Placer v Dyno

Placer v Dyno - [1999] NSWSC 1292 - NSWSC 1999 case summary — Zoe

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REASONS FOR JUDGMENT 1 Prior to 27 August 1975, Placer (PNG) Pty Limited (Placer) and Mount Isa Mines Limited (Mount Isa), jointly owned certain mineral tenements near Porgera in the highlands of Papua New Guinea, situated approximately 220 kilometres in a westerly direction from Mount Hagan, the principal town in the central highlands. Lae was the nearest sizeable shipping port located approximately 750 kilometres to the east. 2 By an agreement dated 5 April 1979, Placer transferred, with the consent of Mount Isa, 50 per cent of its interest to Consolidated Goldfields Australia Limited (Goldfields), following which on 31 July 1979, Placer, Mount Isa and Goldfields entered into a joint venture agreement "for the purpose of providing for the future exploration and development of the ... mineral tenements and (certain) additional area ... by way of Joint Venture ..."(the joint venture agreement). Placer was appointed manager, subject to the control of the management committee, constituted by representatives of each of the parties to the joint venture. 3 By clause 4 of the joint venture agreement, the management committee was to meet in Sydney, or such other place as may be determined, at regular intervals. By clause 12, each party was entitled "to take in kind and separately dispose of its share of all ores, concentrates and refined products produced pursuant to the terms of (that) agreement". Each party was obliged to contribute, in proportion to its percentage interest, to all exploration and production expenditures, approved by the committee, within fourteen days of the times and in the amounts required by Placer. 4 By an agreement of 6 December 1988, Placer's role as manager was more precisely defined. On 12 May 1989, Placer, Highlands Gold Properties Pty Limited (Highlands) and RGC (Papua New Guinea) Pty Limited (Renison) entered into a mining development contract with the state of Papua New Guinea (the State) by which they committed themselves to the development and operation of a gold mine in the area. Although not clearly stated in the evidence, I take it that Highlands was a party to the joint venture as a subsidiary of Mount Isa and that Renison was a related corporation of Goldfields. Placer was a subsidiary of Placer Dome Inc, a Canadian domiciled company, whereas, Mount Isa and Renison's holding companies were Australian publicly listed companies. 5 Pursuant to agreements dated 21 March 1990 and 21 November 1990, Mineral Resources Porgera Pty Limited (Resources), became a party to the joint venture and bound by the development contract with the State which had been entered into by the joint venturers on 12 May 1989. By those agreements, Resources acquired a ten per cent interest in the joint venture: an interest which was later increased. Resources is a statutory corporation of the State. 6 Placer, Highland, Renison and Resources (referred to as the PJV), are the plaintiffs in these proceedings brought in respect of their interests as joint venturers against Dyno Nobel Asia Pacific Limited, formerly known as Dyno Wesfarmers Limited (each referred to as Dyno) and Niugini Insurance Corporation (Niugini Insurance). 7 The proceedings arise out of a catastrophic set of explosions (the explosions) in an explosives facility operated in the subject area by Dyno on 2 August 1994 at a time when Niugini Insurance carried certain risks in relation to the activities of the joint venturers, the precise nature of that cover being a matter in contention. The commencement of the period of insurance was 1 July 1989 and was expressed to be for a period of "estimated 39 months". It was described as a "CONTRACT WORKS INSURANCE" (the policy). The explosions killed eleven employees of Dyno and completely destroyed the explosives facility, leaving a crater 40 metres wide and 15 metres deep. It devastated the area and damaged property up to two kilometres away. 8 In these proceedings, the PJV seeks recovery from Dyno of certain material damage and business interruption losses caused by the explosions and maintains the proceedings against Niugini Insurance to enforce the policy as the subject of certain endorsements (the endorsed policy) for the benefit of Dyno as an insured, although not a named party to the policy or the endorsed policy. Otherwise, the PJV has no continuing interest under the policy or the endorsed policy, the PJV's claims thereunder having been satisfied by agreement with Niugini Insurance. Dyno has brought a cross claim against Niugini Insurance under the endorsed policy in the event that it has standing to bring the proceedings in its own name. 9 The PJV seeks to enforce the endorsed policy on behalf of Dyno in respect of any liability which Dyno may have to the PJV in respect of the latter's material damage or business interruption claims or in respect of material damage suffered by Dyno as a consequence of the explosions: in the event that Dyno's cross claim against Niugini Insurance is misconceived. 10 The ore which the PJV sought to exploit consisted of a deposit of gold and silver located in what was described as "rugged, rainforest-covered, mountainous areas at comparatively high altitude between 2,250 metres and 2,700 feet (sic) above sea level". The deposit was located primarily within Mount Waru Wari into which an adit had been mined at RL 2,280 metres (the level 28 adit), I think, prior to the inception of the joint venture agreement. 11 There followed diamond drilling exploratory work which led to preliminary economic evaluations and then a feasibility study of May 1988 (the feasibility study) prepared under the direction of Placer Dome Technical Services Ltd (Technical Services) for Placer as manager of the joint venture. The feasibility study was provided to Niugini Insurance prior to it going on risk under the policy. Niugini Insurance was essentially a "front" insurer, with Munich Re-insurance Company (Munich Re) and its following market re-insuring Niugini Insurance's risk. Munich Re negotiated the wording and the terms of the policy with the PJV's broker, a member of the Bowring Group and Marsh & McLennan Companies, Inc. (Bowrings), whose representative was W D Robertson (Robertson). Niugini Insurance played no active part in the formation of the policy agreement or in relation to the endorsements. I do not understand any issue to turn on that fact. The case has been conducted on the basis that Munich Re, as re-insurer, acted also for Niugini Insurance and Munich Re's following market. 12 The feasibility study, which comprised some six volumes, was supplied by Robertson to Munich Re, which was represented by Eckehard Hettler (Hettler), who, at the time Niugini Insurance went on risk, was based at the United Kingdom branch of Munich Re in the capacity of "Chief Engineer and Engineering Manager underwriting all engineering classes of insurance". The feasibility study was described as one "for the proposed 8 000 t/d open pit and underground, mining and metallurgical operation to be located at Porgera, Enga Province, Papua New Guinea". Its aim was expressed to be "to investigate and display, in all necessary detail, the features, requirements and economics of the Porgera Project". The six volumes comprised Geology, Mining, Metallurgy, General Matters, Construction and Operating Estimates and Summary. The "total construction cost of the project inclusive of the initial operating expenses" was estimated to be Kina 662,671,000. There were to be two processing streams to accommodate a staged production from proposed underground mining and open pit mining described as follows: "The 1500 t/d Section 1 concentrator will start processing underground ore in month 16 of the construction schedule; the Section 2 concentrator will start processing open pit ore in month 42."

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58 The evidence established that there were four stages. Stage 4 was being subdivided into Stage 4(a) and Stage 4(b). Those four stages and the times during which they were performed were as follows: "59. Placer commenced Stage 1 in June 1989 and completed it in August, 1990. This stage consisted of constructing a 1500 - 2000 tonne per day gravity separation and pyrite flotation concentrator at the Anawe Plant Site. The Anawe Power Station, a diesel generator which generates approximately 12 to 18 mW of electricity, and a gold room were constructed. The 28 Level Adit was developed as were important infrastructure such as roads, a water supply scheme from Kogai River and the CIP Pond. Alipis 1, 2 and 3 and Yokalama 1 and 2 were built during Stage 1. 60. During Stage 1 Placer commenced underground mining operations. Underground mining allows the targeting of high grade ore, and by mining this ore first Placer was able to achieve high rates of return at an early point in the life of the project. The ore was crushed at the Anawe Plant Site and approximately 70% of the gold was recovered as a gravity concentrate by carbon in pulp (CIP) treatment of the pyrite concentrate. The CIP residue (containing approximately 30% of the gold) was stored in the CIP Pond to await the installation of the autoclaves in Stage 2. 61. Stage 2 consisted of increasing the electricity supply to 30.2mW by constructing a gas turbine electrical generating plant at Hides (the Anawe Power Station did not generate enough electricity for operation of the extra facilities at the Plant), and a 76 km transmission line from Hides to Porgera. A 310 tonne per day oxygen plant and three pressure autoclaves were installed at the Anawe Plant Site. Stage 2 involved processing the flotation sludge stockpiled in the CIP Pond during the operating phase of stage 1, and the facilitation of a permanent supply of water from Waille Creek. This stage was completed in August 1991. 62. Stage 3 consisted of the construction of a primary gyratory crusher, one SAG mill, one ball mill and ancillary equipment at the Tawisakale Plant Site. The grinding circuit at the Tawisakale Plant Site had the capacity to crush 4,500 tonnes of ore per day. With the ability to crush much more ore at the Tawisakale Plant Site, the gravity concentration circuit at the Anawe Plant Site was abandoned. Underground mining activities were boosted to 4500 tpd and the open pit was developed to provide 1000 tonnes per day. The concentrator/oxidation circuits at Anawe were expanded to 8000 tonnes per day capacity. The crushed ore, in the form of slurry, was transported through a pipeline to the expanded flotation circuit at Anawe. The Hides site was also expanded to 33 mW maximum power generation capacity. This work was completed in September, 1992. 63. Stage 4A included the installation of a fourth autoclave and an additional 75 tonne per day oxygen plant at the Anawe Plant Site, a semi-autogenous bypass circuit (SABC) at the Tawisakale Plant Site, a decline linking underground 28 Level Adit and 40 Level Adit and an overland conveyor between the 40 Level Adit and the Tawisakale grinding mill. The expansion during Stage 4A enabled the mine to produce 8,000 tonnes of ore per day. This stage was completed in approximately September, 1993. 64. Stage 4B consisted of optimising the existing facility. Additional oxygen producing capacity was provided and an additional SAG and ball mill were installed. The milling capacity was increased to 16,500 tonnes per day. Stage 4B started in late 1994 and was estimated to take eighteen months to construct."

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123 Under cll 4, 5 and 6, the insureds agreed to assist Niugini Insurance in a variety of ways as follows: "4. Duty to Assist The Insureds agree to co-operate and assist the Underwriters (at the Underwriters' expense) in any investigations of the circumstances of the Explosions and the prosecution or defence of any claim by any other party arising out of the Explosions, and the Insureds shall use their reasonable best endeavours in the following: procuring the co-operation and assistance from any persons from whom the Underwriters or their representatives wish to obtain a statement, information, opinion, report, documents or investigative material relating to the conduct of the Facility and/or to the Explosions; providing all information, documents, opinion, investigations or other materials or intelligence with respect to the conduct of the Facility or to the Explosions; and arranging for the Underwriters and/or their representatives interviews with any persons within the control or influence of the Insureds (or any of them) to obtain statements, information, opinions, reports, documents, investigations or other intelligence with respect to the conduct of the Facility or to the Explosions. 5. Proceedings to Recover Losses It is acknowledged by the parties that the Joint Venturers have commenced proveedings (sic) in the Supreme Court of New South Wales against Dyno ... claiming damages for the losses suffered by the Joint Venturers including losses paid out by the Underwriters to the Insureds under the Policy, including the consideration for this release ("the Subrogated Claim") and for other losses suffered by the insured's ("the Other Claim"). It is further noted that Dyno ... claims to be entitled to indemnity from Underwriters under section II of the Policy in respect of such liability. 6. The Insureds agree to permit the Subrogated Claim to be added and included in the proceedings for the other Claim upon the following conditions: (i) the Underwriters shall pay and be responsible for any additional costs reasonably incurred by the Insureds' solicitors occasioned by the addition and inclusion of the Subrogated Claim in the proceedings for the other Claim; (ii) the Underwriters' lawyers will be entitled to monitor the progress of such proceedings and for that purpose shall be entitled to such information as the Underwriters would be entitled to as an insurer subject to any rights or interest of the Insureds which may arise from the dispute as to the entitlement of Dyno ...; (iii) to avoid the potential for conflict of interest and/or duplication of costs, the Underwriters' lawyers shall wherever possible draft and/or provide any documents, correspondence or parts thereof relevant to the Subrogated Claim so that the Insureds' solicitors can include such documents, correspondence or parts thereof in their own conduct of the proceedings; (iv) the Insureds' solicitors shall from time to time render accounts to the Underwriters via the Underwriters' lawyers in a form which sets out: (b) the precise work performed or expenditure incurred with respect to such costs; (c) the rates and times with respect to each item of such work; and (d) the reason that such work is claimed from the Underwriters rather than from the Insureds;"

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131 Kearney J qualified that neat division in the State v Bisket Uranguae Pokia [1980] PNGLR 97 at 99, 100 by recognising that a post 1975 English decision reversing a pre Constitution English decision as erroneous law would gain recognition under the Constitution. Robin Stanley O'Regan QC (O'Regan QC) gave evidence of the law of Papua New Guinea. He held high qualifications to do so. After reviewing the above and other authorities on this subject, he expressed the following opinion: "It is clear from the above cases that decisions of the English courts decided after Independence in 1975 are not binding in Papua New Guinea. They do not form part of the body of common law and equity which applied in England at that time and which was then adopted in Papua New Guinea. Nor do decisions of the Australian Courts. However, there are two important ways in which such decisions may impair or destroy the authority of common law precedents thought to have been received in 1975. Firstly a decision post-1975 may as in Bisket Uranguae Pokia's case decide that what was thought to be the law in 1975 was not the law at all. Secondly the reasoning in post-1975 decisions in England and Australia may dispose a court in Papua New Guinea to decide that the doctrine embodied in earlier English cases and thought to be the law received in 1975 is so unjust, anomalous or inconsistent with the trend of modern authorities in other common law jurisdictions as to be considered inapplicable to the circumstances of Papua New Guinea and therefore no longer in force. As Miles J. suggested in Vian Guatal's case at p.244 the court would in that event hold that the discredited doctrine was not part of the underlying law and then formulate a new more appropriate rule for Papua New Guinea based on modern precedents in England, Australia and elsewhere. I have no doubt that now more than twenty years after Independence the judges of the superior courts in Papua New Guinea (the great majority of whom are Papua New Guineans) would find very unattractive the notion that they are obliged to follow a pre-1975 decision of a foreign court, even the House of Lords, long abandoned elsewhere. In those circumstances they would in my view apply the qualifications referred to in the preceding paragraph and hold either that the precedent was never good law or that it was inapplicable in Papua New Guinea and that a new doctrine should be developed in its place. In this task they would readily consult and if considered appropriate then apply post-1975 authorities from England, Australia and other common law jurisdictions. This is the approach Papua New Guinea courts are likely to take in considering foreign precedents including English precedents. It is to be noted that The Constitution provides in s.158(2) that "in interpreting the law the courts shall give paramount consideration to the dispensation of justice" and the term "law" is defined in Schedule 1 as including the underlying law."

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132 I think the principal point of relevance of those legal analyses lies in the view this Court should take of the applicability of the principles applied by the majority decision of the High Court of Australia in Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107. After referring to a decision of the Supreme Court of Canada on modifying the application of the privity of contract doctrine, O'Regan QC expressed the following opinion: "I think a court in Papua New Guinea would take account of all these developments in common law jurisdictions throughout the Commonwealth. It would in my view find the reasoning in Trident particularly persuasive and note the capacity of the strict rule of privity to work injustice by denying effect to the common intention of the contracting parties to benefit others. See especially the remarks of Mason C.J. and Wilson J. at pp. 121, 122 of their joint judgment. It would be very likely to hold that this rule, at least in the public liability insurance context, is not now applicable to the circumstances of Papua New Guinea and should not be applied. Instead acting under Schedule 2.3 to The Constitution it would fashion an appropriate rule for Papua New Guinea based upon the legislation and case law of other common law countries which have abrogated the privity rule or substantially mitigated its unjust and anomalous effects. As I stated in my Opinion concerning reception of the common law the Papua New Guinea courts do not slavishly follow pre-Independence decisions of the courts in England, even decisions of the House of Lords. They refer to precedents in other common law jurisdictions as well as England and apply those which in their view contains a formulation of the common law most appropriate for application in their country. The result of this in the instant case would be that the court would follow Trident and hold that (Dyno) as an "insured" under the policy would be entitled to enforce an indemnity."

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137 That passage to which I refer begins with a reference to the judgment of the Judicial Committee delivered by Lord Wilberforce in The New York Star and is in the following terms: "The judgment of the Judicial Committee was again given by Lord Wilberforce. In the course of his judgment, he stressed, at p. 143: "It may indeed be said that the significance of Satterthwaite's case lay not so much in the establishment of any new legal principle, as in the finding that in the normal situation involving the employment of stevedores by carriers, accepted principles enable and require the stevedore to enjoy the benefit of contractual provisions in the bill of lading." He continued, at p. 144: "Although, in each case, there will be room for evidence as to the precise relationship of carrier and stevedore and as to the practice at the relevant port, the decision does not support, and their Lordships would not encourage, a search for fine distinctions which would diminish the general applicability, in the light of established commercial practice, of the principle." Lord Wilberforce in particular expressed the Board's approval of the reasoned analysis of the relevant legal principles in the judgment of Barwick C.J., which in his opinion substantially agreed with, and indeed constituted a powerful reinforcement of, one of the two possible bases put forward in the Board's judgment in The Eurymedon [1975] A.C. 154. In his judgment in the court below (the High Court of Australia), Barwick C.J. saw no difficulty in finding that the carrier acted as the authorised agent of the stevedores in making an arrangement with the consignor for the protection of the stevedores: see [1979] 1 Lloyd's Rep. 298, 304-305. By later accepting the bill of lading the consignee became party to that arrangement. He could not read the clauses in the bill of lading as an unaccepted but acceptable offer by the consignor to the stevedores. However, the consignor and the stevedores were ad idem through the carrier's agency, upon the acceptance by the consignor of the bill of lading, as to the protection the stevedores should have in the event that they caused loss of or damage to the consignment. But that consensus lacked consideration. He continued, at p. 305: "To agree with another that, in the event that the other acts in a particular way, that other shall be entitled to stated protective provisions only needs performance by the doing of the specified act or acts to become a binding contract. ... The performance of the act or acts at the one moment satisfied the test for consideration and enacted the agreed terms." Such a contract Barwick C.J. was prepared, with some hesitation, to describe as a bilateral contract. Critique of the Eurymedon principle In The New York Star [1981] 1 W.L.R. 138, 144, Lord Wilberforce discouraged "a search for fine distinctions which would diminish the general applicability, in the light of established commercial practice, of the principle." He was there, of course, speaking of the application of the principle in the case of stevedores. It has however to be recognised that, so long as the principle continues to be understood to rest upon an enforceable contract as between the cargo owners and the stevedores entered into through the agency of the shipowner, it is inevitable that technical points of contract and agency law will continue to be invoked by cargo owners seeking to enforce tortious remedies against stevedores and others uninhibited by the exceptions and limitations in the relevant bill of lading contract. Indeed, in the present case their Lordships have seen such an exercise being legitimately undertaken by Mr. Aikens on behalf of the cargo owners. In this connection their Lordships wish to refer to the very helpful consideration of the principle in Palmer on Bailment , 2nd ed. (1991), at pp. 1610-1625, which reveals many of the problems which may arise, and refers to a number of cases, both in England and in Commonwealth countries, in which the courts have grappled with those problems. In some cases, notably but by no means exclusively in England, courts have felt impelled by the established principles of the law of contract or of agency to reject the application of the principle in the particular case before them. In others, courts have felt free to follow the lead of Lord Wilberforce in The Eurymedon [1975] A.C. 154, and of Lord Wilberforce and Barwick C.J. in The New York Star [1981] 1 W.L.R. 138; [1979] 1 Lloyd's Rep. 298, and so to discover the existence of a contract (nowadays a bilateral contract of the kind identified by Barwick C.J.) in circumstances in which lawyers of a previous generation would have been unwilling to do so. Nevertheless there can be no doubt of the commercial need of some such principle as this, and not only in cases concerned with stevedores; and the bold step taken by the Privy Council in The Eurymedon [1975] A.C. 154, and later developed in The New York Star [1981] 1 W.L.R. 138, has been widely welcomed. But it is legitimate to wonder whether that development is yet complete. Here their Lordships have in mind not only Lord Wilberforce's discouragement of fine distinctions, but also the fact that the law is now approaching the position where, provided that the bill of lading contract clearly provides that (for example) independent contractors such as stevedores are to have the benefit of exceptions and limitations contained in that contract, they will be able to enjoy the protection of those terms as against the cargo owners. This is because (1) the problem of consideration in these cases is regarded as having been solved on the basis that a bilateral agreement between the stevedores and the cargo owners, entered into through the agency of the shipowners, may, though itself unsupported by consideration, be rendered enforceable by consideration subsequently furnished by the stevedores in the form of performance of their duties as stevedores for the shipowners; (2) the problem of authority from the stevedores to the shipowners to contract on their behalf can, in the majority of cases, be solved by recourse to the principle of ratification; and (3) consignees of the cargo may be held to be bound on the principle in Brandt v. Liverpool, Brazil and River Plate Steam Navigation Co. Ltd. [1924] 1 K.B. 575. Though these solutions are now perceived to be generally effective for their purpose, their technical nature is all to apparent; and the time may well come when, in an appropriate case, it will fall to be considered whether the courts should take what may legitimately be perceived to be the final, and perhaps inevitable, step in this development, and recognise in these cases a fully-fledged exception to the doctrine of privity of contract, thus escaping from all the technicalities with which courts are now faced in English law. It is not far from their Lordships' minds that, if the English courts were minded to take that step, they would be following in the footsteps of the Supreme Court of Canada: see London Drugs Ltd. v. Kuehne & Nagel International Ltd. (1992) 97 D.L.R. (4th) 261 and, in a different context, the High Court of Australia: see Trident General Insurance Co. Ltd. v. McNiece Bros. Pty. Ltd. (1988) 165 C.L.R. 107. Their Lordships have given consideration to the question whether they should face up to this question in the present appeal. However, they have come to the conclusion that it would not be appropriate for them to do so, first, because they have not heard argument specifically directed towards this fundamental question, and second because, as will become clear in due course, they are satisfied that the appeal must in any event be dismissed." (at 662-665)

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141 In his opinion of 10 July 1998, Aikens QC offered the following expert evidence on English law: "15. The General Rule For over 100 years before 1975 there had been a "fundamental principle" of the English law of contract that only a party to a contract who had provided consideration could sue on it. The House of Lords confirmed the rule in Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd [1915] AC 847 . This basic rule has been reaffirmed subsequently ... Since 1975 there has been no change in the basic law, even though the House of Lords and the Privy Council have often commented on the problems that the "privity rule" creates and the artificial means that have been adopted by courts to circumvent it. (See: eg. Woodar Investments v Wimpey [1980] 1 WLR 277 at 291; 297 - 8 and 300 (HL); The Pioneer Container [1994] 2 AC 324 at 335 (PC) and most recently: The Mahkutai [1996] AC 650 (PC) at 664 - 5 per Lord Goff of Chieveley). 16. Evasion of the General Rule The English Courts have used a variety of methods to evade the " privity rule" . Two are relevant to the present case. The first method is the principle of agency; the second is the principle of the "trust" of a benefit for a third party. These mechanisms were recognised before 1975 and have been confirmed as legitimate (in appropriate circumstances) since then. 17. Agency: It is a well - established rule of English law that a person (the principal) may be made a party to a contract by another person (the agent) agreeing with the third party (the other party to the contract) that the principal should be bound to the contract. But there will be difficulties in applying agency principles when a contract is made in the first place between identified parties who are clearly principals (say A and B) and the question is whether other, unidentified parties, can adhere to the contract ... 18. There is a recognised agency mechanism in English law which enables another party to adhere to a contract that exists between two identified principals. The requirements were summarised by Lord Reid in a celebrated passage in his speech in Midland Silicones Ltd v Scruttons Ltd [1962] AC 446 at 474 . This analysis has been accepted and applied (or considered) by the Privy Council in several subsequent cases: New Zealand Shipping Co Ltd v AM Satterthwaite & Co Ltd ("The Eurymedon") [1975] AC 154; Port Jackson Stevedoring Pty Ltd v Salmond and Spraggon (Australia) Pty Ltd ("The New York Star") [1981] 1 WLR 138; "The Mahkutai" [1996] AC 650. 19. Those cases all involve attempts by persons who were not originally parties to a contract to take advantage of terms of the contract. In the first two cases they were stevedores who wished to have the benefit of exemption clauses in bills of lading. In the last the shipowner, who was not an original party to the bill of lading (which had been issued by the charterers of the ship), wished to take advantage of an Exclusive Jurisdiction Clause in the bill of lading. But this principle has also been evolved in the context of insurance contracts, particularly marine insurance. This is clear from a number of cases in the nineteenth century which culminate in the House of Lords decision of Boston Fruit Co v British & Foreign Marine Insurance Co [1906] A C 336 . The correctness of this decision has never been doubted and it was followed recently in the Court of Appeal (in a case concerning a Shipbuilders All Risks type policy) in Stone Vickers Ltd v Appledore Ferguson Shipbuilders Ltd [1992] 2 Lloyd's Rep 578; see particularly at 584 . The principles were summarised by Colman J in the case which is regarded in England as the leading modern authority on the question of whether a person may claim to be a co - assured under a policy in which it is clear that unidentified persons might be regarded as co - assured: National Oilwell (UK) Ltd v Davy Offshore Ltd [1993] 2 Lloyd's Rep 582; see the summary at 596 - 7 . 20. There are four requirements (in English law) that must be fulfilled before it could be said that Dyno became a party to the contract in this way. (1) In circumstances where there is a contract between A and B, then a third person (C) could only become a party to that contract as well if A and B agree. This agreement would either have to be in the wording of the contract or from some other, further agreement between A and B ...

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(4) In principle, if a named insured does not initially have the authority of the potential adherent to bind it to the contract, then it could still become bound if the adherent ratifies the unauthorised act of the named Insured: Boston Fruit Co v British and Foreign Marine Insurance Co [1906]AC 336 . But an undisclosed principal (as opposed to an unnamed one) may not ratify the act of a previously unauthorised agent: Keighley Maxsted & Co v Durant [1901] AC 240 (House of Lords) . Furthermore, the Court of Appeal has now made it clear that if, on the wording of the policy, a person is unidentified or incapable of being identified as a potential principal at the time that the principal contract is concluded, then such a person cannot subsequently ratify the contract. This was held to be so, even if the person falls into a class of persons that is identified in the contract as being persons that might adhere to the contract. The reason given in that case was that the agency mechanism can only work if it is clear that the contract contemplates that it can be adhered to by identified parties or particular persons capable of identification. See: Stone Vickers Ltd v Appledore Ferguson Shipbuilders Ltd [1992] 2 Lloyd's Rep 578 especially at 584 - 5 per Parker LJ . In England if there is an issue about who can sue on a contract of insurance, then the court will consider extrinsic evidence apart from the policy itself to determine whether it was the intention of the principal insured that another party (who falls within the general definition of insureds) should be a party to the insurance. (This point was analysed extensively in the National Oilwells case (supra) at 593 - 6 ). (5) I should point out that in the National Oilwell (UK) case (supra) , Colman J stated ( at 597 ) that on the facts of that case it was unnecessary for him to deal with the position where: "at the time when the contract of insurance was entered into, the alleged co - assured could not be ascertained as a member of the class referred to in the policy, but only qualified for membership at a later stage or where at the time of the policy it was only intended to insure all persons in the class or who might in future qualify as members of the class, although it would have been impossible to identify the alleged co - assured as such. These are difficult points considered in Arnould, Marine Insurance 16 Ed. para 243 . I express no view on whether privity of contract could be established in such cases". The situation contemplated by Colman J was, in fact, the one that had to be considered by the Court of Appeal in the Stone Vickers case (supra) . In that case the Plaintiffs, Stone Vickers, were the suppliers of a propeller to an oceanographic research vessel that was being built by the Defendants, Appledore Ferguson Shipbuilders Ltd. The Defendants had declared the risk represented by the shipbuilding project under a Shipbuilders All Risks policy in April 1982. But Stone Vickers did not contract to supply the propeller until mid May 1982. The Court of Appeal found, as a fact, that at the time that the declaration was made in April 1982, Stone Vickers was not contemplated as a supplier. It also held, as a matter of construction of the policy documents, that it was not intended that: "all sub-contractors, unidentified and incapable of identification at the time [of the declaration] were automatically covered. It can only mean that declarations naming or properly describing sub - contractors would be accepted". [See page 584 right hand column and page 585 right hand column]. (6) The Court of Appeal expressly considered whether, on the facts they had found, Stone Vickers could invoke Lord Reid's analysis of the "agency mechanism" so as to become a party to the contract of insurance. It concluded that this was not possible because the first two requirements (considered in (1) to (3) above) were not fulfilled. It therefore found it unnecessary to consider further the issues of ratification or consideration. (It was conceded that Appledore did not have authority from Stone Vickers to contract on their behalf at the time that the risk was declared in April 1982). But it follows from the Court's reasoning that it considered ratification could only be invoked to utilise the "agency mechanism" if the contract of insurance made it clear that it intended to apply to the particular sub - contractor who was nominated after the declaration under the policy was made.

[156]

ON (A) CONSTRUCTION and/or COVERSION RISKS and/or BUILDERS INTEREST in respect of vessels ... and/or any interests as may be declared. Declarations hereunder ... to be agreed by Leading Lloyd's Underwriter and the Leading Company Underwriter and to be binding on all remaining Underwriters hereon. The second open cover was an AS open cover (Policy No. MN10025A) covering the same period as the BS open cover last mentioned, the immediately relevant terms of which were: ASSURED: This Policy insures Appledore Shipbuilders Ltd. and/or Appledore Shiprepairers Ltd. and/or British Shipbuilders Ltd. for their respective rights and interests and liabilities hereinafter referred to as the "Assured". Agreed include Associated and Subsidiary Companies and/or Sub-Contractors as additional Co-assured for their respective rights and interests. Without recourse against any Co-assured. It is further agreed that, in respect of additional (Co-)Assured named or referred to herein, this Policy will discharge any liability that it would bear if each of the Assured named or referred to herein was separately insured and in the event of any act or omission on the part of one Assured in respect of which Underwriters exercise their right to avoid the Policy the remaining Assured (including those named in the first paragraph of this Clause) for whom this Policy remains in full force shall not be prejudiced thereby. This policy also dealt inter alia with construction risks and incorporated certain sets of standard clauses to which I shall later return. On Apr. 7, 1982 A.S. made a declaration in respect of the construction of the Charles Darwin (also known as A.S. 138) which was duly presented to and accepted by underwriters. As so accepted it was in the following terms: BRITISH SHIPBUILDERS MARINE CONTRACT 1981 - 1983 APPLEDORE SHIPBUILDERS LIMITED POLICY NO. MN 10025 SECTION (A) - CONSTRUCTION Agreed accept: ASSURED APPLEDORE SHIPBUILDERS LIMITED and/or BRITISH SHIPBUILDERS NATURAL ENVIRONMENTAL RESEARCH COUNCIL and/or MORGAN GRENFELL LIMITED for their respective rights and interest. VESSEL No. AS 138 (Oceanographic Research Vessel) PERIOD To be advised (Commencement of erection March 1983- Delivery February 1984) ... As to the declaration the Judge observed: It was ... made and accepted by underwriters under Policy MN10025 in relation to Section A as contemplated by and provided for in the BS Marine Contract or Package Policy for 1981-83. The BS open cover, the AS policy MN10025A and the accepted declaration are the foundation of SV's claim to have been co-assured." (at 581-582)

[158]

149 In dealing with the question whether Stone Vickers was a co-assured, Parker LJ expressed the following reasons for concluding that it was not an insured under the AS policy as follows: "Were SV co-assured? This is, as I have said, the crucial question because, if they were not, the appeal must succeed. I approach this question, first, as a matter of construction. In Boston Fruit Company v. British and Foreign Marine Insurance Co., [1906] A.C. 336, the appellants had chartered a vessel from owners who had taken out an insurance on it - ... as well as in their own name as for and in the names of all and every other person or persons to whom the subject matter of this policy shall appertain in part or in all. The policy contained a collision clause. The appellants having had to pay damages to the owners of another vessel in respect of a collision with the insured vessel sought to recover from the insurers. The charter-party provided that the owners should pay for insurance on the vessel. It was held that the appellants were not entitled to sue on the policy. Dealing with the question of the intention of the owners at the time of effecting the policy Lord Macnaghten said at pp. 340-341: There is not the slightest evidence of intention on the part of the owners to protect the charterers by insurance unless such intention can be inferred from the mere fact of the existence of the policy taken in connection with the language of the charter ... it seems to me that the conclusion must be that when the owners proposed to insure, acting as they did without any communication with the charterers, the charterers cannot be regarded as persons within the contemplation of the proposal. It is clear from that case that for the purposes of ascertaining intention one may look not only at the policy documents but also at the contract between the assured and the alleged co-assured. In the present case (i) there was no communication with regard to insurance between AS and SV either prior to the BS main contract, the AS policy MN10025A, or the declaration expressly made under both those documents, or indeed at any material time thereafter; (ii) whatever may have been expected or intended as to SV becoming the sub-contractor for the propeller it was uncertain whether they would be such. They had not yet tendered at the time the declaration was agreed and accepted by underwriters; (iii) the main contract did not provide that SV should be sub-contractors for the propeller; (iv) the sub-contract when entered into did not provide for AS to insure in the joint names of themselves and SV; (v) SV insured for the benefit of AS with specific mention of the liability under the reciprocal indemnity clause. All these matters together with the guarantee and defects liability clause are in my judgment inconsistent with any intention on the part of AS to insure for the benefit of SV As to the insurance documents themselves: (i) BS Marine Contract 1981 - 1983 included, outside BS and their subsidiary, associated and member companies only such other parties required by contract. There was no contractual requirement to include SV (ii) Policy No. MN10025A names as assured only AS and/or Appledore Ship Repairs Ltd. and/or BS for their respective rights and interests. The words following: ... agreed include Associated and Subsidiary Companies and/or Sub-contractors as additional co-assured for their respective interests ... cannot in my judgment mean that all sub-contractors unidentified and incapable of identification at the time were automatically covered. It can only mean that declarations naming or properly describing sub-contractors would be accepted. (iii) The following provisions of MN10025A indicate that sub-contractors in general were not intended to be covered. (a) General Condition 4 Main Engines and/or other interests built by members of BS insured hereunder when attaching from delivery to Shipyard monthly rate only to apply. (b) Section I. Construction Risks. Clause 11: OUTSTANDING TO SUB-CONTRACTORS IF TOTAL LOSS: It is understood and agreed that where component parts scheduled for inclusion in the completed Vessel are being build by Sub-Contractors, then, in the event of a claim for Total Loss of the building at the main contractor's yard being settled, Underwriters will indemnify Sub-Contractors of component parts up to the value of these parts. (iv) The declaration of Apr. 7 named as assured only AS, BS, NERC and Morgan Grenfell Ltd. There was no mention of Appledore Ship Repairers Ltd., who were named in policy MN10025A or of any specific sub-contractor or class of sub-contractors. (v) Read as a whole, including the incorporated clauses, the policy was not intended to cover and did not cover losses or expenses arising from the rectification of design faults. In the light of all the above matters I conclude that as a matter of construction SV were not intended to have and did not therefore have the benefit of the AS insurance and were not co-assured." (at 584-585)

[171]

162 It then remains to be considered whether the PJV, really Niugini Insurance, may bring the subrogation claim against Dyno. Clearly, in my view, it may not. I think that result flows from the authorities cited by Aikens QC and, in particular, from Petrofina (UK) Ltd v Magnaload Ltd [1984] 1 QB 127 at 140. Lloyd J, in that case, expressed the principle as being based on a concept of circuity of action which his Honour considered in the following way: "That brings me to the last question: does the fact that the defendants are fully insured under the present policy defeat the insurer's right of subrogation? In the Commonwealth Construction Co. case and in the American cases there referred to, it was assumed that it followed automatically that the insurers could have no right of subrogation. In the Commonwealth Construction Co. case it was described as being a "basic principle." In one of the American cases it was said that the rule was too well established to require citation. In none of the cases is there any discussion as to the reason for the rule, except for a brief reference in the Commonwealth Construction Co. case to Simpson and Co. v. Thomson (1877) 3 App. Cas. 279 as follows, at p. 561: "The starting point of that submission is the basic principle that subrogation cannot be obtained against the insured himself. The classic example is, of course, to be found in S impson and Co. v. Thomson , 3 App.Cas. 279. In the case of true joint insurance, there is, of course, no problem; the interests of the joint insured are so inseparably connected that the several insureds are to be considered as one with the obvious result that subrogation is impossible. In the case of several insurance, if the different interests are pervasive and if each relates to the entire property, albeit from different angles, again there is no question that the several insureds must be regarded as one and that no subrogation is possible." The question whether there is a fundamental principle of the law of insurance that insurers can never sue one co-insured in the name of another came up in The Yasin [1979] 2 Lloyd's Rep. 45. In that case I said that I was not satisfied that there was any such fundamental principle as had been suggested: the reason for the rule seemed to me to rest on ordinary principles of circuity. This idea has since been adopted by the current editors of MacGillivray & Parkington on Insurance Law , 7th ed. (1981), para. 1214. In paragraph 1215 the editors say: "The crucial question, therefore, in any case involving joint assured is whether the liability of one co-assured to the other is one of the matters covered by the policy." Thus where a bailee is insured against liability to the bailor, and the bailor is insured under the same insurance, it is obvious that the insurer could not exercise a right of subrogation against the bailee: circuity would be a complete answer. But in The Yasin I went on to contrast the position where the bailee had insured, not his liability to the bailor, but the goods themselves. Now that the matter has been argued again, I have come to the conclusion that the contrast I was seeking to draw is fallacious. Whatever be the reason why an insurer cannot sue one co-insured in the name of another, and I am still inclined to think that the reason is circuity, it seems to me now that it must apply equally in every case of bailment, whether it is the goods which the bailee has insured, or his liability in respect of the goods. The same would also apply in the case of contractors and sub-contractors engaged on a common enterprise under a building or engineering contract. Even if I still had reservations of the kind which I tried to voice in The Yasin , I would feel obliged to bury them in the light of the decision of the Supreme Court of Canada in the Commonwealth Construction Co. case, a decision which was not cited in The Yasin and for the reference to which in the present case I am very grateful to counsel." (at 139-140)

[314]

248 I accept that the effect of non-disclosure by one co-assured is that stated by the English Court of Appeal in New Hampshire Insurance Co v MGN Ltd [1997] LRLR 24 at 57-58, where the following passage appears in the judgment of Staughton LJ: " Issue G: Whether, in the light of the answer to issue (F) above and on a true construction of the contracts of insurance and Chubb policies, any non-disclosure or misrepresentation, breach of the duty of the utmost good faith or breach of any other obligation by any one assured in itself: - (i) constitutes a non-disclosure, misrepresentation, breach of the duty of the utmost good faith or breach of such obligation by all or any other Assured: and/or (ii) in the event and to the extent that it entitles insurers to avoid the contracts of insurance and/or Chubb to avoid the Chubb Policies as against that Assured, also entitles Insurers to avoid the Contracts of Insurance and/or Chubb to avoid the Chubb Policies as against all or any other Assureds. In the light of our conclusion on issue F, the answer to this question is in our judgment, No. Technically one ought to enquire whether for each layer in each year there was one contract, or as many contracts as there were companies insured. And if the former, can a contract be avoided for non-disclosure as against one or some of the insured, but not against others? We feel that we are relieved from the need to answer those questions by the authority of the House of Lords, in the passage already quoted from P. Samuel & Co. Ltd. v. Dumas. That, it is true, was not a case of non-disclosure but of wilful misconduct by one of two persons insured. But in our opinion the principle that the innocent party can still recover if it is a separate insurance must equally apply. Mr. Justice Potter had a proviso or caveat in answering this question. He felt that there were likely to be situations "whereby an officer of Company A, as well as exercising functions in Company B, would also have had knowledge of the affairs of Company C and/or the actions or intentions of its officers, of such a kind that he would have been under parallel duties of disclosure and/or obligations of good faith in respect of all three". We were not addressed on that point, and the Judge's observations on it should stand. Issue H: Whether, in the light of the answer to issue (F) above and on a true construction of the Contracts of Insurance and the Chubb Policies, a loss: - (i) resulting from a transfer of assets from one Assured to another Assured; is capable of constituting a loss falling within the terms of the Contracts of Insurance and/or the Chubb Policies. [Part (ii) of the question was withdrawn]. If by a peril insured against one of the companies insured is deprived of money, securities or other property, which is received by another of the companies insured, that is in our judgment a loss covered by the policy. The answer flows from the view that we have reached on issue F."

[322]

256 I think it is common ground between the parties that the test to be applied in the construction of such a clause is that laid down by the English Court of Appeal in Fraser v BN Furman (Productions) Ltd [1967] 1 WLR 898 at 905-6 where Diplock LJ commented on the proper construction of that clause in the following terms: " "Reasonable" does not mean reasonable as between the employer and the employee. It means reasonable as between the insured and the insurer having regard to the commercial purpose of the contract, which is inter alia to indemnify the insured against liability for his (the insured's) personal negligence. That, too, is established by the case which I have cited. Obviously, the condition cannot mean that the insured must take measures to avert dangers which he does not himself foresee, although the hypothetical reasonably careful employer would foresee them. That would be repugnant to the commercial purpose of the contract, for failure to foresee dangers is one of the commonest grounds of liability in negligence. What, in my view, is "reasonable" as between the insured and the insurer, without being repugnant to the commercial object of the contract, is that the insured should not deliberately court a danger, the existence of which he recognises , by refraining from taking any measures to avert it. Equally, the condition cannot mean that, where the insured recognises that there is a danger, the measures which he takes to avert it must be such as the hypothetical reasonable employer, exercising due care and observing all the relevant provisions of the Factories Act, 1961, would take. That, too, would be repugnant to the commercial purpose of the contract, for failure to take such measures is another ground of liability in negligence for breach of statutory duty. What, in my judgment, is reasonable as between the insured and the insurer, without being repugnant to the commercial purpose of the contract, is that the insured, where he does recognise a danger should not deliberately court it by taking measures which he himself knows are inadequate to avert it . In other words, it is not enough that the employer's omission to take any particular precautions to avoid accidents should be negligent; it must be at least reckless, that is to say, made with actual recognition by the insured himself that a danger exists, and not caring whether or not it is averted . The purpose of the condition is to ensure that the insured will not, because he is covered against loss by the policy refrain from taking precautions which he knows ought to be taken ." (Emphasis added.)

[430]

340 During re-examination he offered the following expert evidence, which I think is consistent with my earlier findings on the cause of the explosions and puts into context Price's evidence of testing to replicate an explosion of emulite: "<RE-EXAMINATION BY MR FORSTER : MR FORSTER: Q. Mr Cowper, at one stage in your cross-examination by my learned friend, you were asked something to the effect of whether the introduction of heat may have some safety factor in the manufacturing process? A. Yes Q. I think you said in answer to one question something to the effect of "there is a little bit more to it than that"? A. Yes. Q. Do you remember saying that? A. Yes. Q. Could you explain to the court what you wanted to add to the answer you gave at the time? A. Well, certainly a cold emulsion is more difficult to pump than a hot emulsion. When you go to apply heat to an emulsion, one of the problems is that the emulsion is a very poor conductor of heat, so if your method of applying heat is such that you can get a high temperature localised heating, you are introducing a hazard that way, so you need to introduce heat in such a way that there is an inbuilt maximum temperature that can be achieved by that heating method. You have to bear in mind that it is very difficult to agitate and it is quite possible that where you are applying the heat, the temperature is quite different to where you are measuring the temperature of the matrix. Q. If that uniformity of heat is not maintained what consequences might follow? A. If you overheat, the matrix can start to decompose. If you, say, pump into a dead head, nothing is going through the pump, the hotter the matrix the less time you have to switch the pump off. Q. Is there anything else, or is that the answer to the question? A. That is the answer to the question. Q. Thank you. You were also asked some questions -- HIS HONOUR: Q. Just to understand; what is the consequence of it (sic) decomposition? A. Under confinement, if you keep putting the heat in, you generate gases and something will go. It will either explode, blow bits of pipe everywhere or worst case it could detonate, which is more violent." (T 1601.23-1602.22)

[452]

360 I think it is a safe conclusion from Hood's evidence that it was not within the foreseeable program of the mining operation and relocation of the explosives facility on safety grounds would have been required. Garson was cross-examined on this subject. I think the effect of that evidence lends further support to the conclusion to be drawn from the evidence of Hood. Garson's evidence was as follows: "MR FORSTER: Q. During the period 1993/1994 were you contemplating that the Porgera plant would need to be moved from where it was then sited? A. No, sir. Q. Were you aware of any suggestion that the mine move - that the mine might move closer to the plant requiring its relocation? A. Yes, sir. Q. Was it anticipated that it would happen in the next year or so? A. It was a revolving target, sir. I don't have a specific date. Q. Was there an expectation, at least on your part, that it would be very likely that the plant would have to move? A. Sir, things change in mines all the time. I had no idea whether or not 100 per cent of that site would be moved or not. Q. I am not asking for a 100 per cent assurance. I was merely asking for your belief as to whether you anticipated it was likely to happen? A. It could have happened, sir, and it could not have happened. That wasn't in my control. He mentioned that it possibly could move. Q. Did you give any thought to what would be involved, so far as Dyno was concerned, in moving the site? A. No, sir. Q. Did you give some thought as to whether a new plant would be required to be shipped to Porgera for that purpose? A. I didn't give it any thought, sir. Q. But you were the Operations Manager International, were you not? A. Sir, mines change their plans on numerous times before they have a final plan. Even when a final plan comes about it changes. So I didn't make any attempts to do any design change or make any modifications or do anything for additional plants because I didn't have anything to say when or what the time line was to move the plant. Q. Being a person with significant responsibilities, do you tell the court that you did not even give any thought to how such a move might be accomplished? A. I didn't give it any serious thought, let's put it that way. Q. Was it your usual practice to give matters that might or might not happen - I withdraw that. In your view it was certainly more than a vague possibility that it may be necessary to move the plant; would you agree with that? A. It was a vague possibility that we may have to move the plant. Q. I suggest it was more than a vague possibility? A. No, sir." (T633.18-T634.29)

[462]

Q. You refer in that sentence in paragraph 11 to the US dollar revenue stream; do you see that? A. Yes, I do. All I am trying to say there is that, again, it is normal practice, and my understanding is that all the partners were physically selling their gold for US dollar proceeds. ... Q. MR DOUGLAS: Q. Assuming a delay of 6.8 days in the milling of ore at the mine, you would not wish to suggest that that in turn would lead to a 6.8 day delay in the sale of credited gold and silver and the receipt of US dollars for that sale? A. I guess my statement is merely pointing out that if there is a disruption to production then obviously there would be a delay in making a physical sale because you can only sell physically once that production is received by each partner. So if the delay was 6.8 days, then there would be a delay in receiving that production, and therefore a delay in making the sale. Q. If the strategy of the individual joint venture partner was to retain the physical gold, that conclusion would not follow? A. Well, if you had a strategy of holding onto gold, then the delay would be irrelevant. Q. Secondly, if in fact the gold had already been sold forward in the way in which we discussed earlier in your evidence, that delay would also be irrelevant. A. In terms of selling forward you would still make any gain, or suffer any loss of those hedge contracts which would need to be closed out, but the underlying physical production would still be subject to that delay. Q. But in relation to -- A. You would be able to - I am sorry? Q. I interrupted you. You complete your answer. A. I was just going to reiterate that in terms of the forward sale you could still settle or close out that contract by buying gold physically on the market, so the gain or loss, whichever way your particular forward sale worked out, would still be enjoyed or suffered by the partner, but it would still have missed out or been delayed in terms of the physical underlying sale." (T409.10-T409.18...T409.25-T409.35... T409.51-58...T410.16-58)

[477]

381 Weldon's estimate was based upon mill throughput figures fourteen days either side of the explosions. For this he has been criticised by the defendants' experts. One of the principal criticisms, is the apparently inconsistent databases that Weldon adopted for his various analyses. I think it is a useful introduction to the competing contentions of the experts to identify those apparent inconsistencies and to examine the reliability of Weldon's approach in the light of the evidence of the defendants' experts. That part of the defendants case was led by the following: Murray Leslie Rowley (Rowley) a chartered accountant and loss assessor with GAB Robins Australia Pty Ltd (GAB Robins) with considerable experience, thirty years in the adjusting of claims with an international flavour in the "mining and downstream processing industries." While I had reason to prefer the analysis of Weldon in most respects, I found Rowley to be an expert with considerable practical experience and whose evidence was of assistance in evaluating the business interruption claim. Like Weldon his skill and experience extended to the ability to pitch his evidence at a level designed to attract the Court's attention. Gregory Charles Kerr (Kerr) a chartered accountant and partner in the firm of Kerr & Holland, who specialised in commercial insurance, including claims for business interruption and material damage losses. His experience, while less orientated to mining operations than either Weldon or Rowley, has been extensive. I found him to be extremely able and informed, although inclined to be insurer orientated in his thinking processes: Merrick Kingsbury Hall (Hall), a mining engineer and managing director of MineConsult, mine management consultants. His expertise, in my assessment, consisted in the ability to carry out computer modelling of a mining operation. He christened his modelling technique the "Mining Replication Schedule Process" and described it as follows: "10.2.1 A Mining Replication Schedule involves the following tasks: a) defining an accurate picture of the open cut mine, underground mine, stockpile, mill and any other key areas just prior to the Incident b) collecting site data on all aspects that would have influence the mining operation in August 1994 and surrounding months. This includes, but is by no means limited to: i) geological model sections and plans ii) geotechnical data on each rock type iii) drill stock reserves by the various ore and waste categories iv) blast stock reserves by the various ore and waste categories v) historical performance of all major and support equipment vi) detailed stage plans of open cut and underground operations vii) predicted excavator productivity per ore category viii) haul route profiles per ore category and waste xi) haul route characteristics such as rolling resistance, behaviour when wet x) equipment performance parameters such as bucket fill factors and pass configuration, truck queuing, truck presentation xi) waste dump stope schedules xiii) underground stope schedules xiv) ground support requirements xv) detailed milling rates per ore type xvi) mill performance parameters, eg, gold recovery xvii) stockpile layout plans xviii) climate conditions ... c) Calibrating scheduling parameters by creating a detailed schedule of events prior to the Incident and comparing it to actual results to calibrate all parameters to reflect the Porgera operation. d) Preparing the detailed Mining Replication Schedule, including a detailed examination of material movements from the open cut and underground mines for August 1994 and surrounding months assuming the Incident had not taken place. The material is also scheduled through the mill to determine gold production and revenues. e) Comparing the Mining Replication Schedule with actual mine performance to assess the impact of the Incident." (Exhibit D1-43)

[482]

Q. I suspect it doesn't. A. Possibly correct. Q. You made a comment, I made some observations, but I have some very, very significant difficulties in equating this interruption with an unscheduled interruption to a project where you have several people killed in horrendous circumstances, and in a circumstance that I would have expected would have undermined the morale of people who had to work with explosives. So much so that we are being told that people left the site, didn't want to work on it any further. So it seems to me that any realistic appraisal of the loss has to face up to the reality of the devastated site and I think involving some little time to get back into gear. Do you have any comment on that? A. I would agree with you. I would agree with you on the aspect of there would be a significant effect on the operations. Q. Are you aware that they were collecting body pieces from all over the site? A. Yes, I was aware. Q. In days to follow? A. Yes. Q. It just seems to me to be running in the face of reality to think that people put on their helmets and picked up their picks and started digging vigorously? A. Yes. I believe that the comments in the MineConsult report, that we are not promoting that there was no effect on production or no loss of production. I suppose the main drift of our comments was along the lines of commenting on a more reasonable estimate of the projection. We tended not to delve into the detail day-to-day effect, if you like. Perhaps my comment previous to you interceding was implying at Porgera that they may have got back to work the next shift or so. I suppose I was talking in general terms. But, notwithstanding that, it is rather site specific, and your comment on the indigenous peoples I am sure is correct. But I think that at another site it may well have been that some of the expatriates, or the Australians, may have got back into work faster than other places. I can't comment. I don't believe that's affected our estimate of a reasonable projection." (T 1361.17-1362.49) 385 As may appear from that transcript I was unimpressed with that expression of opinion. I was no more impressed with Hall's opinion evidence that the lost underground mining production could have been overcome by the PJV within two years of the explosions. He gave evidence of the PJV's capacity for "catch-up" as follows: "MR DOUGLAS: Q. There has been considerable evidence also in relation to the possibility of catching up underground production as prior to December 1997, when the mine was exhausted as compared to open pit production. I wonder if you could just tell us - give us your opinion as to the differences which exist between underground and open pit production in that regard, and the ability to catch up underground production on a site such as Porgera? A. Yes. If I may firstly just briefly pick up a little bit more on the open cut. There is one difference perhaps with the underground that is particularly relevant to the open cut on the possibility of catch-up or make-up, is that we have heard various bits of evidence about the Porgera Mine operating 365 days a year, 24 hours a day with a set fleet of mining plant, if you like, and there was absolutely no possibility of make-up. In theory, I can abide by that. In practice, I have some problems, because the truck fleet, it is my understanding, and I could be corrected on this, but the truck fleet at Porgera typically runs at 75 to 80 per cent availability, which is once again, I believe, it is an all up utilisation factor which is of 365 days times 24 hours a day less lunch breaks. You have 75 to 80 per cent of that time when the truck is available to do useful work. Similarly with the excavators, about 80 to 85 per cent. If we are talking about 19,000 tonnes of high grade ore catch-up, and Mr Douglas established with Mr Hood that that related to about 10 hours of an excavator productivity, one way that I see that we can catch up is that on the routine scheduled service breaks, if you like, of the excavator, which is 250, 500, 1,000 type service breaks where you might put in 40 man-hours on one of these excavators. Then one area I can see potential is that you could pay some of your maintenance personnel overtime and maybe you could complete that regular 1,000 hour service in 30 hours rather than 40 hours. Suddenly you have picked up 10 hours.

[490]

389 Although the selection of source records for the calculation of lost mill throughput involves a question of degree, Rowley's calculation of lost throughput suffers from distortions as, I think, was revealed in his cross-examination as follows: "[MR JACKMAN:] Q. Can I ask you to turn to page 12. I am focusing now on the first paragraph on page 12. One of the key integers in your estimate of shortfall tonnage of 36,000-odd tonnes was an estimate of average daily throughput of 8,760 tonnes; is that correct? A. Correct. Q. And that is fundamental to calculating lost mill throughput of 36,232 tonnes? A. Correct. Q. I want you to take the figure of 8,760 tonnes per day and apply it to the 4.83 days of actual shutdown of the mill. That, I suggest to you, would lead to a loss of 42,310 tonnes in the shutdown period. A. Correct. Q. That is 6,078 tonnes higher than your estimated loss of 36,232 tonnes? A. Yes, it is. Q. That shows, doesn't it, that you regard there as having been a - I withdraw that. Implicit in that analysis is the proposition that there was a catch-up of lost production of 6,078 tonnes in the remainder of August after the mill resumed operation? A. Yes. My methodology works on the basis that I look at the whole of the August period not just the 4.8 days. Q. Yes, but it is implicit in your conclusion, isn't it, that there was a catch-up of lost production of 6,078 tonnes in the remainder of August after the mill resumed operation? A. That is what the figures show." (T1477.52-1478.31) 390 The justification for this apparent anomaly of improved post-explosions throughput was expressed in Rowley's evidence-in-chief as follows: "13. Our experience is that quite often immediately after resuming from a stoppage, milling rates tend to better so we are not surprised that this occurred with PJV. This is often due to checks and minor adjustments that are made during the opportunity provided by the stoppage and the psychological effect on employees that due to an earlier stoppage, post production needs to be maximised as far as possible. This is consistent with the post resumption benefits identified in the MineConsult report in their paragraph 4.2.10." (Exhibit D2-17)

[491]

391 Rowley's views on this matter were explored in cross-examination as follows: "Q. You accept, don't you, tonnes not processed through the mill during interruption can't be recouped? A. In the short-term there are much higher levels of - and this is the nub of this whole measurement consideration - you need to look at a longer term period, and 4.8 days could be totally unfair to PJV. If there's a ramp-up requirement in the next few days, they are not getting the normal tonnes they would have, so it is a double-sided coin, looking beyond the immediate shutdown period. Q. Your opinion as to a recoupment of this lost 6,078 tonnes, even on your estimate, in the balance of August is based on the assumption, is it, that the mill ran more efficiently than normal after the interruption; do you agree with that? A. Well, it certainly appeared on the numbers to have run very well, yes, I agree. Q. It is based on the assumption the psychological effect of the explosion was beneficial? A. For the reasons that I've stated there were improvements achieved. Q. And if those assumptions are wrong, then it would follow, wouldn't it, that your method of calculating lost mill throughput has underestimated the lost mill throughput by 6,078 tonnes; do you agree? A. Not necessarily. Q. Well, why do you say that? A. Because I am looking at a long-term average in terms of the base, and I've always accepted the fact that the numbers appeared to be higher immediately after. But most claims that I am involved with, that is a fairly usual phenomena. Q. You have thought of number of a different ways of calculating this. I think the latest version, correct me if I am wrong, is on the question of lost mill throughput is that contained in D2-18, entitled "Comments on determination of a fair base or yardstick for comparing with the actual achievement within the disrupted period"? A. It is. Q. In that document you no longer have an average daily mill throughput of 8,760, what you have is an average of 8,716; is that right? A. That is the way the numbers calculate. Q. If you multiply 8,716 by 4.83 you get 42,098 tonnes? A. Yes. Q. Take away what you - you now say, don't you, there was lost mill throughput of 34,860 tonnes, don't you. A. Yes. Q. Leading to a balance of a difference of 7,238 tonnes? A. I accept your maths. Q. And implicit in that calculation is the assumption, isn't it, 7,238 tonnes of lost production during the period of interruption must have been caught up in the remainder of August after the mill resumed operation; correct? A. The same argument applies as to the earlier figure. Q. If the assumptions to which you earlier referred as to the mill operating more efficiently and the psychological effect being beneficial aren't valid, then you have underestimated the lost mill throughput by that method, haven't you? A. In your words." (T1481.17-1482.40) 392 I have earlier expressed my view about the applicability of those considerations to the magnitude of the devastation and on-going restoration and clean-up that was associated with the explosions and their aftermath.

[494]

Q. And you have no problem with that. But it depends, doesn't it, upon the validity of your assumption that the underground mine was able to catch-up 7,127 tonnes between 15 and 31 August, doesn't it? A. That is how the numbers have fallen out of the figures. Q. You agree with me, I think? A. Subject to the limitation that I just expressed. Q. Yes. And do you accept Mr Hood is in a far better position than you to say whether it was possible to catch up tonnage production in the underground mine in any period but specifically including 15 to 31 August? A. I have the greatest respect for Mr Hood as a mining engineer but I have to deal with what the figures tell me, and the figures are showing that is what happened in the month of August. Whether it is catch-up in your terms of just the way the tonnes rolled through, I have no difficulty with it. Q. Do you agree with my proposition? A. Subject to the conditions I have made. Q. Just to complete this, can we have a look at the new figures you have got for lost underground production? A. Yes. Q. They are set out in exhibit D2-18 entitled "Comments on determination of a fair base or yardstick et cetera". And in paragraph 13 you say "Underground mine tonnes per day"? A. Yes. Q. 4,217? A. Correct. Q. If you multiply 4,217 by 12.59 you get 53,092. Do you accept that? A. Give me the figures again. Q. 4,217 times 12.59 days lost? A. Yes. Q. Equals 53,092 tonnes? A. Yes. Q. If one takes away the actual production from the underground in that period of 24,872 tonnes? A. Yes. Q. You get lost production of 28,220 tonnes? A. You do. Q. You now say in attachment A, or annexure A to D2-18, that you estimate 21,283 tonnes were lost from the underground in that period? A. I do. Q. And you are implicitly assuming that 6, 937 tonnes were caught up in the period 15 to 31 August; correct? A. Those are your words. I believe that using my methodology of looking at the whole month of August, rather than focussing on the 12.59 days, my basis is fair and reasonable. This is a system that I use every week of my life. I run around the world measuring these claims and the basis - I am leaving tomorrow to go to Kennecott Copper, in Utah, and I will be using exactly those bases. Q. And your clients in those cases are insurers, aren't they? A. In this case, yes, I am working for insurers. I am not always working for insurers. Q. Usually? A. Usually, yes."

[505]

403 Hall was cross-examined on those passages as follows: "[MR JACKMAN] Q. Go, if you would, please, to paragraph 6.2.2(a). Do you agree that they involve matters as to the detailed day-to-day effect of the incident in August 1994? A. Yes. Q. You haven't delved into the matters concerning the day-to-day incident in August 1994, have you? A. No. Q. They also concern matters that are specific to the site, don't they? A. Yes. Q. You haven't looked at matters specific to the site other than what you read in the mine manager's reports; isn't that right? A. Yes. And some additional information that was provided to us? Q. What was that additional information? A. I believe that was provided in the source of material document that was handed around this morning. Q. I see. You recognise, don't you, that Mr Hood is in a much better position than you to say whether there was a benefit during the incident from undertaking the kinds of tasks which are set out in 6.2.2(a)? A. No, I am not prepared to accept that statement. Q. In light of your answers, these are matters concerned with detailed day-to-day effects of the incident, and matters concerning questions which are specific to the site. Why is it that you don't recognise that Mr Hood is in a far better position than you to comment on whether those matters had a beneficial effect on production after the incident? A. The basis for that opinion is that I have some concern in reconciling what is actually planned and forecast at the Porgera Mine, in order to maximise rate of return, as being stated as the driver at the Porgera Mine, with what actually happens at the Porgera Mine. And the two, as indicated I believe in one of my graphs, do not coincide very often, and would imply that perhaps there were opportunities for optimising some of these areas that I refer to in 6.2.2(a). Perhaps in the optimisation of those areas, albeit they are very site specific areas, there could have been more focus applied in those areas. Q. Now you have used the word "perhaps" twice in that answer. All you are doing - is this right - all you are doing is saying, " Here are some possibilities which might have arisen or might not"? A. Yes. Yes. Q. Could the witness please be shown -- HIS HONOUR: Q. Before you leave that, does that explain - looking at paragraph 5.2.1(d), in that paragraph you express the view that the September figures may reflect the catch-up culture; do you see that? A. Yes, I see that. Q. Then in 6.2.2(a) you refer to what seems to be a fact that the Lamb approach does not account for significant catch-up mining in September. You seem to have gone from a possibility to a statement of fact. A. I am just trying to follow. In figure 5.2.1(d) I not only talk about catch-up culture which on hearing the evidence of Mr Hood appeared to not necessarily be the case. I also refer to support activities undertaken in August in preparation of subsequent ore production. I believe I touched on that in relation to the waste mining aspects. I am not quite following where you say I am going from an opinion to a fact.

[522]

415 Based upon that approach Rowley carried out the following comparisons of proportions of open pit direct feed to stockpile feed for the four months pre-August and the four months post August: "...for the four months immediately prior to August 1994...the low grade ore from stockpiles represented 14.7% of the total feed. In the same period the Open Pit Direct feed represented 38.4% ... ...for the month of August...the percentage of low grade stockpile sourced ore has increased substantially to 38.4% ... Conversely the Open Pit Direct ore has fallen to only 13.6% ... ...for the four post August months...the stockpiled ore [feed]...has fallen to 7.0% whilst...the Open Pit Direct ore...increased to 43.5% ." He offered the opinion that "this is not only related to, but in fact a direct consequence of, the over-allocation of feed from stockpiles in August 1994." In conclusion Rowley opined that: "In our opinion the above statistics are not the result of coincidence or aberration and they justify our conclusion that the only Open pit claim gold loss that can be considered relates to the permanent failure to mill 19,055 tonnes of open pit ore. There is no additional los (sic) for loss of grade." (Exhibit D2 -19) 416 There may have been an element of validity in Rowley's analysis were it not for the evidence of Hood whom I regarded as a frank witness. He was cross-examined on Rowley's figures of open pit ore feed as follows: "[MR McDOUGALL]...Q. In August 1994, accepting Mr Weldon's projection of what would have gone to the mill but for the explosion, open pit direct feed would have contributed 36 per cent. A. Okay. Q. In the following month, September, open pit direct feed actually contributed 43 per cent. In October 44 per cent. In November 32 per cent. And in December 53 per cent. A. Yes. Q. If you accept those figures, does that suggest to you that PJV management was making a conscious attempt in the four months following the explosion to maximise open pit direct feed to the mill? A. We would always try to maximise open pit direct feed to the mill providing it didn't displace higher grade underground feed. Q. I want you to accept also that the average of the total tonnes fed through the mills for the month of September, October, November, December 1994 was some 9,000 tonnes less than Mr Weldon's projected figure for August, but that the open pit direct feed tonnages for each of those months was some 16,000 tonnes more than the projected figure for August. A. Yes. Q. Would you agree with me again - I withdraw the word "again" - would you agree with me that that indicates a conscious attempt on the part of the mine's management to make up in September to December the open pit direct feed that was lost in August? A. No. Q. You say, do you, assuming those figures are correct, that's simply what would have happened anyway? A. I can't picture all the figures in my mind. We would endeavour each day at the operation to maximise the gold produced from the operation. So we would do whatever is appropriate to maximise gold production. If that means higher or lower proportions of open pit direct feed or stockpile feed, then so be it. It's a function of endeavouring to maximise our gold production each day. Q. What I want to suggest to you is that the ore production that I have put to you, assuming that the figures are correct, reflects in part the preparatory work that was able to be carried out in August whilst the mill was closed down and the underground and open pit mines were closed down? A. I don't think that any preparatory work that was carried out during those 20 days, or whatever, would follow through for several months. It's more a function of the stage 1 pit getting further into the ore body, I would think."

[545]

438 Clearly, in my view, there is an element of overlap in the material damage recovery and the business interruption claim. The extent of that overlap is not capable of a precise definition. No detailed evaluation was undertaken by any party. That is not to say that the material damage claim was not meticulously recorded by the PJV, including its particular overhead component. Clearly, not all overheads in the period of overlap in the two claims would be recouped under the material damage claim. Kerr's approach acknowledged that the material did not enable him "to form an accurate opinion as to the percentage of... wages costs [in the material damage recovery] which were fixed and which were abnormal." He "assumed that all of the overhead [recovered under the material damages claim] was a fixed cost." Rowley adopted a more conciliatory approach in his evidence in chief expressing the opinion that the labour component and half the overhead component of the material damage recovery should be allowed as a credit in the business interruption loss. Rowley's reason for adjusting the overhead component credit to half the amount recovered in the material damage claim was intended to cover both unrecovered labour and overhead costs of the PJV as appeared from the following cross-examination: "Q. Now, once production resumes after the period of shutdown I am asking you to assume that if those people and other overheads had not been used to repair or replace damaged items then they would have been fully occupied in their day-to-day work in the productive business of the mine, do you understand that? A. Yes. I understand very well. Q. And that is a reasonable assumption, isn't it? A. I understand the assumption. Q. It is a reasonable assumption, isn't it, or don't you know? A. All I know is that after these sort of events people have to live with the greater workload, and I know that the insured, that is the PJV, bill their time within their material damage claim in recovery. The flow-through effect in terms of monetary terms on the business is not in any way recorded, and it is impossible to measure it.

[601]

487 I have some difficulty in applying New South Wales law in the circumstances of this case where the effect of Niugini Insurance's submission would be to avoid cl 7.5 as a clause struck down by the provisions of s 45 of the Insurance Contracts Act 1984 (Cth). The difficulty I have lies in the striking down of a clause in a Norwegian contract of insurance, which would be enforceable under Norwegian law, in a claim for contribution by an insurer under a contract of insurance of which the proper law is that of Papua New Guinea. While there has been no attempt to prove the law of contribution in Papua New Guinea, I think there is something bizarre in applying s 45 to the Vesta policy in those circumstances and where the clear intention of the parties under Norwegian law was to provide subsidiary insurance to a group of corporations trading internationally. In my view, recognition should be given to the enforceability of such a clause under Norwegian law which it is conceded is the proper law of the contract. 488 GAC's policy contained the following endorsement: "It is understood and agreed that the following Papua New Guinea Jurisdiction Endorsement is attached to and forms part of this policy, replacing and cancelling any other jurisdiction clause contained within the policy. PAPUA NEW GUINEA JURISDICTION ENDORSEMENT "The indemnity expressed in this policy shall not apply to or include compensation for damages in respect of judgement (sic) not in the first instance delivered by or obtained from a Court of competent jurisdiction within Papua New Guinea or costs and expenses of litigation recovered by any claimant from the insured which are not included in or recoverable in Papua New Guinea"." 489 It was submitted on behalf of GAC that the endorsement had the effect of limiting GAC's liability to damages under a judgment in Papua New Guinea obtained at first instance. I do not think that is the true construction of the clause, which, in any event, is not free from ambiguity.

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