Tyndall Life Insurance Co Ltd v Chisholm

TYNDALL LIFE INSURANCE CO LTD v CHISHOLM
[1999] SASC 445

Civil

1 DEBELLE J. This is an action by an insurer seeking a declaration that it has validly avoided a policy of life insurance and to recover from its insured a benefit it had paid under the policy. Shortly stated, the insurer's claim is based on what it asserts to be fraudulent non-disclosure and fraudulent misrepresentations by the insured. The insurer alleges that the defendant fraudulently failed to disclose material information and made fraudulent misrepresentations concerning his medical history when applying for the policy of life insurance.
A Life Insurance Policy

2 In March 1991 the plaintiff, Tyndall Life Insurance Co Ltd ("Tyndall"), introduced a policy of life insurance called "Get Well Money". The policy paid a benefit of $500,000 if the insured suffered a "medical event" before reaching the age of 65 years. A "medical event" was defined in the policy to mean death and a number of major illnesses which included cancer. The defendant submitted a proposal for the policy in early June 1991. His proposal was accepted and a policy was issued, taking effect from 1 July 1991. In May 1992 the defendant was diagnosed as suffering from cancer of the colon. He underwent surgery on 3 June 1992 and the cancer was removed. On 1 June 1992 the defendant gave notice of a claim under the policy. On 17 June he lodged his claim and the claim was paid on 25 August 1992. The defendant received the full benefit of $500,000.
3 The policy also provided for what it called the "Take Up Option". Shortly stated, the insured had the option, after the medical event had occurred, to obtain additional life cover. I will later explain the option in greater detail. On 20 September 1995 the defendant exercised the option and has since paid premiums to obtain this life cover.
4 In 1996, as a result of receiving certain information, Tyndall investigated the circumstances surrounding the application for the policy in 1991. On completing its investigations, it sent a letter to the defendant dated 18 September 1996 informing him that, in its opinion, the defendant had been guilty of fraudulent non-disclosure and fraudulent misrepresentation and purported to avoid the policy from its inception. It sought recovery of the sum of $497,502.20, being the benefit paid under the policy less the premiums paid. Having avoided the policy, Tyndall also informed the defendant that he could not recover pursuant to the Take Up Option.
5 The defendant failed to pay the sum of $497,502.20. Tyndall, therefore, instituted these proceedings in which it seeks

A declaration

(a) that it has validly avoided the policy, and

(b) that it is entitled to be repaid the sum of $500,000 less a credit of $2,497.50 for the premiums repayable to the defendant upon avoidance.

In the alternative, an order for rescission of the policy on the basis of fraudulent non-disclosure and/or fraudulent misrepresentation and that the sum of $497,502.20 be repaid by the defendant to Tyndall.

In the alternative, that the defendant pay the sum of $497,502.20 to the plaintiff as money had and received to the defendant's use under a mistake of fact.

6 The policy referred to in the prayers for relief is the original policy issued in June 1991. Given that Tyndall in August 1992 paid the defendant the benefit due under the policy issued in 1991, it is a nice question whether there now exists a policy which Tyndall is entitled to avoid since the obligations under the policy issued in 1991 had been executed when the defendant had been paid the benefit. The exercise of the "Take Up Option" in September 1995 led to the formation of the fresh contract. Thus, it may be more accurate for Tyndall to claim recovery of the sum of $497,502.20 as money paid under a mistake of fact and to seek a declaration that it is entitled to avoid the 1995 policy. It is unnecessary to stay with these issues since the terms in which the relief is sought are sufficient to order the appropriate relief. Furthermore, if it is necessary, I rely on the power vested in the Court by s 27 of the Supreme Court Act 1935 to grant such relief as it deems just or such remedies to which the parties may be properly entitled so as to determine all matters of controversy between the parties may be relied.
7 It is necessary to determine a number of issues under the Insurance Contracts Act, 1984 (Cth) ("the Act"). It is common ground that the policy was a contract for life insurance under the Act: see subss (3) and (5) of s 11 of the Act. I turn to examine the facts in greater detail.
The Witnesses
8 There is a good deal of common ground as to the relevant facts. The issues of fact mainly concern the defendant's conduct when applying for the policy, his then state of mind, and the reasons for his undertaking a test called a Detectacol test. I will later explain the nature of that test.
9 All of the witnesses called by the plaintiff gave their evidence satisfactorily and I accept their evidence. The defendant gave evidence. He also called his former wife and Dr Williams. I accept the evidence of Dr Williams for reasons which I give later. For understandable reasons, the defendant's former wife had an imperfect recollection of the events to which she deposed. Her evidence did not clarify many issues of fact. She gave the distinct impression she was prepared to say whatever might assist the defendant. Her evidence mainly concerned the purchase of the Detectacol kit and the defendant's use of it. In the result, little turns on her evidence.
10 The defendant was an unsatisfactory witness. At times he was evasive and appeared to be seeking to tailor his evidence to assist his cause. On other occasions, he sought to shift responsibility to others, particularly Dr Hume. I will refer to that in more detail later. Some of his evidence is at odds with objective facts. His reasons for particular aspects of his conduct were unconvincing. In this respect I refer to his explanations for the occasional use of a false name. His demeanour in the witness box was unconvincing and conveyed the impression that his evidence lacked candour. The defendant adduced character evidence from his former wife and a Mr Dupavillon, the insurance broker who had arranged for him to take out the policy with Tyndall. I place no reliance on this evidence. Whatever effect it might have had was set at nought by the fact that in 1985 and in 1989 the defendant, when applying on each occasion for a policy of life insurance, wrongly answered questions in the application. On the most charitable view, the answers were careless. The answer in 1985 was at least made recklessly as to their truth. I did not accept the defendant's answer that the errors were inadvertent. For these reasons I am not prepared to accept his evidence except where it is supported by other credible or objective evidence.
The Defendant's Medical History
11 The allegations of fraud are founded on the defendant's alleged failure to comply with the duty of disclosure and his misrepresentations concerning his medical history and events which occurred at the time he made his application for the policy. It is convenient, therefore, to note those matters first.
12 The defendant was born on 10 September 1950. At the relevant times he was managing director of a successful building company. The company later found itself in financial difficulty but that was some years after the events the subject of this action.
13 In July 1983 the defendant consulted a Dr Anderson at Malvern concerning rectal bleeding. Dr Anderson made a diagnosis that the bleeding was caused by haemorrhoids. Dr Anderson's note of the examination includes a note which I infer asks whether a sigmoidoscopy should be conducted if the condition persisted. There is nothing to indicate whether he communicated that view to the defendant and I am not prepared to infer that he did.
14 The defendant continued to experience episodes of rectal bleeding on an irregular basis throughout the period from July 1983 to June 1992. The defendant had no specific recollection of how many occasions he experienced this problem. There was no specific pattern, although the bleeding was usually associated with stress and was accompanied by constipation. Each episode would last approximately two to three days and these episodes occurred sometimes once a year and in other years on two to four occasions. After the consultation in July 1983 the defendant did not consult either Dr Anderson or any other general practitioner about the rectal bleeding. The defendant said that he did not believe the condition to be serious. He did not consult any general practitioner concerning the condition.
The Detectacol Test
15 In early June 1991, the defendant participated in what was called a Detectacol test. As a step towards assisting the early detection of conditions, including cancer, which might be causing bleeding of the colon, the Institute of Medical and Veterinary Science ("the IMVS") had developed in the mid to late 1980's a kit by which individuals could collect samples of faeces and submit them for analysis. The analysis determined whether there was occult blood in the faeces, that is to say, it determined whether there was blood in the faeces which could not be seen. The purpose of the test is to determine whether there is bleeding in the large bowel, that is to say, in the colon or rectum. The kit was called a Detectacol kit. Medvet Science Pty Ltd ("Medvet") is the commercial arm of the IMVS. Some employees of the IMVS also carry out work for Medvet. Medvet is responsible for, among other things, producing and marketing the Detectacol kits.
16 The Detectacol kit provides a means by which individuals are able to submit samples of faeces for analysis without consulting a medical practitioner. The kits are available for purchase, usually at pharmacies. The participant is instructed to collect three samples of faecal material, usually on consecutive days, place them in appropriate containers, and deposit them at a collection centre. The faecal material is then subjected for analysis at the IMVS. The participant is advised of the results in writing. A test which produces a negative result means that the test did not detect blood in the faeces. A positive result indicates abnormal pathology in the colo-rectal region. It does not necessarily indicate cancer. The pathology may indicate a range of conditions from the serious, such as cancer of the colon, to the less serious, such as haemorrhoids and diverticulitis. If the test produces a positive result, further medical investigation is required to determine the cause of the bleeding.
17 If a positive result is detected, the participant is advised to conduct a medical practitioner. In 1991 the letter sent to participants whose test was positive was in these terms:
Detectacol Bowel Cancer Screen

Reference number...............
Dear

We advise you that your BOWEL CANCER SCREEN using DETECTACOL was POSITIVE. If requested on your Participant Information card, this report has also been sent to your designated doctor and we strongly recommend that you contact your doctor as soon as possible so that the cause of the positive test can be ascertained. It should be stressed that this test involves the detection of blood and there are various conditions, other than bowel cancer, which can cause blood to be found in a bowel motion. However, if the cause is bowel cancer, it may be at an early stage where prompt treatment is likely to have a good result.

We thank you for participating in this programme.

Yours sincerely,

Dr. D.W. Thomas for
MEDVET SCIENCE PTY LTD

DISCLAIMER
The results of the tests will be accurate in most, but not all, cases. Because the accuracy of this test depends upon the proper collection of specimens and the storage of the specimens prior to testing, in some cases the results may not be accurate. No representation is made that the result will always be accurate.

MedVet Science Pty. Ltd., its servants and agents accept no responsibility for any claim or demand of any kind arising out of the tests.

18 The material which was provided with the kit included a document called "Participant Information Card". The card bears a large, clear heading, "Detectacol - Bowel Cancer Screen". It bears a serial number used for reference purposes. The participant is asked to complete the card and return it with the specimens. The card requires the participant to advise his surname, first name, date of birth, address and telephone number. On the reverse side of the card the participant is asked a number of questions and other information is provided. The reverse side of the card is in the following form:
Have you or any relative(s) previously had a bowel polyp or cancer? Yes/No

If yes, relationship(s) 1.________________________ Age of diagnosis________________
  2.________________________ Age of diagnosis________________
             3.________________________ Age of diagnosis________________
___________________________________________________________________________________________
If you wish your doctor to be notified of the results (and      The on-going evaluation of the BOWEL CANCER
you are encouraged to do so) please indicate the name PROGRAM requires details of the positive results. If
and address of your general practitioner below. your result is positive do you give permission for us to
     approach your doctor for details? This information
     will be kept confidential. If you agree, please sign
Dr._______________________________________ the statement below.
_________________________________________
_________________________________________ I give Medvet Science Pty Ltd permission to obtain
_______________POSTCODE________________    information about my positive DETECTACOL result
     from my doctor, whose name is shown on this card.
     PLEASE SIGN HERE ___________________

DATE / /

At the foot of the form are the logotypes of Medvet and Mutual Community, a medical insurer. Beneath the logotypes are the words "This bowel cancer screen is supported by Mutual Community in the interests of good health."

19 The defendant's wife had purchased a Detectacol kit from a pharmacy. She suggested that the defendant use it. The defendant said that he placed no reliance on it. His evidence was that he dismissed the test as a waste of time, believing it to be a money-making scheme and not a valid testing procedure. In his evidence the defendant sought to distance himself from it in other ways, for example, by saying that he put it in a cupboard and forgot about it. I do not accept the defendant's evidence. For the following reasons, I find that he was fully aware of the purpose and intent of the test. A casual reading of the Patient Information Card shows that the purpose is to screen for bowel cancer. This medical purpose is emphasised by the questions as to family history and the question whether the participant wishes his doctor to be notified of the result. There was, it seems, an instruction to take the collected material to the IMVS for testing since the defendant knew it had to be taken there and did, himself, take it there. The defendant knew that the IMVS was a testing laboratory for both human and animal conditions. He acknowledged, in cross-examination, that he was aware that this was a test to screen for cancer and that the test was for a serious purpose. He also admitted that he had read the instructions on the Detectacol test. In my view, the defendant's evidence was a misguided attempt to diminish the significance of his participation in the Detectacol test.
20 The defendant's evidence was that on Saturday, 31 May 1991 he noticed traces of blood on toilet paper after he had passed faeces. He decided to use the Detectacol kit. Samples of faeces were collected on 1, 2 and 3 June. He delivered them to the IMVS on 3 June. He completed the Participant Information Card. However, he did not give his correct name. Instead he gave a corruption of his name. He called himself Neville James. His full name is Neville James Chisholm. The defendant also deliberately gave an inaccurate birth date. However, he gave his correct address. He said that his reasons for giving the incorrect information was that he wished to protect his confidentiality and privacy believing that the Detectacol kit was no more than a commercial product produced for profit. He marked the form to indicate that he did not want the results sent to a doctor because he did not then have a doctor whom he regularly consulted.
21 The defendant's evidence was that he could not remember when he received the letter reporting the results of the test. He went so far as to assert that he did not receive the results until some two to three weeks after he had submitted the samples. He said that he did not open the letter but his wife presented him with the result. I do not accept that evidence. It is another attempt by the defendant to distance himself from or play down his participation in this test. He said that, although the results had showed the presence of blood in his faeces, he believed the results did no more than confirm what he already knew and that he saw no point in consulting a general practitioner. For the reasons which follow I find that the defendant received the results of the test on 10 or 11 June 1991.
22 There was a close examination of the procedures of the IMVS for testing and analysing samples submitted in Detectacol kits and the posting of the letter reporting the results. This inquiry was for the purpose of determining when Medvet sent the results to the defendant. Those procedures were described by Dr Edwards and Ms McArthur. Dr Edwards and Ms McArthur could only give evidence of the practice at the IMVS. I accept their evidence. Given the fact that it is now some seven years since the tests on the samples submitted by the defendant and the fact that so many samples are tested, it is hardly surprising that they have no specific recollection of the date when the tests were sent. I am satisfied that the practice they described was in fact carried out. I find that the following steps occurred.
23 Ms McArthur works as a technician for Medvet. In 1991 she worked only on Wednesdays, Thursdays and Fridays. In 1991 she worked on Wednesday 5 June, Thursday 6 June and Friday 7 June.
24 The defendants' samples were received by the IMVS for testing on 3 June. The next day, a technician employed by IMVS prepared the samples for analysis along with samples submitted by other participants. That process involved placing a portion of each sample on gel plates. The gel plates were left overnight. The following day, 5 June, the gel plates were treated and examined for the purpose of determining the results. On the afternoon of 5 June, Ms McArthur examined the results of the tests and recorded the results for each participant on a work sheet. On either that day or the next, she recorded the results on each individual patient card. Her next step was to record the participant details and the results of the tests on a computer. The computer then printed the letters to the individual patients. She checked the letters notifying a positive result against the individual result cards and, having done so, placed the letters in envelopes addressed to the participants. She first undertook this procedure in relation to positive results and repeated it for the negative results. She then took all of the letters to the reception area, where a person was responsible for posting letters. Having done that, she then recorded on the work sheet the date when she handed over the letters for mailing in a column headed "Sent".
25 Below the word "Sent" a note of a date is entered. It is the date when the results are recorded on a computer and when the results are placed in envelopes for mailing to participants. It is also the date when the letters with the results were taken to be posted. It does not necessarily mean that it is the date when the results are mailed. Beneath the word "Sent" is the date "7/7/91". I am satisfied for the following reasons that the entry of the date is incorrect and ought to have been noted as 7 June 1991. First, in 1991, 7 July was a Sunday. The evidence shows that the IMVS did not work on these tests on Sundays. Secondly, Ms McArthur was working on 5 and 6 June and, in particular, on Friday 7 June. Her evidence was that she is unable to say whether she took the letters to the reception area for mailing on the Thursday or the Friday. She can do no more than say that the "positive" letters would have been sent on the Thursday or Friday. Had she correctly noted the date of sending as being 7 June, that would have been entirely consistent with her evidence. In short, the usual sequence by which the tests were conducted and the positive results were notified first is entirely consistent with Ms McArthur sending the results on 7 June. Thirdly, the procedure at the IMVS was intended to ensure that results were sent to participants within seven days. Fourthly, all of the tests in the sequence including the defendant's tests were conducted in June, not July. It is apparent from pages which precede and succeed the work sheet completed by Ms McArthur that the results of tests completed after the samples tested on 4 June had been sent in June. Finally, while it is possible for any system of work practice to fail, I do not think that it is at all likely that the system would fail to the extent of sending the results one month late and on a Sunday. Despite the fact that neither Medvet nor the IMVS kept a record of when letters with results were mailed, I find that the results of the analysis of the samples submitted by the defendant were sent to him on Friday 7 June 1991. The notation 7 July is a clerical error and no more. I find also that the defendant would have received the results in the ordinary course of post on Monday or Tuesday 10 or 11 June 1991.

An Offer to Obtain Insurance
26 It is against the background of the defendant's rectal bleeding and his participation in the Detectacol kit that the defendant's application for this insurance policy should be considered.
27 In 1991 Mr Dupavillon carried on business as an agent in Adelaide for several insurance companies. As I understand his evidence and the observations of Lush J in Norwich Union Fire Insurance Society Ltd v Brennans (Horsham) Pty Ltd [1981] VR 981 at 985, Mr Dupavillon was, in fact, an insurance broker. However, nothing turns on his status. One of Mr Dupavillon's clients was the defendant. From time to time he called upon the defendant and informed him of new kinds of insurance which were available. At some time in about May 1991, after Tyndall had introduced its Get Well Money policy, Mr Dupavillon called upon the defendant and told him about the benefits of the policy. He left with the defendant a document prepared by Tyndall which compared its policy with other similar kinds of insurance then being sold by other insurers. In Mr Dupavillon's own words, he tried to sell the benefits of Tyndall's policy to the defendant. The defendant asked him to provide quotations. Mr Dupavillon prepared and sent to the defendant documents dated 13 May 1991 which examined the benefits and the cost of the Tyndall policy. It would not be unfair to say that the documents promoted the benefits of the Tyndall policy.
The Application
28 On 30 May 1991 Mr Dupavillon again saw the defendant at the defendant's office. It is not clear whether the meeting was arranged by Mr Dupavillon or the defendant. It is reasonable to infer that it was arranged by Mr Dupavillon who was clearly trying to sell the Tyndall policy to the defendant. At the meeting on 30 May Mr Dupavillon had with him two forms prepared by Tyndall. The first was called "Combined Application Form". The second was called "Confidential Medical Report". Mr Dupavillon asked the defendant the questions in the Combined Application Form and wrote down his answers. All of the answers were correct. The application was signed by the defendant.
29 The application included a notice to the applicant concerning the applicant's duty to make disclosure. It was headed "Insurance Contracts Act 1984 (Please read carefully)". Just below that notice were two declarations to be signed by the person to be insured that the answers to the questions in the application were true and complete. They were in these terms:
"I, the Life to be Insured, declare that all the answers to the above questions and statements concerning myself made in this Application are true and complete, and that I am not aware of any other circumstances which might affect the risk of any insurance on my life. If any answer is not in my handwriting I declare that it has been correctly written down at my dictation. Any company and any doctor who has been or may thereafter be consulted by me shall be and is hereby authorised and directed by me to divulge at any time to TYNDALL LIFE INSURANCE COMPANY LIMITED or any legal tribunal any information he may have acquired with regard to myself.
I/We, the Applicant(s), declare that all statements contained in this Application are true and complete and that no material information has been withheld, and agree that this Application and Declaration and any personal statements made by the Life to be Insured in connection with the risk on his life shall be taken as the basis of the contracts of insurance upon the terms to be contained in the policy."
With two minor exceptions, the notice concerning the duty of disclosure accorded with the form of notice prescribed by the Insurance Contracts Regulations 1985. The exceptions did not in any respect qualify the statement as to the duty of disclosure. There is no obligation on the insurer precisely to follow the prescribed form. Instead, the duty imposed by s 22 of the Insurance Contracts Act is to inform the insured clearly in writing of the general nature and effect of the duty of disclosure: s 22(1) of the Act. I am satisfied that Tyndall has discharged that duty and that Tyndall is, therefore, entitled to exercise the rights available to it under the Insurance Contracts Act: see s 22(3) of that Act.
The Confidential Medical Report
30 Mr Dupavillon also handed the defendant the Confidential Medical Report. Because of the nature of the policy and the amount of cover provided, it was necessary for the defendant to answer a number of questions on the Confidential Medical Report and arrange for a medical practitioner to complete the balance of that report. I find that the defendant did not at that time have a general practitioner whom he regularly consulted. The defendant arranged to see a Dr Hume, a medical practitioner whom his wife consulted.
31 The Confidential Medical Report was in two parts. Part 1 was to be completed by the person whose life was to be insured, in this case the defendant. It contained a series of questions as to the personal habits, medical history, and family history of the intended insured. Part 2 was to be completed by a medical practitioner. The defendant said he completed Part 1 immediately after Mr Dupavillon had left his office on 30 May. The questions concerning the medical history asked, among other things, whether the applicant had participated in any tests and whether he had suffered any of a number of listed diseases or medical disorders. The applicant was asked to signify in a box whether the answer was "Yes" or "No". If the applicant answered "Yes", the form required further details. The form gave the following instruction:
"For each YES answer, please provide full details below including:
(a) Date
(b) Name and address of institution or attending person
(c) Condition
(d) Treatment
(e) Results and length of time off work."
The Confidential Medical Report contained a clear instruction to the applicant to sign the report in the presence of the examining medical practitioner. The defendant complied with that instruction. He did so when he consulted Dr Hume on 4 June 1991.
32 The allegations of fraud are based on the defendant's answers to two questions, questions B1-4 and B3-21. Question B1-4 asked "During the last FIVE (5) years have you ... had any tests, including blood tests, ECG, X-rays etc". The defendant answered, "No". Question B3-21 asked "Have you EVER had any of the following ... 21. Coughing of blood or passage of blood from the bowel or in the urine?". The defendant replied "Yes". Opposite that question he inserted the following information, "Past traces of blood from bowel".
Dr Hume's Medical Examination
33 On the afternoon of Tuesday 4 June 1991 the defendant consulted Dr Hume. Dr Hume conducted various blood pressure tests and the like and also asked questions. The defendant at first said he could not remember whether he was asked to undress for a physical examination but later said there had been no physical examination. By reason of that evidence I find there was no physical examination. Dr Hume completed Part 2 of the Confidential Medical Report, asking questions as he did so. The defendant then signed the document and handed it back to Dr Hume who then sent it to Tyndall. The defendant said he did not read the document before signing it. I do not accept that evidence for reasons given later.
34 Part 2 of the report asked for information concerning such matters as the applicant's respiratory function, his circulatory system and other physiological information. Nothing turns on the answers to those questions. The last section of the form was headed "Summary". It included the following question:
"Comment fully on any unfavourable features (either physical or mental) which could either reduce life expectancy or cause disablement:
(a) in the personal or family medical history."
Dr Hume's answer was:
"History of PR blood - but this appear to have been adequately investigated with no cause found."
Dr Hume also added a note to amplify the answer given by the defendant to question B3-21. He added the words "occasional with defaecation - examination by Dr Anderson - no abnormality found". Thus, the full answer to question B3-21 as it appeared in the report was as follows:
"Past traces of blood from bowel.
occasional with defaecation -
examination by Dr Anderson -
no abnormality found."
The information concerning the history of rectal bleeding could only have been based on what the defendant had told Dr Hume.
The Proposal is Accepted
35 Tyndall accepted the plaintiff's proposal in June 1991. The defendant received the policy shortly after 18 June 1991. The policy was enclosed under cover of a letter dated 18 June which asked the defendant to check that "there are no errors or omissions in the information provided on your application form". The letter continued:
"This has been the basis on which your cover has been granted and if it is not correct future claims could be prejudiced."
The letter, therefore, drew the defendant's attention to the need to make proper disclosure. The defendant did not subsequently inform Tyndall of either the episode of rectal bleeding on 31 May or of the fact that he had participated in the Detectacol tests or the results of those tests.
Cancer is Detected
36 The next relevant events occurred in April to June 1992. At the end of April the defendant had experienced severe pain in the chest. He consulted Dr Hume. Dr Hume diagnosed biliary colic. He referred the defendant to Dr Williams, a general surgeon. Dr Williams saw the defendant on 1 May 1992. Dr Williams diagnosed that gallstone disease was causing biliary colic. In the course of the consultation, the defendant said that he had been recently passing blood from the bowel. Dr Williams examined the defendant's abdomen and carried out a rectal examination and sigmoidoscopy. During the sigmoidoscopy Dr Williams noted the presence of first degree haemorrhoids and also blood higher in the rectum than normally would be seen with haemorrhoids. Dr Williams described the existence of blood higher in the rectum as "a warning signal" that needed to be looked into further because it had nothing to do with the complaint of biliary colic. He advised the defendant to undergo a colonoscopy.
37 Dr Williams considered it desirable to deal first with the complaint of biliary colic. On 6 May 1992 he operated for the condition. After the defendant had recovered from his operation, Dr Williams referred him to Mr Andrew Hunter for the colonoscopy. The colonoscopy was conducted on 27 May 1992. It revealed a broadly based polyp in the sigmoid colon 30 centimetres from the anus. It was approximately two centimetres in diameter with a broad stalk. The polyp was removed and sent for pathological examination which disclosed that the polyp was malignant.
38 On 3 June 1992 the defendant was re-admitted to hospital. A colonic resection was performed by Dr Williams. The affected portion of the sigmoid colon was removed and reconnected. The portion of the colon which had been removed was also affected by the tumour. The defendant made a good recovery after the operation, save for one minor complication which is of no present relevance. He has had no recurrence of any tumour of the colon. A further colonoscopy was performed in 1995 and the results were negative. After the surgery on his colon, the defendant continued to experience rectal bleeding which Dr Williams said would have been caused by the fact that he was still suffering from haemorrhoids. That diagnosis is confirmed by the colonoscopy performed in 1995.
39 Following the surgery, the defendant made a claim pursuant to the Get Well policy. The claim was dated 17 June 1992. Notice of the claim had been given on 1 June. The claim was paid in about August 1992. The defendant received $500,000.
The Take Up Option
40 Part 6 of the policy provided a benefit in addition to the payment of the sum insured where a medical event other than death occurred. It is described in the policy as the "Take Up Option". It enabled the insured to obtain additional term life insurance up to the amount of the original sum insured. The option could be exercised in this way. Upon payment of the sum insured for any reason other than death, the insured was at liberty within 30 days before or immediately following any option date to effect additional term life cover of up to one fifth of the amount paid under the policy without evidence of insurability. The first option date was one year after the date of payment of the sum insured and subsequent option dates were the following four anniversaries of that date. The "Take Up Option" was expressed in these terms:
"On payment of the Sum Insured for reasons other than Death, You may, within thirty days prior to or immediately following any Option Date, effect additional term life cover of up to one-fifth of the amount paid under the provisions of the Policy without evidence of insurability. The first Option Date is one year after the date of payment of the Sum Insured and subsequent Option Dates will be the following four anniversaries of this date."
The nature of the option might be better explained by example. If the sum insured was $100,000 and that had been paid because the insured had suffered a heart attack and survived, the insured then had the option one year after the payment of the sum insured to purchase life cover in the sum of $20,000 payable upon death. On each of the next four anniversaries of the payment of the sum insured, the insured could purchase another $20,000 and thus obtain a maximum cover of $100,000. The process resulted in a new life policy for $100,000. The defendant therefore had the option to take up term life insurance after he had been paid under the policy in consequence of the cancer.
41 The defendant's evidence was that his attention was drawn to the Take Up Option by Mr Dupavillon. By letter dated 20 September 1995, the defendant exercised the option. He did so on the third option date, that is to say, on the third anniversary of the payment of the sum insured for the cancer he had suffered. For reasons which are not entirely clear, the defendant and Tyndall agreed that the sum insured would be a maximum of $166,666. The defendant's exercise of the option was accompanied by a declaration that the answers to his original application were true and correct, and that he had disclosed all information relevant to Tyndall's decision to accept the risk under the original policy and under the new policy which had resulted from the exercise of the option. The relevant parts of the declaration were in these terms:
"At the time I signed the application and/or application supplement for this policy as the life to be insured, all the answers shown were true and correct and I have disclosed all information relevant to Tyndall's decision whether to accept the risk under each policy known to me at the time".
The declaration formed part of the document by which the option was exercised.
42 On 26 October 1995, Tyndall wrote to the defendant informing him that it had issued a new policy. The letter drew attention to what the letter called "several important matters". Those matters included a reiteration of the duty of disclosure. It was expressed in these terms:
"Your policy has been issued on the basis that correct and complete answers were provided to all questions in the original application supplement (for policy number 2101057), and that you have complied with your 'duty of disclosure' which is described in the application supplement. We would ask that you carefully read the original application supplement again to ensure you understand the duty of disclosure."
Thus, when it issued the further policy, Tyndall relied on both the disclosures in the original application and on the exercise of the option.
Tyndall Avoids the Policy
43 In early 1996 Tyndall began an investigation of the circumstances surrounding the defendant's application for the original policy. It did so as a result of information it had received. It ascertained that the defendant had failed to disclose the fact that he had undertaken the Detectacol test and the results of that test. Among other things, it arranged for a private investigator to interview the defendant. The record of the interview was tendered. On 18 September 1996 Tyndall wrote to the defendant a letter stating in some detail what it had learned concerning the Detectacol test and asserting that the defendant had fraudulently made misrepresentations to it and had fraudulently breached his duty of disclosure. By that letter Tyndall said that it avoided the policy and claimed repayment of the sum of $497,502.20 (being the benefit of $500,000 paid less premiums which had been paid). In addition, it avoided the take up option on the same grounds.
The Defendant's Explanation
44 Before deciding whether Tyndall is entitled to avoid the policy, it is convenient to examine the defendant's evidence and his explanations for his answers to questions B1-4 and B3-21.
45 In his evidence the defendant said, and I find, that he knew
(1) that he had an obligation to make full disclosure to the insurer;
(2) that his answers to the Confidential Medical Report had to be accurate and truthful, whatever his view as to the relevance of the questions;
(3) that the insurer would want a full medical history;
(4) that the answer to question B3-21 was potentially significant to the insurer in terms of accepting the risk;
(5) that he had an obligation to provide sufficient information to the insurer to enable it to decide whether to accept the risk or to make a further medical examination;
(6) that the insurer would be interested in the full history of the complaint of rectal bleeding and in the fact that he had experienced rectal bleeding just before completing the application;
(7) that he should have disclosed the fact that he had experienced rectal bleeding in the days before he signed the application.
The defendant said in his evidence-in-chief that, because he was aware that he should disclose the rectal bleeding, he had told Dr Hume on 4 June that he had experienced it in the preceding days. I do not accept his evidence on this issue. The expression "past traces of blood from bowel" used in the answer to question B3-21 gives no hint of either recurring or recent bleeding. Instead, it indicates a past condition which no longer exists. Dr Hume's additional notes to the answer to this question, particularly the use of the expression "no abnormality found" only serve to emphasise that the bleeding had occurred in the past and was no longer a recurring or recent problem. I find that, had the defendant informed Dr Hume of the bleeding he had just experienced, Dr Hume would have written something quite different from that which he added to the answer. He would have written at least some words to indicate that the problem was of a recurring nature and had occurred again in the days preceding the completion of the form. Furthermore, had the defendant told Dr Hume of the bleeding in the days immediately preceding the consultation, it is highly likely that Dr Hume would have also undertaken a physical examination to seek to diagnose the cause of the bleeding or, alternatively, would have referred the defendant to a specialist. The defendant said that he was most surprised that Dr Hume did not conduct a physical examination. I find that there was no physical examination because the defendant did not tell Dr Hume of the rectal bleeding in the days preceding the consultation. This is not to engage in circular reasoning. I have already found that Dr Hume did not conduct a physical examination. The fact that he did not do so is further confirmation of the finding that the defendant did not tell Dr Hume of the episodes of bleeding in the days preceding the consultation.
46 I also find that, in addition to failing to inform Dr Hume of the recent bleeding, he gave Dr Hume the impression that it was a problem belonging to the past without any recurrent episodes. As this was the first occasion on which the defendant had seen him, Dr Hume could only have known what the defendant had told him. The inference is inescapable that the defendant did not tell him of the recent bleeding or of any episodes of bleeding after 1983. Had he done so, Dr Hume would have made a note of what the defendant had told him. Instead, Dr Hume's notes refer to a past problem only. The inference is clear that the defendant did not state the true position. All of Dr Hume's notes on the Confidential Medical Report point to the fact that the defendant misrepresented the position to him.

47 When giving his evidence-in-chief, the defendant said nothing as to whether he had informed Dr Hume that he had collected faecal material and had left it at the IMVS for analysis. However, in cross-examination, he said that he had told Dr Hume of that fact. I do not accept this evidence for the same reasons that I do not accept the defendant's evidence that he had told Dr Hume of the rectal bleeding. Had the defendant told Dr Hume of the Detectacol test, that would have been an added reason for Dr Hume to conduct a physical examination or to refer the defendant to a specialist. To conclude otherwise is to conclude that Dr Hume was negligent when he saw the defendant and completed the form. There is no reason to suppose that he was.
48 In respect of Dr Hume's conduct, it is relevant to note that, on at least three occasions, the defendant stated or implied that Dr Hume had failed to record in the Confidential Medical Report what the defendant had told him about the rectal bleeding in the days preceding the consultation on 4 June. For the reasons already given, I reject the defendant's evidence that he informed Dr Hume of those facts. There is a further reason. The defendant did not call Dr Hume to allow him an opportunity to give evidence as to what the defendant had told him. It is quite unsatisfactory, to say the least, to seek to shift responsibility to Dr Hume in this way without giving him an opportunity to give evidence and explain his conduct. Although these events occurred some seven years ago, Dr Hume's memory might have been refreshed by his notes. At least, he would have been able to say what he would have done had he been told of the rectal bleeding.
49 The defendant said that he did not read the Confidential Medical Report before signing it. That does not exculpate him from any liability for his answers since he had himself written all answers in Part 1 of the form, save for the words added by Dr Hume in answer to question B3-21. Furthermore, I find that he read at least the page he signed which contained the note added by Dr Hume. In doing so, he would have seen the note added by Dr Hume. Dr Hume's pen had a different colour ink from that in which the defendant's answers had been written. Dr Hume's notes would have been readily apparent to the defendant. The defendant also knew that words had been added. His attention had been drawn to that fact by Dr Hume's questions to him. In short, the defendant could hardly have failed to observe those words and, in any event, given Dr Hume's questions, it is likely he would have read what Dr Hume had written. For all these reasons, I find that the defendant was well aware of the terms of his answer to question B3-21 when he signed the form.
50 In his evidence, the defendant also said that he believed his answer to question B3-21 to be correct. The objective facts belie his evidence and I do not accept it. The recurrence of the episode of rectal bleeding would have been all too fresh in his memory when he saw Dr Hume on 4 June. His attention was redirected to his answer when Dr Hume questioned him about it. When answering Dr Hume, he would have been very much aware of the fact that his use of the epithet "past" gave no indication of an episode of rectal bleeding in the days immediately preceding 4 June or that he had had recurrent episodes in past years. I refer again to my earlier finding that the defendant did not tell Dr Hume of this recent attack. In failing to tell Dr Hume, he would have been very much aware that his answer to B3-21 was untrue. As Dr Hume's notes indicate, everything the defendant told Dr Hume referred to events in the more distant past and not the recent past, and gave no indication of recurring episodes. The information he gave Dr Hume caused Dr Hume to add words which re-inforced the fact that the bleeding was not in any sense a current or even a recurring problem. The words "no abnormality found" suggest that the problem belonged to the past and required no further attention. The picture presented by the answer was quite different from the true position.
51 Furthermore, as the defendant admitted, he was aware that his answer to question B3-21 was potentially significant to Tyndall and that Tyndall would be interested in the full history of the complaint of rectal bleeding and in the fact that he had just experienced that condition. That would have been very clear to him given that the policy paid a benefit if the insured suffered cancer. With that knowledge, the defendant must have been aware that his answers were untrue. It says nothing about the bleeding which had occurred only a day or two before he signed the Confidential Medical Report, to say nothing of the fact that it gives no hint of recurring episodes of bleeding.
52 The defendant sought to explain the fact that he had answered the question B3-21 in the way that he did by stating that he had completed the form on 30 May and that he did not experience any rectal bleeding until 1 June. There are two difficulties with that evidence. First, although he had answered the question on 30 May, on 4 June he signed the declaration that his answers to the questions in the Confidential Medical Report were true and complete. He must have been aware of his answers as Dr Hume had asked him some questions about his answer to B3-21. Plainly, his attention was then drawn to the question whether the answer was accurate.
53 Secondly, I do not accept his evidence that he was unaware of any rectal bleeding when he completed the form on 30 May. Answers in the course of his cross-examination show that, on the balance of probabilities, he would have noticed the bleeding a day or two before beginning to collect some of the faecal material on 1 June. As he said, he was suffering from constipation on about 31 May and was having a bowel motion every two to three days. Thus, on his own evidence, the bowel motion preceding the one when the sample was collected on 1 June would have been on 29 or 30 May. Thus, the defendant knew on 30 May that his answer was untrue. Thus, despite the fact that his attention was twice directed to the truthfulness of his answer (on 30 May and on 4 June), the defendant gave an answer which did not indicate that he had experienced a current problem of rectal bleeding.
54 When answering question B1-4 which asks whether he had in the last five days taken "any test, including blood tests, ECG, X-rays, etc", the defendant answered "no", failing to disclose that he had participated in the Detectacol test. The defendant said that he did not think that the Detectacol test would be of much interest or significance to Tyndall. I have some difficulty with this evidence. He was, as he admitted, well aware that he had to make proper disclosure and that his answers to the questions in the Confidential Medical Report had to be accurate and truthful. In addition, as he also admitted, he knew that he had to give accurate answers whatever his view as to the relevance of any questions. The defendant also said that he believed that the test was unimportant because it was a commercial product available over the counter and not a test prescribed by a medical practitioner. It was implicit in his answer that he believed that question B1-4 was referring to tests prescribed by a medical practitioner. He said that he had decided to participate in the Detectacol test and to collect samples of faecal material for his own purpose because he was experiencing rectal bleeding. The bleeding was, he admitted, the direct cause of his decision to participate in the test. As he said, he wanted to find out if he was suffering something more serious than haemorrhoids. That is confirmed by the evidence of his former wife. It was a recent experience of which he was plainly aware.
55 The defendant signed the declaration that his answers were correct the day after he had lodged at the IMVS samples of his faeces for testing. As he said in his evidence, he wanted to find out if he was suffering something more serious than haemorrhoids. It is apparent that he was aware that blood in faeces could possibly be an indicator of cancer. It is apparent also that he then thought that the Detectacol test might provide him with useful information which would assist him in ascertaining the cause of the bleeding. He wanted to find out if he was suffering a condition more serious than haemorrhoids. If he wanted that information and believed that it would be of assistance to him, it is difficult to accept his answer that he did not think it would be of interest or assistance to Tyndall. It is even more difficult to accept that he did not think it would be of assistance to Tyndall, given his admission that he was aware that Tyndall would be interested in a full history of his rectal bleeding. Furthermore, if he believed that the results of the Detectacol test would be of assistance to him, it is difficult to understand why he did not mention his participation in the test to Dr Hume when being asked about his rectal bleeding. All of this must be weighed against the defendant's evidence that, as the Detectacol test had not been prescribed by a medical practitioner, he did not think it necessary to disclose it. After close consideration, I believe that the failure of the defendant to mention his participation in the Detectacol test to Dr Hume leads to the conclusion that the defendant had decided not to disclose that fact to Tyndall. If he had disclosed his participation in the test, it would have led to some inquiries as to the results of the test which would have disclosed that episodes of rectal bleeding were not simply a medical condition in the past.
56 Viewed in isolation, it might be possible to accept the defendant's assertion that he used a false name to protect his privacy or, at least, to treat the use of the false name as a neutral fact. However, the use of the false name must be weighed with the fact that he used it at the very time he was applying for the policy of life insurance. I find that he used the name as a means of concealing the fact that he had participated in the Detectacol test. Although he inserted his correct address, the use of the false name would have rendered it less likely that his participation in the test would be discovered.
57 In short, the combination of the fact that the defendant did not disclose his participation in the Detectacol test to Dr Hume, the fact that he was applying for this policy of insurance at the very time he was participating in the Detectacol test, and the use of the false name points to the conclusion that the defendant was taking steps to conceal his participation in the Detectacol test.
58 The defendant said that his wife was more anxious than he that he should participate in the Detectacol test and in other ways he sought to diminish the significance of his participation in that test. These were misguided attempts to distance himself from the test and any obligation to inform Tyndall of his participation in it.
59 I accept the defendant's evidence that he did not place much store by the results of the Detectacol test. Had he put any reliance on them, it is likely that he would have consulted Dr Hume or another medical practitioner after receiving the results. It is most unlikely that a person would take no action when the letters contained a clear recommendation to consult a medical practitioner. The fact that the defendant did not consult a medical practitioner indicates that he did not read the letter or that he believed the letter did not tell him anything he did not already know. In my view, the latter is more likely. Although that may excuse his failure to inform Tyndall of the results of the test, there is nothing which excuses his failure to state that he had participated in the test. He was aware of the significance of the test. He knew it was a bowel cancer screening test. He had decided to participate in it because he was then experiencing rectal bleeding. He wanted to find out the cause of the bleeding. He cannot dismiss it as insignificant. It is as relevant a factor for Tyndall as the fact of the rectal bleeding of which the defendant acknowledged he should have informed Tyndall.
A Misrepresentation or Non-Disclosure?
60 It is necessary to determine whether the defendant's answers to the questions were either misrepresentations or a failure to comply with a duty of disclosure. When determining whether a statement constitutes a misrepresentation, it is necessary to have regard to the terms of s 26 of the Insurance Contracts Act which provides that some statements are not misrepresentations. It provides:
"26 (1) Where a statement that was made by a person in connection with a proposed contract of insurance was in fact untrue but was made on the basis of a belief that he held, being a belief that a reasonable person in the circumstances would have held, the statement shall not be taken to be a misrepresentation.
(2) A statement that was made by a person in connection with a proposed contract of insurance shall not be taken to be a misrepresentation unless the person who made the statement knew, or a reasonable person in the circumstances could be expected to have known, that the statement would have been relevant to the decision of the insurer whether to accept the risk and, if so, on what terms."
Dealing first with s 26(1), it is clear that the answers to questions B1-4 and B3-21 were in fact untrue. The real issue is whether the answers are saved by the belief held by the defendant.
61 I have found that the defendant knew that his answer to question B3-21 was untrue. Furthermore, a reasonable person in his position would not have believed the answer to be true. The defendant is not therefore assisted by s 26(1) in respect of that answer.
62 The defendant admitted in his evidence that the answer to question B3-21 was a relevant matter for Tyndall to consider when deciding whether to accept the risk and issue the policy. A reasonable person in his circumstances would have had the same view. The requirements of s 26(2) are therefore satisfied in the case of his answer to question B3-21. Thus, the answers to question B3-21 constitute misrepresentations.
63 The defendant believed that his answer to question B1-4 was true. The defendant's explanation requires consideration of s 23 as well as of s 26(1) of the Insurance Contracts Act. Section 23 provides:
"23 Where:
(a) a statement is made in answer to a question asked in relation to a proposed contract of insurance or the provision of insurance cover in respect of a person who is seeking to become a member of a superannuation or retirement scheme; and
(b) a reasonable person in the circumstances would have understood the question to have the meaning that the person answering the question apparently understood it to have;
that meaning shall, in relation to the person who made the statement, be deemed to be the meaning of the question."
The defendant did not suggest that the question was ambiguous and, in any event, I do not think a reasonable person would believe the question was not intended to include tests such as the Detectacol test. In my view, a reasonable person would understand the question to refer to any test intended to assist in medical diagnosis. The Detectacol test clearly falls within that description. There was no suggestion of any ambiguity in respect of question B3-21 nor could any such suggestion be reasonably made. For those reasons, s 23 does not apply in these circumstances. In the circumstances of this case, s 26(1) overlaps a little with s 23. Section 26(1) requires consideration of the question whether a reasonable person would believe that question B1-4 did not include Detectacol tests for reasons similar to those above. For the same reasons, I do not think a reasonable person would have that belief. A reasonable person would believe that he had to disclose the Detectacol test.
64 As to s 26(2), I find that the defendant knew that the Detectacol test was relevant to the question whether Tyndall would accept the risk. He admitted that fact. Furthermore, a reasonable person in the circumstances could have been expected to know that it was relevant to the acceptance of the risk. The information which came with the Detectacol test was headed in the clearest terms and described it as "Bowel Cancer Screen". Given that one of the risks covered by this policy of insurance was cancer, it is manifestly clear that the answer was relevant to Tyndall. I find that the requirements of s 26(2) are satisfied. Thus, there is nothing in s 26 which leads to the conclusion that the answer to question B1-4 was not a misrepresentation.
65 I will deal with the question whether the defendant failed to comply with the duty of disclosure when considering whether the defendant has been guilty of a fraudulent non-disclosure.
66 For these reasons, the answers to both questions B1-4 and B3-21 were misrepresentations.
A Fraudulent Misrepresentation
67 Section 29 of the Insurance Contracts Act states the remedies available to an insurer in the case of non-disclosure or misrepresentation by the insured. For present purposes it is necessary to have regard only to s 29(1) to s 29(3) which provide:
"29. (1) This section applies where the person who became the insured under a contract of life insurance upon the contract being entered into:
(a) failed to comply with the duty of disclosure; or
(b) made a misrepresentation to the insurer before the contract was entered into;
but does not apply where:
(c) the insurer would have entered into the contract even if the insured had not failed to comply with the duty of disclosure or had not made the misrepresentation before the contract was entered into; or
(d) the failure or misrepresentation was in respect of the date of birth of one or more of the life insureds.
(2) If the failure was fraudulent or the misrepresentation was made fraudulently, the insurer may avoid the contract.
(3) If the insurer would not have been prepared to enter into a contract of life insurance with the insured on any terms if the duty of disclosure had been complied with or the misrepresentation had not been made, the insurer may, within 3 years after the contract was entered into, avoid the contract."
The parties entered into this contract of insurance in July 1991. Tyndall purported to avoid the initial policy in September 1996. Tyndall may only avoid the initial policy if the defendant had fraudulently failed to comply with a duty of disclosure or had made a fraudulent misrepresentation. That is the combined effect of subss (2) and (3) of s 29. I deal first with whether the defendant has made a fraudulent misrepresentation.
68 The Act does not define either fraudulent non-disclosure or fraudulent misrepresentation. However, what constitutes fraudulent misrepresentation is well settled. A statement is made fraudulently if it is made with knowledge of its falsity or without belief in its truth or recklessly, not caring whether it is true or false: Derry v Peek (1889) 14 App Cas 337 at 374; Pendlebury v Colonial Mutual Life Assurance Society (1912) 13 CLR 676 at 680. So, in the case of an insurance contract, a fraudulent misrepresentation is a representation which is false and which is made either knowingly, or without belief in its truth, or recklessly, not caring whether it be true or false and with the intention that it should be acted upon by the insurer: Plasteel Windows Australia Pty Ltd v C E Heath Underwriting Agencies Pty Ltd (1989) 5 ANZ Ins Cas 60,926 at 75,971; Von Braun v Australian Associated Motor Insurers Ltd (1998) 135 ACTR 1 at 11 - 12. See also the discussion in MacGillivray on Insurance Law (9th ed) at 364. It is not enough that the defendant may have acted carelessly. Tyndall must show that the defendant lacked an honest belief in the truth of his answers. If he was consciously indifferent to the truth of his answers, he was reckless: Lamb v Johnston (1914) 15 SR (NSW) 65 at 74-75. I am conscious of the gravity of the allegations made against the defendant and the seriousness of the possible financial consequences for him. When deciding whether the defendant has acted fraudulently, I have had regard to the observations of Dixon J in Briginshaw v Briginshaw (1938) 60 CLR 336 at 362-363.

69 The answer to question B3-21 misrepresented the true position. The defendant said that he believed his answer was true. I have already rejected that evidence. I add that because the answer paints a picture that the bleeding is a past and not a present condition, it would have deflected an insurer from making any further inquiry about the rectal bleeding. The evidence shows that the defendant knew that his answer to that question was false. He failed to disclose to either Dr Hume or to Tyndall the fact that he had experienced recurring episodes of rectal bleeding and had experienced another such episode in the days preceding his episode with Dr Hume. I adopt what I have said earlier as to this answer. As already mentioned, the statement "past traces of blood from bowel" gives no hint of recurring or recent bleeding. Given that an episode of rectal bleeding had just occurred, he could have no honest belief that his words were true. He must have known that they were false. In short, the defendant made a false statement which he did not believe to be true. I also find that the defendant's answer was reckless, the defendant not caring whether it was true or not. He therefore made a false representation to Tyndall.
70 Mr Halliday, who appeared for the defendant, submitted that the use of the epithet "past" had a degree of ambiguity. In one sense, he submitted, the defendant's answer was correct because, on 4 June 1991, the rectal bleeding had ceased. In that sense, he submitted, it was an event in the past. When determining whether a representation which is ambiguous or capable of more than one meaning has been made fraudulently, a subjective and not an objective test is used, that is to say, the words will have the meaning actually intended by the defendant rather than the meaning a reasonable person would attribute to those words: Krakowski v Eurolyx Properties Ltd (1995) 183 CLR 563 at 576-577; John McGrath Motors (Canberra) Pty Ltd v Applebee (1964) 110 CLR 656 at 659-660; and the discussion in Fleming, The Law of Torts (9th ed) p699. But this principle does not avail this particular defendant. I have already found the defendant deliberately used these words to represent that the rectal bleeding was an event in the past which caused no current difficulties. In any event, I do not think there is any room for ambiguity in the circumstances of this case. In order to represent the facts correctly, the defendant had to use words which indicated not only a past condition but one which had caused a current episode of rectal bleeding as well as recurring episodes in the past. Finally, any potential for ambiguity was removed by Dr Hume's note. The defendant subscribed his signature to those words and must be deemed to have adopted them.
71 For all of these reasons, the answer to question B3-21 constituted a fraudulent misrepresentation.
72 The existence of one fraudulent misrepresentation is sufficient for Tyndall to avoid the contract. Lest another court disagree with the above conclusion, I go on to determine whether the defendant made a fraudulent misrepresentation concerning his participation in the Detectacol test when answering question B1-4. The defendant had to answer whether he had in the past five years "had any test, including blood tests, ECG and X-rays etc". He answered "No". The answer was not true. The question I have to determine is whether it was made fraudulently. I have already referred to the combination of facts which leads to the conclusion that the defendant was taking steps to conceal his participation in the Detectacol test. Viewing that combination and the evidence as a whole, I conclude that the defendant deliberately gave a wrong answer. I therefore find that the defendant acted fraudulently in that he gave an answer which he knew to be false or that he was, at least, reckless when giving his answer, not caring whether it was true or false. In short, the defendant completely misrepresented the history of his rectal bleeding. There is nothing in either s 23 or s 26 of the Insurance Contracts Act which saves the answers from being misrepresentations. The defendant has made a fraudulent misrepresentation when answering question B1-4.
A Fraudulent Non-Disclosure
73 Given the above conclusion, it is unnecessary to decide whether the defendant has fraudulently failed to comply with the duty of disclosure. It is nevertheless desirable to deal with it.
74 The Insurance Contracts Act does not define what is meant by a fraudulent non-disclosure. As Brooking J noted in 21st Maylux Pty Ltd v Mercantile Mutual Insurance (Australia) Ltd [1990] VR 902 at 925, non-disclosure gives rise at common law to the right of avoidance, the duty of disclosure of material facts being absolute. There is, therefore, no ready definition of what constitutes fraudulent non-disclosure for the purposes of s 29(2) and the meaning of the provision is not clear. It is clear that there will be a fraudulent non-disclosure if the insured knowingly fails to disclose a matter which he knows to be a matter relevant to the decision of the insurer whether to accept the risk and if so on what terms: Advance (NSW) Insurance Agencies Pty Ltd v Matthews (1987) 4 ANZ Ins Cas 60 - 831 at 74998 where on appeal, Samuels JA described the finding as a deliberate failure to disclose: (1988) 12 NSWLR 250 at 256. The matter went on appeal to the High Court (166 CLR 606) but that court did not have to consider what constituted fraudulent non-disclosure. There is no reason why fraudulent non-disclosure would not also include recklessness in cases where the insured knows a matter which is relevant to the insurer's decision whether to accept the risk: see s 21(1)(a) of the Act. Questions might exist whether recklessness is appropriate if the question of materiality is to be determined by the knowledge of a reasonable person: see s 21(1)(b) of the Act. It is, however, unnecessary, to explore this issue further since, for the reasons which follow, I am satisfied that the defendant did not disclose matters which he knew were material to Tyndall's decision to accept the risk.
75 I have already found that the defendant knew that his rectal bleeding and his participation in the Detectacol test were relevant to Tyndall in deciding whether to accept the risk. I find also that a reasonable person would, in the circumstances, have known both to be a relevant factor. Neither of those facts falls within the kind of facts which s 21(2) of the Insurance Contracts Act states need not be disclosed and there is nothing which activates the operation of s 21(3) of the Act. The failure of the defendant to disclose both the fact that he had had recurrent episodes of rectal bleeding and had just recently experienced another and the fact that he had participated in the Detectacol test constituted non-disclosure. I turn to the question whether the non-disclosure was fraudulent.
76 The defendant failed to disclose the fact that the bleeding had continued in a form of two to three episodes in each year since 1983 and he failed to mention the episode in the days preceding his signing the Confidential Medical Report. As he knew, this information was material to Tyndall's decision to accept the risk. I have found that he knew that his answer was false. I have also found that the defendant knew that his answer to question B1-4 was false. In any event he was, at least, reckless, not caring whether either answer disclosed facts he knew to be relevant. He therefore fraudulently failed to comply with his duty of disclosure.
77 For these reasons, the defendant has acted fraudulently when failing to comply with the duty of disclosure and has fraudulent misrepresentations.
Would Tyndall have entered into the contract?
78 Tyndall is not entitled to avoid the contract if it would have entered into the contract even if the defendant had made proper disclosure and had not made any misrepresentation: s 29(1)(c) of the Insurance Contracts Act. Section 29(1) provides that s 29 will not apply where
"(c) the insurer would have entered into the contract even if the insured had not failed to comply with the duty of disclosure or had not made the misrepresentation before the contract was entered into."
In other words, unless the insurer relies on the answers made by the insured, it is not entitled to avoid the policy even in the case of fraudulent non-disclosure or fraudulent misrepresentation. So, in this case, in order that the remedies of s 29 may be available to it, Tyndall must show that the fraudulent non-disclosure or fraudulent misrepresentations were relevant and induced it to accept the risk. I respectfully agree with Professor Sutton that it is implicit in the wording of s 29(1)(c) that the insurer is denied a remedy only where he would have entered into precisely the same contract as that which was made: Sutton, Insurance Law: Australia (2nd ed.) para 3.115.
79 Tyndall called two witnesses whose evidence was material to this question. They were Messrs Willison and Hodgson. Mr Willison was the underwriter who accepted the defendant's application. For the reasons which follow, his evidence demonstrated quite positively that he, and therefore Tyndall, relied on the answers made by the defendant in the Confidential Medical Report. That is to say, the defendant's answers induced Tyndall to accept the risk and enter into the contract. His evidence and that of Mr Hodgson also shows, again quite positively, that had full disclosure been made, Tyndall would not have entered into this contract but would have required further medical investigation.
80 Mr Willison was the underwriter who assessed and then accepted the proposal made by the defendant. He has had 30 years experience in the insurance industry and has been an underwriter since 1980. He was employed by Tyndall as an underwriter between February 1991 and November 1991. At that stage he had at least 10 years experience. His evidence was that in each day he examined 30 to 40 proposals for insurance. As might be expected, given the lapse of some eight years, he had no independent recollection of writing this policy. He could do no more than describe what his practice was in 1981 when examining this kind of proposal. I accept his evidence and find that he correctly described how he proceeded when examining the defendant's proposal.
81 When assessing a proposal of this kind, Mr Willison's practice was to examine the Application Form and Confidential Medical Report. He had regard to family medical history, the personal statements made by the applicant for the policy, the medical history of the applicant, and the medical examination.
82 Mr Willison was initially concerned that the defendant's answers that he experienced "Past traces of blood from bowel" indicated a risk of cancer in the bowel. His concerns were, however, allayed by two factors. First, the use of the epithet "past" suggested to him that the condition had occurred some time in the past and was not recent. The second was the combined effect of the defendant's answers to question B3-21 and Dr Hume's note in Section L of the Confidential Medical Report which read:
"History of PR blood - this appears to have been adequately investigated with no cause found."
He particularly relied on the fact that the condition had been investigated and no cause found. As he said, he accepted the proposals on the basis of Dr Hume's report. The answers given by Dr Hume satisfied him that Dr Hume had questioned the defendant about his prior history of bleeding and had satisfied himself there was no underlying pathology in relation to it. The note made by Dr Hume that the past traces of the blood had been examined by Dr Anderson and the words "no abnormality found" provided Mr Willison with further assurance. It is significant that Mr Willison also said that he would have accepted the proposal even if Dr Hume had not made any comment in section L of the form, since the comments made by Dr Hume beneath the defendant's answer to B3-21 showed that no abnormality had been found after examination by Dr Anderson. In his view, the note in section L did little more than confirm that comment. Mr Willison was aware that rectal bleeding did not necessarily indicate cancer of the colon and that it could also indicate less serious conditions such as haemorrhoids and diverticulitis. It is apparent, therefore, that the defendant's answers induced Tyndall to accept the risk and enter into this contract.
83 Mr Willison's evidence also proves that Tyndall would not have accepted the risk and entered into the contract had the defendant complied with his duty of disclosure and not made any misrepresentation. Had the defendant disclosed the fact that he had experienced a number of recurring episodes of rectal bleeding and had just experienced another and, had he disclosed his participation in the Detectacol test, Mr Willison would not have accepted the proposal but would have deferred his assessment until the condition of rectal bleeding had been investigated and a diagnosis made. Although he was not aware of the Detectacol test by that name, Mr Willison did know that like tests were available under other names to determine whether a person had blood in faeces. Had the Detectacol test been disclosed, Mr Willison would have also deferred his assessment until the result of the test was known. If it was a positive result, he would have required further investigation. I accept Mr Willison's evidence. It is internally consistent and accords with commonsense. Although rectal bleeding is consistent with a number of conditions including cancer, it is plain that an insurer would not have issued this policy when there were clear indications of symptoms which might indicate cancer. It would at least require further medical examination to see if the conditions could be diagnosed.
84 Mr Willison's evidence is supported by the evidence of Mr Hodgson, another underwriter. Mr Hodgson was employed by Tyndall from November 1992 to December 1997. Although he was not employed by Tyndall when the defendant applied for this policy, his evidence is entirely consistent with that of Mr Willison. His evidence shows that, had the defendant disclosed the recurrence of rectal bleeding and participation in the Detectacol test, he would not have accepted the proposal without further investigation of the defendant's health. In his view, the defendant's medical history, coupled with the fact that the last examination had been done in 1983, indicated that further examination was required. Like Mr Willison, had the Detectacol test been disclosed, he would have waited until the result was known and required further examination, if the results of the test were positive.
85 I find, therefore, that Tyndall would not have accepted the proposal had these facts been disclosed. Instead, it would have deferred any further assessment of the proposal until the cause of the rectal bleeding had been ascertained. That is clearly the effect of the evidence of Messrs Willison and Hodgson. As Mr Willison said, Tyndall would not have considered whether it would offer cover "until such time as the cause of the bleeding had been investigated and a definite diagnosis made". He also said, and I find, that he would have required the condition to be "fully investigated". He was not asked to explain what he meant by "fully investigated". But I infer from the general tenor of his evidence that Tyndall would have required a thorough examination. This is confirmed by the evidence of Mr Hodgson. His evidence was that, if there had been disclosure of a history of recurrent episodes of rectal bleeding since 1983, Tyndall would have required something more than a superficial examination up to the point of a colonoscopy. I accept that evidence and find that Tyndall would have required the defendant to undergo a colonoscopy or, at least, a sigmoidoscopy. That conclusion is supported by other factors. As the evidence indicates, while rectal bleeding may indicate other conditions, it may also indicate cancer. An underwriter would be clearly aware of that fact. In the particular circumstances of this case, anything less than a sigmoidoscopy or colonoscopy would have been a superficial examination. The most satisfactory test would have been a colonoscopy. In other words, underwriters knew that, while rectal bleeding indicates at least three conditions, that is to say, haemorrhoids, diverticulitis and cancer, cancer is a clearly identifiable risk. It would be a high order of financial folly to issue the policy without requiring a colonoscopy. There are, in short, several factors which point to the desirability of a colonoscopy.
86 In this way, Tyndall proved that it was induced to enter into the contract by the misrepresentations and non-disclosure. In other words, the defendant's answer caused Tyndall to enter into the contract. In addition, Tyndall proved that, even if the defendant had made full disclosure or had made no misrepresentation, it would not have entered into the contract.
87 Tyndall did not seek to prove what might have been disclosed had it required the defendant to undergo a further medical examination. However, the defendant did seek to do so. He called Dr Williams. The effect of Dr Williams' evidence was that, although a polyp would have been present in the defendant's colon in June 1991, it was likely that the polyp was not malignant. I summarise the evidence of Dr Williams.
The evidence of Dr Williams
88 Dr Williams is a specialist general surgeon with some 27 years' experience. His work now primarily involves abdominal surgery. Although it is not now a high proportion of his work, surgery for cancer of the bowel used to comprise about one-third of his work. In the 1980s he was responsible for development and implementation of the Detectacol test which was commercially available to enable participants to undertake tests without the necessity of referral to a medical practitioner. He was an impressive witness.
89 Dr Williams gave evidence as to the nature and development of a malignant polyp. He reasoned back from the fact that a malignant tumour existed in May 1992. He expressed his opinion as to when the polyp which had been removed from the defendant's colon would have become malignant but he qualified his opinion by stating that one cannot be certain when a polyp becomes malignant. The effect of his evidence is as follows. This was an adenomatous polyp, that is to say, it was a tumour. Although adenomatous polyps are initially benign, the bigger they grow and the longer they are present, the more likely they are to become malignant. Polyps of the bowel are common in our community and the majority are benign and will remain so. If a polyp becomes malignant and it remains confined to the superficial layer of the mucosa (the lining) of the colon, it is not invasive. However, if a malignant change occurs and the malignancy invades the colon, it would develop from being a very small microscopic lesion to quite an extensive lesion in the space of about two years. Almost all bowel cancers develop in polyps. The period over which the lesion will develop will vary.
90 In Dr Williams' view it was likely that the polyp had not been malignant for a particularly long period but he emphasised that one can only guess how long it had been malignant. He qualified his opinion, in his own words "very heavily", by stating for how long the malignant tumour might have been present. In his view, the polyp had been malignant for a minimum period of six months and a maximum period of one to two years. In short, the polyp was definitely present in June 1991 but it was difficult to say whether it was then malignant. In his view, it was more likely than not that there was no malignancy present in June 1991 but he acknowledged it was little more than a guess on his part. One of the difficulties in determining when the tumour became malignant is that different cancers grow at different rates depending on the biological nature of the particular tumour. It was not possible, therefore, to determine the age of the malignant polyp which had been removed. Dr Williams again qualified his opinion stating that there could be a number of different opinions and that his opinion was "little better than a guess". He had little doubt that the polyp would have been present in June 1991 but he could not say whether it was then malignant. In his view, it was more likely that no malignancy was present in June 1991. He did acknowledge that the polyp would have been detectable if a colonoscopy had been performed in June 1991, adding that the polyp would have been large enough to have been removed for pathological examination.

91 He also said that if a colonoscopy had been conducted in June 1991 and had found a polyp which was benign, the defendant would have been considered to have an increased risk of developing a malignant tumour. The chance of malignancy would have been greater than the risk which attaches to a person who had never had a tumour of the bowel.
92 Dr Williams also gave evidence as to how he would have examined the defendant had he been referred to him in June 1991. He would have carried out the same examination which he carried out in 1992. Had the findings been similar, he would have managed him in exactly the same way. However, had he found no rectal luminal blood to suggest a lesion higher in the bowel he would have simply treated the haemorrhoids which he would have assumed were the cause of the bleeding. In addition, he would have told the defendant that he must report any subsequent blood loss following successful treatment of the haemorrhoids and he would have demanded a full investigation of his colon if such blood loss occurred.
93 When viewed as a whole, the effect of Dr Williams' evidence is that the polyp was definitely present in June 1991. Although his opinion was that, on the balance of probabilities, the polyp was not malignant in June 1991, he immediately conceded that was a guess and that others might have a different view. It is significant that the polyp would have been detected if a colonoscopy had been performed in June 1991. It might also have been detected if a sigmoidoscopy had then been performed. He said that a prudent specialist would have conducted a sigmoidoscopy but most general practitioners do not have a sigmoidoscope. The question whether a general practitioner would refer a patient to a specialist would depend on the practitioner's level of certainty as to the cause of bleeding. It would have been a matter of clinical judgment made after a rectal examination. Given the defendant's age and history, it was, he said, a matter for speculation whether a general practitioner would refer the defendant to a specialist. Half might and half might not do so.
A Further Evidentiary Task for Tyndall?
94 Mr Halliday, who appeared for the defendant, submitted that, if there had been non-disclosure or misrepresentation, be it innocent or fraudulent, it made no practical difference to the outcome. In his submission, Tyndall would not have required the defendant to submit to an invasive procedure such as a sigmoidoscopy or colonoscopy with the consequence that the diagnosis would be that of haemorrhoids. He submitted that Tyndall would have accepted the diagnosis and would then have entered into the contract and issued the policy. I reject that submission. For the reasons already given, I find that Tyndall would have required at least a sigmoidoscopy or colonoscopy. The risk was too great for any lesser kind of investigation.
95 Furthermore, it was implicit in Mr Halliday's submission that an insurer had to prove, on the balance of probabilities, what the outcome of the future medical examination would have been. He was submitting that the insurer is required to prove more than that it would have deferred its consideration of the question whether it would enter into the contract until it had fully investigated the cause of the bleeding. He relied on evidence of Dr Williams. This submission must be rejected for two reasons.
96 First, it attempts to convert the obligation imposed on an insurer by s 29(1)(c) to prove reliance into a further obligation to prove what condition would have been diagnosed in consequence of the further medical condition and to prove that that diagnosis would have caused it not to accept the risk and enter into the contract. That is to require an insurer to discharge an evidentiary burden which is extremely difficult, if not in some circumstances impossible, to prove. That is not what is intended by s 29(1)(c), a conclusion which is re-enforced when s 29(1)(c) is compared with s 29(3).
97 This case vividly demonstrates the almost impossible task an insurer would face if it had to prove the likely outcome of a further medical examination. It would involve proof of a number of steps, most, if not all, of which would involve a fairly high degree of speculation. The evidence shows that Tyndall would have written to Mr Dupavillon advising that it was refusing cover until a further medical examination, satisfactory to Tyndall, had taken place. I have already found that that would involve at least a sigmoidoscopy, if not a colonoscopy. Thereafter, one can only speculate what would have occurred. Would the defendant have been willing to undergo the further examination? Would he have put the matter to one side at least for the time being? If he did put it to one side, for how long would he do so? The defendant's evidence was that at this stage his company was engaged in a substantial building arbitration which was occupying most of his time. If the further examination was put aside for some months, the polyp would have grown more and the malignancy might have been the more detectable. In this respect, the evidence of Dr Williams is significant. He said that, had a colonoscopy been performed in June 1991, it would have disclosed the existence of the polyp but he did not think it would have been malignant. However, he did indicate that others might well disagree with his opinion which he himself described as being "little better than a guess". It cannot, therefore, be concluded that a colonoscopy would not have disclosed a tumour. Furthermore, as Dr Williams said, the existence of the polyp would mean that the defendant had an increased risk of malignancy. That fact might well have led Tyndall to decline the risk or accept it at a higher premium which might or might not be attractive to the defendant. Plainly, this is not an exhaustive list of the possible steps which might have occurred. In short, by his fraudulent conduct, the defendant prevented Tyndall from making further investigations. He should not be in a position to profit from his fraud.
98 Secondly, an insured person should not be in a position to profit from his fraud. Fraud constitutes a serious breach of the duty which must be discharged by both insured and insurer to act with the utmost good faith. That duty is stated in s 13 of the Insurance Contracts Act. The Act provides remedies where an insured has acted fraudulently. The Act was enacted following a report by the Australian Law Reform Commission named "Insurance Contracts" ALRC 20. The Commission's report makes it clear that it was intended to retain a clear disincentive to fraud: see para 196. Although that comment is made in respect of general insurance, there is no reason why it does not also apply to life insurance. By his conduct, the defendant has prevented Tyndall from obtaining further medical evidence for the purpose of deciding whether it will accept the risk and enter into the policy. Tyndall was denied the opportunity of establishing the true facts and denied the opportunity of deciding not to accept the risk. If insurers must discharge this difficult evidentiary task, that will in turn severely diminish any incentive for fraud.
99 For these reasons, I am satisfied that Tyndall is entitled therefore to rely on the provisions of s 29 and, in particular, to rely on the fraudulent non-disclosure and the fraudulent misrepresentations of the defendant.
100 For all of these reasons, I find that Tyndall would have been entitled to avoid the contract pursuant to s 29(2) of the Insurance Contracts Act had it known the true position before it paid the claim. It follows that it paid the claim under a mistake of fact and is entitled to recover the benefit paid; c.f. Norwich Union Fire Insurance Society Ltd v William H Price Ltd [1934] AC 455.
Section 31
101 That is not, however, the end of the matter. Section 31 of the Insurance Contracts Act invests the court with a discretion to disregard the avoidance of the contract in certain circumstances. Section 31 provides:
"31. (1) In any proceedings by the insured in respect of a contract of insurance that has been avoided on the ground of fraudulent failure to comply with the duty of disclosure or fraudulent misrepresentation, the court may, if it would be harsh and unfair not to do so, but subject to this section, disregard the avoidance and, if it does so, shall allow the insured to recover the whole, or such part as the court thinks just and equitable in the circumstances, of the amount that would have been payable if the contract had not been avoided.
     (2) The power conferred by subsection (1) may be exercised only where the court is of the opinion that, in respect of the loss that is the subject of the proceedings before the court, the insurer has not been prejudiced by the failure or misrepresentation or, if the insurer has been so prejudiced, the prejudice is minimal or insignificant.
     (3) In exercising the power conferred by subsection (1), the court:
(a) shall have regard to the need to deter fraudulent conduct in relation to insurance; and
(b) shall weigh the extent of the culpability of the insured in the fraudulent conduct against the magnitude of the loss that would be suffered by the insured if the avoidance were not disregarded;
but may also have regard to any other relevant matter.
     (4) The power conferred by subsection (1) applies only in relation to the loss that is the subject of the proceedings before the court, and any disregard by the court of the avoidance does not otherwise operate to reinstate the contract."
Subsections (1) and (3) formed part of the recommendations of the Australian Law Reform Commission in its report "Insurance Contracts". Given the need to provide a disincentive to fraud, the Commission recommended retention of the common law principles enabling a contract to be avoided for fraud. At the same time, the Commission was concerned to ensure that the loss sustained by an insured, where the contract was avoided for fraud, should not be "seriously disproportionate to the harm which the insured's conduct has or might have caused": para 196. See also para 186 where the following examples are provided:
"h   An insured takes out a fire policy with storm and tempest cover. He fails to disclose that he sometimes stores in his cellar inflammable liquids which he uses in connection with his business. High winds tear off the roof of his house, an electrical fire commences as a result of the action of rain on exposed wiring and the house burns down.
h    An insured takes out a motor vehicle policy. In answer to a question asking for the make and year of manufacture of the vehicle he replies, 'Ford Cortina 1975'. Unknown to the insured, the vehicle was, in fact, manufactured in 1973. The vehicle is extensively damaged in an accident.
h    An insured takes out a personal accident policy. He does not disclose that he is a keen water-skier. He is injured in a motor vehicle accident on the way to work.
h    An insured takes out a whole of life policy at age 25. To a question asking for the cause of death of his father, he replies 'pneumonia'. In fact, his father's death was caused by a hereditary disease which reduces average life expectancy by five years. Two years after taking out the policy, the insured is killed in an industrial accident."
The Commission believed that the insurer should not be able to deny the insured the ability to recover under the policy in those cases where the event giving rise to the claim was not related to the fact which had not been disclosed or had been misrepresented. It is for that reason that it recommended subsections (1) and (3) of s 31. It will be noticed that s 31(3) expressly requires the court to have regard to the need to deter fraudulent conduct.
102 According to one commentator, subsections (2) and (4) were introduced by the Commonwealth Parliament in response to the concern of the insurance industry that s 31 was an encouragement to fraud: Wickens, The Law of Life Insurance in Australia (para 3.100). Whatever the reason, effect must be given to it.
103 Section 31(2) permits the court to exercise the power only where the insurer has not been prejudiced by the failure to comply with the duty of disclosure or by the misrepresentation, or if the prejudice is minimal or insignificant. In this case, there is a very direct relationship between the undisclosed or misrepresented facts and the event which gives rise to the claim. The non-disclosure and the misrepresentation are both very material to the detection of cancer which was the event in respect of which Tyndall paid the claim. In other words, this is a case where the insurer has been prejudiced by the non-disclosure and misrepresentation. It was induced to enter into the contract because of the non-disclosure and misrepresentation. It would not have done so had full disclosure been made, thus providing it with an opportunity to investigate the cause of the bleeding. Tyndall has made a substantial payment. The prejudice to it is not minimal or insignificant. The onus is on the defendant to establish an absence of prejudice for the purposes of s 31(2): Plasteel Windows Aust Pty Ltd v C E Heath Underwriting Agencies Pty Ltd (1990) 19 NSWLR 400 at 411. But I do not rely only on the failure of the defendant to discharge the onus. For the reasons I have given, it is apparent that Tyndall has suffered substantial prejudice. By reason of the terms of s 31(2), the defendant is unable to invoke s 31(1).
104 For these reasons the defendant is not entitled to the sum of $500,000 paid to him by Tyndall. He must repay that sum less the premiums he has paid. In addition Tyndall is entitled to avoid the contract which was created by the exercise of the Take Up Option.
Avoiding the Take Up Option
105 I have examined whether there might have been an alternative ground on which Tyndall could have avoided the Take Up Option. By reason of s 29(3) of the Insurance Contracts Act, an insurer is entitled to avoid a contract of insurance for non-disclosure or misrepresentation within three years of the making of the contract if it can prove it would not have been prepared to enter into a contract of life insurance with the insured on any terms if the duty of disclosure had been complied with and the misrepresentations had not been made. The Take Up Option was exercised on 20 September 1995. Tyndall gave notice that it avoided the contract on 18 June 1996 within three years of the exercise of the option. Tyndall will be able to rely on s 29(3) of the Act if the exercise of the option constituted the entry into a contract of life insurance and if Tyndall is able to satisfy the other provisions of s 29(3).
106 There is a good deal which points to the conclusion that the exercise of the option constituted the entry into a contract of life insurance on 20 September 1995.
107 The true nature of an option is the subject of what Dixon CJ has called a "standing controversy": Braham v Walker (1961) 104 CLR 366 at 376. The question was examined by Gibbs J in Laybutt v Amoco Australia Pty Ltd (1974) 132 CLR 57 at 71 - 76. See also the discussion in Rossitter, Options to Acquire Interests in Land - Freehold and Leasehold, 56 ALJ 576 and 624 and in Voumard, The Sale of Land - Victoria (5th ed.) at paras 1070 - 1100. One view is that an option to purchase is a conditional contract to sell the subject matter of the option on condition that the other party shall within the stipulated time assent to the terms of the offer embodied in the contract. The other is that it is an offer to sell the subject matter of the option with a contract not to revoke the offer during the time, if any, specified in the option. Mr Rossitter (at 576) suggests that judicial opinion as a whole appears to favour the irrevocable offer theory but it is unnecessary to resolve that issue. Although the view has been expressed that it is immaterial which view is adopted, there are instances, and this may be one, where the distinction is of importance: see 24 ALJ 7 at 10. In this case it is important because it governs the question whether the exercise of the option involved a new insurance contract being made.
108 This option is expressed in terms which appear to indicate that it is an irrevocable offer and not a conditional contract. There is no condition to be fulfilled. Instead, the insured is offered the opportunity to obtain additional life cover by exercising the option at the specified option dates. The offer is expressed in terms which indicate that is irrevocable during the times specified in his contract. If the option is exercised, a new contract comes into existence. This conclusion is consistent with the policy of the Insurance Contracts Act as expressed in s 11(9) which provides, among other things, that a reference in the Act to the entering into a contract of life insurance includes the making of an agreement to extend or vary the contract. Thus, a new contract of insurance came into being on 20 September 1995 when the defendant exercised the Take Up Option. Tyndall is able, therefore, to rely on the provisions of s 29(3).
109 An insured has a duty to make full disclosure and a duty not to misrepresent the facts when making an agreement to extend or vary a contract of life insurance: c.f. Alexander Stenhouse Ltd v Austcan Investments Pty Ltd (1993) 112 ALR 353 at 356. That duty applied when the defendant exercised the option. I do not think that the fact that Tyndall was prepared to enter into the contract to provide term life cover without evidence of insurability requires a different conclusion. The option expressly requires that there has been proper compliance with the duty of disclosure and the duty not to misrepresent facts when the initial contract of insurance was made.
110 Tyndall has not led evidence to prove that it would not have been prepared to enter into the contract on any terms if the defendant had complied with the duty of disclosure and had made no misrepresentation. The facts to be proved under s 29(3) of the Act differ from those to be proved under s 29(1)(c). In the absence of such evidence, Tyndall cannot rely on s 29(3).
Conclusion
111 For all of these reasons, there will be

An order that the defendant pay the sum of $497,502.20 to Tyndall.
An order in the nature of a declaration that Tyndall is entitled to avoid the contract of insurance created by the defendant's exercise of the Take Up Option.
I will hear the parties as to the precise terms of the order.

[1999] SASC 445

15 October 1999