Reported Decision : (2006) 14 ANZ Insurance Cases 61-712 New South Wales Court of Appeal CITATION: Taylor v Dexta Corporation Limited and Others [2006] NSWCA 310 HEARING DATE(S): 21 June 2006 JUDGMENT DATE: 10 November 2006 JUDGMENT OF: Beazley JA at 1; Santow JA at 2; Ipp JA at 74 DECISION: Appeal allowed with costs. (See orders at [73]) CATCHWORDS: INSURANCE – home warranty insurance required by the now repealed and replaced Home Building Act 1989 and the Home Building Regulations 1997 – construction of residential dwelling proceeded on assumption by all parties that such construction was covered by home warranty insurance – Insurer denied liability when building contract discovered to pre-date insurance policy – Whether policy, properly construed in those circumstances, covers appellant's house construction. LEGISLATION CITED: Home Building Act 1989 s18B, s18G, s92(1), s94, s99(1), s102(3) s103B, Home Building Regulations 1997 42(1)(a)(i), 43(1), 43(3), 52, 58 AMP Financial Planning Pty Ltd v CGU Insurance Limited (2004) 13 ANZ Insurance Cases 61-624 Antaios Compania Naviera SA v Salen Rederierna AB [1985] AC 191 Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99 Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 Cohen & Co v Ockerby & Co Ltd (1917) 24 CLR 288 Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 CASES CITED: Love v Rowtor Steamship Co ltd [1916] 2 AC 527 Maggbury Pty Limited v Hafele Australia Pty Ltd (2001) 210 CLR 181 Prenn v Simmonds [1971] 1 WLR 1381 Royal Botanic Gardens and Domain Trust v South Sydney Council (2002) 186 ALR 289 Sabah Flour and Feedmills Sdn. Bhd. v Comfez Ltd [1988] 2 Lloyd's Rep 18 Walker v Giles (1848) 6 CB 662 Winks v W H Heck & Sons Pty Ltd [1986] 1 Qd R 226 Susan Elizabeth TAYLOR (Appellant) PARTIES: DEXTA CORPORATION LIMITED (ACN 084 487 712) (First Respondent) ALLIANZ AUSTRALIA INSURANCE LIMITED (ACN 000 122 360) (Second Respondent) BP GROUP PTY LIMITED (in liquidation) (ACN 094 230 869) (Third Respondent) FILE NUMBER(S): CA 40847/05 COUNSEL: A S MARTIN, SC/ J OAKLEY (Appellant) D CAMPBELL, SC/ D NEINBERGER (Respondents) SOLICITORS: PriceWaterhouseCoopers Legal (Appellant) Hunt & Hunt (Respondents) LOWER COURT JURISDICTION: Supreme Court - Equity Division LOWER COURT FILE NUMBER(S): SC 55011/05 LOWER COURT JUDICIAL OFFICER: Nicholas J LOWER COURT DATE OF DECISION: 29 September 2005 LOWER COURT MEDIUM NEUTRAL CITATION: [2005] NSWSC 974 IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40847/05 SC 55011/05 BEAZLEY JA SANTOW JA IPP JA 10 NOVEMBER 2006 Susan Elizabeth TAYLOR v DEXTA CORPORATION LIMITED and Others Judgment 1 BEAZLEY JA: I have had the opportunity of reading in draft the reasons of Santow JA and Ipp JA. In my opinion, the insurance policy the construction of which is the issue raised for consideration in the appeal, contains inconsistent provisions. This is discussed by Santow JA at [66] and by Ipp JA in his reasons, with which I agree. The policy should be construed so as to give effect to that part "which is calculated to carry into effect the real intention of the parties as gathered from the instrument as a whole": 'Chitty on Contracts' Vol 1 29th ed, para 12-078. It follows that I agree with the Orders proposed by Santow JA. 2 SANTOW JA: INTRODUCTION The appellant homeowner, Ms Taylor, as well as the respondent builder, Montcom Group Pty Limited, embarked on the construction of the appellant's residential dwelling on the basis that she had the benefit of the home warranty insurance required by the Home Building Act 1989 ("the Act") and the Home Building Regulations 1997 ("the Regulations") (these Regulations having since been repealed and replaced). 3 The insurer and second respondent Allianz Australia Insurance Limited ("Allianz") likewise proceeded on that basis. Allianz had been informed in advance that the appellant's home construction was to be included in the intended policy coverage. Allianz moreover accepted a premium for the policy calculated on the basis that Ms Taylor's house construction was included in its coverage. 4 However, when it turned out that the actual building contract pre-dated the insurance policy, Allianz denied liability. It did so on the basis that the policy, properly construed, did not in those circumstances cover the appellant's house construction, notwithstanding the assumption of all parties that it did. 5 This appeal challenges the conclusion reached by the trial judge, Nicholas J, that the policy properly construed did not cover the appellant's house construction. The appellant has abandoned any claim for rectification of the policy contract. SALIENT FACTS 6 I set out the salient facts below, essentially undisputed. 7 The third respondent, Montcom Group Pty Ltd (known as BP Group Pty Ltd) ("the builder"), is a building company. 8 On 10 September 2001 Mr Maurice Monti (second cross-defendant), a director of the builder, completed an application for home warranty insurance (Blue, 41). He submitted it to the first respondent Dexta Corporation Limited ("Dexta"), as agent for the proposed insurer Allianz. Mr Monti estimated in the application form that insurance coverage would be needed for seven jobs over the next 12 months, with a total value of $1.4 million. He answered "no" to the question of whether any contracts had been entered into without home warranty insurance. He put "no" against the question "has the applicant previously been insured by a 'claims made' annual home warranty insurance policy". He also put "nil" against low-rise dwelling construction for the last 12 months, earlier on the form. He completed a declaration that he would give immediate notice if any details on the application changed. 9 On 13 September 2001 the builder's insurance brokers, Hignett-Knight sent the application to Dexta as Allianz's broker and agent, requesting a quotation (Blue, 56). On 14 September 2001 Dexta acknowledged receipt, provided a reference number (19806) and indicated a delay of one to two weeks in providing the quote (Blue, 73). 10 On 27 September 2001 the appellant (Ms Taylor) entered into a building contract with the builder for the construction of a dwelling on land she owned in Newport for a total price of $263,950.00 ("the building contract"). Ms Taylor dealt with Mr Maurice Monti. The contract included a note that the builder was not to carry out work or receive any payments until warranty insurance was in place and the owner was provided with the certificate of insurance. This note was printed in "Schedule 4", beside the spaces provided for signature; the earlier reference 19806 was handwritten there. Clause 25 also stipulated that insurance had to be in place before work could commence. 11 On 8 October 2001 Hignett-Knight followed up the application with Dexta, who had earlier (3 October 2001) requested further financial information. This request was for "details of what the estimated contract value of $1.4 million is going to be utilised for; that is speculative purposes or units". 12 On 10 October 2001 (Blue, 106) Hignett-Knight responded by estimating contract values of $1.4 million. It did so by express reference to a six-unit residential project at Ettalong and a "$300,000 home at Newport, Sydney". Thus the appellant's proposed home to be constructed was identified to the insurer's agent as part of the $1.4 million. 13 On 18 October 2002 Hignett-Knight sent Dexta a declaration of contracts entered during the policy period that had been completed by the company. This listed the appellant's project but did not include a date for the relevant contract. 14 On 19 October 2001, Hignett-Knight again sought further information, including details of the proposed residential project (Blue, 113). Dexta provided the information on 26 October 2001. 15 On 1 November 2001, Dexta sent a quote (Blue, 141) to Hignett-Knight for a twelve-month period with what is described as a "Retroactive Date" of 1 November 2001. It was based on what was required to be described under the direction "list contract values", namely the $1.4 million estimate "adjustable at expiry by applying the adjustment rate to the value of contracts entered into during the period of insurance". Earlier, reference is made to "Policy Period" followed by the words "12 months (please advise expiry date of any existing annual policy)". Significantly, it is not disputed that the premium quoted (and later paid) was calculated at 0.219% of the estimated contract value of $1,400,000, which therefore necessarily included the appellant's building contract (Blue, 145E second column). 16 On 6 November 2001, Hignett-Knight replied requesting a subrogation limit of $25,000 and the issue of six certificates at $183,000 and one at $300,000, the latter representing the appellant's building contract. 17 On 20 November 2001 Dexta sent Hignett-Knight the policy. It also sent the six certificates dated that same day, pursuant to s92(1)(b) of the Act and regulation 56 thereunder. The relevant certificate for the appellant's building stated: "This Certificate is only valid for a contract entered into by: Moncom Group Pty Ltd … Dated between 16 November 2001 and 16 November 2002 and where the contract value is less than $300,000" 18 In addition to the six certificates there was a "Contractor's Certificate of Currency", dated 20 November 2001. I need to quote the relevant certificate in full (Blue, 163), drawing attention to the reference under Part A to "each residential building contract entered into during the policy period" and to the concluding reference to "Policy Period" within dates "4pm 16 November 2001 until 4pm 16 November 2002": "The Insured Contractor : Montcom Group Pty Ltd ACN (if applicable) : 094 230 869 Including all principals, partners, directors and employees Nominated Supervisors : Maurice Monti Type : Residential Contractors Annual Home Warranty Insurance in compliance with the home Building Act 1989. Part A : Indemnifies the building owner under a residential building contract for the statutory warranties under Part 2C of the Home Building Act 1989 as required by Part 6 of the Home Building Act 1980 and Part 5 of the Home Building Regulation 1997. Cover applies for 7 years from completion of the work in accordance with section 103(B)(2) of the Home Building Act 1989. A certificate complying with Schedule 1 of the Home Building Regulation 1997 will be issued in respect of each residential building contract entered into during the policy period Part B : Provides "run-off" cover required by section 103(2) of the Home Building Regulation 1997, subject to the retroactive date stated below. Retroactive Date: 16 November 2001 Limit of Indemnity : $200,000 in the aggregate for all claims per home, plus reasonable legal expenses of the builder owner. Building Owner Excess : $500 each claim Builders Obligation Amount : $25,000 each and every claim per home. Insurer : ALLIANZ AUSTRALIA Insurance Limited (ACN 000 122 850) – 100% Policy No : BAN998-DA002267-01 Policy Period : Insures all major residential building work for which a contract is entered into during the period; 4pm 16 November 2001 until 4pm 16 November 2002 " 19 The relevant provisions of the policy are summarised as follows: (a) The policy document stated that all sections of the policy, including the Schedule were to be construed as one document. (b) The Schedule to the policy defined the policy period as 16 November 2001 – 16 November 2002 and stated an estimated contract value of $1.4 million. (c) "Run-off" cover under Part B of the policy was stated as only available from the stated retroactive date (16 November 2001). (d) Part A (titled "The Building Owner's Indemnity") defined the scope of the indemnity, including (in clause 4) coverage for loss or damage arising from non-completion of work. The specified coverage periods were one year following the commencement date (also 16 November 2001 according to the schedule) for loss arising from cessation of work and seven years for other loss or damage. (e) Part B (titled "The Contractor's Responsibility") stated in clause 1 that the policy would cover contracts entered into between the retroactive date (16 November 2001 according to the schedule) and the commencement date as per the terms of Part A and that Part B would not apply to work covered by another policy at the time the builder became aware of circumstances which could give rise to a claim. (f) A section headed "Indemnity Limitations" limited insurer liability to $200,000 for all claims in respect of a dwelling. (g) The section headed "General Conditions" obliged the Contractor to provide certificates as required by s92(2) of the Act for each home to be constructed, to provide copies to the Insurer if requested and to notify the Insurer immediately if the value of contracts entered into exceeded the estimate contract value specified in the Schedule. I shall refer in more detail to the relevant provisions of the policy contract under "Disposition" below. 20 On 21 November 2001 Hignett-Knight sent the builder an invoice for the policy premium, which summarised the coverage by reference to contracts entered into during the policy period and again stated a retroactive date of 16 November 2001 (Blue, 260). 21 On 23 November 2001 Hignett-Knight sent a letter to the builder via its accountant, Mr Vicaretti, confirming the insurance via Dexta and providing the policy document and certificates. The letter stated: "It is necessary that you check and review the attached document paying particular attention to the terms, conditions and exclusions. Should you disagree with any of the details shown please contact our office immediately." 22 On about 23 November 2001 Mr Maurice Monti gave the appellant a copy of the certificate of currency for the company and an owner's certificate as required by s92 of the Act. That owner's certificate was stated to be valid only for a contract entered into by the builder between 16 November 2001 and 16 November 2002. 23 On about 27 November 2001 building commenced at the appellant's property but the builder failed to complete the building work. 24 On 3 December 2002 the appellant wrote to the builder alleging it was in breach of the contract dated 27 September 2001. She stated an intention to terminate the contract, lodge a complaint with the Department of Fair Trading, and make a claim under the policy. The next day work ceased and the builder left the site. 25 On 15 January 2003 the appellant submitted a claim under the policy to Dexta with a copy of the 27 September 2001 contract, and also applied to the Consumer, Tenancy & Trader Tribunal ("CTTT") for an order against the builder. 26 By letter of 23 April 2003 Dexta denied the plaintiff's claim on the basis that the contract was outside the policy period. This decision was reviewed at the appellant's request and confirmed by letter of 1 May 2003. 27 It was common ground that the appellant would be entitled to damages of $200,000 if she was successful, so that damage is not in issue in this appeal. 28 The parties at trial formulated a list of agreed issues in which it was stated as "common ground that" (relevantly): "(a) The Builder applied on or about 10 September 2001 to the Insurer's Agent for a policy of home warranty insurance in respect of, inter alia, other home building work to be carried out at Ms Taylor's property (paras 9 & 23 claim, paras 10 & 39 defence; (b) The Builder obtained a policy of Home Warranty Insurance from Dexta, for and on behalf of Allianz, on or about 16 November 2001 in respect of the building work to be carried out at Ms Taylor's property ('the Building Works') (Para 10 claim, 11 defence); (c) Dexta, on behalf of Allianz issued Building Owner's Home Warranty Insurance Certificate No BAN998-DA002267-01/1/7 dated 16 November 2001 in respect of the Building Works; ('the Certificate') (paras 10, 13 & 15(e) claim, paras 11, 15 & 26 defence); (d) The written part of the building contract between the Builder and Ms Taylor for the Building Works comprised Conditions of Contract dated 27 September 2001 and the Certificate (para 11(a) & (b) claim, para 13 defence); (e) Dexta issued a Certificate of Currency complying with Schedule 1 of the Home Building Act Regulations in respect of building works to Ms Taylor; (para 13 claim, para 15 defence) (f) Allianz accepted payment of a premium in respect of the Certificate; (para 13 claim, para 15 defence) … …" DISPOSITION 29 The trial judge correctly addressed himself to a basal principle applicable to the construction of the policy at [27] which I quote below: "[27] The proper approach to the construction of the policy accepts that as it is a commercial contract it should be given a business-like interpretation. Its interpretation requires attention to the language used by the parties, the commercial circumstances which the document addresses, and the objects which it is intended to secure. McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579, p 589. As with other instruments, preference is given to a construction supplying a congruent operation to the various components of the whole. Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355, pp 381–382; Wilkie v Gordian Runoff Ltd [2005] HCA 17, paras 15–16. In this case the policy and the schedule are to be construed as one document." 30 A necessary corollary of that requirement for a commercial contract to be given a business-like interpretation is the frequent emphasis upon the need to arrive at an interpretation which is commercially sensible, and in accord with commercial reality. As was observed by Isaacs J in Cohen & Co v Ockerby & Co Ltd (1917) 24 CLR 288 at 300 nearly a century ago, expressions, particularly elliptical expressions, in a mercantile contract are not to be read in a narrow spirit of construction but as honest people may be presumed to have understood them. The reference to honest people here carries a particular connotation. There could be no doubt that the intention, objectively determined and quite aside from what significance should be attributed to the earlier dating of the contract before 16 November 2001, was for the construction of the appellant's Newport residential property to be covered by the policy contract. That is reinforced by the fact that premium was actually calculated by reference to the $1.4 million. 31 More specifically, and relevantly in the present case, is that when contractual language is capable of more than one interpretation, that interpretation is to be preferred which avoids anomaly or unreasonable consequences; see, for example, Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99 at 108-9. 32 As Lord Diplock observed in Antaios Compania Naviera SA v Salen Rederierna AB [1985] AC 191 at 201: "If detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business common sense, it must be made to yield to business common sense". This may be done by the addition of words designed to remove the unreasonable interpretation, unless the language proves intractable. 33 The search for meaning must start with the text itself. From it one must ascertain what the words in their context would convey to a reasonable person in the position of the parties, being builder and insurer, having all the background knowledge which would reasonably have been available to those parties; Maggbury Pty Limited v Hafele Australia Pty Ltd (2001) 210 CLR 181 per Gleeson CJ, Gummow and Hayne JJ at [11] quoting with approval Lord Hofmann in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 at 912-13. 34 The process of construction requires that one goes beyond merely internal linguistic considerations to ascertain what were the circumstances with reference to which the words were used (Prenn v Simmonds [1971] 1 WLR 1381 at 1384). More particularly, one must, within the ambit of the words used, ascertain the genesis of the transaction and the purpose of the resultant contract, to determine what interpretation best accords with that genesis and purpose; Royal Botanic Gardens and Domain Trust v South Sydney Council (2002) 186 ALR 289 at 292-3. 35 If there be genuine ambiguity in the meaning of the actual text, it is well-settled that recourse to surrounding documents is permissible to ascertain what were the circumstances with reference to which the words were used; see Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337. What is not permissible is to use that contextual material to attribute ambiguity where none would otherwise exist, or as the primary source for construing the document, when the starting point must always be the text itself. 36 As I later explain, I respectfully consider that it was at this point that the trial judge failed to give sufficient emphasis to the text itself, particularly to the directly applicable Part A of the Policy and to the Policy's genesis and purpose, viewed from the standpoint of parties in the position of these parties, and with their background knowledge. Thus, for example, it may be permissible in resolving ambiguity, if such there be, to have recourse to the Building Owners Home Warranty Insurance Certificate (Blue, 156) with its reference to such certificate being only valid for a contract entered into between 16 November 2001 and 16 November 2002, as also to the Contractor's Certificate of Currency. But even if permitted that broader context is secondary in importance to identifying the purpose of the policy contract and the transaction to which it was directed in order to find out what the actual text of the relevant provision of Part A of the policy has to say regarding its coverage. The purpose of the policy contract is entirely clear. It is to be found in the Act itself, in mandating the insurance required for residential construction. 37 More particularly, the genesis of the present transaction is to be found in s92(1) of the Act and in its related provisions. Section 92(1) requires that a person must not do residential building work under a contract unless a contract of insurance that complies with the Act is in force in relation to that work in the name of the person who has contracted to do it, with a certificate of insurance evidencing that contract of insurance being provided in the prescribed form to the other party to the residential building work contract. 38 There is no question but that the building work here was "residential building work" within the meaning of the definition in s3(1) of the Act. 39 The critical importance of such a contract of insurance is underlined by s94 of the Act. It precludes a contractor who fails to take out such insurance from entitlement to damages or enforcement of any other remedy or right of action. Importantly, the contractor remains liable for damages and subject to any other remedy in respect of any breach of the contract committed by the contractor. 40 Related to the coverage of the obligatory insurance contract are the warranties as to residential building work set out in s18B of the Act. These are implied into every contract and according to s18G may not be excluded. 41 Although the requirement for a contract of insurance is directed to a person doing residential building work under a contract, its coverage extends beyond work so contracted to be done. The critical provision is s99(1) of the Act. It covers, relevantly here, "loss resulting from non-completion of the work because of the insolvency, death or disappearance of the contractor". It also covers against "the risk of being unable, because of the insolvency, death or disappearance of the contractor … to recover compensation from the contractor for breach of a statutory warranty in respect of the work". 42 Section 102(3) of the Act requires that the contract of insurance must provide for cover of not less than $200,000 in relation to each dwelling to which the insurance relates (or such other amount as may be prescribed). 43 Section 103B mandates that the cover for loss arising for non-completion of the work (the circumstance here) must be for a period of not less than 12 months after the failure to commence, or cessation of, the work the subject of the cover. 44 Similarly s103B(2) provides that the contact of insurance must provide insurance cover for other loss insured in accordance with the Act for a period of not less than seven years after completion of the work, thus picking up the statutory warranties. 45 The Regulations under the Act make clear that the beneficiaries under the relevant insurance contract include the person on whose behalf residential building work covered by the contract is done or to be done (Regulation 42(1)(a)(i)). 46 Moreover, Regulation 43(1) requires the insurance company to indemnify beneficiaries under the insurance contract for the following loss or damage in respect of residential building work covered by the insurance contract: "(a) loss or damage resulting from non-completion of the work because of the insolvency or death of the contractor or because, after due search and inquiry, the contractor cannot be found, (b) Loss or damage arising from a breach of a statutory warranty." 47 Regulation 43(3) extends the indemnity for loss or damage "resulting from non-completion of the work because of early termination of the contract for the work because of the contractor's … wrongful failure or refusal to complete the work …". It is not disputed that the loss here arising relates both to breach of statutory warranty and to non-completion of the building work after the builder went into liquidation and refused to complete the work. 48 Regulation 52 requires that such an insurance contract providing professional indemnity insurance or other similar kind of insurance "must have a retroactive date" being "a date back to which the cover under the contract extends". There was such a date here. 49 Finally, the certificates evidencing insurance are mandated by Regulation 56. 50 I do not agree that the thrust of the Act and Regulations is to render the contract under which the building work is carried out secondary to the building work itself. That submission was made on behalf of the appellant and I consider it goes too far. The correct position is that where there is a contract under which the building work is done, its terms are clearly material to determining the scope of any loss. Nonetheless, loss could arise without a construction contract. 51 There is no doubt that in the present case the builder sought to take out the necessary insurance in order to comply with its statutory obligations vis-à-vis the appellant in respect of the identified building work at Newport. There is no doubt that the insurer Allianz was aware of that intention, from the facts earlier recounted, though probably unaware of the date the building contract was actually entered into, namely 27 September 2001. That date pre-dates the contract of insurance of 20 November 2001. As the trial judge identified, the essential issue is whether Allianz was entitled to deny indemnity to the appellant, Ms Taylor, on the basis that the building work was carried out under a contract which pre-dated what the schedule to the policy identified as the "Policy Period". To answer that question, I start with the text itself, whose statutory purpose constitutes the genesis of the transaction. 52 The critical part of the policy so far as the relevant loss here claimed is Part A as it appears in the policy immediately after the schedule. Part A is introduced by the stated consideration. It consists in "the Contractor requesting the Insurer to issue insurance to comply with the Act" as well as "the payment by the Contractor of the premium … specified in the Schedule". Upon that consideration, the policy provides that "the Insurer will, subject to the terms, conditions, limitations and exclusions of this policy (which are conditions precedent to the right of the Building Owner to recover hereunder) provide insurance cover as specified in Part A or Part B of this policy". 53 Importantly, it is Part A and not Part B that must apply if the policy is to answer in the present circumstances. 54 Part A is headed "The Building Owner's Indemnity". It thereby identifies the provisions of that section of the policy which follow. As the interpretative provisions provide, the heading does not affect the meaning of any provision of that policy. 55 Part A then provides: "The Insurer will indemnify the Building Owner for loss or damage in respect of residential building work: (1) which results from non-completion of the work because of the insolvency or death of the Contractor or because, after due search and inquiry, the Contractor cannot be found; (2) arising from breach of a statutory warranty under Part 2C section 18B of the Act, namely, the Contractor warrants that: … … … Without limiting the Building Owners Indemnity subclause (1) and (2), the Insurer will also indemnify the Building Owner for: (3) loss or damage resulting from faulty design, where the design was supplied by the Contractor, and (4) loss or damage resulting from non-completion of the work because of early termination of the contract for the work because of the Contractor's wrongful failure or refusal to complete the work; and … … …" 56 Importantly, under the sub-heading "Period of Insurance" Part A provides: "The period commencing on the date the relevant contract is entered into and ending: (a) in respect of loss or damage arising from non-completion of the work, 12 months after the failure of the Contractor to commence the work or the cessation by the Contractor of the work, as the case may be; and (b) in respect of any other loss or damage for which this policy provides cover, the day seven (7) years from the completion of the work; or the end of the contract relating to the work, whichever is the later." 57 Thus far, Part A applies in its terms to the appellant's building contract and covers loss or damage of the kind in (a) and (b) above. This is so, notwithstanding that the relevant contract was entered into before the policy, as was here the case. Such an interpretation accords with the actual purpose of the present policy judged objectively by reference to parties circumstanced as these parties, being a builder with its statutory obligation to insure and the insurer advised of the construction work to be insured. In short, such an interpretation addresses the circumstances to which the policy words were used, namely the mandatory requirement under the Act for such insurance, being the genesis of the transaction of entry into the policy in order to fulfil that purpose. 58 However, the trial judge, qualifying the words of Part A by reference to Part B, found as follows: "In my opinion, upon its proper construction, the first paragraph of cl (1) of Part B provides the mechanism for the identification of the contract for which the insurer is liable to provide indemnity under Part A. The exercise is undertaken with reference to the commencement date and to the retroactive date specified in the schedule. In this case the dates are the same, namely 16 November 2001. As the contract in this case was entered into not only prior to the commencement of the policy but also prior to the retroactive date it is not a contract within the meaning of the first paragraph and hence the obligation to indemnify does not arise. It follows, in my opinion, that Allianz was entitled to deny the plaintiff's claim." (at [37]) In my respectful opinion there is no warrant for such qualification, for reasons I explain. 59 The first part of the trial judge's reasoning, that the first paragraph of clause (1) of Part B provides the mechanism for the identification of the contract for which the insurer is liable to provide indemnity under Part A, can be shown to be in error. Clause (1) relevantly provides as follows: " PART B: The Contractor's Responsibility 'Run-off' Indemnity in respect of Contractor's previous Annual Policy issued on a 'Claims Made' basis (1) Unless stated otherwise in the Schedule, PART A of this policy shall indemnify the Building Owner under a contract entered into with the Contractor prior to commencement of this policy but after the retroactive date stated in the Schedule, on the terms and conditions of PART A of this policy. This PART B Subclause (1) shall not apply to any work which, at the date the Contractor first becomes aware, or might reasonably be expected to have become aware, of some fact or circumstance which may give rise to a claim, is insured under another policy of insurance issued in compliance with the Act." 60 The cover under Part B is clearly separate and distinct from the Part A cover. Part B in no way operates as a limitation upon, or exclusion from, the Part A cover. If loss be suffered within the scope of the Part A cover read without reference to Part B, there is no warranty for limiting its scope by reference to Part B. 61 That can be demonstrated readily enough from the simple fact that Part B cover, which had not been sought in this present case, covers an entirely different situation. It applies where there has been a building contract entered into prior to the commencement of the policy but after what is described as "the retroactive date", that being here, as the schedule makes clear, 16 November 2001. The intention is evidently to provide a continuum of cover for a "claim made" policy such that, if such a contract were entered into after the retroactive date but before the commencement date of the policy giving rise to loss or damage of the kind covered by the policy, Part B provides run-off indemnity on a "claims made" basis. 62 As the appellant's building contract pre-dated the retroactive date, Part B does not address its circumstances. In my judgment, Part B does not by implication thereby preclude coverage for the appellant's "relevant contract" given that it was entered into during the "Period of Insurance" referred to in Part A. 63 There is however a difficulty in that interpretation which needs to be squarely faced arising from the terms of the Schedule to the Policy. Though what I consider the preferred interpretation accords with the objective intention for coverage to be given to such a contract, as evidenced by the quotation and as reinforced by the admission (see items 3(b) to 3(e) inclusive at Blue, 18), nonetheless the schedule identifies a different "Policy Period". The schedule, which precedes the policy itself, defines "Policy Period" as that "Commencing from 16 November 2001 to 16 November 2002 at 4pm". Moreover, the definition of "Policy Period" in the policy itself identifies it as "the period of the policy specified in the Schedule". 64 There is therefore an inconsistency between Part A with its reference to "Period of Insurance" and the schedule with its reference to "Policy Period". The question then becomes which prevails. 65 One strong indication that Part A is not to be read down by reference to the Policy Period is that not only is it self-contained with its own definition of "Period of Insurance" but the retroactive date is in fact the same as the commencement date, being in each case 16 November 2001. That strongly suggests that the schedule's reference to "Policy Period", if applicable at all, would have applied to Part B exclusively, though the identity of retroactive date and commencement date indicates that it could not apply to it either. That it was not intended to apply to Part A is further made clear by the notation in the schedule immediately after the stated retroactive date, namely "this policy shall ONLY provide 'Run-Off' under Part B if the retroactive date precedes the commencement date of the Policy Period". Moreover, the heading immediately above is "Retroactive Date Applicable to Part B". This reinforces an interpretation which renders the retroactive date irrelevant to Part A, with its own definition of "Period of Insurance". 66 To the extent there is an inconsistency between the schedule and Part A, it accords with well-settled principles of interpretation to give primacy to the operative provision of the policy, namely Part A. Therefore I would recognise that "where the different parts of an instrument are inconsistent, effect must be given to that part which is calculated to carry into effect the real intention of the parties as gathered from the instrument as a whole, and that part which would defeat it must be rejected"; "Chitty on Contracts" (2004) at 12-078 and the authorities cited, in particular Walker v Giles (1848) 6 CB 662, 702; Love v Rowtor Steamship Co ltd [1916] 2 AC 527, 353; Sabah Flour and Feedmills Sdn. Bhd. v Comfez Ltd [1988] 2 Lloyd's Rep 18, AMP Financial Planning Pty Ltd v CGU Insurance Limited (2004) 13 ANZ Insurance Cases ¶61-624 at [120] citing Chitty as above. 67 The arguments ranged against this interpretation include reference to the certificates earlier referred to and in particular reference to the certificate pursuant to s92(1)(b) of the Act and Regulation 56. That certificate is stated to be only valid for a contract entered into by the builder between 16 November 2001 and 16 November 2002. Moreover the contractor's certificate of currency provides for a policy period by reference to that same period. 68 On the principles of interpretation earlier set out, this part of the factual matrix, though not irrelevant to resolving any ambiguity, if such there be, is but a secondary source for determining the proper interpretation of the contract; that latter proceeds by reference to text itself, the purpose of the policy and its genesis. While these secondary materials are consistent with the schedule, I do not consider that they render the sense of Part A to be other than its plain meaning in referring, as it does, to a "Period of Insurance" which does not preclude insurance applying to a contract pre-existing the policy. 69 Nor on current authority can subsequent events be taken into account in construing the policy contract. They here consist of Hignett-Knight, the building's insurance broker, subsequently recording a policy covering "all major residential building work for which a contract is entered into during the policy period". That record post-dates the policy whose date was 21 November 2001. To the extent that it might constitute an exception to the rule precluding subsequent conduct being admitted in evidence as an admission of fact or law (see, for example, Winks v W H Heck & Sons Pty Ltd [1986] 1 Qd R 226 at 233 and the authorities cited by Carter on Contract at 13-100 fn 28), I do not consider that it carries much weight. Ranged against it as an admission are the admissions set out at Blue, 18. I refer in particular to that in 3(b) as follows: "The builder obtained a policy of Home Warranty Insurance from Dexta for and on behalf of Allianz, on or about 16 November 2001 in respect of the building work to be carried out at Ms Taylor's property ("the Building Works") (para 10 Claim, 11 Defence)". 70 The respondent sought to argue that the words "in respect of" did not acknowledge that the contract covered that building work or at any rate did not acknowledge that coverage in circumstances where the building contract pre-dated the policy. That may be so, though the language comes pretty close to doing so. The most that could be said is that the admissions are in both directions, and so could not control the interpretation of the policy here even if admissible. 71 A further argument was put by the respondent to the effect that the interpretation put by the appellant would mean that a contract entered into five years earlier would be the subject of coverage under the policy should loss or damage arise of the description in the policy after its commencement. To this two things may be said. First, if that consequence be the result it is not necessarily unreasonable. Second, it may be that the contract should be construed as failing to extend to construction contracts not contemplated by the parties that pre-date the policy. Here of course the construction contract was clearly contemplated. 72 I do not therefore consider that any of these secondary matters should alter the interpretation which I consider correct, namely that the policy, properly construed, applied to the appellant's building contract. OVERALL CONCLUSION 73 I consider the appeal should be allowed with costs and propose orders as follows: (1) Appeal allowed. (2) Judgment for the plaintiff/appellant in the sum of $200,000 together with interest at Supreme Court rates. (3) The respondents to pay the appellant's costs of the proceedings below and of the appeal and to have a certificate under the Suitors' Fund Act if otherwise qualified. 74 IPP JA: Ms Taylor, the appellant, claims an indemnity from Allianz, the second respondent, against loss caused by unfinished and faulty building work carried out by a building contractor, the third respondent, at a property she owned in Newport. Whether Ms Taylor is entitled to an indemnity depends on the meaning of Allianz's policy of home warranty insurance that it issued to the builder. 75 On 10 September 2001 the builder submitted a written application for an annual policy of home warranty insurance to Dexta, as agent for Allianz. According to the builder's application, it estimated that, over the next 12 months, it would carry out work estimated at a value of $1,400,000 and sought home warranty insurance cover for that work. The application form stated that the $1,400,000 was made up of seven jobs (that is, work on seven separate residences). 76 On 27 September 2001 Ms Taylor entered into a contract with the builder for the construction of a dwelling on her land in Newport. The contract price was $263,950. The contract provided that the builder was not to carry out work until warranty insurance was in place and the owner was provided with the certificate of insurance. 77 Dexta requested the builder's insurance brokers to provide details of the estimated contract values of $1,400,000. On 10 October 2001 the builder's brokers gave those details to Dexta. They included reference to a "$300,000 home at Newport, Sydney". The brokers thereby made it plain that the $1,400,000 cover sought by the builder included cover for the Newport contract with Ms Taylor. The brokers confirmed this, over the next two weeks, by giving Dexta further information about the Newport contract. 78 On 1 November 2001 Dexta, on behalf of Allianz, issued a quote for the cover sought. The front page of the quotation set out a "summary of cover" in the following terms: "Indemnifies the building owner as required by the Home Building Act 1989 (NSW) for the 7 year warranty period and subject to the statutory homeowner excess of $500 each and every claim." The quotation stated that the policy period was 12 months and the cover offered was based on an estimated contract value of "$1,400,000 adjustable at expiry by applying the adjustment rate to the value of contracts entered into during the period of insurance". 79 Despite the qualification attached to the finality of the contract value of $1,400,000, there can be no doubt that the quotation applied to the Newport contract (that is, the cover offered included that contract). That this is beyond question is confirmed by the fact that Dexta, in calculating the premium payable by the builder, took the Newport contract into account. 80 On 6 November 2001 the brokers requested Dexta to provide certificates for the seven jobs, the subject of the builder's application. A specific request was made for a certificate for $300,000, representing the Newport contract. On 20 November 2001 Dexta sent the brokers the policy and seven certificates. The certificates included a certificate for a contract entered into by the builder between 16 November 2001 and 16 November 2002 "where the contract value is less than $300,000". This certificate was intended to be a certificate for the Newport contract (albeit that, unbeknown to Dexta, the Newport contract had been entered into on 27 September 2001 – prior to 16 November 2001). 81 The Allianz policy commenced: "In consideration of: (1) The Contractor requesting the insurer to issue insurance to comply with the [Home Building Act], and (2) The payment by the Contractor of the premium (and other charges) specified in the Schedule, the Insurer will, subject to the terms, conditions, limitations and exclusions of this policy … provide insurance cover as specified in Part A or Part B of this policy". 82 Part A provided: "The Insurer will indemnify the Building Owner for loss or damage in respect of residential building work: (1) … (2) arising from breach of a statutory warranty under Pt 2C s 18B of the Act, namely, the Contractor warrants that: …" 83 The policy defined the commencement date of the "period of insurance" as "the date the relevant contract is entered into". It defined the "policy period" (a concept different to the period of insurance) as the period specified in the Schedule. According to the Schedule the policy commenced on 16 November 2001 and continued to 16 November 2002. 84 Clause 1 of Part B of the policy provided: "Unless stated otherwise in the Schedule, Part A of this policy shall indemnify the Building Owner under a contract entered into with the Contractor prior to commencement of this policy but after the retroactive date stated in the Schedule, on the terms and conditions of Part A of this policy". The "retroactive date" was stated in the Schedule as being 16 November 2001. 85 Allianz contended that the cover provided by Part A of the policy was only in respect of building contracts entered into by the builder after the retroactive date. It was said that the intention to so limit the cover was confirmed by the definition of "policy period". Allianz submitted that the policy covered a general amount of $1,400,000 and was not intended to apply to specific contracts. Allianz submitted that the policy did not provide cover in respect of contracts entered into before the retroactive date (which was the commencement of the policy period). 86 Allianz submitted that the policy contemplated that the premium would be adjusted should contracts, forming part of the estimated value of $1,400,000, not be carried out. It argued that, should that occur, a refund of the premium would be made at the end of the policy period; therefore, it was not to the point that the premium was calculated by reference to the Newport contract. In essence, it was said, the policy contemplated that that contract might not be performed. 87 There is an internal conflict in the policy between the undertaking to indemnify the building owner in respect of residential building work arising from breaches of statutory warranties under the Home Building Act 1989 (NSW), on the one hand, and the provisions on which Allianz relies (to the effect that cover is limited to contracts entered into within the policy period or after the retroactive date), on the other. 88 This conflict arises because, for the builder to have complied with its obligations under the Act (and Part A contained an undertaking by Allianz to indemnify the builder as required by the Act), the Allianz policy would have had to apply to the Newport contract; whereas, if cover was limited to contracts entered into within the policy period or after the retroactive date, the Allianz policy would not apply to the Newport contract. 89 According to Chitty on Contracts, Vol 1, 29th ed, para 12-078: "Where the different parts of an instrument are inconsistent, effect must be given to that part which is calculated to carry into effect the real intention of the parties as gathered from the instrument as a whole, and that part which would defeat it must be rejected". This passage is an unexceptional statement of the law of contract. It was approved in AMP Financial Planning Pty Limited v CGU Insurance Limited (2004) 13 ANZ Insurance Cases 61-624. 90 The policy records that its purpose was to provide the builder with cover that would enable the builder to comply with its obligations under the Home Building Act. Allianz had been given a list of the contracts making up the $1,400,000 value for which it sought cover, and those contracts included the Newport contract. Thus, Allianz knew that the builder believed that cover for the Newport contract was necessary for it to comply with those obligations In fact, it was common ground at trial that "the builder obtained the policy of Home Warranty Insurance from Dexta, for and on behalf of Allianz, on or about 16 November 2001 in respect of the building works to be carried out at Ms Taylor's property …". 91 The fact that the premium paid by the builder was based on cover for the Newport contract is in my view another important consideration. I do not regard the provision of the policy enabling the premium to be adjusted at the expiry of the policy period as detracting from the force of the fact of a payment of a premium calculated on the basis that cover for the Newport contract was being provided. 92 In my view, the factors set out in the preceding two paragraphs are paramount. They outweigh the factors on which Allianz relies in contending that cover was not provided for the Newport contract. They demonstrate that the real intention of the parties was that the policy would cover the Newport contract. 93 Accordingly, I agree with the orders proposed by Santow JA. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.