Alexander Raymond Walton v The Colonial Mutual Life Assurance Society Limited

Alexander Raymond Walton v The Colonial Mutual Life Assurance Society Limited - [2004] NSWSC 616 - NSWSC 2004 case summary — Zoe

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)

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"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

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" 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]:

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"[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.

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"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:

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(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:

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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;

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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:

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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.

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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]

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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]

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"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;

[90]

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.

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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:

[130]

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:

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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:

[144]

"[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]:

[146]

"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.

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Judgment (149 paragraphs)

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Legislation Cited (1)

Cases Cited (4)