King v Insurance Australia Limited trading as NRMA Insurance

The issues in the proceedings

1. The issues in the proceedings are as follows: 1. What is the amount of the plaintiff's claim ("the claim") submitted to the FOS arising from its dispute ("the dispute") with the defendant in respect of its claim on policy HOM212402383 ("the policy") for the damage to the insured property at 46 Warren Street, Seaham, NSW ("the property")? 2. Did the value of the plaintiff's claim exceed $500,000, such that it could not be considered by the FOS under its Terms of Reference ("TOR") (clause 5.1)? 3. Was the FOS permitted by the TOR to make a determination in the terms of the determination dated 31 October 2017 or should it have excluded the dispute? 4. Did the determination contain the necessary essential terms so as to be capable of acceptance by the plaintiff to form a binding agreement? 5. If so, did the plaintiff's acceptance of the determination make it binding on the plaintiff? 6. If so, what the terms of any accord and satisfaction or any accord executory? 7. Did the defendant comply with the terms of any accord and satisfaction so as to discharge the defendant's liability to the plaintiff? 8. Was Rizon Group Pty Ltd a "suitable independent builder"? 9. Has the defendant complied with the other terms of the determination? 10. What was sum insured under Policy number HOM 212402383? 11. Did the heavy rainfall experienced at the property on or about the 21 April 2015 cause damage to the property? 12. Is the defendant able to establish the damage arose from: 1. wear and tear; 2. subsidence; 3. faulty design and workmanship; 4. settling, shrinkage or expansion in buildings, foundations, walls or pavements? 1. If not, what was the extent of the damage? 2. Is it possible to repair the damage without rebuilding the property? 3. If so, what is the cost of repairing the property? 4. If it is not possible to repair the damage, what is the cost of rebuilding the property? 5. What is the amount of statutory interest to which the plaintiff is entitled pursuant to s 57 of the Insurance Contracts Act 1984 (Cth)? 6. What is the amount of any damages representing compensation for the loss of use of money due to delay in payment, such as the increase in building costs during the period of delay?

The schedules of damages

1. As to the quantum of the claim, the plaintiff's amended schedule of damages (noting the deleted prior claims) is as follows: 1. Primary Costs as at date of loss Policy Limit: $526,673.00 $526,673.00 2. Interest from November 2015 to date pursuant to s.57 ICA $173,134.21 $178.134.18 3. Difference in building costs from November 2015 to date (appx.) November 2015 ($605,807) ($581,265) per report of Northcroft 18 February August 2022 Now ($814,675) ($808,793) pursuant to Northcroft as at 10 18 August 2022 The difference being an additional $208,868 $227,528 $208,868.00 $227.528.00 Total $908,675.21 $932.335.18
2. The plaintiff alternatively submits, if the FOS determination is binding, that the Rizon scope of works (for $93,985.75) should be accepted over the plaintiff's own evidence, where the plaintiff's own expert came to a sum of $48,908.00 excluding GST.
3. The defendant's schedule of damages is as follows: HEADS OF DAMAGE Economic loss if the court finds the scope of work prepared by Mark Manning is the reasonable and necessary scope of repairs $7,796.62 ($17,160 less $9,363.38 paid) OR Economic loss if the court finds the FOS Determination was accepted $21,070.62 ($30,434.00 less $9,363.38 paid) OR Economic loss if the court finds the total demolition and reconstruction of the property is necessary (which is denied) $503,070.62 ($512,434 less $9,363.38 paid)

The structure of this judgment

1. It is easier to understand the long and convoluted history of the events giving rise to this dispute if I deal with the question of damage to the property first.
2. However, my account of the relevant events and findings on the issues of the merits of the insurance claim must be seen in context of the finding that I have made that the FOS determination of the claim is binding. My findings of fact as to damages are alternatives to that finding. An important finding of fact on this issue is my rejection of the plaintiff's claim that the house was built on reactive clay and not on shale, where I have accepted the evidence of Dr Redman.

Onus and burden of proof

1. Both parties retained experts who provided written reports and were cross-examined in three separate conclaves.
2. The most important of these dealt with geological issues. It is not in dispute that if the plaintiff, who bears the onus of proof, cannot establish that the house was built on clay (as opposed to shale), there will be serious difficulty in establishing that the damage to the property occurred because of the event because the footings would not have moved if the soil was shale. There is, however, no direct evidence from an expert retained by the plaintiff on this issue, and the plaintiff relies upon his own evidence to this effect, as Mr Sleight noted at Tcpt, 22 August 2022, p 7(42): "... The defendant's expert say there's no clay. No reactive clay, and that this house is founded on shale, and shale doesn't react with the presence of water as clay does. Your Honour is probably wondering, with respect, why hasn't someone dug a hole or drilled down-- HER HONOUR: To find out what the house is standing on. SLEIGHT: Yes. SLEIGHT: Well, the defendant has engaged a geotechnical engineer and, your Honour, that's something I will be asking him. He says it wasn't necessary in his report. But the evidence you'll hear from the plaintiff will be that he has undertaken extensive work or been present when extensive digging has taken place, and not once - he may have come across a rock or two, but not twice has he found some substratum of shale, and your Honour, after serving his conscription, effectively, my client has acted as a driller or a quarryman until he had to retire due to ill health. I say this because he's not unfamiliar with what reactive clay looks like, and he's not unfamiliar with what shale looks like. In fact, if asked, he will tell you the different densities and properties of both types of material."
3. In the course of the hearing, Professor Harding, a structural engineer, gave some evidence favourable to the plaintiff on this issue, although noting that it fell outside his expertise (as noted in paragraph 6 of his report in reply dated 12 February 2022; I note Dr Redman was similarly careful in paragraph 82 of his report of 11 November 2021 in disclaiming any expertise as a structural engineer).

The relevant provisions of the policy

1. The relevant policy documents are: 1. product disclosure statement and policy booklet (Exhibit X, p. 288); and 2. 2014 to 2015 Certificate of Insurance policy number HOM212402383 for residential premises at Seaham ("the home").
2. The clause setting out "the events we cover" is as follows: "The events we cover We cover your home or contents when certain things happen. These are known as 'listed events'. You can make a claim if a listed event takes place and causes loss or damage to your home or contents during the policy period. In this section, we tell you what events you're covered for and any specific exclusions and conditions that apply to the event. General exclusions may also apply - see Section 5."
3. Both "storm" and "flood" are set out in Table 3.1 of the listed events, and ticked as applicable. The following entries appear for these: "Storm [Icons for home and home plus insurance] If loss or damage is caused by a storm. If for example, hail damage your roof or a storm in your local area may cause water to build up in your street gutters. Covered Violent wind, cyclone or tornado Thunderstorm, hail, rain or snow Sudden, excessive run-off of water as direct result of storm in your local area. Flood [Icon for home and home plus insurance] If loss or damage is caused by a flood. For example, heavy or sustained rainfall upriver causes a river or creek near you to overflow. Covered Flood Flood means: Rain which results in water pouring on, flowing from or failing to drain away from: - a body of water - land - roads and streets Water that escapes or is released from a body of water"
4. There are exclusion clauses in the contract, but these are of limited relevance.

The insured property, the damage and the pleadings

1. The plaintiff, Mr King, built a house at 46 Warren Street, Seaham, New South Wales, over a period of several years from about 1980. Amended plans were approved by Council in about 1986, but the home appears to have been habitable well before that time, as it was built between 1980 and 1982 (T 38 - 40), although the plaintiff did not actually reside in it for about 26 years. There is no information about prior insurance policies, but on 14 November 2014, Mr King entered into a contract of insurance with NRMA to insure the home for $526,673.00.
2. On or about 21 April 2015, there was a storm during which Mr King claims the property suffered damage. He lodged a claim on 12 August 2015, following which the parties carried out a series of investigations, including reports from Izzat Consulting Engineers (11 February 2016) and Forum Consulting Engineers (23 May 2016). On 15 September 2016, the defendant accepted the Claim and offered Mr King payment in the sum of $9,868.39 in full satisfaction of the Claim. Mr King rejected that offer and lodged a dispute form on 3 November 2016.
3. The FOS made a determination on 31 October 2017, which included a provision for a further report from "a suitable independent builder" (which I have referred to as "clause 1.3" of the determination because this is the nomenclature employed by the plaintiff in the Reply), which was as follows: "This determination is partially in favour of the applicant. Within 28 days of the applicant accepting this determination, the FSP is to arrange a further scope of works to be obtained by a suitable independent builder covering the cost of repairs to the roof including the repointing and replacement of tiles, ceiling lining, cornicing, storm related damage to the eaves and repairs to the concrete slab, garage and driveway. Upon receipt of the relevant scope of works and costings the FSP is entitled to cash settle the applicant's claim. The FSP must pay the applicant $2,640 for the cost of reports obtained from the engineer and surveyor. The FSP is otherwise entitled to deny liability for the balance of the applicant's claim."
4. What were the items on which Mr King had "partially" succeeded? These are set out in clause 1.2 of the determination (CB 716) as follows: 1. The repointing and replacement of the tiles. 2. The damage to the eaves. 3. The cosmetic damage to: 1. The concrete slab. 2. The garage. 3. The driveway.
5. The balance of Mr King's claim failed.
6. Mr King initially expressed some dissatisfaction with the findings of the FOS, who responded to his complaints with the following advice in a letter dated 17 November 2017: "… I can confirm; * If you accept the determination you cannot take your dispute to Court. * The Determination outlines what the FSP is responsible for, in the table from page 2-5."
7. Mr King stated, in his letter of reply dated 30 November 2017, that "I accept the determination". This triggers the requirement for the defendant to arrange for a further scope of works to be obtained by a suitable independent builder so that the defendant could "cash settle" the claim (clause 1.3 of the determination, as set out above).
8. As is set out on page 124 of Exhibit 4, the defendant's financial records show that three cheques were drawn in favour of the plaintiff. The first (for $9,368.38) was drawn on 14 September 2016 and presented, as was the second (for $2,640, drawn on 10 December 2017), which was clearly for the sum of $2,640 referred to in clause 1.3, but the third (drawn on 5 November 2016) was never presented.
9. The defendant obtained a revised scope of works from Rizon Building "as per the determination from FOS" (CB 403) and sent it to the plaintiff on 23 August 2018.
10. There was no explanation, in the submissions, from either party as to any reasons for the long lapse of time between the service of this document and the making of an offer by the defendant of $108,856.37 on 22 February 2021 (which offer was rejected), but the reasons for this can be found in the content of the correspondence set out in the Court Book. Part of the problem was the inability of the defendant to contact the plaintiff; the correspondence contains repeated complaints from the defendant of being unable to contact the plaintiff (see for example CB 403 (23 August 2018); CB 412 (31 October 2018); CB 413 (13 November 2018)). There are also complaints in reply from the plaintiff that the defendant was being "longwinded with this claim" (CB 404) and had "misinterpreted the determination from FOS" (CB 404).
11. Over this whole period, the plaintiff continued to assert that the home needed to be demolished "before the walls fall and kill someone" (T 405). When it became clear that the plaintiff was not going to receive a scope of works of this kind, he stated on 19 August 2018 that he would not accept the defendant's settlement offer of $13,872.96. The defendant responded by sending (or "tendering") this cheque on or after 31 October 2018 and by advising the plaintiff, in a letter dated 13 November 2018, of his rights of review. The plaintiff replied, on 16 November 2018, "with fear of repeating myself", that he did not accept this sum. Instead, he provided a report from Izzat dated 6 December 2018 asserting that the storm "initiated the reactive clay movement" (CB 418) and seeking a further revised scope of works from Rizon.
12. Negotiations must have continued along these lines during 2019, as a revised scope of works was provided by Rizon on 6 December 2019 (CB 419 - 423). Izzat provided a report concerning the proposed repairs on 9 January 2020 (CB 424) and again on 22 June 2020 (CB 425), both of which referred to reactive soils as the reason for the damage. An offer of $93,985.75 was made by the defendant on 11 January 2021 but was rejected (CB 428) and then corrected to $108,856.37.
13. Significantly, there is nothing in the correspondence challenging the bona fides of Rizon or suggesting that the proposal for a revised scope of works was unworkable. The parties were complying with the procedure laid down in clause 1.3 of the FOS determination, and their problem, in terms of finalising the matter, was that they were too far apart.
14. It was in these circumstances that proceedings were commenced on 9 April 2021, less than two weeks before the expiry of the limitation period and less than a month after the amended Rizon assessment was served conformably with clause 1.3 of the FOS determination.
15. As noted above, the parties, and in particular the plaintiff, did not address the implications of their conduct between the making of the determination and the commencement of these proceedings. I consider this conduct to be significant in relation to the defendant's submission that the plaintiff has no basis to be bringing these proceedings at all, and certainly not in this court, or in circumstances where the FOS is not a party.

The pleadings

1. The plaintiff's claim is asserted to arise from an insured event, which is described in the statement of claim as follows: "On or about 21 April 2015, a storm occurred in the Port Stephens and lower Hunter area causing a tree to fall into a creek on Crown land adjacent to the premises, which in turn caused water to escape from the creek and to flood the premises causing damage thereto."
2. The plaintiff is thus not seeking judicial determination of the revised scope of works dispute, but to litigate the whole of the claim anew. There is no reference to the FOS determination in the statement of claim. Essentially, the plaintiff is asking for a new house, as Mr Sleight put it in his oral submissions, because he asserts in this court, as he did (unsuccessfully) to the FOS, that the damage to his home requires demolition. (The plaintiff does, however, accept that the sum insured under the policy for buildings is $526,673 and not the sum sought in the statement of claim: submissions, paragraph 4.)
3. The defence admits that certain damage was caused by the flood but denies causation for the bulk of the damage, asserting that it arose from a series of building defects (summarised in the plaintiff's submissions at paragraph 14) or as a result of wear and tear or settling of the building. There is also reliance upon exclusion clauses. The principal defences are, however, those based on the consequences of the entry of the parties into the tripartite agreement with the FOS.
4. The plaintiff pleaded a Reply to what might be termed "the FOS defence" but later sought leave to file an Amended Reply ("the Reply") on 22 August 2022, the terms of which are discussed in more detail below. The amendments included the following claims: 1. "It was a term of the contract that if a decision was binding on the defendant if accepted by the plaintiff within 30 days of the date of issue but [sic] that such acceptance does not bind the plaintiff". The sources for this were clause 8.7 of the Terms of Reference and a letter dated 22 December 2016 from the FOS to the plaintiff (the text of this letter is set out in full later in this judgment). The claim was accordingly make that "the determination is not binding on the plaintiff as alleged or at all" (paragraph 3B of the Reply). 2. "It was a term of the contract that the FOS would not consider a dispute where the value of the plaintiff's claim exceeded $500,000" (paragraph 3C of the Reply). 3. A claim that the FOS acted ultra vires (paragraph 3D of the Reply). 4. "The purported determination was not a determination in accordance with the terms of reference and was a nullity and/or incapable of binding acceptance under the terms of reference [sic]" (paragraph 3E of the Reply). 5. Other amendments to the Reply were largely cosmetic in nature.
5. An important factor to note in relation to this Reply, both in its original and amended form, is that the particulars (both in the unamended and the amended document) are wholly at variance with the chronology of events set out above. For example, the unamended Reply asserts, inter alia, that there was never any builder (independent or otherwise) retained for the purpose of complying with the FOS determination and that, far from employing its terms in their dispute for the intervening period, the terms of clause 1.3 were so vague as to render the whole determination unworkable and thus void, although this claim was never raised with the defendant or the FOS.

The house built by the plaintiff

1. The plaintiff bought the land in 1978. Construction commenced in 1980 (T 38) and took two years, being completed in 1982 (T 40).
2. The plaintiff's original plan for the 100 metres by 20 metres with a 1.1 metre slope was a Huxley plan where the slope would be accommodated by putting brickwork up and then backfilling and then later push up around the outside brickwork (T 29). Footings were put down but there were problems with the pouring of the concrete slab, so he decided to change the construction method to dig out the garage, laundry and storage area, use a double skin brick cavity wall and Bondex, and then put the concrete on top. The most obvious change was that in place of a one-level house, there would be a two-storey structure at the front (two bedrooms on top of the garage), with the back excavated for the footings. Mr Sleight submits that the significance of this method of construction is that the wedges of earth (8.5 metres wide, 13 - 15 metres deep and up to 1.1 metres high) were excavated, with footings dug around the outside footprint of the house.
3. Most of this work was done by the plaintiff, with help from a friend who had an excavator. The plaintiff, who had worked for more than two decades for Blue Steel Metal Industry (T 28), had a quarryman's understanding of different soil types as he had spent most of his working life carrying out excavating.
4. Mr King was certain that the material excavated for the garage was clay (T 31). described the appearance of shale, which he said was fossilised clay, and compared it to clay as follows: "Q. Can you tell me what it looks like? A. It's like a rock. Q. It looks like a rock. How can you tell if it's shale, as opposed to, for example, clay? How does it look different? A. The colour. It's a clay colour. Yellow. I don't - I can just tell. SLEIGHT Q. Is it the same or a different consistency from clay? A. Different. Q. How does it differ from clay when you feel it in your hand? A. Clay is a soft material. Shale is a rock material. Q. If you had to remove shale, would you use different equipment for removing clay? A. Yes. Q. How would the equipment differ? A. Well, you'd need to drill it and blow it, or you'd have to use a hammer. Q. That's for shale, is it? A. That's right. Q. How do you remove clay? A. With an excavator. Or a backhoe. Q. Which you used on the site. A. That's right." (Tcpt, 22 August 2022, p 33(15))
5. Although an objection was taken as to the plaintiff giving such opinion evidence, which I rejected, these answers were not challenged on cross-examination. The significance of these observations is that if the substratum was shale rock, this would not have been easy to excavate.
6. The plaintiff told the court that he was at the site for the completion of the house up to lock up stage.
7. A concrete driveway was added in about 1990. This construction appears to postdate the 1989 Newcastle earthquake, which had no impact on the house. Once again, Mr King told the court that he saw the construction work being undertaken. The work was done by a relative of Mr King.
8. Mr King did not start living in the home permanently until 2008, although he also appears to have been absent overseas for various long periods after that time. He did not carry out any repair work after he moved in. Hs evidence was that there was no damage to the home at any time, apart from a lightning strike in 2014 which resulted in the meter box having to be replaced.
9. Mr King was living in the home on the day of the flooding (21 April 2015) but did not notice any damage at the time. He went overseas for several months shortly thereafter.

The flooding event on 21 April 2015

1. Mr King described a 7 - 8-day flood (T 45), but said he did not notice any damage to the house (T 45) prior to leaving for Thailand on 7 June 2015, where he remained until August. He did, however, take a series of photographs, and said that a significant source rising water occurred because a tree had fallen into the creek (T 44), which led to flooding behind his house caused by the displaced water. He also described winds at tornado strength and said that he had seen trees blown over (T 74).
2. On his return from overseas, Mr King immediately saw damage to the garage apron that had caused it to lift an inch, sufficient to cause him to trip (T 48). When he went into the house, Mr King noticed that the microwave rattled when he walked over the first floor concrete slab. On close inspection, he noticed that the kitchen cupboard was not sitting flush with the wall, and that there were cracks in the floor. He then observed water marks in the ceiling and an outward lean to one lounge room wall. He inspected the slab, and saw that it appeared to have lifted about half an inch off the top course of bricks in the staircase area.

Mr King contacts the NRMA

1. Mr King made a claim and the property was inspected by a series of persons, including a civil engineer and a tiler. He also undertook his own investigations, commissioning Izzat Consulting Engineers, who produced five reports (CB 387, 397, 418, 424 and 427).
2. These reports were not prepared for court purposes. There is no Code of Conduct contained in the reports and it is clear from their contents that they were there to help the plaintiff, as they withheld the last one (whether it was prepared or not) on the instructions of the plaintiff. Mr Sleight sought "a restriction under s 136 as to the opinions of the expert reports who are not expert witnesses qualified to this case" and advised that these experts would not be coming to court (T 22). I accordingly made that ruling at his request.
3. However, Mr Sleight took a different approach to the Izzat reports in paragraphs 52-56 of his written submissions, stating that the plaintiff "was content to adduce this evidence to the extent that it was contained in the report" and that the author was available in case the defendant made a request for his attendance pursuant to s 166(f) of the Evidence Act 1995 (NSW), which it did not do (submissions, paragraph 53). Izzat's evidence is, Mr Sleight submits, "unchallenged" (paragraph 53), although remaining subject to the s 136 restriction, and the "important observations" in these reports may be accepted without question, notwithstanding the absence of a reference to the Code of Conduct.
4. I do not accept this submission. For the reasons explained by Barrett J in Tim Barr Pty Ltd v Narui Gold Coast Pty Ltd [2009] NSWSC 49, these reports may have been prepared by an expert, but that does not make the writer of the report an "expert witness". Nor can the restrictions imposed by s 136 be overcome, once the hearing is over, by asserting that a witness whom the court had been told was unavailable could have been called to give evidence if required. I propose to continue to treat these reports with the caution explained by Barrett J as being necessary.

The evidence of the plaintiff

1. The plaintiff's evidence in chief set out how he built the house, when he lived in it and what the storm was like; relevant extracts are discussed in more detail below.
2. The plaintiff's evidence about the construction of the house included descriptions of the state of the land on which it was built, which was challenged on the basis that he could not give evidence of an expert nature of this kind. As is set out below, I gave a ruling permitting him to provide evidence of a descriptive nature.
3. The plaintiff's cross-examination consisted essentially of challenges to his claims about the quantum being over $500,000 and events over the course of the house's history in terms of flooding and dampness.
4. The plaintiff was not an impressive witness, in that his preferred answer to any potentially difficult question was that he did not recall. His evidence about whether or not he was paid sums by the defendant was implausible. I am satisfied that he was paid two sums by the defendant, one of which was for the sum in paragraph 1.3, but that he never presented the cheque for the third sum.

Can the plaintiff give evidence which is expert in nature?

1. At T 32 I permitted the plaintiff to describe the soil he saw and dug out, and what he understood that kind of soil to be, namely reactive clay or shale. The question is how to evaluate that evidence in terms of the expert evidence on this issue.
2. Professor Mark A Bradford acknowledges, in his reports and evidence, that geological matters (such as whether the soil is shale or clay) are outside his area of expertise. If that is a relevant factor in relation to such evidence from him, why should I hear it from the plaintiff?
3. The nature of expert evidence, with its requirement for objectivity, acknowledgement of the code of conduct and the requirement for such evidence to be required in writing and in advance of the trial are impediments to the plaintiff being permitted to give such evidence: Uniform Civil Procedure Rules 2005 (NSW) ("UCPR") rr 31.24, 31.27, 31.28. The circumstances in which an unqualified party would be permitted to give expert opinions at all, let alone in circumstances where no report had been served, would need to be compelling. While there have been instances of medical practitioners giving evidence concerning medical procedures or other expert issues in professional negligence claims (Redman v Verticon Group Limited [2009] NSWDC 37), that is a narrow exception into which this evidence does not fall.
4. The plaintiff can give evidence of what he saw, and how excavation was necessary to dig out footings and the like, and even what he understood he was seeing, but no more. The plaintiff's evidence as to the soil make-up cannot, for this reason, be regarded as expert evidence of the same standing as that of Dr Redman. He can give evidence of what he saw, and whether or not it looked like soft clay or harder shale, but the degree of weight to be given to such observations is similar to that to be given to his photographs, namely that these are best determined by expert evidence.

The reliability of the plaintiff's evidence

1. Even as a lay witness giving evidence about the type of soil he observed, the plaintiff's evidence is hardly reliable, for the following reasons: 1. He admitted he did not do the excavating himself (at T 87) and it was unclear how, given his full-time employment in the early 1980s, he could have been present for, and seen, the whole of the excavation. Analysis of what he described reveals that his evidence is in fact what he saw later on, when he carried out or watched what Mr Sleight called "extensive digging" (T 11) around the garage and the like, and not the excavations in about 1980. 2. The excavation took place 40 years ago in circumstances where there was nothing remarkable about this work likely to cause the plaintiff to remember what occurred. There are no 1980 photographs of the work. 3. The plaintiff's evidence on this topic was both brief and general. All he can say is that shale material was hard like rock and would need to be hammered out, and that his friend's (and later his brother's) excavator must have been used because the soil was clay. 4. The plaintiff was similarly vague about other flooding or rainfall events over the years, stating that he could not recall such events. Nor could he recall the excavation near the garage (T 73).
2. Even the plaintiff's recollection of when and in what circumstances he saw the damage is of a very vague and general nature. One example occurred at Tcpt, 22 August 2022, p 75(31): "Q. Well,-- A. I don't know the dates. Q. Can you say it's more likely than not that you didn't notice the lean in 2015? A. I didn't notice it before the storm. Q. No. So, sorry, would you agree that it's more likely than not you didn't notice it after the weather event and before the end of the year in 2015? A. Again, I wouldn't know the dates."
3. The difficulty is that there is really only the plaintiff's word for when and in what circumstances the damage occurred. There are Izzat reports in 2015, but these are dependent upon the plaintiff's instructions. There are photographs, but these tell very little. The plaintiff's description (at T 76 - 77) of how he came to observe factors such as wall lean and the like is a typical example of his sometimes confusing evidence: " Q. To notice something, a wall, leaning to the north by 12 millimetres, you really had to go and have a look at it, didn't you? And inspect it very vigorously. Is that right? A. Well, my TV is in that particular corner. And I turned the TV on and off every time I use it. So, I'm in that area all the time. Q. Yes, but could you answer my question? In order to notice a 12-millimetre lean to the north of a wall, you had to really go up to the wall, right next to it, probably touch it and very vigorously inspect it, wouldn't you? A. Yes and no. Q. What's that mean? A. Well, I know that wall's not straight, just by looking at it. Q. Which wall? That wall? A. That wall. SLEIGHT: Your Honour, can it just be recorded the witness is looking at the side wall of the court? HER HONOUR: All right, so just do that again. I didn't see it because you're cut off from the screen-- WITNESS: I can see that wall's not straight. HER HONOUR: I beg your pardon. WITNESS: I can see that that wall is not straight. So, I haven't examined that wall to answer your question. I've just glanced at it. "
4. The plaintiff's apparent willingness to describe the courtroom as having a similarly sloping wall only confused the matter further.
5. The plaintiff was asked whether he had checked other walls in his house to see if they were also leaning, and said he could not remember. I found this implausible. A leaning wall would be a matter for alarm, as the plaintiff had noted in his correspondence, when he expressed the fear that the wall might fall and kill someone.
6. These claims of inability to remember, or to check the other walls, are of significance, as the only evidence provided to the court about when the wall in question started to lean comes from the plaintiff.
7. The expert evidence deals with other asserted damage arising from the storm, about which all the plaintiff was asked was the following: "Q. And I would suggest to you that damage was not caused by that weather event. What would you say to that? A. I disagree with you. Q. Now, you're also claiming damage in respect of garage cracking which you say occurred as a result of that weather event in April 2015, aren't you? A. Yes. Q. And I would suggest to you that the weather event did not cause that damage either. What would you say to that? A. I would disagree with you. Q. You also claim damage in respect of lifting of the driveway and cracking of it, don't you? A. Yes. Q. And you say that was caused by the weather event? A. Yes. Q. And I suggest to you that it was not. What would you say to that? A. I'd disagree with you. Q. You also claim damage in respect of cracked brickwork which you say was caused by that weather event, don't you? A. Yes. Q. And I suggest to you that the weather event did not cause that damage either. What would you say to that? A. I'd disagree with you. Q. You would agree at least that there were no control joints in the brickwork, would you? A. Yes. Q. You also claim damage in respect of lifting of the uplevel concrete slab as a result of the weather event, don't you? A. Yes. Q. Again, I suggest to you that too was not caused by the weather event. A. I disagree with you. Q. And also you claim that there was damage to the foundations, and subsequent to that leaning of the walls as a result of the weather event in April 2015, don't you? A. Yes. Q. And in respect of that I suggest to you that it wasn't caused by the weather event. What would you say to that? A. No, I'd disagree with you." (Tcpt, 22 August 2022, p 78(38))

The expert evidence

1. There was extensive expert evidence. The issues covered by the experts for the plaintiff are as set out by the plaintiff's solicitors in correspondence concerning the damage to the property. In their letter to Professor Mark A Bradford, the plaintiff's solicitors identified the following damage to the property as requiring consideration: 1. Cracking in the mortar bedding and pointing of the ridge caps and chipped tiles. 2. Discolouring of ceiling plaster and lifting of the ceiling cornices. 3. Garage cracking as well as driveway lifting and cracking. 4. Cracked brickwork. 5. Cracking and movement of the upper level concrete slab. 6. Damage to the foundations and consequential leaning walls.
2. The expert evidence went much further than this, but this is a helpful list of the damage the subject of the reports.
3. The plaintiff tendered the following reports as to the damage to the property from Professor Bradford, who provided these in his capacity as a structural engineer (see paragraph 6 of his report in reply dated 17 February 2022): 1. A report dated 19 August 2021, in which the particulars of damage identified above were set out, and where comment was sought in reply to the reports of Mr Nicholas Diemar of Izzat Consulting (11 February 2016), Forum Consulting (16 November 2015 and 23 May 2016) and Northcroft Construction Consultants (4 August 2020). Professor Bradford attended the site on 27 May 2021, accompanied by the plaintiff. 2. An addendum dated 7 October 2021 to clarify paragraph 15 of his earlier report concerning the Izzat Report of 22 June 2020 concerning rectification procedures in relation to the brickwork. He reiterated his earlier findings that the dwelling would continue to suffer damage and that the only way the damage could be rectified was to rebuild the footings, which necessitated demolition. 3. A report in reply dated 17 February 2022 addressing issues in the report of Dr Peter Redman dated 11 November 2021 and Mr Mark Manning dated 11 November 2021, both of which reports had commented on Professor Bradford's earlier comments. Professor Hardman also was given documents from the Port Stephens Shire Council obtained under subpoena.
4. The plaintiff also relies upon material set out in the Izzat reports (CB 387, 397, 418, 424 and 427), which may be summarised as follows: 1. First report dated 11 February 2016. 2. Second report dated 26 May 2016. 3. Third report dated 6 December 2018. 4. Fourth report dated 9 January 2020. 5. Fifth report dated 22 June 2020.
5. As is set out in more detail below, at Mr Sleight's request, these reports were tendered on a restricted basis and the court was told that there was no witness available for cross-examination.
6. Izzat was asked for an additional report, but this was not proceeded with, in circumstances where I determined that their correspondence on this subject was the subject of legal professional privilege.
7. The defendant relied upon the following reports: 1. A report dated 11 November 2021 from Dr Redman, who is described by Professor Hardman as "a very experienced geotechnical engineer" and thus able to give evidence on geotechnical issues beyond Professor Hardman's expertise, which is structural engineering. 2. A report from Mr Manning, a civil/structural engineer.
8. Professor Bradford participated in conclaves with Mr Manning and Dr Redman, resulting in two conclave reports dated 15 August 2022 (CB 36 and CB 42). Both parties relied upon those portions which supported their case.
9. Two reports from Forum Consulting (16 November 2015 and 23 May 2016; CB 377 ff and CB 393 ff) were also tendered. These are structural engineer's reports prepared by Mr Ledgerwood. Although Professor Bradford sought to reply to them, they do not technically form part of the expert evidence. There is no code of conduct and the reports were not prepared for the purpose of this litigation. Nevertheless, it is relevant to note that Forum Consulting considered that, apart from the damage noted, the building remained structurally adequate (T 105 - 6), a conclusion Mr Sleight relies upon in his submission that the building was adequately designed and properly built. Their reports were not otherwise referred to in the evidence.
10. In addition, the following costings evidence was tendered: 1. The plaintiff tendered a report of Mr Ben Haslam dated 16 August 2021 as to the assessment of costs for the remediation work (CB: 49 ff). 2. The defendant tendered a similar report from Mr Adrian Jamieson dated 2 May 2022 (CB: 240 ff). 3. A conclave report for these two witnesses was tendered (CB: 48ff).
11. By reason of my findings on other issues, the evidence of these last two expert witnesses has not been analysed in any detail.
12. The expert witnesses were cross-examined in three separate groups: 1. Professor Bradford and Mr Manning (as to structural engineering issues): T 91 - 169. 2. Professor Bradford and Dr Redman (on a range of issues including geological evidence): T 170 - 186; T 190 - 213. 3. Mr Ben Hazlam and Mr Adrian Jamison (as to quantum issues): T 214 - 237.
13. Two provisos should be noted about the expert evidence. First, there was a series of three expert evidence conclaves concerning evidence of a highly technical nature. Additional problems arose because this was a flooding event which took place more than seven years ago and where, as is noted above, the plaintiff's recollection was generally poor.
14. Second, the parties gave a somewhat unrealistic estimate of three days for the evidence and submissions for the hearing which, by reason of these factors as well as amendments to pleadings and other case management issues, was unable to be completed in time and had to be adjourned to enable the submissions (which were of some complexity) to be completed.

The plaintiff's submissions as to the expert evidence

1. In broad terms, as Mr Sleight sets out in his submissions, the plaintiff submits that the damage must be due to the flooding on 25 April 2015, as the property showed no significant damage from the time of its construction in 1982 until that date. Mr Sleight draws my attention to the following asserted concessions made by the defendant's expert witness, Mr Manning, at Tcpt, 23 August 2022, p 123(16): "SLEIGHT: Thank you. Now, of course, the proof of any construction, is in how it survives, isn't it really? WITNESS MANNING: I think so. SLEIGHT: Well, to assess whether - one of the main ways one assesses whether something is constructed effectively, and with a good design and workmanship, is to see how it performs over time, isn't it? WITNESS MANNING: Yes. SLEIGHT: And if you assume that this structure had performed with no significant damage from 1982 to 2015, that would be indicative that it was constructed with good workmanship and to an adequate design, wouldn't it? WITNESS MANNING: Yes. SLEIGHT: It certainly wouldn't suggest faulty workmanship or faulty design, would it? WITNESS MANNING: Well, I think there's some problems with the - the design and construction. SLEIGHT: Right. But if they didn't manifest themselves for 33 years, that wouldn't - that would suggest they're not terribly severe problems, would they? WITNESS MANNING: I agree. SLEIGHT: And then if you had a severe weather event on 21 April 2015, and the complaints that - the repair, the damage that Mr King complains of manifested itself within six months, would that not suggest some link with the severe weather event? WITNESS MANNING: I don't know why they wouldn't manifest themselves within weeks. SLEIGHT: But if you have a 32 year period of no problems, and a severe weather event followed by these complaints, that would suggest the weather event caused the complaints, wouldn't it? WITNESS MANNING: That's probably true, yes."
2. This "no other explanation" submission is, however, something of a Holmesian fallacy. The only evidence of when this damage occurred is the plaintiff's own recollection. He did not even live in the house for more than a quarter of a century. He has poor recollection in relation to many of the events in question. If there is an inconsistency between the plaintiff's description of events and the result likely to follow from expert evidence, the latter is to be preferred.
3. Mr Sleight added that the storm was an exceptional event, and draws my attention to paragraph 11 of Professor Bradford's report of 19 August 2021: "However, it is my opinion that the severe weather event has caused a "cracking event" as noted earlier. The cracking event for the dwelling has in my opinion paved the way for further movement of the dwelling due to a loss of structural integrity and that repairing the roof will be an ongoing issue as a result. That opinion is based on the Verticality Survey undertaken on the dwelling by Positive Survey Solutions showing the movement differential between 17th May 2017 and 11 June 2021, that is in an approximate period of 4 years. The latter Verticality Survey has identified a movement of 10mm over that period."
4. Also on the "no other explanation" basis, Mr Sleight submitted that the following evidence from Professor Bradford was of significance: "WITNESS BRADFORD: Not on the balance of probabilities because the storm was so severe compared with probably anything that that grilling (sic) had experienced previously, so I can't say on the balance of probabilities. There may be some case for it but on the balance of probabilities, the probability of the movement being after the storm event is much higher than anything I could establish before it. DJURDJEVIC: How about any wall movement? WITNESS BRADFORD: Well, that's what we're looking at. We're looking at wall movement because that's what being measured. DJURDJEVIC: So would you say that I would be incorrect if I suggested to you that there was, on the balance of probabilities, wall movement if there was reactive soils prior to the April 2015 storm event? WITNESS BRADFORD: If depends on the - I can't answer that definitively. All I can say is on the balance of probabilities again, I don't know what the soil composition was because it's beyond my area of expertise but if there's some propensity for the structure to be able to move, it could well have done before the event but on the balance of probabilities and with the amount of water, the ponding, the intensity of that water and the assumption that there is some movement in the ground that the structure has probably moved very much greatly since that storm event. DJURDJEVIC: You understand my point, though? WITNESS BRADFORD: Yeah, I, yeah, but I think that's the best way I can phrase an answer." [Emphasis added]
5. Professor Bradford made the concession about soil composition being outside his expertise several times. The crucial question was agreed by the parties to be the nature of the soil upon which the house was built.

What is the geological evidence?

1. For the reasons set out above, I do not regard the plaintiff as being capable of giving expert evidence as to the soil. Professor Bradford acknowledged that geological issues, the province of Dr Redman, were outside his expertise. This leaves the field open for Dr Redman, which requires careful attention both to his report and to his oral evidence.

Dr Redman's report

1. Dr Redman's report starts with a chronology of the key dates. Although his date for the building of the house (1986/7) is incorrect (in that most if not all of the building was completed in 1982), no consequence of any significance should be attributed to this error.
2. Dr Redman starts with an analysis of the site geological setting and makes the following observations at paragraph 20: "(a) The Seaham Formation daylights in a relatively small area that includes the Site and the township of Seaham. It represents a different geological period to that of the Coal Measure rocks, and the soils derived from them; (b) The Seaham Formation is also unusual in relation to most other geological units in the Hunter Valley in that it is a glacial tillite with unusual varved or cyclic variations in the depositional characteristics for the shale and other rock units involved. It is sufficiently unusual for an exposure of the rock to be part of a heritage listed park located about 200m to the north of the Site. I refer to this as the Edgeworth David Quarry; and (c) In the area of the Site the shale rock of the Seaham Formation is close to the surface with no, or only a shallow, overlying residual soil profile. This contrasts with many of the Coal Measure areas where residual soil depths can be several metres or more."
3. Dr Redman next analyses the house design and construction, noting it is a two-level structure with the first level slab constructed with Bondek which remains uncompleted, as external doors are boarded up and external decks not constructed.
4. Dr Redman next analyses the storm in terms of rainfall records, the 2015 Manly Hydraulics Laboratory Report and the plaintiff's and Izzat's photographs. Those photographs indicate that flooding and ponding of water took place in the area of the isolated brick piers adjacent to the western side of the house and that debris suggested the flood level was up to about 700 mm adjacent to the wall of the house, but that after it stopped raining, the water level fell beak to the second pier against the wall.
5. Dr Redman carried out a series of site observations in terms of crack observations, floor levels and site information. He notes that the site has not been the subject of a drilling or test pitting investigation of the sub-surface conditions, other than some unreported test pits dug externally adjacent to the northern and southern walls of the house, basing this on photographs produced by Izzat on subpoena (at 3.2.4). He makes the following observations at paragraphs 45 and 46: "45. The detailed Photo 3 shows the surficial soil layer about 0.3m in thickness. Elsewhere in the quarry exposure the surficial soils overlying the rock varied between 0 to about 0.4m in thickness. The surficial soils consisted of gravelly clay/silts and silty/clayey gravels, where the gravel component was fine to coarse, angular shale fragments. 46. The quarry face has been exposed for at least 100 years. The absence of a deeply weathered profile indicates that the shale is not prone to breakdown on exposure to water and the elements generally. The extent of any degradation was limited to some fragmentation of the shale producing angular shale fragments."
6. The underfloor area of the house showed a general consistency in the exposed ground surface (at paragraph 53).
7. Based on these observations, Dr Redman concludes: 1. As to the soil composition, there is an overall geological setting of shale, present at shallow depth and generally of low to medium strength, showing an absence of a deeply weathered profile and no degradation of significance from exposure. There was also a shallow (0 to 0.4 m thickness) surface soil layer of clay and silty gravel. 2. As to the severity of the storm, while the daily rainfall data indicated that the storm could be regarded as severe to the point of being a 1 - 100-year event, its probable impact needs to be seen in the context of findings that this is a rock site with little or no ground movement from moisture changes. As there are no reactive clays present that could affect the performance of the footings to the house because it is not vulnerable to moisture or exposure, it is necessary to look elsewhere for the reason for the damage, as well as to determine whether the damage is as extensive as claimed (for instance, as noted at paragraph 75 of the report, cracking and signs of footing movement at the house were not extensive). The climatic cycles of significant wetting and drying over the period of time since it has been built would have led to more extensive and severe cracking if there were in fact reactive clays present to such an extent that the foundation performance was dependent on the moisture regime in the ground (at paragraph 79). 3. The other factors include: 1. The presence of reactive soils in the region (The Bradford Report, paragraph 7, p3); 2. Expansive soil behaviour and the flexural nature of the cracking and the implied relationship to wetting-up of reactive clays (The Izzat Report 1, p4 and 5 and the Bradford Report, paragraphs 9 and 10, p4.); 3. The photographs of cracked ground in Photos 8 and 9 of the Izzat Report 1; and 4. The verticality of the external walls based on the 2017 Survey and the 2021 Survey (The Izzat Report 2, p1 and the Bradford Report paragraphs 11 and 12, p5 and paragraph 17, p7.).
8. In his answer to the Izzat and Bradford claims that there are reactive clays present, Dr Redman states that the presence of the shale rock was of itself enough reason to reject such a claimed relationship. He notes the general absence of location identification for the photographs relied upon by the plaintiff (paragraph 84), the absence of any geotechnical inspection and the unreliability of the "Residential Reports", concluding, at paragraphs 88 - 91: "88. Notwithstanding what I say at paragraph 87 above, in my opinion Professor Bradford has made a simple but fundamental error in relying on the publications he refers to in support of what the ground conditions are at the Site. The error is that he has not first considered the relationship of the geological setting of the Site to those areas the subject of the publications he refers to. 89. Fityus and his co-researchers have carried out, over many years, investigations in relation to the reactive behaviour of clay soils in the Hunter Valley. They are primarily interested, although not exclusively, in the clay soils derived from Coal Measure rocks, as these are found in many of the residential areas of the Hunter Valley. The Maryland Test Site for example consists of residual silty clays of high plasticity "underlain by the Dempsey Formation within the Permian Tomago Coal Measures". 90. As I have discussed in section 2.3 above, the Site is underlain by the "Seaham Glacial Beds", also referred to as the "Seaham Formation". It is in a different geological setting to the Coal Measures and the associated expansive residual soils the subject of the Maryland Test Site, and elsewhere in the Hunter Valley. This can be seen by the extract from the NSW Geological Survey 1:250,000 Newcastle Geology sheet which I included in Figure 2 above."
9. Dr Redman states that Professor Bradford's reasoning is "therefore misplaced" (CB: 150), adding, at paragraphs 94 - 96: "94. However, Professor Bradford goes on to comment about the relationship between wetting and drying of expansive soils "especially in the profoundly wet conditions when some 500mm rain fell in the region in two days". Whilst I agree that the 500mm of rain in two days could be described as representing "profoundly wet conditions" I do not agree that it follows that the rain and no-rain periods referred to represent the conditions that will necessarily be reflected in expansive soil responses, even if expansive soils were present. This is because the response of expansive soils to changes in the moisture regime occurs over longer time cycles than a few days. Expansive soils or reactive clays have low permeability and wetting, or drying, fronts need to progress into the clays for a response to occur. This can generally be seen in time frames of several months such as the winter-summer cycles of climate variation. 95. I also do not agree that the description in the quoted reference of Li and Cameron (2002), of the impact of ponded water in a courtyard, is relevant to the circumstances of the house. This is because the behaviour referred to was edge heave from ponded water in an expansive clay soil profile, and: (a) There is no evidence that heave took place in the footing of the house where the water was ponded. On the contrary, as I discuss in section 4.4.3 below, the main "flexural cracking" referred to is inconsistent with edge heave; (b) The time frames involved in terms of the heave response are too little for the infiltration of water as a wetting front into the low permeability clays of a reactive soils; and (c) The approximately two weeks of little or no rainfall prior to the Storm did not represent a sufficiently long period of relatively dry conditions to have any relevant effect on the ground, if expansive clays were in fact present. 96. In my opinion, of relevance is the relationship of the nature of the footings of the house to the range of climatic conditions experienced and what the performance would have been if reactive clays were present. I have discussed this in section 4.3.2 above.
10. After repeating his earlier findings that there has not been excessive footing movement or cracking, Dr Redman makes the following concluding remarks: "119. In my opinion and based on what I have discussed in sections 4.4.1 to 4.4.7 above, the Bradford Report and the earlier Izzat Reports have arrived at an explanation for the damage at the house which is improbable. Whilst I accept that the Storm led to flooding and the ponding of water beside the house for a period of several days, in my opinion it is highly unlikely that reactive soil behaviour has caused the damage at the house. In summary this is because: (a) There are no reactive soils underlying the footings to the house. The house footings are at, or very close, to the level of the shale rock present at the Site. In that respect the Bradford and Izzat Reports have not considered the geological setting of the Site, or the ground conditions exposed in the underfloor areas at the Site. The ground conditions exposed in the test pit excavated in March 2021 also identify the presence of shale rock at shallow depth; (b) The geological setting of the Site is different to that of the Maryland Test Site and the other sites the subject of research by Fityus and his co-researchers. The difference in terms of the likely foundation conditions at the Site is significant; (c) Heave of the footings has not taken place in response to the Storm and the "flexural cracking" referred to is inconsistent with a wetting up and heave of reactive soils; (d) The 2017 Survey does not indicate significant movement of the footing on the western wall where ponding took place; and (e) The photographs of cracked ground in the Izzat Report 1 do not indicate the presence of reactive clays, other than perhaps as a disturbed shallow fill zone or a shallow layer of collected runoff of silt/clay. 120. Of the above summary points, that at paragraph 119(a) is, in my opinion, of itself a sufficient basis to say that the thesis that the ponding of flood water led to the damage due to the presence of reactive soils is incorrect. The other factors referred to, in my opinion, reinforce that conclusion but are not necessary to lead to the rejection of the reactive soil mechanism. 121. That is, in my opinion the damage to the house is unlikely to have been caused by the Storm. The probable explanation does not relate to the behaviour of the ground. There may exist structural explanations, but these are outside my area of expertise."

The plaintiff's challenges to Dr Redman's report

1. The plaintiff's principal challenge to Dr Redman is that he did not obtain bore samples or dig test pits (submissions, paragraph 107).
2. This challenge must fail, for two reasons. The first is that the onus of proof lies on the plaintiff, and the defendant should not be expected to canvass expert evidence issues where there is no evidence to answer. The second is that I am satisfied that it was not necessary for Dr Redman to do so, as the nature of the geological setting and the information provided by exposures at the site and in nearby areas is sufficient.
3. In addition, it should be noted that Dr Redman did consider two exposures which confirmed the presence of shale. The first of these was in an area under the floor of the family room of the house, an area where there was a soil layer of 0.1 m, under which there was shale rock. The second was an area under the floor of the loungeroom, where the soil was .3 m thick and shale rock was beneath it. All of these findings are consistent with the description of soil in the area by Dr Redman.
4. Some of the challenges made to Dr Redman's report are factually incorrect, such as the claim that the maximum depth for the surficial soil was 0.54 m when it was in fact 0.4 m (defendant's submissions, paragraph 92). This is an obvious error.
5. Other challenges to Dr Redman's report are trivial. For example, all the relevant expert witnesses, including Professor Hardman (and the plaintiff: T 40), assumed the footings were 300 mm deep, and the reason why Dr Redman is to be criticised for joining in this description of the footings' depth is unexplained. The plaintiff has not proved, by expert evidence, that these were some other depth.
6. Another difficulty was that some of the evidence is confusing. As I understand paragraph 110 of the plaintiff's submissions, the plaintiff is saying that if he had found shale when he excavated instead of clay he would have designed the house differently. I cannot see where the plaintiff gave this evidence.
7. Finally, Mr Sleight drew my attention to the portions of the transcript set out above in which it was asserted that Dr Redman had made concessions or otherwise agreed with Ms Sleight that there could be no other explanation for the damage. That is not how I interpret this evidence. To the contrary, Dr Redman became increasingly emphatic on the geological issues in general and the presence of shale in particular.

The evidence of Professor Harding and Izzat concerning clay and shale

1. Professor Harding very properly acknowledged that he did not have expertise in this area. While he was prepared to answer questions about it, his evidence on this issue should be treated with caution.
2. Dr Redman was not asked any questions about the Izzat reports, apart from whether he had seen the photographs.

Conclusions concerning the soil

1. I accept the evidence of Dr Redman that the soil in question was not reactive clay but shale.

The structural engineering evidence

1. The contents of the reports of Mr Manning and Professor Bradford should first be noted.

Professor Bradford

1. Professor Bradford's reports are coloured by his assertions that the plaintiff's house, despite being structurally adequate (CB 92 - 3; see also T 161), needs to be demolished in order for the repairs to be affected. He states that this opinion is based on his understanding of the Izzat report dated 22 June 2020 (see the addendum attached to his report and his observations at CB 427). His reasons for this include: 1. Although Professor Bradford acknowledged that brick matching was outside his area of expertise (T 166), he nevertheless concluded that there may be difficulty in matching the bricks. How this warrants a complete demolition was never really explained; he later acknowledged it was an aesthetic rather than a safety issue (T 165). I also note that this is contrary to the exclusion clause in the policy which states that the insurance company does not pay for materials to match the undamaged parts. 2. There were cracks in the brickwork which required demolition (T 142), although he acknowledged in the Joint Report that with one exception these cracks were really too small to fix. 3. The rectification would be complex as compliance with AS 2870 and other Australian Standards would be necessary. This might be more expensive than a complete demolition and rebuild.
2. The Izzat reports upon which Professor Bradford bases these opinions are not in evidence as expert reports. For whatever reason, these were tended for limited purposes only. Moreover, I have accepted the evidence of Dr Redman that the soil was shale, in which case the Izzat reports, which were based on the plaintiff's assertion that the soil was clay, are of little or no persuasive power.
3. The next problem with Professor Bradford's reports is that he opined the defendant was liable for all damage to the property, and not merely water-related damage. Six areas of repairs are the subject of challenge (cornices, the garage, the driveway, the brickwork, cracking of the upper slab and damages to the foundation leading to leaning walls).
4. As noted in Mr Djurdjevic's submissions at paragraphs 8.1 - 8.6, none of these arose from reactive clay soil movement or rainfall. To give one example, namely the cornices lifting, Professor Bradford eventually agreed that if rainfall were responsible there would be water staining, which there was not; the likely cause was shrinkage over time (T 145). In view of my findings on the FOS defence, I do not propose to set out the remaining challenged areas, beyond noting that I accept the defendant's arguments.
5. In conclusion, the value of Professor Bradford's reports is undermined by: 1. The limited weight to be placed on the Izzat reports. 2. My preference for Dr Redman's expertise on shale and clay soils. 3. Professor Bradford's acknowledgement that brick matching issues are outside his area of expertise. 4. My preference for Mr Manning's report, which had the benefit of being based on the council documentation from the very first, as opposed to the opinions of Izzat and the plaintiff.
6. This is not a criticism of Professor Bradford, whom I suspect had a difficult task completing his first report without the benefit of information his better-briefed opposing experts had, which led to his two further reports. He was a courteous and helpful witness who did his best to answer questions fairly, including making concessions where appropriate, such as in relation to areas falling outside his expertise.

Mr Manning

1. Mr Manning, who carried out a site inspection on 22 October 2021 (described at paragraphs 50 - 79 of his report), set out an extensive review of the Port Stephens Council documents, noting how the design of the house had been changed from a single-storey to a double-storey house. Mr Manning assumed that the footings shown in these documents were not revised when the building plan was changed to a double storey house, a factor of some relevance to his findings.
2. Mr Manning next noted the salient aspects of the footing design are that these are 300mm deep x 450mm wide concrete strip footings, reinforced with 6 x 12 mm steel bars and 7 mm diameter steel stirrups at 450 mm centre-to-centre spacings. A 110mm thick concrete floor slab (in three sections) is shown on consolidated fill, reinforced with F72 steel mesh top and variable steel reinforcement bottom.
3. Mr Manning then explained that, if the footings were founded in reactive clay, footings of a larger depth would have been required. Even though the Standards Australia Code for residential slabs and footings was not introduced until 1986, its guidance as to appropriate footing sizes in soil of this kind was important. The current requirement, even for only a slightly reactive clay classification, would be 500mm x 400mm, which would be four times stronger and stiffer, and thus more able to resist reactive clay movements of the footings. In fact, as there was an amended design in late 1986, this design would have been caught by the new requirements.
4. Mr Manning also noted that calculations for the revised upper-level floor slab were never documented in a drawing (at paragraph 20).
5. Mr Manning noted and agreed with the description of the ground slab and suspended slab as "minor" (very slight to slight, under AS 2870) and "cosmetic", and that the building overall was structurally adequate. He also agreed with Forum's observations about the need for water to be trapped for significant times, not from running water passing by the building perimeter, which meant that the damage could not be a result of the 21 April 2015 storm (paragraph 25).
6. Mr Manning was critical of the Izzat reports. As the tender of these reports was limited under s 136 at Mr Sleight's request, it is not necessary to set out those criticisms further.
7. Answering the questions put to him by the defendant's solicitors, Mr Manning identified damage which was wear and tear, including damage to the roof, as opposed to storm damage, and responded to the report and answers of Professor Bradford. Like Professor Bradford and Dr Redman, he was a courteous and helpful witness. He was aided by being better briefed by the defendant's legal representatives and by the consistency between his views and those of Dr Redman.
8. The only expert who says the house must be demolished is Professor Bradford. Mr Manning and Forum Consulting Engineers consider it unnecessary.
9. For the reasons set out above, I accept Mr Manning's evidence on this and all other issues.

The conclave evidence

1. Mr Sleight submits that Mr Manning made concessions during his cross-examination. That was not my impression. For example, Mr Sleight put to Mr Manning (T 124) that the plaintiff "really has no alternative but to demolish and rebuild the house", to which Mr Manning responded: "Well I don't agree with that, I've just said that you would underpin the footings."
2. When Mr Sleight asked how a bowing wall could be fixed, he responded that it could be "stabilised", the inference being that demolition was unnecessary.
3. I accept and prefer the evidence of Mr Manning on this issue as well as on all other issues.

Conclusions concerning the merits of the claim

1. I accept and prefer the evidence of Dr Redman that the soil is shale and not reactive clay.
2. But for my findings as to the plaintiff's lack of entitlement to bring proceedings in this Court by reason of having accepted the FOS determination, the plaintiff would have been entitled to an award of some damages. Accordingly, I make some brief observations about quantum.

Quantum issues

1. The plaintiff sought $503,070.62 ($512,434 less $9,363.38 paid) if the court found that the total demolition and reconstruction of the property was necessary. I have not found demolition to be necessary. In those circumstances I do not propose to make determinations in relation to the issues raised by the parties, beyond noting that I would have accepted the submissions set out by Mr Djurdjevic in section 10 of his written submissions.
2. Because of the uncertain status of the FOS proceedings, which are arguably still on foot, the issue of quantum is complicated. The plaintiff's preferred alternate position, if I do not consider excavation necessary, is to take the Rizon maximum offer in the amended scope of works, namely $108, 856.37.
3. The defendant contends that if I find the scope of work prepared by Mark Manning is the reasonable and necessary scope of repairs, I should only award $7,796.62 ($17,160 less the $9,363.38 paid in the two lump sums in 2016 and 2017). Alternatively, if I find the FOS Determination was accepted by the plaintiff (which I have done), then the sum payable is $21,070.62 ($30,434.00 less $9,363.38 paid).
4. There is considerable attraction in the idea of awarding a sum that the defendant was prepared to agree to in the FOS proceedings, namely $108,856.37. However, I have had the advantage of extensive expert evidence not made available to the FOS as well as cross-examination of those experts and submissions from counsel. For example, my findings as to the eaves damage is different. I would not consider it appropriate for me to abandon my findings of fact in favour of the FOS determination.
5. Accordingly I would propose to take the second of the figures put forward by the defendant, namely $21,070.62, on the basis that I am satisfied that the plaintiff accepted the FOS determination.
6. The smallness of the sum awarded may give rise to a submission that no costs should be ordered: UCPR r 36.16. However, the complexities of this case are such that these proceedings could never have been brought in the Local Court. Whether they should have been brought in this court at all is, however, the real question. For the reasons set out by Rares J in Burge, the plaintiff's cause of action is hopeless and should not have been brought in this court, and it is to this aspect of the case that I now turn.

The Financial Ombudsman Service ("FOS")

1. The role of the FOS is helpfully described by Foster J in Burge v Commonwealth Bank of Australia (No 3) [2017] FCA 383 (application for leave to appeal dismissed: Burge v Commonwealth Bank of Australia [2017] FCA 1194) as follows: "[32] As I understand the way in which the FOS arrangements work, a participating financial institution (in this case, the CBA) voluntarily agrees to abide by the resolution of certain disputes referred to FOS, thereby ceding to FOS the power to determine on a final and binding basis certain types of disputes with the customers of the participating financial institution, if the customer chooses to engage with FOS for that purpose. By way of contrast, the customer has the right to elect between accepting the FOS determination once made or not accepting that determination. If the customer accepts the FOS determination, that is the end of the matter. The parties' rights in respect of the matters referred to FOS are thereafter governed by the FOS determination. If the customer does not accept the FOS determination, the parties' rights remain as they were before the referral to FOS. [33] The idea behind the FOS process seems to be that one way of addressing what may be an imbalance between the bargaining position of a financial institution and that of its customers is to provide this opportunity to the customer to secure an independent determination in respect of the customer's complaint without resort to litigation while at all relevant times retaining the right not to accept that determination. The basis of the FOS process is entirely contractual."
2. The FOS is an independent financial services external dispute resolution service approved by the Australian Securities and Investments Commission ("ASIC") and authorised by the government under s 1050 of the Corporations Act 2001 (Cth) to provide dispute resolution services to consumers seeking to use its services. In Australia Capital Management Pty Ltd v Australia Financial Complaints Authority [2022] NSWCA 204, Bell CJ and Meagher J stated at [1]: "The Australian Financial Complaints Authority Ltd (AFCA) is a company limited by guarantee and is the operator of the "AFCA scheme", which is a financial services external dispute resolution scheme authorised under s 1050 of the Corporations Act 2001 (Cth) (the Act)."
3. Their Honours went on to state at [3]: "AFCA's Constitution cl 3.2(g) provides that each member of AFCA agrees to be bound by the AFCA Complaint Resolution Scheme Rules (AFCA Rules). Once a complaint is made to AFCA, the AFCA Rules form a binding tripartite contract between the complainant, AFCA and the member the subject of the complaint (referred to in the Rules as the "Financial Firm"): see AFCA Constitution, cl 12.1(d); AFCA Rules, r A.1.2. This in turn has ramifications for the bases upon which any determination ultimately made by AFCA can be challenged in Court proceedings, as shall be explained below."
4. As their Honours point out at [7], the result is binding if it is accepted by the complainant within 30 days, but not otherwise: "Once a complaint is made to AFCA, its Rules form a contract between the complainant, AFCA and the Financial Firm. AFCA's determination of the complaint is "final", and binding on both parties if accepted by the complainant within 30 days of receipt (r A.15.3)."
5. Rares J notes, in Burge v Commonwealth Bank of Australia [2017] FCA 1194 at [14], that the relevant clause is as follows: "8.7 Recommendations and Determinations a) Each Recommendation and Determination: (i) must be in writing; (ii) may either reach: (A) a conclusion about the merits of the Dispute; or (B) the view that, given the procedures adopted by FOS, it would not be appropriate for FOS to reach any conclusion as to the merits of the Dispute; (iii) must set out reasons for any conclusion about the merits of a Dispute or view of the kind referred to in paragraph 8.7(a)(ii)(B); (iv) must specify any remedy, determined in accordance with paragraph 9, that FOS considers fair and appropriate; and (v) must be provided to all parties to the Dispute; b) A Determination is a final decision and is binding upon the Financial Services Provider if the Applicant accepts the Determination within 30 days of receiving the Determination. 8.8 Applicant acceptance of a Recommendation or Determination In order to accept a Recommendation or a Determination, the Applicant must provide the Financial Services Provider (if the Financial Services Provider so requests) with a binding release of the Financial Services Provider from liability in respect of the matters resolved by the Recommendation or Determination. The release must be for the full value of the claim the subject of the Dispute, even if this amount exceeds the amount of the remedy decided upon by FOS. The release shall be effective from the date on which the Financial Services Provider fulfils all of its obligations under the Recommendation or Determination. (emphasis added)"
6. Mrs Burge, like Mr King, had accepted a determination within 30 days and had then sought to commence proceedings afresh for the whole sum. Her action was summarily dismissed as the court was not prepared to infer, despite her claims of reservations and problems in understanding, that the court should look behind the consent given in accordance with the contractual promise.
7. The FOS is an important part of consumer protection law. Its services are free of charge to consumers such as Mr King; the costs are met by financial services providers. Any attack on its provision of services on the bases enumerated by the plaintiff needs to be seen in terms of its role in financial services in terms of resolving disputes outside the court system.
8. A person who is unhappy with the result is, however, not without remedy. Appropriate relief by way of judicial review, injunction or declaration, from a court with jurisdiction to hear such applications, may be sought. In Mickovski v Financial Ombudsman Service Ltd (2012) 36 VR 456 ("Mickovski"), the Court stated at [38]: "As Tadgell JA stated in Australian Football League v Carlton Football Club Ltd, if a domestic tribunal's decision owes its binding quality to a contract, the courts will recognise that the decision must be consonant with the contract and, if not, a declaration to that effect may be obtained and an appropriate injunction granted at the suit of an aggrieved person whom the decision purports to bind. Hence, although it is not open to turn what should be a hearing before a domestic tribunal into a hearing before the court, and of course there is no right of appeal as such from the decision of a domestic tribunal, if there is a doubt about the exact meaning of a law which it is the function of the domestic tribunal to interpret, a party to the contract is entitled to seek the opinion of the court about it." [Citations omitted]
9. One aspect of the proceedings between the parties in the FOS which was not the subject of submissions is the current status of those proceedings. If they are not on foot, on what basis were they terminated? If they are on foot, would principles analogous to lis alibi pendens (Crowther v Whitehorse City Council (No 2) [2018] VSC 344) apply? What would happen if the plaintiff now sought to argue that he was still entitled to accept the latest offer served in accordance with clause 1.3 of the FOS determination?
10. The FOS has now been replaced by the Australian Financial Complaints Authority ("AFCA"). The plaintiff acknowledges that the AFCA stands in the shoes of the FOS (paragraph 8 of Mr Sleight's closing submissions) and I was not addressed as to any perceived difficulty arising from this change. While I note the parties agree that this is the case, the AFCA would only have jurisdiction if the proceedings between the parties remained on foot, as opposed to having been terminated in some way.

The plaintiff's challenge to the FOS determination

1. Mr King does not complain of the quality of the FOS determination in the statement of claim. Nor does he particularise any non-compliance with the FOS determination by the defendant (although in the Reply he asserts failure to comply with the clause 1.3 procedure). His challenges in the Reply are largely to the jurisdiction of the FOS, to the asserted opacity and unworkability of clause 1.3 and other matters over which the defendant has no power.
2. Then there is the issue of the circumstances in which these proceedings were commenced. Mr King now acknowledges receipt of part of the monies paid to him by the defendant in accordance with that decision and, while he sent back the third cheque, he continued to negotiate in accordance with the procedure set out in clause 1.3 until a matter of weeks before commencing these proceedings.
3. What, then, does Mr King ask the court to make of the FOS determination of 31 October 2017? Up until the hearing, the plaintiff's position seems to have been to argue that he does not seek to enforce the determination, as it is the defendant who relies upon it, so the determination can simply disregarded. Accordingly, Mr Sleight submits, it is incumbent on the defendant to prove a case of accord and satisfaction (paragraph 2 of the plaintiff's submissions). This means that the defendant, rather than the plaintiff, is charged with the burden of the necessary steps, ranging from the seeking of declarations to judicial review, joining the FOS (if that is a requirement, which Mr Sleight does not acknowledge) and seeking appropriate relief, whatever that may be.
4. As to the statutory support for requiring the defendant to take such steps, Mr Sleight invokes s 56 of the Civil Procedure Act 2005 (NSW), adding that these provisions also make it unnecessary to require the plaintiff to take such steps.
5. The plaintiff, not the defendant, has chosen the jurisdiction in which to commence. This court has no power for judicial review or appeal from the FOS decision (there being no right of appeal in any event), and it does not have the power to make declarations: ss 4, 46 and 134 of the District Court Act 1973 (NSW).
6. The plaintiff relies on the particulars set out in the Reply proffered at the commencement of the hearing in response to the matters raised in the defence as to the FOS determination. This pleading asserts that the FOS decision is void, in that it failed to determine direct financial loss and provided an uncertain mechanism to determine the same and/or an attempt to delegate its function. In the Reply, this was put on the basis that clause 1.3 required the defendant, 28 days after the acceptance of the determination, to obtain a further scope of works from an independent contractor, after which the defendant was entitled to cash-settle the plaintiff's claim (the "independent contractor" clause). The assertion is that the contract is void for uncertainty by reason of the "suitable independent contractor", the scope of the works and the amount of the cash settlement not being identifiable. Alternatively, if the determination was capable of acceptance and was accepted, then such acceptance created a collateral accord and satisfaction for the claim which did not operate to discharge the defendant's obligations under the policy until it was performed. As the defendant has not performed it (in that no builder was selected and no further scope of works was done), the defendant remains liable, and the plaintiff is entitled to start all over again, not in the FOS, but in this court.
7. The defendant submits: 1. These proceedings are without jurisdictional basis in the District Court as the plaintiff should have sought relief of the kind sought in Burge, which this court cannot offer. 2. Even if this court did have the power to make such orders, the FOS (by its successor, AFCA) should have been joined as a party to the proceedings. 3. Alternatively, the issues in dispute were determined by the FOS in a decision that was final and binding notwithstanding clause 1.3.

What kind of relief should the plaintiff seek if he is dissatisfied by the FOS determination?

1. The FOS offers enormous benefits to its users, and in particular consumers with limited resources, but these benefits come with a cost, in that courts are reluctant to intervene even where there is error. In Mickovski, it was held that, despite the FOS having made an error in its reasoning which resulted in an erroneous conclusion, the decision was not reviewable. This was because there would need to be evidence of fraud, prejudice or bad faith in order for the decision to be reviewed; the decision was made within the ambit of decision-making power conferred upon the FOS.
2. In Cromwell Property Securities Ltd v Financial Services Ombudsman Ltd ("Cromwell") [2014] 288 FLR 374, the court adopted the standard in Associated Provincial Picture Houses Ltd v Wednesbury Corporation [1948] 1 KB 223; [1947] 2 All ER 680 and Mickovski, namely that in cases where the parties have contracted into an arbitral process, the court would only intervene where the decision is plainly unjust. In Mickovski, it was held that the court should only intervene where the decision was one to which no reasonable tribunal could properly come on the evidence. The court in Cromwell noted that a positive duty to act reasonably should not be implied as this "would defeat the intention of the contract and potentially play havoc with a scheme that is meant to be efficient, cost effective, and informal" (at [93]).
3. For these reasons, as was the case in Burge, a party cannot simply walk away from a determination that is not to his or her liking once the final determination is made and accepted, and try to start again. In the present case, the plaintiff not only accepted the determination but participated in the clause 1.3 procedure for over three years without complaint. What the plaintiff should have done was to seek orders for a declaration or injunction (Mickovski at 468) or bring an application for judicial review.
4. Accordingly, the plaintiff has not sought appropriate relief in his attempt to disregard or otherwise set aside the FOS determination.

Should the FOS be a party?

1. The Terms of Reference constitute a tripartite contract: Goldie Marketing Pty Ltd v Financial Ombudsman Services Ltd & Anor [2015] VSC 292 at [16] ("Goldie Marketing Pty Ltd"). The matters complained of in the Reply, such as the drafting of clause 1.3 and the asserted vague wording, are complaints that should be addressed to the FOS, not to the defendant.
2. The portion of the plaintiff's argument about the FOS determination assertedly lacking the essential terms to as to be capable of acceptance by the plaintiff to form a binding agreement falls into this category. I briefly note these as being: 1. The FOS impermissibly delegated its powers to resolve the dispute by having a process in Clause 1.4 for a contractor chosen by the defendant prepare a scope of works, including a settlement sum to be determined by this proviso rather than by the FOS. 2. The FOS's delegation rendered its decision incapable of acceptance to form a binding agreement as it is uncertain as to an essential term of the contract.
3. The FOS had decided that the scope of work to be quoted on was as set out in clause 1.2 of its determination; the balance of the plaintiff's claim was rejected. The FOS did not delegate its function, but used a process akin to the appointment of a referee for the determination of the sums involved. While the plaintiff takes a suspicious view of the FOS permitting the defendant to choose the builder, that decision is understandable in an arbitration process where the costs are largely defrayed by the service providers. The FOS was not required to determine the amount of the cash settlement; its role lay in the delineation of the quoted items in clause 1.2 of the determination, and not in the quantum.
4. Even if there were some merit in these complaints, the FOS's conduct, not the defendant's, is the conduct challenged in these proceedings. Those issues cannot be resolved if the FOS is not a party. The claim should be dismissed for this reason as well.

Did the FOS determine the same issues and, if so, did it produce a final determination?

1. As set out in the Reply, the plaintiff submits that the terms of the determination, especially clause 1.3, were so vague and unworkable as to be void.
2. The defendant submits that the plaintiff is bound by the FOS determination by reason of the tripartite agreement he entered into. Alternatively, he is prevented by an estoppel by convention from arguing that he has rights against the defendant different from the rights as found in the FOS determination.
3. Dealing with the plaintiff's claim as set out in the Reply, the ongoing correspondence between the plaintiff and defendant following the determination does not contain any complaints of this kind. Not only were the steps outlined in clause 1.3 able to be performed; they were performed. The plaintiff's sole complaint was that he was not offered enough money.
4. The plaintiff also refers to clause 8.8 of the Terms of Reference which provide that, in order to accept a determination made by the FOS, the applicant must provide the financial services provider with a binding release. However, there is an important proviso, namely that the applicant must do so only if the financial services provider requests this. In the present case, and similarly to the facts in Burge (at [122] per Foster J), the defendant made no such request. The applicant in Burge simply signed an acceptance form and sent it to the FOS, which was "all that she was required to do in order to signify her acceptance of the Final Determination". In the present case, the plaintiff stated in writing that he accepted the determination and signed the letter containing this statement.
5. The plaintiff also submits that his acceptance of the FOS determination within the 30 days is not binding because this was not included in the Terms of Reference. However, for the reasons set out in Goldie Marketing Pty Ltd, this does not mean that the 30-day term is not binding.
6. The plaintiff further asserts that, if this is taken as stated, then it was contradicted by correspondence sent by the FOS on 22 December 2016, and that the determination was not carried out in accordance with the tripartite agreement (submissions, paragraphs 116 - 127). This requires a careful examination of the correspondence in question.

The letters dated 22 December 2016

1. The plaintiff further submits that letters sent from the FOS (one to the plaintiff and one to the defendant) advised the plaintiff that the FOS determination was not intended to be binding.
2. The text of the letter sent to each of the parties, copying from the letter to the plaintiff, is as follows: "Dear Ms Boustani Applicant(s) Mr Warren King Contact person Mr Warren King Our case number 461486 Your reference number ANEHH1514732t I am writing to let you know we are dealing with this dispute under our Fast Track Process. This gives both you and Mr King seven days from the date of this letter to supply all the information needed. We encourage you to contact Mr King to try to resolve the dispute directly with him. If the dispute is not resolved in this time, we usually ask you to join us in a preliminary view call. After this, we make our decision. Step 1: Review the dispute and respond with further information I confirm receipt of IAL's response received on the 15 December 2016 with attachments. IAL has seven days to respond to the details about this dispute. If you have nothing further to add, please advise us accordingly. I have provided seven days for Mr King to respond and provide any further information regarding his dispute. His response is due 29 December 2016. We will exchange any information provided by Mr King. Step 2: Send us information supporting your response If you resolve the dispute please write to me and confirm this. Include full details of the agreement you have reached. If you have not resolved the dispute, please write to me with any further evidence you wish to rely upon. If you have nothing further to add, please just write back to me and advise that you have nothing further to add and that you wish to rely on the Notice of Response already submitted. Step 3: We hold a preliminary view call for an ongoing dispute If you and Mr King have not resolved the dispute, I will contact you to set up a preliminary view call. We will discuss the dispute and give you our preliminary view of it. Both you and Mr King: • must be ready for the call at the time we set • be available for around one hour • have authority to agree to an outcome. Step 4: We may need more information for a still unresolved dispute If this dispute is not resolved by the preliminary view call, we may ask for more information. You must supply this by the date we give you. Step 5: We make a Determination If we still cannot resolve this dispute, our Adjudicator will issue a final Determination. Our decision will be binding on IAL if Mr Warren King accepts it within 30 days of the date we issue it. Mr Warren King cannot appeal the decision, but is not bound by it and can still pursue the dispute elsewhere. Any questions? I have provided Mr King with a fact sheet about our Fast Track process which you can access here. If you have any questions or want more information about this case, please contact me on: • call: [redacted] • email: [redacted] I look forward to hearing from you." "Dear Mr King Applicant(s) Mr Warren King Service provider Insurance Australia Limited (IAL) Case number 461486 I am writing to let you know we are dealing with this dispute under our Fast Track process. This gives both you and IAL seven days from the date of this letter to supply any further information needed. If the dispute is not resolved in this time, we usually ask you to join us in a preliminary view call. After this, we make our decision. Please see the attached fact sheet for further information about this process. If you cannot meet our timeframes, please let us know now. It is important that you stay engaged in your dispute by providing responses by the due date. Otherwise we may close the dispute or make a decision with only the information we have. We share information with IAL unless you tell us not to. Only give us information relevant to the dispute and remove or de-identify other information. Our understanding of your dispute IAL are refusing to pay or accept that the damage to your house was caused by the storm (April 2015). You are seeking IAL to cover the cost of repairs to the concrete slab and roof. IAL has submitted a Notice of Response which advises that the damage was not caused by a storm event and is excluded under the policy. You are seeking to be covered. Our approach to some of the issues you have raised The onus is on you to demonstrate on the balance of probabilities that an insured event has occurred. FOS will review all information provided by both parties to the dispute to arrive at a likely outcome, we will also refer to any relevant information, such as: • Policy wording from the Product Disclosure Statement • Policy schedule • Insurance Contracts Act • FOS's Terms of Reference."
3. The plaintiff, despite not giving evidence to this effect, now submits that he understood that the effect of these letters was that he was not bound, and that even if he did, its contents are not binding because they do not appear in the Terms of Reference.
4. In Burge v Commonwealth Bank of Australia at [16]-[18], Rares J rejected a similar submission, citing Mickovski and Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165.
5. Mr Djurdjevic states (at paragraph 5.2 of his submissions) that these letters, in identical terms and sent early on in the FOS proceedings, set out matters of an administrative nature. I do not agree. These are letters of advice which set out clearly what will happen, depending upon whether the plaintiff accepts or rejects the offer. FOS correspondence of this kind has generally been regarded by the courts as being clear and comprehensive: see the observations of Cameron J to this effect in Goldie Marketing Pty Ltd.

Did the FOS lack jurisdiction to hear the claim because it was for a sum in excess of the FOS jurisdiction?

1. Clause 5.1 of the Terms of Reference provides: "5.1 Exclusions from FOS's jurisdiction The Service may not consider a Dispute: a) about whether a Financial Services Provider has met confidentiality or privacy obligations unless the Dispute about confidentiality or privacy: (i) is part of a broader Dispute between the Financial Services Provider and the Applicant; or (ii) relates to or arises out of the provision of credit, the collection of a debt, credit reporting and/or the banker-customer relationship; b) about the level of a fee, premium, charge or interest rate - unless: (i) the Dispute concerns non-disclosure, misrepresentation or incorrect application of the fee, premium, charge or interest rate by the Financial Services Provider having regard to any scale or practices generally applied by that Financial Services Provider or agreed with that Applicant; (ii) the Dispute concerns a breach of any legal obligation or duty on the part of the Financial Services Provider; or (iii) the Applicant's Dispute is with a medical indemnity insurer and pertains to the level of medical indemnity insurance premium or the application of a risk surcharge (as defined in the Services Contract between the Health Insurance Commission, and the Commonwealth of Australia represented by the Department of Health and Ageing, and medical indemnity insurers); c) about the Financial Services Provider's assessment of the credit risk posed by a borrower or the security to be required for a loan - but this does not prevent FOS from considering a Dispute: (i) claiming Maladministration in lending, loan management or security matters; or (ii) about the variation of a Credit Contract as a result of the Applicant being in financial hardship; d) about underwriting or actuarial factors leading to an offer of a Life Insurance Policy on non-standard terms; e) in the case of a Dispute about a General Insurance Policy - about rating factors and weightings the insurer applies to determine the insured's or proposed insured's base premium which is commercially sensitive information; f) about a decision to refuse to provide insurance cover except where: (i) the Dispute is that the decision was made indiscriminately, maliciously or on the basis of incorrect information; or (ii) the Dispute pertains to medical indemnity insurance cover; g) about the investment performance of a financial investment, except a Dispute concerning non-disclosure or misrepresentation; h) about decisions of the trustees (in their capacity as trustees) of approved deposit funds and of regulated superannuation funds; i) relating to the management of a fund or scheme as a whole; j) that relates to a decision by a Financial Services Provider as to how to allocate the benefit of a financial product (such as but not limited to a Life Insurance Policy) between the competing claims of potential beneficiaries; k) where the Dispute raises the same events and facts and is brought by the same Applicant as a Dispute previously dealt with by FOS or a Predecessor Scheme and there is insufficient additional events and facts raised in the new Dispute to warrant FOS's consideration of the new Dispute; l) that has already been dealt with by a court or Dispute resolution tribunal established by legislation, or by another external dispute resolution scheme approved by ASIC; m) in relation to which the Applicant commenced legal proceedings before the Dispute was lodged with FOS except where: (i) the legal proceedings have been discontinued; or (ii) the relevant statute of limitation period will shortly expire and the Applicant undertakes in writing not to take any further steps in the proceedings while FOS is dealing with the Dispute; n) that has already been lodged with, and is being dealt with by, another external dispute resolution scheme approved by ASIC; o) where the value of the Applicant's claim in the Dispute exceeds $500,000; p) where the Applicant is a member of a group of related bodies corporate and that group has in excess of 20 employees (or 100 employees in the case of a manufacturing group); q) requiring review of a trustee's exercise of discretion, except to the extent there is an allegation of bad faith, failure to give fair and proper consideration to the exercise of the discretion, or failure to exercise the discretion in accordance with the purpose for which it was conferred; r) about debt recovery against a Small Business where the contract provides for a credit facility of more than $2,000,000; s) where the Dispute is about a Traditional Trustee Company Service and: (i) at least one beneficiary is a minor or lacks mental capacity; (ii) a complaint about the service provided may be made under any of the laws listed in Schedule 8AC of the Corporations Regulations; or (iii) the complaint is about the service provided to a person lacking mental capacity by a trustee who was appointed by a court; t) where the Dispute is about the alleged capacity of the testator to make a valid will; or u) about professional accountancy services provided by an Accountant unless they are provided in connection with one of the following: (i) a financial service within the meaning of section 766A of the Corporations Act 2001 or section 12BAB of the ASIC Act 2001; (ii) credit activity within the meaning of the National Consumer Credit Protection Act 2009; or (iii) tax (financial) advice services within the meaning of the Tax Agent Services Act 2009."
2. One of the reasons developed in oral submissions at the end of the hearing was that the FOS ruling was invalid because the dispute form claimed over $500,000, which was in excess of the jurisdictional limit. Although the plaintiff had purported to agree to abandon the excess, it was contrary to the guidelines of the FOS to have come to such an agreement. The FOS should not have proceeded to hear the claim for these reasons.
3. The defendant submits (submissions, paragraph 5.3) that the claim was assessed by the FOS as being a claim for more than $10,000 but not more than $50,000, which was comfortably below the FOS's jurisdictional limit. The FOS made a determination to that effect in its case action report of 15 March 2017.
4. Even if that were not the case, the FOS still had jurisdiction to hear and determine a claim because Clause 4.4 provides as follows: "4.4 Consideration of other Disputes by agreement Notwithstanding any other paragraph of these Terms of Reference, FOS may consider a Dispute where all parties to the Dispute and FOS so agree. If so, the procedures set out in Section C or Section F (as appropriate) will apply to the resolution of that Dispute."
5. This was confirmed in a letter dated 28 March 2017 to the plaintiff following a telephone conversation he had with an FOS staff member: "During our telephone conversation today, you were considering your options as to whether you would like us to continue to consider your dispute. If so, you need to accept the limits, for which we can consider a dispute. FOS is unable to consider a dispute where the value of the applicant's claim exceeds $500,000. The maximum amount FOS may award must not exceed $309,000."
6. This was followed up again on 10 April 2017, when the FOS sent a reminder letter to the plaintiff: "We are waiting to receive the extra information we need. … 2. For us to continue to consider your dispute, please confirm you accept the maximum amount: • you may claim is $500,000 • you may be awarded is $309,000."
7. As Mr Djurdjevic points out in paragraph 55 of his submissions, the plaintiff did indeed accept the jurisdiction of the FOS in his letter dated 18 April 2017, which said, inter alia: "I seek for IAL to cover the cost of repairs to the concrete slabs, brickwork and roof, and all other damage caused by the storm or a complete payout on the policy. I would like the Financial Ombudsman Service to continue to consider my dispute, and I accept the maximum amount: I may claim is $500,000; I may be awarded is $309,000.
8. The plaintiff's submission that there was a purported unilateral reduction of the amount of the claim by the plaintiff, or an acceptance of a claim that should have been rejected, is wrong. The fact that there was a maximum amount potentially claimable did not mean that the whole of that sum was claimable. The question was the "value" of the claim.
9. The plaintiff made an informed decision to proceed after the FOS went out of its way to help the plaintiff. This included a conversation he had with Sam Lamb of the FOS (Tcpt, 22 August 2022, p 55(24)): "Q. So, what I suggest to you is that on that date, starting at about that time, you had a conversation with a Sam Lamb of FOS. Would you agree with that? A. Like I said before, I don't know. I can't remember, only from reading from this document, date and time. Q. If I could take you to the comment. Do you see how it says "comment" in bold words about five lines under the action date? A. Yes. Q. See the words to the right of that in that cell. That's all the comments. Do you understand that? A. What comments? Q. Well, all the other text to the right of "comment" and below it. Do you see those words? A. Yes. Q. I'll take you to the second paragraph. Do you see the second paragraph? It starts with, "I advised". A. Yes. Q. I'll take you to the second sentence of the second paragraph? A. Yes. Q. Do you see how it says there, "I said for FOS to continue to consider his dispute, he needs to accept our limits." Do you see that? A. Yes. Q. That representative from FOS said to you words to that effect, isn't that right, during that phone call? A. No, I do remember being mentioned. Q. Thank you. Can you see the line after that says, "I explained the maximum we could award is 309K" - meaning $309,000 - "and the max he can claim is 500K" - being $500,000? A. That's what it says here, yes. Q. During that conversation, that representative at FOS said words to you to that effect, is that right? A. I - I don't know whether anything was mentioned about 309, but I would have been focused on the 500,000, which is close to the insured amount. Q. So, is your answer you just don't remember? A. Pardon? Q. Is your answer you don't remember? A. That's right. Yeah, I don't. Q. Thank you. You did come to understand about that date that the maximum award that FOS could do, however, was $309,000, is that so? A. I do remember speaking to someone about that, or I remember someone mentioning that to me, but I interpreted the conversation to be 500,000, like I said, which was close to the insured amount. Q. Thank you. On 10 April 2017, a representative of FOS requested that you provide written confirmation that you accepted the FOS jurisdictional limits, is that so? A. Yes."
10. The plaintiff was asked about a second call with Mr Lamb on 10 April 2017: "Q. Also by a Sam Lamb? A. Yes. Q. So, what I suggest to you is that on or about that date, at about that time, Sam Lamb spoke with you on the phone again. Do you agree? A. I - I couldn't - I can't remember. Q. How about on or about that date? A. I - I can't - I can't remember. Q. How about in about April? Do you remember that? A. I couldn't remember. Q. I'll take you to the comment again. This time, I'll take you to the comment, which is about four paragraphs down within that comment cell, or about three paragraphs up from the bottom. It starts with, "I confirmed". A. Yes. Yes, I can see it. Q. Can you see how it says, "I confirmed we need him to first confirm within seven days he wants us to look at his dispute"? A. Yes. I can see that, yeah." (Tcpt, 22 August 2022, p 57(20))
11. Mr King's claims of being unable to remember these discussions are implausible. Not only were letters sent, but the situation was explained to him clearly and simply by Mr Lamb, and I am satisfied that he understood what he was being told and that he accepted it. This is confirmed by the text of his handwritten letter of 19 August 2018, which he was cross-examined about at Tcpt, 22 August 2022, p 59(39): "Q. You said, there, "I would like the Financial Ombudsman Service to continue to consider my dispute, and I accept the maximum amount I may claim is $500,000 and I may be awarded, is $309,000." Is that so? A. That's what it says, here, exactly."
12. The next letter in the chain on this issue is Mr King's acceptance of the determination on 30 November 2017, which is set out in the chronology at the commencement of this judgment.
13. Mr King agreed that after this he sought reports from Izzat up until early 2021, when he and Izzat had a falling-out in relation to what they were prepared to put in a report. The following exchange occurred at Tcpt, 22 August 2022, p 61(39): "Q. Do you see, that other document is a tax invoice from Izzat to you? A. Yes. Q. Do you see that it's dated 31 March 2021? A. Yes. Q. Then, do you see that, in the description, it says, "Report yet to be provided, placed on hold". A. Where's that? Q. "Description", the second bullet point. A. Yeah, yeah, yes, I can - I can see it, yes."
14. The tax invoice and accompanying email were the subject of a challenge on the basis of legal professional privilege. Although I upheld that challenge, the portion of the document relating to the payment and instructions, including that there was a report to be provided which was "placed on hold", fell outside this protection. The defendant is, therefore, still able to make a submission that Izzat, although charged with providing another report, had put it on hold at the request of the plaintiff and his lawyers, in circumstances where I should infer that the contents of that report would not assist the plaintiff's case.
15. While there are difficulties in determining just what took the parties so long to comply with the procedure set out in clause 1.3 of the determination, the above events suggest that both were going about the business of complying with this clause. The only events of significance that I can see in terms of any variation from that course are a report that Izzat put on hold and the imminent expiry of the limitation period.
16. None of this conduct paints a picture of uncertainty by either party as to the quantum of the claim (which I am satisfied that the plaintiff agreed to as being below the jurisdictional limit) or inability to comply with clause 1.3.
17. The alternate argument seems to be that there is no document expressly stating that the defendant agreed to the FOS determining the dispute. However, the plaintiff stayed with the FOS proceedings right up to the end, including accepting sums of money paid pursuant to the determination. This is clear evidence of post-contractual conduct (Brambles Holdings Limited v Bathurst City Council [2001] NSWCA 61 at [25]; see also Arjunan v Neighbourhood Associates No DP 285853 [2022] NSWSC 691 at [10] per Hamill J).

Challenges to the FOS remedies and to the Builder's independence

1. The plaintiff submits that the prescribed remedies do not contemplate permitting the FOS to engage a suitable independent builder. This is a complex argument and I gratefully adopt the summary of the relevant provisions of the FOS determination at paragraph 62 of the defendant's written submissions (1.2, 1.3, 2.2) as well as the relevant paragraphs of the Terms of Reference (paragraphs 63 - 64).
2. These are not matters that should be raised against the defendant. For these claims to be heard and determined, the FOS should have been joined. As noted above, that has not happened.

Accord and satisfaction

1. The plaintiff submits that there was a binding accord and satisfaction but that the defendant did not provide the satisfaction, in that they either did not appoint a builder at all or did not appoint an independent or suitable builder. This is wholly contracted by the evidence of the parties following the determination, including the lack of complaint about such matters at the time (or, for that matter, any identifiable challenge to either the suitability or independence of Rizon, about which I heard no evidence during the hearing).
2. The history of post-determination conduct by the defendant includes conduct by the defendant demonstrating a willingness to perform, including sending a cheque to the plaintiff which he returned (which potentially might permit the defendant to rely upon the doctrine of tender, although no defence of tender was pleaded).
3. Factual problems aside, I cannot see how accord and satisfaction can arise at all. How can such a doctrine be applicable to a tripartite agreement where one of the parties is arbitrating the dispute between the other two and where these parties then purported to carry out the terms of the arbitrated dispute? Mr Djurdjevic candidly acknowledges he has been unable to discover any authority for such a proposition and Mr Sleight was similarly unable to assist.
4. I am satisfied that there was no collateral contract of compromise capable of giving rise to an accord and satisfaction. The facts demonstrate the FOS performing its obligations in accordance with the tripartite agreement by delivering a determination which the plaintiff then accepted and which the defendant then performed.
5. Mr Djurdjevic alternatively submits (submissions, paragraphs 86 - 89) that satisfaction was provided by the nomination of a suitable and independent builder who provided a scope of works which the plaintiff elected to reject. Since Rizon's quote ($93,985.75) was nearly twice the size of the plaintiff's own expert ($48,908), it is difficult to see how any challenge could be made to Rizon.
6. Mr Djurdjevic next alternatively submits that, if the plaintiff is correct and the builder is neither suitable nor independent, the plaintiff's cause of action would have to be to enforce the accord and satisfaction by enforcing the independent clause, not by suing generally for the entire sum, as the plaintiff would have, by reason of the accord and satisfaction, have lost his original rights. Given the nature of accord and satisfaction in terms of replacing the original cause of action (McDermott v Black (1940) 63 CLR 161), this must be correct, in which case these proceedings, which are not based on the accord and satisfaction, would have to be dismissed.

Miscellaneous matters

1. In the course of his submissions, Mr Sleight referred to a number of issues without developing them. Some of these were as follows: 1. Breach of the implied duty of good faith: As Mr Djurdjevic notes at paragraphs 109 - 110 of his submissions, one of the claims made by the plaintiff is that the defendant breached its implied duty of good faith. The defendant reserved its rights to make submissions on this issue in reply but, as Mr Djurdjevic notes, did not do so, from which he infers that this claim has been abandoned. In those circumstances, I make the same assumption, but note the limited circumstances in which such a duty will be construed: Esso Resources Pty Ltd v Southern Pacific Petroleum NL (Receivers and Managers Appointed) & Ors [2005] VSCA 228 at [2]-[3]. 2. Costs of repair of the house: Mr Djurdjevic notes at paragraph 112 that no submissions from the plaintiff on this issue have been received. 3. Estoppel: Although Mr Djurdjevic referred to estoppel arguments at the commencement of the hearing, in practical terms, his reliance upon decisions such as Burge was the main line of attack and the estoppel arguments were not developed. I have accordingly not considered this issue further.

Concluding remarks and orders:

1. The defendant has been successful, in that I have accepted its submissions in relation to the FOS determination.
2. If I have erred in this regard and damages and interest should be awarded, I have made brief alternate findings. I add that I would agree with and accept the submissions that Mr Djurdjevic provided on interest (submissions, paragraphs 113 - 115).
3. I have reserved the issue of costs, with liberty to apply.

Orders: 1. Judgment for the defendant. 2. Costs reserved, with liberty to apply. 3. Exhibits retained until further order.

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: 17 February 2023