Amashaw Pty Limited v Marketform Managing Agency Ltd

Background

1. Before setting out in a more formal way what the parties agreed were the real issues for decision, I shall give some factual background.
2. The BP Loftus service station is located on a site bounded to the south by Tenth Avenue, to the east by Loftus Avenue, to the north by Loftus Lane, and to the west by a residential property. To the north of the service station site, the land slopes gently downwards towards Loftus Lane.
3. The Sydney Water sewer main to which I have referred is located in Loftus Lane, just to the north of the service station's boundary. The Council's stormwater drain is located on the eastern side of Loftus Avenue (that is to say, the side further from the service station). Loftus railway station is located to the east again. I am not sure where the Telstra pit is located, but nothing turns on this.
4. In the usual way, petroleum products sold from BP Loftus are stored in underground storage tanks (often referred to by the acronym UST, or the acronym UPSS - underground petroleum storage system). Lines run from those tanks to the various bowsers, or pumps as I shall call them, from which customers dispense fuel into their vehicles.
5. From 1 June 2011, Amashaw was required to have groundwater monitoring wells in and around the site. Those wells were required to be monitored to see whether, and if so to what extent, petroleum contaminants leaked into the groundwater. Those obligations were imposed by clause 16 of the Protection of the Environment Operations (Underground Petroleum Storage Systems) Regulations 2014 (NSW).
6. Since Amashaw did not have monitoring wells (which are often referred to by the acronym MW) in place as at 1 June 2011, the Council directed it to install wells. That work was done from August to November 2011. The work was undertaken by a contractor, Alliance Environmental Engineering and Consulting Pty Ltd (Alliance). Alliance installed some 14 wells. Those of particular significance for present purposes are: 1. MW5, which is located towards the northern boundary of the service station site, and a little to the east of a notional north/south centre line on that site; and 2. MW7, MW8 and MW9, which are located just outside the northern boundary of the site at varying points from the western end of the site (MW9), through an approximately central position (MW8), and towards (but not on) the eastern end of the site (MW7).
7. Alliance was retained to monitor the groundwater in those wells. It did so, and issued reports to Amashaw. The first report was dated November 2011, before the initial (six-month) policy incepted. The second report was issued in March 2012, before the renewed policy incepted. Neither report was disclosed to Marketform, or to Marketform's Australian underwriting agent, ASR Underwriting Agencies Pty Ltd (ASR).
8. It is time for a little chemistry and some more acronyms. Petroleum products are hydrocarbons. Petrol (as used for motor vehicles) comprises principally C6-C9 hydrocarbons (a reference to the number of carbon atoms in the chain or ring constituting each hydrocarbon molecule). Kerosene comprises principally C10-C14 hydrocarbons. Diesel fuel comprises principally C12-C18 hydrocarbons. The heavier (C18 and above) hydrocarbons are found in lubricating oils, heavy oils and greases.
9. BTEXN refers to benzene, toluene, ethyl benzene, xylenes (of which there are several) and naphthalene. They are significant and volatile components of petrol and diesel fuels. The first four are generally found in the C6-C9 hydrocarbon fraction (as the divisions are called), and naphthalene is generally found in the C10-C14 fraction.
10. Although, according to popular knowledge, "oil and water don't mix", the reality appears to be that petroleum products will, to a small extent, dissolve in water. When so dissolved, they are referred to as "dissolved phase hydrocarbons" or DPHs. When undissolved (that is to say, floating on water) they are referred to as "phase separated hydrocarbons", or PSHs.
11. When Alliance performed its monitoring and reporting duties, it reported (among other things) on the proportions of total phase hydrocarbons (TPH) - that is to say, all petroleum hydrocarbons - and, separately, for BTEXN. It assessed the levels of the various hydrocarbons by reference to whatever it thought was the appropriate standard, often referred to in the course of the hearing as the "threshold" or "trigger" level, because the detection of hydrocarbons above the relevant level triggered an obligation to report to the Environmental Protection Authority (EPA).
12. The November 2011 Alliance report demonstrated significantly elevated levels of C6-C9 and C10-C14 hydrocarbons in MW5. It demonstrated, further, the presence of very significantly elevated levels of BTEXN in MW5. Alliance expressed the view that "the DPH impact identified within the study area including the service station site, adjacent laneway and car parking areas are [sic] unlikely to pose a risk to the environment and human health". Nonetheless, it said, there was an obligation to report the levels of contaminant to the EPA pursuant to the Contaminated Land Management Act 1997 (NSW) and regulations made pursuant to that Act.
13. The November 2011 Alliance report concluded that there was a plume of contaminated groundwater moving from within the site to and for about 5 metres past the northern boundary of the site, under Loftus Lane. MW5 was located within the central part of that plume, as was MW8 (which sits outside the northern boundary, approximately to the north of MW5).
14. The November 2011 Alliance report demonstrated the existence of significantly elevated levels of C6-C9 hydrocarbons in MW8, and the presence of very significantly elevated levels of BTEXN in that well. The obvious inference is that the plume of groundwater either emanated from or passed through the area of MW5, and conveyed the contaminants northwards, including to and through MW8.
15. Mr Pierre Sleiman (for convenience, since he was the only member of his family who gave evidence, I shall refer to him simply as "Mr Sleiman") said that although he took comfort from Alliance's statement of the unlikelihood of risk to the environment and human health, nonetheless he regarded the report as setting out matters of significance, which he discussed with his father. He said he understood that it identified a significant body of contamination under and adjacent to the site.
16. The Alliance report of March 2012 showed that the concentration of C6-C9 hydrocarbons in MW5 had diminished substantially. However, it showed, the level of BTEXN contamination had not diminished to anywhere near the trigger level for reporting. Some compounds had decreased in concentration (in the case of toluene, significantly) but others, in particular benzene and naphthalene, increased significantly.
17. The Alliance report of March 2012 stated that the plume of contaminated groundwater continued to exist, in the same location as before (that is to say, encompassing both MW5 and MW8, among other locations). As to MW8, the March 2012 report demonstrated that the levels of C6-C9 hydrocarbons and BTEXN in MW8 had diminished very substantially, although in each case they remained well above the trigger levels.
18. Mr Sleiman's evidence was that for all the time he had been the manager of BP Loftus, the company had utilised the services of a company known as Leighton O'Brien. That company utilises various data obtained from the service station to produce a statistical inventory reconciliation analysis (or SIRA report). Mr Sleiman said that at midnight each day, a record is taken from every pump of the total fuel dispensed since that pump was last read. At the same time, each UST is "dipped": a graduated stick is inserted into each UST and the level of petrol is recorded. Thereafter, the data obtained from the pumps and from dipping the tanks, together with records of all fuel bought and delivered into the tanks, are sent electronically to Leighton O'Brien. Leighton O'Brien produces its SIRA reports from that information.
19. Although there was some dispute between the parties as to the accuracy of the SIRA analyses, Leighton O'Brien's material, which was in evidence without objection, claimed that its tests were accurate to the extent that: 1. a leak from any UST of 18 litres per day should be detected 95 times out of 100; 2. false alarms should not happen more than five times out of 100; 3. for specific tank integrity testing, a leakage rate of 380 millilitres per hour should be detected 95 times out of 100 with a probability of false alarms of five per cent; and 4. for specific pipe tightness testing, detection of leaks of 290 millilitres per hour 95 times out of 100, with a false alarm rate of no more than five per cent.
20. There was no evidence to suggest that Leighton O'Brien's SIRA reports were not accurate within those parameters, and I find that they were.
21. The figure of 18 litres per day, and the performance standards to which I have referred, are derived from EPA requirements. Those requirements are often specified in terms of a minimum detectable leak rate, or MDLR.
22. Dr Bill Ryall, an expert called by Amashaw, did not suggest that the SIRA reports were inaccurate (within their stated limits). However, he said (and I find), groundwater monitoring was a more reliable method of detecting leaks.
23. In this case, the principal significance of the SIRA reports turns on their demonstration that in about March 2013, the ULP 98 (unleaded 98 RON petrol) UST or its associated pipes leaked substantial volumes of petrol, and that this continued into May 2013. It is Amashaw's case that this leak was the requisite "sudden specific and identifiable event" that caused the Pollution, by reason of which it suffered Damage, so that it is liable to be indemnified under the renewed policy.

The real issues in dispute

1. The parties agreed that the issue in dispute were: 1. Does the indemnity claimed by the Plaintiff the subject of this claim fall within the scope of clause 10 of the policy having regard to the Policy as a whole, including the following conditions of the policy: (a) that the indemnity is against "the Insured's liability to pay damages"; (b) that the said liability to pay damages be a liability to pay damages for and/or arising out of Injury or Damage "occurring in its entirely [sic] during the Period of Insurance;" (c) that the said Damage be one arising out of Pollution, but only to the extent the Insured can demonstrate that such Pollution was "the direct result of a sudden, specific and identifiable event occurring during the Period of Insurance". 2. If the answer to question 1 is "yes", what was the quantum of the indemnity to which the Plaintiff is entitled? 3 Were the fact and contents of the Alliance reports of November 2011 and March 2012 matters relevant to the decision of the Defendant whether to accept the risk and, of so, on what terms? 4 If so: (a) did the Plaintiff know; or (b) could a reasonable person in the circumstances be expected to know; the matters were so relevant. 5 If the matters had been disclosed to the Defendant, would it have refused to issue a policy with cover in accordance with clause 10 of the Policy? 6 [Plaintiff contends this is in issue; Defendant says it is not pleaded and should have been] Did the Defendant waive any requirement that the Plaintiff disclose those matters?
2. The sixth issue does not arise on the quasi-pleadings. It was not referred to in the written or oral opening submissions for Amashaw (not that any such reference would have excused the failure to plead it), although the written opening does refer to what appear to be some of the relevant facts, and to a suggested breach by Marketform of its duty of utmost good faith.
3. I add that the closing submissions for Amashaw did not refer either to the suggested waiver or to the suggested breach of the duty of utmost good faith.
4. I conclude that the suggested sixth issue should not be decided.
5. I propose to deal with the other issues by dealing first with the non-disclosure issues (issues 3 to 5) and then moving to the other issues (issues 1 and 2). There is more than chronological harmony in that approach.
6. The question of non-disclosure under s 21(1) of the Insurance Contracts Act focuses on what was known to Amashaw as the insured, and on what would have been known to a reasonable person in the circumstances of Amashaw, as at the relevant dates. Those dates were the date of inception of the first policy and the date of inception of the renewed policy. The Alliance reports of November 2011 and March 2012 are particularly significant.
7. The evidence on the first issue travelled well beyond those two reports. Dr Ryall made criticisms of the adequacy of the Alliance reports, and said (in evidence that I accept) that they understated in a significant way the extent and nature of hydrocarbon contamination on and outside the site. However, no one knew at the relevant dates what evidence Dr Ryall would give. It has not been suggested that the hypothetical s 21(1)(b) reasonable person should somehow have intuited Dr Ryall's criticisms of the Alliance reports.
8. There is a wealth of other material to which the parties referred in their submissions on the first and second issues that, because of the time it became known or otherwise, cannot bear on the non-disclosure issues.
9. In those circumstances, it seems to me to be simpler to approach the s 21(1) question by reference to the facts relevant to it, uncomplicated and unconfused by the far more extensive facts relevant to the first and second issues.

Issues 3-5: breach of duty of disclosure, and its consequences

The relevant legislative provisions

1. Section 21 of the Insurance Contracts Act sets out the insured's duty of disclosure: 21 The insured's duty of disclosure (1) Subject to this Act, an insured has a duty to disclose to the insurer, before the relevant contract of insurance is entered into, every matter that is known to the insured, being a matter that: (a) the insured knows to be a matter relevant to the decision of the insurer whether to accept the risk and, if so, on what terms; or (b) a reasonable person in the circumstances could be expected to know to be a matter so relevant, having regard to factors including, but not limited to: (i) the nature and extent of the insurance cover to be providedunder the relevant contract of insurance; and (ii) the class of persons who would ordinarily be expected to apply for insurance cover of that kind. (2) The duty of disclosure does not require the disclosure of a matter: (a) that diminishes the risk; (b) that is of common knowledge; (c) that the insurer knows or in the ordinary course of the insurer's business as an insurer ought to know; or (d) as to which compliance with the duty of disclosure is waived by the insurer. (3) Where a person: (a) failed to answer; or (b) gave an obviously incomplete or irrelevant answer to; a question included in a proposal form about a matter, the insurer shall be deemed to have waived compliance with the duty of disclosure in relation to the matter.
2. Section 28 sets out the consequences of (among other things) non-disclosure: 28 General insurance (1) This section applies where the person who became the insured under a contract of general insurance upon the contract being entered into: (a) failed to comply with the duty of disclosure; or (b) made a misrepresentation to the insurer before the contract was entered into; but does not apply where the insurer would have entered into the contract, for the same premium and on the same terms and conditions, even if the insured had not failed to comply with the duty of disclosure or had not made the misrepresentation before the contract was entered into. (2) If the failure was fraudulent or the misrepresentation was made fraudulently, the insurer may avoid the contract. (3) If the insurer is not entitled to avoid the contract or, being entitled to avoid the contract (whether under subsection (2) or otherwise) has not done so, the liability of the insurer in respect of a claim is reduced to the amount that would place the insurer in a position in which the insurer would have been if the failure had not occurred or the misrepresentation had not been made.

Relevant terms of the policy

1. To understand the non-disclosure defence, it is necessary to say something about the cover offered by the renewed policy. Section A of the policy, which insured against "Public Liability", explicitly excluded cover for "Pollution". I set out cl 9, having that effect:
2. COVERAGE SECTION A - INDEMNITY The Insured is indemnified by this Coverage Section in accordance with the Operative Clause against the Insured's liability to pay damages, including claimants' costs, fees and expenses, in accordance with the law of any country for and/or arising out of Injury and/or Damage but not against liability arising directly or indirectly out of 9.1 Pollution or 9.2 in connection with any Product. (See also provisions applicable to Coverage Sections A, B and C further on.)
3. Section B of the policy offered cover for "Pollution Liability". I set out cl 10: 10. COVERAGE SECTION B - INDEMNITY The Insured is indemnified by this Coverage Section in accordance with the Operative Clause against the Insured's liability to pay damages, including claimants' costs, fees and expenses, in accordance with the law of any country for and/or arising out of Injury and/or Damage occurring in its entirety during the Period of Insurance and arising out of Pollution, but only to the extent that the Insured can demonstrate that. 10.1 such Pollution was the direct result of a sudden, specific and identifiable event occurring during the Period of Insurance; 10.2 the Insured had taken all reasonable precautions to prevent loss by Pollution.
4. Clause 2.4 of the renewed policy contained a somewhat limited definition of "Damage". However, that can be put to one side, because the definition was extended by cl 26.4: 26.4 Wide Damage Definition The definition of Damage is amended to read as follows: 26.4.1 loss or destruction of or damage to physical property; 26.4.2 loss of use of physical property not lost, destroyed or damaged arising out of an occurrence; 26.4.3 conversion, trespass, nuisance or wrongful interference with the enjoyment of nights over physical property or interference with servitude or right of access across the property of another; 26.4.4 piracy, plagiarism, passing off, unfair completion or idea misappropriation, infringement of design, patent, copyright, title or slogan none of which arise out of advertising activities; 26.4.5 infringement of trademarks, service mark or trade name.

The parties' submissions

1. Mr Elliott of Counsel, who appeared for Marketform, relied on both paragraphs of s 21(1) of the Insurance Contracts Act. He submitted that: 1. Amashaw through Mr Sleiman knew that the two Alliance reports, of November 2011 and March 2012, were matters relevant to the decision of Marketform whether to accept the risk and, if so, on what terms; 2. alternatively, a reasonable person in Amashaw's position could be expected to have known that.
2. As to s 21(1)(a), Mr Elliott accepted that Mr Sleiman's evidence denied knowledge. Whilst, as Mr Elliott submitted, that aspect of Mr Sleiman's evidence was a little difficult to follow, he did not submit that I should find it was knowingly false. It is thus unnecessary to consider whether, and in what circumstances, a finding that a witness' evidence is knowingly false can permit or support a finding to the contrary [1] .
3. Mr Elliott's submission, as to s 21(1)(a) was, rather, that a finding of actual knowledge could be inferred from the whole of Mr Sleiman's evidence (noting, as Mr Elliott submitted, that neither Mr Tony Sleiman nor Mrs Sleiman, who were the only directors of Amashaw, gave evidence). In the result, Mr Elliott accepted, I think, that a finding of actual knowledge by inference from the evidence of Mr Sleiman, involving as it must and did the proposition that a reasonable person with that knowledge would have known the two reports to be relevant, really stood or fell with the s 21(1)(b) limb of the submission.
4. Mr Elliott submitted that it was self-evident that the operator of a service station, seeking insurance for, among other things, loss occurring by reason of Pollution, would know that reports showing the presence of significant levels of hydrocarbon (petroleum) contaminants in the groundwater, and a plume of contaminated groundwater moving outside the boundaries of the site, would be something that any insurer, considering whether to offer indemnity against Pollution, would think to be relevant. He noted that the underwriting evidence was that each witness, Mr Flower and Mr Wadsworth, said that in his view, the reports were relevant in the requisite sense.
5. Mr Sullivan of Queens Counsel who appeared with Mr Brennan of Counsel for Amashaw, submitted that as to s 21(1)(a), the point was decided against Marketform because of Mr Sleiman's denial of actual knowledge. He submitted that the knowledge of Mr Sleiman was knowledge of Amashaw, and that the directors' absence from the witness box was irrelevant.
6. As to s 21(1)(b), Mr Sullivan relied on a number of points: 1. it was commonly understood that the ground under and around service stations was polluted by petroleum products; 2. a reasonable person in the circumstances of the insured would know of that common understanding; 3. Marketform's focus was not on existing or gradual pollution, but on Damage arising from Pollution; being the direct result of a sudden, specific and identifiable event; 4. when the cover was first placed with Marketform, Marketform agreed (as between itself and Mr Flower of ASR) to accept the risk before it had received Amashaw's proposal, including its answers to the questions asked by Marketform (Mr Sullivan accepted that this, what he called "acceptance", was "internal" [2] .); 5. the proposal form made no reference to pollution, and gave no indication to the proponent for insurance that pollution might be a matter of concern to Marketform; and 6. the information disclosed by the two Alliance reports (I accept, of course, that only the first was in existence when the cover was first placed in December 2011) could not be relevant to the specific "risk", which was the risk of Damage as the direct result of a sudden, specific and identifiable event of Pollution.
7. Mr Sullivan submitted, further, that a reasonable person in the circumstances would have taken comfort, as Mr Sleiman said he did, from the way in which Alliance characterised the risk of harm in each of its reports. In the first report, Alliance said that: The DPH impact identified within the study area including the service station site, adjacent laneway and car parking areas are unlikely to pose a risk to the environment and human health. Ongoing use of this site for retail storage and sales of petroleum products is appropriate.
8. The second report contained a comment to very similar effect.
9. Mr Sullivan submitted that the reasonable person in the circumstances, knowing of that view expressed by the expert retained to investigate contamination by petroleum products emanating from the service station, would not consider that the reports were required to be disclosed.

The underwriting evidence

1. Mr Flower's company ASR had delegated authority from Marketform to accept certain risks. The extent of that authority was set out in a binder agreement which included a "Rating Matrix". ASR was not permitted to accept service station risks when first proposed, and accordingly had to refer those to Marketform. However, once Marketform had accepted a particular service station risk, ASR's authority extended to permit it to accept a proposal for renewal, with no need to refer it to Marketform, "provided that there had been not [sic] claims or no material changes in the risk" [3] .
2. Thus, the initial proposal had to be referred to Marketform. Mr Flower did that. Marketform agreed on 28 November 2011 that insurance could be placed, and attached a quotation (this, I think, is what Mr Sullivan referred to as the "internal acceptance"). That quotation was provided to Amashaw's broker. The broker forwarded to ASR a proposal signed by Mr Tony Sleiman. Thereafter, the broker informed Mr Flower that Amashaw accepted the quotation, whereupon Mr Flower confirmed that cover was bound.
3. Mr Flower was asked to consider, among other things, the November 2011 and March 2012 Alliance reports and to say what he would have done if their contents had been brought to him at the relevant times. He said [4] : 50. I have been asked to consider what I would have done, if anything, if the content of the November 2011 Alliance Report and the existence of pollution had been brought to my attention in the Proposal Form or otherwise at any stage before the Policy was first issued or before any subsequent renewals. 51. The presence of a petroleum leak on Amashaw's property and the existence of petroleum pollution on to the neighbouring land is a matter that would have been very material both to my and Neon underwriters' decision to provide pollution cover to Amashaw. The usual policy terms for a service stations [sic] cover accidental pollution risks but will not cover pollution risks that existed prior to the policy period. The existence of pollution at a site causes the risk to fall outside the risk matrix and is outside of my authority to accept the policy on behalf of the underwriters. 52. Had Amashaw informed me that there was existing pollution at the BP Loftus site or to the neighbouring land that was emanating from the BP Loftus site I would have contacted Neon and provided my own recommendation that this information was sufficiently serious that underwriters should not proceed with the Policy without including an absolute pollution exclusion. As explained at paragraph 41 to 45 above, that is what occurred once the existence of pollution at the BP Loftus site and pollution of the neighbouring land was made known to me.
4. In paragraphs 41 to 45, Mr Flower had said, in effect, that when the renewed policy "was up for renewal on 15 June 2013", he referred the matter to Marketform and Marketform instructed him that the underwriters "required an absolute pollution exclusion". That is what happened, and the policy was renewed without any cover for pollution.
5. Mr Flower was not cross-examined on his affidavit.
6. The particular underwriters within Marketform who dealt with the initial proposal and subsequent proposals, Ms Sarah Hildebrand and Mr Mark Hayden, did not give evidence. Ms Hildebrand at least is no longer in the employ of Marketform. Mr Andrew Wadsworth, who at the relevant time was the head of the international general liability underwriting team at Marketform, did give evidence.
7. Mr Wadsworth explained Marketform's practice in relation to binder agreements and the Rating Matrix, in terms consistent with what Mr Flower had said. In essence, Mr Wadsworth said, where a risk fell outside the matrix, he would require the referring "coverholder" (as ASR and other agents with similar authority were known) to indicate how it was that the risk could be acceptably insured. His position was that the referral should enable the underwriter at Marketform to say "yes" or "no" to the risk.
8. Mr Wadsworth was asked what his reaction to Amashaw's proposal would have been had it identified hydrocarbon pollution of the site. He said that his default position would have been to reject the application. However, he said, if the coverholder showed how the insurance could be written with adequate protection, he would do so [5] : 14. I have been asked to consider whether I would have agreed to extend pollution cover to a petrol station risk according to underwriting practice at Marketform in 2011 if the coverholder's referral to us identified hydrocarbon pollution at the site. 15. If hydrocarbon pollution was disclosed in an application without any further recommendation from a coverholder, my practice at the time and the default position in my team was to outright reject the application for cover. This is not a decision that would be considered in any detail and we would not have even addressed terms of the policy. If pollution was disclosed, the policy would not have been written at all. Alternatively, if a coverholder kept matters simple and recommended an absolute pollution exclusion we would have written the policy but an absolute pollution exclusion would have been included as a condition in the policy terms.
9. Mr Wadsworth was cross-examined on Marketform's insurance of service station risks, and gave the following evidence (the first question related to the period between 1999 and July 2012, but Mr Wadsworth's first answer makes it clear that he was talking of the more limited period) [6] : Q. During that time did Marketform regularly accept insurance in respect of service station risks? A. Not from really day one, no. I imagine I started talking to John Flower about it through the coverholder procedure in probably about 2009. Q. From 2009 did Marketform regularly write insurance station risks? A. Yes, we did. Q. From 2009 you were aware, weren't you, that pollution or contamination at the service station sites was a common occurrence? A. From a sudden accidental point of view which is where I would come from, it's not a common occurrence. Gradual pollution might be. Q. So you are agreeing with me, are you, that at least in respect of gradual onset of contamination or pollution it was to your knowledge in 2009 onwards a common occurrence? A. Not on my book but I could imagine within petrol stations that it could well be.
10. I understand Mr Wadsworth's answer to the third question set out above to be that his particular concern was with "sudden accidental" pollution, and his knowledge was that this was not a common occurrence. He accepted, particularly in his answer to the following question, that the "gradual onset of contamination or pollution" could well be a common occurrence.

The proposal form

1. The proposal form drew attention to Amashaw's duty of disclosure. It contained sections requiring Amashaw to specify the kind of insurance required and its limits; information about the company; and other operational information. Under the heading "History", the following questions were asked: HISTORY Important: If you are in any doubt refer to your broker to ensure all relevant details are disclosed. Any wrong answer you provide may affect your future claims. Have you ever had any food or health violations against you? Have you or any persons connected with this insurance ever had a revoked licence? Have your or any partner or director: Been declared bankrupt or had legal proceeding lodged against you? Had an insurer that has declined to renew your insurance? Had an insurer that has imposed special conditions on your insurance? Have you within the last 10 years, suffered a claim that would have been covered by this insurance and or claimed for any loss or damage or received any demand or wnt [sic] for personal injury or damage to property? After enquiry, are you or any director or employee aware of or have any grounds for suspecting any circumstances which might give rise to a claim, against you or against any of the present or former directors during the last 10 years? Please provide full details, if any answers to the above questions are Yes. With any previous claims, please detail amount paid or reserved, the year and your excess at the time and background information on the claim.
2. As Mr Sullivan put it, the questions asked were "anodyne" [7] . There was no reference at all to any history of pollution or contamination.

Decision

1. As I have said, Mr Sullivan's primary position was that there was no requirement to disclose the reports, because it was common knowledge that service station sites were contaminated by petroleum products (s 28(2)(b) of the Insurance Contracts Act), or alternatively that this was something that Marketform knew or ought to have known (s 21(2)(c)). I accept the factual accuracy of those reasons, so far as they go. However, they do not really bear on the way in which the non-disclosure defence is advanced.
2. The non-disclosure of which complaint is made is not just, simply, the failure to disclose that the BP Loftus site was contaminated by petroleum products. It was a specific failure to disclose (when cover was first sought) the existence and contents of the first Alliance report, and the failure to disclose (when renewal of that cover was sought) the existence and contents of that report and of the second Alliance report.
3. Those reports do a lot more than simply point out that the service station site was contaminated by hydrocarbons. Between them, they disclose, among other things, that: 1. the site was contaminated by BTEXN contaminants substantially in excess of the trigger levels that required reporting; 2. Amashaw was required to report the first report's findings to the EPA; 3. the findings were reported, and the EPA required further monitoring to ensure that the contaminant levels were reducing; 4. although the levels of some contaminants reduced, the levels of others increased - in the case of benzene, very substantially; 5. the contaminants had polluted the subsurface groundwater; and 6. a plume of contaminated groundwater extended out past the northern boundary of the site and about five metres into Loftus Lane.
4. I accept that the third and fourth of those matters were disclosed only by the second Alliance report.
5. I should add that Dr Ryall criticised the conclusion that the plume extended only 5 metres into Loftus Lane, and said that it is likely to have extended considerably further. However, Amashaw did not know that; the reasonable person in the circumstances would not have known that; and it may be put out of mind for present purposes.
6. The focus of the duty to disclose is upon matters relevant to acceptance of "the risk". That directs attention to the particular risk, rather than to the contract generally [8] . The particular risk, for the purposes of s 21(1), is the risk of Amashaw's incurring a liability to pay damages "arising out of Pollution". However, that risk is confined by the words of clause 10.1, which requires demonstration that the "Pollution" is "the direct result of a sudden, specific and identifiable event". Thus, the risk that is the subject of the s 21(1) inquiry in this case would not include the risk of liability to pay damages arising out of gradual or long-term Pollution.
7. The unchallenged evidence of Mr Flower was to the effect that the existence of petroleum contamination on and going beyond the service station "would have been very material". That it would have been very material to Mr Wadsworth also can be drawn from Mr Wadsworth's evidence in chief (because he said that his "default position" was that disclosure of contamination would have caused him to reject the application). There was no direct challenge to that aspect of Mr Wadsworth's evidence.
8. The appropriate inference from Mr Wadsworth's evidence in cross-examination [9] is that his particular focus was on the "sudden accidental point of view". It does not follow necessarily from that passage of his evidence that he would not have regarded anything other than the sudden and accidental escape of contaminating petroleum products as relevant. That proposition was not put to him, either by reference to his evidence in chief [10] or independently of it. Nor was it put to him, in the light of that evidence in cross-examination, that what he had said at [15] of his affidavit could not be correct.
9. To my mind, that evidence as to materiality should be accepted. The two Alliance reports disclosed that the service station site was contaminated with petroleum products. It must follow that, at least in the past, it was possible for petroleum products to escape from the USTs or delivery pipelines and into the soil, and thus to contaminate the groundwater.
10. The reports disclosed, further, that BTEXN contamination existed, both inside and outside the site, at levels significantly higher than the trigger levels for reporting to the EPA. They disclosed Alliance's recommendation to report to the EPA. The second report disclosed that the level of a particular contaminant in MW5 (within the boundaries of the site) had increased very markedly between the dates of the respective tests on which the reports were based. That last piece of information could well be taken to suggest that the escape of contaminants was continuing.
11. The reports disclosed, further, not merely contamination within the boundaries of the service station site, but contamination extending beyond its northern boundary. In this respect, although Alliance thought that the approximately five metre extension of the plume on which it reported was "a short … distance", an insurer considering whether to write pollution cover would want to know, I think, that the plume extended so far. Quite apart from anything else, the existence of that plume extending well beyond the site and into a public road could indicate the existence of a mechanism whereby contaminants can be conveyed from within the site to a location outside it.
12. The s 21(1)(b) reasonable person would know all those matters, because he or she would be familiar with the contents of the two Alliance reports. But he or she would understand that the relevant risk was not merely the risk of damage by the escape of contaminants, but the specific risk of damage resulting from a sudden, specific and identifiable event of contamination. He or she would not read the Alliance reports as suggesting that there had been any such sudden specific and identifiable event but, rather, as suggesting a gradual release of contaminants over time.
13. The reasonable person would also know that Marketform regularly underwrote insurance cover for service stations, and must be taken to have known (as the reasonable person would know) that service station sites are likely to be contaminated by hydrocarbons. Thus, the reasonable person would not think that disclosure of such everyday and expected contamination was required.
14. Further, the reasonable person would know of the questions asked in the proposal form. He or she would know that the proposal form did not ask any questions about contamination of the site. No doubt, he or should would think that this reflected the obvious fact that Marketform, an underwriter experienced in writing insurance for service stations, would know that they were likely to be contaminated.
15. The question for decision may, therefore be stated as whether a reasonable person in the circumstances that I have described, knowing the various matters that have been set out earlier in this judgment, would know that the first Alliance report was relevant to Marketform's decision to accept the risk in November 2011, or that both reports were relevant to its decision to accept renewal of the risk in 2012 [11] . It is not enough that the reasonable person might believe, or suspect (whether strongly or otherwise) that the reports would be relevant. The person must "know" that they would [12] .
16. In the present case, that formulation means that the reasonable person would have to know that the reports (or either of them) disclosed the existence of a state of affairs materially different from the state of affairs that could be assumed to exist simply because the insured property was, and for some years no doubt had been, used as a service station [13] .
17. Thus, the inquiry becomes considerably narrowed: what is there in the reports (or either of them) that the reasonable person would know to be material to Marketform's decision to accept the particular risk (constrained as it is by the various definitions and by cl 10.1 of the policy), over and above what would be known simply by reason of the history of use of the site?
18. Of course, the Alliance reports demonstrated the presence, both on the site and off it, of specific hydrocarbon contaminants at specific levels. Knowledge of the history of the use of the site would not entail knowledge of those specific matters of detail. However, the point is not so much what were the specific kinds or levels of contaminants but, rather, what they signify. And there is nothing in the evidence to suggest that the kinds or levels of contaminants demonstrated in the two Alliance reports signify anything other than the existence of contamination that one would expect to be present having regard to the history of use of the site.
19. When the matter is analysed in the way I have suggested, there is nothing in the reports that the reasonable person would know was relevant to Marketform's decision to accept the risk. On the contrary, in my view, the reasonable person would understand that: 1. the reports demonstrated only historic and gradual contamination both of the site and to some distance beyond it: 2. the reports did not suggest that there had been any sudden, specific and identifiable event of contamination; 3. the reports did not suggest that there was any feature of the site or its improvements that was likely to cause, or to facilitate the occurrence of, a sudden, specific and identifiable event of Pollution; and 4. Marketform had protected itself against liability for contamination of the former (historic and gradual) kind by the specific wording of cl 10.1.
20. In addition, the reasonable person would understand from the reports that their authors did not consider the levels of contamination that were reported posed any risk to the environment and human health. Thus, the reasonable person would think that, to the extent the reports did identify contamination: 1. it was contamination of a kind that would be unlikely to cause harm to others (or to property); and 2. in any event, it was contamination of a kind in respect of which Marketform had no liability under the policy.
21. It must follow, in my view, that there is nothing in the Alliance reports that the reasonable person would know was relevant to the decision of Marketform to accept the particular risk. It may be accepted that the reports demonstrate the existence of hydrocarbon contamination. But they do so in a manner which is consistent only with historic and gradual contamination: a risk specifically outside cl 10 of the policy. More importantly, they do not suggest any risk of a sudden, specific and identifiable event of contamination. Thus, the contamination of which the reports speak could not be understood (or known) by the s 21(1)(b) reasonable person to be relevant to Marketform's decision to accept the risk.
22. I conclude that Marketform's non-disclosure defence must fail.
23. If I were wrong in that conclusion, it would be necessary to consider the consequences of (in my view, hypothetical) non-disclosure. Those consequences are governed by s 28 of the Insurance Contracts Act, which I have set out already.
24. Mr Flower's unchallenged evidence was that he could not have accepted the risk (or the renewal, assuming that the reports had been disclosed for the first time at the time of renewal) because the existence of pollution meant that it fell outside the Rating Matrix. In those circumstances, he said, he would have recommended that insurance be offered only with an absolute exclusion of Pollution (as was in fact done for the 2013 renewal).
25. Mr Wadsworth's evidence, which (in this respect) was also unchallenged, was that had there been a disclosure of Pollution but no such recommendation, he would have rejected the risk. However, given that the recommendation would have been made (and given what happened in 2013), I think Mr Wadsworth would have accepted the risk with an absolute Pollution exclusion.
26. The only way in which Marketform could be put into the position that it would have been in had the failure to disclose not occurred would require reducing its liability under the Pollution cover to nil.

First issue: does the indemnity fall within cl 10 of the policy?

Approach to resolution of this issue

1. The first issue comprises three questions arising out of the language of cl 10 of the policy and the application of cl 10 to the facts of this case: 1. was there a "liability to pay damages"? 2. If there were, did that liability arise out of "Damage occurring in its entirety during the Period of Insurance"? 3. Did any such "Damage" arise out of "Pollution" as "the direct result of a sudden, specific and identifiable event occurring during the Period of Insurance"?
2. I propose to deal with this issue by setting out the relevant facts and then turning individually to each of those questions.

Factual background

1. Alliance carried out further testing in September 2012, and issued a third report in October 2012. Alliance reported that the plume of contaminated groundwater appeared to have increased in size since March 2012. It reported, further, that contamination in MW5 had deteriorated. The levels of C6-C9 and C10-C14 contamination had increased markedly since March 2012. The levels of BTEXN contamination had also increased since then: markedly so, in the case of benzene. In addition, the October 2012 report indicated, for the first time, the existence of significant contamination in MW6 (which is located inside the site just east of the western boundary and close to the northern boundary, within the plume of contaminated groundwater).
2. After October 2012 Mr Tim Browne, the employee of Alliance who had conducted the tests and prepared the three Alliance reports, moved to a company known as Aurora Environmental Consulting Pty Ltd (Aurora). Aurora conducted testing in April 2013, and issued a report in May 2013. The Aurora report stated that the size of the plume had increased from its dimensions as at September 2012, and that the levels of contamination both on and off the site had become worse (that is, higher). Further, Aurora reported on the existence of PSH in the groundwater; the previous reports (by Alliance) had suggested only the presence of DPH. I interpose the observation that in Dr Ryall's view, PSH had been present in the groundwater from at least November 2011 onwards. Mr Tony Scott, an expert called by Marketform, did not disagree.
3. I have referred earlier in these reasons [14] to the Leighton O'Brien SIRA reports. The report of 30 May 2013, covering the month of April 2013 but embodying results of testing from earlier months, showed that there had been a leakage from the ULP 98 tanks at a rate in excess of the MDLR: 43.6 litres per day in March 2013, and 80 litres per day in April 2013. Mr Elliott submitted that those reports showed that "the petrol leaking from the site added to the volume of contamination in the existing plume of polluted groundwater" [15] . That submission is factually correct.
4. The Aurora findings were reported to the Council and to the EPA. It does not appear that either of those authorities took any immediate action in response to the notifications.
5. In May 2013, neighbours living near the site of the petrol station complained to Sydney Water about petrol odours emanating from the sewer. The only possible source of petrol was Amashaw's service station. It appears to be common ground between the experts that the odours were the result of hydrocarbons, specifically PSH, entering the sewer main to which those neighbours were connected.
6. Sydney Water wrote to Amashaw on 23 May 2013 requiring that it cease discharging contaminated groundwater to the sewer. There was a site meeting on 30 May 2013. Sydney Water wrote to Amashaw the following day, 31 May 2013 setting out what had been agreed at the meeting. In essence, those present agreed that hydrocarbons were migrating from the service station into the sewer pipes, and on further testing that needed to be done. The letter reminded Amashaw "that it is an offence under section 49 of the Sydney Water Act to discharge to sewer without our written permission".
7. Amashaw retained JBS Environmental Pty Ltd to investigate and advise as to compliance with Sydney Water's demands. JBS tested the ULP 98 tank, and detected no leaks.
8. After the meeting of 30 May 2013, JBS undertook to prepare a scope of works for remediation and to prepare a submission to Marketform for the purpose of showing that the cost of remediation would be indemnified under the policy. By then, not only had Sydney Water made clear its position; the Council had indicated that it would shortly issue a notice under s 91 of the Protection of the Environment Operations Act 1997 (NSW). That section reads as follows: 91 Clean-up by occupiers or polluters (1) Notices The appropriate regulatory authority may, by notice in writing, do either or both of the following: (a) direct an owner or occupier of premises at or from which the authority reasonably suspects that a pollution incident has occurred or is occurring, (b) direct a person who is reasonably suspected by the authority of causing or having caused a pollution incident, to take such clean-up action as is specified in the notice and within such period as is specified in the notice. Note: pollution incident and clean-up action are defined in the Dictionary. (2) Notices by EPA in emergency The EPA may, if it considers that it is necessary to do so because of an emergency, give the clean-up notice even if it is not the appropriate regulatory authority with respect to the pollution incident. (3) Reports The clean-up notice may require the person to whom the notice is given to furnish reports to the appropriate regulatory authority regarding progress on the carrying out of the clean-up action. (4) Recovery by person given notice If the person given a clean-up notice complies with the notice but was not the person who caused the pollution incident, the cost of complying with the notice may be recovered by the person who complied with the notice as a debt in a court of competent jurisdiction from the person who caused the pollution incident. (5) Offence A person who, without reasonable excuse, does not comply with a clean-up notice given to the person is guilty of an offence. Maximum penalty: (a) in the case of a corporation - $1,000,000 and, in the case of a continuing offence, a further penalty of $120,000 for each day the offence continues, or (b) in the case of an individual - $250,000 and, in the case of a continuing offence, a further penalty of $60,000 for each day the offence continues. Note. An offence against subsection (5) committed by a corporation is an executive liability offence attracting executive liability for a director or other person involved in the management of the corporation - see section 169A.
9. On 3 June 2013, there was an explosion in the sewer main. Amashaw arranged and paid for emergency response works. They included flushing out the sewer line and sealing it off temporarily. Thereafter, Amashaw arranged and paid for other works, including replacing the sewer main to the extent that it had been contaminated by hydrocarbons. Amashaw carried out other works as well. I shall return to them when dealing with the second issue.
10. The Council did issue a notice under s 91 of the Protection of the Environment Operations Act. That was done on 4 June 2013. The notice, among other things, required Amashaw to take the following actions: To Do What To locate the primary source of contamination and take all necessary steps to remove the primary source. To characterise and delineate the extent of the impact. To identify and remove secondary sources of impact. To take appropriate action to reduce and ultimately prevent any impact on neighbouring properties. To prevent and remove any impacts on Council's stormwater system. To ensure identified impacts on Council's stormwater system are properly addressed so as to prevent product from migrating through Council's stormwater system and discharging to open creeks / waters. To keep affected residents and the local community updated with progress reports. To notify Council and the Environment Protection Authority of any new developments. All works required to rectify the situation are to be notified to Council and the EPA via email and approval sought from Council prior to commencing works. To obtain all necessary approvals from the relevant authorities / land owner(s) prior to undertaking works (eg. Private land owners consent, Road opening approvals and Development Applications from Sutherland Shire Council etc).
11. The notice also set out the times by which various clean-up activities were to be completed.
12. JBS retained a company known as Action Installations and Services Pty Ltd (AIS) "to undertake an investigation of the service station for the purposes of identifying the source of the petroleum release". JBS sent a report to Amashaw and its broker dated 20 June 2013, which (among other things) reported on the work done by AIS. So far as it is relevant, that report said: AIS have undertaken a thorough inspection of the fuel dispensing infrastructure on the site. This has included the removal of a significant area of the site pavement, as instructed by JBS. AIS have advised the following: A failed gasket has been identified underlying the fuel dispenser at the north-eastern corner of the site; The gasket was known to be no older than seven years and is considered to be well within its typical design lifetime of seven years [sic; in fact, the evidence shows, the design lifetime was about 30 years]; The gasket has failed by a recent spontaneous failure. The failed gasket has facilitated the uncontrolled release of BP Ultimate fuel consistent with the usage of the fuel dispenser to supply BP Ultimate fuel; The gasket was located underlying the fuel dispenser and at a depth of approximately 300m below the site sub-surface. The failed gasket would not have been visible from the site surface, and the recent pavement and fuel dispenser removal works were required to identify the failure; The failed gasket is outside the extent of the tank and line testing as undertaken on the site recently, and would not have been identified by the tank and line testing; No other potential sources of leaks were observed in the site fuel distribution system. All equipment was observed to be in good condition; and The failed part has been removed.
13. Mr Michael Mintilakas of AIS, who apparently had undertaken the investigation, did not give evidence. Mr Matthew Parkinson, the employee of JBS who supervised its works and wrote the report in question, did give evidence. He did not say anything in his evidence in chief about the observations apparently made by Mr Mintilakas.

The expert evidence

1. Dr Ryall and Mr Scott agreed that it was more likely than not that petroleum products (hydrocarbons) emanating from Amashaw's site had been contaminating the Sydney Water sewer main for a continuous period that commenced prior to August 2011. Dr Ryall expressed the view (and Mr Scott did not disagree) that this happened when hydrocarbons within the groundwater came into contact with the sewer main.
2. Dr Ryall said that in his opinion it was likely that the groundwater contained not only DPH but also PSH at all material times from November 2011 on, so that at all material times from then there was a high risk of fire or explosion were an ignition source to be introduced.
3. Dr Hugh Stark, another expert called by Marketform, gave evidence as to the likely source of the leak. He identified a triangular "check valve" said to have been located adjacent to a ULP 98 pump. Dr Stark made that identification from photographs provided to him. There was no evidence of the provenance of the photographs.
4. Dr Stark was asked to assume that there were "two failed gaskets attached to a triangular shaped valve which formed part of a bowser at the north eastern corner". He was asked to assume, further, that the valve "held fuel in the line between the underground tank and the bowser" and that the failure of the gaskets "caused uncontrolled release of BP Ultimate petrol into the ground water each time the fuel was dispensed to the customer". There was no direct proof of those assumptions.
5. Dr Stark gave evidence that a gasket in a valve (for convenience, other forms of and uses for gaskets may be ignored) could fail if the metal flanges between which it is placed were insufficiently or incorrectly tightened, or if the material from which the gasket was made was incompatible with the fluid passing through the valve. Dr Stark was not given the opportunity to inspect the (supposed) failed valve. Accordingly, he was unable to identify, by observation, the mechanism for the failure that appears to have occurred.
6. Dr Stark said that if the rate of leakage had increased over a period of time, it was likely to be "consistent with a developing problem over time rather than a sudden event" (my emphasis). Objection was taken to the emphasised words. I do not regard them as probative. First, they do not seem to me to reflect the application of any specialised knowledge to the identified facts (the observed increasing rate of leakage over a period of time). Secondly, there is no basis on which the opinion can be related to whatever it was that actually failed and caused the leakage from the ULP 98 tank in March and April 2013, as identified by Leighton O'Brien.
7. In cross-examination, Dr Stark gave the following evidence [16] : Q. Is the situation that gaskets may deteriorate over time, but when they reach a certain point then they fail quickly? A. Well, if they are installed correctly you don't expect them to fail. If they're installed with the initial bedding pressure, the Y factor, and particularly if it's hydrostatically tested at that point, you don't expect a failure. Q. If there is a failure and I know you don't expect one, but if there is a failure, is the situation that the failure manifests itself in a quick or sudden fashion? A. No, it's a growing leakage. If - there are circumstances where you can get leakage if the operating pressure is high relative to the initial bedding pressure. There is always, particularly in the soft type of gaskets that we're talking about here, there's a slight relaxation of the gasket over - initially, over the initial period and if your operating pressure is up near that initial bedding pressure you may get a leak, and in industry we accept that, and you go and tighten the up and that's fine. If you leave it leaking, that initial slight leak will grow as it finds its way through the gasket and gradually erodes a bigger and bigger track until you get complete failure.
8. In re-examination (which, strictly speaking, was further examination in chief, and allowed as such) Dr Stark was asked whether triangular valves of the kind shown in photographs taken from a manufacturer's catalogue that he annexed to his report were "of a kind that one typically finds lying underneath fuel dispensers on petrol station sites?" [17] .
9. He responded [18] : A. Well, there was a - you get a better idea if you look at the industry diagram and on page 4 of my report there, the gasket is shown actually separate from or with the dismantled valve and that would typically be what's described in the gasket tables as vegetable fibre. It's like a very dense cardboard with a glue binder in it and that gasket requires about - for an initial pressure about 7,000 kPa bolt up pressure onto it and if you do that, then you're not expecting leakage.
10. Dr Stark was then taken to another photograph (one of those without provenance referred to above [19] ) and asked questions in relation to it [20] : Q. Does the photograph at page 4 that you've just been referring to give you a better view of the kind of gasket that is also shown in photographs 3 and 4? A. Correct. In photographs 3 and 4, of course, you only see the edge of it. Q. Are gaskets of that kind gaskets that are typically found lying underneath a fuel dispenser at a petrol station site? A. Well, it's typical of this valve. Triangular shaped gaskets are not - are relatively unusual but for this piece of equipment it's the norm.
11. There was some disagreement as to the significance of the last answer, in particular the words "triangular shaped gaskets" in the second sentence. In my view, those words should be read as referring to "triangular shaped valves". The preceding sentence of that answer made it clear that Dr Stark had a particular (triangular) form of valve in mind. It is, if I may say so, self-evident that one would use a triangular gasket in a triangular valve, and not in a valve of some other shape. That passage of Dr Stark's evidence should be read as asserting, in effect, that triangular valves of a kind identified in photographs three and four of those provided to him for the purpose of forming his opinion (which purported to be, but were not proved to be, photographs of the actual valve that had failed) were consistent with the kinds of valves that one might see at a petrol station site.
12. I should add that this confusion arose because, up until the moment of Dr Stark's cross-examination, there had been no suggestion in Amashaw's evidence that the photographs provided to Dr Stark did not (as clearly they were understood to do) relate to the service station and to the uncovering of the failed valve in the course of the rectification work. If that had been raised clearly as an evidentiary issue, it would have been open to Marketform to prove the provenance of the photographs.

The parties' submissions

1. Mr Sullivan submitted that there was a relevant liability to pay damages. That liability arose, he said, in nuisance. It mattered not, Mr Sullivan submitted, that there was a concurrent or perhaps even preeminent statutory obligation to make good the consequences of the petrol leak.
2. Mr Elliott relied on: 1. Sydney Water's clear requirement that Amashaw make good the consequences of the petrol leak; and 2. more particularly, the Council's s 91 notice.
3. Mr Elliott submitted that, because Amashaw had a statutory obligation to make good the cost of the petrol leak, there was no liability in damages to which cl 10 could respond.
4. Mr Sullivan submitted in reply that the statutory obligation did not obliterate the liability that Amashaw had in nuisance: a liability that accrued, he submitted, as soon as the cause of action was complete (at the latest, when Sydney Water suffered damage by reason of the explosion).

Decision

1. In my view, Mr Sullivan's submissions are correct. Taking the damage to Sydney Water's sewer main as an example, Amashaw' liability in damages for nuisance crystallised, at the latest, on 3 June 2013 when petrol from Amashaw's service station site, having entered the sewer main, exploded and caused damage. There is nothing in s 91 of the Protection of the Environment Operations Act to suggest that liability under it abrogates or discharges liability, independently of that Act, to pay damages for negligence or nuisance.
2. At the level of fact, there does not appear to be any specific requirement in the s 91 Notice obliging Amashaw to make good the damage caused to Sydney Water's sewer main.
3. Even if the wording of the notice could be so construed, the simple fact is that, regardless of s 91, Amashaw was liable to Sydney Water in nuisance for the damage caused to the sewer main. Amashaw rectified the damage, and incurred costs in doing so. By acting in that way, Amashaw effectively discharged its liability to pay damages for nuisance. Amashaw could have stood by and permitted Sydney Water to do the work, and awaited service of the inevitable demand for payment. I do not see why, in terms of cl 10 of the policy, Amashaw should be in any worse position because it undertook the works itself (through its contractor JBS).

Second question: Damage occurring in its entirety during the Period of Insurance

The parties' submissions

1. Mr Sullivan submitted that Damage occurred, at the latest, on 3 June 2013, when the petrol that had entered the sewer main exploded. Alternatively, he submitted, if the date on which the Damage occurred could not be identified, cl 18.1.2 of the policy deemed Damage to have occurred when Amashaw first became aware of it: that is to say, on 3 June 2013.
2. Clause 18 of the policy reads as follows: 18. CONDITIONS - APPLICABLE TO COVERAGE SECTIONS A, B AND C 18.1 Timing of Injury and Damage Where it is not otherwise possible to ascertain the timing of Injury or Damage, then for the purpose of determining the indemnity granted by this Policy 18.1.1 Injury will be deemed to have occurred when the claimant first consulted a qualified medical practitioner regarding such Injury, whether or not it was correctly diagnosed at that time. If no such consultation took place, then the Injury will be deemed to have occurred when the Insured first received written notice of the Injury; 18.1.2 Damage will be deemed to have occurred when the claimant first became aware of such Damages, even if the cause was unknown.
3. Mr Elliott submitted that Damage had occurred progressively over time, as and when hydrocarbons from Amashaw's service station travelled through the groundwater and entered the sewer main. He relied on the expert evidence (to which I shall return when addressing the third question) to the effect that this had happened progressively from before November 2011, and had continued over time from then up until 3 June 2013

Decision

1. I accept the evidence of Dr Ryall and Mr Scott, to the effect that hydrocarbons had entered the sewer main over a period of time, starting well before the inception of the renewed policy (indeed, before the inception of the first policy). However, there is no evidence of any damage (in the ordinary meaning of that word) being caused.
2. On the evidence, damage was first caused when petrol in the sewer main ignited and exploded. For reasons that I give when dealing with the third question, that is more likely than not to have been the result of a fresh entry of petrol following the failure of the triangular check valve which in turn caused the substantial and apparently continuing discharges of ULP 98 that are evidenced in the SIRA report dated 30 May 2013.

Third question: direct result of a sudden, specific and identifiable event occurring during the Period of Insurance

The parties' submissions

1. Mr Sullivan submitted that the pre-existing situation of slow leakage changed around May 2013, when petrol vapours manifested themselves in the homes of nearby residents. He submitted that those vapours resulted from the release of substantial volumes of ULP 98 commencing in March 2013. Based on the SIRA reports and the leakage rates disclosed for those months, he calculated that about 6,660 litres of petrol was discharged into the ground. Mr Sullivan contrasted that situation with the pre-existing situation when there were either no or minimal leaks.
2. In those circumstances, Mr Sullivan submitted, it was more likely than not that there had been a sudden failure of the gasket in the check valve, as Dr Stark had conceded could have happened. However, Mr Sullivan submitted (consistent with the pleadings), the relevant sudden, specific and identifiable event was not the failure of the valve but the release of about 6,660 litres of petrol consequent upon that failure.
3. Mr Sullivan relied on the conclusions expressed by AIS, and on the fact that valve failure was consistent with the results of tank integrity testing, which had shown no leakage from the USTs themselves.
4. Mr Sullivan submitted that the observations of higher levels of hydrocarbons in the sewer line and elsewhere (under the footpath on Loftus Avenue and in the Telstra pits in Loftus Avenue) were consistent with a sudden build-up of hydrocarbons in the groundwater being pushed towards those locations.
5. In those circumstances, Mr Sullivan submitted, the court could comfortably infer that the source of the PSH that entered the sewer and ultimately was ignited was the release of ULP 98 from March 2013 onwards. In this context, he noted, Mr Parkinson had given evidence that he observed petrol fuel, and not just petrol vapours, in the sewer, entering from the soil around it, and under the footpath of Loftus Avenue. Mr Parkinson was not challenged on that aspect of his evidence.
6. Mr Elliott submitted that, on the evidence, there had been a steady and continuous leakage of petrol from prior to August 2011, which became progressively worse over time, and became much worse in March and April 2013. However, he submitted, a leakage of petrol could not be an "event" for the purposes of cl 10.1 of the policy.
7. Next, Mr Elliott submitted, even if leakage could be an "event", the pre-existing and continuing leakage that had been proved could not be described as "a sudden, specific and identifiable event occurring during the Period of Insurance"; nor could a deteriorating leakage.
8. I should note that Amashaw had pleaded, in the alternative, that the relevant event was a change in the direction of movement of groundwater. Mr Sullivan's submissions did not address that alternative case directly. Mr Elliott submitted that a change in the direction of movement of groundwater could not be an "event" for the purposes of cl 10.1, because it did not cause Pollution; it simply altered the location in which that Pollution might occur.
9. Mr Elliott relied further on evidence given by Dr Ryall that the location and general direction of travel of the plume were such that contaminated water would have intercepted the sewer pipe at some point. Dr Ryall said that a change in the direction of movement would do no more than alter the specific point in the sewer main at which contaminants could enter.

Decision

1. I find on the evidence that from at least November 2011, there had been a leakage of petrol from some of the fixtures or installations in the site into the soil. It is not possible to identify the source of that petrol prior to March 2013. The evidence of Dr Stark, that there may have been some "developing problem over time", is really no more than speculation: particularly given Dr Stark's evidence that a properly sealed gasket of the appropriate material would not be expected to leak, and should function without failure for about 30 years.
2. I am satisfied, based on the views of Mr Mintilakas of AIS as reported by Mr Parkinson of JBS, that the valve identified by Mr Mintilakas "failed by a recent spontaneous failure". Although that material was hearsay, there is no reason to think that Mr Parkinson misreported what AIS said (this was not put to him in cross-examination) or that Mr Mintilakas did not know what he was talking about. Nor is there any evidence to controvert it.
3. In my view, it is more likely than not, and I find, that the valve identified by Mr Mintilakas failed in about March 2013, and thus permitted large quantities of petrol to enter the soil underneath the service station. Mr Elliott did not dispute Mr Sullivan's calculation of a discharge of about 6,660 litres. There is no doubt that the valve failed, and the consequent discharge of 6,660 of ULP 98 occurred, during the relevant Period of Insurance.
4. The first question to be confronted is whether that specific leakage of petrol is no more than a continuation of the pre-existing leakage. The source of the pre-existing leakage has not been identified. For the reasons I have given, the source of the leakage of 6,660 litres of ULP98 has been identified. The source (or cause) of the earlier leakage could not have been the failed valve, as otherwise the earlier leakage would have occurred at a far greater rate than was actually observed, and no doubt would have been detected and dealt with well before June 2013.
5. In those circumstances, if leakage of petrol can be an "event", the specific leakage to which Mr Sullivan pointed, resulting from the failure of the valve, was a different event to the earlier and ongoing leakage.
6. Is leakage of petrol an "event" for the purposes of cl 10.1? Clause 10 operates to indemnify Amashaw against its "liability to pay damages… arising out of Pollution". As I have observed, "Pollution" is defined to mean "any pollution or contamination of the atmosphere or of any water, land or other tangible property". The Pollution must be something separate from, because it is the result of, the relevant event.
7. In the present case, the Pollution out of which the Damage is said to have arisen (being the Damage giving rise to Amashaw's liability to pay damages) is the contamination by petrol of Sydney Water's sewer. It is not the contamination of the service station site itself.
8. The petrol that contaminated Sydney Water's sewer was, I have found, petrol that escaped when the triangular check valve failed. The failure of the valve released petrol (the 6,660 litres to which Mr Sullivan referred) into the soil below the service station. The petrol so released then flowed with the groundwater in a generally northerly direction, across (or under) the northern boundary of the service station site and into Sydney Water's sewer main and the soil surrounding it.
9. In short: 1. the relevant Pollution giving rise to Damage is the contamination of Sydney Water's sewer main by petrol; and 2. the event causing that Pollution was the earlier discharge (in and after March 2013) of petrol from the failed check valve.
10. In those circumstances, I conclude, there was an "event" that is separate from the "Pollution" to which it gave rise, which Pollution gave rise to damage that in turn gave rise to Amashaw's liability to pay damages.

Conclusion on the first issue

1. The indemnity claimed by Amashaw falls within the scope of cl 10 of the policy.

Issue two: amount of indemnity

1. The total amount for which Amashaw claims indemnity (before interest) is $1,197,320. That sum is made up of: 1. the costs of making good damage caused by the incursion of petrol into services (including, but not limited to, Sydney Water's sewer main) and the consequences of those incursions; and 2. the cost of constructing an interception system along the northern and eastern boundaries of the service station site, to prevent contaminated ground water from getting to third party property and services in the future.
2. Mr Elliott labelled those categories of works as, respectively, "restorative works" and "preventative works". It is convenient to adopt those descriptions.
3. Mr Elliott identified the cost of undertaking the restorative works at about $265,700, and the cost of the preventative works as being the balance (about $930,000). Mr Sullivan did not address directly this suggested breakdown of the overall costs incurred.

The parties' submissions

1. Mr Sullivan submitted that Amashaw was entitled to recover the costs of the preventative works as well as of the restorative works. He submitted that the preventative works were works done in abatement of the nuisance and mitigation of damage. Mr Sullivan submitted, further, that Amashaw should be in no worse position because it had carried out those works itself (using JBS as the contractor to undertake and procure them) rather than waiting for Sydney Water and the other affected bodies to do what was necessary and claim recoupment of the costs they incurred.
2. Mr Elliott submitted that the primary measure of damages was diminution in value of the damaged land. He submitted, correctly, that there was no evidence of this. However, Mr Elliott appeared to accept, in the alternative, that if the policy otherwise responded to the claim, Amashaw was entitled to recover the reasonable cost of the restorative works.
3. Mr Elliott submitted that the cost of the preventative works was not recoverable: 1. in principle, because the performance of the preventative works was not necessary to make good, and did not make good, any damage suffered by Sydney Water or any other body; and 2. because 10.2 of the policy made it a condition precedent to cover under cl 10.1 that Amashaw "had taken all reasonable precautions to prevent loss by Pollution"; Mr Elliott submitted that it would be absurd for Amashaw to be able to recover, by indemnity under cl 10.1, the cost of doing that which it was bound to have done as a condition of entitlement to any indemnity.
4. I should note that Mr Elliott submitted, further, that the evidence did not identify the cost of any restorative works undertaken by Amashaw for third parties other than Sydney Water.

Decision

1. It is clear that in some circumstances, damages for nuisance may be assessed as the cost of making good the effects of the nuisance: Seiwa Pty Ltd v Owners Strata Plan 35042 [21] . However, that principle does not extend to performance of works on the land from which the nuisance emanates [22] .
2. Mr Sullivan relied on the decision of Hodgson J in Proprietors of Strata Plan No 14198 v Cowell [23] . I do not think that his Honour's reasoning in that case has anything to do with the present case. In the first place, in the passage on which Mr Sullivan relied [24] , Hodgson J was talking of a plaintiff (the victim of the nuisance) who carried out works in abatement of the nuisance. In this case, the suggested works of abatement, being the construction of interception trenches, were carried out not by the victims of the nuisance but by its perpetrator. Secondly, as Hodgson J made clear, if the costs of abatement works done by the victim of the nuisance are to be recoverable, it will only be if they are works done in reasonable mitigation of loss.
3. Leaving aside any possible question of quantification, the works that made good the damage caused by the escape by petrol from the service station site to adjoining properties were the restorative works. The preventative works were not undertaken to make good the damage caused. They were undertaken to prevent further damage from being caused.
4. It is not necessary to express a concluded view on Mr Elliott's alternative submission [25] . It has not been shown that the works in question were, at the time the initial policy or the renewed policy incepted, "reasonable precautions to prevent loss by Pollution". It may be noted that Marketform did not rely on a suggested breach of cl 10.2 (or failure to perform what Mr Elliott described as a precondition of entitlement to indemnity) by way of defence. Nor did Marketform offer indemnity against Damage caused by Pollution when the policy was renewed, for a second time, in June 2013.
5. I conclude that the only costs for which Amashaw is entitled to indemnity are the costs of the restorative works. In case I have misunderstood the extent of Mr Sullivan's acceptance of Mr Elliott's figures, I shall refrain from entering judgment for that amount (with interest to be calculated), and direct the parties to sort out the proper figure.

Conclusion and orders

1. It follows that Amashaw should succeed on its claim, but only to the extent of the cost of the restorative works undertaken by it or at its direction. Amashaw is entitled to interest on the cost of those works.
2. The parties are to prepare short minutes of order to give effect to these reasons, both as to the cost of the restorative works and as to interest. I will stand the matter over for a time to enable that to be done.
3. There may well be questions of costs. If the parties cannot agree on the costs orders to be made, the orders to be prepared should include provision for the exchange of brief submissions on costs. The question of costs will be dealt with, once submissions have been received, on the papers.
4. I make the following orders: 1. Direct the parties to prepare short minutes of order to give effect to these reasons; 2. Stand proceedings over to 9:30am on 1 June 2017 before me for the making of orders.

Endnotes

1. See Kuligowski v Metrobus (2004) 220 CLR 363; Gauci v Federal Commissioner of Taxation (1975) 135 CLR 81; Steinberg v Federal Commissioner of Taxation (1975) 134 CLR 640; Hobbs v Tinling [1929] 2 KB I. These and many other cases consider this question, but afford little by way of comprehensive answer.
2. T146.30.
3. See Mr Flower's affidavit apparently sworn 15 November 2016, at [9].
4. Same affidavit at [50]-[52].
5. Affidavit sworn 15 November 2016 at [14], [15].
6. T105.39-106-6.
7. T147.28
8. See Permanent Trustee Australia Limited v FAI General Insurance Company Limited (In Liquidation) (2003) 214 CLR 514 at [28]-[33] (McHugh, Kirby and Callinan JJ).
9. See at [60] above.
10. At [15] of his affidavit.
11. See Meagher JA (with whom Ward JA agreed) in Stealth Enterprises Pty Ltd v Calliden Insurance Limited [2017] NSWCA 71 at [39].
12. See Permanent Trustee v FAI General at [30]; Stealth Enterprises at [50].
13. Compare Stealth Enterprises at [55].
14. At [23] and following.
15. Defendant's written closing submissions at [59].
16. T73.50-74.16.
17. T76.18-.19.
18. T76.20-.26.
19. At [107].
20. T76.44-77.1.
21. [2006] NSWSC 1157 at [27].
22. Seiwa at [27].
23. (1989) 24 NSWLR 478.
24. At 486-487.
25. Recorded at 154 above. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 17 April 2018