Eastern Creek Holdings Pty Limited v Axis Speciality Europe Limited

Eastern Creek Holdings Pty Limited v Axis Speciality Europe Limited - [2010] NSWSC 840 - NSWSC 2010 case summary — Zoe

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2010/138398 EASTERN CREEK HOLDINGS V AXIS SPECIALTY EUROPE LIMITED JUDGMENT INTRODUCTION 1 HIS HONOUR: The plaintiff moves by Summons for an order under s 6(4) of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW) ("the Act") for leave to commence proceedings against an insurer. 2 Sections 6(1) and (4) of the Act provide as follows: Amount of liability to be charge on insurance moneys payable against that liability (1) If any person (hereinafter in this Part referred to as the insured) has, whether before or after the commencement of this Act, entered into a contract of insurance by which the person is indemnified against liability to pay any damages or compensation, the amount of the person's liability shall on the happening of the event giving rise to the claim for damages or compensation, and notwithstanding that the amount of such liability may not then have been determined, be a charge on all insurance moneys that are or may become payable in respect of that liability. … (4) Every such charge as aforesaid shall be enforceable by way of an action against the insurer in the same way and in the same court as if the action were an action to recover damages or compensation from the insured; and in respect of any such action and of the judgment given therein the parties shall, to the extent of the charge, have the same rights and liabilities, and the court shall have the same powers, as if the action were against the insured: Provided that, except where the provisions of subsection (2) apply, no such action shall be commenced in any court except with the leave of that court. Leave shall not be granted in any case where the court is satisfied that the insurer is entitled under the terms of the contract of insurance to disclaim liability, and that any proceedings, including arbitration proceedings, necessary to establish that the insurer is so entitled to disclaim, have been taken. FACTUAL BACKGROUND The Design and Construction Contract 3 On about 2 August 2006, the plaintiff as Principal entered into a Design and Construction Contract ("the Contract") with Seana Constructions Pty Ltd as Contractor ("the Insured") under which the Insured was to carry out for it the design and construction of a hotel at Jack Brabham Drive, Eastern Creek, New South Wales.

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5 Clause 2 of the Contract contains the following definitions: 'Contractor's Design Obligations' means all tasks necessary to design, specify and carry out the works required by the Contract, including but not limited to, performing work under the Contract, preparation of the Design Documents and work under the Contract and, if the documents stated in Annexure Part A as describing the Principal's Project Requirements include a preliminary Design, developing the Preliminary Design. 'Design Documents' means the drawings, specifications and other information, inspections, samples, models, patterns and the like required by the Contract and created (and including, where the context so requires, those to be created by the Contractor) for the construction of the Works. 'Work under the Contract" means the work which the Contractor is or may be required to execute under the Contract and includes the Contractor's Design Obligations, variations, remedial work, Constructional Plan and Temporary Works. The Interior and Exterior Finishes Schedules set out specifically the principles, extent and requirements for finishes under the Contract. 'work under the Contract' excludes registration of strata plan and payment of strata fees, submission to Lands Title Office, payment of all authority fees, approvals and applications fees, payment of long service levies and site allowances, statutory authority fees, monopoly fees and contributions, external swimming pool & water features, provision of electrical substation, amendments to external power connection & connection of power to MSB in the building, water and sewerage reticulation & connection of the same into the building, access road construction and works outside the site boundary, land taxes, rates, the valuer, aboriginal reports, all Consultants fees, QS or legal fees for the project, inground services diversions or encasements, all works to future detail including items noted as 'provision(s) for future' and/or works in connection with the proposed additional hotel building within the site boundary. 'Works' means the whole of the work to be executed in accordance with the Contract, including variations provided for by the Contract, which by the Contract is to be handed over to the principal. 6 Clause 42 of the Contract provides relevantly as follows: 42 CERTIFICATES AND PAYMENTS 42.1 Payment Claims, Certificates, Calculations and Time for Payment At the times for payment claims or upon completion of the stages of the work under the Contract stated in Annexure Part A and upon the issue of a Certificate of Practical Completion and within the time prescribed by Clause 42.5, the Contractor shall deliver to the Superintendent claims for the payment supported by evidence of the amount due to the contractor and such information as the Superintendent may reasonably require. Claims for payment shall:

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We shall not be liable under this Policy to provide indemnity in respect of any Claim against the Insured, directly or indirectly arising from any defect or alleged defect to anything manufactured, supplied, installed, fabricated, assembled, erected, treated, serviced, repaired or maintained by the Insured except as arising directly from the Insured's designs, drawings or specifications made by a tertiary qualified engineer or person with similar or higher qualifications by reason of education and experience. Furthermore We shall not be liable under this Policy to provide indemnity in respect of any Claim against the Insured directly or indirectly arising from the supervision of construction, installation, fabrication, assembly, erection, treatment service, repair or maintenance unless such supervision is as a specifically contracted Construction Manager or Project Manager. Project Managers Endorsement We shall not be liable under this Policy to provide indemnity in respect of any Claim against the insured or any claim by the Insured for indemnity under this Policy arising out of the Insured's Professional Business as a project manager directly or indirectly arising from: (a) any failure to effect or maintain insurance; or (b) actual or alleged advice in relation to insurance, finance, accounting or tax matters; or (c) the provision of, application for, or any related representations for finance; or (d) any estimate of construction cost or cost estimate being exceeded except where such estimates have been completed by a qualified quantity surveyor; or (e) any loss or damage which would normally be the responsibility of the building contractor; or (f) the insolvency of any person or entity; or (g) the ownership, use, occupation or leasing of property by the Insured, or on the Insured's behalf; or (h) the insolvency of any person or entity; or (i) the ownership, use, occupation or leasing of property by the Insured, or on the Insured's behalf; or (j) Personal Injury of any person occurring in the course of their employment with the Insured (either as the Insured's Employee or as a sub-contractor to the Insured).

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Signed by an authorized officer of Dexta Corporation Pty Ltd as agent for and on behalf of the insurers who severally agree, each for its own part and not one for another, for the percentage set against its name, to indemnify the insured in accordance with the terms contained herein and endorsed hereto. The plaintiff's claim against the Insured 18 On 2 September 2008, the plaintiff gave the following written notice to the Insured: This letter is to inform you that the Principal (Eastern Creek Holdings) has become aware of significant Design Defects in respect of the Chifley Hotel, Eastern Creek. These Design Defects may result in the Principal suffering damages in the future, and as such the Principal reserves its rights in respect of the Contract, at Equity and at Law. THE PROPOSED PROCEEDINGS 19 By Summons sued out of this Court on 3 June 2010 the plaintiff seeks leave pursuant to s 6 of the Act to file and serve an Amended Technology and Construction List Statement, which is (excluding formal part) set out in the Annexure to this judgment. The law 20 The parties were agreed that to obtain the leave it seeks, the plaintiff must show that: a firstly, there is an arguable case against the Insured; b secondly, there is an arguable case that the Policy responds; and c thirdly, there is a real possibility that if judgment is obtained, the Insured would not be able to meet it: see Bede Polding College v Limit (No 3) Ltd [2008] NSWSC 887 at par 6. The issues 21 The defendant accepts that the plaintiff has satisfied the first and third requirements but puts, for two reasons, that the plaintiff has fallen short of satisfying the second, namely that the Policy arguably responds. 22 First, it puts that: a by virtue of cl 1.1 the Policy responds only to claims arising from acts, errors or omissions committed by the Insured in the conduct of the Professional Business; b Professional Business means the business of "Project/construction managers" as described in the Schedule; c the alleged "failure" of the Insured pleaded in the proposed Amended Technology and Construction List Statement "plainly does not arise out of project/construction management"; d accordingly, the Policy does not respond to the claim as framed. 23 Second, it puts that no claim was made or circumstances notified in the Period of Insurance as required by cl 1.1. It puts that the 2 September letter did not satisfy the requirements of cl 6.1 of the Policy because it was not a "demand for compensation" within the meaning of cl 6.1 of the Policy. 24 A submission that the evidence was insufficient for the Court to be satisfied that the plaintiff's cause of action accrued within the Period of Insurance was correctly not pressed. CONSIDERATION 25 It is to be stressed that the plaintiff must do no more than show that it is arguable that the Policy responds. Whether it in fact does so is a matter for final hearing. 26 For the reasons which follow, I consider that the plaintiff has met the required threshold, and that leave should accordingly be given as prayed. Professional Business 27 It is neither possible nor appropriate to determine at this stage of the proceedings whether the conduct complained of in the proposed Amended Technology and Construction List Statement (including the asserted misleading and deceptive conduct) amounts to activities in the conduct of the business of project/construction managers, within the meaning of those words in the Policy. The meaning to be attributed to those words may be affected by evidence. It will be informed by other provisions of the Policy (including the Schedule and the Proposal) so as to give the entirety of the instrument congruent operation: Wilkie v Gordian Runoff (2005) 221 CLR 522. 28 For example, the endorsements to the Policy refer to and contemplate the Insured supplying, installing, fabricating, assembling and erecting. This may be relevant to ascertaining, objectively, what the parties meant by the business of project/construction managers. 29 The Insured was charged with all tasks necessary to design, specify and carry out the Works. The Works are construction work forming part of a designated project. Clause 42.1(c) of the Policy required the Insured to make progress claims supported by appropriate certifications. 30 For present purposes it is sufficient, as it clearly is, that the activities of the Insured out of which the claim against it arise, are capable of being viewed as part of the conduct of carrying on the business of project/construction managers.

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36 This section will preclude the defendant from being relieved of liability under the Policy if the 2 September letter constitutes notice in writing "of facts that might give rise to a claim" against the defendant. 37 I consider it to be clearly arguable that it does. The fundamental substratum of fact out of which the plaintiff's claims arise are the existence of the Contract and the Insured's failures which brought about design defects. The claim based on misleading and deceptive conduct concerns certificates which cover claimed monies for the same defective work. The 2 September letter identifies the Contract and the fact that significant design defects had been identified. In my view, it is clearly arguable that this is sufficient notice of facts that might give rise to a claim (or the claims now made). 38 Accordingly, I am satisfied that the plaintiff should be given the leave it seeks. 39 In addition to s 40(3), the plaintiff drew attention to s 54 of the Insurance Contracts Act 1984 (Cth), which provides: 54 Insurer may not refuse to pay claims in certain circumstances (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. (2) Subject to the succeeding provisions of this section, where the act could reasonably be regarded as being capable of causing or contributing to a loss in respect of which insurance cover is provided by the contract, the insurer may refuse to pay the claim. (3) Where the insured proves that no part of the loss that gave rise to the claim was caused by the act, the insurer may not refuse to pay the claim by reason only of the act. (4) Where the insured proves that some part of the loss that gave rise to the claim was not caused by the act, the insurer may not refuse to pay the claim, so far as it concerns that part of the loss, by reason only of the act. (5) Where: (a) the act was necessary to protect the safety of a person or to preserve property; or (b) it was not reasonably possible for the insured or other person not to do the act; the insurer may not refuse to pay the claim by reason only of the act. (6) A reference in this section to an act includes a reference to: (a) an omission; and (b) an act or omission that has the effect of altering the state or condition of the subject-matter of the contract or of allowing the state or condition of that subject-matter to alter.

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ANNEXURE A. NATURE OF DISPUTE

The plaintiff is a developer, owner and operator of a hotel.
The defendant's insured, Seana Constructions Pty Ltd ("Seana") is a construction contractor who provided design and construction services to the plaintiff.
The design services provided by Seana were provided in breach of contract and negligently.
In addition, Seana submitted progress claims from time to time and in so doing, represented from time to time, that the work and services provided by it were provided in accordance with the agreement between the plaintiff and Seana. Those representations were misleading. B. Issues likely to arise
Whether the design services provided by Seana were provided in breach of contract and negligently.
Whether the progress claims issued by Seana from time to time were misleading and deceptive.
The quantum of the loss and damage suffered by the plaintiff. C. Plaintiff's contentions
On or about 2 August 2006 the plaintiff and Seana Constructions Pty Ltd ("Seana") (under external administration) entered into a Formal Instrument of Agreement ("the Agreement") by which the parties acknowledged, inter alia: (a) that the plaintiff wishes to have carried out the design and construction of a hotel carparking and external works all in accordance with the documents comprising the contract; and (b) Seana has offered to carry out the works referred to in (a).
The Agreement further provided that the following documents shall comprise the contract between the plaintiff and the defendant: (c) AS4300-1995 General Conditions of Contract (as amended) And Annexure Parts A, B, C, D, E and F annexed; and (d) Drawings and documents in the Principal's Project Requirements listed in Schedule 1; ( "the Contract" ).
The Contract contained, inter alia, the following terms and conditions: (a) Seana shall execute and complete the work under the Contract in accordance with the requirements of the Contract (cl 3.1); (b) Seana warrants to the plaintiff that it is suitably qualified and experienced, and shall exercise due care, skill and diligence in the execution and completion of the work under the Contract (cl 4.1(a); (c) Seana has examined, carefully checked the Preliminary Design included in the Principal's Project Requirements and such Preliminary Design is suitable, appropriate and adequate for the purpose stated in the Principal's Project Requirements (cl 4.1(c)); (d) Seana shall execute and complete the Contractor's Design Obligations and produce the design documents to accord with the Principal's Project Requirements (cl 4.1(e)); and (e) Seana shall execute and complete the work under the Contract in accordance with the Design documents so that the works, when completed, shall be fit for their stated purpose and comply with all the requirements of the Contract and all legislative requirements (cl 4.1(e)).
Clause 2 of the Contract defined the following expressions as follows: (a) Contractor's Design Obligations - all tasks necessary to design, specify and carry out the Works required by the Contract, including but not limited to performing work under the Contract, preparation of the Design Documents and work under the Contract and, if the documents stated in Annexure Part A as describing the Principal's Project Requirements include a Preliminary Design, developing the Preliminary Design; (b) Design Documents - the drawings, specifications and other information, inspections, samples, models, patterns and the like required by the Contract and created (and including, where the context so requires, those to be created by the defendant) for the construction of the Works; (c) Preliminary Design - any preliminary design of the Works included in the documents stated in Annexure Part A as describing the Principal's Project Requirements; (d) Principal's Project Requirements - the written summary or outline of the Principal's requirements for the Works described in the document stated in Annexure Part A including the stated purpose for which the Works are intended, the Principal's design, timing and cost objective for the Works, and where stated in Annexure Part A, a preliminary design.
By virtue of the matters pleaded above Seana owed the plaintiff a duty of care to carry out its obligations under the Contract with due skill and care.
In breach of the Contract and its breach of its duty of care to the plaintiff, Seana: (a) failed to exercise due care, skill and diligence in the execution and completion of the Work under the Contract; (b) failed to execute and complete the Contractors' Design Obligations and produce the Design Documents to accord with the Principal's Project Requirements;

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Particulars (a) The side flashings to the windows were designed defectively causing water ingress problems. (b) the defendant produced designs to construct the external walls of the hotel using the "Dincel" construction system which was not suitable or appropriate or adequate for the purpose stated in the Principal's Project Requirements, and it has resulted in water ingress and as a result of its poor insulation properties has caused increased costs for the air conditioning systems; (c) the defendant designed a flat roof system in lieu of a pitched roof; (d) the defendant failed to provide an adequate design for the flat roof system it designed which has lead to water ingress through the concrete roof slab at the roof construction joints and into the Dincel walls through the top of the roof parapets; (e) the designs provided by the defendant failed to specify control joint details suitably located on the external façade which has caused the cracking to the wall render; (f) the defendant produced designs for the hotel to be cladded with lightweight blueboard cladding in lieu of concrete construction which has caused premature failure of the wall projections on the building façade, requiring increased maintenance and reduced the building lifespan. 8. By virtue of the matters set out above, the plaintiff has suffered loss and damage. Particulars (a) Defect rectification costs; (b) loss of income; (c) diminution in value of the hotel. 9. From or about 1 December 2006 mid September 2007 to about early September 2008 15 April 2008 Seana, in trade and commerce, issued the plaintiff with progress claims/tax invoices from time to time ('the claims"). 10. Each of the claims represented that the work carried out was of a certain value and the extent to which the work was completed ("the representations"). 11. The representations were misleading and deceptive within the meaning of section 52 of the Trade Practices Act 1974 in that they overstated the value of the work carried out and completed. 12. By reason of the representations the plaintiff made payments to Seana in accordance with (or largely in accordance with) the claims. 13. By virtue of the matters set out at paragraphs 9 to 12 above the has plaintiff suffered loss and damage.

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