Vero Insurance Ltd v Witherow [2004] VSC 272

2. This is an appeal on a question of law under s.148 of the Victorian Civil and Administrative Tribunal Act 1998 ("the VCAT Act") against a decision of the Victorian Civil and Administrative Tribunal ("VCAT"), constituted by Deputy President Professor D Cremean on 20 September 2002 in proceeding number D49/2002. The Deputy President held that VCAT did have jurisdiction in relation to an application brought by the current respondent ("Witherow") against the current appellant ("the insurer").

5. Master Evans granted leave to appeal on 22 November 2002.

8. Witherow was the sole director and company secretary of Witherow Builders Pty Ltd ("the builder"). As a condition of issuing domestic building insurance cover to the builder pursuant to a Ministerial Order made under s.135 of the Building Act 1993 ("Building Act"), the insurer required the provision of a deed of indemnity executed by Witherow and his mother, jointly and severally indemnifying the insurer in respect of insurance payments made thereunder. Such a deed was executed on 6 February 2001 ("the indemnity deed") and insurance cover was duly issued. In April 2001, the builder was placed into liquidation.

11. The insurer issued certificates of insurance to Gary and Brenda O'Mahony ("O'Mahony"), the owners of a property in Parkdale, and J G Williams and P A Killeen-Williams ("Williams"), the owners of a property in Beaumaris, in respect of works undertaken by the builder at their respective properties. Each of O'Mahony and Williams subsequently brought claims for indemnity under the respective insurance contracts. The insurer met each claim, paying O'Mahony $21,313.97 and Williams $48,599.00.

14. On 2 January 2002, the insurer served on Witherow a demand pursuant to the indemnity deed, seeking recovery of the amounts paid to O'Mahony and Williams ("the 2 January letter").[1]

17. On 25 January 2002, Witherow commenced an application in VCAT, seeking a review of the insurer's decision to demand money from him under the indemnity deed ("the application"). As a preliminary point, the insurer disputed the jurisdiction of VCAT to determine the application. The Deputy President held that VCAT did have such jurisdiction.

20. The question of law upon which this appeal is brought is:

Whether or not for the purposes of ss. 60(1) and 61(1) of the Domestic Building Contracts Act 1995 ("DBC Act") the decision of the insurer to claim from Witherow under the indemnity deed was one with respect to anything arising from any required insurance under the Building Act that covers a builder in relation to domestic building work.

25. Before considering the jurisdictional question, it is necessary to consider the precise scope of the application.

28. For the purposes of the VCAT Act or an "enabling enactment", a person makes a decision if the person, amongst other things, makes a decision, order, determination or assessment[2] or a declaration, demand, direction or requirement[3]. An "enabling enactment" is an enactment by or under which jurisdiction is conferred on VCAT[4]. It was not disputed that the making of a demand for payment under the indemnity deed would constitute a "decision" for the purposes of the VCAT Act.

31. The argument before VCAT proceeded on the basis that the only decision which Witherow sought to have reviewed by VCAT was the insurer's demand for payment made by the 2 January letter.

34. Before me, Mr Moshidis, who appeared for Witherow, argued that the application did not seek to review the insurer's demand for payment. Instead, he argued that it sought to review the insurer's initial decision to pay each of the building owners' claims under the relevant insurance policies ("the insurance decisions"). Mr Thompson, who appeared for the insurer, conceded that if the application did indeed challenge the insurance decisions, then VCAT would have jurisdiction.

37. What is or are the relevant decision(s) which the application seeks to have reviewed?

40. The application itself is a 3 page document containing grounds of application and orders sought by Witherow. It is common ground that the 2 January letter and enclosures were attached to the original application. The application claims the following substantive relief:

43. A declaration pursuant to s.61 of the DBC Act that Witherow is a person whose interests are affected by a decision or decisions of an insurer with respect to matters arising from required insurance under the Building Act by reason of the 2 January letter.

46. An order pursuant to s.60 of the DBC Act:

(a) reviewing the quantum of the amount demanded by the insurer from Witherow in respect of the O'Mahony claim as unreasonable and/or excessive, and substituting VCAT's own findings as to the reasonable cost of rectification;

(b) reviewing Witherow's liability, if any, and reviewing the quantum of the amount demanded by the insurer from Witherow in respect of the Williams claim as unreasonable and/or excessive and substituting VCAT's own findings as to the reasonable cost of rectification. [5]

51. In respect of both the O'Mahony and Williams claims, the "grounds" given for that relief are that the quantum claimed by the insurer was unreasonable, excessive or not appropriate. In respect of the Williams claim, Witherow also alleges that the liability alleged by the insurer was:

(iii) not appropriate to be sought from Witherow pursuant to the indemnity deed.

No particulars are given of grounds (i) to (iii). Nor does the 2 January letter or its enclosures explain what is meant by grounds (i) to (iii).

58. The application has not been drawn as clearly as it might have been. Notwithstanding that VCAT is not a Court of pleading, the function of the application is to communicate and define the issues between the parties. In my opinion, properly construed the application challenges Witherow's liability to pay the insurer the moneys demanded in the 2 January letter. It does not, on its face, seek the review of the insurance decisions.

61. The fact that the building owners and the builder have not been joined as parties to the VCAT proceeding tends to support Mr Thompson's submission that the insurance decisions were not intended to be challenged in the VCAT proceeding. On the other hand, there was other evidence before me to suggest that Witherow wanted to challenge the insurance decisions. However, I am obliged to construe the application objectively and not by reference to any perceived intention of a party or its lawyer.

64. Mr Moshidis argued that the 2 January letter, which was referred to in, and attached to, the application "cannot simply be characterised as a demand for payment" under the indemnity deed. He emphasised that the letter in fact constitutes the first notification by the insurer to Witherow of its decision to accept liability in relation to the Williams claim and as to the quantum accepted under the Williams and O'Mahony claims. The question of notification is no doubt relevant to the time limit within which an application for review may be made[6]. But one must still look to the application itself to see what decision is sought to be reviewed. In the present case, the demand for payment under the indemnity deed is the only decision which is sought to be impugned. Nothing in the 2 January letter alters that fact.

68. VCAT only has such jurisdiction as is referred to it by an enabling enactment.[7] The relevant sections of the DBC Act provide as follows:

"60 Tribunal may review and change an insurer's decision

(1) The Tribunal may review any decision of an insurer with respect to anything arising from any required insurance under the Building Act 1993 that a builder is covered by in relation to domestic building work or from a guarantee under the House Contracts Guarantee Act 1987 or from an indemnity under Part 6 of the House Contracts Guarantee Act 1987.

(2) Despite sub-section (1), the Tribunal does not have any power to review a decision of an insurer -

(a) to refuse to insure, or to refuse to renew or extend the insurance of, a builder; or

(b) concerning premiums or charges to be paid for any insurance or the conditions under which any insurance will be offered, renewed or extended.

(3) After conducting a review, the Tribunal may confirm, annul, vary or reverse the decision, and may make any order necessary to give effect to its decision.

61 Who can ask the Tribunal to review an insurer's decision?

(1) Any person whose interests are affected by a decision of an insurer with respect to anything arising from any required insurance under the Building Act 1993 that covers a builder in relation to domestic building work or from a guarantee under the House Contracts Guarantee Act 1987 or from an indemnity under Part 6 of the House Contracts Guarantee Act 1987 may apply to the Tribunal for a review of the decision.

(2) If the decision contains a direction that must be complied with within 27 days of the date the person receives notice of the decision, the application must be made before the date the decision must be complied with.

(3) In all other cases, the application must be made within 28 days of the date the person receives notice of the decision."

81. There is no suggestion that Witherow is not a "person whose interests are affected by a decision of an insurer". The question is whether the relevant decision is one "with respect to anything arising from any required insurance".

84. Mr Moshidis argued that I should follow the reasoning applied by the Deputy President:

"The occasion for the Indemnity is the required insurance. The Indemnity is required to be given because of the insurance cover being available. There would be no Indemnity if there were no required insurance. The required insurance is the necessary condition to the Indemnity coming into existence. ... Of course it is a private commercial arrangement, but it comes into being because of the required insurance. And it does not come into being for any other reason."

Accordingly, Mr Moshidis argued that the demand for payment under the indemnity deed did "arise from" the required insurance.

89. Mr Thompson, for the insurer, argued that the demand for payment was not something that arose from any required insurance. Rather, the demand arose from a contractually and conceptually separate security agreement required by the insurer to facilitate the insurance, but arising independently of it. The existence and contents of the indemnity deed are not an inherent part of the insurance scheme under which the policy is issued. It was submitted that an insurer may enter into a variety of commercial arrangements (including re-insurance or double insurance arrangements, as well as security arrangements) that might be affected in some way by the underlying insurance. However, disputes that may arise under such commercial arrangements are not matters "arising from any required insurance", and are not subject to review by VCAT.

92. Whilst it was not suggested that sub-section 60(2) of the DBC Act directly applied, that sub-section provides that VCAT does not have jurisdiction to review an insurer's decision whether or not to grant insurance and, if so, on what terms and conditions. Mr Thompson argued that the existence of that sub-section indicated that VCAT was also not intended to have jurisdiction in respect of a commercial decision by an insurer as to the conditions it may require before issuing cover and, by extension, in respect of the enforcement of any security required to be provided as such a condition.

95. This appears to be the first time that this issue has been argued before this Court. For the reasons that follow, I accept the insurer's principal submission and find that the demand for payment does not arise from any required insurance.

98. The Deputy President came to his conclusion independently of authorities. However, he said that if authority was necessary, he relied upon the decision of Judge Davey in Gaywood Constructions Pty Ltd v Ganly[8] to hold that the insurer's decision was plainly reviewable by VCAT. In Gaywood, Judge Davey had to consider whether a decision by the Housing Guarantee Fund ("HGF") to commence recovery proceedings against a builder was a decision which was reviewable by the Domestic Building Tribunal under s.60(1) of the DBC Act.[9] HGF had paid out the owner, and determined to sue the builder under a guarantee and the company rules.[10] His Honour concluded that HGF's decision was reviewable, although such a review would only entitle the builder to challenge the bona fides of HGF and not the decision to allow the owner's claim.[11] In considering the meaning of the expression "any decision of an insurer with respect to anything arising from required insurance", His Honour seems to have focussed entirely on the breadth of the expression "with respect to". It does not appear that there was any argument before His Honour as to the words "anything arising from required insurance", or that he gave any consideration to them. I disagree with His Honour's conclusion.

101. Mr Moshidis also referred to two decisions of Byrne J in this Court, which he said supported the broadest possible interpretation being given to s.60. In Fletcher Construction Australia Limited v Southside Tower Developments Pty Ltd[12] His Honour was required to consider the meaning of the expression "a domestic building dispute" in s.54. In deciding that the Act applied to the conversion of a non-residential building into a residential building, he noted that such an interpretation had "the added advantage of being consistent with the evident intention of Parliament that the Act should apply to a wide variety of building activities".[13] He also noted that had he had any doubts about the matter, he would have avoided commercial uncertainty and given effect to what he perceived to be Parliament's intention.[14]

104. In Greenhill Homes Pty Ltd v Domestic Building Tribunal[15], Byrne J held that a claim for misleading and deceptive conduct under s.11 of the Fair Trading Act was justiciable in the Domestic Building Tribunal. His Honour held that such a claim was a "domestic building dispute" within the meaning of s.54(1) of the DBC Act, because it was a dispute or claim arising between specified persons "in relation to a domestic building contract." He noted that the evident purpose of the relevant part of the DBC Act was to establish a "one stop shop" for all domestic building disputes.

"To my mind, the court should strive to construe the Act wherever possible to give effect to this objective. It would be regrettable indeed if, in a given case, disputants were obliged to submit part of their claim to the tribunal, part to the court and, perhaps subject to s.14 of the Act, a third part to arbitration."[16]

108. Neither Fletcher Constructions nor Greenhill Homes is directly on point, in that they did not consider s.60 of the DBC Act. In so far as those cases concern general principles of construction of that Act, I agree with Justice Byrne's statement of the law. However, even adopting a liberal construction, in my opinion s.60 does not apply to this dispute.

111. Both parties referred to the decision in Government Insurance Office of NSW v R J Green & Lloyd Pty Ltd[17]. In that case, the High Court considered the meaning of the phrase "caused by or arising out of" the use of a motor vehicle. Barwick CJ, with whom the other members of the Court agreed, held that "arising out of" required a less proximate relationship than "caused by". His Honour also said that it was undesirable to express a general view as to the precise ambit of the expression "arising out of", as it will vary depending on the purpose of the relevant legislation[18].

114. There is a well-established line of authority to the effect that expressions such as "arising out of" in an arbitration clause or exclusive jurisdiction clause should not be construed narrowly.[19] Section 60 refers to anything "arising from" the required insurance. In Hi-Fert Pty Ltd v Kuikiang Maritime Carriers Inc[20] Justice Tamberlin held that "arising from" is not materially different to "arising out of". I agree with that conclusion.

117. Even if one gives s.60 a broad construction, the reviewable decision must still be one with respect to something "arising from" required insurance. Had Witherow sought to challenge the insurance decisions, there would clearly have been a dispute arising from required insurance. But the application seeks to challenge the demand by the insurer under the indemnity deed. The indemnity deed is a commercial agreement separate from the required insurance. Of course it has some connection with the required insurance. However, it is conceptually and contractually separate from the insurance. The indemnity deed is not, and does not "arise from", the required insurance.

120. I do not accept Mr Moshidis' submission that to find for the insurer in this case would deny persons such as Witherow[21] any rights to challenge the reasonableness of an insurer's decision. VCAT has jurisdiction over the following relevant disputes:

* Disputes between a builder and an insurer "in relation to a domestic building contract or the carrying out of domestic building work;"[22]

* Any dispute concerning an insurance claim concerning domestic building work or an insurer's decision on such a claim;[23]

* Any decision of an insurer with respect to anything arising out of any required insurance.[24]

126. Those provisions mean that, in the present case, the builder or Witherow could have sought review by VCAT of, amongst other things, the insurance decisions. However, in respect of any claim not falling within those provisions, a person in Witherow's position only has such remedies as may be available in the Courts.

129. Mr Moshidis also argued that s. 59A of the DBC Act was applicable to this proceeding. It is in the following terms:

(1) The Tribunal has jurisdiction to hear and determine any dispute concerning an insurance claim concerning domestic building work or an insurer's decision on such a claim.

(2) The Tribunal may make any order it considers fair to resolve a dispute referred to in sub-section(1).

(3) The Tribunal may hear and determine a dispute under this section on the application of-

(b) The Director acting on behalf of one or more building owners who are parties to the dispute."

138. In my opinion, this section does not assist in the present case. Firstly, it is a provision which grants VCAT jurisdiction, but it is not itself an avenue for or of review.[25] Secondly, even if relief under section 59A had been sought in the application (which it has not), for the reasons given above, this dispute does not concern "an insurance claim ... or an insurer's decision on such a claim."

142. I propose to make orders in the following terms:

(2) It is declared that the Victorian Civil and Administrative Tribunal does not have jurisdiction to determine the application in proceeding No D49/2002.

147. I will hear from the parties in relation to costs.

[1] The insurer subsequently released Witherow's mother from her obligations under the indemnity deed.

[2] VCAT Act s.4(1)(a)

[3] VCAT Act s.4(1)(f)

[4] VCAT Act s.3

[6] See s. 61(3) of the DBC Act.

[7] VCAT Act s.43

[8] [1996] VDBT 22

[9] The section was in relevantly similar terms to the current s.60.

[10] The nature and terms of the guarantee are not discussed in the reasons for decision in that case.

[12] 9 October 1996, Supreme Court, unreported

[15] [1998] VSC 34

[17] [1966] HCA 6; (1966) 114 CLR 437

[19] The rationale for that rule was explained by Gleeson CJ in Francis Travel Marketing Pty Ltd v Virgin Atlantic Airways Ltd (1996) 39 NSWLR 160 as being:

"When the parties to a commercial contract agree, at the time of making the contract, and before any disputes have yet arisen, to refer to arbitration any dispute or difference arising out of the agreement, their agreement should not be construed narrowly. They are unlikely to have intended that different disputes should be resolved by different tribunals, or that the appropriate tribunal should be determined by fine shades of difference in the legal character of individual issues, or by the ingenuity of lawyers in developing points of argument."

Of course, in the present case there is no question of construing the parties' intentions.

[20] Unreported, Federal Court of Australia, Tamberlin J, 4 December 1996.

[21] Being a director of a building company and the provider of an indemnity.

[22] Ss. 54 and 55.

[24] S. 60(1), subject to s. 60(2).

[25] I agree with the comments to that effect made in Clifton Properties Corporation Pty Ltd v Litewaite Constructions Pty Ltd [1999] VCAT 49 by Deputy President Cremean.