Plaintiff v Defendant

2 On 7 December 2010, the plaintiff insured the property with the defendant, pursuant to a Masterpiece Personal Policy of Insurance (Policy number 93453961) for the period 7 December 2010 to 7 December 2011 ('the initial policy'). The insurance was for Delux House Coverage providing extended replacement cost up to $1.4 million, personal liability coverage up to $300,000 and also included family protection coverage.

3 On 28 November 2011, the plaintiff renewed the initial policy for the period 7 December 2011 to 7 December 2012 for the Delux House Coverage extending the replacement cost to $1.418 million and providing deluxe contents coverage at replacement costs up to $208,000 ('the renewed policy').

4 On 6-7 July 2012, the dwelling and contents on the property were damaged by fire.

5 The plaintiff made a claim under the renewed policy.

6 The defendant investigated and declined the claim.

7 By letter sent on 1 May 2013, the defendant purported to avoid the renewed policy on the basis of fraudulent misrepresentations and non-disclosures by the plaintiff, pursuant to s 28(2) of the Insurance Contracts Act 1984 (Cth) ('ICA').

8 On 31 May 2013, the plaintiff issued this proceeding against the defendant seeking indemnity under the renewed policy.[1]

9 The defendant relies on two positive defences as follows:

(a) the plaintiff breached his duty of disclosure set out in s 21(1) of the ICA ('the non-disclosure defence'); and

(b) the plaintiff made positive misrepresentations prior to entering into the renewed policy ('the misrepresentation defence').

10 In the event of the defendant not succeeding in its two positive defences and it is determined that the plaintiff is entitled to be indemnified under the renewed policy, the defendant admits the plaintiff would be entitled to the sum of $1.418 million for the extended replacement costs of the house, the replacement costs for the contents being $208,000 and the costs of demolition being $95,390.20.

11 The defendant submits the following issues arise on the non-disclosure defence:

(a) whether the plaintiff failed to comply with his duty of disclosure to the defendant of relevant matters prior to the renewal of the policy as required by s 21(1) of the ICA;

(b) if so, whether he did so fraudulently, such that the defendant is entitled to avoid the renewed policy under s 28(2) of the ICA; and

(c) if the non-disclosures were not fraudulent, whether the defendant is entitled to reduce its liability under the renewed policy pursuant to s 28(3) of the ICA.

12 The defendant contends that s 21(1) of the ICA imposes on the plaintiff a duty to disclose to the defendant, before the relevant contract of insurance is entered into, every matter known to him, being a matter that he knew, or a reasonable person in the circumstances would have known, to be relevant to the defendant's decision whether to accept the risk and on what terms.

13 As the plaintiff and the defendant agreed to renew the policy on 28 November 2011, the relevant date by which disclosure was required to be made by the plaintiff was 28 November 2011.

14 The defendant submits the plaintiff had knowledge of the following four relevant matters ('the four relevant matters') prior to 28 November 2011:

(a) the construction of the dwelling had not been completed as at 6 December 2010, being the date on which the initial policy incepted;

(b) the dwelling, then at lock up stage, had been the subject of a dispute in the Victorian Civil and Administration Tribunal ('the VCAT') that related in part to serious structural deficiencies affecting its vertical and lateral stability. In its reasons, the VCAT determined that the house was at risk of collapse and should be demolished;

(c) the structural issues were never adequately addressed, and no assistance was obtained from a structural engineer; and

(d) a further building permit for the dwelling was required to complete it from lock up to completion but was never issued and no valid occupancy certificate was ever issued in respect of the dwelling.

15 The defendant contends that the plaintiff knew, alternatively, a reasonable person in the circumstances would have known, that each of the four relevant matters known to the plaintiff prior to 28 November 2011 was relevant to the defendant's decision whether to accept the risk, and on what terms and, therefore:

(a) each matter required disclosure to the defendant pursuant to s 21(1) of the ICA; and

(b) none of the four relevant matters known to the plaintiff were disclosed to the defendant in accordance with s 21(1) of the ICA.

16 The defendant contends the breach of the duty of disclosure was fraudulent and it is entitled to avoid the renewed policy from its inception, pursuant to s 28(2) of the ICA and is not liable to the plaintiff.

17 If the non-disclosures were not fraudulent, the defendant contends it is entitled to reduce its liability under the renewed policy to nil, pursuant to s 28(3) of the ICA and is not liable to the plaintiff.

18 The defendant submits the following issues arise on the misrepresentation defence:

(a) whether the plaintiff made any misrepresentation to the defendant prior to the renewal of the policy;

(b) if so, whether he did so fraudulently, such that the defendant was entitled to avoid the renewed policy under s 28(2) of the ICA; and

(c) if the misrepresentation was not fraudulent, whether the defendant is entitled to reduce its liability under the renewed policy pursuant to s 28(3) of the ICA.

19 The defendant contends that before the initial policy was entered into, the plaintiff represented to the defendant in a 'Masterpiece Quotation Sheet' on 2 December 2010 that the dwelling:

(b) was subsequently renovated with all works having been completed as at 6 December 2010; and

(c) was not under construction or renovation and neither was planned in the next 12 months.

20 At the time of the defendant's entry into the renewed policy on 28 November 2011, the representations were continuing and still in effect and were false and untrue and were made fraudulently, and were therefore not covered in the exception pursuant to s 26 of the ICA as no reasonable person in the circumstances would believe the representations were true.

(b) had not been renovated with all works completed as at 6 December 2010; and

(c) reached lock up stage on 2 June 2008 but construction was not completed until after the initial policy incepted on 7 December 2010 and the works were done without a valid permit.

22 The defendant contends the misrepresentations were fraudulent and it is entitled to avoid the renewed policy from its inception, pursuant to s 28(2) of the ICA and is not liable to the plaintiff.

23 If the misrepresentations were not fraudulent, the defendant contends it is entitled to reduce its liability under the renewed policy to nil, pursuant to s 28(3) of the ICA and is not liable to the plaintiff.

24 Section 21(1) of the ICA imposes the duty of disclosure on an insured in the following terms:

Subject to this Act, an insured has a duty to disclose to the insurer, before the relevant contract of insurance is entered into, every matter that is known to the insured, being a matter that:

(a) the insured knows to be a matter relevant to the decision of the insurer whether to accept the risk and, if so, on what terms; or

(b) a reasonable person in the circumstances could be expected to know to be a matter so relevant.

25 Section 26 of the ICA deals with misrepresentation in the following terms:

(1) Where a statement that was made by a person in connection with a proposed contract of insurance was in fact untrue but was made on the basis of a belief that the person held, being a belief that a reasonable person in the circumstances would have held, the statement shall not be taken to be a misrepresentation.

(2) A statement that was made by a person in connection with a proposed contract of insurance shall not be taken to be a misrepresentation unless the person who made the statement knew, or a reasonable person in the circumstances could be expected to have known, that the statement would have been relevant to the decision of the insurer whether to accept the risk, and if so, on what terms.

26 Section 28 of the ICA addresses the consequences of non-disclosure or misrepresentation and provides as follows:

(1) This section applies where the person who became the insured under a contract of general insurance upon the contract being entered into:

(a) failed to comply with the duty of disclosure; or

(b) made a misrepresentation to the insurer before the contract was entered into;

but does not apply where the insurer would have entered into the contract, for the same premium and on the same terms and conditions, even if the insured had not failed to comply with the duty of disclosure or had not made the misrepresentation before the contract was entered into.

(2) If the failure was fraudulent or the misrepresentation was made fraudulently, the insurer may avoid the contract.

(3) If the insurer is not entitled to avoid the contract or, being entitled to avoid the contract (whether under subsection (2) or otherwise) has not done so, the liability of the insurer in respect of a claim is reduced to the amount that would place the insurer in a position in which the insurer would have been if the failure had not occurred or the misrepresentation had not been made.

27 The plaintiff noted in his final submissions, it is a serious matter to allege fraud, and where it is found the evidence must be clear and cogent: the Court must be satisfied that the insured deliberately gave a false account of matters relevant to the insurer's pre-contractual assessment of risk.[2]

28 In cases where fraud is alleged, the onus of proof was succinctly addressed by Emmett J (as his Honour then was) in Warner v Hung, in the matter of Bellpac Pty Ltd (Receivers and Managers Appointed) (In Liquidation) (No 2):

... When proof of any fact is required, the Court must feel an actual persuasion of the occurrence or existence of that fact before it can be found. Mere mechanical comparison of probabilities, independent of any belief in reality, cannot justify the finding of a fact. Actual persuasion is achieved where the affirmative of an allegation is made out to the reasonable satisfaction of the Court. However, reasonable satisfaction is not a state of mind that is attained or established independently of the nature and consequences of the fact to be proved. The seriousness of an allegation made, the inherent unlikelihood of an occurrence of a given description, and the gravity of the consequences flowing from a particular finding are considerations that must affect whether the fact has been proved to the reasonable satisfaction of the Court. Reasonable satisfaction should not be produced by inexact proofs, indefinite testimony or indirect inferences (see Briginshaw v Briginshaw).[3]

29 The duty of disclosure, as codified in s 21 of the ICA, applies to matters that are 'known' by the person seeking to be insured that would be relevant to the insurer assessing risk before entering into a contract of insurance. At first instance, in Permanent Trustee Australia v FAI General Insurance Co Ltd, Hodgson CJ in Equity defined the concept of knowledge relevant to the provision:

In my opinion, 'known' in s 21(1) means more than suspected or believed. What is required is that the matter should be the subject of a true belief, held with sufficient assurance to justify the term 'known'. However, it must be remembered that a belief may sometimes itself be a matter relevant to the decision of an insurer. An insured may know that it has a particular belief, and know that its having that belief is relevant to the decision of an insurer, in which case that belief itself is a matter which must be disclosed. [4]

30 His Honour held that the fact that an insured person knows that they have a belief about a particular matter would mean that that matter must be disclosed if it were relevant to the insurer's assessment of risk.

31 On appeal, Hodgson CJ's definition of knowledge in s 21 of the ICA was considered by Handley JA who noted that it was approved by the Queensland Court of Appeal in Australian Casualty and Life Ltd v Hall (1999) FLR 360.[5] The Court of Appeal expounded on this point and said:

The problem of defining, for legal purposes, the boundary between belief and knowledge did not arise for the first time in this case. The problem has been considered in a number of legal contexts, and in general it may be said that, for legal purposes, our knowledge includes the facts, apart from matters of religious faith, that we believe to be true.[6]

...

When a person, on the basis of some information, holds a belief on which that person is prepared to act in the world of practical affairs, he or she knows that fact for most legal purposes, and certainly for the purposes of s 21.[7]

32 The obligation to disclose something 'known' can only attach to something that a person actually has in his or her consciousness or else something that exists in some record or other source of information that the person actually knows about and to which that person has access.[8]

33 In this context, the knowledge of the insured's broker as to what was relevant to the insurer's decision is to be treated as the knowledge of the insured for the purpose of what was required to be disclosed,[9] as is the knowledge of a person to whom responsibility for certain tasks are delegated by the insured.[10]

34 The High Court in Permanent Trustee Australia Ltd v FAI General Insurance Co Ltd (in liq) were split on the issue as to whether an insured can 'know' a matter for disclosure by its agent. McHugh, Kirby and Callinan JJ held that:

The word "knows" is a strong word. It means considerably more than "believes" or "suspects" or even "strongly suspects"... It is also noteworthy ... that the knowledge of which the sub-section speaks, either actual or constructive, is the knowledge of the insured, and not the knowledge of any insurance intermediary...[it] is intended to be a reference to the insured personally and not to its agent or broker.[11]

35 However, in Tosich v Tasman Investment Management Ltd, Gyles J set out some 'basic propositions' about s 21(1) of the ICA and in doing so proposed that, pending further clarification by the High Court, the wider view that an insured can know a matter for disclosure by an agent should be taken.[12]

36 Both ss 21 and 26 of the ICA refer to the knowledge of a reasonable person. Brooking J noted in Twenty-First Maylux Pty Ltd v Mercantile Mutual Insurance (Australia) Ltd that 'the individual idiosyncrasies' of the plaintiff, such as unfamiliarity with business practices or insurance practices, or in this case building and construction compliance matters, are not to be taken into account in determining whether or not a 'reasonable person' would possess the relevant knowledge.[13]

37 Any misrepresentation of matters known by the insured, pursuant to the duty of disclosure prior to entry into the initial policy period, are deemed to be repeated when renewing a policy unless otherwise corrected.[14] This is the case for any misrepresentation that was made before entry into the initial policy that remains 'applicable', 'continuing' or 'operative' as at the date of the entry into the renewed policy such that the said misrepresentation will constitute a relevant misrepresentation in respect of the renewed policy as well.[15]

38 For the purposes of s 28(2) of the ICA, a non-disclosure or misrepresentation will be fraudulent if it is 'deliberate'[16] or made with an absence of actual and honest belief in its truth, or recklessly, not caring whether it is true or false.[17]

39 The insurer must show either a deliberate decision by the insured to mislead or conceal something from the insurer or recklessness amounting to indifference about whether this occurred. It is not necessary to establish knowledge on the part of the insured of a substantial prospect that the statements made by the proposed insured were not true. It is sufficient if the insured was 'consciously indifferent' to the truth of answers given in a proposal form.[18]

(a) the plaintiff, who described himself as a property developer who manages building projects by organising trades and quotes. He is not a registered builder but is a business partner of Mr Gino Bortolani, referred to below. The plaintiff purchased the property from Mr and Mrs Newlands ('the Newlands') sometime in the latter half of 2010, with settlement taking place on 22 December 2010. At the time of his agreement with the Newlands to purchase the property, the dwelling was completed to lock up stage but had serious structural deficiencies. His evidence concerned his purchase of the property, taking out insurance for the property with the defendant, and what building works had been done to complete construction of the dwelling prior to the insurance cover for the property incepting on 7 December 2010;

(b) Mr Brett Haywood ('Mr Haywood'), who described himself as a business owner and now lives in China. In 2010 he was working in Frankston operating as a conveyancer and finance broker under the business names of Frankston Flat Fee Conveyancing and Frankston Finance and Conveyancing. He managed the conveyancing files for both the plaintiff and the Newlands for the sale and purchase of the property and arranged the plaintiff's finance for the purchase of the property;

(c) Mr Gino Bortolani ('Mr Bortolani'), a registered builder. He operates his business through his company, Bortolani Building Group Pty Ltd, trading as Daklan Construction. Mr Bortolani and the plaintiff are friends and business partners. The plaintiff appointed Mr Bortolani as his builder to complete the building works on the dwelling; and

(d) Mr Matthew Cosham ('Mr Cosham'), an insurance broker employed by Transport & General Insurance Brokers. He was the plaintiff's broker and arranged the insurance for the plaintiff's property with the defendant, both the initial policy and the renewed policy.

41 The defendant called eight witnesses as follows:

(a) Mr David Andrew Ratcliffe ('Mr Ratcliffe'), a registered builder. He operates a residential building company, Ratcliffe Building Group ('RBG'). Mr Ratcliffe built the dwelling to lock up stage for the Newlands. A certificate certifying that the dwelling had been completed to lock up stage was issued on 2 June 2008. Mr Ratcliffe gave evidence regarding the construction of the original dwelling to lock up stage as well as to the VCAT proceedings and his conversations with the plaintiff as to some of the four relevant matters;

(b) Mr Jason Cornell Daniels ('Mr Daniels'), a registered building surveyor. He operates his business through Advance Building Strategies ('ABS'). He was appointed as the building surveyor for the dwelling by the Newlands. Mr Daniels' evidence concerned whether or not a further building permit was issued and whether a valid certificate of occupancy was ever issued. His evidence included his conversations with the plaintiff, Mr Bortolani and Mr Haywood concerning these two issues;

(c) Mr Graham John Dunn ('Mr Dunn'), a qualified and registered structural and civil engineer. He operates a business known as G Dunn & Associates. He was engaged by Mr Ratcliffe to provide an opinion on the adequacy of the structural beams supporting a fourth floor tiled deck at the dwelling. He gave expert evidence on behalf of RBG in proceedings brought against RBG by the Newlands in the VCAT. In this proceeding, Mr Dunn's witness statement concerning the structural issues with the dwelling was tendered and he was not required for cross-examination;

(d) Mr Darren Stuart Williams ('Mr Williams'), an insurance underwriter employed by the defendant. In 2010 he worked in the defendant's new business underwriting team. On 2 December 2010, he received a quotation from Mr Cosham for the insurance of the property. As his authority to approve new insurance policies was limited to $1 million, he took the application to Mr Michael Calder ('Mr Calder'), also an underwriter with the defendant, for approval. On 7 December 2010 Mr Williams confirmed that the dwelling was insured by the defendant;

(e) Mr Calder, an insurance underwriter employed by the defendant. His responsibilities include approval of new business risks for the building and contents insurance under the defendant's policies, with authority to approve new business risks where the total property cover does not exceed $15 million. He approved the insurance sought by the plaintiff for the dwelling in December 2010 and a subsequent endorsement on the policy for contents cover in August 2011;

(f) Mr Todd Paul Marshall ('Mr Marshall'), an investigator at Cerno Ltd. He was engaged by the defendant to investigate the fire at the plaintiff's property;

(g) Mr Ji-Wan Sohn ('Mr Sohn'), a senior forensic structural engineer employed by FMG Engineering. He was retained by the defendant to investigate and assess the damage to the dwelling, to provide advice for the repair of the dwelling and to provide an opinion as to the structural concerns with the dwelling before the fire; and

(h) Ms Lily Tran ('Ms Tran'), a personal lines senior underwriter employed by the defendant. She gave evidence of the defendant's renewal process for existing insurance policies.

42 The evidence refers principally to events occurring from the middle of 2010 to November 2011. Much of the evidence from the plaintiff and his witnesses was oral and was, by its nature, recollections of certain events that took place within that period of time. There are obvious difficulties with oral evidence as memories fade over time and there can be a tendency for witnesses to tailor their evidence to suit their case. These difficulties were highlighted by MH McLelland CJ in Watson v Foxman:

Human memory of what was said in a conversation is fallible for a variety of reasons, and ordinarily the degree of fallibility increases with the passage of time, particularly where disputes or litigation intervene, and the processes of memory are overlaid, often subconsciously, by perceptions of self-interest as well as conscious considerations of what should have been said or what could have been said. All too often what is actually remembered is little more than an impression from which plausible details are then, again subconsciously, constructed. All this is a matter of ordinary human experience.[19]

43 The defendant relied on a substantial body of contemporaneous documentary evidence produced by way of subpoena from seven separate sources. Documents provide valuable factual information compared to oral evidence as the credibility of a witness and the veracity of his or her evidence can be tested by reference to the objectively established facts and contemporaneous or near contemporaneous documents. The recollection of events or details of conversations occurring many years ago are not as reliable as documentary evidence, particularly where witnesses who have an interest in the outcome of the litigation give evidence.

44 The difficulties with oral evidence of events occurring many years ago was highlighted in this proceeding when two of the defendant's witnesses, Mr Ratcliffe and Mr Daniels, were required to be recalled to give further evidence as certain evidence from the plaintiff and Mr Bortolani was not put to them when they were cross-examined. In the case of Mr Daniels, his evidence concerned whether or not a further building permit was issued and whether a valid certificate of occupancy was ever issued. He had a detailed memory of events supported by his contemporaneous notes of certain events and there were other contemporaneous documents subpoenaed by the defendant to support his evidence. In contrast, the evidence called by the plaintiff and his witnesses on these issues comprised their recollections of conversations, for which there was no documentary support and in the context of these conversations being strenuously denied by Mr Daniels.

45 Where there is a difference between the oral evidence and a contemporaneous document, greater weight has been placed on the documentary evidence in assessing the evidence, particularly where the document has been written by a person who has no reason to mis-state the facts and where the documents are found to be genuine.

46 On 3 August 2007, the Newlands contracted with Mr Ratcliffe of RBG to build a three story dwelling to lock up stage. Mr Ratcliffe described lock up stage as the completion of external cladding and roofing, with doors and windows installed so the building could be securely locked up, with items such as plumbing, heating, wiring, plastering and other internal finishes still to be completed.

47 The design specifications for the dwelling were provided by a Mr Balmaceda, a design engineer of CBG Consulting Engineers Pty Ltd ('CBG').

48 Before any construction could commence, Mr Daniels of ABS was appointed as the building surveyor. On 5 September 2007, Mr Ratcliffe made an application on behalf of the Newlands for a building permit to construct the dwelling to lock up stage. On 18 September 2007, Mr Daniels issued a building permit to RBG.

49 Although two versions of the building permit exist in slightly different form, Mr Daniels said the first permit was issued in error. This was because it provided for 'mandatory inspections for occupancy [certificate]' and this was unnecessary because the application was only to complete the building to lock up stage. He thought the error was brought to his attention and a revised building permit was issued on the same date. The revised permit removed the 'mandatory inspection for occupancy [certificate]' requirement and noted that 'a further building permit is required from lock up to completion'.

50 In October 2007, Mr Ratcliffe commenced the construction of the dwelling on the site. Following the commencement of the construction works, Mr Daniels engaged an independent building inspector, Mr Greg Alexander of Peninsular Inspections, to attend the site to conduct various mandatory inspections of the property.

51 On 2 June 2008, Mr Daniels issued a certificate of final inspection certifying that the dwelling on the property had been completed to lock up stage in accordance with the relevant drawings and design specifications. Mr Ratcliffe confirmed that by this date, the dwelling on the property had been built to lock up stage only. With the certificate of final inspection having been issued, RBG had fulfilled its contractual obligations to construct the home to lock-up stage and it subsequently issued a final invoice to the Newlands for $120,000.

Problems after the dwelling was built to lock up stage

52 Shortly after 2 June 2008, Mr Ratcliffe attended the site to finalise some detailing on the dwelling. He noticed the balcony on the top floor was holding water, despite the fact that RBG had constructed the top floor to have a 50mm run-off to direct water away from the dwelling. After noticing the water pooling, he re-checked the structural beams on the home and found that all the structural beams had deflections, meaning that they were not adequate to bear the weight of the dwelling causing the structural beams to buckle. Mr Ratcliffe immediately told Mr Newlands about the problem and he told Mr Ratcliffe that it was his (Mr Ratcliffe's) problem.

53 Mr Ratcliffe then contacted Mr Balmaceda and told him about his observations of the structural beams. Mr Balmaceda provided Mr Ratcliffe with details for additional steel beams and instructed Mr Ratcliffe to install them directly under the balcony of the top floor of the dwelling.

54 Although Mr Ratcliffe did this, the water still pooled on the top floor. Mr Ratcliffe had lost confidence in Mr Balmaceda's ability to provide reliable structural engineering advice and contacted Mr Dunn, a structural engineer that he had dealt with previously, and he agreed to inspect the beam deflections.

The Newlands commence proceedings against RBG in the VCAT

55 In June 2008, the Newlands commenced proceedings against RBG in the VCAT alleging that the dwelling had not been properly completed to lock up stage and was structurally defective.

56 On 30 June 2008, when the solicitors for the Newlands informed the solicitors for RBG of a directions hearing on 24 July 2008 in the VCAT proceeding, they enclosed a notice of determination to the effect that the Newlands would complete the rectification works. The Newlands also denied that RBG was entitled to payment of its final invoice of $120,000.

57 Subsequently, the Newlands joined CBG as a defendant in the VCAT proceeding, alleging structural and building defects in the dwelling.

58 Mr Daniels received notification of the VCAT proceedings from both the solicitors for the Newlands and RBG. As part of this proceeding, Mr Ratcliffe commissioned a report on the structural integrity of the dwelling from Mr Dunn dated 5 September 2008. Mr Ratcliffe provided Mr Daniels with a copy the report, which set out Mr Dunn's opinion that the property was structurally deficient. Consequent on receiving this report, Mr Daniels engaged in correspondence with CGB Engineers.

59 The trial of the VCAT proceeding took place over six days in December 2009. In this proceeding, the Newlands alleged:

(a) against RBG as the builder of the dwelling a number of building defects and structural defects relating to the dwelling rendering the final invoice issued by RBG not payable; and

(b) against CBG as the design engineer, recovery of amounts in relation to the dwelling's structural and building defects.

60 On 28 May 2010, the VCAT delivered its judgment.[20] The VCAT accepted the concurrent evidence given by Mr Dunn and Mr Gibney, the structural engineer engaged by the Newlands, that multiple aspects of the design of the dwelling were inadequate and that it should be demolished or be required to have extensive structural rectification. Orders were made that CBG pay the Newlands the sum of $400,000 on account of the structural defects and made an allowance of $59,503 for building defects, with that amount to be deducted from the final claim owing to RBG.[21]

61 After the VCAT decision was handed down, Mr Ratcliffe expected the dwelling would be demolished. He did not see any activity at the property until after he was informed it had been sold to the plaintiff.

62 In May 2010 Mr Daniels was told of the outcome of the VCAT proceedings by Mr Ratcliffe. He told Mr Daniels that the insurer of CGB was ordered to pay an amount of about $400,000 to the Newlands and $80,000 to Mr Ratcliffe as a result of the property being designed in such a way that it was structurally defective and should have been demolished.

The plaintiff's purchase of the property from the Newlands

63 Sometime in the second half of 2010, the plaintiff agreed to purchase the property from the Newlands.

64 The first signed contract for the purchase of the property was dated 13 August 2010. In the contract, Jafer Lawyers were named as the solicitors for plaintiff, although Mr Haywood's evidence was that he handled the conveyancing file for the plaintiff and this is corroborated by other evidence. The purchase price stipulated in the contract was $750,000 with a deposit of $25,000 and settlement due on 30 September 2010. The plaintiff conceded that the deposit was not actually paid. Surprisingly, although the purchase price was $750,000 the purchase was subject to the approval of a loan of $880,000. Initially the approval for this loan was by 27 August, and then it was extended to 2 September 2010.

65 The plaintiff retained Mr Haywood's firm, Frankston Finance and Conveyancing, to arrange his finance for the purchase of the property. In acting for the plaintiff, Mr Haywood said he made such applications for finance for the plaintiff as were necessary. On 2 September 2010, Mr Haywood requested Jafer Lawyers obtain an extension of one week for the approval of the plaintiff's finance.

66 On 3 September 2010 another handwritten contract for the purchase of the property was signed by the plaintiff and the Newlands ('the September contract'). This contract records Mr Haywood's firm, Frankston Flat Fee Conveyancing, as the conveyancer for the Newlands. The contract provided for a purchase price of $1.2 million with a deposit of $120,000 recorded as having been paid, but conceded by the plaintiff as not actually having been paid, with settlement due on 15 October 2010. The purchase was subject to the approval of a loan of $900,000 from St George Bank by 17 September 2010.

67 It seems that Jafer Lawyers were not told by Mr Haywood that the Newlands had retained him as their conveyancer as, on 9 September 2010, Jafer Lawyers sought and obtained from the Newlands' solicitors, Miranda Conveyancing Services Pty Ltd, a further extension of time for the loan approval to 16 September 2010. On 16 September 2010, the plaintiff required another extension of time for his loan approval.

68 A valuation of the property by WBP Property Group ('WBP') dated 5 August 2010 was tendered by the plaintiff. It was obtained on the specific instructions of Mr Haywood of Frankston Finance and Conveyancing, whilst the 13 August 2010 contract was on foot. Mr Haywood's instructions to WBP were to value the property as if the dwelling had been completed. WBP's valuation of the property with the dwelling currently at lock up stage but as if it were completed was $1.2 million. The valuation noted the current value of the property at $750,000 with the land valued at $400,000 and the dwelling at $350,000. The valuation referred to a construction contract and noted that it was not signed or dated. The valuer also noted the certificate for the completion of the dwelling to lock up stage and recommended the sighting of the extension of the building permit 'because one of the conditions of the permit is for completion of the house by September 2009'.

69 On 17 September 2010, Mr Haywood spoke to Jafer Lawyers by telephone. He told them, seemingly for the first time, that the 13 August contract was at an end as the plaintiff's application for a loan had been declined and the contract had been conditional upon obtaining finance approval. Mr Haywood said the loan was declined because the bank would 'not lend against an incomplete property'. He informed Jafer Lawyers that the plaintiff had entered into the September contract with the Newlands and that he would organise an extension for the approval of finance for the purchase. He also told them that the Newlands had new representation for the conveyancing but his file note does not record whether he told them that it was his firm, as recorded in the September contract.

70 By letter dated 23 September 2010, Mr Haywood informed Jafer Lawyers that he had taken over the Newlands' conveyancing file, confirmed that the previous contract for the sale of the property had been cancelled, and advised that he had requested an extension for the approval of a loan of $900,000 to 30 September, which had been granted. He provided Jafer Lawyers with the handwritten September contract.

71 The plaintiff and Mr Haywood said that the Newlands and the plaintiff agreed to this new purchase price on the basis that the plaintiff would complete the construction of the dwelling and that the Newlands would receive the sum of $530,000 at settlement. This agreement is not recorded in the September contract. Mr Haywood described this arrangement as being 'an allowance' of $680,000 for the money that the plaintiff spent on 'fixing' the dwelling.

72 Although the settlement date under the September contract was 15 October 2010, settlement did not occur on this date. On 22 November 2010, Jafer Lawyers enquired of the plaintiff whether he was proceeding with the purchase of the property.

73 By letter dated 3 December 2010 to Mr Haywood, St George Bank noted that valuations relating to a loan amount of $890,000 were advised by the valuer that day and also noted the outstanding requirement to provide a copy of the occupancy certificate for the dwelling.

74 On 16 December 2010, Mr Haywood's file note indicated that he was hopeful that the finance for the purchase would be ready sometime for the next week.

75 By letter dated 21 December 2010 to St George Bank, Mr Haywood advised of the cheques required for settlement the next day, totalling $808,868.60. This amount was net of bank fees, mortgage insurance and stamp duty. No mention is made by Mr Haywood of the bank's requirement for a copy of the occupancy certificate for the dwelling before settlement.

76 Settlement of the purchase took place on 22 December 2010, apparently without a copy of the occupancy certificate for the dwelling and on the basis as said to be agreed orally between the Newlands and the plaintiff; that is, that the purchase price of $1.2 million was discounted by $680,000 to cover the building and construction costs. No details of the building and construction costs were tendered in evidence by the plaintiff but the defendant tendered a quotation by Mr Bortolani's business, Daklan Construction, dated 27 July 2010 for the work on the dwelling to completion that recorded an amount of $382,800[22] and an application dated 10 January 2011 made to QBE Insurance for insurance cover to complete the construction for a certificate of occupancy that referred to a building contract price of $386,000.[23]

77 The net result of the purchase transaction was that whilst the Newlands were paid the amount orally agreed as between them and the plaintiff and the amount said to be required for the building and construction costs of around $386,000 suggests that the actual amount paid by the plaintiff for the property falls far short of the contract price of $1.2 million. In the end, the facts and circumstances of the transaction remain opaque.

The plaintiff takes out insurance for the property with the defendant prior to the settlement of the purchase

78 Prior to the settlement of the purchase of the property, Mr Cosham received a telephone call from the plaintiff on 2 December 2010 to arrange insurance cover for the property and dwelling. Mr Cosham knew the plaintiff from his previous employment as a broker with Honan Insurance Brokers. He had arranged insurance cover in the past for the plaintiff for a motorbike business called Bikes Plus that was partly owned by the plaintiff. Mr Cosham had recently called in to see the plaintiff at Bikes Plus to let him know that he had now worked for Transport & General Insurance Brokers.

79 Mr Cosham discussed the plaintiff's specific insurance requirements with him over the telephone. Whilst on the telephone with the plaintiff, Mr Cosham asked the plaintiff a series of questions and recorded his answers on a master quotation sheet ('the quotation sheet'). The quotation sheet filled in by Mr Cosham asks: 'Is the property in the course of construction or renovation or are they planned in the next 12 months?' The quotation sheet submitted by Mr Cosham on behalf of the plaintiff to the defendant was dated 2 December 2010 and provided as follows:

Question: Year of construction.

Answer: 2007

Question: Is the house currently occupied? If no, when?

Answer: settlement is couple of weeks

Question: Has the property been renovated:

Answer: Yes

80 Mr Williams, as the relevant underwriter for the defendant, received the quotation sheet from Mr Cosham. Because the quotation sheet recorded that the dwelling had been constructed in 2007, he did not question whether a certificate of occupancy for the dwelling had ever been issued. He said that had he been told that the dwelling was a brand new home constructed in 2010, rather than 2007, he would have asked whether a certificate of occupancy had been issued. Under the words 'settlement is couple of weeks', he made a handwritten note 'moving in straight away' and assumed that because of this, the property was certified for occupancy. He said there was nothing in the quotation sheet to prompt him to enquire about a certificate of occupancy.

81 As Mr Williams was not authorised to approve new business over $1 million, he passed the quotation sheet to Mr Calder, who was authorised to approve new business up to $15 million, to consider the quotation. Mr Calder's view as to the significance of the year of construction recorded in the quotation sheet was the same as that of Mr Williams.

82 Mr Calder approved the insurance and, on 7 December 2010, the defendant issued the initial policy to the plaintiff for the period 7 December 2010 to 7 December 2011.

83 On 28 November 2011, the defendant and the plaintiff agreed to renew the policy, when Mr Cosham, on behalf of the plaintiff, agreed to the offer of renewal issued by the defendant on 4 November 2011.

Non-disclosure - first relevant matter: did the plaintiff know that the construction of the dwelling had not been completed as at 6 December 2010?

84 Mr Cosham said the plaintiff had told him in their conversation concerning the insurance that he had completed all major works on the dwelling, with only some internal cosmetic finishes, such as paint touch up works and laying some tiles still to be done.

85 The plaintiff said he was present at the house every day during the building works.

86 On 8 December 2010, Mr Leo Antoniou issued a compliance certificate in respect of the dwelling in which he certified that 'plumbing works to dwelling including hot and cold water, gas, internal sewer drainage and installation of taps, fixtures and gas appliances' complies in all respects with the plumbing laws as defined in Part 12A of the Building Act 1993 ('the plumbing certificate'). Under the words 'date of completion of plumbing work' on the certificate, there a handwritten date '8 December 2010'.

87 On 10 December 2010, Colston Electrical issued a compliance certificate dated 10 December 2010 certifying that the electrical work for the dwelling has passed all the required tests and complied in all respects with the Electrical Safety Act 1998 and the Electrical Safety (Installations) Regulations 1999 ('the electrical certificate'). Next to the words 'date of completion of work' on the certificate, there is a handwritten date '10/12/10'.

88 Of these certificates, the plaintiff said that the dates on each certificate was not the date on which the work was completed, but rather the date on which the certificate was either given to him or the date on which he paid for the work.

89 In a quotation by Mr Bortolani's business, Daklan Construction, dated 27 July 2010 ('the Daklan quotation') for the work to be done on the dwelling to completion, there is reference to 'scope of works' that includes 'repair the frame work structure' of the dwelling and 'repair all balconies'. The Daklan quotation refers to an estimated start date of 4 December 2010 for the work and an estimated completion date of 26 June 2011.

90 The Daklan quotation was attached to an application made on 10 January 2011 to QBE Insurance for insurance ('the QBE application') by Mr Bortolani in respect of the dwelling to:

... take over the construction which is at lock up stage to complete home for [certificate of occupancy].

91 The QBE application was signed by Mr Bortolani and referred to a signed building contract dated 15 August 2010 ('the building contract') for the sum of $386,000 between the plaintiff and Mr Bortolani for the dwelling, although that contract was not attached to the QBE application.

92 The QBE application is stamped as received by Austbrokers Phillips Pty Ltd on 20 January 2011 and, on that date, QBE issued a certificate of insurance to the plaintiff in relation to the building contract for a new dwelling at the property.

93 Mr Ratcliffe gave evidence that he saw a plaster truck at the property in early 2011, although he conceded it might have been earlier. This made him curious because he knew the extent of the rectification work that was required to be done. He then went to the property. The plaintiff invited him into the dwelling where they went upstairs to the main living area on the first floor. During their conversation, he saw that the staircase had been installed and the inside of the house had been plastered.

94 In his witness statement, the plaintiff did not refer to this conversation with Mr Ratcliffe. Mr Ratcliffe was cross-examined to the effect that Mr Ratcliffe only had one conversation with the plaintiff which occurred on an earlier occasion in the kitchen at Mr Ratcliffe's home. The plaintiff was present when Mr Ratcliffe gave this evidence of the conversation upstairs in the main living room. When the plaintiff gave his evidence, he then described a second conversation with Mr Ratcliffe outside the front of the dwelling, next to the plaintiff's utility. He said that the true account of the conversation that Mr Ratcliffe described as having occurred upstairs in the main living room was the conversation that had occurred outside next to his utility. As a result of this new evidence by the plaintiff, Mr Ratcliffe was recalled to give evidence and he maintained his evidence of the conversation.

Conclusions as to whether the plaintiff knew that the construction of the dwelling had not been completed as at 6 December 2010

95 There are four contemporaneous documents that establish the construction of the dwelling had not been completed as at 6 December 2010. That evidence establishes that the construction of the dwelling was completed at a date after 6 December 2010, either at settlement on 22 December 2010, or sometime in January 2011 or by June 2011.

96 The first two documents are the plumbing and the electrical certificates that record completion of those works after 6 December 2010. The certificates are contemporaneous business records and are the truth of the facts contained therein.[24] The plaintiff's evidence that these dates were not that dates on which the works was completed is not credible. He was present at the dwelling every day during the building works and, therefore, the completion date of the construction works would have been known to him.

97 The third and fourth documents are the QBE application dated 10 January 2011 and the Daklan quotation. Both documents establish that the construction of the dwelling had not been completed as at 6 December 2010 and this was known by the plaintiff. The QBE application sought insurance to enable the dwelling to be completed for occupancy well after 6 December 2010. The Daklan quotation attached to the QBE application gave the estimated start date for the building works as 4 December 2010 and the estimated completion date of the work as 26 June 2011. The plaintiff did not discover a copy of the QBE application, the building contract or the Daklan quotation and these documents were not produced by Bortolani Building Group Pty Ltd, despite it being served with a subpoena. Mr Bortolani maintained that he handed all of his documents to the plaintiff in about July 2012, save for the building contract which he had subsequently lost.

98 I am satisfied from the contemporaneous documentary evidence that the construction of the dwelling had not been completed as at 6 December 2010 and that the plaintiff knew this as a matter of fact.

Non-disclosure - second relevant matter: did the plaintiff know of the VCAT dispute and the serious structural defects affecting the dwelling?

The plaintiff's discussions with Mr Ratcliffe concerning the structural defects of the dwelling

99 Mr Ratcliffe thought that around October or early November 2010, the plaintiff called him and told him he was interested in buying the property from the Newlands. Mr Ratcliffe invited the plaintiff to his home and they subsequently met there. The plaintiff repeated that he was interested in buying the property and asked Mr Ratcliffe if he could tell him what he knew about the dwelling.

100 Mr Ratcliffe told the plaintiff that the dwelling had some serious structural issues, that it was 'basically ready to fall down' and that structural portal frames were required to rectify the dwelling. He told the plaintiff about the VCAT proceeding, including the issues with the engineer and the structural deficiencies with the dwelling, and that the engineer had been ordered to pay around $400,000 to the Newlands for the structural deficiencies in the dwelling.

101 Mr Ratcliffe said that the plaintiff then asked him what he thought the property and dwelling was worth and he told the plaintiff that it was 'pretty much worthless' and based on the VCAT hearing it was 'land value'. When asked by the plaintiff what he thought the value of the property was, Mr Ratcliffe said he thought $450,000 to $500,000. Mr Ratcliffe said the plaintiff understood what he was saying by nodding his agreement.

102 Mr Ratcliffe acknowledged that other matters were discussed, including a leak upstairs on the deck that needed to be fixed and a pole in the kitchen area, on the side of the staircase, as well as issues with the drains and said all of these issues were part of the VCAT proceeding.

103 The plaintiff agreed that he rang Mr Ratcliffe and then attended at his house one evening. He denied that Mr Ratcliffe told him about the structural issues or that part of the VCAT proceeding that involved the structural engineer. The plaintiff said he had heard that Mr Ratcliffe had monetary disputes with the Newlands and that they had taken Mr Ratcliffe to the VCAT. Mr Ratcliffe denied this and said he did not recall saying anything about a monetary dispute because he had a contractual dispute with the Newlands.

104 It was put to Mr Ratcliffe in cross-examination that Mr Newlands had told the plaintiff that 'there had been a VCAT monetary dispute about the house'. Mr Ratcliffe could not comment on whether that conversation had taken place between the plaintiff and Mr Newlands, however, his response was, 'well, I actually told him. I told him'.

105 The plaintiff said Mr Ratcliffe described a number of building defects that had been raised by the Newlands as a reason not to pay the final invoice of $120,000, which defects included eaves, balconies, a pole in the kitchen, some other cosmetic issues and a water leak on the top balcony.

106 The plaintiff also said that, when asked by Mr Ratcliffe, he told him that Mr Newlands was asking $750,000 for the property, including that the garage door and electrical works would be done. Mr Ratcliffe told him that Mr Newlands was short of money and the plaintiff could probably 'crunch him' and get the property for $600,000.

107 Mr Ratcliffe denied saying this and denied that he was still owed money by the Newlands at the time of this discussion with the plaintiff. He said he was not concerned about being paid as he knew the Newlands had received a payment from the engineer's insurers and he knew he would be paid.

108 The plaintiff said Mr Ratcliffe told him that he would put a caveat on the property as that was the only way he would get paid. Mr Ratcliffe denied this saying that he knew that he could not put a caveat on the property. On being recalled to give evidence as a result of certain matters not being put to him in cross-examination, Mr Ratcliffe said he had checked his records and confirmed that, at the time of his discussion with the plaintiff, he had been paid what he was owed by Mr Newlands.

109 In his record of interview on 18 December 2012 with Mr Marshall, the plaintiff

(a) someone told him about the VCAT proceeding before he purchased the property;

(b) that as a consequence of learning about the VCAT proceeding, he asked Mr Newlands about it and Mr Newlands gave him 'his documents to read';

(c) that he understood from a conversation with Mr Ratcliffe in or around July or August 2010 that there was a demolition order in place in respect of the dwelling;

(d) that as a result of this information, he asked Mr Alan West and Mrs Newlands to make enquiries with the council to ascertain whether there was a demolition order against the dwelling;

(e) that he and/or Mr Bortolani also made enquiries of Mr Daniels in or around the middle of 2010; and

(f) that Mr Ratcliffe told him about the structural issues, but because Mr Ratcliffe 'wanted to buy the house', he did not listen to him.

110 Mr Newlands told Mr Marshall that Mr Ratcliffe had 'friends' go to speak to the plaintiff to tell him not to buy the property because of the problems with quality of the construction.

111 In cross-examination, the plaintiff was asked what Mr Ratcliffe said to make him think that there might be a demolition order against the property. The plaintiff's response was that if the Newlands could not sell the house, they would have to demolish it. It was put to him that did not explain why there might be 'orders' in place, to which the plaintiff said, 'you need orders to demolish a house, that's how it works, so we went to council to check there were no orders'.

112 Mr Bortolani said he inspected the property with the plaintiff and the Newlands. Initially, he was unable to recall the precise date of this meeting, other than to say it was his belief that it was in the early part of 2010. He subsequently said that he first inspected the property in June 2010.

113 At this first meeting, Mr Newlands said that he showed the plaintiff and Mr Bortolani an order from VCAT that 'referred to the payment of moneys, although the actual amount which the second respondent had been ordered to pay to the applicants pursuant to paragraph 1 of the VCAT orders was missing'. The plaintiff identified the order as only one page.

114 The plaintiff said he asked Mr Newlands about the VCAT proceeding as a consequence of being told about the proceeding by 'someone' and Mr Newlands then gave his documents to the plaintiff to read. In his evidence, the plaintiff made many references to being shown documents relating to the VCAT proceeding by Mr Newlands. It is not clear what documents were provided to the plaintiff by Mr Newlands in relation to the VCAT proceeding but in his witness statement he says that Mr Newlands showed him a copy of a VCAT order.

115 In his interview with Mr Marshall, the plaintiff was asked about the VCAT documents that Mr Newlands gave to him to read and referred to a 'VCAT report' and what issues it touched upon. The plaintiff responded by describing aspects of the VCAT dispute that could not have been apparent if he had only seen the one page VCAT order.

What checks were made as to whether there were any orders affecting the property?

116 Mr Bortolani and the plaintiff both said they went to the council to 'double check the certificates and to make sure that there were no orders on the property'.

117 Mr Haywood said that in undertaking the conveyancing for the plaintiff, he performed the usual enquiries and checks in respect of the property to 'ensure that all was in order', including verbal enquiries with the Kingston City Council to confirm there were no orders over the property.

Mr Daniels' dealings with the plaintiff, Mr Bortolani and Mr Haywood concerning the structural deficiencies of the dwelling

118 On 9 December 2010, Mr Daniels received a facsimile transmission from 'Seaview Newsagency' being an application to 'complete from lock up stage' ('the 9 December 2010 application'). The application names the Newlands as the owners of the property, Mr Bortolini as the builder and referred to the stage of the building work as 'completion from lock up'. Although there is the date of 20 November 2012 at the end of the application, there was no challenge to Mr Daniels' evidence that he received the application on 9 December 2010. This evidence is confirmed by the fax imprint at the top of the document showing that it was sent on 9 December 2010.

119 When he received the 9 December 2010 application, Mr Daniels stuck a post-it note on it with a note in his handwriting for his information and to remind him that he would require 'warranty [insurance] from builder' and 'require amended engineering and design cert'.

120 Mr Bortolani denied sending Mr Daniels the 9 December 2010 application or that he had seen it before it was shown to him at trial.

121 Shortly after he received the 9 December 2010 application, Mr Daniels had a telephone conversation with Mr Bortolani where Mr Bortolani indicated to him that he was the builder appointed to complete the works at the property. Mr Bortolani also enquired as to what was required to be submitted in order for Mr Daniels to issue a building permit. Mr Daniels told Mr Bortolani that he needed three things: warranty insurance, revised structural engineering and design certification as well as verification of ownership of the property. The first requirement was triggered because the works were going to cost more than $12,000. Mr Daniels said the reason that he required an amended revised structural certification was because he knew the dwelling had structural deficiencies from speaking to Mr Ratcliffe about the VCAT proceeding. The third requirement to verify the ownership of the property was because Mr Bortolani had indicated to Mr Daniels that he was ringing on behalf of the owner. Mr Daniels made a further note in red on the post-it note 'Title, new owner Chris' as a result of this information. The handwritten post-it note to the 9 December 2010 application remains in that place on his file.

122 Mr Bortolani denied that he spoke to Mr Daniels on or around 9 December 2010 although he did give evidence of four other conversations with Mr Daniels in the second half of 2010, set out at [175], [177], [179] and [183] below, all of which were strenuously denied by Mr Daniels.

123 A second post-it note was stuck to the 9 December 2010 application which was written in the handwriting of one of Mr Daniels' staff members. Mr Daniels said he presumed the note was for him to call the new owner of the property described on the note as 'Chris' (the plaintiff) and his telephone number.

124 Mr Daniels called the plaintiff within a day or two of his conversation with Mr Bortolani on 9 December 2010. In cross-examination, Mr Daniels was asked whether he made a note of his conversation with the plaintiff. His response was that he did not have anything documented, but that it was a conversation that he distinctly remembered even though he did not have a note of it. Mr Daniels said that the plaintiff questioned his request for warranty insurance and the need for an amended structural engineering certification. Mr Daniels told the plaintiff that warranty insurance was required because the cost of the work was more than $12,000, that he knew about the VCAT proceeding and that he knew there were some issues about the structural integrity of the building. He also said that he was acutely aware from the VCAT proceeding that there was an expert engineer's report regarding the extent of the structural defects and that the engineer had had to pay some money pursuant to a VCAT order. Mr Daniels said that the plaintiff did not express any particular surprise when he mentioned the structural issues and the VCAT proceeding but that in response to what he had said, the plaintiff told him that it was none of his business and he would get his own surveyor.

125 The plaintiff denied this conversation with Mr Daniels and also denied that the VCAT matter or structural issues were discussed with him. The plaintiff said that he only spoke to Mr Daniels once and that was when Mr Daniels called around July 2010 to speak to Mr Bortolani and the plaintiff handed the telephone to him. His evidence as to that conversation is set out at [170]-[171].

126 In early January 2011, Mr Daniels received a telephone call from Mr Haywood who asked him what information Mr Daniels required in order for him to issue a building permit. Mr Daniels told Mr Haywood the same information that he had previously told Mr Bortolani and the plaintiff and he also told him he wanted a copy of the VCAT orders. Mr Haywood said he would endeavour to do what he could to furnish him with the information.

127 On 18 January 2011, Mr Haywood sent a letter to Mr Daniels' assistant, Ms Warburton, enclosing a copy of the VCAT orders dated 24 June 2010 'in order to issue a permit extension to the property'. In the letter, Mr Haywood asked that Mr Daniels 'now issue a building permit, and fax a copy to us and the original in the mail'.

128 This information did not satisfy Mr Daniels and he called Mr Haywood a day or two after having received his email on 18 January 2011. Mr Daniels told Mr Heywood again what he required as follows:

I indicated to Mr Haywood there [were] some documents that I would require. He, ah, the information he gave me was a VCAT order, and I had some - I'd written some notes on that. And then I told him that there was a conclave between the two engineers, that I would want to see the information from the outcome of that so I could determine what works were required to be undertaken. There was a, an engineer's report by Graham Dunn that I wanted to see, and there was also a defects report, and there was - owing to the fact that the works had been covered up it was difficult for me to see so I required all this information.

129 In cross-examination, Mr Daniels said further about this conversation with Mr Haywood:

I told him I was aware of [the] VCAT matter and that there were structural deficiencies and - and I referred to my notes about the engineer's conclave. So I told him I was - I was aware of those and as a result of that I needed to be furnished with the information.

130 Mr Daniels wrote handwritten notes on the letter and the VCAT order while he was talking to Mr Haywood. On the letter he wrote: 'Engineers report - 'conclave' Two engineers Graeme Dunn, .....? Did a defects report. Now all covered up.' On the VCAT order, he wrote '$400,000' reflecting what he was told by Mr Ratcliffe, after having spoken to Mr Haywood.

131 Mr Haywood denied that he had ever spoken to Mr Daniels. In particular, he denied the conversation described by Mr Daniels in early January 2011 and the conversation on or around 18 January 2011.

132 Mr Haywood agreed that he sent the letter dated 18 January 2011 to ABS but said it was sent at the request of someone other than Mr Daniels. Mr Haywood could not recall who that person was other than it was definitely not Mr Daniels. He also could not recall whether the request was by fax, email or otherwise.

133 Mr Haywood said he sent the letter dated 18 January 2011 as the plaintiff had asked him 'to get an extension to the building permit so that he could lay down a decking' although this was not part of his scope of work as the finance broker or conveyancer for the plaintiff but was simply 'customer service' by him, for which he charged no fee.

134 After he sent the 18 January 2011 letter to ABS, Mr Haywood was told by the plaintiff that he did not require a permit for the decking. He did not follow up with ABS and said he did not hear back from anyone at ABS.

135 Mr Daniels did not hear from Mr Haywood any further after the telephone conversation on 18 January 2011.

136 The plaintiff said the back deck was completed in approximately May 2012, which is 14 months after the 18 January 2011 letter. He was unsure of the date the construction of the deck started and was unable to nominate any timeframe for when the work was done, but said he hired equipment from Bayside Hire Pty Ltd to put in the posts. In re-examination, the plaintiff identified from the documents subpoenaed from Bayside Hire Pty Ltd that the relevant equipment had been hired on 19 November 2011.

Conclusions as to whether the plaintiff knew of the VCAT dispute and the serious structural defects affecting the dwelling

137 On this issue, the contemporaneous documentary evidence supports the evidence of Mr Ratcliffe and Mr Daniels and I accept their evidence over that of the plaintiff, Mr Bortolani and Mr Haywood.

138 Mr Ratcliffe had no interest in the outcome of this proceeding. His evidence was that he told the plaintiff about the VCAT proceeding. The plaintiff's admissions in his interview with Mr Marshall accord with Mr Ratcliffe's evidence and, in my view, the 'someone' referred to by the plaintiff as having told him about the VCAT proceeding was Mr Ratcliffe. Further, in his interview with Mr Marshall, the plaintiff described aspects of the VCAT dispute that demonstrated that he knew of the VCAT dispute and the serious defects affecting the dwelling.

139 The plaintiff, Mr Bortolani and Mr Haywood all said that they made checks as to whether any orders affected the property. None of them produced any documents to support these checks but the fact that they made by them points to them being alert to problems with the dwelling.

140 Mr Bortolani's evidence that he did not send the 9 December 2010 application or that he had seen it before the trial and his denial of a conversation with Mr Daniels around 9 December 2010 not ever occurring is not credible. I also accept Mr Daniels' evidence as to his conversation with the plaintiff a few days after 9 December 2011, the content of which demonstrates that the plaintiff knew of the VCAT dispute and the serious structural defects of the dwelling.

141 Mr Daniels' evidence of his conversation with Mr Haywood in early January 2011 establishes that Mr Haywood was given the same information by Mr Daniels as he gave to the plaintiff and Mr Bortolani, and that information included the VCAT dispute and the serious structural defects affecting the dwelling. Mr Haywood's letter dated 18 January 2011 was then sent to Mr Daniels after this conversation was referrable to the VCAT proceeding and structural problems of the dwelling, and had nothing to do with a 'back deck' or 'decking'.

142 I am satisfied from the contemporaneous documentary evidence and the defendant's evidence that the plaintiff knew that the dwelling had been the subject of a VCAT proceeding and that there were serious structural defects affecting the dwelling.

Non-disclosure - third relevant matter: did the plaintiff know whether the structural issues with the dwelling were ever adequately addressed and whether any assistance was obtained from a structural engineer?

143 Both the plaintiff and Mr Bortolani said that no structural engineer was engaged in relation to the works completed by the plaintiff on the dwelling.

144 In September 2012 after the dwelling had been damaged by fire, Crawfords & Company, on behalf of the defendant, engaged FMG Engineering to comment on the structural integrity of the dwelling prior to the fire.

145 On 13 September 2012, Mr Sohn of FMG Engineering met the plaintiff at the property. He asked the plaintiff about the history of the dwelling, such as when he purchased it and its age. The plaintiff told him that he purchased it a couple of years ago at lock up stage and that there had been a dispute involving some construction issues at the VCAT.

146 Mr Sohn asked the plaintiff if anything was done to the dwelling beyond what was provided in the original construction documents. Mr Sohn had A3 drawings of these documents at the time of his inspection of the house. He made notes on them after checking the works that the plaintiff said he had carried out had been completed and also took photographs of those works.

147 The plaintiff told him that he had carried out some structural works on the dwelling after he purchased the property. These works included the installation of a timber beam over the garage to the first floor frame. Mr Sohn said the timber beam would have picked up a lot of weight of the dwelling from the upper floors.

148 The plaintiff mentioned a timber stud wall in the north-eastern corner of the garage. Mr Sohn said this was an additional timber stub wall that was situated under the timber beam and it would have assisted in transferring the weight of the upper levels to the concrete slab below and would have relieved some of the vertical pressure within the dwelling.

149 The plaintiff mentioned the timber framed enclosures around the stairwell. Mr Sohn said this was not structural work but it would have assisted in providing some degree of robustness to that location.

150 The plaintiff mentioned that he changed the timber frames to the doors from sliding doors to the more conventional open close type and used structural grade timber to make it stronger. The additional vertical timber frames were added to door frames throughout the dwelling. Mr Sohn said that the strength or robustness of the door frames would have no bearing on the structural integrity of the dwelling.

151 Mr Sohn regarded the works mentioned by the plaintiff as substantial and asked him why he had done them. The plaintiff said that he was in the building industry and that he had a lot of experience in developing buildings. He said it was his 'thing' to make a building strong, that he had friends or colleagues who helped him do the work, and because this dwelling was his family home, he wanted to make it stronger.

152 After his inspection on 13 September 2012, Mr Sohn completed an engineering investigation report that set out his opinion that the dwelling was seriously structurally deficient before the fire, taking into account the absence of continuous bracing across the width of the dwelling rendering it laterally unstable. Mr Sohn concluded that:

...lateral stability could not be achieved in accordance with the code requirements without retro-fitting steel portal frames in at least the lower two levels. FMG's inspection of the property post-loss confirmed that no steel portal frames had been installed. Therefore, the building was seriously structurally deficient pre-loss.

...

It was evident from FMG's inspection that the second builder had made considerable efforts to rectify the structural design deficiencies relating to the design for vertical loads. Without carrying out further detailed inspections ... FMG cannot confirm whether these alterations resulted in a structure that complied with the relevant codes with respect to design for vertical loads. However, based on our inspection ... we believe that sufficient works had been carried out such that it is likely that the structure would have either fully complied, or nearly complied with respect to the design for vertical loads.

Conclusion as to whether the plaintiff know whether the structural issues with the dwelling were ever adequately addressed and whether any assistance was obtained from a structural engineer

153 The evidence establishes that the plaintiff knew, or a reasonable person ought to have known, that the structural issues with the dwelling were never adequately addressed and that no assistance was ever obtained from a structural engineer in order to address them.

154 Mr Daniels issued a certificate on 2 June 2008 certifying that the property had been completed to lock up stage in accordance with the relevant drawings and design specifications. When the certificate was issued all frame inspections on the dwelling had been completed.

155 The plaintiff agreed to purchase the property from the Newlands with the dwelling completed to lock up stage. The description of the scope of works in the Daklan quotation includes 'repair the frame work structure' of the dwelling and 'repair all balconies'. This description of the scope of works is consistent with the scope of works agreed to be completed in the building contract; that is, to take over construction currently at lock up stage to complete the dwelling for a certificate of occupancy. The description of the work to be done confirms that there was a known problem with the frame work structure and balconies of the dwelling.

156 Although the works to be completed on the dwelling included structural works, the evidence of both the plaintiff and Mr Bortolani was that no structural engineer was engaged in relation to those works. In his conversation with Mr Sohn, the plaintiff conceded that there were structural issues with the dwelling and he showed Mr Sohn what works he did to attempt to remedy them.

157 Consistently with the plaintiff being aware of the structural stability issues of the dwelling, he made attempts to remedy the structural stability issues in relation to the vertical loads of the dwelling, but not in relation to the lateral stability of the dwelling.

158 Mr Sohn's evidence as to the state of the dwelling prior to the fire was not challenged by the plaintiff. Based on Mr Sohn's evidence, including his inspections, his opinions and his conversations with the plaintiff, I am satisfied that the plaintiff knew that the structural issues with the dwelling were never adequately addressed and that he did not engage a structural engineer to remedy the structural deficiencies.

Non-disclosure - fourth relevant matter: did the plaintiff know whether a further building permit to complete the dwelling from lock up to completion or a valid occupancy certificate was ever issued?

159 In his witness statement, the plaintiff said, 'I now know that instructions I had given the surveyor via the Newlands, who were still the owners at that time to renew the building permit were not adhered to as the building permit was not extended.'

160 Mr Bortolani confirmed that the reason he applied for warranty insurance with QBE on 10 January 2011 was to enable a certificate of occupancy to be issued and that he knew that he needed warranty insurance to get a certificate of occupancy. He said that when he and the plaintiff were doing the construction, they realised in November or December that an insurance policy had not been taken out and they made the application in January 2011. After QBE issued the insurance certificate, Mr Bortolani said he spoke to QBE about back-dating the certificate by six months and was told that the dates on the policy could not be back-dated.

161 In Mr Ratcliffe's conversation with the plaintiff that he thought took place in early 2011, but said could have been earlier, he asked the plaintiff who he got his building permit from to finish the house and the plaintiff told him it was from the council.[25]

162 After this conversation with the plaintiff, Mr Ratcliffe again contacted Mr Daniels and asked whether Mr Daniels had issued a building permit in respect of the dwelling and Mr Daniels again denied that he had issued a further building permit.

163 A few weeks later, Mr Ratcliffe was confronted by the plaintiff in his driveway when the plaintiff spoke to him in 'in a sort of a relatively agitated way' and asked Mr Ratcliffe who he had been speaking to 'about my house?' Mr Ratcliffe told the plaintiff that he had called his building surveyor to find out if the plaintiff had been to see him about a permit. The plaintiff told Mr Ratcliffe to 'stay out of my business'.

164 The 9 December 2010 application at [118] named the Newlands as the owners, Mr Bortolani as the builder and referred to the stage of the building work 'to complete from lock up stage'.

165 Mr Daniels' conversation with Mr Bortolani after receipt of the 9 December 2010 application at [121] concerned what Mr Daniels needed to issue a building permit to complete the building from lock up stage. Mr Daniels' recollection of his conversation with Mr Bortolani is supported by his handwritten post-it note at the time of speaking to Mr Bortolani.

166 In Mr Daniels' conversation with the plaintiff a day or two after 9 December 2010 at [124], the plaintiff questioned Mr Daniels' request for warranty insurance and the need for amended structural engineering. These topics were the subject of the conversation between Mr Daniels and Mr Bortolani on 9 December 2010.

167 In Mr Haywood's telephone conversation with Mr Daniels in early January 2011 at [126], Mr Haywood specifically asked what Mr Daniels required for him to issue a building permit and told Mr Daniels that he would endeavour to do what he could to furnish him with the information.

168 Mr Daniels said that in his initial discussion with Mr Bortolani, and in his first conversation with Mr Haywood in January 2011, he requested proof of the builder's warranty insurance. The QBE Application for warranty insurance is dated 10 January 2011 and the QBE certificate of insurance was issued on 20 January 2011.

169 The letter dated 18 January 2011 at [127] from Mr Haywood to Mr Daniels was, according to the letter, provided 'in order to issue a Permit Extension to the [property]' and asked that Mr Daniels 'now issue a building permit, and fax a copy to us and the original in the mail'.

170 In his witness statement, the plaintiff said that at the time he spoke with Mr Daniels, he was told that 'it was not necessary to extend the permit as the dwelling would not be completed before the extension was granted'. In cross-examination, the plaintiff said this was not accurate because it was Mr Bortolani who had that conversation with Mr Daniels.

171 The plaintiff said he only had one conversation with Mr Daniels, which occurred in or around July 2010. His evidence was that Mr Daniels called him, introduced himself and said that he had been trying to find Mr Bortolani and could not get him on the telephone. The plaintiff was standing next to Mr Bortolani and he handed the telephone to Mr Bortolani.

172 Mr Bortolani said this conversation happened the day after he first inspected the property in June 2010. He said he checked with Mr Daniels that the property was 'passed up to lock up stage' as he had noticed that the building permit needed to be extended and they discussed that. Mr Bortolani asked Mr Daniels whether he and the plaintiff could continue on with the works that they were doing without the building permit being extended. He said Mr Daniels told him: 'Yes. I will get that organised for you and get the paperwork across to you guys'.

173 The plaintiff said that after Mr Bortolani put down the telephone he told him that Mr Daniels was 'going to extend the building permit' and was going to give [the building permit] to the Newlands. He also said that Mr Daniels 'authorised us and he's comfortable with us actually continuing on' and was 'going to come around and do the occupancy [certificate] as well'.

174 In cross-examination, it was put to Mr Daniels that he told the plaintiff that the plaintiff could continue to work on the house because the works were cosmetic only. Mr Daniels' response was: 'Rubbish. Absolute Rubbish. He didn't have a valid building permit. I would never say that.'

175 Mr Bortolani said that one or two days after his conversation with Mr Daniels, he was at the dwelling and he called Mr Daniels. He said that he discussed 'some cavity slide door openings that we wanted to close ... and just put [in] a conventional door'. Mr Bortolani said that Mr Daniels had no issue with what was discussed and that he actually thought it was a good idea and to take some photographs 'for the record' and that it will be all 'fine'.

176 In his reply witness statement, Mr Daniels responded to this alleged conversation as follows:

I deny discussing 'minor cosmetic changes to doors' with Mr Bortolani or requesting photos of same to be provided at 'the final inspection'. The role of an appointed surveyor is to ensure that the subject property is built in accordance with approved architectural and engineering specifications. If by 'minor cosmetic changes to doors', Mr Bortolani was referring to finishes to doors, these are not matters which concern the appointed surveyor and I would not have engaged in discussions about them. If the 'minor cosmetic changes to doors' referred to by Mr Bortolani required changes to the door opening position or other structural changes, I would have required revised architectural drawings to have approved the amendment and a physical inspection. I would not have relied on photos, as it is ABS policy that all amendments are physically inspected.

177 Mr Bortolani says that he again discussed the 'permit extension' with Mr Daniels during this second conversation and Mr Daniels said he would 'get the paperwork across to the Newlands and then they'll then pass it on to me and then we can fill that out and continue on'.

178 In his reply witness statement, Mr Daniels refuted the substance of this allegation as follows:

I do not recall ever telling Mr Bortolani that I would send him 'paperwork for the building permit extension' and I do not recall sending any paperwork to Mr Bortolani or Kevin or Dianne Newlands. In preparing this reply witness statement I have reviewed the ABS file pertaining to the subject property and I confirm that there is nothing on the file which records any action was undertaken or promised to be undertaken in so far as sending paperwork to either the Newlands or Mr Bortolani.

As at mid 2010, 'Form 1 - Application Form', which is the form used to apply for a new building permit, was available to download from the ABS website.

179 Mr Bortolani said he next spoke to Mr Daniels a couple of months after their initial conversation in around July 2010, when Mr Daniels called Mr Bortolani. During that conversation, Mr Daniels asked Mr Bortolani, 'what stage are you guys at?' and Mr Bortolani told him they were at the 'paint stage'. Mr Daniels said that he still had not done the building extension permit and he would have to get onto it straight away. Mr Bortolani then said: 'Well, if that's the case, we may as well prepare all our other certificates and do our final inspection at the same time' and that Mr Daniels was happy with that.

180 Mr Daniels also refuted the substance of these allegations in his evidence, noting that, 'without a valid building permit on foot [he] could not have booked in a final inspection' and that he had raised several issues with Mr Bortolani concerning the builder's warranty insurance and remediation of the structural issues dealt with by the VCAT, which had not been answered by Mr Bortolani.

181 The plaintiff also gave evidence that Mr Daniels then attended a final inspection at the property. Prior to this inspection, he said he gathered all the certificates, including plumbing, electrical and waterproofing together for Mr Daniels. When Mr Daniels attended the property, the plaintiff saw Mr Daniels but did not speak to him as he asked his father to hand the certificates to Mr Daniels, and he said his father did so.

182 Mr Daniels denied this alleged final inspection, saying that he had never been to the property and there was no final inspection to take place. Mr Daniels was adamant in his response that he had never been to the property.

183 Mr Bortolani then said that Mr Daniels called him after this alleged final inspection and told him that if some further minor works were done they would have no dramas with the certificate of occupancy. As a result of this evidence not being put to Mr Daniels when he gave his evidence, he was recalled and emphatically denied that the conversation took place at all or that he ever said anything such as was stated by Mr Bortolani.

Conclusions as to whether the plaintiff knew whether a further building permit to complete the dwelling from lock up to completion or a valid occupancy certificate were ever issued

184 The plaintiff was aware before he purchased the property that there was no current building permit in place to allow building works on the house and that a new permit was required for any works undertaken from lock up to completion. The plaintiff said that he gave instructions via the Newlands to get the building permit extended and Mr Bortolani acknowledged that he knew that the building permit needed to be extended. In addition, when Mr Ratcliffe was confronted by the plaintiff in the plaintiff's driveway, the confrontation concerned whether the permit had been extended.

185 Mr Daniels' evidence concerned two issues: whether or not a further building permit was issued and whether a valid certificate of occupancy was ever issued. Mr Daniels had an detailed memory of events, and his memory was supported by his contemporaneous notes of certain events. I accept his evidence over that of the plaintiff and Mr Bortolani. Had Mr Bortolani or the plaintiff spoke with Mr Daniels in June 2010, he would not have told them that there were no issues in relation to the dwelling, that he was going to issue a further permit or a permit extension or that he was content for works to continue on the dwelling without a permit, let alone participate in a 'final inspection'. By June 2010, Mr Daniels knew of the VCAT proceeding, including its outcome and the structural deficiencies of the dwelling as a result of Mr Ratcliffe's conversation with him and having a copy of Mr Dunn's report dated 5 September 2008.

186 The 9 December 2010 application to Mr Daniels was an application to 'complete from lock up stage'. Mr Daniels then spoke with Mr Bortolani about what was required for a building permit. This application and the subsequent conversation between Mr Daniels and Mr Bortolani establishes that Mr Bortolani knew a building permit was required to complete the dwelling from lock up stage and that Mr Daniels would not process the application without further itemised information. Mr Daniels' contemporaneous post-it note on the application supports Mr Daniels' evidence of his conversation with Mr Bortolani.

187 As the plaintiff's builder, Mr Bortolani would have told the plaintiff what he had been told by Mr Daniels and this is confirmed by the conversation between Mr Daniels and the plaintiff a few days after Mr Daniels spoke with Mr Bortolani. During this conversation, the plaintiff expressed no surprise about what they discussed and they spoke about the same matters as with Mr Bortolani, including the request for warranty insurance and the need for structural engineering certification: all matters relevant to the 9 December 2010 application for a building permit 'complete from lock up stage'.

188 The QBE application made on 10 January 2011 and the QBE certificate of insurance dated 20 January 2011 corroborate Mr Daniels' account of these conversations as the QBE application would only have been made to satisfy Mr Daniels' requests as set out in the December 2010 conversations.

189 Mr Daniels' evidence is also corroborated by the telephone conversation with Mr Haywood in early January 2011 and subsequent letter from Mr Haywood dated 18 January 2011 'in order to issue a Permit Extension to the [Property]', which letter requested that Mr Daniels 'now issue a Building Permit, and fax a copy to us and the original in the mail' as well as Mr Daniels' subsequent conversation with Mr Haywood, as corroborated by Mr Daniels' handwritten notes of the conversation.

190 I am satisfied that the plaintiff knew that a further building permit in respect of the dwelling was required to complete it from lock up to completion, that he knew that a valid occupancy certificate was required for the dwelling and that he also knew that no further building permit and no certificate of occupancy was ever issued in respect of the dwelling.

Non-disclosure: did the plaintiff know, or alternatively, would a reasonable person in the circumstances have known, that each of the four relevant matters was relevant to the defendant's decision whether to accept the risk, and on what terms?

191 As a broker filling in the quotation sheet for the plaintiff during his telephone conversation with the plaintiff, Mr Cosham would have asked the plaintiff the questions on the quotation sheet, including the question 'Is the property in the course of construction or renovation or are they planned in the next 12 months?' This specific question put the plaintiff on notice that the dwelling's stage of construction was a relevant factor in the defendant's assessment of risk. With such a question, the plaintiff should know that the fact that the construction of the dwelling was not completed as at 6 December 2010 was relevant to the defendant's decision to insure the property and dwelling.

192 In cross-examination, the plaintiff said that he knew it was relevant to the defendant's decision of whether or not to insure the property that Mr Ratcliffe had told him about the structural issues and no structural engineer had been used to remedy the structural defects. He said that he did not know whether it would be relevant to the defendant's decision or not that further works were done without a building permit or where no valid occupancy certificate had been issued in respect of the dwelling.

193 The plaintiff's evidence on these last two points is not credible. The plaintiff is in business with Mr Bortolani, a registered builder, and his evidence showed that he knew the legal requirements for conducting building works, including the requirement for conducting works with a valid building permit or occupying a dwelling only with a valid occupancy certificate.[26] The plaintiff is a developer and project manager, organising trades and quotes in the construction industry, and he works with Mr Bortolani. The plaintiff would also know the legal requirements for conducting building works in the industry. The plaintiff, Mr Bortolani and Mr Haywood each made efforts to obtain a building permit, an essential requirement for obtaining a valid occupancy certificate. Their efforts contradict the plaintiff's evidence as to the relevance of these documents to the defendant.

194 In cross-examination, Mr Cosham conceded that the plaintiff had not informed him of any of the following matters and that each of them would have been relevant to the decision of the defendant in deciding whether to insure the property and on what terms:

(a) the structural engineer, CBG, had also been a party to the VCAT proceeding;

(b) compensation was payable against CBG and not the builder, RBG;

(c) the Newlands had been ordered to pay RBG a sum of money and his legal costs;

(d) in May 2010, the VCAT found that the dwelling was at risk of collapse and should be demolished because of structural deficiencies;

(e) that works had been carried out to remedy the defects without the assistance of a structural engineer; and

(f) the work was being carried out under a lapsed building permit.

195 Mr Cosham was asked whether the fact that the amount awarded against the structural engineer on the copy of the VCAT order was blacked out would be relevant to the defendant. Mr Cosham answered that 'the amount doesn't matter'. Mr Cosham was unable to explain what he meant by that answer. However he conceded that 'for a structural engineer to be the subject of a compensation order, [he] would understand that [the engineer] has made an error in the structural design' and that, in and of itself, is relevant to the defendant's assessment of risk.

196 As to whether an occupancy certificate had been issued in respect of the dwelling, Mr Cosham stated in his witness statement that, 'I understood that all major works had been done and a certificate of occupancy had also been issued', whereas, in his oral evidence, he gave a different answer, stating that the plaintiff had told him that he had a certificate of occupancy. In light of Mr Cosham's answers, he knew this matter was a relevant matter to the defendant's assessment of risk and that an applicant for insurance therefore has a duty to disclose it.

197 As the plaintiff's broker and agent, Mr Cosham knew that each of the four relevant matters was relevant to the defendant's decision and therefore required disclosure. Alternatively, a reasonable person in the circumstances would have known that each of the four relevant matters would have been relevant to the defendant in its decision of whether to insure the property and on what terms. [27]

Were each of the four relevant matters disclosed to the defendant?

198 Mr Williams' evidence, which I accept, was that none of the four relevant matters were disclosed to the defendant at the time of inception of the initial policy in December 2010.

Was the plaintiff's failure to disclose each of the four relevant matters fraudulent?

199 Mr Cosham said he asked the plaintiff of the circumstances of how he came to purchase the property. He said the plaintiff explained to him that the owner of the property had had a monetary dispute with his builder in the VCAT and that he was prepared to sell the property at lock up stage. He told Mr Cosham that the previous owner was given a monetary compensation order in the VCAT and that he had been given a copy of this order. Mr Cosham did not request a copy of the order because he did not consider it to be relevant to the insurance with the defendant.

200 In cross-examination, Mr Cosham said that he relied on what the plaintiff told him about the dwelling and did not ever see it himself. He said the plaintiff told him that he had completed all major works on the dwelling, other than some cosmetic finishes that were still being done and that a certificate of occupancy had been issued in relation to the dwelling.

201 In addition to the matters at [194] above, Mr Cosham said that the plaintiff had not told him that the copy of the VCAT order provided to the plaintiff had the amount payable to CBG blacked out; that Mr Ratcliffe had told the plaintiff about the VCAT proceeding and the structural deficiencies of the dwelling; and that the structural defects had purportedly been fixed without the assistance of a structural engineer.

202 Mr Cosham said that he did not ask for a copy of the VCAT order or reasons because he was only told that it was 'monetary'. He agreed that he would have thought it relevant to ask for a copy of the VCAT reasons, if he had been told it was anything more than monetary.

203 Curiously, the plaintiff and his witnesses all described the VCAT proceeding as a 'monetary dispute' as if the dispute was unimportant. The odds of all these witnesses describing the VCAT proceeding in the exact same terms after so many years suggests an agreed position on their part. In his evidence, Mr Cosham accepted that an award of monetary compensation against a structural engineer would be highly significant for obvious reasons and he understood that it would mean that the structural engineer had made an error in the structural design.

204 If the dispute were only monetary, there would have been no reason for the plaintiff to have undertaken the work to remedy the structural deficiencies in respect of the vertical loads. I am satisfied that the plaintiff knew that the dispute was not just a monetary dispute.

205 On Mr Cosham's evidence, the plaintiff told him that a certificate of occupancy had been issued in respect of the dwelling, which the plaintiff knew to be untrue. Even if the plaintiff did not tell Mr Cosham that he had a certificate of occupancy, the plaintiff failed to tell Mr Cosham that a certificate had not been obtained. Further, as at 6 December 2010, the plaintiff knew that a final inspection was necessary for a certificate of occupancy to be issued and he knew that the final inspection of the dwelling had not taken place. His evidence to the contrary is not credible.

206 In my view, what the plaintiff knew about the VCAT proceeding and what he told Mr Cosham as his broker was deliberate for the purpose of avoiding the matters known to him about the structural deficiencies of the dwelling and the VCAT proceeding from being disclosed to the defendant, alternatively, given the plaintiff's knowledge of each of the four relevant matters, he was at the least reckless as to whether these matters were disclosed or not.

207 I am satisfied that each of the four relevant matters was known to the plaintiff, that the plaintiff knew that the matters were relevant to the defendant's decision of whether to provide insurance in respect of the property and that the matters were deliberately, alternatively, recklessly not disclosed to the defendant.

208 Accordingly, the plaintiff's failure to disclose each of the four relevant matters to the defendant was fraudulent and, pursuant to s 28(2) of the ICA, the defendant is entitled to avoid the renewed policy from its inception and is not liable to the plaintiff.

If the non-disclosures were not fraudulent, is the defendant's liability reduced to nil?

209 The defendant also claims in the alternative, pursuant to s 28(3) of the ICA, that if the plaintiff's non-disclosures were not fraudulent, the defendant's liability can be reduced to nil if it is established that the insurer would have declined to enter into the contract of insurance or the renewed policy had the duty of disclosure been complied with, thereby placing it in the position it would have been in had the plaintiff complied with his duty of disclosure. [28]

210 Although in view of the findings that the plaintiff's failure to disclose each of the four relevant matters was fraudulent, it is unnecessary to making any findings on the alternative claim pursuant to s 28(3) of the ICA, the matter should be dealt with for completeness and finality of all issues.

211 Ms Tran was the relevant underwriter at the defendant who approved the offer for renewal of the policy and, if any disclosures had been made by the plaintiff prior to renewal, Ms Tran would have considered the significance of those disclosures.

212 Ms Tran confirmed that her letter dated 4 November 2011 to Mr Cosham notified him of the defendant's proposed renewal terms before the expiry of the initial policy on 7 December 2011. The letter referred to the plaintiff's duty of disclosure and contained a link to the defendant's product disclosure statement. As set out in the statement, an insured has a duty to disclose matters that he or she knows or reasonably could be expected to know that are relevant to the defendant's decision to accept the risk of insurance and, if so, on what terms. At renewal, that includes disclosure of events during the preceding policy period, such as any additions, renovations or alterations to an insured property.

213 The defendant's defence set out the matters that it alleged require disclosure. All of those matters were dealt with by Ms Tran by her placing the matters into three relevant groups.

214 The first group of facts comprised the following:

(a) construction of the dwelling had not been completed at the time that the policy was entered into;

(b) all work on the dwelling had not been completed as at 6 December 2010;

(c) the dwelling was still under construction as at 6 December 2010 and further works were planned in the next 12 months;

(d) a building permit had been issued in respect of the dwelling on 18 September 2007 on the condition that a further building permit was required from lock up stage to completion; and

(e) construction of the dwelling commenced in or about September 2007 and was certified to lock up stage only on or about 2 June 2008.

215 Ms Tran said that if any of the matters in the first group had been disclosed to the defendant, they would have been relevant at the time of the inception of the initial policy and, had those matters been disclosed as at November/December 2010, the defendant would have declined to cover the property.

216 Ms Tran said this is relevant for entry into the renewed policy because, if information provided to the defendant during the pre-renewal stage that would have been relevant at the 'new business' stage, the underwriting focus would be on assessing the risk as new business even though it is current business. In her evidence she said, 'Having regard to the [matters referred to], had any of those matters been disclosed, based on my experience and the underwriting guidelines referred to above, the defendant would have declined to provide cover by way of renewal of the Policy as at November/December 2011.'

217 This evidence was not challenged by the plaintiff and confirms that where information relevant to a prior policy period is disclosed to the defendant, the defendant will assess whether, based on that information, the previous policy would have been declined and, if this is the case, the defendant will decline to renew for the next policy period.

218 The second group of facts comprised the following:

(a) the dwelling was structurally unsound and required substantial remedial works prior to its completion and/or being suitable for occupancy;

(b) in 2009, in litigation between the Newlands and RBG and CBG, the dwelling was found by the VCAT to be suffering from serious structural deficiencies such that it required demolition;

(c) in or about October or November 2010, Mr Ratcliffe of RBG informed the plaintiff about the substance of the VCAT litigation and said that, because of the structural problems with the dwelling, it required complete demolition and/or rebuilding with substantial expense to be incurred to rectify the deficiencies; and

(d) prior to and after taking possession of the dwelling on or about 22 December 2010 at settlement, the plaintiff carried out unauthorised works on the dwelling, with no building permit or the assistance of a structural engineer, in an attempt to rectify the structural deficiencies.

219 Ms Tran said that had any of those matters been disclosed, based on her experience and the defendant's underwriting guidelines, the defendant would have declined to provide cover by way of renewal of the policy as at November/December 2011. Ms Tran said that there would have been no discretion in this regard and that the defendant would treat these matters as highly relevant in determining whether or not to insure the dwelling and, therefore, required disclosure.

220 The third group of facts comprised the following:

(a) tradespeople remained onsite after 6 December 2010, including Colston Electrical Pty Ltd, which issued the electrical certificate showing that certain electrical works were completed on 10 December 2010;

(b) on 9 December 2010, an application for a further building permit to complete the dwelling from lock-up stage to completion was submitted to ABS, on behalf of the plaintiff by Mr Bortolani, but Mr Daniels of ABS informed Mr Bortolani that such a permit application was required to be accompanied by additional information, which was not provided;

(c) prior to settlement on 22 December 2010, the Newlands as the vendors and the plaintiff as purchaser agreed that the purchase price of $1.2 million would be discounted by $680,000 to cover the building and construction completion costs as agreed;

(d) in or about January 2011, Mr Haywood contacted Mr Daniels and requested that the application for a building permit to complete the dwelling from lock up stage to completion be considered and was asked to provide additional information, which was not provided;

(e) no further building permit has ever been issued to complete the dwelling from lock up stage to completion; and

(f) no valid occupancy certificate has ever been issued in respect of the dwelling.

221 Ms Tran said the significance of these matters was the same as the effect of the first and second group of matters and that the defendant would have declined the cover, had these facts been disclosed.

222 On Ms Tran's evidence, which I accept, the defendant would have declined to enter into the contract of insurance had the plaintiff complied with his duty of disclosure. In order to place the defendant in the position it would have been in if the plaintiff's failure to disclose had not occurred, pursuant to s 28(3) of the ICA, the defendant's liability under the renewed policy must be reduced to nil.

Misrepresentation - did the plaintiff make the representations prior to the renewal of the policy?

223 The defendant contends that before the initial policy was entered into and before the renewed policy was entered into, the plaintiff represented that the dwelling:

(b) was subsequently renovated with all works having been completed as at 6 December 2010; and

(c) was not under construction or renovation and neither was planned in the next 12 months.

224 Mr Cosham acted on behalf of the plaintiff and was his agent; his actions in submitting the quotation sheet on 2 December 2010 to the defendant are actions attributable to the plaintiff.[29]

225 As the plaintiff and the defendant agreed to renew the policy on 28 November 2011, the defendant contends that at the time of its entry into the renewed policy on 28 November 2011, the representations concerning the dwelling that were made before the initial policy was entered into were repeated and continued and still in effect at the time of entry into the renewed policy as they were not corrected at any relevant time.

Was the representation that the dwelling had been constructed in 2007 untrue?

226 In completing the quotation sheet, Mr Cosham relied on the plaintiff's answers given in their telephone conversation around 2 December 2010. As at 6 December 2010, the construction of the dwelling had not been completed. The plaintiff knew the dwelling was not constructed in 2007 as he purchased it in the latter half of 2010 at lock up stage.

227 Mr Cosham said the plaintiff provided more information about the circumstances of the dwelling than just the year of construction. Based on his discussions with the plaintiff, Mr Cosham formed the view that all major works had been done and a certificate of occupancy had been issued. Mr Cosham was told by the plaintiff that he had bought the dwelling at lock up stage and that he was completing the construction of the dwelling. The year of construction means the year of the completion of the construction and not the commencement. With the information provided by the plaintiff, Mr Cosham knew that the correct year of construction must have been 2010. In cross-examination, Mr Cosham conceded that the answer of 2007 for the year of construction was, to his knowledge, not correct.

228 The evidence of Mr Williams and Mr Calder was to the effect that because the quotation sheet said the dwelling had been constructed in 2007, there was nothing to prompt them to enquire about a certificate of occupancy and they assumed the property was certified for occupancy. The effect of their evidence was that, had the year of construction been 2010, they would have asked for a certificate of occupancy for the dwelling. There was no valid certificate of occupancy and none has ever been issued in respect of the dwelling, either before the inception of the initial policy or the renewed policy. The fact that the year of construction was a specified question in the quotation sheet highlights the fact that it is a relevant matter as to whether the defendant would accept the risk. If a certificate of occupancy could not have been produced by the plaintiff, the defendant would not have entered into the initial policy or the renewed policy.

229 In my view, the representation in the quotation sheet that the 'year of construction' was '2007' was untrue and no reasonable person in the circumstances would believe it to be true.

Was the representation that the dwelling was subsequently renovated with all work having been completed as at 6 December 2010 untrue?

230 Mr Cosham answer 'Yes' to the question in the quotation sheet 'Has the property been renovated?' This answer was untrue. The dwelling was not completed as at 6 December 2010 and the plaintiff did his work on the dwelling in 2010 and 2011 and, therefore, it could not have been renovated.

231 In cross-examination, Mr Cosham agreed that he was told that the plaintiff purchased the dwelling at lock up stage and further works had been done to bring it to completion and, on that basis, the dwelling could not be described as having been renovated. Mr Cosham also agreed that he was aware of that on 2 December 2010.

232 He said the plaintiff told him that a certificate of occupancy had been issued in respect of the dwelling. In cross-examination, he conceded that if he had been told that there was no certificate of occupancy, he would not have indicated that the dwelling was completed in the quotation sheet. Mr Cosham also conceded that if all the trades, including electrical and plumbing had not been completed, he would not have described the dwelling as being completed on the quotation sheet.

233 I am satisfied that the representation that the dwelling was subsequently renovated with all work having been completed as at 6 December 2010 was untrue and no reasonable person in the circumstances would believe it to be true.

Was the representation that the dwelling was not under construction or renovation and neither was planned in the next 12 months as at 6 December 2010 untrue?

234 Mr Cosham answered 'No' to the question in the quotation sheet 'Is the property in the course of construction or renovation or are they planned in the next 12 months?' Mr Cosham said that his answer of 'No' was his way of indicating that works to the dwelling were 'completed'.

235 The plumbing certificate and the electricity certificate establish that those works were not completed as at 6 December 2010 and no certificate of occupancy was ever issued in respect of the dwelling. The evidence of the plaintiff and Mr Bortolani as to the alleged final inspection of the dwelling by Mr Daniels is not credible. As stated, Mr Daniels was a credible and honest witness and I accept his evidence over that of the plaintiff and Mr Bortolani. In any event, no final inspection could have occurred until after the plumbing and electrical certificates were available and these certificates were only available after 6 December 2010. The evidence does not support a finding that a final inspection ever occurred.

236 In addition, Mr Bortolani signed the QBE application that included a statement that the works on the dwelling were to take place between 4 December 2010 and 26 June 2011 in January 2011, at least a month after the inception of the initial policy. The purpose of the QBE application was to complete the dwelling to obtain a certificate of occupancy.

237 The plaintiff knew that the plumbing and electricity works had not been completed as at 6 December 2010 and he knew that no certificate of occupancy had ever issued in respect of the dwelling. In respect of his knowledge of the QBE application and the information included in it, as the plaintiff worked closely with Mr Bortolani and the QBE application included matters that were known to the plaintiff, such as the building contract and the Daklan quotation. As such, it is highly likely that the plaintiff knew that the works on the dwelling were to take place after 6 December 2010 and that the purpose of the QBE application was to compete the dwelling to obtain a certificate of occupancy. This being the case, the representations that the property was not under construction as at the date of the inception of the initial policy were untrue and no reasonable person in the circumstances would believe otherwise.

238 Had the plaintiff properly informed Mr Cosham of these matters, and had Mr Cosham, in turn, properly informed the defendant, he would have answered 'yes' to the question 'Is the property in the course of construction or renovation or are they planned in the next 12 months?'. As a result of this not occurring, a misrepresentation as to the actual state of affairs was made to the defendant which was material to the defendant's assessment of risk.

239 I am satisfied that the representation that the dwelling was not under construction or renovation and neither was planned in the next 12 months as at 6 December 2010 was untrue and no reasonable person in the circumstances would believe it to be true.

240 As the year of construction was the subject of a specific question in the quotation sheet, it was clearly a matter that was relevant as to whether the defendant would accept the risk and insure the property, dwelling and contents. There is no doubt that the representation was known to be false by the plaintiff given that he purchased the property at lock up stage and engaged a builder to finish the dwelling to completion. The representation was materially relevant to the defendant's assessment of risk and was a deliberate misrepresentation by the plaintiff; it was known by him to be false.

241 The representations regarding the status of construction of the dwelling and as to the state of completion of the dwelling were materially relevant to the defendant's assessment of risk and were deliberate misrepresentations by the plaintiff and were known by him to be false.

242 The representations had continuing relevance on the renewal of the policy and they remained uncorrected by the plaintiff. This was either deliberate, alternatively, reckless on the part of the plaintiff. Had the misrepresentations been corrected, the defendant would have declined to enter into the contract of insurance or the renewal of the policy.

243 Accordingly, the representations made by the plaintiff to the defendant were fraudulent and, pursuant to s28(2) of the ICA, the defendant is entitled to avoid the renewed policy from its inception and is not liable to the plaintiff.

If the misrepresentations were not fraudulent, is the defendant's liability reduced to nil?

244 Although it has been determined that the representations were fraudulent, as with the non-disclosure defence, the alternative claim made by the defendant pursuant to s 28(3) of the ICA should also be determined; that is, if the misrepresentations were not fraudulent whether the defendant's liability can be reduced to nil.

245 The defendant's underwriting guidelines that were in effect in December 2010 state:

For a new risk where we are advised that the home is to undergo ANY renovations/refurbishment or be rebuilt in the next 12 months or is currently undergoing renovations/ refurbishment, we should decline the account and agree to provide terms following completion of the renovations. If quoting on new business where the house is newly built, cover should not incept until house is fully completed with no tradespeople left on site, certificate of occupancy issued and premises fully occupied.

246 The defendant would have referred to these underwriting guidelines in determining whether to cover the risk.

247 If a certificate of occupancy could not have been produced for the dwelling as it was not complete at the time that the plaintiff, through his agent, applied for insurance of the property, the defendant would not have entered into the initial policy or the renewed policy at all.

248 The misrepresentation as to all 'renovations' being complete as at 6 December 2010 affected the manner in which the defendant assessed their risk; that is, they assessed the property as a renovated dwelling as opposed to a new build. If the dwelling were considered a new build, this misrepresentation has the same effect as the answer to the year of construction being 2007 and would lead the relevant underwriter to ask whether a certificate of occupancy had been issued. The plaintiff would not have been able to produce a certificate because a valid certificate does not exist and the defendant would have declined to enter into the initial policy.

249 The representation as to the status of the construction of the dwelling was material as it was a specific question in the quotation sheet. The matters were clearly known to the plaintiff and the answer was untrue to the knowledge of the plaintiff, as it would be to any reasonable person in the circumstances.

250 The misrepresentations have the effect that the defendant would have declined to cover the risk, regardless of whether the representations were made fraudulently or not.

251 In the circumstances, the defendant would have declined cover had the misrepresentations not been made and the defendant would not have entered into the initial policy or the renewed policy at all, or for the same premium and on the same terms and conditions.

252 Accordingly, in order to place the defendant in the position it would have been in if the plaintiff had not made the misrepresentations to the defendant, pursuant to s 28(3) of the ICA, the defendant's liability under the renewed policy must be reduced to nil.

253 On the non-disclosure defence, the plaintiff's failure to disclose each of the four relevant matters to the defendant was fraudulent and the defendant is entitled to avoid the renewed policy pursuant to s 28(2) of the ICA. Alternatively, pursuant to s 28(3) of the ICA, the defendant is entitled to reduce its liability to nil and is not liable to the plaintiff.

254 On the misrepresentation defence, the plaintiff's misrepresentations to the defendant were fraudulent and the defendant is entitled to avoid the renewed policy from its inception, pursuant to s28(2) of the ICA, and is not liable to the plaintiff. Alternatively, pursuant to s 28(3) of the ICA, the defendant is entitled to reduce its liability to nil and is not liable to the plaintiff.

[1] Pursuant to s 11(9)(b) of the ICA, 'entering into a contract of insurance' includes 'the making of an agreement by the parties to the contract to renew, extend or vary the contract'.

[2] Poole v Chubb Insurance Company of Australia Ltd [2014] NSWSC 1832 (19 December 2014) [91] (Stevenson J).

[3] [2011] FCA 1123; (2011) 297 ALR 56 [48] (citations omitted).

[4] [1998] NSWSC 1011; (1998) 44 NSWLR 186, 247 [C].

[5] [2001] NSWCA 20; (2001) 50 NSWLR 679, 688 [41].

[6] Ibid 688 [45] (Handley JA, with whom Meagher and Powell JJA agreed).

[7] (Ibid 690 [54] (Handley JA, with whom Meagher and Powell JJA agreed).

[8] Hammer Waste Pty Ltd v QBE Mercantile Mutual Ltd [2002] NSWSC 1006 (29 October 2002) [56] (Palmer J).

[9] Ayoub v Lombard Insurance Co (Aust) Pty Ltd (1989) 97 FLR 284 (Rogers CJ Comm D).

[10] Lindsay v CIC Insurance Ltd (1989) 16 NSWLR 673, 684 (Rogers CJ Comm D); Tosich v Tasman Investments Ltd [2008] FCA 377; (2008) 250 ALR 274, 303 (Gyles J).

[11] Permanent Trustee Australia Limited v FAI General Insurance Limited (in liq) [2003] HCA 25; (2003) 214 CLR 514, 531 [30].

[12] Tosich v Tasman Investments Ltd [2008] FCA 377; (2008) 250 ALR 274 [93].

[13] [1990] VicRp 81; [1990] VR 919 (Brooking J).

[14] Countrywide Finance Ltd v State Insurance Ltd [1993] 3 NZLR 745.

[15] FAI General Insurance Co Ltd v McSweeney (Unreported, Federal Court of Australia, Lindgren J, 24 April 1998) [54][55].

[16] Twenty-First Maylux Pty Ltd v Mercantile Mutual Insurance (Australia) Ltd [1990] VicRp 81; [1990] VR 919, 925-926.

[17] Poole v Chubb Insurance Company of Australia Ltd [2014] NSWSC 1832 (19 December 2014) [150] (Stevenson J).

[18] Prepaid Services Pty Ltd v Altradius Credit Insurance NV [2013] NSWCA 252; (2013) 302 ALR 732 [41],[51],[55]; Poole v Chubb Insurance Company of Australia Ltd [2014] NSWSC 1832 (19 December 2014) [151] (Stevenson J).

[19] Watson v Foxman (1995) 49 NSWLR 315, 319.

[20] Newlands v Ratcliffe Building Group Pty Ltd & Anor (Domestic Building) [2010] VCAT 971 (28 May 2010).

1. [21] The VCAT proceeding was then adjourned to 9 June 2010 for argument concerning apportionment issues. On 24 June 2010, the VCAT published further reasons and orders in relation to the costs of the VCAT proceeding: Newlands v Ratcliffe Building Group Pty Ltd & Anor (Domestic Building) [2010] VCAT 1115 (24 June 2010).

[22] At [89] below.

[24] Evidence Act 2008 (Vic), s 69.

[25] At [93] above.

[26] Building Act 1993 (Vic), ss 16, 39

[27] Twenty-First Maylux Pty Ltd v Mercantile Mutual Insurance (Australia) Ltd [1990] VicRp 81; [1990] VR 919, 925 (Brooking J).

[28] Twenty-First Maylux Pty Ltd v Mercantile Mutual Insurance (Australia) Ltd [1990] VicRp 81; [1990] VR 919, 927 (Brooking J).

[29] Tosich v Tasman Investments Ltd [2008] FCA 377; (2008) 250 ALR 274 [93] (Gyles J).