64 I understand Glass JA to have been saying that the question whether the non-disclosed fact was material, while tested at the time the insurer entered the policy, was based on the fact which should have been disclosed and other facts the insurer ascertained on inquiry. It was only "material", thus giving the insurer a right of avoidance, if, on the basis of those facts, they would have influenced the insurer's decision as to whether or not to accept the risk.
65 Similarly, I understand McPherson JA as saying (at [81] - [82]) that the time for assessing whether any policy would have been declined is immediately prior to inception, on the assumption that, because the duty of disclosure has been complied with, in the Barclay Holdings sense, the insurer is in possession of all the relevant facts.
66 I accept that there is some tension between the reasons of Davies JA and McPherson JA. Thus, while Davies JA made it plain (at [45]) that s 29(3) did not require the notional policy to be one entered into on the date on which the policy was entered into, McPherson JA (at [81]) was of the view that s 29(3) tested the insurer's attitude to the notional policy at the time disclosure ought to have been made, namely when (or before) the contract was entered into.
67 At the same time there is, in my view, an internal inconsistency between paras [80] and [81] of McPherson JA's reasons. In para [80] his Honour appeared to be of the view that an insurer which established that had the requisite disclosure been made it would have made further enquiries and after those enquiries have declined the risk, would have demonstrated that "in the end it would not have entered into any contract of life insurance with the insured". His Honour there approved Kirby P's statement in Barclay Holdings v British National Insurances that "the additional information which is acquired is only material if it determines for the insurer whether to accept or reject the insurance". His Honour read the same conclusion as implicit in Glass JA's judgment in the same case.
68 Further, the passage from Mutual Life Insurance Co of New York v Ontario Metal Products Co Ltd [1925] AC 344 at 351-352 to which his Honour referred (para [80]) read:
"When statements made by an insured person upon his application for a policy of life insurance are not made the basis of the contract but are to be treated merely as representations, an inaccurate statement is material so as to vitiate the policy if the matters concealed or misrepresented, had they been truly disclosed, would have influenced a reasonable insurer to decline the risk, or to have stipulated for a higher premium; it is not sufficient that they would merely have caused delay in issuing the policy while further enquiries were being made. " (emphasis added).
69 As McPherson JA said (at [80]):
"As was recognised there, it was not enough under the general law to show that if disclosure had in fact been made, the only difference would have been 'delay and delay alone'."
70 It is important to understand, however, that because McPherson JA approached his additional observations from the perspective of the duty of disclosure, and, to that end, looked at authorities dealing with the question of materiality, his Honour was focusing on authorities which dealt with the insurer's attitude to accepting a risk if the duty of disclosure had been fully complied with. Because those authorities focused on compliance with the duty of disclosure, they looked at the duty which, at common law, exists up to when the contract of insurance is entered into. Both cases proceeded, therefore, on the assumption that the test of materiality turned on facts which the insured knew, or ought to have been aware, would reasonably have affected the mind of a prudent insurer in determining whether to accept the insurance and at what premium and on what conditions (Mayne Nickless).
71 McPherson JA (at [81]) regarded the concepts to which he referred (at [80]) as continuing to underlie the regime for non-disclosure. To the extent that his Honour then said (at [81]) that s 29(3) turned on the insurer establishing that "if the relevant matter had been disclosed, [it] would not have been prepared to enter into any contract of life insurance", I would agree. His Honour up to this stage, clearly envisages the insurer being able to make further inquiries, and to avoid the policy if "if as a consequence of more inquiries, it would have declined to enter into 'a' policy with the insured on any terms."
72 The point at which I part company with his Honour is when, in the balance of para [81], he said that for the purposes of s 29(3), the insurer must prove it would not have been prepared to enter into a contract of life insurance at the time that disclosure ought to have been made. If, by that, his Honour meant that that decision could not be informed by information the insurer ascertained after the policy was incepted, I do not agree.
73 It is not entirely clear that this is the result which his Honour was advocating for two reasons. First because he agreed with Davies JA's reasons which were clearly to the opposite effect (see [45]) and, secondly, because, as I have already said, he appeared to approve Kirby P and Glass JA's reasons in Barclay Holdings which accepted that while mere delay and further enquiries were not sufficient, a deferral of a decision pending inquiries which led to the conclusion that a reasonably prudent insurer would have rejected a proposal, would suffice to lead to the conclusion that a fact was material.
74 If, however, the passage in McPherson JA's judgment upon which the appellant relies can be read in the manner for which Mr Graves contended, in my opinion it is incorrect.
75 In my view Davies JA's interpretation of s 29(3) was correct. It is supported by the passage from the Report which I set out earlier in these reasons, which did not identify any temporal limit in s 29(3), merely viewing it as an alternative to the exercise which found its way into s 29 (4). Section 29(4) gives an insurer which has not avoided the contract the ability to vary it by substituting for the sum insured a sum calculated in accordance with the formula where "Q" is:
"Q" is the number of dollars that is equal to the premium, or to the sum of the premiums, that the insurer would have been likely to have charged if the duty of disclosure had been complied with or the misrepresentation had not been made."
76 It is plain that s 29(4) does not look to the time the policy was entered into. Section 29(6) provides, in effect, a relation back so that a variation of a contract under subs (4) has effect from the time when the contract was entered into. The only temporal limit on s 29(4) is the same three year period referred to in s 29(3).
77 As was pointed out in the course of argument, unless an insurer can take into account information acquired after the date the contract of insurance was entered into for the purposes of determining whether it had satisfied the s 29(3) test, it could never determine the "Q" amount it would have been likely to have charged if the duty of disclosure had been complied with or the misrepresentation had not been made.
78 Mr Graves submitted in response to this proposition that if an insurer had passed the s 29(1)(c) test, but did not have a right to avoid a contract under either ss 29(2) or 29(3), it had no remedy. This argument would lead to the anomalous result that an insurer which would have deferred making a decision if the duty of disclosure had been complied with and only made it when armed with, for example, the results of the appellant's respiratory tests, would not be able to avoid the policy under s 29(3) and, further, could not adjust the premium as contemplated by s 29(4).
79 Finally I would observe that, in my opinion, McCabe v Royal & Sun Alliance Life Assurance Australia Ltd does not assist the appellant. That case concerned the question whether an insurer was entitled to avoid a policy of life insurance on the basis of non-disclosure. The trial judge had found in favour of the insurer. On appeal Murray J (with whom Wallwork and Anderson JJ agreed) upheld the trial judge's reasons. McCabe was heard in September 2002 and decided in July 2003. The judgment in Schaffer was delivered in May 2003 but it is clear that it did not come to the attention of the Supreme Court of Western Australia nor, apparently, was the Court's attention drawn to Summerton. Thus, after finding that the trial judge had been correct to hold that the insured deceased had failed to comply with her duty of disclosure, when Murray J came to consider whether the insured had proved, for the purposes of s 29(3), that it would not have been prepared to enter into a contract of life insurance with the insured on any terms if the duty of disclosure had been complied with, he noted that "although the submission was unsupported by authority" he was inclined to accept as correct the insured's submissions on this point that:
"On its proper construction, s 29(3) of the Act referred to a final decision by an insurer not to insure on any terms, rather than an interim decision to defer insuring pending the pursuit of further inquiries … ." (at [32]).
80 His Honour went on to find (at [36]-[37]) that the insurer had discharged the s 29(3) test.
81 The time at which the s 29(3) test stood for consideration was not expressly considered in McCabe. It is apparent, however, from the evidence of the underwriter in that case that it would have made a number of enquiries if the duty of disclosure had been complied with and, after making those enquiries, would have declined the risk. In my view it is implicit in Murray J's conclusion that the s 29(3) test had been complied with that the inquiries referred to could have been made after the date on which the duty of disclosure ought to have been complied with.
82 In my opinion s 29(4) makes it plain that for the purposes of s 29(3) an insurer is entitled to demonstrate that it would not have been prepared to enter into a contract of life insurance with the insured on any terms if the duty of disclosure had been complied with by taking into account information it would have obtained as a result of enquiries made consequent upon compliance with the duty of disclosure. As Davies JA said in Schaffer, the only relevant time period is three years after entry into the policy. If, during that time, the insurer becomes aware of facts which reveal that the insured had not complied with the s 21 duty of disclosure (and/or made a misrepresentation), but needs to obtain further information before determining what its attitude to acceptance of the risk would have been, it is entitled to bring the results of those consequent inquiries to bear in that exercise. If after making those enquiries it determines it would not have been prepared to enter into any policy, it can avoid the policy.