New South Wales Self Insurance Corporation v Kavanagh

Appeal Principles

1. Decisions of the Tribunal, such as the Decision before us, are internally appealable decisions. To succeed in an appeal, the Appellant must demonstrate either an error by the Tribunal below on a question of law, which may be argued as of right; or that permission (that is, "leave") to appeal should be granted to bring the appeal: Civil and Administrative Tribunal Act 2013 (NCAT Act), s.80(2).
2. In James v Jandson Pty Ltd [2022] NSWSC 1686 at [63], Adams J referred with apparent approval to the decision of the Appeal Panel that leave was not required in respect of a ground which involved the proper construction of a contract because this involved a question of law: see also Hope v Bathurst City Council (1980) 144 CLR 1 at 7, per Mason J with whom Gibbs, Stephen, Murphy and Aickin JJ agreed; Australian National Railways Commission v Collector of Customs (SA) (1985) 8 FCR 264 at 277, per Sheppard and Burchett JJ; Rogers v Vinoly [2016] NSWCATAP 2 at [12{5)]. We note the Home Owner did not dispute this proposition.
3. Accordingly, we accept that the question on appeal before us involving the proper construction of clause 3.2 of the Policy based upon undisputed facts, raises a question of law and that leave to appeal is not required,

The Policy

1. Relevantly, subclauses (a) and (b) of clause 1.1 of the Policy provide: "1. Cover 1.1 Residential Building Work (a) Subject to the terms of the policy and in accordance with Act and the Regulations, the policy will cover you if you suffer the following losses or damage in respect of the work covered by this policy. (i) Loss or damage resulting from non completion of the work because of the insolvency, death or disappearance of the builder; and (ii) Loss or damage arising from a breach of a statutory warranty by the builder being loss or damage in respect of which you cannot recover compensation from the builder or have the builder rectify because of the insolvency, death or disappearance of the builder. (b) Subject to the terms of the policy in accordance with the Act and the Regulations and without limiting (a) the policy will cover you for the following loss or damage, being loss or damage in respect of which you cannot recover compensation from the builder or have the builder rectify because of the insolvency, death or disappearance of the builder. (i) … (ii) Loss or damage resulting from non completion of the work because of early termination of the contract because of the builder's wrongful failure or refusal to complete the work. (iii) … (iv) … (v) …"
2. Clause 3.2 of the Policy provides: "3.2 The policy does not cover an interest in the work that is not your interest and we are not liable under the policy to any person other than you."
3. Clause 7 is headed "Terms With Special Meanings". Immediately under that heading the Policy says: "In the policy the words in bold have been indicated below."
4. Relevantly for the purposes of the present Appeal, within clause 7 the following is provided: "Contract means a contract between you and the builder pursuant to which the work is done or to be done" "Work means the residential building work which is done or is to be done by the builder to the dwelling under the contract" "You or your means the person on whose behalf work is done or is to be done including any owner of the land at the time the contract is entered into, on which the residential building work is done, and any successor in title to that person"

The Tribunal's Consideration and Findings

1. The Tribunal found that insuring clause 1.1(a) provides cover to the Home Owner because she is a successor in title to the entity to whom the Respondent issued the Certificates of Insurance in respect of the property in February 2021, namely CN1: [60]. There is no dispute that the Policy does cover the Home Owner by virtue of being a successor in title to the entity to whom the Insurer issued Certificates of Insurance in respect of the property in relation to the Home Owner's claims involving defective work.
2. The Tribunal held that if there was any ambiguity in respect of the application of clause 3.2 of the Policy, it is the Insurer, and not the insured, who should bear the consequences of the ambiguity: at [66]. The Tribunal then at [67]-[68] set out its reasoning for finding that the Policy applied to the case of the Home Owner for incomplete work as follows: "67 The applicant, does, I find, have an interest in the work when one interprets the policy in the way that its draftsperson specifically provided in the opening words of clause 7 by specifically linking the definition of "work" to that which is done "under the contract" and defining "contract" to mean one between the builder and "you". The draftsperson is intending that a successor in title - by reason of the expressed definition of "you" or "your" - to have "an interest in the work". The respondent could have drafted clause 3.2 in such a way that the words in bold "work" and "your" were to be construed or interpreted in a way other than the way in which those words are specifically policy defined by clause 7. It didn't do so. 68 Additionally, the respondent's decision referred to the applicant's "interest in the building contract". Policy exclusion 3.2 does not refer to "an interest in the building contract" but, rather, an interest in the "work". I agree with the applicant's submission that the policy has a separately defined term for "the building contract" set out in clause 7 namely, "the contract between you and the builder pursuant to which the work is done or is to be done". That is policy defined as "the contract". If the draftsperson meant to refer to "interest in the building contract" in clause 3.2 it would have been easy for the defined term "the building contract" to be used."

The Insurer's Submissions

1. Mr S. Ahmed, of counsel, appeared for the Insurer. In extensive and very learned submissions covering 13 pages, Mr Ahmed put ably forward every point that could be made in favour of his client's case. Without doing proper justice to the depth and breadth of those submissions, for the purpose of brevity, we set out below the main points made by Mr Ahmed on appeal.
2. The main thrust of Mr Ahmed's submissions is that clause 3.2 of the Policy applies because the Home Owner has no interest in incomplete work without being a party to the Building Contract.
3. It is pointed out that "interest" is not defined in the Policy. Whilst the definitions of "you" and "your" are expanded to include a successor in title, the notion of an "interest" is not given any expanded definition. The Tribunal erred in somehow giving the Home Owner an interest in the incomplete work which should not have so been found.
4. "Work" means residential building work which is done or to be done by the Builder under the contract. According to the Insurer, even though "you" includes successors in title, "contract" must mean the contract between CN1 and the Builder, as there is no contract between the Home Owner and the Builder. The Home Owner does not have a legal, equitable or statutory interest in this work. This, according to the Insurer, is because the Home Owner has no rights under the Building Contract and has no legal right to require the Builder to complete incomplete work. In other words, the incomplete work to be done to the property would be done outside, not "under", the Building Contract.
5. According to the Insurer, the Tribunal engaged in erroneous reasoning at [63] because there is no contract between the Home Owner and the Builder. The process of reasoning of the Tribunal, the Insurer submits, attempts to create a "notional contract" between the Home Owner and the Builder. Whilst a notional contract could be said to be contemplated by s.18C of the HBA, as considered by the Court of Appeal in The Owners - Strata Plan No 66375 v King [2018] NSWCA 170, that section deals with statutory warranties. Section 18C makes it clear that a successor in title is entitled to the benefit of the statutory warranties as if the work was done under a contract with the successor in title to do the work. On the other hand, the Insurer contends, the Policy does no such thing. There are no clear words in the Policy that would create a "notional" contract between the Home Owner and the Builder.
6. The Home Owner has no interest - legal, equitable or otherwise - in the work. This means the Home Owner in relation to incomplete work (as opposed to defective work that was completed in accordance with the terms of the Building Contract) has no interest in that work, and clause 3.2 applies.
7. Next, the Insurer takes issue with the Tribunal's reliance on the expanded definition of "You" as including "any successor in title": see [61], [63]. According to the Insurer, the proper construction of "you" is that that simply means that the benefit of the Policy, in accordance with its terms, extends to successors in title such as the Home Owner. It is not an all-encompassing transfer of rights from the original owner to any successor in title.
8. The Insurer points out that there are two relevant contracts: first, the Building Contract and, secondly, the Policy. The position of the Home Owner as a successor in title is not coterminous with CN1's rights under the Policy, the Insurer submits. The Home Owner can never have rights 'under the Building Contract' against the Builder.
9. The HBA, pursuant to ss.18B and 18D, alters this position in respect of defective work, but not in the case of incomplete work. Accordingly, building work under a contract with an original contracting owner that is not completed is never a right that could be enforced by a subsequent owner, absent novation or assignment. Accordingly, the Home Owner has not lost any of her rights under the Contract.
10. The Insurer then turned to ss.99(1) of the HBA which provides: "Requirements for insurance for residential building work done under contract (1) The contract of insurance in relation to residential building work required by section 92 must insure: (a) a person on whose behalf the work is being done against the risk of loss resulting from non-completion of the work because of the insolvency, death or disappearance of the contract, and (b) a person on whose behalf the work is being done and the person's successors in title against the risk of being unable, because of the insolvency, death or disappearance of the contractor: (i) to have the contractor rectify a breach of a statutory warranty in respect of the work, or (ii) to recover compensation from the contractor for any such breach."
11. The Insurer submits that clause 3.2 of the Policy ought to be construed in the context of s.99(1) of the HBA so that the contract of insurance for non-completion is only for the benefit of a person on whose behalf the work is being done and not to successors in title. In this regard, the Insurer points to page 1 of the Policy under the heading "How to Read the Policy" which states: "… (vii) limitations on and exclusions of liability provided for in this policy are intended to comply with the Act and Regulation and to the extent that they do not they are to be read as if complying with the relevant part(s) of the Act and/or Regulations dealing with the applicable limitation(s) or exclusion(s)."
12. Next, the Insurer turned to s.99(4) and (5) of the HBA. By this section, introduced into the HBA by the Home Building Amendment (Compensation Reform) Act 2017, insurers can, but did are not required to, offer a separate contract of insurance to insure against the risk specified in subsection (1)(b) which covers loss arising from a breach of a statutory warranty in the case of non-completion of residential building work. Accordingly, the Insurer submits that Parliament made it clear by the use of the words "may" and "is not required to but may" that it was not mandatory for an insurance contract that may have allowed successors in title to cover non-completion of works under a policy. The Insurer submits that by dint of clause 3.2, the Policy was not such a policy.
13. The Insurer then refers to clause 1.1(a)(i) and (ii) of the Policy and submits these provisions properly distinguish between the cover provided for non-completion on the one hand and breach of statutory warranty on the other. Accordingly, those clauses must be read with clause 3.2.
14. The Insurer submits that he definition of "work" which includes work which "is done or is to be done" by the Builder under the Building Contract means that, for the Home Owner, any incomplete work would clearly not be work done "under the Contract". The Insurer provides some examples in the Building Contract to illustrate the point as follows: "(a) The successor in title (being the Respondent) would not be required to make the progress payment set out in schedule 2 of the Building Contract for the incomplete work. She might have been able to negotiate an entirely different payment regime with Willoughby Homes for example paying a more beneficial 20% at practical completion rather than leaving just 10% to be paid at this last stage. (b) The builder, if it was not DDI [death, disappearance or insolvency] (for example an individual builder that no longer 'disappeared' because she or he returned to Australia) would no longer be required by the Respondent to complete the work set out in schedule 2 for the incomplete work. (c) The guarantor's obligation (being her father, David Kavanagh) would not continue if it was (as was the case) Willoughby Homes that became DDI in relation to the incomplete work. (d) The successor in title (being the Respondent) may have been able to negotiate an entirely different builder's margin for the incomplete work, rather than the 20% that was agreed to in this Building Contract."
15. Similarly, the Insurer points to other provisions of the Policy to support its proposition that the proper construction of clause 3.2 lies inside the Building Contract and the work needs to be done "under the Building Contract". These provisions referred to by the Insurer are as follows: "(a) Clause 1.1(b)(ii) grants cover for loss or damage where you cannot recover compensation from the builder because of its DDI where the loss or damage arises from early termination of the contract because of the builder's wrongful failure or refusal to complete the work. A successor in title has no such claim. (b) Clause 1.1(b)(iv) grants cover for loss or damage arising from the loss of a deposit or progress payment. A successor in title has no such claim. (c) Clause 3.1(a) excludes claims that may otherwise arise under the contract in the nature of liquidated damages for delay or damages for delay. A successor in title has no such claim for liquidated damages under the Building Contract."
16. Finally, the insurer referred to the "forensic decision" of the Home Owner not to take an assignment of the Building Contract from the vendor which would have allowed the Home Owner to claim for incomplete work.

The Home Owner's Submissions

1. According to the Home Owner, the "overarching error" of the Insurer's submissions is to confuse having an interest in the work with having an interest in the Contract. It is possible, and in fact common, for people to have an interest in property that is the subject matter of a contract, without being a party to the contract itself. The Home Owner has an interest in the work by reason of being a successor in title to the land on which the work was to be done.
2. The Home Owner then responds to the Insurer's submission that because s.99(1) of the HBA does not require a contract of insurance in favour of a successor in title for loss from non-completion of the work, the Policy should not be read as extending this coverage. According to the Home Owner, there are two difficulties with this argument.
3. First, it conflates the terms of the HBA with the terms of the Policy. Just because the HBA does not go so far as to require certain coverage does not mean it is forbidden for the Insurer to offer a policy with that coverage.
4. Second, contrary to the Insurer's argument, the HBA does require the coverage sought by the Home Owner. Section 99(1)(b) requires the Insurer to insure a successor in title because of the insolvency, death or disappearance of the contractor "to have the contractor rectify a breach of statutory warranty in respect of the work, or to recover compensation from the contractor for any such breach". A successor in title, by reason of s.18D, has the benefit of the statutory warranty under s.18B(1)(b) that "the work will be done … within the time stipulated in the contract, or if no time is stipulated, within a reasonable time". It follows from the Builder's insolvency that this warranty will never be fulfilled therefore enlivening the Home Owner's right to compensation in respect of this breach.
5. Otherwise, the Home Owner supports the decision of the Tribunal below and the reasons given by the Tribunal.

Insurer's Submissions in Reply

1. The Insurer takes issue with the Home Owner's submission that she has an interest in the work to be done by dint of being an owner of the land. According to the Insurer, it would be wrong to equate an interest in the property to an interest in the work.
2. According to the Insurer, "successor in title" is included in the definition so that successors in title are covered under the Policy pursuant to clause 1.1, which is the main clause in the Policy which provides cover. This is so that the Policy complies with the obligations of the HBA.
3. As the Insurer puts it, otherwise it is unclear what work clause 3.2 would have to do. According to the Insurer, clause 3.2 of the Contract is specifically concerned with excluding cover where the claimant does not have an interest in the work. This would be the case for a successor in title in respect of work to be done as the insured has no legal, equitable or statutory interest in the work to be done, as opposed to the work which has already been done and is on the property which is purchased by the insured.
4. On the other hand, the Insurer disputes the Home Owner's contention that if she is not entitled to make a claim for incomplete work as the successor in title, it makes "successor in title" in clause 7 redundant. The Insurer contends this is not the case as "successor in title" has work to do in respect of clause 1.1 of the Policy involving defective work, as opposed to incomplete work.
5. Next, the Insurer takes issue with the Home Owner's submission that the Insurer is attempting to conflate the terms of the HBA with the terms of the Policy, which may be wider than the terms of the HBA. The Insurer submits that this ignores and does not deal with the front page of the Policy, which, under the heading "How to read the Policy", states that the Policy is intended to comply with the Act and Regulation and, to the extent they do not, they are to be read as if complying with the relevant Part(s) of the Act.
6. The Insurer then takes issue with the Home Owner's submission that s.99(1)(b) of the HBA does in fact require the coverage sought by the Home Owner. According to the Insurer, such submission completely ignores s.99(1)(a) of the HBA which specifically refers to the insurance that is required for non-completion of work because of the insolvency, death or disappearance of the contractor. This is precisely the situation of the Home Owner, the Insurer contends.
7. The Insurer also submits that such submission completely ignores reading s.99(1)(a) together with s.99(1)(b) of the HBA. When read together, the Insurer submits it is clear that insurance for non-completion of works is only available for the benefit of a person on whose behalf the work is being done, and not just successors in title by operation of s.99(1)(a) of the HBA.
8. Finally, the Insurer takes issue with the Home Owner's submission that s.18B(1)(d) of the HBA, as one of the statutory warranties implied into every contract, is a warranty that a successor in title can enforce. The Insurer submits that incomplete work is a different concept. In other words, incomplete work is not an implied statutory warranty under s.18B(1)(d) of the Act. Further, where the Builder has become insolvent, there is no further work that can be done under the Building Contract as such contract came to an end upon the insolvency.

Consideration

1. The Appeal Panel agrees with and supports the order of the Tribunal below, and for the reasons given by the Tribunal below.
2. We note there is no dispute that subject to the exclusion in clause 3.2, the Home Owner's claim falls within clause 1.1(a) of the Policy, with the consequence that the Insurer is required to cover the claim. This is because the Home Owner falls within the meaning of "you" in clause 1.1(a). The Home Owner is and was a successor in title to the "person on whose behalf the work is done or is to be done including any owner of the land at the time the contract is entered into, on which residential building work is done".
3. The issue for determination is the proper construction of the exclusion clause in clause 3.2, which reads as follows: "3.2 The Policy does not cover an interest in the work that is not your interest and we are not liable under the Policy to any person other than you."
4. We note that "Work" is defined to mean residential building work which is done, or is to be done by the builder to the dwelling under the Building Contract, and "contract" is defined to mean "…the contract between you and the builder pursuant to which the work is done or is to be done".
5. As we understand it, the key submission of the Insurer is that whilst the Home Owner under the proper meaning of clause 3.2 has an interest in defective work because it has a legal interest in such defective work on the property as the owner of the property, it cannot have an interest in work to be done "under the Contract" because it is not a party to the Building Contract, cannot enforce that Contract and has no legal, equitable or statutory interest in "work to be done" which has not yet commenced. In other words, the issue is whether the term "work" in clause 3.2 focuses upon or covers the concept of the physical work to be done or the more limited concept of work to be done "under the Contract". If the focus is on the physical work, the Home Owner clearly has an interest in such work to be done as it will provide economic benefit to the Home Owner if the non-completed work is completed.
6. The principles for construing a contract of insurance are well known and have recently been set out by the Court of Appeal in Allianz Australia Insurance Ltd v Rawson Homes Pty Ltd [2021] NSWCA 224 ("Allianz") at [43]-[47] as follows: "[43] As a commercial contract, a policy of insurance is to be given a business like interpretation. The task of interpretation is an objective one that requires attention to the language used by the parties, the commercial circumstances which the document addresses and the objects which it is intended to secure. A preference is to be given to the construction supplying a congruent operation to the various components of the whole: McCann v Switzerland Insurance Australia Limited (2000) 203 CLR 579; [2000] HCA 65 (McCann) at 589; Mount Bruce Mining Pty Limited v Wright Prospecting Pty Limited (2015) 256 CLR 104; [2015] HCA 37 at 116; MetLife Insurance Ltd v RGA Reinsurance Company of Australia Ltd [2017] NSWCA 56 at [100]- [101]; Wilkie v Gordian Runoff Ltd (2005) 221 CLR 522; [2005] HCA 17 at 529. [44] The meaning of words used in an insurance policy are to be construed in favour of an insured as far as the ordinary and natural meaning of the words used by the insurer allows: Australian Casualty Co Limited v Federico (1986) 160 CLR 513; [1986] HCA 32 at 520. [45] This does not mean that a court can attribute a different meaning to the words of a policy simply because the court regards the meaning as otherwise working a hardship on one of the parties. Where words are unambiguous they cannot be ignored: Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99; [1973] HCA 36 at 109. [46] In McCann, Kirby J discussed (at 602) the principles applying to the construction of insurance policies and observed that the contra proferentem rule is one of last resort, but that: "... it is not unreasonable for an insured to contend that, if the insurer proffers a document which is ambiguous, it and not the insured should bear the consequences of the ambiguity because the insurer is usually in the superior position to add a word or a clause clarifying the promise of insurance which it is offering." (quoting Johnson v American Home Assurance Co (1998) 192 CLR 266; [1998] HCA 14 at 275 [19].) [47] An insuring clause and any exclusion clause, such as a deductible clause, must be read together in a harmonious way so that due effect is given to both and the right conferred by the former is not negated or rendered nugatory by the construction adopted in relation to the latter: Woodlawn Capital Pty Ltd v Motor Vehicles Insurance Ltd [2016] NSWCA 28 at [133]."
7. First, we note that the task of interpretation "is an objective one that requires attention to the language used by the parties": Allianz at [43]. Accordingly, the submissions of the Insurer as to the Home Owner making a forensic decision not to take a novation of the Building Contract is not relevant to the task of interpreting the correct construction of clause 3.2.
8. We note that the meaning of words used in an insurance policy are to be construed in favour of an insured as far as the ordinary and natural meaning of the words used by the Insurer allows: see Allianz at [44]. In our view, the ordinary and natural meaning of the words in clause 3.2, including the words "an interest in the work", is broad enough to cover the Home Owner's interest as a successor in title to the property. This is because she obviously has a direct economic interest in seeing the completion of the work that has not been to the dwelling on her property.
9. Further, whilst the Court of Appeal in Allianz at [46] observed that the contra proferentem rule is one of last resort, it is nevertheless not unreasonable for an insured to contend that if the insurer offers a document which is ambiguous, it and not the insured should bear the consequences of the ambiguity because the insurer is usually in the superior position to add a word or clause clarifying the promise of insurance which it is offering. In our view, this principle also supports the construction adopted by the Tribunal, particularly where, for the reasons given above, at least one ordinary and natural meaning of the words used is that clause 3.2 does not apply in the case before us.
10. In our view, the interpretation favoured by the Tribunal below does still gives the Policy a businesslike interpretation consistent with the language used by the parties and the commercial circumstances which the document addresses and the objects which it is intended to secure. As we understand it, the Insurer contends that one of the objects of the Policy as expressed in page 1 of the Policy is that the exclusions of liability in the Policy are intended to comply with the HBA and if they do not, they should be read "as if compliant with the relevant part(s) of the Act".
11. In our view, on an objective interpretation of these words and the object and purpose is to ensure that where any particular exclusion clause would render the Policy non-compliant with the HBA, then such clause should be read so as to make it compliant with the HBA. The interpretation adopted by the Tribunal below and by us does not offend this object. This is because reading clause 3.2 as we do does not result in the Policy becoming non-compliant. It is accepted by the parties that it is perfectly open to the Insurer to offer broader terms of coverage to a home owner than is provided by the HBA. Accordingly, we are not convinced that the statement of how to read the Policy set out on page 1 requires a different interpretation of clause 3.2.
12. In light of our conclusion on this matter, it is not necessary for us to decide upon the competing views of the parties as to the proper construction of s.99(1) of the HBA and s.18B(1)(d) of the HBA and whether or not s.99(1)(b) of the HBA requires the coverage sought by the Home Owner in the case before us. In our view, it is preferable that we do not express any view on this separate question of statutory interpretation as we do not think it is necessary for us to do so in order to come to our conclusion as to the proper construction of clause 3.2.
13. Accordingly, we have decided to dismiss the appeal.

Costs

1. As this is an appeal from a decision in the Consumer and Commercial Division, if the amount claimed or in dispute is more than $30,000, s.60 of the NCAT Act does not apply and costs should follow the event: see rr 38 and 38A of the Civil and Administrative Tribunal Rules 2014 (NSW). We note that the amount the Home Owner claimed on the Insurer in these proceedings is $340,000. Even in respect of the claim only dealing with incomplete works, this was in excess of $30,000.
2. We note that both parties accepted this to be the case and both parties submitted that costs should follow the event on this appeal. Neither party made submissions suggesting that if the other party succeeded on the appeal that costs should not follow the event.
3. Accordingly, we shall dismiss the appeal with costs.

Orders

1. We make the following orders: 1. The appeal is dismissed. 2. The Appellant is to pay the Respondent's costs of and incidental to the appeal as agreed or assessed.

I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales. Registrar 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: 13 June 2024