Allstate Explorations NL v Blake Dawson Waldron (A Firm)

[2010] WASC 97

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA

IN CIVIL

CITATION:   ALLSTATE EXPLORATIONS NL  -v- BLAKE DAWSON WALDRON (A FIRM) [2010] WASC 97

CORAM:   EM HEENAN J

HEARD:   15-20, 22-25 AND 29 & 30 MARCH 2010

DELIVERED          :   7 MAY 2010

FILE NO/S:   CIV 2457 of 2004

BETWEEN:   ALLSTATE EXPLORATIONS NL  (ACN 000 679 023)

First Plaintiff

ALLSTATE PROSPECTING PTY LTD (ACN 000 809 754)
Second Plaintiff

ACN 070 164 653 PTY LTD (ACN 070 164 653)
Third Plaintiff

BEACONSFIELD GOLD NL (ACN 057 793 834)
Fourth Plaintiff

BEACONSFIELD OPERATIONS PTY LTD (ACN 009 493 583)
Fifth Plaintiff

BEACONSFIELD TASMANIA PTY LTD (ACN 004 578 750)
Sixth Plaintiff

AND

BLAKE DAWSON WALDRON (A FIRM)
Defendant

Catchwords:

Action for damages for breach of contract and professional negligence - Solicitors - Construction project - Insurance cover - Solicitors advising on insurance required for parties to planned construction mining contract - Professional indemnity insurance - Managing agent a co-insured - Risks to be insured - Availability of insurance including principal's liability extension - Interests of mine owners and manager in performance of contract - Insurable risks - Causation - Availability of liability insurance with or without extensions - Damages - Limitation of liability under statutory scheme - Limitation of actions by time

Legislation:

Choice of Law (Limitation Periods) Act 1994 (WA), s 5
Law Reform (Miscellaneous Provisions) Act 1946 (NSW), s 6
Limitation Act 1969 (NSW), s 14
Professional Standards Act 1994 (NSW), s 29
Supreme Court Act 1935 (WA), s 32

Result:

Claim for damages for negligence dismissed
Nominal damages for breach of contract

Category:    B

Representation:

Counsel:

First Plaintiff                :     Mr C L Zelestis QC and Mr J A Thomson

Second Plaintiff            :     Mr C L Zelestis QC and Mr J A Thomson

Third Plaintiff               :     Mr C L Zelestis QC and Mr J A Thomson

Fourth Plaintiff             :     Mr C L Zelestis QC and Mr J A Thomson

Fifth Plaintiff                :     Mr C L Zelestis QC and Mr J A Thomson

Sixth Plaintiff               :     Mr C L Zelestis QC and Mr J A Thomson

Defendant:     Mr C C Macaulay SC and Ms A J Golding

Solicitors:

First Plaintiff                :     Tottle Partners

Second Plaintiff            :     Tottle Partners

Third Plaintiff               :     Tottle Partners

Fourth Plaintiff             :     Tottle Partners

Fifth Plaintiff                :     Tottle Partners

Sixth Plaintiff               :     Tottle Partners

Defendant:     Jackson McDonald

Case(s) referred to in judgment(s):

AMEV Finance Ltd v Mercantile Mutual Insurance (Workers' Compensation) Ltd (No 2) [1988] 2 Qd R 351

Anglo‑Cyprian Trade Agencies Ltd v Paphos Wine Industries Ltd [1951] 1 All ER 873

Badat v DTZ Australia (WA) Pty Ltd [2008] WASCA 83

British Traders' Insurance Co Ltd v Monson (1964) 111 CLR 86; [1964] ALR 845

Carmody v Priestley & Morris Perth Pty Ltd [2005] WASC 120; (2005) 30 WAR 318

Commonwealth of Australia v Amman Aviation Pty Ltd [1991] HCA 54; (1991) 174 CLR 64

Co-operative Bulk Handling Ltd v Jennings Industries Ltd (1996) 17 WAR 257; (1996) 9 ANZ Ins Cas 61‑355

Co‑operative Bulk Handling Ltd v State Government Insurance Commission (1990) 3 WAR 145; (1990) 6 ANZ Ins Cas 60‑992

Egis Consulting Australia Pty Ltd v Kvaernea Oil & Gas Australia Ltd [2003] NSWCA 291; (2003) 58 NSWLR 62

Fitzpatrick v Job & Job T/As Jobs Engineering & Ors [2007] WASCA 63; (2007) 14 ANZ Ins Cas 61-731

Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407; (2004) 264 ALR 15

Hawkins v Clayton [1988] HCA 15; (1988) 164 CLR 539

Hepburn v A Tomlinson (Hauliers) Ltd [1966] AC 451; [1966] 1 All ER 418

Heydon v NRMA [2000] NSWCA 374; (2000) 51 NSWLR 1

Hyde Park Residence Ltd v Yelland [1999] RPC 655

International Air Transport Association v Ansett Australia Holdings Ltd [2008] HCA 3; (2008) 234 CLR 151

Johnson v Union Fire Insurance Co of New Zealand (1884) 10 VLRL 154

Luna Park (NSW) Ltd v Tramways Advertising Pty Ltd (1938) 61 CLR 286

Malec v JC Hutton Pty Ltd [1990] HCA 20; (1990) 169 CLR 638

Marzetti v Williams (1830) 1 B&Ad 415

Maurice v Goldsbrough Mort & Co Ltd [1939] AC 452; (1939) 61 CLR 367

May v Mijatovic [2002] WASC 151; (2002) 26 WAR 95

Mediana v Comet [1900] AC 113

North Sea Energy Holdings v Petroleum Authority of Thailand [1999] 1 Lloyd's Rep 483

NRMA Ltd v Heydon [2000] NSWCA 374; (2000) 53 NSWLR 1

Petrofina (UK) Ltd v Magnaload Ltd [1984] QB 127; [1983] 3 All ER 35

Rogers v Whitaker (1992) 175 CLR 479; (1992) 109 ALR 625

Royal Botanic Gardens and Domain Trust v South Sydney City Council [2002] HCA 5; (2002) 186 ALR 289

Sellars v Adelaide Petroleum NL [1994] HCA 4; (1994) 179 CLR 332

Tabet v Gett [2010] HCA 12

Tesco Stores Ltd v Constable [2007] EWHC 2008; [2008] Lloyd's Rep IR 302

Toomey v Scolaro's Concrete Construction Pty Ltd (in liq) (No 5) [2002] VSC 48; (2002) 12 ANZ Ins Cas 61‑519

Trident General Insurance Co Ltd v McNiece Bros Ltd [1988] HCA 441; (1988) 165 CLR 107

Waters v Monarch Fire & Life Assurance Co (1856) 5 E & B 870

Wimpey Construction UK Ltd v Poole [1984] 2 Lloyd's Rep 499

Woodside Petroleum Development Pty Ltd v H&R-E&W Pty Ltd (1997) 18 WAR 539; (1997) 10 ANZ Ins Cas 61‑395

TABLE OF CONTENTS

Conspectus

Background

The Role Of Allstate Explorations NL (Allstate) ('the principal') with regard to insurance arrangements

Analogy with bailment

Professional indemnity cover

Extrinsic evidence
The insurance clause
Significance Of Events Relating To The Negotiation And Settlement Of The Terms Of The Construction Contract
No application for rectification
The origins and evolutions on special condition 3 - insurance
Limitation of total liability by BBR
Availability of first party loss cover in 1998
Limitation issues

Time limitation

Negligence or breach of duty by defendant
Knowledge of omission by the plaintiffs
Negligence - two scenarios
Damages - causation - discount for loss of a chance
Negligence - Plaintiffs' (rejected) construction of cl 3.9 of the special conditions
Consequences of failing to advise
Breach of contract

Conclusion

EM HEENAN J: 

Conspectus

1. In 1998 the first plaintiff, as manager of a mining operation owned by the other five plaintiffs as joint venturers, on its own behalf and on behalf of all the joint venturers, engaged the defendant firm of solicitors to advise upon the drawing and settling of a construction contract for mining and backfill plant at a gold mine at Beaconsfield in Tasmania.  It was a large construction contract to the value of $20 million or thereabouts.  Among the many topics to be provided for in the contract was insurance cover for various parties, including the proposed contractors, for a range of potential risks.  This case involves questions over the nature and extent of the insurance cover for professional indemnity required under the contract, as finally settled.  The provisions of the mine construction contract dealing with this are to be found in special condition 3.0 and, in particular, in special conditions 3.9 and 3.12.  The parties are agreed that those provisions contain the full measure of the insurance obligations of the parties affected but there is a substantial issue between them about the true meaning and construction of special conditions 3.9 and 3.12 insofar as they relate to the nature and extent of risks to be covered under the professional indemnity insurance specified in the contract. 

2. Shortly stated, the plaintiffs' case is that had professional indemnity insurance ('PI insurance') called for by the contract been obtained and maintained by the contractors engaged to undertake the mining project ('the BBR parties') then, in the events which have happened, the plaintiffs would have been able to recover under that insurance an indemnity of $20 million for losses which they suffered as a result of breach of professional duty by the BBR contractors. 

3. As a result of other initiatives, the plaintiffs recovered from other sources $13 million which they agree should be credited to this claim and they now claim the balance of $7 million, plus interest (under s 32 of the Supreme Court Act 1935 (WA)) against their former solicitors for alleged professional negligence and breach of contract. Although this initial description is too simple to be a complete statement of the plaintiffs' claim, a full analysis of which later follows, the essence of the plaintiffs' claim is that the defendant negligently failed to advise them that the professional indemnity insurance cover actually obtained by the BBR parties for this project failed to provide the full nature and extent of cover which the contract prescribed. As a result of that alleged negligence and breach of contract, the plaintiffs assert that they have lost the right to recover an insurance indemnity, which they should have had and would have had, had the contractual obligations of the BBR parties been fully performed.

4. As part of their case the plaintiffs contend that if the defendant's solicitors had advised them, as they contend they should have, of the alleged deficiencies in the insurance cover at an early stage of the construction contract, effective steps would have been taken to ensure that the BBR parties did obtain the full insurance cover which, on the plaintiffs' submission, the contract required.  The plaintiffs also submit, and accept they must prove, that insurance cover of the nature and character which they contend should have been obtained was available and would have been obtained from a suitable underwriter or underwriters at the time if they had been correctly advised.

5. The case has been long and complex but I am satisfied that the result of the litigation turns upon the resolution of the following issues, namely:

   (a)did special condition 3.0 of the Beaconsfield mine construction contract require the BBR parties to obtain and maintain project specific and general professional indemnity insurance which would cover the first plaintiff (or all of the plaintiffs) for what the parties have identified as 'first party loss' by the plaintiffs as opposed to claims for losses solely arising from legal liability incurred by the first plaintiff or any of the plaintiffs in respect of the contract activities;

   (b)if so, was insurance cover for the risk of loss or damage of that character by the plaintiffs, or any of them, available from underwriters in or about August 1998;

   (c)if so, would the first plaintiff (or any of the plaintiffs) have succeeded, as they claim they would have succeeded, in compelling the BBR parties to obtain and maintain such insurance cover if they had been correctly advised by the defendant that the cover actually obtained and proposed was inadequate;

   (d)did the professional indemnity insurance cover required by special conditions 3.9 and 3.12 of the Beaconsfield mine construction contract require that not merely the first plaintiff but, in addition, each of the other plaintiffs as co‑venturers in the BMJV joint venture, be named or identified as additional insureds under the requisite PI policies;

   (e)was the defendant firm negligent and/or in breach of contract in allegedly failing to advise the first plaintiff (or any of the plaintiffs) that the professional indemnity insurance cover actually obtained and proffered by the BBR parties was inadequate;

   (f)if so, what, if any, loss or damage has been caused to the plaintiffs (or any of the plaintiffs) by that alleged negligence or breach of contract.

6. I have reached the conclusion that the plaintiffs' claims, in substance, must fail.  The short reason for that conclusion is that, upon its proper construction, special condition 3.0, and in particular cl 3.9 and cl 3.12, of the construction contract did not specify or require insurance cover of the nature or character which would respond to the kind of 'first party loss' claim advanced by the plaintiffs.  Second, I am satisfied on the evidence that insurance cover of the nature contended for by the plaintiffs was not available from underwriters at any material time.  Third, although I am satisfied that there was a particular deficiency in the PI insurance project specific policy actually obtained and maintained by the BBR parties in that the policy did not name, as it should have done, the first plaintiff as an additional insured, that inadequacy did not cause or contribute to the loss of which the plaintiffs complain.  This is because, had the first plaintiff been named as an additional insured to that policy, as it should have been, neither that policy, nor any other policy complying with the contract, would have responded to a claim for the nature of the loss suffered by the plaintiffs.

Background

1. Performance under the design, supply, construction and commissioning contract for a fully integrated treatment plant and backfill plant at the Beaconsfield Mine joint venture in Tasmania in 1988 and 1999 did not go well. The contract for the performance of that work (the gold treatment plant and backfill plant contract) dated 5 August 1998 (exhibit 1) had been entered into between the six plaintiffs who were, variously, members of the Beaconsfield Mine Joint Venture (BMJV) and the BMJV manager, Allstate Explorations NL, (referred to in the contract as 'the principal') and the engineering design and construction parties who were:  Batepro Australia Pty Ltd and Brown & Root Engineering & Construction Pty Ltd,  both together referred to as 'the contractor' and often referred to in the evidence in this trial as the BBR parties.

2. The contract provided extensive obligations for the design construction and completion according to prescribed standards of the proposed gold treatment plant and backfill plant at the mine site at Beaconsfield.  Included in the contractual obligations of the BBR parties were a series of performance guarantees relating to the quality and standard of the work including obligations relating to times for completion of various stages of the work.  The contract provided for completion by the BBR parties within 12 months and the evidence showed that the contractors went into possession and began work on or about 17 November 1998. 

3. These performance guarantees and completion dates were of major commercial significance to the BMJV parties and the first plaintiff because the financing of the contract and other obligations by the plaintiffs was to be met and secured, to a significant degree, upon sales of gold which were expected to be recovered from the operation of the mine once the plant was successfully commissioned.  Accordingly, the quality and due performance of the contractors' obligations would have a significant effect upon the BMJV parties' cash flow and the complicated financial arrangements made to establish the mine and construct the plant.

4. Unfortunately, the BBR parties did not meet these performance obligations and a major dispute resulted between them and the BMJV parties over the contractors' liability for alleged inadequate and late performance.  This resulted in an arbitration between the BBR parties and the plaintiffs before a commercial arbitrator in New South Wales and a final award that the BBR parties were liable in damages to the plaintiffs in an amount in excess of $60 million.  That award was later registered by the plaintiffs in the Supreme Court of New South Wales and became enforceable by the BMJV parties as a judgment of that court.  The BBR parties were unable to satisfy the judgment and became insolvent and have since gone into liquidation.  The plaintiffs have been unable to recover, and it is clear that they will not recover, most of the $60 million judgment for which those contractors are liable.

5. In those circumstances, the plaintiffs' attention has turned to claims for insurance indemnity for the losses which they have sustained.  Under  the construction contract of 5 August 1998, the BBR parties had extensive obligations to take out insurance covering themselves and others for various risks, including professional indemnity liability, to the extent of $20 million.  As will be seen, the provisions of the contract dealing with these insurance obligations, and in particular cl 3.9 of the special conditions, required the contractors to effect and maintain both project specific and general professional indemnity insurance for $20 million in respect of any one claim and in the aggregate which insurance named the principal and the contractors as insureds.

6. The plaintiffs' judgment for damages for $60 million or more against the BBR parties included, so it has been admitted in the pleadings in this action, claims for professional negligence.  It has also been admitted in the present action that the liability of the BBR parties to the plaintiffs for such breaches of professional duty amounts to at least $20 million – that is at least to the limit of the insurance indemnity which the contractors agreed to obtain.  However, when it came to the BBR parties claiming on that insurance in order to indemnify themselves, in part, for their liability to the plaintiffs, the insurer denied liability on the grounds of material non-disclosure by the BBR parties.  The insurer for the BBR parties was QBE Insurance Australia Ltd (QBE).  At first QBE agreed to defend the claim brought by the plaintiffs against the BBR parties in the arbitration and, indeed, arranged for the BBR parties to be legally represented and to defend the arbitration claim for some of the time when it was pending.  However, once QBE had discovered and fully investigated the alleged non-disclosure, it denied liability and withdrew from the defence of the arbitration claim before a final award was made or registered in the Supreme Court of New South Wales.

7. Thereafter, the plaintiffs in reliance upon their rights of access to BBR's insurance indemnity by virtue of section 6 of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW) advanced a claim for the full insurance indemnity of $20 million against QBE. Without litigation being actually commenced, the plaintiffs and QBE, by their respective solicitors, entered into a 'facilitation' of the plaintiffs' claim for access to the contractor's insurance indemnity. This 'facilitation' eventually led to a settlement of the claim by which, without any admission of liability, QBE agreed to pay $13 million of the $20 million cover to the plaintiffs in satisfaction of the claim which they were pursuing through access to the BBR alleged insurance cover. That payment was made and the claim as between the plaintiffs and QBE settled. The practical result is that the plaintiffs received $7 million ($20 million ‑ $13 million) less than they would have received had the BBR contractors' insurer been liable to indemnify those contractors to the full extent of the agreed cover.

8. It is important to realise that, in these present proceedings, it is agreed that:  the BBR parties' liability to the plaintiffs of $60 million included a liability of at least $20 million for professional negligence; that the ensuing settlement by which the plaintiffs recovered $13 million from QBE was, in all the circumstances, a reasonable settlement of that claim; and that no-one has asserted that the present defendant is in any way responsible for the alleged non‑disclosure by the BBR parties which led QBE to deny its liability to indemnify the BBR parties under that insurance.

9. This is the background which has led to the present claims against Blake Dawson Waldron, the firm of solicitors who at all material times acted for the plaintiffs in negotiating, drawing and settling the Beaconsfield mine plant and backfill contract including importantly, cl 3.0 of the special conditions dealing with the contracting parties' insurance obligations.  Here again it is important to emphasise that there is no allegation or suggestion of breach of professional duty by Blake Dawson Waldron in advising upon, drafting and eventually settling the terms of those insurance obligations.  The plaintiffs accept that cl 3.0 of the special conditions of the contract accurately and faithfully represents the agreement made and intended between the plaintiffs and the BBR parties.  Their case in this action, however, is that because of the alleged negligence and breach of duty of Blake Dawson Waldron they were not advised that the insurance cover which was actually underwritten by QBE for the professional indemnity risks did not meet the requirements of the contract.  Their case is that there were negligent omissions by Blake Dawson Waldron who failed to inform them that the insurance cover which had been procured, and which was submitted to Blake Dawson Waldron for review, did not name the principal as a co-insured and, therefore, did not meet the requirements of cl 3.9(c) of the special conditions of the contract. 

1. The plaintiffs' case has a number of other refinements which can be addressed more fully later.  For the present, it is enough to mention that the plaintiffs' case includes the submission that the insurance obligation was extended by virtue of cl 3.11 and cl 3.12 of the special conditions and that the obligation to name the principal under cl 3.9(c) extended not merely to the manager Allstate (the first plaintiff) but to all the BMJV joint venturers as well. As the case has developed very little, if anything, seems to turn upon this latter issue of whether or not the BM joint venturers should have been co-insureds in addition to the first plaintiff but that issue can await later exposition.

2. The plaintiffs' case is that if they had been advised of the alleged inadequacies in the insurance cover obtained by the BBR parties in apparent compliance with their contractual obligations to insure, they would not have allowed the contract works to begin without satisfactory insurance being first obtained.  In practical terms, the plaintiffs contend that they would have achieved such an objective by refusing to allow the BBR parties access to the Beaconsfield site unless and until satisfactory insurance cover had been procured and verified or, failing that, they would have given consideration to terminating the contract entirely for want of compliance with the contractor's insurance obligations and then turned their attention to engaging other contractors to undertake the work in place of BBR.  This, they say, would have involved reopening negotiations with other tenderers for the contract who had not initially succeeded.

3. As the trial progressed little attention or evidence, was devoted to the question of whether the plaintiffs would, indeed, have terminated the contract with the BBR parties and contracted instead with one of the other tenderers.  Such a step would have involved a major dislocation and almost inevitable delay of the project which time was critical and which, by then, was already behind schedule.  Furthermore, none of the other tenderers had submitted tenders which complied with all the technical requirements of the original tender and none of these others had given or offered performance guarantees as the BBR parties had done.  It was those factors which were largely instrumental in the BBR parties securing the contract in the first place and it therefore seems unlikely that the plaintiffs would, indeed, have gone as far as terminating the contract of the BBR parties over this insurance issue had the agreed insurance not been procured.

4. There is another layer to this argument and it concerns whether the agreed insurance was actually procurable in the insurance market either at all or at a reasonably acceptable cost.  This issue is inevitably associated with what exactly was the extent of the obligation to insure which had been agreed upon.  The plaintiffs' case is that the insurance required effectively included an indemnity for them for the due performance of the contractual obligations by the BBR parties whereas the defendant maintains that the insurance never extended beyond an obligation to obtain insurance for any professional liability of the plaintiffs arising from this project which, so the defendant submits, would not have responded to the loss which befell the plaintiffs.

5. The plaintiffs' case is that the more extensive indemnity which they contend was required under the terms of cl 3.9 of the contract was procurable at the time and should have been procured by the BBR parties.  They further contend that had such insurance cover been obtained naming the 'principal' as a co‑insured for the BBR parties (whether the first plaintiff alone or the first plaintiff plus the BMJV co‑venturers) the loss which they suffered by BBR's non-performance of the contract works to the requisite degree of quality and within the time constraints would have been part of the risks insured against and  so they would have had direct access to the underwriter, to the extent of the insurance cover, for their claim.  In effect, the plaintiffs contend that because of the failure to obtain the agreed insurance they have lost access to the insurance indemnity of $20 million and that their overall loss is, therefore, $20 million minus the proceeds of the facilitation settlement with QBE, that is a loss of $7 million plus interest thereon from the date when such insurance claim should, in the ordinary course of events, have been met – in other words, from shortly after the facilitation claim settlement was paid.

6. The defendant's position is that cl 3.9 of the special conditions of the contract only called for professional indemnity insurance cover, that is, liability cover, and that such cover, even if it should have been taken out in the name of the plaintiffs or one or more of them, would not have responded to the plaintiffs' 'first party loss' occasioned by the non-performance of the contractual obligations by the BBR parties.  Accordingly, a large part of the evidence has been occupied in dealing with the issue of what was the extent of the insurance required under cl 3.9 of this contract and what was the nature of the professional indemnity liability cover available in the insurance market in 1998 in this respect.  The defendants also submit that from 1998 onwards there was not available in the insurance market any cover which would have provided an indemnity for the plaintiffs for the loss which they have sustained by the non‑performance of the BBR parties under the mine construction contract.  This they say is a form of 'first party loss' which was not insurable under any professional indemnity policy available at that period and is a loss of a different character and status from that comprehended by the term 'professional indemnity loss' and outside the scope of conventional PI policies. 

7. There are some additional issues which need to be mentioned briefly at this introductory phase.  The defendants plead that, for reasons which will emerge, when the insurance called for under the mine construction contract was being  procured it became apparent that the only underwriter who was being seriously considered would not modify or endorse its proposed PI policy in a way which would allow the plaintiffs, or the first plaintiff, to become a co-insured in any effective way so that, for this reason, the requirement for the principal to be a  co-insured under cl 3.9(c) was abandoned or waived.

8. There is also a limitation of liability defence raised which relies on the provisions of the Professional Standards Act 1994 (NSW) which places a statutory cap on solicitors' professional legal liability of $10 million, it being acknowledged that the defendant solicitors were engaged in New South Wales and that the law of New South Wales applies to any question of their liability. Accordingly, although the plaintiffs' claim is for $7 million, the defendant submits that the $10 million cap under the statutory scheme is for all liability including claims for interest and costs, so that if the present plaintiffs' claim exceeds $10 million because of any entitlement to interest and to costs, the defendant's gross liability cannot be more than $10 million. Again this is an issue which will be addressed more fully later. Because the amount of costs was not the subject of evidence, if this had been made good then any judgment favourable to the plaintiffs which might eventually result would have to be either for a liquidated sum of less than $10 million or incorporate a declaration that, if the aggregate of the damages plus interest plus costs were to exceed $10 million, then the judgment would be for $10 million and no more.

The Role Of Allstate Explorations NL (Allstate) ('the principal') with regard to insurance arrangements

1. Allstate is, of course, one of the six plaintiffs and a party to the mine construction contract of 5 August 1998 with the BBR Contractors and the five members of the BMJV. It was not itself a joint venturer in the BMJV but was described in that contract as 'the principal'.  That agreement (exhibit 1) includes recitals:

   (a)Beaconsfield Mine Joint Venture is a joint venture between Beaconsfield Operations Pty Ltd, Beaconsfield Tasmania Pty Ltd, Beaconsfield Gold NL, ACN 070 164 653 Pty Ltd, and Allstate Prospecting Pty Ltd formed by the Beaconsfield Joint Venture agreement dated 19 October 1992 [that is, there are five co-joint venturers];

   (b)the principal [that is, the first plaintiff] is the Manager of various mining tenements in which it is developing an underground mine, ore treatment facilities and associated infrastructure for the Beaconsfield Mine Joint Venture;

   (c)the principal in its capacity as Manager wishes to have performed certain work, namely Design, Supply, Construction and the Commissioning of a fully integrated Treatment Plant and Backfill Plant for the Beaconsfield Mine Joint Venture and Beaconsfield Tasmania as defined more particularly in the Schedule of Documents referred to herein.

2. and, further, by cl 11 the first plaintiff's position with respect to the project is more fully described as:

   11.Without limiting the Principal's rights as Manager under the Beaconsfield Mine Joint Venture agreement, each of the Beaconsfield Mine Joint Venture participants:

   (a)authorises the Manager to act as its agent and to exercise its rights and perform its obligations under the Contract, on behalf of the Beaconsfield Mine Joint Venture;

   (b)acknowledges that any liability that the Manager incurs as a result of the performance of its obligations under the Contract is a several liability of the Beaconsfield Mine Joint Venture participants in proportion to their Percentage Interest (as that term is defined in the Beaconsfield Mine Joint Venture); and

   (c)severally indemnifies the Manager from and against its share of any and all losses, claims, damages and liabilities arising out of the performance by the Manager of its obligations under the Contract in proportion to its Percentage Interest.

3. In the statement of claim it is alleged that Allstate was at all material times the manager of the Beaconsfield Mine Joint Venture (par 6); that at all material times it, and the five co-venturers, were involved in developing, constructing, commissioning and operating commercial mining operations known as the Beaconsfield Gold Mine and, at par 9, that by its general counsel Allstate (as manager for and on behalf of the BMJV) retained the defendant firm of solicitors to advise generally in relation to the contract and related matters.  Elsewhere throughout the statement of claim Allstate consistently alleges that in its dealings with the defendant, and for that matter in relation to the mine development contract at Beaconsfield, when dealing with the BBR contractors, Allstate acted for and on its own behalf and as manager for and on behalf of the members of the BMJV.

4. By par 7 of its defence the defendant says that in February 1998 it was retained by Allstate in its capacity as manager of the BMJV to review and advise on, as instructed by Allstate's general counsel, Mr John Wood (Mr Wood) from time to time the draft contact.  Further, by its defence in par 9 the defendant admits that it owed the second to the sixth plaintiffs a duty of care in tort and that it was engaged by Mr Wood for and on behalf of the first plaintiff as manager on behalf of the BMJV (par 7(c)). 

5. This raises the question of whether or not Allstate, in engaging the defendant, was acting solely as agent for five disclosed principals (the BMJV co-venturers); whether it was acting solely for itself as principal; or whether the engagement was on behalf of Allstate itself and the five BMJV co-venturers, all six contractors having rights, interests or obligations under the contract.  For reasons which will emerge later, I am satisfied that Allstate did not act, nor was its role as manager confined to acting, solely as agent for the five co-venturers without incurring obligations or rights in its own interest.  This is largely because of the major executive role Allstate had as manager of the BMJV and as the principal under the construction contract.  It is also because the provisions of the contract, including special conditions cl 3.0 dealing with insurance, required and resulted in Allstate entering into personal covenants on its own behalf.  Another possibility that Allstate covenanted with the contracting parties solely on its own behalf while holding the benefits of those covenants in its role as agent for the five co-venturers is excluded by the terms of the contract itself which makes each of the five co‑venturers parties with the contractors and entitled directly to the benefits of the reciprocal obligations, rights and duties created by the contract. 

6. The third position is what occurred, namely that Allstate is contracting both as agent and for itself with the BBR contractors, thus creating obligations, rights and duties enforceable against the contractors by each of the five co-venturers and also by Allstate.  This obliges Allstate and each of the co-venturers to meet the payment obligations and other obligations each agreed to perform to the advantage of the BBR contractors.  Accordingly, the contract creates a situation in which Allstate has entered into obligations both personally and as agent, rendering itself and its BMJV principals liable to the obligations and entitled to the benefits of the contract.

7. This is entirely consistent with cl 11 of the contract (set out above) which authorised Allstate as manager to act as agent and to exercise the rights and perform the obligations of each of the co-venturers under the BMJV.  It places Allstate in a position where, with respect to this contract, it can be considered, for most practical purposes, as holding or enjoying all the rights and powers of each of the five co-venturers.

8. This is consistent with the Beaconsfield management agreement of 4 March 1987 (exhibit 2, 1 TB 1) which originally named ACN Management Pty Ltd as the manager but which was later amended to establish Allstate as the manager.  The initial management agreement gave the manager the possession and control of the project assets from time to time for the purpose of managing, supervising and conducting on behalf of the project owners the ordinary and usual business and affairs of the project.  By these means the manager, Allstate, was put in possession and control of the BMJV assets, subject to the management agreement, and authorised to exercise the powers of management in respect of and on behalf of each of the co‑venturers.  As such, Allstate, as manager, had a direct personal interest in the project and was able to, and did, contract with third parties, including the BBR contractors, on that footing.  Allstate's rights and interests in this capacity were not limited by the fact that, in relation to the construction contract, the other individual five members of the BMJV were also co‑contractors.

9. This situation put Allstate in a position where it had not only an insurable interest in its own right in all of the joint venture assets and property, including the entitlement to the due performance of the BBR contractor's rights, obligations and duties under the construction contract but that, although it only had a limited interest in the property so held and controlled in its capacity as manager, it could insure it for the full value and recover the full amount of any loss provided that in the case of any recovery it should account to the joint venturers for any excess over its own individual loss or damage.  This is by analogy with the right of a bailee to insure to the full value the property bailed into its possession – see Maurice v Goldsbrough Mort & Co Ltd [1939] AC 452; (1939) 61 CLR 367. That is the position where the bailee insures the bailed property solely in his name but it is, of course, possible for the bailee to insure for its own interests and for the interests of the bailor or bailors, in which case each of the co-insured will be directly entitled to receive an indemnity for its respective loss or damage to its or their reversionary interests as well as the bailor obtaining an indemnity for the damage to its possessory interest – see AMEVFinance Ltd v Mercantile Mutual Insurance (Workers' Compensation) Ltd (No 2) [1988] 2 Qd R 351. That an insured in the position of a bailee is itself entitled to recover the full value of the property from the insurer and is not limited to the value of its own interest in the property is established by a long line of authority and by the leading texts – see Waters v Monarch Fire & Life Assurance Co (1856) 5 E & B 870; Hepburn v A Tomlinson (Hauliers) Ltd [1966] AC 451; [1966] 1 All ER 418 - even though the bailee holds the balance over and above the value of its own interest in trust for the bailor – see also Johnson v Union Fire Insurance Co of New Zealand (1884) 10 VLRL 154 and Derrington & Ashton 'The Law Of Liability Insurance' (2nd ed) at 11-519, Sutton 'Insurance Law In Australia' (3rd ed) at 6.44 ‑ 6.46, and 'McGillivray On Insurance Law' (11th ed) at 1-144 and 20‑24 ‑ 20-030.

Analogy with bailment

1. The analogy between the rights of various participants in a construction project and a bailee, when it comes to the ability of either to insure not merely its own interests in the project of property but other associated interests, is explained by Lloyd J in Petrofina (UK) Ltd v Magnaload Ltd [1984] QB 127; [1983] 3 All ER 35. There his Lordship held that by analogy with a bailee's right to insure and recover the full value of bailed goods, the head contractor under a building or engineering contract who took out a contractor's all risks policy was entitled to take out a single policy covering the whole risk, including cover for all contractors and subcontractors in respect of loss of or damage to the entire contract works, since it was commercially convenient for one policy to cover the whole risk. His Lordship posed the essential question at page 41 saying:

   That brings me to the central question in this case.  In Hepburn v A Tomlinson (Hauliers) Ltd [1966] AC 451 (HL) it was held, indeed it was conceded, that if the policy was an insurance on goods, then the carriers could, as bailees, insure for their full value, holding the proceeds in trust for the owners. In the present case the defendants could not be regarded as being in any sense bailees for the property insured under the policy. Does that make any difference? Can the defendants recover the full value of the property insured, even though they are not bailees...

2. And then, after examining a series of other authorities and submissions, including a decision of the Supreme Court of Canada, his Lordship went on to say at (44):

   For the reasons which I have mentioned, I would hold, both on principle and of Commonwealth Construction Co Ltd v Imperial Oil Ltd (1976) 69 DLR (3d) 558, that a sub‑contractor who is engaged on contract works may insure the entire contract works as well as his own property, and that the defendants in this case were each so insured.

3. In Petrofina v Magnaload (supra) Lloyd J was careful to confirm that the policy under consideration was a 'contractors' all risk' policy which in that particular form was an insurance on property, namely the works and temporary works belonging to the insured or for which the insured were responsible.  His Lordship distinguished between this and a policy of liability insurance.  Although the all risks policy did have other components dealing with liability risks, his Lordship was satisfied that the cover in question was truly a form of property insurance and went on to apply the analogy of a bailee's right to insure the whole of the interest of the property bailed accordingly. 

4. There were particular reasons in Magnaload to distinguish between property insurance and liability insurance for the losses which had occurred.  The reason was that the accidental loss cover, which was being invoked by the claimants, was subject to an exclusion that property which was insured would not result in an indemnity unless it was shown that the insureds were liable for such damage and because the claimants had liability policies with other insurance companies they were excluded because of that particular exception in the policies.  The decision was that the accidental loss cover was purely property insurance and did not require proof of any liability towards an insured or co-insured and that the exclusions in relation to the existence of other liability cover did not apply.  Accordingly, the question of the distinction between property insurance and liability insurance was peculiar to the wording of the policies in question and cannot be taken as any indication that the ability of a head contractor to insure for the full value of all property on a contract site, including property owned by subcontractors and others, because of the analogy with the right of a bailee to insure for full value the bailed property, is confined to instances of property insurance.  There is nothing in the authorities to suggest otherwise and I consider this view to be consistent with the expressions of principle in Waters v Monarch Fire & Life Assurance Co (880 – 881) a case dealing with fire insurance where the property insured was goods in a warehouse destroyed by fire. 

1. If, as in a case such as this, Allstate as manager of the mine construction contract has a sufficient interest to insure in its own name and to full value not only all its own property and equipment on the contract site but all the property and equipment of the BMJV co‑venturers, why should it not be able to insure in its own name and to full value against the risk of liabilities which it might incur or for which it might become liable in the performance of the works and also for such liabilities as may be incurred by any or all of the co‑venturers?  The co‑venturers could certainly insure in their own names against such risks to the amount of those risks subject to the limit of cover insured with the underwriter.  Where, as here, Allstate is appointed the manager with possession of the works and the right to exercise all the rights and powers of the co‑venturers, it must follow that it can insure all the interests of the co‑venturers to the full extent and, by the analogy with bailment and with the position of the head contractor be able to do so in its own name.  In the event of any such claim if the principal were the sole named insured it could recover the full extent of the insured loss, even beyond its own limited interest in that loss, holding the excess or surplus for the BMJV parties.

2. In supplementary written submissions which I requested on this topic, counsel for the plaintiffs have accepted that Allstate, as principal, could insure in its own name, and in the event of a claim, recover the full value for loss or damage to property in which it had an interest notwithstanding that that interest was only partial or limited and that the property was otherwise owned or held by one or more of the BMJV joint venturers.  The plaintiffs accept that principals, such as the BMJV co‑venturers, may authorise an agent to enter into an insurance contract on their behalf:  Badat v DTZ Australia (WA) Pty Ltd [2008] WASCA 83 [36] per McLure JA, Steytler P concurring. They also accept that the decision in Petrofina (UK) Ltd v Magnaload Ltd extended the principle from cases of insurance by a bailee to any person with a proprietary interest in contract works under construction on the basis of commercial convenience ‑ see also Co-operative Bulk Handling Ltd v Jennings Industries Ltd (1996) 17 WAR 257; (1996) 9 ANZ Ins Cas 61‑355 and Woodside Petroleum Development Pty Ltd v H&R-E&W Pty Ltd (1997) 18 WAR 539; (1997) 10 ANZ Ins Cas 61‑395. They also submit that this principle of commercial convenience extends to allow one person, for example, a contractor, to take out insurance which covers the risks of that person incurring liability for loss or damage arising from professional negligence and which also covers the risks of persons who may be affected, for example, project owners who may themselves suffer loss and damage, by reason of that same professional negligence. An example of this extension is Wimpey Construction UK Ltd v Poole [1984] 2 Lloyd's Rep 499, 512, 513. In that case a builder's professional indemnity policy insured the builder, both for its liability as such, and for loss and damage which it suffered in the capacity of project owner.

3. These submissions led the plaintiffs to their final proposition that an insurance policy which conformed with the requirements of cl 3.9 of the special conditions could have taken one of at least two forms:  (a) it could have expressly named Allstate and each of the BMJV co‑venturers as insureds; or (b) it could have expressly named Allstate as an insured, making clear that this was in its capacity as manager for and on behalf of the BMJV ‑ such that, on a proper construction of the policy itself, it manifested an intention that Allstate would be entitled to recover any insurance proceeds for losses sustained by the BMJV co‑venturers and so would be liable to account for those proceeds to those joint venturers. 

4. In short, these submissions support the conclusion that naming Allstate as an additional insured under the PI policy required by special condition 3.9(c) in this case, where Allstate was the acknowledged agent and manager for the BMJV co‑venturers, would mean that Allstate could insure not only for its own interests but all interests of the BMJV participants, and to recover in its own name the full value of any such claim. 

5. Counsel for the defendant also put in further supplementary written submissions which effectively accepted and coincided with these propositions insofar as they apply to insurance cover for property interests.  However, when it came to other forms of insurance the defendant's submissions were more guarded.  Counsel for the defendant submitted that in British Traders' Insurance Co Ltd v Monson (1964) 111 CLR 86; [1964] ALR 845 the High Court was not prepared to extend any similar principle to a tenant who insured premises against fire so as to permit the tenant to recover the full value of the buildings destroyed by fire when the tenant only had a partial interest in the premises ‑ that is, building contents. The High Court held that the principle that a contract of insurance is one of indemnity only was paramount and did not permit recovery of more than the insured's own loss. Although accepting that a person with a limited interest could insure for full value against fire the court held in British Traders Insurance Co Ltd v Monson that acceptance of that proposition does not mean that if a property is destroyed the insured is necessarily entitled to the full value and to account for the excess over his own interest to those other persons who hold the balance of the interests.  In British Traders Insurance Co Ltd v Monson that was regarded as a question which depended upon the established intention of the insured at the time of the insurance. 

6. Acceptance of that limitation does not qualify the overall principle except to render it necessary to establish whether or not, in a particular case, it was the objective intention of the insured to obtain cover which extended beyond his or its own limited interest.  In the present case, although not directly addressed in the evidence, that is an inference which can readily be drawn having regard to the role of Allstate as manager of the BMJV and its express authority to act as agent for each of the co‑venturers and to insure on their behalf.  Furthermore, given the obvious point that the totality of the interest, not only in the property but in the benefit of the contract was shared between Allstate and the BMJV co‑venturers, it must be taken in this case that any insurance effected in the name of Allstate as principal is to be held for the advantage of Allstate and the BMJV co‑venturers notwithstanding that the latter were not expressly named. 

7. Counsel for both parties accepted that the decision in Egis Consulting Australia Pty Ltd v Kvaernea Oil & Gas Australia Ltd [2003] NSWCA 291; (2003) 58 NSWLR 62 did not restrict or modify the application of this principle and that the outcome of that case depended on its particular facts. Nevertheless, Egis Consulting was a case involving liability insurance and in rejecting the claimed reliance in that case upon the doctrines in Petrofina v Magnaload and Trident General Insurance Co Ltd v McNiece Bros Ltd [1988] HCA 441; (1988) 165 CLR 107, the court did not rely on any distinction between the application of the principles between insurance for property risks on the one hand and for liability insurance on the other. Of course, that is not conclusive, nor does it establish the proposition that the Petrofina principles apply in cases of liability insurance but it is, nevertheless, of significance that the distinction between these types of insurance cover was not apparently treated as material.  A further consideration, in case it is necessary to travel further on this point, is that Allstate was expressly authorised to contract for each of the BMJV co‑venturers, including to insure on their behalf, and that it was a declared agent in the mine construction contract acting in that capacity and so it was entitled to insure in its own name for those principals and to recover, in the event of a claim, on their behalf. 

8. In the end, however, it seems that little turns on this because the obligation under special condition 3.9(c) was not that Allstate and each of the BMJV participants should be named as additional insureds but only that Allstate should be.  No‑one is suggesting that the contract called for more than that, nor that, as drawn, it was inadequate to allow a situation in which Allstate could hold the insurance on behalf of itself and/or the BMJV participants.  This examination of authority strongly suggests that that assumption is correct but, even if it were not, no greater compliance with cl 3.9(c) would be necessary than naming Allstate as a co‑insured.  If it turned out that Allstate could not recover under such insurance for more than its own personal loss or damage, that may open up potential arguments about the sufficiency of the drafting or scope of cl 3.9 but, as already said several times, this case did not include any such approach.

9. These considerations are of some importance because they demonstrate that when it comes to insuring various risks to the interests of the BMJV co‑venturers and/or to the interests of Allstate as manager under the BMJV in or in connection with the performance of the mine development contract, each of the co‑venturers and Allstate has a variety of individual insurable interests.  More importantly, however, such insurance can be taken out in the names of all the BMJV co-venturers, collectively as the owners of those interests, and/or by Allstate in its role as manager or principal because of the extent of the possession and control which it has, as manager, over all the JV assets and its interest in the due performance of the contract.  In other words, notwithstanding its limited interests in the JV assets and in its shared interest in the performance of the mine development contract, Allstate would be entitled to insure in its own name alone to the full value of all the property and other interests affected by the mining contract. 

10. In such a policy, entered into by Allstate alone for full value, in the event of a loss to which the policy responds, Allstate would be entitled to recover the whole of the value of the property, notwithstanding that its own loss was only a small fraction of the total, and to hold the surplus or excess of the proceeds of the claim for the co‑venturers even though they were not named as insureds under the policy. 

11. Accordingly, it now becomes obvious how, depending on the manner in which insurance cover is actually arranged, that effective cover for the interests of all the co‑venturers and for Allstate could be achieved, subject to the choice of a suitable policy, by insurance in the name of Allstate alone.  This is significant when it comes to consider clauses in the insurance provisions of the contract which call for certain insurance cover to be effected and maintained by the 'principal' (meaning Allstate) such as the contract works insurance, cl 3.2; advanced consequential loss insurance, cl 3.3; insurance against public liability and third party property damage, cl 3.4; and other provisions which call for the contractor to name the 'principal' as an insured or co‑insured in cover to be effected and maintained by the contractor – professional indemnity insurance, cl 3.9(c); other public liability and third party property damage, cl 3.5; and marine cargo insurance, cl 3.8 which, by virtue of cl 3.12(b) is to provide and operate as if there were a separate policy of insurance covering the 'principal', the contractor and subcontractors.  It means that where insurance is arranged by the contractor on terms which provide for the 'principal' to be a co‑insured or in effect to be the insured, the 'principal' is entitled to be insured for the full value of the property or the extent of the policy required notwithstanding that Allstate's interest may be limited for shared, holding the excess or surplus for the BMJV co-venturers.

12. In the course of submissions counsel for the plaintiffs submitted that references to the 'principal' in various passages where that term occurs in cl 3 of the insurance conditions must be read as having variable meanings and not being limited to Allstate as the sole insured.  That submission was made in a number of various forms but it is sufficient to note that the submission was to the effect that it would be absurd to construe the reference to the 'principal' in cl 3.2, dealing with contract works insurance, or in 3.3, dealing with advanced consequential loss insurance, to take only two of the examples raised by counsel, as confining the benefits of the insurance to Allstate because there could be no doubt that much of the property owned or the loss to be suffered would belong to the BMJV co-venturers rather than the 'principal'.  The point of those submissions, however, overlooks the fact that the 'principal' can insure in its own name for all the interests which it controls as manager of the project and recover under such insurance not merely for its own limited interests but for the interests of the BMJV co-venturers holding that excess on for them, without them being named as insureds or co-insureds under the respective policies. 

13. Once this is accepted there is nothing incongruous in cl 3 of the special conditions dealing with insurance and providing that certain insurances are to be effected or maintained by the 'principal' or in the name of the 'principal' or to operate as if there were a separate policy covering the 'principal' but still confining the meaning of the 'principal' to Allstate, which has been specifically identified by that term in the contract. 

14. Looking at the question from another viewpoint, there would need to be a good reason to depart from the meaning of the 'principal' as it is expressly defined in that contract by the parties themselves.  It might be necessary if, for example, confining the meaning of the term 'principal' to Allstate alone would exclude a benefit or right which, read as a whole, the contract obviously intends to confer on the BMJV co-venturers.  However, no such necessity arises in the present case because, for the reasons given, the principal can in these circumstances insure to the full value in its own name all the interests of the co‑venturers which it possesses and controls by reason of its role as appointed manager under the contract.  This conclusion resolves the first set of submissions advanced for the plaintiff that cl 3.0 should be construed on the footing that the 'principal' has a variable meaning throughout its text when using the term 'principal', according to the context and the commercial objectives which the parties can be seen to have been pursuing.

Professional indemnity cover

1. Adopting the same submissions, counsel for the plaintiff advanced the contention that the true meaning of cl 3.9(c) which required a contractor to be insured under the professional indemnity insurance meant that the BMJV co‑venturers were also each to be insured in their names for those risks in order for the desired cover to be commercially efficacious.  The next step in this line of submissions was that the potentiality for any or all of the BMJV co‑venturers to incur a legal liability 'arising from a breach of a duty owed in a professional capacity… in relation to the performance of the work under the contract… ' was so unlikely and remote as to be negligible, meaning that there was no need or commercial necessity to obtain such professional indemnity cover for any of those co‑venturers.  The plaintiffs' submission then went on to contend that, similarly, the prospect of Allstate as 'principal' incurring any 'liability arising from a breach of a duty owed in a professional capacity… in relation to the performance of the work under the contract' was very unlikely, being confined, in realistic or practical terms, to the unlikely eventuality that Allstate, as manager, might incur vicarious liability for a breach of duty by an act or omission of the contractors or their employees but that this too was, at the most, a very small risk which did not warrant third party liability insurance being taken out for Allstate.  Having, as a result of these submissions, painted the situation as revealing that there were no, or negligible, risks of Allstate or any of the BMJV co-venturers incurring a personal liability for breach of professional duty, the submission then advanced the proposition that the risk which cl 3.9 was designed to insure against was in reality a far more significant, substantial and realistic commercial peril, namely that the BBR contractors might incur a professional liability to the BMJV co-venturers which, for some reason, such as the defect in their own insurance resulting from non-disclosure (which eventuated) meant that the contractors would not be covered for their own professional liability.  From this contingency, so it was submitted by counsel for the plaintiffs, the real point of the commercial risk stood revealed, namely, that the BMJV co‑venturers were seeking to transfer to an underwriter the risk which materialised, namely, that the contractors would incur a professional liability to the BMJV parties which the contractors could not meet themselves and which was not covered by their own insurances.  That this would generally be classified as a species of 'first party risk' within the parlance of brokers and underwriters was not, so submitted counsel for the plaintiff, to the point because it was evident that this is what the terms of cl 3.9, read with cl 3.12(c), meant and that this was entirely consistent with, indeed, the designated objective of, the factual background and negotiations between the parties which led to the drafting of the insurance provisions in the contract in their final form.

2. Again, in relation to these submissions, it must be said that the issue of construction is not advanced by dwelling on the question of whether or not any of the BMJV co-venturers was to be a co-insured or co-insureds with Allstate under whatever policy or policies which the contractual obligation called for.  Once more that is because Allstate had an interest to insure, in its own name, for the full value of the risk insured against notwithstanding its limited or shared interest in the subject matter of the contract holding, as already explained, any excess for the BMJV co-venturers.  Rather, the real question raised by these submissions is whether or not cl 3.9, as properly construed in the light of the background known to the parties, required insurance cover to be obtained for Allstate (or for any of the BMJV co-venturers for that matter) not for any liability which they may have to others but for the contractor's liability to it or to them – so-called first party loss form of cover.  That is addressed later.

Extrinsic evidence

1. Counsel for the plaintiffs and counsel for the defendant both contended that the proper construction of the Beaconsfield mine contract, and in particular the insurance obligations which it imposed, should be undertaken bearing in mind those facts at the time of the execution of the contract which the parties knew or which it can reasonably be assumed they knew, which could impact upon the meaning of the words in the contract and that such resort to evidence extraneous to the contract, representing its commercial purpose, genesis or aim, could and should be undertaken without any need to establish any ambiguity in the words of the contract itself before such resort to the surrounding circumstances could be made.  Nevertheless, such use of extraneous evidence is an aid to construction could not permit evidence of the subjective intentions and expectations of the parties or their agents to be utilised as evidence for the purposes of construction.  Authority at the highest level for those propositions is provided in International Air Transport Association v Ansett Australia Holdings Ltd [2008] HCA 3; (2008) 234 CLR 151 [8] as follows:

   In giving a commercial contract a businesslike interpretation, it is necessary to consider the language used by the parties, the circumstances addressed by the contract, and the objects which it is intended to secure:  McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579 at 589 [22]; Lake v Simmons [1927] AC 487 at 509 per Viscount Sumner.

   An appreciation of the commercial purpose of a contract calls for an understanding of the genesis of the transaction, the background, and the market - Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 at 462 [22]; Reardon Smith Line Ltd v Hansen-Tangen [1976] 1 WLR 995 ‑ 996 [1976] 3 All ER 570 at 574; and Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 at 350.

   This is a case in which the Court's general understanding of background and purpose is supplemented by specific information as to the genesis of the transaction.  The Agreement has a history; and that history is part of the context in which the contract takes its meaning - Singh v The Commonwealth (2004) 222 CLR 322 at 331 ‑ 338 [8] ‑ [23].

1. A more recent authority at intermediate level is provided by the decision of the NSW Court of Appeal in Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407; (2004) 264 ALR 15, a decision of Allsop P, Giles and Campbell JJA. Allsop P began his reasons for judgment with a detailed discussion and confirmation of the objective theory of contract in the formation, construction and interpretation of contracts [4] before proceeding to a detailed examination of the leading authorities on the subject in the High Court which led the learned President to his conclusion at [24]:

   The High Court authorities to which I have referred and in particular Pacific Carriers v PNB Paribas (2004) 218 CLR 451 and Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165 at 179 ‑ 182 [40] ‑ [46] and the recognition of the significance of the objective theory assist in appreciating the scope of the evidence that is admissible. The evidence, to be admissible, must be relevant to a fact in issue, probative of the surrounding circumstances known to the parties or of the purpose or object of the transaction, including its genesis, background, context and market in which the parties are operating. What is impermissible is evidence, whether of negotiations, drafts or otherwise which is probative of, or led so as to understand, the actual intentions of the parties. Such evidence might be legitimate, however, if directed to one of the legitimate aspects of the surrounding circumstances. The distinction can be subtle in any particular case.

2. Giles JA agreed with those observations and Campbell JA addressed the issue even more extensively and at [240] and following undertook, with respect, a most comprehensive examination of the authorities, including also Royal Botanic Gardens and Domain Trust v South Sydney City Council [2002] HCA 5; (2002) 186 ALR 289 before concluding [305]:

   It follows that I accept Mr Simpkins' submission that the contract should be construed bearing in mind those facts that the parties knew, or that it can reasonably be assumed they knew, that can impact upon the meaning of the words of the contract.  I also accept his submission that it is not necessary to find ambiguity in words of a written contract, the meaning of which is disputed, before the court can look at surrounding circumstances as an aid to construction.

3. Then, after further examination of a formidable array of authorities, Campbell JA observed, at [342]:

   It is always a question to be decided in the facts of the particular case whether any fact that forms part of the background to the agreement actually assists in deciding what is the meaning of the agreement.  Experience teaches that there is often a big difference between a background fact known to both parties being available to be a possible aid to construction, and it actually helping to decide the correct construction.  (my emphasis added)

4. In the end the task of a court in construing a provision of a contract must be to have regard to the objective meaning of that provision in the context of the contract read as a whole and taking into account any special meaning, or shade of meaning, which the words of the provision should bear having regard to the origin, purpose, genesis, background and other circumstances known to the parties and identifying the commercial purpose which they were objectively pursuing at the time when the agreement was reached.  Obviously, the starting point must be with the contractual provisions themselves, particularly where, as in this case, the provisions are lengthy and complex and where the contracting parties, through their respective representatives, have considerable experience with the type of contracts being proposed and the obligations which they set out to define. 

5. Where well‑defined, commonly used and standard terms are used in the contract such as, in this case, provisions dealing with public liability and third party property damage insurance, advance consequential loss insurance, contracts works insurance, workers' compensation insurance, marine cargo insurance and professional indemnity insurance it is to be expected, at least as a starting point, that such well-known terms and concepts will be used in their standard and established meanings although, having regard to the setting in the particular contract and any relevant and admissible external evidence, there may be occasion to consider whether or not there has been any departure in the meaning of those terms from standard concepts or that some nuance or overlay or altered meaning should be given to such terms in order properly to reflect the objective agreement of the parties.

6. For these reasons, therefore, much evidence was adduced on both sides at this trial to show the background, negotiations, correspondence and drafts which led to the ultimate inclusion of cl 3 dealing with insurance in the special conditions of this contract.  The final form of the contract was executed on behalf of the plaintiffs and the BBR contractors on 5 August 1998.  Clause 3 in the special conditions dealing with insurance in its final form is set out later but it had been revised or redrafted on several occasions before then.  For present purposes the most significant alteration and redrafting followed the recommendation of the defendant's senior insurance adviser and partner, Ms Rehana Box (Ms Box) on or about 29 July 1998, one version of which appears as part of exhibit 61 (4 TB 152).  This is set out hereunder in the form in which it was circulated by Ms Box to Mr Wood, general counsel for Allstate, by fax on that date.  This version shows, by underlining, amendments which Ms Box was then advising should be made to an earlier version of the clause to take into account instructions which she had recently received on behalf of Allstate derived from the latest round of negotiations between the representatives of the parties on insurance issues.  The major innovations introduced by this redraft, and ultimately incorporated in the final version of the contract, included the following:

   (i)that the professional indemnity insurance prescribed by cl 3.9 should comprise project specific PI insurance (which was amended further on a later occasion to provide for the provision of project specific and general professional indemnity insurance);

   (ii)that the limit of indemnity for the PI insurance should be not less than $20 million for any one claim and in the aggregate;

   (iii)that the PI insurance cover should name the principal and the contractor as insureds;

   (iv)that the PI insurance should (by virtue of cl 3.12(b)) operate as if there was a separate policy of insurance covering the principal, the contractor and subcontractors and that non-disclosure by any insured does not prejudice the rights of any other named insured.

7. At the time that the contract was executed on 5 August 1998 and in the course of negotiations involving the reformulation and further amendment to special condition 3.0, the parties to the contract had not finally settled upon any particular policy or policies of insurance which they had identified as, with or without endorsement, providing in acceptable terms the nature and extent of the insurance cover which the contract specified should be obtained and maintained.  Contemporaneously with the negotiations about the details of the insurance clauses in the contract, advice was being received by the contractors (the BBR parties) and by the plaintiffs, the Allstate/BMJV parties, from their respective insurance brokers as to the insurance cover available, potentially suitable policies and the costs of the various forms of insurance cover which were expected to be required.  The BBR parties had their own advising insurance brokers ‑ Willis Corroon ‑ and the BMJV parties, including Allstate, had their own brokers ‑ Marsh & McLennon. 

8. From these and other sources various existing or proposed policies of insurance were being suggested and advised upon for the different covers required.  It is only necessary to examine the sources and natures of the policies for the professional indemnity insurance required under cl 3.9 for the purposes of this case.  The form of policy being considered in the negotiations and correspondence between the parties and their representatives up to the execution of the contract from early July 1998 was a QBE 'professional indemnity insurance policy ‑ civil liability' in standard terms, an example of which was put forward by Willis Corroon to the BBR parties and by them to the BMJV parties in July 1998.  A copy of the text of the proposed policy is exhibit 58 (4 TB 147). 

9. In the event the professional indemnity insurance chosen to comply with cl 3.9 of the special conditions was indeed a QBE policy along these lines but it was not issued until 26 October 1998 (exhibit 101, 7 TB 249) and was later reissued on 16 November 1998 (exhibit 119A, 8 TB 276).  In observing that the QBE policy was issued on 26 October and reissued on 16 November 1998, the full policy documents were not issued on those dates but, rather, copies of the policy schedules with endorsements were issued on the first occasion with a copy of the standard form policy accompanying the revised policy schedule and endorsements being issued on the second occasion.

10. Under the form of the QBE project specific PI insurance as ultimately issued, that is its revised form of 16 November 1998 (exhibit 119A, 8 TB 276) there were, as events later revealed, a number of what the plaintiffs alleged were shortcomings.  For present purposes, the most significant of these are that:

    (a)the only parties insured under the policy were the BBR contractors, namely:

    Batepro Australia Pty Ltd and

    Brown & Root Engineering & Construction Pty Ltd

    which meant that neither Allstate (as principal) or if it were necessary for them to be added, none of the BMJV co-venturers, was named as an insured;

    (b)there was no provision in the endorsements or exclusions of the policy to delete the 'cross‑liability exclusion' contained in cl 4.5 of the standard form of exclusions in the QBE policy.

11. It is accepted by the parties that to secure effective PI insurance cover for Allstate as principal and as a named insured and, if it were necessary, to secure corresponding cover for any or all of the BMJV co-venturers as named insured, then the deletion of that cross‑liability exclusion, would have been necessary because, otherwise, the policy would not respond to a claim brought by any one or more of Allstate or the co‑venturers, if the claimant were an insured, against either or both of the BBR parties for breach of the latter's professional duties to the claimants because the claimants and the BBR parties would be co‑insureds;

    (c)associated with (b), but an additional requirement to satisfy the contractual obligations which BBR were to achieve or specify in the PI policy the preservation of the rights of subrogation by an insurer for Allstate and/or the BMJV co-venturers against the BBR parties (and their insurers) for any loss which Allstate or the BMJV's insurer might be required to meet under the policy.  This was necessary to avoid a situation in which the fact that both the BBR contractors and Allstate and/or the BMJV co‑venturers were co‑insureds would, because of the ordinary rule, preclude the underwriter of one insured claiming against another insured ‑ Petrofina UK Ltd v Magnaload Ltd (supra) and Woodside Petroleum Development Pty Ltd v H&R ‑ E&W Pty Ltd (1997) 18 WAR 539; (1997) 10 ANZ Ins Cas 61‑395.

12. However, because neither Allstate as principal nor any of the BMJV co‑venturers was an additional insured under this QBE policy, the policy as issued had no occasion to address the question of whether or not the cross‑liability exclusion should have been deleted.  Nor, for the same reason, was any attention given to whether the insurer of Allstate and/or any of the BMJV parties who were to be named as insured and their insurers should be subrogated to the insured's rights against the co‑insured BBR parties.

13. As will be seen, these questions about the naming of Allstate and/or the BMJV co-venturers as insureds under the policy, and the associated questions of the cross‑liability exclusion and the retention of the rights of Allstate's and BMJV's insurers' access to subrogation had been the subject of discussion in the background events which led to the ultimate execution of the Beaconsfield construction contract on 5 August 1998.  Problems, real or imagined, in securing cover by a policy which addressed all these issues seem never finally to have been resolved, and the obstacles arising from some of these outstanding demands or desires of the Allstate and BMJV parties are said, by the defendant, to account for the manner in which the policy was eventually issued.

14. Nevertheless, several important features emerge from this history which demonstrate that even if the QBE policy ultimately issued and reissued on 16 November 1998 had named Allstate as principal and/or any one or more of the BMJV co-venturers as additional insureds, it would still not have provided the cover which the plaintiffs contend was necessary to satisfy BBR's obligations under cl 3.9 of the Beaconsfield mine construction contract in its final form.  The deficiencies (as alleged by the plaintiffs) apart from the absence of Allstate and/or any one or more of the BMJV co-venturers in this respect in the QBE policy as it did finally issue, were:

    (a)the retention of exclusion clause 4.5 excluding liability claims between co‑insureds;

    (b)the failure to specify that the insurer of Allstate and/or any one or more of the BMJV co-venturers retained its right of subrogation on behalf of those insureds against the BBR parties; and

    (c)the absence of any extension or endorsement to the policy which would ensure that Allstate and/or the BMJV co‑venturers if co‑insureds had cover not merely for claims for which they themselves were liable (traditional PI liability claims) but for first party loss suffered by Allstate and/or any of the BMJV parties themselves as a result of a breach of professional duty in respect of these contract works by either or both of the BBR parties.

15. The QBE policy did not provide any form of cover for such first party loss if suffered by Allstate or the BMJV parties, nor did any of the other policies which were being considered by the brokers for the BMJV interests or the brokers for the BBR parties in the negotiations leading up to the execution of the Beaconsfield mine construction contract of 5 August 1998. 

16. A major issue in this case is whether cover of the kind which the plaintiffs contend was called for by cl 3.9 conferring on them a right of indemnity for first party losses was available in the insurance market in late 1998 or, if available, was available at a reasonable cost.  This issue is the subject of much of the expert evidence which is analysed later in these reasons.  It is enough at this point to say that none of the policies adduced in evidence or referred to by the expert witnesses provided for this kind of cover, with one single exception.  The exception was a special form of Lloyd's policy issued by the WJ Adams syndicate providing for such first party loss in a building or engineering construction contract setting against the risk of the contractor failing in its contractual obligations in relation to the construction of the plant in accordance with the construction contract because of delays, negligence or inadequate quality or other defects in performance.  The evidence is, and I accept, that that form of Lloyd's policy available through the WJ Adams syndicate was not being written from 1997 onwards.  A different type and more modern form of Lloyd's policy for similar and equivalent risks was adduced in evidence, it being the Liberty International Underwriters Professional Indemnity Insurance Policy For Construction Projects (exhibit 260) but which, according to the evidence, only became available several years after 1998.  The plaintiffs' case, however, is that through the intervention of brokers and obtaining special endorsements on policies such as the QBE policy such first party cover was available in 1998 and could have been procured, but no policy or endorsement to that effect was actually adduced in evidence.  The only evidence to this effect comes from the plaintiff's expert, Mr Paul Ellison (Mr Ellison), whose evidence in this regard will be examined fully later.  The defendant's insurance expert, Mr Michael Hills (Mr Hills) was to contrary effect, that in his experience and knowledge no such insurance cover was available at that time.

17. To appreciate these issues and to be able to consider to what extent, if at all, the background events assist in the proper construction of cl 3.9 of the special conditions relating to insurance, it is necessary to examine the origin and genesis of the Beaconsfield mine construction contract.

The insurance clause

1. The Beaconsfield contract (exhibit 1) was executed on 5 August 1998.  It is a lengthy document comprised of composite sections.  The operative forms of the agreement are relatively short ‑ a mere 12 clauses ‑ but substantial content is found in the exhibits which are annexed to the document and referred to in cl 1.  They comprise exhibit A, Performance Guarantees; exhibit B, Special Conditions of Contract; exhibit C, General Conditions of Contract; exhibit D, Scope of Work; exhibit E, Technical Specifications; and exhibit F, Schedules.  Each is deemed to form and be read and construed as the contract and together they constitute the entire agreement between the parties.  The composite document, incorporating all annexures, is to take effect according to its tenor notwithstanding any prior agreement, whether oral or in writing in conflict or at variance with them or any prior correspondence or documents relating to the subject matter of the agreement which may have passed between the Principal and the Contractor and any other person or company that may have been involved in the formation of the Contract.  The Contractor acknowledged and agreed with the Principal that it has not relied on any statement, representation or undertaking not embodied in the Agreement.

2. Exhibit B comprises the special conditions of contract and comprises some 42 pages dealing with a wide variety of duties and obligations.  Subclause 3.0 deals with insurance and, by cl 3.1, expressly replaces cl 18 ‑ 22 inclusive of the general conditions of contract, exhibit C ‑ see (exhibit 1, 5 TB 175,  at page 1290, and exhibit E to the contract, the Australian Standard General Conditions, AS 4200 ‑ 1995 ‑ (12 STB 362, cl 18 ‑ 22 inclusive at TB pages 3393 ‑ 3396 (inclusive)).  One of the general conditions so excluded and replaced was cl 21 relating to professional indemnity insurance.  That general condition, briefly stated, required the contractor to effect a professional indemnity insurance policy with a total aggregate cover of not less than a sum to be stated and a minimum of $1 million, which policy and cover was to be maintained until the final certificate was issued and which extended to every consultant within the category specified in one of the annexures.

3. One of the terms of the general conditions (exhibit 1, 12 STB 362 at  page 3393) was cl 17, which created an obligation upon the contractor to indemnify the principal against damage to persons and property.  This general condition provided:

   17     CONTRACT TO PERSONS AND TO PROPERTY

   17.1Indemnity by Contractor

   Insofar as this Clause 17.1 applies to property, it applies to property other than the work under the Contract.

   The Contractor shall indemnify the Principal against:

   (a)loss of or damage to property of the Principal, including the existing property in or upon which the work under the Contract is being carried out; and

   (b)claims by any person against the Principal in respect of personal injury or death or loss of or damage to any property,

   arising out of or as a consequence of a carrying out by the Contractor of the work under the Contract, but the Contractor's liability to indemnity the Principal shall be reduced proportionately to the extent that the act or omission of the Principal, the Superintendent or the employees or agents of the Principal contributed to the loss, damage, death or injury.

   …

   This Clause 17.1 shall not apply to

   (i)the extent that the liability of the Contractor is limited by another provision of the Contract;

   (ii)exclude any other right of the Principal to be indemnified by the Contractor;

   (iii)things for the care of which the Contractor is responsible under Clause 16.1; and

   (iv)claims in respect of the right of the Principal to have the work under the Contract carried out.

   17.2Indemnity by the Principal

   The Principal shall indemnify the Contractor in respect of claims referred to in Clause 17.1(iv).

1. Looking at the matter from the viewpoint of a claim by Allstate on behalf of the BMJV joint venture against the insurer, the question of non‑disclosure by the BBR parties can be put aside because of the requirements of special condition 3.12(a) and 3.12(c).  A compliant policy would therefore have been enforceable, and responsive to a liability based claim by Allstate but only to a liability based claim.  As the plaintiffs' claim in this action, and the claim which they maintain should have been covered by a policy complying with special condition 3.9 is not a liability based claim, but rather a first party loss claim it would not have been covered by such a policy.  This means that, notwithstanding that the QBE policy, exhibit 119A, did not comply with the requirements of cl 3.9, neither Allstate nor the other plaintiffs can demonstrate that they have suffered any loss as a result because a policy which the contract required would not have responded either.  In other words if Blakes had pointed out to Allstate in August ‑ November 1998 that the QBE policy which had issued did not fully comply with requirements of cl 3.9, and had the deficiencies been rectified by securing a policy which did, neither Allstate nor any of the plaintiffs would have been in any better position.

2. Accordingly, because the plaintiffs have failed to demonstrate that they have suffered any loss by reason of the alleged negligence of the defendant there could be no liability of the defendant in negligence because damage is an essential component of that tort.  Therefore the plaintiff's claims for damages for negligence must be dismissed.

Damages - causation - discount for loss of a chance

1. In view of the conclusion that the plaintiffs have not established any entitlement to an award of compensatory damages against the defendant, issues concerning the quantification and assessment of damages in tort need not be examined except to one limited extent.  This is only done because the parties addressed the issue in detail in their submissions and, although strictly unnecessary for decision, it is desirable that I address this point in case it might ever become of significance in the future.

2. The plaintiffs submitted that, in the event that they established any entitlement to damages, whether for breach of contract or in negligence, then the amount of damages which should be assessed was the figure of $7 million without reduction together with a discretionary entitlement to interest, as mentioned elsewhere.  Obviously, this is on the basis that, but for the alleged breach of duty by the defendant firm, the plaintiffs would have been entitled to an insurance indemnity which covered it for a first party loss which it suffered up to the limit of $20 million.  Giving credit for the $13 million recovered in the facilitation exercise, that leaves a capital loss of $7 million which, according to the plaintiffs, should be awarded without reduction.

3. The defendant's position, however, is that even if liability for damages were to be established, the quantification of damages should involve a reduction of the $7 million claimed to take into account the uncertainties affecting the question of whether or not that indemnity would, even with the events which could be expected to exist if liability were established, be recognised.  On this submission the assessment should recognise that it was, at the most, the loss of a chance rather than of certainty of recovering an indemnity for $20 million.  According to the defendant, the uncertainties or chances which should be taken into account in diminution of damages for this exercise in quantification include, firstly, uncertainty over whether, if the absence of the requisite insurance had been noticed at the critical time, the plaintiffs would have succeeded in compelling the BBR parties to obtain other insurance providing, among other cover, cover for first party loss.  Secondly, according to the defendant, there was uncertainty over whether or not such cover was available or could have been procured; and, thirdly, the prospect of recovery must always be subject to a number of vicissitudes and uncertainties.  Consequently, so the submission continues, even if liability were established, all that plaintiffs would thereby have succeeded in doing was to show that they had lost a chance of achieving a situation in which a complying policy would have been issued; that they were co‑insureds, that there would be no cross‑liability exclusion; that the policy responded in cases of first party losses; and that they would succeed in establishing liability for a complete indemnity.  Because, as the submission goes, there are uncertainties at each of these steps there should be a discount to take into account that it is the loss of a chance rather than an established probability of full recovery and that there should be a reduction in the damages upon the principles in Sellars v Adelaide Petroleum NL [1994] HCA 4; (1994) 179 CLR 332.

4. To these submissions the plaintiffs, by their counsel, respond that the principles in Sellars do not apply because, in order to establish liability, including causation, it had been necessary for the plaintiffs to show that full cover of the kind alleged, including cover for first party loss, was required on the proper construction of special condition 3.9; that such cover was available in the market and could have been obtained from an underwriter in 1998 (including the deletion of any cross-liability exclusion) and that Allstate as Principal and/or the BMJV co-venturers should have been a co‑insured or co‑insureds.  The plaintiffs' submission is that all these ingredients are part of the proof of the issues of liability and causation and, liability once having been established, a full entitlement to damages without reduction necessarily follows.

5. Had it been necessary for me to do so, I would have upheld the plaintiffs' submissions on this issue for I consider that, had liability been established, it would have been necessary for the plaintiffs to have established all those steps in the chain towards proving liability and causation.  Those matters having been proved, there is no reason to conclude that the entitlement to an indemnity under the policy would have been anything less than complete.  Sellars v Adelaide Petroleum can be distinguished on the basis that in that case, even if it had not been for misleading and deceptive conduct of the respondents, there was no certainty that the claimants would have obtained the advantages to which their activities were directed, ultimate success in that eventuality depended upon the favourable resolution of a number of uncertainties which themselves were not dependent on or associated with the steps in the establishment of liability or causation ‑ see also Commonwealth of Australia v Amman Aviation Pty Ltd [1991] HCA 54; (1991) 174 CLR 64. This is now even more apparent in the light of the very recent decision of the High Court in Tabet v Gett [2010] HCA 12 per Gummow J at [47] ‑ [50], [59]; Hayne and Bell JJ at [69]; and Kiefel J at [109] ‑ [111] and [123] ‑ [124]. However, as first remarked in this part of these reasons, this issue is now only peripheral and theoretical and my conclusions on the point do not affect the ultimate resolution of the case or any of the orders which should follow.

6. In Sellars (supra) the damages were awarded because of the loss of the chance to enter into a more beneficial contract and, consequently, its lack of directness giving rise to the contingency was also a feature in Commonwealth of Australia v Amman Aviation Pty Ltd 91 ‑ 92, 102, 118 ‑ 120.  In instances where the doctrine applies it is not necessary to prove, on the balance of probabilities, that the chance would have succeeded ‑ Malec v JC Hutton Pty Ltd [1990] HCA 20; (1990) 169 CLR 638, 643. Once it is established that the contractual entitlements meant that Allstate should have been named as a co‑insured under a policy which would respond to the first party loss which it claimed then, assuming that the underwriter was a reputable and solvent insurer (and there was never any suggestion to the contrary) then the right to a full indemnity should follow. Accordingly, the loss of the right to an indemnity in the situation hypothesised by the plaintiffs is more than the loss of a chance, it is a loss of a right which can be measured in value without any need or justification for a discount.

Negligence - Plaintiffs' (rejected) construction of cl 3.9 of the special conditions

1. The other basis upon which the allegations of negligence or breach of duty by the defendant proceeds is on the hypothesis (advanced unsuccessfully by the plaintiffs) that upon its proper construction cl 3.9 of the special conditions required that the Contractors take out PI specific and general insurance covering themselves and the Principal for all loss or damage suffered as a result of breach of professional obligations by the Contractors in the performance of the Beaconsfield contract works.  This is the construction which contends that the cover required for the Principal, or for the BMJV co‑venturers, under the project specific PI policy covered them for first party loss.  That is, any loss or damage which they suffered as a result of civil liability by the BBR parties even though the Principal and the BMJV parties were under no legal liability themselves in respect of that loss or damage.  Because I have rejected that construction, it is not essential that I consider this aspect of the case further except for the fact that the defendant raised a distinct defence in relation to this contingency.

2. The defence by the defendant in this regard, reduced to essentials, is that the construction ascribed by the plaintiffs to cl 3.9 of the special conditions (that is, that it should cover the plaintiffs for first party loss) is so unusual, unorthodox and contrary to well‑accepted notions of the scope of professional indemnity insurance that, in the event that it should be the proper construction of this clause, a mistake by a solicitor in failing to recognise that unusual meaning would not be negligent.  In other words, the proposition is that although Ms Box never contemplated that cl 3.9 would have the meaning ascribed to it by the plaintiffs (and on this hypothesis correctly) her failure to realise that construction, is a kind of error which a reasonably experienced and competent solicitor could make without being negligent.  As the submission goes, not every error, mistake or omission is negligent.  It is only those errors, mistakes or omissions which reveal a failure to exercise reasonable care that are tortious or in breach of the professional obligation.  Honest, non‑negligent errors or omissions or misjudgments can and do happen ‑ Heydon v NRMA [2000] NSWCA 374; (2000) 51 NSWLR 1.

3. Accordingly, so the submission progresses, the omission by Ms Box to advise Allstate that the QBE policy as issued and endorsed (exhibit 119A) did not fully comply with the contract must be regarded as containing a third element.  Not only was there an omission to point out again that Allstate was not named as an insured to the QBE policy; and an omission to remind Allstate that even if it were named as a co‑insured the cover would not be effective unless the cross‑liability exclusion, 4.5, were deleted or modified; but, thirdly, the client should have been advised that the QBE policy was a liability‑based policy only and did not give cover for the Principal's first party losses.  Had that advice been given then, according to the plaintiffs, steps would have been taken, or pressure brought to bear, which would have resulted in the BBR parties obtaining (probably from a different underwriter) project specific PI cover including cover for the Principal for first party losses which, according to the plaintiffs, the evidence of Mr Ellison establishes was available at the time.

4. I have concluded elsewhere that PI policies, whether project specific or general, which would extend first party loss cover of this type to a co‑insured Principal, were not available at the time.  I have also concluded that had a complaint been raised in the period August to November 1998 about the absence of first party cover for the Principal under any proposed PI policy, this would not have led to any desired result by the plaintiffs because that would almost certainly have precipitated a controversy over the proper construction of cl 3.9, in which case the construction which I have arrived at, for the reasons given earlier, would have been established.  I have also concluded that in that eventuality the plaintiffs would, in all probability, have persisted in the engagement of the BBR parties notwithstanding the inability to obtain PI cover for the Principal for first party losses, if the proper construction of cl 3.9 had called for that.

5. All this would have meant, even on the construction of special condition 3.9 favoured by the plaintiffs, that it would not have been possible for Allstate or the BMJV co‑venturers to have obtained insurance cover of the kind they were wanting.  Not being able to obtain such insurance would have meant that, in the events which happened, they would not have been insured for the loss which occurred.  So that even if they had been advised by the defendants, as they claim they should have been advised, they would have been no better off.  Not having been able to obtain such insurance, they would not have had access to the indemnity.  The absence of such indemnity would therefore not have been caused by any negligence or breach of duty by the defendants.  The absence of the indemnity would be due to an independent and insurmountable cause, namely the lack of any underwriter willing and able to write such cover.  That being the case, there would again have been no actionable loss caused by the defendant and, accordingly, no basis for the claim for damages for negligence advanced in this litigation, even had the plaintiffs' construction of cl 3.9 been adopted.

6. The conduct of the trial by the plaintiffs did not involve any examination of what the position of the plaintiffs would have been in August ‑ November 1998 had it been established that it was not possible then to obtain project specific of general PI cover which would extend this type of first party loss cover for the Principal.  The plaintiffs' case did not suggest or canvass the prospect that, in that eventuality, they would have obtained their own cover of this kind under the Contract (if it was available, contrary to the implications and the advice to Allstate from Marsh & McLennan or that, with or without doing that, the plaintiffs would have successfully sued the BBR parties for breach of the term of the contract to supply certain insurance when it was not possible to do so, or what the fate of any such claim might have been.  The plaintiffs' case, confirmed expressly in this respect by their counsel, was that had the absence of first party cover for the Principal in the project specific PI insurance which had been arranged been noticed and brought to their attention, effective steps would have been taken to compel the BBR parties to procure such cover, which would then have been promptly provided.  As already indicated, I see no probability of that ever having occurred.

7. These factors, therefore, reveal that the question of whether or not a mistake or omission by Ms Box in failing to realise that cl 3.9 of the special conditions required the BBR parties to provide a project specific policy extending first party loss cover to the Principal was a non‑negligent mistake or omission, because of the obscurity and novelty of the construction of cl 3.9 advanced by the plaintiff, is one of minor significance.  This is because, even if there was negligence or breach of a duty of care, it has not been established that the plaintiffs have suffered any damage by reason of that breach, thus meaning that the negligence claim must fail.

8. However, this still leaves the question of whether or not a failure to appreciate this advanced (and rejected) hypothesis about the true construction of special condition 3.9 was a non‑negligent mistake.  Having regard to the established meanings of professional indemnity insurance and that in all respects, except for some immaterial extensions, it is liability based, I consider that any solicitor or broker, even one with extensive experience or specialty in insurance law, could reasonably be mistaken in failing to ascribe a different meaning to cl 3.9.  That is, I consider that such a postulated error would not have been negligent.  Indeed, my conclusion as to the proper construction of cl 3.9 shows that Ms Box was correct in law in her appreciation of the meaning of that clause.  So any omission to advise Allstate or the BMJV parties that cl 3.9 called for a different form of professional indemnity cover would not have been negligent.

9. However, that still does not entirely dispose of the matter because even on the second hypothesis as to the proper construction of special conditions 3.9, there remains the allegations that there was negligence or breach of professional duty by the defendants in Ms Box failing to point out that the QBE policy, exhibit 119A, as eventually issued and endorsed did not name the Principal as a co‑insured and that, even if it did, there would still be a need to eliminate or modify the cross‑liability exclusion 4.5 in the policy for the cover to be effective.  These issues have been dealt with elsewhere in these reasons and it is sufficient here to say that, even if that had been pointed out, it would still not have led to first party loss cover being underwritten for Allstate or any of the BMJV co‑venturers because of the unavailability of that cover in the market.  Again, there would be no loss resulting from the alleged breach of duty in omitting to give that specific advice.

Consequences of failing to advise

1. For a failure to advise with all reasonable care which the occasion demanded to give rise to a liability by the solicitors in tort it must also be proved by the plaintiffs that that failure caused loss or damage.  In this case, I am satisfied that the plaintiffs have not been able to show that any such loss or damage has been caused by this failure to advise.  The reasons for this are more fully expressed elsewhere.  In short, they are that had such advice been given and Allstate been added, as it should have been, as a co‑insured under this policy, (and assuming that the cross‑liability exclusion 4.5 in the QBE policy would have been deleted or suitably modified) neither Allstate nor any of the BMJV parties would now have been better off.  This is because, even if so insured, the professional indemnity insurance called for by the policy would not have responded to the non‑liability based claim which the plaintiffs have sought to make.  That being the case, and no damage resulting from this failure to advise by the solicitors, the claim for damages for negligence must fail.

Breach of contract

1. This leaves the question of a claim of damages for breach of implied terms of the contract of retainer between the solicitor's and Allstate on behalf for the BMJV parties.  A successful action for breach of contract does not require proof of actual damage because, in the event of a breach being established but damages not being proved, there can be an award of nominal damages.  Although I raise this issue with counsel the counsel for the plaintiffs did not appear to press the case for nominal damages but nevertheless it seems right that I should address the cause of action in contract.  To do so raises the question of whether there was any breach of a duty by Blakes in the discharge of their obligations under the contract of retainer with Allstate as Principal and manager for the BMJV.

2. A claim for breach of contract will succeed even if no special damage is proved ‑ Marzetti v Williams (1830) 1 B&Ad 415; North Sea Energy Holdings v Petroleum Authority of Thailand [1999] 1 Lloyd's Rep 483; Anglo‑Cyprian Trade Agencies Ltd v Paphos Wine Industries Ltd [1951] 1 All ER 873; Mediana v Comet [1900] AC 113, 116; Luna Park (NSW) Ltd v Tramways Advertising Pty Ltd (1938) 61 CLR 286 (305) (Latham CJ); and Hawkins v Clayton [1988] HCA 15; (1988) 164 CLR 539 (583) (Deane J).

1. However, unlike the situation in many such claims for damages for breach of a contract where a plaintiff fails to establish on the evidence that substantial damages have been suffered (as, for example, in the Luna Park case) in this case it is apparent that no damages of any kind have been caused to Allstate or to the other plaintiffs by this breach of contract because, had the contract been performed and the advice given resulting, as the plaintiffs claim would have occurred, the issue of insurance cover which would have fully complied with special condition 3.9, such cover would still not have responded to a claim for the type of loss advanced by Allstate or the other plaintiffs.  This is, therefore, a breach of a contract which has had no consequences in the nature of damages by any of the plaintiffs. 

2. Allstate is entitled to an award of nominal damages for that breach of contract but, having regard to the purpose of this action being to recover substantial damages rather than to demonstrate or vindicate some proprietary or other right of enduring significance, this cannot be regarded as success by the plaintiffs in the action.

Conclusion

1. For the foregoing reasons I consider that the plaintiffs' action for damages for negligence should be dismissed.  In relation to the action for damages for breach of contract, the contract of retainer was by the first plaintiff by itself and for the other plaintiffs with the defendant and a breach of contract to advise with reasonable care in one respect has been shown, although it has equally been established that no damages of any kind have been caused by that breach.  The plaintiffs are, therefore, entitled to an award of nominal damages but in current times there is authority for the view that in such cases even a claim for damages for breach of contract could be dismissed:  Hyde Park Residence Ltd v Yelland [1999] RPC 655. However, I consider that an award of $100 as nominal damages should be made.