Allianz Australia Insurance Limited v Anthony Vitale and Anor

Background Facts 5Counsel for the plaintiff submitted that I should make certain findings of fact, provided in their closing submissions (dated 25 March 2014) at paragraphs 1.2 to 1.60. I invited counsel for the defendants to indicate whether any of those findings of fact would be challenged and if so to what extent. 6After I reserved judgment, I was informed by defendants' counsel that none of those findings were the subject of any challenge. 7Having considered each of the findings, I am persuaded they are open on the evidence and that I should make those findings accordingly. I propose to set them out in their entirety at [8] to [70] below. I have made a few minor additions (at paragraphs 10, 23-24 and 70) but otherwise I have adopted the form and content as they are effectively agreed by the parties. 8From 1 January 2001 and up until and including 31 December 2002, by its agent Dexta, Allianz was an insurer who was authorised to provide building warranty insurance in New South Wales. 9In the calendar year 2002, besides Allianz, Reward Insurance Limited through its agent Australian Home Warranty and Royal & Sun Alliance Limited were the only other two (2) insurers who were authorised to provide building warranty insurance in New South Wales. 10The first defendant, Anthony Vitale, was at all material times a director of Avcon Constructions Pty Ltd (Avcon). 11On 9 August 2001, Avcon, by its insurance broker, Don Hutton Brokers Pty Ltd ACN 003 084 384 (Don Hutton) submitted an application to Dexta acting as agent for Allianz seeking approval for "eligibility to purchase Job Specific policies" of building warranty insurance for residential building works in the state of New South Wales (the First Application). That application was submitted to Dexta after Avcon's application for home warranty insurance cover to HIA Insurance Services was rejected by that insurer. 12In the three (3) years preceding the First Application, Avcon had undertaken residential building work to a value of between $135,000.00 (1999) and $180,000.00 (2001). In the 12 months prior to the First Application, Avcon had carried out one "sub division unit" and one "land subdivision" to a value of $60,000 and $80,000 respectively. 13Anthony Vitale (the First Defendant) and Giuliana Vitale (the Second Defendant) executed a Deed of Indemnity in favour of Dexta on 29 September 2001 (the First Deed of Indemnity). 14Under cover of a letter issued by Dexta as agent for Allianz dated 16 October 2001, Dexta notified Avcon that it was eligible to apply for "Job Specific" Home Warranty Insurance for one (1) job with a financial limit of $130,000.00 up until 15 October 2002. 15On or about 6 August 2002, Avcon sought to increase its eligibility with Dexta for "Job Specific" building warranty insurance policies from $130,000.00 to $1,400,000.00. That requested increase was to enable Avcon to undertake the development of "7 off 3 Bedroom Townhouses at 13 & 21A Murralin Lane, Sylvania" (the Property). 16On 8 August 2002 Dexta wrote to Avcon requesting additional information regarding the "increased insurance cover" and requesting recent financial statements for Avcon. 17On 21 August 2002 the accountants for Avcon (Business & Corporate Solutions) (BCS) provided to Dexta the financial statements requested in its letter of 8 August 2002. 18On 22 August 2002 Dexta again wrote to Avcon asking for additional information (not including financial information), a completed application form and a deed of indemnity from the Defendants. 19On 28 August 2002 Avcon provided the information sought by Dexta in its letter of 22 August 2002 and also provided a completed application form and a copy of a deed of indemnity from the Defendants. The terms of that deed of indemnity were the same as those of the First Deed of Indemnity. 20On 30 August 2002 the application by Avcon was assessed by staff of Dexta for eligibility for the issue of building warranty insurance. On 30 August 2002, Dexta notified Avcon of its provisional acceptance of the application by Avcon to increase its eligibility to apply for 'Job Specific' building warranty insurance to a total value of $1,400,000.00 for maximum of seven (7) jobs. The application was contingent upon Avcon providing Dexta with evidence of ownership of the Property and external funding approval for the development of the Property in the amount of $1,400,000.00. 21On 15 November 2002, the purchase of the Property by Avcon was settled. Dexta were first notified of the settlement of the Property under cover of a facsimile dated 22 November 2002 and sent on 25 November 2002. 22On 3 December 2002, Dexta assessed Avcon's application for eligibility of the increased cover at a score of "59" on the "key performance indicators score sheet". Dexta however considered that the data that this score had been determined from was "not a good indication" as the income derived by Avcon during this period came from project management fees rather than as a builder. In any event on 4 December 2002 (after a correctly executed Deed of Indemnity was provided, referred to as the Second Deed of Indemnity) eligibility to apply for insurance cover up to an amount of $2.42M was recommended by the Dexta operative responsible for assessing the Avcon application. 23The First and Second Deed provide, inter alia, in clause 2 that the defendants unconditionally and absolutely agreed to indemnify and keep indemnified Allianz: ...for all loss, damage, costs, charges or other liabilities incurred or paid as a result of any claim arising under the policy and all amounts which the insurer must pay and is liable or may become liable to pay under the said policy (whether or not the insurer has paid any amount) in all cases, whether or not the claim arises or is made before or after the date of this deed PROVIDED ALWAYS that the amounts of such indemnity shall not be greater than $200,000 per claim. 24The First and Second Deed also provided in clause 3(c) that: On receiving a demand from Dexta or the Insurer, the indemnifier will pay to Dexta all of the monies so demanded forthwith, together with interest at the rate of ten per cent (10%) per annum from the date of such demand, all losses, damages, costs, charges, fees, expenses or other liabilities borne by the insurer, whatsoever incurred by the insurer, which shall become due and payable on receipt of such demand. 25On or about 11 December 2002, Dexta issued insurance premium quotations to Avcon for insurance policies for work to a total value of $2.4M totalling $20,839.00. On 12 December 2002, Avcon notified Dexta that the total cost of the project had been revised down from $2,420,000.00 to $2,310,000.00 and requested a revised quotation for the issue of home builders warranty insurance in light of the reduced building costs. 26The insurance premiums were paid by Avcon and on 12 December 2002, Dexta acting as agent for Allianz issued seven (7) building warranty insurance policies for the development at the Property ("the Policies"). 27Each of the Policies was subject to the 'Job Specific' Home Warranty Insurance Policy (New South Wales) (the Policy Terms). Claim(s) is defined in the Policy Terms as "where the context permits, a claim by a Building Owner under this policy." 28The extent of the insurance available to a Building Owner (as defined by the Policy Terms) under the Policies for which they could make a claim for loss or damage in respect of residential building works includes breach of statutory warranties or inability on the part of the building owner to recover compensation from the Contractor (as defined by the Policy Terms), because of insolvency. 29The Policies were 'last resort' insurance policies. 30There is no evidence that any other insurer would have provided home warranty insurance policies to Avcon without insisting on personal indemnities from the Defendants and the evidence from Mr Brown suggests that no other insurer would have provided that cover without a personal indemnity. 31Avcon undertook the building of the seven (7) residential dwellings on the Property (the Development). On 25 February 2004, strata plan 72145 was registered with the Land and Property Information Office. Bernie Cohen & Associates Pty Ltd trading as Essential Certifiers Liverpool (Essential Certifiers) issued a final occupation certificate for the Development on 10 March 2004. 32Save for the owner of Lot 7 of SP72145, the owners of Lots 1 - 6 of SP72145 purchased their properties from Avcon. 33On or about 15 August 2007, Avcon was placed into voluntary administration and Paul Krejci was appointed voluntary administrator. On 25 September 2007, Avcon executed a deed of company arrangement along with Paul Krejci who was appointed as deed administrator of the deed of company arrangement for Avcon. 34On or about 10 September 2008, Paul Krejci in his capacity as deed administrator of Avcon notified ASIC that the deed of company arrangement executed by Avcon had been effectuated and the external administration of Avcon had come to an end.

The Owners' Claims 35On or about 19 November 2007, Allianz received a Builders Warranty Claim Form from the Owners Corporation SP 72145 (the Owners Corp) notifying Allianz of claims made under the Policies. Attached to the Owners Corp Claim Form was a report of Gleeson Consulting Pty Ltd. 36On 15 January 2008, Allianz received Builders Warranty Claim Forms from each of the owners of lots part of SP72145 notifying Allianz of claims made under the relevant Policies issued by Dexta as agent for Allianz to Avcon. 37On or about 7 March 2008, Allianz was provided by the Owners Corp with a copy of a report on building defects of the lots of SP 72145 prepared by George L Zakos (the Zakos Report). 38Under cover of a letter from Allianz addressed to the Owners Corp dated 11 March 2008, Allianz notified the Owners Corp that Allianz accepted liability for some of the claims made on the Policies and denied liability for others. 39In response to the notice from Allianz that it accepted liability for some but not all claims made on the Policies by the Owners Corp, the Owners Corp commenced proceedings in the Home Building Division of the Consumer, Trader & Tenancy Tribunal (the CTTT) by way of application filed 24 April 2008 (the Owners Corp CTTT Proceedings). 40Under cover of a letter from Allianz addressed to Anthony Cramb, the owner of Lot 1 of SP72145, dated 19 August 2008, Allianz notified Mr Cramb that Allianz accepted liability for some of the claims made on building warranty insurance policy number PN95100824 and denied liability for others. 41The remaining owners of lots part of SP72145 were notified under cover of letters from Allianz dated 20 August 2008 that Allianz had accepted liability for some of the claims made by each of the Owners on the Policies and denied liability for other claims. 42Each of the owners of lots part of SP72145 commenced proceedings in the Home Building Division of the CTTT by way of applications dated 3 October 2008 (the Owners CTTT Proceedings). 43By consent, pursuant to s 23 Consumer, Trader and Tenancy Tribunal Act 2001 (NSW) the CTTT ordered that the Owners CTTT Proceedings be transferred to the Supreme Court of New South Wales Technology and Construction List (the CTTT Orders). 44In accordance with the CTTT Orders, following transfer of the Owners CTTT Proceedings to the Supreme Court of New South Wales, the Owners Corp and the owners of the Lots of SP72145 filed a Summons and Technology and Construction List Statement with the Supreme Court of New South Wales (the First Supreme Court Proceedings). An Amended Technology and Construction List Statement was filed by the Owners Corp and the owners of the lots of SP72145 on 22 April 2009 (the Amended List Statement). 45On 28 May 2009, Allianz filed a List Response styled "Defence". 46Allianz, by its solicitors, Moray and Agnew commissioned an expert report which was prepared by Trevor R Howse & Associates Pty Ltd regarding some of the alleged defects at the Property which was provided to Allianz on or about 2 August 2009. 47Further, on or about 2 June 2009, Allianz commissioned an expert report to be prepared by Steven Parks, director of Navigo Consulting Pty Ltd to address urgent mitigation works to Unit 1 of SP72145, which report was provided on 11 August 2009 (the Navigo Report). 48During the course of the First Supreme Court Proceedings, Messrs Rob Bourne and George Zakos who were retained as experts on behalf of the Owners Corp and Mr Steven Parks of Navigo Consulting Pty Ltd who was retained on behalf of Allianz prepared an expert report on defective work in respect of the Development (the Joint Experts Report). 49The Joint Experts Report catalogued all of the alleged defects identified and the opinions of the experts retained for the parties about each of the alleged defects. In short, the experts representing both parties to the First Supreme Court Proceedings reached a consensus on all defects reported in the Amended List Statement. 50Using the Joint Experts Report as a platform, Mr Parks, on instructions from and on behalf of Allianz, prepared a schedule which identified the costs of rectifying those claimed items which both he and the experts engaged by the Owners Corp considered were building defects which included the costs of works to rectify those defects. The total value of the building works to rectify the defects was calculated to be $1,133,392.70 (inclusive of GST and builders margin). That calculation did not include an amount for the urgent mitigation works to be undertaken at lot 1 of SP72145 dealt with separately in the Navigo Report. 51On 23 December 2009, Allianz entered into terms of settlement with the Owners Corp in respect of urgent works to be undertaken to Lot 1 of SP72145, which were the subject of the Navigo Report (the First Terms of Settlement). 52The salient terms of the First Terms of Settlement were as follows: (a)G L Zakos and Associates had prepared a tender for the rectification of building defects at Lot 1 of SP72145 (Recital F); (b)In consideration for the Owners Corp entering into a contract with CJ Duncan Builders Pty Ltd (CJ Duncan) which was in accordance with a quotation previously provided by CJ Duncan Builders to George Zakos of GL Zakos and Associates dated 28 September 2009 (the CJ Duncan Quotation), Allianz would indemnify the Owners Corp and subject to certain conditions, Allianz would pay the progress claims of CJ Duncan (Clauses 1 and 2); and (c)In consideration for the indemnity provided by Allianz, the Owners Corp released and discharged Allianz and Dexta for any claims or loss arising from the Lot 1 Defects (as defined in the First Terms of Settlement) (clause 5). 53The CJ Duncan Quotation was for the sum of $102,692.70 inclusive of GST. 54Allianz retained the services of Steven Parks to inspect and report on the works undertaken by CJ Duncan in accordance with the First Terms of Settlement. 55In a report provided to Allianz by Mr Parks, he provided two progress claims from CJ Duncan for the amounts of $39,535.10 inclusive of GST and $26,621.00 inclusive of GST (the First CJ Duncan Invoices). Mr Parks advised that he had inspected the works in progress on 21 April 2010 and that he was of the opinion that the remediation works had been completed satisfactorily by CJ Duncan. 56The First CJ Duncan Invoices for a total sum of $66,156.10 were paid by Allianz by way of a cheque number 655764 on or about 29 June 2010 and presented on or about 5 August 2010. 57A third and final invoice was presented by CJ Duncan in the amount of $36,000.60 inclusive of GST (the Final CJ Duncan Invoice) to Allianz on or about 26 October 2010 under cover of an email from Steven Parks recommending payment of the Final CJ Duncan Invoice. 58The Final CJ Duncan Invoice was paid by Allianz by way of cheque number 761756 on or about 28 October 2010 and presented on or about 4 November 2010. 59Allianz overpaid CJ Duncan in the amount of $600.00 for the Final CJ Duncan Invoice, which amount was refunded by CJ Duncan to Allianz on or about 22 February 2011. 60On or about 14 January 2010 the parties to the First Supreme Court Proceedings attended mediation. 61The mediation resulted in the parties coming to an agreement to resolve the First Supreme Court Proceedings by the payment of the Plaintiff of $1.1 Million (the Second Terms of Settlement). 62The Settlement Sum in the amount of $1,100,000.00 was paid by Allianz by way of a cheque number 458762 on or about 2 February 2010 and was presented on or about 8 February 2010. 63Allianz retained the services of Moray and Agnew to act as their legal representatives in the Owners Corp CTTT Proceedings, the Owners CTTT Proceedings and the First Supreme Court Proceedings on and from about 19 May 2008 until on or about 4 February 2010 (the Retainer). 64During the period of the Retainer, Moray and Agnew regularly issued tax invoices to Allianz for legal costs and disbursements. 65The total legal costs and disbursements incurred by Allianz in defending and resolving the Owners Corp CTTT Proceedings, the Owners CTTT Proceedings and the First Supreme Court Proceedings was $149,559.12 (the Legal Fees). Allianz has paid the Legal Fees.

The Letters of Demand 66On 4 February 2010, Allianz, by its solicitors, Moray and Agnew issued letters of demand to the Defendants seeking to recover $1,352,251.82 in accordance with the Second Deed of Indemnity (the Letters of Demand). Included with the Letters of Demand were copies of the Second Deed of Indemnity and the First and Second Terms of Settlement. 67Under cover of a letter dated 12 February 2010, the solicitors for the Defendants acknowledged receipt of the Letters of Demand and otherwise advised that "our clients deny any liability to your client in respect of the alleged claim set out in your letters." 68To date, the Defendants have not paid any of the amounts claimed in the Letters of Demand. 69However, by reason of separate proceedings instituted by Allianz against third parties in respect of the Development a net amount of $35,141.20 was recovered by Allianz on or about 10 October 2012, which amount is deductible from the amount of $1,352,251.82 contained in the Letters of Demand. 70The defendants deny liability to Allianz for the amounts under the First and Second Terms of Settlement, the legal costs associated with the appeal proceedings, and any costs and expenses from the date of receipt of the Letters of Demand. They also deny liability for interest on the amount demanded at the rate of ten per cent per annum from the date of receipt of the Letters of Demand.

Legal Principles 71It is necessary to set out certain statutory provisions and legal principles that bear on the resolution of the dispute between the parties. All legislation is set out as being in force as at 3 December 2002 (the date on which the Second Deed was executed).

Home Building Act 1989 72The Home Building Act 1989 provides that a person must not do residential building work unless certain insurance is obtained to protect the owner (not the builder) against the risk of loss resulting from non-completion or the risk of being unable to recover compensation for a breach of a statutory warranty or have the contractor rectify such a breach. The statutory warranties are set out in Part 2C of the Home Building Act, which provides: 18B Warranties as to residential building work 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, (c) a warranty that the work will be done in accordance with, and will comply with, this or any other law, (d) a warranty that the work will be done with due diligence and within the time stipulated in the contract, or if no time is stipulated, within a reasonable time, (e) a warranty that, if the work consists of the construction of a dwelling, the making of alterations or additions to a dwelling or the repairing, renovation, decoration or protective treatment of a dwelling, the work will result, to the extent of the work conducted, in a dwelling that is reasonably fit for occupation as a dwelling, (f) a warranty that the work and any materials used in doing the work will be reasonably fit for the specified purpose or result, if the person for whom the work is done expressly makes known to the holder of the licence or person required to hold a licence, or another person with express or apparent authority to enter into or vary contractual arrangements on behalf of the holder or person, the particular purpose for which the work is required or the result that the owner desires the work to achieve, so as to show that the owner relies on the holder's or person's skill and judgment. 18C Warranties as to work by others 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 Extension of statutory warranties 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. 18E Duration of warranties Proceedings for a breach of a statutory warranty must be commenced within 7 years after: (a) the completion of the work to which it relates, or (b) if the work is not completed: (i) the date for completion of the work specified or determined in accordance with the contract, or (ii) if there is no such date, the date of the contract. 18F Defence In proceedings for a breach of a statutory warranty, it is a defence for the defendant to prove that the deficiencies of which the plaintiff complains arise from instructions given by the person for whom the work was done contrary to the advice in writing of the defendant or person who did the work. 18G Warranties may not be excluded A provision of an agreement or other instrument that purports to restrict or remove the rights of a person in respect of any statutory warranty is void. 73The scheme of insurance is contained in Part 6 of the Home Building Act 1989. In the Second Reading Speech given in relation to Part 6, the Minister for Fair Trading referred to the introduction of private home building insurance, in contrast to the government-operated system that was previously in place, as a fundamental reform that would benefit consumers. The Minister said (Hansard, Legislative Assembly, 30 October 1996, 5540 at 5541): The system we have had in New South Wales has lacked the incentives to encourage competent and efficient contractors and has treated all licence holders in the same way. There have been no rewards for the good builder, nor any incentives for others to lift their game. The same insurance premium is charged, irrespective of the risks which different builders pose or the quality of work they provide. Good builders have not been rewarded by lower premiums. Until recently all builders and contractors had gold licences. That raised the expectations of consumers and created a false sense of security. It was only after a problem arose that many consumers learnt, to their surprise, that there were no silver or bronze licences. As one consumer remarked to me, "If this is the work of a gold licence holder, God help the others." Privately run insurance has the potential and the means to change all of this. Bad builders will be able to be excluded. They will not get insurance and therefore will not work in the residential building industry. Good builders will be rewarded with lower premiums. Private sector insurers will be able to manage the risks far better than a government scheme. The Government will, however, continue to play a key role by setting the minimum conditions of the insurance scheme and by closely monitoring its operation. The conditions set by the Government for the private scheme will also give New South Wales home owners significantly improved cover compared to those which operated in the past... [added emphasis] 74The following provisions of the Home Building Act 1989 (NSW) in Part 6 are relevant to these proceedings. 92 Contract work must be insured (1) A person must not do residential building work under a contract unless: (a) a contract of insurance that complies with this Act is in force in relation to that work in the name of the person who contracted to do the work, and (b) a certificate of insurance evidencing the contract of insurance, in a form prescribed by the regulations, has been provided to the other party (or one of the other parties) to the contract. Maximum penalty: 200 penalty units. (2) Except as provided by section 94 (1A), a person must not demand or receive a payment under a contract for residential building work (whether as a deposit or other payment and whether or not work under the contract has commenced) from any other party to the contract unless: (a) a contract of insurance that complies with this Act is in force in relation to that work in the name of the person who contracted to do the work, and (b) a certificate of insurance evidencing the contract of insurance, in a form prescribed by the regulations, has been provided to the other party (or one of the other parties) to the contract. Maximum penalty: 200 penalty units. (3) This section does not apply if the contract price does not exceed $5,000 or (if the contract price is not known) the reasonable market cost of the labour and materials involved does not exceed $5,000. (4) If the same parties enter into two or more contracts to carry out work in stages, the contract price for the purposes of subsection (3) is taken to be the sum of the contract prices under each of the contracts. (5) The regulations may prescribe another amount for the purposes of subsection (3) and an amount so prescribed is to apply in the place of the amount referred to in that subsection. (6) To avoid doubt, this section extends to residential building work that is also owner-builder work. 99 Requirements for insurance for residential building work (1) A contract of insurance in relation to residential building work required by section 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, death or disappearance of the contractor, and (b) a person on whose behalf the work is being done and the person's successors in title against the risk of being unable, because of the insolvency, death or disappearance of the contractor: (i) to recover compensation from the contractor for a breach of a statutory warranty in respect of the work, or (ii) to have the contractor rectify any such breach. (2) Subsection (1) does not require the following to be insured: (a) a developer on whose behalf residential building work is being done, (b) any other person belonging to a class of persons prescribed by the regulations for the purposes of this section. 102 General requirements for insurance (1) This section applies to all contracts of insurance required to be entered into by or under this Part. (2) The insurance must be of a kind approved by the Minister and be provided by an insurer approved by the Minister. (3) The contract of insurance must provide for cover of not less than $200,000 in relation to each dwelling to which the insurance relates, or such other amount as may be prescribed by the regulations. (4) Any limitations on liability under the contract of insurance must comply with any requirements of the regulations. (5) The contract of insurance must comply with any other requirements of the regulations. (6) A contract of insurance may provide that the insurer is not liable for such amount (not exceeding $500) of each claim as is specified in the contract. (7) The regulations may make provision for or with respect to requiring the retention, at a place prescribed by the regulations, of copies of contracts of insurance required to be entered into by or under this Part. 75In Tudor Developments Pty Ltd v Makeig [2008] NSWCA 263, Basten JA (with whom Beazley JA agreed) at [17] affirmed that the purpose of section 92 was "to ensure that purchasers of residential properties enjoy a degree of protection against inadequate construction work in cases where the developer is insolvent or no longer in the business when defects become apparent and is therefore not able to undertake rectification work or compensate the owner for the loss incurred as a result of the defective building work". 76In Vero Insurance v The Owners of Strata Plan 69352 [2011] NSWCA 138; (2011) 81 NSWLR 227, the Court was concerned with insurance policies issued in respect of 201 units and a claim by the owners corporation regarding defective building work to common property. Sackville AJA (Allsop P and Basten JA agreeing) held at 241-242 that: [62] The statutory scheme, in my view, clearly contemplates that an owners corporation in a residential strata scheme is entitled, in its own right, to make a claim on the statutory home insurance policy in respect of the risks identified in s 99(1) of the HB Act. In particular, the scheme contemplates that an owners corporation will be entitled to make a claim in respect of loss arising from the breach of a statutory warranty in respect of defective work on the common property. The owners corporation's entitlement flows both from s 227(2) of the SSM Act and, more simply, from its status as the registered proprietor of the common property and as the successor in title to the person on whose behalf the residential building work was carried out. ... [69] The effect of s 99(1)(b) of the HB Act is that the contract of insurance issued by the Insurer had to insure the Owners Corporation, as Meriton's successor in title to the common property, against the specified risks. The statutory requirement was not conditional upon the Insurer issuing a certificate of insurance to the Owners Corporation. Nor was it in any way dependent on the terms of any certificate issued by the Insurer in respect of lots in the strata scheme.

Trade Practices Act 1974 77The defendants assert that Allianz engaged in unconscionable conduct under the Trade Practices Act 1974 (Cth), and the following provisions are relevant: 51 AAB Part does not apply to financial services (1) Section 51AA does not apply to conduct engaged in in relation to financial services. (2) Section 51AB does not apply to the supply, or possible supply, of services that are financial services. 51AA Unconscionable conduct within the meaning of the unwritten law of the States and Territories (1) A corporation must not, in trade or commerce, engage in conduct that is unconscionable within the meaning of the unwritten law, from time to time, of the States and Territories. (2) This section does not apply to conduct that is prohibited by section 51AB or 51AC. 51AC Unconscionable conduct in business transactions (1) A corporation must not, in trade or commerce, in connection with: (a) the supply or possible supply of goods or services to a person (other than a listed public company); or (b) the acquisition or possible acquisition of goods or services from a person (other than a listed public company); engage in conduct that is, in all the circumstances, unconscionable. (2) A person must not, in trade or commerce, in connection with: (a) the supply or possible supply of goods or services to a corporation (other than a listed public company); or (b) the acquisition or possible acquisition of goods or services from a corporation (other than a listed public company); engage in conduct that is, in all the circumstances, unconscionable. (3) Without in any way limiting the matters to which the court may have regard for the purpose of determining whether a corporation or a person (the supplier) has contravened subsection (1) or (2) in connection with the supply or possible supply of goods or services to a person or a corporation (the business consumer), the court may have regard to: (a) the relative strengths of the bargaining positions of the supplier and the business consumer; and (b) whether, as a result of conduct engaged in by the supplier, the business consumer was required to comply with conditions that were not reasonably necessary for the protection of the legitimate interests of the supplier; and (c) whether the business consumer was able to understand any documents relating to the supply or possible supply of the goods or services; and (d) whether any undue influence or pressure was exerted on, or any unfair tactics were used against, the business consumer or a person acting on behalf of the business consumer by the supplier or a person acting on behalf of the supplier in relation to the supply or possible supply of the goods or services; and (e) the amount for which, and the circumstances under which, the business consumer could have acquired identical or equivalent goods or services from a person other than the supplier; and (f) the extent to which the supplier's conduct towards the business consumer was consistent with the supplier's conduct in similar transactions between the supplier and other like business consumers; and (g) the requirements of any applicable industry code; and (h) the requirements of any other industry code, if the business consumer acted on the reasonable belief that the supplier would comply with that code; and (i) the extent to which the supplier unreasonably failed to disclose to the business consumer: (i) any intended conduct of the supplier that might affect the interests of the business consumer; and (ii) any risks to the business consumer arising from the supplier's intended conduct (being risks that the supplier should have foreseen would not be apparent to the business consumer); and (j) the extent to which the supplier was willing to negotiate the terms and conditions of any contract for supply of the goods or services with the business consumer; and (ja) whether the supplier has a contractual right to vary unilaterally a term or condition of a contract between the supplier and the business consumer for the supply of the goods or services; and (k) the extent to which the supplier and the business consumer acted in good faith. 78Section 51AA does not apply in relation to financial services: s 51AAB. The plaintiffs asserted that the issuing of contracts of insurance was a financial service but in any event, the defendants were permitted to amend their defence to rely on the mirror provisions found in the Australian Securities and Investments Commission Act 2001 (Cth).

ASIC Act 2001 79The defendants assert that Allianz engaged in unconscionable conduct under the Australian Securities and Investments Commission Act 2001 (Cth), and the following provisions are relevant: 12CA Unconscionable conduct within the meaning of the unwritten law of the States and Territories (1) A person must not, in trade or commerce, engage in conduct in relation to financial services if the conduct is unconscionable within the meaning of the unwritten law, from time to time, of the States and Territories. (2) This section does not apply to conduct that is prohibited by section 12CB. 12CC Unconscionable conduct in business transactions (1) A person must not, in trade or commerce, in connection with: (a) the supply or possible supply of financial services (see subsection (6)) to another person (other than a listed public company); or (b) the acquisition or possible acquisition of financial services(see subsection (7)) from another person (other than a listed public company); engage in conduct that is, in all the circumstances, unconscionable. (2) Without in any way limiting the matters to which the Court may have regard for the purpose of determining whether a person (the supplier) has contravened subsection (1) in connection with the supply or possible supply of financial services to another person (the service recipient), the Court may have regard to: (a) the relative strengths of the bargaining positions of the supplier and the service recipient; and (b) whether, as a result of conduct engaged in by the supplier, the service recipient was required to comply with conditions that were not reasonably necessary for the protection of the legitimate interests of the supplier; and (c) whether the service recipient was able to understand any documents relating to the supply or possible supply of the financial services; and (d) whether any undue influence or pressure was exerted on, or any unfair tactics were used against, the service recipient or a person acting on behalf of the service recipient by the supplier or a person acting on behalf of the supplier in relation to the supply or possible supply of the financial services; and (e) the amount for which, and the circumstances under which, the service recipient could have acquired identical or equivalent financial services from a person other than the supplier; and (f) the extent to which the supplier's conduct towards the service recipient was consistent with the supplier's conduct in similar transactions between the supplier and other like service recipients; and (g) if the person is a corporation-the requirements of any applicable industry code (see subsection (11)); and (h) the requirements of any other industry code (see subsection (11)), if the service recipient acted on the reasonable belief that the supplier would comply with that code; and (i) the extent to which the supplier unreasonably failed to disclose to the service recipient: (i) any intended conduct of the supplier that might affect the interests of the service recipient; and (ii) any risks to the service recipient arising from the supplier's intended conduct (being risks that the supplier should have foreseen would not be apparent to the service recipient); and (j) the extent to which the supplier was willing to negotiate the terms and conditions of any contract for supply of the financial services with the service recipient; and (k) the extent to which the supplier and the service recipient acted in good faith. [subsection (3) relates to unconscionable conduct in acquisition of financial services] (4) A person is not taken for the purposes of this section to engage in unconscionable conduct in connection with: (a) the supply or possible supply of financial services to another person; or (b) the acquisition or possible acquisition of financial services from another person; merely because the person institutes legal proceedings in relation to that supply, possible supply, acquisition or possible acquisition or refers a dispute or claim in relation to that supply, possible supply, acquisition or possible acquisition to arbitration. (5) For the purpose of determining whether a person has contravened subsection (1) in connection with the supply, possible supply, acquisition, or possible acquisition of financial products: (a) the Court must not have regard to any circumstances that were not reasonably foreseeable at the time of the alleged contravention; and (b) the Court may have regard to circumstances existing before the commencement of this section but not to conduct engaged in before that commencement. ... 80The insertion of section 12CC was "intended to operate as a mirror provision to section 51AC of the Trade Practices Act 1974": ASIC v National Exchange Pty Ltd (2005) 148 FCR 132 at 138 (per Tamberlin, Finn and Conti JJ).

Legal Principles Governing Unconscionability 81In the recent decision of Aboody v Ryan [2012] NSWCA 395 the Court of Appeal, comprising Bathurst CJ, Allsop P and Campbell JA, considered in some detail the governing general principles in respect of relief against unconscionable dealings. Allsop P (with whom Bathurst CJ and Campbell JA agreed) said (at [62]) that these principles were to be found in the well known cases of Blomley v Ryan (1956) 99 CLR 362, Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447, Louth v Diprose (1992) 175 CLR 621 and Bridgewater v Leahy (1998) 194 CLR 457. The facts of particular cases have unsurprisingly been important catalysts in the development of principle in this area. 82The President endorsed the expression of principle in these High Court cases but cautioned against introducing rigidity by focusing on subsequent single instances of the application of the principle. His Honour said (at [63]): [63] ... there is an underlying general principle, the applications or exemplifications of which are impossible to describe fully. Thus, one should always be careful not to dwell over-technically or textually on individual expressions of general principle of normative values rooted in the remedying of injustice. It is general principle, not a precisely expressed rule, that operates. The principle is wide, and the danger in further textual definition (as opposed to exemplification or illumination) is that inaccuracy or undue restriction may be brought about... Equity's norms and values can be expressed as by Mason J in Amadio at 461-462, or by Deane J in Amadio at 474-475, or by Dawson J in Amadio at 489... 83In Blomley v Ryan Kitto J said (at 415 and 428-429): It applies whenever one party to a transaction is at a special disadvantage in dealing with the other party because illness, ignorance, inexperience, impaired faculties, financial need or other circumstances affect his ability to conserve his own interests, and the other party unconscientiously takes advantage of the opportunity thus placed in his hands. ... The essence of the ground we have to consider is unconscientiousness on the part of the party seeking to enforce the contract; and unconscientiousness is not made out in this case unless it appears, first, that at the time of entering into the contract the defendant was in such a debilitated condition that there was not what Sir John Stuart called "... a reasonable degree of equality between the contracting parties"; Longmate v Ledger ... and secondly, that the defendant's condition was sufficiently evident to those who were acting for the plaintiff at the time to make it prima facie unfair for them to take his assent to the sale. ... The fact that the defendant's condition was the result of his own self-indulgence could make no difference, for, as is shown by Cooke v Clayworth ... the principle applied is not one which extends sympathetic benevolence to a victim of undeserved misfortune; it is one which denies to those who act unconscientiously the fruits of their wrongdoing. 84Fullagar J said (at 405): The circumstances adversely affecting a party, which may induce a court of equity either to refuse its aid or to set a transaction aside, are of great variety and can hardly be satisfactorily classified. Among them are poverty or need of any kind, sickness, age, sex, infirmity of body or mind, drunkenness, illiteracy or lack of education, lack of assistance or explanation where assistance or explanation is necessary. The common characteristic seems to be that they have the effect of placing one party at a serious disadvantage vis-a-vis the other. 85In Commercial Bank of Australia Ltd v Amadio Mason J said (at 461 and 462): ... relief on the ground of "unconscionable conduct" is usually taken to refer to the class of case in which a party makes unconscientious use of his superior position or bargaining power to the detriment of a party who suffers from some special disability or is placed in some special situation of disadvantage... ... ...the will of the innocent party, even if independent and voluntary, is the result of the disadvantageous position in which he is placed and of the other party unconscientiously taking advantage of that position. ... Relief on the ground of unconscionable conduct will be granted when unconscientious advantage is taken of an innocent party whose will is overborne so that it is not independent and voluntary, just as it will be granted when such advantage is taken of an innocent party who, though not deprived of an independent and voluntary will, is unable to make a worthwhile judgment as to what is in his best interest. It goes almost without saying that it is impossible to describe definitively all the situations in which relief will be granted on the ground of unconscionable conduct. ... ...the situations mentioned [by Fullagar and Kitto JJ in Blomley v Ryan] are no more than particular exemplifications of an underlying general principle which may be invoked whenever one party by reason of some condition or circumstance is placed at a special disadvantage vis-à-vis another and unfair or unconscientious advantage is then taken of the opportunity thereby created. I qualify the word "disadvantage" by the adjective "special" in order to disavow any suggestion that the principle applies whenever there is some difference in the bargaining power of the parties and in order to emphasize that the disabling condition or circumstance is one which seriously affects the ability of the innocent party to make a judgment as to his own best interests, when the other party knows or ought to know of the existence of that condition or circumstance and of its effect on the innocent party. 86Deane J said (at 474 and 475): Unconscionable dealing looks to the conduct of the stronger party in attempting to enforce, or retain the benefit of, a dealing with a person under a special disability in circumstances where it is not consistent with equity or good conscience that he should do so. The adverse circumstances which may constitute a special disability for the purposes of the principles relating to relief against unconscionable dealing may take a wide variety of forms and are not susceptible to being comprehensively catalogued... [T]he common characteristic of such adverse circumstances "seems to be that they have the effect of placing one party at a serious disadvantage vis-à-vis the other". 87In Louth v Diprose Deane J said (at 637): ... the jurisdiction of courts of equity to relieve against unconscionable dealing extends generally to circumstances in which (i) a party to a transaction was under a special disability in dealing with the other party to the transaction with the consequence that there was an absence of any reasonable degree of equality between them and (ii) that special disability was sufficiently evident to the other party to make it prima facie unfair or "unconscionable" that that other party procure, accept or retain the benefit of, the disadvantaged party's assent to the impugned transaction in the circumstances in which he or she procured or accepted it. 88Crucially, taking advantage of an inequality of bargaining power, without more, will not generally be regarded as unconscionable: ACCC v CG Berbatis (2003) 214 CLR 51, 62-65 (per Gleeson CJ): Unconscientious exploitation of another's inability, or diminished ability, to conserve his own interests is not to be confused with taking advantage of a superior bargaining position. There may be cases where both elements are involved, but, in such cases, it is the first, not the second, element that is of legal consequence. It is neither the purpose nor the effect of section 51AA to treat people generally, when they deal with others in a stronger position, as though they were all expectant heirs in the nineteenth century, dealing with a usurer. 89In Tanwar Enterprises Pty Ltd v Cauchi and Others (2003) 217 CLR 315 Gleeson CJ, McHugh, Gummow, Hayne and Heydon JJ observed at 324: The terms "unconscientious" and "unconscionable" are, as was emphasised in Australian Competition and Consumer Commission v C G Berbatis Holdings Pty Ltd, used across a broad range of the equity jurisdiction. They describe in their various applications the formation and instruction of conscience by reference to well developed principles. Thus, it may be said that breaches of trust and abuses of fiduciary position manifest unconscientious conduct; but whether a particular case amounts to a breach of trust or abuse of fiduciary duty is determined by reference to well developed principles, both specific and flexible in character. It is to those principles that the court has first regard rather than entering into the case at the higher level of abstraction involved in notions of unconscientious conduct in some loose sense where all principles are at large. 90The Court also observed at 325: ...to speak of "unconscionable conduct" may, wrongly, suggest that sufficient foundation for the existence of the necessary "equity" to interfere in relationships established by, for example, the law of contract, is supplied by an element of hardship or unfairness in the terms of the transaction in question, or in the manner of its performance. 91More recently, in Director of Consumer Affairs Victoria v Scully (2013) 303 ALR 168, the Victorian Court of Appeal noted at 182, per Santamaria JA (with whom Neave and Osborn JJA agreed): [46] Seventh, s 8 of the Act applies to conduct "in trade or commerce, in connection with the supply or possible supply of goods or services". That context is itself largely governed by existing legal principle. One is mindful of what Spigelman CJ said in the extract from World Best Holdings: "If it (the concept of unconscionability) were to be applied as if it were equivalent to what was 'fair' or 'just', it could transform commercial relationships ... The principle of 'unconscionability' would not be a doctrine of occasional application, when the circumstances are highly unethical, it would be transformed into the first and easiest port of call when any dispute about a retail lease arises." The law of contract and that of property, and the principles that constitute them, are the very things which make trade and commerce possible. Without these legal principles, and the existence of institutions such as the courts that are constrained to apply them, the strong would prevail and the weak would go to the wall. It cannot have been the legislature's intention to interfere with arm's length commercial transactions by reference to loose notions of unreasonableness and unfairness. The contention favoured by the appellant that conduct may be found to be unconscionable within s 8(1) of the Act if it can be found to be irreconcilable with what was right and reasonable overlooks the force of the observation of Deane J in Muschinski v Dodds that judges in equity, whose jurisdiction was discretionary, had long since abandoned recourse to undefined notions of justice and what was fair. The legislature is presumed not to alter basic common law doctrines and not to interfere with proprietary rights. [footnotes omitted] 92The defendants of course also allege unconscionability under sections 51AA or 51AC of the Trade Practices Act. As s 51AA(1) does not apply to conduct that is prohibited by s 51AC, it is necessary to consider the application of s 51AC first. 93Section 51AC(3) lists, non-exhaustively, factors to be taken into account. A number of cases confirm the view that this section is not to be read down to apply only to conduct that would traditionally be regarded as unconscionable according to equitable principles. 94These factors, despite what is noted above in ACCC v CG Barbatis, do include the relative strengths of the bargaining positions of the parties. The legislation also includes as factors whether conditions were imposed that were not reasonably necessary for the protection of the legitimate interests of the supplier and the extent to which the parties acted in good faith. 95In Australian Competition and Consumer Commission v Lux Pty Ltd [2004] FCA 926, Nicholson J said (at [98]): [98] The word unconscionable is not a term of art It is not limited to traditional equitable or common law notions of unconscionability: Australian Competition & Consumer Commission v Simply No-Knead (Franchising) Pty Ltd (2000) 104 FCR 253 at [31]. It bears its ordinary meaning of 'showing no regard for conscience, irreconcilable with what is right or reasonable': Australian Competition & Consumer Commission v Samton Holdings Pty Ltd (2002) 117 FCR 301 at [44]; Hurley at [19]-[20]; Qantas Airways Ltd v Cameron (1996) 66 FCR 246 at 262. What is required is 'serious misconduct or something clearly unfair or unreasonable': Hurley at [19]-[20]. It will be relevant whether advantage is taken of an innocent party who, though not deprived of an independent and voluntary will, is unable to make a worthwhile judgement as to what is in his or her best interests: Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447 at 461. 96In Tonto Home Loans Australia Pty Ltd v Tavares [2011] NSWCA 389, Allsop P considered the meaning of "unconscionable" as used in consumer protection legislation and commented (at [291] and [293]): [291] Aspects of the content of the word "unconscionable" include the following: the conduct must demonstrate a high level of moral obloquy on the part of the person said to have acted unconscionably: Attorney General (NSW) v World Best Holdings Ltd [2005] NSWCA 261; 63 NSWLR 557 at 583 [121]; the conduct must be irreconcilable with what is right or reasonable: Australian Securities and Investments Commission v National Exchange Pty Ltd [2005] FCAFC 226; 148 FCR 132 at 140 [30]; Australian Competition and Consumer Commission v Samton Holdings Pty Ltd [2002] FCA 62; 117 FCR 301 at 316-317 [44]; Qantas Airways Ltd v Cameron (1996) 66 FCR 246 at 262; factors similar to those that are relevant to the CRA are relevant: Spina v Permanent Custodians Ltd [2009] NSWCA 206 at [124]; the concept of unconscionable in this context is wider than the general law and the provisions are intended to build on and not be constrained by cases at general law and equity: National Exchange at 140 [30]; the statutory provisions focus on the conduct of the person said to have acted unconscionably: National Exchange at 143 [44]. It is neither possible nor desirable to provide a comprehensive definition. The range of conduct is wide and can include bullying and thuggish behaviour, undue pressure and unfair tactics, taking advantage of vulnerability or lack of understanding, trickery or misleading conduct. A finding requires an examination of all the circumstances. ... [293] ... Spigelman CJ in World Best Holdings at 583 [121] referred to a "high level" of moral obloquy. Whether that is too stringent and whether "significant" or "real" may be preferable need not be decided. What is required is some degree of moral tainting in the transaction of a kind that permits the opprobrium of unconscionability to characterise the conduct of the party. 97Turning then to section 51AA, it relevantly provides: A corporation must not, in trade or commerce, engage in conduct that is unconscionable within the meaning of the unwritten law, from time to time, of the States and Territories. 98In ACCC v Samton Holdings Pty Ltd (2002) 117 FCR 301, the Court considered whether commercial vulnerability constituted a special disadvantage within the meaning of the unwritten law. The Court held at 321-323: [57] The ACCC expressly conceded in its submissions, and properly so, that mere refusal to permit an option to be exercised out of time would not be likely to be the subject of a valid complaint at law or in equity in the absence of other conduct. It was said that the other conduct, notably the extraction of a large premium in the circumstances of this case rendered the conduct unconscionable. The concession demonstrates the difficulty of the ACCC's position. If it would not have been unconscionable for the respondents to refuse to grant a new lease and simply commence to operate a like business from the same premises themselves, how could it be unconscionable for them to agree to grant a new lease on conditions including payment of a lump sum for the assignment of lease rights from the first respondent, Samton Holdings? [58] The failure to exercise the option within time and the position in which Mr Ranaldi found himself as a result was not attributable to the respondents. The rights which it was necessary for him to secure were lost as a result of his own inaction. He had been told before settlement of the requirement to exercise the option by the previous tenants, the Farruggios, and by the business broker, Dalziell, of ABPS Real Estate and Business Brokers. As his Honour found, during the relevant period, he had legal advice from a solicitor. The respondents acted in a way that many fair-minded people would condemn. That does not make their conduct unconscionable. The Ranaldis' position of special disadvantage as found by his Honour, and that of Executive Bloodstock, arose out of unequal bargaining power. The respondents had the rights which they needed to acquire in order that Executive Bloodstock could operate the business and they had to acquire those rights from the respondents. The respondents were under no legal or equitable obligation to make them available. [...] [64] At the time they were negotiating for the grant of the second lease, the Ranaldis and Executive Bloodstock were at a serious disadvantage. They had very little bargaining power. As a practical matter, they were not in a position to make any decision other than to pay the price demanded by the respondents. It may be accepted that the categories of special disadvantage are open and may extend to what French J, at first instance in Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Ltd [2000] FCA 1893, called "situational disadvantage" as well as the constitutional disadvantages engendered by such disabilities as illiteracy or lack of education, illness or infirmity. It is not necessary for present purposes to explore the limits of those categories. On the findings of fact made by his Honour it is difficult to see how it would be correct to characterise the case as one of "special disadvantage" in the relevant sense. The disadvantage under which the Ranaldis and Executive Bloodstock laboured had arisen from a combination of considered commercial judgment (the decision to borrow heavily in order to purchase the business) and Mr Ranaldi's oversight in neglecting to exercise the option in good time. These factors did not impair the Ranaldis' ability to make a decision about the best course of action in the circumstances. At least in the case of an experienced business person there must, in our opinion, be something more than commercial vulnerability (however extreme) to elevate disadvantage into special disadvantage. [65] Characterisation of disadvantage as "special" involves the recognition that it would be unconscionable knowingly to deal with the person so affected without regard to his or her disability, be it constitutional, in the sense of inherent, or situational, in the sense of arising from a particular set of circumstances. In effect this may require some special conduct or care which is not necessary in the absence of such disadvantage. If, for example, the disability relates to language, illiteracy or lack of education, conscientious dealing may ensure the bargaining deficit is compensated for by the provision of special assistance such as independent advice which will either enable a proper understanding of the transaction or overcome the disadvantage arising from want of a proper understanding. 99In Kakavas v Crown Melbourne Limited [2013] HCA 25, the High Court considered a claim under s 51AA of the Trade Practices Act 1974 (Cth) that a casino had incited the appellant, a known problem gambler, to gamble at its casino by incentives such as rebates on losses and the offer of transport on their corporate jet. The Court in a unanimous decision emphasised the importance of the factual matrix in assessing claims of unconscionability, noting at [14] that "the decisions of this Court, in which claims for relief from unconscionable conduct have been litigated, illustrate the necessity for close consideration of the facts of each case in order to determine whether a claim to relief has been established". 100In this case, section 51AAB provides that section 51AA does not apply to conduct engaged in in relation to financial services. The relevant provisions, which mirror the Trade Practices Act 1974, are found in the Australian Securities and Investment Commission Act 2001. In particular, section 12CA imports the prohibition on unconscionable conduct within the meaning of the unwritten law of the States and Territories.

Insurance Contracts Act 1984 101In their amended defence, the defendants rely upon section 13 of the Insurance Contracts Act 1984 (Cth). Section 13 was in the following terms as at 3 December 2002: A contract of insurance is a contract based on the utmost good faith and there is implied in such a contract a provision requiring each party to it to act towards the other party, in respect of any matter arising under or in relation to it, with the utmost good faith. 102It has since been amended so that a reference to a party to a contract includes a third party beneficiary, defined as a person who is not a party to the contract but is specified or referred to in the contract, whether by name or otherwise, as a person to whom the benefit of the insurance cover provided by the contract extends: see Insurance Contracts Amendment Act 2013 (Cth). 103For these proceedings, however, the earlier version is relevant and has been judicially considered. 104In Hannover Life Re of Australasia Limited v Sayseng [2005] NSWCA 214, the Court of Appeal considered whether the duty of good faith could be extended to a person who was not a party to the insurance contract and who only indirectly benefited from it. Santow JA (Spigelman CJ and Tobias JA agreeing) observed at [37]: The trial judge recognised that Mr Sayseng was not a party to the policy whereas the cases referred to involved a direct contractual relationship between the insurer and the claimant. Therefore, not being a party to the policy, Mr Sayseng could not rely upon the provisions of s13 of the Insurance Contract Act 1984 (Cth) which implies into the contract of insurance a provision requiring each party to act towards the other party in respect of any matter arising under or in relation to it with the utmost good faith. Nonetheless, the trial judge found support in the opinion of Mahoney JA in C E Heath Casualty & General Insurance Ltd v Grey (1993) 32 NSWLR 25 at 27 ("in my opinion, the principle is not limited to person who are, under the general rule, actual parties to the contract of insurance. It extends to others who are necessarily involved in the insurance") and further support in the structure of the insurance arrangements contained in the policy. This led his Honour to conclude that Mr Sayseng's interests were indirectly but very strongly involved in the decision of the insurer and that both directly and indirectly Mr Sayseng had an interest in compliance by the insurer with its duty to proceed fairly to form its opinion. Hence the validity of the opinion formed by the insurer fell to be tested on the basis that Mr Sayseng was entitled to fair dealing when Hannover considered his claim. [emphasis added] 105In Smart v Westpac Banking Corporation [2011] FCA 829, Jagot J applied Hannover and the decision of the High Court in Zurich Australian Insurance Ltd v Metals and Minerals Insurance Pte Ltd (2009) 240 CLR 391. Her Honour observed: [10] The insurers submitted that the implied term for which s 13 provides is a term requiring only that the parties to the contract act towards each other with the utmost good faith. Mr Fitzgerald is not a party to the policy. Section 48 does not deem him to be a party to the policy. Moreover, ss 13 and 48 have been construed in a manner which precludes treating Mr Fitzgerald as if he were a party. Accordingly, in Zurich Australian Insurance Ltd v Metals & Minerals Insurance Pte Ltd French CJ, Gummow and Crennan JJ said: [24] Section 48 confers a statutory right of recovery upon a non-party referred to or specified in a general contract of insurance as a person insured or to whom cover extends. It does so directly. Its enactment predated the extension, by the decision of this court in Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107; 80 ALR 574, of common law rights of recovery for non-party insured persons under an insurance policy. Section 48 does not deem such a person to be a party to the insurance contract thus attracting the rights conferred on a party. It does not purport to confer contractual or equitable rights upon such a person. There is therefore no basis in s 48 for assimilating the position of a non-party insured to that of a person who has "entered into" a contract of insurance within the meaning of s 45(1). [Her Honour then set out the passage from Hannover above] [12] Santow JA repeated this proposition at [46], where his Honour identified the question for resolution as the nature and content of the insurer's obligation where, among other things: [46] ... the employee not being a party to the insurance contract: (i) cannot rely on s 13 of the Insurance Contracts Act 1984 (Cth) to imply a statutory duty of utmost good faith ... [13] In answer it was submitted for Mr Fitzgerald that both Zurich and Hannover concerned circumstances different from those of the present case. Further, it was said that the purpose of s 48 is to place the insured person in the same position as the parties to the contract of insurance. By that section the insured person has the "right to recover the amount of the person's loss from the insurer in accordance with the contract notwithstanding that the person is not a party to the contract". Such loss must include the loss arising from breach of the duty of utmost good faith implied by s 13. If it were otherwise s 48 would not serve its purpose. [14] I am unable to accept the submissions for Mr Fitzgerald. I am persuaded by the insurers' submissions that the reasoning in both Zurich and Hannover is inconsistent with any construction of ss 13 and 48 of the Insurance Contracts Act which overlooks the distinction between a party to the contract and an insured person. Section 13 implies into a contract of insurance a statutory duty of the utmost good faith between the parties to the contract. Section 48 vests in an insured person who is not a party to the contract a right to recover the amount of the person's loss notwithstanding that the person is not a party. On its terms, the section does not deem an insured person to be or to have the same rights as a party to a contract of insurance. Nor does it deem s 13 to apply as between an insurer and an insured person who is not a party to the contract. 106Counsel for the defendants formally invited me to find that these cases had been incorrectly decided, but advanced no substantial reason as to why that was so.

Discussion 107There is no issue here raised about the defendant's understanding or lack thereof regarding the Deed of Indemnity: Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165. 108The issue between the parties is whether or not the defendants could be said to have suffered from a "situational disadvantage" in accordance with the authorities because of the plaintiff's request that the defendants execute deeds of indemnity in the context of Avcon's need to acquire home warranty insurance cover. For reasons which will follow I do not think such a contention is tenable. 109It is uncontroversial that if Avcon wished to conduct building work at the relevant time in New South Wales it had to effect an approved insurance policy with an authorised insurer. This was for the very purpose of catering for the risk that if the persons for whom the building work was being undertaken needed to resort to some recovery action they would be able to recover compensation, at least up to the prescribed minimum level of insurance. 110What is sought to be attacked is the deed of indemnity which Allianz required the defendants to execute in December 2002, and not the policy of insurance nor the level of premium charged. I must confess that I have had some difficulty in understanding precisely how the defendants put their case but it seems to be that in some way or other it is contended that the plaintiff unconscionably took advantage of the legislative regime in requiring the provision of the deeds of indemnity. To that extent the plaintiff being the stronger commercial party was able to take advantage of the defendants who suffered from some "disability" or special "disadvantage". 111In order to determine whether or not the plaintiffs conduct in relation to the particular transaction in December 2002 should be characterised as unconscionable, one clearly has to examine the circumstances that pertained at the relevant point in time when the deeds were requested and obtained: ACCC v Samton Holdings at [59]. 112Merely because one party to contractual negotiations may be in a stronger commercial position, or because in a bargaining process a party may feel compelled to agree to a term because it may feel unable to resist, does not automatically lead to a finding of unconscionability. 113There is no doubt that if Avcon wished to undertake building work the legislation required that it effect insurance of the relevant kind. The choice to move from project management into development and/or residential building work was entirely that of Avcon. No criticism can be levelled at it for making that choice. However Avcon or Mr Vitale must have thought it either would be more stimulating or more remunerative, or both, to do so. But that choice came with legislative constraints. 114As is obvious, Allianz was confronted with an application for insurance from a relatively experienced project manager but a relatively inexperienced builder/developer. 115Counsel for the defendants submitted that part of the notion of unconscionability in some way arose from the lack of risk assessment undertaken by the plaintiff's agent in terms of the issue of the policy in favour of the owners. In my view I cannot see the relevance of such a factor even if true. The policy of insurance is not the subject of complaint in the first place. But in any event I am not satisfied as a matter of fact that that submission can be sustained on the evidence. The defendants submit that the evidence of a Mr Stinton, an expert called for the plaintiff, supports this contention. I do not accept that this is a fair assessment of his evidence. 116Although it is true that premiums were to some extent fixed by reference to the construction cost, it is also apparent from the contemporaneous documents that other factors, both negative and positive, were taken into account. But as I have already said I do not regard this as relevant as not only is the policy not challenged but the amount of the premium is not the subject of challenge either. 117It is important in my view to however distinguish between what if any risk analysis may have been undertaken in relation to the fixing of the premium and any risk analysis which in my view undoubtedly was undertaken in the context of Allianz deciding whether or not to require deeds of indemnity from the defendants. 118When one considers the history of their dealings it is plain that the request that there be deeds executed by the defendants was initially made in 2001 and repeated in 2002. The various application forms for insurance clearly sought to procure financial information about Avcon and those behind it. In 2002 a request for financial material was made on 8 August and that material was provided by Avcon's accountants on or about 21 August. It is following the provision of that financial information that the deeds executed in December were required in a letter of 22 August. There is no doubt therefore in my mind that the request by the plaintiff was in no sense driven by any capricious or whimsical requirement but rather a considered position of its unsurprising desire not to be exposed in the event that Avcon performed the building work unsatisfactorily or became insolvent. Insofar as Allianz insisted upon the provision of a deed of indemnity as a means of minimising its risks in my view could not amount to moral obloquy or indeed a moral taint or any other epithet used in the authorities. 119Of course the indemnity would only be called upon in the event that unsatisfactory work had been undertaken and a legitimate claim had been made and paid for by the plaintiff and additionally where Avcon was insolvent or unable to meet the full extent of any claims. At the time the indemnities were requested there was no reason to suppose the works would be conducted in an unsatisfactory manner nor that Avcon would be insolvent at the relevant time. 120In my view it is correct as is submitted by the plaintiff that the risks to Allianz associated with the policies were reduced but clearly not entirely removed by the requirement of deeds of indemnity. Under the terms of the policy the maximum amount which any owner could claim was $200,000. It is certainly conceivable that the cost of rectification to a dwelling might have exceeded that amount. 121It cannot be gainsaid that whilst the deed of indemnity provides an opportunity for Allianz to recover monies from those who stand behind a company such as Avcon, the reality is that those individuals may have no assets at all leaving Allianz in a position where it would simply be unable to recover from those persons either. In that case, it would be responsible for the entirety of the monies paid. 122Unsatisfactory workmanship on the part of the builder requiring rectification or insolvency on its part before or after the work is completed are and were relevantly real problems to be realistically and pragmatically confronted. Requiring indemnities in the circumstances of this case was not in my view just a prudent course in the case of a building/developer with Avcon's profile and limited experience, but one which I consider was both reasonable and necessary to protect the legitimate commercial interests of Allianz. 123In my view I am unable to find that the defendants have demonstrated any behaviour on the part of the plaintiff which should be properly described as unconscionable either in the general law or pursuant to sections 51AA or 51AC of the Trade Practices Act 1974, and/or section 12CC of the ASIC Act 2001. I do not think any of the conduct of Allianz could be described as amounting to moral obloquy or being morally tainted or indicative of a predatory state of mind.

Section 13 of the Insurance Contracts Act 124The plaintiff asserts with much force that section 13 has no application in the current context. I agree. Avcon was not a party to any contract of insurance nor were the defendants: Smart v Westpac Banking Corporation [2011] FCA 829 at [14]. 125In any event even assuming Avcon and/or the defendants were able to take advantage of section 13 I do not regard the obligation of utmost good faith as requiring a party to surrender any commercial advantage which they may seek to take advantage of during negotiations in favour the other party: Burger King Corporation v Hungry Jack's Pty Ltd [2001] NSWCA 187 and Camellia Properties v Wesfarmers General Insurance Ltd [2013] NSWSC 1975.

Quantification of Allianz's Claim 126I was provided with a schedule setting out the calculation of the quantum of the claim by the plaintiff, pursuant to the Second Deed of Indemnity, of $1,866,790.46. As will become clear only one item in that total is the subject of complaint by the defendants. 127I should note for example, no submissions were made that an interest rate of 10 per cent, as set out in clause 3(c) of the Second Deed, was not applicable from the date of the Letters of Demand. 128However, the defendants submitted that the costs incurred by Allianz in defending and then settling the claims made under the policies, in the amount of $149,559.12, ought to be the subject of an assessment under section 350 of the Legal Profession Act 2004. 129The essence of the issue was whether clause 2 of the Second Deed of Indemnity ran counter to section 350, which relevantly provides: 350 Application by client or third party payers for costs assessment (1) A client may apply to the Manager, Costs Assessment for an assessment of the whole or any part of legal costs. (2) A third party payer may apply to a costs assessor for an assessment of the whole or any part of legal costs payable by the third party payer. (3) An application for a costs assessment may be made even if the legal costs have been wholly or partly paid. (3A) If any legal costs have been paid without a bill, the client or third party payer may nevertheless apply for a costs assessment. (4) An application by a client or third party payer for a costs assessment under this section must be made within 12 months after: (a) the bill was given or the request for payment was made to the client or third party payer, or (b) the costs were paid if neither a bill was given nor a request was made. (5) However, an application that is made out of time, otherwise than by: (a) a sophisticated client, or (b) a third party payer who would be a sophisticated client if the third party payer were a client of the law practice concerned, may be dealt with by the costs assessor if the Supreme Court, on application by the costs assessor or the client or third party payer who made the application for assessment, determines, after having regard to the delay and the reasons for the delay, that it is just and fair for the application for assessment to be dealt with after the 12-month period. [further provisions are then set out] 130Subsequent to my reservation of judgment, I was provided with a number of authorities by the defendants in support of their position. I was also provided with submissions by the plaintiff. 131In Boyce v McIntyre [2008] NSWSC 1218, Harrison AsJ set out the statutory framework: [13] The purposes of the Act are two fold. They are firstly, to provide for the regulation of legal practice in this jurisdiction in the interests of the administration of justice and for the protection of clients of law practices and the public generally; and secondly, to facilitate the regulation of legal practice on a national basis across State and Territory borders (s 3). [14] The term "legal costs" is defined in s 4 as, amounts that a person has been or may be charged by, or is or may become liable to pay to, a law practice for the provision of legal services including disbursements but not including interest. Under clause 16.4 of the sub-lease, Mrs McIntyre is liable to pay KT. [15] Chapter 3 of the Act is headed "Conduct of Legal Practice". Part 3.1 is headed "Trust Money and Trust Accounts" and is not relevant here. Part 3.2 of the Act regulates "Costs Disclosure and Assessment" and this is the relevant part in these proceedings. Part 3.2 is made up of 12 divisions. There are four divisions in Part 3.2 that are relevant here. They are, Division 3, which is headed "Costs disclosure". Division 4, which is headed "Legal costs generally". Division 5, which is headed "Costs agreements" and Division 11, which is headed "Costs assessment". The purposes of Part 3.2 are set out in s 301. They relate to providing for law practices to make certain disclosures to clients regarding legal costs, the regulation of the making of costs agreements in respect of legal services, regulation of the billing of costs for legal services, and the provision of a mechanism of the assessment of legal costs and the setting aside of certain costs agreements. [16] Section 302A refers to third party payers. It reads: "302A Terms relating to third party payers (1) For the purposes of this Part: (a) a person is a third party payer, in relation to a client of a law practice, if the person is not the client and: (i) is under a legal obligation to pay all or any part of the legal costs for legal services provided to the client, or (ii) being under that obligation, has already paid all or a part of those legal costs, and (b) a third party payer is an associated third party payer if the legal obligation referred to in paragraph (a) is owed to the law practice, whether or not it is also owed to the client or another person, and (c) a third party payer is a non-associated third party payer if the legal obligation referred to in paragraph (a) is owed to the client or another person but not the law practice. (2) The legal obligation referred to in subsection (1) can arise by or under contract or legislation or otherwise. (3) A law practice that retains another law practice on behalf of a client is not on that account a third party payer in relation to that client." [17] Section 302 defines "costs agreement". Section 302A introduces two types of third party payers, the associated third party payer and the non-associated third party payer. Mrs McIntyre is a third party payer in that she is under a legal obligation to pay all the legal costs provided to KT in preparation of the sub-lease. She falls into the category of being a non-associated third party payer as her legal obligation is to KT not to the law practice under s 302A(1)(c). [18] The third party payer provisions in the Act were introduced by the Legal Profession Further Amendment Act 2006 ("the amended Act"). In introducing those amendments, the Second Reading Speech relevantly stated: "Third, the Bill includes amendments to clarify that a person who is liable to pay legal costs, but who is not a client of a law practice, may apply for the assessment of the legal costs that the person is liable to pay. One example where these changes are relevant is where borrowers are required, under a mortgage contract, to pay the legal costs of their lender in preparing the mortgage documentation. In that case, borrowers will have a right to seek assessment of the legal costs of the law practice that advised the lender in the transaction." 132In Avery v Saree Holdings Ltd; Lava Ltd v Avery (No. 2) [2012] NSWSC 938, Slattery J observed: [44] Ms Avery has a right to have Saree's legal costs assessed, even though they are claimed on an indemnity basis under the mortgage. Although she as mortgagor is not directly chargeable with the bill for these fees, she is liable to pay the party chargeable with such bill and therefore has a statutory entitlement to a costs assessment: Legal Profession Act 2004, s 350. A mortgagor's or prior mortgagee's right to taxation on assessment in such circumstances has been long recognised: see Debney v Semerdziev (1982) 2 NSWLR 391. Ms Avery is yet to exercise these rights and should be given an opportunity to do so. [45] Moreover, on the evidence before me Ms Avery has not been given copies of those bills. The right to have a bill assessed implies a right to have a bill prepared and delivered: cf Debney v Semerdziev (1982) 2 NSWLR 391. Under Legal Profession Act, s 350(6) she may also have a capacity to seek further information before exercising her rights to a cost assessment. 133I was referred by counsel for the plaintiff to the decision of the Victorian Court of Appeal in Tarkington Pty Ltd v Kingdrake Pty Ltd [2000] VSCA 98, in which Chernov JA (Brooking and Phillips JJA agreeing) observed: [17] In my view, none of the three grounds of appeal which were pursued has been made out. In my opinion, his Honour was correct in finding on the evidence before him that Kingdrake's proceeding against the third to fifth-named defendants, although ultimately aborted, amounted to an enforcement by Kingdrake, or an attempted enforcement by it, of the security and that the legal expenses incurred in relation to it were not unnecessarily or unreasonably incurred. So, too, the non-litigous expenses incurred by Kingdrake after 26 November 1994 and those in relation to the proceeding against the borrowers. I have previously referred to the evidence of the conduct of the third to fifth-named defendants which attacked and put in jeopardy the securities held by Kingdrake. It will be recalled that the borrowers maintained that Kingdrake had no power under its security to take possession of the premises and they founded their counterclaim on that contention. This was another attack on Kingdrake's security. It was open to his Honour to find, as he did, that the legal expenses incurred in relation to the proceeding were related to the enforcement by Kingdrake of its securities. Such a finding necessarily involved that the legal expenses were reasonably incurred and in my view no error is shown in that. The contrary was never suggested to Mr Kellar in cross-examination by the borrowers' counsel. His Honour came to the view that he did after considering all the evidence, including that of Mr Kellar in the course of which he explained his company's conduct in relation to its securities and the legal expenses about which he was asked. His Honour was required to assess his credibility which was attacked by Mr Baker. In my view, no error has been demonstrated in his Honour's reasons for judgment in this regard. ... [20] At the trial, counsel for the borrowers did not seek an order for particulars from his Honour and, as I have mentioned, decided not to avail himself of Mr Kellar's offer to produce his company's accounts. Moreover, it was not suggested that the matter should be referred to the Taxing Master or to an expert or referee for assessment. His Honour had evidence before him in the form of Exhibit P12 and Mr Kellar's explanation as to the incurring of the legal costs set out in that document. It was clearly open to his Honour to act on that evidence and he did so. That he did not, of his own volition, call for further particulars, does not constitute any relevant error on his part. Mr Bennett relied on Pangas v. Permanent Trustee Aust. Ltd. where Santow, J., effectively required the provision of further particulars. But his Honour was there concerned with the right of a mortgagor to the taking of accounts as between himself and the mortgagee. In that context, it was understandable that his Honour called for further particulars, but that is a far cry from the present situation where the proceeding is very different. [21] Mr Bennett further submitted that, since there was no stipulation to the contrary in the agreements between the parties, Kingdrake was only entitled to claim legal expenses on a party-party basis (see Gomba Holdings (UK) Ltd v. Minories Finance Ltd). It was argued by him that there was no evidence that the legal expenses were limited to party-party costs and that, therefore, his Honour could not have found that they were properly incurred. If it be accepted for present purposes that Kingdrake was only entitled to claim legal expenses on a party-party basis, it was never suggested to Mr Kellar, or otherwise to his Honour, that the legal expenses put forward through Exhibit P12 were other than party-party costs - and indeed Mr Bennett agreed that they might even have been less than party-party costs. If the borrowers wished to contend that the legal expenses went beyond party-party costs, this should have been raised at the trial so that Kingdrake could have the opportunity to lead evidence to meet such assertion. The matter was not so raised. Again, this contention is not covered by the grounds in the notice of appeal and no amendment was sought. Had it been, I would have refused it. It is too late on appeal to seek to raise such a point for the first time. 134In my view, the plaintiff is entitled to the legal costs as explicitly pleaded in their Amended Statement of Claim for the following reasons. No challenge was made by the defendant to the evidence of Mr James Collier (his statement was dated 7 March 2014) that the costs were in fact incurred, nor any challenge on the basis that those costs were unreasonable or unnecessary. The submission that the defendants were and are entitled to an assessment of those costs was raised for the first time in closing submissions by counsel for the defendant, and the point should at the very least have been taken when the defendants were permitted to amend their defence on the first day of the hearing so that the plaintiff had some notice. 135In any event, section 350 (4)(a) provides that an application for assessment must be made within 12 months after the request for payment was made to a third party payer. The Letters of Demand were delivered on or about 4 February 2010 and more than three years has elapsed since that date. I accept the submission by the plaintiff that the Letters of Demand should properly be considered as a request for payment. 136Even if out of time, under section 350(5) the Court may determine that it is just and fair for the application to be dealt with, having regard to the delay and the reasons for the delay. No evidence has been adduced by the defendants as to the reason for such a delay. In the absence of notice of any dispute about the quantum or reasonableness of the legal fees, in my view it is neither just nor fair to allow such a late application. 137The plaintiff is therefore entitled to claim, under the terms of the indemnity, the legal fees incurred in defending and settling the proceedings against the Owners Corporation and the owners, namely the sum of $149,559.12.

Conclusion 138The plaintiff has been successful and I therefore propose to enter judgment for the plaintiff in the sum of $1,866,790.46, with interest accruing at the relevant rate. 139The parties should prepare short minutes to reflect my reasons, and re-list the matter so that the question of costs can be determined, if this issue cannot be agreed.

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