Advance (NSW) Insurance Agencies Pty Limited & Anor v Matthews

[1989] HCATrans 38

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IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Sydney No Sl19 of 1988

B e t w e e n -

ADVANCE (NSW) INSURANCE AGENCIES

PTY LIMITED and HOME OWNERS

INSURANCES PTY LIMITED

Appellants

and

BRUCE JAMES MATTHEWS and

BERNADETTE ANN MATTHEWS

Respondents

MASON CJ
DEANE J

Advance(2)

DAWSON J

TOOHEY J

GAUDRON J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON TUESDAY, 28 FEBRUARY 1989, AT 10.19 AM

Copyright in the High Court of Australia

28/2/89

C2T2/VH 1

MR D.M.J. BENNETT, QC: If the Court pleases, I appear with my

learned friend, MR J.L.B. ALLSOP, for the appellants.

(instructed by Phillips Fox)

MR D.E. GRIEVE, QC:  May it please Your Honours, I appear with

my learned friend, MR C.M. SIMPSON, for the first

respondent. (instructed by Butler and Associates)

MASON CJ:	Yes, Mr Bennett.
MR BENNETT:	Your Honours, I hand up the outline of submissions.
MASON CJ:	Yes, Mr Bennett.
MR BENNETT:	Yours Honours, this case provides a classic example

of the problems which can arise where codification

takes place in an area of law and rigidity follows in

areas not intended to be covered by the codification.

What was proposed by the INSURANCE CONTRACTS ACT,

rofar as is relevant, is a very simple and very

straightforward codification of the law relating to misrepresentation and non-disclosure. It provided

a duty of disclosure on the insured; it provided that

if there was a breach of that duty which was

fraudulent the insurer could rescind and, if there

was a breach which was innocent, the amount which

could be recovered was reduced by the damage the

insurer had suffered.

What the code did not deal with at all was how

that formalization was to be applied

to multiple insurance with the result that, when

one had this case, where both insured were guilty

of a non-disclosure but it was fraudulent by one

and not able to be proved to be fraudulent and

therefore, so far as the evidence is concerned,

innocent in relation to the other, the words of

the statute were held not to apply.

(Continued on page 3)

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MR BENNETT (continuing):  Our first and primary submission

will be that as a matter of construction, bearing

in mind the purpose of the Act and bearing in

mind simple common sense, one gets to the

opposite result. The second way of putting it,

the alternative way, is to say that there is an

ambiguity and one must therefore look at the

connnon law position. That would involve some

analysis of the subtle distinctions explored by

this Court in WASSON and DEAVES involving

composite insurance and joint insurance, and
rather surprisingly the almost total dearth
of authority on the question of the right to
terminate where there is a fraudulent non-disclosure
or misrepresentation by one and not by the other

in multiple insurance.

The reason, of course, for the dearth of

authority is that prior to the INSURANCE CONTRACTS ACT

insurance always contained - or almost always

contained - a clause making the statements in

the proposal the basis of the policy. That no longer seems to happen and, therefore, one has

a problem which did not arise before. That is

the second area. The third area involves the

assumption that I fail on the first two areas

and that one has to look at a subsection which

provides, in effect, that where there is innocent misrepresentation or non-disclosure the liability of the insurer is reduced to the amount which
would place him in the position as if the

misrepresentation or failure had not occurred.

His Honour the trial judge applied an early

decision of this Court, which we will be submitting

is in quite a different context, saying that to

reduce means diminish and does not mean abolish and, therefore, that as a matter of English one

cannot reduce to nothing. The effect of His Honour's

decision is that if there is a diminution of

liability then the provision operates but if it

diminishes beyond that last sense to nothing it

does not apply at all, and we will be challenging

that aspect of His Honour's decision.

(Continued on page 4)

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MR BENNETT (continuing): There are a couple of minor matters

I should direct Your Honours' attention to before I

begin. There are a·number of pages in the appeal

book which are illegible due to the photocopying

process and, although they are not very important

pages, we have made seven copies of each of those

which are duly numbered furYour Honours. We have

also included in this bundle copies of the order

of Mr Justice Young which, for some reason, was not

included in the appeal book although it, clearly,

which will need to be adjusted, if an order is made allowing the appeal and I hand up to Your Honours

should have been and finally there is a short

document entitled Suggested Orders if Appeal is

those bundles.

MASON CJ: Thank you. Yes, Mr Bennett.

MR BENNETT:  Now, may I take Your Honours to the first point

and to the sections of the Act. One starts with

section 21 which sets out the duty of disclosure

and it provides that:

Subject to this Act, an insured -

not relevantly defined so far as multiple insurance

is concerned -

has a duty to disclose to the insurer .....

every matter that is known to the insured

..... that ..... a reasonable person -

would regard -

as relevant.

Then one goes to section 28 which provides:

This section applies where the person who

became the insured -

one wonders if there is a distinction between an

insured and the person who became the insured but,

bearing in mind the -

(a) failed to comply with the duty of disclosure;

or

(b) n1ade a misrepresentation to the insurer

before the contract was entered into -

The insurer may avoid it:

If the failure was fraudulent or the misrepresentation was made fraudulently.

C2T4/l/SH	4	28/2/89
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And:

If the insurer is not entitled to avoid

..... the liability of the insurer ..... is

reduced.

(Continued on page 6)

C2T4/2/SH	5	28/2/89
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MR BENNETT (continuing):  We submit that when one applies that to

multiple insurance, leaving aside questions of whether

it is joint, several, composite or some other common

law concept, one starts with the proposition that one

must read the section as a whole in a sensible way.

And we would submit, what that must mean is, that

each insured has a duty of disclosure and if any

insured makes a misrepresentation, the section

applies, and if the failure was fraudulent or the

misrepresentation was made fraudulent, the insurer

may avoid the contract. We submit that is the natural

construction of the section.

There is not a great deal one can say on either

side of that beyond making the obvious points. There

is clearly an injustice to the insurer if, as in this

case, there is a misrepresentation or a non-disclosure

which is fraudulent by one. It will often be difficult,

if not impossible, to demonstrate fraud in the other

party. One could imagine many situations where one

insured is the one who substantially looks after the

filling in of the proposal form, not as agent for the

other, they both sign, but one is basically concerned

with the insurance, the other really does what the

first suggests.

In that sort of situation it will frequently be

impossible to demonstrate fraud in the other party

and we would submit that the common sense approach

is to say that where there is fraud, the policy

should be capable of avoidance. In so far as there

might be injustice to an innocent co-insured, we

submit two things: first, in most cases, one can
simply say that that is not an injustice as great

as the other injustice. If one applies the general

common law approach that where one of two innocent

people must suffer due to the fraud of the other,

one generally looks to see which of the innocent

persons was closer to the party who was guilty of

fraud; which one enabled him to commit the fraud;

and so on. In most situations the co-insured

will be the one who, on that general principle,

ought to suffer the consequence. (Continued on page 7)

C2T5/l/BR	6	28/2/89
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MR BENNETT (continuing); In uny event, the court has a power

under section 31 to deal with the problem.

Under section 31 in any proceedings by the insured that has been avoided on the ground of fraudulent

failure, the court may, if it would be harsh and

unfair not to do so, but subject to this section,

disregard the avoidance. And if it does allow the

insured, and we would submit that may include one of

the insured, to recover the whole or such parts as

the court thinks just and equitable, the amount that

would have been payable had the contract not been

avoided and then th~re i$ a provision that it carmot be done

where there is prejudice.

If there is prejudice, of course, the prejudice,

no doubt, is something which would have prevented the

fraud being taken advantage of in any event, under

section 28(3). So we submit that reading the Act as

a whole and bearing in mind the forgiving power of the

court under section 31, it is a more sensible result,

a more natural result and the result one would

expect, to say that fraud by one should result in the

insurer being able to terminate.

We have reminded Your Honours in paragraphs 1.2 of an English decision where Mr Justice Megarry

described this process of eclectic pluraliza.tion under

which one may, under the INTERPRETATION ACT, pluralize

some words and not others. If I can just give the

obvious example that His Lordship gives:

the JNtERPRETATION ACT 1889 "words in the

singular -. . . include the plural," this

was only "unless the contrary intention

appears";

Clearly, therefore, if one has two mortgagees and

two mortgagors the ~ct applies to read mortgagee and
mortgagor in the plural. There is no reason why one

should not also apply the Act to a plural mortgagees

and a single mortgagor, or vice versa. In other words,

one may pluralize one word and not another.	And if
the mortgage talks about an interest of a party in

terms which could mean a mortgagee and could mean a

mortgagor, it may mean the plural mortgagees and the

single mortgagor, or vice versa.

The case is reported in (1974) Ch 229, and the

passage is at page 241. It is a very short passage.

C2T6/7/JH	7	28/2/89
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MR BENNETT (continuing):  Your Honours need not be troubled

with the fairly complex problem which arose in

that case in relation to the law of landlord

and tenant. At the bottom of page 241, midway

between G and H, His Lordship said:

There was some discussion of this process
of eclectic pluralising, but in the end
it was not seriously contended that under

the INTERPRETATION ACT 1889 this process

was illegitimate. I think that this must

be so, though I was referred to no authority

on the point: indeed, authorities on this
part of the INTERPRETATION ACT 1889 seem

meagre. I do not see why this provision

should not be applied distributively. Further,

to "include" the plural does not mean that
the word must discard its singularity:
the Act adds to the meaning of the word,

rather than changing it. It would indeed

be remarkable if, for example, a statute

worded in terms of "landlord" and "tenant"
applied to every case where there was a
landlord and a tenant in the singular or
landlords and tenants in the plural, but

not to cases where there were plural landlords

and a singular tenant, or vice versa. In

my judgment, subject always to the context,

the INTERPRETATION ACT 1889 authorises

a process of selective pluralising or, for

that matter, singularising.

The other aspect which we remind Your Honours

of on this part of the case is that this is,

as Mr Justice Samuels pointed out, a standard
domestic policy. It is basically intended for

the normal household situation where large sums

of money are not involved. The maximum sum insured

under the range provided for by the form went

up to $30,000. There is provision excluding

gold, silver, furs and the like. It was intended

to be a simple, readily available, domestic policy

normally applying to domestic situations not
necessarily where there was a marriage between

the insured, no doubt, but frequently so.

We would submit it is incongruous in such

situations to construe the application of this

Act to such a policy in such a way as to require

that where there is fraud the insurer prove fraud

against each.

C2T7/l/SDL	8	28/2/89
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MR BENNETT (continuing):  This case was a classic case.

One of the parties was unavailable. There was no

way the question of fraud could be tested in relation

to that party and as a result the - one does not

know whether it is as a result but certainly

what occurred was that there was no way the

insurer could prove fraud in one of the parties.

DEANE J:  Mr Bennett, is there any way the insurer could get

round the problem if you be wrong? Could it require

a warranty that the answers given by the co-insured

were true, or - - -

MR BENNETT:	As I understand it, Your Honour, and I say this subject to correction, there is provision in the Act
for contracts to be approved and there were difficulties in imposing specific terms.
DEANE J:	I notice section 33 is confined.
MR BENNETT:	Yes, and section 24 is the one that makes

it particularly difficult, Your Honour.	Your Honour
will see :

A statement made in or in connection

with a contract of insurance, being a

statement made by or attributable to the

insured, with respect to the existence

of a state of affairs does not have effect

as a warranty but has effect as though it

were a statement made to the insurer by

the insured -

and if the problem is proving that a statement
is fraudulent one could only do that by actual

proof that it is fraudulent. One cannot achieve the result by means of a basis clause or warranty

and that must be taken into account, we would submit,

in construing section 28.

(Continued on page 10)

C2T8/l/HS	28/2/89
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MR BENNETT (continuing): There are some striking examples

of the consequence of this decision. Suppose one

has two insured, each of whom has had a loss due

to fire, a serious loss due to fire, and let us
assume that each of their losses is unknown to the

other; it is the second marriage in each case and

they do not know each other's insurance history.

Each one fraudulently fails to disclose. On the
basis of this decision the insurer would not be

entitled to terminate that policy under section 28(2)

because he would not have established that a

misrepresentation was made fraudulently by

the insured because neither was made by the insured.

We would submit that that result is so

startling as to suggest that one must look again

at the way the section has been construed. And,
finally, of course, the submission which I am

putting is supported by Mr Justice Samuels who

dissented in the Court of Appeal. That is the

first way we put the matter. The second way is

to go to the cases with which Your Honours are

familiar. They were dealt with by Your Honour

the Chief Justice and a numbe.r of Your Honours in

GAMER's case. The proposition that where there

is ambiguity in a statute one looks to the cormnon

law position. It, perhaps, is combined with the

POTTER V MINAHAN approach that one presumes where

there is ambiguity against an alteration of the

cormnon law, being, I suppose, the converse way

of expressing the same principle.

So the second submission assumes that one

treats this Act as not affecting the law in relation

to multiple insurance. But what one says is, "This

was an Act dealing with fraud, it was dealing with

misrepresentation, it was dealing with non-disclosure."

Really the question of how many insured there were

and what happened if one did and one did not is

something which must be examined by cormnon law

rules and we will not decide this by putting a

microscope on the words "the insured" or the

person who became "the insured" or words like that

to see whether or not they apply in the particular
case.

If one takes that approach one then has to enter the morass of the cormnon law dealing with joint

and composite insurance. Now, anomalously - and my

learned friend and I are at one on this, in using

the word "anomalously" - both our predecessors

appear to have submitted to the courts below,

on behalf of the insured, that the contract was

joint and on behalf of the insurer that it was

composite. In fact, we have considered the position,
and my learned friend tells me he has too,and we

both propose to make the opposite submissions to

Your Honours.

C2T9/l/MB	10	28/2/89
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My submission is, as I put in the submissions,

that this contract was joint, and I understand

my learned's friend submission, also contrary

to what he submitted below, or his predecessors

submitted below, is that it was composite. No doubt

the reason for the approach being taken below was

that it was thought thet the way in which section 28(1)

might operate in relation to a non-disclosure would
mean that if there was a joint insurance there was

not a failure and if there was a composite insurance

there was, but I do not propose to go into that

aspect. We submit that the policy was joint.

The basis for that submission is a very simple

one. It is true that there are cases - and they

start, I think, with SLINGSBY's case in the 16th

century - in which the courts have said, "Generally,

when one is looking at whether a convenant is

joint or several one looks to the nature of the

interests." Indeed, the old co1Illllon law idea

was if you were joint tenants the covenant was

joint, if you were tenants in common it was

several, and I suppose if you were mortgagor and

mortgagee or people ·w·ith different interests,

a fortiori it was several, and that was the basic

co1Illllon law approach.

(Continued on page 12)

C2T9/2/MB	28/2/89
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MR BENNETT (continuing): It is, of course, only a prima facie

approach. It is not, we would submit, a necessary

approach and, when one comes to look at this policy

one sees that, as I have submitted, it is a normal

household policy for a normal domestic situation.

In a normal domestic situation today no doubt there

is some property belonging to one party; some

property belonging to the other; some property of

which they are joint owners and maybe some property

of which they are owners in common, of some other

proportion than 50/50, or as 50/50 as common rather than joint owners. But the reality of the contract is that they are going together to the insurer and

saying, "We want to insure the contents of our

household and we are not inviting you to examine us
and we are not volunteering to you what is owned

by one of us, what is owned by both or the proportions

in which we own it. We are not asking you to get

involved in those questions; we both have an interest,

as parties living together in the property in the

household. If there is a dispute between us, no doubt

that will be resolved by the Family Court or the

Equity Court, depending on our marital status, but

that is not something we are concerned about in

relation to the insurance. What we are concerned about

is saying, here is our property; we want an insurance

policy for that property."

In a situation where even if there is a claim

it is not in the contemplation of the parties that
the question of who owns be examined. It is almost

inconceivable, except in the most exceptional case,

that the parties would contemplate, in the event of a

claim, that the insurer would ask the two insured,

"Well, who owns what of the destroyed property, so

we can make one cheque to the husband and one cheque

to the wife." It is something which is just not

contemplated and the reason it is not contemplated
is not merely that there is some property in each
category but also that the amounts are small and it
is unlikely that the precise interests in the property

could beworked out without an enormous amount of

effort which no one intends or contemplates should be

applied.

There may be sorre items which obviously belong to

one or the other, such as clothing, but in most

households the division would by no means be as clear.

What the parties contemplate , we would submit, in a

normal domestic policy, is that they present a united
front to the insurer both in insuring and, if necessary,

in claiming. In presenting that united front they

invite the insurer by implication to disregards

questions of who precisely owns what. The form, of

course, contains no provision for isolating the

property of the two insured nor would .one expect to find

such a provision. So, we would submit, bearing that

in mind,and, bearing in mind the way the parties

contemplate dealing with this contract that, in the

C2Tl0/l/VH	12	28/2/89
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normal standard domestic policy there is no reason

why the court should not treat the insurance

as joint. It is not required by some slavish

interpretation of SLINGSBY's case and the other

16th century on authorities to say "In every case, we

simply look at the property and say, 'Is it joint

or is it several?'" Indeed, if one did, one would

have a policy which was pro tanto joint and

pro tanto several or composite, because one would

really have to say, "Well, in so far as property is

jointly owned, there is a joint obligation; in so

far as it is owned as tenants in common or individuallv

by one or the other, it is separate insurance, the ·
policy is composite but not merely composite of

insuring A and insuring B, but composite of insuring

A, insuring B, and insuring A and B, and in so far as

it is insuring A and B, it is joint. Rather like

those common law situations where A, Band C were

tenants in common vis -a -vis C but A and B were joint

tenants inter se.

Now, that, we would submit, cannot have been what was contemplated by this simple household

policy. The logical approach is to say, this is a

joint policy; the parties are treating their

interests as joint for that purpose.

(Continuing on page 14)

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}1R BENNETT (continuing):  Now, the next question is on that

assumption what flows from the fraud by one. Jt

seems to be reasonably clear that if there is

fraud by one in a joint policy, one can terminate

the policy. It is a little harder to find that

principle either way in relation to a composite

policy. We would submit, the most useful authority

in relation to that is the decision of this Court

in FEDERATION INSURANCE LTD V WASSON, 163 CLR 303.

It is a decision of this Court in 1987.

That case involved the question on which this

Court had divided in DEAVES' case concerning the

cancellation of an insurance policy and the question
was whether one of a number of insured could cancel

a policy, that being a policy where there were

four members of a family who were mortgagors and

a hire purchase company which was mortgagee of a

vehicle. At page 311 in the judgment of the majority,

the Court said this at about point 2:

Whilst a composite policy may call for a

distributive application in the determination

of multiple claims by the insured for

indenmity under the policy, different

considerations apply when it is the very
existence of the policy itself which is in

question.

Stopping there, we take that as an invitation in this

area of law to disregard the cases which deal with termination of composite policies where there is a

subsequent breach by one insured. Those cases are

not relevant to this problem. We are concerned

with the very existence of the policy when one is

talking about rescinding for fraud.	At page 314,
point 7, this passage appears:

Neither GENERAL ACCIDENT nor DEAVES cast

any doubt on the proposition that a policy

of insurance of the present kind by which

and interests in one item of property is a	loss or damage to their respective rights the insurer indemnifies the co-insured for
composite contract. Indeed, Gibbs ACJ,
Jacobs J and Murphy J accepted that this was
so -

that is in DEAVES, of course -

By a composite contract we mean a contract

by which an insurer undertakes separate and

distinct obligations to the various insured.

As I said, we submit that in this case it is really

the same obligation to both insured, namely, to pay

C2Tll/1/BR	14	'1.8/2/89
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for whatever the damage is, but assuming that it is

composite:

This concept has been accepted and applied

in the United States and Canada ..... There is

no suggestion in these decisions that a

co-insured can unilaterally terminate the

policy in relation to his separate insurance

otherwise than for breach, without the

participation or consent of the other co-insured,

unless the policy plainly confers such a

unilateral right of termination.

There is a little hint there that in relation to "breach"

it might be different but l will not trouble

Your Honours with that. There was a slightly more

extensive analysis of the problem, of the theoretical

problem, in the judgment of Justice Gaudron at page

318 to 319, and Jour Honour at the the bottom of page

318, having dealt with SLINGSBY's case and the

historical development of the rule, says:

(Continued on page 16)

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MR BENNETT (continuing)

The consideration that the policy encompasses separate obligations with respect to the

different insured parties, or separate insurances

of the separate interests of the insured

parties, does not mean that every right

and obligation provided in the policy should

be construed as a separate right or obligation

inhering in each of the insured parties.

A transaction may involve entirely

separate obligations owed to and by different

persons. Such a transaction involves several

different contracts, notwithstanding that

transaction is emboidied in one document

and, in the absence of an express or implied

term to the contrary, the different parties

will be entitled to exercise their rights

independently of each other. However -

and this is the present case, if it is a composite

policy -

as is pointd out by Glanville Williams .....

"it is ... possible for some promises to

be joint and other promises in the same

contract to be purely several".

Certainly here the obligation to pay the premium

was joint, for example.

In such circumstances there is but one contract.

In the present case, it is clear that the

obligation by the insured to pay the specified

premium was a joint obligation -

as here -

the premium was specified as a total sum

without specification of proportions referable

to the interests of the insured parties -

as here -

it was payable by all or any of the parties,

in the sense that payment by one constituted

performance by all -

as here.

The joint obligation as to payment of the

premium constituted the policy a single

contract although it effected separate

insurances, and in that sense constituted
a "composite policy" or "composite contract"

as explained in the judgment of -

the majority.

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As I say, we submit here that the other factors

make it joint but if it is composite it is a

policy which this Court has said is not affected -

I am sorry; it is a policy as to which the rules as

to existence are different from the rules as
to breach and termination for breach.

There is one short passage I should remind Your Honours of, which is not referred to in the

submissions, and that is the short statement
by the Privy Council in relation to the problem

of joint and several covenants. In UNITED

SHOE MACHINERY COMPANY OF CANADA V BRUNET,

(1909) AC 330, at page 340.	I have copies of
that for the Court.	At point 2, in the middle

of the paragraph beginning "These answers",

Their Lordships say:

For the party defrauded cannot avoid one

part of a contract and affirm another part,

unless indeed the parts are so severable

from each other as to form two independent

contracts.

That, we submit, is a useful statement of the test as to when, if there is fraud by one party in the creation of a composite contract, the

other party is entitled to rescind. It rather

fits in with the analysis in Justice Gaudron's

judgment in WASSON' S case where one examines

the contract to see, in effect, whether there

were joint promises and several promises in the

same contract and distinguishes the case where

there are virtually separate contracts. That

test, we would submit, is the one that should

be applied unless the parts are so severable

from each other as to form two independent contracts.

That can hardly be the case here when the

parties did not seek, in this case - neither
party sought to suggest - that the contract was

severable in the sense that it could be terminated
against one and not against the other.	We did

not purport to do that and it was not suggested

that that was the consequence of what we had

done.	But one only has to ask what would happen
to see the absurdity of that.	What would happen

in a policy of this nature? One would have to

start going through all the items in the house;

it might be easier to say, "Well, these items

belong to the wife so she recovers for those."

In relation to the joint items there might be a question as

to whether she got half or the whole; probably she would

get the whole. TI1en one has to say: what about the items
owned by the husband? Does she have an interest in them which
justifies l1.e1: being paid in relation to those in that if, for
example, sb.e is contributing to the joint income of the
household or participating in the joint expenditure of the
household, she is affected by the need for the household to

incur expense in replacing, say, his clothing.

C2Tl2/2/SDL	17	28/2/89
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MR BENNETT (continuing):  So the problems would be enormous

and we submit this is a classic case where one would

say, this sort of insurance, the contracts are not so

separate as to amount to two separate contracts and on that basis one cannot say that .fraud by one only

justifies termination against that one. The cases

I have referred to in paragraph 3.3 are not of great

assistance. I do not propose to take Your Honours

through them. Most of them are basis cases. The

OMNIUM SECURITIES CO V CANADA FIRE AND MUTUAL is

one I might very briefly remind Your Honours of.

It is reported in (1882) Ontario Reports 494, and

that was a case where there was fraud by one and

there was a mortgage and the usual case of fraud

by the mortgagor and it was simply said at page 496

in the first full paragraph, the Chief Justice

there said:

It remains to consider the very serious question whether the defendants have the right to prove that the policy was obtained

by fraud on -

the mortgagor's part -

I must consider it as his insurance of

his own interest, and although he makes

the loss payable to the mortgagees, it

does not thereby become the insurance of

a mere mortgage interest.

There was a discussion of subrogration and then at

about point 7:

For a consideration, sufficient in their

estsimation, the Insurance Company agree

with the mortgagee that, so far as his

mortgage interest is concerned, this

insurance shall not be invalidated by any

act or negligence of the mortgagor or

owner of the property insured, nor by any

different or more hazardous occupation than

the policy allows.

It seems to me that this provision only

points to the future -

so the provision protecting the mortgagee was held

not to protect it where there had been fraud in the

creation of the policy

and that insurers are not thereby debarred

from setting up that the insurance had

been effected by fraud.

Then on page 497 in the middle of the page:

C2Tl3/l/HS	18	MR BENNETT, QC 28/2/89
Advance (2)

1 repeat, 1 do not see how the insurers

can be held to condone undiscovered fraud,

or warrant the policy to be conclusively binding at the time of this bargain, any more than that thev could insist that the
mortgagees warrant~d the validity of the

mortgage as to title -

et cetera, and the result is the insurance is held

void because of a fraudulent misrepresentation by

the mortgagor and the mortgagees fail, notwithstanding

a clause saying that "the insurance is not

invalidated by any actual negligence of the

mortgagor or owner". It is really one of the

few cases, if not the only case, which comes close

to the present problem.

MEYERS case which Your Honours need not go

to - it is referred to at the bottom of page 2 of my submissions - was a case which concerned the meaning of the word "you" in the proposal.

The initial decision had been rather ~izarre in

that case. There was a mortgage. The mortgagor

in f i 11 in g o u t the prop o s a 1 forms w a s a s k e d , ''Ha s

the insured had any prior claim?" and answered, "No",

and the mortgagee, of course, had had prior claims

and other mortgages and that was held at the trial

to invalidate the insurance and a no suit was granted.

Your Honours will not be surprised to learn that an

appeal from that decision was upheld. The case

really turned on a basis clause and on the construction

of the phrase "you" in the proposal form.

We would submit then, for those reasons, that

even if this is a composite policy, at common law

we would have been entitled to rescind it or void it

for the fraud of one.

(Continued on page 20)

C2Tl3/2/HS	19	28/2/89
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MR BENNET (continuing):  I put the submission in relation

to paragraph 4, thct this policy was joint rather

than composite; I will not repeat them. We

respectfully adopt the reasoning of Mr Justice Sameuls

and Mr Justice Yo1Jng on that aspect.	Both of them
decided that issue in our favour.	There was

a minor issue which is not referred to in the

submissions which concerned the meaning of the

word "you" in this proposal. That arose - because

if Your Honours go to page 9, and I apologise that

the appeal book is not as clear as one would like

Your Honours see there a woefully poor photocopy

of the proposal form. Your Honours see it has the

names of the top, "Bruce James Matthews ,

Bernadette Ann Matthews". It then has some details about the insurance and it asks a series of questions

which simply use the word "you". Question 6,

for example, the last question, although the number

is obscured is:

Have you ever had a loss or made a claim

under your contents policy -

et cetera. The declaration says:

I/We have read the IMPORTANT NOTE -

et cetera, so the question concerns the construction

of the word "you". Mr Justice Young held that the

wcrd "you" meant "you the insured" collectively and

that if either had had a claim the statement was

not false. There is come controversy between

Mr Justice Young and Mr Justice Samuels about the

flavour of the authorities, which Your Honours

may have noticed. We would submit it is not really

a question in which authorities are very helpful,

it is a question of what the form means and as a

matter of simple construction,we would submit,that a reasonable person reading that form would regard

"have you" as relating to each of the insured rather

than the insured collectively.

Obviously if one looks at the purpose of the

question it would not adequately deal with the

purpose if it referred to them individually. If one

can take a rather silly example to illustrate

the problem. Suppose a firm of solicitors with a large number of partners makes an application for

insurance and it is asked,"Have you ever hed a

claim?" It could hardly relate to exactly those

partners so if one junior partner hDd been admitted

the previous week they would be entitled to say "No"

even if there had been a major claim against the

firm the previous year.

MASON CJ:  Are you putting the case on the basis of

misrepresentation as well as failure to disclose?

C2Tl4/l/MB	20	28/2/39
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MR BENNETT:  Yes, Your Honour, for the purpose of this

submission only.

MASON CJ:	Yes.
MR BENNETT:	It is a very short submission and I have

virtually finished it. Mr Justice Young found

everything in our favour in relation to that

misrepresentation except the reference to "you"

and, we would submit, that aspect of his decision

was wrong.	Now, finally, may I come to the
question about reduce.	The way in which this

aspect of the case arises -

DEANE J:  How do they both answer on that argument when

there is only one box to be ticked?	I mean which
one is the individual?

MR BENNETT:  Well, with two it is very easy, Your Honour,

they tick both boxes and write an explanation in

the right-hand column which provides room for that.

DEANE J:  So on the revelant one they should have ticked

"Yes" and "No"?

MR BENNETT:  Yes, perhaps with a little arrow saying,

"Yes,(Mr), No (Mrs)" or something like that.

DEANE J:	And what if there were three?
MR BENNETT:	Then, Your Honour, one would write on the

right-hand side, "X" only, where it is "If, yes,

give details. If insufficient space attached

a separate document."

(Continued on page 22)

C2T14/2/MB	21	28/2/89
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DEANE J:	And does it include, on your argument, collective
as well as individual?
MR BENNETT:	Yes, Your Honour.

DEANE J: Well, then, they probably need three boxes.

MR BENNETT: Alternatively, Your Honour, they could simply

tick one and say yes because, in one sense, the

answer is yes. There has been a prior matter and

the detailed disclosure would then say, "But it only

affects one of us and these are the details". In

fact, we would submit, really, "you" in 6 - if I

may qualify my first answer to Your Honour. I was

a little hasty in answering Your Honour's question -

"you" in 6 really means "any of you".

DEANE J:  I see.

MR BENNETT: Therefore, if one answers - the answer to the

question is yes and the explanation can, then,

provide what one needs to know to qualify it: One

only has to think of the standard situation where

one has couple sharing under a policy such as

this and one of them has had a major claim which

would otherwise require disclosure. A person

reading this form would hardly think, "Well, that

does not apply because I am insuring with a

different wife or husband this time and, therefore,

I do not need to disclose that".

DEANE J: Well, one can think of many situations including,

to take your own analogy,where your instructing

solicitors we:re filling in the form. You would need

a couple of hundred of boxes presumably if they are

following the recent trend.

MR BENNETT:  Yes, but they should simply tick the yes box and

then put the explanation, "Only one of our partners,

when he was in a former firm, had a claim".

There is no difficulty in making the word "you"

as a matter of English, do that sort of work and,

indeed, it is artificial, we would submit, to read it
simply as meaning "the composite group".

Now, the final matter concerns the word "reduce". This argument arises in this way: His Honour found

that the answer to question 6 in relation to one

prior incident,which was a common incident affecting

the same people, amounted to a misrepresentation but

that it was an innocent misrepresentation in relation

to both. Now, in relation to that aspect, there was

evidence given to the effect that the policy would

not have been issued. His Honour regarded that

C2Tl5/l/SH	22	28/2/89
Advance(2)

evidence as inadequate for reasons I will not take

Your Honours to and what he did was, at page 248

of his judgment, he :indicated that the ffi:l.tter could be re-opened.

Your Honours will recall this matter had been

heard rather quickly. It was not heard in the normal

course because of the incident involving the placard

with the result that the matter was brought on for

trial quickly without all the usual steps and one

of the parties was in person and what His Honour

said at page 248, line 15, was that:

If there has been some misunderstanding, I will give leave to re-open the case if I can be

assured that that will not cause prejudice -

et cetera.

(Continued on page 24)

C2Tl5/2/SH	23	28/2/89
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MR BENNETT (continuing): That did not arise because the

appeals came up on the major questions. But we would submit that if the appeal is allowed that should be done or at least it should be referred to

His Honour to decide whether he does that because he

has never decided that and we have included that in

the draft orders. But if that occurs this aspect of

His Honour's decision becomes relevant and, it is, of

course, an important matter. It is one of the matters

that was, we would submit, the basis of leave being

granted because it is of great importance to the
industry if His Honour is correct in his interpretation

of the word "reduce."

If Your Bonours go to section 28(3), the subsection

says:

If the insurer is not entitled to avoid the contract •.... the liability of the insurer in respect of a claim is reduced to the amount

that would place him in a position in which

he would have been if the failure had not

occurred.

Now, we say that if the failure had not occurred we

would not have issued a policy. We would have issued

a policy with a condition which would not have been

satisfied about windows and alarms and so on.
Therefore the amount would be reduced to nothing.

His Honour said the word "reduced" means diminished,

not reduced to nothing.	Now, we make a number of
submissions about that.	The first and simplest

answer to it is that, of course it is not reduced

to nothing because you could still recover the premium.

If the policy was induced by fraud the consequence

of the avoidance is that he is entitled to the

premium back. Indeed, there is evidence in the

appeal book in one of the pages I handed to

Your Honour, of the premium being tendered back.

Therefore, it is not reduced to nothing, it is

reduced to, I think, $130.

DAWSON J: That would not be the liability of the insurer in

respect of a claim, though,would it?

MR BENNETT:  We would submit it is, Your Honour, because when

he claims he recovers damages. The liability in

respect of the claim is reduced to so much of the

claim that is made as equals the amount of the

premium. The plaintiff would be entitled to

judgment for $100 and whatever it is on his claim.

He only gets so much of the claim as equals the

amount of the premium. It is a technical answer

to a technical problem but we would submit it is

correct.

The second and more important submission we make,

the substantive submission and the one with which my

client and others are more greatly concerned, is the

C2T16/l/VH	24	28/2/89
Advance (2)

meaning of the word "reduced." Now, the authority

relied on by His Honour was EASTERN EXTENSION AUSTRALASIA

AND CHINA TELEGRAPH COMPANY LIMITED V COMMONWEALTH,

6 CLR 647. That was a case where a cable had been laid

between Tasmania and Victoria and the States'

obligations had been taken over by the Commonwealth.

Amongst the obligations was to pay to the company

an amount in respect of fees obtained for use of the

service and the ~qreement did provide that:

The GovernmenL should have "full power

at any time to reduce" the scale of
charges for telegrams.

What was done was to abolish the scale of charges for telegrams and it was said that "reduce" did not

mean abolish. Now, we would submit that that is a

totally different context and indeed, the remarks of

all the Justices indicate that. At page 663, for

example, in the judgment of Sir Samuel Griffith,

His Honour at point 8, starting with the word

"Whatever" in the left-hand margin, said:

(Continued on page 26)

C2Tl6/2/VH	25	28/2/89
Advance(2)

MR BENNETT (continuing):

Whatever, therefore, might in another

context be included in the literal

meaning of the word "reduce", they say

that, as a promise would be implied on the

part of the Government not to do anything

which would prevent the substantial

continuance of the adventure ..... the word cannot in this agreement be so construed.

In other words, the submission there was not that

the word "reduce" does not mean reduce to nothing,
but that in the context where it would result in

the termination of the whole benefit to one party

under the agreement one simply would not construe

it that way, and His Honour said "Whatever might

in another context be included in the literal meaning

of the word" suggesting that the literal meaning

might include reduce to nothing.

Mr Justice Barton, at page 668, set out 1n

great detail the policy reasons as to why looking
at the agreement as a whole one would not construe

it in the way the Commonwealth contended and at page 670

point 3 :.1e said it would make the agreement

a mockery, again, we would submit, a powerful

factor in favour of giving the word that meaning

in that case. Mr Justice O'Connor, at

~age 678 point 1 said:

In ascertaining the intention of the parties the Court must endeavour as far as possible to give its full and fair value to every

word they have used. And where a general

expression occurs capable grammatically of

a wider or a more restricted meaning the

Court will take it -

et cetera.	So he regarded it as ambiguous and
Mr Justice Higgins dissented and found the opposite
meaning.	So we would submit that the case is

certainly not authority for some broad proposition

tat re uce h II d II d oes not mean re uce to not 1ng an , II d h' II d

in any event, as a matter of normal semantics the very phrase "reduce to nothing" demonstrates that the word "reduce" can mean "reduce to nothing".

That is what the expression is, and it is a normal

use of the English word "reduce". It is not a

metaphor to say reduce to nothing. It is not making

a humorous pun suggesting that, of course, if it is nothing it is not really a reduction, but the phrase is used in that way. It is a normal English

expression and the - I have not taken Your Honour

to the dictionary meanings, but they involve the

word "lessen" and, of course, the zero is a number,

it is less than any other positive number, and

C2Tl7/l/HS	26	28/2/89
Advance(2)

therefore it would be within the word "lessen"

if one reduces 10 to zero, and we would submit

very simply His Honour's application of the case

is inappropriate.

Finally, may I remind Your Honours of the - I am not sure if one does remind in this context -

the Law Reform Commission's report in relation to

this Act, and I hand to Your Honour copies of that,

and that dealt with this precise problem. At

page 284 - it is the very last page of the bundle

I have given Your Honours - Your Honours will see

in the notes to clause 29 which became section 28,

note 5:

An insurer is not entitled to avoid a

contract for innocent misrepresentation

or non-disclosure, but may reduce a claim

by the amount of the loss it has suffered

as a result of the misrepresentation or

non-disclosure. The amount by which the

claim is reduced is the amount which would place the insurer in the position it would have been in if the failure to comply with the duty of disclosure had not occurred or the misrepresentation had not been made.

For example, if the insured would have

charged a higher premium had the

misrepresentation not been made, it would

be entitled to reduce the claim by the

amount of the additional premium. If the

insurer would not have entered into the

contract at all, it would be entitled to pay

nothing in respect of the claim except the

premium paid by the insured. If the insurer

would have inserted a different term in the

contract, then the insurer would only be

liable for the amount -

it would have done.

(Continued on page 28)

C2Tl7/2/HS	27	28/2/89
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MR BENNETT (continuing):  So, the draftsman thought that

"reduce" meant "reduce to nothing" or, at least,
nothing but the premium and, again, at page 116

at about point 6, if Your Honours see the words

"non-disclosure" in the left-hand margin, against

those words, the report says:

Of the two, the common law approach is

preferable. It is directed towards the parties themselves and does not require

that discretions be conferred on a court. Damages for a breach of duty would simply depend on what the insured would have done

had it known the true facts.

That should mean "insurer", in think.

Where the insurer would not have accepted

the risk on any terms at all, the amount of
its loss is clearly equivalent to the amount

of the claim made against it.

DAWSON J:  How would you know what it would have done - I mean,

every insurer would say he would not have entered

into the contract.

MR BENNETT:	That is a matter of evidence, Your Honour and, indeed, it arises in relation to materiality, under
the old law.  In every case on material non-disclosure,
the insurer would call an expert who would say, "In my experience, insurers would not enter into a contract of this type" and, in every fraud case, I
suppose - not even in insurance but in every area -
someone has to get in the box and answer the "but for" question.

DAWSON J: And there is evidence in this case, is there?

MR BENNETT: There is evidence in this case and that was the

matter His Honour wished to have the matter remitted

to him on, which he reserved and they referred to

that in the order.

Your Honour will appreciate the importance of

this case does not depend on what happens - so far

as my client is concerned - to the particular aspect.

So, we would submit that the word "reduce" must be

read in this case as including "reduce to nothing" or,

at least, to the amount of the premium.

I am reminded there was one other early common

law case I wish to remind Your Honours of in relation

to "joint" and "several" and might I hand copies of
that to Your Honours. It is a decision of the Court

of Exchequer of Pleas in SORSBIE V PARK, (1843),

12 M & W 144 and 152 ER 1146.

C2T18/l/SH	28	28/2/89
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Baron Park, at page 1151, almost at the end of the volume I have given Your Honours, says at point 7:

I concur with My Lord in the view he has

taken of this case, although, when the case

was before the Court upon the first argument,

I had some little doubt about it, and was

desirous of seeing whether any light could

be thrown upon it by have the whole deed .....

I think the correct rule is laid down by

Gibbs, C.J., in the case of JAMES V EMERY,

with the qualification stated by Mr Preston,

in the note in Sheppard's Touchstone, 166.

That rule is, that a covenant will be construed

to be joint or several according to the interest

of the parties appearing upon the fact of the

deed, if the words are capable of that

construction; not -

this is not what the rule is -

that it will be construed to be several by

reason of several interests, if it be expressly

joint.

So, even then, it was recognized that one could, if

it was expressly joint, have a covenant which was not

joint where the interests were joint.

(Continued on page 30)

C2Tl8/2/SH	29	28/2/89
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MR BENNETT (continuing):  Now we say it is not express in this

cc1tract, of course, but we submit, nevertheless,

tr.3.t shows that the rule in SLINGSBY' s case, even

as long ago as 1843 was not regarded as an absolute

rule.

DEANE J:	Mr Bennett, I do not quite follow why it is that
this reduced point is still open to you? I mean,

it is true His Honour said that he would give leave

to reopen the case to call further evidence but

by appealing did you not effectively elect not

to call further evidence?

MR BENNETT:  Well, in my submission, not, Your Honour.

One simply elected to deal wit~ the one first

rather than the other first.	It m~- ~t have been
better if the other was done first	:t there is
no inconsistency. In one sense, I	Jpose, that
makes it technically interlocutory	far as that
aspect is concerned.	We have to~ .:mount both

hurdles in order to succeed on that point, the

hurdle of reduce and the hurdle of the question

concerning causation. The evidence of causation

was reasonably clear; it was at pages 91-92 and

95-96, where there was the usual affidavit saying,

"But for I would not." What His Honour said was,

"If you applied your own rules strictly you probably

rvould not have issued this policy anyway for other

reasons and, therefore, there is insufficient

evidence to satisfy me of that aspect. But the

way the matter was dealt with that was not really

dealt with fully and, therefore, I give the parties

the opportunity to have the matter brought before

me.

DEANE J:	What if one were of the view - and it is just a
possible view - that subsection (3) did not authorize the court to say, or the approach, "I would not have entered into the policy and therefore I am not liable at all", but does authorize the insurer, or an inquiry
as to what would have been the appropriate premium
if the relevant facts had been disclosed, say, a
premium of 30,000 insurance here if the facts were
as represented of the $900, I do not know. Where
would that leave this case? Would you say that
we should still send it back so that His Honour
could ascertain what the relevant premium would be? It does not seem to me that His Honour is
saying, "On some future occasion I will engage in
that if the parties want me to."
MR BENNETT:	There are two separate questions, if I may answer

Your Honour this way. The first is, is the issue

theoretically moot? and I am concerned to submit

it is not because of His Honour's order, because

what my client is concerned about is a decision

on that issue, on the issue of the word "reduce",

there being an occasion when it is not technically

C2T19/l/MB	30	28/2/89
Advance(2)

moot, where we are before the court, where leave has
been granted and the matter squarely arises

and it is a short point.

(Continued on page 32)

C2Tl9/2/MB	31	28/2/89
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MR BENNETT (Continuing):  In so far as whether, as a matter

of discretion in the particular case, it should

have been done one way or the other, we would

submit - I am not greatly concerned with what

happened. The only reason they want it sent

back is to ensure they have not met with a submission

that it is moot. That is the only reason we

are concerned about it. In other words, if

Your Honour felt there was any unfairness in

sending it back that may be a reason for ultimately not making that order but we would submit that the

power to make it in the circumstances is sufficient

to prevent the issue being moot so far as this

Court is concerned. It is that that I am concerned about.

MASON CJ:  Mr Bennett, I am not sure in my own mind at

the moment as to the circumstances that might

conceivably induce His Honour to reopen this

aspect of the case. His Honour found that there

was insufficient evidence to satisfy him that

the insurer was sufficiently disciplined to apply

its own guidelines - that is in relation to the

two matters that were agitated, the last one

being the need for a properly functioning burglar

alarm. Then His Honour referred to the circumstances

in which this section 28(3) question arose and

he said that although the case came before him

on the understanding that the injunction would

go in respect of the offending placard and

sandwich board and it would be heard quickly,
he followed that by saying, "However, if there

has been some misunderstandine" he would give

leave to reopen the case. Now, is there any

suggestion that His Honour was labouring under

soGe ~isunderstanding?

MR BENNETT:  I think he means of the parties, Your Honour,

or if, particularly counsel for my client was

under some misunderstanding.	I assume the
misunderstanding would be as to whether that

issue was to be determined by His Honour or remitted

to a master and dealt with at some subsequent

hearing. That is the way I read it.

MASON CJ:  Was there any misunderstanding on the part of

anyone?

MR BENNETT:  I am not able to assist Your Honour either

way on that. But, Your Honour, the problem was,

of course, this case was run - although it has

become a matter of major importance to - - -

MASON CJ:  Yes.

C2T20/l/SDL	32	28/2/89
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MR BENNETT: It was run in circumstances where it was

brought on very quickly. There was a litigant in person and certain aspects of the case were not dealt with as carefully as they should have

been. What His Honour was concerned about there

was to say, "Well, if there is some other evidence

on this aspect and if the parties assumed it

or the insurer assumed it was to be dealt with

in another way, that should be investigated and

I will reconsider that aspect if necessary."

MASON CJ:  So your application would be to His Honour to

reopen to supplement the evidence that was given

by your client with a view to displacing the

findings that His Honour has made on the evidence

that was before him?

MR BENNETT:  Yes, Your Honour. That is the theoretical

I wish to - and, as I said to His Honour

Justice Deane, the only reason we are concerned about that is to avoid a suggestion of mootness.

The issue is theoretically open to us and, therefore, we would submit it should be determined by this

Court in view of the importance of the issue.

What would happen if it were to be remitted,

of course , is another matter and , i f there i s

no misunderstaning, that is a procedural matter

His Honour can deal with at the time.

I have dealt with that in the suggested

orders. Order 5.

MASON CJ:	Yes, it is order 5.
MR BENNETT:	And that, of course, does not commit His Honour

to make that order if His Honour considers it

inappropriate. It is a simple case where a decision

has two ratios. It is not a matter of obiter

where the judge says, "There are two reasons

why the insurer fails on this. One is the reduce

argument; the other is it has not proved this

matter but I will consider an application for

leave to fill the gap in the case in relation

to the one", and there were simply two bases.

The other is, we would submit, properly before

this Court as long as that remains open.

May it please the Court.

(Continued on page 34)

C2T20/2/SDL	33	28/2/89
Advance(2)
MASON CJ:	Thank you, Mr Hennett.	Yes, Mr Grieve.

MR GRIEVE:	May we hand up an outline.
MASON CJ:	Yes.
MR GRIEVE:	The first question, in our submission, is whether

section 28 is ambiguous or not. Subsidiary to that question is whether or not the section contains any

words or expressions of technical import. And we

submit that the answer to both of those questions
is in the negative and that when one looks at the

section its meaning is quite plain with the

consequence that the requirement for avoidance has

not been made out by the appellant as held by the

majority below.

The section speaks of the person who became

the insured. Here, that can only mean both Mr and

Mrs Matthews. It says where they have both failed

to comply with the duty of disclosure or where they

have both made a misrepresentation, we would pause

to submit that the failure to disclose or the

misrepresentation need not be one and the same

failure or misrepresentation. Our learned friend

has rather suggested that that was so but we would

respectfully submit that if A had had a prior

insurance claim and B likewise but in discrete

circumstances, the obligation would be upon each

to disclose their separate experiences.

At all events, the section proceeds on the

footing that where they have both failed to comply
or they have both made a misrepresentation then, if
that failure was fraudulent in each instance or
the misrepresentation was fraudulent in each instance,

then and only then may the insurer avoid the contract.

We submit that to construe the section otherwise is, as Mr Justice McHugh held, to amend it rather than to

interpret it. Artd little more need be said about

it than that. It is a short point and we would be

only taking up time unnecessarily to elaborate on it.

As we outline in the third paragraph of our

submissions, the section does not contemplate any

partial avoidance and, indeed, in light of what

this Court held in WASSON, one would imagine that

that would not be conceivable in any event or,

if it were conceivable, it would require a far

more elaborate mode of expression than the legislature

has chosen. We further submit that the injustice

to the innocent insured is not overcome by section 31,

as Mr Justice Samuels suggested. First, for the

reason that subsection (2) imposes a substantial

gate on an innocent insured's right to invoke the

provisions - we will return to that in a moment;

C2T21/l/BR	34	28/2/89
Advance(2)

secondly, it is at least arguable, we would suggest

correct, to say that the expression "the insured" in 31 means all of them where there is more than

one. So far as the restriction imposed by

subsection (2) is concerned, all the insurer has to

do to defeat the subsection (1) claim is to demonstrate

some degree of prejudice more than that which is

minimal or insignificant. Where, as would

frequently be the case, there has been a total loss,

the innocent insured would be faced, in our submission,

with a very considerable burden of demonstrating

which of the particular property in question was his,

either in all respects separately or in part jointly

and the insurer, given the presence of the total loss,

could say, well, I am prejudiced by reason of this

antecedent fraud or non-disclosure in that had I been

aware of the true position,'..I may have only been

prepared to insure the innocent insured's property.

In determining my preparedness one way or another, I would have assessed the extent and value

of that innocent insured's property. Now that none

of that innocent insured' s property continues to

exist, I am unable to assess whether I would have

covered the innocent insured and therefore my prejudice

is anything but minimal or insignificant.

(Continued on page 36)

C2T:Ll/L/BR	35	28/2/89
Advance(2)

MR GRIEVE (continuing):  One can readily imagine, in our

respectful submission, such an argument having a

great deal of attraction.So, in section 31, in our

submission, far from being a panacea for the likes

of Mrs Matthews, it is not even a palliative. When

one considers the rival prejudice to the insurer

on the one hand, to the innocent insured on the other

or, perhaps I should use the word "injustice" rather

than "prejudice", one starts, in our submission, with

the premise that it is open to the insurer to

formulate his proposal and to formulate his policy

as he sees fit.

Now, if the insurer had chosen to ask a more

elegant question than it did here; a question along

the lines suggested by Mr Justice WL:1deyer in the

DAVIS case, then, although as Mr Justice Samuels

observed, that question would not necessarily have

the result of vesting subjective or actual knowledge
of the guilty insured's past, it would, in our
submission, bring the innocent insured fairly into
the ambit of section 2l(l)(b). In other words, it

would impose upon the innocent insured a need to

know. If we may take up a moment of Your Honours'

time to just go to the question that Mr Justice Windeyer

did formulate in the old case of DAVIS, X NSWR 90,

the question is at page 105, His Honour wrote at

about point 2 at 105:

With reference to the answer to the second

is not bound to answer the question for himself, though this may lead to the

question, "Have the applicants made any
previous claim upon an insurance company

before?" I am constrained to agree with

dangerous result that two persons who have been

convicted of arson, committed for the purposes
of fraud upon an insurance company, may by

afterwards taking an innocent person into

partnership with them, evade the object of

the question by truly answering, as in this

case, that they (that is, the firm) have

not been applicants before.

And that, we submit, is precisely what has happened

here, not suggesting for one moment that Mrs Matthews,

as it were, entered into partnership with the

deliberate intention of evading the consequence of

the section. But His Honour went on:

To defeat such a method of fraud the

insurance company might frame their question

thus:  "have the applicants, either collectively

or individually, and if individually either
alone or in conjunction with other persons, ever

made a claim upon an insurance company, and if so,

upon what company?"

C2T22/l/VH	36	28/2/89
Advance (2)

Now, if the appellants here had formulated such a

question, then Mrs Matthews, as a co-insured,

would have had to direct her mind to her husband's

prior history. She would have, putting it simply,

asked him, "Well, I have got a clean sheet, but what
about you?" And if she had not asked him that question

and if she had not obtained the information that he

would have no doubt provided her, then we submit that
she could not satisfied the requirements of
section 2l(l)(b). In other words, she could not
claim to be a reasonable person in the circumstances

who was not expected to know the relevant matter.

It is that way, we submit, the interests of the
insurer is well safeguarded given that it is, as we

put earlier, the insurer's own form.

DEANE J:  If he had said, "No" to her, then on your argument,

the insurer would still be liable.

MR GRIEVE:  Yes.

DEANE J: Is there any way that you suggest that the insurer

can protect itself from liability in those circumstances?

(Continued on page 38)

C2T22/2/VH	37	28/2/89
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MR GRIEVE:  Under the Act, the answer is no, in our respectful

submission but, in those circumstances, the insurer

may have some consquential right subrogated to her

right against him for the false answer.

DEANE J: It could not, as it were, make a condition of

liability?

MR GRIEVE: It would appear, in light of -

DEANE J:	I was not suggesting it could, I was just asking.
MR GRIEVE:	No.

It would appear, in light of section 24 that that is so, Your Honour.

DEANE J:	I see.
MR GRIEVE:	Now, as our learned friends have foreshadowed,

we do maintain, contrary to what was put on behalf

of our client below, that this policy is correctly

to be regarded as composite, rather than joint and

the submission that we can put in that regard may

be shortly put. If Your Honours were to glance at

the list of items that were insured, and they are

reproduced in the appeal book at pages 19 and

following, Your Honours will find that plainly

enough,many of them being articles of ladies'

clothing, example at 24, 25 and following, belong

to Mrs Matthews and in which Mr Matthews would have
no claim. At page 25 there is an interesting example

at about line 11 or 12 on the page, item 64,

four work uniforms.

Then, there is something that is rather difficult

to decipher. 'Whether the work uniforms belonged to

Mr Matthews or Mrs Matthews in point of fact is by

the by. Plainly enough, as uniforms, they must have

belonged to one or other of them and would, in our

submission, be clearly property in which the non-owner,

if I may use that expression, could not and would not

have claimed to have any interest at all. Another

example of the demonstrable separateness of the property insured is at 29 - or, other examples,

perhaps - where - as has, ·in item 10 on that page, at

about line 16, an 18-carat gold religious medal

presumably belonging to one or other in which the
other had no interest. Equally there, there are

articles of ladies' clothing and the like and, at

33, one has earrings, bracelets and so on and so

forth. I will concede that the material at 34

may have been the subject of joint interest but

I will not take up time about that but Your Honours

see that it is clear enough from the description of

the property that much of it was material in which

C2T23/l/SH	38	28/2/89
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Mr Matthews, in every sense of the expression,

would not have claimed to have had any interest

whatever and vice versa. That being so, we submit

that the ordinary rule applies, namely, that this

was in large measure separate property in which

the two parties separately sought to insure their

interests and did so.

Now, if we may just respond to what was put by

our learned friends in that regard, the argument

appears to have been predicated, at least in part,

on some assumption that either under the FAMILY

LAW ACT or in equity, a wife and a husband, be they

in de jure or de facto relationship, are incapable

of owning separate property.

(Continued on page 40)

C2T23/2/SH	39	28/2/89
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MR GRIEVE (continuing):  If that is the proposition, we

respectfully join issue with it without more

but, Your Honours, we submit that one cannot construe

this policy otherwise than by reference to the

actual property that was the subject of its insurance.
One cannot, in our submission, say having regard
to the general nature of the policy, irrespective
of that which it covered, it must be concluded

to be joint, given its comparatively modest standing

as a legal arrangement, and· so on and so forth.

When one looks to see what was in fact insured

one finds the answer.

At all events, as we understand it, our

learned friends do rely on the proposition advanced

by Mr Justice Samuels that the solution to the

problem, so far as Mrs Matthews is concerned,

is to be found in section 31. We would simply

rejoin by saying that is a rather difficult

proposition if the rights under the policy are

in all respects joint. If they are in all respects

joint, then they in all respects go and section 31

would not avail to cure the manifest injustice

to Mrs Matthews were our learned friendi primary

point correct. We will simply respectfully draw

attention to our submission 6 without elaboration.

We submit that the distinction which our learned

friends have sought to draw from the passage in

WASSON between the existence and the enforcement

of a policy as a distinction without a difference

and that if, as we venture to suggest, with respect,

it is well established that once one has a

composite policy, fraud on the part of one of the
various parties to it does not vitiate it, then
the result, if we assume contrary to our earlier

submission that section 28 has some element of

ambiguity in it, obtains.

DEANE J:  On your approach, how much should be paid to

your client in the absence of Mrs Matthews?

MR GRIEVE:  The whole sum assured, in which event he would

stand possessed of that part of it which is hers

in trust for her.

DEANE J:  Why should it be paid to him alone? Why should

not the insurer require a receipt from or

authority from Mrs Matthews?

MR GRIEVE:  Yes, I take the force of Your Honour's point.

On reflection, perhaps I was too quick to offer the

answer that I did. On the approach that we take

consistently we would have to say that the insurer

would only be bound to pay to him the insured value

of that of the insured property that is either his

separately or in which he has a joint interest.

C2T24/1 /HS	40	28/2/89
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The last matter which arises is the reduction

to nil point. We submit first that Mr Justice Young's

application of the dicta of Chief Justice Griffiths,

Mr Justice Barton and Mr Justice O'Connor in the EASTERN EXTENSION case was correct, secondly, we

submit that the very phraseology of subsection (3)

is inapposite to the proposition or to the result

contended for by our learned friends. The

subsection speaks of the liability of the insurer

in respect of a claim being reduced to an amount

and, as Justice Dawson observes, and we respectfully
submit that it is not a technical observation,
as our friend characterizes it, the proposition

inherent in the section is that the policy will

be on foot albeit that it may ahve been open to

the insurer to have avoided it, and that the
insurer will have a liability in respect of a claim

made for indemnity under the policy.

(Continued on page 42)

C2T24/2/HS	41	28/2/89
Advance(2)

MR GRIEVE (continuing):  The claim is for indemnity, we submit,

not a claim at large under the policy or as a result of

the relationship that existed such as for a refund

of the premium as our friends have suggested.

We further submit that the suggestion that a

construction of the words "the amount" as open to

mean no amount is, again, to attempt to amend

the section rather than to interpret it. Unless

there is some other matter, Your Honours, those

are our submissions.

DEANE J:  Well, what would you say to the proposition that

28(3) would enable the insurer to reduce his liability

in respect of the claim by setting off the higher

premium he would have extracted if he had known

of your client's claims history?

MR GRIEVE:	Plainly. In our submission, that is what the section is directed towards, indeed.
DEANE J:	Which means if it could be shown that it would have
chargedapremium of $1500 for insuring your particular
client in view of his history, that would be an
answer to a claim for $1000?

MR GRIEVE:  No. In our submission, if the insurer could

establish that,given the history,the premium payable

for a cover of $30,000 would have been, say, $15,000

instead of $100 and if a claim had then been made

for, say, $10,000 worth of property -

or even a $1000 worth of property - the insurer

would be entitled to resist that claim by apportioning

so much of the increase of the premium as bore

relationship to the quantum of the claim against
the total sum insured. In our submission, he could

not use the premium to defeat the claim in toto, he

could only use it to reduce his liability to the

claim for indemnity.

DEANE J:  Probably not much turns on it here but is that

what the section says because it says:

would place him in a position in which

he would have been -

although you ask here, "On that hypothesis what

would have been his position?" The answer is he

would have been liable for this claim of 10,000

but he would have got $15,000 worth of premium?

MR GRIEVE:	Yes.
DEANE J:	As I say, I am not suggesting anything turns on it

here.

MR GRIEVE:  Well, perhaps not. But we really attach significance,

I suppose, to the expression "in respect of a claim"

as distinct from the expression "under the policy" or

C2T25/l/MB	42	28/2/89
Advance(2)

some such similar expression. In other words,

what the legislature is directing attention towards

is the extent of the insurer's liability to indemnify

the insured as a comparatively narrow matter on the

one hand in contradistinction to the extent of the

insurer's liability in all the circumstances, whether

to indemnify the insurer or otherwise. Those are

the submissions 1 Your Honours.

MASON CJ:  Mr Grieve, do you want to say anything about

Mr Bennett's argument directed to the reservation
in the trial judge's judgment about possibility

of reopening?

MR GRIEVE:  Well, Your Honours, we are all in some difficulty

about that because at that time our client was

representing himseLf and I do not frankly think that

he will be any the wiser than anyone else in this

Court as to precisely what His Honour had in mind

or what it was about. But we would respectfully

submit that by pursuing the course that it has chosen the appellant has effectively abandoned whatever rights were reserved to it by the primary

judge.

(Continued on page 44)

C2T25/2/MB	43	28/2/89
Advance(2)

MR GRIEVE (continuing): If there was anything further that

he wanted to say or do by way of the adduction
of further evidence, then it ought to have done

that. It, presumably, could have done that fairly speedily before any final orders were

made so that both the Court of Appeal and this

Court, to the extent to which the point was still

at large, would have been in a position to decide

it in a final way.

We submit that by choosing, as it has done,

to pursue the path followe4 it has made its own

bed and that it is not open to this Court to

make an order of the kind - I withdraw that -

this Court ought not to make an order of the

kind our friends have sought on that particular

aspect of the matter.

MASON CJ:  Thank you, Mr Grieve. Yes, Mr Bennett.

MR BENNETT: First of all, in relation to section 31, the

fact that, in a particular case, section 31 may

limit the amelioration it provides does not

mean that the legislature has not chosen that

route to deal with problems of this sort. It

is my respectful submission that the provisions

of subsection (2) are merely the legislative

determination of where the justice is ultimately

to lie and on what side it will fall where there

is conflicting prejudice. But the section is,

nevertheless, available to deal with the problem

and the test is that it is there to deal with

it rather than how it operates in a particular

case.

My friend submitted that if the rights were

joint, section 31 did not assist at all. We

would submit the answer to that is that if one

is applying a purposive and common sense

interpretation, one does not cease doing that

when one gets to section 31.	We would respectfully
submit that section 31 is quite capable of being

applied the same way as the other sections by

just being read in a way to deal with the situation.

In any proceedings by the insured

in respect of a contract of insurance that

has been avoided ..... the court may, if it

is harsh and unfair not to do so ..... disregard

the avoidance and ..... allow the insured -

ie, the innocent insured -

to recover the whole, or such part.

So, one merely reads it in an appropriate way as one does with the other sections.

C2T26/l/SDL	44	28/2/89
Advance(2)

My friend then submitted that the question in

the proposal form was the cause of the problem

and it was inelegant. Your Honours, there is no question that man could devise which would

solve the problem in this case because the one

thing one cannot do is require a warranty; nor

can one determine in the proposal form whether

there is fraud or not. One cannot ask a question

as to which a false answer will necessarily be

fraudulant if it is said by a person who does

not know that the answer is false - once you

cannot have a warranty. And it is as simple

as that.

My friend then says, "Well, that is solved

by section 21(1)(b)." We would submit that it

does not solve it at all. In the normal situation

one would not expect one of two joint insured

in a household policy to know the entire insurance

history or claims history of the other. One

certainly could not assume in this case that

it would have been reasonable for the wife to

know what the husband had done in relation to

prior insurance matters before the marriage and

that provision, we would submit, if I may use

my friend's phrase, is certainly not a panacea

but not even a palliative.

(Continued on page 46)

C2T26/2/SDL	45	28/2/89
Advance(2)

MR BENNETT (continuing): My friend then says, "Well, the matter

can perhaps be dealt with by some sort of subrogation."

But there one has section 33 as the problem, which

provides, in effect, that the remedies in the division

are exclusive and you cannot use other rights. Now,

my friend then proceeded to take Your Honours to some

of the items in relation to which the claim arose

and to submit that some were aimost certainly the

property of one, not the other. What my friend's

exercise illustrates beautifully is the difficulty,

in fact, the impossibility, of undertaking that task

in a rational way.

It is not so simple as saying, as my learned

friend says, "Well, items of clothing obviously

belong to the person concerned." It is not clear in

every case that items of clothing belong to the person

who wears that clothing. There is a serious question,

if that applies, in relation to a young child, for

example, or whether the clothing is the parents'

property. But leaving that aside, even between a

husband and wife, suppose one has a marriage in which

one spouse works and provides all of the income and

the other spouse is an invalid and the spouse who is

an invalid has clothing. Now, if that clothing is

destroyed, the person who suffers the loss in a

practical sense is the person who has the duty to

clothe that spouse.

Under the FAMILY LAW ACT each spouse has a duty

to maintain the other and one can well imagine the

situation where one might say for certain purposes,

the··clothing is the property of the other. It is not

a matter which necessarily follows. Of course, it

normally would and, what we merely point out is, it

is the very sort of problem which this policy was

designed, and one would expect a policy to be designed,

to avoid. One would not expect to have a detailed

calculation on this sort of policy as to what belongs

to the husband; how many sausages are joint and how

many are several and which item is the wife's.

One notices, for example, on the page following

my friend's page, there single bed sheets and double

bed sheets. Does one treat those separately?

Clearly, we would submit, that is not the sort of

approach one takes. It is significant that, in answer

to Your Honour Mr Justice Deane's question, my

learned friend said that the payment would have to

be determined by what item belongeduto whom. So he

envisages that the consequence of a decision in his

favour is that one works out a relation to each

item, whose it was. That, we submit, is the sort

of thing which this policy is designed to avoid.

He suggested that we were submitting that a

husband and wife, or parties in a domestic relationship

cannot have separate property.	Of course we do not
submit that.	But what we do submit is that, in entering

C2T27/l/VH	46	28/2/89
Advance(2)

into this policy, the insured have said to the

insurer, "As far as the joint, separate and several

property is concerned, we are happy, as between

ourselves and you, to treat it all as joint and,

as between ourselves and you, if property is damaged

or destroyed you will pay us; you will not ask us

and we will not bother to tell you whether it is

mine, the other party's or joint." That, we submit,

is something which is perfectly permissible and is

a joint policy. The underlying reality of who

actually owns it is not what matters in this sort of

policy. It might, if one was insuring a $3 million ruby;

it does not in insuring miscellaneous items of

low,value household property.

Now, turning to the argument about reducing

to nothing, we would submit, first of all, if one

did not refer to the report, we would submit this is

a case - an unusual case in relation to statutory

construction - where the report is crystal clear.

It is not one of those cases where one reads Hansard

or reports and then ends up with almost the same

ambiguity the court is endeavouring to solve. It is

a case where the answer is there. So, if this is ambiguous, the answer is absolutely clear and, we would submit that, at the very least, it is ambiguous.

We would submit, of course, one would take the other
view of the word "reduce". But, accepting what was

said by the High Court in 1906, in a totally different

context about the word, at the very least it is ambiguous,

as some of Their Honours said.

(Continuing on page 48)

C2T27/2/VH	47	28/2/89
Advance(2)

MR BENNETT (continuing): In relation to the argument about

claim and the precise construction of section 28(3)

the point about the premium is this: that the

section does not say that you pay the premium back

but meet none of the claim. What the section looks

to is reducing the liability of the insurer in

respect of the claim in accordance with a formula.

That formula is to say what is the amount that would

place you in the position you would have been in if

the failure had not been made. That formula

produces the result that the insurer pays to the

insured $130.

So if one now reads the whole of the section,

the liability of the insurer in respect of a claim

is reduced to the amount the formula reveals: $130.

So it is not a question of whether the premium is part of the claim, it is a question of applying a

formula the section dictates and simply reading that

into the situation. Under this section the verdict

which should be recovered on the claim is so much of

the claim as amounts to $130, and it is not the

premium he gets back, it is $136 proportion of his

claim which the claim is reduced to by the operation

of the section.

In the example Your Honour Justice Deane put

to my learned friend with the $1500 and the $1000,
in that situation the claim would be reduced to

nothing and if I were appearing for the insurer in

that situation I would be obliged to rely on my

first argument about reduced meaning reduced to

nothing and to look at the instruction of the Act

in accordance with the report. The additional

argument which is available in this case would not

be available to me in that case.

In relation to apportionment, we would submit

there is simply no reason for the sort of apportionment
my learned friend requires. That is not what the

subsection says. Finally, in relation to the

suggestion that we abandoned our rights, on page 252

of the appeal book your Honours will see the notice

of appeal from Mr Justice Young to the Court, of

Appeal and ground 4 at the top of page 252 is:

That his Honour erred in not finding, in the

events which have happened, that the Appellants

became and were entitled to reduce their

liability ..... to nil in accordance with the

INSURANCE CONTRACTS ACT.

So that point was taken on the appeal, so it could

hardly have been abandoned by election by taking the

appeal. At worst, the sin which my client corrnnitted

was embarking upon a procedurally inconvenient course

ClT28/1/BR	48	28/2/89
Advance(2)

which might have led a Court of Appeal to remit the

matter before hearing the appeal on other matters.

And it might have been relevant in relation to

special leave. It might be relevant if there was
suggesting of part of special leave being rescinded.

But, we would submit that that course having been adopted and the matter having been proceeded through

two courts on that basis, there is no reason why
that matter cannot be determined before the other

matter - and it is merely a question of which is

determined first. I concede it may be less

convenient this way if the amount involved in the

litigation were more important than the issue

involved. But the matters of convenience were,

of course, dealt with by costs and Your Honours

will recall that we have undertaken not to

seek to disturb orders for costs below and to pay

the costs in this Court in any event. And if

Your Honours are concerned about any procedural

injustice, we would happily submit to any term in

relation to the costs of any renewed hearing before

His Honour Mr Justice Young on that aspect if

Your Honours felt that my learned friend's client

was prejudiced otherwise by that order.

(Continued on page 50)

C2T28/2/BR	49	28/2/89
Advance(2)

TOOHEY J: But, Mr Bennett, if the Court was with you

generally. on your argument but not minded to

remit the matter to Mr Justice Young on the

reopening point, what is sought to be achieved

by paragraph 6 of your suggested order?

MR BENNETT: It would aot be necessary.

TOOHEY J:  And this Court could make the orders that would

dispose of the matter, could it not?

MR BENNETT:  Yes, Your Honour. But - and I say this with

a measure of trepidation because I appreciate

the constraints which operate in relation to
this Court making decisions, but there are two

important questions in this case and if they arise fairly to the extent that they are not

moot, we would submit that as a matter of convenience

it is appropriate that the Court determine both

questions. The issue of "reduce" is a very

short question, it is not one which involves

more than a few minutes argument which we have,

of course, had and it is technically not moot

but so far as the actual orders are concerned

we would not be greatly concerned if Your Honour

was to make the order Your Honour referred to.

TOOHEY J: There would be really nothing left to remit

to Mr Justice Young, would there, if the

Court was not disposed to allow the proceedings

or to remit the reopening point to him?

MR BENNETT:  That is so, Your Honour. May it please the

Court.

MASON CJ:  The Court will consider its decision in this

matter and adjourn until 10.15 am tomorrow.

AT 12.13 PM THE MATTER WAS ADJOURNED SINE DIE

C2T29/l/ND	50	28/2/89
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