National Australia Bank Ltd v Zollo

"For the reasons that I have given, Mr Zollo is not entitled to claim under the terms of the insurer's usual policy because he cannot establish that the defined event, the permanent total disablement, has occurred. It is unfortunate that it should have been necessary to resolve these issues upon appeal but, as I have already remarked, Zollo did not present at trial a case based upon the insurer's usual terms but upon an oral contract. In my earlier judgment in this appeal I have already explained why, in my opinion, that claim cannot succeed. It follows that in my opinion the appeal should be allowed, the judgment dated 21 December 1995 in favour of the plaintiff against the first and third defendants should be set aside and for that judgment should be substituted a judgment in favour of the first and third defendants against the plaintiff."

14 The first and third defendants are the creditor and the insurer. In my judgment, it is significant to the present application that the Full Court gave judgment in the insurance matter in two stages. That is because, having found on appeal that there was no oral contract of insurance as the debtor alleged with both the creditors and the insurer, but only a contract of insurance with the insurer in accordance with the standard form of policy of the insurer, it was necessary for the Full Court to consider the further disposition of that appeal. The Chief Justice remarked:

"My conclusion set out above raises issues on which the trial judge did not have to and did not make findings. My conclusion also establishes a basis for liability quite different from that for which Zollo contended at trial. The fact that the parties did not focus upon these issues at trial flows from the fact that Zollo's case at trial was a different one. Neither party has suggested that the matter be remitted to the trial judge for further hearing or to make further findings. These and other proceedings between Zollo and the bank have had a long and complex history. It seems to me better, despite all the difficulties, to try to bring the matter to a conclusion now." 15 As the consideration of the Full Court of the evidence given at trial indicates, that involved an assessment of extensive medical evidence, including medical evidence from Mr Osti, an orthopaedic surgeon, as well as other evidence. The significance in my view is that the debtors did not then seek to have the matter remitted to the trial judge for further hearing, or to make further findings in respect of his entitlement or otherwise to insurance under the terms of the insurance with the insurer as found by the Full Court to have existed. 16 The judgment in the possession action was really a judgment consequential upon the judgments in the insurance action. Having found that there was no entitlement on the part of Mr Zollo or of the debtors under the claimed insurance policy, the Full Court in the possession claim then determined that the creditor was entitled to the full amount of the indebtedness against the debtors and to an order enforcing possession of the secured property as against them. As the bankruptcy notice shows, the secured property in support of the borrowing has been realised. The bankruptcy notice was issued in respect of an outstanding balance then owing. 17 The debtors on this application do not claim that they can set aside judgment in the possession action. They seek to reopen the judgment in the insurance action, so that they can adduce further evidence in two respects: firstly, as to the existence and terms of relevant insurance policies, and secondly as to whether Mr Zollo falls within the description of "total and permanent disablement" as defined in the standard insurance policy (or perhaps in respect of some different term of insurance not identified in submissions). It is contended that the application has reasonable prospects of succeeding under and in light of the terms of r 84.12 of the Supreme Court Rules of the Supreme Court of South Australia ("the Supreme Court Rules"). It reads:

"The court may vary or set aside a judgment or order at any time if the justice of the case so requires."

18 I am prepared to accept that I should determine whether to grant the adjournment sought in part by asking whether the debtors have a "genuine arguable case" that judgment in the insurance action will be set aside. There may be at least two hurdles in that regard. Even if the debtor's application for leave to reopen their case is successful, that does not mean that the insurance claim will succeed. I think it is probably more accurate, therefore, to put into the balance of factors the prospects of the debtors being given leave to reopen their claim in the insurance action, and perhaps also to endeavour to form some assessment of the prospects of the debtors ultimately obtaining judgment in their favour in the insurance action. The adjournment of the petition is of course a discretionary matter. There may be other factors which are relevant to the exercise of that discretion but that clearly is one of them. The test proposed by the debtors bears resemblance to the test expressed by the Full Court in Ahern v Deputy Commissioner of Taxation for Queensland (1987) 76 ALR 137 at 148, although that case was concerned with an application to adjourn an application for a sequestration order while an appeal was pending against the judgment relied upon as the foundation of the bankruptcy proceedings rather than, as is the present case, an application to reopen a final judgment given now some time ago, and a judgment of a Full Court in respect of which the High Court has refused special leave to appeal. 19 In Copping v ANZ McCaughan Ltd (1996) 67 SASR 525, Lander J at 564-568 discussed the circumstances in which the Supreme Court could and would set aside a judgment under r 84.12 of the Supreme Court Rules. Doyle CJ agreed with his Honour's reasons in that respect at 526. The other member of that court, Bollen J, did not need to address that point. Lander J at 568 found that r 84.12 did empower the Full Court, in appropriate circumstances, to set aside or vary an order of a previous Full Court. His Honour added at 569:

"Although this court does have jurisdiction to vary or revoke a sealed order of the court, it is a jurisdiction that would be exercised only sparingly. A fundamental principle of litigation requires that there be an end to litigation: Wentworth v Woollahra Municipal Council (1982) 149 CLR 672; State Rail Authority (NSW) v Codelfa Construction Pty Ltd (1982) 150 CLR 29. A judgment regularly entered after both parties have had full opportunity to present argument on either side, could be only varied or revoked if the justice of the case compelled the variation or revocation of the order."

"In my opinion a forensic decision made by a party or the party's advisers during the hearing of an appeal ought, except in exceptional circumstances, to be binding upon the party and therefore disentitle that party to any right to revoke, set aside or vary the judgment or order made upon that forensic decision."

21 His Honour then refers to a passage from University of Wollongong v Metwally (No 2) (1985) 59 ALJR 481 at 483 as follows:

"It is elementary that a party is bound by the conduct of his case. Except in the most exceptional circumstances, it would be contrary to all principle to allow a party, after a case had been decided against him, to raise a new argument which, whether deliberately or by inadvertence, he failed to put during the hearing when he had an opportunity to do so." 22 I am therefore satisfied that the application made on 26 May 2000, before the Supreme Court, is competent and is one in respect of which that court may make the orders sought. It is necessary to determine either that there is a genuine arguable case that it will do so, or to have regard to the prospects of that Court doing so. As noted, there is or may be an additional consideration, even if leave to reopen the case is given, as to whether the outcome in the insurance action might ultimately be different. However, I do not need to address that additional consideration because, in my judgment, the debtors have no real prospect of being given leave to reopen their case in the insurance action by the Full Court. 23 The two bases upon which the application is made under r 84.12 of the Supreme Court Rules, as identified in the submissions before me, as I have mentioned, concern the existence and terms of certain insurance policies, and the nature and extent of Mr Zollo's disability. 24 On the first aspect, Mr Zollo filed an affidavit sworn on 11 February 2000 to which he exhibited an affidavit from the insurance action in the Supreme Court. It asserted that the creditor and the insurer, in the conduct of the possession action and the insurance action, had dishonestly denied the existence of policies and that, as a result of information acquired subsequent to the judgments in those two actions, he had learned of the existence of three policies of insurance. He gave the numbers of those policies. It is apparent from the exhibits to that affidavit that his claims are not sustainable. In at least one respect he received correspondence from either the insurer or the creditor (the copy available does not make clear which) acknowledging the existence of a policy which had lapsed due to the non-payment of premiums. That is by letter to him dated 18 March 1993. Other evidence adduced by the creditor on this application makes it plain that, although there were three numbers relating to an insurance policy in records of the creditor or of the insurer, there was in fact only one insurance policy. That evidence also shows that that policy was discovered in the course of the pre-trial procedures leading to the hearing of the insurance action and the possession action, and indeed that it had been referred to in the course of the hearing of those actions. The fact of there being three different numbers is also explained by evidence as part of the administrative processes of the insurer or, in one respect, by typographical error. 25 In my judgment, there is no cogent material to demonstrate any arguable case that the creditor or the insurer failed to disclose to the debtors at an appropriate time the existence of an insurance policy or insurance policies, far less that they did so deliberately. 26 In addition, there is nothing to indicate that, even if there were other copies of insurance policies or other insurance policies, as Mr Zollo now asserts to, there is anything in the terms of those policies which could or would result in a different finding about the relevant terms of those policies for the purposes of determining whether he was entitled to indemnity under them. The claim in the insurance action was that there was an oral contract of insurance with particular and beneficial terms for Mr Zollo. The Full Court rejected that claim. It found that the policy of insurance was in accordance with the insurer's standard terms. Nothing before me suggests there was more than one relevant standard policy. 27 Accordingly, I am not satisfied that the debtors have demonstrated a genuine and arguable case that they will be given leave to reopen the decision of the Full Court in the insurance action, far less that they have any real prospect of achieving a different result in that action if they are given leave to reopen their case, on that basis. 28 The second aspect of the debtors' claim is based on medical reports in evidence on this application. Counsel for the debtors acknowledges that the further evidentiary material now identified, namely additional medical reports from Mr Osti and a medical report from a Mr Kassapidis, a psychologist, do not fall within the category of "fresh evidence" such that leave would be given to adduce it on appeal or at a new trial. The principles upon which such fresh evidence may be permitted to lead to a new trial are discussed, for example, in Council of the City of Greater Wollongong v Cowan (1955) 93 CLR 435. They are that it needs to be shown, firstly, that it is reasonably clear that if such evidence had been available at the first trial and had been adduced, there would have been an opposite result; secondly, that if it is not reasonably clear that that would have been the outcome, it must have been so highly likely as to make it unreasonable to suppose otherwise; and thirdly, that reasonable diligence must be shown to have been exercised prior to the first trial to procure such evidence. 29 The debtor's submission is that r 84.12 of the Supreme Court Rules imposes a less stringent onus upon the debtors. That submission appears to have been accepted by counsel for the creditor, although it is contended nevertheless that the balancing of the interests of justice involves having due regard to the strong public interest in the finality of litigation and the need to point to some special circumstances which warrant the exercise of that power. See Mohtar v Mohtar (1988) 146 LSJS 377 at 391; Bristol Motors Pty Ltd v Sideris Investments Pty Ltd (Debelle J, 16 December 1994, unreported); and National Australia Bank v Appleby (Burley J, 12 August 1999, unreported). 30 The principal difficulty for the debtors in this matter, in my judgment, is that they apparently chose to have the Full Court of the Supreme Court of South Australia proceed in the insurance action to determine Mr Zollo's entitlement to indemnity under the insurance policy (as the Full Court had found it to exist) rather than to seek that the matter be remitted to the trial judge to further hear and determine the question of that entitlement to indemnity in the light of the first judgment of the Full Court in the insurance claim given on 20 December 1996. I referred above to the observations of Doyle CJ, making that point in the second Full Court judgment in the insurance action given on 21 March 1997. Having acquiesced in that course of action, in my judgment, there is no such prospect of the Full Court giving leave to reopen that factual issue under r 84.12 sufficient to warrant the granting of an adjournment of this petition. 31 In addition, although the circumstances in which fresh evidence may be adduced on the hearing of an appeal, or for a new trial after appeal, may be more stringent than those applicable to a consideration of a claim under r 84.12, given the elapse of time and the character of the proposed new evidence, I do not think there is a sufficient prospect of the Court granting leave to reopen to warrant the adjourning of this application. There is no basis established for being satisfied that the three additional medical reports of Mr Osti present a picture significantly different from that which he presented at the trial of the insurance action. They may do so or they may not do so; I do not know. But it is not shown that they present a new picture as to the nature and extent of Mr Zollo's disability so far as it is relevant to the terms of the policy, so as to indicate that there is any real prospect of a different result being reached by reason of his medical views. The other medical evidence is that of Mr Kassapidis, who apparently saw Mr Zollo for the first time on 25 March 2000. There is no evidence to indicate why Mr Zollo was first assessed by that psychologist at that time, or whether he had previously been assessed by a psychologist at an earlier point of time, or to explain (if that information is significant to his claim to be entitled to indemnity under the insurance policy) why that information was not procured and produced in evidence after the first Full Court decision in the insurance claim given on 20 December 1996 if not at the trial. Moreover, the opinion of Mr Kassapidis does not clearly indicate that his view, had it been expressed at the trial or before the Full Court, is likely to have resulted in a different conclusion being reached by the Full Court, having regard to the interpretation which the Full Court placed upon the term "permanent and total disablement" in the insurance policy. 32 Accordingly, in my judgment, the debtors have not established a genuine and arguable case that the Full Court will give leave to reopen the judgment in the insurance action, when and if that application is pursued. I am not prepared totally to discount that possibility but it is not a matter which weighs very heavily in the scales in the exercise of my discretion whether or not to grant the adjournment sought. 33 There are, in my judgment, some additional considerations which weigh against the exercise of the discretion. Principally they relate to the timing of this application. The debtors have had ample time within which to pursue the matters which they are now seeking to pursue in the Full Court. They were served with the bankruptcy notice on 25 June 1999, so they have had a year in which they have been on notice as to the claim of the creditor. They applied for a stay of execution in the Supreme Court to prevent the creditor from enforcing the judgment in the possession action made on 16 July 1999 and ultimately refused on 17 December 1999. They have otherwise done relatively little. The present application before the Supreme Court could have been pursued much earlier. There is no reason given why the information now relied on could not have then been available. Even when they were served with the application for a sequestration order, they have had a further period of in excess of five months to pursue that application, but again they have done very little, at least until the application of 26 May 2000. They were clearly on notice by the letter from the Associate to the Chief Justice of the Supreme Court of South Australia of 9 February 2000 that whatever documents they had filed to that time would not prompt any further consideration of that application by the court. That delay is unexplained. 34 It is hard to resist the conclusion that the response of the debtors has not only been dilatory in the exercise of the rights which they now seek to exercise, but has been somewhat prompted only by the inevitability of facing, first of all, the petition and then, following a series of directions hearing on the petition, the inevitability of the hearing of this matter first listed on 13 June 2000. 35 I also bear in mind, as counsel for the debtors acknowledged in the course of argument, that the Official Receiver, who will become the trustee in bankruptcy of the estate of the debtors, will be entitled to pursue the application to reopen the insurance action and, in effect, to seek judgment in the insurance action in favour of Mr Zollo, notwithstanding the making of a sequestration order. The Official Receiver will no doubt consider that question, because it will be raised by the debtors, and may take advice with respect to it. There is no reason to think that, simply because of the commercial association between the insurer and the creditor, the Official Receiver will not conscientiously consider the prospect of pursuing that claim. 36 I also bear in mind that there is no application to set aside the judgment upon which the bankruptcy notice was given and the sequestration order is now, in that sense, based. The indebtedness is acknowledged. Moreover, in the case of Ms Zollo, she does not assert any claim which, in her own right, would excuse her from that indebtedness, either directly or indirectly through the insurer. 37 I also bear in mind, albeit as a minor factor, in the light of the association which I assume between the creditor and the insurer, that the insurance claim is not a claim which in any event would result in a counterclaim or set‑off by either of the debtors against the debt of the creditor. It is a claim which, at best, would result in a judgment in Mr Zollo's favour against the insurer. It would be then up to them to enforce that judgment, and to apply the proceeds of that judgment, if so advised, to payment to the creditor. The situation is not quite the same as it would be if the insurer and the creditor were remote and unrelated entities, but it is also not a situation where the debtors, or either of them, even claim now to have a direct set-off or cross-claim against the creditor. The material relied upon does not demonstrate that there is any attempt to dispute now the decision of the Full Court that such claim as Mr Zollo may have had under the insurance policy and which he seeks to revive and revisit, is a claim only against the insurer and not against the creditor. 38 For those reasons the application for an adjournment is refused. 39 There are no other grounds advanced in opposition to the making of the sequestration order. I am satisfied that the formal matters required to be proved by the Act and the Bankruptcy Regulations are established. I have had regard to the grounds upon which the notices of intention to oppose the petition are expressed and the affidavits filed in support of those notices of opposition. For reasons which I have given in refusing the adjournment, I do not think those grounds are made out sufficiently to warrant the dismissing of the petition. In these circumstances I propose to make a sequestration order against the estate of the debtors. 40 I make the following additional orders; namely the creditor's costs be taxed and paid from the estate of the debtors in accordance with the Bankruptcy Act, other than the costs of the hearing on 13 June 2000, and the costs of the debtors of the hearing on 13 June 2000 be taxed and paid by the applicant creditor. 41 I make orders in terms of the minutes of order handed up to me, as altered and initialled, to reflect those matters. I certify that the preceding forty-one (41) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Mansfield.

Associate: Dated: 19 July 2000 Counsel for the Applicant Creditor: Mr W M Ericson

Counsel for the Judgment Debtors: Mr E A Fardone

Solicitors for the Judgment Debtors: Fardone & Co

Date of Hearing: 27 June 2000

Date of Judgment: 27 June 2000