HIA Insurance Services Pty Ltd v Davy [2003] VSCA 73

2. I have had the advantage of reading, in draft, the reasons for judgment prepared by Eames, J.A. I agree with his Honour, for the reasons he gives, that the appeal should be allowed and the questions answered in the affirmative. It was not open to the Tribunal to conclude that there was more than one building site.

7. I agree with the disposition of this matter proposed by Eames, J.A. and for the reasons advanced by him in his judgment.

12. This is an appeal brought pursuant to s.148 of the Victorian Civil and Administrative Tribunal Act 1998 against a decision made in the Victorian Civil and Administrative Tribunal ("VCAT") on 12 October 2001 wherein the Tribunal, constituted by a Vice-President, answered three preliminary questions which had been raised by the parties and which required interpretation of insurance contracts held by the respondent.

15. The appellant was at all relevant times the sub-agent of Royal & Sun Alliance Insurance Aust. Pty. Ltd. and was authorised to process claims made under contracts of insurance which it issued on behalf of the insurer.[1] At all relevant times the respondent was the owner of property located at 13-15 Thompson Street, Williamstown ("the property") which at the time the contracts were entered comprised land held under two adjoining certificates of title. On one lot there was an existing dwelling, but the other was vacant land when the properties were acquired. The respondent proposed building four dwellings, renovating the existing

dwelling and then sub-dividing the block. His intention in building the dwellings was not for their re-sale but to provide accommodation for his children and for himself. The respondent applied for and obtained a planning permit which provided for the demolition of existing outbuildings, a single storey addition to the existing dwelling and the use and development of the land for five dwellings comprising four double-storey dwellings and renovation of the existing dwelling. Three of the dwellings were to be attached, with common walls. An objection to the work led to a hearing before VCAT, which subsequently disallowed the objection and the permit was granted. The respondent then engaged a builder, Unique Power Pty. Ltd., trading as Denmar Group ("the builder"). The respondent entered five separate HIA plain English building contracts with the builder for the construction of five dwellings. The builder then lodged a project application for insurance with respect to each of the contracts.

19. On 23 August 1999 the insurer wrote to the respondent enclosing five separate certificates of insurance, each of which identified the property as being at 13-15 Thompson Street but in turn each was given a unit number from 1 to 5. In the accompanying letter the insurer advised, inter alia:

"The insurance better protects you against losses covered by the policy for non-completion of the building work and/or failure to rectify faulty workmanship. The exact extent of cover is, of course, as set out in the written policy. Please check the information that appears on the enclosed certificate of insurance and contact us if the information is not accurate. Please also read the enclosed policy and important notice to the `insured', and contact us urgently if necessary."

In fact, no policy of insurance was enclosed, but the terms of the certificates of insurance, which were provided as to each dwelling, stated that a contract of insurance had been issued which complied with the Ministerial Order ("the Order") for domestic building insurance issued under s.135 of the Building Act 1993. In the certificate of insurance the following note also appeared:

"Subject to the Act, the ministerial order and the conditions of the insurance contract, cover will be provided to building owner named in the major domestic building contract and to the successors in the title to such building owner."

25. The builder commenced work in about October 1999 and a single contract administrator was appointed by the respondent to supervise all of the building work. Although the respondent proposed to subdivide the land into five lots no step had been taken to that end prior to the contract of insurance being entered with the appellant. The application to subdivide the land was not lodged until April 2000.

28. The insurance contracts indemnified the respondent against loss and damage resulting from certain events including non-completion of domestic building work due to the builder becoming an externally administered corporation. Clause 11 of the contract, however, excluded liability where the claimant was a "developer". A developer was defined in the insurance contracts to mean:

"(a) a `developer' is any building owner or other person for whom three or more homes are being, or are proposed to be, built - (i) on any one building site or (ii) on more than one building site, but under one contract."

32. The builder continued to work under the contracts until late August 2000 but then got into financial difficulties and was unable to complete the projects. When work ceased four of the units were at the fixing stage and one unit was at the lockup stage.

35. The respondent applied to the insurer for indemnity with respect to incomplete works concerning each of the five dwellings and also for defective works with respect to those dwellings. On 13 October 2000 the insurer advised that it denied liability for the claim as to non-completion of the houses, on the basis that the respondent was a developer, for whom there was no cover under the policy by virtue of clause 11 of the policy. The insurer accepted the claim for defective work, however. The respondent brought proceedings in VCAT to enforce the terms of the contracts, as he interpreted them, with respect to the incomplete work.

38. The Tribunal had before it three preliminary questions, as follows:

"(a) Whether according to law the Applicant is a `developer' under clause 1.1 of the ministerial order dated 30 October 1998 made pursuant to s.135 of the Building Act 1993. (b) Whether clause 11 of the insurance policy of the Respondent is one by law permitted under such ministerial order. (c) Whether in relation to insurance claim number VOO/843-847 lodged by the Applicant with the Respondent the Insurer is entitled to rely upon clause 11 of such policy to deny liability for cover so far as the claim relates to non completion of works."

42. Although the Vice-President answered question (b) "no", which, if correct, meant that clause 11 of the insurance policy was not authorised under the terms of the Order, counsel for the respondent conceded that the decision as to that question was wrong. That concession was appropriately made, because the terms of clause 11 are all but identical to the very words employed and approved in the Order for identifying and excluding developers from the compulsory insurance coverage under the scheme established by the Act.

45. The issue in this case resolves itself to a simple proposition concerning question (a). Given that the respondent entered five individual contracts with a single builder for the simultaneous construction or renovation of five houses on land which was the subject of two adjoining certificates of title (and later was to be sub-divided) can it be said that that situation constituted three or more homes being built "on any one building site"?

48. The appellant submits that it was one building site, at which five houses were simultaneously being built. The respondent contends that each unit was being built on a separate building site, so that rather than this being one building site, there were five building sites, and the respondent, therefore, was not a developer.

51. Section 135(1)(a) of the Building Act 1993 empowered the publishing of a Ministerial Order in the Government Gazette, which required building practitioners in specified categories or classes of building practitioners or any part of such a class or category to be covered by insurance, and by s.135(1)(c) the Ministerial Order might specify the kinds and amount of insurance by which building practitioners in the specified class or category were required to be covered. The definition of "developer" in the insurance contract was very close to the definition of that term which appeared in Ministerial Order S122 of 30 October 1998 ("the Order"), which was issued pursuant to s.135 of the Building Act 1993.

"5.1 the policy shall indemnify the building owner (`insured') in respect of loss or damage which results from: 5.1.3 non-completion of the domestic building work due to: ... (d) the builder becoming insolvent under administration;' 5.5 Subject to clause 5.2, the policy may exclude or limit claims under the policy: 5.5.4 where the building owner is a developer and a claim is made pursuant to clause 5.1.3 ..."

58. In the Ministerial Order the following definitions appeared:

"1.1 Wherever used in this Ministerial Order: `builder', `building owner' `building site', `defective', `domestic building work', `home' and `major domestic building contract' shall have the same meaning as those terms are defined in Section 3 of the Domestic Building Contracts Act 1995.' `developer' means any building owner or other person for whom three or more homes are being or are proposed to be, built - (a) on any one building site; or (b) on more than one building site under one major domestic building contract."

"8 TERMS POLICY MUST CONTAIN A policy must contain provisions to the effect that: 8.1 The policy is issued in compliance with this Order and if any term of the policy conflicts or is inconsistent with this Order then the policy shall be read and be enforceable as if it complies with this Order."

66. As may be seen, the Ministerial Order of 30 October 1998 stipulated that the definitions which are relevant for present purposes would be those which were set out in the Domestic Building Contracts Act 1995. The following relevant definitions appear in s.3 of that latter Act:

"3. `building site' means a place where domestic building work has been, is being, or is about to be, carried out; `domestic building work' means any work referred to in section 5 that is not excluded from the operation of this Act by section 6." `home' means `any residential premises and includes any part of a commercial or industrial premises that is used as a residential premises but does not include ...'."

(There followed such items as a caravan, a residence not for permanent habitation, rooming house, motel, nursing home etc.).

73. Section 5 provides:

"Section 5 (1) This Act applies to the following work - (a) the erection or construction of a home, including - (i) any associated work including, but not limited to, landscaping, paving and the erection or construction of any building or fixture associated with the home (such as retaining structures, driveways, fencing, garages, carports, workshops, swimming pools or spas); and (ii) the provision of lighting, heating, ventilation, air conditioning, water supply, sewerage or drainage to the home or the property on which the home is, or is to be; (b) the renovation, alteration, extension, improvement or repair of a home; (c) any work such as landscaping, paving or the erection or construction of retaining structures, driveways, fencing, garages, workshops, swimming pools or spas that is to be carried out in conjunction with the renovation, alteration, extension, improvement or repair of a home; (d) the demolition or removal of a home; (e) any work associated with the construction or erection of a building - (i) on land that is zoned for residential purposes under a planning scheme under the Planning and Environment Act 1987; and (ii) in respect of which a building permit is required under the Building Act 1993; (f) any site work (including work required to gain access, or to remove impediments to access, to a site) related to work referred to in paragraphs (a) to (e); (g) the preparation of plans or specifications for the carrying out of work referred to in paragraphs (a) to (f); (h) any work that the regulations state is building work for the purposes of this Act."

77. The insurance policy provides in clause 2 that "the home" means "the home at the address given in your application form". "Home building work" was defined as "domestic building work (as defined in the Act) carried out on, or in respect of, the home by your builder".

80. In his decision in the Tribunal the learned Vice-President placed particular weight on the fact that five separate contracts were entered. Each such contract defined "building site" to be, in effect, the place where the works described on the plans and specifications under that contract were to be carried out. In other words, if one was to have regard to the terms of the contracts then the five contracts identified five separate building sites by virtue of their own definitions. The Vice-President noted that there was no suggestion that the employment of five contracts was a stratagem adopted in order to avoid the clear intention of the Ministerial Order. The approach adopted, he held, was a legitimate one which both owner and builder preferred, and it was not adopted as a means of expanding insurance coverage.

83. It is convenient to address, first, the arguments advanced on behalf of the respondent. Mr Bolton sought to highlight factors which he said reflected the fact that there were five separate building sites here. He noted that when the respondent obtained a planning permit that document specified that the land was to be developed "for five multi-dwellings" and, accordingly, five separate contracts were entered with the builder, who, in turn, obtained five building permits under the Building Act. When work commenced, and the contract of insurance was entered the two adjoining properties had not been sub-divided. The boundary between the two lots ran through what became the middle of three adjoining new houses which were erected by the builder.

86. When the plan of subdivision was prepared in December 1999 it depicted five allotments, together with common property. On two of the Lots (Lots 1 and 5) the front of the home faced Thompson Street and between them there was common property from which entry into the garage for Lot 5 could be reached . The garage for Lot 1 was entered from Thompson Street. The common driveway between Lots 1 and 5 also gave access to the front entrances of the remaining three homes, which had common walls and adjoined each other. At the rear of those three homes entry to garages was via Stafford Place.

89. It is to be noted that although separate building permits were provided for each of the five units (three of which were described as "attached row houses") each permit stated a "site area" which corresponded with the dimensions of the entirety of the two lots[2]. Furthermore, in its application for a planning permit the builder, Denmar Homes, was asked, as to "The Proposal", to "describe the way the land is proposed to be used or developed". The builder responded with the words "5 unit development" and estimated the value of the entire development at $835,000.

92. Mr Bolton, in further support of the respondent's contention that he was not a developer for purposes of this case, highlighted the fact that five separate insurance policies were issued, one for each house, that five separate certificates of insurance were issued and that the respondent (although doing so under cover of one letter) made claims with respect to each house under each contract of insurance. In my opinion, those factors have little or no significance, and indeed, in the hearing at VCAT counsel for the respondent conceded that the insurer was obliged to issue separate insurance policies for each unit, having regard to the fact that by s.9 of the Domestic Building Contracts Act the successors in title to the owner for whom a building was built under a contract were entitled to make claims with respect to defective building work performed under the contract. Similarly, the fact that separate certificates of insurance were issued is also not of significance, because in each case the certificate stipulated that coverage was "Subject to the Act, the Ministerial Order and the conditions of the insurance contract", and the insurer contends that under the policy and the Order its obligation is to provide coverage for defective building work on the homes (as it has done) but not for non-completion, because the policy holder is a "developer" for relevant purposes. In the hearing at VCAT no argument was sought to be mounted that the letter accompanying the issuing of the certificates or the terms of the certificates themselves created liability by way of estoppel or on some basis other than arising upon proper construction of the terms of the policy, the Act and the Order. Accordingly, having regard to the terms of s.148 of the Victorian Civil and Administrative Tribunal Act 1998, no such issues were capable of being raised before us.[3]

95. In my opinion, the meaning of the term "developer" as defined in the Order and the policy, and, in turn, the meaning of the words "one building site" can not be determined by the owner and builder deciding the matter for themselves by virtue of the terms of their own contract. The question is one of law and fact which must be determined by interpreting the meaning of the words used in the Act, the Order and the policy and applying them to the factual situation, that is, the situation whereat the work was performed. Mr Bolton, for the respondent, submitted that, even so, such an analysis supports his contention that the respondent did not meet the description of "developer" when having regard to the nature of the work being done for the respondent.

98. Mr Bolton submitted that the definition of "building site" in the Act identified "a place" where domestic building work was being carried out. Although "place" is not defined in the Act for purposes of the phrase "a place where domestic building work is carried out" the expression "domestic building work" is relevantly defined to mean work referred to in s.5, and that section, in turn, relates to the construction of "a" home. Thus, so Mr Bolton submitted, "a building site" is that place on which sits or will sit "a" home, and there are five such building sites in this case, accommodating five homes. Therefore, because the building work in this case did not involve three or more homes being built on "one building site" the respondent owner does not meet the definition of "developer", so it is contended.

101. The immediate answer given to that argument by Mr Foxcroft, on behalf of the appellant, is that the fact that "a" home is referred to in s.5 of the Act must be taken to import the plural as well as the singular: See s. 37(c) Interpretation of Legislation Act 1984. Thus, domestic building work may refer to homes, plural, being constructed at a building site. Furthermore, as Mr Foxcroft also noted, the words "building site" are defined in s.3 to mean a place where "domestic building work has been, is being or is about to be carried out" and those words are as readily applicable to describe a site where multiple homes are being constructed as they are applicable where there is a single home being constructed.

104. Mr Foxcroft, for the appellant, contended that in determining whether this was an instance of the "one building site" on which sat three or more homes regard must be had to the circumstances and location in which the work was being performed on the five homes being built. The locale of the work, the closeness of the five homes, the fact that three of them had common walls and sat side by side, all pointed to the reality that this was one building site on which five homes were being constructed or modified, Mr Foxcroft submitted.

107. In response, Mr Bolton submitted that there was no evidence before the Tribunal or this court which demonstrated that the work was being performed here as though there was, indeed, only one building site. The insurer had produced no photographic evidence to prove that assertion, he submitted. The only evidence before the court and the Tribunal as to the manner in which the work was performed is that contained in the affidavit of Mark Davy, dated 31 August 2001, and that does not disclose that it was a single building site, he submitted.

110. In my view the affidavit of Mr Davy, in its failure to address the very question in issue entitles the Court to draw an inference in support of the appellant's contention. When he swore his affidavit Mr Davy well knew that it was the contention of the insurer that the work was performed simultaneously on all five buildings, at the one location and by the one builder. If it was not the case that the manner in which the work was performed reflected the reality that there was one building site, only, then Mr Davy was in the perfect position to demonstrate that fact. His failure to address the question entitles the court to draw an adverse inference against him on this question[4].

113. It is not surprising that the insurer had no evidence, photographic or otherwise, to positively prove its assertion, since the claims were not made until most of the work had been completed.

116. In the absence of evidence to contradict the strong inference to be drawn from the circumstances of the simultaneous building of five houses, three of which were row houses, all of which were in very close proximity, and all five of which were connected by a common driveway, I agree that the appearance here was that of one building site at which work was being performed on five homes.

119. Mr Bolton postulated that paragraph (a) of the definition of "developer" was intended to have a limited application. Indeed, the only activity which he could suggest would be captured by that paragraph of the definition was the building of multi-storey apartments[5]. That suggestion, however, would seem to be at odds with his primary contention that in defining what constitutes a building site the words "a home" in s.5 can not be read in the plural. If each "home" has its individual building site, as is the primary contention, then when applying that to the multi-storey development it is difficult to see why there would not be as many building sites as there were apartments or units being constructed. That being so, paragraph (a) of the definition of "developer" would not apply to the multi-storey development, because there would be three or more homes on more than one building site. Thus, applying Mr Bolton's analysis of the meaning of the terms of paragraph (a) there would then be no category of building activity which would appear to be addressed by it.

122. If, on the other hand, one were to accept that the owner of a multi-storey or multi-apartment development would appropriately be defined as a "developer" under (a) it is difficult to conceive why Parliament might have intended to exclude from operation of the compulsory insurance scheme that kind of multiple home development but not development such as was occurring here, where more than three homes were being built by the owner in close proximity and within one general location, and whilst employing the one builder. Had paragraph (a) of the definition of "developer" been intended to have such limited operation, so as, at best, to apply only to multi-storey or multi residential developments where considerably more than three homes were involved one might have expected that the Ministerial Order would have expressly so stated, and to have provided some better guidance as to the scope of its operation.

125. The Act requires the insurance policy to comply with the terms stated in the Act and the Order. It is important, therefore, to note the purpose to which the Act and the Order are directed. Although counsel for the respondent initially objected to Mr Foxcroft's analysis of the history and purpose of this legislation and the Ministerial Order I did not understand that objection to be pressed. In any event, the purpose is self-evident; it being obvious that the legislators were concerned about the disastrous impact on home buyers when their builders become insolvent and were unable to complete construction of the home or are unable to repair defects in the building constructed for the owner. In Fletcher Construction Australia Limited v Southside Tower Developments Pty Ltd[6], Byrne, J., as judge in charge of the Building List, said of this legislation that it was the intention of Parliament "to provide a legislative framework for contracts and disputes concerning building work of a more modest character and to protect parties to more conventional domestic building projects from the consequences of an inequality of bargaining power rather than to interfere with major commercial transactions".

128. The new insurance regime replaced the process which applied under the Housing Guarantee Fund, which provided a limited fund upon which home builders could make a claim but which was brought to an end with the passage of the Building Act 1993 and replaced by a scheme relying on compulsory insurance coverage with private companies. The initial regime, whereby it was the builder who could make claims, rather than the home owners, was replaced by the scheme under the Domestic Building Contracts Act which gave an entitlement to the owners to make claims.

131. The plain purpose of the Act and Order with respect to insurance is to ensure that there is insurance coverage for the protection of home owners in the event of builder default. The Act casts an obligation on the builder to take out insurance for those purposes. It is equally plain that Parliament intended that the protection which would be provided by a scheme of compulsory insurance was to apply not to developers - who might be assumed to be conducting a business for profit upon re-sale - but to small home owners. The distinction between a "developer" and other home owners was addressed by the definition. It may be taken that it was the intention of Parliament, that the developers could look after themselves and take out their own insurance. Mr Foxcroft submitted that the legislation reflects the compromise which was made between requiring compulsory insurance on all building projects - which may have made the business unattractive to insurers or else led to very substantial premiums which would have been passed on to small home owners - and a more restricted scheme which lessened the risks for insurers. The scheme was intended to ensure that those least able to cope with the impact of a builder's insolvency, namely, small home owners, would have some assurance of coverage, but without serious impact on the costs of building. If the contention of the respondent is correct, Mr Foxcroft submitted, then developers can avoid the clear intention of the legislation and Ministerial Order and gain the benefit of insurance coverage for their projects by virtue of the policy obtained by the builders, which would have been at rates set on the assumption that the intended beneficiaries of the insurance will be small home owners not multi-home developers.

134. Mr Bolton, for the respondent, contended that the expression "any one building site" in clause 11 of the policy constitutes an exclusion clause and was ambiguous and should therefore be interpreted contra proferentem the insurer[7]. In my opinion that principle has no application in this case. In the first place, although it is clause 11 of the policy to which reference is made in refusing coverage, the terms of that clause are inserted in the contract in obedience to the legislative direction as conveyed through the Ministerial Order that coverage be denied to a developer as so defined. In any event, even if the company might chose to provide wider coverage than Parliament intended, or anticipated, the terms of clause 11 are not ambiguous, in my view. What constitutes a building site on which more than one home is being constructed is, absent any further definition within the policy, merely a question of fact and there is no ambiguity or uncertainty attendant on its ascertainment.

137. Finally, Mr Bolton sought to draw a distinction between the terms of sub-clause (a)(i) and that employed in (a)(ii) in the definition of "developer" in clause 11 of the policy (being (a) and (b) respectively in the same definition in the Order). He submitted that because multiple building sites were referred to in (a)(ii) and yet that clause declared that the owner would only be a developer where three or more homes were being built on multiple building sites under one contract, it followed that Parliament intended to exclude from the definition of developer the building of three of more homes on separate building sites when there were multiple contracts (as was the case here). I do not find that argument persuasive. It depends for its weight on acceptance of the very proposition which is under dispute, namely, whether more than one home could be said to be constructed on only one building site when they are being built by the same builder under separate contracts but otherwise are at the same location.

140. Before the Tribunal Counsel for the appellant also sought to draw support for his client's contention by comparing and contrasting the two sub-clauses. Counsel then contended that since clause (a)(ii) expressly mentioned multiple homes being built under one contract, but limited that to the case where more than one building site was concerned, it followed that (a)(i) - which related to multiple homes on one building site - should be taken to apply whether the homes were being built under one contract or more than one. The Vice-President did not find that argument to be persuasive, and it was not renewed before us.

143. Mr Bolton emphasised the unreasonableness of the insurer adopting the narrow construction of "developer" when it had willingly issued five certificates of insurance and had expressly stated that they each provided coverage with respect to non-completion of building. Given the findings of the Vice-President that the entry into five contracts was not a ruse and that the respondent had no intention of selling the homes one can appreciate the respondent's frustration. No doubt had he been warned that he was not covered by the builder's policy the respondent would have sought to obtain coverage in his own name. The fact remains, however, that the certificate of insurance made it clear that coverage was "Subject to the Act, the Ministerial Order and the conditions of the insurance contract", and it is equally clear that in identifying "developers" as not having the benefit of the terms of the Act with respect to compulsory insurance neither Parliament nor the Minister chose to define them by such factors as their intention to on-sell the homes being built on a building site, but chose, instead to define "developer" by reference to the number of homes being built at one building site.

146. The arguments presented to this court, on both sides, seem to have been significantly refined from those presented to the Vice-President at VCAT. Having had the benefit of more substantial argument than was presented below I am persuaded that the appellant's contentions must be accepted. The appeal should be allowed and in lieu of the answers given below the questions should be answered as follows:

[1] No issue was taken either at the Tribunal or before the Court of Appeal as to the appropriateness of the proceedings being brought against the sub-agent rather than the insurer and I therefore have not considered that question (see affidavit of Mark Joseph Farrelly, sworn 9 November 2001, par.4).

[2] Inexplicably, the dimensions varied between the permits, ranging from 836.5 sq.m (in two cases) to 837.5 sq.m (in one case) and 873.5 sq.m (in two cases).

[3] In making this observation I should not be taken to be suggesting that an argument directed to those questions might have had substance, but am merely identifying the scope of the arguments before the Court of Appeal.

[4] See Jones v. Dunkel [1959] HCA 8; (1959) 101 C.L.R. 298; R. v. Buckland (1977) 2 N.S.W.L.R. 452; R. v. Beserick, unreported 16 February 1993, Court of Criminal Appeal, New South Wales; R. v. Bulecjik, unreported 21 July 1994, Court of Criminal Appeal, New South Wales.

[5] In Fletcher Construction Australia Limited v. Southside Tower Development Pty. Ltd, unreported judgment, 9 October 1996, Byrne, J., in considering whether the refurbishment and conversion of an existing ten storey office building into 151 residential units amounted to "domestic building work" (it was being done under a single contract) expressed the tentative view that the reference to "a home" in s.5(1)(a) included the erection of "homes", as would be the case in a multi-residence building or multi-storey residential development.

[7] See In Re Etherington and the Lancashire and Yorkshire Accident Insurance Co. (1909) 1 K.B. 591, at 596; Guardian Assurance Co. Ltd. v. Condogianis [1919] HCA 33; (1919) 26 C.L.R. 231, at 235.