Benson v NSW Self Insurance Corporation

DOCUMENTS RELIED ON BY THE PARTIES

1. The applicants relied on the following documents:

• A 283 page bundle of documents filed with the application and headed "Application Index and Supporting Documentation" (the bundle).
• Affidavits of Rigmor Benson dated 7 July and 11 August 2022, and Tegan Benson dated 12 July 2022.
• The applicants' statement of facts and issues dated 16 June 2022.
• The applicants' written outline of submissions dated 6 March 2023.

1. The respondent relied on the following documents:

• Respondents statement [of proposed agreed facts and issues] and referred to at the hearing as points of defence, dated 15 June 2022.
• Affidavit of Neil Calvin Calvert dated 11 August 2022.
• Respondents outline of submissions dated 16 March 2023.

PRELIMINARY MATTERS

1. The following preliminary matters were dealt with.
2. Firstly, the applicants advised that the respondent had ceased reimbursing it for rental payments in respect of the alternative accommodation but stated to the effect that in circumstances where the respondent had indicated that it would be prejudiced if a claim for those amounts proceeded, they would not be proceeding with a proposed amended application for those amounts but would commence separate proceedings.
3. Secondly, by consent, the third applicant withdrew from the proceedings.

ISSUES

1. The applicants' submissions identified the following issues: 1. Whether the loss of the [overpayment] amount claimed of $35,024.30 were progress payments within the meaning of clause 1.1 (b) (iv) of the policy and was loss or damage in respect of which the applicants cannot recover compensation from the builder because of the insolvency of the builder. 2. Alternatively, whether under clause 1.1(a)(ii) of the policy, the loss arose from a breach of the statutory warranties by the builder, and was loss or damage in respect of which the applicants cannot recover compensation from the builder, because of the insolvency of the builder. 3. Whether, the claim for the overpayment is deemed to have been accepted pursuant to clause 5.3(c) of the policy because the respondent failed to determine that claim within 90 days of the applicants lodging the claim, i.e. by 14 April 2022. 4. Whether, the security bond was a cost of alternative accommodation, reasonably and necessarily incurred within the meaning of clause 1.1(b) (iii) of the policy.
2. The respondent identified the following issues at paragraphs 14 to 31 of its outline of submissions: 1. Whether the third applicant had standing to bring a claim under the policy. This issue did not fall to be decided because the third applicant, by consent, withdrew from the proceedings. 2. Whether the application falls within clause (1.1(a)) of the policy in circumstances where the builder was unable to continue the contracted work or complete the building contract due to a condition placed on its building license from 2 November 2021 and not because of "the insolvency, death or disappearance of the builder". 3. Whether the security bond is indemnifiable under clause 1.1(b) (iii) of the policy as the cost of alternative accommodation reasonably and necessarily incurred as a result of an event referred to in paragraph [1.1(a) of the policy]. 4. Whether the overpayments are a deposit or progress payment within the meaning of the policy in the HBA and whether the applicants ought to be indemnified for the over payments pursuant to clause 5.3 (c) (i) and / or clause 1.1 (b) (iv) of the policy.
3. The Respondent also argued in the alternative that clause 1.3 (d) of the policy and s 8A of the HBA would exclude the overpayment from being a progress payment. The applicants objected to the respondent relying on this argument, because, according to the applicants it had not previously been put on notice of the matter. For the reasons set out below I have dismissed the applicants claim without the need to consider this alternative argument raised by the respondents.
4. In summary, the dispute concerned whether the applicants were entitled to be indemnified for the over payment of $35,024.30 and the rental bond of $3,400.00 paid in respect of a residential tenancy agreement, pursuant to the policy.

BACKGROUND FACTS

1. The applicants entered a fixed price contract with the builder for $128,658.00 (incl GST) for the performance of residential building work at the property.
2. The contract was not in the form, nor did it contain the information required by s 7 of the Home Building Act 1989 (NSW) (HBA), and contrary to s 92 of the HBA, the contracted work was not the subject of a home warranty insurance policy at the time the work was being performed.
3. The builder commenced the contracted work at the property on about 9 June 2021.
4. The applicants paid the builder $166,597.30 which included an overpayment of $35,024.30 (the overpayment).
5. The applicants' evidence (in respect to which there really was no dispute) was that the over payments were made in circumstances where neither the third applicant (who had undergone major heart surgery) nor the first and second applicants (who were living in Sydney) were able to check the works, and they trusted the builder and relied on the builder's representations regarding the various request for payments and then made the payments in good faith.
6. It appears that in the order of 35 payments were made between 9 June 2021 and 14 July 2021 totalling $166,597.30 and that the overpayment appears to arise, at least in respect of part of it, from the double payment of several items including "prelims" - $6,200.00, "Switch board" - $975.00, "Bricks" - $475.00, and "Brickies" $1,800.00.
7. The Builder ceased the (incomplete and defective) contract work on about 8 October 2021.
8. On 27 October 2021, the applicants' solicitors wrote to the builder raising the lack of any HBA compliant contract or home warranty insurance and demanded that the overpayment be repaid.
9. On 21 October 2021, a homeowner's warranty insurance policy was issued.
10. On 2 November 2021, the builder's license had a condition imposed on it (until 28 September 2025) to the effect that it could only do work if the contract did not require insurance under the home building compensation fund.
11. The effect of that restriction was that the builder could not work or complete any incomplete works or rectify any alleged defective work at the property from that date.
12. On 12 November 2021, the applicants purported to terminate the contract with the builder and demanded repayment of the overpayment.
13. A liquidator was appointed to the builder on 13 December 2021.
14. The respondent accepted that appointment as a "triggering event" allowing the first and second applicants to lodge a claim under the policy for incomplete and defective work.
15. On 14 January 2022, the first and second applicants lodged a claim under the policy including claims for defective and incomplete works and for indemnification in respect of the overpayment (the claim).
16. Pursuant to the policy, the respondent had 90 days (which period ended on 14 April 2022) to determine the claim.
17. On 24 March 2022, the respondent sent a letter to the applicants stating that the respondent accepted liability to indemnify for the rectification and incomplete works as assessed and calculated by a technical assessment and inspection report. The letter did not state that the overpayment was being paid and the overpayment was not paid.
18. The claim for rectification of defective work and completion of incomplete work was resolved by the payment of $130,744.79.
19. On 31 March 2022, the respondent issued a further letter enclosing technical assessment and inspection report (REV1) and quantified an amount payable for the applicant's legal and experts' fees.
20. On 4 April 2022, the respondent also agreed to reimburse the applicant's for alternative accommodation costs, and thereafter reimbursed those accommodation cost up to 7 February 2023.
21. On or about 27 April 2022, the applicants entered a residential tenancy agreement for alternative accommodation and paid a rental security bond of four weeks rent totalling $3,400.00 to the Rental Bond Board as a condition of the residential tenancy agreement.
22. The sum of $3,400.00.00 was paid as a rental bond as a condition of the lease and is to be returned to the applicants at the end of the lease subject to the cost to repair any damage to the property or any outstanding rent.
23. On 28 April 2022, the applicants claimed the bond as an alternative accommodation cost under the policy.
24. On 28 April 2022, the respondent rejected the bond claim as not being covered under clause 1.1(b) (iii) of the policy.
25. The application was filed on 6 May 2022 seeking the overpayment of $35,024.30 and the rental bond of $3,400.00.

JURISDICTION

1. By reason of Section 48A (2) of the HBA, an appeal by a homeowner against a decision of a home warranty insurer is a "building claim" within Section 48K of the HBA. The Tribunal determines the appeal on the basis of a re-hearing of the insurance claim. Hawli v NSW Self Insurance Corporation [2017] NSWCATCD 38 (Hawli) at [56].
2. Neither party raised jurisdiction as an issue and the respondent did not contend that the application was out of time.
3. I am satisfied that the Tribunal has jurisdiction to hear and determine the matter.

THE HOME BUILDING ACT, HOME BUILDING REGULATIONS AND THE POLICY.

1. Part 6 of the HBA concerns compulsory home building compensation fund insurance for residential building work or owner building work.
2. Section 102 (1) of the HBA provides that the section applies to all contracts of insurance required to be entered into by or under [Part 6] and ss 102 (3), (4) and (5) provide that the contract of insurance must provide cover of not less than the amount prescribed by the Home Building Regulation 2014 (NSW) (HBR), that any limitation on liability under the contract of insurance must comply with any requirements in the HBR, and the contract of insurance must comply with any other requirements of the HBR.
3. The applicants submit that the effect of those provisions is that unless a limitation on liability or exclusion is expressly authorised by the regulations, it cannot be included or otherwise implied into the policy.
4. Regulation 40 HBR headed "Losses Indemnified Under Insurance Contracts (where a single contract)" relevantly provides at (1), that any insurance contract must indemnify the beneficiaries under the insurance contract for (underlining added):

• loss or damage resulting from non-completion of the work because of insolvency, death, or disappearance of the contractor, and
• loss of damage arising from a breach of a statutory warranty, being loss of damage in respect of which the beneficiaries cannot recover compensation from the contractor or have the contractor rectify because of the insolvency, death or disappearance of the contractor.

1. Regulation 40 (2) then provides that an insurance contract must indemnify a beneficiary for loss or damage, that include the cost of alternative accommodation, removal and storage costs reasonably and necessarily incurred or the loss of a deposit or progress payment due to an event referred to in subclause,
2. Regulation 42 headed "Limitations on Liability and Cover" identifies limitations on liability under the contract that an insurance contract may contain.
3. The applicants submit that Regulation 42 does not contain an express limitation or exclusion to the effect that payments made that are more than what is required under the building contract are not payable and point to regulation 45 (which provides that total claims under the policy cannot exceed a limit of $340,000.00) as being the only express limitation on cover.
4. The applicants submit to the effect that the respondents are seeking to impermissibly rely on a limitation that is not provided for in the policy.
5. The applicants further submit that Part 6 the HBA is "clearly remedial and beneficial legislation and should be given a fair, large and liberal interpretation rather than one that is literal or technical [ and that] if a section is ambiguous it should be given a broad construction so as to effectuate the beneficial purpose which [the Act] is intended to serve and an interpretation which favours the homeowner. In support of that submission, the applicants refer to New South Wales Aboriginal Land Council v Minister Administering the Crown Lands Act [2016] HCA 50; 260 CLR 232 at [31 to 32].
6. At Paragraph [33], the High Court pointed out to the effect that commencing the process of construction by first proposing the type of construction to be forwarded (whether liberal, broad or narrow) may obscure the essential question regarding the meaning of the words, and one should first focus on the meaning of words, because if that is done, the circumstance for a liberal application may not arise.
7. The parties referred to the following clauses of the policy.
8. Clause 1.1 which provides: (Underlining added) (a) Subject to the terms of the policy and in accordance with the Act and the Regulation, the policy will cover you if you suffer the following losses or damage in respect of the work covered by this policy: loss or damage resulting from non-completion of the work because of the insolvency, death or disappearance of the builder; and loss or damage arising from a breach of a statutory warranty by the builder, being loss of damage in respect of which you cannot recover compensation from the builder or have the builder rectify because of the insolvency, death or disappearance of the builder. (b) Subject to the terms of the policy, in accordance with the Act and the Regulation and without limiting paragraph (a), the policy will cover you for the following loss or damage being loss or damage in respect of which you cannot recover compensation from the builder, or have the builder rectify, because of the insolvency, death or disappearance of the builder: … (iii) the cost of alternative accommodation, removal and storage cost removal and necessarily incurred as a result of an event referred to in paragraph (a); (iv) the loss of a deposit of progress payment due to an event referred to in paragraph (a); … (d) The cover under this clause extends to any residential building work performed by the builder by way of rectification of the work after completion in brackets as provided at close to .4 close brackets of the work stop
9. Clause 1.3 (d) which provides that [the respondent] will not be liable for the amount of any part of a progress payment that exceeds the amount specified for such a payment in section 8A of the Act.
10. Clause 5.3 (c), which provides that subject to the terms of the policy and in accordance with the Act and Regulations, [the respondent is] taken to have accepted liability for a claim if written notice of [its] decision in relation to the claim is not given to [the applicants] within 90 days of the lodging of the claim or such for the time as may be agreed.
11. Clause 5.3 (e) which provides that deemed acceptance under [clause 5.3] does not: (i) Apply to insurance claim that relates to a loss that is not covered, not required by Part 6 of the Act to be covered by the policy, or is able to be excluded under the policy; (ii) Operate to give rise to liability on our part for a loss or damage that is not covered, required to be covered is able to exclude it under the policy; or (iii) Operate otherwise to give rise to a right entitlement or cover under the policy other than as provided under the policy.

INTERPRETATION OF CONTRACTS OF INSURANCE

1. In Hawli at [75], the Tribunal referred to the following summary by Einstein J in HIH Casualty and General Insurance (NZ) Limited (in liquidation) v General Reinsurance Australia Limited and Ors [2004] NSWSC 659 (at para [49]) of principles for interpretation of clauses in an insurance contract ( references to authorities removed): "49 It is of course pertinent to recall that the subject exercise concerned one of the proper construction of an insurance policy in which regard it is common ground that in construing the Policy the Court should have regard to the background facts and circumstances to elucidate the parties' objectively discerned intention and purpose in entering into the insurance contract. The relevant principles are sufficiently summarised in the plaintiff submissions which were put to the arbitrators in the following terms:

"There are four main principles of construction applicable to insurance contracts (see Kelly & Ball: The Principles of Insurance Law, Butterworths at 5.0280). These are as follows:

(a) words and phrases used in an insurance contract are normally to be given their ordinary meaning: …;

(b) the meaning of words and phrases depends upon the context in which they appear in the contract: … For this reason, it is possible for a word or phrase to have one meaning in one part of a contract, and another meaning in another part of the contract: …;

(c) construction of words and phrases in an insurance contract must take account of the main object or commercial purpose of the contract: … The policy must be read in its commercial setting in such a way as to fulfil and not restrain its commercial purpose. Recourse to extrinsic evidence might be had in order that the Court should know the commercial purpose of the contract and its origin, context and the market in which the parties were operating: …;

(d) if the words are ambiguous, construe them contra proferentem i.e. against the interests of the person who prepared the contract: …"

Regulation 40 and Clause 1.1 (a) - loss or damage resulting from non-completion of the work or arising from a breach of a statutory warranty,

1. The evidence of Rigmor Benson, the third applicant, who made the payments on behalf of the first and second applicants is that: 12 Dave would request progress payments from me as the renovations commenced usually via WhatsApp or by telephone 13 I made most of these progress payments by direct debit from my greater bank savings account into York Building's account which Dave had told me to deposit into. 14 I was recovering from my surgery and I did not keep a detailed running total of what we had paid York Building. 15 I trusted Dave and York Building to do the right thing by us. 16 It was not until around mid-August 2021 when myself Tegan and Jorge became more and more concerned about the delays with the renovations and when they would be completed and Tegan and I checked what I had paid up to that point. It was only then that I realised that the total progress payments I had made to York Building were significantly more than the agreed fixed price of $128,658.00 and at that point were around $164,000.00
2. There was no other evidence detailing the circumstances of the over payments.
3. It was generally accepted that the overpayment was made either by mistake or in reliance on some representation made by the director of the builder.
4. As noted above, at least some of the overpayment appears to arise from amounts being paid twice.
5. Looked at in that light, the overpayment was not an amount or amounts payable under the contract or for work performed or to be performed pursuant to the contract.
6. In my view it is therefore not loss or damage resulting from non-completion of the work.
7. Nor, for the reason set out below, can it be loss or damage arising from a breach of a statutory warranty.
8. Each of the statutory warranties are warranties in respect of the work performed or materials supplied. For example, the warranties at s 18B (a), (b) and (c) provide (underlining added): 1. a warranty that the work will be done with due care and skill and in accordance with the plans and specifications set out in the contract, 2. a warranty that all materials supplied by the holder or person will be good and suitable for the purpose for which they are used and that, unless otherwise stated in the contract, those materials will be new, 3. a warranty that the work will be done in accordance with, and will comply with, this or any other law,
9. The claim in respect of the over payment does not arise because of a failure to for example perform the work with due care and skill and in accordance with the plans and specifications set out in the contract, supply materials that are good and suitable or perform work in accordance and in compliance with the HBA or any other law.
10. The applicant alternatively argued that the payments had been made in reliance on misleading and deceptive conduct in breach of s18 of the Australian Consumer Law (ACL) or unconscionable in breach of s 20 of the ACL and rely on the warranty implied by s 18B (1) (c) "that the work will be done in accordance with, and will comply with, this or any other law" to argue that the payments were made and the loss incurred by reason of the failure of the builder to comply with any other law, that law being the ACL.
11. The applicants submit that the alleged misleading and deceptive or unconscionable conduct, being a breach of the ACL, was a breach of any other law and therefore, a breach of the statutory warranty.
12. I disagree and do not accept that the provision in the implied warranties that the work must be in accordance with any other law extends to a breach of the ACL in reliance on which the overpayment was made to give rise to a breach of the implied warranty.
13. In my view, the implied warranties are directed to the work itself being in breach of any other law.

Clause 1(b) (iv) loss of a deposit of progress payment due to an event referred to in paragraph (a)

1. The applicants alternatively argue that the over payment is indemnifiable having regard to clause 1(b) (iv) of the policy which provides that "the loss of a deposit or progress payment due to an event referred to in paragraph (a)…",
2. The clause applies to: (a) the loss of a deposit or progress payment; where (b) that loss is due to an event referred to in (a).
3. Schedule 1, s 1 of the HBA provides that a progress payment for residential building work means "any payment on account after work is commenced under a contract to do residential building work".
4. The applicant contends that the definition is broad and applies to all payment on account after work was commenced under the contract.
5. The respondent argues the section requires the payment on account to be made under the contract (with the builder) and because the payments were not made pursuant to the contract because it was a payment made "beyond and not part of the contract price of the works", it does not come within the definition of being a payment on account and therefore a progress payment.
6. There is no dispute that the payment was made after work was commenced under the contract (between the applicants and the builder). The issue then is whether it is a payment made on account.
7. As between the applicants and the builder, I can't see that the payments could be other on account.
8. In my view the overpayments are therefore progress payments.
9. However, for the reasons set out below, the loss of the progress payments are not due to the non-completion of the work or the breach of a statutory warranty by the builder and are therefore not indemnifiable.
10. Putting to one side whether the overpayment is a progress payment, the clause still requires that the loss be due to an event identified in clause 1.1 (a) being: 1. the non-completion of the work because of the insolvency, death or disappearance of the builder, or 2. arising from a breach of a statutory warranty by the builder, being loss in respect of which the owner cannot recover compensation from the builder or have the builder rectify because of the insolvency, death or disappearance of the builder.
11. Here, the loss, even if it could be identified as a progress payment, as noted above, is not due to one of those events.

Deemed acceptance

1. The applicants alternatively argue that there has been a deemed acceptance of the over payment claim.
2. The applicants' claim was lodged on 14 January 2022 claiming for defective and incomplete works and the overpayment of $35,024.30.
3. Pursuant to clause 5.3 (c) the respondent is taken to have accepted liability for a claim if written notice of the decision in relation to the claim is not given within 90 days of the lodging of the claim or such further time as is agreed.
4. On 24 March 2022 (59 days later), the respondent issued a letter to the applicants stating: YOUR CLAIM This letter is our response to your insurance claim… OUR DECISION ABOUT YOUR CLAIM We have determined liability for the items you claimed. This means that they have decided which items we will pay you for. The attached Technical Assessment and Inspection report includes which parts of your claim we have accepted We have determined that we will pay you for (our liability) based on the technical assessment and inspection report that our bidding consultant submitted after they inspected your property. If you do not agree with this decision, you can lodge a complaint. ….
5. The 24 March 2022 letter is written notice of the respondents decision in relation to the claim, and in my view the fact that the letter does not specifically state that the over payment claim is rejected, does not mean that the respondent has accepted liability for that claim.
6. In any event, for the reasons set out above, it is not a claim that was payable under the contract or the policy and was never a payment covered by the policy and therefore, having regard to clause 5.3 (e) of the policy could not be the subject of a deemed acceptable of liability.
7. The claim for $35,024.30 is therefore rejected.

Rental Bond

1. The applicant submits that the rental bond payment is a cost of alternative accommodation reasonably and necessarily incurred and is therefore indemnifiable pursuant to clause 1.1 (b) (i) of the policy.
2. The respondent submitted that the payment of a rental bond is not a cost reasonably and necessarily incurred, because subject to the tenant not breaching the terms of the residential tenancy agreement, it is money that will be paid back to the applicant at the end of the tenancy.
3. A rental bond is an amount of money paid or payable by a tenant (and held on trust by Rental Bond Services) as security against any failure by a tenant to comply with the terms of a residential tenancy agreement. Residential Tenancies Act 2010 (NSW).
4. In my view, the rental bond payment is not a cost of alternative accommodation. It is money held on trust that the tenant will receive back at the termination of a residential tenancy agreement, subject to, for example, rent having been paid and there being no damage or other breach of the lease which the tenant is required to compensate the landlord for.
5. In my view, it is not a cost incurred and is therefore not indemnifiable.
6. The claim for the rental bond is therefore rejected.
7. The Tribunal's orders will be: 1. The application is dismissed. 2. In respect of costs: (a) If any party wishes to make an application for costs, it is to file and serve submissions and any evidence in support of its application for costs within 14 days of the date of these orders; (b) any submissions or evidence in response are to be filed and served within a further 7 days; (c) any submissions in respect of costs are to state whether the party consents to the question of costs being determined on the papers, and if not why; and (d) if no application for costs is made, there will be no order as to costs with the intent that each party pay its own costs.

I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales. Registrar DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 26 September 2023