Nosic v Zurich Australian Life Insurance Ltd

[1995] QCA 519

IN THE COURT OF APPEAL

SUPREME COURT OF QUEENSLAND

Appeal No. 226 of 1994

Brisbane

[Nosic v. Zurich Australian Life Insurance]

BETWEEN

MATO NOSIC

(Plaintiff) Appellant

AND

ZURICH AUSTRALIAN LIFE INSURANCE LIMITED

(Defendant) Respondent

Fitzgerald P.
McPherson J.A.

Pincus J.A.

Judgment delivered 24/11/95

Separate concurring reasons for judgment by each member of the Court.

APPEAL ALLOWED WITH COSTS. VARY THE JUDGMENT BELOW BY INCREASING THE AMOUNT ORDERED TO BE PAID FROM $950.94 PER MONTH TO $1,979.88 PER MONTH. COSTS OF THE TRIAL ARE RESERVED AND WRITTEN SUBMISSIONS FROM THE PLAINTIFF SHOULD BE PROVIDED WITHIN 10 DAYS, FOLLOWED BY SUBMISSIONS FROM THE DEFENDANT WITHIN A FURTHER PERIOD OF 10 DAYS.

CATCHWORDS	CIVIL - INSURANCE CONTRACT - Meaning and effect of the word "income" - Whether it refers to income generated in the relevant year by the plaintiff's efforts, or whether it refers to the amount the plaintiff in fact received in the relevant year - Meaning of "earned" - Whether the income was earned "from personal exertion" - Federal Commission of Taxation v. Everett (1980) 143 C.L.R. 440 - Whether "evidence of mutually known facts may be admitted and relied on to identify the meaning of a descriptive term": Codelfa Construction Pty. Ltd. v. State Rail Authority of N.S.W. (1932) 149 C.L.R. 337.
Counsel:	B. O'Donnell Q.C. for the appellant
D.C. Andrews for the respondent
Solicitors:	McLaughlins for the appellant Clarke & Kann for the respondent

Hearing Date: 7 November 1995

IN THE COURT OF APPEAL	[1995] QCA 519
SUPREME COURT OF QUEENSLAND	Appeal No. 226 of 1994
Brisbane
Before	Fitzgerald P. McPherson J.A. Pincus J.A.

[Nosic v. Zurich Australian Life Insurance]

BETWEEN:

MATO NOSIC

(Plaintiff) Appellant

AND:

ZURICH AUSTRALIAN LIFE INSURANCE LIMITED

(Defendant) Respondent

REASONS FOR JUDGMENT - FITZGERALD P.

Judgment delivered 24/11/1995

The circumstances giving rise to this appeal are set out in the reasons for judgment of McPherson J.A.

His Honour’s comprehensive discussion enables me to state my reasons briefly.

The strength of the appellant’s case is disguised by the respondent’s concession that the appellant is

entitled to the amount awarded him by the trial judge, which is less than he seeks. However, the

respondent’s attitude plainly does not reflect the legal position. It is impossible to characterise the

amount distributed to the appellant by one of the partners, M. & D. Nosic Pty Ltd, the trustee of his

family trust, as “earned by the [appellant] from personal exertion”. The choice is between the position contended for by the appellant or a conclusion that the insurance policy, for which the respondent

accepted premiums from 1984, neither when it was first issued nor at any subsequent time entitled the

appellant to any benefits on the occurrence of the contingency in relation to which the insurance policy

had been issued.

The Court is not concerned with the amount of the appellant’s loss from his disability or with the more

complex situation which might exist if insurance against the same contingency had been effected by both

a person who carried out work and an associated entity which received income from that person’s

“personal exertion”. Here, the only complication is introduced by the appellant’s tax minimisation

arrangements. As McPherson J.A. has pointed out, the remuneration earned by the appellant’s

“personal exertion” went first to the partnership in which M. & D. Nosic Pty Ltd was a partner with the

appellant’s co-worker, Mr Topic, or more accurately his partnership with his wife (I. & K. Topic); then,

the total income earned by the personal exertion of the appellant and Mr Topic was divided equally

between their family entities, I. & K. Topic and M. & D. Nosic Pty Ltd. The amount received by M.

& D. Nosic Pty Ltd, as trustee of the appellant’s family trust, was then distributed to the beneficiaries,

including the appellant.
While the partnership technically complicates the position, the respondent’s concern was not with the

identity or nature of the interposed entity or entities, but with the circumstance that the income produced

by the appellant’s personal exertion was not received by him but by an interposed entity (or entities) and

that he received only a lesser amount derivatively. According to the respondent, it was the amount

which he actually received, not the amount which his “personal exertion” produced and which was

received by his family trust, which was the “amount earned by the [appellant] from personal exertion”

within the meaning of the respondent’s policy. In my opinion, the patent injustice which would result

if the respondent’s submission were accepted can be avoided by giving the policy language a meaning

which it is quite capable of bearing and applying it to the particular circumstances of this case, which are

not so unusual as to give rise to the possibility that the respondent might not have had them in

contemplation as covered by its policy. On the contrary, it is common for the amount earned by self-

employed persons to be shared with family members by the interposition of family partnerships,

companies and trusts.

The appellant drew attention to his position, albeit imperfectly and with little detail, in his application to

the respondent, which subsequently became incorporated in its policy or “Plan Document”. Although

“self-employed”, his business name was stated to be “M. & D. Nosic P/L as Trustee Fo (sic) The

Nosic Family Trust”, which he described as the “Same” as himself. In my opinion, in those

circumstances, it requires no straining of the policy language to conclude that the “amount earned by the

[appellant] from personal exertion” was the amount which his “personal exertion” produced for his

“other self”, M. & D. Nosic Pty Ltd.
I agree that the appeal should be allowed, and with the other orders proposed by McPherson J.A.

IN THE COURT OF APPEAL

SUPREME COURT OF QUEENSLAND

Appeal No. 226 of 1994

Brisbane

Before Fitzgerald P.
McPherson J.A.
Pincus J.A.

[Nosic v. Zurich Australian Life Insurance]

BETWEEN

MATO NOSIC

(Plaintiff) Appellant

AND

ZURICH AUSTRALIAN LIFE INSURANCE LIMITED

(Defendant) Respondent

REASONS FOR JUDGMENT - McPHERSON J.A.

Judgment delivered the 24th day of November 1995

This is an appeal by the plaintiff Mato Nosic against the amount of a judgment given

in the District Court in an action brought by him on a policy of disability insurance issued

by the defendant Zurich Australian Life Insurance Limited. The judgment ordered that

Zurich pay the plaintiff $950.94 per month from 9 January 1992 (which was evidently when

the insurance sum first became payable) until the date of trial. It is not readily apparent why

it was given in the form of an order to pay rather than for a simple money sum; but nothing

turns on that consideration. Although the judgment was in favour of the plaintiff, the

complaint on appeal is that the amount awarded at trial was too little. Under the insurance policy, it should, the plaintiff contends, have been calculated at or upon a rate of $3282.00

per month.

The policy was issued on 25 September 1984 and remained in force until

terminated by Zurich on 16 June 1992. It consists of a Plan Document (ex. 32)

incorporating what is called the Zurich Income Protector Plan, which is a page headed The

Schedule. There is another page containing a series of definitions; a further page entitled

Schedule of Benefits; and another headed Conditions. They are all expressed in what is

no doubt believed to be simple English. Commendable as this may be, it leaves unstated

some matters which are commonly found in insurance policies of this kind. The Plan

Document begins by saying that Zurich agrees it will pay the "Benefit Amount" to the

insured. The words Benefit Amount appear in The Schedule, where, in addition to

recording the plaintiff's name, date of birth, and the commencement and expiry date, the

Benefit Amount is stated to be $2000, which is identified as Monthly Disability Income.

There is no definition anywhere of "Benefit Amount", but that expression does appear in

the course of the definition of Monthly Benefit, which is as follows:

"The Monthly Benefit is the Benefit Amount shown in the Schedule for

Monthly Disability Income increased by all Inflation Increases ...".

As regards inflation, there is a provision in The Schedule for an "inflation increase" in the

premium which, if taken up by the insured (as it was here), produces an increase in the

scale of Benefit Amount payable. The result in the present case was, during the period

from 1984 when the policy issued, to increase the Monthly Benefit from $2,000 shown in

The Schedule to $3,282, which is the monthly sum on which the plaintiff's claim is now

based.

The policy does not specify an event on the happening of which the Benefit Amount

is payable to the insured. It is fair to say that in some respects the drafting of the policy

merits further attention. Generously interpreted, however, it is possible to arrive at the

intention. There is a definition of Injury, which means:

"... bodily injury of the Insured caused by an accident occurring on or after the Commencement Date and causing Total Disability within thirty days of the accident."

Although the policy is not specific about it, it is possible to regard this definition as

incorporating the event on which the benefit amount is payable, meaning the onset of total

disability resulting from bodily injury caused by accident. Total disability is defined in a

form which, for present purposes, need not be considered further than to say that it means

the total and continuous inability of the insured solely as a consequence of injury or

sickness to carry out his usual gainful occupation during certain periods which are

specified.

So far, the reader is left with the impression that the Benefit Amount, adjusted for

inflation to $3,282 monthly, was the amount that is payable in the event of Total Disability

as defined. However, in the Conditions there is a Section B. Benefits, which in para. 3(b)

imposes a limitation of the monthly benefit by specifying that it is not to exceed 75% of the

Insured's Pre-Disability Income. Pre-Disability Income is defined as:

"... one-twelfth of the income in the twelve months prior to the event giving rise to Total Disability or in the twelve months to the previous 30th June if greater."

Income is in turn defined to mean:

"... the amount earned by the Insured from personal exertion after deduction of expenses directly incurred in earning such income but before deduction of income tax."

What in fact happened is that the plaintiff ceased work as a result of what he

claimed was a back injury in September 1991. At the trial there was a fiercely contested

issue as to whether his symptoms were genuine or he was simply "malingering". That

issue was resolved in favour of the plaintiff, who was found by the trial judge to have

become totally and continuously disabled in late 1991 and early 1992 from carrying out his

usual gainful occupation. On appeal this finding has not been challenged. Both parties

accept that the amount to which the plaintiff is entitled under the policy turns on the meaning

and effect of the word Income as defined in the policy. The plaintiff contends essentially

that it refers to the income generated in the relevant year by his efforts; the defendant that

it is the amount he in fact received in that year. If the plaintiff fails on that point, he then

advances an alternative argument based on what he submits the parties understood and

intended to be the meaning of the policy at the time the insurance agreement was entered

into in 1984.

To identify the point at issue more precisely, it is necessary to say something about

the plaintiff and his personal circumstances. In about 1967 he emigrated to Australia from

Yugoslavia at the age of 18. At the time he ceased work in 1991 he was married with three

children and living at the Gold Coast. From about 1966 he worked there as a concretor

mainly in the construction of revetment walls in connexion with canal developments. It is

convenient to describe him as being self-employed. Before about 1982 he worked with

a man named Mulholland, and from about 1989 or 1990 with another man named Ivan

Topic.

When in 1983 his accountant Mr Anning first began to act for the plaintiff, the Nosic

Family Trust was already established. From the information available at the trial, consisting

mainly of income tax returns and the evidence of Mr Anning and some others, it is possible to infer that the trustee of that trust was an incorporated company M & D Nosic Pty. Ltd.

M and D are the initial letters of the first names of the plaintiff and his wife. Minutes

included with the tax returns show that they were the directors of that company and held

meetings at which they resolved to distribute to themselves and their children the net

income of the Nosic Family Trust. At the relevant dates in 1990 and 1991, the corporate

trustee traded in partnership with Mr Ivan Topic and his wife (I & K Topic) under the name

of M & T Concretors, who worked principally for Newman Contractors, a civil construction

company engaged in the engineering side of residential subdivisions. A Mr Duncan of that

company described the two men as partners working as a subcontractor. At the time about

which he was speaking, he was referring to the plaintiff and Mulholland; but when

Mulholland left the partnership, Mr Topic took his place. Apart from that change and a

change of name from M & G Concretors to M & T Concretors, the business of the

partnership was carried on as it had been in the time of Mulholland. It was a "labour only"

arrangement, under which Newman Contractors supplied the form work, the tools, and the

concrete, which was placed by the partners at a rate per lineal metre of concrete laid. It

was exacting physical work which involved an element of skill.

It is perhaps not clear from the evidence whether Newman Contractors considered

themselves as dealing with the two men as individuals, or with the partnership M & T

Concretors, which included the corporate trustee M & D Nosic Pty. Ltd. Probably no one

was particularly concerned about a detail like that, provided the work was done and was

paid for. Strictly speaking, however, it was the partnership M & T Concretors that was the

source of the income. On the evidence, the gross income of the partnership consisting of

the payments made by Newman Contractors for work done was shared equally by the two

sets of partners in M & T Concretors. Judging by the tax returns, the half share of the gross income received by M & D Nosic Pty. Ltd. as partner and corporate trustee of the Nosic

Family Trust was (apart, at times, from some interest presumably derived from

investments) its only income. Various expenses, including accountancy fees, bank

charges, depreciation on equipment, plant hire, vehicle expenses, telephone, and so on,

were deducted. The resulting net income was then distributed by the corporate trustee to

the plaintiff, his wife and family.

The learned trial judge considered that the relevant period for assessing the

plaintiff's "pre-disability income" within the meaning of the policy was the financial year

ending 30 June 1991. That conclusion has not been challenged on appeal. The trading

and profit and loss statement of the corporate trustee for that year discloses a gross

income from M & T Concretors of $50,596 which, after deducting expenditure, resulted in

a net profit of $31,677.41. It was distributed so that each of the three children received

$416, the balance being shared equally by the plaintiff and his wife, who received

$15,214.71 each. It was this figure of $15,214.71 that was adopted by the trial judge to

arrive at the monthly benefit amount of $950.94 calculated at 75% of

$15,215.00÷12=$950.54.

The plaintiff contends that the monthly benefit amount ought to have been

determined as 75% of $31,678.00÷12=$1979.88. The difference between the two results

depends on whether the plaintiff's "income" as defined is the net income of $31,766.41

received by the corporate trustee before distribution to the beneficiaries; or (as the learned

judge held) the amount distributed only to the plaintiff by the corporate trustee, which was

$15,215.00. The plaintiff emphasises that the definition of Income in the policy refers not

to the amount received but to "the amount earned by the Insured from personal exertion". The plaintiff, it was submitted, was the sole producer of the income derived by the trustee,

which was generated entirely by his personal exertions as a concretor with Mr Topic in the

course of working for Newman Contractors. No one else contributed anything to the result;

consequently, the income "earned" by him consisted of the full amount distributed, even if

in the year in question only a portion of it was received by him.

The plaintiff's submission gains some force from dictionary meanings of the word

"earn". A person may earn income without ever receiving it. A reward may be "earned"

before it is paid. Defining income, as the policy does, as meaning the amount earned by

personal exertion is reminiscent of the expression income from personal exertion. In the

field of taxation, however, the expression is income "derived", which connotes accrued or

realised, or perhaps even received, and is not necessarily equivalent in meaning to income

"earned". See Brent v. Federal Commissioner of Taxation (1971) 125 C.L.R. 159, 166-

167 (Mason J.).

On the other hand, the task facing the plaintiff here is to show not simply that the

income of the year ending 30 June 1991 was earned, but that it was earned "from personal

exertion". In Federal Commissioner of Taxation v. Everett (1980) 143 C.L.R. 440, the

taxpayer assigned to his wife 6/13 of his share in a firm of solicitors of which he was a

partner. In holding that the 6/13 share of profits received had ceased to be assessable

income of the taxpayer after the assignment, Barwick C.J., Stephen, Mason and Wilson JJ.

said it was "not income from personal exertion in the sense in which that expression has

been used in the cases". Their Honours went on to add that the expression (143 C.L.R.

440, 454):

"... has been usually employed to signify income by way of wages or salary under a contract of employment where the contractual right to receive the income has been incapable of present assignment. It would also apply to the income earned by a sole trader who operates a business and a professional man who practices on his own account. In this context it is correct to say that the taxpayer's remuneration is the product of his personal exertion and that all that he has to assign are his future receipts as distinct from any right to receive those receipts. But this is not true of partners in general or of the respondent as a partner in this case. The respondent's entitlement under the partnership agreement was to a proportionate share of the partnership profits as disclosed by the partnership accounts. The relevant proportion of the partnership profits was payable to the respondent because he was a partner and the owner of a share in the partnership. The respondent was entitled before the assignment to his proportionate share of the partnership profits, however much or however little energy he devoted to the practice, so long as the partnership remained on foot. Accordingly, it is a misnomer to speak of the respondent's share of the income as having been gained by his personal exertion. Even if it were accurate to so describe it, we cannot think that this in itself would constitute a reason for saying that an assignment of a share in the respondent's interest carrying with it the right to a proportionate part of the partnership profits would not be immediately effective to vest the right to future income in his wife for tax purposes."

See also Federal Commissioner of Taxation v. Gulland (1986) 162 C.L.R. 408, 418,

where Brennan J. (as he was then) said the hypothesis underlying Everett's case was that

the individual interest of the partner in the net income of the partnership of the year of

income "is the product of the partner's share of the partnership ..." These and other

authorities are reviewed in Liedig v. Commissioner of Taxation (1994) 50 F.C.R. 461,

where Hill J. remarked (at 474) that it had never been suggested that income earned by a

trustee of a trust carrying on business as a milkman or plumber or an electrician was

derived by the person pursuing the respective occupation; yet, his Honour added, "each

involves significant personal service or personal exertion". See also Hadlee v.

Commissioner of Inland Revenue [1991] 3 N.Z.L.R. 517 (affd. [1993] A.C. 524), where

Everett was followed as regards the effect in equity of the assignment, but not its

consequences in relation to liability for tax.

If the same criterion is applied here then the amount received by the partnership M

& T Concretors from Newman Contractors and shared with M & T Nosic Pty. Ltd. cannot

be characterised as income earned by personal exertion. According to what was said in

Everett's case, it is to be regarded as the product of the shares in the partnership that was

divided equally between the two partners in M & T Concretors. The half share of that gross

income paid to M & D Nosic Pty. Ltd. was received by it in the character of trustee and,

after allowing for expenses, the resulting net profit was distributed as trust money to the

plaintiff, his wife, and children, as beneficiaries under a trust. What was paid to M & D

Nosic Pty. Ltd was earned by it as a partner in a concreting firm. What was distributed by

it to and received by the beneficiaries were trust funds.

On this footing, neither the sum of $50,596 paid by M & T Concretors to M & D

Nosic Pty. Ltd., nor the net profit of $31,678 distributed by that trustee, nor even the amount

of $15,214.71 received by the plaintiff from the trustee in the year in question, answers the

description of "income" as defined in the policy. That may seem a surprising result, but it

is the consequence of the way in which the plaintiff chose to arrange his affairs. In

evidence at the trial the plaintiff said that the trust was set up so that he would be taxed

less. One may hazard the opinion that, having regard to the probable benefits it conferred,

it was, in the light of the plaintiff's particular circumstances, an unduly complex arrangement.

It is, however, not possible to ignore it as if it were some kind of sham. What the plaintiff

has chosen to do has repercussions in law going beyond the limited field of income tax.

It cannot be accepted that the arrangement is to be given effect in law solely for taxation

purposes but not for any other.

To approach the question in this fashion is consistent with judicial attitudes to

similar questions in other areas of the law. In Hadoplane Pty. Ltd. v. Edward Rushton Pty.

Ltd. (App. 54/1995), this Court (Pincus J.A., Thomas & Williams JJ.) held that, in a claim

for damages for breach of contract, the corporate plaintiff was limited to recovering the net

profit lost as a result of the breach, which did not include payments that, apart from the

breach, would have been but were in fact not made by the plaintiff to the two working

directors by way of remuneration and superannuation benefits for their services. The

plaintiff was in essence a corporate partnership; however, any loss arising from the breach

of contract was sustained not by the directors, but by the plaintiff corporation itself. See

also Lee v. Lee's Air Farming Ltd. [1961] A.C. 12, which is another instance in which the

legal consequences of incorporation were given full effect.

In Australia a similar conclusion has also been reached in the field of negligence.

In Boral Roof Tiles Ltd. v. O'Brien (C.A. N.S.W. 40447 of 1994; 40449 of 1994) the

plaintiff claimed damages for a back injury arising out of the failure of the defendant Boral

to provide a safe system of work in unloading tiles. The business of loading, carrying, and

delivering tiles for Boral was carried on as trustee by an incorporated company Lasmine

Pty. Ltd., of which the plaintiff and his wife were principals. It paid the plaintiff a wage for

the work he did as delivery driver. It was held that this arrangement, which had also been

entered into for tax purposes, could not be disregarded, and that Lasmine Pty. Ltd. was an

independent contactor for Boral, which was consequently not liable to the plaintiff as its

"employee". An application for special leave to appeal to the High Court of Australia

against the decision was refused on 14 August 1995. Although not having the status of

binding authority, there is nothing In the interlocutory remarks of their Honours on the hearing of the application for leave to appeal which suggests that the New South Wales

Court of Appeal was wrong. In dismissing the application their Honours said that there was

insufficient doubt as to the correctness of the Court of Appeal's conclusion, that the

applicant was neither employed nor owed a duty of care by the respondent, to warrant the

grant of special leave to appeal. See also the decisions of this Court in Seymour v.

Suncorp Insurance Finance (App. No.239 of 1993) and Ruff v. Milton (App. No. 101 of

1995).

What has so far been said suggests that the plaintiff was not entitled to judgment

even for the amount calculated at the rate of $950.94 a month awarded at the trial. There

is, however, no cross-appeal by Zurich, which is content to allow the judgment for that

lesser sum to stand, but opposes its being increased on appeal. In order to make good

his claim to the larger amount, calculated in the way he does, the plaintiff submits as his

alternative argument that account should be taken of what passed between the plaintiff and

a Mr Lewis at the time the proposal for the policy was discussed in September 1984.

Mr Lewis was then working as an insurance "agent" for a company known as Switzerland

Life Assurance, which was, he said in evidence, taken over by Commonwealth General

Insurance, which was owned by Zurich. One is left to infer that those events took place

before the subject policy was issued to the plaintiff, or else that there must have been a

subsequent novation or renewal of the policy in the name of Zurich.

Mr Lewis said that before the policy issued in 1984 he had a discussion with the

plaintiff at the latter's home at the Gold Coast. In his evidence at the trial he testified that,

on his understanding, the plaintiff Mr Nosic "was a proprietary limited company"; and that

as "a self-employed man", he was not eligible for worker's compensation. As a man with a wife and young family, "if anything happened to him, being a sole earner of an income,

his family would suffer greatly unless he had some kind of financial coverage". His

discussion with the plaintiff proceeded along the lines that he needed at least $500 per

week, "but, on $40,000, which was the figure he gave me when I asked him what his salary

or his earnings were ... we decided that ... we could work 500 out for him comfortably ... and

he accepted that he could maintain those premiums". The learned trial judge said he was

not satisfied that Lewis was shown to be the agent of Zurich. He made no finding as to

what, if any, parts of Lewis' evidence he accepted. At the trial Lewis was called and gave

his evidence on behalf of the plaintiff; he was not cross-examined by counsel for Zurich.

To that extent, his evidence may be said to have been accepted: cf. Bradford v. Crutch

[1930] Q.W.N. 19.. It is largely borne out by the application form or proposal to Zurich,

which is dated 1.9.84 and signed by the plaintiff, and which is bound in with the Plan

Document to form part of ex. 32. The application contains as details of the life to be

insured the name Mato Nosic and his residential address. Opposite the item Business

name and address is written "M & D Nosic P/L as trustee for the Nosic Family Trust". The

benefit amount is given as 2000, which corresponds to the benefit amount or monthly

disability income of $2000 specified in the Schedule to the policy. In the application form

opposite the words Insurance Relationship to Applicant there is written the word "Same".

The precise meaning or significance of that answer or even the question itself has not

been elucidated.

According to the Plan Document, the application "and all Statements, Declarations

and Agreements made by or in respect of the Insured in relation thereto" is described as

being "the basis of the contract". Even plain English has not displaced that usage. On appeal it was relied on by the plaintiff to found an argument that the policy was really issued

in favour of the corporate trustee M & D Nosic Pty. Ltd. Reference was made to the portion

of the application giving the plaintiff's business name as M & D Nosic P/L as trustee for the

Nosic Family Trust, and also to Mr Lewis' evidence that "Mr Nosic was a proprietary limited

company". On that footing it was sought to amend the proceedings and the pleadings to

add the corporate trustee M & D Nosic Pty. Ltd. as co-plaintiff and to allege a contract by

the plaintiff himself for the benefit of the corporate trustee. It was sought to base this new

claim by the trustee on either s.55 of the Property Law Act 1974 or the decision in Trident

General Insurance Co. Ltd. v. McNiece Bros. Pty. Ltd. (1988) 165 C.L.R. 107.

The application to amend was opposed by Zurich as respondent to the appeal. It

is enough to say that it is now too late for such a radical amendment to be effected to the

plaintiff's case. It was conducted at the trial as a claim by the plaintiff individually on a

policy issued by Zurich in his favour personally. The issues that would have arisen if the

claim had previously been made by the corporate trustee on the basis of a policy issued

to or an agreement made with it were never canvassed at the trial. Zurich can fairly now

complain that if the proposed amendment were to be allowed at this stage, it would be

deprived of an opportunity of meeting the new claim. It might have called evidence relevant

to the question at the trial. More cogently, it might have availed itself of the opportunity of

cross-examining the plaintiff or Mr Lewis about their discussions preceding the agreement

and issuing of the policy. Not having done so, it would now be prejudiced by the late

amendment in a manner and to an extent that this Court has no means of redressing on

appeal. The application to amend should not now be permitted.

This leaves for consideration the alternative argument advanced on appeal in

support of the plaintiff's claim. It is that, no matter what may be the legal meaning of the

expression in the policy "amount earned by the insured from personal exertion", the parties

had in mind a particular meaning when they made the agreement for insurance. That

meaning was income generated by the personal exertion of the plaintiff.

It is of course not permissible to add to, contradict or vary the plain meaning of a

written instrument by reference to what the parties or one of them may, at or before the time

it was entered into, have believed or even said it meant. On the other hand, although the

parol evidence rule ordinarily operates to exclude evidence of pre-contractual statements

or impressions, the "true rule" has been said to be that:

"... evidence of surrounding circumstances is admissible to assist in the interpretation of the contract if the language is ambiguous or susceptible of more than one meaning. But it is not admissible to contradict the language of the contract when it has a plain meaning. Generally speaking facts existing when the contract was made will not be receivable as part of the surrounding circumstances as an aid to construction, unless they were known to both parties, although, as we have seen, if the facts are notorious knowledge of them will presumed".

See Codelfa Construction Pty. Ltd. v. State Rail Authority of N.S.W. (1982) 149 C.L.R.

337, 352 (Mason J.).

In applying these principles the first question to be considered here is whether the

language of the contract is ambiguous or susceptible of more than one meaning. As to

that, there can be little doubt. Few words or phrases are susceptible of only one meaning:

Marr Contracting Pty. Ltd. v. F.A.I. Insurance Ltd. (1988) 5 A.N.Z. Insurance Cases 60-

853, at 75, 343. The expression "amount earned by the insured from personal exertion" is

capable of referring to the amount which in 1984 was being produced by the labour and

efforts of the plaintiff, irrespective of whether or not he received it himself. If anything, the ordinary or dictionary meaning of the word "earned" tends, as has already been noticed,

to support such a conclusion. The expression "from personal exertion" is susceptible of

a direct or an indirect meaning. There is an obvious sense in which the income receipts of

the corporate trustee M & D Nosic Pty. Ltd. are capable of being regarded as the product

of, and so earned by, personal exertion on the part of the plaintiff even if in a strict legal

sense they resulted from the activities of a corporate trading trust as a member of a

partnership.

That being so, the next question is whether there is admissible evidence to show

that that indirect sense, as it may be called, was the meaning which the relevant expression

bore in the present context. To refer once again to what was said by Mason J. in Codelfa

(at 352):

"It is here that a difficulty arises with respect to the evidence or prior negotiations. Obviously the prior negotiations will tend to establish objective background facts which were known to both parties and the subject matter of the contract. To the extent to which they have this tendency they are admissible. But in so far as they consist of statements and actions of the parties which are reflective of their actual intentions and expectations they are not receivable. The point is that such statements and actions reveal the terms of the contract which the parties intended or hoped to make. They are superseded by, and merged in, the contract itself. The object of the parole evidence rule is to exclude them, the prior oral agreement of the parties being inadmissible in aid of construction, though admissible is an action for rectification."

What is evident both from this passage, as well as from what follows it, is that resort may

be had to the pre-contractual negotiations and statements of the parties for the purpose

only of identifying "the objective framework of facts" within which the contract came into

existence, and to the parties presumed intention in this setting.

For this it is necessary in the present case to turn in more detail to what was said by Lewis in the course of his evidence. His statement that the plaintiff "was a proprietary limited company" betrays his ignorance of the legal consequences of incorporation. It was

no more accurate to speak of the plaintiff as being an incorporated company than to say

that the plaintiff was his wife. In the contemplation of the law they were separate legal

entities. It was, however, not inaccurate to say that the plaintiff was "self-employed". There

is no reliable evidence that he was employed under a contract of service with the corporate

trustee, and, as he was a working partner, he can only have been "self-employed" in

whatever sense that rather imprecise expression may bear in this context.

None of this serves, however, to do much more than to demonstrate that Lewis and

(it may confidently be predicated) the plaintiff himself were confused about the legal

implications of incorporating a trading trust. What is critical is to isolate from the evidence

objective background facts known to the parties that tend to identify the subject matter, in

this instance, "the amount earned by [the plaintiff] from personal exertion". As to that, it is

clear from the evidence that Lewis and the plaintiff both knew: (1) that the plaintiff "did the

work in relation to the business"; (2) that although there was a trust company and a

partnership, only the plaintiff earned or generated income for the family; and (3) that if

anything happened to him and he could not work, that income would cease. Mr Lewis said

he was told that the income was $40,000, and he explained to the plaintiff that the payment

under the policy would be only 75% of $40,000. The benefit amount was arrived at on that

basis. The figure $40,000 p.a. has been written in as the answer to question 14 (entitled

Income - disability only) in the application forming part of ex. 32, which is "What is your

current earned income from your present occupation after business expenses but before

tax?". The tax return of the Nosic Family Trust for the year ending 30 June 1984 discloses

a trust income of very much less than $40,000. It suggests a total income in that year of

only $11,910, although what is shown there is, strictly speaking, only the total of the distributions made to the beneficiaries presumably after expenses were deducted. In the

following year (1 July 1984 to 30 June 1985) the total amount distributed was $35,407. A

further $9,000 was paid to the plaintiff and his wife ($4,500 each) nominally as wages (ex.

35), which brings the total for the year to over $40,000. The application is dated 1

September 1984, which is only two months into that year of tax; but the plaintiff may have

been assuming that the income received in those two months would be maintained through

the year as in fact proved to be the case. Question 14 asked for his "current" earned

income.

On any view of the matter, the income which the parties knew about and which they

were discussing in 1984 can only have been the income received by the corporate trustee

M & D Nosic Pty. Ltd., and not the income distributed to the plaintiff or any other

beneficiary. The latter does not seem to have been mentioned at all. The objective

background facts thus identify the income of the trust as the subject-matter which the

insurance was designed to protect against reduction or loss arising from future disability

on the part of the plaintiff. In that respect, the question here does not differ in substance or

principle from that in MacDonald v. Longbottom (1860) 1 E & E 97, 120 E.R. 1177, where

evidence of a pre-contract conversation was admitted to identify "your wool" that was sold

as including both wool on the plaintiff's farm and wool which he had bought on other

properties. See the reference to this decision in Codelfa (149 C.L.R. 337, 349), and also

in Akot Pty. Ltd. v. Rathmines Investments Pty. Ltd. [1984] 1 Qd.R. 302, 306, where some

of the authorities are collected.

The present case appears to be a further instance of that kind. It differs from those mentioned only in the respect that here it is possible to discover a legal meaning capable of being attributed to the expression "amount earned by the insured from personal

exertion". But where, as here, the relevant expression is ambiguous, it is permissible to

arrive at the objectively ascertained presumed intention of the parties by reference to

matters which they knew, and to arrive at their knowledge by examining what they said at

the relevant time. In Utica City National Bank v. Gun (1918) 118 N.E. 607, 608, which is

another decision referred to by Mason J. in Codelfa (149 C.L.R. 337, 349), Cardozo J.

said that surrounding circumstances may "stamp upon a contract a popular or looser

meaning" than the strict legal meaning, certainly when to adopt the latter meaning would

make the transaction futile.

The case is therefore one in which "evidence of mutually known facts may be

admitted and relied on to identify the meaning of a descriptive term" (see Codelfa, at 349,

citing Prenn v. Simmonds [1971] 1 W.L.R. 1381, 1384). The remaining question is

whether the evidence of these background facts can be used in that way against Zurich to

arrive at the meaning of the expression income in the policy. Founding itself on the

proposition that Lewis was not the agent of Zurich for that purpose, Zurich contends that

those facts are not admissible or capable of being relied on to construe the expression in

question.

The Insurers (Agents and Brokers) Act 1984 was not in force at the time the subject

contract of insurance was made in 1984. The matter accordingly falls to be determined not

under that statute but under the general law. In Western Australian Insurance Co. Ltd. v.

Dayton (1924) 35 C.L.R. 355, 376-377, Isaacs J., with the agreement or at least the

acquiescence of Gavan Duffy C.J., said:

"If a person is constituted or held out or adopted by an insurance company as its agent in respect of any insurance transaction, whether it consists in the making of a contract or the receipt of a premium or the preparation of a proposal or otherwise, then, except to the extent of any restriction upon his agency which is communicated to or known or reasonably to be inferred by the person with whom the transaction takes place, the transaction stands on the same footing as if it had been transacted in precisely the same circumstances at the head office. The agent's contract or his representations as to the matter entrusted to him are in that case as effectual to bind the company as if the directors themselves were acting."

A decision often cited in this context is Bawden v. London, Edinburgh & Glasgow

Assurance Co. [1892] 2 Q.B. 534, where the company's local agent Quin visited the

proposed insurer Bawden, who was illiterate, and completed a written proposal form for

him, which was signed by Bawden and delivered to the company. In doing so, Quin

became aware that Bawden had only one eye. The Court of Appeal held that knowledge

of that fact was imputed to the company even though the fact itself was in the event not

communicated by Quin to the company.

The decision in Bawden has been distinguished on many subsequent occasions,

although, as Stephen J. pointed out in Deaves v. C.M.L. Fire & General Insurance Co. Ltd.

(1979) 143 C.L.R. 24, 50-52, the point of distinction taken has been that, in completing the

proposal form, which contained false information about Bawden's physical infirmity, the

agent was not acting for the company but for the insured. See Newsholme Brothers v.

Road Transport & General Insurance Co. [1929] 2 K.B. 356, 382, per Greer L.J., who,

incidentally, regarded Bawden's case as illustrating the rule that the court is entitled to take

into account surrounding circumstances (scil: that Bawden had only one eye), "and the

surrounding circumstances may be such as to enable the Court to put a special meaning

on the contract" ([1929] 2 K.B. 356, 381; and see Bawden v. London, Edinburgh &

Glasgow Assurance Co.[1892] 2 Q.B. 534, 539-540, 541, 542).

Unlike many of the later decisions, the present case is not complicated by questions

of non-disclosure or misrepresentation in a proposal form filled up by the insurance

representative and then signed by the proposed insured. The decision in Bawden's case

still stands as authority for the holding that a representative like Quin, who was described

as the company's "local agent and canvasser" and was remunerated by commission, has

the authority of the insurer, at the very least, to receive on its behalf information that would

affect the risk and the premium in the course of performing his function of introducing and

explaining the proposal. See Deaves v. C.M.L. Fire & General Insurance Co. Ltd. (1979)

143 C.L.R. 24, 51-52, 62, 75- 76.

In the present case, it is plain that the authority of Lewis extended as far as that. He

had for many years been, and he described himself as, an insurance agent for Zurich,

working in the Zurich office, and being remunerated on commission. In that capacity he

"sold" proposals for policies of disability insurance with Zurich. In this instance he signed

the completed proposal form as "agent", giving his agency number, and he transmitted the

proposal to the Zurich head office for approval, and issued a receipt from an official Zurich

receipt book for the first premium paid by the plaintiff. Zurich accepted the proposal,

banked the cheque for the premium, and issued the policy.

The conclusion therefore seems inevitable that Lewis's authority on behalf of Zurich

extended to receiving information which affected the benefit amount, and consequentially

the premium, payable under the policy. Contrary to the trial judge's finding, or lack of it, I

have no hesitation in holding that Zurich is to be credited with knowledge that, although

there was a trust company and a partnership, the only income being received was that

which was being generated by the personal exertions of the plaintiff, and that it would cease if the plaintiff was disabled from working. Having knowledge of these "objective

facts", the parties must be taken to have intended that "the amount earned by the insured

from personal exertion" referred to the income received by the corporate trading trustee

and partner M & D Nosic Pty. Ltd. (the Nosic Family Trust).

Against that conclusion several matters were urged on behalf of Zurich. It was

submitted, first, that the use in this way of the "objective facts" in construing the language

of the policy was a matter that was not relied on at the trial and one which had not been

raised by the plaintiff in his pleadings. Properly understood, the parole evidence is not a

rule of evidence at all, but one based on the doctrine of "integration" of an informal

agreement into a formal and complete written contract: State Rail Authority (N.S.W.) v.

Health Outdoor Pty. Ltd. (1986) 7 N.S.W.L.R. 170, 191 (McHugh J.A.); Nemeth v.

Bayswater Road Pty. Ltd. [1988] 2 Qd.R. 406, 413. On one view of it, therefore, a

particular meaning that is contended for ought perhaps to be expressly pleaded. It has,

however, not been the practice to insist on that course, and, where, as here, the expression

in question is on its face susceptible of more than one meaning, it is scarcely open to a

party to complain of surprise if his opponent seeks, in order to place a favourable gloss on

the expression, to rely on evidence of what was said and known at or before the time when

the contract was made. Oral evidence at the trial about the genesis of a written contract

seldom has any other purpose, and formal objection is commonly made to its admission

at trial with the very object of discovering whether that is the real purpose in tendering it.

No objection was made to the adduction of the evidence in this case.

A second point that was argued by Zurich on appeal is that it was not correct to say that the transaction would have been "futile" if the meaning contended for by the plaintiff was not adopted. There remained, it was submitted, the further alternative that what was

meant by the parties was the income in fact received by the plaintiff from the trustee M &

D Nosic Pty. Ltd. However, the difficulty confronting this submission is that at no time in the

course of the discussions leading to the proposal did the plaintiff or Lewis advert to the

amount which the plaintiff was receiving or was likely to receive by way of distribution from

the trust. There is consequently no indication that they (and in particular Lewis) knew what

it was, or what it was likely to be in the future. Their attention was focussed on quantifying

the amount of income which would be lost if the plaintiff was disabled from working, and it

is in the light of their knowledge of that matter that the meaning of the defined expression

falls to be elucidated and identified.

Finally, the point was made that in the evidence of the plaintiff himself there were

statements that at the time of the discussions the partnership subcontracting for the

concreting work from Newman Contractors consisted in all of six individuals; that is to say,

three sets of two partners, and not only two sets as would have been the case if Mullins and

his wife had been the only other partners. There is other evidence which does not appear

to bear out the plaintiff's evidence to that effect, and he may in fact have been mistaken

about it. Even, however, if he was not, it does not have any relevant impact on the point at

issue here. The question is not to ascertain the number of partners who shared the gross

income received from, or even the total amount of the payments made by, Newman

Contractors. The problem is to identify the amount received by M & D Nosic Pty. Ltd.,

which would be lost if the plaintiff was disabled by injury from continuing to work. It was that

amount, being the "amount earned by the insured from personal exertion", that was the

income the policy was intended to protect.

I would allow the appeal with costs; and vary the judgment below by increasing the

amount ordered to be paid from $950.94 per month to $1,979.88 per month. The matter

of the costs of the trial, or the scale on which they were ordered to be taxed, should be

reserved. Written submissions, if any, from the plaintiff on that matter should be provided

within 10 days, followed by submissions from the defendant within a further period of 10

days.
IN THE COURT OF APPEAL

SUPREME COURT OF QUEENSLAND

Appeal No. 226 of 1994.

Brisbane

Before Fitzgerald P
McPherson JA
Pincus JA

[Nosic v. Zurich Australian Life Insurance]

BETWEEN:

MATO NOSIC

(Plaintiff) Appellant

AND:

ZURICH AUSTRALIAN LIFE

INSURANCE LIMITED

(Defendant) Respondent

REASONS FOR JUDGMENT - PINCUS J.A.

Judgment delivered 24/11/1995

I agree with the reasons of McPherson J.A. and with the orders his Honour proposes.