Permanent Trustee Australia Ltd & Anor v FAI General Insurance (In Liq)
[2002] HCATrans 384
IN THE HIGH COURT OF AUSTRALIA
Office of the Registry
Sydney No S124 of 2002
B e t w e e n -
PERMANENT TRUSTEE AUSTRALIA LIMITED
First Appellant
PERMANENT TRUSTEE COMPANY LIMITED
Second Appellant
and
FAI GENERAL INSURANCE COMPANY LIMITED (IN LIQUIDATION)
Respondent
McHUGH J
GUMMOW J
KIRBY J
HAYNE J
CALLINAN J
TRANSCRIPT OF PROCEEDINGS
AT CANBERRA ON WEDNESDAY, 9 OCTOBER 2002, AT 10.01 AM
(Continued from 8/10/02)
Copyright in the High Court of Australia
McHUGH J: Yes, Mr Jackson.
MR JACKSON: Your Honours, I would like to move to the third issue, the knowledge by the agent, and the question ‑ ‑ ‑
McHUGH J: Mr Jackson, before you commence, is there any special urgency about this case? The thought has occurred to some of us that maybe it is a case that should be heard by the whole Court, which would mean that, given the important points that are raised, it is a case that, on that view ‑ ‑ ‑
KIRBY J: No greater compliment can we pay to counsel.
MR JACKSON: Your Honour will forgive me if I perhaps do not assent enthusiastically to that view.
CALLINAN J: Treat it as a rehearsal, Mr Jackson.
MR JACKSON: Yes, thank you, your Honour. Your Honours, I am not conscious of there being particular urgency, nor, really, particularly, would we submit that it is a case that does needs to be dealt with by seven. I will endeavour to obtain some instructions immediately, if I may, on the urgency question. Your Honours, I might say two things. One, there is no special urgency we wish to urge on the Court. Secondly, we would leave the issue to the Court.
McHUGH J: It is a matter that may never arise, but it might be unfortunate if, for instance, the Court was divided on a matter which was of quite significant importance in the industry if you did not have a decision of the whole Court.
MR JACKSON: Could I just say one thing, your Honour ‑ ‑ ‑
McHUGH J: I am always haunted by Corporate Affairs in Yuill which was a 3:2 decision and which I have always thought ‑ ‑ ‑
KIRBY J: Reversing a very sound decision of the New South Wales Court of Appeal.
McHUGH J: ‑ ‑ ‑ you may have got a different result if you had had the seven Justices in the ‑ ‑ ‑
MR JACKSON: Yes, your Honour. Sometimes 3:2 becomes 4:3 and sometimes 3:4.
CALLINAN J: Yes. Justice McHugh’s statement is not a catalogue of the cases, Mr Jackson.
MR JACKSON: Your Honours, could I just say one thing that may perhaps be germane to it and that is that I had not mentioned yesterday and I noted it overnight. If it should be that the issue on which the Court might think there is some need to have it considered by a more fully constituted Court, it relates to the question of should one look at the position of the insurer under section 21(1) as being that of the actual insurer or a reasonable insurer, as it were, then there is in fact a finding by the primary judge that a reasonable insurer would have regarded these matters as relevant. Your Honours, I just mention that in passing.
KIRBY J: But that still leaves the substantive matter that has been argued on the first point.
MR JACKSON: Yes, your Honour, yes, it does.
KIRBY J: Which is an important point, really.
MR JACKSON: Your Honour, it leaves the question – yes, it does – of what is capable of being relevant, I suppose, but I simply mention that there is the finding in both ways relevant to the particular insurer and to a reasonable insurer. Your Honours, that is what I would say on that point.
McHUGH J: Are they your submissions?
MR JACKSON: Sorry, your Honour, they are my submissions on the issue your Honour just raised with me. I propose to go on with ‑ ‑ ‑
McHUGH J: Yes, certainly.
MR JACKSON: Your Honours, I thought I was being, in effect, cut off in my ‑ ‑ ‑
McHUGH J: No. It was just the sort of question that was there. I am just guarding against all contingencies.
KIRBY J: We always go away and talk about you.
MR JACKSON: Well, your Honour, may I proceed then? The third issue which arises, of course, is whether when the insured’s agent to effect the insurance knows, in terms of section 21(2)(a), the matter to be relevant to the insurer’s decision, the insured knows.
Now, your Honours, in the ordinary course of events – and we refer to this in paragraph 34 of our written submissions – the persons responsible for effecting insurance will be agents, not always, of course, but in many cases that will be so; sometimes if the insured is a natural person, but it is inevitable where the insured is a body corporate or a body politic, it will be an employee or an agent. Your Honours, we would submit, as we say in paragraph 34, that it would be surprising if the knowledge of the agents was not within the relevant expression.
Your Honours, the fact that one sees a reference to the same matter by Justice Rogers in Lindsay v CIC Insurance Limited (1989) 16 NSWLR 673 at 681 ‑ your Honours will see at the bottom of page 680, the last three lines:
Mr Ireland submitted that the word “known” in s 21(1) should be taken as extending only to the actual knowledge of the proponent. The argument points out that the subjective test of materiality in s 21(1)(a) could never be satisfied where the insured only has constructive knowledge of the “matter”.
Your Honours will then see, if one looks at the paragraph commencing between A and B on page 681, and going down to the reference to Carter v Boehm, that his Honour sets out reasons which, in our submission, support the contention that the knowledge in term “knows”, or “ knowledge” in section 21(1)(a), in the paragraph (a), should not be limited to the knowledge of the insured person.
Now, your Honours could I say in relation to that case our learned friends said, “Well, this case was decided on the basis of section 21(1)(b), that and other cases.” Your Honours, it is correct to say that that aspect of the case was decided on the basis that Section 21(1)(b) was satisfied. The reason for that was not any view that the proposition we are putting was incorrect in relation to section 21(1)(a) but rather because of the state of the evidence, and that that is so can be seen from page 684 in the passage between C and E. Your Honours will see in particular the sentence commencing:
Mr Maconachie, for the defendant, cross‑examined Mr Lindsay with a view to showing that Mr Lindsay knew it to be a matter relevant to the decision of the insurer whether to accept the risk, and, if so, on what terms. Mr Lindsay evaded giving a clear answer to the question. However, it seems to me that the requirements of s 21(1)(b) are satisfied ‑
in any event. Your Honours, the reasons of the Court of Appeal in Macquarie Bank v National Mutual Life Association of Australasia Limited (1996) 40 NSWLR 543 at page 610 ‑ it is a passage which goes from 610 to 613. I will take your Honours to the particular parts in just a moment ‑ also contains in the reasons of Justice Powell, with whom the other two members of the court were in agreement on this point, statements that the knowledge as to relevance of the agent to effect the insurance is to be treated as the knowledge of the insured for the purposes of section 21(1)(a). Your Honours, since that case, again, is sought to be dealt with as turning on 21(1)(b) may I go for a moment to identify what took place.
Your Honours will see at page 614F that Justice Powell said – and he is there speaking in 21(1)(b) terms:
In these circumstances, it seems to me that it was open to Justice Cole to hold that a reasonable person –
et cetera. The reason why he said that was because it was in response to a submission that that provision could not be satisfied. That that is so appears from the submission at page 612E. Your Honours will see the passage commencing at E and going down to about G and in particular in the last few lines of paragraph (2). His Honour then deals with the evidence through page 613 and most of page 614, arriving at the conclusion to which I referred a moment ago.
When dealing with the matter of present relevance the court was against the appellants’, in this case, submission. Your Honours will see that commencing at page 610 immediately under the heading “Non‑disclosure in relation to the first policy” that it was reciting what the primary judge had done. It was said:
When he came to deal with this aspect of the proceedings, Cole J held, first, that, both in organising the submission of the proposal for the first policy, and in purporting to sign it –
in effect on behalf of his wife –
Mr Kandy acted as Mrs Kandy’s agent; secondly, that, as such agent, Mr Kandy became obliged . . . to make disclosure of every matter known to him which was relevant to the decision of National Mutual –
et cetera. One then sees between C and D the nature of the challenges sought to be made to that.
Your Honours will see particularly paragraphs (1) and (3) of those submissions. In relation to those submissions, at page 611B Justice Powell then dealt with the first of those submissions, namely that knowledge of the insured only was relevant. Then he proceeds to deal, in the paragraph commencing between D and E, with what is in effect the third submission on the preceding page.
Your Honours will see the various extracts from Blackburn Low v Vigors. I will not read them out, but the passages go on to the next page about E. Now, your Honours, all those passages are consistent with the contention we seek to make.
KIRBY J: All of this is helpful to us but, of course, we are not bound by any of this analysis and therefore, in the end, we are thrown back on the statute.
MR JACKSON: Quite, your Honour.
KIRBY J: That must be the focus of our attention. When you look at that, it speaks with forked tongue. On the one hand a corporation must necessarily act through its servants and agents – servants do not create a problem, agents perhaps do. On the other hand it talks of knowledge and it seems to be addressing a moral fault or a failure of communication, because the insured knows and therefore that would suggest it has to actually know or it falls within (b). So how do we reconcile those two conflicting indicia in the actual words of the statute?
MR JACKSON: Well, your Honour, perhaps it speaks in tongues without any of them being forked. What I mean by that is one is not talking of insurance as something entirely bereft of context, and insurance – let us say general insurance for the moment – sometimes is effected by persons who are the battlers, people who are battlers; sometimes it is effected by people who are not in that description. A great deal of commercial insurance, of course, does not fall within that category. But a recognised part of it –recognised by the Act – is that there are persons who are agents who act for insurers and who act also for the insured. I will give your Honours the reference in a moment.
In relation to that, when one is speaking of the knowledge of an insured in terms of section 21(1)(a), one is speaking, in our submission, of the knowledge of the insured personally or of the person/persons acting for the insured. There is nothing really very unusual or heretical in taking the view that if one acts by another then one is bound by the acts of the other and, in appropriate circumstances, by the knowledge of the other.
KIRBY J: It is just those appropriate circumstances that create a problem, because I have no difficulty with the notion that an insurer – insured must if it is a corporation act by another, but it is a question of what the scheme of the Act contemplated when it talked of knowledge. Is it enough that any employee of the broker gets to know something? Can that knowledge then, within the scheme of the Act, be attributed to the insured?
MR JACKSON: Your Honour, that really encapsulates as one question what, really, in a sense, are two questions. One would be whether the knowledge of the employee of the broker should be treated as knowledge of the broker. If so, the second question: should the knowledge of the broker be attributed to the insurer? Now, as to the second of those questions, if the first is answered “Yes”, then the answer to the second one would follow as being “Yes”. It may be a different question whether that, in fact, should be attributed – whether the knowledge of a particular person should be attributed to the broker.
Your Honour will see an example of that in one of the cases, which I think is Commercial Union v Beard, really, in reverse, because it was a situation where, so far as the insurer was concerned, there was some material in the office of the insurer which, if it were worked through and thought about, would have told the insurer certain things. The question was whether that was to be treated as knowledge of the insurer. In the end, it was held not to be. I am not certain that that is the right case, but I will give your Honour the reference in just a moment, if I may. So that is a question, but it would arise in any context, really, where ‑ ‑ ‑
KIRBY J: Well, it does not arise if the insured is a human being, an ordinary person, but it does arise in every case where it is a corporation.
MR JACKSON: Yes. I am sorry, your Honour, I was not meaning to put a blanket over the whole area. What I was really seeking to say was that in every case where there is a broker involved or an agent involved the question is, what is the knowledge of the broker or the agent in the first place? But that is an issue which has to be determined in any event.
Your Honour, I do not know that I can advance what I was going to say – all I was going to say next was this, that if one goes to – and this is the last of the cases I will take your Honours to ‑ Commercial Union Assurance Co of Australia v Beard (2000) 11 ANZ Insurance Cases 61‑458 at page ‑ ‑ ‑
McHUGH J: It is also in the New South Wales Law Reports.
MR JACKSON: I am sorry. What I was going to refer to is Justice Davies ‑ ‑ ‑
McHUGH J: I will just put it on the record. It is 47 NSWLR 735.
MR JACKSON: Thank you, your Honour. I am sorry. Paragraph 37, your Honours, Justice Davies said about halfway through the paragraph:
Whether a matter is known is a question of fact for the judge or jury. The knowledge of relevant employees and agents, such as insurance brokers, must be taken into account, for most business transactions are effected through them.
That goes through the remainder of that paragraph.
CALLINAN J: Mr Jackson, but what about the absence of any reference to an intermediary with a defined term? The section speaks of the insurer, or the insured. It does not speak of an intermediary, which it could readily have done, because it is a defined term.
MR JACKSON: Well, your Honour, could I say, certainly, it does not. It does not say that specifically. What I was going to say, however, was that the Act does recognise in a number of places that “insured” may be represented, as it were – if I use the term loosely – by persons who are brokers. There is the definition of broker in section 11.
KIRBY J: In a sense, I think Justice Davies adds an element – at least, to my thinking – when he makes the point that most, virtually all, commercial insurance is done through brokers and, therefore, if the Act does not attach to the knowledge of the broker, then there is a huge gulf left in the operation of the Act in this regard.
MR JACKSON: As the primary judge said, there is the opportunity for commercial fraud in many cases.
CALLINAN J: But is there not a special rule for fraud anyway? Is there not a special liability for the fraud of an agent anyway?
MR JACKSON: I am sorry, your Honour.
CALLINAN J: In all contexts?
MR JACKSON: Yes, your Honour, yes.
CALLINAN J: So you do not need any special rule in relation to insurance to make a principal liable for an agent’s fraud, do you?
MR JACKSON: No, one does not, your Honour. However, what one does see is that in relation to – I am sorry, I was really speaking about the duty to disclose and I was speaking loosely, I would accept, but if one is speaking about the duty to disclose, then the duty to disclose is reduced by taking out of section 21(1)(a) the knowledge of the agent to effect insurance, then that is capable of increasing the circumstances in which there is not what would be regarded as a true fair dealing.
CALLINAN J: I understand the submission, Mr Jackson. You can say that, really, about any agent in principal situation and I imagine 95 per cent of the properties in Sydney are sold by agents. Absent fraud, the agent’s activities do not bind the principal, do they, not unless there is a particular scope and course of the agency and ‑ ‑ ‑
MR JACKSON: Yes, your Honour, one has, of course, persons acting for a vendor and there are a number of decisions, including, I think, one of the Privy Council from New Zealand dealing with the particular position of agents acting for a number of vendors, so it is really perhaps a different situation, with respect. But, your Honour, certainly, one is speaking at the moment about the statutory obligation to disclose and of the ambit of a statutory obligation which has, in effect, replaced what there was under the general law.
CALLINAN J: I am just expressing a concern so that you can deal with it, but the Act actually uses “insurance intermediary” as a defined term which I think would clearly embrace Sedgwick here and there is no reference to insurance intermediary in section 21, that is ‑ ‑ ‑
MR JACKSON: No, your Honour, just going back to what your Honour was saying to me a moment ago, one does need to bear in mind, of course, that in relation to remedies that section 33 provides that the only remedies are those available under the Act, so in respect of a matter dealt with in this part of the Act. Your Honours, all I was going to say about the definitions, one sees in section 11 the definition of “insurance broker”:
means a person who carries on the business of arranging contracts of insurance, whether in Australia or elsewhere, as agent for intending insureds –
The point I am seeking to make about it is that the Act recognises in a number of places that the persons who are intending to be insured would be represented by a broker, an insurance intermediary, the next definition to which your Honour has referred on a number of occasions:
means a person who:
(a) for reward; and
(b) as an agent for one or more insurers or as an agent for intending insureds;
arranges contracts of insurance in Australia or elsewhere, and includes an insurance broker.
McHUGH J: Does 21(3) not tend to tell against your argument because it provides that where a person fails to answer a question or does not answer it completely or answers it irrelevantly and the question is in the proposal form, then the duty of disclosure is deemed to be waived, notwithstanding that the agent may have had total knowledge of the matter?
MR JACKSON: Well, your Honour, that works on the assumption that one has first entered into – that there is a contract of insurance. We know the issue would not arise unless there were, and what it is saying is that the act of doing things that are not answering a question in the proposal, and one can see: “Proposal, Question, no answer” or giving the obviously incomplete or irrelevant answer, in either of those two circumstances, if the insurer does not pick up the obvious then to the extent to which that matter is – in relation to the matter, then the duty of disclosure, the ambit of which is in 21(1), is reduced.
Now, both 21(2) and 21(3) carve out areas from 21(1), but they do not in themselves, in our submission, reduce the ambit of the obligation otherwise there. Indeed, your Honour, the fact that there are two specific and limited exemptions to it – or two groups of specific and limited exemption, really, militate against the view that the provision should itself be read down.
McHUGH J: It depends what one catches.
MR JACKSON: Well, your Honour, of course, but if one looks at the words of section 21(1) and says it has this application – two groups of exceptions are carved out – it would be, in our submission, the inappropriate way to start looking at the exceptions and qualifying the terms of 21(1) by reference to them.
McHUGH J: Remind me again, Mr Jackson, do your submissions go so far as to contend that any knowledge of the agent whether derived in the course of the agency or not is attributable to the insured?
MR JACKSON: Yes, I do, your Honour. I am going to come to that in just a moment, if I may. Your Honour, one is not, of course, talking about knowledge in the abstract. What one is talking about is knowledge of a matter relevant to the decision of the insurer and something that also as a fact is known to the insurer.
Now, your Honours, what I was going to say was I had referred the two provisions – two definitions that recognise the existence of brokers and agent, that is, insurance broker and insurance intermediary. Your Honours, one sees also in section 24 that it recognises that there may be statements which are made by or attributable to an insured, statements made in connection with the contract of insurance. Now, they are obviously statements made in relation to entry into the insurance and it says, “attributable to the insured”. Now, it is attributable, no doubt, because they are made by the insured’s agent. Your Honours, and also section 71 ‑ ‑ ‑
McHUGH J: But does not 24 tend to tell against your argument on 21? I mean, it specifically attributes a statement of an agent to the insured, and then goes on to say that:
a warranty but has effect as though it were a statement made to the insurer by the insured ‑ ‑ ‑
MR JACKSON: Well, it does not, with respect, your Honour. What it is doing, one looks at the first clause of section 24, it is saying, “A statement made in or in connection with a contract of insurance”. It does not identify on which side of the contract it is. It is the next clause that says it is something on behalf of the insured. A statement – “insured” as distinct from the “insurer”. It says, “a statement made by or attributable to the insured”. So one is looking at those statements on the insured’s side. It deals with the provisions to which I adverted yesterday, that is, provisions which used to or would otherwise say that statements made are to be treated as warranties with the result was if they turn out not to be true, there was an action for damages for breach of contract, and perhaps other remedies.
Your Honours, I was going to go to section 71 and this is the last of the provisions to which I will go as indicating that the Act recognises the reality that contracts of insurance on behalf of the insured are frequently effected through agents. You will see in section 71(1) that a provision which requires information or notice, et cetera, to be given to an insured:
does not apply where the contract was arranged by an insurance broker as agent of the insured.
So, in effect, it recognises the fact that the agent is a person who is skilled, experienced in the area and you do not have to give the notices you otherwise have to give to the insured if the insured is acting by an agent and, similarly, section 71(3). Now, all I am saying about them is that these provisions in the Act recognise that persons commonly act by agents.
Your Honours, this was a case – if I can go to the particular case – where the Permanent companies left everything in relation to the extension to Sedgwick. Could I refer your Honours, without going to the detail of it, to two passages in the evidence. First in volume 2 at page 342.
McHUGH J: This is blue 2?
MR JACKSON: Yes, your Honour, sorry. Lines 14 to 30 – this is Mr Ham – and particularly around lines 30 to 32:
you left it to Sedgwick and in particular Mr Daly, to do what was necessary to obtain that extension?
Your Honours will see Mr Daly’s evidence on the point perhaps a little more diffuse. I will not take your Honours to it, but it is in volume 1 of the blue volumes, pages 90 and 96. Your Honours will see a finding by the primary judge about it in volume 1 of the red volumes at page 182 lines 12 to 25, where he says:
in relation to the obtaining of the thirty-day extension, this matter was left entirely to Sedgwick Australia –
et cetera. The same aspect is referred to by Justice Handley – I will not take your Honours to the detail of it – in paragraphs 57 to 59 of his reasons.
Your Honours, one goes to a broker to use the broker’s skill and experience. That includes knowledge of what is relevant, knowledge acquired by training, experience, relationships and other dealings, and the notion that one leaves out of account and sanitises from the mind of the insured everything that he goes to the broker for, in a sense, seems one that, in our submission, should not be accepted. Much of the experience of a broker comes about by dealing in other transactions, by dealings with the same insurer, by dealing with other insurers, dealings with other brokers.
If one took that out of account altogether and it dealt only with the situation, the knowledge acquired in relation to the particular transaction, there would not really be very much point in the first place in going to a broker and, secondly, it would not give much effect, in our submission, to the Act. One sees in volume 1 of the red volumes at page 179 Justice Hodgson at the bottom of the page – perhaps I should just give a reference a little earlier on page 179, line 23. That is the passage where the judge found something I adverted to earlier this morning, namely that:
the prospect that the insurer would be asked to quote for a renewal would, for a hypothetical reasonable insurer, be relevant to whether the extension is granted and if so on what terms, whether specifically raised or not.
He elaborates upon that through the remainder of that paragraph but then goes on in the last paragraph on that page to say:
In giving their reasons why they would have refused the extension, Mr Hunter and Mr McIver adverted to such things as the bad relations between FAI and the Sedgwick organisation, the sentiment that if FAI was not good enough for insurance for the ensuing year why was it good enough for a one month extension, and a belief that there is a tendency for relatively more claims to be made in an extension period. These considerations were attacked as unreasonable and emotional. However, even if these considerations are somewhat subjective and emotional, I do not consider them to be entirely unreasonable. And in any event, this attack does not touch the point that in asking for a short extension –
and this is where one comes back to why it would be silly, in our submission, to rely only on the knowledge that the broker acquired in the particular transaction –
an insured is trading on its business relationship with the insurer, so that it is relevant to the grant of the extension that the insured is intending to sever that relationship; and that since an insurer asked for an extension would assume that the extension is sought on the basis of the business relationship, an intention to sever the relationship is relevant even if the matter is not expressly raised.
McHUGH J: I must say I find that surprising because insurance companies must be much more sentimental than I ever envisaged.
MR JACKSON: Your Honour, if one lives a life, as one tends to do in the legal profession, of dealing with insurance which has gone wrong, one tends to perhaps have a more jaundiced view about it than in dealing with the cases where it has gone right.
KIRBY J: I acted as a solicitor for seven years for 15 insurance companies and that statement does not surprise me.
MR JACKSON: I would adopt what your Honour says, with respect.
KIRBY J: It just depends on your experience.
MR JACKSON: It does, your Honour. When your Honour says it depends on one’s experience, why one would leave it to the broker to arrange the extension in a case like this is because one would be saying to the broker, “You know what you need to do. You know the best way to get the extension, and you know the best way because of your dealings with other insurers on previous occasions”. That is why, in our submission, one should not leave out of account the knowledge of the broker acquired in other circumstances.
Your Honours, one also needs to bear in mind that in terms of section 21(1)(a) one is dealing with an obligation to disclose which, in temporal terms, exists before the contract is entered into. Because one is dealing in temporal terms with something that happens before the contract is entered into, then that makes it more likely, in our submission, that what one would be relying upon would be information obtained from other transactions. Now, your Honours, this was a case where, in our submission, the instruction given by the appellants to effect the insurance in question was an instruction to use their acquired knowledge and skill as may be necessary. Your Honours, that is what I wanted to say in relation to that issue.
May I move then to four of the other matters that have arisen in the case. The first, your Honours, was your Honour Justice Kirby asked did the Australian Insurance text deal relevantly with the first of these issues and I said we had looked at them, they did not really take it very far. Your Honour, I remain with that but could we give your Honours ‑ and I do not intend to refer to them. There are two extracts, one of which may be useful in that it summarises a lot of the cases dealing with section 21(1). They are the Australian and New Zealand Insurance Reporter and a relevant part of the Annotated Insurance Contracts Act by Mann and Lewis. Your Honours, perhaps we could give them to the Court now.
The second thing, your Honours, was that I said I would give a reference to any further evidence relating to Mr Hunter’s conversation with Mr Welsh. This was in relation to issue 5. I would refer your Honours to volume 2 of the blue volumes, page 380. It is really the whole of that page.
The third thing, your Honours, was the reliance that is placed by our learned friends on Barclay Holdings v British National Insurance in the New South Wales Court of Appeal (1987) 8 NSWLR 514 as being a case where commercial considerations were treated as not being material. Your Honours, there is one passage in the reasons for judgment of Justice Glass, which at first sight perhaps – at second sight ‑ might lend some support to that contention, but it does need to be read in the context of the issues and the way in which the case was conducted. The relevant passage, your Honours, is at page 525E:
The letter of 7 June 1982 discouraging an application for renewal bears a different complexion when the circumstances are fully considered. Such a letter could imply a recognition of a physical or moral hazard and as such would be material. But when fully examined it was based on no such considerations whatsoever.
If I could just pause at that point ‑ ‑ ‑
McHUGH J: It is further up the page, is it not, is the passage that Mr Ellicott relies on, about four lines in:
This is traditionally described as a duty to disclose all facts material to the appraisal of the risk ‑
MR JACKSON: Yes. Your Honour. I really want to say two things about it I suppose. One is that what his Honour is doing is adopting the Western Australian Insurance Company v Dayton Case approach, which I have taken your Honours to earlier. That is not expressed in terms as narrow as that but in a much broader way, which you will see set out on page 524 of the extract from Justice Isaacs at about letter C.
Indeed, if one looks at what Justice Isaacs said, it goes beyond what was said by Justice Glass. They “include the knowledge, the practice and the proved conduct of the insurer” and so on. Now, your Honour, the second thing ‑ ‑ ‑
McHUGH J: I have to say – I may, of course, be quite wrong about this, but for 40 years I have carried around in my head as the basic principle as stated by Justice Glass there at 525. Now, that may not be an exhaustive statement, but I had always thought that the duty was to disclose facts material to the appraisal of the risk.
MR JACKSON: Yes. Your Honour, the references we gave yesterday indicated also that if there was something known to the prospective insured as being treated by the insurer as relevant, then that is something that, too, should be disclosed.
KIRBY J: It is something I carried around in my mind for 35 years.
MR JACKSON: Yes. All I can say, your Honour, in relation to it is, as I am sure your Honours would accept, what really one should accept as being the principle is that which was stated in this Court, which is rather broader.
KIRBY J: In the end, we have to, in a sense, put out of my minds our common law assumptions here and concentrate on the statute.
MR JACKSON: Yes. Well, that is so, your Honour, but can I just say, even if one goes back to Justice Samuels’ observations in Mayne Nickless v Pegler which is set out on page 522 – he said:
reasonably affected the mind of a prudent insurer in determining whether he will accept the insurance, and if so, at what premium and on what conditions.
That is not quite the same thing in terms as is referred to at the top of page 525. What I was going to say was, if one goes to the specific reference at page 525E to F to commercial considerations, what was said was that the letter:
could imply a recognition of a physical or moral hazard and as such would be material. But when fully examined it was based on no such considerations –
but really based on the fact, as it turned out, there was a difficult client to deal with. His Honour then goes on to say:
Such considerations cannot in my view bear upon the risk in question and are not material to its appraisal.
Now, that is the part that, prima facie, appears to support our learned friend’s view, but may we just say that if one goes to what occurred in the case, one sees at page 520 that the two events had occurred. One had been an earlier fire; the second was that a letter had been sent saying that the company would be unable to invite renewal. Before that letter was withdrawn, the relevant insurance with the other insurer was taken out, and the contention that was advanced appears at the bottom of page 520, namely, that the insurer was saying that neither the fire nor the first letter had been disclosed. Your Honours will then see at page 521 that evidence was called and the way in which the expert witnesses were examined and cross‑examined appears at about the middle of page 521. There, it was said:
Q. If it were a commercial or administrative reason it would have no significance, I think you would agree? A. Yes.
Q. If it were the reason indicating moral hazard it would be material?
the next question, physical hazard in both cases –
A. Yes.
The other witness on the other side was asked to make the same assumptions and arrived at a similar conclusion.
Now, the issue that then was discussed principally in the case was whether one looked at the mere fact of the letter, or looked at the circumstances which did or did not give a true meaning to the letter. That was the issue that was resolved in favour of the insured, and the dictum which appears at page 525E to F, to which I have referred, is one which, in our submission, was obiter.
Your Honours, the final matter with which I wish to deal – and I mention this because it may save me endeavouring to jump up at the end of my learned friend’s submissions and seeking leave to say something more. It relates to a case that our learned friends have given us a copy of this morning: Fruehauf Finance Corporation Pty Ltd v Zurich Australian Insurance Ltd (1990) 6 ANZ Insurance Cases 61-014. The potentially relevant passage appears to be at page 76,786 in the left column dealing with section 26. Your Honours will recall that I said in relation to section 26(2), which is set out in that column, that the issues which are issues 2 and 3 did not really arise in this case because the misrepresentation case was one where section 26(2) looked purely at the position of the person who made the statement. In this case they were the brokers.
Your Honours will then see in the two paragraphs under that quotation of section 26 there is a reference to the Advance Case in this Court. It was held:
that the expression “an insured” in sec. 21 meant each of the persons who became an insured, and therefore that the failure of one of those persons to make the requisite disclosure triggered the rights which sec. 28 gives to the insurer, notwithstanding that the failure of one of the co‑insured persons was not known to the others.
Justice Brownie then said that “person” in section 28(1) should not mean:
one thing for the purposes of the law about the duty of disclosure, and another thing for the purposes of the law about misrepresentations; and it follows that the word “person” should receive the same construction where it appears in sec. 26(1) and (2), i.e. any person who becomes “the insured” –
That is really dealing with an entirely different question. Those are our submissions, your Honours.
McHUGH J: Thank you, Mr Jackson. Yes, Mr Ellicott.
MR ELLICOTT: Your Honours, while dealing with that case of Fruehauf, we would not only adopt it, but would say it is quite clearly what it must mean and, of course, if that is right then issues 2 and 3 still remain very relevant, because the person in section 26(2), if that is the insured, then, of course, the misrepresentation and “insured” means what we say the word insured means, then issues 2 and 3 still remain very pertinent.
Your Honours, I wanted to draw reference ‑ there was discussion about 21(1)(a) and the difference between whether to accept the risk and on what terms. I just want to draw attention to the fact that the word is “and, if so”. I say that simply for this reason that in many of the common law formulations you will see the word “or”, but this statute has used “and”. The Pegler test uses “and”. So that there are two hurdles to be jumped, in effect, and you do not get to the second unless the first is and that is that it has to be relevant to the decision of the insurer whether to accept the risk and if it is so relevant, relevant to on what terms? So that, we say, is an important matter in considering the application of that section.
My friend resisted the notion that it would have been easy to have put, as Justice Kirby said, into section 21(1)(a), the words such as, whether to enter into that contract. In other words:
the insured knows to be a matter relevant to the decision of the insurer whether –
to enter into that contract. That is the contract of insurance referred to in the preface of subsection (1). Clearly enough, that is, we would submit, a compelling argument.
I just wanted to point out that the question whether they would have charged a higher premium was never in issue here. In the circumstances, they said they would – and they said it in the strongest terms ‑ have refused the extension.
Mr Hunter gave some evidence on the “if” matter, if I can use that way – before I come to that, Mr Hunter gave some evidence as to whether they had decided to renew, and if your Honours would just take volume 2 and go to 389 at line 28:
Do you recall why it was that you saw the need to follow the matter up on 26 September 1990?
A. No, not particularly.Q. It was in view of the impending expiry date, wasn’t it?
A. Yes, I am sorry, I have made that comment, yes.Q. One year later on 26 September 1991 you would have perceived that the expiry date for the year then ending was pretty close?
A. Yes.Q. And you had been told that the lead terms had not been received from London in the 1991 year?
A. Yes.Q. And nevertheless, can I suggest to you, you did not say anything to Mr Welsh to suggest to him that you wanted to receive the lead terms from London to enable you to consider your participation . . .
A. I can’t recall doing so, that’s correct.Q. Was it possible, Mr Hunter, that you had not, in your own mind, committed yourself to whether you wanted to insure Permanent for the following 12 months or not?
A. That’s correct.Q. Had you formed a view on that?
A. I had not formed a view, that’s correct.Q. Had you formed a view that you might wish to participate at all on either of the excess layers for the 1991/92 period?
A. It wasn’t a matter I had considered at that point.
And that goes on to about line 41, but that passage, we would submit, is very relevant to take into account. It places a different perspective on whether the possibility of non‑renewal was such an important matter to FAI as was suggested by some of the evidence that they gave in relation to it.
On the question of “if”, there is a long cross‑examination at 395 and it proceeds to page 100 line 9. It starts at 395 line 25. I do not propose to read it except a small passage at 395 at line 25:
Q. When you spoke to Mr Welsh, I take you back to the conversation on 26 September, you said to him, as his note records you said to Mr Welsh that:
“If Sedgwicks were to send renewal information, this should be sent to Angus Maciver to look at.”
A. That is his file note.
Q. It is a file note, the accuracy of which you are not able to dispute?
A. I can’t dispute it. I can’t correlate it, either.Q. Do you accept that you said to Mr Welsh:
“If Sedgwicks are going to send any renewal information, please send it to Angus Maciver, because I will be away to the end of October.”
Or something to that effect?
A. I accept I said words to the effect as mentioned in paragraph 11 of my first statement, which is:“I will be away until October. If renewal terms are to be forwarded while I am away, send them to Angus Maciver, not me.”
Q. Did you say:
“If renewal terms are to be forwarded while I am away.”
A. Not exactly.
Q. The file note says something to that effect:
“If renewal information is to be sent while I am away.”
A. Yes.
Q. And your affidavit says something to similar effect . . .
Q. Did you say to Mr Welsh:
“If renewal terms are to be forwarded while I am away, send them to Angus Maciver.”
A. Yes, words to that effect.
So there was no doubt about that matter.
Your Honours, on the question of the formalities, arrange the formalities and what was within the scope of that, can I refer your Honours to the matters which are set out in our chronology under items 8 to 13, 16, 18 to 20 and 22 to 23. Now, they will show, on reading those matters ‑ and we have given the references to the evidence, and of course I do not propose to go to it now but if I can just summarise it.
First of all it shows that Permanent understood, and in fact it carried out, the duty of disclosure including disclosure regarding extensions. It is specifically referred to. Secondly, the terms of the extension from the lead underwriter, which were to be the terms, were conveyed to Permanent. They also show that Daly and Ham discussed whether to accept on those terms offered. They show that then that matter was discussed with the Managing Director of Permanent, Mr Davis, who agreed to the extension, and they show that then a letter went off asking them to arrange the formalities. So the terms of the extension were there. The duty to disclose had been understood. Issues had arisen about disclosure on the renewal, and that had been discussed in London with Sedgwicks. So that here we have a situation where “arrange the formalities” ‑ if one is going to give that a wider meaning, one has to do so against that background. We would submit you cannot, with respect, do that.
Can I give the Court a quick reference to a recent case of GIO v Wallace (2001) 11 ANZ Insurance Cases, 61-506 at 75,866 where Justice Heydon considers the applicability of 21(1)(b) in contradistinction to 21(1)(a).
GUMMOW J: We have not got that on our list I think.
MR ELLICOTT: No, I do not think so, your Honour.
CALLINAN J: I do not think Mr Jackson has it either.
MR ELLICOTT: No. It is just a recent decision. It only emphasises our submission, and then not in any massive way. We say it is supportive. He said at 75,866:
Section 21(1)(a) looks only to what the insured knows. Section 21(1)(b) looks, not to what the insured knows, but to what “a reasonable person” . . . Under s 21(1)(b) it is necessary, in judging what a reasonable person could be expected to know, to take into account the circumstances affecting the actual insured, but the ultimate question turns on what could be expected of a reasonable person’s state of mind, not on the insured’s state of mind.
That is how his Honour saw it as referring to “state of mind”, and that links in with our other submissions.
The cases ‑ my friend has relied in his submissions – subrule cases –and although I have a handful here it will not take as long as it looks, your Honours. The first is Ionides v Pender which is in 9 QB 531 and that was used by my friend, either in oral argument or in their submissions, to show that matters were treated as material which went outside the risk. I just want to point out that Ionides v Pender was really the seminal decision which extended from the physical risk to the moral risk and it is important to see it that way and it is about moral risk. That is pointed out by Lord Mustill in Pan Atlantic, [1995] 1 AC 501 at 534. Again, I will not take your Honours to the decision. It was a matter of overvaluation and obviously that was a matter that could affect the risk, that is that people ‑ the insured might well be inclined to do something to ensure that the ship sank because it was overvalued.
Tate v Hyslop I referred to and your Honours will recall I was a little along the path when it was suggested that I wait until reply. That is reported in 15 QBD 368. There are two passages which I wanted to refer to but which simply say – one is at page 375 in the middle of the page and the other is at page 376 about a third of the way down. What those passages are saying, in effect, was that if – your Honours will recall this had to do with subrogation and the question whether the right to recover from a third party had been affected in some way. What the Master of the Rolls was saying was if this had not been made known, if they had kept it to themselves, it clearly would not have been material, it would not have related to the risk, it would have related to salvage.
That is important because of another case to which I would like to take your Honours, and that is Guthrie, (1982) 2 ANZ Insurance Cases, 60‑466. This is important because this was relied on by the Law Reform Commission when the Law Reform Commission recommended that section 68 go in which said, in effect, that this was not a discloseable matter.
McHUGH J: How does this arise in reply? You refer to this in your evidence‑in‑chief, Mr Ellicott, you quoted from it in your argument in‑chief.
MR ELLICOTT: Yes, I was going down that track, your Honour, when dealing with Tate v Hyslop and your Honour said to me, “leave it til reply” and I thought I am getting the nod and I had better do just that.
McHUGH J: You referred to Guthrie after you had referred to Tate v Hyslop.
MR ELLICOTT: I think that is right but I just gave your Honours a passing reference but I do not think my friend will be taken by surprise.
GUMMOW J: Nothing will take him by surprise.
MR ELLICOTT: One reason, at 77,607 in the middle of the second column, your Honour Justice Kirby will find a definition of “moral hazard” – “Any fact is material which leads to the inference”, et cetera, your Honour sees that?
KIRBY J: Yes.
MR ELLICOTT: At 77,609 there is a reference to Tate v Hyslop and I would ask your Honours to consider how Justice Hardie Boys dealt with it in New Zealand and how he came to the conclusion in passages 77,609 and 77,610 ‑ ‑ ‑
McHUGH J: Your referred us to those passages before. In fact I have them marked.
MR ELLICOTT: Well, I have succeeded in my mission and I will not say anymore.
KIRBY J: Could I just ask you on that – I mean, there was some evidence that the experience of insurers was that when you have an extension of a short period, claims may fall into that period, or towards the end of policy, claims do tend to come in. Now, leaving aside the larger questions about 21(1)(a), why is that not a matter that has to be disclosed as relevant to the assessment of the risk, the appraisal of the particular risk?
MR ELLICOTT: What your Honour is describing is something that is called “claims dumping” ‑ ‑ ‑
KIRBY J: Yes.
MR ELLICOTT: ‑ ‑ ‑ and if there was with a particular insured a practice of claims dumping, then, of course, that might be a material matter, but this case ‑ ‑ ‑
KIRBY J: Why with a particular insured? Why not just the experience of the industry that they ‑ ‑ ‑
MR ELLICOTT: Because in this case there was never any question of the credibility – and we deal with this in our submissions right at the beginning. I will just get a reference.
KIRBY J: The appraisal of the risk referred to and the terms of the statute are at large, are they not? They are not just focused on the particular ‑ ‑ ‑0
MR ELLICOTT: No, but if there had been a history of claims dumping, then it may be material, for the reason that your Honour mentions, to reveal it, but that was not the situation here. In paragraphs 26 and 27 that particular matter is dealt with. We say FAI considered Permanent to be one of the good accounts, to be blue chip and a major account. To have had a history of notifying FAI of claims or circumstances which might give rise to a claim and when they occurred and not to have a history of claims dumping.
KIRBY J: I will have a look at that.
MR ELLICOTT: It also has to be in mind that in this particular case the policy related to claims made.
My friend referred to The “Dora” [1989] 1 Lloyd’s Rep 69. In that case the ‑ ‑ ‑
McHUGH J: Well, it was a question of whether they were going to be insuring four yachts or ‑ ‑ ‑
MR ELLICOTT: It was a question of misrepresentation and obviously – this is at common law – the Act changed the law in relation to misrepresentation and it is not a misrepresentation unless it relates to the matter that has to be the subject of disclosure, and that is the effect, as I pointed out, of section 26(2).
My friend referred to Lindsay and he referred to a passage which suggested that it did not include constructive knowledge. Your Honours will recall my friend referring to that passage this morning. That particular passage, we would submit, takes one back to what was said by this Court in the case of Advance v Matthews. I referred to it in my argument in-chief, where the Court said that the husband could have asked the wife – it was submitted the husband could have asked the wife – this was on the question of joint insureds and what they knew – but drew attention to the fact that section 21 used the words “known to the insured” and said that to ask that would not have advanced it very far.
Now, our submission is that that is a strong indication that the Court, in that case, at that time, was thinking that “known to the insured” meant known to the insured and was the state of mind of the insured and it was not going to help for the wife or the husband, as the case may be, to ask the other.
That is the significance of that. We pointed out, in relation to Macquarie, the effect of that. We say it did rely on 21(1)(a) and, of course, we are at odds with the Court of Appeal in relation to what it found as the responsibility to assume or attribute the knowledge of the agent. With respect, I would submit that my friend has not satisfactorily answered the argument that there is no reference to the intermediary. Section 71 itself takes the trouble to refer to the broker. Section 21(1)(a) and (b) are capable of a perfectly consistent and reasonable and just resolution of the problem without there being any reference to what an agent may know. Those are our submissions in reply.
McHUGH J: Thank you, Mr Ellicott. The Court will reserve its decision in this matter and will now adjourn to reconstitute.
AT 11.14 AM THE MATTER WAS ADJOURNED
0
4
0