Supreme Court New South Wales Medium Neutral Citation: The Owners - Strata Plan 69312 v Allianz Australia Insurance Limited [2012] NSWSC 1477 Hearing dates: 23 November 2012 Decision date: 23 November 2012 Jurisdiction: Equity Division - Technology and Construction List Before: Bergin CJ in Eq Decision: Application to amend refused Catchwords: [PRACTICE & PROCEDURE] - application to amend List Statement to include claim of proportionate liability under s 34 Civil Liability Act 2002 - whether action against insurer for indemnity is an apportionable claim for economic loss "arising from a failure to take reasonable care" Legislation Cited: Civil Liability Act 2002 Home Building Act 1989 Cases Cited: Australian Health Insurance Association Ltd v Esso Australia Ltd (1993) 41 FCR 450 Dartberg Pty Ltd v Wealthcare Financial Planning Pty Ltd [2007] FCA 1216; (2007) 164 FCR 450 George v Webb & Ors [2011] NSWSC 1608 Reinhold v New South Wales Lotteries Corporation (No 2) [2008] NSWSC 187 Texts Cited: Barbara McDonald and John Carter, 'The Lottery of Contractual Risk Allocation and Proportionate Liability' (2009) 26 Journal of Contract Law 1 Category: Interlocutory applications Parties: The Owners - Strata Plan 69312 (Plaintiff/Respondent) Allianz Australia Insurance Limited (Defendant/Applicant) Representation: M Ashhurst SC/M Walsh (Plaintiff/Respondent) K Smark SC (Defendant/Applicant) Grace Lawyers (Plaintiff/Respondent) HWL Ebsworth Lawyers (Defendant/Applicant) File Number(s): 2008/268634 Judgment 1This is an application brought by way of Notice of Motion filed by the defendant in Court today. The application is to further amend the Technology & Construction List Response in a form provided with the Notice of Motion. 2The plaintiff, The Owners - Strata Plan SP 69312, sues the defendant, Allianz Australia Insurance Ltd, pursuant to a contract of insurance (the Policy) in which the defendant promised to indemnify the plaintiff "for loss or damage" in respect of residential building work "arising from breach of statutory warranty" under Part 2C of the Home Building Act 1989 (the HBA), particularly section 18B of that Act. The Policy relevantly provides as follows: The Insurer will indemnify the Building Owner for loss or damage in respect of residential building work: ... (2) arising from breach of statutory warranty under Part 2C section 18B of the Act, namely, the Contractor warrants that: (i) 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; ... (v) if the work consists of the construction of a dwelling, the making of alterations or additions to a dwelling or the repairing, renovation, decoration, or protective treatment of a dwelling, the work will result to the extent of the work conducted, in a dwelling that is reasonably fit for occupation as a dwelling; ... 3The residential building work related to a roject in Rockdale. There are related proceedings between the plaintiff and the engineer on the project and the local council, in which the plaintiff sues in negligence and for breach of statutory duty respectively. In those proceedings there are allegations that, for instance, the engineer breached its duty of care to the plaintiff. The builder is in liquidation. 4The claim against the defendant in the present proceedings is for indemnification under the Policy for all loss and damage associated with rectifying the defects in the building covered by the terms of the Policy. 5The amendment sought by the defendant includes the following: In further and alternative answer to the statement as a whole, the defendant: ... (c) Says further that the claim against the defendant is a claim for economic loss or damage to property in an action for damages arising from a failure to take reasonable care; (d) Says further that should the claim against the defendant be established, then the defendant and the Council and Jammal are persons whose acts or omissions caused the loss or damage that is the subject of that claim; (e) Says further that, in the premises, any liability to the defendant in these proceedings is limited to an amount reflecting that proportion of damage or loss claimed (and established) that the court considers just having regard to the extent of the defendant's responsibility for the damage or loss. 6The Technology and Construction List Judge referred the Motion from the List for hearing today . Mr K Smark SC appears for the defendant/applicant on the Motion. Mr M Ashhurst SC, leading Mr M Walsh, of counsel, appears for the plaintiff/respondent to the Motion. 7The short point as argued is whether a claim for indemnity under an insurance policy is an apportionable claim under the Civil Liability Act 2002 (the Act). That Act provides relevantly: 34 Application of Part (1) This Part applies to the following claims (apportionable claims): (a) a claim for economic loss or damage to property in an action for damages (whether in contract, tort or otherwise) arising from a failure to take reasonable care, but not including any claim arising out of personal injury, (b) a claim for economic loss or damage to property in an action for damages under the Fair Trading Act 1987 for a contravention of section 42 of that Act (as in force before its repeal by the Fair Trading Amendment (Australian Consumer Law) Act 2010) or under the Australian Consumer Law (NSW) for a contravention of section 18 of that Law. ... 35 Proportionate liability for apportionable claims (1) In any proceedings involving an apportionable claim: (a) the liability of a defendant who is a concurrent wrongdoer in relation to that claim is limited to an amount reflecting that proportion of the damage or loss claimed that the court considers just having regard to the extent of the defendant's responsibility for the damage or loss, and (b) the court may give judgment against the defendant for not more than that amount. 8In characterising the nature of the claim, Mr Ashhurst relied upon the decision of the Full Federal Court (Black CJ, Northrop and Sheppard JJ) in Australian Health Insurance Association Ltd v Esso Australia Ltd (1993) 41 FCR 450, in particular to the following passage of Sheppard J's judgment at 486-487 (in which his Honour refers to the decision of Channell J in Prudential Insurance Co v Inland Revenue Commissioners [1904] 2 KB 658): The only question in that case was whether a contract of insurance involving payment to a person on his attaining the age of 65 was a policy of insurance within the meaning of stamp duty legislation. It was held that it was. Channell J said that the first requirement of insurance is that a payment of a sum of money is to be payable upon the happening of a certain event. "Certain" is not used in the sense of an event which necessarily must happen but in the sense of the event being one specified in the policy. His Lordship continued (at 663): That I think is the first requirement in a contract of insurance. It must be a contract whereby for some consideration, usually but not necessarily for periodical payments called premiums, you secure to yourself some benefit, usually but not necessarily the payment of a sum of money, upon the happening of some event... ... Later he [Channell J] said (at 664): A contract of insurance, then, must be a contract for the payment of a sum of money, or for some corresponding benefit such as the rebuilding of a house or the repairing of a ship, to become due on the happening of an event, which event must have some amount of uncertainty about it, and must be of a character more or less adverse to the interest of the person effecting the insurance. 9Notwithstanding that the plaintiff does not concede this matter, it is appropriate to proceed on the assumed basis that a claim for indemnity that has been refused may be characterised as a claim for economic loss. The real issue as argued was whether the claim arises from a "failure to take reasonable care" as this expression is used in s 34 of the Act. 10It must be remembered that this is an application to amend a pleading. However, the parties have approached the matter, sensibly and consistently with authority, on the basis that what has to be established is that it is reasonably arguable for the defendant to be permitted to amend its claim and argue the claim at trial. 11The defendant submitted that even if a claim is framed on a basis not requiring proof of a failure of reasonable care (for example, a breach by the builder of the statutory warranty that work will comply with plans or comply with the law in relation to subss 18(a) and 18(c) of the HBA), that does not mean that such a claim may not "on the facts" be shown to arise from such a failure. In this regard the defendant relied upon Barrett J's decision, as his Honour then was, in Reinhold v New South Wales Lotteries Corporation (No 2) [2008] NSWSC 187 at [18]-[32]. Reference has also been made to the academic commentary on this decision by Associate Professor Barbara McDonald and Professor John Carter in 'The Lottery of Contractual Risk Allocation and Proportionate Liability' (2009) 26 Journal of Contract Law 1. 12The defendant also relied on the following passage from Dartberg Pty Ltd v Wealthcare Financial Planning Pty Ltd [2007] FCA 1216; (2007) 164 FCR 450 at [30] in which Middleton J, commenting upon similar provisions in Victorian legislation, said as follows: In my view, Pt IVAA could apply in the circumstances of this proceeding according to its own terms. Where a claim brought by an applicant does not have as one of its necessary elements any allegation of failing to take reasonable care, an additional enquiry into the failure to take reasonable care may become relevant in the course of a trial to determine the application of Pt IVAA. Even though the claims in this proceeding themselves do not rely upon any plea of negligence or a "failure to take reasonable care" in a strict sense, a failure to take reasonable care may form part of the allegations or the evidence that is tendered in the proceedings. At the end of the trial, after hearing all the evidence, it may be found that Pt IVAA applies. 13For the reasons that I am about to give, it is not necessary for me to enter the debate about whether a case that is not pleaded may arise later when the facts are proved. 14In this case, the indemnity for loss and damage under the Policy is in respect of residential building work "arising from breach of statutory warranty" under the HBA. 15Mr Smark accepted that the question that arises is "who" must be shown to have failed to take care. He posed the question; is it the builder or is it the insurer? Mr Smark submitted that it is the builder who was bound by the statutory warranties and the defendant that gave an indemnity against their breach. It was further submitted that in those circumstances, the claim, the loss and the proceedings all may fairly be said to have arisen from a failure to take reasonable care by the builder. 16It seems to me that the clear intention of the legislature, when ss 34 and 35 are read together, is that the person who has failed to take reasonable care is, as identified in s 35, the "defendant" who is entitled to have a limitation placed on the amount reflecting the defendant's responsibility for the damage or loss. Accordingly when s 35(1) is read with s 34(1), the irresistible conclusion is that it is the defendant whose conduct must cause the economic loss. 17The loss that is the subject of the indemnity under the Policy may have arisen from a failure to take reasonable care in that the builder's breach of statutory warranty may have arisen from the builder's failure to take reasonable care to carry out the residential building work carefully. However, the loss sued upon by the plaintiff as the insured is the loss caused by the insurer failing to indemnify the insured for the loss. The insurer's conduct that caused that loss does not arise from the insurer failing to take reasonable care in making its decision as to whether or not to indemnify the builder. 18Although it is not necessary to decide the real impact that the correctness of the defendant's submissions may have on the law of subrogation, it does seem to me that if the defendant's submissions were correct, it may turn the law of subrogation on its head. 19It is the insurer's conduct that is in question and this is not a case that arises from a failure by the insurer to take reasonable care (see, analogously, the approach adopted by Ward J in George v Webb & Ors [2011] NSWSC 1608 at [325] in respect of a breach of trust). I am satisfied that the claim made by the plaintiff in these proceedings is not an apportionable claim. 20I am not satisfied that the defendant's claim as outlined in its draft pleading is reasonably arguable. Accordingly, the defendant's Notice of Motion is dismissed with costs. ********** 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. Decision last updated: 04 December 2012