was cross examined that he gave evidence that he had missed then turn (sic). Flood movements: (i) The Plaintiff's evidence on his movements during the flood tends to indicate a concocted story. He was not able to recall, when questioned by investigators, whether he climbed through the car window or opened the door to get out of the car. (ii) The Plaintiff did not make any telephone calls to anyone on the night of the incident to say that he had been involved in the incident. (Ex10). Dishonest tax evasion and false declarations: (i) Under cross examination, the Plaintiff admitted to avoiding paying tax when he can. He admitted that he did not declare any income from work that is paid in cash and also admitted that the majority of the work he does is paid for in cash. He also admitted making false declarations by signing tax returns that declare that the information in the form is correct despite knowing otherwise. (ii) The Plaintiff also admitted to signing false declarations regarding the registration of the Lexus. Failure to call corroborating evidence (i) The Plaintiff up until 17 January 2014 did not adduce any evidence of any persons to corroborate the circumstances of the vehicles purchase or value of improvements nor the manner of the damage. This is despite it being asserted that there was a passenger in the vehicle at the time of the incident. In Sullivan v Sullivan 2006 NSWCA 312 Hodgson AJA (with whom McColl JA agreed) commented that: … Where there is uncertainty due to paucity of evidence, that uncertainty should generally be resolved adversely to the party that could have and should have called that evidence."
I accept that at [9] and [10] the Magistrate was recording the defendant's submissions as to the plaintiff's truthfulness and credibility. Her Honour did not specifically say she accepted the submissions made by the defendant, nor did she say she rejected them. However, her Honour did specifically adopt some of these submissions when she made her findings on the plaintiff's truthfulness and credibility in relation to the alleged accident.
The approach I have adopted in examining the Magistrate's reasons takes into account that the Court should read the Magistrate's decision as a whole and not in isolation. This Court "should not read the reasons of the decision maker with an eye finely tuned for error": McGinn v Ashfield Council [2012] NSWCA 238 per McColl JA at [17] (Sackville AJA and Gzell J agreeing) and Walsh v Parramatta City Council [2007] NSWLEC 255; (2007) 161 LGERA 118 (at [67]) per Preston CJ, citing Minister for Immigration and Ethnic Affairs v Wu Shan Liang [1996] HCA 6; (1996) 185 CLR 259 at 291.
At [11] to [12] the Magistrate recorded the plaintiff's submissions as follows: "Plaintiff's case 11 The Plaintiff submits that there has been no dishonesty and that the Plaintiff has merely conducted himself in a somewhat unconventional manner, unlike the way a barrister, for example, might conduct him or herself when purchasing a vehicle. 12 The Plaintiff submits that there is independent evidence that there was in fact a flood on the night in question and that vehicles were caught in the flood waters and that there is no reason to doubt the Plaintiff's version. The fact that there was a flash flood in the area is not in dispute."
At [13] to [15] her Honour dealt with submissions and the authority of Hammoud Brothers Pty Limited v Insurance Australia Ltd [2004] NSWCA 366 ("Hammoud Brothers"). This is a separate ground of appeal so I shall deal with this part of her Honour's reasons separately.
At [16] to [17] her Honour stated her findings in relation to the plaintiff's truthfulness and credibility as follows: "16 The evidence given by the Plaintiff disclosed a very casual approach to book keeping and record keeping. He was also unsure about some of the details regarding the actual flood and how he got out of his vehicle. In my view he was evasive and inconsistent in the evidence he gave but was very frank about his dishonesty when it came to declaring his income to the Commissioner for Taxation. He was also inconsistent in the basic details relating to how he came to buy the Lexis and how much he paid for it. He provided no evidence regarding how much he spent on improvements nor did he make any attempt to obtain receipts. 17 As to corroborating his version of events, he made no attempt to bring the passenger, Mohammad Issa to Court until the third day of evidence. He displayed very little interest in corroborating any of the evidence he gave in Court or in answering questions asked by the Defendant's investigators."
Her Honour concluded at [18]: "18 The onus is on the Plaintiff to prove his case and to satisfy the evidentiary burden that not only the accident happened but that the circumstances leading up to the accident are truthful and credible. Given the evidence before me I have no confidence that the Plaintiff's version is the truth. The Plaintiff has not proved his claim."
It is more convenient that I start with appeal ground 2, followed by grounds 1 and 3.

Consideration of Hammoud Brothers - Appeal ground 2

Counsel for the plaintiff submitted that the Magistrate erred in law by firstly, holding that the plaintiff failed to satisfy the onus of proving his claim in the Local Court proceedings by misapplying the decision of the Court of Appeal in Hammoud Brothers; and secondly, taking into account irrelevant matters.
In Hammoud Brothers, the Court of Appeal recognised that a defendant insurer is entitled to rely on the plaintiff satisfying the evidentiary burden that not only the accident happened but the circumstances leading up to the accident was truthful and credible. In this respect the insurer need not plead deliberate concealment or a deliberate falsity of evidence.
In Hammoud Brothers, the Court of Appeal (per Bryson JA with whom Ipp and Tobias JJA agreed), in dismissing the appeal, stated at [10], [24] and [26]: "10 ...[T]here was a burden on the appellant to prove not only what it claimed were the events themselves, but also all facts and circumstances which tended to make its evidence and its claim credible. … … 24 … In my understanding however, the Trial Judge's finding was not based on any direct inference [of fraud or deliberate involvement], but on overall lack of confidence in the evidence given on behalf of the appellant in view of a cumulation of apparent anomalies, none of which in the Court's view could be reasonably regarded as important if it existed in its own. … 26 It is important to keep in mind that the respondent did not bear any onus of proof on the appellant's claim that the vehicle was stolen. The responsibility of making a finding based on the facts was a responsibility of the Trial Judge. There is every indication that his Honour took this responsibility with appropriate seriousness. It was open to the Trial Judge and indeed it was his Honour's duty to come to a view about whether evidence tendered in support of matters in respect of which the appellant bore the onus of proof was reliable, and no rule of law prescribes that a Trial Judge must find satisfactory and accept evidence given by a party which bears the onus of proof."
The Magistrate in her written reasons at [13] to [15] had this to say about Hammoud Brothers: "13 The Defendant has taken me to the Court of Appeal decision in Hammoud Brothers Pty Limited v Insurance Australia 2004 NSWCA 366. In this case the Court of Appeal recognised that a Defendant insurer is entitled to rely on the Plaintiff satisfying its evidentiary burden that not only the accident happened but that the circumstances leading up to the accident are truthful and credible. The Defendant need not plead deliberate concealment, or a deliberate falsity of evidence. The Court stated at para 10 "...there is a burden on the appellant to prove not only what it claimed were the events themselves, but also all facts and circumstances which tended to make the evidence credible." 14 In Hammoud the Plaintiff was not successful. This was not because of any direct inference of fraud or deliberate involvement but rather because of an overall lack of confidence in the evidence given on behalf of the appellant in view of an accumulation of apparent anomalies, no one of which on the Court's view could be reasonably regarded as important if it existed on its own. 15 In order for the Plaintiff to succeed on the balance of probabilities in establishing that the Lexus motor vehicle was damaged by the flood waters in the manner asserted by him, the Court would have to accept that the facts and circumstances leading up to the damage and the account of how the damage occurred would have to be credible."
The Magistrate correctly summarised the plaintiff's evidentiary burden as set out in Hammoud.

Submissions on appeal

Counsel for the plaintiff made submissions as follows. Adopting and adapting the terminology and analysis used in J D Heydon, Cross on Evidence (9th ed 2013, LexisNexis Butterworths), in proving its case, a plaintiff is required to prove the pleaded material facts on which its claim is based ("principal facts"). In proving those principal facts, the plaintiff will often need to prove other matters of context that tend themselves to prove or to increase the likelihood of the principal facts ("evidentiary facts") as well as other facts ("subordinate or collateral facts") as to the general credibility of witnesses or admissibility of other evidence. Facts which are neither principal, evidentiary or subordinate facts were described in these submissions as "other facts". It seems that "other facts" were also described as "irrelevant" matters in ground (2)(b) as no specific submissions were made by counsel for the plaintiff in relation to this ground of appeal. I will refer to the principles in this paragraph as the "Cross on Evidence principles".
In the Local Court, there were a small number of facts in issue and the key "principal facts" in respect of which Mr El-Kabbout bore the onus of proof were: 1. that the flash flood occurred; 2. that he drove the car into the flood and it was thereby flooded; and 3. possibly, that the flood caused the car to be a total loss.
The plaintiff submitted that the reasoning expressed in paragraphs [13] to [18] of the Magistrate's reasons is not very clear. He says it appears to be either: (a) that, pursuant to Hammoud, Mr El-Kabbout was required to establish not only the principal facts but also other facts or evidentiary facts relating to the context of the claim and failure to establish those other or evidentiary facts would result in him losing his case, without the need to make findings on the principal facts. Mr El-Kabbout failed to establish the other facts and evidentiary facts described above and accordingly, his claim is to be dismissed; or (b) on another view, that because of his failure to establish the other facts and evidentiary facts, Mr El-Kabbout should be taken not to have established the principal facts required to make out his case.
Counsel for the plaintiff submitted that both reasonings involve legal error for the following reasons. The first reasoning is at variance with the Cross on Evidence principles, described above, and would misapply Hammoud by placing a further hurdle in the path of a plaintiff in proving its case (that of establishing other facts). Under the second reasoning, it appears that the Magistrate's findings concerning the "other facts" contributed to her adverse finding on the principal facts, again, in contravention of the Cross on Evidence principles described above.

The defendant's submissions

Counsel for the defendant submitted that the substance of the plaintiff's submissions appears to be that the Court erred in taking into account "other facts" in assessing the truthfulness and credibility of the plaintiff's evidence and this somehow extended to constructively imposing a burden on the plaintiff.
No challenge was made by the plaintiff concerning the Local Court's findings regarding the plaintiff's credibility or a particular fact. The defendant submitted that the ground is misconceived as it fails to appreciate that implicit in the Magistrate's reasons on the basis of the evidence before her was a "lurking thesis" concerning: 1. The route taken by the plaintiff and the reason for him being in the area on the day of the incident; 2. The plaintiff's movements at or around the time of the flood, including persons he called; 3. The failure to call corroborating evidence; and 4. The purchase price of the vehicle, namely concealing a financial motive.
This thesis was at least equally consistent with the plaintiff's hypothesis that the damage to his vehicle was caused by an accident, thus warranting rejection of the claim.
Counsel for the defendant submitted that a similar argument to the one advanced by the plaintiff in this appeal was rejected in Askarou v Nominal Defendant (NSW) (1989) 8 MVR 491. The defendant submitted that Askarou is authority for the proposition that where there exists evidentiary material which contradicts a plaintiff's version of an accident or the circumstances surrounding an accident, an alternative hypothesis is not required to be demonstrated by the defendant. The defendant submitted that the comments of Clarke JA at 497-8, with whom Kirby P agreed, are instructive. They are: "Broadly, it was that his Honour was not satisfied that the plaintiff was being truthful in her evidence in court nor was he satisfied that the corroborating witnesses were being truthful and because he was unable to rely upon the evidence of all these witnesses he concluded that the plaintiff had failed to make out a case. That seems to me to be a proper approach and when the judgment is examined in more detail one finds that an important reason why his Honour came to that conclusion was that a film of the plaintiff's activities was shown which demonstrated to him that, at the very least, she was exaggerating her disabilities in her evidence but, more probably, was not being truthful. That, it seems to me, was his ultimate conclusion; that is that the film did not merely show that there was an element of exaggeration, whether conscious or subconscious, but that the plaintiff had come before the court and presented a case which was not truthful. Once he had concluded that she was not truthful on an important aspect of her case, it became absolutely necessary for him to look very closely at her testimony as to the manner in which the accident happened. In doing that, his Honour pointed to the various discrepancies, relied upon Const Field's evidence and found that, not only was the untruthfulness of the plaintiff carried through into the area of liability, but that the various unsatisfactory aspects of the evidence demonstrated unreliability in the evidence given by the corroborating witnesses. It seems to me that this approach was proper in all the circumstances of the case and that no error has been shown either in his Honour's rejection of the truthfulness of the plaintiff's account or his reliance upon the various discrepancies in concluding that she had failed to make out her case."

Conclusion

Her Honour made findings as to the plaintiff's truthfulness and credibility. Her Honour referred to the plaintiff's casual approach to book keeping and record keeping. Her Honour also stated that the plaintiff was inconsistent in the basic details relating to how he came to buy the Lexus and how much he paid for it. He provided no evidence regarding how much he spent on improvements nor did he make any attempt to obtain receipts. She stated that the plaintiff displayed very little interest in corroborating any of the evidence he gave in Court or in answering questions asked by the defendant's investigators.
These adverse findings on the plaintiff's truthfulness and credibility made it necessary for her Honour to look very closely at the plaintiff's evidence as to the facts and circumstances leading up to and the actual circumstances of the plaintiff's vehicle being caught in the flood.
It was common ground between the parties that on 18 April 2002 there was a flash flood on Ashford Road, Milperra ("principal fact" (a)). So far as the circumstances leading up to and the actual circumstances of the plaintiff's vehicle allegedly being caught in the flood, her Honour made a finding that the plaintiff was unsure about some of the details regarding the actual flood and how he got out of his vehicle, which was in contrast to the plaintiff's frankness about his dishonesty when it came to declaring his income to the Commissioner for Taxation. In relation to corroborating his version of events, her Honour made a finding that the plaintiff made no attempt to bring the passenger, Mohammad Issa to Court until the third day of evidence. She also made a finding that the plaintiff displayed little interest in corroborating and answering questions asked by the defendant's investigators. In other words, after looking closely at the plaintiff's evidence, her Honour came to the conclusion that she did not accept it. The above findings had cast doubt as to whether the plaintiff actually drove the car into the flood and whether the car was flooded and damaged. It would have been inconsistent and illogical for her Honour to make findings of what the plaintiff describes as "principal facts" (b) and (c) in these circumstances, namely that the plaintiff drove the car into the flood, causing it to be flooded, and that the flood possibly caused the car to be a total loss.
As I understand the plaintiff's submissions, the findings on credit fall into the category of "other facts" and counsel says that those "other facts" contributed to her Honour making adverse findings on so called "principal facts" (b) and (c). According to counsel for the plaintiff, this approach constitutes an error of law. In my view her Honour was entitled to make findings of these so called "other facts". As previously stated, that meant that her Honour had to look closely at the plaintiff's evidence when she was evaluating the plaintiff's evidence of the circumstances in which the plaintiff's vehicle was caught in the flood and damaged.
The finding of "other facts" did not place an unwarranted further hurdle in the path of the plaintiff in proving his case. Her Honour was entitled to make general findings on the plaintiff's truthfulness and credibility and look closely at the plaintiff's evidence in relation to the circumstances in which the plaintiff says his vehicle was caught in the flood and damaged. Her Honour concluded that the plaintiff did not discharge his onus of proof that not only the accident happened but that the circumstances leading up to the accident were truthful and credible. Given that evidence, the Magistrate concluded that she had no confidence that the plaintiff's version was the truth and therefore he had not proved his claim. Her Honour entered judgment for the defendant.
This ground of appeal fails.

Appeal grounds 1 and 3 - Failure to give sufficient reasons

Counsel for the plaintiff submitted that the Magistrate failed to provide any or sufficient reasons for holding that, firstly, the plaintiff breached the express term of the policy of insurance between the plaintiff and the defendant that he be truthful and frank in connection with the claim he made on the policy and that the plaintiff breached the statutory obligation to act with the utmost good faith implied in the contract of insurance in accordance with s 13 of the Insurance Contracts Act (appeal ground 1(a)) and secondly, that the defendant's liability should be reduced to nil in accordance with s 54(1) of the Insurance Contracts Act (appeal ground 1(b)).
Appeal ground 3 is a general one. It is that the Local Court Magistrate erred in law by failing to provide sufficient reasons for holding that the plaintiff failed to satisfy the onus of proving his claim in the Local Court proceedings.

Obligation to provide sufficient reasons

It is trite law that if a court fails to give sufficient reasons for its decision it constitutes an error of law.
Counsel for the defendant referred to some authorities in relation to this topic, including: Wang v Yamamoto [2015] NSWSC 942; Yarraford Pastoral Co Pty Ltd v Lewington [2015] NSWSC 522; and Kaduthodil v NRMA Insurance [2007] NSWSC 451.
In Wang v Yamamoto at [35] to [38], I stated: "[35] It is not in dispute that a Magistrate is obliged to provide adequate reasons and not to do so constitutes an error of law: see Stoker v Adecco Gemvale Constructions Pty Ltd [2004] NSWCA 449 at [41] per Santow JA. [36] In Beale v Government Insurance Office of NSW (1997) 48 NSWLR 340 Meagher JA at 422 stated: A failure to provide sufficient reasons can and often does lead to a real sense of grievance that a party does not know or understand why the decision was made: Re Poyser and Mills Arbitration [1964] 2 QB 467 at 478. This court has previously accepted the proposition that a judge is bound to expose his reasoning in sufficient detail to enable a losing party to understand why it lost. [37] In Stoker, Santow JA at [41] said that "It is sufficient if the reasons adequately reveal the basis of the decision, expressing the specific findings that are critical to the determination of the proceedings." However, "the extent and the content of reasons will depend upon the particular case under consideration and the matters in issue. While a judge is not obliged to spell out every detail of the process of reasoning to a finding, it is essential to expose the reasons for resolving a point critical to the contest between the parties": see Pollard v RRR Corporation Pty Limited [2009] NSWCA 110, McColl JA at [58] (with whom Ipp JA and Bryson AJA agreed). [38] In Soulemezis v Dudley (Holdings) Pty Ltd (1987) NSWLR 247, McHugh J at 281 stated: In a case where a right of appeal is given only in respect of a question of law, different considerations apply from the case where there is a full appeal. An ultimate finding of fact, which is not subject to appeal and which is in no way dependent upon the application of a legal standard, can be treated less elaborately than an issue involving a question of mixed fact and law. If no right of appeal is given against findings of fact, a failure to state the basis of even a crucial finding of fact, if it involves no legal standard, will only constitute an error of law if the failure can be characterised as a breach of the principle that justice must be seen to be done. If, for example, the only issue before a court is whether the plaintiff sustained injury by falling over, a simple finding that he fell or sustained injury would be enough if the decision simply turned on the plaintiffs credibility. But, if, in addition to the issue of credibility, other matters were relied on as going to the probability or improbability of the plaintiff's case, such a simple finding would not be enough."
In Yarraford Pastoral Co Pty Ltd v Lewington at [53] to [54], Beech-Jones J stated: "[53] In AV Jennings Properties Ltd v Kam Civil Pty Ltd [2013] NSWSC 1900 at [21]ff, I addressed the scope of the duty upon a Local Court magistrate to give adequate reasons for a finding of fact in an appeal concerning a question of law. The relevant principles were enunciated by McHugh JA in Soulemezis v Dudley (Holdings) Pty Ltd (1987) 10 NSWLR 247 at 281-282. In particular, in discussing a finding of fact that was alleged to be perverse, in Soulemezis (at p 282) McHugh JA stated as follows: It is not to the point that his Honour's finding was erroneous, or as counsel for the applicant claimed, perverse. An erroneous or perverse finding of fact raises no question of law and cannot be challenged by way of appeal. What is decisive is that his Honour's judgment reveals the ground for, although not the detailed reasoning in support of, his finding of fact. But that is enough in a case where no appeal lies against the finding of fact. Accordingly, there was no failure to give reasons sufficient to constitute an error of law. [54] Her Honour's reasons for accepting Mr Lewington's evidence in preference to that of Dr Wainberg was more than sufficient to meet the standard identified by McHugh JA in Soulemezis, namely, one that requires only the specification of the "ground for" the relevant finding of fact."
In Kaduthodil v NRMA Insurance at [16] to [17], I stated: "[16] In Jung v Son, NSWCA 18 December 1998, Stein JA stated: While a judge does not have to state reasons for every aspect of the case, his reasons must be sufficient to satisfy the requirements of Pettit v Dunkley [1971] 1 NSWLR 376. The reasons must be sufficient to enable an appellate tribunal to gain a proper understanding of the basis of the verdict. Not to do so is an error of law (Asprey JA at 382 and Moffitt JA at 388). Failure to give reasons also makes it impossible for an appellate tribunal to give effect to a plaintiffs right of appeal. Issues critical to the case, as these were, must be dealt with by reasons (Samuels JA in Mifsud v Campbell (1991) 21 NSWLR 725 at 728). [17] In short, the judicial officer should make it clear what he or she is deciding and why."
It is necessary to set out the relevant sections of the Insurance Contracts Act to discuss ground 1 of this appeal, as set out above.

Insurance Contracts Act 1984 (Cth)

Section 13 of the Insurance Contracts Act relevantly reads: "The duty of the utmost good faith (1) A contract of insurance is a contract based on the utmost good faith and there is implied in such a contract a provision requiring each party to it to act towards the other party, in respect of any matter arising under or in relation to it, with the utmost good faith. (2) A failure by a party to a contract of insurance to comply with the provision implied in the contract by subsection (1) is a breach of the requirements of this Act. …"
Section 54 of the Insurance Contracts Act relevantly reads: "Insurer may not refuse to pay claims in certain circumstances (1) Subject to this section, where the effect of a contract of insurance would, but for this section, be that the insurer may refuse to pay a claim, either in whole or in part, by reason of some act of the insured or of some other person, being an act that occurred after the contract was entered into but not being an act in respect of which subsection (2) applies, the insurer may not refuse to pay the claim by reason only of that act but the insurer's liability in respect of the claim is reduced by the amount that fairly represents the extent to which the insurer's interests were prejudiced as a result of that act. (2) Subject to the succeeding provisions of this section, where the act could reasonably be regarded as being capable of causing or contributing to a loss in respect of which insurance cover is provided by the contract, the insurer may refuse to pay the claim. (3) Where the insured proves that no part of the loss that gave rise to the claim was caused by the act, the insurer may not refuse to pay the claim by reason only of the act. (4) Where the insured proves that some part of the loss that gave rise to the claim was not caused by the act, the insurer may not refuse to pay the claim, so far as it concerns that part of the loss, by reason only of the act. …"

Express term of the insurance contract

In the plaintiff's statement of claim in the Local Court proceedings, he stated that the insurance contract was contained in insurance policy number MOT 459 XXX XXX dated 29 January 2012; a Motor Insurance Product Disclosure Statement and Policy Booklet; and a Supplementary Product Disclosure Statement. A term of the Product Disclosure Statement required the plaintiff to be truthful and frank in all statements made in connection with the claim (J [19]). I will refer to this term as the "express term". The Motor Insurance Product Disclosure Statement was not before this Court.

The plaintiff's submissions

Counsel for the plaintiff submitted, firstly, that a finding that the plaintiff breached s 13 of the Insurance Contracts Act or the express term must be based on a finding that he was untruthful and/or lacking frankness or good faith in some specific way; secondly, that the Court does not, merely by holding that the plaintiff failed to make out his case on the balance of probabilities, simply thereby hold that he must have been untruthful or lacking in good faith on the balance of probabilities. In that regard, a Court will usually require more proof to be satisfied on the balance of probabilities that a party is dishonest than it would to be satisfied to the same standard that the party was merely mistaken (see Briginshaw v Briginshaw (1938) 60 CLR 336; Neat Holdings Pty Ltd v Karajan (1992) 110 ALR; and Hammoud Brothers v Insurance Australia Ltd at [31]); thirdly, that in upholding the onus defence, the Magistrate refrained from making any express findings that the plaintiff had been dishonest or untruthful with respect to the policy but merely held that she was not satisfied on the balance of probabilities that he was being truthful; and finally, that the Magistrate only made a general finding that the plaintiff had breached his obligations to be truthful and frank or to exercise good faith with no finding of any specific falsehood or lack of frankness.
Counsel for the plaintiff submitted that in relation to s 54 of the Insurance Contracts Act, no analysis whatsoever is provided as to the untruth, lack of frankness or bad faith in which the plaintiff is said to have engaged; the appropriate measure of prejudice to the defendant under s 54; or the manner in which any such untruth, lack of frankness or bad faith resulted in prejudice to the defendant.

The defendant's submissions

Counsel for the defendant submitted that it is clear in this case that the Court is capable of ascertaining that the Magistrate, on the face of the evidence before her, was not confident that the plaintiff's version was the truth (J [18]). Her Honour identified particular examples at [10] (the facts of which were not in dispute in the sense that no contrary conclusion arising out of the cross examination or evidence on those topics was put before her Honour in the plaintiff's closing submissions).
Her Honour's comments at [15] to [17] are consistent with the availability of the "lurking thesis" and the general basis to suggest that she could not believe the plaintiff. The reasoning process is clear and it cannot be said that an appellate tribunal could not gain a proper understanding of the basis of the verdict.

The Magistrate's reasons

It should be noted that the Magistrate had already not accepted the plaintiff's evidence and had no confidence that the plaintiff's version was the truth. He had not proved that he drove into a flood and that the flood had caused damage to his vehicle. Her Honour had entered a verdict in favour of the defendant. Strictly speaking, it was not necessary for her to determine these claims. However, her Honour did go on to consider them.
So far as s 13 is concerned, the Magistrate recorded that the defendant made a positive case that the plaintiff breached terms of the agreement between the plaintiff and the defendant, in particular, the duty to act towards the other party with the utmost good faith that is implied into every insurance contract by s 13 of the Insurance Contracts Act and the term in the product disclosure statement that the plaintiff be truthful and frank in all statements made in connection with the claim.
At [21] and [26] of her reasons, the Magistrate stated: "21 If the Court finds that the Plaintiff has proved its claim but finds that there has been a lack of truthfulness and candour as required by a term of the contract or that there was a breach of the implied term of good faith under s 13 Insurance Contracts Act 1984, (the Act), the court must provide a remedy to the Defendants to the extent that it was prejudiced by those acts or untruths. … 26 I am of the view that the Plaintiff has breached the express policy condition that he be truthful and frank in connection with the claim and the statutory term pursuant to Section 13 of the Act that the insured act with the utmost good faith."
Her Honour dealt with s 54(1) of the Insurance Contracts Act at [24], [25] and [27] to [29] of her reasons. After her Honour referred to Antico v Fielding Pty Ltd (1997) 188 CLR 652; 146 ALR 385, she continued: "24 The Plaintiff submits that the reduction in the insurer's liability by virtue of Section 54(1) is limited to damages and that these damages would not include the costs of litigation. The plaintiff relies on the decision in East End Real Estate Pty. Ltd. v CE Health Casualty and General Insurance Ltd. (1993) 7 ANZ Ins Cas 61 -151 (SC NSW) at 77,801. The Plaintiff also relies on the commentary found in Insurance Law in Australia 3rd Ed, Kenneth Sutton, p.661. 25 The Defendant relies upon the Qld District Court decision in Kennedy v NZI Insurance Australia Limited 16 April 1992 (2065 of 1991). In this case the court found that the prejudice to the insurer is the cost of contesting the action and the costs of investigation. … 27 …[S]ection 54(1) of the Act is enlivened to reduce the Defendant's liability to the extent that its interests are prejudiced by the breach [of the contract of insurance]. The Defendant also relies on the High Court decision in Moltoni Corporation Pty. Ltd. v QBE Insurance Ltd (2001) 185 ALR 213 at p. 161: Nevertheless, like an amount allowed for compensatory damages for breach of contract, the amount for which s 54(1) speaks, as fairly representing the extent to which the insured's interests were prejudiced, will be the actual financial damage that has been or will be sustained as a result of the relevant act or omission. 28 The Defendant submits that the liability should be reduced by the actual financial loss incurred by the Defendant as at 6 February 2014 as $84,871.29, in accordance with the evidence of Margot Toniato. Ms Toniato was the solicitor with carriage of the matter and she gave evidence regarding the costs of the litigation. 29 If I am wrong in my earlier findings, I am of the view that, in accordance with s.54(1) of the Act that the Defendant's liability should be reduced to nil as it is the costs of this litigation that are the actual financial damage that is suffered by the Defendant."

Conclusion

Earlier in her reasons the Magistrate stated that the onus was on the plaintiff to prove his case and to satisfy the evidentiary burden that not only did the accident happen but that the circumstances leading up to the accident were truthful and credible. Given the evidence before the Magistrate, set out earlier in this judgment, the Magistrate stated that she had no confidence that the plaintiff's version was the truth. Her Honour held that the plaintiff had not proved his claim So far as s 13 of the Insurance Contracts Act is concerned, her Honour made a finding that the plaintiff had breached the express policy condition that he be truthful and frank in connection with the claim and the statutory implied duty to act with the utmost good faith pursuant to s 13 of the Insurance Contracts Act. The reasons could not be any clearer as to why her Honour accepted that the plaintiff breached s 13 of the Insurance Contracts Act.
The Magistrate also dealt with s 54 of the Insurance Contracts Act even though, strictly speaking, there was no necessity for her to do so. Her Honour set out the submissions of both parties. The plaintiff submitted that the reduction in the insurer's liability should not include the costs of litigation and the defendant submitted that it should. Her Honour referred to evidence that assessed the defendant's legal costs at $84,871.29. She decided that the defendant's liability should be reduced to nil as the amount of the costs incurred in this litigation was the actual financial damage suffered by the defendant. This damage exceeded the plaintiff's claim for damage, which included the claim for the agreed value of the Lexus, which was stated earlier in the judgment as $60,000. It is my view that the Magistrate's reasons are clear and reveal her reasoning process. The Magistrate gave sufficient reasons for her conclusions in relation to ss 13 and 54 of the Insurance Contracts Act.
So far as appeal ground 3 is concerned, overall the Magistrate's reasons were clear and she set out her reasoning process. She provided sufficient reasons for her decision. This ground of appeal fails.
The result is that so far as an extension of time to file the appeal is concerned, it is my view that the plaintiff's explanation for delay is not satisfactory, the appeal grounds are weak and no actual prejudice has been demonstrated. Taking these circumstances into account and in the exercise of my discretion, justice between the parties is best served if the application to extend time to appeal is refused.
In the event that I am wrong in refusing to grant an extension of time to appeal, it is my view that the grounds of appeal fail so the appeal should be dismissed.

Costs

Costs are discretionary. Costs usually follow the event. The plaintiff is to pay the defendant's costs on an ordinary basis as agreed or assessed.

The Court orders that: (1) Leave to extend the time to appeal is refused. (2) The summons filed 20 April 2015 is dismissed. (3) The plaintiff is to pay the defendant's costs on an ordinary basis as agreed or assessed.

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: 14 April 2016

(2007) 161 LGERA 118

At a glance

Court

Decision date

Source

Judgment (23 paragraphs)

Parties

Legislation Cited (4)

Cases Cited (29)

Cited By (1)