Court of Appeal (WA)|2012-06-15|Before: Lure P, Buss JA, Newnes JA

CHU UNDERWRITING AGENCIES PTY LTD -v- WISE [2012] WASCA 123 (15 June 2012)

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

CITATION : CHU UNDERWRITING AGENCIES PTY LTD -v- WISE [2012] WASCA 123

ROBERT JOHN McKNOE as Executor of the Estate of DOROTHY MARGARET WISE

Jurisdiction : DISTRICT COURT OF WESTERN AUSTRALIA

Citation : ARGOSY STRATA PLAN SP 21513 -v- CHU UNDERWRITING AGENCIES PTY LTD [No 2] [2011] WADC 115

Appeal - Insurance contract entered into by strata company - Duty of strata company to insure common property under the Strata Titles Act 1985 (WA) - Whether registered proprietors entitled to claim under insurance contract pursuant to s 48 of the Insurance Contracts Act 1984 (Cth)

Settlement agreement of legal proceedings between strata company and insurer - Whether parties to settlement agreement intended to accept settlement sum in full satisfaction of all claims - Whether registered proprietors prevented from pursuing legal proceedings for the balance of the claims - Effect of settlement agreement on joint tortfeasors - Res judicata and cause of action estoppel - Whether registered proprietors are privies of strata company - Construction of s 33 of the Strata Titles Act 1985 (WA)

Baxter v Obacelo Pty Ltd [2001] HCA 66; (2001) 205 CLR 635

Chamberlain v Deputy Commissioner of Taxation [1988] HCA 21; (1988) 164 CLR 502

Codelfa Construction Pty Ltd v State Rail Authority of New South Wales [1982] HCA 24; (1982) 149 CLR 337

Coulls v Bagot's Executor and Trustee Company Ltd [1967] HCA 3; (1967) 119 CLR 460

Federation Insurance Ltd v Wasson [1987] HCA 34; (1987) 163 CLR 303

Owners - Strata Plan No 43551 v Walter Construction Group Ltd [2004] NSWCA 429; (2004) 62 NSWLR 169

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

Trawl Industries of Australia Pty Ltd (in liq) v Effem Foods Pty Ltd [1992] FCA 272; (1992) 36 FCR 406

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

Vero Insurance Ltd v Owners of Strata Plan No 69352 [2011] NSWCA 138

Western Export Services Inc v Jireh International Pty Ltd [2011] HCA 45

White v Tyndall (1888) 13 App Cas 263

Zurich Australian Insurance Ltd v Metals & Minerals Insurance Pte Ltd [2009] HCA 50; (2009) 240 CLR 391

1 McLURE P: This appeal concerns the proper construction of an insurance contract between the appellant (the insurer) and a strata company known as 'the Owners of Argosy Court Strata Plan 21513' (the Strata Company) and a settlement agreement between, and a consequential court judgment consented to by, the insurer and the Strata Company.

2 There was a trial of four legal issues before Yeats DCJ. The agreed facts are as follows. On 18 November 1991 Strata Plan 21513 (the Strata Plan) was registered and thereby the Strata Company was incorporated pursuant to s 32 of the Strata Titles Act 1985 (WA) (the Act). The Strata Plan is in respect of property located at Lot 620 Murat Road, Exmouth. At all material times:

(a) there were 12 lots on the Strata Plan and separate Certificates of Title were issued to the registered proprietor of each lot;

(b) the 12 lots (the Lots) comprised part lots upon which no buildings were constructed and part lots upon which buildings were constructed;

(c) the registered proprietors' interests (in their respective lot(s)) 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 the Strata Plan down to 2 m and up to 5 m (except where covered) on the part lots upon which no buildings were constructed;

(d) 13 buildings were constructed on the land the subject of the Strata Plan; and

(e) the 13 buildings the subject of the Strata Plan formed part of the 'common property' as defined in the Act.

3 On 30 April 1998 the insurer entered into a general contract of insurance with the Strata Company (the Insurance Contract). The Insurance Contract was in writing and comprised a CHU Residential Strata Insurance Plan Policy, a Residential Strata Insurance Plan Policy Schedule - Tax Invoice for the period of insurance from 30 April 1998 to 30 April 1999 (the policy schedule) and a Residential Strata Insurance Plan Renewal Certificate for that period (the renewal certificate).

4 On and from 2 June 1998 Douglas Wise, Carol McKeown and Dorothy Wise became the registered proprietors of Lots 1 and 2 on the Strata Plan.

5 On 22 March 1999 Cyclone Vance struck Exmouth and caused damage to the buildings and other fixtures situated on the land the subject of the Strata Plan. Between March 1999 and January 2001 the insurer indemnified the Strata Company for the cost of repairing the damage in the total sum of $87,600.45 less an excess of $1,000.

6 On 26 April 2001, the Strata Company as first plaintiff and Mr Wise as second plaintiff commenced District Court action CIV 1051 of 2011 (the proceedings) against the insurer.

7 On 13 June 2002, the Strata Company and the insurer compromised the Strata Company's action the subject of the proceedings (the 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. Pursuant to the terms of the Settlement Agreement, by consent, judgment was entered in favour of the Strata Company in the sum of $16,800 and the insurer paid that sum to the Strata Company.

8 On 3 March 2004, Carol McKeown and Dorothy Wise (subsequently deceased) were added as third and fourth plaintiffs in the proceedings.

9 The issues and the answers given by the primary judge are as follows:

Issue 1

On the proper construction of the 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.

Answer 1

Yes.

Issue 2

Assuming the answer to question 1 is in the affirmative, on the proper construction of the contract of insurance and the terms of [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 any property on [the] Strata Plan ... that occurred during cyclone Vance ... was finally settled by the settlement agreement and judgment entered in favour of the first plaintiff.

Answer 2

No.

Issue 3

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 [the] Strata Plan ... that occurred during cyclone Vance ... were finally settled by the settlement agreement and judgment entered in favour of the first plaintiff.

Answer 3

No.

Issue 4

Assuming:

(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 [plaintiffs] 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.

Answer 4

No.

10 I approach the task of contractual construction in accordance with what Mason J said in Codelfa Construction Pty Ltd v State Rail Authority of New South Wales [1982] HCA 24; (1982) 149 CLR 337, 352. See Western Export Services Inc v Jireh International Pty Ltd [2011] HCA 45.

11 As is evident from the express terms of the Insurance Contract, the issues relating to its proper construction need to be addressed against the background of the statutory framework relating to the insurance of buildings and lots the subject of a strata plan.

12 Under the Act, land may be subdivided into lots, or lots and common property, by the registration of a strata plan or a survey-strata plan (s 4(1)).

13 Upon the registration of a strata/survey-strata plan, the proprietors from time to time shall constitute a strata company, which is a body corporate with perpetual succession and a common seal: s 32(1) and s 32(2).

14 Common property is held by the proprietors as tenants in common in shares proportional to the unit entitlements of their respective lots: s 17(1). Common property is defined in s 3(1) to mean:

(a) so much of the land comprised in a strata plan as from time to time is not comprised in a lot shown on the plan;

(b) any leasehold interest acquired by a strata company under section 18; and

(c) the lot or lots shown on a survey-strata plan as common property.

(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.

16 Division 4 of pt IV of the Act deals with insurance. In broad terms there is a statutory framework for single tier strata schemes and a different statutory framework for schemes other than single tier strata schemes. Although not recorded in the statement of agreed facts, there was no dissent from the proposition that the Strata Plan is a single tier strata scheme to which subdivision 2 of division 4 of pt IV of the Act applies. In subdivision 2, a distinction is made between insurance for lots (s 53B) and insurance for common property (s 53C). Whether there is insurance in respect of any building on a lot is at the discretion of the proprietor of the lot unless the strata company for the scheme determines that it is its function to insure the building (s 53B(1) and s 53B(2)). Section 53C relevantly provides:

(1) The strata company for a [single tier strata] scheme shall -

(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.

17 'Parcel' is defined to mean the land comprised in a strata/survey-strata plan (s 3(1)). A strata company does not have the obligations in s 53C(1) if it has, by resolution without dissent, determined that subsection (1) is not to apply: s 53C(2)(b). It is not suggested that there was any such resolution in this case. The scope and extent of the insurance which a strata company shall effect and maintain is detailed in s 53D(3).

18 Subdivision 4 of div 4 applies to all schemes under the Act. Under s 55, a strata company is also required to effect and maintain any insurance which is required by law (such as workers compensation) and against such other risks as the strata company may from time to time determine. Section 56 is in terms:

(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.

19 If a proprietor considers that a strata company is in breach of any obligation to insure imposed on it by the 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: s 56A.

20 Section 58 relates to the insurable interests of the strata company. It provides:

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.

21 Subject to orders under s 28 or s 31, where a strata company receives payment of moneys from an insurer in respect of destruction or damage to a building, the moneys must forthwith be applied by the strata company in rebuilding or repairing the building: s 59.

22 A strata company is under a duty to (inter alia) control and manage the common property for the benefit of all the proprietors and to keep in good and serviceable repair, properly maintain and, where necessary, renew and replace the common property: s 35(1)(b) and s 35(1)(c)(i). Proprietors have no express statutory right to maintain, repair or replace common property but have a statutory right to compel the strata company to do so: s 83(1).

23 A strata company must also establish a fund for administrative purposes that is sufficient in the opinion of the company for the control and management of the common property, the payment of any premiums of insurance and the discharge of any other obligation of the strata company: s 36(1)(a).

24 It was accepted by all parties that the Strata Company does not, under the Act, have any proprietary interest in the common property: The Owners of Habitat 74 Strata Plan 222 v Western Australian Planning Commission & Ors [2004] WASC 23 [36]. However, as the primary judge noted, the common view up until the delivery of that 2004 decision was that the strata company was the owner of the common property [62].

Section 48 of the Insurance Contracts Act 1984 (Cth)

25 It was also accepted by all parties in the appeal that the only parties to the Insurance Contract are the insurer and the Strata Company. It was not suggested that the Strata Company entered into the Insurance Contract as agent for the proprietors, or on its own behalf and as agent for the proprietors. The proprietors who are plaintiffs in the proceedings say they are entitled to claim under the Insurance Contract pursuant to s 48 of the Insurance Contracts Act 1984 (Cth). That section relevantly 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.

(2) ...

(3) The insurer has the same defences to an action under this section as the insurer would have in an action by the insured.

26 Section 48 does not deem a person to whom the insurance cover extends to be a party to the insurance contract: Zurich Australian Insurance Ltd v Metals & Minerals Insurance Pte Ltd [2009] HCA 50; (2009) 240 CLR 391 [24]; Trident General Insurance Co Ltd v McNiece Bros Pty Ltd [1988] HCA 44; (1988) 165 CLR 107, 126 - 127.

27 The Insurance Contract is entitled 'Residential Strata Insurance Plan' and covers eight different types of insurance, being building and common area contents (Policy 1), legal liability (Policy 2), voluntary workers (Policy 3), workers compensation (Policy 4), fidelity guarantee (Policy 5), office bearers legal liability (Policy 6), machinery breakdown (Policy 7) and building catastrophe insurance (Policy 8).

28 The Insurance Contract contains definitions of words used throughout the policy. The defined terms include 'Building', 'Common area contents', 'Proprietors, members, owners or shareholders', 'Unit, units', 'Unit owner, unit owners', 'Unit owners contents', and 'You, your, yours'.

(i) Building/Buildings as defined by the Strata Titles Act, Community Titles Act, Company Titles Act or similar legislation applying where Your Building is situated ...

(ii) ...

(iii) ...

(iv) Proprietors, Members, Owners or Shareholders fixtures (but not fixtures removable by a lessee at the expiration of a tenancy);

at Your Situation ...

Your furniture, furnishings, carpets, computer and electronic and electrical equipment, garden equipment, plant and telephones;
property for which You are legally responsible.

31 The expression 'Proprietors, members, owners or shareholders'

means and is limited to the interest of Proprietors, Members, Owners or Shareholders in respect of the ownership of Your Building and/or common property in terms of the Strata Titles Act or Community Titles Act or similar legislation applying where Your Building is situated.

The interest or liability of Proprietors, Members, Owners or Shareholders as a Unit Owner and/or occupier of a Unit is not included unless otherwise specifically provided by this policy.

means the place shown in the policy Schedule where the insured property is located.

means an area shown on a plan as a Lot or Unit in terms of the Strata Titles Act, Community Titles Act or similar legislation applying where Your Building is situated.

means a person, persons or others registered as a proprietor or owner of an estate in fee simple in a Unit in terms of the Strata Titles Act, Community Titles Act or similar legislation applying where the Unit is situated.

means the Company named in the Schedule as the Insurer.

You, Your, Yours means:-

(i) 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 interest therein of Proprietors, Members, Owners or Shareholders.

the Body Corporate, Corporation, Owners Corporation, Plan or Company named in the Schedule including, but limited to:-

the interest therein of Proprietors, Members, Owners or Shareholders.
a Voluntary Worker whilst engaged solely in work or duties on behalf of the Body Corporate, Corporation, Owners Corporation, Plan or Company named in the Schedule.

a Voluntary Worker whilst engaged solely in work or duties on behalf of the Body Corporate, Corporation, Owners Corporation, Plan or Company named in the Schedule.

the Body Corporate, Corporation, Owners Corporation, Plan or Company named in the Schedule.

the past, present or future Office Bearer(s) and/or Committee Members of the Body Corporate, Corporation, Owners Corporation, Plan or Directors of the Company ...

37 The claim the subject of the proceedings was under Policy 1 which relevantly provides:

... 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 ...

...

We cover, up to the limit of the sum insured specified in the Schedule:-

Your Building;
Your Common Area Contents whilst contained in, on or under Your Building at Your Situation or whilst temporarily removed or in transit.

38 Additional benefit 4 of Policy 2 expressly extends to non-parties. It provides that 'You' will include the organisers of any recreational or social activities arranged for and on behalf of Unit Owners of Your Building.

39 There is also a special benefits provision in both Policies 1 and 8 (building catastrophe insurance) which commences with the following statement:

We will pay for Special Benefits ... in addition to the sum insured for this Policy ... and where applicable will also treat Unit Owners as though they were You.

40 Special benefits for Policy 1 include loss of rent and the cost of temporary and emergency accommodation in the following terms:

Loss of rent

Loss of Rent incurred in the event of Your Building being damaged by any cause not excluded under this Policy 1 if such damage makes uninhabitable:-

(i) any Unit, or any part of Your common area usually inhabited

...

Cost of temporary accommodation

The Cost of Temporary Accommodation incurred in the event of Your Building being damaged by any cause not excluded under this Policy 1 if such damage makes uninhabitable:-

(i) any Unit occupied by the Unit Owner;

...

Emergency accommodation

The cost of reasonable emergency accommodation necessarily incurred in the event of Your Building being damaged so as to make uninhabitable any Unit occurred by a Unit Owner for residential purposes ...

41 Policy 2 relates to legal liability to third parties. The indemnity provision provides:

We will indemnify You up to the maximum amount should You become legally liable to pay by way of compensation for:-

resulting from an Occurrence in connection with Your Business ...

42 The expression Business is defined (except for special benefit 4 of Policy 2) as 'Your ownership of Your Building and/or Common Area Contents'.

43 Policy 5 is a fidelity guarantee. It provides:

We will, up to the limit of indemnity stated in the Schedule, indemnify You in respect of:-

44 There is a special definition of 'Funds' which expressly excludes 'the personal money, securities or tangible property of Proprietors, Members, Owners or Shareholders'.

45 The policy schedule which forms part of the Insurance Contract identifies the Insured and Situation as follows:

THE OWNERS OF SP 21513 Lot 620 Murat Road Exmouth WA.

46 The renewal certificate also forming part of the Insurance Contract refers to the Insured and Situation as follows:

THE PROPRIETORS - SP 21513 Lot 620 Murat Road Exmouth WA 6707.

47 The postal address on both documents was to the Treasurer - SP 21513.

48 In most instances, the Policy makes it clear when the insurance cover is extended to a non-party. That is the case in the definition of 'You' in relation to Policies 3 and 6 and in Additional benefit 4 in Policy 2. The wording of the special benefit cover in Policies 2 and 8 is not as straightforward, a matter to which I will return.

49 The construction of 'You, your, yours' in relation to Policies 1 and 2 is also challenging. One source of the difficulty is that the statutory strata title regimes differ from State to State. In New South Wales for example, on registration of a strata plan the common property vests in a 'Body Corporate' (being an 'Owners Corporation' under s 11 of the Strata Schemes Management Act 1996 (NSW)) who holds it as agent for the proprietors of the lots in shares proportional to their unit entitlement: Strata Schemes (Freehold Development) Act 1973 (NSW), s 18 and s 20. The proprietors of the lots have a beneficial interest in the common property: Owners - Strata Plan No 43551 v Walter Corporation Group Ltd [2004] NSWCA 429; (2004) 62 NSWLR 169; Vero Insurance Ltd v Owners of Strata Plan No 69352 [2011] NSWCA 138 [60].

50 The insurer admitted in its defence filed in the proceedings that the Strata Company was the proprietor of the common property in the Strata Plan. It has now resiled from that proposition.

51 The definition of 'You, your, yours' for Policies 1 and 2 both contain the expression 'the Body Corporate ... named in the Schedule including, but limited to, the interest therein of Proprietors, Members, Owners or Shareholders'.

52 The respondents rely on the identification of the 'Insured' in both the policy schedule and the renewal certificate forming part of the Insurance Contract in support of their contention that the insurance cover extends to them under s 48 of the Insurance Contracts Act. That reliance is misconceived. It is apparent that those documents intend to identify the party to the Insurance Contract and nothing more. Both parties accept that the Strata Company is the only insured party.

53 The insurer contends that the definition of 'You, your, yours' does not indicate an intention to extend the indemnity in Policy 1 (or Policies 5, 7 and 8) in the Insurance Contract to the individual proprietors of lots on the Strata Plan. Rather, the intention is to insure the Strata Company's deemed insurable interest in the interest of the proprietors in the common property. It follows, according to the insurer, that the expression 'interest therein of Proprietors, Members, Owners or Shareholders' (the Proprietors) is a reference to Proprietors as defined, namely 'the interest of Proprietors ... in respect of the ownership of Your Building and/or common property in terms of' the strata title legislation in the relevant jurisdiction. To construe the word 'therein' as denoting the interest of the Proprietors in the Body Corporate makes no commercial sense, at least in this jurisdiction.

54 In my view, the definition of 'You, your, yours' performs two functions. The first is to identify an individual or entity to whom the insurance cover extends; that is the 'You'. The second function is to identify the 'Your(s)', which is the possessive form of You.

55 Each of Policies 1, 5, 7 and 8 relate to damage to property: 'Your Building' (Policies 1 and 8), 'Your Common Area Contents' (Policy 1), 'Your funds' (Policy 5) and 'machinery ... and other plant forming part of Your Building' (Policy 7). Moreover, 'Your' also features prominently in Policy 2 (an occurrence in connection with 'Your ownership of Your Building'). There must be a correlation between the 'You' and the property the subject of the possessive 'Your'.

56 It is important to appreciate that a 'Building' as defined in the Insurance Contract (which is in materially the same terms as s 53 of the Act) may not, even in a single tier strata scheme, be part of the common property but may instead be owned in whole or in part by the registered proprietor of a lot or lots. Moreover, although the Strata Company's obligation to insure under the Act is confined to any building or part of a building or improvement that is common property, it has a statutory discretion to insure other risks (s 53B(2), s 55). The expression 'Your Building' is not expressly defined in the Insurance Contract by reference to any particular interest. However, where, as in New South Wales, the common property is vested in the Body Corporate, the possessive 'Your Building' clearly applies (at least) to so much of a Building that is common property. Although a strata company under the Act has no proprietary interest in any building on the strata plan, it has extensive duties in relation to the common property, including the duty to insure buildings and improvements on it. 'Building' is defined in s 53 of the Act to include proprietors' improvements and proprietors' fixtures. When looked at in the context of the definition of Proprietors (which refers to 'Your Building and/or common property'), it is clear that the expression 'Your Building' in the Policies includes the Strata Company's deemed insurable interest in the common property. In my view the intention and effect of the expression 'including, but limited to the interest therein of the Proprietors' is to confine the 'Your' to so much of the building in which both the Body Corporate and the Proprietors have an interest. On the facts in this case, that is the buildings and improvements on the parcel that is common property.

57 The next question is whether it also has the purpose and effect of enlarging 'You' to include the Proprietors. The language of the Special Benefits provision in Policies 1 and 8, which requires the insurer to treat Unit Owners 'as though they were You', may be seen as supporting a negative answer. However, contrast that with the language in Additional benefit 4 in Policy 2 which includes specified third persons 'as You'. The different language may have a contrary significance. The same legal persons (the Proprietors of a lot) feature in the definition of Proprietor and in the definition of Unit owners. The former definition refers to the interest of Proprietors in respect of the common property and the latter refers to persons who are registered as the proprietor of a lot. The language in the special benefit cover in Policies 1 and 8 is consistent with an intention that Proprietors are already within the definition of 'You' in respect of the common property.

58 In order to answer the question it is necessary to broaden the context to consider the definition of 'You, your and yours' in the context of Policy 2. In Policy 2 it means:

the Body Corporate ... named in the Schedule including, but limited to:-

[as per Policy 1];
a Voluntary Worker whilst engaged solely in work or duties on behalf of the Body Corporate ...

59 The insurance cover in Policy 2 is extended to a Voluntary Worker for the Body Corporate. In that case the legal entity is nominated rather than an interest. However, the real significance of the extension is that the purpose of the expression 'including, but limited to' is not to limit 'You' to the Body Corporate as the sole legal entity within the definition. Moreover and of equal significance is the fact that if the definition of 'You, your and yours' for Policy 2 does not extend to Proprietors to the extent of their interest in the common property (in addition to the named Body Corporate), the Strata Company will have failed to comply with its statutory obligations under s 53C(1) and s 53D(3) of the Act.

60 The statutory obligation under s 53C(1)(b) relates to insurance for 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. If the insurance cover in Policy 2 does not extend to Proprietors, they will not be protected against public liability claims against them as holders of the common property. This may also be an issue in New South Wales even though the Proprietors are not the holders of the common property. See s 87(1)(c) of the Strata Schemes Management Act 1996 (NSW). That the parties intended the Policy 2 cover to extend to the owner(s) of the common property is evident from the definition of 'Your business' as 'Your ownership of Your Building'.

61 That is a compelling contextual and commercial basis for inferring a contractual intention that the insurance cover extend to Proprietors in relation to the common property. There are other commercial justifications for that conclusion. Although the source of the interest of the Strata Company and the Proprietors in the common property is different, they have a common interest in it vis-a-vis the insurer. The interest of the Strata Company and the Proprietors would be joint. See Federation Insurance Ltd v Wasson [1987] HCA 34; (1987) 163 CLR 303, 309 - 310. Ordinarily, the interests of all could and would be covered by proceedings taken by the strata company. See s 33 of the Act. However, it is possible that a majority of Proprietors and the strata company do not wish to litigate. The risk appetite for litigation, ordinarily associated with considerations of costs and means, will vary. A person with a joint property interest is not prevented from taking legal proceedings because not all joint interest holders agree to be plaintiffs. In those circumstances the ordinary course is to make them defendants (White v Tyndall (1888) 13 App Cas 263) which satisfies the procedural fairness requirements and binds them in the judgment. Whether that course is necessary in the unusual circumstances of this case is not for determination in this appeal. Moreover, my preliminary view is that if the Proprietors/plaintiffs in the proceedings are successful in their claims for damage to the Buildings forming part of the common property, the award of damages would by virtue of the statutory scheme be held in trust for the Strata Company.

62 Finally, the extension of the special benefits cover to the interests of Proprietors in relation to their lots provides further commercial support for inferring a contractual intention to extend the insurance cover in Policy 1 (and 8) to the Proprietors in relation to the common property.

63 Although the issue is not free from doubt, I am of the view that the expression 'the Body Corporate ... named in the Schedule including, but limited to, the interest therein of Proprietors ...' is intended to signify that the Proprietors are persons to whom the insurance cover in Policies 1, 2, 5, 7 and 8 is extended. The primary judge's answer to Issue 1 is correct.

64 That conclusion is consistent with the second reading speech for the Bill that introduced the amendments relating to the statutory framework for single tier strata schemes (Strata Titles Amendment Act 1996 (WA)). The Minister said:

Essentially, strata owners in single tier strata schemes will, in each scheme, be given the choice of taking out individual insurance policies on their lots, or they may continue to insure through the strata company. In relation to insuring the common property, the strata company will still be primarily responsible for taking out a joint insurance policy. However, the strata company will not be obliged to take out a joint insurance policy in two cases. Firstly, if the only common property is cubic air and soil space in which there is no man-made structure, improvement or fences. Secondly, the strata company will not be obliged to take out joint insurance if the owners agree by resolution without dissent not to take it out. Because of the potential risks to strata owners, any strata owner will be able to insist on joint insurance of the common property at any time.

65 In 2001 the Strata Company (the first plaintiff) and Mr Wise (the second plaintiff) commenced the proceedings against the insurer claiming that it, by its contractors, failed to reinstate the property or effect repairs in a workmanlike manner. They claimed the reasonable cost of reinstating or repairing the damage, as particularised, to each of Units 1 - 12 and 4M and for 'General Work to Premises', the claim for which was $16,800 (the general work claim).

66 In 2002, Kott Gunning acted for the plaintiffs and Greenland Brooksby acted for the insurer. By letter dated 13 May 2002 from Kott Gunning to Greenland Brooksby, a settlement offer was made on behalf of the Strata Company. It relevantly provided:

[T]he 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 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 plus $1,790 GST, a total of $19,690.

The Strata Company offers to accept the sum of $16,800 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.

67 The insurer's solicitors replied in a letter dated 13 June 2002 which provided:

We refer to your letter to us of 13 May 2002.

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 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. Would you kindly sign and return two copies of the judgment to us for filing at the Court to finalise the matter, insofar as it is related to the claim by the Strata Company.

68 The memorandum of consent judgment enclosed with the letter was in terms:

We the undersigned do hereby consent to judgment as follows:

Judgment be entered on behalf of the first plaintiff against the defendant in the sum of $16,800.
Paragraph 12 of the statement of claim be struck out.
There be no order as to costs in respect of the first plaintiff's action against the defendant.

69 Paragraph 12 of the statement of claim was for loss of rental from the damaged units. The consent orders were made and the settlement sum paid. The Strata Company ceased to be a party to the proceedings and further plaintiffs were added.

70 The primary judge held that on the proper construction of the Settlement Agreement the insurer and the Strata Company agreed that the settlement was limited to claims for damages to general areas of common property on the Strata Plan (the general work claim) [61]. She also found that:

(a) the insurer was estopped from denying the plaintiffs' right to continue the proceedings [34];

(b) the Strata Company acted as agent for the registered proprietors of the lots on the Strata Plan, including the respondents, when entering into the Settlement Agreement and, by implication, when commencing and prosecuting its claims against the insurer in the proceedings [64], [68];

(c) on the proper construction of the Settlement Agreement and the Insurance Contract the respondents were not prevented from maintaining claims against the insurer for damage to any property on the Strata Plan that had occurred during Cyclone Vance [61], [64]; and

(d) on the proper construction of the Settlement Agreement and the Insurance Contract the respondents were not prevented from maintaining claims against the insurer under the Insurance Contract for damage to common property on the Strata Plan that had occurred during Cyclone Vance [68].

71 The statement of claim in the proceedings immediately prior to the Settlement Agreement relevantly pleaded:

(1) The First Plaintiff are the proprietors of a property held in Strata Title and situate at Lot 620 Murat Road, Exmouth in the State of Western Australia ('the Property').

(2) The Second Plaintiff is one of the Strata Title proprietors in the Property.

(3) ...

(4) During or about April 1998 the Defendant ... accepted the proposal of the First Plaintiff and the Second Plaintiff to insure the Property under a residential strata insurance contract of insurance policy ... for the period of insurance from 30 April 1998 to 30 April 1999 ... ('the Insurance Contract').

(5) The Insurance Contract provided, inter alia, for buildings, related structures and fences to be replaced or repaired in a good and working and like manner and for loss of rental attributable to damage or loss of the buildings caused by certain perils including cyclones.

(6) On or about 22 and 23 March 1999, Exmouth was struck by Cyclone Vance which caused widespread property damage including damage to the property.

(7) The First Plaintiff and the Second Plaintiff notified the Defendant of a claim under the Insurance Contract promptly.

(8) The Defendant engaged certain contractors to effect repairs to the Property. It was an implied term of the Insurance Contract that such repairs or reinstatement of the damage to the property would be performed within a reasonable period of time.

(9) The contractors appointed by the Defendant either did not effect the repairs or attempted to effect the repairs/reinstatement of the property in an unworkmanlike manner.

(10) Despite demand, the Defendant, its contractors or agents, have not reinstated the Property or effected repairs in a workmanlike manner either promptly or at all.

(11) The reasonable cost of making good and satisfactory repairs or failure to reinstatement are as follows ...

[particulars omitted]

(12) As a consequence of the Cyclone and the failure to effect reinstatement or undertake workmanlike repairs, the First Plaintiff and the Second Plaintiff have suffered loss of rental by reason of the damaged units not being fit for human habitation or being in a state that is totally unacceptable to the reasonable requirements of holidaymakers.

[particulars omitted]

and the First Plaintiff and the Second Plaintiff claim against the Defendant as follows:

(i) damages;

(ii) interest on such damages at the rate specified under s 59 of the Insurance Contracts Act 1984;

(iii) costs of suit.

72 The damages claimed by the plaintiffs were particularised in April 2002. The amount claimed (excluding that for the general works claim) exceeded $45,000. The claim in relation to the individual units included the following:

73 Issues 2 and 3 are closely related. They only arise because the insurance cover in Policy 1 extends to the Proprietors in relation to their interest in the common property. Issue 2 is whether all claims that any person was entitled to bring against the insurer for damage to any property on the Strata Plan were finally settled by the Settlement Agreement and the consent judgment. Issue 3 is in the same terms but is limited to the common property. Both these questions must be answered in the negative if the Settlement Agreement, on its proper construction, is confined to the general work claim. The plaintiffs did not at any time plead in the proceedings any claim of misrepresentation, mistake, estoppel or agency. The findings of the trial judge on estoppel and agency go beyond the pleadings and beyond the agreed facts. They must be ignored.

74 I turn to the construction of the Settlement Agreement. The letter from Kott Gunning was an offer to settle. That offer was 'in full and final settlement of [the Strata Company's] claim as First Plaintiff in the action'. The letter of 13 June 2002 from the insurer's solicitors is a counter-offer. It widens the scope of the claims to be covered by the Settlement Agreement. The counter-offer covers the Strata Company's claims in the proceedings as well as any other claims it may have arising out of Cyclone Vance. The counter-offer also required the parties to consent to judgment rather than to discontinue the proceedings. The Strata Company accepted the counter-offer by signing and returning the consent judgment. Judgment was entered and the settlement sum paid. It is simply not open to construe the Settlement Agreement as being confined to the Strata Company's general works claim. However, that is not the end of the matter.

75 The objectively determined common intention of the parties was that the second plaintiff, Mr Wise, would be free to pursue the balance of the claims in the proceedings (with the exception of the rent claim and the general works claim). It is evident from the text of the correspondence that the settlement was not in full discharge of all claims for the loss and damage suffered.

76 The insurer contends that, whatever the intention of the parties, the automatic effect of the Settlement Agreement and the entry of judgment is that the second, third and fourth plaintiffs are prevented from pursuing the balance of the claims in the proceedings. The insurer relies on four bases for that proposition. First, it contends that the doctrines of res judicata and cause of action estoppel have that effect because the second, third and fourth plaintiffs are privies of the Strata Company. Secondly, it relies on s 48(3) of the Insurance Contracts Act. Thirdly, it argues by analogy with the principle in Coulls v Bagot's Executor and Trustee Company Ltd [1967] HCA 3; (1967) 119 CLR 460 that the remaining plaintiffs and the Strata Company are joint promisees and judgment in favour of the Strata Company brings the remaining plaintiffs' claims to an end. These three grounds are relied on to bar the claims for damage to any property on the Strata Plan. Finally, the insurer relies on s 33 of the Act, which is confined to the common property on the Strata Plan.

77 I propose to start with the general law grounds. There is guidance on that subject in Baxter v Obacelo Pty Ltd [2001] HCA 66; (2001) 205 CLR 635. That was a case where the respondents commenced an action for damages against two alleged joint tortfeasors, one of whom was the appellant. They settled their case against the co-defendant and by consent entered judgment against him. The amount of the judgment was satisfied. The respondents continued their action against the appellant. The appellant contended that it was not open to them to do so. An issue in that case was the proper construction of s 5(1) of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW). The High Court held that the statute did not have the effect claimed by the appellant. The High Court also rejected the appellant's argument based on the general law. Gleeson CJ and Callinan J said:

In most cases in which this problem arises ... the second tortfeasor will not be a party to the settlement agreement. The agreement will not have contractual effect as between the plaintiff and the second tortfeasor. A defence of accord and satisfaction is not available to the second tortfeasor.

Nevertheless, the significance of the contractual basis upon which a plaintiff settles with one tortfeasor, and its consequences as between the plaintiff and another tortfeasor, may be found both in the equitable principle which prevents double satisfaction, and in the common law principle that a plaintiff who has fully recouped the loss cannot obtain a further award of damages. If a plaintiff has agreed with one tortfeasor to accept a sum upon the basis that it will be received in full discharge of all claims for compensation for the loss or damage incurred by the plaintiff, it would ordinarily be unconscientious to pursue a further claim in relation to the same damage against another tortfeasor. And if a single loss has been fully recouped, there is no further remedy for a plaintiff to pursue.

If there has been a judicial assessment of the whole of the plaintiff's loss or damage, resulting in an award of damages by way of judgment in that amount against one tortfeasor, satisfaction of the judgment by that tortfeasor will put an end to any claim, or possible claim, against another tortfeasor, whether a joint tortfeasor or one of several concurrent tortfeasors ...

If, either expressly or by implication, a settlement agreement manifested a common intention of the parties to the agreement that the settlement sum was to be paid and received in full satisfaction of the rights of the plaintiff, against the defendant or anyone else, in relation to the loss or damage incurred, then ... a further claim would fail [46] - [48].

78 The High Court in Baxter concluded that the settlement agreement and the conduct of the parties to the settlement clearly showed that it was contemplated that the respondents would pursue their claim against the appellant and that they were not accepting the settlement sum in full satisfaction of the loss or damage they said they incurred.

79 There is no reason in principle why the general law applicable to joint tortfeasors would not apply to joint contractors or joint promisees. Moreover, the reasoning of the High Court is applicable whether the joint promisees are plaintiffs or defendants. The facts of this case are materially indistinguishable from those in Baxter. Accordingly, the ground based on the analogy with Coulls v Bagot must fail.

80 So too must the claim based on res judicata and/or cause of action estoppel. Res judicata (and cause of action estoppel) ordinarily arises only from a judgment on the merits: Trawl Industries of Australia Pty Ltd (in liq) v Effem Foods Pty Ltd [1992] FCA 272; (1992) 36 FCR 406. However, a consent judgment intended by the parties to dispose finally of the substantive proceedings between them will give rise to a res judicata: Chamberlain v Deputy Commissioner of Taxation [1988] HCA 21; (1988) 164 CLR 502, 508.

81 Res judicata and cause of action estoppel binds only the parties to the action and their privies. There is no privity between joint tortfeasors simply because of that relationship even though at common law a judgment for the full amount of a single loss against one tortfeasor barred an action against the others: Ramsay v Pigram [1968] HCA 34; (1968) 118 CLR 271, 280, 290; Baxter [46]. By parity of reasoning, there is no privity between joint contractors or joint promisees simply because of that relationship, notwithstanding that a judgment for the full amount of the loss against a joint contractor or joint promisee would be a bar to any action against the others: Effem Foods (413).

82 The insurer also relies on s 48(3) of the Insurance Contracts Act. Although there is conflicting authority on the scope of s 48(3), none of the decisions bear upon the question in issue here. At its widest, s 48(3) applies to defences to an action under, or by virtue of the existence or terms of, the contract of insurance. There is no basis in the statutory text or purpose to construe s 48(3) as altering the general law relating to res judicata, cause of action estoppel or the circumstances in which a judgment against one joint insured prevents the commencement or continuation of a claim by a co-insured.

83 The only remaining ground is based on s 33 of the Act. Section 33 is a facilitative, not mandatory, provision. It enables the proprietors of the lots, where they are jointly entitled to take legal proceedings, to do so in the name of the strata company and any judgment in such proceedings takes effect as if it were a judgment given or made in favour of or against the proprietors. It applies where all the proprietors of the relevant scheme take legal proceedings in the name of the strata company: Owners - Strata Plan No 43551 v Walter Construction Group Ltd [14] - [18]. In this case at least one proprietor was always a party to the proceedings. Thus s 33 was not the source of the entitlement of the Strata Company to bring the proceedings. It did so in its capacity as a party to the Insurance Contract.

84 For these reasons I agree with the primary judge's answers to Issues 2 and 3.

85 This issue concerns the proper construction of the provision of Policy 1 relating to the basis of settlement of claims. The provision provides:

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

Reinstatement and Replacement means:-
- as regards Your Building:-
  - 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;

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.

86 The primary judge answered this question in the negative. She said:

The plaintiffs seek damages based on repudiation of the contract of insurance by [the insurer]. It is an action for damages.

For these reasons [the insurer'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 [sic] had repairs been commenced and carried out with reasonable despatch [76], [77].

87 The respondents' primary contention at the hearing of the appeal was that Issue 4 should not be answered because the relevant facts are contentious and the court was and is being asked to provide an advisory opinion. If that contention is not accepted, the respondents concede that the primary judge erred and the correct answer to Issue 4 should be yes.

88 I would decline to answer Issue 4. I am not persuaded that the factual assumptions in the question are sufficient to enable the issue of contractual construction to be answered. Attempting that task without all relevant factual background can lead to error. In any event, there is an inconsistency between the agreed facts and the assumption in the question. The agreed facts are to the effect that between March 1999 and January 2001 the insurer indemnified the Strata Company for the cost of repairing the damage caused by Cyclone Vance on 22 March 1999 in the net total sum of $86,600.45. Furthermore, the insurer admits in its defence that it engaged contractors to effect repairs to the property and says that 'any repairs and reinstatement works were undertaken within a reasonable period of time such as was permitted by the conditions prevailing at the time' (par 5 of the defence).

89 I would set aside the answer given by the primary judge but decline to determine the matter as a preliminary issue.

90 For these reasons, I would set aside the answer to Issue 4 but otherwise dismiss the appeal.

Reform (Miscellaneous Provisions) Act 1946

Schemes (Freehold Development) Act 1973

Schemes Management Act 1996

Titles Amendment Act 1996

CHU UNDERWRITING AGENCIES PTY LTD -v- WISE [2012] WASCA 123 (15 June 2012)

At a glance

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Judgment (164 paragraphs)

CHU UNDERWRITING AGENCIES PTY LTD -v- WISE [2012] WASCA 123 (15 June 2012)

Legislation Cited (6)

Cases Cited (10)