Appellant v Respondent

APPEAL - Questions of law - Decision by VCAT concerning building works covered by certificates of insurance - Damages for non-completion not deducted - Contention about calculation of loss and damage not put to VCAT - Whether contention can be a question of law for appeal - Victorian Civil and Administrative Tribunal Act 1998 s 148.

1 The appellant, CBL Insurance Ltd ('CBL'), appeals against an order of the Victorian Civil and Administrative Tribunal ('the Tribunal') made on 15 November 2012 that it pay the respondent, Mr Nicholas Skordakis, the sum of $260,982, pursuant to two policies of domestic building insurance issued to him by CBL in respect of townhouses to be built in Bulleen.

2 The appeal is limited to questions of law. The questions that the appellant relies on concern the Tribunal's findings as to the contract under which domestic building works were undertaken and whether these works were insured under the policies of domestic building insurance issued by CBL. A secondary issue is the quantum of Mr Skordakis' entitlement under the policy.

3 Mr Skordakis was the owner of land in Bulleen. On 1 May 2007, he entered into a contract with a builder, Springvalley Waterhouse Developments Pty Ltd ('Springvalley'), to construct two townhouses upon this land, for a price of $705,000 ('First Contract'). On 22 May 2007, Mr Skordakis and Springvalley entered into a second contract for the construction of these townhouses, for a price of $438,000 ('Second Contract').

4 The Second Contract differed from the First Contract in respect of the price for the building work and as a consequence the amounts that were payable at various stages of the work. It also differed by stating that the Project Specification of 29 April 2007 was no longer required and nominating Project Specifications dated 20 May 2007.

5 The two contracts were in respect of domestic building work for the purposes of the Building Act 1993 and the Domestic Building Contracts Act 1995.

6 The Building Act 1993 in s 3 adopts the definition of 'domestic building work' found within the Domestic Building Contracts Act 1995. One of the purposes of the latter Act is 'to require builders carrying out domestic building work to be covered by insurance in relation to that work'.[1] This is reflected in ss 135 and 137A of the Building Act 1993, which provide for the making of ministerial orders to require builders and other specified persons to take out insurance cover with respect to domestic building work and specify the form of such insurance as to kinds and amounts of coverage. Relevantly, Ministerial Order No. S 98 of 23 May 2003 ('Ministerial Order'), made under ss 135, 137A and 137D of the Building Act 1993, specifies, inter alia, 'the insurance that a builder is required to be covered by in order to carry out or manage or arrange the carrying out of domestic building work under a domestic building contract ... in which the contract price for the carrying out of domestic building work is more than $12,000'.

7 On 22 May 2007, the same day as the Second Contract was signed, Mr Skordakis obtained a Residential Investment Loan from the Australia and New Zealand Banking Group Limited in the sum of $822,000, for the purpose of the construction of the two townhouses.

8 On 31 May 2007, CBL issued two certificates of insurance to Mr Skordakis, one in respect of each townhouse, with the declared contract price of each townhouse stated in the relevant certificate as $250,000, and the contract with respect to which the insurance was issued stated to be a contract dated 31 May 2007.[2] Neither the First Contract nor the Second Contract bear this date.

9 On 28 May 2010, Springvalley went into liquidation, having failed to complete the construction of the townhouses and the work completed being defective in numerous respects.

10 On 25 June 2010, Mr Skordakis submitted a claim to CBL pursuant to the two policies of insurance.

11 On 27 January 2011, CBL offered Mr Skordakis the sum of $35,464 with respect to his claims. He did not accept that offer.

12 On 12 July 2011, Mr Skordakis applied in the Tribunal to review CBL's decision and to seek indemnity for the maximum award of $200,000 payable under each policy, being $400,000 in total.

13 The Tribunal set down a preliminary question for hearing on 17 February 2012, as to whether CBL had accepted liability for the claim.

14 On 17 February 2012, the parties signed consent orders for the conduct of the application, in the following terms:

1. The order for the hearing of the preliminary question dated 25 October 2011 is vacated.

2. The hearing date of 16 April 2012 is confirmed.

3. Costs of the hearing of the preliminary question are reserved.

4. Application adjourned for directions on 9.30AM 9 March 2012.

NOTE: The parties agree that the respondent has accepted liability for the applicant's claims dated 25 June 2010 and delivered to the respondent on 28 June 2010 and the matter is to proceed as an assessment of the quantum of the applicant's claims only.

15 Eight months later, the Tribunal heard Mr Skordakis' application for three days in October 2012 and, on 15 November 2012, published reasons and made orders in favour of Mr Skordakis in the sum of $260,982, which was later corrected to include interest in the sum of $33,551.34, bringing the total judgment amount to $294,533.34.

16 CBL's primary defence before the Tribunal was that the building work done by Springvalley was done under the First Contract and was therefore not covered by the certificates of insurance issued to Mr Skordakis on 31 May 2007 which, together with a Home Warranty Insurance Policy document, constituted 'the policy'.

17 The Tribunal found that the work was done under the Second Contract and was, therefore, covered by the policy. The following extract reveals the Tribunal's reasoning:

Mr Grahame [Counsel for CBL] submitted that it is clear that the relevant contract was the First Contract for $705,000 and that it was pursuant to that contract that the bank made the payments. He referred me to the terms of the insurance policy which provide indemnity with respect to domestic building work "required pursuant to the Contract" The term "contract" is defined as follows:

"Contract" means the domestic building contract entered into between the Builder and the Owner for the carrying out of the Works, and is referred to in them Schedule herein".

The schedule to the policy refers to a fixed price contract dated 31 May 2007 and a declared contract price of $250,000. Neither that date nor the amount refers to either contract but the amount is closer to the Second Contract than the First Contract.

I accept Mr Graham's submission that the Owner must prove on the balance of probabilities that the work, with respect to which indemnity is now claimed, was done pursuant to a contract that he entered into with the Builder. Further, since the only claim that has been made is with respect to work said to have been done under the Second Contract, it is necessary for the purpose of this proceeding for the Owner to establish that the work was done pursuant to the Second Contract and not the First Contract.

Mr Wilmoth submitted that it is not possible to assert that the work was done pursuant to the First Contract because that was replaced by the Second Contract which is later in time.

I think Mr Wilmoth is right. For whatever reason, the Owner and the Builder entered into two contracts, the first on 1 May 2007 and the second on 22 May 2007. Despite some very slight differences in specifications both contracts are, essentially, to carry out the same scope of works on the same piece of land. They cannot both stand.

By entering into the Second Contract the First Contract has been superseded. Where a new agreement is inconsistent with the original contract to an extent which goes to the very root of it the parties will be presumed to have intended to rescind the old contract and to have substituted a new one (see Halsbury; Laws of England 4th ed. Vol.9 para 570).

Since the Second Contract replaced the First Contract, the only extant agreement between the Owner and the Builder at the time the work was done that is in evidence is the Second Contract. I cannot speculate that there might have been some other agreement between the Builder and the Owner that is not in evidence.

It is unlikely that the work would have been done pursuant to no agreement at all so, although the progress claims made to the bank were for amounts that would have been payable pursuant to the First Contract, they must be considered to have been paid on account of monies owed to the Builder by the Owner pursuant to the Second Contract. Exactly how that was to work between the Owner and the Builder does not appear from the evidence.

For these reasons I am satisfied that the alleged and incomplete work was done pursuant to the Second Contract and is therefore covered by the policy.[3]

18 CBL relies on seven questions of law, as set out in CBL's notice of appeal:

1. Whether the Tribunal erred in law in finding that the First Contract was superseded by the Second Contract?
2. Whether the Tribunal erred in law in finding that the only extant agreement between the Owner/Respondent and the Builder at the time the work was done that was in evidence was the Second Contract?
3. Whether the Tribunal erred in law in finding that although the progress claims made to ANZ Banking Corporation (the Bank) were for amounts that were payable pursuant to the First Contract, they must be considered to have been paid on account of monies owed to the Builder by the Owner/Respondent pursuant to the Second Contract?
4. Whether the Tribunal erred in law in finding that the work was done pursuant to the Second Contract and not the First Contract?
5. Whether the Tribunal erred in law in finding that the work which was done pursuant to the Second Contract was covered by the policy?
6. Whether the finding of the Tribunal that the First Contract was superseded by the Second Contract was so contrary to the evidence before the Tribunal that it was perverse and not reasonably open on the evidence?
7. Whether the Tribunal erred in its calculation to the Respondent's (Applicant below) loss and damage by failing to bring into account the balance in hand, or which ought to have been in hand, of the Second (or First) contract price, according to the terms of that contract.

19 In written submissions, and at hearing, counsel for CBL stated that the first six questions of law could be summarised in the following terms:

(a) The Tribunal erred in finding that the works were performed pursuant to the Second Contract.

(b) Further, the Tribunal erred in finding that the works performed pursuant to the Second Contract were covered by the insurance policy.

20 While CBL maintained its reliance on each of the questions of law set out in the notice of appeal, only the fifth and seventh questions of law were developed in oral submissions.

21 Counsel for CBL relied on a written summary of its case in respect of questions of law five and seven as follows:

1. There is no reasoning that considers whether the claim made by Mr Skordakis was for loss and damage arising out of a building contract to which the Policy responded; and
2. If there was a building contract to which the Policy responded, the loss and damage calculation failed to make allowance for the unpaid 20% of contract price beyond lock-up stage, that is, the uncompleted (and unpaid) fixing (15%) and completion (5%) stages.

22 The relevant provisions of the Home Warranty Insurance Policy provide:

In consideration of the payment by the Builder of the premiums specified in the Schedule to this policy, the Insurer will provide insurance cover to the Building Owner, subject to the terms and conditions set out in this policy, and in compliance with the Parts 2 and 4 of the Ministerial Order issued pursuant to Section 135, 137A and 137D of the Building Act 1993 [Victoria] and dated 20 May, 2003, and subject to the governance of the law of the State of Victoria.

A : COVERAGE

A1 The Insurer will, during the period of insurance specified in the Schedule to this policy, indemnify the Building Owner in respect of loss or damage resulting from:

1. non-completion of the domestic building work;
2. domestic building work that is defective;

1. conduct by the builder in connection with the domestic building contract that contravenes a trade practices provision;

...

B : LIMITATIONS

...

B3 The maximum aggregate liability of the Insurer under this Policy shall be limited to not less than the aggregate amount of $200 000 for all claims in respect of any one home, including reasonable legal costs and expenses incurred by the Insured (not being the Builder or Owner Builder) associated with the successful claim against the insurer.

B4 The liability of the Insurer as a result of non-completion of the Works by the Builder pursuant to clause A1.a shall be limited to the cost of completing the Works but in any event shall not exceed twenty per cent [20%] of the Contract Price.

B5 The liability of the Insurer for loss or damage resulting from the conduct of the Builder pursuant to clause A1.e herein shall be limited to the cost of rectifying the damage to the Works.

...

B8 Where the damage or loss under this policy is also covered by any other policies of insurance or indemnity agreements, then the liability under this policy shall only provide indemnity in excess of the amount for which the Building Owner is entitled to indemnity under such other policies or indemnity agreements.

...

E : CLAIMS

E1 The Building Owner must:

1. notify either the Builder or the Insurer promptly in writing upon becoming aware of some fact or circumstance that may give rise to a claim under this policy. The Insurer shall not be liable for any additional loss or damage caused by the delay on the part of the Building Owner in notifying the Insurer or the Builder of a fact or circumstance giving rise to a possible claim, and will not be liable for any loss or damage where the Building Owner does not make a claim within 180 days of first becoming aware of the fact or circumstance giving rise to the possible claim;
2. comply with the reasonable directions of the Insurer, and take reasonable precautions to avoid or minimise loss or damage under this policy;

...

F : GENERAL

...

F7 If the Insurer has not determined a written claim as to liability within 90 days of receipt of the claim, then, unless the Insurer obtains an extension of time from the Insured or the Tribunal, the Insurer is to be deemed to have accepted liability for the claim.

F8 If a person gives the Insurer notice of a defect, that person is to be taken for the purposes of the policy to have given notice of every defect to which the defect notified is directly or indirectly related, whether or not the claim in respect of the defect that was actually notified is settled.

F12 The insurer must provide a Certificate of Insurance, in the form or to the effect of the form contained in either Schedule 2 or Schedule 3 to the Order (as the case may require) and evidencing that a policy has been issued in compliance with this Order in respect of each home for which insurance is required:

(a) to the insured immediately on the issue of the policy; and

(b) on request by the builder, owner builder or insured at any time.

...

G : DEFINITIONS

...

"claim[s]" means where the context permits, a claim made by the Building Owner under this policy

...

"Contract" means the domestic building contract entered into between the Builder and the Building Owner for the carrying out of the Works, and is referred to in the Schedule herein,

...

"Schedule" means the schedule of this policy.

...

"Works" means the domestic building work required pursuant to the Contract.

...

Headings are for reference only and do not affect the meaning of any provision of the policy. Any reference to the headings is to be construed as a reference to the provisions of that section of the policy.

23 Provisions of the Ministerial Order are also relevant in the interpretation of the policy. They include:

PART 2 - DOMESTIC BUILDING CONTRACTS

...

7. Required insurance

(1) Before entering into an insurable domestic building contract, a builder must ensure that -

(a) a policy is issued that complies with this Order (except Part 3); and

(b) the policy covers the building work to be carried out under the contract.

(2) A builder may enter into an insurable domestic building contract without complying with subclause (1) if the contract contains a written condition that -

(a) requires a policy that complies with this Order (except Part 3) and covers the building work carried out under the contract to be issued before the builder may enforce any provision of the contract; and

(b) requires the policy to be issued before any domestic building work is carried out under the contract; and

(c) states that no money (including deposit money) is payable under the contract before that policy is issued; and

(d) requires the builder to ensure that a copy of the policy is provided to the building owner within 7 days after it is issued.

8. Indemnity for loss

(1) The policy must indemnify the building owner in respect of loss or damage resulting from non-completion of the domestic building work.

(2) The policy must also indemnify the building owner in respect of loss or damage resulting from all or any of the following events -

(a) domestic building work that is defective;

(b) a breach of any warranty implied into the domestic building contract by section 8 of the Domestic Building Contracts Act 1995;

(c) a failure to maintain a standard or quality of building work specified in the domestic building contract;

(d) conduct by the builder in connection with the domestic building contract that contravenes a trade practices provision.

(3) The policy may provide that the indemnity referred to in sub-clause (1) or (2) only applies if the builder dies, becomes insolvent or disappears.

...

11. To whom does the cover extend?

The required insurance cover in the policy must extend -

(a) to each person who becomes entitled to the benefit of any of the warranties referred to in clause 8(2)(b); and

(b) to the owner for the time being of the building or land in respect of which the domestic building work is or was being carried out.

...

PART 4 - ADDITIONAL POLICY PROVISIONS

Division 1 - Mandatory Provisions

25. Purpose of this Division

This Division sets out provisions that a policy required under Part 2 or Part 3 must contain.

26. Policy to comply with Order

The policy must contain a provision to the effect that the policy is issued in compliance with this Order and if any term of the policy conflicts or is inconsistent with this Order then the policy must be read and be enforceable as if it complies with this Order.

27. Insurer to accept findings of Tribunal

The policy must contain a provision to the effect that if the insurer has notice of the relevant proceedings before the Tribunal, the insurer will accept as determinative of the issues any finding made by the Tribunal -

(a) as to whether any of the following events has occurred -

(i) the non-completion of domestic building work;

(ii) an event referred to in clause 8(2)(a) to (d);

(iii) a breach of warranty referred to in clause 20;

(iv) an event referred to in clause 9 or 21; and

(b) if so, as to the amount of loss or damage suffered by the building owner or purchaser, as the case may be, as a result of the event or events.

28. Restrictions on avoidance of policy

(1) The policy must contain a provision to the effect that the insurer may not avoid the policy or refuse to make or reduce any payment under the policy on the ground that -

(a) the builder or owner builder, as the case may be -

(i) breached any duty of the utmost good faith; or

(ii) failed to comply with any duty of disclosure; or

(iii) made representations to the insurer; or

(iv) failed to comply with a provision or requirement of the policy; or

(v) by act or omission of any description prejudiced the interests of the insurer; or

(b) the premium or any instalment of the premium has not been paid.

(2) The policy may provide that if an insurer makes a payment under a policy in circumstances to which this clause applies, the insurer is entitled to recover from the builder or owner builder, as the case may be, any amount so paid.

29. Time for determination of claim

The policy must contain a provision to the effect that if the insurer has not determined a written claim as to liability within 90 days of receipt of the claim, then, unless the insurer obtains an extension of time from the insured or the Tribunal, the insurer is to be deemed to have accepted liability for the claim.

...

Division 2 - Allowable Exclusions and Limitations

34. Purpose of this Division

This Division sets out provisions that a policy required under Part 2 or Part 3 may contain.

35. Policy may impose limitations on total amount payable

The policy may limit the liability of the insurer to not less than the aggregate amount of $200 000 for all claims in respect of any one home, including reasonable legal costs and expenses incurred by the insured (not being the builder or owner builder) associated with the successful claim against the insurer.

36. Policy may limit cover for certain external works

(1) The policy may exclude or limit cover for loss or damage relating to landscaping, paving, retaining structures, driveways or fencing.

(2) The policy must not exclude or limit cover under sub-clause (1) in relation to works if those works -

(a) are integral to the construction of a building; or

(b) require the issue of a building permit under the Building Act 1993; or

(c) could result in water penetration of or within a building; or

(d) could adversely affect health or safety; or

(e) adversely affect the structural adequacy of a building; or

(f) are not completed and the builder has died, become insolvent or disappeared.

24 The Tribunal found that Mr Skordakis had submitted a claim to CBL on 25 June 2010 and CBL had not determined the claim as to liability within 90 days of receipt, with the consequence that CBL was deemed to have accepted liability for the claim unless it obtained an extension of time.[4] The Tribunal also noted CBL's admission of liability in the note that formed part of the consent order of 17 February 2012 and CBL's assertion before the Tribunal that 'it was only after this order was made that it learned of the existence of the First Contract and ... obtained leave to file and serve a further amended defence'.[5] Notwithstanding the admission of liability in the consent order, the Tribunal noted that there was a dispute about whether CBL had obtained an extension of time from Mr Skordakis.[6] The Tribunal found that, given the conflict of evidence in relation to this alleged extension, it was not satisfied that CBL had proved that it had obtained an extension.[7] That finding was not challenged on this appeal.

25 At the commencement of the appeal hearing, following discussion with the parties, leave was granted for Mr Skordakis to file a notice of contention.

26 The essence of Mr Skordakis' notice of contention was that CBL was deemed to have accepted liability under the policy, that CBL had subsequently and expressly accepted liability in consent orders made ahead of the hearing, and that CBL did not subsequently apply for an extension of time under the policy to delay the application of the deeming provision. Mr Skordakis contended that the only question for determination was quantification of his claim.[8]

27 It is convenient to restate clause F7 of the policy, the deeming provision, which provides:

If the Insurer has not determined a written claim as to liability within 90 days of receipt of the claim, then, unless the Insurer obtains an extension of time from the Insured or the Tribunal, the Insurer is to be deemed to have accepted liability for the claim.[9]

28 Mr Skordakis submitted that this provision was contained in the policy in conformity with clauses 25 and 29 of the Ministerial Order, which are set out above.

29 In response to the issues raised in Mr Skordakis' notice of contention, CBL relied upon its primary submission at hearing: that Mr Skordakis' claim related to a building contract that was neither the First Contract nor the Second Contract and therefore CBL was not liable for any loss and damage associated with building works performed under either of these contracts. Because there was 'no policy that answers in respect of defects to the building works', then there was no claim for the purposes of the policy and CBL could not be deemed to have admitted liability to a non-existent claim.

30 CBL relied on the decision in Australian International Insurance v Graham,[10] in which Balmford J, dealing with the effect of a 90-day deeming provision similar to that set out under clause F7 of the policy issued to Mr Skordakis, in circumstances in which the Tribunal allowed an extension on the 91st day after the claim had been submitted, stated:

I accept the submissions of [Counsel] and find that clause 8.5 of the Ministerial Order does not confer on the Tribunal jurisdiction to extend the time within which the insurer may determine the claim.[11]

31 CBL also relied upon the following passage from Pearce and Geddes' text, Statutory Interpretation in Australia,[12] to which text Balmford J referred:

as was pointed out in Coates v Cmmr for Railways (1961) 78 WN (NSW) 377, where a statute provides that something is to be deemed to be a fact, it is implicit in such a provision that the assumption shall be made if necessary contrary to the fact...But, as was pointed out by Samuels J in Woodlock v Commr of Land Tax (NSW) (1974) NSWLR 411; 5 ATR 57, it must not be overlooked that the fiction created by the deeming provision is generated by a true, as opposed to a fictitious, state of affairs. The presence of the deeming provision must not divert attention from the consideration of the facts on which the provision is to operate have to exist before the fictitious treatment of those facts takes over.[13]

32 On the basis of the authorities, CBL submitted that no deeming of liability had occurred, as there had been no claim in respect of either incomplete or defective building works pursuant to the building works identified in the contract in the schedule to the contract of insurance.

33 CBL contended that on 17 February 2012, when the consent orders were made, it did not know about the existence of the First Contract, and did not have knowledge which would have alerted it to the uncertainty as to which contract the policy was said to attach and hence the basis for disputing the deeming of liability. It also submitted that its decision not to challenge liability within the 90-day period may have been influenced by 'commercial considerations' because the claim was small and the costs of challenging it outweighed the claim's worth.[14]

34 I will consider the issues arising from the respondent's notice of contention in dealing with the fifth question of law and its attached grounds.

Whether the Tribunal erred in law in finding that the work which was done pursuant to the Second Contract was covered by the Policy?

36 The grounds of appeal that relate to this question are as follows:

1. The Tribunal fell into error by failing to consider or to sufficiently consider relevant considerations including:

(a) That at all material times the Respondent and the Builder acted on the basis that their relationship was governed by, and the Builder undertook the building works pursuant to, the terms of the First Contract as evidence by:

(i) The Respondent paying the Builder a deposit in accordance with the terms of the First Contract;

(ii) The Builder submitting progress claims to the Respondent and/or the Bank which identified the relevant contract as the First Contract;

(iii) The Builder submitting progress claims to the Respondent and/or the Bank in accordance with the terms of the First Contract;

(iv) The Respondent and/or the Bank, with the authority of the Respondent, making progress payments to the Builder in accordance with the terms of the First Contract.

(b) That at all material times the Respondent acted in his relations with the Bank on the basis that the First Contract governed his relationship with the Builder as evidenced by:

(i) The Respondent submitting a copy of the First Contract to the Bank to support his application for a Residential Investment Loan (the Loan); the proceeds of which, or part thereof, were to be used to undertake the building works;

(ii) The Respondent acquiescing in Charter Keck Cramer, valuers, relying upon the First Contract in undertaking a post construction valuation of the Respondent's property for the purpose of supporting the Respondent's application for the Loan;

(iii) The Respondent acquiescing in the Builder submitting progress claims to the Bank which identified the relevant contract as the First Contract;

(iv) The Respondent acquiescing in the Builder submitting progress claims to the Bank in accordance with the terms of the First Contract;

(v) The Respondent certifying for the purpose of the Bank releasing funds for payment of progress payments that the work done was in accordance with the First Contract;

such that the finding of the Tribunal that the First Contract was superseded by the Second Contract and that the work was done pursuant to the Second Contract is perverse in all the circumstances and not open on the evidence.

CBL's submissions in respect of the fifth question of law

37 CBL submitted that the Tribunal had not provided reasons for a conclusion that Mr Skordakis' claim was for loss and damage arising out of a building contract to which the policy responded.

38 CBL submitted that while the Tribunal determined that the building works undertaken by Springvalley were performed under the Second Contract rather than the First Contract, the Tribunal's reasons did not contain a reasoning process explaining why it concluded that the First Contract or the Second Contract was the contract for building works included in the certificates of insurance. The policy schedule referred to a contract dated 31 May 2007. It was not open to the Tribunal to find that the building contract referred to in the policy schedule was the Second Contract. The Tribunal stated that it was unable to 'speculate that there might have been some other agreement' between Mr Skordakis and Springvalley.[15] The Tribunal was required to find a link connecting the First Contract or Second Contract with the contract described in the schedule so that there could be a finding that 'this is the contract which obliged this builder to do these building works and this insurer to indemnify this owner in respect of that building work'.[16] Having failed to provide reasons for making any such link, the Tribunal erred in finding that the contract to which the policy responded was the Second Contract merely because the policy did not relate to the First Contract.

39 CBL submitted that the Tribunal ought to have found that Mr Skordakis' claim failed, as there was no insurance in respect of the works performed by Springvalley under the First Contract or the Second Contract.

40 Alternatively, CBL submitted that the Tribunal erred in concluding that the works were performed pursuant to the Second Contract, rather than the First Contract. Counsel for CBL stated that this alternative submission was probably irrelevant as 'the burning issue is whether or not there was a contract which conformed with the schedule to the insurance policy and whether or not that is what the Ministerial Order required to occur'.[17] If CBL's primary submission were accepted, it would not be necessary to determine whether the works performed by Springvalley were done under the First Contract or the Second Contract.

41 CBL submitted that all of the objective evidence before the Tribunal pointed to Mr Skordakis and Springvalley conducting the performance of, and payment for, the works in accordance with the terms of the First Contract. This objective evidence included the following matters.

42 First, there was nothing in the schedule to each certificate of insurance that indicated that the works to be insured were being performed under the Second Contract.

43 Secondly, the Tribunal did not accept Mr Skordakis' evidence of the reason for the preparation of the Second Contract. The Tribunal concluded that it was unable to make any finding as to the reason as to why the Second Contract was prepared.

44 Thirdly, the Tribunal accepted evidence which supported the conclusion that the work was performed under the First Contract. That evidence was as follows. The only contract provided to Mr Skordakis' bank was the First Contract. All progress claims made by Springvalley and as paid by the bank, in the sum of $564,000 to lockup stage, corresponded with stage completion percentage amounts due under the First Contract, based on its $705,000 contract sum. These sums were considerably higher than those payable under the Second Contract, which contained a $438,000 contract sum. CBL submitted that Mr Skordakis had misled his bank in relation to the construction costs and the use being made of loan funds, by not accurately informing the bank of the funds he required and for what purpose. By providing a copy of the First Contract to the bank and thereafter agreeing with the builder to draw-downs appropriate to that contract sum, he would have caused the bank to believe that the construction cost was $705,000 as specified in the First Contract.

45 CBL further submitted that the Tribunal erred in holding that, by entering into the Second Contract, the First Contract had been superseded and that the only extant agreement between the owner and the builder at the time the work was done was the Second Contract. The Tribunal erred in holding that the two contracts were sufficiently inconsistent to enable the conclusion that the parties had intended to rescind the First Contract and to substitute a new contract. The conduct of Mr Skordakis and Springvalley was entirely consistent with the continued existence of the First Contract and the Tribunal had been unable to find why the Second Contract was entered into. The only significant difference between the First Contract and the Second Contract was a variation in the price.

Mr Skordakis' submissions on the fifth question of law

46 Mr Skordakis submitted that the Tribunal was correct to find that the Second Contract rescinded and replaced the First Contract. CBL had expressly and impliedly admitted liability for his claim prior to the Tribunal's decision and, in so doing, CBL must have identified and accepted a contract to which the policy schedule referred. Liability only arose in relation to a contract described in the schedule to the policy. If CBL wished instead to prove a 'third contract', CBL bore the onus of proving such other contract. But CBL made submissions before the Tribunal only in relation to the First Contract and the Second Contract. In those circumstances, the Tribunal was entitled to decide which of those two contracts was the contract to which the policy referred in its schedule.

47 Secondly, the details contained in CBL's certificates of insurance were not written by Mr Skordakis or Springvalley, but by CBL.

48 Mr Skordakis submitted that there was no question of law raised in the notice of appeal, only questions of fact. He relied on the following statement about the limits of appeals on questions of law arising from findings of fact:

an error of law in respect of findings of fact is only made out if the plaintiff is able to show that the particular finding was not open on the evidence.[18]

49 In Myers v Medical Practitioners' Board of Victoria,[19] the case in which that statement was made, Warren CJ also stated:

Essentially, by seeking to impugn various findings of fact, the appellant is seeking to rely on the error of law discussed in the judgment of Phillips JA in S v Crimes Compensation Tribunal.[20] Accordingly, if there are any grounds of appeal with respect to the tribunal's decision, they would be, with respect to each of the board's allegations made out against Dr Myers:

(1) that the tribunal's primary findings of fact were not open on the evidence before it;

(2) that it was not open for the tribunal to find that the primary findings of fact substantiated each allegation made out against the appellant; and

(3) that is was not open for the tribunal to find that the various charges against the appellant constituted unprofessional conduct as defined in s 3 of the Act.[21]

50 I do not consider that question of law five or the grounds of appeal associated with it establish any error by the Tribunal. The Tribunal found that the Second Contract governed the construction of the two townhouses. That was a finding of mixed fact and law. I do not consider that the Tribunal erred in law in making that finding and in so far as that finding involved questions of fact, those findings were open to the Tribunal on the evidence.

51 The Tribunal's findings have to be seen in the context of a number of factors that arise from CBL's response to the respondent's claim.

52 CBL did not determine the respondent's claim during the 90 day period and therefore it was deemed to have accepted it. No extension of time was obtained. The operation of this deeming provision is not one generated by, or based on, a fictitious state of affairs. It is the consequence that the insurance policy, made under a Ministerial Order, attaches to a failure to determine a claim.[22] Home warranty insurance has an important role in the community and the manner in which insurers deal with claims is regulated. The effect of the deemed acceptance of the claim is that it must be assumed that a valid claim under the policy or policies exists. That has the consequence that the owner is entitled to have his or her loss and damage arising out of the building works performed under a building contract assessed.

53 On 27 January 2011, CBL made an offer to the respondent based on an acceptance of liability for defects, but not for non-completion damages because it contended that the respondent was a developer. That contention was not pursued before the Tribunal.

54 There is then the consent order agreed to by the parties of 17 February 2012, by which CBL accepted liability for the claim and agreed that the application was to proceed as an assessment of quantum only.

55 By order made on 10 September 2012, CBL was given leave to file Further Amended Points of Defence. CBL did not suggest that the leave granted to file the Further Amended Points of Defence eliminated the effect of the deemed acceptance of the claim or the effect of the consent order of 17 February 2012.

56 In the Further Amended Points of Defence, CBL contended that the respondent failed to disclose all material facts in the claim and that everything contained within it and the accompanying information was not true and correct. It claimed that it cancelled the policy by letter of 13 September 2012 by giving 30 days' notice.

57 The particulars of that allegation concerned the respondent's alleged failure to disclose the First Contract dated 1 May 2007 and the finance claims made to the bank based on it. They alleged that the Second Contract was not the building contract pursuant to which the building works were undertaken. CBL alleged that the claim was false, fraudulent or misleading and in breach of the respondent's duty of good faith. It alleged that it was entitled to cancel, and had cancelled, the policy as a result of the respondent's false, fraudulent or misleading claim.

58 This defence did not succeed before the Tribunal, as it stated:

The Owner's claim was said in the notice of cancellation to be in breach of his duty of the utmost good faith in that he had failed to disclose to the Insurer the existence of the First Contract or that the true cost of the building works was $705,000 or the extent of the borrowings from the bank and the extent of the payments that he had made to the Builder. It is unnecessary to consider whether the Insurer would have been entitled to cancel the policy under this provision, not only because the period of thirty days had not expired by the time of the hearing but also because on any view, the loss claimed by the Owner was suffered before the policy was terminated and while the Insurer was on risk.

I think Mr Wilmoth is correct in saying that I cannot find that the units could not have been built for $438,000, however unlikely that might appear from the limited evidence that I have, because the expert evidence was not directed to that issue.[23]

59 At the Tribunal hearing, counsel for the respondent submitted that the re-pleading of CBL's defence did not detract from the proposition that there was no determination of the claim within 90 days and that 'liability is deemed by the respondent to have been accepted'.[24]

60 In submissions made during the appeal, counsel for the respondent placed considerable reliance on the deemed liability and the effect of the consent order. CBL's response was that it did not know of the First Contract when it consented to the orders of 17 February 2012. It also submitted that the process of determining liability required the determination of what gave rise to the liability to indemnify, which was the contract described in the schedule to the insurance policy. The Tribunal accepted that the respondent had to prove on the balance of probabilities that the work, with respect to which indemnity was claimed, was done pursuant to a contract that he entered into with the builder. It was necessary for the respondent to establish that the work was done pursuant to the Second Contract and not the First Contract.

61 However, in considering the Tribunal's approach to the answering of the issues that it identified, it is appropriate to consider the effect of the deemed acceptance of the claim. The consent orders also proceeded on the basis that CBL had accepted the claim.

62 The operation of the deeming clause and the consent orders meant that CBL accepted that a claim within the terms of the policy had been made. The remaining issue was the quantum of the claim. CBL took part in the quantum hearing by adducing expert evidence that relied in part on the Second Contract as the relevant building contract.

63 The effect of the acceptance of the claim was that the claim was to be treated as a valid claim. A valid claim meant a claim in respect of building works performed under a building contract insured by the Home Warranty Insurance Policy. The contract was described by the schedule as dated 31 May 2007. The works referred to were 'Double Storey Townhouse' at 'Darryl St Bulleen', with declared contract prices of $250,000 each. That was the location of the building work that Springvalley undertook. The builder had obtained the certificates of insurance. They were obtained on 31 May 2007, the same date as was given in the schedules for the 'fixed price contract'.

64 The Tribunal was entitled to conclude that CBL accepted that a building contract existed for the building works that were the subject of the respondent's claim. It was open to the Tribunal to conclude, both in law and fact, that the contract dated 22 May 2007 applied to the building work that was subsequently performed. It was a separate complete contract with a new contract price and different project specifications. That is what the Tribunal in essence did. The Tribunal found that the Second Contract was not a sham, but was unable to find the reason why it was entered into.

65 However, as both the builder and the respondent had signed the Second Contract and nine days later the builder obtained the certificates of insurance, it was open to the Tribunal to find that the Second Contract replaced the First Contract. The alteration of the price of the building works in the Second Contract was significant and the project specifications were replaced. It was for the Tribunal, having examined all the circumstances objectively, to decide if the Second Contract was intended to bind the parties in respect of the building of the two townhouses. The Tribunal was required to consider the intention of the parties viewed objectively in entering into the Second Contract.[25] The Tribunal found that the Second Contract was intended, that is intended at the time that it was entered into, to replace the First Contract.

66 CBL relied on the decision of the Queensland Court of Appeal in Coghlan v Pyoanee Pty Ltd[26] as suggesting that a mere alteration of price may not constitute a termination of an earlier contract and replacement by a second contract. But each case depends on the intention of the parties drawn from the facts viewed objectively. On the present facts, the parties entered into the Second Contract with a lower price, a few days before the issue of the certificates of insurance. It was open to the Tribunal to decide that the circumstances, viewed objectively, suggested the parties intended in entering into the Second Contract that it apply to the work to be performed. The Tribunal correctly stated that it could not speculate that there might have been some other agreement between the builder and the respondent that was not in evidence.

67 The Tribunal's path of reasoning was clear enough from its reasons, particularly when the context provided by the deeming clause and the consent orders is taken into account.

68 I do not accept the respondent's submission that CBL's grounds of appeal involved exclusively questions of fact. The issue of the identification of whether one contract has been rescinded and replaced by another involves questions of fact and law.

69 CBL relied on the fact that the builder and the respondent in dealing with the bank that provided finance for the building works relied on the First Contract. It appears that they did so to enable the respondent to obtain higher loan amounts from the bank. However, the Tribunal took these matters into consideration and did not consider that the Second Contract was a sham.

70 On the basis of the Tribunal's finding that the Second Contract of 22 May 2007 governed the building works, the discrepancy between that date and the date of the contract of 31 May 2007 in the policy schedule becomes less material. The builder obtained the insurance policy and not the respondent and presumably the builder provided the information contained in it.

71 In circumstances where the respondent made a claim which CBL accepted by reference to a contract, it was open to the Tribunal to find that the quantum of the claim was to be assessed with reference to work done under the Second Contract.

72 The result of the calculations of the respondent's quantum, as I understood it, was that the amount found by the Tribunal in respect of the Second Contract was the same amount as would have been assessed if the First Contract had applied.

73 Questions of law one, two, three, four and six and the grounds associated with them do not establish any error by the Tribunal for the same reasons as I have given in respect of the fifth question of law. They all relate in one form or another to the Tribunal's finding that the work was done under the Second Contract. Counsel for CBL although relying on questions of law one, two, three, four and six, did not make separate submissions in respect of them.

74 I add the following reasons in respect of the third question of law and associated grounds of appeal. They challenge the Tribunal's finding that the progress claims that the owner paid to the builder must be considered to have been paid on account of monies owed to the builder under the Second Contract. I do not read the Tribunal's reasons in that manner. Rather, the Tribunal accepted CBL's submission that the respondent had misled the bank, which had provided him with a general purpose facility, to believe that the construction costs were $705,000 and had agreed with the builder to draw downs appropriate to a contract of $705,000. The Tribunal did not regard that evidence as bearing on whether the work was performed under the First or Second Contract. The Tribunal was critical of the respondent and stated that if he had wanted extra money for luxury finishes in the townhouses that should have been dealt with in the Second Contract and the bank should have been informed of the funds that he required and their purpose. There is no error of law in those comments or conclusions by the Tribunal.

1. Whether the Tribunal erred in its calculation of the Respondent's (Applicant below) loss and damage by failing to bring into account the balance in hand, or which ought to have been in hand, of the Second (or First) contract price, according to the terms of that contract?

76 The ground of appeal that relates to this question is as follows:

1. Further or alternatively, if the Appellant was liable to indemnify the Respondent, then the Tribunal erred in its calculation of the Respondent's loss and damage by failing to bring into account the balance in hand, or the balance which ought to have been in hand, of the Second (or First) contract price, according to the terms of that contract:

(a) the Second Contract price was $438,000;

(b) the Respondent voluntarily paid the Builder $564,000;

(c) the Builder completed the works only to lock-up stage or 80% complete;

(d) the Respondent should have only paid the Builder progress payments in accordance with the terms of the contract to and including the lock-up stage, which represented 80% of the contract price or $350,400;

(e) as such, there was or ought to have been 20% or $87,600 of the contract price left in hand;

(f) that sum should have been allowed in the Tribunal's calculation of loss and damage for the costs of rectification and completion of the works, thereby reducing the sum payable to the Respondent from $260,982 to $173,382;

(g) if undisturbed, the Tribunal's Order represents a windfall or overcompensation to the Respondent in the sum of $87,600.

77 This argument was not put to the Tribunal, although the Associate Justice gave leave for it to be raised. The argument was put as an alternative in that it arose only if the Court did not accept the first six questions of law and associated grounds of appeal.

78 The appellant submitted that the respondent's claim comprised the cost of:

(a) rectifying defective works performed by the builder; and

(b) completing works which the builder failed to complete.

79 As the case involved incomplete works, the appellant argued that the Tribunal was required to assess what it should have cost the respondent to have the works completed and free of defects, that is, the full contract price, compared to what it actually cost or should have cost him. The difference is ordinarily the owner's compensable loss and damage. CBL submitted that not to take into account the unspent balance of the contract sum led to over compensation of the respondent owner who would end up spending less than the contract sum for the whole of the works. The appellant relied on the statement of principle in Woodward Pty Ltd v Kelleher[27] by Gleeson CJ, with whom Samuels and Priestley JJA agreed, that:

In Bellgrove [v Eldridge] the High Court cited with approval the following statement in Hudson on Building Contracts 7th Ed (1946) at 343:

The measure of the damages recoverable by the building owner for the breach of a building contract is, it is submitted, the difference between the contract price of the work or building contracted for and the cost of making the work or building conform to the contract, with the addition, in most cases, of the amount of profits or earnings lost by the breach.

The corollary of that proposition was stated in H Dakin and Company Limited v Lee [1916] 1 KB 566. In that case the matter was considered from the point of view of the builder, who had performed work which was defective, but not so defective as to produce the result that he could not recover anything for his services. He was held to be entitled to recover the unpaid balance of the contract price, less the cost of rectifying the defects.

...

The ultimate object of the rule as to damages earlier quoted is simply to apply to the particular case of a building contract the general principle of measurement of damages for breach of contract established in Hadley v Baxendale (1854) 9 EX 341 which is that the injured party is entitled to be indemnified against any loss likely to arise in the usual course of things from the breach, and also such other loss as was in the contemplation of the parties at the time of the contract as the likely result of the breach of it. Where a builder contracts to construct a building of a certain kind and to a certain standard of workmanship, and fails to do so, prima facie the loss sustained by the proprietor is the difference between what it will cost him to have the promised work carried out by somebody else and the price he agreed to pay to have it done by the builder in question. If, for some reason or other, the builder could not have enforced the contract against the proprietor, that does not mean that the proprietor was entitled to have the building erected for nothing.

80 The appellant submitted that as it was uncontroversial that the Tribunal had failed to take into account the 20% of the contract price 'left in hand' in the assessment of loss and damage, the Court should correct the Tribunal's calculations of loss or damage or, alternatively, remit the matter to the Tribunal with directions as to the proper calculation. No additional evidence was required and a proper financial reconciliation of the payments of the First and Second Contracts showed an overpayment of $87,600. The Tribunal's award should be reduced by that sum to the amount of $173,381.98.

81 The respondent submitted that the overpayment argument was not put to the Tribunal. The Court did not have any material relating to it and there was no evidence of it. The Court could not consider the argument in a vacuum. No error of law was established.

82 The respondent submitted that if he had known that the appellant would rely on this argument, he might have presented significantly more evidence in relation to the quantification of damages, some of which were agreed.

83 The Court can only hear an appeal from the Tribunal on a question of law.[28]

84 Where a matter is not argued before the Tribunal, in most circumstances, it cannot be said that a question of law relating to that matter arises in connection with the Tribunal's order.[29]

85 The right of appeal on a question of law differs from the powers of the Court of Appeal hearing an appeal from a judgment of a trial judge where the Court may allow additional arguments to be raised provided that their outcome would not have been affected by evidence that could have been led at the trial.[30]

86 The Tribunal considered the damages to be awarded under the policy in respect of a Scott Schedule prepared of defective and incomplete work. The Tribunal took into account the cap on claims for non-completion of 20% of the contract price, which amounted to $43,800 for each townhouse. The cap for the rectification cost of each townhouse was the balance of the $200,000 limit, namely $156,200. Agreement was reached between counsel that the figures assessed by the opposing experts would be averaged in regard to numerous items in dispute. In the case of other items, liability for some was disputed and the quantum of damages was disputed for the rest. Expert witnesses for both parties gave evidence in respect of these issues.

87 The Tribunal assessed the financial figures presented in respect of defects and incomplete work for the two townhouses and fixed an amount of 10% of the contract price as an appropriate allowance for the preliminaries.

88 In those circumstances, when an appeal is limited to a question of law and extensive evidence and submissions have been made about the amount that can be awarded under the policy as damages, I do not consider that there is any question of law involved in the Tribunal's calculations of the amount due under the insurance policy, or its failure to have regard to a matter not raised.

89 As has been stated in respect of appeals to the Federal Court on questions of law from the Administrative Appeals Tribunal:

[A]s a general rule, there is no error of law if the AAT fails to address issues of fact and law not the subject of argument by the taxpayer .[31]

90 The position may differ where there is a statutory precondition upon which the Tribunal has to be satisfied and where there is enough material and evidence before it to raise the issue independently of the parties' submissions.[32]

91 No error of law by the Tribunal arising from the seventh question of law or associated grounds of appeal has been established.

[1] Domestic Building Contracts Act 1995 s 1.

[3] Skordakis v Contractors Bonding Limited (Domestic Building) [2012] VCAT 1735, [30]-[38] ('Reasons').

[8] See as to notices of contention on appeals on questions of law: Commissioner of State Revenue v Oakbee Pty Ltd [2013] VSC 672, [38]-[40].

[10] [2005] VSC 183.

[12] D C Pearce and R S Geddes, Statutory Interpretation in Australia (LexisNexis Butterworths, 7th ed, 2011), cf Maroney v The Queen [2003] HCA 63; (2003) 216 CLR 31, 49 [56] (Kirby J).

[13] D C Pearce and R S Geddes, Statutory Interpretation in Australia (LexisNexis Butterworths, 7th ed, 2011) [4.43].

[14] Transcript of Proceedings, CBL Insurance Ltd v Skordakis (Supreme Court of Victoria, S CI 2012 6974, Ginnane J, 18 August 2014) 130.

[16] Transcript of Proceedings, CBL Insurance Ltd v Skordakis (Supreme Court of Victoria, S CI 2012 6974, Ginnane J, 18 August 2014) 51-2.

[17] Transcript of Proceedings, CBL Insurance Ltd v Skordakis (Supreme Court of Victoria, S CI 2012 6974, Ginnane J, 18 August 2014) 6.

[18] Myers v Medical Practitioners' Board of Victoria [2007] VSCA 163; (2007) 18 VR 48, 58 [38] (Warren CJ, Chernov JA and Bell AJA agreeing).

[19] [2007] VSCA 163; (2007) 18 VR 48.

[20] [1998] 1 VR 83.

[21] Myers v Medical Practitioners' Board of Victoria [2007] VSCA 163; (2007) 18 VR 48, 57-8 [35] (Chernov JA and Bell AJA agreeing).

[22] Compare the position as discussed in Kenneth Sutton, Insurance Law in Australia (LBC Information Services, 3rd ed, 1999) 944-5.

[24] Transcript of Proceedings, Skordakis v Contractors Bonding Limited (Domestic Building) (Victorian Civil and Administrative Tribunal, D200/2011, Senior Member Walker, 5 October 2012) 272.

[25] Tallerman & Co Pty Ltd v Nathan's Merchandise (Vic) Pty Ltd [1957] HCA 10; (1957) 98 CLR 93.

[26] [2003] QCA 146; [2003] 2 Qd R 636.

[27] [1989] NSWCA 82, quoted in Wabbits Pty Limited v Godfrey [2009] NSWSC 1299.

[28] Section 148(1) of the Victorian Civil and Administrative Tribunal Act 1998.

[29] Roads Corporation v McCarthy [2004] VSC 369, [71].

[30] Suttor v Gundowda Pty Ltd [1950] HCA 35; (1950) 81 CLR 418, 437-8; Coulton v Holcombe [1986] HCA 33; (1986) 162 CLR 1, 7-8.

[31] Commissioner of Taxation v Glennan [1999] FCA 297; (1999) 90 FCR 538, 558 [82] (Hill, Sackville and Hely JJ); Commissioner of Taxation v Raptis [1989] FCA 381; (1989) 19 ALD 726 (Gummow J).

[32] Kuswardana v Minister for Immigration and Ethnic Affairs [1981] FCA 66; (1981) 54 FLR 334, 343 (Bowen CJ); Hussain v Minister for Foreign Affairs [2008] FCAFC 128; (2008) 169 FCR 241, 256 [40] (Weinberg, Bennett and Edmonds JJ).