K & M Prodanovski Pty Limited v Calliden Insurance Limited

The defendant's statement of issues 8The defendant has formulated its own statement of relevant issues. These are : (1)Did Calliden elect to repair the vehicle; (2)If Calliden is found to have failed to elect and the most beneficial mode to be adopted by the Court is to pay the costs of repair then the central issues that arise are: (3)Whether the vehicle can be repaired; and (4)What is the cost of repair? (5)On the evidence does the vehicle meet the statutory criteria to be classified as a written-off vehicle for the purposes of s16B (3)(f) of the Act and clause 83C (1) (c) of the Road Transport (Vehicle Registration) Amendment (Written-off Vehicles) Regulation 2011 (No 24)? (6)If so, what is the legal consequence of such a result?

The statutory issue 9It is convenient to commence with the statutory issue, for if the plaintiff wholly succeeds in this respect, all other questions as to the defendant's liability fall away. The statutory question covers issues 1 to 4 inclusive in the plaintiff's lists of issue and 5 and 6 of the defendant's. 10The 'statutory issue' may be simply stated as whether the plaintiff's vehicle is a written-off vehicle for the purposes of s16B (3)(f) of the Road Transport (Vehicle Registration) Act 1997 (No 119) (NSW) ('the Act') such that repair is impossible and thus the only appropriate compensation is for the defendant to pay to the plaintiff the full value of the vehicle less any excess payable. The determination of this question requires the Court to consider a number of sections of the Act and the related Regulations.

The statutory regime 11The Road Transport (Vehicle Registration) Act 1997 (No 119) (NSW) Act came into force in June 1998. However, the provisions in Part 2AA of the Act with which this case is concerned, commenced on January 31 st 2011, by reason of the Road Transport (Vehicle Registration) Amendment (Written-off Vehicles) Act 2010 No 86 . 12The regulations relevant to this issue are in Part 6A of the Road Transport (Vehicle Registration) Regulation 2007 (NSW) which were also recently inserted by the addition of: (1)The Road Transport (General) Amendment (Written-off Vehicles) Regulation 2011, 2011 No23; and (2)The Road Transport (General) Amendment (Written-off Vehicles) Regulation 2011, 2011 No24.

Part 2AA of the Act 13The following sections contained in Part 2AA of the Act are relevant in determining if the plaintiff's vehicle is a "statutory write off": 16B Register of written-off vehicles (1)The Authority is to keep a register of written-off vehicles that records information about vehicles that the Authority has reason to believe: (a)are written-off vehicles ("statutory written-off vehicles"), or (b)were previously written-off vehicles but which have since been repaired and then registered ("former written-off vehicles"). (2)The register is to contain such information and be in such form as the Authority thinks appropriate. (3)In this section "written-off vehicle" includes any vehicle: (a)that has been assessed to be a total loss by a person in accordance with Division 3, or (b)that has been disposed of to an auto-dismantler by a self-insurer, or (c)that has been demolished or dismantled by an auto-dismantler, or (d)that is in the control of an auto-dismantler and is intended to be demolished or dismantled, or (e)that was recorded on the register of written-off vehicles on the commencement day, or (f)that is prescribed by the regulations. 16C Registration of written-off vehicles (1)The Authority must not register, renew or transfer the registration of any vehicle (or if the vehicle is registered, the Authority must cancel the registration of the vehicle) if its vehicle identifier is the same as the vehicle identifier of a statutory written-off vehicle or an interstate written-off vehicle. (2)However, subsection (1) does not apply if the vehicle is the subject of an authorisation to repair and: (a)the application for registration is accompanied by a certificate of compliance in relation to the vehicle, or (b)the Authority is satisfied that the vehicle is of a class exempt by the regulations from the obligation to be the subject of a certificate of compliance. (3)The Authority must not cancel the registration of a vehicle unless it has first given the registered operator of the vehicle at least 14 days' notice of the proposed cancellation. (4)The Authority must not register, renew or transfer the registration of a vehicle if to do so would breach a condition imposed by the Authority on an authorisation to repair. (5)In this section: "interstate written-off vehicle" means a vehicle recorded on a register of written-off vehicles (however described) of another Australian jurisdiction as: (a)a statutory written-off vehicle or similar (being a vehicle that is not permitted to be registered in that jurisdiction by the vehicle registration authority of that jurisdiction), or (b)a repairable written-off vehicle or similar (being a vehicle that may in certain circumstances be registered in that jurisdiction), but only if that vehicle has not been registered in this or another jurisdiction since being so recorded. 16D Authority must refuse certain applications for authorisations (1)The Authority must refuse an application for the issue of an authorisation to repair a written-off vehicle if the Authority reasonably believes any one or more of the following: (a)that the vehicle has suffered non-repairable damage, (b)that the vehicle is prescribed by the regulations as a non-eligible vehicle, (c)that the applicant is prescribed by the regulations as a non-eligible person. (2)This section does not limit the circumstances in which the Authority may refuse the issue of an authorisation to repair. 16E Applications for authorisations (1)An eligible person may apply to the Authority for the issue of an authorisation to repair a vehicle. (2)An application for the issue of an authorisation: (a)must be in a form approved by the Authority, and (b)must be accompanied by a record of an assessment made in accordance with Division 3 that the vehicle has not suffered non-repairable damage, and (c)must be accompanied by any fee fixed for that purpose by the Authority under section 8. (3)The Authority may require an applicant to submit such other information as the Authority thinks fit. (4)In determining an application, the Authority must take into consideration any factors prescribed by the regulations. (5)The Authority may refuse the application or may issue an authorisation to repair the vehicle unconditionally or subject to any of the following conditions: (a)a condition that the vehicle cannot be registered in the name of a person other than the applicant for a specified period or for an indefinite period, (b)any condition of a class prescribed by the regulations. (6)If the vehicle is of a class of vehicles exempt by the regulations from the obligation to be the subject of a certificate of compliance, the authorisation to repair must state that fact.

The relevant regulations 14For the purposes of s16B (3)(f), a written-off vehicle under the Regulations is defined in cl 83B of the Regulations as: 83B Meaning of "written-off vehicle" For the purposes of paragraph (f) of the definition of "written-off vehicle" in section 16B(3) of the Act a notifiable vehicle that has been assessed, in a vehicle damage assessment, as not being a total loss is prescribed if: (a)the vehicle has non-repairable damage and the insurer has decided not to repair the vehicle, or (b)the insurer has decided not to repair the vehicle and intends to sell, or has sold, the vehicle to a person other than the registered operator of the vehicle at the time the vehicle sustained the damage that resulted in it being presented for the vehicle damage assessment. 15The gravamen of the dispute between the parties concerns cl 83B(a), whether the vehicle has non-repairable damage as defined in cl 83C(1)(c). 83C Non-repairable damage (1)Vehicles other than motor bikes or trailers for the purposes of the definition of "non-repairable damage" in section 16A of the Act, the following are prescribed in respect of a vehicle (other than a motor bike or trailer): (c) the vehicle has been damaged by 3 or more of the following indicators of impact damage: (i)damage to an area of the roof equal to or exceeding 300 millimetres by 300 millimetres, (ii)damage to an area of the cabin floor pan equal to or exceeding 300 millimetres by 300 millimetres, (iii)damage to an area of the firewall equal to or exceeding 300 millimetres by 300 millimetres, (iv)damage to the suspension, (v)damage (whether a crack or a break) to any major mechanical component, such as the engine block or transmission casing,

The evidentiary question 16Whether the vehicle sustained non repairable damage of the kind listed in cl 83C(1)(c) was a matter of contention between the experts. Mr Thomas, a witness called by the plaintiff gave evidence that the vehicle had been damaged by all five of the indicators listed in cl83C (1)(c). Conversely, Mr Movizio gave evidence that for the purposes of this clause only the roof and the mechanical components were damaged. This damage fell short of the three indicators required to constitute non-repairable damage.

Mr Thomas' evidence 17Adam James Thomas is the New South Wales manager of Int Vehicle Integrity Centre. On 7 April 2011, Mr Thomas received a request from the plaintiff through its solicitors, Turner Freeman Lawyers, to prepare a Pre Collision Repair Report of the plaintiff's vehicle. Mr Thomas swore two affidavits in these proceedings. 18After identifying the areas of damage to the vehicle, Mr Thomas concluded at paragraph 30 of his 4 May 2011 affidavit that the Lamborghini contained "non-repairable damage" pursuant to subclauses (i), (ii), (iv) and (v) of cl 83C(1)(c) of the Regulations. 19In cross examination Mr Cashion challenged Mr Thomas' observations and at one point put to the witness that his observations were influenced by his desire to assist the plaintiff's case: Q. But by mentioning transfer damage in your affidavit of 17 June you were trying were you not to justify a conclusion that there was damage to the floor pan, correct? A. Correct, I was putting that there was misalignment damage to the floor pan, yes. Q. And that was because was it not, that you wanted to try to assist the plaintiff to satisfy one of the requirements of regulation 83C of the Road Transport (Vehicle Registration) Act ? A. I wouldn't say I'd put it down for an assistance of the plaintiff. I just merely put it down as an observation of my professional opinion of the vehicle. Q. Yes because your objective in so doing was, was it not, to assist the plaintiff to tick that box, correct? A. No. For me, whether it meets the criteria, doesn't meet the criteria is irrelevant. It's what's on the vehicle that I put down on my report and my affidavit. 20In my view, Mr Thomas was a careful and truthful witness who answered questions promptly and thoroughly. His evidence was of assistance to the Court in forming its view as to the extent of damage to the plaintiff's vehicle.

Mr Lajoski's evidence 21Mr Lajoski was the motor mechanic responsible for carrying out the inspection of the plaintiff's vehicle at Int Vehicle Integrity Centre on 12 March 2010. 22In Mr Lajoski's 2 May 2011 affidavit, the deponent set out the processes by which the plaintiff's vehicle was inspected and measured. These measurements formed the basis of both Mr Thomas' and Mr Lajoski's conclusions concerning the extent of damage to the plaintiff's vehicle. 23In cross-examination, Mr Cashion raised serious doubt about the accuracy of the basis for Mr Lajoski's measurements: Q. I suggest that when you took your measurements of the plaintiff's vehicle using the car bench machine you used manufacturer's specifications relating to the L147 chassis and body but the vehicle was in fact an L824 chassis and body, do you agree? A. I'd have to do research on that site but what you've shown me, yes. Q. If that is right, it follows, does it not that when you did your measurements you used the wrong manufacturer's specifications, correct? A. Well, with the car bench if it is the wrong chassis you won't calibrate with the contact machine. Q. Well, if you used the manufacturer's specifications relating to an L147 when measuring an L824 you used the wrong specifications, didn't you? A. Well, again, if it is the wrong - when I-- Q. I am just asking you whether that's right or not? A. I'd have to see - I have to do more research on that to see whether it is. Q. But it is a matter of logic, isn't it, if you used manufacturer's specifications relating to an L147 when measuring an L824, you were using the wrong manufacturer's specifications, weren't you? A. Going by that, yes. 24The basis for this assertion was that the plaintiff's car had a single exhaust, where as the measurements used to assess the damage belonged to the L147 model, which has a double exhaust. 25I am satisfied on the balance of probabilities that Mr Lajoski used the wrong measurements when assessing the plaintiff's vehicle. The vehicle in question had a single exhaust, while the vehicle in the specifications used contained a double exhaust. As indicated by Mr Cashion in cross examination, there were minor yet real differences between these two models of vehicles and these differences significantly undermine the reliability of the plaintiff's expert's opinions.

Mr Movizio's evidence 26Mr Samuel Rocco Movizio is the director of Curren's Automotives Pty Limited. He is a panel beater of over 35 years experience who was asked by the defendant to inspect the plaintiff's vehicle to determine the extent of damage to it. 27The Court viewed Mr Movizio as a very careful witness who exhibited a detailed understanding of his field of expertise. 28Mr Grieves challenged Mr Movizio's evidence in a number of areas in an attempt to highlight either mistakes in his assessment of the vehicle or the impossibility of Mr Movizio's opinion that the vehicle could be repaired. 29Despite rigorous cross-examination, Mr Movizio provided carefully thought out responses, all of which the Court found satisfactory. 30One area of particular contention was whether the plaintiff's vehicle could be repaired to the manufacturer's satisfaction: Q. Will you agree that it is at least possible that the manufacturer's tolerances for the Lamborghini Mercielago, rather than plus or minus three millimetres as per industry practice or tolerance, is nil? A. Could be nil. Q. Could be? A. Yes. Q. If it transpired that that was the manufacturer's specified measure of tolerance, you are unable to say whether or not this vehicle, that is the plaintiff's vehicle, can in fact be repaired to within manufacturer's tolerances? A. I can say that. Q. You can? A. Yes. Q. You have asserted in your evidence that in your opinion it can be repaired to within industry tolerances? A. Yes. Q. Do you go on to assert that on the strength of the measurements taken by Mr Xabregas it can in fact be repaired by your company to within manufacturer's tolerances, even if those tolerances are zero? A. Yes, I can. Q. Surely not for the same price you've estimated. ...Surely you do not suggest that your company could repair this vehicle to within manufacturer's tolerances which could be as stringent as zero for the same price that you've estimated in your affidavit, do you make that suggestion? A. That's correct, if it would have to be reassessed. Q. Yes. Now, because if the manufacturer's tolerance was, as is possible, as stringent as zero, the repair work that would have to be undertaken would have to be undertaken to an extremely high standard, wouldn't it? A. The same standard as what we'd have to do at plus or minus three. Q Surely that can't be so, Mr Movizio? A. The standard is exactly the same, the time might be different, sir. Q. But you surely cannot assert that a vehicle repaired within a tolerance zone of plus or minus three millimetres is not the same as a vehicle repaired to within a tolerance zone of zero. You surely can't make that suggestion, do you? A. Without elaborating I can make that suggestion. Q. By all means elaborate, elaborate if you feel that you should to answer the question sensibly? A. Plus or minus zero, when you start to accumulate measurements, whether they are chassis, body, suspensions, all those components put together will then make up plus or minus three or zero. You have to accumulate all those measurements and make sure that they are all in combination with one another to get the exact measurements. Now, the plus or minus three would then come into play when you're actually repairing the car, so if you want to go - and let's say it's positive zero and you are pulling a positive three and you're pulling it back to zero, you have the opportunity to go to minus 2 if you want to and it's still within manufacturer's - within industry standards, so you have the opportunity to go plus or minus zero and the car will be in perfect alignment in plus or minus three, because you are then measuring, repairing with the consideration that you have suspensions to be taken into account without going into all the detail of this, because you then have to worry about alignment by suspensions, and suspensions then could be way out but if you know the chassis is absolutely perfect, then the manufacturer's specifications on wheel alignments can be out by positive or negative three once again. So if the manufacturer, if it's good enough for the manufacturer, it should be good enough for us. 31A similar detailed explanation was given in reference to discrepancies between Mr Thomas and Mr Movizio's opinion as to damage to the suspension: Q. You assert, do you, that when you examined this vehicle you observed no sign of any damage at all to the suspension, is that your evidence? A. No damage. Q. At all? A. There was discrepancy but no damage. Q. You say that that is the only evidence - I am sorry, I will withdraw that. That that wheel or those wheels that are out of alignment is the only indicator of any suspension inaccuracy, is that right? A. Yes. Q. By the words "suspension inaccuracy", do you mean damage to the suspension as distinct from the wheel? A. No. Q. Are you saying therefore that in your assessment there is no damage at all to any suspension component in this vehicle? A. That's right. Q. Now, what you're saying is this, is it, that according to your observations and measurements? A. Yes. Q. The suspension is presently out of alignment? A. Yes, partly, if I may. Q. And that means, does it not, that the suspension has been damaged? A. No, it doesn't. Q. It needs to be rectified, doesn't it? A. Interpretation of damage in this particular case is not that it needs to be replaced or repaired. It needs to be realigned which is a matter of adjusting by moving screws back and forward and adjusting things. There's no damage. Q. The vehicle in its present condition, so far as it's suspension is concerned, is not in accordance with the manufacturer's specifications, is it? A. Correct. Q. It therefore needs to be rectified so as to be in accordance with the manufacturer's specifications? A. Yes. Q. And that means, doesn't it, that the vehicle has sustained damage to its suspension? A. I still stick with my interpretation of damage.

Conclusion on the statutory question 32Despite lengthy cross-examination, Mr Movizio provided honest and thorough answers in support of his opinion that only two of the five categories of damage listed in cl 83C(1)(c) of the Regulations were present. The reasons for the differences between Mr Movizio's opinion and that of the plaintiff's witnesses arise for a number of reasons. Part of the cause may be the incorrect manufacturer specifications adopted by Mr Lajoski, while others may be a result of a difference in interpretation as to what constitutes damage. Irrespective, counsel for both parties acknowledged that the statutory issue ultimately turned on the Court's preference of one witnesses' evidence over of another. Mr Movizio's evidence that the plaintiff's vehicle only sustained damage in two of the areas listed in cl 83C(1)(c) is accepted by the Court. 33For the above reasons, the plaintiff's vehicle is not a statutory-written off vehicle for the purposes of section 16B of the Act. The plaintiff's amended pleading in this regard fails.

The election issue 34The starting point for determining if the defendant made a valid election is the terms of the policy itself. It is widely recognised that the terms of an insurance policy are to be construed according to the generally accepted principles of contractual interpretation. That is, the terms of the policy are to be given their ordinary meaning in deciding on the intention of the parties as discovered objectively from the whole of the policy. Australian Casualty Co Ltd v Federico (1986) 160 CLR 513. 35The specific clause concerning election reads: If your motor vehicle is not a total loss, we will, at our option repair, pay the cost of repairing your motor vehicle, or make a cash settlement up to the limit of the sum insured at the time of loss less any excess that may be applicable. We will be entitled to any residual value of parts replaced. 36The plaintiff contended that the defendant did not elect to either repair or pay the costs of repair of the vehicle. As a consequence, the only option now available to the defendant is to pay to the plaintiff the full value of the vehicle less the $9000 excess. 37Conversely, the defendant asserted that it made an election to repair or otherwise pay the costs of repair of the vehicle and relied upon a series of letters conveniently contained in Exhibit # D1 as evidence of this election.

The admissibility of Exhibit # D1 38Exhibit # D1 contained a series of correspondence between the parties which the defendant asserted constituted evidence of its election to repair or pay the costs of repair of the vehicle. 39The first letter, being that of 20 April 2011 from Turks Legal to Turner Freeman was not objected to, but the balance of the correspondence commencing with Turks Legal 23 September 2009 letter was. The basis of the plaintiff's objection was that the letters were marked "without prejudice" and were therefore not admissible. 40Section 131 of the Evidence Act 1995 (NSW) provides: Exclusion of evidence of settlement negotiations (1)Evidence is not to be adduced of: (a)a communication that is made between persons in dispute, or between one or more persons in dispute and a third party, in connection with an attempt to negotiate a settlement of the dispute, or (b)a document (whether delivered or not) that has been prepared in connection with an attempt to negotiate a settlement of a dispute. (2)Subsection (1) does not apply if: (a)the persons in dispute consent to the evidence being adduced in the proceeding concerned or, if any of those persons has tendered the communication or document in evidence in another Australian or overseas proceeding, all the other persons so consent, or (b)the substance of the evidence has been disclosed with the express or implied consent of all the persons in dispute, or (c)the substance of the evidence has been partly disclosed with the express or implied consent of the persons in dispute, and full disclosure of the evidence is reasonably necessary to enable a proper understanding of the other evidence that has already been adduced, or (d)the communication or document included a statement to the effect that it was not to be treated as confidential, or (e)the evidence tends to contradict or to qualify evidence that has already been admitted about the course of an attempt to settle the dispute, or (f)the proceeding in which it is sought to adduce the evidence is a proceeding to enforce an agreement between the persons in dispute to settle the dispute, or a proceeding in which the making of such an agreement is in issue, or (g)evidence that has been adduced in the proceeding, or an inference from evidence that has been adduced in the proceeding, is likely to mislead the court unless evidence of the communication or document is adduced to contradict or to qualify that evidence, or (h)the communication or document is relevant to determining liability for costs, or (i)making the communication, or preparing the document, affects a right of a person, or (j)the communication was made, or the document was prepared, in furtherance of the commission of a fraud or an offence or the commission of an act that renders a person liable to a civil penalty, or (k)one of the persons in dispute, or an employee or agent of such a person, knew or ought reasonably to have known that the communication was made, or the document was prepared, in furtherance of a deliberate abuse of a power. (3)For the purposes of subsection (2) (j), if commission of the fraud, offence or act is a fact in issue and there are reasonable grounds for finding that: (a)the fraud, offence or act was committed, and (b)a communication was made or document prepared in furtherance of the commission of the fraud, offence or act, the court may find that the communication was so made or the document so prepared. (4)For the purposes of subsection (2) (k), if: (a)the abuse of power is a fact in issue, and (b)there are reasonable grounds for finding that a communication was made or document prepared in furtherance of the abuse of power, the court may find that the communication was so made or the document was so prepared. (5)In this section: (a)a reference to a dispute is a reference to a dispute of a kind in respect of which relief may be given in an Australian or overseas proceeding, and (b)a reference to an attempt to negotiate the settlement of a dispute does not include a reference to an attempt to negotiate the settlement of a criminal proceeding or an anticipated criminal proceeding, and (c)a reference to a communication made by a person in dispute includes a reference to a communication made by an employee or agent of such a person, and (d)a reference to the consent of a person in dispute includes a reference to the consent of an employee or agent of such a person, being an employee or agent who is authorised so to consent, and (e)a reference to commission of an act includes a reference to a failure to act. (6)In this section: power means a power conferred by or under an Australian law. 41Mr Cashion submitted this provision does not apply because: (1)Although the letters are headed without prejudice, it is permissible for the defendant on whose behalf the letter was written, to waive the prejudice; or (2)Alternatively, one can't validly elect between contractual rights without prejudice, and so the heading, "Without Prejudice" has no real consequence in the present context. 42Neither of the defendant's arguments was persuasive. In relation to the first limb, section 131(2)(a) makes clear that the privilege cannot be waived unilaterally, but rather must be waived by "the persons" or all parties in dispute. This is a proposition made clear by Barret J in Oliver v Lakeside Resort Development Pty Ltd [2005] NSWSC 501 at [3]. 43As to the second proposition, if the letters constituted a bare election between rights, absent of any offer of compromise, then by definition they would not fall within the scope of section 131(1). This is not the case. The letter of 23 September 2009 and the following correspondence did not constitute a clear and unequivocal election to repair to which privilege could not attach. Rather, they were documents prepared in connection with an attempt to negotiate the settlement of a dispute. These documents fall squarely within the category of documents intended to be excluded by section 131(1). This is evident from the following extracts from Turks Legal's 23 September letter (emphasis added): In any event, under terms of the Policy set out in page 25 of the Policy, it remains at Dawes' option to repair, pay the cost of repairing the vehicle or make cash settlement less any applicable excess. Dawes elects to cash settle your client for the cost of repairs to the vehicle in the sum of $303,146.08 inclusive of GST (being the cost of repairs less the two applicable policy excesses totalling $18,000.00) subject to the issues set out below. Settlement of claims Accordingly, Dawes is prepared to settle your client's claims by payment to your client in the sum of $303,146.08 inclusive of GST on the following grounds: (1)The salvage of the vehicle is retained by your client; (2)Your client executes a release in favour of Dawes; (3)The policy is cancelled with a proceedings-rata refund of unused premium to your client. Please confirm this is acceptable to your client and I will forward the appropriate release for your consideration. 44Although no longer strictly necessary to decide, had the material been admissible, I see no reason to draw a distinction between the present letters and those considered by Muir and Chesterman JJA and Margaret Wilson AJA in QBE Insurance (Australia) Limited v Cape York Airlines Pty Ltd [2011] QCA 060. 45In QBE Muir JA noted: [25] The first letter purported to elect to repair on condition that the respondent: instruct ASIC as requested; deliver the authority to repair to ASIC; and agree to sign the stipulated release. That was not an election contemplated by the policy. It contemplated an unqualified election to repair, no more and no less. Once the election contemplated by the policy was made it would have bound the appellant to effect the repair. The appellant could not have imposed any obligations on the respondent in that regard beyond those arising under the policy. [26] Although the letter does not expressly make the purported election subject to or conditional upon these matters, it was necessarily implicit that ASIC would not be requested to do the subject work unless the instructions and authority to repair were provided. A reasonable person in the position of the respondent would not have understood that the appellant was electing to repair irrespective of whether the respondent provided the instruction and authority and accepted an obligation to provide the release. The requests that these things be provided could not be regarded sensibly as mere surplusage or a polite request in respect of which compliance was optional. (emphasis added) 46For this reason, even if admissible, the letters did not constitute a valid election.

The 20 April 2011 letter 47The defendant submitted that if the previous correspondence did not constitute an election, then its letter of 20 April 2011 from Turks Legal to Turner Freeman did. The plaintiff rightly did not object to this letter on the basis of section 131, as it was a statement of intent to elect, rather than an offer of compromise. 48The terms of the 20 April 2011 letter are clear and unambiguous: "If on the proper construction of the correspondence and events that have occurred the Court finds our client has not yet made any election then our client hereby does elect to pay the costs of repair of your client's vehicle and indicates it will pay the sum of $344,088.51." 49This is an election consistent with the requirements set out by the High Court in Agricultural & Rural Finance Pty Ltd v Gardiner (2008) 238 CLR 570. 50In closing submissions, Mr Grieves indicated that despite the wording of the 20 April letter, it was not capable of constituting an election as it was made far too late.

Reasonable time for election 51In aid of this argument, Mr Grieves advanced the well accepted proposition that where an insurer has, by the terms of its policy, a right to reinstate, rather than to pay the sum insured, it must elect between those alternatives within the period stipulated in the policy or, if no such period is stipulated, within a reasonable time. 52It was accepted by both parties that the present insurance policy did not specify a time for election; therefore the plaintiff argued that it was incumbent on the Court to determine if an election made on 20 April 2011 was made within a reasonable time, considering the claim was lodged on 25 May 2009. 53The plaintiff relied on the following list of authorities to support its proposition: Sutherland v Society of the Sun Fire Office ( 1852) SC 775; Anderson v Commercial Union Assurance Co (1885) 55 LJQB 146; Lake v Hartford Fire Insurance Co Ltd [1966] WAR 161; Argy Trading Development Co Ltd v Lapid Developments Ltd [1977] 1 Ll Rep 67; CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384; Cape York Airlines Pty Ltd v QBE Insurance (Aust) Ltd [2010] QSC 313. 54The principle appears to originate from the 1859 case of v Royal Insurance Co [1859] 120 ER 1131. 55With respect to counsel for the plaintiff, on a proper construction of the wording of the policy, this question is misstated. 56In dealing with insurance clauses, that give the insurer a right to elect, there are two distinct categories of clauses. The first is the type of clause discussed in Brown v Royal Insurance Co [1859] 120 ER 1131 on which this rule was founded. In that case, the defendants executed a policy insuring plaintiff's premises against fire, "reserving to themselves the right of reinstatement in preference to the payment of claims." 57Properly read, a clause of this nature, gives the insured a prima facie right to the payment of its claim. This right may only be displaced by the insurer electing otherwise. In other words, the default option under this policy is the payment of the insured's claim. 58In such cases, the logic of requiring an insurer to elect within a reasonable time is clear. If an insurer fails to elect within a reasonable time, they are taken to have failed to elect at all and therefore the default option follows. 59The election clause with which this case is concerned falls into a different category. Under the present policy the insurer retains the right, at their option, to elect between any of the three possible alternatives. None of the alternatives is specified as the default. Therefore if an insurer fails to make an election within a reasonable amount of time, there is no obvious result. The wording of the clause makes no indication whatsoever as to which of the three options is the default one. 60In cases of absence of a default option, failing to elect within a reasonable amount of time will not, as the plaintiff pleads, lead to the requirement for the defendant to pay out the insurance claim. Rather, failure to elect within a reasonable time can only be viewed as a breach of good faith under section 13, Insurance Contracts Act 1984 (Cth) or possibly a breach of other relevant contractual and statutory obligations. In such a case, it is for the Court to determine what the appropriate measure of damages is. 61The correctness of this proposition is evident from the authorities relied on by the plaintiff. The first authority is Sutherland v Society of the Sun Fire Office ( 1852) SC 775, which contained a similar clause to Brown , reading "...in every case of loss...[the insurer] reserves the right of reinstatement in preference to the payment of claims, if it should judge the former course to be more expedient..." In these circumstances, Lord Probationer Anderson's ascension to the proposition that where an election was to be made it must be made within a reasonable time and if not, the insurer should be seen as failing to elect and the default position should follow, a clear example of a category of clause in which such a requirement is appropriate. 62Next, the plaintiff relied on Anderson v Commercial Union Assurance Co (1885) 55 LJ QB (NS) 146 which deals with a different situation in which an insurer attempted to claim that because of the impossibility of electing one of its options, it is altogether free from liability. There Lordships decision in this regard does not have a bearing on this case. 63Thirdly, the plaintiff referred to Lake v Hartford Fire Insurance Co Ltd [1966] WAR 161, which is a well-known Australian authority that restates the proposition on which the defendant sought to rely. However Jackson J's restatement of the principle is obiter and does not in any way form part of the reasons for judgment. As indicated by Jackson J at 164, the main grounds of appeal were: (1)Whether the defendant could resile from an election; and (2)Whether the defendant was estopped from denying the vehicle was a total loss. 64Despite the similarities in wording of the policy in these two cases, whether or not an election was made within a reasonable time was not an issue, the principle was merely stated in a fuller summary of the principles of election and does not in anyway support the plaintiff's case. 65Argy Trading v Lapid [1977] 1 Ll Rep 67 related to a question of whether there was an implied term that a lessor would continue insurance. It bears no direct relevance to the principle under discussion, despite the policy under consideration having a similarly worded clause to the present and the case making reference to the case of Brown v Royal Insurance Co [1859] 120 ER 1131 at 74. Brown was referred to for the proposition that once an election has been made, one is bound by it. This is a different proposition to which the defendant seeks to advance. 66CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384 also stands for a different proposition to that which the defendant seeks to advance. As the head note indicates this case concerns an industrial special risks insurance policy, whereby the insurer agreed to indemnify the insured in the event of the physical loss or destruction of, or damage to, the insured property. The amount of the indemnity was calculated upon the cost of reinstatement of the property at the time of reinstatement. The insured had the option of claiming the indemnity value of the property instead. The policy provided that the work of restoration and repair was to be commenced and carried out with reasonable dispatch, failing which the insurer was not liable to make any payment greater than the indemnity value of the damaged property at the time of the damage. If, in the events that happened, that provision did not apply, a further term entitled the insurer to recover only the indemnity value. 67A number of things can be said about the differences between CIC and the instant case that make drawing an analogy between the two wholly inappropriate. Most obviously are the differences in the wording of the election clauses. In CIC , the Replacement and Extra Cost of Reinstatement Memoranda states: "the work of rebuilding, replacing, repairing or restoring ... , must be commenced and carried out with reasonable despatch, failing which [the insurer] shall not be liable to make any payment greater than the indemnity value of the damaged property at the time of the happening of the damage". 68As the memoranda makes clear, the default option is the payment of no more than the indemnity value, with the option to rebuild needing to be carried out within a reasonable amount of time in order to exercise this alternative. The wording of this policy places it in the category of cases of Brown v Royal Insurance Co [1859] 120 ER 1131 rather than the present case. 69Finally, the defendant relied on Cape York Airlines Pty Ltd v QBE Insurance (Aust) Ltd [2010] QSC 313. This case contained a nearly identically worded policy to the present case: The Company will at its option pay for, repair, or pay for the repair of, accidental loss of or damage to the Aircraft described in the Schedule ("the Aircraft") arising from the risks covered, including disappearance if the Aircraft is unreported for thirty days after the commencement of Flight, but not exceeding the Amount Insured as specified in the Schedule and subject to the amounts to be deducted as specified in the Schedule. 70At [118]-[119] Daubney J discusses the relevant principles relating to a timely election in Lake v Hartford Fire Insurance Co Ltd [1966] WAR 161 and considers whether an election was made within a reasonable time [121]: In the present case, it is thus necessary to look carefully at the letters which were expressly, and solely, relied on by the defendant to ascertain whether, as the defendant asserts, these letters constituted a clear and unequivocal communication of the election of a choice which was available to the defendant under the policy or whether, as the plaintiff contends, there was, in truth, no election made by the defendant. 71Concluding there was no such election, Daubney J stated at [138]: For the reasons I have given above, I am quite satisfied that none of the three letters on which the defendant relied constitute evidence of the defendant having made the election to repair which was available to it under the terms of the Policy. It follows, therefore, that no election was made by the defendant, and certainly none was made within a reasonable time after the claim was made. The consequence is that the defendant is liable to indemnify the plaintiff for the Agreed Value of the Aircraft under the Policy. 72With respect to His Honour, this conclusion without further explanation cannot logically follow. Absence of an election to repair the wording of the policy does not indicate that the default position should be an indemnification for the agreed value. In other words, if failing to elect within a reasonable time constitutes a complete failure to elect, it is not clear which of the options available to the insurer should receive preferential or default treatment. On the wording on the policy it would be equally reasonable to conclude that if the company failed to elect to pay for repairs, then it must otherwise repair the aircraft. 73Perhaps His Honour's conclusion was founded on the basis that in the absence of any election what so ever, the insurer has breached its statutory or contractual obligations and therefore the plaintiff is entitled to damages for its loss. 74In written submissions the plaintiff sought to cavil with this proposition arguing: ( although not of any present relevance) if an insurer elects to reinstate (or repair), its liability is not limited by the sum insured, the amount of the damage or the insured's insurable interest; the election, once made, binds the insurer to complete the reinstatement (or repair) regardless of whether the cost of doing so is less, or greater, then the sum insured: Brown v Royal Insurance Co [1859] 120 ER 1131; Bank of New South Wales v Royal Insurance Co 2 NZLR SC 337; Robson v New Zealand Insurance Co Ltd [1931] NZLR 35; The third principle (the above principle) is stated simply to reinforce the proposition that an insurer's "right" to elect to reinstate is in the nature of a limited qualification to its obligation, fundamentally assumed under the contract, to pay the loss incurred by the insured to it 75With respect to the plaintiff, the principle stated in Brown v Royal Insurance Co [1859] 120 ER 1131 and subsequent cases in no way supports their submission that an insurer's "right" to elect to reinstate is in the nature of a limited qualification to its obligation, fundamentally assumed under the contract, to pay the loss incurred by the insured to it. Brown simply states that once an election has been made; the elector cannot resile from it. Prior to an election being made, which right is the primary one is always a matter of construction.

Conclusion as to the election issue 76By its letter of 20 April 2011, the defendant elected in clear and unequivocal terms to pay the costs of repair of the plaintiff's vehicle to the sum of $344,088.51. 77The delay in this election is not material, in that on a proper construction of the policy, failing to elect within a reasonable time does not result in the plaintiff being entitled to the agreed value of the vehicle less excess. This is not to say that it is proper or acceptable for an insurance company to delay making an election. This would be contrary to its statutory obligations of good faith. However, given the negotiations between the parties, the defendant did not act contrary to its statutory obligations.

The hearsay issue 78The defendant, by its 20 April 2011 letter, elected to pay the costs of the repair, no matter what the final cost. As such close scrutiny of the figures provided by Mr Movizio is unnecessary. Recourse to them would only be necessary if the Court was minded to award a monetary figure to represent this cost. 79In the event this matter goes on appeal, I indicate that I agree with Mr Grieve that any figures in Mr Movizio's estimates provided by sources other than him personally is hearsay. Section 59(1) of the Evidence Act 1995 (NSW) is clear that: Evidence of a previous representation made by a person is not admissible to prove the existence of a fact that it can reasonably be supposed that the person intended to assert by the representation. 80The figures provided by Lamborghini and others can be viewed as none other than representations intended to prove the existence of a fact.

Orders 81The Court makes the following orders: (1)The defendant is to pay the costs of repair of the plaintiff's vehicle to within industry tolerance; (2)The parties will be given an opportunity to address on costs.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 15 July 2011