Owners Corp - SP 14846 v Wesfarmers General Insurance Ltd t/as Lumley General [2015] NSWCATAP 204 | Case summary

NCAT Appeal Panel|2015-03-20

Overview

The appellant (the Owners Corporation) appeals against the decision of the Tribunal below, following a hearing on liability only, refusing its claim against the respondent (Lumley) for indemnity under a home warranty insurance policy issued at the end of July 2008. The claim was in respect of defective residential building work carried out to waterproof the roof of its apartment block in Lane Cove, Sydney. The insurance was obtained by the builder for the benefit of the Owners Corporation in purported compliance with the Home Building Act 1989 (NSW) (the Act).
In the proceedings below the insurer advanced a number of grounds for resisting liability. Questions arose as to whether the terms of cover were satisfied and as to the meaning and application of various exclusion clauses. The Tribunal below found that liability was excluded. Other grounds for resisting liability were rejected by the Tribunal, including that the cover did not respond in the circumstances.
The claim for indemnity concerned rectification work carried out in 2008, at no cost to the owner, on a start again basis, to waterproofing work completed in 2005. A substantial part of the rectification work had already commenced before the insurance was obtained. The insurance contract, which was a job specific policy, contained no reference to these features. Instead, it referred to a contract for waterproofing works to soon commence at a cost of $42,250.

Grounds of appeal

The grounds of appeal of the Owners Corporation included: 1. The Tribunal erred on a question of law in construing the reference to the Contract in exclusion cl 3.4(bb)(i) of the policy as a reference to the contract of insurance and not as a reference to the contract for the building work. 2. The Tribunal erred on a question of law in finding that exclusion cl3.4(bb)(i) applied in circumstances where the 2008 building work had not been completed before the contract of insurance was entered into. 3. The Tribunal erred on a question of law in taking into account that defects did exist prior to the 2008 works when deciding that liability was excluded under cl 3.4(bb)(i). 4. The Tribunal erred on a question of law in failing to find that cl3.4(bb)(i) and/or (iii) were inconsistent with the Home Building Regulation. 5. The Tribunal erred on a question of law in finding that the Owners Corporation claim based on a settlement agreement with the insurer was not a "building claim" under the Act.
Lumley took issue with each of these grounds of appeal. Lumley also contended that the decision of the Tribunal below should be upheld on other grounds including: 1. There was no contract for the 2008 residential building work within the meaning of the insurance policy. 2. The Owners Corporation had not suffered loss and damage within the meaning of the insurance policy. 3. The claim for indemnity was excluded by cl 3.4(bb)(iii). 4. The insurer was not liable because the Owners Corporation failed to notify the insurer of the defective residential building work as required by the insurance policy.

Factual Background

In large part the facts were not in dispute.
The apartment building was developed in the 1970's. It is a four storey building in two joined blocks containing some 25 apartments. It is accessed from the Pacific Highway by a common drive easement. The roof of the building is a re-enforced concrete roofing slab. The roof membrane originally installed was a "Scotch Clad Deck Coating System" with a lifespan of approximately 20-30 years which incorporated the pouring of bitumen and a gravel heat dispersion layer.
The Owners Corporation noted roof leaks in about 2004 and resolved to replace the building roof membrane. It engaged Acevedo Building Services Pty Ltd (Acevedo) to do this waterproofing work.
No complete written contract for the 2005 waterproofing work by Acevedo was produced in evidence, although two modified pages of it were sent to the insurer's agent in July 2008 in the circumstances referred to below.
The work is referred to in a letter from Acevedo dated 1 July 2005 to Mr Beard, of Paint & Technical Services Pty Ltd, an engineer engaged by the Owners Corporation. The letter described various items of work to be carried out on the roof and to the balcony of Unit 13 at a price of $42,250 (including GST). The description of the works to the roof included: "… 3. Removal all rubble, pebbles and existing roofing material. 4. Repair all concrete damage. … 6. Apply one coat of Westox CR 25 to entire roof area. 7. Apply membrane sheeting to entire roof area. 8. Apply 2 full coats UV Stabilise Roof Membrane, re-enforced with Fiberglass mesh to all corners, edges and around fittings. …"
It seems that Acevedo commenced the work in October 2005 and the work was completed sometime in November 2005. It did this in contravention of s92 of the Act which prohibited work being done in the absence of insurance complying with the Act. No insurance was obtained.
It was common ground that the 2005 waterproofing work was defective. Leaks into units in the building were experienced. In February 2008, Bellmont Façade Engineering Pty Ltd (Bellmont) was engaged by the managing agent of the property to inspect the roof.
In a letter to the managing agent dated 19 February 2008 from Mr Moisidis of Bellmont, a number of issues were noted, including that the removal of the pre-existing bitumen membrane was not completed prior to the new membrane application, the new roll-on liquid membrane had been applied without adequate surface preparation, the waterproof membrane was delaminating from the roof surface, there was cracking of the roof membrane and water ponding was observed on the roof area. Mr Moisidis expressed the opinion that the new membrane was not considered fit for purpose, that it could not be feasibly repaired and that the roof area needed to be totally stripped to the host substrate prior to proceeding with the installation of a new waterproof membrane.
On the same date, Mr Beard sent an email to representatives of the Owners Corporation and to Mr Carlos Acevedo stating: "Acevedo has agreed to 'rip it up and start again' as the membrane is failing."
Mr Beard said that such an approach was a satisfactory method of rectification, without the need for legal action. In the email Mr Beard also said that a letter had been received from Acevedo stating that it did not take out home warranty insurance, which was a mistake by Acevedo. He specified six requirements, including that: "1. A new contract for rectification works is signed (No charge contract)". and that home warranty insurance for this new contract is provided prior to the works commencing.
On the same date, Mr Carlos Acevedo replied to Mr Beard's email saying that Acevedo agreed with all requirements.
Despite the terms of these emails, no new contract for rectification works was signed and no home warranty insurance was provided prior to the rectification works commencing.
The minutes of a meeting of representatives of the Owners Corporation, Mr Moisidis, Mr Beard and Mr Carlos Acevedo on 28 February 2008 recorded a resolution that the Owners Corporation accepted Acevedo's offer to rectify the roof work at its own cost, that Acevedo would be providing the home warranty insurance, that the Westox roll-on membrane would be the product to be used and that Mr Moisidis from Bellmont would take over management of the rectification work.
The Tribunal below referred to an email of 29 February 2008 (not included in the appeal papers), apparently between representatives of the Owners Corporation which included: "We have two options open to us to get the roof fixed, first we can sue Carlos and Greg and get our money back … or the second, Carlos has agreed to rectify his wrong in this work … Bill [Moisidis] will now take over and prepare a scope of works for Carlos to adhere to and follow. Bill … will advise how to get a contract for these repairs to ensure we get HOW": at [57].
Apparently, Bellmont prepared a specification for the repair work dated 7 March 2008: see item 4.1.11 of Mr McDonald's report dated 14 December 2011 referred to below.
The rectification work commenced in early July 2008. Four Inspection Certificates were issued by Bellmont in respect of these works covering the period from 3 July 2008 to 7 August 2008.
In the second Inspection Certificate, concerning the period from 10 to 17 July 2008, in respect of an inspection on 17 July 2008, it was recorded that a number of defects had been revealed which deemed the surface preparation as unacceptable. Reference was made to various recommendations to Acevedo that had been ignored. As its last entry, it was said that: "Following our progressive inspections we have grave concerns as to the ability of the contractor to carry out the work in a tradesman like manner. The Contractor has repeatedly ignored our instructions on materials and methods to be used. This is making the task of managing the contractor and providing a suitable finished membrane near impossible."
This Certificate also stated: "It is our opinion that the Contractor is unlikely to alter his methods and commitment to repairing his defective works and that the Owners should seek further legal advice on how to proceed."
By facsimile dated 29 July 2008, sent on that date, Maria Acevedo, on behalf of Acevedo, sent to Australian Underwriting Services Pty Ltd, trading as Australian Home Warranty, an insurance application for home warranty insurance. That company was an insurance agent for Lumley. The covering letter on the front page of the facsimile described the attachments as "application, contract and payment for insurance".
The signed application form, dated 28 July 2008, described works of "roof waterproofing" with an estimated start date of 1 August 2008, an estimated completion date of 15 August 2008, an estimated construction cost of $42,250 and a signed contract date of 14 July 2008. Two pages of a four page Master Painters Australia "Contract for Domestic Painting and Decorating Works in NSW" was sent with the facsimile.
Those two pages were part of a standard form contract with handwritten entries. It showed signatures for both the Owners Corporation and Acevedo. A date of 14 July 2008 was hand written alongside each of these signatures. The signature for Acevedo appears to be that of Mr Carlos Acevedo. We do not know the signatory for the Owners Corporation. In correspondence between solicitors in 2012 and 2013, the solicitors for the Owners Corporation stated that the latter had no record of any representative signing this 2008 version of the contract and that the Owners Corporation was not involved in any way with this application for insurance: letters from Bannermans to Vardanega Roberts dated 12 November 2012 and 25 January 2013.
By handwritten entries on these two pages of the contract, 15 August 2008 was given as the completion date and a total contract price of $42,250 (payable by two progress payments) was stated.
With respect to the scope of work and specification the handwritten entry was: "All work to be completed in accordance to specification provided by Paint & Technical Services P/L".
With respect to materials to be supplied by contractor the handwritten entry was: "Westox Waterproofing Membrane".
With respect to purpose of work and owner's expectations it said: "To achieve a long lasting waterproofing system".
The Tribunal below made an unchallenged finding that it was a copy of the 2005 contract that was attached to this insurance application form: at [29]. The references in the two (of four) pages to the price of $42,250 and the specification provided by Paint & Technical Services P/L support that conclusion. Nevertheless, changes to the completion date and date of the contract were, obviously, made.
Lumley signed a Certificate of Insurance stating the date of issue of the policy as 30 July 2008. The insured was the Owners Corporation and the Contractor was Acevedo. The residential building work covered by the policy was: "RESIDENTIAL BUILDING WORK Residential Building Work Roof works to an existing dwelling Covered by this Policy: consisting of waterproofing - as per application dated 28/07/2008 At (Site Address): 446 Pacific Highway, Artarmon NSW 2064 Municipality: Contract Date: 14/07/2008 Contract Price: $42,280.00 Est. Completion Date : 15/08/2008 Project Manager: Carlos Acevedo Est. Start Date: 01/08/2008
The Certificate of Insurance reveals that the total premium and charges for the insurance was $727.03.
Bellmont issued a third Inspection Certificate covering the period from 17 July 2008 to 7 August 2008. Generally, this conveyed a more favourable position about the work. Damage caused by removal of conduits had been made good, topping screed previously deemed inadequate had been rectified, tree matter and original membrane had been removed prior to recoating again, the WB 40 primer had been applied on the roof surface which had been previously cleaned of all loose material, debris and dirt.
The Third Inspection Certificate disclosed that by 5 August 2008 the first coat of the Westox membrane had been applied and that by 7 August 2008 the final coat of the Westox membrane had been applied to the entire roof surface. It also recorded that an inspection on 7 August 2008 had revealed water ponding and that the detrimental effect of rainwater on wet membrane would be assessed in the near future. It was noted that a final inspection of the works would be conducted to ascertain any obvious concerns.
By 11 August 2008 Acevedo had advised of project completion. By that date, Bellmont's opinion, recorded in the fourth Inspection Certificate covering the period from 7 to 11 August 2008, was that the quality of workmanship was low. Final inspection of the project, apparently on 11 August 2008, revealed defects which needed to be rectified, including water ponding on the roof surface because inadequate falls had been created. The certificate did not suggest that the work needed to be substantially re-done.
Acevedo was deregistered in 2009. Mr Carlos Acevedo became director of a new company, Stratabuild Pty Ltd.
In a letter to Stratabuild Pty Ltd dated 17 February 2010, Mr Mason, on behalf of the Owners Corporation, stated that the waterproof membrane had failed again. It was said that it took only a few months before the membrane cracked extensively and allowed water ingress causing further damage to internal walls and ceilings within some units. It was also said that a third party engineer had inspected the membrane in July 2009 and advised that it would need to be removed and re-applied. Demand was made for damages and a full refund of invoices paid or that Acevedo engage a third party contractor to remove the faulty membrane and apply a new one.
By letter dated 28 January 2011, Bannermans Lawyers, on behalf of the Owners Corporation, wrote to Lumley making a claim for loss and damage incurred or to be incurred in relation to defective work by Acevedo. Further letters from Bannermans to Lumley followed in March, April and June 2011.
By letter from Bannermans to Lumley dated 19 October 2011, a claim for indemnity for losses resulting from Acevedo's defective work was formally lodged under a Lumley Home Warranty Insurance Claim Form. The defective work included that referred to in Bellmont's report dated 19 February 2008 resulting from the 2005 work but otherwise was directed at the defective work carried out in 2008.
Following an inspection on 7 December 2011, Igentia Pty Ltd, retained by the insurer, issued a Technical Inspection Report in relation to the claim for indemnity. The report recommended acceptance of waterproofing rectification works at a cost of $121,000, including demolition of the waterproofing membrane and topping screeds in the rooftop area. The report stated: "The builder has failed to waterproof the rooftop in accordance with the manufacturer's recommendations in that the builder did not remove all of the existing failed bitumen membrane, prepare the surface of the slab, install the topping screed with falls to roof outlets, install suitable outlets and apply the waterproofing membrane as specified by the manufacturer.
Igentia Pty Ltd made 19 recommendations as to the rectification work that needed to be carried out, including demolition of the waterproofing membrane, removal of all acrylic and bitumen membrane residue, ensure the roofing slab was smooth and free of all voids and distortion, supply and install screed topping with falls to roof outlets and application of waterproofing membrane in accordance with manufacturer's specification.
Mr McDonald of R.O.H. Contracting Services Pty Ltd prepared a detailed report on the waterproofing works for Bannermans dated 14 December 2011. He had been engaged by the Owners Corporation in May 2011 to conduct inspections and examination of the waterproofing work. An earlier report by them had been supplied to Igentia Pty Ltd.
In the December 2011 report, Mr McDonald expressed the opinion that the waterproofing installed by Acevedo was defective and had failed causing the reported water penetration to various units in the building. He said: "21.1.5 The failures to waterproofing of the rooftop are the result of defective workmanship, and the incomplete removal of the existing failed bitumen membrane, preparation of surfaces, installation of the topping screed for falls to roof outlets, the use of waterproofing products observed, and an inadequate application of the waterproofing membranes to a minimum 800 microns DFT, as specified by the Manufacturer. These works are a breach of the Home Building Act (NSW) 1989 Part 2C Statutory Warranties.
Mr McDonald recommended that rectification would require the roofing slab to be completely stripped and prepared for a new sheet membrane system. He also recommended that rectification of the altered roof drainage outlets would require replacement and installation of new outlets to improve the surface stormwater drainage.
By letter to Bannermans dated 3 January 2012, Lumley provided its assessment of the claim for indemnity according to an attached Amended Inspection Summary. The letter stated that Lumley now required the Owners Corporation's written approval to the decision on their claim and that upon receipt of that approval Lumley would then proceed to obtain quotations for the rectification of the accepted works.
The Amended Inspection Summary set out the items of claim accepted and those denied. One item was accepted, described as "Leaking Roof", and a scope of works to rectify was set out. This adopted the rectification works recommended by Igentia Pty Ltd.
By letter dated 17 February 2012, from Bannermans, the Owners Corporation accepted the insurer's decision set out in its letter of 3 January 2012. It was noted that Lumley would now proceed to obtain quotations of the work.
By letters dated 24 and 26 April 2012, Bannermans notified Lumley of additional water damage observed to the property.
By July 2012, Lumley had engaged Vardanega Roberts to act for it in relation to the claim. In an email from Mr Roberts of that firm to Bannermans (and others) dated 5 July 2012 it was noted that whilst the application for insurance attached a contract dated July 2008, the work was done in 2005 and only attempted to be rectified in 2008, and that there was no contract in 2008 by which the builder was paid $40,000. The email stated that Lumley was very concerned about these matters and required a full explanation from the Owners Corporation.
Bannermans replied to Mr Roberts' email by letter dated 12 November 2012. It was pointed out that prior to the supply to them of copies of the application for insurance on 18 July 2012 neither Bannermans nor the Owners Corporation had seen the insurance application or its supporting documents and that the Owners Corporation had not been involved in obtaining the home warranty insurance. Reference was made in the letter to clause 62 of the Home Building Regulation 2004 which provided that an insurer was not entitled to refuse to pay a claim on the ground that the contract was obtained by misrepresentation or non-disclosure.
In the letter, it was claimed that it was not open to the insurer to revisit its decision. The insurer was called upon to carry out the previously accepted repair work. The potential need to resort to litigation was referred to.
There followed further correspondence between the solicitors of 28 November 2012 and 25 January 2013.
By letter from Vardanega Roberts to Bannermans dated 2 April 2013, Lumley communicated its decision to decline all of the items claimed.
On 3 May 2013, the Owners Corporation filed an application in the predecessor of the Tribunal below, the Consumer, Trade and Tenancy Tribunal. The application was an appeal against Lumley's decision in accordance with Clause 65 of the then Home Building Regulation (NSW) 2004.

The insurance policy

The insurance policy issued by Lumley (the Policy) was a "last resort" policy in the sense that it only responded in circumstances where the owner of the building could not recover compensation from the builder because of the insolvency, death or disappearance of the builder.
Key provisions concerning cover were: "SECTION 1 COVER 1.1 The Insurer agrees, subject to the Policy Limitations to indemnify the Insured in respect of Insured Loss which results form an Insured Event which occurs during the Period of Insurance. SECTION 2 INDEMNITY FOR INSURED EVENTS 2.1 Subject to Section 1.1 the Insured shall be indemnified for Insured Loss which arises from: … (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; … 2.5 The indemnity provided by this Policy, covers, subject to the Policy Limitations, the Residential Building Work carried out by or organised by the Contractor and only for the Works and if the Works are stated in the Application and also stated in the Policy Schedule or Certificate of Insurance. SECTION 3 EXCLUSIONS AND LIMITATIONS 3.1 The indemnities referred to and contained in Section 2.1 shall only apply if the Insured suffers loss or damage because of the Insolvency, death or Disappearance of the Contractor. … 3.4 Except as required by the Act or the Regulations the Insurer shall not be liable or required to indemnify or compensate the Insured for any loss or damage arising from: … (bb) any Claim which relates to: (i) any loss or damage howsoever occurring prior to the date of the Contract; … (iii) a claim or circumstance which might give rise to a claim which was known to the Insured at the inception date of this Policy, whether or not the claim or circumstance was stated in the Application; and … SECTION 4 PERIOD OF INSURANCE 4.1 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 6 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; or (c) in respect of loss arising otherwise than from any such Structural Defect 2 years after the date of the Completion of the Work or the date of the end of the Contract relating to the Work, whichever is the later. … SECTION 13 DEFINITIONS AND INTERPRETATION 13.1 For the purposes of this Policy, the Policy Schedule, Certificate of Insurance and any Endorsement to the Policy, unless the context otherwise requires: … '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. [Relevant Contract is not defined]. 'Completion' of Work means: (a) the date on which the Work is completed within the meaning of the relevant Contract; or (b) if the relevant Contract does not provide for when the Work is completed or there is no contract, on the date of the final inspection of the Work by the applicable council; or (c) in any other case, on the latest date that the Contractor attends the Site to complete the Work or hand over possession to the Owner, or if the Contractor does not do so, on the latest date the Contractor attended the Site to carry out the Work. 'Contract' means the Contract or Contracts specified in the Certificate of Insurance to do the Work and entered into between the Owner and the Contractor in which the Contract Price for the carrying out of the Work is more than $12,000.00. 'Contractor' means the person named in the Certificate of Insurance who enters into a Contract with the Owner to do the Work and who is a person required by the Act not to enter into a contract to do the Work unless an insurance contract required by the Act is in force in relation to the Work. … 'Defective' and 'Defects' in relation to Residential Building Work means: (a) a breach of any Statutory Warranty by the Contractor; and (b) Work requiring rectification as a result of the event stated at Section 2.1(c). … 'Insured' means a Person: (a) on whose behalf Residential Building Work covered by the Contract is done or is to be done; or (b) a Successor in Title to any Person referred to in (a) above, but expressly excludes: (i) a Developer who does Residential Building Work; (ii) a Person who does Residential Building Work other than under a contract; and (iii) a holder of a Contractor Licence who or which carried out the Residential Building Work; and (iv) companies related within the meaning of Section 50 of the Corporations Act, to any corporate person referred to in sub-paragraph (i), (ii) or (iii). 'Insured Event' means any event referred to in Section 2.1 of this Policy which occurs during the Period of Insurance. 'Insured Loss' means loss or damage incurred during the Period of Insurance resulting from an Insured Event after any Balance of Monies referred to in Section 8.9 has been applied in accordance with that Section. … 'Period of Insurance' means the applicable period referred to in Section 4.1 of this Policy. … 'Residential Building Work' has the same meaning as in the Act and the Regulations. … 'Statutory Warranty means each of the warranties given by the Contractor to the Owner as implied under Section 18B of the Act being: … 'Work' means the Residential Building Work to be carried out by the Contractor for the Owner as described in the Contract, or where there is no contract entered into between the Contractor and the Owner in respect of the Work in circumstances where under the Act a contract in writing for that Work is not required, the actual Work performed by the Contractor for the Owner on the site."
There was a Schedule to the Policy which also served as the Certificate of Insurance referred to in the definition of Contract. That document began: This certificate, when read in conjunction with the Policy of Insurance is a contract of insurance complying with: Section 92 in respect of Contract Work … of the Home Building Act 1989 and/or Home Building Regulation 1997 ("the Regulations") issued by the Insurer in respect of the 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 …"
We have previously referred to the specification of the Residential Building Work in this document that was titled "Policy Schedule/Certificate of Insurance".
It was common ground that: 1. The waterproofing work carried out by Acevedo in 2005 and 2008 was residential building work within the meaning of the Policy. 2. Acevedo's waterproofing work in 2005 and 2008 was seriously defective such that the new membrane applied on each occasion needed to be replaced. If the statutory warranties were applicable to the work done on each occasion then there had been breaches of those warranties in the work done in 2005 and 2008. 3. Any relevant loss or damage had not occurred after the expiry of the period of insurance. There was an issue whether any such loss or damage had occurred before the date of the contract for the work. 4. The Owners Corporation could not recover compensation from Acevedo or have Acevedo rectify any loss or damage because of the insolvency or disappearance of Acevedo within the meaning of cl 2.1(b) of the Policy.
For present purposes, significant aspects of the Policy are: 1. the promise to indemnify was confined to residential building work the subject of a contract and the subject of the contract specified in the Certificate of Insurance: see, for example, cl 1.1 and the definition of Insured and the above opening words to the Certificate of Insurance. That contract was a contract for future waterproofing work estimated to commence after the date of issue of the Policy at a cost of $42,280: see the definition of Contract. The fact that the contract the subject of the cover was for future works was consistent with the implicit recognition in the Certificate of Insurance that the insurance was being provided to comply with the requirement of the Act that insurance be obtained before any residential work was carried out. 2. Nothing in the Policy required that the indemnity did not apply in circumstances where the contract for the building work was made before the making of the insurance contract. On the contrary, it was plain that the policy covered a contract entered into over two weeks before the policy was issued. 3. The insured events included breach of contract by the builder by breach of the statutory warranties in s 18B of the Act: cl 2.1(b). Such breach had to be a breach of the contract specified in the Certificate of Insurance: see the definition of Contractor, to which one is led by the references to Statutory Warranties and Contractor in the insured event described in cl 2.1(b). 4. Liability was excluded (except as required by the Act or the Regulations) for any loss or damage arising from any claim for indemnity based on breach of the specified building contract which related to any loss of damage occurring prior to the date of that contract: cl 3.4(bb)(i).

Decision of the Tribunal below

The Tribunal below found that in 2008 a new contract was made between Acevedo and the Owners Corporation for new residential work: at [53] to [55]. It found that the new contract resulted from an offer and acceptance reflected in the 19 February 2008 emails for Acevedo to "rip it up and start again" and/or to be inferred from the conduct of the parties. The consideration was the surrender of a cause of action or forbearance to sue: at [58] - [59].
The Tribunal found that in the alternative, the relevant contract for insurance purposes was the 2005 contract but amended in 2008 and attached to the insurance proposal; at [60].
Relying on the judgment of Ipp JA in Taylor v Dexta Corporation Limited [2006] NSWCA 310, the Tribunal below concluded that the Policy was intended to provide cover in respect of the 2008 works: at [64]-[65].
The Tribunal concluded that in the circumstances the attachment of the 2005 contract to a 2008 proposal was a misrepresentation or a non-disclosure within the meaning of cl 62 of the Home Building Regulation 2004. In view of that clause (as reflected in cl 10.1 of the Policy), the Tribunal concluded that the insurer was not entitled to refuse to pay the claim on the grounds of misrepresentation of nondisclosure: at [66]-[70].
The Tribunal also concluded that the builder's failure to inform the insurer that work had commenced amounted to a misrepresentation or nondisclosure. Again, by reason of cl 10.1 of the Policy the Tribunal concluded that the insurer was not entitled to refuse the claim on this ground: at [71]-[72].
However, the Tribunal concluded that liability was excluded under cl 3.4(bb). The Owners Corporation submitted on appeal that the Tribunal below may have based its decision on both cll 3.4(bb)(i) and (iii). Lumley did not so contend. We think it is sufficiently clear that the Tribunal based its decision on exclusion cl 3.4(bb)(i). We say this because the reasons deal specifically with cl 3.4(bb)(i) (at [82]-[86]), and make specific findings concerning the operation of that clause. In contrast, the reasons make no specific reference to cl 3.4(bb)(iii). Also, there would appear to be a unexplained inconsistency between findings about knowledge of the insured (at [81] and [85]) if the Tribunal had intended to find that liability was also excluded under cl 3.4(bb)(iii).
Finally, the Tribunal rejected an alternative argument by the Owners Corporation that an enforceable settlement agreement was made with the insurer in 2012 as a result of correspondence of 3 January 2012 and 17 February 2012. The Tribunal concluded it had no jurisdiction to hear and determine the Owners Corporation claim about this because it was not a "building claim" within the meaning of s 48A(1) or s 48A(2)(a) of the Act: at [114]-[115]

Consideration

As we have already said, in our opinion, the insurer is not liable because the terms of cover were not satisfied and not because of the operation of the exclusion clause in cl 3.4(bb)(i). We outline our reasons below. Before doing so, however, we deal with the argument about exclusion clause cl 3.4(bb)(i). That was where the appeal had to commence because that was the basis upon which the Owners Corporation lost in the Tribunal below.
The Owners Corporation submitted that the Tribunal below had erred because it had wrongly interpreted cl 3.4(bb)(i) as applying to loss and damage occurring before the commencement of the Policy, whereas the clause was concerned with loss and damage occurring before the date of the contract for the building work: at [81] and [83].
We agree with this submission. Although, as we explain below, we do not think it deals with the main issue about the operation of this clause.
It does seem as though the Tribunal below treated the clause as if the Contract referred to was the insurance contract and not the contract for the building work. It erred in so doing.
The Tribunal below proceeded to find that there were defects in the 2008 work that pre-dated the insurance contract. These defects were those revealed in the second Inspection Certificate concerning the period from 10 to 17 July 2008: at [78]-[79] (it was common ground that the Tribunal's reference to the first inspection certificate in this context was a typographical error). Those defects emerge from the entry in the second inspection certificate for 17 July 2008, which post-dates the date of the contract of 14 July 2008. The only other entries on the second certificate concern 14 July itself, but these reveal limited issues concerning removal of some conduit and capping work.
Had the question been asked whether the claim concerned loss and damage occurring before the date of the contract, it would seem that the answer by the Tribunal below would have been different, so far as it was referable to the 2008 work.
As we understood it, the Owners Corporation also argued that the date of the contract for building work for the purposes of the application of cl 3.4(bb)(i) was not 14 July 2008, as stated in the Certificate of Insurance, but either in February 2008 or 2005, in accordance with the findings of the Tribunal below referred to in paragraphs 65 and 66 of these Reasons. We reject that argument. The reference in the clause to the Contract directs the reader to the Certificate of Insurance in which the date of 14 July 2014 is specified. No question of construction of the meaning of inception of the Policy truly arises in relation to this issue despite the reference to this by the Tribunal below: at [83].
However, the more significant issue about the meaning of cl 3.4(bb)(i) arises from the reliance by the Tribunal below on defects existing prior to the 2008 work (at [84]) and its conclusion (at [86]): "The proof of a pre-existing defect allows the exclusion clause to become operative."
As Lumley submits, it is clear that the Tribunal below was here relying upon the undoubtedly defective state of the 2005 works and that this had occurred well before both the date of the Policy and the date of the contract for the building work specified in the Policy. However, we agree with the Owners Corporation that it is not correct to apply the exclusion clause by reason of those pre-existing defects at the time of the 2008 work. If the Policy otherwise responded in respect of the work in 2008 (as is wrongly assumed for present purposes) it would follow on this interpretation of cl 3.4(bb)(i) that the Policy was intended to exclude remediation work on pre-existing damage. That would be an unusual result and one that appears at odds with the statutory purpose of the Policy.
We do not construe cl3.4(bb)(i) to operate in that way.
If there was a new (or amended contract) for the rectification work then the loss the subject of the claim for indemnity in the present circumstances is the loss from failure to perform the contract to rectify by failing to install a new, fit for purpose, waterproof membrane. That loss occurred at the time when that was not achieved, namely, at the completion of the work (or earlier if the contract had been lawfully terminated by the owner). It is at that time that the Owners Corporation was in the position where it received less than it was promised. The Owners Corporation was entitled, in so far as money can do it, to be placed in the same situation as if the contract had been performed: Robinson v Harman (1848) 1 Ex 850 at 855. Usually, the measure of such loss is the cost of rectifying; Bellgrove v Eldridge (1954) 90 CLR 613 at 617. We note also that such analysis is consistent with the period of insurance bearing in mind that such loss might not manifest itself for some time.
In our opinion, in the circumstances here, the claim for indemnity for such loss does not "relate(s) to …any loss or damage howsoever occurring prior to the date of the Contract" as specified in cl 3.4(bb)(i).
In our opinion, in so deciding to the contrary, the Tribunal below adopted a meaning of cl 3.4(bb)(i) that was too broad.

The terms of cover were not satisfied

Under an insurance contract the insurer promises to pay money to the insured if the circumstances stated in the policy exist: Wallaby Grip Limited v QBE Insurance (Australia) Limited; Stewart v QBE Insurance (Australia) Limited [2010] HCA 9 at [28]. The existence of the stated circumstances is a condition precedent to the performance of the insurer's promise: Clarke, The Law of Insurance Contracts, 6th ed (2009) at 466 [16-1].
In our opinion the stated circumstances of the Policy have not been established to exist because the 2008 waterproofing works were not done in performance of a contract to do such works and, in any event, not in performance of the contract the subject of the insurance.
The relevant insured event is a breach of the statutory warranties by the Contractor. That person is the person named in the Certificate of Insurance (in this case Acevedo) who "enters in to a Contract with the Owner to do the Work …": see definition of Contractor.
In our opinion, this requirement was not satisfied in the present circumstances where the Builder seeks to rectify in order to achieve the performance that it promised to achieve under the original contract for the building work.
The legal relationship between Owner and Builder in such circumstances was explained by Ball J in The Owners - Strata Plan No 76674 v Di Blasio Constructions Pty Ltd [2014] NSWSC 1067 at [44]. This was a decision shortly before the decision of the Tribunal below which it appears was not cited to that Tribunal. Ball J said: "In the case of building contracts it is also generally accepted that the owner must give the builder a reasonable opportunity to rectify any defects. Often, of course, the building contract itself requires the owner (sic) to repair defects or sets out a procedure by which defects are to be made good … but, even if it does not, the owner is required to give the builder an opportunity to minimise the damages it must pay by rectifying the defects, except where its refusal to give the builder that opportunity is reasonable or where the builder as repudiated the contract by refusing to conduct any repairs … That obligation may be an aspect of the duty to mitigate, since it may be less expensive for the builder rather than a third party to rectify the defects, particularly if the builder is still on site. But the obligation is not simply an aspect of the duty to mitigate. The cost to the builder of undertaking the repairs is likely to be less than the amount that a third party would charge the owner for the same works. In that case, the owner is not mitigating its loss, but rather the builder's damages."
There was no evidence from which it could be concluded that Acevedo carried out the 2008 rectification work pursuant to an express obligation in the contract for the 2005 works. However, we do not think that it could be concluded that the rectification works were carried out otherwise than as a consequence of the rights and obligations of the parties arising under the 2005 work. In this respect, we disagree with the Tribunal below in its finding of a new contract based on forbearance to sue or an amendment of the 2005 contract.
We do not agree that there was some compromise involving a surrender of a cause of action or a forbearance to sue. In our opinion, no exchange between the parties involved any such concession by the Owners Corporation. In our opinion, the rights of the Owners Corporation remained unaffected by the acceptance that Acevedo should start again in order to achieve what it had originally promised.
In any event, even if there was a contract entered into to carry out the rectification works, in our opinion, it was a substantially different contract from that identified as part of the circumstance covered by the indemnity. In this respect, we note that the Insured is a person on whose behalf relevant building work is done "covered by the Contract". That contract is the one specified in the Certificate of Insurance: see definitions of Insured and Contract. Furthermore, the breaches of warranty which comprise the relevant insured event are those by the Contractor which, as stated above, directs one again to the contract specified in the Certificate of Insurance.
As already alluded to, the contract specified in the Certificate of Insurance is substantially different from a contract to rectify defective performance at no cost to the owner. It is also a contract for future works and not a contract in respect of work that is already well advanced. In our opinion, these differences amount to missing elements in satisfying the conditions of the insurer's promise to pay.
In support of the case for cover, the Owners Corporation rely heavily on the decision in Taylor v Dexta Corporation Limited & Ors [2006] NSWCA 310. The Owners Corporation place emphasis upon parts of the judgment of Ipp JA referring to a conflict in the policy between the undertaking to indemnify to enable the builder to comply with its obligations under the Act and provisions relied upon by the insurer to the effect that cover was limited to contracts entered into within the policy period or after a retroactive date. These passages included: "92. In my view the factors set out in the preceding two paragraphs are paramount. They outweigh the factors on which Allianz relies in contending that cover was not provided for the Newport contract. They demonstrate that the real intention of the parties was that the policy would cover the Newport contract."
However, the circumstances in Taylor's case are different from the present case. In that case, which was concerned with a builder's annual policy for forthcoming work and not a job specific policy, the most pertinent part of the text of the policy and all the weight of the objective circumstances pointed to an intention to cover the forthcoming work on the Newport property (per Santow J at [51]-[57] and at [30] ). These aspects overcame the specification in the certificate of insurance of a period for contracts the subject of cover to be entered into which post-dated the entry into the contract for the Newport property. Whilst the certificates issued by the insurer were inconsistent with intention to provide cover, and were part of the factual matrix for construction purposes, they were of secondary significance: per Santow J at [36] and [68].
No such countervailing factors exist in the present case. In this case, it is plain that the Policy was intended to cover a contract entered into before the commencement of the Policy. However, there were no aspects, as in Taylor's case, demonstrating that the real intention was that cover should apply to work carried out in circumstances substantially different from those referred to in the certificate of insurance. The fact that a premium was paid and accepted in respect of, speaking generally, waterproofing works to the roof of the property is not sufficient to establish cover.
Notably, Santow JA, with whose reasons Beazley JA agreed, disagreed with the insured's submission that the Act and Regulations render the contract under which the building work is carried out secondary to the building work itself: at [50].
Furthermore, the statutory context is at odds with the insured's argument in this case. The terms of the certificate of insurance in this case are consistent with the statutory requirement for insurance to be entered into before work commences.

Alternative claim - alleged agreement by insurer separate from insurance contract

In the Tribunal below the Owners Corporation ran an alternative case that the insurer was contractually bound by an alleged agreement arising out of the letters of 3 January 2012 and 17 February 2012 concerning acceptance of the insurer's assessment of the claim. It is not readily apparent how these communications dealing with the subject of acceptance of the insurer's decision on the assessment of the claim gave rise to a contract. In this connection we also note that the correspondence contains no express statement by the insurer to pay any specified sum of money or to engage a contractor to carry out any work nor is it directed at the settlement of a dispute that had arisen between the parties. All the insurer expressly said it would do was obtain quotes for the rectification work that it accepted was covered by the insurance.
The Tribunal below left open the question whether an enforceable agreement was reached (at [116]), although it did conclude that the parties formed an agreement for the insurer to cause identified work to be carried out: at [95]. On the appeal the insurer did not contend that the Tribunal erred in so concluding.
The Tribunal concluded that it had no jurisdiction to deal with this alternative claim; at [114] and [115]. One ground for such conclusion was that the claim under this alleged agreement did not "arise from" from a supply of building goods or services within the meaning of the definition of "building claim" in s 48A of the Act. Under s 48K(1) of the Act the Tribunal has jurisdiction to hear and determine "any building claim". We agree with the Tribunal below on this point, as we explain below.
The Tribunal below also concluded that this claim did not arise from a "collateral contract" within the meaning of the same definition and that the claim was not an appeal from a decision of an insurer within the meaning of s 48A(2)(a) of the Act. No challenge to these conclusions is made on the appeal.
The essence of the argument of the Owner's Corporation on the appeal was that the claim did "arise from" a supply of building goods or services because absent the defective waterproofing works, which was a supply of building goods or services, there would be "no basis" for the claim for supply of services by the insurer namely that it procure the carrying out of the works foreshadowed in its letter of 3 January 2012; at [52] - [53] of the Appellant's Outline Submissions. This is said to provide a sufficient nexus between the claim for specified services (see s 48A(1)(b) of the Act) and a supply of building goods or services. Sensibly, the Owners Corporation did not contend that the insurer itself supplied building services within the meaning of this definition - as to this, and by analogy, see the decision of McClellan J in Woolfe v Sussman [2001] NSWSC 702, and see also Brett Wolinski Building Pty Ltd v HIA Insurance Services Pty Ltd [2003] NSWSC 475.
The Wolinski case concerned a claim by a builder against an insurer that an insurance contract had been made in connection with a contract to carry out building work and for loss for failure to provide the alleged promised insurance. The Tribunal found that it had no jurisdiction to hear the claim and this finding was upheld on appeal. It is not apparent from the judgment how the alleged loss was said to arise. The judgment does not deal with any argument that the claim against the insurer arose from a supply of services by the builder. The judgment contains no reference to there having been any actual supply of building services by the builder. Clearly, if there had been no such supply then the current argument was not available to the builder.
Largely, for the reasons given by the Tribunal below we disagree with the Owners Corporation's contention: at [112] and [113] (whilst these paragraphs come under the heading of the Tribunal's treatment of "Collateral contract" it is clear that from paragraphs [108] to [113] the Tribunal below was dealing with the current argument).
In our opinion, the argument of the Owners Corporation really amounts to saying that a sufficient connection is established when the relevant supply of services is the occasion of the loss. However, such a connection was rejected as insufficient by Basten JA in Grygiel v Baine [2005] NSWCA 218 at [62]. In that case a claim for negligent advice against a solicitor was found to be a building claim in circumstances where the advice had led to the terms upon which the builder supplied the building services which terms resulted in loss to the builder.
The Owners Corporation argue that it would be a strange result for the Tribunal not to have jurisdiction to deal with the claim in issue in circumstances where an appeal against a decision of an insurer "under an insurance contract required to be entered into under this Act" is specified as included within a building claim; s 48A(2). However, under the scheme of the Act the insurance contract is prescribed to be, in effect, a precondition for the supply of contractual building services (s 92(1)) and is, therefore, closely connected with the supply of the services. The same cannot be said about the current claim.
Accordingly, for the above reasons, the appeal is dismissed. 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

Amendments 23 September 2015 - Pursuant to Section 63 of the Civil and Administrative Act 2013 orders published on 22 September 2015 are amended to read as follows:

Owners Corp - SP 14846 v Wesfarmers General Insurance Ltd t/as Lumley General 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: 23 September 2015

Owners Corp - SP 14846 v Wesfarmers General Insurance Ltd t/as Lumley General

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