By Stephen Aroney, Partner and Leon Chen, Associate

In 374, 376 New South Head Road Pty Ltd v SMLXL Projects (NSW) Pty Ltd [2025] NSWSC 886, William J held that 374, 376 New South Head Road Pty Ltd (the Developer) failed to establish an arguable case that its claims against SMLXL Projects (NSW) Pty Ltd (the Contractor) (who had been placed into liquidation less than a week after the expiration of its insurance policy) would have been indemnified by its professional indemnity insurance Insurer. This decision highlights the strict hurdles facing third party claims under the Civil Liability (Third Party Claims Against Insurers) Act 2017 (NSW) (TPC Act).

Facts                                                                                                      

On 23 December 2020, the Proprietor entered into a design and construct contract with the Contractor to carry out certain design and construction works at 374 and 376-382 New South Head Road, Double Bay (the Contract).

On 4 July 2023, the Contractor went into liquidation. The Developer subsequently commenced these proceedings, seeking leave pursuant to sections 4 and 5 of the TPC Act, to recover loss and damages from the Contractor’s Insurer who (the Developer argued) would have been responsible for indemnifying the Contractor for the following six categories of claims totalling over $4,500,000:

1. Liquidated damages for failing to achieve practical completion;
2. Glazing and acoustic designs which were not fit for purpose and not compliant with the development and planning instruments;
3. Balcony designs which were inadequate, defective and not fit for purpose;
4. Mechanical ventilation designs and implementation which was inadequate, defective, and not fit for purpose;
5. Water ingress issues resulting in mould and impacting long-term durability of the wall systems; and
6. Concrete façade issues regarding insufficient surface finishes resulting from a failure to properly supervise works.

In order for the Developer to be granted leave, the Developer needed to establish three elements (at [54]):

1. that it has an arguable case that the holder of the insurance policy is liable to the applicant;
2. that there is a reasonable possibility that the holder of the insurance policy will be unable to satisfy in full any judgment that may be entered against it in favour of the applicant in respect of that liability; and
3. that there is an arguable case that the holder of the insurance policy would, if found liable to the applicant, be entitled to indemnity under the policy (in other words, an arguable case that any liability of the policy holder to the applicant is an “insured liability” within the meaning of s3 of the Third Party Claims Act).

Notably, William J remarked and foreshadowed at [56] and [57] that:

“As the Plaintiff submitted, the standard of an arguable case is “fairly low”… one case circumstance in which the Court may conclude that there is no arguable case of insured liability is where the relevant insurance policy is a claims made policy, and there is no evidence of a relevant claim having been made against the insured during the period of the policy. Any such determination simply relies on the proper characterisation of written correspondence”

“Even if each of the three elements is established, there is a residual discretion to refuse leave rather than to permit the applicant to commence an action against the insurer who the applicant otherwise has no right to sue”.

With respect to each of the three elements, both the Developer and the Contractor’s Insurer’s positions were as follows:

1. Both parties agreed that there was an arguable case that the Contractor would be liable to the Developer; and
2. Both parties agreed that there is a reasonable possibility, given that the Contractor was in liquidation that they would not be able to satisfy any full judgment entered against it in the Developer’s favour in respect to those claims.

However, the Contractor’s Insurer argued that the Developer had failed to demonstrate that the Contractor would have been entitled to indemnity under the policies in relation to any of the six categories of claims alleged for the following reasons (at [66]):

1. The [Developer] did not make a written demand for civil compensation, civil damages or non-monetary civil relief against during the policy period of any of the Policies, so there is no “Claim” resulting in a “Loss” for which [the Contractor] could arguably be indemnified under the insuring clause of any of the Policies; and/or
2. Any such “Claim” is not a claim for civil liability in respect of the conduct of the “Professional Services” within the meaning of the Policies, and therefore falls outside the scope of the insuring clause; and/or
3. Any such “Claim” will not result in “Loss” within the meaning of the Policies because it will not result in [the Contractor] becoming legally obligated to pay any damages, judgment sum, settlement sum or other amount falling within the definition of “Loss” in the Policies, and it therefore falls outside the scope of the insuring clause; and/or
4. Any such “Claim” was not first made against [the Contractor] during the policy period of one of the Policies and therefore falls outside the scope of the insuring clause.

The Court examined the Developer’s six categories of claims and, in each instance, found that there was no arguable case that the Contractor would have been entitled to be indemnified by its Insurer and that a reasonable businessperson would not have interpreted the correspondence from the Developer as a ‘written demand for civil compensation or civil damages or non-monetary civil relief’ as required by policies.

In arriving at these conclusions, the following key findings were made:

1. A demand, or a “Claim” in the context of the Contractor’s policy, may be an explicit or implicit demand for liquidated damages. However, expressing a complaint, requesting a proposal to address alleged breaches, or foreshadowing that a demand may follow once further investigations are carried out will not amount to a demand being made;
2. A demand may also be a request that the addressee comply with its contractual obligations, with the consequence that failure to do so would entitle the requesting party to loss and damages. However, consideration must be given as to whether a “reasonable business” person in the same position as the addressee would conclude that non-compliance would result in loss and damages being recoverable from them (or “civil compensation, civil damages, or non‑monetary civil relief” per the terms of the Contractor’s policy in these proceedings); and
3. Even if a demand is said to have been made, the precise wording and requirements of the applicable insurance policy (being a “claims made” policy) must be carefully considered. Noting that in these proceedings, William J observed that each category of the six categories would not have amounted to a claim for civil compensation, damages, or non‑monetary civil relief, or that there were evidentiary difficulties which could not link the subject matter of a prior demand to the matters alleged in these proceedings.

Conclusion

For Insurers, this decision reinforces the importance of precise policy drafting and careful claims management. The Court’s approach underlines that coverage will only be triggered where the claimant can demonstrate that a valid “Claim” — as defined in the policy — was made within the policy period, meets the insuring clause’s scope (such as being connected to “Professional Services”), and results in a covered “Loss.” Correspondence that merely complains, requests rectification, or foreshadows potential demands is unlikely to cross that bar.

For insureds, and third‑party claimants, this case is a highlights that success under the TPC Act is not simply about proving underlying liability but is dependent on satisfying the policy’s specific preconditions for indemnity. Timely, clear and unequivocal demands that fit within policy definitions are essential, and maintaining documentation that links those demands to matter(s) capable of giving rise to an indemnifiable claim. Without this, even compelling substantive claims against an insolvent insured may result in leave to make a third party claim being denied.