I am satisfied that in this sense, the beneficiary, once the builder has failed to build in accordance with the contract, has suffered a loss and that (pursuant to clause 5(1)(d)) it is a loss that is indemnified under the scheme."
37 It appears that the Tribunal has selected its two preferred dictionary meanings of "loss" by reference to the "practical reasons" to which the Tribunal referred and not by reference to the meaning of the word "losses" ascertained from the context in which the word appears in the BSC Insurance Scheme. Further, I am unable to see how the two dictionary meanings preferred by the Tribunal throw any light on the task of construction in the present case. It is to the words of the Scheme themselves that one must go first.
38 Clause 5(1) of the Scheme provides that the Corporation "will indemnify the following losses reasonably incurred … in respect of residential building work" . It is not permissible to stop at these introductory words, as Mr Campbell does in his third submission, and to say that the words "losses … in respect of residential building work" must be construed widely. Such a contention simply ignores the words "the followin g losses" and disregards the fact that the only losses "in respect of residential building work" which are to be indemnified are such losses as are particularised in subparagraphs (a) to (e) of Clause 5(1).
39 As Clause 5(2) makes clear, the loss to be indemnified under subparagraph (a) is the loss of a deposit which has been paid under a contract where the contract has been terminated for breach by the builder in failing to commence building work. Where the builder has commenced building work but the contract has been terminated before completion of that work, the loss incurred in completion of the work is indemnified under subparagraph (c).
40 In a claim falling under Clause 5(1)(a), a loss will have been incurred by the beneficiary as soon as the builder fails to return the deposit and the contract is terminated: obviously, the beneficiary will have received nothing in consideration for payment of the deposit. Such a claim is, therefore, a claim for an existing loss.
41 A claim for indemnity under Clause 5(1)(c) is a claim which also arises where a contract has been terminated for breach by the builder but in this case the building work will have been commenced but not completed by the time of termination. Under the law of contract the beneficiary would have a right to damages against the builder for breach of contract but the measure of damages is not necessarily merely the cost of completing the building work. The beneficiary might be entitled, in addition, to liquidated damages or to consequential damages for delay and other losses reasonably within the contemplation of the parties at the time of the contract.
42 The indemnity under Clause 5(1)(c) does not, however, compensate the beneficiary for these losses. It indemnifies only in respect of a specific cost "reasonably incurred" by the beneficiary, as the introductory words of the clause require. That cost is the cost of completion of the work. One cannot say whether the cost of completion is "reasonably" incurred until one knows what is the amount of the cost and upon what particular items of work it is to be expended. As made clear by Clause 8(5), (6) and (7) to which the liability of the Corporation under Clause 5(1) is expressly made subject, it is by reference to the costs "of completing incomplete work or rectifying defective work" that the Corporation is to assess whether such costs are reasonable and therefore may be the subject of indemnity.
43 Further, one cannot say that the cost of completion, if reasonable, has been "incurred", as required by the introductory words of Clause 5, until the beneficiary is under an obligation to pay that cost. The primary meanings of "incur" are "to make oneself subject to [danger, displeasure, etc]; bring on oneself [expense, obligation, etc.]" : Shorter Oxford English Dictionary .
44 The loss which is to be indemnified under Clause 5(1)(c) is a loss which is caused when the beneficiary has "incurred" the cost of completion. To "incur a cost" does not mean only "bringing upon oneself expense" in the sense of having actually paid the cost; it includes also "bringing upon oneself the obligation" to pay the cost. Accordingly, the liability of the Corporation under Clause 5(1)(c) to indemnify arises not only in the case where a beneficiary has actually paid the cost of completion and seeks reimbursement, it arises also when the beneficiary has incurred an obligation to pay the cost of completion and seeks that the Corporation save him or her harmless from the loss which will otherwise be suffered when that obligation is discharged.
45 Where a beneficiary seeks indemnity under Clause 5(1)(c) in the form of reimbursement of a payment already made for completion of building work, the Corporation will be required to reimburse if the cost of completion was reasonable. Where the beneficiary seeks indemnity in the sense of being saved harmless from the loss arising from payments to be made in discharge of obligations incurred in completing the work, the Corporation will be required to indemnify if the obligations are shown to have been actually incurred by the beneficiary pursuant to a contract for completion of the building work and if the contractual cost of the building work is reasonable. The Corporation will discharge its obligation to save harmless the beneficiary from the obligation to pay under the contract by making the payment on his or her behalf at the time stipulated in the contract.
46 I now turn to the critical clause in this case, Clause 5(1)(d). Construed together with the introductory words of the clause, the obligation of the Corporation under Clause 5(1)(d) is to "indemnify losses reasonably incurred by a beneficiary … in rectifying defects" . When the words of the clause are read and attention is paid to Clause 8(5), (6) and (7), in my view it is plain, for the reasons I have given in relation to Clause 5(1)(c), that the losses to be indemnified are either payments already made by the beneficiary in the course of carrying out rectification work or else payments for the carrying out of rectification work for which the beneficiary has incurred a contractual obligation. In the first case, the Corporation is liable to indemnify by making reimbursement; in the second case the Corporation is liable to indemnify by saving the beneficiary harmless and making payments on his or her behalf at the time stipulated in the contract for rectification work. What is essential, however, is that the reimbursement or saving harmless be in respect of loss incurred "in rectifying defects", that is, in actually carrying out rectification work.
47 When a beneficiary discovers defects in building work requiring rectification, he or she may be said to have suffered a loss in the sense that he or she has paid for, but has not received, a building which is free from substantial defect. But that is not a loss which Clause 5(1)(d) indemnifies because the beneficiary may choose to do no rectification work. The Corporation's liability arises only when the beneficiary's loss is incurred "in rectifying", and not otherwise.
48 This construction is supported, if it needs support, by Clause 8(2) of the BSC Insurance Scheme, which provides that the Corporation may decline to pay a claim under Clause 5 where the work was rectified or completed by a person other than the original contractor without the Corporation's approval. This clause clearly predicates that work has actually been carried out and that the beneficiary claims either reimbursement of amounts already paid in consideration of that work or else indemnity in respect of a contractual obligation of the beneficiary to pay for that work.
49 The construction is further supported by consideration of the manifestly improvident consequences which would result if the Tribunal's reasoning is adopted and beneficiaries are entitled to payment out of the BSC Insurance Scheme even though they have not incurred, and never do incur, any costs in actually carrying out rectification work.
50 Clause 10 of the Scheme extends the liability of the Corporation to make payments to beneficiaries for ten years after the commencement of residential building work. By Clause 4(1)(c) "beneficiaries" include successors in title to the owner of the land on which the work was done. Clause 8(2)(c) entitles the Corporation to decline to pay a claim where an earlier claim by a beneficiary in respect of the same residential building work "has been settled or accepted by the beneficiary" , that is, where the claim has been compromised by the beneficiary. Clause 8(2)(c) does not authorise the Corporation to decline payment where the earlier claim has actually been paid by the Corporation.
51 The omission in Clause 8(2)(c) to exclude the Corporation's liability where an earlier claim for the same work has been paid makes sense if payment of the earlier claim has been made in respect of the actual completion or rectification of defective work: in such a case there would be no need to bar a subsequent claim for the same work because the defects would already have been rectified as a consequence of the Corporation paying the earlier claim. But if no rectification work had been done despite the payment of an earlier claim because the beneficiary is entitled to payment of a claim without having incurred liability for actually carrying out the work, then the Corporation could be obliged to pay successive claims for the same work by successors in title to the owner, each successive owner being under no obligation to carry out the work the subject of the claim and the payment by the Corporation. It is difficult to believe that such a result could have been intended by the legislature.
52 For these reasons, I cannot agree with the Tribunal's conclusion that the Corporation's liability to pay a claim under Clause 5(1)(d) of the BSC Insurance Scheme is not dependent and conditional upon expenditure by the beneficiary on rectification work and that the general principle of insurance law as to the insured's obligation to reinstate is applicable.
53 I cannot see that my construction of the Insurance Scheme results in any practical difficulty or unfairness to a person in the position of Mr Tebbutt. The Corporation called for quotes for the rectification work and Mr Tebbutt provided them. The Corporation decided that it accepted liability to indemnify up to the maximum amount available under the BSC Insurance Scheme, $100,000. Mr Tebbutt could have presented to the Corporation a building contract with a builder prepared to do the work, which provided for progress payments in the normal way. He could have sought the approval of the Corporation to the new builder under Clause 8(2). He could have sought a written indemnity from the Corporation both to himself and to the builder stating that, if he entered into the contract, the Corporation would indemnify him and save him harmless from the progress payments by making those payments directly to the builder on his behalf at the times and upon the conditions stipulated in the building contract. I can see no reason why the Corporation could refuse to give that undertaking, which would impose no greater obligation than it had under Clause 5(1)(d) of the BSC Insurance Scheme. I cannot see why a builder having the benefit of that undertaking would be reluctant to enter into a contract with Mr Tebbutt. The builder would be in a position very similar to that in which many builders find themselves when owners enter into building contracts on the basis that payments to the builder are to be provided by a financier upon certification of progress payment claims.
54 Nothing in the BSC Insurance Scheme prevents a method of indemnification such as I have outlined from being adopted, and the Corporation could have made a decision to indemnify Mr Tebbutt by that method. Under s.88(b) of the BSC Act the Tribunal could have made the same decision and imposed it on the Corporation. The decision which the Tribunal actually made, however, was not a decision which the Corporation could have made. The Tribunal simply ordered the Corporation to make payments to Mr Tebbutt at specified times. The terms of the order were not conditioned upon whether at those times Mr Tebbutt had actually entered into a contract for rectification work and had actually incurred any expense in rectification, either in the sense of having made payment or in the sense of having incurred an obligation to make payment. The order was, therefore, not an order that the Corporation indemnify Mr Tebbutt for losses incurred "in rectifying defects" in the sense which I have explained.
55 It is true that the Tribunal ordered Mr Tebbutt to expend the sums received from the Corporation on building works. But that was not a condition of payment by the Corporation and there was no order that Mr Tebbutt enter into a contract for rectification work prior to receipt of the payments from the Corporation. Mr Tebbutt was at liberty to enter a building contract whenever he chose, possibly a long time after receiving the payments. Accordingly, the payments, at the time they were to be made by the Corporation to Mr Tebbutt, would bear no necessary nexus either to reimbursement to Mr Tebbutt of amounts already paid by him for work "in rectifying defects", or to saving him harmless from contractual obligations to make payment for work done "in rectifying defects".
56 For these reasons I conclude that the Corporation would have had no power under the BSC Insurance Scheme to make a decision in the terms of the Tribunal's orders so that the Tribunal itself had no power to make those orders under s.88(b) of the BSC Act.
Orders