Weir Services Australia Pty Limited v AXA Corporate Solutions Assurance

1. [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. [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. [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. [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. [5]

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

6. [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. [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. [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.

9. [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

1. [10]

   The following are the relevant provisions of the Australian Policy:

The Global Policy

1. [11]

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

2. [12]

   The following are the relevant provisions of the Global Policy:

Phil Gold retains Weir and the SAG Mill fails

1. [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.

2. [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.

3. [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.

4. [16]

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

5. [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

1. [18]

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

2. [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:

3. [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.

4. [21]

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

5. [22]

   Mr Lessing replied:

6. [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.

7. [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:

8. [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.

9. [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 arbitration starts and Weir notifies AXA

1. [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.

2. [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

1. [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:

2. [30]

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

3. [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.

4. [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.

5. [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.

6. [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.

7. [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.

8. [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.

9. [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

1. [38]

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

2. [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

1. [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.

2. [41]

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

3. [42]

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

4. [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.

5. [44]

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

6. [45]

   On 13 April 2015, Mr Hunt responded, relevantly:

7. [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.

8. [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.

9. [48]

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

10. [49]

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

11. [50]

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

12. [51]

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

13. [52]

    Ms Kawai replied on the same day:

14. [53]

    Mr Lewis in turn responded on the same day:

15. [54]

    On 17 July 2015, Ms Kawai emailed Mr Lewis:

16. [55]

    On 27 October 2015, Mr Lewis emailed Ms Crorie:

17. [56]

    On 28 October 2015, Ms Crorie emailed Mr Lewis:

18. [57]

    On 30 October 2015, Mr Lewis emailed Ms Crorie:

19. [58]

    On 3 November 2015, Ms Crorie emailed Mr Lewis:

20. [59]

    On the same day, Mr Lewis replied:

21. [60]

    On 4 November 2015, Mike Russell emailed Gareth Young:

22. [61]

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

23. [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

1. [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.

2. [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.

3. [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.

4. [66]

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

5. [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.

6. [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.

7. [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.

8. [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.

9. [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

1. [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.

2. [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”.

3. [74]

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

4. [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.

5. [76]

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

6. [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.

7. [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).

8. [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.

9. [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.

10. [81]

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

11. [82]

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

12. [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.

13. [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.

14. [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.

15. [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 Collar

1. [87]

   Weir relies on cl 2.1 of the Australian Policy.

2. [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.

3. [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.

4. [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:

5. [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.

6. [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.

7. [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.

8. [94]

   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.

9. [95]

   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.

10. [96]

    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.

11. [97]

    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.

12. [98]

    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.

13. [99]

    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.

14. [100]

    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.

15. [101]

    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.

16. [102]

    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).

17. [103]

    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.

18. [104]

    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.

19. [105]

    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.

20. [106]

    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.

21. [107]

    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.

22. [108]

    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

1. [109]

   Weir relies on cl 2.2 of the Australian Policy.

2. [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.

3. [111]

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

4. [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.

5. [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.

6. [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.

7. [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.

8. [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.

The collar

1. [117]

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

2. [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.

3. [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.

4. [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.

5. [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:

6. [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].

7. [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.

8. [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:

9. [125]

   What then is the principle and does it apply here?

10. [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.

11. [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.

12. [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.

13. [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.

14. [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.)

15. [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.

16. [132]

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

17. [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.

18. [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.

19. [135]

    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. (1)

       the insurer has wrongfully repudiated the insurance contract;

    2. (2)

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

    3. (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. (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.

20. [136]

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

21. [137]

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

22. [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].

23. [139]

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

24. [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.

25. [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.

26. [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.

27. [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.

28. [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.

29. [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.

30. [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.

31. [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.

32. [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

1. [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.

2. [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.

3. [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.

4. [152]

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

5. [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.

6. [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.

7. [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.

8. [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:

9. [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.

10. [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.

11. [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.

12. [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.

13. [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.

14. [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.

Late notification defence

1. [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.

2. [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:

3. [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.

4. [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.

5. [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.

6. [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.

7. [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

1. [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.

2. [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.

3. [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.”

4. [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.

5. [174]

   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.

6. [175]

   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.

7. [176]

   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.

8. [177]

   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.

Late Notification Defence

1. [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].

2. [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].

3. [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].

4. [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.

5. [182]

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

6. [183]

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

7. [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.

8. [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.

9. [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.

10. [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

1. [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.

2. [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.

3. [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.

4. [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.

5. [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.

6. [193]

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

7. [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.

8. [195]

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

9. [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.

10. [197]

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

11. [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.

12. [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.

13. [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.

14. [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.

15. [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.

16. [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.

17. [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.

18. [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.

19. [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.

20. [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

1. [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.

2. [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.

3. [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.

4. [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.

5. [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.

6. [213]

   The proceedings are dismissed.

7. [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.

8. [215]

   The exhibits are to be returned.