The Owners of Strata Plan 11998 v Kerby's Car Renovations Pty Ltd

LEGISLATION CITED: Evidence Act 1995: s 96(3) Strata Schemes Management Act 1996: s 92

Commonwealth v McLean (1997) 41 NSWLR 389 Holloway v McFeeters (1956) 94 CLR 470; Lewis v Nortex Pty Ltd (in Liq) [2002] NSWSC 1083 Li v Williams [2004] NSWSC 645 March v Starmare (E and MH) Pty Ltd (1991) 171 CLR 506 Marsden v Amalgamated Television Services Pty Ltd [2000] NSWSC 425 CASES CITED: R v Rondo [2001] NSWCCA 540 Richard Evans & Co Ltd v Astley (1911) AC 674 at 687 Ringrow Pty. Limited v BP Australia Ltd [2003] FCA 933 Rowlands (Merk) Ltd v Berni Inns Ltd [1985] 2 Lloyds Reports 437 Schneider v Hoechst Schering Agrevo Pty Ltd [2001] FCA 102 Seltsam Pty Ltd v McGuiness [2000] NSWCA 29 Vitali v Stachnik [2003] NSWSC 303

PARTIES: The Owners of Strata Plan 11998 (Plaintiff) Kerby's Car Renovations Pty Ltd (Defendant)

COUNSEL: Mr Jobson (Plaintiff) Mr Cavanagh (Defendant)

JUDGMENT HIS HONOUR

1. This action arises from a fire that damaged premises at 55 Salisbury Road, Asquith ("the premises") on 24 July 2003.

2. The premises were then owned by the plaintiff, which is a Strata Plan. The premises consisted of three strata lots.

3. The fire started in Lot 3, alternatively described as "Factory 3". Mr. Kerby, who conducted a panel beating and spray-painting business there, owned that lot. The business was conducted through a corporation, Kerby's Car Renovations Pty. Ltd, the defendant in these proceedings. Mr. Kerby was the sole director of the corporation. Mr. Kerby was the sole employee of that corporation.

4. The plaintiff alleges that the fire was caused by the negligence of the defendant and/or the negligence of Mr. Kerby for which the defendant is vicariously liable.

5. The action is brought in the name of the plaintiff by the insurer of the premises, by way of subrogation. Events preceding the fire
6. Mr. Kerby had been operating his business from the premises for over 26 years, without any previous problems.

On 24 July 2003, he had been doing some welding work on a motor vehicle, a 1990 Toyota Corolla.

He was using a MIG Welder, in respect of which he has had 20 years experience.

He was working on the windscreen area of the car and had reached the gutter section adjacent to the top edge of the windscreen at the left front. He was wearing a mask, and standing on the floor of the car, leaning over the area being welded. He had just put in place the final patch. He then stepped down, took the MIG Welder away and switched it off. He then retrieved an angle grinder which was to be used to grind the weld, but he noticed that the time was 12.20 and decided that he should take a break, and go and collect a bolt he needed "from down the road".

Accordingly, he dropped the angle grinder behind the car and went down the ramp. He locked the door, got in his car and drove away. He estimated that this took 1 ½ - 2 minutes.

He was away for approximately 7 minutes. Arriving back, on approach he saw a horrific cloud of smoke. To his shock and horror he soon saw that it was his premises that were on fire.

A considerable amount of the evidence and cross-examination of Mr. Kerby was directed at the precautions taken by him to prevent a fire. He gave evidence that he had used two fire blankets to cover those areas of the car adjacent to where he was welding. These blankets covered the area from half way down the bonnet, through the windscreen, over the front seats and across the headrests where they ended. The blanket over the seats was supported by cardboard. It overhung the seat down to the floor where his feet were. There was a small gap between the fire blanket and the roof of 1 ½ - 3 inches. At the pillars from the bonnet to the roof at the sides of the windscreen the blanket was "puckered" around them.

I am satisfied that the fire blanket extended to cover the area as described by Mr. Kerby.

The other precaution taken by Mr. Kerby had been to pull away the ceiling lining (the roof lining) and take out the felt underneath it. This ceiling lining was pulled away and folded back to the third steel bar adjacent to the side ceiling light, where it was left to hang down behind the front seats. This was at a point just beyond the extremity of the fire blanket resting on the headrests of the front seats. The cause of the fire 15. There is no direct evidence as to the cause of the fire or where ignition first occurred.

It was the plaintiff's case that the most likely cause of the fire was the heat from the welding work Mr. Kerby was undertaking igniting the ceiling lining in the vehicle on which he was working immediately prior to the fire.

Support for the plaintiff's case came from an expert witness, Mr. Anthony Cafe. Three written reports by Mr. Cafe were tendered and he was called for cross-examination. Mr. Cafe is an experienced fire investigator operating as T.C. Forensic Pty. Limited, with degrees in Chemistry and Applied Science. He has investigated over 1500 fire scenes over 20 years.

His three reports were:

• Report of Investigation dated 5 August 2003 (Ex. A)
• Supplementary Report dated 22 November 2003 (Ex. B)
• Supplementary Report dated 13 May 2006 (Ex. C)

It was the opinion of Mr. Cafe expressed in his first report that the severe fire damage found to the passenger section of the car in which the welding work was being carried out indicated that the fire originated there. The most likely cause was that the heat from the welding had ignited the ceiling lining.

In forming this opinion Mr. Cafe relied on several assumptions: firstly that Mr. Kerby had first welded the top front corner of the roof and had then started to weld down the windscreen frame. The evidence of Mr. Kerby is that he had welded up the windscreen frame and that the last welding he had been doing was on the roof. Second, that Mr. Kerby had not folded the ceiling lining back, either at all, or not far enough, or that it had fallen back into place. The evidence of Mr. Kerby was that he had folded the lining back a considerable distance, to behind the front seats. It is impossible that it could have fallen back into place.

It is also of note that Mr. Cafe, in his report, opined that it was heat from the welding, not a spark that ignited the ceiling lining.

So far as the facts are concerned, I accept the evidence of Mr. Kerby as to the order in which he carried out the welding work, and the position in which he had placed the folded back ceiling lining.

In his third report dated 13 May 2006, Mr. Cafe varied his opinion to some extent by talking about welding sparks spraying out several metres, it being possible that "a welding spark ignited some combustible material in the car which was not protected by the fire blanket".

The other factors important to Mr. Cafe in reaching his opinion were the exclusion of other possible causes, and the fact that there was severe damage found at the passenger section of the subject vehicle.

In his first report he excluded the electrical switchboard as a cause, as there was no evidence of arc damage. There were no extension leads or electrical appliances, and no reactive chemicals. The MIG Welder was inspected, but it was not the cause.

In the second report dated 22 November 2003 Mr. Cafe excluded either of the other two cars in the workshop as a cause, and also excluded the engine section of the car which was being welded by Mr. Kerby.

Mr. Cafe made no mention of the fluorescent light in either of his first two reports. It was not until he was asked to comment on the report of the defendant's expert, Mr. Stuart Ritchie, that Mr. Cafe made any mention of the fluorescent light or expressed any view about it as a possible cause of the fire. He first dealt with this in his report of 13 May 2006, issued just weeks before the trial.

The fluorescent light assumed importance because both the Fire Brigade and the Police investigations mentioned it as a possible cause of the fire.

It was a curious aspect of the written reports of Mr. Cafe, and his oral evidence, that he had not previously seen the police or fire brigade reports.

Having been alerted to the opinion of Mr. Ritchie that the fire could have been caused by the fluorescent light, Mr. Cafe expressed the view that he had no experience of a faulty starter in a fluorescent light having caused a fire. Fluorescent lights do not in his opinion reach temperatures capable of igniting combustible materials. The report does not deal at all with the scenario posed in the police report that the transformer from the fluorescent light may have dropped onto the floor and sparked, causing the paint and thinners in that area to ignite.

Mr. Cafe was cross-examined extensively. He maintained his opinion as to the probable cause of the fire. However, he made some important concessions damaging to the basis on which he reached that opinion. It was clear firstly that when writing his reports he did not have an accurate picture as to the extent of or positioning of the fire blankets by Mr. Kerby. Second, he had no clear picture of the point to which Mr. Kerby had folded back the ceiling lining. He was also in error as to the area in which Mr. Kerby had been welding immediately prior to the fire.

He attempted to defend his opinion in the witness box in a number of ways. Firstly he suggested, by reference to the photos, that the sparks could have entered the interior of the car through holes in the roof of the car. But there were no holes where Mr. Kerby had been welding. Next he attempted to suggest the sparks from the MIG Welder can fly everywhere and ricochet off different surfaces. But he conceded that if the ceiling lining had been folded back to the position behind the front seats, and that the fire blankets covered the area in between, ignition of the ceiling lining could not have been the cause. In this regard he also conceded that part of his report had proceeded on the basis that what he had been told by Mr. Kerby was untrue. I have found that Mr. Kerby's version of events was in fact true.

I turn now to the investigation reports prepared by the NSW Fire Brigade (Ex. 1) and the NSW Police (Ex.'s 2, 4 and 5).

The defendant tendered these reports as business records under s 69 of the Evidence Act 1995. The plaintiff objected to their admission on the ground that the reports were prepared for a purpose which might include a prosecution. This is a reference to subsection 69(3)(b) which provides that the exclusion of the application of the hearsay rule does not apply if the representations in the documents were made "in connection with an investigation relating or leading to a criminal proceeding". No evidence was led of any criminal proceeding.

I note firstly that s 69 is intended to have a facilitative affect and is to be construed broadly. It is capable of operation even if the representations are opinions: Ringrow Pty. Limited v BP Australia Ltd [2003] FCA 933.

The rationale for the exception (in s 69(3)(b)) to the admissibility of business records is to prevent the introduction of hearsay material which is self-serving in the context of identifiable legal proceedings: Vitali v Stachnik [2003] NSWSC 303.

It is ironic that the plaintiff sought to rely on an exception to the business records rule, the rationale for which is the protection from potentially prejudicial representations of the very person to whom it seeks to attribute culpability.

The cases on this aspect of subsection s 69(3)(b) are inconclusive: see Marsden v Amalgamated Television Services Pty Ltd [2000] NSWSC 425; Lewis v Nortex Pty Ltd (in Liq) [2002] NSWSC 1083; and R v Rondo [2001] NSWCCA 540 at [96].

I prefer the narrower view referred to in the decision of Justice Levine in Marsden. In my view the exception can only apply where there are identifiable criminal proceedings. The difference in wording between subsection 69(3)(a) and subsection 69(3)(b) is stark. The former speaks of documents prepared "in contemplation of or in connection with" a proceeding. Subsection 69(3)(b) however, speaks of documents prepared in connection with an investigation "relating or leading to a criminal proceeding".

To my mind, that means that there must be identifiable criminal proceedings before the exception can apply.

In terms of any prejudice, the plaintiff cannot be said to have been taken by surprise by these reports. It was put on notice of their existence by the letter dated 12 July 2005 from Holman Webb to McCulloch & Buggy. Notwithstanding this, the Plaintiff's expert, Mr. Cafe, had still not seen these reports before entering the witness box. The existence and contents of these reports was also clearly identified in the report of the defendant's expert dated 3 March 2006.

The conclusion reached by the Fire Brigade investigation was that the fire started in the eastern corner, where paint and thinners were stored, possibly through sparks from the welder, the oxy torch, or the ballast/starter from the fluorescent light at the bottom of the debris.

The conclusion reached by the Police investigation was that the seat of the fire was located at the southeastern corner of the workshop, evidenced by the damage to the overhead beams. The fire proceeded from this point as evidenced by a clear V pattern burn line.

These investigations were carried out on the very day of the fire, but the investigators "could not determine what caused the fire". Various possible causes were postulated including:

(a) The fluorescent tube found underneath the debris may have dropped, and either exploded igniting the thinners and paint, or sparked once it made contact with the floor, igniting the thinners and paint. (b) Sparks from the welder caused either the paint and thinners to ignite, or sparks from the welder may have ignited with fumes from the welder. There was no suggestion that sparks from the welder ignited the interior of the car.

I come now to the report of the defendant's expert (Ex. 7): This was a report by Commercial & Criminal Forensic Pty Ltd dated 3 March 2006, prepared by Mr. Stuart Ritchie. Mr. Ritchie also has over 20 years experience investigating fires and has attended over 2000 fire scenes.

It is to be noted that Mr. Ritchie did not actually see the scene of this fire. He did, however, review the Fire Brigade and Police reports, unlike Mr. Cafe. He also had the benefit of Mr. Cafe's first two reports prepared in 2003.

Mr. Ritchie was not required for cross-examination by the plaintiff. He concluded that it was not possible to identify the point of origin of the fire based on the documentary evidence. It was not possible to conclude that the most likely cause was the ignition of the ceiling lining of the car. There were a number of possible causes, including the ignition of the combustible material stored in the paints area.

Unlike Mr. Cafe, Mr. Ritchie was not prepared to exclude the fluorescent light as a cause, at least not without specific forensic examination. No such examination was ever carried out.

Which expert evidence should I prefer? I have come to the conclusion that I prefer the evidence of Mr. Ritchie to that of Mr. Cafe. The investigation by Mr. Cafe was perfunctory. He took no measurements. He conducted a superficial interview of Mr. Kerby and then formed factual conclusions on which he relied to support his opinion, that were inaccurate. He made no attempt to read and consider the reports of the Fire Brigade or the Police. He did not examine the evidence in the objective and impartial way Mr. Ritchie did, but searched for reasons to implicate Mr. Kerby.

The factual bases supporting the opinion of Mr. Cafe were substantially rebutted in cross-examination and in the result his evidence can be of little probative value.

I was asked to draw inferences from the evidence as to the probable cause of the fire. In this regard I was referred to cases such as Holloway v McFeeters (1956) 94 CLR 470; March v Starmare (E and MH) Pty Ltd (1991) 171 CLR 506 and Schneider v Hoechst Schering Agrevo Pty Ltd [2001] FCA 102.

The principles I draw from these cases applicable to the present case may be summarised as follows:

(a) Circumstantial evidence must be sufficient to discharge the burden of proof of negligence: Holloway v McFeeters at [6].

(b) Certain facts may reasonably be inferred and others presumed as a matter of probability provided there is a foundation for doing so: Holloway v McFeeters at [8] and [110].

(c) The circumstances must lead to a satisfactory inference, even though resting on a balance of probabilities, that the accident was caused by some negligence: Holloway v McFeeters at [10].

(d) An inference as to how precisely an accident occurs is not required, but it must be a reasonable conclusion that it occurred as a result of negligence and not otherwise: Holloway v McFeeters at [10].

(e) Where direct proof is not available it is enough if the circumstances proved give rise to a reasonable and definite inference. But they must do more than give rise to conflicting inferences of equal degree of probability, so that the choice between them is mere matter of conjecture: Richard Evans & Co Ltd v Astley (1911) AC 674 at 687.

(f) Causation is a question of fact to be determined by the application of commonsense to the facts of each case. It is not sufficient merely to show that it is possible that the damage was caused by default. Mere default followed by damage does not show that the defendant caused the damage: Schneider v Hoechst Schering Agrevo Pty Ltd at [19].

(g) Causation can be established by a process of inference from circumstantial evidence. A finding of causal connection may be open without expert evidence to support it, or when the expert evidence does not rise above the opinion that a causal connection is possible, as long as the expert evidence does not exclude a finding of causation: Commonwealth v McLean (1997) 41 NSWLR 389 at 410.

(h) The evidence will be sufficient if, but only if the materials offered justify an inference of probable connection as opposed to possible connection: Seltsam Pty Ltd v McGuiness [2000] NSWCA 29 at [83] - [91].

The evidence in the present case is of several possible causes of equal probability. Any choice between them would be a mere matter of conjecture. I can draw no reasonable inference from the facts that this fire started as a result of negligence and not otherwise.

The plaintiff has not therefore established that Mr. Kerby was negligent, nor that his employer, the defendant, was negligent; either by reason of Mr. Kerby's negligence or by reason of some breach of a direct or non-delegable duty of care owed to the plaintiff.

I will, therefore, enter a verdict in favour of the defendant. The defence based on s 92 of the Strata Schemes Management Act, 1996 55. Before doing so, however, I turn to consider s 92 of the Strata Schemes Management Act, 1996, upon which the defendant relies, alternatively, as a complete defence to the plaintiff's action.

If an insurer of an Owners Corporation accepts a claim by the owners' corporation based on an act or omission by an owner of a lot, the insurer has no right of subrogation in relation to the owner based on that act or omission unless it is proved that the act or omission was wilful". 57. The defendant says that the section prevents a subrogated action in relation to the owner of the unit (Mr. Kerby) based on an act or omission by an owner (Mr. Kerby).

58. It was submitted by the defendant that this means any action based on the conduct of Mr. Kerby cannot be maintained, and that s 92 is a complete defence.

59. The plaintiff submitted that all s 92 does is prevent an action against the owner, but not against anyone else. In these proceedings the plaintiff has not brought an action against the owner, rather it has brought the action against the employer of the owner, and says that such an action is not prevented by s 92.

60. In my view this section only prevents an action being brought, by way of subrogation, against an owner. It does not operate to prevent an action being brought against a party other than the owner.

61. The words "in relation to the owner" must have some work to do in the section. They limit the exclusion of the insurer's subrogated rights to an owner. Here the defendant was not the owner.

62. It is clear that the rationale for the exception is that the owner of a lot is a person for whose benefit the policy has been effected.

The owner of the strata scheme is required to insure the building: s 83 of the Strata Schemes Management Act 1996; including lot owners' improvements and fixtures, and common property (s 81). That insurance is intended to cover the interest of both the owner corporation and the lot owners (s 94). The only separate insurable interest of a lot owner is in respect of any mortgage (s 91).

The lot owner is accordingly an insured under the policy: Li v Williams [2004] NSWSC 645 at [74]. Section 92 operates in effect as a statutory cross-liability clause.

63. Any defence by this defendant which purports to rely on s 92 must therefore fail. Quantum of Damages
64. The defendant submitted that the plaintiff should also fail as it has not proved its loss.

65. It argued that the cost of repairs set out in Exhibit D does not distinguish between property owned by the plaintiff as opposed to property owned by Mr. Kerby as owner of the lot.

66. In my view this argument lacks substance. For the reasons articulated above, the damages claimed by this plaintiff relate to the loss and damage caused to the premises as a whole. The plaintiff was required to insure against loss or damage to the buildings, which includes the owners' improvements and fixtures (s 81). As a result the plaintiff is entitled to recover not only in respect of its own property, but also in respect of property for which it had a responsibility to the lot owners to insure. See: Rowlands (Merk) Ltd v Berni Inns Ltd [1985] 2 Lloyds Reports 437 at 442. Verdict and judgment
67. For these reasons I find a verdict in favour of the defendant and enter judgment for the defendant. Costs
68. I reserve costs pending argument.

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