Naiama Pastoral Company Pty Ltd v Plan 4 Insurance Services Pty Ltd
[2010] SASC 105
•21 April 2010
SUPREME COURT OF SOUTH AUSTRALIA
(Full Court)
NAIAMA PASTORAL COMPANY PTY LTD & ANOR v PLAN 4 INSURANCE SERVICES PTY LTD & ORS
[2010] SASC 105
Judgment of The Full Court
(The Honourable Justice Sulan, The Honourable Justice Vanstone and The Honourable Justice Layton)
21 April 2010
APPEAL AND NEW TRIAL - APPEAL - GENERAL PRINCIPLES - INTERFERENCE WITH JUDGE'S FINDINGS OF FACT - FUNCTIONS OF APPELLATE COURT - WHERE INFERENCES OF FACT INVOLVED
INSURANCE - GENERAL - POLICIES OF INSURANCE - RENEWAL, AFFIRMATION, RECTIFICATION OR NOVATION OF POLICY
Appeal against Judge’s decision upholding respondent’s submission of no case to answer – appellant had alleged misleading and deceptive conduct and negligence relating to underinsurance on a policy provided by respondents – policy covered two shop premises owned by the appellants, and adjoining shop premises for which the appellants acted as assignees of the owners’ rights under the policy – all properties were destroyed by fire – at the time of the fire, properties were underinsured – appellants’ director gave evidence that he partially realised the effect of the misrepresentation on the insurance cover one month before the fire, but did not realise the ‘true situation’ of the underinsurance until after the fire – whether appellants had proved the necessary causal link between the defendants’ conduct and the loss suffered to make out the causes of action – whether any causative connection or reliance came to an end by reason of actual knowledge of the appellants’ director – whether, in the context of no case to answer submission, the Judge erred in making inferences as to appellants’ director’s knowledge of the ‘true situation’ before the fire.
Held: Appeal allowed – the Judge erred in inferring the appellants’ director knew of the true situation of the underinsurance in circumstances where appellant knew the amount of cover but did not turn his mind to the adequacy of the cover – in the context of a no case to answer submission, the witness’s evidence should be taken at its highest – no case submission should have failed on the basis that the causes of action are reasonably arguable – a determination of whether the appellants have proved the necessary causal link is to be appropriately dealt with at trial and turns on a critical analysis of the evidence when credit of a witness is also relevant.
APPEAL AND NEW TRIAL - APPEAL - GENERAL PRINCIPLES - POINTS AND OBJECTIONS NOT TAKEN BELOW - WHEN ALLOWED TO BE RAISED ON APPEAL
Judge found no case to answer on additional claim against fourth defendant that insurance cover on the adjoining shop premises not owned by the appellants had been reduced, without authority, from $500,000 to $400,000 - appellant conceded on appeal that there had been a fresh contract for $400,000 in March 2006, but still sought declaration that insurance company was unconscioniable in denying the cover was for $500,000 - whether this point could be raised on appeal when it had not been pleaded in statement of claim.
Held: Appeal dismissed - appellant could not pursue new claim of unconscionable conduct on appeal.
Australian Securities and Investment Commission Act 2001 (Cth) s 12GM, s 12GF; Corporations Act 2001 (Cth) s 1325, s 1041I, s 1041H; Trade Practices Act 1974 (Cth) s 82, referred to.
Popovic v Tanasijevic (No 3) [1999] SASC 339; Protean (Holdings) Ltd v American Home Assurance Co [1985] VR 187; March v E & M H Stramare Pty Ltd (1991) 171 CLR 506; Wardley Australia Ltd v Western Australia (1992) 175 CLR 514; Gould v Vaggelas (1984) 157 CLR 215; Henville v Walker (2001) 206 CLR 459; Protean (Holdings) Ltd v American Home Assurance Co [1985] VR 187, considered.
NAIAMA PASTORAL COMPANY PTY LTD & ANOR v PLAN 4 INSURANCE SERVICES PTY LTD & ORS
[2010] SASC 105Full Court: Sulan, Vanstone and Layton JJ
SULAN J: I have had the benefit of reading the draft reasons of Layton J and agree with her Honour’s reasons and conclusion reached that the appeal in relation to the property at 91 Commercial Road, Port Adelaide should be dismissed.
In relation to the appeal concerning the plaintiffs’ property at 87-89 Commercial Road, Port Adelaide, I agree with the conclusion reach by Layton J that the appeal should be allowed. I shall not repeat the factual material set out in her Honour’s reasons but arrive at a different view with respect to what constitutes the misleading and deceptive conduct and negligence.
The Judge concluded that the plaintiffs had failed to establish a case in both misleading and deceptive conduct and in negligence because the effect of the alleged conduct of Mr Dixon was brought to an end when Mr Scragg subsequently realised, at the end of June 2006, the “true situation.”
At paragraph [64] of his reasons the Judge concluded:
The defendants have, for the purposes of the submission of no case, accepted that Mr Dixon’s response, in March 2005, that the premises were insured for $1.3M, constituted false and misleading conduct contrary to s 1041H of the Corporations Act 2001(Cth). That conduct resulted in an instruction by Mr Scragg to alter the insurance cover to $800,000 and induced in him the belief that the properties belonging to the plaintiffs at Commercial Road were thereafter insured for $800,000. That belief continued until he read P20 in late June 2006, approximately a month before the fire. The conduct of Mr Scragg between March 2005 and late June 2006 may have contributed to the maintenance of that belief until late June 2006, in which event, questions of apportionment of responsibility could well have arisen if the fire had occurred before Mr Scragg realised the true situation in late June 2006. I have found that, by late June 2006, Mr Scragg realised that nos 87-89 Commercial Road belonged to the plaintiff companies and that no. 91 belonged to Mr and Mrs Zientara. He also realised that the total declared value of nos 87-89 was $400,000. I find that he took no steps to increase the cover to $800,000, even though, by email dated 5 July 2006 to Mr Dixon (Exhibit P21), Mr Scragg asked for cancellation of insurance in respect of another property and details of the “premium cost” in relation to insurance of no. 91 Commercial Road. Had he been concerned about the level of cover regarding nos 87-89, he could have then asked for an increase in cover. (emphasis added)
The question of the adequacy of the cover is pleaded in the plaintiff’s further Amended Statement of Claim at paragraph 9:
(g) In taking instructions from Mr Scragg on behalf of the plaintiffs Dixon and Plan 4 Insurance Services Pty Ltd should have realised that to insure the plaintiffs’ shops for only $400,000 in total would result in substantial under-insurance of the premises as compared to their full insurable value.
(h) With the knowledge available to Dixon and Plan 4 Insurance Services Pty Ltd of the plaintiffs’ business they should have recognised that it was contrary to the practice of the plaintiffs to deliberately under-insure but Dixon and Plan 4 Insurance Services Pty Ltd failed to take any or adequate steps to verify Mr Scragg’s instructions. (emphasis mine)
Layton J refers to the original instructions given by Mr Scragg to Mr Dixon on 24 June 2004. In the letter he makes it clear that the properties including 87-89 Commercial Road needed to be insured for full replacement value. The confirmation letter that followed advised that the amount of cover for those properties was $800,000 and that the interests of the mortgagees had been noted.
It follows that the ‘true situation’ referred to by the Judge should have included not only the amount of cover but also that the cover was adequate to protect the plaintiffs’ and the mortgagees’ interests.
Mr Scragg gave evidence that he was aware as at 27 June 2006 that the Zientara property was insured for $400,000 and that the Naiama property was insured for $400,000. However, the appellants contend that he did not turn his mind to whether that figure of $400,000 was in accordance with his earlier instructions regarding the adequacy of the amount of cover on the Naiama property. That is, he did not turn his mind to the question of whether the declared value of $400,000 represented ‘over insurance’ or ‘underinsurance’ of the property.
At arriving at his conclusion, the Judge appears to have erroneously acted on the basis that the misleading and deceptive conduct relates solely to the amount of cover being $800,000 for the plaintiffs’ premises, and the fact that that conduct was brought to an end when Mr Scragg realised, in June 2006, that the cover was in fact, for the value of $400,000. This conclusion ignores a further aspect of the misleading and deceptive conduct, being that Mr Scragg had been mislead as to the adequacy of the cover on the plaintiffs’ properties, which in fact, equated to substantial underinsurance.
I therefore conclude that the Judge was in error when he concluded that in late June 2006, Mr Scragg “was aware of the true state of the insurance”[1] and that he realised the “true situation.”[2]
[1] ACN 068 691 092 Pty Ltd v Plan 4 Insurance Services Pty Ltd [2009] SADC 53, [66] and [67].
[2] Transcript of Hearing of Appeal, 59.
In characterising the misleading and deceptive conduct in the way I have described, it is necessary to consider Mr Scragg’s evidence relating to the adequacy of the cover, and not simply the amount of cover. This involves an assessment of whether Mr Scragg had turned his mind to that issue, and whether in all the circumstances, his conduct or lack thereof can be said to constitute an intervening act which has the effect of bringing the misleading and deceptive conduct to an end. In considering a submission of no case to answer a court should avoid making findings of credit. The evidence of the plaintiff and the plaintiff’s case must be considered on the assumption that the evidence is accepted and upon inferences most favourable to the plaintiff’s case. It was not disputed that the Judge should approach consideration of the application having regard to those principles. In my view, the Judge commenced his consideration by ignoring or overlooking the plaintiffs’ contention that the misleading conduct included an implication that the broker had arranged insurance for the plaintiffs’ properties for the value required by the plaintiffs and the mortgagees who had an interest in having the properties insured for their full replacement value.
The same error arises in relation to the question of negligence. The Judge concluded at [80] of his reasons:
In my opinion, for the same reasons given in relation to the claim based on false and misleading conduct, the plaintiffs have failed to establish a case in negligence because the effect of the negligent conduct of Mr Dixon, arising from the conversation between him and Mr Scragg as set out in [30] and [31] above, was brought to an end when Mr Scragg subsequently realised, at the end of June 2006, the matters set out at [40]. In other words, the negligence was not causative of the loss. It follows that the claim in negligence could not survive the no case submission.
The matters set out at [40] referred to above, include reference to the fact that Mr Scragg became aware as at June 2006 that the property at nos 87-89 Commercial Road was insured for $400,000.
The plaintiffs’ claim in negligence was pleaded on the basis that Mr Dixon and Plan 4 “were negligent in failing to avoid or to resolve ambiguity arising in the course of taking and executing those instructions [in March 2005].”[3] Those instructions related to a reduction in cover from $1.3 million to $800,000 and the ambiguity arising with respect to which properties that cover related to. The question to be considered therefore is whether Mr Scragg’s realisation that the declared value of the plaintiffs’ properties was $400,000 is a break in the chain of causation. Again, the Judge acted on the erroneous basis that the ‘true situation’ was limited to the amount of cover only and not to the realisation by Mr Scragg that the amount of cover was undervalue.
[3] Further Amended Statement of Claim, [12].
I conclude that the Judge erred in his conclusions in the context of a no case submission, as to what constituted the misleading and deceptive conduct and negligence, and accordingly what constituted Mr Scragg’s knowledge of the “true situation”. I would allow the appeal in relation to the property at 87-89 Commercial Road.
VANSTONE J: I have had the benefit of reading the draft reasons of Layton J. I agree with her Honour that the appeal in relation to the property at 91 Commercial Road, Port Adelaide should be dismissed. I agree with the reasons she has given for that conclusion.
However, in my view the appeal in relation to the plaintiffs’ properties at 87-89 Commercial Road, Port Adelaide should also be dismissed. My reasons for that conclusion follow. I shall not repeat all the factual material set out by Layton J in her reasons.
The conduct said to have been misleading and deceptive and negligent was not precisely identified in the statement of claim. However, the judge distilled the relevant conduct – and I think correctly so – as being Mr Dixon’s statement to Mr Scragg in March 2005, to the effect that the Commercial Road premises were insured for $1.3m. For the purpose of the submission of no case to answer it was assumed that this statement constituted false and misleading conduct contrary to s 1041H(1) of the Corporations Act 2001 (Cth) and was negligent. The statement, which Mr Scragg understood to refer only to the properties at 87-89 Commercial Road, in fact comprehended insurance over 91 Commercial Road as well, that being the shop of the Zientaras. On the strength of that statement Mr Scragg instructed Mr Dixon to downgrade the insurance cover to $800,000. That figure was then applied by Mr Dixon to numbers 87-89 as to $400,000 and to number 91 as to $400,000 and an amended renewal notice was issued.
The trial judge concluded that the effect of the misleading and negligent conduct was brought to an end when Mr Scragg was apprised of the state of the insurance cover on the plaintiffs’ properties in June 2006. Late in that month Mr Dixon sent a letter and other documents, referred to as a “premium adjustment notice”, exhibit P20, to Mr Scragg. Mr Scragg acknowledged that upon reading those documents he became aware that the insurance on his two shop premises was, in total, $400,000 only. The judge found that Mr Scragg also learned from exhibit P20 that references within it to number 91 Commercial Road were references to the Zientara property, which was also insured for $400,000.
In his evidence Mr Scragg went on to explain his thought processes upon seeing the $400,000 figure and his realisation that it related to his two shop premises. As I read his evidence, he claimed that he did not advert to the fact that this figure was inconsistent with instructions he had previously given Mr Dixon on the level of insurance required for his premises. His immediate concern was that he had been paying the Zientara’s insurance premium. It was only after the fire that he realised that the level of insurance did not conform with his instructions to Mr Dixon in June 2004, that he required cover of $800,000. However, on the reasons of the trial judge, none of that mattered. It was not that the trial judge rejected that evidence, but rather he found that irrespective of that evidence, the plaintiffs’ causes of action in relation to numbers 89-91 were doomed to fail.
The appellants argue that it was not open to the judge to overlook Mr Scragg’s evidence that he continued to believe, after June 2006, that the declared value disclosed by P20 was the cover he had originally sought, and, until March 2005, had.
I do not think that the appellants’ argument is tenable. Plainly, for one reason or another, the conversation of March 2005 contained misunderstandings and mistakes. The receipt of exhibit P20 was sufficient to overtake and neutralise Mr Dixon’s March 2005 statement about the level of insurance and to correct the resultant misapprehensions under which Mr Scragg had operated. It corrected the misapprehensions by making clear to him the level of insurance each of his properties had. From that point there was no reliance on the misleading statement. Whether or not Mr Scragg then went on to consider whether that insurance was adequate, either for his purposes or for the mortgagee’s, is not to the point. Even assuming he did not, that was not a product of the earlier misleading conduct.
The appellants’ case seems to me to require proof that a further representation was embodied in exhibit P20, namely that the sum insured was consistent with Mr Scragg’s original request to Mr Dixon. To put it another way, the appellants’ argument seems to require of any information sufficient to neutralise the earlier misleading information that it include notification to Mr Scragg that the sum for which his properties were currently insured was less than that required by him back in June 2004; or notification that he was under-insured. I would reject that analysis. On the contrary, whether the proffered insurance conformed with his requirements was for Mr Scragg to attend to.
Stripped of the now neutralised misleading and negligent conduct, the situation is analogous to the following example. Assume the owner of a Rolls Royce asks an insurance company to insure it at a declared value of $50,000. For whatever reason, when the proposal is received by him, it reflects a figure of $20,000. He pays the premium. When the vehicle is destroyed by fire he can have no claim to recover more than the $20,000. While he might have anticipated that the proposal would be drawn in accordance with his request, it contained no representation to that effect.
I consider that the approach of the trial judge was correct, as was his conclusion.
I would dismiss the appeal.
LAYTON J: This is an appeal against a decision made by a Judge of the District Court (“the Judge”) dismissing the plaintiffs’ action at trial upon upholding a submission made by the defendants of no case to answer. This appeal is brought by the plaintiffs (“the appellants”) against each of the four defendants (“the respondents”).
The proceedings relate to an insurance policy No. AP8IL00144 (“the Policy”) providing cover over two shop premises at 87‑89 Commercial Road, Port Adelaide (“the Naiama Property”) and adjoining shop premises at 91 Commercial Road, Port Adelaide (“the Zientara Property”), amongst other properties. The Naiama Property is owned by the appellants and the Zientara Property is owned by a Mr and Mrs Zientara (“the Zientaras”), on whose behalf Mr Barry Zientara (“Mr Zientara”) dealt with the Policy. Both the Naiama Property and the Zientara Property were destroyed by a fire on 27 July 2006. The appellants contend that, at the time of the fire, the Naiama Property should have been insured for $800,000, rather than $400,000 (as was the case), and that the Zientara Property should have been insured for $500,000, rather than $400,000 (as was the case). The appellants brought the proceedings in their own right and as assignees of the Zientaras’ rights under the Policy for the Zientara Property.
The trial before the Judge was confined to matters of liability. The relief sought by the appellants in their claim, in relation to the Naiama Property was:
1.that the total declared value of the appellants’ insurance be varied to $800,000 pursuant to s 12GM of the Australian Securities and Investment Commission Act 2001 (Cth) (“the ASIC Act”) and s 1325 of the Corporations Act 2001 (Cth) (“the Corporations Act”); and
2.a declaration that the defendants are liable to pay damages pursuant to s 12GF of the ASIC Act and s 1041I of the Corporations Act for misrepresentation, as well as damages for negligence.
The appellants’ claim against all four defendants concerned the Naiama Property. In addition, the appellants sought a declaration in relation to the Zientara Property that the total value of the Zientaras’ interest assigned to the appellants was $500,000.
The first defendant at trial (“the first respondent”) was the agent of the insurer and the second defendant (“Mr Dixon”) was a director of the first respondent. They were both represented by one counsel. The third defendant (“the third respondent”) was stated to be a company which “distributes insurance product” on behalf of the insurer. It was separately represented by a second counsel who adopted the submissions of counsel for the first respondent and Mr Dixon but who did not seek to be heard further on the appeal. The fourth defendant (“the fourth respondent”) was the insurer and it was represented by a third counsel who in addition to adopting the submissions of the other respondents, made a no case to answer submission in respect of the action pursued only against the fourth respondent.
At trial, the appellants called one witness, Peter Scragg (“Mr Scragg”), a solicitor who was also a director of the appellant companies. In addition, a number of documents were tendered. After the appellants closed their case on liability, the respondents submitted that there was no case to answer against each of them. The Judge upheld the argument and dismissed the appellants’ claim against each respondent.
The Appeal
The specific issue which was raised in respect of both the Naiama Property and the Zientara Property was whether the appellants had proved the necessary causal link to make out the causes of action. The causes of action were false and misleading conduct contrary to s 1041H of the Corporations Act (2001) (Cth) and negligence. The particular issue was whether any causative connection and/or reliance on misconduct was ‘spent’ (in the sense that it had ceased or was inoperative) upon Mr Scragg reading a premium adjustment notice and accompanying letter issued to him on 27 June 2006 (“the June 2006 Notice”).[4] The Judge inferred from Mr Scragg’s evidence that, after Mr Scragg read the June 2006 Notice, his knowledge was sufficient to bring the causal relationship to an end.[5] The appellants challenge both this inference and the Judge’s summary of Mr Scragg’s evidence from which his Honour’s inference flowed.[6] These arguments are in respect of the first three respondents. In addition, the appellants challenge the Judge’s findings of law in respect of the fourth respondent to which I will refer later in these reasons.[7]
[4] AB Vol 3, 434 (Exhibit P20 at trial).
[5] ACN 068 691 092 Pty Ltd v Plan 4 Insurance Services Pty Ltd [2009] SASC 53, [67].
[6] ACN 068 691 092 Pty Ltd v Plan 4 Insurance Services Pty Ltd [2009] SASC 53, [40].
[7] ACN 068 691 092 Pty Ltd v Plan 4 Insurance Services Pty Ltd [2009] SASC 53, [77].
No case to answer – legal principles
It was common ground between the parties that the principles which govern a submission of no case to answer are as follows:
-It is not necessary for the defendant to elect to call no evidence if, as here, the submissions of the defendant are directed to the lack of evidence and legal issues which arise on the evidence.
-The evidence of the plaintiff should be taken at its highest.[8]
-The trial Judge is entitled to draw all proper inferences from the evidence.[9]
-If a reasonably arguable case is established by the plaintiff supporting the causes of action pursued, then the no case submission of the defendant must fail. The issue is whether the evidence at its face value could reasonably sustain a finding against the defendant on the causes of action claimed. This should be decided on the basis of the Judge drawing all proper inferences from the evidence taken at its highest.
[8] Popovic v Tanasijevic (No 3) [1999] SASC 339, [15]-[16] (Olsson J).
[9] Protean (Holdings) Ltd v American Home Assurance Co [1985] VR 187, 215 (Young CJ).
For the purposes of the no case submission, it was accepted by the respondents, both before the Judge and on appeal, that certain conduct of Mr Dixon had been negligent and/or misleading (which would in turn affect the liability of the other respondents).
The appellants had pleaded specifically that the respondents were negligent in “failing to avoid or to resolve ambiguity arising in the course of taking and executing [Mr Scragg’s] instructions”[10] and that:[11]
[b]y virtue of the way in which the separate insurances for the different interests were maintained on the same policy of insurance without identifying the ownership of Mr and Mrs Zientara and by virtue of the language used by Dixon in taking Mr Scragg’s instruction the conduct of Dixon was misleading.
[10] AB Vol 1, 13 (Further Amended Statement of Claim, [12]).
[11] AB Vol 1, 11 (Further Amended Statement of Claim, [9(e)]).
The Judge summarised the appellants’ claim for false and misleading conduct which the respondents accepted for the purposes of the submission of no case. Namely: [12]
… that Mr Dixon’s response, in March 2005, that the premises were insured for $1.3M, constituted false and misleading conduct contrary to s 1041H of the Corporations Act 2001 (Cth). That conduct resulted in an instruction by Mr Scragg to alter the insurance cover to $800,000 and induced in him the belief that the properties belonging to the plaintiffs at Commercial Road were thereafter insured for $800,000.
[12] ACN 068 691 092 Pty Ltd v Plan 4 Insurance Services Pty Ltd [2009] SADC 53, [64].
There were two interrelated components of the false and misleading conduct of Mr Dixon. First, the false representation that the Naiama property was insured for $1.3M and secondly the false representation that the insurance on the Naiama Property alone would, on the instructions of Mr Scragg, be reduced to $800,000. The appellants specifically pleaded that this caused ‘substantial underinsurance’ which was contrary to Mr Scragg’s instructions[13] and that the respondents should have known that this was so.[14] Thus, the misrepresentation upon which the appellants mount their claims concerned the underinsurance of the Naiama Property.
[13] AB Vol 1, 9-13 (Further Amended Statement of Claim, [8] and [14]).
[14] AB Vol 1, 11 (Further Amended Statement of Claim, [9(g)] and [9(h)]).
The Judge said that the belief of Mr Scragg as to insurance:[15]
… continued until he read P20 [the June 2006 Notice] in late June 2006, approximately a month before the fire. … I have found that, by late June 2006, Mr Scragg realised that nos 87-89 Commercial Road belonged to the plaintiff companies and that no. 91 belonged to Mr and Mrs Zientara. He also realised that the total declared value of nos 87-89 was $400,000.
[15] ACN 068 691 092 Pty Ltd v Plan 4 Insurance Services Pty Ltd [2009] SADC 53, [64].
The acceptance by the respondents, for present purposes, that the above conduct constituted misleading conduct as alleged meant that the no case to answer submission was concerned, not with Mr Dixon’s earlier conduct, but rather with the question of whether the appellants could maintain a cause of action, notwithstanding Mr Scragg’s receipt of the June 2006 Notice.
However, the June 2006 Notice issued by Mr Dixon on 27 June 2006 was issued in a context in which Mr Scragg had received earlier documents from Mr Dixon as discussed hereafter.
Relevant background
The relevant factual background for the purposes of considering the no case to answer submission and the appeal is as follows.
June 2004 alteration
On 29 June 2004, Mr Scragg sent a letter to Mr Dixon[16] in which he sought to alter the details of the Policy of insurance for the Naiama Property. In addition, he sought cover under the Policy in respect of another unrelated property at 255-256 St Vincent Street, Port Adelaide. The letter requested that “both properties need to be insured to full replacement value”.
[16] AB Vol 3, 385.
The full text of the letter is as follows: [17]
[17] AB Vol 3, 385.
Commercial Property Insurance – 87‑91 Commercial Road, Port Adelaide
Could you please attend to the following insurance requirements:
Could you please arrange for the property which is situated at 87-89 Commercial Road which is the St Vincent de Paul and the Conti Bar shops to have noted on them the interests of Challenger Managed Investments Limited as responsible entity and Permanent Trustee Australia Limited as custodian on behalf of Howard Mortgage Trust as mortgagees. This is the property comprised in Certificate of Title Register Book Volume 5774 Folio 736 and registered in the names of A.C.N. 068 691 092 Pty Ltd and Naima [sic] Pastoral Company Pty Ltd.
Further, A.C.N. 068 691 092 Pty Ltd and Melanie Bernadette Scragg are purchasing a property at 255-265 St Vincent Street, Port Adelaide. The money for that purchase is being provided by the same mortgagees.
Both properties need to be insured to full replacement value.
On some date shortly after that, a confirmation of that request was sent by Mr Dixon. The text of the confirmation is as follows: [18]
[18] AB Vol 3, 386.
Client Details
Name: ACN06891092 Pty Ltd and Naima [sic] Pastoral Co. Pty Ltd and Melanie Bernadette Scragg
Postal Address: 185 Port Road, Hindmarsh SA
…
Your Request
29th June 2004 you advised our office of the additional purchase of the property at 255-265 St Vincent Street, Port Adelaide. Also, the new financial interests of the new mortgagee to be noted for the existing property at 87-89 Commercial Road and the new property at St Vincent Street.
On receipt of your advice I went and inspected the property at 255-265 St Vincent Street, Port Adelaide and as a result of that inspection we wish to confirm the covers we’ve put in place as follows:
Recommendation / Advice
(a) Property Situated at 255-265 St Vincent Street, Port Adelaide
1. Fire & Other Damage
$2,800,000Removal of Debris
$50,0002. Glass – Internal and External Glass
Replacement Value3. Property Owners Liability
$10,000,000(b) Property Situated at 87-89 Commercial Road, Port Adelaide
1. Fire & Other Damage
Increased building Sum Insured to $800,000.Wish to advise that we have noted the following interested party for both properties at 87-89 Commercial Road, Port Adelaide and 255-265 St Vincent Street, Port Adelaide as follows:
Challenger Managed Investments Ltd as responsible entity and permanent trustee Australia Ltd as custodian on behalf of Howard Mortgage Trust as mortgagees.
We have forwarded Certificate of Currencies to your office on the 30th June 2004 noting the interested party for settlement to take place. We have also endorsed Policy Number AP81L00144 which is your existing policy protecting the property at 87-89 Port Road and we have endorsed the policy to include the additional situation at 255-265 St Vincent Street, Port Adelaide.
Please find attached an extra premium notice confirming the covers provided and also the change of names and the total amount payable for the period of 30th June 2004 to 20th March 2005.
This advice is based on information you have supplied to us and is not a full review of your insurance needs. You should check to ensure the recommendation I have set out meets your needs. Please read the Product Disclosure Statement or Policy Document to ensure the cover provided meets your needs and to be aware of your obligations.
Cost of Recommendation
For the period of 30th June 2004 to 20th March 2005 is $5,657.82 inclusive of $464.37 GST. Please forward payment made payable to GIO General Ltd to our office in the reply paid envelope provided.
The confirmation also noted that there was an interested party in the Naiama Property, namely “Challenger Managed Investments Ltd as responsible entity and Permanent Trustee Australia Ltd as custodian on behalf of Howard Mortgage Trust as mortgagees”. In accordance with the request, the confirmation stated that the cover on the Naiama Property was increased to $800,000 as being the full replacement value of that property.
August 2004 alteration
The next relevant document is a record of client contact dated 20 August 2004 which indicates a request by Mr Zientara to increase the cover under the Policy for the Zientara Property to a sum of $500,000.[19] Therefore, at this point in time Mr Scragg had the Naiama Property insured for $800,000 and the Zientaras had the Zientara Property insured for $500,000. In total, there was $1.3m worth of cover between those properties.
March 2005 alteration
[19] AB Vol 3, 390 (Exhibit P10).
Following this, on Wednesday 9 March 2005 a conversation took place between Mr Scragg and Mr Dixon. In this conversation, Mr Scragg was advised by Mr Dixon that the total cover on the Naiama Property and the Zientara Property was $1.3m. The appellant says that Mr Scragg misunderstood this and believed that it was solely the Naiama Property that was insured for $1.3m. This therefore appeared to Mr Scragg as a situation of substantial ‘overinsurance’ on the Naiama Property. Accordingly, Mr Scragg asked to have the insurance reduced to the $800,000 level, being the same level as before.
This conversation is part of the conduct which, it is assumed for the purposes of the no case to answer submission, constitutes false and misleading conduct. There was no issue taken about the Judge’s description of that meeting set out in his reasons for decision:[20]
[T]he conversation between Mr Scragg and Mr Dixon … took place at Mr Scragg’s office following a telephone request by Mr Scragg to Mr Dixon for a review of his insurances. It was on this occasion that Mr Dixon said, in response to Mr Scragg’s enquiry about the amount of cover on the Commercial Road property, that the cover was $1.3 million. When Mr Scragg put the question, he was referring to the properties owned by him at Commercial Road and not by Mr and Mrs Zientara, although he did not make this clear. When Mr Dixon responded, he provided the total amount of insurance for the properties belonging both to the plaintiffs and to Mr and Mrs Zientara. This induced in Mr Scragg the belief that the property at Commercial Road owned by the plaintiffs was over-insured. According to Mr Scragg, he told Mr Dixon that the insurance was too high and he wanted it reduced to the level applicable to the requirements of the lender, Challenger Finance, namely $800,000. It is clear Mr Dixon took that instruction to be in relation to nos 87-89 and no. 91.
Mr Dixon asked how the cover was to be divided and Mr Scragg, intending to respond only in relation to the property owned by the plaintiffs at Commercial Road, said that the cover was to be divided equally or on a 50/50 basis. This was in the context that nos 87‑89 consisted of two separate and distinct shops, although they were on the one title.
As a result of that conversation, the amended renewal notice, which is Exhibit P14, was issued on 10 March 2005. Pages 1 and 2 were the same as the previous documents relating to the description of the insured and the situation of the properties, but there being no mention of Mr and Mrs Zientara. Nos 87-89 Commercial Road were shown as having cover for $400,000 and no. 91 as having cover for $400,000. Mr Scragg accepts that he may have seen this document at about the time that it was issued, but he said that he did not realise that it recorded a reduction in cover on nos 87-89 to $400,000 and that the policy included cover in respect of the property owned by Mr and Mrs Zientara. He thought, from his conversation with Mr Dixon on 9 March 2005, that the property at Commercial Road belonging to the plaintiffs was insured for $800,000.
[20] ACN 068 691 092 Pty Ltd v Plan 4 Insurance Services Pty Ltd [2009] SADC 53, [30]-[32].
Subsequently a confirmation of the advice to reduce the cover, dated 15 March 2005,[21] (“the March 2005 Notice”) was forwarded by Mr Dixon to Mr Scragg’s office. The document was set out as follows:
[21] AB Vol 3, 388 (Exhibit P9).
Client Details
Name:Naima [sic] Pastoral Pty Ltd inc. ACN 068691092 Pty Ltd & Melanie Bernadette Scragg
Postal Address: 185 Port Road, Hindmarsh SA 5007
…
Your Request
We refer to our meeting on Wednesday 9th March 2005 in your office to review your Business Insurance Policy AP81L00144 for 2005/2006.
Recommendation/Advice
We wish to confirm our discussions as follows:
1.Fire & Other Damage
a)Building Situated at 87-89 Commercial Road, Port Adelaide. Peter Scragg advised to reduce Sum Insured on the Building from $800,000 to $400,000.
b)Property situated at 91 Commercial Road, Port Adelaide. Peter Scragg advised to reduce Sum Insured on the building from $500,000 to $400,000.
c)Property situated at 255-265 St Vincent Street, Port Adelaide to remain as is and unaltered.
We also discussed insuring against loss of Gross Rent. Peter advised rental figure of about $2,000 per month. He was happy to wear that if there was any loss of income and advised they will not be needing to take that cover out.
In all other respects the policy remains unaltered. Please find attached amended renewal notice detailing the new terms and conditions and premiums payable.
Peter also advised that portions of the property situated at 255-265 St Vincent’s Street, Port Adelaide were being considered for sale and asked whether or not there was a way of paying the renewal without having to pay the whole amount in one hit. I advised the best way around that was to pay on a monthly basis thought [sic] direct debit system and you would only pay on a monthly basis what covers were required for the period of time until sale of the properties occur. Therefore, we attach a Direct Debit Authority for Peter Scragg to complete and return to allow us to apply the monthly instalments.
This advice is based on information you have supplied to us and is not a full review of your insurance needs. You should check to ensure the recommendation I have set out meets your needs. Please read the Product Disclosure Statement or Policy Document to ensure the cover provided meets your needs and to be aware of your obligations.
Cost of Recommendation
Premium $6,683.56
Terrorism Levy $295.67
GST $697.92
Stamp Duty $844.59
Total Amount Payable $8,521.74
Monthly Instalment $712.90
As at 15 March 2005 then, the sums insured for the relevant properties according to the March 2005 Notice were:
· The Naiama Property - $400,000 in total.
· The Zientara Property - $400,000.
The Judge described Mr Scragg’s evidence regarding the effect of that document:[22]
Mr Scragg accepted that he saw that document at about the time that it was sent and understood it to be in accordance with the instructions given by him on 9 March 2005. It is clear that underlying that conclusion, he understood nos 87-89 and no. 91 to be the properties owned by the plaintiffs at Commercial Road. He did not realise that no. 91 belonged to Mr and Mrs Zientara and that nos 87-89 were the properties owned by the plaintiffs.
[22] ACN 068 691 092 Pty Ltd v Plan 4 Insurance Services Pty Ltd [2009] SASC 53, [34].
This interpretation of the evidence is not challenged on appeal.
I note that in the March 2005 Notice, the client is named as Naiama Pastoral Company Pty Ltd (“Naiama”), ACN 068691092 Pty Ltd and Melanie Bernadette Scragg (“Ms Scragg”). There is no mention of the Zientaras being the insured clients in respect to the Zientara Property.
Further correspondence prior to June 2006
Following the March 2005 Notice, several renewal notices were sent and paid. The address of the Zientara Property was referred to in each of the documents, but no reference was made to the Zientaras as being the owners of that property.[23] In respect of those documents, the Judge said:[24]
It is clear from the evidence that none of the documents issued by the defendant, when reviewed by Mr Scragg, caused him to change his belief that nos 87-89 were insured for $800,000.
[23] AB Vol 3, 393 (Exhibit P12), 403 (P13), 413 (P17), 425 (P18).
[24] ACN 068 691 092 Pty Ltd v Plan 4 Insurance Services Pty Ltd [2009] SADC 53, [37].
This statement was also not challenged on appeal.
The June 2006 Notice
Then came the particularly controversial and crucial document. On 26 June 2006, Mr Zientara requested Mr Dixon to include glass cover in relation to both the Naiama Property and the Zientara Property. It was following that request that Mr Dixon sent the June 2006 Notice to Mr Scragg as director of Naiama. The letter of confirmation was expressed in the following terms:[25]
[25] AB Vol 3, 433.
Re: Alteration to Business Insurance Policy AP81L00144
Effective Date: 26/06/2006I refer to our conversation on 26/06/2006 in relation to altering cover on your Business Insurance.
Please find enclosed your policy change certificate confirming the changes.
I have enclosed the following documents that I recommend you check for accuracy:
·Policy Change – Certificate of Insurance
·Financial Services Guide (FSG)
As discussed, by providing you with this insurance, any advice given has been provided without taking into account your objectives, financial situation or needs. You should consider whether the advice is appropriate in light of your objectives, financial situation and needs. Please read the Product Disclosure Statement before making a decision to acquire the product.
This letter and the enclosed documentation were sent to Naiama at the address of Mr Scragg’s office.
I will now summarise the contents of that documentation, which became Exhibit P20,[26] in order to establish the context in which Mr Scragg gave his evidence. It consists of some 22 pages and it is not easy to read. There are 11 numbered pages, which are standard documents including payment details. After each of these numbered pages is the same pro-forma page setting out certain conditions and payment options.
[26] AB Vol 3, 434-55 (Exhibit P20).
The first page denotes the document as a “Premium Adjustment Notice” for the Policy and is addressed to Naiama. The general nature of the coverage under the Policy is then set out. There is a payment advice at the bottom, which gives a “Total Amount Due” and a “New Instalment Amount.”
Page 2 begins a summary of the insured parties’ details and the relevant properties covered under the policy. The first “insureds” listed are described as ACN 068 691 092 Pty Ltd and Naiama, followed by a repeat of ACN 068 691 092 Pty Ltd and Ms Scragg. Thereafter, on page 3, details of the properties are set out together with their interested parties. However, the Zientara Property does not appear in this summary. Another property in which the Zientaras had an interest, 19 Montpellier Square, Port Adelaide, is included in the summary at the top of page 3.
Further down Page 3, there is a new section with the heading “Fire and Other Damage Policy Section”. Under this heading each covered property is listed on a separate page with its premium. It begins with the Naiama Property. At the bottom of this page in handwriting is the word “Peter”. Then on page 4, the Zientara Property is listed, this being the first mention of the Zientara Property in the June 2006 Notice. At the bottom of this page in handwriting is the word “Barry”. On page 5, it lists “Lot 710, 702 & 703/ 255-265 St Vincent Street, Adelaide”, (not “Port Adelaide”) and finally on page 6, “19 Montpellier Square Port Adelaide”.
Below that on the same page, a new section begins with the heading “Glass Policy Section”. This section lists the properties to come under this category of cover. It begins with “Lot 710, 702 & 703/255-265 St Vincent Street Adelaide,” then the Naiama Property, then comes the Zientara Property, and it ends on page 8 with “19 Montpelier Square Port Adelaide”. Below each property there is a corresponding premium. Under 19 Montpelier Square on page 8, there is written in handwriting, “Jeff, this cover is not required” and beside it there is a handwritten initial.
Page 9 of the June 2006 Notice lists a premium for “Public Liability” and a total premium amount.
Page 10 of the June 2006 Notice is headed “Adjustment Note” and is again addressed to Naiama. There is a reference to three items of glass coverage and the details of a figure called the “Adjustment Instalment” are listed. The total amount of the adjustment coincides with a figure which is shown on page 1 as the “New Instalment Amount”.
The final page, page 11, is stated to be a “Duplicate Tax Invoice”. The insured is again named as ACN 068 691 092 Pty Ltd and “Naim” (presumably a reference to Naiama), as well as ACN 068 691 092 Pty Ltd and “Mela” (presumably a reference to Ms Scragg). A total premium is given.
One effect of the document is that it displays that Mr Scragg had, in effect, been paying the insurance of the Zientara Property, a property in which he had no interest. This anomaly was referred to by Mr Scragg as being a “sleeper”.
Mr Scragg’s evidence and the Judge’s summaries of it, in relation to the 2006 Notice, are crucial. The respondents argue that Mr Scragg effectively admitted that he knew on reading this document that the insurance cover for the Naiama Property was $400,000 only and not the $800,000 that he had previously requested. This knowledge incorporates Mr Scragg’s alleged realisation of the true situation that the property was underinsured. It implies that Mr Scragg remembered, upon reading the 2006 Notice, the precise details of his earlier request to Mr Dixon. On the other hand, the appellants contend that the evidence indicated that Mr Scragg knew, as at 27 June 2006, that the amount insured was $400,000 for the Naiama Property, but that he:[27]
had not realised the true situation because even though he became aware … that the insurance was for $400,000, he had forgotten and therefore did not realise until reminded after the fire that the amount was not the estimated full replacement costs of the building structure at 87-89 Commercial Road which was $800,000 and that he had earlier instructed that it be insured for $800,000.
Mr Scragg’s evidence on the June 2006 Notice
[27] AB Vol 3, 673-4 (Notice of Appeal).
It is necessary to review the evidence given by Mr Scragg in relation to the 2006 Notice. The passages relied on by both parties are as follows. They begin with Mr Scragg explaining his handwritten notes at the bottom of pages 3, 4 and 8 of the documentation:[28]
[28] Trial Transcript ("T") 91.19-93.
Q. The question is why did you make those notes and what is the answer?
A.Because I became aware for the first time that there was a sleeper within the document. In other words, I became aware for the very first time that Mr and Mrs Zientara held an interest in relation to those properties at Commercial Road. Up and until that time I was not aware and I was able to identify from events relating to the creation of this document that the sleeper existed and I wrote ‘Peter’ against what related to my interests, the plaintiffs’, and I wrote ‘Barry’ as in relation to the sleeper interest to indentify it on p.4.
Q. ‘Peter’ is the reference to your own name, to you?
A.To me, yes, it is a reference to me and ‘Barry’ is a reference to Barry Zientara. Then the document was sent to me for the purposes of clarifying plate glass insurance because there had been a loss that Mr Zientara had experienced in relation to his property of plate glass damage. He told me it wasn’t covered. We agreed that – he said he was going to get cover for his situation and he suggested that I should do the same and I said ‘Yes, do it for me as well’. So, what happened was that from pp.7 and 8, there is an addition to the policy being plate glass cover. In relation to p,8, you didn’t require plate glass because p.8 was in relation to Montpelier Square, which was just a normal house. I don’t know if your Honour is aware that plate glass is very expensive. For example, I think it cost him over $2,000 or more to replace one of the windows of his property, whereas damage of a normal window pane is a matter of $100 or so. It was a very significant difference and that’s why it wasn’t necessary for Montpelier Square, but it was necessary for the commercial properties.
Q. On the pages that you indicated that you noted, p.3 with your own name ‘Peter’?
A. Yes.
Q. And p.4 with Barry’s name ‘Barry’?
A. Yes.
Q. Did you notice the street addresses that were given on those pages?
A.Yes, I think that I had an increased recollection at the time because from February of 2006 I’d been refurbishing my property and I needed to go to the address for tradesmen and that to come to the property because I had another proposed tenant, which was obviously moving in at the time that the fire occurred and I had a greater awareness of the numbers and I was able to go from my knowledge and dissect and make a calculation that 87, 89 related to me and 91 related to Zientara.
Q. You had that consciousness when you made those notes on this document?
A. Yes.
Q.In the same vein when you made those notes on the one page ‘Peter’ and on the other ‘Barry’, did you notice the amounts that were stated on those pages?
A.I saw the amounts, but I didn’t ask myself the question, I didn’t take the next step and say, ‘Is this amount right?’ I didn’t take [sic] ask myself that question. I just simply noted it, noted that I had a sleeper, became very annoyed that I was paying for a sleeper without my knowledge, but I didn’t look at the document and say ‘In actual fact is what’s declared here and put in place here right or wrong?’ I just didn’t ask myself that question.
Mr Scragg later explains that the full realisation only came to him after the fire:[29]
He placed the document in front of me, he pointed to a section of it which I read and from that I realised that the amount of cover that was stated on the documents immediately before the fire was wrong.
[29] T100.
In cross examination, Mr Scragg’s evidence on his partial realisation was as follows:[30]
[30] T193-4.
Q.Looking at P20 [the June 2006 Notice], turn to p.4, that relates to a property described as 91 Commercial Road.
A. Yes.
Q.Within a day or so of receiving this document you wrote the word ‘Barry’ underneath it.
A.As soon as I looked at the document I wrote the word ‘Barry’. The reason I wrote the word “Barry” was that there was not enough information in the document as published and I was, I wrote that as an aide-mémoire to make sure that I had actually identified it and also that my staff when I gave this document to Sandra, I don’t know if it was Sandra or Brian at the time who was doing it I could say in relation to this one, this is the one that I want the details for Mr Dixon.
Q.Doesn’t the word ‘Barry’ indicate to you that it was perfectly plain to you that the property at 91 Commercial Road as described on that page, p.4 of P20 was a property owned by the Zientaras?
A.At that moment, after going through all of this process I had a realisation that, it’s not perfectly plain, it became known to me at that point that it was, but it wasn’t perfectly plain, I had to – I worked it out, I looked at it, I thought ‘Hang on, Barry’s on this policy’. I knew, I was paying all the money, I never asked anyone else, I was paying and I looked at it, here I’m paying almost 2,000 a year for this guy in relation to a policy, a property that I’ve got absolutely no interest in whatsoever. Yeah, once it dawned, and I wrote the word ‘Barry’ as I wrote on the previous page, Peter to deal with my interests.
Q.The property in which you had no interest whatsoever was 91 Commercial Road?
A.Yes as you describe it, yes, and I became aware of that, the cloud had lifted. I knew then that when I looked at these documents even though they didn’t mention Barry’s name anywhere at all in relation to 91 Commercial Road, that yes, he was, with his wife, sleeping on the policy in relation to that thing.
Upon further cross-examination Mr Scragg said:[31]
[31] T245.31-246.6.
Q.But you told us earlier in your evidence that you were aware when you went through the renewal document, Exhibit P20, that the sum insured for your property, 87-89 Commercial Road was, in fact, $400,000.
A. At the time, yes. I had forgotten.
Q.You said to us yesterday if Zientara’s name appeared in the policy document in relation to No. 91 we would not be here today.
A. Exactly, my word. Absolutely, nothing could be more certain.
Q.That’s because if Zientara’s name had appeared in respect to No. 91 you would have had to accept the sum insured for 87-89 would have been $400,000.
A.No, I wouldn’t have given the instruction to reduce my interest, which apparently it appears to be way [sic] on the documents, from $800,000 to $400,000, which I had just increased before in accordance with my mortgagee requirements. I would never, ever have given those instructions.
Mr Scragg continued:[32]
Q.You have told us already that you noted upon examining P20 when it came in at the end of June 2006, that the sum insured for your properties at 87-89 Commercial Road had a sum insured of $400,000. You also noted that the sum insured for 91 Commercial Road that you noted as being owned by Barry were insured for $400,000.
. . .
A.Yes, I did note that, yes, I did.
Q.You noted that the sum insured was $400,000.
A.Yes.
[32] T247.18-
The Judge summarised Mr Scragg’s evidence as follows:[33]
It is clear from both the examination-in-chief and the cross-examination:
(a)that when Mr Scragg read Exhibit P20 [the June 2006 Notice] he became aware that no. 91 Commercial Road belonged to Mr and Mrs Zientara;
(b)that no. 91 was included in the policy;
(c)that the property at nos 87-89 Commercial Road belonged to the plaintiffs, and
(d)that the property at nos 87-89 Commercial Road was insured for $400,000, as was no. 91.
[33] ACN 068 691 092 Pty Ltd v Plan 4 Insurance Services Pty Ltd [2009] SADC 53, [40].
The appellants accept that this summary reflects part of Mr Scragg’s evidence, but submit that it does not go far enough because it does not address his direct evidence that when he saw the figure of $400,000 on 27 June 2006, he did not appreciate that that amount differed from the instruction he had given back in March 2004 and that he was underinsured. The appellants say that the realisation that the Zientara Property was being included in the notice alarmed Mr Scragg because he realised that he had been paying the premiums for the Zientara Property. However, the appellants say he did not turn his mind to whether the figure of $400,000 equated to his earlier instructions of the amount of cover for the Naiama Property and he did not turn his mind to whether this represented ‘overinsurance’ or ‘underinsurance’ of that property. These two elements were lacking.
It was submitted that the Judge erred when he concluded that in late June 2006, Mr Scragg “was aware of the true state of the insurance” and that he realised “the true situation”.[34] On the contrary, Mr Scragg did not know “the true situation”.
[34] ACN 068 691 092 Pty Ltd v Plan 4 Insurance Services Pty Ltd [2009] SADC 53, [66]-[67].
The appellants point to Mr Scragg’s evidence and say that he had not taken the “next step” and asked himself whether the amount was “correct” (in the sense of being an appropriate level of cover in accordance with his instructions) and so he did not realise that the properties were underinsured until after the fire. They submit that rather than accepting this direct evidence, the Judge erroneously inferred that because Mr Scragg was aware as at 27 June 2006 that the Zientara property was insured for $400,000 and that the Naiama Property was insured for a total of $400,000, he was also aware of the additional fact that this differed from his instructions and that the property was underinsured.
On appeal, the respondents’ argument on this point is consistent with the Judge’s inference, and is helpfully encapsulated by the submission of counsel, Mr Trim QC, that:[35]
[t]he evidence … shows that he thought his instructions were carried out, … he had an ongoing belief, which continued until he saw P20 [the June 2006 Notice], that the sum insured for his property was $800,000. Then he looks at this document and he realises its $400,000. There’s the realisation that the required sum was no longer in fact the sum insured for his properties. He had a belief, he was disabused of it and disabused not only of the fact that the sum insured was $400,000 but … he knew that Zientara’s property was noted on the policy.
So the double-edged false belief he was induced into in March ‘05, namely, it was his property and his property alone that was the subject of the policy and the sum insured, the required sum was $800,000, that instruction had been met, both of those elements of … induced false belief … fell away when he read P20.
Two possible readings of Mr Scragg’s evidence
[35] Transcript of Hearing of Appeal, 59.
In summary, there are two possible interpretations that could be drawn from Mr Scragg’s evidence. First, is the inference drawn by the Judge, that on receipt of the June 2006 Notice, not only did Mr Scragg see that the Naiama Property was insured for $400,000 but he knew that this differed from the instruction he had previously given and he therefore knew it was the wrong amount. A second alternative interpretation relies on the direct evidence of Mr Scragg, namely that when he read the June 2006 Notice, he did not look at whether the amount of cover for the Naiama Property was correctly insured, that is, at an appropriate level in accordance with his instructions; instead his focus was on whether he had been paying for a “sleeper”, namely, paying for insurance on the Zientara Property, in which he had no interest.
In a no case to answer submission, the question of credit is not to be considered by a judge.[36] In my view, in the context of a no case to answer submission, the Judge erred in drawing the inference that he did, which was simply based upon the fact that Mr Scragg had read the adjustment notice and that he had seen the figure of $400,000, rather than accepting Mr Scragg’s direct evidence on the point. Taking the evidence of Mr Scragg at its highest, Mr Scragg did not realise until after the fire occurred that the amount of insurance indicated on the adjustment notice as being $400,000 was incorrect, that it should have been $800,000 in accordance with his instructions and that the property was underinsured. In deciding positively to the contrary, the Judge was effectively going behind the witness’s evidence in a process akin to weighing credit. The Judge’s inference was inconsistent with applying the legal requirement.
[36] Popovic v Tanasijevic [1999] SASC 339, [15]-[16].
Moreover, there is reinforcement of the second interpretation of Mr Scragg’s evidence, by reason of the content of an email written by him on 5 July 2006 to Mr Dixon in the following terms:[37]
[37] AB Vol 3, 456 (Exhibit P21).
re your letter of the 27th June.
please make the following alterations
1. lot 703 St Vincent St has been sold. Please alter the policy accordingly. Settlement dated was the 30th June 2006.
please cancel all elements of the policy.
2. please advise the premium cost of all items relating to the following properties;
a. Lot 701 St Vincent St Pt Adelaide
b. Lot 702 St Vincent St Pt Adelaide
c. 91 Commercial Rd Pt Adelaide
d. 19 Montpelier Sq Pt Adelaide
This information is required for the financial years ending 30th June 2005 and 2006.
Please provide this information as soon as possible.
This letter reflects Mr Scragg’s concern that he had paid insurance premiums in respect of a property in which he had no interest. The email in response set out specific information with regard to the properties indicated: [38]
[38] AB Vol 3, 457 (Exhibit P22).
General Insurance premium information Policy # AP81L00144
Property location Insurance 2005 Period 2006 Period
Class 20/3/05 – 06 20/3/06 – 07Lot 701 St Vincent St Fire $ 1,420.00 $ 1,719.64
Port Adelaide Liability $ 232.00 $ 237.00
Glass $ 100.00 $ 153.00
$ 1,752.00 $ 2,109.64
Lot 702 St Vincent St Fire $ 1,136.00 $ 1,416.23
Port Adelaide Liability $ 232.00 $ 237.00
Glass $ 100.00 $ 153.00
$ 1,468.00 $ 1,806.23
91 Commercial Road
Fire $ 1,772.31 $ 1,806.74
Port Adelaide Liability $ 232.00 $ 237.00
Glass nil $ 163.38
$ 2,004.31 $ 2,207.12
19 Montpelier Sq Fire $ 590.80 $ 967.24
Port Adelaide Liability $ 232.00 $ 237.00
Glass nil 163.38
$ 822.80 $ 1,367.62
10/7/2006
Both of these emails enabled the appellants to identify the properties so that they could separate the amounts which were wrongly paid by the appellants for the Zientara Property.
In summary, and reviewing the whole of the evidence, I am of the view that the Judge erred in his conclusion, in the context of a no case submission, as to the knowledge of Mr Scragg prior to the fire. This conclusion in turn affects the issue of whether the Judge was correct in deciding that there was no case to answer by the respondents and in dismissing the appellants’ claims.
Questions of reliance and causation
The respondents, through their respective counsel, submitted that the misleading conduct and/or negligence of the respondents came to an end, or was ‘spent’, as counsel for the fourth respondent put it, when Mr Scragg had realised the true situation upon reading the June 2006 Notice. This submission was upheld by the Judge.[39] The Judge relied upon the principles of causation which he identified as being derived from March v Stramare[40] and Wardley Australia Ltd v Western Australia.[41] Reference was also made to the principles set out in Gould v Vaggelas as follows:[42]
1. Notwithstanding that a representation is both false and fraudulent, if the representee does not rely upon it he has no case.
2. If a material representation is made which is calculated to induce the representee to enter into a contract and that person in fact enters into the contract there arises a fair inference of fact that he was induced to do so by the representation.
3. The inference may be rebutted, for example, by showing that the representee, before he entered into the contract, either was possessed of actual knowledge of the true facts and knew them to be true or alternatively made it plain that whether he knew the true facts or not he did not rely on the representation.
4. The representation need not be the sole inducement. It is sufficient so long as it plays some part even if only a minor part in contributing to the formation of the contract.
[39] ACN 068 691 092 Pty Ltd v Plan 4 Insurance Services Pty Ltd [2009] SADC 53, [67].
[40] March v E & M H Stramare Pty Ltd (1991) 171 CLR 506.
[41] (1992) 175 CLR 514.
[42] (1984) 157 CLR 215, 236.
The Judge referred to principles 1 and 4 of those above but not to 3. Counsel representing the first respondent and Mr Dixon on appeal particularly relied on principle 3 to support the correctness of the Judge’s conclusion and ultimate decision. Counsel also relied on the similarities of approach between common law negligence and s 82 of the Trade Practice Act 1974 (Cth) as discussed in Henville v Walker.[43]
[43] (2001) 206 CLR 459, 494 [92]-[109] (McHugh J (Gummow and Hayne JJ concurring)).
Counsel for the fourth respondent, Mr Doyle, endorsed the above arguments. He further added that the scenario before the Judge, and this Court, was most appropriately analysed as being whether the misleading conduct and negligence of Mr Dixon had ceased to have an operative cause or effect, either because reliance on that conduct had ceased, or because causation had ceased. It was not, he submitted, a case of supervening cause or novus actus interveniens or a severance of the chain of causation, although it could be potentially analysed in that manner. Mr Doyle continued that there were two levels at which it could be said that the causal effect of the misleading conduct and/or negligence was spent. First, there was no link at all between the conduct of Mr Dixon as it was pleaded and the loss alleged to have been suffered by the appellants. Alternatively, if there was a link between the wrongdoing of Mr Dixon and the loss of the appellants, it amounted to nothing more than an application of a "but for" test made out because of the subjective belief of Mr Scragg. It was submitted that, on the approach of March v Stramare, this approach was not good enough. It did not pass the “common sense” logical policy approach discussed in that case.
Mr Doyle returned to the pleadings and highlighted that the misleading and deceptive conduct was alleged to be inducing of two beliefs: first, a belief that the Zientaras’ interest was on the policy; and secondly that the amount the appellants’ property was insured for was $800,000 and not $400,000. It was further submitted that, in relation to negligence, what was alleged was ambiguity as to whether those matters had been clarified as opposed to whether a representation had been made on those two matters. Whichever way this was analysed, Mr Doyle submitted that the two aspects of conduct were no longer misleading and deceptive, and there could no longer be an operative negligence because "the true position" in relation to both of those matters was known and therefore any causative significance or reliance was spent.
Thus all respondents relied in one form or another on the finding of the Judge that the appellants had failed to establish a case of negligence, and that Mr Scragg’s reliance on the misleading conduct was brought to an end, by reason of the fact that he realised, on receipt of the June 2006 Notice, which was before the fire, that the Naiama Property was insured for only $400,000.[44]
[44] ACN 068 691 092 Pty Ltd v Plan 4 Insurance Services Pty Ltd [2009] SADC 53, [40], [80].
However, neither respondent referred to the aspect of the underinsurance which formed part of the false and misleading conduct. Further, the foundation for these ‘causal connection’ arguments made by the respondents no longer applies following my earlier conclusion as to Mr Scragg’s evidence. Namely, that the evidence, taken at its highest supports that Mr Scragg did not know of the “true situation” as discussed in [80] of these reasons. Thus, reliance was not necessarily rebutted and the causal connection had not necessarily been brought to an end. There was still a reasonably arguable case which could be put forward by the appellants; therefore the no case submission should have failed.
In view of my conclusion on these matters, it is not necessary to pursue further legal arguments which arose in the course of the appeal, which were based on the premise that the Judge was correct in his finding as to Mr Scragg’s knowledge. This would require the Court to embark on deciding a hypothetical situation which is unnecessary at this point. It is also not necessary to pursue the further nuances of whether the test for the knowledge which is required of Mr Scragg was merely subjective or whether it is a partly subjective/objective test, namely whether a reasonable person in Mr Scragg’s situation should have known that the quantum of insurance was not correct and that the property was underinsured. Further, there is no need to determine whether, in these circumstances, Mr Scragg’s failure to realise the truth of the underinsurance amounted to a concurrent cause of the appellants’ loss and what the implications of such a finding would be. These questions in themselves are appropriately the subject of a trial with the benefit of critical analysis of evidence and application of the relevant law to the facts as they are found at trial.
At trial, the respondents have open to them questions of credit as to Mr Scragg’s evidence and as to the effect of the explicit reference in the March 2005 Notice, to the reductions in insurance. These matters may have particular significance with regard to findings of fact, misrepresentation, negligence, and matters related to reliance and causation.
Submissions of the fourth respondent on the Zientara Property
Turning finally to the fourth respondent and the Zientara Property. This is a claim against the fourth respondent by the Zientaras through the appellants as purported assignees. The claim of the Zientaras is that they gave instructions to Mr Dixon on 20 August 2004 to increase the total declared value of the Zientara Property from $275,000 to $500,000. Thereafter, it is pleaded that the Zientaras gave no instructions to Mr Dixon to vary or reduce that value to $400,000. The relief sought by the Zientaras against the fourth defendant is limited to seeking a declaration which is expressed to be in the following terms: “a declaration that the total declared value of [the] Zientaras’ interest assigned to the [appellants] is $500,000”.[45]
[45] AB Vol 1, 13 (Further Amended Statement of Claim, [16A]).
The claim of the Zientaras was fully set out by the Judge.[46] The Judge also correctly encapsulated the claim of the Zientaras as well as the response to that claim by the fourth defendant as follows:[47]
The essence of the plaintiffs’ complaint is that the fourth defendant, without the authority of Mr and Mrs Zientara, reduced the cover from $500,000 to $400,000 and thus, as a matter of contract law, the actual cover at the time of the fire was $500,000. The fourth defendant has made two responses: first, that the reduction in cover was authorised because it was made pursuant to the instructions of Mr Scragg who, it is asserted, had the Zientaras’ authority to do so; and, second, even if the reduction was made without authority, a new contract came into existence when the policy was renewed after the reduction in cover. Mr Doyle argued that when that renewal took place, the defendant made an offer to renew the policy in relation to no. 91 with cover set at $400,000 and the Zientaras accepted that offer, thereby creating a new contract. Mr Doyle did not attempt to debate the question of whether the cover was reduced without authority. He accepted that it was not open to the fourth defendant to do so on a submission of no case to answer. His submission had to proceed on the assumption that Mr Scragg had no authority to request a reduction in cover from $500,000 to $400,000.
…
The thrust of Mr Doyle’s submission was that at the time of renewal of the policy in early 2006, no offer to renew had been put by the defendant for cover in the sum of $500,000, whatever may have occurred in the past. I accept that that is factually correct and I find accordingly.
[46] ACN 068 691 092 Pty Ltd v Plan 4 Insurance Services Pty Ltd [2009] SADC 53, [3], [13], [69]-[70].
[47] ACN 068 691 092 Pty Ltd v Plan 4 Insurance Services Pty Ltd [2009] SADC 53, [70], [72].
On the basis of these arguments and after detailed reasoning, the Judge concluded that there was no “renewal” of the insurance policies of 2004 and 2005.[48] The insurance policies were “renewable” only by mutual consent and they were in place for a period of one year only in each case. Hence, he decided that the March 2006 policy was a fresh contract and it could not be for $500,000 as claimed by the Zientaras. Essentially, the submissions made by the fourth respondent were upheld. The Judge therefore found no case to answer and dismissed that claim for relief.
[48] ACN 068 691 092 Pty Ltd v Plan 4 Insurance Services Pty Ltd [2009] SADC 53, [77].
On appeal before this Court, counsel for the appellants in pursuing the claim of the Zientaras as assignees, conceded that the March 2006 insurance policy was a fresh and separate contract of insurance for $400,000 in respect of the Zientara Property. Counsel for the appellants sought, nonetheless, to pursue a claim against the fourth respondent based on the following arguments:[49]
That the [fourth respondent] did not regard itself as on risk for $500,000 at the time of the fire; and
That on account of the foregoing the fourth respondent's conduct is unconscionable pursuant to s 51AC of the Trade Practices Act 1974 (Cth).
[49] Appellant’s Written Submissions, 8 [45.1].
Mr Doyle submitted that, as a result of the concession that the March 2006 insurance policy was a fresh contract for $400,000, the appellants could not pursue the application for a declaration as sought in the statement of claim. Further, that the appellants had not sought in their statement of claim to pursue an argument against the fourth respondent based on unconscionable conduct. In addition, it was put that the alleged assignment of the Zientaras’ cause of action to the appellants had not been proved on the evidence before the Judge. At best, it was an assignment in relation to any claim which the Zientaras may have pursuant to the policy of insurance and it was not an assignment of a cause of action.
In my view the first two arguments put forward by Mr Doyle are correct. It would be appropriate on that basis to dismiss the appeal against the fourth respondent in relation to the Zientaras’ claim on the Zientara Property. The further argument put by Mr Doyle also has merit, but bearing in mind that this is an appeal against a no case to answer submission, that falls into the category of a reasonably arguable case and would not properly be the subject of a no case submission. I would therefore dismiss the appeal in relation to the fourth respondent and the claim for a declaration made in respect of the Zientara Property.
Conclusion
For the above reasons I would allow the appeal of the appellants in relation to the Naiama Property against each of the respondents. I would dismiss the appeal in relation to the Zientara Property against the fourth respondent. I would make the following formal orders:
1.That the appeal be allowed in respect of claims relating to the property at 87-89 Commercial Road, Port Adelaide.
2.That the orders of the District Court dismissing the claims relating to the property at 87-89 Commercial Road, Port Adelaide be set aside.
3.That the claims in respect of the property at 87-89 Commercial Road, Port Adelaide be remitted to the District Court for trial before another judge.
4.That the appeal be dismissed in respect of the claim relating to the property at 91 Commercial Road, Port Adelaide.
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