Allianz Australia Insurance Limited v Dinov [2016] NSWDC 342
NSW Caselaw
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District Court
New South Wales
Medium Neutral Citation: Allianz Australia Insurance Limited v Dinov [2016] NSWDC 342
Hearing dates: 23 November 2016
Date of orders: 05 December 2016
Decision date: 05 December 2016
Jurisdiction: Civil
Before: Dicker SC DCJ
Decision: (1) Judgment for the plaintiff against each of the defendants in the amount of $185,000;
(2) The defendants are to pay the plaintiff's costs of the proceedings as agreed or assessed;
(3) Liberty to the parties to apply to vary order (2) above, on giving three business days' notice.
Catchwords: Deed of Indemnity – whether action in damages for breach of Deed was prohibited by statute – statutory construction principles - words and phrases – "loss or damage arising out of or concerning defective building work" – purpose and object of provision – mischief sought to be overcome by provision – held action not prohibited
Legislation Cited: Building Act 1993 (Vic)
Environmental Planning and Assessment Act 1979 (NSW)
Environmental Planning and Assessment Amendment Act 1997 (NSW)
Home Building Act 1989 (NSW)
Interpretation Act 1987 (NSW)
Cases Cited: AQO v Minister for Finance and Services [2016] NSWCA 248
Australian Rail Track Corp Ltd v Leighton Contractors Pty Ltd [2003] VSC 189
Brirek Industries Pty Ltd v McKenzie Group Consulting (Vic) Pty Ltd [2014] VSCA 165
Bryan v Maloney (1994) 182 CLR 609
Inter-Continental Travels Pty Ltd v Heuppauff [2000] SASC 7
Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355; [1998] HCA 28
Wardley Australia Ltd v State of Western Australia (1992) 175 CLR 514
Category: Principal judgment
Parties: Allianz Australia Insurance Limited (Plaintiff)
Dino Dinov (First Defendant)
Stefan Dinov (Second Defendant)
Jona Dinov (Third Defendant)
Jugoslav Zivanovic (Fourth Defendant)
Veselka Zivanovic (Fifth Defendant)
Natasha Zivanovic (Sixth Defendant)
Representation: Counsel:
T Lynch SC (Plaintiff)
P J Bambagiotti (Defendants)
Solicitors:
Mills Oakley (Plaintiff)
Stanton Legal (Defendants)
File Number(s): 2015/00251386
Judgment
1. This is a claim by the plaintiff, Allianz Australia Insurance Ltd ('Allianz"), against six defendants who signed Deeds Poll ("Deeds") providing indemnities to the plaintiff, for damages for breach of the indemnity obligations in the Deeds.
Amended Statement of Claim
1. The plaintiff relies on an Amended Statement of Claim filed on 4 March 2016. In essence, the plaintiff pleads that each of the defendants provided in the Deeds an indemnity to the plaintiff, and, as a result, the plaintiff provided residential building work insurance to Great Wall Constructions Pty Ltd ("Great Wall"), a builder, which built 13 residential townhouses at 68-70 White Street, Lilyfield in Sydney in New South Wales.
2. Defects were claimed in the building work by the successor in title to the original owner in July 2009. It is alleged that on or about 17 November 2010, Great Wall deregistered and ceased to be a legal entity. The successor in title then claimed against the plaintiff as the residential building work insurer. The plaintiff accepted certain of the defects alleged and entered into terms of settlement with the owner for a third party builder to undertake the rectification of the accepted defects (paragraph 20).
3. The plaintiff made a demand for the amount it incurred upon each of the defendants under the Deeds (paragraph 27). It is alleged that the defendants failed to pay the amounts claimed by the plaintiff and as a result the plaintiff sues each defendant for damages for breach of the indemnity provision in the Deeds (paragraphs 29-30).
Defence
1. By their Defence filed 15 April 2016, the defendants denied liability and pleaded that the action against them was statute barred pursuant to Section 109ZK(1) of the Environmental Planning and Assessment Act 1979 (NSW) ("the Act").
2. In due course the issues between the parties have been narrowed and the parties have agreed on a Statement of Agreed Facts and a joint tender bundle which was admitted into evidence as Exhibit A in the proceedings.
Agreed facts
1. I refer to the Statement of Agreed Facts filed 21 September 2016. In that document the following facts have been agreed between the parties.
2. At all material times, Dexta Corporation Ltd ("Dexta") was acting as agent for the plaintiff in issuing insurance for "residential building work" required by Part 6 of the Home Building Act 1989 (NSW) ("HBA Insurance").
3. On 2 June 2002 Great Wall applied to Dexta for HBA Insurance in respect of residential building work to be done by Great Wall at the Lilyfield address referred to above under a contract with the original owner.
4. The defendants were either directors of Great Wall at various times or associated with directors of Great Wall.
5. Each of the defendants on different dates between 14 August 2002 and 20 November 2002 signed a single page document entitled "Deed of Indemnity" being one of the Deeds.
6. Each of the Deeds was in substantially identical form. An example is the Deed signed by the first and second defendants as a Deed Poll on 25 October 2002. Clause 2 of that Deed provides as follows:
"2. The Indemnifier [the first defendant and second defendant] unconditionally and absolutely agrees to indemnify and keep indemnified the Insurer [the plaintiff] for all loss, damage, costs, charges or other liabilities incurred or paid as a result of any claim arising under the Policy and all amounts which the Insurer must pay and is liable to or may become liable to pay under the said policy (whether or not the Insurer has paid any amount) in all cases, whether or not the claim arises or is made before or after the date of this Deed PROVIDED ALWAYS that the amount of such indemnity shall be no greater than $200,000 per claim."
1. Prior to the Deeds being provided to it, Dexta had advised Great Wall that it would consider providing HBA Insurance for the building works upon receipt of, amongst other things, the Deeds.
2. On 2 December 2002 the plaintiff issued a HBA Insurance policy in respect of the building works ("the Policy").
3. Great Wall thereafter carried out the building works and a final occupation certificate in respect of the building works was issued on or about 18 December 2003.
4. On 23 January 2004 Strata Plan 72017 was registered in respect of the land at Lilyfield ("the Property") and the legal title to the common property within that strata scheme vested in The Owners Strata Plan No 72017 ("the Owners").
5. On 24 July 2009 the Owners lodged a claim upon the plaintiff for indemnity under the Policy in respect of loss and/or damage arising out of breaches of the statutory warranties set out in Section 18B of the Home Building Act 1989 in the building works ("the Owners' Claim").
6. On 17 November 2010, as indicated above, Great Wall was deregistered.
7. On 5 August 2011 the plaintiff accepted liability under the Policy to the Owners for part of the Owners' Claim ("Accepted Remedial Work") and thereafter obtained quotations for the rectification of the Accepted Remedial Work.
8. On 14 February 2013 the plaintiff settled the Owners' Claim ("Terms of Settlement") by indemnifying the Owners and agreeing to undertake the Accepted Remedial Work.
9. Pursuant to the Terms of Settlement, the plaintiff has paid various sums to Biltbeta Constructions Pty Ltd as the rectifying contractor.
10. In addition, the plaintiff has paid fees to its building consultant in respect of assessing the Owners' Claim and other matters.
11. The plaintiff has, in reliance upon the relevant Deeds, demanded payment from each of the defendants. As indicated above, the defendants have denied liability for the amount claimed.
12. The plaintiff commenced the proceedings against the defendants in this court on 27 August 2015. The parties have agreed to narrow the issues in the proceedings as follows:
1. The plaintiff only presses for the amount of $185,000 (inclusive of interest) plus the costs of the proceedings; and
2. The defendants only take issue with whether these proceedings were commenced out of time by virtue of Section 109ZK of the Act.
The relevant legislation
1. Divisions 1 and 2 of Part 4C of the Act provide as follows:
"Part 4C Liability and insurance
Division 1 Preliminary
109ZI Definitions
In this Part:
building action means an action (including a counter-claim) for loss or damage arising out of or concerning defective building work.
building work includes the design, inspection and issuing of a Part 4A certificate or complying development certificate in respect of building work.
subdivision action means an action (including a counter-claim) for loss or damage arising out of or concerning defective subdivision work.
subdivision work includes the design, inspection and issuing of a Part 4A certificate or complying development certificate in respect of subdivision work.
Division 2 Liability
109ZJ (Repealed)
109ZK Limitation on time when building action or subdivision action may be brought
(1) Despite any Act or law to the contrary, a building action may not be brought in relation to any building work:
(a) more than 10 years after the date on which the relevant final occupation certificate is issued, or
(b) in a case where no final occupation certificate is issued, more than 10 years after:
(i) the last date on which the building work was inspected by a certifying authority, or
(ii) if no such inspection has been conducted, the date on which that part of the building in relation to which the building work was carried out is first occupied or used.
(1A) Despite any Act or law to the contrary, a subdivision action may not be brought in relation to any subdivision work more than 10 years after:
(a) in the case of work completed before the relevant subdivision certificate is issued, the date on which the relevant subdivision certificate is issued, or
(b) in the case of work completed after the relevant subdivision certificate is issued, the date on which the compliance certificate that certifies that the work has been completed is issued.
(2) This section does not operate to extend any period of limitation under the Limitation Act 1969.
109ZL Division not to affect rights to recover damages for death or personal injury
Nothing in this Division applies to or affects any right to recover damages for death or personal injury arising out of or concerning defective building work or subdivision work."
1. Part 4C of the Act was inserted in the Act by the Environmental Planning and Assessment Amendment Act 1997 (NSW). Schedule 1, Clause [32] of that act inserted, inter alia, a new Part 4C of the Act as follows:
"Part 4C Liability and insurance
Division 1 Preliminary
109ZI Definitions
In this Part:
building action means an action (including a counter-claim) for loss or damage arising out of or concerning defective building work.
building work includes the design, inspection and issuing of a Part 4A certificate or complying development certificate in respect of building work.
subdivision action means an action (including a counter-claim) for loss or damage arising out of or concerning defective subdivision work.
subdivision work includes the design, inspection and issuing of a Part 4A certificate or complying development certificate in respect of subdivision work.
Division 2 Liability
109ZJ Apportionment of liability
(1) After determining an award of damages in a building action or subdivision action, a court must give judgment against each contributing party for such proportion of the total amount of damages as the court considers to be just and equitable, having regard to the extent of that party's responsibility for the loss or damage in respect of which the award is made.
(2) Despite any Act or law to the contrary, the liability for damages of a contributing party is limited to the amount for which judgment is given against that party by the court.
(3) A contributing party cannot be required:
(a) to contribute to the damages apportioned to any other person in the same building action or subdivision action, or
(b) to indemnify any such other person in respect of those damages.
(4) In this section contributing party, in relation a building action or subdivision action, means a defendant to the action found by the court to be jointly or severally liable for the damages awarded, or to be awarded, in the action.
109ZK Limitation on time when building action or subdivision action may be brought
(1) Despite any Act or law to the contrary:
(a) a building action may not be brought in relation to any building work more than 10 years after the date on which the relevant final occupation certificate is issued, and
(b) a subdivision action may not be brought in relation to any subdivision work more than 10 years after:
(i) in the case of work completed before the relevant subdivision certificate is issued, the date on which the relevant subdivision certificate is issued, or
(ii) in the case of work completed after the relevant subdivision certificate is issued, the date on which the compliance certificate that certifies that the work has been completed is issued.
(2) This section does not operate to extend any period of limitation under the Limitation Act 1969.
109ZL Division not to affect rights to recover damages for death or personal injury
Nothing in this Division applies to or affects any right to recover damages for death or personal injury arising out of or concerning defective building work or subdivision work."
1. The importance of Great Wall having building insurance from the plaintiff before it commenced the building work at the Lilyfield Property is shown by Section 92(1) of the Home Building Act 1989 which provides as follows:
"92 Contract work must be insured
(1) A person must not do residential building work under a contract unless:
(a) a contract of insurance that complies with this Act is in force in relation to that work in the name under which the person contracted to do the work, and
(b) a certificate of insurance evidencing the contract of insurance, in a form prescribed by the regulations, has been provided to the other party (or one of the other parties) to the contract.
Maximum penalty: 1,000 penalty units in the case of a corporation and 200 penalty units in any other case."
1. The issue before the court in the current proceedings is the proper construction of Section 109ZK(1)(a) of the Act in the light of the definition of "building action" in Section 109ZI of the Act.
2. In undertaking that interpretation, the court must have proper regard to the purpose or object underlying Section 109ZK of the Act when reading the provision in its context.
3. Section 33 of the Interpretation Act 1987 (NSW) provides as follows:
"33 Regard to be had to purposes or objects of Acts and statutory rules
In the interpretation of a provision of an Act or statutory rule, a construction that would promote the purpose or object underlying the Act or statutory rule (whether or not that purpose or object is expressly stated in the Act or statutory rule or, in the case of a statutory rule, in the Act under which the rule was made) shall be preferred to a construction that would not promote that purpose or object."
1. It is submitted by at least the plaintiff in these proceedings that the Explanatory note to Part 4C of the Act as inserted by the Environment Planning and Assessment Amendment Act 1997 is relevant.
2. Section 34 of the Interpretation Act 1987 (NSW) provides as follows:
"34 Use of extrinsic material in the interpretation of Acts and statutory rules
(1) In the interpretation of a provision of an Act or statutory rule, if any material not forming part of the Act or statutory rule is capable of assisting in the ascertainment of the meaning of the provision, consideration may be given to that material:
(a) to confirm that the meaning of the provision is the ordinary meaning conveyed by the text of the provision (taking into account its context in the Act or statutory rule and the purpose or object underlying the Act or statutory rule and, in the case of a statutory rule, the purpose or object underlying the Act under which the rule was made), or
(b) to determine the meaning of the provision:
(i) if the provision is ambiguous or obscure, or
(ii) if the ordinary meaning conveyed by the text of the provision (taking into account its context in the Act or statutory rule and the purpose or object underlying the Act or statutory rule and, in the case of a statutory rule, the purpose or object underlying the Act under which the rule was made) leads to a result that is manifestly absurd or is unreasonable.
(2) Without limiting the effect of subsection (1), the material that may be considered in the interpretation of a provision of an Act, or a statutory rule made under the Act, includes:
(a) all matters not forming part of the Act that are set out in the document containing the text of the Act as printed by the Government Printer,
(b) any relevant report of a Royal Commission, Law Reform Commission, committee of inquiry or other similar body that was laid before either House of Parliament before the provision was enacted or made,
(c) any relevant report of a committee of Parliament or of either House of Parliament before the provision was enacted or made,
(d) any treaty or other international agreement that is referred to in the Act,
(e) any explanatory note or memorandum relating to the Bill for the Act, or any other relevant document, that was laid before, or furnished to the members of, either House of Parliament by a Minister or other member of Parliament introducing the Bill before the provision was enacted or made,
(f) the speech made to a House of Parliament by a Minister or other member of Parliament on the occasion of the moving by that Minister or member of a motion that the Bill for the Act be read a second time in that House,
(g) any document (whether or not a document to which a preceding paragraph applies) that is declared by the Act to be a relevant document for the purposes of this section, and
(h) any relevant material in the Minutes of Proceedings or the Votes and Proceedings of either House of Parliament or in any official record of debates in Parliament or either House of Parliament.
(3) In determining whether consideration should be given to any material, or in considering the weight to be given to any material, regard shall be had, in addition to any other relevant matters, to:
(a) the desirability of persons being able to rely on the ordinary meaning conveyed by the text of the provision (taking into account its context in the Act or statutory rule and the purpose or object underlying the Act or statutory rule and, in the case of a statutory rule, the purpose or object underlying the Act under which the rule was made), and
(b) the need to avoid prolonging legal or other proceedings without compensating advantage."
1. An Explanatory note was prepared for the Environmental Planning and Assessment Amendment Bill 1997 which became the Environmental Planning and Assessment Amendment Act 1997. The Explanatory note provided in the overview of the Bill that the objects of the Bill included:
"(g) to provide for proportional liability, together with a maximum limitation period of 10 years, for actions relating to building work and subdivision, and to require accredited certifiers and certain building practitioners to hold appropriate insurance with respect to their activities …"
1. The following was set out in the Explanatory note in relation to Part 4C which was proposed:
"Part 4C Liability and insurance
Part 4C contains proposed sections 109ZI–109ZP. It deals with the following matters:
(a) the apportionment of liability between the various parties in an action relating to defective building work or subdivision work responsible for the damage giving rise to an award of damages made by a court,
(b) the imposition of a limitation period of 10 years for any person's liability for damage arising as a result of defective building work or subdivision work,
(c) the requirement that accredited certifiers and certain building practitioners are covered by insurance with respect to their activities as accredited certifiers and building practitioners.
Apportionment of liability involves a court, in making an award for damages for damage arising from defective building work or subdivision work, determining the proportion of the damage for which each defendant to the action is liable. A defendant will not be required to pay any more than the proportion so determined, regardless of the failure of any other defendant to pay the proportion determined in respect of that other defendant. This differs from the general rule of law concerning liability in which all such defendants would be jointly and severally liable for the full amount of the damages awarded, under which each defendant underwrites the liability of each other defendant.
The imposition of a limitation period of 10 years for any person's liability for damage arising from defective building work or subdivision work is designed to address the law concerning latent defects in which the current limitation period begins to run only when the defect becomes apparent. The approach taken in the proposed provisions is to limit the period within which proceedings can be commenced to the period of 10 years running from the date on which the relevant occupation certificate or subdivision certificate is issued or, in the case of subdivision work that is carried out after a subdivision certificate is issued, from the date on which a compliance certificate is issued with respect to the completion of that work. The new rule will not extend any period of limitation under the Limitation Act 1969, so that the period during which proceedings may be brought may, under that Act, be shorter than the 10 years proposed.
It will be an offence for accredited certifiers and certain building practitioners to practise as such unless they are insured. Failure to be appropriately insured will also be a ground for withdrawal of accreditation, in the case of an accredited certifier. The nature and extent of the insurance cover required will be established by the regulations." (emphasis added)
The issue to be determined
1. The issue to be determined by the court is whether the current action in these proceedings by the plaintiff against the defendants constitutes a "building action" as defined in Section 109ZI of the Act such that it cannot successfully be brought against the defendants because of Section 109ZK(1)(a) of the Act. In other words, is the current action of the plaintiff an action for loss or damage arising out of or concerning defective building work brought more than 10 years after the date on which the relevant final occupation certificate was issued.
2. As stated above in the agreed facts, it is agreed that a final occupation certificate in respect of the building works was issued on or about 18 December 2003. These proceedings were commenced on 27 August 2015, well after 18 December 2013 being the date which is 10 years after the issue of the final occupation certificate on or about 18 December 2003.
3. The plaintiff submits that the current action does not fall within the definition of "building action" in Section 109ZI of the Act. The defendants submit that it does.
4. Both parties provided written outlines of submission which were added to in detail in oral submissions.
5. The court is grateful to the parties for their helpful submissions which were to a high standard.
Relevant principles in relation to the construction of statutes
1. In AQO v Minister for Finance and Services [2016] NSWCA 248 (5 September 2016) the Court of Appeal had to consider a number of pieces of New South Wales State legislation.
2. McColl JA dissented in the result. However, her Honour set out helpfully some of the principles relating to statutory construction in the course of her Honour's judgment. It is clear from a reading of the judgments of the majority that their Honours did not disagree in relation to the general principles stated by McColl JA; see, for example, Ward JA's comments at paragraph [175].
3. McColl JA stated as follows in AQO at paragraphs [73]-[75] and [77]-[79]:
"[73] The task of statutory interpretation is concerned with giving a statutory provision the meaning that the legislature is taken to have intended it to have. The exercise must begin with a consideration of the text. In Project Blue Sky the plurality explained the exercise as follows:
[69] The primary object of statutory construction is to construe the relevant provision so that it is consistent with the language and purpose of all the provisions of the statute. The meaning of the provision must be determined 'by reference to the language of the instrument viewed as a whole'. In Commissioner for Railways (NSW) v Agalianos, Dixon CJ pointed out that 'the context, the general purpose and policy of a provision and its consistency and fairness are surer guides to its meaning than the logic with which it is constructed'. Thus, the process of construction must always begin by examining the context of the provision that is being construed.
[70] A legislative instrument must be construed on the prima facie basis that its provisions are intended to give effect to harmonious goals. Where conflict appears to arise from the language of particular provisions, the conflict must be alleviated, so far as possible, by adjusting the meaning of the competing provisions to achieve that result which will best give effect to the purpose and language of those provisions while maintaining the unity of all the statutory provisions. Reconciling conflicting provisions will often require the court 'to determine which is the leading provision and which the subordinate provision, and which must give way to the other'. Only by determining the hierarchy of the provisions will it be possible in many cases to give each provision the meaning which best gives effect to its purpose and language while maintaining the unity of the statutory scheme. [Footnotes omitted]
[74] The court is also required to undertake the exercise of statutory construction with a view to promoting the purpose or object underlying the PPIP Act and the HRIP Act rather than construing the Acts in a manner which would not promote that purpose or object.
[75] In Cunneen, the majority referred with approval to Mason J's reasons in K&S Lake City Freighters Pty Ltd v Gordon & Gotch Ltd, where his Honour emphasised that "[t]he modern approach to interpretation insists that the context be considered in the first instance, especially in the case of general words, and not merely at some later stage when ambiguity might be thought to arise." "Context" is used "in its widest sense to include such things as the existing state of the law and the mischief which … one may discern the statute was intended to remedy." Expressions of indefinite connotation are especially susceptible to context and may mean one thing in one legislative context and something quite different in another, such that to ignore context is calculated to lead to error. This passage in Cunneen is apt when considering the interpretation of general words such as "person" in paragraph (d)."
"[77] It is next necessary to bear in mind that the statutory provision in issue in this case is a definition. The function of a definition is not to enact substantive law, but to provide aid in construing the statute. Statutory definitions should be construed according to their natural and ordinary meaning, without reading in limitations and qualifications unless clearly required by the terms of the definition or its context, for example if it is necessary to give effect to the evident purpose of the Act. It is also necessary to address the language used bearing in mind the functions which the defined terms serve in the operative provisions.
[78] Reading in limitations and qualifications not clearly required by the terms of the definition or its context may defeat the intention of the legislature. However, once it is clear that the definition applies, the only proper course is to read the words of the definition into the substantive enactment and then construe the substantive enactment, whether in its extended or confined sense, in context and bearing in mind its purpose and the mischief that it was designed to overcome.
[79] It is impermissibly circular to construe the words of a definition by reference to the term defined, or to assume the purpose of the Act and then reasoning, as if syllogistically, conclude that a meaning of a definition more consonant with the assumed purpose of the Act should be preferred. In cases where the purpose of legislation cannot be identified, it may be that the "best that can be done is to reason in terms of relative consistency … in accordance with the principles of statutory interpretation adumbrated in Project Blue Sky — to determine which of the two competing constructions of [the definition] is more harmonious overall."
1. It seems therefore that the general principles applicable are as follows:
1. The task of statutory interpretation is concerned with giving a statutory provision the meaning that the legislature is taken to have intended it to have;
2. The exercise of statutory construction must begin with consideration of the text of the legislation;
3. The primary object of statutory construction is to construe the relevant provision so that it is consistent with the language and purpose of all the provisions of the statute. That is achieved by determining the meaning of the provision by reference to the language of the instrument used as a whole;
4. The context of the provision that is being construed must be examined;
5. At least in New South Wales, a court is also required to undertake the exercise of statutory construction with a view to promoting the purpose or object underlying the legislation rather than construing the legislation in a manner which would not promote that purpose or object;
6. In construing the legislation in its context the court must take into account the existing state of the law and the mischief which the court may discern the statute was intended to remedy;
7. Statutory definitions in an Act should be construed according to their natural and ordinary meaning, without reading in limitations and qualifications unless these are clearly required by the terms of the definition or its context being that that approach is necessary to give effect to the evident purpose of the Act and the mischief that the legislative provision was designed to overcome.
1. I have attempted to set out in the above summary the relevant principles derived from AQO and the decision of the High Court in Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355; [1998] HCA 28. The latter case has been followed in many subsequent appellate decisions.
The plaintiff's submissions in chief
1. The plaintiff's submissions in chief were in summary as follows:
1. The promises given by the defendants to indemnify the plaintiff were given in the various Deeds. The Deeds were provided by the defendants to the plaintiff so as to induce the plaintiff to issue the Policy of Insurance. A claim was made by the current Owners for defects in the building works. The plaintiff expended moneys in dealing with those defects. A demand was made upon each defendant by the plaintiff for indemnity under the relevant Deed. Each defendant has failed to pay the required money under the respective Deed and is liable in damages;
2. The definition of "building action" in Section 109ZI of the Act being an action for loss or damage arising out of or concerning defective building work is, if read in isolation, an extremely wide definition which could catch many types of actions which did not in substance relate to defective building work;
3. It is therefore necessary to construe the definition of "building action" in Section 109ZI of the Act when read into Section 109ZK (1)(a) of the Act in its proper context and to determine the intended purpose or object underlying the statute with a view to promote it;
4. In order to read the definition of "building action" in Section 109ZI of the Act in its context to promote the purpose or object underlying Part 4C of the Act, it is necessary to determine and understand the mischief that the amendment was designed to overcome;
5. The mischief which the legislation was designed to overcome was the effect of the judgment of the majority of the High Court in Bryan v Maloney (1994) 182 CLR 609. In that case the High Court permitted a subsequent purchaser of a house to sue a builder in negligence when defects appeared in the house many years after the house had been built by the defendant builder.
The majority of the High Court recognised that in Bryan v Maloney the time span in which liability by the builder to a subsequent owner might arise could be greater than if liability were restricted to the first owner: at 626;
1. The potential of an indeterminate time liability by the builder and other building professionals to a successor in title to the original owner was the mischief sought to be overcome by the limitation inserted in Section 109ZK of the Act. That limitation was imposed on the liability of persons who had undertaken building work or were concerned with the undertaking of building work not a person like a person in the position of the plaintiff who had been given an indemnity in relation to an insurance policy;
2. The legislative amendment in 1997 was clearly designed to avoid an indeterminate time liability for latent building defects;
3. This was confirmed by the history of the legislation. Sections 109ZI and 109ZK were enacted with Section 109ZJ in the Environmental Planning and Assessment Act 1997. Section 109ZJ(1) focuses on an award of damages in a building action. This was not the type of damages sought by the plaintiff in the present case. The current claim is a claim for breach of the contractual liability to indemnify in each of the Deeds;
4. If there is any ambiguity or doubt, the plaintiff's preferred construction is confirmed by the Explanatory note. This provides relevantly:
"The imposition of a limitation period of 10 years for any person's liability for damage arising from defective building work or subdivision work is designed to address the law concerning latent defects in which the current limitation period begins to run only when the defect becomes apparent.";
1. The aim of the amendments in Part 4C of the Act was to provide a protection for building professionals not persons who gave an indemnity to insurers;
2. The relevant defendants to a "building action" which the limitation is aimed at must be the persons who actually did or designed the "defective building work";
3. Only those persons would fall within Section 109ZJ as originally enacted;
4. None of the present defendants did any of the building works and therefore no cause of action for defective work could have accrued against them;
5. Therefore none of the defendants ever "did" anything of the character with which Section 109ZK is "concerned". They never did building work. Thus Section 109ZK is not available to any of them as a defence to the claims in these proceedings;
6. This conclusion reflects the circumstance that the text of Section 109ZK is not addressed to the time when a cause of action in respect of defective building works accrues. Its only concern is the termination of any right of action regardless of whether it accrued before, or might, but for the Section, accrue after the expiry of the 10 year period;
7. An action for the breach of a promise to indemnify under the Deeds is one that arises out of or concerns the making of that promise in the Deed rather than the doing of defective building work by someone other than the person promising to indemnify under the Deed;
8. That construction was consistent with the view of the Supreme Courts in Inter-Continental Travels Pty Ltd v Heuppauff [2000] SASC 7 at [21]-[23] and Australian Rail Track Corporation Ltd v Leighton Contractors Pty Ltd [2003] VSC 189 at [20]-[23]. In the latter case, Bongiorno J in the Victorian Supreme Court considered a similar provision to the present in Section 131 of the Building Act 1993 (Vic). His Honour stated as follows at paragraph [21]:
"[21] The Court of Appeal in Boral Resources Pty Ltd v Robak Engineering and Construction Pty Ltd agreed that the aim of s131 was to replace joint and several liability with proportionate liability in cases to which it applied so that a building practitioner would be found liable only for his or its proportionate share of a damages award. But such considerations can have no application where the victim of a building practitioner's negligence, nuisance, trespass or other tort is an outside party whose loss and damage is caused by defective building work in only an accidental, incidental or indirect sense." (emphasis added).
1. When the history of the legislation and the mischief it sought to overcome was understood and the legislation was read in its context in the light of the existing law, it was submitted by Senior Counsel for the plaintiff that it was clear that the legislation did not have the effect claimed by the defendants. Accordingly, the claim in the present case was not prevented and damages should be awarded against the defendants as sought.
Submissions for the defendants
1. Counsel for the defendants made in summary the following submissions:
1. The natural and ordinary meaning of the definition of "building action" in Section 109ZI of the Act was against the construction propounded by the plaintiff and supported the defendants' construction. The words "arising out of or concerning defective building work" were general words and had a wide operation;
2. The approach propounded by the plaintiff was to add words of limitation to the statute which was not justified by the statutory provisions in their context;
3. The legislative history of the provisions also did not assist the plaintiff. Section 109ZJ of the Act as enacted in 1997 was aimed at a quite different purpose to Section 109ZK. The two sections cover different areas. Section 109ZJ covered the apportionment of liability and Section 109ZK imposed a limitation on the time when a building action may be brought;
4. The word "damages" was used in Section 109ZJ(1) whereas the words used in the definition of "building action" in Section 109ZI was "loss or damage". Damages may be awarded in a building action in circumstances other than defective building work such as for incomplete building work or for delays;
5. It was accepted that the mischief behind Section 109ZK was the High Court's decision in Bryan v Maloney. That case was in negligence but the words in the definition "arising out of or concerning" have been widely interpreted to include claims in contract as well as tort: Brirek Industries Pty Ltd v McKenzie Group Consulting (Vic) Pty Ltd [2014] VSCA 165;
6. It is inappropriate to limit the definition as its clear mischief is to limit claims associated with defective building work;
7. Part 4C of the Act was clearly remedial legislation and as such should be construed with that broad purpose and given a liberal interpretation;
8. It was accepted that the definition must be limited in some way otherwise it could extend to matters which in substance were unconnected with defective building work. The appropriate way to do this which is consistent with the context of the Act is to adopt the limitation in paragraph [21] of Australian Rail Track Corporation Ltd v Leighton Contractors Pty Ltd [2003] VSC 189 being that Section 109ZK does not apply to an action by an outside party whose loss and damage is caused by defective building work in "only an accidental, incidental or indirect sense". Counsel for the defendants added that a distinction must be made between actions which have a direct causal link with defective building work and actions which have only an incidental or remote causal link with defective building work;
9. In the present case the loss and damage claimed by the plaintiff was not caused by defective building work in only an accidental, incidental or indirect sense but was directly connected with defective building work as that defective building work was only one step removed from the defendants' obligations to indemnify under the Deeds;
10. Therefore the action in the present case fell within Section 109ZK of the Act and could not be brought;
11. Wardley Australia Ltd v State of Western Australia (1992) 175 CLR 514 did not assist the plaintiff. That case only related to the accrual of causes of action in indemnities. The indemnity in the Deeds in the present case, was directly connected to defective building work.
Submissions of the plaintiff in reply
1. The plaintiff made the following submissions in reply:
1. The word "for" in the definition of "building action" in Section 109ZI of the Act denoted a direct connection between the cause of action and the defective building work. There was no direct connection in the present case;
2. Wardley v State of Western Australia was directly relevant. The cause of action did not arise under the indemnity until a demand was made. The same position was in the present case. The present cause of action was a claim for damages for breach of the contractual promise of the defendants not a claim for loss or damage arising out of or concerning defective building work;
3. Section 109ZK of the Act was in substance not a limitation provision. It prevents a building action being brought in relation to defective building work more than 10 years after the date on which the relevant final occupation certificate is issued whether a cause of action for defective work has accrued or is known;
4. The interpretation proposed by the defendants would amount to a windfall to indemnifiers. There is nothing in Part 4C of the Act or the Explanatory note to suggest any such purpose was intended. Very clear words would be required in the definition if an action under an indemnity was to be limited;
5. The definition of "building action" in Section 109ZI must be considered carefully. The text of the Section shows that the aim is to prevent an action for loss or damage arising out of or concerning defective building work not loss or damage arising out of a breach of a Deed of Indemnity. There is no relevant causal connection between an action for damages for breach of a Deed of Indemnity and defective building work. The liability of the defendants is not caused by defective building work but by a failure to pay under the indemnity. There is no action against the defendants when the defective work is done. The action only arises when there is a demand by the plaintiff under the promise in the indemnity and the defendants do not meet their obligation to indemnify under the Deeds;
6. There is no suggestion in the context of the legislation that it is intended to cover actions by persons other than building professionals and designers.
Consideration
1. The definition of "building action" in Section 109ZI of the Act must first be read into Section 109ZK(1)(a) of the Act: thus, "Despite any Act or law to the contrary, an action (including a counter-claim) for loss or damage arising out of or concerning defective building work may not be brought in relation to any building work more than 10 years after the date on which the relevant final occupation certificate is issued."
2. The context of the provision in the Act must be examined. The heading of Part 4C of the Act shows that when inserted into the Act it was intended to deal with matters relating to liability and insurance. This heading may be taken into account: Section 35 (1) of the Interpretation Act. However, the Part did not appear to deal with insurance generally. As Division 3 of the Part when enacted made clear, the Part dealt with insurance obligations of accredited certifiers and other building practitioners. This Division was repealed in 2005.
3. Section 109ZJ, which was in Division 2 of Part 4C of the Act under the heading "Liability" and related to apportionment of liability, was also inserted into the Act in 1997, and was repealed in 2002. This section appeared to deal with the apportionment of liability between persons who were responsible for loss or damage caused by building work, design or inspection work or related work, not an action of the type in the present proceedings.
4. Section 109ZL of the Act, which provides in effect that Division 2 of Part 4C of the Act, does not affect rights to recover damages for death or personal injury, gives some guidance of the purpose of Section 109ZK. An act or omission causing death or personal injury is quite different to the action in the present proceedings.
5. These contextual and historical matters seem to indicate that the Section 109ZI definition of "building action" was not aimed at proceedings of the type in the present proceedings.
6. It was accepted by both parties that some limitation must be read into the natural and ordinary meaning of "building action" in Section 109ZI of the Act as inserted in Section 109 ZK (1) (a) of the Act. That is because if the phrase "loss or damage arising out of or concerning defective building work" was given its natural and ordinary meaning in isolation it would cover, because of the general words used, a number of causes of action which could not have been objectively intended to be prevented. For example, if a wide interpretation was given to the definition it would prevent causes of action:
1. For damages for breach of a Deed of Settlement between an insurer and an indemnifier after the expiry of the 10 year period relating to a cause of action similar to the current proceedings;
2. It would prevent a solicitor's firm being sued for damages for breach of contract by a law copier for copying documents relating to proceedings for defective building work.
1. A proper limitation to the general words in the definition of "building action" must be ascertained from reading the definition in the context of the statute as a whole and having regard to the purpose or object underlying the Act and the mischief sought to be overcome by the insertion of Part 4C into the Act.
2. As the plurality of the High Court said in CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384 at 408:
"Moreover, the modern approach to statutory interpretation (a) insists that the context be considered in the first instance, not merely at some later stage when ambiguity might be thought to arise, and (b) uses "context" in its widest sense to include such things as the existing state of the law and the mischief which, by legitimate means such as those just mentioned, one may discern the statute was intended to remedy."
1. CIC Insurance was quoted with approval by McColl JA in the AQO case at [75].
2. It is clear, and is accepted by the parties, that the mischief which Part 4C was intended to remedy was the decision of the High Court in Bryan v Maloney (1995) 182 CLR 609. That case raised the spectre of a potential "indeterminate time liability" for builders and building professionals to successors in title. That was the mischief which Section 109ZK sought to overcome. The case was important not just to bare liability but also to the potential need for building professionals to have insurance cover for lengthy periods including lengthy run off insurance cover.
3. The present action in my view has only an indirect connection with such defective building work. On its proper characterisation, the present action relates to a breach of the indemnification obligation in the Deeds.
4. This in my opinion is made clear by clause 2 of each of the Deeds which creates an obligation in each of the defendants to indemnify the plaintiff for loss and damage incurred or paid "as a result of any claim arising under the Policy". The proposal by the defendants to adopt as a limiting factor the words of Bongiorno J in the Australian Rail Track Corporation case at [21], being that the limitation does not apply to loss or damage caused by defective building work in only an accidental, incidental or indirect sense in my view is not completely satisfactory and itself seeks to impose a gloss upon the statute.
5. A better approach, in my view, is to undertake a characterisation of the cause of action in question under consideration. Is the action in substance an action for loss or damage arising out of or concerning defective building work or is the action in substance an action for damages for failure to meet a legal (such as a contractual) obligation which is only indirectly connected to defective building work? In my view, the present case falls within the latter description.
6. The suggestion by counsel for the defendants that an action is prevented by Section 109ZK only if it has a direct causal link to defective building work but does not apply where the cause of action has an incidental causal link to defective building work appears on the whole to be unsatisfactory. It is said that defective building work is a material fact to the cause of action in the present case. It seems to be correct that but for defective building work the obligation of indemnification under the Deeds would not arise. However, in my view, that should not be the touchstone as it would prevent numerous actions which have only a tangential connection to defective building work. Here, the action rests on the defendants' breach of the indemnification promise in the Deeds not on defective building work alone.
7. The obligation on the defendants to pay under the Deeds arises on the relevant defendant receiving a demand from Dexta for the plaintiff: Clause 3(c) of the Deeds. That is the contingency which gives rise to the obligation to indemnify. The cause of action only accrues to the plaintiff at that time as the cause of action only accrued to the State of Western Australian in Wardley v State of Western Australia (1992) 175 CLR 514 when the loss of the party there to be indemnified was ascertained and quantified.
8. There is nothing in the text of the relevant statutory provisions or the context of the Act which would suggest the limitation of the current cause of action propounded by the defendants.
9. It is submitted by counsel for the Defendants that such a construction would leave a person in the position of the defendants with a liability where they were unable to seek contribution from the party causing the defective building work. This may be correct but the mischief the legislation was aimed to meet was the indeterminate liability of building professionals and related designers and certifiers.
10. The above interpretation is, in my view, confirmed by the Explanatory note to the Environmental Planning and Assessment Amendment Bill 1997 which gave rise to the 1997 Amendment Act. That makes clear that the imposition of a limitation period of 10 years under the proposed Section 109ZK in the amendment Act was designed to address the law concerning latent defects in Bryan v Maloney in which the then current approach was that the "limitation period begins to run only when the defect becomes apparent". It was apparently from the note not intended to cover causes of action of the type in the current proceedings.
11. For the above reasons, in my opinion Section 109ZK(1) does not prevent the current claim by the plaintiff against the defendants.
12. Accordingly, having regard to the limited issue before the court, I make the following orders:
1. Judgment for the plaintiff against each of the defendants in the amount of $185,000;
2. The defendants are to pay the plaintiff's costs of the proceedings as agreed or assessed;
3. Liberty to the parties to apply to vary order (2) above, on giving three business days' notice.
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Amendments
05 April 2018 - The paragraph numbering has been altered to agree with the original reasons for decision. This has involved deleting a paragraph number attributed to the headings prior to paragraph 2 and paragraph 5.
05 April 2018 - Subparagraph letters in paragraph 45 have been altered to agree with the original reasons for decision.
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: 05 April 2018
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