Lekkas & Anor v VACC Insurance Co Ltd M41/1999 [2000] HCATrans 28 (11 February 2000)

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Melbourne No M41 of 1999

B e t w e e n -

VASSILIOS LEKKAS and MARIA LEKKAS

Applicants

and

VACC INSURANCE CO LTD

Respondent

Application for special leave to appeal

McHUGH J

KIRBY J

TRANSCRIPT OF PROCEEDINGS

AT MELBOURNE ON FRIDAY, 11 FEBRUARY 2000, AT 10.50 AM

Copyright in the High Court of Australia

MR C.W. PORTER: If the Court pleases, I appear for the applicants. (instructed by Coulter Burke)

MR D.J. HABERSBERGER, QC: If the Court pleases, I appear with my learned friend, MR M.A. SCARFO, for the respondent. (instructed by Sholl Nicholson Pty)

McHUGH J: Yes, Mr Porter.

MR PORTER: Your Honours, if I might borrow a wonderfully succinct question that Justice Kirby asked Mr Myers this morning: "How do you get us in?" That is the question that I would like to answer in the present case succinctly as I can. Your Honours, this case turned on a typical fire insurance policy of indemnity. It is a policy of the kind held by nearly every insured property owner in Australia, and one would imagine that the assessment of loss under such policies is happening virtually continually.

The law relating to the assessment has been satisfactorily laid down and certainly, until the decision in this particular case, in a long line of authorities which I would, for convenience, say commenced with Castellain. So, there really are three basic propositions: that is, that with indemnity policies you are entitled to claim the actual loss; that the measure is to be as at the date of the fire or thereabouts, and that it is generally to be assessed by reference to market values.

Now, in a typical case, members of the community know what that means. It means that you assess the value of the property before the fire and the value after the fire, and that is your loss. Now, there will be cases, because the policy is an indemnity policy, where that test will not suffice and in the cases included in the material before the Court, one example is where the owner of the damaged property had entered into a contract of sale and as a result there is a discrepancy between the difference between the before and after value of the property and the value under that contract. But in cases like that the position is qualified strictly by virtue of particular circumstances which relate to the insured.

Now, your Honours, my submission is that these matters have been codified in the cases by numerous judges. Castellain is an example of that where Lord Justice Brett went to pains to point out that the overriding principle in indemnity cases was that the insured should receive no more than his actual loss. In Victoria, in 1983, in Lucas, Mr Justice Crockett set out five points which I really have done nothing more than summarise so far.

The decision of the Court of Appeal in this case flies in the face of that codification. What it does is to identify one particular factor and that is the possibility of compulsory acquisition.

KIRBY J: It was more than possibility on the findings, was it not?

MR PORTER: I am happy to live with however it is defined. It is certainly not the right to compensation pursuant to an actual acquisition, your Honour. It was described as being the subject of a considerable body of evidence but the fact is that acquisition did not take place until two years later, that is two years after the fire, and no decision had been made to acquire or even commence to be made at the date of the fire. So, my point is that to characterise that - - -

KIRBY J: Do you want to have a principle that you just put that entirely out of account?

MR PORTER: Yes, I do, your Honour.

KIRBY J: But that seems a slight - if you have a finding of fact that it was highly likely - I think it is even more strongly expressed - that it would proceed, for the law to put on blinders and to refuse to look at that fact seems to take out of account a very relevant consideration.

MR PORTER: No, that is not my point, your Honour. The point is that that is a very relevant consideration but it is a consideration that you should apply to the willing but not anxious vendor and purchaser in a Spencer's Case analysis because, as at the date of the fire, the position of the insured should be that he is entitled to his loss assessed in that "abstract" fashion. So, the trial judge looked at it in that way. I will come to that in a moment. He simply took the view that where you are faced with the possibility, even the probability, that compulsory acquisition will occur, you really have to ask yourself the question, "Well, what will the market value that situation at?" Now, if you cannot find comparable sales which reflect that fact - and that is obviously quite likely - you will have to resort to basic logic, and the logic he applied was the logic that I advanced to him in my submissions which was if you ask a mortgagee is he prepared to value this property on the basis that it will be acquired when it has not been, he will take the conservative viewpoint and say, "Well, I won't."

Even so, it would have been open for the mortgagee, perhaps, to have advanced his price slightly on that account. I am not arguing with that kind of reasoning. But the reasoning that the Court of Appeal adopted was entirely different. What it did was to say that the possibility or the probability of acquisition was a factor peculiar to the insured or treated, certainly, as if it was. Now, that takes you away from a Spencer's Case analysis. It invites an analysis of the subject matter, namely, the insured himself, that is, what is the value to the insured of that prospect. Now, maybe it is the same as the Spencer's Case analysis and maybe it is not. The Court of Appeal did not go into that.

KIRBY J: But I know counsel in these valuation cases try to elevate these principles to high matters of principle and codification of the law but basically is it not simply a question of fact in each case? In this case, there was very strong evidence that - to put it no higher - acquisition was on the cards? It seems a little unrealistic in those circumstances. I really find it difficult to say there is a great codification principle here. It is just a question of termination in each case.

MR PORTER: Your Honour, could I deal with that proposition in this way. My submission would be that Mr Justice Buchanan specifically isolated the question in the case. In the passages referred to in the application book, he said - I will just simply read it to you because it is short, your Honour. He said:

However, the question was the amount of the loss sustained by the respondents, which depended upon the amount they were able to realise from the property.

And he juxtaposed that against what he said was the abstract question of the market value of the property. So, what he introduced was a distinction between the market value of the property and the question what the insured was able to realise from the property. Now, that is the, as it were, extension of the position so far codified which I complain of.

McHUGH J: But you also have to get over the problem, have you not, that Justice Buchanan thought that you could look at what had actually happened after the fact and he relied on the Bwllfa and Merthyr Dare Steam Collieries Case.

MR PORTER: With respect, no, your Honour. I do not mind him looking at what happened after the fact. It is the purpose that he looks at it for that I object to. I do not mind him looking at it after the fact if it is in order to assess what the willing but not anxious vendor would pay for the property and I do not really mind if he can show any relevance why that should not be relevant to the position of the actual insured. But what actually happened in this - the result of the decision in this case was virtually to halve the loss assessed and the way that that was done was literally to take valuations which had been carried out on the assumption that compensation had occurred. So, the result, in my submission, was manifestly unjust. The test that should have been applied in these circumstances was the abstract test laid down in the authorities.

McHUGH J: But his Honour seems to have applied that test in the end, did he not? At page 27, line 10, he says:

The appellant was the only party to call evidence of the value of the chance of compulsory acquisition. The valuers called by the appellant regarded the prospect as a certainty. There was no valuation of a chance less than a certainty.

MR PORTER: Your Honour, the critical path of the judge's reasoning is very short. There are three passages. The first passage, and I will not be remotely offended if you do not look it up and I just simply read them to you, but, your Honours, the first passage is from - - -

KIRBY J: We try not to offend.

MR PORTER: From paragraph 22 of the judgment where his Honour summarised - - -

McHUGH J: What page is this?

MR PORTER: It is at paragraph 22, page 8 of the judgment and page 25 of the application book.

KIRBY J: It is not a matter of being offended, it is a matter of checking up on you.

McHUGH J: Well, also seeing the context as well.

MR PORTER: What his Honour says is:

If the question had been the market value of the property immediately after the fire as if there had then been a sale of the property, evidence of the later acquisition.....may.....have been admissible.

McHUGH J: "May not have been admissible".

MR PORTER: I am sorry - "may not have been admissible", I am sorry:

However, the question was the amount of the loss sustained by the respondents, which depended upon the amount they were able to realize from the property.

Now, that is ringing bells, alarm bells, because here is a judge drawing a distinction between the situation posed under Castellain, Lucas and many other cases including this Court's decision in Monson, and - - -

KIRBY J: But in a rather special case where compulsory acquisition was a virtual certainty. They were the words I was searching for in my memory, "a virtual certainty". It is a very peculiar case.

MR PORTER: Let us say it was a virtual certainty for the purposes of the argument. Then, my answer to that, your Honour, is - - -

KIRBY J: Suspend reality and just look at it as if there is nothing about to happen; no Damoclean sword hanging over you; just forget about the realities and give the value that you would, putting that entirely out of your mind because the sword has not yet fallen.

MR PORTER: Yes.

KIRBY J: It seems a bit unrealistic in the business area of insurance.

MR PORTER: I have lost your Honour's train but could I answer it this way: if it was a virtual certainty, I would have no objection if it were applied to the Spencer's Case analysis. My objection is that that piece of evidence is used to apply to the exceptional situation, that is, the judge is suggesting that in some way the insured was in a special position by virtue of that. My submission is he was not. He should be treated as if he could have gone out and sold the property on the day of the fire and the property should have been valued on the basis - - -

KIRBY J: But anybody buying it on the day would have to pay for it on the basis that acquisition was a certainty. That depreciates its value.

MR PORTER: Well, the insured's valuers assessed the situation on that basis. The insurer's valuers did not. They assumed that compensation would be payable, that is, that acquisition had occurred. Now, the proposition I am putting forward is that the special leave question, the matter of public importance is whether the court here has simply taken a fact which would have been relevant to a Spencer's Case analysis and proceeded to ignore that fact entirely and conclude that it should be applied specifically to the insured.

McHUGH J: That seems very much a question of fact.

MR PORTER: Well, your Honour, certainly it cannot be right. I mean, you cannot saddle the insured with a situation which had no specific relationship to him. Now, in a situation like that, that would certainly pose a different method of valuation. That is not a Spencer's Case analysis but an inquiry into the insured's personal position and it stands to reason that there would be nothing that you could raise. You would be forced back to Spencer's Case.

Now, the gravamen of this decision really related to the application of the principles, so I would say it is not a matter of fact. What the court is saying here is that in a certain situation the abstract value can be modified. Now, the way that the court modified it was very unsatisfactory to the insured but that is, in a sense, beside the point, your Honours. The fact is that this is a case where the basic principles laid down which were that actual loss should be assessed and actual loss should only be adjusted where there are special circumstances applicable to the insured have been ignored.

Now, what your Honours are suggesting is, really, "Look, put all that aside. The fact is that the Spencer's Case purchaser would have taken this into account as well. So, is the result going to be any different?" Now, my answer to that is that my client assessed that question - nobody else did on the evidence - and the right test should have been the test under Spencer's Case as the trial judge applied, not the special circumstances situation.

Your Honours, I do not think I can take the matter any further than that.

McHUGH J: Yes. Thank you, Mr Porter. We need not hear you, Mr Habersberger.

MR HABERSBERGER: If the Court pleases.

McHUGH J: On the special facts of this case, there is no reason to doubt the correctness of the decision of the Court of Appeal. Accordingly, the application for special leave to appeal is refused.

MR HABERSBERGER: We seek costs.

McHUGH J: Nothing you can say against that?

MR PORTER: No, your Honour.

McHUGH J: The application is dismissed with costs.

AT 11.08 AM THE MATTER WAS CONCLUDED