Baulderstone Hornibrook Engineering Pty Ltd v Gordian Runoff Ltd

[2006] NSWSC 223

Reported Decision: (2006) 14 ANZ Insurance Cases 61-701

New South Wales

Supreme Court

CITATION:	Baulderstone Hornibrook Engineering Pty Limited v Gordian Runoff Limited (formerly GIO Insurance Limited) & Ors [2006] NSWSC 223
HEARING DATE(S):	11/10/05, 12/10/05, 17/10/05-21/10/05, 24/10/05-27/10/05, 31/10/05-3/11/05, 7/11/05-10/11/05, 14/11/05-16/11/05, 21/11/05-24/11/05, 28/11/05, 1/12/05, 5/12/05-7/12/05, 12/12/05-15/12/05, 30/1/06, 20/2/06-24/02/06, 27/02/06-3/3/06
JUDGMENT DATE :	12 April 2006
JURISDICTION:	Equity Division Commercial List
JUDGMENT OF:	Einstein J
DECISION:	Policies do not respond. Short minutes of order to be brought in.
CATCHWORDS:	Professional Indemnity insurance - Construction of contracts of insurance - Conditions - Exclusionary provisions - Deeming provisions - Multi-layered scheme of insurance put in place by Baulderstone Hornibrook ["BHE"] as Head Contractor for the design and construction of third runway extending into Botany Bay at Kingsford Smith Airport - Reinforced Earth construction - Sand loss from reinforced earth walls resulting in voids and settlement - Costs of carrying out design and construction work to rectify subject walls likely to exceed $60 million - Initial proceedings brought by Sydney Airports Corporation ["SACL"] against BHE - Initial proceedings settled in the absence of acceptance [by upper lay insurers] that policies responded - Reasonableness of settlement of initial proceedings - Identification of the substance of claim made by SACL - Present proceedings commenced by BHE against insurers [including upper layer insurers] seeking declarations of entitlement to indemnity and associated relief - Exclusion providing that policy would not indemnify in respect of claims made against insured arising out of construction work performed involving the means, methods, techniques, sequences, procedures and use of equipment - Primary questions of fact as to whether excessive sand loss caused by reason of design defects or construction work - Principles of construction - Sundry questions of proper construction and nature of policy provisions - Construction issues including meaning of phrase "arising out of" - Identification of which are "insuring clauses" - Rectification of contracts of insurance - Claims to rectify policies including to change retroactive date - Issues concerning pre-conditions - Notification issues - Consideration of what circumstances notified - Consideration of sundry exclusion clauses - Proper construction of word "claim" when used in an insurance policy - Whether one claim or two claims - Whether any breach of professional duty by BHE giving rise to SACL's claim committed in the course of BHE itself conducting one of defined professional activities - Consideration of deeming provisions - Implied terms - Exclusion in respect of claims for any legal liability imposed upon insured pursuant to law of contract but only when such legal liability would not have been imposed upon pursuant to law of tort - Exclusion providing that policy would not indemnify in respect of claims made which relate to any contractual or other duty or obligation assumed by insured not assumed in the normal conduct of the insurer's profession as defined - Whether insurers breached obligations of utmost good faith inter alia by failing to investigate promptly - Consideration of source and content of duty of good faith in context of exercise of discretion under an insurance policy - Consideration of delay generally - Consideration of delay by insurer in the context of a proposed settlement - Whether BHE breached its obligations of good faith owed to insurers - Rectification works - Quantum - Waiver of legal professional privilege
LEGISLATION CITED:	Commonwealth Trade Practices Act 1974 (Cth) Fair Trading Act 1986 (NSW) Fair Trading Act 1985 (VIC) Evidence Act 1995 (NSW). Federal Court of Australia Act 1976 (Cth) Insurance Contracts Act 1984 (Cth) Judiciary Act 1903 (Cth) Sale of Goods Act 1923 (NSW) Supreme Court Rules 1970 (NSW) Trade Practices Act 1974 (Cth) Uniform Civil Procedure Act 2005
CASES CITED:	Abigroup v Akins (1997) 42 NSWLR 623 ACN 007 838 584 Pty Limited v Zurich Australia Insurance Limited (unreported, Supreme Court of South Australia, 28 August 1997, Olsson J, BC9704137) Akins v Abigroup Limited (1998) 43 NSWLR 539 Albion Insurance Co Limited v Government Insurance Office of New South Wales (1969) 121 CLR 342 Alex Kay Pty Limited v General Motors Acceptance Corporation and Hartford Fire Insurance Company [1963] VR 458 Allianz Australia Finance Ltd v Wentworthville Real Estate Pty Ltd [2004] NSWCA 100 AMP Financial Planning Pty Ltd v CGU Insurance Ltd [2005] FCAFC 185 Ashville Investments Ltd v Elmer Contractors Ltd [1989] QB 488 Astley and Others v Austrust Limited (1999) 197 CLR 1 Australasian Performing Right Association Ltd v Austarama Television Pty Ltd [1972] 2 NSWLR 467 Australia and New Zealand Bank Ltd v Colonial & Eagle Wharves Ltd [1960] 2 Lloyd’s Rep 241 Australian Broadcasting Commission v Australian Performing Right Association Ltd (1973) 129 CLR 99 Australian Casualty Co Limited v Federico (1986) 160 CLR 513 Australian Gypsum Ltd and Australian Plaster Co Ltd v Hume Steel Ltd (1930) 45 CLR 54 Beverley v Tyndall Life Insurance Co Ltd [1999] WASCA 198 Bituminous Casualty Corp v Commercial Union Insurance Co 652 NE 2d 1192 (1995) Bonner v Tottenham and Edmonton Permanent Investment Building Society [1899] 1 QB 161 BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 Bradley v Eagle Star Insurance Co Ltd [1989] 1 AC 957 Bray v F Hoffman – La Roche Ltd (2003) 200 ALR 607 Bryan v Maloney (1995) 182 CLR 609 Burke v LFOT Pty Limited (2002) 209 CLR 282 Bush v National Australia Bank Ltd (1992) 35 NSWLR 390 Byrne & Frew v Australian Airlines Ltd (1995) 185 CLR 410 Cacciola v Fire and All Risks Insurance Co Ltd [1971] 1 NSWLR 691 Canadian Indemnity Co v Andrews & George & Co [1952] 4 DLR 690 Caparo Industries Plc v Dickman [1990] 2 AC 605 Central Trust Co v Rafuse (1986) 31 DLR (4th) 481 Central Waste Systems Inc v Granite State Ins Co 437 NW 2d 496 (1989) Chammas v Harwood Nominees Pty Ltd (1993) 7 ANZ Ins Cas 61-175 Chemetics International Limited v Commercial Union Assurance Co. of Canada (1984) 11 DLR (4th) 754 Cockburn v GIO Finance Limited (No 2) (2001) 51 NSWLR 624 Codelfa Construction Proprietary Limited v State Rail Authority of New South Wales (1982) 149 CLR 337 Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 Corporate Pension Planning Pty Limited v NRG Victory Australia (unreported, Supreme Court of New South Wales, 8 April 1997, Young J, BC9701113) Crane v Hegeman-Harris Co Inc [1939] 1 All ER 662 Darlington Futures Limited v Delco Australia Proprietary Limited (1986) 161 CLR 500 Davidson v Mould (1943) 44 SR (NSW) 113 Dawson v Bankers & Traders Insurance Co Limited [1957] VR 491 Delcie Joan Schipp v Donald Cameron & Ors [unreported, Supreme Court of New South Wales, 9 July 1998, Einstein J] Distillers Co Biochemicals (Aust) Pty Ltd v Ajax Insurance Co Ltd (1974) 130 CLR 1 Doug Rea Enterprises Pty Limited v Hymix Australia Pty Limited [1987] 2 Qd R 495 Dowell Australia Ltd v Triden Contractors Pty Ltd [1982] 1 NSWLR 508 Drayton v Martin (1996) 67 FCR 1; (1996) 137 ALR 145 Dubbo City Council v Barrett [2003] NSWCA 267 Edwards v Insurance Office of Australia Ltd (1933) 34 SR(NSW) 88 Edwards v The Hunter Valley Co-op Dairy Co Ltd (1992) 7 ANZ Ins Cas 61-113 Establissements Georges et Paul Levy v Adderley Navigation Co Panama SA (The Olympic Price) [1980] 2 Lloyd’s Rep 67 FAI General Insurance Co Limited v Australian Hospital Care Pty Limited (2001) 204 CLR 641 FAI General Insurance Co Limited v Gold Coast City Council [1995] 2 Qd R 341; (1992) 7 ANZ Ins Cas 61-153 Fairfield-Mabey Ltd v Shell UK Ltd [1989] 1 All ER 576 Fountain v Alexander (1982) 150 CLR 615 Fowler v Fowler (1859) 4 De G & J 250 Fragomeno v Insurance Co of the West 255 Cal Rep 111 Francis Travel Marketing Pty Limited v Virgin Atlantic Airways Ltd (1996) 39 NSWLR 160 Frederick W Neilsen (Canberra) Pty Limited v PDC Constructions (ACT) Pty Limited (1987) 71 ACTR 1 Fredrikson v Insurance Corporation of British Columbia (1990) 69 DLR (4th) 399 GIO General Limited t/as GIO Australia v Newcastle City Council (1996) 38 NSWLR 558 Government Insurance Office of New South Wales v Council of the City of Penrith, [1999] NSWCA 42 Government Insurance Office of New South Wales v RJ Green and Lloyd Pty Limited (1966) 114 CLR 437 Greater Nottingham Co-operative Society Limited v Cementation Piling & Foundations Limited [1989] QB 71 Groom v Crocker [1938] 2 All ER 394; [1939] 1 KB 194 Gutteridge v Commonwealth of Australia (unreported, Supreme Court of Queensland, 25 June 1993, Ambrose J, BC9302579) Haydon v Lo & Lo [1997] 1 WLR 198 Hazlewood v Travelers Indemnity Company of Canada [1979] 2 WWR 271 Henderson v Merrett Syndicates Limited [1995] 2 AC 145 Hide & Skin Trading Pty Ltd v Oceanic Meat Traders Limited (1990) 20 NSWLR 310 Hi-Fert Pty Limited v Kiukiang Maritime Carriers Inc (1996) 71 FCR 172 HIH Casualty & General Insurance Limited v Turner (1998) 72 SASR 399 Hill t/as RF Hill & Associates v Van Erp (1997) 188 CLR 159 Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 Hudson Ins Co v Gelman Sciences Inc 706 F Supp 25 (ND Ill, 1989) IBM Australia Ltd v National Distribution Services Ltd (1991) 22 NSWLR 466 Interco Inc v National Surety Corp 900 F 2d 1264 James Hardie & Co Pty Limited v Wyong Shire Council (2000) 48 NSWLR 679 Johnson v American Home Assurance Co (1998) 192 CLR 266 Johnson v Perez (1988) 166 CLR 351 Johnson Tiles Pty Limited v Esso Australia Pty Limited (2003) Aust Torts Reports 81-692 Jones v Dunkel (1959) 101 CLR 298 Karenlee Nominees Pty Limited v ACN 004 312 234 Limited (1994) 8 ANZ Ins Cas 61-236 Karger v Paul [1984] VR 161 Keates v Lewis Merthyr Consolidated Collieries Ltd [1911] AC 641 Kelly v New Zealand Insurance Co Ltd (1996) 130 FLR 97 Land Credit Co of Ireland, Re Markwell’s case (1872) 21 WR 135 Lanphier v Phipos (1838) 8 C & P 475 Legal & General Insurance Australia Ltd v Eather (1986) 6 NSWLR 390 McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579 Maciejewski v Telstra Super Pty Ltd (1998) 44 NSWLR 601 Magenta Nominees Pty Limited v Richard Ellis (Western Australia) Pty Limited [1994] FCA 302 Manifest Shipping Co Ltd v Uni-Polaris Shipping Co Ltd [2001] 2 WLR 170 Mann v Carnell (1999) 201 CLR 1 Maralinga Pty Ltd v Major Enterprises Pty Ltd (1973) 128 CLR 336 Mariscal v Old Republic Life Ins Co 50 Cal Rptr 2d 224 (1996) Miller v Paua Nominees Pty Limited [2004] WASCA 220 MGICA Limited v United City Merchants (Australia) Limited (1986) 4 ANZ Ins Cas 60-729 Moss v Sun Alliance Australia Ltd (1990) 6 ANZ Ins Cas 60-967 Murphy v Swinbank [1999] NSWSC 934 Murray v Favelle Mort Ltd [1974] 2 NSWLR 211 National Australia Bank Ltd v Rusu (1999) 47 NSWLR 309 New South Wales Medical Defence Union Ltd v Transport Industries Insurance Co Ltd & Ors (1985) 4 NSWLR 107; (1986) 6 NSWLR 740 New Zealand Insurance Co Limited v Harris [1990] 1 NZLR 10 Nigel Watts Fashion Agencies Pty Ltd v GIO General Ltd (1994) 8 ANZ Ins Cas 61-235 Nilsen Industrial Electronics Pty Ltd v National Semiconductor Corporation (1994) 48 FCR 337 North River Ins Co v American Home Assurance Co 257 Cal Rptr 129 Norwich City Council v Harvey [1989] 1 WLR 828 Orica Limited and Anor v CGU Insurance Limited [2003] NSWCA 331 Perre v Apand Pty Limited (1999) 198 CLR 180 Pope v Economy Fire & Casualty Co (2002) Ill App LEXIS 1040 Port of Melbourne Authority v National Employers Mutual General Insurance Association Limited (1983) 3 ANZ Ins Cas 60-546 Post Office v Norwich Union Fire Insurance Society Limited [1967] 2 QB 363 Prenn v Simmonds [1971] 1 WLR 1381 Protean (Holdings) Ltd v American Home Assurance Company Ltd [1985] VR 187 Pukallus v Cameron (1982) 180 CLR 447 Rapa v Patience (unreported, Supreme Court of New South Wales, 4 April 1984, McLelland J, BC 8500888) Rhone-Poulenc Agrochimie SA v UIM Chemical Services Pty Limited (1986) 12 FCR 477 Rumbelows Limited v AMK and Firesnow Sprinkler Installations Limited (1980) 19 BLR 25 RW Miller and Co Pty Limited v Krupp (Australia) Pty Limited (unreported, Supreme Court of New South Wales, 9 June 1992, Giles J, BC9201828) Schordich-Churchwood v Cordle [1959] 1 WLR 351 Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596 Sevic v Roarty (1998) 44 NSWLR 287 Smith v Australian Woollen Mills Ltd (1933) 50 CLR 504 Software Integrators Pty Limited v Roadrunner Couriers Pty Ltd (1997) ATPR (Digest) 46-177 Southern Water Authority v Carey [1985] 2 All ER 1077 Southern Water Authority v Lewis and Duvivier (No 1) (1984) 1 Con LR 40 Southern Water Authority v Lewis and Duvivier (No 2) (1984) 1 Con LR 50 Speno Rail Maintenance Australia Pty Limited v Hamersley Iron Pty Limited (2000) 23 WAR 291 Standard Ranch Inc v Maryland Casualty Co 89 F 3d 618 State Bank of South Australia v Smoothdale No. 2 Ltd (1995) 64 SASR 224 State of New South Wales v AXA Insurance Australia Limited (2002) 54 NSWLR 409; [2002] NSWCA 63 State of New South Wales v Banabelle Electrical Pty Ltd [2002] NSWSC 178 Sullivan v Moody (2001) 207 CLR 562 Sutherland Shire Council v Heyman (1985) 157 CLR 424 Sydney Turf Club v Crowley [1971] 1 NSWLR 724 Tai Hing Cotton Mill Limited v Liu Chong Hing Bank Limited [1986] AC 80 Tarry v Warringah Shire Council [1974] 48 WCR 1 Thorman v New Hampshire Insurance Co (UK) Ltd & Home Insurance Co [1998] 1 Lloyd’s Rep 7 Timic v Hammock [2001] FCA 74 Trans-Pacific Insurance Co (Australia) Ltd v Grand Union Insurance Co Ltd (1989) 18 NSWLR 675 Transport Industries Insurance Company Limited v NSW Medical Defence Union Limited (1986) 4 ANZ Ins Cas 60-736 Triden Properties Limited v Capita Financial Group Limited (1996) 12 BCL 402 Twins Transport Limited v Patrick and Brocklehurst (Trading as HV & C Patrick Estates Developers) (1983) 25 BLR 65 Unity Insurance Brokers Pty Ltd v Rocco Pezzano Pty Ltd (1998) 192 CLR 603; [1998] HCA 38 Voli v Inglewood Shire Council (1963) 110 CLR 74 Walton v National Employers’ Mutual General Insurance Association Ltd [1973] 2 NSWLR 73 Wesoky v Village Cinemas International Pty Ltd [2001] FCA 32 West Wake Price & Co v Ching [1957] 1 WLR 45 William Hill Organisation Limited v Bernard Sunley & Sons (1983) 22 BLR 1 Wimpey Construction UK Limited v Poole [1984] 2 Lloyd’s Rep 499 Winterton Constructions Pty Limited v Hambros Australia Limited (1992) 39 FCR 97 WMC Resources Ltd v Leighton Contractors Pty Ltd [1999] WASCA 10 Woods v Multi Sport Holdings Pty Ltd (2002) 208 CLR 460 Woolcock Street Investments Pty Limited v CDG Pty Limited [2004] HCA 16 Wyllie v National Mutual Life Association of Australasia (1997) 217 ALR 324 Zurich Australian Insurance Limited v Fruehauf Finance Corp Pty Limited (1993) 7 ANZ Ins Cas 61-177
PARTIES:	Baulderstone Hornibrook Engineering Pty Limited (Plaintiff) Gordian Runoff Limited (formerly GIO Insurance Limited) First Defendant) CGU Insurance Limited (Third Defendant) AMP General Insurance Limited (Eleventh Defendant)
FILE NUMBER(S):	SC 50176/03
COUNSEL:	Mr S Finch SC, Mr A McInerney (Plaintiff) Mr R Smith SC, Mr M Jones (First Defendant) Mr S Robb QC, Mr G Ellis (Third Defendant) Mr S White SC, Mr R Hollo, Mr M O'Meara (Eleventh Defendant)
SOLICITORS:	Freehills (Plaintiff) Corrs Chambers Westgarth (First Defendant) Colin Biggers & Paisley (Third Defendant) Moray & Agnew (Eleventh Defendant)
LOWER COURT DATE OF DECISION:	10/11/2005

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
COMMERCIAL LIST

Einstein J

Wednesday 12 April 2006

50176/03 Baulderstone Hornibrook Engineering Pty Limited v Gordian Runoff Limited (formerly GIO Insurance Limited) & Ors

JUDGMENT

Part 1 Overview, identification of issues and short summary of findings	Paragraph	73
Part 2 The evidence	Paragraph	97
Part 3 The detailed sand loss analysis	Paragraph	477
Part 4 Insurance questions and findings	Paragraph	791

The subject of the proceedings

The subject of these proceedings being unusual, it seems appropriate to give it a position of honour. Hence the third runway at Sydney Airport is depicted immediately.

THE THIRD RUNWAY

The proceedings

1 The construction between August 1992 and August 1994 of the 2400 metre third runway [“the parallel runway”] extending into Botany Bay at Sydney's Kingsford Smith Airport has spawned at least two major pieces of litigation.

2 The litigation stems from sand loss from the reinforced earth Seawall and the millstream wall (“the walls”). The sand loss was accompanied by voids, sink holes and settlement. A principal issue in the proceedings concerns whether the sand loss arose:

(i) by reason of design defects; or

(ii) out of construction work; or

(iii) partly as a result of both design and construction work.

3 The critical issues included:

· What is the nature of the defects in the reinforced earth walls?

· What is the nature or character of the causes of the defects for the purposes of the respective policies?

· To what extent, if at all, was BHE responsible in fact for any cause of the defects?

· In respect of any defect the responsibility for causing which may be sheeted home to BHE, what was the nature of the cause of action which SACL had against BHE?

· In respect of the answers to the preceding questions, do the respective policies respond to oblige either or both of the insurers to indemnify BHE?

The SACL contract

4 The original contract was entered into in August 1992 between the Federal Airports Corporation ["FAC"] as predecessor to Sydney Airports Corporation Ltd ["SACL"] and Baulderstone Hornibrook Pty Ltd ["BHE"]. Pursuant to the SACL contract BHE agreed to undertake certain design and construction obligations relating to the runway.

The SACL proceedings

5 The first set of proceedings 55027 of 2002 ["the SACL proceedings"] were brought on 24 June 2002 against BHE in this Court. SACL claimed inter alia, relief against BHE in respect of losses it had allegedly suffered as a consequence of subsidence behind the retaining walls. Without presently being too precise [as issues raise a need to closely examine the pleadings], a broad overview of the pleading is that claims were made:

· that BHE was responsible for the design and construction of the retaining walls;

· damages for breach of contract in respect of the design and construction of the walls;

· that BHE was responsible for defects by reason of the accelerated corrosion of metal straps which formed part of the construction of the walls ["the accelerated corrosion claim"];

· in respect of loss said to have been suffered by misleading or deceptive conduct of BHE in breach of the Trade Practices and Fair Trading Acts in respect of pre-contract representations concerning what was described as “the alternative proposal”;

· damages for breach of an alleged duty to exercise reasonable care to ensure that certain pre-contractual representations were true;

· damages for breach of an alleged duty of care to exercise reasonable care to ensure that BHE’s obligations under the SACL contract were properly performed and met.

[The detailed pleadings receive attention later in the judgment]

6 The SACL proceedings were ultimately resolved on 17 June 2004 in a facilitation conducted by the Honourable Terence Cole QC. BHE’s ultimate parent company, Bilfinger Berger AG (BBAG) agreed to fund the settlement.

7 The resolution of the proceedings was documented by settlement agreements. These agreements provide, in effect, for BHE to rectify the walls. The cost of carrying out the design and construction work to rectify the walls is likely to exceed $60 million.

8 By deed made on 2 September 1993 between BBAG and FAC, BBAG guaranteed BHE’s obligations to FAC under the contract, and further agreed to perform BHE’s obligations under the contract.

The claims against insurers

9 BHE at material times held contracts of insurance providing it with a multi-layered scheme of insurance put in place by SACL for the design and construction of the runway.

10 The insurance contracts entitled BHE to coverage for legal liability to third parties.

11 The insurers of relevance for present purposes are:

· the first defendant, Gordian Runoff Ltd [“Gordian”] [formerly GIO Insurance Ltd];

· the third defendant, CGU Insurance Pty Ltd [“CGU”][formerly Commercial Union Assurance Company of Australia Ltd t/a Pacific Indemnity];

[Gordian and CGU are together referred to as “the upper layer insurers” or as “the insurers”]

AMPG

12 The 11th defendant, AMPG was represented through the whole of the hearing by senior and junior counsel.

13 AMPG was the professional indemnity insurer of BHE. The AMPG policy of insurance provided insurance for breach of professional duty up to $20 million for any one claim, and up to $40 million in the aggregate for more than one claim. AMPG agreed to indemnify BHE in respect to the first claim made against AMPG to the limit of $20 million. On 20 January 2005, AMPG paid to BHE the sum of $20 million (less deductibles).

14 BHE had sued AMPG, in the alternative, in regard to what was alleged to be a second claim made under the AMPG policy.

15 The claim by BHE against AMPG was, in effect, an attempt to multiply the indemnities available to BHE under the AMPG Contract and recover a further $20 million from AMPG.

16 The joinder of AMPG followed the raising of defences by Gordian and CGU that the SACL proceedings involved two claims, and that the accelerated corrosion claim did not arise out of the act, error or omission the subject of the circumstances notified to those insurers during the currency of their insurance contracts, and was not in fact made until after the period of insurance referable to those contracts. BHE subsequently amended its Summons and joined AMPG relying (in the alternative and without admissions) on a further notification to each insurer by letters dated 9 July 2004 of the accelerated corrosion claim, and the operation of s.54 of the Insurance Contracts Act. Accordingly, the case against AMPG was an alternative case brought by BHE which would only arise if BHE’s primary case failed and Gordian and CGU made good the threshold proposition advanced by them that there were two claims not one.

Summary dismissal of the proceedings against AMPG

17 Towards the end of the taking of final submissions AMPG sought to have the proceedings against it summarily dismissed. Following the taking of submissions in this regard, an ex tempore judgment was delivered and an order was made dismissing the proceedings against it. This occurred on the forty-fifth day of the hearing.

18 One by-product of the dismissal of the proceedings against AMPG is the effective falling away of the issues concerning BHE's pleaded contentions as to there having been defects in the design of the steel reinforcement and the sundry corrosion related questions. However as the evidence from time to time treated with those issues it may be expected that the judgment sometimes lapses into referring to them. The forensic position leading to the finding that BHE ultimately abandoned the issues is dealt with below.

19 The insurance policy issued by HIH Casualty & General Insurance Limited (HIH) is of central relevance. HIH, which is the 10th defendant, has filed a submitting appearance in these proceedings.

[HIH and AMPG are together referred to as “the underlying” or “primary” layer insurers]

Material insurance contracts

20 The insurance contracts of remaining relevance are as follows:

HIH No 9541 NK 18365

· contract of insurance between BHE and HIH No. 9541 NK 18365 executed by HIH on 14 November 1996. The HIH Contract was for the period 26 August 1995 to 26 August 1997;

Gordian No. CI0015173

· contract of insurance between BHE and Gordian No. CI0015173 executed by Gordian on 23 September 1996. The Gordian Contract was for the period 26 August 1995 to 26 August 1997;

Pacific Indemnity No. 02 AES 020 4271

· contract of insurance between BHE and Pacific Indemnity No. 02 AES 020 4271 executed by Pacific Indemnity on 27 September 1996. The Pacific Indemnity Contract was for the period 26 September 1996 to 26 August 1997.

The insurance layers

21 HIH was responsible for the first $20 million of any claim made against BHE. Gordian was liable for the first $10 million in excess of $20 million. QBE, CGU and Lloyds were respectively liable for $6 million, $5 million and $9 million in excess of the first $30 million.

HIH arguably admits liability

22 On 6 November 2002, HIH confirmed that indemnity was granted to BHE under the HIH policy [subject to policy terms and conditions] adding that the grant was based on the facts then known to HIH. HIH re-stated this position (ie its admission as to liability) to BHE on 16 December 2003.

23 Both Gordian and CGU have failed to:

· grant indemnity in relation to the claim made against BHE by SACL;

· grant indemnity and provide consent in relation to the incurring of costs and expenses incurred in defence or settlement of the claim.

The insurer proceedings

24 The present proceedings were commenced on 22 December 2003 against 11 groups of insurers [nine being upper layer insurers]. During the pendency of the proceedings BHE discontinued against the second and fourth to ninth defendant insurers. BHE settled its claim against QBE for $4,016,790, in May 2004, and Lloyds for $6 million, on 16 April 2004.

25 In consequence the litigation the subject of this judgment constitutes claims by BHE against Gordian and CGU.

Decision not to press the lost settlement claim

26 Shortly prior to the close of the evidence BHE determined not to press its claim that as a result of Gordian’s alleged failure to confirm indemnity by 13 February 2004 and its alleged breaches of the contract of insurance, BHE had lost the opportunity to settle the SACL proceedings on the basis of an offer which BHE had claimed had been available for acceptance from 24 December 2003 to February 2004 [“the lost settlement claim”].

Relief presently claimed by BHE

27 BHE seeks:

· A declaration that HIH admitted liability to BHE to pay the full amount of the indemnity under the HIH Contract on 6 November 2002, or alternatively, on 16 December 2003.

· A declaration that HIH is liable to BHE to pay the full amount of the indemnity under the HIH Contract.

· A declaration that HIH is bound to indemnify BHE to the maximum amount of $20 million under the HIH Contract for BHE’s liability pursuant to the Settlement Agreements.

· A declaration that in addition HIH is bound to indemnify BHE in respect of costs and expenses incurred in the SACL Proceedings.

· A declaration that on its proper construction the Gordian Contract is a contract of insurance which provides that in addition to the indemnity limit stated in the Schedule, Gordian shall pay legal costs in the proportion of its share of liability of the total amount of the claim.

· In the alternative, an order that the Gordian Contract be rectified so as to express the true agreement between the parties by altering Clause G by deleting the words, ‘The indemnity limit stated in the Schedule shall include legal costs’ and inserting in lieu thereof, ‘In addition to the indemnity limit stated in the Schedule, Gordian shall pay legal costs in the proportion of its share of liability of the total amount of a claim’.

· A declaration that Gordian is and from 6 November 2002, or alternatively 16 December 2003, has been bound to indemnify BHE for the liability of BHE to SACL as claimed in the SACL Proceedings to an amount of $10 million in excess of $20 million.

· A declaration that Gordian is bound to indemnify BHE in respect of BHE’s liability pursuant to the Settlement Agreements to an amount of $10 million in excess of $20 million.

· A declaration that in addition Gordian is bound to indemnify BHE in respect of legal costs incurred in the SACL Proceedings in the proportion its respective liability to indemnify BHE bears in respect of BHE’s total liability pursuant to the Settlement Agreements.

· A declaration that Pacific Indemnity is bound to indemnify BHE to the maximum amount of $5 million in the proportion of 5/20ths in respect of BHE’s liability pursuant to the Settlement Agreements in excess of $30 million.

· A declaration that Pacific Indemnity is bound to indemnify BHE in respect of costs and expenses incurred in the SACL Proceedings in the proportion its respective liability to indemnify BHE bears in respect of BHE’s total liability pursuant to the Settlement Agreements.

· An order that Gordian indemnify BHE to the limits of the over under the Gordian Contract as BHE incurs loss, costs, expense or liability in the performance of its obligations under the Settlement Agreements in excess of $20 million.

· An order that Pacific Indemnity indemnify BHE to the maximum amount of $5 million in the proportion of 5/20ths as BHE incurs loss, costs, expense or liability in the performance of its obligations under the Settlement Agreements in excess of $30 million.

· An order that Gordian and Pacific Indemnity indemnify BHE in respect of costs incurred in the SACL Proceedings in the proportion of their respective liabilities to indemnify BHE in respect of its liabilities pursuant to the Settlement Agreements.

Underlying insurances

28 Both the Gordian and the CGU policies import the exclusions to be found in the underlying Insurance policy.

29 Each of these upper layer insurers raise arguments which turn on Exclusions contained within the HIH policy wording.

Gordian

30 The terms of the Gordian insurance policy state that the underlying insurance policy is that which had been issued by HIH.

31 Paragraph B of the Gordian policy states that GIO Australia agrees to indemnify BHE in accordance with the applicable insuring clauses, conditions and exclusions of the underlying insurances (the HIH policy), except where amended by terms of the Gordian policy or by endorsements thereto.

CGU

32 The CGU Policy wording provides in the insuring clause:

“This policy witnesses that in consideration of the payment of the premium stated in the schedule the company will, to the extent and in the manner hereinafter provided, indemnify the person or persons named in the schedule of the Policy of the Primary Insurers specified in the Schedule herein (hereinafter called ‘the Insured’ … against any claim made against the Insured during the period specified in the Schedule herein up to but not exceeding the aggregate for all claims under this policy the Total Limit of this Policy specified in Item 5(b) of the Schedule.”

33 Item 5 of the Schedule specifies HIH with a $20M limit of liability as the primary underlying insurance. The Insured under the CGU Policy wording are therefore the persons named in the Schedule of the HIH Policy.

34 Item 8 of the Schedule provides:

“This is an Excess of Loss policy follow from (sc) the HIH …policy wording subject to pacific Indemnity’s Excess of Loss Policy.”

35 There are two provisos to the CGU Policy insuring clause. The first is that:

“(a) Such claim or loss is covered by, or but for the relevant limit of liability would have been covered by, the said policy of the Primary Insurers”.

36 There is therefore no liability on CGU to indemnify BHE unless the claim against BHE is covered by the HIH Policy.

37 Condition 2 of the CGU Policy wording also provides:

“Except as otherwise provided herein this Policy is subject to the same terms, exclusions, conditions and definitions as the Policy of the Primary Insurers. …”

38 A key defence put forward by both Gordian and CGU is that their respective indemnities to BHE are subject to the same exclusions as those which are specified under the HIH insurance contract.

Exclusion in respect of claims arising out of construction work

39 The terms of exclusion 1 (p) of the HIH policy are of particular significance.

40 Exclusion 1(p) provides:

“This Policy shall not indemnify the Insured in respect of any claim made against them: …

(p) Arising out of construction work performed involving the means, methods, techniques, sequences, procedures and use of equipment of any nature whatsoever which are employed by the Insured’s contracting staff or others in executing any phase of any Project.”

Identifying the issues

41 It is not an exaggeration to suggest that the proceedings raise a veritable myriad of issues, both factual as well as legal. In a real sense there are two cases being heard together as the cases against each of the remaining defendant insurers. Whilst AMPG was joined there were three such cases being heard together.

42 Each of the subject policies requires extremely careful attention in terms of the proper construction of particular clauses and exclusion clauses and in terms of the manner in which each policy may or may not respond when examined in terms of the complex of insurance arrangements.

Foundational issues - the cause of the voids and sinkholes

43 There is however a group of relatively easily understood foundational issues, the determination of which may be expected to assist the ultimate unravelling of the respective cases.

44 The cause of the above described voids and sinkholes is the crucial of a number of expert issues litigated, having a bearing on policy responses in view of exclusions which appear in the HIH policy.

45 The litigation involved a close examination of whether or not the walls were defective as follows:

· the walls were said to suffer excessive sand loss between the joints in the concrete facing panels which loss had caused and may continue to cause [if not remedied], the formation of voids and sinkholes in the sand behind the concrete facing panels. The contention was that in due course this process would tend to reduce the structural integrity of the concrete facing panels and expose the steel reinforcement to the air so that corrosion would be accelerated;

· the steel reinforcement was said to have corroded more quickly than was allowed for in the design, both in relation to the lateral support steel straps, and the steel connections between the straps and the concrete facing panels. The contention was that as a result, the steel reinforcement may not remain competent to restrain the lateral movement of the concrete facing panels for the full design life of the reinforced earth walls.

[This issue fell away as explained below and in the reasons for the dismissal of the AMPG proceedings]

Overview description of the walls

46 Even at this early stage of the judgment it would seem to be convenient to set out a preliminary overview description of the subject walls [taken from the first report by Professor Leshchinsky]:

6.1 The Reinforced Earth (“RE”) walls of the third runway were constructed using prefabricated concrete facing panels [Detailed Design Report - Seawall]. When assembled, this facing has horizontal and vertical joints between panels with 15 mm to 20 mm wide openings [Detailed Design Report - Seawall, drawing stage 2, sheet 5, issue C]. The Millstream wall has both vertical and horizontal joints for its crucifix type facing [Detailed Design Report - Millstream wall, drawing 5448/14/D052]. The Seawall uses “Double T” type facing with open joints only in the vertical direction; the horizontal joints are sealed [Detailed Design Report - Seawall].

6.2 Non-woven needle-punched polyester geotextile strips were placed over the joints between the RE panels [Brochure issued by Geofabrics Australasia Pty Limited entitled “Ultimate in Geotextiles, Geofabrics, Bidim Range”]. This geotextile serves as a filter allowing water to flow through while retaining soil particles that are larger than a certain size.

6.3 The environment in which the geotextile filter functions is a tidal zone with a head difference of about 1 m between low and high tide. In addition, occasional waves may ride over the tidal changes thus increasing the head difference [Minutes of Design Seminar No 3 - Oceanographic Investigations and Marine Design on 20 January 1992, item 8].

6.4 The Seawall is a structure comprising 3 concrete panels in height. The combined height of the panels is approximately 5 m. The 5 m height is subjected to different water conditions at various points. Broadly speaking, there are 3 different sets of water conditions or environments for both the sea and millstream walls:


The first is the zone approximately 3 m in height which commences at the base of the panel and ends at the tidal low water mark. This zone is always submerged. The fill behind this zone of the wall is always wet. The second zone, immediately above the first, is subjected to both tide and wave effects. This results in the fill material in the second zone being wet (saturated) at some points and at other points less wet, to the point of being moist, depending upon the combined effect of time and wave action.

The second zone is in the range commencing at 3 m from the base of the wall to a point at approximately 4.5 m from the base of the wall. It comprises that part of the wall, the lower point of which begins at the low water mark and the upper point is approximately 0.5 m above the high water mark. The precise dimensions of this second zone are not important and will change with the combined effect of tide and wave action. What is important is that the fill behind the wall in this zone is subject to varying water pressure effects.

The third zone is generally dry to moist. It begins at a point from approximately 4.5 m above the second zone, and ends at the top of the wall.

6.5 The 3 zones are different environments which are subject to different water pressure effects. It is the fill immediately behind the wall in the second zone which is subjected to bi-directional water flow; and the related bi-directional forces. Those forces can carry water, including soil particles, through the joint between the Seawall panels. Any examination of the failures observed at the runway must, in my opinion, keep these 3 separate environments in mind.”

47 Certain of these descriptions must be qualified by reasons of later reports and answers given under cross examination: however keeping this qualification in mind the description serves as an adequate general overview at this early stage of the judgment.

48 In the result the questions which arise at least include:

· whether or not the specification compaction of soil requirements had been observed;

· whether the compaction adversely affected the physical integrity of the geotextile fabric leading to folds allowing sand loss to occur as sand particles bypassed the geotextile filter mechanism, flowing around the filter into the fold.

· whether the sand loss arose because of:

(1) the failure to ensure that the geotextile was so held against the walls prior to compaction as to prevent sand from being trapped between the geotextile and the walls [hence permitting wrinkles or folds to form in the geotextile - a ‘highway for escape’ and or

(2) the failure of those responsible for the placement of the geotextiles and the compaction to take careful steps to ensure that there was no displacement or interference with the geotextile during the sand laying/compacting processes;

(3) some other reason.

The contractual regime

49 BHE was contractually bound to SACL to achieve the 80% density to ensure that the sand used, met a particular particle size requirement. The requirement was recorded in section E 4.6.3 of the Specification which identified the requirement that the fill meet the particle size specified in Table E 3.4.4.1. That required that the sand have not more than 5% of its particles by mass, equal to, or less than, 75 microns.

50 Additionally, BHE was required (E 4.8) to compact to a minimum of 80% density index, when each layer was tested in accordance with clause 4.9. Clause E 4.9 set out a detailed list of tests which were required to be undertaken.

51 It was a further requirement that BHE maintain a quality plan (Specification E 4.9).

The method statement and inspections/test plans

52 BHE prepared a method statement for each of the Seawall and Millstream walls. In each case, the method statement detailed the testing which was to be undertaken. In the case of the method statement for the Seawall, paragraph 6.3. In the case of the method statement for the Millstream wall, paragraph 6.

53 Additionally, BHE prepared an inspection and test plan for each of the Seawall and Millstream wall.

54 The Seawall test plan in item 7 provided that each layer was to be tested to determine whether it met the minimum 80% DI (density index). The inspection and test plan for the Millstream wall in paragraph 6 identified that the backfill compaction should be tested to determine whether it met the DI of 80%.

55 For testing purposes, the Millstream and Seawalls were broken up into discrete physical areas called “lots”. BHE retained a contractor testing company, Testrite [Laboratories], to prepare test results, including results concerning the density of each layer of fill. Some 18 volumes of test results were prepared. They have been divided into test results for the Millstream, and test results for the Seawall.

Overview of the respective contentions on true cause of the defects

56 BHE contends that:

· the excessive sand loss was caused by defects in the design of the reinforced earth walls;

· the construction work was not defective in any way.

· the construction conformed with a flawed design.

57 Gordian and CGU contended that:

(i) the design of the reinforced earth walls was not defective [basing their position on the opinions expressed by Professor Leshchinsky];

(ii) the cause of the excessive sand loss was a failure by BHE in the construction of the reinforced earth walls to achieve uniformly the 80% density compaction level in the sand backfill as required by the specification;

(iii) alternatively to ii, if inadequate compaction was not the sole cause of both defects, it was said to be a substantial contributing cause which would by itself in due course have required rectification of excessive sand loss.

(iv) alternatively to (i), (ii) and or (iii), the sand loss was caused by the above described defective approach to the affixation of geotextile permitting sand to be trapped between the geotextile and the walls leading to the so called ‘highway for escape’.

Overview of the critical issues litigated

58 There are so many close questions concerning whether or not and if so on what basis, any particular contract of insurance responds, to make it inefficient to travel in detail into that world at this early point in the judgment.

59 However there are advantages in at least listing the likely issues which were formulated by Gordian in a convenient schedule and supplemented by BHE. Although some issues may escape the schedule, it likely covers most of the field:

1. What is the form of the Gordian contract of insurance, having regard to the rectification claims made?


(a) rectification to include defence and settlement costs coverage in addition to the $10m limit (BHE claim)

(b) rectification to change the retroactive date reference from 7 August 1992 to 26 August 1992 (Gordian cross claim)


1A. Assuming the retroactive date is rectified from 7 August 1992 to 28 August 1992, is Gordian prevented from relying on a retroactive date of 26 August 1992 in the Gordian Policy in circumstances where its retroactive date will therefore differ from that appearing in the underlying HIH Contract?

2. What are the insuring clauses in the HIH contract?

3. What is the proper construction and nature of each of:

- Generally as to the nature of the policies and the insured risk
- Clause C of the Gordian contract (attachment point issue)
- Insuring Clause 1
- Insuring Clause 2 (defence costs)
- Special Provision 1
- Special Provision 2
- Extension 6
- Endorsement 11
- Exclusion clause 1(e)
- Exclusion clause 1(o)
- Exclusion clause 1(p)
- Exclusion clause 7


3A. Are there “occurrence” elements in the cover?

3B. Clause 1 of the HIH Contract.

3C. Clause 2 of the HIH Contract (defence costs)

4. Has the pre-conditions identified in Clause C of the Gordian contract been satisfied?

4A. Assuming clause C does apply, is Gordian prevented from relying on clause C?

5. Was a claim (demand) actually made on BHE during the period of insurance?

6. Was a circumstance notified to Gordian during the period of insurance?

7. What is the content of the circumstance that has been notified?

8. What is either the:


(a) claim deemed to be made during the period of insurance by operation of condition 4?

(b) the claim against which s 40(3) of the ICA will relieve against late notification?

9. What is/are the SACL demands?

10. Which of the SACL demands may fall within Insuring Clause 1?

11. Is Special Provision 1 relevant to this case?

12. Is Special Provision 2 relevant to this case?

12B. Is Endorsement II (assumed liability for Airplan-GHD) relevant to this case?

13. Is Endorsement 6 (TPA) relevant to this case?

13A. Were the walls negligently constructed?

13B. Were the walls negligently designed?

14. Did BHE reasonably settle any or all of the SACL claim/s?

15. Does exclusion 1(p) apply? And if so, what is the effect of its application?

16. Does exclusion 1(e) have application? And if so, what is the effect of its application?

16A. Assuming exclusion 1(e) has application, is Gordian prevented from relying on Exclusion 1(e)?

17. Does exclusion 1(o) have application? And if so, what is the effect of its application?

17A. Assuming exclusion 1(o) has application, is Gordian prevented from relying on Exclusion 1(o)?

18. Does exclusion 7 have application? And if so, what is the effect of its application?

18A. Assuming exclusion 7 has application is Gordian prevented from relying on Exclusion 7?

18B. (a) Is Gordian estopped from any reliance on Exclusions 1(e), 1(o) and 7 of the HIH Contract?

(b) Has Gordian elected against reliance on Exclusion 1(o) or Exclusion 7 as an answer to BHE’s claim against Gordian?

18C. Has Gordian breached its obligations of utmost good faith owed to BHE by:

· failing to investigate promptly or otherwise sufficiently inform themselves in respect of the claim made by SACL against BHE so as to be in a position to make a decision in respect of an indemnity to BHE;

· failing to consider fully and properly in a timely manner the materials provided to them by BHE in respect of the claim made by SACL against BHE;

· by its making and continual reliance upon the attachment point argument.

19. Does the doctrine of repudiation of liability apply to the present case? (on the basis of the remaining good faith claim maintained by BHE)

20. If the doctrine does apply, has BHE proven that it reasonably settled with SACL any indemnified claim?

21. If the answer to 20 is yes, is the obligation assumed by BHE through the settlement an appropriate measure against which indemnity is to be determined? If not, what is the appropriate measure?

22. If the answer to either 19 or 20 is no, has BHE proven that it is entitled to an indemnity from Gordian (i.e. has it proven that it had an indemnified liability to SACL in fact in excess of the attachment point of the Gordian policy)?
[MFI D 1 (aq)]

Scale of the litigation

60 Both parties deployed what can only be described as massive resources in order to litigate the question of precisely what was the cause of the reported sand loss from behind the walls. The search was a factual one which would engage the question of whether or not some parameter of the construction work was responsible for the sand loss or whether that loss may be sheeted home to a design flaw.

Setting out quotations from experts reports - general approach

61 I make no apology for adopting a mode of citing experts’ reports whereby I tend, on occasion, to emphasise or rearrange a section in a paragraph. I have adopted this procedure not in an attempt to be disrespectful to the author, but simply for my own [and hopefully the reader’s] ease of following what is said.

Reinforced Earth/Connell Wagner

62 The approach generally taken in the judgment as a matter of convenience is not to draw any material distinction between the respective positions of Reinforced Earth and Connell Wagner [often referred to as “RE/CW”]. It is common ground that during most of the hearing almost no attention was given to any material difference in the positions of these two companies each of which had entered into subcontracts with BHE. The matter was raised with leading counsel for BHE [transcript 2893] where it was accepted that it seemed appropriate to refer throughout to "Reinforced Earth/ Connell Wagner". I may not have universally succeeded in adopting that precise practice, but although differentiating between the two companies when it is obviously appropriate to do so [as where documents have been written or received by one or the other], have intended to do so. I now make plain as an internal dictionary, that by and large the sundry references to RE are also to be regarded as shorthand for RE/CW without distinguishing between them. The parties will be given leave at the same time as addressing on short minutes of order and costs, to address on whether there is perceived to be any particular difficulty arising from this internal dictionary exercise, and if so, it may become necessary to expressly differentiate between these companies for some particular special reason. If this ends up requiring some additional findings, so be it. I would doubt that there will be any such problem.

An unusual case

63 There are several rather extraordinary features of the proceedings which it is well to bear in mind from the beginning. They include:

i. the fact that the principal factual issue concerns the degree to which compaction of the sand back fill took place: yet with the exception of early testing of the Millstream for the first 300 metres there is simply a dearth of contemporaneous testing records to fall back on in order to ascertain the real position;

ii. the fact that in the absence of contemporaneous testing records the Court is forced into a close examination of other indicators in favour of [or alternatively against] the drawing of inferences as to the extent to which compaction took place;

iii. the fact that the international experts with specialised knowledge in relation to the subject discipline had themselves to a very considerable extent the same problem faced by the Court in terms of the absence of contemporaneous testing records and the consequent need to (1) draw inferences from other indicators as to what actually happened and (2) to rely upon those inferences in order to base their own expert opinions;

iv. the very limited evidence adduced from site engineers and personnel who were present at the time of the construction : leaving an enormous amount to be desired where many persons who presumably could have given firsthand evidence of what had happened were never called by either party;

v. The enormity of the situation encountered in terms of the massive loss of sand back fill experience;

vi. The number of years which passed before the problem was encountered;

vii. the difficulties then experienced in the attempts to diagnose the problem:


a) in effect careful investigations were carried out including tapping the recollections of site engineers and personnel who had been involved at the time of the construction;

b) at the same time a number of experts were retained to produce reports which went into evidence although with the exception of the reports given by Professor Ingold, those experts were never called as experts to give evidence;

c) many tests were carried out including attempts to simulate the problem;

d) notwithstanding all of the above investigations, diverse opinions as to the cause of the sand loss which had been experienced continued to be held.

64 Each of the parties spent a reasonable amount of time in submitting that the other was responsible for the failure to call evidence from witnesses [additional to the few who were called] who had witnessed the actual building of the wall.

65 Another reasonably unusual parameter concerns the very detailed evidence given by Mr Price in relation to the instructions which he received from BHE over an extended period during which complex negotiations ultimately leading to the Settlement Agreement were undertaken. The instructions which he received are themselves an important parameter requiring to be weighed/evaluated as part of the overall complex of evidence.

66 The insurers accused BHE of making "forensic u turns" in order to salvage their case: particularly following the cross examination of Professor Ingold.

67 One of the most startling parameters involved BHE permitting its own expert, Professor Ingold to give evidence through his many written statements on which he was cross-examined, by allowing him to proceed upon the assumption that in relation to the Seawall, the handheld compaction zone was measured as one metre from the face of the wall. [cf his cross-examination at 624 where he answered that as far as the Seawall was concerned, there was a ten tonne roller within one metre of the Seawall and that that was a fact].

68 BHE also proceeded to cross-examine Professor Leshchinsky who had based his opinions upon the same assumption, without ever putting to him what apparently BHE always intended to put to the Court in final address, namely that the handheld compaction zone in relation to the Seawall had in fact extended one metre from the buttresses, hence extending 1.5 metres from the face of the Seawall. The final addresses delved into the issue in great depth, the insurers accusing BHE of in effect ambushing them on a massively important factual issue.

69 BHE in its Reply Submissions advanced the following propositions:

328C:

"Professor Ingold cannot be criticised because Gordian chose to cross-examine him on a misconceived basis. No doubt the Test-Rite results do not disclose any record of testing closer to the back face of the sea wall than one metre. That fact has no relevance in circumstances where that testing on a one-metre offset was carried out within the hand compaction zone of 1.5 metres."

328D:

"Throughout the trial, Gordian assumed and conducted its case on the basis that a lack of testing at any point closer to a one-metre offset to the back face of the sea wall could support an inference that compaction within the hand-held compaction zone did not meet the 80 per cent density index. Gordian's case mistakenly assumed that the zone of hand-held compaction extended only from one metre from the back of the sea wall. This misconception, upon which Gordian had formed its case, was obvious to BHE from the outset. There are numerous contemporaneous documents which refer to the zone of hand compaction."
[Transcript 2967-2968]

70 In my view clearly the most difficult part of the proceedings has been the need to make factual findings in this very complex environment. Whilst the legal issues are also complex, the short position is that the factual findings are crucial and generally dictate what follows.

Approach to judgment

71 Bearing in mind the number of witnesses called and the hundreds of folders of documentary evidence, it may be thought that following the months of hearing, the process of summarising the evidence and succinctly stating reasons for the ultimate decisions is of particular difficulty. Of course that is correct. However on another level the reasons may be given fairly shortly because, on true analysis, the bases for the decisions on the crucial issues are not all that difficult to follow.

72 To my mind there is particular benefit in endeavouring to give reasons:

(i) initially in this overview fashion [which should serve to introduce the reader to the real issues, later addressed when the judgment chronicles the evidence given];

(ii) in due course to travel in more conventional mode through the evidence, giving more adjectival information as to the evidence leading to the factual and legal decisions.

Overview findings

What was the hand compaction zone?

73 As already observed, during final address a vigorous and heated argument was ventilated concerning the manner in which the case had been conducted by BHE. Gordian submitted that BHE had ambushed it in its approach to the whole of the evidence called by it in relation to the dimensions of the hand compaction zone and that it was not open to BHE in final address to contend that the hand compaction zone was otherwise than the zone extending one metre from the face of the Seawall.

74 BHE contended that although it had been aware through the whole of the hearing that Gordian was proceeding upon that assumption, in fact the hand compaction zone had extended one metre from the buttresses of the Seawall hence extending 1.5 metres from the face of the Seawall.

75 The evidence satisfies me that as a matter of fact, the hand compaction zone extended one metre only from the face of the Seawall. It is therefore strictly unnecessary to treat with the questions of whether or not BHE because of its approach to the litigation would in any event be prevented from contending to the contrary at this late stage of the hearing. However I intend to travel into the issue and to deal with it also.

Compaction density achieved in the hand compaction zone

76 The closest of attention was given to this factual issue which in my view occupied possibly 70% of the cross-examination of at least the initial material witnesses called in the case.

Seawall

77 Taking into account all of the evidence, the balance of probabilities very strongly suggests that the requisite compaction density of 80 percent was not achieved in the zone one metre from the back of the Seawall.

78 The indicators which support this finding include:

i. The physical difficulties of working to achieve compaction in that zone;

ii. the lack of testing in that zone exhibited by the contemporaneous Testrite compaction records [later meticulously examined by Mr Moore in about August 1997 and the subject of a spreadsheet prepared by him]

[This is corroborated by the fact that the site engineers to whom Mr Moore had spoken, whom he understood to have been responsible to ensure that the Seawall was built in accordance with the method statement and tested in accordance with that statement, had been asked by him whether there had been testing within the one metre zone immediately behind the Seawall’s. His evidence which is accepted as reliable was that the site engineers had said that they did not recall the requirement to test each layer in the one metre zone. The site engineers had told him that they did not think that they had to test each back fill layer at one metre offset: in short they had not recalled that requirement [transcript 1642.5]]

iii. The fact that Mr Price of Phillips Fox, whom for a number of years had the closest of dealings with relevant BHE personnel, was intimately involved in the briefing of experts and had himself examined compaction records, had understood from what he had been told by BHE personnel that during the course of the construction BHE had not tested the compaction immediately behind the walls in the one metre zone.
[Transcript 1261- 1262]

Millstream Wall

79 The position with respect to the Millstream Wall is slightly different in that there were some records of testing in the one metre zone behind the Wall. However notwithstanding those records the evidence suggests that likely relatively early in the piece, a conscientious approach to testing fell away. Ultimately taking into account all of the evidence, the balance of probabilities suggests that as with the position which was obtained with respect to the Seawall, the requisite compaction density to 80 percent was also not achieved in the zone one metre from the back of the Millstream Wall.

1297 In each case the s79 objections are rejected.

1298 The training, study and experience of Mr Aldis is carefully set out in his CV. It includes 33 years experience in the Engineering and Construction industry across a variety of areas and his membership of a number of Industry Associations. It clearly furnished him with the necessary specialised knowledge to be in a position to express his opinions on the matters dealt with in his above described report.

1299 The training, study and experience of Mr Gemell is carefully set out at the commencement of his 7 October 2005 Report. It clearly furnished him with the necessary specialised knowledge to be in a position to express his opinions on the matters with which he deals in the above-described report.

1300 Mr Blunden has since 1985 been concerned principally on a consultancy basis with reviewing and advising and reporting in respect of the delivery of building and construction services. His experience furnished him with the necessary specialised knowledge to be in a position to express his opinions on the matters with which he dealt in the above-described report. [However some of his evidence was rejected before his statement was read and that ruling of course is in place].

1301 Mr Fyfe has specialised knowledge gained from his extensive practice in the area of construction law litigation and ancillary extensive experience in building, construction and engineering contracts and is also a registered builder with particular commercial experience. His experience furnished him with the necessary specialised knowledge to be in a position to express his opinions on the matters with which he dealt in the above- described report.

Documentary tender reserved rulings

1302 Exhibit P 42 was explained at [transcript 3535 et seq]. A ruling was reserved in relation to the following documents:

i. SPTB 159.0282; 0285 and 0288;

ii. SPTB 150.0289;

iii. SPTB 159.0293.

1303 The rulings are as follows:

As to i

· The first document is a draft letter which has not been proven was sent or that the draftsperson had instructions to prepare or send it. The other documents confirm that it was not to be relied upon by Gordian (and it has not been). The documents are not rationally relevant to any issue, certainly not to BHE’s case in reply. These documents are rejected.

As to ii

· The second document is a dramatis personae prepared by CCW. The document is not rationally relevant to any issue, certainly not to BHE’s case in reply. The document is rejected.

As to iii

· The third document comprises one letter of correspondence concerning discovery in this case. The document is not rationally relevant to any issue, certainly not to BHE’s case in reply. The document is rejected.

Concluding observations

1304 There is plainly a limit to the extent to which is appropriate for the Court to continue to make alternative findings. It has seemed to me that the principal issues litigated have clearly been the subject of the detailed reasons given and that wherever practicable and possible [but within reason] alternative findings have been given lest principal finding be overturned.

Reliability of witnesses

1305 It is appropriate to make some observations as to the reliability of witnesses called. The reasons given have from time to time dealt with particular reliability matters, most particularly in the case of Professor Ingold.

1306 In my view Professor Leshchinsky was a clearly reliable witness. He did not hesitate, it seemed to me, to frankly and fairly accept where he was in doubt. It seemed to me that there was a clear transparency of reasoning processes supporting the opinions which he gave.

1307 The reasons make clear which are the issues in respect of which the evidence given by Mr Caretti is found to be unreliable. It was necessary to assess his evidence in the light of all of the evidence and the finding concerning him was made accordingly.

1308 The reasons have indicated that the evidence given by Mr Ashton is accepted as reliable. His evidence was given quite confidently. It accorded with the balance of probabilities when read in the light of the overall body of evidence.

1309 The evidence given by Mr Moore is accepted as reliable. It was supported by documentary evidence. It also accorded with the balance of probabilities when read in the light of the overall body of evidence.

1310 The reasons have indicated that the evidence given by Mr Scott is not accepted as reliable in all of the circumstances and why that finding is made.

1311 The evidence given by Mr Price is accepted as reliable. He gave his evidence very confidently. His recollection was reasonable in the circumstances. He was very strenuously cross-examined. He survived that cross-examination well. Where he could not recall what had happened he was quite frank about that matter. He was a careful witness who took time to answer extremely close questions as to the many areas in respect of which he played a part.

1312 The evidence given by Mr Boyd is accepted as reliable. His answers were responsive. He was closely tested on in relation to many issues of opinion, recollection and fact. In my view he gave frank answers during the cross-examination. I reject the submission that any of his evidence was a recent invention based upon Professor Leshchinsky’s evidence.

1313 It is strictly unnecessary to go further in expressing views as to the reliability of other witnesses called. The evidence given by Messrs Gemell, Aldis and Blunden is not the subject of any attack on their credit. The matters with which they dealt stand or fall on their respective opinions.

1314 Bearing in mind the approach which I have taken to the corrosion issue no longer being a live issue in the litigation, it seems to me inappropriate to express a view on the reliability of the evidence given by Professor Abel or Dr Sussex.

Agreed transcript corrections

1315 Transcript corrections are made to the extent agreed by the parties in the document now marked MFI “TR 6.4.06”. Where this judgment reveals a slight movement away from the original transcript, this is by reason of my decision that a typographic error required correction and that correction is also made.

Short Minutes of Order

1316 The parties will be given an opportunity to bring in short minutes of order and to address on costs.

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