Limit (No 3) Ltd v Ace Insurance Ltd - [2009] NSWSC 514

No judgment structure available for this case.

CITATION: Limit (No 3) Limited v ACE Insurance Limited [2009] NSWSC 514
This decision has been amended. Please see the end of the judgment for a list of the amendments.

HEARING DATE(S): 9 February - 12 March, 19 & 20 March 2009

JUDGMENT DATE :
4 June 2009

JURISDICTION: Equity Division
Commercial List

JUDGMENT OF: Rein J at 1

DECISION: See [308].

CATCHWORDS: INSURANCE – third-party liability insurance – other third-party liability insurance – excess insurer with Difference in Conditions clause claiming recoupment or contribution from underlying insurer which refused to indemnify insured – property damage to third parties caused by removal or weakening of ground support as a result of tunnelling and excavation work in Singapore – whether causes due to construction defects or arose out of the rendering of or failure to render professional services – whether or not insured was liable to third parties in accordance with the law of Singapore – whether judgment, arbitral award or formal settlement is required for insurer to be liable to indemnify the insured – whether or not the damage occurred within the period of the underlying policy – admissibility of extrinsic material under the law of Singapore in construction of contracts - proper construction of underlying insurance policy with special endorsement and professional services exclusion – whether or not professional services exclusion clause limited to insured’s liability to clients for whom it provided a professional service – operation of the Wayne Tank rule where damage arises by reason of two or more causes – whether or not damage arose out of more than one ‘occurrence’ as defined in the insurance policies – construction of Difference in Conditions clause of excess insurer’s policy – whether reasonable precautions clause in the excess policy was breached – requirements of reasonable precautions clause considered – whether excess insurer entitled to contribution or recoupment from underlying insurer – consideration of requirements for contribution and recoupment and whether met – whether approach to contribution in insurance law relevant to claim for recoupment

LEGISLATION CITED: NEW SOUTH WALES LEGISLATION
Conveyancing Act 1919
Evidence Act 1995
SINGAPORE LEGISLATION
Electricity Act (Cap. 89A)
Public Utilities Act (Cap. 261)
Evidence Act (Cap. 97, 1997 Rev Ed)

CATEGORY: Principal judgment

CASES CITED: UNITED KINGDOM CASES
Acton v Blundell (1843) 12 M. & W. 324; 152 ER 1223
Bank of Credit and Commerce International SA v Ali [2002] 1 AC 251
Becton Dickinson UK Ltd v Zwebner [1989] QB 208
Brook’s Wharf and Bull Wharf Ltd v Goodman Bros [1937] 1 KB 534
Craythorne v Swinburne (1807) 14 Ves Jun 160
Dalton v Angus (1881) 6 App Cas 740
Dawson’s Field Arbitration (March 1972)
Dering v Earl of Winchelsea (1787) 1 Cox 318; 29 ER 1184
Devco Holder Ltd and Burrows & Paine Ltd v Legal and General Assurance Society Ltd [1993] 2 Lloyd’s Rep 567
Duncan Fox & Co v North and South Wales Bank (1880-81) 6 App Cas 1
England v Marsden (1866) LR 1 CP 529
Esso Petroleum Co Ltd v Hall Russell & Co Ltd (The Esso Bernicia) [1989] AC 643
Exall v Partridge (1799) 101 ER 1405
Fraser v B N Furman (Production) Ltd (1967) 3 All ER 57
Gold v Patman [1958] 2 All ER 497
Investors Compensation Scheme Limited v West Bromwich Society [1998] 1 WLR 896
Kennaway v Thompson [1981] QB 88
Kuwait Airways Corporation v Kuwait Insurance Co SAK [1996] 1 Lloyd’s Rep 664
Langbrook Properties Ltd v Surrey County Council [1969] 3 All ER 1424
Moule v Garrett (1872) LR 7 Ex 101
Netherlands Insurance Co Est 1845 Ltd v Karl Ljungberg & Co AB, The Mammoth Pine [1986] 3 All ER 767
Owen v Tate [1975] 2 All ER 129
Re Gasbourne Pty Ltd [1984] VR 801
Ruabon Steamship Co Ltd v London Assurance [1900] AC 6
Scholefield Goodman & Sons Ltd v Zyngier [1986] AC 562
Scott v Copenhagen Reinsurance Co (UK) Ltd [2003] 2 All ER (Comm) 190
Selous Street Properties Ltd v Oronel Fabrics Pty Ltd [1984] 1 EGLR 50; (1984) 270 E.G. 643
Stephens v Anglian Water Authority [1987] 1 WLR 1381
Wayne Tank & Pump Co Ltd v Employers Liability Assurance Corp Ltd [1974] 1 QB 57
SINGAPORE CASES
Afro Asia Shipping Co. Pte Ltd v Da Zhong Investment Pte Ltd [2004] 2 SLR 117
OTF Aquarium v Lian Shing Construction Co Pte Ltd (Liberty Insurance Pte Ltd, Third Party) [2007] SGHC 122
Loh Siew Keng v Seng Huat Construction Pte Ltd [1998] SCHC 197
Tesa Tape Asia Pacific Pte Ltd v Wing Seng Logistics Pte Ltd [2006] SGHC 73
Wong Jin Fah v L&M Prestressing Pte Ltd & Ors [2001] 4 SLR 529
Xpress Print Pte Ltd v Monocrafts Pte Ltd [2000] 3 SLR 545
Zurich Insurance (Singapore) Pte Ltd v B-Gold Interior Design & Construction Pte Ltd [2008] SGCA 27
AUSTRALIAN CASES
Albion Insurance Co Ltd v Government Insurance Office (NSW) (1969) 121 CLR 342
Albion Insurance Company Ltd v Body Corporate Strata Plan No 4303 [1983] 2 VR 339
Allstate Exploration NL v QBE Insurance (Australia) Ltd [2008] VSCA 148
AMP Workers Compensation Services (NSW) Ltd v QBE Insurance Ltd [2001] NSWCA 267; (2001) 53 NSWLR 35
Australian Eagle Insurance Co Ltd v Mutual Acceptance (Insurance) Pty Ltd [1983] 3 NSWLR 59
Baulderstone Hornibrook Engineering Pty Ltd v Gordian Runoff Limited [2008] NSWCA 243
Beresford v Royal Insurance Co Ltd [1938] AC 586
Bowling v Wienert [1978] 2 NSWLR 287
Burke v LFOT Pty Ltd [2002] HCA 17
CGU Insurance Ltd v Lawless [2008] VSCA 38
Clayton v Mutual Community General Insurance Pty Ltd (1995) 64 SASR 353
Cockburn v GIO Finance Ltd (No 2) [2001] NSWCA 177
Commercial and General Insurance Co Ltd v Government Insurance Office (NSW) (1973) 129 CLR 374
Distillers Co Bio-Chemicals (Aust) Pty Ltd v Ajax Insurance Co Ltd (1970) 130 CLR 1
Drayton v Martin (1996) 67 FCR 1
Edwards v Insurance Office of Australia Ltd (1933) 34 SR (NSW) 88
Fire & All Risks Insurance Co Ltd v Powell [1966] VR 513
Fitzpatrick v Job t/as Jobs Engineering [2007] WASCA 63
GIO General Ltd v Newcastle City Council (1996) 38 NSWLR 558
Glebe Island Terminal Pty Ltd v Continental Seagram Pty Ltd (The Antwerpen) (1993) 40 NSWLR 206
Government Insurance Office (NSW) v Crowley [1975] 2 NSWLR 78
Government Insurance Office (NSW) v RJ Green & Lloyd Pty Ltd (1966) 114 CLR 437
GRE Insurance Ltd v QBE Insurance Ltd [1985] VR 83
Israel v Foreshore Properties Ltd (in liq) (1980) 54 ALJR 421
Karacominakis v Big Country Developments Pty Ltd [2000] NSWCA 313
Kodak (Australasia) Pty Ltd v Retail Traders Mutual Indemnity Insurance Association (1942) 42 SR (NSW) 231; 59 WN 197
Legal and General Insurance Australia Ltd v Eather (1986) 6 NSWLR 390
Lucas v CMT Construction & Metropolitan Tunnels (1986) 4 ANZ Ins Cas 60-752
Lumley General Insurance Ltd v Oceanfast Marine Pty Ltd [2001] NSWCA 479
Lumley General Insurance Ltd v QBE Insurance (Australia) Ltd [2008] VSC 216
McColl’s Wholesale Pty Ltd v State Bank of NSW [1984] 3 NSWLR 365
Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451
Penrith City Council v Government Insurance Office (1991) 24 NSWLR 564
Peterson v Union de Assurance Ltd Paris IARD [1985] ANZ Ins Cas 61-24
Provincial Insurance Aust Pty Ltd v Consolidated Wood Products (1991) 25 NSWLR 541
State Bank of Victoria v Parry (1990) 2 ACSR 15
Street & Halls v Retravision (NSW) Pty Ltd (1995) 56 FCR 588
Suncorp Metway Insurance Ltd v Landridge Pty Ltd [2005] VSCA 223
Sydney Turf Club v Crowley (1972) 126 CLR 420
Sydney Turf Club v Crowley [1971] 1 NSWLR 724
Transfield Services (Australia) v Hall [2008] NSWCA 294
VACC Insurance Ltd v BP Australia Ltd [1999] NSWCA 427
Verna Trading Pty Limited v New India Assurance Limited [1991] 1 VR 129
Vero Insurance Ltd v Power Technologies Pty Ltd [2007] NSWCA 226
Wilkie v Gordian Runoff Ltd (2005) 221 CLR 522
Workcover Queensland v Suncorp Metway Insurance Ltd [2005] QCA 155
Xuereb v Viola (1989) 18 NSWLR 453
CANADIAN CASES
Chemetics International Ltd v Commercial Union Assurance Company of Canada (1984) 11 DLR (4th) 754
UNITED STATES CASES
Aetna Casualty and Surety Co v Freyer 411 NE 2d 1157 (1980)
Hanover Insurance Group v Cameron 298 A 2d 715 (1973)
SR International Business Insurance Co Ltd v World Trade Centre Properties LLC F Supp 2d 2002

TEXTS CITED: Clerk & Lindsell on Torts, 19th ed (2006) Sweet & Maxwell
J G Fleming, The Law of Torts, 9th ed (1998) LBC Information Services
Goff & Jones, The Law of Restitution, 1st ed (1966) Sweet & Maxwell
Goff & Jones, The Law of Restitution, 6th ed (2002) Sweet & Maxwell
Mason & Carter, Restitution Law in Australia, (1995) Butterworths
Meagher, Gummow and Lehane, Equity: Doctrines and Remedies, 4th ed (1992) Butterworths
O’Donovan and Phillips, The Modern Contract of Guarantee, 3rd ed (1996) LBC Information Services
G McMeel, ‘Prior Negotiations and Subsequent Conduct – the Next Step Forward for Contractual Interpretation?’ (2003) 119 LQR 272
D Nicholls, ‘My Kingdom for a Horse: The Meaning of Words’ (2005) 121 LQR 577

PARTIES: Limit (No 3) Limited (First plaintiff)
Oak Dedicated Limited (Second plaintiff)
The Underwriter Insurance Company Limited (Third plaintiff)
GE Frankona Reinsurance Limited (Fourth plaintiff)
ACE Insurance Limited (Defendant)

FILE NUMBER(S): SC 50191/05

COUNSEL: Mr S Donaldson SC, Mr J Neal (Plaintiffs)
Mr J Simpkins SC, Mr T W Marskell (Defendant)

SOLICITORS: Deacons (Plaintiffs)
Wotton & Kearney (Defendant)

SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
COMMERCIAL LIST

Rein J

Date of Hearing: 9 February – 12 March, 19 & 20 March 2009
Date of Judgment: 4 June 2009

50191/05 Limit (No 3) Limited & 3 ors v ACE Insurance Limited

JUDGMENT

The Issues [9]

The ACE policy [9(1)]

The Lloyds policy [9(13)]

Further Issues [9(23)]

The Properties and Infrastructure Damaged [10]

The JV Contract with PowerGrid [11]

The ACE policy [19]

The Lloyds policy [20]

The Project Background [21]

Dr Redman’s Approach [38]

Woodlands shaft [38(1)]

The Gambas shaft [38(11)]

The TBM/G4 problem [38(12)]

The TBM/dyke problem [38(15)]

Dr Pells’ Approach [39]

Credibility of Witnesses [50]

Mr Embery [50]

Other Witnesses [53]

Dr Pells [54]

Mr Cooper [58]

ISSUE 1: What was the cause of the damage to the property of third party property owners (including PowerGrid)? [60]

The Woodlands and Gambas shafts [64]

The TBM/G4 problem [93]

The TBM/dyke problem [94]

ISSUE 2: Did the cause (or causes) of damage give rise to a liability in the JV to the third party property owners? [103]

ISSUE 3: Has the JV incurred a ‘legal liability’ within the meaning of the insuring clause? [114]

ISSUE 4: Was the damage sustained within the ACE policy period? [129]

ISSUE 5: What is the effect of GC 14 in the ACE policy? [137]

ISSUE 6: Was there removal or weakening of support? [165]

ISSUE 7: Was there any negligent act by the JV? [166]

ISSUE 8: What is the effect of the Professional Services Exclusion in the ACE policy? [167]

ISSUE 9: If the PSE and GC 14 applies, is ACE’s liability to indemnify excluded by the PSE in ACE policy? [190]

ISSUE 10: Does the rule in Wayne Tank operate to exclude any liability of the JV where the cause was the result of both professional and non-professional services? [191]

ISSUE 11: Was the TBM/G4 problem an intentional act? [194]

ISSUE 12: How many ‘occurrences’ were there? [195]

ISSUE 13: Cause of damage under Lloyds policy. [200]

ISSUE 14: Has the JV incurred a ‘legal liability’ within the meaning of the insuring clause of Lloyds policy? [201]

ISSUE 15: Was the JV ‘unable to obtain an admission of liability’ from ACE? [202]

ISSUE 16: If so, was Lloyds liable to indemnify the JV under Section 1? [206]

ISSUE 17: If so, was that liability excluded under Section 1 by the professional indemnity exception in clause 5.11 or the reasonable precautions condition in condition 7.3? [216]

Clause 5.11 [216]

Reasonable Precautions [217]

ISSUE 18: Does the rule in Wayne Tank operate to exclude any liability of the JV where the cause was the result of both professional and non-professional services? [252]

ISSUE 19: Did sub-clause 1.17(b) of the Lloyds policy operate so that cover afforded under the Lloyds policy was the same as that provided under the ACE policy? If so, what was the extent of this cover having regard to proper construction of the PSE and GC 14 of the ACE policy? [253]

ISSUE 20: Was Lloyds liable to indemnify the JV by reason of the ‘drop down cover’ provision in sub-clause 1.17(c) even if an exclusion in the Lloyds policy otherwise applied? [254]

ISSUE 21: How many ‘occurrences’ were there for purposes of Lloyds policy? [255]

ISSUE 22: If not liable under Section 1, were Lloyds liable under Section 2? [256]

ISSUE 23: Recoupment, indemnity or contribution? [272]

ISSUE 24: Quantum [317]

Conclusion [321]

1 REIN J: The defendant, ACE Insurance Limited (“ACE”), issued an insurance policy to a joint venture consisting of Obayashi Corporation (“Obayashi”) and McConnell Dowell South East Asia Pte Limited (“McConnell Dowell”). “The JV”, as I shall refer to it, was engaged by PowerGrid Singapore Limited (“PowerGrid”) in August 2001 to design and construct two power transmission cable tunnels from the Senoko Power Station to Gambas Avenue in Singapore along Woodlands Avenue 8 (“Woodlands Avenue”).

2 The works involved, inter alia, the creation of shafts with diaphragm walls and extensive tunnelling. As a result of this work damage was caused to the property of third parties, including that of PowerGrid whose power cables already ran underneath the area next to Woodlands Avenue.

3 PowerGrid and the JV received claims from third parties and PowerGrid and the third parties sought indemnity from the JV.

4 The JV sought indemnity from ACE, and when ACE did not agree to meet the claim, from Limit (No 3) Limited (“Limit”), a Lloyds syndicate, and other Lloyds insurers (to whom I shall refer collectively as “Lloyds”) for which Limit acted as lead underwriter.

5 ACE did not indemnify the JV and Lloyds indemnified the JV. Lloyds now seeks “recoupment indemnity or contribution” from ACE on the basis that payments to the JV totalling S$13 million “operated to relieve ACE of its liability to the JV.”

6 ACE denies that it was liable to indemnify the JV and hence denies any liability to Lloyds. ACE also denies that Lloyds had any liability to indemnify the JV.

7 We are concerned here with three Lloyds policies. One for 2001 (“the 2001 policy”), one for 2002 (“the 2002 policy”) and one for 2003 (“the 2003 policy”). Nothing turns on any differences between the policies and I shall use the 2001 policy as the source of relevant clauses.

8 I received extensive and helpful submissions from counsel for both parties, the last of which submissions was received by email on 9 April 2009.

The Issues

9 The issues which arise in relation to all these policies are:

(1) What was the cause of the damage to the property of third party property owners (including PowerGrid)?

(2) Did the cause (or causes) of damage identified in answer to [0] give rise to a liability in the JV to the third party property owners (including PowerGrid)? This question, it is agreed, is to be determined in accordance with the law of Singapore.

(3) Have Lloyds established that the JV incurred the requisite “legal liability” within the meaning of the insuring clause, i.e. was a judgment, arbitral award or settlement required?

(4) Was the damage to property giving rise to the liability arising from the cause referred to in [0] above, sustained within the ACE policy period? If not, does the ACE policy provide cover in respect of any legal liability of the JV as a result of this damage? This issue relates only to part of the damage to property the subject of the claim.

GC 14

the PSE

(6) Did any liability of the JV arise out of loss of or damage to property caused by the removal or weakening of support so as to attract cover under sub-clause (iv)(b) of GC 14 of the ACE policy?

(7) Did any liability of the JV arise out of a negligent act of the insured, its servants or agents so as to attract cover under sub-clause (iv)(c) of GC 14 of the ACE policy?

(8) Did any liability of the JV in respect of any, and if so which, of the causes of damage referred to in the answer to [0] arise

within the meaning of the PSE (exclusion 5) of the ACE policy?

(9) If so, and if any liability of the JV falls within the scope of GC 14, is ACE’s liability to indemnify the JV excluded by the PSE of the ACE policy?

Wayne Tank

(11) As a matter of construction, is any liability of the JV in respect of the TBM/G4 problem covered by the ACE policy if this was an intentional act by the JV for which indemnity was claimed?

(12) How many ‘occurrences’ were there and hence what limit and deductible, if any, apply if ACE is otherwise liable?

(13) The same issue of causation arises as under the ACE policy set out in [0] above.

(14) Have Lloyds established that the JV incurred the requisite “legal liability” within the meaning of the insuring clause, i.e. was a judgment, arbitral award or settlement required?

(15) Was the JV unable to “obtain an admission of liability from ACE” within the meaning of clause 1.17 in Section 4 of the Lloyds policy?

(16) If so, were Lloyds liable to indemnify the JV for any legal liability of the JV under Section 1 of the Lloyds policy?

(17) If so, was any legal liability of the JV excluded from indemnity under Section 1 of the Lloyds policy by reason of:

(a) clause 5.11 (the professional services exclusion)?

Wayne Tank

(19) Did sub-clause 1.17(b) of the Lloyds policy operate so that cover afforded under the Lloyds policy was the same as that provided under the ACE policy? If so, what was the extent of this cover having regard to proper construction of the PSE and GC 14 of the ACE policy?

(20) Was Lloyds liable to indemnify the JV by reason of the ‘drop down cover’ provision in sub-clause 1.17(c) even if an exclusion in the Lloyds policy otherwise applied?

‘

(22) If not liable under Section 1, were Lloyds obliged to provide indemnity to the JV under Section 2 of the Lloyds policy?

(23) Assuming that both the ACE policy and Section 1 of the Lloyds policies require indemnity of the JV, does the payment by Lloyds of the amount of $13 million to the JV entitle it to recover from ACE and, if so, in what amount either by way of recoupment, indemnity or contribution?

(24) The issue of quantum has been further complicated by several matters to which I shall later refer.

The Properties and Infrastructure Damaged

10 Woodlands Avenue had underneath it (or almost so) electrical cables owned by PowerGrid, a sewage pipe owned by the Singapore Public Utilities Board (“PUB”) and a high-pressure gas pipeline owned by PowerGas Limited (“PowerGas”). Adjacent to the shaft and tunnels created by the JV are located a number of properties, the buildings and infrastructure (such as concrete aprons) of which the owners have claimed have suffered damage. Although originally the fact that the buildings and infrastructure had been damaged was not admitted, that is no longer an issue in the proceedings. It is clear that the damage arose as a result of the works and any faint argument to the contrary was not maintained.

11 The JV entered into a contract with PowerGrid on 17 April 2001 (“the PowerGrid contract”). The PowerGrid contract can be described as a Design and Construct Contract. The purpose and scope of the project is described in the General Specification as:

“(1) PowerSenoko Ltd is repowering the Senoko Power Station. The electrical power will be transmitted to substations at Woodlands Avenue 8, Tampines, Chua Chu Kang etc. To facilitate this transmission, a cable tunnel is required to be constructed beneath the existing cable reserve within/outside the Senoko Power Station, Admiralty Road West and Woodlands Avenue 8. This cable tunnel will, initially, accommodate a total of 8 Nos. 230kV and 2 Nos. 66kV power circuits which will be installed in phases. Eventually, these circuits will be upgraded to a total of 6 Nos. 400kV power circuits.
(2) The scope of the Specification is to provide for the Works to be fully completed in every detail for the function designated. All items of construction, accessories, fittings, sundries, documentation, apparatus, or labour whether specified in detail or not but, which, in the opinion of the Engineer are usual or necessary for the satisfactory completion of the Works shall be deemed to be included in the Specification.
(3) The Contractor shall so design and construct the Works that the overall performance requirements set out in Sections 4 to 11 of this General Specification are achieved.”

12 By clause 31 of the Special Conditions of Contract the JV was to be “responsible for the design, construction and maintenance of the Works, notwithstanding that the design submission may be accepted for construction”.

13 Clause 9.2.1 of the Material and Workmanship Specification – Section A imposed an obligation on the JV to

“carry out the tunnelling operations with the utmost care and with the strictest precautions at all stages to prevent loss of ground, and to safeguard the adjacent properties against subsidence. Ground movements resulting from these works shall be restricted to a minimum.”

14 It was a term of the PowerGrid contract (General Condition 27) that, inter alia:

“(1) Injury to Property – The Contractor shall be liable for and shall indemnify the Company and the Engineer against all liabilities, losses, claims, demands, proceedings, damages, costs, charges and expenses whatsoever in respect of any injury or damage to any property real or personal arising out of or in the course of or by reason of the execution and maintenance of the works unless it is shown to the satisfaction of [PowerGrid] or the Engineer that such injury, damage or loss was not due to any negligence, omission or default of the contractor, his servants or agents or of any subcontractor, his servants or agents.

…..

(4) The Contractor shall forthwith and as a condition precedent to the commencement of any work under this Contract insure against the aforesaid risks or matters in the joint names of the Company, the Engineer and the Contractor with an insurance company to be approved by the Company in writing and for such amount as the Company may direct. (Please refer to the Appendix for the amount.) The Contractor shall make all payments necessary for the above purposes on the first day on which the same ought to be paid. The Contractor shall deposit the policy or policies for such insurance with the Company before the commencement of any work under this Contract and shall produce on demand to the Company the receipt of each of the said payments. Provided always that if the Contractor shall at any time fail to keep himself insured as aforesaid the Company may do all things necessary to effect or maintain such insurance and deduct such moneys expended by the Company for that purpose from any moneys due or to become due to the Contractor.”

15 General Condition 28 provided:

“(1) The Contractor shall forthwith and as a condition precedent to the commencement of any work under this Contract take out at his own expense with an insurance company to be approved by the Company in writing a policy or policies of insurance indemnifying the Contractor, the Company and the Engineer from all liabilities arising out of claims by any and every workman employed in and for the performance of this Contract for payment of compensation under or by virtue of the Workmen’s Compensation Act or any other law amending or replacing such Act and from all costs and expenses incidental or consequential thereto.
(2) The said policy or policies so taken out shall be deposited with the Company and the Contractor shall maintain it or them in full force and effect by payment of all premiums from time to time of the first day on which the same ought to be paid and until the completion of this Contract and upon demand the Contractor shall produce to the Company the last receipt for payment of such premiums.”

16 General Condition 29 provided:

“(1) The Contractor shall forthwith and as a condition precedent to the commencement of any work under this Contract insure against loss or damage by fire or other causes all works and buildings constructed or in the course of construction in pursuance of or for the purposes of this Contract and all materials and other things delivered on to the site and approved by the Engineer and ready for incorporation in such works and buildings and shall keep the same insured until such works, buildings and things respectively are handed over to the Company.
(2) The said insurance shall be effected with an insurance company to be approved in writing by the Company and in the joint names of the Company, the Engineer and the Contractor for the full value of the works executed together with all materials on site including any materials supplied by or the property of the Company; and the Contractor shall deposit with the Company the policies and the receipts for the premiums paid for such insurance.
(3) In case of failure by the Contractor to effect or renew such insurance the Company may effect or renew such insurance and pay the premium in respect thereof and deduct the amount so expended from any moneys due or to become due to the Contractor.
(4) In the event of loss or damage by fire or other causes to any works, buildings or things insured under this clause all moneys received by the Company under the insurance policies shall be paid by the Company to the Contractor by such instalments as the Company may deem reasonable and shall be applied by the Contractor in or towards the rebuilding, repair or replacement of the works, buildings, materials or things destroyed or damaged and the Contractor shall on receipt of such moneys proceed with all due diligence to effect such rebuilding, repair or replacement as aforesaid and shall have no claim to any payment in respect thereof beyond the payment to him of the said moneys; provided that in case of any loss or damage by fire or other causes as aforesaid the Company shall allow the Contractor such extension of time for the performance of this Contract as shall be just and reasonable.”

17 Special Condition 24 provided:

“In addition to the provisions of Clauses 27, 28 and 29 of the General Conditions of Contract, the following provisions shall apply to the insurance to be effected by the Contractor:
(1) The insurance shall be effected with an insurer approved by the Company and in terms complying with the specimen copies attached hereinafter.
(2) In addition to Clause 27(4) of the General Conditions of Contract, the following minimum limits of indemnity shall apply

i. For any one accident: S$50,000,000/-
ii. For Period of Indemnity: Unlimited

(3) The specimen insurance is the minimum requirement stipulated. The Contractor shall satisfy himself of the adequacy of the insurance therein and shall increase the coverage if he deems necessary.”

18 Annexed to the PowerGrid Contact as Appendices A and B were the specimen wordings contemplated by Special Condition 24. Appendix B was forwarded to ACE by the JV’s broker AON Risk Services Singapore (Insurance Brokers) Pte Ltd (“AON”) and it became incorporated in the ACE policy as GC 14. Some wording found in Appendix A was also forwarded by AON to ACE but these wordings were not incorporated in the ACE policy. One of the wordings sent but not incorporated was a wording described as “RIBA CLAUSES 19(2)(a) COVER”: see Exhibit L at p 1-355. The exclusions found within the wording forming part of Appendix A with the heading “EXCEPTIONS” were not forwarded by AON to ACE. The content on the Appendices is relied on by ACE in a manner I shall describe below.

The ACE policy

19 The following are relevant aspects of the ACE policy (with emphasis added).

the Engineer

“[a]ny other interested party connected with the contract and for whom [the JV] is required to provide insurance for their respective rights and interests.”

(2) It describes the project as:

Design and Construction

(3) It defined the Period of Insurance as:

Whole period of project from 17 April 2001 to 27 May 2003 (Both dates inclusive) followed by a 24 month Maintenance Period.

(4) There was a limit of liability of $5 million for “any one Occurrence or series of Occurrences arising out of one event”.

(5) The coverage was:

all sums which the Insured shall become legally liable to pay for any compensation in respect of:

Property Damage

(6) ‘Property Damage’ was defined as:

(7) ’Occurrence’ is defined as

Any one loss, disaster or casualty or series of losses, disasters or casualties arising out of the one event

(8) There were a number of exclusions for example, a “Vehicles” exclusion for any liability for claims caused by any vehicle covered by a statutory insurance, a Libel and Slander exclusion and a Employer’s Liability exclusion. The PSE was in the following terms:

Professional Indemnity

This policy does not apply to personal injury, property damage or advertising injury arising out of the rendering of or failure to render professional services, during the policy period by any Named Insured or by any other person for whose acts to Named Insured is legally liable including: -

(a) the preparation or approval of maps, plans, opinions, reports, surveys, designs or specifications and

(b) supervisory inspection or engineering services

(9) GC 14 was in the following terms:

“The clauses contained in this special endorsement shall not in any way be deleted, altered or amended by other provisions in the policies and any other subsequent endorsements and where contradiction arises, this special endorsement shall precede.

b.

loss of or damage to any property or land or building caused by vibration or by the removal or weakening of support (including damage to property occasioned by or resulting from any such loss);

c. any negligent act of the Insured, servants or agents of the Insured;

subject to the limits of indemnity for any one occurrence as stated in the Schedule.”

20 The Lloyds policy (which I should note it was agreed is governed by Victorian law) had the following relevant provisions (with emphasis added).

(1) It named as the insured McConnell Dowell but this was apparently extended to the JV by endorsement.

(2) It had a US$12 million cover for any one occurrence for Section 1 and a US$18 million in the aggregate.

(3) It had a US$12 million liability for any one claim for Section 2 limited to US$18 million in the aggregate.

(4) Section 1 was a General and Product Liability cover requiring Lloyds to indemnify the JV against liability of the JV to pay damages for compensation (including claimant’s costs, fees and expenses) in respect of:

(i) injury to any person;
(ii) damage to property; and
(iii) advertising injury.

(5) Clause 5 had a number of exclusions such as Vehicles, Aircraft, Employer’s Liability, Asbestos and:

“ 5.11 Professional Indemnity

liability arising out of the rendering of or failure to render professional advice or service by the Insured or error or omission connected therewith, but this Exception 5.11 does not apply to the rendering of or failure to render professional medical advice by medical persons employed by the Insured to provide first aid and other medical services on the Insured’s premises or work sites.”

(6) Section 2 was a Professional Indemnity section by which Lloyds agreed to indemnify the JV

“against any claim made against the Insured and notified to the Insurer during the Period of Insurance in respect of any civil liability incurred by or on behalf of the Insured in the conduct of the Profession.”

(7) ‘Profession’ for Section 2 was defined as:

“2.4 Profession means:
the business of the Insured arising out of the activities of professionals, not being limited to all project managers, builders, site superintendents, quantity surveyors, estimators, managers, engineers, foremen, architects, designers, technicians and technical service providers of whatever description and any other person who exercises any independent judgement of a professional nature in the course of their work.”

(8) Clause 3.8 of Section 2 provides:

“3.8 Loss Mitigation Expenses

The Insurer will subject to the terms, Conditions, endorsements and Exceptions of this Policy, indemnify the Insured against costs and expenses necessarily incurred in respect of any action taken to mitigate loss or potential loss that otherwise would be the subject of an indemnifiable Claim under this Section 2.
The onus of proving a claim under this Extension shall be upon the Insured, who will be obliged to obtain prior approval from the Insurer during the Period of insurance of their assumption of liability and probability of eventual Claim, in the event of mitigation action not being timorously undertaken.”

(9) Clause 4.8 of Section 2 provides:

“This Section does not provide any indemnity against any Claim:

…..

4.8 Bodily Injury/Property Damage
arising from or attributable to any Damage or injury defined in Section 1 Definitions 4.5 and 4.7 and more specifically paid under Section 1 of this Policy, unless arising out of advice, design, specification or the performance of or omission to perform a professional duty when this Section 2 will apply.”

(10) There was a ‘Difference in Conditions Cover’ clause in the following terms:

“1.17 Difference In Conditions Cover

It is acknowledged that it is customary for the Insured, or for other parties on behalf of the Insured (including joint venture partners principals and contractors) to effect, on behalf of the Insured, insurance coverage specific to a particular risk, project or agreement. Such insurance is described as Underlying Insurance.

Furthermore, the Insurer, or others on behalf of the Insurer, may issue policies of Insurance in overseas jurisdictions, for the purpose of local legal requirements, servicing, premium payment and claims handling, referred to as Local Policies.
In circumstances where Underlying Insurance or a Local Policy is applicable, this Policy shall be deemed to be the Master Policy.
It being understood and agreed that:
(a) In the event of the Insured being indemnified by a Local Policy or Underlying Insurance in respect of a claim for which indemnity is available under this Policy, the insurance afforded by this Policy shall be excess insurance over the applicable limit of indemnity of the Local Policy or Underlying Insurance.

Coverage under this Clause shall not apply unless and until the Local Policy or Underlying Insurance shall be obligated to pay the amount of the Underlying Limit on account of a Claim or Claims, which would, but for the limit of indemnity of the Local Policy or Underlying Insurance, be covered hereunder;

(b) if such Local Policy or Underlying Insurance covering the Insured against their legal liability in respect of damage to property or personal injury to third parties or employees, provides indemnity to the Insured by virtue of its scope of cover, definitions or conditions in respect of legal liability, costs and expenses which are not provided under the terms, Conditions and Exceptions of this Master Policy, then the cover afforded under Section 1 only of this Master Policy shall provide such Indemnity to the same extent as provided by the Local Policy or Underlying Insurance.

Notwithstanding the provisions of this clause (b), Exceptions under Section 5 – Exceptions Applicable to All Sections, shall always apply to any Indemnity provided hereunder.

(c) should any such Local Policy or Underlying Insurance, by virtue of its scope of cover, definitions, conditions or limits of liability, not indemnify the Insured in whole or in part in respect of such legal liability, costs and expenses as herein provided, this Master Policy, subject to its terms, Conditions and Exceptions, shall provide indemnity to the extent that such indemnity is not provided by the terms and conditions of such Local Policy or Underlying Insurance.

In the event that the Insured cannot obtain an admission of liability from the insurer of an Underlying Insurance and/or Local Policy and/or the Underlying Insurance and/or Local Policy fails or is reasonably likely not to indemnify the Insured, then the Insurer of this Master Policy shall be obligated to indemnify the Insured and defend any actions.

The Provisions of this clause are subject always to the terms, Conditions and Exceptions of this Policy.

PROVIDED THAT:
(i) the Limit of Liability under this Master Policy shall be reduced by an amount equal to the indemnity recoverable under any Local Policy.

Notwithstanding the number of separate Insureds under all Local Policies, the aggregate liability of the Insured under this Master Policy to the Insured’s jointly and severally shall not exceed the Limits of Liability specified herein.

(ii) in the event of cancellation of an Underlying Insurance or Local Policy or reduction or exhausting of the limits of indemnity thereunder, this Policy shall:

(a) in the event of reduction, pay in excess if the reduced Underlying Limit;
(b) in the event of cancellation or exhaustion, continue in force as Underlying Insurance.

(iii) in respect to indemnity provided under clauses 1.17(b) and 1.17(c) only, the Insured shall be obligated to pay the Deductible for each claim.”

(11) General Condition 7.3 of the Lloyds policy provided that:

“The Insured shall
(a) take reasonable precautions to prevent or minimise liability and maintain efficient ways, works, machinery, fencing and plant and shall make reasonable endeavours to comply with all statutory obligations and regulations imposed by any authority.”

The Project Background

21 The area in which the excavation and tunnelling occurred consists of Bukit Timah Granite with, in much of the relevant area, an alluvium of “Kallang Formation” made up of “E” type clays and “F” type sands. Unit E clays occur as “peaty clay with a soft consistency” and are “relatively compressible”. The F1 sand unit “represents a layer of relatively high permeability or a layer with good drainage characteristics”: see Dr Redman’s report of 14 December 2007 (“Exhibit E”) at pp 8 – 9. The bedrock is either “G1” (fresh to slightly weathered rock) or “G2” (moderate to highly weathered rock). Between the E/F layer and bedrock there is much residual “G4” material which is highly weathered rock that is closer to soil than rock: see Dr Pells’ report of 10 September 2008 (“Exhibit 4”) at p 15, and it is described by Mr Embery (the JV’s Construction Manager) as “decomposed rock”: see T733.30. A depiction of the general area of the Kallang Formation in two zones is found in Exhibit 1 in yellow: see also Figures 1 and 6.2 of Exhibit 4 and Exhibit 10. The precise boundaries and content of the Kallang Formation appeared to be quite difficult for the experts to determine: see T774. A number of the buildings which suffered damage are located above the Kallang Formation.

22 Twin service tunnels (an east and a west tunnel) were to be constructed with a length of approximately 1.7 kilometres and a width each of about 3.7 metres. At Woodlands Avenue there was to be constructed a substation and related facilities. The tunnels were to terminate near the junction of Woodlands and Gambas Avenues and a shaft was constructed there known as the Gambas shaft. Another shaft, at a point further north along Woodlands Avenue, which shaft was known as the Woodlands shaft, was also constructed. Exhibit 1 contains a useful depiction of the project. An aerial photograph also gives some indication of the proximity of buildings to the Gambas and Woodlands shafts: see Figure 2.2 of Exhibit 4. To excavate the main tunnel a refurbished Tunnel Boring Machine manufactured by The Robbins Company (“Robbins”) and known as a “double shield TBM” was obtained by the JV (“the TBM”): see Figures 5.8 and 5.9 of Exhibit 4 and photo 2 annexed to Exhibit B.

23 The project commenced in 2001 with the creation of the Gambas shaft followed by the Woodlands shaft. Two lower adits were created between the base of the Woodlands shaft and what was to be the east tunnel (“EA1” and “EA2”), and two upper adits were created between the Woodlands shaft and the west tunnel (“WA1” and “WA2”). The only upper adit in respect of which water flows are relevant is WA2 and reference to an “upper adit” in the balance of these reasons will be a reference to WA2. I have understood references in expert reports to the “upper adit” to mean WA2 unless otherwise specified.

24 The TBM commenced the main tunnelling work on 10 March 2002 and it became entombed on 7 June 2002 at chainage 1141 following significant over-excavation in G4 material (this over-excavation is known as the “TBM/G4 problem”).

25 Prior to excavation of the shafts the JV had available to it a soil investigation report from Kiso-Jiban Consultants Co Ltd (“Kiso-Jiban”). A firm of geotechnical engineers retained by the JV PB Merz McClellan Pte Ltd (“PBMM”) proposed some additional field and laboratory tests: see Exhibit R: Court Book (“CB”) vol 3.1 at pp 3-103, 3-113 and 3-159 – 3-191, which the JV engaged Kiso-Jiban to carry out. PBMM were retained “to provide professional design and support services” in relation to the project: see para 13 of Mr Embery’s affidavit of 6 March 2008 (“Mr Embery’s first affidavit”). The report of Kiso-Jiban is found at CB vol 3.1 at pp 3-45 – 3-78. In October 2001 further bore hole investigations were conducted by Kiso-Jiban the results of which were provided on 1 November 2001 and appear at CB vol 3.1 at pp 3-3550 – 3-3562. A depiction of the ground in elevation as revealed by the Kiso-Jiban November results is found at Figure 5.10 of Exhibit 4 at p 39. A cross-section is found of that at Figure 7.5 of Exhibit 4. That diagram shows that the information available by November 2001 indicated that the east tunnel would be bored through a mixture of G4 and G2, hence the phrase “mixed face” material, which appears in the evidence.

26 The diaphragm walls in the Woodlands and Gambas shafts were constructed by Sambo Tosfoc Pte Ltd (“Sambo”) pursuant to a subcontract with the JV: see CB vol 2.1 at pp 2.1.1 – 2.1.85. The walls consist of a number of concrete panels inserted into narrowly excavated slits before removal of the soil within the shafts: see Exhibit 3 and Figure E of Dr Pells’ report of 19 February 2009 (“Exhibit 6”).

27 The Gambas shaft had an overall depth of approximately 50.7 metres and an external diameter of about 12.8 metres. Pneumatic and standpipe piezometers (P1R, P2, S1R and S2) were installed in the vicinity of the Gambas shaft. The purpose of the piezometers was to monitor changes in groundwater conditions. Their locations are depicted in Figure 4 of Exhibit E and at CB vol 3.26 at 3-19423A.

28 Similar arrangements were made for the Woodlands shaft (P3, P4, S3 and S4). Their locations are depicted in Figure 4 of Exhibit E and at CB vol 3.26 at 3-19423A. The Woodlands shaft had an overall depth of 56.8 metres and an external diameter of about 15 metres.

29 The JV also arranged ground settlement monitoring – initially above the PowerGas pipeline which ran underneath Woodlands Ave: see the GS markings, in particular GS84 – GS90, which are broadly opposite the Woodlands shaft and adits: see Exhibit 1 and CB vol 3.11 at p 3-7053 (which details settlement in that region). All settlement monitoring was conducted by registered surveyors, Wisecan Engineering Services Pte Ltd (“Wisecan”).

30 In relation to the Gambas shaft the installation of the diaphragm wall commenced on 13 July 2001, the wall was completed on 23-25 August and toe grouting commenced on 27 August. Solid rock was reached on 27-31 October 2001: see ACE’s chronology and Table 2 of Dr Redman’s report of 10 November 2008 (“Exhibit F”).

31 In relation to the Woodlands shaft, the installation of the diaphragm wall commenced on 1 August 2001 and was completed on 3 September 2001. “Rock material” was reached on 28 November 2001: see ACE’s chronology at p 17 and Table 1 of Exhibit F.

32 The adits from the Woodlands shaft to the east and west tunnels underneath Woodlands Avenue are depicted in Exhibit 1 and more detail is shown on Exhibit 2. The work on the adits either commenced in early December 2001: see Mr Embery’s first affidavit at para 26, the affidavit of Mr Embery of 5 November 2008 (“Mr Embery’s second affidavit”) at para 30 and see CB vol 3.7 at 3-4571, or on 19 January 2002: see Figure 6 to Exhibit F. The document at CB vol 3.9 at p 3-5626 is evidence that work related to the construction of the adits commenced on 10 January 2002 and the central pillar wall between the adits was cast on 19 January 2002. That document, and also a document at CB vol 3.7 at p 3-4697, support the conclusions that work on the adits proper commenced on 19 January 2002: see also ACE’s chronology at pp 25 and 28.

33 I have referred to the existence of the Kallang Formation, and to the presence of G4 material, both of which are relevant to what occurred. Another geological feature of significance is the existence of “dykes”. A “dyke” is a near vertical protrusion of volcanic material into fractures in the parent rock – here granite. Dykes are commonly found in this part of Singapore and an example of one can be seen in Exhibit 13, and see also Exhibit 4 at para 13. There was evidence that the intrusion of volcanic material often has significant impact on the integrity of the granite nearby due to the intense heat of the intruded material when it enters the existing formation. A dyke was encountered at chainage 1456 (“the TBM/dyke problem”). Dr Pells, in Figure Z of his report of 16 December 2008 (“Exhibit 5”) shows how water ingress to the east tunnel increased dramatically when the dyke was encountered at chainage 1456 in June 2003; see also Exhibit E at paras 228 – 230.

34 The presence of another dyke on one side of the proposed site for Woodlands shaft was established by the results from bore hole NB8: see Exhibit 1, designated by the symbol within the ring of the shaft diaphragm wall. Exhibit 13 shows a dyke in adit WA1 above the gas pipeline. The precise extent of the dyke (or dykes) in or near the Woodlands shaft is not clear. Mr Embery identified, on Exhibit 1, the two locations at which the dyke was observed – within Woodlands shaft and above the gas pipeline in adit WA1 – and he drew on Exhibit 1 an extension of the dyke. He showed more detail of the observed dyke above the gas pipeline on Exhibit 2. Dr Redman (one of Lloyds’ experts) and Dr Pells (one of ACE’s experts) agreed that the dyke ran through the Woodlands shaft: see Exhibit 2. On Exhibit 2, which put the Woodlands shaft and adits in focus, it will be seen that Dr Redman thought originally that a dyke went through the shaft and along WA1 (as depicted in light blue), and Dr Pells thought a dyke might have gone through both WA1 and WA2 (depicted in red). Dr Pells noted in Section 3.2 of Exhibit 6 that there was an absence of logging records in relation to adit WA2 so there is no certainty about whether the dyke which Dr Pells believes went through the WA1 and WA2 adits in fact did so, but there is agreement that a dyke (or dykes) did intersect with the Woodlands shaft and with WA1.

35 Another aspect of the geotechnical conditions, which is connected to what I have already described, is the permeability of the G4 material. Permeability ratings were given by PBMM with G4 rated as having good drainage similar to clean sands and sand gravel mixtures: see Exhibit E at p 7.

36 Both parties have retained experts who have given evidence in the proceedings both in the form of reports and orally. Lloyds rely on the evidence of Dr Redman, a geotechnical engineer, and Mr Cooper, a tunnelling expert, and on Mr Bruce Embery. Mr Embery was the Construction Manager engaged by the JV. He is a civil engineer by training and has had extensive experience in excavation work. He was both a lay and expert witness and in relation to his evidence as an expert he acknowledged and agreed to be bound by the Expert Code of Conduct. Lloyds also relies on the evidence of Mr Jewell a hydrogeologist who carried out hydrological modelling with a view to demonstrating the likely effect of lowered groundwater. ACE relies on the evidence of Dr Pells, a geotechnical engineer, and Mr Sternath, a tunnelling expert.

37 There were some aspects of the matter on which Dr Redman did not feel able to comment due to a lack of expertise so that the contest is not always between Dr Redman and Dr Pells but sometimes between Mr Cooper on the one hand, and Dr Pells and Mr Sternath on the other. ACE submitted that on some topics covered by Dr Pells there was no contrary expert opinion advanced by Lloyds.

Dr Redman’s Approach

38 Dr Redman divides up the damages and repair work into four separate incidents although he accepts that they are not all wholly discrete. I summarise his explanation for the incidents as follows.

(1) The JV excavated the Woodlands shaft to enable access to the areas beneath Woodlands Avenue to be tunnelled.

(2) The design required the excavation or cutting of narrow channels followed by the installation of a diaphragm panel wall into those channels before removing the bulk of the soil within the shaft wall.

(3) The design required the sub-contractor to anchor the base of the diaphragm wall into G1/G2 rock beneath the wall and to carry out grouting work beneath the base of the diaphragm wall to a level of 11 metres.

(4) After the diaphragm wall was installed and the soil removed so as to create a shaft, groundwater levels in the adjacent area dropped.

(a) water leaked through the diaphragm wall; and

(6) The reason groundwater leaked through the diaphragm wall was because of defects in the construction of the diaphragm wall namely gaps between panel joints and breaks in the panels.

(7) Dr Redman was of the view that the diaphragm wall did not extend to the design depth: see Exhibit F at paras 36 – 40, in respect of Woodlands shaft. This is based on the assumption that bore hole NB8 reflects the ground conditions in other parts of the shaft.

(8) The loss of groundwater at the top levels of the soil lead to depressurization of clays (E type clays) which abound in the Kallang Formation and the draining of F type material which is fluvial sand: see Figure 3 of Exhibit E which depicts the layers of soil and their relative levels.

(9) The depressurization of the clays and the flow of sand caused consolidation of the soils in the vicinity of the shaft.

(10) Buildings in the vicinity of the shaft cracked and infrastructure sagged or dropped as a consequence of the consolidation of soils beneath them.

(11) The same problems at work in respect of the Woodlands shaft occurred in respect of the Gambas shaft save that much less damage occurred as a result. The Byora Precision building was damaged partly as a consequence of this settlement. Dr Redman, in his first report (Exhibit E), attributes the cause of the fall in groundwater pressure principally to the construction defects and to the exposure of the ground at the toe: see para 159 of Exhibit E. He also regards as probably a secondary reason the “continuing excavation works for the TBM launching tunnels”. He attributes damage in or after March 2002 to the TBM advance: see Exhibit E at paras 168 and 176, and says in Exhibit F at para 122 that “the main settlement in the vicinity of Gambas shaft is that which takes place once the TBM is launched”.

(12) There was encountered in the tunnelling between Gambas shaft and Woodlands shaft a mixed geological profile, that is, there was G4 and G1/G2. The TBM was particularly designed for dealing with hard rock and when the JV encountered G4 material this lead to over-excavation with loss of more soil material than was desired, the ingress of mud and water into the main tunnel and collapse of the overburden.

(13) The loss of soil and water in the tunnel lead to consolidation of the material above the tunnel and consequential problems to the neighbouring buildings on the surface and to infrastructure, including a high-pressure gas pipeline, laid in the ground close to Woodlands Avenue, and in the road itself.

(14) Dr Redman is of the view that the JV recognised the problem of mixed material. He was of the view that there was poor control on the ground during tunnelling.

Jin Temple

Sheng Temple

(iii) the PUB sewer which experienced further settlement.

(16) Dr Redman and Dr Pells were in agreement that

Dr Pells’ Approach

39 Dr Pells’ approach is that there were not four incidents but really one, namely, inadequate design because the JV’s design did not provide adequately for groundwater and soil conditions that in his view should have been anticipated before excavation commenced.

40 He also sees the cause of settlement in each of the buildings or infrastructure affected as being linked to the excavation of adits and the use of an inappropriate TBM with an inadequate soil grouting program, not as a consequence of the excavation of the Woodlands shaft and the Gambas shaft.

41 In dealing with the four items described by Dr Redman it must be borne in mind, therefore, that Dr Pells does not accept the characterisation of what occurred as four incidents.

42 Dr Pells agrees with [0], [0], [0] and [0]. So far as [0] is concerned he disagrees that water leaked through the diaphragm wall to any significant degree, although he accepts that there were construction defects in the diaphragm wall.

43 Dr Pells disagrees with [0] and [0]. He says there is no evidence of depressurization of the E clays. He says that there was a close temporal relationship between the TBM/G4 problem and the damage to buildings in the vicinity. Dr Redman explains the temporal gap between the drop in groundwater and depressurization as being what one would expect.

44 Dr Pells agrees with [0].

45 Dr Pells disagrees with [0] as he says that even if the diaphragm walls did not extend as deeply as specified they did extend to rock. He says the grouting work specified by the JV was insufficient as it consisted only of one ring of grouting whereas, in his view, two rings, at least, were required.

46 Dr Pells’ position in relation to the Gambas shaft is the same as his position in respect of the Woodlands shaft.

47 Part of Dr Pells’ criticism of the JV is that it did not design the adits and tunnels to be excavated at a greater depth. Had the JV done so, he says, it would have required tunnelling through hard rock – G1 or G2 – for which the TBM was suitable and not G4 or mixed face material for which it was not suitable. He points to the Kiso-Jiban material as depicted in the diagrams as showing that by November 2001 the JV was informed of the problem which it faced but that it did nothing to avoid that problem. Mr Sternath’s evidence was to the same effect: see T1129 – 1136.

48 Dr Pells criticises the absence of an adequate modelling of the conditions and the failure of the JV to design a program of probing ahead of the excavation work and to grout ahead with testing for permeability before and after grouting. He views the JV as having embarked upon excavation without any adequate criteria for soil stabilisation. He is critical of the JV for leaving probing to the discretion of the Construction Manager. The Construction Manager (Mr Embery), Dr Pells says, decided not to probe ahead of excavation by the TBM and permitting Mr Embery to do so was also a significant design flaw.

49 Dr Pells also draws attention to the nature of the dyke material in the context of the Woodlands shaft excavation, noting that the fractured granite for five metres below the dyke intersection was of high permeability according to a Kiso-Jiban report: see Exhibit 5 at p 8. Dr Pells prepared a model of the Woodlands shaft (“Exhibit 14”) which, on one side depicts his reading of the geological conditions, and on the other, depicts Dr Redman’s reading. As I have noted, Dr Redman did accept that there was a dyke through the Woodlands shaft. Evidence about the proximity of the roof of the upper adit (WA2) to G4 material is consistent with Dr Pell’s reading. No evidence was called in reply to refute Dr Pell’s conclusion that the geological conditions were more complex than those assumed by Dr Redman, as shown on the side of the model marked ‘Pells model’.

50 ACE submitted that the opinions expressed by Mr Embery

“should be given little, if any, weight, and his evidence on controversial issues of fact should be viewed with great caution and should only be accepted where corroborated by contemporaneous documentation.”

See ACE’s submissions of 10 March 2009 at para 245.

51 This submission was supported by a number of detailed examples in addition to the submission that Mr Embery was often non-responsive in his answers and that, at times, he “was unable to articulate any sensible basis for some of the assertions and opinions contained in his affidavits”: see ACE’s submissions of 10 March 2009 at para 247. One of the examples of this on which ACE relied was Mr Embery’s assertion in his affidavit that significant ground settlements had taken place around Woodlands Avenue by the end of 2001 when the settlement monitoring data did not support that.

52 In part, as ACE submits, Mr Embery’s problems stemmed from the fact that he had not undertaken any detailed review of the documentation and was largely relying on his recollection from seven years earlier. As the focus of what occurred became narrower – e.g. whether or not the settlement commenced before 30 December 2001 – his recollection was of limited assistance. Very few photographs were available to him and those that were produced at the hearing were of a poor quality. I accept the criticisms of Mr Embery’s reliability and largely for the reasons advanced by ACE, which I set out below, in addition to the difficulty I have just mentioned:

(1) He sought to create explanations for his assertions that on further scrutiny did not have any support: his assertion that minutes might not be an accurate record of what was said: see T697 (and this in a context where, in his affidavit, he had said nothing about the inaccuracy or unreliability of records: see Mr Embery’s first affidavit at para 12) and his putting forward that as an explanation when at T698.15 – 17 he subsequently appeared to accept that the particular document was not inaccurate; his assertion that the Engineer had agreed to proceed with excavation without investigation of G4 material: see T685.7, which he said was contained in a document that he had seen recently: see T686.43. The document that he was talking about was produced (a letter of 4 June 2002 from the JV to the Engineer: see CB vol 3.13 at p 3-8050), and not only did it not support his claims, but it was to the contrary of his contentions because in the letter the Engineer instructed the JV to “immediately stop further excavation to east bore tunnel until such time” as the JV has submitted various details of proposed work. He would not agree that the letter did not support his contention.

(2) He asserted that he had obtained confirmation of the suitability of the TBM when no such document was produced. The JV’s letter to the Engineer referred to at [231] below, was not consistent with that contention.

(3) He said, initially, that there had been no significant water seepage into the adits but it became apparent that his view was that the JV had managed it properly – his initial response at T600.4 – 10, T601.44 – 47 and T603.3 – 606.44, should be contrasted with his later evidence at T616.22 – 34.

(4) His affidavit was silent on the warnings given to him by the Engineer and as to the basis for his allowing the excavation to continue notwithstanding risks which it appears must have been apparent to him.

(5) He said that he had only expected 10 metres of G4 material: see T652.30, or 20 metres: see T658.40. The document at CB vol 3.10 at p 3-6266 refers to anticipated G4 material between chainage 1100 and chainage 1200. He said there were other documents relied on: see T655.4, but the only document identified in re-examination was CB vol 3.5 at p 3-3732 which points only to an absence of a G4 problem at chainage 1180, but there had already been G4 problems at chainage 1110: see Exhibit 1, so there had been 30 metres of G4 problems by the time of the entombment of the TBM.

(6) On several occasions, which I refer to below, Mr Embery put forward explanations for the JV’s conduct or as to its understanding that he soon resiled from: see for example, [240(6)] and [240(7)].

Other Witnesses

53 So far as the other witnesses were concerned, there was no attack on Mr Sternath, Mr Jewell or Mr Funge, whose evidence was directed to establishing that there had been justified complaints of damage by third parties and the costs to the JV of the repairs. There was some limited criticism of Dr Redman by ACE but I do not think that Dr Redman’s impartiality as an expert witness was successfully impugned. There was, in fact, agreement that Mr Sternath was an impressive and reliable witness, although ACE pointed out that he did not have the expertise on geotechnical matters that Dr Pells had.

Dr Pells

54 Lloyds launched a significant attack on the credit of Dr Pells based on:

(1) His refusal to concede that in his first report (Exhibit 4) he was addressing his comments to the causes of ground settlement resulting in damage to property: see T970 – 974.

(2) That in his second report (Exhibit 5) Dr Pells asserted that he had received further materials which he relied on in producing his second report when the documents referred to were received by him prior to his first report: see T969.41 – 47, T985.19 – 26.

(3) That he changed his view on the mechanism of settlement when Dr Redman indicated agreement with it: see T1462.

(4) His assertion that his comments that there had been no systematic grouting included in the design for the toe area were not based on a failure to appreciate that there had been grouting specified for the toe area but rather was a description of inadequate grouting: see T990 – 991. Dr Pells had agreed in a conclave of experts held on 18 February 2009 that:

In cross-examination Dr Pells said that the standard text in undergraduate engineering would demonstrate the meaning of the term. He was asked to produce the text the following day and he said that his briefcase containing the texts had been stolen: see T1083.8 – 11.

(5) Dr Pells had given, without an adequate basis, a figure of 100mm settlement in the G4 material out of a total settlement of 300mm, but the following day at T1031 – 1032 he explained that he had arrived at the 100mm figure in error.

55 ACE in para 14 of its submissions of 19 March 2009, responded to these criticisms saying that Dr Pells was not refusing to concede the content of his first report (Exhibit 4), that there was no inconsistency in Dr Pells saying that additional factual information has come to the writer’s attention, and that revisiting material previously provided was not inconsistent so far as Dr Pells’ use of the 100mm figure is concerned. ACE described the error corrected the following day as trivial, with no bearing on the technical issues in the case.

56 Lloyds asserts that Dr Pells was an advocate for ACE and had reached conclusions on the basis of inaccurate or questionable information. ACE responded to this by asserting that the basis for revisions of Dr Pells’ views was “transparent” from his report and that the inaccurate or questionable information was never identified. I accept that experts may change their minds and it is wholly appropriate that they do so when new information is brought to their attention or they realise that they have fallen into error. Having said this, I did find Dr Pells’ change of opinion rather dramatic and somewhat surprising given that not only had he accepted Dr Redman’s view on the subject but provided his own graphic explanation saying:

“inflows from this permeable zone, which was not designed to be cut off by the diaphragm walls, was akin to pulling the plug out of a bathtub. Such a process effectively would cause depressurization of the compressible soil horizons even if the sand layers were cut off by the diaphragm walls.”
See Exhibit 4 at p 63.

It became clear that his sole reason for abandoning the theory that he had embraced in his first report (Exhibit 4) was the result of piezometers in the vicinity of the Woodlands shaft: see Exhibit 5 at pp 54 – 56, which showed no depressurization, and he maintained his explanation for the ground problems in connection with the TBM/dyke problem as “a consequence of groundwater lowering/depressurization due to water inflows into the tunnel”: see Exhibit B at p 3. Mr Sternath, called by ACE, supported Dr Redman’s theory about depressurization.

57 The fact that Dr Pells had agreed that there was no common meaning of ‘systematic grouting’: see Exhibit B at p 25, but yet asserted that such a meaning could be found in any standard textbook without such a book ever being produced (his explanation that his briefcase had been stolen does not explain why such a text was never subsequently produced in the remaining seven days of the hearing) and his position on depressurization, left me with a degree of concern about his impartiality but he clearly has extensive knowledge of his field and I did not feel that overall he was an unreliable witness as a result of these matters and the other matters in respect of which criticism has been levelled by Lloyds. I think the evidence of Dr Pells and Dr Redman has been hampered by a number of problems:

(1) the passage of time;

(2) the absence of any detailed photographic record relevant to the matters in issue;

(3) shortcomings in the site documentation;

(4) the difficulty of attempting to reconstruct what occurred from documents and only one witness whose recollection was not assisted by detailed re-familiarization with all the records and whose reliability as a witness is in doubt;

(5) the potentially complex structure of the geological conditions themselves; and

(6) the delay between consolidation within the ground, impact on structures and observance of the impact on structures, as well as the possible confluence of causes.

Mr Cooper

58 In relation to Mr Cooper, ACE submitted that apart from his evidence on general standards to be applied in relation to tunnelling, Mr Cooper’s admitted lack of expertise with TBMs and the location of the tunnels and his assumptions concerning the conditions rendered his evidence of little assistance: see ACE’s submissions of 10 March 2009 at paras 264 – 278.

59 I think that there was a variation between the assumptions made by Mr Cooper and the facts as established. Mr Cooper’s view that the TBM was suitable for G4 conditions without substantial surface pre-grouting was at odds with the views of Mr Sternath and Dr Pells and is contradicted by the JV’s own letter to the Engineer in May 2002 and the JV’s subsequent approach: see Construction Execution Procedures (“CEP”) dated 21 April and 23 April 2003 at CB vol 3.21 at pp 3-14647 et seq and 3-14786 et seq, which included modifications being made to the TBM, and see Mr Embery’s acceptance that it was not suitable at T657.29. I accept ACE’s submissions in this regard and prefer the evidence of Mr Sternath and Dr Pells on matters relating to the TBM/G4 problem where it is in conflict with Mr Cooper.

ISSUE 1: What was the cause of the damage to the property of third party property owners (including PowerGrid)?

60 Lloyds provided a document entitled ‘Plaintiff’s Summary of Rectification Costs”. It is helpful to use that document to set out the claims for each of the four incidents.

Claim Description Amount

1;1.1 Excessive Settlement around high pressure gas pipe line (100%)
$3,109,806.91

1;1.2 Damage to PV 1900mm diameter water main at
power gas off take station (100%)
$167,060.10

1;1.3 AEM Tech Building (50%)
$37,518.20

1;1.4 Repair of 300mm medium pressure gas pipeline
(100%)
$75,158.94

1;1.5 Pacific Vinitex Building (100%)
$126,231.18

1;1.6 Hup Fatt Brothers Building (100%)
$951,573.68

1;1.7 PowerGrid 66 kv joint bays 4 and 5 (80%)
$623,732.02

1;1.11 Permanent lifting of T2 and T4 high pressure gas
pipeline at junction of Woodlands 8 and 9 (100%)
$337,548.05

1;1.13 Road repairs in Woodlands Avenue 8 (90%)
$102,951.11

1;1.14 Recharge wells etc (80%)
$659,977.50

1;1.15 Repair to monsoon drains and canal (100%)
$6,890.68

1;1.16 Repair to road formation on Woodlands Industrial
Park Avenue 8 (100%)
$22,057.00

6; Part 1 Deep Sewer Repair MH2 – MH 4 (50%)
$759,027.40

TOTAL
$6,979,532.77

Claim Description Amount

1;1.10 Byora Precision (10%)
$2,476.33

1;1.14 Recharge Wells etc (10%)
$83,997.13

TOTAL
$86,473.46

Claim Description Amount

2; Part 1 Temporary Repair to PUB deep sewer line (100%)
$1,771,958.13

2; Part 2 Compensation grouting works to PUB deep sewer line
(100%)
$344,017.95

2; Part 3 Permanent Repair to PUB Deep Sewer Line (100%)
$1,538,372.35

1;1.13 AEM Tech Building (50%)
$37,518.20

1;1.17 PowerGrid 66 kv joint bays 4 and 5 (20%)
$155,933.00

1;1.18 and 1.8.1 Excessive settlement around 66 KV joints 4,5 and 6
(100%)
$149,822.76

1;1.19 Expose high pressure gas pipeline (100%)
$1,170.24

1;1.10 Byora Precision (90%)
$22,286.93

1;1.13 Road repairs in Woodlands Avenue 8 (10%)
$11,439.01

1;1.14 Recharge wells etc (10%)
$82,797.18

TOTAL
$4,116,315.75

Claim Description Amount

6; Part 1 Deep Sewer Repair MH2 – MH 4 (50%)
$759,027.40

6; Part 2 Intergraphica (100%)
$232,383.66

6; Part 3 Jin Fu Gong (100%)
not yet repaired

6; Part 4 Wu Lan Lian Sheng Temple (100%)
$61,020.00

6; Part 6 Settlement of 66 kv joint neal lamp pole 16 along
Woodlands Avenue 8 (100%)
$151,373.40

6; Part 7; 1.6 Rectification at Yee Lee Oil (100%)
$8,900.00

6; Part 8; 1.7 Dismantle fencing, gate and hack concrete kerb
(100%)
$3,108.80

TOTAL
$12,397,935.26

61 There is no disagreement that buildings and structures owned by others and the PowerGas pipe, PowerGrid cable joints and Woodlands Avenue roadway were all damaged by virtue of groundwater loss and/or soil collapse associated with the construction work for the project.

62 In relation to the TBM/G4 problem there is no dispute that it was caused by the use of the TBM to excavate G4 material with resultant over-excavation, groundwater loss and collapse of soil above and around the excavation.

63 The disputes in relation to causation are as follows:

(1) What aspect of the works caused the structures listed in [60(1)] and [60(2)] to be damaged?

(2) As to the cause of the damage described under TBM/dyke problem in [60(4)], there is no dispute that this occurred because the excavation using the TBM caused groundwater loss and consequent ground consolidation, but there is a dispute as to whether that arose by reason of a failure of the JV to do something that ought to have been done by it (including following its own procedures).

(3) As to whether all of the problems, including the TBM/G4 problem, are really all part of the same failure of the JV – i.e. as Dr Pells maintains, a failure to revise its design for the works by alteration of the route or depth of the main tunnel and its adits and/or use a different TBM and/or include an adequate pre-excavation modelling and testing program.

(4) Whether in relation to the TBM/G4 problem, Lloyds has failed to establish that the JV took reasonable precautions.

(5) Whether there was one occurrence or more than one occurrence, and if so, how many.

The Woodlands and Gambas shafts

64 The first dispute centres largely on whether the significant groundwater loss (which it is agreed occurred) arose because of construction defects in or at the base of the diaphragm walls of the Woodlands and Gambas shafts. Lloyds claims that there were construction defects, namely defects in the walls themselves and a failure of the contractor to take the walls down to a sufficient depth.

65 Dr Redman accepted that the ingress of water through the upper adit and by virtue of the construction of it and was a contributory cause of groundwater loss: see Exhibit E at paras 39, 76 and 77. Since Dr Pells attributes the cause of settlement of adjoining property (prior to commencement of the main tunnel excavation in March 2002) to water loss in the excavation of upper adit (rather than the Woodlands shaft) there is, in fact, a measure of agreement.

66 There is no dispute that there were defects in the diaphragm walls through which water leaked and that they are to be characterised as construction defects: see Exhibit D at para 43, CB vol 3.3 at 3-1987 and T550 – 553. There was, however, dispute as to whether the water flow through the walls was significant and as to whether the problems at the toes were construction defects and whether, if they were, the loss of groundwater at the toe and through the diaphragm walls had caused subsidence in adjoining property.

67 I am satisfied on the balance of probabilities, for reasons I will explain, that the loss of groundwater at the toes was not a result of construction defects and it was not suggested that water loss through the upper adit was a consequence of construction defects.

68 There was extensive debate between the experts about the precise mechanism by which soil beneath the damaged structures came to settle, which included minute examination of the data revealed by piezometers, their reliability and how that data should be interpreted. Dr Redman’s theory was that the clay layer in the Kallang Formation around the shafts had become depressurized as a result of the significant degree of groundwater loss, with the water table dropping below the clay layer. Mr Jewell, by his hydrological modelling, supported Dr Redman’s theory as to how loss of pressure in the clay over time affected surrounding conditions as far afield as the affected structures. Dr Pells rejected the modelling as having any relevance: see Exhibit 5 at para 23, at p 29 and at section 3.3 – 3.4. There were assumptions made by Mr Jewell in his modelling that were themselves contentious – such as the degree of permeability of the G4 and ignoring the presence of the dyke at the Woodlands shaft (see Dr Redman’s evidence at T840.8), but what the modelling supports, in a broad sense, is the conclusion that loss of groundwater at the shafts can affect soil some distance away, which Mr Sternath accepted and which Dr Pells must have accepted as feasible in concurring originally with Dr Redman’s theory.

279 Lloyds claims that it is entitled to recover from ACE all of the money it has paid to the JV because ACE was liable to indemnify the JV and did not do so.

280 Lloyds, although an insurer, put its case primarily as one of recoupment because it paid the JV when ACE was required to pay and had not done so.

281 The position here is complicated by the following factors:

(1) Lloyds were excess insurers to the extent that ACE indemnified the JV.

(2) Lloyds also agreed to cover the JV if the JV could not obtain an admission of liability (and on my finding it could not obtain such an admission).

(3) When the liability to a third party arose Lloyds had no liability to indemnify the JV save, contingently, to the extent that ACE was not liable to indemnify the JV.

(4) When ACE refused to admit liability to indemnify the JV Lloyds became liable to indemnify the JV for the same risk.

(5) When Lloyds indemnified the JV it removed a burden from ACE to indemnify the JV, pursuant to an obligation that it had only because ACE would not meet its obligation to the JV.

282 In essence Lloyds’ argument is:

(1) ACE has been relieved of a burden to indemnify the JV by the payment of Lloyds.

(2) It would be just and equitable to require ACE to reimburse Lloyds all of the amount paid by Lloyds because Lloyds’ liability to pay the JV only arose because ACE did not meet its obligations under its policy.

(3) This is similar to the approach taken in contribution cases but with the added aspect that Lloyds was supposed to be an excess insurer and not a primary insurer unless ACE was not liable (not relevant to this aspect) or if ACE refused to admit liability and its failure to do so was a breach of ACE’s obligations under the ACE policy.

Government Insurance Office (NSW) v Crowley

GRE Insurance Ltd v QBE Insurance Ltd

Drayton v Martin

283 ACE resists Lloyds’ claim. It claims that Lloyds’ case does not meet the requirements for contribution nor the requirements for recoupment for reasons I shall outline.

284 ACE submits that if it became liable to indemnify the JV when third parties suffered damage to their property (the casualty) then at that point in time ACE and Lloyds were not co-insurers of the JV because Lloyds only became a co-insurer when the JV could not obtain an admission of liability, at the latest in 2005. ACE, as I have outlined above, does not accept that it has ever become liable to indemnify the JV, but this present argument proceeds on the basis that it is held that ACE did become liable to indemnify the JV.

285 ACE pointed to the decision in AMP Workers Compensation Services (NSW) Ltd v QBE Insurance Ltd [2001] NSWCA 267; (2001) 53 NSWLR 35 (“AMP v QBE”), which is authority for the proposition that the relevant time to assess whether there is joint insurance is at the time of the casualty: see [17], and has been followed in Workcover Queensland v Suncorp Metway Insurance Ltd [2005] QCA 155 at [52] per Jerrard JA (with whom McMurdo P and Douglas JA agreed) and Lumley General Insurance Ltd v QBE Insurance (Australia) Ltd [2008] VSC 216. At the time of the damage to third party property ACE became liable to indemnify the JV. Lloyds did not, at that point, become liable for any amount below the threshold indemnity because Lloyds’ obligation to indemnify in respect of the cover under the underlying policy only arose when the JV failed to obtain an admission that ACE would indemnify. ACE submits that Lloyds cannot assert that it became liable at an earlier time because that would only be on the basis that its cover was less extensive than that provided under the ACE policy.

286 Given that ACE was on risk from the moment of casualty and Lloyds was only contingently liable on the failure of ACE to indemnify it, I accept that the two insurers were not jointly liable as at the time of casualty. Where one insurer is liable to indemnify and remains liable to indemnify and subsequently another insurer becomes liable there may be some room for argument as to the applicability of AMP v QBE, but I proceed on the basis that contribution as a remedy in the insurance context is not available as a remedy for this reason. A second issue is whether contribution is available where the party seeking contribution claims entitlement to 100% of the amount. Commercial and General Insurance Co Ltd v Government Insurance Office (NSW) (1973) 129 CLR 374 at 380 – 381 is a significant obstacle to such an argument, but even if theoretically possible, such a claim takes the matter out of the realm of a ‘rateable’ apportionment as applied in the case of double insurance and hence would also propel Lloyds’ claim into one more akin to recoupment than contribution. This last point is the mirror image of the fact that if ACE had met its liability to the JV it would have had no basis for a claim on Lloyds for contribution – pointing to a lack of reciprocity of obligation.

287 The case of Ruabon Steamship Co Ltd v London Assurance [1900] AC 6 is authority for the proposition that the fact that ‘A’ obtains a benefit from the action of ‘B’ for which ‘B’ has incurred expense does not, without more, give ‘B’ a right to recoupment or contribution from ‘A’. That can be accepted but that principle does not address the present problem.

288 There are a number of cases which make it clear that the fact that both ‘B’ and ‘C’ may be liable to ‘A’ does not necessarily lead to the conclusions that if ‘B’ is required to pay ‘A’, ‘B’ can then pursue ‘C’ for contribution: see Scholefield Goodman & Sons Ltd v Zyngier [1986] AC 562 and Craythorne v Swinburne (1807) 14 Ves Jun 160 (cases involving a surety for a surety) and see Re Gasbourne Pty Ltd [1984] VR 801. In Burke v LFOT Pty Ltd [2002] HCA 17 a vendor and its solicitor, held liable for misrepresentations inducing purchase, were held not entitled to contribution from the negligent solicitor for the purchaser, since equitable contribution is founded on concepts of fairness and justice and any payment to the party making the misrepresentation by the purchaser’s solicitor would amount to unjust enrichment: see [22] per Gaudron ACJ and Hayne J and see McHugh J at [25], [38] and [44] – [49]; see also Street & Halls v Retravision (NSW) Pty Ltd (1995) 56 FCR 588 and Cockburn v GIO Finance Ltd (No 2) [2001] NSWCA 177 at [27], [36], [78] – [80] and cases cited there.

289 ACE also contends that if Lloyds’ claim is viewed as a claim for recoupment it fails because it does not meet the requirement laid down for such a claim and calls in aid a statement of principle found in Goff and Jones, The Law of Restitution, 6th ed (2002) Sweet & Maxwell at para 15.001 in which it is stated:

“To succeed in his claim for recoupment, the plaintiff must satisfy certain conditions. He must show:
(a) that he was compelled, or was compellable, by law to make the payment;
(b) that he did not officiously expose himself to the liability to make the payment; and
(c) that his payment discharged a liability of the defendant.”

290 Mason and Carter in their text Restitution Law in Australia (1995) Butterworths at [631] express the requirement of a claim in recoupment to be:

“(a) the need for the plaintiff’s payment to relate to a liability falling upon the plaintiff and the defendant;
(b) the plaintiff’s payment benefited the defendant; and
(c) absence of the plaintiff’s officiousness.”

The learned authors reject a fourth requirement that the plaintiff’s payment must have discharged the defendant’s liability: at [631].

291 ACE submits that:

(1) The only reason Lloyds was required to indemnify the JV was because it had contractually promised to do so – this is not, says ACE, a payment under compulsion.

Owen v Tate

(3) Lloyds, by paying the JV, did not ‘discharge’ ACE’s liability but rather, simply precluded the JV bringing a claim against ACE because it had already been indemnified by Lloyds.

292 In Owen v Tate, the defendants obtained a loan from a bank, which was secured by a charge by way of legal mortgage on the property of a Ms Lightfoot. Ms Lightfoot became concerned that the deeds to her house were being held to secure the defendants’ loan and she approached Mr Owen, who agreed to assist. Owen deposited £350 with the bank and signed a form of guarantee by which he guaranteed payment of up to £350 due by the defendants. He did not consult the defendants before doing so. The bank applied the £350 in repayment of the defendants’ debt. Owen then demanded payment of the £350 from the defendants.

293 Scarman LJ noted that the defendants had protested to the bank when the bank indicated that it would release Ms Lightfoot’s security and replace it with Owen’s security and Owen had provided the money to assist Ms Lightfoot and without notification to the defendants. Scarman LJ was not satisfied that it was just and reasonable in all the circumstances to grant Owen a right to reimbursement. He stated at 135 what he saw as the true principle of the matter thus:

“If without an antecedent request a person assumes an obligation or makes a payment for the benefit of another, the law will, as a general rule, refuse him a right of indemnity. But if he can show that in the particular circumstances of the case there was some necessity for the obligation to be assumed, then the law will grant him a right of reimbursement if in all the circumstances it is just and reasonable to do so. In the present case the evidence is that the plaintiff acted not only behind the backs of the defendants initially, but in the interests of another, and despite their protest. When the moment came for him to honour the obligation thus assumed the defendants are not to be criticised, in my judgment, for having accepted the benefit of a transaction which they neither wanted nor sought.”

294 In the course of his judgment (in which Stephenson LJ and Ormrod LJ agreed, adding observations of their own), Scarman LJ noted that there are exceptions to the rule that a volunteer who makes a payment on behalf of another cannot obtain repayment. He also referred at 131 to the words of Lord Wright in Brook’s Wharf:

“The obligation imposed by the Court simply under the circumstances of the case, and on what the Court decides is just and reasonable having regard to the relationship of the parties. It is a debt or obligation constituted by the act of the law, apart from any consent or intention of the parties or any priority of contract.”

295 In Owen v Tate, Scarman LJ cited a passage from the first edition of Goff & Jones, The Law of Restitution, (1966) Sweet & Maxwell, at p 207 in which reference was made to the need for both parties to have been subject to a common demand for money for which, as between the parties, the defendant is primarily liable. At least by the fourth edition (1998), the learned authors had placed the requirement for the common demand in the category of contribution and not recoupment, noting at p 390 that it was enough that the party who paid was ‘compelled’ to pay a debt to the third party – “it does not matter that there is no common liability to be sued”: at p 390. Mason and Carter challenge the view of common liability even for contribution: see [619] – [620], noting that in Australia, commonality of burden or loss is what is required.

296 In Brook’s Wharf a warehouseman which had been required to pay import duty on goods that had been stolen was held entitled to recover the impost from the importer. In Glebe Island Terminal Pty Ltd v Continental Seagram Pty Ltd (The Antwerpen) (1993) 40 NSWLR 206 Sheller JA at 224 with whom Cripps JA agreed said of the case:

“The proposition was that the importer was and remained liable for duty as at the date of importation. The obligation imposed by the Acts upon the custodian was ancillary and did not supersede the importer's liability. The claim was one for money paid by the custodian under compulsion to the use of the importer which remained ultimately responsible for the payment: Moule v Garrett (1872) LR 7 Ex 101 at 104. In modern terms the claim was for restitution or fair and just compensation for a benefit accepted or retained unjustly: Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221 at 255-256.”

297 In Moule v Garrett (1872) LR 7 Ex 101 it was held that an assignee of a lease was obliged to indemnify the original assignee of the lease who had been required to pay money to the landlord as a result of breaches by the incumbent lessee; and even where the assignee had not taken the assignment from the original lessee. In the course of submissions Willes J at 103 made reference to the principle that:

“where two persons are under an obligation to the same performance, though be different instruments, if both share the benefit which forms the consideration they must divide the burden; if one only gets the benefit he must bear the whole: Dering v Earl of Winchelsea (1787) 1 Cox 318, 29 ER 1184.”

298 There are several other cases which follow the approach in Moule v Garrett: Duncan Fox & Co v North and South Wales Bank (1880-81) 6 App. Cas. 1 at 11 – 12 (“Duncan Fox”), Becton Dickinson UK Ltd v Zwebner [1989] QB 208, Selous Street Properties Ltd v Oronel Fabrics Pty Ltd [1984] 1 EGLR 50; (1984) 270 E.G. 643.

299 Duncan Fox, was concerned with a bill of exchange accepted by the defendant and endorsed by the plaintiff and the entitlement of the acceptor to securities held by the acceptor of the bill the debtor’s bank. In the course of his speech, the Lord Chancellor Lord Selborne said at p 13:

“It appears to me that these principles of Equity are not less applicable to cases of the third class – cases in which there is, strictly speaking, no contract of suretyship, but in which there is a primary and secondary liability to two persons for one and the same debt, by virtue of which, if it is paid by the person who is not primarily liable, he had a right to re-imbursement or indemnity from the other – than to those of the second class, in which there is a contract for suretyship to which the contractor is not a party. To this third class of cases, the right of an indorser against an acceptor of a bill of exchange may most properly be referred. The liability of the indorser to the holder is, by the law merchant, conditional, and (as was said by Mr Justice Buller in Tindal v Brown [(1786) 1 Term Rep 167]) “only secondary”; but when the conditions required by the law are fulfilled, it becomes absolute, and is that of a principal; and the indorser’s right, if he pays the holder, to recover over against the acceptor is not founded on any agreement between him and the acceptor (who is as likely as not to be a stranger without any communication with him before the indorsement), but is established by the same law.”

300 Here Lloyds and ACE both became liable to indemnify the JV but ACE primarily so and Lloyds only because ACE would not meet its liabilities. Lord Blackburn at 19 said:

“I think that though the indorser of a bill is not exactly a surety for the acceptor, or a co-surety with those who are sureties for the acceptor, yet he stands in a position sufficiently analogous to that of a surety to bring him within the principle of Dering v Earl of Winchelsea [ (1787) 1 Cox 318; 29 ER 1184].”

and these words and those of Lord Selborne, although of course dealing with a different subject matter, point to an approach that has resonance here.

301 In Lumley General Insurance Ltd v Oceanfast Marine Pty Ltd [2001] NSWCA 479 (“Lumley”), the NSW Court of Appeal had to consider whether Lumleys were entitled to prove in the winding up of Oceanfast in respect of a commercial bond for $5 million, which had been provided by Lumleys to Adsteam in support of Oceanfast’s obligations under a shipping contract, and met when Oceanfast defaulted. Adsteam had lodged a proof of debt for its losses under the contract without any deduction for the $5 million received from Lumleys pursuant to the bond. The trial judge (Austin J) had held that the principle in Moule v Garrett applied notwithstanding that the agreement between Lumleys and Oceanfast did not expressly provide for repayment by Oceanfast of any monies paid by Lumleys. He also held, however, that the absence of any agreement by Oceanfast that payments made by Lumleys would reduce the debt to Adsteam meant that Adsteam could prove in the winding up for the full $15 million claimed, and that Lumleys could not.

302 The Court of Appeal, by a majority (Priestley and Giles JJA) upheld the appeal. Priestley JA noted that if the principle of Moule v Garrett applied (and his Honour thought it did: see [6]) then Lumleys’ payment did discharge the debt of Adsteam by that amount and there was no impediment to Lumleys’ claiming the $5 million. Giles JA noted that it had been accepted on the appeal that Moule v Garrett applied and he held that by the payment of the $5 million by Lumleys thus “Oceanfast obtained the benefit of the payment by discharge of its liability” which “was the occasion for equity to impose on it the burden of recoupment”: see [163].

303 Beazley JA (in dissent) regarded the absence of any contractual right in Lumleys to recover from Oceanfast to be of critical significance and her Honour held that Lumleys was not entitled to prove in the winding up – in effect, Lumleys took the risk that Oceanfast would not be able to meet its obligations to Adsteam and that Adsteam’s right to claim the balance from Oceanfast should not be reduced by a competing claim by Lumleys (see [89] for a concise exposition of the competing claims).

304 It will be observed that Priestley JA was of the view that Moule v Garrett applied and that Priestley and Giles JJA were both of the view that the payment by Lumleys discharged the debt to Adsteam by that amount (as, it was pointed out by Priestley JA, was the trial judge). There was no suggestion that the fact that Lumleys’ payment was consequent upon a commercial agreement and in satisfaction of an obligation thereunder, meant that there was no right of recoupment.

305 A useful discussion of the question of benefit and advantage is found in O’Donovan and Phillips, The Modern Contract of Guarantee ([276] supra) at 12.110:

“the mere fact that the guarantor’s payment confers a benefit upon the debtor does not always ensure the success of the guarantor’s restitutionary claim for a reimbursement where the benefit was unwanted or unnecessary. Certainly, where the debtor derives no advantage from the payment, the guarantor will not be entitled to a reimbursement.

The position is different if the payment made also relieves the payer from her or his own liability. For example, where two persons are liable for the same debt, and, as between them, one is primarily liable and the other is secondarily liable, the former is obliged to indemnify the latter if the latter discharges the liability. This restitutionary right to an indemnity is not founded on a request for payment and there is no question of the secondary obligor officiously exposing herself or himself to the liability to pay the principal debt: the secondary obligor is, after all, liable in her or his own right. The right to an indemnity arises simply because the secondary obligor discharges the liability of the primary obligor. This principle allows a lessee, who had assigned the lease, to obtain an indemnity after payment to the lessor, not only against the assignee, but also against a surety for the assignee. The indemnity arises despite the absence of privity of contract between the lessee and the surety for the assignee.”

306 As was pointed out in Cockburn v GIO Finance Ltd (No 2) [2001] NSWCA 177 contribution and recoupment are siblings. In Karacominakis v Big Country Developments Pty Ltd [2000] NSWCA 313 at [239] Giles JA said:

“The basis is described in Mason and Carter, Restitution Law In Australia , 1995 at 208 as recoupment, derived together with contribution from considerations of natural justice (as to contribution see Albion Insurance Co Ltd v Government Insurance Office (NSW) (1969) 121 CLR 342 at 350-2 per Kitto J). The authors say -

“Rights of contribution and recoupment derive from a single source, namely the injustice of the defendant having had its burden relieved by the plaintiff. But a right of recoupment differs in its application from contribution because there is no `equality': rather the respective positions of P and D are such that it is just that P should throw the whole burden of P's liability to X upon D's shoulders. If it were otherwise, D would be seen to have received an unjust benefit (that is, the effective release of the burden to X) at the expense of P who bore it. [Cf Pavey v Matthews Pty Ltd v Paul (1987) 162 CLR 221 at 256-7 per Deane J.] Thus, in the standard guarantee situation a guarantor (P), who is forced to meet the creditor's (X's) claim, is entitled as against the principal debtor (D) to recoupment in full for the outlay. This is one example of a broader principle, as Lord Wright MR demonstrated in Brook's Wharf and Bull Wharf Ltd v Goodman Bros: [[1937] 1 KB 534 at 544, cited with approval by Walsh JA in Armstrong v Commissioner of Stamp Duties (1967) 69 SR (NSW) 38 at 47. See also The Pindaros [1983] 2 Lloyd's Rep 635.
The essence of the rule is that there is a liability for the same debt resting on the plaintiff and the defendant, and the plaintiff has been legally compelled to pay, but the defendant gets the benefit of the payment, because his debt is discharged either entirely or pro tanto, whereas the defendant is primarily liable to pay as between himself and the plaintiff.””

307 This passage was approved by Giles JA, with whom Handley and Stein JJA agreed.

308 I think the authorities to which I have referred amply support the view that recoupment is available where it is just and equitable to permit it.

309 In Esso Petroleum Co Ltd v Hall Russell & Co Ltd (The Esso Bernicia) [1989] AC 643, the Esso Bernica, whilst under the control of tugs collided with mooring dolphins at a jetty and the ship and the jetty suffered damage. Bunker oil escaped in large quantities. The owners of the vessel sued the shipbuilders and the Council (who were responsible for pilotage in the harbour). Amongst the damage were payments that Esso had been required to pay to crofters, whose livestock had been affected, and operators of the terminal. Those sums were paid under a voluntary agreement known as Tanker Owners Voluntary Agreement Concerning Liability for Oil Pollution. The shipowners sought to recover the payment made to the crofters.

310 The House of Lords, per Lord Goff with whom Lord Keith, Lord Brandon and Lord Templeman concurred, held, relevantly, that Esso could not proceed in its own name to pursue the shipbuilder because there was no contract of indemnity between Esso and the crofters and the payment to the crofters did not discharge the shipbuilder’s liability to the crofters: see 663B. Lord Jauncy, who reached the same conclusion, pointed out that Esso was under no general duty in law to the crofters and the payments made were entirely gratuitous. The crofters could have sued the shipbuilder notwithstanding the payments: see 678A-B.

311 Lord Jauncy said at 678D:

“What has caused these payments to be made? In my view they were made because Esso has chosen, by entering into and remaining a party to TOVALOP, to assume a voluntary obligation to the crofters and not because of any alleged negligence on the part of Hall Russell [the shipbuilders].”

312 The insurance contract which Lloyds entered into with the JV was not the voluntary assumption of an obligation but a contract made for consideration, namely the premium.

313 Reference was made to Lucas v CMT Construction & Metropolitan Tunnels (1986) 4 ANZ Ins Cas 60-752 (“Lucas”). In that case, a workers compensation insurer (“NEM”), which had paid $32,000 to an injured worker, sought to recover that amount from the worker’s employer (“CMT”). The worker had obtained a judgment against CMT and CMT had sought and obtained indemnity from the motor vehicle insurer. In fixing the amount payable by the employer to the worker, the Court had taken into account the workers compensation payments made on behalf of the employer by NEM. The claim for subrogation was held to be misconceived and the decision may be seen as an application of the principle in Sydney Turf Club v Crowley (1972) 126 CLR 420 at 421 approving Sydney Turf Club v Crowley [1971] 1 NSWLR 724 since the employer, it was held, had no remaining rights against the motor vehicle insurer or the employee. NEM argued that CMT’s liability for workers compensation had been discharged but its claim for recoupment was also rejected. ACE relies on his Honour’s comment at 75,536 that

“[P]ayments of compensation by NEM were never made under compulsion of law but were made under a contract of insurance. I have considered a number of the authorities cited by Goff and Jones in Chapter 12 but I have been unable to find a case near to the case now before the Court”

which appears to offer some support for ACE’s position because of the characterisation of obligations to pay pursuant to an insurance contract as voluntary obligations, but this comment must be seen in the context of a claim by an insurer to recover from an insured employer where the employer had not received any amounts back from the worker for those payments. CMT had its liability to its employee discharged by virtue of NEM’s payment on its behalf but if it was required to repay NEM it would have had no benefit from the contract of insurance. I do not think that Lucas assists ACE. Of course, entry into a contract is voluntary, but I do not think that makes payments made by an insurer to an insured pursuant to a contract voluntary in the relevant sense when an insurer, who has met its liability to an insured, seeks to recover from another insurer. If it did then a co-surety (or co-insurer) would not be able to pursue another co-surety (or co-insurer). I have referred to Lumley which is another example of payments made pursuant to a contract, and see also GRE Insurance Ltd v QBE Insurance Ltd [1985] VR 83 at 103 – 104, referred to below.

314 Another case to which reference was made was State Bank of Victoria v Parry (1990) 2 ACSR 15. Parry was the Chairman and Chief Executive of PCL and a director of Kynes Pty Ltd (“Kynes”) and other companies in the Parry Group. Parry gave a guarantee to the State Bank of Victoria in respect of a facility provided by the bank to Kynes. The purpose of the facility was to refinance a loan used by Kynes to purchase shares and options from PCL. Parry was held liable to the bank for in excess of $8 million. He claimed indemnity or contribution from PCL asserting that he had paid the monies in discharge of his duties as a director of PCL. The substantial benefit of the guarantee had been provided to Kynes, not PCL, and his claim for recoupment was rejected. I do not think this case assists ACE.

315 In my view this present case, even if not falling within the description of contribution, is sufficiently close as to enable some aspects of the approach taken in relation to contribution in the insurance context to be relevant when looking at the case as one for recoupment, i.e.:

(1) Just as there is no question that a second insurer who pays a claim can recover from another insurer even where the first insurer has no knowledge of the existence of the other policy there is no requirement for Lloyds to prove that ACE requested that the JV enter into the Lloyds policy or knew that the JV proposed to do so (there is, as it happens, evidence that ACE did know of the Lloyds policy).

(2) In contribution, it is accepted that the payment by one insurer discharges the burden of the second insurer and it should be accepted here. I reject ACE’s assertion that it was not discharged by Lloyds’ payment. I note that in para 170 of its submissions of 10 March 2009, ACE agreed that it “obviously obtains the benefit of having its liability discharged” but as this discharged Lloyds’ own liability that made a difference. I do not accept that contention – if Lloyds was not meeting a liability of its own then it might have been said that it was an officious intermeddler.

(3) The essence of contribution in insurance law is that it is just and reasonable for the party relieved of liability to the insured to pay its share to the insurer which has paid. That same underlying principle here requires consideration of whether the liability for ACE was a primary obligation or not.

GRE Insurance Ltd v QBE Insurance Ltd

supra

“But the appellant did not succeed in its denial of liability and if it now can succeed upon the basis that the respondent is not entitled to contribution simply because it paid out the whole loss it will indeed be profiting by its own wrong, as it turned out, in wrongly denying primary liability. In the absence of clear and compelling authority I do not think this Court should be ready to countenance such a result.”

(5) In my view the law of contribution recognises that there is nothing ‘officious’ about an insurer covering a liability that is covered under another policy by another insurer. An agreement by an insurer to meet a liability imposed on another insurer when that second insurer refuses to meet its obligations seems to me to be a commercial arrangement with positive ramifications for commerce and the construction industry, rather like credit or mortgage insurance, and I do not accept ACE’s argument that Lloyds only has itself to blame for entering into a policy of that kind and meeting its obligations under it, or that Lloyds, by providing conditional cover, was acting “behind [ACE’s] backs”: see T1394.5. ACE’s position has a distinct lack of merit to it and none of the cases relied on by ACE support, in my view, such an outcome.

Australian Eagle Insurance Co Ltd v Mutual Acceptance (Insurance) Pty Ltd

supra

316 In my view, it is just and equitable to order recoupment of any liability of which ACE was relieved by Lloyds’ payment.

ISSUE 24: Quantum

317 ACE, by its Scott Schedule response, admitted that a total of $13,341,252.32 had been incurred by the JV. That amount included an allowance for the Jin Temple of $800,000, which amount, it was indicated at the commencement of the hearing, has not been paid. It was accepted that the amount which ACE should be taken to have admitted was therefore $12,541, 252.32.

318 I held in an interlocutory judgment that ACE was permitted to withdraw the admission, but in limited respects, namely as to:

(1) the cost of labour or other services provided by persons who were otherwise employed by the JV;

(2) the cost of acquisition, hire and/or use of plant and equipment owned or leased by the JV (other than costs limited to the difference between the acquisition and sale costs of plant and equipment acquired for the purpose of performing the work the subject claims of the JV and later sold to third parties);

(3) the cost of investigation, monitoring and preservation of property (other than costs in the nature of payments to third parties); and

(4) Whether ACE could limit the amount for which it was liable to the amounts assessed by Mr Davies, Lloyds’ assessor. Lloyds disputes that Mr Davies’ figures could be held to be final because after he assessed the amounts payable, which came to a total significantly less that the amount claimed by the JV, the figure of $13 million was agreed upon. In any event that argument remains to be determined.

319 Leaving aside the Jin Temple, and the arguments advanced by ACE on liability, the maximum amount for which ACE may be liable is $12.6 million. This amount could be reduced to $9 million and possibly further reduced by amounts identified in (1), (2) and (3), even assuming all of the elements of the Lloyds claim were made out. I say ‘possibly’ because it may be that the amount allowed by Mr Davies or some part of it did not include the items which ACE will be permitted to contest.

320 It was agreed that the matters (1), (2), (3) and (4) of [318] will need to be referred to a referee and that attention will need to be given by me to how that aspect of the case should be handled after I have handed down this judgment.

Conclusion

321 It follows that in my view:

(1) Lloyds was not liable to indemnify the JV under Section 1 of the Lloyds policy for:

(a) any of the items listed under [60(2)] Gambas shaft;

(b) any of the items listed under [60(3)] TBM/G4 problem; or

(c) AEM Tech Building, PowerGrid 66 kv joint bays 4 and 5, road repairs in Woodlands Avenue 8 and recharge wells etc listed under [60(1)] Woodlands shaft,

because liability for these items was due wholly or in part to causes excluded by condition 7.3 of the Lloyds policy, and also, in the case of the PowerGrid damage to 66 kv joint bays 4 and 5 at [60(1)] , by clause 5.11 of the Lloyds policy.

(2) Lloyds was liable to indemnify the JV in respect of the items not covered under Section 1 of the Lloyds policy, and referred to in (1) above, by virtue of Section 2 of the Lloyds policy.

(3) ACE is not liable for settlement of 66 kv joint neal lamp pole 16 along Woodlands Avenue 8, rectification at Yee Lee Oil and dismantling fence, gate and hack concrete kerb listed under [60(4)] TBM/dyke problem, because the damage, and hence liability of the JV, has not been established to have occurred on or before 27 May 2002.

322 I will stand the matter over to a suitable date for directions as to the balance of these proceedings. I will also give the parties an opportunity to bring to my attention any matter requiring determination which I have not dealt with other than the issue of quantum.

*******

06/10/2009 - Inserted 'design' in clause 5 of ACE policy; inserted clauses 3.8 and 4.8 of Lloyds policy; reasons amended to reflect amendment to [9(8)]; Issue 22 replaced; deleted 'deep sewer repair MH2 - MH4; inserted new (2) - Paragraph(s) [9(8)]; [20(7)] and [20(8)]; [186]; [256] - [271]; [321]

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Citations

Limit (No 3) Ltd v Ace Insurance Ltd [2009] NSWSC 514

Most Recent Citation

470 St Kilda Road v Robinson [2013] FCA 1420

Cases Citing This Decision

9

SunWater Limited v Liberty Mutual Insurance Company [2022] NSWCA 273

Newcastle Resources Pty Ltd (formerly known as SCE Resources Pty Ltd) v Certain Underwriters at Lloyd’s Syndicate CVS 1919 subscribing to policies numbered LS00100XL, LS00100BU and STA0222BU [2022] NSWSC 1485

Lambert Leasing Inc. v QBE Insurance Ltd [2015] NSWSC 750

Cases Cited

33

Statutory Material Cited

3

AMP Workers' Compensation Services (NSW) Ltd v QBE Insurance Ltd [2001] NSWCA 267

Workcover Queensland v Suncorp Metway Insurance Ltd [2005] QCA 155

Lumley General Insurance Limited v QBE Insurance (Australia) Limited [2008] VSC 216

CITATION:	Limit (No 3) Limited v ACE Insurance Limited [2009] NSWSC 514 This decision has been amended. Please see the end of the judgment for a list of the amendments.
HEARING DATE(S):	9 February - 12 March, 19 & 20 March 2009
JUDGMENT DATE :	4 June 2009
JURISDICTION:	Equity Division Commercial List
JUDGMENT OF:	Rein J at 1
DECISION:	See [308].
CATCHWORDS:	INSURANCE – third-party liability insurance – other third-party liability insurance – excess insurer with Difference in Conditions clause claiming recoupment or contribution from underlying insurer which refused to indemnify insured – property damage to third parties caused by removal or weakening of ground support as a result of tunnelling and excavation work in Singapore – whether causes due to construction defects or arose out of the rendering of or failure to render professional services – whether or not insured was liable to third parties in accordance with the law of Singapore – whether judgment, arbitral award or formal settlement is required for insurer to be liable to indemnify the insured – whether or not the damage occurred within the period of the underlying policy – admissibility of extrinsic material under the law of Singapore in construction of contracts - proper construction of underlying insurance policy with special endorsement and professional services exclusion – whether or not professional services exclusion clause limited to insured’s liability to clients for whom it provided a professional service – operation of the Wayne Tank rule where damage arises by reason of two or more causes – whether or not damage arose out of more than one ‘occurrence’ as defined in the insurance policies – construction of Difference in Conditions clause of excess insurer’s policy – whether reasonable precautions clause in the excess policy was breached – requirements of reasonable precautions clause considered – whether excess insurer entitled to contribution or recoupment from underlying insurer – consideration of requirements for contribution and recoupment and whether met – whether approach to contribution in insurance law relevant to claim for recoupment
LEGISLATION CITED:	NEW SOUTH WALES LEGISLATION Conveyancing Act 1919 Evidence Act 1995 SINGAPORE LEGISLATION Electricity Act (Cap. 89A) Public Utilities Act (Cap. 261) Evidence Act (Cap. 97, 1997 Rev Ed)
CATEGORY:	Principal judgment
CASES CITED:	UNITED KINGDOM CASES Acton v Blundell (1843) 12 M. & W. 324; 152 ER 1223 Bank of Credit and Commerce International SA v Ali [2002] 1 AC 251 Becton Dickinson UK Ltd v Zwebner [1989] QB 208 Brook’s Wharf and Bull Wharf Ltd v Goodman Bros [1937] 1 KB 534 Craythorne v Swinburne (1807) 14 Ves Jun 160 Dalton v Angus (1881) 6 App Cas 740 Dawson’s Field Arbitration (March 1972) Dering v Earl of Winchelsea (1787) 1 Cox 318; 29 ER 1184 Devco Holder Ltd and Burrows & Paine Ltd v Legal and General Assurance Society Ltd [1993] 2 Lloyd’s Rep 567 Duncan Fox & Co v North and South Wales Bank (1880-81) 6 App Cas 1 England v Marsden (1866) LR 1 CP 529 Esso Petroleum Co Ltd v Hall Russell & Co Ltd (The Esso Bernicia) [1989] AC 643 Exall v Partridge (1799) 101 ER 1405 Fraser v B N Furman (Production) Ltd (1967) 3 All ER 57 Gold v Patman [1958] 2 All ER 497 Investors Compensation Scheme Limited v West Bromwich Society [1998] 1 WLR 896 Kennaway v Thompson [1981] QB 88 Kuwait Airways Corporation v Kuwait Insurance Co SAK [1996] 1 Lloyd’s Rep 664 Langbrook Properties Ltd v Surrey County Council [1969] 3 All ER 1424 Moule v Garrett (1872) LR 7 Ex 101 Netherlands Insurance Co Est 1845 Ltd v Karl Ljungberg & Co AB, The Mammoth Pine [1986] 3 All ER 767 Owen v Tate [1975] 2 All ER 129 Re Gasbourne Pty Ltd [1984] VR 801 Ruabon Steamship Co Ltd v London Assurance [1900] AC 6 Scholefield Goodman & Sons Ltd v Zyngier [1986] AC 562 Scott v Copenhagen Reinsurance Co (UK) Ltd [2003] 2 All ER (Comm) 190 Selous Street Properties Ltd v Oronel Fabrics Pty Ltd [1984] 1 EGLR 50; (1984) 270 E.G. 643 Stephens v Anglian Water Authority [1987] 1 WLR 1381 Wayne Tank & Pump Co Ltd v Employers Liability Assurance Corp Ltd [1974] 1 QB 57 SINGAPORE CASES Afro Asia Shipping Co. Pte Ltd v Da Zhong Investment Pte Ltd [2004] 2 SLR 117 OTF Aquarium v Lian Shing Construction Co Pte Ltd (Liberty Insurance Pte Ltd, Third Party) [2007] SGHC 122 Loh Siew Keng v Seng Huat Construction Pte Ltd [1998] SCHC 197 Tesa Tape Asia Pacific Pte Ltd v Wing Seng Logistics Pte Ltd [2006] SGHC 73 Wong Jin Fah v L&M Prestressing Pte Ltd & Ors [2001] 4 SLR 529 Xpress Print Pte Ltd v Monocrafts Pte Ltd [2000] 3 SLR 545 Zurich Insurance (Singapore) Pte Ltd v B-Gold Interior Design & Construction Pte Ltd [2008] SGCA 27 AUSTRALIAN CASES Albion Insurance Co Ltd v Government Insurance Office (NSW) (1969) 121 CLR 342 Albion Insurance Company Ltd v Body Corporate Strata Plan No 4303 [1983] 2 VR 339 Allstate Exploration NL v QBE Insurance (Australia) Ltd [2008] VSCA 148 AMP Workers Compensation Services (NSW) Ltd v QBE Insurance Ltd [2001] NSWCA 267; (2001) 53 NSWLR 35 Australian Eagle Insurance Co Ltd v Mutual Acceptance (Insurance) Pty Ltd [1983] 3 NSWLR 59 Baulderstone Hornibrook Engineering Pty Ltd v Gordian Runoff Limited [2008] NSWCA 243 Beresford v Royal Insurance Co Ltd [1938] AC 586 Bowling v Wienert [1978] 2 NSWLR 287 Burke v LFOT Pty Ltd [2002] HCA 17 CGU Insurance Ltd v Lawless [2008] VSCA 38 Clayton v Mutual Community General Insurance Pty Ltd (1995) 64 SASR 353 Cockburn v GIO Finance Ltd (No 2) [2001] NSWCA 177 Commercial and General Insurance Co Ltd v Government Insurance Office (NSW) (1973) 129 CLR 374 Distillers Co Bio-Chemicals (Aust) Pty Ltd v Ajax Insurance Co Ltd (1970) 130 CLR 1 Drayton v Martin (1996) 67 FCR 1 Edwards v Insurance Office of Australia Ltd (1933) 34 SR (NSW) 88 Fire & All Risks Insurance Co Ltd v Powell [1966] VR 513 Fitzpatrick v Job t/as Jobs Engineering [2007] WASCA 63 GIO General Ltd v Newcastle City Council (1996) 38 NSWLR 558 Glebe Island Terminal Pty Ltd v Continental Seagram Pty Ltd (The Antwerpen) (1993) 40 NSWLR 206 Government Insurance Office (NSW) v Crowley [1975] 2 NSWLR 78 Government Insurance Office (NSW) v RJ Green & Lloyd Pty Ltd (1966) 114 CLR 437 GRE Insurance Ltd v QBE Insurance Ltd [1985] VR 83 Israel v Foreshore Properties Ltd (in liq) (1980) 54 ALJR 421 Karacominakis v Big Country Developments Pty Ltd [2000] NSWCA 313 Kodak (Australasia) Pty Ltd v Retail Traders Mutual Indemnity Insurance Association (1942) 42 SR (NSW) 231; 59 WN 197 Legal and General Insurance Australia Ltd v Eather (1986) 6 NSWLR 390 Lucas v CMT Construction & Metropolitan Tunnels (1986) 4 ANZ Ins Cas 60-752 Lumley General Insurance Ltd v Oceanfast Marine Pty Ltd [2001] NSWCA 479 Lumley General Insurance Ltd v QBE Insurance (Australia) Ltd [2008] VSC 216 McColl’s Wholesale Pty Ltd v State Bank of NSW [1984] 3 NSWLR 365 Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 Penrith City Council v Government Insurance Office (1991) 24 NSWLR 564 Peterson v Union de Assurance Ltd Paris IARD [1985] ANZ Ins Cas 61-24 Provincial Insurance Aust Pty Ltd v Consolidated Wood Products (1991) 25 NSWLR 541 State Bank of Victoria v Parry (1990) 2 ACSR 15 Street & Halls v Retravision (NSW) Pty Ltd (1995) 56 FCR 588 Suncorp Metway Insurance Ltd v Landridge Pty Ltd [2005] VSCA 223 Sydney Turf Club v Crowley (1972) 126 CLR 420 Sydney Turf Club v Crowley [1971] 1 NSWLR 724 Transfield Services (Australia) v Hall [2008] NSWCA 294 VACC Insurance Ltd v BP Australia Ltd [1999] NSWCA 427 Verna Trading Pty Limited v New India Assurance Limited [1991] 1 VR 129 Vero Insurance Ltd v Power Technologies Pty Ltd [2007] NSWCA 226 Wilkie v Gordian Runoff Ltd (2005) 221 CLR 522 Workcover Queensland v Suncorp Metway Insurance Ltd [2005] QCA 155 Xuereb v Viola (1989) 18 NSWLR 453 CANADIAN CASES Chemetics International Ltd v Commercial Union Assurance Company of Canada (1984) 11 DLR (4th) 754 UNITED STATES CASES Aetna Casualty and Surety Co v Freyer 411 NE 2d 1157 (1980) Hanover Insurance Group v Cameron 298 A 2d 715 (1973) SR International Business Insurance Co Ltd v World Trade Centre Properties LLC F Supp 2d 2002
TEXTS CITED:	Clerk & Lindsell on Torts, 19th ed (2006) Sweet & Maxwell J G Fleming, The Law of Torts, 9th ed (1998) LBC Information Services Goff & Jones, The Law of Restitution, 1st ed (1966) Sweet & Maxwell Goff & Jones, The Law of Restitution, 6th ed (2002) Sweet & Maxwell Mason & Carter, Restitution Law in Australia, (1995) Butterworths Meagher, Gummow and Lehane, Equity: Doctrines and Remedies, 4th ed (1992) Butterworths O’Donovan and Phillips, The Modern Contract of Guarantee, 3rd ed (1996) LBC Information Services G McMeel, ‘Prior Negotiations and Subsequent Conduct – the Next Step Forward for Contractual Interpretation?’ (2003) 119 LQR 272 D Nicholls, ‘My Kingdom for a Horse: The Meaning of Words’ (2005) 121 LQR 577
PARTIES:	Limit (No 3) Limited (First plaintiff) Oak Dedicated Limited (Second plaintiff) The Underwriter Insurance Company Limited (Third plaintiff) GE Frankona Reinsurance Limited (Fourth plaintiff) ACE Insurance Limited (Defendant)
FILE NUMBER(S):	SC 50191/05
COUNSEL:	Mr S Donaldson SC, Mr J Neal (Plaintiffs) Mr J Simpkins SC, Mr T W Marskell (Defendant)
SOLICITORS:	Deacons (Plaintiffs) Wotton & Kearney (Defendant)

The Issues	[9]
The ACE policy	[9(1)]
The Lloyds policy	[9(13)]
Further Issues	[9(23)]
The Properties and Infrastructure Damaged	[10]
The JV Contract with PowerGrid	[11]
The ACE policy	[19]
The Lloyds policy	[20]
The Project Background	[21]
Dr Redman’s Approach	[38]
Woodlands shaft	[38(1)]
The Gambas shaft	[38(11)]
The TBM/G4 problem	[38(12)]
The TBM/dyke problem	[38(15)]
Dr Pells’ Approach	[39]
Credibility of Witnesses	[50]
Mr Embery	[50]
Other Witnesses	[53]
Dr Pells	[54]
Mr Cooper	[58]
ISSUE 1: What was the cause of the damage to the property of third party property owners (including PowerGrid)?	[60]
The Woodlands and Gambas shafts	[64]
The TBM/G4 problem	[93]
The TBM/dyke problem	[94]
ISSUE 2: Did the cause (or causes) of damage give rise to a liability in the JV to the third party property owners?	[103]
ISSUE 3: Has the JV incurred a ‘legal liability’ within the meaning of the insuring clause?	[114]
ISSUE 4: Was the damage sustained within the ACE policy period?	[129]
ISSUE 5: What is the effect of GC 14 in the ACE policy?	[137]
ISSUE 6: Was there removal or weakening of support?	[165]
ISSUE 7: Was there any negligent act by the JV?	[166]
ISSUE 8: What is the effect of the Professional Services Exclusion in the ACE policy?	[167]
ISSUE 9: If the PSE and GC 14 applies, is ACE’s liability to indemnify excluded by the PSE in ACE policy?	[190]
ISSUE 10: Does the rule in Wayne Tank operate to exclude any liability of the JV where the cause was the result of both professional and non-professional services?	[191]
ISSUE 11: Was the TBM/G4 problem an intentional act?	[194]
ISSUE 12: How many ‘occurrences’ were there?	[195]
ISSUE 13: Cause of damage under Lloyds policy.	[200]
ISSUE 14: Has the JV incurred a ‘legal liability’ within the meaning of the insuring clause of Lloyds policy?	[201]
ISSUE 15: Was the JV ‘unable to obtain an admission of liability’ from ACE?	[202]
ISSUE 16: If so, was Lloyds liable to indemnify the JV under Section 1?	[206]
ISSUE 17: If so, was that liability excluded under Section 1 by the professional indemnity exception in clause 5.11 or the reasonable precautions condition in condition 7.3?	[216]
Clause 5.11	[216]
Reasonable Precautions	[217]
ISSUE 18: Does the rule in Wayne Tank operate to exclude any liability of the JV where the cause was the result of both professional and non-professional services?	[252]
ISSUE 19: Did sub-clause 1.17(b) of the Lloyds policy operate so that cover afforded under the Lloyds policy was the same as that provided under the ACE policy? If so, what was the extent of this cover having regard to proper construction of the PSE and GC 14 of the ACE policy?	[253]
ISSUE 20: Was Lloyds liable to indemnify the JV by reason of the ‘drop down cover’ provision in sub-clause 1.17(c) even if an exclusion in the Lloyds policy otherwise applied?	[254]
ISSUE 21: How many ‘occurrences’ were there for purposes of Lloyds policy?	[255]
ISSUE 22: If not liable under Section 1, were Lloyds liable under Section 2?	[256]
ISSUE 23: Recoupment, indemnity or contribution?	[272]
ISSUE 24: Quantum	[317]
Conclusion	[321]

Claim	Description	Amount
1;1.1	Excessive Settlement around high pressure gas pipe line (100%)	$3,109,806.91
1;1.2	Damage to PV 1900mm diameter water main at power gas off take station (100%)	$167,060.10
1;1.3	AEM Tech Building (50%)	$37,518.20
1;1.4	Repair of 300mm medium pressure gas pipeline (100%)	$75,158.94
1;1.5	Pacific Vinitex Building (100%)	$126,231.18
1;1.6	Hup Fatt Brothers Building (100%)	$951,573.68
1;1.7	PowerGrid 66 kv joint bays 4 and 5 (80%)	$623,732.02
1;1.11	Permanent lifting of T2 and T4 high pressure gas pipeline at junction of Woodlands 8 and 9 (100%)	$337,548.05
1;1.13	Road repairs in Woodlands Avenue 8 (90%)	$102,951.11
1;1.14	Recharge wells etc (80%)	$659,977.50
1;1.15	Repair to monsoon drains and canal (100%)	$6,890.68
1;1.16	Repair to road formation on Woodlands Industrial Park Avenue 8 (100%)	$22,057.00
6; Part 1	Deep Sewer Repair MH2 – MH 4 (50%)	$759,027.40
TOTAL	$6,979,532.77