Lindsay Vernon Duthie v Rolf H Wick and Assoc (Aust) Pty Ltd and Fai General Insurance Company Ltd [1994] ACTSC 40; (1994) 120 ACTR 1 (3 May 1994)

SUPREME COURT OF THE ACT

LINDSAY VERNON DUTHIE v. ROLF H. WICK AND ASSOC (AUST) PTY LTD AND FAI GENERAL
INSURANCE COMPANY LTD
No. SCA106 of 1993
Number of pages - 8
Negligence - Appeal from Magistrates Court - Misrepresentation
[1994] ACTSC 40; (1994) 8 ANZ Insurance Cases 61-233
(1994) 120 ACTR 1

COURT

IN THE SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
MILES CJ

CATCHWORDS

Negligence - damages for negligent performance of duty owed under insurance policy - defendant acting as agent of insurer - no contractual duty owed.

Appeal from Magistrates Court - appellate court will not interfere with tribunal's findings which depend on credit - no factual error in Magistrate's findings.

Misrepresentation - s.28 Insurance Contracts Act 1984 - what constitutes - obligation to reply accurately to material questions and not volunteer false material statements - appellant misrepresented extent of previous "convictions" - insurer would not have accepted the risk if not misled - put insurer in the same position as would have been the case but for the misrepresentation.

Insurance Contracts Act 1984 (Clth), s.28

Ferrcom Pty Ltd v. Commercial Union Assurance Co of Aust Ltd [1992] HCA 41; (1993) 67 ALJR 264; 112 ALR 641

HEARING

CANBERRA, 19 April 1994
3:5:1994

Counsel for the appellant: Mr. H. Selby

Solicitors for the appellant: Meyer Boettcher and Clapham

Counsel for the first respondent: Mr. B. Meagher

Solicitors for the first respondent: Gallens Crowley and Chamberlain

Counsel for the second respondent: Mr. G. Richardson

Solicitors for the second respondent: Colquhoun Murphy

ORDER

THE COURT ORDERS THAT:
1. The appeal be dismissed.

2. The orders of the Magistrate of 18 October 1993 be confirmed.
3. There be judgment for the first respondent against the appellant.
4. The appellant pay the 1st respondent's costs of the appeal and of
the proceedings in the Magistrates Court.
5. The question as to what orders ought be made between the
appellant and the second respondent be stood over until Friday,
24 June 1994 for mention only, before the Master.

DECISION

MILES CJ This matter commenced as an appeal under the Magistrates Court Civil Jurisdiction Act 1982 from a decision of Magistrate Burns delivered on 18 October 1993 in which the Magistrate dismissed claims by the appellant against the two respondents.

2. The appellant claimed that the second respondent had failed to indemnify him for damage to a motor vehicle in accordance with the second respondent's obligations under an insurance policy issued by it. The appellant claimed that the first respondent, an insurance broker, was liable to him in damages for negligent performance of a duty owed to him in arranging the issue of the policy by the second respondent. However, as it is now common ground that the first respondent was the agent of the second respondent only and not the agent of the appellant, the appellant accepts that there is no duty of care or contractual duty owed by the first respondent to the appellant which can give rise to an action of breach. Hence, the appeal has proceeded only against the orders made dismissing the appellant's claim against the second respondent. The appeal as it relates to the first respondent must fail and the first respondent is entitled to judgment against the appellant as ordered by the Magistrate.

3. There are some facts which are not in dispute and these may be summarised as follows. The appellant on or about 23 July 1990 gave instructions to Mr. Rolf Wick, a director of the first respondent, to arrange insurance with the second respondent on a car that the appellant intended to drive in order to follow and observe a car rally called the Australian Safari. On 27 July 1990, Mrs. Elizabeth Kosonen, an employee of the first respondent, telephoned the appellant. The terms of the conversation that followed are in dispute except to the extent that it is agreed that the conversation related to information sought by Mrs. Kosonen and supplied by the appellant which was relevant to the risk to be accepted by the second respondent if a contract of insurance was entered into. Following that conversation, the first respondent issued a cover note on behalf of the second respondent. Mr. Wicks advised the appellant by telephone of that fact and gave him the reference number of the cover note. On 20 August 1990, while the cover note was, on the face of it, valid, the appellant's vehicle was damaged in South Australia. A day or so later the appellant's wife completed a proposal for insurance against damage to the vehicle and paid a premium of $1,021.31 to the second respondent. The second respondent subsequently refused to indemnify the appellant for the damage to the vehicle on the ground of material non-disclosure, alternatively, misrepresentation. As the Magistrate observed, the real issue in the case is what transpired between the appellant and Mrs. Kosonen in the telephone conversation which preceded the issue of the cover note.

4. On this issue both the appellant and Mrs. Kosonen gave evidence before the Magistrate. The Magistrate therefore had a distinct advantage over this Court sitting on appeal, as the Magistrate was in a position to assess the credit of the witnesses before him. In that situation it is clear law that an appellate court will not interfere with the findings of a tribunal on facts where those findings depend upon the credit of witnesses who have given evidence, unless it can be shown that the tribunal has proceeded on some relevant error of law or where the findings are inherently implausible, or in conflict with other clearly established facts which do not depend upon the credit of the witnesses: Warren v. Coombes and Another [1979] HCA 9; (1979) 142 CLR 531; Devries and Another v. Australian National Railways Commission and Another [1992] HCA 41; (1993) 177 CLR 472.

5. In circumstances where the appellate court receives further evidence, the factual matrix upon which the decision of the tribunal below is based may be so altered that the appellate court may make decisions of fact which contrast with those of the tribunal below, despite the advantage enjoyed by the tribunal of seeing and hearing the witnesses: Petreski v. Cargill (1987) 18 FCR 68.

6. In the present case, evidence was tendered on the appeal in the form of a document entitled "Motor Vehicle Guidelines". This document, which counsel for the appellant submitted should have been disclosed on discovery in the proceedings before the Magistrate, was a document which was prepared by the second respondent for the guidance of its officers in deciding whether or not to accept a proposed risk. It contained the following:

"A. ACCEPTANCE GUIDELINE
UNACCEPTABLE DRIVERS
If Drivers fall into the categories listed below DO NOT
accept.
DRIVERS OVER 25 YEARS OF AGE
* Speeding x 3 in the last 1 year
* DUI x 1 in the last 18 months
* Neg. Driving x 2 at all in the past 5 years
* Accident x 2 at fault in the last 3 years."

7. There is no evidence that this document or its contents ever came to the notice of the first respondent or of Mrs. Kosonen. There is no evidence that the document or its contents were ever communicated to the appellant. There is no evidence of the use of the document at all except what can be gleaned from its contents. In my view, it is likely to have been used by officers of the second respondent, particularly after an application or proposal for insurance. It might have been used by officers of the second respondent when interviewing or seeking information from persons who wished to obtain insurance cover for their vehicles. However, I am simply unable to draw the conclusion that it was mentioned in the conversation between the appellant and Mrs. Kosonen or that its contents were referred to or used in any way by Mrs. Kosonen during that conversation. Mrs. Kosonen, as I have said, was an employee of the first respondent and not of the second respondent.

8. The Magistrate took into account the evidence that Mrs. Kosonen had kept a contemporaneous note of the conversation to the extent that she wrote down some brief details of it, whilst at the same time using what she called a "check list". The notes were on two sheets of paper separate from the check list. That list was an informal document handwritten (or handprinted) by Mrs. Kosonen with headings or items of subject matter set out one under the other, one to each line without space between. It was used by her during the conversation as a reminder to her of what she was to ask. It was not a form which required completion. It was set out as follows:

"Office memo
Subject:
Make
Model
Engine Size
N C B
Value
Finance
Housed
Convictions
AGE (sic)
Personel (sic)/Business Use"

9. Mrs. Kosonen said in her evidence that she prepared the check list in order to help her and other staff "when asking clients for quotes".

10. When giving evidence Mrs. Kosonen used the abbreviated notes in order to refresh her recollection of the conversation. She said that the note "NO CON" indicated to her that the appellant told her that he had no convictions. She had no independent recollection of the conversation. She agreed in cross-examination that "as far as convictions were concerned ... that was an important question, as far as insurance was concerned".

11. After referring to the evidence of Mrs. Kosonen and expressly, and in my view correctly, referring to its limitations, the Magistrate said as follows:

"Against that I have the sworn testimony of the plaintiff together
with the fact that it is unlikely that the plaintiff would have
failed to disclose any record when obtaining a cover note, but
would then have disclosed at least some of his record a few short
weeks later on his claim form.
I accept on the balance of probabilities that the plaintiff did
disclose that he had about 6 convictions against him. However I do
not accept that Mrs Kosenen (sic) told him that they were only
interested in convictions within the last 3 or 5 years. This seems
to me inherently unlikely. There was no evidence that the second
defendant was, in fact, only interested in convictions over that
limited period, and Mrs Kosenen (sic) in her evidence stated that
the convictions "meant nothing to her" as she only relayed them to
the insurer. By that I understood Mrs Kosenen (sic) to be saying
that there was no reason for her to place such a limitation on the
requirement to disclose convictions. I also note that the "check
list" does not refer to any limitation on disclosure of
convictions. Nor does the proposal form. There was no reason for
Mrs Kosenen (sic) to be uncertain or confused on this issue. I
also take into account that on this portion of his evidence the
plaintiff was, in my opinion, vague and unsatisfactory. In that
respect I prefer the evidence of Mrs Kosenen (sic), whom I note no
longer works for the first defendant nor in the insurance industry
at all. For the same reason I do not accept that the plaintiff was
only asked for "speeding" convictions. I think that it is more
likely than not that the plaintiff gave his answer as he did
because he was uncertain as to the precise extent of the record at
that time, and concerned about the prospect of insurance being
refused. Whatever his motives, I am satisfied that the plaintiff
was asked about his previous convictions and told Mrs Kosenen (sic)
that he had about six."

12. In the light of the principles governing appeals referred to above, it is abundantly clear that the Magistrate enjoyed the advantage of hearing both witnesses, that the findings as expressed were open to him and that it is not the function of this Court to interfere with those findings unless it can be shown that the Magistrate was in error within one or more of the restricted grounds already referred to. Although counsel for the appellant, as I understand it, submitted that the reception of the Guidelines into evidence in this Court changed the factual matrix, so that this Court had the capacity to substitute its own findings for those of the Magistrate, I do not think that the Guidelines require any reappraisal of the Magistrate's conclusions. I am quite unconvinced that the Guidelines are of any assistance in shedding light on what was said in the conversation. It has not been shown that the Magistrate was in error in his factual findings about what was said in the conversation. The Magistrate's findings in this regard must stand.

13. The next question is whether what was said by the appellant in the conversation amounted to a misrepresentation under s.28 of the Insurance Contracts Act 1984 (Cth). That section provides as follows: "28.(1) This section applies where the person who became the insured under a contract of general 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 the insurer would have entered into the
contract, for the same premium and on the same terms and
conditions, 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.
(2) If the failure was fraudulent or the misrepresentation was
made fraudulently, the insurer may avoid the contract.
(3) If the insurer is not entitled to avoid the contract or,
being entitled to avoid the contract (whether under subsection (2)
or otherwise) has not done so, 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 or the misrepresentation had not been made."

14. There was an issue before the Magistrate whether the appellant's answer to the questions put amounted to a non disclosure under s.22 of the Act on the one hand or to a misrepresentation under s.28 on the other hand. For the purposes of this appeal, that issue does not have to be decided and the matter of whether or not there was a disclosure may be disregarded. The Magistrate, citing Sutton, Insurance Law in Australia 2nd ed. 98-99, recognized that misrepresentation looks to the obligation to reply accurately to material questions put by the insurer and not to volunteer the material statements which are false. The Magistrate concluded that the appellant's answer, when "asked about his prior convictions", amounted to a misrepresentation within the meaning of the section. That conclusion is challenged in this appeal.

15. In order to decide whether the answer amounted to a misrepresentation, it is necessary to look at the true situation which is alleged to have been misrepresented.

16. A document issued by the Roads and Traffic Authority of New South Wales (RTA) was before the Magistrate. It comprised the appellant's "traffic offences record". The RTA record itself states "46 traffic records printed". It set out, as I read it, 44 offences which were dealt with in the ACT Magistrates Court between 18 October 1972 and 10 March 1989. Another document in evidence appears to be a computer printout, apparently headed "Display (?) driving record", which sets out offences dealt with by way of infringement notice between 2 June 1984 and 15 August 1991. There are 14 such offences. The Magistrate in his reasons referred to these records somewhat selectively, stating that the appellant had a record showing 8 speeding offences in the five year period to July 1991 and that the appellant's full driving record in New South Wales and the ACT disclosed some 59 offences prior to July 1990. The Magistrate also made some reference to particular matters on the record between March 1989 and February 1991.

17. As I understand it, counsel relied on an argument that the respondent had failed to comply with the provisions of the Act relating to instalment contracts of general insurance. As a matter of law it is clear that the contract was an interim contract of insurance within the terms of s.38 of the Act and in that respect it is to be distinguished from an instalment contract of general insurance under s.39 of the Act. Although it is one kind of contract of general insurance, it is of a kind different from that to which s.39 applies and nothing turns on that point.

18. Counsel presented a number of arguments on the question whether the facts as found by the Magistrate proved a misrepresentation on the part of the appellant at the time of entering into the contract of insurance which resulted in the issue of the cover note. It was submitted for the appellant that the Magistrate's finding that the appellant disclosed "about six convictions" either could not be sustained or was too general for this Court to accept it. It was further submitted that this Court should proceed to make more precise findings about what was said in the conversation before it could be satisfied that there was a misrepresentation on the part of the appellant. However, as I have already indicated, the findings of the Magistrate were open to him and depended upon the assessment of witnesses whom he heard and saw. The limited precision of the Magistrate's findings is justified by the considerable imprecision in the appellant's own evidence and the several contradictions contained within it, none of which needs elaboration by me.

19. Attention was given in argument on the appeal to the issue of whether the conversation between the appellant and Mrs. Kosonen restricted the question about the appellant's prior driving history to the period of three or five years previously. The Magistrate made no finding on this issue. Again, bearing in mind the advantage enjoyed by the Magistrate, I do not think it appropriate to go beyond the findings of the Magistrate in order to make a precise finding on this particular issue.

20. Attention was also given in argument on the appeal to the issue of whether the conversation was about "offences" or "convictions". However, on the state of the evidence I am unconvinced that I should go beyond the findings of the Magistrate already stated.

21. However, with regard to the state of the appellant's record insofar as it goes to prove convictions, the Magistrate was in no better position than this Court. I will therefore act on my own interpretation of the record.

22. The RTA traffic offences record contains entries with various details with regard to each offence, including "court details, court date and case number, offence description, penalty incurred". Every entry records an offence dealt with in the ACT Magistrates Court. Every offence recorded is of a nature to connect it with the appellant's driving history, although some (for instance "no third party") may not relate to the manner of driving. Every offence recorded resulted in the imposition of a penalty. It is quite impossible to conclude other than that the appellant was convicted for each of the 44 offences set out in the document during the period covered. Clearly all convictions were relevant for the purpose of answering the question put by Mrs. Kosonen "about his previous convictions". Clearly his reply that he had "about six" was a misrepresentation when the fact was that the record disclosed several times that number. The fact that the appellant had a separate record for traffic infringements which did not result in convictions is, in my opinion, simply beside the point.

23. The next question is whether the Magistrate was correct in concluding that the liability of the second respondent to the appellant under the insurance policy should be reduced to nil in accordance with sub-s.28(3) of the Act.

24. It may be said that at the commencement of the proceedings in the Magistrates Court the state of the law was not certain. However, by the time of the hearing on 29 July 1993, any uncertainty had been removed by the decision of the High Court in Ferrcom Pty Ltd v. Commercial Union Assurance Co of Aust Ltd [1992] HCA 41; (1993) 67 ALJR 264; 112 ALR 641. That decision was handed down on 6 May 1993, and apparently not drawn to the attention of the Magistrate. Although the High Court case was concerned with the effect, for the purposes of s.54 of the Act, of breaches by an insured of its obligations under an insurance policy, the language in question is similar to that in sub-s.28(3). There is no reason, in my view, why the reasoning of the High Court does not apply to precontractual misrepresentations by the insured for the purposes of sub-s.28(3). In order to determine "the amount that would place (the insurer) in a position in which he would not have been if ... the misrepresentation had not been made", it is necessary for this Court to arrive at a hypothesis as to what the insurer would have done if there had been no misrepresentation by the insured. The hypothesis must be arrived at in accordance with the evidence in the case and in this regard circumstances will vary greatly. In some cases of misrepresentation it may be that the actual misrepresentation had no effect on the conduct of the insurer and, conversely, the hypothetical absence of misrepresentation would have made no difference. In other cases it may be that, assuming the absence of the misrepresentation, the insurer would have accepted the risk and issued the policy or cover note, but at an increased premium. In other cases again it may be that, assuming the absence of misrepresentation, the insurer would not have accepted the risk at all. The Magistrate thought that the hypothesis of absence of misrepresentation put the case into the latter category. That decision was based on the uncontradicted evidence of the underwriter employed by the second respondent. The Magistrate was entitled to accept that evidence. Indeed it would have been difficult to reject it. The Magistrate, I might add, also took into account the evidence of Mr. Wick, the broker, the relevance of which is not clear. However, even leaving Mr. Wick's evidence aside, the Magistrate was clearly correct in his conclusion based on the evidence of the underwriter.

25. However, in this appeal I have before me the additional evidence of the second respondent's Guidelines. They establish a basis on which the evidence of the underwriter could have been challenged, since the record did not disclose that the appellant had been convicted for the number of offences specified within the periods specified in the Guidelines. It was suggested that as the Guidelines laid down specific criteria for the non-acceptance of risk, the insurer would have been unlikely to reject any risk in respect of which there was no contravention of the criteria laid down in the Guidelines. However, as a matter of logic, the hypothesis contended for in that regard does not follow the premise. Clearly the insurer retained a discretion to reject the risk for reasons other than failure to comply with the specified criteria. The Guidelines indeed bear the endorsement "FOR EXCEPTIONAL OR UNUSUAL CIRCUMSTANCES PLEASE REFER TO THE UNDERWRITING MANAGER". There is simply nothing before me to indicate that the opinion of the underwriter would have been any different if her attention had been directed to the Guidelines. I am left with the evidence that the second respondent, if acquainted with the driving history set out in the appellant's record and not misled by the misrepresentation that he had had "about six convictions", would not have accepted the risk.

26. At this stage it may be appropriate to mention the warning issued by the writer of a short commentary on the Ferrcom case appearing in (1993) 67 ALJ 556 at 557-558:

"The concern flowing from this decision (Ferrcom) is that insurers
may more readily argue that the opportunity lost by them was to
cancel the policy. That being so, it will be necessary to
scrutinise carefully not only the pleadings of the insurer but also
the extent to which discovery and interrogatories can be employed
to 'test' the hypothesis.
Obviously, policy guidelines and office memoranda of the insurer
are discoverable. If the insurer has no policy guidelines in
respect of the issue in question, then it will be necessary to
consider carefully the ambit of the discovery. The difficulty is
that practitioners have to delve into the realms of hypotheses
regarding matters which are solely within the knowledge of the
insurer."

27. This warning may be salutary. I bear it in mind, but, in my view, it does not affect the outcome of the present case. A person seeking insurance for damage to a motor vehicle is under a heavy duty to answer with accuracy any question put on behalf of the insurer relating to that person's driving history. The appellant clearly failed in that duty. The appellant's history of convictions connected with his driving was such as to lead to the hypothesis that if his history had been accurately put in answer to the question asked of him, the insurer would not have accepted the risk. The Magistrate's decision that the first respondent's liability to the appellant should be reduced to nil was, in the light of the seriousness of the appellant's driving history, correct. The appeal should be dismissed.

28. One matter remains outstanding. The statement of claim filed by the appellant claimed a return of $1021.31 paid by his wife to the second respondent as a premium or part premium on or after 21 August 1990. The basis in law or equity of the claim for the refund does not appear in the statement of claim. The second respondent's defence to this part of the claim appears to be a simple assertion that the policy of insurance was issued and a contract of insurance was entered into. The Magistrate made no decision on this aspect. Without argument on the point, I cannot see that the appellant has made out an arguable claim in relation to the refund of the premium. The second respondent accepted the risk in accordance with its liability under the contract although a judicial determination has reduced its liability to nil. If the appellant wishes to pursue a claim for money had and received or unjust enrichment or something of that nature, further argument needs to be received and the appeal documents amended. In any event, it appears that there should be judgment for one party or the other on the claim for the refund.

29. Before making formal orders I will hear counsel on this latter aspect.