"Marine Insurance -

is the doctrine of 'Utm

ost Good F

aith' out of date?"

CornU

.! Maritim

e International 35th International Conference.

00

11

63

CO

MIT

E M

AR

ITIM

E IN

TER

NA

TIO

NA

L 35

th IN

TER

NA

TIO

NA

L C

ON

FER

EN

CE

SY

DN

EY

, AU

STR

ALI

A 1

994

MA

RIN

E I

NS

UR

AN

CE

-IS

TH

E D

OC

TRIN

E

OF

"UTM

OS

T G

OO

D F

AIT

H"

OU

T O

F D

ATE

?

The

Hon

Jus

tice

M D

Kirb

y A

C C

MG

•

Fro

m c

offe

e ho

use

to g

loba

l in

dust

ry

Let

us

star

t w

ith

a li

ttle

his

to!)

,. It

is

alw

ays

enli

ghte

ning

in

the

law

, bu

t es

peci

ally

in

the

fiel

d o

f mar

ine

insu

ranc

e w

hich

is

of

anci

ent

orig

in.

The

sys

tem

s o

f ,/,,

'1;"1

';(':,

'Ir;d

emni

ty k

now

n as

"bo

ttoID

I)''',

"re

spon

dent

ia"

and

gene

ral

aver

age

are

the

fore

bear

s t~modern m

arin

e in

sura

nce.

1 T

he m

odem

form

of t

hat i

nsur

a,nc

e or

igin

ates

, as

leg

end

[Y'''X

\c\)i;

,; ha

s it,

fro

m t

he p

ract

ices

of

the

12th

Cen

tuI)

' L

omba

rd m

erch

ants

. B

y th

e 15

th

'Cen

tuI)

', th

ose

mer

chan

ts,

to t

he i

rrit

atio

n o

f lo

cals

, co

ntro

lled

muc

h o

f th

e ov

erse

as

of E

ngla

nd,

and

henc

e o

f ins

uran

ce o

ver

it.

But

by

the

reig

n o

f Q

ueen

Eli

zabe

th

I, t

he p

ract

ice

of

mar

ine

insu

ranc

e in

Eng

land

was

bec

omin

g w

ell

deve

lope

d. T

he

'Lom

bard

mer

chan

ts h

ad b

egun

to

pack

the

ir p

arch

men

ts a

nd t

o le

ave

Eng

land

.2

Just

.,'

as M

r S

cott

's u

ntim

ely

pass

age

bene

ath

a lo

adin

g cr

ane

from

whi

ch s

ix b

ags

of

suga

r . r

aine

d do

wn

upon

him

, 3 M

rs D

onog

hue'

s ad

vers

e co

nsum

ptio

n o

f a

cock

tail

of a

erat

ed

ging

er-b

eer

and

snai

l4

and

Mrs

Mil

ler's

sum

mer

tim

e fe

ar o

f so

arin

g cr

icke

t ba

lls

• '1 2 3

Pres

iden

t o

f the

Cou

rt o

f App

eal o

f New

Sou

th W

aJes

, Syd

ney.

Aus

tral

ia.

Fonn

erIy

. C

hain

nan

of

the

Aus

tral

ian

Law

Ref

onn

Com

mis

sion

(19

75-1

983)

. T

he a

utho

r ac

know

ledg

es t

he a

ssis

tanc

e gi

ven

by

Mr

Eug

ene

Ror

nani

uk. R

esea

rch

Off

icer

to th

e C

ourt

of A

ppea

l, in

the

pre

para

tion

of t

his

pape

r. B

ollo

mry

was

a s

yste

m w

here

by a

loa

n, s

ecur

ed b

y th

e ve

ssel

, ta

ken

out

by a

shi

p ow

ner

for

the

purp

oses

of a

sea

fari

ng v

entu

re w

ould

be

forg

iven

if

the

vess

el w

as l

ost.

Rep

aym

ent

of th

e lo

an w

as

cond

ition

al o

n th

e ve

ssel

's sa

fe a

rriv

al.

Res

pon

den

tia

was

a sy

stem

lik

e bo

ttom

ry, b

ut th

e lo

an h

ad a

s it

s se

curi

ty th

e ca

rgo

of th

e ve

ssel

. A

vera

ge w

as a

sys

tem

of i

ndem

nity

whe

reby

var

ious

par

ties

to a

ve

ntur

e co

ntri

bute

rat

eabl

y to

inde

mni

fy a

noth

er p

arty

to th

e sa

me

vent

ure

upon

pri

ncip

les

of co

mm

on

equi

ty.

See

A L

Par

ks,

The

Law

and

Pra

ctic

e o

f Mar

ine

Insu

ranc

e an

d A

vera

ge,

Stev

en &

Son

s, 19

88,

Vol

. I,

p.4

. ib

id,

pp.I

-6.

Scot

t v T

he L

ondo

n an

d St

. Kat

heri

ne D

ocks

Com

pany

(18

65)

3 H

&C

596

; 15

9 ER

665

. D

onog

hue

v St

even

son

[193

2J A

C 5

62 (

IlL

). -

I -

:~!Uin1Jleting down into her gardenS have becom

e legal folklore, so too has the 17th

if:Century L

ondon coffee-honse of M

r Edw

ard Lloyd.

Very little is know

n either about Mr L

loyd or his Tow

er Street coffee house.

appears that

he took

no personal

part in

the practice

of underw

riting,

i\\';"'contenting himself w

ith providing congenial

surroundings and

facilities for

his

~~:patrons to do business until his death in 1713. L

loyd's chief bequest to posterity was

~~~,~

[t:1ns name and the coffee house w

hich bore it. "6

Then, as now

, willing parties for fee, individually or collectively, took risks for

merchants against loss at sea: ever a peril o

f marine adventures.

The decision to

~H'accept that

risk, and

for w

hat price,

rested upon

the participant

nnderwriters'

c.'"

'-'~valuation of the chance o

f loss having regard to the details of the voyage provided to

~~,:,.i,', " . "L. them

. In

those infant days of m

arine insurance the knowledge o

f factors pertaining to

¥~~~7;·X;':~~~,::. the risk lay almost entirely w

ith the person seeking the insurance. In

Carter v B

oehm

"Insurance is a contract based upon speculation. The special

Jacts, upon w

hich the contingent chance is to be computed, lie

most

comm

only in

the know

ledge o

j the insured only:

the underw

riter trusts to his representation and proceeds upon the confidence that he does not keep back any circum

stance in his know

ledge, to

mislead the

underwriter into a belieJ that

the circum

stance does not exist, and to induce him to estim

ate the risque as if it did not exist. "

Proper assessm

ent o

f such "contingent

chance" necessitated

the full

and

complete disclosure o

f all factors material to the risk.

The com

mon law

responded to

this need by holding that all contracts of insurance w

ere contracts uberrimae fidei.

Miller v Jackson [1977J 1 Q

B 966 (C

A).

Parks, The L

aw a

nd

Practice o

f Marin

e Insurance and A

verage. above, p.g. (1766) 3 B

urr 1905 at 1909; 97 ER

1162 at 1164

-2-

'EiI

';h.p

arty

to t

he c

ontr

act

mus

t ac

t w

ith

the

"utm

ost g

ood

fait

h" i

n hi

s or

her

dea

lings

"~'

~.r:.'

.~ ::,

c~!.':

,· :

" .. '

.,,'S

. th

e ot

her.

8 T

his

was

to

be i

n co

ntra

st to

the

com

mon

law

's g

ener

alla

isse

z-Ja

ire

.' ""

_, ,)

~:ih

eoIy

to

barg

ains

in

the

gene

ral

law

of

cont

ract

9 T

here

the

the

oret

ical

und

erpi

nnin

g t;

~'i,

«~t:

;;$\

::,'

: .

\li:2;"

j!};1i

;·;f,t."

'·w· as·

···· th

e do

ctri

ne o

f cav

eat e

mpt

or 1

0 ~t

<;;'

~!>:

::..

~i;{

:\\\

'\-~

.,

-.

In th

e tim

e w

hich

has

pas

sed

sinc

e M

r E

dwar

d L

loyd

pro

vide

d hi

s cu

stom

ers

frag

rant

cof

fee

man

y th

ings

hav

e ch

ange

d,

The

rel

ativ

e ba

rgai

ning

pos

itio

n o

f i:,

'

,/~ m

arin

e un

derw

rite

rs a

nd a

ssur

eds

has

chan

ged,

In

thos

e ea

rly

days

it l

ay a

lmos

t so

lely

",W

ith t

he i

nsur

ed,

The

pur

pose

of

the

rule

was

to

rect

ify

that

im

bala

nce,

l1

Tod

ay

prud

ent u

nder

wri

ters

hav

e la

rgel

y re

dres

sed

this

inf

onna

tion

im

bala

nce,

l2

The

law

has

mov

ed a

gre

at d

ista

nce

from

the

val

ues

whi

ch i

t em

brac

ed i

n th

e 18

th a

nd 1

9th

The

per

cept

ions

of

cont

empo

rary

soc

iety

con

cern

ing

cond

uct

appr

opri

ate

to a

bar

gain

hav

e al

so c

hang

ed s

ince

the

inf

ant

days

of m

arin

e in

sura

nce.

A

gain

st t

he

.• ba

ckgr

ound

of

thes

e ch

ange

s it

is t

imel

y to

ask

whe

ther

, ha

ving

reg

ard

both

to t

heor

y

. arid

pra

ctic

e, t

he c

ircu

mst

ance

s o

f m

odem

tim

es a

re s

uch

that

dut

y o

f ut

mos

t go

od

faith

in m

arin

e in

sura

nce

has

beco

me

out o

f dat

e?

11

12

See,

for

exa

mpl

e, S

eato

n v

Hea

th

[189

9]

1 Q

B 78

2 (C

A)

at 7

92 p

er R

omer

U~ S

outh

ern

Cro

ss

Ass

uran

ce C

ompa

ny L

td v

Aus

tral

ian

Prov

inci

al A

ssur

ance

Ass

ocia

tion

Ltd

(193

9) 3

9 SR

(NSW

) 17

4 (F

C),

at

187;

Hal

sbur

y's

La

... s

af E

ngla

nd (

4th

ed),

Vol

25,

pa

ra 2

21.

Not

e ho

wev

er t

hat

wrd

M

ansf

ield

in C

arte

r v

Boe

hm (

1766

) 3

Bur

r 19

05 a

t 19

09;

97 E

R 1

162

at 1

164

was

of

the

view

tha

t th

e do

ctri

ne o

f "g

ood

faith

" w

as a

pplic

able

to

all

cont

ract

s, no

t on

ly c

ontr

acts

of

insu

ranc

e. T

he

com

mon

law

of c

ontr

act

has

not

sinc

e C

arte

r v

Boe

hm s

o fa

r de

velo

ped

in th

at w

ay:

see

Pan

Atla

ntic

In

sura

nce

Co

Ltd

v P

ine

Top

Insu

ranc

e C

o Lt

d [1

994]

3 W

LR 6

77 (

HL

), a

t 70

0 pe

r Lo

rd M

ustil

l. de

spite

som

e lin

geri

ng i

ndic

atio

ns t

o th

at e

ffect

. Se

e, f

or e

xam

ple,

the

dis

cuss

ion

of P

ries

tley

JA i

n R

enar

d C

onst

ruct

ions

(Jv

fE)

Ply

Ltd

v M

inis

ter

for

Pub

lic W

orks

(19

92)

26 N

SWL

R 2

34 (

CA

), at

26

3f.

See

also

J C

arte

r "G

ood

faith

in F

aile

d C

ontr

act N

egot

iatio

ns",

unp

ublis

hed,

a p

aper

del

iver

ed

to th

e U

nive

rsity

of S

ydne

y Fa

culty

of L

aw C

ontin

uing

Leg

al E

duca

tion

prog

ram

, 17

Feb

ruar

y 19

94.

See

gene

rall

yD W

Gre

ig a

nd J

L R

Dav

is,

The

Law

a/C

ontr

act,

LB

C,

1987

, pp

.22-

32.

See

gene

rally

W H

Ham

ilton

, "T

he A

ncie

nt M

axim

of C

avea

t E

mpt

or"

(193

1) 4

0 Ya

le L

aw J

ourn

al

1133

, es

p. p

p.11

35-1

136.

See

als

o A

G G

uest

(ed

), B

enja

min

's S

ale

of

Goo

ds (

3rd

Ed)

, Sw

eet

&

Max

wel

l, 19

87, a

t pa

ra 7

77.

Pan

Atla

ntic

Insu

ranc

e C

o L

td v

Pin

e To

p In

sura

nce

Co

Ltd

[199

4] 3

WLR

677

(H

L),

at 7

17 p

er L

ord

Llo

yd o

f Ber

wic

k.

The

Law

Ref

orm

Com

mis

sion

, Ins

uran

ce C

ontr

acts

(AL

RC

20)

. AG

PS,

1982

, at p

ara

175.

-3-

Like m

any other aspects of A

ustralian law, both com

mon and statute law

, wh

at

may b

e described as "Australian m

arine insurance law" ow

es its origins to the law o

f

Indeed, the

High C

ourt of A

ustralia recently com

mented,

in a

rather

" different context, that "Australian law

is not only the historical successor of, bu

t is an

" organic development from

, the law o

f England" .13

While it had been established that

i'"

;', the comm

on law o

f Australia could develop indepeudently o

f English precedent,I4 as

,s.,;.'-"

"" ~egards the general law o

f contract the English law

remains particularly persuasive. IS

This is especially so in the present case as the M

arine Insurance Act 1909 (C

th)I6 is,

in substance, identical to the English M

arine Insurance Act 1906, w

hich represented a

"partial codification of the com

mon law

."17

Th

e du

ty o

f utmost good faith -

s 23 of the M

arine Insurance Act

'Division 4 (ss 23-27) o

f the Marine Insurance A

ct 1909 (the Act) deals w

ith

disclosure and representations. S

ection 23 of the A

ct I8 expressly imposes u

po

n the

to the bargain a duty of utm

ost good faith. T

hat section makes it clear that:

the duty of utm

ost good faith applies to both the underw

riter and the assured;I9

and

Mabo v The State o

f Queensland (N

o,2) (1992) 175 CL

R I, at 29 per B

rennan J; Mason C1 and

McH

ugh J agreeing. A

ustralian Consolidated P

ress Ltd

v Uren (1967) 117 C

LR

221; [1969] AC

S90 (PC),

See also the A

ustraliaAct 1986 (C

th), G

reig and Davis, The Law

oleon/raet, above, p.l. T

here are constitutional limitations upon the A

ustralian Federal Parliament's legislative pow

er to pass law

s in respect of insurance. See generally J Q

uick and R R

Garran, The A

nnotated Constitution o

f the A

ustralian Com

monw

ealth, The A

ustralian Book C

ompany. 1901 at §§160 and 185.

Section 6(1) of the M

arine insurance Act 1909 (C

tIt) provides: "This A

ct shall apply to marine Insurance other than State m

arine insurance and to State m

arine insurance extending beyond the limits o

f the State concerned". T

his paper focuses exclusively on the operation of the Federallegisiation in A

ustralia, it, by virtue of s 6(l}, being applicable to international transactions. Pan A

tlantic Insurance Co L

td v Pine Top Insurance Co L

td (1994} 3 WLR

677 (lll.), at 683. Section 23 of the M

arine Insurance Act 1909 (C

th) provides: "A contract o

f marine insurance is a contract based upon the utm

ost good faith, and, if the utm

ost goodfaith be not obsetved by either party, the contract may be

avoided by the other party. 1/ See also C

arterv Boehm

(1766) 3 Burr 1905, at 1909; 97 E

R 1162, 1164 per Lord M

ansfield; Pan

AlianticInsurance C

o Ltd v Pine Top Insurance C

o Ltd [1994] 3 W

LR

677 (HL

), at 717-718 per Lord

-4-

if t

he d

uty

of

utm

ost

good

fai

th

is b

reac

hed

the

inno

cent

par

ty m

ay a

void

enti

rely

the

cont

ract

.20

Sec

tion

24(

1) o

f th

e A

ct21

req

uire

s th

at (

subj

ect

to c

ircu

mst

ance

s w

hich

nee

d

be d

isc1

osed

)22

the

assu

red

(or

his

or h

er a

gent

)23

mus

t di

sclo

se t

o th

e un

derw

rite

r

'i'"

"'~'

mate

rial

cir

cum

stan

ce24

whi

ch is

kno

wn

to th

e as

sure

d."

By

s 24

(1)

of

the

Act

,

assu

red

is d

eem

ed t

o kn

ow "

evet

y ci

rcum

stan

ce w

hich

, in

the

ordi

nary

cou

rse

of

Llo

yd o

f Ber

wic

k.

Sim

ilarl

y. t

he d

uty

of u

tmos

t goo

d fa

ith m

ay e

xten

d to

tho

se "

who

are

nec

essa

rily

in

volv

ed i

n th

e in

sura

nce"

. not

just

the

actu

al p

artie

s to

the

con

trac

t of i

nsur

ance

: C

E H

eath

Cas

ualt

y &

Gen

eral

[nS

llra

nce

Ltd

v G

rey

(199

3) 3

2 N

SWL

R 2

5 (C

A),

at 3

7 pe

r Mah

oney

IA.

See

also

K C

T

Sutto

n, "

The

Dut

y of

Utm

ost G

ood

Faith

" (1

994)

22

Aus

tral

ian

Bus

ines

s La

w R

evie

w 3

02.

R J

Lam

beth

, Te

mpl

eman

on

Mar

ine

Insu

ranc

e (6

th e

d),

Pit

man

. 19

86, p

.21

mak

es th

e po

int t

hat:

" ..

. des

pite

th

e w

ords

us

ed i

n so

me

0/ th

e ol

der

judg

men

ts t

he

poli

cy i

s no

t au

tom

atic

ally

vo

id in

the

eve

nt o

f non

-dis

clos

ure

or

mis

repr

esen

tati

on b

ut ~ b

e a

void

ed b

y Ih

e ag

grie

ved

part

y. "

(em

phas

is s

uppl

ied)

"A

void

ed".

the

refo

re,

in t

he e

lect

ive

cont

ext o

f s 2

3 of

the

Ma

rin

e In

sura

nce

Act

190

9 (C

th)

refe

rs t

o av

oida

nce

ab

init

io.

See

The

La

w

Com

mis

sion

of

Eng

land

an

d W

ales

, In

sura

nce

Law

: N

on­

Dis

clos

ure

an

d B

reac

h o

f W

arra

nty

(No.

104

), 1

980.

at

para

3.9

; C

CH

, Aus

tral

ian

& N

ew Z

eala

nd

Insu

ranc

e R

epor

ter,

at 1

'6...

Q45

. Se

ctio

n 24

(1)

of t

he M

arin

e In

sura

nce

Act

190

9 (C

th)

prov

ides

: Su

bjec

t to

the

prO

Vis

ions

a/t

his

sec

tiorr

, th

e as

sure

d m

ust

dis

clos

e to

the

ins

urer

, be

/ore

the

con

trac

t is

con

clud

ed,

ever

y m

ater

ial

circ

umst

ance

whi

ch i

s kn

own

to

the

assu

red,

an

d t

he a

ssur

ed is

dee

med

to k

now

eve

ry d

rcu

mst

an

ce w

hich

, in

the

or

dina

ry c

ours

e a/

buSi

ness

, ou

ght t

o be

kno

wn

by

him

.lft

he a

ssu

red

fail

s to

mak

e su

ch d

iscl

osur

e. t

he i

nsur

er m

ay a

void

the

cont

ract

. Su

bjec

t to

inq

uiry

by

the

insu

rer,

S 24

(3)

of th

e M

arin

e In

sura

nce

Act

190

9 (e

th)

prov

ides

tha

t th

e as

sure

d ne

ed n

ot d

iscl

ose:

"(

a)

An

y ci

rcum

stan

ce w

hich

dim

inis

hes

the

risk

; (b

) A

ny

circ

umst

ance

whi

ch i

s kn

own

or p

resu

med

to b

e kn

own

to t

he i

nsur

er.

The

in

sure

r is

pr

esum

ed

10

know

m

atle

rs

0/

com

mon

no

tori

ety

or

know

ledg

e,

an

d m

atle

rs w

hich

an

insu

rer

in t

he

ordi

nary

cou

rse

of

his

bu

sine

ss,

as

such

, ou

ght t

o kn

ow;

(c)

. A

ny

drc

um

sta

nce

as

to w

hich

inf

orm

atio

n is

wa

ived

by

Ihe

insu

rer;

(d

) A

ny

circ

umst

ance

whi

ch i

t is

sup

erflU

OU

S to

di

sclo

se b

y r

easo

n 0/

an

y ex

pres

s or

imp

lied

war

rant

y. "

W

here

the

con

trac

t of i

nsur

ance

is e

ffec

ted

by a

n ag

ent

for

the

assu

red,

the

n su

bjec

t to

the

prov

isio

ns

of s

24(3

) of

the

Mar

ine

Insu

ranc

e A

ct 1

909

(Clh

) (c

ircu

mst

ance

s w

hich

nee

d no

t be

disc

lose

d).

s 25

of

theA

-far

ine

Insu

ranc

e A

ct 1

909

(Cth

) pr

ovid

es t

hat

the

agen

t m

ust d

iscl

ose

to th

e in

sure

r:

"(a)

ev

ery

mat

eria

l ci

rcum

stan

ce w

hich

is

know

n to

him

self

, a

nd

an

agen

t to

in

sure

is

dee

med

to k

now

eve

ry c

ircu

mst

ance

whi

ch i

n th

e or

dina

ry c

ours

e o

f bus

ines

s o

ug

ht

to b

e kn

own

by.

or

to h

ave

bee

n co

mm

unic

ated

to,

him

; a

nd

(b

) ev

ery

mat

eria

l cir

cum

stan

ce w

hich

the

ass

ured

is

bo

un

d to

dis

clos

e, u

nles

s it

co

me

to h

is k

now

ledg

e to

o la

te to

com

mun

icat

e it

to t

he a

gent

. /I

For

the

purp

oses

of

Div

isio

n 4

of th

e M

arin

e In

sura

nce

Act

190

9 (C

th),

the

term

"ci

rcum

stan

ce"

incl

udes

"an

y co

mm

unic

atio

n m

ade

to, o

r inf

orm

atio

n re

ceiv

ed b

y, t

he a

ssur

ed":

s 2

4(5)

of t

he A

fari

ne

[nsu

ran

ceA

ct 1

909

(Ctb

).

-5

-

ihsiness, ought to be known by him

" or her. H

ence, the assured is required to disclose 'j'"

.actual and constructive knowledge o

f facts affecting the risk. 25 Section 24(1) o

f i?thp.A

ct also provides:

<;:.

that the disclosure by the assured must be m

ade before the contract of insurance

is concluded;26 and

that failure by the assured to make the necessary disclosure allow

s the insurer to "avoid the contract."27

v -the "0

Section 24(2) of the A

ct 28 makes the "prudent insurer" the applicable test o

f ihnateriaIity."

By that test, a m

aterial circumstance is one "w

hich would influence the

1:~:,

t;judgment o

f a prudent insurer in fixing the premium

, or detennining whether he w

ill ~"."

'\"iakethe risk".29 T

hese words suggest that a m

aterial circumstance is one w

hich would

See generally Lam

beth, Templem

an on Marine Insurance, above, pp.26~27.

See also Proudfoot v

. Monteflore (1867) LR 2 Q

B 51!, at 521·522.

For the purposes of D

ivision 4 of the M

arine Insurance Act 1909 (C

th), s 27 oftbe M

arine Insurance A

ct 1909 (Cth) deem

s a contract of marine insurance to be "concluded" w

hen: " ... the proposal o

f the assured is accepted by the insurer. w

hether the policy be then

iSSlied or not; an

d for the purpose

of show

ing when

Ihe proposal w

as accepted, reference m

ay be made to the slip or covering nole or other custom

ary m

emorandum

of/he contract. "

Provision by s 24(1) of the Marine Insurance A

cl 1909 (Cth) that failure to disclosure a m

aterial circum

stance by the assured allows the insurer to avoid the contract appears som

ewhat UIUlecessary

having regard to s 23 of the Marine insurance A

ct 1909 (Cth); full disclosure of m

aterial facts and circum

stances being the cornerstone of the duty of utm

ost good

faith. B

ut it

underlines the consequence of non-disclosure. Section 24(2) o

f the Ma

rine Insurance A

ct 1909 (Cth) provides:

nEvery circum

stance is material w

hich would influence the judgm

ent of a prudent

insurer infixing the premium

, or determining w

hether he will take the risk.

/I A

t present the weight of judicial opinion favours the "prudent insurer" test of m

ateriality. O

ther tests of m

ateriality include the Nreasonable insured

lt (see, for example, Joel v Law

Union and C

rown

Insurance CO

[l908J 2 KB 863 (CA

l, at 885; Ho

me v P

olonel [1922J 2 KB 364. at 366·367; The G

uardian Assurance C

o Lid v C

ondongianis (1919) 26 CL

R 231, at

246~247), the "reasonable insurer" (see, for exam

ple, Southern C

ross Assurance C

o LId v A

ustralian Provincial A

ssurance A

ssociotion Ltel (1939) 39 SR

(NS

W) 174 (F

C), at 187·188; C

lub Developm

ent & F

inance Corp P

ly L

td v Bankers &

Traders insurance C

o Ltd [1971] 2 N

SWL

R 541 (SC

). at S45~ March C

abaret Club

& C

asino Ltd

v The London A

ssurance [1975] 1 Lloyd's R

ep 169 (QB

), at 176) and the Nreasonable or

prudent insurer" (see, for example. W

oolcolt v Sun Alliance and L

ondon Insurance Ltd [1978] 1 A

ll ER

1253 (QB

), at 1257; Reynolels v P

hoenix Assuronce C

o Ltel [1978J 2 Lloj<

!', Rep 440 (Q

B), at

459). It m

ay be that the differences between these form

ulations are merely sem

antic, the substance of aU being substantially the sam

e. See L

ambert v C

o-operatil'e insurance Sociely Ltd (1975] 2 L

loyd's R

ep 485 (CA

), at 489; Marene K

nitting Mills P

ly L

id v G

reater Pacific G

eneral Insurance Ltd [1976]

2 Lloyd's Rep 631

(PC). at 642.

See also Barclay H

o/dings (AUSI) P

ly Ltd v B

ritish National

-6·

an e

ffec

t on

the

m

ind

of

a pr

uden

t in

sure

r in

de

term

inin

g w

heth

er i

t w

ill

.urid

erta

ke t

he r

isk

and,

if

so,

for

wha

t pr

ice

and

upon

wha

t co

nditi

ons.

Su

ch a

bro

ad

'~;P!i

~\{);,

," "te

st pl

aces

an

oner

ous

task

on

the

assu

red

if it

is

to c

ompl

y w

ith

the

duty

.30

Mos

t

rece

ntly

the

Eng

lish

Hou

se o

f L

ords

in

Pan

Atl

anti

c In

sura

nce

Co

Ltd

v P

ine

Top

Tn.<

uran

ce C

o L

tdl1

end

orse

d su

ch a

bro

ad a

ppro

ach.

It

hel

d th

at i

t is

not

nec

essa

ry

(ind

eed,

it

wou

ld b

e co

ntra

ry to

the

ord

inar

y m

eani

ng o

f th

e w

ords

of t

he p

rovi

sion

),

that

a m

ater

ial

circ

umst

ance

be

one

that

has

a

"dec

isiv

e"

effe

ct o

n th

e in

sure

rs

. a'cc

epta

nce

of t

he r

isk,

or t

he p

rice

or

cond

ition

s o

f tha

t acc

epta

nce.

Non

-dis

clos

ure

and

caus

alit

y -

rece

nt d

evel

opm

ents

in

the

Hou

se o

f Lor

ds

Whi

le it

is c

lear

that

the

opin

ion

of a

par

ticu

lar

insu

red

as to

the

mat

eria

lity

of a

fact

is

not

dete

rmin

ativ

e,32

deb

ate

pers

ists

as

to w

heth

er a

par

ticul

ar i

nsur

er w

ho

wou

ld n

ot h

ave

actu

ally

bee

n in

flue

nced

by

the

assu

red'

s fu

ll an

d pr

oper

dis

clos

ure

ough

t to

be e

ntitl

ed,

in th

e ev

ent o

f non

-dis

clos

ure

by th

e as

sure

d to

avo

id e

ntir

ely

the

cont

ract

of

insu

ranc

e w

here

suc

h di

sclo

sure

wou

ld h

ave

infl

uenc

ed a

pru

dent

ins

urer

.

Arg

uabl

y, t

o ig

uore

the

insu

rer's

act

ual

resp

onse

lea

ds t

o th

e "a

bsur

d po

sitio

n",

to u

se

wor

ds o

f K

err

J sa

id i

n B

erge

r v

Pol

lock

,33

"whe

re t

he C

ourt

mig

ht b

e sa

tisf

ied

the

insu

rer

in q

uest

ion

wou

ld i

n fa

ct n

ot h

ave

been

so

infl

uenc

ed e

ven

thou

gh

othe

r pr

uden

t in

sure

rs w

ould

hav

e be

en.

It w

ould

the

n be

a v

ery

odd

resu

lt i

f th

e

. def

enda

nt i

nsur

er c

ould

nev

erth

eles

s av

oid

the

polic

y."3

4 It

is,

as

Lor

d M

ustiI

I no

ted

in P

an A

llant

ic,3

5 a

"que

stio

n w

hich

con

cern

s th

e ne

ed o

r ot

herw

ise,

for

a c

ausa

l

31

32

Insu

ranc

e C

o L

td (1

987)

8 N

SWL

R 5

14 (

CA

), at

526

. C

ontra

st M

arch

Cab

aret

Clu

b &

Cas

ino

LId

v

The

Lond

on A

ssur

ance

[19

75J

1 L

loyd

's R

ep 1

69 (

QB

). 3

l176

. B

arcl

ay H

oldi

ngs

(Aus

tral

ia)

Pty

Ltd

v B

ritis

h N

atio

nal

Insu

ranc

e C

o L

td (

1987

) 8

NSW

LR

514

(C

A) •

• l5

18

. [1

994J

3 W

LR

677

(H

L).

al6

82-6

83. 6

95-6

96,

705.

713

.n

d 7

14.

See,

for

exa

mpl

e, T

he G

uard

ian

Ass

uran

ce C

o L

td v

Con

dong

iani

s (1

919)

26

CL

R 2

31.

at 2

46;

Saun

ders

v Q

ueen

slan

d In

sura

nce

Co

Ltd

(193

1) 4

5 C

LR 5

57, a

t 56

3.

1197

3J 2

Llo

yd's

Rep

442

(Q

B),

at 4

63.

See

also

Vio

la v

Mer

cant

ile M

utua

l In

sura

nce

Co

Ltd

(19

85)

3 A

NZ

In

sura

nce

Cas

es 1

60-6

20

(NSW

SC).

at 7

8.79

4.

[199

4J 3

WL

R67

7 (H

L),

at 7

05.

-7-

connection between the m

isrepresentation or non-disclosure and the making of the

contract of insurance." (em

phasis added)

Most recently, the H

ouse of L

ords in Pan A

tlantic has given effect to such an approach.

Considering s 18(2) o

f the English M

arine Insurance Act 1906 (identical to

s24(2) of the M

arine Insurance Act 1909 (C

th)),36 the Law

Lords held that, before an

underwriter could avoid a contract for non-disclosure, the underw

riter had to show

that it had actually been induced by the non-disclosure to enter into the policy on the relevant term

s. 37 In

so concluding, the House o

f Lords overruled, in part, the earlier

holding of the E

nglish Court o

f Appeal in

Container T

ransport International Inc v O

ceanus Mutual U

ndenvriting Association (B

ermuda) Ltd3

8 ("CT

f') which, after a

full review o

f the relevant authorities, had rejected such an approach.39

In P

an A

tlantic40 L

ord Tem

pleman said:

"

"In my opinion "the judgm

ent of a pnldent insurer" cannot be

said

to be "influenced" by a circumstance w

hich, if disclosed, w

ould not have aJftcted the acceptance of the risk or the am

ount

, 36 Lord M

ustill (ibid, at 713) expressed the view that the requirem

ent of a causal connection between the

non-disclosure and entering of the contract of insurance applied also to non-marine insurance.

Earlier

in Lam

bert v Co-operative Insurance SO

Ciety L

td [1975] 2 Lloyd's R

ep 485 (CA

), at 487, 492 and 493 the E

nglish Court of A

ppeal held that the "prudent insurer" test of materiality contained in 5 18(2) of

the EngJish M

arine insurance A

ct 1906 was applicable to non-m

arine insurance. In A

ustralia, the "prudent insurer" test of m

ateriality in the context of non-marine insurance differs slightly.

The

fonnulation of Samuels 1 in M

ayne Nickless L

td v Pegler [1974J 1 N

SWLR

228 (SC), at 239, m

akes a fact m

aterial if it would have "reasonably affected" the m

ind of a prudent insurer in determining

whether he w

ill accept the risk and, if so, for what price and upon w

hat conditions. T

he formulation

laid down in the E

nglish and Com

monw

ealth marine insurance A

cts refers to a fact which w

ould have "influenced" the m

ind of a prudent insurer. In the A

ustralian non~marine context, the formulation of

Samuels J has been approved or adopted in subsequent cases.

See, for example, M

arene Knitting

Mills P

ly Ltd v G

reater Pacific G

eneral Insurance Ltd [1976]

2 Lloyd's R

ep 631 (P

C). at

642~ N

ational & G

eneral Insurance Co L

td v Chick [1984] 2 N

SWL

R 86 (C

A), at 108; B

arclay Holdings

(Aust) P

ly Ltdv B

ritish National insurance C

o Ltd (1987) 8 N

SWL

R 514 (C

A), at 520, 523 and 526.

[1994J 3 WLR

, at 680-681. 681-682. 712,713,714 and 732-733. [1984J 1 L

loyd's Rep 476 (C

A), at 492, 510-511 and 529.

See also Mayne N

ickless v Pegler [197411 N

SWL

R 228 (SC

), at 239 per Samuels J; Zurich G

eneral A

ccident & L

iability Insurance Co L

td v Morrison [1942] 2 K

B 53 (C

A), at 60; G

lasgow A

ssurance C

orp Ltd v W

il/iam Sym

ondson & C

o (1911) 16 Com

Cas

109, at 119; Habatsikos v C

ar Ow

ners' M

utua/Insurance Co L

td 11970] VR

297 (SC

), at 306-307; Avon H

ouse Ltd v C

ornhil/ Insurance Co

Ltd

(1980) 1 AN

Z Insurance Cases ~

60429 (N

ZHC

), at 77.227-72,228: £Islon v Phoenix P

rudential A

ustralia Ltd

(1987) 4 ANZ Insurance Cases ~60·765 (Q

SC).

[1994J 3 WLR

, at 680-681.

-8 -

of

the

prem

ium

. O

n be

half

of

the

unde

nvri

ters

, (i

t w

as J

subm

itte

d th

at a

cir

cum

stan

ce w

as m

ater

ial If

a pr

uden

t in

sure

r w

ould

ha

ve

"wan

ted

to

know

" or

w

ould

ha

ve

"tak

en

into

ac

coun

t" th

at c

ircu

mst

ance

eve

n th

ough

it

wou

ld h

ave

mad

e no

di

ffere

nce

to h

is a

ccep

tanc

e o

f th

e ri

sk o

f th

e am

ount

of

the

prem

ium

. "

Lor

d L

loyd

-so

far

as

is k

now

n, n

o de

scen

dant

of

the

arom

atic

Edw

ard

-

pres

ente

d "t

wo

sepa

rate

but

clo

sely

rel

ated

que

stio

ns"

to b

e as

ked

of

an i

nsur

er w

ho

seek

s to

avo

id a

con

trac

t of i

nsur

ance

for

non

-dis

clos

ure

or m

isre

pres

enta

tion:

41

"(1)

D

id t

he

mis

repr

esen

tatio

n or

non

-dis

clos

ure

indu

ce

the

actu

al i

nsur

er t

o en

ter

into

the

con

trac

t on

tho

se t

erm

s?

(2)

Wou

ld th

e pr

uden

t ins

urer

hav

e en

tere

d in

to t

he c

ontr

act

on t

he

sam

e te

rms

if h

e ha

d kn

own

of

the

mis

repr

esen

tatio

n o

f th

e m

isre

pres

enta

tion

or

non-

disc

losu

re

imm

edia

tely

be

fore

th

e co

ntra

ct w

as

conc

lude

d?

If bo

th q

uest

ions

are

an

swer

ed i

n fa

vour

of t

he i

nsur

er,

he w

ill b

e en

tille

d to

m'o

id t

he c

ontr

act,

but n

ot o

then

vise

. "

"Nor

mal

ly",

evi

denc

e o

f th

e ac

tual

ins

urer

him

or

hers

elf

will

be

requ

ired

to

the

cour

t in

res

pect

of

ques

tion

(l).

Evi

denc

e o

f an

ind

epen

dent

bro

ker

or

will

ord

inar

ily b

e gi

ven

to s

atis

fy th

e co

urt i

n re

spec

t of q

uest

ion

(2).

42

The

eff

ect

of

the

deci

sion

of

the

Hou

se o

f L

ords

in

Pan

Atl

anti

c w

as t

o

appr

ove4

3 th

e ap

proa

ch o

f K

err

J in

Ber

ger

v P

ollo

ck.4

4 T

his

was

one

whi

ch a

s

D,

as h

is L

ords

hip

had

beco

me,

he

reca

nted

in

eTI. 4

5 Ju

dici

al f

irst

tho

ught

s ar

e

'usu

allv

the

best

.46

Pan

At/a

ntic

Insu

ranc

e C

o Lt

d v

Pine

Top

Ins

uran

ce C

o L

td [1

994]

3 W

LR 6

77 (

HL

). a

t 73

2~73

3.

ibid

, at

733

. ib

id, a

t 732

. [1

973J

2 L

loyd

's R

ep 4

42 (

QB

). a

t 46

3.

[198

4J 1

Llo

yd's

Rep

476

(C

A).

at 4

95.

Bar

clay

Hol

din

gs (

Aus

t) P

ly L

td v

Bri

tish

Nat

iona

l ins

uran

ce C

o L

td (1

987)

8 N

SWL

R 5

14 (

CA

), a

t 52

0.

-9-

The H

ouse of Lords decision and A

ustralian law

In the context o

f the Australian M

arine ]lISurance Act, w

hether an insurer need

actually be

influenced by

the non-disclosure

depends upon

the m

eaning to

be

attributed to the words: "w

hich would influence the judgem

ent of a prudent insurer",

in s 24(2) o

f the A

ct. W

hile there

is A

ustralian authority

tending tow

ard the

requirement that the insurer should actually have been induced by the non-disclosure

of a

material

fact, 47 that

question o

f interpretation48

has not

yet been

fmally

determined by A

ustralian law.

There are, I think, tw

o substantive matters o

f legal

. principle which w

ould favour the adoption in Australia of the holding established by

the House of L

ords in Pan Atlantic.

First, the identical wording o

f the provisions concerned49 and the legislative

history of the Australian M

arine ]lISurance Act m

ake the decision of the H

ouse of

Lords extrem

ely persuasive. A

s has been said many tim

es, this is an area of the law

.. where judges m

ust be willing to subordinate their ow

n fancies to the needs of com

mon

. international legal principles understood throughout a global industry.

47

48

49

In Western A

ustralian Insurance Co L

td v D

ayton (1924) 35 CLR

355, Isaacs AC

J (with w

hom G

avan D

uffy J agreed) said, at 379-380: "The test o/m

ateriality is whether in view

of "011 the circum

stances at the time",

which include o

f course, the full circu

mstan

ces of the fact undisclosed, that fact

would have influenced the C

ompany as a prudent insurer in fixing the prem

ium or

in determ

ining to

accept Ihe risk.

But

it must

not be

fOrgotten

that "the

circumstances" include the know

ledge. the practice and the proved conduct o

Uh

e insurer.

If. for instance. it were the know

practice of a com

pany to disregard a certain class o

f facts, the non~disclosure of such a fact w

ould not prima facie qua

that company be m

aterial, however it m

ight he with regard to another com

pany. n (em

phasis added). See also B

arclay Holdings ?4usV

Pty L

td v British N

ational Insurance Co Ltd (1987) 8 N

SWL

R 514

(CA

). at 517. 520 and 525; Visscher E

nterprises Pty LId v Southern P

acific Insurance Co L

td [1981] Q

dR 561 (F

C). at 587~588; ltobar P

ty Ltd

v Mackinnon and C

omm

ercial Union A

ssurance Co PLC

(1985) 3 A

NZ

Insurance Cases ~

60-610 (Q

SC

). at 78,722-78.723. In Pan A

tlantic insurance Co L

td v Pine Top Insurance Co LId [19941 3 W

LR 677 (HL

) the House of

Lords considered this issue in the context of the Alarine Insurance A

ct 1906 (UK

). In that case the

resolution of the issue was considered to be a m

atter of interpretation of the provisions of the Act. See

esp. at 681 -682 per Lord G

off of C

hieveley and at 712 per Lord M

ustill. M

arine Insurance Act 1906 (U

K), s 18(2) and M

arine Insurance Act 1909 (C

th), 24(2).

-1

0-

Sec

ondl

y, t

he l

aw h

as g

ener

ally

req

uire

d th

at,

befo

re a

n ag

grie

ved

part

y ca

n

seek

red

ress

for

a w

rong

suf

fere

d by

him

or

her,

as

the

resu

lt o

f an

othe

r's s

tate

men

t or

omis

sion

, th

e ag

grie

ved

part

y m

ust h

ave

been

indu

ced

by,

and

ther

efor

e ac

tual

ly r

elie

d

upon

, th

at s

tate

men

t or

om

issi

on.

Lor

d M

usti

ll i

n P

an A

tlan

tic

said

50 o

f th

e ge

nera

l

law

of m

isre

pres

enta

tion

:

" ...

it i

s be

yond

dou

bt t

hat

even

a fr

audu

lent

mis

repr

esen

tatio

n m

ust b

e sh

own

to h

ave

indu

ced

the

cont

ract

bef

ore

the

prom

isor

ha

s a

righ

t to

avo

id,

alth

ough

the

tas

k o

f pro

of m

ay b

e m

ade

mor

e ea

sy

by a

pre

sum

ptio

n o

f in

duce

men

t. Th

e ca

se

of

inno

cent

mis

repr

esen

tatio

n sh

ould

sure

ly b

e a

fort

iori

, an

d ye

t it

is

ur

ged

tilat

so

long

as

th

e re

pres

enta

tion

is

mat

eria

l no

in

duce

men

t nee

d be

sho

wn.

''51

Sim

ilar

ly,

the

vari

ous5

2 do

ctri

nes

of

esto

ppel

ha

ve,

as

a fu

ndam

enta

l

prec

ondi

tion

to

the

gran

ting

of

relie

f, r

equi

red

that

the

agg

riev

ed p

arty

sho

nld

have

reas

onab

ly r

elie

d up

on (

and

ther

efor

e be

en i

nduc

ed t

o ac

t to

his

or

her

detr

imen

t by

)

the

repr

esen

tati

on o

f, o

r as

sum

ptio

n or

exp

ecta

tion

enc

oura

ged

by,

the

othe

r pa

rty.5

3

Leg

isla

tion

prot

ecti

ng t

he r

ight

s o

f co

nsum

ers

sim

ilar

ly r

equi

res

a ca

usal

con

nect

ion

betw

een,

for

exa

mpl

e, a

mis

lead

ing

or d

ecep

tive

rep

rese

ntat

ion

or c

ondu

ct a

nd t

he

. co

ntra

ct b

y w

hich

los

s or

dam

age

is s

uffe

red.

54

SO

51

52

53

,"" "·

0'·· •. :

',,·,.,

54

[199

4]3

WL

R, a

t 70S

. Se

e al

so S

penc

er B

ower

and

Tur

ner,

The

Law

of A

ctio

nabl

e A

lisr

epre

sen

tati

on (3

rd e

d),

But

terw

orth

s. 19

74. p

p,\3

0r.

Mea

gher

, G

urnm

ow a

nd L

ehan

e, E

quit

y -

Doc

trin

es a

nd

Rem

edie

s (3

rd e

d),

But

terw

orth

s. 19

92,

at

para

[170

11 m

ake

the

poin

t th

at t

he t

enn

"ltes

topp

el" h

as b

een

used

in

vari

ous

sens

es i

n th

e la

w.

But

ther

e ha

s ne

ver

been

agr

eem

ent a

s to

the

doc

trin

al s

igni

fican

ce o

f the

var

ious

sen

ses

of th

e te

nn o

r as

to

the

ir r

elat

ions

hip.

eac

h to

the

alb

ers."

Se

e al

so D

isco

unt

and

Fin

ance

Ltd

v G

ehri

g's

New

Sou

th

Wal

es W

ines

Ltd

(194

0) 4

0 SR

(NSW

) 59

8 (F

C),

at

602-

603

per

Jord

an C

J; L

egio

ne v

Hal

eley

(19

83)

152

CL

R 40

6, a

t 430

per

Mas

on a

nd D

eane

II.

See,

for

exam

ple,

Wal

tons

Sto

res

(Int

erst

ate)

Ltd

v M

aher

(19

88)

164

CLR

387

, at

428

-429

per

B

renn

an J

, w

hich

Mea

gher

, G

umrn

ow a

nd L

ehan

e, E

qUity

-D

octr

ines

an

d R

emed

ies,

abo

ve,.

at p

ara

[17l

O]

say

enca

psul

ates

the

"cu

rren

t st

ate

of a

utho

rity

as

to e

quita

ble

or p

rom

issor

y es

topp

el."

Se

e al

so S

ilov

i P

ly L

td v

Bor

baro

(19

88)

13 N

SW

LR

466

(C

A),

at

472

per

Pri

estl

ey J

A.

As

rega

rds

esto

ppel

by

cond

uct,

see

The

Com

mon

wea

lth v

Ven

t'aye

n (1

990)

170

CLR

394

, at 4

44 p

er D

eane

1.

See,

for

exa

mpl

e, s

52

of th

e T

rade

Pra

ctic

es A

ct 1

974

(Cth

) an

d th

e co

mm

enta

ry b

y R

V M

iller

, A

nn

otat

ed T

rade

Pra

ctic

es A

ct (1

5th

cd),

LE

C,

1994

, pp.

23l-

233.

-1

\ -

------

---.,

£ ..

£..,

, ........... .., ..

J

;'/ uu

" u'v court would adopt the reasoning and process o

f interpretation outlined in the :~;'~t/·"

"

Atlantic.

But I w

ill say no more in case the issue falls to be determ

ined by me

I should hate to be disqualified from exercising an independent m

ind on

Some general com

ments on the desirability o

f a causal connection

Leaving

aside the

two

questions just

dealt w

ith, there

are som

e general

'comm

ents which can be m

ade of the causal requirem

ent propounded by the House o

f L

ords in Pan A

tlantic. T

he English C

ourt of A

ppeal has been much and variously

~, .

.. criticised 55 for its decision in CT

I. It is particularly relevant to consider tw

o of those

general criticisms.

First, it had been suggested that the law as established by C

TJ was "too harsh"

in that it deprived "the assured of recovery for a genuine loss by perils insured against

even if the misrepresentation or non-disclosure had no bearing on the risk w

hich br6ught about the loss. "56

Lord T

emplem

an in Pan A

tlantic said,57 in emphatic term

s:

"If this is the result of the judgm

ents of the C

ourt of A

ppeal in the [C

TIl case then J m

ust disapprove of that case.

If accepted, this subm

ission would give carte blanche to the avoidance o

f . >

insurance

contracts on

vague grounds

of

non-disclosure .

supported by vague evidence even though disclosure would not

have made any diffirence. "

In Pan A

tlantic Insurance Co L

Id v Pine Top Insurance C

o Ltd [1994] 3 W

LR 677 (H

L), at 692-695,

Lord Mustill outlines nine of the "principal" com

plaints made against the C

ourt of Appeal's decision

in Container T

ransporl Intemational Inc v O

ceanus Mutual U

ndenvriting Association (B

ennuda) LId [198411 L

loyd's Rep 476 (C

Al.

Pan A

tlantic Insurance Co L

Id v Pine Top Insurance C

o Ltd [1994] 3 W

LR 677 (H

L), at 692 per Lord M

ustill. ibid, at 680-68 I.

-1

2-

t~~~;t·

Hav

ing

reac

hed

the

conc

lusi

on th

ey d

id,

it is

im

plic

it th

at th

e L

aw L

ords

in

Pan

Atla

ntic

acc

epte

d, o

r at

leas

t app

rove

d th

e su

bsta

nce

of,

this

cri

ticis

m.

It is

not

har

d to

see

why

it

is

entir

ely

inap

prop

riat

e th

at a

n in

sure

r, co

mm

only

pos

sess

ed o

f gr

eat

know

ledg

e an

d re

sour

ces,

sho

uld

be a

ble

to a

void

a c

ontr

act

of

insu

ranc

e up

on t

he

flim

sy b

asis

tha

t al

thou

gh i

t w

as n

ot i

tsel

f act

uall

y in

duce

d or

inf

luen

ced

by t

he n

on­

disc

losu

re t

o en

ter

into

the

con

trac

t up

on t

he t

erm

s th

at i

t di

d (a

nd f

ull

disc

losu

re

wou

ld n

ot h

ave

alte

red

its a

ccep

tanc

e o

f th

e ri

sk u

pon

thos

e te

rms)

, su

ch d

iscl

osur

e

wou

ld h

ave

infl

uenc

ed t

he a

ccep

tanc

e o

f th

e ri

sk o

r its

ter

ms

by a

"pr

uden

t" i

nsur

er.

Inde

ed,

Lor

d M

ustil

l in

Pan

Atl

anti

c su

gges

ted

that

, bu

t fo

r th

e ab

senc

e o

f ex

pres

s

wor

ds o

f cau

sal

conn

ectio

n in

the

prov

isio

ns c

once

rned

:58

" ... 1

dou

bt w

heth

er i

t w

ould

now

aday

s oc

cur

to a

nyon

e th

at i

t w

ould

be

poss

ible

for

the

unde

nvri

ter

to e

scap

e lia

bilit

y ev

en i

f th

e m

atte

r co

mpl

aine

d o

f ha

d no

ef

fect

on

his

proc

esse

s o

f th

ough

t. "

The

im

port

of

the

requ

irem

ent

of

a ca

usal

con

nect

ion

is c

onsi

sten

t w

ith

the

"vic

e" w

hich

the

doc

trin

es o

f m

isre

pres

enta

tion

and

non

-dis

clos

ure

have

lon

g so

ught

to d

eter

. 59

Tha

t vi

ce i

s no

t th

at t

he i

nsur

er h

as u

nder

wri

tten

a ri

sk w

hich

has

res

ulte

d

in a

loss

, bu

t tha

t a

brea

ch o

f the

dut

y o

f utm

ost g

ood

faith

"ha

s le

d th

e un

derw

rite

r to

appr

oach

the

pro

posa

l on

a f

alse

bas

is. "

60

As

a m

atte

r o

f lo

gic,

it

ough

t no

t be

sai

d

that

an

insu

rer's

int

entio

n to

cre

ate

lega

l rel

atio

ns, n

or th

e co

nsen

sus

ad

idem

, co

uld

be

vitia

ted

by c

ircu

mst

ance

s w

hich

wou

ld n

ot i

nflu

ence

the

ins

urer

's de

cisi

on t

o en

ter

. in

to t

he c

ontr

act.

Sim

ilarl

y, w

here

the

ins

urer

has

im

plie

dly

wai

ved

reli

ance

upo

n

som

e o

f the

term

s o

f the

ass

ured

's o

ffer

, by

the

fac

t th

at th

ose

term

s w

ould

not

act

uall

y

infl

uenc

e th

e ju

dgm

ent o

f the

ins

urer

, th

en t

hat c

ontr

act o

ught

not

be

viti

ated

by

a la

ter

58

S9

60

ibid

, at

705.

C

ontr

ast L

ord

Mus

till

in P

an A

tlant

ic I

nsur

ance

Co

LId

v P

ine

Top

Insu

ranc

e C

o L

td [1

994]

3 W

LR

677

(HL

). at

692

, who

say

s th

at w

hile

the

req

uire

men

t of

a c

ausa

l con

nect

ion

has

"pra

ctic

al f

orce

... i

t is

not

con

sist

ent w

ith g

ener

al p

rinc

iple

".

Pan

Alla

nti

c In

sura

nce

Co

Lld

v Pi

ne T

op I

nsur

ance

Co

Ltd

[199

4]3

WL

R 6

77 (

HL

). at

692

per

Lor

d M

ustil

l.

-13

-

assertion by the insurer that those impliedly w

aived tenns are in fact applicable to entitle it to escape the obligations otherw

ise assumed.

It had been suggested that the law w

as "too harsh" in that it deprived "the assured o

f his recovery even if full and accurate disclosure would have done no m

ore . than cause the actual underw

riter, or the hypothetical prudent underwriter to insist on

one rate of prem

ium rather than another. "61

I would agree w

ith Lord M

ustiII 62 that there is an elem

ent of prim

a facie attractiveness about a solution which involves an

., element o

f "proportionality". In

the case of "innocent" non-disclosure, a concept of

"proportionality" could take a number o

f fonns, two o

f which include:

that the insurer pay to the assured a proportion of the claim

, calculated by reference to the difference betw

een the premium

which w

as in fact paid and the prem

ium w

hich would have been payable had there been full disclosure; and

. (2) that the assured be required to pay the correct prem

ium payable had there

initially been full disclosure before the insurer will be required to

pay the claim

. 63

Assum

ing the insurer to be unable to show that the non-disclosure w

as anything "innocent",

a num

ber o

f possibilities arise

which

detract from

the

initial attractiveness o

f a concept of "proportionality" .

The concept involves an elem

ent of

• s~If-insurance: tacitly encouraging assureds not to make full disclosure in an attem

pt to benefit from

a lower prem

ium.

Those assureds so inclined are

invited by the ·;L concept o

f "proportionality" to chance a non-disclosure upon the basis that, should ;~'; .. that non-disclosure be catalogued, by a court or otherw

ise, to be "innocent", recovery -,

"

from the

insurer will

stilI be possible,

either at a reduced level or after further

ibid

, at 693 per Lord Mustin.

Id ..

Law C

omm

ission of England and W

ales, Insurance Law: N

on-Disclosure and B

reach oj W

arranty (N

o. 104), 1980, at para 4.4f. See also s 28(3) of the Insurance C

ontract Act 1984 (C

th), extracted at n.76 below

.

-14-

paym

ent.

The

pre

miu

m b

eing

the

driv

ing

fact

or i

n su

ch a

n in

vita

tion,

it

is l

ikel

y th

at

thos

e w

ho c

an l

east

aff

ord

the

prem

ium

, an

d th

eref

ore

the

tota

l fa

ilure

to

reco

ver,

are

plac

ed in

a s

itua

tion

whe

re s

uch

tem

ptat

ion

can

be le

ast

affo

rded

. In

deed

, th

e se

cond

form

ulat

ion

offe

rs a

pos

itiv

e in

cent

ive

to w

ithho

ld m

ater

ial

circ

umst

ance

s, t

he f

ull

amou

nt b

eing

rec

over

able

aft

er th

e pa

ymen

t of a

n ad

ditio

nal

amou

nt t

o th

e in

sure

r.

A

lifet

ime

in th

e la

w h

as d

emon

stra

ted

to m

e (a

nd d

oubt

less

oth

ers

even

les

s na

if) t

hat

som

e pe

ople

are

not

as

hone

st a

nd n

oble

as

we

wou

ld l

ike

to t

hink

the

y ar

e.

Peop

le

othe

rwis

e ho

nest

and

nob

le m

ay b

e dr

iven

by

adve

rse

circ

umst

ance

s to

act

in

a m

anne

r

cont

rary

to

thei

r us

ual

cond

uct.

Thu

s, w

hile

the

con

cept

of

prop

orti

onal

ity

has

real

mer

it, i

t al

so p

rese

nts

prob

lem

s w

hich

nee

d to

be

cons

ider

ed,

apar

t fr

om p

ract

ical

issu

es s

uch

as t

he d

iffi

cult

y in

volv

ed in

ass

essi

ng c

laim

s.64

Clo

sely

rel

ated

is

the

sugg

estio

n th

at t

he "

prud

ent

insu

rer"

tes

t o

f m

ater

ialit

y

shou

ld b

e sh

arpe

ned

by t

he i

ntro

duct

ion

of

a "d

ecis

ive

infl

uenc

e te

st".

Aft

er C

T!,

the

test

of m

ater

ialit

y be

cam

e al

l im

port

ant

as t

he s

ole

grou

nd f

or a

llow

ing

the

insu

rer

to

avoi

d th

e co

ntra

ct o

f ins

uran

ce f

or n

on-d

iscl

osur

e.

Impl

icit

in t

he "

deci

sive

inf

luen

ce

test

" w

as t

he a

ssum

ptio

n ili

at a

n in

sure

r sh

ould

not

be

able

to

avoi

d th

e co

ntra

ct i

n

circ

umst

ance

s w

here

ful

l di

sclo

sure

wou

ld n

ot h

ave

alte

red

the

insu

rer's

acc

epta

nce

of

.. t!J.

e ris

k.

Tha

t is

, a

circ

umst

ance

wou

ld b

e "m

ater

ial"

onl

y if

it w

ould

hav

e ha

d a

deci

sive

eff

ect

on t

he i

nsur

er's

acc

epta

nce

or o

ther

wis

e of

the

risk

, ad

judg

ed b

y th

e

.. s

tand

ard

of th

e ob

ject

ive

prud

ent

insu

rer.

65

By

that

tes

t o

f mat

eria

lity,

an

atte

mpt

had

been

mad

e to

m

ove

the

actu

al i

nduc

emen

t re

quir

emen

t fr

om t

he

crea

tion

of

the

cont

ract

to

the

mat

eria

lity

of

circ

umst

ance

s to

be

disc

lose

d.

The

Hou

se o

f L

ords

in

·'Pan

Atla

ntic

rej

ecte

d th

e "d

ecis

ive

infl

uenc

e te

st"

as c

apab

le o

f im

plic

atio

n in

to s

18(2

) of t

he E

nglis

h M

arin

e In

sura

nce

Act

190

6.66

W

hile

the

"de

cisi

ve in

flue

nce"

test

The

Law

Com

mis

sion

of E

ngla

nd a

nd W

ales

ulti

mat

ely

reje

tted

the

conc

ept

of p

ropo

rtio

nalit

y up

on

the

basis

tha

t it

wou

ld b

e to

o di

ffic

ult

to a

sses

s cl

aim

s. Se

e La

w C

omm

issi

on o

f Eng

land

and

Wal

es,

Insu

ranc

e La

w:

Non

-Dis

clos

ure

and

Bre

ach

o/W

arra

nty

(No.

104

), 19

80, a

t pa

ras

4.2-

-4.3

1 an

d 10

.6.

Pan

Atla

ntic

insu

ranc

e C

o L

td v

Pin

e To

p In

sura

nce

Co

Ltd

[199

41 3

WL

R 6

77 (

HL

), a

t 68

3 pe

r Lo

rd

Gof

f of C

hiev

eley

. ib

id, a

t 68

2-68

3, 6

95-6

96,

70S,

713

and

714

. -15

-

of materiality and the im

position of a requirem

ent for causal connection between the

non-disclosure of a m

aterial circumstance and the

entering into

of a contract o

f

insurance are both concerned with the requirem

ent of actual inducem

ent, the practical

effect of the

"decisive influence" test m

ay be

the encouragem

ent of an

unduly

restrictive passage of inform

ation between the assured and the insurer.

The L

aw

Lords decided that this w

as not desirable as a matter of legal policy.

A risk o

f the

"decisive influence" test was that assureds w

ould disclose only circumstances w

hich

they were advised w

ould be of "decisive influence" to the prudent insurer.

Aw

are of

that fact, a truly careful insurer would have to inquire for itself, specifically, as to all

those circumstances w

hich, while not "decisive", w

ould collectively influence the

assessment and acceptance o

f the risk. O

f course, the insurer's gathering of such

information w

ould have a price. It is not unreasonable to suppose that, ultim

ately, the

consumers o

f goods which had been the subject of som

e form o

f marine insurance

would pay that price.

Leaving aside the m

erits of the extent o

f the disclosure presently required, the

approach adopted by the House o

f Lords in P

an Atlantic encourages full disclosure o

f

all material circum

stances which collectively, as opposed to individually, are decisive

upon the assessment and acceptance o

f the risk. T

hat approach does not place any

burden extra to that already upon insurers to gather infonnation and thereby avoids the

potential of that extra cost. G

iven the desirability of the need for actual inducement,

the approach of the H

ouse of L

ords in Pan A

tlanlic appears to achieve this object in a

more cost appropriate m

anner than that offered by the "decisive influence" test of

materiality.

How

ever, as will be discussed below

, the present test of m

ateriality as

endorsed by Pan A

tlantic is itself open to criticism upon the different basis that it

onerous a task

on an assured seeking to

comply w

ith the disclosure

obligation.

-1

6-

Aus

tral

ian

refo

rms

in t

he f

ield

of g

ener

al i

nsur

ance

As

the

prec

edin

g di

scus

sion

sug

gest

s, a

t lea

st in

the

con

text

of m

arin

e in

sura

nce

the

duty

of

utm

ost

good

fai

th r

emai

ns a

n on

erou

s on

e, b

asic

ally

as

it h

as b

een

sinc

e E

dwar

d L

loyd

's d

ay.

Rea

lity

sugg

ests

tha

t th

e st

ring

ent

obli

gati

ons

impo

sed

by t

hat

duty

are

fel

t m

ore

by t

he

assu

reds

th

an

the

insu

rers

. In

deed

, it

is

diff

icul

t to

co

ntem

plat

e th

e si

tuat

ion

whe

re a

n as

sure

d, h

avin

g su

ffer

ed l

oss

agai

nst

whi

ch i

t w

as

insu

red,

wou

ld s

eek

to a

void

the

con

trac

t o

f in

sura

nce

upon

the

bre

ach

of t

he d

uty

of

good

fai

th.6

7 A

rgua

bly,

how

ever

, as

the

dut

y o

f goo

d fa

ith a

ppli

es a

lso

to t

he m

anne

r o

f per

form

ance

of

the

cont

ract

, 68

the

assu

red,

und

er a

mar

ine

insu

ranc

e po

licy,

oug

ht

to b

e ab

le,

in p

rinc

iple

, to

seek

som

e de

gree

of r

edre

ss w

here

the

ins

urer

unj

ustif

iabl

y as

sert

s th

at t

he a

ssur

ed's

con

duct

is

such

tha

t th

e in

sure

r ou

ght

be a

ble

to a

void

the

co

ntra

ct o

r ot

herw

ise

perf

orm

s its

obl

igat

ions

und

er th

e co

ntra

ct i

n a

man

ner

cont

rary

to

the

sen

se o

f m

utua

lity

and

fair

dea

ling

im

port

ed i

nto

the

cont

ract

by

the

duty

of

utm

ost

good

fa

ith.6

9 B

ut

IS th

e do

ctri

ne

of

utm

ost

good

fa

ith

in

its

pres

ent

man

ifes

tati

on s

till

nece

ssar

y?

Cou

ld it

s pu

rpos

es b

e ac

hiev

ed b

y ot

her

met

hods

?

As

a re

sult

of r

ecom

men

datio

ns b

y th

e A

ustr

alia

n L

aw R

efor

m C

omm

issi

on, 7

0 m

ade

at a

tim

e w

hen

I w

as i

ts C

hair

man

, su

bsta

ntiv

e re

form

s w

ere

intr

oduc

ed t

o th

e A

ustr

alia

n la

w o

f ge

nera

l in

sura

nce

by t

he I

nsur

ance

C

ontr

acts

Act

198

4 (C

th).

T

hose

ref

orm

s in

clud

ed r

efor

ms

to

the

duty

of

utm

ost

good

fai

th.

By

expr

ess

67

. 68

69

. 70

Of c

ours

e, as

Lor

d M

ansf

ield

not

ed i

n C

arte

r v

Boe

hm (

1766

) 3

Burr

190

5, a

t 19

09;

97 E

R 1

162,

at

1164

, if

an

unde

nvri

ter

insu

red

a ri

sk h

e al

read

y kn

ew t

o ha

ve b

een

com

plet

ed w

ithou

t lo

ss,

the

assu

red

coul

d av

oid

the

cont

ract

of i

nsur

ance

and

the

und

envr

iter

be J

iabl

e to

ret

urn

the

prem

ium

. T

he d

uty

of ut

mos

t goo

d fa

ith a

t lea

st e

xten

ds to

the

mak

ing

of cl

aim

s by

the

assu

red

him

or

hers

elf o

r by

his

or

her

agen

t or

bro

ker

on h

is or

her

beh

alf

See

Bla

ck K

ing

Ship

ping

Cor

pora

tion

y M

assi

e (T

he '

Lils

;on Pride~ [

l985

J 1

Llo

yd's

Rep

437

(Q

B).

Fo

r ex

ampl

e, c

ircu

mst

ance

s m

ay a

rise

whe

re g

ener

al d

amag

es w

ill b

e av

aila

ble

to t

he a

ssur

ed f

or t

he

insu

rer'

s br

each

of

the

insu

ranc

e co

ntra

ct.

See,

for

exa

mpl

e. S

tuar

t v

Gua

rdia

n R

oyal

Exc

hang

e A

sSW

"onc

e o

f New

Zea

land

LId

[N

o.2]

(19

88)

5 A

NZ

Ins

uran

ce C

ases

116

0-84

4 (N

ZH

C);

Dav

idso

n v

Gua

rdia

n R

oyal

Exc

hang

e A

ssu

ran

ce [

1979

] 1

Llo

yd's

Rep

406

(Sc

.Ct)

; E

dwar

ds v

A A

Mu

tual

In

sura

nce

Co

(198

5) 3

AN

Z In

sura

nce

Cas

es ~60-668 (

NZ

HC

); H

arri

S v

The

New

Zea

land

Ins

uran

ce

Co

Ltd

(19

87)

4 A

NZ

Insu

ranc

e C

ases

~60-817

(NZ

HC

); K

err

v Th

e Sl

ate

Insu

ranc

e G

ener

al

Man

ager

(19

87)

4 A

NZ

Insu

ranc

e C

ases

~60-781

(NZ

HC

): D

ome

v Th

e St

ate

Insu

ranc

e G

ener

al

Man

ager

(198

8) 5

AN

Z In

sura

nce

Cas

es ~0-83S (

NZH

C):

Alo

ss &

An

or v

Sun

All

ian

ce A

ust

rali

a L

td

(199

0) 6

AN

Z I

nsur

ance

Cas

es ~60·967 (

SASC

) .

See

The

Law

Ref

orm

Com

miss

ion,

Ins

uran

ce C

ontr

acts

(ALR

C 2

0), A

GPS

, 19

82.

-17

-

provision, the Insurance Contracts A

ct does not apply to

contracts to w

hich the

... Marine Insurance A

ct applies.?1

The A

ustralian Law

Refonn C

omm

ission did not propose that the duty o

f utm

ost good faith should be abandoned entirely, in favour o

f some new

concept. Indeed the C

omm

ission recognised the utility {If the concept. T

he Com

mission said: 72

"The orlgm

o

f the duty

of disclosure

lay in

the superior

knowledge

of factors

relevant to

the risk w

hich the

insured possessed

in early

marine

insurance, w

hen underw

riting expertise w

as in its infancy. It is often said that position has, in

most cases

of insurance,

now

been reversed:

insurers have

available to

them

sophisticated statistical

data and

obtain inform

ation on many aspects o

f the risk which they undertake.

It is true that the insurer has superior, even exclusive, know

ledge o

f statistical m

ailers relevant

to num

erous categories

and subcategories o

f risk. B

ut it does not have superior knowledge

of factors peculiar to the particular risk.

It does not know that

the life to be insured has been the subject to death threats, that a house proposed for insurance has been rew

ired by its inexpert ow

ner rather than a qualified electrician, or that the insured

under a houseowner'slhouseholder's policy has been convicted

of theft on three separate occasions.

Factors such as these are

likely to be in the exclusive knowledge o

f the insured There are

economic

reasons w

hich prevent

insurers from

m

aking an

independent investigation

of

each and

every proposal,

particularly in

respect o

f such

classes as

houseowner'slhouseholder's

and m

otor vehicle

insurance. P

rime reliance in these areas m

ust be placed on the insured's answ

ers to the questions asked of him

by the insurer. "

Clearly the C

omm

ission recognised the importance o

f the duty of utm

ost good faith and the potential cost o

f abandoning the doctrine. H

owever, the C

omm

ission

Section 9 (1) of Insurance Contracts A

ct 1974 (Cth) provides:

"Except as otherw

ise provided by this Act. this A

ct does not apply to or in relalion to contracl and proposed contracts ~

(dj to or in relation to w

hich the Marine Insurance A

ct 1909 applies ... 1/ T

he Law R

efonn Com

mission, Insurance C

ontracts (ALR

C 20), A

GPS, 1982, at para 175.

-18 -

· di

sagr

eed

wit

h th

e th

en e

xpos

itio

n o

f th

e du

ty o

f ut

mos

t go

od f

aith

as

it ap

plie

d to

gene

ral i

nsur

ance

. T

he C

omm

issi

on s

aid:

73

"Eve

n so

, th

ere

is l

ittle

dou

bt t

hat

the

prin

cipl

e o

f dis

clos

ure

requ

ires

mod

ific

atio

n Th

e do

ctri

ne o

f ube

rrim

a fid

es d

oes

not

just

ifY

a r

ule

whi

ch r

equi

res

the

insu

red

to s

how

mor

e th

an t

he

utm

ost

good

fai

th

Und

er

the

exis

ting

tes

t, th

e in

sure

d is

re

quir

ed to

dis

clos

e no

t on

ly t

hose

fact

s w

hose

rel

evan

ce t

o th

e co

ntra

ct h

e do

es o

r sh

ould

, as

a r

easo

nabl

e m

an,

appr

ecia

te,

but

also

fac

ts o

f who

se r

elev

ance

he

is q

uite

ign

oran

t. It

has

be

en a

rgue

d th

at t

he e

xist

ing

duty

is

just

ifie

d on

the

bas

is o

f the

un

denv

rile

rs' n

eed

for

full

inf

orm

atio

n fo

r de

tail

ed a

sses

smen

t o

f ris

ks.

Nob

ody,

und

envr

iter

s in

clud

ed,

wou

ld s

ugge

st t

hat

the

insu

red

be u

nder

an

abso

lute

dut

y o

f dis

clos

ure,

eve

n in

res

pect

o

f the

fact

s o

f whi

ch h

e is

qui

te i

gnor

ant.

Yet

fact

s o

f tha

t ty

pe

are

also

re

leva

nt

to

asse

ssm

ent

of

the

risk

. It

is

W

idel

y re

cogn

ised

tha

t a

new

bal

ance

sho

uld,

be s

truc

k be

twee

n th

e un

denv

rile

r's

need

for

info

rmat

ion

and

the

insu

red'

s ne

ed f

or

secu

rity

in

re

lyin

g up

on

insu

ranc

e."

(em

phas

is

supp

lied;

ci

tatio

ns o

mitt

ed)

In e

ssen

ce,

the

Aus

tral

ian

Law

R

efon

n C

omm

issi

on

took

is

sue

wit

h th

e

"pru

dent

ins

urer

" te

st o

f m

ater

iali

ty f

or g

ener

al i

nsur

ance

. A

gain

st t

he n

atur

e o

f th

e

duty

of u

tmos

t go

od f

aith

in

the

cont

ext

of

mar

ine

insu

ranc

e, t

he s

ubst

antiv

e re

fonn

s

effe

cted

by

the

Insu

ranc

e C

ontr

acts

Act

are

:

" (1

) A

mat

ter

will

be

"mat

eria

l" i

n th

e co

ntex

t o

f ge

nera

l in

sura

nce

if th

e in

sure

d

know

s (o

r a

reas

onab

le p

erso

n in

the

ins

ured

cir

cum

stan

ces

coul

d be

exp

ecte

d

to k

now

) th

at a

mat

ter

wou

ld b

e re

leva

nt to

the

dec

isio

n o

f the

par

ticu

lar

insu

rer

to

acce

pt t

he r

isk

and

if s

o up

on w

hat

term

s.14

H

ence

, th

e la

w a

dopt

s a

73

74

Id.

Sect

ion

21(1

) of t

he I

nsur

ance

Con

trac

ts A

ct 1

984

(Cth

) pr

ovid

es:

"Sub

ject

to

this

Act

. an

in

sure

d h

as a

du

ty t

o di

sclo

se t

o th

e in

sure

r, b

efor

e th

e re

leva

nt

con

trac

t o

f in

sura

nce

is e

nte

red

into

, ev

ery

mat

ter

that

is

know

n to

Ihe

in

sure

d, b

ein

g a

mat

ter

tha

t-(a

) th

e in

sure

d kn

ows

/0 be

a m

atte

r re

leva

nt

10

the

deci

sion

of

the

insu

rer

whe

ther

to a

ccep

t the

ris

k an

d. i

f so.

on

wha

t ten

ns;

or

(b)

a re

ason

able

per

son

in t

he c

ircu

mst

ance

s co

uld

be e

xpec

ted

to k

now

to b

e a

mat

ter

so r

elev

anl.

n

-1

9-

"particular insurer" and

"actual or

reasonable insured"

test o

f materiality.

Similarly, in contrast to the situation in m

arine insurance, the assured in general

insurance is not deemed to have

constructive knowledge o

f material facts,

materiality in general insurance concerning itself only w

ith "every matter that is

known to the insured";75 and

(2) In

contrast to the insurer's ability to avoid entirely the contract of insurance for

a breach of the duty o

f disclosure in the context of m

arine insurance, an insurer

in the context of general insurance can only avoid entirely the contract o

f

insurance for non-disclosure where that non-disclosure is fraudulent, but not

where the insurer w

ould have entered into the contract of insurance upon the

same tenns had there been full disclosure.

Where the non-disclosure is not

fraudulent then the insurer's liability is iimited to an am

ount which w

ould place

the insurer in a position had there been full disclosure.16

Clearly, the rem

edies

of the insurer for non-disclosure are significantly restricted.

Significant also is

the imposition o

f a causality requirement in a m

anner similar to

that now

implied by the H

ouse of L

ords in Pan A

tlantic and the imposition o

f concept of

"proportionality" where the non-disclosure com

plained of is not fraudulent.

75 76

Insurance Cantracts A

ct 1984 (Cth). s 21(1).

Section 28 of the Insurance C

ontracts Act 1984 (C

th) provides: "(1).

This section applies where the person w

ho becam

e the

insured under a contract o

f general insurance upon Ihe contract being entered into -(a)

failed to comply w

ith the duty of disclosure: or

(b) m

ade a misrepresentation to the insurer before the contract w

as entered in

to,

but does not apply where the insurer w

ould have entered into the contract for the sam

e premium

and on the same term

s and conditions even if the insured had not failed to com

ply the duty a/disclosure or had not fa

iled 10 com

ply with the duty o

f disclosure or had not m

ade the misrepresentation before the contract w

as entered into. (2). If the failure w

as fraudulent or the misrepresentation w

as made fraudulently,

the insurer may avoid the contract.

(3), If the insurer is not entitled to avoid the contract or, being entitled to avoid the contract (w

hether under sub-section (2) or otherwise has not done so,

the liability o

j the insurer in respect of a claim

is reduced to the amount that w

ould place him

in a position in which he w

ould have been if the failure had not occured

or the misrepresentation had not been m

ade. "

-2

0-

Do

thes

e de

velo

pmen

ts i

n th

e fi

eld

of

the

Aus

tral

ian

law

of

gene

ral

insu

ranc

e

dem

onst

rate

, or

sug

gest

, th

at t

he d

octr

ine

of

utm

ost

good

fai

th i

n m

arin

e in

sura

nce

is

011t

of d

ate?

In

pri

ncip

le,

No.

A

con

trac

t o

f in

sura

nce

rem

ains

a c

ontr

act b

ased

upo

n

spec

ulat

ion.

T

he u

nder

wri

ting

of t

hat

spec

ulat

ion

is v

ery

larg

ely

depe

nden

t up

on t

he

unde

rwri

ter'S

abi

lity

to

prop

erly

ass

ess

the

risk

. It

rem

ains

the

cas

e th

at d

espi

te t

he

. ev

er i

ncre

asin

g ge

nera

l in

form

atio

n he

ld b

y th

e in

sure

rs,

the

assu

red

norm

ally

has

the

part

icul

ar a

nd p

ecul

iar

know

ledg

e o

f its

ven

ture

. N

orm

ally

the

ass

ured

kno

ws

the

fact

s w

hich

are

ult

imat

ely

dete

rmin

ativ

e fo

r th

e ac

cept

ance

of

the

risk

and

, if

so,

upon

'wha

t co

ndit

ions

and

for

wha

t pr

ice.

N

ever

thel

ess,

it

is m

y vi

ew t

hat

the

pres

ent

. man

ifes

tati

on o

f th

at d

uty

of

utm

ost

good

fai

th i

n th

e fi

eld

of

mar

ine

insu

ranc

e is

in

need

of r

efor

m.

Dev

elop

men

ts o

f th

e co

mm

on l

aw i

n A

ustr

alia

I w

ill

assu

me

that

, in

the

abs

ence

of s

peci

fic

legi

slat

ive

enac

tmen

t on

the

poi

nt,

the

Aus

tral

ian

cour

ts w

ould

fol

low

the

lea

d o

f th

e H

ouse

of

Lor

ds i

n Pa

n A

llant

ic.

: The

y w

ill

impl

y in

to t

he M

arin

e In

sura

nce

ACI

that

red

ress

for

non

-dis

clos

ure,

or

.irid

eed

mis

repr

esen

tati

on,

mus

t be

co

ndit

iona

l up

on

that

no

n-di

sclo

sure

ha

ving

actU

ally

ind

uced

the

ins

urer

to

ente

r in

to t

he c

ontr

act

of

insu

ranc

e up

on t

he t

erm

s an

d

cond

ition

s it

did

. S

uch

an a

ppro

ach

reso

lves

, at

lea

st to

som

e de

gree

, tw

o di

ffic

ulti

es

whi

ch m

ight

oth

erw

ise

requ

ire

refo

rm:

Firs

t, it

avo

ids

the

situ

atio

n w

hich

exi

sted

befo

re P

an A

tlant

ic, b

y w

hich

the

law

, in

Eng

land

at

leas

t, al

low

ed a

n in

sure

r to

avo

id

Ii. co

ntra

ct e

ntir

ely

whe

re f

ull

disc

losu

re w

ould

not

hav

e m

ade

any

diff

eren

ce t

o it

s

acce

ptin

g th

e ri

sk i

n fa

ct.

Sec

ondl

y, i

t ad

ds a

ref

eren

ce t

o th

e "p

arti

cula

r in

sure

r" a

s

'{·;:'

~r;·~'

{!).,'

i::·,

wel

l as

the

"pr

uden

t in

sure

r".

Tha

t is

, al

thou

gh t

he s

tand

ard

of

mat

eria

lity

rem

ains

:1-

'~:',f

,-·y::

..x:<i

~5~\

. '.obj

ectiv

ely

that

of

the

"pru

dent

insu

rer"

, th

e su

bjec

tive

eff

ect

of

the

non-

disc

losu

re o

n

part

icul

ar i

nsur

er is

ult

imat

ely

dete

rmin

ativ

e.

Bot

h o

f the

se d

evel

opm

ents

hav

e th

e

~:".::

)'"~:'

.-;'''

.• U~'

'' o

f cu

rtai

ling

im

prud

ent

unde

rwri

ting

pra

ctic

es b

y pa

rtic

ular

und

erw

rite

rs.

It

~:i.'-

'S7~'·

_:£'(~

~~~-

-, no

lon

ger

be o

pen

to s

uch

unde

rwri

ters

to

seek

the

cou

rt's

ass

ista

nce

to a

void

an

impr

uden

tly

stru

ck

barg

ain

upon

the

ba

sis

that

a

hypo

thet

ical

"p

rude

nt

-21

-

insurer" would have been influenced by the circum

stance had it been disclosed. T

his is especially the case w

here an underwriter accepts a risk upon the basis o

f the risks' acceptability w

ithin the underwriter's ow

n global risk managem

ent strategy. T

hat is, if it could be show

n that an underwriter accepted the risk upon the predom

inant or sole basis that its inform

ation and information system

s deem the risk acceptable, then it

... could hardly be said that the

underwriter w

as actually induced to enter into the

contract by any disclosure or non-disclosure of the assured.

Avoidance o

f the contract o

f insurance for non-disclosure in those circumstances w

ill be seriously challenged by the requirem

ent of actual inducem

ent. It seem

s likely that the principles established by the H

ouse of L

ords in Pan A

tlantic in this respect would be adopted by the

Australian courts.

But is this enough?

There is a rather draconian elem

ent in the present law w

hich allows the total

avoidance of the contract o

f insurance for the assured's non-disCfosure, fraudulent or

. otherwise.

This is especially the

case in m

arine insurance w

here materiality,

in theory, can be so rem

ote from the actual assured as a circum

stance constructively know

n by the assured and influential to the mind o

f prudent insurer, but actually unknow

n and irrelevant to the assured.17

Of course, one m

ust take into account that ordinarily the players in a bargain o

f marine insurance are not consum

er and highly resourced insurance com

pany, as is the case ordinarily in general insurance. P

arties to .. a m

arine insurance contract tend toward greater, although rarely equal, equality o

f bargaining pow

er. T

hey ordinarily engage in contracts of m

arine insurance as a matter

of course, not exceptionally. If these are the circum

stauces in which the m

arine insurance is w

ritten then the law is perhaps right to dem

and higher standards than those expected in the general insurance m

arketplace. Indeed, m

any of the reform

s im

plemented by the Insurance C

ontracts Act w

ere aimed at redressing this perceived

imbalance apt for the typical insured in a general insurance situation.

77 M

arine Insurance Act 1909 (C

th), ss 24(1) and 24(2).

-22

-

Be

that

as

it m

ay,

such

a b

lank

et r

emed

y fo

r no

n-di

sclo

sure

, re

gard

less

of

the

natu

re o

f th

e pa

rtie

s to

the

con

trac

t, in

my

view

, co

uld

invo

lve

a ri

sk o

f in

just

ice.

Whi

le I

wou

ld w

elco

me

refo

rm i

n th

is a

rea

of

mar

ine

insu

ranc

e, o

ne c

an p

erce

ive

cons

ider

able

dif

ficu

ltie

s in

the

evo

luti

on o

f an

app

ropr

iate

sys

tem

of

rem

edie

s.

As

disc

usse

d ab

ove,

a c

once

pt o

f "p

ropo

rtio

nali

ty"

wou

ld b

e at

trac

tive.

H

owev

er,

it d

oes

seem

to

invo

lve

an a

rgua

bly

unac

cept

able

ele

men

t o

f se

lf-i

nsur

ance

and

tem

ptat

ion

inap

prop

riat

e to

mar

ine

insu

ranc

e.

Bef

ore

such

evo

luti

on i

s co

mpl

ete,

the

nee

d fo

r

caus

alit

y as

lai

d do

wn

by t

he H

ouse

of

Lor

ds i

n P

an A

tlant

ic p

rovi

des

a pa

rtia

lly

effe

ctiv

e m

etho

d o

f st

emm

ing

inap

prop

riat

e ac

cess

by

non-

indu

ced

insu

rers

to

this

rath

er d

raco

nian

bla

nket

rem

edy.

H

owev

er,

it d

oes

noth

ing

for

the

plig

ht o

f th

e

assu

red

who

fal

ls b

efor

e th

e ac

tual

ly i

nduc

ed p

rude

nt in

sure

r.

In B

arcl

ay H

oldi

ngs

(Aus

tral

ia)

Ply

Ltd

v B

ritis

h N

alio

nalI

nsur

ance

Co

Ltd,

78

a ca

se c

once

rnin

g th

e co

mm

on l

aw,

I ex

pres

sed

the

view

tha

t the

tes

t of

mat

eria

lity7

9

as e

ndor

sed

by th

e E

ngli

sh C

ourt

of

App

eal

in C

TI,

was

too

bro

ad i

n sc

ope

"bec

ause

the

latt

er m

ay im

pose

an

obli

gati

on o

n a

n in

sure

d to

dis

clos

e vi

rtua

lly

endl

ess

mat

eria

l

abou

t the

ins

ured

's p

ast.

"80

I ex

pres

sed

conc

erns

tha

t it

was

uur

easo

nabl

e to

exp

ect

an

insu

red

to k

now

, in

any

det

ail,

the

kind

s o

f co

nsid

erat

ions

whi

ch m

ay i

nflu

ence

the

deci

sion

s o

f in

sure

rs,8

1 le

t al

one

the

kind

s o

f co

nsid

erat

ion

whi

ch m

ay i

nflu

ence

the

deci

sion

of

a fo

reig

n in

sure

r in

a f

orei

gn m

arke

tpla

ce.8

2 Y

et t

hat

was

the

ext

ent

of

disc

losu

re r

equi

red

by t

he t

est

of

mat

eria

lity

lai

d do

wn

in t

he C

TI c

ase,

and

the

refo

re

by

the

E

ngli

sh M

arin

e In

sura

nce

Act

. I

pref

erre

d th

e lo

cal

test

, ex

pres

sed

by

78

79

(198

7) 8

NSW

LR

514

(CA

). K

err

LJ i

n C

onta

iner

T

rans

port

Int

erna

tiona

l In

c v

Oce

anus

lvf

utua

l U

nder

wri

ting

Ass

ocia

tion

(B

erm

uda)

Ltd

[198

411

Llo

yd's

Rep

476

(C

A),

at

492.

sai

d th

e w

ord

"inf

luen

ced"

in

the te

s~ "

whi

ch

wou

ld i

nflu

ence

the

judg

men

t of

a p

rude

nt i

nsur

er"

mea

nt "

that

the

disc

losu

re i

s on

e w

hich

wou

ld

have

had

an

impa

ct o

n th

e fa

nnat

ian

of h

is op

inio

n an

d on

his

deci

sion·

mak

.ing

proc

ess .

.. "

(198

7) 8

NSW

LR

. at

518.

ib

id,a

tS17

. ib

id,

at 51

8.

-23

-

samuels J

in M

ayne N

ickless L

td v

Pegler,83

where

his H

onour spoke

of a circum

stance being "material" if it "w

ould have reasonably affected the mind o

f a prudent insurer in determ

ining whether he w

ill accept the insurance, and if so, at what

premium

and on what conditions."

The w

ords "reasonably affected" in Samuels J's

test, I considered: 84

" ... to require that the effect on the mind o

f the insurer ... should be som

ething more

than the

effict produced by inform

ation w

hich the insurer would have been generally interested to have.

If, though interested to have ii, such information w

ould not, in

the end, have determined for a reasonably prudent insurer the

acceptance or rejection of insurance, the selling o

f the premium

or the allachm

ent of conditions,

there is not such effic! on the m

ind as requires

disclosure. The

information,

although o

f interest,

is not material.

As such it is not inform

ation which

must be disclosed by the insured"

Upon

reflection, this

was

in effect,

as w

as the

"decisive" influence

test subm

itted in P

an Atlantic, an attem

pt to move the desirable causal requirem

ent, or , lack thereof, from

relevance to the creation of the contract to the test o

f materiality.

Of course, the test of m

ateriality favoured by me in B

arclay Holdings did not go as far

, 'as the "decisive influence" test unsuccessfully advocated before the House o

f Lords in

" Pan A

tlantic. B

ut it may have gone further than that endorsed by the H

ouse of L

ords • 'in P

an Atlantic.

By that decision, a m

aterial circumstance is one that w

ould have an effect on the m

ind of a prudent insurer.85

While

it is difficult to ascertain,

the practical effect o

f a test of m

ateriality based upon notions of causality and a non­

disclosure causality requirement in the creation o

f the contract of insurance m

ay be identical, if not very sim

ilar. Y

et, even if that is the case, such a broad concept of "m

ateriality" as applies in the context o

f the Marine insurance A

ct continues to

[1974]1 NS

WL

R 228 (sq

, at 239. (1987) 8 N

SW

LR

, at 517. P

an At/an

ne Insurance C

o Ltd v P

ine Top Insurance C

o Ltd [1994] 3 W

LR

677 (HL

), at 682~83,

695-696. 70S. 713 and 714.

-2

4-

impo

se a

n in

disp

utab

ly b

urde

nsom

e re

spon

sibi

lity

on t

he a

ssur

ed.

The

ass

ured

mus

t .

clis

clos

e al

l th

at w

ould

inf

luen

ce t

he j

udgm

ent

of

a pr

uden

t in

sure

r, h

avin

g re

gard

to

all m

ater

ial

circ

wns

tanc

es.

No.

rel

ief o

ffer

ed t

o th

e as

sure

d.

For

the

rea

sons

whi

ch I

ex

pres

sed

in B

arcl

ay H

oldi

ngs

I co

nsid

er th

at it

is d

esir

able

that

the

dut

y o

f dis

clos

ure

be m

ade

som

ewha

t mor

e na

rrow

than

tha

t w

hich

is p

rese

ntly

the

case

.

I re

turn

to

the

ques

tion

pos

ed b

y m

y tit

le.

Is t

he d

octr

ine

of

utm

ost

good

fai

th

so o

ut o

f da

te t

llat

it sh

ould

be

entir

ely

aban

done

d?

The

ans

wer

is

no.

In A

ustr

alia

, th

ere

is

rem

edia

l le

gisl

atio

n de

sign

ed

to

prot

ect

thos

e w

ho

barg

ain

from

m

isre

pres

enta

tions

.86

Oth

er l

egis

latio

n, i

n St

ate

juri

sdic

tions

, al

low

s ce

rtai

n ba

rgai

ns

to b

e re

-wri

tten

by th

e co

urts

in

cert

ain

circ

umst

ance

s.87

N

ever

thel

ess,

the

rem

edie

s an

d re

dres

s pr

esen

tly

avai

labl

e,

by

the

com

mon

la

w

or

othe

rwis

e,

wou

ld

not

.. a

dequ

atel

y or

app

ropr

iate

ly f

ill t

he h

igh

gaps

whi

ch w

ould

be

left

by

the

aban

donm

ent

of th

e du

ty o

f ut

mos

t go

od f

aith

, in

any

fie

ld o

f in

sura

nce.

In

deed

, if

the

doct

rine

w

ere

to b

e ab

ando

ned

I ha

ve n

o do

ubt

"the

com

mon

la

w,

bein

g th

e cr

eatio

n o

f re

ason

"88

wou

ld u

ltim

atel

y ar

rive

ag

ain

at

a su

bsta

ntia

lly s

imil

ar d

octr

ine

pure

ly

beca

use

the

esse

ntia

l na

ture

of i

nsur

ance

has

not

cha

nged

sin

ce i

ts e

arly

day

s, n

or i

s th

ere

reas

on t

o su

ppos

e th

at i

t w

ill s

o ch

ange

in

the

futu

re.

In s

ome

way

, th

e la

w

wou

ld h

ave

to o

blig

e as

sure

ds t

o su

pply

ins

urer

s w

ith v

ital,

rele

vant

inf

Olm

atio

n to

..

per

mit

insu

rers

to a

sses

s th

e ri

sk a

nd,

if ac

cept

ed,

to f

ix t

he p

rem

ium

.

The

req

uire

men

t of

utm

ost

good

fai

th a

nd t

he j

udic

ial

met

hod

A c

once

pt s

uch

as "

utm

ost g

ood

faith

" w

ill o

ften

dra

w c

ritic

ism

upo

n th

e ba

sis

that

, by

its

vag

ue w

ordi

ng,

it is

un

cert

ain

and

wit

hout

con

cret

e or

at

leas

t cl

ear

mea

ning

. T

his

drov

e th

e A

ppel

late

Div

isio

n of

the

Supr

eme

Cou

rt o

f So

uth

Afr

ica

in

Mut

ual

and

Fed

eral

Ins

uran

ce C

o L

td v

Oud

tsho

orn

Mun

icip

alit

y to

say

tha

t th

e

86

87

88

See,

for

exa

mpl

e, T

rade

Pra

ctic

esA

cl 1

974

(Clh

), s

52;

Fai

r T

radi

ng

Act

]98

7 (N

SW

). 5

42.

Se

e, f

or e

xam

ple,

Con

trac

ts R

evie

w A

ct 1

984

(NSW

). M

ason

v

Tri

tton

(New

Sou

th W

ales

Cou

rt o

f A

ppea

l, un

repo

rted

, 30

Aug

ust

1994

). at

23

of

the

auth

or's

judg

men

t.

-25

-

expression uberrima fides

was an

"alien, vague,

useless expression

without

any

particular meaning in law

", not being capable of being used in their law

"for the

purpose of explaining the juristic basis o

f the duty to disclose a material fact".

That

being so, the Appellate D

ivision was o

f the finn view that "our law

of insurance has

no need for uberrima fides and the tim

e has come to jettison it. "89

Yet, the juristic base o

f much o

f the comm

on law o

f Australia rests upon

concepts and doctrines which, w

hen considered in the abstract, are both uncertain and

without m

eaning. For,

example,

fundamental

to the

law o

f negligence are

the

concepts of the "reasonable person", "reasonable foreseeability" and "proxim

ity. "90

Equity looks to concepts such as "unconscionable dealing"91 and the "unconscientious

departure" from the subject m

atter of an assum

ption.92 C

ontract pennits recovery of

damages in the event o

f breach if such loss "may reasonably be supposed to have been

.in the contemplation o

f both parties" at the tim

e they m

ade the contract,

as the

probable result of the breach o

f it. 93 O

ne seeks to overturn criminal convictions upon

the ground

that they

were

"unsafe and

unsatisfactory. "94 O

r to

claim

that an

opponent's legal professional privilege has been impliedly w

aived because it would be

89 1985 (1) A

D 419 (SA

SC(A

pp.Div», at 433.

The C

ourt held, after a review of the m

anner of reception

of law into South A

frica and the juristic development of the law

relating marine insurance, that the

law o

f South Africa did not recognise uberrim

a fides as category of good faith. R

ather, the Rom

an­D

utch juristic base of South Mrican law

recognised only bona fides and mala fides as categories of

good faith. A

n Ordinance of 1570 m

ade a contract of insurance "indisputably a contract bonae fide;":

ibid

, at 432, U

pon that basis the Court held that m

ateriality was to be tested by deciding, upon

consideration of the relevant facts of the particular case, whether or not the undisclosed inform

ation or facts w

ere reasonably relative to the risk or the assessm

ent of the premium

s. adjudged by the

reasonab1e man: ibid, at 435.

See, for example. Jaensch v C

offey (1984) 155 CL

R 549, per G

ibbs CJ and D

eane 1. See, for exam

pJe, The Com

mercial B

ank of Australia L

td v Am

adio (1983) 151 CLR

447. See, for exam

ple, in the context of estoppel by conduct, The Com

monw

ealth v Verw

ayen (1990) 170 C

LR

394, at 444-445 per Deane J.

Hadley v B

axendale (1854) 9 Ex 341, at 355; 156 E

R 145, at 151.

Although the operation o

f that rule does not require that the parties have actually subjectively contem

plated such a loss. It is enough that

a reasonab1e person in the position of the parties ,,'ould have realised that the damage w

as not an unlikely consequence of the breach.

See Czarnikow

Ltd v K

oufos [1969] 1 AC

350 (HL

). See, for exam

ple, Morris v The Q

ueen (1987) 163 CL

R 454; C

hidiac v The Queen (1991) 171 C

LR

432.

-2

6-

»"un

fair"

or

"mis

lead

ing"

tha

t it

be m

aint

aine

d.95

B

efor

e a

law

yer

can

even

beg

in t

o im

agin

e th

e un

cert

aint

y of

thes

e co

ncep

ts h

e or

she

mus

t bec

ome

the

subj

ect m

atte

r o

f an

othe

r on

e: t

hat

is,

they

mus

t be

of

"goo

d fa

me

and

char

acte

r."96

T

he p

oint

to

be

mad

e is

tha

t ou

r la

w i

s of

ten

foun

ded

upon

doc

trin

es o

f w

ide

and

vari

ed i

mpo

rt.

Thi

s is

not

by

acc

iden

t. W

e sh

ould

res

pect

and

be

than

kful

for

the

ir b

read

th.

The

y m

ay

inde

ed i

ntro

duce

ele

men

ts o

f unc

erta

inty

. B

ut th

ey p

erm

it co

urts

-ju

dges

and

juri

es -

on b

ehal

f o

f th

e co

mm

unity

to

cont

inue

the

nev

er-e

ndin

g se

arch

for

jus

tice

in

the

part

icul

ar c

ase.

The

judi

cial

met

hod

in c

omm

on l

aw c

ount

ries

is

assi

sted

by

conc

epts

suc

h as

th

e do

ctri

ne o

f utm

ost g

ood

faith

. O

nly

whe

n th

e co

urts

are

ann

ed w

ith s

uch

conc

epts

ca

n th

ey f

airl

y re

solv

e th

e pa

rtic

ular

cir

cum

stan

ces

of

the

man

y an

d va

ried

cas

es

com

ing

befo

re t

hem

, do

ing

so i

n a

just

and

fai

r m

anne

r. In

flex

ible

for

mul

ae a

nd

prec

ise

rule

s, w

hils

t the

y m

ay a

chie

ve c

erta

inty

in

the

mar

ketp

lace

, le

nd t

hem

selv

es t

o in

just

ices

; th

e ap

plic

able

doc

trin

es h

avin

g no

in

here

nt f

lexi

bilit

y to

de

al w

ith t

he

nuan

ces

of

diff

erin

g fa

ct s

ituat

ions

. A

t th

e ri

sk o

f D

enni

ng-l

ike

reci

tati

on o

f m

y di

ssen

ting

opin

ions

, I

can

inst

ance

a r

ecen

t ex

ampl

e in

my

own

Cou

rt.

The

New

So

uth

Wal

es C

ourt

of

App

eal

cons

ider

ed t

he r

ule

whi

ch p

rohi

bits

a b

enef

icia

ry t

o a

>will

fr

om

bene

fitin

g un

der

that

w

ill

if t

hey

kille

d th

e te

stat

or.

The

pa

rtic

ular

>

• ci

rcum

stan

ces

of

the

case

wer

e th

at a

wom

an h

ad,

afte

r ye

ars

of

abus

e fr

om h

er

husb

and,

fm

ally

kill

ed h

im.

Und

er t

he h

usba

nd's

will

the

wif

e w

as t

o be

nefi

t. In

cr

imin

al p

roce

edin

gs t

he d

efen

ce o

f "d

imin

ishe

d re

spon

sibi

lity"

had

bee

n es

tabl

ishe

d.

The

maj

orit

y o

f th

e C

ourt

of

App

eal,

hold

ing

them

selv

es b

ound

by

the

infl

exib

le

forf

eitu

re r

ule,

dec

ided

tha

t th

e w

oman

was

pro

hibi

ted

from

ben

efiti

ng u

nder

the

will

. . N

ot a

cen

t co

uld

she

reco

ver,

alth

ough

the

evi

denc

e di

sclo

sed

that

by

her

wor

k an

d

AI/

arne

y-G

ener

al/a

r th

e N

orth

ern

Ter

rito

ry v

Mau

rice

(19

86)

161

CL

R 4

75,

at 4

87-4

88,

483,

492

-49

3 an

d 49

7. Se

e al

so G

oldb

erg

v N

g (N

ew S

outh

Wal

es C

ourt

of A

ppea

l, un

repo

rted

, 11

July

199

4).

See,

for

exa

mpl

e, L

egal

Pro

fess

ion

Act

198

7 (N

SW),

s 11

. Se

e al

so Z

iem

s v

The

Pro

Jhon

otar

yojth

e Su

prem

e C

ourt

a/N

ew S

outh

Wal

es (

1957

) 97

CL

R 279~

The

Cou

ncil

of t

he L

aw S

ocie

ty o

f New

Sou

th

Wal

es v

For

eman

(N

ew S

outh

Wal

es C

ourt

of A

ppea

l, un

repo

rted

, 5 A

ugus

t 19

94).

-2

7-

efforts in the jointly owned business over m

any years, she had contributed m

ost

materially to the husband's property and estate.

It was, in m

y view, an unjust result.

But it w

as one which the inflexible rule o

f law dem

anded. 97 C

ertainty triumphed over

justice in the particular case, which suggested a m

ore finely tuned outcome.

It is therefore not a proper criticism, in itself, that the doctrine o

f utmost good

faith in marine insurance and other insurance law

is o

f wide im

port and of w

ide

potential and sometim

es unjust application. In

theory, a doctrine of such a nature is

desirable as it provides the courts with a legitim

ate means o

f achieving just and fair

results in each particular case. It encourages disclosure o

f relevant information by

assureds to

insurers. It

reduces the

business costs

of interrogation

which

may

otherwise b

e based on

ignorance o

f material

circumstances.

It has endured in

insurance for a very long time. It is a feature o

f the rules of a global industry in w

hich

Australia's share is m

odest indeed.

Conclusion -

the doctrine is not out of date; but requires more treatm

ent

The

nature o

f the insurance

contract having rem

ained basically the

same

through the

ages, 'perpetuating the

need for

substantial disclosure,

it cannot be

properly said that the doctrine of utm

ost good faith is out of date.

How

ever, the

contemporary m

anifestation of this doctrine in the context o

f marine insurance is, in

my view

, in need of further substantive reform

.

It is imperative that an elem

ent of causality be introduced into the doctrine.

In

that respect the decision of the H

ouse of L

ords in Pan A

tlantic may offer a desirable

judicial reform o

f the pre-existing understanding of the law

. It is sim

ilarly desirable

that the test of m

ateriality should be modified so as to control som

ewhat the onerous

burden which it now

presents to the assured who seeks faithfully and honestly to

97 T

roja v Troja (1994) 33 N

SW

LR

269 (CA

). -28 -

com

ply

with

it.

How

ever

, th

at m

odif

icat

ion

shou

ld n

ot g

o so

far

as

to e

ncou

rage

an

undu

ly r

estr

ictiv

e fl

ow o

f inf

orm

atio

n be

twee

n th

e pa

rtie

s.

Fina

lly,

cons

ider

atio

n ne

eds

to

be

give

n to

th

e ev

olut

ion

of

a sy

stem

o

f re

med

ies

for

non-

disc

losu

re

whe

reby

ce

rtai

n ty

pes

of

non-

disc

losu

re

will

no

t au

tom

atic

ally

ent

itle

the

insu

rer

to a

void

the

con

trac

t ent

irel

y.

Thi

s ha

s be

en a

chie

ved

in A

ustr

alia

in

the

fiel

d o

f ge

nera

l in

sura

nce.

A

lik

e re

form

sho

uld

be c

onsi

dere

d in

th

e in

tern

atio

nal

busi

ness

of

mar

ine

insu

ranc

e.

But

the

lead

will

hav

e to

com

e fr

om

thos

e co

untr

ies

whi

ch a

re m

ost

heav

ily

invo

lved

in

wri

ting

mar

ine

insu

ranc

e.

Tha

t is

. w

hy in

tern

atio

nal

conf

eren

ces

such

as

this

pro

vide

a u

sefu

l fo

rum

for

the

exc

hang

e o

f ex

peri

ence

and

the

dis

cuss

ion

of

desi

rabl

e re

form

whi

ch m

ay c

atch

the

ear

of

a le

gisl

ator

or,

mor

e lik

ely,

a ju

dge

havi

ng p

ower

to d

o so

met

hing

to s

ecur

e re

form

.

-2

9-