Newcastle Resources Pty Ltd (formerly known as SCE Resources Pty Ltd) v Certain Underwriters at Lloyd's Syndicate CVS 1919 subscribing to policies numbered LS00100XL, LS00100BU and STA0222BU (No 2) [2022] NSWSC 1600 (23 November 2022)

Last Updated: 23 November 2022

Supreme Court New South Wales

Case Name:	Newcastle Resources Pty Ltd (formerly known as SCE Resources Pty Ltd) v Certain Underwriters at Lloyd’s Syndicate CVS 1919 subscribing to policies numbered LS00100XL, LS00100BU and STA0222BU (No 2)
Medium Neutral Citation:	[2022] NSWSC 1600
Hearing Date(s):	14 November 2022; further submissions received 16 and 17 November 2022
Date of Orders:	23 November 2022
Decision Date:	23 November 2022
Jurisdiction:	Equity - Technology and Construction List
Before:	Stevenson J
Decision:	Application to reopen refused; declarations made to give effect to the principal judgment; defendants to pay half of the plaintiff’s costs of the proceedings
Catchwords:	CIVIL PROCEDURE – final judgment delivered – application to reopen – plaintiff seeks to tender letter from solicitor of the plaintiff in underlying proceedings as to the claims made in those proceedings DECLARATIONS – declarations sought to give effect to reasons of the principal judgment
Cases Cited:	AXA Global Risks (UK) Ltd v Haskins Contractors Pty Ltd [2004] NSWCA 138 Newcastle Resources Pty Ltd (formerly known as SCE Resources Pty Ltd) v Certain Underwriters at Lloyd’s Syndicate CVS 1919 subscribing to policies numbered LS00100XL, LS00100BU and STA0222BU [2022] NSWSC 1485 Ranicar v Frigmobile Pty Ltd [1983] TASRp 13; [1983] Tas R 113 Urban Transport Authority of New South Wales v Nweiser (1991) 28 NSWLR 471 VAW (Kurri Kurri) Pty Ltd v Scientific Committee (Established under s 127 of the Threatened Species Conservation Act 1995) (2003) 58 NSWLR 631; [2003] NSWCA 297
Category:	Consequential orders
Parties:	Newcastle Resources Pty Ltd (formerly known as SCE Resources Pty Ltd) (Plaintiff) Certain Underwriters at Lloyd’s Syndicate CVS 1919 subscribing to policies numbered LS00100XL, LS00100BU and STA0222BU (First Defendant) Berkley Insurance Company trading as Berkley Insurance Australia (Second Defendant)
Representation:	Counsel: D A Lloyd SC with M F Newton (Plaintiff) S R Donaldson SC with N D Oreb (Defendants) Solicitors: Meridian Lawyers (Plaintiff) Colin Biggers & Paisley (Defendants)
File Number(s):	2022/152409

JUDGMENT

1. I published my principal judgment in this matter on 1 November 2022.^[1] I shall use the same defined terms here.
2. In relation to the claim made by the Council against Newcastle in respect of Future Road Replacements I said:

“[51] Mr Donaldson accepted that, if the Council makes out its allegations in the Underlying Proceedings, it will demonstrate that the use by Newcastle of Mix 3 in the road base has, to some extent, caused a ‘physical alteration or change’ which ‘impairs the value or usefulness’ of the road base and is thus ‘damage’ within the meaning of the Chief Justice’s observations in Ranicar v Frigmobile.^[2]

[52] Thus, Mr Donaldson accepted:

‘Where the road has an excessive hump that affects its utility or usefulness, then it is fair to say the road is damaged.’^[3]

[53] However, as I have set out above, the Council contends it will incur the cost of removing and replacing ‘all parts of the Council Roads that were constructed with [Mix 3]’; that is, those parts of the roads that have thus far had their usefulness damaged by reason of a ‘physical alteration or change’ in the road and also those roads not so physically altered but that the Council considers are susceptible to the possibility of such ‘physical alteration or change’.

[54] To that extent, the Council’s claim against Newcastle is that, although the road base is not yet physically damaged, it is defective by reason of the propensity of Mix 3 to excessively expand and must be replaced.

[55] As Mr Donaldson and Ms Oreb put in their written submissions:

‘Property is not damaged simply because it is defective. As is noted above, indemnity is provided for liability arising from ‘physical damage’. That requires a physical alteration or change which impairs the value or usefulness of the thing that is said to have been damaged.^[4] ... Roads that are to be replaced because of the inevitability of future damage are defective, but they have not been damaged.’ (Emphasis in original.)

[56] I agree.

[57] To this extent, the Council’s claims against Newcastle are not ‘in respect of’ Property Damage.” (Emphasis in original.)

3. I held that, to this extent, the Policies did not respond to the claim made by the Council against Newcastle.
4. Newcastle now seeks leave to reopen its case to tender a letter written by the Council’s solicitors to Newcastle’s solicitors.
5. In that letter, the Council’s solicitors set out passages of my judgment, including those that I have repeated above, and continued:

“Council is not privy to all of the parties’ submissions in which its case in the [Underlying Proceedings] was described to his Honour, but in any event, is concerned that in the ongoing conduct of the [Underlying Proceedings], your client, and any other interested parties, understand that the underlined words in [53], [54] and counsel’s submissions extracted at [55] of the Reasons do not, with respect, accurately record the way Council puts its case.

In short, the roads in respect of which Council makes a claim in the [Underlying Proceedings] are all manifesting damage necessitating the works described in the Reasons as the ‘Future Road Replacements’. That is, none of the roads the subject of Council’s claim has been nominated as requiring such works on the basis that, while currently manifesting no damage, it is anticipated the road may in the future manifest damage.

With respect, the position described above is that which Council intended to convey by [24] and [25] of its Second Amended List Statement filed in the [Underlying Proceedings]. Paragraph [24] pleads that parts of the Council Roads ‘have suffered damage’ (and defines that damage as ‘Council Roads Damage’) and paragraph [25(ii)] particularises the Council’s loss and damage as including ‘the cost ... to rectify the Council Roads Damage...’.

For completeness, the reference in [25(ii)] of the List Statement to Council rectifying its roads ‘to prevent further damage’, extracted in [48] of the Reasons, is a reference to an objective of preventing further consequential damage that might be incurred by an expanding road base remaining in situ. It is not intended to suggest that there is not yet any manifest damage.

If your client so requires, Council is prepared to circulate a proposed Third Further Amended List Statement to remove any perceived ambiguity in the existing pleading, but we take the view, with respect, that the case as we have described it here is consistent with the pleaded case.” (Emphasis in original.)

6. The letter refers to pars [24] and [25] of the Council’s Second Amended Technology and Construction List Statement in the Underlying Proceedings.
7. In its List Statement, the Council alleges:

“23 At all material times the plaintiff owned and was responsible for the repair and maintenance of:

(a) the roads at the locations listed in Annexure A and Annexure C (comprising the roads constructed with the Mix); and
(b) the roads at the locations listed in Annexure B (comprising three roads adjoining roads listed in Annexure A and Annexure C),

(collectively, the ‘Council Roads’).

24 Parts of the Council Roads, including associated kerbing, guttering and, drainage have suffered damage (Council Roads Damage).

25 The plaintiff has suffered, and will suffer, loss and damage as a result of the Council Roads Damage.

...

(ii) The plaintiff will also incur the cost of removal and replacement of all parts of the Council Roads that were constructed with the Mix (Remedial Work) to rectify the Council Roads Damage and prevent further damage.” (Emphasis in original.)

8. In support of the application for leave to reopen Mr Lloyd SC and Mr Newton submitted that the significance of the Council’s solicitor’s letter was:

“(a) first, the letter is not to be understood as a statement of the way the Council intends to run its case. The letter makes it plain what the Council is alleging in the [Council’s List Statement]. As such, the letter articulates or clarifies the ‘claim’ made by the Council against the plaintiff and it is that claim which is relevant to the entitlement to defence costs cover;

(b) second, the Council in the letter makes it plain that all of the roads defined as the Council Roads are manifesting damage. That is, there is no Council Road the subject of the contentions in the [Council’s List Statement] which falls into the category identified in the latter part of [the principal judgment] [53] and nor is there any Council Road which falls within the latter portion of the defendants’ submissions recorded at [the principal judgment] [55]; and

(c) third, and perhaps most critically, the letter makes it plain that the loss claimed in [the Council’s List Statement] [25] is for the damage to the Council Roads which necessitates ‘the works described in the [Judgment] as the ‘Future Road Replacements’’. The Future Road Replacements claim made by the Council in the [Council’s List Statement], as clarified in the correspondence, is only for loss and damage on account of the damage which is present and manifest. In these circumstances, it is irrelevant that an additional ‘pleaded’ purpose of the Future Road Replacements is to prevent further damage.” (Emphasis in original.)

9. These submissions focused on the second paragraph in the passage from the Council’s solicitor’s letter which I have set out above.
10. However, in the penultimate paragraph of that letter, the Council’s solicitors refer to the allegations made by the Council at par 25(ii) of its List Statement (that it will incur costs to “rectify the Council Roads Damage and prevent further damage”) and state that that is “a reference to an objective of preventing further consequential damage that might be incurred by an expanding road base remaining in situ”. (Emphasis added.)
11. The passages I have emphasised seem to me to confirm, rather than contradict, the correctness of the Underwriters’ contentions and my findings that an element of the Council’s claim in the Underlying Proceedings is the costs it will incur to “prevent further damage” to its roads and “consequential damage” that “might” be sustained if Mix 3 causes further expansion of the road base. This is, or may well include, damage not yet sustained. Whether or not Council’s current case theory is currently narrower, it is open to the Council, based on the claim it makes in its List Statement, to pursue this claim. If it succeeds, the Policies will not respond to this aspect of its claim.
12. In any event, I do not see how the matters stated in the Council’s solicitor’s letter affect my conclusions concerning Exclusion 13.3. Even if, contrary to my opinion, the Council’s claim should be seen as confined to existing damage in its roads, it is still a claim arising out of or connected with the removal of Mix 3 from the road base.
13. In those circumstances, the additional evidence comprised by the Council’s solicitor’s letter cannot affect the outcome of the proceedings and, for that reason alone, I am not satisfied that it is in the interests of justice to grant Newcastle’s application for leave to reopen its case.^[5]

Relief

14. At [144] of my principal judgment I held that Newcastle was not entitled to the declaratory relief it sought. At [146] I said I would invite submissions as to whether any alternative declaratory relief should be made.
15. Newcastle submitted that I should make the following declarations:

(1) Declare that the defendants are obliged to pay, in their respective proportions, the expenses incurred by the plaintiff in the defence of the cross-claim brought against the plaintiff by Lake Macquarie City Council (“Council”) in proceedings in the Supreme Court of New South Wales with case number 2017/295403.

(2) Declare that the defendants are obliged to pay, in their respective proportions, the expenses incurred by the plaintiff in the defence of the claim by the Council, brought in proceedings in the Supreme Court of New South Wales with case number 2018/77899 (“2018 proceedings”), for compensation for the Council’s liability to property owners for damage to their property adjacent to the Council’s roads.

(3) Declare that the defendants are obliged to pay, in their respective proportions, the expenses incurred by the plaintiff in the defence of the claim by the Council, brought in the 2018 proceedings, for compensation for damage to roads and related infrastructure owned by the Council, such as kerbing, drains and the like, which the Council has repaired from time to time at its own cost.

16. The Underwriters submitted that the making of such declarations would be hypothetical because there are “contingencies to be satisfied as a condition of indemnity”, being:

(a) a sufficient connection between the defence costs incurred and a claim that is within the scope of cover;

(b) the Underwriters’ consent to the incurring of the costs; or

(c) circumstances that preclude the withholding of consent.

17. I do not agree that the proposed declarations would be hypothetical. They reflect my findings and to that extent, quell a dispute between the parties. Their utility may be limited, but not to the point of being hypothetical.
18. Alternatively, the Underwriters submitted that the declarations sought by Newcastle should be qualified by inserting the words “with the prior written consent of the defendants” before the words “in the defence of the cross-claim” reflecting the definition of “Defence Costs” that I set out at [66] of the principal judgment.
19. At [74] of the principal judgment I recorded that the Underwriters had not suggested that the requirement of the Underwriters’ “prior written consent” to the incurring of costs by Newcastle was relevant to the question of whether I should make the declarations sought by Newcastle.
20. However, on reflection, and as it is undoubtedly a condition of indemnity that such consent be obtained, I think it appropriate to add the words proposed by the Underwriters to the declarations sought.
21. The Underwriters also submitted that declaratory relief should be confined to defence costs associated with claims for damages to the property of third parties; that is, to the claim for Council Liabilities. The first two declarations sought by Newcastle are so confined. The third relates to the claim for Council Repair Costs that, as I found at [27] of the principal judgment, the Underwriters accepted were within cover.
22. In those circumstances I make the following declarations, incorporating the words proposed by the Underwriters into the form of declarations proposed by Newcastle:

(1) Declare that the defendants are obliged to pay, in their respective proportions, the expenses incurred by the plaintiff with the prior consent of the defendants in the defence of the cross-claim brought against the plaintiff by Lake Macquarie City Council (“Council”) in proceedings in the Supreme Court of New South Wales with case number 2017/295403.

(2) Declare that the defendants are obliged to pay, in their respective proportions, the expenses incurred by the plaintiff with the prior consent of the defendants in the defence of the claim by the Council, brought in proceedings in the Supreme Court of New South Wales with case number 2018/77899 (“2018 proceedings”), for compensation for the Council’s liability to property owners for damage to their property adjacent to the Council’s roads.

(3) Declare that the defendants are obliged to pay, in their respective proportions, the expenses incurred by the plaintiff with the prior consent of the defendants in the defence of the claim by the Council, brought in the 2018 proceedings, for compensation for damage to roads and related infrastructure owned by the Council, such as kerbing, drains and the like, which the Council has repaired from time to time at its own cost.

Costs

23. As the Underwriters pointed out, this litigation was pursued with a view to establishing that Newcastle was entitled to be fully funded for its defence costs in the Underlying Proceedings by the Underwriters.
24. Newcastle has not established that position and the declarations I have made fall short of the relief sought.
25. However, Newcastle was successful in relation to a number of the issues put forward, as discussed in my principal judgment.
26. In those circumstances, in my opinion the appropriate costs order is that the defendants should pay half of the costs incurred by the plaintiff in these proceedings.

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^[1] Newcastle Resources Pty Ltd (formerly known as SCE Resources Pty Ltd) v Certain Underwriters at Lloyd’s Syndicate CVS 1919 subscribing to policies numbered LS00100XL, LS00100BU and STA0222BU [2022] NSWSC 1485.
^[2] [1983] TASRp 13; [1983] Tas R 113.
^[3] Tcpt, 23 September 2022, p 49(27).
^[4] Citing Ranicar v Frigmobile and AXA Global Risks (UK) Ltd v Haskins Contractors Pty Ltd [2004] NSWCA 138.
^[5] See Urban Transport Authority of New South Wales v Nweiser (1991) 28 NSWLR 471 at 476 (Clarke JA); cited with approval in VAW (Kurri Kurri) Pty Ltd v Scientific Committee (Established under s 127 of the Threatened Species Conservation Act 1995) (2003) 58 NSWLR 631; [2003] NSWCA 297 at [142]- [143] (Beazley JA (as her Excellency then was, with whom Spigelman CJ and Hodgson JA relevantly agreed).