Fair Trading Administration Corporation v Owners of SP54421 & Anor [2003] NSWSC 338 | Case summary

Fair Trading Administration Corporation v Owners of SP54421 & Anor [2003] NSWSC 338 | Case summary | Zoe

[3]

1 This is purportedly an appeal on a question of law from a decision of the Fair Trading Tribunal of New South Wales, pursuant to s.61(1) of the Fair Trading Tribunal Act 1998 (NSW). 2 This matter arises in the following way. The plaintiff is a corporation charged with the duty of administering an insurance scheme ("the Insurance Scheme") established by s.91(1) of the Home Building Act 1989 (NSW) ("the Act"). The purpose of the Scheme was to indemnify homeowners in respect of defective work performed by licensed builders. The terms of the Insurance Scheme were as set out in Regulation 33 of the Regulations under the Act, and in Form 4 thereof. 3 The first defendant is the owner of an apartment building at The Entrance, construction of which was completed in April 1997. On 12 June 1998, the first defendant lodged a complaint with the Department of Fair Trading against the builder of the apartment block in relation to various defects in the construction of the building. On 13 September 1999 the first defendant lodged an insurance claim form with the Department of Fair Trading in respect of the cost of rectifying those defects. 4 On 22 May 2000 the plaintiff declined that insurance claim on the ground that the builder which carried out the work was not a licensed builder. On 21 June 2000 the first defendant lodged an application to the Fair Trading Tribunal in relation to the plaintiff's decision of 22 May 2000. That application was by way of appeal against the plaintiff's decision to refuse the first defendant's claim under the policy on the ground which it had stated. 5 The appeal to the Tribunal was pursuant to s.85(d) of the Act. That section gives a right of appeal to the Tribunal by a claimant under the Insurance Scheme aggrieved by any decision of the plaintiff relating to that insurance. The grounds of the first defendant's appeal were confined solely to the plaintiff's refusal to indemnify under the Insurance Scheme on the ground that the builder who had carried out the original work was not the holder of the requisite licence under the Insurance Scheme. 6 It appears that on 6 June 2001, when the appeal came on for hearing before the Tribunal, discussions took place between the representatives of the plaintiff and the first defendant, which resulted in a compromise of sorts. It was agreed that the plaintiff would pay to the first defendant the sum of $374,957. That compromise was reached, so I am informed, because it was discovered by the plaintiff that the builder who had carried out the original work was, in truth, appropriately licensed within the meaning of the Insurance Scheme. 7 The amount to be paid under the compromise was calculated by reference to experts' reports setting out the nature of the defective work and quotations received from builders for the carrying out of that work. At the time the compromise was reached, the first defendant had not entered into any contract for the carrying out of rectification work; it had not accepted any of the quotes. While the parties agreed upon the precise amount which the plaintiff would pay to the first defendant in compromise of the first defendant's claim under the Insurance Scheme, they failed to agree upon the time at which the payment should be made. 8 The first defendant was of the view that it should be paid the whole of the agreed amount forthwith. The plaintiff was of the view that the amount to be paid should be paid only at such times as the first defendant became liable to pay various amounts to builders in respect of the cost of rectification work actually done. In that state of disagreement in the negotiations it seems that the parties went back before the Tribunal and sought that the Tribunal make a decision as to when the appropriate time for payment should be. 9 The Tribunal, constituted by a member, Mr Baker, decided that there was nothing in the policy document, that is, the terms of the Insurance Scheme as constituted by the Regulations under the Act and Form 4 thereunder, which indicated how payments under the Insurance Scheme were to be made. The Tribunal seemed to rely upon what was said to be a principle of established law, that an insured under an insurance policy, can "do what it likes with the settlement monies" . 10 The Tribunal was probably referring to that principle of the general insurance law which provides that where, under the particular terms of a policy, an insured is entitled to be paid its loss suffered from certain events, the insured is entitled to be paid regardless of whether the insured uses the proceeds of the claim to reinstate damaged property. 11 Mr Baker said: "After considering the arguments put forward by the parties I can see no good reason why the applicants should not receive the payment in full within 28 days. The applicants can then enter into contracts to have the repair work done as they see fit. There is no need for the respondent to have any further involvement." 12 The Tribunal then ordered the respondent, namely the present plaintiff, to pay the applicant, namely the present first defendant, the sum of $374,957 within 28 days of the order. 13 By a Summons filed on 4 July 2001 the plaintiff purportedly appealed pursuant to s.61(1) of the Fair Trading Tribunal Act from the decision of the Tribunal delivered on 6 June 2001. The only part of the decision appealed from is that part requiring payment of the agreed sum to the first defendant within 28 days of the Tribunal's decision. 14 The ground of the appeal is said to be that the Tribunal erred in law in making the order for payment within 28 days of its decision, that order not being authorised by the provisions of the Act and the Regulations thereunder. 15 When the matter came on for hearing before me today I was informed, and it so appears from the Court file, that the first and second defendants seek to take no part in the appeal. They have filed submitting appearances. Mr Lakatos appeared for the plaintiff. 16 After some discussion between Counsel and the Bench, it became a matter of concern to me as to what jurisdiction the Tribunal had purportedly exercised in making the decision which it did on 6 June 2001. The only matter before it was an appeal from a decision of the plaintiff not to indemnify under the Insurance Scheme on the ground that the relevant builder was not appropriately licensed. There was no appeal before the Tribunal as to any other decision by the plaintiff. 17 The decision which seems to have been complained of before the Tribunal on 6 June was a decision not to pay for or on behalf of the first defendant the sum agreed by way of compromise between the parties before debts had been incurred in relation to the actual carrying out of rectification work. However, as I have said, that was not a decision the subject of any appeal to the Tribunal. It appears that that issue had arisen because of disagreement between the parties on 6 June in their endeavours on that day to negotiate a settlement of the proceedings as a whole. 18 It seems to me that there was no appeal on that issue properly before the Tribunal on 6 June within the meaning and operation of Pt 5 of the Act. Accordingly, it seems to me that the Tribunal lacked jurisdiction to make the decision which it did as to when the plaintiff should pay to the first defendant an amount agreed between them by way of compromise. The Tribunal was making neither a consent order in the appeal (because all the terms had not been agreed) nor was it deciding the appeal. The Tribunal was, in effect, writing a term into the agreement for compromise which had otherwise been concluded between the parties. The decision of the Tribunal, which is not a court of record, was made without jurisdiction and is therefore a nullity. 19 In those circumstances, an appeal within s.61(1) of the Fair Trading Tribunal Act cannot lie to this Court. The only way in which the matter can be properly brought back before this Court, in my view, is if the first defendant were to lodge an appeal under Pt.5 of the Act against the decision of the plaintiff not to pay the amount of the compromise unless and until actual liability has been incurred by the first defendant in respect of the costs of building work carried out. If the Tribunal decides adversely to a party in respect of that appeal, that party may then appeal to this Court pursuant to s61 of the Fair Trading Tribunal Act . 20 Notwithstanding that the appeal to this Court has gone off on a technicality, it may be helpful to express my views about the construction of Clause 5 of the Insurance Scheme constituted by the Regulations under the Act, as that matter has been argued before me this morning. These remarks are, of course, purely obiter. The question which seems to have been agitated, although apparently more by implication than expressly, before the Tribunal on 6 June 2001, was whether the plaintiff was obliged to indemnify a beneficiary, as defined in the Regulations, prior to the beneficiary actually incurring a liability for the cost of rectification work: 21 The provisions of Clause 5 of Schedule 1 are as follows: " Losses indemnified under the Scheme (1) Subject to the maximum payment provisions (clause 6), the method of assessing claim benefits (clause 8) and the exclusions specified in this Scheme (clause 9), the Corporation will indemnify the following losses reasonably incurred by a beneficiary in respect of residential building work: (a) the deposit paid by the beneficiary under a contract to do insured building work, where the work has not commenced; (b) the difference between the total payment made by the beneficiary under a contract to do insured building work and the reasonable market cost of the work done in accordance with the contract; (c) the cost of completion of insured building work done under a contract; (d) losses in rectifying defects in insured building work or insured owner-builder work due to: (i) bad workmanship; or (ii) faulty or unsuitable materials; or (iii) failure to comply with plans and specifications; or (iv) faulty design used by the contractor in design-and-construct contract; or (v) faulty design provided by the beneficiary when the design fault should have been obvious to a reasonably competent holder of an appropriate licence; or (vi) failure to comply with legislation or subordinate legislation applicable to the work; (e) losses in repairing: (i) damage caused to the dwelling by a defect in the insured building work or insured owner-builder work; or (ii) damage to the dwelling in or on which insured building work is done, being damage caused by the holder of the licence doing the work under a contract or by that holder's agents or employees. (2) Claims may be made under one only of the heads of claim in subclause (1)(a), (b) or (c), and each applies only when the contract to do insured building work is rescinded or determined, otherwise than by the fault of the beneficiary, before the work has been completed. (3) For the purposes of subclause (1)(b), the reasonable market cost of the work done in accordance with the contract is that cost assessed at the time the contract was rescinded or determined." 22 It seems to me on the true construction of Clause 5 (1) of the Insurance Scheme that the plaintiff is required to indemnify only in respect of liabilities which have actually been incurred in respect of rectification work or in respect of the other matters referred to in subparagraphs (a) to (e) of the Clause. In my view, "losses", where used in that clause, really means "liabilities". The liabilities are not contingent liabilities, but actual liabilities. 23 The mere fact that a beneficiary enters into a contract with a builder to carry out rectification work gives rise at that point only to a contingent liability in respect of the amount to be paid under the contract. If the work under the contract is never done, the beneficiary is never liable to make payment to the builder. When the work is done, such as to entitle the builder to payment, the contingent liability which came into existence upon the entry into the contract for the work matures into an actual liability. It is, in my view, only actual liabilities in respect of which the plaintiff is required to indemnify, not contingent liabilities. 24 This emerges, in my view, from a reading of the Clause as a whole. I refer to the concept of indemnification, which does not in its ordinary meaning require an indemnifier to pay or save harmless the person having the benefit of the indemnity unless and until the person having that benefit has incurred an actual liability for which the indemnifier is responsible. 25 Secondly, I draw attention to the provisions of sub-paragraph (d), which refer to losses "in rectifying defects" . Those words suggest that rectification work must actually have been done. To a similar effect are the words of sub-paragraph (e) which refer to "losses in repairing" . These words also suggest that repair work must actually have been done. 26 In my view, and again I emphasise that these remarks are purely obiter, the plaintiff would not have been required to make any payment to or for the benefit of the first defendant under the provisions of the Insurance Scheme until such time as the first defendant had become liable to make payment to a building contractor in respect of repair work in accordance with the terms of the relevant contract between the first defendant and the contractor. 27 In the absence of jurisdiction in the Fair Trading Tribunal in making the decision which it did on 6 June, I must dismiss the plaintiff's Summons on the ground that the appeal is incompetent. However, in the circumstances of the case there will be no order as to costs. - o0o -

Fair Trading Administration Corporation v Owners of SP54421 & Anor

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Judgment (4 paragraphs)

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