Ivancic v Zardo [2004] ACTCA 11

Ivancic v Zardo [2004] ACTCA 11 - ACTCA 2004 case summary — Zoe

[32]

1. This is an appeal from a judgment of Connolly J delivered on 16 May 2003.

2. The appellant had sued the respondent for damages for personal injury arising out of a motor vehicle accident which occurred in New South Wales on 3 July 1997. Those proceedings were settled in this Court by way of compromise. A consent judgment was entered in favour of the appellant in the sum of $425,000 plus costs which were agreed at $30,000.

3. The third party insurer which had represented the respondent, NRMA Insurance Ltd (NRMA), had, in the course of an investigation into the appellant's claim, authorised video surveillance of the appellant to assess his claim that he had been precluded from gainful employment by virtue of his compensable disabilities. Nothing to contradict his claim arose from any pre-judgment surveillance. However, it appears that NRMA forgot to inform the inquiry agents of the settlement and surveillance continued even after the consent judgment was entered.

4. The material obtained from that post-settlement surveillance revealed a situation inconsistent with the appellant's claimed disabilities. NRMA, therefore, in the respondent's name, sought relief under s 66 of the Motor Accidents Act 1988 (NSW) (the Act). That this claim is properly governed by the law of New South Wales was determined by this Court in an earlier decision in this matter (Zardo v Ivancic [2001] ACTSC 40 (7 May 2001) (Miles CJ, Higgins and Crispin JJ)) following John Pfeiffer Pty Ltd v Rogerson [2000] HCA 36; 203 CLR 503.

5. Subsequently, the respondent's application was determined by Connolly J who interpreted and applied s 66 in accordance with the decision of the New South Wales Court of Appeal in Toubia v Schwenke [2002] NSWCA 34; (2000) 54 NSWLR 46 (Handley, Heydon and Hodgson JJA). In doing so, his Honour rejected a submission advanced by Mr Webb QC, for the appellant, that the section should be construed differently to the way it had been in that case. This submission was properly rejected. Not only was the decision in Toubia v Schwenke (supra) that of a unanimous bench of the New South Wales Court of Appeal, but an application for special leave to appeal from that decision to the High Court was rejected. In rejecting the application, Gummow J expressly affirmed the correctness of the decision in question. In any event, we see no reason to doubt the correctness of that decision.

6. It was not disputed that the appellant had suffered injury. There were a significant number of medical reports to that effect obtained by both sides up to the date of the settlement. There was, as Connolly J noted, an apparent conflict between them. For example, Dr Rosendahl, the appellant's general practitioner, diagnosed very significant permanent disabilities, to wit, "significant intellectual impairment and soft tissue neck injury". Dr Oakeshott, who examined the appellant on behalf of the respondent, was profoundly sceptical of these claims.

7. In paragraphs 21 and 23 of his reasons, Connolly J sets out the various representations the appellant had made to examining doctors.

8. His Honour also examined the video surveillance of the appellant post-settlement, as well as the opinions of medical practitioners (Drs McEwin and Snowden) who had previously accepted the complaints referred to above and then had been shown the more recent video footage. In brief, they concluded that the appellant's complaints had been grossly exaggerated and deliberately false. Dr Snowden went so far as to assert -

[34]

9. The appellant did not seek to challenge these assertions.

10. As a result, in our view, no challenge could be made to his Honour's finding that the insurer had been deliberately deceived by the appellant so as to exaggerate his claim.

11. His Honour found, on the evidence of Mr Nunn, an NRMA officer who had carriage of the appellant's claims, that the latter had recommended settlement of the appellant's claim based on the reports submitted as a result of the appellant's deception. His evidence was challenged on the basis that, in considering the pre-settlement material, he knew, or ought to have known, that the appellant had been exaggerating his disabilities.

12. That submission did not find favour with his Honour. He viewed the pre-settlement video material referred to and, whilst agreeing that it could have indicated exaggeration, found that it was not sufficiently unequivocal to have warranted a dismissal of the evidence supporting the appellant's claims, relying as they did primarily on psychiatric disability. It was clearly open to his Honour so to conclude.

13. Even assuming Mr Nunn had been less than diligent, his Honour was of the view that Toubia v Schwenke (supra) precluded reliance by a fraudster on the lack of diligence of the victim in detecting the fraud.

14. Nor, in his Honour's view, did the fact that the settlement could be regarded as a compromise, or that the insurer may have entertained some suspicion of exaggeration in proposing such a compromise, preclude relief under s 66.

15. The next submission was that the onus lay on the respondent to establish the extent to which the settlement had been caused by the fraudulent misrepresentations. In the absence of such evidence, it was contended for the appellant there was no demonstrated causal connection between the quantum of the settlement and the fraudulent statements.

16. The contrary proposition, as his Honour accepted, might lead to a claimant being obliged to confess his deception and then, burdened by his demonstrated lack of credibility, give evidence of the "true" level of his disabilities, if otherwise the evidence seemed to undervalue them.

17. His Honour accepted that an assessment of the extent of the overpayment had to be made and that he was required to be satisfied as to the quantum of it, but considered that this could be done on such material, including any evidence presented by the former plaintiff, as the Court had before it.

18. The effect of Mr Nunn's evidence was that, had he known the truth of the matter, he would have offered no more than $10,000. However, his Honour did not regard himself as bound to apply that approach. He examined for himself the circumstances of the accident and the medical evidence that related to its sequelae. That indicated to his Honour, as a matter of fact, that there had been "soft tissue injuries of some significance". As a result his Honour felt able to conclude that the appellant - [76]

[47]

27. The question which arises is the identification of 'the financial benefit' obtained by a claimant as a result of false or misleading statements which relate to part of a claim, and so affect the amount of a lump sum settlement of an action for damages for personal injury leading to a consent judgment for that lump sum together with costs, where there is no agreed apportionment or dissection of the lump sum.

28. It is submitted for the respondent/cross-appellant (the defendant below) that the financial benefit obtained is the entitlement to the lump sum which cannot be apportioned. In so submitting, the respondent relied upon the decisions in McLaurin v Federal Commissioner of Taxation (1960-61) [1961] HCA 9; 104 CLR 381; Allsop v Commissioner of Taxation (1964-65) [1965] HCA 48; 113 CLR 341 and Commissioner of Taxation v CSR Ltd [2000] FCA 1513; (2000) 104 FCR 44, 178 ALR 288.

29. It was submitted, for the appellant/cross-respondent, that the relief from liability is only 'to the extent of' the financial benefits obtained as a result of the deception, a concept which requires that there be apportionment. Apportionment is required in this case as the false statements related to only part of the damages claimed. The cases upon which the cross-appellant relies, the appellant/cross-respondent submitted, related to taxation law and are not applicable to this statute or section. It was suggested that the legislature would not have intended that a false statement as to a minor head of claim would lead to the result that the benefit of the whole of the settlement would be lost. It was further submitted that the argument for the cross-appellant was inconsistent with the only other reported decisions on the section - Toubia v Schwenke (supra) and the decision of the Full Court in this case - Zardo v Ivancic [2001] ACTSC 40; (2001) 161 FLR 228 particularly at [15] and [16]. It is submitted, in the alternative, that if the cases relied upon by counsel for the cross-appellant were applicable, then the cross-respondent should succeed as the cross-appellant could not establish the necessary causal link between the false statements and the whole lump sum.

30. The cases upon which counsel for the cross-appellant relied certainly establish, absent any special statutory provision, that a lump sum settlement, which represents a compromise of various claims where there is no dissection of amounts agreed between the parties, cannot be apportioned for the purpose of characterisation of the nature of the payments in the hands of the recipient between a taxable and non-taxable characterisation. The principle is set out in the judgment of Dixon CJ, Fullagar and Kitto JJ in McLaurin at 391:

[52]

The charges for management and the directors' fees are entire sums which probably cannot be dissected. But the provision contained in s 51(1), as has been already said, contemplates apportionment. The question what expenditure is incurred in gaining or producing assessable income is reduced to a question of fact when once the legal standard or criterion is ascertained and understood. This is particularly true when the problem is to apportion outgoings which have a double aspect, outgoings that are in part attributable to the gaining of assessable income and in part to some other end or activity. It is perhaps desirable to remark that there are at least two kinds of items of expenditure that require apportionment. One kind consists in undivided items of expenditure in respect of things or services of which distinct and severable parts are devoted to gaining or producing assessable income and distinct and severable parts to some other cause. In such cases it may be possible to divide the expenditure in accordance with the applications which have been made of the things or services. The other kind of apportionable items consists in those involving a single outlay or charge which serves both objects indifferently. Of this directors' fees may be an example. With the latter kind there must be some fair and reasonable assessment of the extent of the relation of the outlay to assessable income. It is an indiscriminate sum apportionable, but hardly capable of arithmetical or ratable division because it is common to both objects.

Then, (at 60) -

The Court must make an apportionment which the facts of the particular case may seem to make just, and the facts of the present cases are rather special. In making the apportionment the peculiarities of the cases cannot be disregarded. ... The question of fact is therefore to make a fair appointment [sic] to each object of the companies' actual expenditure where items are not in themselves referable to one object or the other.

[62]

46. In our opinion counsel for the respondent is correct in submitting that the decision of the New South Wales Court of Appeal in Toubia v Schwenke (supra) provided no basis for declining to vacate the costs order for the sum of $30,000 in SC 619 of 1997. That order was a financial benefit to the appellant. It was, also, the result of the fraudulent conduct found to have induced the settlement. That was the basis for the order relieving the respondent from a substantial portion of the amount of the verdict itself. The one settlement conference was involved and whatever infected the amount of the verdict obviously infected the agreement to pay costs in the agreed amount.

47. It is far from evident that there would have been any agreement to pay a sum of $30,000 for costs in relation to a verdict of $75,000 notwithstanding that amount had been agreed in relation to a verdict of $425,000. The disparity at least called for consideration and explanation. That did not take place in the May 2003 judgment. More importantly, however, it is submitted that the finding which Connolly J made at [11] (and set out above) in the October judgment concerning the Calderbank offer should inevitably have led to relief in whole from the agreed amount of costs of $30,000. In our opinion that submission is plainly correct. If the truth had been known at any stage after 20 July 1999 (when the offer was made), with the result that the plaintiff would not have been able to justify a verdict in excess of $75,000, it is perfectly obvious that the Calderbank offer would have stood in the path of any agreement to pay costs and would have prevented any order for costs being made in favour of the appellant in the event of the matter going to trial. The fact that it may not be possible to substitute an order for payment of costs by the appellant is no answer to the claim for relief from a liability to pay costs.

48. The appeal in ACTCA 37 of 2003 and the cross appeal in ACTCA 15 of 2003 must be allowed to the extent of granting relief in relation to the sum of $30,000 for costs. It would also follow that the respondent is entitled to the costs of the motion disposed of by the October judgment as well as the costs of the cross-appeal in ACTCA 15 of 2003 and of the appeal in ACTCA 37 of 2003, limited to one set of costs.

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