Halikiotis & Halikiotis v Insurance Australia Ltd

District Court of NSW|2009-11-23

d Defendant / Second Cross-Claimant) Insurance Australia Ltd (First Cross-Defendant / Second Cross-Defendant) Representation: A R Vincent (Plaintiff) C H Cassimatis (First Defendant / First Cross-Claimant) A D Crossland (Second Defendant / Second Cross-Claimant) G B Carolan (Cross-Defendant) Deacons (Plaintiff) Craig Milne and Co (First Defendant / First Cross-Claimant) Legal Aid NSW (Second Defendant / Second Cross-Claimant) Mason Black Lawyers (Cross-Defendant) File Number(s): 315172/2008

Introduction 1These cross-claims concern the loss of a black 2002 BMW X5 motor vehicle registered number GH1272, which police located on fire at about 9pm on 29 March 2007 on Richmond Road, Marsden Park. It is accepted that the vehicle was a "write-off". The vehicle had an agreed value of $85,444. 2The vehicle was purchased, second-hand, by the first cross-claimant, Mr George Halikiotis (who is now known as Mr George Styles), for his then wife, Ms Maria Halikiotis, as a birthday present. Her birthday is on 7 July. The vehicle was purchased on 22 July 2005. According to the vendor's tax invoice, the purchaser was Mr George Halikiotis. Finance was obtained from the plaintiff, Volkswagen Financial Services Australia Ltd, through a hire purchase agreement. The hirers were George and Maria Halikiotis. According to the pleading in the second cross-claim, Mr George Halikiotis took out a contract of insurance with Insurance Australia Ltd trading as NRMA Insurance at the time of the delivery of the vehicle to the Halikiotis couple on or about 22 July 2005. A new policy of Comprehensive Motor Insurance was taken out by Mr George Halikiotis on 20 September 2006, being policy no. MOT 290 393 259. That policy noted the interest of Volkswagen Financial Services. The insured was George Halikiotis and both George and Maria Halikiotis were nominated as drivers of the vehicle. This policy was in force at the time of the loss of the vehicle. In these cross-claims Mr and Mrs Halikiotis seek to enforce this policy. On 30 October 2009 the plaintiff obtained judgment against each of the defendants / cross-claimants for $98,786.82. The question of the plaintiff's costs has been reserved until these cross-claims have been determined. Enforcement of that judgment has been stayed until these cross-claims have been determined.

The pleadings 3The pleadings have not been amended to reflect the first cross-claimant's change of surname. As the pleadings remain unamended and as all the documentary evidence refers to him as George Halikiotis, I shall continue to refer to the first cross-claimant as George Halikiotis. I intend no discourtesy to him by doing so. I shall refer to the first cross-claimant hereafter as either "George" or "George Halikiotis". 4Paragraphs 5 to 8 of George's cross-claim are: 5 On or about 29 March 2007, the Vehicle was stolen and found damaged ('Loss').

Particulars a. The Vehicle was stolen from 12 Renway Avenue, Lugarno on about 28 March 2007. b. The NSW Police found the Vehicle at Richmond Road, Marsden Park - burned out on 29 March 2007. 6 The cross-claimant notified the cross-defendant of the Loss on about 29 March 2007 by telephone and thereby made a claim under the Policy for indemnity on account of the Vehicle being stolen and damaged. 7 The damage to the Vehicle: a. Constituted or amounted to "stolen and found damaged" in accordance with the terms of the Policy; b. Occurred during the Period; and c. Was not excluded by the exclusions in the Policy. 8 In the premises, the cross-claimant was entitled to indemnity pursuant to the terms of the Policy. The pleading goes on to allege breach of contract because of the failure of the cross-defendant ("IAG") to indemnify George. Save that it admits receiving notification from the cross-claimant of a claim, IAG does not admit any of the facts alleged in the pleadings I have quoted. 5Paragraph 7 of IAG's defence to the cross-claim is this: Further, in answer to the allegations in the Cross-Claim, the Cross-Defendant: (a) Does not admit that the Cross Claimant had an insurable interest in the vehicle; and (b) Says that it was entitled under the terms of the policy to refuse indemnity in circumstances: (i) Where any loss or damage to the vehicle was caused intentionally by the insured or by a person acting with the express or implied consent of the insured; or (ii) A claim was made in circumstances where the insured failed to make full and frank disclosure of the circumstances of the claim or the claim was otherwise made in breach of the duty of utmost good faith; Subparagraph (a) of that defence was never pressed. 6Paragraphs 11 to 14 of the second cross-claimant's cross-claim are: 11 On or about 29 March 2007, the Vehicle was (a) Found stolen and damaged, such damage being by fire and putting the Vehicle beyond repair. (b) In the alternative, damaged by vandalism or a malicious act, such damage being by fire. 12 The damage to the Vehicle occurred during the period of the comprehensive insurance policy entered into between NRMA and George Halikiotis. 13 By reason of s.48 of the Insurance Contracts Act 1994 (Cth), Maria Halikiotis has a right to recover the amount of her loss in accordance with the insurance contract. 14 Maria Halikiotis' right to recover her loss under the insurance contract is not a loss excluded by any term of the contract. Particulars In the event that the Court finds that George Halikiotis or someone acting on his behalf intentionally damaged the vehicle (as the Cross Defendant alleges), Maria Halikiotis' right to recover her loss is not excluded by the contract because the Vehicle was in those circumstances damaged by fire and/or malicious damage or vandalism and the car was not intentionally damaged by her. IAG admits paragraph 12 but does not admit any of the other facts alleged in the pleadings I have just quoted. Paragraph 7 of IAG's defence is this: Further, in answer to the allegations in the Cross-Claim, the Cross-Defendant: (a) Says that it was entitled under the terms of the policy to refuse indemnity in circumstances: (i) where any loss or damage to the vehicle was caused intentionally by the insured or by a person acting with the express or implied consent of the insured; or (ii) a claim was made in circumstances where the insured failed to make full and frank disclosure of the circumstances of the claim or the claim was otherwise made in breach of the duty of utmost good faith; and that its refusal of indemnity was made after taking these matters into consideration.

Issues at Trial 7The issues tendered for my determination are: (a) whether the vehicle was "stolen and found damaged" (a term of the insurance policy); (b) whether the vehicle was "damaged by vandalism or a malicious act" (another term of the insurance policy); (c) whether an exclusion in the policy applies, as pleaded in paragraph 7(b) of IAG's defence to the first cross-claim; (d) if the first two issues be decided adversely to George, whether Maria is nevertheless entitled to succeed under the Insurance Contracts Act 1984 (Cth), section 48.

Background 8George was born on 31 December 1972. At this time of the loss he was 34 years old. Maria was born on 7 July 1975. At the time of the loss she was 31 years old. The couple married in 1993. There are three children of their union. 9In or about 2001, the couple bought the Lugarno Deli at 122 Forest Road, Lugarno from George's parents. Both George and Maria worked in that business. The evidence does not suggest that they bought the realty, merely the business. According to Maria, her relationship with George started to deteriorate in or about 2004 and "to get the relationship back on track" they sold the Lugarno Deli and bought another delicatessen at Jannali. Again, I infer that only the business was bought, not any realty. Information supplied by the couple to the plaintiff ("VWFS") indicates that they commenced the delicatessen business at Jannali about one month prior to the purchase of the vehicle concerned in these proceedings i.e. in or about June 2005. Both of the couple then commenced to work in that shop. From what occurred later, it appears that the Lugarno Deli was sold back to George's parents. 10In his first affidavit, of 12 November 2008 (Exhibit A), George said (at paragraph [8]): In an attempt to try and restore our relationship I decided to (amongst other things) purchase a BMW motor vehicle for my wife as a 30 th birthday present. I intended on using my 2001 Holden Special Club Sport ('Holden') as a 'trade in' - to assist with the purchase. In her affidavit of 27 August 2008 (Exhibit E), Maria said: 11 I recall in about late June or early July 2005 on several occasions at the Jannali Deli shop or at home George said words to me to the following effect: "I want to buy you a 30 th birthday present. It is a BMW four wheel drive wagon." 12 My birthday is on 7 July. 13 I recall George mentioned that he had looked at a black BMW and I told George that I would like the inside colour to be black too. 14 I recall one day in about early July 2005 George said words to me to the following effect: "The car dealer has another black BMW four wheel drive. I have checked the car. Both the body and inside are black. You will like it. We will get finance, but the finance company also wants you to be the co-borrower. The car dealer has taken care of everything, and everything is ready. We only need to sign the finance contract." 15 I said to George "I'm happy to sign the contract." 16 At that time we had two cars: I drove a Holden Commodore SS and George drove a Holden Commodore Club Sport. It was agreed between us that George would trade in his Club Sport and when I got the BMW, George would drive the Commodore SS. 17 I recall I and George signed the finance contract separately, but I cannot remember when George signed the contract. 18 In or about late July 2005, I went to the office of the dealer at Victoria Road in Balmain to sign the finance contract. I recall George had a business appointment on that day, so I went on my own. I also recall that I had not been given the contract documents beforehand. 19 When I first arrived at the dealer's office, an elderly male person in his fifties smiled at me and introduced himself. He probably said he was the manager. I also remember he saying words to the effect of: "Happy Birthday!" "A BMW, what a nice birthday present!" 20 Then that same elderly person gave me all the documents. Everything had already been prepared beforehand, and really all I needed to do was to sign at the last page of the finance contract. 21 I recall that it took me about 10 minutes or less to finish signing the contract. No one explained anything to me; and I even had not read the documents before signing it. No body told me that the car loan was business loan or that I needed to sign any business purpose declaration. I did not notice there was a business purpose declaration. I though[t] the loan contract was a standard one, and just signed at the last page. I did not say anything about requiring the BMW for a business, for I and George never used our two cars for the deli business at all. 22 After I signed the contract, the dealer showed me the BMW. 23 Several days after I signed the contract, I got the BMW. 24 From the very beginning, I used the BMW to drove [sic] the kids to schools and pick them up after they finish the school. I also used the BMW to attend the appointments with the doctors to check the conditions of my sons John and Dennis. I also drove it o work and to go shopping. Apart from driving to and from work, it was not used for the deli business. I never intended it would be. There was never any discussion between George and I to the effect that it would be used for the business. That was never considered. 25 I remember George arranged everything for the BMW including insurance and registration. Initially George was the registered owner. An inference can be drawn, and I do draw it, that the vehicle was hired "wholly or predominantly for business purposes" (Acknowledgment no.6 of the Hire Purchase Agreement - Exhibit 7) in order that expenses referable to it would be claimed as an expense of the delicatessen business. Such a claim, on the evidence before me, would have been improper. 11The vendor's tax invoice for the sale of the vehicle gives the following details: Price excluding GST $77,272.73

The "payout" appears, from the same document, to have represented moneys owed on the traded-in vehicle, a 2001 Holden Special Clubsport. Since the payout on the Holden was greater than the sum of the trade-in value and the $2,000 deposit, George had no equity in the Holden. The amount financed on the hire purchase of the BMW vehicle was $90,031.32. The total price of the BMW vehicle was $85,000 (incl. GST) which was less than the amount financed, so neither George nor Maria had any equity in the BMW vehicle. The instalments due under the hire purchase agreement were $1,522.78 per month. 12The BMW vehicle originally had registered number ALV30T. GH1272 was originally the registered number of the 2001 Holden Special Clubsport, but its registered number was transferred to the BMW vehicle after George brought it for Maria's use. George conceded that it was his personalised number plate. 13Exhibit 1 is a Loan Statement Account for the Hire Purchase Agreement with VWFS. The first instalment was due on 22 August 2005. Arrangements had been made for payment of the monthly instalments by direct debit. The payment due on 22 August was dishonoured. Fees amounting to $124 were then incurred. The second instalment was due on 22 September 2005. On 23 September, $3,169.60 was paid but not by direct debit. The sum of the two instalments then due and the fees incurred was $3,169.56. The next instalment was due on 22 October 2005 but payment of it by direct debit was dishonoured. Fees amounting to $91 were then incurred. On 18 November a payment of $1,613.74 was made. That payment was four cents less than the instalment due on 22 October 2005 and the fees incurred. However this payment of $1,613.74 was also dishonoured. Thereafter, all direct debit payments due on 22 of each month were dishonoured, as were a number of other irregular or manual payments. The borrowers incurred a large number of fees as well. By 12 December 2006, the borrowers ought to have paid 16 instalments of $1,522.78, the total of which amounts to $24,364.48. The opening balance on the Loan Account Statement is $118,344.74. By 12 December 2006 that ought to have been reduced to $94,080.26 but the actual balance at that time was $97,306.22. I shall return to this aspect of the matter later but it ought be noted at this time that, from the beginning, George had great difficulty in paying the instalments due on the Hire Purchase Agreement. 14Neither the new business at Jannali nor the BMW vehicle had its desired effect. Maria stopped working in the Jannali delicatessen in October 2005. The couple separated in November 2005. Since that time, Maria has been receiving Commonwealth benefits. George has been paying $26 per month maintenance to his (former) wife for herself and their three children. Such a small payment indicates that he either assesses himself, or has been assessed as, only having a very small income. 15The couple had originally been living in Coolangatta Avenue, Beverly Hills which, according to what they told VWFS when applying for the Hire Purchase Agreement, was valued at $1,350,000 but was subject to a mortgage of $430,000. Maria continued to live there with the children until in or about March 2007 when she moved to Albion Street, Roselands (Exhibit E, par 36). 16At some stage George moved to Cronulla to live. When that occurred is unclear. His second affidavit, of 19 February 2009 (Exhibit B), implies that it was after his separation from Maria. Paragraph 3 of that affidavit is this: My ex wife and I separated in about November 2005. In about late April 2006 after spending a short while in Cronulla, I moved in with my parents at 13 Renway Avenue, Lugarno ('Home'). The date given in the second sentence is clearly wrong. If one merely relied on what one read in Exhibit B one would be forgiven for thinking that, at the time of the loss, George had been living with his parents at Lugarno for 11 months. Such an impression would be erroneous. 17In [2] above I recited that, according to the pleadings, the vehicle was insured at the time of its purchase / delivery by George with IAG. That is also his evidence at paragraph 7 of Exhibit B. I also recorded how a second policy was taken out on 20 September 2006. The first policy must have elapsed by effluxion of time and was not renewed. The inference I draw from his difficulty in paying the loan is that he had financial difficulties in renewing the insurance. When the new insurance was taken out the premium was $1,981.33 (Exhibit F). The same exhibit suggests why the fresh insurance was taken out: under the guide-tab "Message" is this note: "Dina - M965 - from claims received a call from Craig at insurers hotline notifying her that this car had been involved in a car accident on 20-9-2006 at 9.20am. Policy taken out at 4.08pm." There is no suggestion that the vehicle was anything other than very slightly damaged and no claim was made in respect of the event of 9.20am. It appears that this "bingle" alerted George to the necessity of taking out insurance. The same exhibit also contains information that George was late in making payment of the first instalment of premium due on 11 October 2006. 18At the time of taking out the second policy of insurance, George gave as his address 1 St Andrew's Place, Cronulla. He must have been living there on 20 September 2006. George was interviewed after the loss by an assessor on behalf of IAG on 12 June 2007. The record of interview ("ROI") is part of Exhibit 8. He gave as his then address 13 Renway Avenue, Lugarno, his parents' address. He said he had been living there off and on but "now probably from March of this year". He confirmed he meant March 2007. He gave as his former address the Cronulla address I have recorded and said he had lived there "from November till March" and then agreed it was for "a short period". One might infer from that that he meant from November 2006 to March 2007 but, given the other material to which I have referred, he may have meant form November 2005 to March 2007, but that is hardly a "short period". 19The question then arises as to when George returned to live with his parents at Lugarno. In cross-examination, George was shown three letters dated 24 April, 21 June and 31 July 2007 addressed to him at the Cronulla address by Manheim Fowles, consignment automotive auctioneers, to whose yard the vehicle had been sent by IAG after its recovery. Their Sydney premises are at 144 Moorebank Avenue, Moorebank and their yard was at Smithfield. George denied seeing those letters. At transcript ("T") 45.32 this evidence was given: "Q. They were certainly addressed to you at an address where you lived up until March 2007? A. It was April. I wasn't there in April." George clearly accepted that he lived at Cronulla until some time in March 2007. The loss is alleged to have occurred during the night of 28 to 29 March 2007. I just do not know (because of a lack of evidence) as to when George returned to live at Lugarno, although Mr Carolan, for IAG, clearly accepted that George resided at Lugarno on the evening of 28 to 29 March 2007. Exhibit 2 is a copy of George's Access Advantage Cheque Statement from 1 March 2007 with the ANZ Bank that shows transactions at the BP Service Station at Cronulla on 16 March 2007 at 6.19pm and also on 17 March 2007. The exhibit shows transactions at Lugarno on 15 March and a number of transactions commencing on 18 March 2007 and thereafter at Lugarno. I am prepared to accept that George moved to Lugarno on 18 March 2007, ten days before he says he last saw the vehicle. 20The next relevant event, after the taking out of the second insurance policy, was the repossession of the car by VWFS. Paragraphs 30 to 32 of Maria's affidavit are: 30 I recall in about September or October 2006 the employees of the finance company Volkswagen Financial Service Australia Pty Limited (VWFS) came to my place at 57 Coolangatta Road, Beverly Hills trying to repossess the BMW, because George could not pay the monthly repayments on time. I immediately called George and had a conversation with him to the following effect: MH: "The finance company is taking away the BMW." GH: "I'll pay the arrears. I'll fix the problem. Let me talk to the finance company people." 31 I then gave the phone to one of the VWFS employees. After talking to George over the phone, they did not take the BMW away. 32 In about December 2006 the VWFS employees came to my place again and they repossessed the BMW on that same day, for again George could not pay the monthly repayments. I recall on that occasion I clearly said words to the following effect to them: "I have separated from my husband George. George has been paying the car loan. I have never paid nor could I ever afford to pay the monthly payments." The exact date of repossession was 12 December 2006 (Exhibit E, annexure 3). In [13] above I have pointed out the financial position as far as the Hire Purchase Agreement was concerned at 12 December 2006. On 30 January 2007, George paid $7,154.94 to VWFS, reducing the loan balance to $90,958.04. The sum paid to VWFS appears to have covered the arrears owing at that time. Paragraph 35 of Maria's affidavit establishes that VWFS offered to return the vehicle to her: In or about January 2007 VWSF called me asking whether I wanted the BMW back, and we had a conversation to the following effect: VWSF employee: "Do you want the BMW back?" MH: "No, thank you. I do not want it anymore." The vehicle was bailed to George on 16 February 2007. He was definite about that date when interviewed on 12 June 2007. That certainty as to the date must be contrasted with his vagueness at other times both when being interviewed and when giving evidence. In the ROI, he was being questioned about an electronically recorded image of the vehicle. The following was said: Q324 Any idea when they would've been taken? A324 That would've been in January. Q325 Right. So that's when you took possession of it? A325 Yeah. Q326 Now, apart from yourself - - - A326 16 th of the 2 nd Q327 16 th of February? A327 Yeah. 21After the vehicle was given to George, instalments were due to VWFS on 22 February 2007 and 22 March 2007. Both those payments were dishonoured. At 29 March 2007, the day on which police found the vehicle burning, the amount outstanding to VWFS was $91,130.30. 22The vehicle was due to be re-registered on 19 March 2007 but was not (Exhibit 3, p.2). Maria was interviewed on 25 June 2007 by the same assessor who had interviewed George on 12 June 2007. Maria's ROI is also part of Exhibit 8. On the issue of re-registration, Maria said this: Q37 Okay. So the vehicle - who's name is it registered in? A37 Mine, my name. Q38 Would you happen to have the registration papers at all? A38 I gave - oh, I think I do. Because I did give a copy to NRMA also. Hang on, is that it? Yeah, there you go. Q39 Ta. Now, I understand at the time that this car was stolen it was unregistered? A39 Correct. Q40 Are you aware of that? A40 Yes. Q41 And do you know why that is so? A41 Okay. Because the car got repossessed in December of 2006, and so they took it - I wasn't paying for the finance he was, so yeah I don't know, he couldn't afford it at the time, so they repossessed it, and he got it back after because he sold the business or something, whatever he had because that was under his name, he got some money and he paid seven grand or whatever it was, he paid that, got the car - the vehicle back. So he started paying the instalments. Q42 Right. A42 And actually the finance company rang me and they said, "Do you want to", I said, "I can't afford the vehicle, if he wants to take it he can take it", but that's why it wasn't - like, I had nothing to do with it, like he took it anyway, so that's why I thought, I'm not going to register it, it's not - it's no longer mine. So he took it, it's in his possession, he should - if he wanted it he should've, you know, deal with all the registration stuff and that, that's why. Q43 All right. So did you actually receive this in the mail? A43 Yes. Q44 And did you ever let George know that you had it? A44 Yes. Q45 And did he know that the registration was due on the car? A45 Yes. At the commencement of cross-examination, Maria gave this evidence: Q. Mrs Halikiotis, the registration of the vehicle finished on 19 March 2007, do you recall receiving the renewal form? A. Yes. Q. When you received the renewal form, what did you do? A. Well, I did tell him that he had the vehicle that is due for renewal. Q. Can I ask you this, did you telephone your husband? A. I might have - I can't remember if I telephoned him or when he picked up the children. Q. So assuming you got the renewal sometime in early March-- A. That was sent over to the - I think it was sent to my mum's because at the time I had - I was moving houses at the time. Q. Did you give it to your husband before it fell to you for renewal. A. No. Q. When did you give it to him? A. I don't recall giving it to him. Q. Did you post it to him then? A. No. Q. So you simply telephoned him, did you? A. Yes. Q. Or alternatively, you offered the explanation you may have spoken to him? A. To him or - yeah. Q. When he picked the children up? A. Yeah. Maria's position is clear: she told George that the vehicle was due for re-registration prior to the registration expiring. George's position is to the contrary, but I accept Maria's evidence in this regard. 23When interviewed, George said this about the vehicle's registration: Q119 All right. Now, I understand that the registration was due on the - it was due on the 19 th of March, 2007 from what I've been told. A119 So it had lapsed? Q120 Yeah, so at the time of its theft the vehicle was unregistered, were you aware of that? A120 No, I didn't know that. That's probably another - another thing that my ex didn't want me to.... The rego is in her name. No, I didn't know that, that's - that's a bit of a shock, actually. In his evidence George said he was "unaware" that the registration had expired (T44.02) but I do not accept that evidence at all. Furthermore, the alleged ignorance of George ignores these facts: (a) George had been driving the vehicle since 16 February 2007; every registered vehicle has attached to it a registration sticker which will advise the driver, the passengers, the police and any member of the community who looks at the car when the registration will expire; (b) all outgoings in the vehicle had, in the past, been paid by George: he must have re-registered it in 2006 and such an experience one year earlier would lead any reasonable motorist to the expectation of having to do it one year later; (c) at the same time as re-registration is required, so is renewal of Compulsory Third Party Insurance and the evidence is completely silent as to who that insurer was, and as to where the renewal papers were sent: to George at Cronulla, to George at Lugarno or to Maria at Beverly Hills? The inference that I draw is that, owing to his financial position, George was unable to afford to pay for the renewal of the registration and of the CTP Insurance. 24I return to the question of George's financial position. He sold the Jannali delicatessen business in January 2007 (T16.16). He sold it for $80,000 (T17.31). In evidence he said he used the proceeds of sale to pay some debts, not more than "a couple of thousand [dollars]" (T17.46). On 28 December 2006, Energy Australia obtained judgment against George for $1,958 in the Local Court. When interviewed, George claimed to know 'nothing' about that judgment debt but, assuming regularity and due process, he must have been served with the process of the Local Court. At ROI, A550 George said that "that would probably be for my business at Jannali". At A561 he went on to say that 6 months prior (presumably to 28 December 2006) he had changed electricity provider to Integral Energy. The fact that the judgment debt was obtained and remained outstanding at 12 June 2007 (the date of ROI) indicates that George had difficulty in paying the outgoings of the Jannali business. 25The assessor then asked George about a second judgment debt of $6,464 entered on 10 January 2007 in favour of the Westpac Banking Corporation for arrears of mortgage payments. This can only have been in respect of the former matrimonial home at Beverly Hills in which his wife and children were still living. George said he had "no idea" about this judgment debt. 26The evidence does not adequately explain how the proceeds of the sale of the Jannali business were disbursed. However, I infer that the payment made to VWFS on 30 January 2007 was made from the proceeds of the sale. In support of this finding it must be noted that, when she was interviewed, Maria said: Q73 Okay. Do you know how far in arrears he was? A73 When it got repossessed? Q74 Yeah. A74 Yeah, it was about - I think it was about four or five payments behind. Q75 All right. A75 Yeah. Q76 And do you know why it was behind that far? A76 Yeah, well he was selling the business and he - he didn't have any money, that's why he was selling the business so he can get the car back. 27As at 29 March 2007 such evidence as there is indicates this: (a) George owed VWFS $91,130.30; (b) he was in arrears in his mortgage payments; (c) his current account with the ANZ Bank was overdrawn $336.19 (Exhibit 2); (d) he had not paid the renewal of registration of the vehicle and, I infer, of the CTP Insurance; (e) he owed Energy Australia $1,986; (f) he was paying little, if anything, to maintain his wife and children; (g) he probably had a credit card debt or debts (to which subject I shall return later); (h) he had no money in the bank (T13.39). 28What income did George have in early 2007? According to what he told the assessor on 12 June 2007 and what he told me in his evidence, he had cash income from at least one of two sources but there is not a scintilla of evidence, either oral or documentary, to support his assertions. On 12 June 2007, he told the assessor that probably from March 2007 he was working for Gourmet Smallgoods (A30, A31) of Gibson Avenue, Penshurst (A607) as a driver (A33) with use of a van/truck to drive to and from work (A611) earning $500 per week (A577) and that "I'm supposed to be on the books, but we haven't done a tax return yet though ... but I haven't given my tax file number ... because we were supposed to be doing that eventually..." George also told the assessor that whilst working for Gourmet Smallgoods, he was helping out at the Lugarno Deli (A5783). However, in cross-examination, George gave this evidence: Q. ... You told Mr Adams that you were working for the wholesale smallgoods company? A. At the time in June? Q. Yes? A. Yep. Q. How long had you been working for that company? A. It was only for a small stint because at the time he was a friend and he needed a driver for a little while. Again that was another sort of cash job that he needed me to help and that was it. Q. When did you start working for him? A. Again, it was only for two, three months in June, July, August - I can't remember. Q. June, July, August you're sure about that? A. I'm not a hundred per cent sure, no. Q. Is it possible you were working there in March 2007? A. No. Well, again I'm not sure. I'm not - I don't think so. Q. You certainly had a work vehicle, didn't you? A. Not at the time, no. Q. Didn't they give you a truck? A. I had a van to use at their time, in their time, not to take home. Q. Didn't you tell Mr Adams that you had a work truck and that they paid for the petrol in the work truck? A. They did, yes. Q. The truck was yours to be used after hours, wasn't it? A. No, not - I had taken it a couple of times but it wasn't for me to take. There is no documentary evidence from Gourmet Smallgoods, nor was anybody from that business called to give evidence. 29George told me in evidence that in March 2007 he was working at the Lugarno Deli, for his parents, earning between $500 and $700 per week in cash (T20.49). There is no documentary evidence to support such income and neither of George's parents were called to give evidence on any issue, although they could have been called (T46.14). 30For reasons which may be apparent by this time but will soon become clearly apparent, I am unable to accept George Halikiotis as either an accurate, reliable or honest witness. His evidence as to his income in March 2007 is quite unreliable and uncorroborated. I do not accept that in the early part of 2007 he had sufficient income or disposable assets to satisfy his recurrent debt.

The Initial Report of the Loss 31It is common ground that George first reported the loss to the police. That became COPS entry E 29591425. The report was made at 7.24am on Thursday 29 March 2007. The relevant part of the entry is this: Between 19:30 on Wednesday 28 March 2007 and 06:30 on Thursday 29 March 2007 Person reporting had parked and secured motor vehicle GH1272 - 2002 Black BMW X5 on the street in front of the premises at the location. Person/s unknown have stolen the vehicle by unknown means. ******** YES TOW REQUIRED UPON RECOVERY ******** When asked Person Reporting HAS consented to vehicle being examined if recovered.

Note: At the time of the theft vehicle had less than tank of fuel remaining. The matter "YES TOW REQUIRED UPON RECOVERY" might be thought to be prescient but, since George was not cross-examined about that, I drawn no adverse conclusion. The time of this request (over 13 hours before the vehicle was found by police, burning) and George's consent to its being forensically examined are the strongest factors in favour of the cross-claimants. It is to be noted that George told the police that the vehicle was "secured" at 7.30pm on 28 March 2007.

The Version given to the Loss Assessor on 12 June 2007 32In the normal course of human affairs one would think that George's recollections of 28 and 29 March 2007 would have been more accurate and more reliable on 12 June 2007 than it would be later i.e. than when he gave evidence on 3 November 2009 (31 months after the relevant events and 28 months after the ROI). 33This is a condensed version of the relevant events described by George in the ROI. On Wednesday 28 March George did not go to work (A346). He probably went for a drive or may have gone shopping - he could not remember (A347). He drove home to Lugarno and parked the vehicle at 5.30pm (A350) out the front of 13 Renway Avenue (A352). He then walked the short distance to the Lugarno Deli (A351) and helped out [his parents] (A360) and closed the shop up at 7pm (A359). He then walked back home arriving at about 7.15pm (A360) where he saw the car still parked out the front of the house. That was the last time he saw the vehicle (A362). The vehicle was locked (A365), the alarm was working (A374). I interpolate at this point that the alarm is automatically engaged when the vehicle is locked, according to the manufacturer and the expert evidence. All the windows, which were power windows, were up (A379). When he reached home, his parents were already there (A436). After arriving home he watched television and went to bed (A384). He did not go out during the night (A459). 34When the vehicle was purchased, he was given two sets of keys (A392). He was only aware of two sets of keys (A391). At the time the vehicle was lost he had both sets of keys (A408). As to other keys he said this: Q398 So there was no keys left in or attached to the car in any way that you're aware of? A398 No, no. Q399 And have you ever had any keys lost or stolen? A399 No. Q400 Have you ever had any keys duplicated in any way. A400 No. Both keys were kept in his bedroom (A396). No one else had access to those keys (A397). The keys had been handed to him when the vehicle was returned to him [on 16 February 2007] by VWFS (A530 to A533). No one else drove the vehicle after 16 February 2007 (A327). 35George's bedroom was at the front of the house (A419), 15 metres from where the vehicle was parked (A417). Overnight he heard nothing (A420). He then said: Q421 Not a thing, all right. Now, when did you find the car missing? A421 Well, I started - I started work here at, I think it was 6.30, and it was when I walked out to get in to the car, there was no car. Q422 All right. A422 So I had to walk to work. Q423 Okay. And did you notice anything on the ground which may have indicated how they got into the car? A423 No, nothing, nothing, no - - - Q424 No glass, no - - - A424 - - - glass, nothing. Because this like - well I - I was a bit shocked, because I thought, where's it gone, maybe my father moved it or something, you know, like - not that he could, but - because he's never been in the vehicle, you know. Then I went inside to see, you know, whether the key has been moved, and it hasn't been moved. Then I came up to - I came up to the shop and I said to mum, "Mum, have you seen the car?", and she goes, "Isn't it there?", I said, "No", and that was it, like I - I got a bit - I lost it then. He rang the police and reported the loss, from the Deli (A445). Two hours later he rang [IAG] (A439). 36The first that George knew about the recovery of the vehicle was when Kellie from [IAG] Claims rang him (A493) three to four weeks later (A500). He "had to wait a while before [he] heard anything about it" (A501). The police did not ring him (A508) nor was he aware of their ringing any member of his family (A509).

The Version given in Evidence by George Halikiotis 37There are many inconsistencies between that version of events and George's evidence. Attempting to keep to the same order as that version, the following is the substance of George's evidence. On Wednesday 28 March 2007, George went to work at the Lugarno Deli (T23.23) at the usual time around 6am (T23.26). He did not think that he drove the vehicle on 28 March (T24.32). He came home at the "usual time of 6, 6.30" (T24.49). The car was still parked directly out the front of the house (T25.05). Commencing at T31.18, George gave this evidence: Q. Now, when you left the car some time prior to the 28 th , was it locked? A. I'm assuming so. Q. Do you know? A. I don't know. Q. Did you regularly or did you use the-- A. Lock button yes. Q. --the lock button when you left the car usually? A. Yes. Q. And the car was fitted with an alarm, wasn't it? A. Its own factory one, yeah. Q. And how was that alarm activated? A. Explain that, or how do you mean activated? Q. How did you set the alarm? A. To lock and unlock, we just - pretty much by locking and unlocking the car. Q. So when you locked the car using the button on the remote-- A. Yes. Q. --the alarm was activated? A. Yes. Q. Do you recall whether the windows were up? A. They should have been. I don't recall. The thing is, it was parked there. Whether it was unlocked, I'm assuming it was locked. He stayed home that evening with his parents (T25.08). 38He had two keys to the vehicle (T25.39). The second key to the vehicle was hanging up in the kitchen (T25.41 - T25.48). His father "every now and again" used the vehicle (T27.04). Of that he was sure (T27.34). When cross-examined about this inconsistency with what he had told the assessor, George eventually said (at T28.39 to 28.41): Q. Did you tell Mr Adams that, as far as you were aware, your father had never been in the vehicle prior to the morning when you realised it was stolen? A. Yeah, he had been prior, it just wasn't on that time, on that day. He slept at the front of the house (T33.48), 10 to 15 metres from where the car was parked (T34.01). He heard nothing during the night (T33.38), neither the alarm going off (T33.31) nor a tow truck out the front (T34.44). When initially asked in cross-examination what occurred on the morning of 29 March 2007, George said this at T25.11: A. I got up and I had - again went to work and the car wasn't there. I sort of didn't realise - I thought maybe my father might have taken it so I walked to work and it was gone so I rang up the police straight away. Later, commencing at T28.49, he said this: Q. So you came out of the house, found the car wasn't there? A. Yeah. Q. Did you go back and check where the keys were? A. Yeah, I did. Well, the actual key was still in the kitchen. Q. And the other key on the key ring was with you? A. The actual - my house keys and my key, I actually went to the deli first, and wanted to see whether dad was there, but no, I actually came back afterwards, and it was in the kitchen. He was later asked whether he looked at the area where the vehicle had been parked. He said this (commencing at T44.06): Q. When you went to - when you inspected the area outside your house where the car had been parked on the evening of the 28 th ? A. Yeah. Q. Did you see anything on the ground? A. No, I don't think so. Q. There was no broken glass? A. No. Q. No sign of the car being dragged away? A. I don't think so, no. 39George did not receive any call from the police (T36.23). He was unaware whether his mother received a call from the police as his mother did not tell him that she had (T36.40). Similarly, he was unaware of the police calling his wife as she did not tell him that they had called her (T37.08). He then gave this evidence: Q. When did you find out that the car had been located? A. Well, what happened was, because I hadn't heard anything, I actually found - I rang up NRMA and asked, you know, what had happened, and as I said, they have actually recollected it, and I was at the Smithfield Yard, and I said, "Well, I have personal items in there, and I want to find out where it was so I can actually go and get them". I had sunglasses, CDs, bits and pieces. I had the kids' toys in the back, you know, and then they said to me, "Yeah, they had been recollected", and that was it. Q. Now, do you know where the car was located? A. They had mentioned somewhere out west somewhere. Q. Are you familiar with Marsden Park? A. No, I'm not. Q. Never been there? A. No. In paragraph 13 of his second affidavit (Exhibit 13) George had said: At about the end of April 2007, I called NRMA to ascertain what (if anything) had been done with my claim. During that conversation we said words to the following effect: Me: "Has my car been found yet?" NRMA: "Yes. Have you been notified?" Me: "No. I am ringing to see if you can tell what's going on with my claim." NRMA: "The car has been found and it is being held at the Smithfield Salvage Yard." Me: "What happened to the car? I would like to get some of my possessions out of it." NRMA: "You will have to make an appointment to come and see it. It has been damaged by fire, you probably won't be able to get the things you want out of it as they have probably been destroyed by the fire."

Inconsistencies 40The significant inconsistencies arising from these version are: (a) Did anyone other than George have access to the keys of the vehicle? According to the ROI, this question is answered 'no' but according to George's evidence the second set of keys was hanging in the kitchen and could be used by his father. The father was not called to elucidate, when he could have been called. (b) Did anyone other than George drive the vehicle after 16 February 2007? According to the ROI, this question is answered 'no' but, according to evidence, is answered "yes": his father drove from time to time. Again, evidence from his father could have elucidated this point. The answer to the inconsistency given by George in his evidence is, in my judgment, unacceptable when one reads the ROI carefully as a whole. (c) What were George's movements on 28 February? Did he work or did he not? Again, the evidence of his parents may have elucidated this point. (d) When did George check to see if the second set of keys was missing, before or after he went to the Deli? If after he went to the Deli, as given in evidence, why return to the Deli to call the police? (e) Was the vehicle "secured" when parked on the evening of either 27 or 28 March? According to the report made to the police and according to the ROI, this question must be answered 'yes', but in his evidence George was less sure, he "assumed" it was locked. There were good reasons why George ought to have ensured that the vehicle was locked, to which reasons I shall in due course turn. However, a change in his position on this issue would assist his case, in particular the expert evidence called in his case. 41Other inconsistencies require the consideration of further evidence: (f) Did George "lock up" the Deli on the evening of 28 March, arriving home after his parents, as stated in the ROI? According to his evidence, George had no key to the Deli (T25.48). He could not lock up without his parents being present (T26.05). This inconsistency was not explored in further cross-examination. (g) When did George become aware that the vehicle was recovered? The passivity of George in trying to ascertain whether the vehicle was recovered, as given in both the ROI and his evidence, is implausible. As was submitted by learned Counsel for IAG, his disinterest in the fate of the vehicle is explicable by his knowing what had actually happened to it. However, I am unable to accept George's claimed lack of knowledge of the recovery of the vehicle until late April 2007. In her ROI, Maria said: Q121 Okay. Now, did you know that the car had been found? A121 Well, the police did ring me saying that they found a burnt vehicle, that's all I got. Q122 All right. And do you know how long after the theft that was? A122 Oh, no, three days or something. In her evidence Maria said that George telephoned her in late March 2007 to tell her the vehicle was stolen (T79.04 to 79.09). On that same day she received a call from the police (T79.12). This was in "late March" (T81.07) and she agreed that it was probably "on or about 30 March or thereabouts" (T81.10). Her evidence continued at T79: Q. The same day. When you got the call from the police, did you call your husband? A. No. Q. Did you notify him that the car had been located? A. Been located to - where it was burnt or-- Q. Yes? A. Well they told me that it was - that they found the vehicle like at Marsden Park and that's about it. But I didn't even know where Marsden Park is. HIS HONOUR Q. Who told you, was that the police? A. Well, what happened was, two days before, I got a - because the car was registered under my name, I got a phone call saying that we found a burnt vehicle but we can't exactly recall the numberplates because it was that badly damaged. So I was - I didn't know what they were talking about. So I went down to the police station. And they couldn't find that in their records either in the computer. Because another vehicle was coming up. CROSSLAND Q. The other vehicle was your Commodore wasn't it? A. His Commodore because those plates were on the Commodore that he actually trade in for the BMW. Q. Yes. So after you went down to the police station-- A. Mm-hmm. Q. What did you do then? A. Well, I've put in a statement. I wrote a statement over at Riverwood saying that, "I don't know, can you please" - because I was in - I didn't know what happened that's why I went down there to find out. Q. You didn't call your husband? A. I think I did call my husband. Q. And when was that? A. Probably I don't know two days later. Q. So in early April, you had a conversation with your husband? A. Yes. Q. And do you recall what you said to him? A. I just said that, "Someone's called me saying about a burnt vehicle with these number plates". That's all I recall. Q. Do you recall what he said? A. It's been so long, I can't remember. Maria then made a call to IAG "[b]ecause I wanted to get answers" (T80.17) and she then again called George (T80.30). This was in "early April" (T80.42). On Maria's evidence, which I accept, George was well aware that the vehicle had been recovered, burnt, in early April 2007, perhaps as early as 2 April or 3 April. George's lack of knowledge of the recovery of the vehicle until late April 2007, I can only accept, is feigned.

Earlier Losses 42George admitted that, prior to this loss, he had had three vehicles stolen. The first was a Jeep Cherokee which he owned "for a little while" (T32.34), the second was a Mitsubishi Scorpion which he owned jointly with his father, perhaps in 2002 (T33.15) and the third was a white BMW 218i stolen in 2003 (T33.18). The order I have just given is the order given in cross-examination and it may not be chronologically accurate - but nothing turns on this. No defence is raised by IAG of either non-disclosure or misrepresentation nor was it suggested to George Halikiotis that he was in any way complicit in the theft of the earlier vehicles. Rather, IAG relies on George's earlier experiences of motor vehicle theft to point out that George, more than most other motorists, had good reason to ensure that when he left his vehicle parked in a public place, such as a street, it was properly secured. I have referred to this argument in 40 above. The argument is, in my judgment, a sound one.

Further Considerations of George Halikiotis' Credit 43I did not form a favourable impression of George as he was giving evidence. In addition to the inconsistencies to which I have referred, there are two further aspects of his evidence which demonstrate his unreliability. At [13], [20] and [21] above, I have pointed out the difficulties that George had in repaying the loan for the purchase of the vehicle. Cross-examination of him on those issues commenced at T10: Q. And how much were your repayments for this vehicle? A. 1500 a month. Q. You had trouble making those repayments, didn't you? A. Did I? No. Q. You didn't? A. Well, no. Q. Are you sure of that? A. Yes. He was then shown the document which became Exhibit 1 and was further cross-examined. At T12 the following evidence is recorded: Q. Do you still say you had no trouble paying for this car? A. There might have been dishonoured fees but I still paid - that's my banking misjudgements that I'm not good at with banking any way; I'm a worker, I'm not a - not good with my own paper work. Q. So every month you failed to meet your payments? A. Not every month but I had - yeah. Q. Was there one month there that I missed? A. I had, I had problems with my marriage, I had issues. Q. The fact is, sir, you just didn't have enough money to meet the payments, did you? A. Definitely not, I always had money, always was a cash business. In addition to the excuses of not being good with his own paperwork and having matrimonial difficulties, the following excuse was later expressed (At T43.29): ... what happens was we had separated in November 06 and then she kept it for over a year. And then I found out that her boyfriend was driving it and I didn't want to be paying it. That's why all the dishonoured fees and all that happened because I didn't want to pay for that amount of money for that sort of car and her boyfriend was driving it. And then it just, oh no, the kids and the kids and I take them to school. Okay, well I'll keep paying, keep paying. Until subsequent - well, if I'm paying for it, I should be driving it. These are unacceptable excuses and the excuses are inconsistent with his initial evidence that he had no trouble making the payments. These excuses are unacceptable because a direct debit had been set up to pay the instalments, but they were constantly dishonoured. George did not have the money to pay the instalments and the evidence in that regard I have already canvassed. 44At [42] above I discussed George's earlier losses. The theft of a motorist's vehicle is, fortunately, not commonplace. To have previously had three vehicles stolen is most unfortunate and it appears to me to be something relatively rare and thus not easily forgotten. Some of George's answers in cross-examination on this subject are completely unsatisfactory. He admitted to "some problems with cars going missing previously" (T32.01). He then gave evidence of the theft of the white BMW 218i in 2003 from the front of the matrimonial home at Beverly Hills. The cross-examination then continued (commencing at T32.26): Q. Have you ever had any other cars stolen? A. Prior to that, maybe, I can't remember. I really don't. Q. How many cars have you owned? A. I've lost count. I've had a Mitsubishi Scorpion, I had a white BMW, I had a Holden Commodore, I had a Club Sport, the BMW. Q. Did you ever own a Jeep Cherokee? A. Yeah, I did have a Jeep Cherokee for a little while. Q. That was stolen, wasn't it? A. Yeah, it was stolen. Q. When was that? A. I don't remember. Q. You don't remember? A. No. Q. When did you own it? A. I really don't remember when I owned it. It was a while back. In between - it would be in between - I can't remember whether it was either before or after the white car. Q. And you had a Mitsubishi Sigma? A. A Scorpion. Q. That was stolen as well? A. That was jointly with my father, that one. Q. It was stolen though? A. Yeah, it was. Q. When was that? A. I know, I actually remember, that was done, that was actually, that was taken around the back of the shop there actually, but I don't remember where it actually was. Q. Would that have been 2002? A. Might have been. Q. And the white BMW taken in 2003? A. Yep. Q. Correct? And when was the Cherokee stolen? A. Did I have that after the white one, or? HIS HONOUR Q. We're asking you? A. I'm not sure, sir? CAROLAN Q. So you had three cars, four cars stolen now, isn't that right? A. Yep. Q. So you'd be pretty careful about securing them outside when they're out in the street, wouldn't you? A. I suppose, yeah, of course. The number of "I don't remember" answers strains credulity. 45In his ROI, George said the following about credit cards: Q613 Okay. Credit cards? A613 Yeah, the Westpac one. Q614 Westpac one? A614 Yeah. Q615 All right, so what's your limit on that? A615 I think it's 6000, by the looks of it. Q616 So you're obviously up to - - - A616 Yeah, maxed out. At T14.26, George commenced to give evidence about credit cards: Q. Did you have a credit card? A. Not that I can remember. Q. Sure about that? A. I can't remember. At T15.28, the cross-examiner returned to this issue and the following evidence was given: Q. Let me ask you the question, did you have a credit card? A. Well, the answer is yes. OBJECTION (CASSIMATIS). QUESTION UNCLEAR. HIS HONOUR Q. Mr Halikiotis, you have previously been asked did you have a credit card and you said you did not remember. You were asked whether you had a Westpac account and you said you could not remember. You were asked whether Westpac sued you and obtained default judgment against you and you said you were unaware of that? A. That's correct. Q. Now the questions you're being asked at the moment are about a credit card and not about the ANZ Bank, do you understand? A. I'm-- Q. Right, did you have a credit card? A. No, I don't remember having one. Later George was cross-examined about what he had told the assessor about credit cards: Q. You were asked a question there a question 613 about whether you had any credit cards? A. Mm-hmm. Q. And you referred to the Westpac credit card? A. There you go. Q. Do you recall that? A. It's on the paper. Q. Well, does that refresh your memory? A. I honestly don't remember that I had said that so-- Q. Well, did you have a Westpac credit card in March 2007? A. Again, I don't remember although I have said on this here I don't remember - actually recollect saying it, so-- Q. Well, did you have a Westpac credit card in March 2007? A. Again, I don't remember although I have said on this here I don't remember - actually recollect saying it, so-- Q. That was then as you described it, "maxed out to its limit" of $6,000? A. Right by the looks of it. Q. You said to Mr Adams that you were going to go to Westpac and enquire about that, didn't you? A. So it says. Q. Did you do that? A. I didn't obviously. George's vacillation on this topic is unacceptable. Initially he did not remember having a credit card but then frankly admitted that he did and the substance and tone of what he said dearly debunks his earlier lack of memory. However his Counsel then objects, the inconsistency is displayed and he reverts to the earlier lack of memory. The truth is that he did have a credit card, as he admitted to the assessor. 46On a review of all this material, I am unable, as I stated earlier at [30], to accept George Halikiotis as either an accurate, reliable or honest witness. I am unable to accept his evidence on any contested issue unless it be corroborated.

The Expert Evidence 47The cross-claimants relied on evidence, called by Counsel for George Halikiotis, from Mr Ross Douglas Squire, a Master Locksmith and Certified Forensic Locksmith, the principal of ABC Forensic Services Pty Ltd. IAG relied on evidence adduced from Mr Leslie Mitchell Fuller, also a Master Locksmith and principal of Maxim Forensic Locksmith Services. Mr Fuller initially examined the burnt out vehicle on 5 July 2007. Mr Squire did not examine the vehicle until 4 and 5 June 2009. At those times, the vehicle was at Mannheim Fowles salvage yard at Smithfield. 48As Mr Fuller was the first in time to examine the vehicle, it is convenient to commence with his initial opinion. That is contained in a report dated 13 June 2007, being annexure A to his affidavit (Exhibit 6). At the commencement of his report, he provides the following synopsis: The drive-away theft of this 2002 BMW X5 requires three security systems to be defeated;

The ignition lock's latch-blot (or 'lock-pin') must be defeated to allow steering of the vehicle.
The ignition wiring system must be configured in such a way as to allow power to flow continuously through the engine as well as a momentary supply of power to engage the starter motor.
The Engine Immobiliser System must be defeated to allow full operation of the engine management system to release the engine to run. During the course of my examination of the burnt-out BMW X5, I found no evidence of accident damage or significant stripping of the vehicle, though all but the passenger's rear wheels were missing wheel nuts and although these wheels were of an OEM (Original Equipment Manufacturer) design, there existed the possibility that these wheels were not the original for this vehicle. Although I identified no positive evidence of a forced entry event, the fire had consumed the paint and the rubber seals and the door alignments had been warped due to the intense heat which may have masked certain entry events so that it will never be determined if a forced point-of-entry event occurred or not. I found no evidence of damage or distortion to steering column, steering shaft's latch-bolt receptors or to the latch-bolt itself to indicate the latch mechanism was defeated by force to allow steering of the vehicle. Due to the intenseness of the fire, I was unable to confirm whether the ignition wiring had been tampered with to provide a 'hotwire' bypass or not, or if the ignition switch had or had not been removed from the lock assembly to allow for manual operation of the switch - it should be pointed out that until the engine immobiliser system has been defeated operation of the ignition switch will have no effect on starting and running the engine. Although I identified no positive evidence of bypass by force or manipulation to the ignition lock, as I was only able to recover 3 of the original 8 ignition lock wafers and therefore was only able to examine these wafers - there existed the potential for the lock barrel to have been neutralised to allow a flat-tow event (via a tow rope and another vehicle for example) or a push away event. Having said that, I would expect to identify tool marks or damage to the remaining 3 wafers had such a lock barrel bypass event occurred. I recovered significant ignition lock assembly components, including the lock barrel, latch-bolt and the ignition lock wafers, on the driver's floor in a localised position under the steering column and in the top layer of debris. Further to this, I found the ignition lock components resting on a layer of windscreen glass, indicating the lock was complete and attached to the steering column at the time of the fire. As there appeared to be no attempt to defeat the lock barrel by force to release the latch-bolt and therefore the steering wheel, I believe the last operation of the lock assembly was via the correct rotation of the lock barrel's core. After a microscopic examination of the ignition lock's wafers, I found no evidence of damage or tool marks to indicate a foreign object had been used to turn the lock barrel's core by force or manipulation. I was able to confirm the engine immobiliser system was in place and had not been defeated before the fire was set to allow for a drive-away theft of the vehicle. I concluded the engine of this vehicle was last started with the use of a correctly coded key not only because of the lack of evidence to suggest force or manipulation was used to release the steering wheel, but also as there was no evidence to suggest the complex engine immobiliser system had been defeated. 49The matters in dispute between the experts are within a small compass. Neither expert could find any positive evidence of forced entry into the vehicle. However, the extent of the fire damage precludes certainty on this topic. The corollary is equally true: there is no evidence which positively proves or supports a contention that entry was forced. If entry were forced (which would indicate that the vehicle was locked), then the OEM alarm would have been activated, but there is no evidence from any person that the alarm was heard during the night of the loss. 50In cross-examination, Mr Squire agreed that there was no evidence that any of the doors of the vehicle had been "jemmied" and said that this would not be a method of entry to such a vehicle. He said that the only other ways were: (c) with a key; (d) by breaking a glass window, or (e) by surreptitious means. Mr Squire gave as examples of the latter means "lock manipulation" which was "quite unlikely" or intrusion into various areas of the vehicle's external panels to allow bypass of the central deadlocking system. There is no evidence of the latter surreptitious means. On the subject of broken windows, Mr Squire said this in cross-examination: Q. Now did you look in the window cavities of the glass cavities? A. I did. Q. And would you agree with Mr Fuller's observation that it appeared that the windows on the near side, that the passenger side had been up the time the fire had commenced? A. I don't really recall clearly. I was unsure and really made no further observations, so I can neither confirm or deny that. Q. You say in your report that the near glass, and I'm looking at paragraph 3.4, "The glass was destroyed by fire"? Q. Yes, and then in 3.4.2 you say that "Door and glass frames and seals were destroyed by fire"? A. Yes, that's literally just an open determination. It doesn't suggest that it was broken beforehand, it doesn't suggest that it failed through thermal shock. Simply that the area had been destroyed by fire. Q. Yes, and then in 3.4.2 you say that "Door and glass frames and seals were destroyed by fire"? A. Yes. Q. You know that Mr Fuller, in his report, records that observation that some of the door seals, the window seals remained in intact? A. No, and I really don't believe - from any recollection that they were all in intact. Q. No, I didn't say "they were all in intact". Part of them remained in intact? A. Parts of them. But if that's just part, it's not sufficient for me to is that they are intact. Q. No, but it's also different to saying they were destroyed by fire? A. No, not at all. If I believe that I can't make any clear determination it will be left open. In that the area has been destroyed by fire and is no longer suitable for any clear determination to be reached. Q. Would you disagree with Mr Fuller's observation that the passenger and front and rear windows tracks contained remnants of the rubber seals to indicate those windows were most likely offering some protection to the rubber? A. Certainly, I wouldn't disagree with him at all. Q. Would you also agree with his observation that there was little or no glass within the passenger front and driver's rear door cavities, indicated that those windows were more likely wound up at the time of the fire? A. He certainly has had the benefit of examining the vehicle a good deal earlier than I have. But I have no reason to call in any argument. Q. Certainly. And would you also agree with his observation that the remnants of the glass within the driver's door cavities was clean of smoke stains, indicating it was most likely at the time of the fire that window was down? A. I have no reason to doubt his findings. Having carefully considered the findings made by Mr Fuller, and Mr Squire's concessions, I can find no evidence to support the proposition that entry was gained to the vehicle by the smashing of any window. This suggests that the only means of access to the vehicle was by use of a correct key or by opening an unlocked and unalarmed door. 51Assuming that an offender obtained access to the interior of the vehicle, unless he had a key he would need to overcome, firstly, what Mr Fuller described as the "ignition lock's latch-bolt (or 'lock-pin')" and which Mr Squire described as the "Ignition Steering Lock Assembly" or ISLA. Unless the ISLA were overcome, the vehicle could not even be towed away or pushed away. The distance form 13 Renway Avenue, Lugarno to the site where the vehicle was recovered was at least 54.1 kms (Exhibit 10). It is possible that the vehicle was pushed for a short distance and then towed for a much longer distance, but such a scenario assumes that the ISLA were overcome. There is no direct or positive evidence that it was overcome. 52To be driven to the site at which is was recovered, an offender, unless he had a key, would have had to overcome what Mr Fuller descried as the "Engine Immobiliser System" (EIS) at which Mr Squire described as the 'Engine Control Unit' (ECU). There is no direct or positive evidence that it was overcome. 53The final statement by Mr Fuller in the synopsis quoted above is that the vehicle was last started with the use of a correctly coded key, for the reasons there stated. On page 22 of his report which is annexure A to his affidavit of 30 July 2007 (Exhibit C), Mr Fuller said this: While the Maxim report contains some flaws, and some forensic procedures are questionable, my investigation confirms beyond doubt its central conclusion, that the subject vehicle had been last operated under its own power using a correct key. 54Mr Squire explains thus the operation of the EIS/ECU and the keys to the vehicle in his report: 4.3 Stage two- Immobilisation of engine This vehicle type is equipped with a transponder based OEM electronic engine immobiliser, which forms the second stage of immobilisation and operates as follows: 4.3.1 Transponder - Meaning to transmit and respond, a transponder is a device that receives a predetermined signal from another device and transmits a response. In engine immobilisation systems the transponder responds to a signal from a vehicle's engine management/immobiliser system. The transponder is typically found encased within the plastic head of a vehicle's door/ignition key and/or remote device. 4.3.2 Passively armed and disarmed - Because this type of engine immobiliser is armed and disarmed passively the driver requires no additional thought or action to activate or deactivate the system. This means that unless a key is left in the ISLA it is not possible for the driver to forget to activate it. 4.3.3 Inductive coupling - ON rotation of a mechanically and electronically correct key to the "ON" position, an aerial coil, fitted to be within close proximity the ISLA and its key, generates an electro-magnetic field which then inturn energises the transponder within the head of the key. At this time a specially encrypted code is transmitted via the aerial coil from the Engine Control Unit (ECU) to the transponder chip. On verification of this unique code, transmitted from the transponder chip, the ECU will allow the engine to start and continue to run. This type of communication that requires no mechanical connection between the key and aerial coil is known as inductive coupling. Section 6.5 of his report needs to be considered: 6.5 Match to vehicle confirmed, key mileage I visited Trivett Classic BMW at Parramatta and spoke to workshop foreman Richard Hatherly, who electronically interrogated the subject keys and provided a print out of the key data. This confirms that the keys are a match to subject vehicle's VIN, and also shows the odometer reading last recorded against each key. The mileage last recorded against key 1 is 105,228 kilometres and for key 2, 105,291 kilometres. As the vehicle's odometer was destroyed no comparison against either key is possible. Clearly the distance travelled by the vehicle is last recorded on each key. The difference between key 2 and key 1 is 63km which needs to be compared with the 54.1kms mentioned at [51] above, recorded in Exhibit 10. This established what it is likely that key 2 was last used to drive the vehicle. 55Section 4.1 of Mr Fuller's report makes comment about the vehicle's keys. It is this: 4.1 General Notes The electronic keys for this model BMW cannot be produced by a locksmith or key-cutter. New keys must be ordered through a dealership after proof of ownership has been provided. The VIN is used to order the new key from BMW. There are 10 keys made at the factory - 4 keys are supplied with the vehicle from new and the remaining 6 keys are kept in Germany. As the spare keys are already programmed to the vehicle, the new key will operate all locks and start and run the engine without any further programming procedures. I received 2 OEM (Original Equipment Manufacturer) main operative keys from NRMA Insurance regarding this vehicle. As there are 4 OEM keys supplied with this vehicle from new and I examined 2 keys, it was clear there were at least 2 original keys unaccounted for - 1 service key and 1 plastic emergency key. That the vehicle was originally supplied with four keys is confirmed in section 6.1 of Mr Squire's report, who sets out an illustration by BMW, from what I infer is the owner's manual. There is no dispute that the valet key and the emergency plastic key remain unaccounted for. 56At [47] above, I noted the times at which inspections were carried out, firstly by Mr Fuller and much later by Mr Squire. By the time of Mr Squire's examination of the vehicle the interior was choked with vegetation and debris. When he examined the front passenger's footwell he noted that the glove box had burned closed and latched-shut. His finding continued thus: ... It was at this time that I discovered the presence of the owner's compendium (log books etc) in the car and debris, just forward of the passenger seat. The fact that the carpet beneath the compendium was untouched by the fire rules out any possibility that these books were moved post fire or displaced by fire brigade intervention. In image 10 of his report on page 10, he noted that "the compendium was open on the floor in the front passenger's footwell prior to the fire being set". In paragraph 6.2 of his report he said this: ... As noted I found the vehicle's manual and log book were on the floor and opened when the fire was set. This was confirmed by the fact that the carpet beneath the books was undamaged by the fire. The presence of the open books on the floor indicates that someone had been looking through the folder and its contents prior to the fire. It is possible that the perpetrator/s had come upon these keys, or was aware that they are stored in this area. From my time as an automotive locksmith I found it was common in vehicles of this type for the keys to remain stored in the glovebox area, with the owner at times unaware of their existence. After agreeing with Mr Fuller's "central conclusion", that the vehicle had last been operated under its own power using a correct key", Mr Square continued thus: 8.3 Vehicle possibly driven with emergency key or valet key The question then becomes, which key, and how did a thief obtain it? As noted, with this vehicle type, the valet and emergency keys are stored from new with the vehicle's books. It is not uncommon, in my experience, for owners of this type of vehicle to be unaware that they have additional keys stored in the owner's compendium. Arguably, it is conversely not uncommon for thieves to be aware of the existence of these keys. It seems possible, even likely then, given the physical evidence, that a thief had entered the vehicle, perhaps by smashing a window, rifled through the owner's compendium to find the spare keys, leaving the books opened on the floor, and then used one of the keys to steal the vehicle. Given these facts, careful consideration should be given to the care and custody of all keys. This, together with another observation of Mr Squire, is a central plank in the case argued by the cross-claimants. 57This, Mr Squire correctly conceded in the penultimate paragraph of his report, is merely an hypothesis. To accept that the valet and/or emergency key(s) of the vehicle were left in the driver's compendium is merely supposition or speculation. I wholly accept that when the vehicle was sold to its initial owner(s), the vendor, presumably a BMW dealer, supplied the four keys initially supplied by the manufacturer. Thereafter one has to make assumptions: (a) the initial owner(s) left the 2 keys in the compendium without moving them elsewhere, potentially allowing an easy theft of the vehicle; (b) if there were any intermediate owner(s) of the vehicle between the initial purchaser(s) of the vehicle and the Halikiotis, they did likewise; (c) the two keys were in the compendium when the vehicle was sold by Trio (2000) Pty Ltd trading as Prestige Auto Trackers Balmain and their presence in the compendium was not drawn to the attention of either George or Maria by the salesman, Mr Nicholls (Exhibit A, paragraphs 12 and 14); (d) neither George or Maria consulted the compendium or inspected its contents and were always unaware of the presence of the two keys in the compendium; (e) the two keys remained in the compendium when the vehicle was repossessed by VWFS, servants or agents of which never inspected the compendium or, if one did, that person(s) permitted the keys to remain in the compendium; (f) the two keys were in the compendium when the vehicle was bailed to George on 16 February 2007; and (g) George thereafter remained unaware of this presence in the compendium until the loss. 58In such circumstances, to find that it was "likely" or probable that an offender rifled through the glove box and found a spare key and used it to steal the vehicle would be inverting the onus of proof. Especially is that so when one considers the evidence of both Maria and George that there were only two keys and the fact that neither of Maria or George gave any evidence about the compendium at all: whether either of them inspected the compendium or opened it and looked for spare keys or, for example, that they asked Mr Nicholl's about a valet key or an emergency key. 59The other observation made by Mr Squire and relied upon by the cross-claimants concerns the ignition lock, in particular the ignition lock wafers. These are explained by Mr Fuller in section 3.2 of his first report, which section also sets out his findings in respect of the wafers: (i) It should be pointed out that this lock assembly is easily defeated by force. Manipulating the lock barrel is possible, though this is typically an unlikely choice of semi-professional automotive thieves as the time taken is unpredictable as are the results. This is in contrast to the well known methods of defeating the lock assembly by force where the time-frame is well known to be only minutes. (ii) It should also be pointed out that this lock barrel utilises a 'side-winder' wafer system (see Annexure B at the end of this report for a detailed description of this system). The wafers used in this lock have a much narrower key-contact surface - the key-contact surface is approximately 1/3 the width of most other standard type wafers. This means there is less of a 'target' for the operator of [sic] the work with. Although the side-winder system will not defeat a determined and skilful manipulation attempt, it will necessitate more time engaged and therefore there should be more evidence of tool marks to the key-contact surfaces of the wafers. (iii) The ignition lock of this vehicle uses an 8, horizontally opposed wafer configuration. The barrel is also designed with high tolerances which make it a formidable lock barrel to defeat by manipulation. These wafers also employ serrations to the leading edges that will interlock with the reciprocated serrated wafer-contact ledges of the lock barrels inner surface and jam the wafer it if is not correctly aligned with the lock core. These anti-manipulation devices will not ultimately stop a professional thief from manipulating the lock, though the extra time and effort required is translated into more prominent tool marks created to the key-contact surfaces of the wafers. (iv) I examined the key-contact surfaces of all 3 recovered ignition lock wafers at between 6.5X and 50X magnification. (v) I did not identify any evidence of tool marks to the keyway entrance of the lock to indicate tools had been used to apply a turning force to the lock core typically done during a manipulation attempt. (vi) I identified no evidence of tool marks to the wafer's key-contact surfaces to indicate manipulation tools had been active in the keyway of the ignition lock barrel. (vii) I found no evidence of force or damage to the keyway or the key-contact surfaces of the ignition lock wafers to indicate tools had been active in this ignition lock barrel in an effort to force the lock core. (viii) Although I did not note any markings that may be made when a freshly cut key is inserted into a lock, the effects of fire on these wafers may have masked such an event and I was unable to determine if a new key had or had not been inserted into this lock. (ix) I noted no compression marks to the key-contact surfaces of the wafers to indicate any of the wafers had been forced to turn while miss-aligned and being forced out of the lock core. (x) I noted only normal operational wear patterns to the wafers top and bottom surfaces. (xi) Inter-alloying had begun to affect the key-contact surfaces of all recovered wafers. This was strong evidence that the ignition lock barrel was most likely attached to the lock assembly on the steering column at the time of the fire as temperatures can reach levels to create this phenomenon as opposed to the relatively cooler area of the floor. The inter-alloying had only begun as the key-contact surface was mostly intact. [I have replaced Mr Fuller's bullet points with roman numerals to assist reference]. Paragraph (viii) of this excerpt assists the cross-claimant's case. 60Section 6.8 of Mr Squire's report consists mainly of magnified images of the wafers with appropriate captions. The substance of Mr Squire's observations is contained in the text of the section: Microscopic examination of the wafers pre-cleaning revealed damage to wafer 1-2, which had been contained unprotected in a bag with other exhibits ... The damage could have been caused by the recent introduction of a foreign key, a damaged key, or a new or nearly new key into the cylinder, possibly the missing service/valet or emergency/wallet key. Less likely, but possible, is that the damage was caused by incorrect storage and handling of the exhibits following the first forensic examination by Maxim Forensic Locksmiths ... Further microscopic examination, following ultrasonic cleaning of the wafers, revealed additional damage to wafer 1-2 in the form of striations across the key active surface, and also similar damage to the other recovered wafers. This tends to confirm that an unused key or a key of differing condition had been recently used in the cylinder. 61Mr Fuller provided a second report, dated 12 October 2009 (part of Exhibit 6), which is a report in reply to Mr Squire's report. The text of the relevant part of the report is this: Squire observed damage and markings that he believed [...tends to confirm that an unused key or a key of differing condition had been recently used in the cylinder.] He also states that less likely, but possible, is that the damage was created by my packaging of the exhibits, which I have conceded may have caused damage. Having said that, I am not in agreement of Squire's analysis of the markings to the wafers for several reasons apart from my belief that the plastic emergency key could not score the brass surfaces of the wafers to any significant degree; Squire's Image 20 [page 16] indicates a single short striation on the peak of the key-contact surface that appears to be brighter than the surrounding brass surface. Had this scoring been due to a damaged key, I believe that the striation would 'roll' across much of the key-contact surface and not just the peak of the surface. I would also expect a bright scoring created before the fire to have 'dulled' the surface texture to the same surrounding texture after the fire damage. Squire's Image 22 [page 17] indicates a similar single short striation and I propose the same arguments as above. Squire's Image 24 [page 18] indicates several diagonal striations which again appear bright. I cannot accept that a key, whose movement is restricted to only insertion and withdrawal and could only make parallel scorings (along the key insertion direction) to the wafer's key-contact surfaces, had created these diagonal markings. Squire's Image 26 [page 19] indicates a large 'patch' of bright scoring to the reverse side of the key-contact surface. Again I believe the fire would have 'equalised' the texture of the brass to its surrounding area after the fire. It is also unusual that similar characteristic markings do not appear on the other wafers. I also believe the insertion and removal of a key in only a limited cycle consistent with a theft event could create such an expansive patch of burnishing as is apparent here. It is also a point in contention with all the wafers that similar marking are not replicated to all recovered wafers. This leads to my final disagreement with Squires [sic] analysis. Squire's Image 28 [page 20] and Image 30 [page 21] show what he describes as [ ...note the striations not apparent prior to ultrasonic cleaning. ] I can only assume (as no arrows are used to specify the target of the descriptions) Squire is drawing attention to the numerous thin and parallel grooves/striations crossing the key-contact surfaces. I have examined over 50 BMW vehicles that use these same ignition lock wafers and it has been my experience that these numerous thin and parallel striations are the norm rather than the exception. I also believe this is due to normal operational usage. My hypothesis of the occurrence of such markings is simply that small particulars of dirt/grit may attach to the key's active surfaces when the key is in a pocket or a bag etc and the grit is rubbed across the wafer's key-contact surfaces over the years. This report then continues, as did Mr Squire's, with images taken from Mr Squire's report with Mr Fuller's captions / comments. Mr Squire's image 24 (the subject of the third bullet-pointed paragraph above) is reproduced (with cropping) with this comment: Image 13 shows a cropped copy of Quire's Image 24 [page 18] indicating several diagonal striations which again appear bright. I cannot accept that a key, whose movement is restricted to only insertion and withdrawal and could only make parallel scorings (along the direction of the key insertion) to the wafer's key-contact surfaces, had created these diagonal markings. On this point, Mr Fuller gave this pithy evidence (T73.48): Q. When a male part goes into a female part, it would need to go in horizontally not diagonally? A. Correct, yes. 62I prefer the evidence of Mr Fuller to Mr Squire's on this aspect of the matter for these reasons: (a) I do not accept that the plastic emergency key, used only once, could score the brass wafers to any significant degree; (b) Mr Fuller's evidence about diagonal striations I found convincing; (c) the single insertion and removal of the valet key or its insertion and removal on a very limited number of occasions were unlikely to have caused the extent of the striations / burnishing discussed by Mr Fuller and Mr Squire; (d) Mr Fuller's experience in examining over 50 BMW vehicles with the same ignition lock assembly and the findings he has made on such inspections is also convincing; (e) at [59] above I pointed out an aspect of Mr Fuller's first report which assisted the cross-claimants' case and the same concession was made by him in section 6.2.1 of his first report; in cross-examination by Counsel for the first cross-claimant Mr Fuller gave this evidence: Q. Do you say, do you, in your first report, at 6.2.1 in the second paragraph, that the insertion of the a freshly cut key or the tool marks made by a -sorry, I withdraw that. You say that: "It may be argued that there was evidence of lighter inter-alloying several ignition lock wafers areas as to the potential of like markings to have been made, such as those made by the insertion of a freshly cut key." A. That may have been masked. Q. Yes? A. Yep. Q. And the valet key is a metal key? A. Yep. Q. Is it still the case that you say that a valet key could not cause the striations in the wafers? A. Yes, in that statement I'm making it may be argued, I'm offering another scenario, it's plausible - it's possible, I should say that a tool, a key, a foreign object may have been inserted in the keyhole of this lock, in the keyway, but because of the fire damage very light markings, such as the insertion of a new key, may be masked. That's the essence of that paragraph. Q. Yes, but you don't agree with Mr Squire when he says that a metal key, such as the valet key could have caused it? A. No and that's for the same reason, when I direct you back to image 13, that's the reason why I'm saying no. Q. So do you realise the proposition that I'm putting to you? That you say that it is possible and Mr Squire's suggestion that it is possible, but you're toady coming to court and saying that it's impossible? A. Okay, what I'm saying -okay, it's possible, it is possible. And I've said it is possible in that 6.1.2. However, the concession of a possibility does not establish any probability and looking at Mr Fuller's evidence in its totality it is clear that he did not accept the hypothesis argued by Mr Squire and Mr Fuller's observations render the possibility extremely remote; and (f) if the plastic emergency key was used it would have been consumed in the fire but remains of the valet key (made of nickel-silver) would have survived but none was found (cf Mr Fuller's second report, section 3.1). If an offender took the vehicle merely to go joy riding and ultimately decided to "torch" the vehicle, why would he bother removing the valet key? 63Other methods of stealing the vehicle have been discussed by the experts but they are all implausible e.g.: (a) a partial or all-up lifting of the vehicle would bypass all the vehicle's safety devices, but, as Mr Fuller pointed out in his first report, one would expect to see substantial stripping of the vehicle to justify the time / effort / cost of such an event; (b) a donor component theft kit could be used; this would require an offender to have such a kit, taken from another vehicle, and to remove the relevant components of the vehicle to be taken out, the donor kit to be inserted and, in the current case, for the donor kit to be removed, the original components reinserted, reattached and the vehicle restored to its original conditions, by someone who then merely "torched" the vehicle: see the evidence of Mr Fuller, in cross-examination T71.40 to 73.21. 64The final piece of expert evidence that needs to be considered was given by Mr Fuller, again in cross-examination, at T68: ... the majority of authentic theft of the BMW locks or bypass of the BMW steering columns of this design, is simply by force. A large pair of vice grips, hammer and chisel and breaking the lock barrel away, that's the most common, because it's guaranteed to succeed. It's a fair bit of effort. But it's - it's, you know, known by the thieving community that that is effective and it's the best option. You might be able to order keys. You might be able - manipulate the lock is - it's possible. It's highly unlikely because of the fact that it's so - it requires so much skill, you really need to be practising as a locksmith, to be doing this constantly and no matter how skilful you are, there's always a chance that you won't succeed. And you've wasted so much time, it doesn't make sense to do that in preference of breaking a lock. The modus operandi of this loss, if theft, is unusual. These vehicles, because of the transponder-based EIS/ECU, cannot be "hot-wired" in the common way: Mr Squire's report 4.4.

The Policy of Insurance 65On page 13 of the Policy Booklet this provision is found: "If your vehicle is stolen and found damaged...... we will decide whether to ............ pay you

the agreed value, or
the market value depending on the cover shown on your current Certificate of Insurance" Both cross-claimants rely on this provision. 66In addition, Maria, the second cross-claimant, relies on the provision on page 15 o f the Policy Booklet: "If your vehicle suffers loss or damage caused by vandalism or a malicious act we will decide whether to ............ pay you
the agreed value, or
the market value depending on the cover shown on your current Certificate of Ins urance" 67On page 29 "general exclusions" commence. On that page appears this exclusion: "we will NOT cover ............ loss or damage
caused intentionally by you, or a person acting with your express or implied consent ......" 68On page 31 are listed "liab ility exclusions". On that page appears this exclusion: "we will NOT cover damage to property that you, or the person responsible for the damage, own or have in their custody, control or possession." However, IAG did not rely on th is exclusion in its defence to either cross-claim. 69On page 69 of the Policy Booklet commence to be listed "Things that may put your claim or insurance cover at risk." On page 71 appears this: "We may refuse a claim, cancel this policy, or do both if you, or anyone covered under your Policy
is not truthful and frank in any statement made in a claim, or in connection with a claim..." The appears to me to be the second "exclusion" pleaded by IAG in each of its defences. 70The Policy Booklet contains a Glossary. That provides the following definitions: Malicious act an act done with intent and without your consent. you the person or persons named as the insured on your current Certificate of Insurance. If more than one person is named as the insured, we will treat a statement, act, omission or claim by any one of these people as a statement, act, omission or claim by all those people. vandalism all malicious acts. Although 'malicious act' is defined, there is no definition of 'malicious acts' but the intention of the policy is clear and I ignore the difference in number given in the definition of 'vandalism'. 71There is no other relevant definition. In particular, there is no definition of "stealing" or "stolen". The past participle of the verb 'to steal' must be given its ordinary meaning. Stealing, theft and larceny are synonyms. Crimes Act 1900, section 117 provides the penalty for larceny but does not define the offence which is still governed by the common law. The elements of larceny are: (a) the accused took and carried away (b) the personal goods (c) of another (d) with intent (e) of depriving the owner of such property (f) without his consent See Croton v The Queen (1967) 117 CLR 326 at 328 per Barwick CJ.

The First Issue at Trial 72At [7] above I listed the issues tendered for my determination. The first issue is whether the vehicle was "stolen and found damaged". The onus is upon the cross-claimants to establish the facts that entitle either of them to rely on the policy. That the insured is George Halikiotis is clear from the Certificate of Insurance (Exhibit 9). George must establish on the balance of probabilities that the vehicle was "stolen" and later "found damaged". Maria bears the same onus insofar as she relies on this provision of the policy. The following have not been proved on the balance of probabilities: (a) forced entry into the vehicle: it must have been left unlocked or entry was obtained by using a correct key. I have discussed the inconsistencies in George's evidence as to whether the car was secured at 40 above. Clearly his initial position was that the vehicle was "secured". His backsliding in evidence was perhaps to fit in with the hypothesis advanced by Mr Squire; (b) that there were an emergency key or a valet key in the driver's compendium in the glove box of the vehicle, a subject I have already canvassed at length; (c) the taking and/or asportation of the vehicle without his consent. Since the vehicle was driven to the site at which it was found by the police with a correct key and the only two keys were within the power or control of George Halikiotis, relevant elements of larceny have not been established. I must point out that there was no suggestion of any breaking, entering and stealing from the property at 13 Renway Avenue, Lugarno or any entering and stealing from that property and the two keys which he had were given by him to Maria who gave them to IAG which made them available to the experts. 73The first cross-claim must, accordingly, fail. My findings above do not establish a positive case, merely that the cross-claimants have failed to establish that they can rely on the policy: Compania Naviera Vascongada v British & Foreign Marine Insurance Co Ltd (The Gloria) (1936) 54 L1.L.R 35; Palamisto General Enterprises SA v Ocean Marine Insurance Co Ltd [1972] 2 QB 625; Simon v NRMA Insurance Ltd (NSWCA, 22 Oct 1991, unreported); Hammoud Brothers Pty Ltd v Insurance Australia Ltd [2004] NSWCA 366. The second cross-claim must also fail insofar as it relies on this provision of the policy.

The Second Issue at Trial 74Did the vehicle suffer "loss or damage caused by vandalism or a malicious act", the provision referred to in [66] above, relied upon by Maria, but not by George. Since "vandalism" is defined by the policy to mean a "malicious act" the policy wording is pleonastic. Maria must establish damage "done with intent and without your consent", importing the definition of "malicious act". By importing the definition of "your" provided by the policy, Maria must establish, on the balance of probabilities, that the vehicle suffered "damage done with intent and without the consent of the insured". 75I accept that there was a fire deliberately lit in the vehicle causing damage, such that the vehicle was a "write off". I accept that there was arson, which is an intentional act. It has never been suggested that the fire was accidental. However, I do not accept that Maria has discharged the onus of proving that the arson was done without the consent of George Halikiotis. That is not a positive finding that George was complicit in the arson. The Court is not satisfied that Maria has established on the balance of probabilities a necessary ingredient to succeed under this provision of the policy. Relevant considerations, in my judgment, are these: (a) as I do not accept the evidence of George unless it be corroborated, I cannot accept his assertion that the damage was done without his consent, just as I cannot accept that the vehicle was taken and driven away without his consent; (b) on my analysis of George's financial position, relying, inter alia , on the evidence of Maria, George had a motive to dispose of the vehicle: he could not afford to pay either the loan repayments or for its re-registration: he had bought the vehicle for $85,000 21 months earlier and it had an agreed value for insurance purposes of $85,444. George also had the opportunity to dispose of the vehicle: he had its keys and it was in his possession and his whereabouts on the night of 28 to 29 March 2007 and on the evening of 29 March have not been corroborated; (c) many possible motives for why an offender should have stolen and burned this vehicle can be excluded on the available evidence; this was a valuable, sophisticated vehicle and there is: i. no evidence that it was stolen to be "rebirthed" or to be stripped of its valuable components and accessories; ii. no evidence that it was used in any other crime e.g. as a get-away car in robbery, for a drive-by shooting, to be rammed into an ATM, shopfront or shopping mall in order to facilitate theft, to make off with the proceeds of a breaking, entering and stealing and, in particular a breaking entering and stealing at 13 Renway Avenue, Lugarno which included the finding by an offender of spare keys to the vehicle parked at that address, the vehicle then being stolen to make off with the householder's goods (a common modus operandi amongst criminals); iii. therefore, in effect, only leaving the suggestion that the vehicle was taken for the purposes of "joy riding", for temporary transport from Lugarno to Marsden Park, a distance of 54.1km by the most direct route and then the vehicle's being "torched" by an offender, presumably to destroy fingerprint and DNA evidence; iv. to be added to this last factor are the difficulties of taking and driving this vehicle without proper keys, when, on the evidence, it was last used under its own power by a correct key. 76In making my findings on the first and second issues at trial, I have not overlooked the observations I made at [31] above, that the time of the report of the loss by George, at 7.24am on 29 March 2007 (over 13 hours before the vehicle was found by police, burning) and George's consent to the vehicle's being forensically examined were the strongest factors in favour of the cross-claimants. The first of those factors preoccupied my attention during the hearing; it would be foolish of someone to drive a vehicle on public streets, over a long distance, after it had been reported stolen. However, a number of things could have occurred which could only be rebutted by evidence from George which, in light of my finding on credit, would require corroboration. Of course, a foolish risk could have been taken. Equally the vehicle could have been driven to Marsden Park during the night of 28 to 29 March but not set alight until the following evening. Equally, the vehicle could have been driven to some intermediate place on the night of 28 to 29 March, perhaps not too far from where it was eventually found, and then driven to that place on the evening of 29 March and then set alight. The second factor carries much lesser weight: since George had been the usual driver of the vehicle since 16 February 2007 (and, quaere , whether his father had also driven the vehicle during that period) one would expect to find his (or their) fingerprints and/or DNA on or in the vehicle in any event and this discovery forensically would not indicate complicity in the loss of the vehicle.

The Third Issue at Trial 77The first positive defence pleaded by IAG in the exclusion I have recorded at [67] above. In light of my findings on the first and second issues for trial, it is unnecessary for me to consider the exclusion clause. Before an exclusion clause is applicable, there must first be a valid claim under the policy. The policy must cover the risk involved. I have held that the cross-claimants have failed to establish that the policy covers the loss. It is therefore not necessary to apply the exclusion clause. Were it necessary to apply the exclusion clause, the onus of proof would be on the insurer, IAG, to establish that the exclusion applied: Sutton, Insurance Law in Australia (2 nd edition) 1991, [9.81], p.556; Derrington and Aston, The Law of Liability Insurance (2 nd edition) 2005, [10-22], p.809. Were it necessary to apply the exclusion clause, IAG would have to prove that the arson of the vehicle was caused by George Halikiotis or by a person acting on his behalf. I am not called upon to make such a positive finding. 78Pari ratione , it is not strictly necessary to consider the second positive defence pleaded by IAG, which, as I said at [69] above, appears to be based on the policy provision I set out in that paragraph. However, it is appropriate to make some observations on this "defence". When interviewed by the assessor of 12 June 2007, George was asked to provide certain information to IAG: i. Statement for his Westpac Credit Card (Q617 - A62); ii. ANZ Bank Statements (Q638 - A642) for March and April 2007 (Q651); iii. RTA Driving History (Q646); iv. Telephone records for the Lugarno Deli showing calls made to the police and IAG (Q648); v. Mobile Telephone records for the period 26 March to 30 March 2007 (Q647); vi. Telephone records for the land line at 13 Renway Ave, Lugarno for the same period (Q650). Some of these documents were produced to IAG "2 to 3 weeks" before 19 November 2008, on 19 November 2008 and 8 December 2008 (Exhibit D) but what the documents were is not clear from that exhibit. One must note the time delay - from 12 June 2007 to very late October 2008, at the earliest, a delay of over 14 months. VWFS had commenced proceedings against George and Maria Halikiotis on 12 February 2008. George commenced the first cross-claim on 12 January 2009. Exhibit 3 is a letter from IAG to George Halikiotis, regarding his claim. On page 2, the first new paragraph to commence is this: The following has not been forthcoming, A copy of the loan statement for the period of December 2006 - April 2007 A copy of your ANZ Credit Card statement for the period of March 2007 A copy of the Westpac Credit Card statement for the period of March 2007 A copy of your itemised mobile phone statement for March 2007 (Number: 0416 689 070) A copy of your home phone statement for March 2007. 79It is clear from cross-examination that George did not produce documents numbered (i) above: T19.16. He also did not provide records numbered (v) above as "[t]hey wouldn't give me an itemised phone because it was a pre-paid account at the time" (T41.08). According to the ROI, his mobile pre-paid telephone was with Vodafone (A464) but pre-paid call records, it was suggested to him, could be obtained from the Internet (Q473). The matter is further complicated as Exhibit 2 (ANZ Bank Statements) shows an attempt to pay Vodafone $1,320.28 on 26 March 2007, the payment being dishonoured. The complication is compounded when one notes that George told the assessor his mobile phone number was 0416 698 070 which is the number for which IAG requested records but the COPS entry (Exhibit 4) shows his mobile number as 0405 907 772. 80The question then arises as to whether George was "truthful and frank" when interviewed by the assessor. It is impossible to know which of George's various statements (if any) be truthful. If he were truthful in his evidence to me, he was not truthful when interviewed by the assessor. If he were truthful when interviewed by the assessor, he was not truthful before me. Were it necessary to decide, I would decide that George Halikiotis was not honest and truthful in making his claim and, therefore, that IAG was entitled to refuse his claim. However, that might give rise to the provisions of s 54 of the Insurance Contracts Act 1984 (Cth), which was not the subject of any submission by any party.

Fourth Issue at Trial 81Notwithstanding the findings I have made on the first two issues at trial, Maria claims that she is entitled to succeed because of the provisions of section 48 of the Insurance Contracts Act 1984 (Cth). The provision is this: Entitlement of named persons to claim (1) Where a person who is not a party to a contract of general insurance is specified or referred to in the contract, whether by name or otherwise, as a person to whom the insurance cover provided by the contract extends, that person has a right to recover the amount of the person's loss from the insurer in accordance with the contract notwithstanding that the person is not a party to the contract. (2) Subject to the contract, a person who has such a right: (a) has, in relation to the person's claim, the same obligations to the insurer as the person would have if the person were the insured; and (b) may discharge the insured's obligations in relation to the loss. (3) The insurer has the same defences to an action under this section as the insurer would have in an action by the insured. In essence Maria says that as the vehicle was taken and carried away without her consent and damaged and/or suffered damage done with intent without her consent, she is entitled to rely on the policy. Does the section give to Maria a greater right than that enjoyed by the insured or, perhaps to put it more appropriately, give her a right to recover which the insured does not have? 82The second cross-claimant cited Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107, Barroora Pty Ltd v Provincial Insurance Ltd (1992) 26 NSWLR 170 (Brownie J) and Commercial Union Assurance Co of Aust. Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 389. The first decision is very well known and requires no further consideration. On one view of section 48, the section merely enshrines the ratio of that decision in statute. The third authority cited was affirmed in the High Court: (1993) 176 CLR 332, but the authority provides me with no assistance as it concerns section 54 of the same Statute. 83The facts and the nature of the litigation in Barroora can be gleaned from the first two paragraphs of the judgment: BROWNIE J. This is an action upon two insurance policies, only one of which is presently relevant. By that policy (the Combined Policy) the defendant undertook to indemnify "the insured" against loss of or damage to certain property by fire. Certain of that property was destroyed by fire on 13 June 1991, but the defendant asserts that that fire was deliberately lit by one or more of the "principals" of the first plaintiff "Barroora", either directly or through some agent or agents. It does not suggest that the second plaintiff, BLE Capital Ltd (Capital) was in any way involved. On 13 December 1991, I ordered that certain questions be separately decided. For the purposes of that separate hearing, evidence was led without objection, but upon the agreed basis that the evidence showed that the questions so posed were not hypothetical; that the evidence was not led for the purpose of any question being decided except those separate questions; and in particular that the evidence was not led for the purpose of resolving any question concerning the alleged arson, or the quantum of the claim. Commencing at 181D his Honour said: Is Capital entitled to be indemnified, if it should be held that the fire was deliberately ignited by or on behalf of Barroora? In my judgment the effect on this case of the decision in Trident General Insurance Co Ltd v McNiece Bros Pty Ltd is that the defendant is bound to indemnify both Barroora and Capital. If that is correct, it follows that the defendant's liability to those two companies is a several liability, because their respective interests are several: Lombard Australia Ltd v NRMA Insurance Ltd (1968) 72 SR (NSW) 45 at 50-53; 89 WN (Pt 2) (NSW) 70 at 74-77; and therefore that if Capital was not implicated in the supposed arson of Barroora, it is entitled to be indemnified against its loss: Lombard , P Samuel and Co, Ltd v Dumas [1924] AC 431 and V L Credits (at 76,055ff). On the other hand, in Trident General Insurance Co Ltd v McNiece Bros Pty Ltd , McHugh JA said (at 288): "To be able to sue at common law the beneficiary must be a person who is specified or referred to in the contract, whether by name or otherwise. The insurer is entitled to the same defences as he would have in an action brought by the promisee-party. Moreover, so that the insurer will not be liable at the suit to the promisee-party, the latter will need to be a defendant in the action." That statement is of course entitled to the most respectful consideration, although it is not a part of the reasoning which led his Honour to conclude that McNiece was entitled to be indemnified. I have previously summarised that chain of reasoning, appearing at 284-287. His Honour equated the position in respect of liability insurance with the position concerning bankers' letters of credit, and then turned to the question concerning the old rule that consideration must move from the promisee, before coming to the passage which I have just quoted. Earlier (at 275) his Honour had listed the issues which were before the Court of Appeal, and these issues did not include any matter discussed in the second and third sentences of the passage I have quoted, except perhaps whether McNiece breached any condition of the policy. Perhaps that it what his Honour was intending to refer to, for he went on (at 289) to say that the failure of McNiece to give timely notice of the claim as required by the policy conditions, should be excused under the provisions of s 18 of the Insurance Act 1902. If that is what his Honour meant, there is no inconsistency between his view and the view that I have expressed: each party entitled to indemnity, whether or not the named insured, must suffer loss by fire without deliberate conduct on his part, and must comply with the policy conditions, before being entitled to be indemnified in a particular situation. If however his Honour meant something more extensive, then I respectfully conclude, first, that what he was said was obiter; and secondly, that the succeeding judgment of the High Court casts doubt upon its validity as a general or universal proposition. See in particular Toohey J, in the passage already quoted, Brennan J (at 136ff) and Deane J (at 152-153) (where his Honour pointed to the problems involved if the named insured purported to terminate the contract). I do not mean to say that one can extract any binding authority from the dissenting judgments: cf Federation Insurance Ltd v Wasson (1987) 163 CLR 303 at 314; but I do consider that the judgments delivered in the High Court require trial judges to consider carefully to what extent the obiter dictum of McHugh JA (with which the other members of the Court of Appeal agree) should be treated as binding. Independently of these considerations, I doubt whether the second sentence in the passage I have quoted was intended by his Honour to mean that in that case Trident was entitled to raise against McNiece the same defences which it could have raised against Blue Circle, and only those defences. For example, it seems to have been treated as axiomatic that it was the failure of McNiece to make a timely claim that was significant; and it is easy to contemplate situations where claims might be made by both a named insured and by some other person, who generally speaking was entitled to be indemnified. If in those circumstances separate actions were commenced by each claimant for indemnity, a payment made towards the satisfaction of one claim will not ordinarily be regarded as partly satisfying the other claim; a release by one claimant would not of itself necessarily release the insurer from its liability to the other claimant; and if the action of one claimant were to be held to be statute barred, or if the proceedings brought by one claimant were struck out for want of prosecution, or for breach of an order of the court, it is difficult to imagine that that would of itself automatically amount to a defence to the other action. This, of course, supports the second cross-claimants' contention. 84IAG cited GIO Australia Ltd v P Ward Civil Engineering Pty Ltd [2000] NSWSC 371 (Simpson J) and General Motors Acceptance Corp Aust v RACQ Insurance Ltd [2003] QSC 80 (Muir J). However, some earlier decisions need to be considered. Section 48 was considered by Giles J in Commonwealth Bank of Australia v Baltica General Insurance Co Ltd (1992) 28 NSWLR 579. His Honour's consideration of the provision is very helpful but what was before him was limited. This was a separate trial of various questions. At 581D his Honour said: On 24 July 1992, it was ordered that certain questions be tried separately and before any other questions in the proceedings. Adapting their terms to the descriptions used in these reasons, they were:

Whether the Bank was entitled to bring these proceedings pursuant to: (a) s 48 of the Insurance Contracts Act 1984 (Cth) (the Act); or (b) the common law.
If the answer to 1(a) was yes, whether Baltica was entitled, as against the Bank, to rely on: (a) the non-disclosure defence; and/or (b) the arson defence in answer to the Bank's claim.
If the answer to 1(b) was yes, whether Baltica was entitled, as against the Bank, to rely on: (a) the non-disclosure defence; and/or (b) the arson defence in answer to the Bank's claim. At the commencement of the hearing Baltica conceded that question 1(a) should be answered yes and question 2(b) should be answered no. As a result, the real question between the Bank and Baltica was whether Baltica could rely on non-disclosure by Messrs Karpathios and Jackos and Erolbay Pty Ltd as a defence to a claim by the Bank pursuant to s 48 of the Act. The insurer there conceded that a defence of arson would not defeat the Bank's claim under s 48. His Honour referred to Barroora at 585D but pointed out that in that decision there "was no discussion of s 48(3) or of why the defence of arson was not available to the claim under s 48(1)." His Honour held that on a proper construction of s 48, an insurer can rely on non-disclosure by the insured as a defence to a claim of a third party under s 48(1). 85A similar issue arose in CE Heath Casualty and General Insurance Ltd v Grey (1993) 32 NSWLR 25 (Mahoney, Clarke and Meagher JJA) on appeal from Rogers CJ of Comm D. The holdings provided by the headnote are these: Held : (By Clarke JA and Meagher JA) (1) As the Insurance Contracts Act 1984 nowhere imposes any pre-contractual duty concerning disclosure or misrepresentation on a person covered by a contract but not a party to it, the insurer could not rely on that person's failure to disclose or misrepresentation as a defence under s 48(3). (46D-47A, 49A) V L Credits Pty Ltd v Switzerland Insurance Co (1989) 5 ANZ Insurance Cases 60-936, doubted. (2) A claim under s 48(1) by a person not party to the contract may nevertheless be resisted by the insurer under s 48(3) on the grounds of the insured's pre-contractual non-disclosure or misrepresentation. (47A-D, 48G,49A) At 41E Mahoney JA said: In my opinion s 48(3) enables Health to rely on a defence of avoidance for breach of the principle of good faith. The subsection, in referring to "the same defences ... as he would have in an action by the insured" does not, of course, refer merely to the defences which, having regard to the defaults of the insured party, would be available to Health against the insured party. The subsection does not require the position as between Health and the third person directors to be determined by reference alone to the facts which would be pleaded and relied upon in a proceeding by the insured against Health. Those defences may, of course, be available. But the operation of s 48(3) is, I think, not limited to authorising Health to raise those defences. The purpose of the subsection is to enable Health to rely, against the third person directors, on defences of the kind which would be available against the insured. It is, of course, necessary for the insurer to establish the facts necessary to bring those defences into operation. Thus, if the policy stipulated that the claim must be made within two days, that defence would, on the face of it, be available against both the insured and the third person. Assume a claim was lodged by both, the former outside and the latter inside the subjected time. The defence against the third person, as such, could not succeed. Those defences would include a defence of avoidance based upon breach of the principle of good faith. A breach to be relied upon would not be limited to a breach by the insured; the effect of s 48(3) is that it would extend to a breach by the third person. Clarke JA (with whom Meagher JA concurred) discussed s 48 at length from 43C to 48F. His Honour did not accept the reasoning of Tadgell J in VL Credits Pty Ltd v Switzerland General Insurance Co [1990] VR 938, which his Honour set out at 46E. It is that form of reasoning that the present second cross-claimant asks me to adopt. At 48D, his Honour expressed this view: What, I think, is clear from s 56(1) is that the insurer may refuse (subject to s 56(2)) to pay a claim that is fraudulently made but remains otherwise bound by the terms of the contract. Where, therefore an insured makes a fraudulent claim that would not, as it presently seems to me, affect another claim for the same loss made by a person entitled to recover its loss pursuant to s 48(1). Where, for instance, an insured destroys its own premises by firing them it would not be entitled to maintain a claim under a policy in respect of the damage to those premises whereas nothing in s 56 would appear to affect the right of an innocent mortgagee named in the policy from claiming in respect of the loss it suffered as a consequence of the fire. This is consistent with Brownie J's opinion in Barroora Pty Ltd v Provincial Assurance Ltd (1992) 26 NSWLR 170 that the insurer's liability to each at common law is several and an innocent mortgagee could, in the example I have given, recover under the common law. In the present matter I am not considering "a fraudulent claim" but a claim under a policy which neither the insured (George) nor the third party (Maria) has established is covered by the policy. 86The section came before the Court of Appeal (Priestley, Meagher and Powell JJA) again in McDonald v CE Heath Underwriting and Insurance (Aust) Ltd (1997) 9 ANZIC 61.362. The headnote is this: MacDonald was a consultant with an accounting firm. CE Health Underwriting & Insurance was the firm's professional indemnity insurer. Under the firm's professional indemnity policy: (i) the firm was indemnified against defined claims (Section I); (ii) cover was extended to employees and consultants (Section II); and (iii) "the assured firm" was not entitled to indemnity in relation to claims made by persons induced by the firm or an employee to invest in an entity operated or controlled by the firm or its employee and in which the firm or its employee held an interest (Section III). The firm was sued for damages by a client who claimed that she had been given negligent investment advice by MacDonald. The firm paid out the client and then sought indemnity from MacDonald. MacDonald in turn claimed indemnity under the professional indemnity policy. The insurer denied liability. The trial Judge found that MacDonald was: (i) liable to indemnify the firm; but (ii) not entitled to indemnity under the policy because the circumstances of the client's claim fell within the Section III exclusion. MacDonald appealed to the Court of Appeal of New South Wales against the latter finding, arguing that: (i) the Section III exclusion applied only to "the assured firm" and not to him, a consultant; and (ii) Heath was not entitled to refused cover pursuant to sec 48(3) of the Insurance Contracts Act 1984 (Cth) (the section gives the insurer the same defences to an action by a non-party insured as it would have had against the insured). Held : appeal dismissed. (1) Section II extended, to the categories of person named in it, the cover provided by Section I. Section II did not give independent cover for any relevant liability those persons might cause to the firm. What was extended was the same cover as provided by Section I to the insured firm. The client's claim was an excluded claim so far as the insured firm was covered, and therefore did not fall within the cover of the policy so far as MacDonald was concerned either. (2) It was not necessary to consider the sec 48 point. At p.77,010 Priestley JA (with whom Meagher and Powell JJA concurred) said: In terms of the present case the "insurance cover" referred to is that of the assured firm and does not extend to Mrs Aleksanian's claim. The person referred to in the subsection as "that person", Mr N. MacDonald, would not have a right greater than that of the assured firm and on the construction being assumed for present purposes pursuant to which his cover was wider than that of the assured firm, he would not be within the provision. Put slightly differently, s 48(1) seems to me to be dealing with cases where (i) cover is provided by a contract of general insurance to a party to that contract and (ii) that cover is extended by the contract to a person specified or referred to in the contract. In those circumstances the person has a right to recover in accordance with the indemnity provided to the contracting party. 87Chronologically, the next relevant decision is GIO Australia Ltd v P.Ward Civil Engineering Pty Ltd (supra). That was an appeal by way of stated care from the Local Court. The facts of the matter were these: 2 In March 1993 Mark Maddison was the registered owner of a Ford Falcon motor vehicle in relation to which he held a policy of insurance issued by GIO. Pursuant to the policy GIO was obliged to indemnify him in relation to certain defined events. The first such event is identified in the policy as "Defined Event A" and relates to legal liability incurred for loss of or damage to property (other than the insured vehicle) occurring as a result of the use of the vehicle. The indemnity so afforded extended to legal liability incurred by any person besides Maddison who, at the time of incurring the liability, was in charge of the vehicle with Maddison's express or implied consent. "Defined Event B" is of no present relevance. "Defined Event C" relates to loss of or damage to Maddison's own vehicle. 3 The policy specifically excluded indemnity for liability incurred by a person who at the time the liability was incurred was not licensed to drive. The exclusion was itself subject to a qualification and did not apply to loss or damage to the insured vehicle, or to legal liability incurred by Maddison when the vehicle was being driven by an unlicensed driver unless Maddison knew or should reasonably have known that the driver was unlicensed. 4 On 1 March 1993 Maddison's vehicle was being driven by Schmitzer with Maddison's authority. Schmitzer held no licence to drive. The vehicle collided with and caused damage to a vehicle owned by Ward in circumstances that made Schmitzer liable for that damage. Maddison's vehicle was also damaged in the collision. The damage to Maddison's vehicle came within the policy provisions as Defined Event C. He made a claim on the policy and GIO met the claim. 5 Ward commenced proceedings against Schmitzer, claiming reimbursement for the costs of repairing the damage to its vehicle. Schmitzer did not defend the claim and default judgment was entered against her. She too made a claim on the policy, relying on the extended cover provided in relation to Defined Event A to persons other than the policy holder. GIO declined to indemnify her on the basis that she was an unlicensed driver and therefore came within the exclusion referred to above. It may here be mentioned that the claims made by Maddison and Schmitzer were made jointly in a single claim form. 6 It is to be observed that the qualification on the exclusion has no present relevance or application. It applies to loss of or damage to the insured vehicle (that is, Maddison's Ford Falcon) or to the incurring of a legal liability by the policy holder (that is Maddison). It does not prevent application of the exclusion in relation to liability incurred by unlicensed drivers. The exclusion has the effect that an unlicensed driver, even one who has the authority of the owner of the vehicle to drive it, is not entitled to indemnity under the policy. The qualification is intended to protect the position of a policy holder who in good faith authorises the use of the insured motor vehicle by a person who is, without the actual or constructive knowledge of the policy holder, unlicensed; it is not designed or intended to afford cover to an unlicensed driver; indeed it is designed and intended to do precisely the opposite, that is to maintain the exclusion in relation to unlicensed drivers, whilst deflecting its impact on an innocent policy holder. The Magistrate held that Schmitzer was entitled to rely on the policy pursuant to s 48. At [10] Simpson J said: As to the first of these, I think it is correct that Schmitzer was a person to whom s 48 refers. In appropriate circumstances s 48 would permit her to recover from GIO. However the recovery to which she would be entitled is recovery "in accordance with the contract" (i.e. the contract of insurance.) By the clear terms of the policy, as I have outlined them, while the cover provided by the policy did apply to Schmitzer, that cover was expressly excluded by reason of her unlicensed status at the time of the collision. S 48 does not purport to create an extension of the terms of the contract of insurance, other than to provide standing to claim to a person to whom the policy expressly applies but who is not, in terms, a party to the policy. Nor should sub s (3) be overlooked. GIO remained entitled to the benefit of any defence it had available to it, including the defence arising from the exclusion. S 48, as I have indicated, does not alter any legal obligation or entitlement under the policy other than that of standing of certain persons not expressly named. 88In General Motors Acceptance Corp Aust. v RACQ Insurance Ltd (supra), GMAC, a financier, financed the purchase by the insured of an off-road vehicle which was insured by RACQ Ins. Either the insured or someone at her direction deliberately destroyed the vehicle and the insured made a fraudulent claim for the loss, which the insurer was not required to meet. Muir J had to decide whether GMAC was precluded from recovering its loss under the policy of insurance. Commencing at [15] his Honour said: [15] It is common ground that the person shown on the policy certificate as the insured does not include the applicant. The applicant contends that, insofar as it is concerned, the loss or damage did not occur by "accident" as an event can be "an accident" only if it is "unexpected and unintended from your point of view" (emphasis supplied). Here, it is said, the burning of the car is plainly an accident because it was unexpected and unintended from the point of view of the applicant, even though it was expected and intended from the insured's point of view. [16] I cannot accept this construction. I consider it plain that, in the definition of accident, "your point of view" is a reference to the point of view of the insured. That follows as a matter of construction from clause 3.1, the definition of "accident" and the definition of "you". "You" is the person shown as the insured on the policy certificate. Clause 3.1 relevantly provides - "If ... is shown on your policy certificate, we insure you against theft or damage to your vehicle ...". (emphasis added) Plainly, "you" and "your" are references to the insured. As the definition of "accident" is in the same clause it would be most surprising if the word "your" in it meant someone other than the insured. [17] Moreover, the role of the clause is to identify the scope of the cover. That cover, in the case of clause 3.1, is for "damage to your vehicle", but only where such damage results from an accident. [18] If there had been no definition of "accident" included in the policy, it could not have been argued by the insured that the deliberate damage to the vehicle caused by fire was not the result of an accident. Equally, it would not have been possible for the applicant to contend, credibly, that the damage, although deliberately caused by the insured, should be regarded as accidental for the purposes of clause 3.1. I cannot see that the definition changes this result. It focuses on the point of view of the insured who is the person who has taken out the policy, and thus makes irrelevant the knowledge or understanding of the respondent. [19] These considerations have application to clause 8.1. The applicant asserts that the respondent's claim is not precluded by clause 8.1 because the words "your policy covers you" necessitate the conclusion that the clause relates only to the cover 6 provided to the insured. I find that argument unconvincing. As with clause 3.1, clause 8 identifies the extent of the cover provided under the policy. In the latter case, it identifies the cover as being extended only when the vehicle is being used in a prescribed manner. [20] To reach a conclusion contrary to that expressed above would be to alter fundamentally the nature of the risks insured against under the policy. On the applicant's argument, it would be covered by the policy even if, for example, the vehicle was used for business in circumstances in which business use was not permitted under the policy or where the vehicle was damaged when used for the specifically excluded purpose of giving tuition for remuneration. Also, the applicant would be entitled to cover for deliberate as opposed to accidental loss or damage. To my mind, such a result would be rather improbable and ought not be arrived at readily. The appellant relied upon VL Credits Pty Ltd v Switzerland General Insurance Co [1990] VR 938, to which I have earlier made reference. His Honour then said: [24] Doubt was cast on the correctness of the above passage by Clarke JA, with whose reasons Meagher JA agreed, in C E Heath Casualty & General Insurance Ltd v Grey. [25] The applicant's principal difficulty though in relation to s 48 is that its right to recover under s 48(1) is a right to recover "in accordance with the contract". Neither the insured nor any person whose interest is noted on the contract has a right to recover under it for non accidental loss and damage or for damage caused when the vehicle is being used other than in a prescribed manner. [26] Section 48(1) does not operate to extend the scope of cover provided by the policy and a person in the position of the applicant must take the policy as he finds it. In MacDonald v C E Heath Underwriting & Insurance (Australia) Limited, Priestley JA, with whose reasons the other members of the court agreed, expressed the relevant concept this way - "Put slightly differently, s 48(1) seems to me to be dealing with cases where (i) cover is provided by a contract of general insurance to a party to that contract and (ii) that cover is extended by the contract to a person specified or referred to in the contract. In those circumstances the person has a right to recover in accordance with the indemnity provided to the contracting party." 89I accept, as a correct exposition of the law, that which fell from Simpson J as quoted in [87] above and that which fell from Muir J that at last quoted in [88]. The weight of the dicta preceding these decisions indicates to me the correctness of these decisions. A third party beneficiary to a policy of insurance has, subject to the terms of the policy itself , no greater rights than the insured person(s). The judgment of Brownie J in Barroora rests on his view that there were several liabilities owed by the insurer to the beneficiaries of the insurance policy. 90Here, neither George nor Maria has proved an entitlement to rely on the policy because neither has proved on the balance of probabilities that the vehicle was taken without the consent of George or that it was damaged by a deliberate act done without George's consent. The terms of the policy must be applied, in particular the definition of "you" quoted in [70] above. It is clear that by any "statement, act, omission or claim" by any of the insured is taken to be the statement, act, omission or claim of each of them (although the terminology used in the policy is a little different: "by all of them"). The construction of s 48 argued by the second cross-claimant would give her greater rights than she would have had she been an insured i.e. a direct party to the contract of insurance, rather than a third party beneficiary who was not privy to the contract and had provided no consideration. Not having proved an entitlement to recover under the policy, not having proved a loss covered by the policy, the second cross-claimant cannot rely on s 48 to recover under the policy.

A Further Issue? 91At [5] above I pointed out that IAG pleaded that George had no insurable interest in the vehicle and that that defence was never pressed. No such defence was pleaded against Maria. However, the final written submission on behalf of IAG is this: "In January 2007 Maria had abandoned any interest in the vehicle when she told [VWFS]'s representative, after the vehicle had been repossessed: "I do not want it any more"." Maria did not want the vehicle as she could not afford the costs associated with it. Nevertheless, she retained an interest in the vehicle, a chose-in-action: she was a co-hirer of the vehicle with George from VWFS and remained liable to the vehicle's legal owner, VWFS, under the hire purchase agreement. The chose-in-action may have amounted merely to a debt, yet it was a legal or equitable "thing" which Maria owned and gave her an insurable interest in the vehicle.

Orders (1)I give judgment for the first cross-defendant against the first cross-claimant. (2)I order the first cross-claimant to pay the first cross-defendant's costs. (3)I give judgment for the second cross-defendant against the second cross-claimant. (4)I order the second cross-claimant to pay the second cross-defendant's costs. It appears that certain ancillary orders ought be made, but I shall hear the parties prior to making any such orders. The ancillary orders that appear to me to be appropriate are: (5)I order the first and second defendants to pay the plaintiff's costs. (6)I dissolve the stay of execution of the judgment entered against the defendants on 30 October 2009.

Amendments 21 November 2012 - Amended title - surnames of plaintiffs only 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: 21 November 2012

Insurance Contract Act 1984(Cth)

Insurance Contracts Act 1994(Cth)

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Judgment (22 paragraphs)

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Legislation Cited (3)

Cases Cited (11)

Cited By (1)