APPEAL - Bank loan insurance - Cessation of cover on initial loan being paid out and new loan commencing - Whether respondents engaged in misleading and deceptive conduct - Factual findings at trial not dependent on credibility of witnesses - Court of Appeal in as good a position as trial judge to decide facts - Different factual findings made - Appeal allowed - Warren v Coombes [1979] HCA 9; (1979) 142 CLR 531; Fox v Percy [2003] HCA 22; (2003) 214 CLR 118; CSR Ltd v Della Maddalena [2006] HCA 1; (2006) 80 ALJR 458 applied.

3 Mr Cetin Sahin and his wife Edliban Sahin were at relevant times customers of the Mildura branch of the National Australia Bank Limited ('the bank'). In 2002 they purchased a block of land in Olympic Way, Mildura, and commenced erecting a house on that land as owner/builders. By mid-2003, they required finance to complete construction of the house. A loan of $110,000 was arranged with the bank in July 2003 ('the first loan'). On advice from a lending manager of the bank, Andrew Moss, they purchased a policy of consumer credit insurance from National Australia Financial Management Ltd ('the insurer'), then a subsidiary of the bank ('the loan insurance'). The loan insurance premium was added to the loan amount.

4 Commencing on 12 August 2003, Mr and Mrs Sahin drew down the loan funds progressively. By June 2004, the first loan was fully drawn. However, although construction of the house was complete to lock-up stage by this time, Mr and Mrs Sahin required additional finance for furnishings and finishes. They again approached the bank for finance. They dealt with a different loan officer, Nicole Simmons (later Mrs Nicole Davis). Further finance in the amount of $23,000 was offered by the bank, on terms that the first loan would be repaid and a second loan would be made for the outstanding balance on the first loan and the further $23,000, making a total loan of $133,000 ('the second loan').

5 Given that Mr and Mrs Sahin had taken out loan insurance for the first loan,

and by the second loan were undertaking increased borrowing and thus risk, it was to be expected that they would purchase loan insurance for the second loan also. This is particularly so when the cost of loan insurance was of a relatively small amount when compared to the risk undertaken by Mr and Mrs Sahin, and in circumstances where only Mrs Sahin was employed.

6 Mr and Mrs Sahin say that they understood the loan insurance for the first loan would continue in force under the second loan. When Mrs Sahin was injured in a workplace accident in October 2004, they sought to claim on the presumed insurance policy. However, the insurer rejected the claim, on the basis that the policy had terminated when the first loan was repaid. Further, according to the bank, it had offered Mr and Mrs Sahin loan insurance at the time of arranging the second loan, but they declined the offer because of the additional cost.

7 Mrs Sahin has not recovered from her workplace injury. After continuing to make payments due under the second loan for some months, Mr and Mrs Sahin ceased making payments because of their inability to do so. They commenced proceedings in the County Court against the bank and the insurer seeking orders requiring the insurer to pay the bank all instalments due under the second loan during the course of Mrs Sahin's incapacity arising from her workplace injury.

8 After a six day hearing in the County Court, the claim was dismissed. The trial judge found that the loan insurance cover ceased on repayment of the first loan by the second loan, that Mr and Mrs Sahin were offered loan insurance in respect of the second loan, and that they expressly declined that offer. It was accordingly decided that none of the claims could succeed. Mr and Mrs Sahin appeal against that decision. On appeal, Mr and Mrs Sahin challenge, on a number of grounds, the critical factual findings that: (1) they were offered insurance for the second loan and (2) that they declined that offer. They seek to persuade the Court that one or more of their grounds of claim before the County Court should have been allowed. Those grounds include claims based on alleged false or misleading conduct and negligence by the bank, in its own capacity and as agent for the insurer, in failing to explain that repayment of the first loan by the second loan had the effect of terminating the loan insurance.

9 Mr and Mrs Sahin were not represented in the County Court or on appeal. Mr Sahin conducted the case below and the appeal. He did so competently, although with an obvious lack of objectivity or understanding of the forensic significance of relevant aspects of the evidence.

10 In order to understand the arguments on appeal, it is necessary to consider the facts in some detail. Before doing so, it is convenient to record a submission made on behalf of the bank and the insurer, to the effect that this Court should not interfere with any of the factual findings made by the trial judge, because those findings were based on the judge's view of the credibility of the witnesses. I do not accept that submission. As appears below, the trial judge did not reach his conclusion adverse to the appellants on credibility grounds. To the contrary, the only significant comments made by the judge as to credibility were directed at criticising the evidence of the bank's principal witness, Mrs Davis, on the ground that she was not giving evidence of actual recollection but more likely of reconstruction based on her usual practice and contemporaneous records. Having read the whole of her evidence, I agree with the trial judge's view. It is obvious that Mrs Davis had no actual recollection of what was said in conversations with Mr and Mrs Sahin and that she was reconstructing from usual practice and documents. Further, it is clear that her reconstruction was wrong and inconsistent with the bank's documents in at least one key respect, and that her brief contemporaneous notes are incomplete, ambiguous or mistaken in material respects. In my view, this Court is in as good a position as the trial judge to assess the probabilities on the evidence as a whole, and must do so in order to comply with its duty to afford Mr and Mrs Sahin a true right of appeal in the nature of a rehearing.[1]

11 Andrew Moss was the bank's lending manager responsible for arranging the first loan. In a meeting with Mr and Mrs Sahin, he raised the issue of consumer credit insurance. Initially, Mr and Mrs Sahin did not want insurance. However, following Mr Moss' explanation of the benefits of insurance, 'they then insisted they wanted insurance'. Mr Moss said that, because Mr Sahin was not then employed, only Mrs Sahin could obtain loan insurance. Accordingly, the loan insurance policy named Mrs Sahin as the sole insured. Mr and Mrs Sahin were jointly and severally liable under the contract for the first loan.

12 The first annual premium for the insurance was $770.69. This was added to the principal amount of the first loan, making a total loan of $110,770.69 repayable over a 25 year period.

13 At the time of arranging insurance, Mr and Mrs Sahin were provided with a 'Customer Information Brochure' describing the key features of the insurance policy. This document was not the policy itself. According to the bank's usual practice, a copy of the policy should have been given to Mr and Mrs Sahin at this time, or at least sent to them after the policy had been taken out. However, Mr and Mrs Sahin said that they never received a copy of the formal policy document. Taking the evidence as a whole, the evidence of Mr and Mrs Sahin should be accepted. They gave clear evidence of not receiving the formal policy document and the bank and the insurer could only point to usual practice. Further, as appears below, a number of important documents were sent by the bank and the insurer to the wrong address for Mr and Mrs Sahin, and it is likely that this is the reason for them not receiving the policy in the mail.

14 The trial judge thought that it was unnecessary to decide whether this was so, because there was no material difference between the information brochure and the actual policy. With respect to the trial judge, that is not so. The significance of the differences are referred to below.

15 The information brochure contains the following statement:

• rewriting of the Loan Agreement;
• the fulfilment of your obligations under the Loan Agreement;
• the anniversary of the Policy following your 65th birthday for each life insured under the Policy;

Note: When there are two Insureds on the Policy, the Policy ceases on the anniversary of the Policy following the 65th birthday of the youngest Insured.

• a Life Cover or Critical Illness Benefit becoming payable for an Insured under the Policy;
• the expiry of the Loan Term;
• your written request to cancel your Policy;
• your failure to pay any premium due; or
• where cancellation by us is permitted by law, upon us giving you at least 30 days written notice of cancellation.

16 The bank and the insurer rely on this statement, which is repeated as a term in the formal policy document. They contend that the loan insurance ceased automatically when the first loan was repaid by the second loan, as this had the effect of either 'rewriting' the first loan or the 'fulfilment' by Mr and Mrs Sahin of their obligations under the first loan agreement. However, there was no discussion between Mr and Mrs Sahin and Mr Moss about this aspect of the policy. Mr Moss said only that it was his usual practice to inform borrowers taking out loan insurance that the cover was 'only for the period of the loan'.

17 It is convenient to note here that the bank and the insurer submitted to the trial judge, in error, that the insurance cover ceased because the second loan constituted 'rewriting of the [first] loan agreement'.[2] The trial judge accepted that submission. In fact, the policy defines 'Re Write' as being an 'alteration of the terms and conditions of [the first loan agreement].' That is not what happened in this case. However, I accept that the loan insurance cover did cease on the making of the second loan because, by paying out the first loan with the proceeds of the second loan, Mr and Mrs Sahin 'fulfilled' their obligations under the first loan agreement.

18 There is a further material difference between the customer information brochure and the policy document. In the customer information brochure, in the section headed 'General Terms and Conditions', the following appears:

If you pay your Loan out early

If you make all the required payments under the Loan Agreement before expiry of the Loan term, we will refund the unexpired portion of your Premium (in accordance with applicable consumer credit legislation) to the account the premiums were deducted from. Your Policy and the cover under it will then cease.[3]

This is ambiguous language. To consumers such as Mr and Mrs Sahin, the first thing to happen upon early repayment was to be the refund of premium, followed then by cessation of cover. The statement assumes that there will be a premium refund. There was none here, and thus nothing to alert Mr and Mrs Sahin that their loan cover had ceased.

19 In the formal policy document, the legal effect of early repayment is stated in clear terms:

What happens if the Loan is paid out early?

Your Policy and the cover under it will then cease when the Loan is paid out. If you make all required payments under the Loan Agreement before the expiry of the Loan term, we will refund the unexpired portion of your Premium ...[4]

Why this sensible and clear language was not used in the customer information brochure was not explained in evidence or submissions.

20 On 25 July 2003, Mr and Mrs Sahin signed a 'National Loan Cover Application' form for the first loan. The application form included an instruction to the bank officer witnessing their signatures that, if the customer elected not to accept loan insurance, that fact should be recorded in the 'Customer Advice Record' to be signed by the customer. That customer advice record form was signed by Mr and Mrs Sahin on 25 July 2003. In that record, Mr and Mrs Sahin acknowledged that they elected to purchase loan insurance as recommended by Mr Moss.

21 Also on 25 July 2003, Mr Moss completed and signed Part B of a 'National LoanCover Check List', which required completion 'If the customer REQUIRES National LoanCover protection'.

22 If Mr and Mrs Sahin had elected not to purchase loan insurance, the customer advice record made provision for them to sign an acknowledgment to that effect. In addition, if this had been the case, Mr Moss would have required them to complete and sign Part A of the 'National Loan Cover Checklist' which provided:

Please have the customer(s) sign here

I/ we do not wish to purchase National LoanCover.

I/ we acknowledge that it is not a requirement of the loan to acquire National LoanCover insurance, and that I/we cannot be required to buy this insurance, and if considered necessary, I/we will make alternative loan protection insurance arrangements.

23 Therefore, in accordance with bank procedures, Mr Moss ensured that the decisions made by Mr and Mrs Sahin in connection with the loan insurance were recorded in writing and acknowledged by the signatures of Mr and Mrs Sahin. As appears below, Mrs Davis did not follow this sensible precaution to avoid any misunderstanding on this issue with respect to the second loan.

24 By signing the loan cover application form, Mr and Mrs Sahin authorised and directed the bank to debit their loan account with payment of the insurance premium each year on the anniversary of the policy.

25 The facility agreement for the first loan was also signed by Mr and Mrs Sahin on 25 July 2003. The financial information table in that agreement states that the loan insurance premium is to be paid from the facility amount.

26 By June 2004, the first loan had been fully drawn down by Mr and Mrs Sahin. They required further funds to complete their home, for matters including interior decoration, furnishings and the like. By this time, Mr Moss had left the Mildura branch of the bank. His position had been assumed by Mrs Davis, who had been assisting Mr Moss for about six months in his role and who had about five years experience as a bank employee.

27 On or about 4 June 2004, Mrs Davis met Mr and Mrs Sahin at the Mildura branch of the bank. Her recollection of this meeting was mistaken in key respects. Although it is apparent from her evidence as a whole that she was reconstructing from a review of bank records, she nevertheless gave evidence inconsistent with those records. She said that she recalled the purpose of the meeting was to sign personal loan contracts and to discuss house and contents insurance. She said that she could not recall 'an exact conversation ... other than it would be to consolidate the personal loan with the home loan'.[5] Mrs Davis adhered to this purported recollection, even when it was pointed out to her that it was inconsistent with bank records. The only personal loan by the bank to Mr and Mrs Sahin had been repaid by the proceeds of the first loan, well before involvement of Mrs Davis. This mistake in her evidence casts real doubt upon her reliability as a witness. Indeed, as appears above, the whole of her evidence was in my opinion reconstruction based on bank records and her usual practice. This issue is discussed further below.

28 Rejection of Mrs Davis's evidence concerning the personal loan leaves only her evidence that, on 4 June 2004, there was a discussion with Mr and Mrs Sahin about house and contents insurance. That was probable, as Mr and Mrs Sahin took out house and contents insurance with the bank on 7 June 2004.

29 Mr Sahin's evidence concerning the 4 June meeting was as follows. He said that it was preceded by an earlier meeting with Mrs Davis, in which he and his wife asked for further finance of between $25,000 and $30,000. He said that Mrs Davis required proof of Mrs Sahin's earnings, to satisfy her that the further repayments could be met, before approving the further finance. He said that shortly afterwards, Mrs Davis rang him and asked him and his wife to attend the bank to sign some further documents. They attended on 4 June 2004, only to be told that the papers were not ready. It was on this occasion that they discussed house and contents insurance. It was not put to Mr Sahin that this evidence was false. The significance of this issue appears below, when considering the text of the contemporaneous computer notes made by Mrs Davis on 14 July 2004.

30 On 15 June 2004, the bank wrote to Mrs Sahin, who was the first-named borrower and the insured under the loan insurance. The letter stated that the first loan had been fully drawn and that future loan repayments were to be as specified. The letter noted that the specified repayments included the loan insurance premium.

31 By letter dated 22 June 2004, the bank informed Mr and Mrs Sahin that:

Following the review of the above loan account, and under your authority to the National regarding insurance premium renewal, the National Financial Management insurance premium has been debited to your account and requires a change to your repayments as follows: Your loan contract allows the Bank to vary the required repayments in these circumstances. Accordingly, your minimum weekly loan repayment is going to change to $179.20 with effect from 12 AUGUST 2004.[6]

32 The letter is wrong and confusing. The renewal premium had not been debited to the account. It was to be debited on the renewal date, 12 August 2004.

33 On 5 July 2004, the insurer sent a letter to Mrs Sahin enclosing a copy of its renewal notice dated 20 June 2004, which had been mistakenly sent to the wrong address - being a post office box address no longer used by Mr and Mrs Sahin - and returned to the insurer ('the renewal notice'). The renewal notice was in the form of a letter, in the following terms:

We would like to update you on your National LoanCover Policy. The anniversary of your loan is approaching and we will automatically renew your policy and adjust your premium. Each year, we adjust the premium as your loan details change. The calculation of the new premium is based on your projected outstanding loan balance at policy renewal date, the remaining loan term, your contract repayment amount and frequency, your age, smoking status and the benefits you have selected under your policy.[7]

34 The renewal notice specified the loan insurance as being due for renewal on 12 August 2004, and stated that the cover was for the whole amount of the first loan in the event of death or critical illness, and $740 per month (sufficient to cover the adjusted weekly repayments) in the event of disablement. The notice then stated:

As requested, the annual National LoanCover premium will be automatically debited to your outstanding loan balance on the Policy Renewal Date. Your next loan repayment following the Policy Renewal Date will be adjusted to reflect the new premium and your total repayment amount.[8]

35 At this stage, the conduct of the bank and the insurer no doubt induced Mr and Mrs Sahin to believe that the loan insurance would be automatically renewed on 12 August 2004, the renewal premium would be debited to their loan account, and their loan repayments would be adjusted to reflect both the automatic debit of the renewal premium and 'the projected outstanding loan balance at [the] policy renewal date [12 August 2004]'. The conduct of the bank and the insurer called for no action from Mr and Mrs Sahin for this to occur. It was to happen automatically unless they contacted the bank or the insurer and stated that they did not wish to continue with the loan insurance. By their silence, Mr and Mrs Sahin accepted this position. If matters had remained there, there would have been no problem.

36 On 14 July 2004, Mr and Mrs Sahin met again with Mrs Davis (the '14 July meeting'). It is clear that this meeting was to discuss Mr and Mrs Sahin's request for an increase to their loan facility. Apart from one matter, which is mentioned below, neither Mr Sahin nor Mrs Sahin could recall the substance of the discussions at the 14 July meeting. Mrs Davis purported to recall what transpired at that meeting. For the reasons I have already given, I do not accept that she had any reliable recollection of the meeting. Her evidence was reconstruction based on usual practice and bank documents. The trial judge noted this during the course of her evidence, and in his reasons.

37 However, even if some aspects of Mrs Davis's evidence are recollection refreshed from contemporaneous records the high point of her evidence on this issue was contained in the following exchange:

[HIS HONOUR:] You seem to be saying what usually happens, what your usual procedure is. Can you say what happened on this particular day, and if you can't then Mr Shepherd might ask you what your usual procedure is. But he was asking you what you discussed on this particular day? --- Yes. So when we were discussing the loan cover and the new repayments, and with the higher premiums, with both of them covered, loan cover offered to both parties, they weren't interested in the loan cover.

MR SHEPHERD: All right.

HIS HONOUR: So you have referred to higher premiums offered for both. Can you - - -? --- Yes. So the loan cover was offered to both Mr and Mrs Sahin, and the previous loan had loan cover for Mrs Sahin, but I felt both parties could definitely benefit from loan cover in the event if one of them should die then the other would be left to try and manage the home loan by themselves, so I offered the loan cover to both parties.

MR SHEPHERD: And what did they say? --- They weren't interested in the loan cover with the higher repayments.[9]

38 As appears below, the computer notes made by Mrs Davis on the following day contain reference to 'loan cover' being discussed. I infer that those notes are the source of this evidence.

39 Even if this was reliable evidence of recollection, and not reconstruction, it nevertheless contains ambiguity. In circumstances where Mr and Mrs Sahin were entitled to believe that the loan insurance would be automatically renewed, and their payments adjusted to reflect the renewal premium and current loan balance at renewal date [12 August 2004], an offer of 'loan cover' is likely to have been misleading unless it was accompanied by a clear explanation that the effect of the new loan structure being insisted upon by the bank would be to terminate the existing loan insurance.

40 In that respect, reference must be made to the evidence of Mrs Davis, in a non-responsive answer to an ambiguous question during cross-examination. She said that she told Mr and Mrs Sahin during the 14 July meeting that the effect of the first loan being repaid would be to terminate the loan insurance:

Did you made us know that the insurance was an important part of the loan cover contract? --- I let the customers know, Your Honour, that on paying out the existing home loan and consolidating the personal loan into a new loan that the loan cover ceased, and no loan - sorry.

HIS HONOUR: Look, I think I will adjourn for a short period. Although Mrs Davis is under cross-examination, I suggest, Mr Shepherd, that you and your instructor have a word with her.

(Discussion ensued.)

(Short adjournment)

41 Notwithstanding that Mr Sahin was appearing as a litigant in person, the trial judge did not ask any questions about this evidence after the discussion and adjournment. Mr Sahin did not pursue the issue in cross-examination. On appeal, he submitted the evidence was false. The trial judge did not refer in his reasons to this evidence, or to the issue as to what explanation was given to Mr and Mrs Sahin concerning the effect on the loan insurance of the new loan structure insisted upon by Mrs Davis. In my opinion, this evidence does not accord with the probabilities and should not be accepted. In her evidence in chief, Mrs Davis was not asked and gave no evidence that she told Mr and Mrs Sahin that the effect of the first loan being repaid was to terminate the loan insurance. Had she given instructions to that effect to the bank's lawyers, that evidence would surely have been led, as it was highly relevant.

42 Further, the evidence was given during a period of Mrs Davis's evidence where she was obviously reconstructing, as the exchanges immediately preceding this evidence show:

What was asked when offering the loan cover insurance, what did you specifically ask us? --- I would have specifically asked - I would have needed your date of birth, and whether you were a smoker or a non smoker.

And we said no in response, is that correct? We didn't want loan cover, is that correct? --- Well, entering in information to work out the premiums, is that what you are asking me?

When you asked us if we wanted - what was your specific question, when asking - when offering us insurance, what did you specifically ask us; what were the words? Did you just put the question to us and then we said no and that was it, or did you specify the importance of having an insurance policy under the home loan? --- Specifically when asking about whether the customers wanted loan cover, Your Honour, I would have needed to ask the - just the date of birth and smokers and non smokers, and - - -[10]

43 It is clear from reading Mr Sahin's evidence as a whole that, if Mrs Davis had explained that the effect of the new loan structure imposed by the bank would be to terminate the loan insurance, he would have taken steps to obtain loan insurance for the full amount of the second loan.

44 Notwithstanding Mrs Davis's lack of recollection, I accept her evidence that she made (largely) contemporaneous computer notes of the 14 July meeting on the following day, 15 July 2004. Mr and Mrs Sahin challenge the authenticity of the computer notes, alleging that they are the result of a fraudulent conspiracy between Mrs Davis and an unnamed computer systems administrator employed by the bank to concoct false evidence to defeat their claim. For the reasons given by the trial judge, that contention should be rejected. However, for the reasons given below, the computer notes are as incomplete and ambiguous as Mrs Davis's reconstructed oral evidence.

45 The bank maintained separate computer records for each of Mr and Mrs Sahin. Each record includes a section headed 'Borrowing' and a section headed 'Protection'.

46 In the sections headed 'Borrowing', Mrs Davis noted:

15/07/2004 finalised $110K BICOE.[11] Need $23K to finish furnishing home and odd jobs around the house. Applied to rewrite h/loan to $133K. Waiting on payslip at this point to finish processing.

15/07/2004 H loan approved, $110K BICOE now complete looking for $23K extra funds to complete home. Waiting for updated payslip. Looking to rewrite home loan base BRh loan $133 requested.

47 These notes record the full drawdown of the first loan, the making of the application for further finance, and a request for proof of Mrs Sahin's earnings. However, the entry 'Applied to rewrite h/loan to $133K' is problematic. If the definition of 'Re Write' in the loan insurance policy is adopted, this accords with what Mr and Mrs Sahin were seeking to do - to alter the terms of the first loan so as to increase the facility limit by $23,000. However, it appears that Mrs Davis was, by this entry, seeking to record a different transaction. She interpreted her own note as recording the bank's requirement that the first loan be repaid, and a second loan for the increased amount be 're-written', because she believed it was not possible for the first loan to be extended.

48 In the sections headed 'Protection', Mrs Davis has noted:

15/07/2004 H & C taken, held NAB. No loan cover wanted on loan, not interested

15/07/2004 insurance declined on loan cover. Home and contents held with NAB and I set up at loan drawdown

49 These entries concern insurance 'protection'. Given the purpose of the section, it is understandable that Mrs Davis would have, belatedly, recorded the earlier transaction in June, when Mr and Mrs Sahin took out house and contents insurance with the bank; although she gave no explanation as to why this entry was not made on or shortly after 4 June 2004.

50 The entries are also consistent with Mr and Mrs Sahin believing, in accordance with the renewal notice sent to them on 5 July 2004 and received only a few days before the 14 July meeting, that the loan insurance was already in place and would be automatically renewed, on the terms noted above. I infer that, in that belief, the reference by Mrs Davis to the need for 'loan cover' was probably dismissed out of hand by Mr Sahin in language indicating that he was 'not interested'.

51 Further, it was submitted on behalf of Mr and Mrs Sahin that the entry 'Home and contents held with NAB and I set up at loan drawdown' (emphasis added) makes no sense, because there was no loan made at the time of the home and contents insurance being established in June 2004. I accept that submission. Mrs Davis was given a full opportunity in cross-examination to explain this entry. She adhered to the position that, to the best of her recollection, there was a loan drawdown at the time Mr and Mrs Sahin took out house and contents insurance with the bank in the first week of June 2004. There was in fact no loan drawdown at this time. It may be that the entry refers to the home and contents insurance being 'held' and having been 'set up' at the time Mr and Mrs Sahin had fully drawn the first loan. However, if that were so and Mrs Davis had a real recollection based on her notes and reading the bank's file, she would likely have remembered it. Her evidence on this issue provides a good example of my overall conclusion that she was an unreliable witness. She had no true recollection of material events, refreshed from notes and documents or otherwise, and was reconstructing.

52 A question arises as to whether I should accept Mr Sahin's evidence that he and his wife first applied for further finance during the 4 June 2004 meeting with Mrs Davis. In my view, nothing turns on this. This is because Mrs Davis does not contend loan insurance was discussed on 4 June 2004, and neither do Mr and Mrs Sahin. Taking the evidence as a whole, it is likely that Mr and Mrs Sahin indicated that they may be seeking further finance, of between $25,000 and $30,000, at the 4 June meeting. However, it would appear that it was not until 14 July 2004 that the amount of $23,000 had been identified or agreed upon.

53 Mr and Mrs Sahin did not recall the 14 July meeting, except for one aspect of a conversation with Mrs Davis at about that time. They recalled that Mr Sahin asked Mrs Davis during a meeting whether there was any difference between 'the old contract to the new contract', a reference to the terms of the first loan facility and the second loan facility. They said that Mrs Davis said there was no difference. Mrs Davis 'absolutely' denied this evidence, but she misunderstood the effect of the evidence. Her denial was based solely on the fact that she would not have said there was no difference, because the amount of the loan repayments obviously changed with the increased amount. That was reconstruction. Although nothing really turns on this collateral issue, it provides another example of the unsatisfactory nature of Mrs Davis's evidence as a whole.

54 Following the 14 July meeting, and supply by Mrs Sahin of proof of her employment, Mr and Mrs Sahin signed the loan facility agreement for the second loan on 2 August 2004. Neither Mrs Davis nor the bank officer who witnessed Mr and Mrs Sahin's signatures on the facility documents sought or obtained a signed acknowledgment from them, in accordance with the bank's internal procedures, that they had declined to accept loan insurance. Mrs Davis endeavoured to justify her failure to undertake this sensible procedure, on the ground that she had been taught at a bank training course that it was sufficient if she made an entry concerning a customer's decision to decline loan insurance in the computer record. Mr Moss was critical in his evidence of this approach to such an important matter, and I agree. By substituting an incomplete and ambiguous computer note for the sensible precaution of an unambiguous signed acknowledgment, which should have been obtained after giving Mr and Mrs Sahin a clear explanation that the effect of the new loan structure would be to terminate the loan insurance, Mrs Davis created circumstances for the confusion and misunderstanding of which Mr and Mrs Sahin complain.

55 On 5 August 2004, the bank debited Mr and Mrs Sahin's loan account for the second loan with the full amount of that loan, $133,000. On the same day, the bank repaid the amount owing by Mr and Mrs Sahin in respect of the first loan ($110,822.26), debited Mr and Mrs Sahin's loan account under the second loan with the loan establishment fee and paid the balance of the second loan into Mr and Mrs Sahin's current account to be used for the completion of their home.

56 The final statement for the first loan account records that there was $0 rebate in respect of a 'loan rebate' in respect of a 'policy'. It would appear this was a reference to the loan insurance policy, and that no refund of premium for the final week of the policy was payable. However, Mr and Mrs Sahin are unlikely to have understood this. Misleadingly, the final statement of account refers to a 'loan rebate' of $0, not 'LoanCover rebate'.

57 Upon full repayment of the first loan, the bank sent an automated advice to the insurer. As a result, the insurer generated an automated letter to Mrs Sahin, cancelling the loan insurance for the first loan (the 'cancellation letter'). The cancellation letter stated:

Dear Mrs Sahin

National LoanCover Policy No: 05764013

Life Insured: Edliban Sahin

We wish to confirm that your National LoanCover policy has been cancelled with effect from 5 August 2004.

Should you have any queries regarding the above, we recommend you contact your personal banker to discuss further.

58 Because the insurer had not amended its systems to reflect the last known (correct) address of Mr and Mrs Sahin, the cancellation letter was, as with other correspondence which had been returned, sent to the wrong address. Mr and Mrs Sahin said in evidence that they did not receive it, and I accept their evidence. It is likely that this letter was also returned to the insurer but, unlike the earlier letter advising of automatic renewal of the loan insurance, it was not then sent to the correct address known to the insurer. It was not until after this dispute had crystallised that the insurer belatedly sent a copy of the cancellation letter to Mrs Sahin at her correct address. By then, it was too late for Mr and Mrs Sahin to obtain loan insurance for an event which had already happened.

59 On 27 October 2004, Mrs Sahin suffered a workplace accident in which she injured her wrist. In addition, Mrs Sahin suffers from moderate to severe depression as a consequence of her workplace injury. She has not worked since that time.

60 In about December 2004, Mr Sahin telephoned the insurer to make a claim on the loan insurance. He spoke with a young male who informed him that there was no policy in existence. Mr Sahin said that the person to whom he spoke referred to the loan insurance coming to an end 'because of the refinancing' and that, as a result of 'oversight of the bank manager', the loan insurance cover had been cancelled. He suggested that Mr Sahin contact his bank manager. It was put to Mr Sahin in cross-examination that this conversation did not take place, as the insurer had no record of it. Mr Sahin's evidence appears probable, as he had to learn from someone that the loan insurance had terminated; and the conversation with Mrs Davis which is next referred to appears to follow-on from this disputed conversation.

61 In early February 2005, Mr Sahin spoke with Mrs Davis. He said in evidence that she was apologetic, confirmed that there was no loan cover in place but made no mention of the fact that the bank's computer records contained her note that she offered loan insurance and it had been declined by Mr and Mrs Sahin. This evidence was not challenged. I infer that, at this time, Mrs Davis had no independent recollection of the 14 July meeting. Had she then recalled that she had offered Mr and Mrs Sahin loan insurance and they declined it, she is likely to have told Mr Sahin during this conversation of such a relevant matter. At that time, she must have made some inquiries of the bank's records, in order to confirm to Mr Sahin that no loan insurance was in place and to offer an apology. However, she appears not to have thought to check her computer notes at this time. The fact that Mrs Davis needed to check her computer notes before generating any recollection, reconstructed or otherwise, indicates that the conversation during the 14 July meeting concerning loan insurance is likely to have been of a brief or passing nature.

62 It was not until a meeting with Mrs Davis and a more senior bank officer in September 2005 that the bank, for the first time, informed Mr and Mrs Sahin of Mrs Davis's computer notes in respect of the 14 July meeting. Understandably, Mr and Mrs Sahin said that they were 'stunned' when they were belatedly told of the computer notes, and the seeds of their suspicion that the computer notes are not genuine were thus sown.

63 Subsequently, Mrs Davis assisted Mr and Mrs Sahin with a 'hardship claim' in respect of their inability to meet their loan repayments under the second loan. Mr and Mrs Sahin then commenced making further payments for a short while. However, they became unable to keep them up and refused to make any further payments. In response, the bank threatened to foreclose on the mortgage over Mr and Mrs Sahin's home.

64 Subsequently, the bank commenced proceedings in the Supreme Court seeking to enforce its mortgage and recover possession of Mr and Mrs Sahin's home. In response, Mr and Mrs Sahin commenced their proceedings in the County Court. It would appear that the bank's enforcement proceeding has been adjourned pending the outcome of the County Court proceeding and determination of this appeal.

65 The trial judge decided that all of the claims made by Mr and Mrs Sahin were defeated by his factual findings that Mrs Davis offered loan insurance to Mr and Mrs Sahin during the course of the 14 July meeting, and they declined that offer. His Honour reasoned as follows.

66 First, his Honour found that the computer notes made by Mrs Davis on 15 July 2004 concerning the 14 July meeting were not made fraudulently, as claimed by Mr and Mrs Sahin, but were genuine contemporaneous notes made by Mrs Davis. For the reasons given by the trial judge, that finding should be accepted.

67 Second, the trial judge considered the credibility of witnesses. As I have said, his only adverse comments were directed at the credibility of Mrs Davis. His Honour said:

Mrs Davis appeared to give her evidence in a confident manner. She said she was able to recall details of a conversation with Mr and Mrs Sahin in mid-2004. Her recollection was that her initial contact with Mr and Mrs Sahin was on 4 June 2004 for the purpose of signing a 'personal loan' contract and discussing house and contents insurance. Her recollection about a personal loan is not, however, supported by any bank records produced in evidence. In fact, Mr and Mrs Sahin had taken out a personal loan in June 2003 as a forerunner to the housing loan arranged by Mr Moss in July 2004. The personal loan was immediately paid out from the proceeds of the housing loan. Mrs Davis said that her evidence was based on 'the best of my recollection and reference to computer records'. Mrs Davis may have had reason to remember the transaction with Mr and Mrs Sahin because it was one of the first she was responsible for in her new position.[12]

68 This paragraph contains adverse findings about the reliability of Mrs Davis's evidence. Her evidence, although given in a 'confident manner', was exposed as being wrong on a material matter, and the trial judge rightly drew attention to this. The final comment, that 'Mrs Davis may have had reason to remember the transaction with Mr and Mrs Sahin because it was one of the first she was responsible for in her new position' is no more than speculation, and was not referred to again as a reason for accepting her evidence. Further, if there was something giving Mrs Davis a good reason to remember the 14 July meeting, it is logical that she would have recalled it when she had cause to revisit the transaction in February 2005, only seven months after the meeting. Yet she made no reference to the 14 July meeting in her conversation with Mr Sahin in early February 2005, when he squarely raised insurance cover with her. The trial judge addressed this matter, in part, in the next paragraph of his judgment:

After the conversation with Mr Sahin in February 2005 (only about seven months after the interview in July 2004), Mrs Davis investigated the matter and would presumably have tried to recollect her dealings with Mr and Mrs Sahin. In September 2005 and at later times, she prepared file notes of the events in July 2004. Nevertheless, it appears that her recollection was not entirely accurate about the personal loan and I consider that the evidence she gave may have been based on her usual practice rather than a specific recollection.[13]

69 This paragraph also contains adverse findings about the reliability of Mrs Davis's evidence. Again, the trial judge commenced by referring to a factor favouring the reliability of her evidence, that she investigated the matter in February 2005 'and would presumably have tried to recollect her dealings with Mr and Mrs Sahin', only to immediately draw attention to the obvious deficiencies in her evidence: (1) that her recollection 'was not entirely accurate about the personal loan'; and (2) 'that the evidence she gave may have been based on her usual practice rather than a specific recollection'.[14]

70 I consider the identified deficiencies were understated by the trial judge. In my opinion, based on a reading of the whole of Mrs Davis's evidence and consideration of the documents and objective facts, Mrs Davis was totally wrong about the personal loan, and the judge was wrong to characterise it as, merely, 'not entirely accurate'. Further, it is probable that Mrs Davis's evidence was all reconstruction based on documents, and should have been rejected by the trial judge on that basis. Alternatively, at the very least, her evidence was so infected by reconstruction that the trial judge ought to have given it no weight unless it was consistent with the evidence of Mr Sahin or the probabilities required its acceptance.

71 Third, although the trial judge expressed a number of doubts about the reliability of Mrs Davis's evidence, including as to material aspects of the 14 July meeting, he nevertheless determined to accept the whole of her evidence concerning the 14 July meeting, and concluded that there was 'nothing inherently improbable about Mrs Davis's note of the conversation':

It is likely, in my view, that Mrs Davis's computer note accurately records the substance of her discussion with Mr and Mrs Sahin on 15 July 2004 and that they consciously made a decision not to take out loan cover insurance on the fresh loan because of the additional cost. Notwithstanding that Mr and Mrs Sahin had taken out a substantial loan the previous year, their house was unfinished and they required an additional $23,000. The premium for continued loan cover would have been greater than the initial premium of $770.69. Mr Sahin said that the premium would have been an additional $195 in the first year of the new loan. Whilst it is simply speculation that this fact might have determined Mr and Mrs Sahin's attitude to continuing with insurance cover, in my view, there is nothing inherently improbable about Mrs Davis's note of the conversation. In view of all the circumstances I have referred to, I consider that her version of events should be accepted.[15]

72 Taking the evidence as a whole, I disagree with these conclusions. The reconstructed evidence of Mrs Davis was not transformed into reliable recollection, simply because the computer notes were genuine. Her evidence remained as reconstruction, leaving the computer notes to speak for themselves. Stripped of the gloss given by Mrs Davis's reconstructed oral evidence, the computer notes are, for the reasons given above, a most ambiguous and unreliable guide to the content of the conversation during the 14 July meeting concerning loan insurance. In circumstances where I do not accept Mrs Davis' evidence that she explained to Mr and Mrs Sahin that the effect of the new loan structure imposed by the bank would be to terminate the existing loan insurance, about which the computer notes say nothing, an offer by Mrs Davis of 'loan cover' was likely to mislead. Mr and Mrs Sahin gave evidence that they were misled, stating that they believed the loan insurance would be renewed automatically. I accept that evidence. In these circumstances, a passing offer by Mrs Davis of 'loan cover' is likely to have been rejected by Mr and Mrs Sahin out of hand, as they believed they were already covered under the existing loan insurance - and that the amount of the renewal premium would be adjusted to reflect the higher loan amount. As a result of the prior correspondence from the bank and the insurer, in particular the renewal notice received by Mr and Mrs Sahin in the week before the 14 July meeting, that belief was reasonably based.

73 In my opinion, it would have been most unlikely that Mr and Mrs Sahin would have declined loan insurance if Mrs Davis had fully and accurately explained the relevant facts to them.

74 Further, the trial judge did not consider whether the computer notes were consistent with important aspects of the case open on Mr and Mrs Sahin's pleadings that:

(1) In circumstances where the bank and the insurer created confusion by a combination of correspondence referring to automatic renewal of the loan insurance on the one hand, and the new loan structure imposed by the bank on the other hand, the bank (on its own behalf and as agent for the insurer) owed a duty of care to Mr and Mrs Sahin to give them an unambiguous explanation of the effect of the structure insisted upon by the bank - that the first loan would be repaid in full and re-advanced by the second loan, with the effect that the loan insurance would automatically terminate.

(2) Alternatively, in all the circumstances, Mr and Mrs Sahin were entitled to expect that the bank would provide such an explanation. This was especially so in circumstances where there were differences between the customer information brochure and the formal policy document.

(3) By failing to give a full, accurate and unambiguous explanation of these matters to Mr and Mrs Sahin, the bank breached the duty of care, or alternatively engaged in conduct which was false or misleading, or likely to mislead or deceive, in contravention of s 52 of the Trade Practices Act 1974 (Cth).

(4) As a result of the breach of duty or false or misleading conduct, Mr and Mrs Sahin were led into error. They believed that they had loan insurance cover for the second loan. Had they known that they had no loan insurance cover, they would have taken steps to obtain insurance, either through the bank (with the insurer) or from an alternative insurer.

75 It is unnecessary to consider the case based on breach of duty, as a case based on false or misleading conduct was established by Mr and Mrs Sahin. Misleading or deceptive conduct may arise from non-disclosure or silence. In Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Limited, [16] French CJ and Kiefel J stated:

In determining whether there has been a contravention of s52 of the Trade Practices Act¸ it is necessary to determine "whether in the light of all relevant circumstances constituted by acts, omissions, statements or silence, there has been conduct which is or is likely to be misleading or deceptive". [17]

76 In this case, the relevant conduct of the bank and the insurer included: (1) the way in which Mr Moss dealt with the insurance cover in respect of the first loan, where a full explanation was given as to all relevant matters and a signed acknowledgment was obtained in accordance with the bank's forms and procedures; (2) the correspondence sent by the bank and the insurer, and received by Mr and Mrs Sahin; (3) the failure of Mrs Davis to give Mr and Mrs Sahin a clear explanation of the effect on the loan insurance of the new loan structure insisted upon by the bank; (4) the failure of the insurer to send the cancellation letter to the correct address; and (5) the failure of Mrs Davis to apply the bank's prudent procedure of obtaining a signed acknowledgment by Mr and Mrs Sahin concerning loan insurance. Viewed as a whole, that conduct was misleading and deceptive. As a result Mr and Mrs Sahin were led into error. They believed that the loan insurance covered the second loan and would be automatically renewed. As a result of being misled in this way, they lost the opportunity to obtain loan insurance cover, and have been left without cover in circumstances where Mrs Sahin is disabled and unable to work. The judge ought to have so found, and allowed their claim on this basis.

77 Moreover, by the cancellation notice being sent to the wrong address, the insurer acted in breach of contract. The policy requires such notices to be sent to the 'last known' address of the insured. The insurer clearly did not do this, as the correct address was well known and had previously been used. It appears that the insurer did not use its past experience and update its records. The evidence of Mr and Mrs Sahin that they did not receive the notice of cancellation should be accepted. Accordingly, the breach of contract also caused them to be deprived of the opportunity to make a fully informed decision as to their insurance needs. On the evidence as a whole, their evidence that they would have sought insurance if they had known they had no cover should be accepted. As I have said, the trial judge made no findings critical of their evidence.

78 I conclude with the following comments. As my review of the evidence indicates, this case has been infected by a litany of errors by the bank and the insurer, many of them in breach of their own internal procedures. The conduct of the bank and the insurer constituted a recipe for misunderstanding, such as that which, on the balance of probabilities, occurred in this case.

79 For the reasons given, the appeal should be allowed and the trial judge's decision to dismiss Mr and Mrs Sahin's claims should be set aside. There should be an order pursuant to s 87(2)(b) of the Trade Practices Act 1974 varying the loan insurance policy, so that it has the effect of providing insurance to Mrs Sahin in respect of the second loan. Further, there should be declarations that the loan insurance policy has effect as so varied from 5 August 2004 and that, subject to payment of the appropriate premiums,[18] the insurer is obliged under the loan insurance policy to pay to the bank the loan instalments:

(1) presently due and unpaid under the second loan contract; and

(2) which fall due thereafter while Mrs Sahin's disability continues.

80 Further, orders should be made to relieve Mr and Mrs Sahin of the obligation to pay any other amounts due under the second loan contract, for example interest on unpaid instalments, as a result of their payment defaults after Mrs Sahin's workplace injury on 27 October 2004. For the avoidance of doubt, orders should be made which will restore Mr and Mrs Sahin's loan account to the position it would have been in had the insurer complied with its obligations under the loan insurance policy, as varied by the above orders and declarations.

81 The Court should hear from the parties as to the precise form of declarations and orders, and as to costs.

[1] Warren v Coombes [1979] HCA 9; (1979) 142 CLR 531, 551-2; Fox v Percy [2003] HCA 22; (2003) 214 CLR 118, [27]-[30]; CSR Ltd v Della Maddalena [2006] HCA 1; (2006) 80 ALJR 458.

[11] The first loan was described in the bank's records as a 'BICOE' loan - an acronym for Building in Course of Erection.

[15] Reasons, [36(g)]. Emphasis added.

[16] [2010] HCA 31.

[17] Ibid, [14], quoting Demagogue Pty Ltd v Ramensky [1992] FCA 557; (1992) 39 FCR 31, 41 (Gummow J, Black CJ and Cooper J agreeing).

[18] By debit to Mr and Mrs Sahin's loan account.