Background

The applicant, Cathy O’Connell, was the owner of two adjoining residential properties at 11 Lincoln Place and 14 Mary Street, Windsor. She intended to redevelop the properties and entered into separate domestic building contracts with Lentelle Pty Ltd (Builder).

During construction, significant difficulties arose. Ms O’Connell was unhappy with the works and ultimately terminated the building contracts, alleging multiple breaches by the Builder. Among those breaches were complaints about defective construction work and failures to comply with contractual and statutory obligations.

Ms O’Connell commenced proceedings in the County Court of Victoria in late 2022 against the Builder, seeking damages for breach of contract and defective works.

In May 2024, the Builder was placed into liquidation and the proceeding against it was stayed. Ms O’Connell was ultimately paid out by the domestic building insurer in respect of her claims against the Builder.

The proceeding progressed through a number of interlocutory steps and a joint report identified that the underground plumbing in both properties had become the primary issue between the parties. In September 2024, Ms O’Connell joined three plumbers, being Nix Plumbing (Nix) (insured by Berkley Insurance Australia), JD Fenton Plumbing (JDF) (insured by Chubb) and Ward Trevaskis (Trevaskis) (insured by WFI), as defendants to the proceeding.

Ms O’Connell subsequently sought to join the plumbers’ insurers (with Protecsure in place of Berkley Insurance Australia) to the proceeding in order pursue a direct claim against them under the Licensed Plumbers General Insurance Order 2002 (Vic) (Ministerial Order) after she asserted that the plumbers refused to claim on their respective policies. That alleged refusal occurred before the plumbers were joined as defendants to the proceeding and despite the plumbers subsequently making claims on their policies, with the claims made by Nix and JDF being accepted. Trevaskis’ claim was denied.

Trial judge’s decision

At first instance, Judge Kirton refused the joinder of the insurers.

In summary, that was on the basis that:

1. Under the Ministerial Order, an owner can only make a claim on the insurance in limited circumstances, including where the plumber refuses to make a claim;
2. In this case, each of the plumbers had made a claim;
3. Where the insurers have already made a decision to accept the claim by their insured plumber (which was the position with respect to Chubb and BIA), there is no utility in joining them as parties to the proceeding, as the Court does not have power to make any order against the insurers in favour of the owner;
4. Where an insurer refuses to grant indemnity to the plumber, then the only person entitled to seek review of that decision is the plumber;
5. The question of whether the policies issued by the insurers comply with the Ministerial Order, and the associated question of the limits of indemnity under each of those policies, is not a matter which gives rise to a cause of action by Ms O’Connell;
6. The application for joinder of Protecsure was misconceived as Protecsure is not an insurer, much less Nix’s insurer; and
7. WFI’s determination that Trevaskis was not entitled to be indemnified under the WFI policy was well-founded. The plumbing defects complained of were the work of JDF, not Trevaskis. Additionally, the works took place approximately 18 months prior to the issue of the allegedly misleading compliance certificate. This meant that Ms O’Connell did not rely upon the compliance certificate. Consequently, she had not suffered loss and damage by reason of any misleading and deceptive conduct by Trevaskis in issuing the certificate.

Ms O’Connell subsequently sought leave to appeal to the Court of Appeal. The insurers intervened to oppose the application.

Issues on appeal

The issues on appeal were:

1. Does the Ministerial Order permit a building owner to bring a direct claim against plumbers’ insurers before the plumbers’ liability is established?
2. Did the plumbers refusal to make a claim trigger clause 9 of Schedule 2 of the Ministerial Order?
3. Were the insurers’ policies ‘junk insurance’ or otherwise non compliant with the Ministerial Order?
4. Did the primary judge err in refusing the joinder of the parties or deny Ms O’Connell procedural fairness?
5. Were the costs orders against Ms O’Connell incorrect?

Decision on appeal

Ms O’Connell’s application for leave to appeal was dismissed.

The principal findings of the Court of Appeal were:

Nature of the Ministerial Order

The Ministerial Order is a statutory instrument which requires plumbers to hold certain insurance cover as a condition of licensing. The relevant insurance policy must indemnify the plumber not the building owner with respect to the relevant categories of liability and for the minimum amounts specified in the Ministeral Order. Otherwise, the Ministerial Order specifies certain terms that it must contain (Schedule 2), may contain (Schedule 3) and must not contain to the effects specified (in Part 4).

If a plumber does not have the insurance cover specified in the Ministerial Order (and/or on the terms required or prohibited), the consequence is that the plumber is not eligible to be licensed. Any such failure, in this instance, was not actionable by Ms O’Connell and did not give rise to any enforceable rights on her behalf.

Ms O’Connell’s rights against the insurers were limited to whatever rights she had to enforce the policies between the insurers and the plumbers.

To that end, whilst the purpose of the Ministerial Order is to provide some protection to home owners who have suffered loss and damage as a result of defective plumbing work, by ensuing that some funds will be available to compensate home owners in that event, it does not remove the need for that person to prove that they have suffered loss and damage as a result of defective plumbing work carried out by the builder.

With that in mind, Ms O’Connell’s contention that Chubb was obliged to pay out her claim without it being necessary to establish any legal liability on the part of JDF was based on a fundamental mistake in relation to the operation of the Ministerial Order (in particular clause 9 of Schedule 2). Any such interpretation “fundamentally alters the character of the policy by creating an obligation to pay out under that policy even if the liability of the plumber has not been established“.

To that end, the findings of the joint expert report did not bind the plumbers or establish their liability. That can only be done upon an admission of liability or, failing that, by determination at trial.

Refusal to make a claim

Clause 9 of the Ministerial Order allows a claimant to enforce the policy directly against the insurer in certain specified circumstances, including whether the plumber refuses to make a claim against the insurer.

A plumber does not “refuse to make a claim” merely by failing to notify insurers immediately in response to a demand. Having regard to the purpose of the Ministerial Order, the “refusal” is not, in fact, a plumber’s refusal to make a claim for cover, the right to which would crystalise only if liability is later established, but the refusal to enforce the indemnity that arises once the plumber has actually been found liable for causing loss of a kind covered by the policy. That is consistent with clause 9 of Schedule 2, insofar as the relevant indemnity can only be enforced after the liability of the plumber has been established (because it is only then the plumber is entitled to be indemnified for that liability).

‘Junk insurance’

The policies held by the plumbers providing a minimum of $50,000 cover for any claim for the liabilities specified in clauses 10(a) and (b) and 11 – being liability to pay for defective plumbing work, trade practices liability and liability arising from any consequential financial loss (being the liabilities specified under sub-clauses 10(a) and (b) – complied with the Ministerial Order and could not, therefore, be considered ‘junk insurance’.

Summary

In summary, the Court of Appeal found that the Ministerial Order does not give a homeowner a freestanding right to recover directly from insurers before the plumbers’ liability is established.

In this case, the plumbers had not “refused to make a claim” in the relevant sense, the insurers’ liability was conditional on proof of any liability they had at trial, and joining the insurers would have served no practical purpose.

This article was written by Ashley Harding, Partner, Rachel Patterson, Special Counsel, and Michael Cesarios, Law Graduate.