Insurance Contract, appeal from decision of insurer.
Legislation Cited: Home Building Act 1989, Home Building Regulation 2004
Cases Cited: Brown v Brown (1905) 5 SR (NSW)
Alliance Bank v Broom (1864) 2 Dr &Sm 289
62 ER 631
Grygiel v Baine [2005] NSWCA 218
Source
Original judgment source is linked above.
Catchwords
Insurance Contract, appeal from decision of insurer.
Legislation Cited: Home Building Act 1989, Home Building Regulation 2004
Cases Cited: Brown v Brown (1905) 5 SR (NSW)Alliance Bank v Broom (1864) 2 Dr &Sm 28962 ER 631Grygiel v Baine [2005] NSWCA 218
Judgment (19 paragraphs)
[1]
REASONS FOR DECISION
By application filed on 3 May 2014 the Owners Corporation (the applicant) seeks to appeal the decision of the respondent (the insurer) to deny indemnity under a Home Owners Warranty Policy (HOW) pursuant to section 48A(2) of the Home Building Act 1989.
[2]
The applicant's case
The following facts are not controversial. The applicants are owners of a residential apartment complex at xx Pacific Highway, Lane Cove. The building was developed in or about 1970. The roof membrane installed was a "Scotch Clad Deck Coating System" with a life span of approximately 20 to 30 years.
The applicant noted roof leaks in or about 2004. The applicant resolved to retain a builder to rectify the roof leaks. The applicant retained Acevedo Building Services Pty Ltd trading as Acevedo Painters and Building Services ("Acevedo") to undertake roof rectification work in or about 2005.
In or around 2005 Acevedo carried out waterproofing work to the roof of the units, installing a membrane over a reinforced slab, and to the balcony of unit 13 (the 2005 works).
The scope of the works is not entirely clear but may have been set out in a quotation from Acevedo to Mr Greg Beard of Paint and Technical Services Pty Ltd.
The 2005 waterproofing work was defective.
After noting further and additional leaks in 2008 the applicant retained Mr Beard to inspect the works. On 19 February 2008 Mr Beard sent an email to the Owners Corporation noting that Acevedo had agreed "to rip it up and start again". "It" referred to the membrane applied to the roof slab in 2005.
The email referred to the applicants and Acevedo entering into a new contract; and referred to the need to obtain Home Owners Warranty Insurance for the rectification works.
It is not in dispute that the insurance policy, subject of these proceedings, was not taken out for the 2005 works. Indeed no insurance was obtained for the 2005 works. It is further not in dispute that no written contract, satisfying the provisions of the Home Building Act 1989, was entered into in 2005 or 2008.
In 2008 Acevedo applied to the Insurer for Home Owners Warranty Insurance. The policy application form describes the works as "roof waterproofing".
On 30 July 2008 the insurer issued a Certificate of Insurance covering "roof works to an existing dwelling consisting of waterproofing as application dated 28 July 2008".
Between July and August 2008 Acevedo carried out waterproofing work on the roof (the 2008 works).
The 2008 works contained a number of defects which arose from inadequate substrate penetration and also an inadequate application of the waterproof membrane.
Bellmont Façade Engineering Pty Ltd (Bellmont Façade), an independent builder, was retained by the applicant to supervise the 2008 works. It is contested when exactly the 2008 works commenced and when it finished. A report from Belmont Façade evaluating the roofing works dated 19 February 2008 was prepared and tendered by both parties in these proceedings.
Acevedo was deregistered in 2009. Mr Acevedo became the director of a new company, Stratabuild Pty Ltd.
On 19 October 2011 the applicant lodged a claim with the Insurer in relation to the defective 2008 works.
On about 12 December 2011 Igentia Pty Ltd, retained by the insurer, issued a Technical Inspection Report based on their investigation into the applicant's claimed items under the policy. The report recommends acceptance of waterproofing and rectification works and values the work at $121,000.00. In summary, the report states that the "builder has failed to waterproof the rooftop in accordance with manufacturer's recommendations in that the builder did not remove all of the existing failed bitumen membrane." Igentia recommended preparing the surface of the slab; installation of topping screed with falls to roof outlets; installation of suitable outlets and application of the waterproofing membrane as specified by the manufacturer. The Igentia report was prepared for the Insurer and tendered by the Insurer as attachment MD-08. Relevantly, the Igentia report refers to the builder as "Acevedo Building Services Pty Ltd".
On 3 January 2012 the Insurer wrote to the applicant's solicitors enclosing an "Amended Inspection Summary" which set out the insurer's assessment of the applicant's claim. The inspection summary included a scope of work to rectify the leaking roof that the Insurer accepted. The Insurer wrote: "Lumley Insurance now requires [the applicant's] written approval to the decision on their claim as per the attached Amended Inspection Summary. Upon receipt of their approval Lumley Insurance can then proceed to obtain quotations for the rectification of the accepted works".
On 17 February 2012 the applicant's solicitor wrote to the Insurer accepting the Insurers' decision of 3 January 2012.
On 24 April 2012 the applicant's solicitor wrote to the Insurer identifying additional defects in the common property not originally claimed in their claim form of 19 October 2011.
On 2 April 2013 the Insurer's solicitor wrote to the Owners solicitors issuing a complete declinature of the claim including those items which formed part of the earlier accepted Amended Inspection Summary.
On 3 May 2013 the applicant filed the current application pursuant to section 48(A)(2)(a) of the Act appealing the decision of the Insurer. At the hearing it was conceded the claim was brought within the requisite 45 days as required pursuant to section 65 of the Act.
[3]
The Insurer declined indemnity
The insurer declined indemnity on the basis that the residential building work was not carried out pursuant to a contract entered into during the period of insurance. The HOW insurance is a job specific policy and it indemnifies the applicant for claims made for a breach of statutory warranty in respect of the "residential building work carried out by the Contractor under a Contract" [emphasis added] entered into for that work.
The work which was carried out was in the nature of rectification work or earlier work, free of charge, and was undertaken pursuant to rights and obligations which had accrued to the parties under a contract entered into in 2005. It was argued that the 2008 works were uninsured as they were commenced substantially prior to the commencement of the policy.
[4]
The insurance application form post-dated the work
The insurance application form was signed and dated 28 July 2008 and it was submitted that the bulk of the work was carried out some time before the application form was submitted to the insurer.
In July 2008 the contractor returned for the first time since 2005 to carry out rectification work. The 2008 work was supervised and deemed unacceptable by Belmont Façade. It was not until 28 July 2008 and after Belmont Façade had made the owners aware of the defects in the rectification work, that the insurer received the application for insurance for a building contract in the sum of $42,500.00 for "roof works to an existing dwelling consisting of waterproofing".
The contract sum was clearly referable to the 2005 contract and no money was paid by the Owners Corporation to Acevedo for the 2008 works. The insurer submitted that it would therefore be misleading to assert that the owners entered into a new contract in 2008.
The work for which cover was sought was very nearly completed by the time the application form was submitted.
The work was said to commence on 1 August 2008 and conclude on 15 August 2008. Acevedo attached a copy of the 2005 contract to the 2008 insurance application form. On 30 July 2008 the Insurer issued the certificate of HOW insurance. On 11 August 2008 an engineer carried out an inspection of the new membrane noting it "had already started to crack". It was submitted that the bulk of the work was completed before the insurance was issued, and that the insurance policy does not respond.
[5]
No consideration - no contract
There was no written contract and there was no consideration offered by the Owners Corporation to the contractor. The Tribunal should therefore not find that the parties entered into a contract. The Insurance Cover states as follows: "The Insurer agrees … to indemnify the Insured in respect of the Insured Loss which results from an Insured Event which occurs during the period of Insurance. "
It is submitted as there was no contract between the parties, it must follow that there was no work performed pursuant to a contract that could give rise to an insured loss resulting from an insured event, and the policy does not respond.
[6]
Losses were complete in 2005
Any breach of statutory warranty giving rise to an insured loss was complete in 2005 as the roof was not properly repaired in 2005. The 2008 simply did defective work over defective work that already existed and did not add to loss or damage already in existence since the 2005 works were performed. There was no insured event giving rise to an insured loss covered by a 2008 contract of insurance and the policy does not respond.
[7]
Exclusions Clauses
The primary position of the insurer was that the policy does not respond. If, however, a finding is reached that the policy does respond, the Tribunal must consider several exclusion clauses. Clause 3.4 of the insurance contract states as follows:
"Except as required by the Act or the Regulations the Insurer shall not be liable or required to indemnify or compensate the Insured for any loss or damage arising from:…
(h) a Claim in relation to a Defect due to faulty design provided by the Insured or a previous owner;
(j) a Claim in relation to Defects or damage due to an act or omission of someone other than the Contractor or the Contractor's agents, employees or sub-Contractors;
(bb) any Claim which relates to:
(i) any loss or damage howsoever occurring prior to the date of the Contract; …
(iii) a claim or circumstance which might give rise to a claim which was known to the Insured at the inception date of this Policy, whether or not the claim or circumstance was stated in the Application;
It was submitted that in respect of 3.4(h), if any loss has arisen, it has arisen from defective design.
Mr McDonald, a waterproofing expert was called and cross-examined. He agreed that the Acevedo quote of 2005 proposing a scope of work for waterproofing displayed a lack of knowledge of membranes and waterproofing technology.
Acevedo's quote was non-specific as to the nature of the membrane it would employ. The owners agreed to select a liquid applied membrane. Mr McDonald agreed that this was an inferior design to a "torch on" design membrane. A torch on membrane is manufactured to even thickness and pinned to the roof. A liquid applied membrane is sprayed onto the concrete slab roof and subject to the "vagaries of the applicator". It is significantly less expensive than the torch-on membrane.
The membrane selected for 2005 was the cheapest option available and selected by the applicants at the recommendation of Acevedo. Mr McDonald agreed that a torch on method should have been used and it was not. He agreed that the spray-on membrane gave rise to defects and that these defects were in existence from the 2005 application of the membrane and carried on into the 2008 work.
Importantly Mr McDonald also conceded during cross-examination that that there were pre-existing defects before the 2008 work commenced.
In re-examination Mr McDonald agreed with the proposition that a properly applied membrane need not necessarily fail, its success depends on the skill of the applicator and many new buildings of that era have been successfully waterproofed with a spray-on membrane.
[8]
FINDINGS AND REASONS
Section 48K (1) of the Home Building Act 1989 (the "Act") provides that
(1)The Tribunal has jurisdiction to hear and determine any building claim brought before it in accordance with this Part in which the amount claimed does not exceed $500,000 (or any other higher or lower figure prescribed by the regulations)
A "building claim" is defined in section 48A of the Act as follows:
Building claim means a claim for
1. the payment of a specified sum of money, or
2. the supply of specified services, or
3. relief from payment of a specified sum of money, or
4. the delivery, return or replacement of specified goods or goods of a specified description, or
5. a combination of two or more of the remedies referred to in paragraphs (a)-(d),
that arises from a supply of building goods or services whether under a contract or not, or that arises under a contract that is collateral to a contract for the supply of building goods or services, but does not include a claim that the regulations declare not to be a building claim.
Further, in connection with the meaning of the expression "building claim", section 48A(2) of the Act states that a building claim includes the following:
(a) an appeal against a decision of an insurer under a contract of insurance required to be entered into under this Act,
(b) a claim for compensation for loss arising from a breach of a statutory warranty implied under Part 2C.
Building goods or services are defined in section 48A of the Act to mean:
goods or services supplied for or in connection with the carrying out of residential building work or specialist work, being goods or services:
1. supplied by the person who contracts to do, or otherwise does, that work, or
2. supplied in any circumstances prescribed by the regulations to the person who contracts to do that work.
The owner's claim falls within the jurisdictional limit of the Tribunal. It is a building claim as defined by the Act as it is an appeal from the decision of an Insurer for the purpose of section 48 A(2). The Tribunal has the requisite jurisdiction to hear and determine the issues between the parties.
Section 48O of the Home Building Act 1989, sets out the powers of the Tribunal to make various orders in determining a building claim. Subsection 48O(1)(a) provides that the Tribunal may make an order for one party to pay money to another by way of debt or damages or order that a party to the proceeding do any specified work (s48(O)(1)(c)).
At the hearing the insurer conceded that the claim was brought in the requisite time frame and in accordance with Regulation 65 of the Home Building Regulations 2004 or within 45 days of the insurer's notification of declinature.
[9]
Acevedo was the builder
The insurer submitted that Acevedo was wound up and a liquidator appointed on 3 March 2006. Acevedo came out of administration and resumed trading on 24 May 2006 and was not deregistered until 19 July 2009. On 7 July 2006 Mr Acevedo incorporated a second company Stratabuild Pty Ltd, now also in liquidation (Stratabuild). It was submitted that the Tribunal should find, on the balance of probabilities, that Stratabuild, not Acevedo carried out the 2008 work and that the Insurer was not on risk in respect of any work carried out by Stratabuild.
The evidence led by the Insurer that Stratabuild and not Acevedo carried out the work was at best circumstantial. Various experts refer to Stratabuild and Acevedo interchangeably in their correspondence with the Owners Corporation.
Be that as it may, the onus of proof rests with the applicant and the applicant led the following evidence to prove that Acevedo, not Stratabuild, was the contractor for the 2008 works: The 2005 contract is entered into between the Owners Corporation and Acevedo. The 2008 application form is signed by Mr Acevedo on behalf of the company. The Owners Corporation in various emails of 2005 and 2008 make reference to Mr Acevedo and Acevedo, the company, interchangeably. Belmont Façade Engineering Pty Ltd, in its report of July 2008 and refers to the contractor as "Acevedo Building Services". Document 23 of Exhibit 2, an email of 29 February 2008 addressed to the Owners Corporation refers to Acevedo as the builder and the necessity to enter into a contract with the builder to undertake rectification work and "ensure we get Home Owners Warranty Insurance." Finally, the insurance policy itself refers to Acevedo, the company, as the contractor.
On the evidence as referred to above, I am satisfied, on balance, that the applicant entered into a contract with Acevedo in 2005 and 2008 respectively and that Acevedo is "the builder" for the purpose of this application.
[10]
The Owners Corporation and Acevedo entered into a 2008 contract
I have had regard to the document entitled "contract for domestic and decorating works NSW dated 14 July 2008" and signed by the parties in 2005.
I accept that this contract was first entered into in 2005. I am further satisfied that the contract was forwarded by Acevedo to the Insurer in 2008 and that the 2005 document was attached to the insurance application form in 2008.
No separate written contract was drafted and no document was created that complied with the writing requirements of the Home Building Act 1989.
I am however, satisfied that the applicant offered and Acevedo accepted to "rip it up and start again" as was set out in the email of 19 February 2008. This agreement amounted to an offer and acceptance for the purpose of formation of a contract to carry out new residential building work in 2008 separate and distinct from the 2005 contract.
An email of 19 Feburary 2008 informing the Owners Corporation that "Acevedo agrees with all requirements" indicates that the owners offered and the builder accepted to return to undertake waterproofing on the roof in 2008.
It was submitted by the insurer that the parties did not enter into a 2008 contract but into an "arrangement" separate and distinct from a legally binding agreement or contract. I cannot accept this submission. I am satisfied that the applicant offered and Acevedo accepted to carry out residential building work. I am further satisfied that the terms of the agreement were not so vague as to be uncertain and the agreement could be inferred from the conduct of the parties (see Brown v Brown (1905) 5 SR (NSW)) namely that Acevedo attended and performed work in accordance with the agreement formed between the parties.
[11]
No consideration - no contract?
The insurer submitted that as there was no consideration for the 2008 works and that consideration is an essential element to the formation of a binding contract.
I have had regard to the 29 February 2008 email. It was a clear intention of the Owners Corporation's executive committee to enter into a new contract. The email establishes that the applicant explored its rights to commence proceedings:
"we have two options open to us to get the roof fixed, the first is we can sue Carlos and Greg and get our money back…or the second, Carlos has agreed to rectify his wrong in this work… Bill [Moisidis] will now take over and prepare a scope of works for Carlos to adhere to and follow. Bill… will advise how to get a contract for these repairs to ensure we get HOW."
Based on the terms of the email I am satisfied that the Owners Corporation, in forbearance to sue, agreed to have Acevedo return to site and undertake rectification work. The applicant had clearly identified its right to sue. While no letter of demand has been tendered (and apparently such a letter was not sent to Acevedo until 2010) the Tribunal need not be satisfied that forbearance had been expressly requested by Acevedo to find consideration.
On analysis of the documents and in particular the 29 February 2008 email, I am satisfied that there was an implied promise by the applicant to surrender a cause of action or forbearance from suing Acevedo and that Acevedo agreed that his was the consideration bargained for as the price for the 2008 roofing work (see Contract Law in Australia, Fifth Edition, Carter Peden Tolhurst, 2007 page 140 and following; see Alliance Bank v Broom (1864) 2 Dr &Sm 289; 62 ER 631).
In the alternative, if I have erred and there is no separate and distinct contract formed in 2008, the contract for the purpose of the insurance certificate was the 2005 contract, but as amended and re-negotiated by the parties in 2008 ("rip it up and start again"), and attached to the insurance proposal.
[12]
Business Efficacy
It is not in dispute that the builder attached the 2005 contract document to the 2008 insurance proposal form. I am satisfied that it was the clear intention of the Acevedo and the Owners Corporation to enter into a new contract. The insurance policy documents defines contract as follows: "Contract is defined as the contract specified in the certificate of insurance to do the work and entered into between the Owner and the Contractor" (see Clause 13.1 of the Insurance Contract).
"Work" means the residential building work to be carried out as described in the Contract. The Certificate of Insurance created by the Insurer refers to a contract dated 14 July 2008 for "roof works to an existing dwelling consistent of waterproofing" as per application dated 28 July 2008. A copy of the contract was provided to the Insurer and based on the information provided to it, the Insurer accepted the Proposal and issued an HOW insurance certificate.
A policy of insurance is a commercial contract and should be interpreted by affording its terms business efficacy. I am satisfied that based on the language of the proposal form, mirrored by the insurance certificate, it was plain for the Insurer to properly assess and identify the object of the insurance cover, namely work to "secure waterproofing of the roof" of the subject premises.
I have had regard to the authority of Taylor v Dexta Corporation Limited [2006] NSWCA 310. Ipp JA, as he then was, held that the insurer was aware that the builder believed insurance cover was necessary to comply with the requirements of the Act, and that the builder had paid a premium for that cover. His Honour concluded that those two factors "are paramount. They outweigh the factors on which [the Insurer] relies in contending that the cover was not provided for the contract. They demonstrate that the real intention of the parties was that the policy would cover the contract." I am satisfied that, analogous with the principles enunciated in Taylor, the Insurer intended to provide cover in respect of the contract as attached to and for the period as disclosed in the application form.
I am satisfied that the Insurer accepted a premium of insurance in exchange for cover for the contract disclosed to it and that the insurance policy issues was intended to cover the 2008 works.
[13]
Clause 62 Home Building Regulation 2004
The Form was signed by Carlos Acevedo and the application stated that the contract was signed on 14 July 2008. There is no evidence before the Tribunal that the contract was signed by the Owners Corporation in 2008 and representatives of the Owners Corporation were not called to give evidence. The builder was not called to give evidence. It is conceivable that the builder deliberately and knowingly attached the 2005 contract to the application form seeking to pass the document off as a 2008 contract. There is no evidence before me to come to a conclusion whether the misrepresentation was deliberate.
I have had regard to the statutory regime imposed by Clause 62 of the Home Building Regulation 2004. I am satisfied on the balance of probabilities that the attachment of a 2005 contract to a 2008 proposal constituted a misrepresentation, or at the very least amounted to a non-disclosure by the builder for the purpose of clause 62 of the Home Building Regulation 2004. Clause 62 is repeated in full:
62 Misrepresentation or non-disclosure
"An insurance contract must contain a provision to the effect that the insurer is not entitled either to refuse to pay a claim under the contract or to cancel the contract on the ground that the contract was obtained by misrepresentation or non-disclosure by the contractor or owner-builder or that the policy premium was not paid providing, in the latter case, that a certificate evidencing insurance has been given or the insurer has otherwise accepted cover. "
The effects of clause 62 are reflected in clause 10.1 of the Insurance Contract. The insurer is not entitled to refuse a claim on the grounds that the policy was obtained by misrepresentation or non-disclosure of the contractor.
I am of the view that an objective rather than a subjective analysis of the documents and criteria enlivening clause 10 is required. There is no requirement to arrive at a finding that the contractor deliberately set out to misrepresent the facts. I am satisfied that the attachment of the 2005 contract to the 2008 application form, without further explanation or disclosure, amounted to a mis-representation or non-disclosure for the purpose of clause 10.1.
Accordingly, the Insurer is not entitled to refuse to pay the claim under the contract or to cancel the contract of insurance.
[14]
Was the work carried out inside the Period of Cover?
I am satisfied that the work the subject of cover, was undertaken inside the policy period, between 28 July 2008 and about 11 August 2008. I do not find that the work subject to coverage was finalised before the policy was issued. In any event, the Insurer itself recorded the date of the contract as 14 July 2008. The Insurer was aware that the date of the contract was 14 July 2008 as that was the date recorded on the Certification of Insurance.
If I have erred and the correspondence relied upon by both parties cannot reasonably allow a finding that the residential building work was carried out inside the period in respect of which claims can be made, I am satisfied that the builder's failure to inform the Insurer that the work had commenced at the time the policy was issued amounts to a mis-representation or non-disclosure by the builder (as opposed to the insured) for the purpose of clause 10.1 disentitling the Insurer to refuse the claim.
In summary and to give effect to my findings set out above I am satisfied that the policy responds.
Having arrived at a finding that the policy responds, it is necessary to examine whether the exclusions relied upon by the Insurer preclude cover.
[15]
Faulty Design
For the reasons set out above I am not satisfied that the exclusion clause 34.4(h) applies. It was clear from re-examination of the expert, Mr McDonald, that the waterproof membrane per se was not defective, in design or otherwise but rather the "vagaries of the applicator" caused the defects and ultimately permitted water ingress.
The Insurer did not tender any expert evidence giving rise to a finding that the spray on membrane itself was defective in its design and I cannot arrive at a finding to that effect. In my view the respondent failed to establish that the relevant conduct falls within the "design" exclusion as I would construe it.
[16]
Loss or damage prior to the date of the contract
However clause 3.4(bb) excludes the applicant's loss.
I have had regard to the lengthy report of Bill Moisides and the Bellmont Façade Engineers Inspection Certificate No 1 describing the work as "unacceptable". The certificate states that inspections were undertaken between 10 and 17 July 2008 or 10 days before the application for insurance was received by Lumley. Bellmont Façade was retained to supervise the rectification work of the contractor. The inspection revealed numbers of defects in the waterproofing work and particularly declared the roof bitumous surface preparation as unacceptable.
The supervising engineer concluded "all surface preparation and rectification works conducted by the contractor are found unacceptable… it is our opinion that the contractor is unlikely to alter his methods and commitment to repairing his defective works and that the Owners should seek further legal advice on how to proceed. The contractor has repeatedly ignored our instructions on materials and methods to be used. This is making the task of managing the contractor and providing a suitable finished membrane near possible."
Ten days later, on 28 July 2008, Lumley received an application for insurance from the contractor purporting to be a new building contract for "roof works to an existing dwelling consisting of waterproofing."
I have had regard to the exclusion clause at (bb) as set out above. I am persuaded that the supervising engineer informed the insured that the work done under the 2008 contract was defective before the contract for insurance was entered into.
The exclusion contained at paragraph (bb)(i) is not dependent upon the state of knowledge of the insured or the builder. The exclusion is enlivened simply by "any loss or damage howsoever occurring prior to the date of the contract".
In light of my finding that the Bellmont Façade certificate was provided before the inception of the policy, I am satisfied that the defects complained of are "loss and damage occurring before the policy".
I have also taken into account the admissions elicited from Mr McDonald during cross-examination that defects did exist prior to the 2008 works.
It is irrelevant when builder or insured received the Belmont Façade report. The knowledge of the insured or the builder is of no consequence for the purpose of clause 3.4(bb) and there is no mis-representation or omission by the builder or the insured that may enliven the operation of clause 10.1.
The proof of a pre-existing defect allows the exclusion clause to become operative. The insurer is entitled to exclude cover by operation of Clause 3.4 (bb).
As I have found that cover is excluded by operation of clause 3.4(bb) any further exclusions as relied upon by the insurer need not be considered.
I note that the insurer submitted that the failure to notify of pre-existing defects within the terms and conditions of the Policy has prejudiced the respondent and that "the value of this prejudice is the entirety of the applicant's claim" (see written submissions of 13 May 2014).
This may be a reference to section 54 of the Insurance Contracts Act. The Act was not pleaded or particularised. As neither party has raised or argued the effects of the Insurance Contracts Act, I decline to come to any findings or conclusion as to whether or not the Act applies to the current case.
In light of my finding that the Insured's losses are excluded, the appeal against the decision of an insurer is dismissed.
[17]
Is the Insurer bound by its decision dated 3 January 2012?
The applicant raised an alternative claim. In the event the Tribunal finds the Policy does not respond (or the claim is otherwise excluded), the Tribunal must find that the insurer offered and the applicant accepted a settlement and that the "insurer is now contractually bound to deal with the owners corporations claims the subject of the letter dated 3 January 2012".
The submissions by the owners corporation did not advance this argument further.
I am satisfied that the insurer offered to settle the claim on terms as set out in the letter of 3 January 2012 offering to undertake the rectification works referable to the leaking roof and as per the Igentia report.
By letter dated 17 February 2012 the applicant accepted the offer.
The offer and acceptance precisely corresponded and the Owners Corporation accepted all terms of the offer. I am satisfied that the letter of 17 February 2012 was an acceptance and that the parties formed a an agreement for the insurer to cause the work set out in the document entitled "Amended Specific Order" to be undertaken by a licensed contractor (the agreement).
Relevantly the insurer does not offer to undertake residential building work or supply building goods and services. After the work is put out to tender the most competitive contractor is selected to perform the work. The parties to the current proceedings never entered into a contract for the supply of building goods or services.
For convenience I have repeated the definition as contained in section 48A:
A "building claim" is defined in section 48A of the Act as follows:
Building claim means a claim for
1. the payment of a specified sum of money, or
2. the supply of specified services, or
3. relief from payment of a specified sum of money, or
4. the delivery, return or replacement of specified goods or goods of a specified description, or
5. a combination of two or more of the remedies referred to in paragraphs (a)-(d),
that arises from a supply of building goods or services whether under a contract or not, or that arises under a contract that is collateral to a contract for the supply of building goods or services, but does not include a claim that the regulations declare not to be a building claim.
[18]
Does the agreement give rise to a building claim?
During the course of the hearing the Tribunal raised the issue whether the settlement agreement gives rise to a building claim pursuant to section 48A. The insurer submitted that the offer to accept a building claim arising from a policy of insurance does not give rise to a "building claim" as defined by section 48A or 48A(2)(a).
Appealing the decision of an insurer is properly categorised as a "building claim" for the purpose of 48A(2)(a). The appeal was disposed of in my conclusion reached at paragraphs 77 and following.
The appeal however, is separate and distinct from enforcement of an agreement said to have been formed between the parties. An agreement may, under certain circumstances, give rise to a separate cause of action but whether the agreement is a "building claim" and exercises the Tribunal's jurisdiction is a question to be determined on the facts of each individual case.
The acceptance of an insurance claim form and the resultant agreement between Insurer and insured did not give rise to an offer to "supply building goods and services" and cannot be categorised as "a building claim" under the Act. Nor is the agreement to settle an insurance claim an "appeal" from a decision of an insurer.
The agreement did not settle the contract for residential building work between Acevedo and the owners corporation. It involved entirely separate and distinct parties, parties who had never entered into a contract for the supply of building goods and services "being goods and services supplied by the person who contracts to do, or otherwise does, that work". The agreement now sought to be enforced purported to settle a contract of insurance, or at the very least, some of the obligations arising thereunder.
[19]
Collateral contract
I am not of the view that the agreement formed a collateral contract for the purpose of section 48A. The issue of a collateral contract under the Act was explored in the decision of Wolinski v HIA Insurance [2003] NSWSC 475 (2 June 2003) as applying only to those contracts in which the parties are the same parties as to the building contract. This is clearly not the case in the dispute currently before the Tribunal.
I have had regard to the decision of Buckle v Reynell [2008] NSWSC 73 per Malpass JA where the Court held that a claim arising from a breach of terms of settlement of a building claim can itself be a claim as long as the terms of settlement arose from the actual supply or provision of building goods and services.
The case is distinguishable on the facts as the settlement or work order agreed between the parties, (being owner and builder) involved the builder as party to the original contract, returning to the site, and performing work for the homeowner.
Both were parties to the original building contract and the subsequent settlement was reached between original parties to the proceeding, thereby giving rise to a building claim.
In considering whether a collateral contract had been formed Master Malpass stated at [57] that "terms of settlement cannot be regarded as being a contract to that is collateral to a contract to a supply of building goods and services. The terms of settlement bring the building contract to an end." At no stage did the current respondent enter into an agreement with the owners corporation for the supply of building goods and services.
The definition of "building claim" was considered by the Court of Appeal in Grygiel v Baine [2005] NSWCA 218 at [47] where it was found that the provision of legal advice fell within the ambit of a "building claim" for the purpose of section 48A. The case is also distinguishable as building goods and services were actually supplied and the negligent legal advice was causally connected to the building work.
The question is whether the acceptance of the insurance claim and resultant agreement between the parties "arises from" the supply of building goods and services.
In my view it does not. The agreement to accept the insurance claim did not arise from the supply of building goods and services and cannot give rise to the current appeal.
On one view of the matter the definition of residential building work is not limited to physical work actually performed, but extends to work of a preparatory nature as long as the work is said to have a sufficient connection with the carrying out of the work. Work that could be said to have a sufficient connection with the carrying out of building work because its purpose was to give rise to residential building work and it had the sufficient causal nexus with such work (see generally Technical Products Pty Ltd v State Government Insurance Office (Queensland) [1989] 167 CLR 45.
I do not find that the agreement to settle an insurance claim has the "sufficient connection" with any building work and does not satisfy the categories as set out by the Court in Grygiel.
The agreement formed with the insurer to settle the claim "gives rise to no substantial dispute about the nature of the supply or the terms on which the building services were supplied. In such a case the claim should not be characterised as a claim for a specified sum or performance of work arising from the supply of building services" (see Basten J in Grygiel v Baine at [62]). As I am not satisfied that building goods and services were supplied by the respondent, an appeal pursuant to section 48A(2)(a) cannot be brought in connection with it.
The decision of the parties to an insurance contract to settle a claim is not a building claim for the purpose of section 48A or 48A(2)(a) as it does not arise from the supply of building goods and services.
I am not satisfied that the Tribunal has the requisite jurisdiction to hear and determine the agreement entered into between the parties.
Whether that agreement is otherwise enforceable may be a question for a Court of competent jurisdiction.
To give effect to my findings I make the orders in paragraph one above, dismissing the application.
S Thode
Senior Member
Civil and Administrative Tribunal of New South Wales
13 October 2014
I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales.
Registrar
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.
Decision last updated: 02 February 2015
Parties
Applicant/Plaintiff:
The Owners - Strata Plan No 14846
Respondent/Defendant:
Wesfarmers General Insurance Ltd T/AS Lumley General