Weir Services Australia Pty Limited v AXA Corporate Solutions Assurance

Supreme Court of NSW|2017-03-17|Before: Hammerschlag J, Michael J

These Proceedings

On 27 August 2015, AXA commenced proceedings in England seeking declaratory relief in relation to the Global Policy. Process was, however, only served on Weir in Australia on 10 March 2016 pursuant to leave granted by the English Court.
On 8 March 2016, Weir commenced these proceedings by suing out of this Court a Summons and Commercial List Statement.
AXA then moved the English Court for an anti-suit injunction and Weir moved that Court to set aside the order granting permission to AXA to serve the English proceedings on Weir in Australia.
On 21 April 2016, Mr Justice Blair of the Queen's Bench Division declined to grant the anti-suit injunction: AXA Corporate Solutions Assurance S.A. v Weir Services Australia Pty Limited [2016] EWHC 904 (Comm).
On 13 May 2016, AXA filed a Motion in this Court for a stay on forum non conveniens grounds. That application was adjourned on 1 June 2016 with liberty to apply and AXA was ordered to file a Commercial List Response, without prejudice to its application. The application was never revived.
On 16 November 2016, Ball J ordered that all issues in the proceedings be heard and determined separately from, and in advance of, the issue of quantum of defence costs which Weir may be able to recover from AXA if it succeeds in demonstrating an entitlement to recover any sum in respect of defence costs.
The trial commenced on 1 February 2017 and occupied a little over six hearing days.
Mr R.A. Dick SC together with P. Flynn and A. O'Brien of counsel appeared for Weir.
Mr S.R. Donaldson SC together with Mr J. Hough QC (of the English Bar - who appeared with leave) and Mr M.R. Elliott of counsel appeared for AXA.
A significant amount of evidence was adduced. The Court was provided with a "Core Court Book" derived from a more extensive electronic court book. At the conclusion of the trial, steps were taken to ensure that only documents to which reference had been made in evidence (including in witness statements) were contained in it. It runs to five full lever-arch folders. I have recounted only those aspects of the evidence necessary to enable an understanding of why I have reached the conclusions I have reached.

The Collar

Weir relies on cl 2.1 of the Australian Policy.
There is no issue that any Occurrence which may be found, happened during the period of insurance and in connection with Weir's business.
Weir argues that the fracturing of the circumferential weld and consequential failure of the SAG Mill was an Occurrence within the definition in cl 5 of the Australian Policy. It argues that the fracturing of the seam and the resultant loss of use of the SAG Mill constitutes Property Damage within the definition of that term in cl 5.
It can immediately be observed that this articulation conflates the Occurrence with the Property Damage. Recognising this difficulty, Weir, in final submissions, moved to amend its Commercial List Statement by pleading that one or more of the following additional alternatives was an Occurrence which caused Property Damage, including damage to the circumferential weld and to part of the SAG Mill other than the circumferential weld and loss of use of the SAG Mill: 1. the cyclic loading that Phil Gold alleged; 2. the cyclic loading that Phil Gold alleged, when coupled with the allegedly defective nature of the repair work to the circumferential weld performed by the plaintiff; or 3. the performance by the plaintiff of the repair work to the circumferential weld which Phil Gold alleged was defective.
The amendment was opposed and I refused it, given its lateness and the obvious prejudice caused to AXA by having to meet a new factual case. A similar amendment was sought with respect to Weir's defence costs claim. Weir wished to allege that Phil Gold's claim could be articulated as one making allegations along the lines pleaded in the refused amendment. Over AXA's objection, I permitted this amendment because I considered that it entailed an assertion of how Phil Gold's claim can be characterised, which does not require any factual contest.
Weir argues that AXA's refusal in June 2014 to indemnify it was a breach of the Australian Policy entitling Weir to claim damages from AXA. It argues that in these circumstances it was entitled to enter into the cap and collar which was effective to determine Weir's liability to pay Phil Gold compensation for Property Damage, and that it is entitled to claim the amount paid under the cap and collar from AXA as damages.
Weir argues that the entry into the cap and collar "shifted the liability-determining event from the award to the cap and collar", and took as a particular factual input the amount in the award, so as to render definite the existence (albeit not yet the amount) of the liability between Weir and Phil Gold, and was therefore a settlement of the arbitral claim.
AXA takes issue with Weir's contention that it breached the Australian Policy by denying indemnity before the arbitrators' Final Award (or the cap and collar arrangement - if it suffices - contrary to AXA's submission - to establish a liability). It puts that until then, there was no obligation to indemnify (because Weir had no legal liability to Phil Gold) with the consequence that AXA was not, nor could it have been, in breach of its obligations to indemnify Weir for any such liability. AXA disputes that Weir has any entitlement to damages for such an alleged breach and accordingly disputes that the collar can be any measure of such damages.
AXA also puts that the cap and collar does not qualify as a reasonable settlement which establishes the existence and quantum of a liability of Weir to Phil Gold. It argues that the cap and collar does no more than establish an amount which Weir and Phil Gold agreed was reasonable consideration for placing a cap on Phil Gold's recovery of US$10,725,000.
AXA does not put in issue that, as between Weir and Phil Gold, the cap and collar was a reasonable commercial arrangement. It puts, however, that it was not a settlement of the type which the courts can and do regard as fixing an insured's liability to pay compensation to a third party claimant. It argues that it is not an agreement under which Weir reasonably agreed to an amount of a liability to which the Australian Policy would have responded.
It points out that under the terms of the cap and collar, the parties agreed to continue their attempts to settle their dispute, and subject only to its agreement to cap its recovery in consideration of the payment of US$10 million, Phil Gold's rights against Weir were intact. It observes that the parties' agreement that they be finally determined by the arbitral panel remained on foot.
It points out that the cap and collar does not define the dispute the subject of the settlement beyond identifying in Recital G that "various disputes have arisen between the parties" in connection with the SAG Mill, the refurbishment contract and the SAG Mill failure. It points out that the Final Award does not assist in characterising any liability because it did not establish liability, but rather established that Weir was not liable.
AXA puts that Weir has failed to demonstrate that any liability which it undertook under the cap and collar is of the character of a liability within the scope of indemnity under the Australian Policy. It argues that whether the liability undertaken is one to which the Australian Policy will respond, must be determined having regard not only to the insuring clause but also to the exclusions.
AXA puts that the character of the liability must be determined by reference to the claim that Phil Gold made. If the settlement represents a reasonable settlement of a claim which, if established, would have fallen within the scope of cover, then indemnity is available, otherwise it is not. It puts that examination of the Statement of Claim does not reveal it as such a claim.
AXA puts that Weir's articulation of both the Occurrence and the Property Damage as being established by the failure of the weld is untenable and amounts to an assertion that the Property Damage caused itself.
AXA argues that the Australian Policy does not respond for the additional reasons that any liability which Weir may have had falls under either cl 3.7 (which excludes Property Damage to Weir's Products if such Property Damage is attributable to any defect in Weir's Product) or cl 3.4 (which excludes liability caused by or arising from the rendering of or failure to render professional advice or service by Weir or any error or omission connected therewith).
On the Product Defect exclusion, AXA argues that Weir's Product was the entirety of the SAG Mill or the shell component of it which Weir circumferentially welded (and which cracked). AXA originally pleaded that the only Product was the SAG Mill as a whole. During the hearing it sought and was granted leave to amend (over Weir's opposition) to enable it to contend that the shell on its own was a Product. Leave was granted with the caveat that AXA accepts that it has not established that there was not physical damage to the SAG Mill beyond the shell alone. (The caveat meant that if AXA's newly pleaded contentions were upheld, it could not say that there was otherwise no further Property Damage to the SAG Mill). Weir's response is that AXA has not shown that Phil Gold's claim would inevitably have engaged the Product Defect exclusion. Weir argues that its Product was the circumferential weld.
On the Professional Services exclusion, AXA argues that Phil Gold's claims in contract were subsumed in an overarching allegation (made by Phil Gold in para 50 of the Statement of Claim) that Weir "failed to exercise the standard of care to be expected of a reasonably competent engineer in carrying out the refurbishment and installation works and failed to provide adequate QA/QC services to ensure that the refurbishment was carried out to [Phil Gold's] satisfaction and in accordance with sound engineering practice…". It argues that the remainder of what is pleaded in contract is merely a recitation of how a "reasonably competent engineer" would have set about ensuring that an adequate refurbishment of the SAG Mill was achieved. It argues that the breach of contract case is one alleging liability caused by or arising from the rendering of or failure to render professional advice or service … or … error or omission connected therewith within the exclusion in cl 3.4.
AXA argues that the indemnity sought by Weir in connection with its alleged liability for misleading or deceptive conduct is also for a liability caused by or arising from the provision of, or failure to provide, professional services. It argues that the exclusion applies if there is a causal connection between the relevant liability for Property Damage and the provision of, or failure to provide, professional services. It puts that whilst the alleged misrepresentations do not themselves alone result in a claim for Property Damage, they are said to have induced Phil Gold to accept Weir's proposals for the refurbishment and to proceed with the project on the assumption that Weir's proposed professional services were adequate for their purposes, that is, Phil Gold procured defective professional advice or services from Weir in reliance upon the alleged representations with the consequence that its defective SAG Mill was damaged in the course of operation. It argues that the deficient professional advice or services provided by Weir formed an essential element in Phil Gold's claim for compensation under the TPA and that damage was the essence of its cause of action.
Weir's reply is that AXA has not shown that the Professional Services exclusion was inevitably engaged by Phil Gold's claim. It argues that Phil Gold's claim could have succeeded without it being established that Weir had provided or failed to provide professional advice or services. It points to the fact that Phil Gold's claim in contract included a claim that Weir had failed to carry out welding in accordance with applicable welding standards - and argues that this was not an allegation that it had provided or failed to provide professional advice or services. It submits that welding is not a professional service, but is in the nature of a trade and that to construe it as a professional service would inappropriately circumscribe the operation of the policy. It submits that the term professional ought to be construed (narrowly) as one of the learned professions.
Weir argues that the success of Phil Gold's TPA claim did not depend upon any professional advice or services having been provided or not provided by Weir but required Phil Gold to prove only that it had suffered Property Damage (including loss of use) as a result of Weir making misleading representations which Phil Gold in fact relied upon. It argues that the representations alleged by Phil Gold could be classified as misleading, regardless of any characterisation of them as being provided as "professional advice or service" and that Phil Gold alleged that the representations were misleading on the basis that Weir had no reasonable grounds for making the representations at the time they were made.
Finally, Weir puts that the "write back" in cl 3.4(b) applies because Phil Gold did not allege that Weir received remuneration and in fact Weir received no remuneration in the way of fee or charge for the representations for which Phil Gold complained.

Defence costs

Weir relies on cl 2.2 of the Australian Policy.
It argues that the proper construction of the clause, "expenses incurred… in defence of a claim" covers those incurred in defending a claim which if successful, would have resulted in a liability covered under cl 2.1, relevantly a claim for liability to pay an amount by way of compensation for Property Damage due to an Occurrence which happened in connection with Weir's business in the period of insurance, subject to the availability of exclusions.
It argues that Phil Gold's claim as articulated in the Statement of Claim was for Property Damage due to an Occurrence because: 1. any amount to pay by way of compensation was damages claimed by Phil Gold for repair and replacement of the entire SAG Mill, or alternatively for the repair and replacement of the SAG Mill shell, and in both cases, damages for the resultant loss of use; 2. the Occurrence, (which includes an "event"), was the fracturing of the circumferential weld, which was a "thing" that Phil Gold alleged "happened", which in turn was caused by the cyclic loading involved in the operation of the SAG Mill; and 3. the Occurrence (i.e. the fracturing of the circumferential weld) caused Property Damage, namely physical damage to the SAG Mill.
Weir seeks its defence costs principally by way of damages on the footing that had indemnity been confirmed (as it says it ought to have been), AXA would not have been entitled to unreasonably refuse to consent to Weir's defence costs. Weir says that if AXA had not wrongfully denied indemnity in June 2014, AXA would have (a) taken over conduct of the defence (in which case Weir would have incurred no defence costs); or (b) consented to the defence costs being incurred by monitoring the costs and either paying directly or indirectly the HSF legal costs as being properly incurred as and when they were incurred (including, if necessary, negotiating work and costs to an acceptable level); or (c) appointed its own lawyers. On this approach, Weir would not have incurred any costs that AXA would not have met, and Weir would not have been out of pocket for any defence costs. However, Weir is now out of pocket for all the defence costs incurred by it.
Weir thus argues that the damages flowing from AXA's breach in denying indemnity for defence costs are the full measure of the defence costs which have been paid by Weir. On this approach Weir says it has no onus to demonstrate reasonableness of the defence costs and AXA must prove an unreasonable failure to mitigate as a defence to the damages claim which it has not sought to do. Weir's secondary position is that it is entitled to be indemnified for reasonable costs incurred.
Weir argues that AXA consented to its defence costs "thus making good Weir's claim for indemnity pursuant to cl 2.2". It relies principally on Mr Hunt's emails of 16 January 2014 and 13 April 2015. In the alternative, it argues that AXA is estopped from denying that it consented to the defence costs (in fact or amount), because it made express representations that it did not raise any objection to HSF continuing to act prior to making a decision on indemnity, and it deliberately, to protect its own interests, did not make any further inquiries, or otherwise engage with Weir, in relation to the defence costs after denying indemnity, and thereby impliedly represented to Weir that it had no difficulty with the fact or amount of those costs.
Weir maintains that by relying on AXA's representations it has suffered detriment because it is now faced with AXA seeking to evaluate the reasonableness of the defence costs in circumstances where, had AXA raised those issues at the time, Weir could have addressed such issues as and when they arose, and put AXA in a position where it was comfortable with the reasonableness of defence costs, even though AXA was maintaining the position of denying indemnity. It puts that, as the minimum equity necessary to remove Weir's detriment, AXA ought to be estopped from contending either that it did not consent to the defence costs or that they are not reasonable in amount. Weir accepts that such an estoppel would not preclude AXA from seeking to demonstrate that specific items of legal costs were entirely extraneous to the claim, for example, any legal costs for advice relating to Weir's coverage under the AXA policies, however, it would estop AXA from otherwise disputing the quantum of defence costs.
AXA accepts that Weir's success in the arbitration does not preclude it from recovering defence costs. AXA accepts that subject to the other terms and conditions of the Australian Policy, Weir is entitled to the reasonable costs of defending a claim which, if successful, would have attracted indemnity. AXA argues that the same approach must be adopted in addressing whether the defence costs are within cover as arises in connection with the alleged settlement. It argues that Phil Gold's claim must be analysed to identify whether a liability on the basis alleged is within the scope of cover. If the pleaded causes of action fall outside the scope of cover (as delineated by the insuring clauses and exclusions) no defence costs indemnity is available. If some of the alleged liabilities fall within the scope of cover and others do not, then indemnity is available for the costs which are referable to the defence of the claim or claims that are within cover. On the grounds upon which it says the claims pursued by Phil Gold in the arbitration were not claims which attracted indemnity under the Australian Policy, AXA argues that the Australian Policy also does not respond to Weir's claim for indemnity for its defence costs.

The collar

For the reasons which follow Weir's claim for the collar payment fails.
An insured seeking to enforce an indemnity given by its insurer for a liability of the insured to a third party bears the burden of demonstrating the actual existence and quantum of that liability, and that it falls within the terms of the indemnity on its proper construction.
In this case, Weir has naturally eschewed the option of proving such a liability to Phil Gold. After all, there is an arbitral award in evidence, which, whilst not binding on AXA, exonerated Weir from any such liability. Instead, Weir seeks to establish liability and quantum by merely proving entry into and performance of the cap and collar. There is no issue that viewed as a commercial arrangement between Phil Gold and Weir, the cap and collar was on reasonable terms.
It is not in issue that authorities which bind me recognise that in certain circumstances an insured can prove the existence and quantum of a legal liability to pay compensation by proving that it entered into a settlement agreement with the claimant that, objectively viewed, was reasonable.
In Distillers Co (Bio-Chemicals) (Aust) Pty Ltd v Ajax Insurance Co Ltd (1974) 130 CLR 1 at 9-10, Menzies J said (in somewhat short-hand fashion) that: The insured may make a reasonable settlement where the insurer breaches the contract by denying liability and refusing to defend or settle: see General Omnibus Co v London General Assurance Co Ltd [1936] IR 596 and the dictum of Lord Esher MR in Captain Boyton's World's Water Show Syndicate Ltd v Employers' Liability Assurance Corporation (Ltd) (1895) 11 TLR 384. and at 24 - 25 Stephen J said: Ever since the leading case of St Louis Dressed Beef and Provision Co v Maryland Co (1906) 201 US 173, in which Holmes J delivered the judgment of the Court, it has been well established that where an insurer wrongfully denies liability to indemnify and fails to defend the action brought against the insured the latter may make a reasonable settlement of that action and then recover against the insurer - later cases appear in the annotation in (1943) 142 Am LR 812 and its supplements.
These passages have been referred to and applied in this State, see: Zurich Australian Insurance Ltd v GIO General Limited [2011] NSWCA 47 at 58 and Allianz Australia v Bluescope Steel (2014) 87 NSWLR 332, 381 at [268] and [279]-[280].
AXA puts that a settlement between Weir and Phil Gold, however reasonable, is incapable, as between AXA and Weir, of constituting proof of the existence or quantum of a liability for the purpose of Weir's claim against AXA. AXA accepts that on the present state of the authorities, it is otherwise.
AXA's argument is that if there is a principle which permits a settlement between an insured and a third party claimant to establish the existence and quantum of a liability between them for the purpose of a claim by the insured against its insurer, it does not apply to the cap and collar because: 1. AXA did not wrongfully deny liability to indemnify so as to enliven operation of the principle; and 2. the cap and collar was not a settlement which determined any liability of Weir to Phil Gold in respect of the claim which Phil Gold had made.
What then is the principle and does it apply here?
A settlement between the insured and a third party claimant without the insurer's consent does not bind the insurer. The insured retains the burden of proving that the alleged liability fell within the terms of the policy. Where an insured seeks to enforce the indemnity, it must of course establish an actual liability upon which the indemnity will operate.
The existence and quantum of such a liability gives content to the indemnity obligation. They are necessary elements of any cause of action on the indemnity.
Where an insurer wrongfully repudiates the insurance contract and the insured chooses to accept the repudiation thereby bringing the contract to an end, the position is fundamentally different. The bringing to an end of the contract has a number of important consequences.
One is that the insured no longer sues on the indemnity and the actual existence of a liability and the quantum of it to the third party claimant are no longer elements of the insured's cause of action.
Another is that because there is no longer any indemnity, the insured's claim is one for damages. (It should be remembered that proof of actual damage is not a necessary element of a cause of action for breach of contract. Nominal damages are available for breach.)
The general principle is that the insured is entitled to be put in the position that it would have been in but for the breach, that is, the position if the contract had been performed. When the contract is terminated the insured is entitled to damages for loss of its bargain; Wenham v Ella (1972) 127 CLR 454; Ronnoc Finance v Spectrum Network Systems Ltd (1997) 45 NSWLR 624 at 628.
A third consequence is that the insured comes under a duty, as against its insurer to mitigate its damage.
A fourth is that the insurer cannot rely on terms of the policy that restricted the insured's right to settle because the insurance contract is no longer on foot; see Justice Michael L. Ball, David St. L. Kelly, LexisNexis, Kelly and Ball Principles of Insurance Law (at service 51) 14.0250.
A plaintiff can prove its loss in any rational manner. The authorities recognise that a way in which an insured can prove its loss, when not suing on the indemnity but rather for damages, is by making a settlement with the claimant which, when objectively viewed on the prevailing circumstances at the time of the settlement, is a reasonable thing for the insured to do given (a) its insurer's wrongful repudiation leaving the insured to fight off the claimant on its own; and (b) that the insured was under an obligation to mitigate the damages it suffered as a consequence of the insurer's breach.
Accordingly, an insured can rely on a reasonable settlement as against its insurer as establishing the existence and quantum of a liability to a third party if: 1. the insurer has wrongfully repudiated the insurance contract; 2. the insured accepted that repudiation and brought the contract to an end; 3. the insured enters into an arrangement with a third party claimant to pay an amount in respect of a liability, to which, if found, the policy would have responded; and 4. the amount of the settlement is reasonable having regard to the relevant circumstances at the time. Relevant circumstances can include the position in which the insured finds itself as a result of the repudiation and what it might have been held liable to pay if there had been a contest leading to a judgment or arbitral award.
Weir's claim for the collar payment meets none of these requirements.
The liability which Weir identifies in its Commercial List Statement and submissions is not one to which the Australian Policy responds.
As said earlier, Weir's articulation of the Occurrence as the fracturing of the circumferential weld as an event which caused Property Damage impermissibly conflates the two. The definition of Occurrence in the Australian Policy makes it clear that the event referred to is the mishap or accident or conditions which cause the Property Damage: see Australian Rail Track Corporation Ltd v QBE Insurance (Europe) Ltd [2013] NSWCA 175 at [21]-[23]; where the policy was in relevant respects not materially different from the Australian Policy; and Siegwerk Australia Pty Ltd v Newplex Industries (Australia) Pty Ltd (2013) 305 ALR 412 at [146]-[150].
The Australian Policy thus does not respond to the liability which Weir articulates in its pleadings and submissions.
An insurance policy is a commercial contract and is to be given a business-like interpretation. Interpreting it requires attention to the language used by the parties, the commercial circumstances which it addresses and the objects which it is intended to secure. Preference is given to a construction supplying a congruent operation to the various components of the whole; see Wilkie v Gordian Runoff Ltd (2005) 222 CLR 522, 528 [15]; McCann v Switzerland Insurance Australian Ltd (2000) 203 CLR 579, 589 [22]; Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104, 117.
Weir's difficulties are a symptom of the fact that it is attempting to articulate as a Property Damage claim (within the Australian Policy) what in truth is a liability arising from the rendering or failure to render professional services. This is contrary to the objects which the Australian Policy is intended to secure.
The Australian Policy is one where the right to indemnity arises only upon the liability of the insured to the injured person being established by judgment of the Court, award of an arbitrator, or by agreement between the insured and the third party. None of these things had happened (or indeed has ever happened) so as to make AXA's denial of indemnity a breach; see Allianz Australia v Bluescope Steel at 381 [268] and following.
It follows that AXA's contention that it was not liable to indemnify Weir under the Australian Policy in respect of Phil Gold's claim against the plaintiff was not a breach of the Australian Policy (as pleaded by Weir in para 34 of its Amended Commercial List Statement). Indeed, Weir does not in terms plead repudiation.
It is not suggested that Weir accepted AXA's repudiation and brought the Australian Policy to an end. To the contrary, Weir still claims indemnity as an alternative.
Rather than representing a reasonable quantification for an assumed liability agreed between the protagonists, the cap and collar allowed for different, and significantly varying, outcomes. It required the arbitral Tribunal to proceed to final determination and then dictated an outcome dependent on it. As things transpired, the lowest figure prevailed, but it could have been the highest. It is difficult to see how it could be said that the highest, the lowest and anything in between was the combatants' reasonable assessment of the same potential liability. I agree with AXA's characterisation of the cap and collar as establishing no more than the agreed consideration for capping Phil Gold's recovery. It is to be observed that the terms of the cap and collar are of no assistance in identifying the character of any underlying liability of Weir to Phil Gold.
I do not consider that there is any principle or dictate of fairness which enables, or should enable, an insured to settle with a third party claimant, still proceed to final determination, and then to rely on the settlement as establishing liability and quantum, notwithstanding that the final determination transpires to exonerate the insured entirely from liability.
AXA put the formal submission that the decision in Zurich Australian Insurance Ltd v GIO General Limited is wrong and should not be followed but accepted that I am bound to follow it. There does appear to be room for an argument that the requirement to prove an actual liability should not as a matter of logic be displaced by the insurer's repudiation. But that is a matter appropriate for appellate consideration.
These conclusions render it strictly unnecessary, in the context of the collar, to consider AXA's contentions that any liability on Weir to Phil Gold was excluded by the Product Defect or Professional Services exclusions. I will, however, deal with those contentions in the context of the defence costs claim.

Defence Costs

AXA accepts, correctly, that Weir's success in the arbitration does not bar it from recovering defence costs, provided a claim which Phil Gold made would, had it succeeded, have attracted indemnity. It is common ground that AXA was obliged to pay Weir's defence costs if a claim made by Phil Gold was covered under the Australian Policy.
I have already found that as articulated by Weir with respect to its claim for the collar, Phil Gold's claim was not covered.
It does not follow from this that Weir is not entitled to its defence costs. Whether it is, depends on whether, as framed, Phil Gold's claim was one that could if successful, have resulted in liability on Weir which was covered. This also brings into play AXA's contention that however articulated, Weir's claim falls within the exclusions.
For the following reasons Weir's claim for defence costs must fail.
As earlier mentioned, I permitted Weir to amend its Commercial List Statement, at the heel of the hunt and over AXA's objection, to allege that the Occurrence was something different to the circumferential weld cracking and was the cyclic loading that Phil Gold alleged, or the cyclic loading that Phil Gold alleged, when coupled with the allegedly defective nature of the repair work to the circumferential weld performed by the plaintiff, or the performance by the plaintiff of the repair work to the circumferential weld which Phil Gold alleged was defective.
Leaving aside that this articulation diverges from how Weir throughout articulated the liability which it purported to settle with Phil Gold, the amendment does not assist Weir. In my view none of "the cyclic loading that Phil Gold alleged", the cyclic loading "when coupled with the allegedly defective nature of the repair work", or "the performance by Weir of the repair work to the circumferential weld which Phil Gold alleged" is an Occurrence. Cyclic loading is a description of the physical force to which components of the SAG Mill are subject during normal use. The addition of the words "when coupled with the allegedly defective nature of the repair work" takes this no further. It is not an Occurrence but a description of physical forces at play through normal use. Performance by the plaintiff of the repair work was also not an Occurrence in the sense of being an event and it lacks the essential quality of an Occurrence, which is that it is unexpected. The addition of the epithet "defective" takes the matter no further.
I consider that on any fair view of the articulation of Phil Gold's claim, it was a claim that was clearly excluded by the Professional Services exclusion in the Australian Policy.
In paragraph 50 of the Statement of Claim, Phil Gold pleads the entirety of the breach of contract alleged against Weir as a failure to exercise the standard of care to be expected of a reasonably competent engineer. The respects in which Weir so failed is then particularised. They included failure to: 1. carry out various analyses, investigations and assessments; 2. to prepare a comprehensive plan; 3. to produce, review and approve a welding procedure specification; 4. to conduct prequalification tests; 5. to implement adequate inspection or test plan; 6. to identify all subsurface cracking; 7. to ensure a supervisor with adequate qualifications was present; 8. to ensure that welding repairs were carried out competently by appropriate welders; 9. to install primary and intermediate reinforcement gussets; 10. to maintain adequate records of the refurbishment work; 11. to ensure that all refurbishment work was carried out in accordance with applicable codes and standards; 12. to supply an experienced mill installation technician; and 13. to supervise the installation of the SAG Mill in accordance with the original equipment manufacturer's mill installation procedures and methodology.
On a fair reading, this is a claim, and nothing other than a claim, of liability caused by or arising from the rendering by Weir or failure to render professional engineering advice or service: GIO General Limited v Newcastle City Council (1996) 38 NSWLR 558 at 568; Chubb Insurance Co of Australia Ltd v Robinson [2016] FCAFC 17 at [131]-[152]; Fitzpatrick v Job (2007) 14 ANZ InsCas 61-731 at 270.
Weir's submission that Phil Gold's claim comprehended, as a discreet component capable of sustaining a finding of liability, that Weir breached a contract to provide non-professional services in the form of welding is untenable for at least four reasons. First, Weir's submission that where the Australian Policy refers to "professional" services, this has the narrow meaning of services of the kind associated with the traditional learned professions so as to exclude welding, is too narrow a reading of cl 3.4 of the Australian Policy. In my opinion cl 3.4 has in mind services carried out by a professional in the relevant area, not an amateur. Second, the contract alleged by Phil Gold did not allege any obligation on Weir itself to weld. Third, if Weir was to weld, these services were an integral and inseparable aspect of professional engineering services to be provided by Weir. Fourth, any liability, even if ultimately attributable only to the welding, would have to have arisen out of the provision by Weir of professional services.
The substance of the misleading and deceptive conduct alleged by Phil Gold in its TPA claim, was that Weir made a series of representations concerning the quality and effect of the services which it would provide which turned out to be misleading because the services Weir provided failed to have that quality and effect. On any common sense view, the claimed liability under the TPA arose from the rendering or failure to render professional advice or service by Weir. It was the quality of that advice and service that is at the heart of the complaint.
I reject Weir's submission that the "write-back" in cl 3.4(b) applies. Weir's submission appears to equate the professional advice and services of Weir with the representations which Phil Gold alleged Weir made. It may be accepted that Weir was not paid for representations, but for the professional advice or services out of which the claimed liability arose, which were undoubtedly charged for by Weir and paid for by Phil Gold.
I turn to the Product Defect exclusion. This issue may be disposed of briefly because an examination of the Statement of Claim discloses that at least in one respect, a finding of liability on the part of Weir to Phil Gold did not inevitably entail a finding that there was Property Damage attributable to any defect in Weir's Product (whatever that Product might be). A significant, if not the central, complaint in the arbitration by Phil Gold in its TPA claim was that Weir had represented that it would carry out the refurbishment of the SAG Mill so that there was a reasonable likelihood that it would have a minimum serviceable life of ten years. This complaint could have succeeded without it being necessary to or inevitably being established that there was a defect in any Product. On the Statement of Claim, it was open to the Tribunal to find liability on the grounds that Phil Gold had engaged in misleading conduct because it had no reasonable basis for that representation without the necessity for a finding that the product was defective. Put another way, it does not necessarily follow from the fact that the Product did not have a minimal serviceable life of ten years that the weld was defective. (As it happened, the Tribunal found that the representations "such as they were", had not been relied upon). AXA has not made out that the Product Defect exclusion was necessarily engaged.
I record that there was significant debate between the parties as to what, if anything, was Weir's Product for the purposes of cl 3.7 read with the definition of Product in cl 5. That definition gives an expansive meaning to the term Product. It includes "anything (after it has ceased to be in [Weir's] possession or in [Weir's] legal control) which has been… repaired… by [Weir] in the course of [Weir's] business". The parties seemed to agree that for the definition to apply, the whole of the thing had to be in the insured's possession. AXA's original position was that Weir's Product was the whole of the SAG Mill but it failed to establish that Weir had possession or control of the whole of it so as to make it Weir's Product. Weir's position was that its Product was the weld. This too I would reject. The weld was not "any[thing]" for the purposes of the definition of Product. The weld was a method of repair. I would also reject AXA's alternative submission that Weir's Product was the drum. The drum is but one integral component of the SAG Mill and is not, on its own, in my view "any[thing]" within the definition of Product. The definition of Product, albeit expansive, is still to be approached in a common sense commercial way. Weir's function was to perform services. Not in every case does the definition have the effect that there must be a Product.

Late notification defence

AXA's first line of defence is that Weir is not entitled to be indemnified because it breached General Condition 3 of the Global Policy in failing to give written notice to AXA as soon as reasonably practicable of "any event or circumstances that may give rise to a claim". It says that compliance with General Condition 3 is a condition precedent to indemnity, and the breach therefore bars Weir's claim.
AXA argues that by October 2011, Mr Puddester, Mr Lessing and Mr Walker were aware of circumstances which would have led a reasonable person in their position to consider that a claim by Phil Gold against Weir was a real possibility because: 1. they all knew that the SAG Mill had been refurbished by Weir a few years previously in a major refurbishment contract for the purpose of putting it into use at Masbate; 2. Mr Puddester knew that the SAG Mill had suffered very serious cracking in July 2011 and had seen a photograph of the serious cracking and knew that it was on the corner head and shell; 3. they knew that Phil Gold had suffered very significant revenue loss as a result of the cracking; 4. Mr Puddester and Mr Lessing were aware that Phil Gold or its parent company had the propensity to be aggressively litigious; 5. they knew that Phil Gold had chosen not to go back to Weir to repair the SAG Mill and had instead chosen a different repair specialist; 6. Mr Puddester knew that Phil Gold had been investigating what forms of testing Weir had carried out on the parts of the SAG Mill that had failed and that there was a significant form of structural integrity testing about which Phil Gold had specifically asked and which Weir had not performed; 7. Mr Puddester contemplated that Phil Gold may be searching for a target for a claim which possibility was sufficiently important to report it to his line manager, not just as a matter of market intelligence; and 8. the reason offered by Mr Walker for the inclusion in the October 2011 monthly management report of a reference to the failure was to make senior management aware of a possible product warranty claim.
Weir puts that the state of its knowledge was not such, objectively viewed, so as to give rise to an understanding that there was a real possibility of a claim which might be the subject of indemnity. It argues that whilst Mr Puddester and Mr Lessing knew the bare fact that the SAG Mill had failed, the evidence does not show that they knew the cause of the failure; or that any cause was related to work that Weir had performed, or had been obliged to perform. Weir argues that the evidence establishes no more than Mr Puddester's intuition was that there was a remote possibility of a claim against someone, not necessarily Weir.
Weir argues that the subjective perceptions of Mr Puddester and Mr Lessing (such as "spider sense") are irrelevant because the test is objective. A similar submission is put in relation to the recording in the October 2011 monthly management report of the possibility of a warranty claim by Phil Gold because this reflects subjective appreciation rather than objective reason for concern.
It puts that Mr Lessing's exhortation to Mr Puddester to keep his distance, was insignificant because it was out of concern for Mr Puddester's personal wellbeing.
Weir argues that Mr Turner's question as to whether Weir had performed ultra-sonic testing was not a cause for concern to Mr Puddester because Weir was not contractually obliged to perform that testing.
It puts that Weir did not become subject to the obligation to notify in General Condition 3 until receipt of Phil Gold's claim on 4 December 2013, and that Weir promptly notified thereafter.

The collar

Weir relies on both the Products Liability section and the Professional Indemnity section of the Global Policy. AXA's position is that Weir's claim is covered by neither.
On Products Liability (Weir's claim under this head is governed by the 2011 edition of the Global Policy), AXA says that the claim is not covered because the insuring clause only provides indemnity against liabilities in respect of damage caused by a Product to separate property and against costs of defending claims seeking to establish such liabilities and Phil Gold's claim was not of that kind. In the alternative, it says Weir's insurance claim is not covered because Exception 3 excludes liabilities, and costs incurred in defending claims, in respect of damage which a Product causes to itself.
On Professional Indemnity (Weir's claim under this head is governed by the 2013 edition of the Global Policy), AXA argues that Weir must establish that Phil Gold's claim was made "by reason of any negligent act error or omission in any design or advice of a professional nature given by the Insured… in connection with the Insured Business." It puts that if Weir were able to establish this; its claim would be excluded by Exception 6, because Phil Gold's claim would be one "arising from design or advice given in connection with the Products."
The Global Policy is one under which, relevantly, AXA indemnifies Weir for sums for which Weir becomes legally obliged to pay for damages. In contrast to the law of this State, under English law Weir must establish the actual existence of such a liability to Phil Gold. This onus is not discharged by establishing a reasonable settlement of a damages claim: Astrazeneca Insurance Co Ltd v XL Insurance (Bermuda) Ltd [2014] 2 All ER (Comm) 55 [15]-[23]. The entry into of the cap and collar accordingly does not avail Weir and it has not otherwise sought to prove the existence of liability to Phil Gold. This is unsurprising given that Weir denied liability in the arbitration and its position was ultimately vindicated.
Weir argues that it and AXA agreed to vary the Global Policy so that a payment made by Weir pursuant to a reasonable settlement would represent (or "crystallise") Weir's indemnified liability, subject only to AXA reserving its position as to amount. It says that this agreement was made in correspondence between them.
Weir argues that AXA is estopped from relying on Weir's failure to prove liability to Phil Gold. It argues that AXA represented to it that AXA would treat an amount paid by Weir pursuant to a reasonable settlement as representing Weir's indemnified liability, subject only to AXA reserving its position as to amount, in the alternative it says they shared a common assumption that an amount paid by Weir pursuant to a reasonable settlement would represent Weir's indemnified liability. Weir argues that it relied on these representations and assumptions and that if AXA is now allowed to resile from them Weir will have suffered detriment by having lost the opportunity to ensure that AXA consented to the fact that payments under the cap and collar represented an indemnified liability, subject only to AXA reserving its position on amount.
AXA takes the position that Weir was not entitled to be indemnified for costs of defending a liability alleged by Phil Gold to which the Global Policy did not respond.
It puts that if Weir is entitled to be indemnified for defence costs, that entitlement is limited to such costs as were reasonably incurred to defend Phil Gold's claim and to the extent that such costs are reasonable in amount.

Late Notification Defence

A condition which requires the insured to give notice of a circumstance that may give rise to a claim requires a real as distinct from a fanciful prospect of a claim being made: J Rothschild Assurance plc v Collyear [1998] CLC 1697, 1717-18; Aspen Insurance UK Ltd v Pectel Ltd [2009] 2 All ER (Comm) 873 [45].
This is an objective test, requiring the insured to notify insurers as soon as it becomes aware of circumstances which would lead a reasonable person in its position to perceive a real possibility of a claim: HLB Kidsons v Lloyd's Underwriters [2009] 2 All ER (Comm) 81 [72] and [137]-[142]; Laker Vent Engineering Ltd v Templeton Insurance Co Ltd [2009] 2 All ER (Comm) 755 [77]-[81].
General Condition 8 provides expressly that AXA's liability is conditional on the due observance by Weir of the terms and conditions of the Global Policy. General Condition 3 is such a term or condition. The combination of the two provisions has the effect of making the giving of notification a condition precedent to AXA's liability: Friends Provident Life & Pensions Ltd v Sirius International Insurance [2005] 2 All ER (Comm) 145 at [31]; Aspen Insurance UK Ltd v Pectel Ltd [2009] 2 All ER (Comm) 873 [62].
The late notification defence would fail under Australian law because s 54 of the Insurance Contracts Act 1984 (Cth) inhibits an insurer from refusing to pay a claim in reliance on a condition such as General Condition 3 where the insurer's interests were not prejudiced by the failure: cf. Pioneer Concrete (UK) Ltd v National Employers Mutual [1985] 1 Lloyd's Rep 274 at 279-80. No prejudice is evident.
But there is no equivalent of s 54 in England, and I must uphold the defence.
Weir did not submit that the knowledge of the relevant officers was not its own.
A reasonable person in the position of Weir with the knowledge at its disposal would have perceived a claim as a real possibility. Indeed, Mr Puddester did so perceive.
By October 2011, that information was far from being innocuous. Weir knew that there had been a serious failure of the SAG Mill connected with work that it had done with significant consequences to Phil Gold, and that Phil Gold was looking for information about work done and testing performed by Weir.
Although the test is objective, the actual understanding and contemporaneous conduct of the Weir operatives is relevant in an objective assessment. These were experienced people and it is not suggested that they were acting irrationally or unreasonably. Mr Puddester's colourful language reflected his understanding of the seriousness of the event. He actually foresaw a claim being made. Although he thought it was a remote possibility, he did not see it as fanciful. To the contrary, he decided to keep his distance. Mr Lessing's distinction between Mr Puddester keeping his distance as opposed to Weir doing so is somewhat artificial. But the distinction is without significance. Mr Puddester had decided to do the same. Additionally, Weir recorded the failure in the October 2011 monthly management report, and Mr Walker's evidence was that this could be to reflect a possible warranty claim.
The success of the late notification defence renders it strictly unnecessary to deal with the remaining issues under the Global Policy. I will however do so.

The Collar

Weir's claim for the collar would fail for the additional reason that it has not established that Phil Gold's claim would, if successful, have been covered by the relevant insuring clauses in the Global Policy.
The cap and collar did not describe the nature of the liability and allowed for different and significantly varying outcomes depending on the final award. More importantly, the final award was nil.
The exchanges between Weir and AXA disclose no consensus that any settlement, let alone the one effected by the cap and collar, would represent Weir's actual liability to Phil Gold.
One can readily understand Weir's frustration with AXA's fence-sitting. AXA had declined cover. On the one hand, it would not give its imprimatur to or participate in Weir's proposed settlement with Phil Gold. On the other, it kept warning Weir of the difficulties it might face if it did not accept a reasonable offer that was on the table. But AXA's agreement did not at any time, extend to any acceptance that a settlement would reflect Weir's actual liability for the purposes of the Global Policy.
By Mr Hunt's email of 13 April 2015, AXA agreed that if its position on coverage was incorrect or its declinatures were not upheld, it would not subsequently seek to argue that the claim was to be declined on the basis that the Global Policy requirement to obtain its written consent before Weir made any offer, promise or payment had not been satisfied. This is clearly a reference to cl 4 of the General Conditions of the Global Policy which inhibited Weir from making any admissions of liability or offering, promising or paying without AXA's consent. This agreement was referred to by Mr Lewis in his email to Ms Crorie on 27 October 2015. It is not an agreement of the character that Weir seeks to establish.
The parties' dealings are inconsistent with such an agreement or any understanding by them that there was such an agreement.
In his email to Ms Kawai on 16 July 2015, Mr Lewis said that Weir did not see why they had to run the risk of having to face an argument that the settlement did not reflect Weir's legal liability. He referred to "cases", a clear reference to authorities that an insured must prove the existence of a liability. There was clearly then no agreement as asserted and no understanding by Weir that there was one.
On 17 July 2015, Ms Kawai declined Mr Lewis' request to confirm that AXA would not take the very point.
On 28 October 2015, Ms Crorie wrote that AXA's position on all such issues (including costs) was reserved should their declinature of coverage not be upheld.
It is common cause that there is no material difference between the law of England and the law of this jurisdiction on estoppel.
The central principle of the doctrine of estoppel is that the law will not permit an unconscionable (or unconscientious) departure by one party from the subject matter of an assumption which has been adopted by the other party as the basis of some relationship, course of conduct, act or omission which would operate to that other party's detriment if the assumption be not adhered to: The Commonwealth v Verwayen (1990) 170 CLR 394 at 444 per Deane J.
For the departure to be unconscionable the party concerned must have played such a part in the adoption of, or persistence in, the assumption that that party would be guilty of unjust and oppressive conduct if it were now to depart from it. Cases where departure would be unconscionable include where that party has induced the assumption by express or implied representation, has entered into contractual or other material relations with the other party on the conventional basis of the assumption or knew that the other party laboured under the assumption and refrained from correcting him when it was his duty in conscience to do so: The Commonwealth v Verwayen at 444 per Deane J.
Weir's claimed estoppel must fail because just as it has failed to establish any agreement, it has failed to establish any representation or common assumption to the effect that AXA would accept the settlement as representing Weir's actual liability.
Additionally, Weir has not established any reliance on any such representation or assumption. To the contrary, I am satisfied that Weir would have settled as it did in any event.
As appears from the passage of his cross-examination quoted above, Mr Young's evidence was that he did not believe he would have done anything different if AXA had repeatedly made it clear that any settlement would not be considered to reflect Weir's true liability.
I reject Mr Young's evidence that had AXA communicated to the contrary of his understanding, he would have ensured their consent was obtained before the cap and collar arrangement was agreed. I accept that Mr Young was giving his genuine view of his hypothesised conduct, but it is hindsight evidence and his contemporaneous conduct proves otherwise; see Chappel v Hart (1998) 195 CLR 232 at [32]; Rosenberg v Percival (2001) 205 CLR 434, 449. The cap and collar proceeded without AXA being informed in circumstances where AXA had clearly not given its consent to the settlement as establishing actual liability and where its conduct did not in my opinion convey that it had given or would give it.
Moreover, I am satisfied, based on AXA's actual behaviour at the time, that there was was no reasonable prospect of Mr Young getting that consent.
Mr Young's evidence was also that he did not obtain AXA's consent to enter into the cap and collar because of the view he formed that AXA's position was that it would only discuss providing any contribution to a settlement after a figure had been agreed. Even if this be accepted it does not establish any cognisable detriment because AXA throughout made it clear that it was not accepting such a settlement as establishing actual liability. It only agreed not to take the point that Weir was obliged under the Global Policy to have AXA's consent to make an offer or payment.
Weir's claim is not covered by the Product Liability section. Under that section, Weir would be covered against liability to pay damages in respect of damage to Property… caused by a Product. First, Weir pleads that the circumferential weld was a Product that caused damage to other parts of the SAG Mill. But the circumferential weld is not a Product, it has no independent existence. Second, if there was a Product for the purposes of the Global Policy, it was the SAG Mill as a whole. Phil Gold's claim was not for damage caused by a Product to separate property. Third, the Product Liability section excepts damage to the Product. Whether one takes the weld or the SAG Mill as the Product, the exception applies.
Weir's claim is also not covered by the Professional Indemnity section. That section covers liability to pay damages in respect of claims of a negligent act, error or omission in design or advice of a professional nature. Weir's own position (albeit in my opinion incorrect) is that it was not engaged to, and did not in fact, render any professional advice or service to Phil Gold. More importantly, however, negligence was not an element of either of Phil Gold's causes of action.

Defence costs

It follows from my finding that the Global Policy did not respond to Phil Gold's claim that it does not respond to Weir's claim for defence costs.
Weir did not establish any agreement on the part of AXA to the incurring of defence costs or the making of any representation that AXA would grant indemnity, or if it did grant indemnity, that it would meet any defence costs other than those which were reasonable. To the contrary, Mr Hunt's email of 16 January 2014 made it clear that if coverage was confirmed, AXA would have claims control including the right to choose defence counsel and that whilst AXA did not object to the instruction of HSF at that time, it was likely that they would need to review and consider their terms of engagement which could be discussed should this become necessary. Mr Hunt's 13 April 2015 email contained no agreement nor made any representation that AXA would meet any defence costs, let alone defence costs unreasonably incurred.

Quantum

As is mentioned above, the issue of the quantum of defence costs which Weir may have been able to recover was to be left for later determination.
Weir argued that the quantum of its damage is whatever it spent on defence costs (irrespective of whether they exceed what was reasonable) because but for AXA's breach it would not have spent what it did. On this footing, it argued despite the order for separation of quantum that the Court should make an order having the effect of entitling it to what it paid without the necessity for any further hearing.
I record that in my opinion, it would have been incumbent upon Weir to establish the reasonableness of its defence costs. This is because AXA's obligation does not extend to paying more than reasonable defence costs and the ambit of that obligation is not extended, directly or indirectly, to one of having to pay more than reasonable defence costs because it has breached its obligation to pay reasonable defence costs. Additionally, on Weir's case the indemnity is still on foot. It cannot recover more than that for which AXA, on any view, indemnified it.

Conclusion

The proceedings are dismissed.
I provisionally order that Weir is to pay AXA's costs of the proceedings. The order will solidify unless, within 7 days, either party notifies the other in writing that some other order is sought and the basis for it. If such notification is given the order will be vacated and the parties are to contact my Associate to have the matter relisted. Within the same period the parties are to notify my Associate whether there are any further issues that require to be determined.
The exhibits are to be returned.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 17 March 2017

Trade Practices Act 1974(Cth)

l (2001) 205 CLR 434 Siegwerk Australia Pty Ltd v Newplex Industries (Australia) Pty Ltd (2013) 305 ALR 412 The Commonwealth v Verwayen (1990) 170 CLR 394 Wenham v Ella (1972) 127 CLR 454 Wilkie v Gordian Runoff Ltd (2005) 222 CLR 522 Zurich Australian Insurance Ltd v GIO General Limited [2011] NSWCA 47 Texts Cited: Justice Michael L. Ball, David St. L. Kelly, LexisNexis, Kelly and Ball Principles of Insurance Law (at service 51) Category: Principal judgment Parties: Weir Services Australia Pty Limited - Plaintiff AXA Corporate Solutions Assurance - Defendant Representation: Counsel: R.A. Dick SC with P.Flynn and A.O'Brien - Plaintiff S.R. Donaldson SC with J. Hough QC [with leave] and M.R. Elliott - Defendant

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