Atlen Pty Limited v Building Insurers' Guarantee Corporation - [2004] NSWSC 195

No judgment structure available for this case.

CITATION: Atlen Pty Limited v Building Insurers' Guarantee Corporation & Anor [2004] NSWSC 195 revised - 26/03/2004

HEARING DATE(S): 11/02/2004

JUDGMENT DATE:
24 March 2004

JURISDICTION:
Equity

JUDGMENT OF: Brownie AJ at 1

DECISION: Judgment for the defendants and order the plaintiff to pay the defendants' costs.

CATCHWORDS: Home Building Act: - A contracted with B, for B to do residential bulding work. B subcontracted that work to C. C became insolvent, and did not complete the work. B and C each obtained insurance cover under Pt 6 of the Act, but both insurers became insolvent. - Held: B was not entitled to be indemnified under C's policy, and therefore was not entitled to be indemnified by the State under P 103I of the Act.

LEGISLATION CITED: Home Building Act 1989
Home Building Regulation 1989

CASES CITED: Australasian Concrete Services Pty Limited v Multiplex Pty Limited [1999] NSWSC 1140
De More Constructions Pty Ltd v Garpace Pty Ltd (2001) 53 NSWLR 132

PARTIES :
Atlen Pty Limited - Plaintiff
Building Insurers' Guarantee Corporation - 1st Defendant
The State of New South Wales - 2nd Defendant

FILE NUMBER(S): SC 4306/2002

COUNSEL: Mr Stephen Epstein SC - Plaintiff
Ms P Nash - Defendant

SOLICITORS: Gadens - Plaintiff
McLachlan Chilton - Defendant

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

BROWNIE AJ

WEDNESDAY, 24 MARCH 2004

4306/02 ATLEN PTY LIMITED v BUILDING INSURERS’ GUARANTEE CORPORATION & ANOR

JUDGMENT

1 HIS HONOUR: The plaintiff claims that it was entitled to be indemnified under a contract of insurance, issued by FAI General Insurance Company Limited (FAI). The plaintiff says that FAI is an insolvent insurer within the meaning of Pt 6A of the Home Building Act 1989 (the Act), and therefore that it is now entitled to be indemnified by the second defendant, the State of New South Wales: s 103I of the Act. It is not in dispute that FAI is such an insolvent insurer. The first defendant administers the position under Pt 6A, in a way that is not in dispute. It may be that the second defendant is an unnecessary party: see s 103J of the Act; but nothing turns on that.

2 Developmentlink Surry Hills Pty Limited (Developmentlink) and the plaintiff entered into a contract dated 3 February 1999, the former as “the owner” and the latter as “the builder”, for the conversion of a warehouse at Surry Hills into 29 home units. This was “residential building work” within the meaning of the Act, so that Pt 6 (ss 90-103E) applied. Sections 92(1) and 99(1) and (2) were in these terms:-

(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 …

99(1) A contract of insurance in relation to residential building work required by section 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, death or disappearance of the contractor, and

(i) to recover compensation from the contractor for a breach of a statutory warranty in respect of the work, or

(ii) to have the contractor rectify any such breach.

3 The expression “developer” is defined for the purposes of Pts 6 and 6A as meaning, in relation to residential building work,

“an individual, partnership or corporation (other than a company referred to in s 3A(3)) on whose behalf the work is done in the circumstances set out in s 3A(2)”.

4 Section 3A is in these terms:-

“(1) For the purposes of this Act, an individual, a partnership or a corporation on whose behalf residential building work is done in the circumstances set out in subsection (2) is a developer who does the work.

(a) the residential building work is done in connection with an existing or proposed dwelling in a building or residential development where 4 or more of the existing or proposed dwellings are or will be owned by the individual, partnership or corporation, or … “

5 Subsection (3) is not presently relevant. Clauses 42 and 43 of the Home Building Regulation 1989 contain these provisions:

(i) on whose behalf residential building work covered by the contract is done or is to be done, or …

(2) The following persons are not required to be beneficiaries under an insurance contract:

(c) a holder of a licence who or which carries out residential building work

subclause (2) from being a beneficiary under an insurance contract …

43(1) An insurance contract must indemnify beneficiaries under the insurance contract for the following losses or damage in respect of residential building work covered by the insurance contract:

(a) loss or damage resulting from non-completion of the work because of the insolvency or death of the contractor or because, after due search and inquiry, the contractor cannot be found,

(b) loss or damage arising from a breach of a statutory warranty …

(4) The insurance contract must state that the risks indemnified include the acts and omissions of all persons contracted by the contractor, supplier, owner-builder or other person to perform the work resulting in loss or damage of a kind referred to in this clause.”

6 Someone, presumably the plaintiff, and presumably in compliance with these provisions, obtained from HIH Casualty and General Insurance Limited (HIH) a Policy of Insurance, commencing on 1 March 1999. A Certificate of Insurance issued in respect of this policy identified the work in question at Surry Hills, said that the work was being carried out by the plaintiff, and identified the “beneficiary” as Developmentlink.

7 On 17 May 1999 the plaintiff entered into a further contract with Horvat Constructions Pty Limited (Horvat). Like the contract between Developmentlink and the plaintiff, it was a contract based upon a standard printed form, “BC4”. The standard form described the parties as the owner and the builder, but a special condition provided:-

8 That is, in this contract, the plaintiff was described as “the head contractor” or “the owner”, and Horvat was described as “the sub-contractor” or “the builder”.

9 Horvat later became insolvent, and the plaintiff claimed to have suffered loss by reason of Horvat not having carried out the work it contracted to do.

10 Earlier, on 21 December 1998, Horvat applied to FAI for a Policy of Insurance, described as an “Annual Blanket” Builders Warranty Insurance Policy, and on 29 December 1998 FAI issued such a policy. What appears to have been a standard form of policy contained these provisions:-

“1.1 This Policy is issued to comply with the requirements of the Act …

1.6 For the purposes of the Regulation, the owner and each successor in title to the owner in respect of the site is a beneficiary described under this policy.

2.1 In this Policy unless the context otherwise requires

The Act

The contract

The contractor

The Insured

The owner

The Regulation

The site

The work

3.3 The risks indemnified under this Policy include the acts and omissions of all persons contracted by the contractor to perform the work resulting in loss or damage of a kind referred to in this section.

(l) a claim in relation to visible defects in the work of which the insured should reasonably have been aware when acquiring the dwelling the subject of the work … ”

11 The application that Horvat made to FAI for this insurance recorded details of Horvat’s earlier and present business activities. It seems clear that, as at the end of 1998 and into 1999 the intention of Horvat and of the plaintiff was that Horvat had obtained insurance cover, generally in compliance with the provisions of the Act, with FAI, but not in respect of the Surry Hills project, which had not been mentioned, as between Horvat and FAI; and in respect of the Surry Hills project the plaintiff had obtained insurance cover with HIH. However, I doubt that the matter is to be decided by reference to that subjective intention.

12 Essentially, the debate has turned upon the meaning of the expression, within the definition of “the owner” in the definition clause in the FAI policy, and through that definition by reference to the words of s 99 of the Act, of the expression “the person for whom the work is to be done.” On the plaintiff’s case, the plaintiff was at least one of the persons for whom the work was to be done, so that s 103I took effect. That section was in these terms:-

(a) who is entitled to recover an amount under a contract of insurance entered into under Part 6 in connection with any matter, and

to the extent of the amount that the person is entitled to recover under that policy in connection with that matter.

13 Section 103F provides that, in Pt 6A, “beneficiary” means a person covered by an indemnity from the State under s 103I.

14 It seems likely that those who drafted and those who approved of the form of the FAI policy adopted the expressions “the insured” and “the owner” in an endeavour to comply with the provisions of the Act and the Regulation, in a way that would be clear (or as clear as the circumstances permitted) to non-lawyers. Neither the Act nor the Regulation uses these expressions, as distinct from expressions such as “a person on whose behalf the work is being done”, or “to be done”. Whilst it is the FAI policy that has to be considered, that policy must be construed in the context of the Act and the Regulation.

15 Section 99 of the Act refers to a person on whose behalf the work is being done, and to that person’s successors in title, and it refers the reader to s 92, which in turn refers to the notion of a person doing residential building work under a contract, and to a contract of insurance “in relation to that work in the name of the person who contracted to do the work.” One is then taken back to the earlier provisions of the Act, which in summary forbade unlicensed persons from contracting to do residential building work, or from doing residential building work, except as a member of a licensed partnership or as an officer of a licensed corporation: see ss 4, 12 and 13, and Australasian Concrete Services Pty Limited v Multiplex Pty Limited [1999] NSWSC 1140.

16 In the circumstances of this case Horvat, as a sub-contractor, was forbidden by s 92 from doing residential building work under a contract, unless there was a contract of insurance complying with the Act in force in relation to that work in the name of the person who contracted to do the work. Horvat was clearly not in breach of the Act: in respect to the sub-contract work that it did, there was the HIH policy, issued in its name; and independently of that, there was the FAI policy issued in the name of the plaintiff, which had the effect that as a sub-contractor to the plaintiff, Horvat was not in breach of the Act: Australasian Concrete.

17 However, that is not directly to the point of the present case: the plaintiff says that it is entitled to be indemnified under the FAI policy, because it is a person “for whom the work is to be done”. However, the defendants submitted that since the Act did not require a subcontractor to obtain insurance under Pt 6, it is unlikely that the Act, properly construed, meant that a head contractor, such as the plaintiff here, should be regarded as one of the persons entitled to the benefit of a contract of insurance if, in an appropriate case, the owner of the land on which the work is being done and/or the head contractor is a “developer”, as defined.

18 The plaintiff submitted that there was no evidence that it was a developer. However, the contract between Developmentlink and the plaintiff described the work to be done as “warehouse conversion into 29 home units”, and the specification to that contract appears to describe work constructing residential home units; and whilst the body of the contract between the plaintiff and Horvat did not itself expressly describe the works to be carried out, the annexed documents refer to a typical unit, and to provide a mass of detail concerning master and other bedrooms, bath rooms, kitchens, living and dining areas, and the like, and there are references (Exhibit B, pages 147 and 156) to council approval for converting an existing warehouse into 33 home units or residential units.

19 The principal argument of the defendants was that s 103I of the Act only operated to provide indemnity to a person who was entitled to the benefit of a contract of insurance entered into under Pt 6 of the Act; and they submitted that it could not be said that the plaintiff was such a person: when one read Pt 6 properly, it did not extend to require a subcontractor to obtain a contract of insurance that indemnified a head contractor. I accept this as correct. Although one can see an argument that the plaintiff was a person for whom Horvat did the work, that argument seems strained and artificial.

20 The defendants also emphasised the expression appearing, for example, in s 99(1)(b) of the Act, to the “successors in title” to the person for whom the work is done, submitting that these words point to the person for whom the work is done being a person who has a title, or an estate or interest in the land on which the work is done. I accept this as an indication in favour of the construction for which the defendants contend.

21 In De More Constructions Pty Ltd v Garpace Pty Ltd (2001) 53 NSWLR 132, as in this case and other cases concerning the Act, submissions were made as to how the Act should be construed, by reference to the relevant second reading speech. It is clear from this, if it is not otherwise clear, that an object of the Act is to protect “consumers”. However, as De More establishes, this is not the sole object of the act; and in that case the Court of Appeal held that an unlicensed subcontractor might recover from its head contractor a sum of money for work done and materials supplied by the subcontractor pursuant to the terms of the subcontract, the head contract being one relating to residential building work.

22 However, the present case raises a different question. The plaintiff subcontracted the work, or some of the work it had contracted to do, to Horvat. Clause 3 of the FAI insurance contract provided that the insurer was to indemnify the insured against the risks mentioned; the insured was defined to mean the owner, and the owner’s successors in title; the owner was defined as meaning the person for whom the work is to be done; and the work was defined as the residential building work to be carried out by the contractor for the owner as described in the contract.

23 In my view, the plaintiff’s argument strains the language of the FAI policy, and of the Act, too much. It is only the circumstance of (I assume) the insolvency of HIH that means that the present claim is brought; and if HIH was not insolvent, then it having indemnified the plaintiff, it would have been entitled to be indemnified by the second defendant, by way of subrogation, if the plaintiff’s arguments are correct. I do not think that this can have been the legislative intention.

24 There is another circumstance that seems to be at least not insignificant. Clause 5.1(l) of the FAI policy points towards the view that the person for whom the work is done is a person who has acquired, or will acquire the dwelling in question, that is, someone who is or will be the owner in the ordinary sense of the land on which the work is done, rather than a head contractor or an intermediate contractor.

25 I give judgment for the defendants, and order the plaintiff to pay the defendants’ costs.

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Last Modified: 03/30/2004

Citations

Atlen Pty Limited v Building Insurers' Guarantee Corporation [2004] NSWSC 195

Most Recent Citation

Cases Citing This Decision

1

Atlen P/L v Building Insurers' Guarantee Corp [2005] NSWCA 105

Cases Cited

1

Statutory Material Cited

2

Australasian Concrete Services v Multiplex Constructions [1999] NSWSC 1140

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CITATION:	Atlen Pty Limited v Building Insurers' Guarantee Corporation & Anor [2004] NSWSC 195 revised - 26/03/2004
HEARING DATE(S):	11/02/2004
JUDGMENT DATE:	24 March 2004
JURISDICTION:	Equity
JUDGMENT OF:	Brownie AJ at 1
DECISION:	Judgment for the defendants and order the plaintiff to pay the defendants' costs.
CATCHWORDS:	Home Building Act: - A contracted with B, for B to do residential bulding work. B subcontracted that work to C. C became insolvent, and did not complete the work. B and C each obtained insurance cover under Pt 6 of the Act, but both insurers became insolvent. - Held: B was not entitled to be indemnified under C's policy, and therefore was not entitled to be indemnified by the State under P 103I of the Act.
LEGISLATION CITED:	Home Building Act 1989 Home Building Regulation 1989
CASES CITED:	Australasian Concrete Services Pty Limited v Multiplex Pty Limited [1999] NSWSC 1140 De More Constructions Pty Ltd v Garpace Pty Ltd (2001) 53 NSWLR 132
PARTIES :	Atlen Pty Limited - Plaintiff Building Insurers' Guarantee Corporation - 1st Defendant The State of New South Wales - 2nd Defendant
FILE NUMBER(S):	SC 4306/2002
COUNSEL:	Mr Stephen Epstein SC - Plaintiff Ms P Nash - Defendant
SOLICITORS:	Gadens - Plaintiff McLachlan Chilton - Defendant