Dumitrov v S C Johnson & Son Superannuation Pty Ltd & Anor

3614/04 ATILLA DUMITROV v SC JOHNSON & SON SUPERANNUATION PTY LTD & ANOR (NO 2) JUDGMENT 1 In my reasons for judgment of 12 December 2006, I found that Mr Dumitrov had established that the second defendant insurer, Hannover Life Re of Australasia Ltd, breached its duty of utmost good faith in dismissing his claim and that the Court should supplant Hannover's opinion by its determination that Mr Dumitrov was totally and permanently disabled. Judgment has not been entered. 2 Mr Dumitrov now seeks to re-open his case to further identify the amount to which he is entitled and he seeks compound interest on that amount. Re-opening of the case 3 Mr Dumitrov's employment was terminated on 14 November 1997. He claimed a then entitlement to a total and permanent disablement benefit of $123,035.83. Hannover denied this liability but admitted liability in the amount of $117,084.41. In the course of his evidence, Mr Dumitrov tendered a statement by the trustee of the SC Johnson Superannuation Fund that his disability entitlement on 14 November 1997 was the amount he claimed. 4 Mr Dumitrov was insured under a group life contract between the trustee and Hannover. Mr Dumitrov was not a party to that contract. It defined "agreed benefits" as those agreed to be paid in respect of an insured person set out in a schedule. The schedule provided that the agreed benefits were the levels of cover payable on permanent disablement of an insured person as agreed between the trustee and Hannover from time to time. Mr Dumitrov was an insured person for the purposes of the group life contract. 5 Ms Dulhunty, who appeared for Mr Dumitrov, applied to re-open his case to tender a spreadsheet detailing the amount of $123,035.83 with respect to Mr Dumitrov. 6 I am of the view that Mr Dumitrov's entitlement to $123,035.83 was established in the absence of the additional evidence. The only document of relevance tendered at the hearing was that of the trustee specifying that amount. Since there was no tender by Hannover of other documents or oral evidence, the inference is that no tender of evidence would have assisted Hannover's case (Jones v Dunkel (1959) 101 CLR 298). It seems to me that the inference to be drawn from a statement by the trustee that a level of cover was available to Mr Dumitrov is that, in accordance with the group life contract, that level of cover had been agreed between it and Hannover. 7 Where the basis for re-opening a case is the reception of further evidence, a number of considerations are relevant (Urban Transport Authority v Nweiser (1992) 28 NSWLR 471, Smith v NSW Bar Association (1992) 176 CLR 256). But the principle that should guide the court in determining whether to grant such an application is whether the interests of justice are better served by allowing or rejecting it (Nweiser at 478, Autodesk Inc v Dyason (No 2) (1992-1993) 176 CLR 672 at 302). 8 Hannover put the amount to which Mr Dumitrov is entitled in issue but called no evidence to support its lower figure. It having raised the submission that the lower figure prevails, I am of the view that the interests of justice are better served by allowing the application and receiving the spreadsheet in case I be wrong in my view that the appropriate inference to be drawn from the material already before the court is that Mr Dumitrov proved his entitlement to $123,035.83. 9 Mr Horsley, who appeared for Hannover, did not oppose the application. The spreadsheet will be exhibit "B". Mr Horsley tendered three letters in response. Their tender was not opposed by Ms Dulhunty. The letters from Towers Perrin to Hannover and its predecessor insurer of 7 January 1992, 8 February 1999 and 11 April 2000 will be exhibit "2". 10 The additional evidence establishes that the figure of $123,035.83 was provided to Hannover in the spreadsheet that was complied by Towers Perrin the manager of the superannuation fund. It, like the letter from the trustee to Mr Dumitrov, is a document of the trustee and not of Hannover. 11 But while Hannover was not the author of the document, there was no rejection by it of the specified cover for the total permanent disablement of Mr Dumitrov and the appropriate inference to be drawn is that Hannover accepted that figure in terms of the group life contract. 12 The spreadsheet also contained reference to the lower figure described as: "GL Sum Insured 1-Jul-98". There was no explanation of this entry. Since I have found that Mr Dumitrov was totally and permanently disabled at the time his employment was terminated, he is, in my view, entitled to the benefit of the cover agreed in by Hannover for that eventuality. 13 In my judgment, Mr Dumitrov has established his entitlement to payment of $123,035.83 from Hannover. Interest 14 The Insurance Contracts Act 1984 (Cth), s 57(1) provides that an insurer is liable to pay interest in accordance with that section on the amount the insurer is liable to pay under a contract of insurance or under the Act in relation to a contract of insurance. Since I have found that Hannover breached its duty of utmost good faith under s 13 in dismissing Mr Dumitrov's claim, that failure leads to a liability in Hannover to pay an amount under the Act in relation to a contract of insurance. 15 The Insurance Contracts Act 1984 (Cth), s 57(4) provides that the section applies to the exclusion of any other law that would otherwise apply. Furthermore, the Civil Procedure Act 2005, s 100(3)(b) provides that interest on a debt is not payable under that section if interest is payable as of right, whether by agreement or otherwise. 16 In NRMA Insurance Ltd v Tatt (1989) 94 FLR 339 the Court of Appeal held that interest payable under the Insurance Contracts Act 1984 (Cth), s 57 is payable as a right for the purpose of the forerunner of the Civil Procedure Act 2005, s 100(3)(b). 17 The Insurance Contracts Act 1984 (Cth), s 57(2) prescribes the period during which interest is payable. It is in the following terms: "The period in respect of which interest is payable is the period commencing on the day as from which it was unreasonable for the insurer to have withheld payment of the amount and ending on whichever is the earlier of the following days: (a) the day on which the payment is made; (b) the day on which the payment is sent by post to the person to whom it is payable." 18 Ms Dulhunty submitted that interest should run from a reasonable time after Mr Dumitrov lodged his claimed on 11 April 2000. She suggested 1 July 2000. It has been held that an insurer is entitled to a reasonable time to investigate a claim (Symeou v NRMA Insurance Ltd (1988) 5 ANZ Insurance Cases ¶60-851 at 75,334). 19 In Hannover Life Assurance Re of Australasia Ltd v Membrey (2004) 210 ALR 462, Crennan J held that there was no error of principle in a tribunal's finding that it would be fair and reasonable for an insurer to pay interest from a date some eight months after a claim had been made. In that case a specialist tribunal had found that it was unfair or unreasonable for the insurer not to have concluded its investigation by that date. 20 In the instant circumstances the complaint was that Hannover was in breach of its duty of utmost good faith by its rejection of the reconsidered claim on 25 September 2002. 21 Mr Horsley submitted that interest should run from that date and I agree with him. That was the date of breach of duty and that was the date upon which Hannover was obliged to compensate Mr Dumtriov. It was its retention of Mr Dumitrov's money from that date that needs to be compensated by an award of interest. That is the day as from which it was unreasonable for Hannover to have withheld payment of Mr Dumitrov's entitlement for the purposes of the Insurance Contracts Act 1984 (Cth), s 57(2).

Compound interest. 22 In Hungerfords v Walker (1988-1989) 171 CLR 125 it was held that damages for breach of contract might include compensation for loss of use of money a party has paid out as a result of the other party's breach and those damages in the nature of interest can be calculated as compound interest. 23 In that case evidence was adduced with respect to the loss sustained by the party paying out as a result of the other party's breach. No evidence of loss as a result of the failure of Hannover to pay on reconsideration of the claim was adduced in this case. 24 In Hobartville Stud Pty Ltd v Union Insurance Co Ltd (1991) 25 NSWLR 358 at 363-364, Giles J held that it remains necessary to undertake a factual investigation into the loss suffered through being held out of money. Whether a plaintiff would have made a profit from the use of money withheld from it and the amount of that profit must be determined on the evidence. There is no automatic allowance of interest upon money withheld. 25 In the absence of evidence I am not prepared to grant Mr Dumitrov damages in the nature of interest by an award of compound interest under the Insurance Contracts Act 1984 (Cth), s 57(1). 26 In Membrey at [43], Crennan J said there was nothing in the Insurance Contracts Act 1984 (Cth), s 57 that would preclude the awarding of compound interest on appropriate facts in an appropriate case. 27 The specialist tribunal in that matter inferred that the insurer had earned profits from the investment of the moneys in question and awarded compound interest. That is the distinguishing feature from this case. The court is not a specialist tribunal and no evidence was adduced with respect to damages in the nature of interest. I adopt the approach taken by Giles J in Hobartville. 28 In Moss v Sun Alliance Australia Ltd (1990) 55 SASR 145, Bollen J drew a distinction between interest and damages in nature of interest and concluded that the Insurance Contracts Act 1984 (Cth), s 57 did not deal with that question. Giles J adopted that view in Hobartville and explained that Tatt was concerned with interest and not damages in the nature of interest. 29 On that analysis there may be a problem in construing the Insurance Contracts Act 1984 (Cth), s 57 as extending beyond statutory interest and encompassing damages in the nature of the interest. I do not have to decide that question, however, because I am of the view that whether or not compound interest is recoverable under s 57, it requires the adducing of evidence upon which quantification can be made and there was no such evidence in this case. 30 Ms Dulhunty called in aid those cases in which compound interest has been awarded where a fiduciary has been in gross breach of duty (Harris v Digital Pulse Pty Ltd (2003) 56 NSWLR 298, Harrison & Anor v Schipp; Cameron & Anor v Schipp [2001] NSWCA 13). 31 But Hannover was not a fiduciary. It entered into a commercial contract with the trustee. In Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1987-1988) 165 CLR 107 two members of the High Court adopted the view of the majority of the Court of Appeal in Trident General Insurance Co Ltd v McNeice Pros Pty Ltd (1987) 8 NSWLR 270 in concluding that there should be an exception to the doctrine of privity with respect to a person who, though not a party to a public liability insurance policy, fell within the class of persons expressed to be insured by it, such that such a person might enforce the indemnity for which the policy provided. Deane J considered that the non-party was not entitled to enforce the indemnity but should be afforded an opportunity to establish that the policy created a trust in that person's favour of the benefit of the insurer's promise to identify it. Those alternative bases for the majority decision in Trident were recognised by Hunter J in Wyllie v National Mutual Life Association of Australasia Ltd (1997) 217 ALR 324. 32 It follows that reliance upon those authorities that establish the proposition that compound interest is an appropriate order where a fiduciary is in gross breach of duty do not support an award of compound interest, either under the Insurance Contracts Act 1984 (Cth), s 57 or at common law, as damages in the nature of interest for a breach of a contractual term by Hannover under a policy to which Mr Dumitrov was not a party. 33 In my view, Mr Dumitrov has failed to establish an entitlement to compound interest and is confined to a simple interest calculation under the Insurance Contracts Act 1984 (Cth), s 57. Quantification 34 The Insurance Contracts Regulations (Cth), reg 32 prescribe the manner in which interest is to be calculated. It provides as follows: "(1) For subsection 57 (3) of the Act, the rate applicable to a day in respect of which interest is payable by an insurer, is the rate worked out under the following formula: Y + 3% where: Y is the rate of: (a) 10-year Treasury Bond yield at the end of the half-financial year ending in the period that, in relation to the withheld amount, is mentioned in subsection 57 (2) of the Act, or: (b) if more than one half-financial year has ended during that period-the mean of the rates of the 10-year Treasury Bond yield at the end of each of those half-financial years; or (c) if no half-financial year has ended during that period-the 10-year Treasury Bond yield at the end of the half-financial year immediately preceding the commencement of that period. (2) In subregulation (1), 10-year Treasury Bond yield means the rate known as the 10-year Treasury Bond yield, published by the Reserve Bank of Australia. (3) In subregulation (1), mean , in relation to rates, means, if the mean of the rates is not a whole number, or does not end in .75, .50 or .25, the mean rate rounded to the nearest lower quarter of 1%." 35 Ms Dulhunty submitted the appropriate way to calculate interest was to round down the 10-year Treasury Bond yield for each half-financial year to the nearest lower quarter of 1%, add 3% and apply that rate to the half-financial year. 36 Mr Horsley submitted that one should take the 10-year Treasury Bond yield at the end of each half-financial year in the period from 25 September 2002, obtain the arithmetical mean, round it down to the nearest lower quarter of 1%, add the 3% margin and apply the resultant rate to the number of days between 25 September 2002 and the date of judgment. 37 In my view, Mr Horsley's approach is the correct one. Since more than one half-financial year has ended in the period from 25 September 2002, the Insurance Contracts Regulations (Cth), reg 32(1)(b) requires the arithmetic mean of the rates at the end of each of those half-financial years to be determined. 38 Mr Horsley arrived at a rate of 8.25%. The last half-financial year he took into account ended on 31 December 2006. Mr Horsley took this approach on the basis that the interest should be calculated from 25 September 2002 to judgment. I do not disagree with this approach. The question remains, however, what interest should be paid on the judgment? 39 In Fruehauf Finance Corporation Pty Ltd v Zurich Australian Insurance Ltd (1993) 32 NSWLR 735, Giles J rejected a submission that interest after judgment was governed by the forerunner of the Civil Procedure Act 2005, s 101. His Honour adverted to the fact that the Insurance Contracts Act 1984 (Cth), s 57(2) made it clear that the period for which interest under that section was payable did not stop with judgment and continued until payment. 40 In my judgment interest should continue to accrue after judgment at the rate of 8.25% provided payment is made to Mr Dumitrov before 30 June 2007. If payment is not made before then, the arithmetic mean of the 10-year Treasury Bond yields will need to be recalculated to include the rate as at 30 June 2007. 40 I direct the parties to bring in short minutes of order reflecting these additional reasons.

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