Supreme Court New South Wales Medium Neutral Citation: Hitchens v Zurich [2011] NSWSC 66 Hearing dates: Wednesday 9 February 2011 Decision date: 22 February 2011 Jurisdiction: Equity Division Before: Associate Justice Macready Decision: Catchwords: PROCEDURE - civil - pleadings - amendment - defence - consideration of the principles in relation to the question of the prejudice to the plaintiff Legislation Cited: Civil Procedure Act 2005 Insurance Contracts Act 1984 Limitations of Actions Act (Qld) 1974 Cases Cited: Brisbane South Regional Health Authority v Taylor [1996] HCA 25; (1996) 186 CLR 541 Burk v Commonwealth of Australia (No 3) [2004] VSC 210; May v Thomas [2008] WASCA 215 Hancock Shipping Co Ltd v Kawasaki Heavy Industries Ltd [1992] 1 WLR 1025, 1030; [1992] 3 All ER 132; [1991] 2 Lloyd's Rep 237; McKenzie v Commonwealth of Australia [2001] VSC 361; Category: Procedural and other rulings Parties: Anthony Hitchens Zurich Australia Limited Representation: Counsel: Mr BW Rayment QC & MJ Gollan for plaintiff Mr R Cavanagh SC & Mr SJ Walsh for defendant Solicitors: Firths - The Compensation Lawyers Turks Legal for defendant File Number(s): 2009/00291452 Judgment 1This is an application by notice of motion filed 15 October 2010. In the motion, the defendant, Zurich Insurance, seeks the leave of the court to amend their defence. 2The plaintiff claims damages in respect of monthly benefits under an Income Replacement Insurance policy dated 1 December 2004, which he alleges he became entitled to following an injury to the fingers and thumb of his right hand on 9 September 2007. Background 3On 25 August 2004, the plaintiff applied for Income Replacement Insurance with the defendant and completed a Life Insured Statement dated 8 August 2004, which contained a number of statements said to be representations. 4The plaintiff applied to vary the policy in August 2007 and completed a further Life Insured Statement dated 9 August 2007, which repeated the disclosures made by the plaintiff in the 2004 application. 5On 9 September 2007, the plaintiff injured the fingers of his right hand whilst using a drop saw and he made a claim for benefits under the policy. 6The defendant made payments to the plaintiff from 9 October 2007 to 8 December 2008 without admission of liability. The defendant alleges that from 28 July 2008, the plaintiff failed to provide Zurich with medical and financial information to continue its assessment of the plaintiff's claim. 7The plaintiff commenced proceedings on 5 February 2010 and the defence was filed on 27 April 2010. 8The statement of claim alleges that the defendant's conduct by failing to make payments amounted to repudiation by the defendant of the policy. The plaintiff claims that he has accepted the repudiation of the policy and seeks damages for such breach. 9The defendant filed its defence on 27 April 2010, in which it admitted injury and entitlement to payments up until 8 May 2008. The defendant took issue with the repudiation and said that the failure to provide information resulted in it being unable to assess the plaintiff's claim for continuing benefits. 10Between 12 May and 22 June 2010, the defendant's solicitors issued a number of subpoenas for production of, inter alia, medical records of the plaintiff. 11As a result of the disclosure of the medical records, on 19 August 2010, the defendant's solicitors wrote to the plaintiff's solicitors advising that Zurich was avoiding the policy in accordance with section 29(2) of the Insurance Contracts Act 1984 (Cth) on the ground of fraudulent non-disclosure and would be seeking to amend its defence accordingly. 12The defendant's application was opposed, inter alia, on the ground that the plaintiff would suffer significant prejudice. The prejudice is said to arise because the plaintiff's mental state has deteriorated since the time of filing the original defence. It is said that the plaintiff is suffering from significant mental illnesses that make it now impossible for him to give instructions to his solicitors to deal with the claims of fraudulent non-disclosure, which are raised for the first time in the proposed amended defence. Plaintiff's condition 13Evidence of the plaintiff's present condition was given by his wife, Nary Quoe, his general practitioner, Dr Peter Alexakis and his psychiatrist, Dr Robert Hampshire. Nary Quoe gave evidence that the plaintiff's mental state began to deteriorate after the injury in September 2007. She noted that after the plaintiff received a letter from the defendant, dated 28 November 2008, advising that it would not make any further payments for the time being, he appeared to be upset about the allegations made against him. 14She also noticed that after May 2010, there was a significant deterioration in the plaintiff's mental condition whenever he had to deal with matters concerning the present litigation. According to Nary Quoe, the plaintiff now spends much of his time at home on the lounge or in bed and she has been unable to communicate with him except in limited terms. It is also plain that the plaintiff has panic attacks when he suffers chest pain. Fortunately, a general practitioner referred him to a cardiologist who ordered angiograms, which had ruled out any organic heart problems. 15Dr Hampshire provided two reports, one dated 15 July 2010 and one dated 11 November 2010. In his report dated 15 July 2010, he diagnosed the plaintiff as follows: "This man has a severe Post Traumatic Stress Disorder, Severe Major Depressive Discord, frequent severe Panic Attacks, a severe Pain Disorder and a Substance Abuse Disorder being to narcotic analgesics. These disorders are considered chronic and stable and have arisen directly as a result of the self amputation of his fingers with the exception of his Pain Disorder which is partly contributed to by his Trigeminal Neuralgia". 16Dr Hampshire found that the plaintiff's prognosis was extremely poor and that it was implausible that he would ever work again unless there was a change in his current psychiatric state, which Dr Hampshire thought unlikely. 17In his report dated 11 November 2010, Dr Hampshire gave evidence of a long interview on 25 October 2010, which was to be in the presence of the plaintiff's legal advisers. Dr Hampshire described what occurred in these terms: "I asked all parties present if I could reinterview Mr Hitchens in the presence of your and your legal team and proceeded to - gently I thought - raise this matter with him. He immediately became overwhelmingly distressed. He broke into tears, became extremely agitated and then commenced to hyperventilate. At this stage I intervened to slow down his breathing but not before he had developed at least the onset of a Panic Attack with a marked tremor, excessive sweating, chest pain and a feeling of light headedness. As those symptoms settled with the cessation of his heavy breathing I have returned to the topic at hand but found that he was virtually unable to respond in a clear, concise and logical fashion to any questions put to him. This may have been due to remnants of hyper anxiety still present but it may also be due to him moving to a Dissociative State for the content of his speech revealed long circuitous and rambling over inclusive statements that were delivered in an almost Formally Thought Disordered manner. I am not implying that he developed a brief psychotic episode where one could see Formal Thought Disorder rather; that he was so agitated and then dissociated to the point that his thought was quite fractured and manifest itself clearly in the room." 18In response to a question as to whether the plaintiff was capable of providing his solicitors with instructions in relation to the various matters raised pertaining to fraud, Dr Hampshire's opinion was in these terms: "In my opinion Mr Hitchens is not capable of providing instructions in this area since it generates so much anxiety and exacerbates traumatic symptomatology which he has present and that with the exacerbation of his underlying symptoms his cognitive functioning becomes grossly impaired to the level that I don't think that he can instruct meaningfully and reliably about this particular area that moves towards his integrity." 19The final question in Dr Hampshire's report was as follows: "These allegations were first mooted in November 2008. We note you first examined our client in June 2009. Are you able to express an opinion - as to whether his state of mind in June 2009 was such that he would (or probably would) have been able to provide reliable information at that time about whether the relevant representations made by him to the insurer were believed by him to be true. 20Dr Hampshire's response was as follows: "This is a very much a matter of judgement and a very difficult question to answer since you ask me to retrospectively transpose his tensions of the moment regarding the area of fraud to a year previously, I will say this - since I have known him I have been very disappointed with his lack of improvement. He was extremely agitated and angry and distressed and tearful when I first saw hurt on the 22nd June 2009 and his improvement has been very little over the last year. In my opinion he is clearly unable to give instructions on this matter now - perhaps he was slightly more able to when I last saw him - the question is moot." 21Dr Peter Alexakis gave evidence in two reports dated 1 December 2010. In the shorter report he dealt with the question of the plaintiff's ability to instruct his solicitors as follows: 1. 1 feel that Mr. Hitchens' mental state has deteriorated over the last year or so. The deterioration has been most marked over the last 6 months. The cause for his deterioration is related to the accusation that Mr. Hitchens has been fraudulent in his actions against his insurer and that he had been deliberately dishonest in his claim and his preparation of his insurance policy. 2. Mr. Hitchens is unable to instruct his team on matters pertaining to fraud, as it will trigger off a violent and profound panic attack. He becomes agitated, incoherent, short of breath, avoids eye contact with others around himself, does not listen or respond to verbal communication and can not get his own words out. What words are audible are incomplete and fractured and make no sense. He develops chest pain, grabs at his chest and leans forward making grunting sounds. His response is quite dramatic and in many ways similar to being in a dissociated state. 3. Mr. Hitchens' health and welfare would be adversely affected were he to be asked to defend issues of fraud. As mentioned previously his response is sudden and profound and his loss of physical and mental capacity great. It causes him great distress and he is unable to think or act clearly at the time of episode and given his response would have to question the point of following that line of questioning. 4. I feel that Mr. Hitchens' mental state earlier in the year was better. He has deteriorated over the second half of this year. He has financial pressures as well as relationship pressures. The issue of fraud is playing heavily in his mind. He was in a better mental state at the end of last year. His response to questioning and the reliability of this information would have been appropriate and accurate earlier (12 months ago) as compared to his current state. 22There was cross examination of Dr Alexakis that was directed to demonstrating that if an allegation of fraud had been made in the defence early in 2010, it would produce the same response at that time. At transcript pages 44 to 45 Dr Alexakis said: "Q. Having regard to the fact he had been experiencing panic attacks, on your evidence, at least since November 2009, and on your evidence, that you believe that the cause of the panic attack he had in your office in June 2011 was, again quoting you, "related to the accusation that he had been fraudulent", I take it that it really wouldn't matter when that accusation was made between November 2009 and June 2010, it's your view it would have produced the same response? A. I can't answer that question. Q. I think we have covered issue of panic attacks between November 2009 and June 2010, you've agreed that it seems he was having panic attacks during that period? A. Yes. The focus of my history taking of the patient was more targeted to excluding cardiac cause. I wouldn't feel comfortable to diagnose panic disorder in somebody and then have them have a cardiac arrest. Q. I asked you about the causes of those earlier panic attacks, and you identified family stress, a whole lot of different things, I won't repeat what you said, but you remember that question? A. His physical state, yes. Q. You say specifically though, as I understand your evidence, in your view the cause of the panic attack in June 2010 is in some ways related to the accusation that Mr Hitchens has been fraudulent, is that what you are stating to the Court? A. Yes. Q. And what I am then putting to you and asking you about is whether you agree that in those circumstances, that is whether he had been having earlier panic attacks, that he had panic attacks since November 2009, it wouldn't have mattered whether he was first accused of fraud in, you say June 2010, or December 2009, for example, it would have produced the same result, you agree with that? A. If he had the extra burden of the accusation of being fraudulent, or the perception that he was being accused of fraud, that would certainly exacerbate his condition and promote panic disorder. Q. Whenever that accusation was made subsequent to November 2009, is that correct? A. Yes. Q. You say in paragraph 4 of your affidavit that you feel that Mr Hitchens' mental state earlier in the year was better". You have given some evidence about an event occurring in June 2010, your report is dated December 2010, are you suggesting in some way deterioration between June 2010 or December 2010, or were you meaning to say well, I think he was better in the months before this event in June 2010, do you understand what I am asking? A. I would say that he was, I feel that he had been experiencing panic attacks since November 2009, and that the intensity of his attacks had deteriorated, and when I saw him in June of 2010, that it was a quite debilitating panic attack that left him essentially speechless and exhibiting physiological changes. Q. You say in paragraph 4, the last sentence, "His response to questioning and reliably this information would have been appropriate and accurate earlier 12 months ago, as compared to his current state", do you see that? A. I'd say so. Q. He doesn't suffer from any form of cognitive impairment, does he? A. No. Q. He can verbalise, can't he? A. Yes. Q. Is what you are suggesting that there are times when he has difficulty verbalising? A. Correct. Q. And there are times when he has difficulty thinking? A. Correct." 23The letter of 28 November made him upset but it was not linked to a panic attack. It was the subpoenaing in May 2010, which questioned his financial integrity, which caused a substantial panic attack in June 2010. His wife noted this marked deterioration in his conditions. 24Generally, a party seeking an amendment bears the onus of persuading the court that the amendment will not cause prejudice to the other side, however the plaintiff must provide evidence of any factual matters relevant to the question of prejudice : Hancock Shipping Co Ltd v Kawasaki Heavy Industries Ltd [1992] 1 WLR 1025, 1030; [1992] 3 All ER 132; [1991] 2 Lloyd's Rep 237; McKenzie v Commonwealth of Australia [2001] VSC 361; Burk v Commonwealth of Australia (No 3) [2004] VSC 210; May v Thomas [ 2008] WASCA 215 . 25In Brisbane South Regional Health Authority v Taylor [1996] HCA 25; (1996) 186 CLR 541, Justices Toohey and Gummow discussed the general principles that apply to the exercise of a Court's discretion in an applicant's favour: "The discretion conferred by the subsection is to order an extension of the limitation period. It is a discretion to grant, not a discretion to refuse, and on well established principles an applicant must satisfy the court that grounds exist for exercising the discretion in his or her favour ( See Main v Main (1949) 78 CLR 636 at 643, though the discretion there was not a discretion to grant, but to refuse, a decree for dissolution of marriage). There is an evidentiary onus on the prospective defendant to raise any consideration telling against the exercise of the discretion. But the ultimate onus of satisfying the court that time should be extended remains on the applicant. Where prejudice is alleged by reason of the effluxion of time, the position is as stated by Gowans J in Cowie v State Electricity Commission of Victoria [1964] VR 788 at 793 in a passage which was endorsed by Gibbs J in Campbell v United Pacific Transport Pty Ltd ( [1966] Qd R 465 at 474) : 'It is for the respondent to place in evidence sufficient facts to lead the court to the view that prejudice would be occasioned and it is then for the applicant to show that these facts do not amount to material prejudice.'" 26Noting that the defendant bears the onus and having regard to: (a) Dr Alexakis cross examination and the Doctor's answer to the first question; (b) to his expert evidence; (c) Dr Hampshire's evidence, including his re-examination; I am not satisfied that if the allegation of fraud had been made in the defence in April 2010, it would produce the same response. Principles to be applied 27The defendant submitted as follows: "Section 64 of the Civil Procedure Act (" CPA ") confers on Court a discretion to grant leave to a party to amend any document in the proceedings for the purpose of determining the real questions raised and avoiding a multiplicity of proceedings. Section 64(2) provides: "Subject to section 58, all necessary amendments are to be made for the purpose of determining the real questions raised by or otherwise depending on the proceedings, correcting any defect or error in the proceedings and avoiding a multiplicity of proceedings." 28The defendant also drew attention to the following: "Section 58 provides that in deciding whether to make any order or direction for the management of proceedings, including any order for the amendment of a document, the court is to follow the dictates of justice. In determining what justice dictates in a particular case, the court must have regard to the provisions of section 56 (the overriding purpose) and 57 (the objects of case management) and may have regard to the matters prescribed by section 58(2) CPA , which relevantly include: (a) the degree of difficulty and complexity to which the issues in the proceedings give rise; (b) the degree of expedition (or lack thereof) with which the parties have approached the proceedings; and (c) the degree of injustice that would be suffered by the respective parties as a consequence of any order or direction." 29The defendant's position was that it was necessary for the plaintiff to establish that there had been severe deterioration in the plaintiff's condition between filing the original defence on 15 April 2010 and 19 August 2010 when notice of avoidance was given. 30It was the plaintiff's submission that this approach was inconsistent with the authorities and would be a wrong exercise of discretion that I have to exercise in order to allow the amendment to the defence. 31The plaintiff referred to Brisbane South Regional Health Authority v Taylor . That case dealt with the Limitations of Actions Act (Qld) 1974 and an extension of time. The plaintiff submitted that the observations of the High Court should be applied to the exercise of discretion, taking in to consideration the fact that the time the defendant could file the defence without the leave of the Court has now passed. 32In Brisbane South Regional Health Authority v Taylor , the Queensland District Court judge hearing the application for an extension of time dealt with the matter on the basis that he had to consider the prejudice that existed at the time of the application. The Court of Appeal overturned his judgment and instead approached the question of prejudice by reference to a comparison with the theoretical situation of an action commenced at an earlier point in time. In the High Court decision at page 548, Toohey J and Gummow J said the following: "In other words their Honours approached the question of prejudice by reference to the theoretical situation of an action commenced two and a half years after the conversation between the respondent and Dr Chang. But s 31(2) neither speaks of nor warrants such a comparison. Once an applicant satisfies pars (a) and (b), the Court has a discretion to extend the time for the bringing of an action. A material consideration (the most important consideration in many cases) is whether, by reason of the time that has elapsed, a fair trial is possible. Whether prejudice to the prospective defendant is likely to thwart a fair trial is to be answered by reference to the situation at the time of the application ( Akermanis v Melbourne and Metropolitan Tramways Board [1959] VR 114 at 116-17; Posner v Roberts [1986] WAR 1 at 6) . It is no sufficient answer to a claim of prejudice to say that, in any event, the defendant might have suffered some prejudice if the applicant had not begun proceedings until just before the limitation period had expired. It follows that the approach taken by Davies JA and Ambrose J to the operation of s 31 (2) was in error and also that their assessment of prejudice to the appellant was on a false basis." 33Justice McHugh at page 554 agreed as follows: " In the present case, the learned District Court Judge held that the present respondent was "placed in a position of serious prejudice having regard to the lapse of time which has occurred". That being so, his Honour, quite naturally, took the view that an extension of time should not be granted. The learned Judges of the Court of Appeal met the prejudice point by holding that the test for prejudice was whether an order extending time would make the defendant any worse off than it would have been if the action had been commenced within, but towards the end of, the limitation period. But this analysis, with respect, treats the limitation period as little more than a point of reference. It suggests that all that is ordinarily relevant is the marginal prejudice created by the delay. It downplays, if it does not overlook, the second, third and fourth rationales of limitation periods to which I have referred. It treats the parties, subject to the question of prejudice, as if they were on an equal footing. The analysis gives no weight to the fact that the defendant's potential liability expired at the end of that period and that to extend the period may result in the imposition of a new legal liability on the defendant. Indeed, it seems to indicate that a limitation period is a provisional rather than a rigid limit." " Legislatures enact limitation periods because they make a judgment, inter alia, that the chance of an unfair trial occurring after the limitation period has expired is sufficiently great to require the termination of the plaintiff's right of action at the end of that period. When a defendant is able to prove that he or she will not now be able to fairly defend him or herself or that there is a significant chance that this is so, the case is no longer one of presumptive prejudice. The defendant has then proved what the legislature merely presumed would be the case. Even on the hypothesis of presumptive prejudice, the legislature perceives that society is best served by barring the plaintiff's action." 34This case dealt with the Limitation of Actions Act and his Honour Justice McHugh's conclusions drew strength from the purpose of the limitation provisions, however, the present situation is somewhat analogous. The defendant has a specific time within which to defend and a limited right to amend such a defence if the plaintiff amends its statement of claim. Those periods have expired and it now requires an exercise of my discretion as to whether the amendment should be granted. 35One of the matters involved in this exercise is the question of the prejudice to the plaintiff and in my view this matter should be approached by looking at the prejudice that the plaintiff now suffers and not by means of some comparison with a situation at the time of filing of the original defence. To do that distracts one from the real question to be answered. 36On this basis it is apparent, having regard to the evidence, that there is now a very real and significant prejudice to the plaintiff when dealing with allegations that are now raised. Even if I am wrong on this approach, the evidence does not support the comparison approach suggested by the plaintiffs. 37The defendant has pointed out that since the pleadings have closed the factual situation has changed substantially as the defendant has in fact avoided the contract of insurance. The defendant submits that this matter ought to be determined by the Court at this stage for the reason that it would avoid a multiplicity of proceedings. However, any such avoidance would only occur if there has not been an earlier determination of the contract. In the present case the plaintiff claims that there was an earlier determination of the contract as a result of repudiation by the defendant insurer. 38Thus, in the present case, if the plaintiff wins his action then there is no chance of any multiplicity of proceedings. The plaintiff will be entitled to damages for the breach by the defendant that will be assessed no doubt by reference to the loss of future revenue to which the plaintiff is entitled. 39If, for example, the plaintiff did not establish repudiation, but simply a breach for failure to pay, the plaintiff's only remedy would be damages to the date of trial. In such a circumstance the question of the avoidance of the policy might need to be dealt with in fresh litigation. If the plaintiff loses the action completely, then there might not be any further litigation. If the plaintiff only recovers damages up to the trial, the plaintiff may not wish to proceed further and the defendant could simply rely on its present stated position that it had avoided the policy. 40It is plain that I have to consider the dictates of justice and in particular section 56 and the need to determine the just, quick and cheap resolution of the real issues in the proceedings. 41Leaving a matter to be dealt with in later proceedings after the present proceedings is not conducive to this result. However, these considerations, which are somewhat limited in this case, have to be balanced against what is a very extensive prejudice that the plaintiff will suffer if the pleading is amended. 42In my view, a consideration of all the necessary factors leads me to the conclusion that I should refuse the application for amendment. 43Accordingly, I dismiss the notice of motion filed 15 October 2010 with costs. ********* 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. Decision last updated: 23 February 2011