LYNCH v ZURICH AUSTRALIAN INSURANCE LTD SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL STEIN, GILES JJA and FITZGERALD AJA 4 November 1998, 10 November 1998 [1998] NSWCA 132 Disqualification — apprehended bias — judge indicates knowledge of insurer's practices — whether could be reasonable apprehension of prejudgment — Livesey v NSW Bar Association (1983) 151 CLR 288; Laws v Australian Broadcasting Tribunal (1990) 170 CLR 70. Stein JA I agree with the reasons given by Giles JA for the dismissal of the appeal. Giles JA The appellant insured his prime mover and trailer with the respondent. They were stolen on 1 January 1988. The respondent declined indemnity and avoided the contract of insurance for fraudulent misrepresentation at the time of proposal. The appellant brought proceedings in the District Court to recover under the insurance. McLachan DCJ upheld the avoidance and gave judgment for the respondent with costs. The only ground maintained in the appeal from this decision was that, on an application made by the appellant on the fourth day of the hearing, his Honour should have disqualified himself from the further hearing of the proceedings. At the conclusion of the hearing of the appeal orders were made that the appeal be dismissed with costs, with the reasons to be published later. These are my reasons for joining in the orders. The insurance was first taken out in September 1986, running to | September 1987. It was issued on a proposal signed by the appellant which inter alia asked about convictions for driving offences (other than parking matters) for the previous five years and about driving offences for the previous three years, and contained a declaration that no information likely to affect the acceptance of the proposal had been withheld. The disclosure made was far less than the appellant's true driving record. McLachlan DCJ referred to, and apparently accepted, a driving record of twenty two "offences/cancellations or warnings" in the previous nine years, ten in the previous two years. The proposal disclosed in the previous three years one negligent driving offence, three speeding offences, and one offence of having backed trailer wheels over the yellow line, but the true position for that period was four negligent driving offences, six speeding offences, two offences of disobey traffic lights, and four other offences. The appellant's licence had been cancelled in 1983, another cancellation was imposed in August 1986, a month before the proposal, and the appellant was at the time of the proposal on a probationary licence: none of this was disclosed. His Honour concluded that the appellant either deliberately or with reckless indifference withheld this past record in order to induce the respondent to enter into the insurance. The misrepresentation was held to have extended to a renewal of the insurance in August/September 1987 to the insurance current when the loss occurred. The manner in which the misrepresentation extended to the renewal did not arise in the appeal and need not be explained. 2 UNREPORTED JUDGMENTS The respondent could avoid the contract of insurance because of the fraudulent misrepresentation unless it would have entered into the contract of insurance for the same premium and on the same terms and conditions even if there had not been the misrepresentation: see s28 of the Insurance Contracts Act 1984. So there could be, and was, an issue over what the respondent would have done if there had not been the misrepresentation. His Honour found that it would not have entered into the contract of insurance at all if the appellant's true driving record had been disclosed, and specifically rejected the submission that it would have "written the business" for non commercial reasons. In so finding, his Honour accepted the evidence of three of the respondent's underwriting officers at the time of the insurance and said that there was "no room for the expert opinion of the non-Defendant industry experts": he said that the question was what the respondent would have done, and "since I have accepted the Defendant's submission generally as to the question of expert evidence, the non-Defendant expert evidence is irrelevant". The hearing began on 5 August 1996. Documents were tendered, the appellant and his son gave evidence, and the three underwriting officers called by the respondent, Messrs Stoddart, Brown and Smee, an expert underwriter called by the appellant, Mr McMahon, and another expert underwriter called by the respondent, Mr Maher, gave evidence. The oral evidence concluded on 8 August 1996, some more documents were tendered on 9 August 1996, and submissions were then heard on 3 September 1996 with the benefit of written outlines. The application to his Honour was made on 8 August 1996, and was founded on a remark made during argument over the admissibility of a question in the evidence in chief of Mr Smee. Mr Smee was asked directly whether he would have written the business had he known the appellant's true driving record, and said that he would not have. Combining two transcriptions, the transcript then records (the remark is underlined) - "Q. From your twenty-odd years experience with Zurich up to the period 1986 Zurich amongst the various risks of course as we know undertook motor vehicle risk heavy and light and so forth, did it have a conservative or other guidelines and [sic; in] relation to say motor vehicles heavy and light? A. Conservative. SLATTERY: I object. ROFE: I press it. HIS HONOUR: Well, he's answered it of course. SLATTERY: Well, with respect, that doesn't matter. The answer was very quick. I objected as quickly as I could react. I didn't want to interrupt the question. HIS HONOUR: I'm not criticising you. Not relevant, or? SLATTERY: Yes, your Honour. If this answer is admitted it would seem to me absolutely unarguable to the contrary that the evidence of the experts must be admissible. What this man is saying is that this is what we do compared to others in the industry. What Mr McMahon and Mr Meagher [sic: Maher] talk about is Zurich in relation to the industry. HIS HONOUR: I thought, correct me if I'm wrong, that it was you at some stage over the last three days who raised this question, perhaps it was Mr Rofe, I'm just trying to think. If you're not going to raise this as an issue perhaps it isn't relevant but if you are it is. URJ LYNCH v ZURICH AUSTRALIAN INSURANCE LTD (Giles JA) 3 SLATTERY: Your Honour, what I'm going to raise as an issue is the fact that every comparative document within Zurich which would show what their practices really were has been destroyed and that the best that one can do is to infer from industry evidence, the best one can do is infer from industry evidence what Zurich would have done. Frankly, a statement such as ""We're conservative" is a summary of its own policy and its own practices and that, in comparison with the whole industry, in a rolled up conclusion in that form, with respect, is just inadmissible. The comparative exercise is admissible but in that form, with respect, it's not. HIS HONOUR: Well, Mr Rofe, at this time, in other words, 1986, I had a pretty good knowledge of the insurance industry and I do not have a recollection that this company was other than conservative and I don't think you need to worry if that is what you are seeking. I think it was you who used the word "cowboy" yesterday or the day before. ROFE: Well, in the context of a spectrum of insurers, the grains [sic: range] from what is sometimes colloquially called the cowboys who will undertake any risk to companies that have a conservative policy which means that they do perhaps apply different criteria to acceptances and your Honour hasn't determined this issue, whether you were going to consider as relevant this industry evidence. Your Honour will recall I submitted that the Act requires you to look at the actual insurer, not what other insurers might do. My learned friend contends to the contrary and I think your Honour has said you haven't made up your mind about it so if the evidence is to be admitted I don't want to find myself precluded if your Honour determines in a certain way on that issue. I don't know whether your Honour can take judicial notice of your views in 1986 but certainly this witness, we would submit, is in a position to say so and depending on what your Honour does ultimately determine on this question of industry practice then I would wish to have the advantage of this witness's view as an officer of Zurich in a fairly responsible position over a large period of time as to whether Zurich is at the cowboy end of the scale or the conservative end of the scale in this type of insurance. HIS HONOUR: Mr Slattery I try to be even handed and I yesterday allowed in Mr McMahon's report, I think I shall allow this evidence in for what it is worth but saying I don't appreciate the relevance of it at this point. SLATTERY: I appreciate what your Honour says. Your Honour I'm not sure I correctly heard what your Honour said a moment ago, but as I understand it my recollection of what your Honour said was that from your Honour's own experience of the insurance industry in 1986 your Honour had a recollection of a number of companies including this defendant and that your Honour's recollection was that this company was conservative. HIS HONOUR: It was not other than conservative. But I don't regard it as a relevant issue and I certainly never acted for the company." The application was then made and submissions were heard. It was emphasised that the application was not on the ground of actual bias but on the ground customarily, though inaccurately, known as apprehended bias. By agreement, the hearing continued and the evidence of Mr Smee was concluded. Later in the day his Honour ruled on the application, giving brief reasons for not acceding to it. The reasons included - 4 UNREPORTED JUDGMENTS "T hasten to add that I have not, in my view, prejudged an issue and I cannot see that a reasonable bystander would, could, or might come to that conclusion. Rather, the exercise has now persuaded me that the issue which I had (perhaps in my haste to hurry the matter along) not thought a real issue is now - certainly in the view of the plaintiff's representatives - in fact a real issue and it will be assessed accordingly." The circumstances in which the remark was made should be further explained. The appellant had tendered a report of Mr McMahon. The substance of the report was that, from Mr McMahon's experience, a prudent insurer, and the respondent, would have written the business notwithstanding the appellant's driving record. The respondent had objected to the report as irrelevant, on the ground that the issue was what the respondent would have done, not what a hypothetical prudent insurer would have done. The appellant had supported the tender on the ground that Mr McMahon's opinion of what the prudent insurer would have done was relevant to what the respondent's underwriting officers would have done, including as a test of their evidence that they would not have written the business. The report had been admitted, with doubt as to its relevance. Mr Stoddart had already given evidence that he would not have written the business, and it had been put to him in cross-examination that the respondent's underwriting officers tended to be conservative: he had agreed, and had described himself as conservative. From this it seems that the appellant was concerned to compare the respondent's practice with that of the prudent insurer of which Mr McMahon spoke, as later appeared from what was said in support of the objection to the question to Mr Smee with a view to submitting that the "industry evidence" was to be preferred to the evidence of Mr Stoddart and the other underwriting officers for the findings as to what the respondent would have done. Mr Brown had given evidence that he would not have written the business, and his cross-examination had been undertaken but was incomplete, Mr Smee then gave his evidence. The appellant's objection to the question to Mr Smee concerning the respondent's conservatism was not on grounds of relevance - the appellant had himself raised conservatism with Mr Stoddart. The objection was that the answer was a rolled-up conclusion. In the result, his Honour seems to have found that the evidence of Mr McMahon and Mr Maher was irrelevant, see the references to non-Defendant experts. In this he may have overlooked that Mr McMahon purported to give evidence of what the respondent would have done, as well as evidence of what the prudent insurer would have done, as he did not only in his report but when he gave oral evidence. But there was no appeal in this respect, and the respondent's conservatism or otherwise was another matter. Mr McMahon gave no opinion on that subject. If the respondent's conservatism or otherwise was relevant, it was for a reason related to, but different from, the relevance of Mr McMahon's evidence. In the way the proceedings had been conducted to the time of his Honour's remark, it was really not contentious. For his own purposes, it seems so that if Mr McMahon's evidence of what the prudent insurer would have done was held to be material to what the respondent would have done, the evidence of the respondent's underwriting officers would carry less weight, the appellant had sought to establish the respondent's conservatism through Mr Stoddart. For its own purposes, clearly enough because it contended that what mattered was what the respondent would have done and so wished to have put aside as of no significance evidence of what the hypothetical prudent insurer somewhere else URJ LYNCH v ZURICH AUSTRALIAN INSURANCE LTD (Fitzgerald AJA) 5 on the spectrum from cowboy to conservative would have done, the respondent sought to establish its conservatism through Mr Smee. It became evidence in his submissions on the application that the appellant's position had shifted, perhaps with a lessening in confidence in the value of the prudent insurer test, and that the respondent's conservatism was contentious. But it had not previously been so and, as his Honour indicated in the reasons for his ruling, what he had not thought to be a real issue, that is, the issue of conservatism, was exposed as an issue by reason of the application. The principle stated in Livesey v NSW Bar Association (1983) 151 CLR 288 at 293-4 was not in question, that a judge should not sit to hear a case if in all the circumstances the parties or the public might entertain a reasonable apprehension that he might not bring an impartial and unprejudiced mind to the resolution of the question involved in it. But the apprehension must be a reasonable one, objectively determined as the perception which might be held by a lay observer with sufficient knowledge to form a rational view and not just a perfunctory or superficial view, see for example Vakauta v Kelly (1989) 167 CLR 568 at 573, 585; Grassby v The Queen (1989) 168 CLR 1 at 20; Webb v the Queen (1994) 181 CLR 41 at 47, 51; Glascor v Efficott (1997) 1 VIR 332 at 344. And the apprehension must be that the judge will not decide the case impartially or without prejudice, not that the judge will decide the case in a particular way, see re JLR ex parte CJL (1986) 161 CLR 342 at 352; Glascor v Efficott at 343. Where the ground for disqualification is perceived prejudgment of an issue, "what must be firmly established is a reasonable fear that the decision-maker's mind is so prejudiced in favour of a conclusion already formed that he or she will not alter that conclusion irrespective of the evidence or arguments presented to him or her": Laws v Australian Broadcasting Tribunal (1990) 170 CLR 70 at 100. I do not think his Honour was in error in his ruling. His remark was a passing observation in the course of debate over the admissibility of evidence going to the respondent's conservatism or otherwise. The debate was essentially as to the form in which the evidence was led, when his Honour was doubtful as to the relevance of the so-called industry evidence, and his Honour's remark reflected a then view, for the reasons I have given understandable, that the conservatism or otherwise was really not contentious. It would not have been surprising that his Honour had had professional experience in insurance matters, and in the circumstances that the remark included "and I don't think you need to worry if that is what you are seeking" did not suggest that such recollection as his Honour had of the insurance industry in 1986 would be a substitute for the evidence of Mr Smee, or anyone else, if despite his then doubt he came to see the evidence as relevant and if it were a matter of contention, or that it would be taken into account in his decision on what the respondent would have done but for the misrepresentation. That it was a matter of contention was then brought out, and as his Honour said, he would assess the issue accordingly. In my opinion, his Honour's remark, in its terms and in the circumstances, could not generate a reasonable apprehension that in doing so he would not decide the case according to the evidence or otherwise would not bring to his decision an impartial and unprejudiced mind. For these reasons I was of the opinion that the appeal should be dismissed with costs. Fitzgerald AJA I agree with Giles JA. Appeal dismissed with costs. UNREPORTED JUDGMENTS Counsel for the appellant: M J Slattery QC & D Figgis Solicitors for the appellant: Burridge Harris & Flynn, Grafton Counsel for the respondent: D F Rofe QC & B Hull Solicitors for the respondent: Malcolm Johns & Co