Allianz Australia v Baker & 2 Ors

Consumer Trader and Tenancy Act 2001 (NSW) - s 67 LEGISLATION CITED : Home Building Act 1989 - Part 2C s 18B, s 48A(2), s 92(1), s 99 Home Building Regulations 1997 (NSW) cl 43

Australian Broadcasting Tribunal v Bond (1990) 170 CLR 321 CASES CITED : British Traders' Insurance Co Ltd v Monson (1964) 111 CLR 86 Chapman v Taylor & Ors; Vero Insurance Ltd v Taylor & Ors [2004] NSWCA 456

Allianz Australia Insurance Limited (Plaintiff)

Kevin Baker (First Defendant) PARTIES : Robert Minch (Second Defendant)

Consumer, Trader and Tenancy Tribunal (Third Defendant)

Mr T R Edwards (Plaintiff) COUNSEL : Mr R Lovas (First & Second Defendants)

Curtis Gant Irving SOLICITORS : (First & Second Defendants)

Submitting Appearance (Third Defendant)

LOWER COURT JURISDICTION : Consumer Trader and Tenancy Tribunal of NSW

LOWER COURT JUDICIAL OFFICER : Tribunal Member R Lansdowne

IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION

12066/2004 - ALLIANZ AUSTRALIA INSURANCE LIMITED v KEVIN BAKER & 2 ORS

JUDGMENT (Appeal decision of CTTT - meaning of "indemnity" in the Home Building Act) 1 HER HONOUR: By amended summons filed 21 February 2005 the plaintiff seeks: firstly, a declaration that the Consumer, Trader and Tenancy Tribunal (CTTT) erred in its interpretation of the insurance indemnity; secondly, a declaration that the CTTT erred in law in finding that the insurer independently of the Builder accepted liability for certain items; and thirdly, that the CTTT erred in law in finding that the owner's cause of action against the insurer is distinct from their cause of action against the Builder. 2 The plaintiff is Allianz Australia Insurance Limited (the insurer). The first defendant is Kevin Baker, the second defendant is Robert Minch (the owners). The third defendant is the CTTT who has filed a submitting appearance.

The appeal 3 Section 67 of the Consumer Trader and Tenancy Act 2001 (NSW) (the Act) allows for an appeal to be made to this Court on a question with respect to a matter of law. A reference to a matter of law includes a reference to a matter relating to the jurisdiction of the CTTT. The onus lies on the insurer to demonstrate that there has been an error with respect to a matter of law. 4 The width of s 67 was discussed in Chapman v Taylor & Ors; Vero Insurance Ltd v Taylor & Ors [2004] NSWCA 456. Hodgson JA (with whom Beazley and Tobias JJA agreed) stated succinctly [at para 33]: "… in my opinion, to establish an error of law by the Senior Member, it was necessary to show that he applied a wrong principle of law. That could be shown either from what he said, or because the ultimate result, associated with the facts that he expressly or impliedly found, indicates that he must have applied the wrong principle of law." 5 Section 67(3) of the Act provides that, after deciding the question of the subject of an appeal, the Court may affirm the decision of the CTTT or it may make an order in relation to the proceedings in which the question arose as, in its opinion, should have been made by the CTTT, or it may remit its decision on the question to the CTTT and order a rehearing of the proceedings before the CTTT.

Grounds of appeal 6 The insurer appeals from the decision of the CTTT made on 9 June 2004. At the hearing of this appeal the grounds of appeal were narrowed. The issues are (i) whether the CTTT erred in law in finding that the owners' cause of action against the insurer is distinct from their cause of action against the Builder, and (ii) whether the CTTT erred in law in its interpretation of the insurance indemnity.

CTTT proceedings 7 On 30 June 2001 the owners entered into a contract with Sampson Developments Pty Ltd (the Builder) for the construction of four flats. In October 2002 the owners commenced proceedings against the Builder alleging defective work. In December 2003 the owners were given leave to join the insurer as party to the proceedings. 8 In May 2003 the owners obtained an expert report (the Barnett report) which identified defects in the building and quantified the defects at the sum of $173,998. The owners relied upon the Barnett report at the CTTT hearing. The owners contacted the Builder seeking rectification but the Builder advised the owners that it could not carry out these works. The owners forwarded the Barnett report to the insurer seeking indemnity. There was correspondence between the owners and the insurer in regards to inspections and quotations in relation to the rectification of the defects. The owners claimed indemnity from the insurer for loss and damage in respect of residential building work arising from breach of statutory warranty under Part 2C s 18B of the Home Building Act 1989 (NSW) (HBA). 9 It is common ground that the owners claim against the Builder was a "building claim" as defined in s 48A(2) of the HBA. Section 48A(2) defines a building claim to include an appeal against a decision of an insurer under a contract of insurance required to be entered into under the HBA. A Building Owners Home Warranty Insurance policy had been issued to Sampson Developments Pty Ltd ATF Fedder Family Trust t/as W Fedder Builder to cover the construction of unit 1 [Ex 1]. According to this policy of insurance, the contractor Sampson Developments Pty Limited paid to the insurer a sum of money so that the insurer provided the insurance cover to the building owners.

10 The CTTT made a finding that on proper construction of the letter of 21 August 2003 the insurer admitted liability to the owners for certain items at [12]. The CTTT found at [17] that the Builder did not discharge the statutory warranty enshrined in s18B HBA. Section 18B(a) of the HBA provides that "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." The CTTT went on to make findings in regards to disputed items in the construction. With regard to the total rectification cost, the CTTT reasoned at [19] and [22]: "The Owners' cause of action the Insurer is distinct from the cause of action against the Builder. Section 48K of the Home Building Act 1989 confers jurisdiction on a Tribunal to hear building claims. Section 48A of the Act describes the term "building claim" and provides specifically in sub-section (2) that without limiting the definition of a building claim, a building claim includes the following:

(a) An appeal against the decision of an Insurer under a Contract of Insurance required to be entered into under this Act;

(b) Claim for compensation or loss arising from breach of statutory warranty implied under Part 2C

The Owners' claim against the Insurer is an appeal against the Insurer's decision. The owner's claim against the Builder is for loss arising from breach of statutory warranty. At the time the insurance in this case was taken out home warranty insurance cover included indemnity for breach of statutory warranty and this is reflected in the policy tendered in these proceedings.

The total rectification cost (before builder's margin, GST and insurance) of proved items in the Barnett list is $78,146. I will add 7% to this to reflect increases in costs since the preparation of those costs. This brings the amount to $83,616.22 [sic]. With builder's margin at 15% the amount is $97,158.65 [sic]. With GST at 10% the amount becomes $105,774.51 [sic]. There is no evidence as to any change in the cost of home warranty insurance, and so I will use the figure given by Mr Barnett of $1,013. With that added the total becomes $106,787 [sic]." 11 The CTTT made a finding that the owners had proved that the Builder breached his statutory warranties and that the amount of $106,787.00 was the figure that reflected the increases in costs required to address the rectification work at [23]. That is, the owners' loss arising from the Builder's breaches of statutory warranties were quantified at $106,787.00. 12 Additionally, the CTTT made a finding that because of the admissions in the correspondence from the insurer, the insurer was liable to pay $64,813.00 being the difference between $171,600 (the cost of rectification of items admitted by the insurer as per the quotes tendered by the owners) and the $106,787 for the breaches by the Builder at [24].

Whether there are distinct causes of action 13 The insurer submitted that the CTTT erred in law in finding that the owners' cause of action against the insurer is distinct from their cause of action against the Builder. The insurer further submitted that the CTTT erred in finding that there could be, in the relevant statutory scheme, a separate liability on the part of the insurer in addition to and/or as distinct from the indemnity provided for under the scheme. Conceptually, the owner's counsel described the indemnity as a triangle type arrangement, instead of the usual indemnity between insured and insurer. 14 The owners submitted that there was no contract between the insurer and the owners; the policy of insurance being one between the insurer and the builders: s 92(1). The owners submitted that the cause of action against the insurer is a statutory one: s99 HBA and cl 43 Home Building Regulations 1997 (NSW) (HBR). 15 For convenience, I reproduce s 99 of the HBA "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. …" 16 Clause 43 (now cl 56) of the HBR at the relevant time provided: "Losses indemnified (1) An insurance contract must indemnify beneficiaries under the insurance contract for the following losses or damage in respect of residential building work covered by the insurance contract: … (b) loss or damage arising from a breach of a statutory warranty, being a loss of damage …" 17 The owners submitted that the two claims by them are not examples of claims against co-promisors under the one contract or derivative promisors such as where the insurer is indemnifying the wrongdoer. The owners also submitted that there is no impediment for the two claims brought by the owner against the two entities to be heard separately and that while the Builder's breach of the contract is an element of the claim against the insurer, it is a factual matter (within the claim against the insurer) and may properly be proved against the insurer purely through the use of admissions. Thus, according to the owners there can be an order against the insurer for a different sum from the order against the Builder if founded upon different evidence and the fact that the evidentiary claim against the Builder was not wholly successful is no reason in principle as to why it could not be wholly successful against the other. 18 It is my view that strictly speaking, there are "two building claims" as defined by the HBA not two causes of action. The owners' claim against the Builder is the claim for compensation or loss arising from the Builder not performing the work in a proper and workmanlike manner. The owners have a further building claim which is defined as being an appeal against the decision of an insurer under the contract of insurance required by the Act.

The insurance indemnity 19 The insurer submitted that the CTTT erred in law in its interpretation of the insurance indemnity. The insurer submitted that there was no appeal from a decision of an insurer under a contract of insurance pursuant to s 48A(2)(a) HBA and that the correspondence from the insurer does not represent a 'decision' from the insurer, which was ultimately found by the CTTT against the insurer. 20 The letter from the insurer to the owners, dated 21 August 2003, refers to the owners' claim relating to defective building works and advised that after an inspection, it would accept certain items (as specified) and denied liability for items and for each of these items a reason was given. The letter continued: "… We have enclosed a Works Schedule that sets out the work to be performed under the warranty insurance and request that you submit two detailed written quotations for our consideration. On receipt of satisfactory quotations we will proceed with assessment of your claims. … You may request a review of this decision by writing to the Claims Manager, Allianz Australia, setting out the reasons for review. Alternatively, a person may appeal an Insurers decision to the Fair Trading Tribunal ." [underlining my emphasis added] 21 Certainly, the insurer considered that it had made a decision of some sort because it said so. 22 The insurer referred to Australia Broadcasting Tribunal v Bond (1990) 170 CLR 321 at 335 where the High Court referred to the meaning of the word "Decision".

The definition in s 3(1) does not elucidate significantly the meaning of the word "decision" as it is used in the AD(JR) Act. It is clear that a "decision to which this Act applies" must be a decision of an administrative character, that it may be made in the exercise of a discretion, and that it must be made under an enactment. But these characteristics provide little guidance as to the meaning of the word "decision" upon which the definition in s 3(1) is based.

The word has a variety of potential meanings. As Deane J noted in Director-General of Social Services v Chaney (1980) 31 ALR 571, in the context of judicial or administrative proceedings it ordinarily refers to an announced or published ruling or adjudication. In such a context, the word may signify a determination of any question of substance or procedure or, more narrowly, a determination effectively resolving an actual substantive issue. Even if it has that more limited meaning, the word can refer to a determination whether final or intermediate or, more narrowly again, a determination which effectively disposes of the matter in hand: see Chaney at 590.

In the context of judicial proceedings, the Privy Council has accepted that "the natural, obvious and prima-facie meaning of the word 'decision' is decision of the suit by the Court": see Rajah Tasadduq Rasul Khan v Manik Chand (1902) LR 30 Ind App 35 at 39; The Commonwealth v Bank of NSW (1949) 79 CLR 497 at 625. But here the relevant context is not that of a decision reached in curial or judicial proceedings, so that the meaning must be determined by reference to the text, scope and purpose of the statute itself.

The fact that the AD(JR) Act is a remedial statute providing for a review of administrative action rather than some form of appeal from final decisions disposing of issues between parties indicates that no narrow view should be taken of the word." 23 The insurer submitted that that the correspondence from the insurer was not a determinative position, reflecting a decision of the insurer and a best that correspondence can only be seen as preliminary steps or negotiation. Further, the insurer submitted that the CTTT misunderstood the statutory scheme. The HBA and HBR provide a scheme whereby an owner has insurance coverage, as a beneficiary, for losses or damage that arise from a breach of statutory warranty, the breach being by the contractor or builder. According to the insurer, in accordance with the then clause 43, the beneficiaries of the policy are the owners. The indemnity provided is as to loss or damage resulting from non-completion or loss or damage arising from a breach of statutory warranty, they being the statutory warranties provided by s 18B of HBA. The insurer submitted that any entitlement of a beneficiary under the policy is limited to their right of indemnification. 24 An indemnity policy was described in British Traders' Insurance Co Ltd v Monson (1964) 111 CLR 86 at 93 as: "…having as its sole purpose, and therefore imposing as its only obligation, the indemnification of the insured, up to the amount of the insurance, against loss from the accepted risk" (per Kitto, Taylor and Owen JJ).

And per Windeyer J (at 104): "… But, because an insurance contract is a contract of indemnity, the amount recoverable under the policy could not exceed the sum necessary to indemnify the Monsons against the loss actually sustained by them in consequence of the fire." 25 The insurer submitted that the amount recoverable by the owners against the insurer is limited to the losses established by them as being occasioned or occurring or resulting from or arising from the breach of statutory warranty and that the CTTT found that the amount proved by the owners against the Builder was $106,787.00 and this amount should have been the totality of orders made by the CTTT in favour of the owners. The insurer also submitted that the CTTT erred in finding that the correspondence between the insurer and the owner were an admission by the insurer so as to cause a finding that the insurer was liable other than as an indemnity to the beneficiaries under the policy and that it matters not whether the correspondence is an admission or otherwise, the insurer is only liable to indemnify the loss or damage provable by the owner with respect to the statutory warranties pursuant to the HBA. Alternatively, the insurer submitted that if the correspondence is treated as an admission, the owner is still required to establish their loss and the insurer is only required to indemnify for that loss. 26 On the other hand, the owners submitted that whether the act of the insurer was a "decision" or merely "preliminary steps or negotiations" - as the insurer submitted - is a question of fact, not law. Secondly, the owners submitted that the statute does not limit claims against the insurer only to appeal following a decision. 27 The Tribunal Members at [12] stated: "I consider the proper construction of the letter of 21 August 2003 is that the insurer admitted liability for the items under the heading "Items accepted". I do not consider that the admission of liability for certain items was conditional on acceptable quotes. Such a construction would merge the distinct issues of liability (which was admitted by indicating the items were "accepted") and quantum (which was not admitted - the owners being requested to obtain quotes). I consider it is clear from the terms of both this letter and the subsequent letter of 30 October 2003 that the insurer itself treated these issues as distinct. The later letter disputed the quantum of the quotations obtained, but directed the owners to further builders for other quotes - it did not re-open the issue of liability for the accepted items." 28 The Tribunal Member considered that the amounts which appear in the letter constituted admissions by the insurer and pointed out that the insurer chose to conduct its case solely on the basis of cross examination of the expert retained by the owners and the builder. However, as previously stated the letter admitted liability for some items and next to that item a sum appeared. There were further things to be done, namely the supply of two quotes. If the insurer had intended to admit these amounts, there would have been no need for further quotes. Hence, I do not think that there were admissions of quantum in relation to this item. 29 It is my view that the word "decision" should not be given a narrow interpretation. Thus, the Tribunal Member was correct in finding that there was a decision of the insurer. But what was the decision that was actually made? It was a decision by the insurer that it would pay for certain work to be performed after receipt of two detailed written quotations for their consideration provided those quotations were satisfactory. The insurer would then proceed to the assessment of the claim. 30 The owners then submitted that a claim by the owner for the payment of a specified sum of money from the insurer is a type of building claim and it is open to the owners to bring such a claim without relying on s 48A(2)(a). Alternatively, the owners submitted that a claim against the insurer is "a claim for compensation for loss arising from a breach of a statutory warranty…" as defined in s 48A(2)(b). That provision does not limit the claim for compensation for loss to those being claimed against the person who breached the statutory warranty. There is no ground to imply any such limitation, particularly in a statute of this character. It follows, it is submitted, that the claim by the owner against the insurer is a claim for such compensation and can therefore be brought without relying on s 48A(2)(a). 31 More importantly, it is my view that the insurer is only liable to indemnify for the loss or damage for the breaches of statutory warranties pursuant to the HBA. That is the loss or damage for which the insurance contract must indemnify the beneficiaries (see cl 43). This loss and damage can only be one quantified amount not two. The insurer did not make a decision that it would pay a quantified sum but rather made a decision that it would proceed to the assessment of the claim upon receipt of two satisfactory quotes. It is my view the insurer is only liable for the amount of loss for the breaches of the statutory warranties. The owners relied on the Barnett report to quantify these losses in the application before the CTTT, namely the losses totalling $106,787.00. 32 The appeal is upheld. The Tribunal Member's decision that Sampson Developments Pty Ltd and Allianz Australia Insurance Limited jointly and severally pay Kevin Baker and Robert Minch the sum of $106,787.00 is affirmed. The Tribunal Member's decision that Allianz Australia Insurance Limited pay Kevin Baker and Robert Minch the additional sum of $64,813.00 is set aside. 33 Costs are discretionary. Costs usually follow the event. The first and second defendants are to pay the plaintiff's costs as agreed or assessed. The first and second defendants are to have a certificate pursuant to the Suitors Fund Act, if eligible.

(2) The Tribunal Member's decision that Sampson Developments Pty Ltd and Allianz Australia Insurance Limited jointly and severally pay Kevin Baker and Robert Minch the sum of $106,787.00 is affirmed.

(3) The Tribunal Member's decision that Allianz Australia Insurance Limited pay Kevin Baker and Robert Minch the additional sum of $64,813.00 is set aside.

(4) The first and second defendants are to pay the plaintiff's costs as agreed or assessed. The first and second defendants are to have a certificate pursuant to the Suitors Fund Act , if eligible. **********

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