Australian Securities Ltd v Victorian Managed Insurance Authority
[2024] VSC 542
•6 September 2024
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
JUDICIAL REVIEW AND APPEALS LIST
S ECI 2022 03042
| AUSTRALIAN SECURITIES LTD (ACN 005 054 253) | Appellant |
| v | |
| VICTORIAN MANAGED INSURANCE AUTHORITY | Respondent |
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JUDGE: | Watson J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 1 August 2024 |
DATE OF JUDGMENT: | 6 September 2024 |
CASE MAY BE CITED AS: | Australian Securities Ltd v Victorian Managed Insurance Authority |
MEDIUM NEUTRAL CITATION: | [2024] VSC 542 |
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DOMESTIC BUILDING INSURANCE – Appeal from Victorian Civil and Administrative Tribunal – Whether Tribunal erred in finding that the indemnity under insurance policies did not extend to the plaintiff – Owner and builder parties to domestic building contract – Owner, builder and plaintiff parties to tripartite deed – Under tripartite deed builder gave same warranties to plaintiff as it had given to owner – Whether plaintiff a person who becomes entitled to the benefit of any of the warranties implied into the domestic building contract by s 8 of the Domestic Building Contracts Act 1995 – Construction of cl 11 of Domestic Building Insurance Ministerial Order 2003 – No error of law – Leave to appeal granted – Appeal dismissed – Domestic Building Contracts Act 1995 (Vic) ss 4, 8; Building Act 1993 (Vic) ss 135, 137A; Domestic Building Insurance Ministerial Order 2003 cl 8, 11.
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APPEARANCES: | Counsel | Solicitors |
| For the Appellant | Mr P Cawthorn KC Mr A Kirby | Nicholas O’Donohue & Co |
| For the Respondent | Ms A Golding | Moray & Agnew |
HIS HONOUR:
Australian Securities Limited (‘ASL’) says it is entitled to indemnity under the domestic building warranty insurance issued by the Victorian Managed Insurance Authority (‘VMIA’) and confirmed by the insurance certificates dated 9 April 2015 and numbered 420012493BWI-68, 420012493BWI-69 and 420012493BWI–70 (‘the policies’).
ASL was not a party to the policies and was not named in the policies. It says it is nonetheless entitled to claim an indemnity under the policies because of the terms of the Domestic Building Insurance Ministerial Order dated 23 May 2003 (‘Ministerial Order’).
The question of whether ASL was entitled to an indemnity under the policies was considered by the Victoria Civil and Administrative Tribunal (‘VCAT’). On 14 July 2022 VCAT found that ASL was not entitled to that indemnity. ASL now seeks leave to appeal that decision and if leave is granted seeks a declaration that it is entitled to an indemnity under the policies.
The prospects of the appeal are real and so I would grant leave to appeal.
However, for the reasons which follow the appeal should be dismissed.
Facts
Enpresionante Pty Ltd (‘the owner’) was previously the owner of land at 11 Iramoo Street, Balwyn (‘the land’).
On 14 October 2014 Ridgecon Pty Ltd (‘the builder’) and the owner entered into a contract (‘the building contract’) for the construction of three townhouses on the land. The building contract was a standard Master Builders Association contract for domestic building works. Under clause 10.1 the builder expressly gave the owner the warranties in s 8 of the Domestic Building Contracts Act 1995 (Vic) (‘DBCA’).
ASL was the owner’s financier in relation to the project to build the townhouses. It provided finance pursuant to a facility agreement between ASL and the owner dated 9 October 2015 (‘the facility’).
On 9 October 2015 the owner, the builder and ASL entered into a tripartite deed (‘the tripartite deed’).
Clause 3 of the tripartite deed relevantly provides as follows:
Builder obligations to benefit ASL
3.1 Subject to clause 3.2:-
…
(b)The Builder gives to ASL the same warranties, guarantees and indemnities that it has given to the Borrower under the Building Contract.
(c)The Builder agrees that where the Builder is obliged by the Building Contract to effect insurance in the name of the Borrower:–
(i)The Builder shall also effect the insurance in the name of ASL for its respective interest as if ASL were named separately in the Building Contract as a person in whose name insurance is to be effected; and
(ii)The Builder shall comply with all its other obligations under the Building Contract relating to insurance for the benefit of ASL.
…
3.3The obligations of the Builder under Clause 3.1:–
(i)Take effect immediately upon the execution of this Deed;
(ii)Are additional to and do not derogate from or replace the obligations of the Builder under the Building Contract.
Clause 8 of the tripartite deed provided for ASL to require novation of the building contract to ASL or its nominee in circumstances where the borrower had defaulted its obligations under the facility.
Clause 9.1 of the tripartite deed entitled the owner to terminate the building contract for any default by the builder under the tripartite deed which the builder had failed to rectify after 14 days’ notice.
Under the Ministerial Order the builder was required to take out insurance which indemnified the owner for certain kinds of losses under the building contract.
On 9 April 2015 the owner was issued with three certificates of insurance, one in respect of each unit to be constructed, by VMIA through its agent QBE Insurance (Australia) Ltd. The policies comprising the certificates of insurance together with the standard policy wording are the contracts of insurance entered into between the VMIA and the owner for the purpose of the Ministerial Order. ASL was not a party to the policies and despite the terms of clause 3.1(c) of the tripartite deed, the builder did not effect insurance in the name of ASL.
On 4 May 2016 ASL issued a default notice to the owner under the facility. The owner defaulted under the facility.
The works done by the builder were defective and incomplete. On 31 January 2017 ASL sent the builder a letter notifying it of default under clause 9.1 of the tripartite deed. On 22 March 2017 ASL exercised its rights as mortgagee and went into possession of the land and the three townhouses under construction. On 24 May 2017 ASL engaged an alternative builder, Blue Pearl Group Pty Ltd (‘Blue Pearl’), to rectify the builder’s works and to complete the project.
The owner was deregistered on 9 March 2018.
The townhouses were ultimately completed by Blue Pearl and ASL, as mortgagee in possession, sold them after completion.
ASL says it has suffered a loss as mortgagee after selling the three townhouses. On 13 July 2018 ASL sued the builder in the County Court of Victoria seeking to recover those losses. On 21 October 2019 ASL obtained judgment in the County Court proceeding for a sum of $700,300.61 together with its costs.
After the County Court judgment, ASL commenced winding up proceedings against the builder and the builder subsequently went into liquidation on 22 January 2020.
ASL made a claim for indemnity under the policies on 15 March 2020. By letter dated 4 June 2020 VMIA denied liability for ASL’s claim for indemnity.
ASL then sought to reinstate the owner. Orders were made to reinstate the owner, wind it up and appoint a liquidator on 26 October 2020. The liquidator then made a claim under the policies on the owner’s behalf. This claim was denied by the VMIA on 8 February 2021 on the basis that the owner’s loss did not arise from defective work but rather from the terms of the facility.
Relevant legislation
Section 3 of the DBCA defines a building owner as ‘the person for whom domestic building work is being, or is about to be, carried out’. In relation to the work performed by the builder, ASL did not fall within this definition.
Section 8 of the DBCA creates warranties (‘the s 8 warranties’) which become part of every domestic building contract:
8. Implied warranties concerning all domestic building work
The following warranties about the work to be carried out under a domestic building contract are part of every domestic building contract—
(a) the builder warrants that the work will be carried out in a proper and workmanlike manner and in accordance with the plans and specifications set out in the contract;
(b) the builder warrants that all materials to be supplied by the builder for use in the work will be good and suitable for the purpose for which they are used and that, unless otherwise stated in the contract, those materials will be new;
(c) the builder warrants that the work will be carried out in accordance with, and will comply with, all laws and legal requirements including, without limiting the generality of this warranty, the Building Act 1993 and the regulations made under that Act;
(d) the builder warrants that the work will be carried out with reasonable care and skill and will be completed by the date (or within the period) specified by the contract;
(e) the builder warrants that if the work consists of the erection or construction of a home, or is work intended to renovate, alter, extend, improve or repair a home to a stage suitable for occupation, the home will be suitable for occupation at the time the work is completed;
(f) if the contract states the particular purpose for which the work is required, or the result which the building owner wishes the work to achieve, so as to show that the building owner relies on the builder's skill and judgement, the builder warrants that the work and any material used in carrying out the work will be reasonably fit for that purpose or will be of such a nature and quality that they might reasonably be expected to achieve that result.
Section 9 of the DBCA provides as follows:
9. Warranties to run with the building
In addition to the building owner who was a party to a domestic building contract, any person who is the owner for the time being of the building or land in respect of which the domestic building work was carried out under the contract may take proceedings for a breach of any of the warranties listed in section 8 as if that person was a party to the contract.
From 24 May 2017 ASL would have been a ‘building owner’ within the meaning of s 3 of the DBCA as the person for whom Blue Pearl was carrying out domestic building work but, it was not, as mortgagee in possession, a ‘person who is the owner for the time being of the building or land in respect of which the domestic building work was carried out’ within the meaning of s 9. In other words, in relation to work performed by the builder, ASL does not have an entitlement to the benefit of the s 8 warranties by virtue of the operation of s 9 of the DBCA.
Two provisions of the Building Act 1993 (Vic) (‘the Building Act’) are of some significance to the resolution of the issues in this case.
Section 135 of the Building Act relevantly provides:
Order requiring insurance
(1) The Minister may, by order published in the Government Gazette—
(a) require building practitioners in specified categories or classes of building practitioners or any part of a class or category of building practitioners or any persons in a specified category or class of engineers engaged in the building industry to be covered by insurance; and
(b) require specified classes of persons to whom section 137B or 137D applies to be covered by insurance for the purposes of that section; and
(c) specify the kinds and amount of insurance by which building practitioners and persons in each specified category or class or part of a category or class are required to be covered.
….
(6) For the purposes of this Act, a person is covered by the required insurance if—
(a) the person holds the required insurance; or
(b) the building work carried out by or on behalf of the person is covered by the required insurance; or
(c) in the case of a person who manages or arranges the carrying out of domestic building work, the work carried out by the person and the building work which the person manages or arranges is covered by the required insurance; or
(d) the person is not a party to the required insurance but is specified or referred to in the insurance, whether by name or otherwise, as a person to whom the insurance cover extends.
…
In relation to the work carried out by the builder, ASL was not a person covered by the required insurance within the meaning of s 135(6).
Section 137A of the Building Act provides for insurance in relation to domestic building work in the following terms:
Insurance for domestic building work
(1) Without limiting section 135, if an order under that section requires a builder to be covered by insurance relating to the carrying out of domestic building work, the insurance required by the order may, subject to any exemptions or exclusions set out in the order, relate to losses resulting from—
(a) breaches of warranties implied into the major domestic building contract for that work under the Domestic Building Contracts Act 1995;
(b) domestic building work which is defective within the meaning of that Act;
(c) non-completion of the domestic building work;
(d) conduct by the builder in connection with the major domestic building contract for that work which contravenes section 18, 29, 34 or 151, or Subdivision B of Division 1 of Part 3-2, of the Australian Consumer Law (Victoria).
(2) An order under section 135 may require insurance cover of a kind referred to in—
(a) subsection (1)(a) to extend to each person who is or may become entitled to the benefit of any of those warranties; or
(b) subsection (1)(b) to extend to any person on whose behalf the domestic building work is being carried out and to the owner for the time being of the building or land in respect of which the building work was being carried out.
….
The Ministerial Order
The Ministerial Order is made under ss 135, 137A and 137D of the Building Act. The relevant provisions of ss 135 and 137A are set out above. Section 137D is not relevant to this matter as it relates to the sale of homes built by owner-builders. For present purposes the Ministerial Order needs to be construed conformably with ss 135 and 137A. I discuss the implications of this below.
Under clause 7 of the Ministerial Order the builder was required to enter an insurance policy covering the works under the building contract and complying with the terms of the order. Under clause 50 the terms of any policy could not derogate from the terms of Ministerial Order. Clause 72 of the policies expressly provides that the policies must be read and enforceable as if they comply with the Ministerial Order.
Clause 8 of the Ministerial Order sets out the scope of what a policy must indemnify:
Indemnity for loss
(1) The policy must indemnify the building owner in respect of loss or damage resulting from non-completion of the domestic building work.
(2) The policy must also indemnify the building owner in respect of loss or damage resulting from all or any of the following events –
(a) domestic building work that is defective;
(b) a breach of any warranty implied into the domestic building contract by section 8 of the Domestic Building Contracts Act 1995;
(c) a failure to maintain a standard or quality of building work specified in the domestic building contract;
(d) conduct by the builder in connection with the domestic building contract that contravenes a trade practices provision.
(3) The policy may provide that the indemnity referred to in sub-clause (1) or (2) only applies if the builder dies, becomes insolvent or disappears.
(emphasis in original)
The policies provided indemnities consistent with clause 8(1) and (2) and limited in the way contemplated by clause 8(3).
Clause 11 of the Ministerial Order is central to ASL’s case. It provides:
To whom does the cover extend?
The required insurance cover in the policy must extend –
(a) to each person who becomes entitled to the benefit of any of the warranties referred to in clause 8(2)(b); and
(b) to the owner for the time being of the building or land in respect of which the domestic building work is or was being carried out.
The VCAT judgment
The question of whether ASL was entitled to an indemnity under the policies came before VCAT. On 14 July 2022 VCAT found that ASL was not entitled to indemnity under those policies.
In his reasons (‘Reasons’) for that conclusion Senior Member Farrelly considered whether ASL was within the meaning of clause 11(a) of the Ministerial Order a person who becomes entitled to the benefit of the s 8 warranties. The Reasons may, for present purposes, be summarised as:
(a) Clause 3.1(b) of the tripartite deed did not give ASL the s 8 warranties, rather it gave warranties expressly set out in clause 10.1 of the building contract;[1]
(b) The builder could not convey to whomever it wished the benefit of the s 8 warranties;[2] and
(c) The objects of the DBCA include enabling ‘building owners’ to have access to insurance funds if domestic building works are incomplete or defective. However clause 11(a) is to be interpreted, consistent with that object, it does not extend to mortgagees in possession, such as ASL.[3]
[1]Australian Securities Ltd v Victorian Managed Insurance Authority(Building and Property) [2022] VCAT 759, [37], [38].
[2]Ibid [39].
[3]Ibid [40]–[45].
ASL’s grounds of appeal
ASL’s notice of appeal contains five grounds in respect of which it is alleged that VCAT erred in its decision. In its outline of submissions it cast one of those grounds in different terms. I will deal with the grounds as articulated in those submissions.
All five grounds rest on the fundamental proposition that ASL became entitled to the benefit of the s 8 warranties by virtue of the provisions of clause 3.1(b) of the tripartite deed.
Those grounds are:
1. VCAT erred in paragraphs [38] and [39] of the Reasons in holding that the domestic building warranty insurance cover given by the VMIA under the policies did not extend to ASL by reason of clause 11(a) of the Ministerial Order, in circumstances where the ASL:
(a) had the benefit of the warranties under the tripartite deed as mortgagee and financier; and
(b) had suffered relevant loss and damage as defined under clause 8(2) of the Ministerial Order and the policies.
2. VCAT erred in finding in paragraph [38] of the Reasons that the indemnity in clause 11(a) of the Ministerial Order did not “extend” to ASL. It erred in concluding that the indemnity extended only to a building owner, an indemnity dealt with in clause 8 (and not clause 11).
3. VCAT erred in paragraphs [39] and [40] of the Reasons in holding that the builder and owner could not, and had no standing to, convey the benefit of the s 8 warranties to ASL under the tripartite deed for the purposes of clause 11(a) of the Ministerial Order. It should have found that the s 8 warranties were terms of the domestic building contract that could be assigned or conveyed to the ASL.
4. VCAT erred in paragraphs [34]–[37] of the Reasons in holding that under the tripartite deed the builder did not convey to ASL the benefit of the s 8 warranties implied into the building contract were conveyed to ASL under the tripartite deed.
5. VCAT erred in paragraph [40] of the Reasons in holding that a person other than the building owner could not receive the benefit of the s 8 warranties and the policies under clause 11(a) of the Ministerial Order.
Consideration
It is convenient first to deal with grounds 3 and 4.
In its submissions ASL said:
(a) The s 8 warranties were part of the building contract;[4]
[4]Grant v Australian Knitting Mills [1936] AC 85, 100.
(b) Warranties in building contracts may be assigned;[5]
[5]Walker Group Constructions v Tzaneros Investments Pty Ltd (2017) 94 NSWLR 108, 112 [5], 112 [9], 133 [98]-[100] (Bathurst CJ).
(c) The s 8 warranties could therefore be assigned;
(d) An effective assignment did not require the use of a particular form of words. All that is necessary is that the right be made over by the person possessing it to a third person;[6] and
(e) Clause 3.1(b) of the tripartite deed effected an assignment of the s 8 warranties from the owner to ASL.
[6]William Brandt’s Sons & Co v Dunlop Rubber Ltd [1905] AC 454, 462; Comptroller of Stamps v Howard-Smith (1936) 54 CLR 614, 622.
ASL’s argument fails because clause 3.1(b) of the tripartite deed does not effect any assignment of warranties from the owner to ASL.
Clause 3.1(b) is not a clause where the owner conveys anything to ASL. It is a clause by which the builder gives to ASL the same warranties as it has given to the owner under the building contract. Clause 3.3 of the tripartite deed makes plain that the obligations of the builder under clause 3.1 are additional to and do not derogate from or replace the obligations of the builder under the building contract. In other words, clause 3.1(b) creates a fresh obligation from the builder to ASL. The warranties to which the owner was entitled under the building contract continued to inure for the benefit of the owner, they were not assigned or otherwise conveyed from the owner to ASL.
Grounds 3 and 4 in the notice of appeal are not made out.
Grounds 1, 2 and 5 are all different expressions of the same point, which is that, properly construed, clause 11(a) of the Ministerial Order extends to ASL. The argument rests on the following propositions:
(a) Clause 11(b) extends the benefit of the indemnity under the policies to ‘the owner for the time being of the building or land’;
(b) Clause 11(a) must therefore cover a category of person who ‘becomes entitled’ to the warranties under s 8 of the DBCA, other than owners;
(c) ASL became ‘entitled’ to the s 8 warranties by virtue of the provisions of clause 3.1(b) of the tripartite deed; and
(d) ASL is therefore entitled to an indemnity under the policy.
In construing the Ministerial Order ASL draws my attention to the principles in Project Blue Sky Inc v Australian Broadcasting Authority (‘Project Blue Sky’)[7] and particularly emphasised the following passage from the joint judgment of McHugh, Gummow, Kirby and Hayne JJ:
Furthermore, a court construing a statutory provision must strive to give meaning to every word of the provision. In The Commonwealth v Baume Griffith CJ cited R v Bercher to support the proposition that it was "a known rule in the interpretation of Statutes that such a sense is to be made upon the whole as that no clause, sentence, or word shall prove superfluous, void, or insignificant, if by any other construction they may all be made useful and pertinent".[8]
[7](1998) 194 CLR 355.
[8]Ibid 382 [71].
ASL says that if clause 11(a) of the Ministerial Order is limited to persons who are entitled to the s 8 warranties pursuant to s 9 of the DBCA, being ‘any person who is the owner for the time being of the building or land in respect of which the domestic building work was carried out’, then one or other of clause 11(a) or 11(b) would be superfluous. It contends that in giving meaning to clause 11(a) I must construe it as meaning something other than or at least more than persons who become entitled to warranties under s 9 of the DBCA.
Having regard to the legislative basis for the Ministerial Order, it is my view that properly construed, clause 11(a) only extends to those persons who may become entitled to the benefit of the s 8 warranties under s 9 of the DBCA. I am conscious that this was not a construction urged upon me by either party and that whilst the Tribunal thought such a construction had merit, it found it ultimately unnecessary to rest its decision on that basis. Nonetheless, I am satisfied that a proper application of the Project Blue Sky principles leads to that conclusion.
In construing clause 11 of the Ministerial Order it is important to bear in mind that the Ministerial Order is, relevantly, made under ss 135 and 137A of the Building Act. It is plain that the language in paragraphs (a) and (b) of clause 11 is a reflection of the drafting of paragraphs (a) and (b) of s 137A(2).
Section 137A(2)(a) provides that insurance cover for breach of the s 8 warranties must extend to ‘each person who is or may become entitled to the benefit of those warranties’. Clause 8(2)(b) of the Ministerial Order provides cover for each person who is entitled to the benefit of the s 8 warranties (building owners as defined) and clause 11(a) extends the cover to each person who becomes entitled to the s 8 warranties.
Section 137A(2)(b) provides that insurance cover relating to defective building work must extend to ‘any person on whose behalf the domestic building work is being carried out and to the owner for the time being of the building or land in respect of which the building work is being carried out’. Clause 8(2)(a) of the Ministerial Order provides cover for each person on whose behalf the building work is being carried out (the building owner). Clause 11(b) extends the cover to ‘the owner for the time being of the building or land’.
Thus, the drafting of the Ministerial Order picks up the structure of s 137A(2) of the Building Act in the following way:
(a) the person who is the person for whom the building work is being carried out (the building owner as defined by s 3 of the DBCA) is the object of clause 8 with one paragraph, clause 8(b), applying to persons who fall within the description in paragraph s 137A(2)(a) and another, clause 8(a), applying to persons who fall within the description in paragraph s 137A(2)(b); and
(b) other persons who are entitled to an indemnity under the insurance contract are the objects of clause 11 with one paragraph, clause 11(a), applying to persons who fall within the description in paragraph s 137A(2)(a) and another, clause 11(b), applying to persons who fall within the description in paragraph s 137(2)(b).
Sections 135 and 137B of the Building Act were inserted into that Act by ss 139 and 142 of the Domestic Building Contracts and Tribunals Act 1995 (Vic) which was later renamed the DBCA. Since its enactment s 4(c) of the DBCA has provided that one of the objects of the Act is:
To enable building owners to have access to insurance funds if domestic building work under a major domestic building contract is incomplete or defective.
Having regard to the object in s 4(c) of the DBCA, the structure of s 137A(2) and the way in which clauses 8 and 11 reflect that structure, it is my view that the intention of the drafter of the Ministerial Order was to capture in clause 11(a) persons who became entitled to the benefit of warranties under s 9 of the DBCA and to capture in clause 11(b) building and land owners for the time being who suffered the effects of defective building work. As it happens, the persons in those two paragraphs are coextensive but this is not in my view to treat the language in clause 11(a) as superfluous, but rather to recognise the genesis of the drafting of clause 11(a) in the structure of s 137A(2). Clause 11(a) is ‘always speaking’ and so if parliament were to expand or contract the scope of persons who become entitled to s 8 warranties by amending s 9 of the DBCA, the scope of clause 11(a) would similarly expand or contract.
In those circumstances having regard to text, context and purpose, it is my view that clause 11(a) is confined in its application to a person who becomes entitled to the benefit of s 8 warranties by reason of s 9 of the DBCA. ASL is not such a person.
However, even if my preferred construction of clause 11(a) of the Ministerial Order is wrong and clause 11(a) has to be given a meaning which goes beyond the terms of those who become entitled to s 8 warranties under s 9 of the DBCA, ASL is not such a person. The warranties ‘referred to in clause 8(2)(b)’ are the warranties ‘implied into the domestic building contract by section 8 of the [DBCA]’. ASL did not become entitled to those warranties – it was not assigned them, for the reasons discussed above, and it did not exercise its rights under clause 8 of the tripartite deed to require novation of the contract to ASL. What ASL obtained under clause 3.1(b) of the tripartite deed were, by clause 3.3 of the tripartite deed, separate and additional warranties from the builder to the same effect as those under the building contract but ASL did not become entitled to the warranties implied into the building contract by s 8 of the DBCA.
For completeness, I note that the interpretation of clause 11(a) of the Ministerial Order for which ASL contends would leave VMIA required to indemnify anyone whom the builder purported to, give warranties to the same effect as the s 8 warranties. VMIA says it is not likely that the Ministerial Order was intended to expose VMIA to liability to an indeterminate class of persons constituted by whomever the builder chooses to give such a warranty. ASL says that this argument is much overstated, that the practical reality is that such warranties will usually only be given to financiers and the indemnity only called upon in circumstances of the builder’s death, insolvency or disappearance. In the final analysis I do not regard either of these competing contentions as decisive of the proper interpretation of clause 11.
For the reasons I have set out above, my preferred view is that clause 11(a) is limited in its application to those persons who become entitled to the s 8 warranties by operation of s 9 of the DBCA but, even if that is not the case, ASL did not become entitled to the s 8 warranties but rather by clause 3.1(b) of the tripartite deed became entitled to separate and additional warranties to the same effect as the s 8 warranties.
Leave to appeal should be granted but the appeal should be dismissed.
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