Bell, C.A. v Australian Eagle Insurance Company Ltd

[1990] FCA 238

Re: CAROL ANN BELL
And: AUSTRALIAN EAGLE INSURANCE COMPANY LIMITED; MEDINA BUSINESS SERVICES PTY
LIMITED; ROBERT MEDINA; AUSTRALIAN EAGLE INSURANCE COMPANY LIMITED and ROBERT
MEDINA
No. N G354 of 1983
FED No. 238
Insurance - Interest - Practice and Procedure

COURT

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
Burchett J.(1)

CATCHWORDS

Insurance - life insurance - proposal filled in by insurer's agent authorized to do so - rheumatic fever disclosed to agent but not recorded by him in proposal - insurance company disentitled from relying on incorrect answers - whether fraud proved - ambiguity of questions - observations on the manner in which they were read out by the agent - significance of medical history - liability of agent to insurance company.

Interest - whether s.94 of Supreme Court Act 1970 (NSW) is applicable in Federal Court by virtue of s.79 of the Judiciary Act 1903.

Practice and Procedure - amendment of cross-claim - whether limitation period had expired - effect of s.74 of Limitation Act, 1969 (NSW) - court's discretion.

Federal Court of Australia Act 1976, s.51A

Judiciary Act 1903, s.79

Life Insurance Act 1945, s.84

Limitation Act 1969 (NSW), s.74

Supreme Court Act 1970 (NSW), s.94

HEARING

SYDNEY

#DATE 30:5:1990

Counsel for the Applicant: Mr C.A. Ying

Solicitors for the Applicant: Messrs Schrader and

Associates

Counsel for the First Respondent: Miss P. Bergin

Solicitors for the First Respondent: Messrs Mallesons Stephen

Jaques

Counsel for the Second and Third
Respondents: Dr G. Flick

Solicitors for the Second and Third
Respondents: Messrs Minter Ellison

ORDER

1. The Applicant bring in, on a date to be fixed, short

minutes of orders in accordance with these reasons in respect of the application.

2. The cross-claimant bring in, on the same date, short

minutes of orders in accordance with these reasons in respect of the cross-claim.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

JUDGE1

The applicant is the executrix of the will of the late Robert Laurie Bell, who was her husband. He died on 5 October 1981, at the age of 33, and probate of his will was granted to the applicant on 23 July 1982. On 5 May 1982, the first respondent had refused to make any payment pursuant to a policy of life insurance, in the sum of $65,217, issued by it to the deceased, bearing date 2 February 1979. The applicant sues the first respondent upon the policy, and all respondents in reliance upon s.52 of the Trade Practices Act 1974, alleging that each of them engaged or was involved, in trade or commerce, in conduct that was misleading or deceptive or likely to mislead or deceive. The first respondent (to which I shall refer as "Australian Eagle" or as "the insurance company") cross-claimed against the third respondent Robert Medina ("Mr Medina") alleging that if he made the representations pleaded by the applicant in the statement of claim, he did so without authority and in breach of his obligations to Australian Eagle as its agent for the purpose of effecting insurance. Also, in its amended defence to the amended statement of claim of the applicant, the insurance company admitted Mr Medina was at all relevant times its agent.

1. The deceased (to whom I shall refer as "Mr Bell") suffered, at the age of 11, what appears to have been a single severe attack of rheumatic fever. No records of that illness, and no direct evidence about it, were put before me. There are some inconsistencies in certain medical notes produced long after the event (indeed, there are quite obviously a number of errors in the medical reports and records), and I should make it clear my conclusion concerning the age at which Mr Bell suffered this attack, as well as my conclusion that it was a single attack, was reached after reviewing the whole of the evidence. The medical notes also indicate, and, in the absence of anything to the contrary, I accept, that an investigation of some kind was carried out at Royal North Shore Hospital in 1964, when Mr Bell would have been 15, to determine the extent of damage to his heart resulting from the rheumatic fever. An entry in the medical records of the Westmead Hospital, in relation to a much later admission between 23 May 1981 and 30 May 1981, indicates that a cardiac catherization had been carried out at the Royal North Shore Hospital, leading to a diagnosis described in the entry as "AI only". I take this, in the context, to mean that there was revealed some degree of aortic insufficiency, but no indication of any of the other serious problems which eventually developed. Mr Bell, or his parents, may have been informed that he had "a leaking valve to the heart", for that is what he later told his wife. He did not suggest to her that he was required at any time to go back to the cardiac clinic at Royal North Shore Hospital for any monitoring of his condition, or for any other purpose.

2. Mr Bell appears to have passed his school certificate at the age of 17 (although he may have done so earlier), and then secured employment. For virtually the whole of his adult life, he was a psychiatric nurse, attaining the position of a head nurse at Parramatta Psychiatric Hospital. He married the applicant in 1966, when he was 18 years of age. During most of his married life, according to Mrs Bell (whose veracity I shall have to consider), he lived a fairly normal life, working up to seven days a week and appearing to be very strong. They had two children. In later years, he required medication for the consequences of the defectiveness of his heart and for gout, but not regularly until the time when he was approaching his final illness. There is no evidence that he had found it necessary to consult a cardiologist or other specialist, or to obtain more than an occasional prescription, at any time between the investigation at the Royal North Shore Hospital, when he was 15, and the proposal he signed when he was 30 for the policy of life insurance. If he had felt any anxiety about his health, as distinct from finding occasion to take intermittent medication without serious concern, his work as a psychiatric nurse might be thought to have made it easy for him to have obtained an appropriate referral.

3. There is a paucity of evidence to show whether any general medical practitioner was consulted over any substantial period prior to the signing of the proposal for life insurance by Mr Bell. The proposal refers to a Dr Givorak of Pendle Hill, but no party called him or tendered evidence about him, except that Mrs Bell said her husband had consulted him from time to time when taking sick leave from work (in the proposal he is said to have been consulted for influenza in 1978). Dr Dunn, a general practitioner, who was the family doctor for the Bell family from June 1979 until the time of Mr Bell's death, produced a card which he had taken over from his predecessor in his medical practice. According to this card, as interpreted by Dr Dunn, Mr Bell had consulted a locum in that practice, a Dr Kennedy, on two occasions prior to the proposal for insurance, those being 30 October 1978 when he obtained a script for indocid (an anti-inflammatory agent probably prescribed, in Mr Bell's case, for gout) and 27 November 1978 when he obtained a script for lasix (which may be prescribed to treat oedema resulting from defective pumping by the heart). After the issue of the life insurance policy, it appears that Mr Bell obtained, on 24 April 1979, a script for both lasix and slow-K (a potassium replacement sometimes used to treat a side effect of lasix), and on 3 September 1979 he obtained a further script for lasix. On 9 June 1979 and 3 October 1979, he obtained scripts for indocid.

4. On the basis of the evidence given by Dr Dunn, it is apparent that either Mr Bell was not taking lasix regularly, or he must have obtained prescriptions from some other doctor on other occasions during 1979. The records of Westmead Hospital contain some confirmation of the former conclusion, which is also supported by the evidence of Mrs Bell, who said: "(H)e never used to take the tablets on a daily basis". After 3 October 1979, Mr Bell did not attend Dr Dunn again for any purpose until 11 September 1980 when he obtained a script for indocid, kinidin (a drug which assists the action of the heart) and lasix. There was a further attendance in February 1981, when Dr Dunn prescribed the same medicines. From May 1981 (not 1980, as was erroneously indicated in some of the material put before me), Mr Bell was plainly in a serious condition.

5. It is convenient to note here that Dr Dunn was the only medical practitioner called to give evidence. Hospital records and reports emanating from Westmead Hospital, and Dr Dunn's records, were received into evidence; but the records of Royal North Shore Hospital were not tendered. Dr Dunn made it clear that in 1979, when he first saw Mr Bell, he appeared to be in good health; the doctor did not think, despite the history of rheumatic fever, that he needed any investigation. He was not suffering from hypertension (Mrs Bell, who said he was, simply misunderstood the meaning of the word). As regards gout, Dr Dunn was asked whether, in Mr Bell's case, he "would ... have considered that it was a serious illness", and answered: "No". Nevertheless, when the doctor's evidence is analysed carefully, I think he had some tendency to interpret his own observations of Mr Bell's condition in 1979 in the light of what was revealed by the investigations undertaken in 1981. In 1979, Mr Bell was carrying out what the doctor regarded as "a demanding job", and Dr Dunn could not recall advising him to restrict his activities at all.

6. On 23 May 1981, Mr Bell was admitted to Westmead Hospital with congestive cardiac failure, that is, an inability of the heart to pump out properly the blood returned to it by the veins. The hospital notes indicate that he gave his own understanding of his illness as "can't breathe properly". They also record that he had for three weeks (another record says three days) suffered symptoms including increasing shortness of breath on exertion and that he had had "trouble breathing for last 5 days". He was discharged on 30 May, when it was noted that his "breathing is easier now", and that he was "in no apparent distress".

7. Cardiac catherization was carried out on 29 May 1981 while Mr Bell was in hospital. The concluding portions of the report of that procedure read as follows:
   

"Left Ventriculogram

The left ventricle was grossly dilated. Contractility overall was moderately impaired. There were no localized areas of wall motion abnormality. There was slight calcification of the aortic valve. Moderate mitral regurgitation was observed. The left atrium was enlarged.

Aortography

The aortic root was normal in size. The aortic valve appeared to be tricuspid. There was moderate aortic regurgitation. Coronary Arteriography Selective coronary arteriography was not performed.

Summary

1. Moderately severe mitral and aortic regurgitation.

2. Moderately impaired left ventricular function.

3. Pulmonary hypertension."

1. None of the specialists involved gave evidence. Without appropriate medical guidance, I do not think the court should regard these findings as compelling a conclusion that, as at January 1979, Mr Bell must have known he had a significant disorder of his heart. There is no medical evidence as to the rate at which enlargement of the left ventricle or left atrium might be expected to occur, or as to the significance of the normal size of the aortic root. Similarly, I am without guidance as to how quickly the impairment of contractility could have become manifest, or as to whether it was probably related in origin to Mr Bell's other problems; in the latter regard, I note that the report raises, as suggesting a possibility only, the question whether there was "ethanolic myocardial involvement". Other aspects of the report plainly call for expert interpretation. So does x-ray evidence, obtained during the same period in hospital, showing gross cardiomegaly. To the extent that conclusions can be drawn concerning the symptoms Mr Bell might have been experiencing by January 1979, his interpretation of any such symptoms must have been greatly influenced by whatever he was told at the age of 15 by his parents, or by the doctors at the Royal North Shore Hospital (if they discussed the matter with him rather than with his parents), and by whatever he was told by the locum who prescribed lasix for him in November 1978. These matters the evidence leaves largely to conjecture. It is quite possible that doctors may have been reassuring in anything they told Mr Bell, at any rate prior to the deterioration of his condition in 1981. Mrs Bell's description of his capacity to undertake activities suggests they may have had no reason to alarm him, and certainly a locum may have felt reluctant to do so.

2. Following the investigation of his condition in May 1981, Mr Bell accepted advice from a cardiologist that he should undergo cardiac surgery. He was re-admitted to Westmead Hospital from 10 August 1981 to 12 August 1981 for assessment preparatory to surgery. At that time he had "nil" respiratory problems, and he was "discharged in satisfactory condition" for admission to Royal North Shore Hospital for operation. He underwent surgery there on 13 August 1981. After a stormy post-operative course, it appears that just when he was nearing discharge he contracted pneumonia, and died on 5 October 1981.

3. Late in 1978, Mr Bell had discussed with his wife taking out life insurance. The stimulus to his doing so was the death in two different road accidents of two of his friends, one in horrific circumstances, each of whom left a young child or children. There is some conflict of evidence as to precisely how Mr Bell went about obtaining life insurance. Mrs Bell's evidence indicates that he either arranged for her to telephone Australian Eagle, or he did so himself. According to Mrs Bell, arrangements were then made for an agent of the company to telephone them in order to make an appointment for a visit at their home. There was evidence from a senior employee of Australian Eagle that this would have been its response to such a telephone call from someone wishing to obtain insurance. However, Mr Medina, who did telephone to arrange to call on Mr and Mrs Bell, gave a different explanation. He said he was referred to Mr Bell by a sub-agent in Parramatta whom Mr Bell, if that version is correct, must have approached. However, Mr Medina did not identify the sub-agent, nor did he produce any evidence of payment of a share of his own commission to such a person.

4. At all events, Mr Medina did on 17 January 1979, in the evening, call at the home of Mr and Mrs Bell in Marsden Street, Parramatta. There was a discussion about life insurance in which Mr Bell, according to Mrs Bell,
   

"explained to Mr Rob Medina that he had rheumatic fever when he was young and that he had gout, and that he was taking different sorts of tablets, and he did ask Mr Medina would he have to have a medical, and Mr Rob Medina said not to worry, 'I will fix everything up'."

During the conversation, Mr Medina asked questions. Mr Bell did not fill out a proposal form. That was done by Mr Medina. As Mrs Bell said, "My husband only signed (it)".

1. While Mr Medina was asking questions, he had in front of him the proposal form, which he filled out. Mrs Bell could not see what he was writing, having regard to the position where he was sitting in the lounge room, and it was not suggested in cross-examination that Mr Bell would have been able to do so. Nor was there any suggestion made by Mr Medina, or on his behalf, that Mr Bell was ever asked to read through the answers Mr Medina had written down before signing the proposal. The evidence was simply that he was asked to sign it. In that regard, it is relevant to note that the general manager of the life division of Australian Eagle, Mr Thomas, gave evidence of "a practice for agents to fill in proposal forms on behalf of proponents", known to the insurance company in 1978 or 1979. Indeed, Mr Thomas made clear his understanding that competent insurance practice would involve an agent completing a proposal fully, recording all information disclosed to him during the course of his filling in the proposal. Australian Eagle provided workshops in which "the proposals were explained; the detail of how to complete them, and so on, were (sic) explained."

2. Mrs Bell's version of the disclosure made by Mr Bell to Mr Medina was supported by her daughter. Miss Bell said she was present at the interview. She confirmed that rheumatic fever, and medication related to it, were mentioned. Although there was nothing in the substance of Miss Bell's evidence, or in her demeanour, to throw any shadow over it, counsel for the respondents submitted I should place no reliance on it, having regard to the fact that she was only 12 years old at the time. Undoubtedly, this raises a question whether she would be likely to have understood much of the conversation, or to be able to recall it at the present time. As against that, her father died less then three years later, and the rejection of the claim on the policy some months afterwards may well have concentrated her memory. She would then have been 15, an age at which she might still have had some recollection of an event occurring when she was 12, if there was in fact something about it to impress it on her memory. In evidence, she said there was a reason why she could remember "one specific part" of the conversation. At that point, counsel objected. It seems to me there is a difficulty in giving weight to a submission that she could not possibly remember, when she has sworn there was a reason to account for her memory which counsel has objected to her stating. It is admitted by Mr Medina that she was present, and that he was introduced to her, although he denies that she remained in the room for any length of time.

3. In all the circumstances, I do not place great weight on the evidence of Miss Bell, but neither do I discount it altogether. It does provide some support for Mrs Bell's evidence.

4. On the other hand, counsel for the respondents relied on the failure of the applicant to call evidence from her mother, Mrs Eldridge. According to Mrs Bell, Mrs Eldridge was present during the conversation with Mr Medina, though not a participant in it. Mrs Eldridge was in attendance at court at some stage during the hearing. The failure to call her would justify an inference that her evidence would not have assisted the applicant: Jones v. Dunkel (1959) 101 CLR 298. It does not, of course, compel rejection of the applicant's evidence if, having regard to all of the circumstances including that failure, I find her account acceptable. Another matter adverse to Mrs Bell is the fact that the Further Amended Statement of Claim contained the plainly incorrect allegation that a consultation with Dr Dunn was disclosed by Mr Bell on 17 January 1979. This could not have been right, since there had been no consultation with that doctor at that time. There had, of course, been prescriptions for tablets obtained from a locum at the practice which became Dr Dunn's shortly afterwards, and the terms of the proposal form show that Mr Bell did disclose having seen Dr Givorak. Some scope for confusion may have existed in these circumstances. But there was no such confusion in Mrs Bell's evidence, nor was she squarely confronted with this particular allegation and asked to explain it. The exercise of some caution may be appropriate before any strong inference is drawn against Mrs Bell from what is set out in the Statement of Claim. I think, in this case, the evidence itself is a safer guide.

1. Mr Medina gave evidence from which it appeared that he had had considerable experience selling life insurance, particularly life insurance on behalf of Australian Eagle. He had been selling insurance exclusively for that company since September 1976. He had met many clients and potential clients over the years, but could not recall any client for whom he had submitted a proposal to Australian Eagle which had been rejected. He was earning a high commission income. As I have said, he agreed that he had filled in the answers in the proposal form, it being his normal practice to do so. His evidence was that he recorded the information disclosed to him, although he also said that the answer "beer in moderation", written in response to a question about consumption of alcohol, was a "paraphrase" of an answer to the effect "that he drank a few beers a day". Nevertheless, he insisted: "When I ask a question I write down the answers that I am given." Again, he said: "As I said before, everything a client or a prospect tells me when I ask these questions is written down by me."

2. As to the signing of the proposal, Mr Medina's evidence was: "I gave the document to him and asked him to sign where I had marked crosses to say that he had answered all the questions truthfully and particularly section J, saying that if the life insurance company ever needed further medical evidence it was their authority." He did not suggest he had asked Mr Bell to read the questions and answers to confirm that the document faithfully recorded the questions he had actually been asked, and the answers he had given to them, nor did he suggest that Mr Bell had in fact looked through the document before signing it. The reference to marking with crosses, where the form was to be signed, suggests a physical separation between Mr Bell and Mr Medina while Mr Medina was writing, so as to require the places for signatures to be marked. While it is a slight indication, as far as it goes it does appear to confirm that Mr Bell may not have been able to see the words Mr Medina was writing down during the course of the interview, nor, of course, the printed questions Mr Medina said he read out.

3. Mr Medina expressly denied that Mr Bell disclosed anything about his medical condition other than what was recorded in the proposal. The relevant portion of that document, which contains a number of questions, with the answers written by Mr Medina, reads as follows:
   

DOCUMENT OMITTED

1. Mr Medina said that he read out these questions verbatim, and that he "did not have to explain any questions". In particular, he did not explain what was meant by "your usual Medical Attendant". Mr Bell did not ask any questions about the meanings of the statements read out to him. Indeed, according to Mr Medina, he had "never been asked to give any explanation" of the questions in the proposal form. But later in his evidence, when pressed about the reference to "usual Medical Attendant", he conceded that he had been asked the meaning of that expression on some occasions. He then said: "I have explained that that refers to the doctor that they most often have seen for any illness or complaint, physical complaint." He asserted that was the only question which had invited query in his experience. (I do not pause to discuss the obvious potential to mislead, depending on a proponent's circumstances, which lurks in the unqualified use of the past perfect tense in Mr Medina's "explanation".)

2. I find it hard to accept that, over a period of years, no one has questioned the meaning of anything in the portion of the proposal form I have set out, other than the words "usual Medical Attendant". This evidence is particularly puzzling in the light of Mr Medina's assertion that he simply read out the questions, and then recorded the answers. I think that many people would find the long question, commencing "Have you during the last five years ...", difficult to absorb and comprehend at a mere reading out of it aloud by Mr Medina. There must have been persons who would not know what is meant by an E.C.G. or who would be confused, in such a context, by the expression "special investigations". Someone would surely ask what constitutes a "surgical operation", and whether it includes any of the multiplicity of things done under local anaesthetic, perhaps in a doctor's surgery, or whether it is confined to major procedures involving real risk to health. Common sense might suggest to a layman, who appreciated that the question covered the whole of his previous life, that he would be unlikely to be able to give an accurate answer if every surgical procedure in the strict sense he had ever undergone, from cauterization of warts to suturing of superficial lacerations, had to be recorded. (Cf. the definition of "surgery" in any medical dictionary.) But a more cautious proponent might be alarmed, and want reassurance.

3. To my mind, a failure by anyone to inquire (if I accept Mr Medina's evidence) would strongly suggest that his reading out of the question may have left proponents with a quite false impression, either that what was required was somewhat perfunctory, or, perhaps more likely, having regard to the prominence at the beginning of the question of the words "During the last five years", that only recent matters were within the scope of the information sought. It is true that, in the present case, the answer goes back a few years further, but that does not deny the likelihood that the mere reading aloud of this complexly drafted question may have led to confusion. I note that the question concludes: "IF YES - please complete the following table giving full details ... ." Assuming that this, as Mr Medina insisted, was simply read out to a man who had not at any stage been invited to complete any details or any portion of the document, or to look at the table, it must have seemed at least a little baffling. Mr Bell may not even have seen the way the question was set out. Since there is no doubt the whole document was completed by Mr Medina, I think it is quite probable that he would have inserted, at this point, some explanation of his own, or some variation of the language of the form. But as he denies doing either of these things, there is not any evidence to satisfy me exactly what he said. Mrs Bell, of course, had no means of knowing whether the words he used correctly represented the question written in the document or not. This makes it very hard to draw conclusions adverse to the proponent from the inadequacy of the details recorded in the table. The actual answer "Yes" is, of course, completely correct.

4. The respondents claimed that the answer to the question: "Do you take drugs?", which was in the negative, was false, since Mr Bell admittedly took both lasix and indocid, if irregularly, during the two or three months prior to the completion of the proposal. However, this question follows two questions about alcohol, and is followed by a question about tobacco. In such a context, it may well have been understood as referring to the taking of drugs in a pejorative sense - drugs such as cannabis or heroin. After all, if the word is to be understood literally, almost no one could truthfully answer in the negative, and the insurance company would be unlikely to accept any proposal containing such an answer without further inquiry. For the answer would put the company on notice that the proponent had misinterpreted its proposal form, since nearly everyone drinks tea and coffee containing caffeine, or resorts to aspirin and other medicaments for minor ailments.

5. There is a further difficulty about this last question. The words "do you take" suggest something habitual. It does not follow because a person occasionally resorts to a particular medicine that he should answer such a question in the affirmative. But even if he should, it may still be doubted whether a failure to do so involves deliberate untruth. The significance of this aspect of the matter will appear later.

6. The respondents then submitted that the reference to Dr Givorak did not provide a true answer to the question involved in the requirement to state the name "of your usual Medical Attendant". As to this, it is not clear to me that Dr Givorak was not in fact Mr Bell's usual medical attendant. At the date of the proposal, he had never seen Dr Dunn, and he did not see him until the following June. It is true that he had twice seen another doctor during the three months prior to the completion of the proposal, but that doctor was a locum, and Mr Bell may both honestly and correctly have regarded him as not falling within the expression contained in the proposal form. There is evidence that he had in fact seen a Dr Givorak on an unspecified number of occasions. Mrs Bell offered the explanation that Dr Givorak was known at the hospital where Mr Bell was employed, and he obtained certificates from Dr Givorak when he required them for absences from work, but she also said he went to this doctor "for his gout". She had never been with him to see Dr Givorak, who was not the family doctor in the sense of a doctor attended by the whole family. There is no evidence Dr Givorak ever treated Mr Bell in respect of his heart. None of that would prevent him being Mr Bell's "usual Medical Attendant" at the time of the proposal.

7. Mr Medina wrote on the proposal form, in a space provided for "Agent's Name", his own name, "R. Medina". He also inserted against the words "Agent No." the number 571153 which was, I am satisfied, a number allocated to him as an agent by the insurance company. The claim that he was in fact an agent is disputed by him, and I shall return to this matter. Mr Medina then either personally submitted the completed proposal form to Australian Eagle, or else he arranged for its submission. It bears the company's stamp showing the date 30 January 1979. A policy of life insurance duly issued, bearing the date 2 February 1979, and providing for a sum insured of $65,217.00, and for monthly premiums of $13.04 (altered on 17 September 1981, with effect from 15 July 1981, to provide for half yearly premiums of $76.88).

8. Two provisions of the policy should be particularly noticed. There was a proviso that:
   

"The proposal referred to in the first schedule (i.e. the proposal signed by Mr Bell), together with all declarations and statements made and signed by the grantee (in this case Mr Bell) or by the life assured in connection therewith, shall form the basis of each of the assurances granted by this policy."

There was also a series of clauses described as "PRIVILEGES and CONDITIONS OF ASSURANCE", including the following:

"9. Notwithstanding any declarations made by the grantee or by the life assured in the proposal for this policy or in any other statement in connection with this policy, the Company (i.e. Australian Eagle) will not avoid the policy on account of any incorrect declaration or statement unless such declaration or statement can be shown by the Company to have been fraudulently untrue. Should this policy be so avoided, all premiums paid hereunder shall be forfeited."

1. In my opinion, the proviso must be read as modified by the terms of clause 9, which, no doubt, owes something to s.84 of the Life Insurance Act 1945, so that Australian Eagle is bound, in the events which have happened, to make payment under the policy unless it can discharge the onus of showing that the statements made by Mr Bell were fraudulently untrue. In such a context "fraudulently" has the meaning "dishonestly"; Reg. v. Glenister (1980) 2 NSWLR 597 at 604; Scott v. Metropolitan Police Commissioner (1975) AC 819. The word "fraudulently" ensures that a statement shall not incur the consequences of untruth where it is untrue only by accident: cf. Murphy v. Farmer (1988) 79 ALR 1. As counsel for the applicant pointed out in his very thorough written submissions, even a statement known to contain something strictly untrue may in some circumstances be made without fraud where the untruth is genuinely believed to be immaterial: Derry v. Peek (1889) 14 App Cas 337. It follows that, if I accept Mrs Bell's version, the insurance company cannot avoid the policy unless it can rely on an argument that its own agent acted fraudulently and that his fraud fulfils the terms of the clause. But it would be contrary to principle to construe such a clause as referring to the fraud of the insurance company's own agent. I think that plainly the question is whether a statement was made by Mr Bell which, so far as he was concerned, could be described as "fraudulently untrue".

2. The fundamental issue of fact in the case is thus what was said at the time when the proposal form was completed. If Mr Bell made the disclosures Mrs Bell asserted he made, as I have said, I do not think any incorrect statement in the proposal form would have been fraudulently untrue. Indeed, if I were to find a disclosure limited to the fact that Mr Bell had suffered from rheumatic fever, in the circumstances of this case, I do not think I would be able to make a finding of fraud. I have already pointed out the difficulties raised by the language of the proposal form and the manner in which it was completed.

3. Mrs Bell appeared to me to be quite a frank witness. She acknowledged unhesitatingly that she had discussed what happened on 17 January 1989 with her daughter on a number of occasions. When asked about a telephone call she had made to the NRMA Insurance Company, which counsel was suggesting had led to a fabrication or distortion of some of her evidence, she answered without any sign of prevarication. Indeed, she appeared so unconscious of any such wrongdoing as counsel was implying that she volunteered, when the matter was first raised, that she had made a further telephone call on the same subject to the Government Insurance Office. Mrs Bell professed a rather extreme difficulty in the recollection of dates, but I thought this was genuine, and it was just as apparent in respect of the date of her marriage, and the date of her husband's final hospitalization, as it was in respect of dates more directly relevant to the issues in dispute. Her account of the events of the evening when the proposal form was completed was quite clear, and was firmly maintained under cross-examination. In at least one peripheral respect (her explanation of the way the amount of the policy was arrived at), I thought her version rang true, while Mr Medina's, as he originally gave it, did not. Mrs Bell's evidence seemed to me to reflect an actual recollection of the substance of what occurred on the occasion in question. She recollected, for instance, that Mr Medina went out to the kitchen after the completion of his interview with Mr Bell to speak to her step-father about insurance, her step-father having joined them at the end of the conversation.

4. Mr Medina, on the other hand, was not a very impressive witness. There were self contradictory elements in his evidence, and there were aspects of it upon which documentary evidence casts some doubts. Mr Medina put in issue the allegation that he was the agent of the insurance company in this transaction. Australian Eagle's files included an agency file in respect of Mr Medina, in which there was a copy letter bearing the date 19 October 1978, expressed in terms which make it clear there was, or was intended to be, enclosed with the original an appointment of Mr Medina as an agent in association with Garry Medina Insurances Pty Limited. The agency file, though containing a copy of the letter, did not include a copy of the agreement referred to in it. But a copy of an identical letter of the same date to Mr Medina's brother Garry Medina did have attached to it a copy of an agency agreement entered into with him. Mr Medina's evidence was:
   

"I do not remember receiving a document that was supposed to have been attached to that letter. What I said to you was that approximately 1980 I formed - to my recollection approximately 1980 I formed the agency agreement with my brother, and that is what this agency agreement referred to."

He specifically asserted that "the first written agreement of which (he had) any recollection at all was 1980". He said that the agency number written on the proposal form was "an agent number that was allocated to me via the group agency that (sic - scilicet through which) I was submitting applications from 1976 onwards till I formed the joint agency with my brother". But Mr Medina did not call any evidence from his brother, nor was his brother's absence from the witness box explained. The insurance company's file suggested that both brothers were appointed agents, and that corresponding letters and agreements were sent to each. Mr Medina repeated that he could not recollect ever having received the letter addressed to him or the document referred to in it. He was asked: "Do you know whether your brother ever received a like letter or a like agreement?" He answered: "No, I have never discussed it with him." But in his affidavit of documents filed 6 July 1984, Mr Medina had disclosed the letter, and the agreement apparently enclosed with it, as documents which he had received but no longer held. He then swore: "The respondents have had but do not now have in their possession, custody or power" certain documents which included the letter of 19 October 1978, and the agency agreement referred to in it. No satisfactory explanation was given for the significant change in Mr Medina's recollection between the date when he swore the affidavit of documents and the date when he gave evidence. Nor was his failure to make the obvious inquiry of his brother explained. He bolstered his version in evidence, when asked the question: "Did you have a business relationship with Garry Medina Insurances Pty Limited sometime towards the end of 1978?", by answering: "Not that I recall." When confronted, however, with the terms of the insurance company's letter, he retreated somewhat from this position, responding: "Well, it appears from what they are saying in the letter that there was, but my memory is that it was about 1980."

1. Earlier in these reasons, I have drawn attention to certain evidence given by Mr Medina about his practice of reading out the questions in the proposal form, and completing the document for signature by the proponent. I have commented on some aspects of this evidence. Not only did Mr Medina's evidence reveal (as I have pointed out in that context) statements inconsistent with his assertion: "When I ask a question I write down the answers that I am given"; he also contradicted himself about what he read out. For, at first, he asserted that he read out to Mr Bell the shaded portions of the proposal form, such as "E. MEDICAL DETAILS - Must be completed unless proposal presented under CONSTANT HEALTH ASSUMPTION". Asked then: "Did he (i.e. Mr Bell) not ask you what was meant by 'constant health assumption'?" he answered: "No, he did not." But when it was pointed out to him that the words "constant health assumption" referred to a different type of case, he changed his earlier answer, and said: "I read out the medical questions, I did not read the sections in blue" (i.e. the shaded sections). He added: "They are instructions to the agent as to whether or not those sections have to be completed. ... Agent or the prospective client, depending on who is filling out the form." This change of evidence from Mr Medina is not unique. I have already referred to his emphatic evidence: "I have never been asked to give any explanation" (i.e. "in relation to the meaning of terms in the proposal form"). This answer was qualified later, when the inherent ambiguity of the expression "usual medical attendant" was drawn to his attention.

1. Mr Medina gave evidence to the effect that he had discussed with Mr Bell, at their meeting in January 1979, what was known as Australian Eagle's "entrepreneur plan", which involved a policy at a substantially higher premium than that applicable to the policy ultimately taken out by Mr Bell. He also gave evidence:
   

"Commission was or is based on the premium. What I am getting at is that as far back as 1977, I was earning a substantial income which was dramatically increased each year. Back in 1979, when this all took place, I was earning what was considered to be a high income, and the commission relating to the contract that we are talking about in 1979 was $60. So it was of no great significance to me - the commission, I mean."

The implication of this evidence was that Mr Medina would have had little motive to suppress information that might have led to the rejection of the proposal. Other evidence given by Mr Medina suggested that canvassing for insurance at people's homes was an unimportant part of his business. However, the evidence of Mrs Bell shows that he did utilize this very occasion to approach her step-father for the purpose of endeavouring to sell insurance to him, and the fact is he did not lose interest in Mr and Mrs Bell as people from whom he could possibly earn commission in respect of a high premium policy; for he called out to see them again at their new home, with details of such a policy, a year later. Nor is the reference to the discussion of the "entrepreneur plan" in January 1979 likely to have been correct, since the evidence of Mr Thomas, the general manager of the life division of Australian Eagle, supported by relevant documents, was that he thought the entrepreneur plan "was introduced in around late 1979".

1. His agency, Mr Medina suggested, was at the particular time somehow subordinate to a "master agency" known by the name Wragg Smith, and from 1980 to another "master agency" organized by his brother. He said he submitted proposals through them, and that his agency number was "an agent number that was allocated to me via the group agency". But, having regard to the evidence of Mr Thomas, I have no doubt the agency number was allocated by Australian Eagle to Mr Medina, and that Australian Eagle always maintained a direct relationship with individual agents, not one mediated through its master agents. Mr Medina's counsel specifically put to Mr Thomas that the agency number was allocated by the Wragg Smith master agency; however, Mr Thomas made it plain he rejected that proposition. On the basis of the evidence of Mr Thomas, I find that, apart from exceptional circumstances, the insurance company would not have accepted a proposal made through the agency of Mr Medina if he had not had a written agreement with it in accordance with the form of agency agreement then current (i.e. the form used for the company's agreement with Garry Medina). I should add that, at some stage, it appears to have been agreed any commission earned by Mr Medina would be paid to the second respondent, Medina Business Services Pty Limited, a company controlled by him. However, I do not think that company ever became an agent.

2. I have not found it very easy to resolve the direct conflict of evidence between Mrs Bell and Mr Medina. But I have reached a firm conclusion on the balance of probabilities. As a matter of probability, and bearing in mind particularly the various considerations to which I have referred, I accept Mrs Bell's version of what occurred, and of what was said, on the occasion when the proposal form was completed. Upon the view of the facts to which I have come, I am not satisfied that the insurance company has discharged the onus which rests upon it under clause 9 of the policy conditions. Even in the absence of such a clause it has been held that where a proposal is completed by an agent of an insurance company acting within the scope of his authority, the insurance company may be disentitled from relying on his failure to fill in the form correctly: Stone v. Reliance Mutual Insurance Society Ltd (1972) 1 Lloyd's LR 469. In that case (at 475) Lord Denning M.R. said:
   

"But nowadays an innocent misrepresentation ... may debar a person from relying on an exception. Likewise in this case it disentitles the insurance company from relying on the printed clause to exclude their liability. Their agent represented that he had filled in the form correctly: and having done so, they cannot rely on the printed clause to say that it was not correctly filled in. So they are liable on the policy."

Megaw L.J. (at 476) said:

"The wrong answer having been obtained as a result of confusion, muddle or error on the part of Mr O'Shea, and the evidence being that it was Mr O'Shea's instructions from his employers, the defendants, that it was he who was to ask the questions and he who was to record the answers, to my mind it follows that the defendant company may not as a matter of law rely upon those erroneous answers in order to defeat the policy. If those erroneous answers have been brought about by the fault of their own agent, acting in his capacity as such, they cannot rely upon Mrs Stone's non-disclosure to avoid the policy."

Stamp L.J. (at 477) agreed "that the principal cannot now be heard to say that there was in the terms of the first condition of the policy 'a misrepresentation, mis-description or non-disclosure in a material particular'." It will be observed that this way of putting the matter expressly deals with non-disclosure as well as with the falsity of answers to questions in the proposal. Stone's case was accepted as correct by the Supreme Court of Canada in Blanchette v. C.I.S. Ltd (1973) 36 DLR (3d) 561 at 578, and was followed in Moxness v. Co-operative Fire and Casualty Co. (1979) 95 DLR (3d) 365. See also the earlier appellate decision of the Quebec Court of Queen's Bench in Compagnie Equitable d'Assurance Contre Le Feu v. Gagne (1965) 58 DLR (2d) 56 (affirmed by the Supreme Court of Canada: (1968) 67 DLR (2d) 761), where the situation of the insured was quite comparable with that of Mr Bell. Choquette J. (at 62) treated disclosure to the agent as disclosure to the insurance company, and also applied a clause similar to clause 9 of the conditions of the present policy. In that case, reference was made to the good faith of the agent, who was simply mistaken. But it cannot make a difference adverse to the proponent if the incorrectness of the filling in of the form was due to the agent's fraud rather than his error: Kettlewell v. Refuge Assurance Company (1908) 1 KB 545, affirmed 1909 AC 243; Lloyd v. Grace, Smith and Co. 1912 AC 716.

1. In the present case, it is quite clear that there was a practice according to which proposal forms were completed in the very manner described by Megaw L.J. in Stone's case. I have no doubt that this practice was known to and approved by the insurance company; indeed I do not think any other conclusion is fairly open upon the evidence. I also find that Mr Medina, on behalf of Australian Eagle, impliedly represented that he had filled in the proposal correctly when he asked Mr Bell to sign it. His own version of what he said at that time, which I have quoted, quite clearly conveys that implication. Accordingly, even apart from clause 9, the applicant would be entitled to succeed upon her claim under the policy of insurance.

2. The question arises whether the applicant is entitled to an award of interest in respect of the moneys payable under the policy. Section 51A of the Federal Court of Australia Act 1976, if applicable, would require such an award to be made unless good cause has been shown to the contrary, but that section applies only to a cause of action arising after its commencement, i.e. 22 November 1984: Centrepoint Freeholds Pty Ltd v. Lucas (TN) Pty Ltd (1985) 60 ALR 187 at 204. Notwithstanding the unavailability of s.51A, having regard to s.79 of the Judiciary Act 1903, it must be asked whether s.94 of the Supreme Court Act 1970 (N.S.W.) applies to empower the Federal Court to make an award of interest. This problem has been touched upon in a number of decisions dealing with the possible application of various state provisions comparable with s.94. Not all that has been said in these decisions is consistent. The state provisions applicable to the Supreme Courts of Victoria, Western Australia and Queensland have been held to be applicable in this court by virtue of s.79 of the Judiciary Act, while the state provision applicable to the Supreme Court of New South Wales (s.94 of the Supreme Court Act) has been held not to be applicable in this court by virtue of s.79 of the Judiciary Act. The decisions to which I refer are Centrepoint (supra); Nella v. Kingia Pty Ltd (1985) 61 ALR 603; Milner v. Delita Pty Ltd (1985) 9 FCR 299 at 307; State Bank of New South Wales v. Commonwealth Savings Bank of Australia (1986) 67 ALR 123; Schepis v. Elders IXL Ltd (1986) 70 ALR 729; Pavich v. Bobra Nominees Pty Ltd (1988) 84 ALR 285; and Re Lyons; ex parte Allpass (1989) 87 ALR 69. In some of these cases, the further question was raised whether (assuming the state provision for interest was capable of being applied by s.79 of the Judiciary Act) it was so applied in the case of a cause of action upon a federal statute. French J. (in Pavich) rejected the application of the Western Australian statute to a cause of action under the Trade Practices Act 1974. But no such problem arose in the State Bank case, and I am of opinion I should follow that decision, which is directly applicable to s.94 of the Supreme Court Act 1970 (NSW) and with which I agree. I note that the approach of Lockhart J. in that case to the question was also adopted by Gummow J. in Corporate Ventures Pty Ltd v. Ian Turner and Partners Pty Ltd (unreported 14 May 1987). Accordingly, I must reject the applicant's claim for interest, both under s.51A of the Federal Court of Australia Act and also under s.94 of the Supreme Court Act. For completeness, I should add that, had I held the applicant entitled to succeed under s.52 of the Trade Practices Act, I would not have regarded this as an appropriate case in which to include an allowance for interest, in the calculation of damages pursuant to s.82 of that Act, upon the principle discussed in Pavich (supra) at 286-288.

3. My decision on the claim under the policy makes it unnecessary to pursue the claim under s.52 of the Trade Practices Act. However, if the manner in which the agent filled in the proposal form had been held by me to enable the insurance company to avoid the policy, I do not see any escape from the proposition that Australian Eagle would have been liable for misleading conduct under that provision. The real difficulty, in that case, would have been encountered in the assessment of damages. For the question would have arisen whether a proper disclosure in the proposal of what Mr Bell had told Mr Medina would not have led to a rejection of the proposal. On the one hand, expert evidence made clear the very serious view taken by underwriters of the consequences of rheumatic fever; while, on the other hand, the evidence of Mr Thomas was: "(W)e have always practised as liberal an underwriting philosophy as possible." Asked what he meant by "liberal", he said: "We try to accept a risk rather than reject it." In all the circumstances, had I been assessing damages for the loss of the chance of insurance I would have estimated the value of that chance at one third of the value of the policy.

4. Before examining the cross-claim of Australian Eagle against Mr Medina, I should pause to consider an objection which Mr Medina's counsel raised to the jurisdiction of the court. He argued that the cross-claim had nothing to do with federal jurisdiction. However, in my opinion, there is here one controversy between the parties, involving the applicant's claims against the respondents, both under the Trade Practices Act and under the general law, and also the cross-claim between the respondents. It is the cross-claim which will determine who ultimately must bear the burden of the resolution of the controversy. Accordingly, decisions of the High Court, which are too well known to need citation, authorize this court to exercise jurisdiction.

5. The case on the cross-claim against Mr Medina is a straightforward one. As Australian Eagle's agent, he owed it contractual duties. Since the practice was for him to fill out the proposal form in accordance with a proponent's answers, one of those duties was plainly to record all material matters disclosed (cf. Stone (supra) at 474). He did not do so. As a consequence, the insurance company was led to issue a policy it probably would not have issued, had it known the truth, and a loss has been incurred. There is no need to discuss further and alternative allegations which were made.

6. For Mr Medina, there was a challenge to the proof of the agency agreement. But, beyond doubt, he regarded himself at the time, and he was regarded by Australian Eagle, as the company's agent. He quoted his agency number on the proposal, and described himself in it as an agent. I am satisfied that a form of agreement was received by him, in October 1978, in accordance with the terms of which he became an agent of Australian Eagle. Those terms were the company's then current terms for the appointment of agents, which are in evidence. Under such an agreement, I find an agent would owe to Australian Eagle the duty alleged. Accordingly, subject to one last question, the cross-claim succeeds.

7. The final question in respect of the liability of Mr Medina upon the cross-claim is whether the cause of action pleaded in it is time-barred. There is no doubt the cross-claim, as originally filed in 1984, was within time. But it did not contain any precise statement of the term establishing the duty I have found to be implicit in the contract of agency. At the hearing, long after the expiry of the ordinary limitation period, an amendment to the cross-claim was sought to allege clearly an appropriate implied term. Counsel for Mr Medina opposed leave to amend on the ground that a claim so based was out of time, citing Metropolitan Oils Pty Ltd v. Fortron Industrial Lubricants Pty Ltd (1986) 11 FCR 335 and Bradshaw v. Hair Transplant Pty Ltd 13 FCR 1. I took the view that the original cross-claim did sufficiently, though imprecisely, plead the contract of agency, so that the amendment did not raise an entirely new claim, but rather elaborated an existing one (cf. Bradshaw at 6). However, in allowing the amendment, I reserved to Mr Medina the right to argue, at the conclusion of the hearing, that the leave should be withdrawn, and I then heard further argument.

8. For the insurance company, reliance was placed on s.74 of the Limitation Act, 1969 (NSW). That section provides:
   

"Where, in an action (in this section called the principal action), a claim is made by way of set off, counterclaim or cross action, the claim, for the purposes of this Act-

(a) is a separate action; and

(b) is, as against a person against whom the claim is made, brought on the only or earlier of such of the following dates as are applicable-

(i) the date on which he becomes a party to the principal action; and

(ii) the date on which he becomes a party to the claim."

1. In Nelson v. Wyong Shire Council (1989) 68 LGRA 164, Giles J. held that a cross-action brought by one defendant against another is within s.74, so as not to be out of time where no time bar had accrued at the date when the cross-defendant became a party to the action. Unless I were clearly convinced that this case was wrongly decided, I would follow it, as a decision of the Supreme Court of New South Wales upon the interpretation of a New South Wales statute. I am not so convinced; on the contrary, the view taken by Giles J. was plainly open to him. Given that s.74 is applicable, it demonstrates a policy embodied in the Limitation Act establishing an exception to any presumption against the allowance of a cross-claim which, maintained otherwise than as a cross-claim, would be time-barred. Section 74 positively provides for such a case. Therefore the well-known rule in Weldon v. Neal (1887) 19 QBD 394, which Toohey J. discussed in Bradshaw (supra), does not prevent the allowance of the amendment. In my opinion, it was appropriate that I should have exercised my discretion to allow it.

2. But what is the appropriate order to make upon the cross-claim? The insurance company is entitled to damages for breach of contract. It is proved that the loss involved in payment of the death claim was probably incurred by the breach. The loss, being a probability, should be reflected in the damages without any discount for the possibility (which I have already estimated at about one chance in three) that insurance might have been granted even if the proposal had revealed the truth: Amann Aviation Pty Limited v. Commonwealth of Australia (Full Court, unreported, 5 March 1990, per Davies and Burchett JJ., Sheppard J. dissenting). However, the death of Mr Bell occurred after a number of premium payments had been made. And the death payment has been delayed over many years. In the circumstances, the insurance company's loss cannot be calculated without making allowance (at compound interest) for the moneys of which it has had the benefit for so long. It would be possible to estimate the amount to be deducted, but, especially as this point was not argued, I think I should leave it to the parties to agree, or, if they cannot agree, to debate, an appropriate deduction.

3. The formal order I make, at this stage, is that on a date to be fixed the applicant bring in short minutes of the orders appropriate, in accordance with these reasons, in respect of the claim, and the cross-claimant similarly bring in short minutes of orders in respect of the cross-claim. When that is done, I shall also hear any submissions as to costs. My tentative view is that the applicant should have an order against Australian Eagle for her costs of the action, including her costs of the claims against the other respondents (whom it was reasonable for her to join when payment under the policy was denied), and that Australian Eagle should have an order for its costs, including the costs it has to pay to the applicant, against the third respondent. The applicant's claims against the second and third respondents should be dismissed, but no order in respect of their costs should be made in favour of those respondents.