In what seems to be the first decision of its kind, the Supreme Court has, in Introbuild Constructions Pty Ltd v Insurance and Care NSW [2025] NSWSC 773, rejected a builder's judicial review challenge to a Home Building Compensation Fund (HBCF) eligibility decision.
With no administrative review pathway provided in the legislation, the decision suggests that there is little effective means of challenging eligibility decisions.
Facts of the case – Introbuild Constructions Pty Ltd v Insurance and Care NSW [2025] NSWSC 773
The plaintiff was a contractor required to have a policy of insurance under the Home Building Compensation Fund Insurance (HBCF insurance) in order to enter into residential building contracts exceeding $20,000, under section 92 of the Home Building Act 1989 (NSW) (HBA).
The plaintiff's director was formerly the director of another company, which provided labour hire services. In 2020, the director instructed his accountant to remove him as the director of that company, but the notice was not lodged until 2023. The labour hire company entered into administration shortly after.
Within three days of its entry into administration, icare (the first defendant) initiated a 'special eligibility review' into the plaintiff's eligibility for HBCF insurance.
Within four days, the plaintiff's eligibility for HBCF insurance was suspended as 'unacceptable risk scenarios' outlined in section 9.1 of the HBCF Eligibility Manual were considered present including that:
Over the next few months, the plaintiff made multiple unsuccessful applications to icare to have its HBCF insurance eligibility reinstated, despite providing financial documents and a letter from the director's accountant in support.
The plaintiff then requested that icare internally review its decision to refuse reinstatement. icare conducted an internal review and confirmed its decision in a letter to the plaintiff.
The plaintiff sought judicial review of icare's decision to uphold its earlier ineligibility decision and sought orders of certiorari and mandamus.
Issues
The plaintiff's grounds of review pressed at hearing were:
- the ineligibility decision lacked "a proper evidentiary foundation" or was "not open on the material", with particular relevance to the finding of phoenix activity
- the decision-maker misconstrued and misunderstood the insurance eligibility guidelines issued by the State Insurance Regulatory Authority under the HBA, resulting in an "improper exercise of statutory power".
Decision
Ground 1: Finding of "phoenix activity" lacked proper evidentiary foundation
In its submissions, the plaintiff argued that it was not open to icare to find that the plaintiff engaged in phoenix activity. The Attorney-General for NSW (third defendant) argued that there was no phoenix activity finding in the decision, and even if there was an erroneous finding of phoenix activity, that finding was immaterial to the ineligibility decision.
The Court dismissed this ground of review, determining that there was, in fact, no finding of phoenix activity in the passages of the ineligibility decision and that icare's references to anti-phoenixing laws were used to confirm the approach that the resignation of a directorship was effective on the lodgement date with ASIC.
The Court accepted that icare had provided reasons, unrelated to phoenix activity, for the ineligibility decision by its statement that there were present "unacceptable risk scenarios" within the meaning of clause 9.1 of the eligibility manual.
Ground 2: Misconstruing or misunderstanding the purposes of the eligibility guidelines
In responding to this ground of review, the Court provided an overview of the eligibility guidelines:
- the eligibility guidelines were issued under sections 103EC, 103ED and 104E of the HBA
- the guidelines apply to all insurers who are the holder of a licence and includes the NSW Self Insurance Corporation
- the NSW Self Insurance Corporation is to comply with the eligibility guidelines in exercising its functions with respect to insurance under the HBA
- insurers' eligibility models must comply with the overarching eligibility principles in the eligibility guidelines.
The plaintiff argued that icare misconstrued the eligibility guidelines by failing to consider matters beyond clause 9.1 of the eligibility manual.
Specifically, the plaintiff said that the following two eligibility principles should have been considered:
- principle 3: eligibility is assessed reasonably (clause 5.9)
- principle 6: eligibility supports a strong and viable residential building industry (clause 5.13).
The Court did not accept the plaintiff's argument that adherence to the eligibility guidelines was a pre-condition to the valid exercise of the decision-maker's power in determining HBCF eligibility. Rather, the eligibility guidelines require the insurer's eligibility models to comply with the overarching principles.
Clauses 5.9 and 5.13 were found not to impose direct obligations upon the insurer when determining eligibility for HBCF insurance, nor did non-compliance with those clauses make an eligibility decision invalid.
The plaintiff argued that icare's use of the word "fatal" in its decision to describe the unacceptable risk scenarios implied that it did not consider any other matters under the eligibility guidelines when making the decision. The Court did not accept this argument and said that it was apparent that icare did consider other matters beyond clause 9.1 of the eligibility manual. For example, icare said it received and considered the additional information submitted by the plaintiff. icare also addressed the explanation referred to in its earlier eligibility decision, being the accountant's failure to lodge the directorship documentation. The Court also considered that icare's conclusion that "the eligibility considerations per section 12.1 of the [eligibility manual] are not applicable" to the plaintiff indicated that it had turned its mind to clause 12.1, thus considering matters extending beyond clause 9.1.
The Court also accepted the Attorney General for NSW's argument that even if there was a misunderstanding of the eligibility guidelines by the decision-maker, this would not invalidate automatically the eligibility decision, given section 8A(3) of the SIC Act.
Here, the power being exercised by icare was "with respect to insurance under Part 6" of the HBA and the eligibility guidelines were 'Insurance Guidelines' issued under the HBA.
The plaintiff attempted to "escape the engagement of s 8A(3)" by arguing that icare had misconstrued or misunderstood the eligibility guidelines, rather than failing to comply with them. The Court did not accept this argument, finding that:
Accordingly, the Court dismissed both of the plaintiff's grounds of review.
Takeaway
Given that a policy of insurance under the HBCF is permission to play in the residential sector, insured contractors must take eligibility seriously and not just at renewal time. The facts of this case arose from a special eligibility review, initiated on the detection of an insolvency event in a company related to one of the builder's directors. Insured contractors must therefore continuously monitor and protect their eligibility, including considering the impact of related party events which may be unrelated to their operations.
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