Suncorp Metway Insurance Ltd v Owners Corporation SP 64487

CATCHWORDS: INSURANCE - Home warranty insurance - Claim made by successors in title to the developer in respect of defects - Policy defined "Contractor" as the person who entered into building contract - Whether the individuals named in the Policy were the "contractor" or whether a company controlled by them had entered into the building contract - Inferences to be drawn from contemporaneous documentation - Need to consider legislative amendments.

Brambles Holdings Ltd v Bathurst City Council; [2001] NSWCA 61; (2001) 53 NSWLR 153 British and Foreign Marine Insurance Co Ltd v Gaunt [1921] 2 AC 41 Gett v Tabet [2009] NSWCA 76 Integrated Computer Services Pty Ltd v Digital Equipment Corporation (Australia) Pty Ltd (1988) 5 BPR 11 Kodak Australasia Pty Ltd v Retail Traders Mutual Indemnity Insurance Association (1942) 42 SR (NSW) 231 CASES CITED: Lee v Lee's Air Farming Ltd [1961] AC 12 Ormwave Pty Ltd v Smith [2007] NSWCA 210 Toikan International Insurance Broking Pty Ltd v Plasteel Windows Australia Pty Ltd (1989) 15 NSWLR 641 Tomko v Palasty [2007] NSWCA 258 Trident General Insurance Co Ltd v McNiece Bros Pty Ltd [1988] HCA 44; (1988) 165 CLR 107 Walton v The Queen [1989] HCA 9; (1989) 166 CLR 283 Warren v Coombes [1979] HCA 9; (1979) 142 CLR 531

Suncorp Metway Insurance Limited (Appellant) Owners Corporation Strata Plan 64487 (First Respondent) Wai Yee Lee and Peter Tsz Pinn Li (Second Respondent) Paula Mary McCann (Third Respondent) Chien-Yang Tai, Mei-Tso Tai Lai and Jung-Hui Tai (Fourth Respondent) J B Steedman and D M Steedman (Fifth Respondent) A Simms and K Simms (Sixth Respondent) N W Goodall and L J Goodall (Seventh Respondent) PARTIES: N Mortimer and M Mortimer (Eighth Respondent) E J Walter (Ninth Respondent) B J Nichols (Tenth Respondent) D Wybrown and L E Wearne (Eleventh Respondent) W H Barber (Twelfth Respondent) M Thompson (Thirteenth Respondent) T A Clarke and K M Clarke (Fourtheenth Respondent) Yun-Fu Tsui and Nan-Ping Hsu (Fifteenth Respondent) B Norton (Sixteenth Respondent) Terence Peter Compton (Seventeenth Respondent)

COUNSEL: A S Martin / T W Marskell (Appellant) E Olsson / M Walsh (Respondents)

SOLICITORS: Moray & Agnew, Melbourne (Appellant) Snelgroves, Baulkham Hills (Respondents)

LOWER COURT JURISDICTION: Supreme Court

LOWER COURT DATE OF DECISION: 31 October 2007

LOWER COURT MEDIUM NEUTRAL CITATION: Owners Corporation Strata Plan 64487 v Suncorp Metway Insurance Limited [2007] NSWSC 1165

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40022/09 SC 55066/04

CAMPBELL JA MACFARLAN JA SACKVILLE AJA

Friday 31 July 2009 SUNCORP METWAY INSURANCE LTD v OWNERS CORPORATION STRATA PLAN 64487 & ORS Judgment 1 CAMPBELL JA: I agree with Sackville AJA. 2 MACFARLAN JA: I agree with Sackville AJA. 3 SACKVILLE AJA: This appeal concerns a claim under a Contractor's Annual Home Warranty Insurance Policy ("the Policy"). The claimants under the Policy ("the Respondents") are successors in title to the developer of townhouse units located in Kent Street, Epping ("the Property"). At trial, the Respondents succeeded in their claim under the Policy against the insurer ("the Appellant"). The Appellant appeals against that part of the decision of the primary Judge which answered a number of separate questions favourably to the Respondents. The Appellant also appeals against consequential orders made in favour of the Respondents.

THE ISSUE 4 The Respondents (the plaintiffs below) are the owners of the common property and 16 townhouse units located on the Property. The townhouses were constructed between late August 1999 and November 2000 and were sold to various purchasers during 2000 and 2001. The Respondents subsequently discovered serious defects affecting some of the townhouses and the common property. These defects were attributable to faults in the construction of the building. 5 On 4 April 2004, the Respondents made a claim against the Appellant (the defendant below) in relation to the cost of rectification of the defects. The Respondents claimed to be entitled to enforce the indemnity provided by the Appellant to the "Building Owner" under the Policy, which had been issued in compliance with the Home Building Act 1989 (NSW) ("HB Act"). The indemnity was provided in relation to certain statutory warranties given by the "Contractor" to the Building Owner. 6 The proprietor of the Property at the time the townhouses were constructed was Kent Street Investments Pty Ltd ("Kent Street"). The directors of Kent Street were Clive Head and his two sons, Gregory Head and Andrew Head. The same three persons were directors of Head & Sons Pty Ltd ("the Company"). The Company did not hold a contractor licence under the HB Act, but Clive Head and Andrew Head each held such a licence. 7 The Policy commenced on 3 September 1999. It indemnified the "Building Owner" for loss or damage in respect of residential building work arising from breach by "the Contractor" of the statutory warranty created by s 18B of the HB Act, the terms of which were incorporated into the Policy. The definition of "Building Owner" included both the person for whom the residential building work was to be carried out under a "contract" and any successor in title for the time being of the land or building. The Schedule to the Policy named Clive Head and Andrew Head as the "Contractor". 8 There was no dispute at trial that the Respondents were successors in title to the Building Owners in the relevant sense. Nor was there any dispute that the defects in the building were due to breaches of the statutory warranty, assuming the Policy otherwise entitled the Respondents to enforce the indemnity provided by the Appellant. 9 In substance, the sole issue in dispute between the parties was whether Clive Head and Andrew Head satisfied the definition of "Contractor" in the Policy. "Contractor" was defined as follows: "The person named in the Schedule who enters into a contract with the Building Owner to do the work ." (Emphasis added) 10 The Appellant's position was that Clive Head and Andrew Head, despite being named in the Schedule to the Policy, were not within the definition of "Contractor" because they had not entered into a contract with the Building Owner to carry out work on the Property. According to the Appellant, any contract to carry out work on the Property was entered into between Kent Street and the Company. It followed that the Policy did not provide an indemnity that the Respondents could enforce against the Appellant in respect of breaches by the Contractor of the statutory warranty. 11 The Respondents' contention was that the contract to carry out work on the Property was entered into between Kent Street, on the one hand, and Clive and Andrew Head on the other. Thus Clive and Andrew Head were the "Contractor" for the purposes of the Policy. Accordingly, the Respondents, as successors in title to Kent Street, were entitled to the benefit of the indemnity provided under the Policy by the Appellant to the Building Owner against loss or damage arising from breach of the statutory warranty. The Respondents did not submit that they could enforce the indemnity against the Appellant if the parties to the building contract were in truth Kent Street and the Company.

The HB Act 12 At the time the Policy was entered into, the HB Act prohibited a person from contracting to do "any residential building work" except as or on behalf of an individual, partnership or corporation that held a licence "authorising its holder to contract to do that work": s 4. An individual, partnership or corporation could apply for a contractor licence (s 19(1)) which, if granted, authorised the holder to contract to do residential building work specified in the licence: s 21(1). The definition of "residential building work" included work involved in, or involved in co-ordinating or supervising any work involved in, the construction of a dwelling: s 3(1). 13 A contract under which the holder of a licence undertook to do any residential building had to be in writing and signed by or on behalf of each of the parties: ss 6(1), 7(1). The contract had to contain a number of matters, including the statutory warranties applicable to the work: s 7(2). It was an offence to contract to do work under a contract unless the requirements of s 7 were complied with: s 7A. A contract to which the requirements of s 7 applied that was not in writing and did not have a sufficient description of the work was not enforceable by the holder of the licence against any other party to the contract: s 10(1). A person who contracted to do work in contravention of Part 2, Div 1 of the HB Act (ss 4-11) was not entitled to damages or to enforce any other remedy in respect of a breach of the contract committed by any other party to the contract: s 10(3). 14 An individual was not to do any residential building work except as the holder of an owner-builder permit or, as an officer of a corporate licence holder or as an employee of such a licence holder: s 12. A separate provision prohibited an individual from doing any residential building work except as the holder of an "endorsed licence" (equivalent to a supervisor's certificate) or under the supervision of such a licence holder: s 13(1). 15 Part 2C of the HB Act dealt with statutory warranties. Section 18B provided that certain warranties by the holder of a licence, or a person required to hold a licence before entering into a contract, were implied in every contract to do residential building work. The warranties included: "(a) a warranty that the work [would] be performed in a proper and workmanlike manner and in accordance with the plans and specifications set out in the contract, (b) a warranty that all materials supplied by the holder or person [would] be good and suitable for the purpose for which they are used … … (d) a warranty that the work [would] would be done with due diligence and within the time stipulated in the contract … ."

The statutory warranties applied notwithstanding any provision to the contrary in the agreement: s 18G. 16 Section 18D of the HB Act provided as follows: "A person who is a successor in title to a person entitled to the benefit of a statutory warranty under this Act is entitled to the same rights as the person's predecessor in title in respect of the statutory warranty, except for work and materials in respect of which the person's predecessor has enforced the warranty."

Proceedings for breach of warranty had to be commenced within seven years after completion of the work to which the warranty related: s 18E. 17 Part 6 of the HB Act dealt with insurance. Section 92 prohibited a person from doing residential building work under a contract unless: "(a) a contract of insurance that complies with this Act is in force in relation to that work, and (b) a certificate of insurance evidencing the contract of insurance … has been provided to the other party … to the contract."

Section 99 provided that a contract of insurance required by s 92 had to insure: "(a) … (b) a person on whose behalf the work is being done and the person's successors in title against the risk of loss arising from a breach of a statutory warranty in respect of the work." 18 If a contract of insurance required by s 92 was not in force in relation to any residential building work done under a contract, the contractor who did the work was not entitled to enforce the contract or to recover any money in respect of the work under any other right of action (including a quantum meruit): s 94(1). 19 The HB Act prohibited a person from doing residential building work otherwise than under a contract, unless a contract of insurance complying with the Act was in force in relation to that work: s 96(1). Section 96 applied, for example, to a company which both owned land and carried out a development on the land without contracting with a builder to undertake the work. 20 A contract of insurance required by s 96 had to insure a purchaser of the land on which the work was done and the purchaser's successors in title against the risk of loss arising from a breach of a statutory warranty in respect of the work: s 101. A person who did residential building work otherwise than under a contract was prohibited from entering into a contract for the sale of land on which the residential building work had been done unless a certificate of insurance evidencing the contract of insurance was attached to the contract of sale: s 96(2), (2A).

The Policy 21 The Policy provided that in consideration of the "Contractor" requesting the "Insurer" to issue insurance to comply with the HB Act and payment by the Contractor of the premium, the Insurer would provide insurance cover as specified in the Policy. Part A of the Policy stated as follows: "The Insurer will indemnify the Building Owner for loss or damage in respect of residential building work: (1) … (2) arising from breach of a statutory warranty under Part 2C section 18B of the Act, namely, the Contractor warrants that: (i) the work will be carried out in a proper and workmanlike manner and in accordance with the plans and specifications set out in the contract; (ii) all materials to be supplied by the Contractor will be good and suitable for the purpose for which they are used; (iii) the work will be carried out in accordance with, and will comply with the Act or any other law; (iv) the work will be done with due diligence and within the time stipulated in the contract, or if no time is stipulated, within a reasonable time; … Without limiting the Building Owners (sic) indemnity subclause (1) or (2), the Insurer will also indemnify the Building Owner for: (3) loss or damage resulting from faulty design, where the design was supplied by the Contractor …" 22 The Definitions section of the Policy included the following: " ' Building Owner ' means the person for whom residential building work is being or is about to be carried out under a contract as defined in this policy, and any person who is a successor in title for the time being of the land or building in respect of which the work was carried out under the contract, but excludes: (a) … (b) a person who does residential building work other than under a contract; (c) the holder of a license (sic) who or which carried out residential building work; … ' contract ' means the contract or contracts entered into between the Contractor and the Building Owner for the carrying out of the work. … ' residential building work ' and ' statutory warranty ' shall, where the context permits, have the same meaning as those terms are defined in the Act. ' Contractor ' means the person named in the Schedule who enters into a contract with the Building Owner to do the work. ' Policy Period ' means the period of the policy specified in the Schedule. ' work ' means residential building work to be carried out by the Contractor for the Building Owner as described in the contract, (including where the parties enter into more than one contract to carry out the work in stages) and the contract price (or sum of the contract prices where applicable) exceeds five thousand dollars ($5,000.00) … . Where there is no contract entered into between the Contractor and the Building Owner in respect of the work in circumstances where under the Act a contract in writing for that work is not required, 'work' means the actual work performed by the Contractor for the Building Owner on the site." 23 The General Conditions of the Policy included the following: "(1) The indemnity provided to the Building Owner complies with the Act and if any term of this policy conflicts or is inconsistent with the Act then this policy shall be read and be enforceable as if it complies with the Act. If any term of this policy is held to be invalid, illegal or unenforceable for any reason, that term will be deemed to be deleted and this policy shall otherwise remain in full force and effect." 24 The Schedule to the Policy stated that the policy period commenced on 3 September 1999 and ended on 3 September 2000. The Contractor was said to be "Clive Head and Andrew Head". Although the Schedule provided a space for a licence number, none was recorded. 25 On 22 September 1999, the Appellant's agent issued a Contractor's Certificate of Currency as evidence of insurance. The Certificate was in the following terms: The Insured Contractor : CLIVE HEAD & ANDREW HEAD including all principals, partners, directors and employees Nominated Supervisors : Clive Head (30028C) Andrew Head (76943C) Type : Residential Contractors Annual Home Warranty Insurance in compliance with the Home Building Act 1989. Indemnifies the building owner under a residential building contract for the statutory warranties under Part 2C of the Home Building Act 1989 as required by Part 6 of the Home Building Act 1989 and Part 5 of the Home Building Regulation 1997. Part A : Cover applies for 7 years from completion of the work in accordance with section 103(B)(2) of the Home Building Act 1989. A certificate complying with Schedule 1 of the Home Building Regulation 1997 will be issued in respect of each residential building contract entered into during the policy period. Part B : Provides "run-off" cover required by section 103(2) of the Home Building Regulation 1997, subject to the retroactive date stated below. Retroactive Date: 3 September 1999 Limit of Indemnity : $200,000 in the aggregate for all claims per home, plus reasonable legal expenses of the building owner. Building Owner Excess : $500 each claim. Builders Obligation Amount : $10,000 each and every claim per home. Insurer : Suncorp Metway Insurance Limited (ACN 075 695 966) - 100% Policy No : BAN999-DA000100-99 Policy Period : Insures all major residential building work for which a contract is entered into during the period; 4pm 3 September 1999 until 3 September 2000 4pm.

Questions and Answers 26 The trial was conducted on the basis of documentary evidence only. Affidavits were read, but only for the purpose of admitting documents into evidence. Neither party called evidence from the Heads or from anyone else who might have had knowledge of the arrangements relating to the building work carried out on the Property. 27 On the first day of the trial (2 October 2007), the parties invited the primary Judge to make an order under Rule 28.2 of the Uniform Civil Procedure Rules 2005, for the separate determination of four questions. Her Honour acceded to the parties' request and made the orders sought by them. 28 In a judgment delivered on 31 October 2007, her Honour answered the four questions. The questions and answers were as follows: "Question 1: (1) Was the residential building work at the Property carried out by Clive and Andrew Head or was it carried out by the Company? Answer: Clive Head and Andrew Head. Question 2: Were the warranties referred to in clause 2(i), (ii), (iii) and (vi) under Part A of the Policy provided by Clive and Andrew head or were they provided by the Company? Answer: Clive Head and Andrew Head. Question 3: In light of the answers to Questions 1 and 2, does the Policy respond to the Plaintiffs' claim dated 4 April 2004? Answer: Yes. Question 4: If the answer to Question 3 is 'No', is the Defendant estopped from denying indemnity under the Policy by reason of: (a) it issuing certificates of home warranty insurance or (b) Regulation 49 of the Home Building Regulation 1997 (NSW)? or (c) its conduct following the attempted renewal of the Policy in 2000? Answer: Not necessary to answer. However if necessary the answer would be 'No'." 29 The primary Judge noted in the judgment (at [94]) that the Appellant accepted that an affirmative answer to Question 3 would mean that the proceedings would be determined in the Respondents' favour. Her Honour directed the parties to bring in short minutes of order reflecting the outcome. 30 On 9 November 2007, the primary Judge entered judgment for the Respondents on the issue of liability. The parties subsequently reached agreement on quantum and on 4 November 2008 consent orders were made entering judgment for the Respondents in the amount of $986,658.70. The Appellant was ordered to pay the Respondents' costs.

Difficulties with the Separate Questions 31 It is odd that the parties chose to invite her Honour to make an order for the separate determination of questions, instead of concentrating on the sole issue that was truly in dispute. The procedure not only diverted attention from the critical issue in the proceedings, but caused the parties and, to some extent, the primary Judge to concentrate on a peripheral question. 32 Most attention at trial and in the judgment was directed to Question 1. The question assumes, for reasons that are not clear, that the residential building work at the Property was carried out either by Clive and Andrew Head or the Company. It might have been thought that a plausible available alternative was that the work was actually carried out on the Property both by the Heads and the Company. 33 More importantly, the answer to Question 1 does not necessarily assist in resolving the critical issue in the proceedings, namely whether the Heads had entered into a contract with Kent Street to do the residential building work and therefore satisfied the definition of "Contractor" in the Policy. Even if the residential building work on the Property was carried out exclusively by the Company, that fact would not necessarily mean that it was the Company which entered into a contract with Kent Street to perform the work. For example, Clive and Andrew Head, the licence holders, might have entered into a contract with Kent Street and then sub-contracted with the Company for it to carry out the building work on the Property. 34 No doubt a finding that the Company actually carried out the residential building work on the Property would be of some probative weight on the question of whether there was a building contract and, if so, the identity of the parties to the contract. But even if such a finding were made, it would still be necessary to consider other evidence bearing on the identity of the contracting parties, especially documentation more or less contemporaneous with the entry into the building contract. In these circumstances, it is difficult to see what advantage there was for the orderly and efficient conduct of the proceedings in identifying Question 1 as appropriate for separate determination. On the contrary, the procedure created a risk (reflected in the Appellant's submissions in this Court) that Question 1 would result in disproportionate weight being given to events that post-dated the contractual arrangements. 35 Question 2 also presents difficulties. It assumes that either the Heads or the Company provided the warranties "referred to" in the Policy. Part A of the Policy speaks of statutory warranties provided by the "Contractor", a term defined in the Policy. The Respondents accepted that only if the Heads were the "Contractor" could the indemnity provided under the Policy by the Appellant be enforced by the Respondents. As neither the body of the Policy nor the Schedule makes any reference to the Company, there would seem to be no basis on which the Company, even if it was a party to a building contract with Kent Street, could be said to have been the Contractor. (It is true that if the Company were a party to a building contract with Kent Street, the contract would have included the statutory warranties as implied terms and Kent Street's successors in title could have enforced the warranties against the Company: HB Act, ss 18B, 18D. But consistently with the Respondent's position, Question 2 seems to be concerned with warranties provided by the "Contractor" as defined in the Policy). If Clive and Andrew Head, although named in the Policy as the Contractor, had never entered into a building contract with Kent Street, they also could not be said to have provided the warranty "referred to" in the Policy, since they would not have satisfied the definition of "Contractor". 36 Question 3 is apparently intended to ask whether the Respondents are entitled to enforce against the Appellant the indemnity provided by it in Part A of the Policy. The difficulty with Question 3 is that it is linked by the introductory words to the answers given to Questions 1 and 2. If the introductory words are ignored, Question 3 simply restates the critical issue in the proceedings, but in less precise language.

Question 1 37 The primary Judge addressed each of the separate questions in order. She therefore addressed first the Appellant's submission that the Company was the entity that carried out the residential building work. Her Honour noted that no building contract had been tendered in the proceedings. 38 The Appellant relied principally on the fact that Suncorp Metway Ltd, the lender under the Development Finance Facility ("Facility") for the project ("the Lender"), made progress payments on behalf of the borrower (Kent Street) to "Head & Sons Constructions", rather than to Clive Head or Andrew Head. Her Honour pointed out (at [66]) that the Lender was clearly under the erroneous impression that the Company was a licensed builder. She also pointed out that the Facility had been executed on 4 August 1999, before an exchange of important correspondence between the Head's insurance broker and the Appellant. That correspondence, which took place in early September 1999, in her Honour's view, made it clear that the "contractors were Clive Head and Andrew Head". 39 The primary Judge referred (at [67]-[73]) to a series of project status sheets, builder's statutory declarations and other documentation which came into existence in and after late September 1999. Some of these documents were prepared on the Company's letterhead and some identified the "Builder/Developer" as the Company, while others specified Kent Street or left the relevant space blank. In her Honour's view (at [74]): "It is a very unsatisfactory position for both parties to have to rely upon letters, letterheads, statements by third parties and ambiguous references to the identification of 'Builders/Developers' without more, to prove who was the person or entity that did the residential building work." 40 Her Honour considered (at [74]) that the correspondence between the insurance broker and the Appellant was "of some significance". In particular, a letter of 3 September 1999 identified the "developer/builders" as "Clive and Andrew Head". Her Honour acknowledged (at [76]) that there was an apparent conflict between this letter and an earlier report of a quantity surveyor that suggested that no building contract was required for the development. Her Honour preferred the broker's correspondence, since it was later in time and was presumably written under instructions from the Heads. The correspondence indicated that there was: "A contract between Kent Street as owner and Clive and Andrew Head as developers/builders for the residential building work". 41 In any event, the primary judge considered that there was "far more powerful evidence" available as to the identity of the persons who completed the residential building work on the Property. An exchange of correspondence between solicitors for Kent Street and solicitors for the purchaser of one of the townhouses, included answers to requisitions. The purchaser's solicitors asked whether residential building work had been carried out on the Property within the last seven years and, if so, the name and licence number of the builder. The solicitors for Kent Street answered that building work had been carried out and that the builders were Clive Head and Andrew Head. Kent Street's solicitors subsequently provided licence numbers for both Clive and Andrew Head. 42 Her Honour considered (at [79]) that the answers to requisitions were communications on important matters given on instructions. In her view: "The fact that the Company, of which the builders were directors, may have been utilised as a 'vehicle', as it was referred to in the Request for Credit Approval with the Lender, to receive the progress payments and/or assist with administrative matters pertaining to such payments, does not detract from this powerful evidence as to the true identity of the builders." 43 Accordingly, her Honour was satisfied that "the builders who carried out the residential building work were Clive Head and Andrew Head". 44 The primary judge considered it unnecessary to address a submission made by the Respondents that the presumption of regularity should be applied to support a finding that the Company, which was not insured, would not have carried out residential building work in contravention of the HB Act.

Question 2 45 The primary judge addressed Question 2 briefly (at [82]), as follows: "The Policy provided that the Contractor gave the warranties. The warranties that were given were those in s 18B of the Act. The [Respondents] were indemnified for loss or damage arising from a breach of those warranties by the 'Contractor'. The Policy identified the Contractor as Clive Head and Andrew Head. The definition of Contractor was the person named in the schedule 'who enters into a contract with the Building Owner to do the work'. The inference from the Broker's correspondence is that the person named in the Schedule, Clive Head and Andrew Head, entered into a contract with the Building Owner, Kent Street, to do the work."

Question 3 46 Her Honour considered (at [84]) that Question 3 did not call for a detailed analysis of the alleged defects outlined in the Respondents' claim. That was for a later time. Based on the answers to Questions 1 and 2, the answer to Question 3 was "yes".

Question 4 47 Her Honour pointed out that it was not necessary to answer Question 4 but, in order to assist the parties, she addressed (at [85]-[88]) Question 4 on the basis that (contrary to her findings) Clive and Andrew Head had not undertaken the residential building work. Since the Respondents had failed to prove reliance upon the Certificates of Insurance, the Respondents' claims in estoppel would have failed. The Respondents' other claims based on estoppel also would have failed.

Preliminary Points 48 The Respondents' case is pleaded somewhat cryptically. However, their case rests on the indemnity provided by the Appellant in Part A of the Policy. They say that although they were not parties to the Policy, they are entitled to enforce the indemnity on the principle stated by the High Court in Trident General Insurance Co Ltd v McNiece Bros Pty Ltd [1988] HCA 44; (1988) 165 CLR 107. Ms Olsson SC, who appeared with Mr Walsh for the Respondents, confirmed on the hearing of the appeal that the Respondents' case was based exclusively on the indemnity contained in the Policy and not on any entitlement against the Appellant that might be created by the HB Act. 49 Both Ms Olsson and Mr Martin SC, who appeared with Mr Marskell for the Appellant, accepted that the critical issue on the appeal was whether her Honour was correct in finding that Clive Head and Andrew Head entered into the contract with Kent Street to carry out residential building work on the Property. If her Honour's finding stands, the Respondents were entitled to enforce the indemnity against the Appellant and judgment was correctly entered in the Respondents' favour. 50 Ms Olsson and Mr Martin also accepted that the answer to Question 1 was not determinative of the critical issue, for the reasons that have already been given. Mr Martin maintained that if the evidence supported a finding that the Company had carried out the residential building work on the Property, that finding was probative of the Appellant's contention that Clive and Andrew Head were not (or were not shown to be) parties to a contract with Kent Street. Presumably this explains Mr Martin's concentration in his submissions on documentation which post-dated the commencement of the building work and of the Policy. 51 Five further points should be noted. First, Mr Martin accepted that even though s 7 of the HB Act required a contract for residential building to be in writing, the terms of the Policy would be satisfied if Clive Head and Andrew Head were parties to an oral or implied contract with Kent Street to undertake the residential building work on the property. This concession appears to have been properly made. It is consistent with s 10 of the HB Act which provides that a contract not in writing cannot be enforced by the builder, but does not purport to render the contract void. 52 Secondly, the onus was on the Respondents to prove that the indemnity provided by the Appellant in the Policy applied to the residential building work carried out on the Property. This follows from the principle that an insured bears the burden of establishing that he or she has suffered a loss which was within the terms of the contract of insurance: British and Foreign Marine Insurance Co Ltd v Gaunt [1921] 2 AC 41, at 47, per Lord Birkenhead LC; Toikan International Insurance Broking Pty Ltd v Plasteel Windows Australia Pty Ltd (1989) 15 NSWLR 641, at 647-648, per Samuels JA (with whom McHugh and Clarke JJA agreed); D Derrington (ed), Australian and New Zealand Insurance Reporter, at [18-360]. Thus the Respondents bore the burden of proving that Clive Head and Andrew Head entered into a building contract with Kent Street. Only then could the Respondents show that Clive Head and Andrew Head were within the definition of "Contractor" in the Policy and that the indemnity provided by the Appellant applied to the warranties incorporated into the Policy. This is not a case of an insurer relying on a positive defence, such as an exclusion or exception, where the burden is cast on the insurer to establish the defence: cf Kodak Australasia Pty Ltd v Retail Traders Mutual Indemnity Insurance Association (1942) 42 SR (NSW) 231, at 237, per Jordan CJ. 53 Thirdly, there is no difficulty about a company controlled by members of a single family entering into a contract with the family members in their individual capacities. A person acting in one capacity can make binding agreements with himself or herself in another capacity: Lee v Lee's Air Farming Ltd [1961] AC 12. It follows that Kent Street could enter into a building contract with Clive Head and Andrew Head (or, for that matter, with the Company), notwithstanding that the decision-makers were the same for each of the contracting parties. 54 Fourthly, in determining whether a contract has been formed, it is necessary neither to identify a precise offer or acceptance nor a precise time at which an offer or acceptance was made or took place: Ormwave Pty Ltd v Smith [2007] NSWCA 210, at [68], per Beazley JA (with whom Santow and Ipp JJA agreed). In Integrated Computer Services Pty Ltd v Digital Equipment Corporation (Australia) Pty Ltd (1988) 5 BPR 11,110, at 11,117-11,118, McHugh JA explained the difficulties often encountered in fitting a commercial arrangement into a lawyer's analysis of a contractual arrangement: "Commercial discussions are often too unrefined to fit easily into the slots of 'offer', 'acceptance', 'consideration' and 'intention to create a legal relationship' which are the benchmarks of the contract of classical theory. In classical theory, the typical contract is a bilateral one and consists of an exchange of promises by means of an offer and its acceptance together with an intention to create a binding legal relationship … A bilateral contract of this type exists independently of and indeed precedes what the parties do. Consequently, it is an error 'to suppose that merely because something has been done then there is therefore some contract in existence which has thereby been executed' … Nevertheless, a contract may be inferred from the acts and conduct of parties as well as or in the absence of their words … The question in this class of case is whether the conduct of the parties viewed in the light of the surrounding circumstances shows a tacit understanding or agreement. The conduct of the parties, however, must be capable of proving all the essential elements of an express contract … " (citations omitted)

See also Brambles Holdings Ltd v Bathurst City Council ; [2001] NSWCA 61; (2001) 53 NSWLR 153, at 176-179 [71]-[81], per Heydon JA. 55 Fifthly, there is authority that evidence of post-contractual conduct is admissible on the question of whether a contract was formed: Brambles Holdings Ltd v Bathurst City Council [2001] NSWCA 61; (2001) 53 NSWLR 153, at 163-164 [25], per Heydon JA; Tomko v Palasty [2007] NSWCA 258, at [67], per Einstein J (with whom Mason P agreed). I am content to proceed on the basis that the parties are entitled to rely on conduct post-dating an alleged contract to determine whether the parties entered into a binding agreement. 56 Sixthly, as the Appellant submitted, this Court is in as good a position as the primary Judge to determine the proper inferences to be drawn from the documentary evidence: Warren v Coombes [1979] HCA 9; (1979) 142 CLR 531, at 551, per Gibbs ACJ, Jacobs and Murphy JJ; Fox v Percy [2003] HCA 22; (2003) 214 CLR 118, at 126-127 [25], per Gleeson CJ, Gummow and Kirby JJ. This is not a case where the volume of documentary evidence is such that the primary Judge is likely to have had a significant advantage over an appellate court: cf Gett v Tabet [2009] NSWCA 76, at [15], per curiam.

The Appellant's Criticisms of the Primary Judgment 57 Mr Martin criticised the reasoning of the primary Judge on the ground that her Honour accorded too much weight to communications that took place shortly before or at about the time construction work commenced on the Property. Mr Martin submitted that her Honour ought to have attached greater significance to documentation which came into existence after the construction work had commenced. This material included records of progress payments (none of which was made to Clive or Andrew Head); statutory declarations made by Gregory Head in which he described the builder as Head & Sons Constructions Pty Ltd; and correspondence with Parramatta Local Council and various suppliers which had been conducted on the Company's letterhead. 58 These criticisms lack force for two reasons. First, they reflect the Appellant's misdirected emphasis on the identity of the party which carried out building work on the Property, rather than on the identity of the party or parties which entered into a contract with Kent Street to carry out building work on the Property. The Appellant's written submissions give detailed references to correspondence and other documentation in the context of its contention that: "the trial judge erred in drawing the inference that the builders who carried out the residential building work at the Property were Clive and Andrew Head and not the Company." (Emphasis added)

As has already been explained, even if the documentation unequivocally suggested that the Company carried out the building work, that conclusion would not necessarily demonstrate that Kent Street entered into a building contract with the Company rather than with Clive and Andrew Head. 59 Secondly, the Appellant's criticisms fail to recognise that documentation more or less contemporaneous with any building contract is very likely to have much greater probative value on the question of the identity of the contracting parties than post-contractual documentation bearing on the question of who actually carried out the work. This is particularly so if the contemporaneous material strongly points in one direction and the later documentation is not unequivocal.

Documentation Leading to the Broker's Correspondence 60 It was common ground that construction work on the Property commenced in late August 1999. There is documentation prior to that date suggesting that the Heads may have intended the Company to be the builder, although much of this material is equivocal. On 23 April 1999, for example, Kent Street submitted a report to Parramatta City Council on the proposed redevelopment of the Property. The report nominated Kent Street as the developer and "Head & Sons Pty Ltd, Andrew Head/Clive Head" as the builder. On 18 June 1999, a firm of consulting engineers sent a fee proposal to "Mr Clive Head, Head & Sons Constructions". Each of these documents leaves it unclear as to which person or entity was intended to enter a building contract or undertake the work. On the other hand, an application for a construction certificate dated 5 July 1999 identified the builder as "Head & Sons Constructions Pty Ltd". 61 On 4 August 1999, Kent Street accepted an offer of a Facility of $4,880,000 from the Lender to enable Kent Street to purchase the Property and develop townhouses. The mortgagors were to be Kent Street, as trustee for the Clive Head Family Trust, and Clive Head himself. The guarantors were to be Clive Head, the Company and Kent Street. The facility provided that the Lender would continue to provide funds if satisfied of the following: "The form and substance of the proposed building contract before the contract is signed and which must be for a fixed price and with a licensed builder (Head & Sons Constructions Pty Ltd) satisfactory to the Bank."

It is clear from this document, as her Honour noted, that the Lender was under a misapprehension that the Company was a licensed builder. 62 On 13 August 1999, the quantity surveyor engaged by the Lender reported its understanding that: "your client is a builder/developer, and therefore no building contract is required."

The client was said to be Kent Street. Shortly thereafter the Lender authorised an advance of $113,000 from Kent Street's account to " Head & Sons Constructions ". 63 On 26 August 1999, the quantity surveyor forwarded a completed construction certificate to the Company. The applicant was identified in this document as "Head & Sons Constructions Pty Ltd". 64 On 20 August 1999, Kent Street gave notice to the Council of the commencement of building work on the Property, nominating 23 August 1999 as the date that construction would commence. The notice was sent together with a covering letter on the following letterhead: "HEAD & SONS CONSTRUCTIONS PTY LTD Builders Licence 30028C"

The licence number included in the letter was in fact that of Clive Head.

The Broker's Correspondence 65 On 27 August 1999, the Heads' insurance broker sent a proposal for builder's warranty insurance to the Appellant's agent, "Dexta". The "Contractor Details" identified "Head & Sons Constructions Pty Ltd" as the contractor. Under the heading "Licence Details", the proposal identified Clive Head and Andrew Head as the construction managers and gave their licence numbers. 66 On 31 August 1999, Dexta requested further information from the broker, including the following: "details of the builders (sic) licence number for Head & Sons Constructions Pty Ltd. Those disclosed on the application form are for the individuals." 67 The broker replied on the same day, as follows: "Head & Sons Constructions Pty Ltd do not carry a license (sic) as a company. The directors of the company are Clive & Andrew Head. If this is a concern, please have the cover issued under both their names."

A handwritten notation on the letter, presumably added by Dexta, states that: "We cannot issue cover for company. Will be in individuals (sic) names." 68 On 1 September 1999, Dexta advised the broker that: "If the company is entering into building contracts it is in breach of the legislation. If we decide to accept this risk, our policy will cover Clive & Andrew Head only and any contracts the company may enter into will not be covered by the policy."

The broker replied on the same day as follows: " The contract entered into at this stage is not a legal contract . In saying this, the owners of the land are Kent Street Investments which is a company owned by Clive Head and Clive and Andrew Head are the Directors. The documents between the landowner and developers will be issued in Kent Street Investments and Clive Head ." (Emphasis added)

This letter, presumably written on instructions from Clive and Andrew Head, asserts that there is no " legal contract " on foot. It also asserts, albeit in ungrammatical and imprecise language, that the contract will be entered into between Kent Street as landowner and Clive Head as the " developer ", by which the broker appears to have meant " builder ". 69 Later on 1 September 1999, Dexta confirmed that it was willing to accept the risk, subject to two conditions, one of which was as follows: "Cover will be provided for Clive & Andrew Head and not Head & Sons Constructions Pty Ltd. As the company does not hold a builder's license (sic), any contracts entered into by the company will not be covered by our policy."

Dexta then issued a " Domestic Builders Quotation " nominating the insured as " Clive & Andrew Head ". 70 The broker responded on 3 September 1999 confirming that cover was required and asking Dexta to arrange cover from "today". The broker added the following important observations: "We would also like to confirm that the client has been made well aware that no cover applies if any contract is entered into in any other name than Clive and Andrew Head … The particular contract at current (sic) is located at Epping where Kent Street Investments Pty Ltd owns the land. The directors of which are Clive and Andrew Head. As the owners of the land they will be the owners of the completed premises before being sold off and then becoming a Body Corporate. The developers/builders are Clive and Andrew Head. Therefore the contract for the construction is in the names of Kent Street Investments as owners and Clive and Andrew Head as developers ." (Emphasis added)

The letter supports the inference that the broker explained to the Heads that there could be no insurance cover unless a building contract was entered into between Kent Street as owner and Clive and Andrew Head as builders. As the last sentence of the letter uses the present tense, the letter supports the inference that Kent Street and Clive and Andrew Head had actually entered into a contract. At the very least it is open to infer from this evidence that Clive Head and Andrew Head intended to act on the advice that they received and that it is probable that they did so act: Walton v The Queen [1989] HCA 9; (1989) 166 CLR 283, at 289-291, per Mason CJ; at 300, per Wilson, Dawson and Toohey JJ. 71 Dexta confirmed acceptance of the risk later that day "in terms of our original underwriting requirements". Following receipt of that confirmation the broker sent a fax to Clive and Andrew Head confirming that cover had been put into effect from 3 August 1999 (presumably a mistake for 3 September 1999) and that the insured persons were Clive and Andrew Head. The broker's fax noted that the estimated contract value was $2,920,000. It also noted that: "Insurance cover will not apply to any contracts entered into by Head & Sons Constructions Pty Ltd. All contracts must be entered into in the names of Clive & Andrew Head as Developers/Builders."

This communication unequivocally conveyed to the Heads advice that all building contracts had to be entered into with Clive and Andrew Head as the builders. 72 In my opinion, the series of communications involving the broker provides very strong evidence that a contract, whether or not in writing, was entered into between Kent Street, as owner of the Property, and Clive and Andrew Head, as builders, for the construction of the townhouse development. It can readily be inferred that the Heads understood not only that it was illegal for the unlicensed Company to enter into a contract with Kent Street, but that it was a commercial necessity for Clive and Andrew Head, as the licensed builders, to enter into the contract with Kent Street to carry out the work. Moreover, the correspondence justifies an inference that Kent Street and Clive and Andrew Head had entered into a contract. There is certainly nothing in the contemporaneous documentation to indicate that Clive and Andrew Head failed to act on the unequivocal advice they had been given. Indeed, there is nothing to indicate that they had any reason not to act on that advice. 73 The Appellant sought to blunt the force of the contemporaneous documentation by pointing to the absence of any evidence that Kent Street and Clive and Andrew Head had entered into a written contract. But the absence of any such evidence does not detract from the likelihood that the parties entered into an implied or oral contract in the manner envisaged by McHugh JA in Integrated Computer Services v Digital Equipment. 74 Mr Martin also submitted that the broker's letter of 3 September 1999 should be given little weight because it wrongly assumed that Clive and Andrew Head owned the Property and confused the separate identities of Kent Street and its directors. In my view, allowing for grammatical lapses in the letter, the broker did not make these errors. In any event, the thrust of the letter is clear enough.

Post-Policy Documentation 75 The Appellant repeated in this Court the arguments put to the primary Judge based on the documentation which came into existence after the Policy had been issued. However, not one of the documents to which Mr Martin drew our attention demonstrated that any building contract with Kent Street had been entered into by the Company, rather than by Clive and Andrew Head. 76 The documentation relied on by the Appellant showed, for example, that progress payments had been made by the Lender to "Head & Sons Constructions" and that the payments had been deposited into a bank account maintained in that name. Requests for the progress payments were usually made on the letterhead bearing the Company's name, but the letterhead also recorded Clive Head's licence number. The quantity surveyor's recommendations identified the builder as "Head & Sons Constructions". There was no evidence as to whether the bank account in that name was used exclusively for transactions relating to the Company. 77 The documentation relating to progress payments does not unequivocally demonstrate that all building work was carried out by the Company. In any event, even if the Company did carry out all building work on the Property, that fact is quite consistent with her Honour's finding that there was a contract between Kent Street and Clive and Andrew Head to carry out the building works. As I have already noted, the Heads may well have chosen to have the building work carried out by the Company, perhaps to minimise their risk of incurring personal liability to suppliers of materials or labour. 78 The Appellant relied also on an application that was made in 2000 to renew the Policy. The application form was initially filled out in the name of the Company, as the applicant for insurance cover. Dexta advised the broker, however, that the Policy could be renewed only in the names of Clive and Andrew Head and the renewal was duly effected in their names. The completion of the application form in the Company's name does not detract from the inference, derived from the September 1999 documentation, that Kent Street entered into a building contract with Clive and Andrew Head. There could have been many reasons why the renewal application form was filled out in the way it was. 79 The Appellant relied on other documentation post-dating the Policy to support its case, but none of this material takes the matter any further. 80 In assessing the entirety of the evidence, including the post-Policy documentation, it is necessary to take into account the answers to requisitions that weighed so heavily with the primary Judge. The answers provided by Kent Street's solicitors, presumably on instructions from the Heads, identified the builders as Clive and Andrew Head. The answers do not quite carry the significance attributed to them by the primary Judge, since they do not unequivocally assert that a contract was entered into between Kent Street and Clive and Andrew Head. Nonetheless, the answers to those requisitions support the finding made by her Honour. Mr Martin's submission that the Heads may not have been providing truthful instructions to Kent Street's solicitors does not rise above mere speculation.

The Primary Judge was Correct 81 In my view, the primary Judge correctly concluded on the evidence before her that Kent Street entered into a building contract in September 1999 with Clive and Andrew Head for the construction of townhouses on the Property. Clive and Andrew Head were therefore the "Contractor" under the Policy and the Respondents are entitled to enforce the indemnity contained in the Policy against the Appellant.

CONCLUSION 82 I have explained the difficulties associated with the separate questions identified in the orders made by the primary Judge on 2 October 2007. In view of those difficulties, it is appropriate that the orders made on that date be set aside. Otherwise, the appeal must be dismissed. The Appellant must pay the Respondents' costs. 83 I draw attention to the possibility that an amendment may be required to the HB Act in order to overcome the possible gap in the protection afforded to purchasers who rely on certificates of insurance. This case has been fought on the basis that the Policy did not protect Kent Street's successors in title if the building contract of September 1999 had been entered into between Kent Street and the Company, rather than between Kent Street and Clive and Andrew Head. 84 As this case demonstrates, a purchaser of a defective building from a developer might have considerable difficulty in ascertaining with certainty the identity of the parties to the original building contract, particularly if the contract is not in writing and the developer and the builder are related parties. In such a case, the purchaser may be at risk of having an otherwise sound claim under the insurance policy rejected solely because the building contract was entered into by a party related to the developer but not mentioned in the policy. In the circumstances, the likelihood that the related party contracting to perform the work had contravened the legislation would be cold comfort to the unprotected purchaser. **********

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