Waterman v Gerling Australia Insurance Company P/L & Anor

Waterman v Gerling Australia Insurance Company P/L & Anor - [2005] NSWSC 1066 - NSWSC 2005 case summary — Zoe

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Aetna Life of Australia & New Zealand Ltd v ANZ Banking Group Ltd [1984] 2 NZLR 718; (1985) 3 ANZ Ins Cas 60-612 Ajayi v R T Briscoe (Nigeria) Ltd [1964] 3 All ER 556 Amalgamated Investment and Property Co Limited (in liq) v Texas Commerce International Bank Limited [1982] QB 84 Australian & New Zealand Banking Group Limited v Aetna Life Of Australia & New Zealand Limited (1983) 2 ANZ Ins Cas 60-518 Australian Co-operative Foods Ltd v Norco Co-operative Ltd (1999) 46 NSWLR 267 Australian Crime Commission v Gray [2003] NSWCA 318 Bankstown Football Club Ltd v CIC Insurance Limited (No 3) (NSWSC, Cole J, 16 December 1993, unreported, BC9302335) Boynton v Monarch Life Insurance Company of New Zealand Ltd [1973] 1 NZLR 606 Commonwealth of Australia v Verwayen (1990) 170 CLR 394 Con-Stan Industries Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd (1986) 160 CLR 226 Crabb v Arun District Council [1976] Ch 179 Craine v Colonial Mutual Fire Insurance Co Limited (1920) 28 CLR 305 Dabbs v Seaman (1925) 36 CLR 538 Ellery v Beck and The Royal Insurance Fire and General (NZ) Limited (1990) 6 ANZ Ins Cas 610045 Eslea Holdings Limited v Butts (1986) 6 NSWLR 175 Farmers Mutual Insurance Limited v Slavich (1995) 9 ANZ Ins Cas 61-295. Flinn v Flinn [1999] 3 VR 712 Foran v Wight (1989) 168 CLR 385 G. A. Lovell & Sons Pty Ltd v FML Assurance Ltd (1982) 2 ANZ Ins Cas 60-464 Galaxidis v Galaxidis [2004] NSWCA 111 Grundt v Great Boulder Proprietary Gold Mines Ltd (1937) 59 CLR 641 Hughes v Metropolitan Railway Co (1877) 2 App Cas 439 IW v City of Perth (1997) 191 CLR 1 Johnson Matthey Limited v A C Rochester Overseas Corp (1990) 23 NSWLR 190 Kingston v Keprose Pty Ltd (1987) 11 NSWLR 404 CASES CITED : Legione v Hateley (1983) 152 CLR 406 Low v Bouverie [1891] 3 Ch 82 McCormick v National Motor & Accident Insurance Union Limited (1934) 40 Com Cas 76 Menzies v Security & General Insurance Co (NZ) Limited (1990) 6 ANZ Ins Cas 61-029 MK & JA Roche Pty Limited v Metro Edgley Pty Limited [2005] NSWCA 39 New Zealand Shipping Co v Societe Des Ateliers et Chantiers de France [1919] AC 1; [1917] 2 KB 717 Newbon v City Mutual Life Assurance Society Limited (1935) 52 CLR 723 Newcastle City Council v GIO General Ltd (1997) 191 CLR 85 Newnham v Baker [1989] 1 QdR 393; (1988) 5 ANZ Ins Cas 60-885 R v Bolton; Ex parte Beane (1987) 162 CLR 514 Re Cafdawn Pty Limited and Waltons Stores (Interstate) Limited (Fed CA, Beaumont J, 28 March 1991, unreported) Rudi's Enterprises Pty Ltd v Jay (1987) 10 NSWLR 568 Sandra Investments Pty Ltd v Booth (1983) 153 CLR 153 SkyWest Aviation Pty Limited v Commonwealth of Australia (1995) 126 FLR 61 Smith v Associated Dominions Assurance Society Pty Ltd (in liq) (1956) 95 CLR 381 Spooner-Kenyon v Yorkshire-General Life Assurance Company Limited (1982) 2 ANZ Ins Cas 60-476 State Rail Authority of NSW v Heath Outdoor Pty Limited (1986) 7 NSWLR 170 Suttor v Gundowda Pty Limited (1950) 81 CLR 418 Thompson v Palmer (1933) 49 CLR 507 Turner v Metropolitan Life Assurance Company of New Zealand Ltd (1988) 5 ANZ Ins Cas 60-861 Waltons Stores (Interstate) Limited v Maher (1988) 164 CLR 387 Western Australian Insurance Company Limited v Dayton (1924) 35 CLR 355 Willcocks v New Zealand Insurance Co [1926] NZLR 805 Wimbush v Rothwell & Tinkler [1933] NZLR 1167 Woodhouse A C Israel Cocoa Limited SA v Nigerian Produce Manufacturing Co Limited [1971] 2 QB 23

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2 AAIG invited Mr Waterman to renew the policy for the year 6 June 1998 to 6 June 1999, and Mr Waterman renewed the policy accordingly. Once again, the policy provided for the payment of premium by instalments, on the same terms. Mr Waterman paid the first instalment, but late. The second and third instalments were overdue and unpaid when, on 2 January 1999, the aircraft was destroyed in an accident. Mr Waterman claims indemnity under the policy, and the Insurers decline, asserting that cover ceased when the premium was not punctually paid. 3 The main issues are:- · Whether Insurance Contracts Act (Cth), ss 59 and 60 required the Insurers to give notice before cover ceased under the policy for non-payment by the due date of an instalment of premium, so that the policy remained on foot; and · Whether the Insurers waived, or are estopped from relying on, the "deferred premium endorsement" insofar as it would otherwise have had the effect that cover ceased upon non-payment of an instalment of premium by the due date. Background 4 On 4 June 1997, AAIG on behalf of the Insurers issued a cover note in respect of the aircraft, naming Mr Waterman (as mortgagor) and Australian Guarantee Corporation Limited (as mortgagee) as the insured parties, and confirming cover with effect from 6 June 1997 until 6 July 1997, "subject to the terms and conditions of the company's policy", for a the sum of $40,000 for the aircraft hull, and $1 million for third party liability/passenger legal liability as a combined single limit. 5 On 6 June 1997 AAIG issued a certificate of insurance certifying that they had arranged insurance in respect of the aircraft, in the name of Mr Waterman as mortgagor and the State Bank of NSW as mortgagee, for hull and liabilities ($40,000 for hull and $1 million third party liability/passenger legal liability as a combined single limit), with effect from 6 June 1997 and expiring on 6 June 1998. 6 A letter from AAIG to Mr Waterman dated 18 July 1997 enclosed "the first instalment debit note for insurance" and thanked Mr Waterman for his "prompt payment". This "prompt payment", which was due on 6 July 1997, had been received about 10 days late, on 16 July 1997. There is no evidence of any prior communication about the schedule for payment of instalments, although that there was some such communication is to be inferred from the fact that payment was made on 16 July 1997, and from the fact that the letter set out "your revised instalments", as follows:- 6 July 1997 $758.93 + $37.95 = $796.38 received 16 July 1997 6 Sept 1997 $558.04 + $27.90 = $585.94 6 Dec 1997 $558.03 + $27.90 = $585.93 7 Any such communication could only have been shortly before 16 July 1997, as payment on that date could be described by AAIG as "prompt".

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12 A further endorsement, which amended the uses approved under the policy, was issued on 19 August 1997, together with a further schedule which varied the amounts of the premiums. This varied the amount of the second premium, which was due on 6 September 1997, to $711.94. On 18 August 1997, AAIG issued an amended invoice addressed to Mr Waterman for that amount; presumably it was dispatched after the endorsement was dated 19 August. Mr Waterman did not pay on receipt of that amended invoice, and on 10 October 1997 AAIG sent by facsimile to Mr Waterman a letter which attached a copy of the amended invoice, observed that it was due and payable on 6 September 1997, and concluded: "To date we do not appear to have received the moneys and request payment within seven days". A copy of the letter bears an annotation, evidently made in AAIG's office: "He rang 10/10/97 and will send in mail (mail only goes Tuesdays and Fridays)". The instalment was paid on 29 October 1997. 13 AAIG issued an invoice for the third instalment, which was due on 6 December 1997, on 19 November 1997. It was not paid on time, and on 19 January 1998, AAIG sent a facsimile letter to Mr Waterman which attached a copy of the invoice, noted that it was due and payable on 6 December 1997, and added: "I know from previously that mail is a problem with you but can now offer you credit card facilities. Just sign and fill in the bottom portion of the invoice attached and fax back to this office". Mr Waterman completed the "mail order authority", authorising a debit to his Visa Card account, on 19 January 1998, and the payment was processed by AAIG on 20 January 1998. 14 On 13 May 1998, AAIG issued a renewal notice to Mr Waterman, inviting renewal of the policy "on the basis of the expiring terms and conditions". On 19 June 1998, AAIG issued a certificate of insurance certifying that they had arranged insurance in respect of the aircraft with effect from 6 June 1998 to 6 June 1999, the hull for $40,000 and third party liability/passenger legal liability for a combined single limit $1 million. A new policy schedule was issued, which showed the period of insurance as 6 June 1998 until 6 June 1999, and included a deferred premium endorsement in the same terms as the previous year's policy, save that the dates and amounts for payment were as follows:- Due 6 June 1998 $865.20 Due 6 September 1998 $648.90 Due 6 December 1998 $648.90 15 There is no evidence of any prior communication about the schedule of instalment payments. On 21 July 1998, Mr Waterman paid the first instalment of the premium, being $865.20, which was due on 6 June 1998.

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25 Generally speaking, the "applicable business day" is the third day after the day on which the notice is given: s 59(2A)(a)(ii). Section 60, entitled "Cancellation of Contracts of General Insurance", relevantly provides as follows:- (1) Where, in relation to a contract of general insurance; (a) a person who is or was at any time the insured failed to comply with the duty of utmost good faith; (b) the person who was the insured at the time when the contract was entered into failed to comply with the duty of disclosure; (c) the person who was the insured at the time when the contract was entered into made a misrepresentation to the insurer during the negotiations for the contract but before it was entered into; (d) a person who is or was at any time the insured failed to comply with a provision of the contract, including a provision with respect to payment of the premium; or (e) the insured has made a fraudulent claim under the contract or under some other contract of insurance (whether with the insurer concerned or with some other insurer) that provides insurance cover during any part of the period during which the first mentioned contract provides insurance cover; the insurer may cancel the contract. 26 Section 62, entitled "Cancellation of Instalment Contracts of General Insurance", provides that an "instalment contract of general insurance" (which, as will become apparent, this policy was not) may include provisions inconsistent with s 59 with respect to the cancellation of the contract for non-payment of an instalment of the premium, but an insurer may not rely on such provision unless at least one instalment of the premium has remained unpaid, at the time when the contract is sought to be cancelled, for a period of at least one month, and before the contract was entered, the insurer clearly informed the insured in writing of the effect of the provision. 27 Section 63, entitled "Cancellations Void", provides that except as provided by the Act, an insurer may not cancel a contract of general insurance and any purported cancellation in contravention of the section is of no effect. 28 Mr Oslington QC, who with Mr Condon appeared for the Insurers, submits that cessation of cover pursuant to the deferred premiums endorsement is not a "cancellation" of the insurance contract within Part VII of the Act at all.

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Construction of the endorsement 30 The "deferred premiums endorsement" has been set out in full above. For present purposes, the critical provision is:- Notwithstanding any provision as to notice of cancellation contained in this Policy, it is a condition that in the event of any instalment not being paid by its due date the cover afforded by this Policy shall be deemed to have ceased at midnight of such due date. 31 Uninstructed by authority, the words "it is a condition", coupled with "shall be deemed to have ceased", would incline one to the view that the effect of the provision is not to confer on the Insurers an election to cancel the policy if an instalment of premium was not paid by the due date, but rather automatically and of its own force pursuant to the original agreement of the parties (rather than as a result of any act of cancellation by the Insurers) to effect a cessation of cover upon that event. But Mr Weber submits that there is a general principle of construction, applicable particularly to insurance contracts, which requires that the provision be construed not as bringing about automatic cessation of cover, but rather as conferring on the Insurers an election to cancel. 32 In support of the principle of construction for which he contends, Mr Weber refers first to Newbon v City Mutual Life Assurance Society Limited (1935) 52 CLR 723. The policy there under consideration was to the effect that if the premiums or any of them were not paid on the due dates or within one calendar month thereafter, "the within policy shall be void and the benefits assured shall be forfeited … ", provided that if the policy was kept in force for two years from the commencement of the risk, non-payment of any subsequent premium would not void it so long as the net surrender value was sufficient for the payment of that subsequent premium. Rich, Dixon and Evatt JJ held that the clause should not be interpreted as automatically avoiding the policy, and that its true interpretation was that the policy became voidable at the election of the insurer, and not void, when a premium remained unpaid [at 732-733]:- The first question which arises for consideration upon the appeal is whether the policy became voidable only upon the failure to pay the premiums, or was thereby ipso facto rendered void. The insurance expressed by the policy is not an annual insurance from year to year in which the cover for each year depends upon the payment of premium. It is a promise to pay upon death without any limitation as to the time in which death must occur. Although, of course, the consideration for that promise upon which it is dependent is the periodical payment of premiums, yet after two years the surrender value of the policy becomes available pro tanto to answer the recurring consideration. The condition already quoted, providing that on non-payment the policy shall be void, the benefits forfeited and the premiums retained, confers upon the society a right the exercise of which may not always be for its ultimate benefit. It would be consistent with well recognised principles of interpretation to treat the clause as giving an option, and to read "void" and meaning "voidable" ( New Zealand Shipping Co v Societe des Ateliers et Chantiers de France [1919] AC 1; [1917] 2 KB 717; Ewart, Waiver Distributed (1917), pp 46-48; cf McCormick v National Motor & Accident Insurance Union Limited (1934) 40 Com Cas, at pp 81, 87, 92). In the same clause occur references, which it has not been thought necessary to quote, to the withholding, omission or misrepresentation of information in the proposal. The proviso that the policy shall be void applies in that case as well as in the case of default in payment of premiums. It is scarcely conceivable that the policy is to be void independently of the election of the society if an omission occurs in the proposal. For these reasons we think that the true interpretation of the policy is that it becomes voidable at the election of the society, and not void when a premium remains unpaid for more than a month of its due date. 33 In a separate judgment, Starke J acknowledged that there was some authority for the position that non-payment of the premium terminated the policy by force of its terms, although His Honour thought that the better view was that the policy was capable of being affirmed or rejected at the option of the insurer [at 737]:- There is some authority for the position that non-payment of the premium terminated the policy by force of its terms ( McCormick v National Motor & Accident Insurance Union Limited (1934) 40 Com Cas, at p87. But the better view appears to be that the policy is capable of being affirmed or rejected at the option of the society, see Bunyon on Life Assurance, 5th Ed. (1914), p 99.

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34 In the present case, which does not involve a life policy, and in which there is no surrender value to which recourse might be had to satisfy future unpaid premiums, it is not apparent that cessation of cover in the event of non-payment of an instalment of premium would not always be for the benefit of the Insurers: it is difficult to see how it could be other than in the interests of insurers to be "off-risk" while premium or part of it remained unpaid. And there are not in the same clause references to such other matters as omissions from the proposal, in respect of which it might be thought unlikely that cover was to cease independently of any election by the Insurers. Thus the contextual matters which influenced the High Court in Newbon to adopt the construction which their Honours did are not to be found in the present case. 35 The authorities to which their Honours referred for the principles of interpretation on which they relied were by no means unequivocal. McCormick v National Motor & Accident Insurance Union Limited (1934) 40 Com Cas 76 was a decision of the Court of Appeal in respect of a motor vehicle third-party policy which provided: "If any material fact relating to this contract shall have been concealed, withheld or misrepresented by the insured, this policy shall be void" [at 81]. The trial judge, Swift J, had held that the insurer, by not immediately ceasing to defend the case for the insured after discovering a material misrepresentation by the insured, was estopped from later disputing the validity of the policy. The insurer's appeal was unanimously upheld, Scrutton, Greer and Slessor LJJ all holding that there was no estoppel because the insurer was (on any view of the provision) entitled to a reasonable time to consider "repudiating" the policy; but there were differences between the Lords Justices as to the effect of the provision: while Scrutton LJ held [at 81] that the effect of the provision was to create a right of rescission, so that the policy was voidable and not void; Greer LJ thought [at 87] that though it did not matter, the policy was made void by its own terms; and Slessor LJ, while treating the policy as voidable, thought it "very arguable" that that was a wrong view of the effect of the contract (and, thus, that the contract was automatically void). The case does not support the approach adopted in Newbon, as the High Court acknowledged [Newbon, at 733, 737]. Moreover, the context was not that of a life policy with a surrender value, so that the possibility, referred to in Newbon, that result of the policy being void would not always be in the ultimate interests of the insurer, was not so significant.

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36 In the case primarily relied upon in Newbon - New Zealand Shipping Co v Societe des Ateliers et Chantiers de France - the House of Lords held that a stipulation in a contract that it be void in a certain event was to be construed according to its natural meaning, subject to the principle that a party should not be permitted to take advantage of its own default - so that if the result of construing "void" as "void" would be to enable a party to avail himself of his own wrong, then "void" would be read as "voidable". But as the relevant event - war - was not one brought about by default of either party, the result was that "void" meant "void", not "voidable". Lord Atkinson said [at 9] that it was undoubtedly competent for parties to stipulate that a contract should be void upon the happening of an event over which neither had any control (for example, if rain were to fall on the thirtieth day after the contract was made), in which event the contract would be put to an end by that event whether or not the parties so desired, although they could immediately if they wished enter into a new contract; but that if the stipulation was that the contract be void upon an event which one or other of them could bring about, "then the party, who by his own act or omission brings that event about, cannot be permitted either to insist upon the stipulation himself or to compel the other party, who is blameless, to insist upon it, because to permit the blameable party to do either would be to permit him to take advantage of his own wrong, in the one case directly, and in the other case indirectly in a roundabout way, but in either way putting an end to the contract". Thus the rationale for construing "void" as "voidable" in an appropriate case was to prevent a party in default from taking advantage of its own wrong. As has been pointed out by Lord Diplock [in Cheall v Association of Professional Executive Clerical and Computer Staff [1983] 2 AC 180, 188] and Samuels AP [in Rudi's Enterprises Pty Ltd v Jay (1987) 10 NSWLR 568, 576-578], the speeches are "not entirely consistent with one another" [see Lord Finlay LC (at 6-8), Lord Shaw (at 12-13), and Lord Wrenbury (at 14-15)], but a significant element in the reasoning of each of their Lordships' was the idea that a clause of the kind under consideration should not permit a defaulting party to terminate the contract at its option [Cheall, 189; Rudi's Enterprises, 578B].

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41 Mr Weber next referred to the judgment of Cook J in the High Court of New Zealand in Spooner-Kenyon v Yorkshire-General Life Assurance Company Limited (1982) 2 ANZ Ins Cas ¶60-476. In that case - which, like Newbon, Smith and Boynton, also involved a life policy - the contract of insurance provided that if any premium was not duly paid, "the policy will lapse unless prevented by doing so by condition 2". Condition 2 provided that if any premium was not duly paid the assurance would remain in force for so long as the surrender value should permit. His Honour referred to Boynton and to Newbon, and concluded that there was no material difference between the expressions "will lapse" and "will be null and void", so in either case the contract would be at an end if the insurer so elected [at 77,700]:- In the present context I see no material difference between the expressions "will lapse" and "will be null and void"; in either case I take the meaning to be that the contract will be at an end; that is, if the insurer so elects. 42 Mr Weber last referred to another decision of the High Court of New Zealand (Casey J), in Australian & New Zealand Banking Group Limited v Aetna Life Of Australia & New Zealand Limited (1983) 2 ANZ Ins Cas ¶60-518. In that case, a life policy provided that 30 days grace was allowed for payment of a premium, and "if a premium is not paid within this period, this policy will be forfeited". In practice, when a premium was one month overdue, the insurance company's computer automatically sent out a notice to that effect, and if it remained unpaid a further notice that benefits were terminated was sent, offering to reinstate benefits if the amount owing was paid within fourteen days. His Honour accepted the bank's submission that the effect of the condition was to render the policy voidable only [at 77,957]:- I was referred to a number of insurance cases in which similar provisions to those in condition 2 have been construed as rendering the policy only "voidable" on default, and in any event I think that is the likely meaning of the words "this policy will be forfeited". They imply action by the company, rather than automatic forfeiture, and [counsel for the insurer] conceded that on the authorities that is the position in New Zealand and Australia - see Newbon v City Mutual Life Assurance Society Limited (1935) 52 CLR 723, applied in Boynton v Monarch Life Insurance Company [1973] 1 NZLR 606, where McMullin J held that even the words "null and void" meant only voidable at the insurer's election. 43 There was an unsuccessful appeal to the New Zealand Court of Appeal [Aetna Life of Australia & New Zealand Ltd v ANZ Banking Group Ltd [1984] 2 NZLR 718; (1985) 3 ANZ Ins Cas ¶60-612]. Somers J, who delivered the judgment of the Court, said that whether the liability of a party (the insurer) to perform (by payment) was dependent upon the happening of some future event (punctual payment of premium) was a matter of construction of the contract as whole. His Honour referred to Newbon, Smith, Boynton, Spooner-Kenyon, and G. A. Lovell & Sons Pty Ltd v FML Assurance Ltd (1982) 2 ANZ Ins Cas ¶60-464, and concluded that even if there had been doubts as to the construction of the policy - which his Honour did not entertain - it would be wrong to depart from a meaning long attributed to such forfeiture provisions and (emphasis added) "no doubt well understood by those who carry on this class of insurance, namely that even such terms as null and void call for an election by the insurer". 44 In Turner v Metropolitan Life Assurance Company of New Zealand Ltd (1988) 5 ANZ Ins Cas ¶60-861, Wallace J in the High Court of New Zealand followed Aetna in holding that whether an insurer's liability to pay the sum insured was conditional on the payment of premiums was a matter of construction of the whole contract, and that a provision to the effect that the policy shall be cancelled if payment of premium is not made within thirty days of the due date (with a proviso for application of the surrender value towards premiums due) was indistinguishable from that in Aetna. 45 Thus it may be observed that these cases, in which the principle of construction for which Mr Weber contends has been applied, have all been cases concerning life policies, in which context it would not always be for the ultimate benefit of the insurer that the policy be regarded as automatically avoided, because of the availability of surrender value to satisfy future unpaid premiums.

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53 Other significant considerations appearing from the clause in this case and affecting its construction are:- · It is stated to be a condition of the policy. Seen in conjunction with the insuring clause and the reference to payment of the premium being the consideration, this favours the view that payment of premium instalments by the due date was intended to be a condition precedent to the availability of cover after that date. · The words in the deferred premium endorsement "Notwithstanding any provision as to notice of cancellation contained in this policy" refer back to general condition B8, which provides that the policy "may be cancelled" by either the Insurers or Mr Waterman giving 10 days notice in writing of such cancellation, and makes provision for return of a pro rata portion of the premium in respect of the unexpired period of the policy. Clause B8 uses the language of cancellation; this is to be distinguished from the words of the deferred premium endorsement which, when "Notwithstanding any provision as to notice of cancellation …" is linked with "it is a condition" and "deemed to have ceased", suggest that a deemed cessation of cover under the endorsement is an entirely different concept from a cancellation of the policy. They suggest that this part of the endorsement is not a "provision as to notice of cancellation", but a "condition of this policy". · The provision that cover is deemed to have ceased "at midnight of such due date" means that the cessation takes place at the end of the day upon which the instalment payment is due. That allows no time for any election to be made after the condition is satisfied. The absence of any period of grace and the immediate effect of the cessation strongly favours the view that automatic cessation was intended. These words cannot reasonably accommodate a construction which affords the Insurers an election whether or not to terminate, because there is no time for any such election to be made. · The endorsement provides that in the relevant event, cover "shall be deemed to have ceased". Thus the cessation of cover is not the result of the election of any party, but something which is deemed to occur. The language of deeming is supportive of an automatic cessation upon the relevant event occurring, rather than the Insurers having an election to cease cover. A provision which deems something to happen upon a certain event does not sit comfortably with giving a party an election as to whether or not that result ensues. Although the force of this consideration is somewhat diminished by the circumstance that, in Suttor, the High Court was not deterred from construing the relevant clause as conferring an election to cancel, by terminology to the effect that upon the stipulated event the contract was deemed to be cancelled, nonetheless, here it remains one amongst several indicators which favour the construction that automatic cessation was intended.

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Construction of the Act 55 The next question is whether Part VII, properly construed, captures such an automatic cessation of cover. 56 The operative provision is s 59, which speaks of an insurer "who wishes to exercise a right to cancel a contract of insurance", and requires notice in writing to be given and provides that that notice has effect to cancel the contract. Section 60 confers on an insurer a right to cancel a contract of general insurance in certain events. Section 63 provides that an insurer may not cancel a contract of general insurance except as provided by the Act. 57 As Mr Oslington submits, the Act recognises a distinction between a contractual provision which limits the liability of the insurer by reference to non-payment of an instalment of premium, and one which authorises cancellation for non-payment of an instalment. While Mr Weber correctly points out that the contract of insurance in this case is not an "instalment contract of general insurance" within the meaning of the Act - because, by s 11(8), that term is defined to mean a contract of general insurance the premium for which is payable by seven or more instalments in a year, and this policy provides for only three instalments - it is nonetheless notable that the Act contains two provisions relevant to non-payment of an instalment in such a contract: section 39, which deals with provisions in such contracts which have "the effect of limiting the liability of the insurer by reference to non-payment of an instalment of the premium", and provides that the insurer may not refuse to pay a claim in whole or in part by reason of that provision unless an instalment has remained unpaid for fourteen days and before the contract was entered into clear written notice of the effect of the provision was given to the insured; and section 62, which deals with provisions authorising cancellation "for non-payment of an instalment of the premium", and provides that notwithstanding section 59, an instalment contract can include such provisions but that they cannot be relied on unless an instalment has remained unpaid for a month and before the contract was entered into clear written information as to the effect of the provision was given to the insured.

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61 For the reasons already explained, cessation of cover under the "deferred premiums endorsement" does not involve an insurer exercising a right to cancel the contract, but is an automatic consequence of the occurrence of a stipulated event. While Professor Sutton (at [7.36]) cites Menzies v Security & General Insurance Co (NZ) Limited (1990) 6 ANZ Ins Cas ¶61-029 as supporting the proposition: "There can be no unilateral cancellation by automatically lapsing for non-payment of the premium" - that authority does not support, at all, the proposition for which Professor Sutton cites it. 62 But Mr Weber submits that the clear intention of the legislature was to prevent automatic termination of insurance cover without notice. In support of that submission he refers, first, to the Law Reform Commission Report Insurance Contracts, which was the genesis of the Act [ALRC 20]. In Chapter Nine, entitled "Cancellation and Renewal of Cover", the Commission evidently intended to address automatic cancellation, as well as cancellation upon notice [at paras 246-247] (emphasis added): Cancellation by the insurer may result in the insured being exposed to uninsured loss. C lauses which provide for automatic cancellation or for cancellation without notice after the expiry of a limited period are particularly dangerous in this regard. … Some of these factors were mentioned in the discussion paper. It was suggested that automatic cancellation and cancellation without notice should be forbidden. … In its submission, the ICA recognised the general undesirability of clauses providing for automatic cancellation or cancellation upon notice. … Despite the ICA's misgivings, the general approach adopted in the discussion paper is maintained. The risk of loss being suffered by an innocent insured cannot be accepted as a normal incident of the exercise of the insurer's right of cancellation. Clauses providing for automatic cancellation or for cancellation without notice should be rendered ineffective. Notice of cancellation should be required in all cases. 63 The relevant provisions of the Act closely correspond with those of the draft bill which accompanied the ALRC report, and it may therefore be inferred that the reasoning in the report informed Parliament in its enactment. Moreover, the Explanatory Memorandum says that the rationale for the clause which became s 59 included that terms providing for automatic cancellation after the expiration of a limited period or immediately upon notice to the insured may severely prejudice the insured [Insurance Contracts Bill 1984, Explanatory Memorandum, para 200-201]:- 200. Contractual terms providing for automatic cancellation after the expiration of a limited period or cancellation immediately upon the insurer's receiving notice may severely prejudice the insured. … 201. The proposed law is intended to overcome these difficulties by ensuring not only that notice of cancellation must be given but that it is not immediately effective. … 64 This extrinsic material makes a strong case that the ALRC and the Parliament may have intended the Act to prevent "automatic" cancellation. However, the ALRC Report and the Explanatory Memorandum are merely aids to the construction of the words of the words of the statute, to which resort might be had in the event of ambiguity [Acts Interpretation Act 1901 (Cth), s 15AB]. Where the meaning of a provision is clear, neither that provision, nor the purposive approach to construction required by s 15AA, authorises the substitution of a different construction in furtherance of the objects of the legislation [Kingston v Keprose Pty Ltd (1987) 11 NSWLR 404, 423 (McHugh JA); Newcastle City Council v GIO General Ltd (1997) 191 CLR 85, 109, 111-113 (McHugh J)]. They are not the starting point for the exercise of construction, but aids to which resort might be had in the case of difficulty. Extrinsic material cannot be use to construe a provision in a manner which is not otherwise reasonably open, and even when adopting a purposive approach to remedial legislation a court is not at liberty to adopt a construction which is unreasonable or unnatural [IW v City of Perth (1997) 191 CLR 1, 12 (Brennan CJ and McHugh J); Newcastle City Council v GIO, 113 (McHugh J)]. And of particular relevance here, "If the legislature uses language which covers only one state of affairs, a court cannot legitimately construe the words of the section in a tortured and unrealistic manner to cover another set of circumstances" [Newcastle City Council v GIO, 113 (McHugh J)].

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67 Accordingly, this is an instance in which, if Parliament intended to prevent automatic cessation of cover without notice upon non-payment of premium other than in the case of an instalment contract as defined, within the compass of what is called "automatic cancellation" in the ALRC Report and the Explanatory Memorandum, then the words it has employed for that purpose are simply insufficient to achieve it: cf R v Bolton; Ex parte Beane (1987) 162 CLR 514, 518, where Mason CJ, Wilson and Dawson JJ observed that it was always possible, through oversight or inadvertence, that the clear intention of the Parliament fails to be translated into the text of the law, which, however unfortunate, left the Court to give effect to the will of Parliament as expressed in the law, and not to the Minister's speech. 68 Accordingly, because the "deferred premiums endorsement" is not a provision for cancellation of the policy, but one limiting liability to pay (by providing that cover ceases), and because it produces an automatic agreed result on the happening of a particular event and does not confer a right to cancel on the insurer such as to authorise cancellation in the sense in which that term is used in insurance law, and because ss 59, 60 and 63 plainly contemplate, and contemplate only, cancellation by an insurer, I would hold that, on the plain language of Part VII, and in particular ss 59, 60 and 63, that Part does not apply to deemed cessation of cover under the "deferred premiums endorsement". 69 It follows that the Insurance Contracts Act does not have the effect that cover under the policy remained in force as at 2 January 1999, the date of the accident. To the contrary, but subject to the issues about estoppel and waiver to which I shall now come, cover ceased when the second premium instalment was not paid on 6 September 1998, and a fortiori, when the third instalment was not paid on 6 December 1998. As neither premium was ever paid, cover was never revived prior to 2 January 1999. There was no cover when the accident took place on 2 January 1999.

[49]

72 In the context of insurance, while the question usually arises in relation to a breach that gives rise to a right to terminate the contract, it also applies when non-compliance with a requirement absolves the electing party from liability for a particular loss [Craine v Colonial Mutual Fire Insurance Co Limited (1920) 28 CLR 305; Newnham v Baker [1989] 1 QdR 393; (1988) 5 ANZ Ins Cas ¶60-885]. Thus the principle is capable of application in the present situation, where non-payment of premium absolves the Insurers from liability to pay the sum insured, notwithstanding that it does not give rise to a right to rescind or cancel, as MacGillivray & Parkington, in Insurance Law (8th ed), pointed out (at para 959): Notwithstanding the provisions in the policy the insurers may extend the time for payment of the premium or waive any of the conditions precedent to the continuance of the risk, and even after the policy has lapsed the insurer may be held to have revived the insurance upon the same terms by any word or act which leads the insured to believe that the insurers have reassumed the risk. 73 However, a waiver can only occur after a breach or equivalent has given rise to a right of election between inconsistent courses. If AAIG's letter of 11 November 1998 letter conveyed an implicit suggestion to Mr Waterman that the Insurers were remaining "on risk", so that it operated as a waiver of the failure to pay the September 1998 instalment punctually, still no demand ever issued for the third instalment, nor any reminder, nor was any payment made. Nor was there any act of the Insurers after default was made in payment of the third instalment, which fell due on 6 December 1998, which could have constituted a waiver of that default. Thus, assuming the letter of 11 November 1998 to operate as a waiver of all prior defaults, and assuming that cover remained in force up to 6 December 1998, there was no waiver following the default of 6 December 1998. 74 Accordingly, in my opinion, the waiver case must fail.

[51]

76 In Legione v Hateley (1983) 152 CLR 406, Mason and Deane JJ identified three general classes of estoppel: estoppel of record, estoppel of writing, and estoppel in pais, which they described in the following terms [at 430]:- Estoppel in pais includes both the common law estoppel which precludes a person from denying an assumption which formed the conventional basis of a relationship between himself and another or which he has adopted against another by the assertion of a right based on it and estoppel by representation which was of later development with origins in Chancery. It is commonly regarded as also including the overlapping equitable doctrines of proprietary estoppel and estoppel by acquiescence or encouragement. 77 In Commonwealth v Verwayen, Deane J said of the doctrine of estoppel by conduct that its central principle was to prevent an unconscientious departure by one party from an assumption adopted by the other as the basis of a relationship to the other's detriment [at 444]:- The law will not permit an unconscionable (or more accurately, unconscientious) departure by one party from the subject matter of an assumption which has been adopted by the other party as the basis of some relationship, course of conduct, act or omission which would operate to that other party's detriment if the assumption be not adhered to for the purposes of the litigation. 78 An estoppel by convention depends upon an assumption adopted by the parties as the conventional basis of their relationship. In Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Limited (1986) 160 CLR 226, Gibbs CJ, Mason, Wilson, Brennan and Dawson JJ emphasised the need for the conduct of relations on the basis of an agreed or assumed state of facts [at 244]:- Estoppel by convention is a form of estoppel founded not on a representation of fact made by a representor and acted upon by a representee to his detriment, but on the conduct of relations between the parties on the basis of an agreed or assumed state of facts, which both will be estopped from denying. 79 The requirement that the assumption be of a state of facts (as distinct from law) has been discarded [Eslea Holdings Limited v Butts (1986) 6 NSWLR 175, 185-9; Waltons Stores (Interstate) Limited v Maher (1988) 164 CLR 387, 415-6, 432, 452, 458; Foran v Wight (1989) 168 CLR 385, 435, 457; Commonwealth v Verwayen, 413, 445, 501; Amalgamated Investment and Property Co Limited v Texas Commerce International Bank Limited (in liq) [1982] QB 84, 122; Meagher, Heydon and Leeming, Equity Doctrines & Remedies, 4th ed, [17-020]; MK & JA Roche v Metro Edgley, [71]].

[54]

82 I reject that submission. The purpose of the rule enunciated by McLelland J in Johnson Matthey was that where, as a result of negotiations, parties have entered into a formal written contract, short of a claim for rectification (so as to suggest that the true agreement was other than as recorded in the writing) it should not be open to them to contend that they had in fact agreed informally on something other than what was recorded in the document. Entirely different considerations apply in respect of post-contractual conduct. After a formal contract is made, parties may so conduct themselves as to treat provisions of the contract as no longer relevant or varied in some way or suspended in operation. A representation made post-contractually that a contractual right will not be enforced is the classic territory of promissory estoppel. As Lord Cairns LC said in Hughes v Metropolitan Railway Co (1877) 2 App Cas 439 (emphasis added):- If parties who have entered into definite and distinct terms involving legal results - certain penalties or legal forfeiture - afterwards by their own act or with their own consent enter upon a course of negotiation which has the effect of leading one of the parties to suppose that the strict rights arising under the contract will not be enforced, or will be kept in suspense, or held in abeyance, the person who otherwise might have enforced those rights will not be allowed to enforce them where it would be inequitable having regard to the dealings which have thus taken place between the parties. 83 Although this was said in the field of equitable (promissory) estoppel, there is a substantial overlap between many of the species of estoppel [as to which see Commonwealth v Verwayen, 410-411 (Mason CJ), 431-2 (Deane J)] and application of this approach in the field of conventional estoppel is apt [cf MK & JA Roche v Metro Edgley, [72]]. This is particularly so, given that, notwithstanding that Mr Weber eschewed reliance on equitable estoppel, and while accepting that there remains a separate doctrine of common law conventional estoppel [MK & JA Roche v Metro Edgley, [71], the analogies between conventional estoppel and equitable (promissory) estoppel in the present context are considerable and close. Thus, in promissory estoppel, it is necessary for a plaintiff to establish (1) that it has adopted an assumption as to the terms of a legal relationship with the defendant; (2) that the defendant has induced or acquiesced in the plaintiff's adoption of that assumption; (3) that the plaintiff has acted in reliance on its assumption; (4) that the defendant knew or intended that the plaintiff so act; and (5) that it will occasion detriment to the first party if the assumption is not fulfilled [Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387, 428-429 (Brennan J)]. In conventional estoppel, it is necessary for a plaintiff to establish (1) that it has adopted an assumption as to the terms of its legal relationship with the defendant; (2) that the defendant has adopted the same assumption; (3) that both parties have conducted their relationship on the basis of that mutual assumption. It is inherent in the idea of a mutually agreed or assumed convention that each party knew or intended that the other act on that basis. And it seems that a conventional estoppel will not arise unless departure from the assumption will occasion detriment to the plaintiff [MK & JA Roche v Metro Edgley, [72], and see the discussion below].

[55]

84 There is in my judgment no reason why a mutual assumption as to a state of affairs made by two contracting parties arising from their conduct after the contract is made should in this respect be in any different a position from a unilateral assumption made by one party but known to and encouraged or acquiesced in by the other. The policy considerations which informed McLelland J's decision - that the stability of commercial relationships and dealings would be threatened if, after deliberately recording their agreement in permanent written form, they were subject to the risk of having it yield to the inherently less reliable evidence of oral statements made during the course of negotiations - do not have the same force when it comes to post-contractual conduct, because in the latter context what is set up is not an argument that the terms of the parties' arrangements when made are to be found in the oral negotiations and not the written agreement, but rather that since the contract was made, the parties have acted on an assumed state of affairs which is inconsistent with the contractual position and has arisen as a result of conduct after the contract was made. 85 Mr Weber ultimately accepted - in my opinion correctly - that to succeed on the estoppel argument, Mr Waterman had to establish that there was a common assumption of the parties that so much of the deferred premiums endorsement as automatically ceased cover upon non-payment of an instalment did not operate, so that no failure to pay a premium instalment on time would automatically lead to cessation of cover, except where the Insurers gave notice under clause B(8). This is because, in the context of this case, it would be insufficient to establish a convention that the insurance contract remained on foot, or had not been automatically terminated, as at any particular date prior to 6 December 1998: whatever was the position prior to that date, a further default occurred on that date, and a common assumption that cover had not ceased, for example on 6 September 1998, would not avail Mr Waterman. In this respect the case is to be distinguished from MK & JA Roche v Metro Edgley, in which it sufficed to establish a common assumption that the contract was not automatically terminated in accordance with its terms on a particular date. As there is no evidence of any conduct or communication between the parties after 6 December 1998 and before the loss, Mr Waterman has to establish a convention, in place before 6 December 1998, not only that despite prior defaults cover remained in force and had not automatically ceased, but also that cover would not automatically cease if there were non-payment of an instalment in the future. This can, I think, best be described as a convention that, regardless of the express provision in the endorsement, punctual payment of premium was not essential to the continuation of cover under the policy.

[65]

91 I do not overlook the requirement that a representation or assumption founding an estoppel be "clear and unequivocal": though this has usually been recognised in the fields of equitable promissory or proprietary estoppel [see Legione v Hateley, 436-437 (Mason and Deane JJ); Woodhouse A C Israel Cocoa Limited SA v Nigerian Produce Manufacturing Co Limited [1971] 2 QB 23, 60 (Lord Denning MR); Low v Bouverie [1891] 3 Ch 82, 106 (Bowen LJ), 113 (Kay LJ)] it is plain that the requirement that a representation be clear and unequivocal applies generally to an estoppel in pais [Legione v Hateley, 435 (Mason and Deane JJ); Western Australian Insurance Company Limited v Dayton (1924) 35 CLR 355, 375 (Isaacs ACJ)], and estoppel by convention is a species of estoppel in pais. But as Mason and Deane JJ explained in Legione v Hateley, the requirement that a representation - or assumption - must be clear if it is to found an estoppel in pais or a promissory estoppel, does not mean that it must be express, and a sufficiently clear representation - or assumption - may properly be implied from words, conduct or even silence, and it is not necessary that a representation - or assumption - be clear in its entirety, it sufficing that so much of it as is necessary to found the propounded estoppel satisfies the requirement. Their Honours illustrated this by the example that a representation that a particular right will not be asserted for at least x days is not rendered, for the purposes of promissory estoppel, unclear or equivocal merely because the words used are equivocal as to whether the relevant period is x days, x plus one day or x plus two days, so that if what is said or done amounts to a clear and unequivocal representation that the particular right will not be asserted for a period of at least x days, a representation to that effect can be relied on to found an estoppel [Legione v Hateley, 438-439]. And a promise may be definite, in the sense that there is a clear promise to do something, even though exactly what is promised is not precisely defined: [Flinn v Flinn [1999] 3 VR 712, 738 (Brooking JA, Charles and Batt JJA concurring); see also Australian Crime Commission v Gray [2003] NSWCA 318, [184-200] (Ipp JA; Mason P and Tobias JA agreeing on this point)]. As Tobias JA has observed, even if a representation is insufficiently precise to give rise to a contract, that does not necessarily disqualify the representation from founding a promissory estoppel, much depending upon the circumstances in which the representation is made and the context against which it is to be considered, so that a representation will be sufficiently clear and unambiguous if it is reasonable for the representee to have interpreted it in a particular way, which it is clearly capable of bearing and upon which it is reasonable for the representee to rely, and in those circumstances it would be unconscionable for the representor to deny responsibility for the detriment that arises because of that reliance. On the other hand, if it is not reasonable for the representee to rely on the meaning he attributes to the representation, then it cannot be unconscionable for the representor to deny responsibility for the detriment that the representee sustains because of that unreasonable reliance [Galaxidis v Galaxidis [2004] NSWCA 111, [93]-[94]]. Thus, the requirement that a party should not be estopped on an ambiguity does not mean that the precise terms of the assumption or representation which founds the claimed estoppel must be entirely and unequivocally clear: an estoppel can arise even though the precise terms of the assumption or representation may be difficult to ascertain, so long as it is clear that there was an assumption, and the scope of the assumption, though its full extent may be uncertain, is at least sufficient that it can be said that the defendant's conduct would involve a departure from it.

[71]

97 However, the detriment here is plain: Mr Waterman has lost the opportunity, which notice of intended departure from the assumption would have afforded him, of reinstating cover by paying the outstanding instalment, or arranging cover with an alternative insurer, before the loss was suffered. 98 Thus, in my opinion, the evidence establishes that, at least until November 1998, Mr Waterman and the Insurers conducted their affairs on the agreed or mutually assumed basis, inconsistent with the express terms of the policy, that punctual payment of premium instalments was not essential to the maintenance of cover under the policy. If either party wished to depart from that common assumption, notice was required. Although there is some evidence that the Insurers were no longer proceeding on that assumption by December 1998, there is no evidence that they gave any notice of any such change in position, nor that they would thenceforth insist upon punctual payment. Even though the facts by January 1999 were more extreme than those which established the convention - in that whereas previously payment was made promptly after a reminder letter, but by 2 January 1999, Mr Waterman's default extended to two instalments, and did not involve payment even after the November 1998 reminder - they remained within the scope of the common assumption that strict compliance with the timetable for payments of instalments was not essential to the maintenance of cover. 99 Accordingly, in my opinion, Mr Waterman has made out a case of estoppel such as to preclude the Insurers from relying, in the events which have happened, on the provisions of the deferred premiums endorsement. Conclusion and Orders 100 Properly construed, the "deferred premiums endorsement" does not confer on the Insurers a right to cancel the policy if a premium instalment is not paid punctually, but effects an automatic cessation of cover, relieving the Insurers from liability to pay claims for losses arising while cover has ceased, unless and until cover is reinstated. Such a cessation of cover is not a cancellation of the policy by the insurer within Insurance Contracts Act, s 59. Accordingly, the Insurance Contracts Act did not have the effect that, absent notice of intention to cancel, cover remained in place as at 2 January 1999, despite the instalments of premium due on 6 September and 6 December 1998 not having been paid. 101 Even if the letter of 11 November 1998 conveyed an implicit suggestion that the Insurers were remaining "on risk", so as to waive of the failure to pay the September 1998 instalment punctually, no demand ever issued for the third instalment, nor any reminder, nor was any payment made, nor was there any act of the Insurers after default was made in payment of the December 1998 instalment, which could have waived that default. Thus, assuming the letter of 11 November 1998 to operate as a waiver of all prior defaults, and that cover remained in force up to 6 December 1998, there was no waiver following the default of 6 December 1998, and the waiver case must fail.

[72]

102 However, at least until November 1998, Mr Waterman and the Insurers conducted their affairs on the mutually assumed basis, inconsistent with the express terms of the policy, that punctual payment of premium instalments was not essential to the maintenance of cover under the policy. If either party wished to depart from that common assumption, notice was required. If the Insurers were no longer proceeding on that assumption by December 1998, there is no evidence that they gave any notice of any such change in position, nor that they would thenceforth insist upon punctual payment. Even though the facts by January 1999 were more extreme than those which established the convention - in that whereas previously payment was made promptly after a reminder letter, but by 2 January 1999, Mr Waterman's default extended to two instalments, and did not involve payment even after the November 1998 reminder - they remained within the scope of the common assumption that strict compliance with the timetable for payments of instalments was not essential to the maintenance of cover. Accordingly, Mr Waterman has made out a case of estoppel such as to preclude the Insurers from relying, in the events which have happened, on the provisions of the deferred premiums endorsement. 103 As that is the only basis upon which the Insurers have declined indemnity, it follows that the Insurers are liable to indemnify Mr Waterman under the policy for the loss of the aircraft on 2 January 1999. 104 There should be judgment that the defendants pay the plaintiff the sum insured ($40,000), less the outstanding premium ($1,297.80), plus interest on the difference ($37,702.20) under the Insurance Contracts Act from 2 February 1999 (which I take to be a reasonable time for investigation and settlement of the claim) until judgment, which is 6 years and 261 days. The mean of the rates of the 10-year Treasury Bond yield at the end of each of the half financial years ending during that period is 5.75%, so the applicable interest rate is 8.75% [Insurance Contracts Regulation, reg 32]. The total interest is $22,152.65, and the total award $59,854.85. 105 I give judgment that the defendants pay the plaintiff $59,854.85. I order that the defendants pay the plaintiff's costs. I order that the exhibits be returned at the expiration of 28 days, unless an application for leave to appeal has by then been filed.

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Cases Cited (28)