K & M Prodanovski Pty Ltd v Calliden Insurance Limited

The issues before the primary judge 3The insuring clause in Section One of the policy provided: "We cover accidental damage to or theft or attempted theft of your motor vehicle during the period of insurance, ... 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." (defined terms indicated in bold) 4The appellant completed and submitted a claim form dated 25 May 2009. The damage to the vehicle was assessed by the respondent and it declined to declare the vehicle a "total loss". The question whether the vehicle could and should be repaired arose between the parties. It was the subject of "without prejudice" negotiations which continued into 2010. It was never consensually resolved. In the meantime the vehicle remained (and remains) unrepaired. 5In December 2010 the appellant commenced proceedings in the Equity Division seeking to recover $971,000. It alleged, the vehicle not having been declared a "total loss", that the respondent had been required to elect within a reasonable time whether it would repair or pay the costs of repairing it or make a "cash settlement". In the absence of the respondent having done so, either at all or within a reasonable time, the appellant alleged that it was entitled to be paid the agreed value of the vehicle. This followed, it said, either because the costs of repair exceeded that value or because the policy provided that in the absence of an election it was entitled to be paid the agreed value. The respondent maintained that the vehicle was capable of being repaired for significantly less than its agreed value, denied that it had not elected within a reasonable time to pay the costs of repair or a sum equal to the reasonable costs of repair and denied, if it had not so elected, that it was required to pay the agreed value. 6In addition to its claim for the value of the vehicle, the appellant sought to recover storage costs incurred from 12 March 2010 and interest on the amount claimed pursuant to s 57 of the Insurance Contracts Act 1984 (Cth). 7The hearing commenced in June 2011. By amendments to its pleading permitted on the first day, the appellant also alleged that the vehicle was a "written-off vehicle" within the meaning of s 16B(3)(f) of the Road Transport (Vehicle Registration) Act 1997 and, by force of ss 16C(1) and 16D(1) of that Act, that the vehicle could not be registered or repaired. For that additional reason, the appellant maintained that it was entitled to be paid the agreed value of the vehicle. Those provisions were introduced as Part 2AA of that Act by the Road Transport (Vehicle Registration) Amendment (Written-off Vehicles) Act 2010 and came into operation on 31 January 2011. The Road Transport (General) Amendment (Written-off Vehicles) Regulation 2011 also came into operation on that day. 8Regulation 83B provides that a "written-off vehicle" within the meaning of s 16B(3)(f) includes a "notifiable vehicle that has been assessed, in a vehicle damage assessment, as not being a total loss" if "the vehicle has non-repairable damage and the insurer has decided not to repair the vehicle". It was not in issue that the vehicle is a "notifiable vehicle" (s 16G(1)), that it had been assessed "in a vehicle damage assessment as not being a total loss" (ss 16F, 16H(1)) and that the respondent insurer had decided not to repair the vehicle (s 16A and reg 83B(a)). 9The issue between the parties was whether the vehicle had "non-repairable damage" (s 16A and reg 83C(1)). A vehicle has such damage, within reg 83C(1), where: "(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 evidence established that the damage to the vehicle included the "indicators of impact damage" in subparagraphs (c)(i) and (v), ie damage to an area of the roof and damage to a major mechanical component. The principal question between the parties was whether at least one of those other indicators of such damage was present.

The decision of the primary judge 10The primary judge first addressed the issue whether the vehicle had sustained "non-repairable damage": [2011] NSWSC 738. On that issue Mr Thomas, a panel beater, and Mr Lajkoski, a motor mechanic, gave evidence in the appellant's case and Mr Movizio and Mr Xabergas, panel beaters, gave evidence in the respondent's case. Each, except for Mr Movizio, took measurements of different parts of the vehicle. 11Having extracted parts of the evidence of Mr Thomas, Mr Lajkoski and Mr Movizio, the primary judge expressed his conclusion in relation to this first issue as follows: "32 Despite 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 [sic], 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 [sic] 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. 33. For 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." 12The second issue that the primary judge addressed was whether there had been an election. He rejected the respondent's argument that it had elected to repair or pay the costs of repair by its solicitors' "without prejudice" letter of 23 September 2009. He did so for reasons which included that this letter did not contain any unequivocal election between the three available options. The primary judge accepted, however, the respondent's argument that its solicitors' letter dated 20 April 2011 was an effective election to pay the costs of repairing the vehicle. In doing so, he did not address the appellant's argument that this letter was not capable of constituting a valid election because it was "made far too late". 13The primary judge then addressed the appellant's argument that in the absence of an election within a reasonable time, the respondent was liable to pay the agreed value of the vehicle. He rejected that argument to the extent that it turned on the construction of the policy. He did not address the argument that the appellant was entitled to damages in an amount equal to that agreed value because the likely costs of repairing the vehicle exceeded that value. He proceeded on the basis that because the appellant had been unsuccessful on the "non-repairable damage" issue and the construction argument, there was no other reason which would entitle the appellant to recover the agreed value of the vehicle. 14This partly explains why the primary judge's conclusion on the election issue was expressed in the following terms: "77. The 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." 15The primary judge ordered that the respondent pay the costs of repairing the vehicle "to within industry tolerance". The parties accept that the effect of this order is that the respondent must pay the current reasonable costs of repairing the vehicle. He dealt with the appellant's claim for storage costs, interest and the costs of the proceedings in a second judgment delivered on 20 July 2011: [2011] NSWSC 757. He did not award the appellant the storage costs incurred from 12 March 2010 by way of damages because he did not find any breach of the policy and because "the defendant's conduct did not unreasonably contribute to delay". Nor did he award the appellant any interest under s 57 of the Insurance Contracts Act, because that provision only applies where the insurer has withheld payment of an amount which it is liable to pay. Finally, the primary judge ordered that the appellant pay the respondent's costs of the proceedings because he considered that in a "substantive sense" the respondent had succeeded "on all the important issues".

The issues on appeal 16The following issues arise on the appeal: (1)whether the primary judge erred in failing to find that the vehicle had sustained "non-repairable damage": grounds 1 to 5; and if the primary judge had so found, whether he should have concluded that the vehicle could not be lawfully repaired and made an order for payment of the sum insured less the excess: grounds 6 to 8; (2)whether the primary judge erred in not holding that in the absence of an election within a reasonable time, the respondent was liable to pay an amount equal to the sum insured less the excess: ground 9. In oral argument this issue was addressed on two bases. The appellant argued for this result by reference to the construction of the policy. It also submitted that the evidence of Mr Thomas justified a conclusion that it was not economical to repair the vehicle because it was likely that the total repair cost would exceed its agreed value, so as to entitle it to damages for breach of the implied term in an amount equal to the agreed value. The respondent did not contend that this second point had not been raised before the primary judge or that it could not be argued on appeal; (3)whether the primary judge erred in not awarding the appellant storage costs by way of damages for breach of contract: ground 11; (4)whether the primary judge erred in failing to award the appellant interest under s 57: ground 12. The appellant accepted in oral argument that this issue only arises if the appellant succeeds in its claim to be paid the agreed value of the vehicle; (5)whether the primary judge erred in the exercise of his discretion in ordering the appellant to pay the respondent's costs of the proceeding. 17It is not necessary to deal with ground 10 which was that the primary judge had erred in specifying in the order made that the respondent should pay the costs of repair of the vehicle "to within industry tolerance". That ground was not addressed in the appellant's written submissions and in oral argument the appellant stated that if it failed in its various arguments to recover the agreed value of the vehicle, it did not seek to disturb the form of order made by the primary judge.

The "non-repairable damage" issue 18The appellant alleged that the vehicle had sustained "non-repairable damage" as part of its argument that the vehicle could not lawfully be repaired because it was a "written-off vehicle" (s 16D(1)). Whether the vehicle sustained such damage is partly a question of fact and the appellant bore the onus of establishing the relevant fact. What is the relevant fact depends upon the proper construction of reg 83C(1)(c). 19That regulation requires that "the vehicle has been damaged by 3 or more of the following indicators of impact damage". In that expression, "by" is used in the sense 'to the extent of'. In other words, the damage which the vehicle sustained must consist of three or more of the "indicators of impact damage". In the latter expression, the "indicators" are of impact damage to five distinct parts of the vehicle. In the case of three of those parts, the damage must be to an area equal to or exceeding 300mm by 300mm. In each case, for that damage to be an "indicator of impact damage", it must have resulted from impact involving the vehicle. Damage consisting of bending, cracking, breaking, deformation or denting to, or of, any of the five described parts of the vehicle which resulted from a collision with another vehicle or object would be "impact damage" satisfying the required description, provided that in the case of damage to the roof, cabin floor pan or firewall it was to an area of at least 300mm by 300mm. 20The relevant fact in issue was whether there had been any such damage to the cabin floor pan, firewall or suspension of the vehicle. The existence of such damage could be established by evidence of what had been observed on inspection. It could also be established by measurements taken of the relevant parts from which opinions could be expressed as to the existence of deformation which may not be readily observable; or perhaps by way of testing of materials from which opinions could be expressed as to the presence of internal cracking or other damage, again not readily observable. The fact that any such damage had resulted from an impact might also be capable of being proved by opinion evidence based on the nature and extent of the damage. 21Mr Thomas and Mr Movizio gave evidence directed to this issue. That evidence was in part evidence of fact and in part opinion evidence. The primary judge accepted the evidence of Mr Movizio in preference to that of Mr Thomas. To the extent that he gave reasons for doing so, they are to be found in [32] which is set out in [11] above. 22The appellant argues that that conclusion and those "reasons" involve a number of errors. First, it is said that the primary judge did not give any or any sufficient reasons for preferring Mr Movizio's evidence to that of Mr Thomas. Secondly, it is said that if he preferred Mr Movizio's evidence because of Mr Thomas' reliance on flawed measurements made by Mr Lajkoski, he erred because Mr Thomas relied upon his own measurements. The appellant also says that Mr Lajkoski's measurements were reliable because, as he pointed out in re-examination, the measuring machine would not have calibrated properly unless he used the correct specifications. Finally, it is said that in relying on Mr Movizio's evidence, the primary judge erred because his evidence was based on measurements made by Mr Xabergas which adopted a measuring method which was inherently unreliable. 23The first of these arguments must be accepted. The second and third will therefore be addressed and taken into account when considering whether the evidence established that the vehicle had sustained "non-repairable damage". 24The principles concerning the obligation of a court to give adequate reasons in the context of the resolution of issues involving differences between expert witnesses are discussed in the judgement of Ipp JA in Wiki v Atlantis Relocations (NSW) Pty Ltd [2004] NSWCA 174; (2004) 60 NSWLR 127 at [56]-[68]. In that case the trial judge had preferred the expert testimony of one medical specialist over that of others for reason of his "eminence" and the manner in which he gave evidence. In that context, Ipp JA said: "[61] But, where the issue in dispute involves differences between expert witnesses that are capable of being resolved rationally by examination and analysis, and where the experts are properly qualified and none has been found to be dishonest, or misleading, or unduly partisan, or otherwise unreliable, a decision based solely on demeanour will not provide the losing party with a satisfactory explanation for his or her lack of success. A justifiable grievance as to the way in which justice was administered will then arise." As Sheller JA explained in Archibald v Byron Shire Council [2003] NSWCA 292; (2003) 129 LGERA 311 at 323 [54]: "Where a dispute, such as this one, involves something in the nature of an intellectual exchange with reasons and analysis advanced on either side, the parties are entitled to have the judge enter into the issues canvassed before the court and to an explanation by the judge as to why the judge prefers one case over the other. This is particularly so where there is disputed expert evidence." 25Unlike the position in Wiki v Atlantis Relocations (NSW) Pty Ltd, the primary judge did not express his preference for the evidence of Mr Movizio to that of Mr Thomas by reference to any assessment of either witness's demeanour. He found that Mr Movizio provided "honest and thorough answers" and that Mr Thomas was a "careful and truthful" witness. Each was giving opinion evidence. That evidence should be based on the witness's specialised knowledge and should explain how that field of specialised knowledge, as applied to the facts assumed or observed, produces the opinion tendered: Dasreef Pty Ltd v Hawchar [2011] HCA 21; (2011) 243 CLR 588 at [35], [39], [91], [92]. If it does and there are competing opinions the Court must choose between them by reference to the proved facts, the specialised knowledge of the witness and the reasoning process which produces the opinion tendered. Having done so it must give an explanation for preferring one opinion over the other. The primary judge did not provide any explanation as to why he preferred the evidence of Mr Movizio to that of Mr Thomas. His observation as to there being reasons for the differences between their respective opinions and the identification of two possible reasons for those differences does not provide an explanation. (The possible reasons given were that Mr Lajkoski adopted incorrect manufacturer specifications and that the witnesses had different views as to what constituted "damage" for the purposes of reg 83B). The primary judge was required to say what the reasons for the differences in the opinion were and why he preferred the opinion of one to that of the other. The primary judge's reasons do no more than express a preference for the evidence of one witness over that of the other. 26Accordingly, grounds 2 and 5 of appeal are made out and this Court must undertake the process of analysing the competing evidence so as to address whether that evidence established that the vehicle had sustained "non-repairable damage". As will become apparent, it is not possible to do that on broad bases such as that Mr Movizio relied on unreliable measurements made by Mr Xabergas or that Mr Thomas' evidence is reliable because he acted upon his own measurements and not on measurements made by Mr Lajkoski or that to the extent that Mr Thomas used Mr Lajkoski's measurements, they were reliable. Instead, it is necessary to consider separately the evidence with respect to each of the three parts of the vehicle which the appellant contends was the subject of impact damage.

Was there damage to an area of the cabin floor pan? 27Mr Thomas, Mr Lajkoski and Mr Xabergas each took measurements of distances between points on the vehicle to determine whether there were differences in those distances which indicated (sometimes by reference to the manufacturer's specification) that parts of the vehicle were out of alignment by more than industry accepted tolerances (plus or minus 3mm). An example of two lengthways measurements taken and compared is the length of the chassis from nearside front to nearside rear and from offside front to offside rear. An example of two diagonal measurements taken and compared is of the wheelbase from nearside front to offside rear and from offside front to nearside rear. 28Mr Thomas and Mr Lajkoski made those measurements using a Car Bench Contact machine. Mr Lajkoski measurements were made using the software database of that machine which included specifications for various chassis and body types of Lamborghini vehicles. In cross-examination Mr Lajkoski agreed that because the vehicle had a single rather than a dual exhaust system, it was an L824 chassis and body. He also agreed that when measuring the vehicle he had used measurement specifications for an L147 chassis and body. The L824 chassis and body was 30mm longer than the L147 due to a difference in the front overhang (distance from the front of the vehicle to the front axle). It was submitted by the respondent that for this reason Mr Lajkoski's measurements were unreliable. In re-examination Mr Lajkoski said that if he had used the wrong specifications he would not have been able to calibrate the machine to the vehicle and that when he carried out his measurements he was able to do so. From that he concluded that he had used the correct specifications. Mr Thomas made measurements using different points to those used by Mr Lajkoski and did so using the Free Measure function, as distinct from the software, of the measuring machine. When making his measurements, Mr Xabergas used a Car-O-Liner measuring system and manually calibrated and aligned that system to points on the vehicle. Mr Thomas criticised the reliability of Mr Xabergas' measurements on the basis that the points which he used to calibrate and align the vehicle were not undamaged and could not be used to ensure that the vehicle was properly "centred" before other measurements were taken. These assertions were not further explained and Mr Xabergas was not cross-examined. 29Whereas Mr Movizio's inspection of the vehicle included an inspection after it had been dismantled, Mr Thomas saw the vehicle but did not see it dismantled. In relation to the cabin floor pan, although Mr Thomas referred to measurements of the vehicle taken by him and Mr Lajkoski, he did not identify any measurements taken of that floor pan from which one could infer that it was bent or deformed or otherwise physically damaged. Indeed, neither his nor any other evidence describes the exact position and dimensions of the cabin floor pan in the vehicle. Referring to the "respective measurements" taken by him and Mr Lajkoski, Mr Thomas said (affidavit 17/6/11, para 4): "... the right side of the vehicle clearly has damage which is misalignment caused by transfer damage. "Transfer damage" is that damage which results directly from the initial impact by the progression force through the damage vehicle [sic]. My opinion in this regard is based on the respective measurements taken by Mr Lajkoski and me, as set out in my previous affidavit. In summary, those measurements show that there is distortion to the centre section of the motor vehicle which is consistent with the apparent heavy impact on the passenger door. The effect of the collision, in my opinion was to create a distortion and misalignment in something like a banana shape to the entire vehicle body structure with the concave shape being on the left hand side of the vehicle and the convex side being on the right hand side. The change in shape is not readily visible but the measurements carried by [sic] Mr Lajkoski and me confirm the change in shape." (affidavit 17/6/11, para 12): "... Also there are significant incorrect positioning of components and misalignments in the passenger compartment. The three most obvious areas of damage are the passenger seat, the driver's seat and centre console which visually can be seen to have been moved from the left to the right of the vehicle." (affidavit 17/6/11, para 19): "... the cabin floor pan has suffered transfer damage. This is clearly indicated by the damage to components within the cabin compartment including the seats and console as I referred in paragraph 12 above. In my opinion, the forces which were transferred and caused misalignment to the floor were the same forces responsible for the distortion of the whole vehicle into a non apparent but measurable banana shape, as referred to in paragraph 4 above. Annexed hereto and marked with the letter "G" is a sketch I prepared at the time of making the measurements .... These relate to measurements on the cabin floor and vehicle frame. These measurements are consistent with my visual observations at the time that the seats and centre console were out of alignment due to deformation of the cabin floor pan." 30In cross-examination it became apparent that the damage to the cabin floor pan to which Mr Thomas was referring was misalignment of the components attached to the floor pan and specifically the driver's seat and central console: "A. ... I do believe that you can see damage to the floor pan or the floor of the vehicle due to misalignment of components that are attached to that floor. Q. The damage to the floor pan which is visible, does it relate to the shape of the floor pan or does it relate to something else? A. It relates to misalignment of the floor pan. ... Q. But the floor pan itself had no visible damage, correct? A. Well in terms of the body repair industry, or automotive body repair industry, misalignment is deemed as damage. If a panel or a component is not in its correct alignment, it is therefore misaligned and deemed as being damaged." (Tcpt 33) and later: "Q. And I asked you whether or not you agreed with the proposition that there was no visible damage to the floor pan, you agree with that? A. In reference to - sorry just trying to work out how I can answer that question. In reference to visible damage to the floor pan, the visible damage showing the floor pan is misaligned is due to components attached to the floor pan I guess you could say. Q. Do I understand what you are saying is there's no damage to the floor pan itself other than the fact that it has, is now misaligned, is that what you're saying? A. The floor pan damage itself is misalignment, yes. Q. I see, but apart from that there's no other damage to the floor pan itself, correct? A. I'm not aware of." (Tcpt 34) (emphasis added) 31As I have noted, Mr Thomas did not rely upon any measurements of Mr Lajkoski in relation to his evidence concerning the cabin floor pan. The measurements which Mr Thomas made were of the suspension/wheel base and underbody of the vehicle. They were shown in a sketch of the vehicle which he produced marked "G". That sketch does not identify the position of the cabin floor pan. It shows that none of the measurements made by Mr Thomas are measurements only of the dimensions of an area which could answer the description of the cabin floor pan. It follows that one cannot conclude from differences between the lengthways or diagonal measurements taken by Mr Thomas that the cabin floor pan itself was out of specification owing to it being bent or deformed in some way. Nor is it correct to say, as the appellant's written submissions maintained, that these measurements show misalignment of the "entire cabin floor pan". Even if they did, Mr Thomas did not say that the measurements indicated physical damage to the cabin floor pan itself. 32As I have also noted earlier, Mr Movizio's inspection of the vehicle included an inspection after it had been dismantled. His evidence from observation was that the chassis of the vehicle was not bent. He said that he had inspected the carbon fibre flooring of the vehicle, that there were "no cracks or damage whatsoever" and that the "adhesive of the original seams that bonds the flooring to the frame is unmoved" (affidavit 6/6/11, paras 79, 100, 101). Mr Movizio's evidence in this respect did not depend upon any measurements taken by Mr Xabergas. 33Thus, Mr Thomas' evidence does not support a finding that there was damage to the cabin floor pan and Mr Movizio's evidence is that there was no damage to it. The evidence does not establish that there was any damage to the cabin floor pan of the vehicle.

Was there damage to an area of the firewall? 34Mr Thomas said that there was "evidence of damage to the whole of the firewall in front of the passenger compartment" (affidavit 17/6/11, para 14). He identified that "evidence" as Mr Lajkoski's measurements of what Mr Thomas described as the front boot compartment which were said to show a 14.3mm difference in diagonal measurements of that compartment. Mr Thomas said that this difference indicated that the "firewall is out of alignment beyond industry tolerances". Reference to Mr Lajkoski's evidence (affidavit 2/5/11, para 8(a)) suggests that his measurements which resulted in an overall discrepancy of 14.3mm were "the cross measurement or diagonals of the engine bay". Any explanation for the difference between Mr Lajkoski's and Mr Thomas' description of those measurements was not explored in cross-examination with either of them or in submissions to this Court. 35In cross-examination Mr Thomas conceded that the front firewall panel had not been measured, but maintained that it was "out of alignment" because the A pillar on the near or passenger side of the vehicle to which it was attached was out of alignment. Mr Thomas did not say that any discrepancy in the diagonal measurements of the front boot compartment indicated that the front firewall was distorted or bent in some way or that there was otherwise physical damage to it. For that reason it is not necessary to address the discrepancy in the description of those measurements referred to above. Mr Thomas' evidence suggested no more than that if a part to which that firewall was attached was misaligned, then the firewall itself was misaligned. 36Mr Movizio's evidence, given following an inspection of the dismantled vehicle, was that it had two firewalls and that there was no damage to the front firewall (Tcpt 23/6/11, pp 87-88). He also gave evidence that there was no damage to any area of the rear firewall equal to or exceeding 300mm by 300mm (Tcpt 23/6/11, pp 88-89). It was not suggested to Mr Movizio in cross-examination that any measurements of Mr Lajkoski of the diagonals of the front boot compartment or of the engine bay indicated that the front firewall had been damaged in some way. 37Even assuming that Mr Lajkoski's measurements are reliable and are of the front boot compartment, Mr Thomas' evidence does not support a conclusion that there was any damage to the front firewall and Mr Movizio's evidence was that there was no damage to that firewall. Accordingly, the evidence does not establish that there was any damage to the front firewall of the vehicle.

Was there damage to the suspension? 38Mr Thomas said that there was evidence of damage to the suspension (affidavit 17/6/11, para 20). He identified that "evidence" as being measurements made by Mr Xabergas which showed differences of 4mm, 4mm and 5mm in three sets of suspension component measurements. Putting aside Mr Thomas' criticisms of the reliability of Mr Xabergas' measurements, it is necessary to consider the particular measurements referred to. 39Mr Xabergas produced five reports (identified by the letters A to E) of measurements taken of the front and rear chassis and suspension points of the underbody of the vehicle. The three measurements referred to by Mr Thomas are the sixth and eighth measurements in report B and the second measurement in report E. The first was of the rear suspension. It showed that the mounting bolt on the left or nearside of the front of the upper wishbone was 4mm higher than the same mounting bolt on the right or offside. Mr Xabergas said that difference in height was 1mm outside industry tolerance but that, because the mounting bolt was an adjustable part, it could be adjusted to within tolerance without any repairs being performed. The second was also of the rear suspension. It showed that the mounting bolt on the left side of the rear of the lower wishbone was 1mm shorter, 4mm wider and 3mm higher than the same mounting bolt on the right side of the vehicle. Mr Xabergas said that each of these distances was within industry tolerance except for the distance in width which was 1mm outside industry tolerance. He said that could be adjusted to within tolerance without any repairs being performed. The third measurement was of the relative differences in height between two diagonally opposed points, one in the front chassis and one in the rear suspension. That measurement shows that there was a 5mm difference between those two measurements of height difference. (The difference in height from nearside front to offside rear was 14mm and the difference in height from nearside rear to offside front was 19mm.) Those particular results were used with other results from Mr Xabergas' second measurement in report E to determine what he described as the "overall result for the vehicle's rear suspension to front chassis measurement". That overall result was that there was a zero difference between the rear suspension and front chassis which meant that no adjustment was required. 40Mr Thomas did not describe any damage to any component forming part of the suspension. Nor did he explain how or why any of these measurements of Mr Xabergas indicated that there was damage to any part of the suspension. His cross-examination confirmed that he was doing no more than referring to misalignment or differences in the alignment of some of the suspension components as measured by Mr Xabergas. 41Mr Movizio agreed in cross-examination that there was "no damage at all to any suspension component" in the vehicle. He maintained that the fact that the suspension was out of alignment did not mean that any suspension component required to be replaced or repaired. He said that the suspension needed "to be realigned which is a matter of adjusting by moving screws back and forward" (Tcpt 23/6/11, pp 93, 94). 42Mr Thomas' evidence does no more than point to differences in the alignment of components forming part of the front chassis or rear suspension. It does not identify any physical damage to any component of the suspension. Mr Xabergas' evidence and the evidence of Mr Movizio is that the discrepancies identified in the measurements are able to be addressed by adjustments which do not involve repairing or replacing any part of the suspension. This evidence does not establish that there was any damage to the suspension of the vehicle.

Conclusion as to "non-repairable damage" 43For these reasons I conclude that the evidence does not establish that the damage to the vehicle included more than two of the "indicators of impact damage" referred to in reg 83C(1)(c). The appellant has not made good its allegation that the vehicle had sustained "non-repairable damage". It follows that the vehicle is not a "written-off vehicle" and therefore not a vehicle which cannot lawfully be repaired.

In the absence of an election within a reasonable time, was the respondent liable to pay the agreed value? 44It remains to be considered whether, notwithstanding that the vehicle was not a "written-off vehicle", the respondent was liable to pay the agreed value or damages in that amount. It was argued faintly before this Court that in the absence of an election within a reasonable time, the policy required that the respondent pay the appellant the agreed sum. That argument must be rejected. Whether that is so in any particular case must depend upon the proper construction of the insuring clause in the circumstances which have occurred. Here the insuring clause provides an election between repairing, paying the costs of repair or making a "cash settlement up to the limit of the sum insured". As the policy provides "cover" or an indemnity against "accidental damage", that "cash settlement" is the amount assessed as being the actual loss sustained by the insured. The appropriate measure of that loss will depend on the circumstances and may be the diminution in value of the property insured, the costs of repair or the cost of replacement or reinstatement. Cases such as Cape York Airlines Pty Ltd v QBE Insurance (Australia) Ltd [2010] QSC 313 do not decide otherwise. There the assessment of the damage to the insured aircraft and the costs of repairing it exceeded its agreed value. The insurer argued that it was not liable to pay that amount because following an election to repair the aircraft, the insured had repudiated the resulting repair contract with the consequence that the insurer had no further liability: see esp [107]-[115]. There was an issue as to whether the insurer had validly elected to repair. Because it failed on that issue (both at first instance and on appeal ([2011] QCA 60)), the insurer was held liable to pay the agreed sum because as a matter of fact, the damage to or costs of repairing the aircraft exceeded that amount. 45The appellant also argues that it was entitled to the agreed value of the vehicle because it was likely that the total repair cost would exceed that value. It relies upon the evidence of Mr Thomas, which included the following: "27 ... I am of the opinion that it would be uneconomical to repair the Lamborghini in the sense that I consider that while it is difficult to estimate with precision the probable cost of the labour and parts (it being necessary to have many of the parts specially made), it is more likely than not that the total cost of repair will exceed the purchase price of the vehicle." (affidavit 4/5/11, para 27) The reasons given for that opinion included that the vehicle had sustained extensive impact damage to its near or passenger side resulting in misalignment of the entire vehicle body shell. Mr Thomas did not provide an estimate of the total costs of repair to explain why that cost would exceed $980,000. His evidence that the entire vehicle body shell had been misaligned was contradicted by Mr Movizio's evidence, that the dismantled vehicle and its chassis were not "bent" and that any relevant discrepancy was "within industry accepted tolerance". 46In relation to the costs of repair, Mr Movizio's evidence (affidavit 6/6/11, paras 50, 60, 61) was that those costs were estimated to be $393,424.93 based on an estimate made on 5 June 2011. Part of that estimate was for work required to be done which would have to be performed by specialist external service providers. The estimated cost of that work was $20,500. The primary judge rejected that part of Mr Movizio's evidence as hearsay: [2011] NSWSC 78 at [79]-[80]. The result is that Mr Movizio's evidence was that excluding work to be performed by specialist external service providers, the costs of repair were approximately $373,000. That was well short of $980,000. Mr Movizio was not cross-examined to suggest that this estimate was wrong or unreasonable. Although Mr Thomas filed an affidavit in reply to Mr Movizio's affidavit evidence, he did not respond to Mr Movizio's estimate of the costs of repairing the vehicle. There was also in evidence as part of the appellant's case a vehicle damage assessment made by Claims Services Australia Pty Ltd dated 28 July 2009. That assessment stated that due "to the construction, complexity and the amount of parts required the exact repair costs at this stage are unknown, final repair one would envisage will be in the vicinity of 350-400K". 47The detailed costs estimate of Mr Movizio, which is consistent with the earlier vehicle damage assessment report and with his evidence as to the extent of the damage to the vehicle, is to be preferred to the general and unsubstantiated evidence of Mr Thomas. It follows that whilst the primary judge did not address this question by reference to the costs of repairing the vehicle, he was correct to conclude that in the absence of an election within a reasonable time the respondent was not liable to pay the agreed value of the vehicle.

Damages for storage costs 48The policy does not indemnify the appellant against storage costs incurred before the vehicle is repaired. If those costs are to be recovered it must be as damages for breach of an implied obligation on the part of the respondent to elect within a reasonable time whether to repair or pay the costs of repairing the vehicle or make a "cash settlement". It is not controversial that if a time is not fixed by the policy for the making of such an election, the insurer must do so within a reasonable time: Sutherland v The Society of the Sun Fire Office (1852) 14 Dunl. 775 at 777; Lake v Hartford Fire Insurance Co Ltd [1966] WAR 161 at 166; Re Mining Technologies Australia Pty Ltd [1999] 1 Qd R 60 at 66-67; Smith v Farm Bureau Ins Co of Concord (1953) 101 A. 2d 778 at 780; Kenneth Sutton, Insurance Law in Australia, 3rd ed (1999) Law Book Co at para 15.151; David Kelly and Michael Ball, Principles of Insurance Law, Butterworths, Australia (loose-leaf service) at 12.0140; A W Baker Welford & W W Otter-Barry, The Law Relating to Fire Insurance, 3rd ed (1932) Butterworths at 331; Leigh Jones et al, MacGillivray on Insurance Law, 11th ed (2008) Sweet & Maxwell at para 21-003; Malcolm A Clarke, The Law of Insurance Contracts, 5th ed (2006) Informa at para 29-2A; and Robert Merkin, Colinvaux's Law of Insurance, 9th ed (2010) Sweet & Maxwell at para 10.042. What is a reasonable time is a question of fact which will depend on the relevant circumstances; in the same way that it does when addressing what is a "reasonable time" for the giving of a notice or for the performance of an obligation: see, for example, Australian Blue Metal Ltd v Hughes [1963] AC 74 at 99; Crawford Fitting Co v Sydney Valve & Fittings Pty Ltd (1988) 14 NSWLR 438 at 444; Perri v Coolangatta Investments Pty Ltd [1982] HCA 29; (1982) 149 CLR 537 at 567-568. 49The insured event happened on 22 May 2009 and a claim form was completed and submitted on 25 May 2009. The vehicle was then made available to the respondent and its assessors. On 28 May 2009 the respondent's assessor received an estimate of the auction value of the damaged vehicle as being between $240,000 and $260,000. On 28 July 2009 the respondent received an assessment that the final costs of repair would be in the vicinity of $350,000 to $400,000. On 5 August 2009 the principal director of the appellant (Mr Prodanovski) was interviewed by an investigator retained by the respondent. In these circumstances the respondent was in a position to make an election within three months of the date of the accident, that is by 22 August 2009. On the respondent's own case it had purported to make such an election on 23 September 2009. 50The appellant claims damages for the costs of storing the vehicle from 12 March 2010 at the premises of Int Vehicle Integrity Centre at Tempe. By that date, a reasonable time for making an election had passed and the respondent was in breach of its implied obligation to do so. To recover those costs by way of damages the appellant must establish that had the respondent elected to repair the vehicle or pay the costs of repair within a reasonable time, they would not have been incurred, presumably because the vehicle would have been repaired. The difficulty which this argument must confront is that if the respondent had so elected, it is most likely that the appellant would have rejected that election as not being in accordance with its entitlement under the policy and maintained its claim to the agreed value of the vehicle. That is what in fact happened when the respondent purported to elect to pay those costs by its solicitor's letter of 23 September 2009. In the circumstances, the probability is that in the face of a timely election, negotiations would have continued between the parties as they in fact proceeded and the appellant would have had to commence proceedings to recover what it asserted it was entitled to recover. In the meantime, the vehicle would have remained unrepaired and the storage costs would have been incurred. 51For these reasons the primary judge, whilst in error in failing to hold that the respondent was in breach of its implied obligation to elect within a reasonable time, was correct in concluding that the incurring of the storage costs was not the result of any delay in the making of that election.

Claim to interest 52This issue does not arise because the appellant has failed in its claim to be paid the agreed value of the vehicle less the excess. In that event the appellant does not seek to disturb the primary judge's order that the respondent pay the costs of repairing the vehicle. Those costs will reflect the current costs of repairing the vehicle and on that basis the respondent has not yet withheld payment of the amount which it is liable to pay.

The order for costs 53The primary judge ordered that the appellant should pay the respondent's costs of the proceedings because "in a substantive sense" it had "succeeded on all important issues": [2011] NSWSC 757 at [14]. When describing earlier in those reasons the result of the proceedings the primary judge said (at [8]): "The Court did not accept that the defendant elected, as early as September 2009 to repair the vehicle, but by 20 September 2011 [sic] there was a clear and unequivocal election to repair. In the circumstances that pertained to this case, it was accepted that this was not an unreasonable delay, so as to amount to a breach of the insurance policy." 54The observation that it was "accepted that this was not an unreasonable delay, so as to amount to a breach of the insurance policy" was wrong in two respects. First, the appellant did not accept that the election made by the letter of 20 April 2011 was effective. Its position was that this election was "too late". Secondly, the appellant's claim to be reimbursed for the storage costs was formulated as one for damages which depended upon there having been a breach of the implied obligation to elect within a reasonable time. It follows that in addressing the exercise of his discretion as to costs, the primary judge has arguably mistaken a relevant factor and failed to take into account, as the appellant contended, that there had been a breach by the respondent of its implied obligation. 55It remains necessary to consider whether the omission to take that matter into account was material to the conclusion that the respondent had succeeded on "all the important issues" which was said to justify the order for payment of its costs. The issues before the primary judge were as follows. First, whether the vehicle had sustained "non-repairable damage". That issue was decided in favour of the respondent. Secondly, whether in the absence of a valid election the respondent was liable to pay the agreed value of the vehicle. That issue was decided in favour of the respondent. I note that in so deciding the primary judge omitted to address one (albeit subsidiary) way in which this argument was put. Thirdly, whether the election of 23 September 2009 was valid. That issue was decided in favour of the appellant. The only claim which depended on the resolution of this issue favourably to the appellant was for the storage costs. Fourthly, whether the election by letter dated 20 April 2011 was effective. That issue was decided (albeit wrongly) in favour of the respondent and led to the order for relief which was made. Finally, whether the appellant was entitled to recover storage costs by way of damages. That issue was decided in favour of the respondent on grounds which included that the respondent's conduct did not contribute to the delay in repairing the vehicle and the incurring of costs. 56The foregoing analysis indicates that the respondent did succeed on all important issues. If the question of success or failure in the proceedings was addressed more broadly, the answer remains the same. The respective positions of the parties were that the appellant maintained it was entitled to receive $971,000 whereas the respondent maintained that it was liable to pay the costs of repair. Ultimately, the position taken by the respondent prevailed. 57This analysis indicates that the correctness of the primary judge's conclusion that the respondent had been successful on the principal matters in issue is not affected by his wrong observation as to the appellant having accepted that there had been no breach of the implied obligation. For this reason and notwithstanding the error which the primary judge made when addressing the question of costs, the error was not a material one and this Court should not interfere with the order as to costs.

Proposed orders 58For these reasons the orders which I propose be made are: (1) Appeal dismissed. (2) Order the appellant to pay the respondent's costs of the appeal. 59TOBIAS AJA: I agree with Meagher JA.

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: 04 May 2012