Australian International Insurance (formerly Reward Insurance Limited)

[2004] VCAT 2632

1. The Points of Claim of the First Respondent as against the Fourth Respondent are struck out insofar as they contain any allegations or claims for apportionment under s131 of the Building Act 1993.

2. By 31 January 2005 the First Respondent shall file and serve Amended Points of Claim as against the Fourth Respondent.

4. This proceeding is referred to a further directions hearing before Deputy President Aird on 31 January 2005 at 10:00 am at which time directions will be made for the further conduct of this proceeding, and any application for costs arising out of this application will be heard.

1. This is an application by the Fourth Respondent (Archicentre) that the First Respondent's (the insurer) claim against it be dismissed pursuant to s75 of the Victorian Civil and Administrative Tribunal Act 1998.

2. Mr Herskope of Counsel appeared on behalf of Archicentre and Mr Whitten appeared on behalf of the insurer. There was no appearance by or on behalf of the other parties.

3. Section 75 provides:

"75. Summary dismissal of unjustified proceedings

_(1) At any time, the Tribunal may make an order summarily dismissing or striking out all, or any part, of a proceeding that, in its opinion - _

(a) is frivolous, vexatious, misconceived or lacking in substance; or

(2) If the Tribunal makes an order under sub-section (1), it may order the applicant to pay any other party an amount to compensate that party for any costs, expenses, loss, inconvenience and embarrassment resulting from the proceeding.

(5) For the purposes of this Act, the question whether or not an application is frivolous, vexatious, misconceived or lacking in substance or is otherwise an abuse of process is a question of law".

4. It is well established that caution must be exercised in determining whether a proceeding should be struck out pursuant to the provisions of s75. I am assisted by the decision of Deputy President McKenzie in Norman v Australian Red Cross Society 1998 14 VAR 243 where, after considering the judgment of the Court of Appeal in Rabel v State Electricity Commission of Victoria [1998] 1 V.R. p.102 she said:

"(a) The application is for the summary termination of the proceedings. It is not the full hearing of the proceeding.

(b) The Tribunal may deal with the application on the pleadings or submissions alone, or by allowing the parties to put forward affidavit material or oral evidence. The Tribunal's procedure is in its discretion and will depend on the circumstances of the particular case.

(c) If the Complainant indicates to the Tribunal that the whole of his or her case is contained in the material placed before the Tribunal, the Tribunal is entitled to determine whether the complaint lacks substance by asking whether, on all the material placed before it, there is a question of real substance to go to a full hearing. However, if a Complainant indicates to the Tribunal that there is other evidence that he or she can call to support the claim and the Tribunal, on the application, does not permit that evidence to be called, then the Tribunal cannot determine the application on the basis that the Complainant's material contains the whole of his or her case.

(d) An application to strike out a complaint is similar to an application to the Supreme Court for summary dismissal of civil proceedings under RSC r23.01 (see also commentary on this rule Williams, Civil Procedure Victoria). Both applications are designed to prevent abuses of process. However, it is a serious matter for a Tribunal, in interlocutory proceedings which would generally not involve the hearing of oral evidence, to deprive a litigant of his or her chance to have a claim heard in the ordinary course.

(e) The Tribunal should exercise caution before summarily terminating a proceeding. It should only do so if the proceeding is obviously hopeless, obviously unsustainable in fact or in law, or on no reasonable view can justify relief, or is bound to fail. (emphasis added_) This will include, but is not limited to a case where a complainant can be said to disclose no reasonable cause of action, or where a Respondent can show a good defence sufficient to warrant the summary termination of the proceeding._

(f) On an application to terminate a complaint summarily, the Tribunal must clearly distinguish between the complaint itself and the evidence which is to be given in support of it. A complaint cannot be struck out as lacking in substance because it does not itself contain the evidence which supports the claims.

(g) The test for determining whether a complaint is frivolous, vexatious, misconceived or lacking in substance is different from that applied in other Australian Anti-Discrimination jurisdictions where the legislative context is different from Victoria. It is similar to that applied by the Supreme Court in civil proceedings for the purposes of RSC r23.01.

(h) The Tribunal should not apply technical, artificial or mechanical rules in construing a complaint or coming to a view about the case a Complainant wishes to advance."

5. Where application is made under s75 the basis upon which the application should be dismissed or struck out should be clearly enunciated with reference to the wording of that section. At paragraph 4 of Archicentre's written submissions it 'contends that the claim brought against it by (the insurer) is unsustainable at law or alternatively is not maintainable in its present form.' For the purposes of this application I interpret this to mean that the basis of the application is that the claim is misconceived or lacking in substance.

6. The Second-named Applicant (the owner) purchased the subject property from the Second Respondent ('the owner builder') by contract of sale dated 11 May 2002. The owner builder had engaged Archicentre prior to selling the property to prepare a report to enable the obtaining of domestic builders warranty insurance (the Owner Builder Domestic Insurance Policy - 'the Policy') as required by s137B of the Building Act 1993. The report indicates that there were 'no faults evident' and that the home was 'without serious defects'. Subsequently the owners made a claim under the Policy in relation to alleged defective building works part of which was rejected. This proceeding was commenced as an appeal against the decision of the insurer with the owner-builder also a party. The insurer subsequently joined the building surveyor and Archicentre as the Third and Fourth Respondents respectively.

The Insurer's Points of Claim as against Archicentre

7. Mr Whitten submits on behalf of the insurer that the claims pleaded "in the mouths of" (to adopt his phrase) of each of the owners, the owner-builder and the insurer must be considered together because they are all closely inter-related. Any liability of the insurer is largely derivative and is dependent on the owners' appeal being successful, or, in other words determining that the owner-builder has a liability in relation to breaches of its statutory warranties. If the works are found to be defective, the primary liability will rest with the owner-builder in respect of whose liability the insurer is required to indemnify the owners. The insurer seeks to minimize its potential liability by seeking contribution and/or indemnity from Archicentre and pleads claims under the Fair Trading Act 1999, in tort and for apportionment of liability under s131 of the Building Act 1993 or contribution and/or indemnity under Part IV of the Wrongs Act 1958.

8. Mr Whitten submits that the insurer's approach is a three tier one which is best summarised by reference to paragraph 20 of his written submissions. In relation to the loss and damage suffered by the owners he submits at paragraph 20.1 that the owners have suffered loss and damage because of Archicentre's failure to provide an accurate report which meant they purchased the property without knowledge of the defects and the principles of caveat emptor therefore do not apply and 'Had the Applicants not suffered any loss or damage in respect of the defects, then neither the owner builder nor the insurer would be liable'.

9. In relation to the owner builder he submits at paragraph 20.2 'The end result, as is alleged, is that the owner builder, but for Archicentre's breaches would not have been liable or its liability would be reduced, which in turn would have eliminated or reduced the insurer's potential liability.'

10. The third tier as set out in paragraph 20.3 is that had the report been accurate the insurer would either not have provided insurance cover at all, or that any policy would have been issued with qualification and exclusions.

11. Although Mr Herskope conceded that Archicentre might owe the insurer a duty of care in respect to the preparation of its report, he said that this had not been pleaded. However, I do not read the Points of Claim in the narrow way suggested. In relation to each alleged breach, it is pleaded that a duty was owed to the owners, the owner-builder and/or the insurer.

12. I am not persuaded by Mr Herskope's submission that the recent decision of the Tribunal in Beamish v Archicentre Ltd [2004] VCAT 2023 is applicable. In Beamish, the Applicant, who was the subsequent owner, of the property had issued proceedings directly against the owner-builder and Archicentre, her claim against both of them being for the cost of repairs of rectification of defective works which she claimed should have been identified by Archicentre, and included in the prescribed report. The Tribunal accepted that the claims for loss and damage as against Archicentre were not sustainable at law, and granted the Applicant an opportunity to file and serve Amended Points of Claim failing which the proceeding would stand dismissed as against Archicentre. In this case, it is the insurer who has joined Archicentre seeking to establish that Archicentre has caused the owner's loss and damage and otherwise seeking contribution or indemnity for any amount it may be ordered to indemnify the owner for.

13. The insurer alleges that Archicentre has engaged in misleading and deceptive conduct in contravention of s9 of the Fair Trading Act 1999 ("the FTA") in relation to its representations about the condition of the subject property as contained in its report. A contravention of the provisions of s9 of the Act entitles a party who suffers loss and damage to recover the amount of such loss and damage under s159 of the FTA.

14. Senior Member Walker said at paragraph 28 in Beamish that:

...it is still necessary to establish that the loss and damage sought to be recovered has been suffered "because of a contravention of" (in the context of the present case) a provisions of the Fair Trading Act 1999. The causal connexion must be demonstrated.

15. It is submitted on behalf of Archicentre, relying on Wardley Australia Ltd v WA [1992] HCA 55; (1992) 175 CLR 514, that for the insurer's claims under the FTA to succeed there must be some nexus between Archicentre's conduct and the loss and damage suffered by the owners. It is asserted that 'the conduct complained of is the provision of the prescribed report to the First Respondent and no more ... there is no relevant nexus.' Once again, I do not read the insurer's Points of Claim in the narrow way suggested. As I understand it, the conduct complained of is not the provision of the prescribed report to the insurer as set out in paragraph 26.3 but the making of the representations contained in the report as set out in paragraph 27 and the alleged reliance by the owners, the owner builder and the insurer on those representations. Whether the evidence supports these allegations is a matter for the final hearing but there is nothing in the material before me that establishes this is a hopeless claim. In other words, the insurer claims that but for the conduct of Archicentre the owners would not have suffered the loss and damage claimed against the owner builder and Archicentre i.e. the cost of rectification works, and would not have made a claim under the Policy.

16. The insurer alleges that it relied on the contents of the report in determining to provide warranty insurance without qualification or exclusion of specified defects and that any loss and damage that may be suffered by the insurer, should the owner's appeal be successful, will have been suffered because of the contravention of s9 by Archicentre. I am satisfied this is a triable issue.

17. Although it is contended by Mr Herskope that the owner and the insurer 'do not fall within the class to which the representation is directed ...' (paragraph 16 of Submissions) again this is a matter which should be subject to evidence and properly determined at the final hearing.

18. It is alleged that Archicentre owed a statutory duty of care to each of the owner, the owner-builder and/or the insurer arising under the Architects Regulations 1993, Section 137B(2)(a)(i) of the Building Act 1993 and the Ministerial Order No S51, 14 May 1996. It is asserted on behalf of Archicentre that 'no such statutory duty exists' in support of which it seeks to rely generally on s137B and further that the Architects Regulations 1993 were revoked by the Architects Regulations 2004 which came into effect on 24 May 2004, and which do not provide for a statutory duty as alleged. However, I am not referred to any authority to support this nor to support the proposition that this claim is misconceived or lacking in substance. The question as to whether the 1993 or 2004 Regulations apply and whether a statutory duty was owed to the owner, the owner-builder and/or the insurer is clearly a triable issue.

19. It is also alleged that Archicentre owed a duty of care to the owner, the owner-builder and/or to the insurer. In Beamish Senior Member Walker at paragraph 40 observed:

...This is not a final hearing of the case and it is unnecessary for me to determine whether there is sufficient proximity to give rise to a duty of care but there is certainly a case on the issue to go to trial and it would not be proper to dismiss the claim on this basis.

20. However, Senior Member Walker then went on to find at paragraph 42:

...Accordingly, the alternate claim in negligence must also fail because the damages sought are simply not recoverable at law.

21. Once, again the facts in Beamish were quite different to those here where the owner's claim is an appeal against a decision of an insurer where any entitlement to damages is as set out in the Policy which provides:

(a) the costs of Defective Domestic Building Work which results from any breach of the Owner Builder of the warranties implied into the Owner Builder's Contract of Sale of the Situation by the provisions of Section 137C of the Act, ...

22. Therefore under the policy of insurance, the only loss and damage claimable by the owner under the insurance policy is the cost of rectification works. Whilst this might not otherwise be the appropriate measure of damages in a situation where the facts are similar to those of Beamish, (in other words where an owner makes a direct claim against Archicentre) it is the loss and damage contemplated by and available under the policy of insurance and in respect of which the insurer will be required to provide indemnity to the owners should their appeal be successful.

23. As discussed above the insurer's claim is not, as set out in paragraph 22 of those submissions '...the cost of rectification of faulty building works conducted by the first respondent...' but is rather any amount for which the insurer is required to indemnify the Applicant under the policy of insurance, and I am satisfied that is how the case is currently put.

The claim under s131 of the Building Act 1993 and under Part IV of the Wrongs Act 1958

24. In relation to the claim for apportionment of liability between the owner builder, the building surveyor and Archicentre under s131 I accept that any defective works were carried out by the owner builders. Archicentre cannot be said to have caused the defective works and cannot be directly responsible to the owners for the cost of rectification works. In this regard I refer to my decision in Cabouret v Reward Insurance Pty Ltd v Matthews [2002] VCAT 1493 where at paragraph 5 I observed:

... In this case the claim against the First Respondent is an appeal of its decision to refuse the Applicant indemnity under a policy of insurance - there is no suggestion that the First Respondent has caused the loss or damage suffered by the Applicant insofar as his claim relates to a building action i.e. to "loss or damage arising out of defective building work". The First Respondent merely provides indemnity in respect of any liability the Second and Third Respondents (the owner/builders) might otherwise have.

The mere fact that the First Respondent will be responsible for payment of any award of damages against the Second and Third Respondents insofar as they fall within the terms of the policy, in the event of non-payment of such damages by the them would not seem to give the First Respondent any rights at law to maintain defences on their behalf or adopt those which they may have otherwise maintained had they been active participants in this proceeding. ...

Further, although applications in the past for joinder of defendants/respondents have been made by others who themselves have engaged in building work and wish to take advantage of s131, there is no reason why such application should not be made by another party whose interests may be affected by any decision as to liability of another respondent, even where there can be no apportionment of their actual liability. The interests of an insurer who provides indemnity to an owner within the terms of domestic warranty insurance will clearly be affected by any decision where a builder respondent is ordered to pay damages to an applicant owner. This is similarly the situation in this case, where, should the primary application by the Applicant being an appeal against the decision of the First Respondent to refuse indemnity under a policy of domestic warranty insurance not succeed, the extent of the indemnity to be provided will be dependant upon any award of damages against the Second and Third Respondents. In such circumstances, the First Respondent must be entitled to join other persons who have carried out building work as defined in s129 so as to invoke the provisions of s131 and thereby limit their potential liability.

25. Further, on considering the authorities and in particular Boral Resources v Robak Engineering [1999] 2VT 507, and Wimmera-Mallee Rural Water Authority v FCH Consulting Pty Ltd [2000] VSC 102 and Wimmera-Mallee Rural Water Authority v FCH Consulting Pty Ltd (No 2) [2000] VSC 193 where the parties joined as Respondents had been involved in or connected in some way with the performance of the building works. It was alleged they had some liability in relation to the defective works and the loss and damage suffered by the Applicants and they were joined as Respondents to enable the operation of s131. However as in Cabouret, which was also an appeal of the insurer's decision to refuse the owners indemnity under a policy of insurance, there is and can be no claim by the owners in this case that Archicentre has caused their loss and damage.

26. It was suggested by Mr Herskope that where different duties are owed by different Respondents they cannot all be responsible for the same damage. I accept Mr Whitten's submission that the rationale behind s131 is to enable apportionment of liability for just that - the same damage. As I cannot be satisfied that Archicentre could have any liability in respect to the carrying out of the defective building work, the cost of rectification being the consequential loss and damage, s131 could not operate for the purposes of apportionment as between the owner builder, the building surveyor and Archicentre. I am therefore satisfied this claim is misconceived and lacking in substance.

27. The claims under Part IV of the Wrongs Act and s131 are in the alternative. I am not persuaded that the claim under Part IV is misconceived being a claim for contribution and/or indemnity which in the circumstances of the present case is clearly arguable. To rely on the decision in Boral Resources (Vic) Pty Ltd v Robak Engineering and Construction Pty Ltd [1999] VSCA 66; [1999] 2 VR 507 as support for the proposition that the Wrongs Act claim is incorrect in law, is to seemingly misunderstand the relief being sought under the Part IV - contribution and/or indemnity. I was also addressed by Mr Herskope as whether any claim for apportionment should properly be brought under s131 or Part IVAA of the Wrongs Act. As I am not satisfied there is an arguable case for apportionment it is not necessary for me to consider this question.

The effect of the owner-builder's declaration and counter indemnity in favour of the insurer

28. In the Submissions in Reply filed on behalf of Archicentre, it is submitted that because of the nature of the indemnity provided by the owner-builder to the insurer, that until the insurer has failed in its attempts to recover from the owner-builder it will not have suffered any identifiable loss to support its claim against Archicentre. I am satisfied that this of itself is an arguable question and that on the material before me does not warrant dismissal of the proceeding under s75. If the insurer is successful as against Archicentre the Tribunal could make appropriate orders giving effect to any legislative requirements or contractual arrangements between the parties. This is not a reason to strike out or dismiss a claim, particularly as it is desirable that multiplicity of proceedings be avoided wherever possible.

Section 60 of the Victorian Civil and Administrative Tribunal Act 1998

29. In any event, I am also mindful of the provisions of s60 of the Act which provide:

_(1) The Tribunal may order that a person be joined as a party to a proceeding if the Tribunal considers that - _

(a) The person ought to be bound by, or have the benefit of, an order of the Tribunal in the proceeding; or

(b) the person's interests are affected by the proceeding; or

(c) for any other reason it is desirable that the person be joined as a party.

(2) The Tribunal may make an order under sub-section (1) on its own initiative or on the application of any person.

30. This is a proceeding where it is clear that Archicentre's interests are affected by the proceeding and I note in passing that, in the normal course, one would have anticipated they would welcome, and in fact seek, an opportunity to be heard to minimise any potential liability.

31. The insurer's approach is novel. In considering the three tier approach it is apparent that its primary claim is that the owners would not have been in a position to make a claim under the Policy if Archicentre had not breached the terms of its engagement with the owner builder and duties it owed to the owners, the owner builder and/or the insurer or engaged in conduct that would be likely to mislead or deceive the owners, the owner builder and/or the insurer and that it is because of this conduct that the owner builder and therefore the insurer have any potential liability. Mr Whitten made it clear that the insurer is not seeking an order that Archicentre pay any damages to the owners but rather the claim is in the nature of a third party claim where the insurer is seeking indemnity and/or contribution from Archicentre. This claim is not concerned with the damages the owners may have been entitled to claim in a direct action against Archicentre where I accept the cost of rectification works would not be available.

32. I am satisfied that the pleadings "in the mouth of the owner builder" are arguable. These are claims that the owner builder could have otherwise made on its on behalf and, as noted in Cabouret and referred to at paragraph 24 above, where the owner builder is not an active participant, and where any liability the insurer has to the owners is in respect of the liability of the owner builder, it is appropriate that the insurer take whatever steps are necessary to minimise the owner builder's potential liability. Once again, the apparent intent of the insurer is that the pleadings "in the mouth of" the owner builder are to establish a basis for a claim for contribution and/or indemnity as against Archicentre.

33. It seems to me that the pleadings "in the mouths of the owners" are a seemingly unnecessary complication. I am nonetheless satisfied that they give rise to a number of arguable questions that should be determined at a final hearing.

34. I cannot be satisfied on the material before me that the insurer's Points of Claim as against Archicentre are so hopeless as to be misconceived other that in relation to the claim for apportionment under s131. I accept that the insurer has raised a number of interesting issues in its Points of Claim, not the least of which are a number of the claims made "in the mouths" of the owner and the owner-builder as well as on its own behalf as against Archicentre. Each of the claims, is to my mind, inextricably linked and should not be considered in isolation. If Archicentre believes that further particulars are required to enable it to fully understand the case it has to answer, the appropriate course is to seek further and better particulars. A lack of adequate particulars (and I make no finding in this regard) is not a reason for a proceeding to be dismissed or struck out under s75 of the Act.

35. I was referred to a number of authorities by Counsel for both parties, many of which were considered and commented in detail by Senior Member Walker in Beamish, (which I found most helpful) although as I have already observed the circumstances of that case were quite different. All authorities have been considered although I found many of them only served to reinforce my view that there is no basis for the application under s75 except in relation to the claim for apportionment under s131.

36. I will order that the insurer's Points of Claim insofar as they relate to a claim for apportionment of liability under s131 of the Building Act 1993 be struck out and that the insurer file and serve amended Points of Claim as against Archicentre. I will reserve the question of costs.