Alstom Limited v Liberty Mutual Insurance Company (No 2)
[2013] FCA 116
FEDERAL COURT OF AUSTRALIA
Alstom Limited v Liberty Mutual Insurance Company (No 2) [2013] FCA 116
Citation: Alstom Limited v Liberty Mutual Insurance Company (No 2) [2013] FCA 116 Parties: ALSTOM LIMITED (ABN 15 000 038 237) v LIBERTY MUTUAL INSURANCE COMPANY (ARBN 086 083 605), ALLIANZ AUSTRALIA INSURANCE LIMITED (ABN 15 000 122 850), ACE INSURANCE LIMITED (ABN 23 001 642 020), CATLIN SYNDICATE LIMITED and TOKIO MARINE EUROPE File number: WAD 300 of 2008 Judge: SIOPIS J Date of judgment: 22 February 2013 Catchwords: MARINE INSURANCE – two transformers were damaged during a voyage from Mumbai to Fremantle – the transformers were insured by the owner under an all risks marine cargo insurance policy which included the Institute Cargo Clauses A – whether the proximate cause of the damage to the transformers was an inherent vice – whether the proximate cause of the damage to the transformers was the insufficiency or unsuitability of packing – whether the internal bracing to be applied to the component parts of the transformers during the voyage was to be regarded as “packing” or “preparation” – whether the insured could rely upon a clause in the marine insurance policy which deemed that the component parts of the transformers had been adequately packed – whether the insufficiency in packing arose by the fault or with the knowledge and consent of the insured – whether the marine insurance policy covered expenditure incurred by the owner in reconnecting the transformers after they had been repaired and returned to the installation site. Legislation: Marine Insurance Act 1909 (Cth) ss 61, 62, 63, 66, 67, 73, 77, 77(c), 81 Cases cited: Wayne Tank and Pump Company Limited v Employers’ Liability Assurance Corporation Limited [1974] QB 57
Yorkshire Dale SS Co Ltd v Ministry of War Transport (1942) 73 Lloyd’s Rep 1 (The Coxwold)
European Group Ltd v Chartis Insurance UK Ltd [2012] EWHC 1245
Helicopter Resources Pty Ltd & Vowell Air Services (Helicopters) Pty Ltd v Sun Alliance Australia (unreported, Supreme Court of Victoria, Ormiston J, 26 March 1991)
Mayban General Assurance Bhd v Alstom Power Plants Limited [2004] Lloyd’s Rep 609
State of Netherlands v Youell [1997] 2 Lloyd’s Rep 440
Samuel & Co Ltd v Dumas [1924] AC 421
General Accident Fire and Life Assurance Corporation Ltd v Midland Bank Ltd [1940] 2 KB 388
Compagnia Maritima Sa Basilio SA v Oceanus Mutual Underwriting Association (Bermuda) Limited [1977] 1 QB 49
MacKinnon McErlane Booker Pty Ltd v P & O Australia Ltd [1988] VR 534
Lewis v Rucker (1761) 1167; 97 ER 769Bennett H, The Law of Marine Insurance (2nd ed, Oxford University Press, 2006
Date of hearing: 16-20 April 2012 Date of last submissions: 18 January 2013 Place: Perth Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 206 Counsel for the Applicant: Mr CG Colvin SC with Mr P Hopwood Solicitor for the Applicant: Cocks Macnish Counsel for the Respondents: Mr G Nell SC with Mr G Hancy
Solicitor for the Respondents: Blackstone Waterhouse Lawyers
IN THE FEDERAL COURT OF AUSTRALIA
IN ADMIRALTY
WESTERN AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION
WAD 300 of 2008
BETWEEN: ALSTOM LIMITED (ABN 15 000 038 237)
ApplicantAND: LIBERTY MUTUAL INSURANCE COMPANY (ARBN 086 083 605)
First RespondentALLIANZ AUSTRALIA INSURANCE LIMITED (ABN 15 000 122 850)
Second RespondentACE INSURANCE LIMITED (ABN 23 001 642 020)
Third RespondentCATLIN SYNDICATE LIMITED
Fourth RespondentTOKIO MARINE EUROPE
Fifth Respondent
JUDGE:
SIOPIS J
DATE OF ORDER:
22 FEBRUARY 2013
WHERE MADE:
PERTH
THE COURT ORDERS THAT:
1.Subject to Order 2, the parties are within 14 days to file a minute of orders which gives effect to the reasons for decision and, if possible, costs.
2.If the parties are unable to give effect to Order 1, the parties have liberty to apply to relist the application.
Note:Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
IN THE FEDERAL COURT OF AUSTRALIA
IN ADMIRALTY
WESTERN AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION
WAD 300 of 2008
BETWEEN: ALSTOM LIMITED (ABN 15 000 038 237)
ApplicantAND: LIBERTY MUTUAL INSURANCE COMPANY (ARBN 086 083 605)
First RespondentALLIANZ AUSTRALIA INSURANCE LIMITED (ABN 15 000 122 850)
Second RespondentACE INSURANCE LIMITED (ABN 23 001 642 020)
Third RespondentCATLIN SYNDICATE LIMITED
Fourth RespondentTOKIO MARINE EUROPE
Fifth Respondent
JUDGE:
SIOPIS J
DATE:
22 FEBRUARY 2013
PLACE:
PERTH
REASONS FOR JUDGMENT
In June 2006, the applicant, Alstom Limited, entered into a contract with Crompton Greaves Ltd of Mumbai, India, for the manufacture and supply of two generator step up transformers, each weighing approximately 132 metric tonnes. Alstom was obliged to supply the transformers to the NewGen Power Kwinana Partnership for installation in a new power station to be constructed in Kwinana, Western Australia. The NewGen Power Kwinana Partnership comprised Babcock & Brown Kwinana Pty Ltd and ERM Kwinana Power Pty Ltd.
Under Alstom’s contract with Crompton Greaves, the transformers were to be factory tested, seaworthy packed and supplied free on board at the port of Mumbai for shipping to Henderson Wharf, Fremantle.
Alstom was a named insured under a marine project cargo insurance policy in respect of the transport of the transformers to Western Australia. Each of the respondents is a party to that marine insurance policy and would be liable for a portion of the amount of any indemnity which might be payable under the marine insurance policy.
The core coil assembly was a cubic structure which housed three core columns and the coils which were wound around the core columns. These columns comprised important components of each of the transformers. During the manufacturing process, each core coil assembly was placed into a steel container or tank (as they were also called), which was also to serve as the housing for the parts comprising the transformer at the NewGen power station site at Kwinana. The steel containers were loaded aboard the “MV Fairload” at Mumbai on 17 June 2007 for shipment to Western Australia. During the sea voyage from the port of Mumbai to Henderson Wharf in June and July 2007, the core coil assembly of each of the transformers moved within each of the steel containers and the cores suffered significant damage.
Alstom claimed an indemnity under the marine insurance policy in respect of the loss and damage that it incurred in respect of the damaged transformers. The respondents declined to meet Alstom’s claim primarily on the basis that the damage caused to the transformers arose through an inherent vice in the transformers, which was an excluded risk under the policy.
By this application, Alstom seeks a declaration that it is entitled to an indemnity under the marine insurance policy. Alstom also claims damages in the sum of A$4,630,074.54.
THE MARINE CARGO INSURANCE POLICY
The marine cargo insurance policy was issued in respect of the NewGen power station construction project. The policy defines “Named Insured” to include Alstom and also “all contractors and subcontractors in any tier engaged on the project, manufacturers and/or suppliers…engaged in the project…” It is common cause that Crompton Greaves, being the manufacturer and supplier of the transformers, was also included within the definition of a named insured under the policy.
The marine cargo insurance policy includes in its terms the “Institute Cargo Clauses (A)”. The relevant Institute Clauses for the purpose of this case are the following:
This insurance covers all risks of loss of or damage to the subject-matter insured except as provided in Clauses 4, 5, 6 and 7 below.
…
4.In no case shall this insurance cover
…
4.3loss damage or expense caused by insufficiency or unsuitability of packing or preparation of the subject‑matter insured (for the purpose of this Clause 4.3 “packing” shall be deemed to include stowage in a container or liftvan but only when such stowage is carried our [sic] prior to attachment of this insurance or by the Assured or their servants)
4.4 loss damage or expense caused by inherent vice or nature of the subject-matter insured.
Another significant clause of the policy, for the purpose of this case, is the “Unsuitability of Packaging Clause”. This clause reads as follows:
Any packaging or external preparation of the interest insured is deemed to be sufficiently packed and prepared if:
(a)the packing and external preparation is in accordance with usual custom or trade or the Insured’s custom or
(b) any insufficiency or unsuitability of packing or external preparation has not arisen through fault of or with the knowledge and consent of the Insured.
There is another clause in the policy called the “Survey Warranty” clause. This clause, inter alia, affords the insurers the right to “approve and/or attend all packing, loading stowage…arrangements and operations”. The clause states that the insurers were not obliged to undertake any surveys or attendances.
BACKGROUND
In June 2006, Alstom entered into a contract with Crompton Greaves for the design, manufacture and supply of the two transformers. The contract terms are set out in a purchase order dated 15 June 2006. It stated that the transformers were required by 1 May 2007, with a two weeks grace period. The purchase order also provided, inter alia, that:
The Scope of the supply includes: Offshore Design; Engineering; Manufacturing; Type and Routine Tests as per IEC; Seaworthy Packing; Erection and Commissioning Spares…
Further, the purchase order stated that the materials, equipment and services should be provided in accordance with the requirements of the “Contract Documents”.
The purchase order then identified the “Contract Documents”. Relevantly, the purchase order identified under the heading “Technical Specification” the following documents”:
·Document ref: HDST 601 683 dated 22 May, 2006 – “Shipping, Packing and Marking Instructions”;
·Document ref: HDST601 100 Revision “C” dated 12 July, 2002; “Packing Regulations”;
·Document ref: SW 19 E – P 15 ES 001 Revision “B” dated 30 May, 2006; “Technical Specification for Generator Step-Up Transformers”.
The purchase order also stated that seaworthy packing in accordance with the first two documents referred to in the preceding paragraph, was included in the purchase price.
Clause 2.3.1.3 of the technical specifications for the transformers is also relevant. It provides:
Core and Coil…the core shall be rigidly clamped to prevent any distortion due to short circuit stresses or transport handling. The transformer coil shall be solidly connected/grounded to the transformer tank (accessible from outside).
…
The core and end frame shall be securely clamped and bolted to prevent vibration during operation so that the core assembly shall withstand, without change or shape or position, all stresses due to transport, handling, short circuits and seismic disturbances. End frames, core clamping structures, and tie rods shall be constructed of steel. Core clamping structures shall be insulated from the core.
That document also provided in cl 1.3.2 under the heading “Services” that the supplier shall provide all services which are necessary for the supply of the specified equipment including, but not limited to, protection and seaworthy packing for transport.
The contractual documents also incorporated Alstom’s general terms and conditions and Alstom’s project specific conditions. Pursuant to cl 4.3 of Alstom’s general terms and conditions, and cl 4.4 of the project specific conditions, Alstom was entitled to have its representatives monitor the manufacturing process and attend the tests of the transformers.
Alstom engaged Alstom Projects (India) Limited (Alstom (India)) to monitor the manufacturing process, and Tata Projects Limited to attend the tests.
The cores were essential components of each of the transformers. The cores were comprised of a great number of ultra thin laminations. This meant that there was some flexibility in the cores. The laminations were restrained and held in place by supporting materials, known as limb stiffeners and were bound into place by resin bonded tapes. The core was surrounded by windings referred to as the coil.
As mentioned, the core coil assembly was a cubic structure. It was about 3.9 metres high and about one metre wide and housed three cores with surrounding coils. There was an upper beam, called the top frame assembly, which was attached to the top of the core coil casings. There were two cylindrical support posts protruding from the ends of the upper beam. These support posts were also referred to during the hearing as pins. The top end of the cylindrical support posts extended into a square opening or hole in the outer steel container which was slightly bigger than the top of the support posts. The edges of the square opening were referred to as flanges. Crompton Greaves inserted into the square opening in the tank as a buffer, strips of densified timber (referred to in the trial as “lignostone strips”) which bordered on and supported the cylindrical top of the support post and at the same time fitted into the square hole in the outer steel casing. However, the lignostone strips were not moulded precisely to accommodate the circumference of the support post and so there was a single point of contact between each of the adjacent supporting lignostone strips and the edge of the circular support post or pin.
There was also, as part of the core coil assembly, a bottom beam assembly to which core coil casings were attached. The “feet” of the core coil assembly were attached to this bottom beam. These feet comprised a flat rectangular steel plate which contained a circular opening. There was also attached directly to the bottom floor of the container, four cylindrical pins (sometimes referred to as the bottom locating pins or restraining pins) and attendant anti‑vibration rubber mats, 25 mm thick. The pins protruded from the floor through the rubber mats. The holes in the feet of the core coil assembly fitted over the restraining pins so that the feet rested on the rubber mats, which were attached to the base or floor of the metal container. There was a small gap between the circumference of each of the bottom locating pins and the circumference of the accommodating hole in the feet. There were also three other rubber mats on which the core coil assembly rested which did not have restraining pins.
Mr SR Krishnan, an employee of Alstom (India), was given the task of monitoring the performance of Crompton Greaves during the manufacturing process. Mr SR Krishnan visited the Crompton Greaves factory in Mumbai once or twice a week to monitor the progress of the work on the manufacturing of the transformers. Mr SR Krishnan prepared reports on these visits and submitted those reports, called Supplier Monitoring Intervention Reports, to Alstom. The following system was employed by Alstom in relation to dealing with the reports. The reports were reviewed in the first instance by Mr Bernard Antony, Alstom’s project procurement and logistics manager and Mr Scott Farris, Alstom’s project quality manager. If the reports revealed anything of concern, the reports were to be referred to Mr Thomas Oliver, Alstom’s contract and commercial manager for the project, and Mr Lee Dawes, Alstom’s project director. No matters were referred to Mr Oliver or Mr Dawes as a consequence of the receipt of Mr SR Krishnan’s reports.
Mr SR Krishnan was not present when each core coil assembly was placed in the container at the Crompton Greaves factory. Nor did he inspect the core coil assembly once it had been placed into the container. Mr SR Krishnan was not specifically instructed to attend the factory when each core coil assembly was placed in the tank. Mr SR Krishnan did not regard it as his obligation to attend the placing of the core coil assembly in the tank nor to inspect the core coil assembly once it was in the tank. According to Mr SR Krishnan those were matters that fell within Crompton Greaves’ responsibility under the “shop and inspection test” plan.
Also, Mr SR Krishnan did not inspect the installed lignostone strips which were not visible once the container had been sealed.
In April and May 2007, Crompton Greaves carried out at its premises in Mumbai, the final acceptance test of each of the transformers, a painting inspection and pre-shipment inspections. Mr KR Krishnan of Tata Projects attended those tests. So did Mr SR Krishnan. At no time during any of these tests did either Mr SR Krishnan or Mr KR Krishnan see the core coil assembly, which by then had already been placed into the sealed containers. In order to carry out the final acceptance test, the transformer container was filled with oil. After the test was completed the oil was drained from the transformer container. Mr KR Krishnan was not instructed to inspect the core coil assembly or the manner in which it was secured in the transformer.
In June 2007, the containers were loaded onto the ship, “MV Fairload” at Mumbai. There were welded to the sides of each container, lugs which are used by lifting equipment to facilitate the loading of the container on to ships and trailers. At the time of loading, the core coil assembly, as described in the preceding paragraph, was contained within each of the sealed containers. Each of the sealed containers was filled with inert nitrogen gas for the purposes of the voyage. There was also attached to each container a shock recorder.
In addition to the steel tanks containing the core coil assemblies, there was also loaded on board the ship, a number of crates which contained other component parts of the transformers. These parts were to be used in assembling the complete transformers, once the containers and crates had arrived at the NewGen power station site in Kwinana. Also, loaded on to the ship were containers of oil which would be poured into the transformer tank once it was installed on site, to facilitate the operation of the transformers. Prior to the departure of the ship, the respondents did not exercise their right under the policy to conduct any survey pursuant to the survey warranty clause.
It is common ground that the sea conditions which the “MV Fairload” encountered were of a kind that would ordinarily be expected on that voyage at that time of the year. It is also common ground that during the course of the voyage, the top locating pins impacted against the lignostone strips surrounding the pins, and that the impact caused the lignostone strips to disintegrate. This in turn led to the top locating posts impacting against the sides of the flanges of the containers in response to the movement of the ship in the sea conditions.
On 5 July 2007, the transformers were unloaded at Henderson Wharf, Fremantle. On 15 July 2007, the transformers were delivered by road transport to the NewGen Kwinana site.
When the transformers arrived at the site, Alstom engineers under the supervision of Mr Joerg Gapko, the electrical construction manager for the NewGen project, removed the shock recorder which was mounted on a bracket welded to each transformer tank; and commenced the assembly of the transformers. By mid-August 2007, the transformers were approximately 90% assembled.
During the attachment of the bushings to the top of the transformer tank as part of the assembly process, it was necessary for the first time, to open the hatch covers on the high voltage and low voltage side of the transformer tank. When this was done, Mr Gapko observed that several hold on bolts of the windings of the core were loose, there were some loose locknuts and one of the lignostone strips which had been placed around one of the top cylindrical support posts appeared to have fallen down into the transformer.
On this discovery, Alstom engineers ceased any further work on the process of assembling the transformers. Alstom invited representatives of Crompton Greaves, NewGen and the respondents to visit the project site and inspect the transformers.
In mid-September 2007, representatives of the interested parties inspected the transformers. Those who attended the inspection were Mr Shantanu Mitra, a representative of Crompton Greaves, Mr David Allen of O’Donnell Griffin, who had been engaged as a consultant by Alstom, Mr Jeff Randles of Worley Parsons, representing NewGen and Mr Pat Dowdell of BEC Engineering Pty Ltd, representing Liberty Mutual Insurance Company (Liberty Mutual), one of the respondents.
Mr Gapko was also present during the inspection.
During the inspection, the covers over the top locating posts of the core coil assembly were opened for the first time and the top locating posts were examined.
On 19 September 2007, the panel of experts, referred to in [33] above, who had examined the transformers, produced their report. The expert report stated in relation to one of the transformers:
4.1A thorough inspection of the locating posts at the top indicated extensive damage to the packing insulation, which was crushed and was appearing as debris on the core and other places.
4.2On examination by opening the cover above the locating posts on the top tank cover, there were marks that indicated rubbing with the side of the opening on the tank. It was observed on both the locating posts. These marks were in the cross direction ie HV side to LV side.
4.3It was observed that the top cover over the locating post on the U phase side had bulged, indicating a considerable movement of the core coil assembly in the vertical direction also. The cover above the locating post had bulged.
…
4.6On the bottom locating post there was no visible damage to the insulation and it seemed to be in order. The bolt connected to the locating post was intact and no sign of shearing was noticed.
…
4.9There was no visible evidence of damage at the feet of the core coil assembly. However there was evidence of movement of the anti vibration pads below the feet.
Similar findings were made in relation to the other transformer. The report also stated that testing of the shock recorders showed that the transformers had been subjected to “severe shocks” during transit.
The panel of experts concluded that:
5.1There is very clear evidence that there has been considerable movement of the core coil assembly with respect to the tank in the axial and vertical direction. The shocks had taken place during transit.
The panel also stated that the test results of the preliminary tests performed on the transformers indicated no abnormality and no movement of the windings with respect to the core. The assessment made was that such repairs to the transformers as were required could be made on site.
However, between 18-20 October 2007, Mr Mitra, Mr Randles and Mr Allen carried out a further investigation. Following the investigation, they reported that during the voyage events occurred which caused the release of pressure which held the bonded laminations in place as part of the core which in turn allowed the laminations to slip and drop out of position. This affected the integrity of the transformers such that they were not fit for their intended purpose. The investigation also showed that there had been damage to the locating pins at the base of the transformers. Also, three of the eight core bolts had sheared off. Subsequent inquiries showed that the transformers could not be repaired in Australia.
In late October 2007, Mr Lee Dawes and Mr Thomas Oliver of Alstom flew to Mumbai to meet representatives of Crompton Greaves in relation to the repair of the transformers. Alstom and Crompton Greaves agreed that Crompton Greaves would repair the transformers at a cost of $1.1 million. In their meetings, in India, with representatives of Crompton Greaves, Mr Dawes and Mr Oliver also discussed the cause of the damage to the transformers and outstanding payments arising from the fact that Alstom had not paid the last payment under the contract due to the damage to the transformers.
In preparation for their shipment back to Mumbai for repairs, the transformers were disconnected from the power station in Kwinana. Alstom also dismantled the fire detection and fire-fighting system for the transformers.
In November 2007, the transformers were transported by road to Henderson Wharf and then loaded aboard the vessel, “MV Love Music” for shipment back to the Crompton Greaves factory in Mumbai. Shock recorders were hired and attached to the transformers for the voyage back to Mumbai. The process of repairing the transformers at the factory commenced in early January 2008.
Alstom engaged the services of Alstom Power Centrales, an associated entity located in France (Alstom (France)) to advise it in relation to the damage to the transformers. Alstom (France) engaged the services of KEMA Nederland BV (KEMA), a Dutch company, which had transformer expertise, to prepare a report on the damaged transformers, and also to advise on the repairs being undertaken by Crompton Greaves. The evidence disclosed that representatives of Alstom (France) and KEMA visited the Crompton Greaves factory in India during January 2008 and February 2008. Further, Alstom engaged its associated entity Alstom (India) to oversee the repairs. Alstom (France) and Alstom (India) charged Alstom for the services they each performed in relation to the repair of the transformers.
During the time that the transformers were away being repaired, Alstom stored the battery acid which had been supplied to Alstom for the operation of the transformers in drums. Alstom also arranged for the storage by O’Donnell Griffin of a large amount of transformer oil which had been shipped with the transformers. As mentioned, this oil was intended to be installed in the transformer tank once the transformers were operational.
The NewGen power station was due to carry out commissioning tests during the period when the transformers were away from the site being repaired. In order to ensure that there was sufficient power available to NewGen to engage in the commissioning tests, in December 2007, Alstom entered into a Temporary 7 MVA Electrical Supplier Agreement with Verve Energy. Under that contract, Verve Energy supplied Alstom with on demand commissioning power during the period 18 March 2008 to 8 April 2008. Alstom arranged for high-voltage cables, earthworks and for regulatory approvals to facilitate the provision of that power by Verve Energy.
The transformers were repaired by Crompton Greaves in Mumbai and shipped back to Henderson Wharf.
At the request of Alstom, NewGen and Liberty Mutual, the following steps were taken to restrict the movement of the core coil assemblies in the transformer tanks during the voyage from Mumbai to Henderson Wharf. First, horizontal wooden packing braces were placed between the top of the core coil assembly and the inside of the transformer tank. Second, wooden braces were inserted between the side of the top of the core coil assembly and the inside of the transformer tank. Thirdly, a purpose made steel collar was used as temporary packing around the top locating posts. Fourthly, the rubber mats were removed and replaced with pressed board insulation.
In April 2008, the repaired transformers arrived in Henderson Wharf undamaged. The repaired transformers were conveyed by road to the NewGen power station site by a low‑loader trailer.
Once the transformers were back on the NewGen site, they were reconnected. This process included reconnecting the fire systems. Further, as part of the preliminary processes of energising the transformers, Alstom carried out tests on the moisture content of the transformer oil which had been stored whilst the transformers were away being repaired.
Insofar as the contents of [11]-[50] contain statements of fact, I make those findings of fact.
PLEADINGS
Alstom amended its further re-amended statement of claim during the course of the hearing and the respondents amended their defence in response to the amendments made by Alstom. A consolidated book of pleadings was filed after the hearing which reflected the amendments made.
Alstom pleaded that it was a term of the purchase contract that Crompton Greaves would properly pack the transformers for transport and that each of the transformers was encased in a sealed steel tank at the time that they were supplied to Alstom. Further, Alstom pleaded that Crompton Greaves instructed it not to open or remove or in any way interfere with the sealed steel tanks before the transformers were installed at the NewGen power station. Alstom went on to plead that it did not know nor consent to the method by which Crompton Greaves packed the transformers in their steel tanks and that none of Alstom’s officers responsible for arranging the shipment of the transformers, was aware of any insufficiency or unsuitability in their packing.
Alstom also pleaded that during the sea voyage the core coil assembly of each transformer moved within its sealed steel boxes causing significant damage to each of the transformers. The movement of the core coil assembly was referred to as the “Incident”. In para 20 of the statement of claim Alstom pleaded as follows:
The Incident occurred because the method by which the Transformers were packed and prepared in their sealed steel boxes was carried out in a defective manner such that the packing was insufficient or unsuitable to ensure that the Transformers could withstand the ordinary rigours of transport by land and sea in that:
A.The densified timber packing which held in place the top locating posts securing the core-coil assembly of each Transformer was not of sufficient strength to ensure that the core-coil assembly did not move in its steel case.
B.The densified timber packing which held in place the top locating posts securing the core-coil assembly of each of the Transformers disintegrated during the voyage referred to in paragraph 16 above, and, as a result the core‑coil assemblies were permitted to rock inside the sealed steel boxes, and the locating posts made repeated impacts with the steel casings.
C.Alternatively to A and B, there was no packing to ensure that the core-coil assembly of each Transformer did not move in its steel case and as a result the core-coil assemblies were permitted to rock inside the sealed steel boxes, and the locating posts made repeated impacts with the steel casings.
D.As a result of the damage to and destruction of the densified timber packing, alternatively, the absence of packing, the rocking of the core-coil assemblies and/or the repeated impacts between the top locating posts and the steel casings:
(i)the core bolts loosened;
(ii)the core laminations slipped;
(iii)the feet clamping bolts moved;
(iv)the feet of the core/coil assembly slipped, leading to the abrasion of the rubber mats under the feet of the core/coil assembly.
It is then alleged that if the method of packing and external preparation had been carried out properly then the transformers would have withstood the ordinary rigours of transport by land and sea. Alstom claimed damages in the sum of $4,630,074.54.
Alstom also pleaded that the respondents did not conduct a survey of the transformers before they were transported to the NewGen Kwinana power station site.
The respondents admitted that the densified timber around the top locating post of each of the transformers was not of sufficient strength to ensure that the core coil assembly did not move within its steel case during the voyage. However, they denied that that was the purpose of the densified timber. The respondents also admitted that the densified timber disintegrated during the voyage, and went on to say that the disintegration of the densified timber facilitated and exacerbated the rocking and movement of the core coil assemblies inside the steel case. The respondents denied that the movement and resulting damage was caused solely by the disintegration of the densified timber and said the movement was initiated and caused as a consequence of the matters pleaded in para 17 of their defence. (The pleading actually refers to para 16, but this is obviously a mistake.) The relevant parts of para 17 are set out in [59] below.
The respondents also denied that the Incident occurred because the method by which the transformers were packed and prepared in their steel casings was carried out in a defective manner, such that the packing was insufficient or unsuitable to ensure the transformers could withstand the ordinary rigours of transport by land and sea. Rather, said the respondents, the damage to the transformers occurred for the reasons alleged in para 17 of the defence.
Paragraph 17 of the defence refers to cl 4.4 of the Institute Clauses (see [8] above) and then relevantly pleads that the respondents:
17.(a) …
(b)say that the damage to the Transformers was caused by the inability of the internal components of the Transformers as designed and manufactured to withstand the effect of sea conditions of a kind that would ordinarily be expected for a sea voyage from Mumbai to Henderson Wharf, Western Australia;
(c)in the premises say that the damage to the Transformers was caused by an excluded peril for which the Respondents are not liable under the terms of the Marine Cargo Policy, namely inherent vice or nature of the Transformers within the meaning of clause 4.4 of the Institute Cargo Clauses (A).
Particulars of inherent vice
1.The design and manufacture of each of the Transformers so that the core-coil assembly was mounted on rubber anti-vibration mats inside the Transformers’ outer steel casing, which permitted movement of the core-coil assembly during the sea-voyage. This movement of the core-coil assembly in turn:
(a)resulted in the displacement and destruction of the densified timber around the cylindrical locating posts, (thereby allowing even greater movement of the core-coil assembly with in the Transformer);
(b)allowed the core-coil assembly to impact with the outer steel casing of the transformer, thereby damaging the core-coil assembly; and
(c)caused a number of the core bolts to fracture, which in turn resulted in the release of the pressure holding the laminations within the Transformers together and the laminations to drop out of position, as a consequence of which the Transformers were not fit for their intended purpose.
2.The failure to insert a metal collar between the locating post and the tank flame guard which would have prevented movement of the core coil assembly.
18.In further answer to the whole of the Applicant’s claim, if the damage to the Transformers was caused by all or any of the matters alleged in the particulars to paragraph 20 of the FRASC, the Respondents:
(a)deny that the densified timber was packing within the meaning of the terms of the Marine Cargo Policy;
(b)deny that these matters amount to insufficient or unsuitable packing or preparation, as alleged in paragraph 20 and within the meaning of the Unsuitability of Packaging Clause (referred to in paragraph 5(b) hereof);
(c)say that each of those matters amounts to an inherent vice in or nature of the Transformers, within the meaning of clause 4.4 of the Institute Cargo Clauses (A); and
(d)in the premises, say that the damage to the Transformers was caused by an excluded peril for which the Respondents are not liable under the terms of the Marine Cargo Policy pursuant to clause 4.4 of the Institute Cargo Clauses (A).
18A.In further answer to paragraph 20C and 20D, if the damage was caused by the absence of packing to ensure the core coil assembly did not move, the Respondents:
(a)deny that the absence amounted to an insufficiency of packing;
(b)say that the absence was due to an insufficiency in the preparation of the transformers for shipment within clause 4.3 of the ICC(A) and as such an excluded peril for which the Respondents are not liable;
(c)further say in the premises that the insufficiency is not subject to the “Unsuitability of Packaging Clause” as it is neither packing nor “external preparation”.
19.In still further answer to the whole of the Applicant’s claim, if the method by which the Transformers were packed and prepared in their steel cases was carried out in a defective manner such that the packing was insufficient or unsuitable to ensure that the Transformers could withstand the ordinary rigours of transport by land and sea as alleged in paragraph 20 of the FRASC, which is denied, the Respondents say that:
(a)the Transformers were packed and prepared by CGL;
(b)the insufficiency or unsuitability in the manner in which the Transformers were packed and prepared (alleged in paragraph 20 of the FRASC) thereby arose through the fault of or with the knowledge and consent of CGL;
(c)CGL was a contractor or sub-contractor engaged on the project and thereby a “Named Insured” under the terms and for the purposes of the Marine Cargo Policy;
(d)the aforesaid sufficiency [sic] or unsuitability in the manner in which the Transformers were packed and prepared (alleged in paragraph 20 of the FRASC) thereby arose through the fault of or with the knowledge and consent of the Insured for the purposes and within the meaning of the Marine Cargo Policy and the Unsuitability of Packaging Clause;
(e)further and in the alternative, during the manufacture, packing and preparation of the Transformers by CGL, the Applicant carried out inspections of CGL’s manufacture, packing and preparation;
(f)the Applicant was as a consequence of those inspections aware of the insufficiency or unsuitability of the manner in which the Transformers were packed and prepared; and
Particulars
The transformers were inspected periodically by Mr SR Krishnan an employee of the Applicant who compiled Supplier Monitoring Intervention Reports between 10 July 2006 and 7 June 2007.
(g)by reason of the matters alleged in (a) to (d) above, alternatively (e) and (f) above, the Transformers were not deemed to be sufficiently packed and prepared and the Applicant is not entitled to be indemnified by the Respondents under the Marine Cargo Policy in respect of the damage to the Transformers pursuant to paragraph (b) of the “Unsuitability of Packaging Clause”.
WITNESSES
Mr Thomas Baumann, Mr Joerg Gapko, Mr Thomas Oliver and Mr SR Krishnan all gave evidence as part of Alstom’s case. Further, Mr Steven Grobler and Mr Walter Wasinger were expert witnesses who gave evidence as part of Alstom’s case. The respondents called two expert witnesses, namely, Mr David Allen and Mr Erik Fenna.
This is not a case which depends upon credibility findings and I was not asked to make any adverse credibility findings in respect of any of the witnesses.
Mr Thomas Baumann
Mr Thomas Baumann was the transport logistics manager of Alstom at the time that the transformers were shipped from Mumbai to Fremantle in June 2007. Mr Baumann was responsible for the transportation of the transformers in mid-July 2007 from Fremantle to the NewGen power station site in Kwinana. Mr Baumann was cross-examined.
Mr Joerg Gapko
Mr Joerg Gapko held the position of electrical construction manager at Alstom’s NewGen power station project, at the time that the transformers first arrived at the Newgen Kwinana site in mid to late July 2007, and was still in that position when the repaired transformers arrived back from India in April 2008.
Mr Gapko also gave evidence about the expenditure which Alstom incurred in relation to the damage to the transformers. Mr Gapko was cross-examined.
Mr Thomas Oliver
Mr Thomas Oliver was the contract and commercial manager for Alstom’s NewGen Kwinana power station project during the period 2006 and 2007. He reported directly to the project manager, Mr Lee Dawes.
Mr Oliver was involved in negotiating and preparing the contract between Alstom and Crompton Greaves for the purchase of the transformers. Mr Oliver issued the contract documents in June 2006. One of Mr Oliver’s duties was to oversee the contract between Alstom and Crompton Greaves. Mr Oliver gave evidence about the expenditure which Alstom had incurred in relation to the damage to the transformers. Mr Oliver was cross‑examined.
Mr SR Krishnan
Mr SR Krishnan gave evidence, initially by video-link from India and then, after the video-link transmission failed, by telephone.
During the period 2006 and 2007, Mr SR Krishnan worked for Alstom (India), a related entity to Alstom, as a manager of expediting and supplier monitoring. Mr SR Krishnan is not a transformer expert and has no specialist knowledge of the design and manufacture of transformers. Mr SR Krishnan’s evidence related to the manner in which he carried out his role in monitoring the manufacture of the two transformers. Mr SR Krishnan was cross-examined.
EXPERT WITNESSES
Mr Steven Grobler
Mr Steven Grobler is a mechanical engineer employed by Sinclair Knight-Mertz (SKM). He has a Bachelor of Science Engineering degree and a Master of Science Engineering degree from the University of the Witwatersrand in South Africa.
Mr Grobler co-authored with his colleague at SKM, Mr Graeme Medhurst, another mechanical engineer, an expert report (referred to at trial as the SKM report) relating to the cause of the damage to the power transformers. The report described a mathematical computer model of the transformers which Mr Grobler had used as the basis upon which to advance an hypothesis as to how the damage occurred to the two transformers.
Mr Grobler was measured in the way he gave evidence and was prepared to make concessions when concessions were called for.
Mr Walter Wasinger
Mr Walter Wasinger, also, gave expert evidence. He has a Diploma in Electrical Engineering from Austria and has more than 50 years experience in working with transformers. Mr Wasinger was also measured in the way he gave his evidence and was prepared to make concessions when concessions were called for.
Mr David Allen
Mr David Allen is a self-employed electrical engineer and consultant. Since 2003, Mr Allen has as a specialist transformer consultant been engaged in, inter alia, diagnosing problems associated with transformers and supervising the repair, and reinstallation of transformers. Before 2003, Mr Allen was for 21 years responsible for purchasing transformers for SECWA and for 13 years previously he worked with transformers as a design and chief test engineer. Mr Allen was strongly wedded to his views, and was somewhat pugnacious in the manner in which he gave his evidence. Mr Allen was disdainful of the SKM report on the grounds that, despite Mr Grobler’s qualification and experience as a mechanical engineer, he did not have any experience in transformers.
Mr Erik Fenna
Mr Erik Fenna, has a Bachelor of Science in Mathematical Physics from the University of Alberta, Canada and a Master of Business Administration from the University of Western Australia. Mr Fenna made it clear that his only relevant qualification to give evidence was his expertise as a mathematician and physicist. The sole basis on which he was called was to comment upon the mathematical computer model which had been used by Mr Grobler and Mr Medhurst in their SKM report. Mr Fenna was a cautious, bordering on pedantic, witness.
THE ISSUES
PROXIMATE CAUSE
The first issue is the proximate cause of the damage to the transformers during the voyage from Mumbai to Fremantle.
The respondents contended that the damage to the transformers was caused by the inability of the internal components of the transformers as designed and manufactured, to withstand the sea conditions of a kind that would ordinarily be expected on a voyage between Mumbai and Fremantle. More specifically, it was, said the respondents, the incorporation of the anti-vibration mats into the design and manufacture of the transformers, which rendered the internal components of the transformers unable to withstand the sea conditions of the kind ordinarily to be expected between Mumbai and Fremantle.
The respondents contended that, in those circumstances, the proximate cause of the damage to the transformers was an inherent vice in the transformers and, therefore, was an excluded peril under cl 4.4 of the Institute Clauses, with the consequence that indemnity would be denied.
Alternatively, said the respondents, even if the Court was to find that the proximate cause of the damage to the transformers was the weakness in the lignostone strips, the Court should find that the lignostone strips were not to be classified as packaging. Rather, said the respondents, the weakness in the lignostone strips should be regarded as comprising an inherent vice in the transformers for the purposes of cl 4.4 of the Institute Clauses, with the result that indemnity would be denied. The basis for this submission was that the lignostone strips were another aspect of the design and manufacture of the transformers which rendered the internal components of the transformers unable to withstand the sea conditions ordinarily expected on a voyage between Mumbai and Fremantle.
The respondents went on to contend that if the Court was to conclude that the damage to the transformers was caused both by the presence of the rubber mats and by the weakness of the lignostone strips, and that the weakness of the lignostone strips amounted to an insufficiency in packing, indemnity would still be denied to Alstom. For this contention, the respondents relied on the principle referred to in Wayne Tank and Pump Company Limited v Employers’ Liability Assurance Corporation Limited [1974] QB 57 (Wayne Tank) to the effect that where loss occurs by reason of two about equal causes, the policy will not respond if one of the causes is an excluded risk, even if the other is not. This contention was founded on the further assumption that Alstom would be entitled to rely upon the unsuitability of packaging clause.
The respondents relied on the expert evidence of Mr David Allen who said that the movement of the core coil assembly within the transformer tanks was initiated by the compressibility of the rubber mats causing the feet of the core coil assembly to tilt on the rubber mats in response to the movement of the ship in the sea. This tilting movement, which started from the bottom of the core coil assembly, then caused the top locating posts to impact upon the lignostone strips and to destroy the lignostone strips. Mr Allen’s evidence was that the strips would have been destroyed on the first tilting movement of the core coil assembly. The destruction of the lignostone strips meant that the top locating posts in response to the sea conditions collided with the flanges. The bonds holding the laminations of the core in place were weakened by the constant vibration and flexing of the limb stiffeners. Mr Allen referred to photographs of the transformers’ feet taken after the transformers had arrived at the site in Kwinana which showed that the feet had impacted the rubber mats.
As I have mentioned, Mr Walter Wasinger and Mr Steven Grobler gave expert evidence as part of Alstom’s case.
Mr Wasinger’s evidence was that the inherent flexibility of the core coil assembly caused movement of the top locating posts, in response to sea conditions. This movement exerted forces on the lignostone strips which the strips could not resist. The application of the forces caused indentation of the lignostone strips, which commenced the process of the destruction of the lignostone strips. Mr Wasinger was of the view that because of the inherent flexibility of the core coil assembly, those forces would have been applied by the top locating posts to the lignostone strips in response to the movement of the ship even if the core coil assembly had been “sitting on steel”. Mr Wasinger accepted that any movement at the bottom of the core coil assembly as was attributable to the compressibility of the rubber mats, would have been reflected in a movement of the top locating posts. Mr Wasinger stated that the rubber mats were “not very compressible” but did not elaborate on the extent of their compressibility saying that that was a matter for the SKM report. He did, however, say that a solid sheet of material was likely to compress “very little”.
Mr Grobler expressed an hypothesis as to the sequence of events which led to the slippage of the laminations. This hypothesis was based on the results obtained from a mathematical computer model which he and Mr Graeme Medhurst had constructed. This model relied upon a number of assumptions and modelled the movement of the core coil assembly within the tank during the voyage. The variable assumptions included the stiffness of the rubber mats, and the stiffness of the lignostone strips. The model sought to reflect the forces which would operate on the lignostone strips, the circumstances in which the feet of the core coil assembly would slip on the rubber mats and when the core coil assembly may lift off the rubber mats in various sea conditions and scenarios. The sea conditions were those which, based on expert opinion, prevailed on 29 June 2007 - the date when the shock recorders recorded significant shocks (referred to as “sea conditions A”); and the sea conditions reflecting the most extreme sea conditions predicted for the voyage from Mumbai to Fremantle (referred to as “sea conditions B”). The model used the roll, heave and sway motions of the ship in sea conditions derived from expert opinion. Among the scenarios modelled were the position at the commencement of the voyage (“the basic case”), the position when there were no rubber mats, when there were softer rubber mats, and when the lignostone strips were missing.
The hypothesis advanced by Mr Grobler as to the sequence of events which led to the slippage of the laminations was as follows. In response to sea conditions, the top locating posts exerted force on the lignostone strips, which exceeded the capacity of the strips (which ranged between 15-26 KN). In sea conditions A (in circumstances where the roll angle of the ship was 6.8º), the force exerted on the lignostone strips could reach up to 141 KN. The degree of force led to the strips becoming deformed and leaving a small gap (about 1 mm) between the strips and the top locating posts. The lignostone strips were then no longer able to firmly support the posts. In certain sea conditions, the core coil assembly would have tilted on its base, and the top locating posts would have then applied a higher impact loading on the lignostone strips which greatly exceeded their load capacity and would have increased the size of the gap between the posts and the strips. Eventually, the repeated pounding would have led to the destruction of the lignostone strips. Once the lignostone strips were destroyed, the core coil assembly could tip over until the top locating posts made contact with the flanges. The movement of the top locating posts caused the feet of the core coil assembly to slip on the rubber mats leading to the abrasion of the rubber mats.
Mr Fenna made a number of observations about the assumptions used in the model used in the SKM report. Among the observations made were the following. The model assumed that the core coil assembly was inflexible, when the evidence established that the core coil assembly was flexible. The model assumed that all of the feet were the same size, when they were in fact different sizes. The model assumed that the feet of the core coil assembly were in alignment, when they were not. The model was a two dimensional model and it was dangerous to seek to rely upon it as a representation of what actually occurred. Mr Fenna did not, however, produce any rival model.
All four expert witnesses were parties to a document dated 13 April 2012 – three days before the commencement of the trial – entitled “Summary of Experts’ Opinions”. All of the expert witnesses agreed with the proposition (proposition 11 in the summary of experts’ opinions) that the impact of the pins on the flanges caused the fibre banding, limb stiffeners and yoke bolts – all of which held the core laminations in place - to be compromised and as a result, the core laminations slipped, destroying the integrity of the transformers.
Further, in response to proposition 12 of the summary of experts’ opinions, all the experts agreed that the core coil assembly could have been adequately restrained so that the damage would not have occurred under the circumstances experienced during the transport from Mumbai to Fremantle.
The respondents contended that in order to determine the proximate cause of the damage to the transformers, it was necessary for the Court first to determine the sequence of events which led to the initial movement of the core coil assembly and ultimately to the slippage of the laminations. The respondents contended that in this respect the Court should accept the evidence of Mr Allen and should conclude that the movement of the core coil assembly in the steel container started because the compressibility of the rubber mats initiated the tilting of the core coil assembly, which in turn destroyed the lignostone strips and caused the top locating posts to collide with the flanges.
During its closing submissions, Alstom focused strongly on its alternative case pleaded at para 20C and para 20D of its amended statement of claim. Alstom pointed out that all of the experts agreed that the core coil assembly could have been adequately restrained so that the damage would not have occurred in the circumstances experienced during the transport from Mumbai to Fremantle.
Alstom contended that the proximate cause was to be determined by reference to the effective cause of the damage. The effective cause of the damage, said Alstom, was, on the evidence of all four experts, the insufficiency of the packing of the core coil assembly. On the proper application of the causation test, said Alstom, it was unnecessary for the Court to determine the actual sequence of events which occurred during the voyage which ultimately led to the slippage of the laminations.
I add, in parenthesis, that Alstom went on to contend that cl 4.3 of the Institute Clauses did not preclude it from recovering under the policy, because it was entitled to the benefit of the unsuitability of packaging clause which deemed the transformers to have been sufficiently packed.
In the case of Yorkshire Dale SS Co Ltd v Ministry of War Transport (1942) 73 Lloyd’s Rep 1 at 10 (The Coxwold), Lord Wright made the following observations as to the appropriate test to apply in determining the proximate cause of the damage:
Causation is to be understood as the man in the street and not as either the scientist or the metaphysician, would understand it. Cause here means what a business or seafaring man would take to be the cause without too microscopic analysis but on broad view.
In determining the proximate cause of the loss, the Court is to determine the cause which is proximate in efficiency.
The case of European Group Ltd v Chartis Insurance UK Ltd [2012] EWHC 1245 (Chartis) provides some assistance in the application of the proximate cause test in the circumstances of this case.
In that case, the question was the proximate cause of fatigue stress cracking to the tubes of a number of economiser blocks which were to be installed in a waste recycling plant near Slough in the United Kingdom. The economiser blocks were transported by road from the factory in Bucharest, Hungary to the port of Constanta, and then by sea to Southampton, in the United Kingdom and later by road to the Lakeside facility near Slough. The marine insurance policy under consideration in the case contained the Institute Clauses. The policy also contained a clause to similar effect as the unsuitability of packaging clause. Popplewell J after having analysed the expert evidence concluded that the cracking to the tubes of the economiser blocks had been caused by resonant vibration during transit. Popplewell J also found that during the transportation of the economiser blocks layered rubber strips, which should have been placed as padding between the tubes of the economiser blocks to prevent movement during transit, were in some cases missing or inadequate.
Popplewell J went on to observe that it was common ground between the experts that the fatigue stress cracking could not have occurred during the journey had the packing not been missing. Popplewell J rejected the contention that the damage to the economiser blocks had been caused by an inherent vice in the machinery. His Honour observed at [135]:
[I]t is clear that the condition of the economiser blocks when they left the factory was such that they could reasonably be expected to survive the transportation to Lakeside, if properly packed, and perform in service at the site, without fatigue cracking.
Popplewell J went on to observe at [137]:
There was therefore nothing in the inherent condition or design of the economisers which could be described as a proximate cause of the loss. The case is no different from that of any other potentially vulnerable cargo whose damage during transit is attributable to the inadequacy of its packing, where the insurer has assumed the risk of inadequate packing. The proximate cause of the loss in this case was resonant vibration during transit resulting from the inadequacy of the packing. There was no other proximate cause.
There are some similarities between this case and Chartis.
In each case, the damage occurred by reason of circumstances which occurred during transit. In that case, it was the resonant vibration, in this case it was the impact of the top locating posts against the flanges of the container.
In that case, as in this case, the expert evidence was that the damage which occurred during transit would not have occurred had the cargo been properly secured. In that case, Popplewell J, applying a test which required the Court to determine the cause of the loss which was proximate in efficiency, found that the proximate cause of the loss was resonant vibration during transit resulting from inadequate packing. Popplewell J observed at [78], of the proximate cause test, that “the focus is on the real efficient cause”.
In my view, therefore, the real efficient cause of the loss was the impact of the top locating posts on the flanges during transit resulting from the inadequacy in restraint of the core coil assembly during the voyage from Mumbai to Fremantle. There was, in my view, no other proximate cause.
The experts did not, in proposition 12 of the summary of experts’ opinions, expressly identify the means whereby the core coil assembly could have been restrained to prevent the damage that occurred during the transport of the transformers. However, it is apparent from other sources that the expert witnesses were referring to the application of internal bracing of the core coil assembly.
Mr Wasinger, at para 4.5 of his report, stated that “the internal assembly must be held in position to prevent impact type stresses”. Mr Wasinger went on to say that “strong metallic separators” could be used for the purpose of transport only “as had been done on the journey of the transformers back to Fremantle after they had been repaired”. As mentioned, when the transformers were shipped back to Fremantle, there was internal bracing applied to the top yoke of the core coil assembly and the side of the transformer tank, as well as bracing applied to the top of the core coil assembly to restrain the vertical movement of the core coil assembly.
The document also recorded that the respondents agreed that in the event that the Court found that Alstom was entitled to an indemnity under the policy, Alstom would be entitled to $2,029,669.80. This observation must be qualified, however, by the further observation that it was common cause between the parties that Alstom had not yet paid Crompton Greaves for the repairs to the transformers.
Further, the agreed schedule recorded that the respondents disputed Alstom’s claim to be entitled to an indemnity in respect of seven specific items of expenditure. This disputed amount totals $1,317,447.90. The disputed expenditure fell into two broad categories.
First, the respondents disputed that they were obliged to indemnify Alstom in respect of certain items of expenditure, because they were incurred in respect of indirect and uninsured financial losses. These items were:
(a)Alternative power during the period of repair of the transformers – $526,596.21. (See [46] above.)
(b)Storage of oil during the period of repair of the transformers – $150,143.90. (See [45] above.)
(c)Reassembly or reconnection of the transformers after repairs – $266,148.62. (See [50] above.)
(d)Additional treatment of the oil - $7,000. (See [50] above.)
(e)Transporting the repaired transformers from the port at Henderson’s Wharf to the NewGen power station site – $66,210.60. (See [49] above.)
Secondly, the respondents denied that they were liable to indemnify Alstom in respect of the following expenditure incurred by Alstom, on the grounds that Alstom had not proved that the expenditure was reasonably incurred:
(a)The travel expenditure incurred by Mr Oliver and Mr Dawes in travelling to Mumbai in October 2007 – $19,978.18. (See [41] above.)
(b)Supervision by Alstom (France) and Alstom (India) of the repairs to the transformers carried out by Cromptom Greaves in Mumbai – $276,368.76. Of that amount, Alstom claimed $32,151.46 in respect of the supervision by Alstom (India). (See [44] above.)
(c)The attachment of shock recorders to the containers containing the damaged transformers for the voyage to Mumbai – $5,001.84. (See [43] above.)
The difference between the parties in relation to the first broad category of expenditure turned upon the proper construction of s 61 of the Marine Insurance Act 1909 (Cth). This section provides as follows:
The insurer is liable for any loss proximately caused by a peril insured against, but, subject as aforesaid, he or she is not liable for any loss which is not proximately caused by a peril insured against.
Alstom submitted that s 61 described the nature and extent of the losses incurred by an insured, for which an insurer would be liable under a marine insurance policy. Accordingly, Alstom argued that the primary question was whether each of the losses represented by the items of expenditure in [183] above, was proximately caused by the peril insured against.
The respondents, however, contended that s 61 of the Marine Insurance Act (Cth) did not describe the losses to an insured for which a marine insurance policy would provide an indemnity. The respondents contended that s 61 dealt with risk and proximate cause. The description of the nature and extent of the losses for which an indemnity was available under a marine insurance policy, was to be found in other sections of the Marine Insurance Act (Cth), namely, ss 62, 63, 66, 67, 73 and 77. The respondents contended that the most appropriate section in this case was s 77(c), which provided that:
Where the whole or any part of the goods or merchandise insured has been delivered damaged at its destination, the measure of indemnity is such proportion of the sum fixed by the policy in case of a valued policy, or the insurable value in the case of an unvalued policy, as the difference between the gross sound and damaged values at the place of arrival bears to the gross sound value.
The respondents contended that the gravamen of s 77(c) was to limit the amount of the indemnity to the depreciated value of the damaged cargo only, and, that the Marine Insurance Act (Cth) did not provide for an indemnity in respect of indirect and consequential losses which may be incurred by the insured as a consequence of the damage to the cargo during the voyage. The respondents relied specifically on the reference to the “place of arrival” in s 77(c), as placing a limit on the nature of the loss for which the respondents would be liable.
The respondents observed that the basis of the formula in s 77(c) applied more readily to commodities rather than a single piece of machinery. The respondents went on to refer to s 81 of the Marine Insurance Act (Cth) and said that they were content to proceed on the basis that the reasonable cost of repairs to the transformers was an appropriate means of calculating the depreciation in the value of the transformers. This was because the repairs eliminated the depreciation and restored the transformers as close as possible to their original value. Nevertheless, contended the respondents, the principle expressed in s 77(c) still applied in defining the limited nature and extent of the loss in respect of which indemnity was available. It followed, said the respondents, that the only costs for which the insurers would be liable would be the costs directly associated with removing and transporting the transformers from the NewGen site to the Crompton Greaves factory in Mumbai, India, for repair, and redelivering the transformers to the port in Fremantle. This would, contended the respondents, reflect the limited extent of the risk undertaken by an insurer in respect of damage to cargo under a marine insurance policy.
Alstom did not accept the scope of the losses covered by the indemnity was as limited as the respondents contended. Rather, said Alstom, the touchstone as to the nature and extent of the losses covered by the indemnity, was s 61 of the Marine Insurance Act (Cth). This permitted an indemnity in respect of a wider range of losses to the insured than those contended for by the respondents. The function of the sections of the Marine Insurance Act (Cth), referred to by the respondents, was not to describe the nature and extent of the losses for which an indemnity was available. Those sections, said Alstom, prescribed the financial limit on the amount payable by the insurers, and did not address the nature of the losses for which indemnity was available – that was the function of s 61 of the Marine Insurance Act (Cth).
Alstom referred to the case of MacKinnon McErlane Booker Pty Ltd v P & O Australia Ltd [1988] VR 534 (MacKinnon). In that case, a similar argument to that advanced by Alstom, as to the effect of s 61 of the Marine Insurance Act (Cth), was made.
In MacKinnon, a barge was damaged off the north-west coast of Western Australia and the insured incurred costs in towing the barge to Singapore for repairs. However, the barge was the subject of a charter which provided for redelivery in Singapore and the charterer took advantage of the towage of the barge to Singapore for repairs, to redeliver the barge under the charterparty. The insurers argued that s 61 of the Marine Insurance Act (Cth) defined the nature of the losses which may be recovered under a marine insurance policy as those losses which were “proximately caused by a peril insured against”. The insurers said that the towage costs to Singapore were not proximately caused by the peril, but by the charterer’s decision to redeliver the barge in Singapore. At 547, Murphy J (with whom Gray and Phillips JJ agreed) observed:
There was a good deal of discussion by counsel, and indeed Mr Archibald relied on s 61 to argue that the towage costs were not proximately caused by a peril insured against.
I do not consider that s 61 is directed to the issue of “reasonable cost of the repairs” in s 75 of the Act. In my opinion s 61 is directed to the casualty and its cause, that is to say to the loss. If the casualty is proximately caused by a peril insured against, then one turns to measure the amount of the indemnity according to s 75 and, in the present case, it is here that one finds that that measure is the “reasonable cost of the repairs”.
Some discussion of this is to be found in The Miss Jay Jay [1987] 1 Lloyd’s Rep 32, where the members of the Court of Appeal had to rule on the issue whether a loss caused by two factors, one structural, the other a peril of the sea, was a “loss proximately caused by a peril insured against”: see Lawton LJ, at pp 36-7; Slade LJ, at pp 39-41.
In this case, the “casualty” or the “loss” referred to by Murphy J, was the slippage of the laminations during the course of the voyage. In my view, these observations support the respondents’ contention and not Alstom’s contention, as to the proper construction of s 61 of the Marine Insurance Act (Cth).
Further, support for the respondents’ contention is reflected in the classic language of Lord Mansfield in Lewis v Rucker (1761) 2 Burr 1167 at 1170; 97 ER 769 at 771. In describing the risk the insurer undertakes under a marine insurance policy in relation to cargo, Lord Mansfield observed:
[The insurer] engages, so far as the amount of the prime cost, or value in the policy, “that the thing shall come safe;” he has nothing to do with the market; he has no concern in any profit or loss which may arise to the merchant from the goods; if they be totally lost, he must pay the prime cost, that is, the value of the thing he insured, at the outset; he has no concern in any subsequent value.
The limit on the indemnity available in respect of damaged cargo, is defined in s 77(c) of the Marine Insurance Act (Cth) by reference to a formula. That formula includes, as a component of the formula, the “difference between the gross sound and damaged values” of the cargo “at the place of arrival”. That subsection does not contemplate an indemnity in respect of any indirect or consequential losses, whether proximately caused or not. I accept the respondents’ contention that the reference to “the place of arrival” places a constraint on the nature of the loss for which an indemnity is available under a marine insurance policy. It follows that there may well be losses which an insured may actually suffer by reason of the damage to the cargo which will not be recoverable by the insured under a marine insurance policy.
I, therefore, accept the respondents’ contention as to the nature and extent of the losses which may be recoverable under the marine insurance policy. It follows that I find that the disputed items of expenditure referred to in [183] at (a)-(e) above, are in respect of losses which do not fall within the scope of the indemnity. Accordingly, Alstom will not be entitled to recover those items of expenditure from the respondents.
In relation to Mr Dawes’ and Mr Oliver’s travel costs to India, the respondents contended that they were not a reasonable cost of repair. This is because, said the respondents, in addition to negotiating the agreement with Crompton Greaves for the repair of the damaged transformers, whilst in India, Mr Oliver and Mr Dawes also discussed with Crompton Greaves the cause of the damage and the responsibility for the damage. I have already found that the question of the cause of the damage and the responsibility for the damage were also discussed at those meetings. However, in my view, that fact does not mean that the expenses incurred in travelling to India were not a reasonable cost of repair of the transformers. The fact that there were other matters discussed does not derogate from the fact that it was reasonable for representatives of Alstom to travel to India to discuss the question of the repairs to be made to the transformers. Also, it did not result in further expenditure being incurred. Alstom was required to incur the expenditure in pursuit of its objective to find a repairer. An argument to similar effect to that made by the respondents was rejected in MacKinnon.
Next, the respondents contended that the costs of supervision by Alstom (France) and a subcontractor, KEMA, were not a reasonable cost of repairs.
The evidence on which Alstom relied in support of this claim was the evidence of Mr Oliver and an internal invoice which reflected that Alstom (France) had charged Alstom €155,202.36. This amount included the amount which KEMA had charged Alstom (France). The supporting documentation shows that the two Alstom (France) employees who spent most of the time that was worked on the project, were Mr Vincent Dieffenbacher and Mr Patrick Audras. The documentation also shows that Mr Dieffenbacher is an electrical engineer, and that he and Mr Audras travelled to India to visit the Crompton Greaves factory. Mr Dieffenbacher was in India from 28 January 2008 until 5 February 2008. Mr Audras travelled to India twice, once in mid-January 2008 and later in February 2008. The records also show that representatives of KEMA travelled to the Crompton Greaves factory during the period 9 to 18 January 2008 and 6 to 15 February 2008. These times overlapped with the times that Mr Audras was at the Crompton Greaves factory.
The respondents did not challenge Mr Oliver’s evidence that each of Alstom (France) and KEMA had specialist expertise in transformers. However, they complained that Mr Oliver was not able to state precisely what the engineers from Alstom (France) and KEMA did. In my view, the evidence that was adduced was sufficient for the Court to infer that the engineers from Alstom (France) and KEMA were engaged in inspecting the damaged transformers, and advising upon and monitoring the repairs to the transformers. It is apparent from the report provided by Mr RK Maurya of Alstom (India) that the work on repairing the transformers was scheduled to commence in early January 2008.
In my view, Alstom cannot be criticised for enlisting the services of entities with specialist expertise in transformers to advise upon and monitor the repairs to the transformers. This is particularly so in light of Alstom’s previous experience.
In fact, it is somewhat incongruous that, on the one hand, the respondents contended, in support of their argument that Alstom was at fault for not properly supervising Crompton Greaves during the manufacture of the transformers, and yet, on the other hand, argued that the expenditure incurred by Alstom in monitoring Crompton Greaves during the repairs of the transformers, was not a reasonable cost of repairs.
In my view, the expenditure incurred by Alstom in relation to the services provided by Alstom (France) and KEMA, was a reasonable cost of repair.
Alstom also claimed $32,151.46 for monitoring services provided by Alstom (India) in respect of the repairs to the transformers. However, I was not taken to any evidence in support of how that sum is derived. I find, therefore, that Alstom has not discharged the burden of proving that the amount claimed for this expenditure was a reasonable cost of repair.
Thirdly, the respondents argued that the expenditure incurred in attaching shock recorders to the transformers during the voyage from Fremantle to Mumbai when the damaged transformers were returned to Crompton Greaves for repair, was not a reasonable cost of repair. I was not taken to any evidence explaining the reason for the attachment of the shock recorders on the voyage to Mumbai. I, thus, find that Alstom has not discharged the burden of proof in demonstrating that this was a reasonable cost of repair.
I will order that the parties produce a minute of orders which reflect these reasons, and, if possible, costs, with liberty to relist the matter in the event that that task cannot be achieved.
I certify that the preceding two hundred and six (206) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Siopis. Associate:
Dated: 22 February 2013
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