Qbe Insurance Limited v Sebastian Stephen Giampaolo and Finsura Insurance Brokers (Aust) Pty Limited [1993] ACTSC 106 (10 December 1993)

SUPREME COURT OF THE ACT

QBE INSURANCE LIMITED v. SEBASTIAN STEPHEN GIAMPAOLO and FINSURA INSURANCE
BROKERS (AUST) PTY LIMITED
No. SCA61 of 1993
Number of pages - 18
Construction of Contracts - Disclosure - Insurance - Non-Disclosure - Costs

COURT

IN THE SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
HIGGINS J

CATCHWORDS

Construction Of Contracts - insurance - request by insurer to reveal traffic convictions - whether "convictions" include payment of traffic infringement notices.

Disclosure - duty as to - insurance contracts - waiver of rights by insurance company - s.21(2)(2) Insurance Contracts Act 1984 (Cth).

Insurance - motor vehicle - comprehensive insurance - failure by insured to disclose traffic infringement notices - whether material fact.

Non-Disclosure - insurance - liability of insurer - whether proposal for insurance would have been declined but for non-disclosure - effect of non-disclosure - causation - whether proposal would be accepted or declined - whether liability reduced to nil or otherwise.

Costs - Sanderson order - costs of co-defendant - whether within Magistrate's discretion.

Traffic Act 1909 (NSW), s.18B(5)

Insurance Contracts Act 1984 (Cth), ss.21, 23, 28(3)

The Criminal Code (Qld), s.392

Motor Traffic Act 1936 (ACT), Part XIA, s.108A(5)(e)

Abalos v Australian Postal Commission [1990] HCA 47; (1990) 171 CLR 167

Devries v Australian National Railways Commission [1992] HCA 41; (1993) 67 ALJR 528; 112 ALR 641

Cobiac v Liddy [1969] HCA 26; (1969) 119 CLR 257

R v Freer (1979) 26 ACTR 26

Ex parte Newman; re Fisher and McInerney (1969) 1 NSWR 538

Sargent v ASL Developments Ltd and Others (1974) 131 CLR 643

Commonwealth v Verwayen [1990] HCA 39; (1990) 170 CLR 394

Territory Insurance Office v Adlington [1992] NTSC 222; (1992) 84 NTR 7

Twenty-First Maylux Pty Ltd v Mercantile Mutual Insurance (Australia) Ltd (1989) 92 ALR 661

Ayoub v Lombard Insurance Co (Aust) Pty Ltd (1989) 97 FLR 284

Toikan International Insurance Broking Pty Ltd v Plasteel Windows Australia Pty Ltd (1989) 94 FLR 362

Advance (NSW) Insurance Agencies Pty Ltd v Matthews [1989] HCA 22; (1989) 166 CLR 606

Zurich Australian Insurance Ltd v Contour Mobel Pty Ltd (1991) 2 VR 146

Fanhaven Pty Ltd v Bain Dawes Northern Pty Ltd (1982) 2 NSWLR 57

Brooks v Sirius Insurance Company Limited (1985) 3 ANZ Insurance Cases 60-601

Athlone Pty Ltd v General Accident Fire and Life Assurance Corporation and Challenor Insurances Pty Ltd (1985) 3 ANZ Insurance Cases 60-648

Bullock v London General Omnibus Co (1907) 1 KB 264

Sanderson v Blyth Theatre Co (1903) 2 KB 533

HEARING

CANBERRA, 1 November 1993
10:12:1993

Counsel for the Appellant: Mr G Stretton

Instructing solicitors: Messrs Sly and Weigall

Counsel for the First
Respondent: Mr C Whitelaw

Instructing solicitors: Messrs Gallens Crowley and
Chamberlain

Counsel for the Second

Respondent: Mr R W Royle

Instructing solicitors: Messrs Macphillamy Cummins and
Gibson

ORDER

The Court orders that:

1. The appeal be upheld.
2. The judgment entered on 28 May 1993 be varied by
substituting for $39,240.00 the sum of $37,846.00.

DECISION

HIGGINS J This is an appeal against a decision by Magistrate Burns, handed down on 28 May 1993.

2. The material facts were not really in dispute.

3. The plaintiff (first respondent) had claimed recovery of $30,000.00 (plus interest) from the first defendant (second respondent) and/or the second defendant (appellant).

4. On or about 22 August 1989 the plaintiff consulted the first defendant, with a view to arranging comprehensive insurance in respect of a 1984 Holden Brock SS3 Sedan, registered number ACT YRR 529 ("the vehicle"). The plaintiff had acquired the vehicle about March 1988.

5. During that consultation, a proposal for comprehensive insurance was completed that was later submitted to the second defendant. The second defendant accepted the proposal. A form of policy of insurance (policy no. CA-0652529-PMC) was issued on 26 September 1989. It effected insurance in the sum of $30,000.00 in respect of the vehicle referred to. A standard excess of $900.00 was imposed by the second defendant. A premium of $3,624.28 (including duty) was duly paid.

6. Subsequently, on 23 May 1990, the vehicle was stolen from the Camperdown Travelodge at Camperdown in New South Wales.

7. A theft claim was duly submitted under the policy by the plaintiff to the second defendant on 4 June 1990.

8. On 23 July 1990, the second defendant responded by asserting,

"Investigations carried out into the above (claim) have revealed
that you failed to disclose to QBE the full details and extent of
your traffic convictions, over the last five years, in your proposal
submitted to QBE dated 22/8/89.
Had these convictions been declared, as required by your duty of
disclosure, QBE would not have granted cover, as the risk falls
outside our underwriting guidelines."

9. The second defendant, as a result, refused to accept the claim and purported to cancel the policy from its inception.

10. A more specific letter was despatched the same date. It is not clear to me why two such letters were necessary, but the non-disclosure was detailed in that letter in the following terms,

"When you completed a motor vehicle proposal on 22nd August 1989 you
declared that you had only two speeding fines between 1984 and 1989
in New South Wales and one in the Australian Capital Territory.
From information now in our possession we find that in fact you had
four speeding fines in NSW during the above period plus the one in
the ACT for which you were fined and another speeding where no
action was taken."

11. Again, the second defendant purported, in reliance on this alleged non-disclosure, to void the policy of insurance from its inception.

The completion of the proposal form
12. The plaintiff deposed that he had consulted Mr Bruce Davies, a consultant employed by the first defendant, about the proposal. A claim by the plaintiff's brother had been refused for non-disclosure. As a result, the plaintiff was anxious to ensure that he did not risk the same consequences.

13. The plaintiff gave evidence that he produced to Mr Davies a copy of his ACT driving record for the previous five years (though it may have covered a longer period). He told Mr Davies he had no copy of his NSW driving record. He was asked by Mr Davies if he had any convictions there. His reply was, "Two or three in New South Wales."

14. Mr Davies, according to the plaintiff, then said, "We'll just jot down two and it will be okay.". The plaintiff accepted that advice.

15. It is true that Mr Davies did not agree that he was told of "two or three" matters in New South Wales. His Worship, however, for the purpose of determining the issue of costs, expressly accepted the plaintiff's version of the conversation rather than that of Mr Davies.

16. That conclusion was reached for a purpose relevant to the resolution of the matter. It was based on a consideration of the evidence of witnesses before him. They were each cross-examined. His Worship's conclusion does not appear to be tainted by any misuse of the advantage thus afforded to him of seeing and hearing those witnesses. In my view, not only would I be obliged, prima facie, to accept his Worship's conclusion (see Abalos v Australian Postal Commission [1990] HCA 47; (1990) 171 CLR 167; Devries v Australian National Railways Commission [1992] HCA 41; (1993) 67 ALJR 528; 112 ALR 641), but I can see no reason not to concur with it.

17. In any event, insofar as the proposal form was inaccurate or there was a failure by the plaintiff to comply with his duty of disclosure, it is conceded on behalf of the second defendant that any such error was made in good faith. It is also apparent, from his Worship's finding of fact, that insofar as it might be relevant so to find, any non-disclosure was induced, encouraged, or permitted by the first defendant through Mr Davies.

The Proposal compared with the record
18. The second defendant requested the provision of various items of information by its proposal form. The question at issue in these proceedings was the following,

"4. Details of Driver(s) ...
Have any of the above Drivers (only the plaintiff was identified)
...
(c) had any traffic convictions (excluding parking fines) in the
last five years? (Where answered YES provide date and nature of
conviction)"

19. The "YES" box was ticked. Details were provided in the following terms

"SPEEDING 2/12/85 (illegible) $50 FINE (illegible)
" " 84-89 TWICE IN NSW - CANNOT RECALL DETAILS"

20. In relation to the Australian Capital Territory, since 22/8/84 (five years before the date of the proposal), the plaintiff had the following traffic history (including traffic infringement notices (TINs)),

"SPEED - NO ACTION TAKEN TIN 1367 $60
OFFENCE DATE 28 AUG 84.
ACT MAGISTRATES COURT (1 CHRG) OFFENCE DATE 28 SEPT 85
2 DEC 85 PP85/4519 $50
SPEED
Speed 8/9/87 TIN 25/9/87 Paid $80"

21. During the same time period, the plaintiff's traffic history in New South Wales, as later ascertained and tendered at the hearing (including TINs) was,

"150984 EXCEED SPEED LIMIT BY C'REAGH ST $100 and $25
MORE THAN 30 KM/H 170185 (ENFORCEMENT ORDER)
0851613
311285 EXCEED SPEED LIMIT BY T.I. $80 465376
MORE THAN 15 KM/H BUT
NOT MORE THAN 30 KM/H
(T.I. refers to a Traffic Infringement Notice)
040688 EXCEED SPEED LIMIT BY T.I. $100 1502675
MORE THAN 30KM/H
141188 EXCEED SPEED LIMIT BY T.I. $120 2826006
MORE THAN 15 KM/H BUT
NOT MORE THAN 30 KM/H
191288 NOT WEAR SEAT BELT T.I. $75 3030929"

22. On 9 March 1989, the plaintiff was issued with what was described as a "final warning". He was advised that "further offences may result in the suspension of visiting driver privileges".

23. It is to be noted that the proposal sought details of "convictions" recorded over the stated time period.

24. As his Worship observed,

"The word "conviction" is ordinarily understood to refer to the
recording of an offence being found proved by a court of law."

25. It is well settled that penalties which may be imposed "upon conviction" are not available where a court, notwithstanding a finding of guilt, refrains from conviction pursuant to a statutory power so to do (see, for example, s.556A Crimes Act 1900 (ACT); s.19B Crimes Act 1914 (Cth)). Subject to that qualification, a judicial determination of guilt constitutes a "conviction" as his Worship stated.

26. The most authoritative statement of the position is that of Windeyer J in Cobiac v Liddy [1969] HCA 26; (1969) 119 CLR 257.

(273) "In a trial on indictment the jury's return of a verdict of
guilty is properly called a conviction, though it will have no
effect in law until judgment be given by the court. But in a court
of petty sessions, the same person, the magistrate, decides the
issue of guilt and imposes the sentence. If he announces in open
court that he convicts the offender, there is a conviction, although
for some reason he may not proceed to impose any sentence."

27. In R v Freer (1979) 26 ACTR 26 it was noted that a verdict of guilty returned by a jury is a "conviction". The same meaning was accorded to the term "convicted" used in s.392 of The Criminal Code (Qld).

28. The meaning accorded by common usage is not substantially different (see Shorter Oxford Dictionary - "conviction": - legal proof or declaration of guilt).

29. There is nothing to suggest that the proposal form was to be understood in any other sense than referring to judicial determinations of guilt. Whether the proposal form would be understood as embracing a finding of guilt without conviction being recorded is a matter that does not presently fall for determination.

30. In relation to the ACT, therefore, there was only one conviction for speeding, that being in 1985. There was a TIN issued in 1984. Presumably, the endorsement "no action taken" indicated that, for whatever reason, it was unpaid but no summons for speeding was issued. It did not amount to an adverse finding of guilt. A TIN for speeding was paid by the plaintiff in 1987.

31. In relation to New South Wales, the plaintiff had only one speeding conviction in the relevant time period. He had, in fact, suffered a further conviction in February 1984 before the commencement of the five year period enquired after. He had paid three TINs for speeding and one for failing to wear a seat belt.

31. His Worship held, correctly in my view, that whether or not payment of a TIN could be construed as an admission of the traffic breach alleged, it does not constitute "a conviction" (see Ex parte Newman; re Fisher and McInerney (1969) 1 NSWR 538).

33. Indeed, the relevant NSW legislation limits the use which may be made of the payment of a penalty pursuant to such a TIN. Section 18B(5) Traffic Act 1909 (NSW) provides,

"(5) Payment of a penalty pursuant to this section shall not be
regarded as an admission of liability for the purpose of nor in any
way affect or prejudice any civil claim action or proceeding arising
out of the same occurrence."

34. A penalty so paid is not a "fine". Even if it was, the proposal did not ask for "fines" to be revealed.

35. In the Australian Capital Territory, Part XIA of the Motor Traffic Act 1936 permits a TIN to be issued. Section 180A(5)(e) provides that where a prescribed penalty is paid in accordance with a TIN,

"The person shall not be regarded as having been convicted of the
alleged prescribed offence."

36. Accordingly, the letters from the second defendant to the plaintiff were based on an erroneous premise. There was no failure to "disclose to QBE the full nature and extent of your traffic convictions over the last five years". The plaintiff had not declared that he had "only two speeding fines (emphasis added) between 1984 and 1989 in New South Wales and one in the Australian Capital Territory". He had, as asked, declared his "convictions". Further, the second defendant misrepresented the information alleged to be in its possession. The second defendant drew no distinction between the "fines" which were imposed and administrative penalties which were paid. It seemed to assume that, in respect of the TIN on which "no action taken" was endorsed, there was, nevertheless, some sort of finding that an offence had occurred.

37. It follows that no false or misleading information was in fact provided. In fact, the plaintiff acknowledged one more conviction than he had in fact suffered in the relevant period.

38. Although it is not necessary to call it in aid, s.23 of the Insurance Contracts Act 1984 (Cth) supports the view that the test to be applied in determining whether an insured person provided misleading information, is that of a reasonable person in the position of the insured.

39. His Worship did consider whether the second defendant was entitled to contend that the plaintiff's duty of disclosure required him to advise the second defendant of the issue and/or payment of TINs. He concluded that the second defendant had failed to raise such an issue.

40. It was urged before me that his Worship was in error in so concluding. It was further urged that, insofar as the pleadings had been defective an amendment should have been suggested and allowed so as to correct such an oversight. Accordingly, I will first consider whether, even had such an issue been raised by the pleadings, the second defendant could have succeeded.

Did the plaintiff's duty of disclosure require him to reveal the issue and/or payment of TINs?
41. It would be unlikely that the second defendant, an insurer in the business of receiving and assessing proposals for motor vehicle insurance, could be unaware of the ordinary meaning of the term "conviction". It would be well aware that even if a proposed insured had, on occasions, exceeded the speed limit;

(i) he or she may have been undetected;
(ii) he or she may have been detected but merely warned, receiving
neither a TIN nor a summons to attend court;
(iii) he or she may have been issued with a TIN and paid it, thereby
avoiding court proceedings, or it might have been withdrawn;
(iv) court proceedings might have commenced, but the offence not
found proved or found proved without conviction.

42. Notwithstanding all these well-known possibilities, the second defendant enquired only after "traffic convictions". To my mind, that amounts to a representation that the second defendant was interested only in traffic breaches resulting in conviction by a court. It is, of course, trite that a TIN, for example, might well be paid to avoid court proceedings or other consequences, regardless of whether the alleged offender is, in fact, guilty of the offence. It is legislatively declared that such a payment is not "a conviction".

43. This was a classic case of estoppel by representation. Had the second defendant sought details of findings of guilt, or of the issue or payment of TINs, it is clear that the plaintiff would have endeavoured to provide them. By not doing so, believing the second defendant did not require such information, the plaintiff had suffered the detriment of delivering to the second defendant the ground upon which it then sought to decline liability. It would be unconscionable to uphold such a defence even had it been raised by the pleadings (see generally, Sargent v ASL Developments Ltd and Others [1974] HCA 40; (1974) 131 CLR 634; Commonwealth v Verwayen [1990] HCA 39; (1990) 170 CLR 394).

44. Even if estoppel is not appropriate (see, for example, Territory Insurance Office v Adlington [1992] NTSC 222; (1992) 84 NTR 7), there is the matter of waiver.

45. The duty of disclosure is regulated by s.21 of the Insurance Contracts Act 1984 (Cth),

"21. (1) Subject to this Act, an insured has a duty to disclose to
the insurer, before the relevant contract of insurance is entered
into, every matter that is known to the insured, being a matter
that:
(a) the insured knows to be a matter relevant to the decision of the
insurer whether to accept the risk and, if so, on what terms; or
(b) a reasonable person in the circumstances could be expected to
know to be a matter so relevant.
(2) The duty of disclosure does not require the disclosure of a
matter:
(a) that diminishes the risk;
(b) that is of common knowledge;
(c) that the insurer knows or in the ordinary course of his business
as an insurer ought to know; or
(d) as to which compliance with the duty of disclosure is waived by
the insurer.
(3) Where a person:
(a) failed to answer; or
(b) gave an obviously incomplete or irrelevant answer to;
a question included in a proposal form about a matter, the insurer
shall be deemed to have waived compliance with the duty of
disclosure in relation to the matter."

46. There is no doubt that the plaintiff knew that prior convictions for traffic offences were relevant. The relevance of a conviction for some traffic offences (such as failing to wear a seat belt) is not obvious but it was accepted by all parties that prior convictions for speeding were relevant.

47. However, even if the plaintiff should have known that TINs issued or paid were relevant, the question as posed in the proposal form reasonably would lead him to conclude that such information was not required.

48. It follows that, even if the plaintiff was, or should as a reasonable person, have been aware that TINs issued for speeding were relevant, the insurer had waived compliance with that duty (see s.21(2)(d)).

49. As Brooking J observed in Twenty-First Maylux Pty Ltd v Mercantile Mutual Insurance (Australia) Ltd (1989) 92 ALR 661, s.21 replaces the previous test of materiality, that of the hypothetical prudent insurer, with that of the materiality to the individual insurer. Rogers CJ in Ayoub v Lombard Insurance Co (Aust) Pty Ltd (1989) 97 FLR 284, drew attention, with apparent approval, to the dictum of Samuels JA in Toikan International Insurance Broking Pty Ltd v Plasteel Windows Australia Pty Ltd (1989) 94 FLR 362. The effect of that formulation is that, whilst the test is to be applied from the view point of the insured, or a reasonable person in the position of the insured it is not that person's view of what an individual insurer would in fact have done that is relevant, but rather whether the insured knew (or ought to have known) that the matter in question would have affected the mind of the hypothetical prudent insurer.

50. It follows that there was, in the circumstances, no breach by the plaintiff of his duty of disclosure. I will, however, consider the question of the consequences of any such breach of duty.

Consequences of non-disclosure, if any was to be established
51. It was conceded by counsel for the second defendant that, if there was a failure on the part of the plaintiff to comply with the duty of disclosure, it was not fraudulent. The second defendant was, therefore, not entitled to avoid the policy pursuant to s.28(2) of the Insurance Contracts Act 1984 (Cth). It was not asserted that there was any cause other than non-disclosure to avoid the policy.

52. Thus s.28(3) applied,

"(3) If the insurer is not entitled to avoid the contract ... the
liability of the insurer in respect of a claim is reduced to the
amount that would place him in a position in which he would have
been if the failure had not occurred ..."

53. There is some logical difficulty in accepting that, although a policy subsists, liability for any claim thereunder is reduced to nil because of non-disclosure of matters which, if disclosed, would have led to cover being entirely declined. That hypothesis is excluded by the terms of s.28(3). Of course, there might, nevertheless, be an increased excess deductible or premium payable which exceeds the claim. It is only in that sense that it is logical to regard liability for a claim under a policy as being reduced to nil by virtue of the effect of a non-disclosure.

54. Deane J, in Advance (NSW) Insurance Agencies pty Ltd v Matthews [1989] HCA 22; (1989) 166 CLR 606, expressed a view supportive of that proposition. It was, strictly speaking, obiter as his Honour conceded,

(621-22) "It is strictly unnecessary that I consider the question
whether, if the insurer had not been entitled to avoid the policy, the
provisions of s 28(3) would, if the necessary foundation had been laid
in evidence, have entitled the insurer to reduce its liability to Mr and
Mrs Matthews. That question has, however, been fully argued and I
consider it appropriate that I indicate my views in relation to it. I
would reject the submission made on behalf of the insurer that it would,
in the postulated circumstances, have been entitled to negate all
liability on the ground that, if it had known of the previous claims
history, it would not have issued a policy at all. Section 28(3) does
not offer an indirect means of avoiding a policy. Its starting point is
the existence of the policy and the insurer's entrenched liability under
it. Its operation, in a case to which it applies, is to reduce the
amount of that liability. That being so, any reduction in the amount of
the insurer's liability would, in the postulated circumstances, have
fallen to be calculated on the basis of the position which would have
existed if the insurer had issued a policy after full disclosure of the
claims history. That is to say, the insurer's liability under the
policy would be reduced by any additional amount or amounts of premium
it would have charged if there had been full disclosure. If the
evidence established that, in such circumstances, the additional amount
of premium which would have been charged would have exceeded the amount
of the claim, the amount of the insurer's liability would be reduced to
nil. In that regard, I respectfully dissent from the view of the
learned trial judge that s 28(3) can never operate so as to reduce the
amount of the insurer's liability to a nil amount in the circumstances
of a particular case."

55. Rogers CJ in Ayoub v Lombard Insurance Co expressed disagreement with that opinion. His Honour said,

(297-8) "Of course, the statement by his Honour, as he makes clear, is
purely by way of obiter. Naturally, however, I have given all the
consideration of which I am capable that such authority properly
demands. With great respect, I find the path prescribed by his Honour's
words very difficult. If the underwriter, upon proper disclosure, would
have rejected the application for cover, then, in the words of the
Report of the Law Reform Commission, "if it would have excluded the risk
which gave rise to the claim, the amount of its loss is equivalent to
the amount of the claim made against it. In that case the insured would
recover nothing." In such circumstances, what it is required to be
offset against the claim of the insured is not an additional premium but
the amount of the loss suffered by the underwriter. The additional
premium concept imports the artificiality of holding that the
underwriter would have extended cover at a premium equal to the amount
of the loss when, if fact, the evidence demonstrates he would have
declined cover altogether. In Lindsay v CIC Insurance Ltd (1989) 16
NSWLR 673 I quoted extensively from par 194 of the Report of the
Australian Law Reform Commission, to show that what the insurer was
entitled to as a consequence of a non-fraudulent non-disclosure, was
damage to be calculated in the same way as damages for fraudulent
misrepresentation are calculated at common law. In my most respectful
view, the Act gave effect to that recommendation. As I said in Lindsay:
"The notes to the draft Bill in Appendix A of the Commissioner's
Report with respect to the proposed cl 29, which is in identical terms
to s 28, stated (ALRC 20 p 284):
'An insurer is not entitled to avoid a contract for innocent
misrepresentation or non-disclosure, but may reduce a claim by the
amount of the loss it has suffered as a result of the misrepresentation
or non-disclosure. The amount by which the claim is reduced is the
amount which would place the insurer in the position it would have been
in if the failure to comply with the duty of disclosure had not occurred
or the misrepresentation had not been made. For example, if the insured
would have charged a higher premium had the misrepresentation not been
made, it would be entitled to reduce the claim by the amount of the
additional premium. If the insurer would not have entered into the
contract at all, it would be entitled to pay nothing in respect of the
claim except the premium paid by the insured. If the insurer would have
inserted a different term into the contract, then the insurer would only
be liable for the amount for which it would have been liable if that
term had been a term of the contract. The principle is one generally
applied in assessing damages for misrepresentation or non-disclosure.'""

56. In Zurich Australian Insurance Ltd v Contour Mobel Pty Ltd (1991) 2 VR 146, Gobbo J considered whether an insurer could, in reliance upon s.28(3), reduce the insured's entitlement to nil if, but for the non- disclosure, the insurer would have declined the proposal. His Honour reviewed all previous expressions of opinion and noted that the preponderance of opinion favoured the view of Rogers CJ in Ayoub. That view was also supported by Brooking J in Twenty-First Maylux (supra). Gobbo J expressed his opinion in the following terms,

(150-1) "... while recognizing the logic of the approach adopted by
Deane J, this required accepting the artificial assumption that the
insurer would have issued a policy at an inflated premium had disclosure
or knowledge of the misrepresentation been made at the outset. In a
more realistic commercial context, his Honour was of the opinion that
the insurer, if possessed of this knowledge, would simply have refused
to write the business. Accordingly, it was preferable for the court to
accept the construction that s.28(3) entitles the insurer to avoid
liability entirely upon the basis that it would have declined the
business entirely.
With great respect to those who favour the opposite construction, I
prefer the reasoning in the judgments referred to above that recognise
that s.28(3) can assist an insurer who can prove that it would not have
entered into the contract at all.
In my view the correct construction of s.28(3) is that, although it
presumes the existence of the policy and the insurer's liability under
it, it offers an indirect means in an appropriate case of avoiding the
policy in the event of innocent misrepresentation or non-disclosure by
reducing the liability to nil, being the position the insurer would have
been in if there had not been a misrepresentation".

57. Given the preponderance of authority, it seems to me that, notwithstanding the lack of a satisfactory logical basis for it, I should proceed on the assumption that, if the second defendant had proved that, but for the non-disclosure of a material relevant fact, it would have declined the proposal then its liability would be nil.

58. Of course, there is no doubt that it was open to an insurer to regard past detected and recorded speeding offences as "relevant". Parking or "no seat belt" offences probably would not be relevant but it is unnecessary to decide that. In some cases, a prior offence or series of offences might be relevant even if occurring more than five years before the date of submitting a proposal. For instance, a person might have been convicted of a series of dangerous and culpable driving offences and then, for a driving offence involving manslaughter, have been sentenced to five years imprisonment. If, on release, that person sought cover, simply to answer the questions in the proposal form would be unlikely to satisfy the duty of disclosure. That would, obviously, be an exceptional case.

59. In this case, the second defendant asserted that, had the omitted information been disclosed, it would have declined cover. Accordingly, it would have had no liability to meet the plaintiff's claim. As a result, its liability would have been reduced to nil.

60. There was evidence before his Worship of the guidelines used by the second defendant to accept or decline proposals. Clearly, insurance industry practice, and that of the second defendant particularly, is relevant, not only to the question of what is relevant and material information, but also as to the effect of the provision of the omitted information.

61. In this context, it should not be overlooked that the plaintiff had not been found guilty of any offence more serious than speeding. It is true that, from 1984 to 1989, he had either been convicted of speeding or paid TINs in respect of speeding in relation to a total of six alleged offences. I do not include the TIN issued 28 August 1984 as it does not seem to have been paid. It seems to have been abandoned or withdrawn.

62. An employee of the second defendant gave evidence relevant to this issue. Ms Patricia Crimean produced a copy of the relevant guidelines used by the second defendant at all relevant times. On the information actually provided, she had decided to accept the proposal with a 50% loading on the excess (increasing it from $600.00 to $900.00) and a 20% loading on the premium payable. She deposed that she interpreted the proposal as conceding that three traffic "fines" for speeding had been imposed on the plaintiff in the preceding five years. Up to two previous convictions for speeding in that period would have been accepted "without penalty".

63. She said that, if the further details shown on the ACT driving record and the NSW driving record had been disclosed, the proposal would have been declined.

64. Ms Crimean was cross-examined as to that latter assertion. She agreed that insurance brokers, or prospective clients, could, by direct enquiry, obtain guidance as to the extent to which the second defendant would take account of a proposed insured's prior traffic history.

65. She was asked whether the guidelines were ever departed from. It was clear that, in her considerable experience, it was rare for that to occur.

66. Ms Crimean agreed that the plaintiff, assuming his full traffic history, was not within the category of "unacceptable risks" set out in the guidelines.

67. It was put to Ms Crimean that, about July 1992 a person in similar circumstances to the plaintiff had been granted cover, notwithstanding four speeding fines during the previous five years. Ms Crimean felt that the distinguishing feature in the latter case was that a less powerful vehicle was proposed for insurance.

68. It was unnecessary for his Worship to consider whether the second defendant would in fact have declined the proposal, because of his finding that the second defendant had only raised the issue of failure of the plaintiff to supply accurately the information sought in the proposal form. Consequently, his Worship made no finding as to whether he accepted or not Ms Crimean's assertion that the second defendant would have declined the proposal had the omitted information been supplied.

69. The guidelines as tendered provided (relevantly) as follows,

"3. REFERRED RISKS
To maintain stability within this portfolio the following risks are to
be referred to a holder of Advanced Level Underwriting authority in
Private Motor.
1. When, during the previous five years, any driver has had:
...
c) two or more traffic infringements (other than parking);
...
For any risk that has a referred-risk feature:
...
b) six monthly renewal only is to be offered; and
c) the Referred Risk Underwriting action defined in Tables 1 and 2 is to
be taken."

70. It is noteworthy that the above reference to "traffic infringements" was not reflected in the proposal form. The "REFERRED RISK UNDERWRITING TABLE" (par 8) refers to,

"2. Two or more convictions (not parking) last 5 years
50% standard excess loading."

71. The other relevant factor was that the vehicle proposed in this case was a high performance vehicle.

72. Table 1 was relevant because of the reference in the proposal form to two or more convictions for speeding and the nature of the vehicle proposed for insurance. It recommended,

POINTS ADDITIONAL
"RANK REFERRED RISK FEATURES SCORE ACTION
x (SEE BELOW)
...
+14 High Performance Vehicle over 96 FHY
5 litres
... ...
+12 High Performance Vehicle under 70 FHY
5 litres

... ...

3 2 or more convictions last 5 years 24 EFHY"

73. Various notes were appended.

"+ High Performance Vehicles need not be scored unless the driver(s)
are 25 years or more and there are 2 or more Referred Features
present.
x Refer Referred Risk Underwriting Table 2
LEGEND: E File note
F Refer branch underwriter for acceptance
...
H Acceptable if other business with QBE
...
Y Accept on 6 months term
FOOTNOTE: With multiple scores additional action is to be
duplicated."

74. The Brock Holden had a 5 litre engine capacity. That was not "over 5 litres". It seems to have been regarded as "under 5 litres".

75. Table 2 provided the following guidelines,

"POINTS
SCORE ACTION
110 + Refer Regional Underwriter only if Branch desires the risk
to be accepted; otherwise decline.
86 - 109 Accommodation only (where accepted add 9 additional risk
points + 100% Basic Excess Loading).
... ..."

76. It will be noted that the guidelines did not distinguish between a proposer with two previous convictions in the preceding five years and one with six.

77. The assumption was that the plaintiff had three previous convictions. Notwithstanding that, the action taken was more favourable than the guidelines suggested. Nine additional "Risk Points" should have been added to the assessment of the premium and 100% (not 50%) added to the excess. The term of the policy should have been only six months. In fact, the policy was issued for 12 months, the premium increased by 20% (it is not clear how many "Risk Points" that represented) and the excess increased by 50%.

78. The onus was on the second defendant to satisfy the Court as to the degree of prejudice (if any) resulting from the alleged non-disclosure. The following findings seem to follow:-

1) It would not have been reasonable for the Court to have accepted Ms
Crimean's assertion that the risk would have been declined had the
omitted information been provided. That result was not required by the
guidelines. The action Ms Crimean in fact took was more benevolent than
required by the guidelines. Had there been the disclosure now contended
for, the guidelines would have been applied. If applied without
modification, nine additional risk points would have been added to the
premium and 100% would have been added to the excess. The policy would
have issued for an initial term of only six months.
2) The policy would have been renewed after the initial period of six
months, either for a further six months, or for a further 12 months
following that six month period. No event had occurred between August
1989 and February 1990 (or, for that matter up to August 1990) to
warrant the renewal being declined.
3) The initial excess would have been $1,200.00. However, it is not
clear whether that increase (given no claim up to 22 February 1990)
would have been maintained or relaxed in respect of the period after
February 1990.
4) There was no evidence of the extent to which (if at all) the premium
levied for the expired and then current periods of insurance would have
exceeded the $3,624.28 paid by the plaintiff.
5) A conclusion that the second defendant might have accepted only the
risk of theft (or loss or damage arising otherwise than in circumstances
where the loss or damage arose out of or was relevantly connected with
the commission by the plaintiff of a speeding or speed-related offence)
is not warranted. Such a response was, in my view, possible but not
probable.

79. It follows that, even if the omitted material had been disclosed, the non-disclosure of it was not shown to have been likely to have caused any difference, as at the date of the loss, to the net liability of the second defendant.

Was the second defendant entitled to raise the duty of disclosure in respect of matters other than those pleaded by it?
80. The defence of the second defendant and the particulars appended to it asserted that the answers given by the plaintiff in the proposal form were "false and/or incomplete".

81. It was pleaded that the relevant failure was to disclose "convictions" and it was asserted that each of the matters disclosed on those traffic records, whether a court adjudication or a TIN, was "a conviction".

82. In my view, his Worship was right to conclude, for the reasons he gave, that the TINs (and the issue of the warning notice on 9 March 1989) were not "convictions". The second defendant did not seek to amend its defence to embrace any matters other than "convictions".

83. It seems to me, therefore, that the only issue which the second defendant sought by its pleadings to raise was whether the omitted material was such as constituted "convictions" additional to those disclosed.

84. The second defendant rightly failed on that issue.

Grounds of Appeal 1.
85. The learned Magistrate did not conclude that the second defendant's pleading did not raise the issue of the plaintiff's duty of disclosure or act with the utmost good faith. He did conclude that the only breach of that duty which was alleged was a failure to disclose "convictions" and that the plaintiff had not, in fact, failed to disclose any conviction. That conclusion was, in my view, correct.

Grounds of Appeal 2.
86. The learned Magistrate did conclude that the issue of a TIN would be material (if for a relevant infringement) if the guilt of the plaintiff was proved by admission (perhaps constituted by payment) or otherwise. His Worship was entitled to conclude that an infringement notice which was paid was, prima facie, an admission of guilt. It is not inevitably so. The TINs for speeding which were particularised by the second defendant were referred to only on the basis that they had been "convictions". If a person had paid a TIN on the basis of convenience, although innocent of the offence, the fact of payment would lose much, if not all, of any prima facie character it had as an admission of guilt.

87. In this case, the plaintiff was, by virtue of the limited nature of the second defendant's defence, deprived of a fair chance of addressing the issue as to his guilt of the alleged infringements in respect of which TIN's were issued and paid. It would be unfair as well as unnecessary to draw such an inference now.

88. This ground is not made out.

Grounds of Appeal 3.
89. For the reasons already adverted to, this ground is not made out.

90. The remaining grounds relate to the case between the second defendant and the first defendant. I will refer to them later.

91. I granted leave to the second defendant to amend its contribution notice and to the plaintiff to raise, by way of cross-appeal, the issue of the liability of the first defendant to the plaintiff otherwise than for costs.

Notice claiming contribution by second defendant from the first defendant
92. It was the second defendant's contention that, insofar as TINs were regarded as equivalent to convictions, the first defendant ought to have been aware of that fact and to have advised the plaintiff accordingly. It would then have been in a position to assess the proposal in the light of information as to those matters.

93. The ACT record produced by the plaintiff did refer to one TIN for speeding. Mr Davies conceded that he only enquired about convictions. He was not asked by any party about what he knew, or did not know, about the second defendant's policy concerning TINs. He was only asked whether the plaintiff had referred to a total of four convictions or three.

94. Mr Davies did assert that he attached a copy of the ACT record to the proposal form. There was no evidence to support that assertion, nor did his Worship indicate that he was persuaded to accept it. There was contrary evidence from Ms Crimean.

95. It seems to me, however, that the evidence fails to support a contention that the second defendant had ever indicated to the first defendant that it regarded TINs issued or paid as equivalent to a conviction. There was no evidence that Mr Davies knew or believed that to be the view of the second defendant. There is no evidence that the first defendant negligently offered incorrect advice to the plaintiff, even if it was the case that the second defendant regarded TINs as relevant matters.

96. The evidence does not establish, either, for what it is worth, that Mr Davies advised the plaintiff that TINs did not matter or that the number of offences detected and dealt with did not matter. It only disclosed that he advised that "two or three" convictions could properly be disclosed to the second defendant as "two", rather than "three" or "two or three".

97. As it happened, "two" gave a more accurate answer than "three". The plaintiff had suffered "two" convictions in the period referred to rather than "three"

98. Even if, contrary to my view, Mr Davies should have known that the second defendant regarded TINs as "convictions" for traffic offences other than parking, it follows from my conclusions in relation to the issue between the plaintiff and the first defendant that the second defendant has failed to establish that it suffered any loss as a result of Mr Davies' failure to so advise the plaintiff.

99. Further, even if the second defendant had demonstrated that it probably would have increased the premium and/or the basic excess, it did not prove what the quantum, if any, of that difference would be. It certainly failed to establish that it would have declined cover entirely.

100. Thus, even if the second defendant's contribution notice is amended to reflect the claims it wished in substance to make against the first defendant, that claim must fail.

Cross-Appeal - Plaintiff's claim against First Defendant
101. The first defendant's primary duty was to the plaintiff. Mr Davies, his Worship found, told the plaintiff to disclose "two or three" convictions as only two. Had the plaintiff suffered loss as a result of following that incorrect advice, then the first defendant would have been liable for that loss. (See Fanhaven Pty Ltd v Bain Dawes Northern Pty Ltd (1982) 2 NSWLR 57; Brooks v Sirius Insurance Company (1985) 3 ANZ Insurance Cases 60-610; Athlone Pty Ltd v General Accident Fire and Life Assurance Corp (1985) 3 ANZ Insurance Cases 60-648.)

102. However, the inaccurate presentation of the information given to Mr Davies by the plaintiff did not cause him any loss. As I have noted, there was no evidence that the first defendant knew that the second defendant had an extended definition of "conviction" for a traffic offence which included a TIN. Even if I was wrong about that, the second defendant failed to adduce evidence as to the difference between the premium and excess agreed to and the premium and excess that would have been requested from (and presumably paid by) the plaintiff if it had been given the information it contended that it was entitled to.

103. Grounds of Appeal 4 and 5
The learned Magistrate concluded that the notice claiming Contribu tion or Indemnity was faulty. It is true that it was cryptic. It claimed only indemnity rather than contribution. It did not plead the duty to the second defendant which the first defendant allegedly breached.

104. As leave was granted to the second defendant to amend it, it is unnecessary to consider whether the original notice was "fatally flawed". If it was, the second defendant should have been given an opportunity to apply to amend it.

105. It follows that there is some substance in ground 5 but it does not avail the second defendant.

Grounds of Appeal 6 and 8
106. It seems to me that the learned Magistrate correctly construed the pleadings as between the plaintiff and the second defendant.

107. Mr Whitelaw, for the plaintiff, clearly argued that the infringement notices (1) were not "convictions" and (2) were, in any event, immaterial.

108. His Worship accepted the former argument but not the second. In both respects, I agree with him.

109. It is true that counsel did not relate the question of "convictions" to the pleadings and argued the case on the nature and extent of the duty of disclosure. However, his Worship was entitled to assume that the second defendant had correctly defined relevant matters by the terms of its proposal form and was merely contending, by its pleading, that the ordinary meaning of "conviction" included infringement notices. In my opinion, his Worship was correct in rejecting that contention.

110. In his argument, Mr Stretton for the second defendant, had assumed non-disclosure was made out and argued that such non-disclosure reduced the insurer's liability to nil. He argued that even if "conviction" did not include infringement notices they should have been disclosed in any event.

111. Mr Royle, for the first defendant, addressed the issue of the probable response of the second defendant had it received all details it claimed to be relevant. He argued that the conclusion expressed by Ms Crimean should have been rejected by his Worship. His Worship did not find it necessary to decide that question.

112. It may be noted that Mr Stretton chose to reply only as to the issue whether liability was to be reduced to nil where the insurer had demonstrated that it would have declined to accept the proposal if proper disclosure had been made. It is plain that the second defendant, incorrectly, saw the application of s.28(3) of the Insurance Contracts Act 1984 (Cth) as the relevant issue.

113. That incorrect perception does not enable the second defendant now to complain of any procedural unfairness.

114. This ground was not made out.

Grounds of Appeal 9
115. The basis for his Worship's costs order was plainly,

(i) the second defendant failed in relation both to the plaintiff's
claim and the claims for indemnity against the first defendant.

Thus it was appropriate to order the second defendant to pay the costs of the other parties in respect of those issues.

(ii) It was, his Worship found, reasonable for the plaintiff to have
sued the first defendant. It had incorrectly advised the plaintiff. It
would not have been obvious to a person in the position of the plaintiff
whether the first defendant had also negligently failed to advise the
plaintiff to disclose infringement notices received or paid by him.

116. On the facts found by his Worship, the plaintiff was lawfully entitled to indemnity as if the policy issued was valid and effectual. It was reasonable for him to be uncertain as to which of the two defendants was liable to pay his claim.

117. It was a case for either a Bullock order (see Bullock v London General Omnibus Co (1907) 1 KB 264) or a Sanderson order (see Sanderson v Blyth Theatre Co (1903) 2 KB 533). The latter form of order was made. That was a matter properly within his Worship's discretion.

118. This ground fails.

Grounds of Appeal 10
119. The final ground is not sustained for the reasons already noted. His Worship did not misunderstand or misconstrue the evidence.

120. However, there is a minor error. The policy imposed an excess of $900.00. The second defendant was only ever liable to pay the sum assured less that excess.

121. It follows that the appeal, to that extent, must be upheld. The judgment entered on 28 May 1993 is varied by substituting for $39,240.00 the sum of $37,846.00 (that is, $29,100.00 plus $8,746.00 being interest at the rate of 11% pa for a period of two years eight months and 24 days).

122. I will hear the parties as to costs.