New South Wales Supreme Court CITATION : Baulderstone Hornibrook Engineering Pty Limited v Gordian Runoff Limited (formerly GIO Insurance Limited) & Ors [2006] NSWSC 362 HEARING DATE(S) : 11/10/05, 12/10/05, 17/10/05-21/10/05, 24/10/05-27/10/05, 31/10/05-3/11/05, 7/11/05-10/11/05, 14/11/05-16/11/05, 21/11/05-24/11/05, 28/11/05, 1/12/05, 5/12/05-7/12/05, 12/12/05-15/12/05, 30/1/06, 20/2/06-24/02/06, 27/02/06-2/3/06 JUDGMENT DATE : 2 March 2006 JURISDICTION : Equity Division Commercial List JUDGMENT OF : Einstein J EX TEMPORE JUDGMENT DATE : 03/02/2006 DECISION : Proceedings against AMPG dismissed CATCHWORDS : Practice and Procedure - No triable issue LEGISLATION CITED : Insurance Contracts Act 1984 (Cth) Baulderstone Hornibrook Engineering Pty Limited (Plaintiff) PARTIES : Gordian Runoff Limited (formerly GIO Insurance Limited) First Defendant) CGU Insurance Limited (Third Defendant) AMP General Insurance Limited (Eleventh Defendant) FILE NUMBER(S) : SC 50176/03 Mr S Finch SC, Mr A McInerney (Plaintiff) COUNSEL : Mr R Smith SC, Mr M Jones (First Defendant) Mr S Robb QC, Mr G Ellis (Third Defendant) Mr S White SC, Mr R Hollo, Mr M O'Meara (Eleventh Defendant) Freehills (Plaintiff) SOLICITORS : Corrs Chambers Westgarth (First Defendant) Colin Biggers & Paisley (Third Defendant) Moray & Agnew (Eleventh Defendant) IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION COMMERCIAL LIST Einstein J Thursday 2 March 2006 ex tempore Revised 2 May 2006 50176/03 Baulderstone Hornibrook Engineering Pty Limited v Gordian Runoff Limited (formerly GIO Insurance Limited) & 10 Ors JUDGMENT 1 AMPG was the professional indemnity insurer of BHE. The AMPG policy of insurance provided insurance for breach of professional duty up to $20 million for one claim and up to $40 million in the aggregate for more than one claim. AMPG agreed to indemnify BHE in respect to the first claim made against AMPG to the limit of $20 million. On 20 January 2005 AMPG paid to BHE the sum of $20 million less deductibles. 2 In these proceedings BHE sues AMPG in the alternative in regard to what is alleged to be a second claim made under the AMPG policy. The pleaded claim by BHE against AMPG in these proceedings is in effect an attempt to multiply the indemnities available to BHE under the AMPG contract and to recover a further $20 million from AMPG. 3 AMPG had a number of defences to BHE's claim. Its primary defence rested on the proposition that the claim made by SACL against BHE in the SACL proceedings, was one claim within the meaning of the AMPG contract, which claim involved both accelerated corrosion of the steel straps in the sea wall and mill stream wall and the loss of sand from behind the walls. If this proposition be correct, then BHE's claim against AMPG in the proceedings would fail because AMPG had already extended indemnity to BHE in respect of the SACL claim to the limits to which BHE would have been entitled under the AMPG contract. 4 The proposition that the SACL claim involved two claims was not a proposition which BHE primarily advanced. Indeed, by paragraph 26.2 of its amended reply to the defence of Gordian and to the defence of CGU, BHE specifically denied that proposition and alleged that there was no distinction between that part of the SACL claim characterised as "the accelerated corrosion claim" and that part characterised as being in relation to the loss of sand behind the walls. 5 It is at least arguable [although for reasons which will become apparent the Court presently has no intention of dealing with the possible question of costs which may be raised as a result of this judgment], that the origin of the proposition that the SACL proceedings involved two claims is to be found in paragraphs 126 to 137 of Gordian's amended defence and in paragraphs 100 to 111 of CGU's amended defence. In summary and in effect, in those paragraphs Gordian and CGU alleged that: (a) the SACL proceedings involved two claims, one in respect of sand loss behind the sea wall and mill stream wall of the third runway and one in respect of accelerated corrosion of the steel straps in the sea wall and mill stream wall of the third runway; (b) that the accelerated corrosion claim or the circumstances giving rise to it were not notified to Gordian or CGU during the periods of the Gordian policy and the CGU policy;. (c) that such a notification could not have been given by BHE because BHE was unaware of the accelerated corrosion claim or the circumstances giving rise to it; and therefore (d) that neither the Gordian policy nor the CGU policy responded to the accelerated corrosion claim. 6 In paragraphs 96 to 102 of its further amended summons, as an alternative to its primary case and without admissions, BHE brings a claim for indemnity under the AMPG contract in respect of the accelerated corrosion claim, relying on the purported notification of that claim by letter of 9 July 2004. In this connection BHE pleads a case against AMPG which relies on section 54 of the Insurance Contracts Act to relieve it of the consequences of its late notification of the accelerated corrosion claim. The Present Position – Application by AMPG for judgment 7 There has been substantial movement by BHE in its presentation of its case insofar as the status of its corrosion case and its approach towards obtaining relief against AMPG is concerned. The occasion for the delivery of the present judgment is the application made by AMPG for judgment to be entered against BHE, on likely the last or the penultimate last day of a many month hearing. Decision 8 It is clear in my view that at this stage in these proceedings AMPG is indeed entitled to judgment. The reasons follow. 9 During his final address Mr Finch SC, leading counsel for BHE, submitted that as the evidence had developed, BHE accepted that corrosion was largely irrelevant, initially, however, contending that it may not be completely irrelevant [transcript 27 February 2006 page 3190.19]. The transcript continues: "Mr Finch: The circumstance in which that arises is this: as the evidence has developed about what the cause of the sand loss is and what our proffered fix for it is, your Honour knows that our position is that the wall that needs to be created to rectify the problem is a rather large wall, a gravity wall. If it is a rather large gravity wall, then as the evidence has developed, corrosion as originally conceived of with the straps and bolts and the like assumes no significance because the problem that would have been caused in due course will be obviated by the existence of the rectified wall. Thus, there is no need to in fact take that analysis any further because although we say there was an error [of design] or inherent in the specification of the straps and bolts, that assumes no significance when fixing another problem with a separate genesis [which] makes the outcome of that second problem irrelevant in terms of asking for money. As to the continuing significance of it, your Honour knows that there is a continuing debate about one or two claims, which only arises in the circumstance that your Honour accepts Gordian's and CGU's characterisation of that matter about which we have spoken. We think, with great respect, that AMP's analysis of that problem is right. His Honour: One claim. Mr Finch: Yes, and indeed, their analysis of the corrosion associated with that treatment in their written submissions. It may be that, of course, your Honour finds it not necessary to go very far into that, given the status of corrosion, but can I just clarify my earlier cryptic remarks about it having some continuing status. The continuing status it has is this: as a technical issue your Honour knows that the reasons why the walls are constructed notionally as they are for the rectification project is because the walls can't rely on the straps that exist to hold them up. Why not? Because they are corroding." [transcript 3190-3191] 10 Hence, Mr Finch made it clear that it was now a different corrosion problem in focus than that which was alleged in respect of the original design error. The corrosion, which was now the subject of the relevant focus, involved only the utility of the straps being used in conjunction with a gravity wall with injected concrete. 11 Mr Finch then [transcript 3191.27] submitted: "[The current corrosion problem in focus] isn't one which sounds in any damages against anyone, it simply describes the environment in which the new wall gets created." 12 In BHE's written submissions it was accepted that the insurers were correct in their contention that there had only been one claim: so Mr Finch conceded at transcript 3191. Mr Finch continued by submitting that: "Mr Finch: Then we say: well, look there is a debate about if there is two we have notified in time. The problem is your Honour would then say, 'but why do I need to think about that because if the second claim in fact doesn't produce something different to what is compensated by the first claim, do I really need to treat with it?' His Honour: Well, ultimately, if then I accept Mr Hollo and Mr White, and no doubt Mr O'Meara's work, on one claim, two claim, it will become a question of costs of AMPG having had to have had counsel for a long time, but that is something I will only deal with after the end of the case. Mr Finch: That is right." 13 During the course of Mr Smith's final address the question whether or not the corrosion claim remained in issue, and if so, in what way was raised. Now the transcript records Mr Finch responding as follows: "Mr Finch: It remains the way we said it the other day. We and AMPG are ad idem on the fact that there isn't two claims. His Honour: But is there a claim advanced by BHE against AMPG? Mr Finch: If there is, then we say we do have a separate claim, but we say that doesn't arise. Your Honour will just say that the two claim analysis is wrong. His Honour: So I have to decide the one and two claim analysis on your submission? Mr Finch: Yes, and if we are right about that there is no issue about corrosion, except to say that as an entirely separate matter the solution wall has to look the way it does because it can't rely on the straps. It is not a separate head of act, error or omission which is pursued because it is entirely different sort of corrosion which wasn't within the purview of Mr Boyd to think about when he did his design. His Honour: So, Mr Finch, notwithstanding that the pleading in the alternative claim is a further amount of $20 from AMPG, BHE presently says, point one, 'We don't actually contend for that. Our first contention is that AMPG's submissions on the one claim/two claim is correct and should be accepted'? Mr Finch: Yes. His Honour: Now, if I find that neither Mr Smith's client nor CGU wish to pursue the proposition that this was two claims then-- Mr Finch: It is late in the day to find that out but yes. His Honour: The proposition that the three AMPG barristers at the Bar table can leave is of substance. Mr Finch: Yes. His Honour: They can? Mr Finch: Yes, but that claim [ I think Mr Finch said by then ] was pressed." 14 On the same day, 1 March, Mr White SC, leading counsel for AMPG, submitted as follows: "The first proposition of course is that my client has paid $20 million to BHE as a result of a deed of settlement entered into in January last year in respect of what was then described as the SACL claim. The second proposition is that subsequently my client was joined to these proceedings upon the basis that there were two claims, not one, being sand loss claim, accelerated corrosion claim, and that the policy entitled BHE to a further sum of $20 million due to the reinstatement clause which your Honour sees in the policy, which they say entitled them to a further $20 million in respect of the second claim. The third proposition is that, of course, in order for BHE to be entitled to that further indemnity in respect of that second claim, they need to show that the insuring clause responds to the second claim, a fairly basic proposition. A prerequisite to indemnity in the insuring clause is that BHE must become legally liable to pay a sum in respect of the second claim. BHE, as we understand it, accepts that it will not become legally liable to pay a sum as a result of the second claim, call it the accelerated corrosion claim. They say that because a method of rectification in relation to sand loss will render obsolete reliance on the straps which are the subject of the accelerated corrosion and, as Mr Finch clearly and quite correctly said to your Honour on Monday of this week (transcript 3190 and 3191) that in those circumstances the second claim becomes irrelevant in terms of asking for money (at line 40). Now, if one draws all of those threads together it is clear that the claim against my client must fail on either ground. If it would be a one claim claim we have paid our $20 million. If it would be a two claim claim, we have paid $20 million in respect of the first and there is no entitlement to indemnity under the second because they can't prove, and have conceded, that they will not become liable to pay a sum in respect of that second claim. Now, in my respectful submission, there cannot be a clearer case in which a defendant is entitled to judgment on that basis. I won't say [Mr Finch] seemed to resile from what he was putting to your Honour the other day but [he was] coy in saying to your Honour that because this two claim scenario had yet to be determined we should remain in the proceedings, but that ignores precisely what he put to your Honour the other day, namely, that nothing flows from that because there is no loss as a result of it and he will fail in being able to show how the insuring clause in respect of the second claim responds to it if he has conceded that there is no loss. Now, in my respectful submission, in those circumstances my client, as it asked very early on in this trial for judgment in its favour, again asks for judgment in its favour with, of course, any application for special costs order to await another occasion." [transcript 3411-3412] 15 At the commencement of the hearing this morning, Mr McInerney, junior counsel for BHE, addressed in relation to AMPG's claim to judgment in the new circumstances. He dealt with what was put as "other heads to be examined". He said at transcript 3431.52-.6: "In no way am I suggesting to the Court anything inconsistent with Mr Finch. To the extent that Mr White reads what I say that way, it is not intended to be in any way inconsistent with what Mr Finch has said. What I understood Mr Finch directed his comments to the other day was the rectification solution and loss related to that rectification solution, not to these heads." 16 Mr McInerney drew attention to paragraph 139 of BHE's overview opening submissions. That paragraph read: "Three types of corrosion affect the steel reinforcing strips and bolted connections of the reinforced earth walls. The three types of corrosion are: bi-metallic, uniform and pitting corrosion. There was an act, error or omission in the design engineering construction management and certification of the steel reinforcing strips and bolted connections of the reinforced earth walls." 17 Mr McInerney further submitted as follows: "Your Honour needs to bear the first category of corrosion in mind and distinguish it from the second category to which I will come in a moment which relates to the jet grouted column solution. So the corrosion affecting the structure integrity of the straps is to be contrasted with corrosion which occurs consequent to the jet grouted column rectification solution, which is an entirely separate type of corrosion and causally unrelated to anything with respect to the straps as designed and constructed." [transcript 2421.7-21] 18 Mr McInerney then took the Court to paragraphs 170 to 174 of BHE's submissions of October 2005: The Jet Grouting Solution 170. Field trials of a jet grouting solution of rectification for the reinforced earth walls were successfully conducted in 1999. By June 2000, a consensus had been reached that, amongst the various remedial measures considered to that point in time, the jet grout solution was to be preferred. The other proposal called for filling the joints of the millstream walls. RE carried out several trials to find a method of sealing the joints from the front of the facing panels to ascertain whether or not the "filling the joints" proposal could be achieved in practice. None of the trials conducted by RE produced a satisfactory result and, therefore, that technique was discounted. The jet grouting method rectification was deemed to be the most appropriate solution to address the problem of sand loss. 171. Four years after the jet grouting field tests had been undertaken, the site of the successful jet grouting trial was inspected in October 2003, and found to be performing extremely well with no indication of any further loss of fill. 172. The advantage of the jet grouting solution is that it resolves the problem of sand loss and corrosion associated with the steel reinforcing strips . 173. The only potential drawback for the jet grout column solution is that the introduction of the grout column creates a zone of aggressive corrosion at the interface between the grout column and steel reinforcing strips. This type of corrosion is causally unrelated to the corrosion identified by Professor Abel – bi-metallic, uniform and pitting corrosion. The aggressive zone of corrosion, operating at the interface of the grout column and steel strips, will result in instability of the reinforced earth wall, due to the steel reinforcing strips breaking off at the interface with the grout column, unless the grout column is of sufficient size such that the reinforced earth wall's stability no longer relies on the steel reinforcing strips. Enlarging the grout columns to meet this problem has the effect that the reinforced earth wall no longer depends on the steel reinforcing strips for stability. 174. The effect of the jet grouting solution is, therefore, that the steel reinforcing strips are no longer needed. The stability of the reinforced earth walls no longer depends on the pull-out resistance of the strips but only on the jet grout columns. The jet grout column solution, therefore, coincidentally cures the problems of corrosion of the type described by Professor Abel – that is, bi-metallic, uniform and pitting corrosion of the steel reinforcing strips. [emphasis added] 19 Mr McInerney then submitted as follows: "So it is in that way that the jet grouted column solution as subsequently developed by SMEC to the 60 percent design phase, about which your Honour has heard evidence or at least read the evidence of Mr Thom, comes to the current rectification solution. The point is that that solution co-incidentally cures both the sand loss problem and the initial corrosion problem." 20 Mr McInerney then drew attention to BHE's submissions of 8 February paragraph 659(c) which read in the following terms: "In its opening submissions AMPG has identified, inter alia, the following issues. BHE's answers to them are in summary as follows..." And dealing with the third of those issues, the submission reads as follows 659(c): "That the AMPG policy does not respond to the second claim because the accelerated corrosion claim did not cause any loss. BHE's response is that it continues to incur costs in connection with cross-claims and related proceedings against Reinforced Earth, Connell Wagner and Connell Wagner and has also incurred other costs including design and construction costs." [I shall refer hereinafter to the second half of paragraph 659(c) as including two halves, the second half of which is "and has also incurred other costs including design and construction costs". The first is that which I read out a moment ago, "It continues to incur costs in connection with cross-claims" and so on against RE and others.] 21 The plaintiff's claims in the second further amended summons sought as follows: "In order that AMPG indemnify BHE to the limits of the cover under the AMPG contract in respect of lost costs, expense or liability incurred by BHE in the performance of its obligations under the settlement agreement, or in the alternative in respect of all sums which BHE is legally liable to pay in the performance of its obligations under the settlement agreement." 22 This claim to relief does not include any claim for costs qua cross-claims. It is true that the amended reply does make certain claims. In paragraphs (d) and (e) of the particulars to paragraph 3 of its amended reply BHE seeks indemnity for "legal costs associated with ongoing claims and cross-claims against the various Connell Wagner parties and Reinforced Earth". As will appear from what follows, those cross-claims fall precisely within the terms of clause 1.13 of the AMPG settlement deed and within the terms of clause 3.4(b) of the AMPG settlement deed. BHE has been expressly excluded from the recovery of those costs involved in the continuation of those cross-claims by clause 3.4(b) of the AMPG settlement deed. In any event, the AMPG contract does not respond to such costs because those costs are not costs incurred in the investigation defence or settlement of any claim within the meaning of that phrase in clause 2 of the AMPG contract. 23 It is presently unwise to characterise the SACL proceedings otherwise than in the most general terms [for the reason that other issues between other parties remain for the final judgment]. However, the SACL proceedings, it may generally be said, dealt with rectification of the subject walls. I do not intend by that to be exhaustive. 24 Dealing with what I have referred to as the first half of the matters raised in BHE's paragraph 659(c), it is clear that those costs, as I have said, were expressly excluded from any further indemnity by reason of the settlement deed to which I have referred. That deed is to be found at PXXXX AMP 1.349. Clause 1.13 read as follows: "1.13. The defendants to the proceedings have filed defences and cross claims against SACL, RE, Connell Wagner (NSW) Pty Limited ("CW NSW"), Connell Wagner Pty Limited ("CW") and Airplan–GHD. Certain of the cross defendants to the proceeding, in turn have filed defences and cross claims against some of the existing parties to the proceedings. The pleadings in the proceeding are yet to close. The pleadings which have been filed and served in the proceeding are relied upon as if set out in full in this Settlement Deed." Clause 3.4(b) read as follows: "3.4 The parties further agree that (subject to clause 3.3)… (b) BHE may continue or not continue any cross claims or separate proceedings as referred to in clause 1.13 in its absolute discretion. AMPG and/or TGI have no obligation either to pay any or all of the costs and expenses involved after the date of this Deed or to indemnify BHE under the AMPG Policy in respect of those separate proceedings and AMPG and/or TGI shall not be entitled to payment of any of the proceeds (if any) of any settlement or judgment in favour of BHE in those claims or proceedings." 25 As to the second half of the claims referred to in BHE's written submission paragraph 659(c), BHE appears to claim for other costs, including design and construction costs, being costs associated with the 30 per cent, 60 percent and 90 percent design reports prepared by third parties. These are costs incurred by BHE under the settlement agreements and for which it would have been liable in the absence of the accelerated corrosion claim, or so-called accelerated corrosion claim, in any event. Those costs were not occasioned by the accelerated corrosion claim. No evidence was adduced that additional design and construction costs were occasioned by the accelerated corrosion claim. 26 BHE cannot establish that the insuring clause responds to what for present purposes, if ever there was a second claim, may be called the accelerated corrosion claim. It has not established that it will become legally liable to pay costs in connection with the cross-claims against RE and CW as a result of whatever may be called the accelerated corrosion claim. If there be a second claim, BHE has effectively conceded that it will not become legally liable to pay any sum in respect of that so-called second claim qua the rectification solution. 27 For the reasons given above, BHE does not have a case in relation to the matters identified in BHE's paragraph 659. No triable issue within General Steel principles has been established by BHE in respect of either half of what I have referred to as paragraph 659 of BHE's submissions. I have already dealt with the position with respect to the matters which fell from Mr Finch yesterday. 28 Finally, BHE has not put forward any contentions that there was negligence in relation to corrosion. On the evidence given, a judgment for the plaintiff could not be supported in relation to any of its pleaded claims concerning AMPG. 29 For those reasons, it is appropriate for the Court to accede to the application made from the Bar table this morning to enter a verdict and judgment in favour of the eleventh defendant. As indicated in the application by Mr White, the application was for the issue of the costs of the eleventh defendant to be stood over to a date to be fixed by the Court, which seems to me to be appropriate. 30 In the circumstances I make orders 1 and 2 in terms of the short minutes of order, which I initial and date 2 March 2006. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. 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