Fair Trading Administration Corporation v Sleigh [2000] NSWCA 73 | Case summary

1 THE COURT: This is an appeal against a District Court judgment which summarily dismissed a claim made by the appellant against the respondent under subs 98(1) of the Building Services Corporation Act 1989 (the "BSC Act"). By subs 98(1) of the BSC Act, the appellant is entitled to recover "from the person by whom the residential building work concerned was done" an amount which the appellant has paid to a person who suffered loss from the "bad workmanship" of "the person by whom the residential building work concerned was done". 2 The respondent is a builder who performed residential building work for Virginia and David Davies (the "owners") under a contract dated 22 November 1991. 3 It is common ground that the owners are unable to recover any liabilities which they incurred due to his bad workmanship from the respondent because, in 1994, an arbitrator rejected their claim against the respondent on the basis that he had not been given a notice requiring him to remedy the defects alleged by the owners, as required by their contract with the respondent. 4 Pursuant to a claim made by the owners on 3 February 1996, the appellant paid them the amount of their alleged loss on the basis that they were entitled to indemnity in accordance with s 91 of the BSC Act and Form 4 in Schedule 1 of the Building Services Corporation Regulation 1990 (the "BSC Regulation"). 5 According to the respondent, the appellant's District Court action to recover the amount which it paid to the owners from the respondent was correctly dismissed even if the owners reasonably incurred liabilities in rectifying defects due to his bad workmanship. 6 The appellant is entitled to recover the amount which it paid to the owners from the respondent if, but only if, that amount was "paid … under BSC Insurance" within the meaning of subs 98(1) of the BSC Act. The appellant conceded, correctly in our opinion, that the phrase "paid … under BSC Insurance" means "[properly] paid … under BSC Insurance". Compare Builders Licensing Board v Inglis (1985) 1 NSWLR 592. Whether the appellant should permit the person who performed residential building work to be heard before making a payment on a claim for "BSC Insurance" does not arise for consideration on this appeal. 7 "BSC Insurance" relevantly only entitles an owner to be indemnified in respect of "losses reasonably incurred in respect of residential building work … in rectifying defects … due to … bad workmanship." The respondent's first submission was that the payment by the appellant to the owners was not made "under BSC Insurance" because it was not paid in respect of any loss by the owners. According to the respondent, the owners did not have any loss because, by reason of the arbitrator's award, they had no claim against the respondent for the cost of rectifying defects due to his bad workmanship. 8 There is no merit in that submission. The arbitrator did not reject the owners' claim against the respondent on the basis that they did not reasonably incur losses "… in rectifying defects.. due to ..[the respondent's] bad workmanship". For present purposes, it must be accepted that there was bad workmanship by the respondent which needed rectification at the owners' expense; i.e., caused them loss, which, by reason of the arbitrator's award, they were unable to recoup from the respondent.

9 The respondent's principal submission was that, even if the payment by the appellant to the owners was within the literal terms of subs 98(1) of the BSC Act, the operation of the subsection is limited by reference to the doctrine of subrogation as applied in insurance law. In an insurance context, "subrogation in the ordinary sense" refers to "an insurer standing in the place of an insured to enforce an outstanding right of action". Transport Accident Commission v CMT Construction of Metropolitan Tunnels (1988) 165 CLR 436. See also Kern Corporation Limited v Walter Reid Trading Pty Ltd (1987) 163 CLR 164 An "insurer" cannot enforce a right of action in the exercise of a right of subrogation if its "insured" could not do so. Sydney Turf Club v Crowley (1971) 1 NSWLR 724, 734 (affirmed (1972) 126 CLR 420); VACC Insurance Co Ltd v BP Australia Ltd [1999] NSWCA 427. According to the respondent, in order to succeed in a claim under subs 98(1) of the BSC Act in respect of a payment which it has made to a person for whom residential building work was done, the appellant must prove that the person who performed the residential building work would have been liable to the person for whom the work was done if the former had been sued by the latter in respect of the loss against which the appellant has indemnified the person for whom the residential work was done. In the present matter, the respondent was not liable to the owners by virtue of the arbitrator's award. 10 Even if the appellant and the owners can be equated to "insurer" and "insured" for this purpose, there is a fundamental flaw in the respondent's approach. "The whole controversy illustrates the danger which attends the formulation of principles and doctrines and all reasoning a priori in matters which in the end are governed by the meaning of the language in which the Legislation has expressed its will."Country Road Boards v Neale Ads Pty Ltd (1930) 43 CLR 126, 135; Foley v Padley (1984) 154 CLR 349, 364. 11 The terms of subs 98(1) do not merely give statutory effect to "subrogation in the ordinary sense" in an insurance context. Cf. Builders Registration Board of Qld v Rauber (1983) 57 ALJR 376. No reference is made in the subsection to any issue of liability between "the person by whom residential building work concerned was done" and a person who has allegedly suffered loss from the other's "bad workmanship". The respondent's argument would require a major qualification to be implied into subs 98(1). 12 Although the respondent was able to point to practical difficulties which might arise in some circumstances if subs 98(1) is given its plain meaning, it cannot be said that the rejection of the respondent's argument leads to results which are incongruous, capricious or irrational or defeats the objects of the BSC Act. Cooper Brookes (Wollongong) Pty Ltd v FCT (1981) 147 CLR 297; Parramore v Duggan (1995) 132 ALR 40. On the contrary, the legislative policy underlying subs 98(1) is concerned with protecting those adversely affected by bad workmanship in residential building work and making those responsible for bad workmanship in residential building work liable for the defects. 13 The BSC Comprehensive Insurance Scheme is contained in Form 4 in Schedule 1 to the Building Services Corporation Regulation 1990 and comprises a 10 page document. The beneficiaries under the Scheme, who are entitled to claim benefits under it, are defined in cl 4 (1) and comprise the owner of the land, the person other than the owner who contracted to have the residential building work done, and the successor in title to the owner of the land on which the residential building work was done. The Scheme therefore provides benefits for owners who may not be in a contractual relationship with the builder, and for successors in title, including purchasers, who would not be in such a relationship. The Regulation was passed prior to the decision in Bryan v Maloney (1995) 182 CLR 609, which decided that a professional builder may owe a duty of care in tort to a later owner of the building. 14 In addition, cl 7 (1)(b) in Form 4 permitted claims for major structural defects to be made up to 7 years after the commencement of the work, and even later if the Corporation extended time under cl 7(2). In both these situations the builder may have a complete defence under the Limitation Act 1969 to any claim by the other party to the contract. 15 In all these situations persons with no contractual rights against the builder can be beneficiaries under the Scheme and entitled to payments under cl 5 indemnifying them for losses in rectifying insured building work due, among other things, to bad workmanship. 16 In such cases s 98 (1) confers a remedy on the Corporation to recover payments made by it under this Scheme which do not depend on the existence of a legal right in the beneficiary to recover that payment from the builder. There is therefore no reason for construing the section as requiring the existence of a legal right in a beneficiary to recover the payment from the builder in other cases. The supposed limitation on the language of s 98 (1) accepted by the District Court is not supported either by the text or the context, and the section should be read in accordance with its plain meaning. 17 Contrary to the respondent's submission, it does not follow from a conclusion that subs 98(1) of the BSC Act is not limited by the doctrine of subrogation as applied in insurance law that the appellant could not recover from the owners if they were paid for any loss by both the appellant and the respondent. Collings Construction Co Pty Ltd v ACCC (1998) 43 NSWLR 131. Although the appellant's right of recovery from an owner in such circumstances has been characterised as an aspect of the doctrine of subrogation as applied in the insurance context, that has been regretted, British Traders' Insurance Co Ltd v Monson (1964) 111 CLR 86 at 94. and the appellant's right against an owner would today be more aptly based in the principles against unjust enrichment. 18 In our opinion, the arbitrator's award relied on by the respondent does not disentitle the appellant from proceeding against the respondent under subs 98(1) of the BSC Act. 19 The District Court judgment summarily dismissing the appellant's action was erroneous. The appellant is entitled to proceed with its action, in which it must prove the matters necessary for it to recover under subs 98(1) of the BSC Act. 20 The appeal should be allowed with costs, the judgment below set aside, and the respondent's application to the District Court to dismiss the appellant's action should be dismissed, with costs.

Fair Trading Administration Corporation v Sleigh

At a glance

Court

Decision date

Before

Source

Judgment (9 paragraphs)

Parties

Cases Cited (14)

Cited By (1)