Plaintiff v First Defendant

PRACTICE AND PROCEDURE - whether leave should be granted to add additional questions of law not argued before VCAT.

1 This is an appeal by the plaintiff Housing Guarantee Fund Ltd ("HGFL") against a decision of the Victorian Civil and Administrative Tribunal ("VCAT") in which it was ordered that HGFL pay certain interest and costs to the defendants.

2 On 25 November 2004 Master Wheeler gave HGFL leave to file a Notice of Appeal against the said decision of VCAT. In case the Master's order does not amount to the granting of leave to appeal, within the meaning of s.148(1)(b) of the Victorian Civil and Administrative Tribunal Act (Vic) 1998 ("the VCAT Act"), I indicated at the outset that I would insofar as necessary grant HGFL leave to appeal and no objection was taken to this course by the defendants.

3 The appeal arises in the following circumstances. The defendants were persons insured by "HIH"[1] for the purposes of the House Contracts Guarantee Act 1987 (Vic) ("the Guarantee Act") and made claims against HGFL under Part 6 of the Guarantee Act, headed "DOMESTIC BUILDING (HIH) INDEMNITY SCHEME". Part 6 of the Guarantee Act enacts what the parties referred to as "the rescue package" which was designed to protect house owners who would otherwise have been unable, due to the demise of HIH, to recover damages suffered by them. The central provision of the rescue package is s.37 of the Guarantee Act which provides that, subject to Part 6, the State of Victoria must indemnify any person who is entitled to an indemnity under a HIH policy to the extent of the indemnity under that policy. Part 6 renders HGFL responsible for the administration of the indemnity scheme and the Domestic Building (HIH) Indemnity Fund and provides that HGFL acts on behalf of the State for the purposes of Part 6.

4 A number of claims were made by the defendants and submitted under Part 6 to HGFL commencing in or about February 2002. The claims and the responses of HGFL to those claims were made and given over a period of some fifteen months. The claims related to incomplete and defective work by a builder[2] to a domestic building under a domestic building contract.[3]

5 By an application dated 5 June 2003 the defendants applied to VCAT in its Domestic Building List for orders that VCAT review the decisions of HGFL made in respect of their claims under Part 6 of the Guarantee Act. The application referred to the decisions of HGFL which were sought to be reviewed by identifying three letters from HGFL to the defendants.[4] The defendants, in their application for review, stated their grounds as being that HGFL was responsible for the administration of the indemnity scheme and that its decision to reject certain items in the defendants' claim was wrong in fact and/or law.

6 The said VCAT proceeding was brought by the defendants pursuant to ss.60 and 61 of the Domestic Building Contracts Act (Vic) 1995 ("the Domestic Building Contracts Act"). Section 60(1) of the Domestic Building Contracts Act provides that VCAT may review any decision of an insurer with respect to anything arising from, inter alia, an indemnity under Part 6 of the Guarantee Act. "Insurer" for the purposes of the Domestic Building Contracts Act is defined to include HGFL for the purposes of Part 6 of the Guarantee Act. Section 61(1) of the Domestic Building Contracts Act provides that any person whose interests are affected by a decision of an insurer (ie HGFL in this case) with respect to anything arising from an indemnity under Part 6 of the Guarantee Act may apply to VCAT for a review of such decision.

7 The defendants filed points of claim dated 18 December 2003 with VCAT setting out the nature of their application for review in more detail. It is sufficient for present purposes to note that, after setting out their allegations, the defendants claimed an order that the decisions of HGFL be reviewed, an order that HGFL indemnify them for the amount of their claims to the limit permitted by their certificate of insurance, interest pursuant to s.57 of the Insurance Contracts Act (Cth) 1984 ("the Insurance Contracts Act") and an order that HGFL pay their reasonable legal costs of enforcing the claim against HGFL.

8 A partial settlement of their claims and of the VCAT application was reached between the defendants and HGFL and was recorded in a Deed dated 29 July 2004.

9 Paragraph 1 of the Deed provided that HGFL should pay to the defendants the sum of $100,000 "being the maximum amount of [HGFL's] liability for the ... Claims (excluding the Costs and Interest Claim)". The "Costs and Interest Claim" was defined in the recitals to the Deed as being such further amount as was agreed by HGFL and the defendants or determined and assessed or taxed by VCAT to represent the defendants claim for costs and interest pursuant to the HIH policy, Part 6 of the Guarantee Act, the VCAT proceeding or interest pursuant to the Insurance Contracts Act or, if applicable, damages in the nature of interest pursuant to the Domestic Building Contracts Act.

10 Paragraph 2 of the Deed contained a release by the defendants in favour of HGFL, HIH and the State, inter alia, in relation to the VCAT proceeding but "excluding the Owners' Costs and Interest Claim".

11 The defendants' claim for interest and costs in the proceeding, having thus been excluded from the settlement, and not being the subject of subsequent agreement with HGFL, was brought before and heard by VCAT constituted by Senior Member Mr R Young on 9 August 2004. On 27 September 2004 it was ordered by VCAT that the defendants were entitled to interest pursuant to the Insurance Contracts Act, such entitlement commencing from 29 May 2003 and that the defendants were entitled to have their reasonable legal costs and expenses of enforcing the claim against HGFL and that such costs were to be paid on an indemnity basis and, failing agreement, to be assessed by the principal registrar of VCAT in accordance with s.111 of the VCAT Act.

12 I will deal first with the question of interest. It is submitted on behalf of HGFL that VCAT had no power to make an order for interest in favour of the defendants. Senior Member Mr Young based his order upon s.57 of the Insurance Contracts Act and it was not suggested on this appeal that there existed any other basis for such an order. The reason for the interest order given by the Tribunal was, in substance, that the HIH indemnity gave the defendants an entitlement under the HIH policy which included an entitlement to interest pursuant to s.57 of the Insurance Contracts Act.

13 Mr Uren QC, who appeared with Mr Aghion of Counsel for the defendants, sought to elucidate the statutory basis for the order of interest in the defendants' favour in the following way. Mr Uren accepted that the HIH policy, which contained no provision as to interest, did not of itself entitle the defendants to interest on the amount of a claim thereunder but, he submitted, s.57 of the Insurance Contracts Act altered this position. Section 57(1) provides that "[w]here an insurer is liable to pay to a person an amount under a contract of insurance ..., the insurer is also liable to pay interest on the amount to that person in accordance with this section." Mr Uren submitted that the words "also liable" had the effect of adding to or incorporating in an insurer's contractual liability a liability to pay interest. As a result, under the HIH policy the indemnity included a liability to pay interest. The final step in the argument was that because the State was obliged under s.37 of the Guarantee Act to indemnify the defendants to the extent of the indemnity under their HIH policy and the indemnity under the HIH policy included a liability to pay interest, then the State was obliged under s.37 to pay interest to the defendants on the amount of their claim.

14 In my opinion the defendants' said submission and the reasoning of the Tribunal in relation to interest is incorrect. I consider that s.57 of the Insurance Contracts Act gives an insured a statutory entitlement to interest but does not add to or incorporate in the contract of insurance such interest entitlement. The right to interest is an additional right provided by statute, it does not increase the scope or extent of the contractual indemnity. Under s.37 of the Guarantee Act the State is liable only to the extent of the indemnity under the HIH policy. In my view, on a plain reading of the section, the words "indemnity under that policy" do not cover the statutory right to interest under the Insurance Contracts Act. That is because, as I have said, s.57 of the Insurance Contracts Act provides an additional right to insured persons but that right is not by s.57 incorporated in the policy of insurance. Further, this interpretation is in my view consonant with the purposes of Part 6 of the Guarantee Act. Section 1(d) of the Guarantee Act provides that a purpose of the Act is to establish an indemnity scheme in respect of losses arising in respect of certain classes of building work affected by the collapse of HIH Insurance Group. "Loss" is defined by s.35 of the Guarantee Act to include damage and costs and s.40(1) of the Guarantee Act provides that a person who has incurred a "loss" may make a claim in respect of that "loss". The emphasis in Part 6 is upon loss and an order for interest may or may not be compensation for any loss. I therefore do not consider that what I regard as a literal interpretation of the statutory provisions runs contrary to the purpose of Part 6 or fails to deal properly or fully with the mischief which Part 6 was enacted to cure.

15 Accordingly I think that the VCAT order in relation to interest must be set aside.

16 I now turn to the question of costs. The HIH policy, in addition to providing an indemnity in respect of loss or damage as therein defined, makes provision as to costs. Under the heading "Limit of Indemnity applicable to the policy", there appears sub-paragraph (a) which provides that the liability of the insurer under the policy is not to exceed $100,000 "plus reasonable legal costs and expenses incurred by the insured associated with the successful enforcement of a claim against the insurer". Sub-paragraph (c) goes on to provide that the insurer shall bear no liability for legal costs which are not directly or indirectly related to the successful enforcement of a claim against the insurer.

17 Mr Murdoch QC, who appeared with Mr Stuckey of Counsel for HGFL, abandoned all grounds of appeal which in their effect contended that the costs of enforcing the claim against HGFL could not be treated as the costs of enforcing the claim against HIH for the purposes of the State's indemnity under s.37 of the Guarantee Act. Thus Mr Murdoch abandoned that contention.

18 However, Mr Murdoch sought leave to amend the Notice of Appeal by inserting two new questions of law, namely:

"7. Whether the Tribunal had jurisdiction to hear and determine a claim by the defendants for reasonable legal costs and expenses made pursuant to the indemnity granted by section 37 of the House Contracts Guarantee Act 1987 in the absence of any request for a decision or any decision being made by [HGFL] on that issue.

1. 8. Whether the Tribunal had power under the VCAT Act or otherwise to order that the question of the amount of the indemnity to which the defendants were entitled in respect of reasonable legal costs and expenses be determined by the principal registrar instead of a member of the Tribunal."

19 In relation to proposed question 7, it was common ground that the point had not been taken below in the Tribunal and the factual question whether the defendants had requested a decision or whether any decision had been made by HGFL in relation to costs had not been ventilated. In my opinion it is too late now and potentially prejudicial to the defendants to permit this question to be raised. HGFL acquiesced in the question of costs going forward for argument and being heard by VCAT without contending that VCAT had no jurisdiction to do so. It is not suggested by either party that VCAT did not have jurisdiction to review the decisions of HGFL and it is too late to contend that those decisions did not comprehend the question of costs. Indeed the question of costs had been expressly raised in the defendants' points of claim and HGFL did not suggest until now that VCAT had no jurisdiction to deal with that question. Accordingly leave is refused to raise this additional question of law.

20 In relation to proposed question 8, a different situation arises. It would appear that the order referring the question of costs to be determined by the principal registrar was made by the Tribunal without reference to the parties and they had no opportunity to make any submission concerning it. Mr Murdoch submitted that while the principal registrar had power to assess costs, under s.111(1) and (2) of the VCAT Act, that power only related to an order for costs made by VCAT under s.109 of the VCAT Act and did not extend to questions of costs said to arise under a contract of insurance (or any other contract). Neither party pointed to any other provision in the VCAT Act which empowered the principal registrar to exercise or be given the responsibility of exercising a judicial power to assess damages or costs. This is purely a question of law and does not prejudice the defendants in any way because the consequence of Mr Murdoch's submission being upheld is simply that the Tribunal rather than the principal registrar must hear and decide for itself the question of the quantum of the defendants' costs.

21 In relation to question 8, I will grant HGFL leave to appeal and leave to amend the Notice of Appeal accordingly.

22 At this point I note that the order of VCAT is clearly incorrect to the extent that it requires that costs are to be paid on an "indemnity basis". An order in those terms is not supported by the language of the HIH policy.

23 In my opinion the principal registrar has no power to assess costs of the kind involved in this case because the VCAT Act does not empower the principal registrar to do so, nor does it enable such power to be delegated to the principal registrar. The power to assess costs under s.111 of the VCAT Act in my view relates only to an order for costs under s.109 of the VCAT Act. I will substitute for the order as to costs made by VCAT an order that the defendants are entitled to have their reasonable legal costs and expenses of enforcing the claim against HGFL paid by HGFL, such costs to be agreed, and failing agreement, to be assessed by a member of VCAT.

24 The appeal will be allowed and the orders of VCAT set aside and, in lieu thereof, there will be an order as to costs in the form mentioned in the previous paragraph.

25 I will hear Counsel on the question of the costs of the appeal.

1. [1] See the definition of "HIH" in s.35 of the House Contracts Guarantee Act 1987 (Vic).
2. [2] The builder was a company to which administrators were appointed and which had ceased to trade.
3. [3] See generally the Domestic Building Contracts Act 1995 (Vic) and in particular the definitions contained in s.3 of that Act.
4. [4] It may be that not all of these letters constitute a decision by HGFL and it may also be that there are other documents and matters forming part of HGFL's decision or decisions. However, for the purposes of this appeal, nothing appears to turn on the precise identification of the decisions, with an exception referred to in paras [18]-[19] below.