Jones & Anor v Building Insurers' Guarantee Corporation

Jones & Anor v Building Insurers' Guarantee Corporation - [2005] NSWCA 7 - NSWCA 2005 case summary — Zoe

[12]

(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."

[13]

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.

[59]

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.

At a glance

Court

Decision date

Before

Source

Judgment (61 paragraphs)

Parties

Legislation Cited (1)

Cases Cited (1)