374, 376 New South Head Road Pty Ltd v SMLXL Projects (NSW) Pty Ltd

Medium Neutral Citation: 374, 376 New South Head Road Pty Ltd v SMLXL Projects (NSW) Pty Ltd [2025] NSWSC 886

Hearing dates: 19 March 2025

Date of orders: 30 July 2025

Decision date: 30 July 2025

Jurisdiction: Equity - Technology and Construction List

Before: Williams J

Decision: See orders at [164]

Catchwords: INSURANCE – Application by plaintiff for leave to proceed against second defendant insurer under Civil Liability (Third Party Claims Against Insurers) Act 2017 (NSW) in respect of claims against first defendant for alleged breaches of contract for design and construction of building works – Where first defendant and second defendant insurer entered into design and construct professional indemnity insurance policies – Where first defendant now in liquidation – Whether arguable case that first defendant would be entitled to indemnity under the relevant insurance policies if found liable to the plaintiff for the alleged breaches of the design and construct contract – HELD: Leave to proceed against second defendant insurer refused

Legislation Cited: Civil Liability (Third Party Claims Against Insurers) Act 2017 (NSW), ss 3, 4, 5

Cases Cited: Amlin Corporate Member Ltd (t/as Amlin Syndicate 2001 at Lloyd’s) v Austcorp Project (No. 20) Pty Ltd (2014) 311 ALR 222; [2014] FCAFC 78
APD Technology Pty Ltd v Maximo Developments Pty Ltd [2022] FCAFC 141
Avant Insurance Ltd v Burnie [2021] NSWCA 272
Clark v Avant Insurance Ltd [2022] NSWCA 175
Energize Fitness Pty Ltd v Vero Insurance Ltd [2012] NSWCA 213
Fullinfaw v Neil Fletcher Design Pty Ltd (2019) 57 VR 169; [2019] VSC 142
Galafassi v Kelly (2014) 87 NSWLR 119; [2014] NSWCA 190
Hansmar Investments Pty Ltd v Perpetual Trustee Co Ltd (2007) 61 ACSR 321; [2007] NSWSC 103
HIH Casualty & General Insurance Ltd v Pade [2000] NSWCA 325
Hird v Chubb Insurance Company of Australia Ltd [2016] VSC 174
Inghams Enterprises Pty Ltd v Hannigan (2020) 379 ALR 196; [2020] NSWCA 82
Kantfield Pty Ltd v Lockwood [2003] VSC 420
Kyriackou v ACE Insurance Ltd [2013] VSCA 150
Mann v Paterson Constructions Pty Ltd (2019) 267 CLR 560; [2019] HCA 32
Smart v AAI Ltd [2015] NSWSC 392
Walton v National Employers’ Mutual General Insurance Association Ltd (1973) 2 NSWLR 73

Texts Cited: N/A

Category: Principal judgment

Parties: 374, 376 New South Head Road Pty Ltd (Plaintiff)
SMLXL Projects (NSW) Pty Ltd (ACN 611 107 512) (First Defendant)
Chubb Insurance Australia Limited (ACN 001 642 020) (Second Defendant)

Representation: Counsel:
Mr H Fielder (Plaintiff)
Mr M A Jones SC with Mr M F Newton (Second Defendant)
Solicitors:
Giles George (Plaintiff)
Gilchrist Connell (Second Defendant)

File Number(s): 2024/00333006

Publication restriction: N/A

Judgment

Introduction

1. The plaintiff – 374, 376 New South Head Road Pty Limited – is the registered proprietor of the property at 374 and 376-382 New South Head Road, Double Bay, as trustee for the Double Bay Trust (the Site).

2. The first defendant – SMLXL Projects (NSW) Pty Limited (SMLXL) – carried out certain design and construction works at the Site pursuant to a design and construct contract that it entered into with the plaintiff on 23 December 2020 (the Contract).

3. SMLXL was the insured under design and construct professional indemnity insurance policies issued by the second defendant – Chubb Insurance Australia Limited (Chubb) – in respect of the policy periods 30 June 2020 to 30 June 2021, 30 June 2021 to 30 June 2022, and 30 June 2022 to 30 June 2023 (the Policies).

4. SMLXL went into liquidation on 4 July 2023.

5. The plaintiff wishes to pursue certain claims for alleged breach of the Contract. The substance of those claims is set out in a draft Technology and Construction List Statement exhibited to an affidavit of Mr Michael Barel, sworn on 5 September 2024 (the Draft List Statement).

6. The plaintiff contends that, if SMLXL is found to be liable in respect of the plaintiff’s claims, SMLXL will arguably be entitled to be indemnified by Chubb under one of the three Policies.

7. By prayer 1 of its Summons filed on 9 September 2024, the plaintiff seeks leave pursuant to s 5 of the Civil Liability (Third Party Claims Against Insurers) Act 2017 (NSW) (the Third Party Claims Act) to commence and continue proceedings against Chubb in the form of the Draft List Statement.

8. The Summons names SMLXL as the first defendant. Neither SMLXL nor its liquidator sought to be heard in relation to the plaintiff’s application for leave under s 5 of the Third Party Claims Act.

9. Chubb, which is named as the second defendant, opposes the plaintiff’s application for leave.

10. For the reasons that follow, the plaintiff has failed to establish an arguable case that SMLXL will be entitled to be indemnified under the Policies in respect of the plaintiff’s claims if SMLXL is found to be liable to the plaintiff. The plaintiff’s application for leave will therefore be dismissed. In arriving at that conclusion, I have considered all of the parties’ written and oral submissions.

Background facts

11. The following matters are not in dispute for the purpose of this application, except to the extent otherwise indicated.

12. On 23 December 2020, the plaintiff (as the Principal) and SMLXL (as the Contractor) entered into the Contract which provided for SMLXL to design and construct alterations and additions to an existing four-storey retail and commercial building at 376-382 New South Head Road, including building two additional residential levels, and to demolish an existing building at 374 New South Head Road and design and construct on that part of the Site a new six-storey building with retail premises on the ground floor, commercial premises on levels 1, 2 and 3, and residential apartments on levels 4 and 5 (the Works).

13. The Contract comprised a Formal Instrument of Agreement, General Conditions of Contract (including Annexures), and the Exhibits including the Principal’s project requirements (Exhibit A), the Preliminary Design (Exhibit B), and the Development Consent (Exhibit D).

14. Clause 1 of the Formal Instrument required SMLXL to design and construct the Works and otherwise perform the work under Contract (or “WUC”). The “Works” were defined as the whole of the work to be carried out and completed in accordance with the Contract, including any variations provided for by the Contract, and handed over to the plaintiff as the Principal.

15. Pursuant to clauses 2.2 of the General Conditions, SMLXL warranted to the plaintiff that:

“(a) the Contractor at all times shall be suitably qualified and experienced, and shall exercise due skill, care and diligence in the carrying out and completion of the WUC;

(b) the Contractor has carefully examined the Principal’s project requirements (including the preliminary design) and all the other documents that comprise the Contract and warrants that the preliminary design is suitable, appropriate and adequate for the intended purpose of the Works;

(c) the Contractor shall carry out and complete the Contractor’s design obligations to accord with the Principal’s project requirements and:

(i) …

(ii) produce design documents which:

(A) comply with the Contract, including the Principal’s project requirements;

(B) comply with all applicable legislative requirements;

(C) are suitable for the site; and

(D) are fit for the intended purpose of the Works;

(d) the Contractor is fully responsible for the methods of construction and will execute and complete WUC in accordance with the Contract and the design documents …;

(e) all materials, plant and equipment and other items supplied under the Contract by the Contractor will be new, in conformity with their description, of merchantable quality and fit for their intended purpose;

(f) all workmanship will be proper and tradesmanlike and to the standards specified in the Contract, and to the extent that such standards are not specified, then to standards commensurate with good industry practice;

(g) the Principal will receive unencumbered title to the Works, including all materials, plant, equipment and other items incorporated therein or supplied by the Contractor under the Contract;

(h) the Contractor shall carry out and complete WUC in accordance with the design documents so that the Works, when completed and thereafter at all relevant times, shall:

(i) comply with the Contract in all respects, including the Principal’s project requirements;

(ii) meet and satisfy all performance levels and performance requirements stated in the Contract;

(iii) comply with all applicable legislative requirements;

(iv) be suitable for the site and the environment and conditions in which the Works will have to operate;

(v) meet the standards of workmanship specified in the Contract, and to the extent that such standards are not specified, then standards commensurate with good industry practice; and

(vi) be fit for the intended purpose of the Works.”

16. The Principal’s project requirements in Exhibit A to the General Conditions included the following:

“Without limiting the Contractor’s obligations under the Contract, the Works must be built in accordance with the Development Consent approved drawings and consents; as well as the Preliminary Design. The Preliminary Design is largely complete and the Contractor, in addition to carrying out the construction, must complete the design to the satisfaction of both itself and the Principal. A BCA upgrade report and peer review of the existing building has been completed per Development Consent condition F7 and submitted to council for endorsement with the scope of works contained within the Preliminary Design. The Contractor must carry out those works and any others required to satisfy the council that the building has been brought to a compliant standard. The Contractor must carry out any coordination with council to satisfy Council’s requirements including in accordance with the Development Consent.

All work under the Contract, including design and construction works, are to be in accordance with the relevant Australian Standards and are to be compliant with the Building Code of Australia. Where these standards and codes are not relevant, the Contractor must comply with equivalent standards as approved by the Superintendent.

The project construction works must be compliant with all Legislative Requirements, structurally sound and architecturally appealing. …”

17. Clause 8.3A of the General Conditions contained an acknowledgement by the parties that the process of developing the design from the preliminary design to the design documents may result in design changes, but provided that the design documents must not depart from the preliminary design in a manner that will increase whole of life maintenance costs of the Works, or reduce the quality and standard of any part of the Works, without prior written approval of the Superintendent.

18. Clause 29.1 of the General Conditions required SMLXL to use suitable new materials, plant and equipment, and standards of workmanship, including as warranted by SMLXL under clause 2.2.

19. Clause 29.3 of the General Conditions provided:

“If the Superintendent becomes aware of work done (including material provided) by the Contractor which does not comply with the Contract, the Superintendent shall as soon as practicable give the Contractor written details thereof. If the subject work has not been rectified, the Superintendent may direct the Contractor to do any one or more of the following (including times for commencement and completion):

(a) remove the material from the site;

(b) demolish the work;

(c) redesign, reconstruct, replace or correct the work; and

(d) not deliver it to the site.

If:

(e) the Contractor fails to comply with such a direction within the time specified by the Superintendent in its direction; and

(f) that failure has not been made good within 5 days after the Contractor receives written notice from the Superintendent that the Principal intends to have the subject work rectified by others,

the Principal may have that work so rectified and the Superintendent shall certify the cost incurred as moneys due from the Contractor to the Principal.”

20. Clause 29.4 of the General Conditions provided that, instead of giving a direction under clause 29.3, the Superintendent may direct SMLXL that the plaintiff elects to accept the subject work, in which case there shall be a deemed variation of the Contract. Clause 29.5 addressed the manner in which the variation was to be valued. Clause 29.6 provided, inter alia, that a direction under clause 29 may be given at any time before the issue of the final certificate under clause 37 of the General Conditions.

21. Clause 34.1 of the General Conditions required SMLXL to ensure that the work under the Contract reaches practical completion by the date for practical completion. Clauses 34.2 to 34.5 provided for extensions of time. Clause 34.6 provided for the process by which the Superintendent was to certify practical completion of the Works.

22. Clause 34.7 provided that, if the Works do not reach practical completion by the date for practical completion, SMLXL “shall be indebted to*”* the plaintiff for liquidated damages at a specified rate for every day after the date for practical completion, up to and including the earliest of: (1) the date of practical completion; (2) termination of the Contract; or (3) the plaintiff taking the work under Contract out of the hands of SMLXL.

23. Clause 34.7A provided that, if clause 34.7 were found for any reason to be void, invalid or otherwise unenforceable or inoperative, SMLXL would be entitled to recover common law damages as a result of SMLXL’s failure to achieve practical completion by the contracted date.

24. The Works were categorised into three separable portions, each of which had a different date for practical completion under the Contract:

(a) the works forming part of the new commercial and retail spaces on the Ground Level and Levels 1 to 3 at 374 New South Head Road (Separable Portion 1); (b) all works for the first 10 apartments at Level 4 and Level 5 of the 376-382 New South Head Road, including obtaining an occupation certificate (Separable Portion 2); and (c) all works for the final 2 apartments on Level 4 and Level 5 of 376-382 New South Head Road, including obtaining an occupation certificate, and all remaining works under Contract (Separable Portion 3).

25. The dates for practical completion specified in the General Conditions were 18 January 2022 for Separable Portion 1, 21 April 2022 for Separable Portion 2, and 6 June 2022 for Separable Portion 3. Those dates were subsequently extended to 27 April 2022 for Separable Portion 1, 29 July 2022 for Separable Portion 2, and 13 September 2022 for Separable Portion 3. The liquidated damages rate was $2,000 per day for Separable Portion 1 and $1,000 per day for Separable Portions 2 and 3.

26. Clause 37 of the General Conditions provided for SMLXL to issue progress claims for payment, and for the Superintendent to issue progress certificates in response to each progress claim stating the value of the Works completed, the amount already paid to SMLXL, any amount the plaintiff was entitled to retain, deduct, withhold or set-off, and the amount (if any) that the Superintendent considered to be payable and that the plaintiff proposed to pay to SMLXL on account of the progress claim. Clause 37.6 conferred a right on the plaintiff to withhold, set-off or deduct from any moneys otherwise due to SMLXL any debt or other moneys due from SMLXL to the plaintiff and any claim for money which the plaintiff may have against SMLXL. Clause 37.6(b) provided that the contractual rights of the plaintiff under clause 37.6 are in addition to, and do not limit or affect, any other rights of the plaintiff under the Contract or at law, and that nothing in clause 37.6 affects the right of the plaintiff to recover from SMLXL the whole of the debt or claim in question or any balance that remains owing.

27. Clause 47.2(a) of the General Conditions set out several warranties given by SMLXL, including a warranty that the work under Contract “will be done with due care and skill and in accordance with the plans and specifications set out in the Contract”. Clause 47.2(c) provided that those warranties supplement and do not derogate from any other provisions of the Contract.

28. Pursuant to clause 47.2(b) of the General Conditions, SMLXL indemnified the plaintiff for any cost, loss, damage, expense or liability suffered or incurred by the plaintiff arising out of or in connection with any breach by SMLXL of the warranties in clause 47.2(a).

29. SMLXL commenced the Works in December 2020.

30. In his affidavit sworn on 5 September 2024, Mr Barel describes himself as a project manager for Fivex Services Pty Limited, which is the plaintiff’s managing agent for the property at 374 and 376-382 New South Head Road, Double Bay. Mr Barel deposes that, as part of his role with Fivex Services, he was appointed as “the project manager for the Plaintiff at the Site”. The Contract names Mr Barel as the Superintendent.

31. The “key people” of SMLXL nominated in the Contract were Mr Sam Delamont (as Project Manager), Mr Dean Ossip (as Project Manager, Director, and Tenant Liaison), Mr Tony Orton (as Site Manager), and Mr Steven Lee (as Contract Administrator).

The Policies

36. Clause 16B of the General Conditions of the Contract required SMLXL to effect professional indemnity insurance with a level of cover of at least $20 million.

37. SMLXL was insured under the following insurance contracts issued by Chubb:

38. Elite III Design & Construct Professional Indemnity Insurance Policy for the policy period 30 June 2020 to 30 June 2021 (the 2020/2021 Policy);

39. Elite III Design & Construct Professional Indemnity Insurance Policy for the policy period 30 June 2021 to 30 June 2022 (the 2021/2022 Policy); and

40. Elite III Design & Construct Professional Indemnity Insurance Policy for the policy period 30 June 2022 to 30 June 2023 (the 2022/2023 Policy).

41. It is common ground that the policy period for the 2022/2023 Policy was extended to 14 August 2023 in the events which happened.

42. The three Policies contained terms to the same effect. It therefore suffices to summarise the relevant terms of the 2022/2023 Policy.

43. The insuring clause in the 2022/2023 Policy is found in clause 1.1, which provides (emphasis in original):

“The Insurer will pay to or on behalf of the Insured any Loss resulting from any Claim for civil liability in respect of the conduct of the Professional Services, provided that such Claim is first made against the Insured during the Policy Period.”

41. Clause 2 provides several extensions of cover, each of which is expressly subject to the insuring clause and all other terms, exclusions and conditions of the Policy. The exclusions are set out in clause 4 of the Policy.

42. Extension clause 2.3 provides (emphasis in original):

“2.3 Consultants, Contractors, Subcontractors and Agents Vicarious Liability

The Insurer agrees to pay to or on behalf of the Insured all Loss resulting from a Claim for civil liability against the Insured arising from any acts, errors or omissions of any consultant, contractor, subcontractor or agent of the Insured in the conduct of Professional Services for which the Insured is legally liable.

This Extension does not afford cover to any consultant, contractor, subcontractor or agent of the Insured and does not make such person or entity an Insured.”

43. Clause 7.24 defines “Loss” in the following terms (emphasis in original):

“7.24 Loss means all amounts which an Insured becomes legally obligated to pay in respect of a Claim (including but not limited to any damages, judgments entered or settlements reached) and Defence Costs.

Loss does not include:

(a) aggravated, punitive or exemplary damages; or

(b) fines or penalties imposed by law; or

(c) costs incurred by the Insured in complying with any order for, grant of, or agreement to provide injunctive or non-monetary relief; or

(d) any amount which constitutes reduction, set off or return of fees or expenses, in whole or in part, paid to or charged by an Insured; or

(e) any internal or overhead expense of the Company or the cost of any Insured’s time; or

(f) taxes or sums payable in relation to taxes; or

(g) any matters which are uninsurable under any applicable law or where the Claim is made; or

(h) any liquidated damages which exceed actual damages.”

44. Clause 7.4 defines “Claim” in the following terms (emphasis in original):

“7.4 Claim means:

(a) the receipt by the Insured of any written demand for civil compensation or civil damages or non-monetary civil relief made against the Insured; or

(b) any originating legal or arbitral process, cross claim, counterclaim or third party notice served upon the Insured which contains a demand made against the Insured for civil compensation or civil damages or non-monetary civil relief, arising out of any act, error, failure to act, misstatement, misleading statement, neglect, breach of duty in the conduct of (including a failure to perform) the Professional Services.”

45. Clause 7.30 defines “Professional Services” in the following terms:

“7.30 Professional Services means

(a) design;

(b) drafting;

(c) feasibility study;

(d) surveying;

(e) quantity surveying;

(f) inspection;

(g) project management;

(h) construction management;

(i) advice or specification of a technical nature in respect of (a) to (h) above;

(j) training in respect of (a) to (h) above,

provided always that it is performed by or under the direct control and supervision of a properly qualified and registered architect, engineer, surveyor or quantity surveyor who is a current member of the Australian Institute of Quantity Surveyors or any other person providing a professional services of a skilful character according to an established discipline appropriate to (a) to (j) above being performed or supervised.

Professional Services does not include:

(a) the performance of any physical construction, workmanship, installation, fabrication, assembly, maintenance or erection process or physical alteration of buildings, goods, products or property; or

(b) the control and/or supervision of any physical construction, workmanship, installation, fabrication, assembly, maintenance or erection process or physical alteration of buildings, goods, products or property where such control and/or supervision would normally be provided by a building or engineering contractor acting alone in that capacity.”

46. Clause 4 provides for the following exclusion 4.1 (emphasis in original):

“4. Exclusions

The Insurer will not cover the Insured or any other person for Loss resulting from any Claim, and Legal Representation Expenses arising from any Investigation or any other payment under this Policy:

4.1 Assumed Liabilities and Duties

directly or indirectly caused by, arising out of or in any way connected with any actual or alleged liability assumed under any contract, agreement or understanding except to the extent that such liability would have attached to the Insured in the absence of such contract, agreement or understanding.”

47. That exclusion is qualified by extension clause 2.13, which provides (emphasis in original):

“2.13 Contractual Liability

Despite Exclusion 4.1 “Assumed Liabilities & Duties”, the Insurer agrees to extend cover for a Claim for civil liability against the Insured arising from an indemnity and/or hold harmless term of a contract to the extent such civil liability results from the Insured’s performance of Professional Services.”

48. As the plaintiff correctly accepts, the insuring clause provides cover in respect of “Loss” resulting from “Claims” for civil liability in respect of the conduct of the “Professional Services” only if such “Claims” are first made against SMLXL during the policy period. As the extensions are subject to the insuring clause, that temporal requirement also limits the scope of the cover provided by the insuring clause, as extended by clause 2 of the Policy. As Chubb submitted, the Policies do not contain an extension deeming claims arising from known circumstances notified by SMLXL to Chubb during the policy period as claims made during that policy period.

Applicable legislation and legal principles

49. Section 4 of the Third Party Claims Act provides:

“4 Claimant may recover from insurer in certain circumstances

(1) If an insured person has an insured liability to a person (the claimant), the claimant may, subject to this Act, recover the amount of the insured liability from the insurer in proceedings before a court.

(2) The amount of the insured liability is the amount of indemnity (if any) payable pursuant to the terms of the contract of insurance in respect of the insured person’s liability to the claimant.

(3) In proceedings brought by a claimant against an insurer under this section, the insurer stands in the place of the insured person as if the proceedings were proceedings to recover damages, compensation or costs from the insured person. Accordingly (but subject to this Act), the parties have the same rights and liabilities, and the court has the same powers, as if the proceedings were proceedings brought against the insured person.

(4) This section does not entitle a claimant to recover any amount from a re-insurer under a contract or arrangement for re-insurance.”

50. Section 3 of the Act defines “liability” as meaning:

“… liability to pay damages, compensation or costs.”

51. The term “insured liability” is defined in s 3 of the Act as meaning:

“… a liability in respect of which an insured person is entitled to be indemnified by the insurer.”

52. The term “insured person” is defined as meaning, relevantly:

“… a person who is, in respect of a liability to a third party, entitled to an indemnity pursuant to the terms of a contract of insurance …”

53. Section 5 of the Act provides:

“5 Leave to proceed

(1) Proceedings may not be brought, or continued, against an insurer under section 4 except by leave of the court in which the proceedings are to be, or have been, commenced.

(2) An application for leave may be made before or after proceedings under section 4 have been commenced.

(3) Subject to subsection (4), the court may grant or refuse the claimant’s application for leave.

(4) Leave must be refused if the insurer can establish that it is entitled to disclaim liability under the contract of insurance or under any Act or law.”

54. As both parties submitted, an applicant for leave must establish three elements: [1]

55. that it has an arguable case that the holder of the insurance policy is liable to the applicant;

56. that there is a reasonable possibility that the holder of the insurance policy will be unable to satisfy in full any judgment that may be entered against it in favour of the applicant in respect of that liability; and

57. that there is an arguable case that the holder of the insurance policy would, if found liable to the applicant, be entitled to indemnity under the policy (in other words, an arguable case that any liability of the policy holder to the applicant is an “insured liability” within the meaning of s 3 of the Third Party Claims Act).

58. As the plaintiff in the present case submitted, disputed issues about the liability of the insured person to the applicant, and whether any such liability is an insured liability, are not determined on a final basis for the purpose of deciding whether or not to grant leave to commence proceedings against the insurer under s 5. However, the plaintiff correctly accepted that it is required to demonstrate an arguable case. That requires an arguable case that certain facts exist, and an arguable case that those facts provide legal grounds for relief. The Court is therefore entitled to consider evidence as well as the pleadings in determining whether the applicant for leave has an arguable case that the insured is liable to it, and whether there is an arguable case that any such liability is an insured liability under the relevant policy. [2]

59. As the plaintiff submitted, the standard of an arguable case is “fairly low”. [3] However, as Chubb submitted, it does not follow that the Court is precluded from determining that there is no arguable case of an insured liability for the purpose of determining an application for leave under s 5 of the Third Party Claims Act. One circumstance in which the Court may conclude that there is no arguable case of insured liability is where the relevant insurance policy is a claims made policy, and there is no evidence of a relevant claim having been made against the insured during the period of the policy. Any such determination simply relies on the proper characterisation of written correspondence. [4]

60. Even if each of the three elements is established, there is a residual discretion to refuse leave rather than to permit the applicant to commence an action against the insurer who the applicant otherwise has no right to sue. [5]

61. There is no discretion to grant leave if s 5(4) of the Third Party Claims Act applies. Chubb did not rely on s 5(4) in the present case.

The plaintiff’s claims against SMLXL

59. The plaintiff has articulated the following six categories of claims for which it contends that SMLXL arguably has an insured liability and in respect of which the plaintiff seeks leave under s 5 of the Third Party Claims Act to bring proceedings to recover the amount of the insured liability from Chubb: [6]

60. Liquidated damages – the plaintiff claims that SMLXL is liable to pay liquidated damages in the amount of $1,508,000 under clause 34.7 of the Contract by reason of its failure to achieve practical completion of any of the three Separable Portions of the Works;

61. Glazing and acoustic design issues – the plaintiff claims that SMLXL’s design of the glazing system was inadequate and not fit for purpose, did not comply with the Development Consent, did not meet the design and performance standard required by an acoustic consultant’s report which formed part of the Preliminary Design, did not comply with the Principal’s project requirements which specified that the system must be “climatically, acoustically, functionally sound”, did not meet the minimum acoustic performance standards of the Building Code of Australia, and was incorrectly installed. The plaintiff claims the estimated remediation cost of approximately $2,000,000 as damages for this alleged breach of contract;

62. Balcony design issues – the plaintiff claims that the apartment balconies that SMLXL designed and constructed had a step down onto the balcony rather than level grounding as required by the preliminary design, and that the balconies were therefore inadequate, defective and not fit for purpose. The plaintiff claims the estimated remediation cost of approximately $500,000 as damages for this alleged breach of contract;

63. Mechanical ventilation – the plaintiff claims that the ventilation system that SMLXL designed and implemented was inadequate, defective and not fit for purpose. The plaintiff claims the estimated remediation cost of approximately $200,000 as damages for this alleged breach of contract;

64. Water ingress – the plaintiff claims that the internal structural design implemented and/or supervised by SMLXL was inadequate, defective and not fit for purpose because it caused water ingress, which resulted in mould and adversely impacted the long-term durability of the wall systems. The plaintiff claims as damages for this alleged breach of contract the estimated cost of rectifying the design so that water ingress, mould and corrosion do not occur; and

65. Concrete façade – the plaintiff claims the concrete façade that SMLXL designed and implemented was inadequate, defective and not fit for purpose because there was insufficient concrete to cover the re-enforcing steel of the façade and insufficient paint and concrete surface finishes on the facade of the building. The plaintiff claims that these defects would not have occurred with proper supervision of the installation of the steel and formwork prior to the concrete pours. The plaintiff claims the estimated remediation cost of approximately $250,000-$350,000 as damages for this alleged breach of contract.

Consideration and determination

Overview of the parties’ contentions

60. Relying on its Draft List Statement and affidavits sworn by Mr Barel on 5 September 2024 and 19 December 2024, the plaintiff contends that, in respect of each of its six categories of claims:

61. SMLXL arguably has a liability to the plaintiff;

62. there is a reasonable possibility that SMLXL, which is now in liquidation, will not be able to satisfy any judgment that may be entered in the plaintiff’s favour in respect of those claims; and

63. there is an arguable case that SMLXL would, if found liable to the plaintiff, be entitled to indemnity under one or more of the Policies.

64. The plaintiff contends that the Court’s power under s 5 of the Third Party Claims Act to grant leave to the plaintiff to commence proceedings to recover the amount of the alleged insured liabilities from Chubb is therefore enlivened, and that leave should be granted.

65. In support of its contention that each of its six categories of claims against SMLXL is arguably an “insured liability” within the meaning of s 3 of the Third Party Claims Act, the plaintiff submits that it has an arguable case that it made a “Claim” against SMLXL within the meaning of clause 7.4(a) of the Policies in respect of each of the six categories during the Policy Period of one of the Policies. [7] It will be recalled that the Policies define a “Claim” as a “written demand for civil compensation or civil damages or non-monetary civil relief”. The plaintiff submits that it is arguable that a demand for “non-monetary civil relief” in clause 7.4(a) of the Policies, properly construed, extends to a demand to comply with contractual obligations, and a demand to rectify any works that are not in accordance with the requirements of the Contract. The plaintiff submits that a demand may be explicit or implicit, and correspondence must be construed in context to ascertain whether it is arguably conveying to the insured a demand. The plaintiff further submits that it has an arguable case that each “Claim” was for “civil liability” in respect of the conduct of the “Professional Services”, relying on the inclusion of “design”, “project management”, and “construction management” in the definition of “Professional Services” in clause 7.30 of the Policies.

66. The six categories of claim in respect of which the plaintiff seeks leave to proceed against Chubb under the Third Party Claims Act are articulated in its Draft List Statement. That pleading was not served on SMLXL during any of the Policy Periods. It has been prepared for the purpose of the present application. As referred to in more detail below, the plaintiff relies on various correspondence with SMLXL during the relevant Policy Periods as amounting to the making of a within the meaning of the Policies to which the insuring clause responds. As Chubb submitted, it is therefore implicit in the plaintiff’s application for leave that the claims now formulated in its Draft List Statement correspond with the claims that it says it made in correspondence with SMLXL during the relevant Policy Periods.

The plaintiff’s liquidated damages claim

70. In paragraphs 15 and 16 of its Draft List Statement, the plaintiff pleads that SMLXL failed to achieve practical completion of any of Separable Portions 1, 2 and 3 by the date for practical completion for each Separable Portion, and that this failure was subsisting at the time the plaintiff terminated the Contract. The plaintiff pleads that SMLXL is therefore legally liable under clause 34.7 of the General Conditions of the Contract to pay liquidated damages to the plaintiff in the total sum of $1,508,000, calculated up to the date of termination of the Contract. The calculation of that sum is explained in Mr Barel’s affidavit sworn on 5 September 2024.

71. As I have already mentioned, Chubb does not dispute that the plaintiff has an arguable case that SMLXL is liable to pay liquidated damages to the plaintiff under clause 34.7 of the General Conditions of the Contract.

72. Mr Barel has deposed that Ms Lesli Berger, a director of the plaintiff, sent an email to Mr Ossip on 20 February 2023 in response to SMLXL’s request for a bank guarantee to be released. Ms Berger’s email stated (emphasis added):

“There are certain criteria that the Contractor needs to meet under the contract for the Bank Guarantee(s) to be released, most particularly PC which is dependent on OC for the last separable portion of the works, final as-builts, Warranties and Manuals.

Items of particular concern to me are:

1. OC

Please provide a date for when the louvres will be modified and please advise what else is or could be delaying OC.

You advised OC would be in hand by the end of December.

2. I am also not very happy at the initial obstructionist response to the list of defects.

Will you ensure that your team honour the contract, make sure that the finishes are constructed as specified and that the appropriate resources are applied to make this happen in a timely manner?

In essence you are asking us to waive liquidated damages to apply discretion on a range of other items that quite frankly are within our rights to press under the contract.

Ensuring the apartments are built to the appropriate standard within the specified finishes is not negotiable. This has been made clear throughout our meetings over the course of the Project.

I suggest we stick to the contract until both of these critical issues are resolved and then I will be willing to sit down and negotiate any matters which may not be resolvable on site between our respective teams.”

73. Mr Barel has also given evidence of an email that he sent to Mr Lee of SMLXL on 3 March 2023 in response to a progress payment claim that SMLXL had submitted on 17 February 2023. Mr Barel’s email stated:

“The amount of payment that Fivex proposes to make to SMLXL under clause 37.2 of the Contract on account and pursuant to section 14 of the Building and Construction Industry Security of Payment Act 1999 (NSW) for Claim 26 for works until 15 Feb is $NIL.”

74. Mr Barel’s email then set out a table stating that the plaintiff considered that amounts of $39,362.23 and $19,689.80 were payable to SMLXL in respect of Trade Works and Variation Works (respectively) for Claim 26, but that the amount payable was reduced to -$1,293,967.97 after allowing for outstanding work under Contract (-$105,000), current assessed defects (-$244,200) and current liquidated damages (-$1,004,000).

75. Mr Barel’s email then set out a summary of the reasons for the differences between SMLXL’s claim and the plaintiff’s assessment. First, SMLXL had overstated the percentage complete. Second, SMLXL had re-claimed amounts for variations which dated back to the commencement of the project and which had already been assessed. Third, the estimated cost of rectifying extensive defects had been set off against the amount payable to SMLXL pursuant to clause 37.6 of the General Conditions of the Contract. Fourth:

“… SMLXL has not achieved PC for any Separable Portion of the WUC and Liquidated damages are accumulating daily. The amount of liquidated damages currently owing to Fivex is $1,004,000.00. This has been set-off against the amount payable to SMLXL in accordance with clause 37.6 of the Contract.”

76. As Chubb submitted, by the time the plaintiff had set off the sum of $244,000 in respect of defects against the amount that it had assessed as due to SMLXL in respect of its progress payment Claim 26, there was no remaining amount claimed by SMLXL against which the plaintiff’s entitlement to liquidated damages could be set off.

77. Mr Barel’s email concluded:

“We anticipate SMLXL will activate a prompt resolution of the WUC by applying the appropriate resources and also by taking the initiative to appropriately identify and rectify the numerous defects which Fivex should not be required to be doing on your behalf.

Additionally, please provide us with an update of the status of the outstanding OC(s) which Dean has not yet responded to.”

78. On 4 March 2023, Mr Barel sent a further email to Mr Ossip setting out Fivex’s complaints that the resources allocated by SMLXL to the Works were inadequate and contending that SMLXL needs an additional resource to identify and resolve “the basic cosmetic obvious defects” and to direct and manage subcontract labour. Mr Ossip replied by email to Mr Barel on 24 March 2023, stating that Fivex’s contentions were “not factual” and requesting that Fivex “cease greying the waters on our resource allocations”. Ms Berger of Fivex replied to Mr Ossip on 13 April 2023, stating (emphasis added):

“Incredibly disappointing that the constructive advice provided by [Mr Barel] 3 weeks ago in writing (and multiple previous warnings both verbally and in writing) were ignored. 3 weeks later and as predicted you are not close to closing out defects, merely finalising a few apartments. I remind you of the huge cost of these delays.

Who in the SMLXL team apart from John is responsible for this project? Are Anthony and Steve still involved? Why is Anthony not exclusively working on our project as previously promised you [sic]?”

79. Mr Barel deposed in his affidavit sworn on 5 September 2024 that SMLXL “were continually reminded of their obligations under the Contract, the costs of the significant delays and the accumulating liquidated damages”. Mr Barel referred to email correspondence between Ms Berger of Fivex and Mr Ossip during May 2023 concerning the number of workers onsite, the sequence of works, rectification of defects, and the time frames for completion of parts of the works. In an email to Mr Ossip dated 2 May 2023, Ms Berger stated that she was “relying on your guaranteed time frame and again remind you of the costs of delays” and that “Fivex reserves its rights under the contract”. On 7 May 2023, Ms Berger sent an email to Mr Ossip expressing disappointment that SMLXL had failed to rectify defects on Levels 4 and 5 within the timeframe they had previously promised, and stating: “I remind you again that these further delays are costing fivex a huge amount of money and we reserve all our rights under the contract.” On 17 May 2023, Ms Berger sent an email to Mr Ossip and others at SMLXL stating that their “numbers” were “extremely concerning and unacceptable”, issuing a further “reminder” that “delays are costing us huge sums of money”, and stating that “Fivex reserves all rights”. On 30 May 2023, Ms Berger sent a further email to Mr Ossip complaining that “eve**ry suggested completion date provided by you historically has not been met and this has caused great inconvenience, disappointment and frustration for my team, as well as huge cost”. Ms Berger’s email concluded: “Delays are costing Fivex a huge amount of money and consequently we reserve all rights under the contract.”

80. For the reasons explained below, the plaintiff has not established an arguable case that the correspondence referred to at [72]-[79] above constituted a “Claim” within the meaning of clause 7.4(a) of the Policies, being a “written demand for civil compensation or civil damages or non-monetary civil relief made against the Insured”.

81. I accept the plaintiff’s submission that a demand may be explicit or implicit, and that correspondence must be construed in context to ascertain what it arguably conveyed to SMLXL, expressly or impliedly. [9]

82. Fivex Services and SMLXL engaged in the correspondence referred to at [72]-[79] above between six and eight months after the latest contractual date for practical completion of the Separable Portions of the Works had passed. [10] Read as a whole, that correspondence expressly conveyed to SMLXL the dissatisfaction of the plaintiff (and Fivex Services as its project manager) with the number of resources that SMLXL had allocated to the Works in May 2023, the time being taken to rectify defects, the ongoing delay in completion of the Works and specific parts of the Works referred to in the correspondence, and the costs that the continuing delay was occasioning to the plaintiff. The correspondence expressly conveyed that Fivex Services (as the plaintiff’s project manager) was relying on various promises made by SMLXL about the resources that would be allocated to the Works going forward, and the time frames within which defects would be rectified and portions of the Works would be completed. The correspondence also expressly conveyed to SMLXL that the plaintiff reserved all of its rights under the Contract, including its right under clause 34 to liquidated damages which were increasing with each day of further delay. The plaintiff expressly asserted (or purported to assert) a right under clause 37.6 of the General Conditions of the Contract to set off the liquidated damages that had accrued under clause 34 as at 3 March 2023 against SMLXL’s progress payment Claim 26.

“In my opinion the word ‘claim’ is here used in its primary sense of a demand for something as due, an assertion of a right to something. It imports the assertion, demand or challenge of something as a right.”

87. His Honour thereby distinguished between a demand for something as due on the one hand, and an assertion of a right to something on the other hand, albeit holding that both concepts fell within the ordinary meaning of the word “claim”.

88. As Chubb submitted, this does not assist the plaintiff in the present case because the definition of “Claim” in clause 7.4(a) of the Policies on which the plaintiff relies expressly requires a “written demand for civil compensation or civil damages or non-monetary civil relief made against the Insured”. The parties have not contracted on the basis that the assertion of a right will constitute a “Claim”.

89. The plaintiff also relied on HIH Casualty & General Insurance Ltd v Pade (Pade). [14] Mason P, after referring to the judgment of Bowen JA in Walton, held that it was not relevant to examine the subjective intention of the author of the correspondence said to contain a “claim”, and that a “claim” is “what is brought to the insured’s attention” when the correspondence is construed in context. [15] The correspondence in that case expressly identified the third party’s concerns about the conduct of the insured solicitor who had acted for them in relation to a particular transaction, stated that the third party looked to the insured solicitor to allay those concerns and to do so promptly, and stated that if the insured solicitor failed to take specified steps within a stipulated time period, “the matter is to be taken further”. The Court held that this constituted a “claim”.

90. The correspondence considered by the Court in Pade is different from the correspondence in the present case referred to at [72]-[79] above. In the present case, the correspondence asserted the plaintiff’s contractual entitlement to liquidated damages and expressly reserved its contractual rights, without making any request for payment of liquidated damages, foreshadowing an intention to make such a request or demand in the future, or foreshadowing any further action in respect of the plaintiff’s claimed entitlement to liquidated damages. SMLXL must be taken to have been aware of the provisions of the Contract, and of its delay in reaching practical completion, and to have known that, subject to any claims for an extension of time, the plaintiff therefore had an entitlement to liquidated damages calculated in accordance with clause 34 of the General Conditions of the Contract, and that it was open to the plaintiff to enforce that right by demanding or suing for payment. The correspondence took matters no further.

91. The plaintiff’s assertion of an entitlement to liquidated damages was not accompanied by any request that SMLXL provide the correspondence to its professional indemnity insurer, as was the case in . [16] As Chubb submitted, the Court of Appeal in placed weight on that request in characterising the relevant correspondence as implicitly making a demand for compensation. [17] Like and , the decision in turns on its own facts and does not assist the plaintiff to demonstrate an arguable case that the correspondence referred to at [72]-[79] above contained an express or implied against SMLXL.

“The mere fact that a client has contracted with the insured and, therefore, has contractual rights, does not mean that on each occasion the client acts in exercise of his rights he is making a claim in the relevant sense.”

93. Even if I had determined that the correspondence arguably amounted to a demand for liquidated damages, I would have held that the plaintiff had not demonstrated an arguable case that this was a demand “for civil compensation or civil damages”. As Chubb submitted, a claim or demand for liquidated damages in an amount agreed in a contract to be payable as a genuine pre-estimate of damage in the event of breach is a claim or demand for debt. [20] In the present case, clause 34.7 of the General Conditions of the Contract expressly provide that SMLXL “shall be indebted to” the plaintiff for liquidated damages calculated at the rates set out in the Contract for each day of delay in reaching practical completion. That language stands in stark contrast to clause 34.7A which preserves SMLXL’s right to common law damages for such delay in the event that clause 34.7 is found to be void, invalid, unenforceable or inoperative for any reason. A demand for civil compensation or civil damages does not include a claim or demand for payment of a debt. [21]

94. Contrary to the plaintiff’s submissions, its claim for liquidated damages does not take on a different character merely because it exercised a contractual right to terminate the Contract under clause 39.4(b) of the General Conditions. Clause 39.10 expressly provides that, in the event of termination under clause 39.4(b), the parties’ remedies, rights and liabilities shall be the same as they would have been under the law governing the Contract had the defaulting party repudiated the Contract and the other party elected to treat the Contract as at an end and recover damages. Thus, the Contract is not rescinded ab initio. Both parties are discharged from further performance of the Contract, but their rights that have already accrued are unaffected. The plaintiff’s right to recover from SMLXL the liquidated damages for which it was indebted to the plaintiff under clause 34.7 of the General Conditions was not discharged by the plaintiff’s termination of the Contract. [22]

95. I reject the plaintiff’s submissions that the correspondence referred to at [72]-[79] above demanded that SMLXL “cease delays and reach practical completion as required by the Contract” and therefore arguably contained a “demand for … non-monetary civil relief” within the meaning of clause 7.4(a) of the Policies.

96. First, that submission is a gloss on the substance of the correspondence. As I have explained at [82] above, the plaintiff complained about the delays that had already occurred (which could not be “ceased”) and about the prospect of further delays by reason of SMLXL’s failure (according to the plaintiff) to allocate sufficient resources to the performance of the Works. It was no longer possible for SMLXL to reach practical completion in accordance with the Contract. SMLXL was already six to eight months late.

The plaintiff’s claims relating to glazing and acoustic design issues

101. In paragraphs 17-27 of its Draft List Statement, the plaintiff pleads that the glazing system designed and implemented by SMLXL was inadequate, defective and not fit purpose in that:

102. it did not meet the design and performance standards recommended in the report of Acoustic Logic dated 13 December 2018, as varied on 30 October 2020;

103. it was designed using thinner glass which resulted in a lesser acoustic standard;

104. it had levels of noise which did not comply with the requirements of the development consent and State Environmental Planning Policy (Infrastructure) 2007 and which exceeded that which is recommended in AS2107-2016 for sleeping and working areas;

105. it did not meet the minimum acoustic performance standard of the Building Code of Australia 2019;

106. it did not contain the requisite “low e” nano coating on one side of the glass for heat reduction;

107. it did not contain a satisfactory design for the window louvres as the louvres did not comply with the privacy controls set out in the conditions of the development consent; and

108. it was installed incorrectly.

109. The plaintiff pleads that this constituted a breach of the Contract, by reason of which it has suffered loss and damage because it is required to incur the costs of rectifying the design of the glazing system and carrying out rectification works.

110. The plaintiff submitted that it has an arguable case that SMLXL would be entitled to indemnity under the 2022/2023 Policy if SMLXL were found liable to the plaintiff in respect of that claim.

111. In support of that submission, the plaintiff relied on email correspondence from Mr Barel to SMLXL on 29 June 2023 and on 3 July 2023 as a “Claim” made against SMLXL within the meaning of the 2022/2023 Policy in respect of the pleaded glazing and acoustic issues prior to the expiry of the 2022/2023 Policy Period on 14 August 2023.

112. Mr Barel’s email to Mr Ossip and others at SMLXL on 29 June 2023 stated (emphasis in original):

“Please see attached report which indicates defects via non-compliances surrounding acoustics and construction in numerous faculties of the Building Works, particularly relating to glazing elements and partitioning.

The report also makes recommendations to improve the noise levels emitted by the supply air fan located in the ceiling of the level 4 garbage room.

We request an urgent response clarifying your thoughts on the report and intended course of action.”

106. The report, which was prepared Mr Adam Semple, a Senior Acoustic Consultant at Koikas Acoustics Pty Ltd, reported on acoustic testing carried out within the residential component of the building at 374-376 New South Head Road which covered traffic noise intrusion to four specific residential apartments, airborne noise transmission through partition walls within two specific apartments, impact noise transmissions through the floor-ceiling systems between two specific apartments, and mechanical noise impacts within two Level 4 apartments of a fan installed in the Level 4 garbage room.

107. To the extent that the report addressed the glazing system that is the subject of paragraphs 17-27 of the plaintiff’s Draft List Statement, the report found that the installed glazing systems in certain rooms in particular apartments did not match the recommended system in the Acoustic Logic report that had formed part of the preliminary design. The glass installed was thinner, and therefore of a lesser acoustic standard, than recommended in that design.

108. Neither the report, nor Mr Barel’s correspondence referred to at [105] above and [111]-[112] below, referred to the issues raised in paragraphs 17-27 of the plaintiff’s Draft List Statement that the glazing system did not meet the minimum acoustic performance standard of the Building Code of Australia 2019 and did not contain the requisite “low e” nano coating on one side of the glass for heat reduction.

109. In his affidavit sworn on 5 September 2024, Mr Barel referred to the Koikas Acoustics report and deposed that: “Given the acoustic non-compliance issues in the apartments, I believed the apartments were not built to Contract requirements.”

110. Mr Ossip replied to Mr Barel on 29 June 2023 stating that SMLXL had scheduled an internal meeting the following morning and would touch base with him after that meeting “to outline our response timing/rectification”.

111. On 30 June 2023, Mr Barel sent a further email to Mr Ossip requesting “feedback on the report please”.

112. On 3 July 2023, Mr Barel sent a further email to Mr Ossip stating: “I would like to go through the report with you or one of your staff please to look at resolving these non compliances*. …”*

113. As I have mentioned earlier in these reasons, SMLXL went into liquidation the following day.

114. The plaintiff submitted that, in the correspondence referred to at [105]-[112] above, it was expressly or implicitly demanding that SMLXL rectify “the issues described in the expert report concerning the glazing and acoustic design”, and that this was arguably a demand for non-monetary civil relief within the meaning of clause 7.4(a) of the definition of in the 2022/2023 Policy. The plaintiff characterises the non-monetary civil relief as the contractual entitlement to require SMLXL to comply with its contractual obligations to ensure that the works under Contract were compliant with the requirements of the Contract.

The plaintiff’s claims relating to balcony design issues

123. In paragraphs 28-31 of its Draft List Statement, the plaintiff pleads that the Contract required SMLXL to design and construct 10 apartments with balconies on Levels 4 and 5 of the building, and that the balconies that SMLXL designed and constructed were inadequate, defective and not fit for purpose in that they had a step down onto the balcony so that the balcony door systems were not flush door systems as specified in the preliminary design.

124. The plaintiff pleads that this constituted a breach of the Contract, by reason of which it has suffered loss and damage because it is required to incur the costs of rectifying the design of the balconies and carrying out rectification works.

125. The plaintiff submitted that it has an arguable case that SMLXL would be entitled to indemnity under the 2022/2023 Policy if SMLXL were found liable to the plaintiff in respect of that claim.

126. In support of that submission, the plaintiff relied on an email that Mr Barel sent to Mr Ossip and others at SMLXL on 18 January 2023 as part of a chain of correspondence concerning potential changes to the design of louvres on the balconies of those apartments. Mr Barel’s email reads:

“For such changes to the design first you contractually need to come through Fivex.

Additionally and further to our conversation this could require a formal notification to the neighbours who may in addition complain. This could be a delay to the overall OC issue by months – the risk and costs borne by SMLXL.

Please advise what your proposed next steps will be.

Is modifying or remanufacturing the window frames so they are built and installed per CC a solution?”

127. The plaintiff submitted that the design changes to the balcony louvres were proposed in order to address the non-level grounding of the balconies.

128. The plaintiff further submitted that it is arguable that Mr Barel’s email, by asking SMLXL to identify their proposed next steps, is an implied demand for non-monetary civil relief because Mr Barel was impliedly communicating a contractual right to require SMLXL to rectify the issues with the balcony design.

129. I reject these submissions.

130. As Chubb submitted, the plaintiff has not adduced any evidence in support of its assertion that the design changes to the balcony louvres that were the subject of Mr Barel’s email were responsive to the non-level grounding of the balconies.

131. Even assuming that Mr Barel’s email did relate to the non-level grounding of the balconies, it is not arguable that the email contained any implied demand. The email merely asked SMLXL what they proposed to do next.

132. Even if I had been persuaded that the email arguably contained an implied demand, I would have held that it is not arguable that such demand was for “non-monetary civil relief” within the meaning of the definition of “Claim” and that any such demand was not arguably a “Claim for civil liability” in any event. [27]

133. Even if I had been satisfied that the plaintiff had an arguable case that the email was a “Claim for civil liability” within the meaning of the insuring clause of the 2022/2023 Policy, I would have held that the plaintiff had not established an arguable case that it was a “Claim for civil liability in respect of the conduct of the Professional Services”. As Chubb submitted, the pleading of the plaintiff’s claim in paragraphs 28-31 of the Draft List Statement conflates the design and implementation issues. The plaintiff adduced no evidence supporting an argument that it was a design issue and the plaintiff’s submissions articulated no argument that it fell within the definition of “Professional Services” in the 2022/2023 Policy.

134. For those reasons, the plaintiff has failed to establish an arguable case that SMLXL would be entitled to indemnity under the 2022/2023 Policy if found liable to the plaintiff in respect of the claims in paragraphs 28-31 of the plaintiff’s Draft List Statement. The plaintiff’s application for leave under s 5 of the Third Party Claims Act to commence proceedings against Chubb under s 4 of that Act will therefore be dismissed insofar as it concerns those claims. It has not been necessary for me to consider Chubb’s further submissions relying on exclusion clause 4.1 in the 2022/2023 Policy.

The plaintiff’s claims relating to mechanical ventilation

135. In paragraphs 32-35 of its Draft List Statement, the plaintiff pleads that the Contract required SMLXL to:

136. design and construct an air conditioning system for the property at the Site which included variable refrigerant volume air conditions for the commercial and retail section of the Site and split systems for the new residential tenancies;

137. confirm existing condensing units in the existing roof were fully operational, report any problems, issues, failures or faults in the condensing units, and decommission and relocate those units; and

138. allow to extend and cap the existing provisional kitchen exhaust “in a code compliant manner”.

139. The plaintiff pleads that the system designed and implemented by SMLXL was inadequate, defective and not fit for purpose, in that:

140. it has “mechanical ventilation issues” caused by design flaws in the retail kitchen exhaust riser and plant room air ventilation system;

141. it “omitted make up air” to the kitchen exhaust system;

142. it does not provide sufficient capacity in the mechanical riser to allow it to meet the design specifications for air volumes;

143. it caused internal fire issues as a result of inadequate mechanical dampers and ducting;

144. it created external noise from the air fan located at the Level 4 garbage room;

145. it included a gas meter room exhaust fan with no external ducting to vent the space;

146. it included fire dampers which could not be accessed;

147. it produced and excessive build-up of untreated internal condensation; and

148. it did not include door grills which are required to allow the flow of fresh air.

149. The plaintiff pleads that those matters constituted a breach of the Contract, by reason of which it has suffered loss and damage because it is required to incur the costs of rectifying the system and carrying out rectification works.

150. The plaintiff submitted that it has an arguable case that SMLXL would be entitled to indemnity under the 2022/2023 Policy if SMLXL were found liable to the plaintiff in respect of that claim.

151. In support of that submission, the plaintiff relied on email correspondence between Mr Barel and Mr Ossip of SMLXL during the period between 31 January 2023 and 20 June 2023 as communicating a demand that SMLXL rectify the alleged design issues with the system. The plaintiff characterised this as a demand that SMLXL comply with its contractual obligation to ensure that the works complied with the Contract, and therefore as a demand for within the meaning of the definition of in clause 7.4(a) of the 2022/2023 Policy which is picked up in the insuring clause.

The plaintiff’s claims relating to water ingress

144. In paragraphs 36-39 of its Draft List Statement, the plaintiff pleads that the Contract required SMLXL to design and construct 10 apartments at Levels 4 and 5 of the building to be in accordance with the relevant Australian Standards and the Building Code of Australia, including optimising the long-term viability of the Works with regard to maintenance costs associated with the building so that maintenance costs remain reasonable.

145. The plaintiff pleads that the internal structural design implemented and/or supervised by SMLXL was inadequate, defective and not fit for purpose, in that:

146. the design caused a water ingress to the apartment lobby and internal carpet and stairs;

147. the design resulted in significant amount of mould build-up in apartments on Levels 4 and 5; and

148. the design has thereby impacted the long-term durability of the wall systems.

149. The plaintiff pleads that those matters constituted a breach of the Contract, by reason of which it has suffered loss and damage because it is required to incur the costs of rectifying the design of the apartments so that water ingress, mould and corrosion do not continue to occur.

150. The plaintiff submitted that it has an arguable case that SMLXL would be entitled to indemnity under the 2021/2022 Policy if SMLXL were found liable to the plaintiff in respect of that claim.

151. In support of that submission, the plaintiff relied on email correspondence sent by Fivex Services on behalf of the plaintiff to SMLXL during the period between 5 November 2021 and 20 April 2022 as communicating a demand that SMLXL rectify the cause of the alleged water ingress and rectify the issues that the alleged water ingress was causing. The plaintiff characterised this as a demand that SMLXL comply with its contractual obligation to ensure that the works under Contract were fit and proper and compliant with the requirements of the Contract, and therefore as a demand for “non-monetary civil relief” within the meaning of the definition of “Claim” in clause 7.4(a) of the 2021/2022 Policy which is picked up in the insuring clause.

152. I have reviewed all of that email correspondence. I accept that it contains express demands on behalf of the plaintiff for SMLXL to take steps to prevent water ingress that was occurring during the period in which the emails were sent, and to treat and remove mould that had resulted from that water ingress. However, as Chubb submitted, there are several indications in the correspondence that the water ingress which was then occurring was a temporary problem associated with parts of the building being exposed to the elements during the construction process. The plaintiff did not adduce any evidence that would support an inference that there is any nexus between the water ingress issues raised in email correspondence between November 2021 and April 2022 and the alleged deficiency in the internal structural design that is pleaded in the Draft List Statement prepared in September 2024. The plaintiff’s failure to adduce any evidence of any further correspondence concerning water ingress in the period between April 2022 and 4 July 2023, when SMLXL went into liquidation and ceased work on the Site, suggests that no such nexus exists.

The plaintiff’s claims relating to the concrete facade

152. In paragraphs 40-43 of its Draft List Statement, the plaintiff pleads that the Contract required SMLXL to design and construct a façade for the building, and that the façade that was “design**ed and implemented by SMLXL” was inadequate, defective and not fit for purpose because it contained “structural defects in relation to the durability and serviceability of the façade”, it had paint and surface finishes that were “incorrect” or which had resulted from inadequate priming of the façade surface, it did not meet the “class 2 design specifications”, and it did not have sufficient concrete cover over the reinforcing steel.

153. The plaintiff pleads that those matters constituted a breach of the Contract, by reason of which it has suffered loss and damage because it is required to incur the costs of rectifying the design of the façade and the costs of carrying out the rectification works.

154. The plaintiff submitted that it has an arguable case that SMLXL would be entitled to indemnity under the 2022/2023 Policy if SMLXL were found liable to the plaintiff in respect of that claim.

155. In support of that submission, the plaintiff relied on email correspondence between Mr Barel and/or Ms Berger of Fivex Services to SMLXL during the period between 7 March 2023 and 6 June 2023. I have reviewed all of that email correspondence. It conveys to SMLXL matters concerning the concrete finishes that the plaintiff considered to be defects, a request for SMLXL to undertake an extensive review of all new visible concrete surfaces due to a significant number of services being below “the specified standard”, and requests for SMLXL to rectify those and other alleged defects and to provide information about the resources it was allocating to rectification. On 6 June 2023, Ms Berger of Fivex Services sent an email to Mr Barel and to Mr Ossip and one other representative of SMLXL attaching a report prepared by Tyrells Building Advisory (Tyrells) dated 5 June 2023. The report identified areas of the building where Tyrells considered that a class 2 concrete finish had not been achieved, based on their inspection of the building. The report recommended that Fivex Services request SMLXL to comply or to rectify those areas, which were listed in Appendix A to the report. Ms Berger’s email simply attached Tyrrells’ report and stated: “Let’s discuss in the morning”.

156. To the extent that the emails were sent by Ms Berger rather than Mr Barel, I consider that it is arguable that they were sent on behalf of Mr Barel, as the Superintendent, or otherwise on behalf of the plaintiff given the role of Fivex Services in managing the building. I reject Chubb’s submission that Ms Berger’s emails had no relevant status under the Contract. The contrary is arguable.

157. I accept Chubb’s submissions that the email correspondence relates only to concrete finishes, and that the plaintiff has adduced no evidence and made no submissions articulating any claimed nexus between that correspondence relating to the finishes and the allegation in the Draft List Statement that the concrete façade was structurally defective.

Conclusion and orders

162. For all of the reasons explained above, the plaintiff’s application for leave to commence and prosecute proceedings against Chubb must be dismissed in its entirety. As Chubb submitted, costs should follow the event.

163. It follows from the dismissal of the plaintiff’s application for leave that its claims for damages, interest and costs must also be dismissed as against Chubb. Those claims against SMLXL are stayed by operation of s 471B or s 500 of the Corporations Act 2001 (Cth) because SMLXL is being wound up. I will hear from the plaintiff about whether it has any intention of seeking leave to proceed with those claims against SMLXL, or whether those claims should also be dismissed so as to bring these proceedings to an end.

164. The orders of the Court are:

165. Order that the plaintiff’s claim in prayer 1 of the Summons is dismissed.

166. Order that the plaintiff is to pay the second defendant’s costs of the application in prayer 1 of the Summons on the ordinary basis, as agreed or assessed.

167. Order that the plaintiff’s claims in prayers 3 to 6 of the Summons are dismissed as against the second defendant.

**********

Endnotes

Avant Insurance Ltd v Burnie [2021] NSWCA 272 (Burnie) at [8] (McCallum JA and Simpson AJA); Clark v Avant Insurance Ltd [2022] NSWCA 175 (Clark) at [27] (Meagher and Beech-Jones JJA, Lonergan J) and the authorities there referred to.

Energize Fitness Pty Ltd v Vero Insurance Ltd [2012] NSWCA 213 (Energize Fitness) at [57]-[61] (Campbell JA, Allsop P and Meagher JA agreeing).

Energize Fitness at [59] (Campbell JA, Allsop P and Meagher JA agreeing).

See, for example, Burnie at [19]-[38] (McCallum JA and Simpson AJA); Clark at [39] (Meagher and Beech-Jones JJA, Lonergan J).

Clark at [28] (Meagher and Beech-Jones JJA, Lonergan J).

The plaintiff abandoned its application for leave under s 5 of the Third Party Claims Act in respect of a seventh category of claims in its Draft List Statement relating to fire services.

The plaintiff places no reliance on the second limb of the definition of “Claim” in clause 7.4(b) of the Policies.

See Amlin Corporate Member Ltd (t/as Amlin Syndicate 2001 at Lloyd’s) v Austcorp Project (No. 20) Pty Ltd (2014) 311 ALR 222; [2014] FCAFC 78 (Amlin) at [43]-[44] (Gleeson J, Allsop CJ and Middleton J agreeing).

See [62] above.

See [25] above.

But see [93] below.

(1973) 2 NSWLR 73.

Ibid at 82.

[2000] NSWCA 325.

Ibid at [20] (Mason P, Stein and Heydon JJA agreeing).

Clark at [38] (Meagher and Beech-Jones JJA, Lonergan J).

Ibid.

Amlin at [58]-[62] (Gleeson J, Allsop CJ and Middleton J agreeing).

Walton at 82.

Hansmar Investments Pty Ltd v Perpetual Trustee Co Ltd (2007) 61 ACSR 321; [2007] NSWSC 103 at [47]-[56] (White J, as his Honour then was); Fullinfaw v Neil Fletcher Design Pty Ltd (2019) 57 VR 169; [2019] VSC 142 at [59]-[60] (Garde J) (Fullinfaw); see also Galafassi v Kelly (2014) 87 NSWLR 119; [2014] NSWCA 190 at [177]-[178] (Gleeson JA, with the concurrence of Bathurst CJ and Ward JA, as her Honour then was); Inghams Enterprises Pty Ltd v Hannigan (2020) 379 ALR 196; [2020] NSWCA 82 at [150] (Meagher JA, Gleeson JA agreeing).

Kantfield Pty Ltd v Lockwood [2003] VSC 420 at [12] (Byrne J); Kyriackou v ACE Insurance Ltd [2013] VSCA 150 at [51] (Harper JA, Tate JA agreeing); Smart v AAI Ltd [2015] NSWSC 392 at [179] (Beech-Jones J); Fullinfaw at [59]-[60] (Garde J); APD Technology Pty Ltd v Maximo Developments Pty Ltd [2022] FCAFC 141 at [191] (Moshinsky, Halley and O’Sullivan JJ).

Mann v Paterson Constructions Pty Ltd (2019) 267 CLR 560; [2019] HCA 32 at [5]-[13] (Kiefel CJ, Bell and Keane JJ), [62]-[64] (Gageler J, as the Chief Justice then was), [165] (Nettle, Gordon and Edelman JJ).

Hird v Chubb Insurance Company of Australia Ltd [2016] VSC 174 at [66]-[74] (Hargrave J).

Amlin at [69]-[70] (Gleeson J, Allsop CJ and Middleton J agreeing).

See [18]-[20] above.

See [99] above and the authorities there cited.

See [99] above and the authorities there cited.

See [99] above and the authorities there cited.

See [99] above and the authorities there cited.

See [18]-[20] above.

See [99] above and the authorities there cited.

Second, it is not arguable in my opinion that the reasonable businessperson would have understood the words “non-monetary civil relief” in the context of the definition of “Claim” in clause 7.4(a), the insuring clause, and the Policies as a whole, as referring to anything less than non-monetary legal or equitable relief of a kind that may be granted by a court or tribunal in civil proceedings. I accept Chubb’s submission that complaints about delay and the resulting inconvenience, frustration, and cost, accompanied by a reservation of contractual rights, do not amount to a “demand” for “relief”, [23] and are not a “Claim for civil liability”. As Chubb submitted, “civil liability” is liability established and quantified by judgment or by settlement of proceedings, and a “Claim for civil liability” must seek the establishment by judgment of responsibility in law. [24]