Vero Insurance Limited v Owners of Strata Plan No 69352 & Ors

Court of Appeal (NSW)|2011-05-18|Before: Allsop P, Basten JA, Mr J

BACKGROUND 13The trial of the preliminary question in the Tribunal was conducted on the basis of an extremely sparse statement of agreed facts (" Agreed Facts "). However, it appears that there was no dispute about a number of factual matters that were drawn to the Tribunal's attention by way of the parties' written and oral submissions. The following account includes facts as to which there was no dispute. 14On or about 12 February 2001, the Insurer issued the Policy to a company within the Meriton group of companies. While the precise identity of that company was not established by the evidence, nothing turns on that question and I shall refer to the company as " Meriton ". 15The Policy related to the residential component of a large development which was to take place on land owned by Meriton on the Pacific Highway, Chatswood. At the same time, the Insurer issued certificates of insurance in respect of each of the 201 residential units to be constructed as part of the development. Each certificate was identical, except for the notation of the relevant unit and certificate numbers. 16A contract of insurance complying with the Home Building Act 1989 (" HB Act ") and a certificate of insurance evidencing the contract were required before the commencement of any residential building work on behalf of Meriton: HB Act s 92(1). It can be inferred that the builder engaged by Meriton commenced the residential building work shortly after the Policy was issued. 17The commercial lots in the development were created in a strata scheme registered on 18 December 2002. The 201 residential lots in the development were created by the registration of a second strata scheme on 7 January 2003. 18The Owners Corporation was created on registration either of the first or second strata scheme (the evidence is not clear on this point): Strata Schemes Management Act 1996 (NSW) (" SSM Act "), s 8(1). The registration of the strata plan had the effect that the common property in the plan vested in the Owners Corporation for the estate or interest evidenced by the register: Strata Schemes (Freehold Development) Act 1973 (NSW) (" SSFD Act "), s 18(1). No certificate of insurance was, however, ever issued to the Owners Corporation. 19On 27 July 2006, the Owners Corporation notified the Insurer of a claim for the remedying of defective work on the common property. The allegedly defective work related to airconditioning, pressurisation of a staircase and fire safety requirements. The Owners Corporation claimed $85,137.50. (The Agreed Statement says that this was the amount claimed by the Owners Corporation. Other documents suggest that the claim was slightly higher, but nothing turns on the discrepancy.) 20The Insurer rejected the claim, relying on one of the Standard Terms of the Policy which states that: "You must pay the first $500.00 of each claim." " You " is defined in the Standard terms to mean: "The person on whose behalf the work under the contract is being done, together with any successor in title to that person ." (Emphasis added.) 21The Insurer argued at the Tribunal that the Policy had been taken out on behalf of each of the 201 lot proprietors in the residential strata scheme and that the Owners Corporation had made a claim for indemnity on behalf of each of the proprietors. The relevant excess was therefore to be determined by multiplying the number of lots insured (201) by the excess ($500). Accordingly, the excess was $100,500, which exceeded the amount of the claim by the Owners Corporation. 22The Owners Corporation appealed to the Tribunal pursuant to ss 48A(2) and 48 I of the HB Act against the Insurer's decision under the contract of insurance . The Owners Corporation sought an order from the Tribunal that the Insurer pay it the sum of $87,612.50 under the Policy. (As I have pointed out, nothing turns on the precise amount claimed.) 23The parties agreed that the Tribunal should decide a preliminary question on the basis of the Agreed Statement and other undisputed facts. The preliminary issue identified for determination was framed in somewhat obscure terms, as follows: "What is the amount of excess due in relation to the matters the subject of these proceedings?" There seems to have been no dispute, at least for the purposes of the preliminary question, that the contractor who had performed the residential building work on Meriton's behalf was either insolvent or had disappeared. 24The Tribunal made the following determination on the preliminary question: "The excess payable by the [O]wners [C]orporation is the first $500.00 of the whole claim of $85,137.50." 25As I have noted, the Insurer's appeal to the District Court was dismissed on a ground that the Owners Corporation does not seek to uphold in this Court.

STATUTORY FRAMEWORK 26Before considering the terms of the Policy, it is convenient to refer to the principal legislative provisions bearing on the issues argued by the parties. The case turns on the interplay between the HB Act , the SSM Act and the SSFD Act . Not all the provisions referred to below were mentioned in argument. 27The outline that follows is of the legislation in force in February 2001, when the Policy was issued by the Insurer to Meriton. With the exceptions noted, there have been no substantive changes to the provisions referred to below since that time.

Strata Schemes Management Act 1996 28An owners corporation is established on registration of a strata plan for a strata scheme: SSM Act , s 8(1). The owners corporation has the principal responsibility for management of the scheme: s 8(2). For these purposes, the owners of the lots from time to time in a strata scheme constitute a body corporate under the name " The Owners - Strata Plan No X ": s 11(1). 29An owners corporation has, for the benefit of the owners, the management and control of the use of the common property of the strata scheme concerned: s 61(1). In particular, the owners corporation has responsibility for maintaining and repairing the common property of the strata scheme: s 61(2)(a). Its duties include:

properly maintaining and keeping the common property in a state of good and serviceable repair (s 62(1)); and
renewing or replacing fixtures or fittings comprised in the common property (s 62(2)(b)). 30" Common property " is defined in Part 1 of the Dictionary to the SSM Act to mean: "so much of a parcel as from time to time is not comprised in any lot." 31Section 227 of the SSM Act provides as follows: "(1) This section applies to proceedings in relation to common property. (2) If the owners of the lots in a strata scheme are jointly entitled to take proceedings against any person or are liable to have proceedings taken against them jointly, the proceedings may be taken by or against the owners corporation. (3) Any judgment or order given or made in favour of or against the owners corporation in any such proceedings has effect as if it were a judgment or order given or made in favour of or against the owners. (4) A contribution required to be made by an owner of a lot to another owner in relation to such a judgment debt is to bear the same proportion to the judgment debt as the unit entitlement of the contributing owner bears to the aggregate unit entitlement." However, s 226(1) provides, inter alia, that nothing in the SSM Act derogates from any rights or remedies that an owners corporation may have in relation to the common property apart from the SSM Act .

Strata Schemes (Freehold Development) Act 1973 32Land, including the whole of a building, may be subdivided into lots and common property by the registration of a plan as a strata plan: SSFD Act , s 7(2). " Common property " is defined in the same terms as in the SSM Act : s 5(1). 33Subject to presently irrelevant exceptions, a plan illustrating a proposed subdivision must not be registered as a strata plan of subdivision unless accompanied by a schedule showing the proposed unit entitlement of each proposed lot and the proposed aggregate unit entitlement: s 11(a). 34The following provisions of Div 2 of Part 2 of the SSFD Act (Common Property) are relevant to the issue arising in the present case: " 18 Vesting of common property on registration of strata plan (1) Upon registration of a strata plan any common property in that plan vests in the body corporate for the estate or interest evidenced by the folio of the Register comprising the land the subject of that plan but freed and discharged from any mortgage, charge, covenant charge, lease, writ or caveat affecting that land immediately before registration of that plan. ... 20 Body corporate to hold common property as agent for proprietors The estate or interest of a body corporate in common property vested in it or acquired by it shall be held by the body corporate as agent: (a) ... (b) where different persons are proprietors of each of two or more of the lots the subject of the strata scheme concerned - for those proprietors as tenants in common in shares proportional to the unit entitlements of their respective lots. 21 Common property to be dealt with only under this Act Common property shall not be capable of being dealt with except in accordance with the provisions of this Act. ... 24 Dealings with lots include common property (1) In any dealing or caveat relating to a lot, a reference to that lot includes a reference to any estate or interest in common property which is vested in the body corporate as agent for the proprietor of that lot without express reference to the common property and without that dealing or caveat being recorded in the folio of the Register comprising the common property. (2) The beneficial interest of a proprietor of a lot in the estate or interest in the common property, if any, held by the body corporate as agent for that proprietor shall not be capable of being severed from, or dealt with except in conjunction with, the lot."

Home Building Act 1989 35Part 2C of the HB Act incorporates statutory warranties in contracts to perform certain " residential building work ". That expression is defined to include work involved in the construction of a " dwelling ": s 3(1). " Dwelling " is defined (s 3(1)) to mean: "a building or portion of a building that is designed, constructed or adapted for use as a dwelling (such as a detached or semi-detached house, transportable house, terrace or town house, duplex, villa-home, strata or company title home unit or residential flat). · It includes any swimming pool or spa constructed for use in conjunction with a dwelling and such additional structures and improvements as are declared by the regulations to form part of a dwelling. · It does not include buildings or portions of buildings declared by the regulations to be excluded from this definition." 36The Home Building Regulation 1997 ("HB Regulation"), reg 5, declares certain structures and improvements to form part of a dwelling when constructed for use in conjunction with a dwelling. They include the following: "(a) parts of a building containing more than one dwelling (whether or not the building is also used for non-residential purposes), being stairways, passageways, rooms, and the like, that are used in common by the occupants of those dwellings, together with any pipes, wires, cables or ducts that are not for the exclusive enjoyment of any one dwelling, ... (c) if non-residential parts of a building containing one or more dwellings give support or access to the residential part - the structural elements of the non-residential parts giving such support or access, ... (e) detached garages and carports, ... (j) driveways, paths and other paving,' (k) retaining walls, ... (m) fences and gates." The declaration in reg 5 is capable of applying to structures and improvements that form part of the common property in a strata scheme. See, too, reg 7. 37Section 18B of the HB Act implies a number of warranties by the holder of a contractor licence, or a person required to hold such a licence, in every contract to do residential building work: s 18B. The principal warranty is that (s 18B(a)): "the work will be performed in a proper and workmanlike manner and in accordance with the plans and specifications set out in the contract ..." 38Section 18D of the HB Act provides for the statutory warranty to have an extended operation as follows: "A person who is a successor in title to a person entitled to the benefit of a statutory warranty under this Act is entitled to the same rights as the person's predecessor in title in respect of the statutory warranty ...." (Emphasis added.) However, proceedings for breach of the statutory warranty must be commenced within seven years after completion of the work: s 18E(a). 39Part 6 of the HB Act creates a compulsory home warranty insurance scheme. Sections 92 and 96 relevantly provide as follows: " 92 Contract work must be insured (1) A person must not do residential building work under a contract unless: (a) a contract of insurance that complies with this Act is in force in relation to that work, and (b) a certificate of insurance evidencing the contract of insurance, in a form prescribed by the regulations, has been provided to the other party (or one of the other parties) to the contract. ... 96 Insurance in relation to residential building work not carried out under contract (1) A person must not do residential building work otherwise than under a contract unless a contract of insurance that complies with this Act is in force in relation to that work. (2) A person who does residential building work otherwise than under a contract must not enter into a contract for the sale of land on which the residential building work has been done, or is to be done, unless a certificate of insurance evidencing the contract of insurance required under this Part for that work, in a form prescribed by the regulations, is attached to the contract of sale. Maximum penalty: 100 penalty units. (2A) A developer who does residential building work must not enter into a contract for the sale of land on which the residential building work has been done, or is to be done, unless a certificate of insurance evidencing the contract of insurance required under this Part for that work, in a form prescribed by the regulations, is attached to the contract for sale. ..." 40Section 96(2A) of the HB Act was repealed by the Home Building Amendment Act 2000, Sch 1 [3], which came into force on 30 November 2001. However, s 96(2A) was, in substance, re-enacted as s 96A of the HB Act : Home Building Amendment Act 2000, Sch 1 [4]. 41Section 99 specifies the requirements for a contract of insurance in relation to residential building work. Section 99(1) provides that a contract required by s 92 must insure: "(a) a person on whose behalf the work is being done against the risk of loss resulting from non-completion of the work because of the insolvency or death of the contractor or because of the fact that, after due search and inquiry, the contractor cannot be found, and (b) a person on whose behalf the work is being done and the person's successors in title against the risk of loss arising from a breach of a statutory warranty in respect of the work." (Emphasis added.) 42Section 99 was amended by the Home Building Amendment (Insurance) Act 2002 , Sch 1 [3], [4]. While the section has been recast, it continues to require insurance for a person on whose behalf work is being done and that person's successors in title against the risk of loss arising from a breach of the statutory warranty. However, the risk is limited to cases of the insolvency, death or disappearance of the builder: see now s 99(1)(b). 43Section 99(2)(a) provides that s 99(1) does not require a developer on whose behalf residential building work is being done to be insured. Section 99(2)(a) was introduced by the Home Building Amendment Act 2000 , Sch 1 [5]. Unlike other provisions of the Home Building Amendment Act 2000 which did not come into force until after February 2001, s 99(2)(a) commenced from the day the Bill for the 2000 Act was introduced into Parliament: s 2(2). 44For the purposes of the HB Act , a corporation on whose behalf residential building work is done in specified circumstances is " a developer who does the work ": s 3A(1). The specified circumstances include where the residential building work is done in connection with a proposed building and four or more of the proposed dwellings will be owned by the corporation: s 3A(2)(a). There was no evidence in this case as to whether Meriton was to be the owner of at least four of the 201 units. 45The Home Building Amendment Act 2000 , Sch 1 [1], introduced a definition of " developer " for the purposes of Part 6 of the HB Act . The definition, which is now in s 90(1) of the HB Act , provides that a ' developer ", in relation to residential building work, means a corporation on whose behalf the work is done in the circumstances set out in s 3A(2) of the HB Act . However, Sch 1 [1] of the Home Building Amendment Act 2000 did not come into force until 27 July 2001: s 2(1); Home Building Amendment Act 2000 No 56 - Proclamation , 25 July 2001. 46Section 102 states that a contract of insurance required to be entered into under Part 6 of the HB Act : "(3) ... must provide for cover of not less than $200,000 in relation to each dwelling to which the insurance relates, or such other amount as may be prescribed by the regulations. ... (6) ... may provide that the insurer is not liable for such amount (not exceeding $500) of each claim as is specified in the contract." 47Regulation 46 of the HB Regulation provides as follows: " An insurance contract may provide that the maximum amount of cover otherwise payable under section 102 of the Act or this Regulation, in respect of a dwelling in a building or complex containing more than one dwelling, may be reduced by not more than an amount calculated by dividing the amount of any claim paid by the insurer in relation to common property of the building or complex by the number of dwellings contained in the building or complex."

Standard Terms 48The Standard Terms of the Policy issued by the Insurer incorporates the following provisions: "If (and only if) you, the insured, have complied strictly with all your obligations in this policy then, subject to the terms of this policy, we will at our option make good or pay you your loss or damage resulting from -

non-completion of the work because of the insolvency, death or disappearance of your builder (a 'non-completion claim') or
a breach by your builder of a statutory warranty (as defined in the Act) in respect of the work or ... definitions You, your : The person on whose behalf the work under the contract is being done, together with any successor in title to that person. Your builder : the party named as the builder in your application form. Your application form : The form signed by you (or a previous owner of the home) or your builder to apply for this insurance. The home : The home at the address given in your application form. The work : Residential building work (as defined in the Act and the Home Building Regulation ) carried out, or to be carried out on, or in respect of, the home by your builder under the contract. The contract : The building contract (if any) to carry out the work and between your builder and you (or a previous owner of the home). ...
We will not pay more than $200,000.00 (or such other amount provided for from time to time by the Act and the Home Building Regulation ) for the aggregate amount of all claims under this policy. If the home is a dwelling in a building or complex containing more than one dwelling, any claim paid relating to the common property (as defined in the Act) is applied pro rata to all such dwellings, and reduces your remaining available cover accordingly.
You must pay the first $500.00 of each claim. ...
We will not pay any claim unless it is made within 7 years after the completion date. ...
We have no liability to you whatsoever if you are a developer (as defined in the Act) in relation to the work.
We have no liability to you whatsoever if you are also named as the builder in your application form. ...
We may refuse to accept your application form. You are not covered until we (or the Agent) have issued a written certificate of insurance, or we have otherwise accepted cover . ...
Once we have issued a written certificate of insurance, or we have otherwise accepted cover , we are not entitled to refuse to pay a claim or to cancel this policy on the grounds that the policy premium was not paid.
This policy is issued in compliance with the Act and the Home Building Regulation . To the extent it conflicts with any mandatory requirement in them it is to be read and to be enforceable as if complying with them .... ...
Claims are to be made in writing and delivered to the Agent." (Emphasis added.) 49A number of points should be made about the Standard Terms:

the statutory warranty referred to in cl 2 (first appearing) of the Standard Terms is the statutory warranty imposed by Part 2C of the HB Act ;
the definition of " You, your " gives effect to the references to " successors in title " in ss 18D and 99(1)(b) of the HB Act ;
cl 1 (imposing a limit of $200,000 for all claims " under this policy ") is presumably intended to reflect the requirements of s 102(3) of the HB Act that the contract of insurance provide cover of not less than $200,000 in relation to each dwelling to which the insurance relates;
cl 2 (providing an excess for the first $500 of each claim) is presumably intended to reflect the terms of s 102(6) of the HB Act ;
cl 7 (excluding liability to a developer) reflects the terms of s 99(2)(a) of the HB Act ;
cll 23 and 31 recognise that cover may be accepted otherwise than by the issue of a certificate; and
cl 32 recognises that the HB Act imposes mandatory requirements for a contract of insurance, such as the minimum coverage of $200,000 in relation to each dwelling required by s 102(3).

Certificate 50Clause 56(1) of the HB Regulation states that for the purposes of s 92 of the HB Act the prescribed form of a certificate of insurance is that set out in the Forms contained in the HB Regulation. The certificates issued by the Insurer in this case followed Form 1. 51The particular certificate in evidence before the Tribunal was addressed to " Meriton Apartments ". It relevantly stated as follows: "A contract of insurance complying with [s 92 of the HB Act ] has been issued by [the Insurer] In Respect of: Multi-Unit At ... Unit 100 House No: 809 To 811 Pacific Highway CHATSWOOD NSW 2087 ... Subject to the [ HB Act and the HB Regulation] and the conditions of the Insurance contract, cover will be provided to a beneficiary described in the contract and successors in title to the beneficiary." The certificate included a certificate number and was dated 12 February 2001.

TRIBUNAL DECISION 52The Tribunal recorded that the Insurer had submitted that the insurance coverage under the Policy was referable to each of the lots identified in the 201 certificates the Insurer had issued. The Insurer had relied on s 20 of the SSFD Act , which confers on all lot proprietors an interest in the common property as tenants in common, proportional to the unit entitlements of their respective lots under the strata scheme. The Insurer said that it followed from s 20 of the SSFD Act that it was liable to indemnify each of the lot proprietors for any breach of the statutory warranty affecting the common property. 53According to the Insurer, the Owners Corporation, which had received no certificate (and indeed which did not exist at the time the certificates were issued), had lodged the claim on behalf of each lot proprietor as that proprietor's agent. As a matter of construction of the Policy, while the Owners Corporation had physically lodged only one claim, in effect 201 claims had been made. Each of these claims therefore attracted the excess of $500 in accordance with the Standard Terms. 54The Senior Member rejected the Insurer's argument. He held that the Owners Corporation, as the successor in title to the developer in relation to the common property, was entitled to make a claim under the Policy. It was entitled to do so notwithstanding that it had never received a certificate from the Insurer in respect of the common property. Since the Owners Corporation had made only a single claim for indemnity, the only excess payable was $500. The excess provided for in the Standard Terms was not to be understood by reference to the interest of each lot proprietor in the common property. 55The Senior Member observed that the purpose of an excess is to discourage minor or frivolous claims. It was not necessary to achieve that purpose to require the lot proprietors collectively to bear an excess of $100,500. In the Tribunal Member's view, the Insurer's argument would lead to absurdities: "It would, for example, permit a claim by a lot owner for $800.00 for minor defects to a kitchen cupboard in a lot, while a claim in respect of a $100,000.00 defect in common property would not be met." 56For these reasons, the Tribunal Member determined that the excess payable by the Owners Corporation was limited to the first $500 of the whole claim of $85,137.50.

The Insurer's submissions 57The Insurer's submissions to this Court were essentially the same as those put to the Tribunal and the District Court. The submissions involved the following steps: (i) Part 6 of the HB Act provides for a compulsory scheme of home warranty insurance that must provide a minimum cover of at least $200,000 " in relation to each dwelling " (s 102(3)); (ii) each lot in the strata scheme is a separate " dwelling " as defined in s 3(1) of the HB Act ; (iii) Part 6 of the HB Act requires that each dwelling in a strata scheme be insured separately for the benefit of the proprietor thereof (the source for this proposition was not identified, although it might be said to follow from the requirement that the contract of insurance insure successors in title to the original developer against the risk: s 99(1)(b)); (iv) common property in a strata scheme is not itself a " dwelling " for the purposes of Part 6 of the HB Act ; (v) a lot proprietor's dwelling includes his or her beneficial interest in the common property as a tenant in common ( SSFD Act , ss 20, 24); and (vi) an owners corporation is not an insured under, or beneficiary, of the statutory insurance policy. 58According to Mr Corsaro, it follows that a claim for indemnity in respect of loss or damage to the common property can only be a claim by the several lot proprietors in the strata scheme or their separate policies and there cannot be a claim by an owners corporation for its own benefit. In other words, Part 6 of the HB Act precludes a single claim for indemnity in respect of common property, where the strata scheme comprises multiple residential lots. The excess applicable to the claim made by the Owners Corporation is therefore $100,500. 59Mr Corsaro contended that the HB Act could have required an insurance policy for either an owners corporation (as the legal proprietor of the common property) or for the proprietors of the lots in the strata scheme collectively (as the owners in equity of the common property). However, it does neither. Instead it requires a policy of insurance in respect of each of the separate dwellings in the strata scheme for the benefit of each of the proprietors. That choice means that a claim in respect of common property cannot be anything except claims made by or on behalf of the proprietors of each dwelling in the strata plan.

REASONING 60In Owners-Strata Plan No 43551 v Walter Construction Group Pty Ltd [2004] NSWCA 429, 62 NSWLR 169, Spigelman CJ (with whom Ipp and McColl JJA agreed) endorsed or formulated a number of propositions concerning the scheme established by the SSM Act and the SSFD Act . The propositions include the following:

s 227(2) of the SSM Act , which enables an owners corporation to take proceedings against a third party where the owners of the lots in a strata scheme are jointly entitled to take proceedings against that party, requires all the owners of all lots to have a common interest (at [14]);
an example of a case in which all owners of all lots have a common interest is where proceedings are taken against the third party in relation to the common property (at [19]);
the owners corporation may be entitled to sue a third party independently of the rights conferred on it by s 227(2), since s 226(1) provides that nothing in the SSM Act derogates from any rights the owners corporation may have in relation to the common property apart from the SSM Act (at [48]);
an owners corporation, as the legal owner of the common property, has the same rights as any other registered proprietor to protect its interests (at [49]-[50], citing Proprietors of Strata Plan No 6522 v Furney [1976] 1 NSWLR 412, at 414-415, per Needham J);
this is so notwithstanding that an owners corporation is not the beneficial owner of the common property (at [43], [45], citing Carre v Owners Corporation - Strata Plan 53020 (2003) 58 NSWLR 302, at [28]-[29], per Barrett J); and
although the legislation refers to the owners corporation as the " agent " of the lot proprietors, it is not appropriate to characterise the statutory role of an owners corporation solely in terms of agency at common law (at [45]). 61It is necessary to consider the Insurer's submissions within the legislative framework explained by Spigelman CJ in SP 43551 v Walter Constructions . In my opinion, the Insurer's submissions overlook, or pay insufficient attention to, the interplay between ss 18D and 99(1) of the HB Act , the relevant provisions of the SSM Act and the SSFD Act and cl 32 of the Standard Terms. Once that interplay is appreciated, the last and critical step in the Insurer's submissions cannot be sustained. 62The statutory scheme, in my view, clearly contemplates that an owners corporation in a residential strata scheme is entitled, in its own right, to make a claim on the statutory home insurance policy in respect of the risks identified in s 99(1) of the HB Act . In particular, the scheme contemplates that an owners corporation will be entitled to make a claim in respect of loss arising from the breach of a statutory warranty in respect of defective work on the common property. The owners corporation's entitlement flows both from s 227(2) of the SSM Act and, more simply, from its status as the registered proprietor of the common property and as the successor in title to the person on whose behalf the residential building work was carried out. 63Every contract to do residential building work by the holder of a contractor licence includes the statutory warranty as an implied term: HB Act , s 18B. The contract to do residential building work in this case was between the contractor and Meriton. Meriton therefore had the benefit of the statutory warranty. 64The contractor was not permitted to do residential building work under its contract with Meriton unless a contract of insurance was in force in the name of the contractor and a certificate of insurance evidencing the contract was provided to the other party: HB Act , s 92(1). Thus in this case the contractor was obliged to take out a complying contract of insurance and provide " a certificate " to Meriton. The Policy was issued in conformity with the requirements in s 92(1) of the HB Act . 65The contract of insurance that had to be taken out by the contractor had to insure the person on whose behalf the work is being done (Meriton) and that person's successors in title against (inter alia) the risk of loss arising from a breach of the statutory warranty: HB Act , s 99(1)(b). It is true that s 99(2) states that the contract of insurance does not have to provide coverage to a developer on whose behalf residential building work is being done. It is also true that the Standard Terms (cl 7) exclude the Insurer's liability if " you " are a developer as defined in the HB Act . But even if the person on whose behalf the work is being undertaken is a " developer ", it does not detract from the requirement in s 99(1)(b) of the HB Act that the contract of insurance insure the successors in title to the developer. Mr Corsaro did not submit otherwise. In any event, to suggest that a successor in title is not intended to benefit from the coverage because his or her predecessor in title was a developer would defeat the obvious purpose of the statutory scheme. 66(I interpose that both parties seemed to assume in this Court that Meriton was a " developer " as defined in the HB Act . It is by no means clear that this assumption was correct. The definition of "developer" in s 3A of the HB Act refers to a corporation who does residential building work in connection with a proposed building and four or more of the proposed dwellings will be owned by the corporation. As I have noted, there appears to have been no evidence before the Tribunal that Meriton was to own at least four of the proposed dwellings . Nonetheless, I am prepared to assume that Meriton was a " developer " for the purposes of s 99(2)(a) of the HB Act and cl 7 of the Standard Terms.) 67Upon registration of the strata scheme in the present case, the Owners Corporation:
acquired the legal estate in fee simple in the common property and thus became Meriton's successor in title ( SSFD Act , s 18(1));
held the common property as agent for the lot proprietors as tenants in common in shares proportional to their unit entitlements ( SSFD Act , s 20(b));
was obliged to manage and control the use of the common property for the benefit of the lot proprietors ( SSM Act , s 61(1));
was obliged, inter alia, to properly maintain the common property and keep it in good and serviceable repair ( SSM Act , s 62(1)); and
was obliged to renew or replace any fixtures or fittings comprised in the common property ( SSM Act , s 62(2)). 68It was not suggested and, in my view, could not be suggested, that the Owners Corporation lacked an insurable interest in the common property. The Owners Corporation not only had legal title to the common property, but was obliged to manage and control the use of the common property, keep it properly maintained and repaired and renew or replace fixtures and fittings thereon. 69The effect of s 99(1)(b) of the HB Act is that the contract of insurance issued by the Insurer had to insure the Owners Corporation, as Meriton's successor in title to the common property, against the specified risks. The statutory requirement was not conditional upon the Insurer issuing a certificate of insurance to the Owners Corporation. Nor was it in any way dependent on the terms of any certificate issued by the Insurer in respect of lots in the strata scheme. 70The mandatory requirements applicable to a contract of insurance by Part 6 of the HB Act are incorporated into the Insurer's Standard Terms. This is made quite clear by the provisions in the Policy stating that:
to the extent that the Policy conflicts with any mandatory requirement under the HB Act it is to be read and enforceable as complying with any such requirement (cl 32); and
the Insurer can accept cover otherwise than by issuing a certificate (cll 23, 31). 71The Insurer was obliged to issue a Policy insuring the Owners Corporation as the registered proprietor and successor in title to Meriton of the common property in respect of the risk identified in s 99(1)(b) of the HB Act . By virtue of cl 32 of the Standard Terms, the Insurer in fact provided that coverage under the Policy. To construe the Policy otherwise would be to create an inconsistency between its terms and the mandatory requirements of the legislation. 72It follows that the Owners Corporation was entitled to make a claim in its own right under the Policy in respect of defective work on the common property. As I have noted, it could do so by virtue of s 227(2) of the SSM Act or, more simply, in its capacity as registered proprietor of the common property and successor in title to Meriton. The Owners Corporation in fact made a claim in its own right. That claim was the only claim made under the Policy and thus attracted a single excess of $500 pursuant to cl 2 of the Standard Terms. 73It is not to the point that the Owners Corporation held the common property as agent for the lot proprietors as tenants in common in the sense described by Spigelman CJ in SP No 43551 v Walter Construction . Whether or not an individual lot proprietor could make a claim under the Policy in respect of the common property need not be decided in the present case. Even if that possibility is open, it does not detract from the conclusion that the Policy issued by the Insurer was required to provide cover, and did provide cover, to the Owners Corporation in its own right in respect of the common property. 74Notwithstanding Mr Corsaro's submissions, the definition of " dwelling " in the HB Act is not relevant to the question of whether the Owners Corporation is covered by the Policy in respect of its interest in the common property. The definition may be relevant to the minimum level of coverage required by s 102(3) of the HB Act . But that is not in issue in the present case. The question here is whether there was one claim or 201 claims for the purposes of determining the excess payable under the Policy. 75The scheme of the legislation seems to me to be the following. The minimum liability of an insurer under the home warranty policy is $200,000 in relation to each " dwelling ". Thus, the minimum potential liability of the Insurer under the Policy in this case is a total of $40,200,000 (calculated as the minimum cover of $200,000 per residential unit in the strata scheme). However, the legislation implicitly permits an insurer to limit coverage under the home warranty policy to $200,000 in relation to each dwelling. This is the evident intent of cl 1 of the Standard Terms. 76The legislative scheme contemplates that an owners corporation, as the successor in title to the person on whose behalf the residential building work was performed, is entitled to make a claim in its own right under the home warranty insurance for a breach of the statutory warranty affecting the common property (assuming that other preconditions have been satisfied). The operation of the scheme where the owners corporation successfully makes a claim in respect of the common property is dealt with in reg 46 of the HB Regulation (which was introduced at the same time as Part 6 of the HB Act ). If the home warranty policy so provides, the maximum amount of cover otherwise payable under s 102 of the HB Act in respect of a dwelling is reduced by not more than: "an amount calculated by dividing the amount of any claim paid by the insurer in relation to common property or the building or complex by the number of dwellings contained in the building or complex." (HB Regulation, reg 46.) 77The second sentence of cl 1 of the Standard Terms of the Policy is clearly intended to take advantage of reg 46. Thus if the Insurer indemnifies the Owners Corporation against losses attributable to the contractor's failure to comply with the statutory warranty, any amount paid by the Insurer will reduce pro rata the coverage available to each lot proprietor. 78In the present case, the claim by the Owners Corporation under the Policy is for an amount less than $200,000. It is therefore not necessary to consider whether the limit imposed by cl 1 of the Standard Terms of $200,000 " for the aggregate amount of all claims under this policy " applies to a claim by the Owners Corporation in respect of the common property. Nor is it necessary to determine whether, if cl 1 is to be construed as imposing a limit of $200,000 on such a claim, it would conflict " with any mandatory requirement in [ the HB Act or the HB Regulation ]" for the purposes of cl 32 of the Standard Terms. Those questions should await determination in a case in which they arise. 79Once the conclusion is reached that the Owners Corporation was entitled by statute and by cl 32 of the Standard Terms to make a claim in its own right under the Policy, it follows that only one claim was in fact made. It was not necessary for the lot proprietors to make individual claims under the Policy in order for the Insurer's indemnity to be enforced. Nor was it necessary for the Owners Corporation to claim indemnity on behalf of the individual lot proprietors. Moreover, there is nothing in the evidence to suggest that it purported to claim indemnity on behalf of the lot proprietors. The Owners Corporation made the one and only claim under the Policy in respect of the common property. Accordingly, the Tribunal was correct, as a matter of law, to find that the excess applicable to the Owners Corporation's claim was $500.

CONCLUSION 80The answer given by the Tribunal to the preliminary question was correct as a matter of law. While the primary Judge erred in law in the reason he identified for dismissing the appeal from the Tribunal, had his Honour addressed the legal issues arising on the appeal correctly he would have made the same orders. In these circumstances, for the reasons explained earlier, this Court should decline to grant the relief sought by the Insurer. 81The Insurer's Summons should be dismissed. The Insurer should pay the Owners Corporation's costs.

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: 01 July 2011

Consumer, Trader and Tenancy Tribunal Act 2001(NSW)

Home Building Amendment Act 2000(NSW)

Home Building Amendment (Insurance) Act 2002(NSW)

Strata Schemes (Freehold Development) Act 1973(NSW)

Strata Schemes Management Act 1996(NSW)

Strata Scheme Management Act 1996(NSW)

evidence is not clear on this point): Strata Schemes Management Act 1996(NSW)

Crown Solicitor (Second and Third Respondent) File Number(s): 2010/00251088 Decision under appeal Jurisdiction: 9101 Citation: Vero Insurance Ltd v The Owners of Strata Plan No 69352 [2010] NSWDC 54 Date of Decision: 2010-04-29 00:00:00 Before: Levy DCJ File Number(s): 3736/2009

HEADNOTE [This headnote is not to be read as part of the judgment] Vero Insurance Limited, the applicant, issued an insurance policy to a Meriton company on 12 February 2001, for the residential component of a development in Chatswood. The applicant issued identical certificates of insurance in respect of all the 201 residential units being constructed as part of the development. The Owners of Strata Plan No 69352, the first respondent, was the owners corporation of that scheme. No certificate of insurance was issued to the first respondent. On 27 July 2006, the first respondent notified the applicant of a claim for remedying defective work on the common property in the amount of $85,137.50. The applicant rejected the claim. The first respondent applied to the Consumer, Trader and Tenancy Tribunal ("the Tribunal") in respect of the applicant's decision to reject the claim. The applicant argued that the Policy had been taken out on behalf of each of the 201 lot proprietors in the residential strata scheme, so that the claim made by the first respondent was also on behalf of each of the proprietors. The relevant excess should therefore have been calculated by multiplying the number of lots insured (201) by the individual excess ($500), which resulted in a combined excess of $100,500. The Tribunal rejected this argument and held that the excess payable by the first respondent was the first $500 of the whole claim. The applicant appealed to the District Court under s 67(1) of Consumer, Trader and Tenancy Tribunal Act 2001. The appeal was dismissed on the ground that the Tribunal's decision rested upon a factual finding, and not a question of law. Vero Insurance sought to review the decision of the District Court. The issues for determination were: (i) whether the first respondent was entitled to make a single claim in relation to the common property under the Policy; (ii) whether a single excess or multiple excesses were applicable to the claim; (iii) whether the District Court erred in characterising the applicant's appeal as a question of fact, and dismissing the appeal; and (iv) whether the decision of the Tribunal was correct. The Court held, dismissing the summons. (per Sackville AJA, Allsop P and Basten JA agreeing) In relation to (i)

Judgment 1ALLSOP P : I agree with Sackville AJA. 2BASTEN JA : These proceedings were brought in the Court's supervisory jurisdiction, under s 69 of the Supreme Court Act 1970 (NSW). An application for leave to appeal under s 127 of the District Court Act 1973 (NSW) was rightly abandoned: see Muldoon v Church of England Children's Homes Burwood [2011] NSWCA 46. I agree with the orders proposed by Sackville AJA and with his reasons. 3SACKVILLE AJA : This is an application under s 69 of the Supreme Court Act 1970 (NSW) for an order in the nature of certiorari setting aside a decision by a Judge of the District Court (Levy DCJ) made on 29 April 2010 and for ancillary relief. The District Court dismissed an appeal brought by the present applicant ("Insurer") under s 67(1) of the Consumer, Trader and Tenancy Tribunal Act 2001 (NSW) (" CTTT Act ") against a decision given on 22 July 2009 by the Consumer, Trader and Tenancy Tribunal (" Tribunal "): Vero Insurance Ltd v The Owners of Strata Plan No 69352 [2010] NSWDC 54. 4In that decision, the Home Building Division of the Tribunal (Senior Member Bordon) answered a preliminary question concerning the amount of the excess to be borne by the present respondent ("Owners Corporation") in respect of a claim by it under a Home Owners Warranty Insurance Policy issued by the Insurer ("Policy"). The Owners Corporation is the registered proprietor of the common property in a strata scheme comprising 201 residential units and its claim related to the common property. The Owners Corporation's position is that only one excess of $500 is payable under the Policy in respect of its claim. The Insurer's position is that the excess payable is $100,500, representing $500 for each residential unit in the strata scheme. The Tribunal answered the preliminary question in favour of the Owners Corporation, concluding that only one excess of $500 is payable. 5Levy DCJ dismissed the Insurer's appeal to the District Court on the ground that the Tribunal's decision on the preliminary question rested exclusively on a factual finding. His Honour held that the Insurer's appeal could not succeed because s 67(1) of the CTTT Act permits an appeal to the District Court from the Tribunal only " on a question with respect to a matter of law " and the Insurer had not identified any such question.

THE NATURE OF THE PROCEEDINGS 6The Insurer initially applied for leave to appeal against the District Court's decision pursuant to s 127 of the District Court Act 1973 (NSW). However, the Insurer abandoned its application for leave to appeal and instead filed a summons seeking orders in the nature of prerogative relief. The Insurer contends in its Further Amended Summons (" Summons ") that the decision of the District Court was affected by jurisdictional error or by an error of law on the face of the record and therefore should be set aside. 7The Insurer's Summons also seeks a declaration that s 65 of the CTTT Act , which limits the jurisdiction of the Supreme Court to grant relief in respect of decisions of the Tribunal, violates Chapter III of the Constitution and is therefore void and of no effect. 8The Insurer duly served notices of a constitutional matter as required by s 78B of the Judiciary Act 1903 (Cth). The Attorney General of New South Wales intervened in the proceedings pursuant to s 78A of the Judiciary Act and filed submissions in support of the validity of s 65 of the CTTT Act . However, Mr Corsaro SC, who appeared with Mr Lynch for the Insurer, abandoned the constitutional challenge at the hearing in this Court. Accordingly, nothing more need be said about it. 9Mr Garnsey QC, who appeared in this Court with Mr Hand for the Owners Corporation, did not seek to support the District Court's conclusion that the Insurer's appeal did not raise a question with respect to a matter of law. Nor did Mr Garnsey dispute that the primary Judge's reasoning disclosed an error of law on the face of the record. Nonetheless, Mr Garnsey resisted the Insurer's claim for prerogative relief on the basis that the orders made by the District Court were correct as a matter of law, albeit not for the reasons given by the primary Judge. 10Mr Garnsey submitted that had the primary Judge dealt with the question of law raised in the Insurer's appeal to the District Court (as his Honour should have), the appeal inevitably would have been dismissed. Mr Garnsey contended that if this Court accepted his submission, it should exercise its discretion to refuse prerogative relief to the Insurer. 11Mr Corsaro very sensibly did not dispute that if this Court was satisfied that the Insurer's appeal to the District Court on a question of law was bound to fail, it would be appropriate to dismiss the Insurer's application for prerogative relief, notwithstanding the Owners Corporation's concession that the primary Judge's reasoning disclosed an error of law on the face of the record. Mr Corsaro also accepted that the outcome of the Insurer's application to quash the orders made by the District Court would determine any challenge by the Insurer to the orders made by the Tribunal. The argument proceeded on this basis. 12Because of the approach taken by the parties, it is not necessary to explore the scope of the Court's discretion on an application for relief in the nature of certiorari to quash the decision of an inferior court: cf Solution 6 Holdings Ltd v Industrial Relations Commission (NSW) [2004] NSWCA 200; 60 NSWLR 558, at [133]-[135], per Spigelman CJ; Sin Yong Yim v Industrial Relations Commission of NSW [2007] NSWCA 77, at [73]-[77], per Spigelman CJ; Re McBain; Ex parte Catholic Bishops Conference [2002] HCA 16; 209 CLR 372, at [95]-[97], per McHugh J; M Aronson, B Dyer and M Groves, Judicial Review of Administrative Action (4 th ed, 2009), at [12.155]ff.

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