TBI Pty Ltd v AON Financial Planning Ltd

85F

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION

No. 8086 of 2000

TBI PTY LTD (ACN 004 322 123)	Plaintiff
v
AON FINANCIAL PLANNING LIMITED (ACN 000 008 524)	Defendant

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JUDGE:	Ashley J
WHERE HELD:	Melbourne
DATE OF HEARING:	7, 8, 9, 10, 11, 28 and 29 April; 1, 2, 5, 6, 7, 8, 9, 12, 13, 15, 16, 19 and 20 May 2003
DATE OF JUDGMENT:	19 February 2004
CASE MAY BE CITED AS:	TBI Pty Ltd v AON Financial Planning Ltd
MEDIUM NEUTRAL CITATION:	[2004] VSC 40

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Insurance – insurance broker – failure to take steps to obtain professional liability policy for client – breach of retainer – breach of common law and statutory duties – whether breaches a cause of any loss and damage to the plaintiff – quantum of loss and damage.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr R.A. Brett, QC and Mr G.P. Harris	Mallesons Stephen Jaques
For the Defendant	Mr C.G. Gee, QC and Mr J.J. Gleeson	Corrs Chambers Westgarth

HIS HONOUR:
The Claim

The plaintiff's claim against the defendant, described in the simplest terms, is that the latter as its insurance broker failed to maintain for it professional liability insurance cover. Further, that the defendant represented, by silence, that there was no such failure; and represented, positively, that such insurance had been maintained. The plaintiff asserts that it suffered loss and damage attributable to each such default when obliged to meet a claim founded in professional liability made against it by Fletcher Constructions Australia Ltd (Fletcher).

For a period up until 30 September 1996 the plaintiff was insured against professional liability. After July 1996, when Detroit Diesel - Allison Australia Pty Ltd (DDAA) acquired many of the assets of a division of the plaintiff named Detroit Diesel and Turbine Co (Detco), DDAA held professional liability insurance.[1] In all instances the defendant acted as broker in obtaining such insurance. In all instances after March 1994 CGU Insurance Ltd, formerly Pacific Indemnity Underwriting Agency Pty Ltd, underwrote the insurance.
[1]Under what was called at trial the “third policy”, operative between 30 September 1996 and 30 September 1997; and under the so-called “fourth policy”, operative between 30 September 1997 and 31 July 1999.

When Fletcher raised claims exceeding $100 M against the plaintiff it soon became apparent that there was a question whether the latter had any professional liability cover in respect thereof. Because no relevant policy existed in its name when the Fletcher claims were made in late 1998, attention focussed on two questions: first, was the plaintiff able to get indemnity under a claims made policy which expired on 30 September 1995 (the first policy)? Second, was the plaintiff entitled to cover as a "prior corporate entity" under the DDAA third or fourth policy?[2]
[2]As to these descriptions, see Footnote 1.

In the end, the plaintiff settled the Fletcher claims for $14.9M all-in. That was in May 2000. In June that year it settled a claim which it had made against CGU for $3M. That claim had been made, in substance, on the first policy. The plaintiff recouped part of its outlay from other sources also. Now it sues the defendant for, in effect, the amount of professional liability cover which it alleges AON should have obtained for it, including cover for legal costs, less the amount recovered from CGU.

The parties more fully described; and CGU
The Plaintiff

TBI Pty Ltd (TBI), the plaintiff, is a subsidiary of English companies the chief one of which is Rexam plc (Rexam). In the first half of the 1990s Rexam's main area of business, worldwide, was print and packaging. In Australia, in that period, the disposition of its business was different. As to about 50 percent, there was a timber and tissue operation. As to about 40 percent, there were engineering businesses. Finally, there was a small print and packaging business. The turnover of the Rexam group in Australia, before the sale of its tissue and timber business in early 1995, was running at about $600M a year.

The engineering side of Rexam's Australian operations was conducted by TBI. There were a number of businesses. They were not conducted by discrete legal entities. The largest of the businesses was Detco. Its annual turnover in the mid 1990s, it appears, was some $130-150M. It acted as a distributor for overseas diesel engine manufacturers, distributing particularly Detroit Diesel Corporation engines. It sold engines, turbines, transmissions, and performed after-sales service.

Detco became involved during the first half of the 1990s in what were called co-generation projects. Co-generation involved the concept of using machinery to generate two forms of energy – so far as is relevant, hot water/steam and electricity. Those projects were undertaken by Detco’s turbine and energy systems division (the turbine division).

The General Manager of Detco in 1995 and 1996 was Robert Stevenson.

Trevor Sando, said to have been an engineer by profession, was manager of the turbine division in that period, and earlier.

John Short was an employee in the turbine division. He reported to Mr Sando. He was an on-ground man in relation to what was called the Victorian Hospitals Co-generation Project (the hospitals project).

Bruce Weiland joined TBI in 1988 as group accountant. From the early 1990s he had involvement in respect of major projects concerned with electricity generation. His involvement was in commercial matters – financial, insurance, costing. Concerning insurance, the TBI head office, situate at Chatswood in New South Wales, would send him insurance renewal documents for completion. He also gathered facts from relevant personnel with respect to major claims or possible claims against Detco, and forwarded material to the defendant. Mr Weiland was based, I add, at Detco’s office at Gepps Cross, South Australia.

Mr Weiland became commercial manager of Detco. That was in about 1995. His role with respect to Detco insurance matters seems to have remained the same up to the time of the Detco assets sale – as to which, see later.

Robyn Robertson, in 1995 at least, was the financial accountant at TBI's Chatswood head office. It was she who sent insurance renewal documents to Mr Weiland for completion; and it was to Ms Robertson that Mr Weiland sent documents, at least in some cases, after he had completed them in draft. On occasion, as will be seen, the draft was returned to him with alterations, the alterations remaining in a document sent to the defendant.

Bruce Travers, in 1995 and thereafter, was the managing director of TBI. He and Mr Stevenson were the persons who in 1995 advised Ms Rachel Underdown, the principal witness for the plaintiff at trial, about problems that had been experienced with co-generation projects. Ms Underdown described him as a "very conservative cautious and correct person"[3]. She said implicitly, if not explicitly, that she had great faith in the accuracy of his reporting; likewise the reporting of Mr Stevenson.
[3]T800

Ms Underdown is a lawyer by training, but not by occupation. She joined TBI's UK parent in 1979. In 1985 she was transferred to Australia as group legal adviser and company secretary to the Bowater Corporation of Australia Ltd, now Rexam Holdings Pty Ltd. TBI is apparently one of its subsidiaries. She has been a director of TBI since June 1987. By 2000 she was one of only two directors, TBI having greatly scaled down its operations. The other director was her secretary. Ms Underdown is now regional director of Rexam for Asia and Australasia. She is based in Hong Kong.

The Defendant

AON Financial Planning Ltd (AON), the defendant, is, as I have already said, an insurance broker. The evidence shows that it was in business in a very substantial way in the 1990s; and that its business stretched beyond Australia. It has operated in Australia at least since the mid 1980s, having gone through several name changes in the intervening years. Other than to explain a name on various documents admitted into evidence it would be unnecessary to refer to those changes. It is enough to say that until 1993 the defendant's corporate name was Alexander Stenhouse Limited, that between 1993 and February 1999 its name was Alexander & Alexander Limited, and that for some uncertain period thereafter its name was AON Risk Services Australia Ltd.

According to the evidence AON was one of two insurance brokers retained by TBI until the early 1990s. Then it became TBI's sole broker. That was the position at all times relevant to this proceeding.

Brian Wolfe was the account manager with respect to the business of the Bowater Group companies from the late 1980s. His involvement continued beyond the date when TBI sold most of its Detco assets to DDAA. That happened in July 1996. Thereafter Mr Wolfe acted as account manager for both TBI and DDAA until he ceased to be an AON employee. That was sometime before September 1999.

Gareth Campbell was an associate of Brian Wolfe, shown to be involved with respect to TBI insurances from at least 1994. His involvement continued well past the time of the sale of most of the Detco assets to DDAA. He attended pertinent meetings between representatives of the plaintiff and AON in late 1999, and between representatives of the plaintiff, AON and CGU in April 2000.

Joanne Gibcus was an account executive dealing with TBI's business as at 1999. She was the recipient of a particular letter from Ms Underdown[4].
[4]Exh Z

Richard Head was another AON account executive. He met with a Mr James Tutt, initially an executive of TBI, later an executive of DDAA, shortly before the Detco assets sale. He took notes of the meeting[5] and prepared a later file note[6] upon which the plaintiff relied, inter alia, as showing the defendant's awareness that TBI required professional liability cover for what remained of its business after the sale to DDAA.
[5]Exh L
[6]Exh M

Chris Murfin was, it seems, a more senior man than any of Wolfe, Campbell or Gibcus in the AON structure. Oral and documentary evidence shows that he was substantially involved in dealings between the plaintiff, AON and CGU in 1999 and 2000 concerning the Fletcher claims, the plaintiff's attempts to ascertain whether it had any insurance cover in respect of those claims, and the plaintiff's attempts to obtain indemnity from CGU. He was the author and recipient of faxes and emails. He attended pertinent meetings. The Fletcher claim, it is here convenient to note, arose out of the hospitals project.

Ron Dobell was described by Ms Underdown as "effectively the managing director" of AON[7]. Oral and documentary evidence shows that in 1999 and 2000 he was substantially involved in dealings of the kind in which Mr Murfin engaged; but at a higher level. So, for example, it was he who directly took up critical issues with CGU and reported the outcome of his discussions to Ms Underdown and the plaintiff's solicitors.
[7]T711

David Roberts was an executive of AON based, it seems, in London. In the latter part of 1999 and in 2000 he was involved in communications with AON executives in Australia, and with the plaintiff, concerning the Fletcher claims and the question whether the plaintiff had professional liability cover in respect of those claims.

CGU

I have already briefly described CGU's part in the events culminating in this proceeding. I should identify two of its personnel at relevant times.

Bob Wagstaff was the chief executive officer of CGU in 1999 and 2000. If it be the case that he attempted to secure an increase in CGU’s one and only offer to the plaintiff by intervening with Mr Abbey, he was unsuccessful.

David Abbey was the claims manager of CGU. He was involved in discussions in late 1999 aimed at ascertaining the presence or otherwise of pertinent insurance cover for the plaintiff. It was he who made CGU's offer of settlement at a meeting on 27 April 2000 which, in substance, he chaired; a meeting attended by representatives of the plaintiff, AON and CGU. On 8 May 2000, he rejected, in trenchant language, the plaintiff’s attempt to obtain an increased offer; and he then set a time limit for its acceptance. His conduct in connection with the offer was consistent with his reputation as understood by the plaintiff's solicitor, Mr Delkousis.[8]
[8]T1017

The Solicitors

When Fletcher raised claims against the plaintiff the latter retained, on the advice of its then solicitor, Messrs Mallesons Stephen Jaques (Mallesons) as its solicitors. Mr Jim Delkousis was the responsible partner. Relevantly, he acted for the plaintiff between early 1999 and mid 2000. He played a major role with respect to the plaintiff's defence of the Fletcher claims, its attempts to obtain insurance cover from CGU, its attempt to obtain insurance cover under other insurance policies, and its attempts to recoup moneys from Detroit Diesel-Allison, Allen Gears and Leroy Somer.

Mr Delkousis graduated in 1988. He obtained a postgraduate degree in 1993. Having been admitted in 1990, he joined Mallesons as an employee solicitor in 1991. He became an associate in 1994 and was admitted to partnership in 1999. For the past seven to eight years he has specialised in dispute resolution, particularly in the area of construction disputes; and in that context, with insurance matters.

After the plaintiff claimed, by its solicitors, that it was entitled to indemnity against the Fletcher claims from CGU, that insurer retained Herbert Geer & Rundle (HGR). Mr Anthony Scott, apparently a partner in the firm, and Ms Judith Coish, an employee solicitor, acted for CGU.

Co-Generation Projects: The Hospitals Project

I have already said that in the first half of the 1990s the turbine division of Detco became involved in co-generation projects. There were three or four in all, of which the hospitals project was probably the largest. The others included a joint venture in South Australia in respect of which Bridgestone was the ultimate customer – the Gascogen project; and a tripartite joint venture in respect of which Unilever was the customer – the Unichema project. Each of the Gascogen and Unichema projects was conducted by a joint venture legal entity. That was not so in the case of the hospitals project. There the plaintiff was a supplier. It was party to a contract with Fletcher. So also was TB, the holding company of TBI. TB was described by Ms Underdown, in that connection, as “a sort of quasi guarantor” jointly and severally liable with TBI[9]. It was not the company which performed the contract.
[9]T673.

The structure of the hospitals project[10], so far as is presently relevant, was as follows:
[10]It is summarised in Exh A.

·     There was a written agreement dated 6 July 1993[11] between Varnsdorf Pty Ltd (Varnsdorf) and the Minister for Health for the State of Victoria by which Varnsdorf agreed to design, construct, own and operate co-generation facilities at six Victorian hospitals.
·     By written agreement dated 31 December 1992, amended in March and July 1993[12], Fletcher, as turnkey project manager, agreed with Varnsdorf to design, construct and commission the facilities.
·     Pursuant to a written agreement dated 31 December 1992, thereafter varied[13], made between Fletcher and the predecessors in name of TBI and TB, TBI agreed to design, construct, deliver, supervise the installation of, commission and test co-generation equipment that was to be part of the co-generation facilities.
·     An important part of the equipment which was to be and which was in fact installed at each hospital was a gas turbine engine supplied by an American company, Detroit Diesel – Allison. The engine was in each case connected to a gearbox supplied by an English company, Allen Gears. Each of the American and English companies, it is convenient to note, was ultimately owned by Rolls Royce. The gearbox at each facility was in turn connected to an alternator supplied by a French company, Leroy Somer. Thus was produced the electricity component of the co‑generation. The exhaust heat from the turbine was used to heat a boiler or boilers supplied by yet another company, ABB. So was produced the other component of the co-generation – hot water/steam. It remains to say that by intention and in fact steam was injected into the turbine in the course of its operation with a view of increasing its output.
What I have said about the nature of the equipment used is by way of explaining that, with respect to the hospitals project, the plaintiff entered into a number of sub-contracts – pertinently with Detroit Diesel - Allison, Allen Gears and Leroy Somer.
·     Once the facilities had been constructed and were operating, they were to be operated on a day to day basis by a French company, Command Energy.
[11]Exh AB.
[12]Exh AC.
[13]Exh AD.
Work and Problems on the Hospitals Project

Construction work on the hospitals project began in March 1993. Work on the various facilities was completed and they commenced operation in the period commencing September 1994 and ending March 1995. That is not to say, and it is not the case, that the completion of work meant that there were no problems with the equipment. It was not a matter in debate that problems with the facilities existed from at least early 1995; and that problems continued beyond 30 September 1996, the last date on which the plaintiff had professional liability cover in its own name. It seems likely that the plaintiff, at least via DDAA, was involved in remedial work beyond 30 September 1996; which is not to say that its role ever was one of bolting things together.

Documents were admitted which showed what was being said in connection with equipment problems – by way of statements of asserted fact or opinion – between late 1994 and 1996. Those documents were not sought to be admitted, and were not admitted, as evidence of the truth of the statements of asserted fact, or of the accuracy of the opinions expressed; but rather as evidence of what were said to be the circumstances of the matter, and of opinions expressed in that connection.

It follows from what I have just said that the documents to which I have referred do not establish, as a matter of fact, the nature of the problems which existed at any relevant time. The same may be said with respect to the notification of circumstances which the plaintiff provided to CGU in 1995[14] and the proposal which DDAA made to CGU in 1996[15].
[14]Exh BU.
[15]Exh N.

The Arbitration Proceedings

Problems experienced with the hospitals project gave rise to a multiplicity of proceedings. It is not necessary to describe all the proceedings in detail. As an overview, Fletcher made a claim on Varnsdorf in 1995 for moneys due. Attempts at settlement having failed, in 1997 Varnsdorf served a defence on Fletcher, and raised a counterclaim, the latter alleging various defects in the facilities. Sometime in 1998 Command made claims against Fletcher. In the latter part of that year Varnsdorf and Fletcher served notices of dispute on Command. Orders were made by this Court in 1998 and early 1999 which had the effect that in the one arbitration the various cross claims by Fletcher, Command and Varnsdorf should be determined. Meanwhile, in late 1998, Fletcher had served notices of dispute on the plaintiff. In early 1999 it served a third notice of dispute on the plaintiff. That notice related to the claim made against it by Command.

The plaintiff made an unsuccessful attempt to challenge the arbitrator’s jurisdiction with respect to the claims by Varnsdorf and Fletcher. It also unsuccessfully challenged the consolidation, in substance, of the various arbitrations[16]. In the event, by about April 1999 the plaintiff was party to a consolidated arbitration which, according to estimates made during 1999, was likely to last at least a year, and perhaps two years.
[16]See T885.

In the course of the trial a particular issue arose with respect to Fletcher’s claims against the plaintiff. The nature of those claims, set out in a document exceeding one hundred pages, and fleshed out by a mere six pages of further particulars, must later be considered.

The Course of Insurance

The evidence shows that AON obtained a policy from Sun Alliance & Royal Insurance which provided the plaintiff, inter alia, with $3M professional liability cover in respect of the hospitals project[17]. The policy had operation between 30 September 1993 and early 1994.
[17]Part of Exh C.

The plaintiff’s contract with Fletcher obliged it to carry $5M professional liability cover. In July 1993 the plaintiff provided AON with a copy of those parts of the contract which imposed that requirement[18]. By December 1993 Mr Wolfe was attempting to secure insurance for the required amount[19]. In April 1994 he wrote to Sun Alliance concerning the policy which had commenced on 30 September past. He adverted to being only able to obtain $5M cover from one insurer[20].
[18]See Exh B, Mr Weiland’s fax to Mr Wolfe dated 29 July 1993.
[19]Exh CC.
[20]Exh CD.

That insurer was evidently CGU. AON procured a professional liability policy from CGU for the plaintiff which had operation between 25 March 1994 and 30 September 1995 and which gave the plaintiff professional liability cover of up to $5M in respect of liability and up to $5M in respect of costs[21]. I must later refer to some of the features and terms of this policy.
[21]The policy is part of Exh D, at CB 3470-3480. Initially, the policy was to expire on 25 March 1995; but its operation was extended to 30 September 1995.

It is not in debate that AON obtained for the plaintiff a further professional liability policy from CGU, operative between 30 September 1995 and 30 September 1996. That policy, certainly, was the last professional liability policy which the defendant procured in the plaintiff’s name; or which even arguably gave it any professional liability cover.

I have said that AON did not obtain any professional liability policy in the plaintiff’s name operative after 30 September 1996. It did, however, obtain such policies in the name of DDAA – first for the period 30 September 1996 – 30 September 1997[22], and then for the period 30 September 1997 – 31 July 1999[23]. Each of those policies was written by CGU. The plaintiff contends that a policy in the latter form would have been the form of policy obtained for if it had not AON breached its retainer and its common law duty of care. The basis for that disputed contention, and features of that form of policy, must later be considered.
[22]Part of Exh D, CB 3493-3507.
[23]Part of Exh D, CB3509-3532.

The bases of claim: breach of retainer, breach of common law duty of care, breach of s. 52 Trade Practices Act 1974 (Cth), breach of s.11, Fair Trading Act 1985
Retainer and Breach

The plaintiff alleges by its Amended Statement of Claim (the Statement of Claim) that the defendant was retained to advise upon, procure and maintain for it professional liability insurance for its engineering business activities. It alleges that in 1992 it specifically requested the defendant to advise on, procure and maintain suitable professional liability cover with respect, inter alia, to the hospitals project; and that it requested increased cover thereafter. It alleges that, although the defendant was advised of relevant circumstances, including the sale of part only of the Detco assets, the defendant failed to procure or maintain professional liability cover with respect to the hospitals project beyond 30 September 1996[24], that it failed to advise the plaintiff at any time after 30 September 1996 that there was no policy in place[25], and that in October and December 1997 it positively represented that the plaintiff did have relevant cover. The two failures and the positive representation are relied upon as breaches of retainer.[26]
[24]Statement of Claim para 22.
[25]Or of a risk thereof, see Statement of Claim para 24.
[26]The want of requisite care and skill being specified at paragraph 25 of the Statement of Claim, although sub-paragraph (e) is really a statement of a consequence of want of care and skill.

The plea of retainer and breach is complete at paragraph 35 of the Statement of Claim. The loss and damage allegedly sustained in consequence of the pleaded breaches is specified at paragraph 46. The loss is alleged to be the same for each breach. That is, the same loss is said to flow from the defendant’s failure to keep the plaintiff insured, by its failure to advise the plaintiff that it was not insured, and by its misrepresentation that the plaintiff was insured.

Notwithstanding denials made by the Fourth Further Amended Defence (the Defence), counsel for the defendant in his closing address specifically informed the Court that he was making no particular submissions concerning the pleas that his client had been in breach of retainer, or negligent, or had made some representation that constituted misleading or deceptive conduct for the purposes of statute[27]. He qualified that concession by submitting that if (as he contended) the plaintiff had not proved that a policy not obtained in fact had been obtainable then not only would the plaintiff have failed to prove any loss, it would have failed to prove breach of retainer, breach of duty or breach of statute.[28] That submission was part of an argument that it was an indispensable part of the plaintiff’s case to prove that it could have obtained a policy operative after 30 September 1996 which would have responded to the Fletcher claims; an argument roundly rejected by the plaintiff’s side.
[27]See at T1506-1507.
[28]The submission was not put quite clearly on this occasion, but was often, and clearly, put thereafter.

Notwithstanding the concession made by counsel for the defendant, I should say why in my opinion the plaintiff has made out its plea that there was retainer and breach. The same is the case with respect to common law duty and breach, and breach of statute, of which I shall later say more.

It is clear that there was a retainer along the lines pleaded. Oral and documentary evidence generally made good the allegations raised by paragraphs 4, 5, 10, 12, 13, 14, 16 and 17 of the Statement of Claim. At least that is so up to 30 September 1996.

Beyond that date it seems clear that there continued a retainer pursuant to which AON procured certain insurances for the plaintiff[29]. Did the retainer with respect to obtaining professional liability insurance continue beyond 30 September 1996, and up until at least December 1998? I have no doubt that it did.
[29]See, for instance, the evidence of Ms Underdown at T691-694, 696, Exhs AE and AP.

The agreement for the sale of many Detco assets to DDAA[30] was executed on 29 July 1996. The agreement made it very clear that the assets purchased did not include any assets, obligations or liabilities of the turbine business – specific mention being made in that connection to the Gascogen, Unichema and hospitals projects[31]. The same conception was at the heart of a services agreement entered into between TBI and DDAA[32] by which the latter undertook to perform services with respect to so much of the business as TBI retained.
[30]Exh J.
[31]See Recital B, the definition of “turbine business” and para 7.23.
[32]Also par of Exh J.

Key staff of the new company, it should be noted, were persons previously employed by Detco – notably Messrs Weiland and Sando. Messrs Leo and James Tutt (the former had been a director of companies in the Rexam group, and was the “T” of “TBI”) also had significant roles in the purchaser company. Looking at the matter superficially, it might have been thought, in light of performance of the services agreement and having regard to the personalia of DDAA, that DDAA had simply acquired Detco’s business; in which case there would have been no need for TBI to have continuing professional liability cover in respect of the turbine business in its own name. But in fact AON was informed of the actual circumstances. Although it was so informed both by the plaintiff and by DDAA, in considering the continuance of the retainer I focus on information supplied by the plaintiff.

Ms Underdown met Mr Wolfe in September 1996. The insurances of the Rexam Group, including TBI, had a common expiry date – 30 September 1996. The meeting was initiated by Ms Underdown in circumstances where, that date being close, TBI had not only sold many of the Detco assets but also other TBI businesses as well. Sometimes the sales had included real property which had been insured. In other instances the businesses had made use of leased premises which had been insured. Ms Underdown wished to tell Mr Wolfe what had been sold and what retained; and in that context to ensure both that there were appropriate renewals and, in respect of property insurance, that any available premium refunds were obtained.

Ms Underdown gave evidence about the meeting. She said that she specifically told Mr Wolfe, in the course thereof, that the assets and liabilities of the turbine business had not been included in the sale to DDAA. She said also that she told him about the services agreement. She raised with him, she said, the question of refund of premiums in part referable to property insurance.

After the meeting she sent Mr Wolfe a fax[33]. That document specifically referred to the exclusion from the sale to DDAA of Detco’s “co-generation activities”. She sent with her fax a copy of the services agreement.
[33]Exh K.

The evidence, oral and documentary shows, then, that by September 1996 the plaintiff had informed AON that, whilst it was selling many of Detco’s assets, it was retaining the assets and liabilities of the turbine business. AON knew that the plaintiff had required substantial professional liability cover in respect of its activities, including that business. I do not consider that what Ms Underdown said to Mr Wolfe in September 1996 or her fax of 10 September was in terms a request to AON that it continue to advise on, procure and maintain for the plaintiff professional liability cover in connection with the retained business. But in my opinion it was made very clear by what was communicated to AON that the plaintiff was in fact continuing to retain the latter to advise on, procure and maintain such insurance. I consider, moreover, that later communications from AON to the plaintiff and DDAA show that its undoubted failure to obtain successive professional liability policies in the plaintiff’s name which provided cover in respect of the hospitals project after 30 September 1996 was not founded upon any belief that its retainer in that connection had been ended. I refer to Mr Wolfe’s fax to Mr Weiland of 17 October 1997[34], his fax to Mr Sando of 19 December 1997 – copied to Mr Travers[35] - and to what he told Ms Underdown and Mr Delkousis in conference on or about 1 September 1999[36].
[34]Exh W; a response to the communications which are Exhs S, U and V.
[35]Exh AP.
[36]Noted in Exh AJ.

I said earlier that it is very clear that there was a retainer “along the lines pleaded”; and I have referred to the plaintiff’s formulation, often repeated in the statement of claim, that there were terms of the retainer that AON would “advise on, procure and maintain pertinent policies.” Submissions made on the plaintiff’s behalf were often to the effect that the retainer committed AON to obtaining and maintaining such policies; that is, if it failed to do so, regardless whether it had made its best endeavours, regardless whether it had executed all due care and skill in what it had done, the plaintiff was entitled to damages for breach, such entitlement taking as its starting point the level of protection which AON had, in effect, guaranteed to secure. Counsel accepted that a broker seeking to renew insurance would not be in breach if it was impossible to secure such insurance; and it is true also that para 5(b) of the statement of claim alleges that it was a term of the retainer that AON would exercise all due care and skill in the performance of the retainer. But I have no doubt of the way in which, for the most part, counsel argued the import of the retainer; and in my opinion its terms were relevantly different. By the retainer, I consider, the broker relevantly agreed to use its best endeavours, exercising all due care and skill, to obtain and maintain pertinent insurance policies. That is what would ordinarily be expected; and nothing in the facts of this matter suggests that here it was anything different. I agree, then, with the submission of counsel for the defendant that the retainer did not make it obligatory upon AON to obtain the unobtainable.

AON breached its retainer to maintain professional liability cover for the plaintiff in respect of the retained turbine business because it did not make any attempt to obtain such cover in the plaintiff’s name for the years commencing 30 September 1996, 1997 and 1998. It had no reason to believe that professional liability cover which it obtained for DDAA operative from 30 September 1996 gave the plaintiff such cover by reason of a prior corporate entity clause. Mr Wolfe apparently believed that such a clause operated in the plaintiff’s favour. Hence his advice to Mr Weiland in October 1997, the certificate of currency dated 19 December 1997, and what he told Ms Underdown and Mr Delkousis on about 1 September 1999. Any such belief was hopelessly ill-founded. It may have been based on mis-understanding of the substance of the Detco assets sale. Given what AON had been told there was no reason why, considering it as a reasonably competent broker, it should have had any such misunderstanding. But if AON was in doubt, a simple question would have elicited an answer which clarified the matter. Counsel for the defendant, I add, made no submission that the plaintiff had been protected by a prior corporate entity clause in the successive DDAA professional liability policies.

AON further breached its retainer, in my opinion, by failing to advise the plaintiff at any time after 30 September 1996 that it had not obtained professional liability cover extending to the retained Detco business. Its retainer included a duty to advise as well as a duty to obtain insurance. It should have advised the plaintiff that it had not obtained relevant insurance cover. It did not do so. That was because, it seems clear, for one reason or another Mr Wolfe had an ill-founded belief that the plaintiff had whatever professional liability cover it needed.

AON finally breached its retainer, I consider, by informing the plaintiff via Mr Weiland and Mr Sando that the plaintiff in fact had the professional liability cover which it needed. The root cause of that misrepresentation was again the erroneous belief held by Mr Wolfe.

In concluding, as I have, that AON breached the retainer, I have put to one side for later consideration questions much agitated at trial: whether the plaintiff was required to prove that a policy which would have responded to the Fletcher claims could have obtained, whether it was for the defendant to show that a policy was unobtainable, and whether, if the plaintiff carried the burden and could not satisfy it, there was on proper analysis no breach of retainer or duty.

The common law duty of care and breach

The plaintiff pleads by its Statement of Claim that AON fell under a duty of care to advise it on, procure and maintain professional liability cover, exercise all due care and skill in the performance of the retainer, and exercise all due care and skill when responding to enquiry made in 1997 whether there was such cover in place.

In my opinion the defendant did owe the plaintiff a duty of care in all the circumstances. It was a duty of care the practical content of which was broadly as pleaded by the plaintiff. As with the retainer, I do not accept that the duty, so far as it pertained to obtaining and renewing insurance, extended beyond a duty that AON should use its best endeavours, exercising all due care and skill, to obtain and renew the same. The existence and ambit of the duty arose from a large number of circumstances, conveniently those pleaded by paragraphs 2(b)(c), 4, 5, 8, 9, 10, 11, 13, 16, 17, 18, 19, 20, 21, 25, 27, 28, 29 and 30 of the Statement of Claim. Most of those circumstances were established by direct evidence. The matters pleaded by paragraphs 27-30 depend upon inferences which I consider should fairly be drawn from evidence which was adduced. The duty arose despite the need to consider the matter in the context of a claim for pure economic loss; a fortiori, a claim for loss of that kind in part founded on negligent misstatement, and in part founded upon want of disclosure.

According to paragraph 34 of the Statement of Claim AON breached its duty of care by failing to obtain professional liability cover for the plaintiff operative after 30 September 1996, by failing to advise the plaintiff at any time after 30 September 1996 that it had not done so, or that there was a risk that no such insurance was in place, and by positively representing in October 1997 that such insurance was in place. They are the same breaches as are alleged in the context of the retainer.

In my opinion AON breached its duty of care. In so concluding I again put to one side, for later consideration, the causation issues to which I adverted in the context of breach of retainer. Whatever be the impact of resolution of those issues, there is no doubt that AON failed to obtain professional liability insurance for the plaintiff operative after 30 September 1996, that it failed to so advise the plaintiff, and that it positively represented the contrary in October 1997. The reasons why it did and did not do those things have previously been explained. They bespeak a want of reasonable care. I should add that in the context of breach of its common law duty AON should reasonably have known that continuing cover was required not only from what Ms Underdown told Mr Wolfe in September 1996, but from what was said at a meeting between Mr James Tutt and Mr Head of AON in June 1996.

Want of reasonable care, then, is indicated by the evidence adduced at trial. Whether Mr Wolfe or Mr Head could have said anything to controvert that conclusion is unknown. Each was a prospective witness for the defendant[37]. Neither was called.
[37]Being named on a list of possible witnesses filed by the defendant in response to an order of the Court.

The alleged statutory breach

By paragraph 32 of the Statement of Claim as it stood until almost the end of the trial, the plaintiff alleged, as I read it, that AON engaged in misleading and deceptive conduct, or conduct likely to mislead or deceive, by advising the plaintiff that it had professional liability cover for the period after 30 September 1996 via the relevant DDAA policies. That advice was constituted by Mr Wolfe’s fax of 17 October 1997, a copy of which was sent by Mr Weiland to Ms Underdown, and considered by her; and by a fax dated 19 December 1997 from Mr Wolfe to, inter alia, Mr Travers attaching certificates of currency for professional liability insurance.

In the course of the final address of plaintiff's counsel I raised with him the apparent ambit of the claim for statutory breach – laid under s. 52(1) of the Trade Practices Act 1974 (Cth) and s. 11 of the Fair Trading Act 1985. That provoked an application to amend, which was opposed by counsel for the defendant. I reserved consideration of the application. Later I informed counsel that I would grant leave to amend.

The effect of the amendment was to add as a particular of alleged misleading and deceptive conduct failure by the defendant to advise the plaintiff at any time after 30 September 1996 that it had not maintained professional liability cover for the plaintiff with respect to the hospitals project. That was an allegation, in effect, of a misrepresentation by silence; which may in some circumstances constitute a breach of the statutory provisions. I considered that an amendment to raise that issue in the statutory context should be permitted because the same conduct was already complained of in the contexts of breach of retainer and breach of common law duty[38], and had therefore been open to agitation in the course of the trial.
[38]See paras 24, 34 and 35 of the Statement of Claim.

The plea raised by paragraph 32 alleges breaches both of the Commonwealth and State legislation. In the latter connection it relies upon s. 11 of the Fair Trading Act 1985. There was a short argument from the plaintiff’s side that the plaintiff could proceed under both Acts; and a short argument that the 1985 State Act rather than the Fair Trading Act No. 16/1999 applied. Counsel for the defendant did not address either of those matters.

Section 52(1) of the Commonwealth Act and s. 11 of the 1985 State Act are in identical language save that the former refers to the conduct of a corporation and the latter the conduct of a person. Section 9 of the 1999 State Act is in exactly the same language as s.11 of the 1985 State Act. As to primary remedy, s. 82(1) of the Commonwealth Act and s. 37(1) of the 1985 State Act are essentially the same; and s. 159(1) of the 1999 State Act is in generally similar terms although it does not make use of the phrase “by conduct of” that has been judicially considered at the highest level.[39]
[39]Likewise there is an essential similarity between s. 87(1) of the Commonwealth Act and s. 41(1) of the 1985 State Act. But see s. 158 of the 1999 State Act, which substantially recasts s. 41 of the 1985 Act.

In the context of the legislation thus described, upon the evidence adduced, and having regard to the very limited submissions which were made, I conclude that: first, the Commonwealth and State Acts may apply with respect to the same conduct; second, the plaintiff and defendant were corporations of a character such that the Commonwealth Act could apply to conduct in nominal breach of that statute; third, the cause of action contemplated by the Commonwealth Act, by s. 37(1) of the 1985 State Act and by s. 159 of the 1999 State Act is complete when damage is suffered[40]; fourth, subject possibly to the impact of a loss of chance argument mentioned late in the piece by plaintiff’s counsel, if the plaintiff suffered the damage which it claims, it did so in May or June 2000; fifth, in consequence of my fourth conclusion, the State Act which applies is the 1999 Act, the operation of which relevantly commenced on 1 September that year.
[40]As to which see Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 in the context of s. 82 of the Commonwealth Statute.

I turn to the three alleged incidents of misleading or deceptive conduct. In my opinion the first and second of them were surely made out. Essentially they involve the same thing: that there was a misrepresentation by AON in late 1997 that the plaintiff was covered for professional liability with respect to the hospitals project by insurance then in place – that is, the successive DDAA policies. That was the import of Mr Wolfe’s fax dated 17 October 1997. The assurance there given was reinforced by certificates of currency of insurance[41] which Mr Wolfe faxed, inter alia, to Mr Travers of TBI on 19 December that year.
[41]Part of Exh AP.

Some of Mr Weiland’s correspondence with Mr Wolfe that led up to the latter’s faxed assurance of 17 October 1997[42], and the assurance itself[43], were seen and read by Ms Underdown at the time[44]. She took no action thereon. The defendant sought to make something of that circumstance. But I think there was no point to be made. Why would Ms Underdown have done anything when it appeared that enquiries had been made with a view of ensuring that the plaintiff was suitably insured, and when its broker said that it was?
[42]Exhs U and V.
[43]Exh W.
[44]See T697-699.

Mr Wolfe’s fax of 19 December, and the attached certificates of currency, were as I have said faxed to Mr Travers. There is some evidence that they were received[45].
[45]See the last paragraph on p.1 of Exh AP.

It is, I think, clear that the plaintiff – in substance Ms Underdown – believed at all times between 30 September 1996 and (mid) 1999 that it had continuing professional liability cover for its retained business. Ms Underdown gave no evidence that receipt of the Wolfe assurance, or the Wolfe fax of 19 December 1997, or both, were a reason for the belief which she held. But it seems to me a fair inference that at least the Wolfe assurance was one reason why she held the belief which she did.

I go to the third aspect of the allegedly infringing conduct. It consists of AON’s protracted silence in the context of its duty to maintain professional liability cover and to advise its client concerning suitable policies of insurance. The latter obligation must have included a duty to inform its client if relevant insurance had not been obtained; or if there was a risk that insurance which had been obtained did not give the plaintiff the protection it sought.

AON was certainly silent between 30 September 1996 and October 1997. Then it asserted, positively, that the plaintiff had relevant cover. AON’s silence in the 12 months after 30 September 1996 meant, even if the plaintiff had somehow learned the true situation thereafter and had then sought insurance, that it would have been a company seeking insurance which did not have a continuity of successive policies of the type sought.

In some circumstances silence may constitute misleading and conduct. Pertinent authorities are noted in Miller, Annotated Trade Practices Act, 21^st Ed at paragraph 52.50. Silence may constitute impugned conduct where in the circumstances of a particular case an obligation of disclosure is discerned; and where a person is entitled to believe that he will be informed of a relevant matter. In the present case it seems to me AON had an obligation to disclose that it had not obtained the relevant insurance cover; and the plaintiff was entitled to believe that it would be informed if such was the case. AON’s failure to disclose the absence of insurance constituted conduct which was misleading or deceptive because it implied that it had in fact obtained relevant cover.

In the context of s. 52(1) of the Trade Practices Act, s. 4(2)(a) and (c) have been said to be relevant when what is complained of is a failure to act. Costa Vraca Pty Ltd v Berrigan Weed and Pest Control Pty Ltd and anor[46] and cases there cited are to the effect that before such conduct is actionable it must have been engaged in deliberately – though s. 4(2)(c) says “otherwise than inadvertently”. Accepting the relevance of s. 4(2)(a) and (c), was AON’s failure to inform the plaintiff that it had no pertinent insurance in place inadvertent? Costa Vraca might suggest an affirmative answer. There the impugned refraining to act – that is, the particular respondent’s silence – was held not to be deliberate or intentional because that respondent had not turned his mind to the subject-matter of non-disclosure. But where there is an obligation of disclosure in certain circumstances, and a correlative expectation of disclosure, it seems to me that refraining to act, by way of non-disclosure, should not be considered inadvertent where it is the consequence of a wrong conclusion that those circumstances are not present. There the defendant deliberately refrains from communicating a circumstance because he believes the circumstances to be otherwise.
[46][1998] 693 FCA.

In the event, I consider that the plaintiff has made out the third basis of its case founded on the Commonwealth statute. There is a counterpart of s. 4(2)(a) and (c) in the 1999 State Act[47]. It follows that, in my opinion, the plaintiff has also made out the third basis of its statutory claim under the State Act.
[47]See the definition of “engaging in conduct” in s. 3, in particular paragraphs (b) and (c).

The issues on which the case was fought

According to the plaintiff, once there was proof of default by AON in failing to obtain a professional liability policy operative when the Fletcher claims were made the only question to be resolved was the quantum of damage which resulted. That was mainly to be ascertained by subtracting from the amount that would have been payable in respect of claim and costs under the terms of the policy which should have been obtained (the notional policy) – a policy in the form of the fourth policy – the amount actually recovered from CGU in settlement of the claim made by the plaintiff on the first policy. The amount payable in respect of claim and costs under the notional policy was said to be $5M in respect of the plaintiff’s liability to Fletcher and 5/5.875^th of costs totalling $3,805,058.70. The plaintiff claimed also $67,975 costs incurred in pursuing the claim against CGU on the actual policy.

According to the defendant, however, given proof of default the plaintiff must establish that the default caused any loss. The plaintiff must therefore prove that it could have obtained a policy operative when the Fletcher claims were made, and the terms of such a policy. It must fail in that task. The evidence of the plaintiff’s expert required a conclusion that CGU – a fortiori any other insurer - would not have written insurance for the rump of the plaintiff’s business; a fortiori if the plaintiff had made full disclosure. Had there been less than full disclosure, and had a claim been made on a policy, the insurer would have had a defence under s. 28 of the Insurance Contracts Act 1984 (Cth) (“theAct”).

Then the plaintiff must prove, according to the defendant’s argument, that if the notional policy had issued it would have responded to the Fletcher claims at all; and further, in an amount greater than the amount of the CGU settlement. That involved the plaintiff proving, in substance, that the amount for which it became legally liable in consequence of the Fletcher settlement was within the description of insured circumstances set out in Item 11 of the notional policy. It could not prove such a thing. It could not rely simply upon the claims raised by Fletcher. They were “mixed” claims. Although Fletcher raised claims against the plaintiff that could fall within Item 11 of the notional policy, it also raised claims not of that kind. In each instance the quantum of the claim was the same – an amount exceeding $100M. The plaintiff had paid an amount simply to settle the Fletcher claims against it, including costs. The plaintiff could not demonstrate that any liability relevant to the notional policy had been incurred.

Further according to the defendant, if the plaintiff could have obtained a policy operative when the Fletcher claims were made, in the form of the fourth policy, it was for the plaintiff to negate the operation of each exception or exclusion contained therein. This it could not do. A prior known circumstances exclusion would have operated against it.

In all the circumstances, the defendant contended, if the plaintiff had been able to obtain the notional policy, it had either failed to show that it could have obtained any amount under that policy; or at least had failed to show that it could have obtained a sum in excess of the CGU settlement.

Turning to the CGU settlement, the defendant denied the plaintiff’s allegation[48] that by reason of AON’s default the plaintiff had suffered loss and damage “namely, the difference between the CGU claim of $8.9 million and the CGU settlement sum of $3 million…”. It positively asserted that the plaintiff had been entitled to indemnity under the first policy. So, it pleaded, any default by it had caused the plaintiff no loss. Further, focussing upon the amount of the CGU settlement, it eventually pleaded that any apparent loss represented by the difference between the amount recoverable under the notional policy and the amount recovered under the CGU settlement was not compensable because – and I refer to the opening portion of paragraph 77 of the Defence as amended following a ruling which I gave on 12 May, long into the trial –

“… the plaintiff’s agreement to compromise the CGU claims for the amount of $3M was, objectively viewed, caused by matters other than any act or omission of the defendant, and in any event produced no loss to the plaintiff which resulted from any such act or omission.”

Later I will explain what, as I understand it, this pleading was intended to raise.

[48]Statement of claim, para 46.

The defendant raised another issue which bore upon the CGU settlement and upon the present claim. It asserted that under the first policy and the notional policy there was/would have been a proportionate costs clause. The plaintiff could only recover so much of its costs as was represented by the proportion which the total sum insured (that is, $5M) bore to the entire amount paid in settlement of the Fletcher claim (that is, $14.9M). So the plaintiff could only have recovered on the first policy, at most, $6.27M, that is, $5M plus 5/14.9^th of the $3.8M in costs. The plaintiff should have, but did not, consider the CGU offer on that footing. Moreover, the plaintiff’s claim at best was represented by the difference between $6.27M and the $3M of the CGU settlement.

Concerning the quantum of the present claim the defendant raised other issues. First, it denied that the plaintiff was entitled to claim the $67,000 odd in costs incurred by it in pursuing its claim against CGU. Counsel argued that, had the notional policy existed, and had the plaintiff made a claim upon it, CGU would certainly have denied indemnity on a number of bases. The plaintiff would have incurred costs in connection with a CGU dispute in any event.

Second, it argued that if the plaintiff had obtained the notional policy, it must have paid a premium; and there would have been an excess.

The plaintiff contended that many of the matters raised by the defendant were wrong in principle, wrong in fact, often both. I will set out the plaintiff’s detailed response to each of the matters raised for the defendant when dealing with them discretely.

The Fletcher claims and the CGU settlement – what actually occurred

It was common ground between the parties that at least one of the issues which they agitated must be determined on an objective consideration of circumstances. The various areas of debate are illuminated however, notwithstanding that there must later be some recourse to the objective, by consideration of the actual course of events, including decisions taken by the plaintiff in connection with the Fletcher and CGU claims. I turn now to that course of events.

Fletcher served notices of dispute[49] on the plaintiff in late December 1998. Detco’s then solicitor advised Ms Underdown, in light of the size of the claim, to engage a large firm of solicitors to act for it. The plaintiff then engaged Mallesons. That was in early 1999. The question of insurance arose in March that year. Mr Delkousis asked Ms Underdown what relevant insurance the plaintiff had[50]. Ms Underdown took that matter up with Miss Gibcus of AON.
[49]Exhs X and Y.
[50]Part Exh Z, at CB1924.

By April 1999, the several procedural challenges to which I earlier referred having failed, the plaintiff was “a fully fledged party to the four-tiered arbitration[51].
[51]Mr Delkousis, T885.

On 11 June 1999 Mr Delkousis wrote to Mr Murfin of AON[52]. He informed him, inter alia, that despite the plaintiff’s attempts to prevent it being dragged into the Fletcher – Varnsdorf arbitration, that had occurred; and that Fletcher had now raised a third notice of dispute against the plaintiff. He questioned the plaintiff’s insurance position. He referred in that connection to Mr Wolfe’s fax of 17 October 1997[53].
[52]Exh AA.
[53]Exh W.

On or about 21 June 1999 counsel advised the plaintiff that a contractual cap of about $1M on the Fletcher claims probably did not apply[54]. In consequence, the plaintiff’s potential exposure on those claims was the greater. For what Fletcher sought from the plaintiff, in effect, was over $100M so as to enable the rebuilding or replacement of the various facilities.
[54]Evidence of Ms Underdown at T809-810.

In July 1999 Mr Delkousis updated Mr Murfin of AON on the state of the arbitration proceedings; and further sought information regarding the plaintiff’s insurance position[55]. He noted that he was unable to ascertain from material forwarded whether there was any professional liability cover before 25 March 1994 or after 30 September 1996. He noted also that there was indication that the plaintiff had “advised AON of potential claims in relation to the Project, and that those potential claims were also disclosed in application forms for the renewal of the policies”. That seems to have been the starting point of a possible claim on earlier policies if it turned out to be the case that there was no professional liability insurance current when the Fletcher claims were made.
[55]See Exh AE.

On 22 July Mr Delkousis updated Mr Murfin on the state of the arbitration, then fixed to commence on a November that year. He enclosed a copy of Fletcher’s points of claim. He suggested “that relevant insurer(s) be provided, inter alia, with copies of [his] letter and the points of claim”[56].
[56]See Exh CN.

AON notified CGU of a possible claim on policy number 03AE535173 by fax dated 4 August 1999[57]. That was the number of the first policy[58].
[57]Exh AF.
[58]See Exh D at CB3578. Each professional liability policy had a different number.

On 10 August Ms Hellyer of AON wrote to Mr Delkousis “attaching a matrix of the policy details for both Bowater and Tutt Bryant together with copies of policies, Insurer Confirmations and Insurance Certificates for both Property and Liability policies”. She attached also copies of incident notifications given to CGU under the professional liability policy, and to Royal & Sun Alliance under a public and products liability policy. The policies which were copied or confirmed, so far as professional liability cover is concerned, were limited to the two policies held by the plaintiff with CGU, the latter of them expiring on 30 September 1996.

Ms Underdown and Mr Delkousis apparently met with Mr Murfin on 11 August. The following day Mr Delkousis wrote to Mr Murfin concerning the insurance issue[59]. A matter then considered important was that DDAA permit AON to release to the plaintiff any insurance details as might help the plaintiff to show that it held professional liability cover in respect of the Fletcher claims. The possibility of prior corporate entity cover was evidently under consideration.
[59]Part Exh AH.

DDAA authorised AON to release relevant insurance information on 16 August 1999.

Ms Underdown and Mr Delkousis met with Mr Wolfe on 1 September. Mr Delkousis made a file note[60]. Mr Wolfe is recorded as stating, and I think it is certain he did, that:

“He did not arrange for TBI to take out professional indemnity cover for the period after the sale of Detco because the Victorian Hospital… Project would have been covered under the DDAA professional indemnity policy… the VHCP fell within the scope of DDAA’s ‘prior business’ category and was therefore caught by the DDAA policy.”

[60]Exh AJ.

It was crystal clear, then, by 1 September 1999 that there had been no professional liability policy in the plaintiff’s name after 30 September 1996, and specifically when the Fletcher claims were made. Questions arose whether the first policy could assist the plaintiff, whether the DDAA policy/policies could operate as Mr Wolfe asserted, and whether the Fletcher claims were covered by a policy of some other kind. Meanwhile preparations continued for a November 1999 arbitration hearing.

On 16 September Mr Delkousis advised Ms Underdown that the prior corporate entity provision in the third policy could not assist the plaintiff[61]. As I noted earlier, that advice was surely correct. Ms Underdown had by that time herself concluded, from reading the DDAA policy, that it could not help the plaintiff. So the advice did not surprise her, and evidently she accepted it.
[61]See Exh AL.

In the circumstances, the plaintiff’s insurance position was becoming increasingly doubtful. It had not held professional liability insurance cover in its own name when the Fletcher claims were made. The DDAA insurance could not help. The only possible cover that remained, in truth, was under the first policy or under a policy of some different kind altogether. That is not to say that further work was not done to see whether the DDAA insurance could be pressed into service.

On 30 September Mr Roberts of AON, London, faxed Mr Murfin. He referred to a memo from Ms Underdown to Mr Gibson of Rexam plc concerning the insurance position. He noted that the Memorandum was uncomplimentary about AON, as indeed it was. He proposed that the points raised by Ms Underdown be reviewed and “a robust response” constructed[62].
[62]Part Exh AM; the remainder of the exhibit is a copy of Ms Underdown’s memorandum.

Ms Underdown’s memorandum discloses her then thinking as regards professional indemnity cover:

“… the difficulty with the professional indemnity policy is that it is a ‘claims made’ policy and accordingly is only effective if a claim is made on the policy when the policy is on foot.”

and
“… I do not have any expectation that the professional indemnity insurers will accept any claims made in relation to the current arbitration.”

That was a recurrent theme of her viva voce evidence. She always saw the absence of professional liability insurance when the Fletcher claims were made as a problem. But she came to learn of s. 40 of the Act, and took it into account, as will be seen.

On 11 and 13 October Mr Delkousis pressed AON on various aspects on the plaintiff’s insurance problem[63]. He received some information[64]. It did not advance the plaintiff’s position.
[63]Exhs AO and AP.
[64]Exh C.

Meanwhile, on 8 October AON had communicated with CGU providing the latter with more material pertaining to a “claim (that) may be forthcoming under the professional indemnity policy” – that is, the first policy[65]. Material which was forwarded included documents which might be thought to cast doubt on the relevance of that policy.
[65]Exh AN.

On 25 October 1999 there was a meeting between solicitors appointed by CGU, including Ms Coish of HGR, and Mr Delkousis. CGU’s solicitors had attended to inspect documents. Ms Underdown and Mr Delkousis had decided that CGU’s solicitors should be able to inspect and to copy whatever there was pertaining to the arbitration, as well as documents relating to the insurance position. On that day, Mr Delkousis recorded in a file note[66] that one of CGU’s solicitors had said that the sole issue she was concerned with was the issue of indemnity. He noted:

“The focus (of the solicitors) is clearly the question of when the relevant incidents first occurred, what Detco knew of those incidents, what steps they took to report them etc. Accordingly, the question of notification is, as expected, paramount.”

[66]Exh CP.

Thereafter in correspondence there was reference to the issues of “indemnity” and “liability”. The former was reference to the question whether the first policy would give the plaintiff indemnity against the Fletcher claims. The latter was reference to the question whether professional liability and other claims were so “mixed” that no liability under the first policy could actually arise in respect of the Fletcher claims.

The arbitration was due to commence on 9 November, but was put back. A mediation, in fact, commenced later that month. Ms Underdown was by this time evidently concerned not only that CGU might never give cover, but that the plaintiff’s legal costs were already enormous[67].
[67]See, example, Exh AQ.

On 4 November 1999, in a letter to Mr Weiland, Mr Delkousis referred to a “List of Possible PI Insurance Claims” apparently dated 6 September 1995. He asked whether Mr Weiland could locate a copy of “the letter which it appears you would have sent to the insurance broker or the insured which incorporated that list”.

The particular list was, on the evidence, prepared by Mr Sando and provided by him to Mr Weiland when the latter was completing a proposal for professional liability insurance for the period commencing 30 September 1995. Mr Weiland had been sent the proposal form from Sydney head office for completion. When he had completed a draft, appending Mr Sando’s list, he had faxed it back to Sydney. Certain changes had been made to the text of the list, at least in part by Mr Travers. Then the document had been returned to Mr Weiland. He had made another alteration to the text so far as it concerned a co-generation project of which he had good personal knowledge – that was not the case with the hospitals project. Then he had prepared the proposal with its appended list in final form and sent it to AON.

Mr Delkousis became aware that there had been a change to the text of the list so far as it concerned the hospitals project. Later he referred to it in communication with Ms Underdown. The defendant made much of the change in this litigation. It is convenient to set out the relevant text at the beginning and the end of the process.

“It has been alleged that Detco has supplied gearboxes and turbines that are not suitable for purpose and the customer has refused to accept Handover despite the fact that the plant has been operational for more than 6 months and has been achieving guaranteed performance. Refusal to accept handover has a potential risk of $10.0 million.
The matter is the subject of an extensive engineering review by the suppliers of the gearbox and tribune. It appears that the solution will be to retrofit a high speed flexible coupling currently being designed.
Detco's opinion is that this is a defect correction situation that will be resolved by the installation of a flexible coupling when tested and proved. The risk of a P.I. claim is low.”[68]

and
“Detco has supplied cogeneration plant to Victorian Hospitals. There have been some problems relating to both gearboxes and turbines. The matter is subject to extensive engineering review by the suppliers of the gearboxes and turbines, but there has been no suggestion of any design defect from Detco viewpoint. However, the customer, Fletcher Construction Australia, has yet to accept handover in compliance with the contract despite the fact that the plant has been operational for six months and has been achieving guaranteed performance.
The overseas engineering review believe that the solution will be to retrofit a high speed flexible coupling which is currently being designed. Detco does not believe there is a design problem and claims that the issue is one of defect correction which we hope will be resolved by installation of the coupling when tested and proved.”[69]

[68]See Exh. CO at p. 2596

[69]Exh F at p. 1262

Mr Delkousis said, and I accept, that his letter to Mr Weiland of 4 November was simply seeking information about the list as he then knew of it.

On 5 November Mr Delkousis reported to Ms Underdown his attempts to locate apparently missing insurance files by contact made with AON and CGU. He mentioned a report that the list had been amended by Mr Travers, and that he would seek a copy of the document as amended.

By 10 November 1999 Mr Delkousis had obtained the draft and final versions of the 1995 proposal with its appended list. He wrote to Mrs Underdown[70] appending copies of various insurance documents. Concerning the change in the text of the list he said:

“The wording in the proposal appears to come from the fax from Robyn Robertson to Bruce Weiland sent on 7 September. This will no doubt be the critical wording which the insurers will focus on. In particular, CGU will be seeking to compare notification with what was in fact contained on Detco's files at the relevant time.”

[70]Exh CK.

Also appended to Mr Delkousis’ letter of 10 November to Ms Underdown was a notification of circumstances out of which a claim might arise, completed by Mr Weiland and dated 27 September 1995. CGU had requested AON to obtain such a notification from the plaintiff. That, it should be added, was the only step which CGU then took. It sought no other information from its insured.

The notification named Fletcher as the possible claimant. It appended the text of the list as finally settled. It added one piece of information and one opinion. As to the former, it said that the cost of particular remedial work would be borne by parties other than the plaintiff. As to the latter, it opined that the potential amount of the possible claim was “approximately $1M concerning damages for delay in handover of the plant”.

Mr Delkousis noted in his letter to Ms Underdown of 10 November that “the insurers will no doubt focus on the difference between this estimate and the $10M estimate contained in Trevor’s note”. That was a reference to Mr Sando’s draft of the list, which had stated that “refusal to accept handover has a potential risk of $10M”.

Ms Underdown and Mr Delkousis gave evidence concerning the particular subject-matter of his letter of 10 November. Counsel for the defendants submitted in substance, that there was no reason why I should not accept their evidence generally, pointing out, however, that it was not consistent in a few respects. That very proper concession aside, I was impressed by the evidence of each of those witnesses. I consider that each of them attempted to give truthful and accurate answers; and that, with a very few exceptions, their answers were accurate. On no matter critical to the resolution of this proceeding do I reject their evidence. It is unnecessary, in the circumstances, to say on each occasion when referring to the evidence of one or other of them that I accept it.

With respect to the letter of 10 November, Ms Underdown said that changes in the text of the list did not particularly concern her because they would have been generated in the Sydney office by people with more knowledge of the facts that Mr Weiland. The changes, she said, “could appear significant, but actually weren’t”[71]. In 1995 she had perceived the problem as one of defect correction, based upon information supplied by Messrs Travers and Stevenson. She had particular professional respect for the former. Concerning the notification form, she said that in 1995 the plaintiff had believed there was a contractual cap on time damages of approximately $1M. She had explained to Mr Delkousis, she said, why in her view there was nothing to be made of the changes in the text of the list, and why the figure of $1 M had been inserted in the notification of circumstances form. It was her belief that the issues had not been discussed between them again[72]. He, Mr Delkousis, had raised the issues in November, she thought, because he had some concern that CGU would seek to compare notification with what was on the files. She had no such concern. There was no substantive difference or concealment[73]. From November until the CGU settlement it was her state of mind that any difference in what Detco knew and what it had notified in 1995 was a non-issue[74].
[71]T797.
[72]T719.
[73]T803.
[74]T809.

Ms Underdown said that after November 1999 she did not take any steps to see if there was a difference between what was notified and what had been known to Detco in 1995. Her evidence in that respect was quite consistent with the pertinent evidence of Mr Delkousis. He said that he had discussions with Ms Underdown and Mr Sando concerning documents appended to his letter of 10 November. But he made no attempt to compare what was on Detco’s files with what had been notified. The reason was a strategic one:

“The approach I had taken, at that stage, was that, given CGU's lawyers were, had access to and asked for access to all of TBI's discovered documents – and by that stage we (sic) were spending some time in Mallesons' offices looking through all the documents – that if CGU had any concern in relation to matters that existed on the files, it hadn't been disclosed, and they would have raised those with me, and then I could get instructions and deal with them.
Yes? - - - I didn't think there was much point in trying to speculate what CGU might or might not raise, as being on TBI's files, prior to the notification.”[75]

[75]T890-891.

In cross-examination Mr Delkousis agreed that when he wrote the letter of 10 November he was concerned that the notification given in September 1995 might have communicated less than Detco then knew. That was an argument that CGU might run in connection with s. 40(3) of the Act. His concern, he said, had centred on the change from $10M to $1M. The reason for the change had been explained to him. Then the course adopted had been to wait and see if CGU raised an issue that Detco had notified less than it knew. If it did, then that matter could be specifically addressed.

Mr Delkousis gave evidence that thereafter his satisfaction strengthened that under–notification was a non-issue. He said this:

“We had made available the documents to CGU, and they had not raised the point. They had, in fact, gone so far as to say that 'if you want to rely on section 54 you tell us of circumstances which you knew about, and which you didn't disclose, because that is how section 54 would apply', and at that point I wasn't aware of any of those circumstances and I was pretty sure that CGU weren't aware of those circumstances. I should say, just a third point that by that time, too, I had become better acquainted with the operation of section 54, and got a comfort, a level of comfort that if, if there was something which CGU wasn't raising by way of a prior known undisclosed circumstance, then section 54 may come to the aid of that[76].

[76]T1019.

I have referred already to CGU’s solicitors having access to the plaintiff’s documents. The evidence stands this way: the plaintiff by its solicitors took the position that CGU’s solicitors could inspect whatever documents there were – not only documents in the ordinary sense, but also witness statements prepared for the arbitration. CGU’s solicitors in fact made extensive inspection of documents, attending Mallesons office as from October 1999. They asked for and were provided with copies of many documents[77]. The documents inspected included all of the documents referred to in paragraphs 76 and 77(d)(iii) and following of the Defence[78]. Mallesons made copies of a number of those documents for CGU[79]. Most, not all, of those copies were located, to emphasise the point, in a recent examination of HGR’s files by a Mallesons’ employee[80]. The documents referred to in paragraphs 76 and 77(d)(iii) and following are said by the defendant to provide much but not all of the foundation for arguments concerning the CGU settlement and the applicability of a prior known circumstance exclusion in the event that the notional policy had issued.
[77]See Exh CS.
[78]See Annexure A to the plaintiff’s Amended Reply, the accuracy of which was established by Exh CQ and the TBI discovery numbers on exhibits admitted in this trial.
[79]Exh CS.
[80]See Exh CX.

The plaintiff made several points arising out of CGU’s inspection and obtaining copies of documents. One of them was that Ms Underdown and Mr Delkousis were entitled to think, as they said they did, that a distinction between 1995 notification and what Detco then knew was never an issue with CGU in the period leading up to the CGU settlement. In my opinion it was a point well-made.

Passing from Mr Delkousis’ letter of 10 November, on the following day he and Ms Underdown met with AON representatives. The latter included Messrs Dobell and Bradley. The plaintiff’s representatives complained about AON’s (lack of) assistance. At the end of the meeting Ms Underdown told Mr Dobell that AON should notify its own insurers in relation to a potential claim against it by the plaintiff, because it seemed clear that the plaintiff had no professional liability cover after 1996[81].
[81]T714.

That meeting led on to further correspondence between Mallesons and AON regarding insurance cover[82]. But in substance the die was cast. Certainly with respect to possible professional liability cover enquiries were exhausted, notwithstanding Mr Campbell’s e-mail to Mr Delkousis of 19 November confidently asserting that AON was “comfortable after reviewing existing documentation and having had a discussion with Brian Wolfe… that there is coverage in place”[83].
[82]Exhs AT and AU.
[83]Exh AV.

On 22 November, the day on which the mediation commenced, HGR wrote to Mr Delkousis saying that its client would require access to all relevant evidence, and take advice about such evidence, before it would be in a position to make a determination about indemnity. The letter[84] reserved CGU’s position in other ways.
[84]Exh AW.

On 25 November Mr Campbell faxed Ms Underdown[85]. He suggested that the plaintiff’s representatives and AON work through Fletcher’s points of claim and then lodge specific claims on the different insurers. He asserted, in correspondence copied to Ms Underdown, that where AON had been instructed by the plaintiff to obtain particular cover it had done so.
[85]Exh CE.

I should next refer to a letter of advice dated 2 December sent by Mr Delkousis to Ms Underdown[86]. Mr Delkousis noted that, there being no policy on foot when the Fletcher claims were made, the question arose whether s. 40(3) would assist the plaintiff. He said that whether the September 1995 notification satisfied the requirement that notification be of facts that might give rise to a claim would “no doubt be the subject of contention”. He said also that no doubt there would be “debate about exactly what TBI was aware of, and an allegation that TBI did not advise of all the facts that it was aware of that might give rise to a claim”. He described the “essential issue” as being “whether the (Fletcher) claim has a close enough relationship with the September 1995 notification of circumstances by TBI so as to make s. 40(3) operative”.
[86]Exh AX.

Read naturally, Mr Delkousis advised that whilst debate might be expected at several points, the critical question as he perceived it was whether the September 1995 notification was of facts which had a sufficiently close connection with the Fletcher claims. That is what he and Ms Underdown each said in evidence they saw as the s. 40 issue – not the question of possible under-notification. Ms Underdown did not read the letter as opining anything else[87]. She read it as simply being thorough. She never considered under-disclosure to be “in the ring” – up to the time of the CGU settlement, and beyond.
[87]See T 810-811.

The letter of 2 December referred to Mr Delkousis’ intention to have a solicitor undertake research into the case law concerning s. 40(3). Research was undertaken, then and later. Mr Delkousis said he was sure he would have informed Ms Underdown of the substance of the research so far as he agreed with it; but that he did not tell her of a conclusion reached in April 2000 by one of the researchers, a then fourth year law student, that the 1995 notification was wide enough to cover claims arising directly or indirectly from turbine or gearbox problems[88]. He did not agree with that conclusion, although he embodied it in a later written submission to CGU.
[88]See Exh 37, 3 April 2000.

In the present case, the plaintiff did notify certain facts to the insurer in September 1995 – first in its proposal for the second policy[190], and then in a document headed “Notification of circumstances out of which a claim might arise”[191].
[190]Exhibit F.
[191]Exhibit BU.

The relevant text of the proposal for the second policy and the notification of circumstances was the same. I have set it out in [116] of these Reasons. The notification added information that the potential amount of a claim was “$1M covering damages for delay in handover of the plant”.

It is to be borne in mind that under the first policy the indemnity was restricted to “Liability arising from faulty or inadequate design or specification”. Claims, inter alia, arising directly or indirectly from faulty or inadequate manufacture, workmanship construction or fabrication, and supervision of manufacture etc were specifically excluded from the indemnity which the policy provided.

It was submitted for the defendant that it was not to the point that the plaintiff had asserted by its notification that there had not been any suggestion of design defect from its standpoint, that it did not believe there was a design problem, and that it claimed that the issue was one of defect correction. It was enough that it identified problems with gearboxes and turbines and disclosed that Fletcher had yet to accept handover in circumstances where, in 1999, Fletcher made wide-ranging claims against the plaintiff which in some measure focussed upon alleged problems with gearboxes and turbines. The notification had at least been apt to capture indemnity to the limit of the amount insured.

The focus of s. 40(3) is upon notification of facts that might give rise to a claim. In the present case, albeit that it made disclosure in the proposal for the second policy, and albeit that at its broker’s request it completed a notification of circumstances form, the plaintiff was at pains to inform its insurer that there were no facts that would give rise to a relevant claim. It said absolutely nothing to indicate that the problems with gearboxes and turbines might do so; or that any such assertion had been made to it.

It might, perhaps, be argued that the notification did not in substance notify facts that might give rise to a claim at all. But the plaintiff never considered this to be a matter of concern and, although that circumstance is by no means decisive, I will put the possible argument to one side.

As matters developed, Mr Delkousis’ concern was whether the wide-ranging Fletcher claims had a close enough relationship with the September 1995 notification of circumstances to call s. 40(3) into play. It was that concern, communicated to and accepted by Ms Underwood, which was a key reason for acceptance of the CGU offer. It was a concern which, as I have said earlier in these Reasons, reflected the fact of an issue which was alive between the plaintiff and CGU at the time of settlement.

I have earlier concluded that in 1999 Fletcher raised claims which, though mixed, would have called the notional policy into play; and that to the limit of the indemnity. It may equally be said that such claims, if made before September 1995, would have called on the indemnity provided under the first policy. Further, I do not consider that there was such a delay in notification as would have defeated recourse to s. 40(3). However, to my mind the plaintiff’s argument that s. 40(3) could aid it, developed by Mr Delkousis is in his negotiations with CGU[192], was not persuasive. Rather, the view that he formed and communicated to Ms Underdown about problems of reliance upon ss. 40(3) and 54 was correct. It is true that he did not expressly consider, in the context of s. 40(3), the question whether the notification had been apt to capture at least some indemnity; but I think that, as counsel for the plaintiff submitted, Mr Delkousis addressed in his analysis of the problem the substance of that question.
[192]See Exhibit D, paragraph 4 – which seems likely to have been based on the researcher’s paper, Exhibit 37.

I noted earlier that defendant’s pleaded reliance upon s. 54 as well as upon s. 40(3) in support of the argument that the plaintiff suffered no loss by reason of any default of the defendant because it was entitled to indemnity under the first policy[193]. Nothing was advanced in support of that pleading in the defendant’s final submissions. Indeed, senior counsel submitted that, probably, s. 54 could not be called upon where a defective s. 40(3) notification had been given[194]. Mr Delkousis advised his client that reliance on s. 54 would probably not succeed. He provided reasons. As the matter developed, this is not the occasion to review the authorities[195] pertaining to s. 54. It is enough to say that in my opinion s. 54 did not provide the plaintiff with prospect of obtaining indemnity under the first policy.
[193]See paragraph 57 of the defence.
[194]T.1820.
[195]Recent amongst which are FAI General Insurance Co Ltd v Australian Hospital Care Pty Ltd (2001) 204 CLR 641 and Gosford City Council v GIO General Insurance Ltd [2003] NSWCA 34.

I have said earlier why it was that Ms Underwood gave instructions to accept the CGU offer; see at [179]. Because I consider Mr Delkousis’ advice was correct, it follows that the defendant’s default was, by the ordinary common sense test of causation, a cause (in reality, the principal cause) of the plaintiff suffering loss and damage. For it cannot be said that the plaintiff was entitled to indemnity under the first policy; and according to the defendant it was such entitlement which made it impossible for the plaintiff to establish any loss and damage caused by the defendant’s default. I add that, equally, the defendant’s default should be accounted causative of loss and damage to the plaintiff in the context of the claims founded on statute.

The question which next arises is the amount of loss and damage of which the defendant’s default was a cause. In this case, as I have said, the defendant’s principal default was that it failed to obtain insurance for the plaintiff operative when the Fletcher claims were made. Upon an assumption that AON could have obtained a policy which would have responded thereto, the plaintiff’s relevant damage was, it pleaded, the value of the lost indemnity modified by the amount which it recouped from CGU.

Once it is accepted that neither s. 40(3) nor s. 54 could aid the plaintiff’s claim under the first policy, for the reasons which Mr Delkousis advanced and which Ms Underwood accepted, any amount that the plaintiff could obtain in settlement from CGU was a bonus. Objectively considered, plainly the settlement amount was not unreasonably low. Moreover, because the settlement was effected for the reasons advanced by Mr Delkousis and accepted by Ms Underwood, it seems an inevitable conclusion that the defendant’s default was a cause of the amount of the settlement.

According to the defendant’s arguments in the context of para 77, however, causation should be determined by considering the matter from an objective viewpoint. In Rocco Pezzano, for reasons already described, resolution of the question whether the settlement was objectively reasonable in the circumstances then known to or reasonably discoverable by the parties in turn resolved any question of causation.[196] But McHugh J emphasised that the test of causation remained the test described by the majority in March v EM & H Stramare Pty Ltd[197]. I consider, in the event, that the defendant’s contention as to the way in which causation of the amount of the CGU settlement must be ascertained was founded on a misunderstanding of Rocco Pezzano.
[196]See at [18] and [22]-[23], per McHugh J.
[197](1991) 171 CLR 506.

What I have just said really disposes of the plea that the amount of the CGU settlement was caused by matters other than the defendant’s default. Moreover, even if it was the case that matters propounded by the defendant were objectively causative of acceptance of the CGU offer, the defendant’s default could not, objectively viewed, be excluded as a cause of such acceptance when Mr Delkousis’ advice, upon which Ms Underwood acted, was correct.

Those things said, for sake of completeness I should refer briefly to the various alternative causes of the amount of the CGU settlement propounded by the defendant.

Amongst the matters pleaded and relied upon in paragraph 77, as I noted earlier, are the following:

“(a)the fact that CGU would not offer the plaintiff any more than $3M without significant further analysis of the Fletcher Claims;
(b)the fact that the significant further analysis by CGU of the Fletcher Claims would cause delay, further expense and possible further disputation between the plaintiff and CGU;
(j)failure by the plaintiff to issue and prosecute proceedings against CGU when the plaintiff had a good claim against CGU which would have succeeded;
(k)failure by the plaintiff to adopt the course of prosecuting legal proceedings against CGU, thus ascertaining the defences raised by CGU so that in such proceedings the defences which would ultimately be relied on by CGU would be revealed.”

It is the fact that CGU would not increase its offer at the time of the plaintiff’s acceptance. It is likely that the matters alleged by sub-para. (b) are correct. The matter alleged by sub-para. (j) assumes that a claim against CGU would have succeeded. The assumption is not well-founded. Sub-paragraph (k) refers to a course of action which, as a forensic choice, might have been made.

The plaintiff had been placed in the position, by the defendant’s default, of having to seek recoupment under the first (and other) policies. In circumstances where, as it correctly accepted, it had a weak (if not impossible) case against CGU, a decision to settle rather than to issue, a decision made after months of arduous negotiations and after the expenditure of large amounts, could not be regarded, viewed objectively or otherwise, as bringing about a settlement unconnected with the defendant’s default.

I next refer to the matter raised by sub-para. (h). It asserts a circumstance inconsistent with the evidence: that is, that the plaintiff failed to consider the making of a claim for rectification of policies issued subsequent to 30 September 1996. Mr Delkousis did consider the possibility of making such a claim[198]. He seems to have concluded that any such claim would likely fail. Certainly he considered it highly unlikely that CGU would have agreed that its intent had been to give the plaintiff cover under the DDAA policies. I do not doubt that he was well-justified in holding that opinion. Further, as I have said earlier, I consider that the prospect of obtaining rectification was so slight as not to have justified commencement or pursuit of a proceeding against CGU seeking such relief.
[198]T.1089-1091.

The plaintiff’s failure to raise with CGU or to pursue a claim for rectification could not be said in the circumstances to interpose a cause for the acceptance of CGU’s offer which was attributable to the plaintiff’s default.

I go to the matters raised by sub-para. (i). Thus:

“(A)the giving of the advice to accept CGU’s offer of $3M and the reasons therefor embodied in the letter dated 22 May 2000 from the plaintiff’s solicitors to the plaintiff;
(B)the advice to TBI not to issue and prosecute proceedings against CGU when the plaintiff had a good claim against CGU which would have succeeded; and
(C)the failure to advise TBI to consider, and if considered to adopt, the course of prosecuting legal proceedings against CGU, thus ascertaining the defences raised by CGU so that in such proceedings the defences which would ultimately be relied on by CGU would be revealed;”

I have already dealt with the core subject-matter of particulars (B) and (C) in another connection. Particular (B) is founded on a wrong assumption: that the plaintiff had a good claim against CGU which would have succeeded. Particular (C) attacks, in essence, a forensic choice which I have said was reasonably open to the plaintiff. I should add that this particular alleges, as a particular of bad advice, failure to give advice about a certain matter. I doubt that a failure should be so characterised.

Particular (A) of sub-para. (i)) refers to Mr Delkousis’ letter of advice to Ms Underdown of 22 May 2000[199]. I have set out its substance at [175]-[176]. I have already concluded that the advice was sound.
[199]Exhibit BP.

In the event, there is in my view no foundation for the defendant’s plea that the solicitors’ bad legal advice was a cause of acceptance of the CGU offer of settlement.

I go to the matter raised by sub-para. (c). There was up to the time of the CGU settlement a live issue as between the plaintiff and CGU whether the first policy, notification problems aside, would respond to the Fletcher claims. That was so although the plaintiff had provided CGU with many documents, although Mr Delkousis had analysed the Fletcher claims so as to show that they would call on the policy to respond in an amount exceeding the limit of the indemnity, and although both Mr Delkousis and Ms Underdown believed that there was at least $5M in professional liability claims within the Fletcher claims.

Given that the issue was alive, I certainly would not conclude that a cause of acceptance of the CGU offer was the risk alleged by sub-para. (c). I say “risk alleged” because whether there was any such risk is no more than speculation. But if there was a risk and it was objectively a cause of acceptance of the CGU offer, certainly the defendant’s default should not be excluded as a causative factor.

I turn to the matters raised by sub-paras. (d), (e), (f) and (g). I have set out their text earlier. In different ways they focus upon the plaintiff’s notification of circumstances dated 27 September 1995. Their general thrust is that there was, objectively viewed, a risk that the plaintiff had understated or misstated facts then known to it, and that it was this understatement or misstatement which defeated the plaintiff’s otherwise sound reliance on s. 40(3) and caused the plaintiff to accept $3M from CGU rather than receive the full amount of the indemnity.

The reasons why the plaintiff accepted the CGU offer were not any of the alleged risks, or the fact, pleaded by sub-paras. (d), (e), (f) and (g) of para 77. I have earlier said why, in my opinion, the plaintiff accepted the offer. The alleged risk pleaded by sub-paras (d) and (f), and probably the fact pleaded by sub-para (e), were considered by Mr Delkousis. But in circumstances where CGU’s solicitors had inspected all the documents relied upon by the defendant, had taken copies of them, and having done so had not raised an inadequate notification argument, Mr Delkousis and Ms Underwood were entitled to think, and did think, that a distinction between the 1995 notification and what Detco then knew was never an issue with CGU in the period leading up to settlement.

But according to the defendant’s argument, I should nonetheless conclude that the three risks and the one fact alleged were the only causes of the plaintiff accepting $3M from CGU. Having concluded that, objectively viewed, such risks and such fact existed, I should be satisfied that, objectively viewed, they were causative of such settlement. A settlement so caused would not be attributable to the defendant’s default; and so the amount of the settlement would provide no reckoning point for assessment of the plaintiff’s claim.

The starting point for consideration of those arguments is the relevant pleading. By sub-para (d) the plaintiff’s agreement to compromise with CGU for $3M is alleged, objectively viewed, to have been caused by the risk that the notifications of circumstances were inadequate for obtaining the benefit of s. 40(3) because they failed to notify all circumstances then known by the plaintiff, which circumstances constituted facts which might give rise to a claim, and which gave rise to the Fletcher claims.

By sub-para (e), it is pleaded that the agreement to compromise was objectively caused by the fact that the notification asserted, contrary to the true situation, that there was no suggestion of any design defect from the plaintiff’s viewpoint.

By sub-para (f), it is pleaded that the agreement to compromise was objectively caused by the risk resulting from the fact that the plaintiff had altered its own proposed form of notification of circumstances so as to render the notification inadequate for the purposes of obtaining the benefit of s. 40(3).

By sub-para (g), it is pleaded that the agreement to compromise was objectively caused by the risk that, if the plaintiff brought a proceeding against CGU, discovery would reveal failure to notify all known circumstances and changes in the form of the notification, this in turn creating the risk that CGU would have been provided with further defences, including breach by the plaintiff of its duty to act towards CGU with utmost good faith.

Sub-paragraph (d), as I have noted, adverts to a risk. Despite the basis upon which the documents referred to in the particulars to that sub-paragraph were admitted into evidence, and notwithstanding the absence of any evidence admissibly explaining the true purport of those documents, I can accept that some such risk was arguably disclosed by the documents. But I do not agree that, objectively viewed, it was a cause of the amount of the CGU settlement. One would need to consider the circumstances as they existed at the time of settlement. Those circumstances included both the fact that the plaintiff’s side had at one stage been apprehensive about the extent of notification, and the important fact that CGU, having had extensive access to the documents relied on by the defendant, and that over a period of months, had not raised an under-notification issue. It seems to me to go much too far to say that causation should be so disembodied from the actual state of facts as to lead to a conclusion that the objective cause of the CGU settlement was an alleged risk faced by the plaintiff arising out of circumstances the detail of which was known to but unremarked upon by the offeror.

Next, it is the fact that the 1995 notification made the assertion set out in sub-para (e). The reason why the assertion was so made was explained in evidence. The allegation made by the sub-paragraph is inconsistent with that explanation, which I accept. But assume that there was an inconsistency. It really adds nothing to the matter pleaded by sub-para (d). CGU had the notification; and it had access to relevant documents. It did not raise the matter pleaded by (e) as a basis for denying indemnity. It would go too far to ignore the conduct of the parties, particularly the offeror, entirely in deciding what was, objectively viewed, a cause of the amount of the CGU settlement.

I go to sub-para (f). The alterations there referred to were made. Probably the reasons why they were made were sound. They led on to the notification being in the form addressed by sub-para (d). The plaintiff’s side considered the import of the changes. At one stage they were a matter of concern. But that concern dissipated when CGU, given access to all the plaintiff’s documents, raised no issue. Whilst it is possible that CGU had not inspected every document pertinent to sub-para (f), I think it would be far-fetched to conclude that an alleged risk deriving from the making of the changes was objectively causative of the amount of the CGU settlement.

Sub-paragraph (g) really builds on sub-paras (d) and (f). It is founded on an assumption which seems to me to be unsound. Further, it proposes a tortuous course – that is, that the amount of the settlement was objectively caused by the risk that if the plaintiff commenced a proceeding against CGU it would have to make discovery which would reveal inadequate notification and changes in the form of notification which would in turn give rise to a risk of the availability of other defences altogether. At a series of points I cannot agree with the factual substratum of the plea, quite apart from what seems to me to be the unreality of the contention that, objectively considered, the alleged multiple risks were causative of the amount of the settlement. This sub-para, as with others, seems to me to reflect the ingenuity of counsel rather than the reality of the situation – whether objectively or subjectively assessed.

In all, then, I consider that the plaintiff would have successfully overcome the matters pleaded by paras 47-57 and 77 of the defence.

Summary

The defendant breached its contract with the plaintiff. It also breached the common law duty of care and statutory duties which it owed the plaintiff. The plaintiff did not prove that any loss and damage was caused to it by any such breach, for it did not establish that it could probably have obtained a policy current when the Fletcher claims were made. The Fletcher settlement was in respect of claims which, had a policy been obtainable, would have called upon the probable indemnity up to its likely limit – that is, $5M plus proportionate costs. The plaintiff proved that the defendant’s default would have been a cause of its suffering loss and damage in the event that a policy had been obtainable. The plaintiff was not entitled to indemnity under the first policy. The amount of the CGU settlement was caused by the defendant’s default and was objectively reasonable. The defendant’s argument with respect to proportionate costs was correct.

I will hear the parties as to the form of the orders which should be made.

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[2004] VSC 40

19 February 2004