Owners Corporation PS623721 and others in accordance with the Schedule

Shangri- La Construction Pty Ltd (ACN:130 534 244) and others in accordance with the Schedule

Haiying Jiang and others in accordance with the Schedule

7, 8, 9, 15, 16, 21, 22, 23, 24, 28, 29 & 30 June 2021;

3, 4, 8, 9, 10, 11, 15, 16, 17, 18, 22, 23, 24, 29, 30 November 2021;

DATE OF FIRST RESPONDENT'S SUPPLEMENTARY SUBMISSIONS ON ALLIANZ V DELOR VUE

DATE OF FOURTH AND FIFTH RESPONDENTS' SUPPLEMENTARY SUBMISSIONS ON ALLIANZ ABOVE. V DELOR VUE

DATE OF FIRST RESPONDENT'S RESPONSE SUBMISSIONS ON ALLIANZ V DELOR VUE

Owners Corporation PS623721 v Shangri-La Construction Pty Ltd (Building and Property) (Insurance) [2023] VCAT 502

1. Under s 124 of the Victorian Civil and Administrative Tribunal Act 1998 I will declare:
   1. The joined party which issued the Policy is the fifth joined party and the fifth joined party must respond to the first respondent's Claim under the Policy;
   2. The first respondent did make a Claim within the meaning of the Policy;
   3. The first respondent is not entitled to be indemnified under the wording of the Policy.
   4. The fifth joined party has elected to indemnify the first respondent under the Policy in respect of the applicants' claims and is bound by that election to indemnify the first respondent;
   5. The fifth joined party having represented to the first respondent that:
      1. it has considered the information provided by the first respondent;
      2. it is satisfied that the allegations made by the Owners against the first respondent in the proceeding are in relation to civil liability arising from the conduct of the first respondent's Professional Business;
      3. it will grant indemnity to the first respondent under the Policy in respect of the claim made by the applicants in the proceeding subject to a specific reservation of rights;

is estopped from not fulfilling those representations.

1. The specific reservation of rights referred to relates solely to Condition 7(b) of the Policy, which has not been enlivened.

1. The Tribunal orders that the fifth joined party must, subject to any relevant monetary limit of cover applicable under the Policy, indemnify the first respondent in respect of the awards for damages made against the first respondent in favour of the applicants in Orders 14-38 inclusive in the Final Orders (Defects) dated 3 May 2023. These awards are set out in Appendix 1 of this Order.
2. The Tribunal orders that the fifth joined party must, subject to any relevant monetary limit of cover applicable under the Policy, indemnify the first respondent in respect of the legal costs it incurred in defending the proceeding after Clyde &Co ceased acting for in on or about 11 June 2020.
3. The first respondent's claim against the fourth joined party is dismissed.
4. Costs otherwise reserved.
5. Reimbursement of fees reserved.

R & S Knowles Super Admin Pty Ltd (ACN: 124 224 086)

Shangri-La Construction Pty Ltd (ACN 130 534 244) (in liquidation)

SimCo Consulting Pty Ltd (ACN 099 646 750) (deregistered) (Struck out by Order made 24 August 2022)

Total Seal Waterproofing (VIC) Pty Ltd (ACN 138 827 175) (in liquidation) (Struck out by Order made 24 August 2022)

A.C.N 145 482 622 Pty Ltd (deregistered) (Struck out by Order made 24 August 2022)

Mohammad Pacha t/as K & P Rendering Texture Finishing

Hamzaie Hafizullah t/as K & P Rendering Texture Finishing

Insurance Australia limited t/as WFI (ACN: 000 016 722) (Struck out by Order made 10 June 2021)

Arch Underwriting at Lloyd's (Australia) Pty Ltd (ACN 139 250 605)

Certain Underwriters at Lloyd's Subscribing to Policy Number P0003310PI2016AU0

1. This proceeding falls into two separate parts. The first involves a claim by the applicant owners corporation and individual lot owners against a builder (the first respondent) and some designers and sub-subcontractors in respect of building defects in an apartment building (the Defects Dispute). This part has been the subject of a determination incorporating findings and assessments of damage in relation to defects published on 30 December 2022[1] (the Defects Determination) as well as final orders published on 3 May 2023[2] (the Final Orders (Defects)). In the Final Orders (Defects) the first respondent was ordered to pay damages to each of the applicants in specific amounts. The orders are to be found in Appendix 1.
2. The second part of the proceeding of the proceeding involves a claim by the builder against underwriters in which the builder seeks indemnity in respect of the applicants' claims under a professional indemnity insurance policy (the Insurance Dispute).
3. It had been intended to deliver orders with reasons covering all issues. However, on 14 December 2022, the High Court delivered its decision in Allianz Australia Insurance Limited v Delor Vue Apartments CTS 39788[3] (Allianz v Delor Vue).
4. The underwriters immediately made an application seeking leave to file further submissions.
5. At a directions hearing on 16 December 2023, the Tribunal set a timetable for submissions regarding Allianz v Delor Vue**.** At the directions hearing the parties agreed that it was appropriate for the Tribunal to publish reasons incorporating findings and assessments of damage in relation to defects separately to, and before making final orders concerning, the insurance dispute.
6. It was on this basis that on 30 December 2022, the Tribunal published the Defects Determination.
7. This determination is concerned with the Insurance Dispute. To give context to the Insurance Dispute it is necessary to set out some of the background facts which gave rise to the proceeding.

1. On 17 September 2009, the first respondent Shangri-La Construction Pty Ltd (the Builder) and a developer, 30 Willansby Street Pty Ltd (ACN 126 967 388) (the Developer) entered into a major domestic building contract based on amended AS 4300-1995 General Conditions of Contract (the D&C Contract). The D & C Contract imposed design and construction responsibilities on the Builder. The contract sum was $8,125,000 plus GST.
2. The moving mind behind the Developer was a director, Mr Jonathan Hallinan. Mr Hallinan acquired some old houses in Brighton, demolished them, consolidated the site and engaged an architect to obtain a planning permit. He then engaged another architect to prepare a prototype design for a typical apartment.
3. Mr Hallinan did not engage that architect to provide a full architectural service for the project, but turned to architectural draughtsman named Alex Rouditser of The Silver Arc Pty Ltd (The Silver Arc or the Draughtsman) for the completion of the design. To assist with the development of the project, he engaged a project manager, Proxus Pty Ltd (Proxus or the Project Manager).
4. The Developer engaged a building surveying firm then named Nicholson Wright Pty Ltd (ACN: 072 393 741)[4] (Nicholson Wright) of which the sole director and secretary was Mr Jim Tsaganas (Mr Tsaganas). Mr Tsaganas became the relevant building surveyor (RBS) for the project. (Nicholson Wright and Mr Tsaganas are together referred to as the Buildings Surveyors).
5. Nicholson Wright in turn engaged a fire engineering firm, Simco Consulting Pty Ltd (ACN 099 646 750) (Simco), of which the director is Mr Peter Simenko (Mr Simenko). Simco's contract was never novated to the Builder. (It is convenient to refer to Simco and Mr Simenko together as the Fire Engineers)
6. Construction began on 28 October 2009 and the occupancy permit was issued on 24 March 2011.[5]
7. A number of the apartments had been sold off the plan. Almost as soon as the purchasers took possession, defects in their apartments became apparent. The Builder was called on by those purchasers and by the Developer, which still held a number of apartments, to rectify the defects but it did not do so satisfactorily. Over time, the Developer sold more apartments and some original owners on-sold their apartments. The development continued to be plagued by defects. The individual apartment owners and the Owners Corporation (together, the Owners) took advice and obtained an experts report from a building consultant, Jeff Beck. On the basis of Mr Beck's reports, they commenced this proceeding in 2017. The Owners sought damages from the Builder and nine other respondents including the Building Surveyors and the Fire Engineers and the Draughtsman regarding alleged defects in the Willansby Apartments. For the reasons set out in the Defects Determination, they have been successful against the Builder, and to a small extent against the Building Surveyors.

1. The insurance dispute arises in these circumstances. Arch Underwriting at Lloyd's (Australia) Pty Ltd (Arch), issued a professional indemnity policy for the policy year 6 June 2016 - 6 June 2017 to the Builder (the Policy).
2. In May 2017, the Builder notified a claim to Arch under the Policy in respect of the Owners' claim against the Builder.
3. By letter dated 18 July 2017, a firm of solicitors engaged by Arch, Clyde & Co, wrote to the Builder advising that they had been instructed "that Arch will grant indemnity to you under the Contract of Insurance in respect of the claim made by the claimants in the proceeding subject to a specific reservation of rights".[6]
4. Out of this letter the Insurance Dispute has arisen. The Insurance Dispute began to emerge about 18 months later when Arch suggested that it was not obligated to fully indemnify the Builder. The Insurance Dispute became full-blown on 11 June 2020 when Arch withdrew or denied indemnity.
5. The Builder did not immediately seek to join Arch as a party to the proceeding after 11 June 2020. The director of the Builder, Mr Obaid Naqebullah said this was because the Builder wished to pursue the complaints process available under the Policy to its conclusion. A two-stage complaints process was available to the insured. In brief, stage 1 involved making a complaint to Arch itself. If the Builder was not satisfied with the way in which the complaint was dealt with, the Builder could elevate the complaint to Lloyds Corporation UK (Lloyds). The Builder did take its complaint to Lloyds. Ultimately, a complaints officer at Lloyds upheld Arch's decision regarding indemnity.
6. At a directions hearing at the Tribunal on 8 April 2021, the Builder obtained orders joining Arch to the proceeding. In addition to asserting that Arch is, as a matter of construction of the Policy, obligated to indemnify it, the Builder makes alternative claims. It asserts that Arch, by the letter of 18 July 2017, made an election to indemnify it. It contends that Arch is now estopped from denying indemnity. It also makes a claim that Arch acted unconscionably.
7. Clyde & Co went on the record as the solicitors for the Builder on 24 May 2017, which was shortly after the proceeding had been commenced. The circumstances in which this occurred are examined below. Arch (and accordingly the Lloyd's Underwriters) were then clearly acting without prejudice to the issue of liability under the Policy. A critical issue in the case is whether indemnity was later unconditionally admitted in July 2017, as the Builder insists.
8. Clyde & Co did not withdraw from the record when Arch sought to limit the extent of the indemnity it appeared to have admitted in July 2017 in late 2018, but went off the record only after 11 June 2020 when indemnity was completely withdrawn or denied by Arch.

THERE IS AN ISSUE AS TO THE IDENTITY OF THE RELEVANT UNDERWRITER

1. During the course of the proceeding an issue arose as to whether Arch was the true underwriter. As a result of this controversy, another party known as Certain Underwriters at Lloyd's Subscribing to Policy Number P0003310PI2016AU0 (the Lloyd's Underwriters) was joined by the Tribunal on 3 November 2021. As a result of an amended pleading, the Builder's claims against Arch are also made against the Lloyd's Underwriters.
2. When Arch was joined, it became the fourth joined party. The Lloyd's Underwriters became the fifth joined party.

(a) The first applicant is the registered proprietor of the Common Property at the Development. The other applicants are the registered proprietors of the respective private lots. > > (b) the Builder, Shangri-La, is the first respondent. It went into liquidation on 31 March 2023. > > (c) The Building Surveyors, Nicholson Wright and Mr Tsaganas, are respectively the second and third respondents. > > (d) The Fire Engineers, Simco and Mr Simenko, are respectively the fourth and fifth respondents. Simco has, according to an extract from ASIC's records, been deregistered since 24 February 2022. The proceeding against it was struck out with a right to apply for reinstatement by order made 24 August 2022. > > (e) The sixth respondent is the Draughtsman, The Silver Arc. > > (f) The seventh respondent is Total Seal Waterproofing (Vic) Pty Ltd (in liquidation) (Total Seal). The proceeding against it was struck out with a right of reinstatement by order made 24 August 2022. > > (g) The eighth respondent is Hurricane Metal Roofing Pty Ltd but is now known as A.C.N. 145 482 622. (Hurricane). The company has, according to an extract from ASIC's records, been deregistered since 26 May 2021. The proceeding against it was struck out with a right to apply for reinstatement by order made 24 August 2022. > > (h) The ninth and tenth respondents are Mohammad Pacha and Hamzaie Hafizullah who trade (or traded) as K&P Rendering Texture Finishing (K&P Rendering). > > (i) The first joined party is Haiying Jiang (Ms Jiang), who trades (or traded) as GPS Plaster (GPS Plaster). The second joined party is CMM Group Pty Ltd (ACN: 142 132 358) (CMM). > > (j) The third joined party was Insurance Australia Limited (ACN: 000 016 722) t/as WFI (Hurricane's Insurer). A settlement of the Builder's claim against Hurricane's Insurer was achieved shortly after the opening of the hearing, and that party was struck out as a party by order made 10 June 2021.

2. For consistency, defined terms such as 'Arch", "the Lloyd's Underwriters", "the Policy" and "the D&C Contract" are given the same meaning in this determination as they are given in the Glossary included in the Defects Determination. That Glossary is attached.

THE LIQUIDATION OF THE BUILDER DOES NOT PREVENT THE TRIBUNAL FROM PUBLISHING THIS DETERMINATION

1. Because the Builder was placed in liquidation by its members, a stay of the proceeding has come into effect by virtue of s 500 of the Corporations Act 2001 (Cth). In the reasons published with the Final Orders (Defects) I determined that the stay did not prevent the me from publishing final orders. Hence, I consider that I am at liberty to publish this determination as well as the Final Orders (Defects).

1. The Builder in its pleading says that it is entitled to indemnity under the Policy. It makes this claim in three ways. First, it submits that the Policy, by its terms, covers the claim. Secondly, it says that the Lloyd's Underwriters elected to indemnify it under the Policy. Thirdly, it says Lloyds Underwriters are now estopped from resiling from the grant of indemnity conferred upon the Builder by its agent's letter of 18 July 2017 and that it would be unconscionable for them to deny indemnity for the claim.
2. Arch and the Lloyd's Underwriters that the Builder does not get to first base, as it did not make a Claim within the meaning of the Policy.
3. As noted, during the conduct of the hearing, an issue arose as to the identity of the true underwriter. In my view, it is logical to deal with this issue before dealing with the other issues.
4. There is also a new issue raised by the Builder in its final submissions under the heading "Duty of Utmost Good Faith and other provisions of the Insurance Contract Act." It is appropriate to deal with it first, as it potentially touches on the Tribunal's jurisdiction. As illustrated by the recent Court of Appeal decision in Thurin v Krongold Constructions (Aust) Pty Ltd[7] (Thurin v Krongold), the Tribunal has no jurisdiction to consider a claim made under the Insurance Contracts Act 1984 (Cth) (Insurance Contracts Act).

1. It was surprising that the Builder included such a submission, as there is no pleading in the proceeding concerning Arch or the Lloyd's Underwriters duty of utmost good faith or the Insurance Contracts Act. This point is clear, because prior to the start of the hearing the Builder made an application to amend its Points of Claim against Arch to include such a pleading. That application was vigorously opposed by Arch on the basis that it would widen the issues and require further investigation. The application was heard and dismissed at a directions hearing on 3 June 2021.
2. Perhaps for this reason, Arch and the Lloyd's Underwriters did not grapple with the issue in their final submissions.
3. The Builder returned to the topic in its submissions concerning Allianz v Delor Vue.[8]
4. The Lloyd's Underwriters responded robustly, submitting "Shangri-La has sought, once again, to introduce a new case based on the duty of utmost good faith under s 13 of the ICA. This should not be countenanced."[9]
5. The Builder took the liberty of submitting further submissions dated 17 February which purportedly responded to Arch and the Lloyd's Underwriters submissions of 8 February 2023. It replied to the underwriters' submission that it was seeking "to introduce a new case" by asserting that it had relied on the duty of utmost good faith throughout the proceeding.[10]
6. I reject the Builder's submissions on this issue. As noted, before the hearing began, the Builder realised that its pleading against Arch was deficient because it did not raise the duty of utmost good faith. It sought to cure this deficiency, and its application was rejected.
7. Arch and the Lloyd's Underwriters responded during the hearing and in their submissions to the case as pleaded. They have not responded to an allegation of breach of the duty of utmost good faith. They have not called witnesses from Arch.
8. I confirm that the duty of utmost good faith and the operation of s 13 of the Insurance Contracts Act do not form part of the controversy that I need to decide in this proceeding.
9. I have in the Defects Determination found that as I have accepted jurisdiction and published a determination involving findings regarding the existence and the cost to rectify defects it is too late for me to re-open the issue of jurisdiction. That is a matter for an appeal court.
10. Even if it is not too late for me to revisit the issue of jurisdiction I would find that the Tribunal is not deprived of jurisdiction by reason of the operation of the constitutional principle illustrated by Thurin v Krongold as the Builder has not made a claim under the Insurance Contracts Act.

1. Having dealt with this preliminary issue, I now turn to the substantive issues to be determined. By way of executive summary, I note that the answers to the questions are as follows:

(a) The underwriters standing behind the Policy are the Lloyd's Underwriters. They are the proper respondents to the Builder's claim under the Policy.[11] > > (b) The Builder did make a Claim within the meaning of the Policy.[12] > > (c) The Builder is not entitled to be indemnified under the wording of the Policy because: > > > (i) the professional services it rendered were not supervised in the manner required by the Policy;[13] and > > > > (ii) there is under the Policy an applicable carveout from the definition of Professional Business of performance and supervision of construction related activities where such performance or supervision is undertaken in the capacity solely as a building or engineering contractor.[14] > > (d) However, although the Policy did not by its terms attach to the Claim, Arch (and accordingly the Lloyd's Underwriters) elected to indemnify the Builder under the Policy by exercising against the Builder rights given to them by the Policy;[15] > > (e) Furthermore, the Lloyd's Underwriters are estopped from denying that indemnity has been admitted.[16]

1. Before embarking on an analysis of the Builder's insurance claim, it is necessary to determine if it is Arch or the Lloyd's Underwriters who issued the Policy.
2. The Builder originally pleaded its case against Arch only, relevantly alleging that Arch is in the business of entering into contracts of insurance, including for and on behalf of Syndicate 2012 at Lloyd's.
3. In September 2021, some three months after the hearing had begun, Arch's new solicitors on the record, Kennedys, wrote to the Builder's solicitors contending that Arch was not the appropriate respondent and the underwriters at Lloyd's who subscribed to the policy ought to be joined.
4. In a letter dated 4 October 2021, Kennedys explained that the Federal Court decision in Federal Court decision of Quintis Ltd (Subject to Deed of Company Arrangement) v Certain Underwriters at Lloyd's London Subscribing to Policy Number B0507N1 FA15350[17] ("Quintis") set out information about how the Lloyd's insurance market operated.
5. Later, in a so-called 'Aide-Memoire on Proper Parties' filed in October, Arch highlighted that the Certificate of Insurance[18] stated that it was the agent for the relevant syndicate of underwriters. Specifically, Arch was said to be acting 'For and on behalf of Arch Syndicate 2012 at Lloyd's'. Arch submitted that the appropriate respondent to the Builder's insurance claim was 'Certain Underwriters at Lloyd's Subscribing to Policy Number P0003310PI 2016 AU0', ie the Lloyd's Underwriters.
6. By consent, on 3 November 2021, the Tribunal made orders that Certain Underwriters at Lloyd's Subscribing to Policy Number P0003310PI 2016 AU0 be joined to the proceeding. As noted, they became the fifth joined party.
7. In its amended defence (filed after the Lloyd's Underwriters were joined), Arch admits that it issued the Policy to the Builder as agent for and on behalf of the Lloyd's Underwriters.
8. In their defence, the Lloyd's Underwriters admit:
   1. that they are Certain Underwriters at Lloyd's subscribing to Policy Number P0003310PI2016AU0 and members of Arch Syndicate 2012 at Lloyd's
   2. they are the underwriters who granted authority to Arch to effect insurance, subject to agreed terms, limits and conditions, as cover holder on their behalf; and
   3. admit they can be sued on behalf of the underwriters who issued, to the Builder, the Policy on or about 6 June 2016.[19]
9. In the course of his final oral submissions, Mr Murdoch urged me to dismiss the case against Arch and make a determination that the relevant joined insurer was the Lloyd's Underwriters.
10. I invited Dr Wolff to concede that this was the appropriate course. He declined to do so for two reasons. First, he said that no evidence had been led by either Arch or the Lloyd's Underwriters about the issue. Secondly, he was concerned that a concession that the case against Arch ought to be dismissed might lead to a costs order being made against the Builder.
11. The operation of the Lloyd's market has been examined in Quintis. In that case Lee J held that 'insurance placed with Lloyd's must be undertaken through the agency of a broker who is registered to place business in the Lloyd's market.'[20] Lee J also held that a contract of insurance existed between the insured and each individual subscribing underwriter.[21]
12. Under s 98(1)(c) of the VCAT Act the Tribunal 'may inform itself on any matter as it sees fit'. In circumstances where a Federal Court judge has examined the operation of the Lloyd's market and has held that a contract of insurance exists between the insured and each subscribing underwriter rather than the insured and the broker, I consider that this matter has been established. I do not require Arch and the Lloyd's Underwriters to lead evidence about it.
13. On the basis of Quintis, I accept the submission that Arch issued the relevant professional indemnity insurance policy as agent for the Lloyd's Underwriters. I note the admission by the Lloyd's Underwriters that they issued the Policy. Accordingly, I find that the Lloyd's Underwriters are the appropriate respondent to the Builder's insurance claim, rather than Arch.
14. Arch, as agent for a disclosed principal, has no liability to the Builder. It is entitled to an order that the case against it should be dismissed, and I will make such an order.
15. In light of this finding, it is convenient to put to one side the pleading against Arch, and refer the pleading as if it was a pleading only against the Lloyd's Underwriters.
16. The finding that the Lloyd's Underwriters are the appropriate respondent to the insurance claim does not mean, however, that Arch automatically will be entitled to its costs of the proceeding. As Mr Murdoch candidly conceded at the hearing, the issue of the identity of the appropriate joined party in the insurance dispute should have been determined much earlier. In any event, costs are a matter for the future when substantive orders have been made and any offers have been disclosed.
17. Having dealt with the important preliminary issue of the identity of the true insurer, I am almost in a position to address the issues raised for determination by the Builder's pleadings. Before I do so, it is appropriate to refer to some authorities concerning the interpretation of insurance policies.

PRINCIPLES OF INTERPRETATION OF AN INSURANCE POLICY

1. In their opening submissions, the Lloyd's Underwriters, through Arch (which was at that point the only respondent to the Builder's insurance claim), helpfully referred to a number of authorities relevant to the interpretation of an insurance policy. First, they paraphrased the words of Gleeson CJ in McCann v Switzerland Insurance Australia Ltd[22] (McCann), noting:

A policy of insurance, even one required by statute, is a commercial contract and should be given a businesslike interpretation. Its interpretation requires attention to the language used by the parties, the commercial circumstances which the document addresses, and the objects which it is intended to secure.

1. I highlight this passage because there appears to be some controversy as between the Builder and Lloyd's Underwriters as to precisely the objective of the Policy.
2. The Lloyd's Underwriters submit that a policy of insurance is to be considered as a whole. For example, the schedule and the policy wording must be read together.[23] I accept the submission, as it is from all the parts of the Policy that its objective is to be understood.
3. In the light of the Builder's insistence that Mr Naqebullah's subjective understanding of the policy was a relevant factor, is important to emphasise, as Mason ACJ, Murphy and Deane JJ remarked in[ ] the objective theory of contract is "in command of the field".
4. The relevance of this principle is that there is no warrant to have regard to past insurance policies taken out by the Builder. The Builder was keen for me to have regard to the policy issued in the previous year by Resource Underwriting Pacific Pty Ltd (RUPPL), but in my view this is not only unnecessary, it is impermissible. It is impermissible as the RUPPL policy is a different policy issued by a different underwriter. It may be relevant to understanding what Mr Naqebullah thought he was buying, but it is irrelevant to the meaning of the Policy.
5. The Lloyd's Underwriters also submit that evidence of surrounding circumstances is admissible to assist in the interpretation of the contract if the language is ambiguous or susceptible of more than one meaning. But, as Mason J remarked in Codelfa Construction Pty Ltd v State Rail Authority of New South Wales, "it is not admissible to contradict the language of the contract when it has a plain meaning."[25]
6. The Lloyd's Underwriters contend that as a general rule of interpretation, a contract of insurance is to be construed against the insurer. But as Kirby J observed in McCann:

Courts now generally regard the contra proferentem rule (as it is called) as one of last resort because it is widely accepted that it is preferable that judges should struggle with the words actually used as applied to the unique circumstances of the case and reach their own conclusions by reference to the logic of the matter, rather than by using mechanical formulae.[26]

1. Other than to acknowledge the principle, it is not necessary to address the operation of the contra proferentem rule because, in my view, no genuine ambiguity in the Policy exists.

DOES THE CLAIM MADE BY THE BUILDER FALL WITHIN THE POLICY?

1. The starting point must be to identify the contents of the policy. After this, relevant definitions including the key definitions and the insuring clauses must be examined.

1. It is common ground that the Policy includes the Arch 2015 Professional Indemnity policy wording (D&C-April 1915), the Certificate of Insurance and the Proposal. There is a small controversy centred on the Builder's insistence that documents associated with the proposal including the covering email are included in the Policy. This is disputed by the Lloyd's Underwriters. I am disposed to accept the Lloyd's Underwriters' view on this point, but note that nothing turns on it.

1. The definition of 'Insured' under the Policy reads:

(a) the person(s), principal(s), members of the partnership, directors, company or corporation, statutory authority, association or the legal entity specified in the Schedule and Employees thereof being the basis of this Contract, and their predecessors in the Professional Business; > > (b) any person who becomes, during the Period of Insurance, a partner, director, or Employee of the Insured, but in each case solely in respect of work carried out for or on behalf of the Insured and in the conduct of the Professional Business; > > (c) the estate, heirs, legal representatives and assigns of any deceased Insure person. [27]

1. Clearly, in order to identify the Insured it is necessary to have regard to the 'Schedule'. This also is a defined term, and means 'the Schedule on the Certificate of Insurance'.

1. The Policy provides in section C for automatic coverage to be extended in certain circumstances under the Policy subject to its terms, conditions, limitations and exclusions for any Claim made against the Insured during that Period of Insurance and notified by the Insured to Underwriters in writing during the Period of Insurance. Under condition C 5, coverage is extended to the Insured in respect of vicarious liability. It is not necessary to dwell on this coverage, however, as no claim is made against the Builder in respect of any vicarious liability connected to any act, error or omission of any consultant, sub-contractor or Agent of the Insured in the conduct of the Professional Business.

1. The Insuring Clauses of the Policy require the Lloyd's Underwriters to:
   1. Indemnify the Insured against any Claim first made against them, during the Period of Insurance and notified by the Insured to Underwriters in writing during the Period of Insurance in respect of any civil liability incurred in their conduct of the Professional Business.
   2. In addition, pay Defence Costs incurred with the prior written consent of Underwriters in the defence or settlement of any such Claim, provided that, if a payment in excess of the amount of indemnity available under this Contract is to be made to dispose of a Claim, Underwriters' liability for such Defence Costs shall be such proportion thereof as the amount of indemnity available under this Contract in respect of that Claim bears to the amount paid or payable to dispose of that Claim.

(a) any Writ, Summons, Application or other originating legal or arbitral process, cross-claim, or counter-claim served upon any Insured alleging a breach of professional duty in the conduct of the Insured's Professional Business; > > (b) any demand alleging any civil liability or breach of professional duty by the Insured in their conduct of the Professional Business communicated to an Insured by whatever means.

All Claims arising from the same act error or omission, or consequent upon or attributable to one source or original cause, shall be deemed to be a single Claim.

1. The Lloyd's Underwriters rely on the full terms and effect of the Policy, including the full definition of 'Claim'. Central to their defence is the proposition that no Claim within the meaning of the Policy was made.[28] This argument centres on the content of the notification of the claim, not on any technical argument that the notification claim was not properly communicated to the Lloyd's Underwriters. Receipt of the notification by the Lloyd's Underwriters is conceded.

DISCUSSION OF WHETHER A 'CLAIM' HAS BEEN NOTIFIED

1. In April or May 2017, the Builder notified a claim to Arch, in its capacity as agent for the Lloyd's Underwriters under the Policy, relating to the Owner's claim against the Builder. The parties refer to different dates of notification in their respective pleadings. Specifically, the Builder contends that it submitted a claim to Arch for indemnity under the Policy on 24 April 2017.[29] Coincidentally, this appears to be the approximate date upon which this proceeding was initiated. Arch contends that the claim was notified in an email from the Builder's insurance broker, Josh Van Slyke of CCM Insurance Group ("CCM"), to Arch dated 18 May 2017.
2. It is not strictly necessary that I make a determination about the date of notification of the claim, as the dates respectively contended for by the parties each fall within the policy year 6 June 2016 to 6 June 2017. However, the alleged notification of claim of 24 April 2017 was not tendered. On the other hand, CMM's email of 18 May 2017 addressed to Arch was included in the Tribunal Book[30] and was the subject of cross examination.
3. Relevantly, the email of 18 May 2017 begins in these terms:

We would like to lodge a claim on behalf of our client Shangri La Construction.

I have attached a number of reports which outline a number of defective works which are now arising from a Job started back in 2011.

Our client has recently received a VCAT order (attached) hence we need this claim to be lodged urgently.

We are currently assessing the claim ourselves however how ever (sic) could you please assist in advising where you believe the indemnity lies.

Please advise what further information you require.

1. It is to be noted that the introductory wording suggests that this was the first notification of a claim made against the Builder. On this basis, and in the absence of any evidence about the alleged notification dated 24 April 2017, I find that the email from CCM dated 18 May 2017 was the initial notification of the claim.
2. The email of 18 May 2017 sent by CCM to Arch must refer to the application issued in the Tribunal in March 2017. The Tribunal's file was created on 15 March 2017. The email refers to an order from the Tribunal that had been 'recently received'. This must be the order made by the Tribunal at a directions hearing on 9 May 2017. From the order, the Lloyd's Underwriters would have become aware that the Owners had made a claim in the Tribunal against the Builder, and that Nicholson Wright and Mr Tsaganas had been joined as the second and third respondents respectively. Furthermore, from the building consultants' reports attached to the email, the Lloyd's Underwriters would have gained knowledge of some of the allegations made against the Builder.
3. Because the Lloyd's Underwriters were put on notice that a VCAT proceeding was on foot, the first limb of the definition of 'Claim' set out in part (a) of the definition is established. This point is conceded by the Lloyd's Underwriters.

Overview of the Lloyd's Underwriters' submissions as to why there was no claim

1. The Lloyd's Underwriters raised two separate arguments as to why there was no claim. The first is a technical argument that can be no claim for breach of any warranty arising under s 8 of the Domestic Building Contracts Act 1995 (DBC Act) in respect of design work. Hence there can be no claim for the Policy to attach to. The second is a complex submission that the claim they were notified of did not relate to any civil liability incurred in the Builder's conduct of a Professional Business nor did it allege any legal liability in connection with an act, error or omission by any consultant, subcontractor or agent of the Builder in the conduct by the Builder's Professional Business.
2. I now turn to the first argument.

The Lloyd's Underwriters' argument that there can be no claim for breach of section 8 warranty in respect of design work

1. The Lloyd's Underwriters raise an argument in their final submissions that no claim can be made by the Builder under the Policy for breach of any design duty by reason of the operation of s 6(1)(e) of the DBC Act.
2. This argument is based on the premise that the claim made by the Builder is purely a claim based on the warranties created by s 8 of the DBC Act which are expressed in the D&C Contract, which the Owners are entitled to pursue pursuant to s 9 of the DBC Act.
3. It was necessary for the Lloyd's Underwriters to address the point, because in their opening - apparently to the surprise of both the Builder and the Lloyd's Underwriters - the Owners emphasised that the work of the Builder under the D&C Contract included design work as well as construction work.
4. On its face, the definition of work to which the DBC Act applies contained in s 5 of the DBC Act is broad enough to include design work. Section 5 provides:

(a) the erection or construction of a home, including -

(i) any associated work including, but not limited to, landscaping, paving and the erection or construction of any building or fixture associated with the home (such as retaining structures, driveways, fencing, garages, carports, workshops, swimming pools or spas); and

(ii) the provision of lighting, heating, ventilation, air conditioning, water supply, sewerage or drainage to the home or the property on which the home is, or is to be;

(b) the renovation, alteration, extension, improvement or repair of a home;

(c) any work such as landscaping, paving or the erection or construction of retaining structures, driveways, fencing, garages, workshops, swimming pools or spas that is to be carried out in conjunction with the renovation, alteration, extension, improvement or repair of a home;

(d) the demolition or removal of a home;

(e) any work associated with the construction or erection of a building -

(i) on land that is zoned for residential purposes under a planning scheme under the Planning and Environment Act 1987 ; and

(ii) in respect of which a building permit is required under the Building Act 1993 ;

(f) any site work (including work required to gain access, or to remove impediments to access, to a site) related to work referred to in paragraphs (a) to (e);

(g) the preparation of plans or specifications for the carrying out of work referred to in paragraphs (a) to (f); (emphasis added)

(h) any work that the regulations state is building work for the purposes of this Act.

1. In response, the Lloyd's Underwriters highlight in response that s 6(1)(e) of the DBC Act excludes from the operation of the DBC Act:

design work carried out by an architect or a building practitioner registered under the Building Act 1993 as a draftsperson or an endorsed building engineer within the meaning of the Professional Engineers Registration Act 2019 [2] ;

1. In my view, this submission of the Lloyd's Underwriters is not sustainable because the scope of design work undertaken by the Builder for this project was wider in scope than design work performed by an architect, registered architectural draughtsperson or an endorsed building engineer. In addition to the design responsibilities referred to in clause 3.4(a) and (b) of the General Conditions of the D&C Contract which are set out at [117] below, the Builder's responsibilities also included by reason of clause 3.4(f) to:

(i) Ensure the Contractor's Design Documents are suitable for their intended purpose; > > (ii) Comply with the requirements of the Contract (including without limitation the Principal's Project Requirements and architectural design intent) and accepted industry standards; > > (iii) Prepare and execute or cause the preparation and execution of all Contractors Design Documents in accordance with accepted practice in the Australian engineering and construction industry and relevant Legislative Requirements; > > (iv) ensure the Design Documents will be prepared by experienced design consultants which have appropriate professional qualifications and membership of appropriate professional associations which hold professional indemnity insurance in accordance with clause 20, and are approved by the Principal; > > (v) Co-ordinate the activities of the Consultants in order to complete such drawings, construction programs, specifications, plans and designs as shall be necessary to finalise the Contractor's Design Documents. > > (vi) (Not applicable) > > (vii) (Not applicable) > > (viii) (Not applicable) > > (ix) Ensure that the design documents are accompanied by a certificate from the Contractor's design consultants which confirms that they have been prepared in accordance with, and satisfy, the requirements of the Principal's Project Requirements and if this is not provided for in the Consultant's agreements novated to the Contractor the Contractor shall in any event procure the certificate from each Consultant and any additional expense or cost incurred by the Contractor in any such case shall be valued under clause 40.5.

2. The Lloyd's Underwriters' argument ignores the fact that Mr Naqebullah on behalf of the Builder drafted the specification, which can be viewed as a design activity. Furthermore, the argument also overlooks the fact that the Owners also allege that the Builder owed them a duty of care, breached that duty and they have suffered loss and damage as a result.[31]

1. I now return to the Lloyd's Underwriters principal arguments as to why no claim has been made by the Builder within the meaning of the Policy. As noted, they make a double headed submission that the claim they were notified of did not relate to any civil liability incurred in the Builder's conduct of a Professional Business nor did it allege any legal liability in connection with an act, error or omission by any consultant, subcontractor or agent of the Builder in the conduct by the Builder's Professional Business.
2. The Builder did not make a submission that the Policy responded because of any act, error or omission by any consultant or subcontractor in the conduct by the Builder's Professional Business for which the Builder was vicariously liable. Accordingly, the second submission falls away. However, it is necessary to consider the Lloyd's Underwriters submission that the Policy does not respond to the Builder's claim because it did not relate to any civil liability incurred in the Builder's conduct of a Professional Business

The definition of Professional Business under the Policy

1. Central to this submission is the definition of Professional Business contained in the Policy. 'Professional Business' is defined under the policy as meaning one or more of the following services:
   1. design, including advice in relation to design, in accordance with all relevant building, construction or engineering codes and standards;
   2. drafting;
   3. technical calculation;
   4. specification;
   5. construction and project management;
   6. feasibility studies;
   7. programming and time flow management;
   8. quantity surveying;
   9. surveying;
   10. technical advice;
   11. inspection; and
   12. training in respect of (a) to (k) above;

PROVIDED always that it is performed by or under the direct supervision of:

(i) a properly registered engineer, architect or surveyor;

(ii) a quantity surveyor who is a member of the Australian Institute of Quantity Surveyors; or

(iii) any other person providing a professional service of a skilful character according to an established discipline, appropriate to the professional services being performed or supervised.

Professional Business does not mean performance or supervision (where such supervision would normally be undertaken by a building contractor) of construction-related activities, either on-site or off-site, including temporary works, manufacture, assembly, installation, erection, maintenance or physical alteration of buildings, goods, products or property, programming, time flow management, environment protection, workplace health and safety or industrial relations, by the Insured or its Agent, where such performance or supervision is undertaken in the capacity solely as a building or engineering contractor.

For the purpose of paragraph (e) of this definition, construction and project management means the planning, administration, scheduling, evaluation and supervision of construction and completion of a project including the procurement and allocation of labour, materials and services.

1. The Builder's position is that it provided professional services in the categories of design, drafting, specification, project management, programming and inspection. In respect of these matters it relies principally on the evidence of Obaid Naqebullah. I address the Builder's position on each of these matters in turn.

1. In its final submissions, the Builder refers to the design obligations it discharged under the D&C Contract including the engagement of Nader Consulting, Albrecht Consulting and NES. It refers also to the engagement of Louie Asaiee of Archvision Drafting. It refers to the shop drawings prepared by a number of subcontractors including BT Windows, Benalli Kitchen Concepts and GPS. Reference is also made to the evidence of Dawei Wang of GPS[32] and Wally Yang[33] to the effect that Mr Naqebullah would change the specification and design.

1. As to specification, the Builder points to the drafting of the specification by Mr Naqebullah in conjunction with Mr Hallinan.
2. Mr Naqebullah gave detailed evidence about how he prepared the Specification in conjunction with Mr Hallinan. The Lloyd's Underwriters do not dispute this, but contend that Mr Naqebullah was not appropriately qualified to do this work. I find against the Lloyd's Underwriters in respect of this contention on the basis that as a registered domestic builder, Mr Naqebullah was qualified to draft the Specification, particularly as he based it on the MBA standard specification.
3. However, the Lloyd's Underwriters also highlight that the Specification was prepared before the D&C contract was signed on 17 September 2009. I accept the point, as the Specification was jointly signed by Mr Hallinan on the day the D&C contract was signed. I do not accept the corollary, which is that the preparation of the Specification was not an action performed under the D&C Contract, and accordingly was not an action to which the warranties, created by s 8 of the DBC Act and expressly written into the Contract, could apply.
4. I conclude this because the specification was prepared in conjunction with the D&C Contract and was incorporated into it. Accordingly I accept that a claim for breach of a warranty based on a drafting error made in the Specification can be maintained.

1. The Builder's case is that it did not construct the Willansby Apartments using its own resources, but engaged subcontractors to do so. Part of the Builder's role was to inspect the work of its trades.
2. Significant sub activities forming part of its project management role, which the Builder insists were insured activities, were inspection or supervision of the works.
3. The Builder says that its trades were supervised by three people. The first was Mr Naqebullah himself. The second was Peter Kelly. The third was the RBS, Jim Tsaganas.

1. I accept that Mr Naqebullah as a registered domestic builder was appropriately qualified to inspect the work of the trades. However, I note there is inconsistent evidence about the amount of time he spent on site. According to the witness statement which was prepared for Mr Naqebullah by Clyde &Co, which was subsequently disavowed by Mr Naqebullah, he was there only 'weekly during the stage 2 works'.[34] In his revised evidence, he deposed that he was at site every couple of days. Putting aside the obvious point that the inconsistency in Mr Naqebullah's evidence substantially lessons it credibility, I consider that even attendance at site every second day is not compatible with the notion of direct supervision of the trades on such a significant project, involving 23 different apartments as well as common areas covering two floors. I accordingly find for the Lloyd's Underwriters on the issue of whether the supervision of the work was directly supervised by Mr Naqebullah.

1. Mr Naqebullah's evidence was that Peter Kelly was on site every day and that he also inspected the works of the trades. Mr Naqebullah said:

Mr Kelly's role in the construction of the stage two works was to manage the construction works to ensure they were completed in an efficient, timely and cost-effective manner. Mr Kelly's duties included:

coordination of subcontractors and material suppliers;

general supervision of the subcontractors and material suppliers to ensure they were able to deliver their products and services in accordance with the applicable contracts this did not extend to checking the work of the subcontractors);

reporting any issues to the Project Manager (me).[35]

1. However, Mr Kelly (according to Mr Naqebullah's evidence) cut-off communications with Mr Naqebullah, when, during the course of the litigation, he attempted to discuss the project with Mr Kelly. Mr Kelly did not appear as a witness, and the Tribunal did not have the benefit of any evidence from him about the degree of inspection or supervision of trades he carried out. This is not critical, however, as it is common ground between the Builder and the Lloyd's Underwriters that Mr Kelly did not hold any relevant qualification, and accordingly was not someone who was appropriately qualified to have directly supervised the trades for the purposes of the conduct of a Professional Business as defined in the Policy.

1. I turn now to the final proposition advanced by the Builder, which was that the RBS Mr Tsaganas supervised the trades. I reject this submission. The role of a RBS has been discussed in the Defects Determination.[36] For present purposes it is sufficient to note that the role is defined by legislation and regulation. A RBS may, no doubt, take on wider duties to a client, by contract, but in the present case the building surveyor was engaged by the Developer and not by the Builder. Accordingly, there is no legal basis for the Builder to contend that Mr Tsaganas was working for it when he was discharging his statutory functions.
2. Mr Naqebullah gave evidence about the performance of 'kerbside inspections' by Mr Tsaganas. I find that these inspections cannot be viewed as constituting supervision of the trades by Mr Tsaganas for the Builder, for two reasons. First, the nature of the arrangement under which Mr Tsaganas undertook the so called kerbside inspections is unclear. The person employed by the Builder who engaged Mr Tsaganas was not clearly identified and whoever it was did not appear as a witness.
3. Secondly, the scope of the inspections is not clear either. It appears from Mr Tsaganas's evidence that the purpose was for him to conduct the inspections so that the project quantity surveyor could certify to the financier the progress of the works. This suggests that the inspections were not concerned with the quality of the works but with their progression. This limited description of the scope of the works is consistent with Mr Tsaganas's evidence that he did not even go onto the site for the inspections, which is why he called them 'kerbside'.
4. Because Mr Tsaganas was not supervising the works for the Builder when he was discharging his obligations as RBS, and because he was not supervising the works for the Builder when the carried out his kerbside inspections, the proposition that he was supervising work in any capacity is not made out.

1. Before we look at Mr Naqebullah's evidence regarding the specified service of construction and project management, I note the Builder's contention that this service can be looked at in three ways, namely:

(a) as a reference to construction as a standalone activity, separate from project management; > > (b) construction management and project management as two separate activities; > > (c) construction management and project management as a single activity.

2. I am not persuaded the first alternative is viable. If construction is treated as a stand alone activity which is insured under the Policy, the very nature of the Policy as a professional indemnity policy would be subverted. It would, in part, be a policy covering construction alone.
3. The Lloyd's Underwriters contend that the only interpretation that can be put upon the service referred to is the second one set out above, namely that construction management and project management are to be viewed as separate activities. I am persuaded this is a reasonable interpretation , as construction management is a specific form of construction project delivery where a party manages the trades as an agent for a disclosed principal. On the other hand, project management may refer generically to a process of project delivery which is managed through the achievement of a programmed sequence of specific activities, which is not limited to construction projects. However, if a project manager is working on a construction project, there may be an element of overlap between the two activities.
4. Treating the two activities as separate is consistent with the way the Builder presents its case. The Builder refers consistently to its project management services rather than its construction management services.
5. However, the argument is moot, as the Policy clearly treats the two activities as one. I say this because the definition of Professional Business finishes with the following proviso:

For the purpose of paragraph (e) of this definition, construction and project management means the planning, administration, scheduling, evaluation and supervision of construction and completion of a project including procurement and allocation of labour, materials and services.

1. As to construction and project management, the Builder argues that it is not a conventional domestic builder. Relevantly, Mr Naqebullah gave evidence that although the nature of its business was to develop high-end homes, it did not operate as a builder. He insisted that his company operated as a project manager and planned, directed and supervised the work of others.
2. The Builder quotes Mr Naqebullah's evidence that 'we don't physically do anything ourselves'.[37] Much later in his evidence he returned to the topic, stating:

You construct buildings?---We don't have machinery, equipment,

nails, hammer guns, we have got a umbrella which is

Shangri-La. We physically do not build with our hands,

we have got project managers, we have got designers, we

manage, you showed me the DVC the other day, we arrange

1. Mr Naqebullah's evidence that the Builder did not employ tradespeople but 'procured allocated labour materials and services' is corroborated by the extensive list of subcontractors and suppliers which was tendered.
2. I acknowledge that the Lloyd's Underwriters made a sustained attack on Mr Naqebullah's credibility in their final submissions[39] and also disputed that Mr Hallinan's evidence pointed to only Mr Naqebullah as the project manager. However, I am satisfied on the basis of Mr Naqebullah's primary evidence, and his answers under cross-examination, that the Builder planned and scheduled the works, ordered and paid for materials, retained and coordinated consultants, supervised trades and evaluated and paid for trade work. I accordingly find that the Builder did carry out many activities referred to in the definition of construction and project management contained within the definition of Professional Business in the Policy. For this reason, I am satisfied that there is potentially scope for the Policy to be enlivened.

The Lloyd's Underwriters' submissions in response

1. The Lloyd's Underwriters say the Builder's contention about project management overlooks a critical point, which is that the Builder cannot establish that it was discharging any Professional Business for the purposes of the Policy because:

(a) there is an express carve-out from the definition of Professional Business in respect of the performance or supervision of construction related activities where the Insured is a building or engineering contractor, and that this exclusion applies; and > > (b) the professional services must be performed by or under the direct supervision of a limited set of appropriately qualified individuals, and they were not.

2. In my view, these arguments address matters beyond those contemplated by the definition of "Claim" in the Policy. As noted above, at [66], "Claim" is defined to include:

any Writ, Summons, Application or other originating legal or arbitral process, cross-claim, or counter-claim served upon any Insured alleging a breach of professional duty in the conduct of the Insured's Professional Business;

1. It is sufficient that the application issued by the Owners at the Tribunal alleged against the Builder breaches of professional duty in the conduct of its Professional Business.

1. For these reasons, I find that the Builder did make a Claim falling within the definition of Professional Business under the Policy.
2. The arguments raised by the Lloyd's Underwriters in response really go to the question of whether the Policy ultimately attaches to the Claim. This neatly leads us to the next topic.

1. As noted, the Lloyd's Underwriters raise two separate arguments as to why the Policy does not attach. I address the second of those arguments first.

1. The Lloyd's Underwriters submission here is centred on the proviso that the relevant professional service must be performed by or under the direct supervision of:

(a) a properly registered engineer, architect or surveyor; > > (b) a quantity surveyor who is a member of the Australian Institute of Quantity Surveyors; or > > (c) any other person providing a professional service of a skilful character according to an established discipline, appropriate to the professional services being performed or supervised.

Was the design performed or directly supervised by a suitably qualified professional?

1. The design activities contemplated by clause 3.4 of the General Conditions of the D&C Contract include:

(a) The parties acknowledge that the Contractor is responsible, as part of the work under the Contract, for: > > > (i) engagement of the structural engineer for the Works and for the development and finalisation of the detailed Services Design for the Works; and > > > > (ii) all shop drawings required for the W works > > (b) The Contractor shall be responsible for and shall complete the Contractor's Design Obligations in accordance with the Contract.[40]

2. The Lloyd's Underwriters point out that none of the Builder's design work was carried out or directly supervised by a properly registered architect. They concede that registered engineers such as Nader carried out design work, but they emphasise that no claim arises out of any of the engineers' design work.
3. I acknowledge that the tender design project was produced by a qualified architectural draughtsperson, Mr Roditser. However, his firm The Silver Arc had been retained by the project manager, Proxus. Hence, the tender design was not procured by or for the Builder. In any event, as I have found, the tender documents were completed by March 2009, and The Silver Arc was terminated by Proxus by July 2009. Both these dates are well before the execution of the D&C contract in September 2009.
4. No one on the Builder's project management team - which included Mr Naqebullah and also Amanda Alexopoulos, Maria Markesich, Renato Montbellier and Peter Kelly - was a registered architect or other type of registered designer.
5. The Builder initially contended that Mr Naqebullah held a Diploma of Building and a Diploma of Building Surveying from RMIT and that these were sufficient qualifications to enable him to directly supervise the design work of others.[41]
6. The Lloyd's Underwriters established under cross examination of Mr Naqebullah that he did not hold a Diploma of Building.[42] He held only a Diploma of Building Surveying. In my view a Diploma of Building Surveying is not, of itself, a sufficient qualification to enable Mr Naqebullah, for the purposes of the Policy, to supervise the design work of an architect or engineer. This is because he did not possess either an architectural or an engineering qualification.
7. By way of completeness, I note that in 2009 Mr Naqebullah was registered as a domestic builder unlimited. I consider that this qualified him as a person providing a professional service of a skilful character according to an established discipline. I have already found that Mr Naqebullah was appropriately qualified to draft the Specification.[43] However, no claim is squarely made by the Builder for indemnity in respect of liability arising solely by reason of any matter in the specification.
8. I also consider that Mr Naqebullah's registration as a domestic builder unlimited was an appropriate qualification to enable him to supervise the preparation of shop drawings. However, the Builder made no submission that it was entitled to indemnity under the Policy with respect to any defect arising out of shop drawings.
9. The upshot is that I find that insofar as design services are concerned, the Builders professional services were not supervised by a suitably qualified professional.

Were the Builder's inspection and supervision services directly supervised by a suitably qualified professional?

1. The role of the Builder in inspecting and supervising the work of its trades has been examined in some detail above.[44]
2. The Builder's submissions that its trades were supervised by each of three people namely, Obaid Naqebullah himself, Peter Kelly and the RBS, Jim Tsaganas have been examined and rejected.
3. The result is that the Builder falls at this hurdle also.

Where the Builder's construction and project management services performed or directly supervised by a suitably qualified professional?

1. Mr Naqebullah as a registered domestic builder would presumably be considered to be a person providing a professional service of a skilful character according to an established discipline which was appropriate to task of performing or supervising construction and project management services. However, it is clear from the examination of Mr Naqebullah's actual role in relation to the project that he did not have nearly enough day-to-day contact with the project in order to satisfy the requirement that he personally with the supervising all the builders construction project services.
2. What of the other members of the project management team? As has been noted, none of Amanda Alexopoulos, Maria Markesich, Renato Montbellier and Peter Kelly was a registered architect or other type of registered designer.
3. None of them appeared to give evidence so that even if any one of them had been a surveyor or quantity surveyor or registered builder there is no way to tell whether they had attended at the project personally on such a regular basis so as to provide the required level of personal performance or supervision of the Builder's construction and project management services to meet the requirements of the Policy.

1. For these reasons I find that the submission made by the Lloyd's Underwriters that the Builder is not entitled to indemnity under the wording of the Policy because the professional services it provided in respect of the project were not performed or directly supervised by an appropriately qualified professional is made out.

THE CARVEOUT OF PERFORMANCE AND SUPERVISION OF CONSTRUCTION RELATED ACTIVITIES FROM THE DEFINITION OF PROFESSIONAL BUSINESS

1. I turn now to the Lloyd's Underwriters' other argument. They place great importance on the following proviso set out in the definition of Professional Services:

Professional Business does not mean performance or supervision (where such supervision would normally be undertaken by a building contractor) of construction related activities, either on-site or off-site, including temporary works, manufacture, assembly, installation, erection, maintenance or physical alteration of buildings, goods, products or property, programming, time flow management, environment protection, workplace health and safety or industrial relations, by the Insured or its Agent, where such performance or supervision is undertaken in the capacity solely as a building or engineering contractor.

It is convenient to refer to the carve out as "the Builder and Contractor Exclusion".

1. The Lloyd's Underwriters submit that as the Builder was performing its role as a building contractor, its performance of the works or supervision of work performed by the trades cannot fall within the definition of Professional Business by reason of the Builder and Contractor Exclusion. They say this is the case even if the Builder was conducting project management services.

1. Mr Naqebullah gave evidence that he understood the Exclusion to be relevant where a builder was constructing temporary works, or manufacturing or assembling goods or property.[45] His understanding of the Exclusion is unimportant, in light of the principle that a policy of insurance is to be construed objectively, and not in accordance with one party's subjective understanding of it.
2. Furthermore, Mr Naqebullah's evidence does not assist the Builder, because his understanding of the Builder and Contractor Exclusion is not consistent with its wording. The Exclusion applies where the Insured is involved:

in the ...performance or supervision (where such supervision would normally be undertaken by a building contractor)... of construction related activities...where such ... supervision is undertaken in the capacity solely as a building or engineering contractor.

1. The work to be performed by the Builder under the D&C Contract involved construction related activities of design and programming and time flow management off-site as well as on-site activities including the erection of the building and the installation of goods. The Builder and Contractor Exclusion is accordingly enlivened.
2. The critical enquiry, accordingly, is whether the Builder was carrying out performance and supervision of the work under the D&C Contract as a building contractor. In my view, it clearly was. It is a domestic builder. It entered into a major domestic building contract, albeit in the form of an amended AS4300 Design & Construct Contract. Relevantly, it does not dispute that it gave warranties in relation to the work it performed, as required by s 8 of the DBC Act and thereby took responsibility for defects in the works performed by the trades and for defects in products and materials incorporated into the work.
3. On the other hand, the Builder did not enter into an agreement described as a contract for the performance of project management services. Accordingly, there is no argument based on either substance or form to suggest that the Builder has entered into a project management agreement.
4. Although the definition of domestic building contract contained in s 3 of the DBC Act is broad enough to refer to the arranging and management of domestic building work as well as its carrying out, that does not necessarily assist the Builder. What that definition means is that if the Builder was in fact a project manager then its contract with the Developer would still have been a domestic building contract. But it does not mean that the D&C contract was one for project management.
5. For these reasons, I find that the Builder did perform and supervise construction related activities services either on-site or off-site in relation to the Willansby Apartment project in the capacity of building contractor. The Builder and Contractor Exclusion accordingly applies.

Consequences of the findings that the Builder's professional services were not performed or directly supervised by relevantly qualified professionals and that the Builder and Contractor Exclusion applies

1. One practical effect of these finding is that insofar as the Builder has liability to the Owners for breach of its duty of supervision, that liability is not covered by the Policy. This is critical, because the Builder substantially pitched its claim for indemnity on the basis that it failed to adequately supervise the work of the subcontractors engaged to carry out the work. It is notable that under cross-examination, Mr Naqebullah conceded liability for many defects on this basis.
2. These concessions were made initially to the Owners' counsel Mr Reid, but they were repeated to senior counsel acting for the Lloyd's Underwriters, Mr Murdoch. These concessions were conveniently listed by Mr Murdoch and appear in the transcript.[46] On the basis of these concessions I was informed that a number of disputes about the existence of particular defects were resolved.

1. My findings are also relevant to the design services performed as part of the Builder's obligations under the D & C contract. Liability for design issue is not covered by the policy

1. The final activity included in the definition of Professional Business which the Builder contends it performed was programming and time flow management. The Lloyd's Underwriters submit that the Builder cannot contend that it is insured for this activity as it, like supervision, is an activity which is specifically carved out of the definition of Professional Business. I accept this submission.

1. These findings are sufficient to establish the Lloyd's Underwriters' submission that the Builder's Claim is not covered by the Policy.
2. For all these reasons I find that the Builder is not entitled to indemnity in respect of the Owners' Claims under the terms of the Policy.
3. However, that is not the end of the matter. The Builder's alternative submissions based on the doctrines of election and estoppel must now be considered.

1. In the latest iteration of its points of claim against the Lloyd's Underwriters, the Builder pleads that by its confirmation of the grant of indemnity to the Builder in its solicitors' letter dated 18 July 2017, the Lloyd's Underwriters had, after investigating the claims, elected to cover the Builder for the claims made by the Owners and is bound by that election.[47] Reference was made to Khoury v GIO[48] (Khoury) and CE Heath Underwriting & Insurance (Aust) Pty Ltd v Campbell Wallis Moule[49](CE Heath).
2. Before I address the parties' respective submissions it is appropriate to summarise the key events with a view to giving context to the submissions.
3. Reference has already been made to the notification of the claim by the Builder's broker CCM by email dated 18 May 2017.

1. This was followed by an event of pivotal importance. Clyde & Co on 22 May 2017 wrote a letter of to the Builder (care of CCM). Relevantly, Clyde & Co explained that they acted for Arch. They went on to say:

We are instructed by Arch to protect the position of Shangri-La Construction Pty Ltd (company) in relation to a claim made against it, on a without prejudice basis, pending a decision on indemnity under the Contract of Insurance.

The Contract Insurance was then identified. It is the Policy.

1. The Clyde & Co letter of 22 May 2017 went on to note:

The claim made for indemnity by the company under the Contract of Insurance with Arch arises from a VCAT proceeding issued by Owners Corporation PS623712 and others. Although we have not seen the court documents we understand that it is alleged against the company that it conducted defective building works at a development at Willansby Avenue, Brighton (claim).

Prior to investigating this matter further, we require you to sign an acknowledgement of waiver document in relation to legal professional privilege on behalf of the company. The waiver document enables us to report to Arch any information acquired in conducting this investigation and/or defending the claim against the company. Such information may entitle Arch to exercise any rights which they may have under the Contract of Insurance or at law in relation to the claim. We may continue to advise Arch and act on its behalf in the event of any dispute as to insurance coverage. The waiver otherwise preserves legal professional privilege as against any other party.

We enclose the waiver of privilege document which you should sign and return to us.

Further investigation is required to consider the claim for indemnity under the Contract of Insurance and to understand the claim made against the company. Once you have returned the waiver of privilege document, we will contact you to arrange a time to interview you so that you can provide us with further instructions in relation to the claim. We will need instructions from you about the circumstances which led to the claim and we will need to review all relevant documentation on your file.

Once we have obtained all necessary information and completed our investigations and assessed the claim for indemnity, you will be notified of Arch's decision on indemnity within 10 business days of receipt of all necessary information.

1. I interpose to note that this letter indicates that Arch (as agent for the Lloyd's Underwriters) clearly understood that a claim had been made and that the claim required investigation under the Policy. In other words, the letter made the same distinction between the claim and the issue of the underwriters' liability under the Policy that I drew above.[50]

1. I now turn to the 'Acknowledgement of Waiver' document which was attached to the Clyde & Co letter of 22 May 2017. It provides as follows:

TO: Clyde & Co of Level 26, 140 Williams Street, Melbourne.

I, Obaid Naqebullah of Level 13, 600 St Kilda Road, Melbourne, Victoria 3004, am a director of Shangri-La Construction Pty Ltd (the company) and I sign this acknowledgement on behalf of the company.

1. A claim has been made by Owners Corporation PS623712 & Ors (the claimants) in a VCAT proceeding against the company issued by Owners Corporation PS623712 and others (the claim).
2. Indemnity in respect of the claim is being investigated by Arch Underwriting at Lloyd's (Australia) Pty Ltd (Arch).
3. Clyde & Co are the solicitors who act for Arch and they have and will continue to advise Arch on all matters relevant to the issue of indemnity.
4. If Arch appoints Clyde & Co to represent the company in relation to the claim by the claimants, this conduct does not indicate that the company is entitled to be covered under the company's Contract of Insurance, nor does it mean that Arch has elected to indemnify the company or otherwise jeopardise Arch's rights under the Contract of Insurance or at law.
5. The company irrevocably consents to Clyde & Co communicating to Arch all information, facts, matters, circumstances and documents in relation to the claim notwithstanding that a solicitor/client relationship exists between Clyde & Co and the company.
6. The company waives any privilege which may exist between Clyde & Co and the company as against Arch in relation to the communications referred to in paragraph (5) herein. The company otherwise maintains any and all privilege which may exist between Clyde & Co and the company.

1. Mr Naqebullah took advice from CMM and on 24 May 2017 signed and returned the Acknowledgement of Waiver.
2. Clyde & Co went on the record in the proceeding for the Builder on 24 May 2017.
3. The Lloyd's Underwriters, in their final submissions, contend that by the Acknowledgement of Waiver, the Builder gave its consent to the appointment of Clyde & Co to act for the Builder, whether or not indemnity would ultimately be granted.[51] Presumably they rely on paragraph 4 in the Acknowledgement of Waiver.
4. I comment that it is well-established that an insurer can reach an arrangement outside a policy of insurance under which the insurer can nominate lawyers to act on behalf of the insured pending a decision as to indemnity. An example is provided in CE Heath,[52] which is one of the cases relied upon by the Builder. This case is discussed in detail below.
5. Between the time that Clyde & Co wrote on 22 May 2017 and 18 July 2017, Clyde & Co carried out investigations. Notably, a meeting was held on 6 June 2017 attended by Marcus O'Brien, a partner of Clyde & Co, and Casey Williamson a solicitor with that firm. Mr Naqebullah and Ms Rita Shaya, Mr Naqebullah's executive assistant, attended on behalf of the Builder.

1. Clyde & Co wrote to the Builder directly on 18 July 2017.[53] The letter was addressed to Mr Naqebullah. It was signed by Mr O'Brien. It confirmed that Clyde & Co acted for Arch in relation to a claim for indemnity made by the Builder in relation to proceedings issued against it by Owners Corporation PS623721 and others in VCAT Proceeding number BP359/2017. It was noted that the claimants alleged that building works the Builder had performed at 30 Willansby Avenue, Brighton, were defective. The letter went on to confirm that the Builder held Arch professional indemnity Contract of Insurance, Design & Construction Civil Liability wording covering the period of insurance 6 June 2016 to 6 June 2017 and identified the policy number as that of the Policy.
2. The letter then set out the insurance clause of the Policy. The excess of $10,000 for each and every claim was noted. Critically, the letter contained the following paragraphs:
   1. Grant of indemnity

3.1 Arch has considered the information provided by you and is satisfied that the allegations made by the claimants against you in the proceeding are in relation to civil liability arising from the conduct of your Professional Business.

3.2 We are instructed that Arch will grant indemnity to you under the Contract of Insurance in respect of the claim made by the claimants in the proceeding subject to a specific reservation of rights.

"The Insured must give to underwriters as soon as practicable, notice in writing of any Claim made against the Insured and must upon request give to underwriters such information as underwriters may reasonably require to investigate the matter so reported,..."

"Underwriters shall not be liable to indemnify the Insured for any claim made under this Contract which arises directly or indirectly from, or in connection with:

1. any claim made prior to the commencement of the Period of Insurance, or in respect of any Claim or circumstances:

(b) known to the insured at the commencement of the Period of Insurance and which the Insured considered or which a reasonable person in the position of the Insured would or might have considered may give rise to a Claim;..."

3.5 We note that on 22 October 2015 Mr Tsaganas sent you an email with a copy of a letter from the solicitors acting for the claimants, Tucker Partners. Mr Tsaganas asked you whether you were aware of the threatened legal action. We also note that attached to the email were a number of expert reports obtained by the claimants. Those reports include a letter from Tucker Partners which states:

"The OC has concerns that the building works carried out by Shangri-La are defective and is considering issuing proceedings against Shangri-La in the Building and Property List of the Victorian Civil and Administrative Tribunal (VCAT)."

3.6 We note that at this time you consulted your insurance broker.

3.7 In early 2016 the claimants were threatening to issue proceedings in VCAT and we note that you had a meeting with BPM Property Developments (BPM) on 10 March 2016.

3.8 On 23 March 2016 BPM sent an email to you and Mr Tsaganas agitating for further defects to be fixed. BPM stated:

"BPM will be voting to proceed to VCAT if an adequate response is not provided".

3.9 It is clear that by this stage you were either aware or should have been aware that circumstances existed which might give rise to a Claim. You should have notified Arch of those circumstances at that time but failed to do so and therefore exclusion 9 applies.

3.10 Clause 7 of the Automatic Coverage section of the policy includes a Continuity clause. That clause states:

(a) in the absence of any fraudulent non-disclosure or misrepresentation and subject to clauses (b) and (c) below, where:

(i) a Claim is first made against the Insured or a circumstance is notified by the Insured in writing to Underwriters, during the Period of Insurance in respect of civil liability in connection with their conduct of the Professional Business which arises from a circumstance or occurrence known by the Insured prior to the commencement of the Period of Insurance; and

(ii) Underwriters were the Insured's professional indemnity insurers from the time when the Insured first became aware of that circumstance or occurrence which subsequently gave rise to the Claim or notification; and

(iii) Underwriters have from that time, to the time when the Claim is made or the notification is given, continued without interruption to be the Insured's professional indemnity insurers;

then, in respect of such Claim or notification, notwithstanding anything to the contrary contained in this Contract, Underwriters agree to indemnify the Insured in respect of the Claim or notification in accordance with all other provisions of this Contract.

(b) Underwriters reserve the right to reduce their liability in respect of any Claim or notification under this coverage to the extent that Underwriters' interests are prejudiced as a result of the late notification of the Claim or circumstance."

3.11 The matters set out in paragraph (a) apply to your claim. In the circumstances the Continuity clause is applicable to your claim and Arch will agree to indemnify you in respect of the claim in accordance with the Contract of Insurance. Exclusion 9 will not apply to the claim. However Arch will reserve its rights under paragraph (b) of the Continuity clause in relation to any prejudice it has suffered as a result of the late notification of circumstances.

3.12 At our conference on 6 June 2017 you instructed us that you were first notified that a claim would be made against you on 6 February 2017 when you received a letter from the claimant's solicitors. We have been instructed by Arch that it was not notified of a claim for indemnity under the Contract of Insurance until 18 May 2017, more than three months later.

3.13 You should have notified Arch of the claim as soon as possible after 6 February 2017 but did not do so. That was a breach of condition 11 of the policy which is set out in paragraph 3.3 above.

3.14 Arch reserves its rights under the Contract of Insurance in relation to any prejudice it has suffered as a result of your late notification of the claim.

3.15 Arch will grant indemnity to you in relation to the claim made in the proceeding subject to:

(a) The terms and conditions of the Contract of Insurance;

(b) The facts and circumstances currently known to Arch;

(c) A reservation of rights to the extent to which Arch has been prejudiced by your failure to notify circumstances and your late notification of a claim;

(d) Payment by you of the costs inclusive excess of $10,000 (net of input tax credits). We will bill you for our legal fees as they are incurred until the excess is eroded. Arch will approve each bill before we issue it to you; and

(e) The manner in which the claim against you is presently being pursued by the claimants.

3.16 If there is any change in circumstances; further relevant facts come to light; or the claimants change the nature of the claim currently being made, then Arch can review your entitlement to indemnity.

1. The Builder's case on election, as pleaded, is that the Lloyd's Underwriters, after investigating the claims (including reviewing expert reports) elected to cover the Builder for the claims made by the Owners and is bound by that election.[54]
2. The Lloyd's Underwriters' response, in overview, is that there are three obstacles standing in the way of the Builder's case on election, and that each is fatal to the claim. They are:

(a) first, even if established, the material facts pleaded by Shangri-La would not yield an election, as that term is understood by the common law doctrine; > > (b) second, in any event, the letter of 18 July 2017 does not, and does not purport to, elect as alleged. While there was an election, it was related to Shangri-La's failures to notify, not to the claims against the Builder of which Arch and the Lloyd's Underwriters then knew very little; and > > (c) third, Shangri-La has not, as it must, demonstrated that any requisite inconsistency had arisen by 18 July 2017. Nor were Arch and the Lloyd's Underwriters possessed of the relevant facts upon which to make an election concerning indemnity (and, therefore, the doctrine of election is not engaged)[55]

3. In addition to these propositions, the Lloyd's Underwriters submit that having appointed Clyde & Co under an ancillary arrangement outside the policy established by the Acknowledgement of Waiver, Clyde & Co continued to act after 18 July 2017 under that ancillary arrangement and never ceased to do so.[56] In their final submissions, the Lloyd's Underwriters refer to a letter from Clyde & Co dated 6 February 2019 in which it is asserted 'We act for both Arch and the Builder subject to the terms of a waiver signed by the Builder on 24 May 2017'.[57]
4. In order to understand the Lloyd's Underwriters' submissions regarding election, it is necessary to bear in mind two things simultaneously. The first is what the Lloyd's Underwriters say about the operation of a liability policy in general. The second is what they say about the applicability of the doctrine of election.

1. In respect of the first matter, the Lloyd's Underwriters' central submission is that a professional indemnity insurance contract such as the one in issue:

is one in which the insurer agrees to indemnify the insured against defined liabilities the insured incurs in respect of a claim, first made against an insured during the policy period, arising from the performance of defined professional services.[58]

1. The Lloyd's Underwriters go on to contend that:

The concept of the policy covering a "civil liability incurred" refers to the eventuality of the actual liability, as distinct from the alleged liability, of the insured.[59]

1. In support they cite Thornton Springer v NEM Insurance Co Ltd.[60] They then refer to two corollaries of this principle. The first is:[61]

The general position is that under a policy of this kind, an insured can recover against its insurer only if it is actually liable to the claimant on a proper analysis of the law and facts.[62] In this way, until an insured is in fact found liable, the question of liability is a live question.

1. The second corollary is that if the activity giving rise to the liability, however described, is not an insured one, then there is no cover.[63] In connection with this proposition, they refer to the following passage in that judgment of Devlin J in West Wake Price & Co v Ching,[64] where his Honour observed:

The essence of the main indemnity clause, as indeed of any indemnity clause, is that the assured must prove loss. The assured cannot recover anything under the main indemnity clause or make any claim against the underwriters until they have been found liable and so sustained a loss. If judgment were given against them for the sum claimed, they would undoubtedly have sustained a loss and the question would then arise what was the cause of the loss. If the proximate cause (this seems to be the test; Goddard and Smith v Frew [1939] 4 All ER 358) of the loss was the dishonesty of their servant, they could not recover under the policy; if on the other hand it was their own neglect, they could recover.[65]

1. The Lloyd's Underwriters submit that this passage highlights an important aspect of liability insurance, which is, depending on the findings against the insured, it is possible that a policy may not ultimately respond.[66]

1. This proposition takes us to what the Lloyd's Underwriters say about the operation of the doctrine of election. The Lloyd's Underwriters seek to define the doctrine of election by reference to the judgment of Mason J in Sargent v ASL Developments Ltd[67] ("Sargent") where his Honour said:

A person is said to have a right of election when events occur which enable him to exercise alternative and inconsistent rights, ie when he has the right to determine an estate or terminate a contract for breach of covenant or contract and the alternative right to insist on the continuation of the estate or the performance of the contract. It matters not whether the right to terminate the contract is conferred by the contract or arises at common law for fundamental breach - in each instance the alternative right to insist on performance creates a right of election.[68] [Emphasis added.]

1. The Lloyd's Underwriters went on to quote Stephen J in the same case, who said:

The doctrine only applies if the rights are inconsistent the one with the other and it is this concurrent existence of inconsistent sets of rights which explains the doctrine; because they are inconsistent neither one may be enjoyed without the extinction of the other and that extinction confers upon the elector the benefit of enjoying the other, a benefit denied to him so long as both remained in existence.[69]

1. Sargent and other authorities were referred to in Khoury,[70] which was the first case referred to by the Builder in its pleading about election against Arch and was also relied on by the Builder in its submissions on election against the Lloyd's Underwriters. In Khoury, the issues included whether there had been a material non-disclosure by the insured under a homeowner's policy at the time a policy was effected and whether the insurer had elected to affirm the policy. The trial judge had held that the insurer was entitled to avoid the policy ab initio by reason of material non-disclosure and gave judgment in its favour. Insofar as the case was concerned with avoidance of a policy of insurance, it is not directly relevant to the present case which is concerned with whether there has been an election by an insurer to indemnify under a policy. Nonetheless, the following statement regarding the doctrine of election, which appears in the judgment of Mason, Brennan, Deane and Dawson JJ at [19], is relevant:

A person confronted by two truly alternative rights or sets of rights, such as the right to avoid or terminate a contract and the right to affirm it and insist on performance, may lose one of them by acting "in a manner which is consistent only with his having chosen to rely on (the other) of them.... Where an insurer is confronted with such alternative rights and elects to affirm the contract of insurance, he is commonly said to have "waived" the right to avoid or terminate it.... (Citations omitted).

1. The Lloyd's Underwriters rely on Freshmark Ltd v Mercantile Mutual Insurance (Aust) Ltd (Freshmark)[71] as an example of a case where an insurer was held not to have been confronted with the option of choosing between two alternative and inconsistent rights because the policy did not respond to the claim in the first place. There, the appellant was the insurer of a trailer owned by the respondent which was damaged in July 1991 while being towed by a prime mover driven by a person then aged 22 years. The policy provided that the insurer would not be liable if at the time of the accident any articulated vehicle covered under the policy was being driven by or is in the charge of a person under the age of 25 years. The insurer had commenced repairs on a vehicle only to realise just days later that cover was not afforded by the policy. McPherson JA explained:

Under section 1 of the policy the defendant as the insurer had the right to elect between repairing a vehicle and paying the amount of the loss or damage to it. The defendant elected to repair. Had the policy been applicable according to its terms, the election to repair might well have precluded the defendant from later asserting its alternative right under section 1 of simply paying the amount of the loss or damage.

But that is not this case. The defendant was not confronted with the option of choosing between two alternative and inconsistent rights, nor did it elect to pursue one of those rights to the exclusion of the other. There was no choice between a right to accept liability under the policy, and a right to reject liability. That is so because there never was any liability under the policy, and consequently no right or even power under the policy to reject that liability.

1. As an example of the application of the doctrine of election in the context of an insurance policy, the Lloyd's Underwriters refer to Nigel Watts Fashion Agencies Pty Ltd v GIO General Limited (Nigel Watts),[72] in which Handley JA said:

The doctrine, in its application to contracts of insurance, prevents an insurer from adopting inconsistent positions under the same policy. An insurer receiving a claim who is entitled to avoid the policy or reject the claim for breach of condition must make an election. In the first case the insurer must either affirm or avoid the policy and in the second it must waive the breach and accept the claim or rely on the breach and reject it. If, having the requisite knowledge of the facts, it asserts rights which would only exist if the policy was in force and covered the claim it will be taken to have elected to treat the policy as valid and applicable to the claim.[73]

1. Freshmark was followed by McClelland J in Transfield Pty Ltd v National Vulcan Engineering Insurance Group Ltd.[74] There, his Honour stated:

In my opinion, the acceptance by the insurer of a claim by an insured to which the policy does not extend cover cannot amount to an election. This is to be contrasted with the circumstance identified by Handley JA in Nigel Watts where the policy would respond to the claim but for an entitlement in the insurer "to avoid the policy or reject the claim for breach of condition.[75]

1. The Lloyd's Underwriters suggest that Freshmark and Nigel Watts highlight the distinction between cases in which an election is alleged to arise in circumstances where the policy does not cover the liability in question and cases where, due to some breach, the insurer is permitted to reject the claim or avoid the policy.[76]
2. Freshmark was followed by Allsop CJ in Delor Vue Apartments CTS 39788 v Allianz Australia Insurance Ltd (No 2) (Delor Vue)).[77] In Delor Vue, there had been a non-disclosure by the insured and an issue arose as to whether the insurer was entitled to reduce its liability to nil under s 28(3) of the Insurance Contracts Act.
3. Freshmark was not followed by the Full Court of the Federal Court in the appeal taken against Allsop CJ's decision. The majority in the Full Court expressly said that Freshmark had been wrongly decided.[78]
4. Later, the High Court reversed the decision of the Full Court and Freshmark was effectively confirmed as having been correctly decided.[79] The Lloyd's Underwriters place great importance on the case and submit that its establishes that they cannot have made an election.

1. To understand Delor Vue, it is necessary to have regard to s 28 of the Insurance Contracts Act, which provides:

(1) This section applies where the person who became the insured under a contract of general insurance upon the contract being entered into:

(a) failed to comply with the duty of disclosure; or

(b) made a misrepresentation to the insurer before the contract was entered into;

but does not apply where the insurer would have entered into the contract, for the same premium and on the same terms and conditions, even if the insured had not failed to comply with the duty of disclosure or had not made the misrepresentation before the contract was entered into.

(2) If the failure was fraudulent or the misrepresentation was made fraudulently, the insurer may avoid the contract.

(3) If the insurer is not entitled to avoid the contract or, being entitled to avoid the contract (whether under subsection (2) or otherwise) has not done so, the liability of the insurer in respect of a claim is reduced to the amount that would place the insurer in a position in which the insurer would have been if the failure had not occurred or the misrepresentation had not been made.

1. The insurer, Allianz, had confirmed cover despite the non-disclosure but subsequently denied liability. The question to be determined was whether the insurer had lost its rights under s 28(3) by the operation of the principles of election, waiver, estoppel or by breach of the duty of the utmost good faith. Allsop CJ found that the doctrine of election did not apply as, in the circumstances of the case, a simple choice of inconsistent rights was not present.[80] However, Allsop CJ also found that Allianz was unable to rely upon s 28(3) for reasons of waiver, estoppel, and the duty of utmost good faith. He made declarations to that effect.
2. On appeal to the Full Court of the Federal Court- Delor Vue Apartments CTS 39788 v Allianz Australia Insurance Ltd (No 2)(Delor Vue Full Court appeal), the primary judge's decision on election was reversed by the Full Court on appeal by a majority of two to one.[81] The judges in the majority, McKerrracher and Colvin JJ, accepted Delor Vue's submissions that Allianz was bound by an election not to rely on the defence available under s 28(3). The majority distinguished Freshmark, holding that the reasoning in that case failed to properly frame the question in terms of whether the circumstances are such that the law requires a choice to be made. The majority concluded:

This reasoning rests upon the absence of any inconsistency between a right to accept liability under the policy and a right to reject liability. As will emerge, that is not the present case. The statutory right upon which Allianz places reliance is said to lead to the consequence that there is no liability under the policy. In addition, the reasoning appears to confine the doctrine of election to those cases where there were inconsistent rights as to future performance that were available to one party. It rests upon a view that the doctrine of election is limited in its application to those instances where a party has a right to choose. It is a view that fails to properly frame the question in terms of whether the circumstances are such that the law requires a choice to be made. In that respect, it is contrary to the decision in Craine which has been consistently approved by the High Court and therefore cannot be correct.[82]

1. The dissenting judge in the Full Court, Derrington J, would have allowed the appeal, considering that Allianz was not precluded from revoking its promise to indemnify by any doctrine of election, waiver, or estoppel and had not failed to act with the utmost good faith in revoking the waiver of its right to rely on s 28(3) of the Insurance Contracts Act.

1. On 14 December 2022, the High Court delivered its decision in the appeal from the decision of the Full Court of the Federal Court in that case[83] (Allianz v Delor Vue). The High Court, by a majority of 4 to 1, found that Derrington J had been correct, and allowed the appeal. I return to the decision below. Before I do so, it is convenient to address the earlier decision of the High Court in Craine to which McKerrracher and Colvin JJ referred_._

1. The decision referred to is the early High Court case of Craine v Colonial Mutual Fire Insurance Co Ltd.[84] The case concerned a claim under an insurance policy for loss suffered as a result of a fire. Under the policy a claim was required to be made by a specified time. It was made three hours late. It was accepted by the insured that under the terms of the policy this was 'fatal' to the claim. At a trial in the Supreme Court of Victoria, judgment was entered for the insurer. On appeal to the High Court, the decision was reversed.
2. The relevant facts were that when the late claim was received by the insurer, the insured was informed that it was received 'without prejudice and without setting up any waiver of any of the provisions or requirements of the policy conditions'. Nevertheless, the insurer went on to exercise rights under the policy of insurance in its dealings with the insured.
3. When Isaacs J delivered the judgment of the High Court in Craine, he explained that the insurer, after seeking to reserve its rights, then proceeded to call on the insured to answer 'questions and requisitions already made'.[85] Isaacs J noted that the insurer could have intimated that even though it was reserving its rights, it was prepared to receive 'whatever proofs and testimony [the insured] might voluntarily submit' and reconsider its position as to indemnity. Isaacs J considered that had the insurer proceeded in that way its position 'would still be unassailable'. However, that is not what had occurred.
4. The High Court in Allianz v Delor Vue[86] discussed Craine at length. This discussion is addressed at [210]-[214] below.

Summary of relevant parts of the majority judgment in the Allianz v Delor Vue.

1. The majority in Allianz v Delor Vue, comprising Kiefel CJ, Edelman, Steward and Gleeson JJ, had much to say about the doctrines of waiver, election estoppel and the duty of utmost good faith. References below to the High Court decision are to the majority judgment.
2. Gageler J dissented. He held that each conclusion reached by Allsop CJ at first instance was correct.[87]
3. In the present case, the Builder says that if its claim for indemnity under the terms of the Policy is rejected, then it is still entitled to be indemnified by operation of the doctrines of election and estoppel. It refers also to unconscionability, but its submissions concerning unconscionability arise only in the context of estoppel[88], and do not warrant separate consideration. It follows that the passages in High Court decision in Allianz v Delor Vue with which the parties are most interested are those concerned with election and estoppel. However, as will become apparent below, an understanding of the nature of waiver is necessary in order to understand the development of the doctrine of election.

1. The High Court noted that "waiver" is a term that is used in many different senses.[89] Having noted that the waiver of a right is rarely irrevocable, they went on to observe:

... the legal principle is that although a waiver does have legal effect and that "the waiver is binding on the waiving party, unless the waiver is effectively retracted", the waiver can generally be revoked at any time with reasonable notice.[90]

1. The High Court went on to acknowledge that exceptions or "special cases" exist where a unilateral waiver cannot be revoked. An example given was where the strength of the interest of finality in litigation can sometimes mean that a waiver of particular rights related to litigation is irrevocable.[91]
2. The High Court then held, at [31]:

Outside the context of litigation, and in the law of contract, the circumstances in which a waiver cannot be revoked have always been exceptional. If such circumstances were not both exceptional and justified they would undermine other contractual rules, including those generally requiring that variation of a contract be in the form of a deed or supported by consideration. Hence, aside from circumstances where a legal right can no longer be enforced due to entry into a deed, a fresh agreement for consideration, or expiry of a limitation period, the general rule is that, despite a "mere naked promise ... not founded upon any consideration" not to enforce a legal right, the legal right may continue to be enforced until it is fully satisfied. (Citations omitted.)

1. The significance of this observation is that it highlights the significance of Delor Vue's submission regarding the principle of election by affirmation. The High Court considered that if that submission were to be accepted, it:

would nevertheless undermine the integrity of established contractual rules by expanding the principles of election by affirmation, or extinguishment of rights, in such a way as to make irrevocable a unilateral waiver of a defence to liability by a party to a contract, outside the context of litigation.[92]

1. The High Court began its discussion of this topic by observing "In the law of contract, a party can act in a manner that affirms the existence of a contractual right or rights, by exercising what is commonly described as an election between inconsistent sets of rights**"[93]**. The High Court went on to elaborate, at [39]:

Although many of the older cases of election by affirmation (including in this Court) described the principle as one of "waiver", and although it might be possible to express modern cases involving affirmation of a contract in terms of irrevocable waiver of a power to terminate the contract, the language of "waiver" can distract in this area. As three members of this Court observed in Agricultural and Rural Finance Pty Ltd v Gardiner, the "[c]ircumstances in which there is an election between inconsistent rights are radically different from some others in which there is said to be a waiver of rights". In the law of contract, the better description of this doctrine is election by affirmation. (Citations omitted.)

1. It was in this context that the High Court observed that the effect of the judgment of the Full Court in the Federal Court appeal in Delor Vue was to apply the doctrine of election:

to require an insurer "not to adopt inconsistent positions under the same policy of insurance in circumstances where one of those positions was consistent only with accepting liability under the policy and the other position was consistent only with denying liability". In short, an insurer can never revoke a waiver of a statutory defence that would permit the insurer to reduce its liability under a contract of insurance. (Citations omitted.)

1. The High Court noted that "Historically, an election by affirmation of a contractual term arose in circumstances in which the performance of an obligation by one party was seen as a condition precedent to the existence of an obligation of the other party."[94] Examples were given of where such an approach had been taken in relation to a breach of a leasehold covenant,[95] a contract for the sale of goods[96] and contracts of insurance[97]. However, the Court noted that under the common law in its modern state "there are large questions concerning whether this historical approach of liberal recognition of irrevocable affirmation following failure of any condition precedent should apply generally today, other than where it has been impliedly preserved by statute."[98] The Court went on to say, at [47]:

If a contractual term is today properly interpreted as a condition precedent to counter‑performance, it is strongly arguable that upon the failure of such a condition precedent a party's decision to affirm its obligation of counter‑performance will generally only be irrevocable after detrimental reliance by the other party[99]. (Citations omitted.)

1. The High Court explained that during the twentieth century, the historical approach to election by affirmation "generally gave way to an approach which treated a serious breach of contract - a breach that undermines the "root" or basis of the contractual undertakings - as giving rise to a legal power for the innocent party to terminate the entirety of the contract for the future."[100] The Court went on to observe, at [49]:

With the modern approach to termination of contract, the doctrine of election by affirmation came to be applied consistently to instances in which the innocent party elected not to exercise a power to forfeit a lease or to terminate a contract.

1. The High Court referred to the decision in Sargent[101] (referred to above at [167]) which was a case where a party who had a power to terminate a contract chose instead to keep a contract on foot and sue for damages. The election to affirm a contract kept extant the set of contractual rights which were necessarily immediately inconsistent with those that would arise upon termination of the contract. As Stephen J explained:

the doctrine of election only applies where the nature of the sets of rights is such that "neither one may be enjoyed without the extinction of the other".[102]

1. Even then, the High Court emphasised, at [50]:

an election to affirm will only be an irrevocable waiver of the power to terminate where the election was made with knowledge of the circumstances giving rise to the alternative, inconsistent set of rights**.** (Citations omitted.)

1. The High Court then summarised the present position in this passage, at [51]:

This doctrine of election by affirmation of a contract has been recognised by decisions, including in this Court, for almost a century. The dominant rationale is that the "the mere fact of intimating [a] choice" in relation to these alternative rights makes it "inevitable, or necessary in the interests of justice, that the choice, when once made, should be irrevocable". In other words, the choice between maintaining one right or set of rights and extinguishing an alternative, immediately inconsistent right or set of rights is one that must be irrevocable "because [the sets of rights] are inconsistent [so that] neither one may be enjoyed without the extinction of the other and that extinction confers upon the elector the benefit of enjoying the other". The very nature of the states of legal existence and non‑existence of a contract is that both states cannot subsist, like Schrödinger's cat, at the same time.[103] (Citations omitted.)

1. The High Court noted that the rationale that one set of rights cannot be enjoyed without the extinction of an alternative, inconsistent set of rights is not without difficulty. The Court referred to the potential difficulty in identifying the alternative inconsistent set of rights to be contrasted with the affirmed contractual rights, because "the absence of contractual rights is not itself a set of rights."[104]
2. The High Court held that the Full Court of the Federal Court had erred in concluding that Allianz was precluded by its representation that it would not rely on s 28(3) of the Insurance Contracts Act from later withdrawing that waiver of rights because it made a choice between alternative inconsistent sets of rights. The High Court held that this proposition was unsustainable.
3. The High Court said that applying the historical view of election by affirmation, s 28(3) does not operate to make disclosure by the insured a condition precedent to any obligation by the insurer.[105]
4. Turning to the modern approach to election by affirmation, the Court held:

[Section] 28(3) does not give the insurer any power to elect to affirm the contract rather than to avoid or terminate its contractual obligations. There is no sense in which a decision by an insurer to waive the defence under s 28(3) involves an election between alternative and inconsistent sets of rights (or even an immediate inconsistency between continuing legal positions). With or without waiver, the insurance contract remains on foot and reliance on the defence under s 28(3) is not immediately inconsistent with any of the contractual rights.[106]

1. The High Court noted that s 28(3) stood in "stark contrast" with s 28(2) "which is a statutory recognition of the power of an insurer to avoid a contract from its inception for a fraudulent non-disclosure or a fraudulent misrepresentation."[107]
2. The High Court then referred to a previous High Court decision in Agricultural and Rural Finance Pty Ltd v Gardiner (Gardiner),[108] a case involving the collapse of an investment scheme involving a tea tree plantation. Although numerous facts were disputed in that case, the judges constituting the majority, Gummow, Hayne and Kiefel JJ, proceeded on the assumption that a lender and an indemnifier had represented to an indemnified party that the indemnity "remained effective and enforceable, despite past defaults". The defaults concerned failures to make punctual performance under separate agreements with the lender. Despite that representation, their Honours said that "there was no election between inconsistent rights" and that to hold the lender and indemnifier to the representation would "supplant accepted principles governing whether an estoppel is established and whether a contract has been varied".

1. The High Court, at [60], highlighted the distinction between two methods of extinguishing rights. One is where a person completes the exercise of a legal power to extinguish a right or set of rights, such as a power to terminate a contract for the future or to rescind a contract from the beginning. It was observed that Lord Goff described this as the "abandonment of a right", contrasting it with "forbearance from exercising a right".[109] The second category is where a person takes a course of action that is inconsistent with the continued existence of the right or set of rights and the person pursues that course of action until all alternative rights arising from the course of action are wholly satisfied.
2. In respect of the second method of extinguishment, the High Court emphasised that "Full satisfaction of all of the alternative rights is essential."[110] One example given involved a plaintiff who having exercised all of his rights under the Workers' Compensation Act 1926 (NSW), including by litigation, such that all entitlements under that Act had been satisfied, the plaintiff no longer had a right to common law damages: O'Connor v S P Bray Ltd (O'Connor)[111] Another example given of the requirement for complete satisfaction of alternative rights before a right will be extinguished is the set of rules concerning "election" between inconsistent remedies, such as compensatory damages and disgorgement of profits (as occurred in Gardiner)[112] or compensatory damages and restitutionary damages[113].
3. The High Court concluded this section of its judgment as follows:[114]

A plaintiff can take numerous steps consistent only with the choice of one remedy and not the other, but the election will generally only be irrevocable after one remedy is fully satisfied by the entry of judgment. In all these instances, as Jordan CJ explained in O'Connor:

"one of the alternative rights must have been satisfied. Merely to take some step towards obtaining the benefit of one of them is not necessarily irrevocable if the step stops short of obtaining satisfaction. One may be permitted to change one's mind". (Citations omitted.)

1. The High Court in Allianz v Delor Vue observed, at [65], that Delor Vue had submitted that Allianz's unilateral waiver of the defence under s 28(3) became irrevocable, extinguishing the defence, by actions that not only fell far short of full satisfaction of alternative rights, but which involved no more than Allianz taking steps that were not necessarily inconsistent with, or alternative to, reliance on the defence. The majority described this as a "vast expansion" of the doctrine of election because "Delor Vue sought to create a novel third category where a person's rights are extinguished by the person merely taking steps which clearly evidence a choice between two inconsistent courses of action.".
2. The High Court, at [67], reversed the decision of the Full Court of the Federal Court on the issue of election on the basis that:

Delor Vue's submission, and the approach of the majority of the Full Court - that taking a course of action that is inconsistent with a right can extinguish the right - is in direct conflict with long‑standing authority that requires the completed exercise of a power to extinguish rights or full satisfaction of alternative rights before a right or set of rights is extinguished.

1. The High Court then turned its attention to Craine, as Delor Vue had relied on the judgment of Isaacs J in that case in support of an expanded principle of extinguishment of rights. Delor Vue had relied on the following passage:

Now, so long as the [insurer] distinctly and unequivocally retained the attitude of total non‑liability on its part, because such a breach of clause 11 by the plaintiff as occurred put an end to all obligation by the [insurer] to pay a penny - in other words, that the contract according to its own terms had, by reason of the breach of clause 11, terminated the contractual obligations of the parties - it was safe. If, maintaining that attitude consistently, it further intimated that it was prepared to consider an ad misericordiam appeal by the plaintiff, supported by whatever proofs and testimony he might voluntarily submit, whether as suggested by the [insurer] or not, we should think the position of the [insurer] would still be unassailable. But insurers are not at liberty to mislead. They are not at liberty, at least apart from special provision in their contract, to do what is forcibly termed in Scotch law 'approbate and reprobate.' They are not at liberty to deny to the insured rights given to him under the contract and at the same time insist on and exercise as against him in adversum correlative rights given to them by the contract, as a qualification or a safeguard, on the basis that the rights of the insured are in full operation.[115]

1. In a later passage in Craine, Isaacs J explained that the acts "in adversum", to which he had previously referred, were those taken against the interests of Mr Craine. The insurer for "practically four months... with full knowledge of the facts as to condition 11, had retained possession of the premises and cars, and all property in the premises, in adversum, and in right of clause 12 of the conditions of the contract."[116]
2. The High Court in Allianz v Delor Vue noted that Isaacs J may have been referring to election in its historical sense, but later decisions of the High Court provided support for the view that the decision should be treated as being concerned with election in the modern sense.[117]
3. The High Court considered a third possible interpretation of the judgment of Isaacs J in Craine, namely that he decided the case on the basis of an estoppel, as the claim of waiver was dismissed on the basis that clause 19 of the policy precluded waiver without express written endorsement of the policy document. The High Court's decision in Craine was appealed to the Privy Council, which held that estoppel had been established by the conduct of the insurer in taking possession of the premises without authority and the detriment to Mr Craine (which was conceded).[118]
4. The High Court ultimately concluded, at [78], that it was both unproductive and unnecessary to resolve which of these views was the best interpretation of Craine. It was said to be unproductive because "the precedential force of the reasoning of early common law authorities will depend in part upon the extent to which those authorities are consistent with the common law mosaic of the present. Here, this includes the modern approach to termination of a contract as described in Gardiner[119] and Visscher v Giudice.[120]" It was unnecessary because Isaac J's remarks in Craine could not assist Delor Vue. The point made in this connection is that s 28(3) is a defence to a claim for an indemnity. It does not give rise to a power for insurer to terminate the contract. Nor is it a condition precedent that must be satisfied before Allianz could come under an obligation to pay. And, on the facts of the case, estoppel could not be established.
5. Before I turn to other aspects of the High Court's decision in Allianz v Delor Vue, it is appropriate to comment on the status of Freshmark[121] as the Lloyd's Underwriters see the principle it illustrates as central to their position_._

1. In Freshmark, the insurer had authorised repairs of the insured's vehicle. Dowsett J held that this act was merely a method of discharging an obligation, and was not to be equated with the exercise of a right on the part of the insurer. Accordingly, there had been no election between inconsistent rights and the insurer was not bound by any election. The decision accordingly is consistent with the High Courts' decision in Allianz v Delor Vue, and I am bound to approach the present case on the basis that Freshmark was correctly decided.

1. In Allianz v Delor Vue, there was no dispute concerning the nature of the estoppel in dispute, such as whether it was a promissory estoppel or an estoppel by convention. Nor was there any dispute that Delor Vue was required to establish that it had suffered detriment to succeed in its claim that Allianz was estopped from revoking its waiver. The only issue was whether Delor Vue had established any detriment.[122]
2. The High Court acknowledged, at [80] that:

the detriment with which estoppel is concerned is not limited to loss that can be measured in monetary terms. It is concerned with "the consequences that would enure to the disadvantage of a person who has been induced to change his or her position if the state of affairs so brought about were to be altered by the reversal of the assumption on which the change of position occurred." (Citation omitted.)

1. Accordingly, Delor Vue needed to establish that it would suffer adverse consequences, or "a source of prejudice", if Allianz were entitled to revoke its waiver, in the sense of placing conditions upon the waiver.
2. Delor Vue submitted in the High Court, consistent with the conclusions of the primary judge and the majority of the Full Court, that detriment had been established by two opportunities lost by Delor Vue during the year between the waiver (on 9 May 2017) and the "revocation" (on 28 May 2018). These were:

(a) an opportunity to challenge Allianz for indemnity in May 2017 and potentially resolve the conflict within that challenge"; and > > (b) an opportunity "to take steps to carry out repair works itself rather than being left with a damaged property for over a year, and all of the distress and inconvenience attending that situation".

3. The High Court ruled against Delor Vue in respect of both contentions.

1. The High Court also dealt extensively with the topic of Allianz's duty of utmost good faith which was said to arise in the case by reason of s 13 of the Insurance Contracts Act. As there is no plea in the present case involving that Act, it is unnecessary to address what the High Court had to say about the topic.

The Builder's additional submissions having regard to the High Court appeal in Allianz v Delor Vue.

1. The Builder's submissions concerning Allianz v Delor Vue appeared, on their face, to be substantial. However, the first nine pages were concerned with background observations and an analysis of the High Court judgment. The substantive submissions were contained in only five pages. The first substantive point is that the Builder continues to rely on the decision of the majority in the Full Court of the Federal Court in the first appeal. The Builder, at [36], repeats the following passage extracted from majority judgment:

In the case of an insurance contract [ the doctrine of election] applies at least where the insurer has a right to disclaim liability but proceeds to exercise rights conferred by the contract of insurance. In such a case, the insurer cannot reserve its position. It can disclaim liability and request the insured to take steps of the kind that would be taken if there was liability under the policy as part of a process of considering whether the insured may reverse its decision to disclaim. But the insurer, knowing the relevant facts, cannot seek to exercise rights under the contract of insurance whilst at the same time denying liability under the policy. In such a case, having regard to the nature of an insurance contract, as a matter of fairness, the law requires the insurer to elect between disclaiming any liability and seeking to rely upon the rights conferred by the policy.[123]

1. The Builder submits that ultimately, it will come down to whether Arch knew the relevant facts. It insists Arch did.[124] It confirms that its original submission remains unchanged. This was that by 18 July 2017 it had already provided all material information, and Arch confirmed that it was "satisfied that the allegations are in relation to Professional business" and thereafter granted indemnity.
2. The Builder contends that Arch has to identify what material information it did not possess 18 July 2017 and that Arch has consistently refused to do this. The Builder submits that the conclusion is warranted that no such information actually existed, and the matter was, as Mr O'Brien conceded, simply "re-evaluated".[125]

1. It is apparent from the above summary that the Builder did not substantially engage with the High Court's decision in Allianz v Delor Vue. In particular, it did not address the implications for the present case arising from the fact that the High Court confirmed that Freshmark had been correctly decided.
2. On the contrary, it used the opportunity provided by the grant of leave to file and serve additional submissions regarding the impact of Allianz v Delor Vue to confirm the case it had already put.
3. The Lloyd's Underwriters submit in their new submissions that the Builder did more than merely confirm the case it was already making. The Lloyd's Underwriters say

In its Supplementary Submissions dated 31 January 2023 (Supplementary Submissions), Shangri-La refers to paragraph 354 of Shangri-La's Reply Submissions. By that paragraph, Shangri-La sought to change its case on election from one based on an allegation that, by the letter dated 18 July 2017, Arch had represented to Shangri-La that it would be indemnified for all claims in the proceeding, to a new case based on an un-pleaded allegation that, knowing the relevant facts, Arch exercised certain rights consistent only with it accepting liability. Putting aside the fact that Shangri-La neither pleaded nor opened a case based on Arch's alleged exercise of inconsistent rights (or Arch's knowledge of the "relevant facts"), those submissions are nevertheless misconceived.[126]

The context for the Lloyd's Underwriters' new submissions concerning the impact of Allianz v Delor Vue

1. To understand the Lloyd's Underwriters new submissions, it is necessary to bear in mind that their fundamental position is that "there is no relevant contract of insurance on foot creating alternative rights of avoidance or affirmation, and the question of election does not arise."[127]
2. The Lloyd's Underwriters had submitted in their final submissions that the Clyde & Co letter of 18 July 2017 is to be read as "an election... related to Shangri-La's failure to notify.". It was not an election to indemnify in respect of "the claims against Shangri-La which Arch and the Lloyd's Underwriters then knew very little".[128]
3. The Lloyd's Underwriters submitted that the letter of 18 July 2017:

did not identify any other circumstance that required it to elect between two inconsistent positions or rights. Here there is a contract on foot governing the rights and obligations of the parties. The case is not one where the insurer was seeking to terminate the contract. Other than to identify what the insurer proposed to do about Shangri-La's failure to notify, it was not a situation in which the insurer was purporting to alter the legal relationship [in a] fundamental way at all.[129]

1. The Lloyd's Underwriters fleshed out this submission as follows, at [365]:

In this case, Arch and Underwriters were faced with a claim for indemnity in relation to a number of potential liabilities. There were not, at that stage, any proven liabilities. In such cases, it is always possible that there will be no liability found against the insured or that any liability might be confined to a defect that falls outside the cover afforded by the policy of insurance.

In other words, by the letter of 18 July 2017, Arch and Underwriters were not purporting to elect between two inconsistent rights or positions.... Rather they were purporting to comply [with] the terms of the Policy.

1. The final passage from the Lloyd's Underwriters final submissions to be noted comes from [372], did not give rise where they said:

Rather, here, the question was whether the evidence in its totality would establish that Shangri-La incurred a civil liability or liabilities and that any such liability arises in the conduct of professional business within the meaning of the Policy. As the Tribunal will recognise, the question of precisely what Shangri-La did in the construction of the development was no straight-forward question and certainly not [clear] as at July 2017. Any decision on indemnity required a full and complete understanding of all the facts and circumstances before any firm conclusions could be drawn.

The Lloyd's Underwriters' additional submissions having regard to the High Court judgment in Allianz v Delor Vue.

1. The Lloyd's Underwriters filed what they termed their "Submissions on Delor Vue" on 8 February 2023. Unlike the Builder, the Lloyd's Underwriters had much to say about the importance of the decision in the Allianz v Delor Vue. In overview, the Lloyd's Underwriters say that "the High Court's decision affects the submissions made by the parties at the hearing and provides authoritative guidance relevant to the Tribunal's determination of the issues arising in this proceeding on the questions of election and estoppel".
2. The importance of Allianz v Delor Vue regarding election from the Lloyd's Underwriters' point of view lies in the High Court's confirmation that for the purposes of the operation of the doctrine of election two methods of extinguishing rights are available. As discussed above, at [203], the first is for the elector to exercise a power to extinguish a right or abandon a right. Alternatively, "a party can extinguish rights by taking a course of action, with knowledge of all relevant circumstances, such that an alternative set of rights is fully satisfied."[130]
3. The High Court ruled that the majority in the Full Court had fallen into error in recognising a third category "where a person's rights are extinguished by the person merely taking steps which clearly evidence a choice between two inconsistent courses of action."[131]
4. The crux of the Lloyd's Underwriters' submissions is to be found in [21] where they say that if the Tribunal finds that the policy of insurance does not provide indemnity to Shangri-La, then no issue of election can arise, because "Arch was not faced with a choice between maintaining one right or set of rights and extinguishing an alternative, immediately inconsistent right or set of rights (there being no applicable policy of insurance on foot that otherwise responded to the claim)". This submission follows closely a contention put squarely in Arch's opening submissions.[132] The submission was developed in the Lloyd Underwriters final submissions.[133]
5. As has been noted, the Full Court in the Delor Vue Federal Court appeal held that the Court in Freshmark had failed to properly frame the question in terms of whether the circumstances were such that the law required a choice to be made, and in that respect, was contrary to the decision in Craine.[134]
6. The judgment the Full Court of the Federal Court was handed down during the course of the hearing of the present case.[135] The Lloyd's Underwriters, in their submissions on Delor Vue, acknowledge that after the Full Court decision was delivered they could not maintain the proposition advanced in their opening that no election can arise in circumstances where the policy does not provide cover for the claim. The Lloyd's Underwriters went on to discuss the Full Court's approach to election and to endeavour to distinguish the facts in Delor Vue from those in the present case.
7. The High Court overturned the Full Court's finding on election. The High Court held that the remarks of Isaacs J in Craine cannot assist Delor Vue because there the insurer had waived a defence available to a claim for indemnity found in s 28(3). It did not give rise to a power in the insurer to terminate the contract.[136]

The Builder's pleading on election revisited.

1. In asserting that that the Builder did not plead that this Arch (and accordingly the Lloyd's Underwriters) did not make an election between inconsistent rights, the Lloyd's Underwriters appear at first glance to be on strong ground. Reference to the Builder's original points of claim against Arch indicate that the pleading regarding election is limited to the following paragraph:
   1. By confirmation of the grant of indemnity to Shangri-La in its solicitors letter dated 18 July 2017 [Arch] has, after investigating the claims (including reviewing expert's reports), elected to cover Shangri-La for the claims made by the Applicants and is bound by that election; Khoury v GIO [1984] HCA 55; (1984) 165 CLR 622 at 633; CE Heath Underwriting & Insurance (Aust) Pty Ltd the Campbell Wallis Moule [1992] VicRp 25; [1992] 1 VR 386 at 394.
2. The pleading goes on in the following paragraph to assert that by reason of a number of matters, Shangri-La has suffered detriment. This paragraph accordingly is directed at setting up a plea of estoppel.
3. Although the Builder seeks to flesh out its pleading regarding election by referring to one of the important High Court cases on the topic, Khoury v GIO, this appears to do no more than confirm that the Builder is relying on the doctrine of election as explained in that case. It does not tell Arch and the Lloyd's Underwriters why it is said that they made an election.
4. The Builder also seeks to reinforce its pleading about election by referring to the Victorian Full Court decision in CE Heath Underwriting & Insurance (Aust) Pty Ltd v Campbell Wallis Moule (CE Heath).[137] Again, the point can be made that reference to the case of itself does inform Arch and the Lloyd's Underwriters anything about the election they are alleged to have made.
5. However, there is a passage in the decision of Brooking J in CE Heath on which the Builder implicitly seeks to rely. I note that the Lloyd's Underwriters also addressed the decision at length. For this reason, the Lloyd's Underwriters cannot say that they have been surprised by the Builder's reference to CE Heath and somehow disadvantaged by it. Accordingly, I am satisfied that I ought to discuss the case. I do so below.
6. The Lloyd's Underwriters did not go so far as to say they have been denied procedural fairness by the Builders new articulation of the case of election. Even if they had done so, I would not have accepted such a submission. The Insurance Dispute is potentially worth millions of dollars. During the hearing the parties were not confined, except of their own volition in terms of the evidence they would call or the manner in which they would cross-examine. The hearing of the Insurance Dispute ran many days. The director and moving mind behind the Builder, Mr Naqebullah, was cross-examined extensively. In these circumstances, although it is clear that the Builder's written formulation of its case on election was poor, the Lloyd's Underwriters cannot say that they have been denied an opportunity to understand the case which has been put against them and to answer it.

1. It is clear from the respective submissions filed by the Builder and the Lloyd's Underwriters concerning the impact of Allianz and Delor Vue that the key issue from the Lloyd's Underwriters' point of view is whether it the circumstances can be squared with Freshmark, where the underwriter made an error in determining that it was liable to indemnify the insured but realised that error within days before it had taken any steps inconsistent with the insured rights.
2. It is clear from the Builder's latest submission that it sees the case as one of the type described by Handley JA in Nigel Watts[138] where an underwriter having the requisite knowledge of the facts, asserts rights which would only exist if the policy was in force and covered the claim. In such circumstances, it will be taken to have elected to treat the policy as valid and applicable to the claim
3. The Lloyd's Underwriters submit that the manner in which the Builder pleaded its case does give rise to election. They said, in their final submissions at [361]:

In contrast to Delor Vue, Shangri-La has not pleaded its case on the basis that Arch or Underwriters sought to exercise inconsistent rights or took inconsistent positions. Therefore, the case as pleaded falls within the second use of the word "election" identified by the Full Court in [the Delor Vue FC appeal]. That is, where it is used to refer to the situation where a party, made a choice, will be bound to adhere to that choice. This is not the domain of the common law doctrine of election. Rather, as explained by the Full Court, it is the territory where principles of estoppel assume significance.[139]

1. It appears from this passage that the Lloyd's Underwriters acknowledge that the doctrine of election will be enlivened where a party seeks to exercise inconsistent rights. However, they do not accept that this what the Builder says they have done in the present case. Rather, they say that because the Policy ultimately does not respond to the claim made there cannot have been an election between inconsistent rights. As a result, if the Builder has a remedy, it is to be found in the principles of estoppel.
2. The Lloyd's Underwriters insistence that election has no role to play in this case must be based on the view that Craine must today be recognised as a case of estoppel. However, it is to be remembered that High Court did not go that far. It recognised several ways in which Craine could be rationalised.[140]

• 269 The High Court observed in Allianz v Delor Vue, at [53], that difficulties in articulating a dominant rationale for the doctrine of election, together with the difficulty in finding "a case where irrevocable election to affirm was found in the absence of facts supporting a promissory estoppel" had led one author to suggest replacement of the doctrine of election with the doctrine of estoppel.[141] The High Court responded:

Such a step may be too large for the common law now to take, requiring a party to prove detriment to establish irrevocable election by affirmation of the other party.[142]

1. On this basis, I consider that it is not inutile to explore whether an election has been made by the Lloyd's Underwriters even if the circumstances do not give rise to a finding of detriment flowing from the election.
2. This segues into a discussion of the important decision of the Full Court of the Supreme Court of Victoria in CE Heath.[143]

1. It appears from the reasons of Brooking J, who wrote the substantive judgment of the Full Court, that the relevant underlying facts were as follows. The defendants, Messrs. Campbell Wallis and Moule, were accountants carrying on practice through a company Campbell Wallis Moule and Co Pty Ltd, of which they were the directors. A former client of the practice by the name of Reid sued both the three individuals and the company for damages for professional negligence, breach of warranty and misleading and deceptive conduct. The defendants held a policy of professional indemnity insurance with CE Heath and they joined the Lloyd's Underwriters as third parties. The Lloyd's Underwriters were not joined as third parties until a very late stage of proceedings and in what Brooking J described as 'highly regrettable circumstances'. The defendants sought indemnity under the policy and the Lloyd's Underwriters' solicitors conducted the defence of the action without admitting the Lloyd's Underwriters' liability to indemnify and expressly reserving their right to deny liability. It was not until the delivery of a letter on 21 February 1989 that the defendants learnt that the action was to be heard in nine days' time. That letter informed the defendants that the Lloyd's Underwriters, in reliance upon an exclusion clause in the policy, denied liability.
2. One of the matters before the Full Court was whether the Lloyd's Underwriters had elected to grant indemnity under the policy. Of critical importance were the circumstances in which the Lloyd's Underwriters assumed the control of the proceedings. The question here was whether the Lloyd's Underwriters had assumed control exercising their right to do so under the terms of the policy, or whether they did so under some ancillary arrangement outside the terms of the policy.
3. Brooking J found that the Lloyd's Underwriters had assumed the conduct of the matter:

not in the exercise of a preexisting contractual right given by the policy, but in the exercise of a right for which the underwriters stipulated, and which they were granted by the insured, shortly after the writ was filed.

1. Brooking J traced the history of the correspondence passing between the Lloyd's Underwriters' solicitors and the defendants. In May 1987, the Lloyd's Underwriters' solicitors received written notice from Campbell of a complaint made by Reid. Those solicitors wrote to Campbell on 5 June 1987 informing him that the Lloyd's Underwriters had not presently admitted liability to indemnify in relation to the matter and that all their rights remained expressly reserved. In July 1987, a partner in the Lloyd's Underwriters' solicitors firm conferred with Campbell and with either one or both of Campbell's partners. One of the matters discussed was the possibility that difficulties might arise in respect of cover because of a particular matter.
2. The writ was filed on 23 September 1988. On 26 September, the Lloyd's Underwriters' solicitors were notified by one of the insured partners that he and the company had been served with a writ and with a summons for directions returnable on 30 September. By a 'highly important' letter dated 27 September the defendants were notified by the Lloyd's Underwriters' solicitors that they would arrange for an appearance to be entered and for an attendance on the return for the summons for directions on the strict understanding that by doing so they had not waived the Lloyd's underwriters' reservation of rights. They added that they would act without prejudice to the Lloyd's underwriters' rights at the present stage. They asked for confirmation that they were to enter an appearance and appear on 30 September on the basis outlined, adding that the alternative would be for other representation to be sought.
3. On 12 October 1987, the Lloyd's underwriters' solicitors wrote to the defendants a letter which included the following:

Underwriters have taken the view that until such time as the basis upon which it is alleged your firm has been negligent is clearly spelt out, they are unable to form a view as to whether the claim falls within the terms of the policy.

1. By letter dated 17 October, the Lloyd's underwriters' solicitors wrote to one of the defendants telling him that they had appeared on his behalf and adding: 'As with the other defendants the appearance has been entered at this point strictly without prejudice to underwriters' rights.'
2. In addition, in a letter sent to the defendants on 28 October advising that further and better particulars had been received from the plaintiff's solicitors and that counsel had been instructed to draw a defence, the solicitors added: 'We confirm that underwriters' rights still remain reserved.'...
3. Letters were sent by the Lloyd's underwriters' solicitors to the defendants in November and December 1998, but neither referred to the arrangement already made between the defendants and the Lloyd's underwriters for the conduct of the defence. Brooking J held that this was not to the point, stating:

-that arrangement had already been clearly made and governed what followed. It is clear that the underwriters assumed the conduct, through [their solicitors], of the defence of the claim, not in the supposed exercise of a right to do so under the policy, but by virtue of an express arrangement made between the underwriters and the insured.

I see nothing in the material to suggest that this arrangement was ever brought to an end or that at any stage the underwriters' further conduct of the defence is to be attributed to the exercise of the right in that behalf under the policy. I find nothing in the dealings between the insured and [the underwriters' solicitors] after the action was fixed for hearing to suggest any change in the arrangement. Accordingly, the foundation on which the allegation of election is based - the exercise of a right under the policy to defend the proceedings - is not made out.

1. Of relevance to the present case is Brooking J's observation in CE Heath that:

Clauses empowering underwriters to conduct proceedings taken against the insured are common. Sometimes.... the conditions make it clear by express provision that they apply only where the claim the subject of the proceedings is covered by the policy.

1. In CE Heath, the relevant policy was not of this type. As Brooking J pointed out, the relevant condition referred simply to 'any claim'.

The Lloyd's Underwriters' power under the Policy to take over the defence of the claim against the Builder

1. With Brooking J's observation in mind, I now turn to the Lloyd's Underwriters' power to take over the defence of the claim which is found in the Policy in clause 7(a)(i). This provides:

The Insured shall not admit liability for, or settle, any Claim or incur any costs or expenses in connection therewith without the written consent of Underwriters (such consent not to be withheld), and subject to (iii)[144] below, Underwriters shall be entitled to take over the conduct in the name of the Insured the defence or settlement of any such Claim. (Emphasis added)

1. As clause 7(a)(i) of the Policy in the present case refers to "any such Claim" it is also, in my view, not a provision that applies only where the claim falls within the terms of the Policy.
2. The Lloyd's Underwriters insist that reference must be made back to the definition of Claim contained in the Policy. A Claim under the Policy can be summarised as any legal or arbitral process or demand alleging any civil liability or breach of professional duty by the Insured in their conduct of the Professional Business.
3. The Lloyd's Underwriters contend that they cannot have exercised an entitlement to take over the defence of the Claim because the Policy does not apply. They submit that they continued to act under the ancillary arrangement put in place by the 'Acknowledgement of Waiver' put into operation in May 2017.
4. However, the argument that Lloyd's Underwriters cannot have exercised a right to take over the defence of the proceeding because the Claim does not fall within the terms of the Policy is misconceived. In CE Heath, Brooking J held:

Nevertheless I entertain no doubt that the right given to the underwriters by the present policy to take over and conduct the defence or settlement of any claim is limited to claims in respect of which the insured is entitled to be indemnified under the policy or claims which the underwriters choose to treat as claims in respect of which the insured is entitled to be indemnified notwithstanding that the underwriters may be entitled to deny liability. In what follows I shall not distinguish between the case where the insured is entitled to be indemnified and that in which, although some ground for denying liability exists, the underwriters choose to treat the insured as entitled to be indemnified. [Emphasis added]

1. It follows from this passage that if the Lloyd's Underwriters in the present case did grant indemnity in the letter of 18 July 2017 and accordingly began to act in the defence of the matter under the terms of the policy, rather than continue acting under the ancillary arrangement created by the Acknowledgement of Waiver document in May 2017, it would be open to me to find that an election was made which binds the Lloyd's Underwriters.
2. I observe that such a finding would be consistent with the High Court's decision in Craine, although I acknowledge that that case can be viewed as one of estoppel. The High Court in Allianz v Delor Vue suggested this was the case[145] and the Privy Council upheld the decision on appeal on the basis that an estoppel existed.[146]

Conditions attaching to the grant of indemnity in the letter of 18 July 2017

1. I return to the text of the letter of 18 July 2017. The Lloyd's Underwriters highlight that the grant of indemnity expressed in the letter of 18 July 2017 was highly conditional. They refer to paragraph 3.15, which states that the Lloyd's Underwriters will grant indemnity in relation to the claim made in the proceeding subject to:
   1. the terms and conditions of the Policy;
   2. the facts and circumstances currently known to the Underwriters;
   3. a reservation of rights to the extent to which the Underwriters have been prejudiced by Shangri-La's failure to notify circumstances and the late notification of a claim;
   4. payment by Shangri-La of the costs inclusive excess of $10,000;
   5. the manner in which the claim is currently being pursued by the Owners.
2. I consider these conditions in turn.

The manner in which the claim is currently being pursued by the Owners

1. It is convenient to address the fifth condition placed on the admission of indemnity, namely the manner in which the claim is currently being pursued by the Owners. It is convenient because the nature of the claim frames the dispute about indemnity.
2. The Lloyd's Underwriters can draw no comfort from this condition, because the claim as put by the Owners in their final submissions is the same as the claim put at the outset. The claim has always been a claim against the Builder for breach of the warranties created by s 8 of the DBC Act and expressed in the D&C Contract, alternatively for breach of duty of care. It is true that during the course of the proceeding, the number of defects alleged was greatly expanded,[147] and the particulars of the defects became in some cases more detailed. However, the essential nature of the claim did not change.

1. There is no mystery about the first condition of indemnity referred to, namely the terms and conditions of the Policy. The only question to be determined in July 2017 was whether on the facts of the case, the Policy applied. In this sense, the first two reservations regarding the admission of indemnity postulated by the Lloyd's Underwriters merge.

The facts and circumstances currently known to the Lloyd's Underwriters

1. As noted, the Full Court the Delor Vue Federal Court appeal held:

In the case of an insurance contract [the doctrine of election] applies at least where the insurer has a right to disclaim liability but proceeds to exercise rights conferred by the contract of insurance. In such a case, the insurer cannot reserve its position..... , as a matter of fairness, the law requires the insurer to elect between disclaiming any liability and seeking to rely upon the rights conferred by the policy [148]

1. In fairness to the Lloyd's Underwriters, it is important to note that this conclusion is qualified in the following terms:

Of course, the position is different in those instances where the insurer is investigating the claim and is yet to uncover the relevant facts or is seeking clarity as to position. It is well established that there is no obligation to elect unless and until the relevant party is aware of the relevant facts...[149]

1. In connection with this point, the Lloyd's Underwriters in their final submissions highlight that the letter of 18 July 2017 was written at a very early point when Clyde & Co knew very little about the claim. In their final submissions, the Lloyd's Underwriters submit:

[T]his correspondence must be read and understood in the context in which it was sent. Notably, it was dealing with the question whether a liability by Shangri-La to a third party, to which the Policy may respond, would arise at some time in the future in litigation involving several parties, and complex and contested factual and legal issues. It was sent at a very early stage in the proceeding and was expressly reliant on the very limited information provided by Shangri-La at that time.[150]

1. In my view, the submission made by the Lloyd's Underwriters that the grant of indemnity effected by the letter of 18 July 2017 is qualified by reference to 'the facts and circumstances currently known to the Lloyd's Underwriters' must fail. I say this for several reasons.
2. Firstly, it does not avail the Lloyd's Underwriters to suggest that they misunderstood the nature of the claim being made against the Builder and that they were somehow under the impression that involved solely alleged breaches of professional duty. This is clear from the letter from Clyde & Co dated of 22 May 2017 where they described the claim made under the policy by the Builder in these terms:

Although we have not seen the court documents we understand that it is alleged against the company that it conducted defective building works at a development at Willansby Avenue, Brighton ... (Emphasis added)

1. Secondly, in respect of further investigations, the letter of 22 May 2017 clearly articulates the position. It has been set out above[151]. In summary, Arch (as the agent of the Lloyd's Underwriters) clearly indicated that further investigation was required to understand the claim which has been made against the Builder and to consider the claim for indemnity under the Policy. Arch understood that this process of investigation was not open-ended. Sooner or later, it would have to make a decision regarding indemnity. It set a timeline, stating that once "we have obtained all necessary information and completed our investigations and assessed the claim for indemnity, you will be notified of Arch's decision on indemnity within 10 business days."
2. The letter of 18 July 2017 is to be read in the context of this statement. It was, in my view, clearly Arch's forecast 'decision on indemnity'. This conclusion is reinforced by the words of paragraph 3.1 of the letter, which refers to the information provided by the Builder and then states unconditionally that the claims made by the Owners against the Builder are in relation to civil liability arising from the conduct of the Builder's Professional Business.[152]

1. In section 3, under the heading "Grant of indemnity", Arch's solicitors state at paragraph 3.2:

We are instructed that Arch will grant indemnity to you under the Contract of Insurance in respect of the claim made by the claimant's in the proceeding subject to a specific reservation of rights.

1. It is necessary to determine the nature of the reservation of rights referred to paragraph 3.2.
2. The Lloyd's Underwriters submit that the purpose of the letter of 18 July 2017 was to put the Builder on notice at an early point that there was an issue concerning breach of condition 11 of the Policy, which requires notification in writing of any claim made against the insured as soon as practicable. The Lloyd's Underwriters say it was also necessary to address Exclusion 9 of the Policy, which protects them from liability to indemnify the Builder in respect of any claim made prior to the commencement of the Period of Insurance. In the event, the Lloyd's Underwriters advised that the Continuity Clause (clause 7) applied, and that they reserved their rights under paragraph (b) in relation to any prejudice suffered as a result of late notification of circumstances. The Lloyd's Underwriters also reserved their rights in relation to any prejudice suffered as a result of late notification of the claim.
3. The Lloyd's Underwriters submit that the letter of 18 July 2017, when taken in context, must be read as being concerned with these reservations of rights and is not to be construed as a general admission of indemnity. This submission is consistent with the position taken by the Lloyd's Underwriters during the course of the hearing, when Mr Murdoch established by reference to the pleadings, in a lengthy submission, that it was no part of the Lloyd's Underwriters' case that new information had come to light which led to a change of position. Mr Murdoch put an argument that indemnity had never been unconditionally granted. Rather, he said:

Arch's case is and always has been that the letter of July 2017 was only ever preliminary and conditioned in a number of ways that were explained in that correspondence, that there has been or had been a process of identifying relevant allegations, relevant expert evidence, relevant material in response, and then finding out what actually happened...[153]

1. Thus, the submission continued, indemnity had been granted provisionally subject to a range of conditions including 'the facts known to date' and 'the terms and conditions of the Policy' and that it was only after the process of applying the evolving facts to the terms and conditions of the Policy had been completed that the position regarding indemnity (or rather the lack of indemnity) became clear.

Consideration of the Lloyd's Underwriters' submission regarding the reservation of rights

1. I am not satisfied that the Lloyd's Underwriters' interpretation of the letter of 18 July 2017 can be sustained. I say this for the following reasons, having regard to its language.
2. First, paragraph 3.1 of the letter states that the Lloyd's Underwriters have considered the information provided by the Builder and are:

satisfied the allegations made by the claimants .... in the proceeding are in relation to civil liability arising from the conduct of [its] Professional Business.

1. Secondly, paragraph 3.2 clearly admits indemnity subject to 'a specific reservation of rights' but the limited nature of the 'specific reservation of rights' is clearly apparent from paragraphs 3.3 - 3.11. The reservation, as discussed, relates to prejudice arising from late notification of circumstances and late notification of the claim.
2. Thirdly, I turn to consider Section 3 of the letter in its entirety. There is clear tension between the language of paragraph 3.2, which refers to a 'specific reservation of rights' and paragraph 3.15, in which this specific reservation is but one of five conditions attached to the grant of indemnity.
3. Fourthly, unlike the situation in CE Heath, the Lloyd's Underwriters solicitors did not say that they had a concern that the Policy did not attach because of the nature of the claim made and that the position regarding indemnity was reserved generally.[154] Indeed, any such general reservation would have been inconsistent with the unconditional statement contained in paragraph 3.1.

1. I turn now to the fourth condition attached to the admission of indemnity. This is payment by the Builder of the costs inclusive excess of $10,000.
2. The Lloyd's Underwriters in their final submissions seek to discount the fact that this condition was applied and that subsequently invoices were issued by Clyde & Co to the Builder, and were paid. They say that this process occurred not by reason of any election but merely as a result of the operation of the policy.
3. The Lloyd's Underwriters also highlight that they have made an open offer to refund the excess. In my view, this does not assist them. The offer of repayment of the excess was not accepted, and the fact that an offer to repay it was made merely goes to highlight the detrimental impact on the Lloyd's Underwriters case that the demand for payment had.
4. I reject the Lloyd's Underwriters' attempt to minimise the significance of the demand for the payment of the excess. I note that when Clyde & Co wrote in May 2017, when the issue of indemnity was clearly a live one, there was no demand for payment of the excess. If there had been an intention on the part of the Lloyd's Underwriters to continue to reserve their position regarding indemnity, it would have been open to them to continue to pay for the defence of the proceeding without requiring their insured to contribute the excess.
5. However, this is not what they did. Instead, on 18 July 2017 they demanded payment of the excess in a letter in which they had openly stated that the allegations made by the Owners against the Builder related to civil liability arising from the conduct of the Builder's Professional Business and in which they had admitted indemnity subject to a specific reservation of rights.
6. Accordingly, I find that when the Lloyd's Underwriters demanded payment of the excess they exercised a right provided by the policy which could only exist if the policy was in force and covered the claim. In these circumstances, the Lloyd's Underwriters must, to use the phrase employed by Handley JA in Nigel Watts "be taken to have elected to treat the policy as valid and applicable to the claim."[155] I refer also to Craine[156] and CE Heath,[157] both previously discussed.

Another basis for finding that an election has been made

1. There is another basis upon which a finding that the Lloyd's Underwriters elected to indemnify the Builder must be made. This is that after the issue of the letter of 18 July 2017 the basis upon which Clyde & Co continue to act for the Builder changed, and the Lloyd's Underwriters begin to exercise their right to act under the terms of the Policy.
2. The basis upon which Clyde & Co began to act for the Builder is not controversial. It is spelt out in the Acknowledgement of Waiver document in which the Builder agreed at condition 4 that if Arch appointed Clyde & Co to act for the Builder in the proceeding this did not mean that the Builder was entitled to cover under the Policy nor that Lloyd's Underwriters had elected to indemnify the Builder.
3. I consider that the basis upon which Clyde & Co continued to act for the Builder was clearly altered by the letter of 18 July 2017. I say this because:
   1. an unconditional statement is made in paragraph 3.1 that the claim fell within the coverage of the policy;
   2. a requirement for payment of the excess of $10,000 is alluded to;
   3. the final section of the letter, in which Clyde & Co refer to future steps and recommend the joinder of another party, is expressed in an unqualified way and there is no suggestion that they are making this recommendation on behalf of Arch (and accordingly the Lloyd's Underwriters ) only;
   4. in making a recommendation that another party be joined to the proceeding, Clyde & Co was making a recommendation which potentially had significant financial ramifications for the Builder because the Builder would either have to take the proceeding to hearing against the joined party or allow the joined party out of the proceeding at the risk of an adverse order for costs being made against the Builder under s 74(2)(b) of the VCAT Act;
   5. there is no reference to the continuation of the ancillary arrangement established by the Acknowledgement of Waiver document; and
   6. there was no suggestion that the Builder should continue to seek independent legal advice about either the issue of indemnity or the future conduct of the proceeding.
4. The situation in this case is accordingly to be contrasted sharply with that which existed in CE Heath.[158] In that case, as Brooking J demonstrated, the solicitors acting for the underwriters consistently reminded the insured that they were acting under an ancillary arrangement without prejudice to policy liability, and not under the terms of the policy.
5. For these reasons I find that by the letter of 18 July 2017, the Lloyd's Underwriters elected to indemnify the Builder on a second basis, namely that by reason of the letter the Lloyd's Underwriters exercised their right under the policy to conduct the defence of the Claim.
6. I have previously referred to the email from Clyde & Co to the Builder sent in February 2019 which they stated that they were still acting under the Waiver of Acknowledgement document. I place no weight on this email. It was sent at a time when the Lloyd's Underwriters were clearly seeking to resile from the admission of indemnity which had been made in the letter of 18 July 2017. It was self serving. The Clyde & Co email of February 2019 was inconsistent with the letter of 18 July 2017, and I find that it was not effective to reverse the election which had been made by the Lloyd's Underwriters through Arch.
7. Because the election made by the Lloyd's Underwriters is irrevocable, it matters not that three years after the notification of the claim the Lloyd's Underwriters took advice from senior counsel and determined on the basis of that advice that on the facts which had by that time been established the Policy was not engaged. It was simply too late in June 2020 for the Lloyd's Underwriters to purport to completely withdraw indemnity in respect of the claim.

1. Mr Murdoch emphasised that the Lloyd's Underwriters' intentions were not in issue and that the case on election was to be determined on the correspondence. I accept this view. Mr Murdoch's submission on this point brings to mind the classic statement regarding election appearing in the judgment of Buckley LJ in Central Estates (Belgravia) Ltd v Woolgar (No 2).[159] The issue in that case was whether a landlord, with knowledge of a ground for forfeiture of a lease, by demanding or receiving rent had elected unequivocally to treat the lease as still subsisting, and so waived forfeiture of the lease. Despite this obvious difference to the present case, I regard the concluding words of the following passage as particularly relevant (emphasis added) to the issue under consideration:

The landlord's right is a right to elect whether to treat the lease as forfeit or as remaining in force. Any election one way or the other, once made, is irretractable: Scarf v Jardine per Lord Blackburn. If the landlord by word or deed manifests to the tenant by an unequivocal act a concluded decision to elect in a particular manner, he will be bound by such an election. If he chooses to do something such as demanding or receiving rent which can only be done consistently with the existence of a certain state of affairs, namely, the continuance of the lease or tenancy in operation, he cannot thereafter be heard to say that that state of affairs did not then exist. If at the time of the act he had a right to elect whether to forfeit the lease or tenancy or to affirm it, his act will unequivocally demonstrate that he has decided to affirm it. He cannot contradict this by saying that his act was without prejudice to his right of election continuing or anything to that effect. In this respect his act speaks louder than his words, because the act is unequivocal; it can only be explained on the basis that he has exercised his right to elect. The motive or intention of the landlord, on the one hand, and the understanding of the tenant, on the other, are equally irrelevant to the quality of the act.

1. In the present case, the Lloyd's Underwriters (through Arch) did not promptly agree to indemnify the Builder. Arch appointed solicitors to investigate the claim and considered the indemnity position carefully over a period of months. Ultimately, at a point when Arch determined that it had sufficient information to make a decision about indemnity, Arch by the letter of 18 July 2017, agreed to indemnify the Builder.
2. The letter of 18 July 2017 contains a clear statement that the Owners' claims arose in relation to civil liability arising from the conduct of the Builder's Professional Business. That statement was incorrect. If Arch had properly turned its mind to the Builder and Constructor Exclusion it would have determined that the Builder had not been providing Professional Services as defined under the Policy and could have avoided having to admit indemnity.
3. There is no evidence before me as to the process of reasoning by which the relevant officers of Arch reached a decision that indemnity was to be extended. Arch made a forensic decision not to call any of its directors or employees as witnesses. But whatever that process of reasoning was, it appears to have been flawed, because it led to a determination as to liability which was contrary to that reached by the QC briefed on behalf of Arch in or about June 2020. That QC, Mr Murdoch, provided the advice upon which Arch based its ultimate withdrawal of liability.
4. It is to be emphasised that after Arch admitted indemnity in the letter of 18 July 2017 the parties proceeded for more than a year on the basis that indemnity had been admitted without qualification. In this connection it is to be noted that Arch first raised a qualification about indemnity on 19 December 2018. This period contrasts sharply with the period of less than a week that it took the insurer in Freshmark to realise that it had made a mistake and to reverse its decision as to indemnity.
5. However, that is not the critical difference between Freshmark and the present case. The critical difference is that, for the reasons I have explained, Arch did exercise rights under the policy which were adverse to the interests of the Builder. As Isaacs J observed in Craine, underwriters:

are not at liberty to deny to the insured rights given to him under the contract and at the same time insist on and exercise as against him in adversum correlative rights given to them by the contract.[160]

1. Once Arch did that, irrespective of whether the Builder suffered immediate detriment or not, the doctrine of election was enlivened and it became too late for Arch (and its principals the Lloyd's Underwriters) to reverse its decision as to indemnity.
2. This concludes my consideration of the issue of election. My finding that the Lloyd's Underwriters have elected to indemnify the Builder is sufficient to dispose of the Insurance Dispute.
3. However, having regard to the complexity of the case concerning election, and the prospect that in some way I have fallen into error, it is necessary that I also address the case put by the Builder based on estoppel.

1. The Builder's case is that the Lloyd's Underwriters:

are estopped from denying that the Arch PI Policy obliges them to indemnify Shangri-La against the claims made against them in this proceeding and are bound by the grant of indemnity conferred on Shangri-La by the letter from its solicitors dated 18 July 2017 ...[161]

1. I note that if an estoppel is made out, it will not matter that the Policy, by its terms, would not otherwise have applied: Downie v Jantom Company Pty Ltd (Downie).[162]

1. Because the case in estoppel is concerned with how the Builder responded to what it says is the grant of indemnity contained in the letter of 18 July 2017, it is necessary to examine the history of events after that date.
2. After the issue of the letter of 18 July 2017 Arch through Clyde & Co continued to gather facts about the case. As part of this process, Clyde & Co sent a draft defence to the Builder for review in October 2017; just before Christmas 2017, Clyde & Co and Mr Naqebullah discussed the appointment of an expert, Mr Peter Quigley; and on 3 July 2018, Clyde & Co gave its final recommendations to the Builder regarding the joinder of a number of parties.
3. A compulsory conference was scheduled for 8 November 2018. Shortly before the scheduled compulsory conference, Clyde & Co was served with Hurricane's defence and expert report and immediately sought the Builder's comments on each. The Builder requested a meeting to discuss the compulsory conference and Hurricane's defence. That conference took place by telephone on 17 October 2018 between Mr Naqebullah and Mr Donley. During this call there were discussions about the causes of the roofing issues, and also the engagement of Phillip Naughton to provide a scope of works and costing report on the ongoing investigation into the design drawings.
4. As both the factual investigations into the role played by each party and steps to obtain expert evidence were incomplete, on 2 November 2018, Clyde & Co wrote to the Builder to advise that the matter was not yet ready for a compulsory conference. On 7 November 2018, the compulsory conference was adjourned until 21 February 2019.
5. On 9 November 2018, Clyde & Co filed the report which it had received from Mr Naughton[163] that had been approved by the Builder.
6. On 13 December 2018, Mr Donley advised the Builder that he had been instructed by Arch to join GPS Plaster to the proceedings and sought confirmation that the proposed pleading was accurate.[164]

1. On 19 December 2018, Mr Donley and Mr Naqebullah had a conversation which was the subject of a file note by Mr Donley.[165] The accuracy of this file note was not effectively challenged. In the conversation, Mr Donley made it clear that the position on what cover was available to the Builder needed to be considered by Arch. In particular, Mr Donley advised that "Design and project management errors are covered. Construction are not." It was proposed that Arch and the Builder would go to the scheduled compulsory conference with an agreement about how much they each would contribute.
2. The significance of this conversation is that it revealed the position regarding indemnity now adopted by Arch appeared to be inconsistent with the admission of indemnity which, I have already found, was communicated by the letter of 18 July 2017, approximately 17 months previously.

1. In a letter dated 6 February 2019,[166] to which I have already referred, Clyde & Co communicated what the Lloyd's Underwriters describe as 'Arch's updated provisional coverage position.' Based on the discussions between Clyde & Co and the Builder (to the effect that construction defects were not covered), the letter identified the basis upon which the Builder now sought cover - namely, as a project manager. The letter called on the Builder to 'provide any further information or documents that the Builder relies on to establish its entitlement to indemnity under the policy.'[167] In their final submissions, the Lloyd's Underwriters say:

It was clear from any objective reading of the 6 February 2019 letter that...Arch had not reached a final position on indemnity, which remained in question and subject to review by Arch. Arch was communicating its preliminary views and seeking further information from Shangri-La to allow it to consider the position further.[168]

1. The Lloyd's Underwriters contend that after 6 February 2019 it was clear that the Builder understood that cover was extended under the policy only for the defects caused by design or project management, but not for construction defects. In this connection they referred to a conversation held between Mr Donley on behalf of Clyde & Co, Mr Naqebullah and Ms Shaya on 12 February 2019. Mr Donley's uncontroverted evidence about his recollection of this conversation was that there was a discussion about whether Arch and the Builder would be able to negotiate or agree on a position of insurance cover for the compulsory conference.
2. On 15 February 2019, having consulted its broker, the Builder provided its response to Clyde & Co's letter of 6 February 2019. That response was contained in a table, which has two columns: 'Sub-consultant/ subcontractor' and 'How the defect arises from the Builder's project management service'.
3. The Tribunal adjourned the compulsory conference scheduled for 21 February 2019 to 27 May 2019 and scheduled a directions hearing in its place so that a timetable could be set for completion of the outstanding steps. Those directions included orders for a further inspection of the property by the experts in March 2019, and the filing of further expert reports.
4. On 21 May 2019, Mr Donley had a telephone call with Mr Naqebullah and Ms Shaya, during which Mr Naughton's updated expert report was discussed. Mr Donley's recollection of this discussion was recorded in a file note[169] is that it included a statement that the insurance would cover the Builder for construction management. In his witness statement of 16 July 2021, Mr Donley says that the file note summarises the matters discussed but is not an exact transcript of the call. He suggested he deposes that one of the matters discussed was the progress of negotiations between Arch and the Builder aimed at achieving an agreed coverage position for the compulsory conference.[170]

1. Mr Donley gave evidence that he received a telephone call on 22 May 2019 from Mr Pang of CCM, the Builder's broker, in which Mr Pang expressed concern 'there may not be complete cover').[171]
2. Mr Pang was concerned about this advice and sent an email directly to Ms Jane Hattwich at Arch on 22 May 2019 seeking details of the percentage split of insured/uninsured amounts.[172]

1. Ms Hattwich responded late on the following day.[173] Having summarised the insuring clause in the Policy, Ms Hattwich advised:

The Insured subcontracted the entirety of the design and construction to its consultants and subcontractors, with some minor exceptions.

Cover is therefore available under the policy to the Insured in respect of the Insured's liability:

(a) for breach of its design obligations under the D&C contract; and

(b) that arises from the Insured's construction and project management services, such as the preparation of scopes of work, supervision of subcontractors and checking the subcontractors' work for compliance with the subcontracts. Construction‐related defects need to arise from the Insured's conduct of its professional business as a project manager in order to be covered under the policy.

Ms Hattwich then went on to make some comments about the liability of the Builder's sub- contractors.

1. Mr Donley deposed that there was a further discussion with Mr Pang on 24 May 2019 during which a strategy for negotiations at the compulsory conference was discussed.[174]
2. The Lloyd's Underwriters obtained on summons a letter sent by Mr Pang to the Builder which had not been discovered by the Builder. Relevantly it read:

Further to the discussion over the phone ... the position for Monday will be Shangri-La and Clyde and Co at the direction of Arch (Insurance) will be negotiating in conjunction with all the contractors and subcontractors named with the Owners Corporation to determine who is at fault for which items being claimed.

1. The proceeding did not settle at the compulsory conference on 27 May 2019 and nor did Arch and the Builder reach a compromise on indemnity. However, Clyde & Co continued to act for the Builder in the proceeding.
2. On 7 June 2019, Ms Hattwich of Arch sent a further email to Mr Pang making comments about the extent of cover provided to the Builder under the Policy.[175]
3. On 25 June 2019, the Tribunal scheduled a further compulsory conference for 24 September 2019 and made programming orders regarding discovery and lay witness statements.
4. On 13 September 2019, Arch itself (rather than its solicitors) sent a letter to the Builder ("the Arch letter of September 2019")[176] which opened as follows:

We write to provide you with Arch's updated assessment of Shangri-La's entitlement to cover under the insurance policy in respect of the claims made by the applicants against Shangri-La in the proceeding.

1. After referring in detail to some relevant terms of the Policy including the definition of 'Professional Business', the Arch letter of September 2019 went on to summarise a number of the claims being made by the Owners. The letter then proceeded to identify some defects which Arch understood arose from defective design which it considered were covered by the Policy and a number of construction defects in respect of which cover under the Policy is available by reason of deficiencies in the Builder's project management. The letter also noted that the Builder is not entitled to cover for liability arising by reason of defective work by subcontractors. Significantly, the letter advised, in [3.7]:

Due to the contradictory lay and expert evidence that has been exchanged by the parties in the proceeding, Arch is not able to determine the abovementioned issues at this relatively early stage of the proceeding. Arch therefore reserves its rights to review Shangri-La's entitlement to cover under the policy as further information is obtained in the proceeding.

1. A meeting was scheduled between Arch, Clyde & Co, CCM Insurance, and the Builder on 17 September 2019 to discuss the proposal made in the Arch letter of September 2019 and the strategy for the second compulsory conference. The Builder requested that the meeting be postponed to 23 September 2019.

1. By this time, the Builder had sought independent legal advice from Mr Darren Noble. Mr Donley gave uncontradicted evidence that on 20 September 2019 he was contacted by Mr Noble who advised him that he (Noble) had been engaged by the Builder in relation to the insurance coverage dispute and would be attending the meeting on 23 September 2019.
2. On 23 September 2019, Arch, Clyde & Co, the Builder, and CCM Insurance held a meeting to discuss the approach to the compulsory conference.
3. As to developments on this and subsequent days, it is convenient to refer to the witness statement Mr Donley dated 16 July 2021 in which he deposed at [98] that:

On 23 and 24 September 2019, Noble Lawyers informed me that Shangri-La had rejected:

(a) the insurance policy application proposed by Arch in its letter dated 13

(b) the contributions that Arch proposed in its letter dated 13 September

2019 should be made by Arch and Shangri-La to a settlement of the

applicants' claim at the compulsory conference on 25 September 2019.

1. At [99] -[100] of his witness statement, Mr Donley went on:

Between 23 and 24 September 2019, I exchanged emails with Mr Naqebullah [TB: tab 562, page 8644-8647]. CCM Insurance and Noble Lawyers were copied into the email exchange.

On 24 September 2019, I received emails from Ms Shaya and Mr Noble [TB:

On 24 September 2019, I had a telephone call with Mr Naqebullah. My

handwritten notes taken during the call, together with a typed version that

was recently prepared, is [TB: tab 564, page 8649-8653].

A second compulsory conference occurred on 25 September 2019.

1. Mr O'Brien deposes in his witness statement of 1 November 2021 that on 24 September 2019, Clyde & Co sent a letter to Mr Noble with a proposal for an offer to be made by Arch and the Builder at the compulsory conference.[177]
2. On 24 September 2019, Mr Noble emailed Clyde & Co stating the Builder's disagreement with Arch's construction of the Policy and its proposal for the compulsory conference. Mr Noble wrote:

My client does not accept your proposal, which is based on your client's construction of the policy, which is very uncertain and not accepted by my client.

Mr Naqebullah will attend the compulsory conference but expects that your client will make good on its indemnity, about which my client reserves all of its rights.

1. Mr Noble's email of 24 September 2019 went on to suggest that the Policy covered not just design issues but also construction issues.
2. The proceeding did not settle at the compulsory conference on 25 September 2019.
3. Clyde & Co continued to act on behalf of the Builder in the proceeding even though indemnity was plainly in dispute and the Builder was taking independent legal advice about the matter.
4. On 10 October 2019, Clyde & Co responded to Mr Noble regarding the Builder's position on indemnity. That letter restated Arch's earlier position including that, in Arch's view, the Policy did not provide cover for any liability the Builder incurred because of the defective work of its subcontractors and that, as the facts were in dispute, it was unable to determine where policy coverage was available for each defect and, for that reason, had reserved its rights. The letter acknowledged Mr Noble's emails of 23 and 24 September 2019 disputing Arch's position on policy cover and proposed a way forward utilising Arch's Internal Dispute Resolution (IDR) procedure.

1. On 8 November 2019, Noble Lawyers wrote to Clyde & Co, once again rejecting Arch's view that the Builder was not covered for the defective work of its subcontractors and advanced the argument that the Policy covered all its liability in the proceeding. It is to be highlighted that this letter was not a short or insubstantial missive. It set out over 17 pages, arguments as to why indemnity had to be extended to the Builder including arguments based on the text of the Policy, election and estoppel. The letter concluded:[178]

49. In light of the contents of this letter we invite you to unequivocally confirm within 14 days that Shangri-La is entitled to be indemnified for its liability for the claims in the proceeding and defence costs moving forward. Should you fail to do so we would expect to be instructed to investigate whether Shangri-La should avail itself of Arch's Internal Dispute Resolution Procedure and then complain to the Australian Financial Complaints Authority, as you suggest it should do in your letter dated 10 October 2019. Alternatively, given the timing of resolution of the issue, it may go through those steps or pass over those steps entirely and seek to join Arch as a party to the proceeding in VCAT to seek a declaration as to Shangri-La's entitlement to be indemnified for the claims in the proceeding.

1. Mr Donley acknowledged receipt of Mr Noble's letter on 11 November 2019.[179]
2. Arch did not give the confirmation of indemnity sought on behalf of the Builder by Mr Noble within 14 days, or at all. Notwithstanding the clear dispute about policy coverage, Clyde & Co remained on the record for the Builder in the proceeding. The Lloyd's Underwriters highlight in their final submissions that the Builder allowed Clyde & Co to continue to act for it (at the Lloyd's Underwriters' expense) but the Lloyd's Underwriters were also happy for this situation to continue.
3. From this point, Clyde & Co continued with the preparation of Mr Naqebullah's witness statement. This witness statement was filed just before Christmas 2019.
4. The proceeding had been fixed for hearing in April 2020. In an email dated 25 February 2020, Mr Donley wrote to Mr Noble about the pending trial. Mr Donley raised the issue of trial counsel and wrote:[180]

At this stage, and subject to Arch's instructions, I propose to limit counsel's brief to the defence/apportionment/contribution issues in dispute in the proceeding (i.e. exclude coverage advice).

If the coverage issues between Arch and Shangri-La cannot be resolved, then again subject again to Arch's instructions, I propose the following arrangements:

2. Mr Twigg and Mr Waters can continue their brief for Shangri-La;

3. you can file third party proceedings against Arch claiming insurance coverage;

4. Mr Twigg's and Mr Waters' brief can be expanded to include prosecuting the insurance claim against Arch;

5. we will act for Arch in the third party proceeding;

6. we will brief different counsel to defend the insurance claim.

I am also going to recommend to Arch that a private mediation be arranged in late March, after lay and expert evidence has been finalised and after all parties have briefed counsel for trial. Arch would be looking to settle the proceeding at the mediation with appropriate contributions from Shangri-La and all other co-respondents and joined parties.

1. On 6 March 2020, Mr Noble responded to that proposal on Mr Naqebullah's instructions.[181] He began by observing that his letter of 8 November 2019, although sent three months ago, did not appear to have received a substantive reply. Among other things, Mr Noble re-stated the Builder's position that it was entitled to full indemnity. On the question of the mediation, the Builder's position was stated to be as follows:

[...] your client should be aware that, given my client's position as conveyed to you on 8 November 2019, it does not agree to make any contribution to any settlement other than by way of indemnity from your client together with any applicable excess.[182]

1. As to the proposal in Mr Donley's email that in the event coverage issues could not be resolved Clyde & Co. would act for Arch in any third party proceeding, Mr Noble responded:

Our client would object to this course of action, given that you would have a most obvious conflict of interest, and our client would take all action available to it to restrain you from doing so, including, if necessary, obtaining injunctive relief;

1. As a result of the onset of the COVID-19 pandemic, the hearing date set for April 2020 was vacated.
2. Arch sought advice from senior counsel and obtained that written advice on 20 May 2020.
3. On 11 June 2020, Arch declined indemnity and instructed Clyde & Co to cease acting for the Builder.
4. The Builder did not immediately take steps to join Arch to the proceeding. Rather it embarked upon a complaints process which was available to it. The Builder's complaint was elevated to a complaints officer with Lloyd's and ultimately the complainant was rejected and the decision on indemnity was confirmed.
5. This explains why it was only in March 2021 that the Builder applied to the Tribunal for orders joining Arch to the proceeding.

1. I now turn to an examination of the Builder's pleaded case. As noted, the Builder argues that the Lloyd's Underwriters are estopped from denying that the Policy obliged them to indemnify the Builder, and is bound by the grant of indemnity contained in the Clyde & Co letter of 18 July 2017.[183]
2. The Builder re-stated this case in its opening, submitting that '[The Lloyd's Underwriters] agreed to indemnify [the Builder] ....on 18 July 2017 by letter from their solicitors, Clyde & Co ("the Indemnification Letter").[184] The Builder's contend that both Arch and the Builder acted in reliance on the 'Indemnification Letter'.[185] On this basis it is submitted that 'Arch is estopped from acting contrary to the Indemnification Letter'.[186]

1. In their closing submissions, at [396], the Lloyd's Underwriters make a sustained attack on what they contend are shifts in the way that the Builder has presented its case on estoppel. Indeed, in respect of the entire proceeding the Lloyd's Underwriters complain that "By its closing submissions, Shangri-La seeks to advance a case unconstrained by the pleadings or the case it opened at trial." They quote Deane J's memorable observation in Muschinski v Dodds[187] that:

Under the law of [Australia] - as, I venture to think, under the present law of England - proprietary rights fall to be governed by principles of law and not by some mix of judicial discretion, subjective views about which party 'ought to win' and 'the formless void of individual moral opinion'.

1. The Lloyd's Underwriters insistence that the Builder's submissions be limited to the case it had run is not made for merely theoretical purposes. One of the complaints made by the Lloyd's Underwriters in their final submissions is that the case in estoppel appeared to shift from an alleged representation that indemnity had been admitted under the Policy to an alleged representation that the claim made against the Builder arose out of the conduct of its Professional Business.
2. The Lloyd's Underwriters go on to contend that matters of fact grounding an estoppel must be pleaded, and that:

If leave to amend has not been granted, the consequence for a party failing to plead particulars facts supporting an estoppel is that it will not be allowed to rely on those matters.[188]

1. Given that the Tribunal is not a court of pleading, I consider that in litigation before the Tribunal there is no general rule in the form contended for by the Lloyd's Underwriters. However, this particular case was one in which pleadings had been ordered and pleadings had been filed by all the participating parties. The Builder itself had just prior to the commencement of the proceeding made an application to widen its pleading against the Lloyd's Underwriters. Accordingly, there can be no doubt that the Builder appreciated the limitations of its pleaded case. In these circumstances I consider the submission made by the Lloyd's Underwriters regarding the necessity for the Builder's case on estoppel to be properly pleaded, is well-made.
2. Moreover, the Tribunal is, under s 98(1)(a) of the VCAT Act, bound by the rules of natural justice and accordingly every party is entitled to know the case being put against them so that they are given a proper opportunity to respond. The relationship between the role of natural justice concerning procedural fairness and pleadings was explained by Mason CJ and Gaudron J in Banque Commerciale SA, En Liquidation v Akhil Holdings Ltd[189] (Banque Commerciale v Akhil Holdings), in these terms (at 286 - 287):

The function of pleadings is to state with sufficient clarity the case that must be met: Gould and Birbeck and Bacon v. Mount Oxide Mines Ltd. (In liq.). In this way, pleadings serve to ensure the basic requirement of procedural fairness that a party should have the opportunity of meeting the case against him or her and, incidentally, to define the issues for decision. The rule that, in general, relief is confined to that available on the pleadings secures a party's right to this basic requirement of procedural fairness.

1. This passage has been approved of by the full Federal Court in Betfair Pty Ltd v Racing New South Wales[190]and elsewhere.
2. For this reason also, I accept that the Builder must be held to the case regarding estoppel which it has laid out in its pleading.
3. However, when the Lloyd's Underwriters complaint that the nature of the allegations against them have changed is viewed through the lens of procedural fairness, it can be seen that there is nothing in the point. This is because in its points of claim against the Lloyd's Underwriters, the Builder sets out, at [19], the following allegations concerning the letter from Clyde & Co dated 18 July 2017:
   • (a) They had been instructed to act on behalf of [Arch];

(b) They have considered the information provided by Shangri-La and were satisfied that the allegations made by the applicant against Shangri-La in the proceeding are in relation to civil liability arising from the conduct of your Professional Business (emphasis added); > > (c) They had been instructed "that Arch will grant indemnity to you under the Contract of Insurance in respect of the claim made by the claimants in the proceeding subject to a specific reservation of rights.";

4. Two observations may be made about this pleading. Firstly, it clearly makes reference to two separate representations, namely a representation that the Lloyd's Underwriters are satisfied that the allegations made against the Builder are in relation to civil liability arising from the conduct of its Professional Business and a separate representation that the Lloyd's Underwriters will grant indemnity to the Builder under the Policy in respect of the claims made by the Owners, subject to a specific reservation of rights. Importantly, both representations are referred to in the Builder's opening.[191] Accordingly, there has been no shift in the Builder's position in respect of this aspect of its case.
5. The second point is that the allegations are particularised by reference to the letter of 18 July 2017 as a whole. Accordingly, I consider that it is open to the Builder to rely on each part of the letter in making out the estoppel upon which it seeks to rely.
6. Before turning their attention to the Builder's case on estoppel, the Lloyd's Underwriters set out some comments on the difference between an estoppel in pais and an estoppel by representation, making frequent references to the leading High Court case Waltons Stores (Interstate) Ltd v Maher ("_Waltons Store_s").[192] They later make a number of comments regarding estoppel by convention.

1. In order to give context to the Lloyd's Underwriters comments on the potentially relevant types of estoppel, I note that in Legione v Hateley ("Legione")[193] Mason and Deane JJ, at [1] of their judgment, said:

It is customary to recognize three general classes of estoppel, namely, of record, of writing and in pais (see, e.g., Coke's Littleton, 352a). Estoppel in pais includes both the common law estoppel which precludes a person from denying an assumption which formed the conventional basis of a relationship between himself and another or which he has adopted against another by the assertion of a right based on it and estoppel by representation which was of later development with origins in Chancery. It is commonly regarded as also including the overlapping equitable doctrines of proprietary estoppel and estoppel by acquiescence or encouragement.

1. Mason and Deane JJ in Legione, at [2], went on to refer to the classic statement of the "principle underlying the established emanations of estoppel in pais" to be found in Dixon J's judgment in Thomson v Palmer,[194] which is as follows:

The object of estoppel in pais is to prevent an unjust departure by one person from an assumption adopted by another as the basis of some act or omission which, unless the assumption be adhered to, would operate to that other's detriment. Whether a departure by a party from the assumption should be considered unjust and inadmissible depends on the part taken by him in occasioning its adoption by the other party.

1. In Thomson v Palmer, Dixon J went on to give examples of when a party may be required to abide by an assumption adopted by another as the basis of some act or omission. The examples he gave included where a party has exercised against the other party rights which would exist only if the assumption were correct, as in Yorkshire Insurance Co. v. Craine (1922) 2 AC 541, at pp 546-547.

Waterman v Gerling Australia Insurance Company Pty Ltd (Waterman)[195]

1. I now turn to Waterman where Brereton J in the Supreme Court of New South Wales compared the elements of conventional estoppel and equitable (or promissory) estoppel. In respect of the establishment of a promissory estoppel, his Honour essentially adopted the summary of the elements established by Brennan J in Waltons Stores,[196] which we will return to shortly.

In my opinion, to establish an equitable estoppel, it is necessary for a plaintiff to prove that (1) the plaintiff assumed that a particular legal relationship then existed between the plaintiff and the defendant or expected that a particular legal relationship would exist between them and, in the latter case, that the defendant would not be free to withdraw from the expected legal relationship; (2) the defendant has induced the plaintiff to adopt that assumption or expectation; (3) the plaintiff acts or abstains from acting in reliance on the assumption or expectation; (4) the defendant knew or intended him to do so; (5) the plaintiff's action or inaction will occasion detriment if the assumption or expectation is not fulfilled; and (6) the defendant has failed to act to avoid that detriment whether by fulfilling the assumption or expectation or otherwise. [197]

1. Brereton J said in respect of conventional estoppel:

it is necessary for a plaintiff to establish (1) that it has adopted an assumption as to the terms of its legal relationship with the defendant; (2) that the defendant has adopted the same assumption; (3) that both parties have conducted their relationship on the basis of that mutual assumption. It is inherent in the idea of a mutually agreed or assumed convention that each party knew or intended that the other act on that basis. And it seems that a conventional estoppel will not arise unless departure from the assumption will occasion detriment to the plaintiff. (Citations omitted).

1. Two years after he decided Waterman,[198] Brereton J in Moratic Pty Ltd v Lawrence James Gordon & anor ("Moratic")[199] repeated his analysis of the two related types of estoppel, and went on to say:

The similarities between the two doctrines should not be allowed to mask their differences, which reflect the disparate origins of promissory estoppel and conventional estoppel. Promissory estoppel, a creature of equity, is, typically, focussed on the conscience of the defendant: it operates when the defendant has induced or acquiesced in the adoption by the plaintiff of an assumption that the defendant will not assert its strict legal rights, so to prevent unconscionable (or unconscientious) insistence by the defendant on its strict legal rights. On the other hand, conventional estoppel, a creature of the common law, is focussed on the consensual basis of the parties' relationship: it operates when both parties have adopted the same assumption as the basis of their relationship, often without appreciating that any departure from the strict legal position is involved, so as to hold both parties to their common understanding.

The importance of establishing the type of estoppel relied on

1. The importance of determining the nature of the estoppel be advanced by the claimant was emphasised by Derrington J of the Federal Court in his dissenting judgment in the Delor Vue appeal in the following passage:

Delor Vue's case, both before the learned primary judge and this Court, was vividly opaque. The precise manner in which any estoppel arose was vague and ill defined. On some occasions, it appeared that a promissory estoppel was being relied upon and, on others, an estoppel by convention. With respect, it is problematic to suggest that the same set of facts gives rise to both a promissory estoppel and an estoppel by convention. If the matter on which reliance is placed is the existence of a promise that something will occur in the future - in this case that Allianz will pay the claim when it is quantified - the state of affairs adopted can only be that the insurer has made a voluntary promise to do an act in the future, which promise was unsupported by consideration and therefore revocable but for the estoppel. It cannot create an existing state of affairs (of either fact or law or mixed law and fact) on which Delor Vue could rely for an estoppel by convention.[200]

1. The Lloyd's Underwriters contend that the Builder relies on an equitable estoppel.
2. The Builder's case is that the Lloyd's Underwriters agreed to indemnify it in the letter of 18 July 2017. Analysis of that proposition reveals that it is concerned with a representation by the Lloyd's Underwriters as to their future conduct. This follows because of the nature of the liability policy with which we are concerned. As the Lloyd's Underwriters have demonstrated, the liability in question under the Policy is a 'civil liability incurred' and accordingly refers to 'the eventuality of the actual liability, as distinct from the alleged liability, of the insured'.[201] Accordingly, the Builder's argument must be that when the Lloyd's Underwriters represented that they agreed to indemnify the Builder, they were representing that they would meet any liability that was established against the Builder in the proceeding.
3. Although no guidance as to the Builder's position is to be found in its closing submissions, the Builder said in its opening submissions, at [131]:

Arch (and accordingly the Lloyd's Underwriters) is estopped from acting contrary to the indemnification letter of 18 July 2017, in that:

(a) the Builder adopted the indemnification letter and the grant of indemnity;

(b) both parties, following the indemnification Letter and until the 10 October 2019 letter, conducted themselves in the matter consistent with the indemnification letter;

(c) the Lloyd's Underwriters induced or acquiesced in the Builder's adoption of the indemnification letter;

(d) the Builder acted in a manner consistent with and in reliance of (sic) the indemnification letter;

(e) the Lloyd's Underwriters knew or intended that the Builder would act or abstain from acting in reliance with the indemnification letter; and

(f) the Builder will suffer detriment if the indemnification letter is not fulfilled.

1. It is to be noted that this summation of the Builder's case follows closely the list of issues identified as applicable to the establishment of a promissory estoppel articulated by Brennan J in Walton's Stores.[202] The reference to the Lloyd's Underwriters' inducement or acquiescence in the Builder's adoption of the letter of 18 July 2017, and the allegation that the Lloyd's Underwriters knew or intended that the Builder would act or abstain to acting in reliance upon that letter, make it clear that the Builder considers that it has the benefit of a promissory estoppel.
2. Accordingly, this is a rare instance in the present proceedings where there is agreement as to an issue between the Lloyd's Underwriters and the Builder.
3. The Builder's case accordingly is to be analysed as a case of a promissory estoppel.
4. When the Builder's case is understood in this way, the difference between its case and the Lloyd's Underwriters case becomes stark. The Builder, on the one hand, says that it understood from the letter of 18 July 2017 that it was to be indemnified in respect of every claim sustained against it by the Owners in the proceeding. The terms and conditions of the Policy are to apply, save that the issue of whether the claim arose out of the Builder's Professional Business has been resolved in the Builder's favour.
5. The Lloyd's Underwriters, on the other hand, contend that the indemnity is limited to liability which attaches to the Builder at the conclusion of the proceeding when all the facts have come out and when all the terms of the Policy have been applied. This, they say, is the import of the twin reservations stipulated in the letter of 18 July 2017 that the indemnity was granted of the basis of the facts then known to the Lloyd's Underwriters and the terms and conditions of the Policy.

1. Before I turn to an examination of the elements of promissory estoppel as articulated by Brennan J in Walton's Stores,[203] it is convenient to quickly deal with the requirement of unconscionability. The High Court in Walton's Stores acknowledge that the establishment of unconscionability in the conduct of the defendant was essential to the availability of the remedy.[204] In its opening, the Builder raised the issue of unconscionability in the context of estoppel only.[205] In its final submissions, the Builder sought to move beyond this parameter, and to assert that a remedy for unconscionability arose for it under the Australian Consumer Law. I doubt that such a change of case after the closing of the evidence is permissible, but the Lloyd's Underwriters do not appear to have objected. This may be because they recognise, as I do, that this change of position does not greatly advance the Builder's case. This is because, in a case of promissory estoppel, it is not the breach of the promises itself, but the promisor's responsibility for the promisee's detrimental reliance which makes it unconscionable for the promisor to resile from the promise: see Sidhu v Van Dyke.[206]
2. The upshot is that it is not necessary to enquire as to unconscionability as a separate factor. If the elements of promissory estoppel as articulated by Brennan J in Walton's Stores are established, then unconscionability will be made out.

CONSIDERATION OF THE ELEMENTS OF PROMISSORY ESTOPPEL

1. I now turn to the other elements necessary to found a promissory estoppel.

1. As noted, the Builder's case is that by the letter of 18 July 2017, the Lloyd's Underwriters granted a complete indemnity in relation to the Owners' claims and that the Lloyd's Underwriters are now estopped from denying liability.
2. The Lloyd's Underwriters argue that 'This claim suffers from several difficulties'.[207] Firstly, they highlight that in HIH Casualty & General Insurance Ltd v Axa Corporate Solutions,[208] the Court held (at 330-331):

Waiver by estoppel or promissory estoppel, as it is more commonly described, involves a clear and unequivocal representation that the reinsurer (or insurer) will not stand on its right to treat the cover as having been discharged on which the [reinsured] (or insured) has relied in circumstances in which it would be inequitable to allow the reinsurer (or insurer) to resile from its representation. In my judgment it is of the essence of this plea that the representation must go to the willingness of the representor to forego its rights. .... It is of the essence of the doctrine of promissory estoppel that one side is reasonably seen by the other to be foregoing its rights.

1. The Lloyd's Underwriters contend that the question in the present case is whether the Builder could reasonably have understood at such an early stage of the proceeding, having regard to the qualifications contained in the letter of 18 July 2017, that they were agreeing to cover the Builder regardless of whether its liability was ultimately found not to arise in the conduct of its Professional Business.[209]
2. The Lloyd's Underwriters submit that any representation which is said to found an estoppel is to be assessed from an objective standpoint in the context of the circumstances in which it was made. I accept this submission, noting that Dodds-Streeton JA, speaking for the Victorian Court of Appeal in Accurate Financial Consultants Pty Ltd v Koko Black Pty Ltd said after referring at authorities including Legione:

Thus from an early stage, a representation in estoppel was to be assessed by how it would reasonably be understood by the addressee in the context of the surrounding circumstances.[210]

1. The Lloyd's Underwriters central submission about the letter of 18 July 2017 is that it was principally concerned with how the Lloyd's Underwriters had determined that they would deal with the Builder's failure to notify the circumstances giving rise to a claim, and the claim itself, promptly. They contend that the letter could not be construed as a representation that the Lloyd's Underwriters would provide indemnity other than on the terms and conditions contained in the Policy. They describe such an interpretation as 'absurd and entirely at odds with the express statement that any grant indemnity is 'subject to the terms and conditions of the Policy'".[211]
2. The Lloyd's Underwriters postulate that for the Builder to succeed in its estoppel claim, in circumstances where the Policy does not respond, it must establish that there was a representation or the adoption of a common assumption that the terms of the Policy would cease to apply.[212]
3. In my view, this framing of the issue is inaccurate because it proceeds on the basis that it is the Builder's case that after 18 July 2017 the terms of the Policy were irrelevant. This is not the Builder's case.
4. The Builder's submission is that when regard is had to the letter of 18 July 2017, there is a clear and unequivocal representation that after a review of the relevant information, the Lloyd's Underwriters were prepared to indemnify the Builder, on the basis that the claims made by the Owners arose from the conduct of the Builder's Professional Business. In my view, this submission is unassailable, as it is clearly founded on paragraphs 3.1 and 3.2 of the letter.[213] Viewed objectively, I find that it was reasonable for the Builder to form this view. Indeed, it is hard to understand what other interpretation the Builder could reasonably have placed upon those paragraphs.
5. My finding that it was reasonable for the Builder to form the view that the Lloyd's Underwriters had agreed to indemnify it on the basis that the claims arose out of its Professional Business does not mean that otherwise the conditions placed on the admission of indemnity by the Lloyd's Underwriters are to be ignored. One of the representations upon which the Builder relies, contained in paragraph 3.2 of the letter of 18 July 2017, is:

We are instructed that Arch will grant indemnity to you under the Contract of Insurance in respect of the claim made by the claimants in the proceeding subject to a specific reservation of rights.

1. This representation is clearly qualified by paragraph 3.15 of the letter of 18 July 2017. I find that from an objective standpoint it was reasonable for the Builder to have formed the view that the Lloyd's Underwriters had agreed to indemnify it, subject to the five conditions set out in paragraph 3.15.
2. I now turn to the separate questions of whether the Builder in fact understood that the representations contained in 3.1, 3.2 and 3.15 of the letter of 18 July 2017 had been made.
3. Much of the Lloyd's Underwriters submissions were concerned with demolishing the Builder's contentions, based on Mr Naqebullah's evidence, that the Builder had a basis to reach an understanding that by the letter of 18 July 2017 the Lloyd's Underwriters had agreed to provide a complete indemnity to it. This represented a formidable task for the Lloyd's Underwriters, given that Mr Naqebullah on numerous occasions gave evidence that he understood indemnity had been granted by the letter of 18 July 2017.
4. Examples are to be found in Mr Naqebullah's evidence in cross-examination in respect of the 18 July 2017 letter under questioning by Mr Murdoch QC:

Q This is the letter that you call the letter of indemnity?---

Q And this is the letter that you say is a letter where the insurer once and for all agreed to indemnify Shangri-La in relation to the claims made against it? -

A This was the letter that I understood that we have been granted indemnity after that initial investigation.

Q And the indemnity that you were being given in this letter was once and for all and not subject to any conditions or terms?---

A I believe there was two conditions, one we had to, not finding - within a certain time period of receiving the VCAT or the legal notification.

Q You understood that that was one of the conditions of this letter, do you?--A-I believe it was one of the conditions, which we had meant, yes.

Q I'll perhaps come to that on Monday, but my question of you is this: do you say to this Tribunal that when you read this letter and read it carefully you believed that the insurer was telling you that it had agreed to indemnify you in relation to the claim that had been made against Shangri-La and that was the end of the matter, the issue of indemnity, or the question of indemnity was now closed?---

1. The Lloyd's Underwriters concede that the last answer is '[c]onsistent with the case as pleaded and opened'.[215]
2. In an endeavour to demonstrate that Mr Naqebullah had not, from the letter of 18 July 2017, formed the view that the Builder was entitled to complete indemnity, the Lloyd's Underwriters refer to an email that was sent by Mr Naqebullah's executive assistant Ms Shaya to the Builder's broker, CCM Insurance, on 18 October 2017 immediately after Mr Naqebullah had spoken to Mr Donley about payment of the excess due under the policy. The email reads:

Need your assistance here please. We have been invoiced $10,000 from the insurance lawyers to date for the Willansby matter.

1/ $10,000 is our excess and is capped? And Arch will cover all cost following this invoice?

2/ please clarify what we are covered for? Is there anything that we need to be aware of?

Please advise as soon as possible, as we are meeting with them tomorrow.

The query of Clyde & Co and then CCM Insurance in relation to the excess demonstrates that Mr Naqebullah had either not read, or not read carefully, the 18 July 2017 letter. More significant, however, is the question about what Shangri-La was covered for under the Policy. It is entirely inconsistent with Mr Naqebullah's later assertion that by 18 July 2017, he believed Shangri-La to have been granted complete indemnity.[216]

1. The Lloyd's Underwriters then contend that when this email was put to Mr Naqebullah: [217]

his responses were vague and unresponsive. He was unable to offer any explanation other than to repeat the mantras "indemnity was clear in my mind" and "we had been granted indemnity".[218]

1. I do not place any weight on the 'vague and unresponsive' nature of Mr Naqebullah's responses. The answers given were in a cross-examination which took place on 22 November 2021 about an email which had been sent by his executive assistant in October 2017. It was put to him that the creation of the email was inconsistent with what he claimed was his understanding of the import of the letter of 18 July 2017. Mr Naqebullah made repeated statements that he believed that the Builder had received a complete indemnity in the letter. If those statements are accepted at face value, his apparent confusion, as a builder with no legal training, is explainable given that his company had just been asked to make a payment of $10,000 for costs. Viewed in this light, the email to the Builder's broker of 18 October 2017 underpins the Builder's case, rather than weakens it.
2. The Lloyd's Underwriters note that Mr O'Brien gave evidence that neither the Builder, nor CCM, raised any concern with him, or, to the best of his knowledge, anyone else at Clyde & Co, regarding that letter or the 'Summary on indemnity' contained within the letter.[219] They seem to suggest that the fact that no one from the Builder discussed the letter with Mr O'Brien at or about the time it was sent means that it was not read, or if it was read then it was not understood. The Builder has a simple answer to this, namely no one from the Builder asked Mr O'Brien about the letter of 18 July 2007 because the position regarding indemnity was so clear.
3. The Lloyd's Underwriters also make much in their submissions about the fact that by December 2018 it was clear that a full indemnity was not being made available by them to the Builder. They say:[220]

Elsewhere, Mr Naqebullah struggled to reconcile his assertions that complete indemnity had been granted once and for all on 18 July 2017, with Clyde & Co's advice on several occasions that there would be no cover for construction defects and his failure to make any complaint about it at the time.[221]

1. In support of this proposition, the Lloyd's Underwriters highlight the following evidence:

(a) Mr Donley and Mr Naqebullah had a conversation on 19 December 2018, which was the subject of the file note by Mr Donley previously referred to. The accuracy of this file note was not effectively challenged. In the conversation, Mr Donley made it clear that the position on what cover was available to the Builder needed to be considered by Arch; that construction defects were not covered; and the plan was to go to the scheduled compulsory conference with an agreement about how much the Builder and Arch would contribute. There is no evidence, however, that at any stage during or after that meeting Mr Naqebullah disputed the position taken by Clyde & Co as explained by Mr Donley. The Lloyd's Underwriters submit that if Mr Naqebullah had truly believed that he had been granted complete indemnity, one would expect that at this point, Mr Naqebullah would have said so.[222] > > (b) On 6 February 2019, Clyde & Co communicated Arch's updated provisional coverage position. As well as setting out several developments, the 6 February 2019 letter also set out a summary of the Builder's instructions regarding its role and also the roles and responsibilities of others in the execution of the Works that it had given Clyde & Co since the 18 July 2017 letter. The letter noted that the Builder's subsequent instructions had identified the basis upon which the Builder now sought cover - namely, as a project manager. Mr Naqebullah conceded in cross-examination that he understood at the time from reading the 6 February 2019 letter that Arch's view was that there may be elements or items of the claim being made against the Builder that would not be covered under the Policy and that Arch wanted Mr Naqebullah to contribute to a settlement at the compulsory conference.[223] Again, the Lloyd's Underwriters submit that if Mr Naqebullah had truly believed that Shangri-La had been granted complete indemnity, one would expect that at this point, Mr Naqebullah would have said so. He did not.[224] > > (c) In discussions leading up to the compulsory conference on 29 May 2019, the Builder and Clyde & Co continued to discuss the coverage position based on the further information obtained in 2018 and 2019. During that time, it was explained to the Builder by Clyde & Co (and by the Builder's own brokers) that indemnity had not yet been decided and that there was likely to be a large component of the claim for which no indemnity was available. The communications from the Builder's broker to the Builder expressly stated that there had been no final decision and foreshadowed the need to negotiate with the insurer the merits of the policy coverage with a view to getting the insurer to contribute more. And yet again, there is no evidence that Mr Naqebullah raised any concern or asked why this was the case if Arch had already agreed to completely indemnify the Builder once and for all.[225]

2. On the basis of this evidence, the Lloyd's Underwriters submit that the view that they had granted complete indemnity once and for all by its letter of 18 July 2017 was not a view that Mr Naqebullah held at the time. They assert that this "was a stance that Mr Naqebullah adopted only after his solicitor, Mr Noble, became involved in the indemnity dispute in late 2019."[226]
3. I am not persuaded by this submission. In my view, all this evidence is relevant to what the Builder understood the position to be after December 2018. Mr Naqebullah's concession under cross-examination that he understood at the time of reading the 6 February 2019 letter that Arch's view was that there may be elements or items of the claims being made against the Builder that would not be covered under the Policy and that Arch wanted Mr Naqebullah to contribute to a settlement at the compulsory conference,[227] must be viewed in this light.
4. It provides no basis for the Lloyd's Underwriters to argue that prior to 19 December 2018 Mr Naqebullah understood from the letter of 18 July 2017 that something less than a full indemnity was being offered.
5. The Builder's position is supported by the fact that between 18 July 2017 and 19 December 2018 Arch, through Clyde & Co, behaved as if a full indemnity had been granted to the Builder.
6. I acknowledge that the Lloyd's Underwriters highlight in their final submissions that after July 2017 Clyde & Co were still seeking relevant documents and information. For instance, they refer to an email sent by Ms Williamson of Clyde & Co to the Builder on 10 August 2017 in which copies of drawings and specifications and details of consultancy agreements were sought. They note a meeting was held on 23 August 2017 attended by Mr Naqebullah, Ms Shaya, Mr O'Brien and Mr Donley at which the arrangements for the design of the development were discussed. They refer also to an email from Clyde & Co to the Builder sent on 3 October 2017 in which they seek information regarding the engagement of the fire safety engineer. On 1 February 2018, the Builder sent Clyde & Co a dropbox link to certain documents, but was still trying to track down a CD containing the contract drawings.
7. The Lloyd's Underwriters contend that the fact that they were making these enquiries was inconsistent with the proposition that indemnity had been granted.
8. I consider that there is superficial attraction in this point. The difficulty the Lloyd's Underwriters face, however, is that in the letter of 22 May 2017 Clyde & Co indicated that the decision about indemnity would be made "Once we have obtained all necessary information and completed our investigations and assessed the claim for indemnity" and would be notified within 10 business days "of receipt of all necessary information."
9. There is no reasonable way to construe the letter of 18 July 2017 other than as a letter in which the position regarding indemnity was clarified after Arch had obtained all necessary information.
10. For these reasons, I find that the Builder did understand that the representations contained respectively in paragraphs 3.1, 3.2 and 3.15 had been made.

THE CONDITIONS ATTACHING TO THE ADMISSION OF INDEMNITY

1. I now turn to the conditions expressed in the letter of 18 July 2017 regarding the grant of indemnity.

The terms and conditions of the Policy are to apply

1. The terms of the Policy were mandated to remain operable. Thus, to take an example raised rhetorically by the Lloyd's Underwriters in their submissions,[228] the Builder could not reasonably have come to the view that the exclusion for liability for bodily injury contained in clause 20 of the Policy did not operate. Moreover, the letter of 18 July 2017 itself said that the policy condition relating to payment of the excess was to apply. The letter also expressly stipulated that the conditions concerning late notification of circumstances giving rise to a claim and late notification of the claim itself, together with the continuity of cover provision, were to continue to apply.
2. Another term of the Policy which also continued to operate was the right of the Lloyd's Underwriters to take over the defence of the proceeding, found in condition 7 of the Policy. I have found above[229] that the Lloyd's Underwriters exercised their right under this term of the Policy to take over the defence of the proceeding.
3. I was not addressed as to any relevant monetary limit of cover under the Policy. There may not be any such applicable limit. If there is, I consider that this is term of the Policy that would operate to limit the liability of the Lloyd's Underwriters should the Policy be held to attach.

1. The situation regarding facts which have come to light since 18 July 2017 is, in my view, this. Because the question of whether the Owners' claims against the Builder are to be construed as arising from conduct in the course of the Builder's Professional Business has been closed by the representation, any facts which have come to light since 18 July 2017 regarding the circumstances of the claim which, when applied to the definition of Professional Business contained within the Policy would otherwise mean that the claim did not fall within that definition, must be disregarded. They must be disregarded because it would be unconscionable for them, in the circumstances that unfolded after 18 July 2017, to be relied on by Arch and the Lloyd's Underwriters in order to reopen the issue of whether the Builder was discharging Professional Business within the meaning of the Policy.
2. However, any new facts relevant to the application of the Policy, other than those that relate to the definition of Professional Business, would have to be considered because there would be no unfairness to the Builder if they were considered.

1. An example of how new facts might be relevant would obviously be if the nature of the claim made against the Builder changed. This, indeed, is reflected in the fifth condition imposed by the Lloyd's Underwriters in the letter. However, the nature of the claim made by the Owners did not change.

1. The third condition is the specific reservation of rights, which has been discussed in detail. Nothing more need be said on that topic other than to confirm that the reservation of rights relate to the operation of Condition 7, Condition 11 and Exclusion 9 of the Policy. In particular the letter reserved rights arising from Condition 7(b) which entitled the Lloyd's Underwriters to reduce their liability in relation to any Claim of notification to the extent that their interests are prejudiced as a result of late notification.
2. There was no evidence and no submission about any such prejudice and accordingly this issue falls away.

1. The fourth condition is payment of the excess. As noted, this policy condition was stipulated to apply. The Builder did pay the excess.

1. As the existence of the representation regarding indemnity has been made out, the other elements of promissory estoppel remain to be considered. I now turn to the other element of promissory estoppel, as articulated by Brennan J in Walton's Stores,[230] in turn.

Did the Lloyd's Underwriters induce Shangri-La to adopt the representations?

1. This issue requires no discussion. Clearly the Builder was induced to adopt the representations by reason of the letter of 18 July 2017 which was authored by Arch's solicitors. The express purpose of the letter was to resolve the issue of indemnity.

Did Shangri-La act or abstain from acting in reliance on the representations?

1. The Lloyd's Underwriters began their submissions on this topic by citing KR Handley's text Estoppel by Conduct and Election[231] as authority for the proposition that,

The justice of holding a party to an estoppel by representation or a conventional estoppel depends on his or her responsibility for the change of position by the party alleging the estoppel.

1. The Lloyd's Underwriters go on to contend that:

It is necessary, therefore, for Shangri-La to show that, in reliance on the alleged representation or common assumption, it changed its position in a way it would not have done otherwise. It is a question of causation.[232]

1. The Lloyd's Underwriters contend that the Builder's case on reliance fails for either one of two reasons:[233]
   1. Mr Naqebullah either did not carefully read the 18 July 2017 letter or (for the reasons outlined above) did not understand it to be communicating what he now asserts it was communicating; or
   2. the Builder did not do the things it says it did in reliance on the 18 July 2017 letter, but did so for other reasons.
2. I have found against the Lloyd's Underwriters in relation to the first proposition. I now turn to examine the second.

Did the Builder rely on the letter of 18 July 2017?

1. The Builder claims in its points of claim that in reliance on the letter of 18 July 2017 it acted to its detriment by:[234]
   1. permitting the Arch's solicitors on behalf of Arch and the Lloyd's Underwriters to act for it in the proceeding;
   2. paying the sum of $10,000 to Arch's solicitors;
   3. foregoing the opportunity to retain other solicitors of its choice to act for it in the proceedings;
   4. foregoing the opportunity to deal directly with the Owners in order to negotiate a settlement;
   5. foregoing the opportunity to take such further or other steps as may have been available to it to address the Owners' claims or to make provision for them; and
   6. foregoing the opportunity to defend itself vigorously against the allegations in the proceeding.
2. The Lloyd's Underwriters submit that the evidence shows that the Builder did none of these things in reliance on the 18 July 2017 letter. I now address these matters in turn.

Appointing Clyde & Co to act for it in the proceeding

1. The Lloyd's Underwriters say their appointment (through Arch) of Clyde & Co to act on behalf the Builder in the proceeding did not occur by reason of the letter of 18 July 2017. The Lloyd's Underwriters observe that Clyde & Co were not appointed by the Lloyd's Underwriters in the exercise of a power to do so under the Policy conferred on an indemnifying insurer, but by ancillary arrangement established outside the Policy in May 2017 created by the Acknowledgement of Waiver document. In this connection they note that in cross-examination, Mr Naqebullah's evidence was that he understood that Clyde & Co was appointed pursuant to the Acknowledgement of Waiver and on a without prejudice basis. Mr Naqebullah accepted this, acknowledging that he understood that by appointing Clyde & Co to represent the Builder in relation to the claims by the Owners, this conduct did not indicate that the Builder was entitled to be covered under the contract of insurance.
2. The Lloyd's Underwriters also insist that this arrangement continued beyond the issue of the letter of 18 July 2017. In this connection it is noted that Clyde & Co expressly state in their letter of 6 February 2019 that they continue to act under the arrangement established by the Acknowledgement of Waiver document.
3. The Builder on the other hand, contends that after the indemnification letter was issued on 18 July 2017, Clyde & Co came to be acting for the Builder pursuant to the terms of the Policy.
4. I have examined this issue in the context of the Builder's claim of election and have determined it in favour of the Builder. For clarity, I confirm that I have found that by the letter of 18 July 2017, the Lloyd's Underwriters elected to indemnify the Builder on the basis (amongst others) that by reason of the letter the Lloyd's Underwriters exercised their right under the policy to conduct the defence of the Claim.[235]
5. At that moment, the appointment of the Lloyd's Underwriters' solicitors moved from being an appointment under an arrangement outside the Policy, to an appointment pursuant to the Lloyd's Underwriters' entitlement to take over the conduct of the proceeding under condition 7 of the Policy.

Would the Builder have appointed its own lawyers but for the letter of 18 July 2017?

1. However, this finding is beside the point, as the Builder's contends that if it had not received a grant of indemnity in the letter of 18 July 2017, it would have appointed its own lawyers to conduct the defence. This is the issue to be examined.
2. In support of this contention, it relies on the evidence of Mr Naqebullah. A difficulty for the Builder in respect of this contention is that from 19 December 2018 it became clear that something other than a full indemnity was being offered by Arch. Notwithstanding this, the Builder continued to allow Clyde & Co to remain on the record. The Lloyd's Underwriters submit that this suggests that the question of the extent of indemnity had little or no bearing on the Builder's willingness to have Clyde & Co act for it in the proceeding. The Lloyd's Underwriters argue that the Builder was happy with Clyde & Co's representation and the strategy it had adopted in the proceeding, even if the scope of cover had from December 2018 become an issue. I accept this submission for the following reasons.
3. As has been noted, in September 2019 Mr Naqebullah became so concerned about the situation regarding indemnity that he consulted his own lawyer Mr Darren Noble. As has been chronicled, Mr Noble attended a meeting in the company of Mr Naqebullah with representatives of the Lloyd's Underwriters. Mr Noble then consulted a QC, and prepared an 18 page letter challenging the withdrawal of indemnity which was sent to Clyde & Co on 8 November 2019. Clyde & Co evidently did not perceive a need to get off the record at this point.
4. In the course of pre-trial preparation, Clyde & Co discussed with Mr Noble how the indemnity dispute would be handled, and proposed that if a position on indemnity could not be agreed, Clyde & Co would cease to act for the Builder but the barristers briefed on behalf of the Builder for the hearing could continue to act for the Builder. This suggestion was not taken up.
5. Even after Mr Noble wrote his long letter of 8 November 2019, the Builder allowed Clyde & Co to remain on the record. At this point Mr Naqebullah understood that Mr Donley was preparing a witness statement for him which could be relied on by the Lloyd's Underwriters in their final decision about indemnity. For this reason, I am satisfied that after December 2018 the Builder was more concerned about saving legal expenses than about allowing solicitors appointed by Arch to remain on the record for it. This was the case even although the Builder was now engaged in an argument with Arch regarding the extent of the indemnity to be made available under the Policy.
6. The view I have reached about this matter is reinforced by the fact that, even after indemnity was declined, the Builder requested that Clyde & Co remain on the record while it went through an internal review process.
7. The Lloyd's Underwriters argue that the Builder was happy with Clyde & Co's representation and the course it adopted in the proceeding, even if the scope of cover (if any) had not been finally ascertained.
8. The fact that the Builder wanted Clyde & Co to remain on the record even after an issue regarding indemnity had arisen, is consistent with the evidence regarding the degree of satisfaction which the Builder had with Clyde & Co's performance. This evidence demonstrates that the Builder was consulted about all important decisions in the conduct of its defence including decisions relating to engaging experts,[236] the preparation of the defence[237] and the joinder of other parties.[238] The Builder was given an opportunity to review the proposed pleadings against the parties which were proposed to be joined.[239] The Builder was given an opportunity to review expert reports received from other parties including those of Mr du Chateau, Mr Wenning and Mr Beck.[240] The fact that the Builder remained happy for Clyde & Co to remain on the record after 19 December 2018 when indemnity had become an issue satisfies me that the Builder must have been happy with Clyde & Co's performance to that point.
9. I note that at a much later time the Builder expressed unhappiness with Clyde & Co's performance. The issue of whether Clyde & Co discharged its obligations as solicitors on the record for the Builder competently is not before me and I make no comment on it. However, the Builder's ultimate unhappiness is beside the point.
10. The relevant point is that the Builder cannot demonstrate that it allowed Clyde & Co to remain on the record after 18 July 2017 only because indemnity had been admitted on that date. The corollary is that I cannot be satisfied that, had indemnity not been clearly admitted but Arch was still prepared to pay the defence costs until the issue of indemnity was resolved, the Builder would have insisted on appointing its own lawyers.

1. In terms of detriment, the Builder is on stronger ground when it comes to payment of the excess.
2. The Lloyd's Underwriters argue that payment of the excess was not something done in reliance on a promise that indemnity would be afforded for all claims come what may. They submit that the Policy required them to indemnify the Builder for its defence costs if it appeared that the claims had arisen in the conduct of the Professional Business. In the circumstances of this case, faced with an insured asserting that it had provided professional services, unless the insurer could rule out that possibility, there was no basis on which to decline indemnity. In those circumstances, the payment of the excess was required by the Policy, not by the letter of 18 July 2017.
3. I do not accept this argument. Arch was no more obligated to pay defence costs than they were to agree to indemnify the Builder in respect of the claim at a time that it merely "appeared" that the claims had arisen in the conduct of the Builder's Professional Business. It was no doubt for this reason that Arch insisted on taking time to investigate the claim and gather relevant information before making a decision about indemnity. In the letter of 18 July 2017, the relevant decision about indemnity was communicated. It was in this letter that the demand for payment of the excess was made. The payment of the excess was required by the operation of the Policy. There is no doubt, and I find, that the payment of the excess was directly connected to the admission of indemnity in the letter of 18 July 2017.
4. However, I consider that there is a doubt that payment of an excess of $10,000 in the context of this proceeding -in which the Builder's liability has been determined to be in the order of $9 million -would be sufficient to establish an estoppel. I discuss sufficiency of detriment elsewhere. For present purposes, I also observe that the payment of the excess is a matter which can be reversed, and so the prejudice is remediable. In this connection, it is important to remember that the Lloyd's Underwriters have openly offered to refund the excess.

Conduct of the defence and ability to negotiate settlement

1. I turn now to the Builder's assertions that it did not take other steps, such as negotiating with the Owners or otherwise dealing with the claim, or defending itself vigorously, because the Lloyd's Underwriters had the conduct of the defence of the proceeding. The Lloyd's Underwriters contend that these are 'hollow statements with no basis in fact.'
2. I accept this submission in part, but not in its entirety.

1. I regard the proposition that the action was not vigorously defended by the Lloyd's Underwriters as patently unsound. In this connection, I note that the Builder filed a defence, obtained expert reports and joined other parties. Furthermore, two barristers were engaged for the final hearing scheduled in April 2020 which had to be adjourned because of the COVID-19 pandemic.

1. In respect of the question of whether the Builder's ability to negotiate with the Owners or otherwise deal with the claim was compromised by the letter of 18 July 2017, the evidence is mixed. On the one hand, the Builder did maintain its ability to be involved in settlement discussions, and attended a compulsory conference with the other parties, accompanied by Clyde & Co and its own lawyer Mr Noble.
2. On the other hand, the evidence is clear that the fact that the Lloyd's Underwriters extended indemnity in July 2017 and but then withdrew it in December 2018 meant that the Builder's ability to extricate itself from the claim was significantly compromised. Quite apart from the economic consequence of Arch withdrawing unqualified support for the Builder, Arch's position from 19 December 2018 that (in the words of Mr Donley) "Design and project management errors are covered. Construction are not." created a very significant practical barrier to conducting effective settlement negotiations because of the difficulty of determining where Arch's liability stopped and the Builder's liability started.
3. In these circumstances, there is no doubt, and I find, that the Builder's ability to negotiate directly with the Owners was compromised after indemnity was admitted on 18 July 2017 but then partially withdrawn on 19 December 2018.

Loss of ability to attempt to negotiate a settlement when the proceeding was relatively uncomplicated

1. It is appropriate to refer to the summary of the activities undertaken from the Builder's point of view between July 2017 and December 2018, which the Lloyd's Underwriters set out in their final submissions. The summary of activities in this timeframe is as follows:[241]

(a) Clyde & Co were pursuing a strategy of investigating the Owners' claims, and in particular seeking to determine who was responsible for the various aspects of the Works, who was responsible for which defects and the basis for that responsibility and obtaining evidence regarding these matters to place the Builder in the best position to resolve the proceeding at the compulsory conference; > > (b) the Builder had been unable to provide clear and complete instructions about who completed which aspects of the Works and this left Clyde & Co to seek those answers elsewhere; > > (c) the Builder had obtained expert evidence from Peter Quigley (architect) and Phillip Naughton (building consultant); > > (d) the Owners had filed further expert evidence from Jeff Beck (building consultant), Stephen Kip (building surveyor), Peter Wenning (plumber) and Michael Pavey (quantity surveyor); > > (e) those reports and the resulting iterations of the Scott Schedule identified many new defects, not previously the subject of the claim and which had not been identified as at 18 July 2017. The number of defects in the Scott Schedule increased from 26 defects on 3 March 2017, to 27 defects by 28 September 2017, to 88 defects by 5 September 2018 and 91 defects by 2 December 2018. By 1 April 2021, the Scott Schedule identified a total of 135 individual defects; > > (f) the Owners filed amended points of claim on 19 September 2018; > > (g) the Building Surveyors filed points of defence and expert evidence from Mr du Chateau (building surveyor); > > (h) the Building Surveyors joined the Fire Engineer to the proceeding; > > (i) the Fire Engineer and other parties, including the Builder, filed further pleadings; > > (j) the Builder joined the Draughtsman and many of the Builder's subcontractors to the proceeding; > > (k) those parties filed points of defence; and > > (l) some of those parties filed expert evidence.

2. From the summary, it is readily apparent that between July 2017 and December 2018 the size of the claim being mounted by the Owners grew significantly, and the complexity of the proceeding grew exponentially because of the addition of new parties. Costs-which in significant building cases are often an inhibitor to settlement-would also have risen exponentially.
3. If the Builder had understood from July 2017 that it had no insurance, it could have disclosed that fact to the Owners and endeavoured to negotiate a settlement in the context of that cold economic reality. Because the Lloyd's Underwriters extended indemnity by the letter of 18 July 2017, the Builder was denied the opportunity to do that.

Did the Lloyd's Underwriters know that the Builder would rely on the representations or intend the Builder to do so?

1. This issue can be dealt with summarily. Arch (and the Lloyd's Underwriters) must have expected the Builder to read and understand the letter of 18 July 2017. That was their purpose in sending it.

1. It is necessary for the Builder to demonstrate that it took some action, or determined not to take action, in reliance upon Arch's representation and that it was in some way prejudiced by the changed position.
2. The relevant change in position is that on 19 December 2018 Arch communicated to the Builder that it was being offered less than a full indemnity. In doing so, I find that Arch (and therefore the Lloyd's Underwriters) resiled from the position communicated in the letter of 18 July 2017.

1. The remaining issue is whether detriment has been caused to the Builder by the change of position. Relevantly, following the issue of the letter of 18 July 2017 the Lloyd's Underwriters continued to conduct the defence of the proceeding on behalf of the Builder up to the time that indemnity was completely withdrawn in June 2020. The Builder acknowledges that this was the case, but lists a number of matters which it said had caused it actual detriment.
2. In its pleading against Arch, as noted, the Builder asserted that it would have briefed its own lawyers if the representation regarding indemnity and not been made. It relied again on this point in its final submissions replying to the closing submissions of Arch and the Lloyd's Underwriters.
3. In its supplementary submissions concerning Allianz v Delor Vue, the Builder took the opportunity to augment its submissions concerning detriment by arguing that it lost the opportunity to control the conduct of the litigation and said that this constituted "a very real detriment".[242]
4. The Builder complains that Arch failed to pursue a joinder application against Nader Consulting.[243] I put this complaint to one side, because the importance of pursuing such a claim was not fleshed out. Such a claim may not have been justified.
5. The Builder also complains that Arch released Proxus.[244] This is not an accurate statement of the position, because Proxus was never a party to the proceeding. The Builder might more accurately have complained that Proxus was never joined to the proceeding. Rather, liability for preparation of the architectural design was asserted to lie with the Draughtsman. This strategy has now been exposed as being misconceived, as the Draughtsman has been completely exonerated by the findings contained in the Defects Determination published on 30 December 2002.
6. The Builder made no complaint in any of its submissions about the failure of Arch to make an application in a timely manner to join the Developer as a respondent to counterclaim. I find this surprising, given that such an application was made by the Builder prior to the start of the hearing. It was rejected by another member of the Tribunal in April 2021 on the basis that the application was made too late and if allowed would jeopardise the start date of the hearing.[245] However, as it was not raised by the Builder, I put it to the one side.
7. The Builder also made no complaint in its submissions about the failure of Arch to make an application in a timely manner to join Charter Keck Cramer to the proceeding on the basis that an employee of that firm had failed in a duty in his capacity as superintendent under the D &C Contract. This is also a little surprising, given that the Builder made such an application during the running of the hearing. This application was rejected on 6 July 2021. Reference to the transcript of the oral reasons given indicates that it was rejected for a range of reasons, including the consequences in terms of gathering further evidence and impact on the running time of the hearing arising from the need to extensively cross-examine at least one new witness. Again, because the issue was not raised by the Builder, and must be put to one side.

1. The Lloyd's Underwriters usefully set out a number of the authorities relating to the issue of detriment in their final submissions. An important early case determined in the Supreme Court of Victoria is Hansen v Marco Engineering (Aust) Pty Ltd[246] ("Hansen"). Fullagar J found that detriment arose because, during the period that the insured was represented in an action by the insurer's solicitors, he was deprived of the opportunity to do better.
2. In Territory Insurance Office v Adlington (Adlington)[247] the Court of Appeal of the Northern Territory disapproved of Fullagar J in Hansen.
3. The decision in Adlington was followed by the Supreme Court of the Australian Capital Territory in Downie in which the Court summarised Adlington as establishing that "the detriment must be real and material, although not necessarily causative of pecuniary loss."[248]
4. Any remaining controversy regarding the status of the decision in Hansen has been put to rest by the High Court's recent decision in Allianz v Delor Vue[249] I have already referred to the statement in the judgment of the majority, at [80], that" the detriment with which estoppel is concerned is not limited to loss that can be measured in monetary terms". The High Court elaborated, stating at [81]:

It can also be accepted that Delor Vue could have established detriment by showing that it had lost an opportunity that was of real and substantial value, even if it could not prove that the opportunity would have realised a benefit. But Delor Vue had to prove that the opportunity was lost and that it was something of value. (Citations omitted)

Did actual detriment to Shangri-La arise by reason of the letter of 18 July 2017?

1. The Builder's first submission is that if it had not received a grant of indemnity in the letter of 18 July 2017 it would have appointed its own lawyers. I have found against it in respect of that issue.
2. The Builder cannot complain that it suffered detriment merely because Arch choose Clyde & Co to go on the record for it under the arrangement put in place by the Acknowledgement of Waiver document. The Lloyd's Underwriters submit that in defending the proceeding using experienced solicitors of high repute at their own expense, they provided to Shangri-La a benefit. I observe that a similar submission was accepted in Soole v Royal Insurance Company Ltd.[250] In that case, the insurers had conducted the insured's defence of proceedings through to judgment. After the case was lost, the insurers denied liability under the policy. Shaw J held that the insured was not prejudiced, noting that the insured was saved the expense of the defence of the action and had the advantage of being represented by leading counsel of great experience.
3. I accept the submission made by the Lloyd's Underwriters in the present case, noting the evidence regarding the experience of the partner in charge of the case, Mr O'Brien, was that he is an insurance lawyer of about 40 years standing.

1. The Builder submits that if it had understood from July 2017 that it had no insurance, it could have disclosed that fact to the Owners and endeavoured to negotiate a settlement in the context of that cold economic reality. Because the Lloyd's Underwriters extended indemnity by the letter of 18 July 2017, the Builder was denied the opportunity to do that.
2. I am cognisant that in Allianz v Delor Vue the insured ran an estoppel argument based on the submission that it had suffered detriment by the loss of an opportunity "to challenge [Allianz] for indemnity in May 2017 and potentially resolve the conflict within that challenge".[251] The High Court described this alleged lost opportunity as, essentially, an opportunity for Delor Vue to compromise litigation concerning the operation of s 28(3), on terms that were more favourable than an offer put by Allianz in May 1988 (about 15 months earlier).[252]
3. The High Court rejected the submission on two bases. Firstly, it held that:

... no case based on this type of detriment was ever run at trial. No such detriment was set out in Delor Vue's Amended Concise Statement, the case to which the primary judge properly held Delor Vue, despite attempts late in the trial to expand its case.

1. Secondly, the High Court found "There is also no basis to infer that there was any real or substantial prospect of Delor Vue obtaining, in a mediation, a more favourable settlement than that offered by Allianz in May 2018."
2. In the present case, the Builder does not face these difficulties. As noted, it has pleaded detriment as part of its estoppel case from the outset. And there is evidence on the record for which detriment may be inferred.
3. There is, of course, no direct evidence before the Tribunal of "without prejudice" discussions between the Owners and the Builder between July 2017 and December 2018 nor indeed at any time after that until the complete withdrawal of indemnity occurred in June 2020. However, there is evidence that there were compulsory conferences on 27 May 2019[253] and 25 September 2019[254] at which the proceeding did not settle. It is impossible to tell what might have happened if the Lloyd's Underwriters through Arch had not made a clear choice to take over the management of the claim and to conduct its defence. By that choice, the Lloyd's Underwriters denied the development of the counterfactual events that the Builder contends would have existed.
4. In my view, the objectively obvious fact is that the Builder was clearly deprived of the opportunity, at a time when the proceeding was relatively straightforward and when the Owners had not filed and obtained all their experts reports and when the scope of the Owners claims was relatively confined, to have attempted to negotiate a settlement on the basis that the Builder was uninsured. By the time the Lloyd's Underwriters first intimated to the Builder in December 2018 that a full indemnity was not available, the case was so large and complex that it can be reasonably inferred that the prospect of settlement must have become much more remote.
5. I find that the loss of an opportunity to settle the proceeding at an early stage, in the context that the Builder would have been able to disclose that it was without insurance, was a real detriment to the Builder which arose directly by reason of the fact that Arch elected to extend indemnity by the letter of 18 July 2017 and later resiled in December 2018 from that election.
6. For all these reasons, I reject the Lloyd's Underwriters submission there has been no detrimental change in position by the Builder in reliance on the 18 July 2017 letter.

If there is detriment, is it sufficient to found an estoppel?

1. I turn now to the Lloyd's Underwriters final submission, which is this:

Even if there was a detriment sufficient to found an estoppel - and there is not - the detriment is so minor that it is minuscule in comparison with the relief sought (namely, to hold Arch or Underwriters liable to indemnify it for liabilities in the millions under a policy of insurance that does not otherwise respond). Such relief exceeds what could be justified by the requirements of conscientious conduct, and would be manifestly unjust.[255]

1. In support of their submission on the mismatch between detriment to the Builder and prejudice to them, the Lloyd's Underwriters refer[256] to the judgment of Brennan J in Walton Stores,[257] in which he explained that the object of the principle of equitable estoppel is the avoidance of the detriment occasioned by the conduct of the party against whom the equity is raised.
2. I comment that this observation appears to support the position of the Builder, rather than that of the Lloyd's Underwriters. The purpose of the estoppel is to prevent the detriment.
3. The Lloyd's Underwriters go on to observe[258] that in Commonwealth v Verwayen,[259] Deane J elaborated on the principle, stating that although the prima facie operation of an estoppel by conduct is to preclude departure from the assumed state of affairs, that will yield to some lesser form of relief if the relief framed on the basis of the assumed state of affairs would be inequitably harsh;[260] and that holding an estopped party to the assumed state of affairs is inequitably harsh if it exceeds what could be justified by the requirements of conscientious conduct and is unjust to the estopped party.[261] In the same case, Mason CJ,[262] Brennan J,[263] Dawson J[264] and Gaudron J[265] all spoke in terms of the doctrine as one which permits the court to do what is required in order to avoid the detriment, and thus the relief required may be less than making good the assumption on the basis of which the plaintiff acted.
4. Again, I comment that these principles do not necessarily support the position of the Lloyd's Underwriters.
5. I observe that in Delor Vue,[266] Allsop CJ, at first instance, acknowledged the issue of proportionality, but cautioned against emphasising the requirement of proportionality between the remedy claimed to the prejudicial detriment sustained, in these terms:

The equitable estoppel and relief arising from equitable principles are not limited to removing or reversing, by the minimum equity necessary, the precisely-weighted prejudice or detriment suffered: ... The correct way to approach the matter does not involve measuring out equitable relief by the teaspoonful to reach some asserted equality with the measured detriment: (citations omitted).

1. Allsop CJ went on to refer to his own decision in Delaforce v Simpson-Cook,[267] where (sitting as President of the Court of Appeal in New South Wales), he stated at [3]:

Equity will look at all the relevant circumstances that touch upon the conscionability (or not) of resiling from the encouragement or representation previously made, including the nature and character of the detriment, how it can be cured, its proportionality to the terms and character of the encouragement or representation and the conformity with good conscience of keeping a party to any relevant representation or promise made, even if not contractual in character. Equity has also had a place in keeping parties to representations or promises: ...

1. Allsop CJ's reliance on Delaforce[268] was discussed by the Full Court of the Federal Court in the Delor Vue appeal instituted by Allianz_.[269] It was noted that Delaforce was a case concerned with a claim of proprietary estoppel, a category of estoppel which arises where the owner of property has encouraged another to alter their position in the expectation of obtaining a proprietary interest in that land, and the other has changed their position to their detriment. The estoppel relied upon before the Full Court was promissory estoppel, being a distinct category of estoppel which did not involve the consequences of one party performing their side of a reciprocal arrangement nor the unconscionable reliance on any Statute of Frauds requirements._ Nonetheless, the judges in the majority, McKerracher and Colvin JJ, confronted the issue of whether it was appropriate to apply the reasoning adopted by Allsop CJ in Delaforce to the case before them. They held:

There is no reason to confine this reasoning to a particular type of estoppel case. The insights that inform the approach are of general application.[270]

1. Although the joint judgment of, McKerracher and Colvin JJ in the Federal Court was overturned by the High Court in Allianz v Delor Vue, it is to be noted that the High Court relied on Delaforce with evident approval[271] and I proceed all the bases that Delaforce correctly states the law.
2. In my view, relevant circumstances to be taken into account in assessing proportionality include the following:

(a) the Builder took out a professional indemnity policy with the Lloyd's Underwriters through Arch for which it paid a significant premium; > > (b) this proceeding was instituted in the Tribunal by the Owners against the Builder and the Builder made a claim against Arch (and accordingly Lloyd's Underwriters) in respect of the Owners claims; > > (c) Arch did not immediately admit indemnity but undertook investigations and admitted indemnity in accordance with its own timeframe when it was satisfied that it had obtained all relevant information; > > (d) after Arch admitted indemnity by the letter of 18 July 2017 Arch took over the conduct of the defence as it was entitled to do under the terms of the Policy; > > (e) Arch made with the consent of the Builder, a number of significant strategic decisions concerning the defence of the proceeding; > > (f) despite having admitted indemnity in July 2017 and later confirming that admission of indemnity, Arch on 19 December 2018 through Clyde & Co flagged for the first time an issue with indemnity, advising that design and project management errors were covered by the Policy, but construction errors were not; > > (g) the partial withdrawal of indemnity in the short term must have affected the ability of the Builder in conjunction with the Lloyd's Underwriters to negotiate a settlement of the proceeding in the period after December 2018; > > (h) the partial withdrawal of indemnity stipulated in December 2018 evolved into a complete withdrawal of indemnity in June 2020 and ultimately put the Builder into conflict with the Lloyd's Underwriters; > > (i) by the time the hearing began in June 2021, the proceeding was extremely complex, with ten respondents and five joined parties. > > (j) The number of defects in issue had risen dramatically;[272] > > (k) even at the start of the hearing, legal costs globally incurred by the parties must have been very substantial and would have been a factor in inhibiting the ability of the parties to settle; > > (l) had Arch not extended indemnity in the letter of 18 July 2017, the course of the litigation may well have been different but is not critical that the Builder cannot demonstrate what might have happened; > > (m) indeed, it would be unfair to insist that the Builder demonstrate the counterfactual because its ability to do so was removed by Arch's admission of indemnity in July 2017; > > (n) if the Lloyd's Underwriters are not held to their representation that they will indemnify the Builder, the Builder will be left to meet alone the orders for damages made by the Tribunal which will be, as a result of the findings expressed in the Defects Determination published on 30 December 2022, in the order of $9 million; > > (o) the only way the detriment to the Builder can be avoided is for the Lloyd's Underwriters to be held to their representation that they would indemnify the Builder; > > (p) holding the Lloyd's Underwriters to their representation is consistent with the important principle of holding a party in a legal relationship to its promise; > > (q) that the detriment caused to the Builder by the fact that the Lloyd's Underwriters extended a complete indemnity in July 2017 and took over the conduct of the proceeding and thereby deprived the Builder of the opportunity of settling it at an early stage, can be described in my assessment as a loss of chance that is not fanciful nor unrealistic; > > (r) to allow the Lloyd's Underwriters to resile from their promise would be unconscionable because the detriment caused to the Builder would be palpable and irremediable although mathematically unquantifiable. > > (s) to argue that the remedy of holding the Lloyd's Underwriters to their representation that they will indemnify the Builder-which will leave them facing a payout of approximately $9 million in respect of defects and potentially another very large sum in respect of legal costs- is somehow disproportionate to the detriment to be suffered by the Builder is misconceived because there is a direct connection between the remedy required and the detriment to be avoided. > > (t) It would be an error to look at the issue of proportionality from the point of view of the Lloyd's Underwriters alone.

3. In all these circumstances, the requirement of proportionality of the claimed remedy to the prejudicial detriment suffered -even if it is required in a case of promissory estoppel such as this- is readily established.

Have the Lloyd's Underwriters failed to act to avoid the detriment?

1. The Lloyd's Underwriters, after being challenged in September 2019 by the Builder regarding their partial withdrawal of indemnity, doubled down and completely withdrew indemnity in June 2020. Accordingly, the sixth requirement for the establishment of a promissory estoppel as articulated by Brennan J in Walton Stores[273] comes down to the question of whether the Lloyd's Underwriters have otherwise avoided or ameliorated the detriment to the Builder. They have not done so. This requirement is accordingly fulfilled.

1. In conclusion, I find declare that it would be unjust, inequitable and unconscionable to permit the Lloyd's Underwriters to resile from their representations made in the letter of 18 July 2017 that:

(a) they (through their agent Arch) have considered the information provided by the Builder and are satisfied that the allegations made by the Owners against the Builder in the proceeding are in relation to civil liability arising from the conduct of the Builder's Professional Business.

(b) they will grant indemnity to the Builder under the Contract of Insurance in respect of the claim made by the Owners in the proceeding subject to a specific reservation of rights.

1. I also find and that the Lloyd's Underwriters should be held to their representations that they will indemnify the Builder and that such an outcome is proportionate and reasonable.
2. Furthermore, I find that the reservations of rights referred to in the letter of 18 July 2017 relate to the operation of Condition 7(b) of the Policy and this has not been enlivened so as to reduce the Lloyd's Underwriters obligation to indemnify the Builder under the Policy.

THE LLOYD'S UNDERWRITERS OBLIGATION TO PAY COSTS UNDER THE POLICY

1. Before I set out the orders I propose to make it is appropriate to address the Lloyd's Underwriters obligation to pay costs under the Policy. The relevant Insuring Clause provides:

In addition, pay Defence Costs incurred with the prior written consent of Underwriters in the defence or settlement of any such Claim, provided that, if a payment in excess of the amount of indemnity available under this Contract is to be made to dispose of a Claim, Underwriters' liability for such Defence Costs shall be such proportion thereof as the amount of indemnity available under this Contract in respect of that Claim bears to the amount paid or payable to dispose of that Claim.

1. The Lloyd's Underwriters have breached the Policy. They had appointed solicitors (Clyde & Co) to act on behalf of the Builder but instructions for Clyde & Co to continue acting on behalf of the Builder were withdrawn in or about June 2020. From that point the Builder, with the Lloyd's Underwriters' knowledge but without their consent, engaged Prior Law and Dr Wolff of Counsel to represent it.
2. The Lloyd's Underwriters cannot be in a better situation regarding their obligation to pay legal costs to the Builder than they would have been had they had honoured the Policy. Accordingly, I will order that the Lloyd's Underwriters must indemnify the Builder in respect of the legal costs they incurred in defending the proceeding after Clyde & Co ceased acting for the Builder on or about 11 June 2020. This order must be qualified by any applicable proportionate reduction of the type set out in the Insuring Clause.

1. Under s 124 of the Victorian Civil and Administrative Tribunal Act 1998 I will declare:
   1. The underwriter which issued the Policy is the Lloyd's Underwriters and the Lloyd's Underwriters must respond to the Builder's Claim under the Policy;
   2. The Builder did make a Claim within the meaning of the Policy;
   3. The Builder is not entitled to be indemnified under the wording of the Policy.
   4. The Lloyd's Underwriters have elected to indemnify the Builder under the Policy in respect of the Owners' claims and are bound by that election to indemnify the Builder;
   5. The Lloyd's Underwriters having represented to the Owners that:
      1. it has considered the information provided by the Builder;
      2. it is satisfied that the allegations made by the Owners against the Builder in the proceeding are in relation to civil liability arising from the conduct of the Builder's Professional Business;
      3. it will grant indemnity to the first respondent under the Policy in respect of the claim made by the Owners in the proceeding subject to a specific reservation of rights;

is estopped from not fulfilling those representations.

1. The specific reservation of rights referred to relates solely to Condition 7(b) of the Policy, which has not been enlivened.

1. I will order that the Lloyd's Underwriters must, subject to any relevant monetary limit of cover applicable under the Policy, indemnify the Builder in respect of the awards for damages made against the Builder in favour of the applicants in Orders 14-38 inclusive in the Final Orders (Defects) dated 3 May 2023. These awards are set out in Appendix 1 of this Order.
2. I will order that the Lloyd's Underwriters must, subject to any relevant monetary limit of cover applicable under the Policy, indemnify the Builder in respect of the legal costs it incurred in defending the proceeding after Clyde &Co ceased acting for in on or about 11 June 2020.
3. The Builder's claim against Arch is dismissed.
4. Costs otherwise reserved.
5. Reimbursement of fees reserved.

ORDERS FOR DAMAGES MADE AGAINST THE FIRST RESPONDENT IN RESPECT OF THE APPLICANTS IN THE FINAL ORDERS (DEFECTS) MADE 3 MAY 2023.

Awards for damages (other than awards in the nature of interest)

1. The first respondent must pay damages to the first applicant in the sum of $746,000.
2. The first respondent must pay damages to the second applicant in the sum of $416,331.
3. The first respondent must pay damages to the third applicant in the sum of $349,740.
4. The first respondent must pay damages to the fourth and fifth applicants in the sum of $278,825.
5. The first respondent must pay damages to the sixth and sevenths applicant in the sum of $489,285.
6. The first respondent must pay damages to the eighth applicant in the sum of $502,599.
7. The first respondent must pay damages to the ninth and tenth applicants in the sum of $273,152.
8. The first respondent must pay damages to the eleventh and twelfth applicants in the sum of $588,240.
9. The first respondent must pay damages to the thirteenth and fourteenth applicants in the sum of $341,736.
10. The first respondent must pay damages to the fifteenth and sixteenth applicants in the sum of $394,351.
11. The first respondent must pay damages to the seventeenth and eighteenth applicants in the sum of. $260,749.
12. The first respondent must pay damages to the nineteenth applicant in the sum of $301,930.
13. The first respondent must pay damages to the twentieth applicant in the sum of $3,344,445.
14. The first respondent must pay damages to the twenty first and twenty second applicants in the sum of $335,204.
15. The first respondent must pay damages to the twenty third applicant in the sum of $394,760.

1. The first respondent must pay damages in the nature of interest to the first applicant in the sum of $1,243.
2. The first respondent must pay damages in the nature of interest to the third applicant in the sum of $2,485.
3. The first respondent must pay damages in the nature of interest to the eighth applicant in the sum of $5,809.
4. The first respondent must pay damages in the nature of interest to the ninth and tenth applicants in the sum of $2,839.
5. The first respondent must pay damages in the nature of interest to the eleventh and twelfth applicants in the sum of $323.
6. The first respondent must pay damages in the nature of interest to the thirteenth and fourteenth applicants in the sum of $1,568.
7. The first respondent must pay damages in the nature of interest to the fifteenth and sixteenth applicants in the sum of $414.
8. The first respondent must pay damages in the nature of interest to the seventeenth and eighteenth applicants in the sum of $722.
9. The first respondent must pay damages in the nature of interest to the twentieth applicant $10,084.
10. The first respondent must pay damages in the nature of interest to the twenty third applicant in the sum of $738.

(a) ACP means aluminium composite panels;

(b) Apartment or Unit means an apartment at 26-30 Willansby Avenue, Brighton, Victoria 3186;

(c) Apportionable Warranty means a warranty set out in s 8(a) and s 8(d) of the DBC Act;

(d) Arch means the fourth joined party Arch Underwriting at Lloyd's (Australia) Pty Ltd;

(e) BAB means the Building Appeals Board;

(f) Building Act means the Building Act 1993 (Vic);

(g) Builder means the first respondent; Shangri La Construction Pty Ltd (ACN 130 534 244);

(h) BCA or Code means the Building Code of Australia, being volumes 1 and 2 of the National Construction Code;

(i) CMM means the second joined party CMM Group Pty Ltd (ACN: 142 132 358);

(j) Common Property or CP means the land identified as common property in Plan of Subdivision PS 623721N;

(k) Consultants means the second and third, fourth and fifth, sixth Respondents inclusive;

(l) Consultants' Settlement means the fact of the settlement of the applicants' claims against the Consultants;

(m) D&C Contract means the Design and Construct Contract dated 17 September 2009 between the Developer and the Builder;

(n) DBC Act means the Domestic Building Contracts Act 1995 (Vic);

(o) DtS or DTS means Deemed-to-Satisfy provisions which are deemed-to-satisfy the BCA performance requirements;

(p) Developer means 30 Willansby Street Pty Ltd (ACN 126 967 388);

(q) EPS means extruded polystyrene;

(r) FEB means Fire Engineering Brief;

(s) FER means Fire Engineering Report;

(t) FRV means Fire Rescue Victoria;

(u) GST has the meaning given to it in the A New Tax System {Goods and Services Tax) Act 1999 (Cth) and associated taxation legislation;

(v) GPS means the first joined party Haiying Jiang (Ms Jiang), who trades (or traded) as GPS Plaster

(w) Item means the items listed in the Scott Schedule;

(x) K&P Rendering means the ninth respondent Mohammad Pacha t/as K & P Rendering Texture Finishing and the tenth respondents Hamzaie Hafizullah t/as K & P Rendering Texture Finishing;

(y) Lloyd's Underwriters means the fifth joined party Certain Underwriters at Lloyd's Subscribing to Policy Number P0003310PI2016AU0;

(z) Non-Apportionable Warranties means the warranties set out in sections 8(b), 8(c), 8(e) and 8(f) of the DBC Act;

(aa) OC means Owners Corporation PS 623721;

(bb) Owners means the applicants;

(cc) Regulations means Building Regulations 2006;

(dd) Rectification Works means the works required to be undertaken to fix the defects at the Willansby Apartments;

(ee) RBS means "relevant building surveyor'' as defined in the Building Act, and who is the Third Respondent Mr Jim Tsaganas;

(ff) Scott Schedule means the document settled a conclave of experts conducted by Senior Member Levine on 29 March 2021 and completed on 1 April 2021 and updated by solicitors for the Owners, the Builder and Arch on 25 October 2021, which located at TB792:9870;

(gg) Settled Claims means the claims settled between the Owners and the Consultants;

(hh) Shangri La means the First Respondent, Shangri La Construction Pty Ltd (ACN 130 534 244);

(ii) SOU means Single Occupied Unit:

(jj) The Silver Arc means the sixth named respondent:

(kk) Tribunal Book or TB means the Tribunal Book filed in the proceeding as updated from time to time by the Owners' solicitors:

(ll) Willansby Apartments means the Apartments and Common Property located at 26-30 Willansby Avenue, Brighton, Victoria 3186; and

(mm) Wrongs Act 1958 means the Wrongs Act 1958.

[1] Owners Corporation PS623721 & Ors v Shangri- La Construction Pty Ltd & Ors (Building and Property) [2022] VCAT 1499.

[2] [2023] VCAT 501.

[3] [2022] HCA 38.

[4] Nicholson Wright Pty Ltd is now called CODEHQ Pty Ltd.

[5] Owners Corporation PS623721 v Shangri- La Construction Pty Ltd (Building and Property) [2022] VCAT 1499 at [9].

[7] [2022] VSCA 226.

[8] Builder's submissions on Allianz v Delor Vue, [50]-[57].

[9] Lloyd's Underwriters' submissions on Allianz v Delor Vue,[40].

[10] Builder's response submissions on Allianz v Delor Vue, [23]-[24].

[17] [2021] FCA 19.

[19] Defence of the Lloyd's Underwriters, at [4A].

[20] [2021] FCA 19, [29(1)].

[21] [2021] FCA 19, [29(5), (6) and (7)].

[22] [2000] HCA 65; (2000) 203 CLR 579,[22].

[23] Tokyo Marine & Nichido Fire Insurance Code Ltd v Hans Bo Kristian Holgersson Trading as Holgersson's Complete Home Service [2019] WASCA 114, [67].

[25] (1982) 149 CLR 337 at 352,[22].

[26] (2000) 213 CLR 5579, [74(4)].

[28] Lloyd's Underwriters Points of Defence, at [17(c)].

[29] Builder's Further Amended Point of Claim against Arch and the Lloyd's UnderwritersTB839:10859 at 10867, [18].

[31] Owners Further Amended Claim dated 21 May 2021 at [27]-[33] inclusive.

[33] TB433:7399,[28] and 7400, [30]&[32].

[34] Mr. Naqebullah's witness statements of 20 December 2019, TB263:5384, [37].

[36] [2022] VCAT 1499, [257]-[263].

[39] The Lloyd's Underwriters' closing submissions, Section C, [176-178].

[41] Further Witness statements of Mr Naqebullah dated 24 May 2021. B345:6143, [3].

[47] Further Amended Point of Claim against the fourth and fifth joined parties dated 3 November 2021, at [30].

[48] [1984] HCA 55; (1984) 165 CLR 622 at 633.

[49] [1992] VicRp 25; [1992] 1 VR 386 at 394.

[51] The Lloyd's Underwriters' final submissions at [20].

[52] [1992] VicRp 25; [1992] 1 VR 386 at 394.

[54] The Builder's Points of Claim at [30].

[55] Lloyd's Underwriters' final submissions at [356].

[60] [2000] 2 All ER 489, 500-501.

[61] The Lloyd's Underwriters' submissions at [219].

[62] D K Derrington and R S Ashton, The Law of Liability Insurance (LexisNexis Butterworths, 3rd Ed, 2013), 1193 citing QBE Insurance (Aust) Ltd v CGU Workers Comp (NSW) Ltd (2012) 17 ANZIC 61-931.

[63] The Lloyd's Underwriters' submissions at [217].

[64] [1956] 3 All ER 821.

[65] [1956] 3 All ER 821, at 825.

[66] The Lloyd's Underwriters final submissions at [221].

[67] [1974] HCA 40; (1974) 131 CLR 634.

[68] [1974] HCA 40; (1974) 131 CLR 634 at 655.

[69] [1974] HCA 40; (1974) 131 CLR 634 at 641.

[70] [1984] HCA 55; (1984) 165 CLR 622 at 633.

[71] [1993] QCA 222

[73] Nigel Watts Fashion Agencies Pty Ltd v GIO General Limited (1995) 8 ANZ Ins Cas 61-235, 75,649-75,650.

[74] [2002] NSWSC 830; (2003) 12 ANZ Insurance Cases 61-547.

[75] [2002] NSWSC 830; (2003) 12 ANZ Insurance Cases 61-547 at [88].

[76] The Lloyd's Underwriters submissions at 349.

[77] [2020] FCA 588.

[78] Allianz Australia Insurance Limited v Delor Vue Apartments CTS 39788 [2021] FCAFC 121.

[79] Allianz Australia Insurance Limited v Delor Vue Apartments CTS 39788 [2022] HCA 38.

[80] Delor Vue Apartments CTS 39788 v Allianz Australia Insurance Ltd (No 2) [2020] FCA 588, [317].

[81] Allianz Australia Insurance Limited v Delor Vue Apartments CTS 39788 [2021] FCAFC 121.

[82] Allianz Australia Insurance Limited v Delor Vue Apartments CTS 39788 [2021] FCAFC 121, [104].

[83] Allianz Australia Insurance Limited v Delor Vue Apartments CTS 39788 [2022] HCA 38.

[84] [1920] HCA 64; (1920) 28 CLR 305.

[85] Allianz Australia Insurance Limited v Delor Vue Apartments CTS 39788 [2021] FCAFC 121, [56].

[86] [2022] HCA 38.

[87] [2022] HCA 38, [124-125].

[88] Builder's Points of Claim against Arch dated 14 April 2021, [27]-[34].

[89] [2022] HCA 38, [28].

[101] [1974] HCA 40; (1974) 131 CLR 634.

[102] [1974] HCA 40; (1974) 131 CLR 634 at 641.

[108] [2008] HCA 57; (2008) 238 CLR 570.

[109] Motor Oil Hellas (Corinth) Refineries SA v Shipping Corporation of India (The "Kanchenjunga") [1990] 1 Lloyd's Rep 391 at 397‑398.

[110] [2022] HCA 38, [62].

[111] [1936] NSWStRp 14; (1936) 36 SR (NSW) 248 at 265.

[112] [2008] HCA 57; (2008) 238 CLR 570 at 588 [56].

[113] United Australia Ltd v Barclays Bank Ltd [1941] AC 1 at 18, 30, 34.

[114] [2022] HCA 38, [64].

[115] [1920] HCA 64; (1920) 28 CLR 305 at 319‑320.

[117] [2022] HCA 3038, [74], and [75].

[118] [1922] 2 AC 541 AT 549 550, 552 553; [1922] UKPCHCA 1; (1922) 31 CLR 27.

[119] [2008] HCA 57; (2008) 238 CLR 570.

[120] [2009] HCA 34; (2009) 239 CLR 361.

[121] [1993] QCA 222.

[122] [2022] HCA 38, [79].

[123] [2021] FCAFC 121, [118].

[124] Builder's submissions on Allianz v Delor Vue dated 31 January 2023, [36].

[126] Lloyd's Underwriters' Delor Vue submissions, [22].

[127] Lloyd's Underwriters final submissions, [359].

[129] Lloyd's Underwriters final submissions, [364].

[130] [2022] HCA 38, [62].

[132] Arch's opening submissions, [40 (a)].

[133] Lloyd's Underwriters final submissions, [330]-[360].

[134] [2021] FCAFC 121, [104].

[135] The judgment in the Delor Vue Federal Court appeal was dated 9 July 2021.

[136] [2022] HCA 38, [78].

[137] [1992] VicRp 25; [1992] 1 VR 386.

[138] Nigel Watts Fashion Agencies Pty Ltd v GIO General Limited (1995) 8 ANZ Ins Cas 61-235, 75,649-75,650.

[139] [2021] FCAFC 121.

[141] Liu, "Rethinking Election: A General Theory" [2013] SydLawRw 24; (2013) 35 Sydney Law Review 599 at 618‑619.

[142] [2022] HCA 38, at [53].

[143] [1992] VicRp 25; [1992] 1 VR 386.

[144] Sub- clause 7(a)(i) contained a reference to what commonly used to be called a Queen's Counsel clause but is now of course a King's Counsel clause. Under such a clause, neither the Lloyd's Underwriters nor the insured would be required to contest any legal proceedings unless a Senior Counsel advised such proceeding should be contested.

[145] [2022] HCA 38, at [76].

[146] [1922] 2 AC 541 at 549-550, 552-553.

[147] The Lloyd's Underwriters say in their final submissions at [374(e)(i)] that the number of defects increased from 26 defects on 3 March 2017 to 135 defects at the time of trial.

[148] Ibid [2021] FCAFC 121, [118].

[149] Ibid [2021] FCAFC 121, [119].

[150] The Lloyd's Underwriters' final submissions at [32].

[155] Nigel Watts Fashion Agencies Pty Ltd v GIO General Limited (1995) 8 ANZ Ins Cas 61-235, 75,649-75,650.

[156] [1920] HCA 64; (1920) 28 CLR 305.

[157] [1992] VicRp 25; [1992] 1 VR 386.

[158] [1992] VicRp 25; [1992] 1 VR 386.

[159] [1972] All ER 610.

[160] [1920] HCA 64; (1920) 28 CLR 305 at 319‑320.

[161] The Builder's points of claim [32].

[162] [2013] ACTSC 171,[112], in which the Supreme Court of the Australian Capital Territory followed the Full Court of the Supreme Court of New South Wales in National Insurance Co of New Zealand Limited v Hill [1964] NSWR 597 at 599 where Herron CJ, Ferguson and Nagle JJ upheld the trial judge's reasoning and stated "Even though the appellant's submissions that the policy was void or did not cover the risk were in fact true, that would not exist its case: The estoppel would still prevail.".

[163] Mr Naughton was the Builder's expert building consultant.

[168] The Lloyd's Underwriters' submissions, [90(a)].

[170] Mr Donley's witness statement of 16 July 2021, TB 592: 8961, at [86(a)].

[171] The relevant file note is at TB 559:8634.

[174] The relevant file note is at TB 560:8641.

[177] TB: 9095 at 9097, [24]. Mr O'Brien explains that he did not include the correspondence in evidence as "it would disclose offers contemplated by the parties at the compulsory conference".

[183] The Builders points of claim against Arch dated 14 April 2021.

[184] The Builder's Opening Submissions, [121].

[187] [1985] HCA 78; (1985) 160 CLR 583, 615-616.

[188] The Lloyd's Underwriters' final submissions, [397].

[189] [1990] HCA 11; 169 CLR 279.

[190] [2010] FCAFC 133; 189 FCR 356.

[191] Shangri-La's opening at [122] and [123].

[192] (1988) 164 CLR 387.

[193] [1983] HCA 11; 152 CLR 406.

[194] [1933] HCA 61; 49 CLR 507, 547.

[195] [2005] NSWSC 1066; 65 NSWLR 300.

[196] [1988] HCA 7; (1988) 164 CLR 387.

[197] (1988) 164 CLR 387, 428.

[198] [2005] NSWSC 1066;65 NSWLR 300.

[200] [2021] FCAFC 121, [441]. Derrington J was in the minority in the Full Court of the Federal Court but was upheld by the High Court in Allianz v Delor Vue.

[201] The Lloyd's Underwriters Submissions at [217].

[202] (1988) 164 CLR 387, 428.

[203] (1988) 164 CLR 387, 428.

[204] (1988) 164 CLR 387.

[205] Shangri-La's opening submissions, [187].

[206] [2014] HCA 19; (2014) 251 CLR 505, at 522 - 523 [58].

[207] The Lloyd's Underwriters' closing submissions, [462].

[208] [2001] EWHC 464; [2002] Lloyd's Rep IR 325, affirmed [2002] EWCA Civ 1253; [2002] 2 All ER (Comm) 1053; [2003] Lloyd's Rep IR 1.

[209] The Lloyd's Underwriters' submissions, [464].

[210] [2008] VSCA 86; (2008) 66 ACSR 325, [134]: [2008] VSCA 86, [134].

[211] The Lloyd's Underwriters' submissions, [468].

[212] The Lloyd's Underwriters' submissions, [471].

[213] See [Election doc at [14] ] above.

[215] The Lloyd's Underwriters' final submissions, [395].

[216] The Lloyd's Underwriters' final submissions, [494].

[217] The Lloyd's Underwriters' final submissions, [495].

[219] O'Brien Witness Statement, [16] (TB.597.9097).

[220] The Lloyd's Underwriters' final submissions, [478].

[221] See for example, T3002:24-3004:31 and T3005:8-11 (Naqebullah).

[222] The Lloyd's Underwriters' final submissions, [479(a)].

[223] T3048:20-27; T3049:4-16 (Naqebullah).

[224] The Lloyd's Underwriters' final submissions, [479(b)].

[226] The Lloyd's Underwriters' final submissions, [92] and [480].

[228] The Lloyd's Underwriters' submissions, [472 (a)].

[230] (1988) 164 CLR 387, 428.

[231] KR Handley, Estoppel by Conduct and Election (Sweet & Maxwell 2006), [1-007].

[232] The Lloyd's Underwriters' submissions, [484].

[233] The Lloyd's Underwriters' submissions, [485(a)&(b)].

[236] The engagement of Mr Peter Quigley was discussed by Mr Donley with Mr Naqebullah on 19 December 2017. The engagement of Mr Philip Naughton was discussed on a telephone conference on 17 October 2018 between Mr Naqebullah and Mr Donley.

[237] On 5 October 2017, Clyde & Co emailed the Builder a draft defence based on the Builder's instructions, which the Builder approved.

[238] On 23 April 2018, Clyde & Co wrote to the Builder recommending the joinder of a number of parties. This recommendation was updated on 3 July 2018. On 5 December 2018 Clyde & Co sought the Builder's instructions to join GPS Plaster.

[239] Letter from Clyde & Co to the Builder dated 3 July 2018.

[240] Email from Clyde & Co to the Builder dated 3 July 2018.

[241] The Lloyd's Underwriters' final submissions, [76].

[242] The Builders supplementary submissions concerning Allianz v Delor Vue, at [46].

[245] Order of DP Aird made 8 April 2021.

[246] [1947] VicLawRp 50; [1948] VLR 198.

[247] [1992] NTSC 60; (1992) 84 NTR 7; (1993) 7 ANZ Ins Cas 61-149.

[248] [2013] ACTSC 171,[114].

[249] [2022] HCA 38.

[250] [1971] 2 Lloyd's Rep 332.

[251] [2022] HCA 38, at [82].

[255] Lloyd's Underwriters' closing submissions, at [531].

[256] Lloyd's Underwriters' closing submissions, [532].

[257] (1988) 164 CLR 387 at 413.

[258] The Lloyd's Underwriters' closing submissions, [533].

[266] Delor Vue Apartments CTS 39788 v Allianz Australia Insurance Ltd (No 2) [2020] FCA 588, [335].

[267] [2010] NSWCA 84, [3]; [2010] NSWCA 84; 78 NSWLR 483 [3].

[268] [2010] NSWCA 84, [3]; [2010] NSWCA 84; 78 NSWLR 483 [3].

[269] [2021] FCAFC 121.

[271] [2022] HCA 38, [88] footnote 111.

[273] [1988] HCA 7; (1988) 164 CLR 387.