INPEX OPERATIONS AUSTRALIA PTY LTD -v- AIG AUSTRALIA LTD [No 2] [2023] WASC 61 (3 March 2023)

B. The Proceedings Parties and the insurance policies

1. The plaintiff in both the CAR Proceedings and the EAR Proceedings is INPEX Operations Australia Pty Ltd, which I will refer to as Inpex Operations or the plaintiff. Inpex Operations is the project principal. It entered into an engineering, procurement, supply, construction and commissioning contract (EPC Contract) with JKC Australia LNG Pty Ltd (JKC) in relation to the Ichthys LNG Project.
2. There are two insurance policies which lie at the centre of these proceedings. Inpex Operations claims an indemnity under both policies against damage to insured property in relation to specified coating and insulation systems on piping and equipment used in the facility.
3. The first policy is pleaded in the CAR Proceedings, and is entitled the 'Constructions Risk - Material Damage Project Insurance Policy' which was entered into on or about 18 January 2013 (known as the CAR Policy).[7] Inpex Operations is the named insured under this policy. JKC is also an insured within the relevant definition. The CAR Policy was obtained by Inpex Operations pursuant to its obligation to do so under the EPC Contract, to obtain and maintain an insurance policy to cover the onshore plant under construction, and to cause JKC and other contractors, to be added as additional insureds.
4. The second policy is pleaded in the EAR Proceedings and is entitled the 'Erection All Risks and Difference in Conditions Insurance' which was entered into on or about 14 February 2013 (known as the EAR Policy).[8] The named insured under the EAR Policy is JKC, which has purportedly assigned its rights in this respect to Inpex Operations.[9]
5. The insurer under the CAR Policy is a syndicate of some 25 insurance companies. For present purposes I need only mention the first defendant which is AIG Australia Ltd (AIG) and the sixth defendant which is Mitsui Sumitomo Insurance Company, Limited (Mitsui Sumitomo). There is only one insurer under the EAR Policy, which is also Mitsui Sumitomo. For convenience, I will refer to the balance of the defendant insurers in the CAR Proceedings as the AIG Defendants.
6. The AIG Defendants are collectively represented by Wotton + Kearney in the CAR Proceedings. Mitsui Sumitomo is represented by Gillis Delaney in both the CAR Proceedings and in the EAR Proceedings. The plaintiff is represented by Allen & Overy in both proceedings.

1. The CAR Proceedings were filed in late May 2020 and so have been on foot for over 2½ years. The EAR Proceedings were filed in July 2020. There have been some interlocutory hearings in the matters to date and a strategic case management conference was held on 5 October 2022 before Allanson J. The statements of claim pleaded by the plaintiff are already quite detailed documents.
2. In a dispute of this type, and having regard to my own experience, I have no doubt that the pleadings will increase in complexity as these proceedings further unfold.
3. Indeed, it is already apparent that the AIG Defendants wish to press for further, more detailed particulars, of the allegations in the consolidated statement of claim in the CAR Proceedings. During the hearing on 2 February 2023, I drew attention to the request for further and better particulars issued by the AIG Defendants on 28 October 2022.[10] That request stretches over some 21, closely-typed pages, with 66 primary requests, each of which contain multiple sub-requests. I understand the plaintiff has not as yet responded to any of these requests.[11]
4. I am in no position to make any assessment at this stage as to the appropriateness of the numerous demands for particulars contained in this request from the AIG Defendants. Assuming a constructive approach is adopted by the parties, I would expect a level of additional particularity to be forthcoming from the plaintiff's side, which would further elucidate the scope of the claims advanced by the plaintiff and may well assist to further narrow the issues.
5. The parties have not yet attended to the provision of discovery in the proceedings,[12] and are currently in the teeth of conferral as to discovery categories.[13] Obviously, there has been no exchange of any witness outlines or expert evidence. On any view, the proceedings have some considerable way to go before they are ready for trial.

1. The Separate Trial Applications are opposed by the AIG Defendants and by Mitsui Sumitomo.[14] The applications were listed before me for a full day argument, which was heard on 1 February 2023. At that hearing, Inpex Operations was represented by Mr J P Rowland KC and Mr R J Price, the AIG Defendants were represented by Mr G G McArthur KC and Mr T W Marskell, and Mitsui Simitomo was represented by Mr S R Donaldson SC and Mr A P Hershowitz.
2. For the purposes of the hearing, detailed written submissions were filed by the parties. I have before me the written submissions of the plaintiff dated 24 October 2022 (Plaintiff's Submissions),[15] the written submissions of the AIG Defendants dated 2 December 2022 (AIG Submissions),[16] the written submissions of Mitsui Sumitomo dated 1 December 2022 (Mitsui Submissions),[17] and the written submissions in reply filed by the plaintiff dated 19 December 2022 (Plaintiff's Reply Submissions).[18] Each set of submissions dealt with the legal, factual and discretionary issues in a comprehensive manner, which allowed the hearing to be confined to one day.
3. I intend no disservice to any of the submissions which were filed by not fully rehearsing in these reasons each and every argument advanced by the parties. The nature of this interlocutory decision does not require that approach. Rather, having reviewed the detail of the written submissions which were filed and the oral arguments developed by senior counsel at the hearing, I have summarised later in these reasons the gravamen of the arguments for each of the parties.

1. By way of evidentiary material, the following affidavits were filed by the parties for the Separate Trial Applications (all of which were filed in the CAR Proceedings):

(a) the affidavit of David Ashley Jenaway sworn on 24 October 2022 (First Jenaway Affidavit);
>
> (b) the affidavit of Mr Jenaway sworn on 19 December 2022 (Second Jenaway Affidavit);
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> (c) the affidavit of Adam Przemyslaw Chylek sworn on 1 December 2022 (First Chylek Affidavit); and
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> (d) the affidavit of Mr Chylek sworn on 24 January 2023 (Second Chylek Affidavit).

2. Two further affidavits were relied upon by the plaintiff for the purposes of the Separate Trial Applications, being affidavits filed by the plaintiff for the purposes of previous applications heard by Allanson J:

(a) the affidavit of Mr Jenaway sworn on 29 October 2021 filed in the CAR Proceedings for the purposes of the consolidation application (Consolidation Application Jenaway Affidavit); and
>
> (b) the affidavit of Mr Jenaway sworn on 29 October 2021 filed in the EAR Proceedings for the purposes of the substitution application (Substitution Application Jenaway Affidavit).

3. Strictly speaking, there were no objections from any of the parties to the receipt of this affidavit evidence. However, the AIG Defendants invited me to receive the bulk of the First Jenaway Affidavit as a set of submissions rather than as 'proof of any fact relevant to the discretion which Inpex invites the Court to exercise'.[19] Indeed, the AIG Defendants described the First Jenaway Affidavit as akin to a position paper.

1. In essence, Inpex Operations has applied for orders to split the proceedings such that the first substantive trial will hear and determine what Inpex Operations has described as the 'substantive issues', and only thereafter will there be a further trial on the 'quantification issues'. The plaintiff identified a number of specific issues, which were said to arise on the pleadings, as forming the matters to be determined in each of these trials. The plaintiff delineated these issues in the annexures to their chamber summons dated 24 October 2022.[20]
2. At the first trial, which would determine the Substantive Issues, the plaintiff proposes that the following issues would be addressed (the content of which will briefly be explained later in these reasons):[21]

(a) Whether JKC's assignment of its claims to the plaintiff is valid and enforceable?
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> (b) Whether the plaintiff is permitted to claim and recover under the CAR Policy in its capacity as an insured or an assignee (and under the EAR Policy)?
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> (c) Whether each item of Insured Property has suffered Damage, as that term is defined in the CAR Policy (and the EAR Policy) and, if so, by reason of what mechanism?
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> (d) In respect of any Damage: > > > (i) whether the Damage is fortuitous;[22]
> >
> > (ii) whether and when the Damage occurred and commenced during the insurance period under the CAR Policy (and the EAR Policy);
> >
> > (iii) whether the Damage is excluded under Exclusion 3.2 of the CAR Policy (which is the 'Wear and Tear' exclusion), pleaded by the AIG Defendants and Mitsui;
> >
> > (iv) the impact of statutory time bars on the plaintiff's claim; and
> >
> > (v) whether, and to what extent, the plaintiff failed to mitigate its loss in respect of the Damage; > >
>
> (e) In respect of any Damage warranting quantification, and for the purposes of any such quantification, what type of remediation is required (and thus is to be the basis for quantification) for each Damage mechanism on each item of Insured Property, including: > > > (i) the nature and extent of remediation;
> >
> > (ii) the timing and circumstances of the remediation (including whether it can be performed over an extended period of years, or otherwise); and
> >
> > (iii) for the purposes of the LEG 2 Exclusion in the CAR Proceedings, where Damage occurred to any portion of the Insured Property containing any defect of material, workmanship, design, plan or specification, the remediation by way of replacement or rectification (including its nature and extent) that was required immediately before the Damage occurred (and similarly for the LEG3 Exclusion in the EAR Proceedings). > >
>
> (f) In respect of any Damage warranting quantification, and for the purposes of any such quantification, whether or not such Damage was part of an occurrence or series of occurrences consequent upon or attributable to one source or original cause in common with other instances of Damage to Insured Property.

3. At the second trial, which would determine the Quantification Issues, the plaintiff proposes that the following issues would be addressed (the content of which will also be explained later in these reasons):

(a) For each item of Insured Property earlier determined to be Damaged and warranting quantification: > > > (i) the quantification of the amount payable (subject to deductibles and policy limits) under the Basis of Settlement provisions of the CAR Policy (and under EAR Policy); and
> >
> > (ii) in the case of Damage to any portion of the Insured Property containing any defect of material, workmanship, design, plan or specification - for the purposes of the LEG 2 Exclusion, the quantification of the cost of remediation by way of replacement or rectification that would have been incurred if remediation had been put in hand immediately prior to the Damage (and similarly for the LEG3 Exclusion in the EAR Proceedings),

such quantification to occur upon the remediation parameters as earlier determined by the Court.

(b) The liability for and quantum of the Additional Costs and Expenses incurred by the plaintiff and JKC (and Further Costs and Expenses incurred by JKC for the purposes of the EAR Policy)

(c) The amount or amounts payable to the plaintiff after application of all relevant deductibles and policy limits.

(d) The liability for and quantum of any interest.

(e) The final form of relief.

1. For convenience, I have extracted the Substantive Issues and the Quantification Issues in Attachment A and Attachment B to these reasons. It can immediately be seen from the issues as delineated by the plaintiff that this is not a conventional proposal to split liability and quantum issues and there is a degree of overlap between the two trials which are proposed.
2. To contextualise the Separate Trial Applications, it is appropriate that I provide an overview of the factual matters which emerge from the pleadings, and which have been helpfully explained in the affidavit material. The summary appears in the following section of the reasons. Given the nature of these interlocutory applications, I will keep the summary relatively brief. I must emphasise that I make no factual findings with respect to these matters - the material is simply drawn from the pleadings and the affidavits sworn by the parties' solicitors for the purposes of these applications.

1. I take it to be uncontentious, at least for the purposes of the present applications, that the Ichthys LNG Project is one of the largest oil and gas projects in the world, with construction costs in the order of tens of billions of dollars. It consists of three so-called 'mega projects'. One of these is an onshore liquefied natural gas facility (Onshore Facility or Plant). The Onshore Facility has been an operational LNG production facility since around October 2018.
2. The Onshore Facility principally comprises a series of large LNG processing modules (Modules). There are around 230 Modules. These Modules include pipes, pipework, and related apparatus (Piping), vessels, gauges, electronic apparatus and equipment (Equipment), steel structural supports, other support apparatus, access platforms and access apparatus. It appears that enormous amounts of carbon steel or low alloy steel have been used in the construction of the Onshore Facility.
3. On any view, the Onshore Facility, which includes the Modules, the Plant and the Equipment, is a massive and complex structure. Photographs of the completed structure were attached to one of the plaintiff's affidavits, displaying the broad scale of the development as well as the inner aspects of the facility, which highlight the series of interconnected pipes, platforms and technical apparatus which together are necessary to form a liquefied natural gas facility.[23]

1. Put at a high level of generality, the plaintiff's claims relate to damage which was allegedly suffered in respect of the insulation systems used on the Plant. I have described the three insulation systems deployed on the Plant below.
2. First, the use of a coating system featuring a phenolic epoxy protective barrier coating product known as Intertherm 228 (I228), intended as a protective barrier for the substrate against exposure to environmental conditions including temperature, humidity, UV light, water and moisture and chlorides or other chemicals, and protection against corrosion, rust, chloride-induced stress corrosion cracking and other degradation of the substrate.[24]
3. Mr Jenaway has provided further detail concerning this insulation system in his affidavit, as follows:[25]

[28] ...I228 is a phenolic epoxy paint. The I228 used on the Plant was manufactured by AkzoNobel / International Paints (ANIP). Its purpose was to provide a corrosion resistant barrier to various steel components of the Plant. I228 was applied to so-called "system l" substrate (carbon steel and low alloy steel) and "system 7" substrate (stainless steel) on those portions of the Plant operating at temperatures below zero up to 230°C. I228 was applied to approximately 344,353 m2 of the Plant.

1. Second, there is an insulation system based on the use of flexible elastomeric foam (FEF, and the FEF System), intended to provide thermal and acoustic insulation with respect to both high and low temperatures and reducing the local impact of noise and vibrations.[26] Mr Jenaway further explains this insulation system as follows:[27]

[29] ...The FEF System:

(a) is a flexible, high density closed cell thermal insulation material based on extruded elastomeric foam;

(b) was to be protected by a polymeric overwrap, known as Arma-Chek R, which was a ChloroSulphonated PolyEthylene; and

(c) was covered by an overwrap which was glued down using a sealant based on silane modified polymers, known as Arma-Chek Mastic (mastic).

[30] The FEF System was used on parts of the Plant operating in the temperature ranges - 40°C to 120°C and already coated with I228. The FEF used on the Plant was supplied by Armacell. The purpose of the FEF was to provide thermal and acoustic insulation to the Plant. It was applied to approximately 83,353 m2 of the Plant.

1. Third, there is an insulation system based on the use of mineral wool insultation (Mineral Wool System), intended to provide thermal and acoustic insulation with selected piping and equipment operating at high temperatures.[28] Mr Jenaway explains that:[29]

[31] ...Mineral Wool is a flexible fibrous material applied to pipes and vessels operating at 120°C to 150°C. The Mineral Wool used on the Plant was supplied by Rockwool. The purpose of the Mineral Wool was to provide thermal and acoustic insulation to the Plant. It was applied to approximately 20,51l m2 of the Plant.

1. The I228-coated Piping and the I228-coated Equipment were designated with allocated line numbers and allocated equipment numbers respectively. I will refer to these as Lines, consistent with the definition used by the parties. Again, without making any factual findings on the precise metrics of the Plant, but to give a broad sense of scale, it appears that around 30,006 Lines were insulated with I228 (covering over 361 lineal kilometres), 5,237 Lines were insulated with the FEF System (covering almost 12 lineal kilometres), and 1,045 Lines were insulated with the Mineral Wool System (covering over 17 lineal kilometres).[30]
2. A diagrammatic demonstration of the three systems to which I have just referred - in effect, the insulation used on the Piping and Equipment - was provided in the First Chylek Affidavit.[31] I understood all parties accepted this as an accurate, albeit highly generalised, representation of the insulation.

1. As matters have transpired, the plaintiff claims that the Onshore Plant (primarily the Plant and Equipment, through the application or misapplication of the three insulation systems) has suffered damage. The plaintiff alleges that both the CAR Policy and the EAR Policy respond to the damage suffered. The plaintiff claims in its own right and through the assignment from JKC, the validity of which is challenged by the defendants.
2. The latest statements of claim in the CAR Proceedings and the EAR Proceedings plead out in some detail the forms of damage about which the plaintiff complains. Mr Jenaway also summarises the claims in one of his affidavits.[32] I have described the various forms of damage which are alleged by the plaintiff in Attachment C to these reasons. As pleaded, there appear to ten different forms of damage about which the plaintiff complains, which include matters such as:

(a) an allegation that the I228 was not suitable for the environmental conditions and so, once applied, the Piping and Equipment was damaged and its functional utility and suitability was impaired;[33]
>
> (b) an allegation that the I228 was applied incorrectly and so, once applied, the I228 was damaged in the sense it closed its capability to achieve high uniformity and density of cross-linking;[34]
>
> (c) allegations that the outer surface of the I228 coating rapidly degraded causing cracks and permeable pathways, conducive to moisture ingress, and which led to corrosion and rust of the carbon steel;[35] and
>
> (d) allegations that the FEF System was not suitable, leading to damage to the I228 substrate and to water ingress which damaged the FEF System and lead to abnormal erosion.[36]

1. I turn now to explain the claims which are pleaded by the plaintiff and the primary defences advanced by the AIG Defendants and by Mitsui Sumitomo, some of which will be apparent from the matters I have already explained in these reasons.

1. On the present pleadings, it will be necessary for the court to address a number of issues in order to determine whether the plaintiff's claims to be indemnified for damage under the CAR Policy and the EAR Policy are made out.
2. At the outset a question arises (at least for some of the claims) as to whether the assignments from JKC to the plaintiff are valid. It will also be necessary for the plaintiff to demonstrate that its claims fall within the Principal Insuring Clause in the CAR Policy and the Insuring Agreement Clause in the EAR Policy.
3. Once these gateways are passed, the court will need to address a series of sub-issues arising under the policies and the pleadings in both proceedings. These include, in general terms:

(a) whether the damage was inevitable, and whether there was no intervening accident of fortuity;
>
> (b) whether the indemnity under the CAR Policy is excluded under the LEG 2/96 Exclusion on the basis the damage was caused by a defect or material, workmanship, design, plan or specification;
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> (c) whether the indemnity under the EAR Policy is excluded under the LEG 3/06 Exclusion on the basis the damage was caused by a defect or material, workmanship, design, plan or specification;
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> (c) whether certain damage is excluded by the Wear and Tear Exclusion in the CAR Policy or exclusion clause 3 under the EAR Policy (on the basis the damage was normal wear and tear, or excluded due to being rust, oxidation, corrosion or gradual deterioration);
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> (d) to the extent any damage occurred prior to 1 August 2013, whether any claim for indemnity by the plaintiff in respect of that damage is statute barred;
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> (e) in the event that the Insured Property was damaged and the plaintiff was entitled to indemnity under the CAR Policy in respect of the damage, whether the plaintiff is not entitled to indemnity in respect of any damage which occurs after the end of the Period of Insurance; > > > (iv) whether the plaintiff failed to mitigate its loss; and
> >
> > (v) whether the insurable interest in the Insured Property is held by another entity (being Ichthys LNG Pty Ltd) and only that entity is entitled to indemnity.

1. The scope and operation of the LEG 2/96 Exclusion in the CAR Policy and the LEG 3/06 Exclusion in the EAR Policy emerged as important issues at the hearing of the Separate Trial Applications. The defendants submit that the manner in which the plaintiff proposes to fragment the case creates significant and insurmountable issues in relation to these exclusions.
2. By way of background, I observe that the acronym LEG is an abbreviation for the London Engineering Group, which is a consultative body for insurers of engineering class risks. I understand that the LEG 2/96 Exclusion and the LEG 3/06 Exclusion are model insurance policy clauses that were drafted by the LEG.[37] It appears, however, that despite being model clauses, the provisions have not attracted much in the way of detailed judicial exposition (and this application is, of course, not the time to attempt to do so).[38]
3. In general terms, it is true to say, other things being equal, that an insurance policy with a LEG 2/96 Exclusion provides a lesser degree of coverage for the insured than a policy with LEG 3/06 Exclusion.
4. The LEG 2/96 exclusion appears in exclusion clause 3.3 of the CAR Policy. Essentially, the CAR Policy states that it does not provide indemnity in respect of:

3.3 LEG 2/96

All costs rendered necessary by defects of material, workmanship, design, plan or specification and should damage occur to any portion of the Insured Property containing any of the said defects, the cost of replacement or rectification which is hereby excluded is that cost which would have been incurred if replacement or rectification of the Insured Property had been put in hand immediately prior to the said damage.

For the purpose of this policy and not merely this exclusion, it is understood and agreed that any portion of the Insured Property shall not be regarded as damaged solely by virtue of the existence of any defect of material, workmanship, design, plan or specification.

1. Turning now to the EAR Policy, there are two particular clauses pleaded by the plaintiff which I should mention. The first clause to note is clause 2 of the 'Exclusions', found at page 10 of the EAR Policy. This clause provides that the insurers shall not be liable for the costs as described in the standard LEG 2/96 Exclusion (which I have described in the preceding paragraph of these reasons).
2. The second clause to note is the 'Difference in Conditions' (DIC) coverage clause, found at page 20 of the EAR Policy. There are two aspects to this clause - one relating to 'Defects' and one relating to 'Guarantee Maintenance'. Typically, a DIC clause in a policy of insurance provides some form of additional coverage to the insured. I have set out the full terms of the clause below:[39]

The Insurers will indemnify the Insured, subject to the terms, exclusions and conditions contained herein for:

Defects

Any claim for which indemnity is not provided under this policy by virtue of the application of the LEG 2/96 Defects Exclusion contained in this Policy but for which indemnity would have otherwise been provided had the following LEG 3/06 Defects Exclusion been applicable under this Policy in place of the LEG 2/96 clause:

LEG 3/06 Defects Exclusion:

'All costs rendered necessary by defects of material, workmanship, design, plan or specification and should damage occur to any portion of the Insured Property containing any of the said defects the cost of replacement or rectification which is hereby excluded is that cost incurred to improve the original material, workmanship, design, plan or specification.

For the purpose of this policy and not merely this exclusion it is understood and agreed that any portion of the Insured Property shall not be regarded as damaged solely by virtue of the existence of any defect of material, workmanship, design, plan or specification. '

Any claim for which indemnity is not provided under this policy by virtue of the application of the Extended Maintenance cover as provided under this Policy and Guarantee Maintenance cover (as per the below clause) had this clause been contained in the Policy in place of the Extended Maintenance clause.

Guarantee Maintenance Period

This Policy extends to the Maintenance Period stated in the Schedule to indemnify the Insured for Damage:

• caused by the insured contractors in the course of the operations carried out for the purpose of complying with the obligations under the maintenance provisions of the contract.

• occurring during the maintenance period providing that such Damage is arising from a cause occurring before the commencement of the maintenance period.

Where any part of the permanent works is replaced or renewed during the maintenance period the indemnity provided by this clause shall apply to such replacement or renewal provided that in no case shall the maintenance period exceed 27 months from the original date of issue of the Provisional Acceptance Certificate arising from a cause occurring before the commencement of the maintenance period.

1. The terms which are set out in the above clause under the heading 'LEG 3/06 Exclusion' are identical to the standard wording of the LEG 3/06 Exclusion.

1. If the plaintiff is successful in establishing that some or all of its claims have successfully passed the foregoing hurdles, the court's focus will then be attracted to the quantification of the claims in accordance with the policy terms. There are express terms of both the CAR Policy and the EAR Policy constituting the basis of settlement under those policies.
2. Under the CAR Policy, in the event of damage to Insured Property the amount payable shall be its Reinstatement Value, which broadly means the cost of replacement or repair of damaged property.[40] The plaintiff draws attention to the following provisions of the CAR Policy, which it says will then apply:

(a) the work of rebuilding, replacing, repairing or restoring, as the case may be, must be commenced and carried out with reasonable dispatch;
>
> (b) where Insured Property has been damaged and where the Named Insured elects not to reinstate such Insured Property, the Insurers will pay to the Named Insured an amount equal to the cost necessary to replace, repair or rebuild the Insured Property to a condition substantially the same as but not better nor more extensive than its condition at the time the damage occurred; and
>
> (c) the total amount payable by the Insurers will include any additional amounts as provided in clauses 1.4 to 1.6.[41]

3. The CAR Policy further provides that the cost of reinstatement shall refer to the final cost to the Insured after completion of the repair, reinstatement or replacement work (including materials and wages incurred for the purpose of repairs and a reasonable margin for profit, administration costs and overheads incurred in connection with the damage).[42] The CAR Policy also provides for the payment of certain Additional Costs and Expenses, in certain circumstances.[43]
4. Under the EAR Policy, if the plaintiff is successful in establishing that its claims satisfy the Insuring Agreement Clause, and is not subject to one of the defences, then there are express terms of the EAR Policy, that in the event of damage to any Insured Property, the basis of any loss settlement shall:

(a) be, in the case of any damage which can be Repaired, the cost of Repairs necessary to restore the property to its condition immediately before the Occurrence of the Damage (Basis of Loss Settlement, cl 1(I));
>
> (b) be, where the damage cannot be Repaired, or the cost of Repair is greater than the replacement cost, the cost to replace the Damaged Insured Property (Basis of Loss Settlement, cl 1(II));
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> (c) be, in the case where the damage is not Repaired, the actual value of the damaged item of Insured Property immediately prior to the damage (Basis of Loss Settlement, cl l(III));
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> (d) be, in the case of total loss, the new replacement value of the property, less salvage (Basis of Loss Settlement, cl 1(III)); and
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> (e) include all reasonable or applicable freight, labour, insurance, wages, duties, profit, taxes and overheads incurred in connection with the Damage, with the value of any salvage deducted (Basis of Loss Settlement, cl 1) (EAR Basis of Settlement).

5. The EAR Policy also provides (under the sub-section headed 'Expenses') for the payment of certain Further Costs and Expenses, in certain circumstances.
6. The foregoing summary demonstrates, at least according to the plaintiff, that there is a high degree of complexity involved in these proceedings and, in particular, in relation to the quantification exercise which will need to be undertaken. As will be seen, the plaintiff submits that it would not be practical (and would not be reasonable or proportionate) for the parties to obtain and provide evidence that could properly address all of the quantification permutations which would arise, which are dependent on numerous alternative possible outcomes of the liability issues.[44] In effect, the plaintiff urges an approach which would involve the substantive issues being first determined, so as to narrow down the volume of evidence required to be assembled and called by the parties on the quantification issues.[45]
7. The defendants regard the plaintiff's concerns as somewhat illusory and point to various matters which it is said should persuade the court against any fragmentation of the proceedings.[46] An analysis of the competing positions of the parties must be undertaken in the context of the relevant principles which are applicable to the question whether separate trials should be ordered, to which I now turn.

1. The usual position, which all parties to these proceedings accepted, is that all issues of fact and law in dispute in an action should be tried together.[47] The common experience of courts in Australia demonstrates there are compelling reasons for this approach. That said, recognising that there may be circumstances in which this is not in the interests of justice, most modern courts have the power to order that a trial be split and certain questions or issues be heard and tried separately.
2. In this court, the relevant powers are found in Order 32 r 4 RSC and Order 32 r 5 RSC, which respectively provide:

Order 32 r 4 RSC

The Court may order that any question or issue arising in a cause or matter whether of law or fact or partly of law and partly of fact, and whether raised by the pleadings or by agreement of the parties or otherwise be tried separately from any other question or issue whether before at or after the trial or further trial of the proceedings, and may direct that a case and the question or issue for decision be stated.

Order 32 r 5 RSC

In any cause or matter the Court may at any time, or from time to time, order that different questions or issues arising therein be tried at different places or by different modes of trial, and that one or more questions or issues be tried before the others.

1. The exercise of the foregoing powers must be approached in a cautious manner. The words of warning of Kirby and Callinan JJ in Tepko continue to provide a strong reminder to trial judges in this country to approach applications of the present nature in a careful and considered manner, and be watchful of pursuing a deceptively attractive short-cut that ultimately serves to complicate and lengthen proceedings:

The attractions of trials of issues rather than of cases in their totality, are often more chimerical than real. Common experience demonstrates that savings in time and expense are often illusory, particularly when the parties have, as here, had the necessity of making full preparation and the factual matters relevant to one issue are relevant to others, and they all overlap.

The second and related comment is this. A party whose case is knocked out of a trial on a preliminary or single issue, may suspect, however unjustifiably, that an abbreviated course was adopted and a decision reached in the court's, rather than the parties', interests.

Thirdly, there is an additional potential for further appeals to which the course of the trial on separate issues may give rise. Indeed, that could occur here were this appeal to be allowed and a retrial had in which the remaining issues of causation and damages were decided. Single-issue trials should, in our opinion, only be embarked upon when their utility, economy, and fairness to the parties are beyond question.[48]

1. The plaintiff expressly accepts the above principles.[49] The plaintiff also recognises that the apparent benefits of a separate trial of issues can prove to be illusory, and it is a course that can cause the very delay, expense and uncertainty it was intended to avoid. The plaintiff observes that while, generally, a trial on liability alone would be shorter and less costly than assessing liability and damages together, it may not in fact lead to the overall action being resolved sooner or at a lesser cost given that a separate trial on quantum will be required if the plaintiff is successful on liability. The plaintiff also acknowledges that separate trials can increase the risk of separate appeals, meaning unresolved damages or quantum issues are put on hold until the appeal process is complete on liability issues.[50]
2. It has been said that a separate trial of issues will generally only be appropriate in cases where there is a clear line of demarcation between the issues, and the determination of one in isolation from the other is likely to result in a substantial saving in time, inconvenience and expense.[51]
3. Conformably with this 'clear line of demarcation' proposition, there is nothing unusual in allowing questions of liability to be determined separately from questions of quantum of damages.[52] This is particularly appropriate in circumstances where the resolution of the assessment of damages is likely to be particularly complex, or where uncertainties and difficulties in making an assessment of quantum in the course of a single trial are anticipated, such as to favour a separate trial on quantum.[53] The plaintiff observes in its submissions that separate trials are common in intellectual property cases, particularly where the financial aspects of the remedy sought are complex.[54]
4. The determination of an application for separate trials requires a careful balancing of the prospective advantages and disadvantages, bearing in mind the uncertainties of litigation. Ultimately, the decision to be made is a discretionary one and the discretion is to be exercised having regard to, and weighing, all the relevant considerations.[55] In the English context, this process is sometimes described as a 'pragmatic balancing exercise'.[56]

In exercising the discretion to hear the issues together or separately, the court will have regard to the overriding goals of case management which are enshrined in Order 1 rr 4A and 4B RSC, namely the facilitation of the just, efficient, timely and cost-effective resolution of the real issues in dispute.[57]

Brisbane Airport Corporation Pty Limited v Arup Pty Limited

1. A recent example in which an Australian court has ordered a split in large and complex proceedings can be found in Brisbane Airport Corporation Pty Limited v Arup Pty Limited [2020] QSC 202 (Applegarth J). Briefly stated, the defendant provided geotechnical, engineering and other consultancy services to the plaintiff airport. After cracks were identified in the newly constructed apron and taxiway at the airport terminal, the airport sued the defendant for negligence and, in the alternative, for misleading or deceptive conduct arising out of alleged representations in relation to the design, asserting five defects. The plaintiff alleged that extensive works were required to rectify these defects. Applegarth J noted that, if the defendant was found liable in any one or more of these five respects, then the basis of its liability and the nature of the defect would be relevant to the extent of rectification works required to address the particular defect and therefore the quantum of damages to be awarded to the plaintiff.[58]
2. A major and contentious aspect of the airport's quantum claim was the staging of rectification works. The cost of the rectification scheme was said to be based upon a proposed program of work, and the sequencing and cost of undertaking that work depended on operational restrictions the airport had instructed its experts to assume.[59] As the airport had remained operational, it appeared that the plaintiff (at least prior to the COVID-19 pandemic) was unable to close bays or taxiways to perform work otherwise than in off-peak periods and only by allowing the contractor to work on one front, or stage, at any one time. The time and other requirements substantially increased the cost of rectification.[60]
3. The onset of the COVID-19 pandemic meant, according to the defendant, that the operational restrictions were no longer required. As the preparation of the quantum case was in something of a state of flux, the defendant sought orders for a separate trial on liability (with the quantum of the airport's rectification works, mitigation issues, and betterment issues to be held over to a second trial, if required). The defendant urged this course upon the court for additional reasons as well, including that the scope and extent of a trial on the quantum issues depended upon the court's findings as to liability. The defendant contended that a single trial on all issues would require the parties to address (at significant cost) a multitude of rectification possibilities, some of which would be made irrelevant by the court's findings on liability.[61]
4. Applegarth J granted the application. His Honour placed significant weight on the reality that the plaintiff's case on quantum was in a state of flux, as well as the potential for a split trial to facilitate settlement. His Honour concluded as follows:

[71] On balance, I consider that the interests of justice and doing justice to both parties favours ordering a separate trial on liability. That course carries the prospect of significant costs savings. Such a course will resolve liability (subject to any appeal on liability). By that time [the plaintiff airport's] quantum case will be clearer than it presently is or is likely to be for some substantial time until at least a contract for early rectification works is let and the program of works and their cost is assessed, pleaded and considered by [the defendant]. One apparent reason as to why the proceedings have not settled to date is because of uncertainty on issues of both liability and quantum. A separate trial on liability, preferably conducted in the first half of 2021, will remove one significant element of uncertainty and thereby help facilitate resolution of the Remaining Issues by settlement or a shortening of any quantum trial.

[72] Some factors weigh in favour of having a trial of all issues. However, with [the plaintiff airport's] quantum case in a state of flux, such a trial is unlikely to be ready for some substantial time. In my view, it is just and convenient to conduct a liability trial before then. The prospect of savings of time and costs, and also facilitating settlement, favours a separate trial on liability. These considerations, in my view, and the other matters relied upon by [the defendant] outweigh the risk that a separate trial will delay the conclusion of the proceeding as a whole and the other disadvantages to which [the plaintiff airport] points.

[73] The uncertainty injected in relation to quantum by the prospect of early rectification work and its significant implications for the preparation and conduct of a trial on quantum favour a separate trial on liability. It would be wasteful of costs and time to require [the defendant] to prepare evidence, including expert evidence, in the coming months to respond to [the plaintiff airport's] case on quantum as presently pleaded and formulated. That case is bound to change because of altered operations at the airport and the real prospect of early rectification work. The need to avoid wasted costs on quantum issues which are almost certain to change is a factor which strongly favours ordering a separate trial on liability.

[74] Overall, I conclude that it is just and convenient to order a separate trial on liability.

1. As will be seen in due course, the factors which persuaded Applegarth J to accept the appropriateness of a split trial in Brisbane Airport are not demonstrated in the present case. The peculiar circumstances which presented in that case, including the impact of COVID-19 on the plaintiff's quantum preparation, provide a basis, in my view, to distinguish the decision.

1. The exercise of the discretion which is embedded in Order 32 r 4 and r 5 RSC requires a proper foundation. There must be probative evidence before the court which justifies a departure from the usual position. That evidence should be more than conclusionary and not expressed at too high a level of generality.
2. By way of example, in Landsdale, the Court of Appeal was particularly concerned as to the cogency of the affidavit material which had been adduced before the Master to support the application. The Court of Appeal concluded that the evidentiary material was not capable of establishing that it would be a practical, more efficient and cost-effective course than a trial on all issues. Newnes JA held that:

The affidavit of Mr Moore did not provide a basis upon which a proper assessment could be made of the likely length and cost of the trial if both issues were tried together or the time or cost that might be saved if there were separate trials. There was also no evidence upon which any assessment could be made as to the extent, if any, to which the trial of the action might be delayed if the action were to proceed to a trial of all issues. There was not, in my respectful opinion, sufficient before him to enable the Master to conclude that the damages 'would take some proving' or that expert evidence on damages would delay the hearing of the trial and lengthen the trial considerably. While there is certainly some intimation in the affidavit that, at least in Mr Moore's view, proving the quantum of damages will be a substantial undertaking, the high level of generality of Mr Moore's statements simply did not permit any proper assessment to be made of what was likely to be involved.[62]

1. This necessity for proper evidence to be led to support a split trial application was also emphasised by Curthoys J in Iwankiw v Boord (as executrix of the will of the late Roman Iwankiw) [2022] WASC 186. In that case, the applicant had not led any evidence to enable the court to form a view as to the likely length and cost of the trial if all issues were tried together, or the time or costs that might be saved if there were separate trials.[63] Recognising the established principle that separate trials of issues should only be embarked upon when the utility, economy and fairness are beyond question, Curthoys J concluded that the split trial application should be dismissed on that ground alone.[64]

1. I should mention a further principle of relevance to the split trial question. It is well accepted that the possibility that the determination of issues tried separately may lead to settlement should be taken into account, even though the issues might not finally dispose of the action.[65]
2. In TerraVision, Le Miere J granted (in part) a separate trial application. Three questions were proposed by the plaintiff, concerning the proper construction of the disclosure obligations of the defendant under the agreement in issue. Le Miere J concluded that only one of these matters was appropriate for separate determination. In reaching that view, his Honour stated:

The question of what sales and services provided by BlackBox to a Contracting Party that BlackBox must give TerraVision notice of, and pay for, is a crucial part of the dispute between the parties. It is common ground that that dispute could be tried and determined at a hearing of perhaps two or three days, depending upon any oral evidence which is to be led. If the issue were determined in favour of BlackBox, the parties would be likely to settle the proceedings as a whole. That is because the amount of TerraVision's claim would be greatly reduced. If the issue is determined in favour of TerraVision, then that is likely to facilitate a more efficient resolution of the rest of the proceedings for the following reasons. BlackBox says that it has notified TerraVision of all the transactions it is contractually required to give notice of. If the 'transactions of the defendant' issue is determined in favour of TerraVision it would then follow that BlackBox has not given TerraVision notice of all the transactions it is contractually required to give notice of. Counsel for BlackBox said, in effect, that BlackBox is then likely to cooperate with TerraVision and agree for the BlackBox transactions which have not been notified to TerraVision to be divided into categories for the purpose of determining which class of products specified in the Price List they fall into. That would reduce the burden of work to be undertaken by the parties in preparing for the balance of the issues for trial and the time to be occupied at trial. If the 'transactions of the defendant' issue is not resolved before trial then it will be necessary for every transaction undertaken by BlackBox since the date of the Licence Agreement to be examined to determine which product class in the Price List they fall into. That would take up many days of hearing and involve substantial resources of the parties in preparing for trial. (underlining added)[66]

1. This is not to say that the splitting of the issues in an action will always be conducive to settlement. Indeed, in Landsdale, Newnes JA made the following observation:

I would add that there is a further factor which tends to militate against the order made by the Master. It is a relevant consideration in determining whether or not issues should be tried separately that one course or another may assist in leading to a settlement of the action. In the present case it is not apparent that a settlement of the action is likely to be advanced if the preparation of the case on damages is deferred until some time after a trial on the issue of liability. Given that the damages claim depends to a substantial extent upon expert evidence and documents in the respondents' possession which would only become available to the appellants in the course of the preparation of the damages case, separate trials could have the opposite effect.[67]

1. In Daimler AG, Bryan J sitting in the High Court of England and Wales dismissed a split trial application and, in doing so, rejected the defendants' submission that a trial on liability in advance of a trial on quantum would encourage the parties to settle. That was a price fixing and market sharing cartel case. The defendants had argued that the first trial would define the scope of the relevant commerce and therefore define more clearly the total value of the claim. The plaintiff argued that such a split would not lead the parties towards settlement, and that probable delays before all issues were determined would remove any immediate incentive on the defendants to settle.[68]
2. Bryan J concluded, on the facts of that case, that the possibility of settlement would be maximised if all the issues were prepared and tried together. His finding on this issue was as follows:

I consider it is improbable that settlement will be possible until the true quantum of the claim or the various permutations on quantum is apparent. The sums at stake in this case are very large. It is true that most competition claims settle, but the prospects of this competition claim settling will be maximised at a time when all parties are aware of the likely quantum of any damages. That is particularly so in the context of the fact that a large part of this claim is follow-on damages and on the timetable that would result from a split trial, it would be many years from now before that quantum would be known, which is no incentive to the Defendants to settle the overall proceedings in the meantime.[69]

1. At the hearing, Senior Counsel for the AIG Defendants drew my attention to two recent decisions where an 'unconventional split' was sought, neither of which were granted. These decisions are Jinxin Inc v Aser Media Pte Ltd & Ors [2022] EWHC 2431 (Comm) (Deputy Judge Eggers KC) and Timeless Sunrise Pty Ltd v BigJ Enterprises (No 3) [2022] VSC 499 (Delany J).
2. Senior Counsel for the AIG Defendants placed emphasis on Jinxin to support the proposition that a court is unlikely to grant an unconventional split where the issues to be tried in the separate trials are 'connected or interlocked'.[70]
3. Jinxin is a decision of Deputy Judge Eggers KC sitting in the High Court of England and Wales. The claimant, Jinxin, brought claims against a number of defendants. Two of those defendants (supported by the other defendants) brought an application for a split trial - proposing that the proceedings be split into three separate trials, each dealing with specified issues.
4. Senior Counsel for the AIG Defendants described the categories of the split in Jinxin as 'unconventional'. The defendants sought to split the trial into, firstly, a trial to deal with the identification of representations made to Jinxin and their meaning to a reasonable representee, and whether Jinxin relied on the representation in the belief that it was true.[71] Then a second trial would be required, which would deal with whether or not the alleged representations were untrue, the knowledge and intention of the defendants, and the defendants' responsibility for the representations.[72] The final trial would deal with, if necessary, the question of remedies.[73]
5. The court ultimately refused the split trial application in Jinxin. In doing so, the court relied upon the considerations outlined by Hildyard J in Electrical Waste Recycling, an English authority to which I have earlier referred. Those considerations are:[74] first, whether the prospect that costs will be saved due to the findings made in the first trial rendering a second trial unnecessary, outweighs the likelihood of increased aggregate costs if a further trial is necessary. Second, weighing up the advantages and disadvantages in terms of trial preparation and management. Third, the likelihood that the split trial will impose unnecessary inconvenience and strain on witnesses who may be required in both trials. Fourth, whether a single trial dealing with all the issues will be excessively complex or place an undue burden on the judge hearing it. Fifth, whether a split could prejudice one or more of the parties. Sixth, is a clean split possible or is an appropriate split difficult to demarcate. Seventh, what weight to be given to the risk of duplication, delay and the disadvantage of a bifurcated appellate process. Eighth, what is the best course to ensure that the whole matter is adjudicated as fairly, quickly and efficiently as possible. Ninth, whether a split trial may encourage or assist mediation and/or settlement.
6. In dismissing the application, the court in Jinxin (at [32]) observed that 'such split trials may have unintended or unanticipated consequences, and therefore the Court must be astute before ordering such separate trials to take place'.[75] Senior Counsel for the AIG Defendants submitted that a key reason for the court's decision to dismiss the split trial application in Jinxin was that the issues the defendants were proposing to split were 'connected or interlocked'.[76] While I accept that Deputy Judge Eggers KC expanded heavily on the presence of connected or interlocked issues,[77] his Honour dismissed the application by weighing five other considerations, together with the issue of connectedness.[78]
7. His Honour found that: first, while the second trial's scope may be considerably narrowed, the case, nevertheless, had a very real possibility of a further trial. Second, significantly due to the interconnectedness of the issues, the witnesses who will be called in the first trial will undoubtedly be called at later trials. This created a duplication of evidence, difficult-to-draw boundaries as to what evidence these witnesses might give at each trial, and may be unfair to the witnesses to have to give evidence on the same issues with a not-de minimis amount of time in between trials.[79] Additionally, his Honour felt this could create an issue of prejudice as the court may make findings to a witness' credibility in one trial which may affect that witness' ability to give evidence in a further trial. Third, in the circumstances, the splitting of trials would not necessarily save the court or the parties from a complex trial.[80] Fourth, the issue of delay. His Honour found that if the first trial was not entirely dispositive, then splitting the trials will have the effect of delaying the second and third trials to a much later date than the one currently envisaged for the single trial. Further, that delay may be further exacerbated by the very real possibility of an appeal of the earlier decisions.[81] Fifth, due to the circumstances of the case, the ordering of split trials may create more difficulties than can be anticipated, and given there were already difficulties identified, there was no clear justification to order splitting the trial along the lines proposed by the defendants.[82]
8. There are obvious differences in the causes of action and facts which underpinned Jinxin, relative to the case at hand. Nonetheless, the arguments raised in Jinxin were, broadly speaking, similar to the arguments the parties in the hearing before me raised. For example, it was contended in Jinxin that there was a potential advantage to the split, which was that determining the liability would encourage the parties to settle. This argument was accepted by the Judge. Nevertheless, his Honour ultimately found that the concerns outweighed that advantage.[83]
9. Ultimately, there are parallels to be drawn from the approach adopted by the court in Jinxin. The factors relied upon by the court to dismiss the split application in that case are in my assessment, by and large, present in the current proceedings.
10. Senior Counsel for the AIG Defendants also drew my attention to Timeless Sunrise, a recent decision of the Victorian Supreme Court. That case involved an application by the plaintiffs to split their case at trial in relation to forgery allegations concerning mortgage transactions.[84] The court was asked to order an 'unconventional' split, albeit in a Protean Holdings[85] sense rather than a Tepko sense. The court ultimately refused the application given the fact and degree to which the issues the subject of the application were intertwined with other issues.[86] Delaney J found that it would be artificial and not conducive to the fair conduct of the trial to carve out a single issue from a whole series of inter-related issues.[87] As the case concerned a split in a Protean Holdings sense I do not consider the case is sufficiently relevant to the present applications before the court, and I will put that decision to one side.

1. In the detailed submissions filed by the parties, a number of features of these proceedings were highlighted as being variously supportive of the proposal to order separate trials, or as representing obstacles to such a course of action.
2. The parties focused their submissions on the orthodox issues which are identified in the leading authorities to which I have already referred. These included matters such as whether there would be any overlap between issues and the evidence, the perceived complexities associated with the quantum aspects of the plaintiff's claims, the potential for savings in trial time and costs, the risks of fragmentation arising from appeals, impact on settlement, and overall duration of the proceedings.
3. The plaintiff submitted that the applications should succeed having regard to a number of factors present in the case, as explained in some detail at [28] - [ 79] of the Plaintiff's Submissions. The plaintiff points to the demarcation between issues, the flow on impact from a resolution of the Substantive Issues prior to the trial on the Quantification Issues, through a significant narrowing of the issues between the parties. The plaintiff points to savings in trial time andthe use of judicial resources, as well as savings in legal costs for the parties. The plaintiff rejects any notion there would be any overlap between the documentary or oral evidence of the witnesses. The nature of expert evidence that will be led in respect of the two categories of issues will also be led by different experts in different disciplines. The plaintiff also submits that a trial on the substantive issues is likely to enhance the prospects of the parties resolving or narrowing the quantification issues and, potentially, of course, settling it altogether.[88]
4. The AIG Defendants and Mitsui Sumitomo adopted a uniform position in the CAR Proceedings, and Mitsui also adopted that position for the purposes of the EAR Proceedings.[89] The defendants remain wholly unpersuaded that the plaintiff's approach involves a clear demarcation between the issues of liability and quantum, and point to this as a significant Achilles heel in the Separate Trial Applications.
5. The defendants rightly note the proceedings are at an early stage, and so they contend the plaintiff's assertions as to the likely savings as to costs and time have no sound evidential foundation. The defendants point to the risk of an appeal fragmenting the proceedings, which while always a factor to be considered in a split trial application, is said by the defendants to be greater than usual given the amount at stake in these proceedings. The defendants do not share the plaintiff's confidence as to the prospect of settlement being enhanced after the first trial, at least in certain scenarios.[90]
6. In general terms, the defendants submit that the state of the proceedings and the material relied upon by the plaintiff in support of the Separate Trial Applications 'come nowhere near providing the Court with the necessary comfort that the utility, efficiency and economy of the proposed separate trials is beyond question, and that such separation will not create more difficulties than it solves'.[91]
7. As an alternative position, the AIG Defendants submitted that, if the court was prepared to entertain separate trials, the present application is nonetheless premature and 'any proposed separate trials should only be considered after Inpex serves its lay and expert evidence on the Substantive Issues, that being a step which Inpex accepts it must take in any event' and 'this will allow the Court to consider the issue, including the risks of any separate trials, on a more informed basis'.[92]
8. Mitsui Sumitomo submitted that a splitting of the trial on the terms proposed by the plaintiff would not serve to simply separate the issues concerning the plaintiff's entitlement to indemnity from the quantification of that entitlement.[93] Rather, according to Mitsui Sumitomo, it would postpone the determination of issues that are fundamental to establishing that an indemnity is available under the two policies.
9. Further, Mitsui Sumitomo contends there is a 'significant risk that issues will arise in the second phase of the proposed split hearing that may have been relevant in determining issues in the first phase hearing' and 'the cost, delay and inconvenience of two trials in lieu of one is not offset by the benefit that frequently arises in cases of this kind, namely the prospect of the parties reaching agreement on quantum thereby obviating the need for a determination of those issues'.[94]
10. My analysis of the salient features of the proceedings, insofar as they are relevant to the Separate Trial Applications, is set out below. Ahead of that, I should address the plaintiff's asserted rationale for the bringing of these applications. That rationale requires close scrutiny and whether that rationale is justified seems to me to be an important, if not pivotal issue, upon which the success of these applications turn.

1. The presence within the plaintiff's claims of multiple forms of damage is central to the Separate Trial Applications which it now advances. The plaintiff submits that it is simply not practicable to deal with the Quantification Issues in advance of a determination of the Substantive Issues because a single trial would require the parties to address a multitude of permutations of damage, which it says (and which its engaged expert supports) is impracticable and unachievable.[95]
2. Even if this task was attempted, the plaintiff submits it would be unreasonably costly and inefficient, and give rise to a very substantial risk that such work could be redundant if it proved not to be relevant to the court's findings on the Substantive Issues in any event.[96]
3. The plaintiff urges the court to accede to the Separate Trial Applications in order to overcome the difficulty and complexity of quantifying the plaintiff's entitlement under the CAR Policy and the EAR Policy. Otherwise, the plaintiff says that the task that would confront the parties (and their experts) and the court would be unmanageable in its breadth and complexity, as it would require the parties to deliver evidence (and require the experts to express opinions) on an 'indeterminate number of permutations'.[97]
4. The plaintiff explains that the task of attempting to quantify permutations that may or may not arise from the court's findings will result in disproportionate time and cost to be expended by all parties, and the court, including on matters that will ultimately be rendered unnecessary. All of this can be resolved, according to the plaintiff, if the trials are split because the court's decision on the Substantive Issues will mean there is only one permutation for each category of damage.[98]
5. Through Mr Jenaway, the plaintiff's quantum expert has expressed views in relation to the task that confronts him in this matter. The expert is Mr John Mullen, who is a chartered quantity surveyor and chartered civil engineering surveyor, with over 42 years' experience in the construction industry.[99] The foundation for Mr Mullen's opinions, apart from of course his own many years of experience and his experience in a recent confidential matter, is the instructions he has been given by the plaintiff's solicitors as to the nature of the evidence he would be instructed to prepare.[100] That is to be expected, but it does mean I should view his opinions giving appropriate regard to the criticisms raised by the defendants concerning the plaintiff's approach on these applications, which I have mentioned below.
6. In any event, Mr Mullen asserts that it would not be possible for him to prepare a comprehensive expert report that could reliably quantify the plaintiff's potential entitlement for each of the potential permutations of that entitlement, under the insurance policies.[101] The task of preparing the quantum evidence for variances for all possible scenarios would be unmanageable and in effect impossible, in his view.[102] Mr Mullen points to the enormous number of Lines of Piping and Equipment on the Onshore Facility (around 30,000) and, in the absence of judicial findings as to which of them are damaged, when that occurred, what remediation is required, and the time at which the cost of remediation needs to be assessed, he considers he would need to determine an estimated cost for each Line. Mr Mullen says he is unable to determine a universal cost for remediation. He says he may be able to prepare an estimate of direct costs, but he cannot reliably calculate indirect costs.[103]
7. Mr Mullen has indicated that, if the proceedings are not separated, a quantum report prepared on the basis of certain assumptions and a limited number of permutations could be prepared but would require materially in excess of 12 months to complete. That task would consume significant resources. Some of the report may prove to be redundant, depending on the findings.[104] If the proceedings were split, Mr Mullen considers the report would take materially less than 12 months and be directly relevant in the sense it would reflect the determinations of the court on the Substantive Issues.[105]
8. The defendants doubt whether it can be said there are an infinite number of permutations as to damage and the scope of remediation works, as has been submitted by Inpex Operations, and thus strongly doubt there are difficulties arising from this uncertainty as is contended by the plaintiff.[106] The 'recurrent theme' in the plaintiff's submissions that there are an indeterminate number of outcomes which will need to be addressed by the quantum evidence is characterised by the AIG Defendants as 'abstract and far-fetched'.[107]
9. I accept the plaintiff will encounter significant difficulties in preparing its quantum evidence if it proceeds in the manner it has proposed. I accept that the case as pleaded is undoubtedly complex. There are numerous forms of damage pleaded by the plaintiff, which are said to have arisen within the context of an immense industrial structure, which needs to be assessed against the backdrop of the detailed language of the insurance policy provisions. Mr Mullen has expressed views which suggest that significant costs and resources will be expended, over a lengthy period, to prepare quantum evidence in a single trial scenario, even on the basis of certain assumptions and certain permutations.
10. However, I am unable to accept, on the material before me, that it is inevitable, in a single trial scenario, that the plaintiff will need to prepare quantum evidence which traverses an indeterminate number of outcomes and permutations. This approach presumes that further work cannot now be undertaken by the plaintiff to refine the claims for damage (and the remediation costs) which it seeks. That work should, with respect, not be undertaken only after a series of findings and conclusions are made by the court on the Substantive Issues. Further, it is not uncommon for large scale claims to be approached on the basis that damages are sought in respect of a number of heads (and quantum preparation is undertaken for that purpose), only some of which ultimately may prove to be compensable. Where possible, wasted costs in litigation should be minimised from a case management perspective, but it cannot always be wholly avoided. Logically, it appears to me there is no reason why the plaintiff cannot now determine the costs of the remediation that are required to be undertaken on the various Lines of Piping and Equipment. This includes the costs of the pre-damage hypothetical remedy which, on the plaintiff's construction, is required as part of the LEG 2/96 Exclusion calculus.[108] The plaintiff and JKC have made detailed claims against their insurance policies and have now pleaded out lengthy statements of claim to advance those claims, which seek indemnity against damage to insured property, all of which presupposes that the plaintiff has a sufficient understanding of the remediation which is required, and that the plaintiff is able to identify what it says is the comparative cost (hypothetical or actual) required as part of the analysis inherent in the application of the LEG 2/96 Exclusion or the LEG 3/06 Exclusion.
11. So, it seems to me that greater work can be undertaken by the plaintiff at present to better clarify and assess the remediation work it is required to undertake on the Onshore Facility, and the estimated costs of doing so. I do not accept that there is merely a stark choice for the court, between an inefficient and wholly unmanageable piece of litigation, on the one hand, and a decision to accede to the split trial applications proposed by the plaintiff, on the other. By having the plaintiff undertake further work on the remediation issues and costs, the impossible and unmanageable task of preparing the quantum evidence (as the plaintiff puts it) may well become possible and manageable. As McKechnie J explained in Carlo Nobili:

The case management rules are designed to deal with complex cases involving many issues. To date neither party has seriously advanced proposals to move this case to trial in a way that will make the issues comprehensible. I consider that in the circumstances proactive case management is both more convenient and more likely to result in a just disposition than an order for trial of separate issues.[109]

1. I consider the plaintiff's suggested approach to splitting these proceedings in the manner proposed is something of a blunt instrument to address the issue at hand, and to resolve the difficulties which have been identified. In my view, further progress of the proceedings, and the undertaking of further work on the part of the plaintiff as just described, together with additional active steps in the proceedings, may well bring the issues into clearer focus, both from the parties' perspective and from the court's perspective.
2. By way of example, I have earlier referred to the unanswered but detailed requests for further particulars which were served on the plaintiff by the AIG Defendants in October 2022.[110] Those requests seek particulars of the parts of the Piping and Equipment which are presently pleaded in general terms by the plaintiff, and details of the various heads of damage which have been pleaded by the plaintiff. It is not clear to me why the parties have not advanced conferral on these requests ahead of the hearing of the Separate Trial Applications. Although I recognise that those applications were filed before the requests were issued, there is no obstacle to these matters all being progressed in parallel.
3. In addition to the provision of particulars, I note the parties have not concluded the discovery phase of the litigation. The parties were engaging in conferral as to the categories of discovery, at least as at late November 2022. The parties have, it would seem, exchanged initial categories of discovery. The continuation and completion of the discovery process may or may not require active assistance from the court to resolve insoluble issues. The communications exchanged in November 2022 leave me with the preliminary impression that the parties may not have been able to convince each other of the appropriateness of their respective categories. At all events, as matters stand, the defendant insurers do not have complete insight at present as to the relevant documentary material held by the plaintiff (bearing in mind the plaintiff is likely to be the repository of a significant portion of the documents relevant to the proceedings). Clearly enough, the provision of discovery (in conjunction with the provision of further particulars by the parties) can assist the solicitors on the record (and counsel) to better understand the matters in issue and the points of strength and weakness of the parties' positions, including as to matters of quantum.
4. A further example of a step which may ameliorate some of the quantum difficulties to which the plaintiff refers is conferral between the parties' quantum experts. Traditionally, the process of conferral between engaged experts in commercial litigation takes place in earnest only once those experts have prepared and exchanged their reports. At that stage, the respective experts have before them the opinions of their counterparts and conferral can be undertaken to identify areas of agreement and remaining areas of dispute. There is no obstacle in principle, however, particularly in a large piece of litigation such as the present, for the parties to have their respective experts in similar fields of discipline, confer in good faith with a view to identifying, if possible, methods by which the complex expert issues may be narrowed or rendered more manageable, prior to formal reports being finalised. If necessary, this can be undertaken under the auspices of a court-approved agenda. It does not appear that the parties in the present proceedings have considered such an approach as yet.
5. I venture another example. The use of a court appointed assessor or a referee as contemplated by Order 35 RSC may be advantageous in a case such as the present, and offer a more focused solution. As with a split trial application, the question of the appropriateness of appointing an assessor or referee requires careful consideration.
6. Returning to the evidentiary foundations for the present applications, I should say something about the nature of the expert evidence which was presented on these applications. Whilst I have the views of Mr Mullen, the plaintiff's engaged expert, before me on these applications, those views are expressed in very broad terms as to the preparation of the quantum evidence, and the difficulties therein. As is of course common in interlocutory applications, that evidence has not been tested by cross-examination. I do not have any expert evidence to assist me to understand the underlying technical remediation issues. In this regard, I accept the submissions of the AIG Defendants that it does not follow that each form of damage alleged by the plaintiffs necessarily requires that each form of potential remediation is required. For my part, I am unable to simply draw that inference from the materials available to me at present.
7. Even if I accepted the entirety of the premise of the plaintiff in bringing these Separate Trial Applications, I am left in some considerable doubt as to whether the formulation of the Substantive Issues as drafted by the plaintiff would avoid the difficulties about which it complains. The AIG Defendants have drawn my attention to the wording of issues (c) and (e) in the Substantive Issues in this regard. I would add issue (f) to that list. These are issues to be determined at the first trial, on the plaintiff's proposal. I have described these issues earlier in these reasons, and they are extracted in Attachment A. Issue (c) invites the court to assess 'whether each item of Insured Property has suffered Damage...and, if so, by reason of what mechanism?'. Issue (e) requires the court to determine the 'type of remediation [required] for each Damage mechanism on each item of Insured Property', 'in respect of any Damage warranting quantification'. Issue (f) employs similar language. It therefore appears likely that, even on the split trial proposal, the plaintiff will need to prepare some level of detailed evidence as to the scope of the remediation for each of the forms of damage about which it complains.
8. So, as matters stand, I am unable to accept the basal proposition advanced by the plaintiff which underpins the Separate Trial Applications, namely that it is inevitable the plaintiff will need to prepare quantum evidence which traverses an indeterminate number of outcomes and permutations if there is a single trial, or that the proposal necessarily avoids or sufficiently addresses the perceived problem. Further, as explained above, it is far from clear to me that the split trial proposal is a necessary procedural solution at this stage of the proceedings, or that the proposal will have the evident benefits which the plaintiff asserts will flow.
9. I turn now to examine a number of the additional factors relied upon by the plaintiff in support of the split trial proposal.

1. The plaintiff submits that, even though the pleadings in the two proceedings raised a number of complicated factual and legal issues, there is nonetheless a clear demarcation between the Substantive Issues and the Quantification Issues which it has expressly defined in the Separate Trial Applications.[111]
2. The defendants submit that the demarcation proposed by the plaintiff is contentious and point in particular to the presence of the LEG 2/96 Exclusion, the LEG 3/06 Exclusion, and the Basis of Settlement as providing compelling reasons why the proposed demarcation is not workable.[112]
3. As can be seen from the foregoing, the split propounded by the plaintiff is not a strict division of the case as between liability and quantum. It is unconventional.[113] There are issues of what might be described as liability and quantum that would need to be determined in both proposed trials. Moreover, there are issues or subject matter which will arise in the first trial which would also fall to again be addressed, at least in some respects, in the second trial.
4. I am particularly concerned as to the impact a split trial might have on the LEG 2/96 Exclusion and the LEG 3/06 Exclusion which are pleaded and relied upon by the defendants in the proceedings. These exclusion clauses are pleaded in respect of most, if not all, of the plaintiff's claims. As can be seen from the description of the Substantive Issues and the Quantification Issues in Attachments A and B to these reasons, these exclusion clauses also fall to be considered in both trials.[114]
5. The plaintiff rejects the notion that the presence of these exclusions renders the separate trial proposal unworkable and inappropriate and, indeed, consider their presence to be powerful facts in favour of a split.[115] In general terms, the plaintiff submits that it is possible for the quantification aspects inherent in an application of the LEG 2/96 Exclusion to be undertaken after it is established that damage has occurred to some insured property, after the required remedial solution that needs quantification has been identified, and after the hypothetical method of replacement or rectification of the insured property has been identified.[116]
6. In my view, there are two primary reasons why the split trial proposal should not be entertained insofar as the LEG 2/96 Exclusion and the LEG 3/06 Exclusion are concerned.
7. First, the parties are in heated dispute as to the proper construction and effect of the LEG 2/96 Exclusion and the LEG 3/06 Exclusion. That much is apparent from the submissions filed for the purposes of the Separate Trial Applications. The parties appear to view the exclusion clauses through entirely different prisms. It is not appropriate that I make any observations at this stage as to the competing constructions which have been advanced. As I have noted, these exclusions are model clauses, yet appear not to have attracted a significant body of authoritative jurisprudence as to their operation. This court will ultimately be called upon to construe these exclusion clauses in circumstances in which their proper construction is something of a greenfield site.
8. That means the court should proceed cautiously, given the interpretation and application of the clauses may have significance beyond the instant litigation and the present parties. The court must also undertake that task with full regard to the orthodox principles which ought to be applied in construing commercial instruments, such as complex insurance policies. While we are dealing with model clauses, it does not follow that their construction in the present case, in these particular insurance policies, will be undertaken in an evidential vacuum. It will be necessary to interpret the provisions with due attention to the commercial circumstances which the CAR Policy and the EAR Policy address, and the objects they are intended to secure. It is well acknowledged that regard to external events, circumstances or things may be necessary in this process. This may be required to identify the commercial purposes or objects of the contract (by reference to the genesis of the transaction, the background, the context and the market in which the parties are operating) or to determine the proper construction where there is constructional choice due to ambiguity.[117]
9. All of the foregoing strongly militates in favour of an approach in which the proper construction and application of the LEG 2/96 Exclusion and the LEG 3/06 Exclusion (in their entirety) are determined at one trial, and not across two trials. Even though the plaintiff submits that the second trial would focus on quantification issues, the splitting of the case across two trials will require the court to address the construction of these exclusions on two occasions with the potential for different evidentiary circumstances presented on each occasion. That creates a significant risk, in my view, that the process of construing these important exclusion clauses will miscarry.
10. Second, the duplication of issues concerning the exclusions across both trials carries with it the real risk of an overlap in the evidence and witnesses which will be required. This may also reduce the expected savings of time and costs to which the plaintiff points, as well as negatively impact the likelihood of an outcome from the first trial increasing the prospects of settlement (in that a full application of the exclusions might not be known until the conclusion of the second trial).
11. By virtue of paragraph (e)(iii) of the proposed Substantive Issues, it is intended that the first trial would identify the nature of the remediation required immediately before the damage occurred (for the purposes of the LEG 2/96 Exclusion, with a similar task being required for the LEG 3/06 Exclusion). The determination of the cost of that remediation is then deferred to the second trial, as is apparent from paragraph (a)(ii) of the proposed Quantification Issues. That is, the first trial would not involve a quantification of the costs of the remediation, but requires the identification of the remediation.
12. In this regard, I see substantial force in the submission advanced by the AIG Defendants to the effect there may be considerable overlap in the evidence or witnesses relating to what remediation was required immediately before the damage occurred and the evidence required to be adduced in the second trial as to the cost of that remediation and the evidence as to the costs rendered necessary by the defects.[118]
13. The overlap in evidence, and the possibility of the same witnesses (lay and expert) being required to give evidence at both trial, is highlighted by the AIG Defendants in their submissions.[119] I accept the criticisms which are advanced by the AIG Defendants. While Mr Jenaway, through his affidavit, seeks to assist the court to better understand the issues which may arise, the conclusions which are expressed as to matters of overlapping evidence, and as to the absence of credit issues arising in this matter, are bare conclusions which lack adequate supporting detail.[120] Senior Counsel for the plaintiff sought to deal with the witness overlap issue through an undertaking to the court to the effect that, if there is a separation of the trials, the plaintiff will not, except by leave of the court, call a person to give evidence for the plaintiff in the second trial, if that same person was called and gave evidence in the first trial.[121] As I indicated during the hearing, I regard that approach as somewhat novel. It also does not eradicate the witness overlap risk, given the qualification to the proposed undertaking, as was noted by Senior Counsel for the AIG Defendants.[122]
14. As I have elsewhere noted in these reasons, the proceedings are at a relatively early stage. These issues may develop further as the matter progresses, and the parties and the court may have greater insight into them as this occurs. But I cannot form the requisite level of confidence on these issues based on the state of the affidavit material as it exists.

1. In the context of such large scale litigation as the present, involving well-resourced parties, I am not persuaded that any savings in the parties' legal costs generated by a split trial process should be seen by the court as a powerful factor in favour of adopting that approach. It is a relevant factor - but not powerful. Savings in trial time and reduction in the use of judicial resources present as far more important factors in the current context, given the impact of trial time and absorption of judicial resources in terms of other users of the public court system.
2. From a judicial perspective, there is a burden on the trial judge of preparing for two separate trials and undertaking the detailed and time consuming task of preparing two detailed sets of reasons. Whether that can fairly be balanced against the task of preparing for one longer trial and preparing only one, more detailed and lengthier, set of reasons, is a difficult matter to assess. On balance, this aspect is probably a neutral factor in the equation.
3. The plaintiff has undertaken a comparative analysis which appears to show that there may be an overall shortening of the trial length by around 4 weeks under the separate trial scenario, assuming both trials were required, and around 7 weeks if the second trial was ultimately not required.[123] If both trials are required, the net cost savings are likely to be modest at best given the need for the parties to get-up for the second trial, but the saving in overall trial time is a positive factor.[124]
4. The AIG Defendants describe the estimates and analysis advanced by the plaintiff as to trial length and costs as having an unstable evidentiary foundation, and submit that it is impossible at this stage to realistically estimate such matters.[125] For my part, I have approached this aspect of the applications without putting too much weight on the particular estimates as to time and cost which have been made. It is early in the proceedings, at least in the sense of being able to estimate such matters with precision, and in any event the estimation of such matters is a notoriously difficult exercise which may be impacted by many variables.
5. I therefore approach this aspect on the basis that there is at least a likelihood that the splitting of the trials in the manner proposed by the plaintiff would shorten the overall time required for trial, but that the net impact on the parties' respective legal costs is likely to be modest, unless of course the first trial obviates the necessity for any further trial.
6. This last mentioned issue (i.e., whether there will be a need for a second trial) is closely related to the question of settlement of the proceedings, which is the next matter I wish to address.

1. The parties submit, and I accept, that as a matter of principle the possibility that separate trials will increase the prospects of settlement of the overall proceedings is relevant to the exercise of the discretion which the plaintiff invites this court to exercise on these applications. I have referred to the authorities on this issue at [73] of these reasons. However, the parties have adopted diametrically opposed views as to whether a separation of the issues in the manner proposed by the plaintiff will advance settlement of the present dispute.
2. The plaintiff submits that, if the Substantive Issues are tried separately and the court were to make a determination as to the particular damage and the extent of the remediation for which the defendants are liable (if any), this would 'vastly narrow the field of litigious controversy and substantially enhance the prospect of the settlement of the balance of the litigation based on a meaningful consideration by the parties of quantum and the financial stake involved'.[126] Mr Jenaway has sworn to his belief in this proposition.[127]
3. The plaintiff submits, as an alternative, that a determination of the damage and remediation at the first trial would 'strengthen the prospects of the parties agreeing upon many items of quantum, thereby further reducing the number of quantum determinations required at the second trial'.[128]
4. In contrast, the defendants submit that a separation of the issues will not only not lead to settlement, but will actually inhibit it.[129] Mr Chylek has sworn to his belief in this proposition, based on his experience in settlement negotiations in insurance disputes in particular.[130] I accept his evidence in this regard.
5. In further support of this submission, I have been referred to evidence from a senior representative at AIG Australia Ltd (Ms Simone Mealyea), who would lead the settlement negotiation for the AIG Defendants.[131] While Ms Mealyea would participate in the mediation on behalf of the AIG Defendants and would be authorised to a limit to negotiate on all of their behalf, she recognises that individual insurers would represent their own interests and 'will inevitably want to participate in any mediation'.[132]
6. In simple terms, Ms Mealyea, through Mr Chylek, says that the prospects of resolution would not be advanced if issues of quantum remain at large. What is the basis for that assertion? Ms Mealyea explains that, from the perspective of the AIG Defendants and in order for those insurers to have any meaningful settlement discussions, it is important that the plaintiff first serve its quantum evidence and the AIG Defendants then have the opportunity to test that evidence, including by seeking their own expert opinions.[133]
7. Ms Mealyea says that the AIG Defendants would not wish to participate in any mediation unless and until the plaintiff has served its evidence as just explained. Ms Mealyea states that the AIG Defendants would not agree to any voluntary mediation and would not consent to any court-ordered mediation until this quantum evidence had been served.[134]
8. If the parties were nonetheless ordered by the court to mediate, Ms Mealyea considers the prospects of success would be very low as 'without sufficient material from the plaintiff regarding quantum, there would be an unresolvable question as to who holds the relevant authority within AIG under delegation to participate in any settlement discussions'.[135] Further, it would be highly unlikely if not impossible, according to Ms Mealyea, for individual insurers to assess their exposure to a claim of this type and engage in good faith negotiations when the plaintiff has not quantified its claim.[136]
9. The AIG Defendants submit that Ms Mealyea's approach accords with the commercial reality of negotiations which would occur in litigation at any level and especially where the amount sought by a plaintiff is in the magnitude of hundreds of millions of dollars, if not billions.[137]
10. In my opinion, the court should be slow to criticise or, indeed, reject, the competing contentions advanced by the parties as to the impact of a separation of the issues on the prospects of settlement. Naturally, different parties will approach settlement according to their own particular interests, viewpoints and experience, although I expect the commercial parties involved in the current litigation would ordinarily act in an economically rational manner. Examining the issue in an objective manner, as I think I must, my impression is that the obstacles to early resolution which the defendants highlight (in a separate trial scenario) are objectively valid. That impression is fortified by the judicial observations to which I have earlier referred, in cases such as Landsdale and Daimler AG.
11. The amounts which are in issue in this litigation are significant, by any measure. In my view, the insurers insistence that resolution is unlikely to be achieved until the plaintiff's quantum evidence is served, and the authority limits applicable for the insurers' representatives are known, is understandable in this context. The resolution of a number of issues at the first trial may provoke the parties into a narrowing of issues for the second trial. The plaintiff makes this point as an alternative submission.[138] I do not discount that possibility. That is quite a different matter to resolution of the litigation through settlement, however.

1. The plaintiff accepts that the separate trial scenario carries the risk of fragmented appeals arising from the presence of two trials with the consequential delay that is involved. This is, of course, a common risk when trial separation is undertaken. The plaintiff promotes the idea that, if there was an appeal from the first trial, the second, quantum trial might need to be delayed until that appellate process reached finality.[139] For my part, that looms as a likely preferred approach given the possibility that an appeal from the first trial may significantly alter the issues falling to be addressed at, and perhaps could obviate, the second trial. As Graham J observed in Allianz Australia Services Pty Ltd v Wilson [2005] FCA 1783:

In my opinion the best interests of justice will be served in the present case by having a split trial. Mr Mendel is of the opinion that once judgment on liability is delivered there will likely be an appeal irrespective of which party is successful. I do not take this suggestion as an expression of any lack of confidence in the Court as presently constituted. If Mr Mendel is correct in his surmise then it would seem to me desirable for the liability issue to be finally resolved before the considerable expense involved in quantification is addressed. It would be a tragedy to have both liability and quantum determined with all the attendant preparation costs in one trial in which the Applicants may be successful if, in the end result, the Respondent were to succeed on liability in a later appeal. (underlining added)

1. One of the primary implications of the foregoing is that, if both trials are required in the split trial scenario, there may well be an overall delay in the final determination of the proceedings. The plaintiff draws my attention to countervailing factors in this regard and also submits that any such delay would likely not operate to the material prejudice to the defendants, presumably because they are the paying party, as it were.[140]
2. Additional delay in these proceedings is not consistent with the overriding goals of case management. Accordingly, my assessment at this stage is that the likely overall delay in the resolution of the litigation, which may arise from the separation of the trials, is a factor which tells against the grant of the applications, but I would not characterise this as a strong or determinative factor

1. The orthodox position is that all issues of fact and law in dispute in an action should be tried together. There are compelling reasons for this orthodox approach. The plaintiff, through the current applications, invite this court to exercise the discretion in either Order 32 r 4 or r 5 RSC to order that separate trials on the Substantive Issues and the Quantification Issues be undertaken.
2. In my view, the plaintiff has not discharged the burden of persuading the court that it should exercise the discretion to order separate trials.
3. I have firmly in mind the words of warning from the High Court in Tepko that applications of the present nature must be approached in a careful and considered manner, and I should be watchful of pursuing a deceptively attractive short-cut that ultimately serves to complicate and lengthen proceedings. The apparent benefits of a separate trial of issues can prove to be illusory. It is a course that can cause the very delay, expense and uncertainty it was intended to avoid.
4. The present litigation involves a series of complex claims for indemnity under detailed policies of insurance, concerning an immense liquified natural gas facility. The enormity of the claims and the litigation process which the plaintiff has initiated is, naturally enough, no preclusion to an application for a split trial. Indeed, large and complex cases are ones where procedural applications such as the present may well produce significant advantages in terms of efficiency and case management. It must be undertaken, however, only where the utility, economy, and fairness to the parties of such an approach are beyond question, and where to do so can be said to be in the interests of justice in a broader sense. In my view, it cannot be said, at least at present, that such advantages are beyond question or that it would be in the interests of justice to split the litigation.
5. As I have explained, the rationale advanced by the plaintiff for these applications is not one that I accept. I am unable to accept that it is inevitable, in a single trial scenario, that the plaintiff will need to prepare quantum evidence which traverses an indeterminate number of outcomes and permutations. The evidentiary foundation which underpins this core aspect of the plaintiff's applications is not sufficiently strong enough in my view to permit me to safely reach the conclusion contended for by the plaintiff. It seems to me that greater work can and should be undertaken by the plaintiff at present to better clarify and assess the remediation work it is required to undertake on the Onshore Facility, and the estimated costs of doing so (including, on the plaintiff's construction, the hypothetical costs required by the LEG 2/06 Exclusion and the actual cost required by the LEG 3/06 Exclusion). By undertaking that work, the impossible and unmanageable task of preparing the quantum evidence (as the plaintiff puts it) may well become possible and manageable. At least in part, the separate trial proposal developed by the plaintiff would operate as some form of 'filtering' mechanism of the plaintiff's claims. That is not the role of the separate question process.[141]
6. I am also not satisfied that there is a clear line of demarcation between the issues required to be addressed in the two trials which are contemplated. The separation of the issues in the CAR Proceedings and in the EAR Proceedings as is presently proposed by the plaintiff is somewhat unconventional. In this regard, I am particularly concerned as to the necessity to address matters of construction and application connected with the LEG 2/96 Exclusion and the LEG 3/06 Exclusion in both trials. The defendants have pleaded reliance on these exclusions in a manner which makes them central to the determination of the proceedings. Such a central set of issues should be determined in one trial, particularly given that construction issues concerning these model clauses loom large in the proceedings.
7. I am also unpersuaded that a separation of the trials is likely to bring the benefit of early resolution to the proceedings, or at least not to the degree submitted by the plaintiff, for the reasons I have explained. I have also taken into account the overall delay in the resolution of the proceedings which would likely result from a separation of the trials (assuming the second trial is required).
8. Ultimately, it seems to me the plaintiff's suggested approach that the issues in the proceedings should be split is too blunt an instrument for the court to wield at this stage. There are other mechanisms available to the parties under the Rules to assist with the task of managing the litigation in a just, efficient, timely and cost-effective manner consistently with the overriding goals of case management enshrined in Order 1 rr 4A and 4B RSC.
9. For the foregoing reasons, I am unpersuaded that the utility, economy and fairness of the separate trials proposed by the plaintiff in these proceedings has been clearly made out. I will dismiss the applications for separate trials which have been filed by the plaintiffs in the CAR Proceedings and in the EAR Proceedings. I will hear from the parties as to the appropriate costs orders which should follow from these orders.

(a) Whether JKC's assignment of its claims to the plaintiff is valid and enforceable?

(b) Whether the plaintiff is permitted to claim and recover under the CAR Policy in its capacity as an insured or an assignee (and under the EAR Policy)?

(c) Whether each item of Insured Property has suffered Damage, as that term is defined in the CAR Policy (and the EAR Policy) and, if so, by reason of what mechanism?

(d) In respect of any Damage:

(i) whether the Damage is fortuitous;

(ii) whether and when the Damage occurred and commenced during the insurance period under the CAR Policy (and the EAR Policy);

(iii) whether the Damage is excluded under Exclusion 3.2 of the CAR Policy (which is the 'Wear and Tear' exclusion), pleaded by the AIG Defendants and Mitsui;

(iv) the impact of statutory time bars on the plaintiff's claim; and

(v) whether, and to what extent, the plaintiff failed to mitigate its loss in respect of the Damage.

(e) In respect of any Damage warranting quantification, and for the purposes of any such quantification, what type of remediation is required (and thus is to be the basis for quantification) for each Damage mechanism on each item of Insured Property, including:

(i) the nature and extent of remediation;

(ii) the timing and circumstances of the remediation (including whether it can be performed over an extended period of years, or otherwise); and

(iii) for the purposes of the LEG 2 Exclusion in the CAR Proceedings, where Damage occurred to any portion of the Insured Property containing any defect of material, workmanship, design, plan or specification, the remediation by way of replacement or rectification (including its nature and extent) that was required immediately before the Damage occurred (and similarly for the LEG3 Exclusion in the EAR Proceedings).

(f) In respect of any Damage warranting quantification, and for the purposes of any such quantification, whether or not such Damage was part of an occurrence or series of occurrences consequent upon or attributable to one source or original cause in common with other instances of Damage to Insured Property.

(a) For each item of Insured Property earlier determined to be Damaged and warranting quantification:

(i) the quantification of the amount payable (subject to deductibles and policy limits) under the Basis of Settlement provisions of the CAR Policy (and under EAR Policy); and

(ii) in the case of Damage to any portion of the Insured Property containing any defect of material, workmanship, design, plan or specification - for the purposes of the LEG 2 Exclusion, the quantification of the cost of remediation by way of replacement or rectification that would have been incurred if remediation had been put in hand immediately prior to the Damage (and similarly for the LEG3 Exclusion in the EAR Proceedings),

such quantification to occur upon the remediation parameters as earlier determined by the Court.

(b) The liability for and quantum of the Additional Costs and Expenses incurred by the plaintiff and JKC (and Further Costs and Expenses incurred by JKC for the purposes of the EAR Policy).

(c) The amount or amounts payable to the plaintiff after application of all relevant deductibles and policy limits.

(d) The liability for and quantum of any interest.

(e) The final form of relief.

Damage to Piping and Equipment upon application of I228

The plaintiff alleges that the I228 was not suitable for the environmental conditions at certain locations, and as a result of and upon the I228 being applied, the Piping and Equipment was damaged and its functional utility and suitability was impaired.[143]

Damage to I228 - Loss of capacity for high density cross-linking

The plaintiff alleges that the I228 was applied at ambient temperature and in the absence of an elevated temperature cure. The plaintiff alleges that, accordingly, upon application to the substrate the I228 was damaged as it ceased to be capable of achieving high uniformity and density of cross­linking, including to the extent necessary to provide a protective barrier meaning its suitability for its intended function and use was impaired. The plaintiff puts this aspect of the damage in an alternative manner as well, focused on the impairment of the suitability of the I228 for its intended function and use.[144]

The plaintiff alleges that immediately or soon after the 1228 was applied to the substrate, the coating was subject to environmental conditions at certain locations. The plaintiff then alleges that, within a short period of being subjected to those conditions, the I228 was damaged as the outer surface of the coating was rapidly degraded, and such degradation caused the formation of cracks and permeable pathways (which were conducive to moisture ingress), and impaired the suitability of the I228 for its intended function and use.[145]

The plaintiff alleges that the permeable pathways and cracks in the I228 referred to above extended from the surface of the I228 to the carbon steel, meaning that moisture and oxygen reached the carbon steel. The plaintiff alleges that this caused corrosion and rust of the carbon steel, and generated rust material which lodged in and physically altered the I228 and impaired its suitability.[146]

Damage to I228 - Unsheltered Lines - Abnormal erosion

The plaintiff alleges that the I228 on unsheltered lines was subjected to local environmental conditions. The plaintiff alleges that, as a result of the exposure, the I228 (or part of it) was damaged in that it suffered abnormally elevated levels of degradation, chalking and erosion. As a result, the suitability of the I228 for its intended function was impaired.[147]

Damage to I228 of Mineral Wool Lines - Thermal degradation

The plaintiff alleges that, at the commencement of high temperature operation of the Plant, the I228 was subjected to the thermal energy of the substrate operating under high temperature (within the range of 120°C to 230°C). The plaintiff alleges that, as a result of that exposure, the I228 was damaged, in that it was thermally degraded and its suitability was impaired.[148]

Damage to FEF - Coated substrate upon application of FEF System

The plaintiff alleges that the FEF System installed was not suitable for its function and use because the mastic was susceptible to severe degradation and/or in the installation of the cladding and mastic, a complete watertight seal was not achieved such that the FEF System was susceptible to water ingress. The plaintiff alleges that the I228 substrate was accordingly damaged, in that the application of the FEF System meant that the I228 coated substrate was without an effective and satisfactory insulation system, and as a result of the system being applied, the functional utility of the I228 substrate was impaired.[149]

Damage to FEF insulation and adhesive - Water ingress

The plaintiff alleges that lines of FEF suffered damage due to rainwater and chlorides infiltrating beneath the cladding and mastic of the FEF System. The plaintiff alleges that this caused parts of the FEF System to suffer crushing and sagging, parts of the adhesive that bonded the FEF insulation to develop loss of adhesion, and chlorides to infiltrate within the FEF System. The plaintiff alleges that this damaged the FEF System in that the insulative capacity of the FEF insulation was impaired, the adhesive capacity of the adhesive impaired, and the chlorides posed a heightened risk of corrosion to the steel substrate.[150]

The plaintiff alleges that the mastic component of Unsheltered FEF Lines was exposed to the local environmental conditions. The plaintiff alleges that the mastic was damaged as a result of that exposure, in that the mastic suffered abnormally elevated levels of physical degradation and its suitability was impaired.[151]

The plaintiff alleges that the metal cladding and sealant to the Mineral Wool System was not implemented to achieve a watertight seal, such that the Mineral Wool insulation was susceptible to external water ingress and saturation. The plaintiff alleges that Lines of Mineral Wool were subjected to frequent and heavy rainfalls, and as a result, water and chlorides infiltrated the Mineral Wool System. The plaintiff alleges that this caused Damage to the Mineral Wool, in that the water did not satisfactorily drain out of the system and therefore impaired the suitability of the Mineral Wool.[152]

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.

[1] The two actions were consolidated by this court in December 2021: JKC Australia LNG Pty Ltd v AIG Australia Ltd [2021] WASC 471 (Allanson J).

[2] On 5 October 2022, Allanson J made orders that the CAR Proceedings and the EAR Proceedings be heard together and the evidence in one proceeding be evidence in the other.

[3] The pending proceedings in the Federal Court of Australia are WAD 448 of 2017 and WAD 162 of 2021.

[4] See the chamber summons dated 24 October 2022 filed in the CAR Proceedings, for orders pursuant to O 32 rr 4 or 5 RSC; and the chamber summons dated 24 October 2022 filed in the EAR Proceedings, for orders pursuant to O 32 rr 4 or 5 RSC.

[5] The present applications seek orders for a split trial, in contradistinction to applications for preliminary questions. None of the parties have as yet proposed any preliminary question be isolated for determination in these proceedings.

[6] See footnote 4. As explained hereafter, the issues are extracted in Attachment A and Attachment B to these reasons.

[7] The CAR Policy is Attachment DAJ-2 to the Consolidation Jenaway Affidavit. CAR is an acronym for Construction All Risks.

[8] The EAR Policy is Attachment DAJ-1 to the Substitution Jenaway Affidavit. EAR is an acronym for Erection All Risks.

[9] The assignment was purportedly effected by a Deed of Assignment dated 15 October 2021, a copy of which is Attachment DAJ-2 to the Substitution Jenaway Affidavit. The validity of this assignment is contested by the defendants in these proceedings. See Statement of Claim in the EAR Proceedings [59] - [64]; Defence [59] - [64].

[10] First Chylek Affidavit, Attachment APC-2 (Letter from Wotton + Kearney to Allen & Overy dated 28 October 2022).

[12] It appears the vast burden of the discovery obligation in these proceedings is likely to fall on the plaintiff rather than the defendant insurers: First Chylek Affidavit, Attachment APC-18 at page 358.

[13] First Chylek Affidavit, Attachment APC-18 (which represents a series of exchanges between solicitors over the period from 4 November 2022 to 25 November 2022).

[14] Mitsui Sumitomo largely supported the submissions advanced by the AIG Defendants.

[15] Short submissions were filed by the plaintiff in the EAR Proceedings which, in effect, adopted and relied upon the Plaintiff's Submissions in the CAR Proceedings.

[18] In the EAR Proceedings, the plaintiff adopted and relied upon the Plaintiff's Reply Submissions in the CAR Proceedings

[20] Annexure A (Substantive Issues) and Annexure B (Quantification Issues).

[21] The capitalised terms used by the plaintiff are largely terms which are defined in the CAR Policy and the EAR Policy.

[22] In general terms, policies of insurance are premised upon the fortuity principle such that an indemnity is provided for civil liability where the damage is unexpected and accidental only: Robinson v Evans Bros Pty Ltd [1969] VicRp 110; [1969] VR 885, 896 (Starke J).

[23] First Jenaway Affidavit Attachment DAJ-1, DAJ-2 and DAJ-3.

[24] Statement of Claim filed in the CAR Proceedings [21] - [23]. The same allegations are made in the EAR Proceedings.

[25] First Jenaway Affidavit [28] - [31].

[26] Statement of Claim filed in the CAR Proceedings [28] - [31]. The same allegations are made in the EAR Proceedings.

[27] First Jenaway Affidavit [28] - [31].

[28] Statement of Claim filed in the CAR Proceedings [33] - [37]. The same allegations are made in the EAR Proceedings.

[29] First Jenaway Affidavit [28] - [31].

[30] First Jenaway Affidavit [32] - [33].

[31] First Chylek Affidavit, Attachment APC-19.

[33] Pleaded under the heading 'E.1' in the CAR Proceedings and the EAR Proceedings.

[35] Pleaded under the headings 'E.3' and 'E.4'.

[36] Pleaded under the headings 'F.1', 'F.2' and 'F.3'.

[37] First Jenaway Affidavit [41(c)]. There is a first level exclusion clause, known as LEG 1/96, which appears to operate as an outright defects exclusion, but that model clause is not relevant to the current proceedings.

[38] I refer to the English decision of Gwynt-y-mor Offshore Wind Farm Limited v The Gas and Electricity Markets Authority [2019] EWHC 654 (Admin) (Mrs Justice May DBE), in which there is some limited discussion of the exclusions. There appears to be some treatment of the exclusions in Canadian jurisprudence. The Court of Appeal for British Columbia in Acciona Infrastructure Canada Inc v Allianz Global Risks US Insurance Company (2015) BCCA 347 (Willcock JA, with Neilson and Gardon JJA agreeing) examined the LEG 2/96 Exclusion (as did Skolrood J at first instance). That exclusion has also been addressed by the Ontario Superior Court of Justice at first instance in PCL Constructors Canada Inc v Allianz Global Risks US Insurance Co [2014] ONSC 7480 (Myers J).

[39] These terms are pleaded in the Statement of Claim in the EAR Proceedings, together with the Extended Maintenance Period Clause, at [12] - [15].

[45] Plaintiff's Submissions [11] - [17].

[47] Tepko Pty Ltd v Water Board [2001] HCA 19; (2001) 206 CLR 1 [168] (Kirby and Callinan JJ); Carlo Nobili SpA Rubinetterie v Militaire Nominees Pty Ltd [2004] WASC 47 [3] - [4] (McKechnie J); City of Swan v Lehman Brothers Australia Ltd [2009] FCA 784; (2009) 73 ACSR 86 [27] (Rares J); Secola v McCann [2011] WASC 35 [8] (Le Miere J); Wright Prospecting Pty Ltd v Hancock Prospecting Pty Ltd [No 15] [2021] WASC 307 [31] (Le Miere J); Landsdale Pty Ltd v Moore [2009] WASCA 176 [20] (Newnes JA, Buss JA (as he then was) agreeing); and Patrick Jebb as trustee for Trafalgar West Investments Trust v Corrs Chambers Westgarth (a firm) [2022] WASC 165 [21] (Solomon J).

[48] Tepko [168] - [170] (Kirby and Callinan JJ).

[49] Plaintiff's Submissions [19] - [23].

[50] Plaintiff's Submissions [23], citing Patrick Jebb [21] (Solomon J); Landsdale [20] (Newnes JA, Buss JA agreeing); Carlo Nobili [4] (McKechnie J); and Tepko [168] - [170] (Kirby and Callinan JJ).

[51] Landsdale [22] (Newnes JA, Buss JA agreeing).

[52] Paz Stone Pty Ltd v Crocitti [2017] VSC 492 [5] (Mukhtar AsJ).

[53] Alliance Craton Explorer Pty Ltd v Quasar Resources Pty Ltd (No 2) [2011] SASC 92 [79], [81] (White J); and Harris v Bunker Freight Lines Pty Ltd [2013] NSWSC 419 [6] (Schmidt J).

[55] POS Media Online Ltd v Queensland Investment Corp [2000] FCA 1451 [14] (Lehane J).

[56] Electrical Waste Recycling Group Limited v Philips Electronics UK Limited [2012] EWHC 38 (Ch) [5] - [7] (Hildyard J); and Daimler AG v Walleniusrederierna Aktiebolag [2020] EWHC 525 (Comm) [28] (Bryan J).

[57] Secola [9] and [20] (Le Miere J); Wright Prospecting [No 15] [33] (Le Miere J), citing Frigger v Mervyn Jonathon Kitay (in his capacity as liquidator of Computer Accounting & Tax Pty Ltd (in liq)) [2013] WASC 229 [16] (Allanson J).

[62] Landsdale [26] (Newnes JA, Buss JA agreeing).

[65] Carlo Nobili [4] (McKechnie J); Landsdale [28] (Newnes JA, Buss JA agreeing); TerraVision Pty Ltd v Black Box Control Pty Ltd [2014] WASC 261 [17] (Le Miere J); and Brisbane Airport [66] (Applegarth J).

[67] Landsdale [28] (Newnes JA, Buss JA agreeing).

[71] ts 184 - 185; Jinxin [30] - [31].

[77] For the entire reasons on the issue of 'connected or interlocking' issues, see Jinxin [37] - [44].

[85] Protean (Holdings) Ltd v American Homes Assurance Co [1985] VicRp 18; [1985] VR 187 (Marks J).

[86] ts 186 - 187; Timeless Sunrise [78].

[90] AIG Submissions [189] - [201] and [217]

[99] First Jenaway Affidavit [83] - [88].

[100] First Jenaway Affidavit [86] and [87(h)].

[101] First Jenaway Affidavit [87(a)].

[102] First Jenaway Affidavit [87(i)].

[103] First Jenaway Affidavit [87(b)] - [87(g)].

[105] First Jenaway Affidavit [88(d)].

[106] AIG Submissions [37] - [87].

[108] As explained in the Plaintiff's Reply Submissions [24].

[110] First Chylek Affidavit, Attachment APC-2 (Letter from Wotton + Kearney to Allen & Overy dated 28 October 2022).

[111] Plaintiff's Submissions [28] - [32]; and Plaintiff's Reply Submissions [10] - [53] and [105] - [120].

[112] AIG Submissions [88] - [111].

[113] Plaintiff's Reply Submissions [39] and [120].

[114] The plaintiff accepts this is the case, but maintains the duplication is workable as explained in the Plaintiff's Reply Submissions generally (and see [40] in particular).

[115] Plaintiff's Reply Submissions [10] - [13].

[116] Plaintiff's Reply Submissions [18], noting there are differences in language and effect, of course, between the two exclusions.

[117] JKC Australia LNG Pty Ltd v CH2M Hill Companies Ltd [No 2] [2020] WASCA 112 [66] - [72] (Buss P and Vaughan JA). I refer also to the recent discussion of Basten AJA in BCC Trade Credit Pty Ltd v Thera Agri Capital No 2 Pty Ltd [2023] NSWCA 20 [112] as to the principles applicable to the construction of policies of insurance. Basten AJA was in dissent on the outcome in the appeal, but the principles recited are orthodox (see McCann v Switzerland Insurance Australia Limited [2000] HCA 65; (2000) 203 CLR 579 [22] (Gaudron J) and Liberty Mutual Insurance Company Australian Branch v Icon Co (NSW) Pty Ltd [2021] FCAFC 126; (2021) 154 ACSR 126 [151] - [153] (Allsop CJ, Besanko and Middleton JJ)).

[119] AIG Submissions [112] - [138].

[120] By way of example, I refer to the First Jenaway Affidavit at [51(b)], [100], [101], [102], [103],

[123] Plaintiff's Submissions [57] - [63] and [64] - [67]; First Jenaway Affidavit [98], [105] and [108] - [114].

[124] Plaintiff's Submissions [67]. Mr Jenaway accepts there is an inherent difficulty in seeking to reliably estimate the differences in total legal costs as between the competing scenarios.

[125] AIG Submissions [173] - [181].

[127] First Jenaway Affidavit [118]. Mr Jenaway deposes that an early determination of the Substantive Issues is likely to encourage settlement discussions as the only issue will be quantification of a known entitlement. In the absence of an early determination, Mr Jenaway deposes that the parties are likely to remain in material dispute on their assessment of liability until a substantial trial of all issues, which he estimates would be in around the fourth quarter of 2025 or the first quarter of 2026.

[129] AIG Submissions [189] - [201], [217(f)].

[131] First Chylek Affidavit [62]. The evidence of Ms Mealyea was adduced on information and belief through Mr Chylek.

[132] First Chylek Affidavit [62.3] and [62.4]. As an aside, that presents as a recipe for a rather complicated and crowded mediation conference, given the presence of twenty five separate insurers in the proceedings. I would expect practical solutions could be implemented by the insurers to avoid that type of outcome.

[133] First Chylek Affidavit [62.8].

[134] First Chylek Affidavit [62.10].

[135] First Chylek Affidavit [62.11].

[136] First Chylek Affidavit [62.12].

[137] AIG Submissions [191], [194] and [200]. The AIG Defendants refer to the quantum of the indemnity claim initially advanced by Inpex Operations, said to be in the order of A$2.6 billion. I refer to the Interim Claim Submissions prepared on behalf of the plaintiff dated February 2019, which is Attachment APC-1 to the First Chylek Affidavit (at pages 13, 26 and 27 of the affidavit). I also refer to the Second Chylek Affidavit which attaches certain pre-litigation loss assessment material emanating from the plaintiff. This includes two requests for information documents issued on behalf of the AIG Defendants to the plaintiff, and to which the plaintiff responded with additional information. The affidavit also includes a detailed document entitled 'Onshore Coating and Insulation Rectification Works' provided by the plaintiff to the AIG Defendants in August 2019. This document described an ongoing process of remediation and rectification activities and refers to specific cost estimates for 2019 and 2020 of A$37.2m and A$80.3m respectively.

[139] Plaintiff's Submissions [72] - [79].

[141] McConnell Dowell Constructors (Aust) Pty Ltd v Cardno (Qld) Pty Ltd [2019] QSC 320 [52] (Bradley J).