Insurance Australia Ltd v Holden & Ors

The Issues

1. The issues set out by counsel for the plaintiff were as follows (MFI 2): "1. Whether the first defendant is bound by the first and/or second Deeds of Guarantee and Indemnity. 2. Whether the plaintiff is entitled to enforce the Deeds of Guarantee and Indemnity by virtue of the Federal Court of Australia's confirmation of the schemes for transfer of the Home Owners Warranty (HOW) businesses of Australian International Insurance Ltd (AIIL) to Wesfarmers General Insurance Ltd t/as Lumley Insurance (Lumley) and from Lumley to the plaintiff. 3. Whether the terms of the Deeds of Guarantee and Indemnity entitle the plaintiff to recover from the first defendant the amounts claimed. 4. Whether the plaintiff is precluded from bringing the claim and/or obtaining relief against the first defendant by reason of:- a. the plaintiff's entry into the Deed of Agreement to resolve its earlier claim against the first defendant and her husband in proceedings no. 2011/00291230 in the District Court of NSW; b. the Deeds of Guarantee constituting unjust contracts within the meaning of s.7 Contracts Review Act 1980 and the circumstances entitling the plaintiff to relief pursuant to that Act; or c. the plaintiff's conduct in relation to the claim against the first defendant being unconscionable under the general law and within the meaning of that expression in s.12CB Australian Securities and Investments Commission Act 2001 (Cth) and/or ss.20 and 21 Australian Consumer Law and the first defendant's alleged entitlement to consequential relief. 5. Quantum of the plaintiff's claim."
2. The issues set out by counsel for the first defendant were as follows (MFI 4): "1. On 29 September 2004, did Oamps Insurance Brokers Ltd ABN 34 005 543 920, on behalf of Westfarmers General Insurance Limited (ABN 24 000 036 279) issue a policy of home warranty insurance for the construction of a building on land at 107 - 109 2. If the answer to the above issue is "yes", does it follow that AIIL was not at risk and the plaintiff is not the proper plaintiff? 3. Was the initial beneficiary of home warranty insurance Blue Bay Developments Pty Ltd? 4. If the answer to the above issue is "yes", was Lumley obliged to indemnify the Owners Corporation - SP 77362? 5. Did Mrs Holden execute the guarantee dated 24 or 27 August 2004 (2004 Guarantee)? 6. Did Mrs Holden understand the 2004 Guarantee? 7. Did Mrs Holden receive independent advice from Mr Belonogoff about the 2004 Guarantee. 8. If the answer to the issue above is "no", will equity intervene to prevent the plaintiff relying on the 2004 Guarantee because Mrs Holden: (a) was under a "special disability", or (b) she did not understand the guarantee, it was entered into under the influence of other people and she did not receive an independent explanation? 9. Was the 2004 Guarantee an unjust contact pursuant to s 7 of the Contracts Review Act 1989 (NSW)? 10. If the answer to the issue above is "yes", will the Court refuse to enforce the guarantee? 11. Was the 2004 Guarantee the product of unconscionable conduct by AIIL in breach of ss 20 and 21 of The Australian Consumer Law (ACL) (or ss 12CA and 12CB of the Australia Securities and Investments Commission Act 2001 (Cth) (ASIC Act))? 12. If the answer to the issue above is "yes", will the Court refuse to enforce the guarantee? 13. Did the 6 March 2006 guarantee (2006 Guarantee) discharge the co-sureties in the 2004 Guarantee. 14. Did Mrs Holden execute the 2006 Guarantee? 15. Did Mrs Holden understand the 2006 Guarantee? 16. As Mrs Holden did not receive independent advice about the 2006 Guarantee, will equity intervene to prevent the plaintiff relying on the 2006 Guarantee either because Mrs Holden: (a) was under a "special disability", or (b) she did not understand the guarantee, it was entered into under the influence of other people and she did not receive an independent explanation? 17. Was the 2006 Guarantee an unjust contact pursuant to s 7 of the Contracts Review Act 1989 (NSW)? 18. If the answer to the issue above is "yes", will the Court refuse to enforce the guarantee? 19. Was the 2006 Guarantee the product of unconscionable conduct by AIIL in breach of ss 20 and 21 of The Australian Consumer Law (Cth)'{ACL) (or ss 12CA and 12CB of the Australian Securities and investments Commission Act 2001 (Cth) (ASIC Act))? 20. Were the 2004 Guarantee and the 2006 Guarantee assigned by AIIL to Lumley pursuant to a scheme approved by the Federal Court of Australia on 9 November 2007? 21. Were the 2004 Guarantee and the 2006 Guarantee assigned by Lumley to the Plaintiff pursuant to a scheme approved by the Federal Court of Australia on 20 July 2017? 22. Did building works comprise a four-storey building? 23. If the answer to the issue above is "yes": (a) Was Lumley exempted from providing home warranty insurance by the Home Building Amendment (Insurance Exemptions) Regulation 2003 (NSW)? (b) Was Lumley obliged to indemnify the Owners Corporation - SP 77362? 24. By indemnifying the Owners Corporation did Lumley: (a) do an act or acts injurious to Mrs Holden as a guarantor, or (b) act in a manner that was inconsistent with Mrs Holden's rights, and the omission or omission were injurious to Mrs Holden so that any guarantee was discharged by operation of law? 25. Is the plaintiff estopped by a deed dated 6 February 2012, from bringing these proceedings? 26. Is enforcement of the 2004 Guarantee, in all of the circumstances, the product of unconscionable conduct by the plaintiff in breach of s 21 of the ACL, or s 12CB of the ASIC Act? 27. If the answer to the issue above is "yes", will the Court refuse to enforce the guarantee? 28. Is enforcement of the 2006 Guarantee, in all of the circumstances, the product of unconscionable conduct by the plaintiff in breach of s 21 of the ACL, or s 12CB of the ASIC Act? 29. If the answer to the issue above is "yes", will the Court refuse to enforce the guarantee? 30. Does the deed dated 31 July 2013 between Lumley and the Owners Corporation limit Lumley and thereby Mrs Holden's liability to $365,000 (GST incl) ($331,818.18 GST excl)?"
3. Issues 13, 22 and 23 (which have been reproduced with a strike-through) were the subject of a lengthy ex tempore ruling on 19 March 2021, to the effect that these issues could not be raised as they had not been pleaded, nor were they notified to the plaintiff until after the plaintiff's case had closed. The first defendant abandoned the issues said to arise from the Australian Securities and Investments Commission Act 2001 (Cth) ("ASIC Act") (part of issues 11, 19, 26 and 28). These are marked with a strike-through for that reason.
4. An additional issue, which only emerged in discussion of the plaintiff's evidence during final submissions, concerned the effect of the absence of a demand relating to the 2006 Deed. I have reached the conclusion that the plaintiff's case based on the 2006 Deed fails for reasons set out below.

The 2006 Deed

1. The 2006 Deed was headed "DEED OF GUARANTEE AND INDEMNITY". The term "Guaranteed Money" was defined in cl 1.7 to include all money, debts and liabilities now or in the future owing or remaining unpaid or undischarged by the Builder (which was Kevest). It also included all monies actually or contingently paid or payable by the Insurer now or in the future or in relation to building work carried out or to be carried out by the Builder.
2. The provisions concerning guarantee and indemnity were contained in cll 3 and 4 under the heading "YOUR PRIMARY OBLIGATIONS".
3. Under the heading "Guarantee", cl 3.1 said: "3.1 Subject to any limitation of liability specified in the Details section of this document, you hereby unconditionally and irrevocable guarantee: 3.1.1. the performance and fulfilment of the Builder's obligations under all domestic building contracts the Builder has entered into or will in the future enter into, for which insurance has been provided or may in the future be provided by the Insurer; 3.1.2 fulfilment of the Builder's undertaking to reimburse the Insurer; and 3.1.3 payment to the Insurer of the Guaranteed Money."
4. Under the heading "Indemnity", cl 4.1 said: "Subject any limitation of liability stated in the Details section of this document, you unconditionally and irrevocably agree to indemnify the Insurer and to keep it indemnified in respect of all moneys or other obligations which the Insurer has paid, which it has to pay or for which it may be or become liable as a result of or in connection with: 4.1.1 any breach or failure by the Builder to fulfil its obligations to a homeowner; 4.1.2 any breach or failure by the Builder to fulfil its undertaking to reimburse the Insurer; 4.1.3 the Guaranteed Money or any part of it being unenforceable or irrecoverable for any reason whatsoever."
5. Clause 4.2 was headed "When you may be called on to pay". Clause 4.2 said: "If the Builder does not fulfil its undertaking to reimburse the Insurer and thereby does not pay the Guaranteed Money or any part of it to the Insurer, as and when it is due and when the Insurer asks for that money to be paid, then you will pay the guaranteed Money and all other money owing under this document to the Insurer of AHW immediately upon demand by the Insurer or AHW."
6. Clause 4.3 contained the heading "What happens if you don't pay". Clause 4.3 said: "You acknowledge and agree that if you do not pay the Guaranteed Money and all other money owing under this document to the Insurer or AHW immediately upon demand: 4.3.1 the Insurer may take legal action against you to recover all moneys payable under this document; 4.3.2 the Insurer may take possession of any property in which you have an equitable interest and sell it to recover any monies owing under this document together with any interest, costs and expenses associated with maintaining and selling that property?"
7. I find that cll 4.2 and 4.3 relate to both the guarantee provision in cl 3.1 and the indemnity provision in cl 4.1. While cll 4.2 and 4.3 appear under the sub-heading "Indemnity", both appear under the main heading "YOUR PRIMARY OBLIGATIONS". Being called upon to pay money is a primary obligation, whether it arises under the guarantee or the indemnity or both. What happens if monies are not paid is a consequence of a breach of a primary obligation, being both the guarantee and the indemnity. In final submissions I suggested to counsel for the plaintiff that cll 4.2 and 4.3 applied to both the guarantee under cl 3.1 and the indemnity under cl 4.1. Counsel accepted that this was the appropriate way to read the effect of those clauses.
8. Clause 4.2 speaks of an obligation which only arises after the builder does not pay the Guaranteed Money to the Insurer. Such obligation on the part of the guarantor only arises "when the Insurer asks for that money to be paid". Clause 4.2 speaks of the obligation to pay the money arising "immediately upon demand by the insurer".
9. Clause 4.3, dealing with the consequences of non-payment by the guarantor, again speaks of monies being due "immediately upon demand".
10. I find that the plain words of cll 4.2 and 4.3 mean that there is no obligation upon the guarantor to pay any monies to the Insurer until after demand for payment is made. As previously recited, there was no evidence of demand being made under the 2006 guarantee. By contrast, the demand under the 2004 guarantee was put into evidence. Further, the Statement of Claim pleaded that there was a demand under the 2004 Deed, but did not assert that there was ever a demand under the 2006 Deed.
11. Paragraph 10.1710 of O'Donovan, "Modern Contract of Guarantee", Westlaw AU says (citing relevant authorities in footnotes): "Whether it is necessary for the creditor to make a demand on a guarantor before enforcing the guarantee depends on the nature of the contract and the construction of its terms. The obligation under a guarantee, and therefore the cause of action against the guarantor, arise upon default by the principal debtor, unless the guarantee contains a condition precedent to liability, such as the making of a demand upon the guarantor. For example, in Netgory Pty Ltd v Caretti [2013] WASC 364 at [306] Edelman J held that the proper construction of the guarantee in that case was that no debt was due from the guarantors until it was demanded… Where the guarantor promises to pay on demand by the lender, the guarantor is not liable unless a valid demand is made before an action to enforce the guarantee. Hence, the cause of action only accrues when the requisite demand is made."
12. The plain words of cl 4.2 of the 2006 Deed require the creditor to make a demand upon the guarantor before the guarantor has any obligation to pay monies to the creditor. This is reinforced by cl 4.3, which explains what happens if monies are not paid "immediately upon demand".
13. In final submissions in reply counsel for the plaintiff conceded there was no evidence of demand under the 2006 Deed and conceded that there was no obligation which arose under that deed if no demand had been made.
14. I find that the plaintiff is not entitled to a money judgment against any of the defendants, based upon the 2006 Deed.

Is the Plaintiff Entitled to Declaratory Relief in Relation to the 2006 Deed?

1. The Statement of Claim seeks the following relief in relation to the 2006 Deed (CB 14)" "i. A declaration that the 2006 Deed of Guarantee is valid and binding between the parties. ii. A declaration that the First Defendant, Second Defendant and Third Defendant are each liable to indemnify the Plaintiff pursuant to the 2006 Deed of Indemnity from and against all Claim Costs and Professional Costs. iii. An order, pursuant to the 2006 Deed of Indemnity, that the First Defendant, Second Defendant and Third Defendant pay the Plaintiff sums as may be found by the Court to be Claim Costs and Professional Costs. iv. Damages for breach of the 2006 Deed of Indemnity. v. Interest pursuant to section 100 of the Civil Procedure Act 2005 (NSW). vi. Costs."
2. On the finding I have made the plaintiff is not entitled to the relief sought in (ii), (iii), (iv) or (v).
3. Counsel for the plaintiff submitted that even if the plaintiff failed to obtain a monetary judgment for the 2006 Deed, the declaration sought in (i) should be made.
4. After the close of the case both counsel put in short written submissions in relation to the power to make a declaration. These have been marked as MFI 7 (plaintiff) and MFI 8 (first defendant).
5. The District Court is an inferior court of statutory jurisdiction. Section 134 of the District Court Act 1973 (NSW) is headed "Jurisdiction in Equity Proceedings". Section 134(1) gives the District Court the same jurisdiction as the Supreme Court, and the same powers and authority as the Supreme Court in proceedings relating to a number of types of equitable claims which are then listed. There is no specific provision conferring jurisdiction on the District Court to make declarations (apart from the power in s 134(1)(e), relating to the power to make a declaration that a trust subsists).
6. Counsel for the plaintiff relied upon s 134(1)(h), which reads: "(1) The Court shall have the same jurisdiction as the Supreme Court, and may exercise all the powers and authority of the Supreme Court in proceedings for: … (h) any equitable claim or demand for recovery of money or damages, whether liquidated or unliquidated (not being a claim or demand of a kind to which any other paragraph of this subsection applies), in an amount not exceeding the Court's jurisdictional limit."
7. The words in parentheses refer to the monetary limit of $20,000 contained in pars (d), (e) and (f) of s 134(1). That limit is not relevant to the present case. The Court's jurisdictional limit is $750,000 - s 4(1).
8. A claim for the making of a declaration is an equitable claim. However, when the plaintiff in the present case has failed on its claim for a monetary judgment, there is no scope to make a declaration "for recovery of money or damages" as provided in s 134(1)(h). Two examples show that while declarations can be made by the District Court, they must be declarations made for recovery of money or damages.
9. In Kolavo v Pitsikas [2003] NSWCA 59, a client sued her former solicitors and barrister for professional negligence. The lawyers had advised the client to bring proceedings for damages for personal injury. The client alleged that the lawyers failed to advise her that she had no cause of action against either of the defendants who she sued. The plaintiff sought equitable relief against the solicitor and the barrister in the form of a declaration that those defendants should indemnify her for costs payable to the two successful defendants in the failed litigation.
10. The Court of Appeal held that the District Court did have power pursuant to s 134(1)(h) to entertain the claim for equitable relief sought against the former lawyers, for the unassessed costs for which the former client would become liable. The court relied upon its earlier decision in Commonwealth Bank of Australia v Hadfield [2001] NSWCA 440; (2001) 53 NSWLR 614.
11. In that earlier case a borrower had brought proceedings against a bank claiming damages for the wrongful exercise of a power of sale under a mortgage. The borrower sought to amend his Statement of Claim so as to claim equitable relief including a claim for an account. The bank argued that the only remedy available to a mortgagor alleging a wrongful exercise of a power of sale was a proceeding in equity for an account and the District Court did not have such equitable jurisdiction.
12. The Court of Appeal held that a proceeding for an account falls within the jurisdiction conferred on the court by s 134(1)(h). The court held that par (h) covered such a claim, which was an "equitable claim… for the recovery of money". An action for an account is a claim to recover the surplus proceeds of sale to which the mortgagor claims to be entitled - at [65].
13. In both decisions, the equitable claim was for the recovery of money in an amount yet to be ascertained. It would have been impossible for the District Court to give a money judgment. In the case of Kolavo, the costs of the successful defendants in the earlier proceedings, payable by the unsuccessful plaintiff, had yet to be assessed. In Hadfield, the surplus proceeds after exercise of the power of sale had to be ascertained by evidence. In both cases, the declaration made was a declaration "for recovery of money or damages" as required by s 134(1)(h).
14. In the present case, I have found that because there was no demand, the plaintiff is not entitled to a monetary judgment arising from the 2006 Deed.
15. While the issue of whether or not the 2006 Deed was valid and binding between the parties was litigated, there is no power in s 134 to make a bare declaration. Presumably the plaintiff continued to seek such a declaration so that it might in future issue a demand under the 2006 Deed, or it may even have in mind bringing other proceedings for some other debt owed by the builder to the insurer. If either course is taken by the insurer, that would require a court to look at the circumstances not only surrounding the taking of the 2006 Deed, but also events which have occurred since then. It is not appropriate to make the declarations sought in (i) in the relief claimed by the plaintiff. There is no jurisdiction to make such a bare declaration, given that it is not a declaration "for recovery of money or damages".
16. I therefore decline to give the plaintiff any of the relief sought in relation to the 2006 Deed and this part of the plaintiff's claim fails entirely. In case some question of costs should arise, I note that the first defendant's success in relation to the 2006 Deed is based upon a matter not raised in the pleadings, and which was not one of the 30 issues for determination put forward by the first defendant in MFI 4. Of course, after the issue was debated during closing submissions, counsel for the first defendant wholeheartedly embraced the notion that there had to be a demand and because there was no demand, the claim on the 2006 Deed failed.
17. The conclusions reached above mean that issues 14, 15, 16, 17, 18, 19, 28 and 29 in MFI 4 do not arise for determination. Further, issues 20 and 21 in MFI 4 will be decided only in relation to the 2004 Deed.

The Evidence Relevant to Construction and Effect of the 2004 Deed

1. Counsel for the plaintiff handed up a three-volume Court Book ("CB"). Volume 1 contained: 1. The pleadings. 2. The 2004 Deed (DX 3) and the 2006 Deed (DX 4). 3. The 2012 Deed (DX 5). 4. The affidavits of Mr McIntosh (PX 2), Mr Ratcliffe (PX3), Mr Keighrin (PX 4), Mr Campbell (PX 5) and Mr Karsai (PX6). These went to proof of the amounts paid out for rectification work. 5. The affidavit of Mr Caleb Reynolds (PX 1), an employee of IAL, who gave oral evidence by audio visual link from Queensland. 6. The affidavit of Mr Belonogoff (PX 7), a solicitor who purportedly witnessed and explained the 2004 Deed. He attended court and was cross-examined.
2. Volume 2 of the CB contained the 929 pages of annexures to the affidavit of Mr Reynolds (PX 8).
3. Volume 3 of the CB contained a large amount of subpoenaed material, which was ultimately not tendered. The only documents tendered from Volume 3 were the curricula vitae for Mr Campbell, Mr Keighrin, Mr McIntosh and Mr Ratcliffe (PX 9).
4. The defendant tendered the affidavit of the first defendant Ms Holden (DX 2) and the affidavit of her husband Mr Brett Holden (DX 3). These affidavits were contained in Volume 1 of the CB. Counsel for the defendant separately tendered the 2004 Deed, the 2006 Deed and the 2012 Deed, all of which are in Volume 1 of the CB. Ms Holden and Mr Holden were called for cross-examination.

Evidence of Mr Reynolds

1. Mr Reynolds is a "Litigation Specialist, National Technical Claims" employed by IAL. He is not a lawyer. He manages claim and recoveries for IAL, including Home Owners Warranty insurance claims and recoveries in relation to such claims. His affidavit referred to a large number of documents which he had retrieved from the files and collated. Mr Reynolds made it plain that he did not have direct personal knowledge of the matters, but that his evidence was drawn from the plaintiff's records and investigations.
2. A number of matters deposed to by Mr Reynolds were background matters. These were not the subject of challenge.
3. AIIL conducted business as a Home Owners Warranty insurer. Wesfarmers General Insurance Ltd trading as Lumley Insurance conducted a similar business.

The 2004 Deed

1. In 2004 Kevest was engaged to be the builder of the Development. Prior to issuing Home Owners Warranty insurance to Kevest for the Development, AIIL created the 2004 Deed. This document is reproduced at CB 39-69. It is headed "Deed of Guarantee and Indemnity". It is dated in handwriting on the first page 27 August 2004. Recital A to the Deed refers to AIIL offering insurance under the Home Building Act 1989 (NSW). Recital C states that the Builder requires Home Warranty Insurance in order to comply with the Builder's obligations under that Act. A Schedule to the policy nominates Kevest as the Builder. Recital D states that the Builder has been approved by the insurer as eligible to purchase Home Warranty Insurance. Recital E states that each policy of Home Warranty Insurance provides cover to the Insured against the failure of the Builder to complete the Builder's obligations under the (building) contract and also against defects that occurred during the policy period. The term "Insured" means "a Person who is a beneficiary under a policy of insurance issued under any of the Acts".
2. Recital F of the 2004 Deed reads as follows: "The Guarantor, by executing this Deed, unconditionally and irrevocably guarantees to the Insurer that the Guarantor will fully indemnify the Insurer against all loss or damage, costs and expenses that the Insurer now or in the future incurs as [a] result of the Insurer's obligations pursuant to each and every Home Warranty Insurance policy issued by the Insurer in respect of the Builder's obligations."
3. Section 3 of the 2004 Deed deals with "Guarantee". Section 4 deals with "General Indemnity".
4. Clause 3.1 provides that the guarantor unconditionally and irrevocably guaranteed to the insurer payment of the Guaranteed Money. This term is defined in cl 1.1 of the Deed to mean: "all money, debts and liabilities now or in the future owing or remaining unpaid or undischarged by the Builder to the Insurer on any account or in any way whatsoever and whether: (a) owed or owing by the Builder alone, or jointly and severally with any other person; … (d) the amount of any sum at any time actually or contingently paid or payable by the Insurer under any Insurances given under the Acts… in relation to a Building Contract or Supervision Contract previously or now or in the future entered into by the Builder or in relation to Building Work carried out or to be carried out by the Builder or under the supervision or management (whether directly or indirectly) of the Builder…"
5. Clause 3.2 provides that if the builder did not pay the Guaranteed Money then the guarantor must pay the Guaranteed Money to the insurer upon demand.
6. Clause 4 of the 2004 Deed provides that the guarantor unconditionally and irrevocably indemnifies the insurer against, and must pay to the insurer on demand, all losses, damages, claims, demands, costs, debts and expenses which the Insurer may suffer, incur, pay, meet or be liable for, as a result of or in connection with certain events. Event (a) was any failure by the Builder to pay some or all of the Guaranteed Money when due. Event (c) was the administration, liquidation or incapacity of the Builder. These events did occur, as the builder went into liquidation and it was later deregistered. Event (e) was bad workmanship or any other defect caused by bad workmanship. The claims which were eventually paid by the insurer arose from the bad workmanship of Kevest.
7. Clause 6.1 of the 2004 Deed provides that the guarantor was liable for interest upon amounts payable under the guarantee. Interest was payable on daily balances at the rate of 2% above the rate prescribed under s 2 of the Penalties Interest Rates Act 1983 (Vic). This meant that the rate of interest due under cl 6.1 was 12% per annum.
8. Section 8 of the 2004 Deed deals with "Continuing Security" and provides that "No discharge or release of the Guarantor from its liabilities under this document will be effective unless it is in writing and executed by the Insurer".
9. Section 9 of the 2004 Deed deals with "Preservation of the Insurer's Rights". Clause 9.1 provides: "The Insurer's rights under this document are additional to and do not merge with or affect and are not affected by: (a) any other obligation of the Guarantor to the Insurer; and (b) any Collateral Security now or in the future held by the Insurer from the Builder, the Guarantor or any other person; despite any rule of law or equity to the contrary."
10. The term "Collateral Security" is defined to mean: "any current or future Guarantee, negotiable instrument, Encumbrance, agreement or document: (a) held or taken by or given in favour of the Insurer; or (b) entered into by the Guarantor or the Builder or any other person, as security; for the payment of or otherwise in connection with the Guaranteed Money or any other amount owing or payable to the Insurer pursuant to this document."
11. Section 25 of the 2004 Deed deals with "Assignment" and says: "The Insurer may at any time: (a) assign, transfer, Encumber, or otherwise deal with or dispose of all or any of its rights or benefits under this document or any Collateral Security (or both) to any person; or (b) effect the assumption of or participation in all or any of its obligations under this document or any Collateral Security (or both) by any person; or both (a) and (b)."
12. The Schedule to the 2004 Deed provides that the Guarantors were Jim and Margaret Holden, Jamie and Sharlene Holden, and Brett and Dorthe Holden. There were execution pages provided for each guarantor to sign.
13. The execution page relating to Dorthe Holden is at CB 64. I deal below with the issue of whether or not Ms Holden executed the 2004 Deed. Blanks on the execution page have been filled in in handwriting. Mr Belonogoff, solicitor, gave evidence that the handwriting on the execution page, and indeed on the other execution pages at CB 61-63, is his handwriting. Mr Belonogoff said, without challenge, that he filled in the name of Dorthe Holden, her address, his own name, and near the foot of the page, the date and place of the execution, and his solicitor's certificate. Every blank on the execution page, except the signature which appears above "Signature of Guarantor" was filled out by Mr Belonogoff. Mrs Holden gave evidence about the signature which purports to be hers on the execution page. Her evidence is dealt with below.
14. The execution page is reproduced below:

Issue of Home Owners Warranty Insurance by AIIL in 2004

1. In par 13 of PX 1 Mr Reynolds deposes that on or about 29 September 2004 AIIL issued 11 certificates of insurance to Kevest with respect to the construction of the development. The policy wording is reproduced at CB 284-294 and the 11 certificates of insurance are reproduced at CB 295-305.
2. Of course, Mr Reynolds has no personal knowledge of the issuance of these policies, and the purpose of par 13 of his affidavit is merely to annexe the documents, which speak for themselves. The construction of these documents was an important issue in the proceedings.
3. A curious feature of the 11 certificates of insurance at CB 295-305 is that they appear on the letterhead not of AIIL or Lumley or IAL, but on a letterhead which says "Australian Home Warranty OAMPS a Division of OAMPS Insurance Brokers Ltd".
4. Each certificate is described under a heading "Policy Schedule/Certificate of Insurance". Under that heading in small type appears the following: "Underwritten by Wesfarmers General Insurance Ltd (ABN 24 000 036 279), trading as Lumley General."
5. However, at the foot of each certificate appears the following: "Signed by a person authorised by the insurer. Australian International Insurance Ltd, Level 1, 369 High Street, Kew VIC 3101 (ABN 29 006 544 690)."
6. Each certificate has a policy number commencing with the letters "AIIL". Each of the 11 certificates has its own individual certificate number. Each policy is said to have been issued on "29/09/2004".
7. The insured is nominated as Blue Bay Developments Pty Ltd. This company is also called the 'Building Owner' and the 'Beneficiary'.
8. The residential building work described in each certificate is a particular unit in the Development. The 11 certificates relate to the 11 units which were part of the Development. For example, Unit 1 has certificate 078343 and Unit 2 has certificate 078344.
9. The "contractor" is "Kevest Constructions Pty Ltd".
10. The effect of each certificate is stated, near the top of the document, as follows: "This certificate, when read in conjunction with the Policy of Insurance is a contract of insurance complying with s 92 in respect of CONTRACT WORK… of the Home Building Act 1989 ('The Act') and/or the Home Building Regulation 1997 ('The Regulations') issued by the insurer in respect of Residential Building Work performed by the Contractor in line with the Residential Building Work Contract detailed below. Subject to the Act, the Regulation and the conditions of the Contract of Insurance, cover will be provided to the person named as Beneficiary below and Successors in Title to the Beneficiary."
11. Each certificate provides a limit of liability of $200,000 in aggregate in relation to each dwelling (i.e. each unit). There is an excess of $500 in respect of each claim made under the policy.
12. The policy wording at CB 284-294 is said to be for a policy underwritten by AIIL. Clause 2.1 of the policy wording states that the insured shall be indemnified for an insured loss which arises from, inter alia: "(b) a breach of a Statutory Warranty, being loss or damage in respect of which the Insured cannot recover compensation from the Contractor or have the Contractor rectify because of the Insolvency Death or Disappearance of the Contractor."
13. Section 13 of the policy wording defines "Statutory Warranty" to mean each of the warranties given by the Contractor to the Owner as implied under s 18B of the Home Building Act 1989 (NSW). The six statutory warranties given by s 18B are then reproduced as part of the definition.
14. Counsel for the first defendant submitted that two features of the 11 Certificates of Insurance led to the conclusion that the insurer was not obliged to make payments under the policy, and thus no obligation could be cast upon a person who had given a guarantee and indemnity to the insurer.
15. Firstly, counsel for the defendant pointed to the notation on each document that the insurance is underwritten by Wesfarmers General Insurance Limited trading as Lumley General.
16. The policy certificates bear the date 29 September 2004, but on that date there was no company known by the name Wesfarmers General Insurance Limited.
17. The plaintiff tendered an ASIC search of a company named "WFI Insurance Limited" (PX 17). This company started life in 1937 under the registered name "The Medical & Dental Insurance Limited".
18. On a date unknown the company changed its name to "The Security & General Insurance Company Limited". On 16 September 1986 the company changed its name to "Lumley General Insurance Limited". On 17 October 2008 the company changed its name to "Wesfarmers General Insurance Limited". On 30 June 2014 the company changed its name to "WFI Insurance Limited". On 15 April 2019 the company was deregistered.
19. If the policies were issued on 29 September 2004, that was a date when there was no company named Wesfarmers General Insurance Limited. I draw the inference, which I regard as the most probable inference and explanation, that these printouts of the policy schedules were generated some time between 17 October 2008 and 30 June 2014, when WFI Insurance Limited was known by its former name Wesfarmers General Insurance Limited. That is the only logical conclusion. As will be seen in later evidence, on 30 November 2007 certain assets and liabilities of AIIL were transferred from AIIL to Lumley General Insurance Limited. I deal more fully with that transfer below. The conclusion I express below, for reasons there set out, is that after 30 November 2007, and up until 1 August 2017, the AIIL policies were transferred to and taken over by Lumley General Insurance Limited. As recited above, after 17 October 2008, and until 30 June 2014, this company was known by the name Wesfarmers General Insurance Limited. It must have been in that period that these policy schedules were generated and printed.
20. The policy schedules contain indicia that each policy was issued, not by Wesfarmers General Insurance Limited, but by AIIL. At the foot of each certificate the policies are "signed by a person authorised by the insurer", that insurer being Australian International Insurance Limited. Each certificate has a policy number starting with "AIIL". Each policy is said to have been issued on 29 September 2004, which the evidence shows is a date when AIIL was issuing policies in the Home Owners Warranty market.
21. Issue 1 in MFI 4 can therefore be answered "No" and Issue 2 does then not arise. I find that on 29 September 2004 AIIL issued 11 policies of Home Owners Warranty insurance in relation to building work to be done on the Development by Kevest.
22. A second issue raised by counsel for the first defendant is that the Insured (also known as the Building Owner or the Beneficiary) is named as "Blue Bay Developments Pty Limited" on each policy schedule. Counsel for the first defendant pointed out that this company had been registered on 17 April 2002, but was deregistered on 1 October 2003 (PX 15). Therefore when the policies were issued on 29 September 2004, they nominated a Beneficiary which was a company that ceased to exist upon deregistration the year before.
23. Counsel for the plaintiff pointed out that the evidence showed that the land upon which Kevest was building at Blue Bay was owned, not by Blue Bay Developments Pty Limited, but by a different company with the name Blue Bay Developments (NSW) Pty Limited. The Occupation Certificate issued by the Local Council on 24 November 2006 (CB 306) was issued to "Blue Bay Developments NSW Pty Limited". The Strata Plan (CB 307) was registered on 18 December 2006. It was signed by Mr Neil Frost as the sole director of "Blue Bay Developments (NSW) Pty Limited". An instrument setting out the terms of an easement in favour of Energy Australia for electricity works was signed sealed and delivered by Mr Frost for and on behalf of "Blue Bay Developments (NSW) Pty Limited" (CB 315-316).
24. In 2004, when the 11 policies were issued by AIIL, there was no company named "Blue Bay Developments Pty Limited" in existence. It is inherently unlikely that the insurer intended to issue policies of insurance to a non-existent company. It is clear from the evidence that the intention of the insurer was to issue a policy benefiting as its insured the owner and developer of the land at Blue Bay, being Blue Bay Developments (NSW) Pty Limited. That is the way in which the policy schedules have to be understood. It would be unthinkable for the insurer, having accepted a premium for the 11 policies, to decline to pay on the basis that it had wrongly recorded the name of the insured in its own policy schedules. If the insurer had acted in that fashion, then Blue Bay Developments (NSW) Pty Limited would have had little trouble in obtaining appropriate court orders for rectification of the policies and enforcement of them.
25. I find that the 11 policies of insurance issued by AIIL on 29 September 2004 were issued in favour of the beneficiary Blue Bay Developments (NSW) Pty Limited. That means that Issue 3 in MFI 4 is to be answered "No". The initial beneficiary of the Home Owners Warranty insurance was Blue Bay Developments (NSW) Pty Limited.
26. While Issue 4 is related to Issue 3 in MFI 4, Issue 4 will be dealt with later in this judgment.

Building Work 2004-2006

1. Between 2004 and 2006 Kevest carried out building works at the Development. On 24 November 2006 the Council issued an Occupation Certificate in relation to the property. On 18 December 2006 Strata Plan 77362 was registered (CB 115, pars 15-18).
2. On 20 February 2007 Kevest wrote to the insurer confirming that the building works were completed in late October 2006. Kevest requested the cancellation of the Home Owners Warranty insurance policies (CB 380).
3. On 26 February 2007 Mr Frost on behalf of Blue Bay Developments (NSW) Pty Ltd wrote to the insurer and pointed out that the holder of the policy was his company, and that the builder did not have authority to cancel the policy (CB 381).
4. The policies were not cancelled and remained in force (CB 116, par 22).

2007 Transfer of AIIL Business to Lumley

1. On 30 November 2007 certain assets and liabilities of AIIL were transferred from AIIL to Lumley Insurance, pursuant to orders of the Federal Court of Australia. Part III, Div 3A of the Insurance Act 1973 (Cth) deals with "transfer and amalgamation of insurance business". By s 17E a body corporate affected by a scheme to transfer or amalgamate insurance business may apply to the Federal Court for confirmation of this scheme. Section 17F gives the Federal Court powers to confirm a scheme with or without modification, or to refuse to confirm a scheme. Section 17G provides that when a scheme is confirmed it becomes binding on all persons.
2. The order of the Federal Court approving the transfer of the assets and liabilities of AIIL to Lumley is at CB 172. The Scheme itself is at CB 173-176. The Scheme refers to a Transfer Agreement. The Transfer Agreement is at CB 151-171.
3. By cl 3.1 of the Transfer Agreement AIIL agrees to transfer the "Transfer Assets" to Lumley. Clause 1.1 of the Transfer Agreement defines "Transfer Assets" to mean "All of AIIL's rights under, benefits of, or interest in or in respect of the Insurance Contracts, Reinsurance Contracts and the Other Assets".
4. Clause 1.1 of the Transfer Agreement defines "Transfer Contracts" to mean the "Insurance Contracts" and the "Reinsurance Contracts". Clause 1.1 defines "Insurance Contracts" to mean: "all contracts of insurance issued or entered into by AIIL or under which AIIL has obligations as insurer, which are in effect as at the time of confirmation of the Scheme."
5. Clause 4.1 of the Transfer Agreement provided as follows: "Assumption of Liabilities (a) AIIL assigns and Lumley accepts the assignment of all AIIL's rights under, benefits of and interests in the Transfer Contracts; and (b) Lumley assumes the burden of the Transfer Contracts and will take over, perform and observe all obligations, Claims and Liabilities of AIIL under and in respect of the Transfer Contracts arising before or after the Effective Date, (the Assumed Liabilities)."
6. Clause 4.3 of the Transfer Agreement is headed "Responsibility for Claims" and provides: "Lumley is responsible for the collection and payment of monies and the conduct of all Claims, proceedings and recoveries as insurer or insured under and in respect of the Transfer Contracts"
7. I find that by the Transfer Agreement and the orders of the Federal Court, Lumley effectively became the insurer under the Home Owners Warranty insurance policies issued by AIIL. I find that the guarantee given in respect of the Kevest policies was also assigned to Lumley by cl 3.1 of the Transfer Agreement, as such guarantee was a right, benefit or interest "in respect of" the insurance contracts which were issued.
8. It is clear from the terms of the Transfer Agreement, and the orders of the Federal Court, that Lumley was taking over all of the assets and all of the obligations of AIIL and was henceforth to be the insurer under AIIL policies, and was to have the benefit of documents such as guarantees issued in respect of such policies.
9. These conclusions mean that Issue 20 in MFI 4 is answered "Yes", in relation to the 2004 Deed.

2010: The First Claim

1. In April 2010 the strata managers for the Owners of Strata Plan 77362 lodged a Home Warranty Insurance Claim Form with Lumley. The affidavit of Mr Reynolds provided a chronology of events regarding the first claim and annexed all of the relevant documents (CB 117-119 and CB 257-721).
2. The Owners Corporation of Strata Plan 77362 and the owners of Units 1-11 in that strata plan resolved the first claim by a Release executed on 4 July 2012 (CB 720). The insurer settled the claim by arranging for satisfactory rectification of the accepted defective works by paying a new builder the sum of $325,026.65.
3. The need for the remedial work and the reasonableness of the payment made by the insurer were not issues in this case. The obligation to pay that amount is more than adequately proved by the extensive evidence in PX 2, PX 3, PX 4, PX 5 and PX 6. No submission to the contrary was made.
4. In respect of the first claim, the answer to Issue 4 in MFI 4 is "Yes".

The 2012 Deed

1. On 2 February 2012 Dorthe Holden and Brett Holden entered into a deed with Wesfarmers General Insurance Limited trading as Lumley Insurance (CB 91-95). Counsel for the first defendant argued that the effect of that deed was to estop the plaintiff from bringing these proceedings against the first defendant - Issue 25 in MFI 4.
2. The 2012 Deed related to a different policy of insurance issued by the insurer for a different development built by Kevest. The Recitals for the 2012 Deed show that Kevest entered into a contract for the construction of residential dwellings in Woollahra. Recital B described that construction as "the Works". Kevest took out a separate policy of insurance with Wesfarmers General Insurance Limited as insurer in respect of the Works. The subsequent owners of the property in Woollahra observed defects in the property and lodged a claim with the insurer. The insurer paid $111,835.80 for rectification costs, investigation and assessment costs in respect of that claim. The insurer then commenced District Court proceedings against the guarantors named in the 2004 Deed. Dorthe Holden and Brett Holden disputed the claim made by the insurer against them in those proceedings - Recital I.
3. By the 2012 Deed Dorthe Holden and Brett Holden agreed to pay the sum of $35,000 to settle the differences which were the subject of the District Court proceedings. Upon satisfaction of their obligation to pay that total amount, the insurer gave a covenant not to sue. Paragraph 3 of the 2012 Deed said: "3 COVENANT NOT TO SUE BY THE INSURER: Upon satisfaction of all of the conditions referred to in this Deed, the Insurer hereby agrees: (i) to discontinue the current proceedings against DHolden and BHolden and not to sue DHolden and BHolden in respect of rights and claims relating to the Works, no matter how the same arose and on every account which now exists or which but for this Deed could exist at the date of this Deed; and (ii) not to make any further Claims or demands against DHolden and BHolden, or institute any proceedings relating to the Works on any account whatsoever and no matter how the same shall have arisen, whether directly or indirectly. (iii) Nothing in this Deed prevents the Insurer form pursuing the remaining Indemnifying individuals."
4. Counsel for the first defendant submitted that bringing the current proceedings against the first defendant was a breach of that covenant not to sue, as the present proceedings are a further claim or demand against Dorthe Holden.
5. In Karam v ANZ Banking Group Limited & 1 Ors [2001] NSWSC 709 [at 406] Santow J set out the principles applicable to construing releases or purported releases by reference to the following a series of propositions: "(1) In construing a release... the Court should ascribe to the release the meaning that the release would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties at the time that they signed the document containing the release: ICS v West Bromwich BS [1997] UKHL 28; [1998] 1 All ER 98 per Lord Hoffman at 114. (2) In order for the Court to give effect to what in an objective sense the contracting parties intended, it is clear that a party may agree to release claims or rights of which it is unaware and of which it could not be aware, provided clear language is used to make plain that that is its intention: see Salkeld v Vernon [1758] EngR 153; (1758) 1 Eden 64, 28 ER 608 per Lord Keeper Henley. (3) Consistent with this emphasis on intention, general words in a release are limited to what was specifically in the contemplation of the parties at the time when the release was given: Grant v John Grant and Sons Pty Ltd [1954] HCA 23; (1954) 91 CLR 112 per Dixon CJ, Fullagar, Kitto and Taylor JJ; Iletrait Pty Limited v McInnes (NSWCA, 17 April 1997, unreported) per Priestley JA with whom Grove AJA and Handley JA agreed). (4) Although there are no special rules of construction, such as a contra proferentem requirement, in the absence of clear language courts have been slow to infer that a party intended to surrender rights and claims of which it was unaware and could not have been aware: BCCL v Ali [2001] 1 All ER 961 at 966 per Lord Bingham, (contrast Lord Nicholls in BCCL v Ali(supra) at 971-72 who was of the view that for the purposes of construction a general release is simply a term in the contract). (5) Although each release should be considered against its own matrix of facts, an example of this line of "cautionary principle" (Lord Bingham's phrase) is the frequently cited judgment of the High Court of Australia in Grant v John Grant & Sons Pty Limited (supra), where Dixon CJ, Fullagar, Kitto and Taylor JJ (at 125) referred with approval to the proposition put by Sir Frederick Pollock in his "Principles of Contract" (Stevens: London, 1950) 13th ed at 412, that "in equity a release shall not be construed as applying to something of which the party executing it was ignorant." (6) Despite the fact that, strictly speaking, releases are subject to no special rules of construction, a transaction in which one party agrees in general terms to release another from any claims upon it does have special features: BCCL v Ali at 984 per Lord Hoffman. (7) In such circumstances it may well be appropriate to imply an obligation upon the beneficiary of such a release to disclose the existence of claims of which it actually knows and which it also realises might not be known to the other party: BCCL v Ali at 984 per Lord Hoffman, for such an obligation is consistent with a concern to protect parties from sharp practice, by preventing advantage being taken of the known ignorance of the conceding party; BCCL v Ali per Lord Nicholls at 973."
6. Applying those principles of construction, I find that the phrase "relating to the Works" in cl 3(ii) qualifies not only the word "proceedings" on the same line, but also qualifies the phrase "any further Claims or demands" on the first line.
7. The Recitals to the 2012 Deed make it plain that it relates to a dispute arising out of works done by Kevest in Woollahra for which the insurer issued a specific policy of insurance. Further, the District Court proceedings, while relying on the 2004 Deed, were for indemnity in relation to a payment made by the insurer for the rectification for the Woollahra property. There is no mention in the Recitals of the Blue Bay Development, or of the 11 policies of insurance issued by AIIL in respect of that development. The sum of money accepted by the insurer is a significant compromise on the rectification costs paid for Woollahra, and could not be thought to have anything to do with the large claim made in these proceedings arising from the Blue Bay Development.
8. Clause 3(i) of the 2012 Deed relates only to the insurer's rights against Dorthe Holden in relation to its claim pursued in the District Court arising out of the rectification works for the Woollahra property. That is so even though cl 3(i) contains the wide and general words "no matter how the claim arose and on every account which now exists". Those general words appear after the qualifier that such claims must be those "relating to the Works".
9. Counsel for the first defendant pointed to the comma in the first line of cl 3(ii) after the word "BHolden" and submitted that the covenant not to make any further claims or demands against Dorthe Holden or Brett Holden was separate to the words after the comma, which covenanted not to institute any proceedings relating to the Works against those parties.
10. There is no indication in the words of the Deed, or the background to the Deed, that the intention of the contracting parties was anything other than to finally resolve every aspect of the dispute relating to the District Court proceedings seeking indemnity for the rectification costs of the Woollahra property.
11. Finally, the 2012 Deed was executed on 2 February 2012, at a time when the first claim in relation to the Development was still not resolved with the Owners Corporation.
12. In her affidavit sworn on 23 June 2020 (DX 2) the first defendant said that when she signed the 2012 Deed, she understood "that I would be free of any further liability I owed relating to Kevest, anyone with a claim against Kevest in any claim arising because of the 2004 Deed and the 2006 Deed". Over objection this evidence was received, but it was limited to the assertion by the first defendant of her understanding concerning the effect of the 2012 Deed.
13. The first defendant gave no evidence as to how she came to that understanding, and gave no evidence that anything said or done by the insurer led to that understanding.
14. The task of the court is not to construe the intention of the parties by reference to what one of the parties asserted they understood to be the effect of a document. The court must ascribe to the Release the meaning that the Release would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties at the time they signed the document containing the Release. The general words in any Release are limited to what was specifically in the contemplation of the parties at the time when the Release was given. The only evidence as to what was in the contemplation of the parties is the matters contained in the Recitals to the 2012 Deed.
15. Applying the canons of construction set out by Justice Santow, referred to above, I find that the intention of the parties to the 2012 Deed was to release all and any claims arising from the Woollahra property, but that the Release in the 2012 Deed had absolutely nothing to do with any other claims or potential claims which the insurer might make against the guarantors, including the first defendant.
16. Issue 25 in MFI 4 is answered "No".

2012-2013: The Second Claim

1. Further defects in the Development emerged with time. Mr Reynolds dealt with these at pars 58-104 of his affidavit (CB 119-125 and CB 722-1054).
2. Notification of the second claim was first provided by email on 14 November 2012 (CB 722).
3. On 16 November 2012 Mr Kelsey, a claims officer of the insurer, acknowledged the email notification of the claim and advised that a formal claim form was required (CB 725).
4. On 31 January 2013 the owners lodged another Home Owners Warranty insurance claim form with the insurer (CB 750-755).
5. On 26 February 2013 the insurer issued a decision with respect to the second claim setting out items accepted and items denied by the insurer (CB 756-760). The owners accepted this decision on 13 March 2013 (CB 761).
6. The insurer then engaged experts to rectify the faulty workmanship and paid monies to do so.
7. There is no dispute in the present case that there was faulty workmanship which caused damage to the Development, and that the amount paid by the insurer for rectification works relating to the second claim was necessary and reasonable. There is a legal issue as to whether the insurer was obliged to pay that claim under the policy. That will be dealt with below.
8. The total remediation costs paid for the first claim and the second claim amounted to $396,253.51. The total investigation and assessment costs for the first claim and the second claim were $17,586.30 (a lower figure than that claimed in the Statement of Claim). The total of these two figures is $413,839.81, which is the principal amount claimed in these proceedings (plus interest and costs). The particular payments which total this amount are set out at CB 126-127. Again, there is no dispute about quantum.

The 2013 Deed

1. Counsel for the first defendant submitted that a deed dated 31 July 2013 ("the 2013 Deed") between Lumley and the Owners Corporation of the Development had the effect of limiting any liability of the first defendant to $365,000. This became Issue 30 in MFI 4.
2. The settlement of the first claim was formalised by the 2013 Deed (CB 835-837). It was a settlement in relation to the "Claim", which was defined to mean: "the Owners' claim for indemnity MEBWME167262 in respect of all Defects and/or other matters notified to Lumley on April 23rd 2010."
3. The 2013 Deed recited that Lumley and the Owners agreed to perform their mutual obligations set out in the document in full and final satisfaction in settlement of the Claim.
4. Under the heading "Release and Indemnity" the following appears; "The Owners release Lumley to the extent allowed by law, from all claims arising from or in connection with the Claim which the Owners have or might otherwise become entitled to make against Lumley and agree that Lumley may use this Deed as a bar against any further claims, actions, suits or proceedings by the Owners arising from or in connection with the Claim. The Owners will indemnify Lumley against any claims, actions, suits or proceedings by the Owners or any future owner of the Building made with respect to matters arising from or in connection with the Claim."
5. I reject the submission that the 2013 Deed meant that the insurer's potential liability to the owners was at an end and that the second claim could not have been made and should not have been paid. The 2013 Deed is clearly a release in relation to the first claim, which can be seen from the definition of "Claim" in the document. The release and the indemnity are limited to claims "arising from or in connection with the Claim". There are no general words of release. I find that when the second claim was made, the insurer was bound to consider it, and pay or settle that claim if it was found to be valid as a matter of fact.
6. Issue 30 in MFI 4 is answered "No".

Submission re Period of Insurance

1. Section 4.1(b) of the policy wording (CB 289) provides as follows: "This Policy only provides the indemnities referred to in Section 2 for the following period: … (b) in respect of loss arising from a Structural Defect for the period of six years after the date of completion of the Work or the date of the end of the Contract relating to the Work, whichever is the later…"
2. The definition of "Completion" in s 13.1 of the policy operates so that the date of the final inspection of the Work by the local council is the date of completion. In this case the Occupation Certificate (CB 306) was issued on 24 November 2006. Thus, runs the submission, the period of insurance ran for six years from that date until 24 November 2012.
3. Counsel for the first defendant submitted that the claim form was dated 31 January 2017 (CB 753) so that this form was submitted more than six years after the period of insurance provided in the policy.
4. Clause 8.7 of the policy provides: "The period for making claims under this Policy ceases immediately the Period of Insurance expires."
5. Clause 13.1 of the policy provides the following definitions: "'Claim' for the purposes of the policy, means written notice made on the Insurer's Claim Form of any failure of the Contractor to comply with the terms of the Relevant Contract or any Defect. 'Claim Form' means the claim form approved by the Insurer to be submitted by the Insured to the Insurer for the purposes of a Claim under the Policy."
6. As recited above, the first notification of the second claim was the email dated 14 November 2012. On 16 November 2012 the insurer advised that a formal claim form needed to be submitted for any additional defects. Such a claim form was submitted on 31 January 2013.
7. While the strata agent first notified the insurer of the second claim by email on 14 November 2012 (CB 722), there is evidence that the owners notified the strata agent on 20 October 2012 (CB 724).
8. Counsel for the plaintiff answered the submission by pointing to s 103BB of the Home Building Act 1989. This section was inserted into the Act by amending legislation in 2011 but specifically applies to all contracts of Home Owners Warranty insurance entered into on or after 1 July 2002. Section 103BB provides that a loss that becomes apparent in the last six months of the period of insurance has an "extended claim period" which permits a claim in respect of the loss to be made within six months after the loss becomes apparent. Counsel for the plaintiff submitted that s 103BB effectively provides a six month period grace period.
9. I infer from the letter dated 20 October 2012 from the owners to the strata agent (CB 724) that the loss had become apparent to the owners during the last six months of the period of insurance. That period ended on 24 November 2012. The letter from the owners was dated one month before and was thus within the final six months of the period of insurance. The formal claim form was then submitted in January 2013, and was thus within the six month period of grace provided by s 103BB.
10. Counsel for the plaintiff submitted that even though the claim form was submitted after the expiry of the Period of Insurance, cl 4.1(b) of the Policy did provide indemnity. That subcl states that indemnity is provided "in respect of loss arising from a Structural Defect for the period of six years after the date of Completion of the Work". The letter of October 2012 is itself evidence of loss arising during the period of six years after the date of completion of the work. This is confirmed by the November 2012 letter from the strata agent. Thus the loss has arisen arising from a Structural Defect within the six year period of indemnity prescribed in cl 4.1(b) of the Policy.
11. Further, when cl 8.7 of the policy speaks of the period for making claims ceasing once the Period of Insurance expires, it is to be noted that the word "claims" is not capitalised, and thus the use of the word "claims" in cl 8.7 is not to be confined to formal claim forms, as it would be if the word were capitalised. As a fact the insured has made a claim under the policy prior to the expiry of the Period of Insurance.
12. I accept all of those submissions by counsel for the plaintiff and thus the insurer was obliged to consider and pay the second claim.
13. If the insurer had been entitled to deny indemnity to the owners in relation to the second claim, then the guarantors could not be made liable. However, I find that the insurer was obliged to indemnify the owners for the second claim.
14. This means that Issue 4 in MFI 4 is again answered "Yes" and Issue 24 in MFI 4 is answered "No".

2017 Transfer of Lumley Business to IAL

1. On 1 August 2017 certain assets and liabilities of Lumley were transferred to IAL.
2. The orders of the Federal Court approving the Scheme for the transfer of the insurance business of Lumley to IAL are at pp CB 177-178. Those orders approve the Scheme as set out in Annexure C to the orders, known as the "WFI scheme" (CB 194-200).
3. Clause 2(a) of that Scheme provides that Lumley agrees to sell and IAL agrees to purchase and accept the transfer of all of the Business including the Business Assets. The phrase "Business Assets" means the assets of Lumley used for the purposes of conducting the Business, and includes the "Business Contracts". The phrase "Business Contracts" means the right, title and interest under any written contracts, deeds or arrangements made by Lumley in connection with the Business and subsisting at the date of the Scheme.
4. Clause 2(a) of the Scheme also provided that Lumley agreed to sell and IAL agreed to purchase and accept the transfer of all of the Insurance Contracts and the Insurance Liabilities. The phrase "Insurance Contracts" was defined in cl 1.1 to mean all contracts of insurance referable to the Business which were issued, entered into or assumed by Lumley as insurer. The phrase "Insurance Liabilities" was defined in cl 1.1 to mean claims, losses, liabilities, costs or expenses or any kind under or in relation to the Insurance Contracts, which had arisen or remained unsatisfied or which might arise in the future.
5. I find that the obligations which Lumley had to the owners in the development were transferred by the Scheme and the orders of the Federal Court to IAL. Thereafter, IAL was the insurer of the Home Owners Warranty insurance liabilities in relation to the development.
6. I also find that the 2004 Deed was a business asset of Lumley used for the purposes of conducting the business.
7. It is plain from the terms of the Scheme and the Federal Court orders approving the Scheme, that all of the Lumley Home Owners Warranty insurance business was transferred to IAL, so that it became the insurer and it obtained the benefit of any documents such as the 2004 Deed which had been created in relation to the Insurance Contracts.
8. The answer to Issue 21 in MFI 4, in relation to the 2004 Deed, is "Yes".

2018 Demand made under the 2004 Deed

1. By a letter dated 20 June 2018 the solicitors for IAL wrote to Dorthe Holden on behalf of IAL and demanded payment of $417,599.81 pursuant to the 2004 Deed. The letter demanded payment by 18 July 2018.
2. The 2004 Deed required such a demand to be made before the guarantor could be liable. Clause 3.2 of the 2004 Deed (CB 45) required that the Guaranteed Money became payable "immediately upon demand". Clause 4 of the 2004 Deed provided for the general indemnity given by the guarantor to the insurer, and obliged the guarantor to "pay to the Insurer on demand".
3. Clause 6.1 of the 2004 Deed provided that interest at 12% per annum was payable. Since the demand required payment by 18 July 2018, and there was no obligation to pay before that date, interest at 12% per annum would run from 18 July 2008 if the first defendant is bound by the 2004 Deed. While cl 6.1 provides effectively for compound interest, such a claim was not made in the present proceedings.
4. Further, cl 5 of the 2004 Deed provided that the guarantor was liable to pay costs on an indemnity basis. However, such a claim was not made in these proceedings. When this was pointed out, counsel for the plaintiff faintly argued that the plaintiff should be allowed to amend to claim indemnity costs. The application was refused. The plaintiff is bound by its pleadings to seek ordinary costs and simple interest rather than compound interest.

Evidence Relevant to Execution of the 2004 Deed and Unconscionability

Evidence of Dorthe Holden

1. Ms Holden swore an affidavit on 23 June 2020 (DX 2). Ms Holden was married to Mr Brett Holden in 1993. They have three children. Ms Holden left school in Year 10 and completed a hairdressing qualification at TAFE. She is currently employed as an assistant administrator.
2. Between the birth of her first child in 1994, and her husband leaving Kevest in November 2006, Ms Holden was "predominantly a stay-at-home mum". She worked part-time as a hairdresser.
3. Kevest paid for "our mortgage and house expenses, our car and car expenses and other ongoing essential items". Kevest also paid an "allowance" to Brett, who did not receive a weekly wage. The allowance was used to feed and clothe the family.
4. From time to time Ms Holden was asked to sign documents involving Kevest. She was never told anything about the documents. If she ever asked about the contents of a document or tried to read it, she was told by Margaret or Jamie "It is none of your business" or "Just sign it and get out of here" or "If you don't sign the fuckin thing Brett won't get paid". Sometimes her husband Brett brought home a page to be signed. If she asked what it was Brett used to say: "I don't know babe just sign it so I can take it back so they don't get the shits".
5. Ms Holden gave evidence that she was afraid of her brother-in-law Jamie. He was physically aggressive and owned firearms. When she signed documents she was concerned for the wellbeing of her family and herself. She had seen Brett and Jamie having an argument on the front lawn of her family home. On many occasions she heard Jamie raising his voice and yelling at Brett over the telephone. Ms Holden described the relationship with the rest of the family as "toxic".
6. Even after Brett left Kevest, there was still bad behaviour towards herself and her family.
7. Speaking of the 2004 Deed, Ms Holden said in her affidavit: "31. The 2004 Deed contains a signature which purports to be my signature. 32. As best I can recall, I did not sign the 2004 Deed. 33. The handwriting on the 2004 Deed does not appear to be mine. 34. At no time was it explained to me that I was personally guaranteeing Kevest's obligations. 35. The 2004 Deed also contains the signature of what appears to be a solicitor named Vladimir Belonogoff. Brett has shown me a picture of Mr Belonogoff and I do not recognise him, nor have I ever been to his office."
8. Ms Holden was cross-examined about the 2004 Deed. She agreed that if she had read the words on the execution page, which purported to summarise the advice given by Mr Belonogoff about the effect of the 2004 Deed, she would have understood what the words meant. However, she later said that she would not have understood what the words meant.
9. Ms Holden was born in Denmark and had been living in Australia since 1993. English was not her first language.
10. In cross-examination Ms Holden said that it was possible that she did sign the 2004 Deed. She just did not recall signing it.
11. Ms Holden was cross-examined about the 2006 Deed. In light of my previous finding about this document, such evidence is relevant only to credit. Counsel for the plaintiff asked the witness to look at the execution page of the 2006 Deed (CB 87). Part of this page, allegedly signed by Ms Holden, contained an acknowledgement that the insurer had advised the guarantor to obtain legal advice, but she had declined to seek such advice. Part of this page was a relatively plain English explanation of the legal effect of the guarantee and indemnity being provided in the 2006 Deed.
12. In cross-examination it was put to Ms Holden that if she had read the words of explanation, she would have understood them. Her first answer was that she would have needed someone to explain what the words meant. Ms Holden then said that if the document had been given to her, she would have understood the explanation.
13. Ms Holden also gave an answer to the effect of: "The signature is not mine." However in her affidavit (DX 2 par 38) Ms Holden had said: "As best as I can recall, I did not sign the 2006 Deed."
14. Ms Holden was shown further documents in cross-examination which bore her signature. She acknowledged that it was her signature on a plan of subdivision (PX 11) and on three mortgages (PX 12, PX 13, PX 14).
15. In cross-examination Ms Holden said that Kevest built her family home, as well as the family home next door for Jamie and Sharlene. The house was transferred into her name and Brett's name. Kevest paid the mortgage on the house.
16. I have significant reservations about the credibility of Ms Holden on the crucial issues of the execution of the 2004 Deed and her understanding of the effect of the 2004 Deed. On important matters Ms Holden tended to be an advocate in her own cause.
17. For example, her answer that if she had read the words on the execution page, which purported to summarise the advice given by Mr Belonogoff about the effect of the 2004 Deed, she would have understood what the words meant, was contradicted almost immediately by her assertion that she would not have understood what the words meant (see par 187 above). It appeared to me that she realised that her first unguarded answer was detrimental to her case so she changed her evidence.
18. In relation to the explanation recorded on CB 87 of the 2006 Deed, her immediate answer was that she would have needed those words explained to her, but when pressed she conceded that she would have understood the words (see par 191 above). I formed the impression that Ms Holden was keen to provide answers to suit her case.
19. To similar effect was her denial in cross-examination that the signature on the 2006 Deed was hers, whereas her sworn evidence on affidavit was that she could not recall signing the 2006 Deed (see par 193 above).
20. Overall I prefer the evidence of Mr Belonogoff concerning the execution of the 2004 Deed and the explanation given to Ms Holden concerning the effect of the guarantee and indemnity. I deal with his evidence below.

Evidence of Brett Holden

1. Mr Brett Holden swore an affidavit on 26 June 2020 (DX 6). Between 10 November 2004 and 27 November 2006 Mr Holden was a director and project manager for Kevest. Kevest was part of an umbrella of corporations known as the Denmay Group. This Group included Denmay Commercial Interiors Pty Ltd. From 1990 until 2006 Mr Holden managed that company independently of other members of the Denmay Group.
2. When Mr Holden worked at Kevest he was not paid a wage but that company paid for "my house, the household expenses, food, cars, fuel and other everyday items". He said that Margaret and Jamie had complete control over what he was paid and how much he could spend. He received about $150-$200 per week to buy groceries and to pay for entertainment.
3. Jamie was the one who usually asked him to sign documents. If Mr Holden questioned what he was signing, Jamie made physical threats to him. He described the relationship with his brother as "toxic".
4. Around the middle of 2006 Mr Holden left Kevest and Denmay Commercial Interiors Pty Ltd.
5. In relation to the 2004 Deed, Mr Holden said in his affidavit: "29. The 2004 Deed purports to contain my signature. 30. I don't remember signing the 2004 Deed. 31. The handwriting on the 2004 Deed isn't my handwriting. 32. The 2004 Deed also contains the signature of what appears to be the signature of Vladimir Belonogoff. I have looked up a photograph of Mr Belonogoff. I have looked up a photograph of Mr Belonogoff and I do not recognise him nor have I ever been to his office."
6. In cross-examination Mr Holden said that in early 2004 he and his wife and family moved into the house which had been built by Kevest. The house was transferred into the names of Mr and Mrs Holden. He said that everything was paid for by the company including the mortgage.
7. In cross-examination counsel for the plaintiff put to Mr Holden that he did not deny signing the 2004 Deed. His response was that the signature was similar to his signature. He was asked whether he might have signed it and he said "may have, may not".
8. In relation to the execution of the 2006 Deed Mr Holden said that the signature looks like his signature. He accepted that he did not deny that he signed the 2006 Deed and that he "might have" signed it.
9. Mr Holden said in cross-examination that he had never met Mr Belonogoff. It was put that Mr Belonogoff worked for a firm of solicitors named Thomas Booler & Co. Mr Holden said that his parents used to deal with that firm but that he had never been to their office. He signed a lot of documents in front of his brother or his mother, but he denied signing any in the presence of Mr Belonogoff or any solicitor.
10. The cross-examiner returned to whether the 2004 Deed was executed by Mr Holden. Mr Holden said that this was a "grey area" and that it was not impossible that he signed it. He could not definitely say he signed it.
11. I did not obtain much assistance from the evidence of Mr Holden. He was equivocal about whether or not he signed both deeds. His evidence was vague and evasive.

Evidence of Vladimir Belonogoff

1. Mr Belonogoff affirmed an affidavit on 9 December 2020 (PX 7). Mr Belonogoff is a solicitor who had been practising since 9 July 2004. Prior to that date he worked as a paralegal at Thomas Booler & Co Lawyers. After he was admitted on 9 July 2004 he continued working at that firm as a solicitor.
2. Mr Belonogoff said that he first met Dorthe Holden and Brett Holden when he was a paralegal at Thomas Booler & Co Lawyers in or around 2002.
3. In relation to the execution pages of the 2004 Deed, he said that he had signed confirming that Dorthe Holden and Brett Holden had signed the Deed. He said: "I do not recall specifically the events in respect of signing the Deed given the time that has now elapsed. However, it is my standard practice to witness the person signing the relevant document prior to placing my signature on that document confirming that I have witnessed their signature."
4. Mr Belonogoff said that the handwriting on the Deed, apart from the signature of Mr and Mrs Holden, was his handwriting.
5. Mr Belonogoff said in his affidavit: "8. I would not have signed the Deed without first witnessing, on each occasion, James Holden, Sharlene Holden, Dorthe Holden or Brett Holden, sign the relevant pages of the Deed in front of me. 9. Where my name appears in handwriting at paragraph (a) on the execution pages at pages 22, 23, 24 and 25 of the Deed, I believe that is my handwriting and that I have written my name in the space provided. I cannot recall specifically the advice that I have in regard to the Deed given the time that has now elapsed, but I would not have signed the Deed unless I had given the advice that is said to have been given to each person, including Dorthe Holden and Brett Holden, as stated at paragraph (a) on pages 22, 23, 24 and 25 of the Deed."
6. Mr Belonogoff deposed that he had met Brett and Dorthe Holden soon after he started working at Thomas Booler & Co Lawyers and then again when he worked on other matters of theirs, prior to dealing with them in relation to the 2004 Deed. He recalled having done conveyancing work for them and their family, including Margaret and James Holden.
7. In cross-examination Mr Belonogoff said that he took perhaps one to one and a half hours to explain the document to the parties. He said that he probably would have seen the husband and wife together. Mr Belonogoff said that he would not have signed the certificate if he thought that they did not understand the document.
8. In re-examination Mr Belonogoff said that one of the wives bought a hairdressing salon in Castle Towers, and that his firm acted for that wife. It is noted that in her own evidence, Mrs Holden said that she was a hairdresser, and that she had operated a hairdressing business in Castle Towers through a company Tryley Pty Ltd, of which she was a director. Mr Belonogoff gave evidence that the hairdressing salon was in the middle of the shopping centre, near KFC and the escalators. He was not challenged about this evidence.
9. I find that Mr Belonogoff was a careful and credible witness. He was quite frank in admitting that he had no direct memory of the execution of the 2004 Deed or of explaining the effect of the 2004 Deed to Ms Holden. He gave evidence of his standard practice in relation to witnessing and explaining such documents. I accept that evidence as truthful and credible. While Mr Belonogoff had only been admitted as a solicitor a short time before execution of the 2004 Deed, he had worked in the same firm for two years as a paralegal and had dealt with conveyancing and other documents for some time.
10. I find it unlikely in the extreme that Mr Belonogoff would have put his name and signature to the 2004 Deed, if he had not seen Ms Holden and Mr Holden sign it in front of him, and if he had not given the explanation summarised on CB 64. It would be a very serious matter for a solicitor to purport to witness a document which had not been signed in front of him. It would be equally serious to sign a certificate saying that an explanation had been given to the client when no such explanation had been given. While Mr Belonogoff was challenged in cross-examination about his memory concerning the execution of the 2004 Deed, it was not suggested to him that he had simply made up a story that he had explained the document to Ms Holden, and explained it to her.
11. Mr Belonogoff was not retained to provide business advice to Mr and Ms Holden, or to enquire about their understanding of the finances of Kevest. He was retained for the important, but relatively straight forward, task of explaining the nature and effect of the 2004 Deed and then witnessing its execution. I find that he carried out both aspects of this task.
12. While Mr Belonogoff had no direct recall of the events surrounding the execution of the 2004 Deed, he did recall that one of the wives (Dorthe or Sharlene) had been a hairdresser and that he had acted for her in relation to setting up a hairdressing salon in Castle Towers. He also recalled meeting Ms Holden and her husband more than once when acting on conveyances for the Holden family. I accept all of this evidence. I reject the assertion of Ms Holden and her husband that they had never met Mr Belonogoff.

Did Ms Dorthe Holden execute the 2004 Deed?

1. I find that Ms Holden did execute the 2004 Deed on 23 August 2004 in front of Mr Belonogoff. My reasons are: 1. I have accepted the evidence of Mr Belonogoff for reasons set out above; 2. Ms Holden has never denied that the signature on the 2004 Deed is her signature. The highest her evidence rises is that she cannot recall signing the 2004 Deed; 3. I do not accept Ms Holden as a reliable and credible witness for reasons set out above.
2. I was invited by counsel for the plaintiff to examine the undisputed signatures of Ms Holden and compare them to what appears to be her signature on the 2004 Deed. In Jeans v Cleary [2006] NSWSC 647 Johnson J said at [157]: "As a tribunal of fact, I am entitled to make a comparison between handwriting that is disputed and admitted, although I should pay particular attention and regard to expert testimony on the issue."
3. In Bidmonta Pty Ltd v Georgiou [2011] NSWSC 227 Gzell J had to decide whether a son had forged his mother's signature on mortgage document, when no evidence from a handwriting expert was presented to the Court. At [15] his Honour noted that care must be taken in such a case, saying: "I was invited to conclude that the signature on the mortgage was not that of Mrs Georgiou. There was no handwriting evidence from an expert. In the absence of such evidence the court should be careful in its appraisal of handwriting."
4. While I cannot discern any difference between the signature on the 2004 Deed and the undisputed signatures of Ms Holden in evidence, I prefer to base this part of my decision on the acceptance of the evidence of Mr Belonogoff set out above. I am very wary of drawing my own inexpert conclusion about handwriting, particularly in the absence of any expert handwriting evidence. Further, the only signatures which appear in the evidence are on photocopies. No original signatures were tendered. Handwriting experts will usually decline to provide an opinion in the absence of originals.
5. The answer to Issue 5 in MFI 4 is "Yes".

Did Mr Belonogoff explain the 2004 Deed to Ms Holden?

1. I find that Mr Belonogoff did explain the 2004 Deed to Ms Holden as I have accepted his evidence on this topic, for reasons set out above.
2. I find that the explanation was as set out on the execution page (CB 64) at par (a)(i), (ii) and (iii). In light of Mr Belonogoff having no independent recollection of what he said to Ms Holden, I find that the explanation was no more detailed or sophisticated than that recorded at CB 64.
3. Those findings are relevant to the topic of unconscionability, which is dealt with below.

Unconscionability

1. Ms Holden raised issues of unconscionability, both under the general law and under s 21 of the Australian Consumer Law (Cth) ("the ACL").

Equitable Doctrine of Unconscionable Dealing

1. Counsel for the first defendant acknowledged that the decision of the High Court in Commercial Bank of Australia v Amadio (1983) 151 CLR 447 did not assist his client. Counsel accepted that the first defendant could not say that the plaintiff had taken advantage of any special disability of Ms Holden.
2. In Amadio two elderly parents of a builder executed a guarantee for the debts of their son's business. The parents had a limited grasp of written English and relied on their son for the management of their business affairs. They believed that he and his business were prosperous and successful. A bank officer brought a guarantee to their home at a time when Mr Amadio was reading the newspaper after lunch and Mrs Amadio was washing the dishes. They were presented with a complicated and lengthy document for their immediate signature. They received no independent advice in relation to the transaction and they had only learned about the proposed guarantee a few hours earlier from their son. The son had misled them as regards to the extent and duration of their potential liability under the guarantee. The parents did not read the document. They signed it in the mistaken belief that their potential liability was limited to a maximum of $50,000.
3. The equitable doctrine of unconscionable dealing "looks to the conduct of the stronger party in attempting to enforce, or retain the benefit of, a dealing with a person under a special disability in circumstances where it is not consistent with equity or good conscience that he should do so" - at p 474 per Deane J.
4. The High Court held that the parents were the weaker party to the transaction between themselves and the bank. The High Court was also of the view that their disability and the inequality between themselves and the bank "must be held to have been evident to the bank and in the circumstances it was prima facie unfair and unconscientious of the bank to proceed to procure their signature on the guarantee/mortgage" - at p 479 per Deane J.
5. Counsel for the first defendant submitted that the only "disabilities" of the first defendant to which he could point were her age (she was 34 in 2004) and her language skills. Counsel acknowledged that Amadio did not help the first defendant.
6. I find that that concession was properly made. In Amadio the bank had been propping up the son's building company and had been selectively honouring cheques drawn on overdrawn accounts. The bank was aware that the parents did not know of these matters. The bank was also aware of the parents being elderly and having limited English. The bank made no attempt to explain the guarantee to the parents. By contrast in the present case I find that there was no special disability of Ms Holden which was sufficiently evident to the insurer to make it prima facie unfair or unconscientious of the insurer to procure the execution of the guarantee. In fact, there is no evidence about the insurer's knowledge of the position of the first defendant, save that (as I have found) the guarantee was the subject of an independent explanation by Mr Belonogoff.
7. Further, there was no evidence in the present case that Kevest was in any sort of financial trouble, or that (unlike the situation in Amadio) the insurer was desperate to obtain security for debts which were clearly going bad.
8. Counsel for the first defendant submitted that the decision of the High Court in Garcia v National Australia Bank Ltd [1998] HCA 48; (1998) 194 CLR 395 assisted his client. The facts of the case were that Mrs Garcia signed a guarantee following requests by her husband to do so in order that he might deal in large amounts of gold. The husband had told his wife that there was no danger because "if the money isn't there the gold is there". Mrs Garcia described signing the document, at the places to which the bank officer pointed, in a process which took less than a minute. There was no explanation of the transaction.
9. The High Court held that it would be unconscionable to enforce a guarantee if four elements were present: 1. The surety did not understand the purport and effect of the transaction; 2. The transaction was voluntary (in the sense that the surety obtained no gain from the contract the performance of which was guaranteed); 3. The lender was to be taken to have understood that, as a wife, the surety might repose trust and confidence in her husband in matters of business and therefore to have understood that the husband may not fully and accurately explain the purport and effect of the transaction to his wife; and 4. The lender did not itself take steps to explain the transaction to the wife or ascertain that a stranger had explained it to her.
10. Counsel for the first defendant submitted that there was no good reason for Ms Holden to give the guarantee. She was the wife of a man who played a part in the business, but she was not part of the company or the business. Further, it was submitted that Ms Holden knew nothing of the financial consequences of the risk which she took on by the guarantee. It was submitted that it was the obligation of the insurer to check that she knew of the financial consequences of the risk.
11. I make the following findings of fact which are relevant to the four elements of unconscionable conduct set out above: 1. I do not accept that the first defendant did not understand the purport and effect of the transaction, since she was provided with a basic, yet functional, explanation of the effect of execution of the guarantee, by Mr Belonogoff, who was a solicitor retained independently of the insurer. 2. The first defendant was not a volunteer, as she did have something to gain from execution of the document, in that Kevest had provided the couple with a house, had paid the mortgage, had provided cars, had maintained cars, and paid for some of the living expenses of the household. The funds to do this came from the building contracts of Kevest, the performance of which was in effect being guaranteed. 3. There was no evidence that the first defendant had executed the guarantee in reliance upon anything said to her by her husband, or by other members of the Holden family, or by the insurer. 4. While Ms Holden may have reposed trust and confidence in her husband in matters of business, there was no evidence that Mr Holden misrepresented the purport and effect of the transaction to his wife. Mr Holden could not even remember signing the document, although he did not deny that he did so. 5. In any event the insurer did take steps to have the transaction explained to the wife by requiring her to execute the document before an independent solicitor, who explained the document to her and who provided a certificate to that effect.
12. Unlike Garcia, there was no evidence in the present case that Ms Holden did not understand the purport or effect of the transaction. In a way this finding is a function of the way in which the first defendant ran the trial, which was to say that she had no memory of executing the document. The first defendant gave no evidence that she had a lack of understanding, engendered by any unconscionable conduct, of what the document meant. I have already found that Ms Holden was provided with the basic but adequate explanation certified by Mr Belonogoff.
13. The first defendant does not satisfy the criteria discussed by the High Court in Garcia and had not established that she is entitled to any relief in relation to the 2004 Deed because of any unconscionable dealing or unconscionable conduct by the insurer, as a matter of general law.
14. These conclusions lead to the following answers to issues posed as questions in MFI 4: Issue 6: Yes Issue 7: Yes Issue 8: Not applicable

Unconscionable Conduct under Section 21 of the Australian Consumer Law

1. Section 21(1) of the Australian Consumer Law ("ACL") provides as follows: "A person must not, in trade or commerce, in connection with the supply or possible supply of goods or services to another person, engage in conduct that is, in all the circumstances, unconscionable."
2. The Australian Consumer Law commenced on 1 January 2011. Thus the conduct which is said to be unconscionable must be conduct which has occurred after that date.
3. Section 21(3) provides as follows: "For the purpose of determining whether a person has contravened subsection (1) in connection with the supply or possible supply of goods or services to another person: (a) the court must not have regard to any circumstances that were not reasonably foreseeable at the time of the alleged contravention; and (b) the court may have regard to conduct engaged in, or circumstances existing, before the commencement of this Section."
4. Section 21(4) provides: "It is the intention of the Parliament that: (a) this section is not limited by the unwritten law relating to unconscionable conduct; and (b) … (c) in considering whether conduct to which a contract relates is unconscionable, a court's consideration of the contract may include consideration of: (i) the terms of the contract; and (ii) the manner in which and the extent to which the contract is carried out; and is not limited to consideration of the circumstances relating to the formation of the contract."
5. Two recent decisions of the Full Court of the Federal Court of Australia provide guidance concerning the meaning and scope of unconscionability under s 21 of the ACL. In Good Living Company Pty Limited v Kingsmede Pty Limited [2021] FCAFC 33 Jagot J (with whom Allsop CJ and Besanko J agreed) said that the principles applicable to s 21 are as follows: 1. The court must first and foremost have regard to the language of the statute rather than judicial explanations of unconscionability. 2. "Unconscionability" is not a term of art but simply means "something not done in good conscience". 3. The court should have due regard to the remedial and beneficial objects of the legislation. 4. The court must have regard to the non-exhaustive and non-prescriptive list in s 22(1) of the ACL although the presence of one or more of these matters will not be determinative to an unconscionability enquiry. However these matters may nevertheless assist the court in illuminating the scope and meaning of unconscionable conduct. 5. The court is not constrained by the general equitable concept of unconscionability although equity's exploration of unconscionable conduct may assist the court - s 21(4)(a) ACL. 6. In determining unconscionability, the court is prevented from having a regard to any circumstances that were not reasonably forseeable at the time of the alleged contravention - s 21(3)(a) ACL. 7. Whether or not conduct is unconscionable will depend on careful consideration of all of the conduct and involves standing back and looking at the whole episode. 8. The court's task involves evaluating conduct by reference to a normative standard of conscience which may develop and change over time and which must be understood and applied in the context in which the circumstances arise. 9. Notions of moral obloquy or moral tainting are relevant, but it must be recognised that it is conduct against conscience by reference to the norms of society that is in question. While conduct involving dishonesty, sharp practice or conscious wrongdoing is no doubt unconscionable, conduct which does not involve those facts may still be regarded as unconscionable. 10. As "unconscionability" in this contest is predicated on "conduct", a person's conduct is to be distinguished from the consequences that that conduct may have on the lives of other people. 11. A determination of unconscionability involves a broadly based value judgment, applied to the facts on which reliance is placed, to the extent that they are proved.
6. There is really no scope for the s 22(1) factors to be taken into account in this case. The subsection says that without limiting the matters to which the court may have regard for the purpose of determining whether a person (the supplier) has contravened section 21 in connection with the supply or possible of goods or services to a person (the customer), the court may have regard to the factors listed in pars (a) to (l) in s 22(1). While an insurer providing a policy of insurance can be a "supplier", the "customer" is the insured and not a guarantor of the obligations of the insured entity. All of the factors to be taken into account under s 22(1) focus upon the dealings between the supplier (in this case the insurer) and the customer (in this case the insured Kevest). For example factor (a) is "the relative strengths of the bargaining positions of the supplier and the customer". In such a case the court looks at the relative bargaining positions of the insurer and Kevest which was the supplier's customer. In oral submissions counsel for the first defendant had some difficulty in making any of the s 22(1) factors relevant to the relationship between the insurer and the guarantor, who was not the "customer".
7. In Australian Competition and Consumer Commission v Quantum Housing Group Pty Limited [2021] FCAFC 40 the Full Court considered whether exploitation or taking advantage of some pre-existing vulnerability, disadvantage or disability is a necessary element of statutory unconscionability under s 21 of the ACL. The court held that this was not a necessary element.
8. The court referred to its earlier decision in Unique International College Pty Limited v Australian Competition and Consumer Commission [2018] FCAFC 155; 266 FCR 155; 266 FCR 361 where the following was said at [155]: "To behave unconscionably should be seen, as part of its essential conception, as serious, often involving dishonesty, predation, exploitation, sharp practice, unfairness of a significant order, a lack of good faith, or the exercise of economic power in a way worthy of criticism. … It is a serious conclusion to be drawn about the conduct of a business person or enterprise. It is a conclusion that does the subject of the evaluation no credit. This is because he, she or it has, in a human sense, acted against conscience. The level of seriousness and the gravity of the matters alleged will depend on the circumstances."
9. At [92] in Quantum the court said: "The task is an evaluation of the impugned conduct to assess whether it is to be characterised as a sufficient departure from the norms of acceptable commercial behaviour as to be against conscience or offend conscience and so be characterised as unconscionable."
10. The defence relying upon unconscionability under the ACL is pleaded in pars 32-47 of the Defence (CB 26-28). I have already ruled against the plaintiff in relation to the claim based upon the 2006 Deed. The reliance by the first defendant on the ASIC Act was abandoned by counsel. I reproduce below pars 32-47, excising references to the ASIC Act and the 2006 Deed. With those excisions the defence based upon ACL unconscionability reads: "32. At Equity, a party is not entitled to exploit a vulnerable or weaker party and any transaction that is the product of such an advantage is liable to be set aside. 33. Sections 20 and 21 of the Australian Consumer Law (Cth) (ACL) provide that a corporation shall not engage in unconscionable conduct. 34. Section 12BAA of the Australian Securities Investments Commission Act 2001 (Cth) (ASIC Act) provides that a financial product includes the management of financial risk. 35. Section 12BAB of the ASIC Act provides that the term 'financial service" includes dealing in a financial product. 36. By relying upon the 2004 Deed of Indemnity and the 2006 Deed of Indemnity the Plaintiff is engaged in the supply of financial services for the purposes of the ASIC Act. 37. Section 12CB of the ASIC Act provides that a corporation shall not engage in unconscionable conduct in connection with the supply of financial services. 38. In paragraph 14 of the Statement of Claim, the Plaintiff alleges that the 2004 Deed of Indemnity was executed on 27 August 2004. 39. In paragraph 16 of the Statement of Claim, the Plaintiff alleges that the 2006 Deed of Indemnity was executed on 6 March 2006. 40. In paragraph 20 of the Statement of Claim, the Plaintiff alleges that the Claim was lodged on or around 21 April 2010. 41. In paragraph 21 of the Statement of Claim, the Plaintiff alleges that Lumley accepted liability for the Claim. 42. The Statement of Claim does not assert when Lumley accepted liability for the Claim but this appears to have occurred sometime in 2010. 43. The Plaintiff did not advise the First Defendant for 14 years after she executed the 2004 Deed of Indemnity, that the First Defendant had a liability in respect to the Claim. 44. The Plaintiff did not advise the First Defendant for 12 years after she executed the 2006 Deed of Indemnity, that the First Defendant had a liability in respect to the Claim. 45. The Plaintiff did not advise the First Defendant for 8 years that it had accepted the Claim and she had a liability in respect to the Claim. 46. The 14-year delay referred to in paragraph 43 above and/or the 12-year delay referred to in paragraph 44 above and/or the 8-year delay referred to in paragraph 45 above was unreasonable, inexplicable and unfair and amounted to unconscionable conduct at Equity and in breach of the ACL and the ASIC Act as the First Defendant: (a) was a housewife and had no business experience; (b) did not understand what the effects and consequences of a guarantee were; (c) received no benefit from the transaction; (d) was pressured and coerced to execute the document by her mother-in-law who said she would not receive funds unless the document was executed, in circumstances where her mother-in-law gave her and her husband money to live; (e) was pressured and coerced to execute the document by her brother-in-law who said he would cause physical harm to her, her husband and children if the deed was not executed; (f) was not given any advice about the document; (g) received no independent legal advice about the document. (h) was entitled to assume that she had no liability pursuant to the 2004 Deed of Indemnity and the 2006 Deed of Indemnity. (i) was entitled to conduct and manage her affairs on the assumption she had no liability pursuant to the 2004 Deed of Indemnity and the 2006 Deed of Indemnity consequent upon the Deed's execution; (j) lost the opportunity to recover any su7m by way of contribution and indemnity from the other defendants as they have either died or disposed of assets; (k) purchased a real property at McGrath's Hill and an interest in a real property at Pennant Hills which she would not have done had she known about that she had any liability pursuant to the 2004 Deed of Indemnity and the 2006 Deed of Indemnity. 47. Given the matters in the preceding paragraph: (a) by relying upon the 2004 Deed of Indemnity and the 2006 Deed of Indemnity the Plaintiff engaged in unconscionable conduct in breach of the law, the ACL and the ASIC Act and (b) an order should be made at law, pursuant to section 243 of the ACL or pursuant to section 12GM of the ASIC Act that the 2004 Deed of Indemnity and the 2006 Deed of Indemnity cease to have force and effect."
11. It is plain from the words of s 21 of the ACL, and the authorities referred to above, that it is an essential first step to identify the conduct which is said to have been unconscionable. Paragraph 46 of the Defence pleads that the conduct was: 1. The insurer not advising Ms Holden for 14 years after she executed the 2004 Deed that she had a liability in respect of the claim lodged in 2010; and 2. The insurer not advising Ms Holden for 8 years that it had accepted the claim and she had a liability in respect of the claim.
12. As previously recited, the conduct which is said to have been unconscionable must have occurred after the ACL came into force on 1 January 2011. However, the court may have regard to conduct engaged in, or circumstances existing, before 1 January 2011 - s 21(3)(b) ACL.
13. Further, the court may include consideration of the manner in which and the extent to which a contract is carried out and is not limited to consideration of the circumstances relating to formation of the contract - s 21(4)(c)(ii).
14. In oral submissions, counsel for the first defendant confirmed that the delay in bringing the claim was what amounted to unconscionable conduct in the circumstances. He pointed to the following matters: 1. Recital E in the 2004 Deed stated that the policy period could last well beyond 6-7 years and that the obligation of the builder to indemnify the insurer, which was the obligation the subject of the guarantee, could last for more than 6-7 years. 2. The first defendant had conducted her affairs after the 2012 Deed as if she had been released from all obligations to the insurer. 3. The financial capacity of the second, third and fourth defendants to contribute towards any liability had "now disappeared".
15. As to the first of these factors, Recital E specifically stated that "the policy period could last well beyond 6-7 years". In the present case an Occupation Certificate was granted by the local council in relation to the Development in November 2006. Recital E specifically said that the policy period generally extended for 6-7 years after deemed completion of the contract works. It went on to say that the policy period could last well beyond 6-7 years. Six years after November 2006 was November 2012. Seven years after November 2006 was November 2013. The letter of demand seeking payment under the 2004 Deed was issued on 20 June 2018 i.e. 8 years after the 2010 claim, but 5 years after the period of 7 years commencing on completion of the contract works in 2006.
16. Recital E in the 2004 Deed thus gave a guarantor warning that generally the policy period would extend for six or seven years after completion of the works, but could run for more than six to seven years.
17. The "14-year delay" referred to in par 46 of the Defence is thus an overstatement.
18. In relation to the second factor set out above, it is noted that par 46(h) pleads that the first defendant "was entitled to assume that she had no liability pursuant to the 2004 Deed". Paragraph 46(i) pleads that the first defendant "was entitled to conduct and manage her affairs on the assumption she had no liability pursuant to the 2004 Deed".
19. The pleading does not disclose the basis on which the first defendant was entitled to assume that she had no liability pursuant to the 2004 Deed. The evidence of Ms Holden in her affidavit (DX 2) is to the effect that after the 2012 Deed, she believed that her problems with Kevest were finally over. It was then that she and her husband decided to get their financial lives back on track and they started to look to purchase an investment property. In October 2012 they purchase a share in a property at Pennant Hills. That property was sub-divided, sold and a profit was made. In par 54 of her affidavit the first defendant said: "I would not have purchased the Pennant Hills Property had I known that the 2012 Deed did not end any liability I had because of the 2004 Deed and the 2006 Deed."
20. Thus the evidence of the first defendant establishes, not that she made an assumption engendered by any conduct of the insurer that she was no longer bound by the 2004 Deed, but that she made her own assumption that the 2012 Deed put an end to all of her potential liabilities to the Home Owners Warranty insurer. I have already found, for reasons set out above, that the 2012 Deed had nothing to do with Home Owners Warranty insurance for the development, and was limited to settlement of a dispute about another policy concerning a property in Woollahra. The first defendant's own evidence is that she arranged her affairs after 2012, on the basis that for reasons of her own, she believed that the 2012 Deed put an end to all liabilities in respect of Home Owners Warranty insurance for Kevest. There is no evidence that that incorrect view of the law, or the effect of the release in the 2012 Deed, was engendered by anything said or done by an insurer.
21. In relation to the third factor above, concerning the financial capacity of the second, third and fourth defendants, there is no evidence about their financial capacity now, or at any earlier time. Paragraph 47(j) pleads that the first defendant "lost the opportunity to recover any sum by way of contribution and indemnity from the other defendants as they have either died or disposed of assets". While there is evidence that Jim Holden died in 2005, his widow Margaret is the administrator of his estate. There is no evidence of the assertion in the Defence that any of the other defendants have disposed of assets. More importantly, there is no evidence that any of them ever had any assets against which an insurer might have recovered. Finally, there is no evidence that any contribution claim which Ms Holden brought in the past would have realised any monies.
22. I accept that the 2018 letter of demand in relation to the Home Owners Warranty insurance for the Development came out of the blue to Ms Holden. However, the factors relied upon by counsel for the first defendant in submissions do not support any finding that the delay in claiming under the guarantee was unreasonable, inexplicable and unfair and amounted to unconscionable conduct, as pleaded in par 46 of the Defence.
23. Dealing with the subpars under par 46 of the Defence, I make the following findings: 1. The first defendant was a housewife and had no business experience. 2. On the basis that I have found that Mr Belonogoff gave a basic but adequate explanation of the guarantee, Ms Holden had the opportunity to understand the effects and consequences of the 2004 Deed. 3. Mrs Holden did receive a benefit from the transaction, in that it supported the business of Kevest, which provided Ms Holden and her family with a house, cars and living expenses. 4. While from time to time Ms Holden was pressured to execute documents by her mother-in-law, there is no evidence that such pressure was exerted in relation to the 2004 Deed. 5. While from time to time Ms Holden was pressured and coerced by her brother-in-law to execute documents, there is also no evidence that the 2004 Deed was affected by such pressure or coercion. 6. Ms Holden was given advice about the meaning and effect of the document by Mr Belonogoff. 7. Ms Holden did receive independent legal advice from Mr Belonogoff about the document. 8. There was no basis for Ms Holden to assume that she had no liability pursuant to the 2004 Deed. 9. There was no basis for Ms Holden to conduct and manage her affairs on the assumption that she had no liability pursuant to the 2004 Deed. 10. There is no evidence that any contribution claim against any of the other defendants would have been worthwhile, or has been lost. 11. Ms Holden purchased real estate based upon her mistaken belief that the 2012 Deed meant that she had no further possible liability to the Home Owners Warranty insurer; but that belief was not engendered by any conduct of the insurer.
24. The impugned conduct in the present case is the delay between paying the 2010 claim and making demand under the guarantee. I do not regard that delay as a sufficient departure from the norms of acceptable commercial behaviour, so as to be against conscience or offend conscience and to be characterised as unconscionable.
25. I find that the defence relying upon unconscionability under the ACL fails. My answer to the issues in MFI 4 on this topic are as follows: Issue 11: No Issue 12: Not applicable Issue 26: No Issue 27: Not applicable.

Contracts Review Act

1. In par 24 of the Defence (CB 25) the first defendant pleaded reliance on s 7 of the Contracts Review Act 1980 (NSW). Paragraph 24 says: "If the signature bearing the name "Dorthe Holden" appearing on the 2004 Deed of Indemnity is the First Defendant's signature, the deed is an unjust contract pursuant to section 7 of the Contracts Review Act 1980 such that the provisions of the document should not bind the First Defendant, because when the First Defendant executed the document she: (a) was a housewife and had no business experience; (b) did not understand what the effects and consequences of a guarantee were; (c) received no benefit from the transaction; (d) was pressured and coerced to execute the document by her mother-in-law who said she would not receive funds unless the document was executed, in the circumstances where her mother-in-law gave her and her husband money to live; (e) was pressured and coerced to execute the document by her brother-in-law who said he would cause physical harm to her, her husband and children if the document was not executed; (f) was not given any advice about the document; and (g) received no independent legal advice about the document."
2. By s 7 of the Contracts Review Act (NSW) ("the CRA") where the court finds a contract or a provision of the contract to have been unjust in the circumstances relating to the contract at the time it was made, the court may, if it considers it just to do so, and for the purpose of avoiding so far as practicable an unjust consequence or result, refused to enforce the contract, make an order declaring the contract void, or vary the contract. Section 9 of the CRA sets out a non-exhaustive list of facts which can be taken into account in deciding whether to make an order under s 7.
3. Paragraph 24 of the Defence recites seven circumstances said to lead to a finding that the contract was unjust in the circumstances relating to the contract at the time it was made. In considering the defence under s 7 of the CRA, the focus must be upon the circumstances at the time of the execution of the 2004 Deed.
4. Paragraph 24(a) of the Defence pleads that the first defendant was a housewife and had no business experience. I accept that both matters are made out on the evidence. These matters are relevant, because one of the circumstances the court may take into account is "whether or not there was any material inequality in bargaining power between the parties to the contract" - s 9(2)(a).
5. Paragraph 24(b) of the Defence pleads that the first defendant did not understand what the effects and consequences of a guarantee were. I have made previous findings that independent advice was given by Mr Belonogoff to Ms Holden about the nature and effect of the guarantee which she executed before him. It is noted that in the affidavit of Ms Holden (DX 2) she does not say that she was ignorant of the nature and effect of a guarantee.
6. Paragraph 24(c) of the Defence pleads that Ms Holden received no benefit from the transaction. I have found to the contrary above, in that Ms Holden and her family was provided with a home and cars and living expenses by Kevest, and thus she had an interest in supporting that company by giving guarantees.
7. Paragraphs 24(d) and 24(e) of the Defence plead that Ms Holden was pressured and coerced into executing the 2004 Deed by the actions of her mother-in-law and her brother-in-law. There was no evidence that even if such pressure and coercion took place, the insurer had any knowledge of it. Section 9(2)(j)(iii) of the CRA provides that one of the factors to be taken into account is: "Whether any undue influence, unfair pressure or unfair tactics were exerted on or used against the party seeking relief under this Act: … (iii) by any person to the knowledge (at the time the contract was made) of any other party to the contract or of any person acting or appearing or purporting to act for or on behalf of any other party to the contract." (Emphasis added)
8. Since there is no evidence that the insurer AIIL had knowledge of any unfair pressure or unfair tactics such as coercion and threats by Margaret or Jamie, these matters do not weigh against the plaintiff in these proceedings.
9. Paragraph 24(f) of the Defence pleads that Ms Holden was not given any advice about the document. Paragraph 24(g) of the Defence pleads that Ms Holden received no independent legal advice about the document. I have found to the contrary for reasons set out above.
10. One of the matters to be considered by the court is "the commercial or other setting, purpose and effect of the contract" - s 9(2)(l) CRA. While Ms Holden was not a shareholder or director of Kevest, her husband was. Her husband worked in the business. Kevest was a company successful enough to build a family home for Mrs Holden and her husband, and to build a family home next door for Jamie and Sharlene. Kevest was a Holden family company, even though Brett Holden played a minor part in its running and administration. Giving a guarantee to support the building activities of Kevest was in the interests of Ms Holden and her husband and their family. Enabling the company to carry out building projects provided them with a home, cars, food and clothing. A refusal to give a guarantee could have resulted in all of those benefits no longer being available to the family. In this sense Ms Holden did have something to gain from executing the guarantee, as did her husband Brett.
11. I find that the contract and its provisions were not unjust in the circumstances relating to the 2004 Deed at the time it was made. This leads to the following answers to issues concerning the CRA: Issue 9: No Issue 10: Not applicable

Conclusion

1. The plaintiff Insurance Australia Limited has succeeded in its case against the first defendant Ms Dorte Holden based upon the 2004 Deed and is entitled to a money judgment against her for rectification costs of $396,253.51 plus investigation, assessement and legal costs of $17,586.30, which is a total amount of $413,839.81. I answer the issues posed by the plaintiff in MFI 2 as follows: 1. Issue 1: Yes, in relation to the 2004 Deed. 2. Issue 2: Yes, in relation to the 2004 Deed. 3. Issue 3: Yes, in relation to the 2004 Deed. 4. Issue 4: No in relation to (a), (b) and (c).
2. The plaintiff is entitled to interest upon the principal sum of $413,839.81 at the rate of 12% per annum from 18 July 2018 to 30 April 2021. The interest is $115,308.24. The final judgment will be for $413,839.81 + $115,308.24 = $529,148.05. There will also be an order for costs.
3. As previously recited, the plaintiff has already obtained judgment against the second, third and fourth defendants for damages to be assessed. There will be judgment against each of those defendants for $529,148.05 plus an order for costs.

Orders

1. The orders of the court are: 1. Judgment for the plaintiff against the first defendant for $529,148.05. 2. Order the first defendant to pay the plaintiff's costs. 3. Judgment for the plaintiff against the second, third and fourth defendants for $529,148.05. 4. Order the second, third and fourth defendants to pay the plaintiff's costs. 5. Grant leave to approach my Associate by email, within 7 days, if any different costs orders are sought.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 30 April 2021