Asteron Life Ltd v Clark - [2007] WASCA 282

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

TITLE OF COURT : THE COURT OF APPEAL (WA)

CITATION: ASTERON LIFE LTD -v- CLARK [2007] WASCA 282

CORAM: WHEELER JA
PULLIN JA
LE MIERE AJA

HEARD: 22 OCTOBER 2007

DELIVERED : 21 DECEMBER 2007

FILE NO/S: CACV 60 of 2006

BETWEEN: ASTERON LIFE LTD
Appellant
AND
ASHLEY JOHN CLARK
Respondent

ON APPEAL FROM:
Jurisdiction              :  DISTRICT COURT OF WESTERN AUSTRALIA
Coram  :O'BRIEN DCJ
Citation  :CLARK -v- ASTERON LIFE LIMITED [2006] WADC 60
File No  :CIV 2406 of 2003

Catchwords:

Insurance policy - Construction - "Earnings" - "Paid to the Insured Person" - Turns on own facts

Legislation:

Nil

Result:

Appeal dismissed

Category: B

Representation:

Counsel:

Appellant: Mr C G Colvin SC & Ms P E Cahill
Respondent: Mr P G McGowan

Solicitors:

Appellant: Jackson McDonald
Respondent: Arthur Metaxas & Co

Case(s) referred to in judgment(s):

Abalos v Australian Postal Commission (1990) 171 CLR 167
Fox v Percy [2003] HCA 22; (2003) 214 CLR 118
Government Employees Superannuation Board v Martin (1997) 19 WAR 224
Paterson v Paterson (1953) 89 CLR 212

WHEELER JA:

Background

This appeal concerns the respondent's entitlement to a monthly total disability benefit pursuant to a group salary continuance policy of insurance effected between the appellant and the policy owners, One Stop Financial Shop Pty Ltd (One Stop) and Conlan Holdings Pty Ltd, trading as Granger Clark. The respondent was at all material times an employee of One Stop and possibly Granger Clark. It does not seem to have been in dispute that the respondent would have been entitled to payments at an agreed level provided he had, prior to his disability, been earning at least $64,000 per annum.

Trial issues

A major issue in the trial was whether the respondent was totally disabled within the meaning of the policy. The learned trial judge's finding that he was is not challenged in this appeal. Also in issue at trial, however, was the question of the "earnings" of the respondent. The total disability benefit payable was specified in the policy schedule to be "75% of Annual Earnings". The expression "Annual Earnings" was not defined. However, the expression "Earnings" was defined to mean relevantly:
(a)if the Insured Person is an employee, the amount of Remuneration paid by the employer to the Insured Person;
...
In this definition, the word "Remuneration" means the salary, commission and regular overtime amounts that are paid to the Insured Person by his or her employer plus any fees and/or bonuses which you and we agree to treat as Remuneration. Any commission, fees and bonuses will be averaged over a period of 2 years prior to Total Disability commencing.

Theoretical issues in appeal

There are a number of difficulties which may arise from this definition, given the variety of modern employment arrangements. The appellant's submission, formally, appears to have been that the "salary" of an employee was to be assessed by reference to the amount of salary earned "at the time" of total disability. Although it is not entirely clear, I understood the submission to be that the definition required consideration of the 12 months immediately preceding the total disability. There are obvious difficulties in relation to employees whose salary might fluctuate for a variety of reasons. An employee may be paid less than they would normally receive because they have taken a significant period of unpaid leave - perhaps, for example, because they are ill and have exhausted any sick leave entitlement - or may receive more than the usual entitlement because they are acting, perhaps for a significant period, in a more responsible position than their usual position. So far as commissions, fees and bonuses are concerned, the definition appears to assume that the person will have been earning commissions, fees and bonuses over a period of two years prior to total disability, and a question arises as to the way in which the definition is to be applied where that is not the case; for example, an insured person may have only recently commenced employment on a commission basis, or may have (as the respondent here asserted to be the case) temporarily increased or decreased commission‑based activities.
Finally, there is an issue as to the meaning of the apparently innocuous word "to" in the expression "paid to the Insured Person". An issue may arise as to whether that expression is intended to encompass only payments made directly to the insured person, or whether it is intended to refer also to payments to which the insured person has a legal entitlement by virtue of their employee status, but which may be made to others, either at the direction of the insured person (as, for example, where payments are made to a family trust, or pursuant to some voluntary arrangement with a creditor), or otherwise (for example, pursuant to a garnishee order).
Although the appellant's 13 grounds of appeal and the written submissions in support raise all of the interesting issues mentioned above, it is not entirely clear from the learned trial judge's reasons whether they were raised at trial, either at all or in the way I have briefly canvassed. Nor is that clear from the materials in the appeal books, which do not include the submissions of counsel. If those matters had been put in issue at trial, it is odd that there appears to be relatively little evidence‑in‑chief or cross‑examination directed to the facts which might be relevant to those issues.

"Real" issues in the appeal

Perhaps because of the course taken at trial, counsel for the appellant before us did not address the grounds of appeal or written submissions in support, but instead identified two broad issues being raised in the appeal, the first being "an issue" about the proper construction of the policy and the second a discrete factual question concerning whether the trial judge was in error in finding that the respondent's earnings were of the order of $90,000. The discrete factual issue was identified as "probably the principal issue in the appeal" and that issue, in turn, was distilled down to the question of whether an amount of $50,000 said to have been paid to the respondent as an employee of One Stop, in addition to commissions, was to be characterised as salary or in some other way.
I propose to deal only with the issues identified at the hearing of the appeal, which I take to be in substitution for the grounds set out in the notice of appeal.
It appears from the very brief submissions made by counsel for the appellant on the point, and from the schedule of benefit calculations handed up during the course of the appeal, that the only issue concerning the construction of the definition of "earnings" which the appellant sought to raise, was the question of whether, as to commissions, it included only commissions paid directly to or received directly by the respondent from his employer, or whether it encompassed trust distributions received by him from his family trust in respect of commissions paid to the family trust, or perhaps all amounts paid to the family trust in respect of commission. It is not entirely clear whether the submissions of the appellant in relation to this question are directed to the proposition that the payments to the family trust are not payments "to" the respondent, or whether the submission is that there is a dearth of evidence to establish that the moneys paid to the family trust were in fact commissions earned by the respondent and paid at his direction. For completeness, I will deal with both issues.

The $50,000 "loan" issue

The focus of most of the submissions in the appeal was on the question of the characterisation of the sum of approximately $50,000 received by the respondent during 1996. In order to understand the way in which that question arose, I turn briefly to the evidence.
In 1995, One Stop was set up by the respondent, a Mr Heffernan and a Mr Wilkinson. Mr Wilkinson provided the finance for the venture. The office was set up in mid‑1996. It was the respondent's evidence that he was primarily involved in setting up the business and that that involved a significant quantity of administrative work. He had previously been employed as a real estate agent at Granger Clark, and he continued to make the "odd sale". However, his primary focus during 1996 was on administration. During the course of 1997 he was "getting out back into the sales field". He became ill in April 1997, and had not really been able to work since. His evidence about the payment he received from One Stop was as follows (green AB 43):
Prior to April 1997 when you were a director of One Stop Financial Shop, were you being paid for the services you provided?‑‑‑Yes. Yes, I was.
What was the rate of payment?‑‑‑Somewhere between 7 and 10 thousand a month.
How were you being paid that?‑‑‑It was usually a cheque that was issued from One Stop.
Did you have any discussions in relation to these cheques that issued from One Stop at the time?‑‑‑Yes, Darryl [Heffernan] and I and Lynn [Wilkinson] discussed how we were going to survive financially while we weren't making sales income and that was the conclusion to those discussions.
What was the conclusion?‑‑‑That Darryl and I and other directors that were doing similar things would be paid.
That evidence was adduced in somewhat unsatisfactory form. The first question was of a somewhat leading nature and the answer in relation to the question about discussions was in the form of a conclusion, rather than recounting what the discussion actually was. However, that evidence was not objected to and, on its face, would be capable of supporting a finding that the respondent was being paid a salary of between $7,000 and $10,000 a month for the administrative work in which he was engaged in setting up One Stop.
Mr Heffernan's evidence to some extent supported that of the respondent. He said that the respondent's role was "to run the administrative side" of the business. He said that he (Heffernan) received $10,000 a month for his work which was "paid to me by drawings through the company". The company, in turn, was funded to make those payments by Mr Wilkinson. By "drawings" he said that he meant that he received a cheque of $10,000 a month. It appears that Mr Heffernan was the person who signed the employer's disablement notification form in respect of the respondent, confirming that his salary was $90,000 per annum. Mr Heffernan said that he was satisfied that the respondent was earning that amount because "I know the type of money we were earning". However, it was also his evidence that he said that he did not think the respondent was an employee, but that he was a director and that that was "what he was paid as". Mr Heffernan did not himself receive a group certificate for his earnings because he was "paid via my family company".
Mr Wilkinson's evidence was that he was an accountant. He had not been able to find the financial records of One Stop. The records, or some of the records, were "with another chartered accountant who is in the process of repairing the documentation". He confirmed that he provided money to One Stop by way of "advances" to it. It had never made a profit, and could have lost in the order of $100,000. He was not involved in the day‑to‑day running and did not know about drawings by directors. He did not, however, suggest that such "drawings" were unauthorised. As to the characterisation of any such drawings, he said that drawings "would have to be either repaid or it would be against wages and salaries".
Prima facie, then, there was some evidence, although scant, that the respondent had earned $7,000 to $10,000 per month in 1996. That money was received from One Stop and apparently authorised by the respondent and Mr Heffernan as directors, with the acquiescence of Mr Wilkinson, or perhaps by all three of them.
However, there was documentary evidence inconsistent with the respondent's evidence. Three income tax returns were produced by the respondent. The 1994/95 taxation return showed a sum of $52,000 approximately from his "main salary and wage occupation". This was of limited relevance, because it appears to have been not until mid‑1995 that the respondent and Mr Heffernan came up with the idea for One Stop. The 1995/96 income tax return, however, showed only a sum of $28,229 received from the respondent's "main salary and wage occupation". He received a distribution of $30,200 from the Ashley Clark Family Trust. The financial statements of the Ashley Clark Family Trust showed a sum identified as "Commissions Received" of $62,826, with the balance of $32,626 being distributed to the respondent's wife.
The 1997 income tax return lodged by the respondent showed for the 1996/1997 financial year earnings of only $1,375 from his "main salary and wage occupation", insurance moneys received pursuant to the policy the subject of this appeal, and no distribution from his family trust. It is not in dispute that the respondent received a sum of between $40,000 and $50,000 from One Stop in the 1996/1997 financial year, but the appellant's submission was that that sum was not "earnings".
The respondent and his wife were each bankrupted on their own petition in August 1997. The statement of affairs declared by the respondent to his trustee in bankruptcy in August 1997 showed that he had not earned any income in the 1997 financial year, and that he had a "personal loan" in the sum of $50,000 from One Stop in that year.
Finally, there was a document entitled "Account Inquiry 1/1/96 to 9/12/96" which was discovered by the respondent, and which contained entries which suggested that for the period from 1 July 1996 the respondent received loans in an amount of $42,000 and that, from the same date, he had received commissions of only $5500 approximately.
The appellant contended, both before the learned trial judge and before us, that the respondent's evidence about his earnings from One Stop was vague, and was not supported by any relevant documents. Rather, it was contended that the statement of affairs, and the account enquiry document, particularly when considered in the light of the absence of any other earnings in the relevant taxation return, demonstrated that the respondent had received, in the 1996/1997 financial year, almost no income, and that the significant amount of moneys he had received from One Stop were a loan rather than earnings.
The respondent explained the various documents, and the lack of some documents, as follows. So far as his family trust was concerned, it appeared that no taxation returns of the trust were in evidence at the trial. It was his evidence that such returns would have been prepared, and that he had asked the Taxation Department to provide him with copies of any relevant returns. It appears that he had not received copies of any returns for the trust.
So far as the bankruptcy was concerned, he described that as a very stressful decision. He said that because his health was so bad, and since he and his wife were suffering financial stress because of the lack of income due to his ill health, that was causing them "huge emotional and physical problems and was making life unbearable" (green AB 46). He gave evidence of being ashamed of, and distressed about, his predicament and about the bankruptcy. When it came to filling in the statement of affairs, his evidence was that at the time he thought it made no difference what his income was because he had no ability to pay his creditors in any event (green AB 62). He decided to call the sum a loan because he thought that description would assist his former partners, Mr Heffernan and Mr Wilkinson, to claim a deduction for it, and he felt guilty about "leaving [them] in the lurch" (green AB 59 ‑ 69).
So far as the 1995/1996 taxation returns were concerned, he said that he had earned all of the income shown in the statements of the family trust, which was distributed approximately half to himself and approximately half to his wife. He said that, taken together, his own and his wife's taxation returns would have shown approximately the amount of $90,000 which he had claimed to be earning. He explained "There's 52,000 in mine and the other 30 in hers which roughly adds up to 90,000" (green AB 55).
As to his 1996/1997 taxation return, he said that it did not "nominate all of my income". He explained the way in which it came to be prepared in these terms:
At the time I did my tax I'd just gone through the bankruptcy, I was still very, very ill, we were very, very upset - devastated would probably be a more accurate description. I took all my papers that I could lay my hands on. With my wife we went to our accountant of 15 years, Alan Buckley, and we handed it to Alan and I said to Alan, "Alan, just get rid of this." He said, "Is this ‑ ‑ ‑" (green AB 52)
At that point in his answering of the question, he was cut off by the cross‑examiner, who appears to have anticipated that he would then be giving hearsay evidence. It is unfortunate in some ways that he was cut off, since it appears that his conversation with his accountant, including anything his accountant may have said or asked, would have been potentially useful evidence about his state of mind at the time of preparation of the relevant documents, and therefore relevant to the question of whether the learned trial judge should place any weight on those documents. In any event, the tenor of his evidence about his state of mind was reasonably clear from what he did say. A summary of it perhaps appears at green AB 64, where he said that "Logic says that I really didn't care about my tax, I didn't care about my bankruptcy statement, I just wanted to get rid of the problem and try and stay alive".
Finally, as to the loan account inquiry, the respondent's evidence was that he did not make up those records and he did not put the data in. In order to have that document explained, he suggested that it would be necessary to ask the person who prepared it. The money which was in the "loan account" which was paid to him was money that came from Mr Wilkinson to cover the directors because "while we weren't earning commissions it was to cover us as wages because we were doing mostly non‑selling work until we could get back out on the road" (green AB 72).
The identity of the maker of the loan account inquiry document was not ascertained. Mr Heffernan's evidence was that he did not prepare it and that it "would have been" prepared by one of the clerical staff (green AB 148). Mr Wilkinson was not involved in the day‑to‑day running of One Stop and was not able to shed any light on it. The respondent agreed that the sums shown in the loan account did, in broad terms, reflect amounts which he had received from One Stop, but he disagreed with the characterisation of any of them as a "loan". Although considerable weight was placed by the appellant on this document, the evidence was simply that it is a document which is likely to have formed part of the records of One Stop and to have come into the possession of the respondent at some stage, which was prepared by an unknown person on unknown instructions. In my view, the learned trial judge was correct not to place any weight on it, to the extent that it purported to characterise the nature of the payments made to the appellant. If, as Mr Heffernan suggested (and as seems likely) it was prepared by a member of the clerical staff, it is of course likely that the mechanical task of recording amounts paid was correctly performed. Whether the person preparing it had sufficient knowledge or instruction to understand the reason for the payment, is another matter.

$50,000 represented "earnings"

The learned trial judge made the following findings. From 1 July 1996, until he became ill in 1997, it was more probable than not that the respondent had received around $50,000 from One Stop ([229]). The evidence lacked sufficient detail for her Honour to make a positive finding of the "exact nature" of the monthly payments of $10,000. The respondent's evidence was that he received some commissions, however, and at least $50,000 "via Mr Wilkinson" ([235]). It had not been suggested that the respondent's treatment of his 1995/1996 income was unlawful or otherwise inappropriate. It was relevant to take into account, in assessing the respondent's credibility, that he had falsely stated his income in his 1996/1997 taxation return and had in his statement of affairs falsely stated that he owed $50,000 to One Stop. Ordinarily, in the face of bald assertions that representations in those documents were false, one might have a legitimate cause to doubt the respondent's explanations, given the significance of those documents. The respondent appears to have had a cavalier and dishonest attitude to his obligations when executing those documents.

However, her Honour noted that she had had the opportunity of observing and listening to the respondent give evidence. He was, in her view, obviously unwell. Her Honour was not sure that, even after cross‑examination, he accepted the reprehensible nature of his untruthfulness, but in the light of his explanations and other evidence which tends to support them (presumably from either Mr Heffernan or Mr Wilkinson or both), her Honour was prepared not to take those documents at their face value. So far as the 1996/1997 financial year was concerned, her Honour doubted that the respondent would have been on track to earn "double" $64,000, as was his estimate, in that year. However, she accepted that he had received payments of around $50,000 from One Stop and commissions of around $5,000. It was reasonable to infer that, but for his illness, the respondent's total income would have at least exceeded $64,000 by the end of the 1997 financial year. The $10,000 per month payments to the respondent were "earnings" as defined in the policy ([240] ‑ [241]).
As to 1995/1996, her Honour found it was more probable than not that the respondent's estimate of his salary at $90,000 for the 1995/1996 financial year was correct ([236] ‑ [238]). Although she did not expressly say so, this finding would seem to stem from an acceptance that the family trust moneys were the respondent's commission earnings.
Her Honour then considered the question of whether the appropriate financial year was the complete 1995/1996 financial year, or the incomplete 1996/1997 financial year. Her Honour provided calculations only for the 1996/1997 financial year. For reasons which she set out on the concluding page on her reasons for decision, she formed the view that in the 1996/1997 year, the respondent would have earned approximately $86,800, made up largely of monthly payments from One Stop and a small amount of commission. No calculations were made in respect of the 1995/1996 financial year, but it would appear that her Honour accepted that the commissions received by the family trust, together with the income declared in the respondent's taxation return, were the appropriate measure of his earnings for that year.
To the extent that her Honour focused on the 1996/1997 financial year, she accepted, at least in the alternative, the proposition advanced by the appellant in this appeal which was, as I understood it, that the definition of "earnings" required attention to the amount being earned in the period immediately preceding the disability. The appellant submitted that her Honour was in error in forming the view that the $10,000, or thereabouts, per month paid to the respondent were "earnings" for the purposes of the policy, given that she was not able to make a finding as to the precise nature of those payments.
However, when one looks at the course taken at trial, there were a limited number of alternatives. Although the question of how the payments were authorised was touched upon, there does not seem to be any real foundation in the evidence for a suggestion that the payments were not authorised. The evidence of the respondent, as I have mentioned, was that they were sums earned by him for his administrative work, and that there was, so far as he was concerned, no suggestion that they were to be repaid. So far as the appellant was concerned, the case was fought on the basis that the documents revealed them to be a loan. The alternatives, then, were that the sum of $50,000 was either a loan, or that it was money earned by the respondent from One Stop, pursuant to an oral agreement the precise terms of which were not clear.
Her Honour plainly rejected the suggestion that the sum of $50,000 was a loan. She acknowledged, in my view correctly, that the relatively contemporaneous documents (the statement of affairs and the taxation return), which were, of course, important and serious documents, tended to contradict the respondent's evidence. However, she accepted the respondent's explanation of them, as she was entitled to do. Although it could perhaps have been expressed more directly, her observations that she had the opportunity of observing and listening to the respondent, and that he was obviously unwell, can only be understood, in context, as an assertion that, having listened to the respondent give evidence about his state of health and his state of mind at the time at which he either created or caused those documents to be created, she accepted that he was not accurately characterising in them the nature of the payments which he had received.
There is nothing in her Honour's reasons to suggest that she misused her advantage, as the trial judge, in observing and hearing the respondent. It should be noted, in this context, that a good deal of the trial was taken up with an attack on the respondent's credit in relation to his inability to work. Her Honour therefore had the advantage not only of assessing his credibility in relation to the taxation return and statement of affairs issues, but also in relation to his truthfulness or otherwise in respect of his symptoms and his ability to work. Although credit is, of course, not indivisible, the extensive testing of the respondent's credit in relation to these issues is a further reason for not interfering with the finding which her Honour made in relation to the respondent's credibility in his evidence concerning his earnings. Further, as I have noted, there was some support, albeit weak, for the account given by the respondent in some portions of the evidence of Messrs Heffernan and Wilkinson.
So far as I can tell, it appears to be accepted by the appellant that if her Honour was correct in characterising the sum of approximately $50,000 received by the respondent as earnings, rather than as a loan, the appeal will not succeed, since it is the appellant's own submission that 1996/1997 was the relevant financial year. However, I turn briefly to the question of moneys paid "to" the respondent.

Moneys paid "to" the employee - construction and evidence

The question of whether, in order to be earnings, moneys must be paid directly to an employee arises only in relation to the 1995/1996 earnings. As I have noted, the respondent received approximately $28,000 directly in that year, with approximately $60,000 going to his family trust, of which he received approximately $30,000. There are some indications in the policy that it is not intended to include within the definition of "earnings" some remuneration which is commonly and colloquially considered to be part of a person's ordinary earnings. For example, cl 9 specifically provides for "extra payment for non‑cash remuneration" and is only applicable if stated in the schedule to apply. Non‑cash remuneration is defined as, in effect, a fringe benefit component of an insured person's annual remuneration. Similarly, payments made by way of payment to employer‑sponsored superannuation funds, or other complying superannuation funds, are dealt with specifically in cl 10 and are also only applicable if stated in the schedule to apply. Those might be seen as indications that the expression "earnings" is to be narrowly construed, and to extend only to amounts paid in money directly to the insured person by the employer.
However, the appellant's construction of the definition reads into it a word - directly - which it does not contain. In ordinary speech, it is sensible to speak of remuneration being paid "to" a person who requests of his or her employer that the sum be paid to a specific named person or entity. Payments made in that way are payments to which the employee is entitled, and which the employee would be able, at any time, to have paid directly to him or her. There does not appear, having regard to the purpose of the policy, to be any logical reason for treating sums of that kind any differently from payments made directly to the bank account of the employee.
In the present case, it was the respondent's evidence that he was the person who did the relevant work during the 1995/1996 financial year, and that the sums paid to his family trust were commissions earned by him. The family trust financial statement supports that evidence, since it refers to "commissions". One would infer that the commissions were paid to the trust at the respondent's request. In those circumstances, if it were necessary to determine it, it would be my view that her Honour correctly

characterised the whole of the sum paid to the family trust as being sums earned by and paid to the respondent.

In the schedules of calculations handed up by the appellant, the approximately $60,000 of commissions are "averaged" over two years, as the policy is said to require, by dividing the sum in half to give an annual commission earning of $30,000. However, the appellant apparently accepted the respondent's submission that averaging could not always be carried out over two years by a simple mathematical exercise. It was accepted, for example, that if an employee had just commenced employment, and had worked for, for example, only two months before being disabled, earning, say, $6,000, one would not calculate "average" earnings over 24 months of $250 per month. The purpose of the averaging requirement was accepted to be the smoothing out of significant fluctuations.
Given the appellant's concession, how it suggests the $60,000 in commissions should be treated, in circumstances where the respondent moved in and out of primarily commission‑based work, is not clear. Because I would uphold her Honour's finding in relation to the 1996/1997 financial year, it is not necessary to consider the "averaging" question further and, in the absence of detailed submissions, it is, in my view, preferable not to do so.
I would dismiss the appeal.
PULLIN JA:

Respondent's employment history

In 1982 the respondent set up a real estate agency via a corporate entity, Conlon Holdings Pty Ltd, which traded under the name 'Granger Clark'. The respondent sold real estate and earned commission income.
In mid‑1995 the respondent joined forces with a Mr Darryl Heffernan and Mr Lynn Wilkinson in a new business venture. This business was to be conducted via a company called 'One Stop Financial Shop Pty Ltd' ('One Stop'). The respondent said that the plan was that the One Stop business would provide all of its clients' financial requirements in the one situation. The respondent proposed that Granger Clark and One Stop would refer clients to each other. If a client of One Stop wanted real estate they would be referred to Granger Clark. If a client of Granger Clark wanted finance or other financial services, then they would be referred to One Stop.

Mr Wilkinson was an accountant. He became a director of One Stop and he was its financial backer, but he was not involved in the day‑to day running of the company. Mr Heffernan was the Managing Director. The respondent was also a director. One Stop was the trustee of the One Stop Financial Shop Unit Trust. Mr Wilkinson testified that the 'unit trust' always made a loss.
The learned trial judge said that the respondent started working for One Stop on 13 July 1995 as 'Administration Manager/Sales Consultant'. I note that the respondent said in evidence‑in‑chief (AB 8) that he started work with One Stop 'some time in late 1995 heading into 96'. However, the start date is not critical. In the second half of 1996 the respondent was still involved with Granger Clark, but most of his time was spent on setting up the One Stop business. However, he earned a small amount of commission income via One Stop from the end of 1996 until he ceased work in 1997.

Disability insurance policy

The appellant was the insurer of the respondent under a group salary continuance policy which covered nominated employees of the policy owners. The policy owners were shown on the policy schedule as 'One Stop Financial Shop Pty Ltd, Conlan Holdings Pty Ltd T/A Granger Clark and Supporters Club Services Pty Ltd'. The latter company was a related business. The respondent was covered under the policy as an 'Insured Person'.
The insurance clause in the policy read:
If an Insured Person suffers Total Disability while this Policy is current, we will pay a Total Disability Benefit from the first day following expiration of the Waiting Period until the earliest of [certain specified events].
'Total Disability Benefit' was an expression set out in the schedule against which appeared the figures '75% of Annual Earnings'.
This might suggest that 75% of whatever a person's annual earnings were would be paid in the event that the Insured Person suffered a Total Disability, but in the litigation, including the appeal, the parties proceeded on the agreed basis that the respondent could not recover more than 75% of $64,000, ie $48,000 (plus escalation). Payments made by the appellant under the policy after the respondent made a claim never exceeded $48,000 (plus escalation benefits).
'Earnings' were defined to mean:
(a)if the Insured Person is an employee, the amount of Remuneration paid by the employer to the Insured Person; or
(b)if the Insured Person is self‑employed, the net of business expenses amount that the Insured Person earned by virtue of his or her principal business.
In this definition, the word 'Remuneration' means the salary, commission and regular overtime amounts that are paid to the Insured Person by his or her employer plus any fees and/or bonuses which you and we agree to treat as Remuneration. Any commission, fees and bonuses will be averaged over a period of 2 years prior to Total Disability commencing.
Although some construction issues were raised, none are critical to the determination of this appeal. The commission earned by the respondent was earned over two years before he was disabled, so no issue arose about how the definition of 'Earnings' was to be construed in relation to circumstances where commission was earned for less than two years. There was no dispute that the reference to 'Salary' was to annual salary as at the date of disablement. The meaning of the word 'to' in par (a) was discussed, but is not the subject of any ground of appeal. I have nevertheless expressed an opinion about the meaning of the word below and applied it in relation to the assessment of the amount of commission.

The respondent suffers total disability

In April 1997, the respondent suffered a Total Disability. This was an issue at trial but it was not an issue at the hearing of this appeal.

The respondent makes a claim under the policy

On 15 May 1997 the respondent completed a disability claim form which was accompanied by an 'Employer's Statement Disablement Notification form' which was filled in by the respondent but signed by Mr Heffernan as a director of the 'Employer'. The form stated that the respondent ceased all occupational duties due to his disability on 2 April 1997, that his occupational duties prior to disability were 'sales', that his occupation was 'financial services consultant' and that his 'salary' was '$90,000'.

The appellant makes payments under the policy

The appellant commenced making payments for the period commencing on 10 May 1997 and made its last payment for the period ending 16 August 2003. The total it had paid by the latter date was $342,004.30 gross. The appellant stopped making payments when it found out information which led to the defences raised in the litigation. The respondent then sued for payments he claimed were due under the policy. The appellant defended and counterclaimed to recover moneys paid under the policy.

What were the respondent's 'Earnings'?

One of the issues at trial, and the only issue of fact on this appeal, was about the amount of the respondent's 'Earnings'. The appellant claimed that he had earned commission over the two years before he was disabled which, when it was averaged as contemplated under the policy and added to annual salary he said he was being paid when he was disabled, resulted in his 'Earnings' exceeding $64,000 per annum.

(a) Commission

It seems clear that the respondent did earn commission income, and commission income clearly falls within the definition of 'Earnings'. The learned trial judge's finding was that the respondent received commission of 'around $5000' in the 1996/1997 financial year before he became disabled [240]. If this is averaged over two years, this equals $2,500 (which is marginally more than the trial judge used in [245] of her reasons).
However, in addition, the respondent's family trust received commission income from Granger Clark of $62,826. This income was earned due to the efforts of the respondent. It was shown in the respondent's family trust income tax return for the year ended 30 June 1996. In the words of the respondent the income was 'put … through' his family trust. This income was then distributed to the respondent and his wife.
The fact that commission income earned by the respondent was paid to the respondent's family trust raised a potential question about whether these were payments 'to' the respondent and therefore within the definition of 'Earnings'. The issue was not resolved by the learned trial judge and there is no ground of appeal directly addressing the point. In my opinion, the slight evidence on the point leads me to the conclusion that commission earned by the respondent and paid by direction to his family trust, was commission paid 'to' the respondent and therefore 'Earnings'. On that basis, the annualised average income or earnings by way of commission over the two year period before the respondent was disabled was $33,913 [($5,000 + $62,826) ÷ 2]. For the reasons which appear below, these were, in my opinion, the only 'Earnings' of the respondent at the time he was totally disabled.

(b) Salary

The main factual contest between the parties on this appeal, and an issue at trial, was whether, at the time he was disabled in April 1997, the respondent was paid an annual 'salary' in addition to his commission income and, if so, how much. If he was being paid a salary which, when added to his commission income, brought the respondent's total 'Earnings' to $64,000 or more per year, then the appellant's appeal had to be dismissed. The difference between $64,000 and his commission income of $33,913 (see above) is $30,087. Thus, if the respondent was being paid a salary at a rate equalling $30,087 per year or more then the appellant's appeal had to be dismissed. Any less, or if the respondent was not being paid a salary at all, and the appeal had to succeed.

The issue which had to be resolved

The appellant did not dispute that the respondent received payments of money totalling more than $30,087 during the year up to April 1997 before he was disabled. However, it contended the payments were not by way of salary. The appellant submitted that the moneys paid to the respondent by One Stop were loans. If the money paid was by way of loan and not salary then it did not qualify as 'Earnings'. The learned trial judge acknowledged this at [213] of her reasons.
Having identified the issue, her Honour then appeared at first, to shrink from deciding it. Her Honour said that the financial arrangements 'lack sufficient detail for me to make a positive finding of the exact nature of the monthly payments' [235]. However, her Honour then said 'Despite my inability to precisely define the nature of the … monthly payments to … [the respondent], I am of the view that they fit within the definition of "earnings" in the policy' [241]. If the trial judge was unable to define the nature of the payments then she should have dismissed the respondent's claim. However, putting the most favourable light on the observations, perhaps the statement about an 'inability' to make a positive finding and the 'lack [of] sufficient detail' should be understood as the trial judge merely expressing difficulty in making a finding, followed by an actual finding. That being so, it is therefore necessary to examine the evidence which was before the trial judge and to consider whether the finding was erroneous.

Salary or loan - the evidence about payments made to the respondent

The respondent's evidence at trial was that he was paid for services he provided to One Stop. His evidence was as follows:
Prior to April 1997 when you were a director of One Stop Financial Shop, were you being paid for the services you provided?‑‑‑Yes. Yes, I was.
What was the rate of payment?‑‑‑Somewhere between seven and 10 thousand a month.
How were you being paid that?‑‑‑It was usually a cheque that was issued from One Stop.
Did you have any discussions in relation to these cheques that issued from One Stop at the time?‑‑‑Yes, Darryl and I and Lin discussed how we were going to survive financially while we weren't making sales income and that was the conclusion to those discussions.
What was the conclusion?‑‑‑That Darryl and I and other directors that were doing similar things would be paid.
All right. After April 1997 did you receive any payment at all from One Stop Financial Shop?‑‑‑1997, no. No, then I started getting the insurance money was the first income.
During the period that you were a director of One Stop Financial Shop and up until April 1997, you've told us before I think that you spent a large amount of your time in what might be described as the administrative side of the company?‑‑‑Yes.
Were you at any stage involved in any selling?‑‑‑Yes, I did some selling in that period; not a lot but some.
What were you selling at that stage?‑‑‑Financial services products.
All right, and in relation to those financial services products that you sold, did you receive payment?‑‑‑Yes, I think so.
From whom did you receive payment?‑‑‑Again, it would have been through One Stop.
He was then asked in cross‑examination about a document which appeared to be a One Stop accounting record (exhibit 29), the admissibility and weight of which is discussed below. This showed in the debit column a number of dollar amounts paid to the respondent or to AJ and NM Clark. Particular attention was paid in cross‑examination to seven payments being $2,000, $5,000 (four payments) and $10,000 (two payments), appearing between July and November 1996. The document recorded these payments as loans to the respondent.
The respondent said that the document had been in his possession until shortly before he gave evidence and that '[t]hat's the only record of income that I could find'. He was then asked where the money came from to enable One Stop to make payments to him and he explained that it came from Mr Wilkinson, that 'We were all getting our money from Lynn and it was to cover us - while we weren't earning commissions it was to cover us as wages because we were doing mostly non‑selling work until we could get back out on the road which is what happened after the end of this period'. Counsel for the appellant asked:
But you were not receiving any income other than moneys ‑ ‑ ‑?‑‑‑That's the income I was receiving. The $5,500, $2,800, $8,000, $4,000, $1,000, $5,000, $1,000, $10,000, $5,000, $10,000 and two fives, that's the money I would've received. That's what I was living on.
It appears that he was reading from exhibit 29, which was still in front of him at the time this question was asked, although the above transcript recording of his answer has him reading out two figures which do not appear on exhibit 29 (ie $5,500 and $2,800). These may reflect a transcription error, or alternatively the respondent may have added $5,000 and a $500 amount which appeared on the document and therefore referred to '$5,500', and the '$2,800' may record him intending to refer to the two payments of $2,000 and $8,000 which appeared one above the other. In any event, the figures he read out from exhibit 29, save possibly the $5,500 and the $8,000, have against them in the 'memo' column a note indicating the payments were by way of loans to the respondent.
There was then some further cross‑examination about the commission paid by IEC Planning and Management Services and the fact that the respondent had only declared $1,375 as wages or salary income from Conlan Holdings Pty Ltd in his 1997 tax return. The cross‑examination at AB 76 was as follows:
Is it the case that apart from the $3,600 from IEC and the $1375 declared in your tax return from Conlan Holdings, there's no other income you can establish by documentary evidence for the year ended 30 June 1997?‑‑‑No, only this amount here.
What is this amount here?‑‑‑The amount from 18/7/96 down to 18/11/96.
This is the document under tab 30?‑‑‑Yes, under tab 30.
This was a reference to the payments referred to above. Tab 30 became exhibit 29.
Despite questioning in cross‑examination, the respondent was unable to explain how the 'salary' figure of $90,000 referred to in the 'Employer's Statement Disablement Notification Form' was calculated. There are other passages in the respondent's evidence which must be referred to but that will be done in the context of other documents which are referred to below.
Mr Heffernan during examination‑in‑chief was questioned as follows:
Did you receive any payment from One Stop Financial Shop Pty Ltd for your role as what's described here as general manager during 1996?‑‑‑Yes, I did. I received $10,000 a month.
Right, and how was that paid to you?‑‑‑It was paid to me by drawings through the company.
Right, and in the case of Mr Clark, do you know whether he was paid?‑‑‑He was paid the same as what I was.
How was that paid?‑‑‑The same way; through the company, $10,000 per month.
In cross‑examination the following evidence was given by Mr Heffernan:
Did you get a group certificate for your 10,000 a month?‑‑‑No, because I wasn't paid as an employee of One Stop Corp, I was paid via my family company, which was Westwide Holdings.
Did Mr Clark get a group certificate?‑‑‑I don't know.
What did Mr Clark get as his salary from One Stop Financial Shop Pty Ltd per annum?‑‑‑I don't think he was there a whole year, but he would've got $10,000 on a monthly basis.
So you say that the $10,000 he got per month was his earnings as an employee of One Stop Financial Shop Pty Ltd?‑‑‑His drawings as a director.
His drawings as a director?‑‑Yes.
I see, not as an employee?‑‑‑I don't believe he was an employee of the company. You know, as I said, I was a director of the company but I had my family company paid.
Yes, all right. You got your drawings as a director and he got his drawings as a director. Is that right? Is that what your evidence is?‑‑‑Yes, that's what I recall. That's what I believe.
That's your answer?‑‑‑Yes.
Sorry?‑‑‑Yes, I believe he got paid his money ‑ ‑ ‑
As a director of the company?‑‑‑ ‑ ‑ ‑ as a director of the company.
As distinct from earnings as an employee. Is that right?‑‑‑To my knowledge, yes.
It should be added that counsel for the appellant conceded that the respondent was an employee of Granger Clark and One Stop and that he earned commission income. However the appellant disputed that the respondent was paid a salary.
Mr Wilkinson gave evidence about the fact that he was a director of One Stop and gave evidence that One Stop never made a profit. He was then asked the following questions and gave the following answers:
You have referred to loan accounts. Did each of the directors have a loan account?‑‑‑There is a couple of directors who do have loan accounts, yes.
Is Mr Clark one of those?‑‑‑No, not any more. No.
Not any more, no?‑‑‑No.
But did he have a loan account before he went off sick in 97?‑‑‑1997?
Yes. Do you recall whether he had a loan account operating in the 96‑97 year?‑‑‑I don't know whether he had one in 1997, but he did have one prior to that date.
O'BRIEN DCJ: He did or didn't?
ZILKO, MR: He did?‑‑‑He did.
He had one prior to that, so he had one in the 95‑96 financial year, did he?‑‑‑Correct.
You can't recall whether he had one in the 96‑97 financial year?‑‑‑No.
If directors borrowed money from the company, for example, say they drew down more than they were entitled to, what was the arrangement in terms of that?‑‑‑I wasn't party to how they arranged those drawings. That was something that they entered into by themselves.
But you were a director. Did you have any understanding of repaying the money to the company if they drew more than their entitlement?‑‑‑I beg your pardon?
But you were a director?‑‑‑Yes.
So did you have any knowledge or understanding at the time of what they would do if they drew more then their entitlement?‑‑‑It would have to be either repaid or it would be against wages and salaries.
Thank you. I don't think you can tell me any more, I take it?‑‑‑No.

The meaning of 'salary'

Salary, in its ordinary meaning, is a 'fixed periodical payment, usually monthly, paid to a person for regular work or services, especially work other than that of a manual, mechanical, or menial kind'. See Macquarie Dictionary. The onus was on the respondent as plaintiff to prove that he was being paid or was entitled to a salary. The usual way to do so would be to prove the employment contract giving the right to the payment of the salary in return for defined work or services. This might be an oral agreement or a written agreement. No evidence was given of any employment contract.
This issue was being explored in a court case some nine or 10 years after moneys were paid, but even if memories had faded, one would normally expect some secondary documentary material from which it might be inferred that there was an employment contract.

Documentary evidence

Documentary evidence was tendered. Apart from the 'Employer's Statement Disablement Notification Form' signed by Mr Heffernan and referred to above, the documentary material referred to below overwhelmingly suggested that the payments the respondent referred to were payments by way of loan and not by way of salary. As to the 'Employer's Statement Disablement Notification Form', Mr Heffernan said in evidence that he was satisfied that the salary figure of $90,000 was true but when he was asked the basis of his satisfaction he said:
The basis was I know the type of money we were earning and the type of deals we were doing.
The respondent was asked about how the $90,000 figure on the form was arrived at and he said that 'I would've made this salary calculation on the fact that that's what I would've earned that financial year'. Neither of those answers suggest that there was any agreement obliging One Stop to pay the respondent a salary.
It is now necessary to examine the other documentary evidence relating to the issue about the respondent's salary level when he was disabled in April 1997.

Income tax returns to 30 June 1997 and 30 June 1996

The respondent's taxation return for the year ended 30 June 1997 returned income of $1,375 paid by Conlan Holdings Pty Ltd and revealed that Conlan Holdings Pty Ltd deducted tax instalments of $241.51. No other income was disclosed apart from the disability payment made by the appellant under the policy. The income tax return for the year ended 30 June 1996 returned salary or wages of $28,229 from Conlan Holdings Pty Ltd and $30,200 being his share of the distribution of commission income of the family trust ($62,826) which is referred to above.

The respondent's statement of affairs in his bankruptcy

Four months after he was disabled, and in August 1997, the respondent and his wife were declared bankrupt on their own petition. In the statement of affairs signed by the respondent and dated 26 August 1997, the respondent stated that he was employed as a sales consultant by 'One Stop Financial Shop'; that his pay period was fortnightly and that his gross pay was $1,846.15. This latter figure corresponded with the payments he was then receiving under the disability policy with the appellant.
He then listed in his liabilities, under the heading 'Unsecured creditors', an item 9 which stated that one of his creditors was One Stop Financial Shop Pty Ltd; that there was a debt owing to this creditor in the form of a 'personal loan' incurred in the period 1996 to 1997 and that the sum owing was '$50,000 approx'. He signed the statement of affairs and declared that particulars set out in the statement were correct. The respondent explained in cross‑examination that 'I had made the statement to try and help One Stop out by putting it through as a loan in my bankruptcy' and that:
At the time that I put this bankruptcy in, I decided to call it a loan because I thought I could help out the people I was leaving in the lurch by the fact that I couldn't go back to work.
… I believed it would suit the company better. Because I wasn't going to be there to continue on as I would normally, I thought it was an opportunity for me to give Lynn the ability to claim it as a deduction …. I thought it would help.
In cross‑examination the respondent was asked that, when he declared his position to the Trustee in Bankruptcy in August 1997:
Did you not believe at that time - was it your honest belief - that you had borrowed $50,000 from One Stop Financial Services?
and the respondent answered:
No, because there was no loan. There was no obligation to pay the money back. There was no interest rate. There was no term. There was no repayment schedule. Therefore it wasn't a loan. It was just purely what I said it was. It was money to cover our out‑of‑pocket expenses and our living expenses while we were setting up One Stop paid to us and financed by Lynn Wilkinson.

Exhibit 29

Exhibit 29 was headed 'OSFS P/L ATF OSFS UNIT TRUST Level 7, IEC Building 231 Adelaide Terrace Perth WA 6000'. The initials OSFS correspond with the initials of One Stop Financial Shop.
The document was headed 'Account inquiry'. It had on it a date '9/12/96' and it showed a series of debits and credits for an account of 'A J Clark', which is the respondent's name. In the debit column there appeared the seven entries which were the subject of cross‑examination. They were the amounts of $2,000, $5,000 (four times) and $10,000 (twice) which are referred to earlier in these reasons. In a column headed 'Memo', against each of these dollar figures were the letters and words 'AJ Clark loan' or 'AJC‑Loan' or 'AJC Director's Loan'. The seven amounts totalled $42,000. The total of the debit and credit columns (there being other debits and credits) produced a figure after credits were netted off against debits, of $47,500 as a net debit. Exhibit 29 also contained in the debit column other figures with the memo reading 'A J Clark' or 'AJ & N M Clark'. There were only four such items in the 1996/ 1997 financial year and they were for $8,000, $4,000, $1,000 and $1,000 (a total of $14,000 in the year ended 30 June 1997). There were some other debit entries of a similar kind, some of these dating back to a period more than 12 months before the respondent was disabled. Save for the respondent's reference to $8,000, no evidence was given by anyone about the nature of these payments.
It was revealed during evidence that the respondent had found the document which became exhibit 29 amongst papers in his possession only shortly before he gave evidence. As I have already mentioned, tab 30 was the identification of this document before it was tendered. It contained a number of other entries referring to 'Cash Converters'. The following questions and answers in cross‑examination appear in the transcript at AB 69:
Just go to tab 30 if you will. This is the loan account that I was asking you about before. Her Honour can now see the loan account we are referring to. Does your Honour have tab 30?
O'BRIEN DCJ: Yes.
ZILKO, MR: What were you doing with Cash Converters as early as January 1996? What were you trading in at Cash Converters?‑‑‑Shares in - company shares that owned business interests in Cash Converters.
Tell me again. I don't understand that answer. What were you doing again?
McGOWAN, MR: It's a false premise. It assumes that this is the witness's document.
ZILKO, MR: Did you have dealings with Cash Converters in January 1996? It is his document because it's - well, it's about him?‑‑‑Yes, I had ‑ ‑ ‑
How did Cash Converters happen to credit to your loan account $13,750 ‑ ‑ ‑
McGOWAN, MR: Who says it's his loan account?
ZILKO, MR: It has A.J. Clark at the top.
O'BRIEN DCJ: Sort out the document first please and the understanding of the document.
ZILKO, MR: Is this a statement of your account with One Stop?‑‑‑I believe - as I said, I've never seen this before until I found it the other day, so I can only read it and assume what it means.
Do you know how it came to be in your possession then if it's not a document you have ever seen before?‑‑‑Again it's got my name on it, so that's probably how it came to be in my possession.
You agree though, do you not, that the reason I have it is because you gave it to your solicitors just after Christmas?‑‑‑Yes.
Did you have ‑ ‑ ‑?‑‑‑That's the only record of income that I could find.
At that stage and on those questions and answers above, exhibit 29 could not have been tendered over objection (which was not made) because the respondent was not the author of the document. The only use that could have been made of it at that stage was in the manner explained in Government Employees Superannuation Board v Martin (1997) 19 WAR 224, 266 ‑ 269. It would have been inadmissible as to the truth of its contents as explained by Dixon CJ and Kitto J in Paterson v Paterson (1953) 89 CLR 212.
However, Mr Heffernan was asked questions about it in cross‑examination. He was asked who he thought prepared the statement and he said 'To the best of my knowledge I believe it would have been one of the clerical staff that we had at the office'. There was no contest between the parties about the admission of the document, but if there had been a contest then it is arguable that the tender of the document would have been justified under s 79C(2a) of the Evidence Act 1906 (WA). This is because direct oral evidence of the fact that moneys were advanced as loans to the respondent would have been admissible. Statements in the document to that effect were, on production of the document, admissible as evidence of that fact, if the statement directly or indirectly reproduced or was derived from the business record and the court was satisfied that the business record was a genuine business record. The evidence of Mr Heffernan arguably showed that the document was a genuine 'business record' as defined in s 79B; that is 'a book of account or other document prepared or used in the ordinary course of business for the purpose of recording any matter relating to the business' of One Stop and, that being the case, it would not have been necessary that the qualified person who prepared the document be called as a witness.
However, in the end, none of this had to be debated because, in re‑examination, counsel for the respondent tendered the document and it then became exhibit 29.

Summary of the evidence about salary

In summary therefore, there was the oral testimony of the respondent that he was paid some money which he asserted was salary. There was no evidence of any employment contract by which he was entitled to an annual amount of $90,000 by way of salary. There was the document signed by Mr Heffernan when the claim was made stating that the respondent's salary was $90,000. Neither the respondent nor any other witness explained the basis for that statement.
There was no secondary evidence that the respondent was paid a salary. On the contrary, there was the statement of affairs signed by the respondent saying that $50,000 approximately was owed to One Stop as a loan and there was a document, which appeared from the evidence, to be one of the business records of One Stop (exhibit 29), which revealed payments of $44,000 paid to the respondent not as salary, but by way of loan. In addition, there was Mr Heffernan's testimony that the respondent was paid the 'same as what I was' and that this was by way of 'drawings through the company'. There was Mr Wilkinson's evidence that at least in the 1995/1996 financial year the respondent had a loan account. Finally, the respondent's tax return for the year ended 30 June 1997 belied his claim that he earned any salary via One Stop.

The learned judge's reasons for decision

The learned trial judge accepted that it was 'clear that are were several discrepancies in the documents executed by the [respondent] relating to his income' [222]. Her Honour noted that in the 1996‑97 taxation return, the respondent did not disclose income in the sum of $50,000 which he claimed to have received from One Stop. Her Honour noted that he had declared the $50,000 in his statement of affairs, but described it as a loan. Her Honour then said:
In my view, if the [respondent's] account is true, then he has dishonestly under-represented his income in his 1996/97 taxation return, and falsely represented to his trustee in bankruptcy that he had a loan of $50,000 from One Stop. Whilst I can understand that given the [respondent's] ill health at the relevant time his attention may not have been fully focussed on the details of his financial affairs, it would seem insofar as both documents are concerned, the [respondent] made a conscious decision to misrepresent his financial position.
However, the critical issue is whether the [respondent] overstated his income in the employer's statement. [224] ‑ [225]
Her Honour said:
From 1 July 1996 until he became ill in April 1997, the evidence supports a finding that it is more probable than not that the [respondent] received around $50,000 from One Stop. Mr Heffernan described the monthly $10,000 payment from One Stop as director's drawings. [229]
Her Honour continued:
The [respondent] regarded the $10,000 monthly payments as income as it seems did Mr Heffernan. [232]
And further her Honour said:
In my view, it would not be appropriate to place any weight on the contents of the document entitled "Account Inquiry" (Ex 29). The [respondent] and Mr Heffernan had not seen the document until just before the trial started. Neither knew who entered the data. No other witness shed any light on the author or the contents. Mr Wilkinson did not know if the [respondent] had a loan account in 1996/97 but believed he had one the previous financial year. No other witness testified that the [respondent] had a loan account in 1996/97.
In my view, the evidence in relation to the financial arrangements between One Stop and the directors, Mr Heffernan and the [respondent], lack sufficient detail for me to make a positive finding of the exact nature of the monthly payments of $10,000. However, the [respondent's] evidence is that in 1996/97 he received commissions, some of which he was able to identify from the loan inquiry document, and at least $50,000 via Mr Wilkinson. The evidence of the [respondent] and his wife is that they were not in financial trouble at about the time the [respondent] became ill. Mr Heffernan testified that One Stop was going well although it was in its infancy. [234] ‑ [235]
At [237] her Honour said that, in assessing the respondent's credibility, she took into account that he had falsely stated his income in his 1997 taxation return and falsely stated that he owed $50,000 to One Stop in his statement of affairs, and that they were serious misrepresentations. Her Honour then said:
Ordinarily, and in the face of a bald assertion that the representations in the documents were false, one might have legitimate cause to doubt that explanation given the significance of the documents he signed as being true. However, there is also other evidence to which I have referred which indicates that the [respondent's] representations in those documents were not true. The [respondent] appears to have a cavalier and dishonest attitude to his obligations to be truthful when executing the documents in question. However, I have had the opportunity of observing and listening to him give evidence. He is obviously unwell. I doubt that even after his cross-examination, he accepts the reprehensible nature of his untruthfulness in those documents. However, in the light of his explanations and other evidence which tends to support them, I am prepared not to regard those documents at their face value. [237]
Her Honour then concluded that it was more probable than not that the respondent's estimate of his salary as $90,000 for the 1995/96 financial year 'is correct'. Her Honour said:
Despite my inability to precisely define the nature of the $10,000 monthly payments to Mr Heffernan and the [respondent], I am of the view that they fit within the definition of "earnings" in the policy.
The employer's statement simply requires the employer to note the "salary" of the insured without reference to any time period. No guidance is given to the employer as to the time period. In those circumstances, it was reasonable in my view for the [respondent] to state his salary for the previous financial year. [241] ‑ [242]
Her Honour concluded:
I have accepted the [respondent's] evidence that he received income of about $50,000 from Mr Wilkinson in the financial year 1996/97 before he fell ill. Accordingly, the calculation is as follows:
Income for May/June 1996 @ $7,500 per month  $15,000
Income received from One Stop 1996/97 until April 1997         $50,000
Expected income for May/June 1997 @ $10,000 per month $20,000
Known commission for 1996/97 averaged over 2 years
say …  $ 1,800
$86,800
No inquiry was made by the [appellant] about the time period to which the $90,000 related.
Accordingly, I find that it is more probable that not that the [respondent's] salary was correctly stated in the employer's statement as $90,000 whether the relevant period was the 1994/95 financial year or the year to May 1997. Given that finding, it follows that the [appellant] could not have accepted the claim under an honest but mistaken belief that the [respondent's] salary was $90,000. [245] ‑ [247]

Grounds of appeal

There are 13 grounds of appeal with many subparagraphs, but the combined effect of them was that her Honour erred in concluding that it was more probable than not that the respondent's salary was correctly stated in the Employer's Statement as $90,000 and erred in concluding that the respondent's salary at least exceeded $64,000 because those findings were against the weight of the evidence as particularised in the grounds. The grounds include a contention that the learned trial judge erred by, in effect, finding that the approximately $50,000 received by the respondent from One Stop was not a loan, by failing to place any weight on exhibit 29 and in concluding that the statements made by the respondent in the statement of affairs and his tax return were 'false and dishonest'.

Conclusion

There was of course, evidence before her Honour that the respondent did earn a salary of $90,000 (via Mr Heffernan's declaration). However, this was an assertion in support of the insurance claim and the assertion is what is under challenge. In my opinion, the weight of all the other evidence leads overwhelmingly to the conclusion that the appellant was not being paid and was not entitled to a salary from One Stop in April 1997 and that his earnings were less than $64,000 per annum.
In my opinion the learned trial judge erred in concluding that no weight could be placed on exhibit 29. It is true that if there had been no evidence about it and no other documentary material then it might have been given little weight, because the person making the entries in the document was not called. However, Mr Heffernan's evidence suggested that it was a One Stop accounting document, its contents corresponded with the respondent's statement in the statement of affairs in bankruptcy, the document was in the respondent's possession, it was he who produced it, and finally and importantly, it was tendered into evidence by counsel for the respondent. In those circumstances, the document had to be given some weight. It corroborated what the respondent had declared in his statement of affairs. It may be observed that in [234] the learned judge said she would 'not place any weight' on exhibit 29, and yet in [235] her Honour did place weight on it insofar as it showed a point in the respondent's favour, namely that he received commission. With respect, that selective use of the document reveals error. If it had value and some weight for the latter purpose, then it had equal weight in relation to the former.
Once error is detected, an appellate court is obliged to conduct a real review of the trial, and this court is not excused from the task of weighing conflicting evidence and drawing its own inferences and conclusions, although it is always necessary to bear in mind that an appeal court has not seen or heard the witnesses: Fox v Percy [2003] HCA 22; (2003) 214 CLR 118, [25] (Gleeson CJ, Gummow and Kirby JJ). The mere fact that a trial judge necessarily reached a conclusion favouring the witnesses of one party over those of another does not and cannot prevent the performance by a court of appeal of the functions imposed on it by statute: Fox v Percy [28]. An appellate court is not relieved of its statutory functions by the fact that a trial judge has expressly or implicitly reached a conclusion influenced by an opinion concerning the credibility of witnesses: Fox v Percy [29]. It is now well recognised that the tendency of courts should be to limit reliance on appearances of witnesses and to reason to their conclusions 'as far as possible, on the basis of contemporary materials, objectively established facts and the apparent logic of events': Fox v Percy, [31] (Gleeson CJ, Gummow and Kirby JJ). The learned trial judge in this case reached her conclusion based on assessment of the respondent's credibility. See [239].
The apparent logic of events, the objectively established facts in this case reveal that One Stop had no source of income, that Mr Wilkinson was providing funds which any commercial person would, in the circumstances, want to be advanced by way of loan rather than paid out as salary. All of the contemporary independent materials (that is material other than material containing assertions for the purpose of making the insurance claim) shows that the respondent was not paid a salary and that he drew moneys by way of loan. This is not a case where the advantage enjoyed by the trial judge, by reason of having seen and heard the respondent, was sufficient to explain or justify the trial judge's conclusion: Abalos v Australian Postal Commission (1990) 171 CLR 167, 178 ‑ 179 and Fox v Percy, [65] (McHugh J). To find in the respondent's favour, the trial judge was obliged to brand the respondent reprehensibly untruthful and dishonest in making the statements he made in the statement of affairs and tax return, but to also find that he was to be believed in his evidence asserting that he earned a salary.
In my opinion the learned judge erred in finding that the respondent had made 'serious misrepresentations' in his statement of affairs and 1997 income tax return; that he had 'a cavalier and dishonest attitude to his obligations to be truthful' when executing those documents and that 'even after his cross‑examination' it was doubtful that the respondent accepted 'the reprehensible nature of his untruthfulness in those documents'. The trial judge's finding that the respondent was cavalier, dishonest and reprehensibly untruthful in the documents contradicting his claim provided an unconvincing foundation for the respondent's claim.
In my opinion, the respondent's own documents made close to the time of the events in question, reveal the truth and reveal that the respondent was loaned moneys by One Stop and that there had been no agreement to pay him a salary. Exhibit 29 corroborates this conclusion.
I would therefore uphold the appeal. It will be necessary for the parties to confer as to the appropriate orders to be made, which would

include setting aside the judgment in favour of the respondent and awarding judgment to the appellant for a sum which the parties should be able to work out after a calculation in relation to the income tax is made.

LE MIERE AJA: I agree with Wheeler JA.