Kvaerner Oil and Gas Australia Pty Limited v Egis Consulting Australia Limited

[2003] NSWSC 36

CITATION:	Kvaerner Oil & Gas Australia Pty Limited v Egis Consulting Australia Limited [2003] NSWSC 36
HEARING DATE(S):	3/02/03, 4/02/03, 5/02/03
JUDGMENT DATE:	12 February 2003
JURISDICTION:	Equity Division
JUDGMENT OF:	Einstein J
DECISION:	Short Minutes of Order to be brought in
CATCHWORDS:	Joint Venture - Liability to third party - Joint venture agreement entered into between plaintiff and defendant - Proceedings brought against joint venture in Victoria by third party - Counterclaim brought by joint venture against third party - Defendant assigned its benefit in counterclaim to plaintiff - Proceedings in Victoria settled - Principles of contribution - Construction of Joint Venture Agreement - Whether defendant liable to contribute 50 per cent of settlement sum - Whether liability of joint venture caused by plaintiff - Whether settlement of counterclaim used to set-off joint venture liability
LEGISLATION CITED:	Trade Practices Act 1974 (NSW)
CASES CITED:	Albion Insurance Co. Ltd v Government Insurance Office (NSW) (1969) 121 CLR 342 Burke v LFOT Pty Ltd (2002) 187 ALR 612 Dering v Earl of Winchelsea (1787) 29 ER 1184 IBM Australia Ltd v National Distribution Service Ltd (1991) 22 NSWLR 466 Mir Brothers Developments Pty Ltd v Atlantic Constructions Pty Ltd (1984) 1 BCL 80 Tailby v Official Receiver (1888) 13 App.Cas 523
PARTIES :	Kvaerner Oil & Gas Australia Pty Limited (Plaintiff) Egis Consulting Australia Limited (Defendant) Storebrand Skadeforsikring AS (Second Cross Defendant)
FILE NUMBER(S):	SC 50136/00
COUNSEL:	Mr B Coles QC, Mr M Ashhurst (Plaintiff and Second Cross Defendant) Mr C Gee QC, Mr N J Kidd (Defendant)
SOLICITORS:	Michael Samios (Plaintiff and Second Cross Defendant) Colin Biggers & Paisley (Defendant)

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

EINSTEIN J

12 February 2003

50136/00 KVAERNER OIL & GAS AUSTRALIA PTY LIMITED v EGIS CONSULTING AUSTRALIA LIMITED & ANOR

JUDGMENT

The Joint Venture Agreement

1 The proceedings concern a joint venture agreement entered into between the plaintiff, Kvaerner Oil and Gas Australia Pty Ltd ["Kvaerner"] and the defendant, Egis Consulting Australia Pty Ltd ["Egis"]. The joint venture agreement was entered into for the purpose of providing consulting, engineering and managerial services in relation to the construction of onshore and offshore pipelines and supporting facilities within Australia.

2 The joint venture agreement was constituted by a deed dated 3 February 1986 ["the first joint venture deed"], a further deed dated 15 March 1991 ["the second joint venture deed"] and a further deed dated 15 June 1994 ["the termination deed"]. The first joint venture agreement was for a three-year period which period was extended for a further five years by the second joint venture agreement. The termination deed terminated the joint venture. The convenient course is to append the first joint venture deed to this judgment as Appendix “A”.

Kvaerner

3 Kvaerner is the Australian arm of a large Norwegian based group of companies ["the Kvaerner group"] which operates throughout Europe, the Americas, Asia and the Middle East and which specializes in shipbuilding and oil and gas exploration and production contracting worldwide.

4 Kvaerner was at the time of the first joint venture agreement known as R J Brown & Associates (Australia) Pty Ltd and by the time of the second joint venture agreement had become Kvaerner Oil RJ Brown and Associates Pty Ltd.

Egis

5 Egis was at the time of the first and second joint venture agreements known as Crooks Michell Peacock Stewart Pty Ltd and by the time of the termination deed had become known as CMPS&F Pty Ltd.

Contracts with John Holland Construction and Engineering

6 It is common ground that pursuant to the joint venture agreement, Kvaerner and Egis as joint venturers entered into various contracts with John Holland Construction and Engineering Pty Ltd ["John Holland"] in respect of the design and construction of pipelines and supporting facilities for the Woodside Petroleum Wanea and Cossack projects situated approximately 125 km offshore north-west of Dampier in Western Australia part of the North West Shelf Gas Project. The contracts entailed the detailed design, procurement, fabrication and delivery of mechanical and process skids for a floating production storage and off loading vessel including a pre-bid agreement on or about 1 September 1993 and a design agreement on or about 4 February 1994. Pre bid services were carried out between March 1993 and August 1993.

7 Woodside Offshore Petroleum Pty Limited (“Woodside Offshore”) was a company which was the delegated operator acting for and on behalf of joint venturers in the North West Shelf Gas Project. Woodside Offshore entered into a consultancy agreement with John Holland on 5 April 1993 pursuant to which John Holland was to perform the definition phase engineering services to develop the subject oil fields by use of a floating production storage and off loading facility.

8 Definition phase engineering was to form the basis for the detailed design/procurement/application of the process facilities.

9 The joint venture provided to John Holland the definition phase engineering and other design and engineering services ("the pre bid services") during the 13-week pre-tender period under the John Holland and Woodside Offshore agreement and at the request of John Holland.

10 On approximately 2 July 1993 John Holland submitted a tender for the project to Woodside Petroleum in an amount of $51,332, 395. The tender was accepted on approximately 8 October 1993.

11 The joint venture asserted that the pre bid Agreement was entered into upon the common assumption that the terms of the pre bid agreement did not require the joint venture to provide John Holland with any additional information to that which had been provided prior to 1 September 1993. Clause 4 of the pre-bid agreement had been expressed to have retrospective effect to 5 April 1993 at a time when John Holland and the joint venture first began to collaborate for the purposes of the project.

12 The joint venture at the request of John Holland provided design and engineering services and facilities to John Holland up to December 1994.

The dispute with John Holland

13 There was a dispute between John Holland and the joint venture as to what constituted the agreement pursuant to which design services would be provided.

14 John Holland brought proceedings against Kvaerner and Egis as joint venturers ["an unincorporated joint venture"] in the Supreme Court of Victoria [proceedings No. 6844 of 1995] ["the Victorian proceedings"]. John Holland claimed that the joint venture negligently carried out the preliminary engineering such that John Holland's tender price based on it was lower than it would have been if the preliminary engineering had accurately reflected what was necessary for the detailed design, procurement, fabrication and delivery of the process facilities. It was alleged that by reason of the negligence of the joint venture, John Holland become contractually bound to carry out the project for an inadequate price.

15 In those proceedings John Holland made various claims against the joint venture, including claims for damages for breach of the pre bid Agreement and the design agreement, and adjustments to the lump sum under the design agreement on account of negative variations, damages for alleged breach of a duty of care said to be owed by the joint venture to John Holland, damages for alleged misleading and deceptive conduct by the joint venture said to have been in breach of the Trade Practices Act, damages for alleged negligent misstatement and interest in the nature of damages. Detail of the ultimate allegations are set out in the Amended Statement of Claim. [Exhibit PX Vol 5 Tab 154]

Progress of the litigation and the settlement reached

16 The joint venture defended the claim by John Holland. Initially it was represented by Marshall Marks and Kennedy. Both joint venture members apparently became concerned with the defence being mounted by this firm and both joint venture partners agreed that the legal representation for the joint venture should be changed. Kvaerner wished to use Mallesons Stephen Jaques ["Mallesons"]. Egis wished to use Ebsworth and Ebsworth.

17 The costs of Marshall Marks and Kennedy were apparently paid equally by or on behalf of Kvaerner and Egis.

18 Kvaerner insisted on Mallesons being briefed to represent the joint venture in the proceedings. Egis eventually did not object.

19 Mallesons then proceeded to represent the joint venture in the proceedings: both generally in relation to the defence to the primary claim as well as in relation to the joint venture fee claim against John Holland for outstanding fees of $3,300,748.39. As to this latter claim it had been agreed between the joint venture partners that the claim would be pursued at Kvaerner's sole risks (including as to costs), on the basis that any proceeds received would be for the sole benefit of Kvaerner.

20 Mallesons rendered fees in the defence of the Victorian proceedings in the sum of $1,960, 806.93 which were paid on a progressive basis.

21 The proceedings brought by John Holland were settled on or about 30 May 1997 following a mediation conducted before Sir Laurence Street. No agreement reached between the joint venture members before or at a mediation as to how any settlement moneys would be paid by the joint venture if it was to agree to settle the claim by John Holland, other than Egis agreeing that the ultimate settlement figure of $3,745,000 was a reasonable figure.

22 A dispute arose at the mediation between John Holland and Kvaerner as to whether an offer made by John Holland prior to the mediation to pay the sum of $1.2 million in satisfaction of the fee claim was still on foot. The dispute was the subject of further litigation and was subsequently resolved by Kvaerner agreeing to accept the sum of $1 million for the fee claim.

23 The joint venture's liability to John Holland was discharged by payments progressively to John Holland totalling $2.745 million (comprising $2.245 million from Mallesons's trust account and $500,000 from Kvaerner) being the net amount of the liability of the joint venture to John Holland after setting off the entitlements of the joint venture to be paid $1 million by John Holland.

24 Kvaerner's insurer, Storebrand on or before 3 July 1997 remitted the sum of $3.745 million to Mallesons trust account. On 3 July 1997 Mallesons sent a trust account cheque for $2.245 million to the solicitors for John Holland. The difference between the amount paid to the solicitors for John Holland and the settlement figure was $1.5 million. The sum represented the amount which Kvaerner had claimed was the value of the counterclaim agreed to by John Holland.

25 The dispute as to whether the counterclaim had been settled for the amount alleged by Kvaerner resulted in Kvaerner paying John Holland a further $500,000 of the disputed $1.5 million

The present proceedings

26 These present proceedings concern the rights and liabilities of Kvaerner and of Egis flowing from or in relation to payments which were made:

· In settlement of the proceedings [Kvaerner claims that in settlement of the proceedings it paid the sum of $3,745,000 to John Holland for and on behalf of Kvaerner and Egis];

· In defending and settling the proceedings brought by John Holland [Kvaerner claims that it has paid or is liable to pay $1960,806.93 on behalf of Kvaerner and Egis].

[The term “the John Holland moneys” are used in the summons and in the second cross claim to refer to both these sums]

27 As explained by Kvaerner in its overview preliminary submissions, it alleges that the payment of $3.745 million to John Holland ($2,245 million on 3 July 1997, $500,000 on 17 March 1998 and the $1 million allocated to Kvaerner for the counterclaim) and the legal expenses of $1, 960, 806.93 which were incurred in defending the claim, constitute a liability or expense of the joint venture. Kvaerner contends therefore that Egis is liable for half of that sum.

The Pleadings

The stance taken by Egis

28 Egis has pleaded the following matters, many of which either overlap or are put as alternatives, in its defence and/or first cross-claim against Kvaerner Oil:

Denial of payment said to have been made by Kvaerner Oil

29 Egis denies that Kvaerner paid to John Holland the sum of $3, 745,000.00 in settlement of the John Holland proceedings.

Identity of payer

30 Egis claims that the relevant payment made in settlement of the John Holland proceedings was made by Storebrand, a Norwegian insurance company, pursuant to an insurance policy [842-3873] issued on 10 June 1993 under which policy both parties to the joint venture are said to have been indemnified. In consequence Egis claims that "to avoid circuity of action" the Summons requires to be dismissed.

Amount of liability

31 Egis denies that the joint venture had a liability to John Holland in the sum of $3,745,000.00 and asserts that the relevant liability of the joint venture to John Holland was in the sum of $2, 745,000.00 which is said to have been the net amount of the liability of the joint venture to John Holland after the setting off of entitlements of the joint venture to be paid $1,000, 000.00 by John Holland

Construction Issues

32 Egis makes a series of claims, again often overlapping or put as alternatives, which rely upon the proper construction and consequential application of the joint venture agreement:

· Egis claims that upon the proper construction of the joint venture agreement the moneys paid to John Holland ["the John Holland Moneys"] do not constitute "losses" within Article IX of the joint venture agreement

· Egis claims that on a proper construction of the joint venture agreement it is not possible to determine its liability (if any) to contribute 50% (or any amount) towards payment of the John Holland moneys without first determining whether or not the liability of the joint venture to pay the John Holland moneys was caused by conduct of the plaintiff, its staff, employees, agents or contractors

33 The further claim made by Egis is that the joint venture liability to John Holland was caused by the conduct of Kvaerner, its staff, employees, agents or contractors.

34 Alternatively such conduct is said to have constituted either breaches of Article XI of the joint venture agreement or to have fallen with in article XX (d) of the agreement.

35 The proposition put by Egis is that the effect of the material provisions of the joint venture agreement, namely articles ii (e), XII (b) (c) and/or (e) and XI (a) and (b), XX (a) and (d), is that as between Kvaerner and Egis, where a joint venture liability for damages and costs is caused by the conduct of Kvaerner, its staff, employees, agents or contractors, it is Kvaerner and not Egis which was and remains liable to satisfy that liability, and that if and to the extent that Egis contribute to the joint venture's satisfaction of such liability, Egis is entitled to be indemnified by Carver, or to damages tantamount to indemnity. Hence any claims to have no liability to Kvaerner for the John Holland moneys or alternatively claims to be entitled to a set off by reason of the matters referred to in its cross-claim against Kvaerner.

Express Term

36 There is no issue on the pleadings but that it was an express term of the joint venture agreement that any losses incurred or sustained in and about the performance of the joint venture under any contract or agreement entered into by the joint venture were to be borne equally between Kvaerner and Egis. An issue arose as to the proper construction of the word “losses” in that regard.

The first cross-claim

37 Egis cross-claims against Kvaerner relying initially upon its allegation that the joint venture liability to John Holland was caused by the conduct of Kvaerner, its staff, employees, agents or contractors and /or relying upon its allegations that this conduct constituted breaches of articles XI of the joint venture agreement or constituted conduct falling with in article XX (d) of that agreement.

38 The claim is that if and to the extent that Egis is liable to contribute 50% or any amount to satisfy the liability of the joint venture for the John Holland moneys, Egis is entitled to be indemnified by Kvaerner or to damages tantamount to indemnity.

Failure to renew a joint professional indemnity insurance policy in or about September 1994

39 A claim was pleaded that relied upon an allegation that Kvaerner failed to agree to the renewal of a joint venture joint professional indemnity insurance policy in respect of the joint venture activities as a result of which failure that policy was not renewed.

40 This claim as pleaded asserted that up to and including September 1994 the joint venture as held the policy, that in September 1994 Egis requested Carver to agree to the renewal of the policy and Kvaerner refused to so agree as result of which the policy was not renewed.

41 The allegation was that by September 1994 Kvaerner was aware of circumstances which might give rise to a claim under the policy but failed to disclose those circumstances either to any court to the joint venture insurer and advised Egis that no such circumstances existed.

42 The allegation was that as a result the joint venture policy did not respond to the John Holland claim when it was made.

43 No submissions were addressed by Egis in support of this claim which is therefore regarded as not litigated.

The second cross-claim

44 Egis failed on the second cross-claim which was determined by the judgment delivered ex tempore on 4 March 2003 which determined the separate question concerning the proper construction of the Storebrand policy. That judgment summarises the content of that cross-claim.

The submissions of Egis

45 The overview submissions of Egis serve to expand and flesh out its case. The submissions inter alia include the following:

CONSTRUCTION OF THE JOINT VENTURE AGREEMENT

· In approaching the question of the proper interpretation of the Joint Venture Agreement, the important principle is that the whole of the instrument has to be considered.

· Kvaerner and Egis did not wish to enter into a relationship of partnership nor of principal and agent between themselves (Article XX(a)). Instead, the parties agreed to “associate themselves in a Joint Venture …” (Article III). The Joint Venture Agreement essentially recorded the coming together of business competitors for the purpose of pursing some profit making activities jointly while very much maintaining the separate business activities of each party outside the scope of the Joint Venture.

· The classes of work to be undertaken by the Joint Venture were defined and limited by Article III. The work covered by the Agreement was, in principle, limited to activities relating to oil and gas offshore pipelines with the express agreement that the Joint Venture was not to seek nor enter into any construction contract. Work falling within the classes so defined was described as “in-scope work”. Any work not so defined was to be regarded as “out-of-scope work”.

· Although the association by way of joint venture between the parties had some characteristics of a partnership, the parties were at pains to provide expressly that they were not in a partnership relationship and, equally clearly, that their association was for the purposes of work of a relatively limited character. There was no question of the parties embarking on a range of activities to which each would devote its entire efforts, as in a normal partnership. On the contrary, the independence and indeed separateness of the contracting parties is evident from a reading of the Joint Venture Agreement as a whole.

· The limited character of the then Joint Venture, and the separate capacity of each of the partners to continue to carry on any work which was not covered by the Agreement, are particularly evident from Article V.

· Because the parties were careful not to enter into a relationship of a partnership, and because the scope of their agreement to work together was, relatively speaking, limited, it became necessary to make explicit provision for the contribution of capital and the distribution of profits and losses. These matters were dealt with in Articles VII, VIII, IX and X. Article VII called for equal contribution of operating capital requirements for the Joint Venture. Article VIII provided for application of income of the Joint Venture to meet operating costs, particularly amounts payable to either party for its services, and provided for equal distribution of the net profits. Correspondingly losses incurred were to be borne equally between the parties if such should result from performance of the contract entered into by the Joint Venture (Article IX). Article X provides that any assets of the Joint Venture should be regarded as being owned by the parties in equal share as tenants-in-common.

· These Articles, made necessary by the determination of the parties not to regard themselves as partners, did no more than to provide for equality of capital contribution, profit sharing and loss bearing. They might have provided for capital contributions and profit and loss sharing to be in some proportion other than equality.

· Article IX, dealing with losses, was plainly a provision to deal with the situation that might arise where the application of income of the joint venture pursuant to Article VIII produced not a surplus to be distributed pursuant to Article VIII(b), but a deficit.

· Nothing in those Articles dealt, or was intended to deal, with the question of legal liabilities which might arise either under a Joint Venture Contract or by other operation of law. The problem of liabilities inter se was dealt with in the Joint Venture Agreement separately, and differently, from the equality provided for in Articles VII to X.

· The starting point is that each party covenanted with the other to perform with reasonable care and skill any work carried out by it for the benefit of or for the purposes of the Joint Venture or under any contract or agreement entered into by the Joint Venture with third parties and to provide staff to the Joint Venture “relating to its area of expertise” (Article XI). The parties further agreed that, as appropriate, specialised work would be assigned to one party or the other, and that each would be “just and faithful” to the other (Article XI(b)). Further, the parties agreed that each would be required to perform services for the common benefit of the Joint Venture (Article XII(a)). Neither party was permitted to seek the services of Joint Venture staff for their own purposes (Article XII(b)(v)). Thus, it was contemplated that each party would provide its own special skills to the Joint Venture, that Joint Venture work would be undertaken by the party regarded as having special skill in the field, and that a body of Joint Venture staff would be created and maintained. When a contract was entered into with a third party by the Joint Venture, it was very much contemplated by the Agreement that one party or the other would be de facto responsible for that contract, although performed for the equal profit of each party.

· In the case of the JHCE Consultancy Contract, the work was effectively undertaken by the Kvaerner side of the Joint Venture.

· Plainly in those circumstances, situations could arise where liability might fall upon the Joint Venture by reason, for example, of breach of contract or breach of duty by the Joint Venture vis-à-vis the third party. The concept of such a liability is, of course, quite distinct from the concept of profit or deficit resulting from application of income as provided for pursuant to Articles VIII and IX and may not even arise contractually.

· The liability problem was dealt with by the following provision –

“Article XX – General
Each party shall indemnify and hold the other party harmless against claims, liabilities, damages, causes of action which is or are caused as a result of any conflict and/or breach of contract arising out of this agreement.”

· This provision was inserted expressly to deal with the mutually contemplated possibility that one of the Joint Venture parties, while undertaking its role on behalf of the Joint Venture, might expose the Joint Venture to claims for breach. So far from the parties agreeing that liabilities thus created would be shared equally, they have expressly provided for indemnity by the “guilty” party. This provision has clear and definite work to do. When the overall scheme of the arrangements between Kvaerner and Egis, as discerned from the agreement into which they have entered, is laid out, it is easy to see that the intention of the parties was that liability for shortcomings in performance by one Joint Venture party under a Joint Venture Contract with a third party should be borne by the party responsible for the liability. Given that the parties recognised in their own agreement that there would be independent spheres of specialisation so that it would be appropriate to assign work to one rather than the other, and further that each covenanted with the other to perform its task with reasonable care and skill, this makes commercial good sense.

· On that basis, the reason for the existence of clauses (e), (f) and (g) of Article II becomes plain. The object of those clauses was to ensure that there would be no blurring of the boundaries of liability. Acts or omissions of an employee of each of the Joint Venture parties are to be attributed to the other party, as opposed to attributing such acts or omissions to the Joint Venture. The only exception is where a member of the Joint Venture staff strictly so called is guilty of a relevant act, neglect or omission, in which case such conduct is to be attributed to the Joint Venture proper. By maintaining a certain rigidity of separation whereby the defaults of employees or contractors of each Joint Venturer are attributed to that party, the intention clearly was that each party would maintain responsibility for the conduct of its own employees even when engaged in Joint Venture activity. The provisions enabling clear identification and attribution of responsibility for the conduct of each Joint Venturer’s employees are thus seen to be practical adjuncts to the provision for indemnity.

· The same position can be arrived at by a process of negative reasoning. If Article IX dealing with losses had been intended to cover liabilities arising from breaches of Joint Venture obligations, there would be no discernible need for the provisions calling for indemnity of one party by the other, nor for attribution of employees’ conduct to each separate party rather than to the Joint Venture collectively.

· Kvaerner as the indemnifying Joint Venture party must hold Egis harmless in respect of such liability caused by the employees of Kvaerner who were involved in the JHCE contract and who acted in breach of that contract or in breach of duty, so as to give rise to liabilities…

RIGHT TO SET OFF THE FEE CLAIM PAYMENT

§ Egis maintains that if its arguments on liability fail, there is a live issue as to the identification of the exact amount to which Egis might be obliged to contribute 50% (if that is the outcome).

§ It is true that the JHCE liability claim was settled for a nominal figure of $3.745 million. But it is also the case that the Joint Venture was able to set-off in its own right an amount of $1 million.

§ The net liability, in other words, to JHCE was the lower figure, i.e. $2.745 million.

§ The fee claim was the property of the Joint Venture, but by agreement between the Joint Venture members, any proceeds of the claim were to be for Kvaerner only. However, the Joint Venture was always entitled to diminish its liability to JHCE by the amount of $1 million, and it is to the net amount which Egis should now be required to contribute, if at all.

§ If Egis is obliged to pay 50% of $3.745 million, it will effectively be reimbursing Kvaerner’s insurer (UniStorebrand) for half of an amount which that insurer did not need to pay – namely the Joint Venture fee set-off. Kvaerner will have got its fee out of its own insurer, and Egis will be obliged to contribute half of that amount.

The submissions of Kvaerner

46 The approach taken by Kvaerner may conveniently next be set out and is taken directly from its preliminary submissions which include inter alia the following:

"The plaintiff’s Claim

· The plaintiff alleges that the payment of $3.745 million to JH ($2,245 million on 3 July 1997, $500,000 on 17 March 1998 and the $1,000,000 allocated to the Plaintiff for the Counterclaim) and the legal expenses of $1,960,806.93 which were incurred in defending this claim, constitute a liability or expense of the Joint Venture. The plaintiff contends therefore that the defendant is liable for half of this sum. Such liability arises under the general principles of contribution. This entitlement for contribution is reflected in article IX of the Agreement. So far as the letter argument is concerned all relevant profits and losses having been otherwise distributed and accounted for.

· The defendant concedes that the claim by JH constituted a liability of the Joint Venture but claims that such liability is limited to the net amount paid to JH (that is the $3.745 settlement sum less the $1,000,000 paid to the plaintiff for the Counterclaim) (paragraph 2(b) of the Amended Defence. The defendant denies that this liability is a loss contemplated by Article IX.

· The defendant further contends that the obligation to pay the settlement monies to JH arose from acts or omissions by the plaintiff’s staff and therefore by operation of, inter alia, articles II(e) and XX (d) of the Agreement the plaintiff must indemnify the defendant from any liability which the defendant would otherwise have to contribute to this expense.

· The plaintiff submits that the liability of the Joint Venture to JH is like any other trading expense and clearly comes within the meaning of article IX. Indeed, even in the absence of article IX the defendant would have been liable for half of this expense.

· The defendant’s claim that the expense to the Joint Venture should be the net payment made to JH (ie the difference between the claim and the counterclaim) would be correct if the defendant had not already assigned its interest in the counterclaim to the plaintiff by way of the Deed of 23 September 1996.

· The plaintiff does not accept the construction of article XX (d) alleged by the defendant. The plaintiff contends that this article means that if the act of entering into the Joint Venture Agreement creates a conflict of interest or breaches an existing contractual arrangement for either party then the party in breach or in conflict must indemnify the other party from any damages claim made by an affected person. The defendant’s construction is inconsistent with the operation of the remainder of the contract which envisages the Joint Venture operating as a singular commercial entity rather then the two parties continuing to operate separately (see in particular articles IV, V(b), X, XI(ii) and (iii)).

· In any event the defendant has not adduced any evidence which establishes:

(i) that the relevant employees were employees of the plaintiff as distinct from employees of the Joint Venture; and or

(ii) that the acts or omissions of these employees were in breach of any duty of care owed by the Plaintiff to the Defendant (or to JH) or that they caused the liability to JH.

The evidence

47 Is necessary to deal with certain parameters of the evidence only. This is because by and large the facts, matters and circumstances concerning the approach taken by the joint venturers to have their insurers present a common front to John Holland whilst endeavouring, pending the due determination in some fashion of the Victorian litigation, to reserve their rights inter se, are no longer in issue. Indeed many of these matters were not even in issue on the pleadings.

48 During final address both parties accepted that the only remaining live disputed factual issue for determination concerned the claim by Egis that the joint venture liability to John Holland was caused by the conduct of Kvaerner Oil, its staff, employees, agents or contractors.

49 The other issues which survived concerned questions of analysis and construction of documents and the like.

Chronology

50 A chronology was provided by counsel for Kvaerner Oil. The convenient course is to append this chronology to the judgment as Appendix “B” although in large measure the chronology does no more than to give the general landscape. It may not be accurate in every respect and was certainly not entirely complete. However it does serve to give some adjectival information as to relevant events and is a convenient source of reference to particular documents to be found in the agreed bundle which went into evidence as Exhibit DX.

Dealing with the proceedings

The construction issues

51 Clearly enough the proper construction of the joint venture agreement must take into account the whole of the document.

Articles XI and XX

52 In my view the parties intended Article XI and in particular [having special relevance to the issues here litigated], Article XI (a) (ii), to be the operative provision in terms of any question of liability of the joint venture partners inter se for any breach of their cross covenants to fully perform, and/or to perform with reasonable care and skill, promptly and diligently, any work carried out by either of them:

· for the benefit of or for the purposes of the joint venture;

· under any contract or agreement entered into by the joint venture with third parties;

· in any activities with which the joint venture may be connected.

53 A question arises as to whether upon its proper construction, Article XX (d) is seen to have been intended to provide an express indemnity for the benefit of the innocent joint venture partner, where the other partner breached one of the cross covenants provided for in Article XI (a) (ii). Mr Coles QC submitted on behalf of Egis that it was hardly likely that the parties would have intended to impose an additional covenant by way of an indemnity against conduct for which one of the joint venturers was already completely contractually liable by Article XX [which it may be noted is to be found some distance from Article XI and appears under the heading "General"]. This argument raises the proper construction of Article XX. It is appropriate to turn to that matter.

54 Article XX included the following:

(d) Each party shall indemnify and hold the other party harmless against claims, liabilities, damages, causes of action which is or are caused as a result of any conflict and/or breach of contract arising out of this agreement"

55 Kvaerner contends that this provision, properly construed, is essentially concerned with circumstances which may arise by reason of the parties having entered into the joint venture agreement, as for example:

· Where the act of entering into the joint venture agreement might create a conflict of interest

· Where the act of entering into the joint venture agreement or an activity by one of the joint venture partners might breach an existing contractual arrangement which that partner had entered into

· Where a joint venture partner, by performing an activity as part of the joint venture, may become unable to perform a contract which that joint venture partner had entered into with a third party

56 The submission is that where the parties, in entering into the joint venture agreement, were effectively reordering at least certain aspects of their respective businesses, it was plainly thought necessary to expressly provide for those types of category of liabilities which the parties were content to expressly provide for by way of reciprocal indemnification.

57 To my mind the cross contentions as to the proper construction of Article XX raise a real difficulty which is by no means simple of answer. Minds make clearly differ in relation to the matter.

58 There is of course authority that the words "arising out of this agreement" and similar phrases are capable of wide construction: IBM Australia Ltd v National Distribution Service Ltd (1991) 22 NSWLR 466 at 475 per Kirby P, at 483 per Clarke JA.

59 On the other hand it may be noteworthy that the Article does not read as follows:

"Each party shall indemnify and hold the other party harmless against claims, liabilities, damages, causes of action which is or are caused as a result of any conflict arising out of entry into this contract and/or any breaches of this contract "

60 Having given the matter careful consideration it does not seem to me that the submissions put by Kvaerner as to the proper construction of Article XX (d) are correct. The words "claims &c. caused as a result of any… breach of contract arising out of this agreement" are wide indeed and seem to me to include claims generated by the contract [cf Mir Brothers Developments Pty Ltd v Atlantic Constructions Pty Ltd (1984) 1 BCL 80 per Samuels JA at 83].

61 It seems to me that had the parties intended Article XX to be confined to the types of circumstance suggested in the Egis construction, it would have been necessary to be more precise in that regard. An attempt to follow the Egis approach to construction points up that there are obvious difficulties in one endeavouring to be precise in giving the Article any particular limited construction. This problem may be seen for example in positing the possibility that the article could mean that if and only if the act of entering into the joint venture agreement creates a conflict of interest or breaches an existing contractual arrangement for either party, then the party in breach or in a conflict situation must indemnify the other party from any damages claim made by an affected person. However it is clearly capable of including other categories which are innominate.

62 Ultimately for reasons given below this decision on construction does not, in any event, appear to determine the remaining live issues in these proceedings.

Article IX-the nature of the expense to the Joint Venture

63 In the event that article XI (a) (ii) is shown to be enlivened, it seems to me that its provisions, complemented by the indemnity provided for by Article XX (d), would clearly outflank Article IX. Whilst it may be that the liability of the joint venture to John Holland is, as a matter of the internal construction of Article IX, [unaided by adjectival information showing that the liability arose by reason of a breach of an Article XI (a) covenant], to be regarded as no different from any other trading expense, this is not the end of the matter.

64 Hence the necessity to move on to examine the all-important question of fact earlier identified.

The causation issue

65 The manner in which Egis sought to advance its submission that Kvaerner had caused the joint venture liability to John Holland was particularised in a document which became MFI D 3 and was in the following terms:

“EVIDENCE THAT KVAERNER CAUSED JV LIABILITY TO HOLLAND

1. Doug Robertson was at all times a Kvaerner employee

· McGovern affidavit para 16

· T 48 line 35

2. Doug Robertson was responsible for the "pre-bid" or "preliminary" design work supplied by the JV to Holland, at least in relation to structural steel

· MSJ's advice on prospects of 31 October 1996 equates negligence of the JV with negligence of Doug Robertson - Doc 66 page 282

· The report of the expert Prof Rainey refers to the JV preliminary design work that evidences the flawed assumption as a file named "Robertson Tender Input" - Doc 66 page 295

· Minutes of the meeting on 4 November 1996 refer to a "different in-house Kvaerner designer at pre-bid and final design stages" - Doc 67

· Robertson was a "very senior oil and gas man" - McGovern T 47 line 48

· McGovern accepted, at least, that it was possible that Doug Robertson was the "in-house Kvaerner designer at pre-bid stage" - T 51 line 29; T 64 line 41

· When pressed, McGovern's evidence in substance was that he assumed that Doug Robertson's design would have been checked by other engineers, not working specifically on the pre-bid work itself, as part of the QA policies of the JV - T 61 lines 8-35

· MSJ sought instructions from Doug Robertson as to the assumptions made by Prof. Rainey in his report - Doc 82 page 312; Doc 61 page 2

3. From 3 February 1994, all JV employees became Kvaerner employees

· Termination Agreement - Doc 20

· McGovern's memo of 7 March 1994 - Doc 14 page 212

· CMPS&F's memo to McGovern of 17 November 1994 - Exhibit D1 - from which McGovern did not dissent - T 70 line 43

4. The detail design work was produced after 3 February 1994

· Design Agreement with Holland was dated 4 February 1994 - Doc 15

· The particular breaches of the Design Agreement sued on by Holland so far as they relate to structural steel were based on drawings issued by JV from March 94 to October 1994 - see, for example, Schedule A1 to the ASoC, pages 6 to 7 and 8 to 17 and Appendix 1A (Doc 153)

5. Holland sued the JV for $13.666m damages for breach of the 4 February 1994 Design Agreement

· See ASoC page 5 (Doc 153)

6. The changed assumptions between the pre-bid design and detail design for structural steel was, according to the JV's legal advice received shortly prior to the settlement, the cause for over 50% of the JV's exposure to Holland

· MSJ's advice of May 1997 - Doc 102 and Exhibit D2

· Minutes of 4 November 1996 - Doc 67”

Dealing with the matter

66 One begins the analysis with the observation that at commencement, Egis requires to prove that Kvaerner by its servant or agent, conducted itself in some fashion which, by reason of want of reasonable care, skill diligence, is shown to have produced a breach of the joint venture agreement.

67 Further it would be necessary for Egis to prove that the work to which it points in this regard, was in fact work carried out by one or other of the joint venture partners for the joint venture, as opposed to being simply work carried out for the joint venture.

Pre-bid stage

68 The proposition that Mr Robertson was proven to be responsible for the "pre-bid" or "preliminary" design work supplied by the joint venture to Holland, at least in relation to structural steel:

· was not made good on the evidence;

· to the contrary was in fact negated by the evidence.

69 Mr McGovern is accepted as having given reliable evidence. His relevant background includes that he had worked in 1990 with R J Brown & Associates as its operation manager, having later become general manager of Kvaerner and of the joint venture. The conduct of the Victorian proceedings for both joint venture partners was initially controlled by himself as general manager of the joint venture in liaison with CMPS& F but was later referred to the joint venture management committee of which he was a member.

70 Mr McGovern was closely cross-examined in an attempt to gain his acquiescence to the proposition that Mr Robertson was, at the pre-bid stage, effectively the responsible engineer "calling the design shots". His evidence was that he did not agree with this proposition. [Transcript 61]

As he put it:

"[Mr Robertson] was certainly working on the structural steel design but in any engineering organisation, the work that he would have done would have been subject to approval by others. Everything that is designed is checked and then approved by different people from those that do the design as a matter of course. So I don't think you can ever point to one person being responsible for something because there's always more than one person involved in any piece of design work."
[Transcript 61.15-.22]

71 Again [Transcript 57.50] he would not accept that at the pre-bid stage, Mr Robertson [suggested by the cross examiner as having been the Kvaerner specialist in this area] made the decisions.

Final design stage

72 His evidence was that in terms of the final design stage, there would have been a structural engineering team of probably 15 or 20 people working on the project, so that there was not, at that stage, a designer per se. However there "might be a lead or there may even be two or three leads because there are different aspects of the steel design which…sit together". [At Transcript 52]

Want of reasonable care or skill

73 Nor do any of the other references given in MFI D 3 establish anything remotely to the effect that there was any want of reasonable care, skill or diligence, even assuming Kvaerner to have been responsible for the work of Mr Robertson, and even assuming that Kvaerner has been shown, which it has not, to have carried out the relevant work as a joint venturer and for the joint venture [as opposed to Mr Robertson's work simply being carried out for the joint venture]. Clearly these references did not establish want of reasonable care, skill or diligence on the balance of probabilities. Clearly enough to attempt to re-litigate the Victorian Proceedings as part of these present proceedings would amount to an enormous endeavour.

74 The particular problem which Egis faced in the approach which it took to seeking to prove that Kvaerner caused the joint venture liability to John Holland arises from the indirect manner in which it sought to advance its case in an evidentiary fashion. The Victorian proceedings were no doubt complex in the extreme and had they advanced to trial would, all other things being equal, clearly have included massive factual issues covering a plethora of areas. It is proper to infer that experts would have been called and cross-examined. Lay and expert evidence would no doubt, have been adduced by John Holland and presumably negated by lay and expert evidence adduced by the joint venture. To my mind Egis faced an exceptionally difficult prospect of seeking to prove its causation case in the present proceedings by collateral reference to sundry documents prepared many years ago and forming, no doubt, the tip of an iceberg, in terms of the materials produced during the pendency of the Victorian proceedings. Hence the report which went into evidence as Exhibit PX tab 66 page 282, by way of a preliminary view as to liability and quantum, which includes the sentence: "It is important to note that Professor Rainey has not found Doug Robertson to be negligent at the preliminary design stage". Although the report then continues to deal with there being cause for concern and various possibilities, these are matters of speculation and clearly cannot be given the weight for which Egis contends.

75 Questions of the correct payload to be used to calculate the weight of structural steel at the preliminary design stage and questions generally of suggested underestimation of matters such as the weight of structural steel, give rise to very many integers including assumptions made by the persons working at preliminary design and later stages. Why those assumptions were made, the precise terms of the contract/retainer, and any number of other possible explanations (including arguments which the joint venture may have been able to put up by way of, for example, suggested misinformation from John Holland), could very well have been and probably, one may infer, may have been ripe for litigation in the Victorian proceedings. One simply does not know and the scant materials relied upon by Egis in MFI D 3 are precisely that: scant and no more.

76 Indeed it is fair to observe that on analysis, the framework from which Egis appears to be working in suggesting that it has proved its causation case amounts to an assumption that because John Holland had commenced proceedings and complained about various matters, those complaints were justified.

77 I regard the case brought by Egis in relation to the causation issue as, if not totally hopeless in terms of the matters in respect of which it bore the onus of proof, certainly falling very far short of proving that case on the balance of probabilities.

78 Mr Gee QC leading counsel for Egis, also advanced a submission [paragraphs 3 et seq of MFI D 3] based upon the proposition that on and after 3 February 1994, [the termination agreement having been entered into on 2 February 1994], all the detailed design work produced, was produced by Kvaerner, albeit pursuant to the contractual obligations of the joint venture to John Holland. Kvaerner is, on this basis, said to be responsible for the breaches of the anterior contract for which the joint venture was sued. The submission is in my view specious. It relies upon the proposition that but for the design work production post 3 February 1994, John Holland would not have had any or a case. The proposition only has to be stated to be rejected. And even if the proposition held good, no attempt has been made by Egis to then separate out so much of the amount ultimately agreed to on acceptance of the offer of compromise, into the segment for which, by reference to post 3 February 1994 work, Kvaerner alone is said to be responsible. Nor could any such analysis, even if attempted, hope to succeed.

79 Nor can Egis obtain any real assistance from documents such as the Mallesons advice of May 1997 or the minutes referred to in paragraph 6 of MFI D3, in terms of the nature or type of proof which would be required in order for it to succeed on the causation question.

80 The Mallesons advice is no more than that. It should further be noted that the Mallesons advice which went into evidence as exhibit D2 and which was said to be the final version of the earlier draft advice [exhibit PX volume 3 tab 102] was dated 14 May 1997. That advice post dated the form of the amended statement of claim which went into evidence as exhibit PX volume 5 tab 153 dated 22 November 1996.

81 The Mallesons advice is significant in that it exposes, at least in relation to the John Holland claims A1 – A24, the view that each of those claims must fail as currently pleaded. The advice includes the following in that regard:

"If [John Holland's] case is a "cost guarantee" case, then we are of the strong view that neither the terms of the Pre-bid Agreement nor the Design Agreement support such a case. If [John Holland's] case is one of "negligent design", then its current pleading does not support it. However, for the purposes of assessing [the joint venture's] exposure and determining an appropriate settlement range for mediation, we assume that [John Holland] will eventually plead its case as a "negligent design for the purposes of pricing" case (which, in all the circumstances, would not be difficult to plead).”

82 In truth it may be fairly said that at least this section of the Mallesons advice does not give any support at all to the proposition that on the balance of probabilities, John Holland would succeed on the then pleadings. The court is unaware of what precise forms of amendment to the pleading may have been proposed in due course. On the basis of the form of pleading for consideration by Mallesons at the time of the advice, that pleading was obviously seen to be defective in the most significant of ways. This simply further points up the difficulties for the defendant in utilising the advice as carrying with it proof on the balance of probabilities, in terms of the causation issue.

83 The minutes use words such as ‘potential risk’, ‘investigations not complete’ and raise more questions than provide answers. [See also Mr McGovern’s evidence at Transcript 51 where he could not connect Mr Robertson to the reference to ‘in house Kavaerner designer’]

The Net Payment issue

Returning to the facts

84 Albeit that there has been some earlier treatment of the precise facts this is an area where a little more precision is necessary. None of the following matters were in issue but it is as well that there be no doubt about the facts:

· The minutes of a joint venture management committee meeting of 13 May 1996 noted an agreement:

"that [Kvaerner Oil] would take on complete financial responsibility for the Fee Claim on the basis that any settlement in the JV's favour would-be 100 percent to [Kvaerner's] account. In return, all costs incurred by CMPS&F in the Fee Claims since action commenced in August 1995 (including legal fees, JV labour and all expenses) would be credited to CMPS&F's account to offset that financial obligations to the JV )” [Exhibit PX Vol 1/ TAB 37]
[The same minutes included a provision that Kvaerner Oil would draw up a draft contract or document to reflect the agreement and would forward it for review and execution to CMPS&F. The initial Deed subsequently signed is annexure “A” to Mr McGovern’s Affidavit of 3 February 2003]

· Ultimately and it appears in about August 1997, a further deed was entered into between the parties which was in the following terms:

“A. By proceedings commenced in the Supreme Court of Victoria on 7 August 1995 (proceeding no. 6844 of 1995), John Holland Construction & Engineering Pty Limited (“Holland”) claims damages against R J Brown and CMPS&F (“Proceeding”).
B. R J Brown and CMPS&F have counterclaimed in proceeding no. 6844 of 1995 (“Counterclaim”).
C. Holland, R J Brown and CMPS&F have agreed to settle the Proceeding for a payment to Holland of $3.745 million (“the Settlement Sum”).
D. Storebrand Skadeforsikring A.S. has paid to Mallesons Stephen Jaques (“Mallesons”) the Settlement Sum.
E. Holland has been paid $2.245 million of the Settlement Sum. Mallesons retains the balance of the Settlement Sum (namely, $1.5 million) in its trust account (“$1.5 million Held in Trust”).
F. R J Brown and CMPS&F have previously agreed by a Deed dated 23 September 1996 that the Counterclaim is for the sole benefit of R J Brown and that R J Brown will pay all the costs associated with pursuing the Counterclaim.
G. R J Brown asserts that the Counterclaim has been compromised for an agreed payment by Holland of $1.2 million plus costs (which costs R J Brown have assessed at $300,000).
H. R J Brown wishes to retain from the Settlement Sum by way of set-off the amount of $1.5 million referred to in Recital G by instructing Mallesons to transfer to the bank account of R J Brown the $1.5 million Held in Trust.
Operative provisions:
1. In consideration of the indemnity referred to in paragraph 2 hereof, CMPS&F does not object to Mallesons transferring to R J Brown the $1.5 million Held in Trust for the use of R J Brown in its sole and absolute discretion.
2. R J Brown agrees to indemnify and keep indemnified CMPS&F for all damages, costs, losses and expenses arising out of R J Brown setting-off against the Settlement Sum the $1.5 million which R J Brown says it is entitled to pursuant to the compromise of the Counterclaim.
3. R J Brown undertakes that it shall use its best endeavours to prevent a judgment for $1.5 million (or any other similar amount) against CMPS&F in the Proceeding. If such judgment is obtained in favour of Holland in the Proceeding, and execution of that judgment has not been stayed by order of the Court, R J Brown undertakes that it shall within seven days pay the amount of the judgment to Holland.”

· The Amended Defence filed on behalf of both joint venturers and dated 6 February 1997 squarely pleaded that:

"if (which is denied) Holland is entitled to any damages from RJ Brown in respect of any loss and/or damage suffered by Holland as is alleged, RJ Brown are entitled to set off against such damages, the damages which RJ Brown are entitled to recover from Holland pursuant to the Counterclaim filed in the proceeding. " [Exhibit PX tab 154]

· It seems clear that on or about 28 May 1997 an offer of compromise was received from John Holland [exhibit PX Vol 3 tab 117]. The offer was "to accept from the defendants the sum of $3,745,000 inclusive of the plaintiffs party/party costs of the proceeding in compromise of the plaintiffs claims against the defendants contained in the proceeding". The offer was made without prejudice save as to the question of costs.

· The offer of compromise was accepted by Mallesons by letter dated 3 June 1997 [exhibit PX volume 3 tab 122]. The letter accepting the offer added, "our clients continue their existing reservation of all rights in relation to or connected with the counterclaim… "

· Following this acceptance of the offer of compromise, Kvaerner paid $2.245 million to John Holland and withheld the balance of $1.5 million. At this time Kvaerner maintained that the counterclaim had been compromised by the parties by way of an agreement that there be paid to it the sum of $1.2 million plus costs. John Holland denied that there had been a compromise of the counterclaim. Kvaerner had proposed a timetable for determination of that question. However by summons dated 27 June 1997 John Holland sought an order for judgment on its claim against each of the defendants in the sum of $3,745,000. John Holland had then indicated that it would make an application to amend the summons and to reduce the judgment sum which it sought, to the amount of $1.5 million, having received the $2.245 million.

· John Holland failed in its application to have judgment entered against the joint venture defendants for $1.5 million, the Court holding that until the defendants counterclaim had been heard and determined, they were entitled to raise that counterclaim by way of defence or set off to John Holland's claim for moneys pursuant to the compromise [exhibit PX volume 3 TAB 143].

· Ultimately following a settlement of the dispute concerning the counterclaim, the further $500,000 was paid to John Holland.

The submissions of Egis

85 These have already been set out to a substantial extent and were included in the overview submissions received from Egis.

86 Additional submissions made during final address were shortly that the assignee of the benefit of the counterclaim ultimately determined to "put [the counterclaim] to diminish the joint liability that otherwise would have occurred." [Transcript 166]

Deciding the issue

87 My view is that the submissions from Kvaerner are of substance and are correct. They are generally adopted below. Importantly in the field of contribution "it has never been doubted that the right of contribution depends upon matters of substance, not form": Burke v LFOT Pty Ltd (2002) 187 ALR 612 at 623 per McHugh J in turn citing Dering v Earl of Winchelsea (1787) 29 ER 1184 and 1185 per Lord Chief Baron Eyre.

88 The following analysis is in my view correct:

· the original agreement back in May 1996 was for valuable consideration which was paid and was to the effect that Kvaerner would take on complete financial responsibility for the fee claim on the basis that any settlement of the fee claim in favour of the joint venture would be to the account of Kvaerner. The valuable consideration was the payment of costs incurred up to that date by Egis in effect being reimbursed to it

· The original agreement was at the time it was reached, effective and binding albeit that the parties had clearly determined to record that agreement in more formal terms.

· The later formalisation of the agreement did not alter what had originally been agreed. Egis did not advance any submissions centred on the “management fee”

· The result of the agreement was the familiar result of an agreement for valuable consideration to assign in effect a present chose in action to become a future sum of money. In short, from at least the moment of the payment of consideration, Kvaerner, in effect, became the owner in equity of the debt the subject of the counterclaim: [cf Meagher Gummow and Lehane, 4th ed., by Meagher, Heydon and Leeming, page 225:

"A purported assignment for value of legal property which fails at law or a contract, for value to assign legal property, effects an equitable assignment when the consideration is paid or executed; this is a case where equity regards as done that which ought to be done"

citing inter alia Tailby v Official Receiver (1888) 13 App.Cas 523. Hence the assignment is effective to vest the beneficial ownership of the assigned chose in action in the assignee immediately upon the consideration being paid from which moment, in equity, the fee claim from John Holland belonged to Kvaerner.

· On settlement of John Holland's claim, the joint venture partners agreed and became liable jointly and severally to pay the agreed sum of $3.745 million. Each was liable so that if either failed or refused to pay, the other could be made to pay the whole. At that time the amount actually paid was $2.45 million and later the additional $500,000 was paid to make up $2.74 $5 million, with $1 million going to Kvaerner.

· In reality what was paid by the joint venture to John Holland was the whole of the settlement sum of $3.745 million. John Holland received the whole of the settlement sum of $3.745 million. Egis paid nothing and Kvaerner paid the whole amount in full and it is said to be in respect of that payment, that the entitlement to contribution is enlivened.

· There was no set-off which operated to induce the liability of the joint venture to John Holland. The mere fact that during the pendency of the Victorian proceedings, the joint venture had on foot a pleading of set-off says nothing in respect of the issue which now falls to be considered. The point is that at the time the joint venture was agreed to pay jointly and severally $3.745 million to John Holland, there was no agreement at all about the counterclaim. Although there had been discussion about that, there had been no final settlement of that claim. In short the John Holland claim was settled discretely and apart from the counterclaim and it was not and was not intended to be, a settlement which achieved a wash-up of all the matters in issue between the parties.

· No set-off operated as between the joint venture and John Holland once the liability of the joint venture to John Holland had been fixed at $3.745 million for the reason that there was nothing that the joint venture then had to set off. The joint venture was not an equity. The joint venture in itself did not in equity own the value of the counterclaim that at law it still maintained against John Holland. The joint venture was not owed any money. Any moneys which came by reason of the counterclaim belonged and went directly to Kvaerner as the beneficial owner. There simply has not been other than a situation whereby the whole of the $3.745 million was in substance to be regarded as having been paid as a joint venture liability to John Holland [albeit satisfied in the practical sense in the manner described above].

· Recital F to the August 1997 deed recorded that the joint venture partners had previously agreed by deed that the counterclaim was for the sole benefit of Kvaerner and that Kvaerner would pay all the costs associated with pursuing the counterclaim. This enlivened the covenant by Kvaerner to indemnify and keep indemnified Egis from all damages, costs, losses and expenses arising out of Egis setting off against the settlement sum the $1.5 million which "[Kvaerner Oil] says it is entitled to pursuant to the compromise of the counterclaim". Likewise Kvaerner undertook to use its best endeavours to prevent a judgment for $1.5 million (or any other similar amount) against Egis in the proceedings. In the result the instrument in recording, as was the fact, that the set-off was done not by the joint venture in respect of its liability, but by Kvaerner in achieving (or in the mechanism for achieving), payment of the settlement sum to John Holland.

· Egis misconceives the position in submitting that what really happened comprised a set-off as between the joint venture of an entitlement which the joint venture did not in equity any longer own or have, as against its liability under the settlement of the John Holland claim. The manner in which the transaction was documented and recorded involved clearly Kvaerner, which was in effect achieving the set off as a mechanism for achieving payment in full to the John Holland company. The precise legal effect of the settlement was that John Holland received payment in full of its claim and in turn paid the joint venture $1 million in full and final settlement of the counterclaim, this $1 million being, as between the joint venturers, solely and exclusively the beneficial property of Kvaerner.

89 Once Kvaerner became the owner in equity of the debt the subject of the counterclaim and in the particular circumstances of the timing when, and manner in which, the primary claim was settled as between the joint venture partners and John Holland, there not yet having been a final settlement of the counterclaim, there simply was no set off which operated as between the joint venture and John Holland, at the very least for the reason that there was nothing that the joint venture then had which could be set off. The joint venture did not in equity own the value of the counterclaim and it was not owed any money in this regard. Likewise the form in which the joint venture partners documented their agreement with respect to the counterclaim involved, at least by the August 1997 deed, the acceptance by Egis that Mallesons might transfer to Kvaerner the $1.5 million held in trust "for the use of Kvaerner Oil in its sole and absolute discretion".

Kvaerner's claim in respect of legal fees incurred in the defence of the Victorian proceedings

90 It is common ground that the contention by Egis that it is not liable to contribute towards 50% of these fees stands or falls with the success or failure by Egis of its submissions with respect to the causation issue. Having failed in that regard it is not necessary to further examine Kvaerner's entitlement to contribution in respect of these legal fees.

Alleged overpayment by Storebrand - $1 million

91 Mr Gee further submitted that Storebrand is shown to have paid out $3.745 million and that Kvaerner appropriated $1 million from the moneys "to make its own claim for the fees good". [Transcript 35.35] The further submission was that "given that the net liability of the joint venture was $2.745 million, the… insurer actually paid $1 million to Kvaerner for an uninsurable element… Kvaerner [obtained] the million dollars [from] its own insurer for something that wasn't covered by the policy …"

92 This is a matter which I do not understand to have been pleaded. It is for that reason likely not a matter which is open for determination. However regarding the question as one of substance, it seems clear that the $1 million was paid for from the assets of John Holland.

93 The issues in the proceedings as between Kvaerner, Egis and John Holland are resolved by the agreements and documents earlier set out or described in this judgment. It does not lie in the mouth of Egis to contend that in some fashion Kvaerner lost its entitlement to the moneys which Egis accepted constituted Kvaerner's entitlement pursuant to the compromise of the counterclaim-see for example clause 1 of the August 1997 deed which squarely recognised this entitlement albeit at a time before final clarification of the amount in question.

Interest

94 Certain submissions were advanced with respect to interest. The position of Egis was enunciated insofar as Egis should succeed on the claimed set-off.

95 It seems to me that the parties should be given a further opportunity to address any live issues as to interest and to do so now informed by the above holdings.

General Principles of Contribution

96 It is appropriate to note that outside the particular issues litigated no party sought to gainsay the operation of the general principles of contribution: [cf Albion Insurance Co. Ltd v Government Insurance Office (NSW) (1969) 121 CLR 342 per Kitto J at 351-352; Burke v LFOT Pty Ltd (2002) 187 ALR 612 per Gaudron and Hayne JJ, [at 14 et seq]]

Short minutes of order

97 The parties are to bring in short minutes of order on which occasion any further submissions as to interest may be addressed.

I certify that paragraphs 1 - 97
are a true copy of the reasons
for judgment herein of
the Hon. Justice Einstein
given on 12 February 2003

___________________
Susan Piggott
Associate

12 February 2003

Last Modified: 02/21/2003