Fall-Armytage v Victorian Managed Insurance Authority
[2025] VCC 709
•4 June 2025
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE COMMERCIAL DIVISION | Revised Not Restricted Suitable for Publication |
BUILDING CASES LIST
Case No. CI-23-06588
| SEBASTIEN ANDY NORMAN FALL-ARMYTAGE | Plaintiff |
| v | |
| VICTORIAN MANAGED INSURANCE AUTHORITY (ABN 39 682 497 841) | Defendant |
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JUDGE: | HIS HONOUR JUDGE MACNAMARA | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 21-23 and 28 May 2025 | |
DATE OF JUDGMENT: | 4 June 2025 | |
CASE MAY BE CITED AS: | Fall-Armytage v Victorian Managed Insurance Authority | |
MEDIUM NEUTRAL CITATION: | [2025] VCC 709 | |
REASONS FOR JUDGMENT
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Subject:Claim under indemnity insurance policy
Catchwords: Builder’s indemnity insurance issued pursuant to Domestic Building Insurance Ministerial Order, 23 May 2003 Victorian Government Gazette No S 98 – Whether policy in accordance with Ministerial Order or whether defects existing as at date of issue of occupancy permit excluded from coverage because no loss or damage relative to those defects occurred to claimant successor of title within the nominated term of insurance for that class of defect – Defect must have occurred within the “term” of the policy for that class of defect – Loss or damage to claimant successor of title may occur outside term of policy
Legislation Cited: Sale of Land Act 1962; Corporations Act 2001 (Cth); Domestic Building Contracts Act 1995 (Vic); Building Act 1993; Trade Practices Act 1974 (Cth); Limitation of Actions Act 1958; New South Wales Home Building Act 1989; Penalty Interest Rates Act 1983 (Vic)
Cases Cited:Sutherland Shire Council v Heyman (1985) 157 CLR 424; Hawkins v Clayton (1988) 164 CLR 569; Pullen v Gutteridge Haskins & Davey Pty Ltd [1993] 1 VR 27; Woolcott St Investments Pty Ltd v CGD Pty Ltd (2004) 216 CLR 515; AAI Ltd t/as Vero Insurance v Kalnin Corporation Pty Ltd; Kalnin Corporation Pty Ltd v AAI Ltd t/as Vero Insurance [2017] NSWSC 548; Alexander v Ajax Insurance Co Ltd [1956] VLR 436; Johnson Tiles Pty Ltd v Esso Australia Pty Ltd (No 3) [2003] VSC 244;
Judgment: 1. Within 14 days the parties must bring in short minutes to give effect to these reasons.
2. Costs reserved.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr N Andreou | McMahon Fearnley Lawyers Pty Ltd |
| For the Defendant | Mr S Stuckey KC | Moray and Agnew |
HIS HONOUR:
Background
1Mr Fall-Armytage migrated from France to Australia in 2003. He and his partner, Ms Colbee Adele Mifsud, and their son, Quintin, reside at 24B Bealiba Road, Caulfield South (“24B”). Mr Fall-Armytage shares custody of a daughter, Eleanor, with the daughter’s mother and Mr Fall-Armytage’s former partner, Ms Mariette Fisher. (Court Book (“CB”) 71-2, paragraphs 3-6)
2Mr Fall-Armytage’s family home was constructed as part of a redevelopment of the land at 24 Bealiba Road, Caulfield South by the developer, Amkor Investments Pty Ltd (“Amkor”), which became registered proprietor of that land on 18 February 2013. (CB 72 and 684)
3The property at 24B Bealiba Road, Caulfield South was sold by Amkor to Zhongliang Gao and Xinku Shaeo, who became its registered owners on 11 March 2015. (CB 72, [11])
4In February 2018, Mr Fall-Armytage saw number 24B advertised for sale on the website of estate agents Gary Peer and Associates. He inspected the property later in February 2018 with his father, and the feature which “grabbed [his] attention was the visual layout and architectural design of the timber stairway near the front door of the Property”. (Ibid, [13]) He said he was also impressed “with the modern design of the kitchen and lounge room located downstairs, and the fact that each of the three upstairs bedrooms were annexed to an ensuite bathroom.” (Ibid) He said during that inspection he did not observe any defects in the property. (Ibid, [16])
5He said number 24B struck him as a “new, modern, shiny house … beautiful home”. (Transcript (“T”) 128, L21-22)
6He agreed that the property presented as “freshly completed … Didn’t look like it had been lived in for a long time … it looked new”. (Ibid, L23-25) I take this to mean that the property had been scarcely lived in rather than that it had stood vacant for a lengthy period of time.
7Mr Fall-Armytage’s father, and Mr Fall-Armytage’s then partner, carried out a further inspection. (T329, L28-31) Mr Fall-Armytage said he did not attend this second inspection because, since he worked with his father, he had to cover the latter’s absence from his business enterprise. (T129, L1-3) As a result, whilst both he and his then partner inspected 24B they did not do it together. (Ibid, L4-6)
8Mr Fall-Armytage’s partner telephoned him from 24B stating that “she really liked it”. (Ibid, L18-21) This determined Mr Fall-Armytage to purchase. (Ibid, L22-23) His father and partner attended a final inspection prior to settlement of the purchase. Mr Fall-Armytage himself was precluded from attending by work commitments. (Ibid, L24-28)
9Number 24B was offered for auction. Mr Fall-Armytage said he obtained a copy of the auction contract before the auction, but it was his father who attended the auction and signed as purchaser. (T130, L8-13)
10The contract included a special condition authorising the purchaser to avoid the contract in the circumstances described. The special condition was as follows:
“11.1The purchaser may end this contract within 14 days from the days of sale if the purchaser:
(a)obtains a written report from a registered building practitioner which discloses a current defect in a structure on the land and designates it as a major building defect;
(b)gives the vendor a copy of the report and a written notice ending this contract; and
(c)is not in then in default. [sic]
11.2All money paid must be immediately refunded to the purchaser if the contract ends in accordance with this special condition.
11.3A notice under this special condition may be served on the vendor’s legal practitioner, conveyancer or estate agent even if the estate agent’s authority has formally expired at the time of service.
11.4The registered building practitioner may inspect the property at any reasonable time for the purpose of preparing the report.” (CB 742)
11Mr Fall-Armytage said in 2018 he was generally aware of the terms of the contract but had not identified that special condition. (T130, L29 – T131, L5, CB 742) As far as he was aware, his father was likewise ignorant of this special condition in 2018.
12The vendor’s statement prepared pursuant to s32 of the Sale of Land Act 1962, signed by the vendors and by Mr Fall-Armytage’s father for the purposes of the auction, included a section styled “Due Diligence Checklist”, as compiled by Consumer Affairs Victoria, setting out a series of investigations which a prudent purchaser might undertake. (CB 760-763)
13Mr Fall-Armytage did not recall seeing this checklist. This was his first property purchase. (T131, L25-31) He did not, it seems, undertake any of these investigations or, as previously noted, obtain a building report. (T132, L1-17) In particular, it seems he did not heed the advice “Ask the vendor if there is any owner/builder insurance or builder’s warranty to cover defects in the work done to the property”. (CB 762) He said, “well I was excited to buy a house so to me reading this, um I was more excited to buy, buy my dream home than um anything else …”. (T133, L14-17) He was not concerned to identify defects because “I’ve never heard of defects before I purchased this house”. (Ibid, L26-27)
14Mr Fall-Armytage’s mother provided part of the purchase price for the property, taking a second mortgage as security. Mr Fall-Armytage was nominated as the sole purchaser. (T134, L10-16) The purchase price under the contract was $1,680,000.
15Mr Fall-Armytage has identified the features of the contract which pertain to his claim for the cost of rectifying defects in the property against the defendant, Victorian Managed Insurance Authority (“VMIA”), as follows:
“I have reviewed the Contract of Sale and note that it contains a number of construction documents which reveal the following relevant information:
(a)On 19 July 2013, Mr Michael Flanagan from Metro Building Surveying Pty Ltd (“the Building Surveyor”) issued Variation Building Permit No. BS1113/20140044/0V-1 (“the Variation Permit”) in respect to the construction of a dual occupancy (two attached double storey dwellings) on the Development Land (“the Works”).
Court Book pages 715 to 716 is a copy of Variation Building Permit No. BS1113/20140044/0V-1 dated 19 July 2013 issued by Mr Michael Flanagan from Metro Building Surveying Pty Ltd attached to the Contract of Sale.
(b)The Variation Permit named Andrew Handbury Pty Ltd (A.C.N 100 233 707) (“the Builder”) as the new builder for the Works.
(c)On 15 November 2013, the Victorian Managed Insurance Authority (“VMIA”) on behalf of QBE Insurance (Australia) Ltd issued the Builder with domestic building insurance policy no. 32V001720BWC-9 in respect to the Works (“the VMIA Insurance Policy”).
Court Book pages 717 to 718 is a copy of the VMIA’s Certificate of Insurance No. 32V001720BWC-9 dated 15 November 2013.
(d)The certificate of insurance for the VMIA Insurance Policy reveals that the Developer and the Builder entered into a domestic building contract in respect to the Works on or about 30 October 2013.
(e)On 5 August 2014, Glen Eira City Council (“the Council”) confirmed that the following new addresses would be created in respect to Plan of Subdivision Application No. PS 730236X made by the Developer to subdivided the Development Land:
(i)Lot 1 being 24A Bealiba Road, Caulfield South VIC 3162 (adjacent to 22 Bealiba Road, Caulfield South)
(ii)Lot 2 being 24B Bealiba Road, Caulfield South VIC 3162 (adjacent to 26 Bealiba Road, Caulfield South)
Court Book page x is a copy of the letter from Glen Eira City Council to Amkor Investments Pty Ltd dated 5 August 2014 attached to the Contract of Sale.
(f)On 18 November 2014, the Building Surveyor issued Occupancy Permit No. BS1113/20140044/OP2 (“the Occupancy Permit”) in respect to the Works completed by the Builder.
Court Book pages 719 to 720 is a copy of Occupancy Permit No. BS1113/20140044/OP2 dated 18 November 2014 issued by Mr Michael Flanagan from Metro Building Surveying Pty Ltd attached to the Contract of Sale” (CB 73, [21])
16The sale was completed on 10 May 2018 and Mr Fall-Armytage became registered owner of the property, moving into occupation with his then partner in June 2018. (CB 74, [25]-[26])
17According to his witness statement, in the period from June 2018 to November 2018, he identified evidence of defects as follows:
“28.Between June 2018 and November 2018, I then first noticed water damage to:
(a)the ceiling in my daughter’s upstairs bedroom,
(b) the ceiling in my ensuite upstairs,
(c)the ceiling to the front entry area near the downstairs lounge room;
29. In or about November 2018, I first noticed:
(a)mould growth on the ceiling at the rear of the downstairs garage;
(b)the occurrence of a water stain on the ceiling to the front door entrance area on the ground floor.” (CB 74)
18He said that in November 2018, following heavy rainfall, he found actual water leaks from the ceiling in all three bedrooms and all three ensuite bathrooms. (CB 74-75, [30])
19In April 2020, he and Ms Fisher parted and she ceased to reside at 24B. (Ibid, [31])
20As to the leaks and stains, it seems matters rested until September 2021, when Mr Fall-Armytage made an insurance claim under his home and contents policy issued by insurer AAMI. This led to the attendance on 21 September 2021 of representatives of CRA Building Services to prepare an assessment report on behalf of AAMI. (CB 75, [32]-[33])
21In rejecting the insurance claim, AAMI, in a letter to Mr Fall-Armytage dated 23 September 2021, stated “your claim has not been accepted on this occasion because your policy does not cover defects, faults, workmanship”. (CB 802)
22The letter quoted from a report prepared by CRA Building Services as follows:
“We have noticed that this area of roof is underpitched at 0.3 degrees and the minimum pitch for this roofing material is 1.0 degree. Bedroom 1 On our inspection we have found deteriorated seals on penetrations and protruding screws. These issues appear to be causing water entry.
We have also found water pooling in certain areas which is due to this area being underpitched at 0.5 degrees. Bedroom 2 On our inspection we have found that this area is below a box gutter, this box gutter changes direction twice (which does not meet current standards), the gutter does lead into a sump and rain head with overflow provisions. This area has deteriorated seals in the box gutter and capping which look to have been re-siliconed before, there is a [sic] old cut out in the box gutter opposite the sump which has been patched over and siliconed. There is also 1 protruding screw in the roof capping, all these issues appear to have contributed to water ingress over time. The roof over this area is also underpitched at 0.5 degrees.
Hallway On our inspection we have found that this area has a skylight and flue. The cause of water entry appears to be due to deteriorated seals on the ventilation flue. The roof over this area is also underpitched at 0.5 degrees.
The external render damage is due to incorrect metal screws being used by builders. They are non-galvanised and have corroded over time causing discolouration of the render. In my opinion this cannot be linked to insurable damage. The entire roof is under pitch and has non-compliant guttering. This property was built less than 6 years ago and is still under warranty. As per Australian Standards, Metal profile roof sheets have a minimum pitch of 2 degrees. This roof is less than 0.5 degrees. As per Australian Standards, box gutters cannot have a change of direction and have size requirements, this roof has box gutters which are under size and also have changes in direction.
In order to make the property compliant, the entire roof sheeting and framing system needs to be changed, as does the box gutter system. In my opinion (in conjunction with the plumbing expert report) the non-compliance issues are largely the cause of the damages.” (CB 802-803)
23In the period from June to November 2018, Mr Fall-Armytage agreed that the areas affected were, at least to some degree, wet and the stain increased in size. Nevertheless, at that time, he took no steps either to identify the cause nor to effect a rectification. (T136, L1 – T137, L11)
24He said the onset of the COVID pandemic further delayed action. (T137, L12-13)
25According to the CRA report:
“In order to make the property compliant, the entire roof sheeting and framing system needs to be changed, as does the box gutter system. In my opinion (in conjunction with the plumbing expert report) the non-compliance issues are largely the cause of the damages.” Other contributing factors are deterioration of flashings (after only 6 years) which is very unusual. Other contributing factors are deterioration of flashings (after only 6 years) which is very unusual. The gutter blockage is also likely to be due to the fact is [sic] has changes in direction and is undersize.” (CB 795)
26The assessor said that the “cause of the damage is due PRIMARILY to building defects (still under warranty). It is unclear if the damages [sic] would have occurred if the roof was compliant.” (Ibid)
27The report recorded Mr Fall-Armytage as saying:
“The house is under warranty which expires in December, and I have tried to contact the builders and found out they are no longer trading. One corner of the house now has mould on it.” (CB 794)
28As stated in the CRA report, at that stage Mr Fall-Armytage believed that the house was under warranty. (T139, L26-29) He said someone had told him this, although he could not remember who. (T140, L2-12)
29On receiving the report and denial of liability from AAMI, Mr Fall-Armytage said he discussed the issue with his whole family “obviously my dad”. (T142, L18-21).
30Mr Fall-Armytage then made further investigation to try and contact the builder. He obtained an email address for that organisation from “the person that did the plans” (viz the architect). (T143, L10-17) He sent an email to [email protected] on 8 October 2021, stating that his insurer had advised him to contact the builder and he had had no success attempting to make contact via Mr Handbury’s mobile phone. He recited the existence of the leaks and his unsuccessful insurance claim, continuing:
“You will appreciate that learning the condition of the roof and its non-compliance with Australian Standards has come as something of a rude shock additional to the damage being caused by the leaks.
Please advise me of the action you will be undertaking to rectify this issue through your required insurance.” (CB 805)
31Mr Handbury responded on 11 October 2021, stating that he had conferred with his plumber, Mr Brett Marshall, and they would like to visit the site on 8 November 2021. (Ibid) Mr Handbury sent an email dated 11 November 2021, following the inspection. He denied that the roof was generally non-compliant, stating “the roof does have the minimum 1 degree fall required and we found the roof to be in good condition”. (CB 808) He attributed the problems to “popped rivets, loose screws and potentially deteriorated seals” (Ibid), agreeing to rectify these items and to “invert the outlet” (Ibid) on exhaust flues.
32Mr Fall-Armytage responded, saying “I am going to seek advice before agreeing to do anything as there are substantial differences between what you have advised me & what the report states”. (CB 809; 76, [37]-[38])
33Mr Fall-Armytage, consistently with his statement to Mr Handbury, sought advice from law firm McMahon Fearnley Lawyers Pty Ltd, who represent him in this proceeding. (CB 77, [39])
34The following year, in March 2022, Mr Fall-Armytage made application to the local council pursuant to the building regulations obtaining all documents “related to the variation permit”, receiving some 25 classes of documents which are included in the Court Book. (CB 77-80, [39]-[41])
35On 8 June 2023, solicitors acting for Mr Fall-Armytage commenced proceeding number CI-23-02942 against the builder which, the following month, was placed in voluntary administration under the terms of the Corporations Act 2001 (Cth). Consequently, on 12 July 2023, Judge Burchell made orders staying that proceeding. (CB 80, [45]-[47], 939-953)
36On Mr Fall-Armytage’s instruction, on 8 August 2023, McMahon Fearnley Lawyers lodged a claim against the defendant, VMIA, as the provider of Builders Warranty Insurance. That claim is summarised at Court Book 954-958 and was rejected by VMIA on 3 November 2023. (CB 81, [48]-[49]; 959-960)
37He said he then instructed his solicitors to press for provision of documents relative to VMIA’s adverse decision which its solicitors, Moray and Agnew, neglected or failed to do. Consequently, he instructed the commencement of this proceeding on 1 December 2023.
38This proceeding also included, initially, claims against Cambridge Plumbing Pty Ltd and its principal, Mr Brett Anthony Marshall. That aspect of the proceeding, and the issues relative to the roof problem, have been resolved with those defendants on confidential terms.
39Mr Fall-Armytage commissioned reports from a Mr James Wilson of Built Assess as to building rectification, which led to a report dated 30 May 2023. He also commissioned a report from Dr Wesley Black of Biotopia Environmental Assessment Pty Ltd as to mould remediation, obtaining an environment assessment report dated 21 December 2022, and mould remediation costings in a summary report dated 4 May 2023. (CB 80, [42])
40He directed his solicitors to send a letter of demand to the builder, Andrew Handbury Pty Ltd. (Ibid, [43]) The letter, dated 17 August 2022, appears at Court Book 811-814. The letter recited the history of the building at 24B, referred to the statutory warranties which it was alleged the builder had breached, referred to Mr Wilson’s report of 5 August 2022, and claimed that Mr Fall-Armytage had suffered damage in the sum of “$190,735.00 being the estimated costs of all recommended rectification works to the defects outlined in the Wilson Report”. (CB 813, [18])
41The letter foreshadowed an application by Mr Fall-Armytage for a conciliation arrangement with the Domestic Building Dispute Resolution Victoria, (Ibid, [20]-[21]) and said that the builder’s proposed scope of rectification work was “not appropriate and will not properly rectify the defects”. (Ibid, [23])
42Mr Fall-Armytage said:
“I did not previously appreciate the extent, nature and causes of the defects to the Works (including the consequential mould growth) until I obtained the Wilson Report. Between March 2020 and September 2021, I was unable to make arrangements for any building consultants to inspect the defects at the Property due to the imposition of government restrictions during the COVID-19 global pandemic.” (CB 81, [55])
This proceeding
43Mr Fall-Armytage’s solicitors filed a Writ commencing this proceeding dated 1 December 2023. The first defendant was VMIA. Cambridge Plumbing Pty Ltd and its principal, Mr Marshall, were joined as the second and third defendants. This proceeding has come on for hearing before me. Mr Fall-Armytage’s claims against Cambridge Plumbing Pty Ltd and Mr Marshall have been resolved on undisclosed terms. The trial therefore proceeded with claims against the first defendant, VMIA, alone and with respect to non-roofing defects.
Statement of Claim
44In his Further Amended Statement of Claim dated 12 May 2025 (referred to as the Statement of Claim) Mr Fall-Armytage referred to the standing and functions of the first defendant and recited the history of the erection and ultimate purchase of the dwelling at 24B Bealiba Road, Caulfield South, and the work undertaken by builder Andrew Handbury Pty Ltd (now in liquidation) under a Building Permit dated 19 July 2013 and referred to as the “Variation Permit”, and the steps associated with completion and issue of the Occupancy Permit, et cetera. Next, it referred to the warranties implied into Domestic Building Contracts by force of s80 of the Domestic Building Contracts Act 1995, an alleged breach on the part of the builder of those warranties, referring to 11 specific alleged defects found to exist in the Building Report dated 30 May 2023 by Mr James Wilson. The defects were said to have inflicted loss and damage upon Mr Fall-Armytage, being the cost of rectification estimated at $159,999.25. It alleged the builders had gone into voluntary liquidation under the Corporations Act on 6 July 2023.
45As regards the defendant VMIA, the Statement of Claim alleged their policy or warranty insurance issued 15 November 2013 and the scope of the cover thereby provided alleging that that the defects previously listed “occurred within the periods of the VMIA insurance policy”.
46As against, VMIA, Mr Fall-Armytage’s Statement of Claim sought an order requiring VMIA to indemnify him for his loss and damages “commensurate to [Mr Fall-Armytage’s] loss and damages as a result of the defect” and “damages commensurate to the costs of alternative accommodation and removal and storage costs incurred by [Mr Fall-Armytage]” together with interest costs and “further or other relief”.
47As regards VMIA, some 10 non-roofing defects were alleged. (CB 11-12, [20(d)(ii)-(xii)])
48As against the first defendant, VMIA, Mr Fall-Armytage sought an order setting aside its decision to reject his claim and an order requiring it to indemnify him for the alleged loss and damage, damages, interest, costs and further or other relief.
Defence
49By its Further Amended Defence dated 16 May 2025, the first defendant, VMIA admitted certain matters as to the history of No 24B, declining to admit others.
50It denied liability based on the “full terms, conditions, limitations and exclusions of its insurance policy”. It referred specifically to the “period of insurance” applicable respectively to structural and non-structural defects under clause 34 of its policy and paragraph 23 of the Domestic Building Insurance Ministerial Order No S98 issued 23 May 2003. It said that “any loss or damage suffered by [Mr Fall-Armytage] that arose from [the alleged] defects occurred outside the periods of cover provided for under the policy”. It referred to exclusions from liability by clause 48(d) of its policy relative to landscaping or paving and to the boundary fence.
The policy
51By Ministerial Order published in the Victoria Government Gazette number S98, 23 May 2003, the Minister for Planning specified:
“the insurance that a builder is required to be covered by in order to carry out or manage or arrange the carrying out of domestic building work under a domestic building contract …” (CB 970)
52The order specified the insurance:
“that a person who constructs a building and to whom section 137B of the Building Act 1993 applies is required to be covered by before entering into a contract to sell that building”. (Ibid)
The order was made under ss135, 137A and 137D of the Building Act 1993. (Ibid)
53The Ministerial Order required the policy inter alia to:
“indemnify the building owner in respect of loss or damage resulting from all or any of the following events –
…
(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.” (CB 971, [8])
54The expression:
“trade practices provision” means section 52, 53, 55A or 74 of the Trade Practices Act 1974 of the Commonwealth or section 9, 11 or 12 of the Fair Trading Act 1999.” (CB 984)
55Paragraph 9(2) of the Ministerial Order mandated that policies provide additional insurance to:
“indemnify the building owner in respect of the costs of alternative accommodation and removal and storage costs that are reasonably and necessarily incurred subsequent to and as a result of any of the following events –
…
(b) an event referred to in clause 8(2)(a) to (d).” (CB 971)
56Paragraph 9(3) stated that the policy might “provide that the indemnity … only applies if the builder dies, becomes insolvent or disappears”. (Ibid) The policy might also limit liability for alternative accommodation to “60 days, excluding any period or periods of delay attributable to the insurer”. (Ibid)
57Paragraph 11 of the order stated:
“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.” (CB 972)
58Paragraph 50 of the Ministerial Order was headed “Policy not to contain terms inconsistent with this Order”, stating:
“(1) A policy must not contain any provision that limits, modifies, varies, avoids or excludes any of the requirements for a policy set out in this Order.
(2)Subject to sub-clause (3), a policy must not contain any provision that provides for limitations or exclusions to the policy not expressly permitted by this Order.” (CB 978)
59Paragraph 51 provided that a policy might provide greater insurance cover, a lower excess or a wider range of persons insured without being in contravention of the order. (CB 979)
60Paragraph 26 of the Ministerial Order, headed “Policy to comply with Order”, stated:
“The policy must contain a provision to the effect that the policy is issued in compliance with this Order and if any term of the policy conflicts or is inconsistent with this Order then the policy must be read and be enforceable as if it complies with this Order.” (CB 975)
61Crucially, paragraph 12 of the order, under the heading “Period of insurance”, provided:
“(1)The policy must provide the indemnities referred to in clauses 8 and 9 in relation to non-structural defects in respect of loss or damage occurring during the period commencing on the commencement day and ending not earlier than 2 years after the earlier of –
(a)the completion date of the domestic building work; and
(b)the date of termination of the relevant domestic building contract.
(2)The policy must provide the indemnities referred to in clauses 8 and 9 in respect of all other loss or damage occurring during the period commencing on the commencement day and ending not earlier than 6 years after the earlier of –
(a)the completion date of the domestic building work; and
(b)the date of termination of the relevant domestic building contract.” (CB 972)
62Crucial to the operation of this provision as to the term or period of the insurance are the definitions of the terms “structural defect” and “structural element”, which are as follows:
““structural defect” in relation to a building, means any defect in a structural element of the building that is attributable to defective design, effective or faulty workmanship or defective materials (or any combination of these) and that –
(a)results in, or is likely to result in, the building or any part of the building being required by or under any law to be closed or prohibited from being used; or
(b)prevents, or is likely to prevent, the continued practical use of the building or any part of the building; or
(c)results in, or is likely to result in –
(i)the destruction of the building or any part of the building; or
(ii)physical damage to the building or any part of the building; or
(d)results in, or is likely to result in, a threat of imminent collapse that may reasonably be considered to cause destruction of the building or physical damage to the building or any part of the building;
“structural element” in relation to a building, means –
(a)any internal or external load-bearing component of the building that is essential to the stability of the building or any part of it, including (but not limited to), foundations, floors, walls, roofs, columns and beams; or
(b)any component (including weatherproofing) that forms part of the external walls or roof of the building;
See also the definition of non-structural defect:
“non-structural defect” in relation to a building, means a defect in building work other than a structural defect; (CB 983-984)
63Paragraph 35 of the order authorised policies to:
“limit the liability of the insurer to not less than the aggregate amount of $200 000 for all claims in respect of any one home, including reasonable legal costs and expenses incurred by the insured … associated with the successful claim against the insurer.” (CB 976)
64Paragraph 44 of the order authorised a provision in the policy:
“under which the insurer may refuse to accept a claim that is not made within 180 days after the date on which the claimant first became aware, or might reasonably be expected to have become aware, of the death, disappearance or insolvency of the insured.” (CB 977)
65In the present instance the “insured” is the builder. (CB 982)
66On 15 November 2013, VMIA issued a Certificate of Insurance for policy number 32V001720BWC-9 (CB 717) in favour of the building owner, Amkor Investments Pty Ltd, and relative to the construction of 24B, referred to in the certificate as “2/24 Bealiba Road”. The cover was limited to “$200,000 all inclusive of costs and expenses” and concluded:
“●Two years from completion of the domestic building work or termination of the domestic building contract for non structural defects.
● Six years from completion of the domestic building work or termination of the domestic building contract for structural defects.” (CB 717)
67The policy, as issued, is to be found at pages 451-461 of the Court Book. Stylistically, it departs from the order by referring to the insured as “you” and the Authority as “us”. Clause 72 of the policy states:
“This policy is intended to comply with the requirements set out under the Order. However, if this policy conflicts with, or is inconsistent with the Order, this policy must be read and enforceable as if it complies with the Order.” (CB 461)
68The term Order is defined as meaning Domestic Insurance Ministerial Order under the Act number 596 issued on Friday, 23 May 2003. (CB 456) The word Act is defined as the Building Act 1993. (CB 455).
69VMIA’s counsel, Mr Stuckey KC, provided a textual comparison of the policy and the Ministerial Order which he described as a “concordance”, which is annexed to these reasons. The only matter of inconsistency or alleged inconsistency which has attracted attention in this proceeding is one of the liability exclusions to be found at paragraph 46(g) of the policy, whereby the insurer states it will not provide indemnity:
“(g)In relation to visible defects in the work of which you should reasonably have been aware when acquiring the building, including any defect or incomplete work that is referred to in the report prepared in accordance with s137B of the Act.” (CB 460)
70This exclusion, however, has not been relied on by VMIA as a basis for its denial of liability. No report under s137B of the Building Act has been put into evidence. There was no evidence that such a report was commissioned or exists. If it were an issue, I would conclude that the provision is invalid or ineffective for inconsistency with the Ministerial Order and by virtue of clause 72 of the Policy.
71Otherwise, with a somewhat difficult grammatical structure, the policy tracks the requirements of the Ministerial Order and reflects the crucial provisions recited above as to the scope and term of the indemnity given. The indemnity cover is given only in the case of death, disappearance or insolvency of the builder (Clause 26). There is a differential term of cover for indemnity relative to non-structural defects (two years) and other defects (six years) (Clauses 34 and 35). (CB 458) The cover is limited to:
“$200,000 in total in the aggregate for all claims under this policy for each home. This amount includes the reasonable legal costs and expenses that you incur associated with a successful claim against us.” (Clause 38, CB 459)
72The scope of the indemnity tracks the order with the different grammatical structure. (Clause 32, CB 458)
VMIA’s decision
73VMIA’s rejection of Mr Fall-Armytage’s claim was made via a letter from its solicitors, Moray and Agnew, dated 3 November 2023. (CB 959) On behalf of VMIA, the firm accepted that the builder was insolvent within the meaning of the policy but denied liability “on the basis that the Claim was submitted after the period of cover had expired”. (Ibid) The letter treated the claim as having been submitted on 8 August 2023. (Ibid)
Statutory warranties
74Section 8 of the Domestic Building Contracts Act implies certain warranties on the part of the builder into all domestic building contracts, including the contract in the present instance. Section 8 provides as follows:
“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[4];
(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.”
75These warranties may be enforced not only by the original contracting party but also successors in title.
76Section 9 of the statute, headed “Warranties to run with the building”, provides as follows:
“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 [5].”
77Section 10 of the Act renders any attempt to contract out of the statutory warranties void.
Conclusions
78The foregoing narrative indicates that what remains of Mr Fall-Armytage’s claim after the resolution of the element pertaining to the leaking roof might be seen as opportunistic. It was the leaking roof which stirred him into action. The matters which now remain in dispute were either not identified or noticed at all until a building consultant was retained years after Mr Fall-Armytage bought 24B or, if noted earlier, were not judged sufficiently important to require any action. The issues relative to the leaking roof have now been resolved. Whether the resolution entailed Mr Fall-Armytage receiving the entire compensation to which he claimed entitlement we do not know. He has, however, accepted whatever the second and third defendants offered, and therefore the roofing issue, which set this entire proceeding in motion, has now disappeared.
Term of policy
79Clause 34 of the policy provides:
“This policy covers loss or damage arising from a non-structural defect occurring during the period commencing on the commencement date and ending 2 years after the completion of the work ...” (CB 458)
80Clause 35 provides:
“This policy covers loss, damage or expense, from a cause other than a non-structural defect, occurring during the period commencing on the commencement date and ending 6 years after the completion of the work ...” (Ibid)
81It was common ground that, for present purposes, the “commencement date”, being the date from which the two-year or six-year period was to be calculated, should be regarded as the date on which the occupancy permit for 24B was issued, namely 18 November 2014. ([15] above)
82Counsel for Mr Fall-Armytage, Mr Andreou, contended that since, as at the commencement date, each of the defects for which claim is now being made existed, and therefore fell within the two or six-year coverage limit, the only time limitation then relevant would be the limit prescribed by the Limitation of Actions Act 1958 or the Building Act. No pleading or reliance has been placed on any such limitation statute.
83According to Mr Andreou, Clause 32(b)(i) of the VMIA policy required VMIA to indemnify Mr Fall-Armytage for “loss or damage arising from work that is defective”. He noted, however, that this obligation was “inchoate” unless and until the builder died, disappeared or became insolvent. He noted the definition of “defective” included in the policy as follows:
“includes, in respect of any of the work:
(a) in breach of a statutory warranty given by builder … under the building contract; or
(b) where there has been a failure to maintain any standard or quality of work specified in the building contract.” (CB 455)
84The statutory warranty referred to was defined as the warranties implied by s8 of the Domestic Building Contracts Act quoted above. (CB 457)
85Mr Andreou said that Clauses 34 and 35 of the policy, interpreted in light of the Ministerial Order, covered loss or damage occurring “during the period” respectively of two or six years for non-structural and structural defects. (Closing Submissions, [22])
86He noted that the phrase “loss or damage” (emphasis added) was used throughout the policy. Therefore, as long as the damage is suffered during the coverage period, any economic loss arising from the damage that crystalises at some later time should likewise be covered. A contrary reading would defeat one of the purposes of the legislated framework, namely to extend the indemnity for defective works to subsequent purchasers.
87As to whether the relevant “loss or damage” occurred “during the term” of the policy, Mr Andreous said: (Closing Submissions, [40])
“For latent defects, loss or damage occurs when the defect is discovered or becomes manifest, in the sense of being discoverable by reasonable diligence … all defects were discoverable by reasonable diligence at the time of handover to the original purchaser, or at the latest at the time of the plaintiff’s purchase.”
88He said (Closing Submissions, [42]):
“The plaintiff’s position is that the relevant damage, being the defects, was inflicted at the time of construction, and therefore within the coverage period irrespective of whether those defects are considered structural or non-structural. ...”
89He said a distinction should be drawn between the time at which damages inflicted as a result of a non-latent defect (which is at the time of construction) and the time that economic loss is suffered by a building owner as a result of that damage, which is at the time of handover in the case of the original owner, and at the time of purchase in the case of any subsequent owner. (Closing Submissions, [23])
90He continued (Closing Submissions, [51]):
“Provided that damage (in the form of a non-latent defect) has been inflicted at the time of construction, any economic loss arising from that damage at some later date (such as when a subsequent purchaser buys the building without actual knowledge of the defects) should likewise be covered.”
91He said that a subsequent owner’s rights to make a claim crystallise upon the builder’s “insolvency, death or disappearance” (Closing Submissions, [52]). He said it was that event which caused “time to begin to run” (Ibid) (presumably under the Limitation of Actions Act and Clause 51 of the policy, which requires a claim to be made “within 180 days of you becoming aware of [the death, disappearance or insolvency of the builder]”.
92He concluded on this point, therefore, (at Closing Submissions, [56]):
“(a)The first defendant became conditionally liable for damage inflicted on or before 18 November 2014, being the date on which the occupancy permit was issued in respect of the works, as all of the defects were non-latent at that time—being discoverable with reasonable diligence.
(b)The original owner suffered economic loss arising from those defects at the time of handover (per Milonas).
(c)The plaintiff himself suffered economic loss upon the purchase of the building in or around May 2018, by reason of purchasing the building without actual knowledge of the defects.
(d)The first defendant’s liability for this economic loss remained inchoate until the builder was placed into voluntary administration on or about 6 July 2023, at which time the plaintiff became entitled under the Policy to seek an indemnity from the first defendant.
(e)Accordingly, the plaintiff made a written claim to the first defendant seeking indemnity under the Policy on or about 8 August 2023, well within the 180 day notification period set by the Policy.
(f)The plaintiff issued proceedings on 1 December 2023, well within the 6-year limitation period for claims based on simple contract.”
93In contrast, Mr Stuckey KC contended that the “loss or damage” against which the policy granted indemnity was not at large and could be suffered only by a particular person. As to loss or damage resulting from non-structural defects, Mr Fall-Armytage could, on no view, have suffered loss or damage before his purchase of 24B in 2018. Two years had already elapsed from the issue of the occupancy permit with the result that indemnity cover for such defects, or the loss or damage which they caused, had already expired. Any claim by Mr Fall-Armytage for non-structural defects must therefore fail. (Closing Submissions, [8]-[11])
94As regards structural defect, he said (Opening Submissions, [18]):
“The owner first sustains loss and damage, as a result of the existence of defective work, when the defective nature of that work manifests itself or becomes known to the owner. It is only then that the economic value of the building becomes negatively affected.”
95He said (Opening Submissions, [17]):
“Where a building has been constructed contrary to the plans and specifications, or in such a manner that it contains poor or defective workmanship, the loss or damage sustained by the owner is pure economic loss: …”
96He referred to Sutherland Shire Council v Heyman (1985) 157 CLR 424, 503-505 per Deane J. He said this approach was reiterated by his Honour in Hawkins v Clayton (1988) 164 CLR 569, and applied by the Appeal Division (Full Court) of the Supreme Court of Victoria in Pullen v Gutteridge Haskins & Davey Pty Ltd [1993] 1 VR 27, where the court said:
“Time began to run in the present case when the latent defect first became known or manifest. The latent defect was the inadequacy or unsuitability of the footings. … We shall speak of the inadequacy of the footings as including their unsuitability.”
97He referred to another decision of the High Court in Woolcott St Investments Pty Ltd v CGD Pty Ltd (2004) 216 CLR 515 at 555 [103], where McHugh J said:
“The now accepted doctrine is that, in the case of defective premises, damage does not occur until the defect manifests itself.”
98The various authorities just cited and relied on by Mr Stuckey KC as to the accrual date or the date of occurrence of loss or damage in the case of latent defects all pertained to claims framed in the tort of negligence.
99In Pullen, for instance, the court (Brooking, Tadgell and Hayne JJ) considered an appeal from a decision of a trial judge rejecting allegations of negligence against an engineer relative to its role in the reconstruction of the State Swimming Centre in Batman Street, Melbourne.
100The parties and the court accepted that the claim made by the appellant Minister for Public Works against the engineers, based on allegations of breach of contract, were “statute barred” (viz commenced outside the time limit laid down by the Limitation of Actions Act 1958 [1993] 1 VR 27, 30).
101This means that it is far from obvious that the statements of principle as to the occurrence of loss or damage for the purposes of a claim in tort can be cross-applied to a claim for breach of contract.
102At the outset of his submissions in reply, VMIA’s counsel, Mr Stuckey KC, said:
“Partly because of [the] history of this form of insurance and partly because of the type of risks that are insured against, … one has a tendency to swerve over into what courses [sic, scil causes] of action one has against the building [sic, scil builder]. But I’d emphasise firmly that this is a policy of insurance whereby the insurer agrees to indemnify the building owner against loss and damage that the building owner suffers … and then there are a series of causes of that loss and damage, or loss or damage which are breaches of statutory warranties; breaches of contract…” (T478, L20-31)
Mr Fall-Armytage is seeking to enforce a contract not seeking damages in tort.
103Mr Andreou referred to a decision of the New South Wales Court of Appeal, Building Insurers’ Guarantee Corporation v The Owners – Strata Plan No 57504 [2010] NSWCA 23, a decision of the Court of Appeal of New South Wales constituted by Tobias and Campbell JJA and Handley AJA. The Court was considering the operation of a scheme of builders’ guarantee insurance, similar to the Victorian scheme but by no means identical. The Court was principally concerned to resolve issues relating to the effect of a statute amending that scheme which commenced after the publication of the judgment under appeal which required consideration of the operation of the transitional provision. Pertinently for present purposes, one of the building owner’s claims related to allegedly defective hobs required to be installed on the balconies of the units in the development. Handley AJA, with whom the other two judges concurred, said:
“34The relevant primary facts are no longer in dispute. There was no set down from the floor level within the relevant units to their balconies. This created a risk of storm water penetration from the surface of the balconies at the same level. The design required a concrete or brickwork hob between the interior and exterior of the relevant units to carry the fixed and sliding glazing and to prevent water flowing from the balconies into the units.
35The builder constructed the hobs out of two layers of untreated pine. The lower layer was fixed to the slab with shot fixings. The upper layer was nailed to the lower. In most, but apparently not all, cases an aluminium angle fixed to the slab with a silicon adhesive or sealant protected the external face of the hobs.”
104His Honour concluded that these matters constituted breaches of relevant statutory warranty. Counsel for the insurer contended that the plaintiff’s Owners’ Corporation, being a successor in title, “could not establish that the installation of timber hobs was a breach of the statutory warranties unless and until water penetration had occurred.” [45] His Honour noted that insurer’s counsel also relied on the “principle in tort that latent defects in a building do not cause loss to the proprietor or a successor in title until they are discovered.” [46] His Honour then said:
“However this principle has no application where the successor in title has the benefit of a statutory warranty and is entitled to the same rights as its predecessor. A cause of action for breach of contract accrues on breach and not when damage occurs or is discovered.” [2010] NSWCA 23 [46]
105If the accrual of the cause of action or breach is treated as equivalent to the occurrence of loss or damage, then insofar as more of the defects for which indemnity is now sought can be regarded as having existed from the date of “handover” of the property by the builder to the developer, coincident with the issue of the occupancy permit, such defects or loss or damage would have occurred within the time limits laid down by the policy. According to Handley AJA, at the relevant time, s92 of the New South Wales Home Building Act 1989 requires a policy of insurance relative to residential building work. Section 99(1)(a) of that Act required the policy to ensure “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.” [2010] NSWCA 23 [4]-[6] His Honour noted at [41] that s18D(1) of the Act provided:
“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.”
It follows that the context in which his Honour made the quoted remarks is similar, though far from identical, to the one before me.
106Closer to home is the decision of McDonald J in the Supreme Court of Victoria in Insurance Australia v Milonas [2021] VSC 602, which was referred to by both counsel. Indeed, Mr Stuckey QC (as he then was) appeared before his Honour for the appellant insurer. His Honour was considering an appeal against a determination of the Victorian Civil and Administrative Tribunal, making an award in favour of the building owner relative to the defective construction of a pool constructed by a sub-contractor to the builder under a domestic building contract. The tribunal awarded the building owner, Dr Milonas, indemnity for the cost of demolition, removal and rebuilding of the pool. The policy included a clause 6B, which stated:
“This policy only provides the indemnities referred to in clauses 1 and 2 in respect of all other loss or damage, including Structural Defects, in respect of loss or damage occurring during the period commencing on the Commencement Day and ending six years after the earlier of:
(a) the Completion Date of the Domestic Building Work; or
(b) the date of termination of the relevant Contract.”
107The resemblance to the provisions of the policy before me is obvious enough. The term or limitation period was in Milonas’s case to be calculated from the termination of the relevant contract and it was contended by the appellant insurer it expired on 21 November 2014, [2021] VSC 602 [16], with the contract’s having been terminated by Dr Milonas on 21 November 2008. Dr Milonas made a claim on 25 November 2014. [10] The operation of clause 6B of the policy was one of the four principal matters which fell for determination by his Honour. [19] The insurer placed specific reliance on the limitation period which it said was established by clause 6B of the policy. [33] His Honour noted that for the appellant insurer to succeed on this point, it needed to establish inter alia “that on the proper construction of cl 6B economic loss occurs when a party claiming an indemnity first has knowledge of that loss.” [39] At [46] his Honour commenced his consideration of the question: “when did Dr Milonas’ loss resulting from the construction of the pool with incorrect dimensions occur?” His Honour noted that the insurer submitted “that common law principles governing the timing of when economic loss is sustained in respect of a latent building defect also applies for the purpose of determining when economic loss resulting from a latent defect occurs under cl 6B.” [47] He recorded the same submission in this respect as has been made to me in Mr Fall-Armytage’s case. His Honour said:
“I reject [the insurer’s] contention that Dr Milonas’ loss did not occur until she first became aware of the incorrect dimensions of the swim spa in March 2017. First, this contention is based on the misconception that the incorrect dimensions of the pool constituted a latent defect. Second, even if the incorrect pool dimensions did constitute a latent defect, loss resulting from a latent building defect does not occur only when the building owner has actual knowledge of the defect. Loss also occurs when the defect is discoverable by the exercise of reasonable diligence.” [48]
108His Honour determined first that insofar as the pool was defective and not having been constructed to the correct dimensions, such defect was not “latent”. His Honour noted the insurer’s reliance a decision of White J in Owners of Strata Plan 50946 v Multiplex Constructions (NSW) Pty Ltd [2006] NSWSC 377, which the insurer cited for the proposition that there is no requirement that, in order for a defect to be latent, it must be concealed or hidden in some way. At [20] of that judgment, White J said “a defect which is visible and not hidden may be manifest in the sense of being discoverable with reasonable diligence.” His Honour rejected the further proposition that to be latent, a defect must be “not visible”. On the basis of the analysis by White J, McDonald J said:
“The fact that the pool was 600 mm shorter in length and 60 mm narrower in width could be discovered by the exercise of reasonable diligence by measuring the pool. As such, the discrepancy between the actual length and width of the pool and that prescribed in the approved plans was not a latent defect.” [51]
Therefore, according to his Honour, “loss or damage from the non-latent defect is sustained when it is inflicted or first suffered.” He cited Hawkins v Clayton [1988] 164 CLR 169, 588 per Deane J [52]. His Honour continued:
“If I am wrong in reaching that conclusion and the incorrect pool dimensions did constitute a latent defect, I reject [the insurer’s] contention that Dr Milonas’ loss did not occur until she had actual knowledge of the incorrect dimensions.” [53]
109He noted that the insurer’s relied upon the analysis of Deane J in Hawkins v Clayton and the decision of the Victorian Supreme Court in Pullen v Gutteridge Haskins and Davey Pty Ltd [1993] 1 VR 27.
110McDonald J said “in the context of an action for negligence causing economic loss, loss or damage means the harm suffered to a plaintiff’s economic interests”, citing Hunt & Hunt Lawyers v Mitchell Morgan Nominees Pty Ltd [2013] 247 CLR 613, 629 [24], and the statement of the joint judgment in that case at [49] that:
“… the kind of economic loss which is sustained, as well as the time when it is sustained depends upon the nature of the interest infringed and in some cases perhaps on upon the nature of the interference to which it is subjected.”
111Applying that principle, his Honour noted the finding of the VCAT senior member that the pool was “fatally defective” in the sense that it could not be rectified without complete demolition and reconstruction. [62] He concluded therefore that “this structural defect was present from the time of construction.” [63] It seems the basis for his Honour’s finding in this regard was that even if the defect was latent, the loss or damage occurred when it was discoverable by reasonable diligence, presumably measuring with a tape measure fell within the concept of “reasonable diligence”. [67]
112The result seems to be that whilst there is a number of authorities which determine issues similar to, but not identical with the ones before me now constitutes a “direct hit”. The High Court cases and the decision in Pullen deal with the accrual of causes of action in tort. The Building Insurers’ Guarantee Corporation deals with the accrual of causes of action or breach of contract. Milonas’s case deals with the suffering of loss or damage under an indemnity policy issued under the same provisions as the present, but only with respect to the initial or primary party to the building contract, not to a successor in title. Milonas is a decision of the trial division of the Supreme Court. It does not have the authority of a decision of the Court of Appeal or the High Court of Australia. Nevertheless, the trial division of the Supreme Court is superior in the judicial hierarchy to this Court. Milonas’s case is binding authority upon me for the matters which it decides. It follows that consistently with the reasoning of McDonald J in Milonas, Amkor, the initial “owner” under the Domestic Building Contract, must be regarded as having sustained loss or damage in 2014 with respect to all non-latent defects. I will defer for the moment a determination as to the latency or otherwise of the various defects complained of. As Mr Andreou has correctly observed, any right which Amkor might have had with respect to latent defects was inchoate because it was years later that the builder went into insolvent liquidation.
113The outcome of this case depends crucially upon the text of the policy, not upon abstract or a priori reasoning. The two policy clauses laying down the time limit which was the basis of VMIA’s denial of liability, clauses 34 and 35, state (combining the two for analytical purposes):
“This policy covers loss or damage arising from a non-structural/from a cause other than a non-structural defect ... occurring during the period commencing on the commencement date and ending 2 years/6 years after the completion date.”
114In this case, subject to the specific finding which I will make below, Mr Fall-Armytage has suffered “loss or damage” by way of pure economic loss, being a diminution in the value of his residence, or, to look at it the other way, being required to undertake certain outlays to obtain a residence in accordance with the statutory warranty given by the builder and which survive for his benefit as a subsequent building owner.
115Mr Stuckey’s contention is that the phrase “occurring during the period commencing ...” pertains not only to the relevant “defect” but also to the “loss or damage”. Whilst Mr Andreou did not necessarily put his client’s case in this way, his contention entailed construing these parts of the policy such that it is sufficient to attract policy cover for the defect to occur during the relevant period.
116The point of construction is finely balanced. With some hesitation, I conclude that the more natural interpretation of these words is that the phrase “occurring during the period” pertains solely to the reference to the defect immediately preceding it. There is no requirement on this construction that the loss or damage occur within that period.
117Mr Stuckey correctly says that Mr Fall-Armytage cannot have suffered any loss or damage prior to his acquisition of No 24B; but this is not fatal to Mr Fall-Armytage’s claim. On my construction, the time limit on the policy operates such that it does not extend to non-structural items which fail or wear out more than two years after completion or structural items which fail or wear out more than six years after completion, but those that do; even if the loss or damage occurs later.
118This construction admittedly creates a “long tail” liability for the insurer which it would no doubt wish not to be saddled with. That “long tail” is a consequence of the proper construction of the policy terms. Further, the insurer does have the protection of the Limitation of Actions Act 1958 and the requirement that the relevant claim be brought within 180 days of the builder’s death, disappearance or insolvency (clause 32, CB 458).
119I turn then to the specific items which Mr Fall-Armytage claims are defective and for which he seeks compensation. He relies upon expert evidence from building consultant Mr Wilson, who provided him with the initial expert report upon which he based his claim made on VMIA. Since that time Mr Wilson has provided a number of further reports, including as to costing. VMIA relied upon evidence from its own building expert, Mr Curtis-Griffiths. These gentlemen gave concurrent evidence and were cross-examined during the trial.
120The first defect item the subject of a claim by Mr Fall-Armytage against VMIA (paragraph 20, particular (d)(ii)), is as follows:
“(ii)The upper storey windows do not have restricted openings or a screen with secure fittings, and there are no markings on glazing windows which are capable of being mistaken for a doorway or opening. The windows do not comply with the NCC and are defective.”
121The NCC is the National Construction Code.
122These matters are dealt with in Mr Wilson’s report of 30 May 2023 at CB 177-178 in which Mr Wilson quotes the appropriate clauses from the National Construction Code, namely 3.9.2.5. The essence of the defect is that the Code required upper-storey bedroom windows to include restrictors limiting the extent to which they may open to 125 millimetres. Further, windows which might be mistaken for doors or openings are required to be marked by way of an opaque band not less than 20 millimetres in height so that the upper edge is not less than 700 millimetres above the floor and the lower edge is not more than 1.2 metres above the floor. It was not in dispute that Mr Wilson has accurately identified these items as defects.
123Mr Wilson and Mr Scott Curtis-Griffiths prepared a joint expert report a few days before trial (CB 1044 et seq). Mr Wilson confirmed the existence of the alleged defects. Mr Wilson agreed that these defects were not structural, and Mr Curtis-Griffiths agreed. Asked when the alleged defect would have first occurred, Mr Wilson said:
“The defect occurred at handover when window restrictors were not installed”,
whereas Mr Curtis-Griffiths said:
“It is possible that the previous or current owner removed the restrictors after handover.
The window manufacturer would have been provided with a copy of the plans and should have been aware of the requirement for the restrictors and supplied the windows accordingly.”
124They agreed that these defects would have been visible. They both agreed that the defects were discoverable. Mr Wilson costed rectification at $931. Mr Curtis-Griffiths costed rectification at $549 for the missing restrictors, and $668 for the missing marking. (CB 1048-1049)
125As to the relative costings, Mr Wilson explained that he had allowed for eight hours of a tradesman’s time, including travel time, and that eight hours includes the time required to obtain materials from off-site. It represents the time and cost for rectification of the installation of the restrictors and the marking. (T184, L23 – T185, L5)
126As I understand Mr Stuckey’s closing submissions, he contended that all non-structural items were excluded from effective claims simply because of the lapse of time being more than two years from “commencement”.
127I accept Mr Wilson’s costings for these first two items. I reject Mr Curtis-Griffiths’ opinion that these items are the result of subsequent alteration to the property after handover. This is especially so in light of the uncontradicted and unchallenged evidence of Mr Fall-Armytage that upon his inspection of the property prior to the auction in 2018 it did not appear to have been much lived in, or, to put it another way, it looked almost new. I accept Mr Andreou’s observation that:
“The opinion [of Mr Curtis-Griffiths on this point] places blind faith in the rigour of the inspection conducted by the building surveyor, which is particularly illogical given that Mr Curtis-Griffith’s [sic] report identifies a number of defects which presumably ought to have been picked up in that inspection.” (Closing submissions, paragraph 63(b))
128The next item in the particulars to paragraph 20 of the Statement of Claim (subparagraph (d)(iii)) is as follows:
“(iii)Masterwall Skyline has been installed at a slope of less than 2 degrees which does not comply with the manufacturer’s installation guide. There is consequential deterioration of the rendered finish; the installation of Masterwall Skyline is defective.”
129This defect or alleged defect is treated of at pages 186-190 of the Court Book, being pages 69-73 of Mr Wilson’s report dated 30 May 2023. In their joint report (CB 1050), the experts disagreed as to the existence of this defect. Mr Wilson said that the defect which pertained to a shelf or canopy attached to the outer walls of the house was a structural element within the definition of the policy. He said “the polystyrene cladding forms part of the external walls and weatherproofing”. Mr Curtis-Griffiths disagreed, saying that these projections, canopy or shelf, “are not a loadbearing component and not essential to the stability of the building”. Again, the experts were at odds as to whether this defect, if it exists, is a structural defect. Mr Wilson said it was, observing:
“The polystyrene cladding installed on horizontal projections has caused water to be retained on the rendered surface causing staining and fungus, and might cause water to penetrate the external wall and cause physical damage to the building.” (CB 1050)
130Mr Curtis-Griffiths, however, said:
“The item is a non-structural defect. The staining and fungus are not structural issues. I did not observe any signs of structural failure related to this issue (e.g. water penetration, cracking, deflection).” (CB 1050)
131Mr Wilson said he believed that this defect occurred “when the external cladding was installed during construction”. Mr Curtis-Griffiths said he believed that the issue was a design issue. He said:
“The builder appears to have constructed the horizontal projections in accordance with the plans and has provided greater than 1:100 fall as designed by the architect.
1:100 = 0.6 degrees. I observed 0.7 degrees and 1.1 degrees.
The costed repairs are based on an alternative design of the horizontal projections.” (CB 1050)
132The experts agreed that these issues, if they be a defect, were visible. They were agreed that these issues could be identified by visual inspection. Mr Curtis-Griffiths felt that it would not be necessary to have special building knowledge to identify (speaking of the staining and fungus). Mr Wilson, raising the wider issues, said a person “would need to have knowledge of the building codes and standards”. Mr Wilson costed rectification at $31,337, and Mr Curtis-Griffiths at $20,729. (CB 1050)
133Mr Andreou (Closing submissions, paragraph 65) observed:
“During cross-examination, both experts agreed that there is an absence of a drip edge or drip line across the length of the polystyrene cladding in the canopy which was required by the architectural drawings.”
134He said (paragraph 66) that this defect was the result of a failure by the builder to carry out the work in accordance with the statutory warranty. Mr Andreou said further, at paragraph 70 of his closing remarks, that:
“the definition of ‘structural defect’ under both the Policy and the Ministerial Order encompasses defects ‘attributable to defective design’.”
135Given that the purpose of the policy, and therefore of the Ministerial Order, is to provide a “backup” for the builder’s liability on the statutory warranties implied into domestic building contracts, one would expect, in conformity with that overall principle, that the policy would not extend to design issues at all. Surprisingly, the definition of structural defect in the policy and in the Ministerial Order extends to defects that are “attributable to defective design” (inter alia). However, this is all subject to the overriding requirement that the defect be in a “structural element”. This definition is quoted above.
136Mr Andreou said that even if the canopy or shelf were to be regarded as purely ornamental, it formed “part of the external walls or roof of the building”, and therefore fell within the definition of structural element. Mr Stuckey KC denied that this shelf or canopy was part of the external walls or roof of the house (Closing submissions, paragraph 18). He referred to AAI Ltd t/as Vero Insurance v Kalnin Corporation Pty Ltd; Kalnin Corporation Pty Ltd v AAI Ltd t/as Vero Insurance [2017] NSWSC 548 [106]-[109]. Mr Stuckey KC contended (Closing submissions, paragraph 18) that the mere fact that the canopy or shelf was attached to the walls of the property did not render part of the external walls or roof so as to be regarded as a structural element. This issue was dealt with by Stevenson J in AAI Ltd t/as Vero Insurance v Kalnin Corporation Pty Ltd; Kalnin Corporation Pty Ltd v AAI Ltd t/as Vero Insurance [2017] NSWSC 548. The definitions in the indemnity insurance regime with which his Honour was dealing appear to be the same or not materially different from the ones applying in Victoria under the Ministerial Order. His Honour said:
“104.Bearing in mind that the question is whether components forming part of an external wall or roof are, themselves, “structural elements” of the building as a whole, and bearing in mind that the definition of “structural element” in reg 3 speaks of “components” of a building that provide “necessary supporting structure to the whole or any part of the building”, I read reg 57AC(2)(b) as referring to components forming part of the external walls or roof of the building which themselves are intended or designed to contribute to the “necessary supporting structure” of those external walls or roof of the building.
105. “Weatherproofing” is necessarily one of these components. It is referred to in terms and can be seen to support the structure of the building. Brickwork or a steel beam forming part of an external wall would be another such component; or, tiling on the roof. Flashing, if it contributes to weatherproofing by diverting moisture out from the cavity between load-bearing walls, may also be such a component.
106. But components that serve a merely decorative function, even if they have some connection with, or are attached in some way to an external wall or roof, and can in that sense be seen to “form part” of such wall or roof, could not have been intended by the legislature to be a “structural element of a building”.
107. Otherwise, absurd results would follow. As I have said, paint would then be a structural element; as would purely cosmetic render; or a basketball hoop or letterbox attached to an external wall; or a ventilation grill in the roof.
108. This cannot be what the legislature intended.
109. My conclusion is that, on its proper construction, reg 57AC(2)(b) includes as a “structural element of a building” any component forming part of the external walls or roof of a building that itself is intended or designed to contribute to the necessary supporting structure of the building. That includes weatherproofing. It does not include components forming part of the external wall or roof of the building that have a purely cosmetic function.” ([2017] NSWSC 548, [104]-[109])
137It would seem to follow that problems with this canopy cannot be regarded as structural defects.
138Mr Wilson contended that the proper rectification for the canopy was to apply a different or tiled surface in lieu of the existing surface. (T204, L7-22) In his report dated 30 May 2023, paragraph 4.18, CB 189, Mr Wilson said:
“There is a design deficiency in that the nominated fall on the Skywall detailed on the architectural drawings is more than 10 times less than the Masterwall Skyline System Manual states should be provided.”
139At paragraph 4.11 (Ibid) he said:
“The dampness and deterioration of the render is likely to be a consequence of insufficient fall on the surface of the render.”
140The identified problem therefore seems to be a matter of design rather than workmanship. The major focus of the cover required by the Ministerial Order and provided by the policy is defective work caused by poor workmanship by reference to failures to comply with the warranties implied by s8 of the Domestic Building Contracts Act 1995. The concept of “defective” is key to the scope of cover. (CB 458) The word “defective” is defined to include:
“in respect of any of the work:
(a) in breach of a statutory warranty given by the builder ... under the building contract; or
(b) where there has been a failure to maintain any standard or quality of work specified in the building contract.” (CB 455)
141It follows that the policy is a policy indemnifying in broad terms against poor workmanship, not design defects. The reference to design in the definition of structural defects, whatever effect it may have relative to structural defects, has no application to the canopy, because, for reasons explained, a defect in the canopy is not a structural defect because the canopy is not a structural element. Therefore, in so far as Mr Wilson has advocated a process of rectification which goes beyond the rectification of workmanship issues and therefore beyond the scope of the cover, Mr Curtis-Griffiths advocated rejection of this item because he regarded it as claimed out of time as a non-structural item. For reasons explained, I do not accept that premise. (CB 298) Inferentially, he accepted that a non-structural defect existed. In his report dated 8 August 2024 he stated:
“The item is a building defect because the builder has not installed the product with the required fall.” (CB 298)
142In the joint report he costed rectification at $20,729. (CB 1050) Mr Curtis-Griffiths said that the divergence in proposed methods of rectification between him and Mr Wilson (who advocated a tiled surface) was “the main reason for the variance in our estimates”. (T247, L31) Given that the mode of rectification advocated by Mr Wilson in my view goes beyond the scope of cover which the policy grants, I would adopt the rectification estimate made by Mr Curtis-Griffiths.
143The next item alleged in particulars at paragraph (d) of paragraph 20 of the Statement of Claim as a defect is as follows:
“(iv)The polystyrene cladding installed below the horizontal projection on the north elevation has not been carried out in a workmanlike manner and is defective.” (CB 95)
144According to the joint report, the experts were agreed that this defect exists. Mr Wilson regarded it as a structural defect, and Mr Curtis-Griffiths as a non-structural defect. Given that this pertains to the ornamental canopy, I agree with the opinion of Mr Curtis-Griffiths that it is a non-structural defect. The experts were agreed that this defect existed as at the time of handover: that is, at the commencement of the period covered by the indemnity insurance. It was detectable by inspection. Mr Wilson costed rectification at $2,000; Mr Curtis-Griffiths at $389. (CB 1051) I adopt Mr Wilson’s costs for the sum.
145The next item by way of alleged defect in the particulars (paragraph (d)) to paragraph 20 of the Statement of Claim is:
“(v)Axon cladding installed on the east elevation of the garage has been installed to the surface of the pavement and garden bed, and there is no head flashing or open joint to allow moisture to escape above the window head. The Axon cladding installation is defective.” (CB 96)
146The experts were agreed that this alleged defect exists and relates to a structural element of the property. They were divided, however, as to whether it was a structural defect; Mr Wilson stating that it was, because since the cladding was:
“in physical contact with the ground surface [it] will likely result in physical damage to the building. The Axon cladding can become damp causing deterioration of the sheeting and damage to the paintwork.”
147Mr Curtis-Griffiths disagreed, observing that 11 years from completion, no damage to cladding or paint was evident, and the Axion cladding did not “appear to be suffering from extended contact with moisture”.
148Both were agreed that the defect occurred at the time of installation and that it would have been visible. They costed rectification at $866 (Mr Wilson) and $1,354 (Mr Curtis-Griffiths).
149In the view which I have taken, the status of this item as structural or non-structural is not determinative as to liability. Mr Andreou was happy to embrace the higher estimate for rectification costs adopted by Mr Curtis-Griffiths. I concur.
150Subparagraph (vi) of paragraph (d) of paragraph 20 of the Statement of Claim, being a list of defects alleged to exist, is as follows:
“(vi)The wall on east boundary is constructed of plywood which extends below the ground surface; the plywood has deteriorated at the bottom of the sheeting and its installation is defective.” (CB 96)
151Both experts agreed that this defect exists and does not affect the structural element in the property. Accordingly, they are agreed that it is not a structural defect. The experts were agreed that the defect arose at the time of construction of the fence. Mr Curtis-Griffiths, however, observed “based on the documentation provided I could not confirm if the fence formed part of the building contract.” Both agreed that the defect was visible. Mr Wilson said its detectability depended on the observer having “knowledge of the building codes and standards”. Mr Curtis-Griffiths disagreed with the proposition that “special knowledge is required to identify the damage”. Mr Wilson costed rectification at $4,850; Mr Curtis-Griffiths at $2,900. Mr Curtis-Griffiths, however, said that liability for this item was excluded by s48(d) of the policy, which excluded liability for landscaping, paving, retaining structures, driveways or fencing, unless the work was integral to the construction of the building or required the issue of a building permit under the Act. It would seem that a permit is required for a fence that is more than 1.5 metres high.
152Mr Andreou said that Mr Curtis-Griffiths, under cross-examination (T270, L6-10), conceded that the fence as erected required a building permit, and as such was not excluded from liability under the policy. The experts costed the rectification for this item at $4,887 for Mr Wilson, and $2,900 for Mr Curtis-Griffiths. (CB 1053) Mr Wilson explained his understanding of the difference in cost as being based on the fact that he “allowed to install additional framing ... for a connection of the base of the plywood, but also to pick up the top of the ... suitable material”. (T271, L8-11) He said he allowed “36 lineal metres”. (Ibid, L27) Mr Curtis-Griffiths said he believed that he had “less hours allowed for labour”. (T272, L30-31) The difference between the experts was not as to the scope of works, but rather the extent of allowances for labour and materials. (T273, L7-11) I adopt Mr Wilson’s costing as being more conservative: that is, being more cautious as to the amount of materials and the number of hours required to rectify.
153The next alleged defect, being subparagraph (vii) of paragraph (d) of the particulars to paragraph 20 of the Statement of Claim (CB 96) is:
“(vii)There is no water stop installed under the shower screen and across the opening of the showers. A perimeter flashing has been omitted to the laundry, and water stops sealed to the perimeter flashing to the sanitary compartment and ensuites have been omitted. The wet area waterproofing does not comply with AS 3740 and is defective.”
154Mr Wilson asserted the existence of the alleged defect in so far as he found that no water stop had been “installed below the shower screens and across the openings to finish flush with the surface of the tiling”. Mr Curtis-Griffiths, however, said he believed there was “a water stop installed but it cannot be seen at surface level. If it finishes just below the surface, it can still be affective [sic] and stop moisture migration.” In their joint report, the experts agreed that this defect was not in a structural element of the building. They differed, however, as to whether it was a structural defect. He Curtis-Griffiths said it was not. Mr Wilson said that whilst the defect was not in a structural element, “if water did migrate below the tiling because of the omission of a water stop, then damage might be caused to the timber framework which is a structural element.” Mr Wilson said that the defect occurred when “the wet area was waterproofed during construction”. Mr Curtis-Griffiths said the defect was not discoverable based on visible inspection, though Mr Wilson said it would be. Both experts agreed that this defect would be discoverable only on the basis of knowledge of the building codes and standards. Mr Wilson costed rectification at $94,433.76; Mr Curtis-Griffiths at $79,526. (CB 1054)
155In closing submissions, Mr Stuckey KC said:
“There is not [a] sign of moisture moving out of the shower recesses after 11 years of use, and Mr Curtis-Griffiths was firmly of the view that there would have been such evidence within a short time if the water stop was not present.”
156He referred to T281, L16-21.
157The point of difference between the experts seems to be that whilst the upper surface of the water stop at the shower perimeter ought to be visible in accordance with the code requirements, these items are frequently grouted over for aesthetic reasons. Mr Curtis-Griffiths, in the absence of destructive testing, was inclined to infer that the water stop existed, whilst Mr Wilson drew the opposite inference. As will appear, a further water stop at the outer perimeter of the wet area was found not to exist following destructive testing. In those circumstances, I draw the negative inference which Mr Wilson did. In the view that I take, whether this defect is to be regarded as structural or non-structural would not be determinative of liability. On this point, however, I would go with Mr Curtis-Griffiths and determine that this item was not a structural defect. The floors are structural elements, but the water stop is no more part of the floor than, consistently with the reasoning of Stevenson J in Kalnin’s case referred to above, damage to the external canopy is part of the walls.
158I adopt Mr Wilson’s costing for this point of rectification as being more reasonable and conservative.
159The next item, or a second part of this item, pertains to the absence of a water stop at the perimeter of the wet areas. The experts were agreed as to the existence of this defect and that it did not affect a structural element of the property. As to whether it was a structural defect, the experts were divided according to the same arguments as with respect to the water stop at the shower perimeter. For the reasons already explained, I would adopt the view of Mr Curtis-Griffiths that this defect is not a structural defect.
160The parties agreed that this defect came into existence at the time of construction and that the defect would have been visible, albeit, according to Mr Wilson, that specialist knowledge would have been required, a point with which Mr Curtis-Griffiths agreed. The rectification cost for this item was included in the sums quoted relative to the water stop at the perimeter of the shower.
161Subparagraph (ix) of paragraph (d) of the particulars to paragraph 20 of the Statement of Claim, being the list of defects or alleged defects, states:
“(ix)The air-conditioning units’ supports are in the tray section of the metal deck roof on the lower roof on the north side of the building over the garage and there are no supporting stays; the air-conditioning units’ installations are defective.”
162The experts were agreed as to the existence of this defect and that it was not in a structural element of the property, and as such was not a structural defect. Again, they agreed that the defect occurred during construction and that it would have been visible to an inspection in 2018. The defect could be discovered by visible inspection, according to Mr Wilson, but was not viewable “from a normal viewing position and access to the garage roof [would be] required to view this defect”. A person inspecting “would need to have knowledge of the building codes and standards”. Mr Curtis-Griffiths agreed. (CB 1056) Mr Wilson costed the rectification of this work at $2,929, and Mr Curtis-Griffiths at $1,902. (CB 1056) Mr Wilson explained his costing on the basis that:
“I’ve allowed for the work to be carried out in two stages ... and my understanding ... is that ... my colleague has allowed only for one attendance for the air conditioners to be removed and reinstalled properly. The reason why I provided two attendances is that a plumber needs to come to remove the air conditioning units for the roof rectification works to be carried out and it can’t be put back until a later date that the roof rectification works have been carried out.” (T315, L25 – T316, L3)
163Given that the roof rectification work had been the subject of a separate resolution and was therefore separately costed, Mr Wilson conceded that for present purposes it was necessary to allow for one attendance only. (T316, L28) Accordingly, I adopt Mr Curtis-Griffiths’ costing for this item.
164The next item in the particulars to paragraph 20 of the Statement of Claim is as follows:
“(x)The stairway does not have a slip resistant finish or non-skid strip near the edge of the nosings which does not comply with the NCC [National Construction Code] and is defective.” (CB 96)
165The experts in their joint report agreed that this defect existed and that it was not a defect in a structural element of the building; therefore, it should be regarded as a non-structural defect. Mr Wilson said the defect occurred at handover. Mr Curtis-Griffiths believed that had the defect existed at the completion of construction no occupancy permit would have issued. He continued:
“It is possible the stairway has been sanded and recoated post completion of the building works by the previous or current owner of the property.”
166The issue would have been detectable on inspection in 2018 and would be detectable by visual inspection by a person having knowledge of the building codes and standards. Mr Wilson costed the rectification at $3,725; Mr Curtis-Griffiths at $2,913. (CB 1057)
167I reject as speculative the suggestion that the staircase was re-sanded “post completion”. I have already referred to the unchallenged evidence of Mr Fall-Armytage that on his inspection prior to the 2018 auction, the property did not appear to have been long lived in.
168Mr Wilson’s costing allowed for two days of labour. Mr Curtis-Griffiths’ allowed 10 hours: viz, a day and a half. (T321, L2-10) Mr Curtis-Griffiths agreed that sanding would be required, but this and the other necessary work could be done in 10 hours. (Ibid, L19-21) I adopt Mr Wilson’s estimate of the labour required as being the more realistic.
169Subparagraph (xi) of paragraph (d) of the particulars to paragraph 20 of the Statement of Claim states:
“(x)The internal timber doors have not been sealed on their top and bottom edges which is defective.”
170In their joint report, the experts agreed as to the existence of this defect and that it was not in a structural element of the property and was therefore non-structural. They concurred that the defect occurred during construction and would have been observable in 2018 by a visible inspection, though not detectable “from a normal viewing position”. Mr Wilson costed the rectification at $930, and Mr Curtis-Griffiths at $2,159. As I understood Mr Andreou, he embraced Mr Curtis-Griffiths’ estimate of rectification cost on this point, which I adopt.
171Subparagraph (xii) of paragraph (d) of the particulars to paragraph 20 of the Statement of Claim states:
“(xii)The bluestone paving has insufficient fall and no control joints; the bluestone paving has not been installed in a workmanlike manner and is defective.”
172In their joint report, the experts agreed as to the existence of this defect or these two composite defects. They agreed that they did not affect a structural element of the property and were therefore non-structural defects. Again, they concurred that these defects dated from the time of construction and were detectable on visual inspection in 2018 but that it would be necessary for the person inspecting to have a “level” and knowledge of the building codes and standards. Both defects could be rectified, according to Mr Wilson, for $17,180, or for $15,604 according to Mr Curtis-Griffiths’ calculation. (CB 1059) I accept Mr Wilson’s estimate of the cost of rectification as being the more conservative and realistic.
173Additionally to the defects or alleged defects identified in the particulars to paragraph 20 of the Statement of Claim, there was one other defect considered and the subject of evidence from the experts: namely, “Gate latch not installed in a workmanlike manner”. The experts in their joint report were agreed as to the existence of this defect. Mr Curtis-Griffiths remarked “The gate latch installation is defective. It has been relocated at some stage and is poorly installed.” The experts agreed that this defect was not in a structural element and was a non-structural defect. Mr Wilson concluded that the defect occurred when the gate latch was installed during construction. Mr Curtis-Griffiths said it was possible the “previous or current owner has modified or relocated the latch causing the defect”. The defect would have been detectable on inspection in 2018, and would not require special knowledge to identify as a defect. The experts agreed to a cost of $367 for rectification.
174In my view the photograph at CB 214 supports Mr Curtis-Griffiths’ view that this latch has been relocated post-construction. In so far as the reinstallation is defective, it is not a defect deriving from construction, and is therefore not within the scope of the indemnity policy.
175I have dealt with the various defects comprised within Mr Fall-Armytage’s claim upon VMIA under the policy. Two other items, however, remain to be dealt with.
176Paragraph 33 of the policy, headed “Supplementary cover”, provides as follows:
“33.We will also indemnify you for the following:
(a)the cost to you of alternative accommodation, removal and storage costs reasonably and necessarily incurred subsequent to and as a result of an event referred to in clause 32 in the section headed ‘What is covered by this policy? - Primary cover’. We will not pay for accommodation or storage costs for any period of accommodation or storage that exceeds 60 days, excluding any period or periods of delay attributable to us; and
(b)your loss of a deposit or progress payment (or part of it) under the building contract due to an event referred to in clause 32 in the section headed ‘What is covered by this policy? - Primary cover.” (CB 458)
177The cover provided is limited to 60 days. Mr Andreou said that Mr Wilson concluded that the rectification works relating to plumbing defects and mould and other matters will take more than 60 days. He referred to the joint expert report (CB 1060). Rectification of the wet areas was, he said, “likely to affect the liveability of the bedrooms”. (Closing submissions, paragraph 99(b)) He said “The plaintiff has two young children (aged 6 and 1), as well as a dog and cat, all of which may be exposed to mould spores, dust, noise and other hazards while the works are carried out.” (Ibid, paragraph (c)) He noted that Mr Curtis-Griffiths’ proposal involved the work being separated into stages. He said this was likely to increase rather than decrease the level of disruption. He noted that Mr Curtis-Griffiths conceded that a rectifying builder would require an additional contingency period to cover unanticipated delays. (T349, L6-20) Mr Wilson calculated the necessary time at 70 days (10 weeks) which would exceed the capped 60 days. He referred to a quotation for accommodation and storage at CB 967-969. I accept these contentions.
178As previously noted, there is a cap of $200,000 on VMIA’s liability under the policy. On my calculations, that limit will be reached on the basis of the defect items already found in Mr Fall-Armytage’s favour and the amount of the supplementary cover for 60 days’ accommodation and storage costs.
179The issue of costs, and, if ordered in favour of the plaintiff, their recoverability as an addition to the $200,000 limit, has not been argued, and remains for further submissions to be made. The issue of statutory interest was, however, canvassed.
180The final issue is whether there should be an award of interest upon the judgment to be recovered by Mr Fall-Armytage despite the fact that such an award would lead to the entry of judgment in an amount exceeding the $200,000 “cap” imposed by the policy.
181By virtue of s50 of the County Court Act 1958, the Court has the same power to award interest on judgments as has the Supreme Court pursuant to s58 and s60 of the Supreme Court Act 1986. Section 58 of the Supreme Court Act deals with the award of interest on a judgment for a debt or liquidated demand. Section 58 deals with the award of interest on judgments for damages, though it may also apply in certain circumstances to judgments for debts or liquidated demands. Section 58 is inapplicable.
182The amounts recoverable under the policy do not constitute a debt or liquidated demand: Alexander v Ajax Insurance Co Ltd [1956] VLR 436. In Alexander’s case, Sholl J considered the validity of a judgment entered administratively in default of appearance in the Prothonotary’s office for the amount claimed by an insured under a policy indemnifying him against fire, theft, and other peril relative to the contents of his dwelling, which contained a limitation of liability in the sum of one thousand pounds. The judgment would have been regularly entered in accordance with the Court’s Rules if it were for a “debt or liquidated demand”, but not otherwise. His Honour concluded that the judgment could not be regarded as one for a “debt or liquidated demand” and was therefore irregular. In his Honour’s view, the question whether the judgment was one for a “debt or liquidated demand” required an analysis based on the old causes of action which in England were abolished by the Common Law Procedure Act 1852. An analysis of the old authorities indicated that the judgment in question was not for a debt or liquidated demand. His Honour said:
“On its proper construction, this is not a “valued” policy whereby in the event of a total loss the company has agreed to pay the assured £1,000, whatever the actual value of the goods lost may be; and the £1,000 is simply a maximum figure.” [1956] VLR 436, 449-50
183Section 60 of the Supreme Court Act 1986 provides:
“60 Interest in proceedings for debt or damages
(1)The Court, on application in any proceeding for the recovery of debt or damages, must, unless good cause is shown to the contrary, give damages in the nature of interest at such rate not exceeding the rate for the time being fixed under section 2 of the Penalty Interest Rates Act 1983 as it thinks fit from the commencement of the proceeding to the date of the judgment over and above the debt or damages awarded.
(2)Nothing in this section—
(a) authorises the granting of interest on interest;
(b) applies in relation to any sum on which interest is recoverable as of right by virtue of any agreement or otherwise;
(c) affects the damages recoverable for the dishonour of a negotiable instrument;
(d) authorises the allowance of any interest otherwise than by consent on any sum for which judgment is entered or given by consent;
(e) applies in relation to any sum on which interest might be awarded by virtue of section 58 or 59; or
(f) limits the operation of any enactment or rule of law which, apart from this section, provides for the award of interest.
(3)If the damages awarded by the Court or jury include or if the Court in its absolute discretion determines that the damages awarded include any amount for—
(a) compensation in respect of liabilities incurred which do not carry interest as against the person claiming interest;
(b) compensation for loss or damage to be incurred or suffered after the date of the award; or
(c) exemplary or punitive damages—
the Court must not allow interest in respect of any amount so included or in respect of so much of the award as in its opinion represents any such damages.
(4)The Court may request a jury to specify in its verdict any amount included in the verdict in respect of the matters referred to in subsection (3).”
184According to the learned editors of Civil Procedure Victoria:
“The object of an award of interest is first, to compensate the judgment creditor for being kept out of funds from when the debt became due, or demand was made (s 58), or, from the commencement of the proceeding (s 60) and until judgment; secondly, to deter the judgment debtor from delaying payment and thereby having the use of the money for a longer period; and finally, to encourage a prospective defendant, or defendant, to make a realistic assessment of his or her liability in respect of the alleged debt or claim and to take prompt steps to compromise.” [690.17 6933.31 (Service 337)]
citing the judgment of Gillard J in Johnson Tiles Pty Ltd v Esso Australia Pty Ltd (No 3) [2003] VSC 244.
185Mr Stuckey KC on behalf of VMIA said (Closing submissions, paragraph 47):
“Despite the language of the policy document, the Plaintiff did not pay for the insurance or provide any consideration for the indemnity. It cannot amount to a contract between the Plaintiff and the Defendant. The promise of indemnity is not supported by any consideration flowing from him, and should be construed with that in mind.”
186He referred to clause 37 of the policy, which states:
“we will not pay more than $200,000 in total in the aggregate for all claims under this policy for each home. This amount includes the reasonable costs and expenses ... associated with a successful claim against us.” (CB 459; Closing submissions, paragraph 48)
187He said it would be wrong, therefore, to add any interest above the policy “cap”, stating (Closing submissions, paragraph 49):
“There is no contractual right that has been breached to suggest a supplementary reason for awarding it. A claim for interest is still a claim, which the “agreement” to insure makes subject to a hard maximum.”
188In any event, he said, the existence of the cap should be regarded as a “good reason” not to make an award of interest under s60 in accordance with the proviso in that regard included in the section itself. He concluded (Closing submissions, paragraph 50):
“The works have not been performed and the cost of rectification have all been evidenced as at present day values, such that there is no additional loss to be compensated. The scheme contemplated that the gratuitous indemnity should go so far and no further, and that should be honoured.”
189I reject the contention that the indemnity under the policy should be regarded as “gratuitous”. That view of things goes against the common wisdom that “there is no such thing as a free lunch”. The cost of the indemnity insurance is initially borne by the builder. It would be unrealistic to think that the price charged by the builder to the original proprietor would not include an amount to recover that cost. When a dwelling under insurance cover is sold, the indemnity right is amongst the various associated entitlements which are in substance sold by the original owner or proprietor. To treat a subsequent owner’s claim as some sort of inferior form of contractual obligation would in my view be subversive of the obvious policy of s9 of the Domestic Building Contracts Act 1995.
190The award of interest under s60 of the Supreme Court Act is an element of the Court’s jurisdiction. It does not involve giving effect to an underlying contractual right. Without suggesting that it would be impossible for parties to an indemnity policy effectively to contract out of a beneficiary of the policy’s recovering interest under the Supreme Court Act so as to bring the total payout to an amount in excess of the $200,000 cap, I do not see clear language in this policy to achieve that result. It is trite law that the policy is proffered by the insurer and therefore its terms ought to be construed contra proferentem. Far from there being good reason not to award interest, the rationale for the award of interest under s60, as being one to encourage early resolution of proceedings, favours that award. Interest should therefore be awarded under s60 from the commencement of the proceeding until the entry of judgment at the rate provided for in the Penalty Interest Rates Act 1983 which at material times, as I would understand it, is at the rate of 10 per centum per annum (simple).
Disposition
191I will direct the parties to bring in short minutes to give effect to these reasons.
Costs
192I have heard no submissions on the question of costs, and so I will reserve them.
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Certificate
I certify that these 50 pages are a true copy of the judgment of his Honour Judge Macnamara delivered on 4 June 2025.
Dated: 19 June 2025
Jodie Daniel
Associate to His Honour Judge Macnamara
ANNEXURE
| MINISTERIAL ORDER S98 | VMIA POLICY TERMS | |
| Cl 8(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. | “defective” includes, in respect of any of the work: (a) in breach of a statutory warranty given by the builder … under the building contract; or (b) where there has been a failure to maintain any standard or quality of work specified in the building contract We will indemnify you for the following sustained by you: |
| Cl 9(2) | The policy must also indemnify the building owner in respect of the costs of alternative accommodation and removal and storage costs that are reasonably and necessarily incurred subsequent to and as a result of any of the following events: (a) the non-completion of the domestic building work; (b) an event referred to in clause 8(2)(a) to (d). | We will also indemnify you for the following: (a) The cost to you of alternative accommodation, removal and storage costs reasonably and necessarily incurred subsequent to and as a result of an event referred to in clause 32… (b) We will not pay for accommodation or storage costs for any period of accommodation or storage that exceeds 60 days |
| Cl 11 | 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. | “you” or “your” referring to the homeowner on whose behalf domestic building work is done or is to be done by the builder… and any successor in title to that homeowner… |
| Cl 12(1) | The policy must provide the indemnities referred to in clauses 8 and 9 in relation to non-structural defects in respect of loss or damage occurring during the period commencing on the commencement day and ending not earlier than 2 years after the earlier of: (a) the completion date of the domestic building work; and (b) the date of termination of the relevant domestic building contract. | This policy covers loss or damage arising from a non-structural defect occurring during the period commencing on the commencement date and ending 2 years after the completion of the work or the date of termination of the building contract whichever is the earlier |
| Cl 12(2) | The policy must provide the indemnities referred to in clauses 8 and 9 in respect of all other loss or damage occurring during the period commencing on the commencement day and ending not earlier than 6 years after the earlier of: (a) the completion date of the domestic building work; and (b) the date of termination of the relevant domestic building contract. | This policy covers loss, damage or expense, from a cause other than a non-structural defect. occurring during the period commencing on the commencement date and ending 2 years after the completion of the work or the date of termination of the building contract, whichever is the earlier |
| Sch 1 p.14 | non-structural defect in relation to a building, means a defect in building work other than a structural defect; | non-structural defect: a defect in the building other than a structural defect. |
| Sch 1 p. 14 | structural defect in relation to a building, means any defect in a structural element of (a) results in, or is likely to result in, the building or any part of the building being required by or under any law to be closed or prohibited from being used; or (b) prevents, or is likely to prevent, the continued practical use of the building or any part of the building; or (c) results in, or is likely to result in: (i) the destruction of the building or any part of the building; or (ii) physical damage to the building or any part of the building; or (d) results in, or is likely to result in, a threat of imminent collapse that may reasonably be considered to cause destruction of the building or physical damage to the building or any part of the building; | structural defect: any defect in a structural element of the building that is attributable to defective design, defective or faulty workmanship or defective materials (or a combination of these) and that: (a) results in, or is likely to result in, the building or any part of the building being required by or under any law to be closed or prohibited from being used; or (b) prevents, or is likely to prevent, the continued practical use of the building or any part of the building; or (c) results in, or is likely to result in: (i) the destruction of the building or any part of the building; or (ii) physical damage to the building or any part of the building; or (d) results in, or is likely to result in, a threat of imminent collapse that may reasonably be considered to cause destruction of the building or physical damage to the building or any part of the building. |
| Sc 1 p.15 | structural element in relation to a building, means (a) any internal or external load-bearing component of the building that is essential to the stability of the building or any part of it, including (but not limited to), foundations, floors, walls, roofs, columns and beams; or (b) any component (including weatherproofing) that forms part of the external walls or roof of the building; | structural element in relation to the building, means (a) any internal or external load-bearing component of the building that is essential to the stability of the building or any part of it, including (but not limited to), foundations, floors, walls, roofs, columns and beams; or (b) any component (including weatherproofing) that forms part of the external walls or roof of the building. |
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