Rail Corporation of New South Wales v Fluor Australia Pty Ltd - [2008] NSWSC 1348

No judgment structure available for this case.

CITATION: Rail Corporation of New South Wales v Fluor Australia Pty Ltd [2008] NSWSC 1348

HEARING DATE(S): 7/10/08, 9/10/08, 13/10/08

JUDGMENT DATE :
19 December 2008

JUDGMENT OF: McDougall J at 1

DECISION: See paras [321] to [322] of the judgment.

CATCHWORDS: NEGLIGENCE – Duty of care – whether an owner of rail infrastructure owed to a train operator a non-delegable duty to exercise reasonable care to ensure that the track was safe – duty to maintain. - NEGLIGENCE – Duty of care – duty to ensure proper performance of works – duty to inspect – duty not discharged by engaging independent subcontractor. - NEGLIGENCE – Breach of duty – professional duty – liability – whether defendant’s liability is a civil liability incurred in the conduct of its profession – it is not necessary for the conduct to involve any element of professional skill, but must be carried out in the performance of professional duties. - DAMAGES – Whether defendants required to pay damages to plaintiff for loss suffered as a result of plaintiff’s unreasonable settlement with third party – settlement – reasonableness – objective test – range of potentially reasonable settlement sums. - DAMAGES – Economic loss – whether subcontractor owes proprietor a duty of care to avoid pure economic loss – vulnerability – whether plaintiff in a position to protect itself from loss in the event of negligence – damages are only recoverable for economic loss arising from injury to plaintiff’s person or property. - CONTRACTS – insurance contracts – whether a non-party to an insurance policy can sue to enforce a promise of indemnity expressed to be for their benefit – privity of contract. - CONTRACTS – Insurance contracts – claim under policy – limitation of liability – where an express exclusion of liability exists in respect of one cause, an insurer is not liable to an insured even where there is no exclusion in respect of a concurrent cause. - PRACTICE – Procedure – parties to proceedings – joinder of – where the construction and effect of a contract is in issue in proceedings, parties to those contracts should be joined. - EVIDENCE – inferences of negligence open on proved circumstances – whether inference should be drawn – failure of defendant to give evidence – Jones v Dunkel.

LEGISLATION CITED: Rail Safety Act 1993
Transport Administration Act 1988

CASES CITED: Ankar Pty Limited v National Westminster Finance (Australia) Limited (1987) 162 CLR 549
Astley v Austrust Limited (1999) 197 CLR 1
Blatch v Archer (1774) 1 Cowp 63
Burnie Port Authority v General Jones Pty Limited (1992) 179 CLR 520
Caltex Oil (Australia) Pty Limited v The Dredge “Willemstad” (1976) 136 CLR 529
Commercial Union Assurance Company of Australia Limited v Ferrcom Pty Limited (1991) 22 NSWLR 389
Co-operative Retail Services Ltd v Taylor Young Partnership Ltd [2002] 1 WLR 1419
Fletcher v Rylands (1866) LR 1 Ex 265
Gunston v Lawley [2008] VSC 97
Jones v Dunkel (1959) 101 CLR 298
Kondis v State Transport Authority (1984) 154 CLR 672
Leichhardt Municipal Council v Montgomery (2007) 230 CLR 22.
Lumbers v W Cook Pty Ltd (In Liquidation) (2008) 232 CLR 635
McCarthy v St Paul International Insurance Co Limited (2007) 157 FCR 402
Nguyen v Cosmopolitan Homes [2008] NSWCA 246
Petrofina (UK) Ltd v Magnaload Ltd [1984] QB 127
Unity Insurance Brokers Pty Limited v Rocco Pezzano Pty Limited (1998) 192 CLR 603
Rylands v Fletcher (1868) LR 3 HL 330
Suncorp Metway Insurance Ltd v Landridge Pty Ltd (2005) 12 VR 290
Trident General Insurance Co Limited v McNiece Bros Pty Limited (1988) 165 CLR 107
Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1987) 8 NSWLR 270
Twentieth Super Pace Nominees Pty Ltd v Australian Rail Track Corporation Ltd [2006] VSC 353
Unity Insurance Brokers Pty Limited v Rocco Pezzano Pty Limited (1998) 192 CLR 603
Wayne Tank and Paint Co Limited v Employers’ Liability Insurance Corporation [1974] QB 57
Woodside Petroleum Development Pty Ltd v H & R – E & W Pty Ltd (1990) 20 WAR 380
Woolcock Street Investments Pty Ltd v CDG Pty Ltd (2004) 216 CLR 515
Wyong Shire Council v Shirt (1980) 146 CLR 40

PARTIES: Rail Corporation of New South Wales (Plaintiff)
Fluor Australia Pty Ltd (First Defendant)
Alpcross Pty Limited (Second Defendant)

FILE NUMBER(S): SC 55015/07

COUNSEL: I M Jackman SC / M R Elliott (Plaintiff)
S R Donaldson SC / E C Muston (First Defendant)
J E Robson SC / J A Gracie (Second Defendant)

SOLICITORS: Blake Dawson Lawyers (Plaintiff)
Wotton & Kearney Lawyers (First Defendant)
Goldrick Farrell Mullan (Second Defendant)

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
TECHNOLOGY & CONSTRUCTION LIST

McDOUGALL J

19 December 2008

55015/07 RAIL CORPORATION OF NEW SOUTH WALES v FLUOR AUSTRALIA PTY LTD

JUDGMENT

1 HIS HONOUR: At about 2:58pm on 6 October 2000, a Cityrail train owned by the State Rail Authority of New South Wales (SRA), travelling from Glenfield to the city along the East Hills line, left the rails as it approached Kingsgrove Station. Fortunately, no lives were lost. However, a number of people were injured, and both the train and the track and its associated infrastructure suffered severe damage.

2 The plaintiff (Railcorp), the owner of the track and associated infrastructure, claims that the derailment resulted from negligent repairs carried out by the second defendant (Alpcross) as a subcontractor to the first defendant (Fluor). In these proceedings, Railcorp sues to recover damages, including the costs of repair of the infrastructure owned by it and amounts that it says it is liable to pay to SRA for the damage to the train and injuries to passengers. Fluor and Alpcross deny liability. The essential questions for decision are:

(1) What was the cause of the derailment? In particular, was it caused by what Railcorp says was the negligent way in which Alpcross, shortly before the derailment, removed certain “Glued Insulated Joints” (GIJs) and replaced them with lengths of rail shortly before the accident?

(2) If the accident was caused by the negligence of Alpcross (which carried out the relevant works as subcontractor to Fluor) are Alpcross and Fluor liable to Railcorp, in particular having regard to the terms of the contract in place between Railcorp and Fluor for the maintenance and repair of the East Hills line, and of insurance policies taken out pursuant to the terms of that contract?

Background

3 Railcorp is a state-owned corporation incorporated pursuant to s 4 of the Transport Administration Act 1988. It is the statutory successor to the Rail Infrastructure Corporation (RIC), which in turn was the statutory successor to the Rail Access Corporation (RAC) and Rail Services Australia. All relevant assets and rights of RAC became vested in RIC and in due course in Railcorp. Those assets and rights include both the ownership of the rail infrastructure facilities in the Sydney metropolitan area and all rights (including rights of action) and liabilities associated with those facilities.

4 Nothing turns on the identity of the particular corporation that was from time to time the owner of the track and associated infrastructure. In general, in these reasons, I shall refer to “Railcorp” even though, at any particular time, the owner may have been RAC or RIC.

The Rail Access Agreement

5 RAC and SRA entered into the Rail Access Agreement (Access Agreement) on 15 July 1996. That agreement recognised that RAC retained ownership and control of the defined “Rail Infrastructure Facilities”. It is unnecessary to go to the definition of those facilities, since it is clear that they included the section of track in which the derailment occurred, and the signalling and other infrastructure associated with that track.

6 In essence, RAC granted to SRA the “Access Rights” as defined in the Access Agreement. Again, it is unnecessary to go to the definition of “Access Rights” because it is clear that they included the right to run trains on the suburban network, including the East Hills line.

7 RAC undertook to maintain those parts of the infrastructure used by SRC “to at least the minimum standard required for Accreditation as an owner of rail infrastructure” (cl 6.2(a)(i)). It will be necessary to return to that obligation in considering whether Railcorp was obliged to make any payment to SRA in respect of the derailment.

8 Under the Access Agreement, RAC accepted liability for loss “in respect of, arising out of, or in the course or caused by, or contributed to by…” its “negligent or wrongful act or omission” and “any Event of Default or Material Event of Default” (cl 11.4). Subject to cl 11.4, SRA agreed that it used the infrastructure at its own risk (cl 11.1(a)) and released RAC to the full extent permitted by law from any loss “in respect of or in any way arising out of this Agreement, including [SRA’s] use of the Rail Infrastructure Facilities and Access Rights” (cl 11.1(b)).

9 It is common ground that the Access Agreement was in force, and regulated the rights of the parties (including of Railcorp as the ultimate successor to RAC) at all relevant times.

The Alliance Contract

10 On 4 July 1997, RAC and Fluor entered into an “IWMP Alliance Contract” (the Alliance Contract). Fluor (then known as Fluor Daniel Pty Limited) was called “IWMP” in the Alliance Contract. That acronym stands for “Infrastructure Works and Maintenance Provider”.

11 By the Alliance Contract, Fluor undertook to carryout what were known as “IWMP Works” and “RAC Contract Management Services” for the East Hills line. In brief, the IWMP works included capital works, major periodic maintenance and routine maintenance works as described in the “Brief” that was Annexure B to the Alliance Contract. The RAC Contract Management Services were services provided by Fluor as superintendent or principal’s representative under each “RAC Contract” for capital works, major periodic maintenance works and routine management works. The RAC Contracts were those specified in the Brief or otherwise identified in accordance with the relevant provisions of the Alliance Contract.

12 Fluor was entitled to subcontract out the performance of its obligations, both in respect of the IWMP works and in respect of contract management (cl 4.8(a)). However, if it did so, it was required to “manage the performance of each Subcontractor to ensure the quality and timeliness of its performance” (cl 4.8(c)). Further, if Fluor did subcontract out any of its obligations, those obligations were “not lessened or otherwise affected by” that subcontracting out (cl 4.8(d)).

13 The Alliance Contract contained complex provisions relating to “indemnities and limitations of liability” (cl 10) and a “risk of loss or damage and insurance” (cl 11).

14 By cl 10.2, Fluor undertook to indemnify RAC against all “damage, expense [and] loss… arising out of the performance of the IWMP Works and the RAC Contract Management Services”, with exceptions set out in subcl (b). That liability was limited in a number of ways by cl 10.4. Of particular significance, by cl 10.4(a)(iv), Fluor’s liability in respect of any event that was “an insured risk under any insurance policy effected in accordance with cl 11, [is] limited to the maximum amount paid for that risk under that policy”.

15 Clause 11.2 required both RAC and Fluor to take out insurance. The insurance to be effected by RAC included public liability insurance. That insurance was required to include “a cross-liability clause” whereby the insurer agreed to waive all rights of subrogation that it might have or acquire against the insured parties (cl 11.2(a)(ii); (c)). All insurance effected by RAC was required to “include the IWMP and its Sub-contractors and RAC as named insureds” (cl 11.3). Fluor was required to effect and maintain “professional indemnity insurance, for any breach of duty owed in a professional capacity by” it or, in some circumstances, its subcontractors (cl 11.2(c)).

Glued insulated joints

16 A GIJ is a point in a rail line that is cut and insulated for signalling purposes. By the time the Alliance Contract was made, GIJs were being phased out and replaced by other signalling devices. The removal of GIJs on the East Hills line, and their replacement by length of rail welded into the tracks in their place, was one of the items of major periodic maintenance work specifically referred to in the brief annexed to the Alliance Contract.

17 It is common ground that Fluor subcontracted to Alpcross the removal of GIJs and their replacement by lengths of rail. It is also, I think, common ground that this task was to be carried out by what is known as the “rail in / rail out” or “steel in / steel out” method.

Rail in / rail out

18 Railway tracks are made of steel. Thus, they will expand when heated and contract when cooled. They are designed for a “neutral temperature” of 35 degrees Celsius. If they become hotter, they will try to expand. If they become cooler, they will try to contract. If the track has been correctly laid and adjusted, those expansionary and contractionary forces should be restrained by the sleepers (to which the track is affixed by anchors) and ballast (that is laid around the sleepers).

19 For operational reasons, the removal and replacement of GIJs is carried out at night. The process involves the removal of a section of rail that includes the GIJ and the insertion of a length of rail, welded at each end to the existing rail so as to form what is known as “Continuously Welded Rail” or “CWR”. Because the work is carried out at night, it is likely that it will be performed at a temperature below the neutral temperature of 35 degrees Celsius. If this is so, the rail will tend to contract when it is cut. The theoretical amount of contraction is a function of the length of steel rail that is allowed to contract, the co-efficient of expansion of that rail and the temperature differential between the neutral temperature of degrees Celsius and the temperature of the rail when the cut is made.

20 The theoretical amount of contraction, calculated in the manner that I have indicated, will be affected in practice by other factors including the amount of friction between the rail and the sleepers and the efficacy of the restraints. In theory, the contraction should be limited to rail between the point where the cut is made and the next anchor along from that cut. However, if the anchors are loose or otherwise not performing their function of restraint, the effective length of the rail that can contract may be considerably longer.

21 It is self-evident that if a GIJ is replaced at a temperature substantially below the neutral temperature of 35 degrees Celsius, then the contraction of the remaining rail (after the GIJ has been cut out) will mean that the length of the gap to be filled is greater than the length of the material removed. The “rail in / rail out” method requires that the length of rail to be inserted into the gap, making due allowance for the weld at each end, be the same as the length of the material removed.

22 If a GIJ is replaced at a temperature substantially below 35 degrees Celsius, then adherence to the rail in / rail out method will mean that the length of rail inserted (again, making allowance for the welds at each end) is smaller than the gap into which it is inserted. To overcome this, devices known as “rail tensors” are used. One end of the replacement rail is welded to the existing rail. When that weld has cooled, the tensor is placed on the other end of the rail that has been inserted and clamped onto that rail and on to the existing rail adjacent to it. The tensor then applies a tensile force to the inserted rail and stretches it until it is close enough to the existing rail to enable the second weld to be made. If that is done correctly then the effective length of the track at 35 degrees Celsius remains constant. The track is said to be, or remain, “in adjustment”.

23 If the rail in / rail out method is not followed – specifically, if the rail inserted into the gap (allowing for the weld) is of the same length as the gap – then the track will not be in adjustment at 35 degrees Celsius. In those circumstances, it is said that the neutral temperature of the rail that has been inserted is the temperature of the rail at the time the insertion took place. If that temperature is substantially different to 35 degrees Celsius then, as the rail heats up during the day, the expansion of the inserted section will impart an expansive force to the rail, which may lead to buckling unless the rail is adequately restrained.

The derailment

24 It is common ground that during the nights of 4/5 October and 5/6 October 2000, Alpcross had removed two GIJs, one from the up rail and one from the down rail, at a point about 5 metres away from the location of the derailment. (Railway lines are described as “up lines” and “down lines”. For the Sydney metropolitan network, the up line is the line to Sydney and the down line is from Sydney. Each line has an “up rail” and a “down rail”. The up rail is the left hand rail of the up line when facing towards Sydney and the down rail is the other. The area between the up rail and the down rail is known as the four foot.)

25 Railcorp’s case is that Alpcross did not utilise the rail in / rail out method when it replaced the GIJs in question, and that it placed too much steel into the rails in place of the removed GIJs. Railcorp says that this caused the up rail to buckle. The temperature at the time the replacement work was done was approximately 6 degrees Celsius. The temperature of the up rail shortly after the derailment was 48 degrees Celsius. (The expert evidence explained that in direct sunlight steel rails can attain a temperature that is substantially higher than the ambient temperature.)

26 Fluor admitted that Alpcross had inserted excess steel into the “closure” of the gap created by removal of the GIJ in the up rail. It admitted further that this “meant that the track was not able to withstand the expansive forces in the track during the heat of the day leading to a significant lateral misalignment of the track”. See para 13.1 of its List Response. Alpcross made no such admission, and at least by its List Response asserted that it had not performed the work in question in a negligent manner. However, it did not adduce evidence in support of this denial.

27 For the reasons that I set out at [50] to [52] below, in dealing with the issues between Railcorp and Alpcross, I have concluded that the derailment was the result of buckling in the track, causing lateral misalignment of the track. The buckling was the result of excessive expansion of the track. That in turn occurred because Alpcross inserted too much steel into the up rail after it removed the GIJ. Alpcross did not follow, or did not follow properly, the rail in / rail out method.

28 As a result of the derailment, there was substantial damage to the track and its associated infrastructure. Railcorp quantified the cost of repairing that damage (to its property) at $568,176.00. There was no challenge to that figure.

29 SRA made a claim on RIC. After negotiations between loss assessors appointed by SRA and RIC, that claim was quantified at $5,207,287.42. That figure was made up of $5,092,433 for repairs to the damaged train set and $114,856.42 for amounts paid by SRA to or for the benefit of injured passengers. There was no challenge to the quantification of those figures.

30 In addition, RIC paid $7,844.40 to the workers compensation insurer of one passenger, in settlement of a claim made by that insurer for the recovery of payments made to the passenger. RIC paid $3,537.60 in legal costs in relation to this claim. There was no challenge to the quantification of those figures.

The issues

31 Against that background, I set out the issues that (with one exception, which is evident from what follows) were agreed between the parties:

ISSUES BETWEEN RAILCORP AND ALPCROSS

Negligence

Alpcross

Note: Within this issue, Alpcross wishes to contend that if Alpcross did owe a duty of care, there was no duty to exercise reasonable skill and care to prevent RAC from incurring damage of the kind Railcorp alleges led to payments being made by RIC to SRA.

2. If the answer to 1 is “yes”, did Alpcross breach that duty of care?

3. If the answer to 2 is “yes”, was that breach a cause of the train derailing on 6 October 2000?

Damages (leaving aside positive defences raised by Alpcross)

4. If the answers to questions 1 and 3 are “yes”, what amount can Railcorp recover? Various matters arising in respect of this issue have been agreed. The only issue in dispute is whether Railcorp may recover a sum of $5,207,287.42 paid by RIC to SRA in settlement of SRA’s claims against RIC.

The IWMP contract and policies of insurance

5. Is Alpcross entitled to resist these proceedings as a beneficiary of a promise by Railcorp to bear the entire risk of the IWMP Alliance Contract?

6. If the answer to 5 is “yes”, is Alpcross liable to indemnify Railcorp for the losses the subject of this claim (list statement paragraphs 63 to 65)?

Mitigation

(a) not making any claim upon AIG under a policy of insurance with it; and

(b) not accepting a sum that has been offered by QBE in settlement of QBE’s liabilities under a policy of insurance.

Issues between Railcorp and Fluor

Negligence

8. Did the first defendant (“ Fluor ”) owe a duty to exercise reasonable skill and care to ensure that the rail closure work carried out by Alpcross was carried out properly?

9. If the answer to 8 is “yes”, did Fluor breach that duty of care?

10. If the answer to 9 is “yes”, was that breach a cause of the losses claimed in these proceedings?

Breach of contract claim against Fluor

11. Did Fluor breach its contract with Rail Access Corporation as a result of the way in which the rail closure work was organised, conducted and inspected?

12. If the answer to 11 is “yes”, was that breach a cause of the train derailing on 6 October 2000 and the damage the subject of these proceedings?

Damages (leaving clause 10.4(a)(ii) to one side)

13. What amount can Railcorp recover? [See issue 4 above]

The operation of clause 10.4(a)(ii)

(1) if Fluor has a liability to RAC and it is an insured risk under insurance policies effected in accordance with clause 11, is the amount of the liability limited to the maximum amount that is or will be paid for that risk under those policies (as Railcorp has alleged); or

(2) if Fluor has a liability to RAC and it is an insured risk under public liability policies effected by RAC in accordance with clause 11, is the amount of the liability limited to the maximum amount that is or will be paid for that risk under those policies (as Fluor has alleged).

Note:

Fluor does not agree with the formulation of the issue in paragraph 14(2) above. It says that the issue is better characterised as follows:

15. On the proper construction of the IWMP contract, is Fluor released by RailCorp from all liability falling within the scope of cover provided under the insurances required to be effected by RailCorp under cl. 11.2(a) and (b)?

Railcorp has not agreed with this formulation because it does not correctly state the issue that has been pleaded in paragraph 51 of Fluor’s List Response. The formulation in 14(2) above does.

16. On the proper construction of the IWMP contract (and in circumstances in which no recovery is available under the primary layer insurance effected by RailCorp pursuant to cl. 11.2), is Fluor’s liability limited to any breach by Fluor of a “ duty owed in a professional capacity ”?

Whether Fluor has indemnity under the public liability policy with QBE

17. Has or will Fluor be indemnified by the first layer insurers under the public liability policy taken out by Rail Access Corporation under clause 11.2, and if so, in what amount?

Is Fluor indemnified under the professional indemnity policy with Zurich?

The insuring clause

18. For the purpose of the insuring clause in a contract of insurance between Fluor and Zurich, is that liability a civil liability incurred by Fluor in the conduct of any one or more of the following professions – structural engineering, mechanical engineering, electrical engineering, civil engineering, chemical engineering, construction management, project management and personnel consultants?

Exclusion 4.1

19. Is a claim by Fluor for indemnity under that same policy in respect of its liability to Railcorp a claim arising from or attributable to any contractual liability or assumed liability, and if so, would Fluor in any event be legally liable in the absence of such contractual or assumed liability?

Exclusion 4.5

(a) the replacement or lack of efficacy of any goods manufactured, sold, designed, specified, formulated, constructed, installed, distributed, treated, serviced, altered, repaired or supplied by the insured;

(b) any defect in any goods manufactured, sold, designed, specified, formulated, constructed, installed, distributed, treated, serviced, altered, repaired or supplied by the insured?

21. If the answer to 20 is “yes”, is that claim by Fluor one that arose otherwise in the course of undertaking professional duties?

22. On the proper construction of Exclusion 4.5, is the answer to 21 irrelevant if the claim is not one which arises from any advice, design or specification?

Exclusion 4.12

23. What is the proper construction of the exclusion in clause 4.12 of the Zurich policy?

24. Whatever the proper construction of clause 4.12 of the Zurich policy may be, does it apply in respect of Fluor’s claim against Zurich?

Fluor’s liability if exclusions operate

25. If Fluor’s liability is excluded by the terms of the Zurich policy, did Fluor breach its obligation to effect insurance in accordance with clause 11.2(c) of the IWMP contract?

32 It will be noted that a number of issues raised, as questions or as necessary for the determination of questions, whether certain policies of insurance will respond to any claim for the losses for which Railcorp seeks indemnity. See, in particular, issues 7, 15, 17 and 18 to 24. None of the insurers in question are parties to these proceedings, although Zurich (the underwriter of the professional indemnity policy referred to in issues 18 to 24) has undertaken the defence of these proceedings on behalf of Fluor and appears to accept that it will be bound, in the same way that Fluor will be bound, by the resolution (whether by me or by some appellate court) of the issues in question. However, QBE and AIG (issues 7 and 17) are not parties. Thus, they will not be bound by the ultimate resolution involving those policies. This may not be a real problem so far as QBE is concerned, because it has apparently accepted that the relevant policy responds, subject to its terms, to claims that might be made upon it by Railcorp or Fluor. It is however a real, although at this stage potential, problem so far as AIG is concerned. It is unsatisfactory (to put it mildly) that parties to litigation seek to agitate the construction and effect of insurance policies, and whether or not those policies respond to the subject matter of the proceedings, without taking steps to have the insurers bound.

First issue: duty of care owed by Alpcross to Railcorp

33 Alpcross submitted that Railcorp’s claim for reimbursement of amounts paid by it to SRA and the workers compensation insurer were claims for pure economic loss, and that it owed no duty of care to Railcorp in connection with any such loss. It relied on the decision of Byrne J in Gunston v Lawley [2008] VSC 97. In substance, Alpcross submitted, vulnerability (in the sense explained by Gleeson CJ, Gummow, Hayne and Heydon JJ in Woolcock Street Investments Pty Ltd v CDG Pty Ltd (2004) 216 CLR 515 at 530 [23]) was the key to the existence of a duty of care to avoid pure economic loss. Alpcross submitted that Railcorp was not relevantly vulnerable.

34 In Gunston, Byrne J said at [27] that there was no principle of law that a sub-contractor could not owe a duty of care to a proprietor with whom it had no direct contractual relationship. In assessing whether a duty of care did exist, his Honour said at [28] to [32] that:

(1) vulnerability, the ability of a plaintiff to protect itself from loss in the event of negligence, is a feature of great importance in determining the existence of a duty of care to prevent pure economic loss;

(2) in the normal case, a proprietor of infrastructure would find it difficult to show that it could not protect itself from the risk of loss caused by negligence on the part of a subcontractor;

(3) nonetheless, in considering whether or not a duty of care exists, it is necessary to look at the identity and position of the parties, the relationship between them and the duties undertaken by the subcontractor; and

35 Mr I M Jackman SC, who appeared with Mr M R Elliott of counsel for Railcorp, submitted that the case was one involving physical damage to property, and was a claim for recovery of loss consequential upon that damage. He noted that the work performed by Alpcross was carried out on RAC’s property, and of its nature was such that there was a risk of serious accident if not performed carefully. Thus, Mr Jackman submitted, the case fell “easily within the considerations outlined in Wyong Shire Council v Shirt (1980) 146 CLR 40”.

36 Mr J E Robson SC, who appeared with Mr J A Gracie of counsel for Alpcross, submitted that Railcorp was not relevantly vulnerable because it was able to protect itself, from the consequences of negligence performance of track maintenance and repair work undertaken by Fluor or a subcontractor, in the terms of the Alliance Contract and through the insurance arrangements that were put in place pursuant to that contract.

37 Mr Jackman’s submission, that the claim is for recovery of loss consequent upon physical damage to property, overlooks to some extent the limited way in which Alpcross put this aspect of its case. As I have noted, and as (I think) appears from the note qualifying the parties’ statement of the first issue, Alpcross puts the submission, as to absence of duty of care, only in relation to Railcorp’s claim for reimbursement of amounts paid to third parties.

38 This aspect of Railcorp’s claim is based upon damage to persons (those injured in the accident) and property (the damaged train set). But the persons who were injured were not employees of Railcorp; and the train set was the property of SRA, not Railcorp. The exclusionary rule on which Alpcross relied is that, in general, damages are not recoverable for economic loss which is not consequential upon injury to the plaintiff’s person or property. See, for example, Gibbs J in Caltex Oil (Australia) Pty Limited v The Dredge “Willemstad” (1976) 136 CLR 529 at 544, 555; and see Stephen J in the same case at 562.

39 In this area of the law, there is an overlap between the concept of duty of care and remoteness, or recoverability, of damage. Gibbs J observed in Caltex Oil at 545 that “in this as well as in other branches of the law of negligence questions of duty of care and remoteness of damage are difficult to disentangle”. Mason J said at 589 that” [l]iability for damage sustained in consequence of negligence may be treated as a duty of care problem, or alternatively, as a problem of proximity of damage”. And in the same case Jacobs J said at 597 that “[t]he measure of damages in negligence is… inter-related with the duty of care”.

40 In this case, both the formulation of the first issue and the parties’ submissions in respect of it do not pay sufficient attention to the overlap between the question of the existence and content of a duty of care, and the question of the damages that are recoverable (or, alternatively, are too remote to be recoverable) for a breach of that duty.

41 In Shirt, Mason J (with whom Stephen and Aickin JJ agreed) said at 44 that a duty of care will, at least prima facie, arise where there exists between the defendant and the plaintiff such a relationship that a reasonable person in the defendant’s position would foresee that carelessness on his or her part might cause damage to the plaintiff. At 47, his Honour considered what the concept of foreseeability of risk of injury meant, in the context of breach of a duty thus established. His Honour pointed out that foreseeability of the risk of injury was something different to the likelihood of occurrence of that risk. A risk that was quite unlikely to occur might nonetheless “be plainly foreseeable”. A statement as to foreseeability makes no assertion as to probability or improbability of occurrence of the risk, except for the implicit assertion “that the risk is not one that is far fetched or fanciful”.

42 Mason J then considered what was necessary to show breach of the duty of care. In his Honour’s view, this involved the following inquiry:

(1) whether a reasonable person in the defendant’s position would have foreseen that his or her conduct involved a risk of injury to the plaintiff (or to a class of persons including the plaintiff)?

(2) If yes to (1), what would a reasonable person do by way of response to the risk?

(3) Assessment of the reasonable person’s response requires consideration of:

(a) the magnitude of the risk;

(c) the expense, difficulty and inconvenience of alleviating the risk; and

(d) what (if any) other conflicting responsibilities may have been imposed upon the defendant.

43 In the present case, the guiding minds of Alpcross must have known that carelessness on the part of Alpcross in the performance of the subcontract works would be likely to cause damage to Railcorp. Alpcross was working on the property of Railcorp. The work involved the removal of sections of the track, and the replacement of those sections by welded-in steel rail. The guiding minds must have known that if too much steel rail were inserted in the track, the adjustment of the track would be imperilled, and a substantial rise in temperature (from that at which the work was performed to what might be expected on a warm or hot day) would render the track susceptible to buckling and misalignment. All of that of course relates to the property of Railcorp, not the property of SRA.

44 As to the property of SRA, the guiding minds of Alpcross must have known that if Alpcross performed the work negligently, with the risk of the consequences to which I have referred, then there was a real risk that a train might derail. They must have known that if this occurred, there would be substantial property damage and, quite possibly, loss of life or serious personal injury. However, no question is raised in this case as to whether Alpcross owed a duty of care to SRA. That is because Railcorp does not bring its claim pursuant to any doctrine of subrogation, and does not rely on any assignment of rights from SRA. It brings its claim on the basis that Alpcross owed it an independent duty of care, that Alpcross breached that duty, and that the recoverable damages include the amounts that Railcorp (it says) was obliged to pay to third parties in consequence of the foreseeable derailment.

45 In this case, the circumstances to which I have referred make it clear that Alpcross owed Railcorp a duty to exercise reasonable skill and care in carrying out the subcontract work. No question arises in respect of “pure economic loss”, because the work was carried out on Railcorp’s property and the consequences of what in my view was a clear breach of that duty of care included loss to Railcorp consequent upon damage, of a foreseeable kind, to Railcorp’s property.

46 In the circumstances, it is not necessary to consider the decision of Byrne J in Gunston.

47 Thus, harking back to the proposition that the question of the existence of a duty of care overlaps with the question of recoverability (or remoteness) of damage, Railcorp’s entitlement to recover from Alpcross amounts paid by Railcorp to third parties depends not on the question of existence and breach of a duty of care but on considerations of remoteness. That falls to be considered under the fourth issue.

Second and third issues: breach of duty; causation

48 Alpcross put no submissions on these issues. It denied liability on two separate bases:

(1) it owed no duty of care to Railcorp; and

49 Alpcross did not submit that:

(1) its performance of the work was not negligent; or

50 Thus, I can set out relatively briefly the reasons why I think Alpcross was negligent in the performance of its obligations under the subcontract, and why that negligence was a cause of the derailment:

(1) as I have noted, the temperature of the rail at the time the GIJs were removed and replaced on the two nights preceding the derailment was about 6 degrees Celsius. At the time of the derailment, the ambient temperature was about 34.5 degrees Celsius, and the temperature of the rail was about 48 degrees Celsius.

(2) An inspection of the track – in particular, the up line – commencing at about 6:30pm on 6 October 2000 which was undertaken by Mr Malcolm Black Kerr, the chief engineer, track of Railcorp showed that the track had moved laterally at about the point where the wheels of the train set that was derailed mounted the rail and left the track. That occurred approximately 5 metres on the up side of the work carried out by Alpcross on one or other of the two preceding nights.

(3) The same inspection showed that there were no jaw marks on the up rail at the point where the GIJ had been removed and replaced by a welded–in closure. Mr Black said that if a rail tensor had been used, the force that it applied to the rail (to stretch it to the necessary extent) was of the order of 20 tonnes, and that this force left distinctive jaw marks on the rail at the points where the tensor was clamped to it. He looked carefully for any such jaw marks, but could not find them.

(4) Mr Black said further that he could not see “punch marks” that in his view would indicate that a metal punch had been used to enable Alpcross to check that excessive steel had not been inserted into the closure. There was some controversy as to the significance of the absence of punch marks. Other witnesses suggested that it was not necessary to use a steel punch, and that chalk marks (which of course would have worn off during the day as train wheels passed over the section of track in question) could have been used.

(5) A day or two before Alpcross carried out the works in question, the ambient temperature had reached approximately 35 degrees Celsius – similar to the ambient temperature at the time of the derailment. One would expect that on this earlier occasion, the track temperature would also have been approximately the same as that at the time of the derailment. There was no suggestion that the track had buckled or become misaligned on that earlier day.

(6) The experts who gave evidence agreed that the 29 degree difference between the rail temperature at the time the work was carried out (6 degrees) and the neutral temperature of the rail (35 degrees – confirmed through later inspections) made it highly likely that the rail would have contracted when the first cut was made in the course of removing the GIJ in the up rail.

51 In my view, those circumstances (placed into the context of the matrix of evidence from which I have extracted them) lead to an inference that Alpcross did not follow (or did not follow correctly) the rail in / rail out method, but instead placed excessive steel into the closure, and that this caused the track (when it heated up) to buckle and become misaligned. The expert evidence is unanimous that if excessive steel were placed into the closure then it could lead to those consequences. I regard those circumstantial matters as more than adequate to justify the drawing of the inference (Nguyen v Cosmopolitan Homes [2008] NSWCA 246 at [44] to [55]). I feel more confident in drawing that inference because Alpcross adduced no evidence, and offered no explanation for its failure to do so (Jones v Dunkel (1959) 101 CLR 298; Commercial Union Assurance Company of Australia Limited v Ferrcom Pty Limited (1991) 22 NSWLR 389).

52 Mr Black reconstructed the sequence of events that culminated in the derailment. The derailment occurred at a point in the track where there is a gentle right-hand bend in the direction of travel. Thus, the up rail was on the outside of the turn. Mr Black concluded that the excess steel in the rail had expanded and caused the up rail to buckle and displace laterally. As the train ran over this section of track, the centrifugal force of the outside wheels of the first four carriages (or “train set”) exaggerated the lateral displacement of the up rail. By the time the outside wheels of the second train set reached this point, the up rail was sufficiently displaced to enable one of the wheels to mount the rail and then leave it completely. As a result, the last three carriages left the track completely.

53 Mr Black’s reconstruction of the sequence of events was not in substance challenged, and there was no evidence to controvert it. I accept it.

54 When one takes those matters into account, and refers to the considerations listed by Mason J in Shirt at 47 (see at [42] above), it is plain that Alpcross breached the duty of care that I have found that it owed to Railcorp. Alpcross put no submission (nor did it lead any evidence to the effect) that there would be some expense, difficulty or inconvenience of taking alleviating action, or that it owed any conflicting responsibility. As to the first point: the rate per GIJ quoted by Alpcross to Fluor included an allowance for the use of rail tensors to be supplied by Alpcross. It is thus clear: firstly that those parties intended the work to be done using the rail in/rail out method; secondly that Alpcross was to have access to the necessary equipment; and thirdly that Alpcross was to be remunerated for the cost of providing that equipment. As to the second point: Alpcross owed contractual duties, and a corresponding common law duty of care, to Fluor. Those duties were not inconsistent with – on the contrary, they were completely aligned with – the duty of care owed by Alpcross to Railcorp. A proper performance by Alpcross of its duties owed to Fluor would have amounted to proper performance by Alpcross of the duty of care owed to Railcorp.

55 It follows that Alpcross breached the duty of care that, I have found, it owed to Railcorp. I stress that in expressing this conclusion, I say nothing as to the recoverability of the various heads of damage claimed by Railcorp.

56 It follows further, in particular from what I have said as to the cause of the derailment, that Alpcross’ breach of its duty of care was a cause of the derailment.

57 Each of the second and third issues should be answered “yes”.

Fourth issue: damages

58 As the formulation of the issue indicates, the only contest is as to the amount of approximately $5.2 million paid by Railcorp to SRA.

Relevant provisions of the Access Agreement

59 I have summarised at [6] to [8] above the principal relevant provisions of the Access Agreement. Because the parties’ submissions on this question require attention to the precise terms of the relevant clauses, I set out in full those on which the parties relied.

60 Clause 2.2 set out the objectives that the parties sought to secure through the agreement. One of those (para (a)) was the efficient and safe management and control of the rail network and its associated infrastructure:

2.2 Objectives

The parties agree to use their reasonable endeavours to achieve the following objectives in accordance with this Agreement (“Objectives”):

(a) efficient and safe management and control of the NSW Rail Network including Rail Infrastructure Facilities:

61 Clause 6.2 set out Railcorp’s obligations of maintenance, and the circumstances in which those obligations might be reduced or withdrawn. So far as is relevant, cl 6.2 reads as follows:

(a) Subject to clause 6.2(b) Rail Access will

(i) maintain those parts of the Rail Infrastructure Facilities used by State Rail to at least the minimum standard required for Accreditation as an owner of rail infrastructure;

…

Clause 6.2(b) is of no present relevance.

62 The releases and indemnities contained in cls 11.1 and 11.4 read as follows:

11 INDEMNITIES AND LIABILITIES

11.1 Release by State Rail

(a) State Rail will use the Rail Infrastructure Facilities at its own risk:

(b) State Rail releases Rail Access, its Employees, Contractors, representatives and agents to the full extent permitted by Law from all Losses incurred or assessed against State Rail or any property of State Rail or payable or suffered by State Rail in respect of or in any way arising out of this Agreement, including State Rail’s use of the Rail Infrastructure Facilities and the Access Rights granted:

11.4 Rail Access Indemnity

Rail Access is liable for and must indemnify and hold harmless State Rail and its directors. officers. Employees and Contractors against any Loss in respect of arising out of or in the course of or caused by, or contributed to by:

(a) the negligent or wrongful act or omission of Rail Access; and

(b) any Event of Default or Material Event of Default by Rail Access.

63 The definition of Event of Default is found in cl 15.2. The events specified in that clause include, among Events of Default, failure on the part of Railcorp “to comply with its obligations under this Agreement (not being a Material Event of Default” (para (b)). It is not necessary to refer to the definition of Material Event of Default, because the Event of Default to which Railcorp referred could not have amounted to, and was not suggested to amount to, such a default.

64 There were a number of definitions set out in the dictionary contained in schedule 1 to the Access Agreement. It is not necessary to go to those.

The parties’ submissions

65 Alpcross did not submit that the relevant portion of the damages claimed by Railcorp – the claim to be reimbursed for the sum of about $5.2 million paid by it to RIC – was too remote to be recoverable. Nor is that question raised expressly by any of the issues agreed between Railcorp and Alpcross.

66 Alpcross’ case, in relation to the fourth issue, was that under the access agreement, SRA had no right to recover its losses from Railcorp, so that Railcorp ought not to have paid the money in question to SRA.

67 Railcorp’s case was that it had paid the sum in question to SRA in settlement of a claim made by SRA; that the fact and amount of the settlement, judged objectively in the circumstances as they existed, were reasonable (Unity Insurance Brokers Pty Limited v Rocco Pezzano Pty Limited (1998) 192 CLR 603); and that it was not necessary for Railcorp to prove that its liability to SRA was “certain” or definite. That having been said, Railcorp’s case was that on the proper construction of the relevant provisions of the Access Agreement, and in the events that had happened, it was liable to SRA for the amount claimed.

68 Mr Jackman submitted, correctly, that the general release given by SRA in cl 11.1 of the agreement was subject to the indemnity given by Railcorp in cl 11.4. In this case, he submitted, the relevant events showed both a negligent or wrongful act or omission, and breaches of contract, on the part of Railcorp that amounted to “an Event of Default…”.

69 Mr Jackman submitted that Railcorp owed SRA a non-delegable duty to exercise reasonable care to ensure that the track was safe. He relied on the decision of Gillard J in Twentieth Super Pace Nominees Pty Ltdv Australian Rail Track Corporation Ltd [2006] VSC 353, in particular at [281] to [288]. In that case, Gillard J held that an owner of track owed to a train operator a duty to take reasonable care to ensure that the rail network was in proper and safe condition, suitable for the operator’s use; and that the owner could not discharge that duty merely by engaging an independent contractor to carry out maintenance or repair.

70 As to “Event of Default”, Mr Jackman referred to Railcorp’s obligations under cl 6.2(a)(i). He submitted that the “minimum standard required for Accreditation” was a reference to accreditation in accordance with Division 1 of Part 2 of the Rail Safety Act 1993. By s 16(1) of that Act, an applicant for accreditation as an owner of a railway “must demonstrate by the submission of appropriate standards with which the applicant agrees to comply… that the applicant possesses the competency and capacity to safely construct and maintain, or construct or maintain, the railway specified in the application”. Mr Jackman submitted that this contractual obligation in effect required Railcorp to maintain the track in a safe condition, so that its failure to do so (whether or not the result of some non-delegable duty) amounted to a breach of cl 6.2(a)(i) and, therefore, an Event of Default.

71 Mr Robson submitted that cl 11.4 of the Access Agreement had no operation on the facts of this case. As to para (a), he submitted that there was no evidence of any negligent or wrongful act or omission on the part of Railcorp, and that reliance on the decision of Gillard J in Twentieth Super Pace Nominees was misplaced.

72 As to para (b), Mr Robson submitted that there was no systemic failure, and thus no breach of the duty to maintain. He noted that Railcorp was not personally involved in the alleged negligence of Fluor and Alpcross.

73 It is not clear from Mr Robson’s submissions (written or oral) whether, in the context of this issue, Alpcross relied on the so called “Petrofina” principle (Petrofina (UK) Ltd v Magnaload Ltd [1984] QB 127, as explained by the House of Lords in Co-operative Retail Services Ltd v Taylor Young Partnership Ltd [2002] 1 WLR 1419). The written opening outline for Alpcross asserted four liability issues:

(1) Railcorp had not proved that the work done on the 5th and 6th October 2000 caused the derailment;

(2) Alpcross was not negligent;

(3) Alpcross was entitled to the benefit of the asserted contractual promises (in substance, what has been covered so far in relation to issue 4); and

74 The outline referred to Co-operative Retail Services only in connection with the fourth of those points. The written outline of closing submissions made no reference at all to that decision (or to Petrofina) and Mr Robson did not refer to the point in his oral closing submissions. I proceed on the basis that the fourth issue may be disposed of without reference to Co-operative Retail Stores or Petrofina. I am fortified in taking that approach by the circumstance that neither case was referred to in the list of authorities provided by Alpcross in support of its closing submissions.

75 Since the 4th issue is relevant also to Railcorp’s case against Fluor, it is convenient at this point to consider Fluor’s submissions. Mr S R Donaldson SC, who appeared with Mr E C Muston of counsel for Fluor, submitted that Railcorp owed no non-delegable duty to SRA; and that, in any event, cl 11.4(a) was not engaged by the breach of any such non-delegable duty. In this regard, he submitted, cl 11.4, as an express promise of indemnity, was to be construed in favour of Railcorp as “surety” in the event of any ambiguity (see Mason ACJ, Wilson, Brennan and Dawson JJ in Ankar Pty Limited v National Westminster Finance (Australia) Limited (1987) 162 CLR 549 at 561).

76 As to Twentieth Super Pace Nominees, Mr Donaldson submitted that:

(1) it was decided approximately three years after Railcorp in fact made the payment in question to SRA, and was thus of minimal utility in considering the question of liability, or the reasonableness of the settlement having regard to that question, at the time the payment was made (let alone at the time, some three years earlier again, when the derailment occurred).

(2) in any event, reliance on what Gillard J said was misplaced having regard to the subsequent decision of the High Court in Leichhardt Municipal Council v Montgomery (2007) 230 CLR 22.

Burnie Port Authority v General Jones Pty Limited

77 As to “Event of Default”, Mr Donaldson submitted that cl 6.2(a)(i) of the Access Agreement did not amount to a warranty as to the integrity of the track, but rather to a requirement that Railcorp should have in place (as, through the Alliance Contract, it put in place) an appropriate regime for maintenance and repair. Mr Donaldson submitted that the requirements of the relevant provisions of the Rail Safety Act were satisfied by the institution of that regime, and that this position was not changed, nor was a breach of cl 6.2(a)(i) occasioned, by an isolated event of negligence on the part of the subcontractor.

Decision

78 In Unity Insurance Brokers, the appellant broker placed an industrial special risks policy for the respondent insured. The appellant negligently failed to make full disclosure of the respondent’s claims history to the insurer. The respondent suffered loss by fire. It brought proceedings against the insurer and the appellant. The respondent compromised its claim against the insurer (for a sum less than the full amount of its loss) and claimed the balance from the broker. The court held by majority (Gleeson CJ, McHugh J and Hayne J in separate judgments) that so long as the settlement, judged objectively and by reference to the circumstances at the time it was made, was reasonable then the respondent’s damages were the difference between what it would have recovered under the policy had it been enforceable and what it recovered by the settlement.

79 Gleeson CJ said at 608 [6] that it was for the respondent to show that the amount of its settlement with the insurer was reasonable; and that the test of reasonableness was an objective one. An assessment of the reasonableness of the settlement would involve consideration not only of the advice given to the respondent but also of the factors on which that advice was based.

80 Hayne J said:

(1) at 653 [129], that the question, whether the compromise of a claim was reasonable, was one to be considered objectively and not subjectively. Consideration of that question will not be concluded simply by a finding that the party (in this case the respondent) had been given legal advice to settle at the figure in question, and had accepted that advice;

(2) at 653 [130], that the question was to be judged by reference to material available to the parties at the time of reaching the conference, not on the basis of material obtained later. As his Honour said at 653 [131], this might raise a question of whether the party had been sufficiently diligent in seeking to inform itself fully of all matters relevant to the question of compromise; and

81 I set out those paragraphs of his Honour’s reasoning:

[129] Whether the compromise of a claim was reasonable must be judged objectively, not subjectively. Thus whether a party to litigation has received advice to settle may be important in deciding whether that person's conduct in settling the case was reasonable but, standing alone, the fact that a litigant was advised to settle at a particular figure reveals little or nothing about whether the settlement reached was reasonable. This is not to say that evidence may not be led that such advice was given and adopted; it may. But evidence of that kind does not conclude the issue. What will usually be much more important is the reasoning that supported the advice that was given for that will ordinarily reveal why it was thought reasonable to compromise the claim as it was.

[130] Next, the question whether the settlement was reasonable must be judged by reference to the material the parties had available to them at the time the compromise was reached. It is not to be judged according to whether material which was obtained later shows that the opposite party could or could not have prosecuted or defended the claim successfully but according to the assessment which could properly be made at the time of settlement of the chances of success or failure.

[131] Often that will require consideration of whether the party that later seeks to say that the settlement was reasonable had made sufficient inquiries and had sufficient information available to it to warrant reaching a compromise. In turn that may invite attention to whether the cost of seeking further information would outweigh the benefit that it was reasonable to expect may be obtained from doing so, but it does not assume knowledge of the opposite party's brief to counsel.

82 In this case, Railcorp led evidence from those who had been involved in the negotiation of the settlement. They were Mr Andrew Thomas, an independent loss adjuster retained by Railcorp to assess SRA’s claim; Ms Sandra Nicola, a solicitor in the employ of Railcorp who had been involved in the negotiation of the settlement; and Mr John Brophy, a claims manager employed by SRA.

83 In substance, that evidence dealt with the process of quantification of the elements of the claim (Mr Thomas’ particular responsibility) and the negotiation and drafting of the agreement for compromise (Ms Nicola’s particular responsibility, but Mr Thomas was also involved in those negotiations). There is some suggestion in the evidence that Railcorp had engaged external lawyers, Allens Arthur Robinson, to advise in connection with the claim. No evidence was called from anyone from that firm. However, the defendants took no point based on this failure (if indeed it were a failure).

84 The defendants – in particular, Fluor – did take the point that it was not in any way apparent from the evidence given by Mr Thomas or Ms Nicola that either of them had turned their minds to the relevant terms of the Access Agreement, or, more fundamentally, to the question whether, under that agreement, Railcorp had any liability to SRA in respect of the derailment.

85 Mr Brophy was responsible for vetting the payments made by SRA to some of those injured in the derailment, and for authorising payments made directly to or on behalf of one particular person, a Mr Cavanagh. Mr Cavanagh was an Irish tourist who had stayed on after the conclusion of the Olympic games. His were the most serious of the injuries sustained in the derailment. The amounts paid to him (in excess of $92,000.00) constituted by far the greatest part of the total amount paid in respect of personal injury (a little under $115,000.00 in total, although this excludes the workers compensation claim to which I have referred at [30] above). Mr Brophy’s role was limited to that which I have described, and no one submitted that his reasoning process was defective or inadequate.

86 Mr Thomas was an independent loss adjuster whose firm had been retained by Railcorp for the purpose of assessing SRA’s claim for material damage. It is clear (as one might expect) that Mr Thomas regarded his role as one of verification of the elements of the claim, and negotiation of an appropriate settlement figure, rather than identification and consideration of the legal basis of liability. In this context, Mr Thomas said at paras 6 and 7 of his affidavit sworn 25 October 2007, that he was retained to advise Railcorp “on the amount for which [it] may be liable to compensate the SRA in respect of a claim made or foreshadowed by the SRA in respect of the damage sustained” as a result of the derailment. Specifically, Mr Thomas was asked to advise the components of the claim: for property damage (for the train set), business interruption and third party personal injury. He said at para 9 that he understood his instructions “to be to consider the ‘indemnity value’ of the SRA’s claim. That is, to advise [Railcorp] as to the amount it will be liable to pay the SRA as a result of the derailment”.

87 Notwithstanding Mr Thomas’ use of the word “liable”, I do not think that his role was, or was perceived by him to include, a consideration of the legal basis of liability. Instead, I think, his role was, and was seen by him to be, quantification of the elements of the claim.

88 Ms Nicola was in a different position. She was an in-house lawyer employed by Railcorp at the time. Ms Nicola participated in a meeting with other representatives of Railcorp and representatives of SRA on 2 October 2003. It is apparent from her account of that meeting that by then Railcorp and SRA had agreed to settle on the basis that:

(1) Railcorp would indemnify SRA for personal injury claims and the damage to its property;

(2) the amount for property damage was to be agreed between the loss adjusters retained by Railcorp and SRA;

(3) the amount for personal injury was to be the amounts paid by SRA to those injured pursuant to compromises or judgments;

(4) Railcorp would make a “part payment” of $100,000.00 forthwith;

(5) payment would be finalised by the end of the year; and

89 Mr John Combs of SRA confirmed that this was the basis on which “we have agreed to settle”. Ms Nicola thereupon handed out draft “heads of agreement” setting out the terms of the settlement. Mr Combs agreed that the heads of agreement reflected what had been agreed. He undertook to have the heads of agreement signed after taking legal advice on it. Ms Nicola then gave Mr Combs Railcorp’s cheque for $100,000.00.

90 The heads of agreement were signed on 8 October 2003. It does not appear that any further or more formal agreement was made between Railcorp and SRA in relation to the settlement. There is nothing in the heads of agreement to suggest that SRA assigned to Railcorp such rights (if any) as SRA may have had against Fluor or Alpcross in respect of the derailment. The only provision of the heads of agreement dealing with possible recovery action by Railcorp is cl 7. By that clause, SRA did no more than agree to provide Railcorp with such assistance as Railcorp might need to recover from third parties. I set out the full text of the heads of agreement:

1. Subject to paragraphs 2 and 3 Rail Infrastructure Corporation admits liability to indemnify the State Rail Authority in respect of personal injury claims and property loss claims arising out of the derailment at Kingsgrove on 6 October 2000 (“the derailment”).

2. Rail Infrastructure Corporation and State Rail Authority agree that the extent of the indemnity referred to in paragraph 1 in relation to the property loss claims will be the figure which is accepted by the loss adjusters respectively appointed by each of Rail Infrastructure Corporation and the State Rail Authority.

3. In relation to the personal injury claims the amount payable by Rail Infrastructure Corporation will be all sums paid by the State Rail Authority plus any sums which become payable by way of judgment or settlement.

4. Rail Infrastructure Corporation agrees to make an interim payment to State Rail Authority of $100,000.00 on or before 3 October 2003.

5. Rail Infrastructure Corporation agrees to make the final payment in respect of the property loss claims to State Rail Authority on or before 31 December 2003 or within 30 days of the determination by the loss adjusters in paragraph 2 if not done before 31 December 2003.

6. No interest is payable to State Rail Authority in respect of the sums ultimately determined in accordance with paragraphs 2 and 3 above.

7. The State Rail Authority agrees to provide Rail Infrastructure Corporation, at the cost of Rail Infrastructure Corporation, with all necessary and reasonable assistance to enable Rail Infrastructure Corporation to seek recovery from any third parties who may have a liability to indemnify Rail Infrastructure Corporation in relation to the derailment.

8. The State Rail Authority acknowledges and agrees that the payments of the sums determined in accordance with paragraphs 2 and 3 above is in full and final satisfaction of the State Rail Authority’s claims against Rail Infrastructure Corporation arising from the derailment and includes settlement of all existing claims and existing rights to claim that the State Rail Authority might have against Rail Infrastructure Corporation.

9. Terms not to be disclosed.

10. The parties agree to reduce the terms of this Heads of Agreement to a Deed of Release.

91 Ms Nicola set out in her affidavit sworn 25 October 2007 the reasons why she thought it was reasonable for Railcorp to settle on the basis set out in the heads of agreement. Those reasons related only to the quantification (or methodology for quantification) of the settlement amount:

(1) the most cost effective way to resolve the question of damage to the train was to have the loss adjusters determine it, given that they were both experienced in the valuation of rolling stock claims; and

92 There is nothing in Ms Nicola’s affidavit to suggest that she turned her mind to the relevant provisions of the Access Agreement, that she considered whether Railcorp had any legal liability to SRA for the amounts claimed by SRA, or that she sought advice from external legal advisers on the question of liability. Nor is there anything else in the evidence to which the Court was taken to suggest that Ms Nicola, or indeed any other employee of Railcorp, considered those matters. (I say “evidence to which the Court was taken” because, as is usual in litigation in the Commercial and Technology and Construction Lists, the Court was favoured with a substantial “courtbook”, comprising ten lever arch folders and thousands of pages, all of which was tendered but much of which was not the subject of any reference whatsoever in the course of the hearing. In accordance with my usual practice, I notified the parties at the outset that they would need to refer in the course of the hearing to documents considered to be relevant, and that I did not propose myself to undertake some search through the courtbook to see if there were any other nuggets of relevant material among the dross therein.)

93 It is of course correct to say that Mr Black of Railcorp had carried out what appears to have been a thorough and competent investigation of the derailment. No doubt, the records that he made of his investigations were available to those of Railcorp’s employees and consultants who dealt with the question of settlement. Again, no doubt, Railcorp had available to it, and thus to those employees, the report resulting from the investigation led by Mr Holliday of the Department of Transport. But there is no evidence that Ms Nicola or Mr Thomas (or, for that matter, anyone else who was concerned with the negotiation of the settlement) gave any consideration to those investigations, or to what the investigations and the conclusions reached as a result of them might mean in terms of Railcorp’s potential liability to SRA under the Access Agreement.

94 In short, there is no evidence that any employee of Railcorp turned his or her mind to the question of whether, in the events that it happened, Railcorp had any legal liability to SRA in respect of losses suffered by SRA as the result of the derailment. Nor, to adapt the language of Hayne J in Unity Insurance Brokers at 655 [135], is there any evidence about the matters that were taken into account in deciding to settle the claim by SRA, except the somewhat generalised considerations to which Ms Nicola referred in her affidavit and the evidence as to quantification.

95 That having been said, it remains the case that the question is one to be determined objectively, not subjectively, taking into account relevant circumstances at the time the settlement was negotiated. Mr Jackman’s submission was that, so viewed, the settlement was reasonable. He referred to two considerations:

(1) what was at least an arguable obligation to indemnify under the express terms of the Access Agreement; and
(2) “the fact that it would have been undesirable and probably unreasonable for tax payers’ money to be spent on one State instrumentality suing another” (T102.1).

First point: the terms of the Access Agreement

96 I do not accept Railcorp’s argument based on the decision of Gillard J in Twentieth Super Pace Nominees. The accident occurred in October 2000. The settlement was negotiated some three years later, in October 2003. His Honour’s decision was given almost three years later again, in September 2006.

97 Gillard J concluded in Twentieth Super Pace Nominees at [287] that the owner of rail infrastructure owed to a train operator who used that infrastructure a non-delegable duty of care to keep the track safe and in good repair. His Honour did so in reliance on the decision in Burnie Port Authority. The majority in that case (Mason CJ, Deane, Dawson, Toohey and Gaudron JJ) identified the basis of a non-delegable duty of care at 550-552. Their Honours saw “control” as a key feature. In this context, “control” might mean one of two things. First, it might mean that the person on whom the duty is imposed has undertaken the care, supervision or control of the person or property of another. Secondly, and alternatively, it might mean that the person on whom the duty is imposed is so placed in relation to the person or property of that other as to assume a particular responsibility for the safety of that other’s person or property. In the second situation, the person affected – the “other” – might reasonably expect the person on whom the duty is imposed to exercise reasonable care.

98 If “control” in this sense (which was taken from the judgment of Mason J in Kondis v State Transport Authority (1984) 154 CLR 672 at 687) is present then the vulnerability of the other person becomes a relevant consideration. If that other person is not in a position to exercise control over, or even to have some knowledge of, what is done by the first person, and thus is not in a position to take reasonable care for his or her own safety, then (their Honours said) a non-delegable duty of care could be imposed.

99 It is important to bear in mind that their Honours spoke in the context of damage caused by the escape of fire from one person’s property to property occupied by another: a “Rylands v Fletcher” situation (Fletcher v Rylands (1866) LR 1 Ex 265; Rylands v Fletcher (1868) LR 3 HL 330). Thus, a central element in the imposition of a non-delegable duty of care was the extremely hazardous nature of the work being undertaking on the land from which the fire escaped.

100 Gillard J stated in Twentieth Super Pace Nominees at [286] that “[a] train operator on a train network is extremely vulnerable, and is very dependent upon the track owner keeping the track in a good state of repair and safe”. His Honour’s conception of vulnerability appears to be a somewhat narrow one, and not to represent the full content of the concept of vulnerability (in the law of negligence) as explained in Woolcock Street Investments. Vulnerability, in this context, requires a conclusion that the plaintiff is unable to protect itself from loss as a consequence of the defendant’s negligence. That does not mean only that the plaintiff is unable itself to take steps to do that which the defendant should have done, but did not (for example, maintain a railway track in a safe condition). It includes also the inability of the plaintiff to protect itself, through appropriate contractual or other indemnities, in the agreement regulating its relationship with the defendant.

101 In the ordinary way, one would expect that commercially experienced parties such as the owner of railway infrastructure and the operator of trains that use it would negotiate out in full the terms on which use was to be granted, and would document their agreement accordingly. In those circumstances, it is hard to see why the operator should not be able to stipulate for appropriate warranties as to the continuing safety of the track and associated infrastructure, and for indemnities in the event of breach of those warranties. That the operator does not do so does not mean that it could not do so, let alone that it was, in the relevant sense, “vulnerable”.

102 Thus, if I may say so with respect, I do not find the reasoning of Gillard J persuasive.

103 There are however further problems in the application of his Honour’s reasoning to the facts of this case. The first is that, as I have pointed out, his Honour’s decision was given well after whatever might be considered to be the relevant time. I was not referred to any other decided case, or any academic writing, to suggest that what his Honour said reflected the state of the law in October 2000 or October 2003. That might not be a particular problem in circumstances where the reasoning is clear, and based on well-established principle. But if (as I venture to think is the case) there is a problem with the reasoning – in relation to its use of the concept of vulnerability – then the point is more significant.

104 The second point flows from his Honour’s use of the concept of vulnerability. It is hard to see why SRA was relevantly vulnerable. There can be no doubt that, at the time the Access Agreement was made, and at all relevant times, SRA was an experienced operator of train services. There can be no doubt that it appreciated at all relevant times that its ability to provide safe and reliable train services depended, to a large degree, on the continued availability of safe and properly maintained railway tracks and associated infrastructure. There is nothing to suggest that the bargaining position of SRA, in the negotiations that led up to the making of the Access Agreement, was in anyway hampered or restricted, or (if it be relevant) inferior in a commercial sense to that of Railcorp. Thus, I conclude that the Access Agreement contained such provisions as SRA thought were reasonably necessary to protect its position in relation to the continued availability of safe and properly maintained infrastructure. If the parties negotiated for what they thought was an appropriate balance of rights and liabilities, the law should be slow to interfere with the outcome of their negotiations by imposing, in addition, some different (and non-delegable) duty on one of them.

105 Thirdly, if it is legitimate to take into account the reasoning or decision in Twentieth Super Pace Nominees, it may also be legitimate to take into account subsequent decisions that have developed the law in relation to non-delegable duties of care. I refer, in particular, to the decision in Montgomery.

106 As the judgment of Gleeson CJ in Montgomery at 33 [18] makes clear, the non-delegable duty of care that was imposed on the appellant in Burnie Port Authority was imposed because of the extremely hazardous nature of the activities that the appellant caused to be carried on. It was not submitted in this case that the duties of repair and maintenance in respect of which the non-delegable duty of care was said to be imposed on Railcorp, were activities of such a hazardous nature.

107 Gleeson CJ pointed out in Montgomery at 29 [9]–[10] that the non-delegable duty of care in issue in that case was not said to arise because the responsibility (for repair of roads and footpaths) was imposed on councils in terms or in a context that required them to perform it personally. It was, instead, said to arise because the responsibility of councils was said to be not merely to exercise reasonable care if they undertook the work themselves, but also, if they engaged a subcontractor, to ensure that the subcontractor exercised reasonable care. As his Honour pointed out at 34 [22] – 35 [24], such a duty was one that “[i]n many circumstances… could not be fulfilled”. It was in truth “not a… special kind of duty, but an imposition… of a special kind of vicarious responsibility”. If such a duty were to be imposed, “[i]t would be necessary to identify and justify the exceptions to the general rule that a defendant is not vicariously responsible for the negligence of an independent contractor, and to provide a means by which other exceptions may be identified when they arise”.

108 Kirby J made a similar point at 60 [104]. His Honour said that the recognised categories of non-delegable duties of care were “exceptional” and existed “in well-established categories that are recognised by the law”. His Honour pointed to “the general trend of contemporary tort law, to limit exceptional categories, and to reject new ones except on the basis of a clear analogy to a recognised class and then only for compelling reasons of legal principle and policy”.

256 To the extent that the parties’ submissions travelled further, and considered the operation of the insuring clause and the exclusion in the event that it happened, I shall defer consideration of them under I move to the relevant issues.

257 At this point, I repeat that Zurich is not a party to these proceedings. It did however undertake the defence of the proceedings on Fluor’s behalf. The hearing proceeded on the basis that (subject to any appeal) Zurich would be bound by any conclusions as to the availability or extent of cover, or the existence or extent of any obligation to indemnify, under the Zurich policy in respect of the subject matter of these proceedings.

258 I do not think that the terms of the insuring clause in the Zurich policy can be imported into the Alliance Contract. It either is or is not a policy of insurance of the kind that Fluor was required to effect pursuant to cl 11.2(c). If it is such a policy of insurance, then the extent (if any) to which it responds to the claim is a matter to be taken into account in assessing the limit of Fluor’s liability pursuant to cl 10.4(a)(iv). But it does not follow that the terms of the policy that define, or for that matter qualify, Fluor’s right to indemnity, or the extent of Zurich’s obligation to indemnify, of themselves help to define “the relevant liability” of which cl 10.4(a)(iv) speaks. The subparagraph expressly contemplates that there may be a qualitative or quantitative difference between a “relevant liability” and “an insured risk”.

259 To the extent that issues 14 to 16 arise, they should be answered as follows:

(1) issue 14(1): yes.

(2) issue 14(2): no.

(3) issue 15: no.

Issue 17: the QBE policy

260 QBE accepts that, to the extent that the QBE policy is engaged (i.e., to the extent that the claim exceeds $5.3 million) it is liable to indemnify Railcorp and Fluor. It has notified both Railcorp and Fluor accordingly.

261 Given my conclusion as to the amount of Railcorp’s claim (see issues 4 and 13) the QBE policy is not engaged.

262 Issue 17 should be answered by saying that the QBE policy would respond to the extent that any claim by Railcorp against Fluor exceeds $5.3 million, but that in the circumstances of this case no amount is payable by QBE to Fluor under that policy.

Issue 18: the insuring clause in the Zurich policy

263 The insuring clause in the Zurich policy reads as follows:

The Insurer agrees to indemnify the Insured against any Claim first made against the Insurer and notified to the Insurer during the Period of Insurance in respect of any civil liability, incurred by the Insured in the conduct of the Profession, as specified in the Schedule.

264 The schedule specified a number of professions:

The competing submissions

265 Mr Jackman submitted that the relevant question, for the purposes of issue 18, was whether (assuming, as I have found is the case, Fluor has some liability to Railcorp arising out of Fluor’s performance of its obligations under the Alliance Contract) that liability is a civil liability incurred by Fluor in the conduct of the “Profession” specified in the schedule. In this case, Mr Jackman submitted, the liability was one incurred in the conduct of Fluor’s engineering business or project management business.

266 Mr Jackman submitted that it was sufficient if the breach of duty by which the relevant liability was incurred occurred within the ambit of the defined profession, even though the particular tasks, in or by the execution of which the breach of duty occurred, might not have been in itself of a “professional” quality.

267 Further, Mr Jackman submitted, even if it were necessary to inquire whether the particular task, in respect of which the breach of duty arose, was a professional task, then the Zurich policy would still respond.

268 Mr Donaldson submitted that it was a common feature of the occupations listed in the schedule to the Zurich policy that each of them involved the provision of professional services. By contrast, he submitted, the obligations undertaken by Fluor pursuant to the Alliance Contract involved a range of activities, some of which were professional in nature and some of which were not. Thus, he submitted, it was necessary to focus on the precise nature of the task being undertaken and on the precise nature of the duty said to have been breached. He submitted that if the task, or the duty, were one that was clearly not of a professional nature then it could not be elevated into a breach of professional duty by seeking to elevate it into a failure to instruct or a failure to inspect.

Decision

269 I have concluded that Alpcross performed the relevant works negligently. Clause 4.8(d) provides that Fluor cannot escape any liability (that otherwise it might have) for the negligent performance of both works simply because it subcontracted their performance to an independent subcontractor.

270 I have also concluded that:

(1) in respect of the particular task, Fluor was not under an obligation to instruct Alpcross as to the manner of performance of the works;

(2) Fluor did have a duty to inspect those works after they had been completed and before the track was put back into service; and

271 Thus, to the extent that I have found that Fluor owed, and breached, a duty to inspect, Mr Donaldson’s submission must be rejected.

272 Mr Jackman referred me to cases in which expressions such as “professional business practice” and “professional” had been analysed. He submitted that it followed from those cases – to some of which I will turn – that the word “profession” should be construed widely in the context of an insuring clause in a professional indemnity policy.

273 The first point to make is that, as the cases insist, the approach to construction requires a consideration of the words of the particular insuring clause taking account of the relevant factual matrix and the context provided by all relevant terms of the policy of insurance. See Buchanan JA in Suncorp Metway Insurance Ltd v Landridge Pty Ltd (2005) 12 VR 290 at 293 [11]. As his Honour there pointed out, the object of the exercise is to ascertain, so as to give effect to, what is, objectively, the intention of the parties.

274 Thus, where a policy of insurance indemnified the insured “for breach of a professional duty by reason of any act, error or omission committed… by the Insured in the conduct of the Business”, the phrase “professional duty” had to be construed taking into account what was the “Business” identified in the policy. Where, as was the case in Landridge, the business was that of a real estate agent, then as Buchanan JA said at 293 [11], “[i]n order to make commercial sense of the policy… it is necessary to regard those core activities of the agent’s business as carrying on a profession, while at the same time recognising that not everything done by an estate agent is to be described as carrying on a profession”.

275 It follows, his Honour said at 294[16], that “[t]he question whether a breach of duty answers the description of a breach of a professional duty depends upon characterisation of the overall activity in the context of which the breach occurs, and is not answered by concentrating on the specific task which has not been performed or badly performed so as to give rise to liability”.

276 Nettle JA pointed out at 297 [28] that “the concept of “professionalism” within a given policy of insurance must always depend upon the business to which the policy relates and thus upon the “profession” which is in view”.

277 What is clear from their Honours’ reasons is that because the application of an insuring clause has to be considered in the context of the particular policy and against the particular factual matrix, “the criteria of professionalism in one context is virtually bound to be different to that in another, and hence there is little utility in attempts at transposition” (to borrow the words of Nettle JA at 297 [27]).

278 It is also clear from their Honours’ reasons that an act or omission may be a breach of professional duty, notwithstanding that it arises from the negligent performance, of “a task requiring little or no skill” (see Buchanan JA at 295[16]).

279 Under the Alliance Contract, Fluor agreed to provide both IWMP Works and RAC Contract Management Services (cl 3.1(a)). RAC Contract Management Services are contract management services relating to contracts made between Railcorp and its contractors. In this case, the removal of the GIJs and their replacement by welded-in lengths of rail were IWMP Works, not RAC Contract Management Services. By reference to the “Brief” that was Annexure B to the Alliance Contract, the removal and replacement of GIJs was a task of “major period maintenance work” (see cl 6.1 of the Brief).

280 By cl 6.2 of the Brief, Fluor was required to prepare “asset management plans” on a rolling five year forward basis, setting out among other things the scope of works for each financial year covered by the plan. That plan was to be considered by the “Alliance Management Team” and the “Alliance Board” set up pursuant to the Alliance Contract. Clause 4.1 of the Alliance Contract recognised that Fluor was responsible for performance of those Major Periodic Maintenance Works (as, of course, it was responsible for performance of the IWMP Works generally and the RAC Contract Management Services).

281 Fluor gave certain performance warranties in cl 4.2 of the Alliance Contract. The warranties relating to design work and construction and maintenance work are relevant:

4.2 IWMP’S performance warranties

Without limiting the generality of clause 4.1, the IWMP warrants that:

(a) with respect to all design work forming part of the IWMP Works or the RAC Contract Management Services it will:

(i) exercise the standards of skill, care and diligence in the performance of the design work that would be expected of a design professional experienced in projects or activities or a similar nature to those the subject of the IWMP Works or the RAC Contract Management Services (whichever is applicable); and

(ii) take all necessary measures to ensure that the design work is fit for its purpose as agreed by the parties through the processes contemplated in the Brief;

(b) it will perform all construction and maintenance work forming part of the IWMP Works:

(i) in a proper and workmanlike manner and so that it is fit for its purpose as agreed by the parties through the processes contemplated in Brief; and

(ii) using material of the nature described in the Brief, or failing any such specific description, of merchantable quality and fit for its purpose as agreed by the parties through the processes contemplated in Brief;

282 The question must be whether a liability incurred by Fluor for negligent performance of an item of Major Periodic Maintenance Work is a liability incurred by it in the conduct of one of the “Professions” listed in the schedule to the Zurich policy.

283 Mr Donaldson submitted that neither the work involved in the removal and replacement of the GIJs nor the work involved in supervising or inspecting the outcome of that work involved any particular element of “professional” skill or learning. The processes, he submitted, were “not matters of technical complexity” and were “simple manual tasks”. They did not involve “the exercise of the expertise of a civil engineer nor, to the extent that project managers perform “professional” services, the skills of a project manager”.

284 Railcorp’s case is not answered by that submission. As Buchanan JA pointed out in Landridge at 294 [16], the question is not whether the particular activity involved any element of professional skill but whether it was carried out in the performance of professional duties. Thus, whilst a solicitor’s clerk may not require any particular skill (apart from a sense of direction) to file a document in a registry, the failure to file that document in time may well amount to a breach of the solicitor’s professional duty (to adapt the example given by Buchanan JA in Landridge at 295 [16]). The question is whether the particular activity that gave rise to the liability is to be regarded as something done (or omitted to be done) “in the conduct of the Profession, as specified…”.

285 There is very little evidence as to the range of activities carried on by Fluor at the relevant time. The Zurich policy suggests that Fluor carried on the “Professions” described in the schedule. The Alliance Contract suggests that Fluor’s activities included the performance of works such as the IWMP Works and the provision of services such as the RAC Contract Maintenance Services. By cl 2.1 of the Brief, the scope of those works and services was regarded as including “all the necessary skills and resources to perform all custodial functions pertaining to the assets of [Railcorp] necessary to maintain and enhance the value of such of those assets forming the East Hills line”. By cl 2.2, those custodial functions were said to “include all work necessary to maintain asset integrity and ensure the safe and reliable passage of trains…”.

286 Fluor’s obligations, in relation to the IWMP Works, included the preparation of plans and procedures for asset management, including maintenance (cl 4.1 of the Brief). Once those plans and procedures were approved, Fluor was to implement them (cl 4.2).

287 It seems to me to be an available inference that the preparation of those management plans would involve skills possessed by those qualified in the disciplines of civil engineering, construction management and project management. Likewise, it seems to me, there is an available inference that the implementation of those plans would involve the same skills: particularly where (as was contemplated by the Alliance Contract) the execution of works in performance of the maintenance plans might be done by subcontractors to Fluor. Clearly, Fluor would be required to manage the works undertaken by those subcontractors.

288 Further, I think, it is an available inference from the Brief that both the maintenance and renewal of the “assets” comprised in the East Hills line, and particular aspects of that work such as the replacement of GIJs, could be regarded as “projects” to be undertaken by Fluor with the requisite approvals. If that is correct, then it provides another reason for thinking that the skills involved in the planning for and execution of those works would include skills ordinarily possessed by those engaged in the disciplines of construction management and project management.

289 Accordingly, I think, it is an available inference that the works of which the GIJ renewals in general, and the renewal of the particular GIJs with which this case is concerned, were undertaken by Fluor in the course of one or more of the professions listed in the schedule to the Zurich policy. If that analysis is correct then, for the reasons given by Buchannan and Nettle JJA in Landridge, it is not to the point that particular aspects of that work do not involve the application of what might be regarded as “professional” skills.

290 Fluor’s submissions in relation to the operation of the insuring clause focused narrowly on the particular operations involved in the task of GIJ replacement. For the reasons that I have given, the question is a somewhat wider one: were those operations undertaken in the conduct of one or more of the professions listed in the schedule to the Zurich policy? Accordingly, if the inferences to which I have referred in the previous paragraphs are drawn, issue 18 should be answered “yes” – i.e., adversely to Fluor and Zurich.

291 As I have said, Fluor did not lead evidence as to the nature of its business or professional activities at the relevant time. Such evidence may have been of assistance in resolving issue 18 one way or the other. Where there is sufficient evidence to support an inference, which if drawn would result in the question’s being adversely to a party, then the unexplained failure of that party to lead evidence on the topic may facilitate the drawing of the inference. In my view, that is the approach to be taken in this case. Further, in assessing the sufficiency of the evidence to support the inference, the oft - cited observation of Lord Mansfield CJ in Blatch v Archer (1774) 1 Cowp 63 at 65; 98 ER 969 at 970: “… all evidence is to be weighed according to the power of one side to have produced, and in the power of the other to have contradicted”. (For subsequent citations, see by way of example only Dixon CJ in Hampton Court Limited v Crookes (1957) 97 CLR 367 at 371, and Gleeson CJ in Swain v Waverley Municipal Council (2005) 220 CLR 517 at 525 [17].)

292 I therefore conclude that the liability that I have found that Fluor owes to Railcorp in respect of the GIJ replacement work is a liability incurred by Fluor in the conduct of one or more of the professions listed in the schedule to the Zurich policy: specifically, the professions of civil engineering, construction management or project management.

293 It follows that issue 18 should be answered “yes”.

Issue 19: exclusion 4.1

294 Exclusion 4.1 reads, so far as it is relevant,

This policy does not provide any indemnity against any Claim… arising from or attributable to… any contractual liability or assumed liability, unless the Insured would in any event be legally liable in the absence of such contractual or assumed liability…

295 Mr Donaldson’s submission was that exclusion 4.1 was engaged because Railcorp had not shown that Fluor was negligent.

296 I have found that Alpcross performed the work in question negligently. That negligence is attributable to Fluor (more accurately, Fluor remains liable for the proper execution of that work) notwithstanding that it subcontracted the performance of it to Alpcross. See cl 4.8(d) of the Alliance Contract.

297 It is clear that a party may be liable both in contract and in tort for the negligent performance of its obligations under a contract. See Astley v Austrust Limited (1999) 197 CLR 1. In this case, Fluor would have been liable to Railcorp for any negligent performance of Fluor’s obligations under the Alliance Contract even in the absence of any contractual term to that effect. That appears to have been conceded by Fluor, as indicated at [195] above.

298 It follows that issue 19 should be answered by saying Fluor would be legally liable to Railcorp in the absence of any contractual or assumed liability.

Issues 20 to 22: exclusion 4.5

299 Exclusion 4.5 reads as follows:

This policy does not provide any indemnity against any Claim… arising from or attributable to:

a. the replacement of or lack of efficacy of any goods manufactured, sold, designed, specified, formulated, constructed, installed, distributed, treated, serviced, altered, repaired or supplied by the Insured; or

b. any defect in any goods manufactured, sold, designed, specified, formulated, constructed, installed, distributed, treated, altered, repaired, supplied or serviced by the Insured;

except where such a Claim arises from or is attributable to any advice, design or specification prepared by the Insured in the conduct of the Profession, or otherwise in the course of undertaking professional duties.

300 Mr Donaldson submitted that any liability that Fluor has to Railcorp arose “directly out of the lack of efficacy of “or “defect in” the rails, which were relevantly treated, serviced, altered and repaired by Fluor pursuant to the Alliance Contract. He submitted that there was no case of any error in design or specification.

301 Mr Donaldson relied on the decision of the English Court of Appeal in Wayne Tank and Paint Co Limited v Employers’ Liability Insurance Corporation [1974] QB 57. That case dealt with an insurance policy that provided indemnity against concurrent causes of loss. It held in substance that where there was an express exclusion of liability in respect of one cause, the insurer was not liable to the insured not withstanding that there was no exclusion in respect of any concurrent cause. The principle was applied by the Full Court of the Federal Court of Australia in McCarthy v St Paul International Insurance Co Limited (2007) 157 FCR 402 (see Allsop J at 427 [81]).

302 The “Wayne Tank” principle applies only if there are concurrent causes of loss and if a relevant contractual exclusion operates in respect of one of them. It can be put to one side in considering the operation of exclusion 4.5.

303 The short answer to the question posed in respect of issue 4.5 is that there is no evidence that any of the lengths of rail inserted into the track on the nights in question were inefficacious or defective. Nor is there any evidence that the material used to weld them in place was inefficacious or defective. No doubt, as a result of Alpcross’ negligent failure to follow the rail in / rail out method correctly, the overall section of track into which those lengths of rail were inserted became inefficacious or defective. But to the extent that exclusion 4.5 has any relevance to the facts of this case, it is directed to the length of rail that were inserted, not to the overall track of which, after welding, they became part.

304 Issue 20 should be answered “no”. Issue 21 should be answered “does not arise”. Issue 22 should be answered “does not arise”.

Issues 23 and 24: exclusion 4.12

305 Exclusion 4.12 was inserted by endorsement. The exclusion, so far as it is relevant, reads as follows:

Project Management

4.12…

d. any work which is supervised or normally supervised by any consultant or sub-contractor including but not limited to any architect, engineer, trade person or foreman.

306 Clearly enough, the exclusion should be read as though it were preceded by the words which appear at the beginning of the exclusions section of the policy:

This policy does not provide indemnity against any Claim

307 There was some dispute as to whether the words “arising from” or attributable to” should be read into the exclusion, following the words that I have just set out and before the words “Project Management”.

308 In my view, exclusion 4.12 should be read as though it were introduced by the general words set out at [306] above, followed by the words “arising from or attributable to”. The exclusions fall into three categories. In the first category (the most common) the link between the “Claim” in respect of which indemnity is not to be provided and the exclusionary circumstances is the verbal formula “arising from or attributable to”. In the next category, that link is provided by the words “made against the Insured”. The third category (found only once) combines the two formulations:

Made against… the Insured… or arising from or attributable to.

309 It seems to be reasonably clear that the parties intended one or other of those linking phrases to apply. I do not accept, as Mr Jackman submitted (it has to be said, not particularly forcefully), that they might have intended to use some totally different words to denote the link between the “Claim” and the excluded circumstances.

310 Thus, I think, it is appropriate to read exclusion 4.12 as thought the link between the “Claim” and the circumstances set out in the exclusion is provided by the words “arising from or attributable to”.

311 Mr Donaldson submitted that Mr Popovic, the principal of Alpcross, had supervised the welding works carried out by Alpcross on the nights in question. Thus, he submitted, “the work said to have been carried out negligently was (on any view of the facts) “supervised” by Alpcross, a subcontractor to Fluor”.

312 It is I think common ground (and if it is not common ground, I find) that Fluor did not itself, or through some subcontractor or consultant independent of Alpcross, supervise (during its performance, as opposed to inspect after completion) the work undertaken by Alpcross.

313 There is no evidence that work of the kind carried out by Alpcross for Fluor on the nights in question is “normally supervised” by consultants or subcontractors. Mr Townsend’s evidence is that he did not supervise the work in question. It is I think a reasonable inference from his evidence that he did not think that it was necessary for such work to be supervised. Acceptance of that proposition would support the view that the work in question is not work that is “normally supervised” in the manner contemplated by exclusion 4.12 d.

314 Thus, for the exclusion to operate, it must be shown that in fact Alpcross’ work was supervised by a consultant or sub-contractor.

315 In context, the reference to a consultant or subcontractor in cl 4.12 d must be taken to refer to someone to whom the insured (i.e., Fluor) delegates (whether by way of subcontract or otherwise) the task of supervision of work. In this case, so far as the evidence shows, Fluor delegated to Alpcross (by way of subcontract) the task of performance of the work. There is no evidence that Fluor delegated (to Alpcross or anyone else, and by subcontract or otherwise) the task of supervision of that work; and as I have said, it is a reasonable inference from Mr Townsend’s evidence that he at least did not think that any such supervision was required.

316 In the context of exclusion 4.12 d, the reference to supervision of work should be read as comprehending supervision of work by someone other than the person carrying out that work. No doubt, Mr Popovic (if he were present) took note of what his workmen were doing. But that was as an incident of performance of the work, not the execution of some separate task of supervision.

317 Thus, I conclude, exclusion 4.12 d is not engaged. Issue 23 should be answered accordingly, and issue 24 should be answered “no”.

Issues 25 and 26: failure to effect insurance

318 On the view to which I have come, these issues do not arise. But even if one or more of the exclusions did operate, it would not necessarily follow that Fluor was in breach of its obligations under cl 11.2(c) of the Alliance Contract. It is commonly the case that policies of insurance contain exclusions. That trite observation is as much applicable to policies of professional indemnity insurance as to any other kind of insurance policy. Thus, neither the fact that the Zurich policy contains exclusions, nor the (hypothetical) fact that one or more of those exclusions operates in the context of a particular claim, means that there is a breach of cl 11.2(c).

319 Since these issues do not require consideration, I see no point in pursuing the question of what (if any) exclusions might have the effect that the Zurich policy, considered as a whole, should not be considered as providing “professional indemnity insurance, for any breach of duty owed in a professional capacity by [Fluor] or its Sub-Contractors who have design or other professional responsibilities…”.

Conclusions

320 For convenience, I set out each issue and the answer that should be given to it:

Negligence

1. Did the second defendant (“ Alpcross ”) owe a duty to exercise reasonable skill and care in carrying out the rail closure work?

Answer: Yes.

Answer: Yes.

3. If the answer to 2 is “yes”, was that breach a cause of the train derailing on 6 October 2000?

Answer: Yes.

Damages (leaving aside positive defences raised by Alpcross)

4. If the answers to questions 1 and 3 are “yes”, what amount can Railcorp recover? Various matters arising in respect of this issue have been agreed. The only issue in dispute is whether Railcorp may recover a sum of $5,207,287.42 paid by RIC to SRA in settlement of SRA’s claims against RIC.

Answer: $590,940.00 together with interest.

The IWMP contract and policies of insurance

5. Is Alpcross entitled to resist these proceedings as a beneficiary of a promise by Railcorp to bear the entire risk of the IWMP Alliance Contract?

Answer: No.

6. If the answer to 5 is “yes”, is Alpcross liable to indemnify Railcorp for the losses the subject of this claim (List Statement paragraphs 63 to 65)?

Answer: Does not arise.

Mitigation

(a) not making any claim upon AIG under a policy of insurance with it; and

(b) not accepting a sum that has been offered by QBE in settlement of QBE’s liabilities under a policy of insurance.

Answer: No.

Issues between Railcorp and Fluor

Negligence

8. Did the first defendant (“ Fluor ”) owe a duty to exercise reasonable skill and care to ensure that the rail closure work carried out by Alpcross was carried out properly?

Answer: Yes.

9. If the answer to 8 is “yes”, did Fluor breach that duty of care?

Answer: Yes.

10. If the answer to 9 is “yes”, was that breach a cause of the losses claimed in these proceedings?

Answer: Yes.

Breach of contract claim against Fluor

11. Did Fluor breach its contract with Rail Access Corporation as a result of the way in which the rail closure work was organised, conducted and inspected?

Answer: Yes.

12. If the answer to 11 is “yes”, was that breach a cause of the train derailing on 6 October 2000 and the damage the subject of these proceedings?

Answer: Yes.

Damages (leaving clause 10.4(a)(ii) to one side)

13. What amount can Railcorp recover? [See issue 4 above]

Answer: $579,588.00 together with interest.

The operation of clause 10.4(a)(ii)

(1) if Fluor has a liability to RAC and it is an insured risk under insurance policies effected in accordance with clause 11, is the amount of the liability limited to the maximum amount that is or will be paid for that risk under those policies (as Railcorp has alleged); or

(2) if Fluor has a liability to RAC and it is an insured risk under public liability policies effected by RAC in accordance with clause 11, is the amount of the liability limited to the maximum amount that is or will be paid for that risk under those policies (as Fluor has alleged).

Answer: No.

Answer: No.

16. On the proper construction of the IWMP contract (and in circumstances in which no recovery is available under the primary layer insurance effected by RailCorp pursuant to Cl. 11.2), is Fluor’s liability limited to any breach by Fluor of a “ duty owed in a professional capacity ”?

Answer: Fluor’s liability is limited, relevantly, to the extent to which the Zurich policy responds to the claim and an amount is paid or payable respect of that claim.

Whether Fluor has indemnity under the public liability policy with QBE

17. Has or will Fluor be indemnified by the first layer insurers under the public liability policy taken out by Rail Access Corporation under clause 11.2, and if so, in what amount?

Answer: The QBE policy would respond to the extent that any claim by Railcorp against Fluor exceeds $5.3 million. In the circumstances of this case, no amount is payable by QBE to Fluor under that policy.

Is Fluor indemnified under the professional indemnity policy with Zurich?

Answer: Yes

The insuring clause

18. For the purpose of the insuring clause in a contract of insurance between Fluor and Zurich, is that liability a civil liability incurred by Fluor in the conduct of any one or more of the following professions – structural engineering, mechanical engineering, electrical engineering, civil engineering, chemical engineering, construction management, project management and personnel consultants?

Answer: Yes

Exclusion 4.1

19. Is a claim by Fluor for indemnity under that same policy in respect of its liability to Railcorp a claim arising from or attributable to any contractual liability or assumed liability, and if so, would Fluor in any event be legally liable in the absence of such contractual or assumed liability?

Answer: Fluor would be liable to Railcorp in the absence of any contractual or assumed liability.

Exclusion 4.5

(a) the replacement or lack of efficacy of any goods manufactured, sold, designed, specified, formulated, constructed, installed, distributed, treated, serviced, altered, repaired or supplied by the insured;

(b) any defect in any goods manufactured, sold, designed, specified, formulated, constructed, installed, distributed, treated, serviced, altered, repaired or supplied by the insured?

Answer: No.

21. If the answer to 20 is “yes”, is that claim by Fluor one that arose otherwise in the course of undertaking professional duties?

Answer: Does not arise.

22. On the proper construction of Exclusion 4.5, is the answer to 21 irrelevant if the claim is not one which arises from any advice, design or specification?

Answer: Does not arise.

Exclusion 4.12

23. What is the proper construction of the exclusion in clause 4.12 of the Zurich policy?

Answer: That exclusion (4.12 d) is not engaged: see at [305] to [310] as to its proper construction.

24. Whatever the proper construction of clause 4.12 of the Zurich policy may be, does it apply in respect of Fluor’s claim against Zurich?

Answer: No.

Fluor’s liability if exclusions operate

25. If Fluor’s liability is excluded by the terms of the Zurich policy, did Fluor breach its obligation to effect insurance in accordance with clause 11.2(c) of the IWMP contract?

Answer: Does not arise.

Answer: Does not arise.

Orders

321 I direct the parties to bring in short minutes of order to give effect to the conclusions that I have reached. Those short minutes of order should deal both with the relief to which Railcorp is entitled on its claim and with the question of costs. Those orders are to be provided electronically to my Associate by 30 January 2009. If the parties cannot agree on the orders to be made (including as to costs) then they are to provide electronically the orders for which they contend, together with a written outline of their submissions in support of those orders. That is to be done by 13 February 2009.

322 I stand the proceedings over to 17 February 2009 at 9:30 am. I will deal with any disagreements, either as to the form of order or as to costs, on that occasion.

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Citations

Rail Corporation of New South Wales v Fluor Australia Pty Ltd [2008] NSWSC 1348

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CITATION:	Rail Corporation of New South Wales v Fluor Australia Pty Ltd [2008] NSWSC 1348
HEARING DATE(S):	7/10/08, 9/10/08, 13/10/08
JUDGMENT DATE :	19 December 2008
JUDGMENT OF:	McDougall J at 1
DECISION:	See paras [321] to [322] of the judgment.
CATCHWORDS:	NEGLIGENCE – Duty of care – whether an owner of rail infrastructure owed to a train operator a non-delegable duty to exercise reasonable care to ensure that the track was safe – duty to maintain. - NEGLIGENCE – Duty of care – duty to ensure proper performance of works – duty to inspect – duty not discharged by engaging independent subcontractor. - NEGLIGENCE – Breach of duty – professional duty – liability – whether defendant’s liability is a civil liability incurred in the conduct of its profession – it is not necessary for the conduct to involve any element of professional skill, but must be carried out in the performance of professional duties. - DAMAGES – Whether defendants required to pay damages to plaintiff for loss suffered as a result of plaintiff’s unreasonable settlement with third party – settlement – reasonableness – objective test – range of potentially reasonable settlement sums. - DAMAGES – Economic loss – whether subcontractor owes proprietor a duty of care to avoid pure economic loss – vulnerability – whether plaintiff in a position to protect itself from loss in the event of negligence – damages are only recoverable for economic loss arising from injury to plaintiff’s person or property. - CONTRACTS – insurance contracts – whether a non-party to an insurance policy can sue to enforce a promise of indemnity expressed to be for their benefit – privity of contract. - CONTRACTS – Insurance contracts – claim under policy – limitation of liability – where an express exclusion of liability exists in respect of one cause, an insurer is not liable to an insured even where there is no exclusion in respect of a concurrent cause. - PRACTICE – Procedure – parties to proceedings – joinder of – where the construction and effect of a contract is in issue in proceedings, parties to those contracts should be joined. - EVIDENCE – inferences of negligence open on proved circumstances – whether inference should be drawn – failure of defendant to give evidence – Jones v Dunkel.
LEGISLATION CITED:	Rail Safety Act 1993 Transport Administration Act 1988
CASES CITED:	Ankar Pty Limited v National Westminster Finance (Australia) Limited (1987) 162 CLR 549 Astley v Austrust Limited (1999) 197 CLR 1 Blatch v Archer (1774) 1 Cowp 63 Burnie Port Authority v General Jones Pty Limited (1992) 179 CLR 520 Caltex Oil (Australia) Pty Limited v The Dredge “Willemstad” (1976) 136 CLR 529 Commercial Union Assurance Company of Australia Limited v Ferrcom Pty Limited (1991) 22 NSWLR 389 Co-operative Retail Services Ltd v Taylor Young Partnership Ltd [2002] 1 WLR 1419 Fletcher v Rylands (1866) LR 1 Ex 265 Gunston v Lawley [2008] VSC 97 Jones v Dunkel (1959) 101 CLR 298 Kondis v State Transport Authority (1984) 154 CLR 672 Leichhardt Municipal Council v Montgomery (2007) 230 CLR 22. Lumbers v W Cook Pty Ltd (In Liquidation) (2008) 232 CLR 635 McCarthy v St Paul International Insurance Co Limited (2007) 157 FCR 402 Nguyen v Cosmopolitan Homes [2008] NSWCA 246 Petrofina (UK) Ltd v Magnaload Ltd [1984] QB 127 Unity Insurance Brokers Pty Limited v Rocco Pezzano Pty Limited (1998) 192 CLR 603 Rylands v Fletcher (1868) LR 3 HL 330 Suncorp Metway Insurance Ltd v Landridge Pty Ltd (2005) 12 VR 290 Trident General Insurance Co Limited v McNiece Bros Pty Limited (1988) 165 CLR 107 Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1987) 8 NSWLR 270 Twentieth Super Pace Nominees Pty Ltd v Australian Rail Track Corporation Ltd [2006] VSC 353 Unity Insurance Brokers Pty Limited v Rocco Pezzano Pty Limited (1998) 192 CLR 603 Wayne Tank and Paint Co Limited v Employers’ Liability Insurance Corporation [1974] QB 57 Woodside Petroleum Development Pty Ltd v H & R – E & W Pty Ltd (1990) 20 WAR 380 Woolcock Street Investments Pty Ltd v CDG Pty Ltd (2004) 216 CLR 515 Wyong Shire Council v Shirt (1980) 146 CLR 40
PARTIES:	Rail Corporation of New South Wales (Plaintiff) Fluor Australia Pty Ltd (First Defendant) Alpcross Pty Limited (Second Defendant)
FILE NUMBER(S):	SC 55015/07
COUNSEL:	I M Jackman SC / M R Elliott (Plaintiff) S R Donaldson SC / E C Muston (First Defendant) J E Robson SC / J A Gracie (Second Defendant)
SOLICITORS:	Blake Dawson Lawyers (Plaintiff) Wotton & Kearney Lawyers (First Defendant) Goldrick Farrell Mullan (Second Defendant)