Rebolledo v Royal and Sun Alliance Financial Services Ltd

[2002] NSWSC 104

CITATION:	Rebolledo v. Royal & Sun Alliance Financial Services Ltd [2002] NSWSC 104
CURRENT JURISDICTION:	Equity Division
FILE NUMBER(S):	SC 2151/01
HEARING DATE(S):	25 to 27 February, 2002
JUDGMENT DATE:	27 February 2002
PARTIES :	Juan Rebolledo - Plaintiff Royal & Sun Alliance Financial Services Ltd - Defendant
JUDGMENT OF:	Palmer J

COUNSEL :	M.L. Williams SC with R.S. Sheldon - Plaintiff J.E. Maconachie QC with R. Seton - Defendant
SOLICITORS:	Carroll & O'Dea - Plaintiff Boyd House & Partners - Defendant
CATCHWORDS:	PRACTICE AND PROCEDURE - PLEADING - LEAVE TO AMEND - New issue raised on second day of expedited hearing - evidence said to support new issue known to Defendant and legal advisers long before proceedings commenced - Counsel thinks of new point - if amendment granted, lengthy adjournment inevitable and great psychological, emotional and financial distress would be caused to Plaintiff and family - factors in exercising discretion considered - whether distress and hardship to Plaintiff can be alleviated by costs order - where the interests of justice lie.
CASES CITED:	- Attorney General v Lord Mayor of Sheffield (1912) 106 LT 367 - Banque Commerciale SA (in liq) v Akhil Holdings Ltd (1990) 169 CLR 279 - Ketteman v Hansel Properties Ltd [1987] AC 189 - Queensland v J L Holdings Pty Ltd (1997) 189 CLR 146
DECISION:	Leave to amend refused.

1 These are my reasons for refusing, yesterday morning, to accede to the Defendant’s application for leave to amend its Amended Defence herein. 2    The Plaintiff, Mr Rebolledo, has been incapacitated by illness since March 1999 and has been unable to work. From March 1999 until 24 August 2000 the Defendant (“the Insurer”) paid him monthly benefits under an Income Protection Policy which it had issued in 1994 (“the Policy”). On 24 March 2000 the Insurer ceased paying benefits and purported to avoid the Policy on the ground that Mr Rebolledo had made fraudulent misrepresentations to it about his health and income in order to induce it to enter into the Policy. 3    Mr Rebolledo commenced these proceedings in April 2001, seeking a declaration that he was still entitled to receive benefits under the Policy or, in the alternative, damages for the Insurer’s wrongful termination of the Policy. By its Defence, the Insurer did not admit that Mr Rebolledo has been disabled and unable to work since March 1999, but its substantial defence was that it had validly terminated the Policy by reason of Mr Rebolledo’s fraudulent misrepresentation. 4    Mr Rebolledo has been placed in severe personal and financial difficulty because of the Insurer’s refusal to pay benefits under the Policy since August 2000. He is, as I have said, incapacitated and has no source of income other than from social security benefits. He is married with four children and his wife also has serious medical problems. Not surprising, he and his wife became extremely depressed by the seemingly hopeless position in which they found themselves. 5    On 9 July 2001 Mr Rebolledo’s solicitors filed a Notice of Motion seeking that the hearing of the proceedings be expedited. In support of Mr Rebolledo’s application for an expedited hearing his solicitors filed an affidavit of Alexandra Darcey sworn 9 July 2001. Ms Darcey is the solicitor with day-to-day conduct of the matter. She gave the following unchallenged evidence as to the position of Mr and Mrs Rebolledo:

“6. On 1 November 2000 Mrs Rebolledo said to [Counsel] and myself in words to the effect “Our only income comes from social security benefits. They go nowhere towards meeting our debts which include a mortgage on our home. Juan is currently in Chile trying to sell some property. It is worth about $10,000 Australian. We may be able to hold on to the house for a little bit longer. I receive phone calls every day from creditors in relation to our other debts”.

7. At that meeting on 2 November 2000 I observed Mrs Rebolledo to be crying and in a very anxious and depressed state.

8. On 18 December I was telephoned by Dr Roberta Chow of 269-271 Old Northern Road Castle Hill. She said to me words to the effect “I am very concerned about Mr and Mrs Rebolledo. I believe that the stress of this court case is leading to an increase in very destructive pain behaviours. I have concerns for the welfare of the four children and for the health of Kerrie and Juan”.

9. On 4 January Mrs Rebolledo telephoned me and said in words to the effect “The situation at home has deteriorated. My eldest son has left to live with my mother because of an argument that got physical with Juan”.

10. On 11 January 2001 Mrs Rebolledo telephoned me and said in words to the effect “I have consulted a domestic violence counsellor. My sister is looking after my two youngest children at the moment as I am very sick”.

11. On 1 May 2001 Mrs Rebolledo telephoned me and said in words to the effect “Juan is currently in Chile and he will be returning on 15 May 2001. I spend most of my time in bed”.

12. On 4 June 2001 I attended on Mr and Mrs Rebolledo. They gave me documentation which I read. I calculated from that documentation that they had combined credit card debits in the sum of $30,750, vehicle hire purchase debts in the sum of $36,000 and debts to telecommunications companies of $14,000. I noted that they had approximately $100,000 worth of equity in their home and still owed approximately $200,000 in mortgage repayments.”
6    Ms Darcey annexed a report of Mr and Mrs Rebolledo’s treating doctor, Dr Roberta Chow, dated 21 June 2001, the relevant parts of which are as follows:

“Mr Rebolledo’s mental state continues to deteriorate with depression being a major problem. I have recommenced him on anti-depressant, Cipramil, at his recent visit. I am concerned that his expression of complete hopelessness and a feeling of ‘being in tunnel’ out of which he doesn’t know whether or not he will ever emerge, are signs of serious deterioration with potentially dire consequences.
…
In my opinion the current situation where Mrs Rebolledo’s medical condition has deteriorated to such an extent that she is unable to maintain a minimal level of physical activity to keep the house going, is placing enormous physical and psychological stresses on both of them.

In particular Mr Rebolledo’s condition continues to worsen in the situation where he has to try to take on extra tasks which he is not physically able to do.

I believe that for the medical reasons outlined above, with the current state of Mrs Rebolledo’s medical condition and the deteriorating medical condition of Mr Rebolledo, the legal matters should be brought forward as a matter of some urgency.”
7    Dr Chow provided a report in September 2001 which stated that Mrs Rebolledo had been recently admitted to hospital, had not been able to carry out normal day-to-day activities and expressed suicidal thoughts. Dr Chow advised that if the hearing of these proceedings were not expedited, Mr Rebolledo’s medical and psychological condition, which was already causing concern, would deteriorate further. 8    Expedition was granted and the trial commenced on 25 February 2002. 9    Mr Williams SC, who appears with Mr Sheldon for Mr Rebolledo, began his opening, outlining the evidence to be relied upon by Mr Rebolledo in refuting the allegations of fraudulent misrepresentation. He was interrupted by Mr Maconachie QC, who appears with Mr Seton for the Insurer. Mr Maconachie made a number of statements which, he says, were not admissions in any legal sense but were “concessions”. The consequences of what Mr Maconachie said are of some importance so that it is necessary to set out the relevant passage in the transcript (T6.55-7.39):

“ Maconachie : I want to save some time. There are some aspects of the opening I would like to hear but perhaps I will hear them a little more quickly if I tell your Honour that the Defendant withdraws the defence of misrepresentation and nondisclosure and the allegations of fraud that is associated with it and accepts that the policy remains on foot, accepts that the Plaintiff is entitled to a declaration that the policy remains on foot as prayed for, accepts that the Plaintiff is entitled to an award of damages … we accept that the Plaintiff is entitled to a liquidated or equivalent sum calculated on the sums of money falling due from month to month under the policy. The Defendant accepts that there will be an award for interest pursuant to s.57 of the Insurance Contracts Act. … the Defendant accepts that there will be an order for costs, subject to questions of costs relating to the amendment that was allowed … the Defendant denies that the Plaintiff was or is entitled to accept the repudiation as it is put of the 24 August 2000 and relies on the doctrine of election as put forward in the paragraph 5A and following of our defence and accordingly, the Defendant contends that the Plaintiff is not entitled to an award of damages based on a loss of a bargain, a Hadley v Baxendale assessment for acceptance of repudiation.

His Honour: The issue is whether the Plaintiff gets the continuing benefits under the policy or gets damages.

Maconachie: Yes, that’s precisely the position that now obtains. We accept that the policy remains on foot.”
10    Mr Maconachie’s statements were made because it seems to be accepted by the Insurer that non-disclosure of Mr Rebolledo’s prior medical history was entirely the fault of the Insurer’s own agent, a Mr Taggart, and that the Insurer must accept responsibility for his actions. Mr Williams informed me, and I accept, that he had no prior notice of the statements which were made by Mr Maconachie. 11    Mr Maconachie’s “concessions” were tantamount to an admission that the Insurer’s allegations of fraud against Mr Rebolledo were groundless and that since March 1999 it had wrongfully deprived him and his family of the benefits to which they were entitled under the Policy. However, no word of apology was uttered in Court on behalf of the Insurer for the accusation of dishonesty which had been levelled against Mr Rebolledo; neither was any regret expressed on behalf of the Insurer for the financial and personal hardships which Mr Rebolledo and his family had had to endure since March 1999 by reason of being denied the benefits to which Mr Rebolledo was entitled. 12    As a result of Mr Maconachie’s concessions, the issues as defined in the pleadings which remained to be decided were:


– had Mr Rebolledo accepted the wrongful repudiation of the Policy by the Insurer;

– was Mr Rebolledo estopped or otherwise precluded from relying on a purported acceptance of the Insurer’s wrongful repudiation;

– was Mr Rebolledo entitled only to continuing benefits under the Policy or to damages for wrongful repudiation;

– if Mr Rebolledo was entitled to damages for wrongful repudiation, what was the amount of such damages.

13    The case proceeded on that footing. Dr Chow was called by Mr Williams, cross examined by Mr Maconachie and, on completion of her evidence, she was excused. Mr Rebolledo was called and cross examined. The cross examination had not concluded by the end of the day and the trial was adjourned to 10.00 a.m. on 26 February. 14    Before Mr Rebolledo’s cross examination resumed the next morning, Mr Maconachie announced that he wished to withdraw some statements which he had made the previous day. He said that he wished to withdraw the statement that “[the Defendant] accepts that the Plaintiff is entitled to an award of damages” , the statement “we accept that the Plaintiff is entitled to a liquidated or equivalent sum calculated on the sums of money falling due from month to month under the policy” , the statement “the Defendant accepts that there will be an award for interest pursuant to s.57 of the Insurance Contracts Act” , and the statement “the Defendant accepts that there will be an order for costs …” . 15    Mr Maconachie’s explanation for seeking to withdraw the statements was that at 5.30 a.m. that day the thought had occurred to him that the Insurer should take the point that the Policy never responded at all to Mr Rebolledo’s claim because of the definitions of “Totally Disabled” and “Sickness” in the Policy. “Totally Disabled” is relevantly defined to mean that “you are unable to work in your usual occupation for more than ten hours per week due to a Sickness …” . “Sickness” is defined to mean “sickness, disorder or disease which first becomes evident after the Commencing Date” , i.e. 15 September 1994. Mr Maconachie said that the evidence already filed and served in the case showed that whatever “sickness, disorder or disease” Mr Rebolledo was suffering, it had first become evident before 15 September 1994. The consequence was that Mr Rebolledo’s disability, if indeed he had a disability, was never insured under the Policy. 16    I raised with Mr Maconachie whether this ground of defence had been pleaded. Mr Maconachie said that it was not expressly pleaded but the fact that the Insurer had, in paragraph 4 of its Amended Defence, not admitted Mr Rebolledo’s allegation in the Amended Statement of Claim that he “had been disabled and unable to work in his usual occupation since March 1999” meant that Mr Rebolledo was put to proof of all grounds upon which his case depended, including whether his disability was due to a “sickness, disorder or disease” which first became evident after 15 September 1994. 17    After some discussion, Mr Maconachie stated his position as follows:

– he did not need leave to withdraw the “concessions” which he had made because they were not “admissions” under Pt 18 r.1 and r.2;

– if he did need leave to withdraw the concessions, leave should be granted; – he did not need leave to amend the Amended Defence because the issue he now sought to raise was already encompassed within the non-admission in paragraph 4 of the Amended Defence;

– if he did need leave to amend, then leave should be granted.

18    As Mr Williams had not moved for judgment on Mr Maconachie’s “concessions” pursuant to Pt 18 r.3 and did not indicate that he wished to do so, it seemed to me that the only questions which had to be decided were whether or not the “Sickness issue”, as Mr Maconachie called it, could be raised without amendment to the Amended Defence and, if not, whether leave to amend should be granted. 19    Mr Maconachie then made his submissions in support of his contention that leave to amend was not necessary. In the alternative, he made an oral application for leave to amend paragraph 4 of the Amended Defence in terms of the document which is MFI “1”. 20    I cannot accept Mr Maconachie’s submission that the “Sickness issue” is already raised by the Amended Defence so that leave to amend is unnecessary. Pt 15 r.13(3) provides that in a Defence the party pleading shall plead specifically any matter which he alleges makes any claim not maintainable, which, if not pleaded specifically, may take the opposite party by surprise, or which raises matters of fact not arising out of the preceding pleading. A defendant cannot merely traverse the plaintiff’s allegations if the real defence involves some positive assertion of fact: Attorney General v Lord Mayor of Sheffield (1912) 106 LT 367. 21 As has frequently been said in recent times, the days of trial by ambush are long past. The function of pleading is to state clearly the case which the opponent has to meet so that the opponent has a proper opportunity to answer it. This function is fundamental to the basic requirement of procedural fairness: Banque Commerciale SA (In Liq) v Akhil Holdings Ltd (1990) 169 CLR 279, at 286. 22 The “Sickness issue” which Mr Maconachie seeks to raise involves positive assertion of facts: first, that Mr Rebolledo was suffering from some “sickness, disorder or disease” prior to 15 September 1994; second, that that “sickness, disorder or disease” first became evident before 15 September 1994 (what “first became evident” means is, in itself, a difficult question of fact and law); and third, that that sickness, disorder or disease was the cause of Mr Rebolledo’s Total Disability. Unless each of the facts was fully pleaded and particularised, it would be impossible for Mr Rebolledo to know the case he had to meet. 23 In my opinion, it is clear that paragraph 4 of the Amended Defence does not comply with the requirements of Pt 15 r.13(2) in so far as that paragraph is intended to raise the “Sickness issue”, so that leave to amend is necessary before the Insurer may rely upon it. 24 The amendment to paragraph 4 of the Amended Defence for which leave is sought is in the following terms:
“The Defendant denies paragraphs 5 and 9 of the Amended Statement of Claim and says that the Plaintiff’s disability, if any, is not due to sickness as defined by the Policy in that the sickness, disorder or disease did not first become evident after the commencement date, that is 15 September, 1994.”
25    It is to be noted that the proposed amendment does not reveal to Mr Rebolledo’s legal advisers and to his doctors what is the particular sickness causing total disability which is said to have become evident before 15 September 1994, to whom it is said to have become evident, and when. 26    Mr Maconachie submits that leave to amend should be granted essentially for two reasons. First, he says that the evidence to be relied upon by the Insurer in support of this ground of defence is already before the Court, broadly speaking, so that all that is involved is the drawing of additional inferences from that evidence. Second, he says that no prejudice will be suffered by Mr Rebolledo if the amendment is allowed because, if the point is a good one, Mr Rebolledo was never covered by the Policy in the first place. 27    Mr Williams submits that if the amendment is allowed irremediable prejudice and injustice will be occasioned to Mr Rebolledo, first, in the manner in which the case is being conducted and, second, in the emotional and financial hardship which will be inflicted on Mr Rebolledo (and his family, if that is relevant) if the trial is adjourned, as it must be, to enable him to meet the new case raised by the amendment. 28    I accept Mr Williams’ submissions, for the following reasons. 29    First, the proposed amendment does not show with any specificity at all the case which Mr Rebolledo is required to meet: as I have said, it does not identify what is the disease causing Total Disability which is said to have become evident, to whom it is said to have become evident, and when it is said to have become evident. Without that specificity, it is impossible for Mr Rebolledo’s legal advisers and his doctors to know what further factual and medical evidence is necessary to meet the allegation. 30    Second, as Mr Maconachie frankly concedes, none of the doctors on both sides of the case has ever addressed the “Sickness issue” – no one has focused on it because Mr Maconachie has only just thought of it. Dr Chow was never asked about it in cross examination and she has completed her evidence. If the doctors and the parties’ lawyers were asked now to focus upon the issue it is highly probable that a great deal more substantial evidence would need to be adduced on both sides. In other words, if the amendment were allowed, an adjournment is inevitable because the case has only two more days allotted to it and the parties’ doctors could not all be properly briefed within that time, even if they were all available – itself a high improbability. 31    Third, the primary evidence upon which Mr Maconachie relies in support of the “Sickness issue” was made available to the Insurer on 3 July 2000 when Mr Rebolledo’s doctor, Dr Florida, sent to the Insurer an extremely detailed report of his treatment of Mr Rebolledo since May 1990. It was on the basis of that report that the Insurer wrote to Mr Rebolledo on 24 August 2000 avoiding the Policy on the ground of failure to disclose relevant information and misrepresentation of relevant information. That ground was abandoned at the trial and Mr Maconachie does not resile from that position. Nevertheless, the Insurer and its highly experienced Counsel and solicitors were in possession of that evidence well prior to the commencement of these proceedings and they have never sought to raise the “Sickness issue” until now. The only explanation given for that failure is Mr Maconachie’s statement from the Bar Table, which I accept unreservedly, that he thought of the point early in the morning yesterday. 32    Fourth, the amendment was sought on the second day of a trial fixed for four days. If it is allowed, the trial will unquestionably have to be adjourned part-heard for a lengthy period, not only because of my own commitments in other matters, but because it will take time to get further detailed medical evidence on both sides which is directed specifically to the new issue. I have no doubt on the evidence which has been adduced in support of the application for expedition and in the substantive case that a lengthy adjournment of the trial will cause immense psychological, emotional and financial distress to Mr Rebolledo and his family. This is not a contest between corporations, the ultimate result involving no more than adjustments to balance sheets. Mr Rebolledo’s very ability to survive, financially, emotionally and, perhaps, physically, is dependent upon an urgent resolution of this case. As Lord Griffiths said in Ketteman v Hansel Properties Ltd [1987] AC 189, at 220:

“… justice cannot always be measured in terms of money and in my view a judge is entitled to weigh in the balance the strain the litigation imposes on litigants, particularly if they are personal litigants rather than business corporations, the anxieties occasioned by facing new issues, the raising of false hopes …”

See also Queensland v J L Holdings Pty Ltd (1997) 189 CLR 146, at 155.

33    In my view, a costs order against the Insurer can go no way towards alleviating the distress and hardship which will be caused to Mr Rebolledo and his family if the amendment is allowed and the conclusion of the trial is postponed. 34    Fifth, I take into account Mr Maconachie’s submission that the “Sickness issue” is a complete answer to Mr Rebolledo’s claim so that justice requires that the amendment be allowed. But this factor is one of many which must be taken into account in deciding where the interests of justice lie. It cannot be just to allow a case in the course of hearing to be adjourned every time Counsel thinks up a new and substantial point. Justice also requires an end to litigation. Accordingly, important as this factor undoubtedly is in the exercise of the Court’s discretion, it may be outweighed by other considerations. In the present case, it is outweighed, in my opinion, by the other four factors to which I have referred.

35    For these reasons, I refused the Insurer’s application for leave to amend.

JUDGMENT – Ex tempore, on settlement
27 February, 2002

1    For the record I will note that the matter has been resolved between the parties by agreement and that a Notice of Discontinuance is to be filed. In those circumstances, I do no more than stand the proceedings over generally. They will be brought to an end upon the filing of a Notice of Discontinuance. 2    Before leaving the matter, there are two things I must say. Firstly, I wish to congratulate the parties and their legal advisers for being able to reach a compromise in what has obviously been a very difficult and no doubt a very stressful case. It is always a much better solution for the parties to agree upon the resolution of a dispute than to have that dispute resolved by the Courts. The legal system resolves disputes but often in a way that is not as satisfactory as a resolution between the parties. Again, I congratulate the parties and their advisers on achieving this settlement. 3    The second thing that I must say arises out of the reasons for interlocutory judgment which I published this morning. In paragraph 10 of the judgment I referred to concessions which Mr Maconachie had made on the previous day, and I said in relation to those concessions that they were made because it seems to be accepted by the Insurer that non-disclosure of Mr Rebolledo's prior medical history was entirely the fault of the Insurer's own agent, Mr Taggart, and that the Insurer must accept responsibility for those actions. I made that statement because that was the impression that I got by reason of the time at which Mr Maconachie made his concessions, namely, in the course of Mr Williams’ explanation in his opening as to why the allegation of fraudulent misrepresentation was denied. 4    I wish it to be recorded that Mr Maconachie himself did not make any admission that the concessions made by him were by way of recognition of any fault attributable either to the Insurer or to Mr Taggart. I accept that I received a wrong impression by reason of the timing of Mr Maconachie's concessions, so that it is important for the sake of Mr Taggart's professional reputation that the record be put straight and that it be made clear that I have certainly not formed a view that there is anything in the circumstances giving rise to this case for which Mr Taggart may be criticised. I would not wish any imputation critical of Mr Taggart to arise from my remarks in view of the fact that the issues to which his evidence may have been relevant have never been explored and, of course, I have not heard from Mr Taggart himself. 5    With those remarks, I think the matter can be disposed of.
– oOo –

Last Modified: 03/05/2002