Hendry Rae and Court v FAI General Insurance Company Limited

[1994] HCATrans 290

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IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Perth No P28 of 1993

B e t w e e n -

HENDRY RAE AND COURT

Applicant

and

FAI GENERAL INSURANCE COMPANY

LIMITED

Respondent

Application for special leave

to appeal

BRENNAN J GAUDRON J MCHUGH J

Hendry 1 22/4/94

TRANSCRIPT OF PROCEEDINGS

FROM PERTH BY VIDEO LINK TO CANBERRA

ON FRIDAY, 22 APRIL 1994, AT 10.51 AM

Copyright in the High Court of Australia

MR P.G. HELY, OC: If the Court pleases, I appear with

MS J.I. BISHOP for the applicant. (instructed by

Clayton Utz)

MR C.J.L. PULLIN, QC:  May it please the Court, I appear

with MR R.E. BIRMINGHAM for the respondent.

(instructed by Downing Barker Gosling)

BRENNAN J: Yes, Mr Hely.

MR HELY:  Your Honours, the Full Court approached this case

upon the basis that a policy of insurance issued on

terms which responded to the strategic minerals

claim was a policy issued on different terms and
conditions to one which, by reason of its terms,

did not respond to that claim.	We accept that
finding.

The respondent, in its submissions to this

Court, contends that its standard form

documentation is a matter which is relevant to be

taken into account in determining whether PAI would

have issued a policy which responded to the

strategic minerals claim had it known the true

facts. We accept that contention.

Those documents and other evidence as to what

PAI would have done had it known the true position

were all before the learned trial judge who made

the factual finding which appears at page 28 of the

application book. His Honour decided that, taking

into account all of the circumstances, including

the evidence of the respondent's underwriter, which

he did not accept, that a policy would have issued

on the terms and conditions upon which it in fact

issued, even if PAI had appreciated and recalled

the prior notification.

In our respectful submission - and it is this

question which is put forward for Your Honours'

consideration as the special leave question - the

majority of the Full Court addressed the wrong

question. The question which Their Honours

addressed can be put this way: what would the

operation of the policy have been had the proposal

form been completed in a particular way? The

correct question, it is submitted, in terms of

section 28, is whether the respondent, if it had

known the true facts, and notwithstanding the
absence of a reference to the prior notification in
the proposal, would none the less have issued a
policy on terms which responded to the strategic

minerals claim.

BRENNAN J: Incorporating the proposal?

Hendry 2 22/4/94

MR HELY:  Incorporating the proposal but not upon any basis

clause provision.

BRENNAN J: Why, if it incorporates the proposal, would it

not have been on terms different from that which

was in fact issued?

MR HELY:  What I am putting for Your Honours' consideration

is this, that the question which the section poses for consideration is whether, had FAI known of the

prior notification, it would none the less have

issued a policy in response to a proposal that did

not refer to that prior notification.	The trial
judge held that they would, whereas

Mr Justice Malcolm - and this comes most clearly at pages 60 and 61 of the application book - addresses

a different question. The question which

His Honour poses for consideration is: what would

have been the operation of the policy if the

proposal had included a reference to the prior

notification?

GAUDRON J: That question is not always different from the

question you accept is correct.

-.MR HELY:  Yes, . Your..Honour, .because .clearly the terms of the

proposal form are relevant to a determination of

what the insurer would have done had it been

apprised of information with respect to the prior

notification. But in this case the trial judge

found that notwithstanding the terms of the

proposal form, all of the circumstances were such

that had FAI become alerted to the prior
notification, it would none the less have issued a

policy in terms which responded to the strategic

minerals claim and notwithstanding absence of the

prior notification upon the proposal.

McHUGH J: That means that FAI would have had to issue a

different policy. They would have had to issue a

policy which contained a term which included the

circumstances of the previous incident.

MR HELY:  It is submitted not because, if one looks at the

policy which is found on pages 48 to 49, the

relevant exclusion commences at the bottom of

page 48, and the operative part is on the top of

page 49, and what it excludes is:

Claims made upon the Insured:

(f) Prior to the commencement of the period of

insurance -

and relevantly for present purposes -

Hendry 22/4/94

or in respect of any claim or circumstance

which may possibly give rise to a claim stated

on the proposal form -

So that the exclusion in the second limb is
triggered or enlivened by something which appears

upon the proposal form.

McHUGH J: That is the hypothesis. The hypothesis is that

if you had made the disclosure which you were
supposed to on the proposal form, then clause (f)

would have operated on the proposal form.

MR HELY:  That is certainly an hypothesis, but what we are

submitting for Your Honours' consideration is that

that is not the question for which section 23

requires an answer.

BRENNAN J: That is where I am having some difficulty at the

moment.	You say would they have issued the policy.
That is not what section 28(1) says.	I mean, the

question is this: the issuing of a policy, I take

it,. is the making of the contract?

MR HELY:  Yes.

BRENNAN J: And if the policy incorporates the proposal

form, the question is: what is the contract into

which the insured would on that hypothesis have

entered?

MR HELY:	Yes.
BRENNAN J:	The answer to that question, given the

incorporation, seems to me to be that the contract

was one which excluded from liability the matters

which were disclosed on the proposal form.

MR HELY:	If there was a disclosure upon the proposal form.
BRENNAN J: Yes.

MR HELY:  Of course, there was not. So that one is one

talking about what is the operation of the
contract. One is talking about whether the insured

would have been prepared to enter into a contract

which responded to this claim.

BRENNAN J: Not responded to this claim. It does not apply

where the insurer would have entered into the

contract for the same premium, et cetera, even if

the insured had not failed to comply. So that on
that assumption that there had been no failure to

comply, the proposal form would have contained the

disclosure, and that disclosure would have been

incorporated in the contract, which is a different

Hendry 22/4/94

contract from that which we have in fact, because

there is no disclosure.

MR HELY: That, with respect, presupposes that the only way

disclosure can be made is by means of an answer to

a question on a proposal form. We would submit

that that is not the law and that one is entitled, to take a hypothetical case, to say to an insurer,

"I am not disclosing circumstance X on the proposal

form and I ask you to issue your standard form of

policy notwithstanding that non-disclosure" .

McHUGH J: Yes, but you see, your argument, it seems to me,

treats the word "terms and conditions" in

section 28(1) as confined to the literal wording.

MR HELY:  I am not putting that.

McHUGH J: That seems to be the effect of it, and that you

do not include the effect of applying those words.

MR HELY:  I am putting, with respect, precisely the

opposite. What I submit is that one does look at

the practical effect of the policy and, as I said
at the beginning, a policy, the terms of which
. cause it .to.respond to a claim, is not a policy
issued on the same terms and conditions as a

policy, the terms of which cause it not to respond

to a claim. I accept that. But what I am putting

for Your Honours' consideration is that one

therefore looks at the policy in conjunction with

the proposal. Absent recording on the proposal of the prior notific~tion, the policy responds to the claim.

Question: would the insurer have been

prepared to issue a policy without any reference on

the proposal to the notification had it been

reminded that it had in fact been made? That is a

question of fact. That question was answered

favourably to the appellant by the trial judge.

The Full Court, in our submission, proposed a

different question which is in essence the question
that Your Honours are putting to me, and it is our

respectful submission that that is the wrong

question.

BRENNAN J:	I can see the distinction, but it seems to me to turn entirely upon the question of whether a
failure to comply with the duty of disclosure is a
failure to put something on the proposal form, your argument being, I gather, that there may have been no failure if there had been advice aliunde.
MR HELY:	Yes, Your Honour.
Hendry	22/4/94
BRENNAN J:	I can understand that, except that there is a

proposal form and a policy which are indicative of

the course of dealing which the parties had

adopted.

MR HELY: Quite.

BRENNAN J: That being so, I would have thought that the

duty fell to be discharged by completion accurately

of the proposal form.

MR HELY:  In a prima facie sense, what Your Honour puts to

me, with respect, is no doubt correct, but it is

not conclusive because one is considering a question of fact, of which the matters that

Your Honour has put to me form part of the matrix.

But one has to consider all of the facts including the particular circumstances of the case, including

the way in which this insurer had responded to

notifications in the absence of notifications in

the past, and including whether the judge accepted

the evidence given by its underwriter or whether

it did not.

Can I perhaps take one example - and I do not

want to go into £actuai.,matters unnecessarily - but

if one looks on page 8 of the application book,

commencing at line 10 and continuing to line 20,

one sees the way in which the proposal form was

completed on two of the prior occasions. On one of

them, as appears from about line 15, an answer was

given that the prior notification was no longer applicable, and a policy issued notwithstanding

that disclosure.

On the next occasion, there was simply no

disclosure of the prior notification at all.

Clearly I accept that a company's standard form

documents are relevant to what it would have done

in a particular situation for which those documents

make provision.

GAUDRON J: Was it actually put to the Full Court that they

should consider what would have happened in the

hypothetical situation that it had been drawn to

the insurer's attention before the policy issued?

MR HELY:  I am informed so, yes, Your Honour.

GAUDRON J: It does not appear so in the judgments.

MR HELY: That is why I say, with respect, that

Their Honours addressed what we respectfully submit

is the wrong question. The trial judge got it

right and Their Honours differed from him.

Hendry 6 22/4/94

GAUDRON J:  No, but your complaint about the Full Court must

be that it failed to have regard to an hypothesis

which you were entitled to advance.

MR HELY:  Yes, and the hypothesis which I advance - - -

GAUDRON J: But the question is: did you advance the

hypothesis?

MR HELY:  Your Honour, I did not have the good fortune to

appear in the Full Court when this matter was

debated but, if one turns to page 28 which is the
finding of fact of the trial judge, as I understand

it, our case in the Full Court was based upon that

finding of fact. So that what we are saying is

that it is not enough to hypothesize, that had the

proposal been completed in a particular way, the

contract would have had a particular operation.

GAUDRON J: But you have got to hypothesize that, having

completed the proposal form in the way your client

did and before the policy issued, your client had

itself reminded the insurer.

MR.HELY: _ With respect, I submit I do not have to take the

-second step. All I have to say is that, had the

insurer appreciated the prior notification at the

time of considering of the proposal, whether

referred to on it or not, it would none the less

have issued a policy without requiring an amendment

to the proposal, because what section 23 is

directed towards is whether a misrepresentation

operates as an inducement. It says that if it does

not operate as an inducement and if the insurer

would have behaved in exactly the same way, even

had it known the true facts, then section 23

· disentitles the insurer from any entitlement to

void the policy.

GAUDRON J: But your difficulty is, is it not, that there is

a finding against you which has never been

What your argument now hypothesizes is the absence challenged that you were under a duty to disclose? of that duty.

MR HELY:  No. I would submit that I do have a finding

against me that an answer was called for to that

question. The hypothesis that I am putting forward

for Your Honours' consideration is that even if we

had said to the insurers, "We are not answering

that question because in the past we have told you

about this prior notification", the judge's finding

on page 28 is that no matter what these people were

told, they would have done precisely the same thing

as in fact they did.

Hendry 22/4/94

BRENNAN J: What was it that gave rise to your duty to

disclose this "believed to be dead" claim?

MR HELY: The question in the proposal, the relevant - - - BRENNAN J: The question on the proposal form, was it not?

MR HELY:  Page 47?

BRENNAN J: Yes. So if there is any duty, is it a duty to

respond to that question?

MR HELY:  The case against me is that there was a

misrepresentation. Had the judge accepted that

there was a misrepresentation, he said, "Even if

the truth had been disclosed to the insurers

otherwise than through the proposal and even if the

insurers had known externally of the true facts,

they would have done precisely what they did".

His Honour said, and we submit correctly, that

section 23 does not operate to reduce liability of

those circumstances. We submit that the Full

Court, for reasons I have given, addressed the

wrong question. That is the point, if Your Honours

please. I do not propose to persist with the

,second of the_points advanced with respect to

special leave. If the Court pleases.

BRENNAN J:  Thank you, Mr Hely. Mr Pullin, we need not

trouble you in this matter.

The Court is of the opinion that there are not

sufficient prospects of success on appeal to

justify the grant of special leave. Accordingly,

special leave will be refused.

MR PULLIN:	Your Honours, I seek an order for costs.
BRENNAN J:	Do you have you anything to say, Mr Hely?
MR HELY: No, Your Honour.	BRENNAN J: It will be refused with costs.
AT 11.11 AM THE MATTER WAS ADJOURNED SINE DIE
Hendry  22/4/94