The NSW Court of Appeal recently handed down its decision in Dino Dinov v Allianz Insurance Limited [2017] NSWCA 270. In this case, the Court looked at whether an insurer’s claim to be indemnified for payments that it had made to rectify defective building work, was time-barred by operation of Section 109ZK(1) of the Environmental Planning and Assessment Act 1979 (the EPA Act).

Facts

In 2002, Great Wall Constructions (the builder), constructed a residential strata title development at Lilyfield. As a requirement of the Home Building Act 1989 (NSW), the builder was required to take out an insurance policy. Allianz, the respondent in this case, provided the policy on the condition that the appellants (the indemnifiers), who were directors and shareholders of the builder, would provide indemnities. The policy was issued on 2 December 2002.

Development of the site completed in late 2003 and a final occupation certificate was issued on 18 December 2003.

In July 2009, the Owners Corporation made a claim against Allianz for indemnity under the policy in respect of building defects. Great Wall had since been deregistered. Allianz accepted liability under the policy and settled with the Owners Corporation.

At first instance

Allianz made a demand upon the indemnifiers pursuant to their deeds of indemnity to recover the costs paid to the Owners Corporation. The indemnifiers refused to indemnify Allianz who subsequently commenced proceedings in the District Court.

The indemnifiers argued that Allianz’s claim against them was barred by the limitation within section 109ZK(1) of the EPA Act. The limitation prohibits a “building action” from being brought more than 10 years after the date of issue of the final occupation certificate.

The primary judge held that the section did not prevent Allianz’s claim as it was not a “building action” within the meaning of the Act, and subsequently awarded in favour of the insurer.

On Appeal

The indemnifiers appealed on the basis that the primary judged erred in his construction of the definition of “building action” within the EPA Act.

The Court of Appeal looked to the context and purpose of “building action” within Part 4C of the EPA to determine how it was to be construed. It held that the provisions of Part 4C were introduced to protect those engaged in the performance of building work, through the instruments of proportionate liability and limitation periods. It was accepted that the intention of Part 4C was to remedy the “mischief” set out in Bryan v Maloney (1995) 182 CLR 609, which had raised an “indeterminate time liability” for builders and building professionals to successors in title. Section 109ZK sought to overcome that liability.

Therefore in achieving that statutory purpose, there was no requirement to extend that protection in an action for damages involving parties who did not contract to perform, nor have any contractual liability for the performance of residential building work, as was the present case.

The Court held that the action brought by Allianz against the indemnifiers was based on the indemnifier’s refusal to pay the amount that Allianz had paid the Owners Corporation pursuant to the policy. That action was characterised as an action for damages for breach of the contract to indemnify. It was acknowledged that neither Allianz nor the indemnifiers were parties to the building contract itself.

McDougall J held that the correct approach to construction is that the connecting factor must be construed so as to give effect to the purpose of the legislation. The purpose of s 109ZK of the EPA was to impose a time restriction for the protection of those who otherwise would have a legal liability in damages for defective building work.

Therefore it was held that where an action is brought against someone who did not perform defective building work by a plaintiff who is not seeking damages for such defective work, s 109ZK cannot be applied. On these grounds, the appeal was dismissed.