Weir Services Australia Pty Limited v AXA Corporate Solutions Assurance

[2017] NSWSC 259

Supreme Court

New South Wales

Medium Neutral Citation:	Weir Services Australia Pty Limited v AXA Corporate Solutions Assurance [2017] NSWSC 259
Hearing dates:	1, 2, 6, 7, 8, February 2017
Decision date:	17 March 2017
Jurisdiction:	Equity - Commercial List
Before:	Hammerschlag J
Decision:	Proceedings are dismissed
Catchwords:	INSURANCE LAW – EQUITY – ESTOPPEL – Where insurance policies covered the insured for amounts it became legally liable to pay by way of compensation or damages to a third party – Where insured was sued in arbitral proceedings for damages for breach of contract and misleading or deceptive conduct – where insured entered into a “cap and collar” arrangement with the third party under which the third party would be paid an amount dependent on the outcome of the arbitral award – whether the arrangement constituted a settlement establishing liability to the third party and quantum for the purposes of the policies – Construction of policies – Meaning of Property Damage, Occurrence and Product – Whether policies responded to the third party’s claim – Indemnity for defence costs – Whether policies responded to the insured’s claim for costs of defending the arbitration – Whether insurer agreed or is estopped from denying indemnity for defence costs – Damages – Whether insured would be entitled to its full defence costs as opposed to only reasonable costs in face of insurer’s denial of indemnity – Defence of failure to comply with giving of notice condition where English law governs such defence – HELD – Cap and collar arrangement did not establish liability or quantum – Policies did not respond to third party’s claim – Policies do not respond to claim for defence costs – Agreement or estoppel to pay defence costs not made out – If insured was entitled to damages they would not exceed reasonable defence costs – Late notification defence established.
Legislation Cited:	Competition and Consumer Act 2010 (Cth) Insurance Contracts Act 1984 (Cth) Trade Practices Act 1974 (Cth) Uniform Civil Procedure Rules 2005 (NSW)
Cases Cited:	Allianz Australia v Bluescope Steel (2014) 87 NSWLR 332 Aspen Insurance UK Ltd v Pectel Ltd [2009] 2 All ER (Comm) 873 Astrazeneca Insurance Co Ltd v XL Insurance (Bermuda) Ltd [2014] 2 All ER (Comm) 55 Australian Rail Track Corporation Ltd v QBE Insurance (Europe) Ltd [2013] NSWCA 175 AXA Corporate Solutions Assurance S.A. v Weir Services Australia Pty Limited [2016] EWHC 904 (Comm) Chappel v Hart (1998) 195 CLR 232 Chubb Insurance Co of Australia Ltd v Robinson [2016] FCAFC 17 Distillers Co (Bio-Chemicals) (Aust) Pty Ltd v Ajax Insurance Co Ltd (1974) 130 CLR 1 Fitzpatrick v Job (2007) 14 ANZ InsCas 61-731 Friends Provident Life & Pensions Ltd v Sirius International Insurance [2005] 2 All ER (Comm) 145 GIO General Limited v Newcastle City Council (1996) 38 NSWLR 558 HLB Kidsons v Lloyd’s Underwriters [2009] 2 All ER (Comm) 81 J Rothschild Assurance plc v Collyear [1998] CLC 1697 Laker Vent Engineering Ltd v Templeton Insurance Co Ltd [2009] 2 All ER (Comm) 755 McCann v Switzerland Insurance Australian Ltd (2000) 203 CLR 579 Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104 Pioneer Concrete (UK) Ltd v National Employers Mutual [1985] 1 Lloyd’s Rep 274 Ronnoc Finance v Spectrum Network Systems Ltd (1997) 45 NSWLR 624 Rosenberg v Percival (2001) 205 CLR 434 Siegwerk Australia Pty Ltd v Newplex Industries (Australia) Pty Ltd (2013) 305 ALR 412 The Commonwealth v Verwayen (1990) 170 CLR 394 Wenham v Ella (1972) 127 CLR 454 Wilkie v Gordian Runoff Ltd (2005) 222 CLR 522 Zurich Australian Insurance Ltd v GIO General Limited [2011] NSWCA 47
Texts Cited:	Justice Michael L. Ball, David St. L. Kelly, LexisNexis, Kelly and Ball Principles of Insurance Law (at service 51)
Category:	Principal judgment
Parties:	Weir Services Australia Pty Limited - Plaintiff AXA Corporate Solutions Assurance - Defendant
Representation:	Counsel: R.A. Dick SC with P.Flynn and A.O’Brien - Plaintiff S.R. Donaldson SC with J. Hough QC [with leave] and M.R. Elliott - Defendant   Solicitors: Herbert Smith Freehills - Plaintiff Clyde & Co - Defendant
File Number(s):	2016/73749

Judgment

What this case is about

1. HIS HONOUR:   The plaintiff (Weir) is an Australian company. It is part of a global group headquartered in Canada which provides engineering and related services. The defendant (AXA) is its insurer.

2. Weir was retained by Phil Gold Processing and Refining Corp which is a Philippines corporation (Phil Gold), to do certain work as part of the refurbishment of a semi-autogenous grinding mill (SAG Mill) which Phil Gold intended to use at its gold processing operation at the Masbate mine in the Philippines. The work included certain welding. Weir did the work and the SAG Mill was recommissioned and started operating in April 2009. However, the SAG Mill failed on 10 July 2011 when welding work done by Weir disintegrated.

3. On 4 December 2013, Phil Gold sued Weir in arbitration proceedings for substantial damages for breach of contract and misleading or deceptive conduct.

4. On 8 December 2015 (before the arbitral Tribunal issued its Final Award), Weir and Phil Gold entered into a so-called “cap and collar”, under which Phil Gold agreed that if it was awarded damages, its maximum recovery from Weir would be capped at US$10,725,000 (the cap). Weir agreed to pay Phil Gold a minimum fixed amount of US$2,000,000 whatever the outcome of the arbitration proceedings (the collar).

5. On 16 January 2016, the Tribunal delivered its Final Award. It dismissed Phil Gold’s claim.

6. Weir holds three insurance policies with AXA. The first (the Australian Policy) is a broad form liability policy issued by AXA in favour of Weir and related Australian entities. It is governed by the laws of this State. The other two policies are liability policies issued by AXA in favour of Weir and related entities worldwide for the policy years 2011 and 2013 respectively. They are governed by the laws of England. Other than the policy years to which they apply, they are in identical terms. I will refer to them together as the Global Policy.

7. Weir claims that AXA was obliged to indemnify it for the amount paid to Phil Gold under the cap and collar and for the costs of its defence in the arbitration (apparently of the order of $7.6m). AXA denied (and continues to deny) indemnity in respect of both. Weir claims that AXA has repudiated its obligations and sues for damages for the breach.

8. Weir’s claim under the Global Policy is strictly alternative to its claim under the Australian Policy. The Global Policy operates on what is commonly called a difference in conditions/difference in limits basis.

The Policies

9. Before providing a more detailed exposition of the facts, it is appropriate to set out the relevant terms of the Australian Policy and the Global Policy.

The Australian Policy

10. The following are the relevant provisions of the Australian Policy:

Scope of Cover:   All sums which the insured shall become legally liable to pay Third Parties in respect of personal injury and/or damage to property as a result of an occurrence and happening in connection with the business of the Insured, or caused by any of the Products Sold, Manufactured, Supplied, or Distributed by the Insured.

2.   WHAT WE COVER YOU FOR

You are covered for:

1.    Legal Liability

We will pay all amounts that you become legally liable to pay by way of compensation for:

●   Personal Injury; or

●   Property Damage; which:

●   happens during the period of insurance; and

●   is caused by an occurrence and happens in connection with your business;

●   provided that:

○   our liability for all compensation payable in respect of any claim or a series of claims caused by or arising out of one occurrence shall not exceed the limit of liability;

○   all claims for compensation that result from one original source, or one original cause, shall be considered to have been caused by a single occurrence; and

○   our total aggregate liability during any one period of insurance for product liability claims shall not exceed the limit of liability.

2.    Costs and Expenses

In addition to the limit of liability, we will pay in relation to a claim covered under this Policy, all:

●   expenses incurred by us in defence of a claim;

●   costs awarded against you and all interest accruing after judgement until we have paid, tendered or deposited in court that part of any judgement which does not exceed the limit of liability;

●   reasonable costs and expenses, other than loss of earnings, incurred by you with our written consent; and

●   costs or expenses incurred by you for rendering first aid to others at the time of any Personal Injury; provided that:

○   if to dispose of or settle a claim covered under this policy, compensation is payable in excess of the limit of liability, our liability in respect of these costs and expenses will be limited to the proportion of the costs and expenses as the limit of liability bears to the total compensation payable to dispose of or settle the claim;

○   We will not pay for any costs or expenses that are incurred after We have paid or agreed to pay an amount equal to the Limit of Liability; and

○   in relation to any claim made and actions instituted within the United States of America or the Dominion of Canada or their territories, protectorates or dependencies, Our liability to pay any of the costs or expenses detailed above shall be included in the Limit of Liability, and not paid in addition to the Limit of Liability.

3.   WHAT IS NOT COVERED

You are not covered for:

(4)    Professional Services

Liability caused by or arising from the rendering of or failure to render professional advice or service by You or any error or omission connected therewith.

This exclusion shall not apply to:

(a) the rendering of or failure to render medical advice or service by Medical Persons employed by You to provide first aid and other medical services on Your premises; or

(b) claims in respect of Personal Injury or Property Damage where such professional advice or service is given without fee or charge.

(7)    Product Defect

Property Damage to Your Products if such Property Damage is attributable to any defect in Your Product.

5.    DEFINITIONS

"Occurrence" means an event, including continuous or repeated exposure to substantially the same general conditions, which results in Personal Injury or Property Damage neither expected nor intended by You.

"Product" means anything (after it has ceased to be in Your possession or in Your legal control) which has been manufactured, grown, extracted, produced, processed, constructed, erected, installed, assembled, altered, repaired, serviced, treated, sold, supplied or distributed by You in the course of Your business, including any packaging or containers (other than a Vehicle) used to package or contain Your Product(s).

"Property Damage" means physical loss, damage or destruction of tangible property including the resultant loss of use, or loss of use of tangible property which has not been physically damaged or destroyed, provided such loss of use is caused by an Occurrence.

In the event of a claim arising from latent damage or from the exposure of tangible property to gradual deterioration and eventual damage, such Property Damage shall be deemed to have occurred on the day such deterioration or damage was first discovered.

The Global Policy

11. The Global Policy includes a Products Liability section and a Professional Indemnity section.

12. The following are the relevant provisions of the Global Policy:

DEFINITIONS

Costs

The term "Costs" shall mean

(a)   costs and expenses recoverable at law by any claimant

(b)   all other costs and expenses incurred with the prior written consent of the Insurer in respect of any originating cause which may be the subject of indemnity under this Policy

Product

The term "Product" shall mean goods manufactured sold supplied repaired altered tested treated or installed in connection with the Business and shall include

(a)    containers and packaging

(b)    design formula or specification

(c)    directions instructions or advice in connection with any of the goods sold or supplied by the Insured

after they have ceased to be in the custody of the Insured

Damage

The term "Damage" shall mean physical loss of or physical damage

Property

The term "Property" shall mean tangible property

PRODUCTS LIABILITY SECTION

Indemnity

The Insurer will indemnify the Insured against all sums which the Insured becomes legally liable to pay as damages in respect of

1.   Personal Injury to any person

2.   Damage to Property

happening anywhere in the world during the Period of Insurance and caused by a Product The Insurer will also pay Costs

Limit of Indemnity

The liability of the Insurer for damages during the Period of Insurance shall not in the aggregate exceed the Limit of Indemnity shown in the Schedule

Exceptions to Products Liability Section

The Insurer will not indemnify the Insured in respect of

1. Liability by Agreement

liability assumed by agreement by the Insured other than

(a)    liability which would have attached in the absence of such agreement

(b)    where the prior written consent of the Insurer to such terms has been agreed

3. Damage to the Product etc.

(a)    damage to the product; or

(b)    the cost of and the expenses incurred in the recalling rectifying or removing the Product or supplying replacement Product

PROFESSIONAL INDEMNITY SECTION

Indemnity

The Insurer will indemnify the Insured against all sums which the Insured becomes legally liable to pay as damages in respect of all claims made against the Insured during the Period of Insurance by reason of any negligent act error or omission in any design or advice of a professional nature given by the Insured and happening anywhere in the world in connection with the Insured Business

The Insurer will also pay Costs

Limit of Indemnity

The liability of the Insurer for all damages and Costs in respect of all claims made against the Insured during the Period of Insurance shall not in the aggregate exceed the Limit of Indemnity shown in the Schedule

Extensions to Professional Indemnity Section

6.    Design or Advice

Any claim arising from design or advice given in connection with the Products.

GENERAL CONDITIONS

3.    Notification of Claims

The Insured shall give written notice to the Insurer as soon as reasonably practicable of any

(a)    claim made against the Insured

(b)    or any event or circumstance that may give rise to a claim being made against the Insured

and which may form the subject of indemnity under this Policy

4. Control of Claims

Every claim writ summons or process and all documents relating to the occurrence shall be forwarded unanswered to the Insurer immediately they are received by the Insured

No admission of liability or offer promise or payment shall be made without the written consent of the Insurer which will be entitled at their discretion to take over and to conduct in the name of the Insured the defence or settlement of any claim and to prosecute at their own expense and for their own benefit any claim for indemnity or damages or otherwise against any other persons and the Insured shall give all information and assistance required

8. Due Observance

The liability of the Insurer will be conditional on the due observance by the Insured of the terms exceptions conditions and endorsements of this Policy insofar as they relate to anything to be done or complied with by the Insured

The Facts

Phil Gold retains Weir and the SAG Mill fails

13. Phil Gold has a gold processing operation at a mine in the Philippines known as the Masbate Gold Mine. In 2006 Phil Gold bought the SAG Mill, which was then in pieces lying in a field in Canada.

14. The SAG Mill was originally manufactured in the 1970s. Its main components are a central rotating drum and conical end plates on either side. Ore enters the drum through one end and exits through the other. The drum consists of four separate shell sections bolted and welded together. The drum is welded to the two end cones by circumferential weld. There is a circumferential weld at the end at which unprocessed ore enters, and another where the crushed ore exits. The drum rests on two trunnions and is rotated by electric motors. Steel balls can be put in the drum to enhance crushing ability.

15. At the end of 2007, with a view to recommissioning the SAG Mill, Phil Gold retained Weir to repair cracking in the shell’s sections including by gouging and welding cracked areas at the circumferential weld.

16. By April 2009, the SAG Mill had been recommissioned and was operating.

17. On 10 July 2011, the circumferential weld connecting the conical plates to the main cylindrical drum at the discharge end fractured. Cracking was also apparent at the feed end. The mode of failure was high-cycle, low-stress fatigue cracking.

Weir becomes aware of the failure

18. Weir was informed almost immediately of the failure. At that stage it was not clear what precisely had caused it.

19. At the time, Mr Bruce Puddester was Weir’s Manager Mill Systems for Australia and the Asia-Pacific Region. Mr Colin Stewart was the Account Manager for Weir’s Mill Systems Group. On 11 July 2011, Mr Stewart informed Mr Puddester by email that the SAG Mill had cracked. Mr Puddester advised discretion and requested that all questions or enquiries be directed to him. Separately, Mr David Kirk, then a Technical Sales Representative in Weir’s Mill Division who reported to Mr Puddester, received an email on 27 July 2011 from an industry contact containing a photograph of a crack in the SAG Mill, which he forwarded to Mr Puddester that day. He enquired of Mr Puddester whether he knew about this. Mr Puddester’s colourful and seemingly accurate email response was:

Ya, Nasty shit, real nasty!!!

20. On 29 August 2011, Phil Gold wrote to Weir informing it that a failure occurred in the SAG Mill on 10 July 2011. In order to assist in repairs of the SAG Mill, Phil Gold requested a copy of the reports of all non-destructive testing, dry-magnetic particle testing and ultra-sonic testing that was undertaken on the SAG Mill during and upon completion of the refurbishment.

21. On 20 October 2011, Mr Puddester sent the following email to Mr Evert Lessing, then Weir’s Director Process Equipment:

I'm not sure if you are aware that a severe crack developed in the Masbate SAG mill about 3 1/2 months ago. The crack is at the corner of the head and the shell. This has effectively put the SAG offline and has reduced tph by at least half. The last report I had was that with the SAG they were running at about 800 tph so with it offline they are severely restricted in tph and associated revenue. They have reduced the crusher gap and are feeding the two OF ball mills as primaries, thus reducing tph and product sizing.

To add more information, Weir Canada performed a series of weld repairs on the head gussets of the SAG mill in early 2008. The repairs were performed, a repair report was generated and sent to the client in 2008 prior to the SAG mill leaving Canada. The SAG mill ran from May 2009 through to the crack event this year.

I was contacted a few weeks ago and asked for a copy of the repair report. The request came from Mark Turner, Operations Director for CGA. I sent a copy of the report to Mark, which was the same report sent to them by Weir Canada in 2008. During my work assignment at Siana Gold I found out that CGA have employed a specialist in crack repair from the North America to evaluate the situation and to undertake the repair at site.

I was contacted again earlier this evening by the former construction and installation manager for Leightons regarding the Masbate mills. As background Leightons were the company that performed the installation of the SAG mill for CGA at Masbate. He is no longer with Leightons but has been contacted by them regarding mill installation documentation for the mill. He has asked me if the final install documentation was compiled by me or Leightons. I replied saying that our SAG work and reports were confined to offsite repairs.

My spider sense has been tingling since this evening. One of two things are happening here, one is, CGA are trying to find out about the repair work performed by Weir as well as the installation performed by Leightons to help the specialist perform his work, OR two, they are looking for someone to go after for the crack event and revenue loss.

I'm thinking scenario 1 is the most probable case, but knowing the animals involved, I can't help feeling that scenario 2 is a remote possibility. With this in mind I am keeping my distance, but I felt you should know.

(I was informed from the bar table that Mr Puddester’s reference to “spider sense” is a reference to the sensation apparently felt by the fictitious super-hero character Spider-Man when danger is imminent. Mr Lessing agreed that it was “a feeling of intuition about something liable to promote concern”.)

22. Mr Lessing replied:

Thanks Bruce.

Good idea to keep your distance.

23. It was put to Mr Lessing that his request to Mr Puddester to keep his distance was a request that Weir keep its distance from Phil Gold, in the context of a possible claim. Mr Lessing denied this. His evidence was that he wanted Mr Puddester, who had some personal issues at the time, to keep his distance, not Weir to keep its distance.

24. Mr Puddester’s reference to Phil Gold as “animals” apparently had its origin in the fact that he had had “a run-in” with personnel from Phil Gold or its holding company (CGA) on site, but this may have concerned some other work in connection with “ball mills” that Weir was doing for Phil Gold. Weir’s solicitor in these proceedings, Mr Chung, made the following note in a telephone conference with Mr Puddester on 11 July 2016, in relation to the “animals” reference:

…creatures – quick to blame…

25. Mr Lessing gave evidence that he received Mr Puddester’s email “out of the blue” and that he did not consider that the information contained in it constituted a claim or potential claim against Weir.

26. Mr Craig Walker was Managing Director of Weir from October 2008 to October 2013. He gave evidence that on a monthly basis management reports were prepared by each company for the Weir Minerals Division which contained sections for the reporting of any actual or potential legal concerns or claims against Weir. He gave evidence that the first time issues relating to the SAG Mill were mentioned in these reports was in October 2011 in which report it was stated under the heading Current Market and Future Outlook:

The failure of the Masbate SAG Mill in July has caused an approximate 68% reduction in throughput. CGA have enlisted a specialist team from the US to repair the crack in the shell.

In the same report there was a statement that: “There have been no major claims made against the Company”. Mr Walker gave evidence that the purpose of recording the breakdown of a piece of machinery worked on by Weir could be to reflect a possible warranty claim.

The arbitration starts and Weir notifies AXA

27. Under cover of a letter dated 4 December 2013, Phil Gold served its Statement of Claim in the arbitration on Weir. Marsh Limited (Marsh), Weir’s insurance broker, provided the Statement of Claim to AXA on 5 December 2013. At that time, Mr Nick Hunt held the role of Technical Claims Controller with AXA and had the day to day carriage of the claim at AXA. He reported to Mr Bradley Dale. Mr Mike Russell was Claims Leader and Senior Vice-President of Marsh. On 5 December 2013, Weir notified AXA of a claim under the Policies.

28. On 6 December 2013, Mr Gareth Young, Weir’s Risk and Control Manager, notified Ms Emily Jane Peters, Weir’s Group General Counsel Asia-Pacific, that all of Weir’s insurers had been put on notice of the claim to protect Weir’s position. Ms Peters gave evidence that she was not aware of any current disputes that Weir had with Phil Gold prior to receiving the Statement of Claim. She says that after service she became aware that there had been a dispute with Phil Gold in 2010 in relation to the ball mills in use at Masbate, which had been settled in or around May 2010. Mr Walker gave evidence that sometime after December 2013, Weir’s Regional Financial Director, Mr Martin Ofner, informed him verbally in passing that Phil Gold had filed a claim against Weir regarding work Weir had done in relation to the SAG Mill which was the first time he had heard about any claim, or potential claim, by Phil Gold against Weir.

Phil Gold’s claims

29. Phil Gold served its original Statement of Claim in the arbitration on 4 December 2013. It amended it on 6 December 2013, 15 August 2014 and 12 May 2015 respectively. In its final form (which runs to some 32 pages) the Statement of Claim pleaded two causes of action:

1. breach by Weir of its contract with Phil Gold in respect of the refurbishment, installation and commissioning of the SAG Mill by failing to carry out its obligations with reasonable care and skill;

2. contravention of sections 52 and 53 of the Trade Practices Act 1974 (Cth) (TPA) (now called the Competition and Consumer Act 2010 (Cth). The provisions relied on by Phil Gold are now part of the Australian Consumer Law. Nothing turns on the change.)

30. The Statement of Claim originally alleged “breach of duty” which may have contemplated a cause of action in negligence, but this was deleted.

31. As to contract, the Statement of Claim averred that Weir undertook a number of obligations to Phil Gold including to conduct and supervise the refurbishment of all components of the SAG Mill and to operate as Phil Gold’s representative to ensure that the SAG Mill and ancillary equipment were refurbished, installed and commissioned to the satisfaction of Phil Gold and in accordance with sound engineering practice. It pleaded an express or implied term that the SAG Mill would be repaired, refurbished, shipped, installed and commissioned in conformity with the applicable industry standards and in a professional and workmanlike manner.

32. It further alleged that Weir failed to exercise the standard of care to be expected of a reasonably competent engineer in carrying out the refurbishment and installation works and that it failed to provide any quality assurance/quality control services to ensure that the refurbishment was carried out to Phil Gold’s satisfaction in accordance with sound engineering practice by, amongst other things, failing to ensure that welding repairs were carried out competently by welders with appropriate qualifications, skill and experience in repairing SAG Mill shell sections. It alleged that Weir failed to repair and refurbish the SAG Mill, in particular the welding to the SAG Mill, and install it in conformity with the applicable industry standards, sound engineering practice and in a professional and workmanlike manner.

33. With respect to misleading or deceptive conduct, the Statement of Claim pleaded a series of misrepresentations by Weir, including that the shells could be refurbished to Phil Gold’s repair standard of near original equipment manufacturer (OEM) condition and returned to service with a minimum service life of 10 years without reinforcing gussets and that on completion of the refurbishment the shell sections would have a life expectancy similar to the life expectancy of the shell sections in their original condition.

34. It pleaded that but for Weir’s representations, Phil Gold would have taken certain steps, including awarding the refurbishment and installation contract to some other contractor, and would have avoided the risk of a catastrophic failure of the SAG Mill leading to severe disruption of Phil Gold’s business.

35. The Statement of Claim alleged that on 10 July 2011, the circumferential weld between the drum and discharge end plate fractured. It alleged that this weld failure resulted in consequential and catastrophic damage in that the steel flange and bolt connecting the drum to the discharge end plate was cracked and the rotating drum was detached and deranged from the discharge end. It alleged that the SAG Mill could not continue to operate safely or at all and had to be shut down immediately.

36. It alleged that the normal operation of the SAG Mill involved constant rotation of the drum and feed and discharge end plates which created cyclic loading of the joints and welds attaching the drum to the feed and discharge end plates and that this cyclic loading caused stress within the welds which, when coupled with the defective nature of the welds and the repair welds, led to accelerated fatigue cracking.

37. Phil Gold claimed US$68,114,381 plus interest and costs, comprising damages of US$4,688,264 for the cost of repairing the SAG Mill, US$898,379 being the difference between the cost of the replacement SAG Mill in March 2012 and the cost of a replacement SAG Mill if the order had been placed in November 2007, and US$62,527,738 in respect of Phil Gold’s business interruption loss.

The arbitration

38. The arbitration Tribunal comprised Dr M. Pryles, Mr S. Isaacs QC and the Hon. J.J. Spigelman QC.

39. The arbitration was heard in Sydney between 21 and 30 July 2015. Phil Gold and Weir served a multitude of lay and expert witness statements.

Weir negotiates with Phil Gold and tries to involve AXA in the settlement

40. Weir received advice from its solicitors which it took into account in assessing its prospects in the arbitration. In early August 2015, shortly after the conclusion of the hearing, Weir received an update from its solicitors. Weir executives with carriage of the matter considered that if it was possible to reach a commercial settlement at an appropriate figure based on the legal risks and potential outcomes of the arbitration proceedings, this would be a desirable outcome. On 15 April 2015, representatives of Phil Gold and Weir met in Sydney to hold commercial settlement discussions. After the meeting, offers and counter-offers were made but the dispute did not settle. By 3 December 2015, Weir had offered Phil Gold US$5.75m and Phil Gold had offered to accept US$10.75m. The extent of the difference coupled with Weir’s desire to reach a commercial settlement led to the idea that the gap might be bridged by using a cap and collar arrangement.

41. Weir had notified AXA of the dispute upon receipt of the Statement of Claim.

42. On 16 January 2014, Mr Hunt of AXA wrote to Mr Russell of Marsh relevantly:

We understand that Herbert Smith Freehills have been appointed to defend this action on behalf of Weir but please do note that if coverage is confirmed, you will have seen that we would have claims control, including the right to choose defence counsel, and would need to be closely involved in all decisions in relation to this matter, as well as ensuring that any legal costs incurred are reasonable and proportionate. Thus whilst we do not object to the instruction of HSF at this time, it is likely that we will need to review and consider their terms of engagement, which of course we can discuss should this become necessary.

43. On 18 June 2014, AXA declined Weir’s claim under the Global Policy, taking the position that the claim fell outside the scope of the Global Policy and/or was excluded. On 19 June 2014, AXA declined Weir’s claim under the Australian Policy on the grounds that it fell within policy exclusions. Weir did not accept AXA’s denial of cover.

44. On 27 March 2015, Mr Russell of Marsh on behalf of Weir, wrote to Mr Hunt of AXA:

I refer to previous correspondence and discussions regarding coverage for this matter.

As you know, the arbitration timetable envisages that informal settlement discussions take place between Phil Gold and Weir in mid-April. It is clearly prudent, and in insurers’ interests, for Weir to engage in those discussions in a meaningful way and potentially also to secure a settlement of the claim on the best possible terms, notwithstanding AXA’s current position on policy coverage (which, of course, is not accepted).

In the circumstances, and pending resolution of the coverage issues raised in your letters dated 18 and 19 June and 2 December 2014, I should be grateful if you could please confirm as soon as possible (on behalf of AXA’s interest under both the global and local policies) that AXA agrees not to take any issue in respect of the policy requirement to obtain insurer’s written consent before making any “offer promise or payment” in respect of the claim by Phil Gold, or otherwise raise the lack of consent to any settlement as a basis to decline (whether in whole or part) Weir’s claim for an indemnity. Weir recognises and agrees that such confirmation is otherwise without prejudice to AXA’s position on policy coverage.

45. On 13 April 2015, Mr Hunt responded, relevantly:

…if you consider it will be of pragmatic assistance to Weir in achieving a reasonable settlement, we confirm that should it be found that our position on coverage is incorrect, and/or that the declinatures cannot be upheld, we will not subsequently seek to argue that Weir's claim should be declined on the basis that the policy requirement to obtain insurer's written consent before making any "offer promise or payment" in respect of the claim by Phil Gold has not been satisfied.

Please note, however, that we consider Weir should act as a prudent uninsured at all times and Weir's failure to take all such reasonable steps to minimise its loss could result in a reduction and/or refusal of indemnity under the relevant policy or policies, should Weir be found to be otherwise entitled to such indemnity on the basis of the coverage set out in the Global and/or Australian Policies (which is denied as referenced above).

46. On 7 May 2015, solicitors Clyde and Co (Clyde) on behalf of AXA wrote to solicitors Herbert Smith Freehills (HSF) on behalf of Weir, maintaining AXA’s declinature of coverage under both the Australian Policy and the Global Policy. On 1 June 2015, HSF replied in a somewhat lengthy letter asserting that Weir’s claim fell to be covered under both.

47. Over the period that followed, Weir and AXA corresponded with each other through their respective solicitors in relation to settlement negotiations being conducted between Weir and Phil Gold. The communications included the following.

48. On 7 July 2015, Ms Michelle Crorie of Clyde emailed Mr Paul Lewis of HSF, relevantly:

In any event, having carefully discussed the matter with our clients, we can confirm that AXA is not willing to participate in a contribution to a settlement proposal to Phil Gold. Nonetheless, AXA considers that Weir should pay careful heed to the legal advice it has received and put forward such appropriate offers as have been recommended in order to seek to diminish and/or mitigate its loss, as a prudent uninsured under both the Australian Policy and the Global Policy. It appears to us that it would be quite unsatisfactory for Weir not to make an effort to settle this underlying dispute given the legal advice that it has received.

Once the underlying exposure has been crystallised in principle, please feel free to revert to us to discuss the coverage matters further.

49. On 15 July 2015, Ms Michelle Williams of HSF emailed Ms Crorie:

To reach a crystallised figure in the settlement discussions you will appreciate that offers will need to be made by my clients. It is of course possible that any such offer may be accepted by Phil Gold. In light of your client's position we therefore seek written confirmation to Weir making offers of up to USD 13 million for settlement of the arbitration proceedings with Phil Gold. We also seek confirmation that your client will not take any policy point in the future (under the Global Policy or the Australian Policy) in relation to quantum should settlement be achieved at or below USD 13 million.

You will appreciate that timing for settlement is critical. Therefore we would be grateful if you could provide the confirmations sought above as soon as possible.

50. On 16 July 2015, Ms Erina Kawai of Clyde emailed Mr Lewis of HSF:

As you will have seen Michelle is away on holiday and has asked me to respond on her behalf. The issue you have raised has been considered previously. Please find attached a copy of an email confirmation provided by AXA to Marsh dated 13 April 2015 which addresses the question of Weir reaching a settlement with Phil Gold. AXA's position remains as previously stated. AXA, having declined cover, has no comment on the specific quantum but would repeat that it considers that Weir should act as a prudent uninsured.

51. On 16 July 2015, Mr Lewis responded to Ms Kawai:

Thank you for your email. I was aware of the email attached. My email however deliberately and specifically requested your client's confirmation that it will not take any point on the quantum of any settlement at or below $13m in any future coverage dispute. I am taking your email as that confirmation as your clients have had ample opportunity to assess the merits of a settlement at this figure and have repeatedly encouraged our clients to act as a prudent uninsured. If I have mis–understood the position in any way please correct me by return.

52. Ms Kawai replied on the same day:

Further to my earlier e-mail, we are rather surprised with your suggestion that you will "take" our e-mail of 11:21 this morning as confirmation that AXA will not take a point if settlement with Phil Gold is reached at or below $13m.

However, it is quite clear that this is not what our e-mail said, and you cannot decide to read it as stating something it deliberately did not say. We have made it very clear that AXA has no specific comments on the quantum of the settlement between Weir and Phil Gold. Contrary to your suggestion we have been given very limited access to very few documents and cannot possibly determine what is an appropriate settlement figure in the underlying arbitration. You may consider that we have had access to enough information to form such a judgment but you are mistaken. Further, AXA has not sought to undertake that exercise, which given the declinature is a matter for Weir and its lawyers.

AXA has no intention of being unreasonable in relation to this issue but cannot give the assurance sought. No doubt HSF will be able to provide legal advice to Weir as to the appropriate settlement level.

Accordingly AXA expects Weir to act in whatever reasonable manner it considers will minimise the loss under the insurance and looks forward to hearing further once settlement is reached with Phil Gold.

We trust the above is clear.

53. Mr Lewis in turn responded on the same day:

Thank you for your email.

Obviously Weir is taking advice on settlement from HSF. You and your clients have also had access to the partner running the matter on numerous occasions. The point is a simple one. My clients do not see why they have to run the risk of having to face an argument that the settlement does not reflect Weir's legal liability – you will be very familiar with the cases I have in mind. My clients are more than willing to work with yours prior to settlement. Please tell me what you need to be in a position to confirm that your clients will not take such a point and I will take instructions in order to achieve that. Would a further call with HSF Sydney for example assist? I am pleased to hear Axa have no desire to be unreasonable, my clients feel similarly hence why they would be pleased to afford you any opportunity to respond to this reasonable and, in my experience, very normal request.

54. On 17 July 2015, Ms Kawai emailed Mr Lewis:

We regret your experience in these matters does not match our own. It is neither required under the policy (which has been declined) nor standard practice for an insurer who has declined coverage to agree a certain figure represents an insured's liability.

It will be for AXA to consider all of the material at the relevant time to determine what arguments it wishes to run. This will include unfettered access to all pleadings, disclosure, witness statements, expert reports, attachments thereto etc. from both sides. We suggest that Weir include in any agreement with Phil Gold that such access can be granted to avoid satellite litigation on Weir's confidentiality obligations.

Such an exercise will be costly and lengthy and will not be done now. AXA has no wish to incur unnecessary expense itself or require Weir to do so if upon review of these documents and such legal advice as Weir wishes to provide access to, AXA is able to agree certain issues. However, we reiterate that this exercise will be undertaken at a stage after Weir's liability has been crystallised.

55. On 27 October 2015, Mr Lewis emailed Ms Crorie:

Further to my previous update regarding Phil Gold's offer of settlement, Weir are intending to make a counter offer of USD 5 million with each party to bear its own costs. You should be aware that this would include a concession regarding costs since Weir would be expressly waiving its entitlement to costs incurred as a result of Phil Gold's various amendments to its pleadings and in respect of aspects of its pleadings which were abandoned late in the proceedings. Weir's offer will remain open until 6 November 2015 or such time as the Tribunal makes its award, whichever occurs sooner.

We note Axa's previous confirmation (in the email attached) that if its declinature of coverage cannot be upheld, Axa will not take a policy point on non-compliance with the obligation in the Global and Australian policies for Weir to obtain Axa's consent prior to making an offer of settlement. So far as we are aware no communication of a change of Axa's position has been received by us or Marsh. Our clients are therefore relying on the terms of the attached email in making the offer referred to above.

Weir is keen to make the offer within the next 24 hours so as to ensure it is made before the issue of arbitral award.

We will of course continue to keep you advised.

56. On 28 October 2015, Ms Crorie emailed Mr Lewis:

Thank you for your email. AXA's position in relation to prior consent for making a settlement offer remains as previously advised, which I trust assists.

However, we must note with surprise the level of the offer proposed. It appears to us to be less than the offers Weir proposed prior to the arbitration, and also less than what was reported to us during our discussions in June 2015 as being the lowest amount HSF had calculated Weir would be liable for (US$7m), which is difficult to understand.

The summary which was provided to us by HSF following the arbitration evidence appeared to indicate that on balance Weir would lose both in relation to breach of contract and in relation to at least some of the TPA claims, which does not appear to us to be an improvement upon the position in June 2015. We therefore cannot account for why Weir would think that on the basis of that legal position Phil Gold would be willing to accept such a low sum nor why they consider that offer to be an accurate reflection of their potential exposure on this case. We would expect HSF, being fully apprised of the merits of the dispute between Weir and Phil Gold, would be giving Weir careful advice on such questions.

We must note that AXA's position, as previously, on the issue of mitigation remains fully reserved, should ultimately their declinature of coverage not be upheld. If Weir chooses not to accept a suitable settlement offer and then the arbitration award requires them to pay a higher sum, naturally a question arises over either Weir's conduct or the validity of such an award as a true reflection of Weir's liability.

No doubt Weir will be giving these matters serious and urgent thought in the circumstances, but in the meantime, as previously stated, AXA's position on all such issues (including costs) is reserved, should their declinature of coverage not be upheld.

57. On 30 October 2015, Mr Lewis emailed Ms Crorie:

Further to my previous update, Phil Gold has countered Weir's offer of USD 5m with an offer of USD 12 million with each party to bear its own costs. This represents Phil Gold's third concrete offer in the proceedings and is obviously a significant decrease from their initial Calderbank Offer of USD 42 million. The offer is open until 5pm Sydney time on Friday 6 November 2015.

There is plainly at last a significant opportunity to settle this matter. There is some concern on the part of Weir that the Tribunal may issue its award any day. As you are aware following our post-hearing briefing, although it is felt that Weir's position was improved at the hearing there are still real issues concerning Weir's liability.

Weir would like to see if there is an opportunity early next week to seek to settle its coverage claim with Axa now that there is a clear (and narrow) window both between the latest offers and in time. We are instructed to propose a without prejudice all-party meeting early next week to discuss a compromise of the insurance claim. To have any prospect of success it will need to include individuals with authority to settle on behalf of both Weir and Axa. My clients will make themselves available to attend such a meeting. We envisage that Marsh would also be present at the meeting.

Please can you take your client's urgent instructions on the proposal contained in this email. We would be happy to conduct the meeting at either your or our offices according to your preference.

58. On 3 November 2015, Ms Crorie emailed Mr Lewis:

Further to your below correspondence, we have now spoken with our client in relation to the proposed WP meeting. Our client has also provided us with your attached letter dated 29 October 2015, which is addressed to Justyn Jagger of Morgan Lewis from Leon Chung of Herbert Smith Australia, which was sent to AXA by Marsh.

We note that the attached letter refers to "the Claimant's letter dated 16 October 2015 containing a proposal for the Respondent to pay the Claimant US$15,000,000…" (emphasis added). However, your e-mail below refers to Phil Gold's counter offer of "USD12 million". In light of this, please could you confirm what counter offer was in fact made by Phil Gold and further provide the letter by which Phil Gold offered that amount.

Our client does feel rather unclear as to the relative positioning of the parties given the summary of the legal position Leon Chung provided to us after the end of the arbitration. In particular we do not understand how Weir considers its position has improved since before the arbitration, as previously expressed in my email dated 28 October 2015. Furthermore, as discussed before the arbitration, AXA is not sure that there is any particular time pressure in relation to discussions on the insurance claim. It is unclear to them why they need to participate in any WP discussions at this stage. They have expressed that Weir's insurance position could be discussed after Weir first handles Phil Gold's claim in a manner it considers appropriate and that Weir could revert once it considers its liability has been crystallised. AXA have consistently recommended that Weir act reasonably in relation to this arbitration. If there is a particular reason you consider that AXA should participate now in settlement discussions other than perceived convenience, please do let us know.

We look forward to hearing from you.

59. On the same day, Mr Lewis replied:

As I communicated to you via email Phil Gold countered Weir's offer of $5m with an offer of $12m. The letter contained that counter – offer is attached.

I will communicate the rest of your email to my clients who I suspect will be very disappointed with the approach it reflects from its insurance carrier. I cannot speak for my client obviously but out of courtesy it would not surprise me if they seek to make contact with Axa directly but as I say that is a matter for them not me.

60. On 4 November 2015, Mike Russell emailed Gareth Young:

She has maintained the AXA party line, namely that Weir are unfettered to settle the claim with Phil Gold and AXA in no way wish to direct or dictate to Weir how it should act. She reiterated once settled they are then prepared to engage in discussions.

…

It is difficult for me to predict the likely response, they do seem very adamant the loss needs to be settled and they have been consistent with that throughout, nevertheless, there is a possibility I did get through to her...time will tell, although I doubt we will hear today.”

61. On 7 November 2015, Mr Young emailed Mr Ruddock of Weir:

Just to confirm I spoke directly with AXA Corporate Solutions UK head of claims – Lesley Turner to establish whether she was prepared to further engage in discussions over the level of their support to get a deal done.

In summary she acknowledged the ongoing exchange of offers between the parties, but was clearly unwilling to budge on their adopted stance in that they are only willing to re‑visit their position once a deal has been agreed.

Clearly disappointing that they are not prepared to be involved in any pre-settlement discussions despite the fact that what we are asking for here is a contribution from them to achieve closure for all.

What she did confirm was that she is happy to re-state the previous offer of AUD1m which reflects where they perceive the risk of AXA to be.

Any commercial discussions beyond that would have to come from the AXA Corporate Solutions Global CEO – Philippe Rocard.

Marsh as we know are still attempting to go through – Paul Evans, who appears to be the Chairman of the AXA Corp Solutions but I will share the feedback of this call with them and of course Paul Lewis at HSF.

My sense is that they are not going to move until we have that "crystallised" number.

62. On 27 August 2015, following the conclusion of the arbitration hearing, in anticipation of the award in the arbitration being published in the near future and in order to resolve the coverage issues arising under the Global Policy, AXA issued proceedings in the Commercial Court in England seeking declaratory relief in relation to the Global Policy.

The cap and collar

63. Mr Keith Cochrane was at all material times the Chief Executive Officer of Weir. He gave unchallenged evidence that, as he understood it, AXA’s position that it would not discuss Weir’s insurance status until Weir’s liability had crystallised did not change during the settlement negotiations, including during the negotiation of the cap and collar. He said that when he was considering offers and counter offers made by Weir and Phil Gold during this time, he formed his views and provided instructions on the basis that AXA would not be contributing towards any settlement with Phil Gold. He also approved the making of offers by Weir to Phil Gold, and ultimately Weir entering into the cap and collar, on the basis that Weir did not need AXA’s approval to enter into a specific settlement arrangement. He says he held this view as a result of AXA’s correspondence encouraging Weir to enter into a settlement and AXA having indicated that it did not want to correspond with Weir until a settlement had been reached. He said that had AXA communicated to the contrary, he would have ensured that AXA’s consent had been obtained before the cap and collar was agreed.

64. Mr Young gave evidence that as he understood the correspondence with AXA, AXA’s position was that it would only discuss providing any contribution to a settlement between Weir and Phil Gold after a settlement figure had been agreed between Weir and Phil Gold, and that AXA consistently declined to make any contribution or offer until such time as Weir’s liability had crystallised by Weir entering into a settlement with Phil Gold. He went on to say that for this reason, in the course of offers which were exchanged between Weir and Phil Gold, Weir never directly sought AXA’s consent to make any offer, or to enter into a settlement agreement. He said that had he not formed this view of AXA’s position, he would have sought AXA’s consent prior to each time Weir made an offer of settlement, or entered into a settlement.

65. He gave evidence that had he not had this understanding that AXA was not requiring Weir to obtain its consent to enter into a settlement prior to that settlement being entered into, which he formed from correspondence with AXA, Weir would not have entered into the cap and collar without first seeking AXA’s consent to enter into a settlement and as to the precise terms of it.

66. However, he gave the following evidence under cross-examination:

Q   If AXA had repeatedly parroted the point made by Ms Crorie and Ms Kawai, that it didn’t accept that settlement at any particular level would be commercially reasonable or reflect Weir’s true liability, that wouldn’t have changed your approach to the negotiations one jot, would it?

A.   It is difficult to say. I don’t’ think – I don’t believe so.

Q.   Finally this: before Weir entered into its cap and collar agreement, would you accept that Weir didn’t tell AXA that an agreement of that particular kind, the cap and collar agreement, was under consideration.

A.   Correct.

Q.   Would you accept that AXA first discovered about that agreement after the award had been released in January 2016?

A   Yes.

67. As has been said earlier, on 8 December 2015 (before the Tribunal issued its Final Award), Phil Gold and Weir entered into the cap and collar.

68. Weir did not inform AXA of this at the time. HSF notified Clyde on 14 January 2016 that the Tribunal had issued its Final Award on 6 January 2016.

69. On 21 January 2016, Marsh informed AXA that Phil Gold’s claims against Weir had been dismissed but that Weir had entered into the cap and collar with Phil Gold.

70. The operation of the cap and collar was dependent on a Final Award being made by the Tribunal. Phil Gold and Weir recorded that the cap and collar would operate as follows: if Phil Gold’s claims were dismissed or it was awarded a total amount of damages and interest in the Final Award of the collar or less, Weir would pay Phil Gold the amount of the collar within 28 days; if Phil Gold was awarded an amount between the cap and the collar it would be paid that amount within 28 days; and if it was awarded an amount more than the cap it would be paid the amount of the cap within 28 days. They agreed that each party would pay its own legal costs and that they would share the costs of the arbitration itself in equal shares.

71. Weir and Phil Gold informed the Tribunal that settlement had been reached with respect to costs and invited it to proceed to Final Award on liability and quantum.

The Final Award

72. The Tribunal published its Final Award on 6 January 2016. It runs to 97 pages. The Tribunal recorded that there was agreement between the parties that the mode of failure of the weld was high-cycle low-stress fatigue cracking.

73. The contractual claim failed because it was held to be time-barred. The claim for misleading or deceptive conduct failed because Phil Gold was found not to have relied on Weir’s allegedly misleading representations “such as they were”.

74. The consequence was that Weir was obliged to pay the collar of US$2m to Phil Gold within 28 days, which it did.

These Proceedings

75. On 27 August 2015, AXA commenced proceedings in England seeking declaratory relief in relation to the Global Policy. Process was, however, only served on Weir in Australia on 10 March 2016 pursuant to leave granted by the English Court.

76. On 8 March 2016, Weir commenced these proceedings by suing out of this Court a Summons and Commercial List Statement.

77. AXA then moved the English Court for an anti-suit injunction and Weir moved that Court to set aside the order granting permission to AXA to serve the English proceedings on Weir in Australia.

78. On 21 April 2016, Mr Justice Blair of the Queen’s Bench Division declined to grant the anti-suit injunction: AXA Corporate Solutions Assurance S.A. v Weir Services Australia Pty Limited [2016] EWHC 904 (Comm).

79. On 13 May 2016, AXA filed a Motion in this Court for a stay on forum non conveniens grounds. That application was adjourned on 1 June 2016 with liberty to apply and AXA was ordered to file a Commercial List Response, without prejudice to its application. The application was never revived.

80. On 16 November 2016, Ball J ordered that all issues in the proceedings be heard and determined separately from, and in advance of, the issue of quantum of defence costs which Weir may be able to recover from AXA if it succeeds in demonstrating an entitlement to recover any sum in respect of defence costs.

81. The trial commenced on 1 February 2017 and occupied a little over six hearing days.

82. Mr R.A. Dick SC together with P. Flynn and A. O’Brien of counsel appeared for Weir.

83. Mr S.R. Donaldson SC together with Mr J. Hough QC (of the English Bar – who appeared with leave) and Mr M.R. Elliott of counsel appeared for AXA.

84. A significant amount of evidence was adduced. The Court was provided with a “Core Court Book” derived from a more extensive electronic court book. At the conclusion of the trial, steps were taken to ensure that only documents to which reference had been made in evidence (including in witness statements) were contained in it. It runs to five full lever-arch folders. I have recounted only those aspects of the evidence necessary to enable an understanding of why I have reached the conclusions I have reached.

85. The Court received written opening, closing and supplementary submissions. Positions were refined in oral argument. I have had regard to all the arguments but I have not restated them.

86. AXA filed an Amended Foreign Law Notice under Part 6 Rule 6.43 of the Uniform Civil Procedure Rules 2005 (NSW). There was no relevant disagreement between the parties as to pertinent principles of English law.

The Australian Policy – the parties’ CONTENTIONS

The Collar

87. Weir relies on cl 2.1 of the Australian Policy.

88. There is no issue that any Occurrence which may be found, happened during the period of insurance and in connection with Weir’s business.

89. Weir argues that the fracturing of the circumferential weld and consequential failure of the SAG Mill was an Occurrence within the definition in cl 5 of the Australian Policy. It argues that the fracturing of the seam and the resultant loss of use of the SAG Mill constitutes Property Damage within the definition of that term in cl 5.

90. It can immediately be observed that this articulation conflates the Occurrence with the Property Damage. Recognising this difficulty, Weir, in final submissions, moved to amend its Commercial List Statement by pleading that one or more of the following additional alternatives was an Occurrence which caused Property Damage, including damage to the circumferential weld and to part of the SAG Mill other than the circumferential weld and loss of use of the SAG Mill:

1. the cyclic loading that Phil Gold alleged;

2. the cyclic loading that Phil Gold alleged, when coupled with the allegedly defective nature of the repair work to the circumferential weld performed by the plaintiff; or

3. the performance by the plaintiff of the repair work to the circumferential weld which Phil Gold alleged was defective.

91. The amendment was opposed and I refused it, given its lateness and the obvious prejudice caused to AXA by having to meet a new factual case. A similar amendment was sought with respect to Weir’s defence costs claim. Weir wished to allege that Phil Gold’s claim could be articulated as one making allegations along the lines pleaded in the refused amendment. Over AXA’s objection, I permitted this amendment because I considered that it entailed an assertion of how Phil Gold’s claim can be characterised, which does not require any factual contest.

92. Weir argues that AXA’s refusal in June 2014 to indemnify it was a breach of the Australian Policy entitling Weir to claim damages from AXA. It argues that in these circumstances it was entitled to enter into the cap and collar which was effective to determine Weir’s liability to pay Phil Gold compensation for Property Damage, and that it is entitled to claim the amount paid under the cap and collar from AXA as damages.

93. Weir argues that the entry into the cap and collar “shifted the liability-determining event from the award to the cap and collar”, and took as a particular factual input the amount in the award, so as to render definite the existence (albeit not yet the amount) of the liability between Weir and Phil Gold, and was therefore a settlement of the arbitral claim.

91. AXA takes issue with Weir’s contention that it breached the Australian Policy by denying indemnity before the arbitrators’ Final Award (or the cap and collar arrangement – if it suffices – contrary to AXA’s submission – to establish a liability). It puts that until then, there was no obligation to indemnify (because Weir had no legal liability to Phil Gold) with the consequence that AXA was not, nor could it have been, in breach of its obligations to indemnify Weir for any such liability. AXA disputes that Weir has any entitlement to damages for such an alleged breach and accordingly disputes that the collar can be any measure of such damages.

92. AXA also puts that the cap and collar does not qualify as a reasonable settlement which establishes the existence and quantum of a liability of Weir to Phil Gold. It argues that the cap and collar does no more than establish an amount which Weir and Phil Gold agreed was reasonable consideration for placing a cap on Phil Gold’s recovery of US$10,725,000.

93. AXA does not put in issue that, as between Weir and Phil Gold, the cap and collar was a reasonable commercial arrangement. It puts, however, that it was not a settlement of the type which the courts can and do regard as fixing an insured’s liability to pay compensation to a third party claimant. It argues that it is not an agreement under which Weir reasonably agreed to an amount of a liability to which the Australian Policy would have responded.

94. It points out that under the terms of the cap and collar, the parties agreed to continue their attempts to settle their dispute, and subject only to its agreement to cap its recovery in consideration of the payment of US$10 million, Phil Gold’s rights against Weir were intact. It observes that the parties’ agreement that they be finally determined by the arbitral panel remained on foot.

95. It points out that the cap and collar does not define the dispute the subject of the settlement beyond identifying in Recital G that “various disputes have arisen between the parties” in connection with the SAG Mill, the refurbishment contract and the SAG Mill failure. It points out that the Final Award does not assist in characterising any liability because it did not establish liability, but rather established that Weir was not liable.

96. AXA puts that Weir has failed to demonstrate that any liability which it undertook under the cap and collar is of the character of a liability within the scope of indemnity under the Australian Policy. It argues that whether the liability undertaken is one to which the Australian Policy will respond, must be determined having regard not only to the insuring clause but also to the exclusions.

97. AXA puts that the character of the liability must be determined by reference to the claim that Phil Gold made. If the settlement represents a reasonable settlement of a claim which, if established, would have fallen within the scope of cover, then indemnity is available, otherwise it is not. It puts that examination of the Statement of Claim does not reveal it as such a claim.

98. AXA puts that Weir’s articulation of both the Occurrence and the Property Damage as being established by the failure of the weld is untenable and amounts to an assertion that the Property Damage caused itself.

99. AXA argues that the Australian Policy does not respond for the additional reasons that any liability which Weir may have had falls under either cl 3.7 (which excludes Property Damage to Weir’s Products if such Property Damage is attributable to any defect in Weir’s Product) or cl 3.4 (which excludes liability caused by or arising from the rendering of or failure to render professional advice or service by Weir or any error or omission connected therewith).

100. On the Product Defect exclusion, AXA argues that Weir’s Product was the entirety of the SAG Mill or the shell component of it which Weir circumferentially welded (and which cracked). AXA originally pleaded that the only Product was the SAG Mill as a whole. During the hearing it sought and was granted leave to amend (over Weir’s opposition) to enable it to contend that the shell on its own was a Product. Leave was granted with the caveat that AXA accepts that it has not established that there was not physical damage to the SAG Mill beyond the shell alone. (The caveat meant that if AXA’s newly pleaded contentions were upheld, it could not say that there was otherwise no further Property Damage to the SAG Mill). Weir’s response is that AXA has not shown that Phil Gold’s claim would inevitably have engaged the Product Defect exclusion. Weir argues that its Product was the circumferential weld.

101. On the Professional Services exclusion, AXA argues that Phil Gold’s claims in contract were subsumed in an overarching allegation (made by Phil Gold in para 50 of the Statement of Claim) that Weir “failed to exercise the standard of care to be expected of a reasonably competent engineer in carrying out the refurbishment and installation works and failed to provide adequate QA/QC services to ensure that the refurbishment was carried out to [Phil Gold’s] satisfaction and in accordance with sound engineering practice…”. It argues that the remainder of what is pleaded in contract is merely a recitation of how a “reasonably competent engineer” would have set about ensuring that an adequate refurbishment of the SAG Mill was achieved. It argues that the breach of contract case is one alleging liability caused by or arising from the rendering of or failure to render professional advice or service … or … error or omission connected therewith within the exclusion in cl 3.4.

102. AXA argues that the indemnity sought by Weir in connection with its alleged liability for misleading or deceptive conduct is also for a liability caused by or arising from the provision of, or failure to provide, professional services. It argues that the exclusion applies if there is a causal connection between the relevant liability for Property Damage and the provision of, or failure to provide, professional services. It puts that whilst the alleged misrepresentations do not themselves alone result in a claim for Property Damage, they are said to have induced Phil Gold to accept Weir’s proposals for the refurbishment and to proceed with the project on the assumption that Weir’s proposed professional services were adequate for their purposes, that is, Phil Gold procured defective professional advice or services from Weir in reliance upon the alleged representations with the consequence that its defective SAG Mill was damaged in the course of operation. It argues that the deficient professional advice or services provided by Weir formed an essential element in Phil Gold’s claim for compensation under the TPA and that damage was the essence of its cause of action.

103. Weir’s reply is that AXA has not shown that the Professional Services exclusion was inevitably engaged by Phil Gold’s claim. It argues that Phil Gold’s claim could have succeeded without it being established that Weir had provided or failed to provide professional advice or services. It points to the fact that Phil Gold’s claim in contract included a claim that Weir had failed to carry out welding in accordance with applicable welding standards – and argues that this was not an allegation that it had provided or failed to provide professional advice or services. It submits that welding is not a professional service, but is in the nature of a trade and that to construe it as a professional service would inappropriately circumscribe the operation of the policy. It submits that the term professional ought to be construed (narrowly) as one of the learned professions.

104. Weir argues that the success of Phil Gold’s TPA claim did not depend upon any professional advice or services having been provided or not provided by Weir but required Phil Gold to prove only that it had suffered Property Damage (including loss of use) as a result of Weir making misleading representations which Phil Gold in fact relied upon. It argues that the representations alleged by Phil Gold could be classified as misleading, regardless of any characterisation of them as being provided as “professional advice or service” and that Phil Gold alleged that the representations were misleading on the basis that Weir had no reasonable grounds for making the representations at the time they were made.

105. Finally, Weir puts that the “write back” in cl 3.4(b) applies because Phil Gold did not allege that Weir received remuneration and in fact Weir received no remuneration in the way of fee or charge for the representations for which Phil Gold complained.

Defence costs

109. Weir relies on cl 2.2 of the Australian Policy.

110. It argues that the proper construction of the clause, “expenses incurred… in defence of a claim” covers those incurred in defending a claim which if successful, would have resulted in a liability covered under cl 2.1, relevantly a claim for liability to pay an amount by way of compensation for Property Damage due to an Occurrence which happened in connection with Weir’s business in the period of insurance, subject to the availability of exclusions.

111. It argues that Phil Gold’s claim as articulated in the Statement of Claim was for Property Damage due to an Occurrence because:

1. any amount to pay by way of compensation was damages claimed by Phil Gold for repair and replacement of the entire SAG Mill, or alternatively for the repair and replacement of the SAG Mill shell, and in both cases, damages for the resultant loss of use;

2. the Occurrence, (which includes an “event”), was the fracturing of the circumferential weld, which was a “thing” that Phil Gold alleged “happened”, which in turn was caused by the cyclic loading involved in the operation of the SAG Mill; and

3. the Occurrence (i.e. the fracturing of the circumferential weld) caused Property Damage, namely physical damage to the SAG Mill.

112. Weir seeks its defence costs principally by way of damages on the footing that had indemnity been confirmed (as it says it ought to have been), AXA would not have been entitled to unreasonably refuse to consent to Weir’s defence costs. Weir says that if AXA had not wrongfully denied indemnity in June 2014, AXA would have (a) taken over conduct of the defence (in which case Weir would have incurred no defence costs); or (b) consented to the defence costs being incurred by monitoring the costs and either paying directly or indirectly the HSF legal costs as being properly incurred as and when they were incurred (including, if necessary, negotiating work and costs to an acceptable level); or (c) appointed its own lawyers. On this approach, Weir would not have incurred any costs that AXA would not have met, and Weir would not have been out of pocket for any defence costs. However, Weir is now out of pocket for all the defence costs incurred by it.

113. Weir thus argues that the damages flowing from AXA’s breach in denying indemnity for defence costs are the full measure of the defence costs which have been paid by Weir. On this approach Weir says it has no onus to demonstrate reasonableness of the defence costs and AXA must prove an unreasonable failure to mitigate as a defence to the damages claim which it has not sought to do. Weir’s secondary position is that it is entitled to be indemnified for reasonable costs incurred.

114. Weir argues that AXA consented to its defence costs “thus making good Weir’s claim for indemnity pursuant to cl 2.2”. It relies principally on Mr Hunt’s emails of 16 January 2014 and 13 April 2015. In the alternative, it argues that AXA is estopped from denying that it consented to the defence costs (in fact or amount), because it made express representations that it did not raise any objection to HSF continuing to act prior to making a decision on indemnity, and it deliberately, to protect its own interests, did not make any further inquiries, or otherwise engage with Weir, in relation to the defence costs after denying indemnity, and thereby impliedly represented to Weir that it had no difficulty with the fact or amount of those costs.

115. Weir maintains that by relying on AXA’s representations it has suffered detriment because it is now faced with AXA seeking to evaluate the reasonableness of the defence costs in circumstances where, had AXA raised those issues at the time, Weir could have addressed such issues as and when they arose, and put AXA in a position where it was comfortable with the reasonableness of defence costs, even though AXA was maintaining the position of denying indemnity. It puts that, as the minimum equity necessary to remove Weir’s detriment, AXA ought to be estopped from contending either that it did not consent to the defence costs or that they are not reasonable in amount. Weir accepts that such an estoppel would not preclude AXA from seeking to demonstrate that specific items of legal costs were entirely extraneous to the claim, for example, any legal costs for advice relating to Weir’s coverage under the AXA policies, however, it would estop AXA from otherwise disputing the quantum of defence costs.

116. AXA accepts that Weir’s success in the arbitration does not preclude it from recovering defence costs. AXA accepts that subject to the other terms and conditions of the Australian Policy, Weir is entitled to the reasonable costs of defending a claim which, if successful, would have attracted indemnity. AXA argues that the same approach must be adopted in addressing whether the defence costs are within cover as arises in connection with the alleged settlement. It argues that Phil Gold’s claim must be analysed to identify whether a liability on the basis alleged is within the scope of cover. If the pleaded causes of action fall outside the scope of cover (as delineated by the insuring clauses and exclusions) no defence costs indemnity is available. If some of the alleged liabilities fall within the scope of cover and others do not, then indemnity is available for the costs which are referable to the defence of the claim or claims that are within cover. On the grounds upon which it says the claims pursued by Phil Gold in the arbitration were not claims which attracted indemnity under the Australian Policy, AXA argues that the Australian Policy also does not respond to Weir’s claim for indemnity for its defence costs.

DECISION – The Australian Policy

The collar

117. For the reasons which follow Weir’s claim for the collar payment fails.

118. An insured seeking to enforce an indemnity given by its insurer for a liability of the insured to a third party bears the burden of demonstrating the actual existence and quantum of that liability, and that it falls within the terms of the indemnity on its proper construction.

119. In this case, Weir has naturally eschewed the option of proving such a liability to Phil Gold. After all, there is an arbitral award in evidence, which, whilst not binding on AXA, exonerated Weir from any such liability. Instead, Weir seeks to establish liability and quantum by merely proving entry into and performance of the cap and collar. There is no issue that viewed as a commercial arrangement between Phil Gold and Weir, the cap and collar was on reasonable terms.

120. It is not in issue that authorities which bind me recognise that in certain circumstances an insured can prove the existence and quantum of a legal liability to pay compensation by proving that it entered into a settlement agreement with the claimant that, objectively viewed, was reasonable.

121. In Distillers Co (Bio-Chemicals) (Aust) Pty Ltd v Ajax Insurance Co Ltd (1974) 130 CLR 1 at 9-10, Menzies J said (in somewhat short-hand fashion) that:

The insured may make a reasonable settlement where the insurer breaches the contract by denying liability and refusing to defend or settle: see General Omnibus Co v London General Assurance Co Ltd [1936] IR 596 and the dictum of Lord Esher MR in Captain Boyton's World's Water Show Syndicate Ltd v Employers’ Liability Assurance Corporation (Ltd) (1895) 11 TLR 384.

and at 24 - 25 Stephen J said:

Ever since the leading case of St Louis Dressed Beef and Provision Co v Maryland Co (1906) 201 US 173, in which Holmes J delivered the judgment of the Court, it has been well established that where an insurer wrongfully denies liability to indemnify and fails to defend the action brought against the insured the latter may make a reasonable settlement of that action and then recover against the insurer — later cases appear in the annotation in (1943) 142 Am LR 812 and its supplements.

122. These passages have been referred to and applied in this State, see: Zurich Australian Insurance Ltd v GIO General Limited [2011] NSWCA 47 at 58 and Allianz Australia v Bluescope Steel (2014) 87 NSWLR 332, 381 at [268] and [279]-[280].

123. AXA puts that a settlement between Weir and Phil Gold, however reasonable, is incapable, as between AXA and Weir, of constituting proof of the existence or quantum of a liability for the purpose of Weir’s claim against AXA. AXA accepts that on the present state of the authorities, it is otherwise.

124. AXA’s argument is that if there is a principle which permits a settlement between an insured and a third party claimant to establish the existence and quantum of a liability between them for the purpose of a claim by the insured against its insurer, it does not apply to the cap and collar because:

1. AXA did not wrongfully deny liability to indemnify so as to enliven operation of the principle; and

2. the cap and collar was not a settlement which determined any liability of Weir to Phil Gold in respect of the claim which Phil Gold had made.

125. What then is the principle and does it apply here?

126. A settlement between the insured and a third party claimant without the insurer’s consent does not bind the insurer. The insured retains the burden of proving that the alleged liability fell within the terms of the policy. Where an insured seeks to enforce the indemnity, it must of course establish an actual liability upon which the indemnity will operate.

127. The existence and quantum of such a liability gives content to the indemnity obligation. They are necessary elements of any cause of action on the indemnity.

128. Where an insurer wrongfully repudiates the insurance contract and the insured chooses to accept the repudiation thereby bringing the contract to an end, the position is fundamentally different. The bringing to an end of the contract has a number of important consequences.

129. One is that the insured no longer sues on the indemnity and the actual existence of a liability and the quantum of it to the third party claimant are no longer elements of the insured’s cause of action.

130. Another is that because there is no longer any indemnity, the insured’s claim is one for damages. (It should be remembered that proof of actual damage is not a necessary element of a cause of action for breach of contract. Nominal damages are available for breach.)

131. The general principle is that the insured is entitled to be put in the position that it would have been in but for the breach, that is, the position if the contract had been performed. When the contract is terminated the insured is entitled to damages for loss of its bargain; Wenham v Ella (1972) 127 CLR 454; Ronnoc Finance v Spectrum Network Systems Ltd (1997) 45 NSWLR 624 at 628.

132. A third consequence is that the insured comes under a duty, as against its insurer to mitigate its damage.

133. A fourth is that the insurer cannot rely on terms of the policy that restricted the insured’s right to settle because the insurance contract is no longer on foot; see Justice Michael L. Ball, David St. L. Kelly, LexisNexis, Kelly and Ball Principles of Insurance Law (at service 51) 14.0250.

134. A plaintiff can prove its loss in any rational manner. The authorities recognise that a way in which an insured can prove its loss, when not suing on the indemnity but rather for damages, is by making a settlement with the claimant which, when objectively viewed on the prevailing circumstances at the time of the settlement, is a reasonable thing for the insured to do given (a) its insurer’s wrongful repudiation leaving the insured to fight off the claimant on its own; and (b) that the insured was under an obligation to mitigate the damages it suffered as a consequence of the insurer’s breach.

125. Accordingly, an insured can rely on a reasonable settlement as against its insurer as establishing the existence and quantum of a liability to a third party if:

1. the insurer has wrongfully repudiated the insurance contract;

2. the insured accepted that repudiation and brought the contract to an end;

3. the insured enters into an arrangement with a third party claimant to pay an amount in respect of a liability, to which, if found, the policy would have responded; and

4. the amount of the settlement is reasonable having regard to the relevant circumstances at the time. Relevant circumstances can include the position in which the insured finds itself as a result of the repudiation and what it might have been held liable to pay if there had been a contest leading to a judgment or arbitral award.

136. Weir’s claim for the collar payment meets none of these requirements.

137. The liability which Weir identifies in its Commercial List Statement and submissions is not one to which the Australian Policy responds.

138. As said earlier, Weir’s articulation of the Occurrence as the fracturing of the circumferential weld as an event which caused Property Damage impermissibly conflates the two. The definition of Occurrence in the Australian Policy makes it clear that the event referred to is the mishap or accident or conditions which cause the Property Damage: see Australian Rail Track Corporation Ltd v QBE Insurance (Europe) Ltd [2013] NSWCA 175 at [21]-[23]; where the policy was in relevant respects not materially different from the Australian Policy; and Siegwerk Australia Pty Ltd v Newplex Industries (Australia) Pty Ltd (2013) 305 ALR 412 at [146]-[150].

139. The Australian Policy thus does not respond to the liability which Weir articulates in its pleadings and submissions.

140. An insurance policy is a commercial contract and is to be given a business-like interpretation. Interpreting it requires attention to the language used by the parties, the commercial circumstances which it addresses and the objects which it is intended to secure. Preference is given to a construction supplying a congruent operation to the various components of the whole; see Wilkie v Gordian Runoff Ltd (2005) 222 CLR 522, 528 [15]; McCann v Switzerland Insurance Australian Ltd (2000) 203 CLR 579, 589 [22]; Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104, 117.

141. Weir’s difficulties are a symptom of the fact that it is attempting to articulate as a Property Damage claim (within the Australian Policy) what in truth is a liability arising from the rendering or failure to render professional services. This is contrary to the objects which the Australian Policy is intended to secure.

142. The Australian Policy is one where the right to indemnity arises only upon the liability of the insured to the injured person being established by judgment of the Court, award of an arbitrator, or by agreement between the insured and the third party. None of these things had happened (or indeed has ever happened) so as to make AXA’s denial of indemnity a breach; see Allianz Australia v Bluescope Steel at 381 [268] and following.

143. It follows that AXA’s contention that it was not liable to indemnify Weir under the Australian Policy in respect of Phil Gold’s claim against the plaintiff was not a breach of the Australian Policy (as pleaded by Weir in para 34 of its Amended Commercial List Statement). Indeed, Weir does not in terms plead repudiation.

144. It is not suggested that Weir accepted AXA’s repudiation and brought the Australian Policy to an end. To the contrary, Weir still claims indemnity as an alternative.

145. Rather than representing a reasonable quantification for an assumed liability agreed between the protagonists, the cap and collar allowed for different, and significantly varying, outcomes. It required the arbitral Tribunal to proceed to final determination and then dictated an outcome dependent on it. As things transpired, the lowest figure prevailed, but it could have been the highest. It is difficult to see how it could be said that the highest, the lowest and anything in between was the combatants’ reasonable assessment of the same potential liability. I agree with AXA’s characterisation of the cap and collar as establishing no more than the agreed consideration for capping Phil Gold’s recovery. It is to be observed that the terms of the cap and collar are of no assistance in identifying the character of any underlying liability of Weir to Phil Gold.

146. I do not consider that there is any principle or dictate of fairness which enables, or should enable, an insured to settle with a third party claimant, still proceed to final determination, and then to rely on the settlement as establishing liability and quantum, notwithstanding that the final determination transpires to exonerate the insured entirely from liability.

147. AXA put the formal submission that the decision in Zurich Australian Insurance Ltd v GIO General Limited is wrong and should not be followed but accepted that I am bound to follow it. There does appear to be room for an argument that the requirement to prove an actual liability should not as a matter of logic be displaced by the insurer’s repudiation. But that is a matter appropriate for appellate consideration.

148. These conclusions render it strictly unnecessary, in the context of the collar, to consider AXA’s contentions that any liability on Weir to Phil Gold was excluded by the Product Defect or Professional Services exclusions. I will, however, deal with those contentions in the context of the defence costs claim.

Defence Costs

149. AXA accepts, correctly, that Weir’s success in the arbitration does not bar it from recovering defence costs, provided a claim which Phil Gold made would, had it succeeded, have attracted indemnity. It is common ground that AXA was obliged to pay Weir’s defence costs if a claim made by Phil Gold was covered under the Australian Policy.

150. I have already found that as articulated by Weir with respect to its claim for the collar, Phil Gold’s claim was not covered.

151. It does not follow from this that Weir is not entitled to its defence costs. Whether it is, depends on whether, as framed, Phil Gold’s claim was one that could if successful, have resulted in liability on Weir which was covered. This also brings into play AXA’s contention that however articulated, Weir’s claim falls within the exclusions.

152. For the following reasons Weir’s claim for defence costs must fail.

153. As earlier mentioned, I permitted Weir to amend its Commercial List Statement, at the heel of the hunt and over AXA’s objection, to allege that the Occurrence was something different to the circumferential weld cracking and was the cyclic loading that Phil Gold alleged, or the cyclic loading that Phil Gold alleged, when coupled with the allegedly defective nature of the repair work to the circumferential weld performed by the plaintiff, or the performance by the plaintiff of the repair work to the circumferential weld which Phil Gold alleged was defective.

154. Leaving aside that this articulation diverges from how Weir throughout articulated the liability which it purported to settle with Phil Gold, the amendment does not assist Weir. In my view none of “the cyclic loading that Phil Gold alleged”, the cyclic loading “when coupled with the allegedly defective nature of the repair work”, or “the performance by Weir of the repair work to the circumferential weld which Phil Gold alleged” is an Occurrence. Cyclic loading is a description of the physical force to which components of the SAG Mill are subject during normal use. The addition of the words “when coupled with the allegedly defective nature of the repair work” takes this no further. It is not an Occurrence but a description of physical forces at play through normal use. Performance by the plaintiff of the repair work was also not an Occurrence in the sense of being an event and it lacks the essential quality of an Occurrence, which is that it is unexpected. The addition of the epithet “defective” takes the matter no further.

155. I consider that on any fair view of the articulation of Phil Gold’s claim, it was a claim that was clearly excluded by the Professional Services exclusion in the Australian Policy.

156. In paragraph 50 of the Statement of Claim, Phil Gold pleads the entirety of the breach of contract alleged against Weir as a failure to exercise the standard of care to be expected of a reasonably competent engineer. The respects in which Weir so failed is then particularised. They included failure to:

1. carry out various analyses, investigations and assessments;

2. to prepare a comprehensive plan;

3. to produce, review and approve a welding procedure specification;

4. to conduct prequalification tests;

5. to implement adequate inspection or test plan;

6. to identify all subsurface cracking;

7. to ensure a supervisor with adequate qualifications was present;

8. to ensure that welding repairs were carried out competently by appropriate welders;

9. to install primary and intermediate reinforcement gussets;

10. to maintain adequate records of the refurbishment work;

11. to ensure that all refurbishment work was carried out in accordance with applicable codes and standards;

12. to supply an experienced mill installation technician; and

13. to supervise the installation of the SAG Mill in accordance with the original equipment manufacturer’s mill installation procedures and methodology.

157. On a fair reading, this is a claim, and nothing other than a claim, of liability caused by or arising from the rendering by Weir or failure to render professional engineering advice or service: GIO General Limited v Newcastle City Council (1996) 38 NSWLR 558 at 568; Chubb Insurance Co of Australia Ltd v Robinson [2016] FCAFC 17 at [131]-[152]; Fitzpatrick v Job (2007) 14 ANZ InsCas 61-731 at 270.

158. Weir’s submission that Phil Gold’s claim comprehended, as a discreet component capable of sustaining a finding of liability, that Weir breached a contract to provide non-professional services in the form of welding is untenable for at least four reasons. First, Weir’s submission that where the Australian Policy refers to “professional” services, this has the narrow meaning of services of the kind associated with the traditional learned professions so as to exclude welding, is too narrow a reading of cl 3.4 of the Australian Policy. In my opinion cl 3.4 has in mind services carried out by a professional in the relevant area, not an amateur. Second, the contract alleged by Phil Gold did not allege any obligation on Weir itself to weld. Third, if Weir was to weld, these services were an integral and inseparable aspect of professional engineering services to be provided by Weir. Fourth, any liability, even if ultimately attributable only to the welding, would have to have arisen out of the provision by Weir of professional services.

159. The substance of the misleading and deceptive conduct alleged by Phil Gold in its TPA claim, was that Weir made a series of representations concerning the quality and effect of the services which it would provide which turned out to be misleading because the services Weir provided failed to have that quality and effect. On any common sense view, the claimed liability under the TPA arose from the rendering or failure to render professional advice or service by Weir. It was the quality of that advice and service that is at the heart of the complaint.

160. I reject Weir’s submission that the “write-back” in cl 3.4(b) applies. Weir’s submission appears to equate the professional advice and services of Weir with the representations which Phil Gold alleged Weir made. It may be accepted that Weir was not paid for representations, but for the professional advice or services out of which the claimed liability arose, which were undoubtedly charged for by Weir and paid for by Phil Gold.

161. I turn to the Product Defect exclusion. This issue may be disposed of briefly because an examination of the Statement of Claim discloses that at least in one respect, a finding of liability on the part of Weir to Phil Gold did not inevitably entail a finding that there was Property Damage attributable to any defect in Weir’s Product (whatever that Product might be). A significant, if not the central, complaint in the arbitration by Phil Gold in its TPA claim was that Weir had represented that it would carry out the refurbishment of the SAG Mill so that there was a reasonable likelihood that it would have a minimum serviceable life of ten years. This complaint could have succeeded without it being necessary to or inevitably being established that there was a defect in any Product. On the Statement of Claim, it was open to the Tribunal to find liability on the grounds that Phil Gold had engaged in misleading conduct because it had no reasonable basis for that representation without the necessity for a finding that the product was defective. Put another way, it does not necessarily follow from the fact that the Product did not have a minimal serviceable life of ten years that the weld was defective. (As it happened, the Tribunal found that the representations “such as they were”, had not been relied upon). AXA has not made out that the Product Defect exclusion was necessarily engaged.

162. I record that there was significant debate between the parties as to what, if anything, was Weir’s Product for the purposes of cl 3.7 read with the definition of Product in cl 5. That definition gives an expansive meaning to the term Product. It includes “anything (after it has ceased to be in [Weir’s] possession or in [Weir’s] legal control) which has been… repaired… by [Weir] in the course of [Weir’s] business”. The parties seemed to agree that for the definition to apply, the whole of the thing had to be in the insured’s possession. AXA’s original position was that Weir’s Product was the whole of the SAG Mill but it failed to establish that Weir had possession or control of the whole of it so as to make it Weir’s Product. Weir’s position was that its Product was the weld. This too I would reject. The weld was not “any[thing]” for the purposes of the definition of Product. The weld was a method of repair. I would also reject AXA’s alternative submission that Weir’s Product was the drum. The drum is but one integral component of the SAG Mill and is not, on its own, in my view “any[thing]” within the definition of Product. The definition of Product, albeit expansive, is still to be approached in a common sense commercial way. Weir’s function was to perform services. Not in every case does the definition have the effect that there must be a Product.

The Global Policy – the parties’ Contentions

Late notification defence

163. AXA’s first line of defence is that Weir is not entitled to be indemnified because it breached General Condition 3 of the Global Policy in failing to give written notice to AXA as soon as reasonably practicable of “any event or circumstances that may give rise to a claim”. It says that compliance with General Condition 3 is a condition precedent to indemnity, and the breach therefore bars Weir’s claim.

164. AXA argues that by October 2011, Mr Puddester, Mr Lessing and Mr Walker were aware of circumstances which would have led a reasonable person in their position to consider that a claim by Phil Gold against Weir was a real possibility because:

1. they all knew that the SAG Mill had been refurbished by Weir a few years previously in a major refurbishment contract for the purpose of putting it into use at Masbate;

2. Mr Puddester knew that the SAG Mill had suffered very serious cracking in July 2011 and had seen a photograph of the serious cracking and knew that it was on the corner head and shell;

3. they knew that Phil Gold had suffered very significant revenue loss as a result of the cracking;

4. Mr Puddester and Mr Lessing were aware that Phil Gold or its parent company had the propensity to be aggressively litigious;

5. they knew that Phil Gold had chosen not to go back to Weir to repair the SAG Mill and had instead chosen a different repair specialist;

6. Mr Puddester knew that Phil Gold had been investigating what forms of testing Weir had carried out on the parts of the SAG Mill that had failed and that there was a significant form of structural integrity testing about which Phil Gold had specifically asked and which Weir had not performed;

7. Mr Puddester contemplated that Phil Gold may be searching for a target for a claim which possibility was sufficiently important to report it to his line manager, not just as a matter of market intelligence; and

8. the reason offered by Mr Walker for the inclusion in the October 2011 monthly management report of a reference to the failure was to make senior management aware of a possible product warranty claim.

165. Weir puts that the state of its knowledge was not such, objectively viewed, so as to give rise to an understanding that there was a real possibility of a claim which might be the subject of indemnity. It argues that whilst Mr Puddester and Mr Lessing knew the bare fact that the SAG Mill had failed, the evidence does not show that they knew the cause of the failure; or that any cause was related to work that Weir had performed, or had been obliged to perform. Weir argues that the evidence establishes no more than Mr Puddester’s intuition was that there was a remote possibility of a claim against someone, not necessarily Weir.

166. Weir argues that the subjective perceptions of Mr Puddester and Mr Lessing (such as “spider sense”) are irrelevant because the test is objective. A similar submission is put in relation to the recording in the October 2011 monthly management report of the possibility of a warranty claim by Phil Gold because this reflects subjective appreciation rather than objective reason for concern.

167. It puts that Mr Lessing’s exhortation to Mr Puddester to keep his distance, was insignificant because it was out of concern for Mr Puddester’s personal wellbeing.

168. Weir argues that Mr Turner’s question as to whether Weir had performed ultra-sonic testing was not a cause for concern to Mr Puddester because Weir was not contractually obliged to perform that testing.

169. It puts that Weir did not become subject to the obligation to notify in General Condition 3 until receipt of Phil Gold’s claim on 4 December 2013, and that Weir promptly notified thereafter.

The collar

170. Weir relies on both the Products Liability section and the Professional Indemnity section of the Global Policy. AXA’s position is that Weir’s claim is covered by neither.

171. On Products Liability (Weir’s claim under this head is governed by the 2011 edition of the Global Policy), AXA says that the claim is not covered because the insuring clause only provides indemnity against liabilities in respect of damage caused by a Product to separate property and against costs of defending claims seeking to establish such liabilities and Phil Gold’s claim was not of that kind. In the alternative, it says Weir’s insurance claim is not covered because Exception 3 excludes liabilities, and costs incurred in defending claims, in respect of damage which a Product causes to itself.

172. On Professional Indemnity (Weir’s claim under this head is governed by the 2013 edition of the Global Policy), AXA argues that Weir must establish that Phil Gold’s claim was made “by reason of any negligent act error or omission in any design or advice of a professional nature given by the Insured… in connection with the Insured Business.” It puts that if Weir were able to establish this; its claim would be excluded by Exception 6, because Phil Gold’s claim would be one “arising from design or advice given in connection with the Products.”

173. The Global Policy is one under which, relevantly, AXA indemnifies Weir for sums for which Weir becomes legally obliged to pay for damages. In contrast to the law of this State, under English law Weir must establish the actual existence of such a liability to Phil Gold. This onus is not discharged by establishing a reasonable settlement of a damages claim: Astrazeneca Insurance Co Ltd v XL Insurance (Bermuda) Ltd [2014] 2 All ER (Comm) 55 [15]-[23]. The entry into of the cap and collar accordingly does not avail Weir and it has not otherwise sought to prove the existence of liability to Phil Gold. This is unsurprising given that Weir denied liability in the arbitration and its position was ultimately vindicated.

170. Weir argues that it and AXA agreed to vary the Global Policy so that a payment made by Weir pursuant to a reasonable settlement would represent (or “crystallise”) Weir’s indemnified liability, subject only to AXA reserving its position as to amount. It says that this agreement was made in correspondence between them.

171. Weir argues that AXA is estopped from relying on Weir’s failure to prove liability to Phil Gold. It argues that AXA represented to it that AXA would treat an amount paid by Weir pursuant to a reasonable settlement as representing Weir’s indemnified liability, subject only to AXA reserving its position as to amount, in the alternative it says they shared a common assumption that an amount paid by Weir pursuant to a reasonable settlement would represent Weir’s indemnified liability. Weir argues that it relied on these representations and assumptions and that if AXA is now allowed to resile from them Weir will have suffered detriment by having lost the opportunity to ensure that AXA consented to the fact that payments under the cap and collar represented an indemnified liability, subject only to AXA reserving its position on amount.

172. AXA takes the position that Weir was not entitled to be indemnified for costs of defending a liability alleged by Phil Gold to which the Global Policy did not respond.

173. It puts that if Weir is entitled to be indemnified for defence costs, that entitlement is limited to such costs as were reasonably incurred to defend Phil Gold’s claim and to the extent that such costs are reasonable in amount.

DECISION – The Global Policy

Late Notification Defence

178. A condition which requires the insured to give notice of a circumstance that may give rise to a claim requires a real as distinct from a fanciful prospect of a claim being made: J Rothschild Assurance plc v Collyear [1998] CLC 1697, 1717-18; Aspen Insurance UK Ltd v Pectel Ltd [2009] 2 All ER (Comm) 873 [45].

179. This is an objective test, requiring the insured to notify insurers as soon as it becomes aware of circumstances which would lead a reasonable person in its position to perceive a real possibility of a claim: HLB Kidsons v Lloyd’s Underwriters [2009] 2 All ER (Comm) 81 [72] and [137]-[142]; Laker Vent Engineering Ltd v Templeton Insurance Co Ltd [2009] 2 All ER (Comm) 755 [77]-[81].

180. General Condition 8 provides expressly that AXA’s liability is conditional on the due observance by Weir of the terms and conditions of the Global Policy. General Condition 3 is such a term or condition. The combination of the two provisions has the effect of making the giving of notification a condition precedent to AXA’s liability: Friends Provident Life & Pensions Ltd v Sirius International Insurance [2005] 2 All ER (Comm) 145 at [31]; Aspen Insurance UK Ltd v Pectel Ltd [2009] 2 All ER (Comm) 873 [62].

181. The late notification defence would fail under Australian law because s 54 of the Insurance Contracts Act 1984 (Cth) inhibits an insurer from refusing to pay a claim in reliance on a condition such as General Condition 3 where the insurer’s interests were not prejudiced by the failure: cf. Pioneer Concrete (UK) Ltd v National Employers Mutual [1985] 1 Lloyd’s Rep 274 at 279-80. No prejudice is evident.

182. But there is no equivalent of s 54 in England, and I must uphold the defence.

183. Weir did not submit that the knowledge of the relevant officers was not its own.

184. A reasonable person in the position of Weir with the knowledge at its disposal would have perceived a claim as a real possibility. Indeed, Mr Puddester did so perceive.

185. By October 2011, that information was far from being innocuous. Weir knew that there had been a serious failure of the SAG Mill connected with work that it had done with significant consequences to Phil Gold, and that Phil Gold was looking for information about work done and testing performed by Weir.

186. Although the test is objective, the actual understanding and contemporaneous conduct of the Weir operatives is relevant in an objective assessment. These were experienced people and it is not suggested that they were acting irrationally or unreasonably. Mr Puddester’s colourful language reflected his understanding of the seriousness of the event. He actually foresaw a claim being made. Although he thought it was a remote possibility, he did not see it as fanciful. To the contrary, he decided to keep his distance. Mr Lessing’s distinction between Mr Puddester keeping his distance as opposed to Weir doing so is somewhat artificial. But the distinction is without significance. Mr Puddester had decided to do the same. Additionally, Weir recorded the failure in the October 2011 monthly management report, and Mr Walker’s evidence was that this could be to reflect a possible warranty claim.

187. The success of the late notification defence renders it strictly unnecessary to deal with the remaining issues under the Global Policy. I will however do so.

The Collar

188. Weir’s claim for the collar would fail for the additional reason that it has not established that Phil Gold’s claim would, if successful, have been covered by the relevant insuring clauses in the Global Policy.

189. The cap and collar did not describe the nature of the liability and allowed for different and significantly varying outcomes depending on the final award. More importantly, the final award was nil.

190. The exchanges between Weir and AXA disclose no consensus that any settlement, let alone the one effected by the cap and collar, would represent Weir’s actual liability to Phil Gold.

191. One can readily understand Weir’s frustration with AXA’s fence-sitting. AXA had declined cover. On the one hand, it would not give its imprimatur to or participate in Weir’s proposed settlement with Phil Gold. On the other, it kept warning Weir of the difficulties it might face if it did not accept a reasonable offer that was on the table. But AXA’s agreement did not at any time, extend to any acceptance that a settlement would reflect Weir’s actual liability for the purposes of the Global Policy.

192. By Mr Hunt’s email of 13 April 2015, AXA agreed that if its position on coverage was incorrect or its declinatures were not upheld, it would not subsequently seek to argue that the claim was to be declined on the basis that the Global Policy requirement to obtain its written consent before Weir made any offer, promise or payment had not been satisfied. This is clearly a reference to cl 4 of the General Conditions of the Global Policy which inhibited Weir from making any admissions of liability or offering, promising or paying without AXA’s consent. This agreement was referred to by Mr Lewis in his email to Ms Crorie on 27 October 2015. It is not an agreement of the character that Weir seeks to establish.

193. The parties’ dealings are inconsistent with such an agreement or any understanding by them that there was such an agreement.

194. In his email to Ms Kawai on 16 July 2015, Mr Lewis said that Weir did not see why they had to run the risk of having to face an argument that the settlement did not reflect Weir’s legal liability. He referred to “cases”, a clear reference to authorities that an insured must prove the existence of a liability. There was clearly then no agreement as asserted and no understanding by Weir that there was one.

195. On 17 July 2015, Ms Kawai declined Mr Lewis’ request to confirm that AXA would not take the very point.

196. On 28 October 2015, Ms Crorie wrote that AXA’s position on all such issues (including costs) was reserved should their declinature of coverage not be upheld.

197. It is common cause that there is no material difference between the law of England and the law of this jurisdiction on estoppel.

198. The central principle of the doctrine of estoppel is that the law will not permit an unconscionable (or unconscientious) departure by one party from the subject matter of an assumption which has been adopted by the other party as the basis of some relationship, course of conduct, act or omission which would operate to that other party's detriment if the assumption be not adhered to: The Commonwealth v Verwayen (1990) 170 CLR 394 at 444 per Deane J.

199. For the departure to be unconscionable the party concerned must have played such a part in the adoption of, or persistence in, the assumption that that party would be guilty of unjust and oppressive conduct if it were now to depart from it. Cases where departure would be unconscionable include where that party has induced the assumption by express or implied representation, has entered into contractual or other material relations with the other party on the conventional basis of the assumption or knew that the other party laboured under the assumption and refrained from correcting him when it was his duty in conscience to do so: The Commonwealth v Verwayen at 444 per Deane J.

200. Weir’s claimed estoppel must fail because just as it has failed to establish any agreement, it has failed to establish any representation or common assumption to the effect that AXA would accept the settlement as representing Weir’s actual liability.

201. Additionally, Weir has not established any reliance on any such representation or assumption. To the contrary, I am satisfied that Weir would have settled as it did in any event.

202. As appears from the passage of his cross-examination quoted above, Mr Young’s evidence was that he did not believe he would have done anything different if AXA had repeatedly made it clear that any settlement would not be considered to reflect Weir’s true liability.

203. I reject Mr Young’s evidence that had AXA communicated to the contrary of his understanding, he would have ensured their consent was obtained before the cap and collar arrangement was agreed. I accept that Mr Young was giving his genuine view of his hypothesised conduct, but it is hindsight evidence and his contemporaneous conduct proves otherwise; see Chappel v Hart (1998) 195 CLR 232 at [32]; Rosenberg v Percival (2001) 205 CLR 434, 449. The cap and collar proceeded without AXA being informed in circumstances where AXA had clearly not given its consent to the settlement as establishing actual liability and where its conduct did not in my opinion convey that it had given or would give it.

204. Moreover, I am satisfied, based on AXA’s actual behaviour at the time, that there was was no reasonable prospect of Mr Young getting that consent.

205. Mr Young’s evidence was also that he did not obtain AXA’s consent to enter into the cap and collar because of the view he formed that AXA’s position was that it would only discuss providing any contribution to a settlement after a figure had been agreed. Even if this be accepted it does not establish any cognisable detriment because AXA throughout made it clear that it was not accepting such a settlement as establishing actual liability. It only agreed not to take the point that Weir was obliged under the Global Policy to have AXA’s consent to make an offer or payment.

206. Weir’s claim is not covered by the Product Liability section. Under that section, Weir would be covered against liability to pay damages in respect of damage to Property… caused by a Product. First, Weir pleads that the circumferential weld was a Product that caused damage to other parts of the SAG Mill. But the circumferential weld is not a Product, it has no independent existence. Second, if there was a Product for the purposes of the Global Policy, it was the SAG Mill as a whole. Phil Gold’s claim was not for damage caused by a Product to separate property. Third, the Product Liability section excepts damage to the Product. Whether one takes the weld or the SAG Mill as the Product, the exception applies.

207. Weir’s claim is also not covered by the Professional Indemnity section. That section covers liability to pay damages in respect of claims of a negligent act, error or omission in design or advice of a professional nature. Weir’s own position (albeit in my opinion incorrect) is that it was not engaged to, and did not in fact, render any professional advice or service to Phil Gold. More importantly, however, negligence was not an element of either of Phil Gold’s causes of action.

Defence costs

208. It follows from my finding that the Global Policy did not respond to Phil Gold’s claim that it does not respond to Weir’s claim for defence costs.

209. Weir did not establish any agreement on the part of AXA to the incurring of defence costs or the making of any representation that AXA would grant indemnity, or if it did grant indemnity, that it would meet any defence costs other than those which were reasonable. To the contrary, Mr Hunt’s email of 16 January 2014 made it clear that if coverage was confirmed, AXA would have claims control including the right to choose defence counsel and that whilst AXA did not object to the instruction of HSF at that time, it was likely that they would need to review and consider their terms of engagement which could be discussed should this become necessary. Mr Hunt’s 13 April 2015 email contained no agreement nor made any representation that AXA would meet any defence costs, let alone defence costs unreasonably incurred.

Quantum

210. As is mentioned above, the issue of the quantum of defence costs which Weir may have been able to recover was to be left for later determination.

211. Weir argued that the quantum of its damage is whatever it spent on defence costs (irrespective of whether they exceed what was reasonable) because but for AXA’s breach it would not have spent what it did. On this footing, it argued despite the order for separation of quantum that the Court should make an order having the effect of entitling it to what it paid without the necessity for any further hearing.

212. I record that in my opinion, it would have been incumbent upon Weir to establish the reasonableness of its defence costs. This is because AXA’s obligation does not extend to paying more than reasonable defence costs and the ambit of that obligation is not extended, directly or indirectly, to one of having to pay more than reasonable defence costs because it has breached its obligation to pay reasonable defence costs. Additionally, on Weir’s case the indemnity is still on foot. It cannot recover more than that for which AXA, on any view, indemnified it.

Conclusion

213. The proceedings are dismissed.

214. I provisionally order that Weir is to pay AXA’s costs of the proceedings. The order will solidify unless, within 7 days, either party notifies the other in writing that some other order is sought and the basis for it. If such notification is given the order will be vacated and the parties are to contact my Associate to have the matter relisted. Within the same period the parties are to notify my Associate whether there are any further issues that require to be determined.

215. The exhibits are to be returned.

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Decision last updated: 17 March 2017