Assoc NAT Life Ins Co & Tyndall Life Ins v Patane No. Scgrg-00-539

ASSOCIATED NATIONAL LIFE INSURANCE COMPANY LIMITED AND TYNDALL LIFE INSURANCE COMPANY LIMITED
(ACN 00 698 228) v PATANE
[2000] SASC 443

Full Court: Doyle CJ, Williams and Wicks JJ

1................ DOYLE CJ....... In my opinion the appeal should be allowed. The judgment and orders of the District Court should be set aside. For the judgment and orders in favour of Mr Patane there should be substituted a judgment for the defendant dismissing Mr Patane’s claim against the defendant.

I agree in substance with the reasons of Wicks J.
I propose to express my own views briefly. I will not repeat the facts or the terms of the relevant insurance policy. They are to be found in the reasons of Wicks J.
It was not disputed that Mr Patane suffered a period of Disability as defined in the policy. Accordingly, Mr Patane was entitled to, and received, payments of a Monthly Benefit under the policy.
Those payments stopped, apparently on 9 February 1998, when the defendant received medical advice that Mr Patane was able to resume full-time employment as a bricklayer.
As I understand it, the case was conducted before the District Court Judge on the basis that the issue was whether, from 9 February 1998 when payments ceased, Mr Patane was entitled to receive payments under the policy.
I would not disturb the Judge’s finding that from that date onwards Mr Patane was, in the terms used in the definition of “Proportionate Benefit” in the policy, “able only to a limited extent to engage in his own or any occupation for remuneration or profit”. The Judge must be taken as having found that Mr Patane was able to continue work as a bricklayer, but was unable to carry out all of the work of a bricklayer on a full-time basis, and was unable to work as well as he had been able to work before he last suffered from “Disability”. That finding is amply supported by the evidence before the Judge.
The issue on appeal is whether the trial Judge was correct in deciding that Mr Patane qualified for a payment of a “Proportionate Benefit” in the period from February 1998 to June 1998.
I agree with Wicks J that the Judge erred, and that Mr Patane did not establish that he was entitled to that payment. Mr Patane was not entitled to the payment because he did not prove that during the period in question he had suffered “a Loss of Income of 25% or more or his Average Income”.
As Wicks J demonstrates, the evidence on the point was unsatisfactory, resting almost entirely on certain tax returns that were tendered without much explanation at all.
I agree with Wicks J that the evidence supports the conclusion that for the period in question the proper figure for Mr Patane’s “Average Income” is an amount of $1,485 per month. The “Loss of Income” that has to be established requires a consideration of the difference between Mr Patane’s “Average Income” and his “remuneration” (an undefined term in the policy) for the period in question. The policy requires that the difference “results solely from the Person Insured having suffered Disability”. This must mean that a “Disability”, that originally prevented the insured from engaging in his occupation, is now the cause of a diminution of income.
Having identified the amount of the Average Income expressed as a monthly figure, one then turns to a determination of Mr Patane’s “remuneration” during the relevant period. That takes one to the tax returns,
I agree with Wicks J that for the period in question Mr Patane’s remuneration, expressed as a monthly figure, appears to be an amount of not less than $1,515 per month. This amount is arrived at by ignoring income to the partnership by way of payments made under the policy (in the period up to February 1998), and by dividing the adjusted net income of the partnership in the proportions apparently agreed by the partners.
That seems to me the best one can do on the evidence, and the most favourable approach that one can take from Mr Patane’s point of view.
The partners appear to have agreed that Mr Patane was to receive 32.14 percent of the partnership profits for the year ending 30 June 1998. The figure of $1,515 is arrived at after eliminating the amount of the payments made to the partnership under the policy.
I am not sure that I fully understood the submission by Mr Britton, counsel for Mr Patane, on this point. Nor am I sure that I have followed the reasoning of the District Court Judge on this point. The approach of each of them appears to have been that because the share of profits received by Mr Patane coincides with the amount of the payments made under the policy during the year in question, his “remuneration” for relevant purposes is to be treated as nil, and accordingly he qualifies for a payment.
But on the Judge’s findings Mr Patane was, during the relevant period, working for the partnership as a bricklayer. There is no reason to doubt that his work contributed to the partnership income during the relevant period. Even if, somehow, the tax return can be interpreted as recording a decision by the partners that Mr Patane should received, as his share of profits, no more than the amount of the monthly payments under the policy, that decision by the partners cannot prove that Mr Patane is entitled to a payment under the policy. A decision by the partners to treat his income as nil, apart from payments under the policy, cannot, in effect, conclude the issue that arises under the policy. Even if Mr Patane is to be treated as having received no share of partnership profits between February and June 1998, as a result of a decision of the partners, that decision cannot of itself establish that Mr Patane has suffered “a Loss of Income of 25% or more of his Average Income” as a result of him being “able only to a limited extent to engage in his own or any occupation for remuneration or profit”.
That is not to say that, in deciding whether a person qualifies for a “Proportionate Benefit” under the policy, a decision by that person’s partners will be ignored. A decision as to the allocation of profits might be good evidence of the ability of a person to earn remuneration as a result of a limitation on the person’s ability to engage in an occupation for remuneration. But, in the present case, on the evidence before the Judge, I consider that it was not open to the Judge simply to treat Mr Patane as having earned nothing in the relevant period, merely because, in the partnership tax return, the partners might be taken to have decided that that is what should happen.
I emphasise that all of this is somewhat speculative, because of the limited evidence put before the District Court Judge. And, I emphasise, the evidence that the District Court Judge accepted established that during the relevant period Mr Patane was making a not insignificant contribution to the earnings of the partnership.
For those reasons I consider that the District Court Judge erred, and that Mr Britton’s submissions on appeal cannot be accepted. I repeat, that the basis of the trial Judge’s decision appears to have been that Mr Patane earned nothing from his occupation as a bricklayer in the year in question, or at least between February and June 1998, because the partners treated his share of profits as an amount that coincided with the amount of the payments that he received under the policy in the year in question. In my opinion, the decision of the partners is not of itself a sufficient basis for the conclusion apparently reached as to Mr Patane’s “remuneration” during the period in question, and it is for that reason that his claim fails.
As Wicks J demonstrates, the same problem or difficulty leads to the conclusion that Mr Patane had no entitlement in respect of the subsequent year.
I do not need to make the calculations made by Wicks J. In my opinion a calculation of the “Proportionate Monthly Benefit” need not be made, as Mr Patane has not qualified for such a payment.
I feel considerable sympathy for Mr Patane. Of course, I do not know what passed between Mr Patane and the defendant at the relevant times. But, to my mind, the terms of the policy are difficult to apply to a person in Mr Patane’s position. By this I mean a person who has a reduced earning capacity, and is a member of a family partnership which can be expected to operate in a relatively informal manner. It may be that if Mr Patane’s attention had been directed to the relevant issues, it would have been possible to prove the required “Loss of Income”. It seems to me that the issues to be faced by Mr Patane were not properly identified at trial. I hope that the defendant will give some thought to Mr Patane’s misfortune, bearing in mind the very real difficulties that arise from the application of its own policy to a person in Mr Patane’s circumstances.

2................ WILLIAMS J... I agree with the orders proposed by Wicks J for the reasons which he has given.

WICKS J The plaintiff is a bricklayer by trade and has carried on that occupation since 1972. He is 48 years of age.
On 2 April 1979 the defendant, Associated National Life Insurance Company Ltd, was incorporated under the Companies Act 1961 in New South Wales. It changed its name on 21 March 1989 to Tyndall Life Insurance Company Limited and further changed its name on 29 June 2000 to Royal & Sun Alliance Financial Services Limited.

Facts

In May 1985, the plaintiff entered into an income continuation insurance policy with the defendant under which, in the event of the plaintiff suffering a disability within the terms of the policy, he was entitled to receive a monthly or proportionate benefit under the policy.
On or about 12 November 1995, the plaintiff suffered an injury to his right arm and shoulder in the course of his employment. Following that injury, he received benefits under the policy for a period of several months.
A back injury was sustained by the plaintiff in 1996 and again, he received monthly benefits under the policy but in time resumed normal work.
On or about 17 January 1997, the plaintiff suffered a further injury to his spine. At the time, he was working on a building site where it was wet and muddy. He was carrying angle iron at the time and slipped, feeling pain in his shoulder blade and lower back. He resumed work in or about April 1997 but was only able to work for short periods averaging two to three days per week. According to the plaintiff’s evidence, he was only able to work at approximately 25% of his previous efficiency.
Initially, the defendant made regular monthly payments to the plaintiff under the policy. After payments had continued for some time, the plaintiff was referred to Dr H R Schaeffer for a medical examination and a report. In February 1998, Dr Schaeffer reported to the defendant that in his opinion the plaintiff was able to continue with his full time employment in the foreseeable future. Following that advice, the defendant ceased making payments.

Legal proceedings

The plaintiff commenced these proceedings on 30 March 1999 seeking declarations that the policy was on foot at the relevant time, that the plaintiff was suffering from a disability within the meaning of the policy and that the defendant was in breach of the policy in failing to pay benefits to the plaintiff in respect of what he claimed was total impairment and disability. The plaintiff also sought the payment of monthly benefits in accordance with the policy together with interest, including compound interest, damages for breach of contract and breach of duty of good faith and also exemplary damages.
The action was heard in the District Court and on 23 May 2000 the Court made the following orders and declarations:
That a contract of insurance pursuant to Policy of Insurance No D5005965 existed between the plaintiff and the first defendant.
That a Policy of Insurance No D5005965 existed between the first defendant and the plaintiff.
That the plaintiff was suffering from a disability as referred to in paragraphs 10, 11, 12, 13 and 14 of the More Explicit Statement of Claim within the meaning of the said Policy of Insurance No D5005965.
That the defendants wrongfully terminated the proportionate monthly benefits to the plaintiff on 9 February 1998 and that the plaintiff is entitled to receive the same until 30 June 1998.
That the plaintiff is not entitled to receive proportionate monthly benefits from 1 July 1998 to 30 June 1999.
...

Grounds of appeal

The defendant appealed from the District Court to this Court. The grounds of appeal were that certain surveillance film was inconsistent with the plaintiff having a disability and that the learned trial Judge should not have awarded monthly benefits to the plaintiff in respect of the period 9 February 1998 to 30 June 1998.

Insurance Policy

On 24 May 1985, the plaintiff took out what is described as an income continuation policy with the defendant. The plaintiff is the policy owner and is also the person insured.
The policy provided that during any one continuous period of Disability whilst the policy is in force, a Monthly Benefit (being the insured benefit stated in the schedule subject to the terms and conditions of the policy) is to be paid up to and including the end of the benefit period which is 1 May 2011. The insured benefit is $2,222 per month payable in arrears to the plaintiff who is described in the policy as the “Person Insured”. The Insured Benefit is sometimes described as the “Monthly Benefit”.
There are a number of definitions contained in the policy which are important and these, so far as is relevant, are as follows:
"Disability - shall, if the Person Insured [the plaintiff] has not changed his occupation from that stated in the Schedule [which is the case here], mean that the Person Insured is totally unable, due solely to sickness or accident, to engage in or attend to that occupation, ... provided always that Disability shall not exist for the purpose of this Policy during any period in which the Person Insured for remuneration or profit engages in any occupation.
Waiting Period - shall mean that period of time which commences on the first day of Disability of the Person Insured and terminates at the expiration of the number of days stated in the Schedule to be the Waiting Period. [The Waiting Period stated in the Schedule is 14 days.]
Benefit Period - shall mean the period of time which ... terminates at the earlier of
(i) the cessation of Disability
(ii)... the Expiry Date of the Period of Insurance stated in the Schedule [1 May 2011]
(iii).. the expiration of the Benefit Period stated in the Schedule according as to whether Disability is due to Sickness or Accident.
Accident - shall mean bodily injury occurring during the currency of the Policy and resulting directly and independently of all other causes in Disability.
Income - shall mean income from full time engagement in the Person Insured’s occupation consisting of salary and the net profits of any business carried on by the Person Insured (whether alone or as a partner with any other person) in that occupation and includes fees paid for the personal services of the Person Insured to any company, trust or partnership less any expenses incurred in providing such personal services.
Average Income - shall mean the average monthly income earned by the Person Insured in his occupation during the twelve months prior to Disability.
Loss of Income - shall mean the difference between the Person Insured’s Average Income and his remuneration during any period in respect of which a Proportionate Benefit ... is payable provided that such difference results solely from the Person Insured having suffered Disability"

The term “remuneration” is not defined in the policy.
The policy provides for recurrent disability in the following terms:
“3. Recurrent Disability
If, within six months of the cessation of a period of Disability in respect of which benefits have been paid under this Policy, the Person Insured again suffers Disability solely from the same cause or causes then the Waiting Period stated in the Schedule shall be waived in respect of the further period of Disability and such subsequent period of Disability shall be regarded as continuous with and part of the previous period of Disability.”

The policy provides for a cost of living adjustment in the following terms:

“4. Cost of Living Adjustment
If this additional benefit is included as stated in the Schedule then the following applies -
After a monthly benefit shall have been paid under this Policy continuously for one year it shall be increased at yearly intervals for so long as it is payable by the lesser of the rate of increase in the ‘Consumer Price Index All Groups Six State Capital Cities’ (as published by the Australian Bureau of Statistics from time to time) between the beginning and the end of the year and the percentage stated in the Schedule. At the termination of payments of benefit the Insured Benefit will revert to the amount shown in the Schedule.”

The percentage stated in the schedule was 5%.

The policy provides for a partial or proportionate benefit in the following terms:

“5. Proportionate Benefit
A Proportionate Monthly Benefit will be paid in accordance with the following provisions if the Person Insured, immediately following a period during which a benefit has been paid for Disability -
(i).... is able only to a limited extent to engage in his own or any occupation for remuneration or profit, and
(ii)... does so with the written approval of the Company, and
(iii).. thereby suffers a Loss of Income of 25% or more of his Average Income.

The Proportionate Monthly Benefit shall be such proportion of the Monthly Benefit as the Insured Person’s Loss of Income bears to his Average Income."

Under the policy the plaintiff is entitled to receive $2,222 per month in respect of total incapacity or a Proportionate Monthly Benefit in any period during which he satisfies the requirements found in the definition of Proportionate Benefits, the amount of which is to be determined in accordance with the terms of the policy.

Partnership agreement and the plaintiff’s income

The plaintiff has carried on his bricklaying business in partnership with his wife since about 1988. His son, Adriano, commenced working with him in 1995. He spent some time at trade school obtaining a qualification as a bricklayer, and in 1998 he entered the partnership with his parents.
The partnership agreement was unwritten. In the absence of express agreement to the contrary, the rules set out in s 24 of the Partnership Act 1981 applied. Under that section, all profits of the business must be shared equally between the partners unless they agree on some other arrangement.
Copies of the income tax returns relating to the partnership for the financial years ended June 1994 to June 1999 were admitted in evidence. The income tax returns for the years ended 30 June 1994 and 1995 are not relevant to the questions which have to be decided in this matter. The partnership return for the year ended 30 June 1996 shows a net income of $35,660 shared equally between the plaintiff and his wife. The plaintiff’s share of the net income in respect of that year was $17,830. In the return for the year ended 30 June 1998, the plaintiff, his wife and his son Adriano are each shown as partners with the plaintiff receiving $25,722 as his share of the net profits, his wife $27,145 and his son Adriano $27,161. Included in the income of the partnership for that year was an amount for sickness and accident insurance of $25,722.
The 1998 partnership income tax return contains the following note on p 10:
"NOTES TO THE TAX RETURN
Agreement to Share Profits
Antonio and Liliana Patane have been partners in business since 1 July 1988.
During the year ended 30 June 1998, Antonio Patane has been unable to fully work the business due to a physical injury. Under the terms of an income protection policy in his name he has claimed and has been paid an income from Tyndall Life. The premium has always been paid from the partnership and has always been claimed as a deduction by the partnership. This income has therefore been declared as part of the partnership income.
To enable the partnership to continue to trade Adriano Patane has agreed to stand in for Antonio Patane, to complete all work that would ordinarily be completed by Antonio Patane. He has agreed to do this on the basis of a profit share, to be determined at year end upon completion of the partnership tax return. This matter was orally agreed at the beginning of the financial year. The parties to this agreement have agreed to reduce their oral agreement to writing.
Antonio Patane has continued to act mainly in a supervisory capacity.
The tax return now has been completed and the partners agree to share profits and PPS [Prescribed Payment Scheme] credits, as follows;
A. Patane - Gross Income Tyndall (i.e. $25,722 or 32.14% of Profit)
L. Patane - Half the Balance remaining (33.92% of Profit)
Adriano Patane - Half the Balance remaining (33.94% of Profit)
Each person to share PPS Credits in the same proportions as profits."

The copy of this agreement admitted in evidence is not signed and the only date it bears is September 1999.
The partnership income tax return for the financial year ended 30 June 1999 shows the plaintiff, his wife and son sharing profits equally at $29,684 for each of the plaintiff and his wife and $29,685 for Mr Adriano Patane. On this occasion, the income of the partnership does not include any sum paid by way of sickness or accident benefit.
The 1999 return contains an endorsement in the following terms:
"NOTES TO THE TAX RETURN
Agreement to Share Profits
Antonio and Liliana Patane have been partners in business since 1 July 1988.
During the year ended 30 June 1998[sic], Antonio Patane has been unable to fully work the business due to a physical injury.
To enable the partnership to continue to trade Adriano Patane has agreed to stand in for Antonio Patane, to complete all work that would ordinarily be completed by Antonio Patane. He has agreed to do this on the basis of a profit share to be determined at year end upon completion of the partnership tax return. This matter was orally agreed at the beginning of the financial year 1998 (sic) being 1 July 1998.
The parties to this agreement have agreed to reduce their oral agreement to writing.
Antonio Patane has continued to act in a supervisory capacity and because his insurers have refused to pay him under his policy he has been forced to return to work under threat from further injury and under duress.
The tax return now has been completed and the partners agree to share profits and PPS credits, as follows;
Antonio Patane - 1/3; Liliana Patane - 1/3; Adriano Patane - 1/3. Each person to share PPS Credits in the same proportions as profits."
The agreement is dated September 1999. No day of the month is mentioned.
The copy income tax returns are the only evidence available of the income of the plaintiff over the years in question. On this topic, the learned trial Judge said:
"Whilst I consider the returns are lacking in exact detail and are inadequate in establishing the totality of income, I think the same may be viewed as establishing a minimum level of the plaintiff’s income and I cannot totally reject the same."

He concluded that the only relevant evidence of the plaintiff’s earnings was contained in his taxation returns. I agree with his findings in this regard.
For myself, I would go further and say that the onus lies on the plaintiff to establish his income at various stages in order to enable a determination to be made of his loss of income at particular times. The fact that there may be no record of particular items of income is beside the point. The plaintiff is self-employed. If he pursues his trade by carrying on business in partnership with his wife or with his wife and son, then as far as the law is concerned, income is to be shared in the proportions agreed between the partners or implied under s 24 of the Partnership Act 1891. That is so irrespective of the fact that the plaintiff’s wife makes a minimal contribution to the work of the partnership but yet receives a full share of the income of the firm.

Medical evidence

A general practitioner and three medical specialists were called to give evidence. Having regard to the manner in which I have approached the case and the conclusions to which I have come, I do not think it is necessary to form a view on this evidence.

Investigative film

The defendant arranged for a private investigator over many hours to take film or video of the plaintiff working as a bricklayer on various building sites in the period August to November 1999. A selection of the film or video was played in Court in the presence of the learned trial Judge, counsel for the parties and the plaintiff. Again, for the same reasons, I do not believe that it is necessary to form a view on this evidence.

Calculation of benefits

This is not a case where the plaintiff is entitled to receive the full monthly benefit of $2,222. The filmed observations made of the plaintiff in the period August to November 1999 clearly establish that the plaintiff was able to work at least on a part-time basis. In his reasons for judgment, the learned trial Judge found that the plaintiff’s fall at work in January 1997 resulted in a significant impairment in his ability to carry out his duties. He rejected the finding of Dr Schaeffer on 9 February 1998 and made a finding that the plaintiff was only able to carry out his bricklaying activities to a limited extent. If the plaintiff was entitled to receive a benefit under the policy, his entitlement would fall under the “proportionate benefit” provision. Where that provision is applicable, a Proportionate Monthly Benefit would be derived as follows:
Proportionate Monthly Benefit is such proportion of the Monthly benefit as the Insured Person’s Loss of Income bears to his Average Income.
I will now examine this formula in the present context. I first discuss each of the elements of the formula. These are Monthly Benefit, Average Income, Loss of Income and remuneration.
The Monthly Benefit is $2,222. This amount is referred to in the schedule to the policy.
The next item required for the purpose of calculating “Proportionate Monthly Benefit” is Loss of Income. This is defined as the difference between Average Income and remuneration during any period in which a Proportionate Monthly Benefit is payable.
Average Income is defined as the average monthly income earned by the Person Insured in the period of 12 months prior to disability. That period of 12 months is the year ended 30 June 1996, being the last complete year in which the plaintiff earned income before the current Disability. The learned trial Judge made a finding to this effect and I agree with his finding so made. The plaintiff’s share of the net income in the year ended 30 June 1996 was $17,830 or $1,485 per month. For the purposes of the formula, I have treated the period of 12 months prior to disability as the financial year ended on 30 June 1996. Income is generally calculated to 30 June in each year and this would appear to be an appropriate date for the making of calculations in an insurance of this kind.
As well as Average Income, the expression “Income” is itself defined. It includes, in addition to “salary”, the net profits of any business carried on by the Person Insured (whether alone or as a partner with any other person) in that occupation. In my opinion the plaintiff’s income for the purposes of this definition is his share of the net profits of the firm. The definition of Income also refers to fees paid for personal services of the Person Insured to any company, trust or partnership. This part of the definition relates to personal services being provided through a service company, trust or partnership. It has no application to the present case. Service trusts of this kind are sometimes used as a device to split income for taxation purposes.
Mr Britton, counsel for the plaintiff submitted that the income earned by the business was income directly due to physical exertion of the plaintiff less the plaintiff’s share of business expenses that are necessarily incurred in generating income for the business. On that basis, as the insurance proceeds were allocated to the plaintiff as his share of income, he argued that the plaintiff received nothing in respect of the profits generated by the bricklaying business. He argued that it would follow that the plaintiff was entitled to the maximum insurance benefit in the period 9 February 1998 to 30 June 1998. In my opinion that is not so. The income of the plaintiff here is his share of partnership profits. The second leg of the definition is not applicable. That leg refers to fees paid for personal services of the Person Insured to any service company trust or partnership for providing the personal services of the plaintiff to someone else.
The expression “remuneration” is not defined in the policy. In my view, in the year ended 30 June 1998 the plaintiff’s remuneration should be derived by taking the net profit of the partnership of $80,026 and by deducting therefrom any monies received in respect of income continuation insurance ($25,722) after allowing for any premium paid ($2,266). The net amount in respect of the insurance monies received should be $23,456. This should be deducted from the net profit for the year, ie $80,026 less $25,722 plus $2,266 = $56,570.
An entitlement in respect of the insurance monies must be eliminated from the accounts when calculating the plaintiff’s entitlement to benefits under the insurance policy; otherwise the exercise involves an element of double counting. It does not seem right to bring the proceeds of the insurance claim to account in calculations necessary to derive the amount of the insurance proceeds themselves.
In an agreement to share profits attached to the 1998 taxation return set out in full earlier in these reasons the profit share of the parties was described as follows:
A Patane - Gross Income Tyndall (ie $25,722 or 32.14% of profit)
L Patane - Half the Balance remaining (33.92% of Profit)
Adriano Patane - Half the Balance remaining (33.94% of Profits).
In the year ended 30 June 1998, the accounting profit of the firm was $56,570 of which the plaintiff’s share was 32.14% of that amount or $18,181. The monthly amount was $1,515. I should point out that the proceeds of the insurance claim in that year are taxable. The additional amount which must be brought to account for income tax purposes is $25,722 but, as I have said, it must not be brought to account for the purposes of calculating an entitlement under the insurance policy.
The calculation of remuneration should be made on a monthly basis with a separate figure for each month taken from the records of the firm. There is insufficient evidence to enable the correct calculations month by month to be made. Such calculations would be time-consuming because it would be necessary to calculate the net income of the partnership in respect of each month and this would include taking account of expenses on a monthly basis.
A rough guide to see whether the plaintiff is entitled to anything would be to take the plaintiff’s share of profits in the partnership for the year ended 30 June 1998 and take a proportion thereof attributable to the period from 9 February 1998 to 30 June 1998 and make the necessary calculation of Proportionate Monthly Benefit using those figures. The same would apply in relation to the financial year ended 30 June 1999. Instead of monthly figures, an annual figure would be taken and a proportion derived.
The formula to derive Proportionate Monthly Benefit is as follows:

Step 1:

Proportionate Monthly Benefit	Average Income - remuneration
Monthly Benefit	=	Average Income
Step 2:
1,485 - 1,515
Proportionate Monthly Benefit	= 2,222 X		1,485

The figure for remuneration is $1,515. It exceeds the Average Income. The result is that the income earned from the partnership is of such amount that no benefit is payable in respect of the insurance. The Proportionate Monthly Benefit is therefore Nil. If the partnership income stream is reasonably steady, the result calculated on a monthly basis would not differ significantly from a calculation on an annual basis and applying the result uniformly over the period concerned.
It follows that in respect of the first period, being from 9 February 1998 to 30 June 1998, on the available evidence, no Proportionate Monthly Benefit is payable. As a practical matter, I doubt whether calculations based on monthly figures would produce a different result. If there were large swings in income from month to month, benefits could be payable in some months but not in others.
It appears from the submission of counsel for the plaintiff on this appeal and from the formal judgment of the Court below that the learned trial Judge made a declaration that the defendant wrongly terminated the proportionate monthly payments to the plaintiff on 9 February 1998 and that the plaintiff was entitled to receive the same until 30 June 1998.
The learned trial Judge asked the parties to see if the quantum of the amount payable in respect of that period could be ascertained by agreement. In fact, predictably, nothing further has happened in that regard.

Benefits in the year ended 30 June 1999

The question also arises as to whether a Proportionate Monthly Benefit is payable to the plaintiff in respect of the year ended 30 June 1999. The same formula as that set out above applies except that 2,473 is substituted for 1,515. It follows that as 2,473 is greater than 1,485, no amount is payable as a Proportionate Monthly Benefit.
There is an additional consideration in relation to this period and that is that this action was commenced on 30 March 1999. Relief can only be sought in respect of a cause or causes of action which are complete as at that date. In respect of any cause of action arising after that date, there would need to be a fresh action.

Benefits in the period 1 July 1999 to 23 May 2000

A further question arises as to whether a Proportionate Monthly Benefit was payable in respect of the period from 1 July 1999 to the date of judgment in the action, namely 23 May 2000. As pointed out by the learned trial Judge, no evidence has been placed before him in relation to a claim in respect of the period referred to. In addition, the same difficulty arises in relation to a cause or causes of action which were incomplete as at the date of the commencement of this action.

Conclusion

The result in this matter may seem to be somewhat curious, but it must be remembered that the policy is an income protection policy. A benefit will not be provided where an Insured Person actually receives money from his or her employment in later years which is more than the maximum figure set for the payment of a benefit. If an insured person receives nothing from his or her employment, the full benefit of $2,222 per month will be payable. This amount will reduce depending on the income actually earned. Where earnings from employment equal $1,485 per month, the benefit payable will cut out altogether. The figure of $1,485 per month is one-twelfth of the Average Income of the plaintiff in the year immediately prior to a Disability occurring. One would expect that in the following year, income from employment would decrease due to the Insured Person’s disability. Clearly, this insurance was not designed for the case where income from employment would actually increase above $1,485 per month.
The distortion has occurred as a result of two factors. The first is the fact that the plaintiff only receives a share of partnership income instead of income directly attributable to his efforts in the partnership. No doubt, from that fact the plaintiff enjoys considerable taxation relief. The second is due to the fact that the income of the partnership increased substantially due to the admission of the plaintiff’s son into the partnership and perhaps, very significant effort on the part of the plaintiff himself.
There is another limitation on the amount which may be recovered as a Proportionate Monthly Benefit and that is the requirement in cl 5 of the policy that a Proportionate Monthly Benefit will not be payable where the Loss of Income suffered is less than 25 percent of the Insured Person’s Average income.
For income tax purposes, it will be necessary to bring the sum of $25,722 to account as this amount is treated as income of the partnership for tax purposes. This amount, as the payment of an insurance claim, cannot be brought to account as the plaintiff’s share of the income of the partnership for insurance purposes - as I have said, to do so would involve an element of double counting. It seems to me that the only way of approaching the matter is to calculate partnership shares ignoring insurance premiums paid and insurance proceeds received. Any other approach to the matter seems to result in confusion.
Mr Britton, counsel for the plaintiff drew attention to the agreement between the plaintiff and his wife and son Adriano as to the sharing of profits of the firm in relation to the year ended 30 June 1998. Under this agreement the proceeds of an insurance claim made against the defendant, namely $25,722, were treated wholly as income in the hands of the plaintiff with the remainder of the profit of the firm in that year being divided equally between the other two partners. The above figure was agreed between the partners as the plaintiff’s share of income for the year ended 30 June 1998. Amongst themselves partners can make whatever agreements they like and operating either prospectively or retrospectively. But a retrospective agreement cannot affect the rights of third parties. For example the Taxation Commissioner is entitled to look at profit sharing arrangements as they applied at the time or after the making of an agreement as to profit shares but not before. Another example is an insurance contract. A retrospective agreement as to profit sharing in a partnership could not affect an entitlement or liability under the policy of insurance.

Declaratory relief

In this action the plaintiff seeks a number of declarations, none of which would be of any real utility, bearing in mind that what is really needed is a judgment for the payment of a sum of money representing the plaintiff’s entitlements under the policy: Neeta (Epping) Pty Ltd v Phillips (1974) 131 CLR 286 at 307. In the circumstances of this case it will be necessary to dismiss any monetary claim on the part of the plaintiff. If this is done there will be no need for declaratory relief. In this case the plaintiff’s claims for relief in their entirety should be dismissed.
In my opinion I would:
allow the appeal;

set aside the judgment in the Court below;

enter judgment in the action for the defendant Royal & Sun Alliance Financial Services Limited.

[2000] SASC 443

19 December 2000