Gates v City Mutual Life Assurance Society Ltd

[1986] HCA 3

HIGH COURT OF AUSTRALIA

Gibbs C.J., Mason, Wilson and Dawson JJ.

GATES v. THE CITY MUTUAL LIFE ASSURANCE SOCIETY LIMITED

(1986) 160 CLR 1

20 February 1986

Contract—Trade Practices (Cth)

Contract—Insurance—Policy—Total disability clause—Representation by insurer's agent that clause operative if proposer was disabled from following occupation—Clause in fact operative only if he was disabled from following any occupation—Whether promissory assurance—Collateral contract—Whether inconsistent with main contract. Trade Practices (Cth)—Misleading and deceptive conduct—Insurance—Policy—Total disability clause—Representation by insurer's agent that clause operative if proposer was disabled from following occupation—Clause in fact operative only if he was disabled from following any occupation—Measure of damages—Contract or tort—Trade Practices Act 1974 (Cth), ss. 52(1), 53(g), 82, 87.

Decisions

GIBBS C.J.: The appellant, Mr Gates, brought proceedings in the Federal Court claiming against the respondent, an insurance company, damages for breaches of ss.52 and 53(g) of the Trade Practices Act 1974 (Cth), as amended ("the Trade Practices Act") or alternatively damages for breach of contract. The matter came before Ellicott J., who held that the appellant, on the faith of false statements made to him by an agent of the respondent, arranged for a superannuation policy which he had already taken out with the respondent to be extended to include total disability cover, and also arranged for that cover to be included in a new life policy which he took out at about the same time with the respondent. In the case of each policy an extra sum of $2.09 was paid by way of premium. The statements which the learned trial judge found were made by the agent of the respondent and were false were to the effect "that the total disability benefit under the provisions he was recommending for inclusion in his existing and new policy would be payable to (the appellant) if he suffered an injury or illness which left him physically incapable of carrying on his occupation as a self employed builder". In fact, in the case of each policy, the total disability clause entitled the appellant to the extra benefits under that clause only if the respondent "having regard to medical evidence considers him incapacitated to such an extent as a result of such illness or injury as to render him unlikely ever to be able to attend to any gainful profession, occupation or employment". The learned trial judge held that the respondent had committed breaches of ss.52 and 53(g) of the Trade Practices Act. However, he held that the appropriate measure of damages was that applicable in tort and that since there was no evidence to show that the cover under the total disability clauses was not worth the premiums payable for it, and since no consequential losses were proved, the appellant was not entitled to any pecuniary damages for the breach of those sections. He added that an alternative method of compensating the appellant for the loss or damage he had suffered would be to vary or rescind the policies and direct a refund of the premiums paid to date but that the appellant had not claimed to be compensated on that basis. He went on to hold that the statements made by the agent were intended to have contractual effect and that there was a collateral contract under which the appellant agreed to enter into the contracts of insurance and to pay the premiums thereunder in consideration of the respondent agreeing to pay disability benefits to the appellant in the circumstances represented by the respondent's agent. He assessed damages for breach of this contract at $66,003.

2. From this decision both parties appealed to the Full Court of the Federal Court. That court held that the statements did not give rise to a collateral contract and, since they agreed that no claim for damages under the Trade Practices Act had been made out, dismissed the appeal of the present appellant and allowed that of the respondent. The orders of Ellicott J. were accordingly set aside and the proceedings were dismissed.

3. From this judgment the appellant, who by this time was no longer legally represented, brought two appeals to this Court from the decision of the Federal Court. He further filed a notice of motion which was inartificially drawn, but which appeared to seek an order setting aside all the proceedings to date and ordering a new trial. The ground stated was that the proceedings had been conducted "without and against the authority and interests of (the appellant) contrary to that authority, the true facts, the evidence, the cause of action and that so much of those proceedings were an abuse of the process of the court involving a conspiracy to pervert the course of justice". The notice of motion was quite irregular but in any case the material before the Court did not establish that those representing the appellant in the Federal Court had acted without the authority or against the interests of the appellant or that there was any other ground on which it could be concluded that there had been an abuse of the process of the court or a conspiracy to pervert the course of justice. The motion must be dismissed.

4. The conclusion of the Full Court of the Federal Court that the statements had no contractual force is plainly correct. The question whether the statements constituted a collateral contract depends on the intention of the parties: Heilbut, Symons &Co. v. Buckleton (1913) AC 30, at pp 49-51. In the present case the statements were not promissory in form - they purported to be descriptive or explanatory of one of the terms of the formal written contracts into which the parties proposed to enter. I find it impossible to say that either of the parties actually intended that the statements should constitute a term of the contracts between them or (if it matters) that an objective inference can be drawn that they did so intend. The statements were representations and nothing more.

5. Even if a different view had been taken on the question of intention, the alleged contractual agreement constituted by the statements could not stand consistently with the main written agreement and for that reason, according to established authority in Australia (including Hoyt's Proprietary Ltd. v. Spencer (1919) 27 CLR 133 and Maybury v. Atlantic Union Oil Co. Ltd. (1953) 89 CLR 507), could not be enforced. The learned author of an article in 52 ALJ 372 criticizes those decisions but I find no need to reconsider them here, since the present is not a case in which one party made a promise to modify or to refrain from enforcing a term of the principal agreement. The absence of an actual contractual intention, and of any circumstances which could give rise to estoppel, is enough to defeat the appellant's claim in contract.

6. I agree also with the conclusion that the appellant has not made out a case for damages for breach of ss.52 or 53(g) of the Trade Practices Act. Section 52(1) provides:

"A corporation shall not, in trade or

commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive."

Section 53(g) provides:

"A corporation shall not, in trade or

commerce, in connexion with the supply or possible supply of goods or services or in connexion with the promotion by any means of the supply or use of goods or services -

...

(g) make a false or misleading statement concerning the existence, exclusion or effect of any condition, warranty, guarantee, right or remedy."

Those sections appear in Pt.V of the Trade Practices Act. By s.82(1) of the Trade Practices Act:

"A person who suffers loss or damage by

conduct of another person that was done in contravention of a provision of Part IV or V may recover the amount of the loss or damage by action against that other person or against any person involved in the contravention."

Section 87 enables the court to make, in addition, ancillary orders which include orders avoiding or varying a contract and directing a refund of money.

7. Actions based on ss.52 and 53 are analogous to actions in tort and the remedy in damages provided by s.82(1) appears to adopt the measure of damages applicable in an action in tort. That sub-section refers to loss or damage by the conduct of another that contravened a provision of Pt.IV or Pt.V; it therefore looks to the loss or damage flowing from the offending act of the other person. The acts referred to in ss.52 and 53 do not include the breach of a contract, and in awarding damages under s.82 for a breach of either of those sections, no question can arise of damages for loss of a bargain. The contractual measure of damages is therefore inappropriate in such a case. It has been held in the Federal Court in a number of cases that the measure of damages in tort, and not that for breach of contract, will apply in the assessment of damages under s.82 where there has been a contravention of s.52 or s.53: see Brown v. Jam Factory (1981) 35 ALR 79, at p 88; Mister Figgins v. Centrepoint (1981) 36 ALR 23, at p 59 and Brown v. Southport Motors (1982) 43 ALR 183, at p 186. This view is plainly correct. I have recently discussed the measure of damages in an action for deceit in Gould v. Vaggelas (1984) 58 ALJR 560, at pp 561-563; 56 ALR 31, at pp 34-37. The appellant in the present case was entitled to recover the difference between the price paid to have the total disability clauses included in the policies (that is, the amount of $2.09 per month in each case) and the value of those clauses at the time the policies were issued. He was also entitled to recover consequential loss, at least if it was foreseeable. It was not proved that the benefits conferred by the clauses were not worth the amount of the additional premium paid. It was not proved that the appellant suffered any consequential loss. It has not been shown either that if the representations had not been made the appellant would have taken out a different policy conferring benefits of the kind which it was represented to him that the total disability clauses conferred, or that it would have been possible to obtain such a policy. As was said in the Full Court, "The inference seems inescapable that, but for the statements, Mr. Gates would have proceeded exactly as he did save that he would not have paid extra for total disability cover." The claim for damages under the Trade Practices Act was not made out. No application was made for the making of any ancillary orders under s.87. No doubt, under that section, the court could have awarded rescission of the policies and return of the premiums paid, but that course was not sought and would in any event have afforded little benefit to the appellant.

8. It may be added that in one English case, Parker v. Co-operative Insurance Society (1945) I.ACRep. (1938-39), p 52, a decision of an Industrial Assurance Commissioner mentioned in MacGillivray &Parkington on Insurance Law, 7th ed. (1981), par.408, an assured who had entered into a policy which contained a war risk clause which limited the sum payable in the events which happened, and had been induced to do so by representations that the clause was unqualified, was held entitled to recover the amount which she would have recovered under an unqualified clause, less the increased premium she would have had to pay for it. The report shows that the assured could have obtained a policy containing an unqualified war risk clause, and the case may be explained as one in which consequential loss was held to be recoverable. For the reasons already given, the evidence in the present case did not permit a similar approach.

9. On the other hand, there are authorities in the United States in which it has been held that the measure of damages recoverable by a person who was induced by fraudulent misrepresentation to purchase a policy of life insurance, is the amount of the premiums paid less the value of the insurance (McKindley v. Drew (1896) 37 A 285) and that an alternative course open is to rescind the policy and recover the premium paid: Hedden v. Griffin (1884) 49 AR 25. These cases are consistent with the view that I have formed.

10. For these reasons I hold that the decision of the Full Court of the Federal Court was correct. I would dismiss the motion and the two appeals.

MASON, WILSON, DAWSON JJ.: The measure of loss or damages recoverable under s.82 for breach of ss.52 and 53(g) of the Trade Practices Act 1974 (Cth) ("the Act") is the principal question raised by these appeals. They arise out of proceedings brought in the Federal Court by the appellant against the respondent for damages for breach of contract and for contravention of ss.52 and 53(g). The proceedings related to a total disability clause which had been added to an existing superannuation policy and included in a life policy, each for $20,000, issued by the respondent to the appellant.

2. The appellant claimed that, before he made application for the addition of the clause to the first policy and before he applied for the issue of the second policy, Gary Alwyn Rainbird, an agent of the respondent, assured him that the effect of the clause was that if he suffered illness or injury resulting in his continuous inability to attend to his occupation for ninety days and his doctor considered that he could not continue that occupation, the policy benefits became payable. In fact the disability clause added to each policy provided:

"The Assured shall be deemed to be Totally Disabled if while this Policy is in force and prior to the last anniversary of the Commencing Date of the Policy immediately preceding his sixty-fifth birthday he suffers an illness or injury resulting in his continuous inability to perform active work for a period of ninety (90) days and the Society upon expiration of such period having regard to medical evidence considers him incapacitated to such an extent as a result of such illness or injury as to render him unlikely ever to be able to attend to any gainful profession, occupation or employment ... ".

In the proposal form which the appellant signed in connexion with the addition of the disability clause to policy No. 909837 his occupation was stated as "Building - Carpenter". The appellant subsequently sustained physical injury resulting in his continuous inability for ninety days to carry on his occupation as a builder and in his permanent physical disability thereafter to carry on that occupation, as distinct from any other occupation. The respondent refused to pay the policy benefits on the ground that the disability clause was not satisfied.

3. The appellant's case was that the respondent was liable in damages because it was bound by the assurance given by Mr Rainbird and the assurance amounted to: (1) a collateral contract; (2) misleading or deceptive conduct within s.52; and (3) a false statement within s.53(g). The respondent denied that Mr Rainbird gave the alleged assurance. However, the primary judge (Ellicott J.) preferred the evidence of the appellant and Mrs Stringer, who had been his wife, to that of Mr Rainbird, and concluded that the assurance was binding on the respondent under s.84(2) of the Act and amounted, as the appellant claimed, to misleading and deceptive conduct and to a false statement within the relevant provisions of the Act as well as to a collateral contract. His Honour held that the appellant was entitled to payment by the respondent of the amounts payable under the policies as damages for breach of contract. The amount awarded included a sum in respect of bonuses payable to the appellant under the policies. The appellant's additional claims for damages were rejected on the ground that they were too remote. In the result declarations were made to the effect that the respondent contravened the Act, that there was a collateral contract and that the respondent was in breach of it. The respondent was ordered to pay $66,003 damages for breach of contract.

4. No damages were awarded for contraventions of the Act. This was because Ellicott J. considered that in most, if not all, claims for damages for conduct breaching ss.52 and 53 the measure of damages was that applicable in tort. On this footing the appellant was entitled to the difference between the value of what he paid and had to pay by way of premiums and the value of the total disability clause in the relevant policies. There being no evidence that the cover was not worth what he paid for it - $2.09 per month on a $20,000 policy - the appellant was not entitled to damages on this score. An alternative method of compensating the appellant was to rescind the policies and to direct a refund of the premiums paid, but the appellant did not claim compensation on this basis. Instead he claimed the benefits which were payable according to the representations made by Mr Rainbird. This was the measure of damages appropriate to breach of contract, not to breach of ss.52 and 53(g).

5. The Full Court of the Federal Court (Fox, Lockhart and Fitzgerald JJ.), to which each party appealed, concluded that the assurance given by Mr Rainbird was not contractual in character, that therefore the award of damages for breach of contract could not be sustained and that the primary judge was correct in refusing to award damages for the contraventions of ss.52 and 53(g). The Full Court accordingly allowed the respondent's appeal with costs, setting aside the declarations and orders made by Ellicott J. and ordering that the proceedings before him be dismissed with no order as to costs. The Court also ordered that the appellant be granted a costs certificate pursuant to s.6 of the Federal Proceedings (Costs) Act 1981 (Cth) limited to the first day of the hearing of the appeal and dismissed the appellant's appeal with costs.

6. The appellant lodged two notices of appeal to this Court, which are materially identical, in which he challenges the Full Court's finding that there was no collateral contract, that damages were not recoverable for contraventions of ss.52 and 53(g) and that damages could not be recovered for the additional matters which he claimed. Moreover, by notice of motion he seeks an order for a new trial on the ground that his legal representatives had conducted the proceedings at first instance without his authority and against his instructions, with the consequence, so he claims, that he did not get a fair trial. The materials before us do not support this contention. What is more, they do not indicate that the matters of which he complains in this respect can be attributed to conduct on the part of the respondent or its legal representatives. All that he can point to, so far as the respondent is concerned, is that one or more of his witnesses was confused in cross-examination. There is no substance in the application for a new trial and it must be refused.

7. We return to the appeals. The Full Court expressed its reasons for rejecting the submission that Mr Rainbird's assurance was contractual in this passage in its judgment:

"CML's relevant contractual obligation is an obligation to make payment to Mr. Gates in certain circumstances. It was for that obligation that the premiums were given as consideration. It is that obligation which Mr. Gates says was breached. The source of that obligation was, and was always intended to be, the insurance policies and not some other agreement entered into with Mr. Gates by CML's agent on behalf of CML. The statements by the agent were not a promise to make payment in different circumstances from those provided for in the policies but a representation as to the circumstances in which, under the policies, the obligation to make payment would arise. What was said was not promissory and was moreover inconsistent with the terms of the applications signed by Mr. Gates."

This passage correctly states the legal effect of Mr Rainbird's assurance. It was not contractual in character and in any event effect could not be given to it as a promise because it was inconsistent with the main contracts (Hoyt's Proprietary Ltd. v. Spencer (1919) 27 CLR 133, at pp 139, 147-148; Cutts v. Buckley (1933) 49 CLR 189, at p 201; Maybury v. Atlantic Union Oil Co. Ltd. (1953) 89 CLR 507, at p 518).

8. The appellant's main argument is that the primary judge and the Full Court were in error in refusing to award as damages for contravention of the provisions of the Act an amount equal to the benefits payable under the policies. The appellant's argument is that the assurance by Mr Rainbird induced him to enter into the contracts, that had it not been for the assurance he would not have entered into the contracts with the respondent and would have entered into contracts of the kind which the policies were represented to be with another insurance company. But there was no evidence that the respondent or any other company issued policies of that type.

9. Section 82(1) of the Act provides:

"A person who suffers loss or damage by conduct of another person that was done in contravention of a provision of Part IV or V may recover the amount of the loss or damage by action against that other person or against any person involved in the contravention."

Section 87 confers on the Court wide power to make ancillary orders to compensate persons who suffer loss or damage by conduct that was engaged in in contravention of a provision of Pt IV or Pt V. These include an order directing the person who engaged in the conduct to pay to the person who suffered the loss or damage the amount of the loss or damage (s.87(2)(d)).

10. The Act does not prescribe the measure of damages recoverable by a plaintiff for contravention of the provisions of Pts IV and V. Accordingly, it is for the courts to determine what is the appropriate measure of damages recoverable by a plaintiff who suffers loss or damage by conduct done in contravention of the relevant provisions. Two established measures of damages, those applicable in contract and tort respectively, compete for acceptance. In contract, damages are awarded with the object of placing the plaintiff in the position in which he would have been had the contract been performed - he is entitled to damages for loss of bargain (expectation loss) and damage suffered, including expenditure incurred, in reliance on the contract (reliance loss). In tort, on the other hand, damages are awarded with the object of placing the plaintiff in the position in which he would have been had the tort not been committed (similar to reliance loss).

11. The differences and the similarities between the two approaches are best illustrated by contrasting the damages recoverable for breach of contractual warranty on a purchase of goods with those recoverable for a fraudulent misrepresentation inducing entry into a contract for the purchase of goods on the assumption that the contracts are identical except that in one case the representation amounts to a warranty and in the other it is merely a non- contractual representation. For breach of warranty the plaintiff is prima facie entitled to recover the difference between the real value of the goods and the value of the goods as warranted. In deceit the measure of damages is the difference at the time of purchase between the real value of the goods, and the price paid (Potts v. Miller (1940) 64 CLR 282, at pp 289, 297; Toteff v. Antonas (1952) 87 CLR 647, at pp 650-651, 654; Gould v. Vaggelas (1984) 58 ALJR 560, at p 561; 56 ALR 31, at p 34). But this has been treated as a prima facie measure only, the true measure being reflected in the proposition stated by Dixon J. in Toteff v. Antonas (at p 650) in these terms:

"In an action of deceit a plaintiff is entitled to recover as damages a sum representing the prejudice or disadvantage he has suffered in consequence of his altering his position under the inducement of the fraudulent misrepresentations made by the defendant."

As his Honour then pointed out, it is a question of determining how much worse off the plaintiff is as a result of entering into the transaction which the representation induced him to enter than he would have been had the transaction not taken place. This entitles the plaintiff to all the consequential loss directly flowing from his reliance on the representation (Potts v. Miller, at pp 297-298; Doyle v. Olby (Ironmongers) Ltd. (1969) 2 QB 158), at least if the loss is foreseeable (see Gould v. Vaggelas, at p 563; p 37 of ALR).

12. In the United States there is strong authority for the proposition that in deceit, as distinct from negligent misstatement, the plaintiff is entitled to recover expectation loss when he is induced by a fraudulent misrepresentation to enter into a contract (Prosser and Keeton on The Law of Tort, 5th ed. (1984), at pp.767 et seq.; Restatement of Torts 2d .549, 552B). This approach seems to reflect the view that because the defendant's fraudulent conduct exposes the plaintiff to loss he is entitled to compensation on the basis that is most favourable to him. The approach, which is by no means consistent with the object of awarding damages in tort, has not been adopted in Australia or the United Kingdom and the recent affirmation by this Court in Gould v. Vaggelas of the application of the measure of damages in tort to actions in deceit is quite inconsistent with it. And, even if the American rule were to be adopted, it would not necessarily avail the appellant here in the absence of a finding of fraud.

13. Because the object of damages in tort is to place the plaintiff in the position in which he would have been but for the commission of the tort, it is necessary to determine what the plaintiff would have done had he not relied on the representation. If that reliance has deprived him of the opportunity of entering into a different contract for the purchase of goods on which he would have made a profit then he may recover that profit on the footing that it is part of the loss which he has suffered in consequence of altering his position under the inducement of the representation. This may well be so if the plaintiff can establish that he could and would have entered into the different contract and that it would have yielded the benefit claimed (cf. Esso Petroleum Co. Ltd. v. Mardon (1976) QB 801, at pp 820-821, 828-829; Doyle v. Olby (Ironmongers) Ltd., at p 167). The lost benefit is referable to opportunities foregone by reason of reliance on the misrepresentation. In this respect the measure of damages in tort begins to resemble the expectation element in the measure of damages in contract save that it is for the plaintiff to establish that he could and would have entered into the different contract.

14. So in the present case if the appellant were able to establish that, but for his reliance on Mr Rainbird's representation, he could and would have entered into policies of insurance containing a disability clause of the kind represented by Mr Rainbird, he might then succeed in obtaining an award of damages equal to the benefits which would have been payable under such policies less the premiums paid or payable in respect of them.

15. Unfortunately for the appellant the evidence does not support this basis for an award of damages. First, it was Mr Rainbird who persuaded the appellant to take out disability insurance. There is nothing to suggest that the appellant would have been minded to obtain insurance of this type had it not been for Mr Rainbird arousing his interest in it. Likewise, there is nothing to suggest that, had he known that the respondent did not offer disability insurance on the terms suggested by Mr Rainbird, he would have sought out some opportunity of taking out the insurance with another company. There was no evidence from the appellant that this is what he would have done. And, as we have already pointed out, there was no evidence that another company at that time offered disability insurance on those or similar terms.

16. Accordingly, in our opinion the Full Court was correct when it said:

"No attempt was made by Mr. Gates to prove a claim for damages on the correct basis. The premiums paid for total disability cover were quite small. There is nothing to suggest that the limited cover which Mr. Gates received for those premiums was worth less than he paid. The only step proved to have been taken by Mr. Gates in reliance upon the statements was the payment of the additional premiums. There was no evidence that, but for the statements, he would have cancelled the existing superannuation policy or omitted to acquire the new life policy. Indeed, such an additional policy was required by Mr. Gates in connection with a proposed borrowing from a finance company. Further, there was no evidence that cover in the terms of the statements made to him was available from CML or any other insurance company or as to the premium which would, in such a case, be payable for that cover, or as to Mr Gates' willingness to pay such a premium. The inference seems inescapable that, but for the statements, Mr. Gates would have proceeded exactly as he did save that he would not have paid extra for total disability cover. The insurance policies remain on foot."

17. The question then is whether it is appropriate to apply the contract measure of damages to the contraventions found to have taken place. The courts are not bound to make a definitive choice between the two measures of damages so that one applies to all contraventions to the exclusion of the other. However, there is much to be said for the view that the measure of damages in tort is appropriate in most, if not all, Pt V cases, especially those involving misleading or deceptive conduct and the making of false statements. Such conduct is similar both in character and effect to tortious conduct, particularly fraudulent misrepresentation and negligent misstatement.

18. The disappointed expectations of a person induced by a misrepresentation to believe erroneously that his insurance policy entitles him to the payment of benefits on maturity or on the happening of a certain event are sometimes so great as to encourage the thought that compensation on the basis of lost expectations would be appropriate. However, neither authority nor principle offer support for adopting this approach. In all the cases in which a plaintiff has sought to recover damages on the footing that a representation amounts to a collateral contract, a fraudulent misrepresentation or a negligent misstatement, damages for expectation loss have only been awarded when the representation amounted to a collateral contract. Neither the fact that the representation induces entry into a contract nor the fact that it is a statement of the benefits to which the plaintiff will be entitled under that contract is enough to justify compensation for expectation loss. Just as it is impossible to suppose that there is any difference in the measure of damages in deceit depending upon the nature of the contract into which the plaintiff is induced to enter (Clark v. Urquhart (1930) AC 28, at pp 67-68), so there can be no variation in the measure of damages awarded under the Act for contraventions of ss.52 and 53(g) depending on the nature of the contract.

19. This conclusion involves no element of injustice to a plaintiff who is entitled to damages reflecting the loss of benefits he would have obtained under a contract which he could and would have entered into but for his reliance on the contravening conduct of the defendant. Of course he must prove such loss but there is nothing unfair in requiring him to do so.

20. The appellant's failure to prove this loss is fatal also to his claim for other consequential losses which arose out of additional expenses and losses which he sustained as a result of the respondent's non-payment of the benefits under the insurance policies.

21. The appeals and the notice of motion must be dismissed.

Orders

Appeals dismissed with costs.

Notice of motion dismissed.