McCallum Developments v The Owners Corporation SP53908

[2002] NSWSC 1103

CITATION:	McCallum Developments v The Owners Corporation SP53908 [2002] NSWSC 1103
CURRENT JURISDICTION:	Common Law Division Administrative Law List
FILE NUMBER(S):	SC 30008/02
HEARING DATE(S):	9 & 10 October 2002
JUDGMENT DATE:	21 November 2002
PARTIES :	McCallum Developments Pty Limited (Plaintiff) The Owners Corporation SP53908 (1st Defendant) Fair Trading Administration Corporation (2nd Defendant)
JUDGMENT OF:	Studdert J

COUNSEL :	A.J.J. Thompson (Plaintiff) J. Loofs (1st Defendant) G.A. Sirtes (2nd Defendant)
SOLICITORS:	Conditsis & Associates (Plaintiff) Le Page Cochrane (1st Defendant) D.A. Catt (2nd Defendant)
CATCHWORDS:	Administrative law - summons seeking declarations - construction of residential home units - alleged defects in building work - claim by body corporate under insurance scheme - requirements imposed by scheme in considering claim - whether compliance with those requirements - if not, whether declarations should be made - consideration of utility.
LEGISLATION CITED:	Building Services Corporation Act Home Building Act Building Service Corporation Legislation Amendment Act Builders Licensing Act
CASES CITED:	Hale v Parramatta City Council (1981-82) 47 LGRA 269 Minister for Aboriginal Affairs v Peko-Wallsend Limited (1985-86) 162 CLR 24 P. & V. Sammut Homes Pty Limited v Building Services Corporation (unreported, Newman J, 24 April 1997) Builders' Licensing Board v Inglis & Anor (1985) 1 NSWLR 592 Australian Conservation Foundation Inc. v The Commonwealth (1980) 164 CLR 493 Day v Pinglen Pty Limited (1981) 148 CLR 289 Onus v Alcoa of Australia Limited (1981) 149 CLR 27 Aboriginal Community Benefit Fund Pty Limited v Batemans Bay Local Aboriginal Land Council (1997) 41 NSWLR 494 Fair Trading Administrative Corporation v The Owners Corporation Strata Plan 43551 [2002] NSWSC 624
DECISION:	See paras 64 and 65.

IN THE SUPREME COURT
OF NEW SOUTH WALES
COMMON LAW DIVISION
ADMINISTRATIVE LAW LIST

STUDDERT J

Thursday 21 November 2002

30008/02 McCALLUM DEVELOPMENTS PTY LIMITED v THE OWNERS CORPORATION SP 53908 & ANOR

JUDGMENT

1 HIS HONOUR: By amended summons filed on 7 May 2002 the plaintiff, McCallum Developments Pty Limited, has brought proceedings against the first defendant, The Owners Corporation SP 53908, and the second defendant, Fair Trading Administration Corporation, seeking the following relief:

“1. A Declaration that the First Defendant had and has no right to make insurance claim no. I 95/6945 (‘the Claim’) under the Comprehensive Insurance Scheme constituted under the Building Services Corporation Act 1989 and continued under the Building Services Corporation Legislation Amendment Act 1996 as the claim is out of time.
2. A Declaration that the Second Defendant has no power pursuant to the Building Services Corporation Legislation Amendment Act 1996 or otherwise to assess and determine the Claim as the claim is out of time.
3. A Declaration that the Second Defendant’s approval in principle of the Claim, dated 12 November 2002, is void.
4. An Order that the Second Defendant be restrained, both pending suit and perpetually, from assessing and determining the Claim.
5. Such further or other order as the Court may deem fit.”

2 Ultimately the plaintiff did not press for the relief sought in paras 2 and 4 but claims only the declarations in paras 1 and 3.

3 The plaintiff is a developer. The first defendant named in the summons, the Owners Corporation SP 53905, is, as its name suggests, the body corporate for residential home units. Those units were constructed at 117 John Whiteway Drive, Gosford. In all there are thirty-five residential units. Their construction was carried out in two stages, commencing somewhere between 23 July 1995 and 16 October 1995. The completion date appears to have been in October 1997. I shall return to the evidence as to the construction period presently.

4 The evidence received on the hearing of the summons consisted of the following: affidavits of Neill Douglas McCallum, a director of the plaintiff, sworn on 6 February 2002 and 2 May 2002, an affidavit sworn by Susan Edwards, the current chairperson and secretary of the first defendant, and an affidavit of Rodney Elliott, who is the general manager of the insurance service of the Department of Fair Trading. Each of those deponents was cross examined.

5 The Building Services Corporation Act, 1989 made provision for insurance schemes for residential building work and provided for the Corporation to be the insurer. It is common ground between the parties, however, that the relevant insurance scheme is administered by the second defendant. The evidence establishes that the first defendant pursued an insurance claim through the second defendant in respect of allegedly faulty work by the plaintiff. It is this claim and decisions made in relation to it which have prompted the present summons.

6 After the claim was first made, the second defendant wrote to the plaintiff on 10 August 2000 and the letter read in part as follows:

“I refer to the above complaint recently lodged by Strata Plan 53908 with the Department of Fair Trading regarding building/trade work carried at above address.
In view of the information contained in the file, this matter was referred to the A/Claims Manager of the Insurance Branch who is responsible for the insurance scheme administered by this Department.
Under the Building Services Corporation Act/Home Building Act, the contractor is responsible for defective work for a period of three years for what are considered general defects and seven years for major structural defects.
As the items in the complaint appear to be general defects and the above time limit has expired the Department will be taking no further action at this stage. The only other avenue which is available to the complainant would be to seek legal advice.”

7 However, the second defendant wrote again to the plaintiff on 19 June 2001 concerning the first defendant’s insurance claim, and it is apparent from the terms of this and later letters that the second defendant reconsidered its earlier decision:

“The Department of Fair Trading, Building Insurance Branch has received an insurance claim regarding building work at the above address which the Department has been advised was done or contracted to be done by your company This claim has resulted from the previously unresolved complaint under C 2000/1391 concerning defective and/or incomplete work.
Under the provisions of the Home Building Act 1989, if the Department approves and subsequently pays out a claim under the Comprehensive Insurance scheme, it is the Department’s duty to seek recovery against the contractor who contracted to do or who did the work for the amount of the claim settlement. Should the contractor fail to reimburse the Department either in full or by a deed of arrangement, then recovery proceedings will be commenced.
Should you wish to make a written submission or request any information in regard to the claim please forward your submission to the Manager, Building Insurance Branch, without delay. Please quote insurance claim file number I 95/6945 We will ensure that your submission is considered, provided it is received before a decision is made.”

8 That letter prompted this response from the plaintiff on 26 June 2001:

“I refer to your letter of 19/6/01 & draw your attention to the letter sent to me dated 10/8/2000 (copy attached), & my subsequent phone conversation, where I was advised, considering the commencement dates, that all claims were outside the D.F.T. timeframe limits (i.e. 3 years general defects, 7 years structural defects from commencement i.e. 23-7-95) & that no further action would be taken. I rely on this advice which is consistent with my understanding of the situation.”

9 The second defendant notified the first defendant by letter dated 12 November 2001 that “approval in principle” had been granted under cl 5(1)(d) of the comprehensive insurance scheme to settle the first defendant’s claim and, consistently with that notification, the second defendant wrote to the plaintiff on the same date advising:

“On 19th June 2001 the Department of Fair Trading notified you that an insurance claim regarding work at the above address had been received by the Department’s Building Insurance Branch. We invited you to submit any information you had regarding the claim.
This claim has now been approved under the Comprehensive Insurance Scheme for an amount to be determined upon the receipt from the Owners Corporation of a fair and reasonable quotation based upon the enclosed Schedule of Work.
Please note that the Owners Corporation could be eligible for a claim of up to $700,000. I will advise you once the Department has determined the amount of the claim.
In the meantime, should you wish to make enquiries concerning this matter, please contact Vince Kennedy at DFT Home Building Insurance on telephone number [phone].”

10 I do not propose to record exhaustively all the communications between the plaintiff and the second defendant from the time that the plaintiff became aware of the second defendant’s decision on the first defendant’s insurance claim, but what I have set out suffices by way of background to a consideration of the plaintiff’s claim for relief on the present summons.

11 Central to the plaintiff’s claim is the contention that the insurance claim presented by the first defendant to the second defendant was out of time. Consideration of this contention necessitates an examination of the relevant insurance scheme which is provided for in Pt 6 of the Building Services Corporation Act, 1989 and by way of regulation under that Act. The name of the statute was subsequently changed to the Home Building Act and changes to the insurance regime were made by the Building Service Corporation Legislation Amendment Act, 1996. However, the operation of the 1989 Act and the insurance scheme to be found in Form 4 to Schedule 1 of the Building Services Corporation Regulation, 1990 remains applicable for the purposes of this case, involving as it does work insured before the commencement of the amending legislation on 1 May 1997.

12 Form 4 clause 4 defines “beneficiaries” for the purposes of the insurance scheme as including:

“(a) the owner of the land on which the residential building work was done or was contracted to be done, except where the work was authorised to be done under an owner-building permit; and
(b) the person, other than the owner, who contracted to have the residential building work done; and
(c) the successor in title to the owner of the land on which the residential building work was done.”

13 The losses indemnified under the scheme are defined in clause 5 and relevantly include:

“(1) Subject to the maximum payment provisions (clause 6), the method of assessing claim benefits (clause 8) and the exclusions specified in this Scheme (clause 9), the Corporation will indemnify the following losses reasonably incurred by a beneficiary:
……………….
(d) losses in rectifying defects in insured building work or insured owner-builder work due to:
(i) bad workmanship; or
(ii) faulty or unsuitable materials…….
(e) losses in repairing:
(i) damage caused to the dwelling by a defect in the insured building work or insured owner-builder work……..”

14 Clause 6 makes provision for maximum payments and then clause 7 provides for time limitations. This provision assumes particular relevance in the present context and is as follows:

“(1) Subject to subclause (2), to qualify for the benefits under this Scheme, the beneficiaries must notify the Corporation in writing of the matters that could give rise to the losses referred to in clause 5 within the following times:
(a) ……..
(b) for loss relating to heads of claim in clause 5(1)(d) or (e) incurred in rectifying major structural defects or in repairing damage to the dwelling that has occurred in consequence of major structural defects – within 6 months after the beneficiary first becomes aware of the defect, but not later than 7 years from:
(i) the commencement of insured building work which is not also insured owner-building work; or
(ii) the date of issue of the owner-builder permit for insured owner-builder work;
(c) for loss relating to heads of claim in clause 5(1)(d) or (e) other than those referred to in paragraph (b) – within 6 months after the beneficiary first becomes aware of the defect, but not later than 3 years from:
(i) the commencement of insured building work which is not also insured owner-builder work; or
(ii) the date of issue of the owner-builder permit for insured owner-builder work.”

15 The time restraints provided for under clause 7(1) may be extended pursuant to sub-clause (2) which is expressed as follows:

“(2) The Corporation may extend the times specified in subclause (1) if it is satisfied that the delay in notification was due to circumstances outside the control of the beneficiary.”

16 It is the plaintiff’s contention that in the present case the second defendant in administering the insurance scheme has accepted the claim advanced by the first defendant as being within time because the claim was lodged not later than three years from the commencement of the insured building work. The contention is that in accepting the claim there was a failure to consider the requirement imposed by sub-clause (1) that notice was required to be given in writing of matters that could give rise to the losses referred to in clause 5 “within six months after the beneficiary first becomes aware of the defect”. It is submitted on behalf of the plaintiff that the evidence establishes that no attention was given to the six month requirement at all and that this failure made the decision of “approval in principle” as conveyed on 12 November 2001 a void determination. Mr Thompson referred to Hale v Parramatta City Council (1981-82) 47 LGRA 269 and Minister for Aboriginal Affairs v Peko-Wallsend Limited (1985-86) 162 CLR 24 in support of this submission.

17 In resisting the plaintiff’s claims for declaratory relief, both defendants have submitted that whether or not the second defendant determines it should make a payment pursuant to the claim of the first defendant under the statutory insurance scheme is a matter between the defendants, and the plaintiff has no standing to seek the relief expressed in the summons. The defendants rely on the unreported decision of Newman J in P. & V. Sammut Homes Pty Limited v Building Services Corporation (24 April 1997).

18 In Sammut Homes the court was concerned with the same statutory scheme as in the present case. There the builder was in dispute with the owners and arbitration proceedings were pending. The owners also made a claim under the statutory insurance scheme and the corporation informed the builder it intended to determine the claim. This prompted the builder to seek declaratory relief and an order in the nature of prohibition to restrain the corporation from exercising its powers under Pt 6 of the Building Services Corporation Act, 1989 pending conclusion of the arbitration. Newman J dismissed the builder’s summons.

19 In the present case, the builder is concerned that if the second defendant proceeds to meet the first defendant’s claim the second defendant will pursue it to recover what has been paid out.

20 Section 98 of the Building Services Corporation Act provides:

“(1) Any amount paid by the Corporation under BSC Insurance may be recovered by the Corporation in a court of competent jurisdiction as a debt from the person by whom the residential building work concerned was done or contracted to be done.
………………..
(4) After considering the circumstances of the case, the Corporation may decide:
(a) not to attempt to recover an amount under this section; or
(b) to accept any amount in satisfaction of its right to take recovery action under this section.”

21 This very same provision influenced the decision in Sammut Homes. Newman J reasoned that in order to succeed in an action for debt under s 98 the Corporation would have to prove “all the elements of its claim” (see p 13 of the judgment). Later (at p 14) his Honour said:

“It follows that any payment due by the defendant to the [owners] does not involve an interference with the private right of the plaintiff in defending a claim made on the scheme. This is particularly so because it is also the law that the plaintiff’s rights in respect of any liability under s 98 of the Act are the same as any other person suing for debt. That is, as I have said, that [if] the present defendant were to bring such a claim [it] must prove all elements of its claim and if it has paid too much to the [owners] as a consequence of an administrative error any excess payment would not be recoverable.”

22 In Sammut Homes and in the present case reference was made to the decision in Builders’ Licensing Board v Inglis & Anor (1985) 1 NSWLR 592. That case involved consideration of the Builders Licensing Act of 1971, later replaced by the Building Services Corporation Act. Under s 36 of the 1971 Act, there was a recovery provision similar to s 98 of the 1989 Act. Section 34(3) of the Builders Licensing Act provided:

“Any amount paid by the Board under a house purchasers’ agreement in respect of any building work may be recovered by the Board in a court of competent jurisdiction as a debt from the person by whom the building work was carried out or undertaken to be carried out or out of the estate of that person from his personal representation.”

23 In Inglis the Court of Appeal considered the nature of the recovery proceedings under s 34(3) and Kirby P said (at 596-597):

“It cannot be said that any amount paid by the Board is recoverable. For example, an amount paid as a result of an administrative error or for a reason wholly extraneous to the purposes of the Act, would clearly not be recoverable. The terms of s 34(3) of the Act limit the amount recoverable to amounts paid ‘under a house purchaser's agreement’ and ‘in respect of any building work’. So that connection, at least with the builders conduct, must be shown. Indeed this much was conceded by counsel for the Board.
But the result of the Board's contention would still be surprising if it meant that an amount paid under such an agreement and in respect of building work could be recovered as a debt without the builder having any entitlement to scrutinise, and have the court scrutinise, the basis of the debt. Such a result would deprive the builder of the opportunity to challenge the claim, to subject it to scrutiny and to rebut it if such scrutiny disclosed defects in it.
It is possible that the legislature intended to take away this normal entitlement of our system. However, it would be unusual for it to do so. And clear statutory language or other indicia of the Parliament's intent would be needed to drive the court to such a result. For the consequences would be that a person might complain to the Board, the Board might pay a very large amount and the builder might be fixed with an obligation to reimburse the Board, although the builder never had knowledge, even after the payment, of the precise way in which this substantial debt was said to be incurred. Such a legislative scheme could be devised, relying on the integrity and good sense of the officers of the Board, to protect builders. It would certainly save the costs of litigation, typically high in building cases, and often in such cases disproportionate to the matter in dispute. But it would be an unusual provision. It would, in my view, require the clearest possible legislative language to produce such a result.”

24 And, later (at 598) the President said:

“But where, as here, there is a contest, the entitlement to recover as a debt should not, in my view, bypass the normal requirement that, when a claim is disputed, he who alleges must particularise and prove.”

25 What was said in Inglis is equally apposite to s 98 of the Building Services Corporation Act, and I respectfully agree with Newman J’s analysis of s 98 of the Building Services Corporation Act. It follows that should the second defendant make a payment to the first defendant on its claim and later take recovery proceedings against the plaintiff, the second defendant would in such proceedings be required to prove all the elements of its claim, and it would be required to prove, if called upon by the plaintiff to do so, that the first defendant’s claim was made within time for the purposes of Form 4 clause 7(1), or, alternatively, that time had been extended in accordance with clause 7(2), upon the corporation being satisfied “that the delay in notification was due to circumstances outside the control of” the first defendant.

26 Since the processing by the second defendant of the claim made by the first defendant would not interfere with any private right of the plaintiff, the plaintiff is required “to show a special interest over and above that enjoyed by the public generally”: see Australian Conservation Foundation Inc. v The Commonwealth (1980) 164 CLR 493 at 526 and 547, and Day v Pinglen Pty Limited (1981) 148 CLR 289. In Day, the court said (at 300):

“The existence of an impending detriment threatened by an unlawful act is sufficient to confer standing to seek an injunction to restrain that act, without regard to theoretical possibilities in other circumstances: cf Campbell v Paddington Corporation (1911) 1 KB 869 at 879.”

27 A special interest may be shown other than that expressed in Day. As Gibbs CJ observed in Onus v Alcoa of Australia Limited (1981) 149 CLR 27 at 36:

“The [special interest] rule is obviously a flexible one since, as was pointed out in [Day], the question what is a sufficient interest will vary according to the nature of the subject matter of the litigation.”

See also Aboriginal Community Benefit Fund Pty Limited v Batemans Bay Local Aboriginal Land Council (1997) 41 NSWLR 494.

28 In the present case Mr Thompson has submitted that the plaintiff has a special interest by reason of the unlawfulness of the second defendant’s decision to meet the insurance claim. There is in this case, it was submitted, an element of unlawfulness not present in Sammut Homes.

29 Has the unlawfulness of the second defendant’s decision to approve the claim in principle been established?

30 Clause 7 of Form 4, as set out earlier, imposes different time limits for different types of defects and relevantly for present purposes provides:

(i) if the loss relates to major structural defects, then notification of matters that could give rise to loss is to be given in writing within six months after the claimant beneficiary first becomes aware of the defect, but not later than seven years from the commencement of the building work;

(ii) if the loss relates to defects other than major structural defects, the notification of matters that could give rise to loss is to be given in writing within six months after the claimant beneficiary first becomes aware of the defect, but not later than three years from the commencement of the building work;

(iii) clause 7(2) permits the corporation to extend the above time limits “if it is satisfied that the delay in notification was due to circumstances outside the control of the beneficiary”.

31 As Burchett AJ said when considering clause 7(2) in Fair Trading Administrative Corporation v The Owners Corporation Strata Plan 43551 [2002] NSWSC 624:

“Careful reading shows that the provision applies, not on the sole basis that timely notification was outside the control of the beneficiary but on the basis that the delay in notification was due to circumstances which were outside the control of the beneficiary. In the present case the circumstances incontrovertibly included the fact that the beneficiary did not exist at the date the three years began to run.”

32 Sub-clause (2) applied to all the time limits set in clause 7(1). The language of the sub clause makes that clear. The various periods of “six months”, “seven years”, and “three years” may be extended in appropriate cases.

33 The defendants have submitted that the plaintiff has failed to prove that the difficulties giving rise to the insurance claim are not structural defects attracting the limitations in clause 7(1)(b). In Owners Corporation Strata Plan 43551 Burchett AJ considered the construction of “major structural defect” in the scheme was a liberal concept.

34 It does not seem to me, as I understand the plaintiff’s argument, that it is necessary for the plaintiff to prove whether the various defects were major structural defects or not. The “six months” time limitation applies equally to sub clause (1)(b) and to sub clause (1)(c), and it is that time restraint which it is contended the second defendant has failed to address.

35 What does the evidence disclose about the making of the first defendant’s claim?

36 The obligation to notify is an obligation imposed upon the claimant beneficiary but the scheme prescribes no formality concerning that notification and the language of Form 4 should not be construed narrowly because of the beneficial nature of the legislation.

37 It is to be observed that the building work here commenced no earlier than 23 July 1995 (Mr McCallum’s affidavit of 6 February 2002, para 6), although the commencement date may have been somewhat later (Mr Elliott’s affidavit 3 May 2002, paras 16 and 17). The work proceeded in two stages, and Mr McCallum deposed that the date of practical completion was “on or about December 1996”, although in cross examination he conceded that stage 2 may not have been completed until October 1997.

38 The evidence did not disclose exactly when the first defendant came into existence. In para 7 of Mr McCallum’s affidavit of 6 February 2002 he fixed the happening of this event by reference to the registration of SP 53908, effected upon “the expiry of the initial period”, but Mr McCallum did not know when that was. The strata scheme was registered on 10 February 1996 and Mrs Edwards purchased her unit in April 1997, saying that she was the last purchaser of stage 1. It would seem that it would have been somewhere about the middle of 1997 when one-third of the units were sold and the body corporate would have come into existence.

39 Until the first defendant came into existence it could not have become aware of defects for the purposes of clause 7, although individual unit owners may well have acquired knowledge of defects before then.

40 On 10 June 1998 the secretary of the first plaintiff forwarded to the Department of Fair Trading a document described as an “Assistance Form”, under cover of a letter advising of defects in the building work carried out by the plaintiff. There was attached to the communication a lengthy schedule of defects.

41 The letter of 10 June 1998 concluded with this paragraph:

“We have allowed the builder in excess of six months to rectify the problems but as he has not communicated with the owners corporation we believe we need some form of adjudication in order that responsibility can be ascertained and the necessary repairs can be made. We hope your department can help us with this matter.”

42 The communication above referred to suffices to notify of “matters that could give rise to losses” for the purposes of clause 7 of form 4. Certainly that notification was given less than three years after the commencement of the building work. Precisely when that notice was given in relation to the time that the first defendant first became aware of the defects listed, the evidence does not establish. Nor is it clear whether those defects then scheduled accord precisely with the schedule of rectification work exhibited to the affidavit of Mrs Edwards (SJE 7). That schedule identifies the work to which the “approval in principle” has been expressed.

43 What followed the notification of 10 June 1998 was that the Department of Fair Trading nominated a mediator in respect of the dispute. On 20 August 1998 heads of agreement were reached which did no more than to provide the framework for addressing grievances. The owners’ representative was required to provide a full list of defects to the plaintiff and the plaintiff was then to “submit method and specification to carry out the works”, and give a date on which the work was to be carried out. This agreement provided should there be further dispute concerning the terms of that agreement the dispute was also to be mediated. That first mediation did not lead to resolution of the dispute between the plaintiff and the first defendant and neither did a second mediation which the Court was informed was held recently.

44 It does not seem to me that time for notification under clause 7 would necessarily run before the builder asserted the building work was completed. Regard has to be had to the beneficial nature of this scheme. For instance, if some defect was detected whilst construction was continuing and when this was pointed out to the builder he indicated he would rectify that defect, then in those circumstances there would be good reason to conclude that time did not start to run until any attempt at rectification was completed unsatisfactorily and/or until the builder communicated he was not going to attend to any persisting defect.

45 Alternatively, delay in notifying when the defect was first observed would in the circumstances posed in para 44 justify an extension of time under clause 7(2).

46 It is apparent from the terms of the letter of notification written by the first defendant on 10 June 1998 that there had been prior efforts to have the plaintiff address the defects, extending, it was then asserted, over a period “in excess of six months”, which, indeed, may well have taken the efforts back to the time of completion in October 1997. If this was so, then it would have been open to the second defendant to conclude that notice was given within time in June 1998 in respect of the defects then advised, or if not that the circumstances warranted an extension of the six month period by operation of clause 7(2).

47 Has the second defendant directed its attention to the “six months” time restraint in this case?

48 The assessment of the second defendant as to the significance of the time lapse after the matter first went to mediation in 1998 is reflected in the letter written by the Senior Claims Officer of the Department of Fair Trading to the plaintiff on 30 November 2001. That letter reads in part:

“In response to your letters, the Department did not consider time limitations was an issue given the turn of events leading to this insurance claim. I note that the Mediation Agreement in 1998 was not complied with, although there were repeated requests for the Summary Work Schedule. There was an e-mail from you to the Owners Corporation Building Consultant, dated 4 March, 2000 accepting responsibility. Furthermore, there was evidence on file that indicated you failed to attend site meetings when requested and failed to satisfactorily rectify all the complaint items.
Although you oppose the outcome of this matter, the Department considers that you have had ample opportunity to rectify the defects at this property in an acceptable manner and the claimants do have a justified insurance claim.
An approval in principle has been granted for this insurance claim subject to the claimants providing quotations from appropriately and currently licensed contractors to address Schedule A – Rectification Work. This 48 page schedule is part of an extensive report (158 pages) provided by an independent Technical Consultant engaged by the department to attend site and determine whether there was a valid insurance claim against you.
Please note that the estimate to rectify these outstanding building works correctly is approximately $700,000.
Subsequent to your correspondence, I spoke with the General Manager for Insurance Services. It was suggested that should you wish to arrange a meeting to discuss your liability please notify the Department of a suitable time and day and we will endeavour to accommodate.”

49 One interpretation of the above communication is that it reflected a decision taken for extension of time under clause 7(2).

50 However, there is the evidence of Mr Elliott to consider. Mr Elliott is the general manager charged with the administration of the insurance scheme for the second defendant. In his affidavit sworn in these proceedings Mr Elliott deposed:

“17. The letters referred to in paragraphs 15 & 16 of this affidavit indicate that work commenced between 23rd July 1995, at the earliest, and 16th October 1995, at the latest and are relied upon by the Second Defendant in setting the limitation periods in clause 7 of the CIS. Accordingly, for the purposes of clause 7(1) of the CIS, written notification of the matters which may give rise to a claim was required to be given by the First Defendant to the Second Defendant prior to 16 October 1998 at the latest written notification, in the form of the documents referred to in paragraph 7 hereof was received within the three year period stipulated by clause 7(1)(c) of the CIS.
18. Clause 7(2) of the CIS provides the Second Defendant with discretion to extend the times contained in clause 7(1) where the failure to provide notification was due to circumstances outside the control of the claimant.
19. Owing to the matters set out in paragraph 17 it has not been necessary for the Second Defendant to consider this discretion at this stage.”

51 Mr Elliott was cross examined and in that cross examination gave the following answers to the following questions:

“Q. In your affidavit, paragraphs 17, 18 and 19 – if you just focus on 17 for a moment – you formed a view, rightly or wrongly, that the written notification was received within the three year period stipulated by clause 7(i)(c) of the Scheme?
A. Yes.
Q. You never ever turned your mind to when the proprietors became aware of the defects did you?
A. No.
Q. In paragraph 18 you refer to, the discretion to extend the time contained in clause 7(i) with a failure to provide notification, was due to circumstances outside the control of the claimants. Because of your answer you have just given, you didn’t consider that either did you?
A. No.”

52 Mr Elliott may not have been directly in charge of this particular claim and certainly another officer of the department, Mr Kennedy, was involved. Mr Elliott was cross examined on a claim form, annexure H to the affidavit of Mr McCallum of 2 May 2002, which had some notations on it, including a notation “First complaint 19 June ‘98”. Mr Elliott said that that notation was not in Mr Kennedy’s writing but in that of his immediate supervisor, Mr Forsyth. Mr Elliott agreed that there was nothing in the document to indicate Mr Kennedy’s consideration as to when the beneficiary became aware of the defects. Mr Elliott was not aware of any direction given to Mr Kennedy to take into account when it was that the claimant became aware of the defects.

53 Certainly there is no evidence before the Court that before approving in principle the first defendant’s claim the second defendant had regard to the six month time limitation expressed in both clause 7(1)(b) and Clause 7(1)(c), but it was submitted by Mr Loofs that the evidence of Mr Elliott indicated that the second defendant would still consider extending time under clause 7(2) when it considered the claim in detail. I do not understand Mr Elliott’s evidence to be to that effect but the opportunity still exists for the second defendant to consider the necessity for exercising its discretion under clause 7(2) before any payment is made to the first defendant.

54 What occurred in attempting to have defects rectified before the notification in June 1998 would be a relevant consideration for the purposes of clause 7(2). As I read the evidence before the Court, and having considered the competing submissions of counsel, it seems to me that there are here circumstances by reason of which the second defendant could consider it appropriate to grant any necessary extensions under clause 7(2). However it is not for this Court to extend any time specified under clause 7(1). It is for the corporation to do that and only if it is satisfied that any delay in notification was due to circumstances outside the control of the beneficiary. The proper processing of the first defendant’s claim requires that due regard be had to clause 7(2) and this in turn requires a determination by the second defendant as to whether notice was give by the first defendant within a six month period. If not, should an extension of time be granted?

55 It would be wrong for the second defendant to proceed upon the basis that provided a notification was given within three years of the commencement of the building work there was no need to consider when the beneficiary first became aware of the defects giving rise to the claim. To do so would ignore the requirements of clause 7.

56 Since the evidence does not support a finding that the second defendant has to this point of time addressed the “six months” requirement, this is a circumstance which distinguishes Sammut Homes case, and I accept Mr Thompson’s submissions in this regard. In the present case, there appears to have been a failure thus far to address a requirement of the insurance scheme, whilst there was no such failure in Sammut Homes.

57 Should the Court make the declarations which the plaintiff seeks?

58 The first of the declarations should only be made if this Court is satisfied that a claim by the first defendant under the insurance scheme cannot properly be maintained. This would involve not only being satisfied that any required notification was not given within six months after the first defendant became aware of the defect but also that the second defendant could not properly exercise its discretion in favour of the first defendant under clause 7(2). As I indicated earlier, I am not satisfied that there is no proper basis upon which the second defendant could act under clause 7(2), assuming that sub-clause to be enlivened.

59 For that reason I decline to make the declaration sought in para 1 of the summons.

60 What is the utility in making the declaration sought in para 3?

61 The insurance scheme requires of the second defendant in the due processing of the first defendant’s claim that it consider when that claimant first became aware of the defects giving rise to the alleged loss and whether notification was given within six months of first awareness of any such defect. If not, the due processing of the claim requires the second defendant to determine whether the time for notifying should be extended under clause 7(2). If the second defendant fails to address these matters and if it were then to make payment to the first defendant in respect of the claim, then it would do so at its peril since it would thereby jeopardise any right of recovery against the plaintiff under s 98 of the Building Services Corporation Act.

62 On the other hand, whilst it may be that to date the defendant has failed to address the six month requirement in the mistaken belief that it was only necessary to look at the three years requirement, it is not to be assumed, if such be the case, that the second defendant, in the responsible discharge of its statutory duties, would continue to ignore what the scheme requires it to do now that this judgment expressly addresses those obligations.

63 With these considerations in mind, I conclude that no useful purpose would be achieved by making the second of the declarations sought and for this reason the Court should decline to make that declaration also.

64 For the above reasons I decline to make either declaration and the summons is dismissed.

65 Costs are reserved and the matter will be listed on Thursday 28 November 2002 for the purpose of hearing submissions as to costs.

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Last Modified: 11/22/2002