Plaintiff v Defendant

Plaintiff v Defendant - [2008] VSC 501 - VSC 2008 case summary — Zoe

[4]

2 The defendant denies that the plant and equipment was stolen, and generally denies liability under the policies. I note that if the defendant is liable, the amount recoverable by the plaintiff depends on whether it is entitled to "Reinstatement Value" (as contended by the plaintiff) or "Indemnity Value" (as contended by the defendant), those terms being defined by the policies. The parties agreed that the Reinstatement Value of the plant and equipment is US$4,187,432[4]. As to Indemnity Value, there were significant differences between the parties. The plaintiff submitted that Indemnity Value meant the depreciated replacement cost of the plant and equipment, as to which the plaintiff's expert Timothy Charles O'Mara was the only witness to provide an estimate of value. The defendant submitted that Indemnity Value meant the "market value" of the equipment. The parties' experts agreed in their joint report that, assuming a sale of the plant and equipment in the UAE as at May 2006 (for the items comprehended by the first loss) and September 2002 (for the items comprehended by the second loss), the market value of the items was US$1,909,000 (assuming "good condition"), US$1,537,300 (assuming "reasonable condition"), and US$959,100 (assuming "very poor condition"). Nevertheless, the defendant submitted that, on a proper construction of the policies, because there was no relevant market for the plant and equipment in the CAR, the market value figure should be discounted to reflect the cost of relocating the plant and equipment from the CAR to the UAE in order to effect a sale. The defendant submitted, in essence, that the relocation cost was greater than the market value of the plant and equipment, hence the plaintiff was not entitled to recover anything in respect thereof. That is a sufficient overview of the numerous differences between the parties as to the correct approach to be adopted on quantum. I refer to these matters in detail after dealing with the question of liability.

[62]

34 Robinson's evidence as to these matters was as follows. He said in his witness statement, and I accept, that Gordon "confirmed the substance of the statements in the Couper Group Report about the unstable and potentially dangerous situation in the CAR and the difficulties and risks likely to be associated with attempting to recover [the plaintiff's] plant and equipment", and Gordon said that "a forced attempt to recover [the plaintiff's] plant and equipment was likely to lead to an escalation of violence". After these discussions, and having considered the Couper report and other matters, including that the estimated cost of removal (assuming that removal was possible) was likely to exceed the market value of the plant and equipment, Robinson decided not to send any recovery agents to the CAR. He believed it would be too risky for the individuals involved. In early November 2001 he instructed Gordon that no forced attempt should be made to recover the plant and equipment. In cross-examination, counsel for the defendant put to Robinson that he formed the view that seeking to go back to the CAR to retrieve the equipment was of nil or negligible financial value to the plaintiff because the cost of retrieval exceeded the book value of the equipment, as to which Robinson replied "No, I didn't. I formed the view we should not go back because I was not going to let anybody go in there and risk their lives over it, regardless". He added that "the financial did not come into my decision". Later, when counsel suggested to him that "quite apart from the danger, you formed the view that the costs of retrieval, however it was undertaken, was likely to exceed the then market value of the plant and equipment", Robinson said "I guess so", but later reiterated that the danger "was my principal thing, we were not doing it [recovering the equipment] because of the danger". In my view Robinson was a frank witness and I accept his evidence. While he was no doubt aware that removal costs might exceed the value of the equipment, and this was a matter which he took into account, I find that his decision to call off any plans to physically recover the equipment from the CAR was made primarily, if not entirely, because he was not prepared to run the risk of injury or death to the plaintiff's personnel, or to others who the plaintiff may have hired to assist in recovering the equipment. The effect of Robinson's evidence was that, even if the physical removal of the equipment was likely to have been highly profitable to the plaintiff, it was a risk he was not prepared to take.

[85]

50 As to this, I accept Suresh's evidence that he made such a request in mid-October 2000, shortly after having discovered that items 1 to 20 were missing, and that nobody from SMAP informed him of the whereabouts of the items. After his unsuccessful attempts to locate the items, it is apparent that Suresh referred the matter to Simpson, who made further enquiries of SMAP. I have referred to (at [20] above), and do not repeat in full here, the comments in Simpson's report as to the location of particular items. In considering the defendant's submission that Simpson's comments are admissions that the plaintiff knew the location of items 1, 3, 4, 5 and 6, I note the following. Simpson referred to items 3 and 6 as "believed to be somewhere in the Carnot area" and to item 63 (a Ural truck) as "reported by Pacco" to be in the SMAP yard at Carnot. This language suggests that the comments about item 63 are hearsay and the comments about items 3 and 6 are matters of belief only, presumably based on information provided by Pacco or others. Further, the location given for items 3 and 6 is so imprecise that it could not meaningfully be said that the plaintiff knew the location of those items. Simpson is more precise in relation to other items, for example items 1 and 4 are stated to be "parked in the SMAP yard in Carnot" in a damaged state, with no reference qualifying these statements as being hearsay derived from Pacco. Nevertheless, Simpson refers to RD (who I infer is Demby) having spent most of 4 November inspecting and dismantling the damaged parts. There is no mention of Simpson himself having visited the SMAP yard and seen any of the items. Similarly, as to item 5, the reference to the bulldozer working at the CDC operation appears to be based on advice by Pacco or others to that effect, there being no indication in the report that Simpson himself visited the CDC operation. Further, it is to be noted that as Simpson did not give evidence, the comments in his report could not be tested. Nor did Demby give evidence, meaning that the extent of his knowledge of the location and condition of the equipment could not be tested. In these circumstances, Simpson's report carries little, if any, weight in terms of establishing admissions against the plaintiff as to its knowledge of the location of the equipment.

[87]

52 As to Gordon's evidence, he referred to Simpson's comments about item 5 (the Komatsu bulldozer being used on the CDC operation) and stated that it was not taken with his knowledge or agreement. I accept his evidence (which was not challenged) and, insofar as Pacco had led Simpson to believe that item 5 was taken with Gordon's agreement, I consider that Pacco misled Simpson. In cross-examination, Gordon also gave evidence about the meeting of 27 November 2000, at which he took the minutes, and where the issue of missing plant and equipment was raised. He agreed with counsel's suggestion that at that meeting Pacco "endeavoured to provide an explanation for Mr Simpson's comments about the missing and damaged equipment". However, it is necessary to consider in some detail the quality of the explanation offered by Pacco. The minutes state that the bulldozer (item 5) was required at the CDC mine until another excavator there was fixed, the timing of which would be ascertained during a visit to the CDC site the following day. Spare parts were to be purchased to fix the 85 ton low-loader (item 1) parked in the SMAP plant yard. The Komatsu bulldozer (item 4) had been moved to Carnot "due to artisan[14] unrest in the site area". Pacco indicated that a complete list of all items and spare parts had been compiled by Customs during their inspection when the containers first arrived on site, and Pacco was to make a copy of this list available to Simpson, following which Simpson was to do a complete check to establish what was missing and to report back to Pacco on this. The minutes also state that "indications are that two Mitsubishi twin cab pick-ups are being used by SMAP - one at CDC site and one by Mde. Monthe". The item in the minutes concluded by saying "This was confirmed during visit to Carnot a CDC site on 28th November". It is not clear from the minutes whether all aspects (or only the last mentioned aspect) of the missing equipment was confirmed during the site visit, and nor is it clear whether Gordon himself confirmed matters, or whether Pacco or someone else did a site visit and later reported to Gordon that the matters (whatever they were) had been confirmed. In short, it is unclear what was confirmed, and by whom. And notwithstanding this ambiguity, counsel for the defendant did not press Gordon as to whether he (or any other employee of the plaintiff) had direct personal knowledge of the location of the missing equipment. Then, in re-examination, Gordon said that he "could definitely say that" apart from the list of 20 missing items, and a list of 12 items that had been damaged, the balance of the equipment was neither missing nor damaged. It is to be noted that in his cross-examination of Gordon, counsel for the defendant had not put to Gordon that he had in fact seen any of the 20 missing items in operation, such as a bulldozer or a pick-up truck being used at the CDC mine. In my view, the minutes of the meeting are not an admission that the plaintiff knew the location of the missing equipment.

[132]

90 Given my conclusion that the second loss can be attributed to theft, it is not strictly necessary to decide whether the preservation of life extension applies. However, lest I be wrong in my primary conclusion, and as the parties argued the matter fully, it is desirable that I express my conclusions on this point. As I said earlier (at [33] and [34] above), I accept the evidence of Robinson and Gordon to the effect that the plaintiff decided not to pursue the option of physically retrieving the plant and equipment from the CAR because Robinson considered that such a mission carried an unacceptable risk to life. And even assuming that preservation of life was not the only motivating factor, and that commercial factors also motivated the plaintiff's decision, the plaintiff's decision is properly to be characterised as a deliberate or intentional act which the plaintiff considered reasonably necessary to protect life. In so concluding, I reject the defendant's submission that the decision was not an act at all, and that it merely represented the dropping of an option which had been proposed by the minority shareholder. That is to take too narrow a view of what occurred. Robinson was a director of the plaintiff when he made the decision and he communicated his decision to the board of the majority shareholder. The fact is that, on the evidence, the plaintiff gave serious attention to the retrieval option, and while it cannot be said that the plaintiff, as a matter of certainty, would have retrieved the equipment but for the perceived dangers, at the very least the plaintiff abandoned an option which it otherwise might have pursued and which might have led to the recovery of the equipment. In these circumstances, the plaintiff's loss was caused by, or arose out of, its intentional act, even though there may have been other causes of the loss. It follows that the preservation of life extension would apply. The exclusion clause, being directed to loss by disappearance rather than loss by an intentional act of the insured, would be inapplicable.

[140]

"2.1 In the event of an Occurrence giving rise to a claim under this Policy, the amount payable by the insurers shall be as follows, subject to the following provisions and subject to the limitations, exclusions, conditions and Limits of Liability of this Policy:

(a) ...

(b) for Construction Plant and Equipment ... the basis of settlement shall be Indemnity Value ...

(c) ...

(d) for all other Insured Property[29], the basis of settlement shall be Reinstatement Value.

2.2 "Reinstatement Value" shall mean:

(a) where the Insured Property is lost or destroyed, the replacement thereof by similar property in a condition equal to, but not better nor more extensive than, its condition when new;

(b) where the Insured Property is damaged and can be repaired, the Insurers will pay expenses necessary [sic] incurred to restore the property to a condition substantially the same as, but not better nor more extensive than its condition when new;

(c) ...

2.3 "Indemnity Value" shall mean:

(a) ...

(b) ...

(c) in cases where the Insured Property is totally destroyed or cannot be satisfactorily repaired at a cost not exceeding the market value immediately before the Occurrence, the Insurers will pay the market value of the item at the time that payment is made by the Insurers. If due to the nature of the Insured Property, it is not possible to readily ascertain a market value, the basis of settlement shall be the replacement cost of the damaged property less due allowance for depreciation taking into consideration the anticipated useful life of the property and the nature of the usage.

(d) ...

2.4 ...

2.5 In all cases, the cost of repair, replacement or reinstatement under this clause 2, shall refer to the final cost to the Insured after completion of the repair, reinstatement or replacement work, which shall include materials and wages incurred for the purpose of repairs and reasonable margins for profit, administration costs and overheads, freight, duty, insurance and other reasonable costs connected therewith.

[165]

113 It is necessary to refer in some detail to the experts' evidence on these matters. In his first report, the plaintiff's expert O'Mara stated that the "uniform standards of professional appraisal practice" (USPAP) require a valuer/appraiser to consider all three approaches to valuation, those being Cost approach[36], Sales comparison approach[37], and Income approach[38]. For reasons which are unnecessary to set out, he considered that neither the Cost approach nor the Income approach were appropriate in the circumstances. Due to the nature and location of the items, the Sales comparison approach was the most appropriate method of valuation, however he was unable to ascertain any accurate data on comparable sales in the CAR. To accurately assess the market value by Sales comparison, he would need access to credible sales data for the CAR. He opined that whilst there is not an established fluid market nor reliable sales comparison data for equipment trading within the CAR, there are companies that exist, own and operate equipment within the CAR. Lack of sales evidence or non-fluid markets does not mean an asset does not have a market value. Rather, it means that a valuer would have to adopt a different valuation approach for the CAR, possibly establishing sales comparisons with the UAE or South Africa, however he was unable to readily ascertain the duties, taxes and other direct and indirect costs that may impact on the market value. O'Mara then stated that as the three previously mentioned valuation approaches could not be used to ascertain the market value in the CAR, the best method of valuation was Depreciated Replacement Cost (DRC), which is actually an application of the Cost approach. He did not, however, consider this to be an accurate assessment of market value as it does not consider sales comparisons and location. He was also unable to readily ascertain a number of other factors that influence value including the direct and indirect costs, physical deterioration, functional and economic obsolescence. Notwithstanding these difficulties, he attached to his first report Schedule 5 which listed the DRC of items 1 to 12 as at October 2000 (totalling AUD$3,400,420) and Schedule 6 which listed the DRC of items 21 to 134 as at September 2002 (totalling AUD$4,938,738). The total is AUD$8,339,158. I interpolate that these figures are clearly incorrect, as the calculations are based on an exchange rate of US$1 to 0.272290 UAE Dirham, when in fact the rate should have been the other way around, that is to say 1 UAE Dirham to US$0.272290. Calculating the correct figure is not possible because O'Mara's figures contain a component for transport, referable to "replacement reinstatement" figures included earlier in his report, but which were not relied on by the plaintiff and were overtaken in any event by the experts' agreement on "reinstatement value". In these circumstances, and for reasons which I develop below, it is neither necessary nor practicable to calculate a correct estimate of the depreciated replacement cost of the plant and equipment.

[170]

115 In his third report[42], O'Mara expressed his disagreement with a statement taken from Hyman's first report[43], namely that there was no market for the plant and equipment in the CAR. Relevantly, O'Mara observed that many mining assets are located in remote places and it is not uncommon to find that there is no comparable sales evidence in the immediate region, but this does not lead to the conclusion that they have no market value. His researches had found that several publicly listed companies were involved in exploration or mining ventures in the CAR, and the majority of "companies of this type" sourced their equipment from outside the CAR or outside the particular remote location they were in. In many circumstances, remoteness can add value as buyers do not have to pay relocation costs which might apply if an item is purchased in the nearest major market and transported back to the remote location[44]. O'Mara then answered the following question, namely: assuming that there was no market in the CAR, what was the most appropriate market to have regard to in assessing the market value of the plant and equipment? O'Mara opined that the most appropriate market using the sales comparison approach was probably that of the UAE, as that was the nearest "fluid international market"[45]. O'Mara then expressed disagreement with Hyman's statement that in order to determine the market value of the equipment in Carnot, it was necessary to establish the cost of relocating the equipment between Carnot and Dubai. O'Mara opined that Hyman was trying to establish "Market Value removed" not Market Value. He referred to the American Society of Appraisers' definition of "fair market value", namely "...the estimated amount, expressed in terms of money, that may reasonably be expected for a property in an exchange between a willing buyer and a willing seller, with equity to both, neither under any compulsion to buy or sell, and both fully aware of all relevant facts, as of a specific date." He then noted the definition of "fair market value - removal", which included the addition of the following words: "... considering removal of the property to another location ...". He considered that in the circumstances of the present case, matters such as transport, installation, duties etc are not relevant and should be ignored in determining market value. He concluded his opinion by stating that if the costs of relocation were to be considered at all, they should be viewed as increasing (rather than reducing) the market value. That was so, he opined, because notwithstanding the lack of sales data, there was a diamond mining industry in the CAR, from which it could be assumed that there was demand for equipment, which might be sold at a premium because the purchaser would not be required to bear the cost of importing the equipment from the nearest major market.

[179]

121 Hyman agreed that there was a distinction between there being no reliable market data on the one hand, and no market on the other hand. He agreed that valuers are sometimes required to determine a market value in circumstances where no sufficient market data exists, and for that purpose they might use a cost based methodology, or alternatively go to the closest market with reliable data and use that data. He also agreed with counsel's suggestion that there is a distinction between a valuer saying (a) "I don't know either way whether there's a market value where that bulldozer is located but I can't get any data about it therefore I will go to the nearest available market and get my price"; and (b) "That bulldozer is in a place where there is no market, therefore I must notionally move it to the nearest available market". Hyman agreed that his approach was the latter, and he had factored in a cost of removing to the nearest market. He said that the removal costs were included because that was an assumption he was instructed to make. Counsel then suggested that if he were not so instructed, and was simply requested to determine the market value based on data from the UAE and do no more than that, he would not have "entered the fray" on the issue of recovery costs. Hyman said that this was an issue he had "agonised over for a very long time before I started this report and to now make a split second decision as to how I would respond to that question I think is a little hard. My first reaction is to say that ... if you want to establish the value of a similar asset to purchase you would have to do so by reference to UAE plus freight. It's two sides, in a sense, of the same equation, I guess. How you define market value I also think is probably in this case a legal argument, not a valuer's argument". Hyman reiterated the importance of a valuer's instructions. He accepted that sometimes valuers are asked to provide "market value" without more, "but we don't do it. We always qualify back to the client as to what is meant by market value".

[185]

127 Counsel submitted that there was no evidence of subsequent repair of items 1 and 4, and no evidence that after December 2000 any of the items were maintained or repaired in any way. Further, counsel relied on Suresh's evidence in cross-examination that if items were not maintained, or were left outside, they would be damaged, in terms of exposure to the elements affecting their paint and causing rust. Counsel also referred to other specific items Suresh mentioned in evidence as having been damaged, namely item 41 (the truck which remained damaged at the roadside); item 42 (a Mitsubishi 4x4 which he had described in his witness statement as being in good condition, but as to which he conceded in cross-examination that he had forgotten it had been involved in an accident in December 2000 and was damaged beyond repair); items 45 and 46 (Mitsubishi 4x4 vehicles which would not operate due to a number of engine parts having been removed); item 47 (the Power Screen as to which Simpson's report described the lower screen as worn and having a very limited remaining life, as to which Suresh had no recollection whether the lower screen was worn); item 50 (a Toyota 4x4 which was inoperable, having been in an accident resulting in dented front panels, damaged radiator, headlights and windscreen, and which was not fixed because parts were unavailable); item 52 (a Toyota 4x4 which was not drivable, having been in an accident resulting in a badly damaged passenger door and under-body, and which Suresh was not able to repair before he left the CAR); item 53 (a Toyota 4x4 which had headlights, fuel pump cooling fan and steering pump missing. Suresh was not able to repair the vehicle because he did not have those parts, but if he had had those parts, repair would have been a simple matter); item 55 (a Toyota Landcruiser station wagon which was not drivable, having rolled in an accident, crushing the roof and damaging all panels); item 56 (a Toyota Landcruiser station wagon which had a seized engine, which Suresh was unable to repair before he left the CAR); item 60 (a Ural water truck which was badly damaged, having rolled in an accident which smashed the windscreen and damaged nearly all the panels. It was not drivable as the driver's panel was partially crushed. Simpson had stated in an accident report that it was damaged beyond repair. The water tanker[47] was also partially crushed although still operational. The engine did not appear to be damaged); item 65 (a Yamaha motor bike, damaged, Suresh could not recall the exact problem with the engine, but he was not able to fix it). Counsel submitted that, in the absence of evidence of repair, the notion that these items could be worth anything more than "negligible salvage value" was untenable.

[187]

129 It is difficult to assess the condition of the items. Nevertheless, doing the best I can on the evidence available, I have reached the following conclusions. As a general observation, I accept the evidence of Suresh and Gordon to the effect that, at the time the plaintiff left the CAR in December 2000, the equipment had been properly maintained and was in good condition. I find that all the items were in good condition, with the exception of the following items. On the basis of the evidence stated above as to the damage to these items, I conclude that items 41, 50, 52, 55, 56 and 65 were in "very poor condition". I reach the same conclusion as to item 2 (the damaged generator returned to the plaintiff). I find that items 45, 46 and 53 were in "reasonable condition", as the damage to those items seemed relatively minor. I conclude that items 42 and 60 were in a state of repair worse than "very poor condition", given Suresh's acceptance in cross-examination of Simpson's accident reports which stated that both vehicles were "damaged beyond repair". As to items 1 and 4, notwithstanding my observations as to Simpson's report referred to at [50] above, I accept that his comments, combined with the photographs in the Court Book, provide a basis for inferring that items 1 and 4 were damaged. As to the extent of that damage, however, I consider that items 1 and 4 were, at worst, in "very poor condition". In reaching these conclusions, I reject the defendant's submission that the category "very poor condition" requires, at minimum, that an item is operational. First, the joint report said no such thing, and O'Mara disagreed with the proposition in cross-examination. Secondly, there is no logical basis for the proposition. The expression "very poor condition" means what it says. It may connote a range of conditions, including "operational" and "non-operational" states of repair, and it does not follow that every item in "very poor condition" must be operational. And just as an operational machine may be in very poor condition, a non-operational machine may be in reasonable or good condition. An example would be a vehicle which cannot be driven because a critical part from its engine has been removed. The mere fact that it cannot be driven does not mean that it is not in good condition. It may be lacking no more than a $20 part and 15 minutes of labour to make it operational again.

At a glance

Court

Decision date

Before

Source

Judgment (242 paragraphs)

Parties

Legislation Cited (3)

Cases Cited (4)