Clark v Asteron Life Limited

JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA
IN CIVIL

LOCATION: PERTH

CITATION: CLARK -v- ASTERON LIFE LIMITED [2006] WADC 60

CORAM: O'BRIEN DCJ

HEARD: 23, 24, 25, 30, 31 JANUARY 2006 & 1 FEBRUARY 2006

DELIVERED : 13 APRIL 2006

FILE NO/S: CIV 2406 of 2003

BETWEEN: ASHLEY JOHN CLARK
Plaintiff
AND
ASTERON LIFE LIMITED
Defendant

Catchwords:

Insurance policy - Whether insured had total disability - Whether insurer paid benefits due to mistaken belief as to insured's income - Turns on own facts

Legislation:

Nil

Result:

The plaintiff's claim upheld
The defendant's counterclaim dismissed

Representation:

Counsel:

Plaintiff: Mr P G McGowan
Defendant: Mr M H Zilko SC

Solicitors:

Plaintiff: Metaxas & Co
Defendant: Jackson McDonald

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

Bensky v Mercantile Mutual Insurance Co Ltd (1999) 22 SR 144

Case(s) also cited:

David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353
Duncan v Prudential Assurance Co Ltd, unreported; FCt SCt of WA; Library No 980602; 19 October 1998
Fox v Percy (2003) 214 CLR 118
Kelly v Solari [183542] All ER Rep Ext 320
Marook Pty Ltd v Winston Gellard Pty Ltd (1994) 10 SR (WA) 207
Morgan v 45 Flers Avenue Pty Ltd (1986) 5 ACLC 222
Norwich Union Fire Insurance Society Ltd v William H Price Ltd [1934] AC 455
Scottish Equitable Pic v Derby [2000] 3 All ER 793
Simos v National Bank of Australasia Ltd (1976) 45 FLR 97
State Rail Authority of New South Wales v Earthline Constructions Pty Ltd (in liq) & Ors (1999) 160 ALR 588
Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387

O'BRIEN DCJ:

Introduction

The plaintiff was insured under a policy of insurance with the defendant which would pay a disability benefit of 75 per cent of the insured's annual earnings in the case of total disability.
The plaintiff claims that he contracted Chronic Fatigue Syndrome ("CFS") in 1997. Since April 1997 he claims that he has been and still is totally disabled from working.
The plaintiff made a claim under the policy by completing the relevant form on 15 May 1997. This was supported by an employer's disablement notification form signed by his employer ("employer's statement"). The plaintiff claimed that his annual earnings were $90,000.
The defendant accepted the plaintiff's claim under the policy and made payments to the plaintiff from 10 May 1997 until 17 August 2003 when it ceased the payments.
The plaintiff claims an order that the defendant pay him benefits under the policy from 17 August 2003 and interest thereon.
The defendant denies that the plaintiff is totally disabled. The defendant pleads alternatively, if the plaintiff is totally disabled, he was not regularly performing all the usual duties of his occupation at the time his insurance became effective. Further, the defendant pleads that the insurance had not taken effect as neither the defendant nor the plaintiff had given notice under the policy.
The defendant admits that it accepted the plaintiff's claim under the policy but claims it did so under the honest and mistaken belief as to the plaintiff's annual earnings when it accepted the claim under the policy.
As a consequence, the defendant claims that the plaintiff was unjustly enriched and claims restitution, or alternatively, equitable compensation, by way of counterclaim.
The named defendant is an insurance company. When the policy was negotiated the Life Insurance Company of Australia ("LICA") entered into the insurance contract with the plaintiff. Since then the business had undergone a number of name changes and the business has been transferred to the defendant. The defendant accepts that it is the proper defendant. Accordingly, I do not propose to recount the history of the defendant's predecessors. My reference to the defendant includes a reference to the defendant by whatever previous name and includes a reference to the company which entered into the insurance contract with the plaintiff.
I begin with an outline of the plaintiff's relevant business dealings and the events leading up to entering into the policy.

The plaintiff's work history

The plaintiff is now 52 years old. He had been a licensed real estate agent and also licensed in "finance and insurance products". In 1982, the plaintiff set up a business, Conlan Holdings Pty Ltd, which traded as Granger Clark, and Supporters Club Services Pty Ltd ("Granger Clark"). This business operated successfully until the "recessions" in the "late 80's, early 90's". The plaintiff testified that he took a break from full time real estate selling and he and others bought the lease and freehold of a hotel and ran the hotel until his return to Granger Clark. He said that during his break, Granger Clark was still opening and was solvent.
It is not particularly clear from the evidence, but it would seem that in 1993 or 1994, the plaintiff recommenced full time work with Granger Clark when he established an office in Ballajura.
In mid 1995, the plaintiff joined forces with Mr Darryl Heffernan and Mr Lynn Wilkinson to set up a group of companies to provide real estate and financial services under the umbrella of One Stop Pty Ltd ("One Stop"). In or around 1998, the company changed its name to One Stop Corporation Pty Ltd. Mr Lynn Wilkinson is an accountant who became involved with One Stop as a director and financial backer in 1995. Mr Heffernan was the designated managing director.
One Stop operated as a trustee of the One Stop Financial Shop Unit Trust ("the unit trust"). A number of other companies were the wholly owned subsidiaries of the unit trust. Mr Wilkinson, Mr Heffernan and the plaintiff owned the trust units in equal third shares. Mr Wilkinson testified that the unit trust always made a loss. He was unable to precisely state the amounts of loss over the years.
The plaintiff started working for One Stop on 13 July 1995 as "Administration Manager/Sales Consultant".
The plaintiff testified that his duties included establishing corporate structures; interviewing people; negotiating deals; setting up and delegating office duties; and setting up office systems.
In his answers to the defendant's request for further and better particulars of the statement of claim filed on 17 November 2004, the plaintiff described his usual occupation as "financial sales consultant" and described his duties as:
"… attending training meetings, sales meetings, visiting clients, receiving clients, telephone calls to clients and advising clients as regards insurance, finance, investment properties, completing documentation if necessary, managing the process for provision of finance, insurance or investment".
The defendant did not challenge this outline of the plaintiff's usual duties.
The plaintiff testified that in the second half of 1996 that he was still involved in the management of Granger Clark but his main priority was to set up the One Stop business to complement the Granger Clark business. Granger Clark would refer business to One Stop; for example, requests for finance.
The plaintiff testified from June 1996 until the end of 1996, the plaintiff testified that most of his time was spent in the office. Thereafter the majority of time was spent in the field selling, with most of his time in 1997 involved in selling.
Mr Heffernan and the plaintiff were quite vague about the day‑to‑day financial management of One Stop. Mr Wilkinson believed that the plaintiff was responsible for the day-to-day administration of the group of companies and their financial management.
As I understand the defendant's position, it is that the plaintiff could not have been performing the duties of his usual occupation when he became ill because his tax return for 1996/97 only declares income of $1,375. For reasons stated later in this judgment, I am of the view that the tax return did not reflect the plaintiff's true income for that year. In the absence of other evidence that the plaintiff was not so performing as outlined above, I am satisfied that he was performing all the duties of his usual occupation and was doing so until he became ill in 1997.
Accordingly, I would not uphold the defendant's contention that at the time the policy would otherwise become effective, that the plaintiff was not performing all the duties of his usual occupation.

Background to the plaintiff's illness and claim

The plaintiff testified that in April 1997 he contracted a virus with flu like symptoms which were not alleviated by antibiotics. These symptoms which are outlined in more detail below, worsened over time. The plaintiff said he was unable to return to work and has not worked since then.
It would appear that the plaintiff has had three episodes of persistent fatigue following a "presumed viral illness". Although there are some minor discrepancies with dates in the plaintiff's account of these episodes, his account to Dr Stewart suffices for present purposes.
The first episode was when the plaintiff was studying and developed glandular fever with persistent fatigue, lasting for 18 months. He appeared to recover well from that.
In 1995 the plaintiff became unwell again with "a presumed viral illness". The symptoms were muscle pains, general malaise and lethargy. The plaintiff also recovered from this condition.
The third episode of chronic lethargy and muscle pains is claimed to be the present condition of the plaintiff.
About five or six months after falling ill in 1997, the plaintiff resigned as a director of One Stop and severed all ties with his partners and the businesses.
On 15 May 1997 the plaintiff signed a disability claim form under the policy (Ex 4).
Mr Heffernan signed the employer's statement notifying the defendant of the plaintiff's disability. A Dr Main provided a medical report in support of the claim.
The defendant accepted the claim and made payments to the plaintiff until 16 June 2003 when the defendant informed the plaintiff by letter that his payments would cease because CFS was "not a valid diagnosis" and "[I]ndependent medical opinion also suggests that you are capable of undertaking sedentary type employment".
Since then the plaintiff has been in receipt of a partial disability pension. His wife returned to the full time work force in September 1997 as the family had exhausted all their financial reserves.
In August 1997 the plaintiff and his wife were declared bankrupt on their own petitions. Each filed a statement of affairs dated 26 August 1997 with ITSA under the Bankruptcy Act 1996.
The plaintiff and his wife testified that they declared themselves bankrupt basically because the family had run out of reserves and they were experiencing a great deal of stress associated with their financial position. The plaintiff testified that it was a relief that he took that action although he was devastated and ashamed that he had put himself and his wife in that position.
Both the plaintiff and his wife testified that they were not in a dire financial state before the plaintiff fell ill in April 1997. Mrs Clark said they were always able to live on the cash flow generated by the plaintiff's job. When he got involved with One Stop, they received income from Mr Wilkinson.

The Insurance Policy

On 3 February 1997, One Stop and the defendant entered into a contract of insurance effective from 15 December 1996. The policy was negotiated by Mr Heffernan. The policy was a group continuance policy. A number of people employed by One Stop were insured under the policy.
Under the policy, those insured were not required to undergo a medical examination to be insured.
On 6 November 1996, the plaintiff authorised automatic deductions from his bank account to pay the premiums (Ex 2). It is not in issue that the plaintiff paid all relevant premiums.
The relevant terms of the insurance policy are as follows:
" 'Earnings' means:
(a)If the Insured Person is an employee, the amount of Remuneration paid by the employer to the Insured Person.
(b)[not relevant].
In this definition, the word 'Remuneration' means the salary, commission and regular overtime amounts that are paid to the Insured Person by [the employer] plus any fees and/or bonuses which are agreed to be treated as Remuneration. Any commission, fees and bonuses will be averaged over a period of two years prior to the Total Disability commencing.
'Injury' means bodily injury resulting from an accident from an external source.
'Insured persons' are such persons who are nominated [by One Stop] from time to time or who are specified in the schedule either by name or description, and with respect to whom the insured had agreed to pay a premium. [The plaintiff was such a nominated person.]
'A schedule' includes a current schedule issued on renewal, variation or endorsement.
'Sickness' means illness or disease.
'Total disability' means the continuous and total inability of the insured person to engage in his or her usual occupation as a direct result of injury or sickness."
Relevantly, an insured person will not be suffering total disability if he or she:
"(a)…
(b)is not under the continuous care of a registered medical practitioner."
The policy provides in s 1 under the heading "disability benefit" the following:
"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 the following:
(a)The date total disability ceases.
(b)The date the insured person attains the Ceasing Age [65 years].
(c)The date of death of the insured persons.
(d)The end of the benefit period stated in the schedule.
'Waiting Period' is a period of 30 days.
'Total Disability Benefit' is 75% of annual earnings."
The general conditions applying to section 1 and section 2 of the policy include this:
"If an insured person is not regularly performing all of the usual duties of his or her occupation or is not fit to do so on the date that his or her insurance would otherwise have become effective then such insurance shall only take effect when notified to you by us".
The defendant pleads in its defence that the "insurance has not taken effect [as] … the defendant has not given notice as required under the policy".
Sections 1 and 2 deal with the payment of benefits to an insured person. The schedule nominates the policy owner as "One Stop Shop Pty Ltd, Conlan holdings Pty Ltd t/a Granger Clark, Supporters Club Services Pty Ltd". The policy is signed by a person described as "Administration Manager" for an on behalf of LICA. There is no evidence that it was signed by anyone on behalf of the owner of the policy or any of the insured persons.
It is not clear what this general condition means. The "insurance" would become effective in the ordinary course of events upon acceptance by the defendant of the proposal and payment of premiums.
In my view, given the uncertain meaning of the condition and the fact that the defendant admittedly accepted the plaintiff's claim, that is sufficient notice required under the general condition.
Whether the plaintiff's medical condition was CFS or some other condition, it is not in dispute that it constituted a "sickness" as defined in the policy.
The plaintiff's position as advanced by his counsel is that his claim is an "all or nothing claim". That is, once the defendant accepts an insured person as having the continuous and total inability to engage in his or her usual occupation under the policy, then the obligation of the defendant under the policy is to pay the benefit notwithstanding that the insured may become able to partially engage in the usual occupation. I do not accept this submission.
The policy allows for a partial disability benefit, if:
"Immediately after a period of total disability with respect to which Benefits are payable, an Insured Person:
(a)returns to work with the same employer on either a part‑time of a full‑time basis; or
(b)returns to work with another employer on the advice of his or her [doctor] and with [the defendant's] consent; or
(c)returns to some gainful occupation;
and is earning less that he or she would have been earning if he or she had not suffered from Total Disability".
Accordingly, if an insured person fell within one of those categories, the defendant could reduce the benefit payable according to a formula set out in the policy.
In my view, it is not necessary to consider whether the plaintiff qualified for a partial disability benefit as his case is that he was and is totally disabled. However, if I were to find that not to be the case and concur with the defendant's assessment that the plaintiff is capable of sedentary work, as I understand the defendant's position, the plaintiff could apply for a partial disability benefit.
There is no evidence that after forming the view that the plaintiff was not totally disabled, that the defendant offered him the opportunity to apply for a partial disability benefit.

The essential factual issues for determination are:

•The nature of the plaintiff's medical condition from April 1997.
•Whether the plaintiff was totally disabled from pursuing his usual occupation ‑
(i)at the time he made the claim under the policy;
(ii)when the benefits ceased; and
(iii)whether he remains disabled.

•A finding as to the plaintiff's annual earnings at the time he made a claim under the policy.
•Whether the defendant accepted the claim under an honest but mistaken belief that the policy had taken effect and the plaintiff was entitled to the benefits as paid.

The plaintiff's health and personal circumstances

The plaintiff claims that he contracted a sickness "described as Chronic Fatigue Syndrome and/or Post Viral Syndrome". The issue boils down to whether the plaintiff had contracted what is commonly referred to as Chronic Fatigue Syndrome ("CFS").
The plaintiff testified that in 1996 his health was "terrific". He played golf at least twice a week; went to the gym three or four times a week; rode a bicycle about 12 kilometres around the Vines Golf Complex; was very active socially; and had an involved life with his extended family. Mrs Clark generally confirms this account.
The plaintiff testified that initially his symptoms were a runny nose and eyes, sore eyes, aches and pains, fatigue and a general feeling of unwellness.
His doctor prescribed antibiotics but the condition worsened. The plaintiff then consulted a naturopath and Dr Main who worked at the same clinic. The plaintiff also underwent acupuncture and a course of massage, the latter exacerbating his pain. As the treatment did not improve the condition, he returned to his usual medical clinic.
It is not in dispute that the plaintiff underwent a variety of tests to determine the nature of his condition. All other illnesses were excluded. In other words, there is no diagnosed medical condition (apart from CFS, which is in dispute) which accounts for the plaintiff's symptoms since April 1997 to the present time.
In February 1998, the plaintiff consulted Dr Pervan, who has extensive experience in treating people with CFS. Dr Pervan diagnosed CFS and treated the plaintiff accordingly. On Dr Pervan's referral, the plaintiff then consulted Dr Sung, an acupuncturist. The plaintiff also underwent a course of deep tissue massage.
By that time the plaintiff testified that he was virtually bedridden, spending 80 or 90 per cent of his time in bed, "just lying around trying to get better". He experienced diarrhoea, headaches, was extremely tired and had pain in his joints and muscles.
The plaintiff testified that Dr Pervan advised him that rest would ease the pain and to attempt to manage the symptoms by resting and avoiding any strenuous and continuous activity. Over time, he was able to manage his pain but if he got bored or frustrated, the pain would escalate.

When he was not house bound, the plaintiff would attend family functions, visit the doctor, drive his children to school or attend sporting functions.
In the early stages of his illness, the plaintiff tried as much physical activity around the house and garden as he could manage. This caused pain in his joints and swelling of his arms.
He tried hobbies to keep himself occupied including reading, listening to audio books, artwork and gardening. However, he would either fall asleep, be unable to concentrate or his fingers would swell with physical effort.
His wife massages him to help him limber up and get out of bed and to deal with the heat which he says builds up in his body. She also helps him dress and shower on occasions.
The plaintiff testified that he experienced headaches if he over exerted himself, read too much or woke from a sleep.
The plaintiff's bedroom was set up with a sofa and television and he took his meals in the bedroom. He said his family would spend around 50 per cent of their time at home in the bedroom with him. Mrs Clark testified that the family has adjusted to living with the plaintiff's condition. When she returned to work she worked hours so that she could pick the children up from school. She still takes her lunch break at the end of the day so that she can leave work, pick up her daughter from school and get home to care for the plaintiff.
Mrs Clark testified that when he was still working, the plaintiff would help her out in the garden. He did not do much around the inside of the house because he was working full time and she was not.
Now the plaintiff's activities on a typical day include the plaintiff getting out of bed, eating breakfast, either driving one daughter to work or the other to school, returning home to pick up a few things around the house, studying the form guide for horse races, sitting at the computer in his room and placing about 20 to 30 bets a week on the computer. He is able to visit relatives, go to a restaurant once a month, go to the races once a month and attend the occasional sporting event. He testified that he is unable to do any exercise as it makes him so fatigued that he has to take to his bed for a time. He has constant pain in his joints and muscles which is relieved on a temporary basis by acupuncture. On the recommendation of Dr Sung the plaintiff wears a soft neck brace nearly every day.
The plaintiff testified that since he became ill, he has made three trips to the eastern states. The last was about four years ago when he went to Victoria for his father's funeral. He drove back to Western Australia with his mother. They shared the driving and stayed in motels over night. The plaintiff said he would drive for about three of four hours at a time and then rest. There is no evidence as to the specific state of his illness at that time. Although it may be possible to generalise about whether a CFS sufferer is capable of such an activity, in my view, this trip is not typical of the plaintiff's day-to day activities and I do not find it to be persuasive in determining one way or the other whether the plaintiff was suffering from CFS at the time.
Before his illness, the plaintiff weighed around 85 kilograms. Thereafter, his weight fluctuated to 155 kilograms and to as low as 97 kilograms.

The plaintiff's present symptoms

The plaintiff's present symptoms include severe pain and fatigue. They fluctuate according to his activity. If he engages in a lot of activity the plaintiff said that he gets very tired and has no choice but to sleep in order to get back into his daily pattern of life.
The plaintiff testified:
"For the last 15 years I could make as many as 60 phone calls a day and see as many as 20 people and interact with probably another 50 people. I mean, that's just impossible the way I am at the moment".
In my view, the totality of the evidence as to the plaintiff's present condition, is to the effect that he leads a very restricted life, is beset constantly with pain and other troublesome symptoms, is unable to undertake anything but modest physical activity, has difficulty in concentrating, sleeping and with his memory and is constantly fatigued. These symptoms fluctuate. Further, these symptoms have persisted in fluctuating degrees since the plaintiff became ill in April 1997.

The history of medical treatment and review

After treatment from his usual general practitioner and naturopathic treatment failed to resolve his symptoms, the plaintiff was referred to Dr Zhukov Pervan. After waiting three months for an appointment, he first saw Dr Pervan on 11 February 1998.
Dr Pervan is a general practitioner who specialises in the management of people with CFS although he has no formal specialist qualifications. Dr Pervan testified that he has qualifications in clinical nutrition but now concentrates on CFS management. He has seen in the vicinity of 23,000 CFS patients since 1978, and testified that he is regarded as an "expert" in the field.
Dr Pervan has seen the plaintiff over 70 times, roughly every two months or so since 1998.
The defendant required the plaintiff to be reviewed by Dr Graeme Stewart, a physician, to provide a report, inter alia, on whether the plaintiff is able to work in any capacity in his usual occupation and advice on "what exactly is disabling [the plaintiff] and preventing him returning to work; and his current restrictions and limitations". Dr Stewart saw the plaintiff again at the defendant's request on 13 April 1999 and again on 11 November 2005. Dr Stewart examined the plaintiff in 1998, 1999 and 2005. He confirmed the diagnosis of CFS.
Dr Pervan referred the plaintiff to Dr David Watson, a physician, who was a member of a working party which produced guidelines relating to the diagnosis and treatment of CFS.
The defendant required the plaintiff to undergo psychiatric review by Dr Burvill, a psychiatrist. This occurred on 1 March 2001 and 9 November 2005. Suffice to say that Dr Burvill did not identify any underlying psychiatric condition, and was of the view that any prognosis is dependent upon the plaintiff's medical condition, CFS, not his psychiatric condition. This opinion is not in dispute.
Dr Amanda Sillcock, an occupational physician, reviewed the plaintiff on 27 February 2003 and 31 October 2005. Dr Peter Stevenson, consultant physician, also reviewed him on 1 March 2001 and 8 November 2005. The defendant required the plaintiff to undergo these reviews.
Dr Sillcock and Dr Stevenson were of the view that the plaintiff did not suffer from CFS and that he was capable of returning to a sedentary job. It would appear that the defendant stopped paying the benefit to the plaintiff on the basis of their opinions.
Before outlining the basis for the respective conflicting medical opinions, I shall attempt to summarise the nature of symptoms and treatment of CFS.

Chronic fatigue syndrome

A working group convened under the auspices of the Royal Australian College of Physicians ("the College") released clinical practice guidelines in 2002 relating to the diagnosis and treatment of CFS ("guidelines"). According to the guidelines, CFS is a descriptive term used to define a recognisable pattern of symptoms that cannot be attributed to any alternative condition. The symptoms are currently believed to be the result of disturbed brain function, but the underlying pathophysiology is not known. Therefore, at present, CFS cannot be defined as a specific "disease" entity. Indeed, there is growing evidence that the disorder is heterogeneous, and it will probably prove to have no single or simple "aetiology".
The guidelines warn that notwithstanding that an underlying disease process cannot presently be defined in patients with CFS, the suffering and disability caused by the illness can be very considerable. Doctors are advised of the importance of acknowledging the reality and seriousness of the suffering and disability experienced by people with CFS.
CFS is diagnosed on clinical grounds. The diagnostic criteria must include clinically evaluated, unexplained, persistent or relapsing fatigue persistent for six months or more, and four or more of eight listed symptoms that are concurrent with the fatigue, and which also persist for more than six months, and which did not pre‑date the fatigue.
The diagnosis of CFS is a diagnosis of exclusions. It is not necessary to refer to those specific conditions which should be excluded before a CFS diagnosis is made. However, it is characteristic in patients with CFS that there are no abnormal physical findings.
The guidelines and the specialist opinion in this case support the view that people with CFS should be encouraged to undertake physical and intellectual tasks, starting at a level that is tolerated without significant exacerbation of symptoms. According to the guidelines, "graded exercise programmes have been shown to be beneficial for some people with CFS, and can improve functional status". The guidelines stress that in formulating a management plan, it is important to be aware that in many people with CFS the degree of fatigue can fluctuate unpredictably from day to day and week to week. Accordingly, it is important to "pace" the level of physical and mental activity.
The guidelines refer to the fluctuating nature of fatigue syndrome resulting in unpredictability which is a significant problem in conforming to a work routine.
Cognitive behaviour therapy may be effective for some people with CFS. However, the guidelines emphasise the need for an individualised management plan through a process of active discussion with the patient. So‑called "alternative" remedies such as vitamin therapy, acupuncture, massage are not regarded as effective in "curing" CFS.
The overwhelming evidence is that apart from excluding the relevant conditions which might explain the symptoms, medical practitioners are completely dependent on what their patients tell them in order to make a diagnosis.
As to whether the condition is "permanent", the guidelines note that most people with CFS improve gradually, and some eventually recover:
"In people who have been severely disabled and unable to work for more than five years, the probability of substantial improvement within 10 years is less than 10 to 20 per cent. This may be regarded as 'permanent disability' for medico‑legal purposes."
Dr Pervan said that the majority of patients would recover within two years of the onset. If they have not recovered within two years, then it is likely that they will continue to have symptoms long term.
Dr Stewart testified that the average duration of CFS is one year. He said that most people with CFS will recover within two years, if not, CFS will continue long term.
Dr Watson's view was that after a period of two years, if the patient still has symptoms, then the number of people who recover is less although there are still some people who do recover after two years.
This difference of opinion concerning the duration of CFS and recovery times reflects the unpredictability and uncertain nature of the condition.
It is clear from the guidelines that prolonged rest, together with social isolation are not recommended in the management of CFS. Indeed, family support and monitoring, encouragement and counselling by the treating doctor are regarded as beneficial.

Dr Zhukov Pervan

Dr Pervan is a general practitioner who now specialises in the treatment of patients with CFS. His only post‑graduate qualification is a Diploma of Clinical Nutrition which he obtained in 1984.
He became interested in treating people with CFS in 1978 when a "burnt out" elite athlete was referred to him for treatment.
Since then, he has monitored groups of between 10 and 20 patients with CFS to assess their progress and treatment.
The purpose in doing this was to find ways to improve the patients' quality of life, their health and to get them back to work, study or sport.
Dr Pervan has seen 23,000 CFS patients since 1978. In his view, about 25 per cent of people with CFS do not recover. The remaining 75 per cent may go into remission for extended periods but never fully recover.
Dr Pervan first saw the plaintiff on 11 February 1998 after he had been referred by a doctor at his local medical group. By then, the plaintiff had been assessed by an immunologist and undergone various investigations to exclude any other major illnesses or disease.
On presentation in February 1998, the plaintiff's main symptoms were headaches, dizziness, muscle aches, chronic fatigue, poor concentration and memory, and fluctuating depression with sleep disturbance.
Dr Pervan confirmed the provisional diagnosis of CFS by reference to the diagnostic criteria outlined by the Centre for Disease Control in Atlanta, Georgia in 1988.
Those criteria included chronic fatigue for over six months, relapsing and remitting whereby the plaintiff was unable to get back to 50 per cent of his pre‑morbid activity; the exclusion of all other major illnesses; other symptoms falling within the criteria outlined by the Centre for Disease Control.
Dr Pervan conducted blood tests to identify whether there were any deficiencies in nutrients and if so, he would attempt to supplement them with a view to improving the plaintiff's state of health. In his view, some of the deficiencies identified in the nutrients in the plaintiff's blood were likely to be accentuating his fatigue. He would only prescribe supplements if the blood tests revealed a deficiency. In this regard he was not using nutrients or vitamins as a way of combating CFS but to reinstate appropriate levels. He did blood tests three or four times a year on average. Dr Pervan combined advice about dietary changes with the vitamin supplements.
Dr Pervan was of the view that since 1998, the plaintiff has been incapacitated from performing any work. Given the length of time the plaintiff has suffered from CFS, Dr Pervan was of the view that it is "highly unlikely that there will be a substantial remission".
The treatment that he has provided has been supplements of vitamins and nutrients, monitoring the condition and counselling the plaintiff.
Dr Pervan's view is that it is necessary for the patient to pace physical and mental activity so that the patients can work within their limits. Dr Pervan said he encourages patients to exercise but within their own limits. His experience is that on many occasions, patients often over extend themselves physically, particularly when they feel they are about to enter remissions.
Dr Pervan's view is that an extended remission of at least six months is necessary before a patient can embark on "some serious rehabilitation programme which can involve both graded exercise and cognitive behavioural therapy". In his experience, those patients who have engaged in a graded exercise programme not in extended remission at the time usually relapse. This is where his view parts company with the guidelines and other medical opinion given at trial.
Dr Pervan conceded that there is no suggestion in the guidelines that graded exercise cannot be started until someone has been in remission for a minimum of six months. Dr Pervan agreed that in that regard his views are not shared by the College.
Dr Pervan was adamant that given the number of patients with CFS he has treated, his views concerning graded exercise are appropriate. He classed the plaintiff as having one of the severe cases of CFS.
Dr Pervan said that the plaintiff had remission periods for three months, but had never been in remission for six months. The plaintiff had attempted a graded exercise programme after three months but reported that he was very tired.
In response to questions posed by myself, Dr Pervan testified that he agreed with the thrust of the guidelines concerning the treatment for CFS, but with respect to the graded exercise programme (which he agreed could be beneficial) his view was that the patient would have to be in remission before there would actually be some improvement. He testified that remission is part of the fluctuating condition of CFS. In his experience, most people with CFS are motivated to get better.
Under cross‑examination, Dr Pervan sought to explain the apparent difference of opinion concerning a graded exercise programme with the College by saying that the College was "looking across the board" in coming to its views but that he was examining severe cases.
Dr Pervan testified that the plaintiff attempted going for a walk but was required to go to bed for two days afterwards because he was unable to cope with the fatigue. Dr Pervan counselled the plaintiff to pace himself. He was of the view that the plaintiff has never been ready to take extended walks.
He found that if the plaintiff walked on numerous occasions he suffered severe stamina impairment - that is, increased physical and mental fatigue and pain. I observe that Dr Pervan would be largely dependent on the plaintiff's account in this regard.
Dr Pervan considered that with treatment of herbs and vitamins the plaintiff achieved in the region of 15 to 20 per cent improvement in his overall symptoms.
Although Dr Pervan formed the view that the plaintiff was unfit for work indefinitely and that his present prognosis is very poor, he said he tried to give the plaintiff hope.
Dr Pervan was aware that in 2003 the plaintiff had tests for sleep apnoea. They revealed that the plaintiff had mild to moderate sleep apnoea but he did not consider this related in any way to the CFS and vice versa. Essentially, Dr Pervan was of the view that CFS is managed by pacing the patient physically and mentally and counselling the patient on how much they can do within their own capabilities.
Dr Pervan recommended that the plaintiff undergo acupuncture from Dr Sung about 12 to 18 months after the initial consultation in order to give some pain relief. He said that acupuncture would not cause a recovery from CFS and that at present there is no cure. Further, the evidence of Dr Pervan and Dr Sung, who have treated the plaintiff since 1998 and 1999 respectively is to the effect that the plaintiff was always compliant with their advice and was frustrated by his inability to physically and mentally function as before his illness. Dr Pervan considered this to be a common finding in CFS patients.
Under cross‑examination, the plaintiff's evidence concerning his daily activities was put to him and his view was that these activities would only be a "typical day during a remission".
Dr Pervan stressed that CFS is a fluctuating condition, not a steady illness.
Under cross‑examination, Dr Pervan testified that he did not consider a 20 per cent improvement significant enough "to consider relevant as far as the issue of being able to work" was concerned. That improvement was due to a placebo effect or equivalent to the effect of a placebo.
Essentially, Dr Pervan's treatment of the plaintiff was to counsel him. He regarded it as highly unlikely that the plaintiff would get any better. His counselling includes encouragement for the plaintiff to do as many things as he can within his capabilities, not to over‑do it, and to listen to his body.
In my view, apart from Dr Pervan's view about a graded exercise programme, his treatment of the plaintiff is consistent with that recommended in the guidelines.

Dr David Watson

Dr Watson is a physician who is experienced in diagnosing and treating persons with CFS symptoms. In 1991 he chaired a federal government working party to advise a Government Minister on aspects of the management of patients with CFS. He was also a member of the working party of the College which produced the guidelines relating to CFS including the diagnostic criteria.
Dr Watson initially examined the plaintiff on 10 September 1998. He was then of the view that the plaintiff suffered from CFS. He recounted the plaintiff's medical history and the various tests which had been carried out which excluded other conditions.

He considered that the plaintiff "might respond to a supervised and graded exercise program provided it was rigidly policed and could avoid stirring up any of [the plaintiff's] competitive juices."
Dr Watson again saw the plaintiff on 9 July 2003 and reiterated his opinion that the plaintiff still appeared "to have a chronic fatigue state consistent with [CFS]".
Dr Waton's last consultation with the plaintiff was on 8 November 2005.
Under cross-examination, Dr Watson said that the plaintiff had not told him that he had made three trips to the eastern States (only one stuck in his mind); that he had been to the races once a month; that he drove his daughter to school; that he would sit at a computer for two or three hours; that he placed up to 30 bets a week after studying the form guide. He said that this history was not consistent with the degree of incapacity the plaintiff described.
He said the ability to study the form guide and place bets involved at least the amount of concentration necessary to pursue a sedentary occupation. However, he said that he was not qualified to assess a person's work capability.

Dr Graeme Stewart

Dr Stewart confirmed the diagnosis of CFS largely based on the exclusion of other conditions and the fact that the "lethargy" has persisted for over six months.
By letter dated 10 August 1998, the defendant requested Dr Stewart to conduct a review of the plaintiff. The briefing letter informed Dr Stewart that the defendant was
"Endeavouring to determine if Mr Clark is totally disabled under the terms of the policy, that he is unable to perform the usual duties of his occupation, a financial controller."
Dr Stewart saw the defendant on 17 September 1998 "for assessment of his symptoms of lethargy and muscle pains."
Dr Stewart was of the view that the "diagnosis of chronic fatigue syndrome is usually based on exclusion". As the plaintiff's lethargy had persisted for over six months, Dr Stewart opined that the plaintiff did fit the diagnostic criteria for CFS. He said that in the near future it will be unlikely that he will return to work in any capacity. However, as he has improved after his previous two episodes of chronic fatigue syndrome so he may well improve again at some stage in the future.
Due to the plaintiff's difficulties in concentrating and problems with memory, Dr Stewart reported that he did not think the plaintiff would be able to carry out office work and that he did not seem to have the physical capacity to do any tasks requiring exertion.
By letter dated 8 February 1999, the defendant requested Dr Stewart to conduct a further review of the plaintiff.
By letter dated 13 April 1999, Dr Stewart reported to the defendant. His view was that the plaintiff was not fit to work in any capacity at that time. He said that it was difficult to say whether his incapacity will be permanent or whether he will recover. He said that the overall prognosis is poor as most patients who are going to improve, do so within the first two years. He suggested a further review in 12 months.
By letter dated 11 November 2005, Dr Stewart reported to Dr Pervan. He was of the view that the plaintiff's situation had not changed since previous consultations, nor had his opinion made in 1999 changed. He was of the view that the chances of the plaintiff returning to work full time would be extremely low, and he would regard the plaintiff as being permanently unsuitable for full‑time employment.
Dr Stewart testified that the main issue concerning the plaintiff's capacity to do office work related to his difficulty in concentration and his poor memory. As the plaintiff was unable to function physically, taking on another job involving physical activity would not be appropriate. Overall, Dr Stewart's view is that the plaintiff would be unable to return to work in any capacity.

Dr Peter Stevenson

Dr Stevenson's first consultation with the plaintiff on 1 March 2001 proved to be unsatisfactory for the purpose of providing a comprehensive report. Indeed, Dr Stevenson was of the view that the plaintiff provided him with "such a heavily edited account of life events as to be almost valueless".
Further, Dr Stevenson stated that the plaintiff's history of recurrent marked swelling of joints of his lower and upper limbs in response to minor physical exertion is "not a symptom of pattern of symptomatology that I can recognise as having any medical explanation". He went on to say such a symptom is not one of post viral fatigue syndrome and is not a symptom of CFS. He considered that particular symptom to be "bizarre".
On reading Dr Stevenson's initial report dated 12 March 2001, I formed the view that he was rather sceptical about the diagnosis of CFS in certain circumstances. He appeared to be of the view that non-specific symptoms such as fatigue, aches and pains, intermittent lapses of memory and concentration and intermittent respiratory infections following a virus fits "the scheme onto a vast non‑specific range of unhappy human experience".
Dr Stevenson was unable to find "persuasive evidence that [the plaintiff] is physically disabled by any biological effects of viral infection dating back to 1997".
Dr Stevenson opined that it "may well be that Mr Clark simply has developed an inappropriate attachment to the sick role as a refuge from his personal and financial difficulties". In my view this is speculation on his part. Dr Stevenson did not outline the plaintiff's so called "personal difficulties". There was no evidence then available to Dr Stevenson on which to base this opinion.
Dr Stevenson considered that the plaintiff's incapacity (in 2001) had more to do with "factors such as abnormal illness behaviour and a protracted pattern of activity avoidance". There was no major physical condition causing incapacity to return to work.
It would not appear from Dr Stevenson's initial report that he categorically discounted the diagnosis of CFS.
Dr Stevenson's understanding of the plaintiff's occupation was that "he did the ordinary sedentary duties of an administrative occupation". He was of the view that the plaintiff could perform clerical or retail duties. He formed this view without knowing exactly what specific duties the plaintiff performed in his usual occupation.
Dr Stevenson was of the view that the plaintiff received unconventional and ineffective medical treatment, and has now adopted the position of a chronic invalid.
I was not impressed with the evidence of Dr Stevenson. A good deal of his report dated 8 November 2005 focused on the issue of whether CFS constituted a disease and whether it was appropriate to "diagnose" CFS. None of that is in dispute. However, the clear tenor of his report and his evidence was that he simply did not believe that plaintiff's account of his symptoms. I detected that Dr Stevenson was frustrated by an inability to communicate effectively with the plaintiff initially and even during the review in 2005 when he said he got along better with him.
The defendant's counsel suggested that the plaintiff is prone to exaggeration and histrionics when describing his symptoms. I note that Dr Stevenson states in his 2005 report "I asked whether Mr Clark had tried to work a thousand times …" (my emphasis). Some degree of exaggeration or dramatic turn of phrase might be understandable in a man who has reportedly suffered as described by the plaintiff over the last eight or so years. One does not expect the same in a medical specialist who claims to be independent and objective.
I have some doubts as to Dr Stevenson's ability to take a proper history from the plaintiff even putting aside the above example. Dr Stevenson opined that the plaintiff's bankruptcy might account for his condition. He wrongly stated that the plaintiff went bankrupt after "major business failure". He did not even question the plaintiff about his bankruptcy. When Dr Stevenson saw the plaintiff in 2005, he did not question him again about the historical details of his illness notwithstanding it being his usual practice to do so. This was because he had "considerable difficulty getting factual details from Mr Clark four years ago". In my view, this indicates a degree of prejudice against the plaintiff as a person who is unlikely to cooperate. This was unwarranted in my view and inconsistent with the proper approach a specialist should adopt, particularly as he had described the plaintiff in his 2001 report as "anxious", "unhappy", "miserable" and "frightened" and a man "who appears to be entrapped in a sick role".
In his 2001 report, Dr Stevenson appears to categorise the plaintiff's failure to exercise as a pathological aversion to exercise. However, this seems to fly in the face of what the plaintiff had told Dr Stevenson about his medical advice from Dr Pervan, namely that he had been advised "definitely not to exercise" and the plaintiff's account that he did not do "much" because the more he did, the more he hurt. It is equally open in my view to categorise the plaintiff's attitude to exercise as influenced by his medical advice.
Further, the 2001 report places some (albeit limited) reliance on a review undertaken and opinions expressed by Mr Mustac, a psychiatrist. For example, Dr Stevenson stated that "I must share Dr Mustac's reservations that we are being presented here with a personal dilemma or business failure edited (sic) by a viral infection". There is no evidence from Dr Mustac and accordingly, his views could not be tested.

Dr Amanda Sillcock

When Dr Sillcock first saw the plaintiff on 27 February 2003. She was not provided with nor did she see the results of any previous medical investigations but nevertheless she opined that "it did not sound as if [the plaintiff] had been fully investigated for other conditions". She identified sleep apnoea as one of these conditions.
Dr Sillcock reported by letter dated 25 March 2003.
She was of the view that there "is probably significant psychological overlay in [the plaintiff's] case". She did not give any reasons for this in her report.
Dr Sillcock's view was that the plaintiff "could perform the duties of his normal occupation from a physical point of view as they are quite sedentary". There is no basis for this opinion on the basis of what she reported the plaintiff told her about his occupational history.
Further, she was of the view that the plaintiff is not motivated at all to rehabilitate himself and return to employment. Further, she stated that his bankruptcy is a "major barrier to his recovery" and that as he did not have a job to return to and no other source of income "it is in his interests to remain unwell and in receipt of benefits". She did not give any reasons for this view.
She considered that the label of CFS was probably wrong as the plaintiff did not fit the diagnostic criteria. However, it would seem that she had not been advised that the plaintiff's fatigue had endured for more than six months before diagnosis by Dr Pervan. Further, the plaintiff had reported at least four of the other symptoms outlined in the guidelines.
Dr Sillcock also said that the plaintiff's "illness behaviour has been reinforced by his treating practitioners". Again there is no explanation for this view.
Dr Sillcock next saw the plaintiff on 31 October 2005 and reported by letter dated 11 November 2005. In the meantime he had been diagnosed with mild to moderate sleep apnoea and told Dr Sillcock that he had "religiously" tried to use [presumably] a "CPAP machine" but this did not make any difference to his fatigue.
Dr Sillcock was of the view that the plaintiff did not have CFS as he did not have a sore throat, tender cervical auxiliary or auxiliary lymph nodes. Those symptoms comprise only one of the diagnostic criteria. She said that his impaired short term memory or concentration as "marginal". There is no evidence that she tested him in any formal way and seems to have relied on her assessment of his memory in the course of him answering her questions.
Dr Sillcock's assessment of the plaintiff's work duties as "sedentary" reveals that the plaintiff could not have reported his duties in detail as given his evidence. I would not classify those duties as "sedentary". She relied on the plaintiff's knowledge of horses competing in the Melbourne Cup as evidence that he appeared to have "little, if any, cognitive defect".
Dr Sillcock was of the view that the plaintiff could perform alternative duties on a fulltime basis albeit with a graduated return to work. She did not specify the so called "alternative duties". She also said that the plaintiff was quite firmly convinced that he is ill and this is a belief quite clearly reinforced by his wife. There is no basis whatsoever in the body of Dr Sillcock's report which would justify such an opinion.
Dr Sillcock appeared to be singularly lacking in preparation to give evidence. She did not have her briefing letters or her original notes and purported to rely on her memory which she conceded might not be reliable given the passage of time since she had seen the plaintiff. She was also not particularly familiar with the contents of her own written reports.
She testified that the plaintiff's evidence about his activities did not fit with him having CFS. For example, she said that most people with CFS would not be able to drive for two or three hours or attend children's sporting activities as they would not have the required energy.
Dr Sillcock had reviewed many patients with CFS but had never treated any. Of itself, that is not necessarily a reason to dilute her opinions. However, the reliability of her opinions is diminished by her lack of preparation as a witness and her categorical rejection of the diagnosis of CFS when the plaintiff appeared to report the required diagnostic criteria. Under cross‑examination, when this was pointed out to her, she said "I didn't feel that he fitted the criteria anyway".
As to Dr Sillcock's opinions about the nature of the plaintiff's work, in my view, she did not take a comprehensive enough history to form a reliable view about this.
Overall, the value of the evidence Dr Stevenson and Dr Sillcock is that they supported the other medical evidence that graduated exercise is an appropriate treatment for CFS.
Other than that, for the reasons I have expressed about the lack of reliability of their opinions, I prefer the evidence of Dr Pervan and Dr Watson and Dr Stewart as to the diagnosis of CFS.

Does the plaintiff have CFS?

It is not for the trial judge to make a diagnosis as to whether the plaintiff suffers from CFS. I do not have the relevant knowledge or experience. There are medical opinions on the issue, the weight of which must be assessed in the context of the totality of the evidence. I note and respectfully agree with the comments of the Court in Bensky v Mercantile Mutual Insurance Co Ltd (1999) 22 SR 144.
I find it more probable than not that the plaintiff suffers from CFS. I place considerable weight on the opinion of Dr Pervan notwithstanding his lack of specialist qualifications and his use of "alternative therapies" and his view about the value of exercise for the plaintiff in the treatment of CFS. He has diagnosed and treated thousands of CFS sufferers and is best placed to assess and report on the plaintiff's condition given the period over which he has treated him.
The nature of CFS as outlined in the guidelines and summarised above and the well recognised fluctuations in the condition make the diagnosis, treatment and generalisations about symptoms and about an individual's functioning domestically or in the work force, fraught with difficulty. In my view, given the medical evidence and the guidelines, the plaintiff is one of those people with CFS whose condition has endured to a point where it is possible that it is permanent.
It may be that with more "mainstream" treatments as outlined by the medical witnesses and in the guidelines (such as a graduated exercise programme) that the plaintiff's condition may improve. However, he has followed the medical advice given by Dr Pervan. Given that CFS is such a distressing and frustrating condition, I would find it unusual if a patient did not follow his or her treating doctor's advice. The plaintiff should not be disadvantaged if his medical advice is not optimal in achieving some improvement in his condition.
The plaintiff's evidence is that the plaintiff suffers the required degree of fatigue and at least four of the other required concurrent symptoms, including impaired short-term memory or concentration, muscle pain, multi joint pain without arthritis, and headaches. (It is not clear from the evidence whether the headaches suffered by the plaintiff were of "a new type, pattern, or severity" as outlined in the diagnostic criteria.)
On occasions, the plaintiff has also suffered post‑exertional malaise lasting more than 24 hours.
There is an understandable difficulty in the plaintiff outlining the history and progress of the symptoms over the last nine years or so. This is because the symptoms have fluctuated, and in the absence of keeping a daily or other periodic diary about the symptoms, some degree of lack of clarity and consistency in the telling of the symptoms is to be expected.
The medical evidence is generally to the effect that the symptoms of people with CFS fluctuate and are unpredictable. Management plans should take this into effect. The plaintiff's evidence is that he adjusted his daily activities according to the degree of pain and fatigue he experienced. Dr Pervan's management of the plaintiff's condition was in the context of the plaintiff functioning within his own limitations by reference to the pain and fatigue he was experiencing.
The defendant's counsel made much of the plaintiff's account of his trip back from Victoria after his father died. In my view, this was not inconsistent with a diagnosis of CFS.
In my view, based on my analysis of the medical evidence, I am of the view that it is more probable than not that the plaintiff has suffered from CFS at least since Dr Pervan's diagnosis in early 1998. Prior to then he suffered symptoms consistent with CFS but a diagnosis of CFS could not be made as the fatigue had not persisted for six months or more. I also find that the plaintiff continues to suffer from CFS.
I refer to my findings about the plaintiff's symptoms and to the unchallenged evidence of the plaintiff's usual duties before he became ill. In my view, the plaintiff has suffered a total disability as defined in the policy since April 1997 and continues to be so disabled.

The defence

By way of defence, the defendant denies that the plaintiff was entitled to the amount of payments calculated by reference to his represented salary of $90,000.
Further, the defendant says that it accepted the plaintiff's claim under the policy under the mistaken belief that his income was $90,000 per year and but for that mistaken belief, the defendant would not have made payments to the plaintiff.
Accordingly, the defendant pleads by way of defence and counterclaim that the plaintiff has been unjustly enriched. It claims restitution of the amount by which the plaintiff has been unjustly enriched at the expense of the defendant or, alternatively, equitable compensation and interest.
It is agreed that from 10 May 1997 until 16 August 2003, the defendant paid benefits in the sum of $34,204.30 gross.
The employer's statement submitted to the defendant at the commencement of the disability in 1997 showed the plaintiff's salary as an employee was $90,000 per year. The claim form was filled out by the plaintiff and signed by Mr Heffernan.
The plaintiff declared himself bankrupt on 26 August 1997. In his statement of affairs, he declared fortnightly earnings of $1,846.15 (ie, $48,000 per annum). This represented the benefits then paid by the defendant.
By letter to the plaintiff dated 18 December 1998, Mr McFarlane, a claims assessor employed by the defendant, noted the discrepancy and requested a copy of the plaintiff's 1995/96 and 1996/97 taxation returns.

By letter dated 30 December 1998 to the defendant, the plaintiff enclosed a copy of his 1995/96 taxation return and a copy of his 1995/96 family trust taxation return.
The plaintiff explained in his letter that the income of $90,000 in the claim form was calculated by reference to the distributions from the family trust and the income disclosed in the 1995/96 return.
Mr McFarlane (T339) testified, in effect, that he was satisfied with the plaintiff's explanation.
The plaintiff did not discover his 1996/97 taxation return. It was only provided to the defendant in August 2005 after proceedings had commenced. In the 1996/97 taxation return, the plaintiff declared that his total income was only $1,375. He did not declare to the trustee in bankruptcy that he had earned an income of $1,375 in the 1997 financial year (Ex 26).
Mr McFarlane testified that had he received the 1996/97 taxation return, the monthly benefit would have been calculated by reference to the amount declared. The $1,375 represented nine months income. The yearly income for 1996/97 would have been $1,800 and the plaintiff would have received 75 per cent of that amount.
Mr Milroy, who in 2003 was a senior claims analyst with the defendant, testified that if he had been provided with the 1996/97 taxation return, it would have raised questions about the plaintiff's eligibility for cover under the policy. Further, the plaintiff would not have suffered a loss of income by being claimed in the first place "so it would be very difficult to justify a benefit".
Mr Milroy testified that if the plaintiff's income was in fact as declared in his 1996/97 taxation return, the defendant would not have paid a benefit.
The defendant claims the benefit was paid because of a mistaken belief as to the plaintiff's income. The plaintiff does not dispute that the defendant made the payments based on the employer's statement as explained in the plaintiff's letter of 30 December 1998, but claims that the plaintiff's income was in truth $90,000 per year.

What was the plaintiff's income for the relevant periods?

The plaintiff's taxation returns revealed that he earned income from Conlan Holdings as follows:
Financial Year 1 July 1994 ‑ 30 June 1995         $52,011
Financial Year 1 July 1995 - 30 June 1996         $28,229
Financial Year 1 July 1996 - 30 June 1997           $1,375
The plaintiff received distributions from the Ashley Clark Family Trust as follows:
Financial Year 1 July 1994 ‑ 30 June 1995         NIL
Financial Year 1 July 1995 - 30 June 1996         $30,200
Financial Year 1 July 1996 - 30 June 1997         NIL
The plaintiff testified that in the second half of 1996 he received between $7,000 and $10,000 dollars per month from One Stop.
There is no documentary evidence to support that contention.
However, Mr Heffernan said that he and the plaintiff received payments of $10,000 per month which he described as drawings. When asked if the payments were dependent on performance in any way, Mr Heffernan testified that they had jobs to do and that Mr Wilkinson was happy with what they were doing and funded them at $10,000 per month.
In his statement of affairs, the plaintiff disclosed a "personal loan" in the sum of $50,000 from One Stop. He represented that this debt was incurred in 1996-1997.
The plaintiff also earned commissions of approximately $3,674 in 1996/97 (Ex 24) which do not appear to be declared in his 1996/97 taxation return.
The plaintiff was extensively cross‑examined about a document entitled "Account Enquiry 1/1/96 to 9/12/96".
The plaintiff testified that he had not seen this document prior to early 2006 when he provided it to the defendant's solicitors. He was not responsible for the entries on the document.
That document has entries described as either "A J Clark Loan", "A J C ‑ Loan" or "A J C Director's Loan". Entries under these headings total $42,000.
The aim of the cross‑examination was to establish that the loan from One Stop declared in the plaintiff's statement of affairs was in fact a loan. The defendant's position is that the "Account Inquiry" document which refers to amounts debited against the plaintiff's name described as loans as outlined above, supports that view.
The plaintiff explained that he had earned about $10,000 a month for five months or so in 1996 and declared this amount in his statement of affairs as a loan from Conlon Holdings. He testified that he did this, notwithstanding the $50,000 was not a loan, as he felt guilty as he had left his partners "in the lurch". Accordingly, he said that if he described the amount as a loan, his partners would get some benefit from it. He agreed that the object of describing the $50,000 as a loan was to give One Stop the right to claim as creditors of his estate in bankruptcy.
If the $50,000 was truly a loan, it follows that it was not income earned as an employee.
The defendant submits that if the $50,000 was not a loan, it could only be categorised as "drawings" by the plaintiff in his capacity as a director of One Stop and not remuneration earned as an employee.
The plaintiff testified that he did not declare all of his income in his 1996/97 taxation return. He said that he had gone through bankruptcy and he was very ill and upset at the time of preparing the taxation return. He simply gathered up all the documents he could find and handed them to his accountant to prepare his tax return.
The plaintiff testified that in his 1995/96 taxation return he told the truth. He explained that his accountant's advice if he earned "surplus" income it was "put through" the family trust. In the 1995/96 financial year the so called surplus income was in the vicinity of $60,000. The 1996 financial statements of the Ashley Clark Family trust reveal that $30,200 was distributed to the plaintiff and $32,626 was distributed to his wife.
The plaintiff testified that he did not treat the $30,200 as income in his 1996/97 taxation return because it was reflected in the family trust taxation return.
The plaintiff explained how he arrived at the figure of $90,000 as declared in the employer's statement. He said that he received approximately $30,000 income from Conlan Holdings and $60,000 had been put through the family trust. By adding those sums, he came to $90,000.
He said the maximum amount he could be insured for was an income of $64,000 (under the policy the beneficiary could only claim 75 per cent of stated income to a maximum of $48,000). The plaintiff testified that he thought the amount of his income was academic as long as it was greater than $64,000. He roughly added up his income as outlined and $90,000 was closer to the truth than anything else.
The plaintiff testified that at the time he entered into the policy he was on track to earn probably double $64,000.
He said the $90,000 represented the last known financial period (1995/96) and he believed that this amount would be his approximate salary based on what he had earned the year before.
It is clear that there are several discrepancies in the documents executed by the plaintiff relating to his income.
In his 1996/97 taxation return, he did not disclose income in the sum of $50,000 which he claims to have received from One Stop. Instead, he declared the $50,000 in his statement of affairs to the Trustee in Bankruptcy, but described it as a loan. He did not declare to his trustee the sum of $1,375 income which was declared in his 1996/97 taxation return.
In my view, if the plaintiff'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 plaintiff'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 plaintiff made a conscious decision to misrepresent his financial position.
However, the critical issue is whether the plaintiff overstated his income in the employer's statement.
Matters to take into account in that regard include the plaintiff's explanation as to his 1995/96 income as outlined above; his explanation as to why he nominated $90,000; and his admitted dishonesty in relation to his 1995/96 taxation return and his statement of affairs.
Mr Heffernan testified that he read and signed the employer's statement. He could not recall whether he suggested the figure of $90,000 as claimed by the plaintiff. However, he said that if he signed the document he would have checked it. He was satisfied that the stated salary of $90,000 was correct on the basis that he knew the "type of money" they were earning and the "type of deals" they were doing. He said they were earning "well in excess" of $64,000. He did not consider that it was worthwhile stating income in excess of $64,000 because the defendant would not insure them for more than that amount. He said that LICA told them that given the amount of people under the group policy, "… you only had to state maximum limits of $64,000 as a salary". This is also the effect of the plaintiff's evidence. There is no evidence to the contrary.
I note that of those listed as insured persons (Ex 27), eight had nominated salaries of $64,000 including the plaintiff and Messrs Heffernan and Wilkinson. It must have been apparent to those employed by the defendant that given this was the maximum amount of cover under the policy that those persons had simply nominated the maximum notwithstanding their actual salaries might have been higher. There is no evidence that this coincidence caused the defendant any concern or to inquire as to the coincidence.
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 plaintiff received around $50,000 from One Stop. Mr Heffernan described the monthly $10,000 payment from One Stop as director's drawings. However, Mr Heffernan appeared to receive his $10,000 monthly payments through his family company. Mr Wilkinson said that the drawings of the directors were not within his direct knowledge.
The list of those insured under the policy (Ex 27) includes Mr Wilkinson and Mr Heffernan. On all accounts, Mr Wilkinson does not fit within the definition of an employee as the term is generally understood. There is no evidence as to how he earned the stated salary of $64,000. He was a financial backer only and is not even mentioned in the One Stop organisational chart.
Mr Heffernan is described as the General Manager in the organisational chart. Mr Wilkinson, Mr Heffernan and the plaintiff were all directors of One Stop and the plaintiff was at one time or another, the director of one or more of the other companies listed in the organisational chart.
The plaintiff regarded the $10,000 monthly payments as income as it seems did Mr Heffernan.
Mr Wilkinson did not seem concerned how the payments were treated. He injected money into One Stop and as far as he was concerned, it was up to Mr Heffernan and the plaintiff to manage those funds as they saw fit.
In my view, it would not be appropriate to place any weight on the contents of the document entitled "Account Inquiry" (Ex 29). The plaintiff 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 plaintiff had a loan account in 1996/97 but believed he had one the previous financial year. No other witness testified that the plaintiff 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 plaintiff, lack sufficient detail for me to make a positive finding of the exact nature of the monthly payments of $10,000. However, the plaintiff'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 plaintiff and his wife is that they were not in financial trouble at about the time the plaintiff became ill. Mr Heffernan testified that One Stop was going well although it was in its infancy.
It has not been suggested that the plaintiff's treatment of his 1995/96 income was unlawful or otherwise inappropriate.
In assessing the plaintiff's credibility, I take into account that the plaintiff falsely stated his income in his 1996/97 taxation return and falsely stated that he owed $50,000 to One Stop in his Statement of Affairs. These are serious misrepresentations. The plaintiff has given an explanation. 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 plaintiff's representations in those documents were not true. The plaintiff 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.
Despite those examples of serious dishonesty, I find it more probable than not that the plaintiff's estimate of his salary as $90,000 for the 1995/96 financial year is correct.
In all the circumstances, it was reasonable in my view for the plaintiff to state his salary as $90,000 in the employer's statement based on what he had earned in the 1995/96 financial year.
It is unlikely on the evidence that the plaintiff would have been on track to earn "double" $64,000 in the 1996/97 financial year. However, I accept that he had received payments of totalling around $50,000 from One Stop and commissions of around $5,000 in the 1996/97 financial year before be became ill. Under the policy the commissions would have to be averaged over a period of two years prior to the plaintiff's disability commencing. Even so, given the evidence of the plaintiff and Mr Heffernan as to the business transacted by One Stop in that time, it is reasonable to infer that but for his illness the plaintiff's total income would have at least exceeded $64,000 by the end of the 1997 financial year.
Despite my inability to precisely define the nature of the $10,000 monthly payments to Mr Heffernan and the plaintiff, 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 plaintiff to state his salary for the previous financial year.
Even if the time period was meant to be the year to date, that is, the 12 months up to 15 May 1997 when the form was signed, the plaintiff's salary would have amounted to around $90,000. I calculate this as follows.
Given that the plaintiff's income for 1994/95 was $90,000 per year, this equates to a monthly salary of $7,500. I assume that the plaintiff would receive $10,000 per month from Mr Wilkinson for each of May and June 1997. There is no specific evidence on this point but in my view, it is a reasonable inference to draw given all the evidence concerning the financial arrangement of One Stop.
I have accepted the plaintiff'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 defendant about the time period to which the $90,000 related.
Accordingly, I find that it is more probable that not that the plaintiff'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 defendant could not have accepted the claim under an honest but mistaken belief that the plaintiff's salary was $90,000.

Summary

I would uphold the plaintiff's claim for an order that the defendant pay to the plaintiff benefits under the policy from 17 August 2003 until the date hereof with interest thereon.
I would dismiss the defendant's counterclaim.
I shall hear from the parties as to the exact calculation of the benefits to be paid to the plaintiff, interest and costs.

[2006] WADC 60

13 April 2006