Insurance - Property Insurance - Strata Titled Property - Enforcement of claim by plaintiffs/proprietors of strata titled lots - Whether s 48(1) Insurance Contracts Act 1984 (Cth) entitled proprietors to claim - Whether proprietors are persons to whom the contract extends

Civil Procedure - Settlement of part of strata company's claim for damages - Whether any claim arising from damage caused by cyclone Vance was finally settled by strata company - Whether plaintiffs/proprietors are prevented from maintaining any claim against the defendant/insurer because all claims were finally settled by settlement agreement

Insurance Contract - Failure of plaintiffs/proprietors to commence and carry out rebuilding or replacing or repairing damage with reasonable despatch - Whether defendant insurer's liability is limited to an indemnity basis

Insurance Contracts Act 1984 (Cth), s 48(1)

Strata Titles Act 1985 (WA), as at 20 January 1997, s 17(1), s 32, s 33, s 53, s 53B, s 53C, s 53D, s 56, s 56A, s 58, s 59

Barroora Pty Ltd v Provincial Insurance Ltd (1992) 26 NSWLR 170

CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384

Insurance Commission of Western Australia v Kightly [2005] WASCA 154; (2005) 30 WAR 380

McCann v Switzerland Insurance Australia Ltd [2000] HCA 65; (2000) 203 CLR 579

Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451

The Owners of Habitat 74 Strata Plan 222 v Western Australian Planning Commission [2004] WASC 23

Trident General Insurance Co Ltd v McNiece Bros Pty Ltd [1988] HCA 44; (1988) 165 CLR 107

Visic v State Government Insurance Commission (1990) 3 WAR 122

Wise v Chu Underwriting Agencies Pty Ltd [2010] WADC 14

1 YEATS DCJ: This is the trial of four issues of law. The disputes concern a general contract of insurance between the defendant insurer Chu Underwriting Agencies Pty Ltd (Chu) and the Owners of Argosy Court SP 21513 in Exmouth. Each of the second, third and fourth plaintiffs (the plaintiffs) is a 'proprietor' of a lot or lots in SP 21513 within the meaning of that term in s 3 of the Strata Titles Act 1985 (STA). On 13 June 2002 the Owners of Argosy Court (the strata company), the first plaintiff, settled its claim with Chu and no longer is a party to the plaintiffs' action. The name 'the Owners of Argosy Court SP 21513' is the correct name of the strata company (s 32(1) STA). An incorrect name was used in the court documents. For simplicity in these reasons I will refer to the strata company as Argosy Court.

2 The trial of the plaintiffs' claim for damages was listed for a five day hearing in the District Court at Perth commencing 13 June 2011. During pre-trial proceedings immediately prior to the trial dates the second, third and fourth plaintiffs sought to adjourn the trial because they had not briefed counsel to appear. The defendant opposed the adjournment and contended that in any event, as a matter of law, the plaintiffs' actions could not be maintained. Instead of adjourning the trial the parties agreed to proceed with a trial of the legal issues based on an agreed statement of facts.

3 The writ was issued more than 10 years ago on 26 April 2001 against Chu by the first plaintiff Argosy Court and the second plaintiff Mr D R Wise for Chu's alleged failure to indemnify or remedy for damage caused on 22 March 1999 by cyclone Vance. On 21 June 2002 a settlement was reached between Argosy Court and Chu following correspondence from Argosy Court on 13 May 2002 seeking settlement of its claim but 'leaving Mr D R Wise (and any other unit holders who wished to join him) to continue with the balance of the action'. The settlement sum of $16,800 was specified by Argosy Court in the letter as covering only site works, a retaining wall, a parking area and a sign. None of the damage to buildings now claimed by the plaintiffs was included in the settlement.

4 On 18 February 2004 the court granted an application to join two further proprietors of lots in Argosy Court as the third and fourth plaintiffs. Since 2004 there have been five substituted statements of claim filed by the plaintiffs. The final sixth substituted statement of claim was allowed by Wager DCJ on 10 February 2010 (Wise v Chu Underwriting Agencies Pty Ltd [2010] WADC 14). In her reasons at [8], [9], [10] and [11] Wager DCJ traced the troubled path of the plaintiffs' action when they were represented by a succession of different solicitors and on occasion were unrepresented. In June 2007 the plaintiffs' current legal representatives were instructed. The current Statement of Claim significantly increased the claim by including a sum for remedial work quoted at a cost of $150,513 plus GST based on recent expert reports. All of the claim is referable to damages for repairs to buildings on the plaintiffs' lots, damages not included in the 2002 settlement with Argosy Court.

5 Chu now claims that as a matter of law the plaintiffs cannot maintain these claims because:

(1) only Argosy Court was 'the insured' under the contract of insurance;

(2) the plaintiffs were not parties to the contract and cannot maintain their claims against Chu;

(3) in its terms the consent judgment entered in 2002 settled all claims for damages.

6 Chu has not been consistent in its defence during the long and troubled history of this matter. It originally admitted in its defence in 2001 that the second plaintiff was the proprietor or owner of a lot in Argosy Court. It then settled Argosy Court's claim on the basis that the second plaintiff's claim could continue. It did not object in 2004 when the third and fourth plaintiffs were joined. Although Chu objected to the amendments considered by Wager DCJ in 2008 it is apparent that if its present contentions are accepted it should have at least argued these legal issues before Judge Wager if not moved to strike out the plaintiffs' claims as unmaintainable. The claims now total $162,250.90 plus GST and interest.

1. On 18 November 1991 Strata Plan 21513 (SP 21513) was registered and thereby the strata company, Argosy Court, was incorporated pursuant to s 42 of the STA as amended to 18 November 1991.
2. SP 21513 is located at lot 620 Murat Road, Exmouth in Western Australia.
3. At all material times:

(a) there were 12 lots on SP 21513 and separate certificates of title were issued to the registered proprietor of each lot on SP 21513 (Lots); and

(b) the Lots comprised part lots upon which no buildings were constructed and part lots upon which buildings were constructed; and

(c) the registered proprietors' interests in the land comprised by the Lots consisted of the inner cubic space within the buildings bounded by the inner surfaces of the walls, ceilings and floors (including paint, floor coverings and other items fixed to the inner surfaces) on the part lots upon which buildings were constructed, and everything within the vertical boundaries drawn on SP 21513 down to 2 m and up to 5 m (excepted where covered) on the part lots upon which no buildings were constructed; and

(e) the 13 buildings on SP 21513 formed part of the common property (as defined in the STA) on SP 21513.

1. On and from 25 March 1997 the second and third plaintiffs (Wise and McKeown) became the registered proprietors of Lots 3 and 4 on SP 21513 as joint tenants.
2. On 30 April 1998 Chu entered into a general contract of insurance with Argosy Court (contract of insurance). The contract of insurance was written and is comprised by a Chu Residential Strata Insurance Plan policy booklet, Residential Strata Insurance Plan Policy Schedule Tax Invoice for the period of insurance from 30 April 1998 to 30 April 1999, and Residential Strata Insurance Plan Renewal Certificate for the period of insurance from 30 April 1998 to 30 April 1999.
3. On and from 2 June 1998 Wise and McKeown became the registered proprietor of Lot 2 on SP 21513 as joint tenants.
4. On and from 2 June 1998 the Mrs Margaret Wise (now deceased) (Margaret Wise) became the registered proprietor of Lot 1 on SP 21513.
5. On 22 March 1999 cyclone Vance struck Exmouth and caused damage to buildings and other fixtures situated on SP 21513.
6. Between March 1999 and January 2001, pursuant to the terms of the contract of insurance, Chu indemnified Argosy Court for the cost of repairing the damage in the total sum of $87,600.45, less an excess of $1,000.
7. On 26 April 2001 Argosy Court (as first plaintiff) and Wise (as second plaintiff) commenced these proceedings against Chu.
8. On 13 June 2002 Argosy Court and Chu compromised Argosy Court's action in these proceedings (settlement agreement). The settlement agreement consisted of a letter from Kott Gunning to Greenland Brooksby dated 13 May 2002 and a letter from Greenland Brooksby to Kott Gunning dated 13 June 2002.
9. Pursuant to the terms of the settlement agreement, by consent, judgment was entered in favour of Argosy Court in the sum of $16,800 and Chu paid that sum to Argosy Court.
10. On 3 March 2004 McKeown and Margaret Wise were added as plaintiffs in these proceedings.

7 Aspects of this case require the court to construe the contract of insurance entered into on 30 April 1998 between Argosy Court and Chu. The principals governing the construction of general contracts of insurance are well stated in recent High Court decisions.

8 In McCann v Switzerland Insurance Australia Ltd [2000] HCA 65; (2000) 203 CLR 579 Gaudron J said:

A policy of insurance, even one required by statute, is a commercial contract and should be given a businesslike interpretation 26. Interpreting a commercial document requires attention to the language used by the parties, the commercial circumstances which the document addresses, and the objects which it is intended to secure [22].

9 In Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451 Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ commented:

...The case provides a good example of the reason why the meaning of commercial documents is determined objectively: it was only the documents that spoke to Pacific. The construction of the letters of indemnity is to be determined by what a reasonable person in the position of Pacific would have understood them to mean. That requires consideration, not only of the text of the documents, but also the surrounding circumstances known to Pacific and BNP, and the purpose and object of the transaction. ... [22].

10 The context and background to this general contract of insurance requires consideration of numerous provisions of the STA as it was on 30 April 1998 when Chu and Argosy Court entered into this contract.

1. (1) Common property shall be held by the proprietors as tenants in common in shares proportional to the unit entitlements of their respective lots.

11 Part IV of the STA deals with the incorporation and duties of strata companies.

(1) Upon the registration of a strata/survey-strata plan, the proprietors from time to time shall constitute a strata company by the name of 'The Owners of [the name of the scheme]' and the number of the strata/survey-strata plan allocated to it by the Registrar of Titles.

(2) A strata company created under subsection (1) is a body corporate with perpetual succession and a common seal.

(2b) In the case of a strata plan registered before the commencement of section 36 of the Strata Titles Amendment Act 1995 1 the name of the building endorsed on the plan, or recorded under section 41(2), shall be deemed to be the name of the scheme for the purposes of subsection (1).

(b) shall be regulated in accordance with this Act and the by-laws in force in respect of that strata company; and

(c) is not subject to the Companies (Western Australia Code); and

(d) may do and suffer all things that bodies corporate generally may, by law, do and suffer and that are necessary for or incidental to the purposes for which a strata company is constituted.

12 The duties of strata companies are found in s 35.

(c) keep in good and serviceable repair, properly maintain and, where necessary, renew and replace -

(i) the common property, including the fittings, fixtures and lifts used in connection with the common property; and

(ii) any personal property vested in the strata company,

and to do so whether damage or deterioration arises from fair wear and tear, inherent defect or any other cause;

(j) effect insurance in accordance with Division 4.

13 Strata companies' duties concerning insurance are found in div 4. Section 53 covers interpretation.

'building' includes any building on the parcel for a scheme whether shown on the strata/survey-strata plan or not and also includes -

(a) proprietors' improvements and proprietors' fixtures forming part of the building including paint and wallpaper but excluding carpet and temporary wall, floor and ceiling coverings; and

(d) fixtures removable by a lessee at the expiration of a tenancy; or

(e) anything prescribed as not forming part of a building for the purposes of this definition;

'replacement value' in relation to a contract of insurance of a building, requires provision to be specified in the policy -

(i) the rebuilding of the building or its replacement by a similar building in the event of its destruction; and

(ii) the repair of damage to, or the restoration of the damaged portion of, the building in the event of its being damaged but not destroyed,

so that, in the case of destruction, every part of the rebuilt building or the replacement building and, in the case of damage, the repaired or restored portion, is in a condition no worse nor less extensive than that part or portion or its condition when that part or portion was new; and

(b) for the payment of expenses incurred in the removal of debris and the remuneration of architects, surveyors, engineers and other persons whose services are necessary as an incident to the rebuilding, replacement, repair or restoration.

53B**. Insurance for lots in single tier strata schemes**

(ii) damage to property, death or bodily injury for which the proprietor of a lot in a scheme could become liable in damages;

(b) the occurrences to be insured against by the proprietor in relation to those matters; and

are, subject to this section, at the discretion of the proprietor of the lot.

(2) A strata company for a scheme may determine that it is a function of the company to insure in respect of the matters referred to in subsection (1), and may at any time revoke the determination.

(3) While such a determination is in force the strata company shall comply with section 53D.

15 Section 53C deals with insurance for common property.

53C**. Insurance for common property in single tier strata schemes**

(a) insure and keep insured any building, or part of a building, or improvement on the parcel that is common property; and

(b) effect and maintain insurance in respect of damage to property, death or bodily injury for which the proprietors of lots in the scheme could become liable in damages as holders of the common property.

(2) The strata company does not have the obligations described in subsection (1) if -

(a) there is no common property in the scheme except -

(i) cubic space in which there is no building or improvement above or below the horizontal boundary of any lot; or

(ii) fencing on the boundary of the parcel or any lot;

(b) the strata company has by resolution without dissent (or unanimous resolution in the case of a two-lot scheme) determined that subsection (1) is not to apply to the scheme.

16 Section 53D sets out the strata company's obligations where it has an insurance function.

53D**. Strata company's obligations where it has an insurance function in single tier strata schemes**

(a) a determination is in force under section 53B(2); or

(b) in accordance with section 53C, a strata company has the obligations described in subsection (1) of that section.

(2) This section also applies where a strata company makes a determination to insure common property that it is not obliged to insure by reason of section 53C(2)(a).

(a) insure and keep insured any building to which its obligation extends to the replacement value against fire, storm and tempest (excluding damage by sea, flood or erosion), lightning, explosion and earthquake; and

(b) effect and maintain insurance in respect of damage to property, death, or bodily injury for not less than $5 000 000 or such other amount as may be prescribed in place of that amount.

(1) Nothing in this Division limits any right of a proprietor to effect insurance.

(2) Insurance effected by a proprietor does not affect, and shall not be taken into consideration in determining the amount payable to a strata company under a contract of insurance entered into between it and an insurer pursuant to this Division, notwithstanding anything contained in that contract of insurance.

18 Section 56A deals with when a proprietor may insure if the strata company is in default.

56A**. Proprietor may insure if strata company in default**

If a proprietor considers that a strata company is in breach of any obligation to insure imposed on it by this Act, the proprietor may effect and maintain in the name of the strata company such insurance as he thinks the strata company ought to effect and maintain to meet that obligation.

19 Section 58 deals with the strata company's insurable interest.

Notwithstanding any other law relating to insurance, a strata company shall, for the purpose of effecting any insurance entered into pursuant to this Division, be deemed to have an insurable interest in the subject matter of that insurance.

20 Section 59 deals with application of the insurance money to rebuilding.

1. Application of insurance moneys to rebuilding

Subject to any order made under section 28 or 31, where a strata company receives payment of moneys from an insurer in respect of the destruction of or damage to a building, those moneys shall forthwith be applied by the strata company in rebuilding, replacing, repairing or restoring the building so far as that may lawfully be effected.

21 In The Owners of Habitat 74 Strata Plan 222 v Western Australian Planning Commission [2004] WASC 23 [36] Heenan J applied s 17 STA and held that the proprietors of lots in a strata plan hold all of the common property in the strata plan as tenants in common and that the strata company has no proprietary interest in that property despite the power of the strata company to bring proceedings for, or with respect to the common property.

22 The Owners of Habitat 74 case arose from the resumption of foreshore land comprising part of the common property. The court was asked to determine when compensation was payable and to whom. In that case there were 70 lots comprising apartments and the registered proprietors of the lots had changed over time. The Court determined that the proprietors on the date of resumption held all of the common property as tenants in common and each should receive a portion of the compensation proportional to the unit entitlement of each in their respective lots. The strata company had no proprietary interest in the common property and no entitlement to compensation and performed the role of agent or trustee looking after the funds which were to be distributed to the proprietors.

23 In this case it is common ground that the strata company was obliged to insure the common property for replacement value (s 53, s 53B, s 53C, s 53D STA) but that did not give the strata company any proprietary interest in the common property. Section 58 STA deemed the strata company to have an insurable interest.

24 Section 33 of the STA allows the strata company to be a representative of proprietors in proceedings.

1. Strata company is representative of proprietors in proceedings

(1) Where the proprietors of the lots the subject of a scheme are jointly entitled to take proceedings against any person or are liable to have proceedings taken against them jointly (any such proceedings being proceedings for or with respect to common property), the proceedings may be taken by or against the strata company and any judgment or order given or made in favour of or against the strata company in any such proceedings shall have effect as if it were a judgment or order given or made in favour of or against the proprietors.

25 The Residential Strata Insurance Plan Policy booklet appears at pages 12 - 75 of the Parties' Agreed Bundle of Documents for Trial (Book) (12 - 75 Book). The dispute in this case relates to the insurance on buildings and common area contents which is referred to under the heading Policy 1 at 32 Book. The insuring clause is in these terms:

We agree to indemnify You in respect of ACCIDENTAL LOSS or DAMAGE to Your Building and Common Area Contents occurring during the period of insurance by payment, or at Our option, by reinstatement, replacement or repair subject to the following terms, conditions and exclusions.

26 The word 'You' is defined in the general definition section of the policy at 30 Book.

You, Your, Yours means:-

In respect of Policies 1, 5, 7 and 8:-

the Body Corporate, Corporation, Owners' Corporation, Plan or Company named in the Schedule including, but limited to, the interests therein of Proprietors, Members, Owners or Shareholders.

27 The Schedule to the insurance policy appears at 76 Book. In that Schedule 'the insured' and situation are referred to as 'The Owners of SP 21513, Lot 620, Murat Road, Exmouth WA 6707' referrable to insurance for 30 April 1998 until 30 April 1999. The Residential Strata Insurance Plan Renewal Certificate relating to insurance for the same period names 'the insured' as 'The Proprietors - SP 21513' (78 Book).

On the proper construction of the contract of insurance entered into between the first plaintiff and the defendant on or about 30 April 1998 (contract of insurance) are the second, third and fourth plaintiffs entitled to bring claims against the defendant pursuant to s 48 of the Insurance Contracts Act 1984 (Cth) on the grounds they are persons specified or referred to in the contract of insurance as persons to whom the insurance cover provided by the contract extends.

28 Section 48(1) of the Insurance Contracts Act 1984 (Cth) provides:

(1) Where a person who is not a party to a contract of general insurance is specified or referred to in the contract, whether by name or otherwise, as a person to whom the insurance cover provided by the contract extends, that person has a 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.

29 The plaintiff submits that on the proper construction of the insurance contract between Argosy Court and Chu each of them, as a proprietor of a lot at Argosy Court, falls within the provisions of s 48(1) and is able to recover their loss under the insurance contract.

30 Section 48(1) applies only to persons 'who are not a party to the contract of general insurance'. The parties agree that in this case the contract of insurance was made between Argosy Court and Chu. None of the proprietors of lots were parties to the contract. Argosy Court acted under its statutory duty to effect insurance (s 35(j) and s 53C(1) STA). It had no proprietary interest in the insured property but was 'deemed' by s 58 STA to have an insurable interest. The proprietors held all of the common property including all of the buildings as tenants in common. None of the plaintiffs had or has any greater interest in the buildings on his or her lot than the interest of the other proprietors in that building. Nonetheless each of the plaintiffs has based his/her claim against Chu on Chu's alleged failure to indemnify or repair the buildings on his/her respective lots. That is apparent in the particulars of loss pleaded in par 18 of the Amended Statement of Claim of 16 February 2010 pursuant to the order of Wager DCJ.

31 In their submissions the plaintiffs rely on three matters to bring themselves within s 48:

(1) Policy 1 (32 Book) covers the buildings owned by lot owners including the plaintiffs.

(2) 'Proprietors' are referred to in the renewal certificate (78 Book).

(3) 'Proprietors' are referred to in the definition of 'You' (30 Book) referable to the insurance clause of Policy 1 (32 Book).

32 As to the first submission Chu accepts that the buildings are held by the plaintiffs along with all the other proprietors as tenants in common but Chu contends:

(1) the plaintiffs' action cannot proceed unless they join all the other proprietors who share the same interest; and

(2) the statutory scheme under the STA not only requires Argosy Court to effect insurance but requires Argosy Court to keep the common property including fittings and fixtures in good and serviceable repair, properly maintained and when necessary renewed and replaced (s 35(1)(c) STA).

Chu contends the proprietors have no such power to maintain the common property. Chu suggests the plaintiffs' claims should be made to the Strata Titles Referee to require Argosy Court to comply with its statutory duty.

33 I accept as Chu submits that normally all tenants in common should be joined in any action involving property in which they have an interest. In Habitat 74 where the registered proprietors of lots in a strata scheme were entitled to compensation for resumption of common property, both current and past registered proprietors were joined. Of course in that case current registered proprietors had an interest in seeking compensation as against the proprietors registered at the time of resumption. That was a live issue to be determined by Heenan J. All proprietors had an interest in being heard. That is not so in this case. Although each registered proprietor has no greater legal interest in any building forming part of the common property than any other registered proprietor, the de facto interest of each proprietor in the building located on that proprietor's lot is obvious. In 2002 Argosy Court settled part of the claim leaving Mr Wise, the second plaintiff 'and any other unit holders who wished to join him' to continue with the balance of the claim (79 Book). The balance of the claim relates to buildings on the plaintiffs' lots. I am satisfied that the only reasonable inference is that none of the other unit holders wished to participate in these proceedings. This is not a case where there is any need to adjourn the case for the other unit holders to be joined. They have already had that option and have not chosen to do so. I consider the fact that not all registered proprietors have been joined is no impediment to these plaintiffs proceeding with this action.

34 Chu's second submission is based on the statutory scheme under the STA. Given the basis of Chu's settlement with Argosy Court it seems to me that Chu is now estopped from maintaining this contention. Chu has given implied consent to the plaintiffs maintaining the part of Argosy Court's claim not included in the settlement. Chu did not object to the joinder of the third and fourth plaintiffs after the settlement with Argosy Court. Chu did not raise this issue before Wager DCJ in 2008. By settling with Argosy Court on the basis proposed by Argosy Court, Chu accepted the plaintiffs' right to continue with the remainder of the claim and now is estopped from denying the plaintiffs' right.

35 As to the plaintiffs' second contention Chu submits that the reference to 'The Proprietors - SP 21513' in the Renewal Certificate (78 Book) was intended by the parties to be a reference to Argosy Court. Counsel for Chu explained that the insurance contract (12 - 78 Book) was a standard form used by Chu throughout Australia. In New South Wales under s 54 Strata Titles Act 1973 'The Proprietors - SP 21513' is the proper reference to the strata company. I accept that may be true in New South Wales but I do not accept that in a contract made in Western Australia governed by the STA the reference to 'The Proprietors - SP 21513' should be interpreted based on New South Wales legislation. There is no basis to infer that Argosy Court had that intention when it entered the contract. A businesslike interpretation requires attention to the language used by the parties (McCann's case at [22]); the meaning is to be determined objectively (Pacific Carriers at [22]). The meaning of 'The Proprietors - SP 21513' means what it says and is a reference to the proprietors of lots in Argosy Court. Such an interpretation reflects the plaintiffs' ownership of the insured common property.

36 As to the plaintiffs' third contention, Chu submits the insurance clause and the reference to proprietors in the definition of 'You' bears a very different interpretation from that contended by the plaintiffs. The definition of 'You' (30 Book) is set out above. Under the STA Argosy Court falls within the definition 'strata company' defined in s 3 STA to mean 'a body corporate constituted under s 32 ...'. From that definition I accept that the definition of 'You' in the insurance contract was intended to refer to Argosy Court because 'The Owners of SP 21513' is named in the Schedule (76 Book). While this is not the full legal name of Argosy Court (s 32(1) STA) it is close to it. It does not refer to the proprietors although they are owners of the lots. I accept that the definition of 'You' means Argosy Court extended to include the interest therein of the proprietors.

37 Chu contends those words 'including the interest therein of the proprietors' refers to the interests of the proprietors in Argosy Court to effect the repairs to the common property in accordance with Argosy Court's obligations under the STA. Chu contends the reference to the interests of the proprietors is not to their interest in the common property but to the interests of the proprietors in Argosy Court.

38 The plaintiffs contend that the reference to the interests of the proprietors should not be read down in that way. The plaintiffs contend that this reference brings the interests of the proprietors of the lots within the statutory description in s 48(1) - that they are 'specified or referred to in the contract by name or otherwise as a person to whom the insurance cover provided by the contract extends' and that the plaintiffs therefore have a right 'to recover the amount of the person's loss from the insurer in accordance with the contract'.

39 Section 48 was enacted to overcome the common law rule of privity of contract - that only the parties to a contract can sue on it and consideration must move from the promisee. There are numerous exceptions to the common law rule the most notable being the third party exception in insurance contracts adopted by the High Court in Trident General Insurance Co Ltd v McNiece Bros Pty Ltd [1988] HCA 44; (1988) 165 CLR 107. In that case a contractor was held to be entitled to enforce the indemnity clause under a public liability insurance policy when the contractor was not a party to the contract. The terms of the contract were held to make clear the intention of the parties that 'the insured' was to include the contractors. In the leading judgment Mason CJ and Wilson J said:

In the ultimate analysis the limited question we have to decide is whether the old rules apply to a policy of insurance. The injustice which would flow from such a result arises not only from its failure to give effect to the expressed intention of the person who takes out the insurance but also from the common intention of the parties and the circumstance that others, aware of the existence of the policy, will order their affairs accordingly. We doubt that the doctrine of estoppel provides an adequate protection of the legitimate expectations of such persons and, even if it does, the rights of persons under a policy of insurance should not be made to depend on the vagaries of such an intricate doctrine. In the nature of things the likelihood of some degree of reliance on the part of the third party in the case of a benefit to be provided for him under an insurance policy is so tangible that the common law rule should be shaped with that likelihood in mind (123 - 124).

40 In her concurring judgment in Trident Gaudron J expressed her concern about unjust enrichment of an insurer that would otherwise follow if the common law rules were strictly maintained.

In my view it should now be recognized that a promisor who has accepted agreed consideration for a promise to benefit a third party is unjustly enriched at the expense of the third party to the extent that the promise is unfulfilled and the non-fulfilment does not attract proportional legal consequences (176).

On the basis that the appellant received the agreed consideration specified in the policy of insurance - a matter that has not been disputed - it came under an obligation to the respondent to fulfil its promise to indemnify it as provided in the policy. The respondent is entitled to maintain an action to enforce that obligation. Accordingly the appeal should be dismissed (177).

42 Both Trident and s 48 were considered by Seaman J in the case of Visic v State Government Insurance Commission (1990) 3 WAR 122. Visic was the successful plaintiff/employee in an action against his employer, Western Construction Co in the District Court for damages for personal injury. Judgment was entered against Western but Western was unable to satisfy the judgment. Visic then sued Western's employer's liability insurer, SGIO for indemnity under a policy that covered Western's liability under the judgment.

43 Visic relied on s 48 and Seaman J noted that s 48 'plainly refers to the benefits which the contract of insurance claims by its terms to provide' (125) and went on to hold that Visic could not maintain his claim against SGIC (127).

The preliminary issue turns in my view upon the proper construction of the contract of insurance and the position of the plaintiff upon the agreed facts. This is a contract of indemnity. The indemnity is against liability to others. I see nothing in the words of this insurance policy that give any support for the suggestion that the State Government Insurance Office was promising indemnity to the employees of the insured. It was promising indemnity to Western.

44 A third party was successful in its reliance on s 48 in Barroora Pty Ltd v Provincial Insurance Ltd (1992) 26 NSWLR 170. Barroora was a party to the contract of insurance and the preliminary question arose as to whether BLE Capital Ltd, the holder of a charge over Barroora's property, was also a party to the contract because Capital had been named in the contract in the extension in the certificate. Brownie J held Capital was not a party to the contract:

...the policy definition of 'the insured' refers to the person or persons 'so named in the Certificates' and, the relevant certificate names 'the insured' as Barroora, and only Barroora. The question is of course not what the parties subjectively intended but what they should be taken to have agreed upon viewing the matter objectively; and even allowing for the lack of concentration on detail, particularly in relation to names, which obviously pervades the documentation, I consider that the defendant must succeed on this issue (174).

45 Brownie J thereby held that the naming of Capital in the certificate did not mean that it was one of 'the insured'.

46 Brownie J went on to consider whether Capital fell within the Trident exception and found that it did based on its 'conduct in naming Capital in the certificates in the way in which it did' (179). Brownie J further found that 'the reference to Capital in the Certificate of Insurance is a reference to it as a person to whom the insurance cover provided by the contract extended' and that Capital was entitled to the benefit of s 48 of the Insurance Contracts Act 1984 (Cth)' (180).

47 Insurance Commission of Western Australia v Kightly [2005] WASCA 154; (2005) 30 WAR 380 provides an example of a policy of insurance between Denmark Volunteer Sea Rescue Group and its insurer wherein a third party, a volunteer Kightly, came within s 48. The decision of the Court of Appeal was confined to the question of subrogation. Steytler P at [45] referred to s 48(2) as a factor in finding for the appellant on the subrogation issue.

48 I accept as Chu contends that simply because a property is insured does not mean that any person who has an interest in the property can sue on the insurance contract relying on s 48. That is made clear in Visic where there was nothing in the contract of insurance indicating the party's intention that employees as a class were 'persons to whom the contract of insurance extends' despite the employer being specifically indemnified in the case of personal injuries to its employees. All of the cases make it clear that it is the intention of the parties to the contract that determines the rights of third parties to sue on the contract. The intention of the parties is determined objectively requiring attention to the language used, the commercial circumstances and the objects of the contract (McCann; Pacific Carriers).

49 As occurred in Barroora there are in this case errors in the contract and a very casual appreciation of the legal position in Western Australia under the STA. The drafting of the definition of 'You' presents considerable difficulty. As in Barroora the reference to the Proprietors in the definition of 'You' refers to the insured Argosy Court 'including but limited to the interest therein of Proprietors'. Those words must be taken to take account of the different position of Argosy Court and the proprietors to the insured property. Argosy Court has no proprietary interest in the insured property; the proprietors hold all the property as tenants in common (Habitat 74). Such is not the position elsewhere in Australia.

In some other Australian jurisdictions the common property is owned by the strata company - NSW, ACT, NT and SA - either as agent, trustee or nominee, but not so in this State (Habitat 74 [23]).

50 When read against the background of the STA so far as Argosy Court is concerned the proprietors have no 'interest therein'. The proprietors' interest is in the common property - not in Argosy Court. The only sensible meaning that can be given to the words consistently with the intention of the parties to insure the common property including the buildings owned by the proprietors is the meaning submitted by the plaintiffs. The intention of Argosy Court and Chu was to indemnify the proprietors in respect of accidental loss or damage to their buildings and common area contents. As in the case of Barroora the reference to the proprietors in the definition of 'You' is a reference to them as persons to whom the contract of insurance extends.

51 Chu referred me to the Special Benefits clause (34 Book) and maintained the terms of this clause - 'where applicable will also treat unit owners as though they were "You" ' showed a clear indication "You" was not intended to be a reference to unit owners. While there is merit in that submission I do not accept that it is an inevitable consequence when to do so would make no sense of the insurance clause as it incorporates the definition of 'You'. The principal object of policy 1 of the contract was to insure the common property. In order to achieve that the plaintiffs' interpretation of the definition of 'You' must be adopted.

52 There are also features of this case referable to the concerns of the majority of the High Court in Trident. The plaintiff proprietors organised their affairs on the understanding that their interest in the common property including the buildings was covered by this contract of insurance entered into for their benefit by Argosy Court. The changes in the common law rule in Trident was based to some extent on the 'likelihood of some degree of reliance' by a third party on the insurance cover' (165 CLR 123) and that such third parties were entitled to arrange their affairs accordingly. If now, some 12 years after the buildings were damaged by cyclone Vance and some 8 to 10 years after the plaintiffs commenced the claim, the contract were to be interpreted in the manner suggested by Chu disallowing their claims, the result would be unjust enrichment for Chu. Chu accepted payment of the insurance premium and is now under an obligation to fulfil its promise to indemnify the plaintiffs.

53 For these reasons the plaintiffs as proprietors are persons specified or referred to in the contract as persons to whom the insurance cover extends. For these reasons the answer to Issue of law 1 is 'Yes'.

Assuming the answer to question 1 is in the affirmative, on the proper construction of the contract of insurance and the terms of a settlement entered into between the first plaintiff and the defendant on or about 13 June 2002 (settlement agreement) are the second, third or fourth plaintiffs prevented from maintaining any claim against the defendant arising out of the contract of insurance on the grounds that all claims that any person was entitled to bring against the defendant for damage to any property on Strata Plan 21513 that occurred during cyclone Vance on 23 March 1999 was finally settled by the settlement agreement and judgment entered in favour of the first plaintiff.

54 If s 48 applies Chu contends that under the insurance contract any promise by Chu to indemnify both Argosy Court and the plaintiffs must be a promise made to them jointly. Chu suggests the consequences of that are that where you satisfy one joint promisee it is satisfaction for all.

55 There is no disagreement with that analysis. However, I have resolved Issue 1 on a different basis. Chu's submission fails to appreciate the very different position of the insured Argosy Court and the plaintiffs as persons to whom the insurance cover extends who then have a right to recover the amount of the person's loss from Chu in accordance with the contract. The s 48 decisions make it clear that while third parties have a right to recovery they are not co-insured. The insured under the contract is Argosy Court and only Argosy Court.

56 In support of its submission that the policy is a joint insurance policy Chu contends that the interests of Argosy Court and the plaintiffs in the property are identical. That submission fails to appreciate what was said by Heenan J in Habitat 74.

The power and duty of a strata company to control and manage the common property for the benefit of all the proprietors (subs 35(1)(b)) and the power of the company to bring proceedings for, or with respect to, common property (subs 33(1)) do not give the strata company any proprietary interest in the common property, as distinct from the funds for administration and reserve which are the property of the strata company (s 36), but merely require or authorise the strata company to act on behalf of the various proprietors. ... [36].

57 Although the strata company brought the claim for compensation in Habitat 74 Heenan J found it was not entitled to the compensation but, instead assumed the function of an agent for all the proprietors:

By constituting itself as the representative of the persons entitled to participate in the distribution of the compensation for this resumption the applicant has assumed the role of agent for all the proprietors so entitled. It may also have constituted itself a trustee for all those entitled who were not, at the time of the claim, or who later ceased to be, members of the strata company but it is unnecessary to decide that particular issue on this occasion. It is sufficient to conclude that the applicant has assumed the representative status for all the persons entitled to this compensation [40].

58 Chu suggests determination of legal Issue 2 flows from a determination of whether it is a joint insurance policy or whether it is a composite policy. Determination of that issue does not determine Issue 2. The determination of this issue depends on the terms of the agreement to settle between Argosy Court and Chu in 2002. Argosy Court's offer to settle is found in a 'Without Prejudice' letter to solicitors for Chu dated 13 May 2002 (79 Book). Argosy Court put its offer to settle in these terms:

... the Strata Company wishes to settle its claim in the action, leaving Mr D R Wise (and any other unit holders who wish to join him) to continue with the balance of the action. If agreement can be reached, the Strata Company will settle with you and discontinue its claim in the proceedings.

The sum the Strata Company is seeking is $16,800.00 inclusive of GST, being the amount referred to in the last page (entitled 'General Work to Premises') of the Further and Better Particulars filed 12 April 2002. The sum is very reasonable, since it covers the site works, retaining wall, parking area and sign for which the Statement of Claim seeks $17,900.00 plus $1,7900.00 GST, a total of $19,690.00.

The Strata Company offers to accept the sum of $16,800.00 in full and final settlement of its claim as First Plaintiff in the action. If settlement can be reached on that sum, it will discontinue its proceedings, with no order as to costs.

59 On 13 June 2002 solicitors for Chu accepted Argosy Court's offer in these terms (80 Book).

Our client has instructed us that it is prepared to settle the claim by the Strata Company on the basis proposed, that is a judgment sum of $16,800.00 with no order for costs in full and final settlement of all claims which the Strata Company may have arising out of cyclone Vance on or about 22 and 23 March 1999. We confirm that the loss of rent claims have been abandoned.

We now enclose a minute of consent judgment, in triplicate. ...

60 The memorandum of consent judgment was in these terms (81 Book).

1. Judgment be entered on behalf of the first plaintiff against the defendant in the sum of $16,800.00
2. Paragraph 12 of the statement of claim be struck out.
3. There be no orders as to costs in respect of the first plaintiff's action against the defendant.

61 These documents establish that Chu settled Argosy Court's claim 'on the basis proposed' by Argosy Court. That basis was a limited basis confined to the claim for damages for the siteworks, retaining wall, parking area and sign as claimed in the statement of claim. The first statement of claim dated 11 June 2001 provided particulars of damage in par 11. Siteworks $2,770, retaining wall $3,630, bitumised area $8,000 and sign $3,500 totalling $17,900. That was only part of the particulars of damage. It did not include any of the buildings, the manager's unit, or air-conditioning as particularised in par 11.

62 Chu appears to be basing its argument that this settled the entire claim on the words in the third paragraph of Argosy Court's offer to settle. I do not accept that. To do so would be contrary to the clear statement in the first paragraph and the second paragraph. It is also important to bear in mind that in 2001 prior to the 2004 decision in Habitat 74 there was a general misunderstanding about the rights of unit holders and the strata company under strata plans. Heenan J referred to this at the beginning of his judgment. This misunderstanding explains par 7 of Chu's defence filed on 27 June 2001 in which it pleaded 'the first plaintiff [Argosy Court] is the owner of the common property'. That is clearly wrong as a matter of law.

63 Having agreed to settle Argosy Court's claim 'on the basis proposed' Chu cannot now contend or maintain that all claims that any person was entitled to bring against the defendant for damage to any property on Strata Plan 21513 that occurred during cyclone Vance on 23 March 1999 was finally settled by the settlement agreement and judgment entered in favour of the first plaintiff.

64 In this case Argosy Court brought the claim based on its powers under s 33(1) STA. It is not an exclusive power; proprietors are also able to make claims. When Argosy Court settled part of the claim it settled only the part of the claim relating to general areas. It did that as agent for the proprietors and settled on the basis that any proprietors could join in the remainder of the claim relating to the buildings and fixtures as the plaintiffs have done.

65 For these reasons the second, third and fourth plaintiffs are not prevented from maintaining the remainder of the claim as they have done.

Assuming the answer to question 2 is in the negative, on the proper construction of the contract of insurance and the settlement agreement are the second, third or fourth plaintiffs prevented from maintaining any claim against the defendant arising out of the contract of insurance on the grounds that all claims that any person was entitled to bring against the defendant for damage to common property on Strata Plan 21513 that occurred during cyclone Vance on 23 March 1999 were finally settled by the settlement agreement and judgment entered in favour of the first plaintiff.

67 Chu commenced its submissions on Issue 3 on the basis that Issue 2 was resolved by a finding that any rights to bring a claim by the plaintiffs was a several right. Chu relies on the terms of s 33(1) STA and submits that the plaintiffs' right to bring proceedings is a contractual right held jointly by the plaintiffs but exercisable by Argosy Court. Chu further submits that once Argosy Court brought the claim it has brought the claim on behalf of the proprietors so that within the terms of s 33(1) it is as if it were a judgment in favour of all the proprietors. Chu submits Argosy Court did not purport to confine the claim in any way with the result that the claim in respect of all the property was settled.

68 I do not accept Chu's conclusion. Argosy Court did bring the claim on behalf of all the proprietors. Argosy Court had no proprietary interest in any property; it was acting as an agent for the proprietors. The settlement of part of the claim was made by Argosy Court as agent on behalf of all proprietors. But Argosy Court did not settle the entire claim. Only part of the claim was settled and that was done on the understanding as part of the settlement agreement that any unit holders who wished to proceed with the remainder of the claim could do so.

69 There is no merit in Chu's contentions. The second, third and fourth plaintiffs are not prevented from maintaining the remainder of the claim. For these reasons the answer to Issue of law 3 is 'No'.

(a) the answer to question 1 is in the affirmative, the answer to question 2 is in the negative and irrespective of the answer to question 3;

(b) property of the second, third and fourth plaintiffs was damaged during cyclone Vance;

(c) in or about 1999 the second, third and fourth plaintiff made claims against the defendant in respect of that damage;

(d) in or about 1999 the defendant rejected those claims;

(e) the second, third and fourth plaintiffs did not commence or carry out repairs for that damage with reasonable despatch:

on the proper construction of the contract of insurance is the defendant's liability to the second, third and fourth plaintiffs confined to the reasonable and necessary cost of repairing the damage on the date by which the damage would have been repaired had repairs been commenced and carried out with reasonable despatch.

70 In order to determine this issue the contract provisions concerning the 'Basis of settlement of claims' (40 Book) need to be considered.

REINSTATEMENT, REPLACEMENT

In the event of Your Building or Common Area Contents being destroyed or damaged, the basis upon which the amount payable under this Policy 1 is to be calculated will be the cost of Reinstatement or Replacement at the time of reinstatement or replacement of such loss or damage subject to the following Special Provisions and also the terms and conditions of this Policy 1.

Special provisions

(i) the reasonable and necessary cost of rebuilding, replacing or repairing to a condition which is equivalent to but not better nor more extensive than when it was new;

1. The necessary work for rebuilding or replacing or repairing as the case may be (which may be carried out upon another site, and in any manner suitable to Your requirements but subject to Our liability not being thereby increased), must be commenced and carried out with reasonable despatch, failing which We will effect settlement on an indemnity basis.

71 Chu admits that one difficulty with Issue 4 is that some of the facts on which it is based are contentious so that the issue is to that extent hypothetical. Nonetheless the parties have agreed to the issue being determined as a preliminary issue of law and I will proceed to do that.

72 To interpret this clause Chu referred me to the High Court decision in CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384. In CIC Insurance an industrial risks insurance policy contained some comparable terms to the basis of settlement of claims clause in this case. The amount of the indemnity in CIC Insurance was calculated upon the cost of reinstatement at the time of reinstatement subject to the requirement that the necessary work was to be carried out with reasonable despatch. If not, settlement would be on an indemnity basis. In CIC Insurance the Bankstown Football Club suffered damage by fire on a number of occasions but, did not commence the restoration and repair work with reasonable despatch after the first fire before a later fire; therefore the insurer was held liable only to pay the indemnity value of the property at the time of the first fire - not the cost of reinstatement. Chu submits that in this case based on the special facts a similar ruling should be made.

73 The plaintiffs submit that their claim against Chu is based on Chu's repudiation of the insurance contract and the plaintiffs' claim is an action for damages for breach of contract, not a claim under the contract. Therefore the plaintiffs submit they are not bound by the particular formulation in the 'Basis of settlement of claims' and not limited by the requirement that 'rebuilding, replacing or repairing ... must be commenced and carried out with reasonable despatch ...'.

74 The plaintiffs' submission finds support in the majority decision in CIC Insurance (Brennan CJ, Dawson, Toohey and Gummow JJ) (398):

In essence, the Club's submission was that the promise to pay had not been performed and, in the meantime, had become more expensive because of the occurrence of the third fire. This added expense of performing the promise was said to be one which had to be borne by CIC. Counsel eschewed any submission that there was involved in his contention an allegation of repudiation by CIC which had been accepted by the Club so that it founded its case as one in damages. This should be noted in reading what follows in the balance of these reasons.

75 In its final paragraph in which the decision was made the majority of the High Court again reiterated its decision in the case depended on the footing on which the Club had sought to vindicate its rights.

But it is proviso (i) that is of crucial importance. For the reasons we have indicated, and as a consequence of the footing on which the Club has sought to vindicate its rights, the relief to which it is entitled is a declaration that, upon the proper construction of the Policy and in the events that have happened, CIC is obliged to pay it a sum which represents the indemnity value of the damaged property at the time of the happening of the damage sustained in the first fire (404).

76 The basis on which Bankstown sought to vindicate its rights was very different from the basis on which the plaintiffs make this claim. The plaintiffs seek damages based on repudiation of the contract of insurance by Chu. It is an action for damages.

77 For these reasons Chu's liability to the second, third and fourth plaintiffs is not confined to the reasonable and necessary cost of repairing the damage on the date by which the damage would have been prepared had repairs been commenced and carried out with reasonable despatch. The answer to Issue of law 4 is therefore 'No'.