The Owners - Units Plan No. 3115 v The Trustees of the Master Builders Fidelity Fund Scheme

(b) Was the second claim a valid claim? 68 It is common ground that the period of cover expired on 26 May 2012. Accordingly, only loss resulting from a breach of statutory warranty that accrued on or before that date can be the subject of a claim. The owners corporation's entitlement to lodge the further claim depends on whether the unit owners who assigned their rights to the owners corporation were entitled to claim under a fidelity certificate in respect to such loss. The 'Schedule of Eligible Elara Unit Owners" appended to the further amended statement of claim identified which owners had such rights and on what grounds - i.e. whether the right arose under either ss 88(1) or (3). 69 The claim was lodged outside the period provided for in the fidelity certificates and the Deed. The question is whether that is sufficient, of itself, to invalidate the claim. The applicant submitted that it is not for the following reasons. 70 First, neither the Deed nor the fidelity certificates state in terms that an otherwise apparently valid claim may or must be rejected if it is submitted late. 71 Secondly, neither does s 90(1)(i) of the 2004 Act (which relates to residential building work insurance but is nevertheless referred to expressly on the back page of the fidelity certificates: see [63] above)). The phrase "a claim…may only be made" refers only to one of the matters for which an insurance policy must provide to comply with s 90, but it does not provide that a claim made outside that period may or must be refused. The applicant relied upon the terms and effect of both ss 64(1)(f)-(h) of the 1972 Act and s 90(1)(f)-(h) of the 2004 Act (see [42] above). They provide for the risks that must be insured during the period of cover. A claim can only arise if an insured event occurs during the period of cover. The period within which a claim may be made under either provision depends on when "the claimant becomes aware of the existence of the grounds for the claim". The applicant submitted that it is not a requirement of either of these statutory provisions that a claim be made during the period of cover. Both the first and second claim here concerned loss resulting from breach of statutory warranty in the period prior to 26 May 2012. 72 As to the trustees' claim that because the builder's insolvency occurred after 26 May 2012 this meant that there never was any entitlement to make a claim, the applicant submitted that this reasoning was inconsistent with the proper construction of ss 64(1)(f)-(h) of the 1972 Act and ss 90(1)(f)-(h) of the 2004 Act. The applicant submitted that the right to indemnity provided by, for example, s 90(1)(g) or (h), does not depend on the risk to which s 90(1)(f) applies manifesting itself during the period of cover. In addition, the applicant submitted that the Deed did not exclude claims other than those in circumstances in which the builder is insolvent, dead or has disappeared. The applicant submitted that the trustees could issue a fidelity certificate that excluded liability except in those circumstances, but there was no obligation on them to do so. 73 Significantly, the applicant submitted that the owner's entitlement to claim is governed by the fidelity certificate and not the Deed. It submitted that the Deed, of itself, conferred no rights on anybody and that no one is a beneficiary of anything under the Deed "unless and until a fidelity certificate is issued, and, in that respect, a fidelity certificate is no different than a certificate of insurance". The applicant submitted that, while the Deed establishes and regulates and governs what the trustees may or must do, "the work that is covered, the amount that is covered, who is covered, is to be found only by reference to the fidelity certificate, and the rights arise only by virtue of the fidelity certificate". It submitted that once a certificate is validly issued, it must operate according to its terms and cl 60 provides that a payment is made pursuant to "a validly issued fidelity certificate" and in accordance with the specified statutory provisions. 74 The applicant relied upon what it described as the representation of present fact on the front page of each fidelity certificate that it "is issued… in accordance with the terms and conditions set out in the… Trust Deed". The applicant submitted that this did not incorporate into the certificate the provisions of the Deed so as to make cover under the fidelity certificate subject to the terms and conditions in the Deed. 75 In short, the applicant contended that the grounds for a claim in this case did not exist until a liquidator was appointed on 20 July 2017, at the earliest. The first claim was then submitted within the 90 day period commencing on 20 July 2017. Further, it was not until 4 May 2018 that the liquidator reported that there were insufficient assets to enable a dividend to be paid to any class of creditors and the second claim was then submitted on 3 August 2018, which was within 90 days of 4 May 2018. In his oral submissions, counsel for the applicant contended that the fidelity certificates altered the 90 day period referred to s 90(1)(i) of the 2004 Act "by, in effect, defining what are the grounds for the claim" and that the entitlement of an owner to make a claim against the fund did not arise until a loss had been suffered. 76 As to the owners of the eleven units which were sold after 26 May 2012, which is outside the five year period, the applicant submitted that it was not until the liquidator was appointed that it could be said that the owners had exhausted any other remedy which they had against the builder. 77 Thirdly, an insurer would be prevented by s 54(1) of the Insurance Contracts Act 1984 (Cth) (IC Act) from refusing a claim made under an insurance policy that complied with s 90 by reason only of the fact that the claim was made outside the period provided for in the policy, unless the delay "could reasonably be regarded as being capable of contributing to a loss in respect of which insurance cover is provided by the contract". As the evident intention of the Deed is to provide the same level of protection for consumers as would be provided by home warranty insurance under the Act, the applicant contended that neither the Deed nor a fidelity certificate should be construed to permit the trustees to reject an otherwise apparently valid claim by reason only of the fact that it was submitted late. The discretions vested in the trustees are sufficient to protect the Fund against any additional loss covered by a fidelity certificate caused by such a delay. 78 Fourthly, the applicant submitted that a fidelity certificate is a "contract of insurance" within the meaning of s 10 of the IC Act. As such, the trustees are prevented by s 54 from refusing the claim only on the basis that it was submitted late. The applicant submitted that the reference in the definition in s 10 to "a contract that would ordinarily be regarded as a contract of insurance" invokes the common law concept of an insurance contract. Here the trustees issued the fidelity certificates at the request of the builder in consideration of payment of a total amount of $105,315 for the purpose of providing a benefit to the developer's successors in title - namely, protection against the risk of loss resulting from the risks mentioned in ss 90(1)(c), (f) and (g) during the period of cover - in accordance with the provisions of the Deed and ss 88 and 90 of the 2004 Act. 79 The applicant contended that this arrangement, viewed in the context of the prudential standards that apply to the management of the fidelity fund scheme, has all of the hallmarks of insurance provided under a contract as described by Channell J in Prudential Insurance Co v Commissioners for Inland Revenue [1904] 2 KB 658 (Prudential Insurance) at 663 and explained more recently in Todd v Alterra at Lloyds Ltd [2016] FCAFC 15; 239 FCR 12 (Todd) at [35]-[44] per Allsop CJ and Gleeson J).

(c) Were the trustees entitled to reject the claims? 80 The applicant submitted that in determining who was covered, for what loss and for what period were matters primarily determined by the fidelity certificates. Having regard to relevant statements in those certificates, cover was provided to the owner (i.e. the developer) and the owner's successors in title. This meant that the developer's successors in title in respect to the land on which the residential building work covered by the fidelity certificates was carried out were entitled to make a claim under each fidelity certificate. The applicant emphasised that, in contrast with the trustees' position, it is the residential building work involved in the construction of a dwelling and not the dwelling itself, which is covered by the certificates.

The trustees' submissions summarised 81 The trustees' submissions may be summarised as follows. 82 An owner's right to make a request for payment arises out of the Deed, particularly cl 60. That right does not arise from the 1972 Act, the Regulations or the Approval Criteria. These documents regulate the content, and influence the interpretation, of the Deed. They do not provide any right or entitlement. 83 Subsections 64(1)(f), (g) and (h) of the 1972 Act (see [32] above) are relevant to the application of cl 60 of the Deed (see [59] above). Paragraphs (g) and (h) are to be read together with paragraph (f) of s 64(1). The trustees submitted that paragraph (f) sets out a temporal limit on the risk that the policy is to cover. It is to operate when there is an inability to enforce or recover under the contract. Paragraphs (g) and (h) set out what is covered, namely loss due to breach of statutory warranties and land subsidence through negligence of the builder respectively. It is only when both (f) and (g) or (f) and (h) are satisfied that a request is payable. 84 The trustees contended that this construction is fortified by cl 11 of the Deed. Ordinarily, a person is obliged to exhaust all rights against a builder or any other person before commencing legal proceedings against the trustees; this is a textual indication within the Deed itself that the inability to recover from a builder is a precondition on making a valid claim on the Fund. 85 The trustees submitted that neither the first nor second claims conformed with the Deed for the following reasons. (a) Neither claim was made within the period specified in cl 4(f) of the Approval Criteria, which was incorporated as a term of the Deed by cll 4 and 8. Compliance with that requirement was and is a precondition to the approval of the Fund. Sections 64(1)(c) and (d) as incorporated by reference must be read in conformity with this requirement, as those sections become clauses of a Deed which must satisfy the Approval Criteria before it can be approved. (b) In the alternative, if all that was required to comply with s 64(1)(c) and (d) in light of cl 4(f) of the Approval Criteria was for the grounds for a claim to arise: (i) the grounds for such a claim did not arise as the builder did not become insolvent until over 5 years after the expiry of the fidelity certificates; and/or (ii) if the grounds for a claim did arise within the five-year period, then both claims were lodged far beyond the 90-day period permitted by s 64(1)(i) and cl 64 of the Deed and must be rejected for that reason. (c) Additionally, each claim was tainted by misrepresentation as each purported to claim under certificates which were inutile, being certificates for units which were owned by the developer at all relevant times. Each claim sought a payment of $10.2m in circumstances where such a payout would have necessarily involved payment for fidelity certificates which never came into force. 86 The first claim (and to the extent that the second claim is brought by the applicant in its own name) was also non-conforming because the applicant did not and does not have a right to claim under any of the 120 fidelity certificates. The rights attaching to a fidelity certificate accrue to the owner, from time to time, of the property identified on the front of the certificate. The legal owner of each unit was the leaseholder of each of the 120 units at the relevant time, while the applicant was the legal owner of the common property only. The applicant had no capacity to exercise rights which accrued to unit owners - those rights were the property of the unit owners, not of the applicant. 87 The trustees contended that the second claim was non-conforming for the following reasons. (a) On the assumption that the grounds for a claim arose when the builder went into liquidation on 20 July 2017 (which is not accepted), the second claim was over nine months in breach of the 90-day rule when it was lodged on 3 August 2018. The fidelity certificates are not contracts of insurance and s 54 of the IC Act does not assist the applicant (see further below). (b) In its solicitor's letter dated 5 July 2018, the applicant purported to lodge a claim as assignee of only some unit owners, yet the claim form executed on 3 August 2018 stated that it was for all fidelity certificates and sought $10.2m. Fidelity fund claim forms are statutory declarations. The second claim could not have been true and correct in all material particulars at the time it was made as the applicant was the assignee of only some, and not all, of the unit owners. The trustees were entitled to refuse that claim became of the applicant's misrepresentations. 88 As to the applicant's claim that the fidelity certificates are "contracts of insurance" within the meaning of s 10 of the IC Act, with the effect that s 54 of that Act prevents the trustees from refusing the second claim for failure to comply with the requirement that any claim be made within 90 days, the trustees made the following submissions. 89 The fidelity certificates are not contracts of insurance. The core of a contract of insurance is a promise to pay a sum of money or provide some benefit upon the happening of a specified event. The owner of a unit for which a fidelity certificate has been granted does not have an entitlement to indemnity upon the happening of a claim event. There is no promise. 90 Rather, all that such an owner has is a right to have their claim considered. In Medical Defence Union Ltd v Department of Trade [1980] Ch 82 (Medical Defence Union), Megarry VC considered whether a contract between the Medical Defence Union Ltd and its members which gave the Council of the Union a discretionary power to conduct a member's defence of proceedings and indemnify a member in relation to any such proceeding was a contract of insurance. His Lordship held at 90 that it was not a contract of insurance as all a member had was: … the right to have his request for the union's help under these heads properly considered by the council or by one of its committees ... all that the member has by way of right is that his request should be properly considered and, of course, if it is granted, that the union should conduct the proceedings or indemnify him, or both. 91 Megarry VC rejected the contention that a member's right, while not a right to money or money's worth, was nonetheless of value and thus a benefit for the purposes of the definition of an insurance contract. It was held that while the right to make a request and have it properly considered was a benefit, such benefit did not amount to a contract of insurance as it was the obligation to pay on the happening of a specified event which was essential to the existence of a contract of insurance. 92 Megarry VC's reasoning has been applied in Australia. On each occasion, the hallmark of the determination that the agreement in question was not a contract of insurance was the fact that the party to whom a claim was made retained a discretion as to whether amounts would be paid out in response to a claim. 93 The trustees have such a discretion, which is explicit in the terms of the Deed, namely cll 2(b), 58(a)(4), 61 and 62. The discretion was a requirement of the approval of the Fund, pursuant to clause 4(m) of the Approval Criteria. In light of the breadth of the discretion, the fidelity certificates are not contracts, as there is no exchange of promises; a promise to consider whether to exercise a discretion in favour of a unit owner is not sufficient to be insurance. 94 In the alternative, s 54 of the IC Act has no work to do in these circumstances as it only applies to claims which are refused, "by reason only" of an act or omission of an insured. Here, the second claim was refused for a variety of reasons, including breach of the 90-day requirement. Thus section 54 has no effect in the present circumstances.

The applicant's submissions in reply 95 At the commencement of the applicant's oral reply, counsel handed up a document dated 18 December 2018 entitled "Applicant's Additional Submissions In Reply". Counsel explained that the document did not replace the applicant's written reply (which is summarised above) but responded to various matters which had arisen during the course of the hearing. Because of the prominence given by the applicant to the document, it is desirable to set it out in full: 1. What were the builder's obligations with respect to insurance or fidelity cover? (a) Section 37(3) of the 2004 Act required the builder to provide a residential insurance policy, a certificate of insurance, or a fidelity certificate for the work with the application for a commencement notice for the residential building work. (b) Section 90 specified the insurance requirements for the work. (i) The total amount of cover required by s 90(1)(b) was $10.2M ($85,000 "for each dwelling that forms part of the work"). (ii) The builder was not the owner of the land where the work was to be carried out. Section 90(1)(c) required the owner and the owner's successors in title to be insured for the period ending 5 years (the prescribed period at all material times) after the day a certificate of occupancy is issued for the work. (iii) Section 90(1)(f) to (h) specified the risks against which insurance must be provided. (iv) The owner of the land was a developer. Section 90(2) provided that insurance would comply with the section if it insures the owner's successors in title, even though it does not insure the owner. 2. How did the builder comply with his obligations? (a) The builder purchased Fidelity Cover for a 120-unit complex with a total expected project cost of $21.5M in consideration of payment of an amount of $105,315 (Ex 1 pp 58, 74). (b) The Fidelity Fund issued 120 fidelity certificates providing fidelity cover for the work to third party beneficiaries (Ex 1 p 75 et. seq.). 3. For what work was each fidelity certificate issued? (a) Fidelity Certificate (front page - Ex 1 p 75) (i) "applies to one dwelling only"; (ii) "issued subject to the requirements of the ACT Building Act 2004 and section 64 and in accordance with the terms and conditions of the…Trust Deed" (Section 64 is an erroneous reference to s 64 of the 1972 Act. Section 64 of the 2004 Act refers to completely unrelated matters - namely compliance with stop and demolition notices issued under Part 4 of the Act); (iii) Each certificate referred to a unit numbered from 1 to 120. (iv) "For the construction of: project unit, standard specification plus car space" (b) "subject to the requirements of the ACT Building Act and section 64" refers to the insurance requirements for residential building work in the 2004 Act; (c) Trust Deed, clause 58(a)(1) - residential building work in the ACT that is undertaken by a Fidelity Fund approved licensed builder; (d) Clause 4(d)(1) of the approval criteria (Ex 1 p 3) - residential building work in the ACT that is undertaken by a licensee or a holder of an owner-builder' licence. 4. Whom did each fidelity certificate cover, in respect of what loss and for what period? (a) Fidelity Certificate (front page - Ex 1 p 75): (i) "Name of Owners/Beneficiaries: B & T Developments" (which was the developer); (ii) "subject to the requirements of the ACT Building Act and section 64" - where the owner is a developer, s 90(2) provides that cover will comply with s 90(1)(c), (f), (g) or (h) if it insures the owner's successors in title, event (sic) though it does not insure the owner. (b) Fidelity Certificate (back page - Ex 1 p 396): (i) "Subject to the requirements of the ACT Building Act 2004 ("the Act") and the conditions of approval of this Fidelity Certificate, cover will be provided to the owner of the land where the work is to be carried out unless the construction is undertaken by the entity who owns the land or whose subsidiary or related company owns the land". (ii) "On and from 9 September 2003, different conditions apply where the owner of the land is a developer as defined in the Act". (Building (Residential Buildings Warranty) Amendment Act 2003 (ACT) (A2003-38) commenced on 9 September 2003 and replaced s 64(1)(c) and inserted new ss 64(1A) and (1B), later replaced by ss 90(1)(c), 90(2) and 90(3) of the 2004 Act). (c) The "Owner/Beneficiaries" entitled to make a claim under each fidelity certificate were the developer's successors in title with respect to the land on which the residential building work covered by the fidelity certificate was to be carried out - vis. "construction of a project unit, standard specification (sic), plus car space" identified as a unit numbered from 1 to 120. They were, respectively: (i) the unit owner with respect to the part of the work, so described, that was carried out on what became, after registration of the units plan, the parcel shown on the units plan, including the unit subsidiaries shown on the units plan as annexed to the unit (Ex 1 Tab 30; ss 9, 10, 12, 12A, 14, 15 and 32 of the Unit Titles Act 2001 (ACT)); (ii) the owners corporation with respect to the part of the work, so described, that was carried out on what became, after registration of the units plan, all parts of the parcel identified as common property on the units plan (Ex 1 Tab 30 ss 13 to 15 and 33 of the Unit Titles Act 2001 (ACT)). (d) Trust Deed, clause 60(a) - payments will only be made pursuant to a validly issued fidelity certificate and in accordance with ss 62 and 64 of the 1972 Act (replaced by ss 88 and 90 of the 2004 Act). (e) Trust Deed, clause 61(c) - the types of losses in relation to which a request may be made are only those losses which would be recoverable under an insurance policy under section 64(1)(f), (g) and (h) of the 1972 Act (replaced by s 90(1)(f), (g) and (h) of the 2004 Act). (f) Clause 4(f) of the approval criteria (Ex 1 pp 3-4) - where the owner is not the builder, the owner and the owner's successors in title of the land on which the residential building work is to be, is being or has been carried out, are covered by the fidelity certificate ("owner" has the same meaning as in the Act) for the period ending at the "expiration of the specified period" in respect of loss stated in clause 4(i) - being losses that would be recoverable under an insurance policy under ss 58E(1)(f), (g) and (h) of the 1972 Act (renumbered s 64(1)(f), (g) and (h) and replaced by s 90(1)(f), (g) and (h) of the 2004 Act). 5. What amount was an owner entitled to claim? (a) Fidelity Certificate (back page - Ex 1 p 396) - (i) "The sum covered under the Fidelity Certificate in respect of each dwelling that forms part of the work is $85,000 or an amount equal to the cost of the work, whichever is the lesser. The Fidelity Fund is not liable for the first $500 of each claim". (ii) "If more than one request is made in relation to a Fidelity Certificate, the total amount that can be paid to an owner must not exceed the amount stated in this Fidelity Certificate and in accordance with the Act". (b) Trust Deed, clause 61 - Trustees may pay an amount up to the maximum amount stated on the owner's fidelity certificate for a part or the whole or any loss that the owner has incurred. (c) Trust Deed clause 61(a) and (b) - only the amount stated on the fidelity certificate can be requested by the Owner and, if there is more than one request, the total amount paid to an owner must not exceed the amount stated on the fidelity certificate. (d) Clause 4(d)(3) of the approval criteria - at least the minimum amount of insurance cover that is required to be provided by an insurance policy under s 58E(1)(b) of the 1972 Act (renumbered s 64(1)(b) and replaced by s 90(1)(b) of the 2004 Act) - vis. "the total amount of insurance cover of at least the amount prescribed under the regulations, or the cost of the work, whichever is less, for each dwelling that forms part of the work" (the prescribed amount being $85,000 at all material times). 6. Within what period must a claim be made? (a) Fidelity Certificate (back page, Ex 1 p 396) (i) "A claim against the Fidelity Fund will be subject to the premise that section 90(1)(i) of the 2004 Act is satisfied. (ii) "The owner must exhaust all relevant rights of action and other legal remedies against the builder…prior to lodging a claim against the Fidelity Fund"; (iii) "The owner after becoming aware of the existence of grounds for a claim must within 90 days lodge such a claim with the Fidelity Fund" (b) Section 90(1)(i) - an insurance policy issued for residential building work complies with s 90 if it provides that a claim under it may only be made within the period prescribed under the regulations, or a stated longer period after the claimant becomes aware of the existence of grounds for the claim (prescribed period was 90 days at all material times). (c) Trust Deed clause 60(b) - for the purpose of assessment of a claim made under a validly issued fidelity certificate, a claim made pursuant to s 62 of the 1972 Act (replaced by s 88 of the 2004 Act) "will be made subject to the premise that s64(1)(i) (sic) of the 1972 Act (replaced by s 90(1)(i) of the 2004 Act) is satisfied. (d) Trust Deed clause 61(d) - "require that a request be made within the period that is the prescribed period for the purposes of s 64(1)(j) of the 1972 Act after the owner becomes aware of the existence of the grounds for making a request" (Section 64(1)(j) refers to an approved form of policy. This is an incorrect reference to s 64(1)(i), later replaced by s 90(1)(i) of the 2004 Act). (e) Trust Deed clause 64(a) and (b) - claim by a fidelity certificate holder must be made in writing within 90 days of becoming aware of a possible event that may cause a payment from the Fidelity Fund in accordance with the Fidelity Fund claim form. (f) Fidelity Fund Claim Form, "Notes for Claimant" (1) - "For any claims against the Fidelity Fund, the owner must exhaust all relevant rights of action and other legal remedies …prior to lodging a claim against the Fidelity Fund". "Additional Information" (9) - "In reference to 'Notes for Claimant' (1), provide details evidence (sic) that you have undertaken to resolve the situation prior to preparing this claim" (Ex 1 p 394). (g) Clause 4(j) of the approval criteria (Ex 1 p 4) - request must be made within the period that is the prescribed period for the purposes of s 58E(1)(j) of the 1972 ACT (renumbered s 64(1)(i) and replaced by s 90(1)(i) of the 2004 Act) after the owner becomes aware of the existence of the grounds from (sic) making the request (the prescribed period being 90 days at all material times). 96 During the course of his closing oral submissions in reply, counsel for the applicant raised for the first time a contention that there was a contract between the builder and the fidelity fund involving the issue of the 120 fidelity certificates and that the contract conferred a benefit on third parties, namely the unit owners. He said that there was "a contract under which the fidelity certificates were to be issued to provide cover for work to third party beneficiaries on the terms and conditions stated in, and incorporated by referencing, the fidelity certificates". The contention was left largely undeveloped.

(a) Are the fidelity certificates an independent and standalone source of legal rights and obligations? 97 A core issue is whether legal rights and obligations are independently created by the fidelity certificates, as contended by the applicant. Although I accept that the issue and entitlement to a fidelity certificate is a condition to the making of a payment from the Fidelity Fund, I do not accept that fidelity certificates provide an independent and standalone source of legal rights and obligations. The fidelity certificates are an important practical document within the framework of the Fidelity Fund Scheme, but the relevant legal rights and obligations are primarily to be found in the 2004 Act and related legislative instruments, as well as the Deed. The fidelity certificates are important because they protect consumers by informing them about various aspects of the Fidelity Fund Scheme. They also stipulate the maximum amount which is payable to an owner from the Fidelity Fund, as well as the excess which is payable (matters which are not specified in the Deed, however, cl 58(a)(4) requires such matters to be stated in each fidelity certificate). But the fidelity certificates are not an independent or isolated source of enforceable legal rights and obligations. I will now state my reasons for this view. 98 First, as the legislative history demonstrates, the ultimate source of legal rights and entitlements in respect of the Fidelity Fund Scheme are to be found in the 1972 Act, which was then replaced by the 2004 Act (see [31]-[45] above) and the related instruments. The essential relevant features of these measures are as follows (references to the 1972 Act are to provisions immediately prior to their renumbering in Republication No 7): (a) a "fidelity fund scheme means a scheme for a building industry fidelity fund established under a trust deed" (s 58A of the 1972 Act and s 84 of the 2004 Act); (b) the Minister (later the Planning and Land Authority) was empowered to approve a fidelity fund scheme (s 58H of the 1972 Act and s 96 of the 2004 Act); (c) where a building approval had been issued for building work and a licensed builder has been engaged to do the work, the builder is required to apply for a commencement notice, which application has to be accompanied either by a residential building insurance policy for the work, a certificate issued by an approved insurer stating that the insurer has insured the work under a residential building insurance policy or a fidelity certificate for the work issued by the trustees of an approved scheme (s 34(1)(g) of the 1972 Act and s 37(3) of the 2004 Act); (d) a fidelity fund scheme cannot be approved unless the application for approval is accompanied inter alia by a copy of a trust deed which is certified to be in accordance with the approval criteria (s 58H(2)(b)(i) of the 1972 Act and s 96(2)(b)(i) of the 2004 Act); (e) a fidelity fund scheme could only be approved if the scheme complied with the approval criteria (s 58H(3) of the 1972 Act and s 96(3) of the 2004 Act). (f) the Minister was empowered by s 58K of the 1972 Act (later, s 99 of the 2004 Act) to determine the approval criteria with which a fidelity fund scheme had to comply to become an approved scheme. Those criteria had to include requirements in relation to inter alia the building work for which a fidelity certificate may be issued or must not be issued, the people who could or could not make claims under a fidelity certificate and applications for claims under fidelity certificates issued under the scheme (s 58K(e), (f) and (g) of the 1972 Act and s 99(2)(e), (f) and (g) of the 2004 Act); (g) as noted above, the Minister's determination of the approval criteria here took the form of a disallowable instrument (see [25] above); (h) prudential standards were made by the Minister which had to be complied with by an approved scheme and it was an offence for the trustees of an approved scheme to fail to ensure that the scheme complied with relevant prudential standards (ss 58O and 58P of the 1972 Act and ss 103 and 104 of the 2004 Act); (i) the relevant clauses of the Deed here which was certified as being in accordance with the Approval Criteria are summarised in [49]-[59] above; (j) "fidelity certificate" means a certificate issued for building work by the trustees of an approved scheme (s 58A of the 1972 Act and s 84 of the 2004 Act); and (k) the relevant clauses of the Deed here relating to fidelity certificates are summarised in [56]-[58] above and the relevant parts of the fidelity certificates in these proceedings are highlighted in [61] to [63] above. 99 Secondly, a fidelity certificate issued under a fidelity fund scheme which is not an approved fidelity fund scheme under the legislative regime would not satisfy the builder's obligation under either s 34(1)(g) of the 1972 Act or s 37(3) of the 2004 Act having regard to the definition of a "fidelity certificate" in s 58A of the former Act and s 84 of the latter Act (see [98(j)] above). 100 Thirdly, the mandatory terms and contents of a fidelity certificate are stipulated by relevant parts of both the Approval Criteria and the Deed (see [46] and [49] ff above). Two of the explicit objects of the Deed (cl 2) are the imposition of an obligation on the trustees to ensure that an approved scheme is maintained solely: (a) to provide a fidelity certificate to an owner in accordance with the Act and the trust deed; and (b) for the making of a discretionary payment of an amount to an owner pursuant to a fidelity certificate in accordance with the Act and the trust deed (emphasis added, see [50] above). 101 As noted above, the terms and form of fidelity certificate are set out in cl 58 of the Deed (see [58] above). 102 Fourthly, although there are several references in the Deed to the concept of a payment being made from the Fidelity Fund "pursuant to a validly issued certificate" (see, for example, cl 60(a)), this does not mean that the certificate is a standalone source of that power. Significantly, cl 60(a) refers to a payment only being made "pursuant to a validly issued fidelity certificate and in accordance with sections 62 and 64 of the Act" (emphasis added). The references to ss 62 and 64 are references to those provisions in the 1972 Act. As highlighted above, the former provision relates to statutory warranties and the latter relates to residential building work insurance. I accept the trustees' submission that this clause of the Deed incorporates those statutory provisions. This is reinforced by the terms of cl 60(b) of the Deed (see [59] above), which states that, "[f]or the purposes of assessment of a claim made under a validly issued fidelity certificate, a claim made pursuant to 62 (sic) of the Act will be made subject to the premise that section 64(1)(i) of the Act is satisfied". The latter provision is to the effect that a residential building work insurance policy, to be compliant with s 64, must provide that a claim under the policy may only be made within the prescribed period (or some specified longer period) after the claimant becomes aware of the existence of grounds for the claim. The incorporation into the Deed of various provisions in the 1972 Act is further reflected in cl 61(c) and (d) (see [59] above). Finally, as noted in [60] above, further support is provided by cll 4 and 8 of the Deed, which make abundantly clear that the Fidelity Fund the subject of the Deed is established pursuant to the 1972 Act and has to be administered pursuant to disallowable instruments made under Pt 6 of that Act. 103 Fifthly, it is notable that each fidelity certificate in this proceeding expressly states that it is issued "subject to the requirements of the ACT Building Act 2004 and section 64, and in accordance with the terms and conditions set out in the Master Builders Fidelity Fund Trust Deed (see [61] above). I reject the applicant's submission (see [74] above) that the effect of this statement is that the provisions of the Deed were not incorporated into the fidelity certificates so as to make cover under such a certificate subject to the terms and conditions in the Deed. 104 Sixthly, under the heading "General Conditions of Cover" on the second page of the fidelity certificates, it is expressly stated that cover will be provided to the owner of the land where the work is to be carried out but subject to inter alia "the requirements of the ACT Building Act 2004 ('the Act'), and the conditions of approval of this Fidelity Certificate…" (see [63] above). This statement properly acknowledges the primacy of the 2004 Act. I reject the applicant's submission that the reference to "conditions of approval" is a reference to the special conditions which are referred to on page one of the certificate (see [63] above). In fact no such special conditions are identified, as is reflected in the entry "n/a". More importantly, however, I consider that the reference to "conditions of approval" is a reference to the Approval Criteria and not to any conditions set out within the fidelity certificates themselves.

(b) The first claim 105 As previously noted (see [14] above), the trustees' stated grounds for rejecting the first claim were that: (a) the basis for the claim did not arise within the time period: (i) set out in the relevant legislation; or (ii) within the currency of any of the fidelity certificates for Elara; and (b) the claims themselves were not submitted within the time period: (i) set out in the relevant legislation; or (ii) within the currency of any of the fidelity certificates for Elara. 106 For the following reasons, the ground described in 105(i)] was a valid ground for rejecting the first claim. First, as noted above, it was common ground that the period of cover under the Fidelity Fund Scheme expired on 26 May 2012, being one day after the five year period following the issue of a certificate of occupancy for each unit. The relevant question therefore is what were the risks that were covered during the period of coverage? The answer to that question lies in the proper construction of s 90(1)(f), (g) and (h) of the 2004 Act. That is because, under cl 61(c) of the Deed, the types of losses are those which could be recoverable under s 64(1)(f), (g) and (h) of the 1972 Act (originally, s 58E(1)(f), (g) and (h) of that Act before its renumbering), which were then replaced by s 90(f), (g) and (h) of the 2004 Act. This is also consistent with cll 4(f) and (i) of the Approval Criteria (see [46] above). Under those clauses where, as here, the owner is not the builder, the owner (as defined) and the owner's successors in title of the land on which the residential building work has been carried out are entitled to make a request on the Fidelity Fund in respect of losses which would be recoverable under s 58E(1)(f), (g) and (h) of the 1972 Act, which clauses all relate to residential building insurance but were used by way of cross-referencing in establishing the Fidelity Fund Scheme. 107 Secondly, I consider that, properly construed, the risks which are covered under the Fidelity Fund Scheme are the same as those which are covered under a residential building work insurance policy as provided for in s 90 of the 2004 Act. Those risks are: (a) the risk (which, in the case of the Fidelity Fund Scheme, is perhaps more accurately described as a condition to the trustees making a payment from the Fidelity Fund) of the owner or the owner's successor in title being unable to enforce or recover under the relevant residential building contract against the builder because of the insolvency, disappearance or death of the builder (i.e. s 90(1)(f)); and (b) the risk of loss resulting from a breach of statutory warranty (i.e. s 90(1)(g)); and/or (c) the risk of loss resulting, because of the builder's negligence, from subsidence of the land whether the residential building work was carried out (i.e. s 90(1)(h)). 108 In my view, in the case of the Fidelity Fund, the effect of these provisions is that the trustees' obligation to consider a claim or request for payment from the Fidelity Fund turns on the condition described in [107(a)] crystallising within the period of cover specified in s 90(1)(c) of the 2004 Act, and one or other of the risks described in [107(b) or (c)] also crystallising within the period. The essential point of the condition in s 90(1)(f) is the fact that the owner or the owner's successor in title is unable to recover from the builder under the residential building contract, including in respect of a breach of statutory warranty, because the builder has become insolvent, disappeared or died. In my view, the event which causes the inability to recover from the builder, namely the insolvency, death or disappearance of the builder, must itself occur within the five year period of cover and it is insufficient that one or other of the risks in s 90(1)(g) or (h) occurs during that period. This construction makes common sense and is consistent with the text. As noted above, the period of cover is five years after a certificate of occupancy was issued in respect of the work. Equally importantly, the applicant's contrary position would give rise to remarkable and presumably unintended consequences. Under that position, a claim could be made against the Fidelity Fund say 20, 30 or 40 years after the statutory warranties expired, when the builder in question either became insolvent or died. In my respectful view, much clearer words would be required to bring about such an improbable and impractical outcome. It is no answer to point to the trustees' discretions if a claim was made at such times. How are the trustees to distinguish between a claim which is made say five years after expiration of the statutory warranty period and 10, 20, 30 or 40 years afterwards? The period of cover is of such central importance that it is to be expected that the period will be identified in the instruments relating to the establishment and operation of the Fidelity Fund Scheme, and not left open-ended to be determined on a case by case basis by the trustees in the exercise of their discretions. 109 In the particular circumstances here, the builder did not become insolvent until 20 July 2017, which is well outside the period of cover. Accordingly, the condition to the trustees making a discretionary payment from the Fidelity Fund, namely that the owner could not enforce or recover under the residential building contract against the builder because of the builder's insolvency, was not satisfied because the builder's insolvency occurred outside the period of cover, which expired on 26 May 2012. It matters not that the loss referred to in s 90(1)(g) (or (h)) crystallised within the period of cover. This has no relevance unless the condition specified in s 90(1)(f) also crystallises within that time. 110 Thirdly, and for completeness, despite the emphasis placed by the applicant on the terms of the fidelity certificates as allegedly giving rise to independent and separate legal rights and obligations (which I have rejected for reasons given above), it is notable that, notwithstanding the heading "Losses Covered by the Fidelity Fund" on page 2, the information contained thereunder does not in fact describe the losses which are covered by the Fidelity Fund (see [63] above and [113] below). The losses covered by the Fidelity Fund Scheme are as described in the relevant parts of the 2004 Act, the Approval Criteria and the Deed. 111 For the following reasons, the ground described in [105(a)(ii)] above was also a valid ground for the trustees to reject the first claim. 112 First, the cover to which the fidelity certificates relate is no different from that provided for under the broader Fidelity Fund Scheme, as is reflected in the relevant provisions of the 2004 Act, the various disallowable legislative instruments made under that legislation (including the Approval Criteria) and the Deed. This is made clear in the explicit statement on the front page of each of the fidelity certificates that the certificate was issued "subject to" the requirements of the 2004 Act and "in accordance with" the terms and conditions in the Deed (see [59] above). Accordingly, consistently with the legal concept of a stream not rising higher than its source, the fidelity certificates should be construed in a manner which has them consistent with other relevant parts of the broader Fidelity Fund Scheme. 113 Secondly, as noted above, although the fidelity certificates each has a heading which states "Losses Covered by the Fidelity Fund" (see [63] above), the matters which then appear under that heading do not in fact describe that coverage, but rather simply record that a payment from the Fidelity Fund would only be made if a valid fidelity certificate has been issued in accordance with the 2004 Act. The information under the heading also repeats the requirement that a claim be made within the time period specified in s 90(1)(i) of the 2004 Act. 114 The fidelity certificates should not be construed inconsistently with the legislative scheme, related instruments and the Deed, as providing for a longer period of cover than that stipulated in those instruments. 115 For the following reasons, it necessarily follows that the ground described in (b)(i) was also a valid ground for the trustees to reject the first claim, which was submitted on 18 August 2017. 116 First, in accordance with inter alia cl 64 of the Deed, a claim by a fidelity certificate holder had to be made in writing within 90 days of the holder becoming aware of a possible event that may cause a payment from the Fidelity Fund (see [59] above). For the reasons given above, a condition of the trustees making a payment in the particular circumstances of this case is that the builder became insolvent during the period of cover. In addition, the trustees' obligation to consider making a payment depended on one of the risks referred to in s 90(g) or (h) of the 2004 Act having crystallised during the period of cover. As previously mentioned, the applicant commenced proceedings in the Supreme Court of the Australian Territory on 17 May 2013 against the builder for breach of statutory warranties. Plainly, therefore, the applicant was aware by at least that time of the builder's potential liability to it. There was, however, no point in the applicant lodging a claim or request under the Fidelity Fund Scheme because, at that time, the "condition" in s 90(1)(f) of the 2004 Act and cl 61(d) of the Deed was incapable of satisfaction. This was because, at that time, the builder was not insolvent. Accordingly, even if one or other of the risks referred to in s 90(g) or (h) had crystallised before the period of the statutory warranties expired, no valid claim could be made, even within the 90 day period from the owner becoming aware of the crystallisation of either of those risks, because the condition to coverage in s 90(1)(f) had not crystallised. 117 Secondly, I do not accept the applicant's contention that the 90 day period for lodging a claim only commenced to run after the applicant had exhausted all avenues of recovery against the builder, with the consequence that time only commenced to run on 20 July 2017 when the builder went into liquidation. The essential flaw in this contention is that it ignores the need for the condition in s 90(1)(f) to crystallise during the period within which the statutory warranties operate. 118 For substantially similar reasons to those given in [112] to [114] above, I consider that the ground described in [105(b)(ii)] was also a valid ground for rejecting the first claim. 119 As noted in [85(c)] and [86] above, at the hearing the trustees raised additional grounds for rejecting the first and second claims. It is unnecessary to determine the validity of those additional grounds, having regarding to my upholding of the other grounds.

(c) The second claim 120 The trustees' grounds for rejecting the second claim was set out in [17] above. In circumstances where the second claim was made even later than the first claim, it necessarily follows that the trustees were entitled to reject the second claim on the same bases upon which they rejected the first claim (see [105] above). It is unnecessary to deal with the additional grounds relied upon by the trustees both at the time the second claim was rejected and also at the hearing (see [17] and [86]-[88] above). It is also unnecessary to address the issue relating to the validity of the assignments to the owners corporation as described in [16] above, or whether the owners corporation is entitled to claim under the fidelity certificates. Those issues do not require determination because they cannot affect the reasons given above for upholding the trustees' grounds for rejecting the first and second claims.

(d) Is there a contract of insurance? 121 As noted above, the applicant contended that, in the light of s 54(1) of the IC Act, the Deed and fidelity certificates should not be construed so as to authorise the trustees to reject an otherwise ostensibly valid claim simply because it was submitted outside the 90 day period. This contention turns on the Court finding that the fidelity certificates were contracts of insurance. For the following reasons, I reject that contention. 122 First, the contention turns on the proposition that either or both the first and second claims were valid claims. For the reasons given above, that contention is rejected. 123 Secondly, assuming (without deciding) that a fidelity certificate constitutes a contract, there is no contract of insurance for reasons which I will explain shortly. The legal relationship between the builder or developer and the Fidelity Fund (as well as the legal relationship between any owner and their successors in title) results from the statutory regime created by the 2004 Act (see, by way of analogy, Lee v Phair, unreported, NSWSC, BC 9605123, 31 October 1996 (Lee) at 10-13 per Cohen J). If there is a contract, the terms and conditions are undoubtedly shaped by the Deed and the relevant legislative instruments. It is, however, unnecessary to determine the threshold issue as to whether or not there is a contract because the fundamental issue is whether, in any event, there is a contract of insurance. For the purpose of determining that issue, I will assume, without deciding, that a fidelity certificate is a contract, as contended by the applicant. 124 The parties were agreed that the relevant principles governing the issue are set out in cases such as Prudential Insurance and Todd. Helpful guidance is also provided in other cases, including Medical Defence Union at 89 ff per Sir Robert Megarry VC; Lee at 10-13 per Cohen J; Barclay MIS Group of Companies v Australian Securities and Investments Commission [2002] FCA 1606; 125 FCR 374 (Barclay MIS) at [30], [42]-[43] per Dowsett J; Metropolitan Fire and Emergency Services Board v Capricorn Mutual Limited [2007] VSC 413 (Capricorn Mutual) at [59]-[65] per Williams J and The Hancock Family Memorial Foundation Ltd v Fieldhouse (No 3) [2010] WASC 223; 16 ANZ Ins Cas 61-869 (Fieldhouse) at [48]-[61] per Le Miere J. 125 These authorities identify the following three essential elements for there to be a contract of insurance: (a) the contract must provide that the assured will become entitled to something on the occurrence of some event, which entitlement reflects an obligation on the insurer to give some benefit to the assured; (b) the event must be one which involves some element of uncertainty; and (c) the assured must have an insurable interest in the subject matter of the contract. 126 As Sir Robert Megarry VC said in Medical Defence Union at 90, these three elements may not be exhaustive or comprehensive, but the presence of all three elements indicates that a contract is likely to be a contract of insurance, and the absence of any one of the three elements indicates that a contract is likely not to be a contract of insurance. 127 Cases such as Lee, Capricorn Mutual, Fieldhouse and Barclay MIS all demonstrate how the first element may not be present if the putative insurer has a discretion whether or not to pay any amount to the insured. Moreover, this element is not satisfied where there is vested in the putative insurer a discretion whether or not to make a payment even if the discretion is one which must be exercised reasonably (see, for example, Barclay MIS at [42] and [43] per Dowsett J; Capricorn Mutual at [72] per Williams J and Fieldhouse at [59] per Le Miere J). As stated in Mann's Annotated Insurance Contracts Act, 7th ed at [10.50], a "discretionary scheme for indemnity is not a contract of insurance" (citing inter alia Lee). 128 In my view, there is no obligation on the trustees of the Fund to pay an amount to the applicant even where a valid request or claim has been made. The trustees have a discretion in the matter, not only as to whether to pay any amount at all, but also as to the actual amount which might be paid, subject to the relevant cap. It may be accepted that the applicant has a right to have its claim considered by the trustees but this alone is insufficient to satisfy the first element (see, for example, Medical Defence Union at 90; Barclay MIS at [40] and Fieldhouse at [59]). 129 The trustees' discretion in respect of these matters is made explicit in the terms of the Approval Criteria (cl 4(4)) and the Deed (cll 2(b), 58(a)(4) and 61). 130 For the reasons given above, I do not consider that the fidelity certificates themselves are an independent or isolated source of any relevant legal rights and obligations. The existence of a validly issued certificate is an essential condition to an owner receiving a payment under the Fund, as is made clear in the wording of the certificates issued in this case, but any fidelity certificate needs to be read and understood in the context of relevant provisions of the 2004 Act and the instruments made thereunder, including the Approval Criteria, and the Deed. Consistently with the general legal concept that a stream cannot rise higher than its source, fidelity certificates should not be construed as imposing legal duties or obligations in circumstances where the parent instruments make abundantly clear that the relevant powers are discretionary and not mandatory.

Conclusion 131 For these reasons, the amended originating application will be dismissed, with costs. I certify that the preceding one hundred and thirty-one (131) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Griffiths.