Jin Ying Company Ltd v Progressive Insurance Company Ltd [2002] WSSC 6 (22 March 2002)

IN THE SUPREME COURT OF SAMOA
HELD AT APIA

BETWEEN

JIN YING COMPANY LIMITED
a duly incorporated company having its registered office at Vaitele.
Plaintiff

AND

PROGRESSIVE INSURANCE COMPANY LIMITED,
a duly incorporated company having its registered office at Apia.
Defendant

Counsel: HJ Schuster for plaintiff
R Drake for defendant

Date of Judgment: 22 March 2002

JUDGMENT OF SAPOLU CJ

Nature of proceedings

The plaintiff a duly registered company claims against the defendant an insurance company full indemnity under a fire insurance policy for the insured value of its plant, machinery, business fixtures and fittings, and stock which were destroyed by fire. The defendant resists the claim by alleging it is fraudulent on two grounds: (a) the fire was deliberately lit by Mr Gee the plaintiff’s company’s secretary; and (b) the level of stock claimed to have been destroyed by the fire is false. It became clear in the course of proceedings that these are the broad but principal issues for determination in this case.

I will deal first with the question of whether the fire which destroyed the plaintiff’s plant, machinery, business fixtures and fittings, and stock was deliberately lit by Mr Gee. As will be seen, an affirmative answer to this question will be fatal to the plaintiff’s claim.

Background facts

The evidence shows that in February 1999 the plaintiff leased from Mr and Mrs Wulf a shop and residential dwelling at Vaivase-uta but no formal lease was drawn up. The shop and residential dwelling were right next to each other, about 1.7 metres apart. They were joined at the ground level by a small concrete walkway and at the roof level by corrugated iron sheets fixed to a timber framework. Looking from the public road in front of the demised premises, it was the right hand quarter of the shop that was next to the left hand side of the verandah at the front of the residential dwelling. The shop was partly built with concrete and partly built with timber. Most, if not all, of its joinery was made of timber. It had on its sides and rear louvre framed windows covered on the outer sides with wire mesh. The dwelling house on the other hand was also partly built with concrete and partly built with timber. It was on the left hand side of the shop but towards the rear. At the front of the dwelling house was the verandah and then the sitting room. The whole of the front wall between the sitting room and the verandah was predominantly covered with louvre windows so that anyone in the sitting room would have a clear view of the right hand side of the shop and a good view of its interior.

When the plaintiff leased the shop and the residential dwelling in February 1999, Mr and Mrs Gee lived in the residential dwelling and operated the shop. While Mrs Gee is the managing director and Mr Gee is the secretary of the plaintiff company, it was Mr Gee who actually operated and managed the shop as a grocery retail shop. Mrs Gee hardly, if ever, had anything to do with the shop. The plaintiff has another director but he does not reside in Samoa.

When the plaintiff leased the shop from Mr and Mrs Wulf, it also purchased from the Wulfs the stock that was already in the shop for $16,954 and paid for it with an initial deposit of $5,000 with the outstanding balance to be paid by monthly instalments of $2,000. On 25 March, the following month, the plaintiff, after purchasing additional stock, took out over its stock a fire insurance policy with the defendant for $30,000. It also took out over its plant, machinery and business fixtures and fittings a fire insurance policy with the defendant for $3,000.

The lease arrangement between the plaintiff and the Wulfs soon took an unhappy turn. Mrs Wulf wanted to sell the whole of the demised premises to pay off some debts and informed Mr Gee about it either towards the end of March or beginning of April. The plaintiff was offered the property for sale but it could not come up with the money. It was then decided that the plaintiff would move out of the premises sometime in July. But that was later deferred by Mr Gee to the end of August. At about 1.00am on Monday morning, 16 August, the shop was burnt down. The stock, plant, machinery, business fixtures and fittings inside the shop were destroyed. The fire spread and engulfed the residential dwelling. The residential dwelling was insured with a different insurance company; we are therefore not concerned with it in this case. At 8.00 am the same morning, Mr and Mrs Gee reported the fire to the defendant and claimed the full amount of the cover under the insurance policy. As it turned out the defendant refused to indemnify the plaintiff.

Under clause 12 of the policy, it is provided, inter alia, that if the loss or damage is occasioned by the wilful act or with the connivance of the insured, all benefit under the policy will be forfeited. The defendant claims that the fire was deliberately lit by Mr Gee. It therefore refused to pay and says that under clause 12 of the policy the plaintiff has forfeited any benefit under the policy. There was no dispute that if Mr Gee was found to have lit the fire, the plaintiff gets nothing under the policy. Thus what I have to decide is whether Mr Gee lit the fire or not. If he did, it will follow that under the terms of the policy, the plaintiff’s claim will have to be dismissed. On the other hand, if it is found that Mr Gee did not lit the fire, then this part of the defendant’s defence must fail.

The cause and circumstances of the fire.

The evidence for the plaintiff as to the cause and circumstances of the fire was given principally by Mr Gee whose evidence was in part oral and in part by affidavit which he confirmed on oath. According to Mr Gee’s oral testimony, he closed his shop for business at 10.00pm on the night of the fire which was the usual time to close his shop at night. That must have been Sunday night, 15 August, because the fire occurred at the very early hours of Monday, 16 August 1999. The doors of the shop were securely locked but Mr Gee was not sure whether he turned off the power for the two freezers in the shop. Mr Gee then went to the residential dwelling. Not long afterwards a young male person came and wanted to buy something from the shop, so Mr Gee reopened the shop to serve that customer. The shop was then securely locked again. At 10.30pm two male persons wanted to buy drinks so Mr Gee reopened the back door of the shop to serve those customers. The shop was then securely locked again. That was about 11.00pm. Mr Gee then testified that he took the shop keys with him into the dwelling and did his usual calculations of the purchasing invoices after the close of business each day to find out the stock balance. At that time the other four occupants of the residential dwelling including Mrs Gee and her two year old daughter had already gone to sleep. Only Mr Gee was still awake watching a video movie on television in the sitting room with his back towards the shop. He then heard a loud bang like a gunshot which appeared to have come from the shop. He stood up and looked through the louvred windows of the sitting room at the shop but noticed nothing to cause alarm. So he resumed watching the video movie. A very short time later, he again heard a similar sound from the shop. When he stood up and turned around to look, the shop was ablaze. This was about 1.00am in the morning. He woke up the other occupants of the dwelling and Mrs Gee called the fire service. When she could not get through on the phone to the fire service she called the police and it was the police who contacted the fire service. The shop, and the dwelling to which the fire had spread, could not be saved and were both burnt down. We are only concerned with the shop.

Mr Gee also said in his evidence that he had three dogs which normally bark when strangers come onto the property. Under cross-examination by counsel for the defendant, Mr Gee said that before the fire the dogs did not bark but later he said he could not remember whether the dogs barked before the fire. In my judgment, Mr Gee’s dogs did not bark before the fire. What twice caused Mr Gee, who was watching video in the sitting room of the dwelling to stand up, turn around, and look at the shop was a bang like that of a gunshot. He made no mention of any barking by his dogs. He said under cross-examination that the dogs did not bark before the fire. It was only after cross-examining counsel had suggested to Mr Gee that the inference to be drawn from the absence of any barking by the dogs is that it must be him who started the fire that Mr Gee said he could not remember whether the dogs did bark or not.

It is also clear from Mr Gee’s oral testimony that as from June, two months before the fire in August, the shop was much indebted to its suppliers of goods. Cheques to pay for those goods were dishonoured by the banks. At the time of the fire, the plaintiff company had also not paid the July instalment of $2,000 for the outstanding balance of the stock which the plaintiff had purchased from Mr and Mrs Wulf in February. Mrs Wulf had requested Mr Gee on 1 and 15 August for the July instalment of the outstanding balance on the stock but Mr Gee told her he had no money.

It is also clear from Mr Gee’s oral testimony that the leased premises was being put up for sale by the Wulfs and that he and his wife were to move out from the shop and the dwelling at the end of August. Any stock in the shop which remained unsold would be purchased by the Wulfs.

Police inspector Poe Ualesi who led the police investigation into the cause of the fire was also called for the plaintiff to give evidence. In his oral testimony he said he was not sure of the cause of the fire from the investigation carried out by the police. In his affidavit, which he confirmed on oath, he says that police investigation commenced on 16 August when the fire service attended to the fire. But after interviewing Mr Gee and neighbours in the vicinity, the police could not arrive at any conclusive findings whether the fire was accidental or deliberately started.

For the defendant, the principal witness that was called as to the cause of the fire was Mr Gary Luff who has had fifteen years of experience in the field of fire scene investigations. Before that he had served for approximately seventeen years as a member of the New South Wales police force during which time he served as a detective sergeant for approximately four years with the police arson squad. As a fire investigator he had examined about two hundred and fifty fire scenes in the last two and a half years. Mr Luff who is based in Christchurch, New Zealand, only arrived in Samoa on 27 August, eleven days after the fire, and examined the fire scene on the same day. Except for burnt canned foodstuffs and freezer goods which had to be removed before Mr Luff’s arrival in Samoa due to complaints by neighbours of foul smell, there was no other material interference with the scene of the fire.

In his oral testimony, Mr Luff was of the opinion based on his examination of the scene, that the fire started from the shop and spread to the dwelling which was on the right side of the shop towards the back. The damage diminished towards the front. Mr Luff found the heaviest area of burning in the shop was from the middle to the rear left hand corner. Mr Luff also examined the electrical switchboard and found no evidence of deep seated charring near the switchboard to suggest that the fire started at or near the switchboard. As to the electrical appliances that were in the shop, Mr Luff’s investigation showed that only the two freezers were switched on at the time of the fire. But those freezers were on the right hand side of the shop and there was no evidence the fire started in that area of the shop.

In his affidavit, Mr Luff stated that after clearing the floor of the shop of debris from the fire, he noticed there were areas of spalled (burnt) concrete associated with the floor of the shop. This spalling (burning) had occurred to areas of the concrete floor that were clear of the fixtures and fittings in the shop. He then said that whilst normally spalled concrete tends to correlate with the areas that have received the greater degree of heat, that does not make it absolutely certain that an accelerant was poured in the areas of the spalling. However, on this occasion, the spalling appeared to run in a pattern leading from the front door of the shop, down the outside of the shelving and ceased at the rear door. If this spalling was the direct result of radiant heat, the remaining floor covering should have all been burnt. However, the spalling patterns on the floor coverings were selective and inconsistent with having been caused from radiant heat. In Mr Luff’s opinion, the burn marks to the floor coverings tend to correlate with the pooling effects that would be created if some form of flammable liquid had been dispersed on the floor before litting. In his oral testimony, Mr Luff said that the evidence he found suggested someone had spread fuel on the floor before setting it alight. He also says in his affidavit that when he interviewed Mr Gee he was told by Mr Gee that when he first noticed the fire, the whole of the front of the shop was well ablaze. That is not consistent with a fire being caused from an incendiary device introduced from outside the shop. It rather suggests that either the fire had been in progress for some period of time before Mr Gee first noticed it, or someone had dispersed a reasonable quantity of flammable liquid on the floor surface before starting the fire.

Mr Luff in his affidavit also refers to his interview of Mr and Mrs Gee. The latter acknowledged they had three dogs on the night of the fire. These dogs would bark when a stranger comes onto the property. However, there is no evidence that the dogs were barking before or at the time of the fire. I have already mentioned that in Mr Gee’s oral testimony under cross-examination, he said his dogs did not bark prior to the fire but he later said he cannot remember whether his dogs barked when counsel for the defendant suggested to him that if the dogs did not bark then it could be himself who started the fire but not a stranger.

The defendant also called Mrs Wulf. The dual purpose of her evidence was to show the motive for the defendant’s contention that Mr Gee deliberately lit the fire and to show that the level of stock for which the plaintiff claims insurance cover is false. According to Mrs Wulf’s oral testimony, the plaintiff took over as tenant of her premises at Vaivase-uta on 1 February 1999. She agreed that the term of the lease was to be for two years and the rent was $1,500 per month. She also agreed to the plaintiff buying the stock in her shop for $16,954 with a $5,000 deposit and the balance to be paid by monthly instalments of $2,000. In April the same year she told Mr Gee that her property would be sold and gave him the first option to buy. However, Mr Gee could not come up with the money. He wanted a lease for two or five years. In June or July, Mrs Wulf told Mr Gee she had found a buyer and he should vacate her premises in August.

On Sunday, 1 August, Mrs Wulf went to see Mr Gee about the rent for July which Mr Gee had not paid. He said he would pay $2,000 the following week for the outstanding purchase price of the stock. He did not pay that money. Mrs Wulf also went into the shop and she said in her evidence she was shocked that most of the shelves were empty. The stock was much less than when she handed the shop to the plaintiff in February 1999. On 13 August Mr Gee went to Mrs Wulf’s store at Tufuiopa and bought some fish which was paid with a plaintiff cheque for $127.60. That cheque bounced. On Sunday, 15 August, Mrs Wulf telephoned Mrs Gee for $2,000 to buy stock from the United States as her brother was leaving for the United States that night. Mr Gee replied he had no money. At 6.00am the following morning, the police informed Mrs Wulf at her home that her shop at Vaivase-uta had been burnt. At the time of the fire the plaintiff still owed Mrs Wulf $5,544 on her stock. The plaintiff also had an unpaid telephone bill for $304.

After careful consideration of the evidence, Mrs Wulf’s evidence as to the level of the stock in the shop two weeks before the fire occurred is to be preferred to the evidence given for the plaintiff to the contrary.

The law

In this case where the defendant as insurer refuses to indemnify the plaintiff as insured by alleging that the fire which destroyed the insured property was deliberately started by the insured, the burden of proving such an allegation rests on the defendant. The degree or standard of proof that is required is the civil standard of balance of probabilities but commensurate with the gravity of the allegation made. As to whether the burden of proof has been discharged or not, Stuart-Smith LJ in delivering the judgment of the English Court of Appeal in National Justice Compania Naviera SA v Prudential Assurance Co Ltd (The "Ikarian Reefer" [1995] 1 Lloyds Rep 453 said at p 459.

"The burden is not discharged, in our judgment, if the evidence fails to exclude a substantial, as opposed to a fanciful or remote possibility that the loss was accidental. But we bear in mind that, on the authorities, the burden which rests upon the insurers is derived from the civil, not the criminal standard,....."

Stuart-Smith LJ then goes on at p.483 to say:

"The sole question at the end of the trial is whether the underwriters have discharged the burden of proving that the fire was deliberately started with a view to causing constructive total loss of the vessel and this was done with the connivance of the owners. The burden of proof is the balance of probabilities but ‘commensurate with the gravity of the charge.’ (See The Filiatra Legacy [1991] 2 Lloyds Rep 337). The burden is a heavy one; but the mere existence of the possibility that the fire was accidental does not mean that it has not been discharged. There must be a real or plausible explanation which is supported by the evidence, or at least is not inconsistent with it."

Further on at p.483 His Lordship goes on to say:

"In considering whether the burden of proof has been discharged, the Court must "consider all the evidence in the case, including that relating to motive......"

As to the theoretical possibility that the fire could have been started by a cigarette discarded unintentionally, the trial Judge was of the view he could not rule out such a possibility. However Stuart-Smith LJ said at p.493:

"[That] may be so, but with respect to him (the Judge) it is not the point. The question is how likely was it? Once again in agreement with Dr Taylor, it seems to us that the only answer is that it was very unlikely."

See Grave v G. A. Bonus Ple [1992] 2 Lloyds Rep 716 for an application of these principles to a case involving a fire insurance policy.

Under clause 12 of the fire policy, if it is proved that the plaintiff, the insured, deliberately started the fire then it forfeits all benefit under the policy. Apart from that the plaintiff will not be permitted to recover at all at common law because of the general principle that no man can take advantage of his own wrong: Slattery v Mance [1962] 1 QB 676 at pp 680-681.

Submissions by counsel

Counsel for the plaintiff submitted that Mr Gee did not lit the fire. This is based on Mr Gee’s own evidence that he did not lit the fire. Counsel also referred to the evidence of police inspector Poe Ualesi that police investigation could not arrive at any conclusive findings whether the fire was accidental or deliberate. This was after the police had interviewed Mr Gee and neighbours in the vicinity.

Counsel for the defendant, on the other hand, submitted that the fire was not accidental but deliberately started and the person who started it was Mr Gee himself. Counsel pointed to a number of circumstances in support of this submission. Firstly, Mr Gee was the only person of his family who was awake when the fire occurred about 1.00am in the early hours of Monday morning, 16 August 1999. He was watching video on television in the sitting room of the dwelling house a very short distance from the shop when it burnt. After Mr Gee had served two male persons about 10.30pm the same night, he secured the shop and took the keys with him into the dwelling house. Thus no one could have entered the shop and started the fire which according to Mr Gee’s evidence started from inside the shop. There is also no evidence the fire was started by an intruder or caused by an electrical fault. The evidence of Mr Luff points to the contrary. Secondly Mr Gee testified he had dogs which barked when strangers come onto the demised property. When Mr Gee was interviewed by the fire investigator, Mr Luff, he said the dogs did not bark before the fire started. Under cross-examination Mr Gee said his dogs did not bark before the fire occurred but later said he could not remember. Thirdly, Mr Luff in his expert testimony removed all probable causes of an accidental fire. He opined on the basis of what was found from his investigation, particularly the areas of spalled concrete of the shop floor, that someone had dispersed flammable liquid on the floor before sitting it alight. He concluded that in the circumstances, it was no one but Mr Gee who did that. He also said if an intruder had caused the fire, he would probably have waited until Mr Gee who was watching video had gone to sleep rather than litting the fire while Mr Gee was awake and risk being discovered.

As to motive, counsel for the defendant submitted that the plaintiff was in financial difficulties at the time of the fire. It’s cheques for payment were being dishonoured by the banks and it owed its suppliers about $9,000. It also owed Mr and Mrs Wulf $5,282 for the purchase price of the stock it purchased from them in February 1999. Mr Gee and the plaintiff had also been asked by the landlady to vacate the demised premises on 31 August, fourteen days after the night the fire occurred.

Findings of fact

After considering the evidence and the submissions by counsel, I find as a fact that the fire which burnt the shop, the stock and electrical appliances in the shop was started deliberately by Mr Gee. I do not accept the fire was accidental. It is clear from the evidence that the only person who was awake in the adjacent residential dwelling when the shop was ablaze at 1:00am in the morning was Mr Gee. There is no evidence that the fire was started by an intruder or caused from an electrical fault. It is unlikely the fire arose from such causes.

The evidence points strongly against the fire having being started by an intruder. After Mr Gee served the last customers at about 10.30pm he did secure the shop and took the keys with him into the adjacent residential dwelling. Mr Gees dogs which normally bark when strangers come onto the property did not bark either before or at the time of the fire. From Mr Gee’s own evidence the fire appeared to have started inside the shop. An intruder would have had to break through one of the secured doors or louvre windows to get inside the shop and started the fire which would have alerted the dogs and probably Mr Gee who was watching video. One would also have expected that if an intruder had started the fire, he would have waited until Mr Gee had gone to sleep rather than taking the risk of being caught by forcibly entering the shop while Mr Gee was awake watching videos and the dogs were around. A fanciful or remote possibility which is not supported by the evidence is not sufficient.

There is also no evidence that the shop had any exposed electrical wiring or electrical faults prior to the fire which presented any fire hazard. In fact there is no evidence the fire was caused from an electrical fault. The probabilities therefore must be that the fire was unlikely to have been caused from any electrical fault. A remote or fanciful possibility not supported by the evidence is not sufficient.

I also accept the evidence of Mr Luff, a fire investigator of many years experience, that from the heavy burns spread irregularly on the shop floor, he drew the conclusion that the fire was caused from a flammable liquid being dispersed by some one on the floor and then setting it alight. The only person who could have done that was Mr Gee himself. The fact that the plaintiff was in financial difficulties and had to vacate the demised premises at the end of August fourteen days subsequent to the fire, provides evidence of motive.

I have also considered the evidence of police inspector Poe Ualesi. The police inspector merely said police investigation did not lead to any conclusive findings whether the fire was accidental or deliberately started. He did not elaborate on who the police interviewed, the details of any statements the police obtained from the people they interviewed, or the details of the conclusions the police reached on the basis of their investigation.

Law applied to facts

Bearing in mind that the allegation that the fire was deliberately started by Mr Gee, was made by the defendant, the burden of proving that allegation rests on the defendant. The degree or standard proof is the balance of probabilities but commensurate to the gravity of the allegation. That burden is not discharged if the evidence fails to exclude a substantial as opposed to a fanciful or remote possibility that the fire was accidental.

Applying those principles to the circumstances of this case, I am satisfied that Mr Gee deliberately started the fire. Any suggestion that the fire was accidental or might have been started by an intruder or arose from an electrical fault or some other cause, would be a fanciful or remote possibility which is not supported by the evidence at all. The defendant has therefore discharged the burden which rests on it.

Accordingly the claim fails under clause 12 of the insurance policy which provides that if the loss or damage is caused by the wilful act or with the connivance of the insured, all benefit under the policy will be forfeited. Likewise, the plaintiff cannot recover at common law under the general principle that no person can take advantage of his own wrongdoing. This is sufficient to dismiss the plaintiff’s claim.

It is therefore unnecessary to deal with the second defence raised by the defendant, as insurer, that the claim by the plaintiff for stock destroyed in the fire is also fraudulent. It should be added, however, that where a defendant, as insurer, alleges that a claim or part of a claim for stock by a plaintiff, as insurer, under an insurance policy is fraudulent, the onus is on the defendant who makes the allegation to prove fraud on a very high balance of probabilities. The plaintiff will not be permitted at common law to recover anything at all if his claim is proved to be fraudulent: see Britton v The Royal Insurance Co [1865] EngR 66; (1866) 4 F&F 905; Orakpo v Barclays Insurance Services [1995] L.R.L.R 443; Nsubuga v Commercial Union Assurance Co. Plc [1998] 2 Lloyds Rep 642. Galloway v Guardian Royal Exchange (UK) Ltd [1999] Lloyds Rep Part 4, 209. This is quite apart from any provision in the insurance policy on the question of fraud and its effect.

All in all then, the plaintiff’s claim is dismissed. Costs are awarded to the defendant to be fixed by the Registrar according to scale plus any disbursements.

CHIEF JUSTICE

Solicitors:

Fepuleai & Schuster Law Firm for plaintiff
Drake & Co. Law Firm for defendant