Voitenko v Zurich Australian Insurance Ltd

Judgment

1. THE COURT: Andrei Voitenko and Irina Voytenko carried on two separate businesses at a warehouse in Mortdale. On 21 May 2010, they took out a contents insurance policy for the sum of $1.1 million with Zurich Australian Insurance Limited. Three months later, the warehouse was destroyed by fire. A claim was lodged for the full amount insured on the basis that the damage allegedly exceeded that amount. Zurich made payments in the sum of $284,917 but refused to meet any further claims.
2. Mr and Mrs Voitenko commenced proceedings for breach of the insurance contract, claiming damages in the sum of $786,069. The proceedings were initially defended only on the grounds that the claim was fraudulent ("fraud in the claim"). However, in May of this year, Zurich made a belated application for leave to amend its defence to allege that the fire was deliberately lit by Mr Voitenko ("fraud in the event").
3. The application for leave to amend was granted by Hoeben CJ at CL: Voitenko v Zurich Australian Insurance Limited [2019] NSWSC 680. Mr and Mrs Voitenko seek leave to appeal from that decision.
4. Leave is required because the decision is interlocutory: s 101(2)(e) of the Supreme Court Act 1970 (NSW). The application is also governed by the well-known principles concerning appellate review of discretionary decisions (stated in House v The King (1936) 55 CLR 499; [1936] HCA 40) and decisions on a question of practice and procedure (which require the exercise of particular caution before intervening: In re The Will of F B Gilbert (deceased) (1946) 46 SR (NSW) 318 at 323; 63 WN (NSW) 176; Adam P Brown Male Fashions Pty Ltd v Philip Morris Inc (1981) 148 CLR 170 at 177; [1981] HCA 39; see also PPK Willoughby Pty Ltd v Baird [2019] NSWCA 48 at [3]). The decision from which leave to appeal is sought in the present case falls squarely within both principles.
5. We have determined that leave should be refused, for the following reasons.

Circumstances in which the amendment application was brought

1. Zurich communicated its decision not to meet any further claims (with one small exception) by letter dated 10 April 2012.
2. The proceedings were not commenced until over 2 years later, on 10 July 2014, when a statement of claim was filed in the District Court. The damages of $786,069 claimed at that stage related to three specified categories. A defence was not filed until 23 April 2015. The defence contended that the plaintiffs had not provided sufficient evidence in support of the three categories and, further, that the claim was made fraudulently with the result that Zurich was entitled to refuse to pay it pursuant to s 56(1) of the Insurance Contracts Act 1984 (Cth).
3. In the meantime Zurich had issued a large number of subpoenas including a subpoena to the New South Wales Police. In June 2015, the Commissioner of Police filed a notice of motion in the District Court seeking to have part of the subpoena set aside to the extent that it sought the production of recordings obtained pursuant to a warrant granted under the Surveillance Devices Act 2007 (NSW). The determination of that application and a subsequent appeal delayed the proceedings for some time.
4. On 23 October 2015, the proceedings were transferred to the Supreme Court.
5. On 24 March 2016, the Commissioner's application was determined by Hall J. His Honour did not set the relevant part of the subpoena aside but denied Zurich immediate access to the surveillance device material pending a further determination by the Court: Voitenko t/as Access Party Hire v Zurich Australian Insurance Limited [2016] NSWSC 324. The Commissioner sought leave to appeal from that decision.
6. On 1 June 2016, a further amended statement of claim was filed in the Supreme Court claiming the whole difference between the sum insured ($1.1 million) and the amounts already paid by Zurich.
7. The Commissioner's appeal concerning production of the surveillance device material was heard in September 2016 and determined in December 2016. In the meantime, on 11 November 2016, Zurich filed a defence to the further amended statement of claim repeating the defences to the initial claim. On the same date, Zurich also filed a cross-claim seeking restitution of the sums paid to date on the basis of the alleged fraud in the claim.
8. At the time Zurich filed those pleadings, the only expectation it had of obtaining any further material to support its defence was the hope that the Commissioner's appeal would fail and that a determination would be made in the Common Law Division granting access to the surveillance device material. However, the Commissioner's appeal was successful and the relevant part of the subpoena was set aside: NSW Commissioner of Police v Zurich Australian Insurance Ltd [2016] NSWCA 365. That judgment was published on 16 December 2016. Zurich accepts that, after that date, no new material became available to it.
9. After the pleadings had closed, directions were made for the service of evidence. There was significant delay on the part of the applicants in the service of their evidence. They were first directed to serve their evidence by 24 May 2017 but did not comply with that order. A further direction allowed them until 10 November 2017 but again that order was not complied with. Finally, they were directed to serve their evidence by 5 June 2018. That order was complied with on 4 June 2018.
10. Following the receipt of the applicants' evidence, the solicitor for Zurich commenced the process of preparing Zurich's evidence. During that period, for the first time, a review was undertaken of material that had been collected on behalf of Zurich at a much earlier point by a fire investigator, Greg Kelly & Associates. Six reports were prepared by the investigator, the last of which was in Zurich's possession no later than August 2011, well before the commencement of the proceedings. The reports were accompanied by some 22 hours of taped interviews with the applicants and other persons.
11. The solicitors had been in possession of that material since August 2011 but had not previously reviewed the tapes or analysed their contents against material from other sources. After undertaking an extensive process of transcribing and analysing the tapes and other material in their possession, a partner in the firm acting for Zurich, Ms Henningham, formed the opinion that there were reasonable grounds to allege that the fire had been started deliberately by Mr Voitenko and that Zurich should amend its defence and cross-claim to plead fraud in the event. A notice of motion seeking leave to make those amendments was filed on 6 May 2019. The amendment pleads that Zurich is entitled to refuse to pay the claim on the ground that Mr Voitenko breached his duty of utmost good faith and alternatively on the ground of an exclusion under the policy for loss or damage caused by a wilful act of the insured. The pleading does not assert fraud in the event on the part of Mrs Voytenko.
12. The amendment application was heard by Hoeben CJ at CL on 4 June 2019. Ms Henningham was cross-examined on the application. Justice Hoeben reserved his decision and published his judgment on 11 June 2019, granting the leave sought.

Alleged errors in the primary judgment

1. In oral submissions, senior counsel for the applicants identified five alleged material errors in the primary judgment. To the extent of any difference, those grounds were taken to have superseded the grounds identified in the draft notice of appeal.

Presumptive prejudice

1. First, it was submitted that the primary judge erred in failing to take account of the material consideration of presumptive prejudice. It was submitted that there was significant prejudice in allowing Zurich, eight years and eight months after the fire, to allege for the first time that Mr Voitenko was responsible for lighting it.
2. In the proceedings below, the applicants had reminded the primary judge of the well-known remarks of McHugh J in Brisbane South Regional Health Authority v Taylor (1996) 186 CLR 541 at 551; [1996] HCA 25 (a case which concerned an application to extend a limitation period) where his Honour considered the deterioration in the quality of justice that accompanies delay. Justice McHugh noted that "prejudice may exist without the parties or anybody else realising that it exists", adopting the words of the United States Supreme Court that "what has been forgotten can rarely be shown".
3. During argument, Hoeben CJ at CL expressed the view that this would not be a case in which "memories are going to fade all that much". His Honour suggested that, since there were audiotapes, the evidence had likely been preserved. Counsel for the applicants responded that it may or may not have been, noting that the inability to know whether that was so was the point of McHugh J's remarks.
4. The primary judge did not repeat those observations in his judgment. However, his Honour did record that, in order to minimise the extent of "any delay", he had (unusually) given the parties leave to approach the List Clerk to obtain a hearing date before the evidence was complete. Contrary to the submissions put on behalf of the applicants in this Court, that concession may be understood to address presumptive prejudice in some measure (as well as the risk of delay in the proceedings as a result of the amendment) because it would bring the hearing on earlier, reducing any further delay.
5. Further, the application was being considered in the context that the applicants were themselves responsible for significant delays both in the commencement of the proceedings and in serving their evidence. In any event, those are matters going to the merits of the primary decision. The applicants' argument fell short of establishing the error alleged beyond what is merely arguable.

Zurich's explanation for the delay

1. Secondly, it was submitted that his Honour erred in treating the explanation for the delay as providing justification for it, and thereby erroneously treating the found justification as a factor to be weighed against the effects of the delay on the applicants.
2. In written submissions, the applicants submitted that the proper question ought to have been whether the explanation for the delay was sufficient or reasonable and whether it excused the delay so as to justify the exercise of the discretion in the respondent's favour. However, as the argument was developed in oral submissions, it was made clear that the applicants were not contending the application for leave to amend could only be granted if the explanation for the delay wholly excused it.
3. At the heart of the complaint raised by this proposed ground is the fact that Zurich's solicitor had been in possession of the material on the strength of which she ultimately formed the view that fraud should be pleaded for a considerable period, including when she had filed the previous defence on 11 November 2016. The tapes had been available to Zurich since August 2011 (well before the proceedings were commenced).
4. So much was frankly acknowledged by Ms Henningham in cross-examination at the hearing of the motion. She explained that there were some 22 to 23 hours of audio recording and that it had taken a senior associate working with her close to 140 hours to go through that material, have it transcribed, cross-referenced with the evidence of different witnesses at different points in time and analysed. Ms Henningham frankly acknowledged that the explanation for not considering the audio recordings prior to filing the defence in November 2016 was that they "simply didn't undertake that exercise at that point in time".
5. It may be accepted that the primary judge took a relatively benign approach to the solicitors' failure to consider that material at an earlier point in the proceedings. His Honour stated at [23] that the analysis of the Greg Kelly & Associates material was "a major exercise" which "would tie up significant resources" and said "one could well understand why a busy firm of solicitors would delay engaging in it". Some might have taken a sterner view. His Honour found that those practical considerations explained but did not "fully excuse" the delay which occurred before that exercise was ultimately carried out: at [24].
6. The applicants relied on the remarks of this court in Karl Suleman Enterprizes Pty Ltd (In Liq) v Pham & Ors [2013] NSWCA 93 at [22] as follows (Meagher and Barrett JJA): "As the plurality judgment in Aon makes clear at [102] and [103], the exercise of the discretion to allow an amendment necessarily involves a weighing process in which factors for and against the grant of leave must be identified and considered. Those factors include, if there has been delay in applying for the amendment, an explanation for the delay. At [103], it was said that the importance attached by Rule 21 (which is set out in Aon at [60] and is in similar terms to ss 56(1) and 57(1) of the Civil Procedure Act 2005) to the factor of delay 'will require' in most cases that the moving party bring the circumstances giving rise to the amendment, and explaining the delay, to the Court's attention 'so that they may be weighed against the effects of any delay and the objectives of the Rules'. Those circumstances ought explain the delay, and in doing so may justify it, in the sense that they may provide reasons for it which are not consistent with any failure on the part of the moving party, or its legal advisers, to act diligently and expeditiously in the prosecution or defence of the relevant claim. If those circumstances provide some justification for the delay, for those or some other reasons, they may be weighed against the effects of the delay on the other parties, as well as on other litigants."
7. The applicants submitted, on the strength of the last sentence of that paragraph, that where the explanation does not justify the delay, it cannot be weighed in favour of the party seeking the amendment at all. The submission misconceives the import of the remarks in Karl Suleman. Where a court is required to exercise a discretion, the proper approach is to identify all of the relevant factors, obviously including any relevant mandatory considerations, and to weigh all of those factors in order to reach a conclusion as to how the discretion should be exercised. To exclude any individual consideration on the grounds that it alone does not warrant the relief sought would be a wrong approach.

Irrelevant consideration

1. Thirdly, it was submitted that the primary judge erred in taking account of the irrelevant consideration of when the applicant's evidence was served, in considering whether the explanation for the delay did in fact amount to justification of that delay.
2. There is no merit in that contention. The primary judge plainly appreciated, as Ms Henningham had frankly conceded, that Zurich was not suggesting (in order to explain the delay) that it expected any new inculpatory material to be included in that evidence. Ms Henningham's point was simply that, as a matter of timetabling, the solicitors did not begin the task of preparing Zurich's evidence until the applicant's evidence had been received. It may be accepted that the task of reviewing the material should have been undertaken earlier. That was a relevant consideration weighing against the grant of leave to amend and his Honour had regard to it. The timing of the receipt of the applicants' evidence was not an irrelevant consideration.

Strength of the defence

1. The fourth alleged error of the primary judge was failing to weigh in the balance Zurich's failure to identify what, in the material ultimately considered by Ms Henningham, pointed to an available defence of "fraud in the event".
2. It is correct that Ms Henningham's affidavit did not descend to the detail of the material and events that prompted her to form the opinion (when she did) that there were reasonable grounds to allege that the fire had been started deliberately by Mr Voitenko and that fraud should be pleaded. However, no issue was taken by the applicants with her opinion. During her cross-examination, it was put to her that she had not disclosed what it was in the material she had listened to that caused her to come to that view. She responded by accepting that she had not, and asked "do you want me to talk about that?", to which senior counsel responded in the negative. While that may have been a good forensic decision, the result is that the primary judge was required to determine the application on the premise that, at least in the unchallenged opinion of the partner on the record for Zurich, there was a proper basis for pleading a defence and cross-claim which would defeat the applicant's claim and warrant an order for restitution of the amounts paid. That was a powerful factor in favour of granting the amendment.
3. In any event, as submitted on behalf of Zurich, the submission wrestles with the merits of the primary decision but does not establish legal error.

Civil Procedure Act

1. Finally, it was submitted that the primary judge erred in failing to have specific regard to the matters identified in ss 56-59 of the Civil Procedure Act, and specifically the matters in s 58(2)(b)(ii) (the degree of expedition with which the respective parties have approached the proceedings, including the degree to which they have been timely in their interlocutory activities) and (iv) (the degree to which the respective parties have fulfilled their duties under s 56(3)).
2. It is true that his Honour made no explicit reference to those provisions in the judgment. However, the failure to do so does not constitute legal error in itself. The critical question is whether his Honour failed to have regard to any mandatory relevant consideration identified in those provisions.
3. To the extent that this ground invokes the complaints concerning failure to have regard to delay or presumptive prejudice, we have already addressed those issues. As to the matters in s 58(2)(b)(ii) and (iv), those issues were not emphasised to the primary judge. Had they been, his Honour would no doubt have addressed the complete history of the proceedings including any want of expedition and failure to comply with directions on the part of the applicants. It is not appropriate to embark on that analysis now.
4. Although the primary judge did not refer to s 58 of the Civil Procedure Act, his Honour did consider the passage in Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175 at [103]; [2009] HCA 27 in which the plurality discussed the importance of delay (in that case, by reference to r 21 of the Court Procedures Rules 2006 (ACT)). Nothing in the Court's judgment in that case suggests that a belated application to amend cannot be granted unless the explanation for the delay affords a complete excuse. The principle is that an explanation must be given so that the court can weigh the circumstances giving rise to the amendment against the effects of any delay and the objectives of the relevant rules. It may be contemplated that there will be cases in which the delay is inexcusable by reference to the standards of the profession (we do not suggest this is that case) but where it will nonetheless be a proper exercise of discretion to allow an amendment.

Conclusion

1. For those reasons, we are not satisfied that the decision is attended with sufficient doubt to warrant its reconsideration on appeal. The application does not raise an issue of principle, a question of general public importance or an injustice which is reasonably clear, in the sense of going beyond what is merely arguable: Jaycar Pty Ltd v Lombardo [2011] NSWCA 284 at [46].
2. Accordingly, the summons for leave to appeal should be dismissed with costs.

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