Insurance Australia Limited t/as NRMA Insurance v John Checchia - [2011] NSWCA 101

Court of Appeal

Supreme Court

New South Wales

Medium Neutral Citation: Insurance Australia Limited t/as NRMA Insurance v John Checchia [2011] NSWCA 101
Hearing dates: 13 and 14 October 2010
Decision date: 28 April 2011
Before: Beazley JA at [1];
McColl JA at [200];
Handley AJA at [201]
Decision:
1. Appeal allowed;
2. Set aside the orders of the trial judge made 29 September 2009;
3. Order that there be a new trial on all issues;
4. Order that the respondent pay the appellant's costs of the appeal;
5. Order that the costs of the first trial abide the outcome of the new trial.
[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]

Catchwords:
MOTOR ACCIDENTS COMPENSATION - Motor Accidents Compensation Act 1999, s 118 - fraudulent claim - false and misleading conduct for purpose obtaining a financial benefit

STATUTES - construction - Motor Accidents Compensation Act 1999, ss 118(1) and (2) - construction of "a financial benefit" and "the financial benefit"

EVIDENCE - error in factual findings - reasoning based on supposition - reasoning unsupported by facts

EVIDENCE - cross-examination - witness' credit - cross-examination erroneously curtailed
EVIDENCE - appeal - witness' credit - cross-examination curtailed - appellate court interference with trial judge's credit findings
Legislation Cited: Civil Procedure Act 2005
Motor Accidents Compensation Act 1999
Uniform Civil Procedure Rules 2005
Cases Cited: Abalos v Australian Postal Commission [1990] HCA 47; 171 CLR 167
Arnison v Smith (1889) 41 Ch D 348
Callisher v Bischoffsheim (1870) LR 5 QB 449; 39 LJQB 181
Federal Commissioner of Taxation v Spotless Services Ltd [1996] HCA 34; 186 CLR 404
Fox v Percy [2003] HCA 22; 214 CLR 118
House v R [1936] HCA 40; 55 CLR 499
Ivancic v Zardo [2004] ACTCA 11
Krakowski v Eurolynx Properties Ltd [1995] HCA 68, 183 CLR 563
McDermott v Black [1940] HCA 4; (1940) 63 CLR 161
News Ltd v South Sydney District Rugby League Football Club [2003] HCA 45; 215 CLR 563
Peters v R [1998] HCA 7; 192 CLR 493
Poricanin v Australian Consolidated Industries Ltd [1979] 2 NSWLR 419
Possfund Ltd v Diamond [1996] 1 WLR 1351
Precision Plastics Pty Ltd v Demir [1975] HCA 27; 132 CLR 362
Re In the Will of Gilbert (1946) 46 SR (NSW) 318
Regency Media Pty Limited v AAV Australia Pty Limited [2009] NSWCA 341
Smith v Chadwick (1884) 9 App Cas 187
State Rail Authority of New South Wales v Earthline Constructions Pty Ltd (in liq) [1997] HCA 3; 160 ALR 588
Sweet v Parsley [1970] AC 132
Toubia v Schwenke [2002] NSWCA 34; 54 NSWLR 46
Wigan v Edwards (1973) 1 ALR 497
Woolmington v DPP [1935] UKHL 1; [1935] AC 462 at 481
Texts Cited: George Spencer Bower, K R Handley and Sir Alexander Kingcome Turner, Actionable Misrepresentation, 4th ed (2000) Butterworths
Category: Principal judgment
Parties: Insurance Australia Limited t/as NRMA Insurance (Appellant)
John Checchia (Respondent)
Representation: J Poulos QC; V Heath (Appellant)
B Gross QC; Mr S Dixon (Respondent)
Moray & Agnew (Appellant)
Young & Muggleton (Respondent)

File Number(s): 2009/298480
Decision under appeal

Citation:

Checchia v Insurance Australia Ltd trading as NRMA Insurance [2009] NSWSC 1005

Date of Decision:

2009-09-29 00:00:00

Before:

Rothman J

File Number(s):

2009/298480

HEADNOTE

[This headnote is not to be read as part of the judgment]

The respondent sustained a back injury when his bicycle was struck by a motor vehicle. He brought a claim for compensation under the Motor Accidents Compensation Act 1999 (the MAC Act), which was settled at a settlement conference conducted pursuant to that Act for $1.2 million (the settlement amount). Before the settlement monies were paid, the appellant ascertained that the respondent had sustained a back injury in an earlier accident. The appellant refused to pay the settlement monies, alleging that the respondent's claim was fraudulent. The appellant argued that had it known of the earlier injury, its management of the claim would have been different and it would have only settled the matter for a much lower sum than the settlement amount.

In proceedings before Rothman J in the Supreme Court, the respondent claimed damages for the appellant's breach of the settlement agreement. The appellant contended that it was entitled to refuse to pay the settlement monies, given the respondent's failure to disclose his earlier back injury and his exaggeration of the extent of his ongoing symptoms and earnings prior to the accident. Rothman J found that although the respondent had failed to disclose his earlier injury and exaggerated the extent of his injuries sustained in the motor vehicle accident, he had not done so for the purpose of obtaining a financial benefit within the meaning of the MAC Act, s 118. His Honour ordered judgment for the respondent in the settlement amount, with interest and costs. The appellant appealed from Rothman J's orders, contending that the trial judge:

1. erred in his construction and application of the MAC Act;

2. erred in his factual findings, in that he made factual findings unsupported by and contrary to the evidence, and failed to make findings of fact that ought to have been made on the evidence;

3. failed to analyse the evidence as a whole, in that he quarantined aspects of the respondent's credit;

4. erred in disallowing cross-examination of a witness;

5. erred in failing to give proper reasons for rejecting aspects of the appellant's submissions; and

6. erred in the awarding of interest and in the exercise of discretion in respect of costs: [6].

The appeal was allowed with costs and the matter remitted for redetermination: [207].

Held per Beazley JA (McColl JA and Handley AJA agreeing) allowing the appeal:

(1) In construing the term "purpose", as used in s 118:

(a) "Purpose" means the subjective intention of the claimant: [34];

(b) Absent an admission or an assertion by the person concerned, there is rarely direct evidence of a person's subjective purpose or intention: [34];

(d) The evidence of the person whose purpose is in question may be taken into account, though such evidence should be treated with caution: [34], Federal Commissioner of Taxation v Spotless Services Ltd .

(2) In construing the term "financial benefit", as used in s 118:

(a) The financial benefit a claimant fraudulently seeks need not be the same as the financial benefit in respect of which the insurer is relieved from liability: [39];

(b) Where a person knowingly engages in false or misleading conduct in circumstances where no claim is available, a court may draw the inference that the conduct was engaged in for the purpose of obtaining a financial benefit: [37];

(c) Where a person engages in false or misleading conduct for the purpose of obtaining greater compensation than that to which he or she is entitled, a court may draw the inference that the conduct was engaged in for the purpose of obtaining a financial benefit: [37].

(3) Section 118 is engaged when a claim made is one to which a claimant was not entitled. That requires a determination of the financial benefit to which the claimant was entitled on the premise that no misleading statement was made: [38].

(4) The trial judge's construction of s 118(1) was erroneous: [181].

(5) As the financial benefit obtained in this case was by way of a settlement of a claim, the trial judge was required to determine the amount of the financial benefit so obtained in the settlement due to the false and misleading conduct: [46].

(6) The trial judge, by determining the amount the claimant would have obtained in a judgment, erred in his approach to the determination under s 118(2) of "the financial benefit" obtained by the claimant by his false and misleading conduct: [44]. An amount agreed to by way of settlement or compromise is not necessarily the same as the amount obtained or likely to be obtained in a court judgment: [45].

(7) Provided that a trial judge is satisfied that a claimant had the disabilities upon which a medical practitioner based her or his expert opinion, it is difficult for an appellate court to interfere with the trial judge's acceptance of that material. The position is different if the trial judge's acceptance of a claimant's level of disability does not withstand appellate scrutiny: [113].

(8) Findings of fact must be based only in the evidence, whether directly, or by way of inference drawn from facts found by the primary judge. A finding of fact not based in the evidence involves error. The trial judge's reasoning in respect of the respondent's offer of employment, terms of employment and level of income was based on supposition and not supported by primary facts. His findings were accordingly affected by error.

(9) It is permissible and often a strong basis for a court to accept a witness' evidence where there is no cross-examination directed to challenging the veracity or accuracy of the evidence given: Poricanin v Australian Consolidated Industries Ltd . However, a court is not bound to accept such evidence: [139], Precision Plastics Pty Ltd v Demir .

(10) The trial judge wrongly terminated cross-examination as to the credit of a witness. Given the importance of the credit issue, the cross-examination should have been allowed: [180].

(11) An appellate court may come to a different view of a witness' credit than that reached by a trial judge: [149], Abalos v Australian Postal Commission , State Rail Authority of New South Wales v Earthline Constructions Pty Ltd (in liq) , Fox v Percy .

Orders

1. Appeal allowed;

2. Set aside the orders of the trial judge made 29 September 2009;

3. Order that there be a new trial on all issues;

4. Order that the respondent pay the appellant's costs of the appeal;

5. Order that the costs of the first trial abide the outcome of the new trial.

Judgment

BEAZLEY JA : On 21 January 2003, the respondent was involved in an accident on his way to work when the bicycle he was riding was struck by a motor vehicle (the 2003 accident). He sustained an injury to his back and brought a claim for compensation under the Motor Accidents Compensation Act 1999 (the MAC Act). In making his claim, the respondent denied that he had had any previous back injury or had previously made a claim for personal injury compensation.

Facts surrounding the respondent's claim

The respondent's bicycle was flipped in the 2003 accident and he landed heavily on his back. He had " niggly " low back pain for a few weeks afterwards, for which he received chiropractic treatment and massage. He then developed back and leg pain and on 27 March 2003, consulted his general practitioner, Dr Nakhle.

On 9 April 2003, the respondent was admitted to the emergency department of Concord Hospital with severe low back pain and came under the care of Dr Steel. An MRI undertaken at that time revealed a large right-sided disc protrusion at the L4/5 level.

In late April 2003, the respondent made a claim for compensation under the MAC Act. In his claim form, the respondent denied having suffered any previous back injury. In particular, the " No " box was ticked in response to the question, " Have you had any other injuries or illness - before or since the accident - to the same part(s) of your body? ". The question, " Have you ever made a claim for personal injury compensation, workers compensation or other damages? " was also answered in the negative. The respondent signed the statutory declaration attached to the claim form in which he declared that the contents of the form were, to the best of his knowledge, true and correct in every respect.

On 12 May 2003, the respondent underwent a surgical decompression performed by Dr Parkinson which confirmed the existence of the disc protrusion.

The respondent's condition improved somewhat following this procedure. However, in late May 2003, the respondent had a recurrence of severe pain and was in considerable distress. He had signs and symptoms indicative of a piriformis syndrome resulting in a sciatic neuritis with neuropathic pain and allodynia. On 6 June, the respondent underwent a right sciatic nerve block performed by Dr Aggarwal, consultant physician in rehabilitation and pain medicine. A second sciatic nerve block with a steroid preparation was performed on 13 June 2003.

The respondent thereafter remained under Dr Aggarwal's care and during 2003, 2004 and 2005, presented with variations in the level of his pain and symptomology. Due to an exacerbation of pain in February 2004, the respondent had a repeat MRI, which revealed a recurrent disc protrusion at L4/5 with possible compression of the L4/5 roots. Strong pain relief medication, including Endone, provided only temporary relief.

On 26 July 2004, the respondent underwent a second lumbar decompression at Concord Hospital, performed by Dr Steel. A month after the operation, he reported to Dr Steel that he still had severe pain in his back and down his right leg. He was referred back to Dr Aggarwal.

The respondent saw Dr Parkinson again in November 2005. Investigations undertaken at that time revealed disc herniation compressing the right L5 nerve root. There was also significant thecal sac compression. On 21 November 2005, Dr Parkinson performed a further L4/5 discectomy, L5/L4 and S1 rhizolysis, fat and bone grafting, L4/5 laminectomies and L4/L5 pedicle screw fusion.

In addition to the three serious back operations, nerve blocks and facet joint injection that he underwent, the respondent also completed the ADAPT pain management program at Royal North Shore Hospital. The respondent also participated in other pain management programs, was assessed by a variety of rehabilitation experts and undertook a gym program designed for him by one of the rehabilitation experts. He was also taking a range of prescribed pain relief medication.

On 20 October 2006, at a settlement conference directed pursuant to the MAC Act, s 80, the respondent's claim was settled in an amount of $1,225,000 (inclusive of costs and disbursements). The net settlement amount payable to the respondent was approximately $1,185,000. However, before the settlement monies were paid, the appellant ascertained that the respondent had sustained an injury to his back in a work related accident in 1993 (the 1993 accident). The appellant thereupon refused to pay the settlement monies, alleging that the claim was fraudulent within the meaning of the MAC Act, s 118.

The respondent brought proceedings in the Supreme Court Common Law Division alleging that the appellant had breached the settlement agreement. He claimed damages for breach of the agreement in the amount of the settlement monies, together with interest and costs. The central issue for determination at trial was whether the appellant insurer was entitled to refuse to pay the settlement monies pursuant to the MAC Act, s 118.

The appellant contended it was entitled to refuse to pay the settlement monies as the respondent had failed to disclose the earlier back injury sustained in the 1993 accident and had failed to disclose that he had ongoing symptoms relating to those injuries, including back pain, sciatic pain and restrictions on his capacity to work (the medical claim). In addition, the appellant contended that the respondent had exaggerated the extent of his injuries arising from the 2003 accident; had exaggerated his earnings prior to that accident; and had produced false documents to verify his alleged earnings (the income claim).

The appellant's case was that had it known of the respondent's previous back injury, the appellant's management of the claim would have been entirely different and would have had a significant effect on the settlement amount that the appellant would have been prepared to offer.

The trial judge, Rothman J, found that the respondent had failed to disclose the 1993 back injury and had at times exaggerated the extent of his ongoing symptoms. His Honour also found that, although the appellant had some indication of the existence of a pre-existing condition at L4/5 from Dr Matheson's report dated 20 April 2006, the appellant relied on the representation that there had been no previous injury to that area of the respondent's back.

However, his Honour concluded that the respondent had not made the representation that he had had no previous back injury for the purpose of obtaining a financial benefit within the meaning of s 118. His Honour also rejected the appellant's allegations that the respondent had falsified his pre-injury earnings. It followed on his Honour's findings that the appellant was not entitled to be relieved of liability for any part of the settlement. His Honour thus ordered judgment for the respondent in the settlement amount, together with interest and costs: Checchia v Insurance Australia Ltd t/as NRMA Insurance [2009] NSWSC 1005.

The appellant appeals from those orders. It also appeals from an interlocutory ruling in which his Honour rejected a line of cross-examination directed to the credit of a witness, Ms Mowad.

The MAC Act

An object of the MAC Act is to provide compensation for compensable injuries sustained in motor accidents and to encourage the early resolution of claims: s 5(1)(b). This object is given legislative effect in s 80, which requires the insurer to resolve claims by settlement or otherwise as justly and expeditiously as possible. An insurer is also obliged, as expeditiously as possible and at least within three months of a claim being made, to give written notice to the claimant advising whether liability is admitted or denied: s 81. Section 82 imposes a duty on an insurer to make a reasonable offer of settlement to a claim either within one month of an injury stabilising, or within two months after a claimant has provided all relevant particulars about the claim. Once liability is admitted, the insurer has an obligation to make payments of hospital and medical, rehabilitation, respite and care expenses on behalf of the claimant as those expenses are incurred: s 83.

The MAC Act provides for an assessment process through the Motor Accidents Claims Assessment and Resolution Service (CARS): s 98. The parties are required to participate in a settlement conference as soon as possible after the insurer has made an offer of settlement under s 82. A claim cannot be referred to the Authority until a settlement conference has taken place: s 98A. Section 98B imposes an obligation on the claimant and the insurer, prior to the settlement conference, to each provide the other with copies of documents upon which each relies for the purposes of the assessment of the claim. If the matter does not settle, the MAC Act makes provision for the assessment of the claim by an assessor: see Pt 4.4, Div 2; and for the commencement of court proceedings: see Pt 4.4, Div 3.

Sections 116-118 deal with fraudulent claims. Section 116 provides that a licensed insurer must take all such steps as may be reasonable to deter and prevent the making of fraudulent claims. Section 117 provides that a person who makes a statement that is false in a material particular is guilty of an offence. Section 118, which is central to the determination of issues in this case, provides:

" 118 Remedy available where claim fraudulent

(1) This section applies to a claimant or insurer if it is established that, for the purpose of obtaining a financial benefit, the claimant or insurer did or omitted to do anything (including the making of a statement) concerning a motor accident or any claim relating to a motor accident with knowledge that the doing of the thing or the omission to do the thing was false or misleading.

(2) If this section applies to a claimant:

(a) a person who has a liability in respect of a payment, settlement, compromise or judgment relating to the claim is relieved from that liability to the extent of the financial benefit so obtained by the claimant, and

(b) a person who has paid an amount to the claimant in connection with the claim (whether under a settlement, compromise or judgment, or otherwise) is entitled to recover from the claimant the amount of the financial benefit so obtained by the claimant and any costs incurred in connection with the claim.

(3) If this section applies to an insurer, the claimant is entitled to recover from the insurer as a debt the amount of the financial benefit so obtained by the insurer and any costs incurred by the claimant in connection with the claim."

The appellant contended that it was entitled to refuse to pay the claim pursuant to s 118.

Issues on the appeal

The appellant raised 10 grounds of appeal. In summary, the appellant's principal contentions were that the trial judge:

1. erred in his construction of the MAC Act, s 118 (1) (ground 1);

2. erred in his application of the MAC Act, in adopting the respondent's 'true value theory' in the application of s 118(2), thereby reversing the onus of proof (ground 2);

3. erred in his factual findings in that his Honour:

(a) made findings unsupported by evidence and contrary to compelling inferences,

(b) made findings contrary to the evidence: in this regard, the appellant challenged 31 factual findings of his Honour; and

4. failed to analyse the evidence as a whole, in that he quarantined aspects of the respondent's credit, in particular in relation to Exhibits G and 19 relating to the respondent's income claim (ground 5);

5. erred in disallowing certain cross-examination of a witness, Ms Mowad (ground 6);

6. erred in failing to give proper reasons for rejecting critical aspects of the appellant's submissions (ground 7);

7. erred in the manner in which he awarded interest (ground 8); and

8 erred in the exercise of his discretion in respect of costs (grounds 9 and 10).

First issue: construction of s 118 (ground 1)

The trial judge's construction of s 118

Th e trial judge commenced his consideration of the construction of s 118 by reference to the Court's decision in Toubia v Schwenke [2002] NSWCA 34; 54 NSWLR 46 in respect of the Motor Accidents Act , s 66, the predecessor provision to s 118: see judgment at [16]. The effect of that decision, as his Honour understood it, was that for the appellant to succeed in its reliance on s 118, it had to prove:

(a) that [the respondent's] conduct was false or misleading;

(b) that [the respondent's] false and misleading conduct was engaged in:

(i) for the purpose of obtaining financial benefits; and

(ii) with knowledge that the conduct was false or misleading;

(c) that [the respondent's] false and misleading conduct deceived NRMA (and continued to deceive it until the time of the execution of the settlement);

(d) that [the respondent's] false and misleading conduct caused [the respondent] to obtain a financial benefit; and

(e) to the extent that all of the foregoing are satisfied, it is for the Court to quantify the financial benefit obtained by the false or misleading conduct."

The appellant accepted that it bore the onus of proof in respect of the matters specified in (a)-(d). The trial judge stated, at [22], that although s 118(1) referred to " the purpose " of obtaining a financial benefit and not " a purpose ", it was not necessary to establish that this was the only purpose in engaging in the proscribed conduct. It was sufficient that a claimant's dominant purpose was to obtain a financial benefit. A minor purpose would not suffice. His Honour considered, therefore, that the obtaining of a financial benefit must be the operative reason underpinning the respondent's engaging in misleading or false conduct. In other words, s 118 required an intention by the respondent to achieve a result desired by him, namely, the obtaining of a financial benefit. His Honour concluded that " purpose " was the claimant's subjective purpose and the effect the person sought to achieve by that conduct: see News Ltd v South Sydney District Rugby League Football Club [2003] HCA 45; 215 CLR 563.

As " purpose " within s 118(1) was subjective, his Honour, at [23], said that evidence of the person's state of mind was required. His Honour observed that the subjective intention of a claimant was, in most cases, to be inferred from the conduct in which the claimant engaged and its likely effect, noting that a claimant's own evidence as to intention would ordinarily be treated with caution. His Honour referred to the question of purpose later in his judgment. In particular, at [133], his Honour dealt with the question of the subjective purpose necessary to relieve an insurer from liability under s 118. His Honour reiterated that the " purpose of the misleading conduct [must] be for the obtaining of a financial benefit, as objectively determined ". His Honour held that claimants who knowingly engage in misleading or false conduct do not escape the effect of s 118 by having " a subjective view as to their entitlements that is greater than, in reality, is the case ".

His Honour, at [24], noted that for the purposes of s 118, the false and misleading conduct had to be done with knowledge. His Honour then turned to purpose. Relevantly, his Honour said that " it is not sufficient ... that the conduct be engaged in for the purpose of obtaining a financial benefit , it is necessary that the conduct was misleading for that purpose " (emphasis added). Importantly, having regard to the appellant's argument, his Honour then stated:

"25 In the circumstances of these proceedings, the claim for compensation was arguably for the purpose of obtaining a financial benefit. That claim for compensation contained a false or misleading statement. Of itself, that combination of facts is insufficient. Leaving aside, for the instant purpose, the requirement for the conduct to be knowingly false or misleading, it is necessary to satisfy the Court that the false or misleading character of the statement was for the purpose of obtaining the financial benefit ." (emphasis added)

His Honour then dealt with the meaning of " financial benefit " as follows:

"26 I turn then to the meaning of the term 'financial benefit'. The term 'financial' needs no explanation. The Oxford English Dictionary defines 'benefit' as meaning, 'advantage or profit; gain'. This definition is consistent with definitions in other dictionaries and its ordinary usage. An 'advantage' is likewise defined as 'the result of a superior or better position, an enhancement, increased well-being or convenience; so as to increase or augment the effect of anything; pecuniary profit.'

27 It seems then, in its ordinary meaning in the context of s 118(1) of the Act, 'financial benefit' means a gain, financially, to which the person would not otherwise have been entitled . Thus, if the purpose of the false or misleading conduct was to obtain money to which the person, against whom the allegation is made, would otherwise be entitled, the purpose of the false or misleading conduct is not the obtaining of a financial benefit within the meaning of s 118(1) of the Act." (emphasis added)

The appellant's argument on the construction issue

The appellant contended that his Honour made three material errors in the construction of s 118.

First, the appellant submitted that his Honour erred in limiting the meaning of " benefit " in subs (1) to the receipt of an amount of monetary compensation to which the claimant was " not otherwise entitled ": see at [27], where the determination of the entitlement was fixed by a comparison of the settlement sum with that which his Honour assessed to be " the true value " of the respondent's claim. The appellant submitted that where a matter had been subject of a settlement, the assessment of the benefit obtained for the purposes of s 118(2) was the difference between the amount of the settlement and the amount the matter would have settled for if the true facts were known (the settlement theory).

Secondly, the appellant submitted that his Honour erred in that he considered that the phrase " financial benefit " meant the same thing in subs (1) and (2). Although the appellant did not direct this submission to any particular passage in his Honour's judgment, it is apparent that the alleged error is to be found in the judgment at [24]-[25] and was more fully developed in the appellant's next submission.

Thirdly, the appellant submitted that his Honour erred in holding that it was not sufficient, for the purposes of s 118(1), for the insurer to prove that a statement was made or conduct engaged in for the purpose of obtaining a financial benefit and that the statement or conduct was knowingly false or misleading: see judgment at [24]. His Honour, wrongly on the appellant's submission, required the insurer additionally to prove that the false or misleading character of the statement was " for the purpose of obtaining the financial benefit " that the claimant in fact obtained as a result of the false or misleading conduct: see judgment at [25].

The appellant submitted that the effect of his Honour's approach to the construction of the section was to wrongly impose an additional layer of proof for the insurer to discharge. The appellant submitted alternatively that if his Honour's construction was correct, his Honour should have found that the appellant had proved that the respondent had made a false and misleading statement for the purpose of obtaining the financial benefit he in fact obtained.

The appellant also submitted that the term " financial benefit " was wider than the construction given to it by the trial judge and included the obtaining of an advantage, such as a superior bargaining position or the removal of some difficulty that might otherwise have acted as an impediment to the satisfaction of the claim. The appellant contended that on his Honour's findings, the respondent had engaged in the deliberately false conduct for the purpose of removing difficulty or doubt in the payment of his claim: see judgment at [132] referred to below.

Determination of the construction issue

There was no dispute before his Honour or on appeal as to the meaning of false and misleading. Nor was there any dispute that " p urpose ", within s 118(1), means the subjective intention of the claimant. As his Honour acknowledged, absent an admission by the person concerned, there is rarely direct evidence of a person's subjective purpose or intention. Rather, purpose or intention is to be inferred from the whole of the evidence: Woolmington v DPP [1935] UKHL 1; [1935] AC 462 at 481; Peters v R [1998] HCA 7; 192 CLR 493 at [134]. The evidence of the person whose purpose is in question may be taken into account: see Federal Commissioner of Taxation v Spotless Services Ltd [1996] HCA 34; 186 CLR 404 although, as his Honour recognised, at [23], such evidence would ordinarily be treated with great caution. As his Honour also recognised in this case, the evidence relevant to purpose included the fact of the misleading conduct itself and the respondent's dissembling.

The next consideration is the meaning of " financial benefit " in each of subs (1) and (2). This was the area of contention on the construction issue. It is convenient to deal first with the second and third of the material errors of construction alleged by the appellant as to the meaning of " financial benefit " in ss 118(1) and (2) and then to deal with the submission that his Honour erred in applying the 'true value' approach to s 118(2).

The appellant contended that his Honour erred in finding that the phrase " financial benefit " had the same meaning in subs (1) and (2). This submission was based upon the juxtaposition of the statement at [24], that it was not sufficient that the conduct was engaged in for the purpose of obtaining " a financial benefit " and the statement at [25], that it was necessary for the misleading conduct to be for the purpose of obtaining " the financial benefit " . The appellant submitted that it was apparent from the use of the indefinite article in subs (1) and the use of the definite article in subs (2) that there was a difference in the meaning of " financial benefit " in the two subsections. The appellant contended that the " benefit " that may be recovered by the insurer under s 118(2), or, more correctly in this case, the amount that the insurer may in fact not be required to pay is not limited to, and may not be identical with, the benefit the claimant intended to obtain under s 118(2). Accordingly, it was argued it was not correct, as his Honour found at [24]-[25], that, in order to establish that s 118(1) was satisfied so that s 118 was engaged, an insurer had to prove that a claimant who engaged in false and misleading conduct, did so for the purpose of obtaining the financial benefit in fact obtained as a result of that conduct.

In my opinion, when his Honour's reasons at [24]-[25] are read together, his construction of " financial benefit " was not correct. Subsection (1) requires that the false and misleading conduct be engaged in for the purpose of obtaining " a financial benefit ". A person may knowingly engage in false or misleading conduct in circumstances where no claim is available, for example, where a claimant was not entitled to claim compensation because the injury was sustained in non-compensable circumstances. In that case, the inference would readily be drawn that the conduct was engaged in for the purpose of obtaining a financial benefit. Alternatively, a person may be entitled to compensation under the MAC Act but may engage in false or misleading conduct, such as, for example, by exaggerating the extent of disability, or not disclosing a pre-existing injury, for the purpose of obtaining greater compensation than that to which he or she is entitled. Whatever be the content of the false and misleading conduct, it must be for the purpose of obtaining a financial benefit under the MAC Act.

Although an insurer may have established the factual matters necessary to satisfy s 118(1), it will not be known whether an insurer will be relieved of liability under s 118(2)(a) in respect of a payment, settlement, compromise or judgment until it is known whether the financial benefit in fact obtained by the claimant was one to which he or she was not entitled. That requires a determination of the financial benefit to which the claimant was entitled on the premise that no misleading statement was made. The quantitative difference between the two, if any, is the extent to which the insurer is relieved from liability pursuant to s 118(2)(a).

It follows that there need not be a correspondence between any financial benefit the claimant was fraudulently seeking and the financial benefit, from the payment of which the appellant is relieved under s 118(2). In other words, s 118(1) specifies the circumstances in which the section is engaged. Section 118(2) specifies the consequences which may flow where the section is engaged.

I should add that the conclusion I have reached in respect of " the financial benefit " in s 118(2) is supported by the decision of Court of Appeal of the Supreme Court of the Australian Capital Territory in Ivancic v Zardo [2004] ACTCA 11 (Higgins CJ, Gray and Gyles JJ). That case involved a falsely exaggerated claim made under Motor Accidents Act 1988 for compensation in circumstances where the claimant had sustained a genuine compensable injury. The insurer argued that the financial benefit obtained as a result of a false or misleading statement that related to part of a claim was the whole of the settlement monies. This argument was rejected. The Court held that s 66 required apportionment of the amount paid so that relief was only granted in relation to the financial benefit obtained by the claimant as a result of the false and misleading statement.

This leads back to a consideration of the first of the appellant's submissions on the construction issue, namely, that his Honour erred in determining the financial benefit under s 118(2) by reference to the amount to which the respondent would have been entitled had the matter proceeded to trial, that is, by reference to the 'true value' of the respondent's claim. Strictly, it was not necessary for his Honour to determine the s 118(2) question, as he held that the appellant failed to establish that the respondent had the necessary purpose under s 118(1). Nonetheless, his Honour embarked, at [136], upon the process of assessing damages. Although it is not entirely apparent that his Honour was assessing these damages for the purposes of s 118(2)(a), as much appears from his statement, at [136], that:

"Damages are being assessed for the purpose of ascertaining whether the amount agreed in the settlement included a 'financial benefit', i.e. resulted in an outcome greater than that to which [the respondent] was entitled. As a consequence, more than the settlement sum cannot be awarded."

The 'true value theory' v the 'settlement value theory'

In his Honour's view, at [136], the correct approach to determining whether and the amount by which the insurer was to be relieved of liability in accordance with s 118(2)(a), was to determine the amount of damages that the respondent would be awarded for the breach of the settlement agreement that the respondent was seeking to enforce. This was because, he said, that damages were to be awarded for breach of contract. His Honour observed, at [136], that this was different from the assessment of a damages claim brought in a court under the MAC Act. In particular, the appellant could not be awarded a sum greater than the settlement amount, even if the court, treating the matter as an assessment of damages under the MAC Act, arrived at an amount higher than the settlement amount.

Having made those observations, his Honour assessed the respondent's damages as if assessing a personal injuries claim under the MAC Act. The appellant described this approach as the 'true value theory', which was the approach the respondent had submitted at trial ought to be taken under s 118(2). His Honour specifically rejected the 'settlement theory' advanced by the appellant. According to this theory, the trial judge was required to determine the amount for which the appellant would have settled the claim had the respondent not engaged in false and misleading conduct. The appellant submitted that in adopting the 'true value theory', his Honour reversed the onus of proof of the respondent's claim generally.

In my opinion, the trial judge erred in his approach to determining the amount of the liability of which the appellant was relieved under s 118(2). Section 118(2) is directed to the quantification of the amount of the liability which an insurer is relieved from paying where s 118(1) has been engaged. This case concerns s 118(2)(a) which applies to one or more of four distinct types of liability: payment; settlement; compromise or judgment, although the difference between a compromise and a settlement is not immediately apparent: see Wigan v Edwards (1973) 1 ALR 497; Callisher v Bischoffsheim (1870) LR 5 QB 449; 39 LJQB 181; McDermott v Black [1940] HCA 4; (1940) 63 CLR 161, but this is not presently of any moment. This case involved a liability in respect of a settlement. The case did not involve a liability in respect of a payment or a judgment.

A settlement typically involves compromise by both parties. There are a myriad of factors that may affect that compromise. One factor often of significance is the costs involved in a matter proceeding to a full hearing. Another factor may be the avoidance of delay. There may be factors personal to a particular party that are not quantifiable but which may influence the person to offer or to accept a particular amount. In particular, litigation is stressful and a party simply may not have the stomach for a protracted legal battle. There could be other less worthy motivations in settling, including a desire that previously undisclosed income does not come to notice. Lawyers for both claimants and insurers are familiar with this process and routinely make assessments of claims for the purpose of settlement. Relevantly for present purposes, it cannot be assumed that an amount agreed by way of settlement or compromise and the amount obtained or likely to be obtained in a court judgment would be the same.

Where a settlement is involved, s 118(2) expressly provides that the insurer is relieved from the legal liability to pay under the settlement " to the extent of the financial benefit so obtained by the claimant " . In my opinion, the court is required to determine, not what the person guilty of the false and misleading conduct would have obtained in a judgment, but the financial benefit that person obtained in the settlement, as a result of the false and misleading conduct.

It follows that in my opinion, his Honour erred in his approach to s 118(2).

The appellant also argued that in adopting the respondent's 'true value theory' in the quantification required under s 118(2), his Honour reversed the onus of proof. Having regard to my conclusion as to the proper approach to s 118(2), it is not necessary to deal with that argument. However, I make the following remarks as to the 'onus' question and to the evidence adduced by the appellant to discharge that onus.

As the appellant raised s 118 by way of defence, it bore the onus of establishing both that the respondent's conduct fell within s 118(1)and the amount in respect of which it was relieved of liability.

Mr Najdzion, CTP Insurance Claims Team Manager, said that had he known of the 1993 back injury, he would have looked to settle the matter for about $350,000 to $400,000 inclusive of workers compensation payback and costs and would not have recommended settlement in excess of $600,000 inclusive of workers compensation payback and costs. He said that if the matter had not settled for the maximum of $600,000, he would have recommended an exemption from a CARS assessment and strongly sought to have the matter fully investigated and litigated.

Mr Najdzion also said had he known at the time settlement was being discussed that there was evidence that, more likely than not, the respondent had recovered from his 2003 accident, he would not have agreed to settle the claim. The evidence to which Mr Najdzion referred was the video surveillance evidence, which showed the respondent moving freely in respect of a range of activities and in a variety of different circumstances. Mr Najdzion also said that had he known the respondent's earnings in the tax year immediately before the 2003 accident and his earnings from the Jet Cafe were significantly lower than claimed, he would not have agreed to a settlement for the amount finally agreed upon.

His Honour rejected Mr Najdzion's evidence, which, his Honour considered, at [39], displayed a " subjective annoyance " at being misled. His Honour considered, at [40], that this subjectivity seemed to colour Mr Najdzion's assessment of the nature of the claim submitted and the respondent's level of incapacity.

Whether his Honour's assessment of Mr Najdzion's evidence was well based was dependent upon his Honour's factual findings in respect of the respondent's level of disability and his pre-accident earnings. Those findings are under challenge and are dealt with below. It is sufficient at this point to note that his Honour was not bound to accept Mr Najdzion's evidence. However, it was evidence available to his Honour to assist in the assessment task that he was required to undertake under s 118(2), having regard to the factual findings that were otherwise made on the medical and income claim. Whether or not that evidence would have been sufficient to discharge the appellant's onus under s 118 is not necessary to decide.

Having regard to my conclusion that his Honour erred in his construction of both ss 118(1) and (2), it is not necessary to consider the appellant's other arguments relating to the application of the section: see ground 2.

Third issue: error in factual findings (grounds 3 and 4)

The appellant raised challenges to 31 of his Honour's factual findings. In essence, however, the challenges fell into two categories: first, the extent of the respondent's disabilities arising from the 2003 accident (the medical issue); and secondly the respondent's earnings (the income claim). If those challenges succeed, the appellant contended that his Honour's conclusion that the respondent had not engaged in false and misleading conduct for the purpose of obtaining a financial benefit was erroneous.

The medical issue

The appellant contended that the respondent had exaggerated any disability from which he was suffering and that any disability he in fact suffered was partly attributable to the 1993 accident. This challenge first requires an understanding of the nature and extent of the claim made by the appellant in his claim form and in his CARS statement.

Statements made in the claim form and in the CARS statement

In pursuing his claim for compensation the respondent denied having suffered any previous back injury or having made any claims for compensation. The claim form had been filled out by the respondent's wife, however, the respondent signed the statutory declaration attached to the claim form in which he declared that the contents of the form were, to the best of his knowledge, true and correct in every respect.

The respondent also stated in the claim form that he sustained: massive bruising; pain in leg due to disc problem pushing on nerve; and shock. He complained of having the following ongoing problems as a result of his injuries: inability to walk due to severe pain to his leg; insomnia; restricted movement, especially when sitting; inability to walk or drive; necessity to take medication. The supporting medical certificate signed by Dr Nakhle stated that the respondent was suffering from sciatica.

In late September 2006, the respondent submitted a signed statement to CARS in support of his claim (the CARS statement). In the CARS statement, the respondent made no mention of any previous back injury and stated that at the time of his accident he was fit, healthy and active and that he had no prior problems with his back or legs. The respondent said that his level of disability was accurately recorded in the report of Judith Davidson, consultant occupational therapist, dated 22 September 2005. The respondent also stated that his sexual activity was affected by pain and his wife had to carry out all the childcare and domestic activities.

In her report, Ms Davidson stated that the respondent complained of the following level of disability:

Low back pain rated as 8.5/10 on the day of the assessment. He stated that his major pain was in the buttocks. Prior to commencement of the gym programme, he rated his low back pain as 9.5/10.
The back pain varies during the day but is highest in the morning and then late in the evening. Each morning when he starts moving around, his pain gradually reduces.
His workers compensation certificate has a weight restriction of 5 kg.
His sitting tolerance is only 20 minutes.
His standing tolerance is only 20 minutes.
His walking tolerance is 15 minutes.
Inability to perform his pre-injury work tasks as a Cafe Bar Manager.
Inability to assist in the care of his 2 children.
Inability to share a bed with his wife in a normal marital relationship."

On 13 April 2006, the respondent underwent a medical assessment pursuant to the MAC Act. Professor Ryan, the assessing medical officer, determined that the respondent had sustained the following injuries in the 2003 accident: back: disc/nerve root problems, muscle reduction, sensory change; right leg: numbness, weakness; neck: strain; sexual/urinary: dysfunction/impairment.

Professor Ryan considered that the respondent's back (disc/nerve root problems, muscle reduction, sensory change) and right leg (numbness, weakness) gave rise to a permanent impairment and that the sexual/urinary dysfunction/impairment arose indirectly from the back and right leg injury. He assessed the respondent as having a 25 per cent whole person impairment.

The statements in the claim form and the CARS statement that the respondent had had no previous injury to his back and had not made a previous claim for compensation were false. The respondent had sustained an injury to his back on 23 May 1993, whilst employed as a shop assistant, when he fell between a truck and a loading ramp. He suffered a disc protrusion at L4/5 and a fracture to the endplate of the L4 vertebrae and was hospitalised for about four days. He came under the care of Dr Bruce, orthopaedic specialist, who reviewed him on several occasions during June, July and August 1993. The respondent made a claim for workers compensation in respect of this injury.

In a medical report dated 19 July 1993, some two months after the accident, Dr Bruce noted that the respondent continued to have discogenic back pain, which he said was not unusual. Dr Bruce reported that about 80 per cent of patients were better at three months and the remaining 20 per cent may take six months to get better. On 28 August 1993, Dr Bruce observed that the respondent still had a decreased range of movement of the lumbar spine, but no neurological signs. He certified the respondent fit to resume work on light duties on and from 29 August 1993. On the basis of this advice, the respondent resigned from his then employment as a shop assistant and commenced working as a waiter. Dr Bruce noted in a further review on 7 December 1993 that the respondent's " back is now good with no real discomfort and no right leg pain " (at [64]). The respondent was also assessed at this time by Dr Cameron, consultant surgeon, on behalf of the workers compensation insurer. Dr Cameron was of the opinion that the respondent was expected to make a full recovery from the 1993 injury.

Medical reports available at time of settlement

The respondent's MAC Act claim was settled on 20 October 2006. The medical reports of Dr Bruce and Dr Cameron were not in the appellant's possession at that time. The respondent had served the medical reports from the following doctors for the purposes of the CARS assessment: Dr Lawson (consultant physician), Dr Rust, Dr Aggarwal, Ms Stynes, Dr Dwyer, Dr Rowe, Dr McMahon, Dr Fitzsimons, Dr Nakhle and Ms Davidson (to whom reference has already been made). In addition, the appellant served the report of Professor Ryan, and hospital notes from Concord Hospital and St Vincents Hospital. The respondent also served an Oswestry Disability Questionnaire, which he had completed at the Metropolitan Rehabilitation Hospital.

The appellant had obtained medico legal reports from the following medical practitioners: Dr Bowers (specialist rehabilitation physician), Dr Matheson (consultant neurosurgeon), Dr Maguire (consultant psychiatrist), Dr Perla (general practitioner specialising in occupational health), Ms Croker (occupational therapist) and Ms Stynes (psychologist). The appellant also had copies of medical reports that were part of the respondent's workers compensation claim arising out of the 2003 injury.

The overall picture that emerged from these medical and health reports was that the respondent was suffering persistent back and leg pain of a high order, which he assessed at various times as being between 6 and 10 out of 10; that his pain persisted despite medication and his participation in the ADAPT program; that he was limited in his daily activities; that he could not walk for more than 15 minutes; and that he sometimes needed to lean on the wall for support.

Appellant's communication with the respondent about the prior injury

On 14 November 2006, the appellant wrote to the respondent's solicitors advising them that they had been informed that a person by the name of 'Giovanni Checchia' had received benefits from QBE Insurance for a fractured back sustained in 1993. The appellant provided the respondent's solicitors with documentation relating to the 1993 claim and sought their urgent advice as to whether the respondent had made a prior claim in the name of Giovanni Checchia for a back injury in 1993. By letter dated 22 November 2006, the respondent's solicitors confirmed that the respondent had made such a claim and provided an authority to enable the appellant to obtain copies of medical reports of treating medial practitioners in respect of the 1993 injury.

On 5 February 2007, the appellant advised the respondent's solicitors that pursuant to the MAC Act, s 118 the appellant was " relieved of its liability in respect of the Settlement Agreement ... to the extent of the financial benefit flowing from the [respondent's] omission ". The appellant supported its position by forwarding medical reports of Dr Matheson and Dr Bowers to the respondent's solicitors. These particular reports had been obtained after the appellant became aware of the 1993 injury. Both Dr Matheson and Dr Bowers stated that the fact of the earlier injury affected the assessment they had previously made as to the attribution of the respondent's ongoing problems. These reports are discussed further below.

On 22 February 2007, the respondent's solicitors advised the appellant that the respondent consented to the settlement being set aside and that the respondent would " make an application to CARS to have the matter referred to an assessor for determination or hearing ". The appellant rejected this proposal. Thereafter, it neither paid the settlement monies nor re-engaged in any of the processes mandated by the MAC Act.

The medical opinions as to the cause of the respondent's post-2003 symptomology

Dr Bowers saw the respondent for medico-legal assessment prior to the settlement conference. In his report dated 11 July 2006, Dr Bowers attributed most of the respondent's complaints to the accident. Those complaints were of ongoing pain at the lumbosacral spine radiating to both buttocks, aggravated by walking, flexing the spine and negotiating steps. Coughing and sneezing aggravated the pain, suggesting nerve irritation. He noted that the respondent's pain level was decreased by medication and hydrotherapy.

Dr Bowers considered that, long term, the respondent would be " prone to ongoing aches and pains associated with osteoarthritis of the spine ". Dr Bowers considered that the respondent was only suitable for sedentary work and over his lifetime would be suitable to return only to three-quarters of the normal hours of work.

Subsequently, Dr Bowers was asked to comment upon the effect of the 1993 injury on the respondent's current condition. He expressed the opinion that:

"... half of [the respondent's] complaints were due to the accident of January 2003 and half due to the work accident of 1993."

In 2008, Dr Bowers viewed the video material. In his report dated 28 August 2008, he expressed the opinion that:

"... if it was not accepted that [the respondent] was symptomless between the accident of 1993 and the subject accident of January 2003 then the symptoms present when I saw him in July 2006 would be 50% attributable to the accident of 1993 and 50% attributable to the accident of January 2003."

Dr Bowers also stated in the 28 August 2008 report that a video recorded in September 2005 was consistent with the respondent having symptoms affecting the lumbar spine at that time. He also said that his opinion as to the respondent's work capacity was not changed by what he saw in a video recorded in October 2005. In this regard, his view was substantially in accordance with that expressed by Dr Parkinson, the respondent's treating surgeon, whose report is referred to below.

Dr Matheson undertook a medico-legal assessment of the respondent at the request of the appellant. In his initial reports, Dr Matheson accepted that, except for a 10 per cent attribution to a pre-existing calcific lesion at L4/5, the respondent's reported condition was otherwise caused by the 2003 accident. He considered the respondent to be " quite restricted in work ". In his report dated 6 October 2005, Dr Matheson noted that the appellant was:

"... not claiming inability to carry out self care at home but obviously he is going to have trouble with certain activities such as spring cleaning and car washing and lawn mowing."

Upon being advised of the 1993 accident, Dr Matheson " radically " altered his opinion. Dr Matheson considered that the " main genesis " of the respondent's problems was the 1993 accident. He said that the respondent's fall off the bike in 2003 was merely a recurrence of the earlier injury and " did not cause the L4/5 prolapse which was present many years earlier ". He said the 2003 accident was " unlikely to have played any part in the progression " of the respondent's illness. Dr Matheson rejected the opinions of Dr Bruce and Dr Cameron that the prognosis for the 1993 injury was for a full recovery.

Dr Matheson also viewed the video material. He considered that the videos indicated that the respondent had a minor back disorder, but that they excluded a major back disorder and showed that the respondent was quite functional.

His Honour generally dismissed the evidence of Dr Matheson who, on his Honour's view, was inexplicably antipathetic to the respondent.

Dr Mills, consultant physician in occupational medicine, assessed the respondent on 23 September 2005 in his capacity as an Independent Medical Examiner. In his report of that date, he expressed the view that the respondent's presentation was:

"... not consistent with his reported level of disability. He was noted to be exaggerating disability ... indicating that his true level of activity is likely to be significantly greater than reported."

In his later report dated 1 September 2008, Dr Mills expressed the opinion that the video material was not consistent with the respondent:

"... suffering from a chronic disabling back condition of sufficient severity to prevent him from maintaining employment."

Dr Mills was of the opinion that when he had first assessed the respondent in August 2005, the respondent had understated his " true activity tolerance ". Nonetheless, Dr Mills expressed the view that:

"The natural history of lower back pain can be very variable, with me being unable to predict with any accuracy whether a previous significant episode of lower back pain had resulted in [the respondent] experiencing constant on-going functionally limited lower back pain, or he being asymptomatic if he avoids exposure to aggravating factors.

From a preventative perspective however, I would state that given this history of he having to change jobs because of lower back pain, [the respondent] should permanently avoid working in situations likely to aggravate his pre-existing lower back condition. The appropriate medical restrictions for the injury of 1993 are the same as I have recommended for his injury of 21 January 2003.

These are; he should be considered (allowing him the benefit of the doubt) to be fit to perform full-time employment within (at least) the restrictions of a maximum lift of 10-kg from bench height or 5-kg from the ground. He should avoid prolonged or repetitive bending or stooping, and heavy pushing and pulling. He should avoid exposure to significant whole-body impact or vibration forces."

The trial judge accepted Dr Mills' opinion as to the respondent's employability, namely, that he was fit to perform duties with restrictions appropriate to a person with a back injury. His Honour noted that that opinion did not change after Dr Mills viewed the video material.

His Honour discounted the evidence of the respondent's general practitioner who was supportive of the respondent.

Subject to Dr Parkinson's reports, the medical evidence to which I have referred was that reviewed by the trial judge. As indicated above, there was other medical evidence considered by the appellant for the purposes of the CARS assessment, which was also in evidence before his Honour. I propose to refer only to the evidence of Dr Aggarwal and then only briefly, as it provided the most continuous evidence of the respondent's presentation to a medical practitioner prior to the settlement.

In a report to the respondent's solicitors dated 6 October 2006, Dr Aggarwal, after providing a detailed summary of the respondent's condition and treatment over the preceding three or so years, described the respondent's current condition as follows:

"On his most recent review, 23 rd June 2006, [the respondent] did not feel there has been much improvement in his pain since he has been commenced on the Norspan analgesic patches. He has slowly increased the dose of this up to the 20 mg patch. He remains in constant pain that he describes as sharp stabbing and knife like sensation. He remains depressed. Despite his pain, he is independent with all his activities of daily living and is able to walk without the use of a gait."

Dr Aggarwal assessed the respondent as being fit for seated work duties in a cafe, taking bookings and so forth, notwithstanding that he understood the respondent to be in constant pain. Dr Aggarwal placed restrictions on any employment activity involving lifting. He specified that lifting was to be limited to 5 kg and there was to be no repetitive lifting over 2.5 kg. Repetitive back movements were also to be avoided. Dr Aggarwal also recommended that the respondent take half-hourly breaks to " perform stretching and range of motion exercises ". Dr Aggarwal concluded that it was unlikely the respondent would ever be pain free. He said:

"After acute pain fails to respond to conventional therapeutic measures, secondary mechanisms come into play including psychological factors and sensitisation of nerve cells in the pain pathways in the spinal cord and the brain. As a result of these secondary factors, reversal of the pain becomes much more difficult, as pain continues to be maintained despite resolution of the cause of the initial pain.

It is now over 3 years since [the respondent's] original injury. He is still in constant pain and it is unlikely that he will ever be pain free. It is likely that he will have some degree of pain indefinitely, but it is possible that he may be able to be taught to manage and control his pain better, so that it does not interfere with his function as much."

Following the appellant's refusal to pay the settlement monies, the respondent's solicitors obtained a report dated 4 July 2007 from the respondent's treating surgeon, Dr Parkinson. Dr Parkinson had been provided with reports of Dr Bruce, Dr Stern and Dr Cameron relating to the 1993 accident. Having regard to the opinions in those reports, Dr Parkinson considered that there was no pre-existing component to the respondent's current condition attributable to the 1993 accident. In his opinion, the respondent's problems with his back and leg that were causing his current symptoms were entirely attributable to the 2003 motor vehicle accident and to the spinal surgery that followed.

Dr Parkinson did not alter his opinion after having viewed video surveillance evidence of the respondent. He considered such evidence generally to be unreliable, an opinion shared by most of the other medical experts who commented on the video material.

The trial judge, at [83], accepted Dr Parkinson's evidence without qualification.

Lay evidence supporting no ongoing disability from the 1993 accident

The respondent's brother-in-law, Mr Grasso, gave evidence that he had not observed the respondent display any symptoms of his previous back injury from the time the respondent's marriage in about 1994 until the accident in 2003. During part of this time, the respondent had lived with his parents-in-law and Mr Grasso still lived with his parents, so Mr Grasso was able to observe the respondent on a daily basis. Mr Grasso and the respondent also engaged in a range of vigorous physical activities, including builders' labourers' work and playing indoor soccer. His Honour accepted Mr Grasso's evidence completely. His Honour also accepted the evidence of the respondent's wife that at least from the time of their marriage in 1994 until the 2003 accident, the respondent had displayed no symptoms of a back injury.

The appellant did not directly challenge his Honour's acceptance of this evidence and it did provide valuable support for the respondent's case that he had no ongoing disability from the 1993 accident from about early 1994 onwards. However, the appellant challenged his Honour's finding that the respondent had no such ongoing disability. Given there was no challenge to this evidence, the challenge to his Honour's findings as to the 1993 injury needs to based on other aspects of the evidence.

Video surveillance and associated evidence

There was lengthy video surveillance evidence tendered by the appellant which both pre and post-dated the discovery of the false information in the claim form. His Honour rejected the appellant's case that the video evidence demonstrated the respondent was capable of a much greater level of activity than claimed. His Honour observed that in some of the video evidence, the respondent appeared to move in a manner which indicated that he was protecting his back. On other occasions, he was shown to be limping. His Honour acknowledged that in some of the later videos, the respondent was moving freely, but that in another his presentation was such as to indicate that he had difficulties with his back. In circumstances where the respondent's case was not one of constant pain nor of consistent limitations on free movement, his Honour rejected the appellant's submission that the videos demonstrated that the respondent's level of disability was less than that claimed.

The video evidence also showed the respondent visiting hotels. The evidence indicated this was on a reasonably regular basis for the purpose, it would seem, of playing poker machines. He was seen driving his car to the hotels and withdrawing money from a number of ATMs. His Honour rejected the appellant's submission that these activities were inconsistent with his alleged disabilities. His Honour saw no inconsistency between the respondent's level of claimed disability and engaging in the activities depicted in this video evidence. His Honour commented that it was difficult to imagine a less physically taxing task than driving to a local hotel or even one slightly further away, withdrawing some money from an ATM and pushing a button on a poker machine. His Honour observed, at [105], that such an activity would allow the respondent to sit for short periods and stand or walk around when in pain. His Honour's observation is correct so far as it goes. However, insofar as that observation applied to the respondent, there was no evidence as to whether that is how he conducted himself whilst playing on the poker machines.

A number of the medical experts viewed the video material. Significantly, as his Honour noted, at [115]-[123], none of the medical experts said that the respondent's presentation on video was inconsistent with his having a back injury. However, the fact of back injury was not in dispute. The issue was whether the respondent had exaggerated his symptoms, and thereby engaged in misleading conduct, for the purpose of obtaining a financial advantage.

The Court viewed the video material. It showed the respondent engaging in a variety of activities, including walking, standing, lifting and bending. The surveillance was undertaken at different times, including on occasions when the respondent was attending medical appointments. The videos presented a varied picture. At times, the respondent appeared to walk and move freely. At other times, he appeared to have some restrictions on his movement. This was particularly, but not only, apparent on occasions when he was arriving or leaving medical appointments.

There was no doubt that when the respondent was arriving or leaving medical appointments, his movements were more restricted, especially in the vicinity of a doctor's rooms. By the time he was a short distance away from the doctor's rooms, his movements would become noticeably freer and often apparently unrestricted. In my opinion, this aspect of the video material did reveal the respondent engaging in conduct that exaggerated his level of pain or disability.

His Honour also considered that the fact the respondent was to be observed moving freely on the video material was not inconsistent with the extent of the disability claimed. His Honour's reasoning is highly favourable to the respondent. However, whether that indicates that his Honour misused his advantage as a trial judge cannot be determined in isolation from the other evidence and his Honour's other findings.

Trial judge's findings as to effects of 1993 and 2003 injuries

His Honour concluded, at [98], that from December 1993 at the latest, the respondent had no symptoms from the 1993 accident and for all practical purposes, in terms of symptoms, that injury had wholly resolved. His Honour found that the injuries currently being suffered by the respondent were wholly or overwhelmingly the result of the 2003 injury and/or its treatment. The appellant challenges each of these findings.

His Honour found that there were times when the respondent deliberately exaggerated the symptoms from which he was suffering: see [124]. Nonetheless, his Honour concluded that the symptoms the respondent reported at various medical examinations were symptoms that he in fact suffered, even if he was not suffering from them at the time of the examination. His Honour explained:

"In other words, the conduct did not give a false impression or misleading impression of the symptoms that Mr Checchia suffered or of the pain that he endured. A fortiori is that the case, when it is taken together with the information that his symptoms varied and that he was able to participate in an exercise regime."

His Honour concluded, at [125], that neither the respondent's conduct, nor any statement concerning his disabilities, was misleading or false. In this regard, his Honour did not consider that this aspect of his conduct, that is, relating to his disabilities, was intended to be misleading or false. His Honour concluded on the balance of probabilities that the respondent " intended to represent only that which he was suffering ". This finding is also challenged.

Before dealing with the question whether his Honour correctly applied s 118 to the facts, it is necessary to determine the challenges to his Honour's factual findings. There is some crossover in the challenges that are made. However, they may be divided into three broad categories. The first category is the challenge to the findings that relate to the respondent's disabilities and whether there was any continuing disability following the 1993 accident. The second is the challenge to the findings relating to the appellant's economic claim. This challenge embraces the independent challenge to his Honour's judgment constraining certain cross-examination of the respondent's employer, Ms Mowad. The third category incorporates the challenge to the respondent's credit (see fourth issue on the appeal: ground 5). It is convenient first to refer briefly to the credit finding.

Trial judge's credit findings in respect of respondent

His Honour's findings at [124] and [125] were made notwithstanding his Honour's adverse credit findings, at [126], that overall, he did not find the respondent " a witness of truth and reliability ". His Honour considered that some of the respondent's answers were disingenuous or dissembling, but that not all of them were. His Honour instanced the respondent's answers to the Oswestry Disability Questionnaire as an example where the respondent could not be believed. The Oswestry Questionnaire was administered to the respondent as part of a rehabilitation programme in which he specified the restrictions on his everyday life.

Nonetheless, his Honour found that the respondent had withstood a vigorous cross-examination and that his evidence in respect of his disability and earnings was, " in most respects, extremely believable, unsophisticated, and unrehearsed ".

His Honour considered that such nervousness as the respondent displayed in cross-examination was a reaction to his embarrassment at failing to declare his full income and the issues associated with that, rather than a consciousness of guilt as to the claim he made to the appellant in respect of his prior earnings. The respondent had not given evidence of any such embarrassment. Rather, he sought to explain away the circumstances in which he had received the PAYG statement for 2002 which showed much higher earnings than he had disclosed in his income tax return.

His Honour concluded, at [128], that the respondent engaged in misleading and/or false conduct insofar as he misinformed the appellant as to the existence of a prior injury in 1993. His Honour further found that the respondent's conduct in maintaining that assertion, by which I understand his Honour to be referring to the respondent's denials to doctors of any previous injury, or failing to correct those assertions, was also knowingly false and/or misleading.

His Honour's findings in respect of the respondent's credit had three consequences. First, it led to his Honour's conclusion, at [129], that there was no false or misleading statement as to the respondent's income claim. Secondly, it led to his Honour's finding, at [132], that notwithstanding the false statement in relation to the absence of previous injury, the respondent did not seek to obtain a financial benefit to which he was not entitled. Thirdly, it led to his Honour's quantification of damages in a way which was favourable to the respondent. However, his Honour's conclusions on these matters is dependent upon whether his underlying findings are sustainable. If they are not sustainable, then his credit finding in respect of the respondent must be consequentially undermined.

The medical claim

The trial judge found, at [100]-[101], that the respondent exaggerated his discomfort in the witness box and in the courtroom and that there were aspects of his evidence that seemed highly improbable. His Honour was prepared to accept that although during the time he was in pain from his 2003 injury, the respondent may have forgotten his 1993 injury, that did not explain his assertion in his CARS statement that he had no prior problems with his back or legs. In addition, his Honour observed, at [103], that the respondent had denied any such previous injuries to Dr Mills, Dr Perla and Dr Matheson.

Nonetheless, his Honour accepted, at [104], that the respondent genuinely attempted to return to work and genuinely undertook the rehabilitation exercises which he had been prescribed. His Honour also accepted, at [104], that the state of his 2003 injury prevented him from returning to permanent full-time unrestricted work. His Honour found that the medical evidence corroborated the respondent on this aspect of his claim.

His Honour found, at [125], that neither the respondent's conduct seen in the videos nor any statement concerning his disabilities was misleading or false, nor was this aspect of his conduct intended to be misleading or false. His Honour held that on the balance of probabilities, the respondent intended to represent only that which he was suffering. His Honour's conclusion must be seen to have been based essentially upon the evidence of Dr Parkinson, the respondent's treating surgeon. His Honour was not satisfied that the video surveillance evidence demonstrated that the respondent was exaggerating his symptoms. His Honour said, at [122], that the medical evidence and the respondent's statements disclosed the respondent was not, prior to the settlement, in constant pain and that often the pain was worse than at other times. His Honour then noted that " the mere fact that a recording would show [the respondent] moving freely is not inconsistent with his representations and conduct ". These findings were made notwithstanding his Honour's adverse credit finding.

Nonetheless, it must be said that Dr Parkinson's evidence was compelling. There was support for Dr Parkinson's evidence in the reports of Dr Bruce, the treating specialist, in relation to the 1993 injury and from Dr Cameron, retained by the workers compensation insurer in respect of that injury, both of whom said that the respondent was likely to have a full recovery.

The evidence of Dr Bowers in relation to the respondent's presentation on video was substantially to the same effect as the evidence of Dr Parkinson, namely, that the video evidence did not affect their assessment of the respondent's work capacity. There was other medical evidence that supported the respondent's case. There was no suggestion, including by way of cross-examination, that the respondent had had any other treatment relating to his back from December 1993 until the 2003 injury. In addition, the trial judge accepted the evidence of the respondent's wife and brother-in-law and no basis has been shown to interfere with those findings. These matters lend further support to Dr Parkinson's opinion and his Honour's acceptance of it.

As a general proposition, provided that a trial judge is satisfied that a claimant had the disabilities upon which a medical practitioner based her or his expert opinion, it is difficult for an appellate court to interfere with the trial judge's acceptance of that material. The position may be different, however, if the trial judge's acceptance of a claimant's level of disability does not withstand appellate scrutiny. I will return to this issue later in these reasons.

The income claim

Although the appellant's reason for refusing to pay the settlement monies was the non-disclosure of the 1993 accident, the respondent's income claim became the subject of considerable controversy during the course of the proceedings and led to the appellant amending its defence to include a pleading that when making his claim, the respondent misled it as to his earnings. The appellant contended that the respondent's false statements (as the appellant contended) regarding his earnings further undermined the respondent's already diminished credit in respect of his claimed level of disability. In this regard, medical experts accepted that a person's own assessment of pain and suffering was subjective and a medical practitioner was dependent upon the veracity and accuracy of the person's complaints. The appellant also submitted that the respondent's alleged misstatements as to his earnings affected the case theory upon which the claims officers were entitled to base their assessment of a reasonable offer of settlement.

In the CARS statement, Exhibit 9, said by the appellant to be dated 29 September 2006, the respondent claimed that at the time of the accident he was earning $1,000 per week as a cafe manager/supervisor working about 45 hours per week. There was no indication in the statement as to whether this was a net or gross amount. In written submissions prepared for the purposes of the CARS assessment, the respondent's solicitors stated that at the time of the accident the respondent was earning $750 per week net as a cafe manager with Jet Cafe. The respondent claimed future economic loss at the rate of $650 per week, on the basis that he had a small residual earning capacity.

Earlier, in August 2006, in answer to a request made by the appellant for particulars of income, the respondent's solicitor stated that at the time of the accident the respondent was contracted to be paid $1,000 net per week, that he worked for one week after the accident and then took two weeks off because of pain. The letter stated that there was a letter from Ms Mowad lodged with the claim form, which supported this amount. It seems that that letter was not filed with the claim form.

About three weeks before the settlement conference the respondent provided to the appellant copies of his income tax assessments for the financial years 1999, 2003 and 2005. He also provided PAYG statements for the financial years 2000, 2001 and 2003, but not for 2002, the financial year preceding the accident. Other evidence disclosed that the respondent's taxation agent had a copy of the 2002 income return as filed with the ATO at this time. The information provided in this material disclosed that the most the respondent had earned in the period 1999-2001 was $25,200 gross. His 2003 and 2005 earnings were, of course, post-accident and in much lower sums.

His Honour considered that where a plaintiff makes an offer under the rules and obtains a better result at the trial, exceptional circumstances needed to be established before the court would do other than order indemnity costs: see, for example, Regency Media Pty Limited v AAV Australia Pty Limited [2009] NSWCA 341 at [19]. His Honour found no reason to depart from the ordinary rule. He held that if the offer had to be treated as a Calderbank offer, the appellant's rejection was unreasonable, that exceptional circumstances had not been established and the same order should be made.

The appellant submitted that his Honour ought not to have ordered it to pay the respondent any costs and in particular ought not to have ordered costs on an indemnity basis.

The appellant submitted the respondent's persistent deceit was the effective cause of the litigation. In addition, the respondent's prolonged failure to produce documents relating to his earnings and then producing documents which were not genuine, prolonged the proceedings and increased the costs.

The appellant relied upon its statutory obligation under s 116 not to settle claims for merely commercial considerations and its statutory obligation to prevent and deter fraud. The appellant submitted that for those reasons, it was not in the same position as other defendants who were at liberty to compromise claims as they saw fit.

If I am wrong in my ultimate conclusion in this matter, then I consider that his Honour's discretion in respect of costs miscarried for the following reasons. First, the respondent's initially false and misleading conduct in failing to disclose the 1993 accident was the effective cause of the appellant refusing to pay the settlement sum. Secondly, the appellant's income claim was highly contestable, given that many of the documents he and others produced were inconsistent, incorrect, or false. Thirdly, his Honour overlooked the statutory duties of the appellant and respondent. These together constitute extraordinary reasons for refusing to make an indemnity costs order.

I am also of the opinion that even if the respondent was entitled to judgment of the settlement sum, there should have been a reduction in the costs awarded to the respondent, given the conduct to which have referred. In my opinion, had the respondent maintained his judgment, the appropriate costs order would have been that the appellant pay the respondent 50 per cent of his costs at first instance on the ordinary basis.

Conclusion

It follows from my reasons that the appeal should be allowed. Accordingly, I propose the following orders:

1. Appeal allowed;

2. Set aside the orders of the trial judge made 29 September 2009;

3. Order that there be a new trial on all issues;

4. Order that the respondent pay the appellant's costs of the appeal;

5. Order that the costs of the first trial abide the outcome of the new trial.

McCOLL JA : I agree with Beazley JA and Handley AJA.

HANDLEY AJA : In this complex and difficult appeal I have had the benefit of reading the reasons for judgment of Beazley JA in draft. I agree with her Honour's reasons and with the orders she has proposed but will add reasons of my own on the construction of s 118 of the Motor Accidents Compensation Act 1999 (the 1999 Act) and its application to the facts. The background facts and history are found in Her Honour's judgment.

This section relevantly provides:

"118 Remedy available where claim fraudulent

(1) This section applies to a claimant ... if it is established that, for the purpose of obtaining a financial benefit, the claimant ... did or omitted to do anything (including the making of a statement) concerning a motor accident or any claim relating to a motor accident with the knowledge that the doing of the thing or the omission to do the thing was false or misleading.

(2) If this section applies to a claimant:

(a) a person who has a liability in respect of a payment, settlement, compromise or judgment relating to the claim is relieved from that liability to the extent of the financial benefit so obtained by the claimant, and

(b) a person who has paid an amount to the claimant in connection with the claim ... is entitled to recover from the claimant the amount of the financial benefit so obtained by the claimant and any costs incurred in connection with the claim."

This section, as it applies to a claimant, reproduces the text of s 66 of the Motor Accidents Compensation Act 1988 (the 1988 Act), repealed by the 1999 Act. The earlier section was considered in Toubia v Schwenke (2002) 54 NSWLR 46. I will refer to conduct within s 118(1) as a misrepresentation.

Section 118(1), despite its heading, does not reproduce the general law.

The trial Judge focussed on whether the claimant's subjective purpose was to obtain a financial benefit. His analysis must be set out at some length. At [22]-[23] he said:

"22 ... The purpose must be the dominant purpose for the conduct in question, and, in that sense, the obtaining of a financial benefit must be the operative reason underpinning Mr Checchia engaging in the misleading or false conduct. The Act requires an intention by ... Mr Checchia to achieve a result desired by him, namely, the obtaining of a financial benefit ... Purpose, therefore, is the subjective purpose of the person who engaged in the false or misleading conduct and the effect the person sought to achieve by that conduct ...

23 The purpose, envisaged by the Act, is a subjective purpose and requires evidence of the state of mind of the perpetrator of the false or misleading conduct. Direct evidence of the reason for conduct may not be forthcoming. In those circumstances, it may, and usually will, be inferred from the conduct itself and its likely effect."

The analysis was further refined:

"24 ... The purpose (of obtaining a financial benefit) must be the reason for the intention to mislead ... It is not sufficient simply that the conduct is engaged in for the purpose of obtaining a financial benefit, it is necessary that the conduct was misleading for that purpose."

The analysis was then further refined [25]:

"25 ... the claim for compensation was arguably for the purpose of obtaining a financial benefit. That claim ... contained a false or misleading statement. Of itself, that combination of facts is insufficient. ... it is necessary to satisfy the Court that the false or misleading character of the statement was for the purpose of obtaining the financial benefit."

The Judge made the following findings concerning the claimant's representations about his symptoms and disabilities at [124]-[125]:

"124 ... there were ... times when Mr Checchia exaggerated, deliberately, the symptoms from which he was suffering, at that particular time . However, it seems to me that the symptoms that he disclosed on medical examinations were symptoms that he, in fact, suffered, even if there were not being suffered at the time of the examination. In other words, the conduct did not give a false impression or misleading impression of the symptoms that Mr Checchia suffered or of the pain that he endured ...

125 I do not consider that Mr Checchia's conduct, or any statement, concerning his disabilities was misleading or false. Nor do I consider that this aspect of his conduct was intended to be misleading or false. On the balance of probabilities, Mr Checchia intended to represent only that which he was suffering" (emphasis supplied).

After further consideration the Judge said at [132]-[133]:

"132 ... Those are factors that, together with the acceptable evidence of Mr Checchia, compel me, on the balance of probabilities, to find that his conduct was not done for the purpose of obtaining a financial benefit. While he may have sought to forestall an enquiry that would delay or complicate a settlement that appropriately compensated him for the injury, he did not do so for the purpose of preventing a rejection of his claim or for obtaining a claim to which he was not entitled.

133 That raises an interesting question as to the subjective purpose necessary to relieve an insurer of liability under the Act. On one view, if claimants engaged in false or misleading conduct for the purpose of obtaining what they considered to be their just entitlements, such claimants would not be engaging in the conduct for the requisite purpose. I do not accept that view. It seems that a construction consistent with the purpose of the Act requires that the purpose of the misleading conduct be for the obtaining of a financial benefit, as objectively determined. Claimants did not escape the effect of s 118 ... by having a subjective view as to their entitlements that is greater than, in reality, is the case."

Accordingly his Honour rejected the insurer's case that the claimant had made false or misleading representations about his symptoms and disabilities for the purpose of obtaining a financial benefit.

He summarised his findings concerning the claimant's representations about his pre-injury earnings at [129]:

"129 I am not satisfied ... that Mr Checchia's conduct (some of it possibly fraudulent, at least in his dealings with the ATO) in asserting a prior rate of earnings (and supporting the assertion with questionable documents) was false or misleading."

With all due respect to the learned trial Judge, his reasoning in the passages quoted, which was not based on direct evidence from the claimant of his state of mind, contained serious errors.

Since the section covers some cases of common law fraud, the position in the tort of deceit is relevant. Its constituent elements are a misrepresentation of fact made without an honest belief in its truth, with the intention of inducing the victim to act on it, which induces him to do so and suffer loss. The victim must believe that the fraudster intends him to act on the representation as true.

The subjective motives and expectations of the fraudster are irrelevant. Fraud can be established although the fraudster was not seeking to obtain any benefit for himself. The principles are stated in Spencer Bower, Turner and Handley, "Actionable Misrepresentation" 4 th ed 2000 at p 61:

"Although fraud involves an intention on the part of the representor that the representee should act in the way he did, there is no need to prove any further intention and the representor's motive is irrelevant. It is immaterial that the representation was made without any intention of damaging the representee, or of benefiting the representor or some third person".

Section 118(1) only applies where the claimant's purpose is to obtain a financial benefit. As Lord Diplock said in Sweet v Parsley [1970] AC 132, 165, in a passage referred to by the trial Judge:

"'Purpose' connotes an intention by some person to achieve a result desired by him."

The focus is on the purpose of the claimant but he can only obtain a financial benefit by inducing the insurer to act on his representation, and it only will if it relies on it.

Under the section the insurer must prove that the claimant made his misrepresentation "with the knowledge" that it "was false or misleading". The tort of deceit is also committed if a misrepresentation is made without an honest belief in its truth. The wider liability in deceit is not relevant.

Where a claimant knowingly makes a misrepresentation to the insurer which is likely, viewed objectively, to induce it to act to its financial detriment, the tribunal of fact will ordinarily infer that his purpose was to obtain a financial benefit.

The insurer does not have to establish that the claimant had a clear understanding of the nature or extent of the financial benefit that he might or would obtain if the insurer acted on his misrepresentation. The claimant could normally only make a misrepresentation in order to benefit in some way. The insurer does not have to prove a more focussed purpose.

The Judge's finding, above [8], that, when the claimant deliberately exaggerated the symptoms he was experiencing, his misrepresentations were not false or misleading is just wrong. I have particular difficulty with his finding that the claimant "intended to represent only that which he was suffering." On the Judge's finding this was something he was not suffering. The fact that the claimant experienced those symptoms at other times cannot sanitise his false statements.

There is a real distinction between a claimant who suffers symptoms all the time and one who only suffers them some of the time. There is no scope for a finding that the difference was not material.

The finding of deliberate exaggeration compels the inference that the claimant did this for the purpose of obtaining a financial benefit. No other purpose for knowingly making the misrepresentations is plausible. Otherwise why not tell the truth?

Again, with respect, the Judge's finding in para [132], quoted above [9], that the claimant did not engage in the relevant conduct for the purpose of obtaining a financial benefit because he only sought to forestall an enquiry that would delay or complicate a proper settlement is again just wrong. An early and straightforward settlement is a financial benefit, and in any event the truth would probably have exposed issues that were likely to reduce any settlement figure.

There is no need, at the s 118(1) stage, to quantify the claimant's true entitlements. It is sufficient if the natural and probable result of his misrepresentations, viewed objectively, was to induce the insurer to act in some way to its financial detriment, for the benefit of the claimant.

Section 118(1) is not concerned with results. It applies even if the misrepresentations failed to achieve their desired purpose.

The claimant's purpose must normally be established objectively, by inference from the circumstances. The relevant principles, developed for the tort of deceit, are summarised in Spencer Bower Turner and Handley op cit p 72:

"In most cases proof of intent to induce is not disputed and this ingredient, essential though it is, goes by default ... For all practical purposes the intention must be objectively established. Where intention is an issue it may be inferred. Where the circumstances will not support the inference independent proof of an intention to induce is essential."

The authorities cited by the authors include Smith v Chadwick (1884) 9 App Cas 187; Arnison v Smith (1889) 41 Ch D 348; and Possfund Ltd v Diamond [1996] 1 WLR 1351. In Smith v Chadwick the Earl of Selborne LC said at p 190:

"In an action of deceit ... it is the duty of the plaintiff to establish ... actual fraud which is to be judged of by the nature and character of the representations made, considered with reference to the object for which they were made, the knowledge or means of knowledge of the person making them, and the intention which the law justly imputes to every man to produce those consequences which are the natural result of his acts."

In Arnison v Smith Lord Halsbury LC referred to this statement and said at p 368:

"If men make a statement which is intended to be believed, and which when they make it they know to be untrue, I cannot agree that they may have no intention to deceive ... If men tell for business purposes what in plain English is called a lie, they are guilty of fraud, and to talk about their having had no intention to deceive is no more a defence than it would be a defence to a prosecution for forging a bill of exchange to say that the forger meant to pay it when it became due."

In Possfund Ltd v Diamond at 1364 Lightman J said:

"For the purpose of the tort of deceit ... it is necessary to establish a material misrepresentation intended to influence, and which did in fact influence, the mind of the representee and on which the representee reasonably relied. There has been much argument before me whether the required intention of the representor should be objectively ascertained, as the intention reasonably to be inferred from his words or action (or inaction) ... [F]or all practical purposes ... the intention must ... be objectively established. Such intent is objectively established if the representor expressly communicates intent to the representee ... [W]here it is not expressly communicated, the representee must establish that he reasonably relied on the representation and that he reasonably believed that the representor intended him to act upon it."

These principles were applied in Krakowski v Eurolynx Properties Ltd [1995] HCA 68, 183 CLR 563 at 580, 583, 584 where the plurality based their finding of fraud on an inferred intention. At p 580 they said:

"A representation that the instrument of lease covered the whole of the agreement ... bears only one meaning. If that representation was made consciously ... it must have been made fraudulently. There is no sense in which a representation in those terms could have been honestly made."

The Judge considered, above [6], [7], that it was not sufficient that the misrepresentations were made for the purpose of obtaining a financial benefit, they must be false "for that purpose". But this necessarily follows. A tribunal of fact which applied the approach of the Earl of Selborne and Lord Halsbury would have no hesitation in drawing that inference. Why else tell a lie?

A similar difficulty arises in supporting the Judge's reasoning in [125] quoted above [8]. The Judge found that the claimant made misrepresentations about his symptoms and disabilities that were not "intended to be misleading or false". Given the claimant's sanity and sobriety at the time, this was an impossible finding in the face of the principles applied by the Earl of Selborne, Lord Halsbury, and the High Court.

There is another difficulty with the finding [132], quoted above [9], that the claimant did not make his representations to obtain "a claim to which he was not entitled".

How could the claimant, as a layman, know the value of the claim "to which he was entitled"? How could the Judge find that he knew what his claim was worth when he made his misrepresentations? How could he find that the claimant knew that his lies would not tend to enlarge his settlement?

The claim to which the claimant was entitled was one based on the truth. A tribunal of fact directing itself in accordance with Lord Halsbury's principle would not accept direct evidence from a claimant who told deliberate lies that he had no intention to deceive, nor would it draw that inference from the objective facts.

There is a further difficulty. The Judge said at [126] that, "overall", the claimant was not a witness of truth or reliability. It is surprising that he nevertheless found that his misrepresentations and the false documents he put forward were intended to obtain no more than his just entitlements.

Beazley JA has demonstrated that the Judge's findings about the claimant's true symptoms, disabilities and pre-injury earnings cannot be supported. His further findings about the claimant's intentions also cannot stand in the face of the objective facts and the Judge's credit finding.

The inference that the claimant, who in general was found not to be a witness of truth or reliability, made his misrepresentations and proffered false documents for an honest purpose cannot withstand scrutiny. The findings are glaringly improbable, inconsistent with proved facts, and contrary to the apparent logic of events: Fox v Percy [2003] HCA 22, 214 CLR 118, 129 [31].

In my judgment therefore the insurer established that s 118(1) applied. Its remedies, conferred by subs (2), are limited to "the extent of the financial benefit so obtained". The onus of establishing this is on the insurer.

It may not be easy for an insurer to establish "the extent of the financial benefit". If the claim had gone to trial and the claimant's credit was damaged the tribunal of fact would apply the onus of proof and discount his claims. It would disallow what he had not satisfactorily proved.

The insurer, with the reverse onus under s 118(2), will face the onus discount and fail to recover amounts that it cannot prove were "so obtained". A dishonest claimant who exaggerated a genuine injury may end up retaining more from his settlement than he would have received at a trial.

If the claim had gone to trial and the claimant received judgment before the fraud was discovered the awards under each head of damages will be known.

A lump sum settlement will make the insurer's task more difficult. The break up may not be known and the insurer may have to prove what the settlement figure would have been if the truth had been told. In some cases the whole settlement may even be the relevant financial benefit. The claimant would then be free to establish his true entitlement at a later trial of the original action. This would not be possible if judgment had been entered by consent for the settlement sum.

The difficulties are not insurmountable and in Toubia v Schwenke (2002) 54 NSWLR 46, 56 [46], the insurer recovered the amounts awarded by an Arbitrator for non-economic loss and future economic loss.

The effect of a contravention of s 66 of the 1988 Act on a lump sum settlement was considered by the Court of Appeal of the Australian Capital Territory in Ivancic v Zardo [2004] ACTCA 11.

The Court dismissed, with an irrelevant exception, an appeal and cross appeal from a judgment of Connolly J [2003] ACTSC 32, 177 FLR 255. The Trial Judge had held that the original claimant had made misrepresentations to the insurer within s 66(1) of the 1988 Act and had obtained a financial benefit when judgment in his favour was given by consent for $425,000.

The Trial Judge assessed that financial benefit at $350,000 and gave judgment for the insurer for that amount.

Although the false statements related to only part of the claim [2004] ACTCA [29], the insurer cross-appellant argued [21] that if the claim was tainted to any extent by fraud the claimant lost the entire amount.

On the other hand the claimant appellant argued [28] that the only financial benefit was his entitlement to a lump sum and since this could not be apportioned by the Court the insurer was not entitled to recover anything.

The Court, Higgins CJ, Gray and Gyles JJ, held [31] that s 66 required apportionment "so that relief is only granted in relation to the financial benefit obtained" and [38] "the all or nothing contention of each party must be rejected.".

The rejection of the all or nothing approach in that case was appropriate because the misrepresentations related to only part of the claim and the claimant had a judgment which could not be set aside to enable his claim to be properly litigated. The decision may not foreclose a finding that a settlement, not embodied in a judgment, was the financial benefit "so obtained".

The Court could only take that course if a judgment under s 118(2) relieving the insurer from the whole of its liability under a settlement, not embodied in a consent judgment, remitted the claimant to his original rights and enabled him to pursue his claim to judgment.

The Court is not able to determine the quantum issues, and must order a general new trial.

Section 118 reproduces only part of the general law, but in relation to judgments it goes beyond the general law. It is not necessary to decide whether the section displaces the general law within its field or merely provides additional remedies, but I will offer some tentative views.

Under the general law a party induced by fraud to enter into a contract can, on discovering the fraud, elect to rescind ab initio.

The insurer discovered the claimant's fraud before it paid the settlement sum. Under the general law, assuming it remains available, it could have rescinded and brought proceedings in equity to enforce its rescission which would have remitted the parties to their original rights and liabilities.

The Court would have enforced the insurer's rescission without requiring proof that it had suffered any loss. The principles are summarised in Spencer Bower, Turner, and Handley op cit at pp 72-3:

"[O]nce make out that there has been anything like deception, and no contract resting in any degree on that foundation can stand. It is enough if revelation of the material facts might have given [the victim] pause".

The insurer invoked s 118 on 5 February 2007 in a letter from its solicitors to the claimant's solicitors. On 22 February the latter offered to have the settlement set aside, but on 5 April the offer was rejected.

My tentative view is that s 118 provides additional remedies, and the general law is not affected.

There is a presumption that Parliament does not intend to take away a person's common law and equitable rights. This presumption is of considerable strength where the rights are those of the victims of fraud. There is nothing in s 118 to indicate that Parliament intended to take away any of those rights or to exclude the ordinary jurisdiction of the courts in cases of fraud.

Subject to the above I agree with the reasons for judgment of Beazley JA and with the orders she has proposed.

**********

Decision last updated: 04 August 2011

Medium Neutral Citation:	Insurance Australia Limited t/as NRMA Insurance v John Checchia [2011] NSWCA 101
Hearing dates:	13 and 14 October 2010
Decision date:	28 April 2011
Before:	Beazley JA at [1]; McColl JA at [200]; Handley AJA at [201]
Decision:	1. Appeal allowed; 2. Set aside the orders of the trial judge made 29 September 2009; 3. Order that there be a new trial on all issues; 4. Order that the respondent pay the appellant's costs of the appeal; 5. Order that the costs of the first trial abide the outcome of the new trial. [Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]
Catchwords:	MOTOR ACCIDENTS COMPENSATION - Motor Accidents Compensation Act 1999, s 118 - fraudulent claim - false and misleading conduct for purpose obtaining a financial benefit STATUTES - construction - Motor Accidents Compensation Act 1999, ss 118(1) and (2) - construction of "a financial benefit" and "the financial benefit" EVIDENCE - error in factual findings - reasoning based on supposition - reasoning unsupported by facts EVIDENCE - cross-examination - witness' credit - cross-examination erroneously curtailed EVIDENCE - appeal - witness' credit - cross-examination curtailed - appellate court interference with trial judge's credit findings
Legislation Cited:	Civil Procedure Act 2005 Motor Accidents Compensation Act 1999 Uniform Civil Procedure Rules 2005
Cases Cited:	Abalos v Australian Postal Commission [1990] HCA 47; 171 CLR 167 Arnison v Smith (1889) 41 Ch D 348 Callisher v Bischoffsheim (1870) LR 5 QB 449; 39 LJQB 181 Federal Commissioner of Taxation v Spotless Services Ltd [1996] HCA 34; 186 CLR 404 Fox v Percy [2003] HCA 22; 214 CLR 118 House v R [1936] HCA 40; 55 CLR 499 Ivancic v Zardo [2004] ACTCA 11 Krakowski v Eurolynx Properties Ltd [1995] HCA 68, 183 CLR 563 McDermott v Black [1940] HCA 4; (1940) 63 CLR 161 News Ltd v South Sydney District Rugby League Football Club [2003] HCA 45; 215 CLR 563 Peters v R [1998] HCA 7; 192 CLR 493 Poricanin v Australian Consolidated Industries Ltd [1979] 2 NSWLR 419 Possfund Ltd v Diamond [1996] 1 WLR 1351 Precision Plastics Pty Ltd v Demir [1975] HCA 27; 132 CLR 362 Re In the Will of Gilbert (1946) 46 SR (NSW) 318 Regency Media Pty Limited v AAV Australia Pty Limited [2009] NSWCA 341 Smith v Chadwick (1884) 9 App Cas 187 State Rail Authority of New South Wales v Earthline Constructions Pty Ltd (in liq) [1997] HCA 3; 160 ALR 588 Sweet v Parsley [1970] AC 132 Toubia v Schwenke [2002] NSWCA 34; 54 NSWLR 46 Wigan v Edwards (1973) 1 ALR 497 Woolmington v DPP [1935] UKHL 1; [1935] AC 462 at 481
Texts Cited:	George Spencer Bower, K R Handley and Sir Alexander Kingcome Turner, Actionable Misrepresentation, 4th ed (2000) Butterworths
Category:	Principal judgment
Parties:	Insurance Australia Limited t/as NRMA Insurance (Appellant) John Checchia (Respondent)
Representation:	J Poulos QC; V Heath (Appellant) B Gross QC; Mr S Dixon (Respondent) Moray & Agnew (Appellant) Young & Muggleton (Respondent)
File Number(s):	2009/298480
Decision under appeal	Citation: Checchia v Insurance Australia Ltd trading as NRMA Insurance [2009] NSWSC 1005 Date of Decision: 2009-09-29 00:00:00 Before: Rothman J File Number(s): 2009/298480