Re Jeffrey Kenneth Gates v the City Mutual Life Assurance Society Limited Re City Mutual Life Assurance Society Limited v Jeffrey Kenneth Gates [1983] FCA 23; (1983) 68 FLR 101 (18 February 1983)

FEDERAL COURT OF AUSTRALIA

Re: JEFFREY KENNETH GATES
And: THE CITY MUTUAL LIFE ASSURANCE SOCIETY LIMITED
Re: THE CITY MUTUAL LIFE ASSURANCE SOCIETY LIMITED
And: JEFFREY KENNETH GATES (1983) 68 FLR 101
No. G170 and No. G173
Trade Practices - Contract - Damages

COURT

FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
Fox(1), Lockhart(1) and Fitzgerald (1) JJ.

CATCHWORDS

Trade Practices - Statements in breach of s.52 and s.53(g) of Trade Practices Act 1974 - Whether making of statements is consistent with formation of contract - Measure of damages for breach of Part IV of that Act.

Contract - Whether oral statements were mere representations or constituted a contract collateral to a written contract.

Trade Practices Act 1974 - sections 52, 53(g), 82 87.

Federal Proceedings (Costs) Act 1981 - section 6.

Trade Practices - Damages occasioned by conduct in contravention of ss 52 and 53(g) - Measure of - Trade Practices Act 1974 (Cth), ss 52, 53(g), 82, 87.

Damages - Measure of - Occasioned by conduct in contravention of ss 52 and 53(g) - Trade Practices Act 1974 (Cth), ss 52, 53(g), 82, 87. The applicant appealed on the question of the proper measure of damages, arguing that he was entitled not just to the amount of the sums insured but also to the amount of wages paid by him to other persons to replace him in his business, to the amount of lost income for which he would otherwise have been compensated by prompt payment of the sums insured at the time of his injury, and to moneys lost due to forced sale of his interest in a restaurant business and villa homes because of the respondent's failure to pay promptly the sums insured at the time of his injury. The respondent cross-appealed, arguing that Ellicott J. erred in law in holding that there was a collateral contract founded on the representations made by the respondent's agent, and therefore damages, based on an incorrect finding that such a contract existed, ought not to have been awarded.

Held (per curiam): (1) His Honour's finding that the agent's statements amounted to a collateral contract (by which the respondent promised to pay the sum insured to the applicant if he suffered an injury rendering him incapable of carrying on his business as a builder) was inconsistent with his earlier finding that the statements were representations which contravened s. 52 and s. 53(g) of the Act.

(2) The statements by the agent were not a promise to make payment in different circumstances from those provided for in the policies but a representation as to the circumstances in which, under the policies, the obligation to make payment would arise.

(3) Section 87 like s. 82 is concerned with loss or damage "by" the offending conduct. The measure of damages in this case is not how much better off the applicant would have been if the statements had been true but how much worse off he is by reason of having taken steps in reliance on them.

(4) The only step proved to have been taken by the applicant in reliance upon the statements was the payment of the additional premiums. There was no evidence that cover in terms of the statements made to him was available from any insurance company or as to the premium which would, in such a case, be payable for that cover, or as to the applicant's willingness to have paid such a premium.

(5) Applicant's appeal dismissed; the respondent's appeal allowed.

HEARING

Sydney, 1983, February 15, 16, 18. 18:2:1983
APPEAL AND CROSS-APPEAL.

Appeal against a decision of Ellicott J. on the question of the proper measure of damages for breach of a collateral contract varying the terms of an insurance policy, and cross-appeal on the question of whether there was such a collateral contract and on the proper measure of damages under s. 87 of the Trade Practices Act 1974 (Cth).

The appellant/cross-respondent appeared in person.

P.G. Hely and J.A. Timbs, for the respondent/cross-appellant.

Cur. adv. vult.

The appellant/cross-respondent appeared in person.

Solicitors for the respondent/cross-appellant: Murphy & Moloney.
F.P.C.

ORDER

In No. G170 of 1982:

1. The appeal be dismissed.

2. The appellant pay the respondent's costs of the appeal.

In No. G173 of 1982:

1. The appeal be allowed.

2. The declarations and orders of Ellicott J. be set aside.

3. In lieu thereof:-

(a) the proceedings before him be dismissed;

(b) there be no order as to the costs of those proceedings.

4. The respondent pay the apellant's costs of the appeal.

5. The respondent be granted a costs certificate pursuant to s.6 of the Federal Proceeedings (Costs) Act 1981 limited to the first day of hearing of the apppeal. Orders accordingly.

DECISION

Each of the parties has appealed to this Court from a judgment of a single Judge of this Court (Ellicott J.) delivered on 14 September 1982. His Honour found that on the faith of statements made to him by one of the agents of the City Mutual Life Society Limited ("CML"), Jeffrey Kenneth Gates arranged for a superannuation policy which he had already taken out with CML, to be extended to include total disability cover, and had that cover included in a new life policy which he took out at about the same time with CML, paying in each case extra by way of premium. The total disability cover under the policies in fact only entitled Mr. Gates to payment if CML accepted him as incapacitated to such an extent as to render him unlikely ever to be able to attend to any gainful profession, occupation or employment. In this, and in all other respects, the policies accorded with the written proposals made to CML by Mr. Gates. However, after resolving a conflict of evidence in favour of Mr. Gates, his Honour found that statements had been made to him to the effect that, under the total disability cover, the full amount insured would be payable to him if he suffered an injury or illness which left him physically incapable of carrying on his occupation as a self-employed builder.

Mr. Gates was injured and the learned primary Judge found that the injury left him physically incapable of carrying on his occupation as a self-employed builder. The injury did not, however, render him incapacitated to such an extent as to render him unlikely ever to be able to attend to any gainful profession, occupation or employment. CML refused to pay Mr. Gates under the policies. He brought these proceedings to recover loss or damages under s. 82 of the Trade Practices Act 1974 ("the Act") on the basis that the statements constituted breaches of s. 52 and sub-s. 53 (g) of the Act. He also claimed damages for breach of a contract which he alleged consisted of CML's representations plus the written policies. He claimed the sums insured and other amounts particularised in his Further Amended Statement of Claim as follows:-

'PARTICULARS OF DAMAGE

To wages paid to employ other persons to replace the Applicant in his business $11,000.00

To estimated loss of income which would have otherwise been compensated for by payments of benefits under the policies $60,000.00

Forced sale of interest in Restaurant business estimated $130,000.00

To monies lost due to mortgagee's sale of villa homes $15,000.00'

CLAIM IN CONTRACT

The primary Judge held that Mr. Gates was entitled to payment by CML

of the amounts payable under the policies as damages for breach of contract. Although satisfied that the statements were representations which contravened s. 52 and sub-s. 53 (g) of the Act, his Honour held that they amounted to what he described as a collateral warranty or contract, because they constituted promises by CML to pay the total disability benefit to Mr. Gates if he suffered an injury which rendered him physically incapable of carrying on his business as a builder. It was submitted by counsel for CML, in our view correctly, that these findings were inconsistent.

His Honour went on to say:-

'In the circumstances of this case I do not think there can be any real doubt, on the evidence, I have accepted, that the parties intended the statements...to have contractual effect. The nature and effect of the disability cover being offered by the respondent was discussed, the applicant asked that what Mr. Rainbird was saying about it be checked, it was in fact confirmed to the applicant and the applications for disability benefit were clearly signed on the faith of those statements. The only proper inference to draw, in my view, from those facts is that it was intended that the statements made about the cover should have contractual effect....Here the parties contracted on the basis that the benefits would be payable if the applicant suffered an injury which forever rendered him physically incapable of carrying on his business as a builder.

The applicant did in fact sign applications for total disability benefits, in relation to each policy, which were subsequently accepted by the respondent and which contained a provision for payment which was different, indeed, much narrower. The proper legal interpretation of these events is in my view that there was a collateral contract under which the applicant agreed to enter into the contracts of insurance so constituted and paid a premium thereunder in consideration of the respondent agreeing to pay disability benefits to the applicants in the circumstances represented by Mr. Rainbird on its behalf."

Notwithstanding our respect for his Honour's legal interpretation of the relevant events we do not agree with it.

CML's relevant contractual obligation is an obligation to make payment to Mr. Gates in certain circumstances. It was for that obligation that the premiums were given as consideration. It is that obligation which Mr. Gates says was breached. The source of that obligation was, and was always intended to be, the insurance policies and not some other agreement entered into with Mr. Gates by CML's agent on behalf of CML. The statements by the agent were not a promise to make payment in different circumstances from those provided for in the policies but a representation as to the circumstances in which, under the policies, the obligation to make payment would arise. What was said was not promissory and was moreover inconsistent with the terms of the applications signed by Mr. Gates.

LOSS OR DAMAGE UNDER THE TRADE PRACTICES ACT

As has already been stated, the primary Judge was satisfied that contraventions of s. 52 and sub-s. 53 (g) of the Act were established and made declarations to that effect. His findings in this regard were not disputed. However, his Honour declined to make an order for damages on that basis. He expressed the view that s. 82 of the Act would not entitle Mr. Gates to recover any more than a refund of the premiums paid for the total disability cover. He continued:-

'This relief, however, would have to be accompanied by an order varying policy No. 909837' (superannuation policy) 'and varying or rescinding policy No. 438249' (life policy). 'I do not propose to make orders to this effect, first because the applicant has not asked for them and secondly because I am satisfied, for reasons I shall now explain, that the applicant is entitled to recover the amounts payable under the policies'.

Mr. Gates' damages claim under the Act was formulated on the basis that, by reason of CML's contraventions of the Act, he was entitled to recover from CML the amounts to which he would have been entitled under the policies had the representations been correct, together with the amount of all losses which he claimed to have sustained in consequence of being deprived of those monies. The primary Judge described the evidence as to these consequential claims as unsatisfactory, and that is plainly the case. However, that is, in the circumstances, of no significance.

As his Honour recognized, there has not been a universally applicable definitive statement of the appropriate measure of damages recoverable in connection with the breach of a provision of Part IV of the Act. Probably it is better that some flexibility is maintained. Certainly, there is scope for debate as to the inter-relationship between ss. 82 and 87 of the Act. However, s. 87 like s. 82 is concerned with loss or damage 'by' the offending conduct and it is sufficient for present purposes to observe that, in this case, the question is not how much better off Mr. Gates would have been if the statements had been true but how much worse off he is by reason of having taken the steps which he did in reliance on the statements.

No attempt was made by Mr. Gates to prove a claim for damages on the correct basis. The premiums paid for total disability cover were quite small. There is nothing to suggest that the limited cover which Mr. Gates received for those premiums was worth less than he paid. The only step proved to have been taken by Mr. Gates in reliance upon the statements was the payment of the additional premiums. There was no evidence that, but for the statements, he would have cancelled the existing superannuation policy or omitted to acquire the new life policy. Indeed, such an additional policy was required by Mr. Gates in connection with a proposed borrowing from a finance company. Further, there was no evidence that cover in the terms of the statements made to him was available from CML or any other insurance company or as to the premium which would, in such a case, be payable for that cover, or as to Mr Gates' willingness to pay such a premium. The inference seems inescapable that, but for the statements, Mr. Gates would have proceeded exactly as he did save that he would not have paid extra for total disability cover. The insurance policies remain on foot.

We accordingly agree with the primary Judge that Mr. Gates' claim for damages under the Act was not made out.

Other points were argued some of which were disposed of in argument. Some points raised by CML do not need consideration in view of our conclusion that it is entitled to succeed. Before us Mr. Gates presented his own argument although he told us that he had been offered Legal Aid. He had been legally represented at first instance. His submissions on the appeal have been considered but call for no further reference. Nothing he said indicated that some basis might exist for a different result in these proceedings.

At first instance Mr. Gates succeeded in establishing contraventions of the Act and in establishing a claim in contract. He obtained a substantial award for breach of contract, but not all that he wished. He failed to obtain an award under s. 82. The findings favourable to him in relation to contraventions of the Act still stand. We are of the opinion that there should be no order as to the costs of the trial. Mr. Gates must pay CML's costs of the appeals.

There were two separate appeals. Mr. Gates' appeal has failed. CML's appeal has succeeded on a question of law. The proceedings before this Court were considerably lengthened by Mr. Gates' resort to matters which were either irrelevant or had nothing to do with CML's appeal. Mr. Gates own costs in relation to the appeals would not be large. However, the Court is of opinion that it would be approprate for the Attorney-General to authorize a payment under s. 6 of the Federal Proceedings (Costs) Act 1981 to Mr. Gates in pursuance of this Court's order, limited to the costs of the first day's hearing before this Court.