GIO General Insurance v Zeyad Zeidan [2004] NSWSC 1108

Reported Decision : (2005) 13 ANZ Insurance Cases 61-633

New South Wales Supreme Court

CITATION : GIO General Insurance v Zeyad Zeidan [2004] NSWSC 1108 HEARING DATE(S) : 18 November 2004 JUDGMENT DATE : 25 November 2004 JURISDICTION: Common Law Division JUDGMENT OF : Master Malpass at 1 DECISION : The judgment is set aside and the matter is remitted to the Local Court for determination in accordance with law; the defendant is to pay the costs of the summons; if so entitled, the defendant is to have a certificate under the Suitors' Fund Act 1951; the exhibit may be returned.

CATCHWORDS : Appeal from Local Court - misdirection and error - statutory construction - discretionary power. LEGISLATION CITED : Insurance Contracts Act 1984 (Cth) PARTIES : GIO General Insurance Ltd (Plaintiff) Zeyad Zeidan (Defendant) FILE NUMBER(S) : SC 12115 of 2004 COUNSEL : Mr D A McLure (Plaintiff) Mr S A Benson (Defendant) SOLICITORS : Minter Ellison (Plaintiff) Walker, Hedges & Co (Defendant)

LOWER COURT Local Court JURISDICTION : LOWER COURT 8381 of 2001 FILE NUMBER(S) : LOWER COURT Cloran LCM JUDICIAL OFFICER :

- 7 - IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION

Master Malpass

25 November 2004

12115 of 2004 GIO General Limited v Zeyad Zeidan

JUDGMENT 1 Master: The defendant was the owner of a Mitsubishi Pajero (the vehicle). During the period between 9 October 1994 and 15 December 1998, there had been seven traffic infringements by him (the traffic infringements). 2 On 10 February 1999, he sought comprehensive motor vehicle insurance from the plaintiff. He attended at its Yagoona office. He spoke to Ms Johnston. The application process was carried out on the defendant's computer system (Cogen). The plaintiff issued a policy in respect of the vehicle. 3 On 7 November 1999, the vehicle was stolen. A claim was made under the policy. The plaintiff refused to indemnify the defendant. It avoided the policy on the ground that he had failed to disclose the traffic infringements. 4 The defendant brought proceedings in the Local Court. The proceedings were defended. It was contended by the plaintiff that the defendant had failed to comply with his duty of disclosure (which is imposed by virtue of the provisions of s21 of the Insurance Contracts Act 1984 (Cth) (the Act)) and that it was entitled to either avoid the policy under s28(2) of the Act or reduce its liability to nil under s28(3) thereof. The defendant sought alternative relief under s31. 5 A two day hearing took place before Cloran LCM. Reasons were delivered on both 28 May 2004 (the first reasons) and on 26 June 2004 (the second reasons). Judgment was entered in favour of the defendant in the sum of $31,600. 6 On 8 July 2004, the plaintiff filed a summons in this court. It brings a challenge by way of appeal to the decision of the Local Court. The summons identifies seven grounds of appeal. 7 Section 28 of the Act is in the following terms:- General insurance (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 the insurer in a position in which the insurer would have been if the failure had not occurred or the misrepresentation had not been made. 8 The effect of what was done by the magistrate in the first reasons was to find that the plaintiff had satisfied the requirements of subs (1) of s28 and that it was entitled to avoid the contract. He also dealt in part with the claim made pursuant to s31. 9 Section 31 of the Act is in the following terms:- Court may disregard avoidance in certain circumstances (1) In any proceedings by the insured in respect of a contract of insurance that has been avoided on the ground of fraudulent failure to comply with the duty of disclosure or fraudulent misrepresentation, the court may, if it would be harsh and unfair not to do so, but subject to this section, disregard the avoidance and, if it does so, shall allow the insured to recover the whole, or such part as the court thinks just and equitable in the circumstances, of the amount that would have been payable if the contract had not been avoided. (2) The power conferred by subsection (1) may be exercised only where the court is of the opinion that, in respect of the loss that is the subject of the proceedings before the court, the insurer has not been prejudiced by the failure or misrepresentation or, if the insurer has been so prejudiced, the prejudice is minimal or insignificant. (3) In exercising the power conferred by subsection (1), the court: (a) shall have regard to the need to deter fraudulent conduct in relation to insurance; and (b) shall weigh the extent of the culpability of the insured in the fraudulent conduct against the magnitude of the loss that would be suffered by the insured if the avoidance were not disregarded; but may also have regard to any other relevant matter. (4) The power conferred by subsection (1) applies only in relation to the loss that is the subject of the proceedings before the court, and any disregard by the court of the avoidance does not otherwise operate to reinstate the contract. 10 The effect of what was done in the second reasons was to complete his dealings with the claim made pursuant to s31. The magistrate determined that the defendant was entitled to recover the full amount of his claim. 11 Before proceeding further, I should refer to one matter which did not arise for determination in the course of this appeal. It concerns a matter of the proper construction of s28. In the Local Court, the plaintiff had put its case in the alternative. 12 It may assist the further conduct of these proceedings if I express a view on that matter. In this case, I do not consider that the plaintiff is entitled to relief pursuant to subs (3) of s28. It is not a case where the insurer is not entitled to avoid the contract. It is not a case where the insurer was entitled to avoid the contract and has not done so. It seems to me that subs (3) can have no application in the circumstances of this case. 13 The magistrate found that the defendant had not disclosed any of the seven traffic infringements and that he knew that all of them were relevant to the plaintiff's decision on the question of whether or not it would insure the vehicle. In his evidence, the defendant conceded, inter alia, that he did not tell the plaintiff that he had been given two infringement notices (one for driving an unregistered vehicle and one for driving an uninsured motor vehicle). He conceded also that he knew that these were matters that the plaintiff wanted to know about when deciding whether or not to give him a policy. 14 The magistrate made adverse findings as to the plaintiff's credibility. He regarded Ms Johnston as a witness of credit and accepted her evidence. 15 There was evidence that during the application process the defendant was asked by Ms Johnston a question to the following effect:- Have you in the last five years ever had any traffic accidents even if you were not at fault, charges, convictions or infringements, such as speeding fines and red light cameras?