Cook v Sirius International Insurance Corporation Australian Branch

1. [1]

   GLEESON JA: I agree with Brereton JA.

2. [2]

   PAYNE JA: I agree with Brereton JA.

3. [3]

   BRERETON JA: On 7 September 2010 the Townhouse Hotel Motel in Cowra was damaged by two concurrent fires, which it is not disputed were deliberately lit. The respondents (“the Insurers”) were the insurers of the hotel. They declined indemnity to the owner SW & CM Cook Investments Pty Ltd, now in liquidation, of which the appellants Mr and Mrs Cook were the shareholders and directors, alleging that the fires had been deliberately set by Mr Cook. Mr and Mrs Cook, having obtained an assignment of the insurance policy from the liquidator, sued for a declaration that the Insurers had wrongfully and in breach of the policy declined indemnity to the company, and for damages. On 18 November 2020, Ward CJ in Eq dismissed the claim with costs, upholding the Insurers’ defence of arson. [1] Mr and Mrs Cook now appeal to this Court.

The hotel

1. [4]

   The hotel was on the southern side of, and fronted, Kendal Street, Cowra. Down the eastern side of the hotel ran a driveway which led to the motel complex, comprising 35 separate rooms at the rear of the hotel.

2. [5]

   Along the Kendal Street frontage of the hotel, from west to east, was a public bar, bottle shop, saloon bar, then a bistro, and, at the east, a reception room with reception desk and office. Access to the reception area was available through double door opening to the front of the hotel onto Kendal Street, through side doors opening onto the driveway, and through doors that led into the bistro. Behind the reception area to the south was a kitchen, a second office which was used as part of the manager’s accommodation, and behind that office, in the south-eastern corner of the building, the manager’s bedroom. The manager’s bedroom was accessible only through the second office. [2]

3. [6]

   From the rear of the reception area, stairs ascended to a function room on the upper level. Above the staircase leading up to the function area, in the southern wall of the upper level directly above the last flight of stairs, was a window. Outside the window was a roof or awning, and below it a trellis. Stairs also descended from the rear of the reception area, to a door which opened into a corridor leading out to a courtyard around which the motel rooms are located. Along that corridor, another door provided access from the corridor into a storeroom, which was located under the rear of the bistro.

4. [7]

   The hotel was fitted with smoke alarms, and also with a number of passive infra-red (“PIR”) sensors – which detect movement, not smoke. There were no PIR sensors located in the upstairs function area, nor in the upper part of the stairwell leading to it. Nor were any located on the lowest level, where the storeroom was.

5. [8]

   However, there were multiple sensors on the entry (middle) level. Two PIR detectors monitored the reception and entry. Relevantly, in the reception area, one was positioned in the cornice in the north-western corner and observed towards the south-east, covering virtually the entire reception area. Another was located on the wall outside the reception office – collocated with a “screamer” alarm which activated when a PIR was triggered – observing towards the bottom of the stairs leading up to the function level (“the stairwell PIR”). There were also two sensors in the bistro. One, near the front (north) of the room, observed south-easterly towards the doors from the reception area into the bistro. Another covered the rear of the bistro, including the access into the bar.

The fire

1. [9]

   On the night of 7 September 2010, Mr Cook, who was managing the hotel business, was in the hotel. Mr Cook says he closed the hotel premises between 9:00 pm and 9:30 pm on the evening of 6 September 2010, securing the doors around the premises and activating the alarm system at about 9:25 pm. The alarm system was activated by keying in a code on the keypad located at the entrance to the reception office; this is confirmed by a printout of the security company Custom Security Services (“CSS”), which records activity concerning the alarms. According to Mr Cook, he then retired to bed.

2. [10]

   Early in the morning of 7 September 2010, a fire was ignited in the storeroom on the lowest level, and another in the function room on the uppermost level. Thus, the fires were set in locations not monitored by sensors.

3. [11]

   However, at 2:23 am, the stairwell PIR sensor – monitoring the corridor leading to the manager’s accommodation, and the lower part of the ascending stairway leading to the function area – detected movement. In response, CSS made a call to the landline telephone number for the hotel at 2:23:48 am; it went unanswered. The closest landline telephone to Mr Cook’s bedroom was in the reception office. A call was then made to Mr Cook on his mobile telephone. Mr Cook says that he was woken at approximately 2:20 am by a call on his mobile telephone from CSS reporting an alarm on the stairwell. According to the CSS printout, that call was from 2:24:44 am to 2:25:44 am. As the primary judge observed, there is no independent evidence as to where in the hotel Mr Cook was at that time. [3]

4. [12]

   Mr Cook said that after receiving that telephone call he went to the office and turned off the alarm. The CSS printout confirms that the alarm was turned off at 2:26 am. Mr Cook says that he then walked down the stairs to the doors at the bottom (which lead to the courtyard and to the storeroom), to ensure that they were locked. He said that when locked they could be opened only by key, and that he did not go outside because the doors were locked, but he was able to look outside (which includes the vicinity of the storeroom door), and did not see anything unusual. He said that he walked back up the stairs, checked the fire doors in the reception foyer and found them to be locked, checked the side exit doors and found them too to be locked, then walked into the bistro and checked that the deck doors were closed, and that he looked towards the outer area of the restaurant and saw nothing unusual. Mr Cook said that he returned to his room, went to the toilet, and then went to bed and lay there for some minutes trying to get to sleep before realising that he had forgotten to reactivate the alarm, and so got out of bed again, went to the reception office, reset the alarm, and returned to bed. The CSS printout records that the alarm was reactivated at 2:42 am.

5. [13]

   At 2:48 am, multiple PIR sensors reported movement on the ground floor of the hotel, in the bar, bistro, and reception areas. These alarms appear to have been triggered by the fire in the storeroom burning through alarm cables. CSS again called Mr Cook.

6. [14]

   According to Mr Cook, he must have “drifted off” after resetting the alarm, and the next thing he remembers is his mobile telephone ringing with another call from CSS with reports of multiple alarms. Mr Cook says that he got out of bed and went to the reception foyer; that he could see a large amount of white smoke; that he went through the reception door and called the fire brigade on 000 and then went to the motel rooms and knocked on the doors to get the guests to evacuate; and that he moved his car from near the reception area. He then assisted the fire brigade to access the motel courtyard, providing access to the mains switch so that the electricity could be disconnected, and turned off the gas supply. He waited outside while the fire brigade extinguished the fires. During the course of the morning, a fire brigade officer informed him that, as well as the fire in the storeroom, there was a fire in the upstairs function room, and that it appeared suspicious.

7. [15]

   It is not in doubt that, when the fires were ignited, Mr Cook was physically in the hotel, and there is no evidence that anyone else was in the hotel premises (as distinct from the adjacent motel accommodation, in which there were a number of guests). The Insurers’ case was that Mr Cook triggered the sensor covering the rear of the reception area and stairwell, in an attempt to create evidence of an intruder; that he knew that he would receive a telephone call from CSS to which he responded; that he then deactivated the alarm system under the pretence of inspecting the premises; and that during that period he lit both the fires, before reactivating the alarm. As her Honour explained, [4] the critical circumstances on which the Insurers relied were that a single PIR alarm was activated in the location outside the reception office; that there was no cogent evidence of forced entry; that there was a time period of sixteen minutes during which the alarm was deactivated; and that the alarms were ultimately triggered by the burnt cables as a result of the fire in the storeroom.

The appeal

1. [16]

   The sole ground of appeal is that the primary judge incorrectly held that the Insurers had proved their case that Mr Cook deliberately set the fires.

2. [17]

   Although her Honour’s ultimate adverse finding involved rejecting Mr Cook’s evidence, it did not depend on any impression formed by her Honour as a result of seeing and hearing him (or any other witness) give evidence. Thus her Honour said: [5]

3. [18]

   Her Honour’s conclusion adverse to the Cooks was fundamentally based on objective evidence, most importantly that provided by the PIR sensors: [6]

4. [19]

   This appeal, being one governed by (NSW) Supreme Court Act 1970, s 75A, is by way of rehearing, so that this Court has the powers and duties, including powers and duties concerning the drawing of inferences and the making of findings of fact, of the court of first instance. As the High Court explained in Lee v Lee (“Lee”): [7]

5. [20]

   This passage emphasises both the duty of the appellate court to conduct a real review of the evidence and reasons, and that the restraint that confines appellate interference with findings of fact to those that are demonstrated to be wrong by “incontrovertible facts or uncontested testimony”, “glaringly improbable”, or “contrary to compelling inferences”, is confined to those factual findings which are likely to have been affected by impressions about the credibility and reliability of witnesses formed by the trial judge as a result of seeing and hearing them give their evidence. Reliance on matters of “impression” and “demeanour” having been eschewed, this Court is in as good a position as the primary judge to decide on the proper inferences to be drawn from the established facts.

6. [21]

   The appellants submitted that her Honour effectively reversed the onus of proof, by rejecting alternative theories as to how the fires might have been started, maintaining that it was not for Mr Cook to explain how the fires occurred.

7. [22]

   As her Honour observed, the Insurers bore the onus of establishing that they were entitled to rely on the exclusion clause or that there had been a breach of the insured’s duty of utmost good faith, and the applicable standard of proof was that referred to in (NSW) Evidence Act 1995, s 140, having regard to the nature of their defence, the nature of the subject matter of the proceedings, and the gravity of the matters alleged. [8] And as her Honour also observed, in a case which relies on circumstantial evidence, one must consider “the weight which is to be given to the united force of all the circumstances put together”, [9] and that the onus of proof is to be applied at the final stage of the reasoning process, it being “erroneous to divide the process into stages and, at each stage, apply some particular standard of proof”, as doing so destroys the integrity of a circumstantial case; [10] that the inference said to be supported by the proved facts must be weighed against realistic possibilities, rather than possibilities that might be regarded as fanciful; [11] and that where the competing possibilities are of equal likelihood, or the choice between them can only be resolved by conjecture, then the allegation is not proved. [12] But, subject to those considerations, as her Honour also accepted, the Insurers were not required to negate, beyond reasonable doubt, all possibilities other than fraud on the part of the insured, but only to persuade the court on the balance of probabilities, having regard to all the circumstances, including the gravity of the allegations, that it was Mr Cook who set the fires.

8. [23]

   That her Honour did not misunderstand the onus or the standard of proof is apparent in her Honour’s conclusion: [13]

9. [24]

   Her Honour did not “reverse the onus”, but, consistently with the well-established proper approach to a circumstantial case, considered whether there were plausible hypotheses explaining the circumstances consistent with innocence. Because the case was not a criminal case, and the standard of proof was not beyond reasonable doubt, it was not incumbent on the Insurers to show that there was no reasonably plausible hypothesis consistent with innocence. Nonetheless, in considering whether, on the balance of probabilities, it was Mr Cook who had set the fires, it was relevant to consider alternative explanations and whether they were realistic, reasonable, and plausible.

10. [25]

    In cases of this kind, insurers typically endeavour to prove that:

    1. (1)

       the fire was not accidental but deliberately lit. In this case, that was not in dispute;

    2. (2)

       the insured had a motive – usually, a financial one – to set the fire; and

    3. (3)

       the insured had the means and opportunity to do.

Motive

1. [26]

   The Insurers endeavoured to establish a financial motive, through a body of evidence that indicated that the motel was, at the least, under financial pressure. Mr Cook was cross examined to suggest that the business of the company was performing so badly as to give rise to a motive for arson.

2. [27]

   However, her Honour accepted Mr Cook’s evidence, corroborated by documentary material, that mortgage payments were being made punctually. Her Honour said: [14]

3. [28]

   Nonetheless, in the course of his cross examination, Mr Cook conceded, inter alia, that the company had entered into an arrangement to pay $1,000 per month to discharge a tax debt of $95,450 to the Australian Taxation Office; [15] that the company owed $57,000 to Cowra Council for unpaid rates, and had entered into an arrangement to pay it off; [16] that the company was funding purchases on a credit card, the balance of which was increasing; [17] and that the company was not paying its bills as and when they fell due. [18] These are, of cause, notorious indicia of insolvency.

4. [29]

   However, her Honour did not rely on the existence of a financial motive. Like her Honour, I do not regard the financial evidence as having significance. Even the presence of a financial motive, if established, does not mean that it was acted on. A financial motive is a flimsy basis for a conclusion of arson: very many businesses experience financial pressure; few resort to arson as the remedy.

Means and opportunity

1. [30]

   As her Honour observed, there is no doubt that the sixteen minute period while the alarm was deactivated afforded Mr Cook an opportunity to move around the hotel without triggering PIR sensors, during which period he could have set both fires. [19] Of course, that does not mean that he did so.

2. [31]

   At this point, it is necessary to examine in greater detail the PIR evidence. With reference to the reception area, Mr Kelly, a fire investigator retained by the Insurers, reported:

3. [32]

   Mr Kelly also reported:

4. [33]

   While caution is required in dealing with Mr Kelly’s evidence, as her Honour found his report “not to be objective and to be very much an assortment of statements of opinion and speculation as to various of the matters about which the plaintiffs have complained”, [20] and that he was “advocating for his own views as to what had happened”, and so treated his opinions with some caution and circumspection, and ultimately formed her own views without the need to rely on those of Mr Kelly, [21] his observations of fact do not fall in the same category.

5. [34]

   In short, given that no fault or problem was identified with the alarm system and PIR sensors, and having regard to the positions of windows and doors, and the locations of the PIR detectors, it would have been expected that, had someone other than Mr Cook, such as an intruder, been present, their movement in the various sections of the hotel would have triggered a PIR detector and presented as a signal from locations other than those where Mr Cook stated he had been. In particular, anyone in the reception area, exiting through the fire doors or through the bistro, would have triggered the PIR in the north-western corner of the reception area, and/or the PIR in the bistro which covered the doors into it from the reception area. While these conclusions are informed by Mr Kelly’s evidence, they do not depend on it: they are drawn from examination of the locations and arcs of the PIR detectors in the reception area and in the bistro.

6. [35]

   The only possible access to and egress from the upstairs function room was via the stairs, or the window. If the stairs were used, then they could be reached and left by an intruder only through the reception area, or through the lower stairs leading to the door that opens into the corridor and leads to the storeroom. However, Mr Cook’s evidence was that that door was locked, so that possibility can be excluded. If that door was locked, an intruder could not have moved internally between the storeroom and the function area – or vice versa – without triggering at least one other PIR detector in the reception and/or bistro area.

7. [36]

   For that reason, the possibility that access and/or egress had been gained through the window requires consideration.

8. [37]

   Mr Cook’s evidence was that when he walked through the premises with his wife, once they were allowed back in following the fire, the window was open, and “there were no soot marks on the top of the window”. It emerged in cross-examination that this was not an observation he made at the time, but one that he based on a photograph he had seen, which had been taken after the window had been reclosed. The reference to “the top of the window” appears to relate to the area along the top of the lower half of the window (which comprised two frames, opened by raising the lower frame), where the locking mechanism was located. [22]

9. [38]

   Senior Constable Walker reported (emphasis added):

10. [39]

    Mr Kelly reported:

11. [40]

    Her Honour addressed this, as follows: [23]

12. [41]

    In order to be reasonable and plausible, a theory involving use of the window has to accommodate an intruder:

    1. (1)

       entering through the window. Unless it was left open or at least unlocked, this would have involved forcing it;

    2. (2)

       setting the fire in the upstairs function area, and either before or after doing so, descending the stairs and triggering the PIR detector at the office, near the foot of the stairs; and

    3. (3)

       returning up the stairs, and exiting via the window. Such an intruder could not have exited via any other route, because it would have involved triggering the PIR detectors covering the reception area and exits from it, which detected no movement.

13. [42]

    Although it seems unlikely, it is not impossible that an intruder could have scrambled up the trellis onto the awning outside the window, and her Honour did not discount the theory on that basis. There is force in the appellant’s submission that no dust or debris from the fire would have accumulated on the windowsill at the time of entry and exit, though it would have afterwards as a result of the fire, and so the absence of disturbance was not of itself a sound basis for an inference that there had been no movement through the window. There was hearsay evidence of Senior Constable Walker that the window had been opened by the fire brigade, and opinion evidence of Mr Kelly that the window was closed at the time of the fire; however, there was evidence of a fire brigade officer that they had not opened that window, which shows that Senior Constable Walker may have been mistaken. Nonetheless, the window had a conventional window lock. There was no evidence from Mr Cook that he had left the window open or unlocked. There was no sign of the window lock having been broken or disturbed, or entry having been otherwise forced. That suggests that it is unlikely to have been opened by an intruder.

14. [43]

    More importantly, to my mind, the prospect of an intruder being able to exit via the window was very remote, given the location of the window, offset from the landing and above the stairs, which would have posed a considerable physical challenge; and given also that the window was open only slightly. Mr Cook, it is true, did not accept this: [24]

15. [44]

    However, photographs depicting the relationship of the window and the stairs tell a different story.

16. [45]

    The appellants criticised the finding in [195] of the Primary Judgment, on the basis that the relevant hypothesis was not that an intruder “moved around the premises”, but rather that such an intruder more likely exited through one of the reception doors, which were fire doors. Her Honour in fact addressed that possibility, observing: [25]

17. [46]

    A similar criticism was made of the finding at [199]: [26]

18. [47]

    Once the disposition and orientation of the PIR sensors are understood, these findings of her Honour are compelling. If an intruder, having entered through the window, descended the stairs, and triggered the sensor outside the reception office, and then exited through the reception doors, the second PIR in the north-western corner of the reception area would also have been triggered. It was not. That leaves as the only possibility that an intruder, having descended the stairs and triggered the alarm, returned up the stairs, and exited through the window through which entry had been made. Physically, the location of the window above the stairs makes exiting through it in this way an even more challenging proposition than entering through it.

19. [48]

    Given Mr Cook’s evidence that the door at the foot of the stairs leading to the corridor and the storeroom was locked, the possibility of an intruder moving from the site of one fire to the other via the staircase can be excluded. An alternative, external means of access to the storeroom was required. Such access could be obtained from the courtyard, which in turn was surrounded by the buildings which housed the motel rooms. Access to the courtyard could be gained, other than from the hotel, only through two hallways at the southern end of the courtyard, or through the motel rooms, the rear of which opened onto the courtyard.

20. [49]

    At the time of the fire, the door of the storeroom was observed, by a security officer who responded to signs of fire and accompanied Mr Cook to alert occupants of the motel, to be open; it was later noted that there were no signs of forced entry.

21. [50]

    A fire brigade incident report timed at 6:47 am on 7 September stated:

22. [51]

    A fire brigade incident report timed at 7:03 am on 7 September stated:

23. [52]

    On inspection of the premises by police later that morning, it was found that:

    1. (1)

       one of the hallway doors to the courtyard was unlocked and had been opened, reportedly by Mr Cook, to allow fire brigade personnel to access the storeroom;

    2. (2)

       the other hallway door remained locked;

    3. (3)

       the door to room 2 was open, and slight damage was visible adjacent to the door lock; there was no damage to the strike plate and no evidence of entry or disturbance to the room; and

    4. (4)

       there was no evidence of forced entry to any access door to the courtyard.

24. [53]

    It is apparent, from photographs which show the relationship of room 2 and room 3, which was to the south of room 2, that the reference to the door to room 2 was to the internal door – that is, the door which led from the unit to the courtyard, not the external door, which led from the unit to the carpark and exterior. When and how the damage to the internal door to room 2 was occasioned is not clear; there is some not very satisfactory evidence that it was after the fire developed, for the purpose of accessing the electrical supply, [27] but this does not appear consistent with the fire brigade incident reports referred to above, and is not self-evidently logical. Regardless, the damage was not indicative of entry having been successfully forced, as there was “no damage to the strike plate and no evidence of entry or disturbance to the room”. And in any event, damage to the internal door (hypothetically by an intruder seeking to escape from the courtyard) does not explain how the intruder could have gained access in the first place, when “there was no evidence of forced entry to any access door to the courtyard”, although it cannot be excluded that access might have been gained through an unlocked hallway day: Mr Cook gave evidence that one of the hallways was not locked.

25. [54]

    However, there is also the circumstance that the door to the storeroom, where the fire was set, was found by the security officer, and the fire brigade, to be open, with the fire alight inside it. The storeroom had double timber doors, fitted with a Diamond brand key-operated lock, with a snib-lock on the rear. There was no sign of forced access to the workshop, which was most probably therefore accessed by someone with a key, although there was some evidence that the door could be opened by “using a flat piece of metal to push back the latch”, and that following the fire the spare key to the storeroom could not be located, though it had not been used for quite some time before and it was not known how long it had not been in its usual place. As has been noted, Mr Cook said that when (at about 2:27 am) he looked through the windows of the doors at the bottom of the internal stairs, into the corridor off which the storeroom is located, he observed nothing unusual and everything appeared normal, and although he was not particularly looking at the workshop doors, he did not notice any sign of flames or smoke. It is unlikely that, after the alarm had already been sounded at 2:23 am, an intruder was able, unnoticed by Mr Cook, to defeat the storeroom door and set the fire, such that by 2:48 am (six minutes after Mr Cook had reset the alarm at 2:42 am, and twenty minutes at most after he had seen no sign of anything unusual there) the fire was sufficiently intense to set off multiple detectors by burning through the alarm cables, coincidentally during the period that Mr Cook had ostensibly returned to bed and forgotten to re-activate the alarm.

Conclusion

1. [55]

   The possibility of an intruder setting both fires in locations that were not monitored by PIR sensors, and triggering only the single PIR sensor that was triggered is, at best, remote. Of all the PIR sensors, it was the one closest to the bedroom in which Mr Cook says he was that was triggered, and he could not disarm the alarm system without first passing that sensor. The fact that it was only that PIR – which covered an internal part of the motel which could not be reached (except from upstairs) without first passing through the field of one or more other PIR sensors – that was triggered, points to it being triggered by someone who was already in the premises.

2. [56]

   The only person apparently already in the premises was Mr Cook, who was undoubtedly present in the hotel when the fires were set. Notably, although Mr Cook said that, being asleep in his bedroom, he was first awoken by the call on his mobile (and not by the call to the landline in the office, or by the screamer alarm), the alarm, which was located just outside the reception office, could be heard in the background on the audio recording of the call made at 2:24 am. During the sixteen minutes while the alarm was deactivated – including the twelve minutes when Mr Cook had ostensibly returned to bed but forgotten to reactivate it – he had the opportunity to set both fires.

3. [57]

   The alternative hypothesis requires either that there be two intruders (one entering and exiting via the window and setting the fire in the upstairs function area, and the other accessing the courtyard and the storeroom and setting the fire there and then exiting via the same means); or that one intruder do all this in succession, which involves making the second entry and setting the second fire after the first was alight and burning but not yet detected; notwithstanding that after the alarm was triggered, Mr Cook was awoken by the phone call from CSS, arose and inspected the premises, and found nothing.

4. [58]

   It is clear that no intruder passed the PIR in the reception area, and thus neither access nor egress was obtained through that area; the only possible access and egress for that intruder was the window. The acrobatics involved in exiting from the stairs through the window, which was only slightly open, are such that it is a most unlikely scenario. Even if the window was open during the fire, that would not explain why an intruder, having entered through the window and set the fire in the function room and then descended the stairs and triggered the stairwell PIR, could or would – with the alarm sounding – re-ascend the stairs and exit through the window, rather than proceed out the reception fire doors and make good a much easier escape than returning upstairs and clambering through the window. It is even less likely that an intruder who, having entered through the window, descended the stairs, and triggered the stairwell PIR, would, with the alarm sounding, return upstairs and set the fire in the function room, before climbing out through the window. These theories are highly improbable, if not implausible.

5. [59]

   As to the fire in the storeroom, it is not inconceivable that an intruder could have gained entry to courtyard through a motel room, or one of the hallways, and exited, possibly via room 2. However, it is much more difficult to see how the intruder was able to unlock the storeroom, and set a fire there, in the minutes after the alarm had first been triggered and Mr Cook says he had looked through the windows of the downstairs doors and seen nothing unusual, and returned to bed – but forgotten to reactivate the alarm. This theory is improbable.

6. [60]

   The combined improbabilities of the alternative explanations for each fire are such that there is no apparent reasonably plausible alternative hypothesis that explains the concurrent setting of the two separate fires, that is consistent with the PIR evidence and Mr Cook’s evidence. Conscious of the requirement for “comfortable satisfaction”, there was nonetheless no error in her Honour’s conclusion that, on the balance of probabilities, it was Mr Cook, not an intruder, who triggered the PIR, and who set the fires.

7. [61]

   The appeal must be dismissed with costs.