DEFENCE HOUSING AUTHORITY v BUILDING INSURERS' GUARANTEE CORPORATION

Supreme Court of NSW|2005-03-17|Before: Hidden J

CITATION : DEFENCE HOUSING AUTHORITY v BUILDING INSURERS' GUARANTEE CORPORATION [2005] NSWSC 206

CATCHWORDS : PRACTICE AND PROCEDURE - motion for summary dismissal - jurisdiction of Supreme Court - whether plaintiff entitled to pursue general law remedies in respect of indemnity under Part 6A of Home Building Act - whether plaintiff "The Commonwealth" for the purpose of s38(c) of Judiciary Act

Defence Housing Authority Act (1987) (C'th) Home Building Act (1989) Public Service Act (1922) LEGISLATION CITED : Judiciary Act (1903) (C'th) Audit Act (1901) Supreme Court Act (1970)

Dahlia Mining Co Ltd v Collector of Customs (1989) 90 ALR 193 at 198 Re Residential Tenancies Tribunal (NSW); Ex parte Defence Housing Authority (1996-97) 190 CLR 410 Bank of NSW v The Commonwealth (1948) 76 CLR 1 CASES CITED : Inglis v Commonwealth Trading Bank of Australia (1969) 119 CLR 334 State Bank of NSW v Commonwealth Savings Bank of Australia (1986) 161 CLR 639 Superannuation Fund Investment Trust v Commissioner of Stamps (S.A.) (1978-79) 145 CLR 330

Defence Housing Authority - Plaintiff PARTIES : Building Insurers' Guarantee Corporation - Defendant

Mr IM Jackman SC with Mr Tyson - Plaintiff COUNSEL : Mr T Lynch - Defendant

Andreones Pty Limited - Plaintiff SOLICITORS : McLachlan Chilton - Defendanrt

IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION ADMINISTRATIVE LAW LIST

30069/2003 DEFENCE HOUSING AUTHORITY Plaintiff/Respondent v BUILDING INSURERS' GUARANTEE CORPORATION Defendant/Applicant

JUDGMENT 1 HIDDEN J: The plaintiff, the Defence Housing Authority, is a body corporate established by the Defence Housing Authority Act (1987) (C'th). By s5, its function is to provide housing for members of the Defence Force and their families, officers and employees of the Department of Defence and their families, and other persons, in order to meet the operational needs of the Defence Force and the requirements of the Department. The defendant, the Building Insurers' Guarantee Corporation, is an instrumentality of the New South Wales government, being a body corporate established by Part 6A of the Home Building Act, 1989 ("HBA"). 2 By s92 of the HBA, contained in Part 6 of the Act, contractors undertaking residential building work are required to take out insurance. Such an insurance policy must comply with certain requirements imposed by the legislation. Until early 2001 a significant insurer of that kind of work had been FAI General Insurance Company Ltd ("FAI"), but that company went into liquidation in March 2001. Following its collapse, and that of another significant insurer in this area, Part 6A was inserted into the Act. By s103I(1) a person who is covered by a Part 6 insurance policy issued by an "insolvent insurer", of which FAI is one, and who is entitled to recover an amount under that policy, must be indemnified by the State to the extent of that entitlement. The legislation provides for claims for indemnity to be made to the defendant, abbreviated in the Act as the "Guarantee Corporation." The defendant is established by s103Q and its functions are set out in s103S. It will be necessary to examine the statutory machinery for the resolution of those claims. 3 In November 1998 the plaintiff acquired a property at Maroubra, upon which residential building work was carried out. The building contractor was covered by a contract of insurance with FAI. The plaintiff alleges that the work was defective and was in breach of statutory warranties implied in the building contract by certain provisions of the HBA. Rectification work was carried out, but the plaintiff claims that it has suffered financial loss through the cost of re-location of the tenants of the building during the rectification work, storage costs associated with that relocation and loss of rental income. The aggregate of the amounts claimed is a sum in excess of $600,000. 4 Because of FAI's insolvency, the plaintiff, as the "person" entitled to recover under the insurance policy within the meaning of s103 I, made a claim to the defendant for indemnity in respect of that amount. The defendant rejected the claim upon the basis that the losses of the kind suffered by the plaintiff were excluded from cover by a clause of the policy. It is the plaintiff's case that, by virtue of certain provisions of the HBA and of a regulation made under the Act, that clause is void and, accordingly, it is entitled to the indemnity. 5 Hence the proceedings in this Court, in which the plaintiff claims a variety of relief. Put shortly, those claims are as follows: 1) A declaration that the defendant is obliged by s103 I of the HBA to indemnify the plaintiff; 2) A declaration that the defendant's decision to reject the plaintiff's claim is "unlawful and void"; 3) A declaration that the exclusion clause in the insurance policy is void because of the relevant provisions in the HBA and the regulation; 4) An order that the defendant pay to the plaintiff interest on the amount due to it under the indemnity pursuant to s94 of the Supreme court Act; 5) In the alternative, damages; 6) Interest (on the damages). 6 Before me is a motion by the defendant that all these claims be summarily dismissed, although that position was refined somewhat at the hearing of the motion. Counsel for the defendant, Mr Lynch, distinguished between the second and third claims, which he characterised as claims for judicial review, and the other claims, which he characterised as "merits" claims, that is, claims in the Court's "original, as distinct from supervisory, jurisdiction." I shall turn to the judicial review claims in due course. As to the merits claims, it was Mr Lynch's submission that they are incompetent. It is for the purpose of this argument that it is necessary to examine the legislative scheme for the resolution of claims for indemnity under Part 6A of the HBA.

The Home Building Act 7 Provision for making a claim for indemnity is to be found in Division 2 of Part 6A. By s103J, the indemnity "may only be enforced by a claim made to, and proceedings taken against," the defendant. S103K deals with procedural matters, and s103L provides for payment by the defendant of claims which it accepts. Payment is made from a fund established by s103P, to be found in Division 3 of the Part. Importantly for present purposes, s103ZA(1), also to be found in Division 3, provides that the Consumer, Trader and Tenancy Tribunal "has the same jurisdiction in relation to claims for indemnity under Division 2 as it has in relation to claims under contracts of insurance required to be entered into under Part 6." This, in turn, requires reference to the relevant jurisdiction of that Tribunal. 8 This is to be found in Part 3A of the HBA, which provides for the resolution of building disputes and building claims. In s48A(1) the expression "building claim" is defined, and by subs2(a) is extended to include "an appeal against a decision of an insurer under a contract of insurance required to be entered into under this Act…" S103ZA fastens upon this extended definition of the expression. Division 3 of Part 3A provides for applications to the Tribunal for the determination of building claims, and Division 4 sets out the Tribunal's jurisdiction in relation to such claims. 9 In particular, s48K(1) provides: (1) The Tribunal has jurisdiction to hear and determine any building claim brought before it in accordance with this Part in which the amount claimed does not exceed $500,000 (or any other higher or lower figure prescribed by the regulations).

I was informed from the bar table that no other figure has been prescribed. S48M provides that a building claim relating to the refusal of an insurance claim exceeding $500,000 "is to be heard by a court of competent jurisdiction." Division 5 deals with the powers of the Tribunal and, in particular, s48O confers upon it wide powers in determining building claims. Although s48A(2) extends the definition of a building claim to "an appeal" against the decision of an insurer, it is clear that in claims of that kind the Tribunal exercises original, not appellate, jurisdiction. 10 Mr Lynch accepted that decisions by the defendant under Part 6A are subject to judicial review such as might be undertaken by this Court in its supervisory jurisdiction. However, he argued that the Part does not otherwise confer upon a claimant for indemnity a right of action in the ordinary courts. It does no more than create a right to claim indemnity, a right to have that claim determined by the defendant and, in the event of a decision adverse to the claimant, recourse to the Tribunal (which he was content to describe as an "appeal"). He submitted that s103ZA confers a jurisdiction upon the Tribunal to deal with any claim under Part 6A, whatever the amount involved. The section invests the Tribunal with jurisdiction of the nature of that which it exercises in relation to insurance policies under Part 6, but unfettered by the monetary limit set by s48K(1). 11 Such a legislative scheme might well be seen as conducive to the orderly resolution of claims for indemnity, placing the decision in the hands of an administrative body, subject to appeal to a specialist tribunal invested with wide powers to achieve justice in the individual case. Nevertheless, I am persuaded by the argument of Mr Jackman SC, who appeared with Mr Tyson for the plaintiff, that such an interpretation of the legislation flies in the face of its plain words. As I have said, s103ZA picks up the extended definition of "building claim" in s48A(2)(a). S48K imposes a monetary limit upon the jurisdiction of the Tribunal and, in respect of "a building claim that relates to the refusal of an insurance claim" which exceeds that limit, s48M expressly preserves the jurisdiction of the ordinary courts. 12 As Mr Lynch observed, Part 6A does not "establish the defendant as a successor to or assign of the insolvent insurer, or otherwise make the defendant a party to an insolvent insurer's HBA policies"; and it may well be, as Mr Lynch argued, that the language of ss48K and 48M is more apt to express the respective rights of a claimant under a policy and the insurer. Nevertheless, if the legislature intended that a claimant for indemnity under Part 6A should have recourse to the Tribunal without any monetary limit, it could have said so. Equally, if the legislature intended that a claimant under Part 6A could not have recourse to the ordinary courts in the manner envisaged by s48M, it could have said so. It has done neither. 13 While I was not taken to any cases on statutory interpretation, I am mindful of the trend of modern authority towards a purposive approach to that question. However, whatever might be perceived to be the policy behind the machinery established by Part 6A, the terms of the relevant provisions do not admit of the interpretation urged by Mr Lynch. I am satisfied that an appeal to the Tribunal through the avenue of s103ZA is subject to the monetary limit set by s48K, which at present is $500,000. The plaintiff's claim exceeds $600,000 and, accordingly, is outside the jurisdiction of the Tribunal. 14 Accordingly, consistently with s48M, the plaintiff is entitled to pursue such general law remedies as are available to it in this Court. Mr Jackman submitted that that would have been so even if the plaintiff's claim were within the jurisdiction of the Tribunal by virtue of s48K. He argued that the legislation should not be construed as taking away the jurisdiction of this Court, relying upon the judgment of Giles J in Dahlia Mining Co Ltd v Collector of Customs (1989) 90 ALR 193 at 198, and the cases to which his Honour there referred. There is force in this argument, although I need not express a concluded view about it. It is sufficient to say that the amount of the plaintiff's claim is such that the avenue of appeal to the Tribunal is not available to it. 15 Accordingly, subject to a further jurisdictional question to which I shall turn in a moment, it is open to the plaintiff to pursue the merits claims. Mr Lynch submitted that the first claim, that the defendant is obliged to indemnify the plaintiff, is of no utility. He pointed out that if the plaintiff were to succeed on the second and third claims, which focus upon the exclusion clause in the insurance policy, it would be entitled to no more than an order that the matter be remitted to the defendant to be dealt with according to law (an order which, he observed, is not sought.) It could not warrant the declaration sought in the first claim because the defence to the statement of claim also challenges the plaintiff's entitlement to indemnity on other bases. 16 Mr Jackman's response to this argument was that the statement of claim was drawn upon the assumption that the only basis upon which the indemnity has been refused was that of which the plaintiff had been notified, that is, the exclusion clause. The first the plaintiff knew of any other basis was when the defence was filed and served. However that may be, he submitted that the merits claims amount to a claim for relief in the nature of mandamus under s65 of the Supreme Court Act and, in the alternative, a claim for damages for breach of statutory duty. The litigation of those claims, he argued, could embrace all the issues raised by the defence. 17 I agree. Mr Lynch's submissions on this aspect do not persuade me that these claims should be summarily dismissed. If there be any ambiguity or deficiency in their pleading, the plaintiff should have the opportunity to seek amendment.

The Judiciary Act 18 However, Mr Lynch raised another jurisdictional question. By s38(c) of the Judiciary Act, 1903 (C'th), the High Court has exclusive jurisdiction in "suits by the Commonwealth, or any person suing on behalf of the Commonwealth, against a State, or any person being sued on behalf of a State…" (S38 is expressed to be subject to ss39B and 44. Argument was directed to s39B but, given the view I have formed on this issue, it is unnecessary to deal with it.) There is no doubt that the defendant is caught by that provision, because s103Q of the HBA provides that it is, "for the purposes of any Act, a statutory body representing the Crown." However, there is no such provision in the Defence Housing Authority Act ("DHAA"), and a question arises whether the plaintiff is "the Commonwealth" or a "person suing on behalf of the Commonwealth." 19 Mr Jackman submitted that it is not, and in the course of argument he referred to observations by members of the High Court in Re Residential Tenancies Tribunal (NSW); Ex parte Defence Housing Authority (1996-97) 190 CLR 410. Mr Lynch had argued in written submissions that it is, but at the hearing of the motion he expressed a preference "in effect to sit on the fence" on the issue, given the tentative and, perhaps, conflicting views expressed by their Honours in that case. I shall examine those views shortly. 20 Guidance is to be found in cases dealing with s75(iii) of the Constitution, conferring original jurisdiction upon the High Court "in all matters in which the Commonwealth, or a person suing or being sued on behalf of the Commonwealth, is a party." The basal authority is Bank of NSW v The Commonwealth (1948) 76 CLR 1, in which Dixon J (as he then was) observed (at 363): There is the strongest presumption that in using the expression "all persons suing or being sued on behalf of the Commonwealth" the framers of the Constitution were not concerned with the Attorney General or any other officer by or through whom the Crown might come or be brought into court… what they were concerned with was amenability to the jurisdiction of persons in whom causes of action were vested, or against whom causes of action lay, but in their official capacity only and as agencies or emanations of the Commonwealth. 21 That case, and the principles to be derived from it, were considered in Inglis v Commonwealth Trading Bank of Australia (1969) 119 CLR 334, in which the status of the respondent bank was in question. Kitto J, who delivered the leading judgment, said (at 337-8): The decisive question is not whether the activities and functions with which the respondent is endowed are traditionally governmental in character, though their possession of a traditional or generally accepted governmental character may well help in the ascertainment of the legislative intention. The question is rather what intention appears from the provisions relating to the respondent in the relevant statute: is it, on the one hand, an intention that the Commonwealth shall operate in a particular field through a corporation created for the purpose; or is it, on the other hand, an intention to put into the field a corporation to perform its functions independently of the Commonwealth, that is to say otherwise than as a Commonwealth instrument, so that the concept of a Commonwealth activity cannot realistically be applied to that which the corporation does? 22 In State Bank of NSW v Commonwealth Savings Bank of Australia (1986) 161 CLR 639, a case to which I shall return, it was accepted in the judgment of the Court (at 648) that the terms of s75(iii) of the Constitution "have the same meaning as the similar words in s38 of the Judiciary Act." Reference should also be made to the observations of Stephen J in Superannuation Fund Investment Trust v Commissioner of Stamps (S.A.) (1978-79) 145 CLR 330, in which the Court was called upon to consider whether the appellant enjoyed a Crown immunity from certain State stamp duties legislation. His Honour said (at 348): If a corporation is no more than the passive instrument of the Crown, subject in a high degree to control by the executive, it is appropriate enough that its acts be viewed as those of its master and that it be itself treated as the alter ego of the Crown, enjoying accordingly those immunities and privileges with which the Crown is clothed. If, on the contrary, a statutory corporation is essentially autonomous, its acts being in no sense the outcome of directions by the executive but truly its own, there will be little reason to clothe it with any of those immunities or privileges. ……. No doubt in practice a statutory corporation will seldom be either a mere passive instrument or wholly autonomous. If the former its creation would scarcely be worthwhile, departmental officers could serve the purpose just as well. If the latter it would savour of Frankenstein's monster, hence the usual retention of some control, even if it be no more than some power of appointment and removal of the members of its governing body, perhaps the existence of an obligation to make periodic reports to Parliament, or, particularly if public funds are in question, the imposition of audit and financial reporting procedures. 23 With these principles in mind, let me turn to relevant provisions of the DHAA. At the beginning of these reasons I referred to the functions of the plaintiff set out in s5. By s6, it is to carry out its functions "in accordance with the policies of the Commonwealth" and "in accordance with sound commercial practice." By s7, it is given wide powers to carry out its functions, such as acquiring and disposing of property, building and renovating houses, entering into contracts and engaging consultants. However, by s7(2), it cannot enter into a contract involving the payment by it of an amount exceeding $6,000,000 without the approval of the Minister. The Minister's approval is also required for the purchases of shares or securities in a company or the formation of a company as a subsidiary (s8), for entering into partnerships (s9) and for participation in a joint venture (s10). 24 By s12, the plaintiff is composed of twelve members, including four members of the Defence Force, an officer within the meaning of the Public Service Act (1922), and a Managing Director. With the exception of the Managing Director, the members are appointed by the Governor General (ss12 and 14, and the definition of "appointed member" in s3.) The tenure of those members is set by ss15 and 16. The Managing Director is appointed by the plaintiff (s47), and conducts the affairs of the plaintiff in accordance with its policies and directions (s46). By s48, he or she holds office during the plaintiff's pleasure, subject to a retiring age. The remuneration of the Managing Director and other members is determined by the Remuneration Tribunal (ss17 and 50). S57 provides that the plaintiff's staff is composed of persons appointed or employed under the Public Service Act and members of the Defence Force. 25 S27 deals with the plaintiff's responsibility to prepare a corporate plan, and by s28(1) it is required to prepare a financial plan which includes "its financial targets for profits, rates of return and dividends…" By s28(2), in setting the financial targets, it is to have regard to : (a) objectives and policies of the Commonwealth Government known to it, and any directions given to it by the Minister; (b) the need to earn a reasonable rate of return on assets used by it; (c) the need to maintain the extent of the Commonwealth's equity in it; (d) the need to establish and maintain a reasonable level of reserves having regard to: (i) the estimated future demand for housing provided by it; and (ii) the necessity of ensuring that housing provided by it is of an appropriate standard; (e) the expectation of the Commonwealth that it will pay a reasonable dividend on its capital; and (f) such other commercial considerations as it considers appropriate. 26 The corporate plan must be supplied to the Minister (s29), who can direct that it be varied (s30). By s31(2), the Minister can give directions to the plaintiff about "the performance of its functions and the exercise of its powers" if he or she is satisfied "that it is desirable in the public interest to do so…" However, apart from that provision and except "as otherwise expressly provided" in the Act, the plaintiff is not subject to direction by or on behalf of the Commonwealth Government : s31(1). 27 S60 provides for the transfer of Commonwealth assets to the plaintiff, and s36 permits the Commonwealth to lend it money. Part V of the Act (ss33 to 44) deals with finance. It provides for a measure of control by the Minister over the plaintiff's finances, including a power in the Minister to direct the payment of a dividend to the Commonwealth (s35) and the requirement of the Treasurer's approval to borrow money otherwise than from the Commonwealth or to raise money otherwise than by borrowing (s37). By s 43, the plaintiff is declared to be "a public authority to which Division 2 of Part XI of the Audit Act (1901) applies", and s44 provides for auditing by the Auditor-General of financial statements of any subsidiary. S63 affords a general exemption of the plaintiff from taxation. 28 In Re Residential Tenancies Tribunal (NSW); Ex parte Defence Housing Authority (supra) the High Court considered whether the plaintiff is "the Commonwealth" for the purpose of s64 of the Judiciary Act. In the event, that was not a matter which needed to be decided and the observations of the members of the Court on this question are obiter. Brennan CJ (at 428) said no more than that it had been "sufficient to assume" that it is. McHugh J (at 460) asserted that it "plainly" is. Gummow J (at 463) accepted that it "answers the description of the Commonwealth, or a person suing on behalf of the Commonwealth, within the meaning of s75(iii)" of the Constitution, referring to State Bank of NSW v Commonwealth Savings Bank of Australia (supra). 29 Kirby J observed at 501 (omitting footnotes): …there are also a number of indications in the DHAA which support the general proposition that DHA is an agency or emanation of the Crown in right of the Commonwealth, entitled to attract such immunities as the Commonwealth enjoys. Whilst the DHA is declared to be a body corporate (DHAA, s11(1)(a)), there are no corporators. DHA's function is to provide housing for defence personnel, which is a traditional function of government, directly associated with the operations of the Department of Defence and the nation's defence forces. One of the criteria for the performance of the functions of DHA is that it should accord with the policies of the Commonwealth. There are many provisions for the exertion of ministerial control over the activities of DHA. The provisions in relation to ministerial authority and approvals, borrowings, payment of dividends, auditing, the appointment and conditions of office-holders and exemption from taxation are all features of activities kept close to the Executive Government of the Commonwealth. More than in many other statutory corporations or private companies, DHA's severance from the Commonwealth was a limited and contingent one, as befits the particular subject matters to which its functions relate (DHAA, s5).

His Honour went on to say (at 502) that he was "prepared to accept…that DHA was relevantly the Commonwealth", although he added (at 510) that that assumption "is not certain…" 30 However, in a joint judgment, Dawson, Toohey and Gaudron JJ expressed, albeit tentatively, a different view. Their Honours referred to the passage from the judgment of Kitto J in Inglis, quoted above, in which the distinction was drawn between a corporation created for the purpose of the Commonwealth's operation in a particular field, on the one hand, and a corporation put into the field to perform its functions independently of the Commonwealth, on the other. Their Honours then observed (at 448): There is much to be said for the view that the DHA falls into the latter category, having regard to the function which it performs, the limited control exercised by the Minister and the requirement that it perform its function in accordance with sound commercial practice. 31 Accordingly, the status of the plaintiff for the purpose of s38(c) of the Judiciary Act is at large. The issue was not the subject of detailed argument before me. I am mindful of the factors pointing to its characterisation as an emanation of the Commonwealth referred to by Kirby J in the passage from the Residential Tenancies Tribunal case quoted above. I have had regard to the features of the respondent in Inglis set out by Kitto J (at 339 - 41) which led his Honour to the conclusion that it was being "sued on behalf of the Commonwealth", within the meaning of s75(iii) of the Constitution. Equally, I have had regard to the examination of the structure, functions and powers of the appellant in State Bank of NSW v Commonwealth Savings Bank of Australia (supra) which led the Court to conclude that it was suing on behalf of the State, within the meaning of s38(d) of the Judiciary Act: see the judgment at 645 ff. Before embarking upon that examination, their Honours referred (at 644 - 5) to relevant factors identified by Kitto J in Inglis. 32 It is apparent that many of the features of the legislation examined in both those cases are to be found in the DHAA. Certainly, it might be argued that the measure of control over the plaintiff retained by the executive government is more than would be required to keep at bay the "Frankenstein's monster" envisaged by Stephen J in the passage from the Superannuation Fund Investment Trust case quoted earlier. I am also mindful of the Court's observation in the State Bank case (at 648 - 9) that the constitutional cases were dealing with a "broader conception" than that examined in cases dealing with Crown immunity. Nevertheless, I have determined that the plaintiff is not an emanation of the Commonwealth for present purposes. The matter is finely balanced but, in my view, the provisions of the DHAA which I have set out above demonstrate a measure of commercial and administrative autonomy in the plaintiff which justifies that conclusion. I respectfully agree with the view expressed by Dawson, Toohey and Gaudron JJ in the Residential Tenancies Tribunal case.

Conclusion 33 Accordingly, this Court has jurisdiction to entertain all of the plaintiff's claims. The defendant's motion seeks, in the alternative, an order that the proceedings be transferred to the District Court, given the amount claimed. That is not an appropriate course, as that Court does not have jurisdiction to deal with the claims which invoke the supervisory jurisdiction of this Court. 34 The motion is dismissed. If necessary, I shall hear argument on costs.

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