Reported Decision : (2004) 13 ANZ Insurance Cases 61-620 New South Wales Supreme Court CITATION : Alexander Raymond Walton v The Colonial Mutual Life Assurance Society Limited [2004] NSWSC 616 HEARING DATE(S) : 5/07/04, 6/07/04, 7/07/04, 8/07/04, 9/07/04 JUDGMENT DATE : 19 July 2004 JURISDICTION: Equity Division Commercial List JUDGMENT OF : Einstein J DECISION : Parties to bring in short minutes of order CATCHWORDS : Insurance - Insurance Contracts Act 1984 (Cth) - Income protection life insurance policy - Insurer purports to terminate policy after making monthly payments of benefits for number of years - Insurer grounds its refusal to make further payments under s56 of Act on basis that plaintiff's claim fraudulent in that insured had stated in his claim forms that he was not working - Allegation that insured was in fact working - Insurer claims to have cancelled policy on basis that by his fraudulent claim, insured breached duty of utmost good faith under s13 of Act by deliberately or recklessly giving false answers in claim forms submitted by him - Onus of proof - General law proposition that it is not open to insurer to cancel policy after the event which renders it liable has occurred - Consideration in terms of Act section 56 (1) - Effect of Act section 54 (1) is that breach of duty of utmost good faith by insured entitles insurer to refuse to indemnify insured only to extent that insurer's interests are prejudiced by that breach - Act section 54 (1) provides the extent of the remedy for the breach of duty imposed by section 56 (1) - Whether inhibition in insurer being entitled to 'avoid the contract' to be found in section 56 (1) is only a reference to there being no entitlement to so avoid the contract ab initio - Whether no such limitation on entitlement of insurer to avoid the contract in futuro - Whether as a result of the sickness or injury insured unable to perform one or more of the important duties of his occupation - Policy provides no definition of "work" or "working" - Whether insured was from any, and if so what point in time, a person whom, if ever he had been, was no longer continuously disabled within meaning of the policy LEGISLATION CITED : Insurance Contracts Act 1984 (Cth) Marine Insurance Act 1906 (UK) AF and G Robinson v Evans Bros Pty Ltd [1969] VR 885 Australian Casualty Co Ltd v Federico (1986) 160 CLR 513 British Traders Insurance Co Ltd v James [1968] NZLR 1157 De Britt v Frew (1992) 7 ANZ Ins Cas 61-140 Duncan v Prudential Assurance Co Ltd (1999) 10 ANZ Ins Cas 61-433 Edwards v Hunter Valley Co-op Dairy Co Ltd (1992) 7 ANZ Ins Cas 61-113 Entwells Pty Ltd v National & General Insurance Co Ltd (1991) 6 ANZ Ins Cas 61-059 Farmers Co-Op Ltd v National Benefit Assurance Co Ltd (1922) L1R417 CASES CITED : Fernance v Wreckair Pty Ltd (No 2) (1992) 43 IR 300 - ICt(NSW) Gugliotto v Commercial Union Assurance Co of Australia (1992) 7 ANZ Ins Cas 61-104 Halford v Price (1960) 105 CLR 23 Manifest Shipping Co Ltd v Uni-Polaris Shipping Co Ltd (the Star Sea) [2003] 1 AC 469 Mourad v NRMA Insurance Ltd (2003) 12 ANZ Ins Cas 61-560 Naomi Marble & Granite Pty Ltd v FAI General Insurance Company Ltd (No 1) [1999] 1 Qd R 507 Robertson & Thomson v French (1803) 102 ER 779 Super Chem Products Limited v Amercian Life and General Insurance Co Ltd [2004] 2 All ER 358 Tiep Thi To v Australian Associated Motor Insurers Ltd (2001) 3 VR 279; 11 ANZ Ins Cas 61-490 PARTIES : Alexander Raymond Walton (Plaintiff) The Colonial Mutual Life Assurance Society Limited (Defendant) FILE NUMBER(S) : SC 50101/03 COUNSEL : Mr M Maxwell (Plaintiff) Mr J Maconochie QC, Mr Sheller (Defendant) SOLICITORS : Marsdens Law Group (Plaintiff) Turks Legal (Defendant) IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION COMMERCIAL LIST Einstein J Monday 19 July 2004 50101/03 Alexander Raymond Walton v The Colonial Mutual Life Assurance Society Limited JUDGMENT The policy 1 These proceedings concern an income protection life insurance policy number 3269577 provided by the defendant [which took over the policy from Prudential Corporation] to the plaintiff on or about late 1994 and subsequently renewed annually. The terms of the policy were amended under cover of a letter from the defendant dated 23 April 1996. The policy provides for payment of a monthly benefit of $8,500 if the plaintiff is totally disabled as defined under the policy. In many ways the policy is akin to a sickness and accident policy. 2 The letter enclosing the amended policy represented that the changes represented a significant improvement to the anterior form of policy. The letter continued: "In the unlikely case that for a particular claim or other circumstances you would have been better off with your current contract then we will apply those conditions. If you want to take advantage of this upgrade to your policy, you do not have to do anything. However, if you do not wish to take advantage of this upgrade, please advise us by 15 May 1996 and we will not apply the new conditions." 3 During the course of the final hearing the plaintiff obtained leave to further amend summons to plead alternative claims to those previously pleaded [which had been propounded only by reference to the amended form of policy]. The amendments to the summons now sought in the alternative to rely upon the original form of policy. 4 It is common ground that the plaintiff did not advise the defendant by 15 May 1996 nor later that he did not wish to take advantage of the so-called upgrade. 5 In my view, properly construed, the letter from the insurer required an insured wishing not to take advantage of the upgrade to notify the insurer of that fact by 15 May 1996 or to be taken to have elected not to take advantage of the upgrade so that the new conditions would be applied. The issue is resolved on offer and acceptance principles. 6 In that circumstance it becomes presently unnecessary for the Court to consider the anterior form of policy. The amended form is hereafter referred to as "the policy", the important elements of which offered a trauma benefit and a disability benefit. The heart attack 7 The plaintiff suffered a cardiac condition on or about 17 November 2000. The claim 8 A claim was made pursuant to the policy on or about 4 December 2000. Monthly payments are made 9 Payments pursuant to the policy commenced in December 2000 and continued until 20 May 2003. The purported termination of the policy 10 The defendant purported to terminate the policy by letter dated 28 May 2003. 11 No payments pursuant to the policy have been received since 28 May 2003. The plaintiff's claims 12 The plaintiff claims: · A declaration that the policy remains on foot · A declaration that the 28 May 2003 letter purporting to give notice of cancellation of the policy with effect from 2 July 2003: - was wrongful and of no force or effect, or - did not constitute adequate or proper notice in writing of the proposed cancellation to the plaintiff for the purposes of section 59 of the Insurance Contracts Act , 1984 (Cth); or - constituted a breach of the policy and, further and alternatively, constituted a breach of the provision implied pursuant to section 13 of the Insurance Contracts Act , 1984 (Cth) [requiring the defendant to act towards the plaintiff in respect of any matter arising under or in relation to the policy with the utmost good faith]. · A declaration that the defendant has failed to give proper or adequate reasons for the purported cancellation of the policy in contravention of section 75 of the Insurance Contracts Act, 1984 (Cth) notwithstanding a request in writing by the plaintiff given to the defendant by letter dated 19 June 2003. · A declaration that the plaintiff is entitled to have the policy specifically performed and an order that the defendant perform the policy by continuing to make payments to the plaintiff in accordance with its terms. · Damages. The defendant's case 13 The defendant admits that the policy was issued to the plaintiff, that he had suffered a heart attack and that payments of monthly benefits had been made to him. 14 The defendant's case grounds its refusal to make further payments under s56 of the Insurance Contracts Act 1984 ('the Act") on the basis that the plaintiff's claim was fraudulent in that Mr Walton had stated in his claim forms that he was not working when in fact he was working. The defendant claims to have cancelled the policy on the basis that by his fraudulent claim, the plaintiff breached his duty of utmost good faith under s13 of the Act by deliberately or recklessly giving false answers in claim forms submitted by him. 15 In particular the defendant contends that: · The plaintiff was required to complete a Progress Certificate for Income Protection Benefits ("the Progress Certificates") each month and submit it to the defendant in order to be entitled to receive monthly income protection benefits under the policy. · Section B of the Progress Certificates contained the question "...have you been able to perform any occupational duties, supervisory or otherwise ?" · In each Progress Certificate signed and submitted by the plaintiff from November 2000 to June 2003 the plaintiff responded "No" to that question. · From November 2000 to June 2003 the plaintiff had in fact continued to perform the duties of his occupation. 16 The defendant has identified the issues raised as follows: · Whether the plaintiff was working in his usual occupation or any occupation from November 2000 onwards; · Whether the plaintiff's claim or claims for benefits under the policy from November 2000 to May 2003 was fraudulent and if so whether Colonial was entitled to refuse the claim made from May 2003 under s56 of the Act and cancel the policy. 17 During his opening address Mr Maconachie put the matter as follows: "There is no issue about the fact that there was some sort of cardiac incident, call it a heart attack, by whichever term one chooses to describe it, and, yes, there is an issue about inability to perform one or more of the important duties of your occupation. But more importantly there is an issue about whether or not any identified disability is as a result of the sickness or injury. [Transcript 15]… [U]ltimately, [the Court] will not be able to be satisfied that it was as a result of the sickness or injury that the relevant criteria occurred, particularly the earning less than your pre-disability income." [Transcript 16] 18 Hence the defendant contended that: · the fact that Mr Walton had suffered a heart attack, would not on the evidence be shown to have resulted in an inability to perform one of the important duties of his occupation; · the evidence would establish that: - it was not the heart attack that resulted in Mr Walton earning less than his pre-disability income; - Mr Walton's having earned less than his pre-disability income was caused by cash flow and other commercial dealings by the group of companies owned or controlled by Mr Walton or his close associates. Onus of proof 19 The claim made by Mr Walton asserts that the policy remains on foot. In the first instance Mr Walton bears the onus of proving that the heart attack has caused/resulted in his being relevantly disabled, and as a result unable to perform one or more of the important duties of his occupation leading to a diminution in income [as against his pre-disability income] and that he is under the regular care of a doctor. 20 The insurer submitted [transcript 422] and I accept that the following passage [cf The law relating to Accident Insurance by A W Welford 2nd ed Butterworths 1932 at 188 - 199] may be accepted as correct: "The onus of proving that the loss was caused by a peril insured against lies upon the assured. He is not, however, required to prove the cause of the loss conclusively; all that he need do is to establish a prima facie case. When he has done this, the onus shifts to the insurers to show that the loss was not caused by a peril insured against, and unless they prove this conclusively they have not discharged the onus cost upon them." 21 The burden of persuasive proof must always ultimately lie with the plaintiff. 22 The insurer accepted [Welford at 199] that it bore the onus of proof that the assured in his claim has made false statements of fact; that he made the statements knowing them to be false or not believing them to be true or that he made them recklessly, careless whether they were true or false. Hence in terms of the issue raised under section 56 the insurer bears the onus. Principles of construction 23 It is a rule of construction that a contract of insurance is to be construed as a whole: Farmers Co-Op Ltd v National Benefit Assurance Co Ltd (1922) L1R417, 530, 533 per Atkin LJ. 24 There is a presumption that the words in the contract of insurance have to be given the ordinary and natural meaning as understood by the ordinary reasonable man, although that presumption may be rebutted in certain circumstances. 25 This principle was stated by Lord Ellenborough CJ in Robertson & Thomson v French (1803) 102 ER 779 at 781 as follows: "A policy of insurance…is to be construed according to its sense and meaning, as collected in the first place from the terms used in it, which terms are themselves to be understood in their plain, ordinary and popular sense, unless they have generally in respect of the subject matter, as by the known usage of trade, or the like, acquired a particular sense distinct from the popular sense of the words; or unless the context evidently points out that they must be in the particular instance and in order to effectuate the immediate attention of the parties to that contract, be understood in some other special or particular sense." (Also see Halford v Price (1960) 105 CLR 23 at 29 per Dixon CJ; Australian Casualty Co Ltd v Federico (1986) 160 CLR 513 at 520-521 per Gibbs CJ.) 26 If there is any ambiguity in the language used, it is usually resolved in accordance with the maxim "veba chartrarum fortius accipiuntur contra proferentem" and the contract will be construed against its draftsman, that is, usually the insurer. However, the rule only operates "where the words requiring interpretation are truly ambiguous; thus, where the words, fairly and reasonably construed, admit of only one meaning the maxim has no application": British Traders Insurance Co Ltd v James [1968] NZLR 1157 at 1162 per North J. Accordingly, the rule must only be applied for the purpose of removing a doubt, "not for creating a doubt or magnifying an ambiguity where the circumstances of the case raise no difficulty": AF and G Robinson v Evans Bros Pty Ltd [1969] VR 885 at 895 per Starkey J. 27 It is common ground that as in the case of all disability policies of insurance, the wording of the particular clause providing the definition of disability must be carefully examined, as they vary greatly in their effects: see Edwards v Hunter Valley Co-op Dairy Co Ltd (1992) 7 ANZ Ins Cas 61-113; De Britt v Frew (1992) 7 ANZ Ins Cas 61-140; Fernance v Wreckair Pty Ltd (No 2) (1992) 43 IR 300 – ICt(NSW) (Hungerford J). The policy 28 It is convenient to commence by examining the terms of the policy. 29 The policy has a risk commencement date of 1.9.94 and an expiry date of 1.9.2017. 30 The policy allows for the monthly benefit on the policy anniversary each year prior to the age of 55 to be increased by the indexation factor (section 7). The anterior policy 31 Albeit of no present relevance it may be noted that relevant terms of the anterior policy include:- " CONDITIONS 1. WHEN WE WILL PAY BENEFITS We will pay benefits according to the conditions of this policy if you : - become Totally Disabled - see section 2; - become Partially Disabled - see section 3; - suffer a Specific Injury or a Crisis - see section 4. Most of the benefits provided by this policy are based on an amount called the Monthly Benefit . The Monthly Benefit is an agreed value and is the amount shown in the Schedule as the Monthly Benefit , plus any increases to that mount due to indexation under the policy. 2. TOTAL DISABLEMENT 2.1.1 We will pay benefits under this section if you become Totally Disabled . We will regard you as Totally Disabled if: - a Sickness or an Accident causes you to be unable to perform the Important Duties of your Occupation ; - you are not working; and - you are under the regular care of a Doctor . Amount of Benefit 2.2.2 The Total Disability Benefit is the Monthly Benefit for each continuous month that you are Totally Disabled . Start of Benefit 2.2.3 The Total Disability Benefit starts when the Waiting Period is over. End of Benefit 2.2.4 The Total Disability Benefit ends: - when you are no longer Totally Disabled ; - when the Benefit Payment Period ends; - on the Policy Expiry Date ; or - when you die (but see Benefits After Death in Section 6); whichever happens first." The conditions of the policy as amended in 1996 ("ARW10"). 32 The relevant terms of the 1996 amendments are as follows:- " When are you disabled ? You are disabled if you suffer a sickness or an injury and as a result are: - unable to perform one or more of the important duties of your occupation; - earning less than your pre-disability income; and - under the regular care of a doctor. Disability Benefit. We will pay a benefit if you are continuously disabled longer than waiting period. Amount of Benefit . If you are not working in any occupation, the benefit is the amount we have agreed to pay as the monthly benefit for each month you are disabled. If you are working in an occupation, the amount of the benefit will be the monthly benefit reduced by the following amount: Current Income x Monthly Pre-disability Income for each month you are continuously disabled." 33 At the bottom of the page headed "DISABILITY DEFINITION" the defendant stated the following:- "Prudential's new approach to disability uses a true need basis. If your income falls due to a sickness or injury, regardless of the amount, the life insured is eligible for a benefit whether totally unable to work or working part time. It doesn't need to be any more complex than that! Together with a fall in income, the only other requirements under Prudential's new policy are that the life insured is unable to perform at least one of their normal work functions and that they are under the regular care of a doctor. There is no need to stop work to claim a disability benefit. Once the life insured satisfies these criteria then a benefit will be paid in proportion to the drop in income." (My underlining.) 34 In the body of the document the following provisions are to be found:- "1. BENEFITS 1.1 When can benefits be paid? We will pay a benefit if you : - suffer a specific injury or trauma; - become disabled; or - die. 2.2 Indexation of Benefit Payments If we are paying benefits, the monthly benefit and the value of your pre-disability income will be indexed at the end of each 12 consecutive month period of disability starting from the end of the waiting period . However, when the benefit ends, we will reduce the monthly benefit back to the amount that applied before we started to pay the benefit, unless Condition 2.1 applies. If we are paying a Lifetime Sickness and Injury Benefit, indexation ends on the policy anniversary date before your 65th birthday." 35 The document defines disability as follows:- "When are you Disabled? You are disabled if you suffer a sickness or an injury and as a result are: · unable to perform one or more of the important duties of your occupation; · earning less than your pre-disability income; and · under the regular care of a doctor." (Condition 1.4) Definitions 36 In condition 7 of the Policy the following definitions are provided:- "7. DEFINITIONS Disabled is defined in Condition 1.4 and disability has a corresponding meaning. Heart attack the death of a portion of the heart muscles as a result of inadequate blood supply to the relevant area where the diagnosis is based on:- - new electrocardiographic changes consistent with the diagnosis; and - a corresponding elevation in cardiac enzyme levels. Indexed the process of multiplying an amount by any increase in the consumer price index over the 12 month period ending on the date the calculation is to apply. Indexation has a corresponding meaning. Occupation the normal occupation or work carried out immediately before becoming disabled. If your occupation has been classified as 1A or 2A and the benefit has been payable for 24 months, occupation means any occupation to which you are suited by education, training and experience. Sickness a disease or condition that first becomes apparent while you are covered by this policy. Important duties the duties of your occupation that could reasonably be regarded as necessary to produce your pre-disability income. How you perform your occupation will be taken into account when determining the important duties. Income untaxed income earned from your occupation less any business expenses necessary incurred in earning that income. The claimed policy cancellation - an important preliminary question 37 A particularly important preliminary question which arises concerns the circumstances which would obtain if on the occasion of his heart attack, Mr Walton satisfied the policy criteria requiring to be satisfied in order for him to be "disabled" within the meaning of the policy. This is because unlike avoidance of a contract, cancellation operates from the time of cancellation and has no retrospective effect. Thus accrued rights are not affected: Halsbury's Laws of Australia Volume 15 [235 642] at footnote 1. The matter is put as follows in Insurance Law in Australia by Sutton 1999 LB Consulting Services at [7,36]: "It is not open to an insurer to cancel the policy after the event which renders her or him liable has occurred, or has become inevitable, for he or she cannot elect to avoid after liability has accrued." 38 The matter requires to be considered in terms of the Insurance Contracts Act and particularly in terms of section 56 (1). Insurance Contracts Act 39 Section 54 of the Insurance Contracts Act provides inter alia as follows: "(1) Subject to this section, where the effect of a contract of insurance would, but for this section, be that the insurer may refuse to pay a claim, either in whole or in part, by reason of some act of the insured or of some other person, being an act that occurred after the contract was entered into but not being an act in respect of which subsection (2) applies, the insurer may not refuse to pay the claim by reason only of that act but the insurer's liability in respect of the claim is reduced by the amount that fairly represents the extent to which the insurer's interests were prejudiced as result of that act. (2) Subject to the succeeding provisions of this section, where the act could reasonably be regarded as being capable of causing or contributing to a loss in respect of which in insurance cover is provided by the contract, the insurer may refuse to pay the claim." 40 Section 56 of the Act provides as follows: "56(1) Where a claim under a contract of insurance, or a claim made under this Act against an insurer by a person who is not the insured under a contract of insurance, is made fraudulently, the insurer may not avoid the contract but may refuse payment of the claim. (2) In any proceedings in relation to such a claim, the court may, if only minimal or insignificant part of the claim is made fraudulently and non-payment of the remainder of the claim would be harsh and unfair, order the insurer to pay, in relation to the claim, such amount (if any) as is just and equitable in the circumstances. (3) In exercising the power conferred by sub-section (2), the court shall have regard to the need to deter fraudulent conduct in relation to insurance but may also have regard to any other relevant matter." [Emphasis added] 41 The Law Reform Commission in Report No. 20 "Insurance Contracts" which led to the enactment of the Insurance Contracts Act included in its recommendations the following at [243]: " Fraud . Faced with escalating fraud, insurers strenuously maintain the need to preserve their entitlement to reject fraudulent claims, whatever changes are made to the law relating to other conditions subsequent. Even so, it is doubtful whether many insurers would totally reject a substantial claim merely because the insured had acted fraudulently in relation to a minor part of it. A claim for $3000 lost baggage would usually be met even if a fraudulent claim that a camera worth $200 was included in that baggage was rejected. While fraud must be discouraged, a rule that fraud in respect of one claim taints other claims under the same policy can operate most unevenly between an insured with a number of separate policies and one with a composite policy covering numerous risks. Consistently with the approach adopted in relation to fraudulent statements made by the insured at the time of entering into a contract of insurance, the Commission recommends that the insurer's right to refuse to pay a claim on the basis of fraud should remain. However, in cases where the total loss of the insured's claim would be seriously disproportionate to the harm which the insured's conduct has or might have caused, a court should be entitled to order the insurer to pay to the insured an amount which is just and equitable in all the circumstances. In exercising its discretion, the court should have regard to all relevant factors, including the need to deter fraud . The strict application of the doctrine of utmost good faith might conceivably result in the insurer being entitled to avoid the contract ab initio. If so, an insurer might be entitled to deny a prior claim untainted by fraud or to require repayment of moneys paid by it in connection with such a claim. That would not be acceptable. A breach of the duty of utmost good faith in connection with a claim should only affect the claim in question . Avoidance of the contract ab initio should not be permitted. However, these recommendations should not affect the subsequent recommendation that, in the event of a fraudulent claim, an insurer should be entitled to cancel all existing contracts. This recommendation and those in the preceding two paragraphs should apply to superannuation contracts in a manner analogus to that recommended in respect of misrepresentation and non-disclosure." 42 In Entwells Pty Ltd v National & General Insurance Co Ltd (1991) 6 ANZ Ins Cas 61-059 Ipp J had occasion to examine the extent of the remedy provided by the Act in terms of a breach of the duty of utmost good faith. His Honour put the manner as follows [at 77,136]: "Section 12 is contained in Part II of the Act, as is section 13 (which imposes the duty of utmost good faith). Nevertheless, in my view, section 54 (1) does not limit or restrict the effect of section 13. It merely provides the extent of the remedy for the duty imposed by section 13. The effect of section 54 (1) is that a breach of duty of utmost good faith by the insured entitles the insurer to refuse to indemnify the insured only to the extent that the insurer's "interests are prejudiced by that breach ". This view is consistent with the policy embodied in section 56 of the Act. It is unlikely that the Legislature intended that a breach of the duty of utmost good faith should be dealt with in a way fundamentally different to a fraudulent claim." [emphasis added] 43 In my view the above proposition represents the proper construction of the Act. Section 54 (1) provides the extent of the remedy for the breach of the duty imposed by section 56 (1). 44 In terms of whether or not section 54 has any application in cases falling within section 56 (1) the following may be noted: · Fullagar J in Gugliotto v Commercial Union Assurance Co of Australia (1992) 7 ANZ Ins Cas 61-104 said: "If the respondent company could rely only upon a breach by the insured of the term implied by s. 13, then it is at least strongly arguable that s. 54 would apply to the case, but this case falls well squarely within s. 56(1) and, in my opinion, s. 54 has no application to cases which fall within s. 56(1)." [at 473] · This opinion was adopted by the Victorian Court of Appeal in Tiep Thi To v AAMI Ltd (2001) 3 VR 279; 11 ANZ Ins Cas 61-490 where Callaway JA put the matter as follows: "Indeed, because the only right conferred on the insurer by s. 56(1) is a right to refuse payment of the claim, that provision has no independent operation except where a valid claim could have been advanced." 45 His Honour left open the question of the relationship between s. 56(1) and the duty of utmost good faith. 46 Buchanan JA said: "In my opinion, the changes to the common law position effected by s. 56 are only limited to the insured's remedy in the event of fraud to the denial of the fraudulent claim rather than avoidance of the policy and to enable the Court toward a payment where only a minimal or insignificant part of the claim is fraudulent and it would be harsh and unfair not to pay the remainder." [VR at 284] "I am of the opinion that Fullagar, J, was correct when in Gugliotto v Commercial Union Assurance Co of Australia , he held that 's. 54 has no application to cases which fall within s. 56(1).' Section 54 modifies the effect of contracts of insurance, whereas the entitlement of an insurer to refuse to pay a fraudulent claim is derived from a statutory prescription." [VR at 287 – 288] 47 For the reasons given in those authorities I accept that section 54 has no application to cases which fall within section 56 (1). 48 For all those reasons it is clear, as a matter of principle, that the insurer was not entitled to terminate the policy in late May 2003. Avoidance in futuro 49 The insured contended that the inhibition in the insurer being entitled to 'avoid the contract' to be found in section 56 (1) was only a reference to there being no entitlement to so avoid the contract ab initio. The contention was that there was no limitation on the entitlement of the insurer to so avoid the contract in futuro. 50 A recent article 'Contract Law and the Law of Insurance' by D Friedmann (2004) 120 L.Q.R 407, makes the point in terms of recent authority dealing with general contract law [Super Chem Products Ltd v Amercian Life & General Insurance Co Ltd [2004] 2 All ER 358 and Manifest Shipping Co Ltd v Uni-Polaris Shipping Co Ltd ('The Star Sea') [2003] 1 AC 469] concluding at 410 inter alia as follows: "[F]raud in a claim leads to forfeiture of the insured's rights against the insurer regarding the particular loss for which the claim was made. It also seems that the fraud constitutes fundamental breach, which allows the insurer to terminate the contract. Such termination is governed by general contract law. It operates prospectively and thus relieves the insurer for subsequent losses. The secondary obligations under the policy remain unaffected as are accrued rights regarding previous losses…." 51 Manifest Shipping was essentially concerned with section 17 of the Marine Insurance Act 1906 (UK) which allowed a party to avoid a contract of marine insurance ab initio upon a breach by the insured of a duty of utmost good faith. Their Lordships concern was as to the manifest unfairness which may arise where a fraudulent claim is made by the insured which, on the basis of section 17, would permit a complete avoidance of the policy notwithstanding the existence of other legitimate claims. Accordingly their Lordships relied upon a distinction between pre-contractual breaches of the duty of utmost good faith and post-contractual breaches such as the making of a fraudulent claim. In the latter case the breach constitutes a fundamental breach of the contract permitting avoidance in futuro in accordance with the general principles of contract law so as to avoid the potential unfairness of such a breach allowing the insurer to avoid liability ab initio regardless of the presence of other legitimate claims. It would be to strain the words of section 56 of the Insurance Contracts Act to utilise United Kingdom case law from a very different context to give the meaning to an expression in a very specific Australian statutory context. 52 The Court is of course presently dealing only with a question of statutory construction. The above described proposition of the insurer misconstrues section 56(1) of the Act and misconceives the policy behind the section. The proposition is rejected. Entitlement to reject the claim 53 The real issue concerns whether or not the insurer was entitled to reject the claim. I turn to that issue. One claim only 54 The proposition of the insurer which I accept as of substance, was that the policy should be construed as follows: · an insured becomes entitled to a right to benefits if he or she suffers a specific injury or trauma or becomes disabled or dies [clause 1.1]; · where the event is the suffering of a disability, the policy permits one claim for each period of continuous disability for a period longer than the 30 day waiting period [cf clause 1.9]; · that claim comes to an end when the insured is no longer disabled; · the circumstance that the disability insurance is administered on a monthly basis does not determine any rights as between the parties. 55 In those circumstances the insurer submitted that there had been only one claim made by the insured in this case and that it had been entitled to reject the claim. Dealing with the criteria requiring to be satisfied Disabled 56 For the plaintiff to be successful, he must be "disabled" at the relevant time or times. To be considered disabled, he must satisfy three criteria, which are as follows:- · "He must have suffered a sickness or an injury." · "As a result of the sickness or an injury he must be unable to perform one or more of the important duties of his occupation." · "He must be earning less than his pre-disability income." · "He must be under the regular care of a doctor." Sickness or injury 57 The plaintiff accepts that he did not suffer an injury. 58 The definition of "sickness" in the policy clearly refers to "a disease or condition that first becomes apparent while you are covered by this policy." The medical evidence 59 The relevant medical evidence may be summarised as follows:- · Dr Hui Tie, Cardiologist & Physician, report dated 17.11.00: "Coronary angiography showed that the first diagonal branch of the LAD was totally occluded. This was successfully opened by the PTCA. The rest of his coronary arteries were mildly diseased." · Dr Hui Tie, report dated 30.5.01: "I would also imagine that chronic high levels of mental and work related stresses, particularly as these can precipitate bursts of hypertension, should be discouraged and minimised." · Dr Hui Tie, report dated 20.6.01: "Therefore, I do not think he lacks motivation to return to work but rather is genuinely concerned about the potential negative impact of chronic high levels of work related stresses on his cardiac health. As part of optimal secondary prevention of coronary disease in Mr Walton's case, I would advise lifestyle modification to reduce these stresses." · Dr R Ng, report dated 7.3.01: "Mr Walton has recovered quite well, however, he is still suffering from a degree of tiredness, chest discomfort and anxiety related to the myocardial infarction in November 2000." · Dr C Quirk, Consultant Cardiologist, report dated 7.5.01: "Mr Walton certainly seems motivated to return to work although perhaps to a lesser degree, working less hours. …However, the stress of his previous employment may have played a role in precipitating his heart attack." · Dr J F Perica, Consultant Psychiatrist, report dated 26.9.02: "In terms of returning to the workforce, Mr Walton should not be working more than 20 hours per week and the nature of his work should not involve financial pressures or the other stressful elements of his previous work (as outlined above)." · Dr J Hickey, report dated 10.4.03: "Mr Walton should not return to his usual occupation as a Civil Engineer Project Manager for development and building construction on a full time basis as with his personality he would become very agitated and would almost certainly work long hours. I do not think he would be fit for this type of work. He would be able to return to work as a civil engineer if he was not in his own business and if he was not in a position of stress and responsible for other people." "I would expect that he would eventually develop further complications of coronary atherosclerosis in the next 5 to 10 years." · Dr Robin Andrew Haig, report dated 3.11.03: "In my opinion, the stress factors involved in returning to employment in the property development business would be substantial and would precipitate an Anxiety Disorder or Depressive Disorder in this man, and would increase the likelihood of further heart attacks or vascular pathology, particularly given the family history of heart disease in his mother." · Prof Chris Tennant, Head Dept Psychological Medicine, Royal North Shore Hospital, report dated 4.3.03: "In my opinion, the stress associated with the important duties of Mr Walton's former employment would preclude me from recommending that he return to those duties, given the associated increase in risk of further heart attack under these circumstances." 60 On the medical evidence before the court the plaintiff clearly sustained a "heart attack" whilst under cover. I accept that the myocardial infarct constituted "a sickness" within the meaning of the policy definition and note that there was no submission put to the contrary by the insurer. Regular care of a doctor 61 The medical evidence adduced by the plaintiff clearly establishes that the plaintiff was under the regular care of a doctor. 62 There was no medical evidence adduced by the defendant. 63 Accordingly the plaintiff satisfies this criterion. Unable to perform one or more of the important duties of his occupation 64 The policy defines "important duties" in the following terms: "Those duties of your occupation which could reasonably be regarded as necessary to producing the pre-disability income. How you perform your occupation will be taken into account when determining what are your important duties." 65 In Duncan v Prudential Assurance Co Ltd (1999) 10 ANZ Insurance Cases 61-433 it was held, on the construction of the relevant policy that "usual" occupation must refer to the insured's occupation at the time of the injury, as opposed to at the time of the taking out of the policy. 66 The "policy" defines "occupation" as, relevantly the normal occupation or work you carried out immediately before becoming disabled. Pre-heart-attack occupation Evidence given by Mr Walton 67 Mr Walton is a qualified civil engineer who at all material times carried on business by medium of a number of companies which he either controlled or which were controlled by close associates of his. It is appropriate to regard the group as engaged in the business of developing properties for gain. Mr Walton described himself as a civil engineer and project manager. 68 His evidence was that as at approximately 17 November 2000 the companies had a number of projects in development, the main ones being: · 5 prestige waterfront apartments in Balmain ["Balmain"]. The five prestige waterfront apartments in Balmain, were held in the name of a partnership or joint venture between Sanforn Pty Limited, Shanbrook Pty Limited, and a silent partner, Steven Chambers Pty limited; · home units at Warwick Farm ["Warwick Farm"] This project was the major project in operation as at November 2000.The property itself consisted of three individual blocks. One block was owned by Neoform Pty Limited. One block was owned by Sanforn Pty Limited. Another block was owned by Shanbrook Pty Limited, Mr Parisi's company. The interest of Corpcom in relation to the Warwick Farm project was its engagement as the builder; · Land held for development of medium density construction at Hornigsea Park ["Hornigsea Park"]. This property was in the names of Mr and Mrs Walton and was subsequently sold in the latter part of 2001 never having been developed; · Land held for future development of prestige homes at Macquarie Links ["Macquarie Links"]. Macquarie Links was comprised three properties owned by Mr and Mrs Walton which have now been sold. The properties were never developed. 69 The Balmain project was quite substantial but not quite on the same scale as Warwick farm. Detail of the relevant entities in or related to the group Corpcom Constructions Pty Ltd (in liq) 70 The company details are as follows: Director: Alexander Raymond Walton Previous Directors: Vincent Parisi Secretary: Alexander Raymond Walton Previous Secretary: Vincent Parisi (Forced into liquidation 26 July 2002) 71 Corpcom was a building company. Mr Walton was the manager of the company. It was the designated a builder for each of the above described projects. It carried out certain building work for Neoform. Neoform Development and Interiors Pty Ltd (formerly J & A Plant Hire Pty Ltd) 72 The company details are as follows: Director: Alexander Raymond Walton Previous Director: Josephine Ann Walton Secretary: Alexander Raymond Walton Previous Secretary: Josephine Ann Walton 73 Neoform was a development company which as already noted, was the nominated developer and which engaged Corpcom to carry out the building work. Neoform was one of the registered proprietors and contracted with Corpcom to carry out the building work. Mr Walton was also the manager of Neoform. He had a 90 percent shareholding in this company. Sanform Pty Ltd 74 The company details are as follows: Director: Alexander Raymond Walton Previous Director: Josephine Ann Walton Secretary: Alexander Raymond Walton Previous Secretary: Josephine Ann Walton Erolgin Pty Ltd 75 The company details are as follows: Directors: Alexander Raymond Walton Josephine Ann Walton Secretary: Alexander Raymond Walton 76 Erolgin was Mr Walton's service company which paid his wages, vehicle leases, and some of his personal expenses. This company was a project management consulting company which employed him. It carried out the management side of projects as a project manager. It had no assets. 77 These monies were distributed to Mr Walton in the form of a wage which he took by way of a weekly wage to himself, most often also a weekly wage to his wife as an income split type arrangement. Also for a period of time he was also drawing funds on the advice of his accountant to his two elder daughters. They also received a wage, although they were not working in the business, again as an income splitting type arrangement. [Transcript 88] 78 He had been paid a weekly wage up to a few months prior to November 2000 by this company. His evidence as to why he was not being paid as at November 2000 by the company was as follows: "The incoming funds to Erolgin for its consultancy services which enabled me to be paid was quite often paid on a haphazard or a catch-up basis. It depended upon the cash flow of the development companies it was working for or the building company, namely Corpcom, it was doing work for. So as cash flow would permit, if there was no cash flow permissible, then Erolgin would not draw a fee for that period but there would be an accumulated account and that would be paid and reimbursed at the time that there was liquid funds in the companies that Erolgin was doing work for." [Transcript 60] Daleport Pty Ltd 79 The company details are as follows: Directors: Alexander Raymond Walton Josephine Ann Walton Secretary: Alexander Raymond Walton Josephine Ann Walton 80 Daleport was the trustee for Mr Walton's family trust and had replaced Sanform Pty Ltd which had formerly been that trustee. Shanbrook Pty Ltd 81 The company details are as follows: Directors: Vincent Parisi (Perhaps Joanne Parisi) Secretary: Vincent Parisi (Perhaps Joanne Parisi) 82 Shanbrook was a company essentially owned and operated by Mr Parisi Corpzone Pty Ltd 83 The company details are as follows: Director: Gary Rhodes Previous directors: Alexander Raymond Walton Susan Lang* Marea Ellen Howe* Maurice James Howe* Secretary: Gary Rhodes Previous Secretary: Alexander Raymond Walton Susan Lang* Marea Ellen Howe* Maurice James Howe* * Directors prior to purchase of shelf company. Group Operations 84 Mr Walton explained how the companies of Corpcom, Neoform and Erolgin operated as a group: "Erolgin was what I term my service company from which I drew all my salary and wages. It was the managing company or project manager acting on behalf of and for Corpcom Constructions which was doing building and Neoform Constructions which was doing development work, both I guess speculative companies as against Erolgin being a consulting company." [Transcript 75] 85 Neoform and Corpcom were both speculative companies in the sense that they would carry out development in which there was a risk of profit or loss. Fox Valley Road 86 In addition to those properties, as at November 2000, a property at 15 Fox Valley Road, Denham Court was also owned. Monto heights 87 Mr Walton also had a property at Minto Heights where he and his wife lived. Overall responsibility for group decisions 88 The evidence clearly established that prior to the onset of the heart attack Mr Walton personally had overall responsibility for every major decision taken by the group and carried personally what may only be described as a massive workload of numerous hours per day. 89 His evidence included: · "The nature of the business required huge decisions to be made with very limited time. For example, when looking at a potential development site to be purchased or costing a job accurate costing and/or tendering was required to ensure the viability of the project. · These decisions were often made with limited information and no access to plans. I had to allow for market fluctuations, potential staff availability issues and a large number of other variables in making decisions which could make or break my business. The business really does involve a high degree of uncertainty. · My previous employment involved long hours. I was generally awake by 4.00 am to 4.30 am and sometimes I wouldn't return home until as late as 8.00 pm to 10.00 pm. I would estimate that I generally worked between 60 and 65 hours per week, and sometimes as much as 70 to 80 hours per week as required, and between 5 and 6 days a week. · In the three (3) years or thereabouts leading up to 17 November 2000, I employed between ten (10) and fifteen (15) staff or thereabouts in the ongoing conduct of my business. Prior to that as far back as 1990 I estimate that I would have employed between six (6) and eight (8) people on an ongoing basis. · Depending on the project or projects that I was involved in at any given time, between 1990 and 17 November 2000 I estimate that I would have had around twenty (20) contractors involved in any given project although this number varied significantly depending on the nature of the project. · In terms of finances, my previous employment involved extensive responsibilities. I was responsible for all of the tasks of a Managing Director of a company in the engineering/project management and property development industry including; a) Maintaining cash flow to pay creditors; b) Pursuing and collecting debts from debtors; c) Juggling funds to provide for the payment of creditors and payment of outstanding debts owed by my company; d) Dealing with creditors seeking payment and battling the time constraints imposed by such creditors; e) Dealing with funding issues in respect of joint venture agreements and partnerships including disputes regarding payment in apportionment of costs and the like; f) Arranging and maintaining financing for projects and dealing with financiers on these issues; g) Payment of loans and constant conflicts between loan payments and time constraints on the completion and sale of projects. h) Expanding and growing my business. · My previous employment involved me seeking out new business opportunities. There was constant pressure to maintain profitable business opportunities through seeking out viable and profitable developments such to keep my employed staff active and to ensure they earned their wages. · A failure to maintain a portfolio of viable business opportunities would have meant the long term collapse of my business. This kept me anxious and preoccupied even outside of work hours. · My previous employment involved regular and constant conflicts of various kinds. Common conflicts included; a) Conflicts with contractors over work methods, materials, payments, deadlines, quality of work and other issues; b) Conflicts with financiers over deadlines and payments owing under mortgages; c) Conflicts with Councils and Government Departments regarding approvals, conditions and other matters; d) Conflicts with staff over all manner of issues; e) Conflicts with Joint Venture Partners and projects again over all manner of issues; f) Conflicts with neighbouring property owners in respect of developments; g) Conflicts with public activists including environmentalists, residents groups and other such activists. · My previous employment also involved me dealing with constant public policy changes such as changes to environmental planning instruments, taxation and other law changes. All of these adjustments created stress in terms of the running of my businesses. · Further, I was constantly juggling projects as my business is usually undertaking numerous developments and of various sizes at any given time. I was required to coordinate all of these developments as well as the business activities of my companies as a whole. Again, I found my mind constantly preoccupied with my work and ongoing projects and never found myself able to relax even when on holidays or away from work. [Mr Walton's affidavit of 11 March 2004] 90 I am satisfied that the above evidence is reliable. Further that the evidence establishes that Mr Walton's pre-heart attack duties and activities as project manager and property developer at the least included: · Constant liaison with Agents and others in the Industry to identify potential development projects; · Constant contact with Agents of choice and financial people; · Identification potential sites, and the carrying out of due diligence tasks, including investigations with Councils; · Liaison with owners and agents and negotiation of purchases. Issues for liaison would include the terms and conditions, time frame, the issue as to whether or not a development is to be a Joint Venture, the issue as to whether the likely development will be subject to a successful Development Application (DA), etc; · Negotiation and monitoring of contracts for purchase with legal advisors; · Keeping constantly informed on development issues through industry bodies on issues such as the Threatened Species Conservation Act, the Rivers and Foreshore Improvement Act, Department of Infrastructure and Natural Resources (DIPNR) requirements, Rural Fire Service (RFS) requirements, etc; · Preparation of draft plans, costings, and submissions for finance; · Appointment of Consultant teams, and the supervising of project teams; · Running team meetings prior to lodging Master Plans or DA's; · DA pre-lodgement meetings with Consent Authorities (usually Council but sometimes DIPNR), and meetings with authorities under integrated development projects; · Negotiation of Master Plans/DA's through Consent Authorities (when required, this is a major task in any development); · Constant contact with Consultants during preparation of working drawings, engineering plans and infrastructure plans; · Negotiation on the issue of construction certificates, which may include consents from RFS, Water and Sewerage infrastructure providers, electricity authorities, telephone and gas providers, etc; · Liaison with Consultant teams for the calling and letting of tenders; · Supervision of works in progress to minimise extras and contingency items. At critical phases of a project, this may include daily, and sometimes twice daily, visits to the project site; · Authorisation and payment of progress claims from Contractors, Consultants, and Statutory Authorities; · Constant liaison with Consultant teams as a project nears completion, to avoid unnecessary delays and to ensure all conditions of the Development Consent are complied with; · Negotiation of final certificates through Consent Authorities – release of linen plans and/or occupation certificates; · Supervising sales programmes, and if sold "off the plan", constant negotiations with agents and purchasers; · Lodgement of final documents with financiers for consent, and subsequent lodgement of the same with the NSW Land and Property Information Service (LPI). · Management of sales contracts with agents and legal advisors; · Management of settlements; · Attending Board Meetings, and preparation of reports for the Board including cash flows, budgets, etc; · Preparation of reports for financiers. 91 The evidence further established that: · property development and project management is a busy and demanding occupation, both physically and mentally; · considerable pressure is exerted on an individual in this occupation on a daily basis, as there are strict time limitations, usually enforceable by way of contracts, and regular finance issues that require constant attention and negotiation; · an inability to perform one or more of the important duties of the occupation would severely limit the ability of one in this occupation to operate a successful business, and thereby earn a wage; · very few of these duties may be prudently or effectively delegated to other staff, as they commonly require the authority and influence of the principal project manager and property developer [here regardless of the corporate arrangements, effectively Mr Walton]. The position following the onset of the heart-attack 92 The position in relation to the events following the onset of the heart-attack was the subject of the particular focus of the vast bulk of all of the evidence called and cross examined upon. 93 It is unnecessary to detail all of that evidence. What is called for are findings of fact. 94 Before going into that evidence it is convenient to identify the purpose of the exercise. The purpose of the exercise includes the endeavour to establish: · whether the plaintiff was from any, and if so what point in time, a person whom, if ever he had been, was no longer continuously disabled within the meaning of the policy; · whether the claims made under the policy were made fraudulently; · if it be that Mr Walton was (1) working in an occupation (2) doing so during the continuance of a period of continuous disability, what if anything, was his entitlement to be paid a monthly benefit in terms of the formula provided for in clause 1.9. 95 Standing back from all the evidence Mr Walton seems in some ways, to have been his own worst enemy. His problem quite simply concerns an extremely curious approach to being open with the insurer in answering its questions as to his activities. 96 I would have thought that he would have had little difficulty in establishing to the insurer's satisfaction, that which he clearly established during the hearing namely: · that the core important duty of his anterior occupation was to be at the apex and in charge of every final decision requiring to be made by his development group; · that in order to perform that duty it was necessary for him to descend to the intimate detail required to be mastered in order to permit informed decisions to be made in that regard. 97 One would have thought that if this had been the truth, it would not have been difficult for him to establish that following the heart-attack he had become considerably hampered in that regard: that is to say, simply could not and did not thereafter spend anything like the hours previously spent in carrying out the task of mastering that detail. But was this the truth? 98 There are really two questions involved. The first is what was he actually doing following the heart attack and in particular was he 'working in an occupation' within the meaning of the policy? The second is what did he communicate to the insurer in answering its relevant questions on that topic? 99 It is not inconvenient to endeavour to answer both of these questions at the same time as they are so very interrelated. Group affairs prior to the heart attack 100 I am satisfied that on the evidence the financial affairs of the group prior to the heart attack disclose very considerable problems in many areas. It is not putting too fine a point upon matters to find that companies within the group were engaged in a struggle for survival. The evidence was replete with the detail. When it was put to Mr Walton that Corpcom had been in considerable difficulty for months at least before his heart attack, Mr Walton accepted that it had had cash flow problems due to the Balmain project [transcript 176.6]. There were other indications in the evidence of similar nature. One only example is that Corpcom had not been paying workers compensation premiums for at least two years prior to his heart attack. He accepted that a significant element of any company's responsibilities would be to insure itself for the benefit of its workers against workers compensation and associated risks. [Transcript 177]. 101 On the other hand speculative development will often carry high risk. But sometimes concerted effort may keep a group alive. Generalisations are of limited value. Disquiet following the heart attack 102 Following the news that Mr Walton had suffered a heart attack there was considerable disquiet amongst Mr Walton's contacts, partners and those, including financiers, whose confidence required to be maintained in order for the group to survive as a whole and/or for individual companies to be in a position to continue their anterior roles. Evidence of Mr Parisi 103 An example of the evidence in this regard is that given by Mr Parisi. He is a solicitor. He was involved with Mr Walton and his companies in the Balmain development project. His evidence is accepted as reliable. To his observation Mr Walton was running the development project up to the time of his heart attack. 104 His evidence was that his own involvement increased substantially following Mr Walton's heart attack, Mr Walton not being well and it becoming necessary for Mr Parisi to become far more involved on a day-to-day basis and to deal with employees of Mr Walton in terms of obtaining accurate figures, forecasts to complete and the like. His evidence was that Mr Walton was not very involved following the heart attack, was not well and was not coming in to work. Mr Parisi was aware of this because his own solicitor's practice and the office of Mr Walton's company were in the same premises. Another partner had been introduced in relation to this project. His evidence was that from that time, Mr Walton occasionally attended meetings held on site and contributed to discussions at those meetings but "wasn't involved in any day-to-day activities. That was pretty much tightly controlled by the other project manager." [Transcript 276]. 105 His evidence was that after the heart attack he formed the view that Mr Walton was incapable of completing a project of the size of the Warwick Farm project. The onset of the heart attack had been another catalyst for Mr Parisi wanting to end his involvement in projects with Mr Walton. In particular he had observed Mr Walton not coming to work and a general malaise or lethargy in terms of matters which Mr Parisi thought were significant. After the heart attack there were some important and urgent matters which had needed to be attended to: for example in relation to the Balmain project. His evidence was " Mr Walton just didn't seem to be particularly interested about those matters". 106 Another example was when a notice to complete had been received in one of Mr Walton's matters and Mr Parisi's staff had been unable to obtain proper instructions from Mr Walton. That was several months after the onset of the heart attack. Those were his observations wearing his hat as a solicitor. Mr Walton's relevant state of mind 107 The particular evidence given by Mr Walton which is accepted as reliable, was that ever since 17 November 2000, he had felt physically and psychologically weak and did not feel that he could perform the important duties of his employment, as he feared that he may have another heart attack, and may not survive. His evidence was that in the past, his employment had been very stressful and physically demanding. He was afraid of leaving his wife and five daughters without a husband and father. 108 What the evidence makes plain is that Mr Walton, notwithstanding as I accept, that he had a continuing and close anxiety that too much stress may lead to the onset of another heart attack, was literally forced by dint of the pressing circumstances to continue to play a reasonably active role in the affairs of the group. There were adjustments which were made to accommodate his difficulties and were designed to step back from that active role. And to a certain extent he certainly is shown to have clearly lessened his number of hours of work and to have carried out his best attempts to remove himself from his former duties. The real problem which faces the Court in fact-finding here is that the cross-examination showed Mr Walton to have participated to a very high degree in very many of the group's affairs. Notwithstanding his evidence to the contrary, he is shown to have been the decision maker in relation to all of the critical decisions which required to be made and there were very many of those. His hand is to be seen in many meetings, dealings with financiers, dealings concerning project management and development, the furnishing of instructions to lawyers and otherwise. Indeed at almost every level of concern one finds evidence of his participation. 109 The problem is endeavouring on the evidence to work out to what degree his attempts to remove himself from his former duties succeeded. His case is not assisted by for example there being no evidence from his wife in this regard. His case is not assisted by for example there being no evidence from Mr Agostino in this regard. 110 Nor is his case assisted by what seems to have been the private definition of the word "working" which, on his evidence, he adopted. I turn to that matter. Mr Walton's private definition of the word "working" 111 At one stage Mr Walton was being cross-examined in relation to certain mortgage arrangements of December 2001. The transcript then includes the following: "HIS HONOUR: Q. As I gather what you have said earlier to us, you didn't consider that to be your working? A. No, your Honour, I considered that to be an obligation that I had as a director of the company and an obligation to both myself and my family and my family trust in terms of the viability and survival. This project, in light of my taking ill, it was a tough project to start with. It was the biggest project that I had ever taken on board with the companies and it was a project that pretty much went sour. It was a very profitable project at the start. Unfortunately, the partner who was involved in that project with me, being Mr Parisi and his company, he almost fell by the wayside; I had suffered an illness and it was a matter of survival. Fortunately, I survived. Not all the companies have survived, unfortunately, but that's one of those things that's happened, that because I've not had full control of what's going on, it's something that has just happened in the course of events . In terms of my role as a project manager working for Erolgin, Erolgin working for Neoform or Corpcom or for Sanforn, I couldn't realistically adopt that role of negotiating finance for another company. I doubt there would be any project manager in Sydney that would be given the right to negotiate finance deals of this size on behalf of companies doing developments. It has to be done unfortunately by the guarantors who fully understand the commitment they are making as a guarantor to those projects. Q. I know it is very hard to put analogies, but I have had this thought: Say you had a fireman who had a heart attack and wasn't working generally, but his house caught on fire and he spent a whole day and the next day doing what he knows because that is his business because he had to save his house… Q. I suppose some would say when they were asked about that fireman, "Is he working", yes, if their frame of reference is the two days, they watch what he does, he is in and out of the house, he's a fireman, all right… Q. Now others may say No, when they know the full story. What I gather - correct me if I am wrong - you're trying to say here is that there were circumstances where you were like that fireman. Is that right? A. That's correct, your Honour, and I think that's a very good analogy. The analogy I would make would be a bit more severe, I suppose, and say like a gun to your head , that's how I felt with these things, that it was an obligation upon me as a responsible person and a responsible director of a company to make sure these things were done to the best of their abilities. I was really at risk of being held out at the law if I didn't perform my duties as a functioning director of a company. Q. What you are telling his Honour, as I perceive it - correct me if I am wrong - as he said to you… it is a question of degree. You were doing things that you had done before your heart attack but not as often or for as long. Is that - and I'm not suggesting all of them, but you were doing some of the things that you were doing before your heart attack, but you weren't doing all of them or for as long. Is that a fair way of putting it? A. It's close. It was something that before my heart attack I was desirous to do. It was something, after my heart attack, some of the things I just found myself in a position that I had to do, I had to do, and I, in doing that, have been able to ensure that I don't have to do that sort of thing again. Q. Yes, but you were doing things after your heart attack that you had done beforehand but not as often or for as long. Is that a fair way of putting it? A. It could be viewed that way, yes. [Transcript 67] Returning to the detail 112 Returning to the detail and without in any way endeavouring to be exhaustive in terms of providing a full summary of all of the evidence, the following may be noted in relation to some of the evidence concerning his working activities after the heart-attack: · he gave evidence that he had delegated authority" to do things" to Mr Wray [his son-in-law] and to Mr Agostino: "I spoke to Wray and [Agostino], to put to them to do the running of the business, as I didn't see myself coming back to taking part in the business in a role that I was in before."[Transcript 100.2, 101] · his evidence included: "The important duties that I imparted on (sic) [Wray] and Agostino… Can I just ask, what do you mean by that? Can't you thumbnail sketch the duties or describe them? A. Yes, I can,.. The important duties of my role when I was working before the incident, when I had the incident, I was managing the companies. I was organising the employment side of things, the staffing. I was handling all the matters that the staff dealt with. I was controlling those. I was in control of and handling all the design issues, the corporation and involvement with consultants, the dealing with subcontractors, both on site and over contractual issues, dealing with contract matters, dealing with pricing, dealing with general day-to-day running of an office with several staff, dealing with the supervision of a project on site, dealing with the problems that a construction and/or development company faces on a day-to-day basis. At the end of the day the buck stopped with me and it was my role. I virtually engaged myself to do those things." [Transcript 112-113] · his evidence was that between June 2002 and Christmas 2002 Mr Agostino had been trying to complete the Warwick farm project and that Mr Agostino had not returned after Christmas 2002 [transcript 123]. · his evidence included: "Q. After your heart attack did you negotiate any part of any subcontract for the Warwick Farm development? A. I wouldn't say I totally didn't. I can't recall any that I did, but I wouldn't sit here and say that I never had some involvement in something in the early days. Q. What about in the later days? A. No, not in the later days. Q. What about from December 2002 through to June 2003? Were you involved in any negotiating of contracts with subcontractors during that period of time? A. Not that I recall. . Q. …Between December 2002 and June 2003 did you do anything with respect to the operations of any of the companies that we've talked about today and yesterday - anything at all during that period? A. I'm sure I've done something, I'm sure I've done something. I don't know, I don't recall any specific things that I might have done, but I'm sure I've done something." [Transcript 122-123] · he accepted that he had made financing decisions with respect to a replacement of the existing mortgage at Warwick farm [Transcript 124]; · he had been heavily involved in the proceedings brought by Neoform or Interiors Pty Ltd to set aside caveats placed by Town and Country Marketing Pty Ltd on the sale of certain properties and had in those proceedings made an affidavit on 11 April 2002 stating inter alia: "I have been the developer of blocks A and C on the property at.. Warwick Farm since 1999 and block B since May 2001." [Transcript 127] · under cross-examination his evidence was that he had had no choice but to be deeply involved in this litigation giving instructions to the solicitors and giving evidence and spending real-time in relation to the documents [transcript 129]; · also in relation to Town and Country introducing purchasers to Neoform, he was the one who received advice by correspondence from the solicitors and he dealt with those purchaser himself in terms of whether or not the properties would be sold and if so for how much [transcript 131]; · it was Mr Walton who had obtained an 'on-completion' valuation and project feasibility for blocks A and C-he having accepted and agreed to the terms and conditions [transcript 213]. 113 In an attempt to chronicle some of the above as well as other activities of Mr Walton by reference to relevant periods of time, the defendant identified the following matters as proven, as I accept, by the evidence before the court: Early 2000 · Gow St (Balmain Development) is in financial difficulties. [Mr Parisi at T 285:39] 14 December 2000 · Sanform Pty Limited enters into a mortgage under which the company borrowed $2.635 million from Donovan Oates Hannaford Mortgage Corporation ["DOH"] for the construction of home units in Block A of a development at Warwick Farm. Mr Walton signs off as director of Sanform on the mortgage documents. 20 December 2000 · J & A Plant Hire Pty Limited enters into a mortgage whereby the company borrowed $1.835 million from DOH for the construction of home units in Block C of the Warwick Farm development. [PX 16 – c550] 20 December 2000 · Mr Walton, on behalf of J & A Plant Hire, authorises payment of $850,000 from Donovan Oates Hannaford to Corpcom. [PX 16 – c547-548] 23 January 2001 · Mr Walton completes and submits forms to Donovan Oates Hannaford setting out how loan to Sanform is to be the subject of monthly progress claims. [PX 16 - c611] 23 February 2001 · Mr Walton submits an application for finance on behalf of Sanform to DOH for the construction of home units in Block C of the Warwick Farm development. Mr Walton proposes to buy out the interest of Mr Parisi (Shanbrook Pty Limited). [PX 16 – c614] 2 March 2001 · J & A Plant Hire request DOH make progress payment under loan facility for work done on Block C to Corpcom Constructions Pty Limited. [PX 16 – c622] 9 March 2001 · Mr Walton obtains a loan for $2.6 million on behalf of Sanform from DOH for the development of Block B at the Warwick Farm Development. [PX 16 – 621] 27 March 2001 · Mr Walton writes handwritten letter to Randell Vercoe re non-payment of accounts. April/May 2001 · Mr Walton provides instructions to solicitors re proposed rescission of unit sales contract. [T 289:10 and Ex D9] 26 June 2001 · Mr Walton writes to Sirius Capital re second mortgage over Warwick Farm in reply to letter dated 22 June 2001. [D4 & D5] July/August 2001 · Neoform Developments and Interiors Pty Limited, a company of which Mr Walton was then one of two directors (the other being his wife) and owned 90% of the shares, acquires from J & A Plant Hire Block C of the Warwick Farm Development. [PX16 – c720] 4 September 2001 · Mr Walton, on behalf of Neoform, writes to Donovan Oates Hannaford requesting surplus funds re Block C. [PX 16 – c721] December 2001 · Mr Walton seen to be negotiating borrowing of further funds from Donovan Oates Hannaford on behalf of Sanform. [PX16 - c731] 13 December 2001 · Mr Walton, on behalf of Sanform, signs off on increased loan from DOH for Blocks A & B at the Warwick Farm Development. [PX16 - c731] 13 December 2001 · Sanform starts exchanging contracts on units in Block C. [PX 16 – c744] 16 January 2002 · Sanform writes to DOH requesting a progress payment be made to Sanform. (Progress payments to Corpcom appeared to have ceased in 2001). [PX16 – c741] 21 January 2002 · Mr Walton signs off on behalf of Sanform and Neoform for additional finance of $343,775 from DOH for Warwick Farm Development. [PX16 – c750] 21 February 2002 · Mr Walton handwrites a letter to Safeway Electrical about its presence on site. [PX 6 – 1386] 5 March 2002 · Mr Walton writes to DOH requesting additional funds for development of Blocks A and C. Refers to heart attack. Provides a summary of DOH's loan facility compared to overall proceeds of sales of units. [PX16 – 746] 11 April 2002 · Mr Walton swears affidavit in proceedings Neoform v Town & Country. [D1 and T 127:7] 23 April 2002 · Mr Walton (under the signature of Mr Wray) writes to DOH on behalf of Neoform requesting additional finance of $450,000 for Block C. Attaches sales plan for units which will result in proceeds to developer of $322,225. [PX16 – c760] 30 April 2002 · Mr Walton meets Mr Hannaford on site to discuss progress of developments. [PX16 – c770] 24 May 2002 · Mr Walton (under the signature of Mr Wray) writes to DOH on behalf of Daleport Pty Limited requesting $550,000 in funds from the settlement of units in Block C. [PX16 – c792] July 2002 · DOH becomes aware that Corpcom has not paid subcontractors in the past. [PX16 – c893] 26 July 2002 · Corpcom goes into liquidation on petition of NRMA. [PX17 – c897 T 170:51] 13 August 2002 · Mr Walton writes to DOH attaching schedule of sales for Blocks A to C and requesting 20% of proceeds of sales from Block B. [PX 16 –c816] 17 October 2002 · This is the beginning of a process whereby Marsdens on behalf of Mr Walton endeavour to negotiate with DOH re future sales of units and re-financing. [PX 16 - c846] 16 December 2002 · Marsdens write to DOH re status of financing etc see also letter of similar ilk dated 20 December 2002. [PX16 - c869 and c873] 7 & 10 February 2003 · Marsdens write to DOH and letter in return re refinancing and Walton's involvement on site. [PX16 – c878ff] Evidence given by Mr Wray 114 Mr Wray had first begun working for Erolgin in March 2000 as accountant for the companies. He had become engaged to Mr Walton's daughter in November 1999 and had later married her. Role of Mr La Scalla 115 Mr Wray's evidence was that prior to the heart attack, Mr La Scalla had been the project manager who had been the first point of call of the foreman and who had also organised quotes for jobs and draft letters of acceptance and had generally reported to Mr Walton. Role of Mr Agostino 116 Mr Wray's evidence was that prior to the heart attack Mr Agostino's role had been to help out Mr La Scalla. 117 Mr Wray's evidence in relation to Mr Walton prior to the heart attack was put as follows: "He was in control. If there was a problem, you'd go through Mr Walton. Even if it came down to choosing a - what are they called? A trade, if there was a dispute in relation to sort of who to go for, he'd make the final decisions. From my perspective, in relation to paying accounts, when we'd get some money in, being the accountant, I'd have the creditors list and we'd go through the creditors to say who needed to be paid what wages. I went through with him in relation to budgets what wages had to be paid in the future, whether it be monthly budgets, and he looked over what I prepared and we discussed and sort of went through what I had prepared and if there was a shortfall of funds at that particular time in relation to trades or whatever that had to be paid, we talked as to what had priority." [Transcript 238] 118 His evidence given in chief was that following the heart attack, he and Mr Agostino had taken on the running of the business. Mr Agostino had taken on the construction aspects and he had taken on the financial management and planning of the businesses. On his evidence, after the first few months Mr Walton on a day-to-day basis had basically had nothing to do with the business [transcript 238]. Reliability of Mr Wray's evidence 119 The evidence given by Mr Wray cannot be regarded as reliable. He was not an impressive witness in terms of his recollection of any detail. On a number of occasions there were long breaks between the question and the answer. He had difficulty in dealing with simple questions put to him. I formed a clear impression that by reason of the family relationship his version of events was very very heavily weighted in favour of the interests of his father-in-law's case. Whilst it is true that he accepted that Mr Walton, even following the heart attack, had played some very limited role, his evidence was that on a day-to-day basis Mr Walton "had nothing to do with the business". I cannot accept that evidence as reliable in terms of the vast bulk of the documentary materials before the court. Having said that, this is of course another area where one descends into semantics. The matter is dealt with in the findings set out below. Other evidence Evidence given by Mr Kehagias 120 Mr Kehagias had been employed by E & A Painting Pty Ltd as a since 1997. 121 He gave evidence by statement that: · E & A Painting Pty Ltd were contracted by Corpcom Constructions to work on the Ettalong project in around July 2000; · he was working at the Ettalong site five days per week up until Christmas 2000. At this time he was introduced to Mr Walton by the foreman at the site; · in approximately January 2001, he had commenced working as a painter at Mr Walton's Denham Court offices. This job took approximately three weeks to complete; · whilst working as a painter at Denham's Court offices he saw Mr Walton on at least three occasions attending the Denham Court offices. · on these occasions he observed Mr Walton to have discussions with Mr Agostino. These discussions would last from anywhere between 30 to 60 minutes; · after the painting job at Denham Court was completed, he commenced working at Mr Walton's Minto residence in around March 2001. He was employed to paint Mr Walton's Minto residence and this job took approximately two weeks to complete; · he attended Mr Walton's Minto residence every day for a period of approximately 2 weeks (i.e. 10 working days). On ever day that he attended, he attended at approximately 7 a.m. During that period he observed Mr Walton leave the house around the same time every morning dressed in neat casual attire and carrying a briefcase. He generally had a short conversation with Mr Walton. When he left the house he would say words such as: "I'm leaving" or "I'm off to work." · in approximately April 2001, he commenced working as a painter at Mr Walton's Warwick Farm project. In his first month working at Warwick Farm he saw Mr Walton attend the Warwick Farm site two to three times a week; · on these occasions he would observe Mr Walton meet with the Warwick Farm site foreman, Mr Low, and spend approximately 40 minutes in the site office with Mr Low; · on occasions whilst he was working at the Warwick Farm site he conversed directly with Mr Walton. The subject matter of these conversations was generally the work that he was performing and how it was being performed, i.e. the time period and the colours being used; · in approximately June 2001, he had a disagreement with Mr Low in relation to the movement of some soil at the Warwick Farm site. He required the soil to be shifted so that he could gain access to a painting job he was completing; · as Mr Low refused to remove or shift the soil, he contacted the Denham Court office to try and speak to someone with authority to force Mr Low to shift the soil so that he could gain access to his job. He spoke to a lady who I assumed to be the secretary. He said: I: "I am the painter at Warwick Farm. I am having trouble getting the foreman to move some soil. I need the cherry picker moved to be able to do this. Is there anyone in the office who can help me with this problem ?" She: "Mr Walton is working in the office today and I'll put you through to him." 122 He was then put through to Mr Walton. 123 He had a conversation with Mr Walton in words the following effect : He said: "I am having trouble getting Peter Low to move some soil. I need the cherry picker moved to do this." Mr Walton: "I will fix the problem. I will call Peter Low now." 124 Mr Kehagias' evidence no doubt recollects his present best recollection of what occurred but to my mind contributes very little in terms of the real issues before the court. 125 It is not possible to regard his evidence as reliable where under cross-examination he accepted that he had not kept any diary or records of his attendance at the Minto premises and where he had difficulty in being able to state on how many occasions Mr Walton as he left the house, would say words to the effect that he was leaving or was off to work. 126 Nor had Mr Walton been speaking to him at the time. As he accepted Mr Walton had been taking his children in school uniform with him on these occasions. 127 His recollection was sufficiently problematic when he could not recall as April 2001 where precisely the site office had been. In relation to his proposition that he had seen Mr Walton with Mr Low spending approximately 40 minutes in the site office together, under cross-examination he accepted that this was simply his presumption. His evidence included: "Q. Can I suggest to you that in April 2001 you could not possibly have seen Mr Walton on the number of occasions that you suggested because he only attended the site on two occasions in the whole of that month. Do you agree or disagree with that proposition? A. I don't think I can answer that." [Transcript 326] 128 Ultimately and in any event whatever his observations were, the fact is that his involvement was squarely during the trauma period in terms of the policy. Evidence given by Mr Hayward 129 Mr Hayward is a consulting surveyor and a director of a development consultancy firm which carried out some work with Mr Walton and his companies from time to time. His evidence is accepted as reliable. He gave some short evidence in particular concerning the Warwick farm development to the following effect: · from February 1999 through to around late 2000 or thereabouts, Mr Walton was heavily involved in all stages of the work his firm was undertaking on behalf of his companies. He was liaising with Council, attending meetings with Council officers, and actively providing his firm with instructions as and when required. He recalled that Mr Walton remained his primary contact with Corpcom on all issues concerning the Warwick Farm development prior to around late 2000; · in the period following Mr Walton's heart attack, it became progressively more and more difficult to obtain instructions from Mr Walton or his companies in relation to our ongoing work on the Warwick Farm and Leura developments; · he recalled that after Mr Walton's heart attack, instructions concerning the Warwick Farm development were given by a Mr Joe Agostino, whom he understood to be Mr Walton's project manager. In his view, Mr Agostino was indecisive. It was difficult to obtain instructions from him. He was rarely able to discuss the Warwick Farm development with Mr Walton after Mr Walton's heart attack, and he recalled being unable to contact Mr Walton at his Liverpool or Denham Court offices by telephone in the months following his heart attack; · he recalled one occasion where he discussed the Warwick Farm development with Mr Walton after his heart attack, in early 2001 or thereabouts. At that time, he recalled Mr Walton saying words to the following effect:- "Phil, just discuss the issues with Joe Agostino. He's looking after Warwick Farm now". · during that same conversation, he recalled saying to Mr Walton words to the following effect:- "Lex, you can delegate, but don't abrogate!" · he recalled occasions after Mr Walton's heart attack where he requested Mr Walton to accompany him to meetings at Liverpool City Council to debate various issues with Council officers and speed up the process of approval on the Warwick Farm development. Mr Walton refused to accompany him to the Council for any such meetings after his heart attack. Conclusion 130 The cross-examination established that Mr Walton had participated following his heart attack in many many activities of the group. He had signed many letters, he had been present at many meetings and he had been involved in sundry parameters of concern to the group in terms of obtaining financial accommodation. But although the cross examiner endeavoured to establish that Mr Walton had virtually not one jot altered his anterior work activities following the heart attack, the evidence satisfied me that there were real changes in those work activities in terms of kind, degree and time. 131 As already observed the difficulty in assessing all of the evidence is to put the matter into perspective. It was one thing to continue to be consulted where important business decisions at the apex of central structural concern required to be made and to be required to participate where only Mr Walton had been aware of relevant detail [as for example to give instructions in relation to litigation]. But it is entirely another thing to suggest that his activities in work terms after the heart attack did not represent at least some step down/downgrade from his work activities anterior to the onset of the heart attack. The evidence establishes this latter proposition. 132 The Court's finding is that Mr Walton's involvement and activities in relation to the business of the group following his heart attack did not involve anything like: · the previous 4 am/4:30 am-8 pm/10 pm hours per day; · the previous 60/65-70/80 hours per week for 5 and 6 days a week. 133 Nonetheless the Court's finding is that his involvement and activities cannot be described as minimal. The fact is that he was forced by dint of the circumstances faced by his group: · to continue at the helm making the important decisions; · even where delegating particular tasks to others such as his son-in-law and Mr Agostino [see Mr Hayward's evidence], to keep a very firm grip upon much of what was occurring [for the very simple reason that he had always been the controlling mind of the companies in the group and that the types of problem faced by those companies, to an extent prior to the heart attack but very clearly coming to a head following the heart attack, meant that there was, to his perception, simply no alternative to his participation in the sundry matters clearly proven by the extensive documentary evidence before the court]. 134 At the same time it is recognised that where the insurer was able to prove many and disparate business related activities of Mr Walton at particular points in time following his heart attack, this is simply not to say that what has been proven is that he continued his pre-heart attack business activities without very considerably stepping back from his previous hours, whenever he was able to do this. Returning to the questions previously identified Continuous disability 135 The first question is whether Mr Walton was from any, and if so what point in time, a person whom, if ever he had been, was no longer continuously disabled within the meaning of the policy? 136 I have referred earlier in the judgment to the daily pressures exerted on an individual in this occupation and to the limitations which would (and here did) result from the inability to perform one or more of the important duties of the occupation. 137 In my view a critical core and important duty/normal work function of the normal occupation or work which Mr Walton carried out immediately before becoming disabled [cf policy definition of "occupation"] which he can be regarded as "unable to perform" following the heart attack, concerned the need to be able to work very sustained hours and to deal with matters of pressing concern to the companies within the group without feeling the stress and anxiety that at any moment he may overdo things and have a subsequent relapse. [Whilst I appreciate that the words "normal work function" are not to be found in the definition of "when are you disabled", to be found at policy PX 8, I note that these were the words used by the insurer in the enclosure to the letter of 23 April 1996 when it purported to summarise the changes and benefits said to be offered by the new form of wording]. 138 In this sense it seems to me that notwithstanding all the evidence of those activities in which Mr Walton did engage after the heart attack, he continued, within the meaning of the policy, to satisfy the first of the integers which made up the definition of when he would be "disabled". Trauma benefit 139 The policy provided for payment for a six-monthly period of a 'one off' trauma benefit [PX 7]. It is common ground that this amount was paid and there has been no issue raised before the court in this regard. The policy had no other requirements to be satisfied at all, save for the occurrence of a defined trauma which would include a heart attack. In short these particular six monthly payments would continue whether or not the insured was or was not working in an occupation during that period. Entitlement to be paid a monthly benefit Earning less than his pre-disability income 140 The policy provides no definition of "work" or "working". The Macquarie Dictionary defines, relevantly, "working" as "the act of a person or thing that works". "Work" is, relevantly, defined as "(i) exertion directed to produce or accomplish something; labour, toil (ii) that on which exertion or labour is expanded; something to be made or done; a task or undertaking (iii) productive of operative activity for manner of working or quality of workmanship…(vi) employment; a jog, especially that by which one earns a living". The new shorter Oxford dictionary defines "working" relevantly as "the action of work; an instance of the result of this; the activity or performance of work" and defines "work" relevantly, as "…(iii) purposive action involving effort or exertion, especially as a means of making one's living; one's regular occupation or employment". 141 In my view, notwithstanding Mr Walton's private definition of the word "working", which was that it effectively meant a full-time capacity [transcript 154], he is shown after the heart attack to have been "working in an occupation" within the meaning of the definition of the word "occupation" as used in the policy. Yes, the number of hours which he worked represented a considerable downgrade from the number of hours which he had previously worked in a sustained and relevantly continuous mode. But this did not mean that he was not still 'working in an occupation' within the meaning of the policy. 142 In my view his work in an occupation took place during the continuance of a period of continuous disability. As indicated above, the disability was by reason of his inability to be able to work very sustained hours and to deal with matters of pressing concern to the companies within the group without feeling the stress and anxiety that at any moment he may overdo things and have a subsequent relapse. Fraudulent making of claims? 143 The next question is as to whether the claims made under the policy were made fraudulently. 144 The operation of s 56 of the Act has been considered in a number of cases. Relevant principles include the following: · the test for fraud is satisfied if the insured has a dishonest intent to induce a false belief in the insurer for the purpose of obtaining payment or some other benefit under the policy. As such, where the insured makes a false statement with knowledge in a claim to induce the insurer to meet the claim, the claim is made fraudulently. The fraudulent statement need not be material to the insured's claim nor is the insured absolved of any responsibility by asserting that he considered his claim to be valid. (See Tiep Thi To v Australian Associated Motor Insurers Ltd (2001) 3 VR 279; Naomi Marble & Granite Pty Ltd v FAI General Insurance Company Ltd (No 1) [1999] 1 Qd R 507 and Mourad v NRMA Insurance Ltd (2003) 12 ANZ Ins Cas 61-560); · it is not necessary to show prejudice as having been suffered by the insurer for s 56 to be relied upon. The only restriction upon an insurer's right to refuse payment of the claim is the discretion granted within s 56(2) of the Insurance Contracts Act (see Tiep Thi To v Australian Associated Motor Insurers Ltd (2001) 3 VR 279). 145 In answering this question it is necessary to return to the evidence. Relevant chronology 146 The general chronology is relevantly set out below. 4 December 2000 147 Mr Walton submitted a claim for Income Protection Benefits to the insurer. [PX 15 – 61] 15 December 2000 148 Mr Walton received his first monthly benefit from the insurer. [ARW 4-22] 149 Mr Walton then proceeded to complete and submit periodic claims forms [termed "progress certificates"] to the insurer for monthly benefits. Each of the progress certificates included a doctor's certificate. Each of the doctor's certificates asked the question "Is the patient still totally disabled and unable to work?" and was answered: "Yes". 150 In answer to the question as to whether he had been able to perform any occupational duties, supervisory or otherwise since the date he had ceased duties [which he filled in as "16 November 2000"], his answer was regularly "no". He submitted periodic claim forms with this answer on a monthly basis from 9 January 2001 up to and including April 2003. On each of these occasions he received his full monthly benefit within a few days of submitting his periodic claim form. 151 The first occasion when the insurer refused to pay Mr Walton's monthly benefit followed Mr Walton, as before, completing in May 2003, a periodic claim form again answering "no" to the above-described question. 152 He has not received any further monthly benefits following the last benefit received which was on 28 May 2003. 153 The periodic claim form dated 1 June 2003 [and received by the insurer on 2 June 2003] has never been paid although it also was accompanied by a medical certificate by Dr Ng certifying that Mr Walton was still totally disabled and unable to work. 154 It is particularly to be noted that in giving evidence in chief, Mr Walton swore as follows: "Q. And since June 2003 have you performed any work for which you have been remunerated any wages or salary? A. No, I haven't. Q. Have you gone back to work? A. No, I haven't. Q. In that time, that is any time from that date to the present time, have you felt capable of going back to your former duties, that is the duties that you were doing before November 2000? A. No, I have not. Q. Have you felt in that time, that is from the date, that is June 2003 to the present time that you have been capable of doing any work? A. There is work I can do. It's the ability to do the work. It's the pressure, the stress, the feeling I have about doing the work, the fear I have about doing the work. The fear of the stress, the effect it will have on me." [Transcript 111-112] 155 From March to approximately December 2001 Mr Walton undertook a rehabilitation program at the instigation of the insurer [Transcript 102] 156 Mr Walton gave evidence in relation to his completion on the first progress certificate of the above described paragraph where he had answered "no" to the question of whether from the date when he had ceased duties, he had been able to perform any occupational duties, supervisory or otherwise [PX 15 reverse side of page 56]. He was asked whether he was being honest when he gave that answer. His evidence was "I definitely was being honest". [Transcript 110]. 157 He gave the same answer in relation to his completion of the progress certificate dated 1 June 2003: in short that he was being honest when he completed Section B question 1 by answering in the negative. The occupational therapist's assessments 158 An important integer in relation to the insurer's cases alleging the making the fraudulent claims and the suggested breach by the insured of his section 13 obligation to act with the utmost good faith towards the insurer concerns the assessment of Mr Walton by occupational therapists at the request of the claims assessor/insurer. The reports are in evidence as part of Exhibit P 12. 159 The purpose of the assessments is noted in the reports as the ascertaining of "Mr Walton's current status and to determine if a rehabilitation is required to upgrade his current level of activity and to facilitate a return to work". 16 March 2001 report 160 The report of 16 March 2001 includes the following: " Disability/Capabilities Mr Walton relates his main ongoing problem as being short term memory loss. This has affected his ability to conduct day-to-day activities and he is concerned about this when he returns to work. Mr Walton states that he has difficulties processing a number of thoughts at one time, and he has difficulties with high level organisational skills. General Presentation Mr Walton cooperated throughout the interview. He freely provided the information regarding his current medical status and his involvement in the business. Mr Walton has been concerned about his future in terms of his medical diagnosis and his age. He states that he would like to return to work but would not return in his pre-illness capacity…. VOCATIONAL SKILLS Current situation Mr Walton states that he is currently off work and will remain off work until Dr Tie reviews him this week. His doctor initially predicted that he would be off work until mid-February. Mr Walton expects a return to work date when Dr Tie reviews him. Mr Walton has been involved in his business to the extent that he has been exercising his control as a director. Mr Walton states that it is not possible to run his business without his input, as he is responsible for financing the business and for decision making . Mr Walton states that he currently employs a project manager who has been responsible for the ongoing overseeing of all his projects. Mr Walton states that he has only been responsible for final decision making. Structure of the business Mr Walton states that he has a number of companies involved in the development and building industry. These companies are divided basically into two parts, with one being a consultant company and the other a variety of other companies which provide the building and development labour. Mr Walton states that he is a director of both sections of his business and he draws a wage only from his consulting company. He has not drawn a wage from the consulting company since the time of his illness . The consulting company consists of Mr Walton and Mrs Walton, as well as two other employees, one of which is his son-in-law. The other companies employ four employees and are responsible for the development of sites and building townhouses etc. Mr Walton has provided the main project management and consulting prior to his illness. Mr Walton states that project management is a very stressful part of his business and this is the part of his business that he will be reducing in the future. Mr Walton aims to reduce the amount of stress within the business by not taking on high-risk ventures. He explained that the higher the risk, the higher the profitability of the project. However, this is very demanding in terms of coordinating aspects of the project to make the project viable. Predominantly Mr Walton was involved in the buying of sections of land and building home units for resale. At times he also developed subdivisions for this purpose. Mr Walton is a civil engineer by qualification and has always worked in the construction industry. Mr Walton usually hired foremen/supervisors and labourers to work each project. He worked approximately 50-60 hours per week supervising and coordinating the projects. He had a business office in the Liverpool area but has sold this since his illness. He is now operating his business out of his home. Currently there is only one outstanding project from the projects that were running at the time Mr Walton became ill. The project manager that he recently employed is managing the ongoing project. Future options Mr Walton has been concerned about his future as he feels his job was very stressful and contributed to his illness. He intends to wind the business down to the point where he is able to manage it on his own and with the current employees within the consulting business. Mr Walton states that he will return to work in a director's capacity . He will provide financial support to the business and be responsible for marketing and looking for opportunities for ongoing projects . Mr Walton states that he will no longer manage these projects personally and he will no longer undertake high-risk projects. Mr Walton states that in order for his business to continue he must be personally involved, as the organisation of financial loans are dependent on his participation . Claimant's Preferred Option Mr Walton states the he would prefer to continue his business but on a smaller scale. He has been self-employed for a number of years and would like to maintain self employment. Mr Walton intends to maintain his current project manager in the position of managing all projects. He intends to wind down his other businesses involved in the building and construction side of the project. He will contract all building and construction out to local builders. He feels that this will significantly reduce the stress involved in running the business. His project manager will be responsible for the initiating of contracts and the supervision of all contracts. Mr Walton states the he will probably no longer draw a wage from the business but will take a profit at the completion of the project. Mr Walton is not sure how his business will survive this strategy but he is committed to scaling down the business and continuing to operate within his capabilities. Mr Walton maintains many business contacts and feels that although the profits will not be as significant, he will still be able to maintain his business in this capacity. If Mr Walton's business does not survive in the future then he will need to look for alternative employment. Mr Walton has a number of transferable skills that will assist him with job seeking… PSYCHOLOGICAL STATUS Mr Walton appears to be quite anxious regarding his future and his cardiac condition. Mr Walton describes himself as having a volatile personality, with a tendency to explode when under stress. Mr Walton feels that this has been responsible for his cardiac condition and is making an effort to control his level of frustration. Mr Walton describes himself as being in a state of turmoil regarding his future as he and his family rely on his income and on the viability of his business. Mr Walton accepts the fact that he must modify his activities and that he must learn some relaxation techniques for dealing with issues as they occur. He is making an effort to control his level of agitation when things don't go according to plan. He states that he is having difficulties coping with the children because they do not always respond in the way that he would like them to respond and in the timeframe that he sets for them. He states that he is trying to be more flexible in this regard. It would appear from my discussion with Mr Walton that he is having some difficulties accepting his cardiac condition and the changes that this has made to his life. He is having some difficulties resuming his day-to-day activities and commencing a fitness program. This seems to be related to anxiety regarding ongoing symptoms and the development of further cardiac problems. If Mr Walton participated in a supervised, upgraded activity program, some of these issues would resolve. Mr Walton requires regular and ongoing assistance and guidance with activity levels… Mr Walton intends to return to work but in a reduced capacity . He intends to continue as a director within the company and to reduce his day-to-day responsibilities within the business. He will then begin to draw a wage in the form of profits at the end of projects . Mr Walton states that this should provide adequate financial support for him and his family." 11 May 2001 report 161 The report of 11 May 2001 includes the following: " Current Status It appeared from Mr Walton's report he has made little progress since my last review 2 months ago. He continues to work in his business in a limited capacity. He has not changed the business activities markedly and is still confused and uncertain regarding the future of his business . Mr Walton stated he had seen a cardiologist for Colonial and this contributed to his concerns regarding his future. Mr Walton stated that the cardiologist advised him that he should not return to his previous employment, as the stress would be a problem for his future health. Apparently the cardiologist and Mr Walton discussed retirement as the best option. However, Mr Walton is not in a position financially to retire and therefore wants to continue his business in some capacity ." 6 June 2001 report 162 The report of 6 June 2001 includes the following: "Current Status Mr Walton said there have been no significant changes in his family and social life since having the heart attack. However, he did report to have made some significant work-related changes. Mr Walton stated that he has now started to 'pull back' at work by delegating tasks to colleagues, which he would usually do himself. He stated that he has also downsized his company by reducing the number of staff by approximately 50 percent over the past 6 months. Mr Walton reported that he is 'coming to terms' with these changes. He stated that he derives strong support from his family and from friends who have experienced similar health concerns. Nonetheless, he did admit to being anxious about the future, stating that he was concerned about how he would support his family and his business if he had another heart attack. Consistent with this picture of anxiety, Mr Walton stated that he is now more 'conscious' of developing symptoms which may lead to a heart attack. He reported that he continues to remain as active as possible by walking, using the treadmill every morning, and maintaining an involvement in everyday activities around the home. Nonetheless, he stated that he is very 'mindful of his limits' when performing these activities and often thinks about 'how far [he] can go' without placing himself at further risk of a heart attack. Mr Walton reported that his anxiety is accompanied by heightened physical activity (e.g. pacing) and by feeling of tightness in the chest. He reported that since having the heart attack, he is also more irritable and is easily 'agitated'. Other notable changes reported by Mr Walton include reduced concentration and difficulties with short-term memory. He reported that he is also easily distracted. He denied any problems with sleep and stated that his eating patterns were normal. CONCLUSIONS AND RECOMMENDATIONS Mr Walton has made some significant changes to his business and in his attitude towards work since having his heart attack last November. Mr Walton stated that he is 'coming to terms' with these changes, however he did demonstrate some anxiety with respect to the possibility of having another heart attack and the effect this may have on his business and on his family . Consistent with this picture of anxiety, Mr Walton did admit to being 'conscious' of symptoms which may lead to another heart attack. He stated that his anxiety is typically accompanied by feelings of agitation and tightness in the chest, each of which resemble symptoms of heart attack and may therefore increase his fear of having another attack. While it is important from a self-management point of view for Mr Walton to remain aware of symptoms and behaviours which may lead to a heart attack, it is also important that he does not exacerbate his anxiety by over-interpreting these symptoms . I believe Mr Walton would benefit from some further education on this issue, preferably by his cardiologist. This should increase his understanding about symptoms which are most likely and least likely to lead to heart attack, thus preventing him from focusing excessively on innocuous symptoms. Mr Walton would also benefit from some short-term counselling assistance to help him pace himself more effectively during day-to-day activities. This should ensure that he continues to remain active, without placing himself at further risk of a heart attack. The counselling should also aim to address Mr Walton's anxiety about his future, particularly his fears about not being able to support his family or his business." 4/25 September 2001 report 163 The report of 4 and 25 September 2001 includes the following: " CONTACT WITH PSYCHOLOGIST Ms Natalie Foti was contacted regarding the progress of treatment for Mr Walton. Mr Walton has one remaining treatment session. Ms Foti stated that Mr Walton had made some progress over the time he was receiving treatment. The focus of the treatment is now on relaxation and control of responses to stressful situations. Ms Foti stated that Mr Walton has made progress regarding his response to stressful situations. Ms Foti also stated that Mr Walton had been advised to reduce his involvement with work and Mr Walton had been organising to step back from managing his company. Ms Foti contacted myself on 14/901 stating that Mr Walton was making good progress with stress management. She was of the opinion tat Mr Walton should undertake vocational counselling to establish a new vocational direction…. RTW STATUS Mr Walton stated that he has withdrawn from the running of his business. He is adamant that he will not return to pre injury duties. He also stated that he has been advised against returning to work where he will be subjected to high level of stress. Mr Walton stated that he has commenced consolidating his current business activities. He has commenced selling properties purchased for development and will continue to reduce the business to the level that his employees can manage . Mr Walton's company employs a project manager, accountant and an office administrator. In addition to this the company has contract labour for particular construction jobs. Mr Walton has stated that he has informed the employees that he will not participate in the business and the future of the business is dependent on the employee's performance. Mr Walton is not confident that the business will survive in the long term. RTW OPTIONS Mr Walton has considered few alternatives for employment. Mr Walton stated that he was in the process of consolidating his business and may use the capital to commence buying and selling shares. Mr Walton is concerned regarding returning to work as he feels he needs to work in an low stress environment. During the discussion regarding options for return to work it was apparent that Mr Walton was reluctant to return to work. This was explored with Mr Walton at length. It appears that Mr Walton has significant ongoing concerns regarding his response to situations . Mr Walton describes himself as a volatile personality and he experiences difficulties controlling his response to particular situations. He is therefore concerned that he will suffer further cardiac problems. This concern of Mr Walton appears to be the most significant factor with his motivation to return to work. PSYCHOLOGICAL STATUS Mr Walton continues to be concerned regarding his medical condition and prognosis. Mr Walton is concerned that if he returns to work he may be faced with stressful situations and will not be able to control his response to these situations. He is concerned that this will result in a further cardiac episode. Mr Walton is also concerned that he may not recognise a gradual increase in stress levels that may lead to further cardiac problems. Mr Walton requires some further clarification regarding his medical condition. However this may not allay his concerns to any great extent. Mr Walton's psychological status appears to be the greatest barrier to the achievement of a return to work." 26 September 2001 report 164 The report of 26 September 2001 includes the following: "CONTINUING ISSUES AND CONCERNS Mr Walton reports that he continues to experience a "niggling" sensation in his chest approximately once every one to two weeks. He states that this has become less frequent over the past two to three months, however he did admit to experiencing chest pain in situations of increased stress, particularly if these are work related. Mr Walton gave an example in which he had received a phone call from a work colleague regarding an unresolved financial matter . He states that he became rather tense following the phone call and was aware of a mild feeling of discomfort in his chest…. I contacted Dr Ng, nominated treating doctor, on the 14/09/01 to discuss Mr Walton's progress with treatment. I discussed with Dr Ng the continuing concerns demonstrated by Mr Walton in relation to work related issues and returning to work full time. Dr Ng has recommended that due to these continuing concerns, Mr Walton should not return to his current job full time as this will place him at a high risk of having another heart attack." 165 To my mind these reports serve to prove that Mr Walton clearly disclosed to the insurer his intention to return to work in a reduced capacity and to continue functioning as a director, but reducing his day-to-day responsibilities within the business. He made clear that in order for his business to continue it was necessary that he be personally involved for various reasons and that he preferred to continue his business but on a smaller scale. He made plain that he maintained many business contacts and that it was not possible for the business to be run without his input because of his responsibilities with respect to many parameters of decision making, including financing matters. He made plain that he was not in a position financially to retire and desired to continue the business in some capacity and also that he had not changed the business activities markedly and remained uncertain and somewhat confused regarding the future of the businesses. His particular concern was that if he returned to work full-time he may not be able to control his responses to the stressful situations which would be faced which he clearly identified and exposed. He also identified his reduced concentration and difficulties with short-term memory. He regarded himself as withdrawing from the running of the business. Fraud/duty of utmost good faith 166 In my view these reports provide powerful support for a rejection of the case of the insurer that the claim made by Mr Walton was fraudulent and/or that he is shown to have breached his duty of utmost good faith by deliberately or recklessly giving false answers in the claims forms submitted by him. [The separate question of the application of the policy formula in terms of receipt of current income will be examined below] 167 It is extremely important to follow that the occupational therapist's reports having been made at the request of the insurer by the claims assessor in order to ascertain his current status, Mr Walton was entitled to assume that the insurer would be relevantly informed by the reports of his status and intentions and abilities and of the problems and work possibilities and proposals. 168 Further it is appropriate to take into account that the internal dictionary definition which Mr Walton was applying in providing answers on the periodic claims forms is to be read in the light of his knowledge and belief that the insurer, through the above described reports, would have received a reasonable understanding of what Mr Walton was intending to do, endeavouring to do and could or could not do, in terms of his work capacity. 169 The investigators report Exhibit P 10 following a tape-recorded interview of 3 April 2001, provides on analysis, a mixed set of sometimes accurate but often very questionable responses to questions put to Mr Walton. In particular when he was asked to give the investigator a rundown of his normal week at that time, he minimised any suggestion of any work-related activities, suggesting only that he might have an odd meeting with the accountant in the city regarding the tidying up of different matters "and things". However he did maintain [cf the answer to question 127] that his role since the disability had really not been an active role but "had just been to really make sure [the company] just doesn't fall into a hole". However at the same time he accepted that he had had to have some involvement with banks and financiers. 170 At the end of the day the finding is that notwithstanding the shortcomings in some of the answers which he gave to the investigator, the insurer has not discharged the onus of proving its pleaded case relying on the progress certificate claim forms, namely that the insured had a dishonest intent to induce a false belief in the insurer for the purpose of obtaining benefits under the policy. The submissions that the insured made false statements of fact; that he made the statements knowing them to be false or not believing them to be true or that he made them recklessly, careless whether they were true or false and that he breached his duty of utmost good faith are rejected. They are rejected principally because of the context in which Mr Walton dealt with the insurer [where he had seen the occupational therapists and had laid out answers to what was really a complex question, for the insurer's benefit]. He had made, from early times, a reasonable effort with sufficient clarity to apprise the insurer of what, in terms of his own work-related activities, he was endeavouring to do with his group. The submissions are also rejected because in the particular environment [where he had seen these therapists and given the answers to which I have referred], his very stilted private definition of the meaning of being "unable to work" is not regarded as demonstrating any one or more of an intent to defraud, an intent to make false statements of fact, or an intent to make statements knowing them to be false or not believing them to be true or to make such statements recklessly careless whether they were sure false. 171 There was further always the difficulty that whilst on certain occasions, he would be under very great pressure to become involved in decision-making at particular points in time, there would also have been many occasions when he must have been able to, at least some of the time, pull back in terms of his personal involvement and hope before it would not be too soon that he was dragged back into the thick of things. The evidence given by Mr Parisi and Mr Hayward provide confirmation of this. 172 For those reasons the claim of the insurer that Mr Walton's claim for benefits under the policy from November 2000 to May 2003 was fraudulent is rejected. There was no breach of the obligation of utmost good faith. The claim that the insurer was entitled under s56 of the Act to refuse the claim made from May 2003 and/or to cancel the policy is rejected. The policy formula 173 I return to the issue concerning the application of the policy formula where the benefit to which the insured was entitled, if working in an occupation, was the monthly benefit reduced by the amount thrown up by the formula provided for in clause 1.9. 174 It is a fair summary of the evidence to say that: · Mr Walton, at least up to the period a few months before his heart attack, had received his income through his service company as earlier explained in the judgment; · Erolgin had also paid income to his wife and his two children from time to time, although they had not been involved in personal exertion in terms of working for Erolgin; · Erolgin's tax return for the year 1998/1999 disclosed total income as $449,603. Its profit and loss statement for this income year disclosed total employment expenses at $179,861. Of those employment expenses $150,186 are recorded as attributable to wages and salaries; · Erolgin's tax return for the year 1999/2000 disclosed total income as $149,176. Its profit and loss statement for this income year disclosed total employment expenses at $97,017. Of those employment expenses $77,416 are recorded as attributable to wages and salaries; · Mr Walton's tax return for the 1998/1999 income year recorded salary and wages received from Erolgin at $49, 920. Some small amount of supplementary income was included, principally comprising rental from the Fox Valley property and other minor items; · Mr Walton's tax return for the 1999/2000 income year recorded salary and wages received from Erolgin at $29,760. Some small amount of supplementary income was included, again principally comprising rental from the Fox Valley property and other minor items; · Mr Walton in completing his initial claim form submitted to the insurer, in early December 2001, gave his gross income from "occupation for the previous 12 months" at $160,000, "for 12 months prior to the last 12 months" at $150,000 and for 12 months prior to the last 2 years" at $150,000; · Mr Walton tendered and there was received into evidence an enormous volume of documentation concerning his financial affairs and those of these companies [some 14 lever arch folders much of which included such material]. The material was by no means exhaustive and where referred to during the hearing is often difficult to follow. In some cases Mr Walton was not able to explain substantial movements of funds as shown in the accounts of various companies; · the Corpcom balance sheets for 2000 and 2001 became exhibits D6 and D7. 175 Without being exhaustive this material included: · Mr Walton's personal tax returns for the 1998/1999 and 1999/2000 income years [Exhibit P1]; · Mrs Walton's personal tax returns for the 1998/1999 and 1999/2000 income years [Exhibit P2]; · other tax returns including those for Mr Walton's daughters [Exhibit P3]; · financial statements and tax returns for Erolgin for the years 1998 and 1999 and financial reports and tax returns for Erolgin for the year 2000 and the year 2001 [Exhibit P4]; · "pay as you go" employers payment books with forms filled out for the group tax returns for the years ended at 1999 and 2000 for Erolgin as well as summary sheets of Erolgin wages and taxes; · approximately three years of banking records primarily comprising National Bank statements, Commonwealth Bank statements and St George Bank statements not all of which were for the same period, but which generally covered periods in some cases 1999 and running up to in some cases 2003; · site record materials; · project related materials. 176 Mr Walton gave evidence in chief including the following: "Q. Mr Walton, in relation to those deposits from 17 November 2000 shown on the bank statements that you have in front of you, are you able to identify to the best of your belief the various categories into which the deposits fit?… A. To the best of my belief the transactions which are shown as credits or deposits into those various accounts in general terms, and a lot of them are self-explanatory in notations on the deposit slips or on the statements themselves, comprised of funds coming in due to settlements of properties, namely Horningsea Park and Macquarie Links, that we personally owned, the debit side will show transfers of moneys out of those accounts into various companies by either cheque or electronic transfer. They all show as credits coming back into that company either by way of deposit cheque or electronic transfer. There is a deposit of some $500,000-plus I think will be shown somewhere in there, which was the Colonial payment from very early on in the piece. That shows transfer of that money out to the companies and sometimes back in and so forth. That generally is the - I will just have a quick look to see if there is anything else I have overlooked. I think that generally summarises the deposits of funds into those accounts…. A. Certainly for the larger magnitudes of money. [Transcript 97] 177 It is quite clear from the evidence that following the heart attack Mr Walton never received any further income from his service company. 178 There were a number of other documents relating to the financial affairs of the group which went into evidence. 179 It is fair to observe that neither party saw fit to place before the court any comprehensive or remotely detailed analysis of the flow of funds received by or disbursed by any of the companies in the group following the heart attack. 180 Under cross-examination a very small number of particular cheques were drawn to the attention of Mr Walton from a cheque-book of J & A Plant Hire Pty Ltd, the cross-examination in relation to these cheques establishing inter alia that in one case such a cheque was paid to cover a Westpac mastercard for "expenses" and in another case that on January 2001 a cheque was drawn to AAM Plaster for materials for plastering at Warwick Farm. It was then put to Mr Walton that from early 2001 until June 2003 it was not true for him to have said in his progress certificates claims that he had not earned any income from his own or any other business or occupation. He denied this proposition. 181 What then is the position in relation to the formula issue? 182 There is a question as to which party bears the onus of proving the amount of the benefit, if any, to which the insured was entitled in terms of his continuous disability in circumstances where he is shown to have been working in an occupation. 183 Prima facie it would appear that this burden lies upon the insured. Hence the question becomes was it discharged? 184 Whilst the evidence leaves a great deal to be desired in terms of certainty, on the balance of probabilities Mr Walton has proven, as it seems to me, that when, in his initial claim form, he identified an amount of $160,000 by way of his gross income from occupation during the previous 12 months, this is likely to have been no more and no less than a rough and ready estimate given mid-income year, of his [as well as his wife and daughter's] income received from Erolgin [generally regarded together as income to which he had been entitled, albeit by the salary split mechanism having been distributed also to his wife and daughters]. 185 In the course of final address counsel for Mr Walton passed to the court a set of figures taken from exhibits P1 - P7 said to provide justification for an approximation as to the gross figures the subject of the income splitting exercise [taking into account motor vehicle expenses and superannuation]. Subject to minor adjustments made by the Court from an examination of the exhibits, these figures are as follows: Financial Figures Wages 97/98 98/99 99/00 A Walton $49,920 $49,920 $29,760 (P3 & P4) (P1 & P4) (P1 & P4) J Walton $28,600 $28,600 $17,050 (P3 & P4) (P2 & P4) (P2 & P4) K Walton $9,984 $9,984 $5,952 (P3 & P4) (P4) (P4) S Walton $4,940 $4,940 $2,945 (P3)) (P4) (P4) Erolgin P/L 97/98 98/99 99/00 Motor vehicle expenses $56,015.15 $46,563.30 $39,011.24 (P4) (P4) (P4) Superannuation $61,317.72 $20,422.94 $16,823.06 (P4) (P4) (P4) ($210,776.87) ($160,430.24) ($111,541.30) 186 There being absolutely no doubt but that Erolgin has not, following the onset of the heart attack, achieved any income at all [nor of course distributed any such income to Mr Walton nor to any of his family members], it seems to me that on the balance of probabilities, albeit in the difficult to follow financial environment, Mr Walton has discharged the burden of proving that he received no current income during the period following the heart attack, so that, subject to the causation issue examined below, no reduction to his continued receipt of the full monthly benefit would have been appropriate. 187 The insurer adopted a somewhat curious approach to the whole issue which is exemplified in the following propositions put during final address: "It is as plain as a pikestaff that there was a great deal of money flying around all over the place ; see the balance sheets for Corpcom for the year ended 30 June 2000, which also includes 30 June 1999, that is last year. " [Transcript 425] [emphasis added] "The policy doesn't distinguish between income earned by, for example, generating capital profits, income that is generated through corporate vehicles, … or income received by way of salary and wages." [Transcript 425] "[T]here are evidentiary materials which we submit more than, at a prima facie level, demonstrate that income, as [commonly] understood, was being received by Mr Walton or being disposed of by Mr Walton, and that was being done in or through company accounts, company banking accounts, of companies in which he was plainly the guiding mind…" [Transcript 426] 188 To my mind this approach to the principal question is misconceived. The issue has been determined on the evidence. Mr Walton's pre disability income (split as earlier mentioned) was shown to have been received from Erolgin. The insurer's proposition which is rejected is that on the evidence: (i) no finding [of no income receipt post heart attack] can be made; and (ii) a finding should be made, in the abstract as it were, that by some unstated avenue, the personal exertions of Mr Walton are shown to have been recompensed by receipt of unspecified moneys, fairly capable of being described as 'Mr Walton's income from an occupation whilst disabled'. 189 Arguably the insurer could have attempted to place before the court a comprehensive detailed analysis of the flow of funds received by or disbursed by any of the companies in the group before as well as following the heart attack, aimed at showing receipt by Mr Walton [from both Erolgin as well as other sources] of such income for his personal exertions. The insurer eschewed such a forensic endeavour. 190 For those reasons it has been established to the court's satisfaction that Mr Walton did not on any occasion through his continuing disability period, whilst working in an occupation, receive any current income [which had it been received would, by an application of the clause 1.9 formula, have required the monthly benefit to be appropriately reduced]. Has the insured proved that the peril insured against was the causal factor leading to the loss of income? 191 Time and time again the evidence established that the projects which had been under way at the time of the heart attack sustained difficulties for various reasons. In relation to Warwick Farm for example, the contemporaneous documents support Mr Walton's evidence that as he wrote to Ms Glover of Donovan Oates on 5 March 2002 [PX 16 at 750]: "As both Peter and yourself are aware, the progress of works on the above project, that is Warwick Farm, was interrupted by my illness". 192 Under cross-examination as to why Mr Walton had used the word "interrupted" his answer was: "Because when I had my heart attack the project stopped and it took a certain period of time for the likes of Wray and Agostino to get the job started again." [Transcript 195] 193 On the evidence it is not possible to reach a factual finding that the business activities, lack of liquidity and other difficulties encountered by one or more of the companies comprising the group prior to the heart attack, would have had the result that, even had Mr Walton not suffered the heart attack, he would not have received any income thereafter. 194 It may be observed in passing that it would likely be quite difficult for many insured persons operating in their own businesses and faced with having suffered a heart attack or other similar policy responsive event, to subsequently with precision, be in a position to prove that business-related difficulties which followed such heart attack or similar event would not have occurred even had such event not occurred. Essentially what is involved concerns proving a negative [on the difficulties of providing a negative, see JR Gulson, Philosophy of Proof, 2nd ed, pages 72-73; Cross on Evidence [Australian edition], D. Byrne and JD Heydon, Butterworths para 7070 foot note 2]. The nature of the difficulties in proving a particular matter is taken into account when adjudicating upon whether it has been proven on the balance of probabilities. 195 The evidence does establish the speculative nature of the group's activities. It establishes that there were a number of contingencies some of which may, and some of which may not have been realised to the benefit of companies within the group. 196 One example of such a contingency was the reference in evidence to Mr Chambers having had an obligation as a joint venture partner in the Gow Street project, to contribute more funds, there being a question of whether or not he was able to discharge that obligation. That was what he had indicated in any event. 197 Of course other contingencies concerned the extent to which any of the projects might, even on a partly completed basis, have been able to be sold [as eventuated], and if so when and upon what terms and to whom. 198 The evidence does however show that companies within the group continued to operate for periods following the heart attack. 199 I further accept that the heart attack not only caused very considerable disruption to the ongoing progress of the then current projects, but also had an immediate consequence causing a dramatic lack of confidence in business partners, financiers and others. Their confidence in the viability of the particular ventures was dramatically eroded. Mr Walton's own ability to handle the pressing problems was also caused by the debilitating psychological [and to an extent physical] problems caused by the heart attack: cf the occupational therapists reports as well as his own evidence. 200 Notwithstanding that there are very real difficulties faced by the court in endeavouring, from the disparate materials now in evidence, to be anything like entirely confident about the appropriate finding of fact, to my mind the insured has only just succeeded in establishing, on the balance of probabilities, that the heart attack caused his failure to receive income from an occupation whilst suffering the disability. Hence the peril insured against is shown to have been that which caused the loss of income. Short minutes of order 201 The proceedings did involve a number of overlapping issues. In the event that the Court has overlooked the determination of any pleaded issues the parties are given leave to address submissions identifying those issues. Subject to that matter the parties should with the benefit of the above reasons, be in a position to agree upon short minutes of order. I certify that paragraphs 1 - 201 are a true copy of the reasons for judgment herein of the Hon. Justice Einstein given on 19 July 2004 __________________ Susan Piggott Associate 19 July 2004 Last Modified: 07/26/2004 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.