Baulderstone Hornibrook Engineering Pty Limited v Gordian Runoff Limited

LEGISLATION CITED : Civil Procedure Act 2005 (NSW) Uniform Civil Procedure Rules 2005 (NSW)

A and N Holding NSW Pty Limited v Andell Pty Limited [2006] NSWSC 5 Australian Development Corporation v White Constructions (ACT) Pty Ltd & Anor (unreported, Supreme Court of New South Wales, Einstein J, 8 February 1999, BC9900223) Australian Federation of Consumer Organisations Inc v Tobacco Institute of Australia Ltd (1991) 100 ALR 568 Berkeley Administration Inc v McClelland [1990] FSR 565 Colgate-Palmolive Co v Cussons Pty Limited (1993) 46 FCR 225, (1993) 118 ALR 248 Credit Lyonnais Australia Limited v Darling (1991) 5 ACSR 703 Darryl Cullen v ZLB Behring LLC [2006] NSWSC 359 DSE (Holdings) Pty Limited v InterTan Inc [2004] FCA 1251 Fowdh v Fowdh & Anor (unreported, Supreme Court of New South Wales Court of Appeal, Kirby ACJ Mahoney AP and Meagher JA, 4 November 1993, BC 9302200) Furber v Stacey & Anor [2005] NSWCA 242 General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 Gray v Gray [2005] NSWCA 129 Hanave Pty Ltd v LFOT Pty Ltd (formerly Jagar Pty Ltd) & Ors [1998] 1429 FCA Hurstville Municipal Council v Connor (1991) 24 NSWLR 724 InterTan Inc. v DSE (Holdings) Pty Limited [2005] FCAFC 54 Jackamarra v Krakouer (1998) 195 CLR 516 Jones v Bradley (No. 2) [2003] NSWCA 258 Lahoud v Lahoud [2006] NSWSC 126 Leichhardt Municipal Council v Green [2004] NSWCA 341 LMI Australasia Pty Ltd v Baulderstone Hornibrook Pty Ltd (No 2) [2002] NSWSC 72 CASES CITED : Lyell, In re [1941] VLR 207 Marks, Kinross, McCullagh & Williamson v GIO Australia Holdings Ltd (No 2) (1996) 66 FCR 128 MGICA (1992) Pty Ltd v Kenny & Good Pty Ltd (No 2) (1996) 70 FCR 236 Ng v Chong [2005] NSWSC 385 Oshlack v Richmond River Council (1998) 193 CLR 72 Rickard Constructions Pty Limited v Rickard Hails Moretti Pty Limited [2005] NSWSC 481 BC 200503634 Rolls Royce Industrial Power (Pacific) Ltd v James Hardie & Co Pty Ltd (2001) 53 NSWLR 626 Rosniak v Government Insurance Office (1997) 41 NSWLR 608 Rosser v Maritime Services Board of New South Wales (No 3) (unreported, Supreme Court of New South Wales, Young J, 25 November 1997, BC9706221) South Eastern Sydney Area Health Service v King [2006] NSWCA 2 Smallacombe v Lockyer Investment Co Pty Ltd (1993) 42 FCR 97 SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323 Smith Re; ex parte Rundell (No. 2) (1991) 6 WAR 299 South Eastern Sydney Area Health Service v King [2006] NSWCA 2 Statham v Shephard (No 2) (1974) 23 FLR 244 Stockland (Constructors) Pty Limited v Darryl I Coombs Pty Limited [2005] NSWSC 252 Tripple Take Pty Limited v Clark Rubber Franchising Pty Limited [2005] NSWSC 1169 Van Doore by his tutor the Protective Commissioner v Mendez (No 2) (unreported, Supreme Court of New South Wales, Dunford J, 30 June 1997, BC9702746) Wakeford v Ellis (unreported, Supreme Court of New South Wales, McLaughlin M, 7 May 1998, BC9804384) Waters v PC Henderson (Australia) Pty Ltd (unreported, Supreme Court of New South Wales, Court of Appeal, Kirby P, Mahoney JA and Priestley JA, 6 July 1994, BC 9404952) White v Overland [2001] FCA 1333

Baulderstone Hornibrook Engineering Pty Limited (Plaintiff) PARTIES : Gordian Runoff Limited (formerly GIO Insurance Limited) First Defendant) CGU Insurance Limited (Third Defendant) AMP General Insurance Limited (Eleventh Defendant)

Mr Finch SC, Mr A McInerney (Plaintiff) Mr R Smith SC, Mr M Jones (First Defendant) COUNSEL : Mr S Robb QC, Mr G Ellis (Third Defendant) Mr S White SC, Mr R Hollo, Mr M O'Meara (Eleventh Defendant) Mr S Kerr (SACL)

Freehills (Plaintiff) Corrs Chambers Westgarth (First Defendant) SOLICITORS : Colin Biggers & Paisley (Third Defendant) Moray & Agnew (Eleventh Defendant) Mallesons Stephen Jaques (SACL)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION COMMERCIAL LIST

50176/03 Baulderstone Hornibrook Engineering Pty Limited v Gordian Runoff Limited (formerly GIO Insurance Limited) & 10 Ors JUDGMENT Costs 1 The reserved judgment in the proceedings was delivered on 12 April 2006. The parties were granted leave to address on questions of costs. 2 A number of issues require to be addressed:

ii. as questions arise in relation to BHE's reliance upon the suggested principle that the proper approach to costs is informed by the fact that the defendants, albeit having no or only limited conflicts of interest, should not be allowed their full separate costs;

iii. as BHE submitted that Gordian and CGU should have their party/party costs reduced by reason of their failure with regard to particular issues;

v. as other issues of an instant specific nature to the present proceedings require to be addressed. The principles 3 Notwithstanding the general consensus as to the principles it is convenient to outline the main areas treated with by the authorities and generally taken as a given as informing the reasons which follow. A deal of that reference to principle is taken from the submissions of one or other of the parties and adopted as correct. The issue is presently one of application of those principles to a set of proceedings which occupied years of preparation by the parties prior to the hearing, months of court time and extraordinary features [cf judgment at [63]-[69] under the heading: "An unusual case"]. The Civil Procedure Act 2005 4 It is convenient to commence with a reference to the Civil Procedure Act, 2005 ["the Act"]. 5 Section 56 (1) obliges the parties to conduct proceedings in a way which would facilitate the just, quick and cheap resolution of the real issues in the proceedings. 6 The significance of s 56 to conduct in the commercial list was explained by Bergin J in A and N Holdings NSW Pty Limited v Andell Pty Limited [2006] NSWSC 55 (para 24) where her Honour described the Commercial List as a "fast track for litigation". 7 Section 56 is a statutory enactment of the principles which have long applied to the conduct of commercial litigation (such as this case) in this State: Tripple Take Pty Limited v Clark Rubber Franchising Pty Limited [2005] NSWSC 1169. 8 Section 56 gives effect to Mahoney P's observation that litigation is not a game. The section requires litigants at the risk of costs orders to concentrate on the real issues. A party may no longer put another to the proof of a fact which the first knows is true without a costs penalty where the party put to proof establishes the fact. The "fast track" of which Bergin J spoke should not stop once a plaintiff succeeds in having the hearing begin. General approach The usual order 9 The usual order is that costs follow the event (although there is no absolute rule to that effect): Oshlack v Richmond River Council (1998) 193 CLR 72, per McHugh J at [63]-[67]. The position will be otherwise if " it appears to the Court that some other order ought be made as to the whole or any part of the costs": Credit Lyonnais Australia Limited v Darling (1991) 5 ACSR 703 at 710 per Kirby P. Apportionment 10 The effect of UCPR Part 42 r 42.1 is that an unsuccessful party may be ordered to pay the entirety of the costs of a successful party, even though the successful party did not succeed on all issues. Special circumstances are generally required to justify some other order being made 11 Unless a particular issue or group of issues is clearly dominant or separable it will ordinarily be appropriate to award the costs of the proceedings to the successful party without attempting to differentiate between those particular issues on which it was successful and those in which it failed: Waters v PC Henderson (Aust) Pty Ltd (unreported, Supreme Court of New South Wales Court of Appeal, Kirby P, Mahoney JA, Priestley JA, 6 July 1994, BC 9404952). 12 Whilst the general principle is that an ultimately successful party ought not be put at risk as to costs merely by having relied upon additional issues upon which it did not succeed (on the basis that the ultimate ends of justice may not be served if a party is dissuaded by the risk of costs from canvassing all issues which might be material to the decision in the case8), a successful party may only get a proportion of its costs if the unsuccessful party is able to identify clearly dominant or separable issues lost by the successful party Multiple parties 13 The Court will not normally allow more than one set of costs to successful litigants where there was no possible conflict of interest between them in the presentation of their cases: Statham v Shephard (No 2) (1974) 23 FLR 244. The matter was put as follows at 246, per Woodward J:

The principle which I deduce from these authorities, and which I believe I should follow in spite of the two cases earlier cited, is that the court will not normally allow two sets of costs to defendants where there is no possible conflict of interest between them in the presentation of their cases. I would add to this basic proposition three provisos. In the first place, if a conflict of interest appears possible but unlikely, the defendants should make any necessary inquiries from the plaintiff as to the way in which his case is to be put if this would resolve the possibility of conflict between defendants. (See In re Lyell [1941] VLR 207.)

Secondly, there could be circumstances in which, although the defendants were united in their opposition to the plaintiff, their relationship to each other might be such that they would be acting reasonably in remaining at arm's length during the general course of litigation.

Thirdly, even if defendants are acting reasonably in maintaining separate representation for some time or for some purposes, they may still be deprived of part of their costs if they act unreasonably by duplicating costs on any particular matter or at any particular time. Indemnity costs 14 The Court has power to award indemnity costs under s 98(1)(c) of the Act. 15 The principles on which an indemnity costs order will be made, are well settled. The principles established by Sheppard J in Colgate Palmolive Co v Cussons Pty Limited (1993) 46 FCR 225, 233 are generally accepted. 16 Recent applications of those principles in this Court are Lahoud v Lahoud [2006] NSWSC 126, Campbell J; Stockland (Constructors) Pty Limited v Darryl I Coombs Pty Limited [2005] NSWSC 252, and by the Court of Appeal in Gray v Gray [2005] NSWCA 129 para 18. In Gray, Colgate (supra) was referred to as "the leading judgment". 17 The High Court in Oshlack at 89, 90 (Gaudron and Gummow JJ) recorded that indemnity costs were appropriate where the case involved "some relevant delinquency on the part of the unsuccessful party": See the observations quoted by those Justices from the judgment of Malcolm CJ's in Smith, Re; ex parte Rundell (No. 2) (1991) 6 WAR 299. 18 The following factors include those listed by Sheppard J in Colgate Palmolive v Cussons (1993) 118 ALR 248, as accepted by the Court of Appeal in Leichhardt Municipal Council v Green [2004] NSWCA 341 at [48], as of relevance to the present application: · "Evidence of particular misconduct that causes loss of time to the court and the other parties … · The fact that the proceedings were commenced in wilful disregard of known facts …; · The making of allegations that ought never to have been made or the undue prolongation of a case by groundless contentions; [It is to be noted that CGU has submitted, that for the purposes of Sheppard J's para (a), an allegation of bad faith may have a similar effect to an allegation of fraud]. 19 Section 56(5) of the Act expands the circumstances in which an indemnity costs order may be made. 20 In order to establish a basis for an indemnity costs order, it is necessary to establish by evidence relevant delinquency, abuse of process, ulterior purpose or unreasonableness on the part of BHE. 21 Evidence of unreasonable conduct on the part of the party ordered to pay costs is usually required: Rosniak v Government Insurance Office (1997) 41 NSWLR 608 at 616 per Mason P. 22 The difficulty or otherwise of the litigation cannot itself be the basis for the award of costs on a special basis, as the courts are constantly engaged in complex litigation, and the fact that a particular piece of litigation raises difficult questions of law necessitating elaborate preparation is not a novelty: cf, Marks, Kinross, McCullagh &Williamson v GIO Australia Holdings Ltd (No 2) (1996) 66 FCR 128 at 141. 23 The mere fact that a party fights the proceedings fiercely and that no stone is left unturned is not a ground for a special costs order: cf, Australian Federation of Consumer Organisations Inc v Tobacco Institute of Australia Ltd (1991) 100 ALR 568 at 570; Berkeley Administration Inc v McClelland [1990] FSR 565 at 569-570. 24 The mere fact that a case has been found to lack merit cannot be a basis for a special costs order, for in most litigation that comes to a concluded hearing, the claim of one of the parties will have been found lacking in merit: cf, Hurstville Municipal Council v Connor (1991) 24 NSWLR 724 at 735. [See the practical application of the above principles by Allsop J in DSE (Holdings) Pty Limited v InterTan Inc [2004] FCA 1251 and on appeal InterTan Inc. v DSE (Holdings) Pty Limited [2005] FCAFC 54] Prolonging a trial 25 Prolonging a trial by litigating issues which are known to the unsuccessful party not to be real issues, in breach of s 56 of the Act, is capable of constituting relevant delinquency. Section 56(5) would in an appropriate case permit this form of delinquency to be taken into account in the Court's exercise of its discretion to award costs. Depending always upon the precise circumstances, the Court has power to order indemnity costs against an unsuccessful party whose conduct has breached s 56: and this in furtherance of the statutory object which the section embodies. Interest 26 The Court may order the payment of interest on the costs so awarded, such interest to be payable as from the date or dates on which the costs in question were paid [s 101(5)(a) of the Act]. The principles are set out by Campbell J in Lahoud at para 78 ff. There is no requirement that the Court be satisfied before making such an order that the case was out of the ordinary. The governing consideration is to compensate a party which is out of pocket by having to pay costs. A word of warning 27 Gordian contended as follows:

i. The Court is vigilant to ensure that successful parties who incur additional costs in litigating issues which would not have been litigated had only the real issues in dispute been litigated, should be effectively compensated for the costs incurred, otherwise an innocent party will bear the costs of the wrongdoers' delinquency.

ii. Parties who choose not to litigate the real issues should do so at their own cost. 28 These submissions may be accepted subject to an important rider, namely the need to accept that in any particular set of proceedings the parties are of course entitled to, in good faith, determine to litigate issues reasonably believed at the time to bear upon the real issues. The pendulum dictated by the Act should not be seen as a mechanism to deny parties their entitlement to litigate issues believed on proper grounds to be genuine issues even if, with the benefit of hindsight, the course of the evidence ultimately shows that the litigation of some of those issues may have been an incorrect call. Prescience is a rare commodity, particularly where very complex litigation is in play. 29 All of this simply serves to point up the instant specific nature of the principled exercise of the discretion. There are cases and there are cases. The trial judge will usually be in the best position to determine how the discretion should be exercised: cf Furber v Stacey & Anor [2005] NSWCA 242 at [126], [133]. Calderbank offers 30 The principles which the Court should apply to decide whether an award of indemnity costs should be made in favour of a defendant who has made a Calderbank offer which is rejected by the plaintiff are as set out in Leichhardt Municipal Council v Green [2004] NSWCA 341 and Rickard Constructions Pty Limited v Rickard Hails Moretti Pty Limited [2005] NSWSC 481 per McDougall J. 31 An award of indemnity costs may be appropriate where a party has unreasonably failed to accept an offer of settlement of the proceedings. The relevant question of whether the failure of the party to accept a settlement offer was unreasonable is to be assessed in all of the circumstances: Jones v Bradley (No. 2) [2003] NSWCA 258 at [5] - [8]. 32 Merely refusing a Calderbank offer does not automatically lead to an order for indemnity costs [Ng v Chong [2005] NSWSC 385 at [13] and see also the authorities conveniently identified at Ritchie's [42.13.25]]. 33 A Calderbank letter raises no prima facie presumption in favour of indemnity costs [SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323 at [37]; Jones v Bradley (No 2) [2003] NSWCA 258 at [8]; Ng v Chong [2005] NSWSC 385 at [13]]. 34 A court may also refuse indemnity costs where a party succeeds at trial on a case that significantly changed after the offer was made (Wakeford v Ellis (unreported, Supreme Court of New South Wales, McLaughlin M, 7 May 1998, BC9804384); Fowdh v Fowdh (unreported, Supreme Court of New South Wales Court of Appeal, Full Court, 4 November 1993, BC 9302200) at [6] per Mahoney JA:

"It is one thing for a plaintiff to present her evidence, make an offer of compromise, and to succeed at the trial on that evidence. In such a case, indemnity costs may be warranted. It is another thing for the plaintiff to present a case and make an offer of settlement, and then to succeed at the trial upon a relevantly different case. A plaintiff who has done that may not readily receive indemnity costs. I do not mean by this that minor differences between the case at offer and the case at trial will be of significance or that, if the difference be significant, a discretionary judgment for indemnity costs may not be given. But where the difference between the position at offer and the position at trial be as the Master assessed it to be, a decision to refuse indemnity costs may readily be understood." [cf: Van Doore by his tutor the Protective Cmr v Mendez (No 2) (unreported, Supreme Court of New South Wales, Dunford J, 30 June 1997, BC9702746); South Eastern Sydney Area Health Service v King [2006] NSWCA 2 at [90] per Hunt AJA, McColl JA and Mason P agreeing:

"The discretion to award indemnity costs following a Calderbank letter must be considered having regard to all of the circumstances of the case, including the relevant strengths and weaknesses of each party's case as they may have been apparent to the parties at the time the offer was made."] 35 This must be evaluated in the context of the circumstances when the offer was rejected, including the relevant strengths and weaknesses of each party's case as they may have been apparent to the parties at the time the offer was made: Darryl Cullen v ZLB Behring LLC [2006] NSWSC 359 at [15] citing Rolls Royce Industrial Power (Pacific) Ltd v James Hardie & Co Pty Ltd (2001) 53 NSWLR 626 at [95]-[99]; South Eastern Sydney Area Health Service v King [2006] NSWCA 2 at [90]. 36 The fact that the offer proves to have been more favourable than the ultimate judgment does not, of itself, prove unreasonable conduct in rejecting the offer. 37 A difficult and complex case, hard-fought by large commercial parties may lead to the conclusion that it was reasonable to reject a Calderbank offer: LMI Australasia Pty Ltd v Baulderstone Hornibrook Pty Ltd (No 2) [2002] NSWSC 72 at [53]-[55]. 38 Discretionary factors include the complexity of the issues (MGICA (1992) Pty Ltd v Kenny & Good Pty Ltd (No 2) (1996) 70 FCR 236; Ng v Chong [2005] NSWSC 385 at [14]) and the period allowed for acceptance (Ng v Chong [2005] NSWSC 385 at [14]). 39 A further relevant factor is the form of the Calderbank letter, and the manner in which the offer treats with costs. 40 It has been held that a Calderbank letter which is expressed to be "inclusive of costs", is insufficiently precise to qualify as a Calderbank offer, for the reason that the offeree is placed in a position of not being able to determine the appropriate amount to attribute to the substantive claim and the costs incurred in advancing it: Smallacombe v Lockyer Investment Co Pty Ltd (1993) 42 FCR 97 at 102; Hanave Pty Ltd v LFOT Pty Ltd (formerly Jagar Pty Ltd) [1998] 1429 FCA 11, BC9805993 (Smallacombe Pty Ltd v Lockyer Investments Co Pty Ltd was referred to by Young J in Rosser v Maritime Services Board of New South Wales (No 3) (unreported, Supreme Court of New South Wales, 25 November 1997, Young J, BC9706221). 41 These authorities recognise the importance of isolating the costs component in such a way which is clear and capable of proper assessment independently of the principal claim, as part of a Calderbank letter. Dealing with the costs issues Separate representation of Gordian and CGU 42 There is no substance in the propositions that:

i. Gordian and CGU were not entitled to have separate legal representation;

ii. Gordian and CGU failed to observe the Court's dictate that the parties consult in terms of dividing up the categories in respect of which the defendants would cross-examine [it having been accepted by the Court that to a limited extent an overlap would likely be a necessary concomitant of the complexity of the issues to be addressed] 43 Clearly there were a number of areas where it was necessary for Gordian and CGU to have separate representation, particularly where their respective policies required to be construed. 44 Each of the following submissions by Gordian is of substance:

i. each insurer was separately sued for an indemnity under a separate contract of insurance. Relief was separately claimed against each.

ii. there were some difficult issues of construction that needed to be addressed in determining BHE's alleged entitlement to indemnity. As is clear from the way each of Gordian and CGU addressed the construction issues, each insurer approached construction differently. Each was fully entitled to do so.

iii. BHE commenced the case (on the basis of the lost settlement claim) and maintained the case (on the repudiation of liability point) claiming that there had been a separate breach of the duty of utmost good faith by each of Gordian and CGU.

iv. each case necessarily focused upon the conduct of the respective employees, and, in light of it deploying Mr Price's evidence, legal representatives of each insurer. It meant that careful forensic decisions, including the potential deployment of privileged material (communications between insurer and lawyer) needed to be closely monitored.

v. the case (at least for a substantial part of BHE's case in chief) was said to support a claim against each insurer for millions of dollars. Each insurer was entitled to separately defend such serious allegations said to support damages claims for such large sums of money.

vi. the case did raise (through the way it was conducted by BHE) a myriad of factual and legal issues.

vii. having regard to the legal and factual complexity introduced into the case by BHE, it could not be said from the start that there could be no possible conflict of interest between insurers.

viii. having regard to where BHE started its case and where it ended it, it is difficult to see how anyone could have predicted the course (and the issues) chosen by it.

ix. the fact that each insurer took different routes in cross examination and final submissions to successfully defend the claim makes clear that it was appropriate that each insurer was separately represented.

x. on the basis that it was reasonable for Gordian and CGU to be separately represented, there is no suggestion in the BHE submissions that the proceedings were prepared and presented by Gordian and CGU other than efficiently.

xi. the Court file is littered with affidavits at the pre-trial interlocutory stage where it is apparent that each set of solicitors shared the enormous discovery task.

xii. the insurers only put forward one expert on each of the necessary disciplines (reinforced earth, corrosion and accounting (the latter not being required because of the abandonment of the lost settlement case), and a number of experts on the clause 7 issue (to prove a wide body of experience)).

xiii. there was no significant duplication between them in relation to the content of their tender bundles. The Court took care to ensure that there was no substantial overlap of cross-examination or presentation of oral submissions. 45 Having presided over the hearing of many months it is my judgment that Gordian and CGU acted responsibly and efficiently in the division which they achieved in terms of cross-examination and address. Apportionment of costs 46 The areas in respect of which BHE contended that Gordian and CGU, having failed on the issues, should not receive their costs were as follows:

i. the defence that BHE had acted in breach of its obligation of good faith;

ii. the defence based on Exclusion 7 of the HIH Policy;

iii. the defence based on Exclusion 1(o) of the HIH Policy;

iv. BHE's contention that the settlement of the SACL proceedings was reasonable (including that the gravity wall concept comprises a reasonable solution to the sand loss problem);

v. CGU's Condition 8 defence. 47 There is no substance in the proposition that any apportionment of costs in relation to any of these matters is appropriate. As Gordian has submitted:

i. each of the matters identified by BHE naturally arose from the claim for indemnity, which claim was lost by BHE.

ii. The matters identified were not so unmeritorious as to warrant a departure from the general rule.

iii. The time spent on the matters was relatively insignificant.

iv. In the overall scheme of the case, BHE's victories on these matters were small relative to the significance of its loss, such that it ought to be regarded as an unsuccessful litigant in the proceedings as a whole. The central issue on most of the costs arguments 48 Approximately 200 pages of written submissions [including affidavits] were received on costs. It is unnecessary for very obvious reasons to recite all of these submissions in the decision-making process as to the principled exercise of the relevant discretion. 49 A principal contention involved the submissions that:

ii. BHE litigated factual and other issues, disputing their correctness, when it knew them to be correct;

iii. BHE put forward Professor Ingold as its expert

(a) giving him a positive direction to assume that the reinforced earth walls had been constructed fully in accordance with contract specifications;

(b) doing so notwithstanding that BHE had knowledge of circumstances which falsified the assumptions put to Professor Ingold. 50 These submissions can of course only be tested against the full appreciation of how the litigation was conducted [a matter sometimes assisted by observations made in the judgment]. Here again it is very important to guard against placing undue reliance upon the benefit of hindsight. 51 CGU put forward the following propositions which are fair and accurate in every respect:

i. BHE plainly appreciated that its claim for indemnity by CGU would be defeated by Exclusion 1(p) if inadequate construction was a material cause of the sand loss.

ii. Success on the claim for indemnity required that the Court find inadequate design by RE was the only real cause.

iii. If it were the case that the general body of evidence made it reasonable for BHE to contend that inadequate design was the only real cause, and if BHE had properly constructed its case to support that contention, then all other things being equal it would not make itself liable to pay indemnity costs, merely because its claim failed.

iv. A conscientious plaintiff who has reason to accept the validity of its expert's opinion does not become liable to pay indemnity costs because of the unexpected collapse of its expert's evidence. 52 The real question concerns whether [as Gordian and CGU submit, but BHE denies], these were the circumstances of the way in which BHE ran its case in the proceedings. 53 Although Gordian and CGU presented separate sets of submissions on costs, they overlapped on many occasions. To my mind the gravamen of at least an extremely important part of the respective submissions, was that:

i. BHE pursued a claim based upon Professor Ingold's evidence, which set the scene for much of the evidence on the issue which followed,

ii. the claim was that the sand loss was a result of defective design on the part of RE,

iii. The claim is seen to have constituted an unsustainable attempt to avoid the application of Exclusion 1(p) of the HIH Policy, in circumstances where BHE instructed Professor Ingold: a) to proceed on a materially false assumption,

with the result that Professor Ingold's evidence was contrary to the spirit of the Expert Witness Code of Conduct [UCP Rules Schedule 7 para 3(2) and (3)]. 54 The proposition was succinctly summarised by CGU as follows:

i. BHE started the process of compiling its expert evidence to prove that the sand loss was caused by inadequate design by giving its expert, Professor Ingold, a positive direction to assume that the reinforced earth walls had been constructed fully in accordance with the contract specifications [MFI D1(a), Vol 1, tab 35].

ii. All of the reports Professor Ingold subsequently produced were consistent with that assumption, and contained positive statements of opinion excluding defective construction being the cause of the sand loss.

iii. BHE had knowledge of circumstances which falsified the assumption given to Professor Ingold, and were inconsistent with those parts of his opinions which absolutely excluded defective construction. Yet BHE pursued its proceedings against CGU to the end in the hope against hope that somehow Professor Ingold's opinion would prevail.

iv. In this sense BHE consciously gambled in pursuing its case against CGU, because the way it put its case, it could not seriously hope to avoid the application of Exclusion 1(p) if Professor Ingold's opinion did not prevail.

v. BHE's gamble may well have paid off, if Gordian and CGU had not retained Professor Leshchinsky, an expert who was able to provide an expert opinion in conformity with the Expert Witness Code of Conduct; an opinion which explained the true probable causes of the sand loss and provided a proper technical basis in the evidence for exploding Professor Ingold's opinions.

vii. The following is material to the state of BHE's knowledge at relevant times: August 1997 T1616.35-48, Judgment [168] and [339] (a) Mr Moore's notes of a meeting on 4 August 1997 accurately recorded that Mr Shirley had informed him that there were difficulties on site with the method of compaction and that Mr Shirley was concerned that the 80% density index had not been achieved. The minutes of the meeting record that initially there were difficulties with compaction during construction. MFI D1(ad) tab 27, Judgment [174] October 1997 (b) Mr Moore stated in a facsimile to Clayton Utz that a construction defect, if it exists, may also relate to the adequacy of the compaction of the backfill… Report PX036.001, Dr Adler's report of 26 October 1997 gave a strong indication that a possible explanation for the loose sand was inadequate compaction. T446.17-27 (ref to Prof Ingold), Judgment [341-345] December 1997 MFI D1(ad), tab 31A, Judgment [354-355] (c) In December 1997 Mr Peck produced a report in which he had been asked to assume that the cause of sand loss was due to construction defects arising from various matters including inadequate compaction of the back fill. Report MFI D1(o), October 1998 Judgment [337] (d) The Shirley report of 14 October 1998 stated that creases and wrinkles could have arisen due to the way in which the geotextile was placed (i.e. faulty workmanship by BHE) or was the inevitable result of the compaction process. It was "crystal clear" to Mr Price from October 1998 that if HIH could establish that the cause of BHE's liability to SACL was due to defective construction, there would be no claim under the HIH policy. T1202-1203 (Price), Judgment [334-335] MFI D1(o) tab 7, December 1998 Judgment [347] (e) Mr Price attended a meeting with a BHE representative on 2 December 1998, the minutes of which recorded that BHE recognised that it could not conclusively prove that a construction defect was not a cause of sand loss. In December 1998 WRL published the results of the model testing which it had undertaken for BHE. Had the tests been conducted as originally proposed, they may well have assisted in better understanding the cause of sand loss. Ultimately, the Court concluded that the tests were "simply too unsafe a platform upon which to base a reliable conclusion" and the Court was left to speculate about why BHE did not require WRL to conduct thorough tests as proposed. Judgment [688 -697], esp [692] and [697] 1999 T1250, (f) During 1999 Mr Price undertook factual investigations including analysis of documents. He understood that RE had suggested, based on its own testing, that compaction levels at the time of testing did not accord with the design. He accepted that compaction was an important issue. His evidence was that he was looking at the records to consider the issue of compaction that had been raised by RE. Judgment [363-366] Judgment [383]

Mid 2000 (g) Despite the matters set out above, BHE selected an expert whom it expected would support BHE's view that sand loss was a design defect. MFI D1(o) tab 23, Judgment [388] BHE directed Professor Ingold to prepare his report on the express assumption that the construction had occurred in accordance with the design and specification. Tellingly, Professor Ingold accepted in XXM that the opinion which he expressed in his draft report that "no fault is found with the construction process" and that the statement that quality assurance records were "impeccable" was the work of an advocate. T594.29-34, T621.7-14 and Judgment [568] T1262, Judgment [367]

T1260 Judgment [367]

T1260 July - August 2000 (and beyond) Judgment [367] (h) Mr Price During the course of briefing Prof Ingold, Mr Price became aware that there had been no compaction testing done close to the back of the wall. T1262 BHE (Wilson and Muirhead) accepted that there had been no testing close to the back of the wall. Judgment [367] Mr Price understood that Prof Ingold had been told that there was no testing and that test records did not exist. Mr Price's knowledge of the lack of compaction records did not change prior to the commencement of proceedings. T1262 Mr Price accepted in cross-examination that RE's contention that testing hadn't been done in the zone during construction was correct. Judgment [367] Professor Ingold Mr Price's evidence is to be contrasted with Professor Ingold's evidence. Despite apparently being told that there were no records Professor Ingold nonetheless reported that construction quality assurance records were "impeccable" and that there was no fault with construction. Professor Ingold told Mr Price that the records which did exist tended to suggest that proper compaction had been achieved everywhere. He abandoned this contention in cross-examination. Professor Ingold accepted in cross-examination that he knew the quality assurance records did not adequately deal with compaction in the zone. He also knew that RE's contentions depended on the degree of compaction in the zone. He knew it was more difficult to compact within the zone but was content to base his conclusions on testing beyond the zone. The Court was critical of Professor Ingold's approach in these issues.

Judgment [575] September 2000 (i) Results of SMEC Testing Services reported in September 2000. The results tended to support RE's contention that the findings were consistent with inadequate compaction.

i. The Court, as it plainly should, takes the Expert Witness Code of Conduct most seriously [unless the Court otherwise orders, the report of an expert who does not acknowledge the Code of Conduct and agree to be bound by it is not admissible: UCP Rules 31.23]. Among other things the Code required that, if Professor Ingold believed that his reports may be incomplete or inaccurate without some qualification, he must state that qualification in his report.

ii. It also required that if an expert witness considers that his or her opinion is not a concluded opinion because of insufficient research or insufficient data or for any other reason, that must be stated when the opinion is expressed.

iii. In material ways the Court's findings concerning Professor Ingold's evidence mean that he fell short of proper compliance with the Code.

iv. The proper application of the Code will become hollow if a party is free with impunity to rely upon expert evidence generated by the provision of assumptions which the party know to be false, or where the party is aware of information which requires the assumption to be qualified, or where the expert report contains absolute opinions which the party knows require qualification.

v. It was not proper for BHE to instruct Professor Ingold to assume that the reinforced earth walls had been constructed fully in accordance with the contract specifications, and to rely upon Professor Ingold's expert reports in evidence to the extent that BHE was aware of circumstances which were inconsistent with certain of the reasoning expressed by the Professor. BHE acted unreasonably in relation to the assumption put 56 There is substance in the proposition that BHE acted unreasonably in its direction to Professor Ingold to assume that the reinforced earth walls had been constructed fully in accordance with the contract specifications and to prepare all of his subsequent reports upon that assumption and that assumption only. It was improper to confine his opinions to that assumption and to fail to put to him that which so much evidence was would reveal. 57 The judgment (at [567]-[570] and [581]) does not required to be repeated. Close examination took place during the costs submissions of how it had come about that the above described assumption had been put to Professor Ingold and by whom. The cross examination of Mr Price made clear that in putting the material assumptions to Professor Ingold, Mr Price had relied upon instructions which he received from BHE and that his own appreciation of the method statement requirements was either vague or non-existent and that he had not understood that there was a requirement to test the quality of the compaction in the 1 metre zone behind the walls. In particular the following represents portion of the cross examination of Mr Price [at 1389 et seq]:

"Q. If it were a contractual requirement to test layers in the one metre zone, or at least one of them in each of the millstream and sea wall, and I ask you to assume that it was, in the light of what you say Dr Ingold was told in the briefing that no tests existed for or in relation to the quality of compaction in that one metre zone, then the statement recorded in paragraph 8.5 of Dr Ingold's draft would, would you agree, be incorrect? A. It may be overstating it to say that "the construction quality assurance records were impeccable".

Q. Were 'In full compliance with the contract documents'. Do you see that? A. Yes, I see that as well.

Q. If the contract documents, and I'll ask you to assume, require that there be testing of at least one layer, with one exception, one layer in each of the layers in the millstream and sea walls"…..

"Q. If it be the fact, and I'll ask you to assume that it was, that there was a contractual requirement that with respect to each of the layers in the millstream and sea walls subject to possibly an exclusion in relation to layer 1, that there be a density test of the layer in the area one metre behind the walls, then what Professor Ingold has recorded in 8.5 of his draft statement is incorrect. Do you agree? A. I think yes."… "A. Yes, to the extent that he uses the words 'impeccable' and, as you point out, 'full compliance'.

Q. And also in relation to construct in full compliance. Do you agree? A. I think just said to the extent that he uses the word 'impeccable' and as you pointed out the words 'full compliance'.

Q. And did you appreciate that at the time he provided you with this report? A. No.

Q. Did anyone, Mr Wilson or anyone else, point out anything about that matter? A. I don't believe so." 58 Professor Ingold under cross-examination in relation to his own report gave evidence which speaks to the delinquency of BHE in not having furnished him with the Peck report. At transcript 485-486 he accepted that had he known what was recorded in paragraph 6.3.2 of the Peck report, he could not have truthfully recorded what was in paragraph 8.16 of his own report. His evidence was that no one from BHE had told him what was recorded in paragraph 6.3.2 and that he had never seen the Peck report. 59 Mr Robb QC (at [costs transcript 31]) succinctly summarised the submission as follows:

In our submission BHE deployed Professor Ingold as effectively an artifact. It is not as if there was just evidence here and evidence there, some pointing in favour of a construction defect and some against it. It is not even a case where an insured may honourably contest for the least likely fact on the evidence available for it, having fairly disclosed the position. This is a case where BHE deployed Professor Ingold's expert reports from the beginning, which experts were effectively on all fours with the evidence deployed in the hearing, and BHE knowing at least all of what your Honour has found as to the likelihood of inadequate construction being the cause, positively instructed Professor Ingold that was not the cause.

They then got a result which was unsurprisingly consistent with the assumption and in various ways, as your Honour has found, made positive assertions as to the adequacy of construction which your Honour has found was inconsistent with BHE's stated knowledge. 60 In my view this was delinquency in the conduct of the proceedings. As Allsopp J observed in White v Overland [2001] FCA 1333 at [4]:

Litigation is not a game. It is a costly and stressful, though necessary, evil. To paraphrase Roscoe Pound from "The Causes of Popular Dissatisfaction with the Administration of Justice" (1906) 29 ABA Rep 395, 404-406, the "sporting theory of justice" and any behavioural manifestation of it should be seen as a survival, or better, a relic, of the days when a lawsuit was a fight between two clans: cf Jackamara v Krakouer (1998) 195 CLR 516 at 526-527 per Gummow and Hayne JJ. Representatives do not owe duties to the other side's client. They owe duties to their own client. But no one's interests are advanced by litigation proceeding on assumptions which are seen or suspected to be false 61 There is the following difficult question which concerns what should be inferred would have been the otherwise course of events in the litigation had BHE given an informed and balanced set of assumptions and provided all the appropriate material to Professor Ingold. The matter requires a degree of speculation but it is clear that material issues would have taken less time in terms of the litigation. 62 In other areas of the law there is room for application of the maxim 'nullus commodum capere potest de injuria sua propria' - 'no man can take advantage of his own wrong': cf Australian Development Corporation v White Constructions (ACT) Pty Ltd & Anor (unreported, Supreme Court of New South Wales, 8 February 1999, Einstein J) at [89] et seq. There is a long line of authority to this effect [cf. Broom's Legal Maxims, 10th edition, Pakistan Law House, 1989 at 191 et seq., noting that this maxim, being 'based on elementary principles, is fully recognised in Courts of law and equity, and indeed, admits of illustration from every branch of legal procedure'. I see no reason why the Court should not lean/err in favour of the defendants, where the estimate of the amount of time wasted by the above described delinquent conduct has a degree of uncertainty. 63 In my view this form of delinquency should be visited with an order that BHE pay 20% of the whole of the costs of Gordian and CGU on an indemnity basis: the proportion is assessed by reference to the whole spectrum of the evidence considered against the compaction issues litigated. The corrosion issues litigated are dealt with separately in what follows. The remaining attacks upon BHE's conduct fail 64 Reference has earlier been made to caution in seeking with the benefit of hindsight, to discern what was and was not reasonable behaviour of a litigant engaged in complex litigation. 65 Many of the otherwise attacks upon the manner in which BHE conducted the litigation [and the consequential other suggested bases for obtaining indemnity costs] are simply misconceived. The fact that a party does not succeed in major litigation does not per se justify orders for indemnity costs. As the authorities cited above make clear something 'special' must be shown. 66 The problems anterior to the litigation which faced all of the parties were explained in the judgment (at [63]). 67 When examining the actual approach by each of the parties to the litigation, it has to be borne in mind that the difficult circumstances continued with the parties not unnaturally endeavouring to put their respective clients cases in as persuasive a fashion as was reasonably available on all of the evidence which they anticipated to be adduced through a lengthy trial. It is only in the area of the assumptions put to Professor Ingold and the failure to provide him with an informed and balanced proper overview of that which was known, that the relevant delinquency has been established. The timeline 68 BHE has submitted that the timeline [in terms of the occasion when inadequate compaction became the subject of evidence], has a significance for present purposes. Whilst its submissions as to that timeline are not exceptional, they do not excuse the above-described delinquency. 69 Nor does the fact that BHE was in a position to call the evidence which it did from Messrs Caretti and Scott, alter the position with respect to the above-described delinquency. It is simply crucial for a party to properly instruct its experts and equally crucial to avoid the waste of time which a failure to so instruct can cause. Other matters Corrosion 70 Indemnity costs are also appropriate in so far as the issues raised in the corrosion case are concerned. The short reasons for this are as follows:

i. BHE contended that the design of the metal straps used in the construction of the wall was negligent.

ii. It did so reliant on the evidence of Professor Abel.

iii. In the conclave of experts held as part of the facilitation Professor Abel, for BHE, advanced the view that the design was not negligent; the reverse of his opinion in this case.

iv. This inconsistency was known to BHE; but emerged only in cross-examination.

v. BHE advanced no submission reliant upon the evidence of Professor Abel.

vi. BHE abandoned the contention that RE's design of the metal straps was negligent on the 45th day of the hearing.

vii. Such conduct allows the court to infer that the case brought by BHE against Gordian based upon negligent design of the metal straps was not a real issue.

viii. BHE had told SACL in the conclave that the design was not negligent and Professor Abel agreed.

ix. BHE knew that Professor Abel had changed his opinion, and had no proper basis for doing so; as his cross-examination demonstrated.

x. The most persuasive fact supporting this finding is BHE's abandonment of Professor Abel.

xi. BHE did not ask Professor Abel to calculate the corrosion allowance which the straps should have provided [T 2349/46 - 53] but allowed him to criticise that same design of which he had told SACL was not negligent [T 2299/1 - 44]. 71 This further form of delinquency should be visited with an order that BHE pay an additional 10% of the whole of the costs of Gordian and CGU on an indemnity basis: the proportion is assessed by reference to the whole spectrum of the evidence considered against the corrosion issues litigated. Calderbank letters and similar 72 It is next necessary to deal with the respective Calderbank and similar letters/offers. 73 In relation to Gordian's Calderbank letter dated 14 October 2005 there is no substance in the proposition that the rejection of the offer is a basis for indemnity costs being ordered for the following reasons:

i. The offer was only open for 5 days, was made late on a Friday, [the hearing was to commence on the Tuesday, the 18th of October], and the offer was expressed to be inclusive of costs.

ii. Acceptance of the offer was tied to BHE releasing CW/RE from all claims made against them in unrelated Equity Division proceedings 6115 of 2001 and 55027 of 2002 - this term of the offer raised considerations which did not turn on an assessment of BHE's position in the Insurance Proceedings, and which required BHE to place a value on its rights in separate proceedings involving different parties. iii. The value of such rights may be potentially significant, particularly in light of the findings in these proceedings which identified a relevant act, error or omission on the part of RE/CW.

iv. It was not unreasonable for BHE to reject that offer in those circumstances.

v. It was not reasonable to require BHE to release RE/CW from the other Equity Division Proceedings - which litigation still remains on foot. 74 In relation to CGU's Calderbank letter there is no substance in the proposition that the offer was unreasonably rejected for the following reasons:

i. The Calderbank letter made a joint offer on behalf of QBE and CGU. It was not capable of acceptance by BHE with respect to CGU only.

ii. BHE subsequently did better against QBE (in comparison with CGU) by its rejection of the Calderbank letter dated 22 December 2003 by settling the Insurance Proceedings with QBE in May 2004 in the sum of $4,016,790.

iii. Moreover, BHE settled the Insurance Proceedings with the Lloyds Syndicates in April 2004 in the sum of $6,000,000.

iv. The parameter of making the offer one which was "inclusive of costs" unacceptably placed the offeree in the position of not being able to determine the appropriate amount to attribute to the substantive claim and the costs incurred in advancing it. The application by AMPG for costs 75 In what follows it is appropriate to assume that the reader is informed by the judgment [2006] NSWSC 362 revised and published on 2 May 2006 ["the AMPG judgment"]. 76 AMPG has applied:

i. for an order that that BHE pay the whole of its costs of the proceedings on an indemnity basis. [on the basis that BHE's claim against AMPG was a claim which had no real prospect of success].

ii. alternatively, for costs of the proceedings on an indemnity basis from 31 August 2005 and on the ordinary basis before that date. [on the ground of BHE's suggested unreasonable failure to accept an offer to settle the proceedings contained in a letter from AMPG's solicitors dated 31 August 2005]. 77 In my view and for the reasons put forward in AMPG's submissions which are adopted in what follows, BHE's claim against AMPG had no real prospect of success hence justifying an indemnity costs order against BHE. 78 The hypothesis on which BHE's claim against AMPG proceeded (a hypothesis which BHE did not primarily advance) was that SACL had made two claims against AMPG in respect of the reinforced earth walls; one in respect of sand loss from behind the walls (the sand loss claim) and one in respect of accelerated corrosion of the metal components forming part of the walls (the corrosion claim). 79 On the basis of that hypothesis BHE claimed an entitlement to be indemnified by AMPG for a further $20 million (an amount in excess of the cumulative indemnities sought from Gordian and CGU) in respect of the corrosion claim. BHE's claim against AMPG in these proceedings was over and above the $20 million indemnity already granted by AMPG in respect of the sand loss claim which was the subject of the AMPG Settlement Deed. 80 BHE's primary contention was that there was but one claim (which encompassed circumstances relating to both sand loss and corrosion). Undoubtedly BHE and AMPG were ad idem on the proposition that there was but one claim. However, it did not follow that if the Court accepted that there were two claims, that the AMPG Contract responded to the second claim. 81 At [7] of the AMPG judgment the Court noted that "[t]here has been substantial movement by BHE in its presentation of its case insofar as the status of its corrosion case and its approach to obtaining relief against AMPG is concerned". 82 At [8] - [13] the Court extracted certain oral submissions made by senior counsel for BHE as to the continuing significance of corrosion. Those submissions included the following:

(a) " as the evidence has developed about what the cause of the sand loss is and what our proffered fix for it is … corrosion as originally conceived of with the straps and the bolts assumes no significance because the problem that would have been caused in due course will be obviated by the existence of the rectified wall" (AMPG Judgment, at [9], emphasis added);

(b) "[t]he continuing status" of corrosion was that "the [rectified] walls are constructed notionally as they are for the rectification project because the walls can't rely on the straps that exist to hold them up … because they are corroding" (AMPG Judgment at [9]);

(c) that corrosion in its "continuing status" was a different corrosion problem than that which was alleged in respect of the original design error and "isn't one which sounds in damages against anyone" (AMPG Judgment at [10] - [11]). 83 As a result of these concessions, the Court found (at [26]) that "BHE has effectively conceded that it will not become legally liable to pay any sum in respect of the …[corrosion] claim qua the rectification solution". 84 At [15] - [22] of the AMPG judgment and in the light of this concession, the Court identified what "other heads" of damage BHE claimed against AMPG, being losses which it contended arose from the corrosion claim and which it contended the AMPG Contract responded. At [20] the Court divided those "other heads" into two categories:

(a) loss arising from "costs in connection with cross-claims and related proceedings against Reinforced Earth, [and] Connell Wagner" ( cross claim costs );

(b) loss arising from "other costs including design and construction costs". At [25] the Court identified those costs as including "costs associated with the 30 percent, 60 per cent and 90 per cent design reports prepared by third parties" ( design and construction costs ). 85 As to the cross claim costs, at [22] - [24] of the AMPG judgment, the Court found:

(a) the claim to relief made by BHE in the Second Further Amended Summons did not include a claim for the cross claim costs (at [22]);

(b) the claim for the cross claim costs fell precisely within the exclusion in clause 3.4(b) of the AMPG Settlement Deed (see [22] and [24]); and (c) the AMPG Contract did not, in any event, respond to the cross claim costs because "those costs are not costs incurred in the investigation defence or settlement of any claim within the meaning of that phrase in clause 2 of the AMPG Contract" (see [22]). 86 As to the design and construction costs, at [25] of the AMPG judgment the Court found that such costs incurred by BHE under the Settlement Agreements with SACL were costs for which BHE would have been liable in any event in the absence of the corrosion claim. The Court also concluded at [25] that there was no evidence that the design and construction costs were occasioned by the corrosion claim. 87 At [26] - [27] of the AMPG judgment the Court concluded that "no triable issue within General Steel principles" had "been established by BHE" in relation to either the cross claim costs or the design and construction costs. 88 This had the result that BHE could not identify any loss suffered as a result of the corrosion claim to which the AMPG Contract arguably responded. 89 At [28] of the AMPG judgment the Court identified, as an additional matter entitling AMPG to verdict and judgment, that "BHE has not put forward any contentions that there was negligence in relation to corrosion". 90 As AMPG has submitted, the claim against it did not have any real prospects of success. For the reasons which appear below, this follows inexorably from the basis on which the Court gave verdict and judgment for AMPG in the AMPG judgment. 91 The belated concession by BHE to the effect that it would not become legally liable to pay any sum in respect of the corrosion claim "qua the rectification solution" (see [26] of the AMPG judgment) was an inevitable consequence of the effect of the evidence adduced and relied upon by it in the proceedings. It was an overwhelming conclusion to be drawn from the rectification solution about which expert witnesses called by BHE gave evidence. 92 Indeed prior to the joinder of AMPG, it was BHE's position that it had not suffered any additional liability or costs or expenses by reason of the corrosion claim. 93 The concession cannot be fairly characterized as having arisen from any development of the evidence (see [9] of the AMPG judgment) or any new circumstances which developed during the course of the hearing.

94 In this connection it is important to recall that:

(a) on 9 July 2004 BHE's solicitors ( Freehills ) wrote to AMPG's solicitors ( Moray & Agnew ) in which letter, inter alia, BHE denied that it had " suffered additional liability, loss, costs or expenses by reason of the [corrosion] claim ;

(b) in his evidence in chief, Professor Ingold made it clear that the "jet grouting solution" which was adopted for the rectification of the defects causing the loss of sand behind the reinforced earth walls also resolved issues arising from the accelerated corrosion of the components of the reinforced earth walls;

(c) Professor Abel, like Professor Ingold, also made clear in his evidence in chief that the adoption of the full grout curtain solution made irrelevant the corrosion of the steel straps arising from the (alleged) errors of design he identified; (d) Neither Professor Leschinsky nor Dr Sussex, the expert called by Gordian and CGU, challenged the evidence of Professors Ingold and Abel that the jet grouting solution would solve both sand loss and corrosion.

(e) Mr Thom gave evidence about the remedial solution contained in the 60% Geotechnical Design Report dated 5 August 2005 prepared by Douglas Partners (Ex P13). Mr Thom was not cross examined by any party.

(f) In its opening Outline of Submissions dated 11 October 2005 BHE maintained its position that the same method of rectification (the jet grouted column solution) as was adopted to cure sand loss would cure any loss to SACL which may result from the corrosion claim: see [170] - [174], [405] and [221] - [227].

(g) In its "Further Submissions" dated 8 February 2006 BHE repeated its submission that there was no additional loss occasioned by the corrosion claim: see [608] - [610].

(h) At [44] - [50] of its opening written Outline of Submissions dated 25 October 2005, AMPG identified as one of the five defences on which it relied, the proposition that (assuming there were two claims) BHE had suffered no loss as a result of the corrosion claim. 95 Far from being a concession which arose from any development of the evidence or any new circumstances, BHE's concession to the effect that it will not become legally liable to pay any sum in respect of the corrosion claim "qua the rectification solution" (see at [26] of the AMPG judgment), was a concession that was inevitable on the evidence BHE relied on in the proceedings. 96 Neither could the concession have come as any surprise to BHE. 97 Indeed, it was a concession BHE had, in fact, made prior to it commencing proceedings against AMPG. 98 Neither BHE's position upon the question of what loss was caused by the corrosion claim or its evidence on this issue changed at any stage of the proceedings. 99 AMPG for its part, had, prior to the commencement of the hearing, identified and pleaded as a defence, the fact that BHE had suffered no loss as a result of the corrosion claim. 100 In relation to BHE's claim against AMPG for the cross claim costs and the design and construction costs, those claims were only latterly raised in BHE's amended reply filed in Court on 24 November 2005. As the Court concluded at [22] of the AMPG judgment, those claims never found their way into BHE's claim for relief in its summons. 101 In any event, the Court concluded in the AMPG judgment that those claims raised "no triable issue within the General Steel principles" (see [26]). The Court's finding was in effect that BHE's claim against AMPG for the cross claim costs and the design and construction costs was "so obviously untenable that it could not possibly succeed". 102 As the Court noted at [28] of the AMPG judgment, BHE did not put forward any contentions that there was negligence in relation to corrosion. Despite the voluminous material contained in its "further submissions" dated 8 February 2006 and its reply submissions dated 19 February 2006, no attempt was made by BHE to support any claim of negligence in relation to corrosion. No oral submissions were directed to the issue. Yet, to the last, BHE prevaricated on whether or not the issue remained alive: see [1229] - [1233] of the main judgment. 103 For those reasons it is unnecessary to deal with the other grounds in respect of which an indemnity costs order was pursued by AMPG namely:

a) BHE's claim against AMPG was doomed to fail for reasons additional to those contained in the AMPG Judgment;

b) the basis on which AMPG was joined to these proceedings was misconceived; and

c) BHE's failure to accept the offer of compromise contained in AMPG's solicitor's letter of 31 August 2005 was unreasonable. Short minutes 104 The parties are directed to bring in short minutes of order reflecting these reasons. 105 In short BHE is to pay 30% of the costs of Gordian on an indemnity basis and 70% of the costs of Gordian on a party party basis together with interest as and from the dates on which those costs were paid. 106 BHE is to pay 30% of the costs of CGU on an indemnity basis and 70%of the costs of CGU on a party party basis together with interest as and from the date on which those costs were paid. 107 BHE is to pay all of the costs of AMPG on an indemnity basis together with interest as and from the dates on which those costs were paid. Application by SACL 108 SACL seeks a number of orders against the third defendant:

i. An order that it pay the reasonable expenses incurred by SACL in complying with a subpoena for production issued on 19 August 2000 [there is no longer an issue as to this order being made];

ii. an order that it pay SACL's costs of and related to a notice of motion filed on 24 August 2005 including its appearance before the Court on 11 October 2005;

iii. an order that it pay the reasonable costs incurred by SACL in facilitating the site inspections in August and October 2005. 109 The proceedings commenced in 2003. CGU had ample time in which to approach SACL to make orderly and satisfactory arrangements for the inspection ultimately sought to be undertaken on 25 August 2005 but failed to do so before 24 August 2005. In those circumstances the only issue concerns the reasonableness of the conduct of SACL given that it would always be plain to all parties that logistical and security issues would arise which would need to be dealt with prior to any third-party undertaking an inspection of the external parameters of the runway (a high security and dangerous zone immediately adjacent to an operating international airport with legitimate safety risks). 110 The short position is that albeit that McDougall J was disinclined on 24 August 2005 to grant the relief but stood the notice of motion over, CGU did in fact succeed in having certain amendments made to the form of release which SACL had initially put forward. 111 The principled exercise of the discretion is that CGU pay 50 percent of SACL's costs of the motion; each party was partly at fault; CGU for the late application and SACL for pursuing a form of release which went too far. 112 The principled exercise of the Court's discretion is to make the following orders:

i. order that the third defendant pay SACL its reasonable expenses incurred in complying and dealing with the subpoena for production issued to it at me third defendant's request on 19 August 2005 as assessed (including SACL's costs of the assessment) or as agreed;

ii. order that the third defendant pay SACL its reasonable costs in facilitating an inspection of the Parallel Runway site and extracted items in August and October 2005 as assessed or agreed [it is to be noted that an order already agreed to by all parties was that each of the parties was to pay an equal share of SACL's reasonable costs after reasonable time of receipt of an invoice (which costs were to be costs in the cause)];

iii. order that the third defendant pay 50% of SACL's costs of and related to the notice of motion filed on 24 August 2005 including its appearances on 11 October 2005 and on 13 June 2006. 113 There is no need for a special order to be made that CGU be entitled to include in its claim for costs against BHE, the costs to be paid to SACL. any such order is unnecessary given that such cost on a different to any other costs in the proceedings and to not warrant any specific order by the Court. The costs will already be captured by the orders as to costs to be made by the Court (and will be subject to the usual assessment process in due course, should it be necessary].

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