Lambert Leasing Inc. v QBE Insurance Ltd

Solicitors: Marque Lawyers (First and Second Plaintiffs) Norton White (First Defendant) Brennans Solictors (Second and Third Defendants) File Number(s): 2011/86506 Publication restriction: nil

Judgment

1. The plaintiff Lambert Leasing Inc. ("Lambert") sold a Fairchild Metro 23 aircraft ("the Aircraft") to Jalgrid Pty Ltd ("Jalgrid") and Dramatic Investments Pty Ltd ("DIP") the second and third defendants who had formed a partnership known as Partnership 818. In the balance of these reasons I shall refer to Jalgrid and DIP as "the Partnership". The Aircraft was manufactured in 1992 and had, prior to sale, been owned by Aerolitoral a Mexican airline and sold by Aerolitoral to Lambert earlier that year. The sale of the Aircraft to the Partnership was the subject of a written agreement dated 9 May 2003 and described as an Aircraft Purchase Agreement ("the Purchase Agreement"). The Purchase Agreement was stated to be governed by the law of Virginia. The Partnership later leased the Aircraft to Lessbrook Pty Ltd ("Lessbrook") as aircraft operator trading as Transair, under what is described as an Aircraft Dry Hire Lease Agreement dated 17 June 2003: see p 110 tab 5 Exh B2.
2. Lambert and Saab Aircraft Leasing Inc ("SAL") are subsidiaries of SAAB A B a Swedish company ("SAAB").
3. Mr D.L Williams SC (with Dr C.S Ward) appeared for Lambert and SAL; Mr A.J Sullivan QC (with Mr T. Brennan) appeared for QBE and Mr C.R.C Newlinds SC (with Mr J.S Emmett) appeared for the Partnership.
4. On 7 May 2005 during a Transair flight from Bamaga to Cairns via Lockhart River, the Aircraft crashed on approach to Lockhart River Airport. Tragically thirteen passengers on board and the Aircraft's two pilots died in the crash.
5. Proceedings were commenced by relatives or dependents of 12 of the 13 passengers in the Illinois State Court in Cook County against inter alia Lambert and the Partnership. Also joined as a defendant was SAL.
6. On 6 October 2008 the Illinois Court dismissed the proceedings on the grounds of lack of jurisdiction but without ordering the relatives to pay Lambert and SAL's costs.
7. On 5 May 2008, fresh proceedings were commenced in Missouri in the Circuit Court of Greene County against Lambert, the Partnership and Mr Les Wright the Chief Pilot of Transair and a director of Lessbrook. Mr Wright died after the proceedings were commenced. SAL was not joined as a party to the Missouri proceedings. The Partnership and Lambert filed a motion to dismiss the Missouri proceedings on the basis of lack of jurisdiction and forum non conveniens but the application was rejected.
8. The Missouri proceedings have not as yet had a firm hearing date allocated. They involve not only claims by relatives and dependents of the passengers but also relatives and dependents of the crew, of whom one, Mr Leonard Hotchin has commenced his own separate proceedings. In the balance of these reasons I will refer to both the relatives and dependants of the passengers and the relatives and dependants of the pilots as "the Relatives" unless it is necessary to make a distinction. In these proceedings and the Illinois proceedings the Chicago firm of Lord Bissell and Brook, was appointed to defend Lambert. Lord Bissell and Brook later became known as Locke Lord Bissell and Liddell and I shall refer to this firm in the balance of these reasons as "Locke Lord".
9. The Purchase Agreement contained two important provisions namely: "7.01. Indemnity. After delivery of the Aircraft to Buyer, Buyer agrees to indemnify and hold harmless Seller and its officers, agents, representatives and employees from and against all liabilities, damages, losses, judgments, claims and suits, including costs and expenses incident thereto, which may be suffered by, accrued against, charged to or recoverable from Seller and/or its officers, agents, representatives and employees, by reason of loss or damage to property and/or by reason of injury to or death of any person resulting from or in any way connected with Buyer's possession, maintenance, modification, use or operation of the Aircraft subsequent to the delivery of the Aircraft and title thereto to Buyer pursuant to delivery of the Aircraft and title thereto to Buyer pursuant to this Agreement, excepting matters of Seller's title, manufacturer's product liability and Seller's and/or its officers', agents', representatives', and employees' negligence. 7.02. Insurance. Buyer agrees to maintain, at Buyer's expense, aircraft liability insurance, including third party liability, which covers ownership, maintenance and use of the Aircraft, excluding manufacturer's products liability. Such insurance shall be established with a reputable insurance company at a minimum aggregate limit of Thirty Million Dollars ($30,000,000.00) per occurrence for a period of two years from the date of the Closing. Such policy shall name Seller, Saab Aircraft Leasing, Inc. Aerolitoral S. A. de C. V. and their respective directors, officers, employees and agents as "Additional Insureds." The policy shall (i) provide cross liability clauses, (ii) expressly insure the contractual liability to Seller assumed by Buyer in Section 7.01 and (iii) provide a breach of warranty endorsement in favour of each Additional Insured. Seller shall be given at least thirty (30) days prior written notice by the insurance company in the event of either cancellation or a decrease in such coverage or a material change adverse to Seller. Buyer agrees to employ reasonable efforts to require any third party purchasing or leasing the Aircraft during such two year period to maintain the insurance coverage described in this Section 7.02."
10. Insurance was in fact obtained by Lessbrook with QBE by which 1. Lambert and SAL, inter alia, were named as insureds 2. the liability of the Partnership to Lambert pursuant to clause 7.01 of the Purchase Agreement was the subject of indemnity
11. QBE issued a certificate of insurance (CB4 tab 71 p 515) on 16 June 2003 and a second certificate for renewal on 9 December 2004 (CB5 tab 122 p 1025), which certificates were provided to Lambert: see para [20] at 55 below. I shall refer to that policy as "the QBE Policy".
12. Lambert and SAL are also, as subsidiaries of SAAB, insured by another policy effected by SAAB. That policy was issued by a number of underwriters, of which Global Aerospace Underwriting Managers Limited ("Global") is the lead underwriter and is known as the SAAB Global Policy. I shall refer to that policy as "the Global Policy".
13. These proceedings, in broad overview, involve a claim by Lambert and SAL for indemnity from QBE under the QBE Policy and a claim for indemnity against the Partnership pursuant to clause 7.01 of the Purchase Agreement. The indemnity sought against QBE and the Partnership is: 1. for the costs of Lambert and SAL in defending the Illinois proceedings 2. for the costs of Lambert in defending the Missouri proceedings 3. for any liability which Lambert may be found to have to the Relatives arising out of the Aircraft crash There was, as against the Partnership, also a claim that if it be held that the QBE Policy does not respond to Lambert's claims then the Partnership has by virtue of that fact breached its obligations to Lambert under clause 7.02 of the Purchase Agreement. That claim, it was agreed, is statute barred and the claim was abandoned by Lambert at the hearing.
14. Importantly, when the Illinois claims were received Lambert made a claim on the Global Policy and Global (as I shall refer to the collective group of insurers including, and represented by, the lead underwriter) accepted that it was obliged to conduct the defence of Lambert in the Illinois proceedings and did so. It also has conducted the defence of Lambert in the Missouri proceedings. Global has paid all of the costs incurred in defending the US proceedings since 2007. In 2008, Lambert (at the instigation of Global on QBE's case), claimed on the QBE Policy. QBE has not agreed to indemnify Lambert and has not paid any money towards the costs of the US proceedings. Lambert and Global entered into a Deed dated 21 July 2010 "the Deed" which I shall describe in more detail below.
15. Of critical importance in this case is the wording of the Global Policy and the QBE Policy. (1) the Global Policy relevantly contains the following provisions: (a) "SECTION TWO - AVIATION LIABILITY COVERAGE 1. Bodily Injury and Property Damage Coverage The insurers will pay on behalf of the Insured all sums, up to the limit of liability set forth in the Policy Schedule, which the Insured shall become legally obligated to pay as damages (a) for Bodily Injury or Property Damage caused by an Occurrence and which arises out of the Insured's operations (b) for the loss of completed Aircraft occurring after delivery to and acceptance by a purchaser or purchasers or operator or operators of such Aircraft for flight operations, and caused by a Grounding resulting from an Occurrence and which arises out of the Products Hazard." (b) "3. Defence, Settlement and Supplementary Payments (a) With respect to the insurance afforded under this Section Two the Insurers shall (1) except where this Section Two applies in excess of underlying insurances, defend in the name of and on behalf of the Insured any suit or other proceedings, even if groundless, false or fraudulent, brought against the Insured alleging Bodily Injury, Property Damage or Personal Injury and seeking damages on account thereof; but the Insurers shall have the right to make such investigation, negotiation and settlement of any claim or suit as they deem expedient." (c) "7. Conditions …. (b) Non-Contribution If at the time of any Bodily Injury, Property Damage or Personal Injury claim there is or but for the existence of this Section Two would be any other policy of indemnity or insurance in favour of or effected by or on behalf of the Insured applicable to such claim, the Insurers shall not be liable under this Section Two to indemnify the Insured in respect of such claim expect for any excess beyond the amount which would be payable under such other Policy had this Section Two not been effected. This Condition 7.(b) shall not override any of the more specific provisions of Clause 5 (Aircraft and/or Spares Contingency Liability)." ("the Global 'other insurance' Clause") (d) by endorsement No 1 to the Global Policy "Lord Bissell & Brook are appointed to act as legal representatives in respect of claims made against the Insured in the United States of America. Ebsworth and Ebsworth are appointed to act as legal representatives in respect of claims made against the Insured in Australia." (2) The QBE Policy relevantly includes the following: "SECTION 3: LEGAL LIABILITY TO PASSENGERS" "1. Coverage The Company will indemnify the Insured in respect of all sums which the Insured shall become legally liable to pay, and shall pay, as compensatory damages (including costs awarded against the Insured) in respect of: (a) accidental bodily injury (fatal or otherwise) to passengers whilst entering, on board, or alighting from the Aircraft; and (b) loss of damage to baggage and personal articles of passengers arising out of an Accident to the Aircraft. PROVIDED ALWAYS THAT" "3. Conditions applicable to this Section ….. Legal Costs (b) In addition, the Company will defray any legal costs and expenses incurred with their written consent in defending any action which may be brought against the Insured in respect of any claim for compensatory damages covered by this Section, but should the liability of the Insured or the amount paid or awarded in settlement of such claim exceed the Limit of Indemnity then the liability of the Company in result of such legal costs and expenses shall be limited to such proportion of the said legal costs and expenses as the Limit of Indemnity bears to the amount paid to dispose of the claim. See also Section 4." "SECTION 4: (A) GENERAL EXCLUSIONS APPLICABLE TO ALL SECTIONS This Policy does not apply…. Non-Contribution 9. If any claim under this Policy is also covered in whole or in part by another policy or would but for the existence of this Policy be covered by another policy, except to the extent that the amount of any liability exceeds the amount payable under such other policy or policies, provided always that the Insurers shall not be liable to pay any amount in excess of any relevant amount specified in the Schedule." ("the QBE 'other insurance' Clause") "(B) CONDITIONS PRECEDENT APPLICABLE TO ALL SECTIONS It is necessary that the Insured observes and fulfils the following Conditions before the Company has any liability to make any payment under this Policy. Due Diligence 1. The Insured shall at all times used due diligence and do and concur in doing everything reasonably practicable to avoid accidents and to avoid or diminish any loss hereon." ("the due diligence Clause") "(D) DEFINITIONS In this Policy and, unless expressly stated to the contrary, in the Schedule and any endorsements…. 3. "BODILY INJURY" means bodily injury (fatal or otherwise) but excludes nervous shock or psychological injury unaccompanied by, or not caused by, physical injury. …. 5. "COMPENSATORY DAMAGES" does not include punitive, exemplary or aggravated damages. …. 12. "STATUTORY REQUIREMENTS" includes all legislation and delegated legislation (including applicable legislation and delegated legislation of another country) and order, rules, directions, notices, approvals, certificates and licences issued by a competent authority." "(B) CONDITIONS PRECEDENT APPLICABLE TO ALL SECTIONS It is necessary that the Insured observes and fulfils the following Conditions before the Company has any liability to make any payment under this Policy….. Compliance with Statutory Requirements 2. The Insured shall comply with all Statutory Requirements which affect the safety or maintenance or operation of the Aircraft and shall ensure that: (a) the Aircraft is airworthy at the commencement of each Flight;" ("the compliance Clause") …….. "(B) CONDITIONS PRECEDENT APPLICABLE TO ALL SECTIONS It is necessary that the Insured observes and fulfils the following Conditions before the Company has any liability to make any payment under this Policy….. Claims Procedure 3. Immediate notice of any event likely to give rise to a claim under this Policy shall be given as stated in the Schedule. In all cases the Insured shall: (a) furnish full particulars in writing of such event and forward immediately notice ……." "(C) GENERAL CONDITIONS APPLICABLE TO ALL SECTIONS Claims Control 1. (a) The Company shall be entitled (if it so elects) at any time and for so long as it desires to take absolute control of all negotiations and proceedings and in the name of the Insured, to settle, defend or pursue any claim and to execute terms of settlement. (b) The Company may at any time upon giving written notice to the Insured abandon to the pursuit or the defence of any claim but shall (except where the Insured or its servants or agents have been dishonest or withheld relevant information) pay its share of any costs incurred in connection with the pursuit or defence up to the date of giving notice." "Governing law 7. This Policy shall be construed in accordance with Australian Law."
16. Lessbrook is described as the Insured in the QBE Policy and Lambert, SAL and the Partnership are named as "Additional Insureds" under the QBE Policy. Westpac Banking Corporation ("Westpac") is named as lien holder.
17. The Global Policy in the Policy Schedule describes as the insured "Item 1. Name and Address of the Insured SAAB A B and/or controlled and/or affiliated and/or associated and/or subsidiary companies now in existence or as may be hereafter constituted or acquired, jointly and severally for their respective rights and interests. Linkoping SWEDEN."
18. The Global Policy is governed by the law of Sweden: see General Condition 8. The QBE Policy is, it is accepted, governed by Australian law.
19. In the balance of these reasons I shall refer to Lambert as including SAL unless otherwise stated but it should be borne in mind that SAL was not a party to the Purchase Agreement, and that no claims have been brought against SAL in the Missouri proceedings.
20. The following facts were agreed between Lambert and QBE: "1. The plaintiffs Lambert Leasing Inc ("Lambert") and Saab Aircraft Leasing, Inc (SAL) are subsidiaries of Saab AB. 2. In 1992 Fairchild manufactured a 19 seat Metro 23 aircraft with serial number DC-818B (the "Aircraft") 3. A standard airworthiness certificate for the Aircraft was issued by the FAA in the United States on 8 March 1993. At that time neither a GPWS nor a GPS was fitted to the Aircraft. 4. On 23 January 2003 an invoice was issued for the sale of the aircraft by Aeroliteral to SAL on behalf of Lambert. 5. Concluding on 8 February 2003 a technical inspection of the aircraft was conducted on behalf of Lambert which had purchased or agreed to purchase the Aircraft for the purpose of lease or re-sale. 6. In the opinion of the inspector, at the time of the inspection concluding on 8 February 2003 a Sundstrand Mark VI GPWS had been installed and was working properly. The inspector was also of the opinion that in general the Aircraft was in acceptable condition. 7. The Aircraft was delivered to SAAB Aircraft of America Inc at a port in Texas on behalf of Lambert by no later than 19 February 2003 at which time Lambert intended to place the Aircraft on the US register of aircraft. 8. A delivery receipt for the Aircraft was signed by Lambert and Aeroliterol on 24 February 2003. 9. On 6 March 2003 a Standard Airworthiness Certificate was issued by a representative of the US Federal Aviation Administration based upon the inspection described at CB page 425. 10. Sometime after 6 March 2003 Lambert caused the Aircraft to be flown from Texas to Springfield Missouri. 11. On 25 April 2003 Lambert accepted a holding deposit from Glenbourne Investments Pty Ltd for the purchase of the Aircraft. 12. An Aircraft Purchase Agreement was executed by Lambert and P818 with an effective date of 9 May 2003. 13. On 14 May 2003 Transair (Les Wright) received a quotation from Worldwide Aircraft Services for the installation of a GPS system and related avionics work in the Aircraft. 14. On 28 May 2003 Glenbourne Investments Pty Ltd paid USD 8,537 to Worldwide Aircraft Services. 15. On 28 May 2003 Glenbourne Investments transferred USD120,000 to Lambert. 16. On 5 June 2003 Ms Bisnath of Lambert proposed that the Aircraft Purchase Agreement be amended so that Lambert would retain ownership of the Aircraft until its delivery in Australia. 17. On 6 June 2003 Ms Bisnath notified Lessbrook or Partnership 818 that Worldwide Aircraft Services would not have all the components for the ferry flight (specifically a GPS) for two weeks. 18. On 6 June 2003 the Aircraft Purchase Agreement was amended. 19. On 13 June 2003 Worldwide Aircraft Services sent an invoice to Mr Les Wright (Chief Pilot of Transair) for work done to the Aircraft including the installation of a Garmin GPS system. 20. On 16 June 2003 Worldwide Aircraft Systems sent to Lambert a US issued Temporary Airmen Certificate issued to Duncan Mackellar who was one of the pilots who would conduct the ferry flight. 21. On 17 June 2003 Lambert received USD500,030 toward purchase of the Aircraft, and a certificate of Technical Acceptance was issued. 22. The Chief Pilot of Transair was Mr Les Wright. 23. Mr Wright was a shareholder in one of the parent companies of Transair. 24. MacKellar Mining Equipment Pty Ltd (formerly, Jalgrid Pty Ltd) (the second defendant) has a 50 per cent interest in Partnership 818 and owns ones one third of Lessbrook Pty Limited trading as Transair (Transair) 25. On 7 May 2005 during a flight operated by Transair the Aircraft crashed on final approach to the Lockhart River airport in Queensland. All 13 passengers and two pilots on board died. 26. The Australian Transport Safety Bureau conducted a full investigation of the accident and published its report on 4 April 2007. 27. The Queensland Coroner conducted an inquest commencing on 5 April 2007 with the last hearing date on 5 July 2007. 28. The Coroner published his findings on 17 August 2007. 29. None of the parties to this proceeding were represented at the inquest. 30. QBE was not the insurer of any party represented at the inquest. 31. While Global was the insurer of the Civil Aviation Safety Authority, which was represented at the inquest, the claims in issue in these proceedings have been managed within Global by a claims manager other than the claims manager responsible for the Civil Aviation Safety Authority claim. 32. The Coroner decided not to re-investigate all of the issues connected with the crash because of the extent of the ATSB investigation which had preceded it and the detailed nature of the ATSB's report. 33. The parties represented at the inquest and the Coroner accepted that no mechanical failure in the aircraft contributed to the crash. They also accepted that no malfunction of any navigational instruments on the aircraft contributed to the accident. 34. The Coroner's findings included the following: (a) The captain of the aircraft at the time of the accident was an experienced commercial pilot with more than 6,000 flying hours including some 3,248.5 hours flying Metro aircraft in a multi-crew operational environment. He completed his endorsement on the Metro type aircraft in 2001 and his training on the use of the RNAV navigation procedure in 2001. (b) The first officer was a licensed commercial pilot who was endorsed to fly Metro type aircraft and had been since December 2004. He had not been trained in the use of the GPS and had not been trained in, or authorised to conduct, an RNAV approach. (c) At the time of the accident, the weather conditions around Lockhart River would not permit aircraft to be operated under visual flight rules but only under instrument flight rules in instrument meteorological conditions. (d) The aircraft conducted its approach to Lockhart River using the runway 12 RNAV approach. (e) The use of the RNAV approach on the incident flight was a contravention of aviation safety requirements because the co-pilot was not endorsed to use such an approach and consequently both pilots were prohibited from using such an approach. (f) As the aircraft passed the waypoint described as LHRWF it descended below the minimum safe altitude at 2,060 feet, some 28 seconds before impact with terrain. (g) It is likely that the crew only became aware of the inevitable impact with terrain seconds before the impact as no steps were taken to divert, or "pull up" the aircraft. (h) The flight path which should have been followed, the flight path which was followed and the minimum safe altitudes on the flight path are shown on the figure which appears at Court Book 6 tab 162 page 1192. (i) There was no evidence that suggested that mechanical failure in the aircraft or malfunction of navigational aids contributed to the crash. (j) It was clear that the flight crew did not lose control of the aircraft as a result of any lack of skill or external forces such as adverse weather. (k) There was no evidence that the flight crew intended to fly into the mountainside, nor that they became aware of the impending disaster until so soon before it occurred that they had no time to take any evasive action. (l) Had the pilots adhered to the accepted aviation procedures and well published guidelines the crash would not have occurred. The Coroner declined to accept that the crash was the result of an isolated incident of deviant or aberrant behaviour that should be categorised solely as pilot error. (m) A loss of situational awareness on the part of the pilot in command played a role in the crash of the aircraft. (n) If the aircraft had been fitted with a properly operating and fully functional terrain alert warning system (TAWS) [that is an eGPWS] it is probable the accident would not have occurred. (o) At the date of the accident an enhanced GPWS (TAWS) was not required by legislation or CASA regulation to be fitted to the aircraft. (p) There existed substantial failures and inadequacies in the airline's safety management system, including with respect to training of its pilots. 35. At the date of the accident the GPWS system present in the aircraft complied with any applicable CASA regulations or Australian legislative requirements. 36. On 4 May 2007 dependents of 12 of those passengers and the two pilots commenced proceedings in which they sought damages against various parties in the Circuit Court of Cook County, Illinois in the United States of America. 37. Two of the defendants in the Illinois proceeding were Lambert and Saab Aircraft Leasing Inc (SAL), the plaintiffs in this proceeding. The proceeding against Lambert and SAL in Illinois was dismissed for want of personal jurisdiction. 38. On 6 May 2008 relatives of the same 12 passengers and two pilots for whose deaths the proceedings had been commenced in Illinois commenced proceedings in the Circuit Court of Greene County Missouri. The defendants in the Missouri proceedings include Lambert. 39. Saab AB had entered into an aircraft hull and aviation liability insurance policy (number 501/MU04ANV7) for the period 1 July 2004 to 1 July 2005 (Global Policy). Aviation liability coverage was provided for in Section 2 of that policy. 40. The insured covered by that policy included all subsidiaries of Saab AB including Lambert and SAL. 41. The risks covered by the Global Policy included "Bodily Injury" as defined (at page 10 of the Policy). That extended to mental anguish, shock and death caused by an aircraft accident that arose out of the insured's operations. 42. The cover under the Global Policy extended to the provision of a Defence. Clause 3(a)(i) of section 2 provided: "The insurers shall … defend in the name of and on behalf of the insured any suit or other proceedings, even if groundless false or fraudulent, brought against the insured alleging bodily injury … and seeking damages on account thereof; but the insurer shall have the right to make such investigation, negotiation and settlement of any claim or suit as they deem expedient." 43. Endorsement number 1 to the SAAB policy provided: "Lord Bissell & Brook are appointed to act as legal representatives in respect of claims made against the Insured in the United States of America. Ebsworth and Ebsworth are appointed to act as legal representatives in respect of claims made against the Insured in Australia." 44. At the time of the crash of the Aircraft the Global Policy was administered by HSBC as broker. Three days after the crash, on 10 May 2005 HSBC had created a file. 45. A week after commencement of the Illinois proceedings, on 11 May 2007 Christopher Barth, a partner of Lord Bissell & Brook advised HSBC of the Illinois claim and stated: "The assured has requested that we represent its subsidiaries in this action. Would you kindly advise underwriters of this filing and confirm our authority to act on behalf of Lambert Leasing Inc and SAAB Aircraft Leasing Inc". 46. On 15 May 2007 Mr Steven Lake, Deputy Manager of Claims at Global annotated an email from Mr Dale Bolton of HSBC: "Agree refer to LB&B, await report (LB&B to make contact with E&E for information)" wrote to 47. Mr Bredin then replied to Mr Barth: "[T]he leading underwriter has agreed for yourselves to deal with this matter and awaits your report. Please can you make contact with Ebsworth & Ebsworth for information required" 48. From May 2007 until the claim against Lambert and SAL was dismissed on 6 October 2008 Mr Barth acted for Lambert and SAL in the Illinois proceeding. 49. Mr Barth has acted for Lambert in the Missouri proceedings since that time. 50. On 10 September 2008 HSBC created a claim endorsement showing a liability reserve of $7 million.. 51. The majority of the defence costs incurred with Locke Lord Bissell & Liddell (as they were referred to at the time) have been paid by the insurers under the Global Policy. 52. Locke Lord Bissell & Liddell experienced some problems in having their invoices paid. In an email of 3 September 2008 Mr Barth followed up payment of his bills. By that date he had invoiced US$115,529.32 and had only received payment of US$4,908.44. His firm also had work in progress, not yet invoiced of US$123,678.26 and had incurred costs with its Missouri agent, Lathrop & Gage. 53. Transair held an aircraft insurance policy with the first defendant (the "QBE Policy") (number 02 Q01 0007782). It covered the period 30 November 2004 to 30 November 2005 in respect of nominated aircraft, including the Aircraft. 54. In respect of the Aircraft the additional insured included SAL, Lambert, Westpac Banking Corporation, P818 , Les Wright and Aeroliteral. 55. On 8 June 2007 Mr Pugliese, President of Lambert wrote to Mr Barth. He specifically referred to the QBE Certificate of Insurance stating that among the documents he was couriering to Mr Barth was: "Certificate of Insurance dated December 9, 2004, evidencing insurance for aircraft 818 with Lambert [Lambert], Aeroliteral and SAL as additional insureds". 56. Mr Barth received materials from Mr Pugliese on the same day. 57. On 3 June 2008 Mr Barth and Mr Lake met in London. 58. On 3 July 2008 Mr Barth reviewed the purchase agreement between Lambert and Partnership 818 and as a result wrote to Mr Pugliese: "We have a Certificate of Insurance for the ferry flight (issued by QBE Insurance) but we do not have a certificate covering the two year post-sale period. If you have a copy of that certificate (or policy) would you please send me a copy. There is a possibility that we can tender this matter to that insurer (QBE?)". 59. Mr Pugliese forwarded the certificate to Mr Barth on the same day. 60. On 15 July 2008 Mr Pugliese wrote to QBE requiring it to provide a defence of the Illinois and Missouri proceedings and requested a copy of the QBE Policy wording. 61. Mr Ian Awford, then a partner of Ebsworth & Ebsworth was engaged and wrote to QBE Aviation on 5 February 2009 enclosing a copy of Mr Pugliese's letter to QBE of 15 July 2008. Mr Awford again requested a copy of the full QBE Policy wording and sought confirmation that QBE would indemnify Lambert and SAL in relation to all legal and other defence costs and expenses for defending the Illinois and Missouri Proceedings. 62. Norton White, solicitors for QBE responded to Mr Awford's letter on 19 February 2009 and requested: 1. The identity of the liability insurer(s) for Lambert and SAL ("the companies"); 2. Copies of the companies' liability policy or policies in place on 7 May 2005; 3. Copies of any notifications, claims or correspondence containing or relating to any notifications or claims under any liability policy as a result of the accident on 7 May 2005 and/or the legal proceedings referred to in the commencement of your letter of 15 July 2008 in Cook County Illionois and in Missouri; 4. Copies of the Court's ruling on the motions to dismiss the lawsuit in Cook County together with any correspondence from the plaintiffs' counsel on the motions to dismiss those proceedings; 5. Copies of all documents in relation to the motion to dismiss the Missouri proceedings. It is indicated in your letter dated 5 February 2009 that lead plaintiff is Trad Thornton. As you are no doubt aware, Mr Thornton has taken action against Lessbrook Pty Limited t/as Transair in proceedings in Queensland; 6. Copies of the complaints/petitions for the three law suits and copies of the Notices of Removal from State Court to US District Court that were filed in the two Missouri cases as referred to in the penultimate paragraph of Lambert Leasing's letter dated 15 July 2008; 7. The identity of any insurer(s) who has appointed lawyers to act on behalf of the companies in the proceedings in Cook County Illionois and in Missouri; 8. Copies of all invoices, memoranda or costs or fee notes issued in respect of the legal representation of the companies in the proceedings in Cook County, Illinois and in Missouri with an indication of whether or not the fees have been paid; 9. The identity of the party or parties who have paid or are responsible for the payment of legal fees". 63. By letter of the same day Mr Awford indicated that he expected little difficulty in providing the majority of the documents requested by Norton White albeit he apprehended there may need to be a confidentiality undertaking given with respect to the Global Policy. Mr Awford asked Norton White to obtain QBE's instructions in relation to the question of a confidentiality undertaking in respect of some documentation and also again requested a copy of the full wording of the QBE Policy. 64. The plaintiffs in these proceedings, the second and third defendants and Mr Wright made applications for a stay of the Missouri proceedings on the basis of forum non conveniens and for dismissal. The argument in that case was heard by the Court on 15 October 2009 and the applications were dismissed. 65. Mr Awford wrote to Norton White on 31 March 2010 formally giving notice under s.41 of the Insurance Contracts Act 1984 requiring QBE to elect whether to take over defence of the Missouri proceedings. 66. On 3 July 2010 QBE declined to take over negotiations connected with the proceedings in Missouri or the conduct of those proceedings. 67. QBE has: (a) indemnified Lessbrook Pty Ltd (Transair) for claims brought by relatives of deceased passengers in Australia (the "Australian Passenger Claims"); (b) taken over conduct of the Australian Passenger Claims; (c) paid the defence costs associated with the Australian Passenger Claims; (d) paid the claimants in the Australian Passenger Claims (six claims being determined by the Supreme Court of Queensland and the other six cases being resolved by agreement); (e) agreed to and has reimbursed P818 and Les Wright in respect of their reasonable legal costs in the defence of the Missouri Proceedings; 68. On 16 February 2011 Mr McCarthy of Willis advised Mr Awford that Global had approved the establishment of a separate costs fund for the conduct of the Australian litigation against QBE. 69. This proceeding was commenced on 17 March 2011."
21. The following facts and issues were agreed as between Lambert and the Partnership: "Agreed Facts and Statement of Issues between Plaintiffs and Second and Third Defendants Agreed facts 1. The first plaintiff (Lambert Leasing) and the second plaintiff (SAL) are sister companies, being wholly owned subsidiaries of Saab AB: Baremo affidavit at [4]. 2. The second and third defendants (P818) are partners of a partnership formed in 2003: O'Donoghue affidavit at [30]; CB 4, tab 85. 3. By Aircraft Purchase Agreement dated 9 May 2003, P818 purchased a Swearingen Fairchild SA 227 Metro 23 aircraft (the Aircraft) from Lambert Leasing: CB 4, tab 43. While the Aircraft Purchase Agreement remained dated 9 May 2003, it may not have been exchanged in its final form until 16 June 2003: O'Donoghue affidavit at [24]; CB 4, tab 74. 4. The Aircraft Purchase Agreement is governed by the law of Virginia, USA. 5. The Aircraft Purchase Agreement included the following terms: "7.01. Indemnity. After delivery of the Aircraft to Buyer, Buyer agrees to indemnify and hold harmless Seller and its officers, agents, representatives and employees from and against all liabilities, damages, losses, judgments, claims and suits, including costs and expenses incident thereto, which may be suffered by, accrued against, charged to or recoverable from Seller and/or its officers, agents, representatives and employees, by reason of loss or damage to property and/or by reason of injury to or death of any person resulting from or in any way connected with Buyer's possession, maintenance, modification, use or operation of the Aircraft subsequent to the delivery of the Aircraft and title thereto to Buyer pursuant to this Agreement, excepting matters of Seller's title, manufacturer's product liability and Seller's and/or its officers', agents', representatives', and employees' negligence. 7.02. Insurance. Buyer agrees to maintain, at Buyer's expense, aircraft liability insurance, including third party liability, which covers ownership, maintenance and use of the Aircraft, excluding manufacturer's products liability… Such policy shall name Seller, Saab Aircraft Leasing, Inc [and others] … as "Additional Insureds". The policy shall (i) provide cross liability clauses, (ii) expressly insure the contractual liability to Seller assumed by Buyer in Section 7.01 and (iii) provide a breach of warranty endorsement in favor of each Additional Insured… Buyer agrees to employ reasonable efforts to require any third party purchasing or leasing the Aircraft during such two year period to maintain the insurance coverage described in this Section 7.02." 6. On 9 May 2003 draft Aircraft Purchase Agreement was put forward by SAL on behalf of Lambert Leasing: CB 4, tab 42. 7. On 16 June 2003, P818 obtained a policy of insurance from the first defendant (QBE) for the benefit of, among others, Lambert Leasing and SAL (the Policy): CB 4, tab 71. 8. On 16 June 2003, Mr O'Donoghue on behalf of P818 faxed the certificate of insurance in respect of the Policy to Ms Bisnath on behalf of Lambert Leasing and SAL: CB 4, tabs 69 and 70. 9. On 17 June 2003, P818 leased the Aircraft to Lessbrook Pty Ltd, trading as "Transair": CB 4, tab 86. 10. On 7 May 2005, the Aircraft crashed (the Accident). All passengers and crew (15 people) were killed: Beach-Nash affidavit at [7]. 11. On 4 May 2007, the relatives of some of the persons who died in the Accident commenced proceedings in Illinois, USA against, among others, Lambert Leasing and SAL (the Illinois Proceedings): CB 1, tab 3 at 95. 12. The Illinois Proceedings have been dismissed as against Lambert Leasing and SAL for lack of jurisdiction: Beach-Nash affidavit at [16]. 13. On 6 May 2008, the relatives of some of the persons who died in the Accident commenced proceedings in Missouri, USA against, among others, Lambert Leasing and SAL (the Missouri Proceedings): CB 1, tab 3 at 120. 14. The Missouri Proceedings are ongoing. 15. Lambert Leasing and SAL have incurred legal costs in connection with the Illinois Proceedings and the Missouri Proceedings. Lambert Leasing and SAL have a potential exposure to liability for damages in the Missouri Proceedings 16. Lambert Leasing and SAL commenced these proceedings in the NSW Supreme Court on 20 March 2011. Agreed issues 1. Does the indemnity in clause 7.01 respond to the costs incurred to date in the Illinois Proceedings and the Missouri Proceedings, and/or the future costs, and/or any damages liability in the Missouri Proceedings? In particular: a. Are the losses claimed by the plaintiffs losses "resulting from or in any way connected with [P818]'s possession, maintenance, modification, use or operation of the Aircraft"? b. Does the word "use" have any special meaning, as a matter of Virginia law, that bears on the answer to question 1(a)? c. Are the losses claimed by the plaintiffs excluded from clause 7.01 by reason that they can be described as "matters of manufacturer's product liability and Seller's … negligence"? 2. Has there been a breach of clause 7.02? In particular a. Is any claim for breach of clause 7.02 statute barred, having regard to the limitation period for claims for breach of contract according to the law of Virginia? b. Did P818 breach clause 7.02, having regard to the fact that P818 obtained the Policy? c. If there was a breach of clause 7.02, have the plaintiffs discharged their onus of proving that the breach was "material", having regard to the requirement for the law of Virginia that a breach of contract must be material before it is actionable? d. Do the claims against the plaintiffs in the Illinois Proceedings and the Missouri Proceedings fall within the exclusion for "manufacturer's product liability"? If so, does that provide a basis for P818 to resist the claim for breach of clause 7.02? 3. Is SAL entitled to any relief against P818, having regard to the fact that SAL was not a party to the Aircraft Purchase Agreement? 4. What is the quantum of any liability of P818 in respect of costs already paid in the Illinois Proceedings and the Missouri Proceedings? In particular: a. If the exclusions in clause 7.01 or 7.02 apply to some but not all of those costs, what portion of those costs (if any) has been shown to be referable to the alleged indemnity in clause 7.01 or the alleged breach of clause 7.02 respectively? b. If Lambert Leasing is entitled to relief against P818 but not SAL, what portion of those costs (if any) has been shown to be referable to Lambert Leasing's right to indemnity or Lambert Leasing's loss? c. If QBE establishes that some of those costs have already been paid by the plaintiffs' other insurance and those payments are not recoverable by the other insurers, what loss have the plaintiffs suffered for the purposes of clauses 7.01 or 7.02? 5. Who should pay the costs of Lambert Leasing's claim against P818? 6. Who should pay the costs of SAL's claim against P818?"
22. As between Lambert and QBE a document was prepared entitled Statement of Agreed Issues: see MFI 2. A lot of the issues in that document were, notwithstanding its title, not agreed and each side sought to set out its competing version of the issue as it saw it. I have had regard to the document but I have, at [35] below, sought to set out the issues as I see them.
23. The Purchase Agreement was signed by Mr Wright on behalf of the Partnership. Mr Wright was a director and indirectly a shareholder of Lessbrook but was not a director or secretary of the Partnership. He was, however, the person who inspected the Aircraft and advised the Partnership that it was suitable for Transair's purposes. The Aircraft was collected in Missouri for flight to Australia by Mr Duncan Mackellar, a director of Lessbrook. Duncan is the son of Mr Alastair Mackellar, a director of Jalgrid. Title in the Aircraft, by an amendment to the Purchase Agreement, remained in Lambert until arrival of the Aircraft in Australia.
24. After entry into the Purchase Agreement but before the Aircraft was collected, Lambert, at the request of the Partnership, permitted the installation of a GPS system in the Aircraft. There is, as between QBE and Lambert, a factual dispute as to whether Lambert is to be taken to have installed the GPS because it required World Wide Air Service to perform the work and it had control of the Aircraft at that time even though it was Mr Wright to whom World Wide Air Service sent the invoice and as to whether Mr Wright was acting on behalf of the Partnership or on behalf of Lessbrook. These issues are not ventilated in the claim against the Partnership.
25. The Missouri proceedings, as against Lambert, comprise of two species of claim, one is a claim in negligence and one a claim of sale of defective goods: see tab 411. A number of matters are claimed by the Relatives to have made the Aircraft "defective and not reasonably safe when used in a reasonably foreseeable manner" (the same particulars apply to both the negligence and defective goods claim) as follows: "a. The subject aircraft did not contain an effective Ground Proximity Warning System (GPWS), Enhanced Ground Proximity Warning System (EGPWS) or other terrain collision warning system which would provide timely aural and visual warnings of approaching terrain; b. The GPWS cockpit annunciators and other electronic displays were installed in the cockpit of the aircraft such that they were not in the proper field of view of the pilot and co-pilot; c. The subject aircraft was not equipped with an autopilot; d. The decision height for the radio altimeter indicator could only be set at an altitude from 0 to 990 feet; e. The digital display on the radio altimeter, when changing rapidly, made it difficult for the flight crew to readily determine whether altitude was increasing or decreasing; f. The co-pilot's altimeter was confusing and resulted in misreadings; g. The Global Positioning System (GPS) did not display distance to the Missed Approach Point; h. The moving map display on the GPS was of limited usefulness because of the vertical size of its LCD screen; i. The GPS did not provide any vertical advisory guidance."
26. The only item installed by or at the behest of the Partnership and identified as the subject of complaint is the GPS. The claim by the Relatives is that the GPS was not effective. The GPWS system was already installed in the Aircraft before the Purchase Agreement was entered into, and the Aircraft did not at any time have an enhanced GPWS.
27. The Coroner's report (see [20] above at 34) offers no support for the contention that the accident occurred by reason of some defect in the GPS or any other equipment on board. The cause of the crash was determined to be pilot error. The only equipment related finding is that an enhanced GPWS (also known as Terrain Alert Warning System- TAWS) might have prevented the accident (see pp 49- 50 of the report CB6 tab 162)- relevant to 25. There is no evidence before me that the absence of an enhanced GPWS or indeed any other aspect of the Aircraft equipment produced the result that the Aircraft did not meet all Australian statutory requirements at the time. The Coroners' report makes reference to an investigation by the Air Traffic Safety Bureau ("ATSB") which was clearly extensive. The parties were precluded by legislative provisions from putting that report into evidence but a media release dated 4 April 2007 from the ATSB which is in evidence was entirely consistent with the findings of the Coroner, and the Coroner made clear his reliance on the ATSB report.
28. In proceedings 195529 of 2011 in this Court QBE sought, and obtained, declarations against administrators of the estates of the pilots supporting its refusal to indemnify them as a result of the crash: see the affidavit of Mr Beach-Nash of 7 May 2013 "DJN1" p 227- 229.
29. Proceedings were taken in Queensland against Lessbrook by some of the Relatives, and those proceedings concluded in judgments or settlement in favour of the Relatives.
30. Much of the documentation in this case relates to the conduct of the US proceedings and the correspondence between Global, Locke Lord, Lambert, a solicitor Mr Ian Awford retained by Lambert and/or Global and QBE and its solicitors.
31. The Court received evidence from experts as to the law of Virginia and Sweden. An agreement (in part) as to the law of Virginia was reached which is recorded in MFI 3 and which I set out here: "Propositions of the Law of Virginia, USA, relevant to these proceedings Matters in dispute are underlined. The other propositions are common ground. 1. The contra proferentem rule normally operates against the party drafting or including a clause in a contract, save that the rule will have no work to do if the clause is clear and unambiguous. 2. There is no liability to pay damages for a breach of contract unless it is a "material breach". If an obligor has rendered substantial performance, not in every detail but in all essential parts, then a breach of contract will not be material. In determining what is material in a given case a Virginian Court will consider the text of the written contract. There is a dispute between the parties as to whether or not the alleged breach in this case is "material". 3. The plaintiff bears the onus of proving materiality. 4. There is a dispute between the parties as to what meaning the Virginia courts have attributed to the word "use" in certain kinds of contract. The dispute includes whether the word has a special meaning in Virginia jurisprudence. 5. The limitation period for breach of contract is 5 years from the date of the breach of contract. 6. There is a doctrine of "continuing undertaking" by which contractual obligations can continue after the date they are first alleged to have been breached. There is a dispute between the parties about the scope of that doctrine, whether it is capable of applying to obligations such as clause 7.02 and, if so, how it applies to such obligations. 7. "Manufacturer's product liability" has no special meaning distinct from "product liability"."
32. Items 2 and 6 have no remaining relevance to the dispute. At the hearing it became clear that there was agreement that 'use' does not have a special meaning in Virginia jurisprudence.
33. There was as between QBE and Lambert agreement that Swedish law does not prohibit or make void 'other insurance' clauses. It was agreed that where two policies contain an 'other insurance' clause the effect under Swedish law is to render each clause ineffective, a position identical to that under Australian law.
34. Lambert has maintained its denial of liability to the Relatives in the US proceedings. There is no dispute that very significant costs have been incurred in defending Lambert in the Illinois and Missouri proceedings although whether the costs have been incurred by Lambert and whether all of the costs paid to lawyers retained relate solely to those proceedings is in issue.
35. It seems to me that the following issues are the issues which are in dispute: As between Lambert and QBE 1. is condition 9 of the QBE Policy rendered void by s 45 of the the Insurance Contracts Act 1984 (Cth) ("the ICA")? This question involves the sub-issues: 1. did Lambert "enter into" the QBE Contract of insurance? 2. did Lambert "enter into" the Global Contract of insurance? 3. did Lambert need to have entered into both contracts of insurance for s 45 to operate? ("the section 45 issue") 1. was there dual insurance? ("the dual insurance issue") 2. the Deed and its effect ("the Deed issue") 3. has Lambert "incurred costs" in the US proceedings and has it been indemnified by Global for the US costs to date and what impact does that have on Lambert's claims against QBE? What are QBE's obligations in respect of defence costs of the Illinois and Missouri cases? There is, as part of this question, an issue as to whether QBE's consent to the incurral of costs was required ("the US costs contribution/subrogation issue") 4. do the words "shall become legally liable to pay, and shall pay" in Section 3 Coverage of the QBE Policy require that Lambert must first pay compensatory damages to a claimant before it can recover from QBE? ("the pay to be paid issue") 5. did Global pay any of the US costs by mistake and the significance of any such mistake ("the Global mistake issue") 6. what is the extent of cover under the QBE Policy? This has the following sub issues: 1. is QBE required to indemnify Lambert in respect of claims brought against Lambert by Relatives of the Pilots? 2. is QBE required to indemnify Lambert in respect of claims for exemplary, aggravated and punitive damages? 3. is QBE required to pay legal costs before liability is determined? 4. has Lambert breached the due diligence clause and/or the compliance clause? ("the extent of QBE cover issue") 1. are these proceedings premature as QBE contends? ("the prematurity issue") 2. is QBE required to provide an answer on indemnity to Lambert even where Lambert has not provided to QBE the sixteen reports that have been provided by Mr Chris Barth of Locke Lord to underwriters and to Lambert? ("the failure to provide information issue") 3. has QBE breached its duty of utmost good faith to Lambert by (on Lambert's case) 1. failing to advise Lambert since July 2008 that it would indemnify Lambert in respect of the US claims and the US costs 2. maintaining that it has not been provided with sufficient information on which it can provide an answer on indemnity, even though it has access to all the available information that Lambert should reasonably be required to provide 3. failing to do so when it has agreed to indemnify the Partnership, Lessbrook and Westpac and had paid money towards Mr Les Wright's costs of attending the Queensland Coronial Inquest 4. relying on the pay to be paid clause and if so with what consequence? ("QBE utmost good faith issue") 1. has Lambert breached its duty of utmost good faith to QBE by entering into arrangements with Global concerning the pursuit of the indemnity claim against QBE and the entry into the Deed ("the Lambert utmost good faith issue") and if so with what consequence? There is a further question which is whether the proceedings brought by Lambert are really brought by Global- a matter closely connected with issues (3), (4) and (8) As between Lambert and the Partnership 1. is the Partnership required to indemnify Lambert in respect of liabilities imposed on Lambert as damage, losses, judgment claims and such (and including costs) by reason of the passengers and crew? This is answered by a determination as to 1. whether the lease by the Partnership to Lessbrook of the Aircraft was a "use or operation" of the Aircraft by the Partnership 2. if the answer to (a) is in the affirmative, whether the liability sought to be imposed by the Relatives arises out of Lamberts "negligence" or is to be characterised as "manufacturers product liability"? ("the Partnership indemnity issue") 1. if the answer to 12(a) is in the affirmative and 12(b) in the negative for what is the Partnership required to indemnify Lambert? ("extent of Partnership indemnity issue") As between Lambert and QBE and the Partnership 1. the quantum of recovery by Lambert against QBE and the Partnership in the event of liability to indemnify being established? ("the quantum of recovery issue")
36. I have had the benefit of extremely detailed and helpful submissions from all counsel. I shall refer to Lamberts' closing submissions as "LCS", QBE's closing submissions as "QCS" and those of the Partnership "JCS". There were also detailed submissions in reply from Lambert ("LSR").
37. Although there was some complaints by both sides that matters were being ventilated in the submissions that were not pleaded by the other side, except for the issue of the Deed, neither side asserted an inability to deal with or prejudice resulting from the alleged deviation (see T594, T602- 603, T606, T614- 617, T621- 622, T634.10 and T637.43- 45).
38. The evidence in the case is largely documentary. Aside from expert evidence on Swedish law Lambert called one witness, Mr Stephen Lake the deputy claims manager at Global. Mr Lake is also a qualified solicitor with an English Practising Certificate: T113.30. QBE called Mr Daniel Beach-Nash the National Claims Manager of QBE Aviation. The Partnership called Mr Alastair Mackellar a director of Jalgrid and Mr John Neive O'Donoghue a solicitor who had acted for Lessbrook in relation to the lease of the Aircraft from the Partnership. There was no suggestion that the evidence of Mr Mackellar and Mr O'Donoghue should not be accepted. I shall deal later with the credit of Mr Lake and Mr Beach-Nash.

The section 45 issue (Issue 1)

1. Lambert and SAL maintain that condition 9 in the QBE Policy is rendered void by reason of s 45(1) of the ICA which section is in the following terms ""Other insurance" provisions (1) Where a provision included in a contract of general insurance has the effect of limiting or excluding the liability of the insurer under the contract by reason that the insured has entered into some other contract of insurance, not being a contract required to be effected by or under a law, including a law of a State or Territory, the provision is void. (Emphasis added) with the consequence that the "other insurance" clause in the Global Policy is effective and hence that the Global Policy is an excess policy.
2. QBE contends that Zurich Australian Insurance Ltd v Metals & Minerals Insurance Pty Ltd [2009] HCA 50; (2009) 240 CLR 391 ("Zurich") establishes that s 45(1) does not strike down QBE's 'other insurance' clause.
3. The facts in the Zurich matter, which I take from the High Court decision and using the nomenclature in that judgment, are: 1. Hamersley entered into a contract with Speno for the provision of rail grinding services. The contract required Speno to indemnify Hamersley and insure itself against all claims occurring as a result of anything done in the performance of the contract causing death or injury to any person. Speno was required to have its insurance policy endorsed to include Hamersley 2. Speno entered into a policy with Zurich and Hamersley was included as a named insured under it 3. Hamersley had its own contract of insurance with MMI 4. The MMI policy contained an 'other insurance' clause 5. Two employees of Speno were injured whilst carrying out work on the rail track as a result of its negligence. In proceedings in the District Court of Western Australia judgment was entered against Hamersley in respect of one claim and the other claim was settled by Hamersley. Zurich and Speno were held liable in the District Court to indemnify Hamersley 6. Zurich then sought to obtain contribution from MMI claiming that there was dual insurance (of Hamersley). MMI relied on the 'other insurance' clause to refuse Zurich's claim for contribution and Zurich asserted that that clause was ineffective by virtue of s 45 of the ICA
4. In proceedings in the Western Australia Supreme Court Zurich's contention that s 45 rendered the MMI clause invalid was upheld by Anderson J. Her Honour held that s 45 would not strike down an 'other insurance' clause where such a provision relates to other contracts of insurance to which the insured is not a party but is named as a non-party beneficiary (as Hamersley was under the Zurich policy) but her Honour held that because the clause also operated where an insured had entered into another insurance contract as a party the clause was invalid and that part of it which affected contracts of insurance to which the insured was not a contracting party could not be severed.
5. The Western Australia Court of Appeal upheld the appeal (Speno Rail Maintenance Australia Pty Ltd v Metals & Minerals Insurance Pty Ltd [2009] WASCA 31), holding that the clause was not void in its entirety but only to the extent that the clause sought to preclude an insured who had entered into another policy as a party from recovery under the first policy by reason of that fact.
6. The High Court unanimously rejected the appeal from the decision of the Western Australia Court of Appeal. In their joint judgment, French CJ, Gummow and Crennan JJ held that the 'other insurance' clause was not rendered void in its entirety but only to the extent that the clause offended s 45 and hence was severable to the extent that it did not offend s 45. Hayne and Heydon JJ agreed that s 45 did not strike down clauses which denied cover because the insured was a named insured in a second contract rather than a party to a second contract but they saw the matter as one of operation of the section rather than a matter of severability. I shall, without intending any disrespect, refer to the judgment of French CJ, Gummow and Crennan JJ as "the first judgment" and that of Hayne and Heydon JJ as "the second judgment".
7. QBE claims that its 'other insurance clause' is not rendered void in this case because it operates to preclude a non party named insured under its policy, ie Lambert, from claiming cover under its policy. QBE claims that to offend s 45 the clause must be operating against an insured who is both a party to the first contract of insurance ("the first contract") mentioned in s 45 and a party to the second contract of insurance mentioned in s 45 ("the second contract"). QBE asserts that Lambert is not a party to either the QBE or the Global Policy, but a named insured under the QBE Policy and an additional insured under the Global Policy since Lambert is included as a subsidiary although not named. QBE further contends that if Lambert is not a party to the QBE contract that is sufficient to preclude s 45 from operation, ie even if Lambert is a party to the Global contract of insurance.
8. Lambert resists the contentions of QBE. It contends that it was a party to the contract with Global and that all that s 45 is concerned with is whether the second contract of insurance was entered into by the insured. Since it was a party, it says, to the Global Policy the clause is void in operation here. Lambert also asserts, as a fall back position, that it is a party to the QBE insurance policy. Lambert submits that Zurich does not support QBE's contention that for s 45(1) to operate the insured must be a party to both the first and second contract- the High Court, it submits, was concerned only with whether Hamersley was a party to the second contract. Lambert calls in aid for this view the decision of Nicholas v Wesfarmers Curragh Pty Ltd [2010] QSC 447 and contends that the text writers have favoured the approach taken by McMeekin J in Nicholas.
9. Mr Williams also draws attention to the manner in which the first judgment described the first issue in the case at [1]: "whether s 45 applies to provisions which purport to exclude or limit liability where the insured is not a party to the other contract of insurance but is named in it as an insured person" (emphasis added) and he also contends that QBE's contentions require acceptance of the proposition that "insured" when used in the ICA always means the party to the contract, and draws attention to the terms of s 76 and what was said in the first judgment in Zurich about s 76 at [25]. S 76(1) provides: "(1) When 2 or more insurers are liable under separate contracts of general insurance to the same insured in respect of the same loss, the insured is, subject to subsection (2), entitled immediately to recover from any one or more of those insurers such amount as will, or such amounts as will in the aggregate, indemnify the insured fully in respect of the loss."
10. It is pertinent to note that Zurich had not appealed from the primary Judge's decision that s 45 was not directed to striking down claims that denied cover where an insured was named as an insured in the second policy but was not a party to the second contract. The High Court granted leave to Zurich to amend the appeal to include as a ground of appeal what is set out below in [10] of the Zurich decision.
11. I set out the paragraphs of the first judgment to which particular attention was drawn in the course of submissions: "[1] Section 45 of the Insurance Contracts Act 1984 (Cth) (the Act) renders void so-called "other insurance" provisions of general insurance contracts. Such provisions limit or exclude the liability of the insurer to indemnify the insured against loss because the insured has entered into another contract of insurance in relation to the same risk. The first question in this appeal, brought by Zurich Australian Insurance Ltd (Zurich), is whether s 45 applies to provisions which purport to exclude or limit liability where the insured is not a party to the other contract of insurance but is named in it as an insured person. The second question is whether the section renders void an entire clause of an insurance contract which includes a provision to which the section applies notwithstanding that the clause may include other provisions to which it does not apply. The answer to both questions is in the negative. As a result the appeal must be dismissed." "[3] Pursuant to the Speno/Hamersley contract, Speno entered into a Combined General Liability Insurance Policy with Zurich on 12 September 1995 (the Speno policy). Although not a party to the policy, Hamersley was included as a named insured under it." "[10] The grounds of appeal, amended by leave at the hearing of the appeal to include ground number 4, were as follows….. 4. The Appeal should be upheld on the ground that section 45(1) of the Insurance Contracts Act 1984 operates such that the phrase "the insured has entered into some other contract of insurance" applies to the situation where a person has the benefit of a contract of insurance even though not a party to that contract of insurance himself or herself." "[18] The term "entered into", which is critical to the first constructional question in this appeal, is defined non-exhaustively in s 11(9) in the following terms: Subject to subsection (10), a reference in this Act to the entering into of a contract of insurance includes a reference to: (a) in the case of a contract of life insurance - the making of an agreement by the parties to the contract to extend or vary the contract; (b) in the case of any other contract of insurance - the making of an agreement by the parties to the contract to renew, extend or vary the contract; or (c) the reinstatement of any previous contract of insurance. The draft Insurance Contracts Bill proposed by the ALRC included no definition of "entered into" and no equivalent of s 11(9). Nor did the Bill as introduced into the Senate. The subsection was introduced by amendment in the Senate. Its rationale, as set out in the relevant explanatory memorandum, was as follows: The effect of the amendment will be to make it clear that any obligations which the Bill imposes on the insurer and insured "before the contract is entered into" will apply where they renew, extend, vary or reinstate an existing contract and thereby make a new contract. Section 11(10) is not material for present purposes." "[24] Section 48 confers a statutory right of recovery upon a non-party referred to or specified in a general contract of insurance as a person insured or to whom cover extends. It does so directly. Its enactment predated the extension, by the decision of this court in Trident General Insurance Co Ltd v McNiece Bros Pty Ltd, of common law rights of recovery for non-party insured persons under an insurance policy. Section 48 does not deem such a person to be a party to the insurance contract thus attracting the rights conferred on a party. It does not purport to confer contractual or equitable rights upon such a person. There is therefore no basis in s 48 for assimilating the position of a non-party insured to that of a person who has "entered into" a contract of insurance within the meaning of s 45(1). [25] Section 56(1), dealing with fraudulent claims, distinguishes between such claims made "under a contract of insurance" and claims made "under this Act … by a person who is not the insured under a contract of insurance". Section 76, which is to be read with s 45, confers an entitlement upon an insured to proceed against two or more insurers who "are liable under separate contracts of general insurance to the same insured in respect of the same loss". The condition of entitlement is the liability of the insurer, which may arise as a matter of contract or pursuant to s 48. [26] Zurich submitted that s 45(1) should be construed as if the text read: Where a provision … has the effect of limiting or excluding the liability of the insurer under the contract by reason that the insured [including a person entitled under s 48] has entered into [an arrangement giving it cover under] some other contract of insurance … the provision is void. That submission should not be accepted. The text of the provisions of the Act with which s 45 must be read points inexorably to the conclusion that s 45 is only concerned with "other insurance" provisions affecting double insurance where the insured is a party to the relevant contracts of insurance. It does not allow room for a construction which would include a non-party insured among the ranks of those who have "entered into" the relevant contract. The inclusion of persons not parties to the relevant contract would be inconsistent with the ordinary or any plausibly extended meaning of "entered into" in relation to contracts. In so saying, it must be acknowledged that the purpose of s 45 as appears from the ALRC report and the relevant explanatory memorandum is not so confined as to indicate such a construction. There is no distinction made in the report or the explanatory memorandum between "other insurance" provisions purporting to affect double insurance which includes non-party insurance, and double insurance where the insured is a party to the relevant contract. The most that can be said is that the report seems to have proceeded upon the assumption that the problem of "other insurance" clauses arose in cases in which the insured was a party to both contracts. However, notwithstanding the generality of the mischief to which s 45 was directed, the words "entered into" are not capable of encompassing a non-party insured. [27] The preceding construction was that adopted by the primary judge. Her Honour's conclusion was not challenged in the Court of Appeal. What was challenged was her application of s 45(1) to render void the whole of the Underlying Insurance clause. [28] Notwithstanding the want of any challenge to the primary judge's construction, its correctness is a question of law central to the determination of this appeal. Upon that question being raised by the court on the hearing of the appeal, counsel for Zurich applied for and was granted leave to amend the grounds of appeal to challenge her Honour's construction. For the reasons set out above, that challenge fails." and the following paragraphs of the second judgment "[34] As is explained in those reasons, the contract of insurance relevant to this matter (the MMI contract) made by Hamersley Iron Pty Ltd (Hamersley) with Metals & Minerals Insurance Pte Ltd (MMI) contained a clause in which underwriters acknowledged: that it is customary for the Insured [Hamersley] to effect, or for other parties (including joint venture partners, contractors and the like) to effect, on behalf of the Insured, insurance coverage specific to a particular project, agreement or risk. The MMI contract went on to provide that, in the event of Hamersley being indemnified "under such other Insurance effected by or on behalf of [Hamersley] … in respect of a Claim for which Indemnity is available under this Policy", the insurance afforded by the MMI contract was limited. These provisions of the MMI contract were headed "Underlying Insurance", and it is convenient to refer to them as the "Underlying Insurance Terms"." "[37] The central question in this appeal is: was s 45(1) of the Act engaged? That subsection provides that a provision included in a contract of general insurance is void where it has the effect described in the subsection. Subject to a qualification not relevant in this matter (about insurance required to be effected by law) the effect specified in s 45(1) is "the effect of limiting or excluding the liability of the insurer under the contract by reason that the insured has entered into some other contract of insurance". [38] The limitation on MMI's liability provided by the Underlying Insurance Terms could apply in two different circumstances. First, the limitation could apply where Hamersley itself effected insurance coverage specific to a particular project, agreement or risk. Secondly, it could apply where another party effected insurance coverage on behalf of Hamersley. In respect of the claim now in question, the second operation of the Underlying Insurance Terms applied. [39] The second operation of the Underlying Insurance Terms was not a limitation of MMI's liability for the reason identified in s 45(1) of the Act. It was not a limitation "by reason that [Hamersley] has entered into some other contract of insurance". Hamersley had not entered any contract of insurance with Zurich. Speno, not Hamersley, had made the Zurich contract. And as the joint reasons explain, nothing in other provisions of the Act, or in the history of the Act, provides any footing for reading the relevant expression in s 45(1) - "the insured has entered into some other contract of insurance" - otherwise than in accordance with its ordinary meaning."
12. Before expressing my views on the competing contentions in relation to Zurich I will endeavour to summarise Nicholas.
13. In Nicholas, the plaintiff claimed that he was injured whilst working for his employer at a mine operated by Curragh. The employer had organised a policy of insurance with Brit which policy included, as the insured, principals and owners. There was no dispute that Curragh was an insured by reason of the extended definition of insured. The Brit policy had an 'other insurance' clause. Curragh was a subsidiary of Westfarmers. Westfarmers had taken out a policy of insurance with QBE covering itself and all of its subsidiaries. That policy had an 'other insurance' clause in similar terms to the QBE clause here.
14. Brit asserted that it was able to rely on its 'other insurance' clause to defeat a claim by Curragh. Curragh claimed that s 45 operated to render Brit's 'other insurance' clause void. Brit claimed that on the basis of Zurich its clause was not void because Curragh was not the insured under the QBE policy.
15. McMeekin J held that Westfarmers entered into the QBE policy as agent for Curragh and all of its subsidiaries, so that the Brit clause was void, because it purported to preclude a claim by Curragh on the Brit policy because Curragh, an insured under the Brit policy, had entered into the QBE policy.
16. His Honour took the view that Zurich did not provide the answer to the question posed in the case before him. He said: "[21] The decision in Zurich does not supply the answer to the issues raised here. In Zurich it was clear that the party in Curragh's position here, in that case Hamersley Iron Pty Ltd ("Hamersley"), had not "entered into" the "other contract of insurance" that s 45(1) speaks of in any normal sense of the words. The debate in Zurich centred on whether the meaning of "entered into" ought to be extended to include those who were named as insured persons but who had not entered into the contract. [22] There, Speno Rail Maintenance Australia Pty Ltd ("Speno") had entered into the relevant contract of insurance pursuant to a contractual obligation owed to Hamersley. The relevant policy defined "the insured" as including "the insured named in the schedule". Speno was so named and Hamersley was also so named as an insured, but under an extended definition as a "principal" in respect of the contract between Hamersley and Speno. It was only by reason of the extended definition in the policy that Hamersley was an insured person. It is relevant to one of Brit's contentions to note that Curragh is in the same position vis-à-vis the Brit policy as Hamersley was to the Speno policy. [23] Here, the question involves slightly different considerations to those in Zurich."
17. He posed the question from Zurich as "whether the method of entering into the contract of insurance on behalf of the subsidiaries is consistent "with the ordinary or any plausibly extended meaning of 'entered into' in relation to contracts"."
18. His Honour drew a distinction between an insured who becomes an insured by reason of an extended definition as opposed to one who is a named insured (in the second contract). He also found that Westfarmers had entered into the QBE policy as agent of Curragh. Brit made the point that Curragh had to be a party to the Brit policy as well as to the QBE policy. His Honour rejected that contention. His Honour noted Brit's contention that Zurich at [23] and [26] supported its contention but His Honour rejected that submission saying: "[60] I reject the submission, albeit with some considerable hesitation given those remarks, for these reasons: (a) Those passages in the majority reasons relied on by Brit are obiter, the question before the court being restricted to the operation of the words "entered into" in the second part of s 45(1) and not the opening reference to "a contract of general insurance" that I am here concerned with; (b) Hayne and Heydon JJ in their reasons in Zurich made no such qualification on the applicability of the section; (c) The section itself does not express that qualification; (d) The omission by the legislature of the suggested importation "entered into by the insured" qualifying "general insurance" but the express inclusion of it as qualifying "some other contract of insurance" suggests that the proposed importation was not intended; (e) The provision is a remedial one intended to benefit insureds and the words should be given a liberal interpretation consistent with that characterisation. The words used should be given "the fullest relief which the fair meaning of its language will allow". It would be inconsistent with that approach to restrict the operation of the section by the implication of a condition not found in the words used; and (f) There is no reason that I can see that such a condition on the operation of the section ought to be implied into the statute. None was suggested. I take the guiding principle to be that, generally, one should be cautious in reading into statutes words that are not there."
19. Text writers have expressed opinions on the Nicholas case: see Sutton on Insurance Law (4th ed, RM Merkin and WIB Enright, Lawbook Co, 2015) Vol 2 [19.100], The Law of Liability Insurance (3rd ed, DK Derrington and RS Ashton, LexisNexis Butterworths, 2013) Vol 2 9.60- 9.62, Mann's Annotated Insurance Contracts Act (6th ed, P Mann, Lawbook Co, 2014) [45.12]- [45.20]. Mr Mann in this work, certainly seemed to regard the approach in Nicholas as preferable, although he did note that it seemed to be inconsistent with obiter dicta in Zurich. The learned authors of Sutton seem to see the matter as really an agency point, but express no criticism of the result in Nicholas. Mr Derrington comments that the finding by McMeekin J that the remarks in the first judgment which support the contrary view were 'obiter dicta' "seems to miss the point that the section does not need to and does not discriminate as to the party who entered into the contract containing the clause" (at 9-61) but I am in doubt as to whether the learned author is at 9.60- 9.62 to be taken as supporting the conclusion reached in Nicholas, but since Mr Sullivan did not challenge Mr Williams' contention that all these texts supported Nicholas in varying degrees I shall assume that he is.
20. It is necessary to bear in mind that in Zurich Hamersley was a party to the first contract of insurance (ie with MMI) (see 41). Thus the High Court was not directly concerned with the question of whether the insured had to be a party to the first contract of insurance.
21. Putting aside for the moment the question of whether a company can 'enter into' a policy within the meaning of s 45 when another company, acting as its agent, effects a policy of insurance on its behalf, there are two aspects of Nicholas which need to be addressed. The first is the distinction which McMeekin J draws between an insured who becomes an insured because although not named it is part of a group to which the policy is intended to extend eg 'contractors', 'lenders', or 'lessees' for example. The second is his conclusion that s 45 does not require 'the insured' to be a party to both the first and second contracts of insurance.
22. Dealing with the first issue I am unable to see any basis in either of the judgments in the High Court for the distinction his Honour draws. His Honour speaks of a 'plausibly extended meaning' of 'entered into' in relation to contracts. The first judgment in Zurich determined that parties who were not parties to the relevant contract could not be said to have entered into the contract of insurance. The question must be in each case- did the insured who claims under the first policy enter into another contract of insurance? Neither an additional insured or someone forming part of a group identified as a genus meet the description of a party who has entered into the contract of insurance.
23. Turning now to the second issue, McMeekin J took the view that the passages from the primary judgment relied on by Brit were obiter. Even were that so, the High Court has made clear in Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22; (2007) 230 CLR 89 at [134] that a trial judge and intermediate Court of Appeal are bound by obiter dicta expressed by a majority of the Court.
24. His Honour refers to the remedial nature of the provision and the need to give the section "the fullest relief which the fair meaning of its language will allow". It needs to be borne in mind that the High Court in Zurich did give consideration to the remedial nature of the provision but nevertheless rejected the interpretation advanced by Zurich, saying "notwithstanding the generality of the mischief to which s 45 was directed, the words "entered into" are not capable of encompassing a non-party insured."
25. The second judgment clearly accepted the conclusions of the first judgment on the first question to be resolved and the absence of any reference in the second judgment to what is contained in [26] offers no assistance to Lambert.
26. I regard the statement in the first Zurich judgment (after consideration of ss 48, 56 and 76 of the ICA) that "That submission should not be accepted. The text of the provisions of the Act with which s 45 must be read points inexorably to the conclusion that s 45 is only concerned with "other insurance" provisions affecting double insurance where the insured is a party to the relevant contracts of insurance" (emphasis added) as critical to determining whether the Court was drawing a distinction between the insured being a party to the first contract and the insured being a party to the second contract. Not only is the use of the plural word 'contracts' important, but also important is the submission that was being rejected in the first sentence. That submission was not only that the words "[an arrangement giving it cover under]" should be read as included but also that the words "[including a person entitled under s 48]" after the word 'insured' should be read as included. It was open to the High Court to accept the first set of bracketed words but reject the second set of bracketed words. The Court did not, in the first judgment, draw any distinction between the two sets of words and no issue was taken in the second judgment. I accept Mr Sullivan's submissions that the High Court's decision on whether the two sets of bracketed words were to be read in to s 48 was part of the ratio decidendi of the case since the issue was said to be "central to the determination of the appeal" see [2.8] and see Rupert Cross, 'Precedent in English Law' (3rd ed, Oxford University Press, 1968) p 77.
27. It follows that in my view I am bound to hold that s 45 requires the insured mentioned in the section to be a party to both the first and second contracts of insurance.
28. I do not think it is a matter of reading words into the section as McMeekin J thought it would require. Zurich requires 'insured' in s 45 to mean an insured who has entered into two relevant contracts of insurance, that is both the first and the second contract of insurance. That interpretation excludes an insured who is a named insured but not a party to either the first insurance contract or the second insurance contract, or is a party to only one of them.
29. QBE relied on the Full Federal Court's decision in ABN AMRO Bank NV v Bathurst Regional Council (2014) 309 ALR 445 per Jacobson, Gilmour and Gordon JJ in which at [1627]- [1652], the Court concluded that Local Government Financial Service Pty Ltd ("LGFS") although a named insured and contractually agreed to be the insured was not a 'party' to the contract of insurance and was not 'the insured' for the purpose of s 21 of the Act. The Court was of the view that the evidence did not establish that FuturePlus was acting as agent for LGFS. The Court said at [1629]: "A party to a contract of insurance, depending on the particular kind of policy, need not necessarily be an insured person under it. Likewise an insured person need not be a party, as is the case here in relation to LGFS." The Court upheld LGFS's contentions that the word 'insured' in s 21 does not include a person to whom insurance cover is extended.
30. The conclusion in ABN AMRO was consistent with the observations of Clarke JA in CE Heath Casualty & General Insurance Ltd v Grey (1993) 32 NSWLR 25 at 46. In Zurich the High Court drew a distinction between the use of the word 'insured' in s 76 of the ICA and s 45. ABN AMRO holds that 'insured' in s 21 means a party to the contract of insurance and is entirely consistent with Zurich. The Full Court observes in ABN AMRO that the meaning of 'insured' will not be determined by the definitions in the contract of insurance. I do not accept that QBE contends that 'insured' wherever used in the ICA means the contracting insured- [25] of Zurich itself draws the distinction between s 76 and s 45 and holds that 'insured' in s 45 does not mean an insured under s 48 at the very least in respect of the second contract (Lambert's case) and as QBE contends, and I accept, in respect of both contracts.
31. Mr Williams submitted that ABN AMRO is of no assistance because s 45 and s 76 were not mentioned. I accept that the case was not dealing with either of these sections but the case does provide support for a narrow reading of 'insured' in s 21, and hence provides some support for QBE's contention that insured in s 45 ought not to be given the wide construction for which Lambert contends. Lambert's reference to the explanatory memorandum to the ICA (see LSR on this point) seems to ignore the fact that the High Court considered and rejected as determinative what had been said in that memorandum.
32. It follows that I am unable, with respect, to agree with the approach taken by McMeekin J in [60] of Nicholas. In my view it was part of the reasoning leading the decision in Zurich is the proposition that the word 'insured' means the contracting insured not a named insured (ie a person with rights to claim under the policy pursuant to s 48 of the ICA). The contracting insured under the Zurich policy was Speno not Hamersley. Hamersley was the contracting insured under the MMI policy, but not under the Zurich policy.
33. In my view then I am bound by Zurich to hold that the reference to insured in clause 45 means the party who contracted with the insurer on whom the claim is made and who is also a party to the second policy. Lessbrook did not enter a contract of insurance with Global.
34. I turn to the question of whether Lambert was a party to the QBE Policy. There is no evidence from Lambert that it contracted with QBE and all of the indications, including the form of the schedule issued are, that the contracting party was Lessbrook. The genesis of Lambert being named as an additional insured, it can be inferred, is that the Partnership, in accordance with its obligations pursuant to clause 7.02 of the Purchase Agreement required that Lessbrook, as lessee, arrange insurance.
35. There is in Australian law a distinction between a party who contracts with an insurer and one who is a named insured. A contracting party need not be a named insured but usually is. A named insured is often not the party contracting with the insurer. Sutton expressed the point this way: "The expression "the insured" in an insurance contract covers two aspects of the person described. Firstly it is the person with whom the insurer contracts, the party was bound as such. Secondly, the insured is the person who was interested in the property or other event covered by the insurance and whose loss is to be made good if it occurs. In Wadsley v City Mutual Life Assurance Society Ltd it was said to be well recognised that the term "the insured" normally and commonly meant the person who made the contract of insurance with the insurer, irrespective apparently of the type of insurance involved, although that case was concerned with a life insurance policy and with the contention that in the context of that policy the expression meant the life insured as opposed to the person who entered into the contract with the insurer. When the term "the insured" was defined in a policy to include not only the plaintiff company, its divisions and subsidiary companies "now or hereinafter constituted", but also such entities as lessors, financiers and mortgagees interested in the insured property, it was held that the financiers of the insured were intended to be parties to the contract and were joint promises along with the insured."
36. Named insureds do not become parties to the contract of insurance because they are specifically named rather than simply falling into a class of persons to whom cover is extended (eg "contractors" or "persons with a secured interest in the property").
37. In my view Lambert has not established that it was a party to the insurance contract with QBE and indeed the evidence supports the conclusion that it was not.
38. On the view which I take of s 45 it is not necessary to determine whether Lambert was a contracting party to the Global Policy. Against the possibility that my interpretation of s 45 and the effect of Zurich is erroneous I shall, however, consider the evidence on this point.
39. Lambert drew attention to the fact that subsidiaries of SAAB are a category of insured in the Policy Schedule and asserted that the question of who entered into the Global Policy is primarily a matter of construction of the policy as in Barroora Pty Ltd v Provincial Insurance (Aust) Ltd (1992) 26 NSWLR 170 at 174 D- E, Protean (Holdings) Ltd v American Home Assurance Co (1985) 4 ANZ Ins Cas 60-683, Grey, Green v CGU Insurance Ltd (2005) 215 ALR 612 at [25] and [29]- [33].
40. Lambert claims that it is necessary for it to call evidence on the question only to the extent that it relies on agency- which it says it does not need to do.
41. Lambert submits that in Zurich the first judgment accepted that 'entered into' was to be construed in the circumstances of the case and accordingly, the proposition that there may be an 'extended meaning' to "entered into" is uncontroversial.
42. QBE's response to Lambert's contentions on this point is: 1. Mr Lake, the chief underwriter of Global and only witness for Lambert gave evidence that the Global Policy was issued to SAAB for the period 1 July 2004 to 1 July 2005: see para 3 of Lake. His evidence of concerns about premium increases was a concern affecting SAAB: T144.37- 40 2. attention was drawn to the very wide words after SAAB AB "and/or controlled and/or affiliated and/or associated and/or subsidiary companies now in existence or as may be hereafter constituted or acquired" in Item 1 and p 938, it being contended that it could not have been intended that the contract was one made with all of these entities some of whom were not yet in existence 1. according to the slip found at CB 5 tab 116 p 846 and notice at p 847 the policy holder is SAAB only 2. the pleadings do not assert that SAAB entered into the Global Policy as the agent of Lambert. QBE responded asserting that Lambert was not a party to the Global Policy. The reply filed did not contest that 3. QBE accept that Dr van der Sluijs' evidence was that Swedish law permits a contract of insurance to be entered into by an agent on behalf of a principal. That is part of Australian law too. That, however, does not advance matters for Lambert 4. no witness was called from SAAB or Lambert to provide evidence of the agency implicitly asserted by Lambert. The Court can infer that the evidence of those witnesses, it is submitted by QBE, would not have assisted Lambert: Jones v Dunkel [1959] ALR 367; (1959) 101 CLR 298 5. relies on [1628] of ABN AMRO referred to above. QBE submit that the issue was determined in that matter not as a matter of construction but on the basis of whether agency had been established: "[1628] AHAC submits that LGFS was a "party" to the insurance contract because FuturePlus acted as its agent. We do not agree. The evidence does not support a conclusion that FuturePlus was acting in the negotiation for, and entry into, the insurance contract as agent for LGFS or any of its other subsidiaries. Rather, it acted as principal and was the contracting party. By definition, under the insurance contract, LGFS was one of the "Insured". It thus was a beneficiary under the insurance contract but contractually so, not as a party by operation of the law of agency. Additionally, although not a party, it had, as we will explain, a right to recovery under the insurance contract, pursuant to s 48 of the ICA." and draws attention to what the Court said at [1638] "[1638] It matters not that LGFS was, by definition, under the insurance contract, one of the "insured". We are concerned with the meaning of "insured" on the proper construction of the ICA, not the insurance contract." 1. in each of Nicholas, Green and Grey relied on by Lambert there was evidence on which the Court based its decision 2. in Barroora Brownie J had to consider whether the financier was party to the contract. Brownie J noted that the plaintiff accepted that the answer involved construction of the contract and held that the only party to the contract was defined to be the person so named in the certificate of insurance which did not include the financier: p 174D. In Protean the policy was construed as containing the promise that in return for payment of the premium the parties to the contract included the financiers 3. the High Court in Zurich ruled out any extended meaning of "entered into" in [26] of the first judgment set out above
43. The conclusion of the Full Federal Court in ABN AMRO makes it clear that the question of whether a person is a party to the contract is not determined solely by the definitions in the contract itself.
44. I do not think it is necessary to resolve the pleading point relied on by QBE because as QBE submitted, Lambert called no evidence to establish that SAAB was acting as Lambert's agent in entering into the Global Policy. Of course there is no dispute that as the parent company SAAB was appropriately ensuring that all of its subsidiaries had the benefit of the policy but to say that it should be found that Lambert was a party to the Global contract is a quite different matter. Swedish law recognises the difference between the policy holder- the person who enters into the contract of insurance, the insured and additional insurers (see pp 3-4 of Dr van der Sluijs' opinion Exh B2). Mr Lake's evidence (para 3) of his affidavit contradicts Lambert's contention that it was the contracting party, as does the slip and notice to the policy holder at Exh B5 tab 116 page 846 and 847.
45. In Grey the Court of Appeal unanimously held that the directors of Compass were the contracting party and not Compass. That conclusion was reached because the insured was described in the policy as "Compass Holdings Limited The Directors & Officers of", the declaration was one by the directors and contemplated that the policy to be effected was not one on behalf of Compass. Promises and warranties were given by the directors and officers of the company and not Compass. The terms of the certificate of insurance and the attached term on their ordinary construction suggested that the contractual arrangements made by the insurer's agent were made directly with the relevant directors and officers. The Court of Appeal, unlike the trial Judge, regarded the width of the class of persons who would be parties as insufficient to counter the clear intention of the policy that the insured persons were the directors and not the company- and they were the persons who, it was inferred had paid the premium for the Directors and Officers Policy.
46. The factors that led the Court in Grey to the conclusion that the directors were parties included the terms of the policy but included other matters as well.
47. In my view the fact that a subsidiary falls within the definition of the insured in a policy schedule is not determinative as to whether that subsidiary is a party to the contract. There is no clause in the Global Policy of the type seen in Protean or Grey and no indications which make it clear that Lambert was a contracting insured as opposed to an entity to whom the policy cover was intended to extend. No correspondence between SAAB or its brokers on the one hand, with Global on the other, or between Lambert and SAAB, was sought to be put in evidence.
48. In Protean there was no dispute that the policy wording was determinative. Green and Grey both point to the importance of extrinsic evidence to support the conclusion that a named insured is the contracting party.
49. Tyco Fire & Integrated Solutions (UK) Ltd v Rolls-Royce Motor Cars Ltd [2008] All ER (D) 16 (Apr) was cited in LCS 176 as a case in which it was held that an insured identified by reference to a class will be the insured who is a party to the contract with the insurer. The Court in Tyco Fire held that Tyco was not caught within the definition of "others including, but not limited to, contractors" see [66]- [67] but in any event the case appears to be dealing with a quite different point.
50. Lambert has not established that SAAB entered into the Global Policy as its agent. I am not persuaded that Lambert entered into the Global Policy. It follows that even on Lambert's contentions as to the operation of s 45 the section did not avoid the QBE 'other insurance' clause.

The dual insurance issue (Issue 2)

1. Whilst Mr Williams strongly resisted the conclusion that Global and QBE were dual insurers of Lambert, he did not dispute QBE's contentions on dual insurance if Lambert's assertions concerning s 45 were rejected. He did contend, however, that if there was dual insurance it was open to Lambert to choose from which insurer it would seek indemnity, an issue to which I shall return.
2. Once it is accepted that QBE's 'other insurance' clause is not avoided by operation of s 45 then both the QBE Policy and the Global Policy respond to the claims of the Relatives subject to any relevant exclusions or conditions precedent, and the situation is one of dual insurance. As I have noted there is no difference between Swedish law and Australian law on this point.
3. Another matter raised by QBE in connection with the obligation of Global to defend Lambert is that the question of whether Global must defend is not solely resolved by the answer to the question of whether s 45 of the ICA avoids the operation of the QBE 'other insurance' clause. This, says QBE, is because there are respects in which the QBE Policy clearly does not respond and hence that there is no underlying insurance to which the Global Policy is an excess policy. If that is so, QBE contends, then Global is required to indemnify Lambert and conduct its defence in any event.
4. I deal below with those other matters, being issues 7(a), (b), (c) and (d).
5. Further, QBE relies on the fact that Global has at all times prior to entering into the Deed agreed to indemnify Lambert and that it now has agreed, by the Deed, that it will not withdraw indemnity.

The Deed and its effect (Issue 3)

1. The Deed can be found at tab G Exh B1. It has assumed considerable importance in the case. Lambert initially resisted production of it but was ordered by the Court (in earlier interlocutory proceedings) to produce the document. Lambert now relies on the Deed to assert that all monies paid out by Global in the past amount to loans to Lambert which Lambert is obliged to repay to Global when Lambert recovers those monies from QBE. QBE relies on the Deed to establish that Lambert and Global are working together to bring, in effect, a subrogated claim in the name of Lambert when what is really sought to be recovered is contribution in favour of Global. QBE also relies on this conduct to support its claim that Lambert is in breach of its duty of utmost good faith. Lambert's riposte is that QBE's wrongful refusal to indemnify has forced Lambert and Global to take the course it has. QBE further relies on the Deed to establish that even if Global could, contrary to QBE's contention, have denied liability to indemnify Lambert it cannot do so now by reason of the Deed. In QCS 161 QBE sets out the following passage, referring to an insured who has the benefit of policies with two insurers and who has been indemnified by the first insurer, from Derrington and Ashton 'The Law of Liability Insurance' (3rd ed, 2013) 13-186 at pages 3084- 3085: "He no longer has a loss requiring indemnity and so there is no remaining cause of action against the other insurer or contracting indemnitor at the same level that is necessary to the concept of indemnification…..Because the insured no longer has any indemnity due from the non-paying insurer, the paying insurer cannot recover from it in his name through a subrogated action, for there is no right for which it may be subrogated."
2. The Deed in its recitals attempts to record a history of how Global came to take over conduct of the US litigation on behalf of Lambert, and to record Lambert's insurance under the QBE Policy and how that policy came to be effected naming Lambert. Recitals J to M are in the following terms ('LLI being a reference to Lambert and SALI to SAL) "J. As soon as it was appreciated by counsel for LLI and SALI that the above terms of the Aircraft Purchase Agreement had been overlooked and that QBE Aviation Ltd, hereinafter referred to as "QBE", had by a policy of insurance numbered 02 Q01 0007782, hereinafter referred to as the "QBE Policy", provided primary coverage stipulated in the Aircraft Purchase Agreement, LLI wrote to QBE by letter dated 15 July 2008 requiring QBE to indemnify it and take over the conduct of its defence. K. By virtue of the provisions contained in the QBE Policy and in the Excess Policy the QBE Policy operates as the primary insurance policy obliged to indemnify and defend LLI. L. QBE did not respond to the said letter dated 15 July 2008 and has subsequently continued to refuse to provide policy indemnity and defence to LLI. M. LLI and SALI are entitled to insurance protection and since QBE has neither agreed to provide policy indemnity nor to fund the defence the Excess Insurers have continued to fund LLI's defence pursuant to their obligation of utmost good faith and under the terms set out in this Deed."
3. By the Deed Lambert and Global agree that the cover under the Global Policy is excess cover with primary cover being that given by QBE, and that "any and all payments that have been made to them or on their behalf up to the date hereof by Excess Insurers in the form of funding defence costs and expenses have been made on a loan basis"
4. By clause 1(e) it is agreed that Global has not waived its entitlement to rely on the excess provisions of the Global Policy "which remain in full force and effect".
5. By clause 2 Global and Lambert agree that all payments for costs to be made in the future after the date of the Deed are "to be made on a loan basis", that all payments made by Global to satisfy any judgment similarly are to be paid on a loan basis.
6. Clause 3 is in the following terms: "3. In consideration of the matters agreed in Clauses 1 and 2 hereof Excess Insurers agree to: (a) continue to fund the defence costs and expenses incurred by LLI; (b) fund LLI in respect of any legal liability it may have arising out of the above recited circumstances to pay compensatory damages awarded against it in favour of the Plaintiffs by a court of competent jurisdiction; (c) fund LLI in respect of any settlement to which Excess Insurers have given their consent in writing both as to settlement taking place and the terms of settlement."
7. By clause 4 Lambert agrees to issue proceedings against QBE in its own name for recovery of all costs and expenses incurred and to be incurred "and make such other claims or take such other steps whatsoever in those proceedings as Excess Insurers may in their absolute discretion direct" and issue proceeding against the Partnership if Global so directs and "to comply with all directions" of Global, not to take or direct any step in the proceedings without full knowledge and consent of Global, to accept unconditionally the appointment of Global of solicitors and counsel in the proceedings, fully cooperate, with Global to fully indemnify Lambert in respect of costs and expenses, including any award against Lambert.
8. Clause 6 (wrongly typed 5) is in the following terms "5. The Parties agree that the following terms shall apply to loans paid to or on behalf of LLI and/or SALI provided for in Clauses 1 and 2 hereof: (a) loans shall only be made in respect of the period up to the date on which QBE or other parties agree, or are ordered by a court of competent jurisdiction, to indemnify LLI and SALI for their respective rights and interests; (b) the total of all loans granted to LLI and SALI by Excess Insurers shall be accounted for and repaid to Excess Insurers out of the total monies (including any interest awarded or agreed thereon) recovered from QBE and/or other parties by way of final judgment of a court of competent jurisdiction or by way of any settlement that Excess Insurers in their absolute discretion agree in writing that LLI and SALI may enter into; (c) the said monies shall be applied by Excess Insurers towards the extinguishment or reduction of the debt consisting of the aggregate of loans granted to LLI and SALI pursuant to Clauses 1 and 2 hereof; (d) to the extent that the said monies are insufficient to extinguish the said debt Excess Insurers will forego and write off the unpaid balance of the debt."
9. Clause 7 (wrongly typed 6) is in the following terms "6. The Parties acknowledge, recognise and agree that all monies recovered by Excess Insurers from QBE and/or other parties are and shall be deemed to be applied to and extinguish any liability which the Excess Insurers have to indemnify LLI and/or SALI under the Excess Policy."
10. The Deed is a strange hybrid. It has many indicia of a subrogation agreement but diverges from such because Lambert acknowledges that whatever has been paid, and will be paid, by Global is a loan. The loan, however, is a curious one because it will only have to be repaid if Lambert recovers from QBE or the Partnership. There is also an inconsistency between clause 1(e) and clause 3 since on the one hand Global says it has not given up its right to rely on the excess provisions but in clause 3 it says that it will indemnify Lambert without qualification. The overall tenor of the agreement is that Global will indemnify Lambert if QBE does not but will require Lambert to repay it should Lambert recover any money from QBE (see also [106] below).
11. The genesis of the Deed can be discerned in the material before the Court. It arose as an idea of Mr Awford's in 2009 (see p 1422 Exhibit D) but it took some time to be brought to fruition.
12. It is clear that the Deed is predicated upon an important assumption, namely that the Global Policy is an excess policy and the QBE Policy a primary policy. I think inherent in that is the underlying assumption that QBE's 'other insurance' clause is struck down by s 45(1) of the ICA. That has been Lambert's position for quite some time, and remains its position in these proceedings.
13. Lambert contends that since (on its case) Global was an excess insurer and paid the amounts it did pay on the basis of a mistake (ie being unaware of the QBE Policy) the Deed represents a reasonable solution to the problem caused by QBE's refusal to grant indemnity. In LCS 244 Lambert describes the Deed as effecting "a contractual election by [Global] to treat the right to recover from [Lambert] in a practical way. The Deed represents a commercial decision by [Global] to recover from [Lambert] only to the extent that they are able to recover under the primary policy."
14. Lambert also contends that it is not open to QBE to attack the Deed as improper because this was not the subject of cross examination of Mr Lake: see Browne v Dunn (1893) 6 R 67 (and see Allied Pastoral Holdings Pty Ltd v Federal Commissioner of Taxation [1983] 1 NSWLR 1).
15. To this last point QBE responded by pointing out that Mr Lake is employed by Global and not its insured Lambert. Lambert called no witnesses to whom that proposition could be put. I accept QBE's submission- Global owes no duty to QBE and it was, from its own point of view, entitled to enter the Deed. Mr Sullivan was not required to cross examine Mr Lake as to the propriety of the Deed so far as Lambert was concerned and Lambert, clearly on notice of QBE's attack on it, chose to call no witnesses to whom the propositions of inappropriate conduct could be put.
16. QBE makes the following further points about the Deed: 1. the Deed has not been executed by five of the named insureds 2. the Deed was not signed by seal by any of the parties and there is no power of attorney in evidence 3. the document has not been executed by any of the parties as a Deed (s 51A of the Conveyancing Act 1919 (NSW)) 4. the Deed has no operation with respect to any of the insurers because on its terms it is not capable of sensible application with respect to some of them only 5. although the Deed did contain a provision by which each of the insurers appointed an authorised signatory to execute and bind it to the terms of the Deed but that was not executed by the missing signatories so it cannot bind them 6. it contains false statements: 1. because it describes the Global Policy as an excess policy 2. it asserts that Global was unaware that there was a primary policy before July 2008 (recital D) 3. it is agreed that Global has been funding defence costs incurred by Lambert under Global's obligation of utmost good faith when in fact Global's policy required it to do so 4. that clause 2 says that the payments made in the past have been made on a loan basis when this is in fact not true 1. there was no consideration for the Deed because Global was only doing what it was required to do 2. the 'loan' description is misleading because the amounts paid are only repayable if Lambert recovers from QBE 3. by reason of the absence of consideration the document could only be enforced as a Deed which it cannot be because of the defects earlier mentioned 4. the Deed is therefore ineffective 5. the Deed, if effective, provides for Global to claim under the QBE Policy in the names of the plaintiffs as if on subrogation. Global and Lambert have attempted to cover that fact up as a 'loan' but the parties to a transaction cannot deem the relationship between them to be something it is not: Hollis v Vabu Pty Ltd [2001] HCA 44; (2001) 207 CLR 21 at 45 [58] 6. that by reason of the Deed Global has given up any right it might otherwise have had to refuse to indemnify Lambert (whether because of the existence of the QBE Policy or for any other reason). The Deed's terms replace any policy conditions 7. since Global has agreed to indemnify Lambert for liability in respect of all claims made in the US proceedings and the costs of defending those proceedings Lambert now has a complete indemnity from Global which cannot be withdrawn- its only obligation is to repay a loan and that is not a liability for which it is indemnified under the QBE Policy 8. there is no evidence that any loans were made prior to the date of the Deed- they were incurred by reason of a contractual obligation imposed on Global 9. if Lambert is liable under the Deed to repay loans- that liability is not the incurring of legal costs to which the QBE Policy responds and the obligation to pay under the Deed is not a loss covered by the QBE Policy
17. To the extent that the Deed is attacked because it has not been signed by all parties to it I do not think that that basis is open to QBE on its Commercial List Response. Not only was no notice given of that defect but QBE has actually asserted that the Deed was signed.
18. I am not persuaded that there was no consideration for the promise made. If Global was asserting that the Global Policy was an excess policy and Lambert accepted that assertion or that it was at least arguable, it was in Lambert's interest to have Global continue to fund the defence costs (and better still pay any judgments) rather than have Global refuse to indemnify Lambert and cease conducting Lambert's defence particularly if there was no certainty that QBE would take over. If, as QBE contends in 109, Global has actually forsaken any right which it might arguably have had to revoke indemnity, which notwithstanding clause 1(e) I think it has, that in itself constituted consideration.
19. I regard the Deed however, as providing very significant support for QBE's contention in 109 that the Deed seeks to turn what in reality is, or ought to be, a claim for contribution by Global, into a claim for subrogation brought in the name of Lambert and I accept QBE's contentions set out in [109] (12)- (15).
20. LCS 247 asserts that by the Deed Global accepts it is liable to indemnify Lambert if QBE is not liable so to do. The Deed contains Global's agreement to continue to fund defence costs and expenses and to fund Lambert in respect of any liability to the Relatives, but it requires Lambert to repay monies obtained from QBE. Para 7K of Lamberts contentions in the Third Further Amended Commercial List Statement asserts that Lambert is liable to repay Global the amounts paid by Global but Lambert is not required to do so unless it recovers the monies from QBE and if it is required to do so it is because of the Deed not because of the policy. That liability to Global arises under the Deed not by reason of any liability imposed on Lambert to the Relatives.
21. Notwithstanding clause 1(e) of the Deed Global agrees to indemnify Lambert in all circumstances irrespective of what rights Global may have had to refuse indemnity under its policy. It also confers on Global the entitlement to bring the proceedings against QBE in the name of Lambert to recover what Global has paid on behalf of Lambert and what it has agreed to pay in the future. That 'entitlement' is based on a misconception similar to that held by the second insurer in Sydney Turf Club v Crowley [1971] NSWLR 724 see pp 730- 731 and p 734D- F.

US costs contribution/ subrogation (Issue 4)

1. I shall set out again the Legal Costs provision in the QBE Policy. "3. Conditions applicable to this Section ….. Legal Costs (b) In addition, the Company will defray any legal costs and expenses incurred with their written consent in defending any action which may be brought against the Insured in respect of any claim for compensatory damages covered by this Section, but should the liability of the Insured or the amount paid or awarded in settlement of such claim exceed the Limit of Indemnity then the liability of the Company in result of such legal costs and expenses shall be limited to such proportion of the said legal costs and expenses as the Limit of Indemnity bears to the amount paid to dispose of the claim. See also Section 4." I make the following observations: 1. the promise is to 'defray' legal costs incurred with QBE's written consent. What was actually sought was that QBE take over Lambert's defence of the Missouri proceedings 2. the clause does not require Lambert to be adjudged liable to the claimant as a precondition for QBE to be required to defray the costs but the promise is to pay costs defending any action against Lambert "in respect of any claim for compensatory damages covered by this Section" so that the claim for which defence costs are to be defrayed must be a claim falling within the policy 3. the clause does not require QBE to take over conduct of the defence of Lambert. In clause 1(a) QBE is given the right (if it so elects) to take absolute control of all negotiations and proceedings and to settle, defend or pursue any claim. It follows that QBE is not required to defend, or arrange the defence of, Lambert and the QBE clause stands in contrast to the Global clause
2. There was considerable attention given to the question of whether Lambert had incurred any costs at all in the US to date- QBE claimed that it should be inferred that Global, having taken over the defence of Lambert, was undertaking to pay all of the costs which would be incurred and that Lambert had no liability to Locke Lord.
3. I have set out clause 3 of the Global Policy at 15(b). This requires Global to defend in the name of Lambert any proceedings even if groundless, false or fraudulent unless the Global Policy only applies "in excess of underlying insurances". The Global Policy Endorsement Number 1 names the firms who are to be engaged by the insurers in the event of claims: see Exh B5 p 989.
4. QBE contends that the effect of the Global Policy is to make Global, and not Lambert, liable to pay all fees connected with Lambert's defence. QBE contends that therefore Lambert has not 'incurred' those fees. QBE's second submission is that even if Lambert did, contrary to QBE's primary contention, incur fees in connection with the Illinois and Missouri proceedings they have all been paid by Global in any event so that there is no right to indemnify retained by Lambert.
5. One of the difficulties with QBE's first contention is that if correct it may mean that it would be open to an unsuccessful plaintiff in the US proceedings against whom a costs order is made to assert that Lambert has had to pay no costs and therefore cannot recover those costs from him or her. That it is a difficulty that does not, however, necessarily lead to the conclusion that QBE's contention is wrong particularly if on proper analysis an unsuccessful plaintiff would not be able to assert that Lambert could not obtain a costs order against him or her, where the costs had been paid by Global.
6. A number of cases were cited by the parties: Halliday v High Performance Personnel Pty Ltd (1993) 113 ALR 637, Shaw v Yarranova Pty Ltd [2011] VSCA 55 per Redlich and Mandie JJA, Coshott v Woollahra Municipal Council [2008] NSWCA 176 per Handley JA at [11]- [12] with whom Tobias and McColl JJA agreed, Harold v Smith (1860) 157 ER 1229 at 1231, Adams v London Improved Motor Coach Builders Ltd [1921] 1 KB 495, General of Berne Insurance Co v Jardine Reinsurance Management Ltd [1998] 2 All ER 301 at 308, 312 and 314, Castellain v Preston (1883) 11 QBD 380 at 386, British Traders' Insurance Co Ltd v Monson (1964) 111 CLR 86, Davies v Taylor (No 2) [1974] AC 225, Ghadami & Anor v Lyon Cole Insurance Group Ltd [2010] EWCA Civ 767 and numerous other cases in which Adams has been applied. QBE also referred to Knight v Hosken (1943) 75 Ll. L. Rep. 74.
7. The question of whether an insured whose costs are paid by an insurer can recover costs against an unsuccessful plaintiff is close to, but not identical with, the question of whether an insured did in fact incur costs by reason of the undertaking of its defence by its insurer. There is no evidence that Lambert was liable to Locke Lord for the costs incurred in its defence and there is insufficient material on which to conclude (were it necessary) that Lambert would be required to pay those fees if Global did not. If there is dual insurance I think QBE would have considerable difficulty in resisting a claim for contribution by Global because Global incurred the costs of defending Lambert (see for example Coshott per Handley JA, which is not an insurance case and Derrington at [13.334]) and see Cornish v Lynch (1910) 3 BWCC 343 cited in Sutton p 900 fn 290, but that is not a matter which I am required to decide in these proceedings for reasons which I explain below.
8. Lambert also pointed out that the words used are "legal costs and expenses incurred" and not "legal costs and expenses incurred by the insured" so that, Lambert contends, it is not necessary for it to establish that the legal fees were "incurred" by it.
9. QBE responded to the last contention by asserting that the QBE costs clause is to be read as requiring the words incurred to be read as "incurred by the insured". This, it was submitted, was because: 1. the policy is a policy of indemnity 2. the words "but should the liability of the Insured or the amount paid or awarded in settlement of such claim exceed the Limit of Indemnity then the liability of the Company in result of such legal costs and expenses shall be limited to such proportion of the said legal costs and expenses as the Limit of Indemnity bears to the amount paid to dispose of the claim" make it clear that the 'insured' was intended in the first part of clause 3 1. if the construction for which Lambert contends were accepted it would require QBE to indemnify Lambert for amounts Lambert has not incurred 2. the commercial reasons put forward by Lambert (LCS 190- 191) in support of Lambert's contentions are not reasons to reject QBE's construction
10. In relation to the points raised in [123] I accept QBE's contentions. The word 'incurred' cannot mean incurred by anyone and in my view it is obvious as a matter of construction that the costs which QBE was agreeing to pay were costs incurred by the insured not by someone else. I do not think that the fact that the insured may not actually incur costs is a commercial reason why the insurer should be required to pay to the insured the amounts paid by a third party. If the third party is an insurer it will have a right of contribution for a proportionate share of those costs, but if the third party is not an insurer and no arrangements are made requiring the insured to repay monies it is not obvious why the insurer ought pay those monies to the insured.
11. QBE also contended that the question of whether it was liable to pay costs incurred by Lambert (if in fact incurred) also depended on whether the claims were within cover- ie that the costs obligation was not a stand-alone obligation. I accept that the costs were only to be defrayed if the claim is within cover but I do not accept that QBE is not required to defray costs if the claims are within cover but liability to the Relatives has not yet been determined.
12. The conclusion that both the Global Policy and QBE Policy respond to the claims made against Lambert at least to some degree (the QBE cover being less comprehensive then the Global cover) has a further dramatic effect on these proceedings. First the conclusion undermines an inherent assumption made by the parties to the Deed. Secondly and as a consequence it leads to the result that: 1. Global was and is required to indemnify Lambert in respect of the US claims and defence costs 2. in accordance with that obligation Lambert has been indemnified by Global to date in respect of US defence costs 3. Lambert cannot recover from QBE any amount for which it has already been indemnified 4. Global cannot in effect bring a subrogated claim in Lambert's name because Lambert having been indemnified has no claim against QBE for those costs 5. Global would be entitled only to bring a claim in contribution for a proportionate share of the amounts paid out
13. Propositions [126] (c), (d) and (e) follow from the decision of the New South Wales Court of Appeal in Sydney Turf Club v Crowley [1971] 1 NSWLR 724 , affirmed by the High Court in Sydney Turf Club v Crowley (1972) 126 CLR 420 see particularly p 730F- 7318 per Jacobs JA and see p 734D- F per Mason AJ. Lambert took no issue with the principle but relies on its contention that the Global Policy was an excess policy (LCS 223- 231).
14. It follows that it is not necessary to resolve the question of whether Lambert has in fact incurred costs in the US proceedings (or would be liable to Locke Lord if Global had not paid those costs) because even if it has incurred costs and even if the claims to which those costs relate fall within cover Lambert has been indemnified. As Lambert's submissions themselves point out (LCS 208) the indemnity principle applicable to contracts of insurance also applies to costs: see also 'Subrogation in Insurance Law' by S.R Derham (1985, Law Book Co) pp 139- 140 and the cases cited in fn 31 including Assicurazioni Generali de Trieste v Empress Assurance Corp Ltd [1907] 2 KB 814. See also Parsons v John Holland-Christiani & Nielson Joint Venture [1991] 1 Qd R 137 and H Cousins & Co Ltd v D & C Carriers Ltd [1971] 2 QB 230, 242 (on the related question of interest), and see Castellain at p 388 in relation the general principle. It follows that if Lambert did incur costs (contrary to QBE's principal argument) Lambert has been indemnified and cannot recover those costs from QBE.

Written consent

1. There is no doubt that until July 2008 Lambert had not sought QBE's consent to the incurral of costs. Thereafter Lambert asked QBE to take over Lambert's defence which I hold QBE was not required to, and did not, do. I think it is implicit that QBE's refusal to take over the defence carried with it a refusal to defray costs as well and I did not understand QBE to assert that it was not liable to defray costs solely because its consent was not forthcoming. If QBE had no proper basis for refusing consent it is difficult to accept that its lack of consent could be relied on by QBE as a basis for not being required to defray costs that were incurred from the date that the request was made, however in view of my conclusions in relation to past costs and the Deed I do not think it necessary to express a firm view on these matters or the applicability of s 14 of the ICA and/or Antico v Heath Fielding Australia Pty Ltd (1997) 188 CLR 652.

The pay to be paid issue (Issue 5)

1. The QBE Policy section 3.1 provides that QBE will indemnify Lambert "in respect of all sums which the Insured shall become legally liable to pay, and shall pay, as compensatory damages (including costs awarded against the Insured)" (emphasis added)
2. QBE contends that there are two preconditions required to be met before QBE is required by the policy to indemnify it: 1. that Lambert has been found liable to a claimant (or at least has settled the proceedings because of its liability) 2. that Lambert has paid the amount so determined or agreed to the claimant
3. Although interesting questions arise as to whether an insurer is liable where the insured has settled proceedings and there has been no determination of liability by a Court (see Edwards v Insurance Office of Australia Ltd (1933) 34 SR (NSW) 88) that is not the present focus of concern since no settlement has been reached with any of the claimants in the US. Nor of course has Lambert been adjudged liable for any amount. The dispute is whether QBE does not have to indemnify Lambert until Lambert has paid whatever amount (if any) it is adjudged to pay. Both Lambert and QBE seek an answer on the effect of the words "and shall pay" as a precondition. QBE relies on the decision of the House of Lords in Firma C-Trade SA v Newcastle Protection & Indemnity Association (The Fanti) [1991] 2 AC 1 ("Firma C"). QBE points to the fact that the wording adopted in the QBE Policy is commonly found in Aviation Insurance Contracts: see Margo on Aviation Insurance (4th ed, 2014) and that Mr Lake, Global's underwriter accepted the policy found in Margo is a standard one. Firma C was approved by the Full Court of Queensland in Re Dixon [1994] 1 Qd R 7. Lambert relies on Charter Reinsurance Co Ltd v Fagan [1997] AC 313 ("Charter Re"). Lambert says that the claim should not be construed as QBE contends. Lambert also submits that, if, contrary to its contention the clause does operate to require Lambert to pay the money to the claimant before QBE is required to indemnify, QBE is prevented by reason of the duty of utmost good faith from relying on it.
4. Attention was drawn to the fact that the UK has recently legislated to preclude the use of 'pay to be paid' clauses. No such prohibition exists in Australia.
5. In Firma C, the House of Lords considered whether a clause by which the club would "Protect and indemnify members in respect of losses which they as owners of the entered vessel shall have become liable to pay and shall have in fact paid" was effective to bar a claim by cargo owners on the club whose member had been placed in liquidation. The House of Lords held that payment to a third party was a precondition of indemnity and that the equitable principle that an agreement to indemnify permitted the party to whom the indemnity was given to require the indemnifier to pay the amount to the claimant without the indemnified person having to pay it out first did not oust an express clause of the policy: see Johnston v Salvage Association (1887) 19 QBD 458 in contrast to the common law rule Collinge v Heywood (1839) 112 ER 1352 per Coleridge J and see CGU Insurance Ltd v Watson [2007] NSWCA 301 at [64]- [66].
6. In Charter Re, reinsurance contracts provided that the reinsurer would be liable for the losses of the insurers in excess of ultimate net loss of a specified amount. The term "ultimate net loss" was defined as meaning "the sum actually paid by the reinsured in settlement of losses or liability after making deductions for all recoveries, all salvages" [and the like]. The House of Lords held that it was not necessary for the insurers (ie the insureds under the reinsurance policies) to first have made payment of the relevant claim by way of transfer of funds to its insured. The insurer was insolvent and had not made such payments. The principal judgment is that of Lord Mustill (with whom Lords Goff, Griffiths, Browne-Wilkinson agreed). He explained that initially he had thought the words '"actually paid" were clear and that they imposed a condition precedent to liability of the reinsurer however at p 384- 386 his Lordship explained why as a matter of contractual interpretation the words in question, adopting the approach of Mance J at first instance "did not have the purpose of introducing a temporal precondition to recovery in the form of disbursement or other satisfaction of the precise net commitment between Charter and its reinsured, but were there "for the purpose of measurement."" His Lordship in approaching the question said that the words of the policy "must be set in the landscape of the instrument as a whole." Lord Mustill then said: "Whilst I have come to this conclusion simply from a study of the document I ought to comment on a number of other matters which are said to bear upon it. In the first place, there is an argument ad absurdum to the effect that the parties cannot have intended Charter to retain such liquidity as would enable it to answer claims under the incoming policies without recourse to the reinsurance. At a time when the use of money was a vital element in the profitability of insurance business it is impossible to suppose (the argument runs) that Charter should have agreed to finance its own outlays, the more so since, if the syndicates' interpretation of clause 2 is right, Charter would have to find, not only the funds required to disburse the sum due under this particular layer, but also the total of the underlying reinsurances. This would be a wholly impracticable arrangement, and would bear especially hard on Charter if it fell into financial trouble and lacked the means to make the payments necessary to unlock the reimbursements due under its contracts with the syndicates. This argument draws strength from the shape of the policy. As I have already suggested, under this form of words, although perhaps not under all forms, the policy covers not, as might be thought, the suffering of loss by the reinsured in the shape of a claim against him under the inward policies, but the occurrence of a casualty suffered by the subject-matter insured through the operation of an insured peril. The inward policies and the reinsurance are wholly distinct. It follows that in principle the liability of the reinsurer is wholly unaffected by whether the reinsured has satisfied the claim under the inward insurance: see, amongst several authorities, In re Eddystone Marine Insurance Co.; Ex parte Western Insurance Co. [1892] Ch. 423. This result can undoubtedly be changed by express provision, but clear words would be required; and it would to my mind be strange if a term changing so fundamentally the financial structure of the relationship were to be buried in a provision such as clause 2, concerned essentially with the measure of indemnity, rather than being given a prominent position on its own."
7. Firma C was a case involving a protection and indemnity club where members were both insurers and insureds and the notion that there was some purpose in members being sufficiently solvent to meet liabilities was discussed at p 36 D-G per Lord Goff and p 42 C-E per Lord Jauncey: see Sutton at para 15680 fn 487 in which the learned authors treat such clauses as operating in the field of protection and indemnity liability covers.
8. Lambert also contended in the alternative that QBE should be precluded from relying on the clause, by reason of an asserted breach of the duty of utmost good faith. Mr Williams pointed to Mr Beach-Nash's evidence that QBE has never required any insured to pay out a judgment or settlement amount as a precondition of indemnity notwithstanding QBE's frequent use of the clause: see T193- 194. Mr Sullivan submitted that the duty cannot extend to precluding an insurer from relying on a contractual term of the policy: see per Macdougall J in Prepaid Services Pty Ltd v Atradius [2012] NSWSC 608 at [88]- [91]. Lambert's response is that s 14 of the ICA specifically extends the duty to prevent reliance on such a provision of a contract in appropriate circumstances.
9. Lambert contends that the broad approach taken in Charter Re both in the House of Lords and by Mance J at first instance in which many cases relating to the construction of contracts and insurance contracts in particular should be applied here and see the further cases relied on by Lambert: Eddystone Marine Insurance Co, In re; Ex parte Western Insurance Co [1892] 2 Ch 423 per Stirling J, Horsell International Pty Ltd v Divetwo Pty Ltd [2013] NSWCA 368 [151]- [153], F G Strang Pty Ltd v N Z I Insurance Australia Ltd [1990] VR 1016 at 101, Pioneer Concrete (UK) Ltd v National Employers Mutual General Insurance Association [1985] 1 Lloyd's Rep 274, p 278, Raiffeisen Zentralbank Oesterreich AG v Five Star Trading LLC [2001] 3 All ER 257, Teal Assurance Company Ltd v W R Berkley Insurance (Europe) Ltd [2013] UKSC 57 and Calliden Insurance Ltd v Chisholm [2009] NSWCA 398 [27]- [28] per Allsop P and cases on construction of contracts generally such as Technomin Australia Pty Ltd v Xstrata Nickel Australasia Operations Pty Ltd [2014] WASCA 164, Penn v Simmons [1971] 1 WLR 1381, Tovir Investments Pty Ltd v Waverley Council [2014] NSWCA 379, Maintek Services Pty Ltd v Stein Heurtey SA [2014] NSWCA 184 and Duffy v Da Rin [2014] NSWCA 270. It submits that the QBE clause does not say "shall have been paid" but uses the different phrase "shall pay", and that the approach taken in Firma C should be confined to P & I club policies. QBE contends that the words mean what they say and that when words in a policy are clear they should be given that meaning citing Baulderstone Hornibrook Engineering Pty Ltd v Gordian Runoff Ltd [2008] NSWCA 243.
10. Both Lambert and QBE seek a determination on this issue but whilst I was prepared to express my conclusion on this difficult issue I have, in considering the matter, become aware of a decision of the Court of Appeal of the Canadian Federal Court: see Conohan v The Cooperators (2002) Fed Ct App 60; 2002 Fed Ct App LEXIS 45 cited in Derrington at 9.112 fn 746, in which the precise words of the QBE clause were used and in which the Court held that the insured was required to pay out the claim as a precondition of cover. Neither side referred to this decision and given that it is a case in which both Charter Re and Firma C were considered it is appropriate to draw the case to the attention of counsel and invite further submissions on this topic, before expressing a concluded view on the competing contentions. Regard should also be paid to Derrington p 852- 854 and Versicherungs und Transport A/G Daugava v Henderson (1934) 49 Ll L Rep 252 at p 254; [1934] All ER Rep 626 there cited. The utility of that course however is drawn into question having regard to the fact that Lambert will never be called on to pay any amount to the claimant because of the Deed and Global's obligation to indemnify Lambert. I will allow the parties an opportunity to consider their position in the light of my other conclusions.

The Global mistake issue (issue 6)

1. QBE attacks Lamberts' claim that Global paid costs of the US proceedings on the basis of a mistake. This attack has these elements: 1. Lambert alleges Global held the mistaken belief that no policy other than its policy existed and hence that its policy operated as a primary policy, and hence that Global was liable to Lambert. Those mistaken beliefs it is said were held until about May 2008 but all of the payments made by Global were paid with Mr Lake holding the beliefs deposed to in 15 and 16 of his affidavit- ie he knew the QBE Policy existed and believed he had no basis on which to refuse to defend Lambert in the US litigation and no basis upon which to withdraw indemnity under Global Policy, and that remained so even after he had seen the QBE Policy terms 2. there is no evidence from anyone at Global other than Mr Lake and no evidence from any other insurer 3. in any event Global was not mistaken in believing that the Global Policy responded to the US claims because either Lambert was entitled to claim under both policies or only under the Global Policy 4. the question of restitution as between Global and Lambert is not a matter for Swedish law- the monies were paid from London to Chicago in respect of liabilities incurred in Illinois and NSW 5. it is established that once Mr Lake learnt of what he describes as the mistake Global did not withdraw indemnity
2. QBE also pointed out that Lambert was sent the QBE Certificate of Insurance in June 2003 (tab 70 and 71 Exh B4) that the Purchase Agreement was sent by Lambert to Locke Lord when Locke Lord took on the defence as well as an initial QBE certificate. The subsequent certificates were sent by Lambert to Locke Lord in July 2008: see tab 186 CB6. Global was fully aware of the QBE Policy by July 2008 and aware of all of its terms by March or May 2009 (see Exh D tab 3, tab 23 and Exh B7 p 1343).
3. Since I have concluded that the Global Policy was not an excess policy what is claimed to have been the mistake has not been demonstrated to be such and Global's payment of costs or continuation of indemnity cannot be said, for that reason alone, to have been made on the basis of a mistake.

Extent of cover- Pilots' Relatives (Issue 7 (a))

1. There are claims by the Pilots' Relatives- QBE asserts that those claims do not fall within the policy. In support of this contention QBE relies on the exclusion of liability in respect of "injury (fatal or otherwise) or loss sustained by any member of the crew": see p 1020. QBE says that the extension to the QBE Policy in the following terms: "It is understood and agreed that Section 3 of this Policy is extended to indemnify the Insured in respect of liability to the operational crew of the aircraft described in the Schedule. However, the Company shall not be liable for any liability of the Insured under or by reason of any worker's compensation, employer's compensation, accident compensation or similar legislation" only produces cover to indemnify Lambert in respect of its liability to the operational crew. It does not, QBE asserts, link the additional liability to claims in coverage 1 which is much more comprehensive.
2. Lambert contends that the effect of the Endorsement in that Section 3 Clause must be read as though it said "in respect of…. accidental bodily injury fatal to passengers or operational crew"
3. I think that Lambert's proposed reading of the effect of the Endorsement expands the indemnity "in respect of liability to the operational crew of the aircraft" to something more than was promised ie to create a liability not to the operational crew but to relatives of the operational crew. This can be avoided by treating the endorsement as requiring a new sub clause (c) to Section 3 in the following terms: (c) any liability of the insured to the operational crew of the aircraft described in the Schedule
4. Lambert's submissions, whilst contesting QBE's contention that Pilots' claims are not the subject of indemnity under the QBE Policy, also respond to QBE's point about Global's obligation to defend by referring to QBE's obligation to pay defence costs (see LSR coverage of the QBE Policy), as follows: "16. Even if that construction were not available, it would only be upon the crystallization of damage at the conclusion of the proceedings to any relative of a pilot of the Aircraft that the Saab Global Policy would have any work to do. It would only be at that time that there would be a liability to indemnify which on the QBE construction of its policy it would not be liable for. For the reasons given above, it is not possible to separate the legal work done in responding (and hence the incurring of legal costs) by reason of the identity of plaintiffs when the claims are indistinguishable and managed as one suit. The same defence is required whether the pilots' relatives are part of the group of claimants or not."
5. The reference to needing to await the conclusion of the proceedings is somewhat ironic given Lambert's resistance to QBE's claims that Lambert's proceedings are premature but they do not in any event explain why Global would not be required to maintain Lambert's defence for those non excess items. The Global Policy only precludes the need to defend when the claims are covered by an underlying policy. The clause does not provide that defence is not required where one of the claims is the subject of cover under another policy and one of the claims is not.
6. Given my conclusion in relation to Pilots' Relatives claims it follows that there is at least one respect in which the Global Policy is not an excess policy even if s 45 did render the QBE 'other insurance' clause invalid. QBE contends that that is another reason why Global was required to defend Lambert and not entitled to deny (and did not in fact deny) indemnity to Lambert even after it learnt of the existence and terms of the QBE Policy.

Aggravated, exemplary and punitive damages (Issue 7 (b))

1. The next head of cover which is in contention is whether the US claims include claims for aggravated, exemplary or punitive damages which I shall refer to compensation as "aggravated damages". Aggravated damages are not expressly sought by the Relatives. The definition of Compensatory Damages in the QBE Policy excludes aggravated damages. QBE is entitled to refuse indemnity for such damages. Lambert does not dispute that QBE is not required to indemnify it for such damages but it says that none are claimed by the Relatives. QBE relies on the pleading by the Relatives of "the entry of judgment… in an amount in excess of the minimum jurisdictional amount of this Court together with costs and such other damages as may be allowed by law" (at tab 408 p 115 Exh B10) which it claims leaves open the prospect of an award of aggravated damages. In the absence of evidence of Missouri practice I am not able to conclude that the Relatives are claiming aggravated damages; but if what is stated does or may include such claims, it would, as Lambert submitted, be possible to make it clear in declaratory relief, if otherwise appropriate, that the obligation of QBE to indemnify did not so extend.

Compensatory damages (Issue 7 (c))

1. There is another area of contest in relation to compensatory damages which is that QBE contends that it is not liable to indemnify Lambert in respect of claims based on nervous shock to the passengers. This is said to arise because of the definition of "Bodily Injury" in the QBE Policy.
2. The claim, to fall within the QBE Policy, has to be a legal liability to pay compensatory damage (including costs awarded against the insured) in respect of "(a) accidental bodily injury (fatal or otherwise) to passengers". The definition of "Bodily Injury" excludes "nervous shock or psychological injury unaccompanied by, or not caused by, physical injury".
3. I accept Lambert's contention that the claims are not excluded because they contain a claim that the passengers suffered nervous shock. I think the words "unaccompanied by, or not caused by, physical injury", are important, particularly the words "unaccompanied by". In my view since the passengers died, if they did suffer any nervous shock, albeit briefly, it was clearly accompanied by physical injury, and the exclusion does not operate.

Due diligence/ compliance clause (Issue 7 (d))

1. Lambert draws attention to the admissions made by Mr Beach-Nash in his cross examination: 1. that he understood the conclusions of the ATSB and the Queensland Coroner to be: 1. the GPS in the Aircraft had been installed in the US by an FAA approved organisation (T 265.39); 2. the GPS was certified as appropriate by the Australian Civil Aviation Safety Authority (T 266.6); 3. there was no documentation that suggested the Aircraft was not airworthy (T 266.10); 4. there was no evidence that the GPWS had not operated normally at the time of the accident (T 268.23); 5. the captain had a history of flying approaches in bad weather using GPS equipment when it was not legal to do so (T 266.19); and 6. the primary cause of the accident was that the Aircraft was flown too fast and too steeply on the approach to Lockhart River at the time of the accident (T 267.39).
2. Lambert claims that the documents obtained by QBE establish: 1. the Aircraft was certified airworthy at the time it was received by Lambert from Aerolitoral (Technical Inspection and Aircraft Appraisal, 8 February 2003); 2. the Aircraft was certified airworthy by a licensed US Federal Aviation Administration inspector prior to its delivery to P818, including as to all instrumentation (Special Airworthiness Certificate, 20 June 2003); 3. the Aircraft was certified airworthy by the Civil Aviation Safety Authority upon its arrival in Australia (Standard Certificate of Airworthiness, 4 July 2008- found at Exh B3 tab 1 p 4); 4. the GPWS system installed in the Aircraft complied at the time of its sale to P818 with US aviation regulatory requirements; 5. the GPWS system installed in the Aircraft complied at all times, including at the date of the accident, with the applicable Australian regulatory standards; 6. the GPS system in the Aircraft at the date of the accident was installed by a certified FAA approved installer at the express request of the Partnership prior to delivery to the Partnership 7. the GPS system met all applicable Australian regulatory standards at the date of the accident (Coroner of Queensland's Finding of Inquest dated 17 August 2007)
3. Lambert relies on CB Vol 3 tab 22 p 347 to assert that the Aircraft was certified as airworthy on 8 February 2003 when it received the Aircraft from Aerolitoral: see 78(a). QBE says that document does not establish that fact. The document is not signed and it does not appear on its face to be an airworthiness certificate- it is described as a "Technical Inspection and Aircraft Appraisal". There is, however, a Standard Airworthiness Certificate at Exh B4 tab 35 p 429 which forms part of a series of documents which is signed by an FAA representative and establishes at least prima facie that the Aircraft was airworthy as at 6 March 2003. That was prior to the installation of the GPS equipment. There is also a Special Airworthiness Certificate at Exh B4 tab 89 but it appears to relate only to the ferry tanks installed to permit the Aircraft to be flown from the US to Australia.
4. Lambert assert that the GPWS system installed in the Aircraft complied at all times with US aviation requirements. QBE challenges that (QCS 507) saying that there is no evidence to support that contention. The documents at Exh B4 tab 35 do however specifically refer to the GPWS.
5. Lambert asserts (LCS 97) that QBE did not seek production of documents specifically related to GPS or GPWS, and did proceed on the basis that the accident was caused by pilot error (see T265- T266) and commenced proceedings in this Court as I have previously described.
6. The regulations relied on by Lambert point to a GPWS being required in the Aircraft (if flown in the USA) only as at 29 March 2005 (two years after the sale to the Partnership). It was agreed that the Coroner had found that an eGPWS (TAWS) was not required by legislation or regulation as at the date of the crash: see (34)(o) in [20].
7. I have referred to the due diligence clause and the compliance clause contained in the QBE Policy. QBE points out that the conditions precedent apply to each insured "to whom the condition is appropriate" citing Maclean v Maclean; Australian Aviation Underwriting Pool Pty Ltd (Third Party) (1977) 15 SASR 306. There is a real question as to whether these have any operation at all in respect of Lambert since it was the vendor of the Aircraft not the operator at the time of the accident- this is particularly so in respect of the compliance clause although it could be said that if the Aircraft did not have fitted a particular piece of equipment that Lambert ought to have had fitted then Lambert as vendor had not done everything reasonably practicable to avoid accidents, and the fact that Lambert retained title to the Aircraft as at the time that the GPS was fitted might have some bearing on how Lambert's conduct is to be categorised.
8. There is a disjunct between the claims brought based on a sale in the US in 2003 and the accident in Australia which occurred in 2005. Normally what would be relevant would be the regulations applicable to the Aircraft at the time of the accident. Whether the Relatives can make the condition of the Aircraft on sale relevant notwithstanding that the accident occurred two years later is a matter on which views may differ but at present the questions are whether the claim falls within cover, and whether the preconditions for cover have been met. The Global underwriters have placed a reserve of US $7 million on the Relatives' claims (see Exh B6 p 1254) a matter with which Mr Lake was closely involved but apparently Locke Lord have identified a much greater potential exposure (see Exh B7, tab 284) the reasons for which are not known and which QBE believes, with justification, may well relate to matters which are dealt with in the underwriters reports and are not known to QBE or this Court. These enquiries could well involve a detailed consideration of the precise circumstances of how the GPS came to be installed and on whose instructions and as to the correct categorisation of Mr Wright's role as agent for the Partnership or Lambert having regard to the fact that it had ownership and control of the Aircraft at the time.
9. At this stage it remains at least possible that Lambert has not met the preconditions and in my view QBE is entitled to investigate this further with the benefit of the underwriters reports.

The prematurity issue (Issue 8)

1. QBE contends that the claims brought by Lambert are premature and has taken the position that it did not need to respond on the issue of indemnity to demands from Lambert. This contention appears to have a number of strands: 1. the fact that no liability has yet been imposed on Lambert 2. the fact that the costs incurred to date have all been paid even if incurred by Lambert 3. the pay to be paid clause 4. the fact that QBE is liable to pay costs only if the claims which are defended fall within the policy 5. that until Lambert has provided all of the material which it is required to provide by reason of the policy, QBE cannot decide whether the claim is within cover or not or whether legal costs incurred should be defrayed 6. that the precise facts will not be determined until the Missouri proceedings are heard and determined
2. Lambert asserts that QBE 1. asserts prematurity simply to avoid agreeing to grant indemnity 2. that QBE has all the material it needs to make a decision 3. that to the extent that QBE had, in the course of this case, sought to have run "airworthiness issues" it has failed to make out any such case 4. CGU Insurance Ltd v AMP Financial Planning Pty Ltd [2007] HCA 36; (2007) 235 CLR 1 requires QBE to give an answer on indemnity in a timely fashion
3. I have dealt with (or will deal with) a number of these strands elsewhere in these reasons but shall endeavour to isolate the remaining strand.
4. Assuming for the purpose of considering the argument that the only proceedings in question were the Illinois proceedings and that they had concluded with the proceedings being dismissed (as in fact occurred) could QBE assert that the proceedings were premature? The answer to that is clearly no. The question of costs would need to be determined having regard to 1. whether the claims fell within the cover 2. whether the conditions precedent had been met 3. whether the costs had been incurred by Lambert 4. whether the costs had been paid or not
5. Whilst the question in 165 of whether the conditions precedent have been met could be expected to be determined on the evidence presented the difficulty is that found in issue 162. If the only proceedings brought against Lambert were those in Illinois long since concluded, Lambert would not resist the provision of the information which QBE seeks (the only basis on which it does resist providing it is that it will lose its privilege with consequences for the Missouri proceedings). Thus QBE, although entitled to material which might be relevant to its defence of the Lambert claims and to which it is contractually entitled, has not been provided with it.
6. It follows that even if the fact that the Illinois costs have been paid were not a complete bar to recovery of those costs by Lambert in this case, the Court could not determine on a final basis whether the conditions precedent were met or not- the onus being on Lambert to establish that compliance: see Kodak (Australasia) Pty Ltd v Retail Traders Mutual Indemnity Insurance (1942) 42 SR (NSW) 231. The position is different in respect of exclusion clauses: see Trickett v Queensland Insurance Co Ltd [1936] AC 159; [1935] All ER Rep 729 and Bashtannyk v New India Assurance Co Ltd [1968] VR 573 and clauses. As Macfarlan J said in Southern Union Insurance Co of Australia Ltd v Altinier [1969] 2 NSWR 333 at 336: "condition 10 is expressed as a condition to which the obligation to indemnify is made subject and it must therefore be presumed to operate as a condition precedent unless it is incapable of so doing" and see Sutton (op.cit) para 3.1110. In Attica Sea Carriers Corp v Ferrostaal Poseidon [1976] 1 Lloyd's Rep 250, which is not an insurance case and to which the LCS referred, there was no express statement. In my view the requirements in the QBE Policy are expressed to be conditions precedent, and I can see no reason why they should not be treated as such.
7. It further follows that I accept in respect of all matters the subject of a claim for indemnity, and not just costs, QBE's contention that whether or not the conditions precedent have been met cannot be determined until QBE has been provided with all of the material to which it is entitled. Since I accept that Lambert ought not be compelled to produce that material to QBE whilst it is at risk of losing the privilege it has for the reports in order to have QBE determine its response it follows that the consequence is that it is not appropriate to determine on a final basis whether or not conditions precedent to cover have been met. I do not think it appropriate to descend into the detail of the matters which QBE raises as concerns, for example, its claim that there is no documentation relating to any inspection or safety certification of the GPS (QCS 318- 332) and its queries as to why a reserve of $7 million was established and an estimate of a much higher amount was given by Locke Lord.
8. Condition 3 requires Lambert to provide all information and documents as QBE may require. Identified as documents which have not been supplied are the sixteen reports of Locke Lord to underwriters. Mr Beach-Nash accepted at T210.34- 35 that Lambert has a legitimate reason for not handing over the Locke Lord reports, because to do so might lead to a loss of privilege for those documents in the US, with the documents ending up in the hands of the Relatives US lawyers. That would be a highly undesirable outcome for Lambert and for its insurers (including QBE). Mr Williams claims that QBE's reliance on the failure to provide the Locke Lord reports as a reason why QBE cannot determine whether indemnity can be granted is a ruse and not credible. He submitted that the real reason why QBE will not indemnify Lambert is because it knows that Global has been defending Lambert and it wishes Global to continue so doing.
9. Although I have indicated that the question of whether the conditions precedent for indemnification of Lambert cannot be finally determined and hence that the proceedings are premature it does not follow that QBE is entitled to deny providing Lambert with a decision about indemnity, that is to say that, leaving aside any questions for the moment of whether these proceedings are really proceedings brought by Global in Lambert's name.
10. I am inclined to the view that QBE is entitled to insist on the provision by Lambert only of what it is reasonable to require, and that QBE should not be permitted to refuse to indicate its position on indemnity because the Locke Lord reports have not been provided to it. It is open to QBE to admit liability to indemnify Lambert for compensatory damages to Relatives that do not arise as a result of a failure by Lambert to use 'due diligence' within the meaning of the policy or failure to comply with statutory requirements within the meaning of the policy. I use the words "within the meaning of the policy" because due diligence clauses have been interpreted very strictly (see the discussion of this in Limit (No 3) Ltd v Ace Insurance Ltd [2009] NSWSC 514) and lack of due diligence for the purposes of a policy and negligence are by no means synonymous. Further, 'statutory requirements' in the policy do not necessarily include US statutory requirements. I do not accept that an insurer can resist indicating its position on indemnity solely because there has been no hearing in the proceedings brought against the insured. As Lambert points out there is a prospect that there may never be a determination of the facts if the matter proceeds before a jury. It may be that a qualified admission of liability by QBE is of limited value to Lambert but it could be of some value and in accordance with CGU v AMP I think QBE would be required to indicate its position (again leaving aside the question of whether the proceedings are brought for the benefit of Lambert). This approach is not dissimilar to what Mr Awford suggested in his letter of 15 April 2009 to Norton White: p 1469.
11. I should also note that the Relatives do not allege any breach of US statutory regulations and the one statutory regulation which QBE asserted as relevant in the proceedings before me (notwithstanding Mr Beach-Nash's position at T214.5- T215.38) was I think demonstrated by Dr Ward to be inapplicable: see Federal Regulation 14 C.F.F.91.223 Terrain Awareness and Warning System, tab 52 and 54 of the plaintiff's supplementary authorities and T326-328.
12. It is clear that QBE, by reason of what has been provided to it by Lambert and what it has obtained from other sources, has had a significant opportunity to ascertain the causes of the accident. The problem, however, is as I have pointed out, the US proceedings are not solely concerned with the accident but also with what happened two years earlier.
13. Should it turn out when the Locke Lord reports are provided to QBE that there is material which demonstrates that Lambert is liable to the US claimants because of matters falling within the conditions precedent then QBE would be able to assert those matters.
14. If I am wrong in the conclusion reached in [168] it would be necessary to resolve the question of whether QBE would be acting in breach of its utmost good faith obligation to insist upon production of the reports as a precondition to its decision on indemnity. That question, however, needs to be considered in a context where the demand for indemnity is one driven by, and now pursued, by Global.

The Lambert Utmost Good Faith Issue (Issue 11)

1. The duty of utmost good faith in the context of insurance policies was confirmed in Khoury v Government Insurance Office (NSW) (1984) 165 CLR 622 as an obligation imposed as an incident of the relationship between the parties to the insurance transaction. The ICA has given statutory recognition to its important role in the contract of insurance. S 13 of the Act provides: "The duty of the utmost good faith (1) A contract of insurance is a contract based on the utmost good faith and there is implied in such a contract a provision requiring each party to it to act towards the other party, in respect of any matter arising under or in relation to it, with the utmost good faith. (2) A failure by a party to a contract of insurance to comply with the provision implied in the contract by subsection (1) is a breach of the requirements of this Ac t. (3) A reference in this section to a party to a contract of insurance includes a reference to a t hird party beneficiary under the contract. (4) This section applies in relation to a third party beneficiary under a contract of insurance only after the contract is entered into."
2. S 14 of the Act provides: "Parties not to rely on provisions except in the utmost good faith (1) If reliance by a party to a contract of insurance on a provision of the contract would be to fail to act with the utmost good faith, the party may not rely on the provision. (2) Subsection (1) does not limit the operation of section 13. (3) In deciding whether reliance by an insurer on a provision of the contract of insurance would be to fail to act with the utmost good faith, the court shall have regard to any notification of the provision that was given to the insured, whether a notification of a kind mentioned in section 37 or otherwise."
3. These sections reflect the position at common law which was developed particularly in relation to disclosure and misrepresentation by insureds to the insurer but the principle applies both to the insured and insurer and the legislation makes that clear. It has been said that utmost good faith involves something more than good faith: see AMP Financial Planning Pty Ltd v CGU Insurance Ltd [2005] FCAFC 185 at [87] per Emmett J (as his Honour then was) and see Gutteridge v Commonwealth (QSC, Ambrose J, No 586 of 1993, 25 June 1993, unreported, BC9302579). Further, in AMP Financial Planning his Honour said: "[89] The precise content of the concept of utmost good faith depends on the legal context in which it is used. In the context of insurance, the phrase encompasses notions of fairness, reasonableness and community standards of decency and fair dealing. While dishonest conduct will constitute a breach of the duty of utmost good faith, so will capricious or unreasonable conduct. While an essential element of honesty may be at the head of the concept of utmost good faith, dishonesty is not a prerequisite for a breach of the duty: see, for example, Kelly v New Zealand Insurance Ltd (1996) 130 FLR 97 at 111-12."
4. AMP Financial Planning dealt with a failure by an insurer to make a prompt admission of liability and payment and his Honour said: "[90] A failure to make a prompt admission of liability to meet a sound claim for indemnity and to make payment promptly may be a failure to act with the utmost good faith on the part of an insurer. Of course, where the insurer is awaiting details that are necessary for the making of a decision whether to accept liability to indemnify or to determine the quantum of its liability, the position would be different: see Moss v Sun Alliance Australia Ltd (1990) 55 SASR 145 at 155-6 ; 93 ALR 592 at 602-3 ; 6 ANZ Ins Cas 60-967 at 76,431. A failure by an insurer to make and communicate within a reasonable time a decision of acceptance or rejection of a claim for indemnity, by reason of negligence or unjustified and unwarrantable suspicion as to the bona fides of the claim by the insured, may constitute a failure on the part of the insurer to act towards the insured with the utmost good faith in dealing with the claim. [91] Putting it another way, acting with utmost good faith involves more than merely acting honestly, otherwise, the word utmost would have no effect. Failure to make a timely decision to accept or reject a claim by an insured for indemnity under a policy can amount to a failure to act towards the insured with the utmost good faith, even if the failure results not from an attempt to achieve an ulterior purpose but results merely from a failure to proceed reasonably promptly when all relevant material is at hand, sufficient to enable a decision on the claim to be made and communicated to the insured: see, for example, Gutteridge v Commonwealth (QSC, Ambrose J, No 586 of 1993, 25 June 1993, unreported, BC9302579)" and see CGU v AMP per Kirby J [72]- [74], [134 and [180], per Callinan and Heydon JJ at [259], Moss v Sun Alliance Australia Ltd (1990) 55 SASR 145, 154- 156 per Bollen J, Gutteridge and AMP Financial Planning at [71]- [74], [129]- [138], [134]- [135] and [259]. It has been said that even where an absence of good faith has been demonstrated, a reciprocal lack of good faith on the other side can be a reason to deny relief: CGU v AMP [261] per Callinan and Heydon JJ and see an earlier article by myself 'Utmost Good Faith in Marine Insurance' (1999) 10 Insurance Law Journal 145 at p 162.
5. Exhibit D and Exhibit 5 contain the extensive correspondence between the parties and those acting for them. Some of what each thinks as important are extracted in the Agreed Statement of Facts. I will summarise briefly the extensive correspondence by noting the following: 1. Global and Lambert thought that the Global Policy was an excess policy and that QBE (and not Global) should indemnify Lambert 2. QBE could see no need for it to commit on whether the policy responded because Global had agreed to indemnify Lambert and any amount which QBE might be required to pay would be payable to Global by way of contribution and not to Lambert. This included any costs paid out by Global for Lambert's defence 3. QBE saw the US proceedings as an airworthiness case 4. QBE had asked for information not all of which was ever provided- in particular the reports by Locke Lord to underwriters 5. QBE felt that it was entitled to that information before having to make a decision on indemnity 6. Lambert did not want to hand over documents for which privilege would be lost 7. QBE refused to hand over a copy of the policy to Lambert because it wanted Lambert to provide a copy of the Global Policy which Lambert was unwilling to do. Copies of the policies were ultimately exchanged so that impasse was overcome 8. QBE believes that Lambert's actions were being driven by Global, and that Lambert was not acting as befits an insured- these views were intensified once it received a copy of the Deed 9. Lambert believed that QBE was refusing to agree to indemnify Lambert because Global had already done so
6. One of the parts of Lambert's attack on QBE's conduct warranting, it says, the description of a breach of the duty of utmost good faith is the fact that QBE has indemnified and provided defence costs to numerous other insureds whilst refusing to do so in the case of Lambert.
7. Lambert contends that QBE has taken points against it that it has not taken against the other insurers, for example the 'pay to be paid' point, the prematurity point, the construction point in respect of the defence cost claims and issues in respect of compliance with statutory requirements (see LCS 278).
8. QBE accepts that it paid Westpac $379,556.12 in accordance with its obligations- there being a breach of warranty of endorsement in favour of Westpac see CB5 tab 122, p 1037. QBE accepts that it paid $1.12 million to the Partnership but points out that it was not suggested to QBE at the time of settlement by deed of the claim by Westpac and the Partnership that there was any default or breach by them causing the loss of the Aircraft: Mr Beach-Nash dealt with this at T190-191 of his cross examination. QBE has made a contribution to the Partnership's costs of the Missouri proceedings. As QBE points out Lambert (or Global) was actually encouraging QBE to assist the Partnership to improve the prospects of having the Missouri proceedings struck out: see tabs 10, 11, 14 and 15 Exhibit D and QBE reserved its rights: tab 13.
9. Relatives' claims against Lessbrook made in Australia were paid out, says QBE, because of the application of s 5 and 15 of the Civil Aviation (Carriers' Liability) Act 1959 (Cth) ("the CAL") and by reason of those provisions and clause 3 of the Endorsement read with s 41C(2) and s 41C(4) of the CAL QBE was liable to indemnify the Relatives such as Ms Sonter. QBE was entitled to and did deny any obligation to indemnify the administrators of the pilots' estates. I think that s 41D of the CAL is also relevant. Lambert did not contest QBE's assertion that QBE was not able to avoid liability to the claimants (other than the relatives of pilots) who brought proceedings in Australia on the basis of breach of safety regulations even had it been aware of any at the time the claims were made, which no one suggests is the case.
10. QBE admits that it paid $20,000 towards Mr Wright's costs of attending the inquest. It makes the point (QCS 401) that at that time there was no suggestion that Mr Wright's conduct had caused or contributed to the accident, and that in any event the amount was very small. QBE had an interest in Lessbrook and Mr Wright being represented at the inquest, because if Lessbrook was found liable then QBE would, or might, be required to indemnify it.
11. QBE contrasts the situation of the insureds who it has indemnified or assisted with that of Lambert- Lambert, it says, has another policy with Global and has been granted indemnity by Global with the consequence that either Lambert had no legal costs or if it did they were all paid by Global and none of the other insureds refused to supply information.
12. I accept that where an insurer treats one insured differently to another this could be an indicator of a lack of utmost good faith but there are reasons why QBE has taken a different approach to the question of indemnity of Lambert than it has taken with the other insureds, which causes me to conclude that QBE's conduct in differentiating between insureds does not constitute a breach of utmost good faith.
13. Lambert draws attention to the fact that QBE has failed since July 2008 to indicate whether or not it will indemnify Lambert both for the costs incurred in the US proceedings and generally has maintained that it has not been provided with sufficient information to make a decision. Lambert asserts that the accident "has been thoroughly investigated, and QBE has been aware at each stage of investigation of the conclusions reached by those investigations" (LCS 66).
14. There was in all of this a degree to which both sides were correct in the positions outlined in [180]: 1. an insurer is entitled to ask for copies of other policies held by the insured if its policy contains a valid 'other insurance' clause since that is relevant to whether indemnity should be granted and whether the defence should be taken over 2. an insurer is required by virtue of s 74 of the ICA to give to the "insured" a statement in writing that sets out all the provisions of the contract, when this is requested in writing but need not do so again if it has already done so. The section does not specifically require the provision of a copy of the policy. By 6 March 2009 Lambert was provided with the terms of the QBE Policy: see Exh D tab 3 or at the latest by May 2009: see Exh D tab 23. The non-provision of the policy was not pleaded by Lambert as a basis for the breach of utmost good faith allegation 3. QBE was correct to discern that Lambert's actions were due, to some degree at least, by considerations relating to Global's position and not Lambert's own position 4. Lambert's solicitor Mr Awford denied matters that were true: see tab 27, tab 29 and T35, Exhibit D and the Deed itself 5. QBE was entitled to resist Lambert's claims in respect of past costs because they had been paid by Global and could only be recovered by Global on the basis of a claim in contribution and not a subrogated claim 6. there is, in the LCS, a theme that since QBE knows a great deal about the accident and the Aircraft and what the Coroner found that is all it needs to know. That QBE has had access to a considerable amount of material is established but the unusual nature of the US claims is that they focus not on the operation of the Aircraft in 2005 and the accident but on its sale in 2003 and that is an area in which there has not been any, let alone detailed, independent investigation 7. it is claimed by Lambert (LCS 257) that the absence of advice from QBE concerning indemnity has hampered settlement discussions with the Relatives. There is no evidence to support that contention. Global has agreed to indemnify Lambert and further Lambert has the benefit of a notice given under s 41 of the ICA which precludes QBE from asserting that Lambert could not enter into settlement negotiations without its approval 8. it does appear that QBE has been provided with much of what it sought but since it has not been provided with the sixteen reports to underwriters compiled by Locke Lord, and since there is at the very least a real prospect that those reports will contain important factual and legal conclusions I do not think it necessary to be concerned with whether anything else was sought and not provided (at least initially) by Lambert. I shall proceed on the basis that (other than the itemised bills of Locke Lord) it is only the Locke Lord reports to underwriters that have not been provided to QBE
15. I should note that whilst Mr Beach-Nash was cross examined at some length about the differential treatment afforded to Lambert in comparison to the other insureds and his decisions on non-acceptance of Lambert's claim I thought he was a credible witness who made concessions where required and who seemed to me to be entirely truthful. Mr Williams at T342 claimed that Mr Beach-Nash's credibility was impaired because he "sought to distance himself" from the pay to be paid clause and "initially disputed that he was the person responsible for taking the point against the plaintiffs" (LCS 128). When Mr Beach-Nash was taken to QBE's written submissions he agreed he had adopted and approved them before they were made which was consistent with the point having been generated by the industry of QBE's lawyers. Although he seemed somewhat surprised about the point having been taken it did not lead me to think that he was not a credible witness. I might add that, as is evidenced by Exh D, the whole dispute between Lambert and QBE appeared to be very much lawyer driven.
16. Lurking under the surface of their competing arguments of breach of utmost good faith is the very real question of whether these proceedings are really brought for the benefit of Lambert or Global. There is a second not fully articulated question of whether an insured who has insurance under two policies and seeks and obtains cover under one policy can in the course of proceedings brought against the insured approach the second insurer and have that second insurer take over, and I shall deal with that first. There is no question here that Lambert did choose to make a claim on the Global Policy rather than the QBE Policy. It is most unusual for an insured to seek to change insurers midstream and there are good reasons why an insured would not want to do so since it already has cover. If the cover under the second policy is, or arguably is, less extensive then the cover under the first, or if the interests of the insured and second insurer do not coincide, for example where the policy excludes certain liabilities, the insured might be better served in remaining with the insurer whose policy does not have relevant or potentially relevant exclusions. Problems of the type which have arisen here in relation to the supply of reports provided by lawyers retained by or on behalf of the insured and provided to the first insurer might also be foreseen. Lambert, since it has chosen to call no witnesses, has given no evidence of why it now wishes QBE to take over conduct of the US proceedings and why it wishes to seek indemnity from QBE rather than Global.
17. No authority has been cited to support the proposition that the second insurer can deny indemnity because another insurer has already agreed to indemnify (but has not in fact indemnified) the insured. If the facts were simply that insurer A had agreed to indemnify the insured and had embarked upon conduct of the defence of the insured and incurred costs I am not persuaded that insurer B can assert that it is too late for the insured to now claim under the second policy (other than for costs already paid by the first insurer) without establishing some prejudice.
18. The next question is whether the fact of the Deed and the circumstances of this case alter the position. I am persuaded that these proceedings have been brought at the behest of Global. I say that for these reasons: 1. the Deed makes it clear that Global is in charge of the proceedings and that they are brought at its instigation 2. Lambert called no witnesses other than Mr Lake, the person at Global with control of the matter 3. Global has agreed to indemnify Lambert notwithstanding the terms of the Global Policy- thus Lambert has no real interest itself in the outcome of the proceedings. Even if, prior to the execution of the Deed, Global was entitled to refuse indemnity of Lambert on learning of the QBE Policy (as Lambert contends in these proceedings Global was) Global did not do so- it continued to indemnify Lambert (and see Mr Lake's evidence in para 16 of his affidavit and T137.25- 138.15). 4. once it entered into the Deed Global could not refuse to indemnify Lambert on the basis that it was the "excess" insurer. Rather the Deed provided that Lambert would be indemnified by Global but required to pay back the 'loan' created or acknowledged by the Deed out of any monies recovered by Lambert 5. I think that the evidence supports the conclusion that even before the Deed was entered into Global was directing matters in respect of the claim on QBE, see for example paras 7 and 8 of Mr Lake's affidavit, Exh B7, tab 254, 255, 256, 275, 277, 278, 283, 289, 1372, p 1375, p 1434, Exh B8, tab 315, 319, 321, 326, p 154B, Exh B9 tab 356A, p 425. In that connection I will say something concerning Mr Lake's evidence below 6. Global wanted advice concerning this litigation from Mr Williams which was provided to Global: see Exh B, tab 308 and 342 p 1657 7. Mr Awford was reporting to Global (see Exh B8 tab 315) and his fees were directed to and paid by Global: ExhB8 tab 322 8. there is no evidence of Lambert having obtained legal advice in respect of the Deed and clause 8(b) acknowledges that one or other of the parties may have chosen not to obtain advice 9. on 1 April 2009 Mr Lake wrote to Mr Barth saying: "A substantial reserve sits against this matter. This is warranted, but should be reviewed in light of the indemnity due from QBE. So the concern as regards the cost of pursuing and achieving the indemnity over QBE is not warranted. No expense should be spared in pursuing this. Further it must not be delayed. On that note, I presume that QBE have now been provided with all that they (reasonably) require to arrive at a decision. If they have not, please ensure that this is done" (CB vol. 7 tab 283) I note that Mr Barth discussed the matter at Exh 7 289 in a manner making it clear that he was advising Mr Lake as to what needed to be done vis a vis QBE
19. In cross examination Mr Lake accepted that 1. he made arrangements for Lambert to be defended in the US proceedings: T116.49- 50 2. to his knowledge all bills issued by Locke Lord were paid by Global with no demand ever being made for payment from Lambert: T117 and T120.30- 32 3. that he decided to indemnify Lambert without hesitation (T117) and to give instructions to Locke Lord to provide for a defence of Lambert see T120.7 4. that he gave direct instructions to Locke Lord from time to time as to how the US proceedings were to be conducted: T119.35 and see T125.35- 39 5. that he set up a fund of US $500,000 out of which the legal fees were to be paid (to which Global and the other insurers would contribute): T120.45 and he authorised payment via the broker: T121.5 6. that he received some sixteen reports from Locke Lord: T123, and these documents were important documents providing advice on the prospect of the Relatives succeeding in their claims: T128.48 and were important to take into account: T129.19 7. that he had told Mr Barth of Locke Lord that "we want to explore first an amicable but expeditious resolution of the tender, keeping in our back pocket the threat of litigation" in the context of the potential claim against QBE: see T135.14- 28 and Exh B7 tab 264 (and see also para 14 of his affidavit) 1. he did not want QBE to be provided with a copy of the Global Policy 2. in his email of 1 April 2009 he told Mr Barth if QBE did not provide an answer very soon "we will consider commencing litigation" (tab 283) 3. that Global's money was at risk because Global had granted indemnity to Lambert and that it would be in Global's interest for QBE to take over Lambert's defence: T137- 138 4. he was not acting under any mistake of fact or law as at 20 February 2009 as to whether QBE was exposed to liability under its policy: T138.10- 15
20. During the cross examination Mr Lake sought to downplay his involvement in the decision making concerning the claim against QBE- for example saying at T139.6 that his role was to "make suggestions". The correspondence relied on by QBE, however, demonstrated that Mr Lake took a significant role in relation to the Lambert claim on QBE: see tab 264, 277, 283 and 288 and see 200, (4), (5), (7), (8), (9), (10). I set out the portion of cross examination from T141.50- 143.18 in which he seeks to downplay his role: "Q. Can I direct you to the fourth paragraph, "So the concern as regards the costs of pursuing and achieving the indemnity owed by QBE is not warranted. No expense should be spared in pursuing this. Further, it must be delayed"-- HIS HONOUR: Must not be. SULLIVAN Q. --"must not be delayed." Sorry. "On that I presume that QBE have now been provided with all that they reasonably require to arrive at a decision. If they have not, please ensure that this is done." That is you giving instructions, isn't it, about what should and shouldn't be done? A. I think it's more me offering my observations but strong observations in the context of the discussion between all of those emailed parties. Q. So what, "please ensure that this is done" is not a demand or an instruction isn't it? A. I think it's a request. Q. To say ensure something is done is a request is it? A. Please. Q. It's a polite demand is it? A. But it's whether those other parties in there as well to agree or not. Q. It's telling those other parties to ensure something is done isn't it? A. No it isn't, because those other parties were Lambert Leasing and Saab who are the insureds and had very, very strong views, and they were telling me what needed to be done. Q. Is that right? Read down please, the next paragraph: "And I may be optimistic but I'm expecting an answer from QBE very soon. If I am being unreasonable in ascribing a two week timetable please tell me, but I cannot see why that would be so. Put simply, this is not difficult." That's you expressing an opinion isn't it about when you would expect an answer? A. Yes. Q. Then you say this, don't you, "And so I expect an answer within" is that E weeks, I can't-- A. I have no idea. Q. I can't read it, "If we do not get it, we will consider commencing litigation." What earthly right do you say you had to consider commencing litigation if you weren't in a position to control that practically? A. I would consider it with Saab and Lambert Leasing. It's ultimately them that decides whether to litigate on that point. Q. You are not saying Saab and Lambert might consider commencing litigation, you are saying we will commence litigation aren't you? A. Yes, but Saab are copied into the correspondence and they - they're very, they're very grown up people who put their view - make their views felt to me. Q. Because they were acting in accordance with your instructions to this date aren't they? A. No. Q. Perhaps you could point out, if you want to look at these documents, or perhaps my learned friend can address his Honour later on any documents indicating anywhere in this bundle where Saab gives any indication of their views about this? A. Well can't Saab give their indication, an indication of their views consistently to Global, whether by telephone or by email or by correspondence? They meet with us regularly. We've insured them for many, many years."
21. Mr Lake denied that Mr Barth had a practice of blind copying him with letters sent to the broker for Lambert (T121.19) or that it happened regularly (T121.21), yet he was taken to a number of examples of this at which point he said it might have happened four times (T125.15). QBE provided many more examples of it: see tabs 147, 167, 175, 179, 187, 191-4, 203, 204, 206, 212, 243, 233, 234, 245, 263, 270, 272, 291, 303 and 305 the first of which is dated 1 June 2007 and the last is 5 October 2009. Mr Lake did say at T121.25- 29 and T125.15- 22 that he had told Mr Barth not to do it- which itself seemed consistent with Mr Lake being aware of the practice although QBE submitted that I should accept his evidence that it had occurred without his knowledge and infer that Mr Barth had copied Mr Lake because he knew Mr Lake had control of the matter. I am unable to accept that Mr Barth was engaging in this practice over such a long period without Mr Lake being aware of it and condoning it, and there was no explanation advanced by Mr Lake for it other than the suggestion that Mr Barth was doing so without his approval.
22. Mr Lake gave as his explanation for Lambert's interest in pursuing QBE notwithstanding that Global had agreed to indemnify Lambert and were paying for Lambert's defence in the US proceedings, the impact on SAAB's premium: T138.50- T139.10, T140.5- 25 and T144.39. There is no mention of premium or adjustment of premium in the Deed and no letter or file note of Lambert has been provided raising or dealing with the subject of the impact on the US claims on SAAB's premium or any share of that attributable to Lambert.
23. Whilst I accept that Mr Lake did keep Lambert informed either directly or through its broker, and that Lambert did not oppose the steps taken, I did not find Mr Lake's attempt to minimise his role in the decision making process concerning the demands on QBE as convincing, nor does the documentary material to which I have referred support his claim in para 13 of his affidavit that he took the view that the claim Lambert had against QBE "was a matter for [Lambert] itself". I find on the balance of probabilities that Mr Lake, on behalf of Global, had decided that every effort should be made to ensure that QBE took over defence of the US proceedings and that his reasons for so doing were because Global wanted to avoid having to continue to fund the defence costs and that if QBE did so it would avoid Global having to indemnify Lambert. In so concluding I do not intend to convey any criticism of him for having had that objective.
24. In the circumstances, including particularly the terms of the Deed, I find that the demand that QBE indemnify Lambert is really advanced for the interests of Global. This conclusion is reinforced by the absence of any evidence from Lambert's personnel concerning their motivation for, and involvement in, these proceedings. I am not satisfied that Lambert has any interest of its own to any relief in connection with the QBE Policy- and find that the claims for indemnity and declarations are advanced by virtue of the Deed in a subrogated form in Lambert's name when the claims should be brought by Global for contribution. In these circumstances I am disinclined to make any orders for declaratory relief other than on the matters the parties have agreed I should determine, since Global is not a party to these proceedings, and whilst it may ultimately be bound by any conclusions because of its involvement in these proceedings (see Ramsey Food Processing Pty Ltd v Tomlinson [2014] NSWCA 237 [82]- [83]) that is not a matter which I am called on to, or should, decide.
25. Whilst I think that there is much force in the proposition that Lambert breached its duty of utmost good faith, at least until the commencement of proceedings, by not informing QBE of its entry into the Deed and that that breach would, if QBE was found to have breached its duty of utmost good faith, provide a basis for denial of relief to Lambert, once a copy of the Deed was provided to QBE the position became clear. A more difficult question is whether Lambert's entry into the Deed constituted a breach of utmost good faith. If Lambert's officers believed that the Global Policy was in fact an excess policy and that Global could refuse to continue indemnifying Lambert I very much doubt that it could be concluded that entry into the Deed was a breach of Lambert's duty of utmost good faith. Whilst Lambert has called no evidence from any person within its ranks as to his or her belief, my conclusions on other issues makes its unnecessary to determine whether entry into the Deed or its failure to advise QBE of the Deed were breaches of the duty of utmost good faith. Nor is it necessary to reach a conclusion on whether the obligation of utmost good faith continues once litigation has commenced: see Manifest Shipping & Co Ltd v Uni-Polaris Insurance Co Ltd (The Star Sea) [1995] 1 Lloyd's Rep 651, Horbelt v SGIC unreported decision of Bollen J Supreme Court of South Australia 26/06/1992, Imaging Applications Pty Ltd v Vero Insurance Ltd [2008] VSC 178 and Rein, op cit p 155- 156.
26. Nor is it necessary to consider QBE's arguments concerning circularity (see Idameneo (No 123) Pty Ltd v Gross [2012] NSWCA 423 which was relied on by QBE) because no liability of QBE has been determined.

The claim against the Partnership (Issue 12 and 13)

1. Lambert claims that the Partnership is required by reason of clause 7.01 of the Purchase Agreement to indemnify it in respect of any liability it is found to have to the Relatives, and that this includes the costs of defending the US proceedings.
2. SAL, in contradistinction to Lambert, was not a party to the Purchase Agreement so, the Partnership maintains and correctly in my view, there is no basis on which SAL can maintain its claim on the Partnership Agreement.
3. Lambert relies on Professor Swisher's evidence that "all liabilities" has been interpreted by the Virginia Supreme Court to include reasonable attorney's fees, court costs and the expenses of litigation. The Purchase Agreement in any event expressly includes "costs and expenses incidental to". I do not see the fact that costs of the US proceedings are sought as itself an impediment to Lambert's claim against the Partnership.
4. Lambert contends that the evidence establishes that the Partnership "used or operated the Aircraft by leasing it to a related company Transair". I think the reference to Transair should be to Lessbrook.
5. Lambert claims that the Virginia cases show that 'use' can extend to a situation where a vehicle was not being used as a vehicle but was still held to be 'used'. In Great American Insurance Company v Cassell 239 Va. 421, 389 S.E.2nd 476 (1990) a firefighter who was struck and killed by a vehicle whilst standing in the road near his fire truck writing out a report was held to have been using his fire truck and see Professor Boardman T177.37- 43. Lambert submits that "It is therefore clear that the concept of use can, by the law of Virginia, extend beyond use as transportation." (LCS II Para 17) The high point of the Virginia cases seems to be Slagle v Hartford Insurance Company of the Midwest 267 Va. 629,. 594 S.E.2d 582 (2004) in which an employee and officer of the insured who was directing the driver of a road grader where to place the vehicle was held to be 'using' the vehicle.
6. Mr Williams submitted that the Lease Agreement expressly contemplated that the Partnership would use the Aircraft by leasing it: see p 547 Court Book Vol 4. The Partnership was required by clause 4.1 to pay for all finance payments to the financier of the Aircraft, insurance costs, all maintenance costs and to pay all engine provision costs. It was also required to "use its best endeavours to keep the Aircraft serviceable at all times in accordance with Civil Aviation Safety Authority Regulations." The Partnership did pay those amounts and if it had failed to maintain the Aircraft Lessbrook would have been unable to fly the Aircraft as part of the Transair fleet: see Mr Mackellar T241.46- 50, T242,45- 60, T243.10- 15.
7. Lambert also refers to the fact (LCS II para 26) that the Purchase Agreement was amended to have technical acceptance occur in Springfield, Missouri and the outfitting of the Aircraft by the Partnership for the ferry flight.
8. Mr Newlinds in his closing submissions on behalf of the Partnership points out that the lease was a dry hire lease- Lessbrook not the Partnership was to provide the crew. Lessbrook has not been shown to be a related company of the Partnership. Lessbrook was registered with the Civil Aviation Authority CASA as the operator and an operator was required to carry out maintenance on the Aircraft- see the affidavit of Mr O'Donoghue para 35- 37. It was Lessbrook's responsibility to request maintenance required for the Aircraft: Mr Mackellar's affidavit para 10. The Partnership's involvement was limited to receiving lease payments and making payments of invoices which had been approved by Lessbrook- Mr Mackellar's affidavit para 10- 11.
9. The Partnership contends that it is clear that the Purchase Agreement was drafted by Lambert: see Court Book 4 tab 42 fax 9 May 2003. This is relevant should the Court find any ambiguity because under Virginia law (like the law in Australia) any ambiguity is construed against the proferens.
10. There is no special meaning of the word 'use' in Virginia law. There are many cases in Virginia concerning the word 'use' in the context of motor vehicle injury cases. No cases were cited in which a person has been held to have been using a motor vehicle by leasing it for the purposes of such legislation or at all. Indeed none of the cases hold that an owner, qua owner, was using the vehicle when it was being driven by someone else.
11. The Court is required in construing any contract under Virginian law to discern the objective intention of the contracting parties "as expressed by them in the words they have used": see Seaboard Air Line Railroad Company v Richmond-Petersburg Turnpike Authority, 202 Va. 1029, 121 S.E.2d 499 (1961). The words "use by the Buyer" and "operation by the Buyer" must be construed having regard to the context in which they are used. As a matter of ordinary English usage where an owner leases a vehicle to a third party it could not be said that the lessor was using or operating that vehicle. I regard the word "use" in the Purchase Agreement to mean the use of the person or company who is operating the aircraft and arranging it to be flown not the lessor. I am strengthened in this view by the following matters: 1. the fact that clause 7.02 requires the Partnership to employ reasonable effort to require any third party leasing the aircraft to maintain insurance cover in the two year period. It would not have been necessary to require that if leasing was a use within 7.01 2. clause 7.01 did not impose a liability to indemnify "from or in any way connected with the use or operation of the aircraft" but rather Lambert chose to limit the obligation to indemnify in respect of claims arising out of "the Buyers' use and operation" 3. the words possession, maintenance, modification and operation (the other words used in the phrase) are all words denoting physical contact with the Aircraft by the Partnership or its human agent. When 'use' is construed in the same way it requires contact with the Aircraft by the Partnership or its agents. For leasing purposes Lessbrook was not the agent of the Partnership
12. The evidence does not establish that the Aircraft was being operated by the Partnership. On the contrary it is established that it was being operated by Lessbrook. I accept, of course, that the Aircraft was leased by the Partnership but that could only constitute 'use' by the Partnership if 'use' included lease. I accept that the Partnership did undertake that it would pay for maintenance of the Aircraft as a term of the hire agreement but in my view that does not constitute "operation" or "use" of the Aircraft.
13. In the light of my conclusions on "use" and "operation" it is not necessary to consider the exclusions but were it necessary to do so I would regard it as important to consider the nature of the claims brought. There are two species of claims brought by the Relatives; one based on the negligence of Lambert and one based on the sale of the Aircraft that is said to have had defective equipment or missing equipment. So far as the first is concerned I think that clearly falls within the exception. So far as the second is concerned it is necessary to determine what is encompassed by manufacturer's product liability. I think claims about a deficient GPS and the like could well amount to product liability matters. I think there is some ambiguity as to whether it was intended to exclude claims relating to the Aircraft itself as originally manufactured and sold as opposed to items installed in the Aircraft later. That ambiguity should be construed against Lambert, with the consequence that any claims in respect of defective equipment installed in the Aircraft before delivery are not claims for which the Partnership is required to indemnify Lambert. It is not necessary to determine on whose behalf the GPS was installed by World Wide but it was most likely installed at the request and on the instructions of Lessbrook with the agreement of Lambert who retained control and ownership of the Aircraft until delivery and the implicit consent of the Partnership. As JCS point out the Hire Agreement was most likely entered into on 17 June 2003 the date the document bears. The JCS also make the point that no evidence was called by Lambert concerning its dealings with Lessbrook.
14. Given my conclusion on the scope of the liability imposed on the Partnership by clause 7.01 it is not strictly necessary to consider the other contentions of the Partnership but in relation to the Partnership's reliance on the fact that Global has indemnified Lambert to date and agreed by the Deed to indemnify it for the future that is not available to the Partnership which is not a co-insurer: see Bradburn v Great Western Railway Co (1874) LR10Exch 1, Caledonia North Sea Ltd v London Bridge Engineering Ltd [2002] Lloyd's Rep IR 261 (the "Elf" decision). The House of Lords decision in Elf was approved in HIH Claims Support Ltd v Insurance Australia Ltd [2011] HCA 31; (2011) 244 CLR 72 at [40]- [42] per Gummow ACJ, Hayne, Crennan and Kiefel JJ: see Sutton at 19.140. The decision of Stratti v Stratti [2000] NSWCA 358; (2000) 50 NSWLR 324 might appear to be inconsistent with these authorities but that case is dealing with quite unusual circumstances and a narrowly confined issued based on s 24(2) of the Partnership Act 1892 (NSW) as the judgment makes clear (see [12]) and predates HIH Claims and I do not think it can be relied on in the present context.
15. Lambert and the Partnership agreed that there was an issue about who should pay the costs of Lambert and SAL's claim. It is not clear to what this relates. Since Lambert and SAL have failed in their claims against the Partnership they should pay the Partnership's costs but I will give all parties an opportunity to be heard on the question of costs.

The quantum of recovery (Issue 14)

1. Another matter which was the subject of dispute was the question of whether Lambert had proved the quantum of its claim- Lambert tendered some detailed bills provided by Locke Lord to Global but the bulk of costs were the subject of proof only by the tender of remittance advices, with limited information. In view of my conclusion that Lambert has no claim against QBE in respect of costs paid by Global because it has been indemnified by Global and no claim against the Partnership because the Partnership has no obligation to indemnify Lambert it is not necessary to address this issue.

Clause 5 of the Global Policy

1. QCS refer to an argument advanced by Lambert concerning this clause which deals with aircraft under which an insured has an insurable interest under contract with the operator. Lambert had pleaded (see 7B, 7D, 24C and 24D of the Fourth Amended Commercial List Statement) that cause 5 of the Global Policy also operated to entitle Global to refuse cover to Lambert. I did not understand Lambert to be pressing any point in relation to this clause but as QBE points out Lessbrook, not the Partnership, was the operator of the Aircraft and Lambert had no contract with Lessbrook.

Conclusion

1. I summarise my conclusions on the matters in dispute: 1. condition 9 of the QBE Policy is not void by reason of s 45 of the ICA 2. the US claims are (subject to (7)) all claims for bodily injury within the QBE Policy 3. the Pilots' claims are not within cover under the QBE Policy 4. Lambert is not required to hand over privileged reports as a precondition to QBE indicating its position on indemnity, with however appropriate reservations of rights 5. it is premature to determine on a trial basis whether or not QBE is required to indemnify Lambert at a time when Lambert has not provided all of the material which contractually Lambert is required to provide 6. these proceedings are in effect subrogation proceedings by virtue of the Deed instigated and directed by Global. If Global has any remedies it is for contribution and not by way of subrogation 7. there is dual insurance in respect of the US Relatives' claims (but not the Pilots' claims) save to the extent that: 1. the diligence and compliance preconditions have not been established to have been met 2. the US claimants obtain orders for aggravated damages There is no utility in making any declaration to this effect because of my conclusions in (5) and (6) 1. Lambert cannot recover against QBE for the Illinois costs or the Missouri costs paid to date 2. I am not persuaded that QBE has breached its obligation of utmost good faith 3. whilst there is much force in the contention that Lambert's failure to advise QBE of the existence of the Deed amounted to a breach of utmost good faith, the fact of entry into the Deed is another matter and may depend in part on whether Lambert's directing minds believed that the Global Policy was an excess policy. Given my conclusions on other issues I do not think it is necessary to determine this issue 4. the Partnership is not required to indemnify Lambert in respect of the claims in the US proceedings or the costs incurred in respect of those proceedings
2. I have not determined the pay to be paid issue (Issue 5) but it may be unnecessary to do so in view of my other conclusions. I will invite submissions from the parties on the course to be adopted in relation to this point.
3. I will hear the parties on the form of Orders to be made and on the issue of costs.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 17 June 2015