The Owners - Strata Plan 80647 v WFI Insurance Limited t/as Lumley Insurance - [2015] NSWSC 1161 - NSWSC 2015 case summary

Judgment (5 paragraphs)

[1]

Solicitors: Kreisson Legal (plaintiff) Vardanega Roberts (first defendant) Lou Baker and Associates (second defendant) File Number(s): 2014/334836 Publication restriction: Nil.

[2]

Introduction

These proceedings are a consolidation of two proceedings commenced by The Owners - Strata Plan No. 80647 ("the Owners Corporation"). They concern allegedly defective building work carried out in a residential strata development in Silverwater, the common property of which is owned by the Owners Corporation.
The first proceeding (2014/216754) was commenced by the Owners Corporation against Lawrence Crestani, a builder who carried out construction work at the site, and who later became a bankrupt. The Owners Corporation claims damages against Mr Crestani in relation to breaches of the statutory warranties implied into Mr Crestani's construction contract with the developer (Versace Developments Pty Limited) by s 18B of the Home Building Act 1989 (NSW). The Owners Corporation brings the claim on the basis that it is a successor in title to a person entitled to the benefit of such statutory warranties (see s 18D of the Home Building Act). The Owners Corporation also claims damages against Mr Crestani for breach of a duty of care alleged to be owed to the Owners Corporation.
The second proceeding (2014/334836) was commenced by the Owners Corporation against WFI Insurance Limited t/as Lumley Insurance ("Lumley"). Lumley is the insurer under a Home Owners Warranty Policy ("the policy") issued in respect of the construction work carried out by Mr Crestani. The Owners Corporation claims that it is entitled to indemnity under the policy against loss or damage arising from breach of the statutory warranties for which the Owners Corporation cannot recover compensation from Mr Crestani, or have Mr Crestani rectify, because of the insolvency of Mr Crestani.

The separate question

Broadly, the separate question gives rise to two issues. The first is whether the Owners Corporation's claim against Mr Crestani in relation to the statutory warranties was a debt or liability provable in Mr Crestani's bankruptcy such that it was released upon Mr Crestani's discharge from bankruptcy. It is accepted that if it was not so released, Lumley is entitled to deny the Owners Corporation's claim for indemnity.
If, however, the Owners Corporation's claim against Mr Crestani was so released, a second issue arises, namely, whether on the true construction of clause 2(1) of the policy, and in the events that have happened, Lumley is entitled to deny the claim made by the Owners Corporation for indemnity against loss or damage arising from breach by Mr Crestani of the statutory warranties.
The first issue essentially depends upon whether the Owners Corporation's claim against Mr Crestani in relation to the statutory warranties is a demand in the nature of unliquidated damages "arising otherwise than by reason of a contract or promise" within the meaning of s 82(2) of the Bankruptcy Act 1966 (Cth). If it is, then it was not provable in Mr Crestani's bankruptcy, and would not have been released, in accordance with s 153(1) of the Bankruptcy Act, upon his discharge. Lumley contends for that position. The Owners Corporation and Mr Crestani contend that the claim does not fall within s 82(2) of the Bankruptcy Act, was provable in the bankruptcy and was thus released upon Mr Crestani's discharge.
The second issue, if it arises, essentially depends upon whether the Owners Corporation has suffered loss or damage in respect of which it cannot recover compensation from Mr Crestani "because of the insolvency" of Mr Crestani within the meaning of clause 2(1) of the policy. The Owners Corporation contends that in that situation, its inability to recover compensation from Mr Crestani is caused by his bankruptcy which is insolvency for the purposes of clause 2(1). Lumley contends that although the definition of "insolvent" in the policy includes bankruptcy under the Bankruptcy Act, the definition is expressed in the present tense such that the insolvency contemplated by clause 2(1) is a state of insolvency existing at the time the claim on the policy is made. The Owners Corporation's claim on the policy was not made until after Mr Crestani's discharge. Accordingly, Lumley contends that the inability of the Owners Corporation to recover compensation from Mr Crestani was not "because of the insolvency" of Mr Crestani within the meaning of clause 2(1), and it is therefore entitled to deny the claim for indemnity made by the Owners Corporation.
The logical starting point, in dealing with the first issue, is a consideration of the nature of the Owners Corporation's claim against Mr Crestani in relation to the statutory warranties. The claim, as formulated in the List Statement and described in submissions, may be summarised as follows: 1. In about May 2006, Mr Crestani entered into a contract with Versace Developments Pty Limited, a developer within the meaning of the Home Building Act, to undertake residential building work within the meaning of that Act, at the developer's Silverwater property; 2. By s 18B of the Home Building Act, the statutory warranties described in the section were implied in the contract; 3. In carrying out the building work under the contract, Mr Crestani breached the statutory warranties in various respects; 4. Upon registration of Strata Plan No. 80647 in August 2008, the Owners Corporation became the owner of the common property in the building constructed at the Silverwater Property; 5. The Owners Corporation was thereby a successor in title to Versace Developments Pty Limited; 6. By reason of the operation of s 18D of the Home Building Act, the Owners Corporation, as a successor in title to a person entitled to the benefit of the statutory warranties, is entitled to the same rights as its predecessor in title in respect of the statutory warranties; 7. The Owners Corporation has suffered loss and damage by reason of Mr Crestani's breaches of the statutory warranties; and 8. The Owners Corporation claims that Mr Crestani is liable to pay damages to it in respect of such loss and damage.
Section 82 of the Bankruptcy Act relevantly provides: "(1) Subject to this Division, all debts and liabilities, present or future, certain or contingent, to which a bankrupt was subject at the date of the bankruptcy, or to which he or she may become subject before his or her discharge by reason of an obligation incurred before the date of the bankruptcy, are provable in his or her bankruptcy. […] (2) Demands in the nature of unliquidated damages arising otherwise than by reason of a contract, promise or breach of trust are not provable in bankruptcy. […] (8) In this section, liability includes: (a) compensation for work or labour done; (b) an obligation or possible obligation to pay money or money's worth on the breach of an express or implied covenant, contract, agreement or undertaking, whether or not the breach occurs, is likely to occur or is capable of occurring, before the discharge of the bankrupt; and (c) an express or implied engagement, agreement or undertaking, to pay, or capable of resulting in the payment of, money or money's worth, whether the payment is: (i) in respect of amount - fixed or unliquidated; (ii) in respect of time - present or future, or certain or dependent on a contingency; or (iii) in respect of the manner of valuation - capable of being ascertained by fixed rules or only as matter of opinion."
Section 153(1) of the Bankruptcy Act provides: "Subject to this section, where a bankrupt is discharged from a bankruptcy, the discharge operates to release him or her from all debts (including secured debts) provable in the bankruptcy, whether or not, in the case of a secured debt, the secured creditor has surrendered his or her security for the benefit of creditors generally."
The parties agreed that the date of Mr Crestani's bankruptcy was 16 June 2009. There is no doubt that any relevant construction work was carried out by Mr Crestani prior to that date. It further appears that most, if not all, of the work was carried out before the strata plan was registered and the Owners Corporation came into existence. The parties further agreed that Mr Crestani was discharged from bankruptcy on 17 June 2012.
Lumley accepts that the liability asserted by the Owners Corporation against Mr Crestani falls within s 82(1) of the Bankruptcy Act. It says, however, that it also falls within s 82(2) because it is a demand in the nature of unliquidated damages arising otherwise than by reason of a contract, promise or breach of trust. It is clear, and not disputed by the Owners Corporation, that the demand is for unliquidated damages. Breach of trust may be put to one side in the present case. The area of controversy thus concerns whether it is a demand arising otherwise than by reason of a contract or promise.
Mr Purdy of Counsel, who appeared for Lumley, referred to Coventry v Charter Pacific Corporation Limited [2005] HCA 67; (2005) 227 CLR 234 where the High Court (at [65]-[69]) rejected the view of the Court of Appeal of Victoria in Aliferis v Kyriacou (2000) 1 VR 447 that a claim arises by reason of a contract or a promise only if a contract or promise is an element or essential element of the cause of action. Mr Purdy observed, however, that no generally applicable alternative test or guidance was given by the High Court as to what nexus was required between a claim and a contract or promise in order for the demand to fall outside s 82(2) of the Bankruptcy Act.
Mr Purdy submitted that the extension of the benefit of the statutory warranties, effected by s 18D of the Home Building Act, did not place the Owners Corporation in any contractual relationship. Reference was made to the decision of the Court of Appeal in Baron Corporation Pty Ltd v Owners of Strata Plan 69567 [2013] NSWCA 238. That case concerned s 18D(1A) of the Home Building Act which came into effect by virtue of an amendment to the Act in 2010. Section 18D(1A) provides that non-contracting owners in relation to a contract to do residential building work on land are entitled to the same rights as those that a party to the contract has in respect of a statutory warranty. Barrett JA (with whom McColl JA and Young AJA agreed) stated (at [47]): "Nor, in my opinion, is it correct to say that the Act of 2010 caused Baron to be in a contractual relationship (or something equivalent) with Baseline. As far as the statutory warranties were concerned, s 18D(1A) caused Baron to have "the same rights as those that" Metro had. There was thus an attribution to Baron of rights identical with those of Metro, as distinct from a vesting or assignment of Metro's rights. The section left existing rights with Metro and created identical rights in Baron, so that both Metro and Baron had the rights. The process of attribution did not give rise to any contractual or like relationship. It merely enabled Baron to assert against Baseline, as a matter of statutory entitlement, rights identical with those that Metro could assert against Baseline as a matter of contractual entitlement under a contract incorporating the warranties implied by statute."
Mr Purdy submitted that the Owners Corporation's cause of action was thus not contractual in nature, at least in the sense that the claimed damages were not strictly for breach of contract. It was put that the contract propounded here was one between the bankrupt and Versace Developments Pty Ltd, and the Owners Corporation merely had rights, conferred by statute, that were parallel to some of the contractual rights of Versace Developments Pty Ltd.
Mr Purdy submitted that Lumley's position was consistent with the decision in Abouslieman v Mercantile Mutual Insurance (Australia) Ltd [2003] FMCA 594, a case involving a subrogated claim against a bankrupt to enforce rights conferred by s 18C of the Home Building Act in respect of the statutory warranties implied by that Act. It was held that the claim fell within s 82(2) of the Bankruptcy Act and was thus not provable in the bankruptcy. It appears that the decision rested on the view that the claim was based on statute (see at [14]). On appeal, no error in approach was found (see Abouslieman v Mercantile Mutual Insurance (Australia) Ltd [2004] FCA 1055 at [14]).
It was then submitted that the liability asserted by the Owners Corporation arises not by reason of the contract, but by reason of Mr Crestani having performed the work inadequately. The causal connection between the Owners Corporation's claim and a contract was too remote to lead to the conclusion that it arose by reason of a contract. Accordingly, the Owners Corporation's claim fell within s 82(2); it was not provable in Mr Crestani's bankruptcy, and it was not released upon Mr Crestani's discharge.
Mr Young, who appeared for the Owners Corporation, submitted that the contract propounded as part of the Owners Corporation's claim against Mr Crestani was central to that claim. It was a contract to which the bankrupt was a party. He submitted that the rights conferred by s 18D of the Home Building Act could be described as a statutory extension of the terms implied into the contract between Mr Crestani and the developer. The contract could thus be seen as a central part of the factual substratum of the relationship between the Owners Corporation and Mr Crestani. Further, there was a causal connection between the damages claimed and the contract propounded (see Coventry v Charter Pacific Corporation Limited (supra) at [131] per Kirby J). The claim, or demand, was thus "in the nature of" one arising by reason of a contract.
Mr Stomo, who appeared for Mr Crestani, essentially took the same position as Mr Young. He submitted that Coventry v Charter Pacific Corporation Limited (supra) indicated that in approaching s 82(2) of the Bankruptcy Act, the emphasis had to be upon the substance of the claim, not the form by which it is pleaded. Mr Stomo also submitted that Mr Crestani was a party to the relevant contract, and it was his entry into the contract that was the reason for the liability asserted against him.
All Counsel accepted that there was no decision that was directly on the point raised in the present case.
The leading case on s 82(2) of the Bankruptcy Act is the decision of the High Court in Coventry v Charter Pacific Corporation Limited (supra). The issue in that case, as formulated in the joint judgment of Gleeson CJ, Gummow, Hayne and Callinan JJ (at [1]-[2]) was whether a claim for unliquidated damages for contravention of a statutory prohibition against misleading or deceptive conduct in connection with dealings in securities, was a debt provable in the bankruptcy of the person who contravened the prohibition. It was noted by their Honours (at [5]) that the statutory expression "demand in the nature of unliquidated damages arising otherwise than by reason of a contract or promise" has been held not to include a claim for unliquidated damages for fraudulent misrepresentation which induced the party misled to make a contract with the bankrupt (a so-called "bilateral" case), so that such a claim is a debt provable in the bankruptcy; whereas a claim for unliquidated damages for fraudulent misrepresentation which induced the party misled to make a contract with a third party (a so-called "tripartite" case), has been held not to be a debt provable in the bankruptcy. As their Honours put it: "The bankrupt having made no contract with the party who claims damages from the bankrupt, the claim for damages for fraudulent misrepresentation has been held to be a demand arising otherwise than by reason of a contract or promise."
Turning to the provisions of s 82, their Honours noted (at [20]-[21]) that s 82(2) is an exception to an otherwise broadly drawn definition of debts provable in bankruptcy. They further observed that s 82 of the Bankruptcy Act had its origin in s 31 of the Bankruptcy Act 1869 (UK), a provision that was seen as intended to spread the net of debts provable in bankruptcy very wide (see at [27] and [36]). At [37], their Honours stated: "But what also emerges clearly from Ex parte Llynvi Coal and other cases of the time is that the meaning of the expression "demands … arising otherwise than by reason of a contract or promise" was determined upon an assumption that the litigious world (apart from claims for breach of trust) could be divided into claims arising in contract and other claims. This last class of other claims was identified as claims for "personal torts". The intention of the 1869 English Act was described in Ex parte Llynvi Coal by James LJ as being that "[e]very possible demand, every possible claim, every possible liability, except for personal torts, is to be the subject of proof in bankruptcy, and to be ascertained either by the Court itself or with the aid of a jury" (emphasis added). Nonetheless, the legislative intention was described as being that "the bankrupt is to be a freed man - freed not only from debts, but from contracts, liabilities, engagements, and contingencies of every kind".
(see also Kirby J at [117]).
After referring to a number of 19th century English cases, in particular Jack v Kipping (1882) 9 QBD 113 and Re Giles; Ex Parte Stone (1889) 61 LT (NS) 82, their Honours stated (at [50]): "Why should this understanding of s 31 of the 1869 English Act be carried over to the construction of s 82(2) of the Bankruptcy Act 1966? Again, there are two related reasons. First, the text of s 82, like its legislative ancestors, shows that not all claims are provable in bankruptcy. Some content must therefore be given to s 82(2) and its reference to demands "arising otherwise than by reason of a contract, promise or breach of trust". Secondly, any amplification or extension of the content to be given to s 82(2), beyond the immediate operation conveyed by reference to demands arising by reason of a contract or promise, is to be fixed by reference to the operation of other provisions of the statute, and particularly the set-off provisions of s 86. A claim which may be made in answer to a claim which the bankrupt estate makes for damages for breach of a contract between bankrupt and claimant may be provable. That answering claim may be provable because it arises out of the mutual dealing or bilateral relationship of contract between bankrupt and claimant. By contrast, a claim which comes from a tripartite transaction, in which the bankrupt's misrepresentation induced the claimant to make a contract with a third party, does not arise from a mutual dealing and it arises otherwise than by reason of a contract or promise."
Their Honours then considered certain Australian cases including Gye v McIntyre (1991) 171 CLR 609, and Aliferis v Kyriacou (supra) which was described as a "bilateral case". As noted earlier, the High Court disapproved of the view taken in Aliferis v Kyriacou that a claim arises by reason of a contract or promise only if a contract or promise is an element or essential element of the cause of action.
At [70]-[71] their Honours concluded: "What is revealed by the analysis of decided cases recorded in the preceding pages of these reasons is that s 82(2) and its legislative predecessors stopped short of providing that "the bankrupt is to be a freed man - freed not only from debts, but from contracts, liabilities, engagements, and contingencies of every kind" (emphasis added). Some claims stand outside the reach of the statute. Although consideration of the application of the set-off provision required the inclusion, within the class of debts provable in bankruptcy, of those claims for unliquidated damages for fraudulent misrepresentation which had induced the making of a contract between the bankrupt and the claimant, the words of the section were not and are not to be stretched to encompass every other kind of claim which a person may have against the bankrupt. The claim in the present matter was a statutory claim. The relevant question is whether that claim is a demand arising "otherwise than by reason of a contract [or] promise". What the fraudulent misrepresentation cases of Jack v Kipping and Re Giles show is that claims of the kind made in this case (for unliquidated damages for misleading or deceptive conduct which induced the party misled to make a contract with a party other than the bankrupt) are claims arising otherwise than by reason of a contract. They are claims of a kind which s 82(2) provides are not provable. By contrast, however, claims for unliquidated damages for misleading or deceptive conduct inducing the making of a contract with the bankrupt are claims arising by reason of a contract. They are provable. To the extent to which Aliferis held to the contrary, it should be overruled."
The appellant's claim was therefore dismissed.
Kirby J reached the same result by a somewhat different path. His Honour observed (at [116]) that the objects of provisions such as s 153 of the Bankruptcy Act (which operate to release provable debts upon discharge from bankruptcy) and the broad language of s 82(1) make it reasonable to infer that the debts and liabilities of a bankrupt provable in the bankruptcy could not be given a narrow meaning, and that if the exceptions provided for demands of a particular kind were not held in close check, important objectives of the legislation would be undermined or frustrated. The difficulty, however, was ascertaining what causal nexus was contemplated by s 82(2) between a demand in the nature of unliquidated damages, and a contract or promise (see at [124], [128], [131] and [134]). Kirby J favoured a test based upon a consideration of the cause of action relied upon by the claimant. His Honour stated (at [143]-[144]): "That test is afforded by considering the cause of action relied upon by the plaintiff. It is not decided by considering the underlying or background facts and circumstances as the appellant urged here. True, this approach has the disadvantage, referred to in the joint reasons, of affording the plaintiff a privilege, with interests of its own to prosecute, by the way it pleads its case, effectively to elect in many instances whether it must prove in any later bankruptcy or whether it may sue upon an action outside that system. However, the courts have long recognised that a plaintiff with concurrent causes of action may elect to proceed on the basis of the cause perceived by him or her to be more advantageous in terms of the resulting legal consequence. This is an imperfect solution. Yet it does have a textual foundation in s 82(2) of the Bankruptcy Act. The sub-section talks of a "demand". In our system of law, "demands" are formulated by those who demand. Commonly, they make such demands by oral claims, letters before action and eventually by pleading a claim in a court of law. Such a pleading could not be conclusive. In every case it would remain for the court to characterise the "demand". This is made clear by the use of the expression "in the nature of" in s 82(2). The court deciding the character of the demand looks at the nature of the demand. It is not confined to the language of its formulation. But as a practical rule of thumb, where proceedings have been brought, the formulation of the demand in those proceedings will ordinarily be the best evidence of the true character of the plaintiff's "demand". At least this approach is more certain. It is supported by precedent. Until a more comprehensive and reformed law is adopted by the Parliament, that would be the solution I would favour."
The demand made by the Owners Corporation against Mr Crestani is for damages to compensate it for loss and damage suffered as a result of alleged breaches by Mr Crestani of the statutory warranties implied in his contract with Versace Developments Pty Ltd. It may be accepted that the Owners Corporation is not a party to that contract, and is not suing as such. Rather, it is suing as a person entitled to the same rights as Versace Developments Pty Ltd in respect of the statutory warranties implied in its contract with Mr Crestani. The Owners Corporation's status as such a person derives from the provisions of the Home Building Act. At least to that extent, the Owners Corporation's claim is based upon statute.
In Reid v Interarch Australia Pty Ltd [2000] FCA 1328, a question arose as to whether a claim against the bankrupt second respondent fell within s 82(2) of the Bankruptcy Act as a demand in the nature of unliquidated damages arising otherwise than by reason of a contract or promise. The claim was a claim for damages pursuant to ss 75B and 82 of the Trade Practices Act 1974 (Cth). It was alleged that the second respondent was a person involved in the misleading or deceptive conduct of the first respondent.
As noted by Hely J (at [16]), the claim was not a claim in contract. There was no contract between the claimant and the second respondent. It was submitted, however, that the contract between the claimant and the first respondent was an essential part of the factual substratum which gave rise to the claim against the second respondent.
Hely J stated (at [17]-[19]): "There are at least two answers to this submission. First, s 82(2) is concerned with claims for damages for breach of the bankrupt's contract or promise, and not with the contracts or promises of third parties. The intention of the bankruptcy legislation was to grant the bankrupt a discharge from all pecuniary liabilities arising contractually (Victor v Victor [1912] 1 KB 247, 252-253). The contrast is with demands for damages for personal torts. The cases referred to by Brooking JA in Aliferis v Kyriacou [2000] VSCA 123 at par [8] proceed upon the basis that s 82(2) is concerned with the claims for damages for breach of the bankrupt's contract or promise. Thus, for example, if a defendant intentionally interferes with the performance by a third party of a contract between the third party and a plaintiff, the defendant will be under a tortious liability to the plaintiff for interference with that contract. If the defendant became bankrupt, it seems to me that the damages claim would not be a provable debt, even though the existence of a contract between the plaintiff and the third party is a precondition to the defendant's liability. In such case the defendant is liable because of his tortious conduct. Thus, even if it be assumed that a contract between the second applicant and the first respondent is an essential part of the factual substratum underlying the claim against the second respondent, the contract is not that of the second respondent, hence the demand is not "by reason of" a contract or promise within the meaning of s 82(2)."
This aspect of Reid v Interarch Australia Pty Ltd (supra) was referred to in Australian Competition and Consumer Commission v Kritharas [2000] FCA 1442 at [36]. There, Katz J read it as a statement to the effect that a demand cannot be said to arise by reason of a contract for the purposes of s 82(2) "unless the demand arises by reason of a contract to which the debtor himself or herself is a party".
On that basis, a demand might arise by reason of a contract for the purposes of s 82(2) even if the demand is not made by a party to the contract, suing to enforce the contract or suing for breach of it.
I am conscious that the final sentence of [5] of the joint judgment in Coventry v Charter Pacific Corporation Limited (supra), quoted above at [23], might indicate that for a demand to arise by reason of a contract for the purposes of s 82(2), it is necessary that there be a contract between the bankrupt and the claimant. Moreover, their Honours were of the view that any extension of the content of s 82(2) "beyond the immediate operation conveyed by reference to demands arising by reason of a contract or promise" was fixed by reference to the operation of other provisions of the Act, particularly the provisions concerning set-off (see at [50]).
The statement at [5] was made in the context of a discussion about claims for fraudulent misrepresentation, and the distinction between cases where the misrepresentation induces a contract with the bankrupt, and cases where the misrepresentation induces a contract with a third party. I do not think (and Mr Purdy did not suggest) that it should be read as a statement that a demand can only ever arise by reason of a contract for the purposes of s 82(2) if the contract is one between the bankrupt and the claimant.
The statement at [50] is not inconsistent with that view, although it does emphasise that in the absence of off-setting claims, s 82(2) should not be read as extending beyond the immediate operation conveyed by the language of the provision (see also the statement in [70] that the words of the section are not to be "stretched").
Section 82(2) concerns demands of a certain character. There is no dispute that the demand in the present case is in the nature of a demand for unliquidated damages. However, for the reasons that follow, I do not think that it is a demand arising otherwise than by reason of a contract or promise; that is to say, I am of the opinion that the claim of the Owners Corporation against Mr Crestani for damages in respect of the alleged breaches of the statutory warranties is one that arises by reason of a contract or promise. Accordingly, the claim does not fall within s 82(2) of the Bankruptcy Act. It is a claim that was provable in Mr Crestani's bankruptcy. It was released pursuant to s 153(1) of the Act upon his discharge from bankruptcy on 17 June 2012.
The Owners Corporation brings the claim as a person who, by virtue of s 18D(1) of the Home Building Act, is entitled to the same rights as Versace Developments Pty Ltd in respect of the statutory warranties implied in the contract between that company and Mr Crestani. Those rights (subject, of course, to the operation of s 18D(2)), include the right to sue Mr Crestani for damages for loss sustained as a result of breach by Mr Crestani of one or more of the warranties. The Owners Corporation seeks to enforce such rights.
It is true that the claim can be described as a statutory claim, in the sense that it is an assertion of rights which are conferred by statute (see Abouslieman v Mercantile Mutual Insurance (Australia) Ltd (supra)). As stated by Barrett JA in Baron Corporation Pty Ltd v Owners of Strata Plan 69567 (supra) at [47], the statute entitles the Owners Corporation to assert against Mr Crestani rights identical with those that Versace Developments Pty Ltd could assert against him as a matter of contractual entitlement. The claim is thus not adequately described as a claim "in contract" or a claim for breach of contract.
Nevertheless, there is a strong connection between the claim and the contract between Mr Crestani and Versace Developments Pty Ltd. The rights conferred upon the Owners Corporation by s 18D of the Home Building Act enable it to enforce the statutory warranties just as Versace Developments Pty Ltd, as a party to the contract, might have done. In essence, the claim is a statutory variant of a claim to enforce a contract. Viewing the claim overall, I do not consider that its statutory element leads to the conclusion that it arises otherwise than by reason of a contract or promise. I therefore respectfully disagree with the approach taken in Abouslieman v Mercantile Mutual Insurance (Australia) Ltd (supra).
Neither do I think that it is accurate to describe the liability asserted by the Owners Corporation as one that arises, not by reason of the contract, but by reason of Mr Crestani having performed work inadequately. It would be more accurate to say that the liability arises by reason of Mr Crestani's alleged breaches of the warranties he was contractually bound to fulfil, together with the Owners Corporation being a successor in title to Versace Developments Pty Ltd and suffering loss as a result of such breaches.
The time when the "litigious world" could (aside from breach of trust claims) be divided into claims arising in contract and claims for personal torts, has long since passed. That is partly explained by the proliferation of various statutory rights. However, insofar as the dichotomy retains any relevance, it seems to me that the claim of the Owners Corporation is more akin to a claim arising in contract than it is to a claim for a personal tort.
The contract is more than mere background to the making of the claim. It provides the essential framework from which the rights and obligations, as between the Owners Corporation and Mr Crestani, can be determined. In my view, the connection between the claim and the contract is strong enough to conclude that the claim arises by reason of the contract between Mr Crestani and Versace Developments Pty Limited. I do not regard that conclusion as involving any undue stretching of the language of s 82(2) of the Bankruptcy Act.
Moreover, the conclusion stated above has the virtue that claims made against Mr Crestani in respect of the statutory warranties, whether brought by Versace Developments Pty Ltd or by the Owners Corporation, are treated consistently for the purposes of proving in Mr Crestani's bankruptcy. A further anomaly in relation to a provision well known to produce anomalies (see Coventry v Charter Pacific Corporation Limited (supra) at [7], [72] and [141]) is thus avoided.
It is next necessary to consider the question whether, on the true construction of clause 2(1) of the policy, and in the events that have happened, Lumley is entitled to deny the claim made by the Owners Corporation for indemnity against loss or damage arising from breach by Mr Crestani of the statutory warranties. Clause 2(1) relevantly provides: "The Insurer will indemnify the beneficiaries under the policy for: […] (b) loss or damage arising from a breach of a statutory warranty, being loss or damage in respect of which the beneficiaries cannot recover compensation from the contractor or have the contractor rectify because of the insolvency, death or disappearance of the contractor."
Lumley is of course the Insurer. It is accepted that the Owners Corporation is a beneficiary under the policy (see clause 1(1) of the policy). There is no dispute that Mr Crestani is "the contractor" for the purposes of the policy. The issue is whether any loss or damage suffered by the Owners Corporation, arising from breach by Mr Crestani of a statutory warranty, is loss or damage in respect of which the Owners Corporation cannot recover compensation from Mr Crestani or have Mr Crestani rectify "because of the insolvency" of Mr Crestani.
Insolvent, in relation to an individual, is defined in the policy to mean "that the individual is insolvent under administration (within the meaning of the Corporations Act 2001 of the Commonwealth)". The expression "insolvent under administration" is defined in the Corporations Act 2001 (Cth) to mean a person who "under the Bankruptcy Act 1966 […] is a bankrupt in respect of a bankruptcy from which the person has not been discharged […]" (see s 9 of the Corporations Act). On 16 June 2009, Mr Crestani became insolvent under administration within the meaning of the Corporations Act, and insolvent within the meaning of the policy.
It is clear that Mr Crestani, having been discharged from his bankruptcy on 17 June 2012, is no longer insolvent under administration within the meaning of the Corporations Act, and is no longer insolvent within the meaning of the policy. That was the position when the Owners Corporation made its first claim on the policy. Lumley accepted that if the Owners Corporation's claim against Mr Crestani was provable in the bankruptcy and released upon Mr Crestani's discharge, then the Owners Corporation could not recover compensation from him in respect of the statutory warranties because Mr Crestani was insolvent between 16 June 2009 and 17 June 2012. However, Lumley contends that it has no obligation to indemnify, because the insolvency contemplated by clause 2(1) is a state of insolvency existing at the time the claim on the policy is made. This is said to follow from the fact that the definition of "insolvent" is expressed in the present tense.
I do not think that clause 2(1) of the policy should be so construed. The expression "the insolvency" refers to a state of affairs, namely, the condition of insolvency. The expression is not, in terms, defined, but the ascertainment of its meaning is assisted by the definition of the cognate term "insolvent". Accordingly, in relation to an individual, the condition of insolvency exists when the individual is insolvent under administration within the meaning of the Corporations Act.
Clause 2(1)(b) of the policy relevantly covers loss or damage in respect of which the beneficiary cannot obtain redress from the contractor "because of the insolvency" of the contractor. The clause, read as a whole and adopting the ordinary meaning of the words used, requires that redress from the contractor is not obtainable because of the contractor's insolvency. The insolvency is not expressed to be limited to an existing state of affairs. The focus is upon the reason why redress is not obtainable from the contractor.
In my view, neither the language of the policy nor the context in which it was made, the compulsory insurance regime provided for in Division 2 of Part 6 of the Home Building Act, suggests that cover would not be provided unless redress was not obtainable from the contractor due to a condition of insolvency existing at the time of the making of the claim on the policy.
In the present case, the Owners Corporation's claim against Mr Crestani in respect of the statutory warranties was, as I have found, a claim that was provable in Mr Crestani's bankruptcy and was released upon his discharge. Thus, the Owners Corporation cannot recover compensation from Mr Crestani for loss or damage arising from his alleged breaches of the statutory warranties. For similar reasons, the Owners Corporation cannot require Mr Crestani to rectify the alleged breaches. In my opinion, the Owners Corporation cannot obtain redress from Mr Crestani "because of the insolvency" of Mr Crestani within the meaning of clause 2(1) of the policy. I therefore do not accept Lumley's contention that, in the events that have happened, it is entitled to deny the claim for indemnity made by the Owners Corporation.
It follows that the separate question must be answered "No".

Mr Crestani's application for striking out or dismissal

Mr Stomo submitted that the case brought by the Owners Corporation against Mr Crestani should be struck out or dismissed. In essence it was put that the claim in respect of the statutory warranties was released pursuant to s 153 of the Bankruptcy Act, and the remaining claim, in tort, was bound to fail. It was submitted that the claim in tort itself arose by reason of a contract, and was thus provable in the bankruptcy and released upon Mr Crestani's discharge. It was further submitted that the claim was bound to fail having regard to the reasoning of the High Court in Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288 [2014] HCA 36.
As to the first matter, it seems to me that it is not at all clear that the claim in tort is one that arises by reason of a contract such that it was provable in Mr Crestani's bankruptcy. The cases involving claims in tort against solicitors illustrate the point. It remains debatable whether claims brought against solicitors in tort for negligence are provable (see, for example, Lovell v Penkin [2008] FCA 637 at [31]). That is so even where there is a contract between the claimant and the bankrupt.
There is much more substance in the second matter. I do not think it can be doubted that Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288 (supra) presents a most formidable, and quite possibly insurmountable obstacle in the path of the Owners Corporation's claim in tort. The expression of the claim in the List Statement (which was filed prior to the decision of the High Court) may require some attention. Nevertheless, there may be factual differences between the cases (e.g. in relation to the contractual arrangements as to quality of work and dealing with any defects) such that the same result on the issue of the existence of a duty of care is not inevitable (see The Owners - Strata Plan No 51077 v Meriton Apartments Pty Ltd [2014] NSWSC 1761 at [15]).
I note also that there is at least a prospect of an interlocutory appeal on the separate question. If such an appeal succeeded, the claim of the Owners Corporation against Mr Crestani in relation to the statutory warranties would be reinstated.
Applications for striking out or summary judgment are generally not entertained in the Technology and Construction List. I consider that it was appropriate to at least entertain Mr Crestani's application. However, having regard to the well-established principles to the effect that the power to make orders of that kind should only be exercised sparingly and in very clear cases, I have decided that in the circumstances of this case, it is not appropriate to either strike out or dismiss the Owners Corporation's proceedings against Mr Crestani. Mr Crestani's Notice of Motion will be dismissed with costs.
Lumley should pay the costs of the determination of the separate question.
The Court orders: 1. That the question: "Is the first defendant [Lumley] entitled to deny indemnity in respect of the plaintiff's [Owners Corporation's] claims by reason only of the bankruptcy and discharge therefrom of the second defendant [Mr Crestani] prior to the plaintiff [Owners Corporation] making a claim on the policy against the first defendant [Lumley]?" 2. be answered "No." 3. That the first defendant pay the costs of the determination of the question. 4. That the second defendant's Notice of Motion filed on 27 March 2015 be dismissed with costs.

The Owners - Strata Plan 80647 v WFI Insurance Limited t/as Lumley Insurance

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