Ace Woollahra Pty Ltd v The Owners - Strata Plan 61424 & Anor

CATCHWORDS: BUILDING AND CONSTRUCTION - Home Building Act 1989 Part 2C - joint venture to construct aged person units - one joint venturer contracts with builder to erect units on land - other joint venturer is the registered proprietor of the land - owners corporation acquires title from registered proprietor - whether owners corporation is entitled to the benefit of a statutory warranty enforceable against the builder by operation of s 18D of the Home Building Act 1989

Building Services Corporation Legislation Amendment Act 1996 Home Building Act 1989 Home Building Amendment Act 1998 LEGISLATION CITED: Suitors' Fund Act 1951 Home Building Regulation 1997 Home Building Regulation 2004 Uniform Civil Procedure Rules 2005

Australasian Concrete Services Pty Ltd v Multiplex Constructions Pty Ltd [1999] NSWSC 1140 Bass v Permanent Trustee Co Ltd [1999] HCA 9; 198 CLR 334 Citizens Airport Environment Association Inc v Maritime Services Board (1993) 30 NSWLR 207 CASES CITED: Director of Fisheries (Northern Territory) v Arnhem Land Aboriginal Land Trust [2001] FCA 98; 109 FCR 488 Festa Holdings Pty Ltd v Adderton [2004] NSWCA 228 HIH Casualty and General Insurance Ltd v Jones [2000] NSWSC 359 R v Toohey; Ex parte Attorney-General (NT) [1980] HCA 2; 145 CLR 374 Trident General Insurance Co Ltd v McNiece Bros Pty Ltd [1988] HCA 44; 165 CLR 107

Ace Woollahra Pty Ltd formerly known as Reed Construction Services Pty Ltd (Applicant) PARTIES: The Owners - Strata Plan 61424 (First Respondent) Building Insurers' Guarantee Corporation (Second Respondent)

COUNSEL: M Orlov (Appellant) T Lynch (First Respondent)

SOLICITORS: Verekers Lawyers (Appellant) Mills Oakley (First Respondent)

LOWER COURT JURISDICTION: Supreme Court

LOWER COURT MEDIUM NEUTRAL CITATION: The Owners Strata Plan 61424 & Anor v Reed Constructions Pty Limited [2009] NSWSC 692

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 2009/40396

TOBIAS JA McCOLL JA SACKVILLE AJA

Monday 17 May 2010 ACE WOOLLAHRA PTY LTD formerly known as REED CONSTRUCTION SERVICES PTY LTD v THE OWNERS STRATA PLAN 61424 & ANOR Judgment 1 TOBIAS JA: I agree with Sackville AJA. 2 McCOLL JA: I agree with Sackville AJA's reasons and the orders his Honour proposes. 3 SACKVILLE AJA: The Home Building Act 1989 ("HB Act") was amended as from 1 May 1997 to introduce Part 2C, which establishes a scheme of statutory warranties in respect to residential building work in New South Wales. The amending legislation, the Building Services Corporation Legislation Amendment Act 1996, also introduced a new Part 6 into the HB Act, requiring persons undertaking residential building work under a contract to insure against a number of specified risks. These included the risk that the person on whose behalf the work is being done and that person's successors in title suffer loss arising from a breach of a statutory warranty (s 99(b)). 4 The issue identified in the present application is whether the first respondent, the owners corporation in a strata development ("Proprietor"), is entitled under s 18D of the HB Act to the benefit of the statutory warranties and can enforce them against the appellant, the builder responsible for construction of the development ("Builder"). The Builder completed construction of aged persons' units on a site in Woollahra ("the Woollahra Site") under a contract with Wallis Street Developments Ltd ("Wallis"). Wallis was a party to what was described in argument as a Joint Venture Agreement with the previous registered proprietor of the site, PRC Ltd ("PRC") for the development of the site into an aged care facility. Wallis was not the registered proprietor of the land on which the units were constructed. PRC transferred title to the common property in the strata development to the Proprietor. Neither Wallis nor PRC is a party to these proceedings. 5 The Proprietor claims that the Builder failed to carry out the residential building work on the Woollahra site in conformity with the statutory warranties implied in the building contract by s 18B of the HB Act. The Proprietor contends that the Builder is liable to it, or alternatively to the Building Insurers' Guarantee Corporation ("BIGC"), the second respondent to the leave application, for the cost of the rectification work. 6 Section 18D of the HB Act provides, subject to an irrelevant exception, that a person who is the successor in title to a person entitled to the benefit of a statutory warranty is entitled to the same rights as the person's predecessor in title in respect of the statutory warranty. The issue in the present case arises because it is common ground that Wallis, while party to an agreement with PRC, is not the Proprietor's predecessor in title. The Proprietor says this does not matter and, on a purposive construction of s 18D of the HB Act, it is entitled to the benefit of the statutory warranties against the Builder. The Builder says that the Proprietor is not a successor in title to Wallis and thus simply cannot bring itself within the language of s 18D of the HB Act. Accordingly, the Proprietor is not entitled to enforce the statutory warranties against the Builder. 7 The parties agreed on a statement of preliminary issues, facts and premises, which posed three questions for the determination of the primary Judge (Einstein J). The first question was whether the Proprietor was a person entitled to the benefit of a statutory warranty enforceable against the Builder by operation of s 18D of the HB Act. His Honour answered that question in favour of the Proprietor. The other two questions related to the effect of an insurance policy and were resolved by agreement between the parties. His Honour therefore did not need to address them. 8 This Court heard the application for leave and the arguments on the appeal concurrently. BIGC is the second respondent to the application for leave to appeal, but it has played no part in the hearing of the application.

STATEMENT OF PRELIMINARY ISSUES, FACTS AND PREMISES 9 The agreed statement of preliminary issues (described as "Part A"), omitting the questions relating to insurance, was as follows: "In the premises stated in Part B below and upon the true construction of the Joint Venture Agreement (as amended by the 31 October 1997 Agreement), Early Works Deed, Building Contract (as amended by February 1998 Deed), Construction Guarantee, Construction Management Deed, Building Contract Tie in Deed, HIH Policy and the Settlement Deed (as described in Part B), or such of them as may be material in light of the allegations in the List Statement and allegations and admissions in the List Response: 1. Is the [Proprietor] a person entitled to the benefit of a statutory warranty enforceable against the [Builder] by operation of s 18D of the Home Building Act 1989 ?" 10 The statement of facts and premises agreed between the parties (described as "Part B") was as follows: "1. On 21 March 1997 PRC … and Wallis … entered into a Joint Venture Agreement in writing for the purpose of jointly developing for sale and profit 38 strata title aged person units with basement carparking on land owned by PRC … (the Land) at the corner of Wallis and Nelson Streets, Woollahra in Sydney (the Project). 2. The construction of the Project was residential building work within the meaning of the Home Building Act 1989 . 3. The Building Services Corporation Amendment Act 1996 commenced on 1 May 1997 at which time s 3A and Part 2C - Statutory Warranties of the Home Building Act 1989 came into force. 4. PRC … and Wallis … amended the Joint Venture Agreement by an agreement in writing dated 31 October 1997 (31 October 1997 Agreement) to provide, inter alia, for PRC … and Wallis … to enter into a tripartite deed with the [Builder] to undertake certain Early Works (particularised in a letter from the [Builder] to Wallis … dated 28 October 1997). 5. On 10 November 1997 PRC …, Wallis … and the [Builder] entered into a deed (Early Works Deed). 6. The work to be done under the Early Works Deed was residential building work within the meaning of the Home Building Act 1989 . 7. On 11 December 1997, Wallis … entered into a design and construction contract (Building Contract) for the Project with Australian Construction Enterprises P/L ([" ACE "]). 8. The work to be done under the Building Contract was residential building work within the meaning of the Home Building Act 1989 . 9. On 23 December 1997, Adelaide Bank Ltd (the Bank), Wallis … and the [Builder] entered into a deed of guarantee (Construction Guarantee). 10. On 23 December 1997. Wallis … and the [Builder] entered into a deed (Construction Management Deed). 11. On 24 December 1997, the Bank, Wallis …, [ACE], PRC …, and the [Builder], entered into a deed (Building Contract Tie In Deed). 12. In February 1998, Wallis … and [ACE] entered into a deed (February 1998 Deed) under which the parties agreed to amend the Building Contract in various ways, with effect from 11 December 1997 [ clause 1 ] including to confirm that the warranties provided for in the Home Building Act 1989 were incorporated into the Building Contract [ clause 24 ]. 13. On 28 June 1999 [ACE] purported to terminate the Building Contract having partly completed the Project by that time. 14. The work which had been completed at that time and the work which remained to complete the Project is presumed (without admission by [the Proprietor]) to be as documented in a 4 volume report prepared by Rider Hunt Sydney P/L in August 1999 titled: 'Volume 1 - Summary of Costs'; 'Volume 2 - Architectural Works'; 'Volume 3 - Services Works'; Volume 4 - Photographs'. 15. By an undated letter served on [ACE] on or about 8 July 1999, Wallis … accepted [ACE's] repudiation of the Building Contract. 16. Thereafter the [Builder] assumed the responsibility to complete the construction of the Project in accordance with the terms and conditions of the Building Contract under the provisions of the Construction Guarantee, Construction Management Deed and the Building Contract Tie in Deed. 17. A contract of insurance was in force in respect of the [Builder's] work referred to in paragraph 15, in compliance with ss 92 and 99 of the Act and Clause 42 of the Home Building Regulation 1997 - namely, Certificate of Insurance dated 1 September 1999 in respect of HIH Casualty & General Insurance Limited (HIH) Policy No 1804587840 including Endorsement dated 1 September 1999 covering work performed by the [Builder] to complete the Project and 'Master Home Warranty Annual Blanket "Extra" Cover (Full 7 Year Warranty) NSW' Policy document and Policy Schedule (the HIH Policy). 18. The construction of the Project was completed shortly before 15 December 1999. 19. Upon completion all of the apartment dwellings were owned by PRC …. 20. On 15 December 1999 the Land was subdivided by registration of Strata Plan No 61424 and became the land comprised in the Common Property and Lots 1 to 39. 21. It is presumed (without admission by the [Builder]) that, upon completion, there were defects in the Common Property (the Defects) resulting from breaches by the [Builder] of one or more of the warranties provided by the Home Building Act 1989 as alleged in paragraphs 19 and 20 of the List Statement. 22. On 18 October 2000, PRC …, Wallis …, and the [Builder] entered into a deed (Settlement Deed) under which the parties agreed to settle certain disputes that had arisen between the parties in connection with the Project. 23. It is presumed (without admission by the [Builder]) that on or about 10 October 2007, pursuant to s 103M of the Home Building Act 1989 , [BIGC] indemnified the [Proprietor] in respect of the cost of rectifying the Defects and to date has paid the sum of $520,241.55 on account of the Defects. 24. It is admitted by the [Builder] that if PRC … is a person entitled to the benefit of a statutory warranty enforceable against the [Builder] within the meaning of s 18D of the Home Building Act 1989 , then the [Proprietor] also is a person entitled to the benefit of such statutory warranty enforceable against the [Builder] by operation of s 18D of the Act. 25. …"

LEGISLATION 11 The parties were agreed that the relevant provisions of the HB Act were those in force after Parts 2C and 6 were enacted by the Building Services Corporation Legislation Amendment Act 1996 and which remained unaltered until certain provisions were amended by the Home Building Amendment Act 1998. The relevant provisions are contained in Reprint No 4 of the HB Act. 12 The previous statutory regime was different. The changes brought about by the new regime are briefly described by Mason P in Festa Holdings Pty Ltd v Adderton [2004] NSWCA 228, at [22]-[25]; see also Australasian Concrete Services Pty Ltd v Multiplex Constructions Pty Ltd [1999] NSWSC 1140, at [12]-[18], per Hunter J. It should be noted that significant changes have been made to Parts 2C and 6 of the HB Act since the legislation was in the form applicable in the present case. 13 Section 18A of the HB Act relevantly provides that Part 2C (ss 18A-18G): "applies to residential building work only to the extent that it is done or to be done under a contract made on or after [1 May 1997]." 14 Sections 18B to 18D of the HB Act relevantly provide as follows: "18B The following warranties by the holder of a licence, or a person required to hold a licence before entering into a contract, are implied in every contract to do residential building work: (a) a warranty that the work will be performed in a proper and workmanlike manner and in accordance with the plans and specifications set out in the contract, (b) a warranty that all materials supplied by the holder or person will be good and suitable for the purpose for which they are used and that, unless otherwise stated in the contract, those materials will be new, … (f) a warranty that the work and any materials used in doing the work will be reasonably fit for the specified purpose or result…. 18C A person who is the immediate successor in title to an owner-builder, a holder of a licence, a former holder or a developer who has done residential building work on land is entitled to the benefit of the statutory warranties as if the owner-builder, holder, former holder or developer were required to hold a licence and had done the work under a contract with that successor in title to do the work. 18D A person who is a successor in title to a person entitled to the benefit of a statutory warranty under this Act is entitled to the same rights as the person's predecessor in title in respect of the statutory warranty, except for work and materials in respect of which the person's predecessor has enforced the warranty." 15 Section 18C refers to a "developer". That expression is defined in s 3A of the HB Act, which relevantly provides as follows: "(1) For the purposes of this Act, an individual, a partnership or a corporation on whose behalf residential building work is done in the circumstances set out in subsection (2) is a developer who does the work. (2) The circumstances are (a) … (b) the residential building work is done in connection with an existing or proposed retirement village or accommodation specially designed for the disabled where all of the residential units are or will be owned by the individual, partnership or corporation." 16 Section 18E(a) of the HB Act requires proceedings for a breach of statutory warranty to be commenced within seven years after completion of the work to which it relates. Section 18G provides that any provision of an agreement that purports to restrict or remove the rights of a person in respect of any statutory warranty is void. 17 As I have noted, Part 6 of the HB Act deals with "Insurance". Section 91(1) of the HB Act specifies when Part 6 of the HB Act (ss 90-103E) applies: "This Part, as amended by the Building Services Corporation Legislation Amendment Act 1996, applies to residential building work or owner-builder work only to the extent that it is done or is to be done or has been done under a contract made on or after the date of commencement of this section or, if it is done otherwise than under a contract, only to the extent that it is commenced on or after that commencement." 18 Sections 92(1) and (2) provide as follows: "(1) A person must not contract to do any residential building work unless a contract of insurance that complies with this Act is in force in relation to the proposed work … (2) A person must not contract to do any residential building work unless a certificate of insurance evidencing the contract of insurance, in a form prescribed by the regulations, is attached to the contract …" 19 Section 96 is headed "Insurance by developers and other persons". Section 96(1) provides as follows: "A person who does residential building work otherwise than under a contract, or a developer who does residential building work, must not do the residential building work unless a contract of insurance that complies with this Act is in force in relation to that work ..."

The section does not apply to an " owner-builder ": s 96(3)(a). Section 95 contains the insurance requirements applicable to an owner-builder, but it is not necessary to extract s 95 as neither Wallis nor PRC was an owner-builder. 20 Section 99 of the HB Act provides that a contract of insurance in relation to residential building work required by s 92 must insure: "(a) a person on whose behalf the work is being done against the risk of loss resulting from non-completion of the work because of the insolvency or death of the contractor or because of the fact that, after due search and inquiry, the contractor cannot be found, and

(b) a person on whose behalf the work is being done and the person's successors in title against the risk of loss arising from a breach of a statutory warranty in respect of the work." 21 Section 101 contains the requirements for insurance "by owner-builders, developers and others". Section 101 states as follows: "A contract of insurance in relation to owner-builder work or residential building work required by section 95 or 96 must insure a purchaser of the land on which the work is done and the purchaser's successors in title against the risk of loss arising from a breach of a statutory warranty in respect of the work." 22 Section 90 defines "contractor" to mean a person required by s 92 to enter into a contract of insurance. 23 Section 103C(1) of the HB Act authorises the Governor to make regulations "for or with respect to requirements for insurance required to be entered into under [Part 6]". Section 103C(2) states that without limiting s 103C(1), regulations may be made for or with respect to: "(a) limitations on liability, (b) beneficiaries under the contract of insurance, …" 24 The Home Building Regulation 1997 ("HB Regulation 1997") deals with "Insurance requirements" in Part 5. Clauses 41 and 42 provide as follows: " 41. Persons who may arrange insurance contracts An insurance contract may be entered into for the purposes of Part 6 of the Act by a contractor or supplier, or by a beneficiary in respect of the work done or kit home supplied, and may be arranged by any such person. 42. Beneficiaries (1) An insurance contract must provide that the beneficiaries under the contract are: (a) a person: (i) on whose behalf residential building work covered by the contract is done or is to be done, or (ii) … (iii) who is a purchaser of land on which owner-builder work, or work required by section 95 or 96 of the Act to be insured, and covered by the contract, is done, or (b) a successor in title to any person referred to in paragraph (a)(i), (ii) or (iii). (2) The following persons are not required to be beneficiaries under an insurance contract: (a) a developer who does residential building work, (b) a person who does residential building work other than under a contract, (c) … (3) Nothing in this clause prevents a person referred to in subclause (2) from being a beneficiary under an insurance contract. (4) For the purposes of this clause, the owner or owners of common property the subject of work referred to in section 95 or 96 of the Act are taken to be purchasers of the land on which the common property is situated." 25 So far as extracted above, cll 41 and 42 remained in the same form until the HB Regulation 1997 was repealed by the Home Building Regulation 2004 ("HB Regulation 2004") as from 1 September 2004: cl 2. However, any act, matter or thing that, immediately before the repeal of the HB Regulation 1997, had effect under that Regulation continues to have effect under the HB Regulation 2004: cl 88. THE PRIMARY JUDGMENT 26 The primary Judge noted (at [16]) that the Proprietor accepted that the Builder had contracted with Wallis to do the residential building work comprising the Project and that PRC had not been party to the building contract. The respondent therefore had to "find a bridge" from Wallis to PRC in order to take advantage of the statutory warranties. For this purpose, it had relied on s 99 of the HB Act. 27 His Honour observed (at [19]) that the Proprietor contended that the expression "on whose behalf the work is being done", which appears in s 99 of the HB Act, is not intended to be a technical expression, but raises a factual inquiry. The Proprietor relied on the Builder's acknowledgement that PRC was a corporation on whose behalf the work was in fact being done. In these circumstances, so the Builder had argued, s 99(b) requires that a contract of insurance in relation to residential building work must insure both the person on whose behalf the work is being done and that person's successors in title against the risk of loss arising from a breach of a statutory warranty in respect of the work. 28 In his Honour's view (at [21]), the scheme of the HB Act favoured the Proprietor's position: that is, the circumstances which entitle a person to the benefit of a statutory warranty under s 18D are satisfied when the work is done on behalf of that person within the meaning of ss 3A and 99 of the HB Act. 29 The primary Judge rejected (at [22]) the Builder's contention that there were only three circumstances in which Party A is entitled to the benefit of a statutory warranty enforceable against Party B: "i. first, under s 18B, where Party A is entitled to sue Party B directly on the contract with Party B to do the residential building work … ii. second, under s 18C, where Party A is the immediate successor in title to Party B and Party B is an owner-builder, or holder of a contractor licence, a former holder or a developer who has done residential building work on the land and despite the absence of any contract between Party A and Party B for the latter to do the work; iii. third, under s 18D, where Party A is a successor in title to a person entitled to benefit of a statutory warranty enforceable against Party B". 30 The flaw in the Builder's submission was that proposition iii should have been extended to pick up more than "mere privity of contract" (at [23]). According to his Honour, s 18D made it clear that regardless of the identity of a person entitled to the benefit of a statutory warranty, someone who was not privy to the contract obtained the benefit of the warranty. Thus, s 18D itself avoids the privity of contract rule. 31 The primary Judge accepted (at [25]) the Proprietor's contention that the rights in ss 18C and 18D of the HB Act are cumulative and not exclusive. His Honour rejected (at [26]) the Builder's contention that the interpretation he favoured amounted to judicial legislation or a radical reworking of the statutory scheme. Such a contention was simply inconsistent with s 18D itself. 32 His Honour added (at [27]) the following observation: "Other indicia to the same effect include the fact that there may be, as a matter of definition, more than one builder who undertakes the same residential building work. As the [Proprietor has] have contended that is apparent from the very definition of residential building work which relates to work involved in construction and work involved in coordination or supervising. It is implicit in that formulation that there may be persons involved in construction and persons involved in coordinating the supervising, both of whom will be builders of that work." (Emphasis in original.) 33 For these reasons, his Honour indicated (at [28]) that he would answer the question for separate determination in the affirmative. He duly made orders answering the separate question: Yes. The Builder was ordered to pay the Proprietor's costs of determining the three separate questions. His Honour also directed that the matter be listed for further directions.

THE SEPARATE QUESTION 34 The question formulated in the present case and answered by the primary Judge was the subject of an order for the determination of a separate question pursuant to Uniform Civil Procedure Rules 2005 ("UCPR") r 28.2. In Bass v Permanent Trustee Co Ltd [1999] HCA 9; 198 CLR 334, the joint judgment of six members of the High Court warned (at 354-359 [43]-[56]) of the dangers of identifying separate questions for determination, and emphasised (at 358 [53], 359 [56]) the need for precision both in formulating the question and in specifying the facts upon which it is to be decided. 35 In the present case, unlike Bass v Permanent Trustee, the parties attempted to forestall difficulties by reaching agreement as to the facts. However, such an agreement does not necessarily overcome all the difficulties, for example if the agreement does not cover all facts relevant to the issues requiring resolution: Director of Fisheries (Northern Territory v Arnhem Land Aboriginal Land Trust [2001] FCA 98; 109 FCR 488, at 520-521 [132]-[139], per Sackville J (with whom Spender and Merkel JJ agreed). 36 The parties in the present case made concessions, not reflected in Part B of the agreed statement, which were designed to expose what was said to be the issue of law identified in the separate question. But it became apparent in the course of argument that the parties were not necessarily of one mind as to the precise import of the concessions. 37 As the primary Judge recorded (at [16]), the Proprietor accepted that the Builder had contracted with Wallis to do the residential work after 1 May 1997 (the date Parts 2C and 6 of the HB Act came into force) and that PRC was not a party to the building contract. But the parties did not identify which was the relevant building contract among the various contracts referred to in the agreed statement. At one point, Mr Orlov, who appeared for the Builder, seemed to suggest that the relevant contract was the Joint Venture Agreement between Wallis and PRC (which predated the coming into force of Parts 2C and 6). He later appeared to resile from that contention. But it remains unclear which agreement or combination of the agreements identified in [16] of the agreed statement comprises the building contract between Wallis and the Builder. Consequently, the terms of the relevant building contract have not been precisely identified. 38 Mr Orlov indicated in argument in this Court that there had been no dispute before the primary Judge that PRC, even though it was not a party to the building contract between Wallis and the Builder, was a "corporation on whose behalf residential building work is done" for the purposes of s 3A(1) of the HB Act. He accepted that, since the residential building work done in the present case satisfied s 3A(2)(b), PRC was a "developer" for the purposes of s 3A. 39 The precise basis for this concession was also not entirely clear. Mr Orlov seemed to suggest that, as long as work was done after 1 May 1997 by Wallis under a contract with the Builder and that work was for the benefit of PRC, as a matter of fact the work was done on PRC's behalf. Interpreting the concession this way assisted Mr Orlov's approach to the construction of s 99 of the HB Act because (so he argued) Parliament could not have intended to require a contract of insurance in relation to residential building work to insure anyone at all for whose benefit the work was being done. 40 Mr Lynch, who appeared for the Proprietor, was content to accept Mr Orlov's concession, but appeared to interpret the concession somewhat differently. According to Mr Lynch, s 3A(1) was satisfied because PRC was

(i) the registered proprietor of the whole of the Woollahra site until registration of the strata plan;

(ii) the work undertaken by Wallis on behalf of PRC was the construction of the 38 aged care units on the Woollahra site: that is, the entirety of the " Project " as contemplated in the joint venture agreement between Wallis and PRC; and

(iii) the Project involved the whole of the Woollahra site. 41 As it happens, in my view the difficulties I have identified do not prevent an answer being given to the separate question. But they are a reminder of the care that must be taken to ensure that the attempt to shorten proceedings by identifying a separate question for determination does not miscarry. SUBMISSIONS

Builder's Submissions 42 Mr Orlov's argument on behalf of the Builder proceeded as follows:

1. The effect of s 18B of the HB Act is that a person who is a party to a contract to do residential building work (where the other party holds or is required to hold a contractor licence) has the benefit of the statutory warranties specified in that section. Thus s 18B operates where there is privity of contract.

2. Section 18C deals with the situation where one of the persons specified (an owner-builder, a holder of a licence, a former holder or a developer) has done residential building work on land otherwise than under a contract to do work . In that situation the immediate successor in title to the specified person (for example a purchaser from a developer) is entitled to the benefit of the statutory warranties as if they were included in a contract between the specified person and his or her immediate successor in title. Section 18C deems privity of contract to exist between the specified person and his or her immediate successor in title, even though there was in fact no contract between them. The deemed contract is taken to include the statutory warranties specified in s 18B. Accordingly, the immediate successor in title to the specified person, such as a purchaser from a developer, is entitled to sue that person for breach of the statutory warranties.

3. Section 18D confers on a person who is a successor in title to: (a) the contracting party entitled to the benefit of the statutory warranties under s 18B; and (b) the immediate successor in title entitled to the benefit of the statutory warranties under s 18C,

the same rights as that person's predecessor in title in respect of the statutory warranties. Section 18D merely extends the benefit of the statutory warranties beyond the contracting party (s 18B), or the immediate successor in title to the specified party (s 18C), to their successors in title.

4. It is wrong to use the insurance provisions of Part 6 to extend the language of s 18D. Nothing in ss 99 or 101 of the HB Act confers rights in respect of the statutory warranties. Nor are those provisions capable of enlarging the meaning of s 18D so that it applies to " a person on whose behalf work is being done ", where that person is not a successor in title to a person who is entitled to the benefit of statutory warranties by virtue of s 18B or s 18C. 43 According to Mr Orlov, the Proprietor may well have a cause of action against PRC, but not against the Builder. His reasoning was as follows:

1. By virtue of the Builder's concession that residential building work of the kind identified in s 3A(2)(b) had been done on PRC's behalf, PRC was a " developer " within the meaning of s 3A of the HB Act . PRC was therefore a developer who had done residential building work on land, for the purposes of s 18C.

2. Section 18C entitled the Proprietor, or PRC's immediate successor in title, to sue PRC on the statutory warranties.

3. Section 18D could not assist the Proprietor to sue the Builder, because the section merely had the effect of allowing a successor in title to the Proprietor to sue PRC.

4. Whether or not PRC was required to take out insurance could not alter the operation of ss 18B, 18C and 18D.

Proprietor's Submissions 44 The Proprietor's submissions commenced with the concession by the Builder that PRC was a person on whose behalf the relevant building work had been done on the Woollahra site. Since the building work satisfied the requirements of s 3A, PRC was a "developer" within the definition in s 3A of the HB Act. 45 The next step in Mr Lynch's argument was that it is necessary to read Parts 2C and 6 of the HB Act together. Part 6, so he argued, assumes that a person on whose behalf residential building work is done is a person who, for the purposes of the insurance required of a builder under s 92, is entitled to the benefit of the statutory warranties as against the builder. This is because s 99 requires the builder's contract of insurance to insure the person on whose behalf the work is being done against the risks specified in s 99. Mr Lynch submitted that there would be no point in requiring the contract of insurance so to provide unless the person on whose behalf the work was done was entitled to the benefit of the statutory warranties. 46 The expression "a person entitled to the benefit of a statutory warranty" in s 18D therefore included a person on whose behalf the building work was done. Since the Proprietor was the successor in title to such a person (PRC), the Proprietor was entitled to the benefit of the statutory warranties and could enforce them against the Builder. 47 Mr Lynch supported these submissions by considerations of policy. Unless PRC is to be regarded as a person entitled to the benefit of a warranty within the meaning of s 18D, its successors in title would be deprived of the benefit of the insurance required by ss 92 and 99. A successor in title such as the Proprietor might have an action against PRC, but would have no recourse against the Builder pursuant to a policy taken out in conformity with the Part 6 of the HB Act. 48 Accordingly, so Mr Lynch argued, s 18D of the HB Act should be read as encompassing a person on whose behalf residential building work was done even though that person was not party to the relevant building contract. PRC was a person entitled to the benefit of a statutory warranty even notwithstanding the absence of a contractual relationship with the Builder.

A Dubious Assumption 49 As I have noted, the appeal was conducted on the basis that the expression "a corporation on whose behalf residential building work is done" in s 3A and the equivalent expression in s 99 of the HB Act embrace not only a party to a building contract, but a corporation for whose benefit the work is being done under a building contract to which it is not a party. The correctness of the assumption on which the parties proceeded was not debated. Moreover, as I have explained, there was no finding that PRC was a corporation on whose behalf work was done on the Woollahra site. There was merely a concession to that effect (made in the absence of PRC), the foundation for which was not clearly articulated. 50 I doubt whether the common assumption of the parties is correct. The expression "on whose behalf" is capable of many different meanings. As was said in R v Toohey; Ex parte Attorney-General (NT) [1980] HCA 2; 145 CLR 374, at 386, per Stephen, Mason, Murphy and Aickin JJ: "The phrase 'on behalf of' … bears no single and constant significance. Instead it may be used in conjunction with a wide range of relationships, all however in some way concerned with the standing of one person as auxiliary to or representative of another person or thing.

In what is perhaps its least specific use, 'on behalf of' may be applied to someone who does no more than express support for persons or for a cause, as with one who speaks on behalf of the poor or on behalf of tolerance. It may be used when speaking of an agency relationship, but also of some quite ephemeral relationships, such as that which exists between a party to litigation and the witness he calls, a witness 'on behalf of' the defence. Again, it may … be used where the relationship is that of trustee and cestui que trust. … Context will always determine to which of the many possible relationships the phrase 'on behalf of' is in a particular case being applied; 'the context and subject matter' …will be determinative. (Citations omitted.)

See also Citizens Airport Environment Association Inc v Maritime Services Board (1993) 30 NSWLR 207, at 221-223, per Kirby P. 51 Taken in isolation the words "on whose behalf" can describe non-contractual relationships. However, while the HB Act is not necessarily notable for consistency of drafting, it is significant that s 4 of the HB Act, which immediately follows s 3A, appears to use the expression "on behalf of" to mean pursuant to a contractual relationship. (Section 4 provides that a person must not contract to do any residential building work except as or on behalf of an individual, partnership or corporation that holds a licence.) It is true that the HB Act uses the expression "party to the contract" or equivalent expressions from time to time: see, for example, ss 10(1), 16G (dealing with the enforceability of contracts). But, as a matter of language ss 3A and 99 are capable of being read more restrictively than the parties, no doubt for different reasons, were prepared to accept. 52 It seems to me that there are good reasons for confining the expression "on whose behalf" to the case where residential building work is undertaken by one party on a contractual basis for another party (as occurred in HIH Casualty and General Insurance Ltd v Jones [2000] NSWSC 359). In my opinion, it is difficult to impute to Parliament an intention that a contractor contravenes the HB Act and is liable for criminal penalties (s 92) if the contractor takes out a contract of insurance but the policy does not insure every person on whose behalf, as a matter of fact, the work is being undertaken (s 99). 53 By virtue of the parties' consensus on the meaning of "on whose behalf", they avoided analysing precisely the limits of the factual inquiry that the legislation is said to mandate. Yet the need for a factual inquiry would create significant practical difficulties. How would a contractor, or his or her insurer, ascertain the identity of all persons on whose behalf, as a matter of fact and not merely contract, the residential building work was to be undertaken? How would the policy be framed? If the policy followed the wording of cl 42(1)(a)(i) of the HB Regulation 1997 ("a person … on whose behalf residential building work covered by the contract is done or is to be done"), how far would it reach? Mr Lynch suggested that the key points in the present case were that PRC was the registered proprietor of the Woollahra site, was intended to register the strata plan and was to share in the profits of the development. No doubt it would be feasible for a contractor to ascertain the registered proprietor of the land, but what of the other matters identified by Mr Lynch? And what if the work was not being carried out for the benefit of the registered proprietor but for a third party, such as a purchaser from a registered proprietor under a contract for sale not yet completed? 54 If my doubts are well-founded, the basis for the Proprietor's argument on the appeal is removed: that is, it cannot be said that the residential building work carried out by the Builder pursuant to the contract with Wallis (whichever was the relevant contract) was work carried out on behalf of PRC. Since the Builder had no contractual relationship with PRC it would follow that the contract of insurance the builder was required to take out under s 92 did not have to insure PRC against the risks identified in s 99. Accordingly, there would be no basis for concluding that the Proprietor was a successor in title to a person entitled to the benefit of a statutory warranty for the purposes of s 18D of the HB Act.

The Position is the Same if the Common Assumption is Correct 55 If the common assumption of the parties is correct, I do not think the position is any different. In my view, the Proprietor is still unable to rely on s 18D of the HB Act to enforce the statutory warranties against the Builder. 56 The Proprietor can rely on s 18D only if PRC is a person entitled to the benefit of the statutory warranties. Only then can the Proprietor satisfy the statutory requirement that it must be a successor in title to a person entitled to the benefit of the statutory warranties. Mr Lynch did not rely, at least initially, on s 18C of the HB Act for his contention that PRC was such a person. His submission was put on the basis that an implication must be made into s 18D in order to accommodate the requirement in s 99 that the contract of insurance must insure the person on whose behalf the work was being done against the risks there identified. 57 It is, however, a large step to move from the proposition that a contractor's insurance policy must insure a person on whose behalf the residential building work is being done (even if not a party to the building contract), to the proposition that the HB Act must be read as including within the expression "person entitled to the benefit of a statutory warranty" in s 18D any person on whose behalf the work is in fact being done. 58 The structure of Part 2C is relevantly as follows: Section 18B provides that certain warranties are to be implied in every contract to do residential building work.

Section 18C creates what might be described as a deemed contract, where residential building work is done without a building contract in place or, if there is a building contract, the developer is not a party to it. (Section 3A(1) deems a corporation on whose behalf residential building work is done, in the circumstances specified in s 3A(2), to be " a developer who does the work ". Section 18C, in substance, uses that expression.) A contract is deemed to exist between the person who has done the work or the developer (as the case may be) and the immediate successor in title to that person or the developer. Section 18C gives only that successor in title the benefit of the statutory warranties as if the person or the developer had done the work under the deemed contract.

Section 18D then extends the benefit of the statutory warranties implied in the building contract (s 18B) or included in the deemed contract (s 18C) to a successor in title of the person originally entitled to the benefit of those warranties.

Section 18B is closely related to s 92, which prohibits a building contractor from contracting to do residential building work unless a complying insurance policy is in force.

Section 18C is closely related to s 96, which obliges a person who does residential building work otherwise than under a contract, or a developer who does residential building work (s 3A), not to do the work unless a complying contract of insurance is in force.

Section 99 specifies the coverage that an insurance policy required by s 92 must provide.

Section 101 provides that an insurance policy required, inter alia , by s 96, must insure a purchaser of land on which the work is done and the purchaser's successors in title against the risk of loss arising from breach of statutory warranty. 59 In my opinion, the effect of this structure is that PRC can be said to be a person entitled to the benefit of the statutory warranty for the purposes of s 18D only if s 18B or s 18C so provides. No other provision in the HB Act, including the provisions in Part 6 relating to insurance, purports to create an entitlement to the benefit of the statutory warranty. As I have noted, Mr Lynch did not submit, at least initially, that s 18B or s 18C created such an entitlement in PRC. In these circumstances, construing s 18D in the manner suggested by Mr Lynch would amount to rewriting the legislation. 60 This conclusion does not mean that a party in the position of the Proprietor is without a remedy. Since PRC is not a party to these proceedings, it is inappropriate to express a definite view about its position which, in any event, may depend on circumstances not the subject of evidence in this case. Moreover, any concession by the parties to this litigation cannot bind PRC. But it would seem that an immediate purchaser from a "developer who has done residential building work" may be entitled by virtue of s 18C of the HB Act to the benefit of the statutory warranties as against the developer and that the purchaser's successors in title may be entitled to the same benefit by virtue of s 18D of the HB Act. 61 Nor does the conclusion I have reached necessarily mean that the purchaser from a developer would be denied the benefit of insurance, even though Mr Orlov, without overt dissent from Mr Lynch, submitted that this was the case. On the contrary, ss 96 and 101, when read together, appear to require a developer who does residential building work (presumably PRC in the present case) to take out a policy insuring a purchaser of the land (the Proprietor in the present case) and that person's successors in title against the risk of loss arising from breach of the statutory warranty. Even though not specified in s 101, it would seem that a complying policy would have to insure the purchaser and the successors in title against the risk that the developer would not be able to meet its obligations under the statutory warranty. 62 It might be said that this conclusion renders s 99 of the HB Act nugatory insofar as it requires insurance coverage for persons on whose behalf work is done, but who are not parties to the building contract. There are two answers to this proposition. The first is that, even if such a person is not entitled to the benefit of the statutory warranties, s 99 still operates for the benefit of a party to the building contract and thus is not entirely without effect. The second is that there may be circumstances in which s 99 operates for the benefit of a person on whose behalf work is done, but who is not a party to the building contract. If, for example, the building contract expressly provides that a non-party is entitled to the benefit of the contract, s 99 may ensure that the builder's insurance policy can be enforced by that non-party: cf Trident General Insurance Co Ltd v McNiece Bros Pty Ltd [1988] HCA 44; 165 CLR 107.

A Further Argument 63 In the course of argument, it was suggested that the Proprietor might be able to invoke s 18D on the basis that PRC, although not a party to the building contract, was entitled to the benefit of the statutory warranties under s 18B. Mr Lynch somewhat reluctantly appeared to adopt the suggestion, but did not develop it. 64 The difficulty with the submission (if indeed Mr Lynch intended to make it) is that s 18B implies the statutory warranties only in the building contract, to which PRC was not a party. While there may be circumstances in which a non-party could enforce the statutory warranties (see [62**] above), merely because the building contract would ultimately benefit PRC as a matter of fact would not of itself establish that PRC could enforce the statutory warranties against the Builder. The Proprietor did not seek or obtain the findings that would be necessary to establish PRC's entitlement as a non-party to the building contract to the benefit of the warranties implied in that contract.

An Apparent Oddity 65 I should note one apparent oddity in Part 2C of the HB Act. Section 18A (reproduced at [13**] above) states that Part 2C applies to residential building work only to the extent that it is done under a contract made on or after 1 May 1997. Section 18C contemplates that the benefit of warranties will pass even in circumstances where residential building work is undertaken without any contract being in place, for example by an owner-builder. It is not necessary to resolve the apparent oddity in the present case. However, the answer may be that s 18A addresses only the time from which Part 2C applies and therefore may be intended to apply only in those circumstances where a contract is in place.

CONCLUSION 66 In my view, the primary Judge erred in holding that s 18D of the HB Act entitled the Proprietor to take proceedings directly against the Builder for breach of the statutory warranties. The Builder should have leave to appeal and the appeal should be allowed. 67 The answer to Question 1 of the agreed Statement of Preliminary Issues Facts and Premises given by the primary Judge on 29 July 2009 should be set aside. In lieu of that answer, Question 1 should be answered as follows: "The Proprietor is not entitled under s 18D of the Home Building Act 1989 to enforce the statutory warranty against the Builder." 68 As the answer to Question 1 necessarily means that the Proprietor's claim against the Builder cannot succeed, the summons filed by the Proprietor on 2 September 2008 should be dismissed. 69 The Proprietor should pay the Builder's costs of the appeal (including the summons for leave to appeal). The order for costs made by the primary Judge on 29 July 2009 should be set aside and in lieu thereof the Proprietor should be ordered to pay the Builder's costs of the proceedings. The Proprietor, if otherwise qualified, should have a certificate under the Suitors' Fund Act 1951. **********

19/05/2010 - "Proprietor" changed to "Builder" in second sentence of paragraph 66."Applicant" changed to "Appellant" - Paragraph(s) 4, 66 and coversheet

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.