Zollo & Anor v National Aust Bank Ltd

[1997] HCATrans 375

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Adelaide  No A19 of 1997

B e t w e e n -

ALESSANDRO ZOLLO

Applicant

and

NATIONAL AUSTRALIA BANK LIMITED and NATIONAL AUSTRALIA FINANCIAL MANAGEMENT LIMITED

Respondents

Office of the Registry
  Adelaide  No A27 of 1997

B e t w e e n -

ALESSANDRO ZOLLO and IOLANDA ZOLLO

Applicants

and

NATIONAL AUSTRALIA BANK LIMITED

Respondent

Applications for special leave to appeal

TOOHEY J
GUMMOW J
KIRBY J

TRANSCRIPT OF PROCEEDINGS

FROM ADELAIDE BY VIDEO LINK TO CANBERRA

ON THURSDAY, 11 DECEMBER 1997, AT 11.28 AM

Copyright in the High Court of Australia

_________________________

MR S. WALSH, QC:   If the Court pleases, I appear with my learned friend, MR J.M. CUDMORE, for both applicants.  (instructed by Floreani Coates & Co)

MR D.E. CLAYTON, QC:   May it please the Court, I appear with my learned friend, MR N.J.T. SWAN, for the respondents in both applications.  (instructed by Finlaysons)

TOOHEY J:   Although there are two applications, I take it in terms of time we should regard this as one, should we?

MR WALSH:   Probably so, your Honour.

TOOHEY J:   The second one is consequent in a sense upon the first, is it not?

MR WALSH:   That is quite so, your Honour.  In fact, it is consequential in the sense that it is a possession action.  It hinges upon the result in the first.  It relates to the matrimonial home and some other properties and it is security only. 

If the Court pleases, there are three issues which we raise as special leave points. The first is that the case raises the question of the proper interpretation of a term of an insurance contract with respect to total disablement which is a common provision in many insurance contracts throughout Australia and which is standard cover unless the insured receives notice to the contrary under section 35 of the Insurance Contracts Act and regulations 17 and 18. It is invariably so that bankers and their lenders nowadays recommend total disability insurance in association with loans to protect both borrower and lender, so it does raise an important issue.

TOOHEY J:   Perhaps you might like to identify your three issues and then I will take you back to the first one for a moment.

MR WALSH:   Very well, your Honour.  The second issue is in what circumstances might a banker be said to have entered into an oral contract of insurance with its customer?  If it has entered such a contract, upon what terms if it normally does not provide insurance itself?

GUMMOW J:   How is that a special leave point?

MR WALSH:   In our respectful submission, it raises an important issue with respect to policies of insurance throughout Australia where bankers are relying in a sense upon oral contracts or oral conversations entered into between customer and bank and situations where they may be also agent for an insurer which, as in this case, is a wholly owned subsidiary.

GUMMOW J:   But you were suing on a contract, were you not?

MR WALSH:   Yes, we were.

GUMMOW J:   You had to prove the contract?

MR WALSH:   Yes, indeed.

GUMMOW J:   What was the contract?

MR WALSH:   We say that it was an oral contract of insurance with the Bank and, alternatively, an oral contract of insurance with the insurer.

GUMMOW J:   What was the terms of it?

MR WALSH:   The terms were as found by his Honour Justice Bollen and, as appears at page 32 line 35 of the application book and as referred to by the Court of Appeal.  His Honour Justice Bollen said:

What was the contract struck between the Bank through Daly and the plaintiff?  It was a contract that the Bank would procure or provide protection by insurance indemnifying the plaintiff against inability to pay money to the Bank “on all lending in the name of the plaintiff” which the plaintiff could not pay through inability to work at his usual work by reason of death, sickness or accident -

His Honour Chief Justice Doyle accepted that that could have been ‑ ‑ ‑

GUMMOW J:   But what does the word “CHECK” mean?

MR WALSH:   I do not understand the reason for the word, your Honour.  I cannot explain that but what I can say to your Honour is that ‑ ‑ ‑

TOOHEY J:   Mr Walsh, you have been drawn into the second question.  Perhaps I can draw you into the first, at least for a moment, and that is:  in the light of your answer to Justice Gummow that this was a contract between the applicant and the Bank and you were asked about its terms, how does the first question even arise as you identified it for us?  It seemed to be a question that bore upon the terms of insurance policies.

MR WALSH:   Yes, it arises in this way, because the Full Court of the Supreme Court overturned that decision of his Honour Justice Bollen and then said no, it was three insurances but on the insurer’s usual terms.  We challenge that proposition.  We say that there was no warrant for the Full Court to interfere with the conclusion of the learned trial judge.  Indeed, his Honour Chief Justice Doyle ‑ ‑ ‑

TOOHEY J:   I understand that you challenge that finding but at the moment I do not see how it raises a question of general importance as to the terms upon which insurance policies are issued.  It is a finding of fact, is it not?

MR WALSH:   I suppose that is true, it is a question of fact, but it has been asserted by some academic writers that there is a tendency to in effect assume that there must be some documentation associated with it.

KIRBY J:   Normally in practice there would be and normally a bank would give a policy.  You would get it in the mail and the bank manager would say, “We refer to our conversation.  Here is the policy”.

GUMMOW J:   Or you would at least have a cover note.

KIRBY J:   That would normally go.  This is a rather peculiar fact situation here where you say there was just an oral agreement.  The primary judge accepted that, the Full Court said no, the oral agreement was to incorporate the insurer’s normal conditions.  But that is a rather unusual fact combination.

MR WALSH:   It is indeed, your Honour, I accept that.  But I should just say in terms of that fact combination, it ought not to be forgotten that the Chief Justice said at the foot of page 56 of the application book as to the contract of insurance:

I have already set out the trial judge’s conclusion.

I directed your Honours’ attention to that a short time ago.

The factual findings are capable of supporting the conclusion.

In other words, his Honour accepted that the factual findings that his Honour Justice Bollen made could have supported that conclusion, but then his Honour went on to say, “No, I think that Mr Zollo must have expected more”, and even directed his Honour’s attention to the question of credit on that point when clearly what had happened was that the trial judge at first instance had dealt with the issue of credit, had determined that Mr Zollo was correct in what had happened with respect to the contract and had determined that there was an oral contract.  His Honour the Chief Justice accepted that was open on the findings of fact and yet the Court of Appeal overturned that decision and the reasoning behind it.

That I suppose leads me to the third point which we raise, and that is that it is in the interests of administration of justice that special leave be granted because the decision of the Full Court on a number of points is attended with sufficient doubt to justify the grant of special leave. That is one of the points we raise. Another of the points that we raise with respect to this issue is the interpretation of the clause itself, the hands‑on builder arguments. The next question is the opinion, namely, the opinion that was never pleaded, the opinion that is now asserted was required but which section 35 of the Insurance Contracts Act we say would not incorporate into this contract, and yet his Honour the Chief Justice used the opinion clause to justify an adverse interpretation of the disability clause.

If the Court pleases, if we turn to the foot of page 70 of the application book at line 60, his Honour said in the last paragraph:

In my opinion, taking the clause in its context and doing my best to relate its construction to the object of the clause, it would be going too far to conclude that an inability to perform any one of the normal duties of the usual occupation entitled an insured person to payment under this clause.

If one pauses there, we might say yes, but what if it is essentially all or a substantial proportion of the duties?  His Honour then continued:

That approach is not consistent with the notion of “total disablement”, with the reference to the sort of opinion that the company is to form and with the usual understanding of insurance in respect of, as this was “Permanent Total Disability.”

In other words, his Honour is using the opinion clause which is the subject of a challenge because of the operation of section 35 of the Insurance Contracts Act to allow a conclusion which is in favour of the insurer. His Honour then continued in the next paragraph on page 71 that:

In the end, with some hesitation, I have come to the conclusion that the words are to be given the construction for which the insurer contends.  The use of the word “all” is significant in this context.  And, as I have already said, I am unable to accept as correct the view that it is sufficient that some of the normal duties cannot be performed.

So what we have is a process of reasoning which incorporates the opinion clause but, when that was contrary, we say with respect, to the proper interpretation of section 35 and regulations 17 and 18, then, his Honour being in the position that he then had to consider the question of what is the proper interpretation of the clause which respect to total disablement and all the arguments of course which were so strongly in favour of a conclusion in favour of the insured seemed to have been leaped over, such as the fact that it must be read contra proferentum to the insurer, such as the fact that the words used were “carrying on all the usual duties” and one could look at those words in the context of: if a person is unable to perform the occupation at all because he cannot perform essential physical duties, ought that not to be treated as an inability under this policy to carry out all of the duties, particularly where it was not a partial disability contract of insurance either?

So that cases that deal with issues of partial disability can be distinguished on that ground.  That of course has been a powerful factor in considering similar clauses in other cases but it is not a factor in this case.  So what we say is that when his Honour the Chief Justice concluded at page 71:

In the end, with some hesitation, I have come to the conclusion that the words are to be given the construction -

it really is an error and the decision is wrong, that the insurer should not have ‑ ‑ ‑

KIRBY J:   The construction of this policy came before me in the Court of Appeal, I think, and I think I recollect that I reached a similar view on its construction given its intransigent terms.

MR WALSH:   Yes, your Honour, that was Jande’s Case.  That was QBE v Jande.  In that case your Honour was persuaded, in our respectful submission, by the powerful submission that there was partial disability insurance contained within it, a clause contained within it.  Of course, the powerful argument in that case was that if there is partial disability, what are we to make of a clause which is talking about all duties juxtaposed with that?  This is different.  In our respectful submission, that was a powerful factor in your Honour’s reasoning process in that case.  So what we put to the Court is that ‑ ‑ ‑

KIRBY J:   Your primary submission is that you do not get to that because this was not a written contract at all; this was just an oral agreement to provide a Bank customer with insurance against the risk that the Bank customer would not be able to do what the Bank wanted, namely, to reduce the mortgage and so on, and that therefore you have to interpret the oral agreement in terms of its purposes which were to ensure that he kept up his payments and if he is unable to do his duties.

MR WALSH:   Indeed, your Honour.

KIRBY J:   So you do not even get into the written contract unless by the reasoning which you protest that the Full Court took, of importing a written contract that your client never saw into an oral arrangement that he had with the Bank where they said, “Well, it’s all fixed up”.

MR WALSH:   Entirely, your Honour.

GUMMOW J:   What was the premium to be?

MR WALSH:   The premiums were to be deducted automatically and Mr Zollo was just simply told that that would be done.

KIRBY J:   I suppose you would say that if the Bank wanted to make clear its terms and conditions, it had to take the steps of ensuring that he got the written agreement, that he knew and then, maybe if he was not happy, he could look around somewhere else in the market and get a different policy.  But if they left it on the oral basis, they are stuck with trying to give meaning to the oral terms.

MR WALSH: With respect, of course that is our position, that is our primary position. If one then looks at what happened thereafter, namely, that the Full Court imposed the usual terms of the Bank and then in effect denied the applicants the opportunity to argue section 35 which would logically only arise if there were some usual terms - in other words, the pleadings would then flow in a different way to that which they did - and in the face of the fact that the opinion was never pleaded by the insurer, the applicants were left in the position where they were not even allowed on the second issue to raise the question of section 35 and the regulations.

KIRBY J:   But it is a rather special case, Mr Walsh.  It is just a couple of people at a local bank having a talk and then things have gone off the rails.  It is really a very special fact situation.

MR WALSH:   Your Honour, but what does arise by way of the process of what has happened is important issues that relate to an insurance contract that is of wide import, that is important throughout Australia, namely, the wording of the insurance contract and whether it is satisfied in the case of a hands‑on builder in the case where there is no partial disability clause.  That is an important ‑ ‑ ‑

KIRBY J:   But on your primary argument the Court does not even get to that.  It just says the Full Court ‑ ‑ ‑

TOOHEY J:   You would be asking us to reinstate the trial judge in effect, would you not?

MR WALSH:   Yes, that is so but of course ‑ ‑ ‑

KIRBY J:   Maybe checking whether that finding was right.

MR WALSH:   In our respectful submission, it is not correct to say that we do not have a special leave point simply because that is a primary argument.  There are other issues that will arise because, if we, for example, were wrong in that ‑ ‑ ‑

GUMMOW J:   If you lose the primary argument.

MR WALSH:   Yes, if we lose the primary argument.

KIRBY J:   But you say you have got a good leg into the primary argument because that was what the primary judge found.  He found it partly on the basis, or perhaps entirely on the basis, of credit findings and that that should not have been disturbed by the Full Court and, above all, they should not have just gone and imported a written contract that your client never saw until the litigation.

MR WALSH: Indeed, your Honour, but our point, I suppose, is this, that having accepted that as a fundamental starting point of our argument, we would say that that is a matter which justifies the grant of special leave on the grounds of administration of justice. But even if we were wrong on that, we say that there is a very important issue with respect to the proper interpretation of section 35 because his Honour the Chief Justice has dealt with it in a way which suggests there may be a misconception about the second limb of section 35 and furthermore the question of the interrelationship, I suppose, of that opinion clause and the disability clause.

Finally, even if we are, as it were, left with the position that we have to show that we come within the clause in the contract, the so‑called usual contract, we would say that that is an important special leave point because here we have a person who it is said can do some non‑physical duties.  What they are of course is meaningless in a case of this kind because the fact of the matter remains that if he does not have the ability to do the physical work, he has no business.  He has had no business since 1990.  That is a fact.  He has been unable to work and here is this person saying that is in effect satisfaction of that clause, namely, “I cannot do all of my duties because there are none left available for me to do given the fact that I cannot do the arduous physical work which a small builder must do”.  This was not a big builder.  It was not one of these cases of a large building company; it was a single builder operation where of course he needed to be there, needed to be doing physical work and could not run his business if he was not able to do that physical work.

So in the end we say there are those three special leave points.  True it is that we start at the top and only get to the others if in fact we are wrong with respect to the first, but they are, in our respectful submission, special leave points.  If the Court pleases, they are our submissions.

TOOHEY J:   Mr Walsh, just before you sit down, can you briefly tell us the position regarding the other application.  In other words, if the primary application fails, is it the position that the second application fails automatically?

MR WALSH:   Yes, your Honours.

TOOHEY J:   If the primary application were granted, what is the position of the second application?  Does that need to be argued separately or does it equally follow automatically?

MR WALSH:   It follows as a matter of course the result in the first action, the primary action.

TOOHEY J:   Thank you very much.

MR WALSH:   If the Court pleases.

TOOHEY J:   We need not trouble, you, Mr Clayton.

These applications turn very much upon the view of the facts taken by the Full Court.  There is no question of general principle involved that would warrant a grant of special leave to appeal.  Accordingly, each application is refused.

MR CLAYTON:   I apply for costs, if the Court pleases.

TOOHEY J:   Mr Walsh.

MR WALSH:   There is not much we can say on that topic, if the Court pleases.

TOOHEY J:   No, there is not.  The applications are refused with costs.

That concludes the business of the Court.  The Court will adjourn until 9 am in Sydney and 9.30 am in Melbourne tomorrow.

AT 11.49 AM THE MATTER WAS CONCLUDED