NSWNSWCA

Weir Services Australia Pty Ltd v AXA Corporate Solutions Assurance

[2018] NSWCA 100

Court of Appeal (NSW)|2017-10-24|Before: Meagher JA, White JA

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At a glance

Source facts

Court

Court of Appeal (NSW)

Decision date

2017-10-24

Before

Meagher JA, White JA

Catchwords

[1986] HCA 82 Distillers (Bio-Chemicals) (Aust) Pty Ltd v Ajax Insurance Co Ltd (1974) 130 CLR 1
[1992] QCA 433 Fitzpatrick v Job [2007] WASCA 63
(2007) 14 ANZ Ins Cas 61-731 Greenclose Ltd v National Westminster Bank Plc [2014] WLR (D) 173
[2014] EWHC 1156 Hennessy Glass Aluminium Systems Pty Ltd v Eagle Star Trustees Ltd

Source

Original judgment source is linked above.

Catchwords

[1986] HCA 82 Distillers (Bio-Chemicals) (Aust) Pty Ltd v Ajax Insurance Co Ltd (1974) 130 CLR 1[1992] QCA 433 Fitzpatrick v Job [2007] WASCA 63(2007) 14 ANZ Ins Cas 61-731 Greenclose Ltd v National Westminster Bank Plc [2014] WLR (D) 173[2014] EWHC 1156 Hennessy Glass Aluminium Systems Pty Ltd v Eagle Star Trustees Ltd[2017] UKSC 57 Kyriackou v ACE Insurance Ltd [2013] VSCA 150 Major Engineering Pty Ltd v CGU Insurance Ltd (2011) 35 VR 458[2011] VSCA 226 McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579[2000] HCA 65 McDermott v Black (1940) 63 CLR 161[2008] SASC 138 Quintano v B W Rose Pty Ltd [2008] NSWSC 793 Selected Seeds Pty Ltd v QBEMM Pty Limited (2010) 242 CLR 336[2010] HCA 37 Siegwerk Australia Pty Ltd v Nuplex Industries (Aust) Pty Ltd [2013] FCAFC 130(2013) 303 ALR 412 Suncorp Metway Insurance Ltd v Landridge Pty Ltd (2005) 12 VR 290[2005] VSCA 223 Unity Insurance Brokers Pty Ltd v Rocco Pezzano Pty Ltd (1998) 192 CLR 603[1998] HCA 38 Vero Insurance Ltd v Baycorp Advantage Ltd [2004] NSWCA 390(2004) 23 ACLC 119 Vero Insurance Ltd v Power Technologies Pty Ltd [2007] NSWCA 226[1999] ANZ Ins Cas 61-447 Woodlawn Capital Pty Ltd v Motor Vehicles Insurance Ltd [2016] NSWCA 28

Judgment (26 paragraphs)

[1]

ity Council [1995] 2 Qd R 341; [1992] QCA 433 Fitzpatrick v Job [2007] WASCA 63; (2007) 14 ANZ Ins Cas 61-731 Greenclose Ltd v National Westminster Bank Plc [2014] WLR (D) 173; [2014] EWHC 1156 Hennessy Glass Aluminium Systems Pty Ltd v Eagle Star Trustees Ltd; sub nom White Industries Qld Pty Ltd v Hennessey Glass & Aluminium Systems Pty Ltd [1999] 1 Qd R 210 Hollingsworth v Commercial Union Insurance Co 208 Cal App 3d 800 (1989)) Hurlock v Council of the Shire of Johnstone [2002] QCA 256 Impact Funding Solutions Ltd v AIG Europe Insurance Ltd [2017] AC 73; [2017] UKSC 57 Kyriackou v ACE Insurance Ltd [2013] VSCA 150 Major Engineering Pty Ltd v CGU Insurance Ltd (2011) 35 VR 458; [2011] VSCA 226 McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579; [2000] HCA 65 McDermott v Black (1940) 63 CLR 161; [194] HCA 4 Metricon Homes Pty Ltd v Great Lakes Insurance SE [2017] VSC 749 MLC Nominees Pty Ltd v Daffy [2017] VSCA 110 National Union Fire Insurance Co of Pittsburgh v Turner Construction Co, 119 AD 3d 103 (2014) North Counties Engineering Inc v State Farm General Insurance Company 224 Cal App 4th 902 (2014) Omega Proteins Ltd v Aspen Insurance UK Ltd [2010] EWHC 2280 Orica Ltd v CGU Insurance Ltd (2003) 59 NSWLR 14; [2003] NSWCA 331 Parker v Lewis (1873) L.R. 8 Ch App 1035 Penrith City Council v Government Insurance Office (1991) 24 NSWLR 564 Pickford & Black Ltd v Canadian General Insurance Co (1976) 64 DLR (3d) 179 Post Office v Norwich Union Fire Insurance Society Ltd [1967] 2 QB 363 QBE Insurance Ltd v Nguyen (2008) 100 SASR 560; [2008] SASC 138 Quintano v B W Rose Pty Ltd [2008] NSWSC 793 Selected Seeds Pty Ltd v QBEMM Pty Limited (2010) 242 CLR 336; [2010] HCA 37 Siegwerk Australia Pty Ltd v Nuplex Industries (Aust) Pty Ltd [2013] FCAFC 130; (2013) 303 ALR 412 Suncorp Metway Insurance Ltd v Landridge Pty Ltd (2005) 12 VR 290; [2005] VSCA 223 Unity Insurance Brokers Pty Ltd v Rocco Pezzano Pty Ltd (1998) 192 CLR 603; [1998] HCA 38 Vero Insurance Ltd v Baycorp Advantage Ltd [2004] NSWCA 390; (2004) 23 ACLC 119 Vero Insurance Ltd v Power Technologies Pty Ltd [2007] NSWCA 226; (2007) 14 ANZ Ins Cas 61-745 Weedo v Stone-E-Brick Inc 405 A 2d 788 (1979) Weir Services Australia Pty Ltd v AXA Corporate Solutions Assurance [2017] NSWSC 259 Windsurf Pty Ltd v HIH Casualty & General Insurance Ltd [1999] QCA 360; [1999] ANZ Ins Cas 61-447 Woodlawn Capital Pty Ltd v Motor Vehicles Insurance Ltd [2016] NSWCA 28; (2016) 111 ACSR 377 Texts Cited: Christopher C French, "Revisiting construction defects as 'occurrences' under CGL insurance policies" (2016) 19 University of Pennsylvania Journal of Business Law 101 J E Marshall SC and J A C Potts, "Indemnity for Settlements: Proof of underlying liability" (2008) 19 ILJ 97 Category: Principal judgment Parties: Weir Services Australia Pty Ltd (Appellant/Cross-Respondent AXA Corporate Solutions Assurance (Respondent/Cross-Appellant ) Representation: Counsel: Mr R A Dick SC, Mr P W Flynn (Appellant/Cross-Respondent) Dr A S Bell SC, Mr M R Elliott SC (Respondent/Cross-Appellant)

[2]

Solicitors: Herbert Smith Freehills (Appellant/Cross-Respondent) Clyde & Co Australia (Respondent/Cross-Appellant) File Number(s): 2017/099799 Decision under appeal Court or tribunal: Supreme Court of New South Wales Jurisdiction: Equity Division, Commercial List Citation: [2017] NSWSC 259 Date of Decision: 17 March 2017 Before: Hammerschlag J File Number(s): 2016/73749

[3]

[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.] HEADNOTE [This headnote is not to be read as part of the decision] The appellant (Weir) was retained by Phil Gold in connection with the refurbishment of a semi-autogenerous grinding mill (SAG Mill) to be used in a mineral processing facility. Some two years after completion of the refurbishment work, a circumferential weld disintegrated and one of the end plates became detached from the mill which was extensively damaged and unserviceable for some time. Phil Gold alleged that the disintegration of the weld resulted from one or both of two factors: inadequacy of welding undertaken during the refurbishment and failure to detect in the course of the refurbishment that pre-existing welding was in need of renewal. Phil Gold commenced arbitration proceedings against Weir claiming substantial damages. Before the issue of an award and some two years after the commencement of the arbitration proceedings, Weir and Phil Gold entered into a cap and collar agreement providing that if Phil Gold was awarded damages in the arbitration its recovery would be limited to US$10.725 million (cap) and that Weir would pay Phil Gold a fixed amount of US$2 million (collar) regardless of the outcome of the arbitration proceedings. The arbitration tribunal later ruled that Weir had no liability in damages to Phil Gold. Weir was left to bear its own substantial costs. Weir held a broadform liability policy with AXA which was concerned with personal injury and property damage in connection with Weir's business. Cl 2.1 required property damage to be caused by an "occurrence". Cl 2.2 provided an indemnity for costs and expenses awarded against Weir. The policy contained exclusions in cl 3.4 for professional services and cl 3.7 for product defects. Weir pleaded additional occurrences in relation to the cl 2.2 case against AXA as leave was only granted by the primary judge to amend those pleadings. The primary judge dismissed Weir's claims and found on four main issues that: (a) Weir had not established under cl 2.1 that an "occurrence" had resulted in property damage; (b) because cl 2.1 did not operate in favour of Weir, legal expenses incurred in the arbitration were not within cl 2.2; (c) the cl 3.4 professional services exclusion defeated any entitlement under cl 2.1 or 2.2 in any event; and (d) the cap an collar agreement was not a settlement agreement on which Weir could rely to establish legal liability. Held (dismissing the appeal and the cross-appeal): 1 The primary judge correctly concluded that the cap and collar agreement did not cause Weir to be legally liable to pay money by way of compensation for damages (Barrett AJA, Meagher JA agreeing, White JA contra). Post Office v Norwich Union Fire Insurance Society Ltd [1967] 2 QB 363; Distillers (Bio-Chemicals) (Aust) Pty Ltd v Ajax Insurance Co Ltd (1974) 130 CLR 1; [1974] HCA 3; Orica Ltd v CGU Insurance Ltd (2003) 59 NSWLR 14; [2003] NSWCA 331 applied. 2 The primary judge was correct in concluding the failure of the circumferential weld was not an occurrence for the purposes of cl 2.1 (Barrett AJA, Meagher JA agreeing, White JA contra) AXA Reinsurance (UK) Plc v Field [1996] 1 WLR 1026; Australian Racetrack Corporation Ltd v QBE Insurance (Europe) Ltd [2013] NSWCA 175; (2013) 17 ANZ Ins Cas 61-971; GIO General Ltd v Newcastle City Council (1996) 38 NSWLR 558 applied. 3 The primary judge erred in not finding that, subject to any exclusions in cl 3, AXA was liable to Weir under cl 2.2 for the reasonable legal costs incurred in defending the arbitration proceedings as on this case the "occurrence" required under cl 2.1 of the policy was the cyclic loading forces (Meagher JA); the failure of the circumferential weld (White JA); or the state of affairs occasioned by Weir's faulty workmanship (Barrett AJA). 4 The primary judge was correct in his conclusion that the professional services exclusion in cl 3.4 would have defeated any claim for an indemnity under cl 2.1 or costs under cl 2.2 (Barrett AJA, Meagher and White JJA agreeing). Chubb Insurance Company of Australia Ltd v Robinson (2016) 239 FCR 300; [2016] FCAFC 17; FIA General Insurance Company Ltd v Gold Coast City Council [1995] 2 Qd R 341; GIO General Ltd v Newcastle City Council (1996) 38 NSWLR 558; Suncorp Metway Insurance Ltd v Landridge Pty Ltd (2005) 12 VR 290; [2005] VSCA 223; Kyriackou v ACE Insurance Ltd [2013] VSCA 150 applied. 5 The product contained a defect because the welding work (including investigation and assessment) had been performed in an unworkmanlike way and therefore cl 3.7 operated to the effect that Weir was not covered for damage to the welded component and the mill as a whole attributable to the defective welding (Barrett AJA, Meagher and White JJA agreeing). 6 Cl 3.7 would have defeated Weir's insurance claim in respect of costs and expenses only to the extent they related to solely that part of the mill that was damaged (Barrett AJA, Meagher and White JJA agreeing). Vero Insurance Ltd v Baycorp Advantage Ltd [2004] NSWCA 390; (2004) 23 ACLC 119

[4]

Judgment

MEAGHER JA: I agree with the orders proposed by Barrett AJA and, subject to one matter, with his Honour's reasons. That matter is the basis on which cl 2.2 is engaged in relation to the claim made by Phil Gold against Weir (the abbreviations being those adopted by Barrett AJA). Before addressing that matter, I add the following observations in support of his Honour's conclusion that Weir's liability to pay Phil Gold US$2,000,000 under the cap and collar agreement was not within the indemnity provided by cl 2.1 of the policy.
Since Post Office v Norwich Union Fire Insurance Society Ltd [1967] 2 QB 363 at 373-374 (Denning MR), expressions involving legal liability in liability insurance contracts have generally been understood as referring to liability as determined, rather than the liability asserted by a third party claimant or the underlying liability that accrues upon a legal injury: Cacciola v Fire & All Risks Insurance Co Ltd [1971] 1 NSWLR 691 at 695 (Jacobs JA, Moffitt JA and Taylor AJA agreeing); Vero Insurance v Baycorp Advantage [2004] NSWCA 390; (2004) 23 ACLC 199 at [48] (Tobias JA, Giles and McColl JJA agreeing). In the appeal to this Court, AXA accepts that a liability to which the insuring clause responds is capable of being determined by a judgment, arbitral award or reasonable settlement. It submits, however, that the cap and collar agreement was not a settlement which had that effect, not because it was unreasonable, but because it contemplated the determination of Weir's liability (if any) to Phil Gold as the outcome of the arbitration process.
Under a conventional monetary settlement, a plaintiff agrees to accept an ascertained sum (an accord executory), or immediately accepts a fresh promise to pay such a sum (an accord and satisfaction), in substitution for or satisfaction of the asserted underlying liability: see McDermott v Black (1940) 63 CLR 161; [1940] HCA 4 at 183-185 (Dixon J). In that way, a payment or promise to pay is consideration for a release from an asserted liability, and its quantum generally reflects each party's risk aversion and assessment as to the merits of that assertion of liability. The sum is not an amount which, in a strict sense, the insured is legally liable to pay as compensation for legal injury. But it is treated as such for the purpose of an insuring clause such as cl 2.1 because it is promised or paid in settlement of an asserted liability to pay compensation for a legal injury.

[5]

Cap and Collar Agreement

The Cap and Collar Agreement did not by itself crystallise Weir's liability to Phil Gold. Weir's liability to Phil Gold arose from a combination of the Cap and Collar Agreement and the award.
There was no challenge to the reasonableness of the Cap and Collar Agreement.
The relevant words of the policy are that "We will pay all amounts that you become legally liable to pay by way of compensation for … Property Damage …".
The question is whether the words "you become legally liable to pay" refer to an underlying legal liability which the insurer can dispute in an action on the policy, notwithstanding that it has chosen not to defend the claim, or to a legal liability that arises either by judgment or award, or a reasonable settlement, or a combination of the two.
Even if AXA were liable to indemnify Weir, it was not obliged to assume defence of Phil Gold's claim. One basis upon which an insured may be entitled to recover its costs of defending a claim is as damages arising from an insurer's repudiation of the insurance contract where that repudiation has been accepted. This was the basis for the decision of Halse Rogers J in Edwards v Insurance Office of Australia Ltd (1933) 34 SR (NSW) 88 at 98. Although in my respectful view the reasoning of Davidson J was not very clear, and at one point his Honour referred to the fact that the insurer had repudiated liability, his reasons did not proceed on the basis that the contract of insurance had been discharged. Rather, his Honour concluded that although, prima facie, the only means of proof that the insured was liable would be by defending the proceedings up to judgment, then, just as a judgment would be evidence of, or conclusive as to, liability, so a reasonable compromise would establish liability (at 94).
Other authorities establish that an insurer who elects not to defend the claim brought against the insured will be bound by a reasonable settlement made between the insured and the claimant notwithstanding that the insurer has not repudiated the contract of insurance. These include Post Office v Norwich Union Fire Insurance Society Ltd [1967] 2 QB 363 at 373-374 (per Lord Denning MR), 378 (per Lord Salmon LJ); Distillers (Bio-Chemicals) (Aust) Pty Ltd v Ajax Insurance Co Ltd (1974) 130 CLR 1 at 26 per Stephen J; Penrith City Council v Government Insurance Office (1991) 24 NSWLR 564 at 571 per Giles J, approved in Unity Insurance Brokers Pty Ltd v Rocco Pezzano Pty Ltd (1998) 192 CLR 603; [1998] HCA 38 at [64], 626 per Gummow J; Hennessy Glass Aluminium Systems Pty Ltd v Eagle Star Trustees Ltd; sub nom White Industries Qld Pty Ltd v Hennessey Glass & Aluminium Systems Pty Ltd [1999] 1 Qd R 210 at 219 per Pincus JA, 226-227 per Derrington J; and Hurlock v Council of the Shire of Johnstone [2002] QCA 256 at [28]-[31] per Williams JA, White and Wilson JJ concurring (see also J.E. Marshall SC and J.A.C. Potts, "Indemnity for Settlements: Proof of underlying liability" (2008) 19 ILJ 97 for a comprehensive review of the authorities).

[6]

Clause 2.1: Property Damage caused by an Occurrence etc.

Clause 2.1 which provides insurance for amounts Weir becomes legally liable to pay for damages [to] tangible property which is caused by an occurrence and happens in connection with the insured business. The occurrence must cause and result in Property Damage. The "occurrence" relied on for the purposes of cl 2.1 was the fracturing of the weld. Barrett AJA and the primary judge have concluded that if the fracturing of the circumferential weld is the "occurrence" relied on, that fracturing cannot itself be the damage for the purposes of clause 2.1 (at [82], [94]-[98]). "Occurrence" means an event which results in Property Damage neither expected nor intended by the insured.
The mill was damaged because the welds failed. The failure of the welds was itself the damage to the mill. Both the welds and the mill as a whole were "tangible property" within the meaning of the definition of "Property Damage". If the focus is only on the welds then the logic of Barrett AJA's reasoning is inescapable. But if the focus is on the whole machine then it is natural and not illogical to say that the mill was damaged by the fracturing of the welds. That is so notwithstanding that it is the fracturing of the welds that is the damage to the mill. That was the cause of the mill, considered as a whole, being damaged. The question is one of the identification of the tangible property that was damaged.
The mill owner, on viewing the mill after the incident could naturally and properly say "My mill is damaged". In answer to the question "How was it damaged?" a proper response would be "By the circumferential welds failing".
In claiming indemnity for costs and expenses under cl 2.2, Weir framed its case on the alternative bases that the occurrence resulting in property damage was cyclic loading or Weir's allegedly faulty workmanship. Meagher JA accepts the first of these formulations; Barrett AJA the second. I think that at least the first is open, but for the reasons I have given, neither is necessary.
As to the first, I agree with Meagher JA that cyclic loading was the repeated exposure to a general condition within the meaning of the definition of occurrence and that it resulted in damage to tangible property that was neither expected nor intended. The fact that the causal connection arose from the forces imposed by the cyclic loading on the defective welds and not from the cyclic loading alone does not, in my respectful view, mean that the cyclic loading did not result in or cause the damage to property, however the relevant property is identified.

[7]

Professional Services Exclusion

Barrett AJA rightly observes (at [55]) that in opening the appeal senior counsel for Weir said that all issues of construction fell to be determined by the proper characterisation of the claims advanced in the arbitration proceeding. However, during the course of oral submissions Weir retreated from that position and, consistently with its written submissions (para [34]), advanced an argument put at trial that the applicability of the "professional services" exclusion depended not on what Phil Gold alleged in the arbitration but whether in fact the work Weir did or failed to do involved the rendering or failure to render professional services. Weir contended that its failure was the failure adequately to carry out welding work, and that this was not within the concept of provision of professional services.
It is unnecessary to decide whether the applicability of the exclusion in Weir's insurance policy is to be assessed by how the case against Weir was framed or by the facts as established either in the arbitration or in the proceedings to enforce the policy (compare Quintano v B W Rose Pty Ltd [2008] NSWSC 793 per Brereton J at [9] and cases there cited, Omega Proteins Ltd v Aspen Insurance UK Ltd [2010] EWHC 2280 at [49] and [61]; and Siegwerk Australia Pty Ltd (in liq) v Nuplex Industries (Aust) Pty Ltd [2013] FCAFC 130; (2013) 305 ALR 412 at [123]).
In either case, for the reasons given by Barrett AJA, the liability incurred by Weir arose from its provision of, or failure adequately to provide, professional engineering services. Welding was part of those services.

[8]

Product defect exclusion

I agree with Barrett AJA's reasons on this issue.

[9]

Appropriate Orders

I otherwise agree with Barrett AJA's reasons and the orders his Honour proposes.
BARRETT AJA: Weir Services Australia Pty Ltd ("Weir") appeals against the dismissal by Hammerschlag J of an action brought by it in the Supreme Court against AXA Corporate Solutions Assurance ("AXA"). [1] Weir's case at trial was that AXA was bound by a policy of indemnity insurance to indemnify it for two items of expenditure: first, an amount paid by Weir to Phil Gold Processing and Refining Corp ("Phil Gold") under a deed made by those companies on 8 December 2015; and secondly, its costs of defending arbitration proceedings brought against it by Phil Gold.
The deed was referred to by the primary judge and in submissions as a "cap and collar agreement". I shall adopt the same terminology without intending thereby to attribute to the deed any effect beyond that which it had according to its terms. [2]

[10]

The facts in brief

In December 2007, Phil Gold retained Weir in connection with the refurbishment of a semi-autogenous grinding mill ("SAG Mill") which was to be used in Phil Gold's mineral processing facility at Masbate in the Philippines. The primary judge's summary description of the SAG Mill was as follows: "The SAG Mill was originally manufactured in the 1970s. Its main components are a central rotating drum and conical end plates on either side. Ore enters the drum through one end and exits through the other. The drum consists of four separate shell sections bolted and welded together. The drum is welded to the two end cones by circumferential weld. There is a circumferential weld at the end at which unprocessed ore enters, and another where the crushed ore exits. The drum rests on two trunnions and is rotated by electric motors. Steel balls can be put in the drum to enhance crushing ability."
The mill thus consisted of several components, including the drum (also referred to as the shell); the end plates (being the feed and discharge plates, also known as mill heads); and a steel flange and bolts. These were joined together so as to form an operating machine which rotated and thereby crushed ore loaded into it. At the time of purchase by Phil Gold, the mill was in pieces lying in a field at Edmonton, Canada
The refurbishment assignment was undertaken by Weir at premises in Canada. The pieces were transported to those premises for the purpose. Following completion of the assignment, the mill was recommissioned at Phil Gold's facility in the Philippines in April 2009. In July 2011, however, a circumferential weld disintegrated and one of the end plates became partially detached from the drum. The SAG Mill was extensively damaged and was unserviceable for some time. Disintegration of the weld was alleged by Phil Gold to have resulted from one or both of two factors: inadequacy of welding undertaken as part of the refurbishment and failure to detect in the course of the refurbishment that pre-existing welding was in need of renewal.
In December 2013, Phil Gold commenced arbitration proceedings against Weir claiming substantial damages. It alleged breaches of contract and contraventions of s 52 of the Trade Practices Act 1974 (Cth) as in force at the material time. Some two years after the proceedings were commenced (and before the arbitral tribunal issued a final award), Weir and Phil Gold entered into the cap and collar agreement the central terms of which were, in substance, that, if Phil Gold was awarded damages in the arbitration, its recovery from Weir would be limited to US$10.725 million (the "cap") and that Weir would pay Phil Gold a fixed amount of US$2 million regardless of the outcome of the arbitration proceedings (the "collar").

[11]

The insurance contract

Weir held three insurance policies issued by AXA. The contract of insurance relevant for present purposes is a broadform liability policy. [3] That policy was concerned with personal injury and property damage caused by an "occurrence" in connection with Weir's business. The general indemnity for such injury or damage was subject to certain exclusions. A schedule to the policy described Weir's business in this way: "Industrial Holding Company, Manufactures & Engineers of a variety of Valves, Pumps, Hydrocyclones, Wear Linings, Filtration Systems & rubber products, Patterns & Model Makers, Design & Installation use, Steel Stockholders & Manufacturers of Bespoke Wrought Products & Castings, Equipment Maintenance & Process Support to customers in Conventional Power Generation & Renewable Energy of Oil & Gas, Marine, Nuclear & General Industry. Sale and Service Centre for Pumps and Well Service Flow line Equipment for the Oil and Gas Industries both On-Shore and Off-shore. Rental of Treating Iron and Safety Products and the performance of Equipment Maintenance, Service & Repair work to own Rental Fleet and Customer Owned Products, Recertification & refurbishment/repair of pumps. Engineers and suppliers for the areoneumatic industry, BP and Ash & Ore Slurries. Equipment inspection, certification & testing services, rental of equipment; Property Owners; and any related activities."
The central provisions of the policy were as follows ("You" and "the insured" being Weir and "We" being AXA): "2. WHAT WE COVER YOU FOR You are covered for: 1. Legal Liability We will pay all amounts that you become legally liable to pay by way of compensation for: ● Personal Injury; or ● Property Damage; which: ● happens during the period of insurance; and ● is caused by an occurrence and happens in connection with your business; ● provided that: • our liability for all compensation payable in respect of any claim or a series of claims caused by or arising out of one occurrence shall not exceed the limit of liability; • all claims for compensation that result from one original source, or one original cause, shall be considered to have been caused by a single occurrence; and • our total aggregate liability during any one period of insurance for product liability claims shall not exceed the limit of liability. 2. Costs and Expenses In addition to the limit of liability, we will pay in relation to a claim covered under this Policy, all: ● expenses incurred by us in defence of a claim; ● costs awarded against you and all interest accruing after judgement until we have paid, tendered or deposited in court that part of any judgement which does not exceed the limit of liability; ● reasonable costs and expenses, other than loss of earnings, incurred by you with our written consent; and ● costs or expenses incurred by you for rendering first aid to others at the time of any Personal Injury; provided that: • if to dispose of or settle a claim covered under this policy, compensation is payable in excess of the limit of liability, our liability in respect of these costs and expenses will be limited to the proportion of the costs and expenses as the limit of liability bears to the total compensation payable to dispose of or settle the claim; • We will not pay for any costs or expenses that are incurred after We have paid or agreed to pay an amount equal to the Limit of Liability; and • in relation to any claim made and actions instituted within the United States of America or the Dominion of Canada or their territories, protectorates or dependencies, Our liability to pay any of the costs or expenses detailed above shall be included in the Limit of Liability, and not paid in addition to the Limit of Liability. 3. WHAT IS NOT COVERED You are not covered for: … 4. Professional Services Liability caused by or arising from the rendering of or failure to render professional advice or service by You or any error or omission connected therewith. This exclusion shall not apply to: (a) the rendering of or failure to render medical advice or service by Medical Persons employed by You to provide first aid and other medical services on Your premises; or (b) claims in respect of Personal Injury or Property Damage where such professional advice or service is given without fee or charge. … 7. Product Defect Property Damage to Your Products if such Property Damage is attributable to any defect in Your Product. … 5. DEFINITIONS … 'Occurrence' means an event, including continuous or repeated exposure to substantially the same general conditions, which results in Personal Injury or Property Damage neither expected nor intended by You. … 'Product' means anything (after it has ceased to be in Your possession or in Your legal control) which has been manufactured, grown, extracted, produced, processed, constructed, erected, installed, assembled, altered, repaired, serviced, treated, sold, supplied or distributed by You in the course of Your business, including any packaging or containers (other than a Vehicle) used to package or contain Your Product(s). ... 'Property Damage' means physical loss, damage or destruction of tangible property including the resultant loss of use, or loss of use of tangible property which has not been physically damaged or destroyed, provided such loss of use is caused by an Occurrence."

[12]

The proceedings below and issues on appeal

Weir claimed that AXA was obliged by clause 2.1 of the policy to indemnify it for the "collar" amount of US$2 million that became payable by it to Phil Gold under the cap and collar agreement. It also claimed that clause 2.2 required AXA to indemnify it for its costs of defending the arbitration. AXA denied indemnity in respect of both claims. Weir maintained that, by refusing to meet the claims, AXA was in breach of the contract of insurance. Weir sued for damages accordingly.
The primary judge dismissed Weir's claims in their entirety. He found against Weir on four central issues, being of the opinion that: 1. the conditions prescribed by clause 2.1 of the policy were not satisfied because Weir had not established that an "occurrence" had resulted in "Property Damage"; 2. because clause 2.1 did not operate in favour of Weir, legal expenses incurred by Weir in the arbitration were not within clause 2.2; 3. in any event, the clause 3.4 policy exclusion concerning "professional services" would have operated to defeat any entitlement on Weir's part otherwise arising under clause 2.1 or clause 2.2; and 4. whereas an insured can, as against its insurer, rely on a reasonable settlement or compromise with a third party as establishing the existence and quantum of liability to that third party if certain conditions are satisfied, the cap and collar agreement entered into by Weir with Phil Gold was not a settlement or compromise of that type.
Weir maintains on appeal that the primary judge was in error as to all these matters. AXA's position is that the judge's decision was correct not only for the reasons he gave but also because the product defect exclusion in clause 3.7 of the policy operated. This last aspect was in issue at trial and was determined by the primary judge adversely to AXA. It is now the subject of a notice of cross-appeal and notice of contention filed by AXA.

[13]

Construing insurance contracts

The general approach to be taken to the construction of insurance contracts is conveniently summarised in the recent judgment of Beach and McLeish JJA and Keogh AJA in MLC Nominees Pty Ltd v Daffy [2017] VSCA 110. [4] Drawing on earlier authority (particularly McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579; [2000] HCA 65 at [22] and Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7 at [35]), their Honours said (at [66]): "As has been said before, a policy of insurance is a commercial contract and should be given a businesslike interpretation. Interpreting a policy of insurance (like any other commercial document) requires attention to the language used by the parties, the commercial circumstances which the document addresses, and the objects which it is intended to secure. That said, it has been recognised that, in cases of ambiguity, a 'liberal approach' will generally be adopted in the construction of insurance contracts. This does not mean, however, that a court can attribute a different meaning to the words of a policy simply because the court regards the meaning as otherwise working a hardship on one of the parties." [citations omitted]
Important in relation to the construction of exclusion clauses is the following statement in Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 161 CLR 500; [1986] HCA 82 at CLR 510: [T]he interpretation of an exclusion clause is to be determined by construing the clause according to its natural and ordinary meaning, read in the light of the contract as a whole, thereby giving due weight to the context in which the clause appears including the nature and object of the contract, and, where appropriate, construing the clause contra proferentem in case of ambiguity. [5]
The insuring clause and any exclusion clause must be read together in an harmonious way so that due effect is given to both and the right conferred by the former is not negated or rendered nugatory by the construction adopted in relation to the latter. [6]
Finally, I note that senior counsel for Weir said in opening his client's appeal that, in this case, all issues of construction of the policy fall to be determined by the proper characterisation of the claims advanced in the arbitration proceedings. Senior counsel for AXA accepted this.

[14]

The reasonable settlement issue

A convenient starting point in the analysis of the issues arising on appeal is the question whether, assuming all other matters in contention are determined favourably to Weir, its obligation to pay Phil Gold US$2 million under the cap and collar agreement was a liability comprehended by clause 2.1 of the insurance policy - in other words, whether that contractual obligation was such that Weir was legally liable to make a payment to Phil Gold by way of "compensation" for "Property Damage" suffered by Phil Gold.
There was never a judicial or arbitral determination that Weir was legally liable to pay any sum to Phil Gold by way of compensation for anything. The arbitral award (which, of course, had its foundation in the parties' contract) established that Weir was not liable to pay damages on any of the bases asserted by Phil Gold in the arbitration. No right to compensation accrued to Phil Gold as a result of the arbitration. As the primary judge noted, however, established authority recognises "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". His Honour quoted from the judgment of Menzies J in Distillers (Bio-Chemicals) (Aust) Pty Ltd v Ajax Insurance Co Ltd (1974) 130 CLR 1; [1974] HCA 3 ("Distillers") at CLR 9-10, as follows: "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."
A statement of Stephen J in the same case (at 24-25) was also quoted: "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 American Law Reports, vol 142 (1943), p 812 and its supplements."

[15]

Clauses 2.1 and 2.2 - Weir's pleaded case and the judge's decision

The next question is whether clauses 2.1 and 2.2 would have availed Weir as against AXA if, contrary to the conclusion just stated, the cap and collar agreement had been a settlement crystallising and determining Weir's liability to Phil Gold. [10]
In its amended commercial list statement, Weir pleaded the various provisions of the policy, Weir's engagement to "carry out certain repair and refurbishment services in relation to" the SAG Mill, identification of "gouge and weld" as a service that Weir was to perform and the welding of the plates to the drum as part of that work. That welding was designated the "Circumferential Weld". Paragraphs 18 and 19 followed in these terms: "18. On or around 10 July 2011, the SAG Mill became inoperable following the fracturing of the Circumferential Weld. 19. The fracturing of the Circumferential Weld caused: (a) physical damage to components of the SAG Mill; and (b) the SAG Mill as a whole to become inoperable."
Weir then pleaded, at paragraph 35 that, by reason of the matters pleaded earlier, as just described, "the fracturing of the Circumferential Weld was" an "Occurrence which happened in connection with the business of" Weir and "caused Property Damage" during the period of insurance. The pleading went on to allege that, by reason of all these matters, Weir became legally liable to pay the "collar" amount to Phil Gold by way of compensation for Property Damage, with the result that AXA's refusal to indemnify Weir for the "collar" amount was a breach of the contract of insurance.
The claim just outlined was, of course, based on clause 2.1 of the policy. The claim based on clause 2.2 was more expansive because, in response to an application by Weir for leave to amend both claims, the judge allowed amendment in relation to the clause 2.2 claim but not in relation to the clause 2.1 claim. By the amendment, Weir alleged, in the alternative, four "occurrences". The first was the fracturing of the circumferential weld, as in the pleading concerning clause 2.1. The other three alleged occurrences were (a) "cyclic loading" that Phil Gold alleged in its statement of claim; (b) cyclic loading, coupled with the allegedly defective nature of the repair work to the Circumferential Weld performed by Weir; and (c) the performance by Weir of the repair work to the circumferential weld that Phil Gold alleged was defective.

[16]

Clauses 2.1 and 2.2 - grounds of appeal

In relation to the clause 2.1 case, Weir accepts that it must identify an "occurrence" and establish that the relevant loss or damage was caused by that "occurrence". It complains that the primary judge misconstrued its case in this respect, in that his Honour took the view that, because the relevant "occurrence" was claimed to be the failure of circumferential weld for which Weir carried responsibility, there was a conflation or confusion of "occurrence" on the one hand and loss or damage on the other - the failure of the weld being both an event in its own right and damage to the item that was welded. Weir repeats in this Court its contention that the failure of the weld was itself an "occurrence".
In relation to the clause 2.2 issue, Weir's case on appeal is that, if, contrary to its principal contention, the failure of the weld was not an "occurrence" that produced relevant consequences, the judge should have held that, as the amended pleading alleged, the cyclical loading or defective repair work by Weir or a combination of these was relevantly an "occurrence".

[17]

Clause 2.1 - assessment and conclusion

On one approach, the first step in deciding whether clause 2.1 applies is to identify an "occurrence". Given the clause 5 definition of that term, identification of an "event" is necessary. The ordinary meaning of "event" is "something which happens at a particular time, at a particular place and in a particular way": Axa Reinsurance (UK) Plc v Field [1996] 1 WLR 1026 at 1035 (Lord Mustill). Having regard to the additional words "including continuous or repeated exposure to substantially the same general conditions", however, the "occurrence" concept extends beyond a single isolated happening. In Australian Rail Track Corporation Ltd v QBE Insurance (Europe) Ltd [2013] NSWCA 175; (2013) 17 ANZ Ins Cas 61-971 ("Australian Rail Track") at [22], Meagher JA explained that, because of those additional words, "occurrence" describes "a cause consisting of a continuing state of affairs" and is not confined to something which happens at a particular time, at a particular place and in a particular way.
Once the relevant event or continuing state of affairs is identified, it is necessary, according to the definition of "occurrence", to decide whether it "resulted in" loss, damage or destruction within the definition of "Property Damage" [13] and, if so, whether that consequence of "Property Damage" was expected or intended by Weir. Only if it is found that the event or state of affairs resulted in "Property Damage" which was not expected or intended by Weir can it be said that there was an "occurrence" as defined. [14]
In most cases, however, the inquiry is likely to be approached from the opposite direction. Loss or destruction of property (or damage to it) is a readily observable physical phenomenon. If and when loss, damage or destruction is observed, one may search for an event or state of affairs from which it resulted. Only if such an event or state of affairs is discovered (and it is determined that the loss, damage or destruction was not expected or intended by the insured) can it be said that there has been an "occurrence" for the purposes of the policy.
In the present case, relevant allegations made by Phil Gold in the arbitration proceedings were: [15] "45. On 10 July 2011, the Circumferential Weld between the Drum and Discharge End Plate fractured. This rapid tearing fracture extended 2,500 mm, or more than one third, around the circumference of the Drum, and measured 250 mm at its widest point. A drawing showing the location of the fracture is attached to Appendix 4. Photographs of the fracture are attached at Appendix 5. 46. This weld failure resulted in consequential and catastrophic damage: 46.1 The Steel Flange and Bolt connecting the Drum to the Discharge End Plate was cracked as shown in the top photograph at Appendix 6. 46.2 The rotating Drum was detached and deranged from the Discharge End Plate as shown in the bottom photograph attached at Appendix 6. 47. The Steel Flange and Bolt, Drum and Discharge End Plate were damaged because, by reason of the fact that they were cracked, deranged and disconnected, their function and usefulness was significantly impaired to the extent that the SAG Mill could not continue to operate safely or at all and had to be shut down immediately. This damage necessitated immediate and extensive repair to enable ordinary working to be continued."

[18]

Clause 2.2 - assessment and conclusion

That conclusion also applies to the case based on clause 2.2. In the clause 2.2 context, however, there were, according to Phil Gold's pleaded case, other candidates for the role of an event or state of affairs resulting in property damage so as to be within the definition of "occurrence". Those candidates were the "cyclic loading" and Weir's allegedly faulty workmanship (or a combination of these).
The primary judge correctly observed [17] that cyclic loading is merely physical force to which components are subjected in the ordinary course of operation. The term refers to continuous and repeated application of a load on a structural part - in this case, the ordinary stress on metal parts that results from the rotation of the SAG Mill's drum in the course of normal operation. There is, as AXA submits, a fundamental difficulty in classifying this cyclic loading as an "occurrence" as defined. The ongoing and regular use in the ordinary course of a properly refurbished and functioning mill is not something that can, of itself, result in damage that Weir or anyone else does not expect or intend. One of the essential attributes of an "occurrence" is therefore lacking. And even if the cyclic loading were to be viewed as an "occurrence", it would not be one that could ground a claim under the policy because it would not, viewed alone, create legal liability of Weir to pay compensation.
The primary judge correctly rejected the proposition that cyclic loading occurring in the course of the mill's normal operation was itself an "occurrence" grounding a claim under the policy. It is therefore necessary to consider whether faulty workmanship should be held to be an "occurrence".
American courts have addressed that question under similarly worded policies. [18] Despite major divergence in decisions over a period of more than two decades, a positive answer to the question has come to predominate, at least in the abstract. [19] Many of the cases have involved faulty construction work giving rise to problems such as soil subsidence, which, in turn, has been productive of structural instability and damage.
An issue in the American cases has been the extent to which the word "accident", commonly used in definitions of "occurrence", implies an unintended and unexpected quality of the event as distinct from the damage flowing from it. That issue is not relevant here. Weir's policy used the word "event" rather than "accident". [20] The issue of fortuity was, moreover, dealt with expressly in the definition itself by means of the words "neither expected nor intended by You", that is, the insured. There was reference in submissions to the possibility that those words refer to "event" rather than "Property Damage". As a purely semantic matter, that construction cannot be accepted. The word "which" obviously refers back to "event", so that an essential characteristic of the relevant "event" is that it "results in" Property Damage. If it were intended that another essential characteristic of the "event" should be that it was not expected or intended by the insured, the words "and which is" (or, at the least, "and is") would necessarily appear before "neither expected nor intended by You". That phrase describes a necessary characteristic of the property damage, not the event. [21]

[19]

The professional services issue

As has been stated, AXA relied at trial on two policy exclusions, the "professional services" exclusion in clause 3.4 and the "product defect" exclusion in clause 3.7. It is not controversial that, whereas it was for Weir to show that the indemnifying clause covered the liability asserted against it by Phil Gold, it was AXA that carried the burden of proving that Weir's claim relied upon (or had as a necessary element) a matter within clause 3.4 or clause 3.7. The primary judge concluded that the first exclusion operated but the second did not. Both conclusions are challenged in this Court.
Clause 3.4 of the policy states that the insured is "not covered for": "Liability caused by or arising from the rendering or failure to render professional advice or service by You or any error or omission connected therewith."
The clause goes on to say (in paragraph (b)) that this exclusion does not apply to: "Claims in respect of Personal Injury or Property Damage where such professional advice or service is given without fee or charge."
The primary judge held [25] that such liability as Weir may have had to Phil Gold under clause 2.1 of the policy (his Honour's view being, of course, that there was none) was "clearly excluded" by this professional services exclusion. His central findings were that the pleading and particulars of Phil Gold's contract claims in the arbitration alleged failures that were in truth failures to render professional engineering advice or services; that the argument that Phil Gold's claims comprehended a claim that Weir breached a contract to provide non-professional services in the form of welding was untenable for several stated reasons; and that the substance of Phil Gold's s 52 claims was that Weir made misleading representations as to the quality and effect of services that were in reality professional services. His Honour also found that the so-called exception to the exclusion pursuant to paragraph (b) concerning advice or service given gratuitously did not operate.
In this Court, Weir challenges all these findings. It contends that the primary judge erred in analysing the alleged facts underlying each claim and in making a characterisation of them by reference to relevant "professional advice or services" criteria.
Weir points, in particular, to Phil Gold's s 52 case and its allegations that Weir made misleading or deceptive representations. Special emphasis is placed on an alleged representation that the SAG Mill, as repaired and refurbished by Weir, would have a service life of ten years. That, Weir says, was a representation that did not involve the deployment of any professional care, skill or judgment. Weir also points to the fact that defective welding work was at the heart of Phil Gold's claims and that welding as such is not within any concept of a "profession".

[20]

The professional service concept

Consideration of these issues must begin with some examination of the meaning of "professional advice or service" and approaches appropriate to the construction of exemption clauses of this kind. It is axiomatic that a great deal depends on the precise words used and the context in which they are found.
A recent case of relevance is Chubb Insurance Company of Australia Ltd v Robinson (2016) 239 FCR 300; [2016] FCAFC 17 ("Chubb") which concerned a directors and officers policy held by a building contractor engaged in the provision of contract management services. The question was whether an exclusion for an act or omission "in the rendering of any professional services to a third party" applied to the making of a statutory declaration by an officer of the contractor in support of a progress claim submitted to a third party with whom the contractor had made a design and construct contract. The Full Federal Court held that the making of the statutory declaration was not something done "in the rendering of any professional services to a third party". This was mainly because project management was not properly regarded as a "profession" and the making of the statutory declaration did not constitute the rendering of any service to the third party, being no more than the compilation of factual material in the contractor's own interests to assist it in obtaining a contractual payment.
The approach the court took to the meaning of "professional" was summed up at [150] of the judgment: "It seems to us that the expression "professional services" in the relevant exclusion clause in the present case means services of a professional nature furnished by RBG or one of its subsidiaries involving the application of skill and judgment by the person or persons who carried out the relevant activities on behalf of RBG or one of its subsidiaries being services which fall within the scope of a vocational discipline which is generally regarded as a profession."
The court referred (at [148]) to observations in FAI General Insurance Company Ltd v Gold Coast City Council [1995] 2 Qd R 341; [1992] QCA 433 (at Qd R 344) that "professional" in its general sense connotes "pertaining or appropriate to a profession" and "engaged in one of the learned professions". There was also reference (at [152]) to "activities that are truly professional in nature, such as architectural design, engineering, surveying and quantity surveying".

[21]

Weir's contracted task

The first step in assessing the applicability of the clause 3.4 exclusion is to understand precisely what it was that Weir was retained to do. According to the contract documents, Phil Gold retained Weir "to conduct the mechanical refurbishment" of the SAG Mill (as well as two ball mills which are irrelevant to this case). It was provided that Weir's "responsibility extends from refurbishment activities through to assembly and commissioning of the mills". The contract continued: "Weir will retain the responsibility of ensuring the mills are correctly and appropriately installed. PCPRC [that is, Phil Gold] has included the installation of the mills within a lump sum turn key contract with Leighton contractors however during installation Leighton contractors will accept any and all instruction supplied by Weir's on site project manager who will direct the correct installation, alignment and commissioning of the mechanical aspects of the mills. 'Weir Services Australia will operate as the client's representative in a QA/QC capacity to ensure the mills and ancillary equipment are refurbished, installed and commissioned to the satisfaction of the principal and in accordance with sound engineering practise [sic]'" [original emphasis].
The contract also provided that: 1. Weir would supervise the refurbishment of all components of the SAG Mill; 2. Weir would supervise procurement of required items and services external to the direct refurbishment program; 3. Weir would supervise the packaging and shipment of all items from the various repair facilities to the project site; and 4. Weir would supervise installation.
Also: "The SAG Mill refurbishment activities will generally be conducted in Weir Services repair facility located in Edmonton Alberta Canada. Some activities and components may be subcontracted to other specialty contractors under the direction and supervision of Weir Services."
The "scope of activities" was stated to be as set out in an "accompanying budget" and was further described under several headings referring to specific components and areas of work. The accompanying budget was in spreadsheet form arranged in columns. The first column identified items to be provided or performed. Another column stated sums of money in respect of several items. Thus, for example, the first entry in the first column (designated "Management and resources") was broken down into twelve sub-headings against three of which sums of money appeared. The second entry ("Shelf sections (4)") was divided into eight sub-headings one of which was in turn broken into 17 sub-sub-headings, making a total of 25 line items, of which 12 referred to money sums. The spreadsheet extended over five closely printed pages and several hundred line items.

[22]

The professional service exclusion - assessment and conclusion

The question of the application of the clause 3.4 exclusion must be approached separately in relation Weir's alleged liability in contract relevant to the provision of the contracted services and the alleged liability based on the making of the representations on which Phil Gold's s 52 case depended.
Weir accepts that the true nature of its activities in and about the refurbishment itself is to be gathered from the contract but contends that attention should be given separately to each work segment and activity identified by the line items in the budget spreadsheet. Weir does not dispute the abstract proposition that engineering is a professional activity. Nor does it dispute that some of the work segments and activities identified in the spreadsheet are of a professional character. But many, it says, are clearly not; and, to the extent that the postulated liability sought to be sheeted home to Weir concerned these (welding being the non-professional aspect upon which particular reliance is placed), the clause 3.4 exclusion for professional advice or service cannot operate.
In addition, Weir stresses that the scope of its task as defined by the contract documents does not extend to the representations that formed the basis of the s 52 case. The representations were made in part before the contract of retainer was made and in part after; and, Weir says, it was no part of its contracted task to make them.
In my opinion, the nature and scope of Weir's contracted services cannot be determined by the kind of line-by-line dissection of the budget spreadsheet for which Weir contends. The services involved more than the aggregate of the line items. The core task, according to the documents, was "to conduct the mechanical refurbishment" of the SAG Mill. Weir had an overarching responsibility to "direct the correct installation, alignment and commissioning of the mechanical aspects" of the mill and to "ensure" refurbishment, installation and commissioning to Phil Gold's satisfaction in accordance with "sound engineering practice". All aspects of supervision were committed to Weir. The reference to quality assurance ("QA") and quality control ("QC") responsibilities made it clear that specialised skill and judgment were essential components of the task. The assignment as a whole was an engineering assignment and the services Weir was contracted to provide were engineering services and therefore professional services. [30]

[23]

The product defect exclusion

Clause 3.7 of the policy stated that Weir was not covered for "Property Damage" to its "Products" if the damage was "attributable to any defect in" its "Product". The term "Product" was defined in the way set out at [48] above. Read in conjunction with the insurance cover in clause 2.1, the clause 3.7 exclusion had the effect that Weir was not indemnified for an amount that it became legally liable to pay by way of compensation for property damage that was caused by an occurrence and happened in connection with its business, if the property damage was damage "to" Weir's "Product" and was "attributable to" a "defect" in that "Product".
The primary judge recorded [33] that there had been "significant debate" as to what, if anything, Weir's "Product" was for the purposes of clause 3.7. His Honour rejected two alternative characterisations of the "Product" put forward by AXA: first, that it was the whole of the SAG Mill; and, second, that it was the drum. The first was rejected because AXA failed to establish that Weir had possession or control of the SAG Mill as a whole. The second was rejected because the drum, being but one integral part of the complete SAG Mill, was not, on its own, a "thing" (as contemplated by the word "anything") within the definition of "Product". His Honour also rejected Weir's argument that the weld that fractured was its "Product". The weld, he said, was not a "thing"; it was a "method of repair". The primary judge observed [34] that Weir's function was to provide services; and that the provision of services does not always result in a "Product".
The primary judge's decision on the product defect issue was as follows: [35] "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."

[24]

Disposition

Reference has been made to the fact that AXA filed a notice of cross appeal and notice of contention concerning the product liability exception. Although the notice of cross appeal stated grounds on which the decision of the primary judge on that matter was considered erroneous, AXA did not contend for any outcome on appeal other than dismissal. That being so, the matters raised by the notice of cross appeal would more appropriately have been advanced by notice of contention alone. The notice of cross appeal should be treated accordingly and the cross appeal should, as a matter of form, be dismissed. I propose orders as follows: 1. Appeal dismissed. 2. Cross-appeal dismissed. 3. Judgment of the court below affirmed. 4. That Weir Services Australia Pty Ltd pay the costs of AXA Corporate Solutions Assurance.

[25]

Endnotes

Weir Services Australia Pty Ltd v AXA Corporate Solutions Assurance [2017] NSWSC 259 ("Primary judgment").
In broad terms, "cap and collar" is a label applied to financial arrangements under which a party exposed to a potential liability of uncertain amount seeks to hedge its exposure by negotiating with the counterparty an upper limit upon the exposure in return for assuring the counterparty of a particular financial outcome: see generally, Greenclose Ltd v National Westminster Bank Plc [2014] WLR (D) 173; [2014] EWHC 1156 (Ch).
Claims concerning the other two policies were pursued unsuccessfully before the primary judge but are not the subject of appeal.
See also Chubb Insurance Company of Australia Ltd v Robinson (2016) 239 FCR 300; [2016] FCAFC 17 at [42].
See also Selected Seeds Pty Ltd v QBEMM Pty Limited (2010) 242 CLR 336; [2010] HCA 37.
Woodlawn Capital Pty Ltd v Motor Vehicles Insurance Ltd [2016] NSWCA 28; 111 ACSR 377 at [133] (Ward JA); Impact Funding Solutions Ltd v AIG Europe Insurance Ltd [2017] AC 73; [2017] UKSC 57 at [7] (Lord Hodge JSC).
Primary judgment at [145].
It is therefore unnecessary to address the issue here. On the question whether an insured's ability to rely on a reasonable settlement agreement is dependent upon prior repudiatory breach by the insurer and acceptance of the repudiation by the insured, see generally Allianz Australia Insurance Ltd v BlueScope Steel Ltd (2014) NSWLR 332; [2014] NSWCA 276 and Vero Insurance Ltd v Baycorp Advantage Ltd [2004] NSWCA 390; (2004) 23 ACLC 119 at [48]-[49].
Primary judgment at [145].
The primary judge accepted at [151] of the Primary judgment that lack of success by Weir in its clause 2.1 case would not necessarily lead to lack of success on the clause 2.2 case. Disentitlement to recover defence costs under clause 2.2 would depend on whether, as framed, Phil Gold's claim against Weir was one that could, if successful, result in liability on Weir which was covered.

[26]

Primary judgment at [89]-[90].
Primary judgment a [154].
For present purposes, the references to "Personal Injury" are ignored as irrelevant.
It must also be found that the Property Damage caused by the event or state of affairs happened during the period of insurance and in connection with the insured's business. There is no dispute about those matters in this case.
The allegations were advanced in a third amended statement of claim dated 4 December 2013 (referred to in these reasons as simply "the statement of claim").
It was said by Meagher JA in Australian Rail Track Corporation Ltd v QBE Insurance (Europe) Ltd [2013] NSWCA 175; (2013) 17 ANZ Ins Cas 61-971 at [22] that the "event" referred to in a similar definition of "occurrence" was "the mishap or accident or conditions which cause the Personal Injury or Property Damage, as distinct from the happening of that injury or damage".
Primary judgment at [154].
American policies typically define an "occurrence" as "an accident, event or happening, including continuous or repeated exposure to conditions, which results in bodily injury or property damage neither expected nor intended from the standpoint of the insured". Many cases are concerned with the meaning of "accident".
A detailed conspectus of the United States case law since the decision in Weedo v Stone-E-Brick Inc 405 A 2d 788 (1979) may be found in Christopher C French, "Revisiting construction defects as 'occurrences' under CGL insurance policies" (2016) 19 University of Pennsylvania Journal of Business Law 101. The author concentrates on American Family Mutual Insurance Co v American Girl Inc 673 NW 2d 65 (2004) as indicative of reasoning in favour of the proposition and Cincinnati Insurance Co v Motorists Mutual Insurance Co 306 SW 3d 69 (2010) as an example of reasoning against it.
In National Union Fire Insurance Co of Pittsburgh v Turner Construction Co, 119 AD 3d 103 (2014), the Appeals Division of the New York Supreme Court held that a fortuity requirement applied even where "accident" was accompanied by both "event" and "happening" as alternatives.
This construction was adopted in Siegwerk Australia Pty Ltd v Nuplex Industries (Aust) Pty Ltd [2013] FCAFC 130; (2013) 303 ALR 412 at [143].

Weir Services Australia Pty Ltd v AXA Corporate Solutions Assurance

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment (26 paragraphs)

Parties

Legislation Cited (1)

Cases Cited (43)