By: Marcus Saw and Romel Tallow

Owners Corporation 1 Plan No. PS 650567Y v Shangri-La Construction Pty Ltd [2026] VSC 117

At a glance

The decision of the Supreme Court of Victoria in Owners Corporation 1 Plan No. PS 650567Y v Shangri-La Construction Pty Ltd [2026] VSC 117 (16 March 2026) is a salient reminder of how Courts approach the interpretation and construction of contracts of insurance and that, where there is ambiguity or vagueness in the relevant insurance documents (including in proposal forms), that will be read against the insurer.

It also provides useful guidance regarding how the Courts might interpret ‘claims made and notified’ professional indemnity policies, including the interpretation and scope of aggregation clauses for claims that arise after policies expire, and coverage implications arising from the closeness or otherwise of the relationship between a “Claim” (as made) and the ‘professional services’ insured.

Brief background

The judgment concerned the determination of a claim for indemnity by Mr Naqebullah (a director of Shangri-La Construction Pty Ltd (Shangri-La)) against various Lloyd’s underwriters (together, Underwriters) subscribing to two policies of ‘claims made and notified’ Professional Indemnity Design and Construction insurance in favour of Shangri-La.

The first policy covered 6 August 2017 to 6 August 2018 (2017/18 Policy), and the second policy covered 6 August 2018 to 6 August 2019 (2018/19 Policy) (collectively Policies). The Policies were in respect of “civil liability incurred in [Shangri-La’s] conduct of [its] Professional Business”.

Shangri-La was a residential design and construct contractor operating throughout Melbourne. Shangri-La’s ‘Professional Business’ under the Policies included design and design advice in relation to relevant building and construction codes and standards.

Shangri-La had entered a contract (as contractor) with MMD Mazor Construction (as principal) dated 22 August 2011 for the design and construction of residential apartments in Clayton, Victoria (Project). The contract was a ‘Domestic Building Contract’ such that the provisions of the Domestic Building Contracts Act 1995 (Vic) (DBC Act) (including the section 8 warranties) applied to it.

By reason of section 8(f) of the DBC Act, Shangri-La was deemed to have warranted that the work and “any material used in carrying out the work” would be reasonably fit for purpose.

During the Project, Mr Naqebullah had recommended that expanded polystyrene (EPS) cladding (widely known to be combustible) be used as part of the external cladding for the Project (EPS Cladding Advice).

The Project was ultimately constructed by Shangri-La to incorporate EPS cladding as part of the façade. Due to its combustibility, the EPS cladding used in the Project was not compliant, and that founded a breach of section 8(f) of the DBC Act.

Pursuant to the scheme administered by Cladding Safety Victoria, the State Government (State) provided financial assistance to the owners of the building to rectify the non-compliant EPS cladding.

The State then sought to recover those amounts from Mr Naqebullah by way of subrogation pursuant to section 137F(3) of the Building Act 1993 (Vic) (Building Act). Section 137F is a strict liability provision which grants the State rights of subrogation (including, relevantly, against officers of contractors) for the cost of carrying out cladding rectification work.

The State obtained summary judgment against Mr Naqebullah in his capacity as an officer of Shangri-La for the cost of rectifying the defective EPS cladding in the amount of $3,174,775.99 (Damages Award).

Mr Naqebullah sought indemnity from the Underwriters in respect of the Damages Award. That was declined and Mr Naqebullah brought proceedings against the Underwriters in the Supreme Court of Victoria.

Discussion

Before the Court were three questions for determination¹:

• Question 1: was Mr Naqebullah an “Insured’ under the 2017/18 Policy and/or the 2018/19 Policy?;
• Question 2: was there a “Claim” and notification within the Period of Insurance of the 2017/18 Policy or the 2018/19 Policy?; and
• Question 3: was the indemnity sought by Mr Naqebullah “in respect of any civil liability incurred in their conduct of the Professional Business”?.

Question 1: Was Mr Naqebullah an ‘Insured’ under the Policies?

“Insured” in the Policies was defined to include “…directors…specified in the Schedule”. However, Mr Naqebullah (although referred to by name in the Proposal Forms) was not listed as an ‘Insured’ on either the Certificates of Insurance or on the Proposal Forms applicable to the Policies.

The Court considered the contract of insurance as a whole, including the Proposal Forms, the policy terms and the Certificates of Insurance.

The Court found that, on an objective reading of these documents, the parties to the contract of insurance intended Mr Naqebullah to be an ‘Insured’. The following matters in the Proposal Forms were relevant:

• the Proposal Forms did not invite the person completing the form to name the directors (or other members) of the firm;
• a number of questions in the Proposal Forms were directed to matters that would be pertinent to the risk of providing cover to the directors;
• certain questions appeared to assume the directors were covered by the Policies; and
• questions concerning Shangri-La’s ‘professional services’ were not confined to non-director staff; and,
• a reasonable businessperson would anticipate the reference to ‘professional services’ as including those provided by Shangri-La’s directors.

The Court also found that, because he was referred to by name and in his capacity as the director of Shangri-La, Mr Naqebullah was a third party beneficiary (and entitled to the benefit of the cover under the Policies) pursuant to section 48 of the Insurance Contracts Act 1984 (Cth).

Question 2: Was there a “Claim” and notification within the Period(s) of Insurance

Consistent with their status as ‘claims made and notified’ policies, the Insuring Clause provided that the Policies would only respond to any:

…Claim first made … during the Period of Insurance and notified by the Insured to Underwriters in writing during the Period of Insurance in respect of civil liability incurred in their conduct of the Professional Business

There was no “Claim” against Mr Naqebullah during the period of insurance under either the 2017/18 or the 2018/19 Policies. Nor could there have been – the provision relied upon by the State to found Mr Naqebullah’s liability (i.e. section 137F of the Building Act) did not come into operation until after the expiry of the 2017/18 and 2018/19 Policies.

Mr Naqebullah did not give notice to the Underwriters of a “Claim” against him personally until 28 September 2022, when the State alleged he was jointly and severally liable with Shangri-La in respect of the State’s subrogated recovery action.

Despite there having been no “Claim” against Mr Naqebullah until some considerable time after the expiry of the 2017/18 and 2018/19 Policies, he sought on various grounds to allege that he was entitled to cover under those policies.

Mr Naqebullah had received two letters from the relevant owners corporation dated 10 August 2017 (i.e. during the period of insurance under the 2017/18 Policy) (10 August Letters). The 10 August Letters claimed costs for emergency repairs and stated that the owners corporation would have a claim for damages against Shangri-La in the future.

Mr Naqebullah argued that the 10 August Letters constituted a “Claim” under the 2017/18 Policy (2017/18 Claim) against Shangri-La.

In the alternative, Mr Naqebullah alleged that a “Claim” was made against Shangri-La in June / July 2019 when it received a Building Notice in respect of the Project and proceedings were commenced in the Victorian Civil and Administrative Tribunal in respect of the Project (2018/19 Claim).

It was not submitted that the 2017/18 or the 2018/19 Claims made allegations against Mr Naqebullah in his personal capacity, or in his capacity as a director of Shangri-La.

Mr Naqebullah submitted that, in considering the notional components of the Insuring Clause, i.e.:

1. any Claim first made against any of the Insureds;
2. during the Period of Insurance; and
3. notified by the Insured to the Underwriters…

that (a) and (b) were to be read independently of one another.

When interpreted in that way, Mr Naqebullah argued, the fact that the 2017/18 Claim, alternatively the 2018/19 Claim, were made during the relevant Periods of Insurance meant that (notional) part (b) of the Insuring Clause was also satisfied for the purpose of the “Claim” against Mr Naqebullah (notwithstanding that particular “Claim” was made after the expiry of the Periods of Insurance under the Policies).

In rejecting Mr Naqebullah’s interpretation regarding part (b), the Court focused on the word “incurred” and its necessary connection with part (a) of the Insuring Clause. The Court held that Mr Naqebullah’s “civil liability” was “incurred” as part of a legal process contemplated by part (a), a process that was not available to the State until 2020 when it could pursue Mr Naqebullah directly by way of subrogation pursuant to section 137F of the Building Act.

Mr Naqebullah also alleged that the aggregation provisions in the Policies were such that the “Claim” made against him after the expiry of the Policies, aggregated with the 2017/18 or 2018/19 Claims. Mr Naqebullah went on to submit that the “Claim” made against him and the 2017/18 Claim, “[arose] out of the same act error or omission, or [was] consequent upon or attributable to one source or original cause” namely, the EPS Cladding Advice such that they were “deemed to be a single Claim”.

The Court rejected Mr Naqebullah’s submission that the “Claim” against him aggregated with the 2017/18 and/or the 2018/19 Claims into one ‘single Claim’. The Court held that any such ‘single Claim’ must be made within the Period of Insurance and that, in this case, the relevant legislation to found the “Claim” against Mr Naqebullah did not come into existence until after the expiry of the Policies.

Essentially the Court found that the aggregation clause did not have the effect of rendering “Claims” made in later policy years as having been made in an earlier policy year. Were that to be the case, the Court reasoned, insurers would be exposed to claims many years after the expiry of the insurance, so long as those claims arose from the same act or omission as a “Claim” that was made against another insured and notified during the period of insurance. It was held that such a construction would defeat the commercial purpose of a ‘claims made and notified’ policy.

Question 3: Was the indemnity sought by Mr Naqebullah “in respect of any civil liability incurred in their conduct of the Professional Business”?

The Damages Award was made pursuant to a strict liability provision in the form of section 137F of the Building Act.

Mr Naqebullah submitted that the ‘incurred in’ criterion within the Insuring Clause “directs the reader to the activity being undertaken by the Insured in the Professional Business and not to the elements of the cause of action” relied on by the claimant (i.e. in this case, the State).

It was further submitted that it was not necessary to show an allegation of breach of professional duty, rather all that needed to be established was that the civil liability was incurred by the insured in the conduct of the Professional Business.

“Professional Business” was defined, among other things, as design, including advice in relation to design in accordance with all relevant building, construction or engineering codes and standards.

Mr Naqebullah submitted that, so long as one of the services identified in the definition was engaged by a “Claim” for civil liability then the “Professional Business” definition of the Policy was satisfied. He argued that providing services as a registered building practitioner in drafting a specification under a design and construct contract constituted the provision of professional services of a skilful character as contemplated by the Policies.

The Court considered the use of the word “incurred” in the Insuring Clause to be critical.

It determined that the claim by the State against Mr Naqebullah was not a claim in respect of any civil liability incurred in Mr Naqebullah’s conduct of the Professional Business. Rather, the claim against Mr Naqebullah was founded in the strict liability provisions within section 137F of the Building Act because of Mr Naqebullah’s status as an officer of Shangri-La.

No element or part of the State’s case against Mr Naqebullah involved a consideration of his provision of any design, specification or advice services as contemplated by the “Professional Business” definition under the Policies. Nor did Mr Naqebullah’s liability to the State depend in any way upon breach of a professional duty by him or by Shangri-La.

As such, the Court held that the claim by the State against Mr Naqebullah was not “in respect of any civil liability incurred in [Mr Naqebullah’s] conduct of the Professional Business”.

Key takeaways

The judgment provides an interesting picture of the matters that a Court will consider where policies of insurance contain provisions that are vague and/or ambiguous. Insurers should be mindful that if the policy is unclear or vague, the Court will look for meaning in other insurance documents including (as was the case here) the proposal and the nature of the questions asked in that document.

It provides some guidance regarding the effect of aggregating language and the limits upon such clauses in the context of ‘claims made and notified’ insurance.

It also suggests that the use of the words “incurred in the conduct of Professional Business” is to be interpreted as creating a strong connection between a “Claim” and the professional business insured.

Finally, providers of directors and officers cover ought to consider the scope to which individuals might have personal exposure to strict statutory liability schemes that provide for damages awards by reference to the acts and/or omissions of the companies of which those individuals are directors and/or officers.

By way of postscript, it is important to remember that the interpretation of contracts of insurance will be guided by principles of contractual construction and the specific language of the policy.

At the time of writing, it is not clear whether the decision will be subject to appeal.

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