Summers v The National Mutual Life Association of Australasia (No 2)
[2012] TASSC 9
•23 March 2012
[2012] TASSC 9
COURT: SUPREME COURT OF TASMANIA
CITATION: Summers v The National Mutual Life Association of Australasia (No 2) [2012] TASSC 9
PARTIES: SUMMERS, Geoffrey Douglas
v
NATIONAL MUTUAL LIFE ASSOCIATION OF AUSTRALASIA (THE)
FILE NO/S: 38/2003
DELIVERED ON: 23 March 2012
DELIVERED AT: Hobart
HEARING DATE: 1 March 2012
JUDGMENT OF: Tennent J
CATCHWORDS:
Interest – Recoverability of interest – In general – Insurance Contracts Act 1984 (Cth), s57 – Date from which it was unreasonable for an insurer to withhold benefits.
Insurance Contracts Act 1984 (Cth), s57.
Supreme Court Rules 2000, r887A.
Diosdado Sayseng v Kellogg Superannuation Pty Ltd (2007) 14 ANZ Insurance Cases 61-738; Newey v First Superannuation Pty Ltd [2009] NSWSC 1100, referred to.
Aust Dig Interest [2]
Procedure – Costs – Departing from the general rule – Conduct of parties – In proceedings – Conduct of case.
Sorell Council v State of Tasmania (No 2) [2004] TASSC 101, referred to.
Aust Dig Procedure [584]
Procedure – Costs – Departing from the general rule – Other cases – Failure in portion of the case.
Sorell Council v State of Tasmania (No 2) [2004] TASSC 101, referred to.
Aust Dig Procedure [599]
REPRESENTATION:
Counsel:
Plaintiff: M Gollan
Defendant: M E O'Farrell SC
Solicitors:
Plaintiff: Firths – The Compensation Lawyers
Defendant: Turks Legal
Judgment Number: [2012] TASSC 9
Number of paragraphs: 30
Serial No 9/2012
File No 38/2003
GEOFFREY DOUGLAS SUMMERS v THE NATIONAL MUTUAL LIFE ASSOCIATION OF AUSTRALASIA
REASONS FOR JUDGMENT TENNENT J
23 March 2012
These reasons are supplemental to those delivered in this matter on 22 December 2011 ("the first judgment").
At pars[182] – [183] of those reasons I said:
"The only other issue is the extent, if any, to which the plaintiff is entitled to interest on the amounts I have found the defendant should have paid him. Counsel for the plaintiff articulated no basis upon which it could be said the plaintiff is entitled to interest. Counsel for the defendant submitted in his written submissions that if the Court awarded interest, it should be confined to simple interest, there being no evidence or legislative provision that would allow otherwise. Neither counsel actually referred to the impact of the Insurance Contracts Act, s57. I am not in a position to make a finding as to the precise period over which interest should be paid, if at all, and the amount, given the lack of submissions. I will leave the parties to attempt to settle that issue, and will hear further from counsel in the event they are unable to do so.
There will be liberty to apply to the parties in the event they are unable to agree as to the calculations of benefits and interest to be incorporated into any formal order and in relation to the question of costs."
On 1 March 2012, I was advised that the parties had agreed the amount to which the plaintiff was entitled by way of judgment, namely $187,578. The parties also agreed that the entitlement of the plaintiff to interest on that sum was governed by the Insurance Contracts Act 1984 (Cth) ("the Act"), s57, and that the only issue to be determined was the date upon which any entitlement to interest should commence. The parties agreed that the rate of interest to be applied was 8.5%. The other issue to be determined was costs.
Without objection, counsel for the plaintiff filed in Court and read into evidence an affidavit of Carl J Mickels sworn 29 February 2012. He also tendered a batch of correspondence.
Interest
The Act, s57(2), provides:
"The period in respect of which interest is payable is the period commencing on the day as from which it was unreasonable for the insurer to have withheld payment of the amount and ending on whichever is the earlier of the following days;
(a) the day on which payment is made;…"
Counsel for the plaintiff contended that interest should run from the date upon which the defendant ceased to pay benefits on 20 January 2000, that being the commencement of the period over which I found the defendant should have paid benefits. While counsel for the defendant concedes that there is an obligation to pay interest, he submitted that it was not unreasonable for the defendant to have ceased the payment of benefits when it did, and provided a number of possible alternatives as to when it might be said it became unreasonable for it to have done so.
The issue to be determined is the point at which the defendant's withholding of payments after 20 January 2000 became unreasonable. The issue was considered in Diosdado Sayseng v Kellogg Superannuation Pty Ltd (2007) 14 ANZ Insurance Cases 61-738. The insurer in that case argued that interest should not run until a date when the totality of the evidence that was relevant to the issue there, one of total and permanent disablement, was concluded. The insurer argued that it did not have available to it much of the evidence adduced at the hearing, it was reasonable on the basis of the information it did have to decline to pay benefits on a particular date, and to adhere to that decision thereafter.
Counsel for the plaintiff in that case urged Nicholas J to adopt a particular approach. Nicholas J responded at pars[4] – [8] in the following terms:
"4 The plaintiff submitted that the court should adopt the approach taken by Cole, J in Bankstown Football Club v CIC Insurance Limited [Unreported, NSWSC, 17 December 1993] in which he said:
'In my view s 57 is directed to a determination of the point of time at which empirically it can be stated that it was unreasonable to decline to make a payment. The decision is not to be determined simply by a determination of whether or not there was a bona fide dispute regarding the entitlement to payment. It is rather to be determined by a finding as to whether or not there was liability.
If there was liability found and the insurer to pay, then the presumption must be that the insurer ought be deemed to know of that obligation as ultimately determined, even though it may bona fide have held a different view at all times prior to determination, at least at the first instance level, in relation to the question of liability.
A reasonable period is to be given to the insurer to investigate and determine its position. But if it adopts an incorrect position in relation to its obligation to pay under the policy, that, in my view, does not mean that simply because that incorrect position is adopted on a bona fide basis, it becomes reasonable for the insurer to decline to pay the sums otherwise due. That seems to be the correct interpretation of s 57(2), particularly in circumstances of s 57(1) of the Act, where an insurer is liable to pay a person an amount under a contract of insurance.'
5 This decision was followed by Einstein, J in Max Hams v CGU Insurance Limited[2002] NSWSC 843 (para 27) who pointed out (para 25) that: '... The critical issue is what was the date as from which it may be seen in the circumstances of the particular proceedings heard before the Court to have been unreasonable for the insurer to have withheld payment of the amount.'
6 The decision was also followed by Bongiorno, J in HIH Casualty & General Insurance Limited v Insurance Australia (No. 2) [2006] VSC 128 (paras 9, 10). His Honour noted (para 8) that Cole, J rejected a submission that the question of the date from which it became unreasonable for an insurer to withhold payment of a claim depends upon any concept of a bona fide dispute. He continued:
'9 ... Once the court has rejected the insurer's defence to a policyholder's claim, that defence becomes irrelevant as does the fact that the insurer had a bona fide belief in its efficacy. To hold otherwise would put a premium on erroneous advice. Taken to its logical extreme, an insurer which relied upon incorrect legal advice or an inadequate report of a loss adjuster to form a belief as to the possibility of its successfully defending a policyholder's claim would be advantaged by having obtained bad legal or loss adjusting advice. The successful policyholder would be correspondingly disadvantaged by the same irrelevant circumstance.
10 Ormiston J in VL Credits v Switzerland General Insurance assessed interest on the same principle; that is to say he allowed the insurer a reasonable time to investigate the claim and determined the date from which interest ran as being at the end of that time. His Honour appears to have selected a period of three months in a case involving arson as being a reasonable period during which the insurer was entitled to investigate the claim. He awarded interest after that period. His judgment does not suggest that that assessment was made on the basis of evidence as to what the insurer knew and what it did. Rather, it appears to have been selected by his Honour as being a reasonable period taking into account the type of case and the probable issues which had to be investigated.'
7 In my opinion it should now be accepted that the correct approach to be taken by the court on this question is that taken by Cole, J in Bankstown Football Club. In my assessment, the cases to which I have referred establish that the question of reasonableness is to be judged by reference to the true position in respect of the claim with allowance to be made for the insurer to have a reasonable period of time within which to investigate the claim and to consider its position. The discretionary determination is to be made having regard to the particular circumstances of the case, including the probable issues which require investigation. Under the Act the court is not required to evaluate and pronounce upon the opinion or decision-making process of the insurer. It is not relevant that the insurer acted bona fide in denying the claim, or when the judgment of the court established the insurer's liability to pay it. In short, the award will be calculated on the basis of what the court finds is a reasonable time for completion of the insurer's investigation of the claim. Put another way, in my opinion, the insurer is not automatically liable to pay interest from the day on which it became liable to pay to a person an amount under a contract of insurance. Under s 57(2) liability to pay interest is to be calculated with regard to the day on which it was unreasonable for the insurer to withhold payment of the amount after it had become liable to pay it in response to a claim.
8 Entitlement to insurance under the policy in this case is expressed to depend on facts of which the opinion of the insurer is an element. In Sayseng v Kellogg SuperannuationPty Ltd & Anor [2003] NSWSC 945 Bryson, J (para 81) adopted statements in Edwards v. The Hunter Valley Co-op Dairy Co Ltd & Anor[1992] 7 ANZ Ins Cas 61-113 (McLelland J) pp 77,536 and 77,537, of which the following are relevant to the present question:
'Since the commercial purpose of the policy was, relevantly, to provide insurance against the risk of total and permanent disablement, and since the policy was expressed in terms requiring the formation by Zurich of a particular opinion as a condition of Zurich's own liability, there was clearly an implied obligation on Zurich to consider and determine whether it should form that opinion. That involved a consideration and determination of the correct question (see James Noel Eric Butcher v Port(1985) 1 NZLR 491 at 496, 504, and cf Wilson v Metro Goldwyn Mayer18 NSWLR 730 at 734) ...
However in the field of insurance, it is well established that where under a contract of insurance an element of the insurer's liability is expressed in terms of the satisfaction or opinion of the insurer, the insurer is obliged to act reasonably in considering and determining that matter ...'".
Counsel also referred to some earlier cases. However, there is, in my view, no need to canvas those, given the approach is effectively the same as in Sayseng. He also pre-emptively referred to a case which appeared in the defendant's list of authorities, Newey v First Superannuation Pty Ltd [2009] NSWSC 1100. He submitted that that case was determined by reference to its particular facts and provided no real assistance here. What counsel for the defendant actually referred to was par[6] in the judgment of Rein J where his Honour said:
"Where a condition of a policy is met only when an insurer holds an opinion to that effect, the insurer is obliged to act reasonably in considering and determining the matter."
That statement is not at odds with the decision in Sayseng. The issue remains the point at which it could be said the insurer's withholding of benefits in any case becomes unreasonable.
In the present case, the defendant paid benefits up to 20 January 2000. It then stopped paying those benefits. AC&L said in subsequent correspondence that it terminated the policy effective 20 January 2000 by reference to Part 4 of the Policy which deals with termination. Part 4 relevantly provided:
"The Policy will terminate when you die, retire or cease to be engaged in any gainful employment other than whilst in receipt of a benefit under this policy…"
The defendant formed the view based on information supplied by the plaintiff that he had not been employed since 1995. It also advised that 20 January was the date upon which the Financial Industry Complaints Service ("the Service") determined in its finding that no further benefits were payable.
Counsel for the defendant made a number of submissions about the content of the finding made by the Service. However there was no evidence before the Court as to the content of that finding save the reference to it in the letter from AC&L set out in par[63] of the first judgment. There was also no evidence as to the legal effect of the finding. Whatever the status however the defendant seems to have relied upon it as, in part, the basis for discontinuing benefits. I infer, given the role of the Service appears to be to act as an arbitrator of disputes between persons such as the plaintiff and insurers, that it was not an unreasonable step of the defendant to act upon the Service's determination.
The question is therefore, for what period after that determination did it remain reasonable for the defendant to continue to refuse to pay benefits.
The batch of correspondence tendered in relation to submissions as to interest included a letter from the plaintiff's then solicitors to AC&L. It set out a number of questions asked of Dr Crozier by the plaintiff and enclosed his response. I infer the response is that to which I referred in par[58] of the first judgment. At trial, there was also evidence that the plaintiff lodged a progress claim in respect of what he certainly perceived to be an ongoing claim on 13 April 2000. Dr Crozier provided the appropriate certification at the same time. Whatever the nature of the Service's decision, it is quite clear that the defendant was on notice as to continuing claims by the plaintiff after 20 January 2000.
At par[158] of the first judgment, I concluded that:
"The consequence for the Court is that it has, for example, almost no contemporaneous material for the period early 2000 and immediately following. That becomes relevant given that, as a starting point, I have to be satisfied that the plaintiff was totally disabled within the meaning of the Policy at that time. It is not sufficient for the plaintiff to say that he cannot work now for various reasons, therefore, he was totally disabled in 2000, over 11 years ago."
However, I went on at par[163] to conclude by reference to the evidence of Dr Sands that:
"The timing would suggest Dr Sands saw the plaintiff within a few months of the second arthroscopy. At that time he had little hesitation in concluding that, from a physical point of view, the plaintiff was not then fit to perform work with a significant physical component. While there is no direct evidence that the situation then was the same in early 2000, about a year earlier, it is reasonable to accept that it was, and I do so. However, that conclusion by itself does not resolve the issue, given the matters about which the plaintiff has an obligation to satisfy the Court."
Counsel for the defendant contends that the only material it had which might have caused it to in effect carry out some sort of investigation after the Service's determination was the letter of 24 January 2000 and the progress claim of 13 April 2000, and that both related to a claim that the Service had disallowed. While I have the letter and progress claim, I do not, as I have already said, have the Service's decision. I cannot as a consequence determine that it was of such substance that it rendered the defendant's position reasonable in effect until the first judgment and entitled it to ignore the progress claim of 13 April altogether.
I accept the defendant was in the position of an insurer which had an obligation to determine its level of satisfaction about a particular claim, and that it should have had a reasonable time in which to do so. It seems to me that it should have reconsidered the plaintiff's position once it received that progress claim because clearly the plaintiff had not accepted whatever the Service's determination was. Allowing a reasonable time to investigate of, say, three months (while the time frame is arbitrary it was considered reasonable in Sayseng's case), I conclude that at the expiration of that three month period from 13 April 2000, it was unreasonable for the defendant to withhold benefits.
Costs
The plaintiff seeks costs of the proceedings on a party and party basis. He relies on the general rule applying to civil proceedings, that costs should follow the event. The defendant on the other hand seeks orders that:
-the plaintiff pay one quarter of its costs, and
-it pay three quarters of the plaintiff's costs.
As Professor Dal Pont said at 207 of the second edition of his text Law of Costs:
"… the court's discretion to order costs is, in civil matters, ordinarily exercised in favour of the successful party pursuant to the rule that 'costs follow the event'. However, as the discretion in question is unfettered, and must be exercised judicially according to what justice demands in a given case, there are circumstances in which the party ultimately successful may be deprived of some or all of his or her costs, or even be ordered to pay costs to the unsuccessful party, whether generally or regarding certain steps in the action."
He said further at 212:
"In approaching apportionment of costs, a court must strike a balance between not discouraging litigants from canvassing all material issues and not rewarding them for unreasonable conduct in the pursuit of issues. Consistent with this balancing act, there is no fixed rule, only discretion; the court in each case seeks to achieve the outcome most consonant with the justice of each case. In particular, courts have warned of the difficulty of revisiting each issue and tallying 'wins and losses', a concern being that a just and equitable decision on the question of costs is not 'reached simply as a matter of arithmetic'. Judges have remarked, to this end, that '[t]he judgment as to apportionment is in the end an evaluative one', and the exercise of discretion is on 'based largely on impression'. There is the further concern that to embark on detailed inquiries as to success or failure on issues would likely add further uncertainty and complexity to the outcome of litigation, derogating from the prospect of settlement and obliging the court to hear lengthy and frequent arguments as to costs, as an additional burden on its resources and the costs of the parties."
Blow J in Sorell Council v State of Tasmania (No 2) [2004] TASSC 101 at pars[5] – [7] summarised some appropriate principles:
"5 In Burnie Port Corporation Pty Ltd v Bank of Western Australia Ltd [2003] TASSC 132 at par27, Underwood J adopted the following passage from Rtichie's Supreme Court Procedure [52A.11.2]:
'The general approach taken by the courts in these situations is that it will ordinarily be appropriate to award the costs of proceedings to the successful party without attempting to differentiate between those particular issues on which it was successful and those on which it failed - unless a particular issue or group of issues is clearly dominant or separable: Waters v P C Henderson (Aust) Pty Ltd (CA(NSW), 6 July 1994, unreported) (which approved the proposition stated in this note) ...'.
6 In Hughes v Western Australian Cricket Association (Inc) (1986) ATPR ¶40-748 at 48,136 Toohey J summarised the effect of the English and Australian authorities as to the discretion concerning the apportionment of costs as follows:
'1 Ordinarily, costs follow the event and a successful litigant receives his costs in the absence of special circumstances justifying some other order. Ritter v Godfrey [1920] 2 KB 47.
2 Where a litigant has succeeded only upon a portion of his claim, the circumstances may make it reasonable that he bear the expense of litigating that portion upon which he has failed. Forster v Farquhar [1893] 1 QB 564.
3 A successful party who has failed on certain issues may not only be deprived of the costs of those issues but may be ordered as well to pay the other party's costs of them. In this sense, "issue" does not mean a precise issue in the technical pleadings sense but any disputed question of fact or law. Cretazzo v Lombardi (1975) 13 SASR 4 at 12.'
7 In Cretazzo v Lombardi (supra) at 16, Jacobs J said the following:
'But trials occurs daily in which the party, who in the end is wholly or substantially successful, nevertheless fails along the way on particular issues of fact or law. The ultimate ends of justice may not be served if a party is dissuaded by the risk of costs from canvassing all issues, however doubtful, which might be material to the decision of the case. There are, of course, many factors affecting the exercise of the discretion as to costs in each case, including in particular, the severability of the issues, and no two cases are alike. I wish merely to lend no encouragement to any suggestion that a party against whom the judgment goes ought nevertheless to anticipate a favourable exercise of the judicial discretion as to costs in respect of issues upon which he may have succeeded, based merely on his success in those particular issues.'"
Counsel for the plaintiff submitted that the plaintiff had been obliged to come to Court, he was successful in his claim and that the medical evidence he led would have been needed in any event. In those circumstances he should not be effectively punished because of some aspects of his claim in respect of which he was unsuccessful. His success should not be rendered nugatory by an order for costs, the only purpose of which is to punish.
Counsel for the defendant handed up a schedule of issues and outcomes in which he identified matters pursued by the plaintiff, and indicated the outcome. He submitted that, in respect of most identified issues, the plaintiff had failed, and that, in respect of the amount of his claim, what the defendant was ordered to pay represented a very small proportion of what the plaintiff claimed. Having regard to the matters identified it was an appropriate case for this Court to depart from the general rule.
Counsel for the plaintiff argued that delving into these sorts of matters was contrary to authority and should not be done. With respect, the Court is entitled to consider the manner in which a trial was conducted in determining whether there are circumstances which might suggest the general rule that costs follow the event should be departed from.
In the present case I made findings of credit adverse to the plaintiff generally and determined more specifically that he was untruthful about his involvement in business activities. The consequence of those findings was significant. It confined the plaintiff to obtaining benefits for a six year period between 2000 and 2006 as opposed to benefits from 2000 to 2010, plus an amount referable to benefits he might have been entitled to from the last mentioned date for potentially another 35 years. The plaintiff sought a sum in the region of $1.2 million overall plus interest, and is to receive $187,000 plus interest. A significant amount of evidence was directed to the plaintiff's involvement in the particular business.
The plaintiff pursued another issue which he should not have. His case from the start was that he was entitled to indemnity under the Policy from 11 November 1993. That was an argument which was unsuccessful and in my view could never have succeeded if proper regard had been had to the documents the plaintiff tendered on the trial. While not a large proportion of the time at trial was devoted to it, it was a matter upon which a decision was required and was addressed by both counsel.
In his pleadings, the plaintiff also pursued a claim which was statute barred. That bar was pleaded against him years before the trial. Despite that the plaintiff maintained the claim in a statement of claim prepared only months before the trial, and it was not until counsel for the plaintiff opened his case that the claim was abandoned. While little time was devoted to it at trial, it was a matter upon which the defendant had to have anticipated a need to prepare an argument.
While I accept that this is not a case where I can determine costs on an issue by issue basis, and should not attempt to do so, there are factors which suggest that it is not appropriate that the plaintiff have his full costs of trial. These factors do not allow for any precise mathematical calculations, nor is it possible to identify that a precise percentage of the time spent at trial should not be allowed for. It is a matter of an evaluation or impression of what justice requires.
The plaintiff did indeed need to come to Court to substantiate that part of his claim upon which he was successful, and he did need to call the medical witnesses he did. However the manner in which he conducted himself during the trial, and in particular the attempts he constantly made to distort the picture of himself that the Court needed to form, suggests he should not have all his costs.
In the circumstances, the order as to costs is that the defendant pay three quarters of the plaintiff's costs on a party and party basis, such costs to be taxed if not agreed.
Outcome
The orders of the Court in relation to the action are therefore as follows:
1.That judgment be entered for the plaintiff against the defendant in the sum of $187,578.
2.That the defendant pay interest on the judgment sum at the rate of 8.5% from 13 July 2000 to the date of payment pursuant to the Insurance Contracts Act, s57(2).
3.That rule 887A is not to apply to this judgment.
4.That the defendant pay three quarters of the plaintiff's costs of the action to be taxed if not agreed.
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