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)