Neutral Citation Number: [2011] EWCA Civ 398
Case No: A3/2010/1438
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM QUEEN’S BENCH DIVISION
LONDON MERCANTILE COURT
HIS HONOUR JUDGE MACKIE QC
2009 FOLIO 244
Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 11 April 2011
Before :

LORD JUSTICE WARD
LORD JUSTICE JACOB
and
LORD JUSTICE PATTEN

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Between:

	Mr Farid Yeganeh	Appellant	
	- and -		
	Zurich Plc
Zurich Insurance Co	
Respondents	

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Mr Ben Elkington (instructed by Edwin Coe LLP) for the appellant 
Mr James Maxwell-Scott (instructed by Beachcroft LLP) for the respondent 

Hearing dates : 9th December 2010
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Judgment

Lord Justice Ward: 
Introduction
1.	This is an appeal against the order of His Honour Judge Mackie Q.C. sitting as a judge of the High Court on 24th May 2010 when he dismissed the appellant’s claim and entered judgment for the defendant, the Zurich Insurance Company (“Zurich”) in the sum of £20,665.03.  He also ordered the appellant to pay 30% of the defendant’s costs of the action.  
2.	The claim made by Mr Farid Yeganeh was for a declaration that he was entitled to be indemnified by Zurich in accordance with the terms of a household insurance policy in respect of the loss and damage to his property and its contents caused by a fire at the property on 14th September 2007.  Zurich avoided the policy on the grounds both that the appellant had started the fire deliberately and also that he had knowingly made a false claim for the loss of items of his clothing.  
3.	The judge found that Zurich had not proved that the appellant had burnt the house down but he did find that the appellant had made a fraudulent claim for the loss of his clothing, that the policy was avoided accordingly with the result that the appellant had to reimburse Zurich for the cost of some of the early works of repair.  
4.	I have come to the clear conclusion that the appeal should be allowed.  Because the matter must, therefore, be remitted for re-hearing, I will say no more about the facts than is necessary to explain why I have reached this decision.  
The broad outline
5.	The appellant is a property developer owning a large number of properties.  Property insurance is of vital importance to him and the judgment against him has severe implications for his business.  The property with which we are concerned is a large two storey house, Whitefriars, in Chichester.  The appellant purchased this property in August 2006 and insured it with Zurich in September 2006 to cover damage to the property and to the contents (subject to a £40,000 limit of indemnity in respect of contents).  
6.	At that time he was living with Ms Tina Courtnell in her flat in Portsmouth.  He gradually moved furniture and belongings into Whitefriars where he stayed occasionally.  He began to live there more regularly from about April 2007 but it was not entirely clear just how much time he did spend at the property.  What did become clear at the trial was, as he admitted, that he had lied to the local council in order falsely to claim an exemption from the payment of council tax on the basis that the property was unoccupied while substantial building works were to be carried out to it.
7.	Pending that development of the property, the appellant and Ms Courtnell decided to redecorate in order to move in together and in September 2007 preparations for this were made and furniture and other possessions were gathered together in a group in the middle of various rooms, including the main bedroom, and covered with old sheets and curtains to protect the pile whilst the painting was to be done.  During this time the couple stayed in Portsmouth.  
8.	The fire broke out late in the evening of 14th September 2007.  Four fire engines attended.  The fire was brought under control just before 5 am.  So much water was needed to put out the fire that the rear garden was found still to be saturated 3 days later.  The property appeared to be intact and there was no sign of any break-in.  The experts agreed that the fire originated in the ground floor hallway, close to a radiant halogen heater connected to the mains electricity supplied by an extension socket.  There was no evidence of multiple points of ignition which sometimes characterise a deliberate fire.  The fire brigade investigation officer in his brief report concluded that the “Supposed Cause” of the fire was accidental and not deliberate.  
9.	The fire caused extensive damage to the upper part of the house.  The roof was totally destroyed and large sections of the roof, the tiles and the supporting beams had collapsed into the bedrooms below.  The staircase itself was completely destroyed and the hallway greatly damaged.  Access to the first floor was only possible through one of the windows.  The cost of the reinstatement was in the region of £270,000.  
10.	Loss adjusters appointed by Zurich assessed the damage to the contents in the lower ground floor to be about £38,788.  They were unable to gain access to the first floor.  On 14th December claims consultants appointed by the appellant submitted a draft schedule of his contents claim followed up on 18th December by the latest draft version of that claim which, in so far as the first floor contents were concerned, was said to be based “on the insured’s recollection of what was there at the time of the fire”.  These schedules contained 13 categories of items found on the first floor to a value of some £12,465 including seven Boss suits at £500 each and 30 Boss and Armani shirts at £92 each.  Mr Yeganeh must be a snappy dresser.  
11.	On 21st December the appellant went to the house with Zurich’s expert, Mr John Fuller of Burgoynes, and explained to him that the contents of the master bedroom had been placed in a heap on and next to the bed.  The heap had been covered with a blanket or something similar.  Nothing had been hanging on the clothes rail.  Mr Fuller, however, could find no trace of any of the claimed clothing apart from some sports clothing, a pair of trousers and two velvet suits without labels.  He told the judge he had spent an hour and a half on the task but saw no other items of clothing on the bed or in the channel he made around the bed or protruding from the debris in other areas of the bedroom.  His view was, however, obstructed to some degree by hanging debris as the ceiling had fallen in.  
12.	On 18th July 2008 Mr Clifford Christie, the expert appointed by the appellant, went to the house and he inspected the master bedroom.  He found numerous items of clothing not identified by Mr Fuller.  His photographs show well over 50 such items.  He also recovered the remains of a further 50 or so items of clothing which had been so badly damaged by the fire that they could not be individually identified.  He had to move large items of overhanging debris and his examination covered the whole floor, neither of which steps had been taken by Mr Fuller.  
13.	Zurich sought documentary records to show the purchase of the clothing lost in the fire and that which was purchased in replacement afterwards.  The appellant produced some bank statements on which he highlighted entries as relating to clothing but when cross-examined about these records, it was established that the money was actually spent quite differently.  There were some handwritten receipts from a clothes shop recording purchases made to restock his wardrobe after September 2007 but not all receipts were kept.  
The judge’s findings on the fire
14.	The judge had no reason to doubt the expertise of Mr Fuller and Mr Christie, observing that Mr Fuller’s experience appeared to be even greater than that of Mr Christie.  He found that there was no direct evidence that the appellant had started the fire.  As the incident was not regarded as suspicious by the fire service or by the police, or initially by Zurich, the forensic analysis was limited.  There were doubts about the honesty of the appellant and the truthfulness and accuracy of his evidence.  There was, however, no evidence to contradict or undermine his denials of guilt and his statements about where he was and what happened in his presence.  His conclusion was:
“55.  Despite the absence of direct evidence of arson I might, had there been sound evidence of a motive for Mr Yeganeh to burn down his house, have concluded that this was arson because the likelihood of the only other possibility, accident with the halogen heater, was so remote.  However given that lack of motive, the burden of proof and the guidance given in The Popi M, I find that Zurich has not proved that Mr Yeganeh burned down the house.  Arson is a very serious crime in quite a different league, in terms of execution as well as gravity, from making dishonest claims for payment or to save money.”
There is no appeal by Zurich against that conclusion.  
The case before the judge on the contents claim
15.	The experts addressed the fact that although Mr Yeganeh’s evidence was that all the clothing had been on the bed, many items were recovered by Mr Christie from debris all over the room.  Mr Christie considered these items could originally have been on the bed and had been moved to other areas by the action of high pressure water from the hose reels pointed into the room during the fire fighting.  Mr Fuller disputed that.  He thought it likely that the fire spread into the master bedroom as a result of burning roof timbers and tiles collapsing through the ceiling and that these would have covered any items that were present in that room before the collapse.  
16.	Mr Ben Elkington who appeared below for the appellant as he has before us, submitted that the allegation of fraud attacked the honesty of both the appellant and of Ms Courtnell since she gave evidence of the mountain of clothes on the master bed on the day before the fire and had helped him prepare the list for submission to Zurich.  He pointed out that since Mr Christie found so many more items than Mr Fuller had seen if Zurich’s claims were true, the claimant must have burned the items deliberately and then hidden them in the master bedroom sometime between December 2007 and July 2008.  
17.	Mr James Maxwell-Scott, appearing for Zurich, submitted that as it was common ground that all the items within the bedroom had been placed on the bed in the middle of the room, either the firemen in the fire fighting process caused the items to spread around the room or Mr Yeganeh had planted them after Mr Fuller’s inspection.
The judge’s decision on the falsity of the contents claim 
18.	Although the judge accepted the truth of the evidence of each expert witness, he concluded that it was unlikely that the clothes were spread around the bedroom as suggested as a possibility by Mr Christie.  He accepted that during the course of Mr Fuller’s inspection he would have noticed any item protruding from the debris unless directly covered by material falling from the ceiling.  
19.	He found the appellant’s evidence to be unsatisfactory in several respects, for example as to the provenance of the halogen heater, the lies to the Council in order to evade council tax and the “mistakes” as to the highlighted entries on the bank statement of which the judge said:
“These were mistakes only in the sense that they were carelessly dishonest.”
I do not wish to be overly pedantic but “careless dishonesty” is a curious concept.  His finding that the appellant was “casual about the truth” was a pointer to a tendency consistent with the fraud alleged by Zurich.  
20.	His conclusion was:
“73.  Mr Yeganeh had an incentive to plant clothing in the bedroom to restore the integrity of the contents claim which Mr Fuller’s investigation had demolished.  For the reasons I have set out I conclude that he did this directly or indirectly.  …
74.  I therefore conclude that Zurich has established that Mr Yeganeh made a false claim for the clothing contents and this defence succeeds.”
Discussion
21.	I said I would be brief.  Two main reasons inform my decision.  The first is the judge’s failure to deal with material evidence given by Ms Courtnell.  In her witness statement she says this:
“Mr Yeganeh had a lot of clothes.  He and I frequently went shopping together both in London and in Chichester and I often chose clothes with him.  Whilst the decorating was going on in about August 2007, all Mr Yeganeh’s clothes, with the exception of those which he kept at my house (where he was living while the decorating works were being carried out) were piled up in the master bedroom and covered with sheets and curtains.  After the fire on 14th September 2007 I helped Mr Yeganeh put together a list of all the clothes which were at Whitefriars at the time of the fire.  I was familiar with what clothes and shoes he had because, as I say, I often went shopping with him and also because I used to do his washing and ironing and generally organise his wardrobe.  We compiled a list from memory and, to the best of my recollection, the list which we produced is a fair and accurate record of what Mr Yeganeh had at Whitefriars at the item of the fire.”
She confirmed that evidence under cross-examination, saying of the pile of clothing, “It was a mountain high of clothing”.  
22.	Mr Maxwell-Scott very properly challenged her veracity:
“Q.  Your evidence is that Mr Yeganeh left your house on the night of the fire and was away for how long?
A.  About an hour.
Q.  And when do you say he got back?
A.  About 8 o’clock.  I think he went about 10 to 7 and I think he got back about 8.
Q.  Are you telling the truth about that or are you covering up for him?
A.  No, I am not covering up for him.  Yes, I am telling the truth.
… 
Q. Have you got together with Mr Yeganeh to consciously exaggerate how many clothes he had?
A.  No.”
23.	As Mr Elkington correctly submitted to the judge, it was implicit in Zurich’s case that if the appellant was making a false claim, then Ms Courtnell was complicit in that deception.  That had to be the consequence of the way Zurich ran its case.  It was, therefore, incumbent upon the judge to make the crucial finding of fact as to whether or not he believed Ms Courtnell and whether he found her to be equally dishonest.  He failed to do so.  He should have made that crucial finding.
24.	The second reason is this.  The judge appears to have accepted as common ground the fact that there was this pile of clothing on the bed.  He accepted the truthfulness of the evidence of both experts.  He had, therefore, to find, and did find, that there was little trace of any of the claimed clothing when Mr Fuller inspected in December yet there were many items, some recognisable, some burnt beyond recognition, when Mr Christie inspected in July 2008.  Consequently he accepted the submission advanced by Mr Maxwell-Scott for the first time at the trial, and not previously pleaded or suggested, that the appellant had planted that clothing sometime between those two dates.  That theory leaves many unanswered questions.  How did the appellant manage to burn the numerous items discovered by Mr Christie, some to a cinder?  Where were they burnt?  Was it done in situ at the risk of detection?  Or was it done off the site and somehow carried to the premises to be distributed randomly throughout the bedroom?  How do you carry clothing so badly burnt? How do you distribute this amount of clothing so randomly without disturbing the room so much that the change would have been detected?  The crucial question in my judgement is this: what did the experts have to say about this theory which they were never asked to investigate?  It should have been properly investigated and pleaded.  In my judgment the judge’s error was to accept the late suggestion of planting of these many items of clothing “directly or indirectly”, without analysing how that planting could have been achieved.
Conclusion
25.	Thus I am satisfied that the appeal must be allowed, and the orders of 24th May 2010 set aside.  The case must be remitted to the High Court for rehearing of the dishonest claim for the loss of the clothing.  As a vast sum of money has already been expended in this litigation, both parties might take time to reflect upon this judgment, consider how to deal with it and what and how much is at stake.  They may even decide to seek mediation rather than waste more money in litigation.  
Lord Justice Jacob:
26.	I agree.
Lord Justice Patten:
27.	I also agree.