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Residential Focus: Section 54 and insurance required by the Home Building Act

29 August 2023

14 min read

#Property, Planning & Development

Published by:

Meru Sharma

Residential Focus: Section 54 and insurance required by the Home Building Act

The application of section 54 of the Insurance Contracts Act to the insurance required (in its various iterations) by the Home Building Act has been debated for years. The most recent decision on this topic concerns the pre 1 July 2010 scheme (pre HBCF).

In Drummond v Gordian Runoff Ltd [2023] NSWSC 607, the Supreme Court considered the application of section 103BB of the Home Building Act 1989 (NSW) (HBA) in light of section 54 of the Insurance Contracts Act 1984 (Cth) (ICA).

This debate concerned whether the relevant HBA section, which provided that an insurance claim may only be made during the period of insurance, was contrary to the relevant ICA section, which prevents the decline of a claim but allows for a reduction for prejudice “where the effect of a contract of insurance would, but for this section, be that the insurer may refuse to pay a claim” in relation to an “act of the insured or of some other person”.

Section 103BB was introduced following decisions that interpreted the HBA as allowing for claims to be made under home warranty insurance at any time, including outside of the insurance period of cover.


The owners did not notify the insurer of their claim within the period of insurance, as required under section 103BB. Rather, they successfully pursued a claim against the builder for rectification work in the NSW Civil and Administrative Tribunal. Prior to completing the rectification work, the builder entered into external administration. The owners made a claim with the insurer three years after the expiry of the period of insurance, which was rejected.

The owners argued that:

  • section 54 prevented the insurer from rejecting a claim on the basis that the claim does not comply with section 103BB; or in the alternative
  • section 103BB was inconsistent with section 54. Accordingly, section 109 of the Commonwealth Constitution applied to render section 103BB invalid, to the extent of inconsistency.

How do section 54 and section 103BB work together?

In considering the owners’ first argument that section 54 prevented the insurer from rejecting the claim under section 103BB, the Court began by considering whether section 103BB operates to imply terms within the policy or operates outside the insurance contract and directly alters the rights and obligations of the parties. This question was pertinent because section 54 only applies “where the effect of a contract of insurance would, but for this section, be that the insurer may refuse to pay a claim”. The explicit reference to a “contract of insurance” meant that the source of refusal must lie within the contract and not a statute. Accordingly, the owners argued that section 103BB was implied into the contract of insurance and thus the insurer had rejected their claim on the basis of the contract of insurance, enlivening section 54.

The Court found against the owners’ argument, holding that section 103BB did not imply terms within the contract of insurance but directly altered the rights of the owners. In contrast to section 18 of the HBA (statutory warranties implied into building contracts) and section 13 of the ICA (relating to a duty of utmost good faith implied into insurance contracts), section 103BB contained no explicit language that would evince a statutory intention to insert terms into a contract.

Rather, section 103BB changed the circumstances in which the policy was to operate, but did not change the policy itself. Even if a contract of insurance is presupposed, the insurer's entitlement to refuse to pay a claim was found to be sourced in the statute rather than in contract.

Accordingly, section 54 does not apply to soften the effect of section 103BB of the HBA. Since the insurer is prohibited from paying the owners’ claim by statute, not by the contract of insurance, the circumstances contemplated in section 54 were not engaged.

Are section 54 and section 103BB inconsistent?

In the alternative to the first argument, the owners argued that 103BB was inconsistent with section 54, such that section 109 of the Commonwealth Constitution was enlivened to hold section 103BB invalid, to the extent of its inconsistency.

The Court found that there is no indirect inconsistency because the ICA was not intended to be a complete statement of the law regarding insurance. To illustrate, section 7 of the ICA confirms that the ICA is not intended to exhaustively create a code for insurance contracts but rather merely deal with certain aspects of them.

The Court also found that there was no direct inconsistency. Section 103BB is concerned with circumstances outside of the contract of insurance, whereas section 54 is primarily concerned with the contract of insurance. When section 103BB applies to the rights or obligations directly, it does not impair the functioning of section 54. Accordingly, there was no inconsistency and section 109 was not enlivened.

Authors: Christine Jones & Meru Sharma

In the media

No penalties for areas that resist high-density housing
Inner-city councils will not be penalised into meeting housing targets, despite high taxpayer burden of mass building on outer-suburban fringes. The NSW government wants to shift more residential development to suburbs close to the Sydney centre, where infrastructure-related costs are lower because essential services are already in place (28 August 2023).  Read more here.

Local councils divided after government report identifies cost-effective suburbs for new infrastructure
The report from the NSW Productivity Commission published a report on 28 August 2023 that found the costs of infrastructure to support new homes are lowest in the CBD, parts of the Lower North Shore, Eastern Suburbs and Inner West (28 August 2023).  Read more here.

NSW coastal communities join forces to fight against rise of development approvals
Community groups along the NSW coastline are calling for planning reforms to stop the revival of ‘zombie development applications’. The Coastal Residents United group is calling for planning-law reform to stop projects approved decades before, before many of today’s environmental, cultural or other impact assessments were required (24 August 2023).  Read more here.

Calls to ban gas in new buildings in NSW and what it will mean for households
Debate has emerged after the City of Sydney council voted to begin the process of making all new homes and businesses gas free. Similar measures are in place in Waverley and Parramatta councils, as well as Victoria and the ACT (23 August 2023).  Read more here.

Waterloo Estate redevelopment to add 1500 social, affordable homes, but current residents say they don’t want the building demolished
The NSW government announced the renewal of the Waterloo Estate which will convert the current 749 public housing developments to at least 1500 public and social housing, among the privately-owned apartments. Current residents will be located in nearby social housing homes around mid-2024.  Read more here.

Master Builders Australia supports the government’s move to boost housing supply
The Master Builders Australia (MBA) has issued statements approving the federal government’s efforts to tackle the supply-side issues plaguing Australia’s housing market. The National Cabinet announced that the states and territories will be entitled to a “new home bonus” of around $3 billion to help the nation reach the new target of 1.2 million additional homes built in the next five years (18 August 2023).  Read more here.

South West Rocks residential complex gets nod after resurrection of 30-year-old 'zombie DA'
A controversial residential development in South West Rocks, NSW, is set to become a reality. The project will include 18 two-storey townhouses and 12 resort-style townhouses on a five-hectare strip close to the Trial Bay Front Beach. The Kempsey Shire Council has voted to approve the project, with 72 development conditions (16 August 2023).  Read more here.

In Practice

AAT Bulletin Issue No. 17/2023
(28 August 2023). Read more here.

Decisions reserved as at 18 August 2023
The Court of Appeal maintains a list of matters before the Court for which judgement is reserved (18 August 2023). Read more here.

Reissued Practice Note SC WQ 12 – Real Property List
The Chief Justice reissued this Practice Note on 17 August 2023, commencing on 18 August 2023. The revised Practice Note updates requirements for submitting consent orders, provides procedure for remote appearances and updates the procedures for interlocutory applications (17 August 2023). Read more here.


NSW Productivity Commission’s latest report confirms density close to CBD lowers infrastructure costs
The NSW Government welcomed the release of the latest housing study: “Building more homes where infrastructure costs less – comparing the marginal costs of servicing growth in different areas of Sydney”. The NSW Productivity Commission’s conclusion that building closer to Sydney’s CBD can save up to $75,000 in infrastructure costs per new home reinforces the NSW Government’s commitment to rebalance housing targets around transport links (28 August 2023). Read the media release here. Read the housing study here.

Statutory Reviews into native vegetation management and biodiversity laws tabled
Two statutory reviews into native vegetation management and biodiversity conservation laws were tabled in the NSW Parliament on 24 August 2023. The independent review of the Biodiversity Conservation Act concluded it was not meeting its primary purpose of maintaining a healthy, productive and resilient environment. It makes 58 recommendations, including changes to the Biodiversity Offset Scheme (24 August 2023). Read more here.

Collaboration to deliver for community at Rozelle Parklands
The Minns Labor Government will work with the Inner West Council and Transport for NSW to undertake a new masterplan for Rozelle Parklands to salvage the project that was not going to provide the sporting facilities, accessibility and car parking that the community was promised (22 August 2023). Read more here.

New home sales foreshadow a weak 2024 for home building
The Housing Industry Australia’s Home Sales report revealed a decline in sales in the three months to July 2023, down by 33.4% nationally compared to 2022 (22 August 2023). Read more here.

Australian Institute of Architects signs landmark Commonwealth pact to counter climate impact as urban populations set to double
The Australian Institute of Architects has signed an agreement, which has been signed by over 15 members of the Commonwealth Association of Architects, to enable vital knowledge and expertise to be shared between Commonwealth countries to address global challenges of rapid urbanisation and environmental degradation. The agreement consists of a Memorandum of Understanding (21 August 2023). Read more here.


Amirbeaggi v NSW Self Insurance Corporation [2023] NSWCATAP 230
APPEALS – stay – procedural directions made in face of assertion Tribunal lacked jurisdiction – jurisdiction of Appeal Panel if assertion correct – application for stay ill-conceived.
Civil and Administrative Tribunal Act 2013 (NSW); Home Building Act 1989 (NSW); Uniform Civil Procedure Rules 2005 (NSW).

Feng v Haghparast [2023] NSWDC 310
APPEALS – appeal from decision of an Assessor in the Small Claims Division of the Local Court – grounds of appeal limited by statute – application of s 39(2) of the Local Court Act 2007 (NSW) – appealed decision was not within the jurisdictional remit of the Small Claims Division – denial of procedural fairness not established – summons and appeal dismissed.
Home Building Act 1989, (NSW) s 7B; s 18B; Local Court Act 2007 (NSW), s 39(2); Health and Safety Regulation 2017 (NSW), cl 308.

Nu-Stone Building Pty Ltd v McInerney [2023] NSWSC 940
APPEALS – leave to appeal from decisions of NSW Civil and Administrative Tribunal (“NCAT”) Appeal Panel to Supreme Court – whether Appeal Panel gave adequate reasons – statutory obligation on Appeal Panel to provide the reasoning process that led it to the conclusions in made in its written reasons – review of written reasons as a whole – leave to appeal granted – appeal allowed.
Civil and Administrative Tribunal Act 2013 (NSW), ss 27(1), 34(1)(c), 62, 78, 80, 81, 83; Home Building Act 1989 (NSW), ss 42A, 48K, 48L; Administrative Decisions Review Act 1997 (NSW), s 63; Residential Tenancies Act 2010 (NSW).

Read v Gitman [2023] NSWDC 330
TORT – defamation – Plaintiff is the chair, secretary and treasurer of the owners committee of a small apartment block – three publications by the strata manager to owners, a tenant and unit managers concerning her conduct of strata matters – qualified privilege at common law – malice – defence of justification to one imputation – damages.
Defamation Act 2005 (NSW), ss 10A, 34, 35, 38, 39; Home Building Act 1989 (NSW), ss 3, 4, 10, 92(1)(a); Property and Stock Agents Act 2002 (NSW), ss 3B(1), 8(1), 32(1), 86(1), 103(3), 104(1)(a); Property Stock and Business Agents Regulation 2014 (NSW); Strata Schemes Management Act 2015 (NSW), ss 30(4), 33(2), 178(1)(c), Schedule 1, ss 11, 21; Uniform Civil Procedure Rules 2005 (NSW), rr 17.6, 31.10.

Rauf v Vartanian; Vartanian v Rauf [2023] NSWCATAP 238
APPEALS – BUILDING AND CONSTRUCTION – contract not in writing – need to prove loss or damage arises – new decision substituted.
Civil and Administrative Tribunal Act 2013 (NSW); sections 36 (1), (2),(4), 38 (2), (5), 80, Schedule 4 clause 12 (1),

H & M Constructions (NSW) Pty Ltd v Golden Rain Development Pty Ltd (No 4) NSWSC 925
BUILDING AND CONSTRUCTION – design and construct contract – practical completion – superintendent to issue certificate of practical completion or give reasons for not doing so – superintendent issued “conditional” certificate of practical completion – purported retrospective date of practical completion on satisfaction by builder of specified conditions – contractual status of conditional certificate – whether Court can in any event determine when practical completion took place.
CONTRACTS – “prevention principle” – whether developer took over builder’s obligations and prevented builder from performing those obligations.
ESTOPPEL – whether developer induced builder to understand that effect of conditional certificate was to fix time for determination of liquidated damages and delay costs.
UNCONSCIONABLE CONDUCT – whether developer engaged in unconscionable conduct.
Australian Securities and Investments Commission Act 2001 (Cth); Competition and Consumer Act 2010 (Cth), Sch 2 – Australian Consumer Law; Environmental Planning and Assessment Act 1979 (NSW).

Singh v Commissioner for Fair Trading [2023] NSW CATOD 123
ADMINISTRATIVE LAW – Home building – application for individual contractor licence – application of Instrument – experience requirements – ‘wide range of building construction work’.
Administrative Decisions Review Act 1997; Home Building Act 1989; Licensing and Registration (Uniform Procedures) Act 2002.

Heather v Taylor Industries Pty Ltd [2023] NSWSC 96C
BUILDING AND CONSTRUCTION – Grosvenor or Brodyn stay – couple enter into contract for home renovation – payment claim for variations – adjudication determination and judgment in favour of builder – principles at [45] –[46] – cashflow problems natural consequence of principal withholding payment – not satisfied of “certainty” that judgment sum not recoverable if plaintiffs succeed in substantive proceedings.
Building and Construction Industry Security of Payments Act 1999 (NSW), s 20(2B); Home Building Act 1989 (NSW), s 42A.


NSW Regulations and other miscellaneous instruments
Water Management (Murray River Traffic) Regulation 2023 (NSW) (No 479) – published LW 25 August 2023
Natural Resources Access Regulator Regulation 2023 (NSW) (No 473) – published LW 25 August 2023
Community Housing Providers (adoption of National Law) Regulation 2023 (NSW) (No 465) – published LW 25 August 2023

Environmental Planning Instruments
State Environmental Planning Policy Amendment (Agritourism) 2023 (2023-458) – published LW 18 August 2023

The information in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this newsletter is accurate at the date it is received or that it will continue to be accurate in the future.

Published by:

Meru Sharma

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