48 Mr Liney submitted that the prima facie measure of loss for breach of a warranty in a building contract was the cost of necessary and reasonable work required to make the building conform to the contract, together with consequential loss. He relied on Bellgrove v Eldridge (1954) 90 CLR 613. Mr Liney submitted that, as this was so for a party in contract with the builder, so it was also by s 18D the measure of a successor's entitlement, and the measure of indemnity under s 99(b) and cl 43 (1)(b).
49 Mr Corsaro submitted that loss or damage arising from defective workmanship was pure economic loss, and that it was necessary for a successor to show that it was unaware of the loss when it took title to the building. If a successor knew or ought to have known of the defects then, Mr Corsaro submitted, the true and only effective course of its loss was the decision to buy. Thus, Mr Corsaro submitted, cl (9) did no more than recognise what in any event a successor must show, to be entitled to indemnity. It followed, Mr Corsaro submitted, that cl (9) could not be inconsistent with the statutory entitlement to indemnity.
Decision
50 Of concern in the form of this and the following questions, is that they are asked in a context devoid of all but the barest minimum of factual content. But causation is a question of fact, and so for that matter the question of remoteness (subject perhaps to a limiting issue: is a particular head or item of loss too remote in law to be recoverable?).
51 However, since the answer that I have given to question 1 (a) (should that answer stand) means that all questions of damages will likely be referred out, it is desirable that I deal with questions 2 to 4, so far as I can, at least at the level of principle.
52 A contract of insurance is required to provide (subject to permitted exclusions and limitations) indemnity, to a person on whose behalf residential building work is done and that person's successors in title, against the risk of loss arising from a breach of statutory warranty (s 99 (b) of the HB Act). To carry out that purpose, the contract of insurance must indemnify "beneficiaries" under it for specified losses or damage in respect of residential building work (see in particular the introductory words of cl 43(1) of the HB Regulation). The specified losses or damage include loss or damage arising from a breach of a statutory warranty (cl 42(1)(b)).
53 The term "beneficiary" is defined (with some circularity) in cl 39(1) of the HB Regulation as "a person entitled to claim a benefit under an insurance contract". Thus, it includes, without differentiation, both the person for whom residential building work is done, (usually, the person in contract with the builder, who may be called for convenience the original owner) and that person's successors in title. That lack of differentiation reflects s 18D of the HB Act. That section puts a successor in title in the same position, in relation to the benefit of the statutory warranties, as the original owner.
54 There is no doubt as to the measure of damages recoverable by the original owner for defective work: see Bellgrove The clear intention of s 18D is that the entitlement of successors should be no less. The clear intention of s 99(b), amplified by cl 43(1)(b), is that the policy should respond alike and without differentiation to a claim by either.
55 That approach is made clear by the concluding words of s 18D, which restricts a successor's rights only to the extent that the original owner has enforced the warranty. It is supported also by cl 45(b), which sets out one circumstance - the only one - in which a contract of insurance may exclude liability for defects known to a successor. That paragraph has no application in this case.
56 The phrase "loss or damage arising from a breach of a statutory warranty" suggests the first limb in Hadley v Baxendale (1854) 9 Ex 341 at 354; 156 ER 145 at 151: "damages...such as may fairly and reasonably be considered [as] arising naturally, according to the usual course of things, from such breach of contract itself". If indeed the legislature had that analogue in mind then, as I have said, the measure of damages is to be assessed in accordance with Bellgrove.
57 Alternatively, if the words "arising from" are to be considered free of any historical baggage, it is clear that they denote no narrow test of proximity or causality. The test that those words pose may indeed be wider, or less demanding, than the test posed by the words "caused by". See Barwick CJ in Government Insurance Office of New South Wales v RJ Green and Lloyd Pty Ltd (1966) 114 CLR 437 at 442 - 443. I acknowledge that his Honour was speaking of a composite phrase - "caused by or arising out of" - occurring in a different statutory context, and that it is always necessary to pay close attention to the particular context in which words occur and the objective purpose for which they are used. It is sometimes difficult, and often dangerous, to transpose the judicial elucidation of a particular phrase in a particular context to the same phrase in an entirely different context.
58 In the context of the HB Act and the HB Regulation - a legislative scheme intended to provide significant rights to consumers in an attempt to redress the notorious problems arising from shoddy work performed by bankrupt builders - the words "arising out of" should not be construed narrowly.
59 Thus, the test of causation denoted by the words "arising out of" is at least as wide as that found in the first limb of Hadley v Baxendale. That conclusion is sufficient to dispose of question 2, because (in conjunction with what I have said as to s 18D and the lack of differentiation between the rights of original owners on the one hand and of successors on the other) it is plain that some a priori limitation of the kind posed by clause (9) cannot be supported. Such a limitation is inconsistent with s 99(b) and cl 43(1)(b), at least to the extent that, in its operation, it would exclude recovery of loss or damage that, as a matter of fact, can be said to arise from a breach of statutory warranty.
60 There is a possible alternative path to the same conclusion. In FAI General Insurance v Gallagher [2000] NSWSC 453, Windeyer J said at [11] that the only limitations on liability that could be included in a complying contract were those expressly set out in cl 45 of the HB Regulation. That followed, his Honour said, from s 102 (4) of the HB Act read together with cl 45.
61 Mr Corsaro submitted that his Honour's observation was obiter, and should not be followed. Mr Liney supported his Honour's decision.