Jones & Anor v Building Insurers' Guarantee Corporation

G Sirtes - Appellants COUNSEL: T Lynch - Respondent

Pateman Legal - Appellants SOLICITORS: McLachlan Chilton - Respondent

LOWER COURT JURISDICTION: Supreme Court - Equity Division

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40430/04 ED 3067/03

GILES JA IPP JA BROWNIE AJA

Tuesday 15 February 2005 JONES & ANOR v BUILDING INSURERS' GUARANTEE CORPORATION Judgment 1 GILES JA: The Home Building Act 1989 ("the Act") required insurance in relation to residential building work. Following the collapse of HIH Casualty & General Insurance Ltd ("HIH"), amendments were made to the Act obliging the State to indemnify a person covered by an insolvent insurer's policy. The indemnity was qualified, and the question in this appeal from Gzell J is whether a qualification denying indemnity to "a developer to which the policy relates" defeats the appellants' claim upon the respondent.

Insurance under the Act 2 The appellants' insurance was obtained in June 1997, and it is first necessary to go to the Act as it then stood. 3 Insurance was dealt with in Pt 6. Insurance was required under three provisions. There were exceptions and refinements to which it is not necessary to refer. 4 First, by s 92 a person could not contract to do residential building work unless a contract of insurance complying with the Act was in force in relation to the proposed work (s 92(1)) and a certificate of insurance was attached to the contract (s 92(2)). 5 Secondly, by s 95 an owner-builder (essentially a person with a permit to carry out small building work, see the definition in s 3 and Div 3 of Pt 3) could not contract to sell the land on which the work had been done unless a contract of insurance complying with the Act was in force in relation to the work or the proposed work (s 95(1)) and a certificate of insurance was attached to the contract (s 95(2)). 6 Thirdly, by s 96(1) and (2), and by s 96(3)(a) not applying to an owner-builder - "96(1) A person who does residential building work otherwise than under a contract, or a developer who does residential building work, must not do the residential building work unless a contract of insurance that complies with this Act is in force in relation to that work. Maximum penalty: 100 penalty units.

(2) A person who does residential building work otherwise than under a contract, or a developer who does residential building work, must not enter into a contract for the sale of land on which the residential building work has been done, or is to be done, unless a certificate of insurance evidencing the contract of insurance, in a form prescribed by the regulations, is attached to the contract. Maximum penalty: 100 penalty units." 7 A "developer who does residential building work" was defined in s 3A to mean a person on whose behalf residential building work was done in the circumstances set out in s 3A(2). A common manifestation of the circumstances there set out, being the situation in the present case, was the construction of a block of home units. Section 92 would not apply where a person itself constructed home units, but that person would be caught by the first limb of s 96(1) and (2). If the person contracted with a builder to have the home units constructed, the builder would be caught by s 92 and the person would be caught by the second limb of s 96(1) and (2). 8 By s 99, the contract of insurance required by s 92 had to insure the "person on whose behalf the work is being done" against the risk of loss from non-completion of the work due to insolvency, death or disappearance (s 99(a)) and that person and its successors in title against risk of loss from breach of statutory warranty in respect of the work (s 99(b)). By s 101, the contract of insurance required by ss 95 and 96 had to insure the purchaser of the land on which the work was done and its successors in title against risk of loss arising from breach of statutory warranty in respect of the work. The statutory warranties, implied under s 18B in every contract to do residential building work, were in the nature of warranties as to proper workmanship, and by ss 18C and 18D extended to successors in title of the person initially entitled to their benefit. 9 The Home Building Regulation 1997 made further prescription in relation to contracts of insurance. By cl 42(1)(a), an insurance contract had to provide that the beneficiaries under the contract were persons described or their successors in title, including a person "on whose behalf residential building work covered by the contract is done" (cl 42(1)(a)(i)). Cl 42(2) described persons not required to be beneficiaries under the contract, including "a developer who does residential building work" (cl 42(2)(a)) and "a person who does residential building work other than under a contract" (cl 42(2)(b)). By cl 42(3), nothing in the clause prevented a person referred to in cl 42(2) from being a beneficiary under an insurance contract. 10 Obviously enough, the Act did not require insurance whereby a person itself constructing home units was insured against risk of loss from its own default or poor workmanship. Compliance with s 96 would mean that successors in title to that person were insured against risk of loss from the person's poor workmanship. Compliance with s 92 would mean that a person contracting with a builder to have home units constructed on its behalf was insured against risk of loss from the builder's default and the person and its successors in title were insured against risk of loss from the builder's poor workmanship. Compliance with s 96 would again mean that successors in title to the lastmentioned person would be insured against risk of loss from the builder's poor workmanship. In the case of a developer as defined, there was a doubling-up. 11 Section 103D of the Act provided - "103D A provision of a contract or another agreement that purports to restrict or remove the rights of a person under this Part is void."

The appellants' insurance 12 The appellants owned land at Alexandria in New South Wales. In June 1997 they entered into a contract for the construction of fifteen home units on the land by Acosta Constructions Pty Ltd ("Acosta"). 13 Acosta held a master policy of insurance issued by HIH. HIH agreed to "make good in accordance with the indemnity herein" all claims made against Acosta for loss or damage resulting or arising from, amongst other things, Acosta's failure to complete residential building work as a result of early termination of the contract because of its wrongful failure or wrongful refusal to complete the work and Acosta's failure to rectify a breach of a statutory warranty. The policy included a definition of "Beneficiary", relevantly being the person for which residential building work was to be performed under contract and its successors in title. It authorised Acosta to issue certificates of insurance to such persons, and provided by cl 4.8 - "4.8 It is agreed that the Beneficiary shall have the right to recover directly from the Insurer an amount equal to the Insurer's liability under this policy in respect of the indemnity provided under a Certificate of Insurance, issued by The Contractor under the authority granted to The Contractor under this policy, to the Beneficiary." 14 The exclusions in the policy included that HIH was not liable to pay - " … any claim made against the Contractor or directly against this policy by the Beneficiary … 5.16 made by Beneficiary who at the time was also The Contractor or made by any person, partnership or corporate entity who at the time of the Residential Building Work … was also included as part of The Contractor as defined under this policy or a Developer". 15 In cl 2.15 "Developer" was defined to have the same meaning as in s 3A of the Act. 16 Acosta issued to the appellants fifteen certificates of insurance dated 7 July 1997, one for each of the fifteen home units. Each certificate stated that cover would be provided "to the person named as the beneficiary above and successors in title to the beneficiary". The space for naming the beneficiary was blank, but the certificate also provided for an "Acknowledgement by the beneficiary", by which the beneficiary agreed to abide by the policy terms and conditions on the reverse of the certificate. This acknowledgement was signed by the appellants. 17 The reverse of the certificate was headed "Residential Building Work Insurance Policy - Terms, Conditions and Exclusions". It began, under the sub-heading "Insuring Agreement" - "This Certificate of Insurance ('Certificate') is issued under authority granted by the Insurer under a Master Policy issued to The Contractor. It is issued in accordance with the terms, conditions and exclusions of that Master Policy. Any discrepancy that may arise between the words used in this Certificate and those used in the Master Policy shall be found in favour of the words used in the Master Policy. This Certificate is evidence for the Beneficiary ('You') that The Contractor has arranged insurance in compliance with their obligation under The Home Building Act 1989 (NSW) ('The Act'). To be valid this Certificate must be signed on the reverse side hereof by the Insurer and You and by You complying with the following terms and conditions and must be used before the Expiry Date of the Master Policy. Insurers hereby agree to make good all Claims for loss or damages made against The Contractor for: [Here the claims under the master policy were repeated.]" 18 Definitions were set out under another sub-heading. A definition of "Developer" took up the meaning in the Act, and by cl 2.3 - "A Beneficiary is You the person specified as the beneficiary on the reverse hereof and your successors in title." 19 Under the sub-heading "Exclusions" it was stated that - "The insurance will not pay claims … 5.8 If You are also The Contractor or Developer". 20 The certificate of insurance did not fully reproduce the wording of the master policy, and in particular the exclusion under cl 5.8 of the certificate was not in the same terms as that under cl 5.16 of the master policy. We were informed that the proceedings had been conducted, and continued to be conducted, on the basis that the appellant's insurance was to be found in the certificate of insurance, notwithstanding its statement that the words of the master policy should prevail in the event of discrepancy. 21 It was common ground that the appellants were a developer as defined. The exclusion under the master policy was of claims by a Beneficiary who was also a Developer, but the exclusion in the certificate purported to be of all claims if the Beneficiary was also a Developer. On correct reference to the wording of the master policy, successors in title to the appellants could claim under the insurance. A claim by the appellants, however, was excluded.

The appellants' claim under the insurance 22 On 28 April 1998 the appellants terminated the contract with Acosta, asserting that Acosta had repudiated the contract and accepting its repudiation. On 17 November 1998 Acosta went into liquidation. 23 The appellants claimed under the insurance in respect of incomplete and defective work. HIH rejected the claim on the ground that they were a Developer. 24 The Home Building Regulation provided for an appeal from the rejection to the Fair Trading Tribunal ("the Tribunal"). The appellants appealed, conceding that they were a developer within the meaning of the Act and as defined but arguing that they were nonetheless entitled to recover under the insurance. 25 On 6 December 1999 the Tribunal upheld the appeal. The reasons concluded - "In summary the Tribunal finds as follows: 1. It is irrelevant that the applicants are developers within the meaning of section 3A, because they also happen to be 'the persons on whose behalf the work was being done' under the building contract with the contractor. They are therefore entitled to be insured under section 99 as well as being 'beneficiaries' as defined in clause 39 of the Regulations. They are a person referred to in clause 42(1)(a) and cannot be excluded by clause 42(2)(a) because they are not a 'developer who does residential building work'.

2. Accordingly, the respondent is not entitled to exclude the applicants from the section 92 insurance cover in question. Clause 5.8 purporting to exclude 'developers' is inconsistent with the Act and the Regulations and is an attempt to restrict or remove the rights that the applicants have under section 99. It is therefore void pursuant to section 103D (and cannot be cured by the applicants' signatures acknowledging they have read and understood the terms and conditions)." 26 The Tribunal's reasoning presents some difficulties. It is not necessary to go into it, since what became important was the basis of the decision on further appeal. 27 HIH appealed to the Supreme Court. On 10 May 2000 James J dismissed the appeal: HIH Casualty and General Insurance Ltd v Jones [2000] NSWSC 359. 28 His Honour's reasons were relevantly - "48 The critical submission made by counsel for HIH on the hearing of the appeal was based on an argument which I have already referred to earlier in this judgment. This argument was that, if a person on whose behalf residential building work is being done is a 'developer', or at least 'a developer who does work' by reason of s 3A of the Act, then s 92 of the Act does not apply and it is s 96 of the Act which is to be applied. If s96 of the Act applies, then the contract of insurance which is required by that section is a contract of insurance complying with s 101 of the Act, and not a contract of insurance complying with s 99 of the Act, and the requirements for a contract of insurance under s 101 would not conflict with cl 5.8 of the Contract of Insurance and hence cl 5.8 would not be invalidated. It was contended that the Tribunal had erred in holding that s92 and s99 of the Act applied, and not s96 and s101.

49 A further argument put by counsel for HIH was that s 103C of the Act conferred a power to make regulations 'for or with respect to requirements for insurance required to be entered into under this part'; that this power to make regulations was not limited, as was the general power to make regulations under the Act conferred by s 140, by the words 'not inconsistent with this Act'; that Pt 5 of the Regulation had been prescribed in exercise of the power conferred by s 103C; and that under cl 42(2)(a) of the Regulation a person who is not required to be a beneficiary under an insurance contract is 'a developer who does residential building work'.

50 I do not accept the argument that s 92 of the Act, if it would otherwise be applicable, does not apply, if the person for whom (on whose behalf) residential building work is to be done by a contractor is a person who, by virtue of s 3A of the Act, is a 'developer who does residential building work'.

51 The words of s 92 do not express any such qualification on the application of s 92. Section 92 is not expressed to be subject to s 96 or any other provision of the Act. Both ss (1) and ss (2) of s 92 use the mandatory word "must". A person breaching s 92(1) or s 92(2) is subject to a criminal sanction.

52 Sections 92 and 96 are directed to different classes of persons. Section 92 is directed to a person who proposes to do residential building work under a contract. Section 96 is directed to a person who does residential building work otherwise than under a contract or a developer who does residential building work (which, by reason of the definition in s 3A, can include a person on whose behalf residential building work is being done by a contractor). The risks against which a contract of insurance required by s 92 must insure (under s 99) and the risks against which a contract of insurance required by s 96 must insure (under s101) are not the same.

53 I do not consider that a builder who proposes to do residential building work under a contract for a client is relieved of his obligation to comply with s 92 of the Act, because the person for whom he will be doing the building work is, by virtue of s 3A, 'a developer who does the work' and is accordingly required himself by s 96 of the Act to take out a contract of insurance of a different kind.

54 In most cases where s 92 of the Act applies, s 96 will not apply. However, if a case falls within both s 92 and s 96, then the builder is required by s 92 not to enter into a contract to do the proposed residential building work unless a contract of insurance complying with the Act, including s 99, is in force and the person to whom s 96 applies is obliged by s 96 not to do the residential building work, unless a contract of insurance complying with the Act, including s 101, is in force.

55 In the present case, the printed form of certificate of insurance and contract of insurance which was used, was a form capable of being used, whichever of ss 92, 93 and 96 of the Act was applicable. However, it is clear from the information inserted in the Certificate of Insurance that the Contract of Insurance was obtained by the contractor Acosta for the benefit of the Joneses and their successors in title, in compliance with Acosta's obligation under s 92 of the Act.

56 If s 92 of the Act applies, then it follows that the Contract of Insurance obtained by Acosta had to comply with the requirements of s 99 and in particular had to insure the person on whose behalf the work was being done against the risks stated in s 99, the Joneses were the persons on whose behalf the work was being done and cl 5.8 of the Contract of Insurance, purporting to exclude them from the benefit of the Contract of Insurance, was void pursuant to s103D of the Act.

57 So far as the appellant's argument based on the regulation is concerned, in my opinion s 92 and s 99 of the Act required that the Joneses, as the persons on whose behalf the residential building work was being done, be insured against the risks stated in s 99. It seems to me that the expression 'a developer who does residential building work' in cl 42(2)(a) of the Regulation is to be read subject to s 92 and s 99 of the Act and cl 42(1)(a) of the Regulation.

58 Accordingly, by virtue of cl 42(2)(a) of the Regulation a developer who does residential building work is not required to be a beneficiary under a contract of insurance required by s 96 of the Act. However, if that person is a person on whose behalf residential building work is to be done by a contractor, then that person is required to be a beneficiary under the contract of insurance required by s 92." 29 There was no appeal from the decision of James J. Counsel for the respondent informed us that its correctness had been challenged before Gzell J, but was not in question in this appeal.

Amendment of the Act as to developers 30 Prior to the decision in HIH Casualty and General Insurance Ltd v Jones the Act was amended by the Home Building Amendment Act 1999. Sections 96(1) and (2) were replaced by provisions the substance of which was that doing residential building work otherwise than under a contract was prohibited unless a contract of insurance complying with the Act was in force in relation to the work (s 96(1)), a person doing residential building work otherwise than under a contract could not contract to sell land on which the work had been done unless a certificate of insurance evidencing the required contract of insurance was attached to the contract (s 96(2), and a developer doing residential building work could not contract to sell the land on which the work had been done unless a certificate of insurance evidencing the required contract of insurance was attached to the contract (s 96(2A)). It was not suggested that the amendments, the effect of which is rather obscure, were material to the question in this appeal. 31 The Act was again amended by the Home Building Amendment Act 2000, plainly as a response to the decision in HIH Casualty and General Insurance Ltd v Jones. 32 The 2000 amendments included in s 90 a definition of "developer" in relation to residential building work, meaning a person on whose behalf residential building work was done in the circumstances set out in section 3A(2). 33 The provision relating to a developer which did residential development work in s 96(2A) was deleted. A new section 96A was inserted - " 96A. Obligations of developers in relation to insurance

(1) A developer must not enter into a contract for the sale of land on which residential building work has been done, or is to be done, on the developer's behalf unless a certificate of insurance evidencing the contract of insurance required under section 92 by the person who did or does the work for the developer, in a form prescribed by the regulations, is attached to the contract for sale. Maximum penalty: 100 penalty units.

(2) Despite anything to the contrary in section 3A, a reference in this Part to a person who does residential building work: (a) does not include a reference to a developer, and

(b) includes a reference to a person who does the work on behalf of a developer." 34 There was added to section 99 - "(2) Subsection (1) does not require the following to be insured: (a) a developer on whose behalf residential building work is being done,

(b) any other person belonging to a class of persons prescribed by the regulations for the purposes of this section." 35 These amendments made clear for the future, to return to the example of construction of a block of home units, that a person contracting with a builder to have the home units constructed was not in the position of a person on whose behalf the work was being done within s 99, and that the builder's insurance required by s 92 did not have to insure that person. The insurance under s 92 had to insure successors in title, and contracts for sale had to attach certificates of insurance, but a developer as defined was not a compulsory insurance beneficiary. 36 The 2000 amendments also dealt with the past, by validating existing policy exclusions of claims by developers save for HIH Casualty and General Insurance Ltd v Jones and any other case already decided. They did so by adding a new Pt 7 to Schedule 4 of the Act, dealing with savings and transitional provisions. It included - " 52. Validation of insurance exclusions concerning developers (1) Any relevant exclusionary provision that would have been a valid provision of a contract of insurance had section 99 (2) of this Act (as inserted by Schedule 1 [5] to the amending Act) been in force at the time the contract was made is taken to have been a valid provision of the contract at the time the contract was made and at all relevant times after the contract was made.

(2) Subclause (1) applies to proceedings before a court or tribunal that are pending at the commencement of this clause. Accordingly, the rights of the parties to such proceedings are to be determined in accordance with subclause (1).

(3) Subclause (1) does not affect the judgment of the Supreme Court in HIH v Jones [2000] NSWSC 359, or any other proceedings that have been determined by a court or tribunal before the commencement of this clause, as between the parties to those proceedings.

(4) In this clause: " relevant exclusionary provision " means a provision of a contract of insurance in relation to residential building work made during the relevant period in accordance with section 92 of the Act that excluded or purported to exclude a developer referred to in section 3A of this Act from making claims under the contract. " relevant period " means the period commencing on 1 May 1997 and ending on the day immediately before the commencement of Schedule 1 [5] to the amending Act, inclusive. 53. Clause 42 of the Home Building Regulation 1997

(1) A provision of clause 42 of the Home Building Regulation 1997 that would have been a valid provision of that Regulation had section 103C (2) (b) and (3) of this Act (as inserted by Schedule 1 [6] and [7] to the amending Act) been in force at the time the provision commenced is taken to have been a valid provision of the Regulation at the time the provision commenced and at all relevant times after it commenced.

(2) For the avoidance of doubt, it is declared that at the time clause 42 (2) of the Home Building Regulation 1997 commenced and at all relevant times after it commenced: (a) the subclause applied to contracts of insurance required by section 92 or 96 of the Act, and

(b) the reference to a developer who does residential building work in paragraph (a) of that subclause is a reference to an individual, partnership or corporation (other than a company referred to in section 3A (3) of the Act) on whose behalf the work is done in the circumstances set out in section 3A (2) of the Act. (3) Subclauses (1) and (2) apply to proceedings before a court or tribunal that are pending at the commencement of this clause. Accordingly, the rights of the parties to such proceedings are to be determined in accordance with subclauses (1) and (2).

(4) Subclauses (1) and (2) do not affect the judgment of the Supreme Court in HIH v Jones [2000] NSWSC 359, or any other proceedings that have been determined by a court or tribunal before the commencement of this clause, as between the parties to those proceedings."

HIH's collapse and State indemnity 37 The appellants' entitlement to claim under the insurance, established by HIH Casualty and General Insurance Ltd v Jones and preserved by the 2000 amendments, proved of little value. HIH went into provisional liquidation on 15 March 2001, then into liquidation. The appellants were not paid by HIH, and their entitlement was only to prove in the liquidation. 38 The collapse of HIH brought what was described in the appeal as a rescue package, although the legislation went beyond HIH's insolvency. The Insurance Protection Tax Act 2001 imposed a tax on premiums received by insurers. The Insurance (Policy Holders Protection) Legislation Amendment Act 2001 amended it to establish a Policy Holders' Protection Fund, made up of the taxation and other money, to be applied amongst other things to meet expenditure from the Building Insurers' Guarantee Fund in connection with contracts of insurance entered into by declared insolvent insurers (ss16B, 16D). HIH was taken to have been declared an insolvent insurer on 15 March 2001 (s 16A(2)(a)). The Act was amended by the addition of Pt 6A, providing for a Building Insurers' Guarantee Fund belonging to the respondent (s 103P) and for the indemnity by the State (s 103I). The indemnity was to be enforced by a claim made to, and proceedings taken against, the respondent (s 103J). 39 The provision for indemnity by the State was relevantly - " 103 I Indemnity

(1) Subject to this Part, the State must indemnify any person: (a) who is entitled to recover an amount under a contract of insurance entered into under Part 6 in connection with any matter, and

(b) who is covered by an insolvent insurer's policy, to the extent of the amount that the person is entitled to recover under that policy in connection with that matter.

(2) The following provisions apply to that indemnity: (a) the builder to which the policy relates is not entitled to the indemnity,

(b) a developer to which the policy relates, or a company related, within the meaning of the Corporations Law, to a developer, is not entitled to the indemnity,

(c) the indemnity does not apply in connection with any matter that is covered by another contract of insurance that is not an insolvent insurer's policy,

(d) the indemnity does not apply in connection with any matter if a claim has been made under an insolvent insurer's policy in respect of the matter and payment in full has been received by the claimant or the matter has been otherwise settled,

(e) the indemnity does not apply in connection with any matter if: (i) a claim in respect of the matter has been determined by the Tribunal or a court not to be a valid claim under an insolvent insurer's policy, and

(ii) the claimant is not entitled to bring any further proceedings to appeal against or seek a review of that determination, (f) unless the regulations otherwise provide, the indemnity does not apply in connection with any matter covered by an insolvent insurer's policy issued by HIH Casualty and General Insurance Limited or FAI General Insurance Company Limited if: (i) in a case where section 92 or 93 required a person to be provided with a certificate of insurance evidencing the insolvent insurer's policy - the certificate of insurance relating to the matter was provided to the person after 20 June 2001, or

(ii) in a case where an owner-builder obtained a certificate of insurance evidencing the insolvent insurer's policy in order to comply with the requirements of section 95 - the certificate of insurance relating to the matter was provided to the owner-builder after 15 March 2001, or

(iii) in a case where section 96 (1) required a person to ensure a contract of insurance was in force to enable the person to do residential building work - the certificate of insurance evidencing the insolvent insurer's policy relating to the work was issued, or the work commenced, or both, after 20 June 2001, (g) the indemnity does not apply in connection with any matter or other circumstance prescribed by the regulations.

(3) … " (emphasis added) 40 I have emphasised the qualification in question in this appeal. "Developer" was defined to have the same meaning as in Pt 6 of the Act.

The appellants claim for indemnity from the State 41 On 16 July 2002 the appellants applied for indemnity as provided for in s 103I. The application was refused. On 2 October 2002 they appealed to the Consumer Trader and Tenancy Tribunal. On 7 May 2003 they discontinued that appeal, and on 30 May 2003 they brought proceedings in the Supreme Court claiming a declaration that they were entitled to be indemnified by the State. Before Gzell J it was submitted that, the appellants having appealed and discontinued, relief should be refused as a matter of discretion. His Honour did not accept the submission, and it was not repeated in this Court. 42 Gzell J dismissed the appellant's claims. His Honour said - "19 It was submitted on behalf of the plaintiffs that while they fell within the definition of the term "developer" in the Home Building Act 1989, s 3A they were not developers to which the policy related for the purpose of s 103I(2)(b) because James J held in Jones that the exclusion in cl 5.8 of the certificates of insurance was void with the consequence that they were entitled to recover under the certificates of insurance not as developers, but as beneficiaries. It was submitted that the plaintiffs' case was peculiar to them alone as a result of the preservation of the decision of the court in Jones . Their case said nothing of who might be a developer to which a policy related with respect to any other parties.

20 The defendant argued that the case had nothing to do with the preservation of the decision in Jones which was for the purposes of the Home Building Act 1989, Pt 6. Part 6A, it was submitted, introduced a new statutory entitlement and the question was whether the exclusion in s 103I(2)(b) applied.

21 The defendant pointed out that the exclusion in the Home Building Act 1989, s 103I(2)(b) presupposed that a developer was otherwise entitled to recover under a contract of insurance in terms of s 103I(1). It was submitted that Jones did not decide that the plaintiffs were beneficiaries and not developers: nor was it decided that their claim as beneficiaries who were developers was not excluded by cl 5.8 of the certificates of insurance.

22 Clause 2.11 of the certificates of insurance defined the term "developer". The decision in Jones did not affect that definition. The plaintiffs were within it. The defendant submitted that, as the only beneficiaries under the certificates of insurance, the plaintiffs were persons to which the policies related and developers to which the policies related for the purposes of the Home Building Act 1989, s 103I(2)(b).

23 The plaintiffs' argument that they were not developers to which the policies related because they were developers not excluded from benefit under the policies, creates the odd result that while they were the only persons to benefit under the policies, and they were developers for that purpose, the policies nevertheless did not relate to them as developers.

24 That argument also has the effect that if, like them, a person as a developer was entitled to recover under a policy because there was no exclusion, there was no work to be done by the Home Building Act 1989, s 103I(2)(b) because, on the plaintiffs' argument, the policy would not relate to the developer.

25 In my view, the legislation should not be construed to render the Home Building Act 1989, s 103I(2)(b) otiose or to produce the odd result that a policy does not relate to the only person to benefit under it.

26 It was submitted on behalf of the plaintiffs that this result thwarts the statutory intention of preserving this court's decision in Jones evident in the Home Building Act 1989, Sch 4, Pt 7, cl 52(3) and cl 53(4). That may be so. However, if the legislature intended to make the new statutory entitlement available to the plaintiffs, one would have expected a similar provision preserving the decision to have been included in Pt 6A.

27 Unfortunate though it may be for the plaintiffs who succeeded in Jones , they do, in my view, fall within the exclusion in the Home Building Act 1989, s 103I(2)(b). They were beneficiaries and developers under the policies constituted by the certificates of insurance. But for the operation of the exclusion, they were entitled to recover amounts under the policies. The policies thereby related to them. They were developers to which the policies related."

The appeal to this Court 43 The appellants submitted that his Honour had misapprehended their argument when, in his [23], he said that they argued that they were "developers not excluded from benefit under the policies". They said that their argument had been, and in this Court was, that their entitlement under the insurance was not as a developer but as a person on whose behalf work was done. This was described as a characterisation of the appellants flowing from the reasons of James J in HIH Casualty and General Insurance Ltd v Jones, included in the continuance of the judgment in that case by cl 52(3) added by the 2000 amendments, and it was argued that the continuance meant that the appellants were not characterised as "a developer to which the policy relates" within s 103I(2)(b) of the Act. The characterisation, according to the argument, was found in the reasoning of James J and specifically in his Honour's [56] and [57]. 44 I do not think that Gzell J misapprehended the appellant's argument. He encapsulated it in his [19] referring to James J's decision that the appellants were entitled to recover under the insurance not as developers but as beneficiaries, and the later reference to "developers not excluded from benefit under the policies" was shorthand for the reasoning of James J. In any event, for the reasons which follow I do not think that the argument should be accepted. 45 The reasoning of James J did not tie the appellant's entitlement to recover under the insurance to the character of a person on whose behalf work was done. His Honour recognised the appellants as a person on whose behalf work was being done, because they had contracted with Acosta for the construction of the home units. Sections 92 and 99 applied, and it was held that the exclusion in cl 5.8 of the certificate was therefore void. Nothing in this denied the appellants' status as a developer. They remained a developer, as well as a person on whose behalf work was done. But because the exclusion was void, they could still recover under the insurance. 46 The appellant's argument therefore fails in its inception. The reasoning in HIH Casualty and General Insurance Ltd v Jones was that they could recover under the insurance notwithstanding that they were a developer, not that they could recover because they were not a developer. 47 Further, cl 52(3) did not have the effect necessary for the argument. The validation of an exclusion of a developer did not affect the judgment in HIH Casualty and General Insurance Ltd v Jones "as between the parties to the proceedings", but the judgment was not given an extended effect. The State's obligation no doubt began with the entitlement found in the judgment, an entitlement within s 103I(1), but the State's obligation to indemnify was qualified in many ways in s 103I(2), including by s 103I(2)(b). The State was not a guarantor, under an obligation commensurate with that of HIH. The rescue package was by a statutory scheme creating an independent obligation with its own qualifications. Nothing in the continuance of the judgment in HIH Casualty and General Insurance Ltd v Jones overrode the qualification denying indemnity to "a developer to which the policy relates" if the appellants were in fact a developer as defined, as they were. 48 This is unfortunate for the appellants, but consistent with the legislature's view of developers and insurance. As at 1997 a developer as defined had to be insured, by force of ss 92, 99. In the 2000 amendments that was changed, so that a developer as a person on whose behalf work was carried out was not a compulsory insurance beneficiary, although insurance continued to be required for the benefit of the developer's successors in title. Existing policy exclusions of claims by developers were validated, save that the appellants kept their entitlement against HIH. When HIH later collapsed, the State stood behind only the compulsory insurance beneficiaries. Unless they had brought proceedings and obtained judgments against the insurer, other developers insured under contracts of insurance excluding claims by developers would have no entitlements, because of the validation, and the State did not stand behind them. The appellants were left with other developers as regards the State.

The result 49 I propose that the appeal be dismissed with costs. 50 IPP JA: I agree with Giles JA. 51 BROWNIE AJA: I agree with Giles JA. **********

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