Caimakamis and Pagonis v Royal Sun Alliance Insurance [2002] VCAT 94

1. This matter arises before me by way of an application by the owners of a domestic building at 4 Albany Street, Clayton ("the building"). They contracted with a Frank Karambelas to build the building and they signed a contract with him on 17 February 2000. The building has been substantially completed and, indeed, the builder paid. The respondent is Royal & Sun Alliance Insurance Australia Limited which operate under the name of Home Owners Warranty Insurance for this purpose. They were the insurers pursuant to the statutory insurance scheme that operates. They issued a contract of insurance in relation to this building to protect the owners and such contract of insurance was issued on 28 March 2000. I will return to the contract in a moment. As I said, subsequent to the building being substantially completed, apparently the owners were dissatisfied and they commissioned Coghlan Lorich Associates Pty Ltd, Building Consultants, to provide a report which was provided on 3 January 2001. It was clear that there were disputes with the builder and, apparently, the builder by this stage had gone broke. I am not quite sure whether he has gone bankrupt, into receivership or administration. I do not think it matters for this purpose.

2. In any event, on 25 January 2001, the building owners, who are the applicants in this application, advised the respondent of their complaints by facsimile. On 1 February 2001, the insurers advised the owners that the builder would notify them in 10 days which apparently did not happen and then, on 6 February 2001, the owners having knowledge that they needed to have a claim form, requested such a claim form which was eventually sent. The owners completed the claim form and it was received by the respondent insurers on 19 February 2001.

3. On 22 March 2001, the insurers' building inspector, Mr McCready, inspected the premises and it was not until 25 June that the insurer contacted the owners again and requested a copy of the building contract and such contract was given to the insurer the same day and by letter of 27 June 2001, the claim was denied.

4. The applicant is seeking a declaration that the respondent, pursuant to s.85 of the Ministerial Order, and I will interpret that to also read pursuant to clause 35 of the Contract of Insurance is deemed to have accepted the claim. Alternatively, the applicants contend that the respondent is liable for the applicants' claim made on 19 February 2001, that is a deemed liability, on the basis that the contract of insurance requires that the claim be dealt with within 90 days which, if 19 February 2001 was the date that the claim was made would have expired on 20 May 2001. By way of defence, the insurers say that the time did not start running until 25 June 2001 and, in any event, they seek an extension of time pursuant to either a ministerial order or the contract.

5. It is necessary that some documents in this matter be referred to in some detail and I will do so. Clause 1 of the contract of insurance reads in part :

"If (and only if) you, the insured, have complied strictly with all your obligations in this policy then, subject to the limits, exceptions, conditions and terms below, we will at our option make good or pay you your loss or damage ..."

"We will not pay any loss relating to landscaping, paving, retaining structures, driveways or fencing except for such works which :-

* are integral to the construction of a building or

* require the issue of a building permit under the Building Act 1993

* may, or the absence of which may, affect health or safety or the structural adequacy of a building. ...."

"You must give us or the Agent any reasonable assistance or information required".

And Clause 35 which mirrors the ministerial order (clause 8.5 s.122 made 30 October 1988) reads :

"If a written claim is not determined as to liability by us within 90 days of receipt then, unless you or the Tribunal agree to an extension, we are deemed to have accepted it".

8. There is a clause in the claim form for claims made after the defects liability period which reads as follows :

"If your claim is made during the Statutory Warranty Period (ie after the end of the Defects Liability Period under the contract) simply list the defects on this claim form and ensure that, if required, items 1 to 6 below are available when the inspection is made.

9. Upon receipt of the claim form, the insurers wrote a letter to the applicants, the relevant parts of which are as follows :

"We acknowledge receipt of your claim form on 19/02/01.

The claims officer handling your claim is Renee Saunders who may be contacted on 9666 0238.

We will notify you shortly of the proposed inspection date. To assist us, please provide a copy of the contract, plans, specifications and any signed variations, if you have not already done so. Alternatively, these documents may be given to our assessor at the time of inspection. If available, the builder will be invited to attend the inspection".

There are other matters mentioned and in the penultimate paragraph it is stated:

"Although we have a 90 day period to determine liability, we will endeavour to process your claim quickly. In most cases, we will require a minimum period of four weeks before we will make a decision. If delays occur of which prevents the insurer from determining liability, we may seek your consent or apply to the Victorian Civil & Administrative Tribunal for an extension of time".

10. Mr Andrew, who appeared on behalf of the owners, stated that the claim was made on 19 February 2001 and it was accepted on 20 May 2001, ie the day on which the time limit expired, and thus he states that his client is entitled to have the deemed liability accepted which the contract or the ministerial orders give them.

11. Mr Aghion, who appears on behalf of the insurers, stated that the time limit in fact did not start running until 25 June 2001, and thus his client rejected the liability within the 90 days provided.

12. The basis of this submission is that the contract of insurance requires pursuant to clause 24 that the owners must give his client all reasonable assistance. They were requested in the letter of 20 February to which I have referred, to give the contract, plans and specifications which were not given until 25 June, and, as a result, the time did not start to run till then and his client was not able to properly assess the claim. However, it is clear from that letter of 20 February that his client said that the contract and other documents could be given to the assessor who was to visit, who was in fact, a Mr McCready. We have not heard anything from Mr McCready to say whether or not those documents were given to him and, indeed, the material from the insurer that they were not given to the insurer is virtually non-existent. Mr Aghion took me to the claim form which did not show that those documents were annexed to the claim form. It may be that I can be satisfied that they were not sent in with the claim form. However, I cannot be satisfied that they were not sent at another time. I note and I said to Mr Aghion when he was addressing me that on reading the file last night, I was not alerted to the fact that his client was going to raise this issue and therefore it does not surprise me that the owners have not attempted to address it. They could not have known that it was an issue. In my view, if the insurer is to rely on such a provision as this to say that the applicants have not been co-operative and given assistance as clause 24 states, it is incumbent upon them to say precisely and in the clearest possible terms in their material how the owners have failed to co-operate. No one has sworn any material on behalf of the insurer which could specifically say that the contract documents were not delivered to the insurance company within the 90 day period. It would have been a relatively easy task for that to happen if that was the truth of the matter. Therefore, in my view, I cannot be satisfied that the owners have failed to cooperate with the insurance company or give it assistance within the terms of paragraph 24. Thus, I find that the period begins to run from when the claim form was received, which is 19 February 2001, which means that the time expired on 20 May 2001, which is the 90 days.

13. The next question I must consider is whether the time can be extended. Mr Andrew submitted that the time cannot be extended because it does not provide any extension once the 20th of May had arrived. There had been no acceptance or denial of the claim, the owners rights were crystallised and they had a legal and beneficial right to have the benefit of the claim which they had made. He said unless the insurance contract or the ministerial orders give in the clearest possible language a retrospective right, that right cannot be given and thus this Tribunal or anyone else for that matter does not have power to extend that time. The only period in which time can be extended in this particular instance was prior to 20 May 2001. It is interesting to note that if one compares clause 35 of the insurance contract and clause 8.5 of the ministerial orders with s.126 of the Victorian Civil and Administrative Tribunal Act 1998 ("VCAT Act"). it would indicate that Mr Andrew's submission has some force. Sub-section (1) of s.126 of the VCAT Act states as follows :

"The Tribunal on application by any person or of its own initiative may extend any time limit fixed by or under an enabling enactment for the commencement of the proceeding".

"The Tribunal may extend time or waive compliance under this section even if the time or period for compliance had expired before an application for an extension of time or waiver".

Thus it is clear that sub-section (3) specifically deals with extending time after the event.

14. Mr Aghion said that even without sub-section (3), the Tribunal would have power to extend time after an event pursuant to sub-section (1). He said because it would be unfair to do otherwise and the same would apply to clause 35 of the insurance contract. He said that it would make a mockery of a situation which is a statutory scheme for an insurer to have no opportunity to extend time once the time limit had expired. He said there could have been a slip-up in the office and, in his view, it would be quite wrong to read it in that manner.

15. I do not accept Mr Aghion's submission. If the ministerial order and the contract had intended there to be an ability to extend time after the time had expired, it would have specifically stated so in the same way as s.126(3) of the VCAT Act has done so. I also note that the purpose of this statutory scheme is to ensure that the insurance company who participates in the statutory scheme does so with due diligence and speed and does not "drag its feet". Clearly, an insurance company in this position is in a much stronger position than an owner in most cases. What the statutory scheme is seeking to prevent is a situation where an owner may have settled for something far less than it would otherwise be entitled because the insurer would be using its more powerful advantage. I am also of the view that Mr Andrews' submissions are correct and the applicants' rights crystallised on 19 May 2001. Under those circumstances, I am of the view that I do not have power to extend time.

16. Extension of time was considered in Attorney-General v Wilde [1946] NSWStRp 30; (1946) 47 S.R. NSW 99 (Full Court of the Supreme Court). The court there was considering whether time which had been extended for the amendment of a pleading could be further extended after the extended time had expired. It was held that the court had no power under the rules of court to extend such time after the expiration of the time prescribed by the order or the rule. Davidson J stated at p. 111 :

"The grant of leave to amend is a privilege conferred on the party desiring it, and there is no reason why conditions imposed should not be strictly observed, especially when any substantial injustice may be eliminated. Consequently, when the Rule provides that on failure to comply with the requirements that have been specified by the order or the Rule itself and the condition is that failing compliance, the order itself ipso facto becomes void, any alleged extension thereafter would amount to the revival of a nullity. Certainly the words used by the Rule are : 'Unless the time be extended'. But the word 'be' must then mean 'shall have been'."

17. Thus, in my view, on the basis that there was no provision for extension of time after time had expired, there is in fact no power to extend time.

18. However, in case I am wrong on that point, I believe it is appropriate because it has been argued before me, that I should consider in the event that I did have power whether it would be appropriate to extend time in any event in this case. Both parties have agreed that the relevant authority which sets out the matters that need to be considered in this matter is Hunter Valley Developments v Minister for Home Affairs and Environment [1984] FCA 176; (1984) 58 ALR 305 which was followed except in one point by Dix v Crimes Compensation Tribunal [1993] VicRp 21; (1993) 1 VR 297. The one point where the Hunter Valley case was not followed was where Wilcox J in the Federal Court in Hunter Valley stated that it was imperative that the delay should be properly explained. However, the Victorian Supreme Court, Court of Appeal made it clear that that was only a point to be taken into consideration with the other points that were referred to in the decision of Wilcox J.

19. Mr Aghion at paragraph 22 of his submissions has correctly summarized the propositions to be drawn from Dix and Hunter Valley, as follows :

"The six principles in Hunter's case are as follows :

a) an application must be made for an extension, satisfying the Court as to why it should overlook the prescribed period. This includes furnishing an acceptable reason for the delay;

b) action taken by the applicant is relevant to the consideration of the question of whether an acceptable explanation for the delay has been furnished. A distinction is drawn between an applicant that makes the decision-maker aware that the finality of the decision is contested, and an applicant that has 'sat upon its rights';

c) any prejudice suffered by the respondent is a material factor;

d) the mere absence of prejudice is not enough to justify the grant of an extension;

e) the merits of the substantial application are properly to be taken into account; and

f) considerations of fairness as between the applicants and other persons in a like position are relevant".

20. All these matters must be taken into account but none by themselves are determinative. They must be looked at as a whole. However, in order to do that, one needs to first of all look at them separately. In this case, the reason for the delay, has been stated by the respondent to be that the building contract was not provided until 25 June. I have already made a finding that it certainly was provided on 25 June but I am uncertain whether it was provided earlier. In any event, one would have thought that a properly run organization such as an insurance company, knowing that there was a 90 day time period would have made efforts within that 90 days if they had not received the building contract to make a further request for it. Clearly, no evidence has been put before me of any further request which was made and it has not been suggested that any such further request was being made. Or, at the very least, one would have thought that Mr McCready would have requested it. He may well have requested it and he may have been given it. We do not know. So, in my view, I cannot be satisfied that the delay has been explained adequately or at all. Mr Aghion suggested the owners knew that there was a time period and that they did not do anything about it until after the time period, therefore, he concludes that the owners sat on their hands. I do not accept this. The owners were in a position to allow and did in fact allow the inspector into the house and they were quite entitled to and believed that the claim would be processed within the time in the contract. I do not accept that they have sat on their rights. The question of prejudice is not relevant here because Mr Andrew has quite correctly conceded that his client would not suffer any prejudice should time be extended.

21. In relation to the merits of the application, Mr Aghion stated at paragraph 27 :

"The owners have suffered no loss as, contrary to section 40 of the building contract, they did not withhold final payment from the builder pending rectification of defective works. Them owners have therefore deprived themselves of the opportunity to direct the builder to return under the contract, and have suffered no loss".

22. Again, there is no evidence as to when or under what circumstances they made the final payment to the builder. It is unclear as to whether the final payment was made before or after the defects were discovered. It is unclear whether the builder threatened them not to allow them into the house if they did not make the final payment. Therefore, I cannot place any emphasis on this matter at all.

23. Of more concern is the next matter that Mr Aghion raises, that is, that part of the claim relating to pavings and driveways which Mr Aghion said is excluded by clause 15 of the insurance contract. However, it is not excluded completely under the contract. It is only excluded if it does not fall into the circumstances that are mentioned in clause 15. Here, there is no evidence before me as to whether or not it does fall into those circumstances. I do not know whether it is an integral part of the construction of the building and I do not know whether a permit was required under the Building Act for the construction of the pavings and driveways. Therefore it is quite conceivably not excluded by the insurance contract. Under those circumstances, in my view, I cannot be satisfied that the merits of the consideration would, in any way, favour extending time.

24. The final matter which I must consider is the question of fairness and, in that regard, Mr Aghion has said that the owners even though they were notified on 27 June 2001 that the claim was denied, they have been slow to act in not bringing this application until it was issued on 18 October 2001. In my view, this is not very relevant as the time had already expired for the deeming period, that is 20 May. Further, Mr Aghion states that there is a 28 day period pursuant to s.61 of the Domestic Building Contracts Act whereby the decision can be reviewed and the owners have not sought a review. I fail to see how this could be said to relate to a matter that would be, in any way, unfair to the insurer. Under those circumstances, and looking at the matters which I have discussed as a whole, I do not see any reason why the time should be extended. Therefore, I will dismiss the claim for an extension of time both for that reason and for the reason I have earlier stated that, in my view, it is not a clause that allows it to be done so retrospectively and I will make an order depending on what Mr Andrew seeks either by way of declaration or an order as to actual performance.

25. There has been an application for costs by the applicant and Mr Aghion has not suggested that there should not be an order for costs but there is a dispute as to what scale the costs should be on. Mr Andrew for the applicant suggested that the costs should be either on an indemnity basis or a solicitor/client basis. I think that those type of costs orders should be made very sparingly. I know that this is a situation where building owners have been out of pocket and it is a claim under insurance and they should be put back in a position which he would have to do had this not happened. However, I do take into account that the insurer has not acted in any way mal a fides and, indeed, the arguments that were presented before me today were substantial arguments for the insurer. They were not silly or they were not frivolous in any respect. Under those circumstances, I do not think that the solicitor/client scale or indemnity costs would be appropriate. Mr Aghion, on behalf of the respondent, has suggested County Court Scale "B" because he said while the matter has been quantified, he believes that, in all probability, the rectification can be done for less than $50,000. Mr Andrew agrees that the matter has not been quantified and he is also guessing but he said it could be quite substantial and has asked for Scale "D" in the event that his first claim was not successful.

26. I cannot guess the value of the claim. However, there have been some quite difficult matters put before me today, even though it was a short matter and the matter has been extremely well researched and careful argument has been presented by both sides. It was an extremely complicated matter and, under those circumstances, I think Scale "D" is appropriate.

27. Mr Aghion has raised the matter in his submissions and I forgot to deal with it in my reasons that there should be a stay on these orders to enable the builder to have a chance to rectify and if he did not seek to rectify, to review the decision within 28 days. However, it was put by Mr Andrew that once this matter is deemed to have been accepted, it is deemed to have been accepted and that is the end of the matter. In my view, I agree with the submission of Mr Andrew. Once it is accepted, there does not appear to be, in my view, any provision that would allow such a stay and consequently I will not allow it.