Titley v Tower Life Australia Limited No. DCCIV-96-648 Judgment No. D3646

[1997] SADC 3646

TITLEY  v  TOWER LIFE AUSTRALIA LTD

Civil:  Minor Civil Action Review
Judge Wilson

This is an application by the applicant, a party dissatisfied with a judgment given in a minor civil action, for review of the proceedings in that minor civil action.

The minor civil action in question involved a claim of $3,682.00 by an insured (the plaintiff in the action and the applicant herein) against an insurance company (the defendant in the action and the respondent herein).  The claim arose out of an income protection policy of insurance in respect of which the insurance company refused to indemnify the insured.  The insurance company denied liability for the claim upon the ground that a document tendered in support of the insurance claim, namely an accountant’s "statement of ongoing expenses", had been forged or fraudulently prepared by the insured.  It was contended that the claim had, therefore, been made fraudulently.  It was neither specifically contended that the insurance company had avoided (or was entitled to avoid) the contract of insurance nor specifically contended that the insurance company had refused (or was entitled to refuse) payment of the claim.

Had this been an ordinary civil claim (as opposed to a claim in a minor civil action) the rules of procedure (Rule 46.10) would have required the defendant to plead the Insurance Contracts Act 1984 if it relied (as it did) upon the statutory defence contained in section 56 of that Act. The defendant would have been required to identify in its pleading (the defence) the particular provision (viz. s. 56) in the statute (The Insurance Contracts Act 1984) upon which it relied and the specific relief ["a declaration that the defendant (was) entitled to refuse payment of the claim"] which it claimed pursuant to such statute.

However, this was a claim in a minor civil action. The trial was to "take the form of an inquiry by the Court into the matters in dispute between the parties rather than an adversarial contest between the parties" [section 38(1)(a) of the Magistrates Court Act 1991], the parties were "not bound by written pleadings" [section 38(1)(d)], the Court was "not bound by the rules of evidence" [section 38(1)(e)], and the Court was obliged to "act according to equity, good conscience and the substantial merits of the case without regard to technicalities and legal forms" [section 38(1)(f)].

Although section 56 of the Insurance Contracts Act was not specifically pleaded and although it was understandable that the learned Special Magistrate, who heard and determined the minor civil action, did not apparently turn his mind to that statute and its implications for the parties, that statute, though not codifying the law of insurance in Australia, had application to the situation in which the parties found themselves. That Act inter alia prevents an insurer from avoiding the contract of insurance for fraud but permits the insurer to refuse to pay a fraudulent claim. The Act provides the Court with a discretion to order the insurer to pay a just and equitable amount, provided that only a minimal or insignificant part of the claim is fraudulent and non-payment would be harsh and unfair

At the hearing and determination of this minor civil action no oral evidence was adduced. It seems that the learned Special Magistrate spoke to the plaintiff and a representative of the defendant. Some documents were tendered. No transcript of the proceedings was kept. After some discussion and negotiation, the learned Special Magistrate gave an extempore judgment. In his Reasons, the learned Special Magistrate referred to the circumstances in which the plaintiff claimed that the decision to forge the accountant’s signature were made and referred to the plaintiff’s submission that, though "the document (was) fraudulent, it contain(ed) all accurate information ...". In holding that the plaintiff was not entitled to the amount claimed upon the ground that this forgery "preclud(ed) the plaintiff from relying upon it" and in stating that the plaintiff was "estopped from claiming a right which should be prevented by his own dishonest actions" and in "dismissing" the claim, the learned Special Magistrate made no specific reference to the Insurance Contracts Act. The applicant is dissatisfied with the decision of the learned Special Magistrate to dismiss the claim. I conclude that the learned Special Magistrate dismissed the claim either upon the ground that the contract could be avoided (or was vitiated) or upon the ground that the applicant was estopped or precluded from claiming payment thereunder or otherwise. It is conceivable that the learned Special Magistrate had the Insurance Contracts Act in mind, even though he made no reference to it, but what is of more importance is that, even if he had it in mind, he gave no indication in his Reasons of him having "refuse(d) payment of the claim" pursuant to section 56(1) or having had regard to the discretionary power which is granted by virtue of section 56(2) and (3).

Section 56 of the Insurance Contracts Act 1984 provides:

"56(1)  Where a claim under a contract of insurance, or a claim made under this Act against an insurer by a person who is not the insured under a contract of insurance, is made fraudulently, the insurer may not avoid the contract but may refuse payment of the claim.

(2)  In any proceedings in relation to such a claim, the court may, if only a minimal or insignificant part of the claim is made fraudulently and non-payment of the remainder of the claim would be harsh and unfair, order the insurer to pay, in relation to the claim, such amount (if any) as is just and equitable in the circumstances.

(3)  In exercising the power conferred by sub-section (2), the court shall have regard to the need to deter fraudulent conduct in relation to insurance but may also have regard to any other relevant matter."

The word ‘fraudulently’ is not defined in the Act, so, to ascertain its meaning, recourse must be had to the common law. Fraud cannot be presumed merely from the fact that the applicant attempted to support his claim by a forged document. The burden is upon the respondent to establish fraud on the part of the applicant. In order to establish fraud, it is necessary for the respondent to prove that the conduct of the applicant was "fraudulent in the sense of an intention to deceive and defraud the (insurance company) by getting out of (it) money (he) knew (he) had no right to" [Norton v The Royal Fire and Accident Life Assurance Company (1885) 1 TLR 460 per Lord Coleridge LCJ at p. 461].

Before embarking upon the hearing and determination of this review on its merits I should discuss briefly the kind of review section 38(6) to (8) of the Magistrates Court Act creates and what procedure should be followed.

Section 38 provides:

1. ...

(2)     ...

(3)     ...

(4)     ...

(5)     ...

(6)     The District Court (constituted of a single Judge) may, on the application of a party dissatisfied with a judgment given in a minor civil action, review the proceedings and, if it appears just to do so, set aside the judgment and give any judgment that should, in the opinion of the District Court, have been given in the first instance.

(It is intended that the District Court should give a final judgment on the review and should not send the matter back to the Magistrates Court for further hearing or for re-hearing.)

(7)     On a review, the District Court  -

(a)     may inform itself as it thinks fit on the subject-matter of the
                  appeal [sic] and, in doing so, is not bound by the rules of
                  evidence;  and

(b)     may, if it thinks fit, re-hear evidence taken before the
                  Magistrates Court.

1. In hearing and determining an application for review, the District Court must act according to equity, good conscience and the substantial merits of the case without regard to technicalities and legal forms."

(The emphasis is mine.)

Other than is implicit in the words emphasised, no mention is made in section 38(6), (7) and (8) to the procedural rules or principles which should guide this Court on the hearing of a review.  In determining how reviews under the Act should in general be approached, theoretically I could go to one extreme and treat the review as a total re-hearing of evidence and argument without regard to the learned Special Magistrate’s decision or reasoning;  or I could go to the other extreme and decline to interfere unless satisfied that the learned Special Magistrate had manifestly committed a fundamental error of law or principle;  or I could take a stand between the two extremes.

In determining the basis upon which this Court must go about its task of reviewing the proceedings under section 38(6), (7) and (8) of the Magistrates Court Act, guidance is to be found in Avon v Administrative Appeals Court - unreported decision of the Full Court of the Supreme Court of South Australia in S6142 - decision handed down on 8th May 1997. In that case, which was an appeal against a decision of the Administrative Appeals Court, which had reviewed the decision, direction or order of the Guardianship Board, Olsson J directed attention to the scheme of the Guardianship and Administration Act 1993 and then determined the basis upon which the Administrative Appeals Court and the Supreme Court were required to go about their appellate tasks under that Act. His Honour reviewed the authorities including Spiel v The Workers Rehabilitation and Compensation Corporation (1992) 58 SASR 45, Colpitts v Australian Telecommunications Commission & Ors (1986) 9 FCR 52, Smith v St John Ambulance Australia - South Australia Incorporated and Ors (1991) 162 LSJS 404, Symons v The District Council of Karoonda East Murray (1979) 46 SAIR Pt. 1 1136, Boston Clothing Co Pty Limited v Margaronis (1992) 27 NSWLR 580. If I may adopt and adapt what Olsson J said (at p. 13), this Court is required to reconsider the proceedings complained of, in the setting which gave rise to them, on a broad basis, having regard to the nature of the jurisdiction exercised under the Magistrates Courts Act; and to form its own opinion as to the propriety of what was done. In so doing, this Court will, on the one hand, not be fettered by technical principles related to the conduct of appeals, but will necessarily bear well in mind and give due regard to the fact that the decision appealed against is that of (a judicial and, to that extent, a specialist) tribunal, which ought not, lightly, to be overturned. On the other hand, it is clearly the intention of the statute that this Court is to exercise an independent judgment in assessing whether or not the Court, whose proceedings are being reviewed, "fell into error" in relation to the merits of the proceedings. This Court must formulate its own conclusion and should not hesitate to give effect to it, if it believes that "there are suasive reasons for dissenting" from what was done by the learned Special Magistrate.

I do not overlook the warning given by Olsson J to the effect that, even though a Court, whose proceedings are being reviewed, may have, as the learned Special Magistrate did here, "an extremely wide discretionary charter", there is no room (or "charter") for "an arbitrary idiosyncratic approach".

Matheson J’s review of the authorities included R v The Industrial Court of South Australia; ex parte District Council of Karoonda East Murray (1980) 24 SASR 117, Colpitts case supra (which applied inter alia Builders Licensing Board v Sperway Constructions (Syd) Pty Ltd (1976) 135 CLR 616), Santos Limited v Saunders (1988) 49 SASR 556, Smith’s case supra, Boston’s case supra, Santin and Others v The Corporation of the City of Woodville (1971) 1 SASR 336, and Transfield (Adelaide) Pty Ltd v Corporation of the City of Port Augusta (1982) 29 SASR 467.

In the end, Matheson J did not find it necessary to define precisely the nature of the appeal to the Administrative Appeals Court or the nature of the appeal to the Supreme Court.  What His Honour did say (at p. 27) was:

"...  the appeal court is required to look over the decision appealed and
to identify and correct any error."

(The emphasis is mine.)

In so far as Avon’s case laid down principles to be applied in a review, I am content to follow that binding authority. I should add that I am indebted to two of my judicial colleagues for helpful discussions of relevant authorities on appeals and reviews and for the persuasiveness of their reasoning. I refer to His Honour Judge Kitchen in Rowe v Director of Fisheries (1994) 179 LSJS 368, and to His Honour Judge Noblet in a Discussion Paper presented at a District Court Judges’ Seminar held in April 1997. I am persuaded to the view that, on a review of proceedings involving a minor civil action, the applicant must establish that there has been an error or irregularity in the proceedings that would justify interfering with the learned Special Magistrate’s decision.

At one point, during the legal argument presented before me, it was suggested by Mr Blumberg that section 13 of the Insurance Contracts Act may, in some way, provide further justification for the decision made in the proceedings under review.

Section 13 provides:

"13.  A contract of insurance is a contract based on the utmost good faith and there is implied in such a contract a provision requiring each party to it to act towards the other party, in respect of any matter arising under or in relation to it, with the utmost good faith."

I am satisfied that, although section 13 standing alone might have provided such justification, it does not do so here. As superficially attractive as Mr Blumberg’s submission was, it must not be forgotten that, in applying the principle of statutory interpretation known as generalia specialibus non derogant, the provision of general application (section 13) gives way to the specific provision (section 56) in so far as there is conflict [see Perpetual Executors and Trustees Association of Australia Ltd v FCT (1948) 77 CLR 1 at p. 29]. The important issue, therefore, arising on this review is not whether the applicant’s conduct constituted a breach of the duty of utmost good faith, but whether it comes (and, if so, to what extent) within the purview of section 56.

It is apparent from an examination of the limited material available to this Court regarding what transpired before the learned Special Magistrate that he made an error of law (an error of omission) in that he failed to turn his mind to section 56 of the Insurance Contracts Act (and specifically to the issues of whether this claim had been "made fraudulently" within the meaning of that Act and, if so, whether or not the discretionary power should be exercised or not). Had the learned Special Magistrate so turned his mind, he would have determined whether this claim had been "made fraudulently" and, if so, whether "a minimal or insignificant part of the claim" had been made fraudulently and whether "non-payment of the remainder of the claim would be harsh and unfair" and what "amount (if any)" it would be "just and equitable in the circumstances" to order the insurer to pay.

It appearing to me to be just to do so, I set aside the judgment of the learned Special Magistrate. But for the enjoinder (in parenthesis) in section 38(6) not to send a minor civil action "back to the Magistrates Court for further hearing or for re-hearing", I might have been disposed to send this matter back to the Magistrates Court for further hearing as to the issues which were overlooked. In the circumstances as they have arisen (and having regard to the respective wishes of the parties as expressed by their counsel), I propose now to fix a time and date for the further hearing of this review at which I will, first, hear counsel as to whether, upon the learned Special Magistrate’s Reasons, it is right to conclude that this claim was "made fraudulently" within the meaning of the Insurance Contracts Act and, if so, I will, secondly and with a view to determining what judgment should have been given in the first instance, receive such evidence as the parties might see fit to adduce directed to the matter of the discretionary powers of a Court hearing a minor civil action involving the application of section 56 of the Insurance Contracts Act. In the context of the issue of whether, on the learned Special Magistrate’s findings, this claim may be said to have been "made fraudulently", I should hear counsel inter alia as to whether I should apply and follow G.R.E. Insurance Limited v Ormsby and Others (1982) 29 SASR 498 and, in particular, the dicta of Mitchell J at p. 502, Walters J at p. 504 and Cox J at p. 507.

I consider it to be appropriate, in all the circumstances, to indicate that, if this claim was "made fraudulently", I think that matters of proof are likely to arise at the further hearing of this review. Whilst the respondent, who alleges fraud, bears the onus of proof and whilst the standard of proof is the ordinary civil standard and whilst the strength of the evidence necessary to establish a fact or facts on the balance of probabilities varies according to the nature of what is sought to be proved [see Briginshaw v Briginshaw (1938) 60 CLR 366; Rejfek v McElroy (1965) 112 CLR 517; and Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 110 ALR 449], evidence may need to be given, not only by a person or persons on behalf of the insurer, but also by the applicant and/or a person or person on his behalf to testify inter alia to the extent to which this was an honest (or a valid) claim; to the extent to which, if at all, there was an intention on the part of the applicant to get, and knowingly to get, more than he was really entitled to; to the extent to which the forged document affects (or taints) the totality of the claim or other claims; to the extent to which the "fraudulent" part of the applicant’s claim is quantifiable and/or represents "a minimal or insignificant part of the claim"; to the extent to which "harshness" or "unfairness" to the applicant would arise if the claim or part thereof were not paid; to the extent to which the total loss of the applicant’s claim would be disproportionate to the harm which the applicant’s conduct has or might have caused; and, generally, appertaining to the matter of "justice and equity in the circumstances". Upon a further hearing of this review I apprehend the necessity to give counsel an opportunity to be heard as to the extent to which, assuming arguendo that this claim was "made fraudulently", "the need to deter fraudulent conduct in relation to insurance" and "any other relevant matter" should be allowed to reduce the amount otherwise to be paid by the respondent to the applicant whether or not the respondent has been significantly prejudiced by the fraud. I further apprehend that, if this claim is to be characterised as one that was "made fraudulently", at least some moderate allowance in favour of the respondent would need to be made in any event in order "to deter fraudulent conduct in relation to insurance". In this context the words of Cox J in Ormsby’s case would seem to be to the point:

"Certainly an insurer is heavily dependent upon the information supplied to him by the assured as long as the contract is on foot, and it is obviously reprehensible of an assured to seek to supplement with false material the evidence tending to show that his loss falls within the provisions of the policy.  Any assured who falsifies evidence ... runs a serious risk of being found to have put forward a false claim in the first place ... ".

IN COURT ON 29 JULY 1997

Matter adjourned to 16th September 1997 for mention only.

IN COURT ON 16 SEPTEMBER 1997

Matter adjourned to 30th September 1997 for mention only.

IN COURT ON 30 SEPTEMBER 1997

Matter adjourned to 16th February 1998 for further hearing.