Drummond v Gordian Runoff Limited ACN 052 179 647

Court of Appeal (NSW)|2024-03-28|Before: White JA, Mitchelmore JA, Stern JA

antee Corporation [2008] NSWSC 1022 Warner Bros Feature Productions Pty Ltd v Kennedy Miller Mitchell Films Pty Ltd [2018] NSWCA 81 Godecke v Kirwan (1973) 129 CLR 629;[1973] HCA 38 Ye v Chen (No 2) [2023] NSWCA 9 Texts Cited: Nil. Category: Principal judgment Parties: John Stephen Drummond (First appellant) Colleen Anne Drummond (Second appellant) Gordian Runoff Limited ACN 052 179 647 (Respondent) Representation: Counsel:

Gilbert + Tobin (Appellants) Mills Oakley Lawyers (Respondent) File Number(s): 2023/215770 Publication restriction: Nil Decision under appeal Court or tribunal: Supreme Court of New South Wales Jurisdiction: Equity Citation: [2023] NSWSC 607; [2023] NSWSC 731 Date of Decision: 09 June 2023 Before: Rees J File Number(s): 2022/163350

[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]

HEADNOTE [This headnote is not to be read as part of the judgment] In January 2009 the appellants entered into an agreement with a contractor (the "Contractor") to build their property. On 13 January 2009 a home warranty insurance policy (the "Policy") with Calliden Insurance Limited was issued (from 29 June 2020 the respondent assumed the rights and liabilities under the Policy). The Policy is a "contract of insurance" under Pt 6 of the Home Building Act 1989 (NSW). Within a short period after the works on the appellants' property were completed, defects arising from breaches of statutory warranties by the Contractor became apparent. On 25 January 2017 the appellants commenced proceedings against the Contractor in the New South Wales Civil and Administrative Tribunal (the "Tribunal") alleging breaches of statutory warranties and seeking damages for rectification of the defects. In May 2018 the Tribunal held the Contractor responsible to rectify the remaining defects (for which rectification had not been agreed) and issued a work order. The Contractor completed some, but not all, of those works. In September 2019 the appellants filed a second application in the Tribunal. On 25 June 2020 the proceedings were adjourned after the Contractor informed the Tribunal that it had been placed into external administration. The appellants first notified the respondent of a loss on 9 July 2020. On 18 August 2020 the Contractor was placed into creditors' voluntary liquidation. On 15 December 2020 the appellants made a claim on the Policy. On 31 May 2021 the respondent denied liability, relying upon s 103BB(3)(a) of the Home Building Act, contending that the loss was not notified within the period of insurance under the Policy. It was common ground that the notification of loss on 9 July 2020 was outside the period of insurance and that the appellants had failed to satisfy the requirements of s 103BB(3)(c) of the Home Building Act. The appellants brought proceedings in the New South Wales Supreme Court seeking an order that the respondent indemnify them under the Policy. The appellants contended that s 54 of the Insurance Contracts Act 1984 (Cth) prevented the respondent from refusing a "delayed claim" where the insured fails to notify the insurer in accordance with s 103BB(3) of the Home Building Act. The primary judge dismissed the proceedings with costs and in a separate judgment subsequently varied the costs order to order that the appellants pay indemnity costs from 20 July 2022. On appeal the principal issue was whether s 54 of the Insurance Contracts Act prevented the respondent from disclaiming liability ("Issue 1"). This turned on the proper construction of each of the Policy, s 103BB of the Home Building Act and s 54 of the Insurance Contracts Act, specifically: (a) Whether s 103BB of the Home Building Act was itself incorporated as a term of the Policy; (b) Whether s 103BB relevantly alters the effect of the Policy so as to engage s 54 of the Insurance Contracts Act; or (c) Whether the operation of s 54 of the Insurance Contracts Act was attracted where a refusal to pay is premised upon the effect of s 103BB(3) and not upon the Policy. The other issues on appeal were whether s 103BB(3) of the Home Building Act was inconsistent with, or alters, impairs or detracts from the operation of, s 54 of the Insurance Contracts Act within the meaning of 109 of the Constitution ("Issue 2") and whether the primary judge's determination as to costs was correct ("Issue 3"). The Court (Stern JA, Mitchelmore JA agreeing, White JA dissenting) held dismissing the appeal: As to issue 1(a) Per Stern JA (Mitchelmore JA agreeing) (1) The chapeau to the insuring clause, which provided that "[w]e will provide insurance cover to you, subject to the terms, conditions and exclusions set out in this Policy, and in accordance with the Act and Regulation for: …" did not incorporate relevant sections or regulations of the Home Building Act and the Home Building Regulation 2004 (NSW) ("2004 Regulation") into the terms of the Policy. Rather, it provided that coverage under the Policy would not be provided in a manner inconsistent or conflicting with the Home Building Act and the 2004 Regulation: [106]. Per Curiam (2) The "loss insured by the Policy" is the loss or damage arising from the manifestation of a defect consequent upon breach of a statutory warranty as opposed to the irrecoverability of such loss: [115]-[116]. Per White JA (dissenting) (3) In agreeing to provide cover in accordance with the Home Building Act in the chapeau to the insuring clause, the respondent incorporated the terms of the Home Building Act as governing the provision of insurance. It was the direct effect of the chapeau which provided the insurer the contractual right to refuse the claim owing to the omission of the appellants to notify the loss: [40], [42] (4) There is further indication that the contract incorporated the terms of the statute in the "Definitions" section. The concluding paragraph of that section does not provide that any term inconsistent with the Home Building Act was invalid or excluded, but instead that such a term is to be read and applies as if it complied with the Home Building Act, giving contractual effect to the requirements of the statute: [43], [44]. As to issue 1(b) Per Stern JA (Mitchelmore JA agreeing) (5) Section 103BB(3) does not alter the contractual effect of a contract of insurance. It operates by way of statutory, not contractual, effect. It operates in favour of an insured but on a condition imposed by Parliament, not by agreement between the parties: [154], [156], [162]. (6) The primary judge did not find that the only way in which the Home Building Act could modify contractual rights was by expressly inserting an implied term or specifying that the contract is taken to have additional terms. The primary judge addressed the proper question, being whether s 103BB of the Home Building Act should be construed such that its terms should be taken to be part of the contract. There was no error: [163]. Per White JA (dissenting) (7) Irrespective of whether the effect of s 103BB was incorporated as a contractual term, it effected a change to the effect of the contract rather than directly altering the rights and obligations of the parties. Section 103BB contains no statutory prohibition on an insurer paying a claim and the Home Building Act did not provide a statutory scheme for compensation. Rather, the statute regulated the contracts for carrying out home building work and implied statutory warranties into the relevant contract. The statute therefore operated through such contracts by changing their effect and it was only by contract that the appellants could make a claim on the respondent: [44], [47]-[52]. As to issue (1)(c) Per Stern JA (Mitchelmore JA agreeing) (8) The primary judge did not err in finding that s 54 of the Insurance Contracts Act was not engaged by the respondent's refusal to pay in reliance upon s 103BB(3) of the Home Building Act. The language of s 54, which in terms speaks of "the effect of a contract of insurance", focusses upon contractual not statutory effects: [173], [186]. (9) The better view is that the words "but for this section" were included in s 54 out of an abundance of caution rather than to signal that s 54 is engaged where an insurer's refusal to pay is premised upon statute and not upon the terms or effect of the contract of insurance itself: [174]. Per White JA (dissenting) (10) The respondent accepted on appeal that s 54 would apply to the appellants' "omission" to notify their claim within the time prescribed by s 103BB, if the relevant effect was the effect of the contract. The respondent also accepted that, if the failure to notify the insurer of the loss arising from defective building work was an omission to which s 54 applies because it was an effect of the contract that entitled the insurer to refuse to pay the claim, then s 54 was satisfied: [53]-[55]. FAI General Insurance Co Limited v Australian Hospital Care Pty Limited (2001) 204 CLR 641; [2001] HCA 38; Maxwell v Highway Hauliers Pty Ltd (2014) 252 CLR 590; [2014] HCA 33, referred to. As to issue 2 Per Stern JA (Mitchelmore JA agreeing) (11) Noting that the appellants alleged direct and not indirect inconsistency, given that s 103BB of the Home Building Act does not modify the terms or effect of the contract of insurance but operates by way of supervening statutory regulation, it does not alter, impair or detract from the operation of s 54 of the Insurance Contracts Act so as to give rise to inconsistency within the meaning of s 109 of the Constitution: [188]. Jemena Asset Management (3) Pty Ltd v Coinvest Ltd (2011) 244 CLR 508; [2011] HCA 33, applied. Per White JA (12) The appellants' reliance on s 109 of the Constitution would not arise if the refusal of the insurer was the effect of the statute. If the refusal was the effect of the contract, the respondent did not dispute that relief under s 54 of the Insurance Contracts Act was available: [56]. As to issue 3 Per Stern JA (Mitchelmore JA agreeing) (13) The primary judge was correct to find that the respondent's offer on 20 July 2022 to compromise the whole of the proceedings on the basis of judgment for the respondent with no order as to costs had the necessary element of compromise to fall within r 20.26 of the Uniform Civil Procedure Rules 2005 (NSW). An offer to forego any right to claim costs in circumstances in which proceedings have been ongoing for some time has the character of a genuine offer of compromise: [194]-[195].

JUDGMENT

WHITE JA: This is an appeal from orders of the Equity Division (Rees J) dismissing with costs the appellants' claim that the respondent is required to indemnify them under a contract of insurance in respect of residential building work carried out by Kralane Properties Pty Ltd (the "builder") for the construction of a new house for them in Northbridge (Drummond v Gordian Runoff Ltd [2023] NSWSC 607).
On 12 January 2009 the appellants entered into a building contract with the builder for the construction of the house. The work was work to which the Home Building Act 1989 (NSW) applied. Pursuant to s 92 of that Act the builder was precluded from doing residential building work unless a contract of insurance that complied with the Act was in force in relation to that work.
On 13 January 2009 a contract of insurance was entered into between the appellants and Calliden Insurance Limited in respect of the builder's performance of its work for the appellants. The form of insurance is known as Home Warranty Insurance. The policy provided cover for loss or damage arising from a breach of the statutory warranties in the Home Building Act in respect of which compensation could not be recovered from the builder, or which the appellants could not have the builder rectify, because of the Insolvency (as defined) of the builder.
The appellants pleaded that the works the subject of the contract of insurance were completed in April 2011. The insurer alleged that the works were completed on or about 27 January 2011. As the primary judge said, nothing turns on this difference (J[39]).
The appellants complained of numerous defects in the work. On 3 July 2012 the builder advised that it had no issues attending to the various items of concern raised by the appellants that might be faulty or require repair. The appellants complained that the builder failed to do so. As a result of the builder's failure to repair the defects, the appellants instituted proceedings in the NSW Civil and Administrative Tribunal ("NCAT") claiming damages for the cost of rectification of the defective building work. At that point, the builder agreed to rectify some of the defects, but not others.
Shortly before the proceedings were listed for hearing before NCAT the appellants and the builder reached an agreement that the builder would carry out certain works. NCAT made an order, by consent, for the carrying out of those works. That order was made on 24 May 2018.
The appellants complained that the builder failed to carry out all of the works agreed.
Further proceedings were commenced in NCAT on 5 September 2019. On 25 June 2020 the builder advised NCAT (wrongly) that it had been placed into external administration. The proceedings were then adjourned.
The builder was placed into liquidation on 18 August 2020.
This event triggered the insuring clause under the policy of insurance.
On 9 July 2020, the appellants provided to the insurer a "Notification of a Loss Form". On 11 December 2020, it made a claim under the policy.
The policy provided relevantly: "Our Cover We will provide insurance cover to you, subject to the terms, conditions and exclusions set out in this Policy, and in accordance with the Act and Regulation for: a) Loss or damage resulting from non-completion of the Work because of the Insolvency, death or Disappearance of the Contractor; or b) Loss or damage arising from a breach of Statutory Warranty, being loss or damage in respect of which you cannot recover compensation from the Contractor, or have the Contractor rectify, because of the Insolvency, death or Disappearance of the Contractor; … The risks indemnified include the acts and omissions of all persons contracted by the Contractor or other person to perform the Work resulting in loss or damage of a kind referred to in this clause. Period of Cover The Policy provides cover for loss arising from non-completion of the Work for a period of 12 months after the failure to commence, or cessation of, the Work. The Policy provides cover for other loss insured by the Policy for a period of: i. In the case of loss arising from a Structural Defect, 6 years after the completion of the Work, or the end of the Contract, whichever is the later, or ii. In the case of loss arising otherwise than from any such Structural Defect, 2 years after the completion of the Work, or the end of the Contract, whichever is the later. For the purposes of determining the period of cover provided by this Policy, Work is taken to be complete: i. On the date that the Work is completed within the meaning of the Contract, or ii. If the Contract does not provide for when the Work is completed, on the date of the final inspection of the Work by the 'principal certifying authority' (as defined in the Regulation), or iii. In any other case, on the latest date that the Contractor attends the site to complete the Work or hand over possession to the owner or if the Contractor does not do so, on the latest date the Contractor attends the site to carry out Work. … How to Make a Claim 1. A claim must be notified to us within the periods set out below: a) Except as referred to in paragraph b) below, not later than 6 months after you first become aware, or ought reasonably to be aware, of the fact or circumstance under which the claim arises, or … 2. We may not reduce our liability under this Policy or reduce any amount otherwise payable in respect of a claim merely because of a delay by you in notifying us of a claim if the claim is notified to us within the periods set out in paragraphs 1.a) or b) above. 3. Where the claim is not notified to us within the periods set out in paragraphs 1.a) or b) above, we may reduce our liability under the Policy or reduce any amount otherwise payable because of the delay in the claim being notified to us. … Jurisdiction This Policy is governed by the law of New South Wales. The law of New South Wales includes Commonwealth legislation such as the Insurance Contracts Act 1984. Any rights to refuse to pay a claim are subject to section 54 of that Act."
"Act" was defined to mean the Home Building Act as amended from time to time.
"Regulation" was defined to mean the Home Building Regulation 2004 (NSW) as amended from time to time.
At the conclusion of the section headed "Definitions" the policy provided: "This Policy is intended to comply with the requirements set out under the Act and any term of this Policy which conflicts with, or is inconsistent with, the Act shall be read and be enforceable as if it complies with the Act."
The respondent assumed the rights and liabilities of Calliden Insurance Limited under the contract of insurance. It denied liability. In rejecting the claim it said: "The Policy held by your clients was issued by Calliden on 13 January 2009. Pursuant to s103BB of the Home Building Act 1989 (HBA), a contract of insurance entered into on or after 1 July 2002 provides insurance cover in respect of loss only if; • a claim in respect of the loss is made to the insurer during the period of insurance; or • if a claim cannot be made within the period of insurance (because the builder has not died, disappeared or become insolvent yet), the loss must be properly notified to the insurer within the period of insurance, following which, subject to other criteria being met, a claim for the notified loss may be made after the period. Period of Insurance Section 103B of the HBA provides that a contract of insurance must provide insurance cover as follows: a) in the case of loss arising from a major defect in residential building work, 6 years after completion of the work, or b) in the case of any other loss--2 years after completion of the work."
After referring to the definition in s 3B of the Home Building Act in relation to the date of completion of work, the respondent said that the claim form indicated that the work was completed in April 2011 but it considered that the works were deemed to have been completed on 1 February 2011 when an Interim Occupation Certificate was issued. It then stated: "It follows that: 1. The period of insurance for non-major defects expired on 1 February 2013; 2. The period of insurance for major defects expired on 1 February 2017. Notification of Loss and Making of Claim The first notification of loss was on 9 July 2020 when the Iskowitz report dated 10 December 2019 was provided by your clients. We are not aware of any other earlier notification of loss by your clients and have assumed in this determination that there was no other notification. If there was any earlier notification of loss to the insurer, please provide us with a copy. The claim was made on 11 December 2020 following an insured event (the insolvency of the builder) occurring on 20 August 2020. Given that an insured event (being the insolvency of the builder) did not occur within the period of insurance and no claim was made within the period of insurance, for s103BB to be satisfied, the loss the subject of the subsequent claim must have been properly notified to the insurer within the period of insurance, following which, subject to other criteria being met, a claim for the notified loss may be made after the period. The period of cover to notify non major defects expired on 1 February 2013 and accordingly, any non major defects must have been notified before that date. As no notification was provided before that date, no cover is available for non-major defects. Any non major defects notified in the Iskowitz report provided by your clients on 9 July 2020 were notified out of time. … Conclusion Given that the requirements of s103BB of the HBA have not been met, the Policy unfortunately does not provide cover in respect of the defects claimed by your clients. On that basis, your clients' claim is declined."
When the contract of insurance was entered into s 99(1) provided: 99 Requirements for insurance for residential building work (1) A contract of insurance in relation to residential building work required by section 92 must insure: (a) a person on whose behalf the work is being done against the risk of loss resulting from non-completion of the work because of the insolvency, death or disappearance of the contractor, and (b) a person on whose behalf the work is being done and the person's successors in title against the risk of being unable, because of the insolvency, death or disappearance of the contractor: (i) to recover compensation from the contractor for a breach of a statutory warranty in respect of the work, or (ii) to have the contractor rectify any such breach. …
Clause 63A of the Home Building Regulation relevantly provided: 63A Period within which insurance claim must be made (1) A claim under a contract of insurance must be made no later than 6 months after the beneficiary first becomes aware, or ought reasonably to have become aware, of the fact or circumstance under which the claim arises or no later than 6 months after the end of the period of cover, whichever is the earlier. … (3) A claim cannot be made later than as permitted by this clause. (4) This clause applies only to a claim made after the commencement of this clause and extends to a claim made after that commencement in respect of a loss arising before that commencement. (5) In this clause: period of cover means the period for which the contract of insurance provides insurance cover as required by section 103B of the Act.
Section 103B(1), (2), (2B) and (3) of the Act provided: 103B Period of cover (1) A contract of insurance must provide insurance cover for loss arising from non-completion of the work for a period of not less than 12 months after the failure to commence, or cessation of, the work the subject of the cover. (2) A contract of insurance must provide insurance cover for other loss insured in accordance with this Act for a period of not less than: (a) in the case of loss arising from a structural defect within the meaning of the regulations - 6 years after the completion of the work or the supply of the kit home, or the end of the contract relating to the work or supply, whichever is the later, or (b) in the case of loss arising otherwise than from any such structural defect - 2 years after the completion of the work or the supply of the kit home, or the end of the contract relating to the work or supply, whichever is the later. … (2B) Subsection (2) is subject to any variation specified in the regulations as to the period for which insurance cover must be provided. (3) This section is subject to any limits set out in the regulations as to the period within which a claim must be made. …
Clause 63A was repealed on 19 May 2009. On the same day s 103BA was enacted. It then provided: 103BA Limitations on policy coverage - claims made and notified policy (1) A contract of insurance provides insurance cover in respect of loss only if: (a) in the case of cover for loss arising from non-completion of work - the loss becomes apparent and is notified to the insurer within the period of insurance, or (b) in any other case: (i) the loss becomes apparent and is notified to the insurer within the period of insurance, or (ii) the loss becomes apparent during the last 6 months of the period of insurance and is notified to the insurer within 6 months after the loss becomes apparent. (2) A loss becomes apparent when a beneficiary under the contract first becomes aware (or ought reasonably have become aware) of the loss. (3) In this section: loss means loss indemnified by a contract of insurance. Period of insurance means the period for which a contract of insurance provides cover.
At that point, the effect of s 103BA was that indemnity for the loss identified under the policy, being the loss arising from the builder's Insolvency, was only provided if the builder's Insolvency occurred and became apparent to the insured and was notified to the insurer within the times provided by s 103B.
Section 103BB was introduced on 25 October 2011 but had retrospective effect. As at 11 December 2020, when the claim was made, s 103BB provided: 103BB Time limits for policies issued from 1.7.2002 (1) A contract of insurance under this Part entered into on or after 1 July 2002 provides insurance cover in respect of loss only if a claim in respect of the loss is made to the insurer during the period of insurance. Note - Subsection (1) is the general rule but there are exceptions to this general rule, as provided by this section. (2) A loss that becomes apparent in the last 6 months of the period of insurance has an extended claim period, which permits a claim in respect of the loss to be made within 6 months after the loss becomes apparent. … (3) When a loss becomes apparent during the period of insurance but a claim cannot be made during that period because an insured event has not occurred, a claim can be made after the period of insurance (as a delayed claim) but only if - (a) the loss was properly notified to the insurer during the period of insurance (or within 6 months after the loss became apparent in the case of a loss that became apparent in the last 6 months of the period of insurance), and (b) the beneficiary under the contract of insurance making the claim diligently pursued the enforcement of the statutory warranty concerned after the loss became apparent. (4) A delayed claim can also be made when the insured event occurs in the last 6 months of the period of insurance (as if the insured event did not occur until after the period of insurance) subject to compliance with the other requirements of this section for a delayed claim. … (6) The regulations can make provision for or with respect to what constitutes or does not constitute diligent pursuit of the enforcement of a statutory warranty for the purposes of this section. (7) A loss is properly notified to an insurer only if the insurer has been given notice in writing of the loss and the notice provides such information as may be reasonably necessary to put the insurer on notice as to the nature and circumstances of the loss. The regulations can make provision for or with respect to the form and content of such a notice.
Section 103BA(4) was amended to provide: In this section and sections 103BB and 103BC: loss means loss indemnified by a contract of insurance under Part 6. Period of insurance means the period for which a contract of insurance under Part 6 provides cover.
Section 103BC was enacted. It provides: 103BC 10-year 'long stop' limit on claims under existing policies (1) Despite any other provision of this Act, a contract of home warranty insurance entered into before 1 July 2010 does not in any circumstances provide insurance cover in respect of loss unless a claim in respect of the loss is made to the insurer within 10 years after the work insured was completed. Note - Section 3B provides for the date of completion of residential building work. (2) This section does not operate to extend any period of insurance.
Contrary to the assertion of the respondent in its letter of 31 May 2021, the policy did not provide that the period of insurance, in a case of loss arising from a structural defect, was six years after completion of the work, or, in the case of loss of arising otherwise than from a structural defect, within two years after completion of the work. In either case the policy provided that cover extended until the later of those times or "the end of the Contract". There was no definition of what constituted "the end of the Contract", although "Contract" was defined and its end might have been defined in the "Contract". It was not defined in this case.
This was not an issue raised either at trial or on appeal. In their Technology and Construction List Statement, the appellants pleaded that the "contract of insurance provided cover for loss insured for a period of six years after completion of the work in the case of loss arising from a structural defect or otherwise two years after the completion of the work". Unsurprisingly, the allegation was substantially admitted by the respondent (subject to reference to relevant transitional provisions in Sch 4 to the Home Building Act which changed the definition from "structural defect" to "major defect").
The risk indemnified by the policy issued to the appellants was a risk of loss identified by s 99 of the Act as being a loss resulting from non-completion of building work because of the insolvency, death or disappearance of the contractor, or the risk, because of the insolvency, death or disappearance of the contractor, of not being able to recover compensation from the contractor for a breach of statutory warranty in respect of the work, or not being able to have the contractor rectify any such breach (s 99(1)).
Section 103BB(1) reiterates the effect of s 103BA as to the scope of cover, but is subject to s 103BB(3).
Section 103BB(3) proceeds on the basis that, notwithstanding the definition of "loss" in s 103BA(4), a loss can become apparent during the period of insurance before the occurrence of an insured event. The term "insured event" is not defined. Having regard to s 99 and the terms of the policy, the "insured event" is the insolvency, death, or disappearance of the contractor which results in the insured's being unable to have the contractor rectify a breach of a statutory warranty of the work or to recover compensation for any such breach. The "loss" referred to in s 103BB(3) must not be the loss indemnified by the contract, but the loss arising from the failure to complete work, or from the breach of the statutory warranties that became apparent during the period of insurance.
It was the enactment of s 103BB(3) that potentially triggered the application of s 54 of the Insurance Contracts Act 1984 (Cth). That section relevantly provides (emphasis added): (1) Subject to this section, where the effect of a contract of insurance would, but for this section, be that the insurer may refuse to pay a claim, either in whole or in part, by reason of some act of the insured or of some other person, being an act that occurred after the contract was entered into but not being an act in respect of which subsection (2) applies, the insurer may not refuse to pay the claim by reason only of that act but the insurer's liability in respect of the claim is reduced by the amount that fairly represents the extent to which the insurer's interests were prejudiced as a result of that act. … (6) A reference in this section to an act includes a reference to: (a) an omission …
The appellants pleaded: "Terms of the contract 18. There was no provision of the contract of insurance to the effect that if the claim or notification of loss was not made within the required periods from the date of completion of the work the insurer was entitled to refuse the claim. 19. Any reduction of liability arising from late notification was expressly subject to s 54 of the Insurance Contracts Act which was to the effect that such reduction would be limited to a sum which fairly represented the extent to which the insurer's interests were prejudiced as a result of the delay. Particulars Clause 2 of the contract of insurance under the heading 'How to Make a Claim' 20. Any right on the part of the insurer to refuse insurance in reliance on s 103BB of the Home Building Act 1989 is subject to the express terms of the contract of insurance to the effect that any right to refuse to pay a claim is subject to section 54 of that Act. 21. Alternatively, the insurer's purported reliance on s 103BB of the Home Building Act 1989 is inapplicable where the terms of the contract of insurance in question expressly provide indemnity for the claim and expressly incorporate the provisions of s 54 of the Insurance Contracts Act. Section 54 of the Insurance Contracts Act 1984 22. If and to the extent that, but for the terms of s 54 of the Insurance Contracts Act 1984, the insurer would have been able to refuse to pay the insured's claim by reason of the timing of the insured's notice and claim, the insured says that the insurer may not refuse to pay the claim by reason of the timing of the notification or the claim. 23. Alternatively, the insurer would only be entitled to reduce the claim to the extent that the timing of the notification or the claim fairly represented the extent to which the insurer's interests were thereby prejudiced."
The respondent did not plead that the appellants could not rely on s 54 because there was no "omission" to notify a claim during the period of cover within the meaning of s 54 of the Insurance Contracts Act. The appellants then had no entitlement to make a claim for indemnity because the builder was not insolvent within what must be assumed, for present purposes, to be the period of cover. But, pursuant to s 103BB, the appellants could have notified a loss. They omitted to do so.
Section 103BB(3) allowed a "delayed claim" notwithstanding that the insured event had not occurred during the period of insurance if notification of the loss (being in the context of s 103BB(3), the loss arising from defective or uncompleted work) was given during the period of insurance and the beneficiary diligently pursued the builder. The relevant omission in terms of s 103BB was in the appellants not notifying a claim on the insurer of the defective work. They had no reason to notify such a claim whilst the builder was not Insolvent, except for the introduction of s 103BB(3). There is no issue that after the introduction of s 103BB in 2011 they could have done so, and that is a relevant omission for the purposes of s 54.
The critical issue is whether, within the meaning of s 54, it was the effect of the contract of insurance that the insurer could refuse to pay the claim by reason of the omission of the appellants to notify a loss during the period of cover, or whether (as the primary judge found) that was the effect of the NSW statute.
The first question is whether the contract itself incorporates s 103BB as a contractual term. The chapeau to the contractual term quoted at [12] above provides that: "We will provide insurance cover to you, subject to the terms, conditions and exclusions set out in this Policy, and in accordance with the Act …"
The "Act" means the Home Building Act as amended from time to time.
If during the period of cover the appellants had notified the insurer of a loss because of defective work, and had then diligently pursued the enforcement of the statutory warranty concerned after the loss became apparent, the policy would have responded to the loss arising from the builder's insolvency.
There is no issue that the appellants did diligently pursue their claim against the builder.
The appellants would have been entitled to make such a claim pursuant to s 103BB(3) and also under the contract, because under the contract the insurer agreed to provide cover in accordance with the Act. The effect of the chapeau to the insuring clause (which provides cover in accordance with the Act) is that the insurer may refuse to pay the claim because the insured's loss arising from the insured event (the insolvency of the builder) did not occur during the period of cover and because the insureds did not notify the loss from defective building work during the period of cover. Had they done so, cover would have been provided. Therefore the entitlement to refuse cover arose by reason of that omission.
The primary judge said that the question was whether it was the contract of insurance that was the source of the insured's right to deny the claim, or State law (at J[57]). Her Honour found: "64 Turning then to whether section 103BB of the Home Building Act specifies that certain statutory terms are taken to be part of the contract of insurance, or whether the legislation operates outside the parties' contract and directly alters the rights and obligations of the parties, the question is one of statutory interpretation. 65 Nothing in the language of section 103BB evinces a statutory intention to insert terms into contracts of insurance through the process of statutory implication. As Chesterman J observed in McInally v HTW Valuers, when a statute implies terms into contracts 'the legislation makes it clear that the implication is to occur': at [44]. Indeed, the contrast between section 103BB and section 18B of the Home Building Act - 'The following warranties … are implied in every contract to do residential building work' - could not be more stark. Section 103BB does not state that the limits its prescribes are taken to be included in the contracts of insurance. The same conclusion was reached in Foy v Calliden, where Hatzistergos DCJ concluded that the Home Building Amendment Act 2011 'did not amend the policy terms': at [115]."
The fact that the statute does not imply terms into the contract says nothing about whether the contract incorporates the terms of the statute. Hence the question is not only one about statutory interpretation, but also about the construction of the contract.
If the chapeau to the insuring clause was not itself sufficient to show that the contract incorporated the terms of the statute, a further indication of such incorporation is found in the concluding paragraph of the "Definitions" section of the policy quoted at [15]. It does not provide that if any term of the policy is inconsistent with the Act the term is to be treated as if it were excluded from the contract. Rather such a term is to be read and applies as if it complied with the Act.
In other words, the Act regulates the contract and the contract is to be read so as to comply with the Act, so that the parties' rights and obligations, including those arising from the operation of the statute, are contractual.
With respect to the reasons of Stern JA at [102] I see no ambiguity as to whether the terms of the relevant provisions of the Act or Regulation were to be incorporated into the Policy. The chapeau to the insuring clause and the concluding paragraph of the section headed "Definitions" do so expressly.
The primary judge held (J[70]) that s 54 did not apply to ameliorate the effect of s 103BB of the Home Building Act as under the latter provision the insurer was prohibited by statute from paying the claim, rather than this being the effect of the contract.
I do not agree. Section 103BB contains no statutory prohibition on an insurer paying a claim. Rather it regulates a contract of insurance.
The scheme of the Home Building Act, at relevant times, was not to provide a statutory scheme for compensation for homeowners (and their successors) where the homeowner engaged a builder whose work was defective or incomplete. At the times relevant in this case the required insurance was to be provided by private insurers. The Act regulated the form of contracts for the carrying out of home building work and implied statutory warranties into the builder's contract. It regulated the insurance contract which a builder was required to ensure was in force before carrying out the building work (s 92). The Act operated through such insurance contracts.
The primary judge held that s 103BB operated outside the parties' contract and directly altered their rights and obligations. Her Honour held that the insurer's entitlement to refuse to pay a claim was sourced in the statute, rather than in contract (J[67]).
I do not agree. In my view the insurer's entitlement to refuse to pay the claim (subject to the operation of s 54) was sourced in both statute and contract because the contract incorporated the relevant provisions from time to time of the statute. But it was the contract which regulated the parties' rights. It was only by contract that the appellants could make a claim on the respondent.
The appellants submitted that irrespective of whether the effect of s 103BB was incorporated as a contractual term, it effected a change to the effect of the contract of insurance. The appellants noted that s 54 itself changes the effect of contracts of insurance. Therefore, they submitted, the fact that a change to the effect of a contract of insurance is made by a statute, whether the statute is incorporated as a contractual term or not, the statute nonetheless changes the effect of the contract of insurance and that is all that is required to engage s 54.
I agree with that submission. The effect of a contract for the purposes of s 54 and the effect of a statute regulating the contract, are not mutually exclusive concepts.
Although having denied it before proceedings were commenced, and at trial, the respondent accepted on appeal that s 54 would apply to the appellants' "omission" to notify their claim within the time prescribed by s 103BB if that were the effect of the contract.
In my view that was the effect of the contract.
The respondent accepted that it was not prejudiced by the appellants' omission to notify a claim under s 103BB. Consistently with FAI General Insurance Co Limited v Australian Hospital Care Pty Limited (2001) 204 CLR 641; [2001] HCA 38 and Maxwell v Highway Hauliers Pty Ltd (2014) 252 CLR 590; [2014] HCA 33 it accepted that if the failure to notify the insurer of the loss arising from defective building work during the period of insurance of up to six years after completion of the work was an omission to which s 54 applies because it was an effect of the contract that entitled the insurer to refuse to pay the claim, then s 54 was satisfied.
The appellants' reliance on s 109 of the Constitution would not arise if, as the primary judge found, the respondent's refusal to provide indemnity was not the effect of the contract of insurance, but of the NSW statute. If, as I consider to be the case, the refusal was the effect of the contract of insurance, the respondent does not dispute that relief under s 54 is available.
I would allow the appeal. In doing so I express no view on issues that might have been raised but were not. No issue was raised whether the period of cover had not expired because the contract with the builder was not at an end. Nor was there an issue whether the omission on the part of the insureds in not notifying a claim under s 103BB when, in accordance with the terms of their policy, they had no reason to do so, was an "omission" for the purposes of s 54.
I propose the following orders: 1. Appeal allowed. 2. Set aside the orders of the Court below of 9 June 2023 and 3 July 2023. 3. In lieu thereof order that the proceedings be remitted to the primary judge for the determination of the appellants' claim in accordance with these reasons. 4. The respondent pay the appellants' costs of the proceedings below to date and of the appeal.
MITCHELMORE JA: I agree with the orders proposed by Stern JA and with her Honour's reasons.
STERN JA: The central issue in this appeal is whether s 54 of the Insurance Contracts Act precludes an insurer refusing to pay an insurance claim where the insurer's refusal to pay is premised upon a failure to notify the claim as required by s 103BB(3)(a) of the Home Building Act. That central issue turns upon whether, as the appellants contend, s 103BB is incorporated into the insurance policy, or relevantly alters the effect of the policy, so as to engage s 54 of the Insurance Contracts Act. Whilst there is a rich body of caselaw on s 54, save for one case, Foy v Calliden Insurance Limited [2017] NSWDC 33 ("Foy v Calliden"), the Court was not taken to any previous judicial consideration of the application of s 54 in circumstances where the insurer's refusal to pay is premised upon a statutory provision which alters the circumstances in which a claim may otherwise be made under an insurance contract.
Over and above that one central issue, issues arise as to whether the operation of s 103BB(3) of the Home Building Act is inconsistent with, or alters, impairs or detracts from the operation of, s 54 of the Insurance Contracts Act within the meaning of s 109 of the Commonwealth Constitution such that s 54 should prevail (this was the subject of a notice of constitutional matter under s 78B of the Judiciary Act 1903 (Cth) but none of the State, Territory or Commonwealth Attorneys-General sought to intervene), and as to the correctness of the primary judge's determination as to costs.
By amended summons filed 5 August 2022 the appellants sought an order that the respondent (who from 29 June 2020 relevantly assumed the rights and liabilities under a policy which had initially been taken out with Calliden Insurance Limited) indemnify them under a home warranty insurance policy dated 13 January 2009 (the "Policy"), subject to any reduction that fairly represents the extent to which the respondent's interests were prejudiced as a result of any delay in notifying the respondent of the claim, or alternatively damages. In support of that claim the appellants contended before the primary judge that s 54 of the Insurance Contracts Act prevented the respondent from disclaiming liability in reliance upon s 103BB(3) of the Home Building Act on account of the appellants' claim being made outside of the period in s 103BB(3) for the making of such claims. Alternatively, the appellants contended that s 103BB was invalid under s 109 of the Constitution.
The primary judge dismissed the summons with costs: Drummond v Gordian Runoff Ltd [2023] NSWSC 607 ("primary judgment"). The primary judge subsequently varied the costs order to order that the appellants pay indemnity costs from 20 July 2022, being the date on which the respondent made an offer to compromise the whole of the proceedings on the basis of judgment for the respondent with no order as to costs: Drummond v Gordian Runoff Ltd (No 2) [2023] NSWSC 731 ("costs judgment"). The appellants appeal against the whole of both judgments.
The respondent, by notice of contention, relies upon two additional grounds which it contends support the dismissal of the appellants' claim, both of which directed attention to the effect of s 103BB of the Home Building Act being to change the scope and extent of cover. However, in light of the concession of Senior Counsel for the respondent set out at [168] below, the grounds in the notice of contention fall away.
Save for the appeal as to costs, the disputes between the parties are narrow and turn primarily upon the proper construction of each of the Policy, s 103BB of the Home Building Act and s 54 of the Insurance Contracts Act.
The factual background is uncontentious. It is common ground that the appellants' property (the "Property") is affected by defects arising from breaches of statutory warranties by the contractor the appellants engaged to build their home (the "Contractor"), and that this has caused loss. It is not in dispute that those defects were apparent within a short period after the works were completed. It is also common ground that the appellants did not notify their claim within the period provided in s 103BB(3) of the Home Building Act. The respondent does not suggest it suffered any prejudice by reason of that late notification such as to entitle it to reduce its liability under the Policy under s 54(1) of the Insurance Contracts Act if that provision would otherwise apply to preclude refusal of the claim. Moreover, the quantum of the appellants' claim under the Policy, if they have one, is agreed.
For the reasons set out below, the appeal should be dismissed.

Factual and procedural background

In January 2009, the appellants contracted with the Contractor to build the Property.
The Policy was issued on 13 January 2009.
On 27 January 2011 the appellants moved into the Property. On 1 February 2011, an interim occupation certificate was issued: J[31]. From even before that time defects in the Property were identified. Thereafter, liaison between the appellants and the Contractor about these continued. In August 2016 the appellants retained a building consultant to inspect the Property. In December 2016, the appellants sent the Contractor a schedule of defects: J[38].
On 25 January 2017 the appellants commenced proceedings against the Contractor in the New South Wales Civil and Administrative Tribunal (the "Tribunal") alleging breaches of statutory warranties and seeking damages for rectification of the defects: J[38]. In May 2018 the Tribunal held the Contractor responsible to rectify the remaining defects (for which rectification had not been agreed) and issued a work order. The Contractor completed some, but not all, of those works: J[41]. In September 2019 the appellants filed a second application in the Tribunal. On 25 June 2020 the proceedings were adjourned after the Contractor informed the Tribunal that it had been placed into external administration: J[42].
On 9 July 2020 the appellants first notified the respondent of a loss. The reason for the loss was identified as defective work as set out in an attached report dated 10 December 2019 from Stephen Iskowicz of Axion Building Diagnosis, identifying unrectified defects as to the external façade of the property, balconies and the master bedroom en suite.
On 18 August 2020 the Contractor was placed into creditors' voluntary liquidation: J[42].
On 15 December 2020 the appellants made a claim on the Policy.
On 31 May 2021 the respondent denied liability. The key part of its letter responding to the appellants' claim relied upon s 103BB of the Home Building Act: "The first notification of loss was on 9 July 2020 when the Iskowitz report dated 10 December 2019 was provided by your clients. … The claim was made on 11 December 2020 following an insured event (the insolvency of the builder) occurring on 20 August 2020. Given that an insured event (being the insolvency of the builder) did not occur within the period of insurance and no claim was made within the period of insurance, for s 103BB to be satisfied, the loss the subject of the subsequent claim must have been properly notified to the insurer within the period of insurance, following which, subject to other criteria being met, a claim for the notified loss may be made after the period. The period of cover to notify non major defects expired on 1 February 2013 and accordingly, any non major defects must have been notified before that date. As no notification was provided before that date, no cover is available for non major defects. Any non major defects notified in the Iskowitz report provided by your clients on 9 July 2020 were notified out of time. The period of cover to notify major defects expired on 1 February 2017 and accordingly, any major defects must have been notified before that date. As no notification was provided before that date, no cover is available for major defects. Any major defects notified in the Iskowitz report on 9 July 2020 were notified out of time."
As set out above, it is common ground that, as contended by the respondent in this letter, the appellants failed to satisfy the requirements of s 103BB(3)(a). It is also common ground that the appellants pursued the enforcement of the statutory warranty diligently such that s 103BB(3)(b) (set out below at [148]) was not engaged: J[46].

The primary judgment

The primary judge at J[2] identified the two substantive issues raised as being: "(a) does section 54 of the Insurance Contracts Act 1984 (Cth) prevent an insurer from refusing a "delayed claim" where the insured fails to notify the insurer in accordance with section 103BB(3) of the Home Building Act; and (b) if not, is section 103BB of the Home Building Act invalid pursuant to section 109 of the Constitution, as inconsistent with a law of the Commonwealth."
As to the first question, her Honour recognised at J[55] that for the purposes of s 54 of the Insurance Contracts Act "the effect of a contract of insurance" is a matter of substance and not form: East End Real Estate Pty Ltd v C E Heath Casualty & General Insurance Limited (1991) 25 NSWLR 400 at 403-404 (Gleeson CJ), at 407 (Mahoney JA) ("East End"); Antico v Heath Fielding Australia Pty Ltd (1997) 188 CLR 652 at 673; [1997] HCA 35 (Dawson, Toohey, Gaudron and Gummow JJ); Prepaid Services Pty Ltd v Atradius Credit Insurance NV [2013] NSWCA 252; (2013) 302 ALR 732 at [130] (Meagher JA, with whom Macfarlan and Emmett JJA agreed); Maxwell v Highway Hauliers Pty Ltd (2014) 252 CLR 590; [2014] HCA 33 at [27] (Hayne, Crennan, Kiefel, Bell and Gageler JJ) ("Highway Hauliers"). Her Honour found at J[56]-[57], however, that the relevant "effect", for the purposes of s 54, had to be brought about by the contract of insurance: East End at 407 (Mahoney JA); CA & MEC McInally Nominees Pty Ltd v HTW Valuers (Brisbane) Pty Ltd Ltd [2001] QSC 388 at [43] (Chesterman J) ("McInally").
The primary judge rejected the appellants' contention that the Policy incorporated the Home Building Act and the Home Building Regulation 2004 (NSW) ("2004 Regulation") by reference. Her Honour found that the Policy provided cover "in accordance" with the statutory scheme "as amended from time to time": J[20]. Her Honour characterised s 103BB(3) as analogous to a "statutory 'deeming' provision": J[37]. Her Honour found that legislation can "alter, prescribe, or approve the content of a contract using various techniques", and characterised the appellants' contention as being that the contract of insurance was modified by the legislation "inserting an implied term or terms" which her Honour took to be a reference to the legislature specifying that s 103BB(3) was taken to be a part of the insurance contract: J[57]. As framed by her Honour at J[64], the question to be answered as a matter of statutory interpretation was: "whether section 103BB of the Home Building Act specifies that certain statutory terms are taken to be part of the contract of insurance, or whether the legislation operates outside the parties' contract and directly alters the rights and obligations of the parties."
Her Honour found at J[65] that there was nothing in s 103BB to suggest a statutory intention to insert terms into contracts of insurance, noting that s 103BB did not "state that the limits it prescribes should be taken to be included in such contracts". Rather, her Honour concluded at J[67], s 103BB operates outside of the parties' contract and directly alters their rights and obligations. Thus, s 54 of the Insurance Contracts Act did not apply to ameliorate the effect of s 103BB of the Home Building Act.
As to the second question, whether there was inconsistency within the terms of s 109 of the Constitution, her Honour observed that the appellants did not suggest that s 54 of the Insurance Contracts Act was a code. Thus, there was no indirect inconsistency: J[77]. Nor was there any direct inconsistency as her Honour found that s 103BB of the Home Building Act operated outside the contract of insurance such that s 54 of the Insurance Contracts Act did not apply: J[80].
It should also be noted that the primary judgment appears to have been premised upon the relevant "loss" under the Policy being loss arising from breach of statutory warranties in circumstances in which compensation was not recoverable for that loss by reason of the Contractor's insolvency. Whilst there is no specific finding to that effect, that premise is suggested by the primary judge's analysis of the facts: "39 …Using the last of these dates, loss arising from breach of statutory warranties was apparent to the insureds by 1 May 2017. No claim was made on the insurer, nor was there any reason to do so where this was not the 'loss' indemnified by a contract of insurance under Part 6. The insureds were covered for loss 'which you cannot recover compensation from the Contractor … because of the Insolvency … of the Contractor': see [18]. 40 That is, the period of cover came to an end without the insured risk materialising. The insureds remained entitled to make a 'delayed claim' in the circumstances described in section 103BB(3). One such circumstance was that 'the loss was properly notified to the insurer during the period of insurance': section 103BB(3)(a). No such notification was made on or before 1 May 2017, nor was there anything to notify. Using general insurance parlance, the insurer simply went 'off risk'."
As discussed at [114] below, in support of their grounds of appeal the appellants contend that "loss" for the purposes of the Policy means simply such loss as flowed from the breach of statutory warranties, and does not also encompass the circumstances that that loss is not recoverable or cannot be remedied by reason of insolvency etc.
In the costs judgment ("JC"), the primary judge found that the respondent's offer on 20 July 2022 to compromise the whole of the proceedings on the basis of judgment for the respondent with no order as to costs, complied with r 20.26 of the Uniform Civil Procedure Rules 2005 (NSW) ("UCPR") and was a reasonable compromise, including in circumstances where the proceedings "had been on foot for a year": JC[34]. Moreover, her Honour observed that the legal issues had been fully articulated by that time: JC[34], as the respondent had set out its reasoning on the subject at length in an earlier Calderbank letter, two defences, and two sets of submissions: JC[32]. Further, the appellants' claim could not "be cast as novel, where there was already a judgment squarely on point, which indicated that their argument may be wrong", referring to Foy v Calliden. In the light of that, her Honour said that the appellants' submission that there was no considered authority on the point was a "tad harsh": JC[32], as this was not "uncharted" territory: JC[33]. Her Honour was also not satisfied that there was any good reason why the Court should make an order other than that provided by UCPR, r 20.26: JC[34].

Notice of appeal and notice of contention

By notice of appeal filed 8 September 2023 the appellants raise eight grounds: "1 (Ground 1): The primary judge erred in: (a) finding that s 103BB of the Home Building Act 1989 (NSW) did not modify the terms of the parties' contractual rights and obligations under the contract of insurance, notwithstanding the language in s 103BB (J[64]-[66]); and (b) finding that s 103BB conferred a statutory right on the insurer to deny indemnity that existed outside of the parties' contract of insurance (J[67] and [80]), in circumstances where s 103BB(1), in terms, applies directly to a 'contract of insurance' under Part 6 of the Home Building Act 1989 (NSW) and alters the 'insurance cover' that the contract of insurance 'provides' and the time limits under the contract of insurance. 2 (Ground 2): The primary judge erred in finding that the only manner in which a statute could modify the terms of the parties' contractual rights and obligations was by expressly inserting an implied term or specifying that the parties' contract is to be taken to have additional terms (J[65]). 3 (Ground 3): Further, or in the alternative, the primary judge erred in failing to find that, even if s 103BB of the Home Building Act 1989 (NSW) conferred a statutory right on the insurer to deny indemnity that existed outside of the parties' contract of insurance (J[67]), it nonetheless modified the 'effect' of the contract of insurance for the purposes of the application of s 54 of the Insurance Contracts Act 1984 (Cth). 4 (Ground 4): The primary judge erred in failing to find that s 54 of the Insurance Contracts Act 1984 (Cth) continued to operate and apply to the 'effect' of a contract of insurance, where the contract of insurance was modified by s 103BB(3) of the Home Building Act 1989 (NSW) in circumstances where: (a) s 54 of the Insurance Contracts Act 1984 (Cth) applied to the contract of insurance issued pursuant to the Home Building Act 1989 (NSW) as a matter of law; (b) the insurer and the insured had expressly agreed that the contract of insurance issued under and in compliance with the Home Building Act 1989 (NSW) was made subject to s 54 of the Insurance Contracts Act 1984 (Cth); and/or (c) the contract of insurance as agreed to by the parties contained as an express term that '[a]ny rights (under the contract) to refuse to pay a claim are subject to s 54 of that Act [the Insurance Contracts Act 1984 (Cth)]'. 5 (Ground 5): In the alternative, the primary judge erred in failing to find that to the extent the operation of s 103BB(3) of the Home Building Act 1989 (NSW) was inconsistent with s 54 of the Insurance Contracts Act 1989 (Cth) or attempted to restrict or impair the operation of that section, then the operation of s 54 of the Insurance Contracts Act 1989 (Cth) prevailed to the extent of any such inconsistency. 6 (Ground 6): The primary judge erred in failing to find that upon its enactment s 103BB of the Home Building Act 1989 (NSW) became part of the contract of insurance then in existence under the Home Building Act 1989 (NSW). 7 (Ground 7): The primary judge erred in determining that the defendant was entitled to its costs of the proceedings below on an indemnity basis as and from 20 July 2022. 8 (Ground 8): The primary judge erred in failing to hold that the Offer of Compromise made under r 20.26 of the Uniform Civil Procedure Rules 2005 (NSW) lacked the appropriate element of compromise, it being a 'walk away' offer and therefore not a real and genuine offer."
As Senior Counsel for the appellants characterised the grounds during oral submissions, grounds 1-4 and 6 go to the question of whether s 103BB of the Home Building Act is either incorporated in, or in any event to be taken into account in ascertaining the effect of, the contract of insurance for the purpose of s 54 of the Insurance Contracts Act. As set out above, at [60], these are the two ways in which the appellants contend s 54 is engaged by the respondent's refusal to pay, premised, as it was, upon s 103BB of the Home Building Act. I thus propose to address those grounds together, and to deal with the related question of the proper construction of the Policy in the course of that consideration.
The grounds advanced by way of notice of contention are: "1 Her Honour should alternatively have held, for the reasons summarised at PJ [50-52] and further to the finding at PJ [67] that Home Building Act 1989 (HBA) sec 103BB operated to change the scope and extent of the indemnity provided by Home Warranty Insurance (HWI) pursuant to HBA Part 6 (including the insurance subject of this appeal) relevantly, only where the subject claim satisfies the criteria set out in sec 103BB(1) or sec 103BB(3)(a). 2 Her Honour should also have found that upon the true construction of HBA sec 103BB, that: a. the appellants' claim did not qualify for the indemnity offered by the HWI, per the terms of HBA sec 103BB(3)(a), and so have no right to indemnity; and so b. the appellants' failure to satisfy the provisions of HBA sec 103BB(3)(a) was not conduct to which Insurance Contracts Act 1984(Cth) sec 54 applied to provide the relief that the appellants sought; c. and that for those reasons, and further to PJ [80], there was no inconsistency between HBA sec 103BB(3)(a) and ICA sec 54 for the purposes of Australian Constitution sec 109."
For the reasons set out at [168] it is unnecessary in this judgment to consider the substance of the notice of contention.

Grounds 1-4 and 6: does s 54 apply in the circumstances?

The Policy and its proper construction

Two issues were raised on appeal as to the proper construction of the Policy. First, whether the Policy incorporates the provisions of the Home Building Act. Second, whether the occurrence of a defect in a property is itself "loss" under the Policy or whether "loss" only occurs at the point when the property owner is unable to recover compensation from the contractor by reason of insolvency, death or disappearance of the contractor. Were the first issue to be resolved in the appellants' favour, it would follow that s 54 of the Insurance Contracts Act was engaged by the respondent's refusal to pay. The entitlement of the respondent to refuse to pay would derive from the Policy if s 103BB of the Home Building Act was itself incorporated as a term of the Policy. The second issue goes only to the question whether the appellants could have made a claim under the Policy were it not for s 103BB of the Home Building Act. Ultimately, I do not consider the second issue to have any dispositive significance. However, lest I am wrong as to this, I discuss this issue below.
The Policy is described as "Calliden Home Warranty Insurance - New South Wales Insurance Policy" and has the footer "CBHWA NSW 1208 Effective Date 01 December 2008". There is no dispute that the Policy is a "contract of insurance" under Pt 6 of the Home Building Act and is thus subject to s 103BB.

Does the Policy incorporate provisions of the Home Building Act?

The Policy deals expressly with its interaction with the Home Building Act and the Insurance Contracts Act in various places.
In an introductory section headed "Important Information", under the sub-heading "Duty of Disclosure", the Policy states: "This Policy is subject to The Insurance Contracts Act 1984. Under that Act you have a Duty of Disclosure."
The section of the Policy headed "Definitions" includes (amongst others) the following defined terms: "Act means the Home Building Act 1989 as amended from time to time. Policy means this policy wording, any endorsements and the Certificate of Insurance. Regulation means the Home Building Regulation 2004 as amended from time to time."
That section also includes the following notation: "This Policy is intended to comply with the requirements set out under the Act and any term of this Policy which conflicts with, or is inconsistent with, the Act shall be read and be enforceable as if it complies with the Act."
Further, the chapeau to the insuring clause provides, relevantly: "We will provide insurance cover to you, subject to the terms, conditions and exclusions set out in this Policy, and in accordance with the Act and Regulation for: …".
In the final section of the Policy, headed "Other Matters", under a sub-heading "Jurisdiction", the Policy states: "This Policy is governed by the Law of New South Wales. The law of New South Wales includes Commonwealth legislation such as the Insurance Contracts Act 1984. Any rights to refuse to pay a claim are subject to section 54 of that Act."
Relying in particular on the chapeau to the insuring clause, the appellants contend that provisions of the Home Building Act, as amended from time to time, were incorporated into the Policy. They contend that the parties agreed that the cover provided by the Policy would "change to conform with any amendment to the [Home Building Act] that affected cover". In this regard, they say that, having regard to the terms of s 103BB of the Home Building Act: "The only way to give effect to that provision and make the policy consistent with the Act is in effect to [incorporate it into the terms of cover under the Policy]".
The respondent denies that this is so, contending that the scope of cover provided under the Policy was modified statutorily, but not contractually. The respondent submits that this is so, first, because it is completely unnecessary for the parties to incorporate statutory provisions into the Policy in circumstances in which the legislation applies of its own force. Second, the respondent draws attention to the clear statement, in the notation in the Definitions section of the Policy, as to how the Policy is intended to interact with the provisions of the Home Building Act. That is said to disclose an objective intention that the Policy be read so as to comply with the Home Building Act, which is something quite different from an intention directly to incorporate the provisions of the Home Building Act. Third, the respondent contends that the jurisdiction clause does not give s 54 of the Insurance Contracts Act any effect over and above what it has of its own force. Nor does it suggest that the Policy should be read as if the provisions of the Home Building Act were incorporated into the Policy so as to "preserve the operation of s 54".
As held by Gleeson CJ in McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579; [2000] HCA 65 at [22]: "A policy of insurance, even one required by statute, is a commercial contract and should be given a businesslike interpretation. Interpreting a commercial document requires attention to the language used by the parties, the commercial circumstances which the document addresses, and the objects which it is intended to secure." (Footnotes omitted.)
That approach to construction applies also to the question whether terms are incorporated by reference: Warner Bros Feature Productions Pty Ltd v Kennedy Miller Mitchell Films Pty Ltd [2018] NSWCA 81 at [54]-[57] (Bathurst CJ, Beazley P and Emmett AJA agreeing). It is well established that a contract might incorporate legislative provisions by reference: see eg Godecke v Kirwan (1973) 129 CLR 629 at 637; [1973] HCA 38 (Walsh J, Mason J agreeing); Sageinvest AG v Western Metals Copper Ltd [2003] NSWSC 490 at [9] and the cases referred to there; New South Wales Lotteries Corporation Pty Ltd v Kuzmanovski (2011) 195 FCR 234; [2011] FCAFC 106 at [58] ("Kuzmanovski"). Whether it does so is a question of construction of the words used in the context of the contract as a whole: Kuzmanovski at [54].
Here, there is no doubt that an important object of the Policy was to ensure that it complied with the Home Building Act. Such compliance was important to ensure that the Contractor was not otherwise in breach of the requirement, under s 92 of the Home Building Act, that contract work must be insured and to avoid the consequences of such non-compliance as set out in the Home Building Act. That object did not, however, require that relevant provisions of the Home Building Act be incorporated into the Policy. It was adequately met provided that the Policy be read and enforced so as not to be inconsistent or conflict with the requirements of the Home Building Act, as provided in the Definitions section of the Policy. That is part of the context known to the parties within which the words of the Policy must be construed.
As was accepted by Senior Counsel for the appellants, the words "and in accordance with the Act and Regulation" in the chapeau to the insuring clause are capable of meaning "so as not to be inconsistent with" or "so as not to breach" the Home Building Act and the 2004 Regulation. The language used in the Policy, read as a whole, suggests that those words were objectively intended to bear that meaning. Of particular significance, in this regard, is the notation within the Definitions section, as set out at [94] above, that in the event of conflict or inconsistency, the terms of the Policy should "be read and be enforceable" as if they comply with the Home Building Act.
If the agreement embodied in the Policy is that its terms be read so as to avoid any conflict or inconsistency with the Home Building Act or the 2004 Regulation, then the words in the chapeau to the insuring clause are entirely consistent with the notation in the Definitions section. The chapeau incorporates, by use of the shorthand "in accordance with", the terms of that notation. However, if, as the appellants contend, relevant provisions of the Home Building Act and the 2004 Regulation were themselves incorporated into the Policy by the chapeau to the insuring clause, and it must follow from the words "in accordance with", once incorporated take precedence over any conflicting terms, there would be no need for the notation to provide that "any term … which conflicts with, or is inconsistent with, the Act" to be read as if it complies with the Home Building Act. That would automatically follow. Thus, on the appellants' construction, those words in the notation in the Definitions section of the Policy would be otiose.
It would also be expected that clear and unequivocal words would be used to make this clear if, as contended by the appellants, the intention was for relevant provisions of the Home Building Act and the 2004 Regulation to be incorporated into the Policy. There would also be some uncertainty were the appellants' construction correct. This is because there would be no clear basis to determine what provisions of the Home Building Act and the 2004 Regulation were so incorporated, and what provisions (if any) applied merely of their own statutory force. That could in turn impact upon what, if any, remedies would be available for non-compliance and, as here, the application of s 54 of the Insurance Contracts Act.
I would also reject the appellants' contention that the only way to give effect to s 103BB of the Home Building Act is to incorporate its provisions into the terms of the Policy. As with other provisions of the Home Building Act, s 103BB can readily take effect as part of a supervening statutory regime which regulates the circumstances in which a claim may be made under a contract of insurance to which the Home Building Act applies. Its effect does not depend upon it being incorporated into the Policy.
Having regard to these matters, the respondent's contentions as to the proper construction of the Policy should be accepted. The chapeau to the insuring clause should be construed as providing that coverage under the Policy will not be provided in a manner inconsistent or conflicting with the Home Building Act and the 2004 Regulation, but not as incorporating relevant sections or regulations into the Policy itself.

The scope of coverage and the meaning of "loss" in the Policy

So far as relevant to the issues in this appeal, the insuring clause provides that coverage was provided for: "b) Loss or damage arising from a breach of Statutory Warranty, being loss or damage in respect of which you cannot recover compensation from the Contractor, or have the Contractor rectify, because of the Insolvency, death or Disappearance of the Contractor; … The risks indemnified include the acts and omissions of all persons contracted by the Contractor or other person to perform the Work resulting in loss or damage of a kind referred to in this clause."
The words in bold are relevantly defined as follows: "Contractor means an individual, partnership or a corporation who has been issued a contractor licence authorising its holder to do Work. Insolvency means the same as it does in the Act and the Regulation. Statutory Warranty means a warranty established by the Act. You/your/yours means the person on whose behalf Work is done or is to be done, and a successor in title to that person."
In the Home Building Act, at the relevant times, "insolvent" was defined in s 90 as: (a) in relation to an individual, that the individual is insolvent under administration (within the meaning of the Corporations Act 2001 of the Commonwealth), or (b) in relation to a corporation, that the corporation is an externally-administered body corporate.
Neither loss nor damage is defined in the Policy.
Cover of the type provided under the Policy is described as "last resort cover". Since 2002, an insurance contract under the Home Building Act has been required by s 99(1)(b) to include such cover, being insurance against the risk of being unable, due to insolvency, death or disappearance of the contractor, to have the contractor rectify a breach of a statutory warranty or to recover compensation from the contractor for any such breach (which, for convenience, I will describe as "irrecoverability on account of insolvency etc").
The insuring clause in the Policy establishes the "Period of Cover", relevantly, as follows: "The Policy provides cover for other loss [i.e. other than loss arising from non-completion of the Work] insured by the Policy for a period of: i. In the case of loss arising from a Structural Defect, 6 years after the completion of the Work, or the end of the Contract, whichever is the later. ii. In the case of loss arising otherwise than from any such Structural Defect, 2 years after the completion of the Work, or the end of the Contract, whichever is the later."
As is apparent from [133] below, in this regard the Policy was consistent with the requirements of the Home Building Act as at January 2009 when it was issued.
The key question of construction arising as to the scope of coverage under the Policy is as to the meaning of "loss insured by the Policy" in the terms providing for the period of cover. More particularly: 1. is the "loss insured by the Policy" the loss or damage arising from the manifestation of a defect consequent upon breach of a statutory warranty, as the appellants contend, which it is common ground was suffered during the period of cover under the Policy? The appellants contend that "what must occur during the period of cover is simply the loss or damage, not the irrecoverability". They submit that, were this not the case, the value of a last resort policy, as required by s 99 of the Home Building Act, would be significantly undermined as the person suffering loss would need to pursue the Contractor to the point of insolvency within the period of cover under the Policy. They also rely upon the terms of s 103BB (set out below at [148]). They contend that the distinction in s 103BB(3) between "loss" and "an insured event" supports their proposed construction of the Policy, as it supports their contention that the distinction between loss, and the events that give rise to the claim, "has always been made" in the Home Building Act. The appellants thus submit that, were it not for s 103BB of the Home Building Act, the Policy would have responded in the circumstances of this case as the loss (being the structural defects) occurred within the period of cover and the notification clause was complied with; or 2. is the "loss insured by the Policy" the occurrence of such loss or damage, in circumstances in which (here) there is also irrecoverability on account of insolvency etc, as the respondent contends? The respondent submits that it is the "combination of those three factors" (being loss, irrecoverability, and that being by reason of insolvency) which produces "the object of cover which is the subject of this case" and against which indemnity is given. The respondent submits that unless that combination of components arises during the period of cover as defined, there is no cover under the Policy for the irrecoverable loss. Further, the respondent contends, whilst s 54 of the Insurance Contracts Act has work to do where refusal is based upon late notification, it "says nothing about" an insurer's refusal to pay on the basis that there was no insurable loss. Given that the insolvency of the Contractor did not occur until 2020, outside of the period of cover provided under the terms of the Policy, the respondent contends that the loss occasioned by the appellants did not fall within the ambit of cover under the Policy. On this basis the respondent submits that, absent s 103BB of the Home Building Act and having regard to the terms of the Policy, s 54 of the Insurance Contracts Act had no application to its refusal to pay the appellants' claim. Thus, having regard to the terms of the Policy, the respondent submits that s 103BB(3) is more favourable to the appellants than the terms of the Policy, potentially enabling a claim to be made in circumstances in which no contractual claim existed.
Whilst the issue is finely balanced, the appellants' construction of the insuring clause is to be preferred. True it is that the insured event is the occurrence of the defined loss or damage in circumstances in which there is also irrecoverability on account of insolvency etc. However, the better view is that the insuring clause draws a distinction between the suffering of loss or damage, on the one hand, and the insured event, on the other. This construction of "loss or damage" is supported by the language in the insuring clause which identifies, as regards defects, "loss or damage arising from a breach of Statutory Warranty", namely the loss or damage, then adds "in respect of which you cannot recover compensation from the Contractor, or have the Contractor rectify". This language suggests a distinction in the Policy between the loss or damage, on the one hand, and the insured event, namely irrecoverability on account of insolvency etc.
My preferred construction is also supported by the description in the Policy of the period of cover, which provides: "The Policy provides cover for loss arising from non-completion of the Work for a period of 12 months after the failure to commence, or cessation of, the Work. The Policy provides cover for other loss insured by the Policy for a period of: i In the case of loss arising from a Structural Defect… ii In the case of loss arising otherwise than from any such Structural Defect…".
That language suggests that the cover provided is for the loss or damage suffered either by reason of the non-completion of the work, or from defects.

Notification requirements under the Policy

Under the heading "Claims Procedure", the Policy provides: "1. A claim must be notified to us within the periods set out below: a) … not later than 6 months after you first become aware, or ought reasonably to be aware, of the fact or circumstance under which the claim arises … … 2. We may not reduce our liability under this Policy or reduce any amount otherwise payable in respect of a claim merely because of a delay by you in notifying us of a claim if the claim is notified to us within the period set out in paragraphs 1.a)… 3. Where the claim is not notified to us within the periods set out in paragraphs 1.a) or b) above, we may reduce our liability under the Policy or reduce any amount otherwise payable because of the delay in the claim being notified to us. … You must comply with your obligations under the Policy, otherwise we may not have to pay your claims."
It is common ground that, under the Policy, a claim must thus be made within six months of actual or constructive knowledge of (as relevant on the facts of this appeal) inability to seek compensation by reason of the Contractor's insolvency, which is the "fact or circumstance under which the claim arises" (as provided in the Policy under the heading "How to Make a Claim"). The notification to the respondent on 9 July 2020 complied with that requirement. It is also common ground that, under the terms of the Policy, delayed notification might, but not necessarily would, lead to a reduction in the amount paid, or in a refusal to pay the claim.

The Home Building Act

It is convenient to deal with the key contentions as to statutory construction whilst setting out the relevant statutory provisions on which the issues in this appeal turn.
The first key statutory provision, at the heart of this appeal, is s 103BB of the Home Building Act. Consistent with well established principles of statutory construction, that provision must be construed in its legislative context. As Kiefel CJ, Nettle and Gordon JJ explained in SZTAL v Minister for Immigration and Border Protection (2017) 262 CLR 362; [2017] HCA 34 at [14]: "Considerations of context and purpose simply recognise that, understood in its statutory, historical or other context, some other meaning of a word may be suggested, and so too, if its ordinary meaning is not consistent with the statutory purpose, that meaning must be rejected."
As was more recently explained by Bell CJ (Meagher and Kirk JJA agreeing) in Greylag Goose Leasing 1410 Designated Activity Company v PT Garuda Indonesia Ltd (2023) 111 NSWLR 550; [2023] NSWCA 134: "14 The literal meaning of a statutory provision will not always accord with its legal meaning, which is to be derived from a full consideration of the language of the statute viewed as a whole and the context, general purpose and policy of the statute or a provision within it, to the extent that that is separately discernible: Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355; [1998] HCA 28 at [78]; Cooper Brookes (Wollongong) Pty Ltd v Federal Commissioner of Taxation (1981) 147 CLR 297 at 320; [1981] HCA 26; Commissioner for Railways (NSW) v Agalianos (1955) 92 CLR 390 at 397; [1955] HCA 27; Sydney Seaplanes Pty Ltd v Page (2021) 106 NSWLR 1; [2021] NSWCA 204 at [26]; Park Trent Properties Group Pty Ltd v Australian Securities and Investments Commission (2016) 116 ACSR 473; [2016] NSWCA 298 at [77]. While the legal and the literal meaning of a statute will often coincide, it is the legal meaning of a statutory provision to which this Court must give effect. 15 … 'Context' is to be understood in its widest sense to include such matters as the existing state of the law and the mischief which the statute was intended to remedy, to the extent that that is discernible: CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384 at 408; [1997] HCA 2." (Emphasis in original.)

Statutory context for s 103BB

Part 2C of the Home Building Act, introduced by the Building Services Corporation Legislation Amendment Act 1996 (NSW), with effect from 1997, imposes a series of warranties as regards residential building work. References in the Policy to "statutory warranties" should be understood as a reference to those warranties. Section 18B, within Pt 2C, provides that warranties are "implied in every contract to do residential building work", including that work will be done with due care and skill and that the work and materials used will be reasonably fit for purpose. Section 18G provides: A provision of an agreement or other instrument that purports to restrict or remove the rights of a person in respect of any statutory warranty is void.
Part 6 of the Home Building Act deals with insurance. The whole of Pt 6 was replaced by amendments introduced by the Building Services Corporation Legislation Amendment Act.
At all relevant times, s 92(1), within Pt 6, provided: (1) A person must not do residential building work under a contract unless: (a) a contract of insurance that complies with this Act is in force in relation to that work in the name of the person who contracted to do the work, and (b) a certificate of insurance evidencing the contract of insurance, in a form prescribed by the regulations, has been provided to the other party (or one of the other parties) to the contract. Maximum penalty: 1,000 penalty units in the case of a corporation and 200 penalty units in any other case.
The position of a contractor is significantly disadvantaged if residential building work is carried out when there is no such insurance is in place: see Home Building Act, s 94.
As to the contents of the insurance policy required by s 92, from 16 May 2002, when the Home Building Amendment (Insurance) Act 2002 (NSW) came into effect, s 99 required that "last resort" cover be included in a contract of insurance under the Home Building Act: (1) A contract of insurance in relation to residential building work required by section 92 must insure: (a) a person on whose behalf the work is being done against the risk of loss resulting from non-completion of the work because of the insolvency, death or disappearance of the contractor, and (b) a person on whose behalf the work is being done and the person's successors in title against the risk of being unable, because of the insolvency, death or disappearance of the contractor: (i) to recover compensation from the contractor for a breach of a statutory warranty in respect of the work, or (ii) to have the contractor rectify any such breach.
As set out above, the Policy provides such "last resort" cover.
The appellants draw attention to the language of s 99, in particular, that it stipulates what a contract of insurance under the Home Building Act "must" do. The appellants contend that this supports their contention that s 103BB of the Home Building Act alters the effect of contracts of insurance to which it applied. I consider this overarching contention below at [155].
Whilst initially insurance under the Home Building Act could be provided by a number of approved insurers, from 1 July 2010, the Home Building Act was amended such that insurance under Pt 6 had to be provided by the NSW Self Insurance Corporation: NSW Self Insurance Corporation Amendment (Home Warranty Insurance) Act 2010 (NSW).
On 28 June 2020 the Home Building Amendment (Warranties and Insurance Act) 2010 (NSW) amended s 99 of the Home Building Act to introduce ss (2A) and (2B): (2A) A provision of a contract of insurance providing cover for the benefit of a person on whose behalf work is done on land is to be read as providing (and to have always provided) for the same benefit in relation to a non-contracting owner of the land. (2B) Subsection (2A) applies irrespective of whether or not the contract of insurance concerned contains a term to the same effect as that subsection.
These subsections have significance in this appeal only because they illustrate one of the many ways in which the Home Building Act operated to regulate contracts of insurance. In particular, the direction that such contracts are "to be read" in a particular way contrasts with the language used in s 99(1), stating what must be included in a contract, and with s 103BB, considered at [148] below.
As to the minimum period of cover to be provided by an insurance contract under the Home Building Act, at the time when the Policy was entered into, s 103B relevantly provided: (1) A contract of insurance must provide insurance cover for loss arising from non-completion of the work for a period of not less than 12 months after the failure to commence, or cessation of, the work the subject of the cover. (2) A contract of insurance must provide insurance cover for other loss insured in accordance with this Act for a period of not less than: (a) in the case of loss arising from a structural defect within the meaning of the regulations - 6 years after the completion of the work … or the end of the contract relating to the work or supply, whichever is the later, or (b) in the case of loss arising otherwise than from any such structural defect - 2 years after the completion of the work … or the end of the contract relating to the work or supply, whichever is the later.
Subsection 103B(2) was subsequently amended such that, as at December 2020 when the appellants made a claim under the Policy, it provided (subject to any variation specified in the regulations): (2) A contract of insurance (other than a construction period insurance contract) must provide insurance cover for other loss insured in accordance with this Act for a period of not less than - (a) in the case of loss arising from a major defect in residential building work (within the meaning of section 18E) - 6 years after completion of the work, or (b) in the case of any other loss - 2 years after completion of the work.
Consistent with the notation in the Definitions section of the Policy, set out above at [94], the period of cover under the Policy must be read as if it complies with this requirement.
Whilst each of these provisions has subsequently been amended, save as identified above, the amendments are not material to the issues arising on the appeal.
As to regulations, s 103B(3) provided: This section is subject to any limits set out in the regulations as to the period within which a claim must be made.
Section 103C(2)(d) also provided for regulations to be made with respect to the period within which a claim, under an insurance contract under Pt 6 of the Act, must be made.
In this regard, cl 63 of the 2004 Regulation provided: 63 Time limits for notice of loss or damage (1) An insurance contract must contain a provision to the effect that the insurer may not reduce its liability under the contract or reduce any amount otherwise payable in respect of a claim merely because of a delay in a claim being notified to the insurer if the claim is notified within the period set out below: (a) … not later than 6 months after the beneficiary first becomes aware, or ought reasonably to be aware, of the fact or circumstance under which the claim arises.
The Policy complied with this requirement: see [110] above.
From 19 December 2008 until it was repealed with effect from 19 May 2009 by the Home Building Amendment (Insurance) Act 2009 (NSW) (the "2009 Amendment Act"), cl 63A of the 2004 Regulation relevantly provided: 63A Period within which insurance claim must be made (1) A claim under a contract of insurance must be made no later than 6 months after the beneficiary first becomes aware, or ought reasonably to have become aware, of the fact or circumstance under which the claim arises or no later than 6 months after the end of the period of cover, whichever is the earlier. … (3) A claim cannot be made later than as permitted by this clause.
The Policy did not include any reference to cl 63A, nor did the wording of the Policy reflect its terms. Of course, it did not need to as the operation of cl 63A did not depend upon the wording of the Policy.
As is apparent from the matters set out below, cl 63A was introduced as an "interim measure" to counter the perceived effect of Owners Strata Plan 57504 v Building Insurers' Guarantee Corporation [2008] NSWSC 1022 ("SP57504"). In that case, having regard to the legislative scheme then in force, McDougall J found that an insurer could not reduce its liability by reason of late notification of a claim under a policy under the Home Building Act if the insurer was notified of the claim within six months of the beneficiary first becoming aware of the loss or of the circumstances giving rise to the loss: at [67], [69]-[70].
The Honourable Penny Sharpe, Parliamentary Secretary, in the Legislative Council on 13 May 2009, introducing the 2009 Amendment Act, which repealed cl 63A and introduced s 103BA (set out below at [146]) into the Home Building Act, said the decision in SP57504 had the potential to precipitate a crisis in the availability of home warranty insurance. In response to this, she said, the Government had introduced as an interim amendment cl 63A to the 2004 Regulation. Ms Sharpe also explained that some concern had been expressed that cl 63A prevented some claims being made which would previously have resulted in an insurer accepting some level of liability, and that cl 63A: "may have inadvertently reduced potential protection provided to insurers and to claimants by provisions in the Insurance Contracts Act 1984 of the Commonwealth".
As Senior Counsel for the appellants submitted, this appears to be a reference to s 54 of the Insurance Contracts Act. I would not, however, give it any significance on the question of construction of s 54 of the Insurance Contracts Act. Ms Sharpe's understanding as to the construction of s 54 is of no significance as to construction. Also, I do not consider that Ms Sharpe's words suggest that, some two years later when s 103BB was introduced into the Home Building Act, Parliament intended a refusal of a claim relying upon s 103BB(3) of the Home Building Act to engage s 54 of the Insurance Contracts Act.
Section 103BA, introduced by the 2009 Amendment Act, applied to both first and last resort insurance policies, and provided: 103BA Limitations on policy coverage - claims made and notified policy (1) A contract of insurance provides insurance cover in respect of loss only if: (b) … (i) the loss becomes apparent and is notified to the insurer within the period of insurance, or (ii) the loss becomes apparent during the last 6 months of the period of insurance and is notified to the insurer within 6 months after the loss becomes apparent. (2) A loss becomes apparent when a beneficiary under the contract first becomes aware (or ought reasonably have become aware) of the loss. (3) In this section: loss means loss indemnified by a contract of insurance. period of insurance means the period for which a contract of insurance provides cover.
The appellants place some significance upon s 103BA which they describe as part of a process by which cl 63A was "watered down in order ultimately to reach s 103BB".

Construction of s 103BB

The Home Building Amendment Act 2011 (NSW) ("2011 Amendment Act") replaced s 103BA with ss 103BA-103BC. Section 103BA applied to policies issued between 1 May 1997 and 30 June 2002. Sections 103BB and 103BC relevantly provided: 103BB Time limits for policies issued from 1.7.2002 (1) A contract of insurance under this Part entered into on or after 1 July 2002 provides insurance cover in respect of loss only if a claim in respect of the loss is made to the insurer during the period of insurance. Note. Subsection (1) is the general rule but there are exceptions to this general rule, as provided by this section. … (3) When a loss becomes apparent during the period of insurance but a claim cannot be made during that period because an insured event has not occurred, a claim can be made after the period of insurance (as a delayed claim) but only if - (a) the loss was properly notified to the insurer during the period of insurance (or within 6 months after the loss became apparent in the case of a loss that became apparent in the last 6 months of the period of insurance), and (b) the beneficiary under the contract of insurance making the claim diligently pursued the enforcement of the statutory warranty concerned after the loss became apparent. 103BC 10 year "long stop" limit on claims under existing policies (1) Despite any other provision of this Act, a contract of home warranty insurance entered into before 1 July 2010 does not in any circumstances provide insurance cover in respect of loss unless a claim in respect of the loss is made to the insurer within 10 years after the work insured was completed. (2) This section does not operate to extend any period of insurance.
These amendments applied to the Policy as they had retrospective effect, as provided by cl 106 of Sch 4 of the Home Building Act. Clause 115 of Sch 4, headed "Period of grace for proper notification of losses", provided a six month extension of the notification period under s 103BB(3)(a) in certain circumstances.
In the second reading speech in the Legislative Assembly introducing the 2011 Amendment Act, the Honourable Anthony Roberts, the Minister for Fair Trading, identified the risk of "unending liability" for home warranty insurance claims arising by reason of the decision in SP57504. He said that, on account of the risk of such liability, some insurers were not releasing bank guarantees provided by builders as security against their home warranty insurance policies in circumstances where: "At the time these securities were handed to insurers, all parties understood that they would be held for the period of insurance, and then returned."
He added that: "It has never been the intention of the home warranty insurance scheme for builders to be indefinitely liable for problems with their work. Neither should insurers be endlessly at risk for claims against policies. This is neither practical nor sensible. If the proposed amendments to the Act are not made to help rectify this issue, the home building industry in this State faces yet another problem. To address this situation and avoid this possibility, the bill includes a number of amendments to the Act's home warranty insurance provisions. First, the bill clarifies that claims for a loss must be lodged within the period of insurance, except in cases where the loss becomes apparent in the last six months of the insurance period, in which case an additional six month claim period is allowed. The only other exception to lodging a claim inside the insured period arises in relation to last resort policies. These policies indemnify the homeowner for losses that cannot be recovered from the builder due to the builder's death, disappearance, insolvency or failure to comply with a money order of the court or Consumer, Trader and Tenancy Tribunal. In these situations, the bill allows homeowners to lodge a delayed claim - that is, a claim can be made outside the period of insurance - but only where the insurer has been properly notified of the loss during the period of insurance. This provision protects the rights of homeowners who cannot lodge an insurance claim during the period of insurance through no fault of their own."
The second reading speech in the Legislative Council is to broadly similar effect.
As to the construction of s 103BB(3), the appellants contend, first, that s 103BB(3) operates by changing contractual rights and liabilities, and that this is clear from the language of s 103BB(1), to which s 103BB(3) is an exception. They say the effect of s 103BB(1) is that some of the promises in a contract of insurance are no longer binding and s 103BB(3) "effects a further and subsidiary statutory adjustment by accommodating 'delayed claims'". Thus, they contend, s 103BB as a whole "operates directly on the contract of insurance", altering the cover provided by an insurance contract. In further support of this submission they rely upon: the retrospective effect of s 103BB, the fact that s 103BB(3) does not contain any date limitation, yet makes sense only as regards last resort policies, indicating that it is intended to operate only as an exception to, s 103BB(1), and the note to s 103BB(1) which characterises s 103BB(3) as an exception to s 103BB(1). They say that Pt 6 of the Home Building Act is directed towards ensuring that certain insurance policies have a particular effect and the obvious way for Parliament to achieve this is by "changing the terms on which home building insurance is provided", that is, by altering the effect of existing policies.
I have already rejected the appellants' contention that relevant provisions of the Home Building Act were incorporated into the Policy. I would also reject the contention that s 103BB alters contractual rights. Regard must be had to s 103BB as a whole. Having regard to the language used in s 103BB as a whole, it is apparent that Parliament intended s 103BB to operate by way of supervening statutory scheme regulating the circumstances in which insurance cover under a home warranty insurance policy will respond to claims made. The language used does not suggest any intention to alter contractual rights under contracts of insurance. In that regard it matters not whether s 103BB(3) is construed as an exception to s 103BB(1), or as having free standing effect. This construction of s 103BB is also consistent with the second reading speeches discussed at [144], [150]-[152] above, which do not disclose any intention to respond to the identified mischief by altering contracts of insurance.
As to this, the language used in s 103BB should be contrasted with the language used elsewhere in the Home Building Act. In Pt 2C, Parliament used language unequivocally indicating that the various warranties should be "implied in every contract to do residential building work": Home Building Act, s 18B. Section 96(4) extends a contract of insurance to work done by way of rectification. Under s 99(2A), a contract of insurance must "be read as" providing benefits in relation to non-contracting owners of the land. Similarly, s 102(3A) provides that a "provision of a contract of insurance … is to be read" in a certain way in specified circumstances. What this survey indicates is that, in the Home Building Act, Parliament used clear language when a legislative provision was intended to alter, or to be read so as to alter the meaning of, a contract. No such language was used in s 103BB.
Second, and in any event, the appellants say that by conferring a statutory, non-contractual right on an insurer to refuse such claims, s 103BB(3) alters the effect of the insurance contract, and cuts down existing contractual rights. They submit that this is how s 103BB(3) operates. They say that this is also supported by the transitional provisions in Sch 4, as there would be no reason to identify a "period of grace", as expressed in the heading to cl 115 of Sch 4, unless existing rights were being "cut back". I would reject the contention that s 103BB(3) alters the contractual effect of a contract of insurance. The appellants' submission elides contractual and statutory provisions, assuming that supervening statutory regulation necessarily modifies the effect of the contract. Whilst ss 103BB(1) and (3) modify the circumstances in which a claim can be made under an insurance contract, the separate operation of the contract and the statute should not be ignored. I would also reject the submission that cl 115 of Sch 4 to the Home Building Act suggests that contractual rights have been modified by s 103BB. Clause 115 is simply a response to the modification to the form of notification required by s 103BB(3). It recognises that there may be persons who have notified loss under policies which had no requirement of written notification and establishes transitional arrangements to deal with this.
Third, the appellants rely upon the "long stop" effected by s 103BC of the Home Building Act. They say that s 54 of the Insurance Contracts Act could have no application to an insurer's refusal to pay relying upon s 103BB(3) where the insured event occurred after the end of the 10 year "long stop" period in s 103BC. In this way, they submit, there is a "hard end to the definition of risk" irrespective of what view is taken of the application of s 54 of the Insurance Contracts Act to an insurer's refusal to pay relying upon s 103BB(3). Whilst it is undoubtedly true that s 103BC protects insurers against endless liability, that does not support the appellants' contention. More particularly, it does not suggest that Parliament intended s 103BB(3) to operate such that s 54 of the Insurance Contracts Act would preclude an insurer refusing to pay a claim on account of a failure to comply with s 103BB(3). It is simply another way in which Parliament legislated to alter the balance between an insured and an insurer under the Home Building Act.
Fourth, the appellants contend that the position under the Home Building Act as amended by the 2011 Amendment Act was more favourable to insurers than s 103BA in its form prior to the 2011 Amendment Act, because of the requirement for diligent pursuit of claims in s 103BB(3)(b) and by the introduction of the "long stop" in s 103BC. Whilst I would accept that those provisions favour the interests of insurers, this does not afford any material support to the appellants' contentions as to the construction of s 103BB.
Fifth, relying upon the second reading speeches set out at [144], [150]-[152] above, the appellants contend that the "key" mischief to be addressed by ss 103BA-103BC is the refusal of insurers to release bank guarantees at the end of the period of insurance. They contend that that "perhaps explains" the notification requirement in s 103BB(3)(a). However, as is plain from the second reading speeches, the mischief sought to be addressed by s 103BB went well beyond a concern about delayed release of bank guarantees. Whilst that was one matter of concern, there was also a perceived need to address the balance of interests between insurers and those insured under policies of insurance. It was this that gave rise to the: "urgent issue addressed in [the] bill [relating] to the time limits for making claims against home warranty insurance policies, and the process that must be followed in the making of these claims".
Sixth, whilst the appellants accept that there is nothing in the second reading speeches to indicate that consideration was given to the potential application s 54 of the Insurance Contracts Act when the 2011 Amendment Act was passed, they contend that the amendments introduced by that Act were seeking to balance the interests of the insurers and insureds, and there "is no reason to think that s 54 was not understood to play a part in that balancing". They submit that the mischief to be addressed by ss 103BA-103BC is addressed even if s 54 of the Insurance Contracts Act applies to a refusal based upon s 103BB(3) because any prejudice to an insurer will be relevant to what they are required to pay under s 54. Moreover, they submit, s 54 of the Insurance Contracts Act formed part of the legislative context for the 2011 Amendment Act.
This contention does not advance the appellants' overarching contention as to construction. The task of statutory construction is to identify, objectively, how Parliament has responded to the mischief sought to be redressed by the particular statute. It is not a matter of positing a range of ways in which Parliament might have responded to the identified mischief. There is nothing in the extrinsic material to which our attention was drawn to suggest that Parliament intended the balance as between insurers and the insured to be redressed by reference to the insurers' liability being reduced, under s 54, to the extent to which their interests were prejudiced as a result of a delayed notification. Rather, the second reading speech introducing the 2011 amendments suggests that the means of addressing the mischief identified was to limit the circumstances in which a delayed claim could be made by introducing s 103BB(3): see [151] above.
It follows that grounds 1 and 6 of the notice of appeal should be dismissed. The primary judge did not err in her construction of s 103BB(3) of the Home Building Act. As the respondent contends, s 103BB(3) operates by way of statutory, not contractual, effect. It operates in favour of an insured but on a condition imposed by Parliament, not by agreement between the parties.
Turning to the specifics of ground 2 of the notice of appeal, I would reject the appellants' contention that the primary judge, at J[65], found that the only way in which the Home Building Act could modify contractual rights was by expressly inserting an implied term or specifying that the contract is taken to have additional terms. It is clear from J[64], set out at [79] above, that the primary judge addressed the proper question, being whether s 103BB of the Home Building Act should be construed such that its terms should be taken to be part of the contract. It was by reference to that, correct, question, that her Honour then asked whether there was a statutory intention to insert terms though contracts through a process of statutory implication, at J[65]. There was no error.
Ground 2 of the notice of appeal should also be dismissed.

Does s 54 of the Insurance Contracts Act apply in the circumstances?

Section 54(1) of the Insurance Contracts Act relevantly provides: Subject to this section, where the effect of a contract of insurance would, but for this section, be that the insurer may refuse to pay a claim, either in whole or in part, by reason of some act of the insured or of some other person, being an act that occurred after the contract was entered into … the insurer may not refuse to pay the claim by reason only of that act, but the insurer's liability in respect of the claim is reduced by the amount that fairly represents the extent to which the insurer's interests were prejudiced as a result of that act.
The Explanatory Memorandum to the Insurance Contracts Bill 1984 (Cth), at pp 78-80, explained that the proposed s 54 affected contracts which permitted an insurer to refuse to pay a claim. It stated that the rationale of s 54 was: "The existing law is unsatisfactory in that the parties' rights are determined by the form in which the contract is drafted rather than by reference to the harm caused. … The proposed law will concentrate on the substance and effect of the term and ensure a more equitable result is achieved between the insurer and the insured."
A number of principles as to the operation of s 54 are well established. In East End this Court emphasised that by using words of generality in s 54, the legislature "evinced an intention to avoid the result that the operation of s 54 depends upon matters of form": at 403-404 (Gleeson CJ), see also at 407 (Mahoney JA). In FAI General Insurance Company Limited v Australian Hospital Care Pty Ltd (2001) 204 CLR 641; [2001] HCA 38 ("FAI v Australian Hospital Care") McHugh, Gummow and Hayne JJ held that s 54 "directs attention to the effect of the contract of insurance on the claim on the insurer which the insured has in fact made. … It requires precise identification of the event or circumstance in which the insured claims payment or indemnity from the insurer": at [40]. Consistent with that, their Honours found that "[n]o distinction can be made, for the purposes of s 54, between provisions of a contract which define the scope of cover, and those provisions which are conditions affecting an entitlement to claim": at [33]. At [46], their Honours found that s 54 was engaged because: "The effect of the contract of insurance, but for s 54, would be that the insurer may refuse to pay the insured's claim by reason only of the omission of the insured to notify…".
Having regard to the reasoning in FAI v Australian Hospital Care, as set out above, Senior Counsel for the respondent accepted that the application of s 54 of the Insurance Contracts Act in this case did not depend upon whether the notification requirement under s 103BB(3)(a) was construed as a restriction upon cover or as a condition to which a claim was subject. As set out above, given this concession, the grounds in the notice of contention fall away.
In Highway Hauliers at [20], Hayne, Crennan, Kiefel, Bell and Gageler JJ observed that the objects of s 54, as explained in the Australian Law Reform Commission report which recommended its introduction, included striking a fair balance between the interests of an insurer and an insured: "with respect to a contractual term designed to protect the insurer from an increase in risk during the period of insurance cover". (Footnotes omitted.)
The Court in Highway Hauliers held that it was sufficient if "the effect of the Policy is that the Insurers may refuse to pay … claims by reason only of acts which occurred after the contract was entered into. Precisely how the Policy produced that effect is not to the point": at [27].
Relying upon these principles, the appellants contend that s 54 of the Insurance Contracts Act precludes the respondent from refusing to pay the appellants' claims relying upon s 103BB(3) of the Home Building Act. They say that s 54: "takes into account statutory provisions that give directions to the parties that require or enable them to act differently to how they can act under the relevant contract of insurance".
First, they say that this flows from the language of s 54, which directs attention to the effect of a contract of insurance. They say that this indicates that Parliament intended the application of s 54 to turn upon the effect of a contract of insurance, including having regard to statutory regulation, rather than merely upon the effect of the terms of a contract of insurance. They also rely upon Highway Hauliers at [27], set out above at [170]. In this regard, the appellants contend that it does not matter that that effect is brought about by operation of a statutory provision, because the "effect of a contract of insurance" includes the impact which s 103BB(3) of the Home Building Act has on the appellants' ability to make a claim under the Policy.
I would reject this contention. The language of s 54 focusses upon contractual, not statutory, effects. Parliament's choice to direct attention to the "effect of" a contract of insurance, rather than to the "terms of" the contract of insurance, is most readily explained on the basis that Parliament was seeking to ensure that it was the substance, not the form, of the contract of insurance that was the focus of s 54. It does not suggest that Parliament intended statutory regulation of the circumstances in which a claim can be made, such as that provided by s 103BB(3) of the Home Building Act, to fall within the ambit of s 54. On the appellants' construction of s 54, it would be engaged in any situation in which an insurer refused to pay a claim by reason of an act of the type specified, irrespective of whether that refusal was premised upon contract or statute. Had that been Parliament's intention, it would be expected that it would have said so in clear terms. In my judgment the appellants' proposed construction unduly strains the language of s 54, which in terms speaks of "the effect of a contract of insurance".
Second, the appellants contend that the "key words" in s 54 which support their contention are "would, but for this section, be …" in the second line of s 54. Those words make it clear, they say, that the "effect of a contract of insurance" for the purposes of s 54 can include the supervening impact of legislation. Thus, they submit, s 103BB of the Home Building Act alters the effect of the contract of insurance as the word "effect" is properly construed in s 54(1) of the Insurance Contracts Act. The appellants are correct that the words "would, but for this section" indicate that Parliament was careful to ensure that the effect that s 54 would itself have did not operate to preclude its own operation. However, the inclusion of the words "but for this section" do not suggest that Parliament intended the effect of other statutory provisions upon an insurer's ability to refuse a claim to engage s 54. In light of the matters referred to above, and in particular the fact that Parliament clearly specified that s 54 operated having regard to the "effect of a contract of insurance", the better view is that the words "but for this section" were included in s 54 out of an abundance of caution rather than to signal that s 54 is engaged where an insurer's refusal to pay is premised upon statute and not upon the terms or effect of the contract of insurance itself.
Third, the appellants seek to support their contention by reference to FAI v Australian Hospital Care at [37], where McHugh, Gummow and Hayne JJ said: "The difficulty with referring to events as 'wholly external to the policy' is that no question about the effect of a contract of insurance can ever be asked in isolation from external facts and circumstances. The question is inevitably about the application of the contract in the light of certain real or hypothesised facts and circumstances. Those facts and circumstances will always be wholly 'external' to the policy".
This passage does not, however, suggest that statutory regulation on the ability of an insured to make a claim under an insurance contract falls within "the effect of a contract of insurance" in s 54 of the Insurance Contracts Act. Rather, it suggests, uncontroversially, that the effect of a contract of insurance must take into account the factual context in which the contract operates.
Fourth, the appellants contend that the primary judge placed "significant reliance" on the decision of Chesterman J in McInally but that that was a "materially different case". To the extent that the appellants contend, in this regard, that the primary judge relied upon McInally rather than addressing the proper construction of s 103BB of the Home Building Act, that submission should be rejected. Her Honour plainly approached the issues raised by reference to the language, object and purpose of s 103BB in reaching the conclusion at J[67] set out at [80] above.
Moreover, whilst the primary judge at J[70] held that the reasoning in McInally and that of Bergin J in Gosford City Council v GIO General Ltd [2002] NSWSC 511 at [37]-[38] ("Gosford") "applies here", her Honour continued: "Section 54 does not apply to ameliorate the effect of section 103BB of the Home Building Act, as the insurer is prohibited by statute from paying the plaintiffs' claim. It is not the case that 'the effect of a contract of insurance would, but for [section 54], be that the insurer may refuse to pay a claim.'" (Emphasis in original.)
Thus, the reference to the reasoning in McInally and Gosford at J[70] is clearly a reference back to her Honour's identification at J[69] that in both of those cases: "the Court's reasoning turned on the fact that section 40 [of the Insurance Contracts Act: the statutory provision in issue in that case] provided statutory relief, rather than implied a term into the contract of insurance that would be capable of attracting the operation of section 54."
Given her Honour's interpretation of s 103BB of the Home Building Act, which I have found to be correct, there is nothing erroneous in this reasoning. In particular, the reference to s 40 of the Insurance Contracts Act providing "statutory relief" should be understood simply as reflecting a distinction between statutory and contractual effects, with s 54 only being engaged by the latter. In these circumstances, any differences between the operation of s 40(3) of the Insurance Contracts Act, the statutory provision in issue in McInally and Gosford, and s 103BB of the Home Building Act, do not undermine the force of the primary judge's reasoning.
Fifth, the appellants rely upon the second reading speech for the Insurance Contracts Bill 1984 by the Honourable Minister for Trade, Lionel Bowen, in the House of Representatives on 29 May 1984: "The second report of the Law Reform Commission on insurance contracts -ALRC 20 - was completed at the end of 1982. … The case for reform was stated succinctly in paragraph 16 of ALRC 20 as follows: Insurance contracts are subject to a bewildering variety of laws. First there are principles and rules developed by the judges. Superimposed on these rules are statutes of the Imperial, State and Commonwealth parliaments. The Imperial Acts are expressed in archaic and obscure language. Many of the problems they were designed to remedy were different from those of today. State intervention has generally been piecemeal and sporadic. In some cases, it has been limited to particular types of transaction and has been enacted on a uniform basis. In others, individual States have passed legislation applying generally to deal with particular insurance problems. In many of these cases, the legislation dealing with insurance contracts has been restricted to the field of life insurance. It, too, has given rise to anomalies and uncertainties which need to be corrected. The Law Reform Commission recommended the making of a national law regulating insurance contracts that would be superimposed on, and effect reform of, existing laws. The Government has accepted this recommendation for the following reasons: Insurance, other than State insurance within the boundaries of the State concerned, is a specific Commonwealth power. The insurance industry is now organised on a national basis. The Government accepts the Law Reform Commission finding that insurance contracts are subject to a bewildering variety of laws which have given rise to anomalies and uncertainties."
The appellants submit that this indicates that the intention of Parliament was to "superimpose requirements over state law by otherwise providing". I would reject the submission that this suggests that Parliament intended s 54 to be engaged by a statutory restriction on the circumstances in which a claim may be made under an insurance contract. The extract relied upon simply indicates that Parliament considered it appropriate that a national law should be superimposed on, and effect reform of, state laws regulating insurance. It does not bear the weight the appellants seek to place on it.
It is, however, apparent from the Explanatory Memorandum referred to at [166] above, that the concern motivating the inclusion of s 54, was one arising from the differential impact arising from the various forms in which the terms of contracts of insurance were expressed. That supports a conclusion that s 54 of the Insurance Contracts Act is directed to the contractual effect of a Policy, not to the effect of a statutory regulation thereof.
Sixth, the appellants also rely upon the fact that s 57 of the Insurance Contracts Act, which deals with the payment of interest on amounts which an insurer is liable to pay under a contract of insurance, has been held to override s 94 of the Supreme Court Act 1970 (NSW) so as to deprive the court of its discretion under s 94 in the awarding of interest: NRMA Insurance Ltd v Tatt (1989) 94 FLR 339 at 355 (McHugh JA, Hope and Samuels JJA agreeing). McHugh JA found, at 355, that the "evident purpose of s 57 [of the Insurance Contracts Act] is to lay down a code for the payment of interest on insurance claims", such that s 94 of the Supreme Court Act could not validly purport to authorise the fixing of a different rate of interest. That conclusion does not support the appellants' contention that s 54 is engaged where an insurers' refusal to pay a claim is premised not upon a term of the Policy but upon a supervening legislative provision. More particularly, it does not suggest that a legislative effect, as opposed to a contractual effect, was intended to engage s 54 of the Insurance Contracts Act.
Finally, my conclusion that s 54 of the Insurance Contracts Act is not engaged by a refusal to pay predicated upon s 103BB(3) of the Home Building Act is not predicated in any way upon the question as to what is meant by "loss" in the Policy. More particularly, I would have reached the same conclusion irrespective of whether, as the appellants' contend (and I have found) "loss" under the Policy means loss occasioned by the defects such that it occurred within the period of cover, or whether, as the respondent contends, "loss" under the Policy requires the combination of defect and irrecoverability or an inability to rectify by reason of insolvency etc, in which case loss did not occur until after expiry of the period of cover. As a matter of statutory construction, the same conclusion flows as to the engagement of s 54 of the Insurance Contracts Act on either construction of the Policy. This is because, on either construction, for the reasons set out above, the insurer's refusal to pay the claim is premised upon the effect of s 103BB(3) of the Home Building Act and not upon the Policy.
In the circumstances, I would reject the appellants' contention that s 54 of the Insurance Contracts Act is engaged by the respondent's refusal to pay, in reliance upon s 103BB(3) of the Home Building Act. The primary judge did not err in this regard.
It follows that grounds 3 and 4 of the notice of appeal should be dismissed.

Is there inconsistency within the meaning of s 109 of the Constitution

In light of my conclusions as to construction, the contention that s 103BB of the Home Building Act is inconsistent with s 54 of the Insurance Contracts Act can be dealt with briefly. The appellants do not suggest that s 54 of the Insurance Contracts Act was intended to "cover the field". They thus do not advance any contention of indirect inconsistency. Rather, the contention, as concisely stated by Senior Counsel for the appellants in his oral submissions, is that: "Even … where one treats 103BB as not being directed to the effect of the contract of insurance, both provisions are addressed to the same conduct; that is, whether or not the insurer can deny indemnity in very particular circumstances. In my submission, there is an inconsistency in that sense."
In that sense, the appellants contend that s 103BB alters, impairs or detracts from the operation of Commonwealth law: Jemena Asset Management (3) Pty Ltd v Coinvest Ltd (2011) 244 CLR 508; [2011] HCA 33 at [41]-[42] as there is a "real conflict".
However, as the primary judge found at J[79], "[t]he task always at hand is to apply section 109 of the Constitution only after careful analysis of the particular laws in question to discern their true construction: Momcilovic v The Queen (2011) 245 CLR 1 at [245] (Gummow J)." Given, as I have found, that s 103BB does not modify the terms or effect of the contract of insurance, but operates by way of supervening statutory regulation, there is no inconsistency.
In the circumstances, ground 5 of the notice of appeal should be dismissed.

Costs

The appellants challenge the primary judge's order that they pay the respondent's costs on an indemnity basis after 20 July 2022 on the basis that the primary judge's conclusion that the respondent's offer of 20 July 2022 (the "Offer") had the necessary element of compromise was not open on the facts and involved an error of law (ground 8 of the notice of appeal) and also on the basis that her Honour's conclusion as to costs was erroneous (ground 7 of the notice of appeal). The appellants accept that a walk away offer may, depending upon the circumstances, amount to a compromise under UCPR, r 20.26. They contend, however, that the primary judge erred in placing reliance upon the decision in Foy v Calliden as supporting her Honour's conclusion that the Offer was an offer of compromise. In this regard, they accept that the outcome of Foy v Calliden was against them on this issue but say that there was no substantive reasoning in Foy v Calliden. Thus, the appellants contend, it could not bear on the question whether the Offer had the necessary element of compromise.
The appellants contend, further, that as they are challenging the primary judge's conclusion that the Offer was an offer with the necessary element of "compromise" to fall within r 20.26, UCPR, the threshold on appeal is the correctness standard rather than the House v The King (1936) 55 CLR 499; [1936] HCA 40 threshold applicable to a discretionary decision.
In my judgment the primary judge was correct to find that the Offer was "a reasonable compromise where the insurer was offering to forego its entitlement to costs": JC[34]. An offer to forego any right to claim costs in circumstances in which proceedings have been ongoing for some time has the character of a genuine offer of compromise: see eg, in the context of appellate proceedings, Ye v Chen (No 2) [2023] NSWCA 9 at [4] (Macfarlan, Meagher and Mitchelmore JJA). There was thus the necessary element of compromise in the Offer. In these circumstances, it is unnecessary to decide which standard of appellate review is applicable. There was no error.
As is apparent from the summary of the primary judge's reasoning in the costs judgment, her Honour relied upon a number of matters over and above the judgment in Foy v Calliden in support of the conclusion that her Honour was not satisfied that the Court should make an order other than that provided under UCPR, r 20.26. Her Honour's reliance upon Foy v Calliden was in support of an uncontroversial conclusion that this was not "unchartered territory": JC[33]. Moreover, Hatzistergos DCJ in Foy v Calliden recorded the defendant's contention in that case that "ss 103BA and 103BB of the [Home Building Act] sit outside the operation of s 54 of the [Insurance Contracts Act]": at [108]. His Honour then found that the 2011 amendments to the Home Building Act did not amend the policy terms: at [115], and that s 54 of the Insurance Contracts Act was not engaged where there was non-compliance with the notification requirement in s 103BB of the Home Building Act: at [116]. In the circumstances, her Honour did not err in finding that, having regard to Foy v Calliden, this was not unchartered territory. Together with the other matters upon which her Honour relied, her Honour's conclusion was correct.
As this was the only matter relied upon in support of the contention that her Honour's discretion as to costs miscarried, it follows that both grounds 7 and 8 of the notice of appeal should be dismissed.

Conclusion

No submissions were made by either party as to the costs of the appeal. There is thus no reason to depart from the usual order.
In the circumstances, the following orders should be made: 1. The appeal is dismissed. 2. The appellants are to pay the respondent's costs of the appeal.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 09 October 2024

Building Services Corporation Legislation Amendment Act 1996(NSW)

Home Building Amendment (Insurance) Act 2002(NSW)

Home Building Amendment (Insurance) Act 2009(NSW)

Home Building Amendment Act 2011(NSW)

Self Insurance Corporation Amendment (Home Warranty Insurance) Act 2010(NSW)

Home Building Regulation 2004(NSW)

Insurance Contracts Act 1989(Cth)

(2023) 111 NSWLR 550

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