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Insurance - Property insurance - Whether the lower courts erred with respect to the finding of fraud - Whether the trial judge erred with respect to his findings on credibility - Whether the trial judge erred in declaring the policy null ab initio - Whether the Court of Appeal erred by allowing a motion to dismiss in this case.

The Applicant, Shama Textiles Inc., is owned by two brothers, Raffiullah and Iftikhar Ahmad. On September 23, 1991, Shama was issued an insurance policy for its property. On December 20, 1991, a fire broke out and water damage was caused to machinery and spare parts. Notice of loss was given and adjustors were appointed. After an investigation, the Respondents, Lloyds, refused to pay on the grounds that Shama had misrepresented the risk, thus nullifying the policy, and that it had grossly exaggerated its claim. Shama then filed an action claiming $3,090,032.70 representing its direct physical loss, $1,150,000 for loss of goodwill, business interruption and loss of profits, and $3,000,000 representing punitive and exemplary damages.

The trial judge found that the two brothers’ testimony was not credible and that they had exaggerated the claim. He decided that Shama was not entitled to payment, as the claim had been made with the intention of defrauding Lloyds, which nullified the policy ab initio. He also found that in any event, Lloyds had discharged its burden of proving that Shama had misrepresented the risk when applying for insurance. Finally, he dismissed the claim for punitive and exemplary damages for lack of credible evidence. The Court of Appeal allowed a motion to dismiss on the grounds that the issues raised dealt merely with the trial judge’s weighing of the evidence and his findings on credibility. The Court also noted that the evidence revealed that the brothers had committed a fraud against Lloyds and that the appeal had no chance of success.