Placer v Dyno [1999] NSWSC 1292 (24 December 1999)

Last Updated: 13 January 2000

NEW SOUTH WALES SUPREME COURT

CITATION: Placer v Dyno [1999] NSWSC 1292

CURRENT JURISDICTION: Equity Division

Commercial List

FILE NUMBER(S): 50212/96

HEARING DATE{S): 6.4.99, 7.4.99, 8.4.99, 12.4.99, 13.4.99, 14.4.99, 15.4.99, 16.4.99, 20.4.99, 21.4.99, 22.4.99, 27.4.99, 28.4.99, 29.4.99, 30.4.99, 3.5.99, 4.5.99, 5.5.99, 6.5.99, 10.5.99, 11.5.99, 12.5.99, 13.5.99, 17.5.99, 18.5.99, 25.5.99, 26.5.99, 27.5.99, 28.5.99, 31.5.99.

JUDGMENT DATE: 24/12/1999

PARTIES:

Placer (PNG) Pty Ltd & 3 Ors being the members of the Porgera Joint Venture v Dyno Nobel Asia Pacific Limited (formerly Dyno Wesfarmers Ltd) & Anor

JUDGMENT OF: Hunter J

LOWER COURT JURISDICTION: Not Applicable

LOWER COURT FILE NUMBER(S): Not Applicable

LOWER COURT JUDICIAL OFFICER: Not Applicable

COUNSEL:

Plaintiff/ Cross Defendant to First & Fifth Cross Claims: T E F Hughes QC I M Jackman

First Defendant/First Cross Claimant/Cross Claimant on Second Cross Claim: F M Douglas L V Gyles J H Stephenson

Second Defendant/ Cross Claimant on Third, Fourth & Fifth Cross Claims/Cross Defendant on Second Cross Claim: R C McDougall QC R G Forster SC P M Robinson

Cross Defendants to Third & Fourth Cross Claims: N G Rein

SOLICITORS:

Plaintiff/ Cross Defendant to First & Fifth Cross Claims: Blake Dawson Waldron

First Defendant/First Cross Claimant/Cross Claimant on Second Cross Claim: Gadens Lawyers

Second Defendant/ Cross Claimant on Third, Fourth & Fifth Cross Claims/Cross Defendant on Second Cross Claim: Carter Newell

Cross Defendants to Third & Fourth Cross Claims: Phillips Fox

CATCHWORDS:

To await final orders

ACTS CITED:

DECISION:

To await final orders

JUDGMENT:

IN THE SUPREME COURT

OF NEW SOUTH WALES

EQUITY DIVISION

COMMERCIAL LIST

HUNTER J

FRIDAY 24 DECEMBER 1999

50212/96 PLACER (PNG) PTY LTD & 3 ORS BEING THE MEMBERS OF THE PORGERA JOINT VENTURE v DYNO NOBEL ASIA PACIFIC LIMITED (FORMERLY DYNO WESFARMERS LIMITED) & ANOR

REASONS FOR JUDGMENT

1 Prior to 27 August 1975, Placer (PNG) Pty Limited (Placer) and Mount Isa Mines Limited (Mount Isa), jointly owned certain mineral tenements near Porgera in the highlands of Papua New Guinea, situated approximately 220 kilometres in a westerly direction from Mount Hagan, the principal town in the central highlands. Lae was the nearest sizeable shipping port located approximately 750 kilometres to the east.

2 By an agreement dated 5 April 1979, Placer transferred, with the consent of Mount Isa, 50 per cent of its interest to Consolidated Goldfields Australia Limited (Goldfields), following which on 31 July 1979, Placer, Mount Isa and Goldfields entered into a joint venture agreement "for the purpose of providing for the future exploration and development of the ... mineral tenements and (certain) additional area ... by way of Joint Venture ..."(the joint venture agreement). Placer was appointed manager, subject to the control of the management committee, constituted by representatives of each of the parties to the joint venture.

3 By clause 4 of the joint venture agreement, the management committee was to meet in Sydney, or such other place as may be determined, at regular intervals. By clause 12, each party was entitled "to take in kind and separately dispose of its share of all ores, concentrates and refined products produced pursuant to the terms of (that) agreement". Each party was obliged to contribute, in proportion to its percentage interest, to all exploration and production expenditures, approved by the committee, within fourteen days of the times and in the amounts required by Placer.

4 By an agreement of 6 December 1988, Placer's role as manager was more precisely defined. On 12 May 1989, Placer, Highlands Gold Properties Pty Limited (Highlands) and RGC (Papua New Guinea) Pty Limited (Renison) entered into a mining development contract with the state of Papua New Guinea (the State) by which they committed themselves to the development and operation of a gold mine in the area. Although not clearly stated in the evidence, I take it that Highlands was a party to the joint venture as a subsidiary of Mount Isa and that Renison was a related corporation of Goldfields. Placer was a subsidiary of Placer Dome Inc, a Canadian domiciled company, whereas, Mount Isa and Renison's holding companies were Australian publicly listed companies.

5 Pursuant to agreements dated 21 March 1990 and 21 November 1990, Mineral Resources Porgera Pty Limited (Resources), became a party to the joint venture and bound by the development contract with the State which had been entered into by the joint venturers on 12 May 1989. By those agreements, Resources acquired a ten per cent interest in the joint venture: an interest which was later increased. Resources is a statutory corporation of the State.

6 Placer, Highland, Renison and Resources (referred to as the PJV), are the plaintiffs in these proceedings brought in respect of their interests as joint venturers against Dyno Nobel Asia Pacific Limited, formerly known as Dyno Wesfarmers Limited (each referred to as Dyno) and Niugini Insurance Corporation (Niugini Insurance).

7 The proceedings arise out of a catastrophic set of explosions (the explosions) in an explosives facility operated in the subject area by Dyno on 2 August 1994 at a time when Niugini Insurance carried certain risks in relation to the activities of the joint venturers, the precise nature of that cover being a matter in contention. The commencement of the period of insurance was 1 July 1989 and was expressed to be for a period of "estimated 39 months". It was described as a "CONTRACT WORKS INSURANCE" (the policy). The explosions killed eleven employees of Dyno and completely destroyed the explosives facility, leaving a crater 40 metres wide and 15 metres deep. It devastated the area and damaged property up to two kilometres away.

8 In these proceedings, the PJV seeks recovery from Dyno of certain material damage and business interruption losses caused by the explosions and maintains the proceedings against Niugini Insurance to enforce the policy as the subject of certain endorsements (the endorsed policy) for the benefit of Dyno as an insured, although not a named party to the policy or the endorsed policy. Otherwise, the PJV has no continuing interest under the policy or the endorsed policy, the PJV's claims thereunder having been satisfied by agreement with Niugini Insurance. Dyno has brought a cross claim against Niugini Insurance under the endorsed policy in the event that it has standing to bring the proceedings in its own name.

9 The PJV seeks to enforce the endorsed policy on behalf of Dyno in respect of any liability which Dyno may have to the PJV in respect of the latter's material damage or business interruption claims or in respect of material damage suffered by Dyno as a consequence of the explosions: in the event that Dyno's cross claim against Niugini Insurance is misconceived.

10 The ore which the PJV sought to exploit consisted of a deposit of gold and silver located in what was described as "rugged, rainforest-covered, mountainous areas at comparatively high altitude between 2,250 metres and 2,700 feet (sic) above sea level". The deposit was located primarily within Mount Waru Wari into which an adit had been mined at RL 2,280 metres (the level 28 adit), I think, prior to the inception of the joint venture agreement.

11 There followed diamond drilling exploratory work which led to preliminary economic evaluations and then a feasibility study of May 1988 (the feasibility study) prepared under the direction of Placer Dome Technical Services Ltd (Technical Services) for Placer as manager of the joint venture. The feasibility study was provided to Niugini Insurance prior to it going on risk under the policy. Niugini Insurance was essentially a "front" insurer, with Munich Re-insurance Company (Munich Re) and its following market re-insuring Niugini Insurance's risk. Munich Re negotiated the wording and the terms of the policy with the PJV's broker, a member of the Bowring Group and Marsh & McLennan Companies, Inc. (Bowrings), whose representative was W D Robertson (Robertson). Niugini Insurance played no active part in the formation of the policy agreement or in relation to the endorsements. I do not understand any issue to turn on that fact. The case has been conducted on the basis that Munich Re, as re-insurer, acted also for Niugini Insurance and Munich Re's following market.

12 The feasibility study, which comprised some six volumes, was supplied by Robertson to Munich Re, which was represented by Eckehard Hettler (Hettler), who, at the time Niugini Insurance went on risk, was based at the United Kingdom branch of Munich Re in the capacity of "Chief Engineer and Engineering Manager underwriting all engineering classes of insurance". The feasibility study was described as one "for the proposed 8 000 t/d open pit and underground, mining and metallurgical operation to be located at Porgera, Enga Province, Papua New Guinea". Its aim was expressed to be "to investigate and display, in all necessary detail, the features, requirements and economics of the Porgera Project". The six volumes comprised Geology, Mining, Metallurgy, General Matters, Construction and Operating Estimates and Summary. The "total construction cost of the project inclusive of the initial operating expenses" was estimated to be Kina 662,671,000. There were to be two processing streams to accommodate a staged production from proposed underground mining and open pit mining described as follows:

"The 1500 t/d Section 1 concentrator will start processing underground ore in month 16 of the construction schedule; the Section 2 concentrator will start processing open pit ore in month 42."

13 At the time that Niugini Insurance went on risk under the policy, namely 1 July 1989, the construction schedule was for an estimated period of 39 months. The construction schedule revealed the general nature of the proposed construction save for the reference to "Tawisakale". There were two plant sites, one, the Anawe and the other, the Tawisakale plant site which was also known as the aggregate plant.

14 The construction cost details were included in table 6.11, being the "Construction Cost Estimate by Area" in the feasibility study. In relation to cost area 30 "Underground Mine" the underground development was described as follows in the feasibility study:

"Underground development will commence at the start of Year 1. The initial mine access will be through the existing exploration adit. A second mine access may be provided by a decline from the surface collared adjacent to the Section 1 plantsite. Either access can be used for truck haulage of ore. Underground mine development has been scheduled to ensure that underground production will achieve a rate of 550 000 t/a in Year 2.

The underground operation will utilize a vertical retreat mining method. Stopes were laid out with dimensions approximating 15 m x 10 to 25 m in plan and 30 m in height. Artificial support will be used in the majority of development openings and cable bolt support will be utilized in crown pillars and 50% of the stope hanging walls.

Alternate stopes will be mined and filled with hydraulic backfill when the stope is drawn empty. Trackless equipment will be used in both the development and production phases."

15 In relation to cost area 26, the feasibility study summary contained the following description:

"Mining - Open Pit

Conventional open pit mining methods will be used with benches set at 10 m intervals. Wall slopes of 45° and 35° were established for competent and incompetent rock respectively.

The open pit will be mined in three stages in order of decreasing profitability. The first two stages will be mined at an elevated cut-off with a low grade fraction stockpiled for milling after the third stage is mined out.

Conventional electrically powered rotary drills, cable shovels, and a mixed fleet of 77 t and 154 t haulage trucks will be utilized. A large fleet of miscellaneous support equipment including rubber tired loaders, hydraulic shovels, track dozers and graders will support the mining operation."

16 The cost estimates for the project were more particularly set out in vol 5 of the feasibility study on a cost area basis. "Cost area 26 - Open Pit" identified seventeen principal cost areas within that segment which included one described as "Constructing an explosives plant". That cost was further itemised in an accompanying schedule which estimated a subtotal of 1,554,076 Kina of which 1,540,000 was made up of the explosive plant itself, the balance being mechanical and electrical costs.

17 Volume 2 of the feasibility study, concerned with the mining element in the project, contained the following description:

"Blasting:

An explosives plant will be built at Porgera for the manufacture of slurries. The cost for the plant was based on information from a PNG explosives supplier. The cost of building the explosive plant is estimated to be Kina 1 134 000. The plant will be located on the western side of the waste dumps ..."

18 Under the policy "The Insured" was defined as follows:

"Porgera Joint Venture and/or Placer Pacific Limited and/or Renison Goldfields Consolidated Limited and/or M.I.M Holdings Limited and/or Placer (P.N.G.) Ltd and/or Placer Dome Technical Services Limited and/or Associated Companies and/or Subsidiary Companies and/or Contractors and/or Subcontractors and/or Suppliers on Site and/or All Other Parties Interested in the Project for their Respective Rights and Interests and/or Government of Papua New Guinea."

19 I read that definition as limiting the unnamed insured to associated or subsidiary companies, contractors, subcontractors or suppliers physically on the site of the project and being "Interested in the Project". Significantly, I think the period of insurance was stipulated to be:

"From: 1st July 1989 for the period of the project (estimated 39 months)"

20 I think that the phrase "period of the project" refers to the construction period of the project as identified in the context of the feasibility study's bar chart showing construction works for the "estimated 39 months". The property insured was defined in the "Section I - 'All Risks'" as follows:

"a) The Contract Works, including Temporary Works, Property, Temporary Buildings and contents and all Materials and Goods used or to be used in connection therewith, the Property of the Insured or whilst in the Possession of the Insured or for which the Insured are responsible and all other things forming part of the Project which are declared within the Sum Insured

b) Existing Adit and Nebilyer River to Porgera Access Road

c) Constructional and Mining Plant and Equipment the property of Porgera Joint Venture or for which they are responsible, as declared"

21 I interpret that description of "Contract Works" as, in substance, referring to the construction works generally described as such in the feasibility study. However, it is clear that those construction works are not to be equated with the property insured as appears from the expanded definition of that phrase in the definition section quoted above. Further, I read the phrase "declared within the Sum Insured" as governing "all other things forming part of the Project" and not as referring to, for example, "Contract Works". However, in the case of "Constructional and Mining Plant and Equipment", I think the phrase "as declared" applies to all of that property.

22 To understand the breadth of the inclusion amongst the insured of "Suppliers on Site", it is necessary to have regard to the definition of the site as being:

"Porgera, and other places within Papua New Guinea used for the purposes of the Project."

23 "Existing Adit" should be read as a reference to the level 28 adit.

24 In my view, there are numerous references throughout the policy which are inappropriate to the subject construction works as part of the project. The wording relates to a conventional 'contractors all risks policy', whereas this project, of which the construction works formed part, was a mining project undertaken by the PJV as 'owner' of the mining tenements, itself carrying out the development of the mine, including the construction works, for concurrent exploitation of the resource for the benefit of the PJV during the lifetime of the mine.

25 As an illustration of inappropriate wording, in that context, reference may be made to the provision in the definition of "period of insurance" for a "Maintenance Period not exceeding 12 months for each contract. Plus 28 days or any other shorter period as required by contract from the issue of any Practical Completion Certificate (or similar certificate) if and to the extent required under contract". There was no contract works in the conventional use of that expression: there was no maintenance period or practical completion certificate provision applying to the PJV in its performance of the works. Those provisions could only have application to contracts relating to contractors, subcontractors or suppliers on site or other parties interested in the project within the meaning of the definition of "The Insured" under the policy.

26 Another example is in the exceptions to the Section I 'All Risks' Cover of "any consequential loss or penalties for non-performance, non-completion of or delay in the completion of the Contracts".

27 Similarly, the provision for maintenance period cover would appear to have no application to the PJV as distinct from any of the unnamed insured. The maintenance clause was in the following terms:

"In respect of any works insured hereby which are the subject of a handing over certificate and so subject to Maintenance Liability conditions in the contract between Porgera Joint Venture and the contractors the indemnity by Section I of the policy in respect of those works shall apply to the contractors only in respect of any loss of or damage to the works occasioned by the Insured in the course of any operations carried out for the purpose of complying with the obligations of the conditions of maintenance and in respect of loss of or damage to the works due to a cause occurring during the construction period prior to the commencement of the maintenance period."

28 It is clear from that clause that it was never intended to apply to the PJV other than in the context of a "contract between (the PJV) and the contractors" and in that case, it was provided that the indemnity would "apply to the contractors only in respect of any loss of or damage to the works occasioned by the Insured in the course of any operations carried out for the purpose of complying with the obligations of the conditions of maintenance" and then only in respect of damage "due to a cause occurring during the construction period prior to the commencement of the maintenance period". It provided no operational cover.

29 The Section I 'All Risks' Cover indemnified the insured in the following terms:

"The insurance will indemnify the Insured in respect of physical loss of or damage to the Property Insured arising from any cause whatsoever subject to the exceptions and conditions hereinafter stated:"

30 The exceptions to Section I of the policy included the following:

"(m) tunnelling works and galleries for:

- grouting of soft rock areas and/or other additional safety measures even if their necessity arises only during construction

- overbreak excavation in excess of the excavation profile shown in the plan and the additional expenses resulting therefrom or refilling of cavities

- expenses incurred for normal dewatering even if the quantities of water originally expected are exceeded

- loss or damage due to breakdown of the dewatering system if such breakdown could have been avoided by stand-by facilities

- expenses incurred for additional sealing up and facilities for the normal discharge of run-off and underground water even if the quantities of water originally expected are exceeded

...

o) loss of or damage to actual mining works (other than existing adit, new drive and ventilation shaft)"

31 Section II of the policy provided third party liability cover in the following terms:

"INSURING CLAUSE

The Insurers will, subject to the exceptions and conditions hereinafter mentioned:

(a) indemnify the Insured for all sums which the Insured shall become legally liable to pay in respect of or arising out of:

(i) Bodily injury or illness (including death at any time resulting therefrom) suffered or alleged to have been suffered by any person or persons.

(ii) Damage to or destruction of property including the loss of use thereof iterruption (sic), denial of access, loss of trade or other deprivations.

happening during the Period of Insurance in connection with the project and caused by an occurrence.

for the purpose of this Insurance the word 'occurrence' means an event including injurious exposure to conditions, which unexpectedly or unintentionally results in bodily injury or property damage or any consequential losses arising therefrom.

(b) defend in the name of and on behalf of the Insured any claim or suit against the Insured to recover damages on account of such bodily injuries and/or damage to or destruction of property as aforesaid.

(c) pay in addition to the Limits of Liability expressed in the Schedule.

(i) All expenses incurred by or with the permission of Insurers for investigation, negotiation and defence of claims and suits

(ii) All expenses incidental to the appeal from any judgement against the Insured subject to the consent of the Insures (sic)

(iii) All expenses in connection with any other court actions or legal proceedings arising out of an occurrence insured against hereunder."

32 Upon the proper construction of that clause, it would indemnify the insured for costs and legal expenses incurred in respect of any proceedings "arising out of an occurrence insured against". Those proceedings would extend to due process of law, for example, in the form of a public enquiry into the cause of "an occurrence insured against".

33 I would not regard the legal costs and expenses as limited to those necessarily incurred. As long as those costs were reasonably incurred, there would be no basis for the exclusion of those costs from such an indemnity cover.

34 The exceptions to Section II included the following:

"b. liability for loss of or damage to property owned by or in the care, custody or control of the insured other than loss of or damage to:

i) the personal possessions including vehicles and their contents of Directors, Partners, employees or Visitors of the Insured.

ii) premises and their contents not owned, leased or rented to the Insured but which premises are temporarily occupied by the Insured for the purposes of the project.

...

e. claims which are the subject of indemnity under Section 1 of this policy or which would have been the subject of indemnity under Section 1 but for the application of the deductible(s) thereunder.

f. the deductible as expressed in the Schedule.

g. any amount in respect of liquidated damages fines or penalties payable by the Insured or any sum payable by the Insured by way of damages for breach of contract."

35 The "CROSS LIABILITIES CLAUSE" in that section of the policy was in the following terms:

"For the purpose of the indemnity granted by this Section of the policy claims made by any of the parties described as the Insured against any other party so described shall be treated as thought (sic) the party claiming was not named as the Insured in this policy. Insurers waive all Rights of Subrogation which they may have or acquire against any of the said parties."

36 That clause, in my view, has no further operation than that which would be regarded as a condition of the policy on its proper construction, sans the cross liabilities clause.

37 The business interruption cover is contained in "Section III - FINANCIAL CONSEQUENTIAL LOSS. The extent of the cover was provided for in the following terms:

"The Insurers hereby agree with the Insured Party under this Section that if at any time during the period of insurance as stated in the Schedule to this Section any or all of the specified items listed in the said Schedule suffer loss or damage indemnifiable under Section I of this Policy, (whether or not such loss or damage exceeds the appropriate deductible) unless specifically excluded in this Section, thereby causing an interference in the work insured under this Section and/or testing schedule resulting in a delay to the scheduled date of commencement of any phase of the insured business and/or interruption or interference during the operational phases the insurers shall indemnify the Insured Party for the Interest Insured under this section, subject to Sum Insured and waiting period as specified in the Schedule to this Section"

38 In the events that happened, no claim was made under Section III of the policy by the PJV; the business interruption being less than the "waiting period" specified in relation to "Operational Phases - 30 days per occurrence". A claim for business interruption losses is made by the PJV against Dyno.

39 However, the terms of this cover, I think, are relevant to the construction of the policy, as a whole. The period of insurance was defined as follows:

"The period of insurance shall be the period stated in the Schedule to this Section terminating on the date specified in the Schedule for the completion of Phase III of the works or on any earlier date when contract works cover ceases."

40 The indemnity period was defined as follows:

"That period, not exceeding the Indemnity Period Limit stated in the Schedule to this Section, during which the Insurers have agreed to indemnify the Insured for the Interest Insured under this Section; such period to start for (a) physical loss or damage to the works during the construction/testing periods from the date on which, had the loss or damage not occurred the insured business would have commenced but at the earliest the scheduled dates of commencement of commercial operations of Phase I, Phase II or Phase III and during which the results of the insured business are affected in consequence of such loss or damage.

for (b) physical loss or damage to property insured during the operational period, from the date of the occurrence of the physical loss or damage and during which the results of the Insured business are affected in consequence of such physical loss or damage."

41 The premium calculation for this cover was based upon the "estimated annual gross profit acmount (sic) plus annual standing charges for Phase III" and the sum insured was "calculated by reference to the estimated gross profit net of production cost for a period of 18 months from the scheduled date of completion of Phase III of the insured business, based on an anticipated gold price of 400 $/ounce ...".

42 The period of insurance "stated in the Schedule" was 39 months from 1 July 1989, being the "scheduled date of completion of Phase III", while the indemnity period was defined in the Schedule as "18 months including waiting period from schedule date of commencement of commercial operation of", respectively, Phases I, II and III namely, 1 October 1990, 1 April 1992 and 1 October 1992 or "from the date of the occurrence for the operational phase of Phase I or Phase II."

43 The three phases may be identified by reference to the feasibility study. Phase I represents 'month 15' in the construction schedule which is identified as the development of the underground mine to a stage described as:

"INITIAL GOLD PRODUCTION FROM LEACHING PYRITE CONCENTRATE FROM 1500 T/D SECTION ONE OF CONCENTRATOR"

44 Phase II is the 33rd month of the construction schedule and that represents the stage at which the oxygen plant and autoclaves are erected and it is described as follows:

"GOLD PRODUCTION BY LEACHING OXIDIZED RESIDUE FROM STORAGE POND AND OXIDIZED PYRITE CONCENTRATE FROM 1500 T/D SECTION ONE OF CONCENTRATOR"

45 The Phase III date of 1 October 1992 is month 39 in the construction schedule and coincides with the completion of the construction works.

46 It is plain that Section III has application to the operational phase of the project. I think it is also clear that in Section I a distinction is to be drawn between "Project" and "Contract Works". The "Project" is clearly defined as the mining project and is not limited in meaning to the construction works which were estimated to be completed within "39" months of the inception of the policy. That has significance in identifying the insured as defined in the policy as they extend to "Contractors ... Subcontractors ... Suppliers on Site and/or All Other Parties Interested in the Project" (emphasis added). In my view, that is consistent with the definition of the property insured under the policy as consisting of the specified works, property, buildings, materials and goods and extended only to such other parts of the project which were "declared within the Sum Insured".

47 In that context, I note that in the definition of "the Insured", each was insured "for their Respective Rights and Interests ..." and, significantly, those interests were not restricted to the construction works. Given the definition of the insured property and of the scope of the Section III cover, there is no warrant for limiting the interests of the insured to the construction works and I consider the absence of any such express limitation as intentional.

48 I note further that the Section II cover indemnified the "Insured" in respect of injury or damage to property "happening during the Period of Insurance in connection with the project ..." (emphasis added). Similar expressions are adopted in the exceptions to the Section II cover.

49 The exceptions to the Section I cover, in particular, exceptions m) and o), only have utility when the term 'Project', as used in the definition of the property insured, bears the meaning of the Porgera mining project.

50 Under the general conditions of the policy there was included the following:

"DUE CARE CLAUSE

The Insured shall take all reasonable precautions to prevent loss, damage or liability.

...

PREMIUM ADJUSTMENT CLAUSE

The premium shown in the Schedule being provisional only shall:

(i) at the end of the Period of Insurance declare to the Insurers within a reasonable time the Final Project Price to enable the premium to be adjusted at a rate not exceeding the agreed policy rate.

(ii) at each anniversary date declare to the Insurers within a reasonable time:

(a) the estimated new replacement value of constructional and mining plant and equipment insured hereunder at risk each quarter

(b) the estimated new replacement value of all completed roads insured hereunder at risk each quarter

to enable the premium to be adjusted at a rate not exceeding the agreed policy rate."

51 In relation to the premium adjustment clause, it may be observed that the premium was to be adjusted to the "Final Project Price". I regard that reference to "Project Price" to be a reference back to the sum insured in the policy and consistent with the definition of the property insured which extended to specified construction works forming part of the project in addition to such "other things forming part of the Project which (were) declared within the Sum Insured".

52 There were several endorsements to the policy in the years following its inception, not all of which call for comment. I think the first significant endorsement is that dated 20 December 1990 (the 1990 endorsement). That endorsement noted the following agreement:

"Noted and agreed that :

1. The sum insured for "All Risks Section" is increased to US$770,995.000

2. The sum insured for Financial Consequential Loss is increased to US$342,000.000 (net of

deductible).

Subject to sublimits:

ALOP OPERATIONAL BI

Phase 1 Stage 1 250,425,000 Nil ) representing

Phase 1 Stage 2 303, 975,000 250,425,000 ) 70% of 18

Phase 2 Stage 1 259,875,000 303,975,000 ) months gross

Phase 2 Stage 2 319,725,000 259,875,000 ) earnings

3. The period of the project is now estimated to be 54 months.

Additional Deposit Premium US$5,834.800 payable as follows:

a) Third instalment of Deposit Premium due 1st July 1991 for Consequential Loss increased to US$4,099.525.

b) New fourth instalment of Deposit Premium due 1st July 1992 for Contract Works/Third Party Liability and Financial Consequential Loss of US$4,099.525.

4. The final premium for Contract Works/Third Party Liability and Financial Consequential Loss will be adjusted at expiry at rates established for increased sums insured and project period to be agreed Munich Re only."

53 The next endorsement of note was that dated 16 November 1992 (the 1992 endorsement). The 1992 endorsement noted a clarification of the definition of "Constructional and Mining Plant and Equipment" so as to exclude "permanent property of the Insured forming part of the mining process plant ...". It clarified further the meaning of the term "Mine" as referring "to the actual operations in respect of removing ore from the ore body, and not to the mining machinery, whether above or below ground, necessary for the processing of the ore" (emphasis added). Clearly, when speaking of the mine, the policy includes the operational nature of the project.

54 The endorsement further noted that in respect of the Section III cover, the schedule date of commencement of Stage 3 was 1 September 1992 "or any later date as advised in regular status report". It was said that this information was based upon the report number 64 of 29 February 1992. There were numerous such reports put into evidence. However, report 64 was not one of them as far as I have been able to discover.

55 A further agreement in the endorsement was noted as follows:

"Sections I and II Cover

Additional premium/return premium in respect of early completion of construction/early commencement of operations cover to be agreed by Reinsurers."

56 A further attachment included in the endorsement was in the following terms:

"It is hereby agreed and declared that this policy is endorsed to note the following:-

1. The period of the project is now estimated to be 66 months plus 12 months extended maintenance period.

2. Cover will apply on an operational "all risks" basis in respect of completed stages 1, 2 and 3 until completion of stage 4.

3. The Additional Premium payable at 1st July, 1992 in respect of the operational all risk insurance is US$3,156,932.

4. The fourth instalment of Premium due 1st July, 1992 (US$4,099,525) is now payable 1st July, 1993.

5. There is an Additional Deposit Premium of US$645,000 for period 1st July, 1992 - 1st July, 1993 ..."

(emphasis added)

57 There was a further significant endorsement, namely that dated 8 June 1994 (the 1994 endorsement). The 1994 endorsement noted the following agreements:

"1. The period of the project is now estimated to be 81 months (from 1.7.89) plus 12 months extended maintenance period, to include works in respect of Stage 4 (b).

2. Cover will apply on an Operational "All Risks" basis in respect of completed stages 1, 2, 3 and 4 (a) until completion of Stage 4 (b).

3. The Sum Insured for All Risks Section is increased from US$770,995,000 to US$ 840,000,000 with effect from 1.9.94 to include works in respect of Stage 4 (b).

4. The Sum Insured for Financial Consequential Loss is subject to the following sub-limits

a) ALOP for Stage 4 (b) US$60,000,000 ) Representing

) 75% of 18 months

b) Operational B.I for ) anticipated gross

Stages 1, 2, 3 and 4 (a) US$290,000,000 ) earnings

Waiting period for ALOP for Stage 4 (b) 60 days.

5. There is an Additional Premium of US$5,167,295 due to reinsurers in respect of the above extension of period payable 50% at 1.7.94 and 50% at 1.7.95 calculated as follows:

a) Stage 4 (b) Contract Works

US$70,00,000 x 0.375% = US$ 262,500

b) Stage 4 (b)

ALOP US$60,000,000 x 0.80% = US$ 480,000

c) Operational All Risks for completed

Stage 4 (a)

for period 1.11.93 - 31.12.94

T.V. US$103,995,000 x (0.1906% x 14/12)

0.2224% = US$ 231,285

d) Operational All Risks for completed

Stages 1, 2, 3 & 4 (a) for period 1.1.95 -

31.3.96

TV US$770,995,000 x (0.1906% x 15/12)

0.2382% = US$ 1,836,510

e) Operational BI for completed stages 1, 2, 3

and 4 (a) for period 1.1.95 - 31.3.96

US$1,885,630 x 15/12 = US$ 2,357,000"

(emphasis added)

58 The evidence established that there were four stages. Stage 4 was being subdivided into Stage 4(a) and Stage 4(b). Those four stages and the times during which they were performed were as follows:

"59. Placer commenced Stage 1 in June 1989 and completed it in August, 1990. This stage consisted of constructing a 1500 - 2000 tonne per day gravity separation and pyrite flotation concentrator at the Anawe Plant Site. The Anawe Power Station, a diesel generator which generates approximately 12 to 18 mW of electricity, and a gold room were constructed. The 28 Level Adit was developed as were important infrastructure such as roads, a water supply scheme from Kogai River and the CIP Pond. Alipis 1, 2 and 3 and Yokalama 1 and 2 were built during Stage 1.

60. During Stage 1 Placer commenced underground mining operations. Underground mining allows the targeting of high grade ore, and by mining this ore first Placer was able to achieve high rates of return at an early point in the life of the project. The ore was crushed at the Anawe Plant Site and approximately 70% of the gold was recovered as a gravity concentrate by carbon in pulp (CIP) treatment of the pyrite concentrate. The CIP residue (containing approximately 30% of the gold) was stored in the CIP Pond to await the installation of the autoclaves in Stage 2.

61. Stage 2 consisted of increasing the electricity supply to 30.2mW by constructing a gas turbine electrical generating plant at Hides (the Anawe Power Station did not generate enough electricity for operation of the extra facilities at the Plant), and a 76 km transmission line from Hides to Porgera. A 310 tonne per day oxygen plant and three pressure autoclaves were installed at the Anawe Plant Site. Stage 2 involved processing the flotation sludge stockpiled in the CIP Pond during the operating phase of stage 1, and the facilitation of a permanent supply of water from Waille Creek. This stage was completed in August 1991.

62. Stage 3 consisted of the construction of a primary gyratory crusher, one SAG mill, one ball mill and ancillary equipment at the Tawisakale Plant Site. The grinding circuit at the Tawisakale Plant Site had the capacity to crush 4,500 tonnes of ore per day. With the ability to crush much more ore at the Tawisakale Plant Site, the gravity concentration circuit at the Anawe Plant Site was abandoned. Underground mining activities were boosted to 4500 tpd and the open pit was developed to provide 1000 tonnes per day. The concentrator/oxidation circuits at Anawe were expanded to 8000 tonnes per day capacity. The crushed ore, in the form of slurry, was transported through a pipeline to the expanded flotation circuit at Anawe. The Hides site was also expanded to 33 mW maximum power generation capacity. This work was completed in September, 1992.

63. Stage 4A included the installation of a fourth autoclave and an additional 75 tonne per day oxygen plant at the Anawe Plant Site, a semi-autogenous bypass circuit (SABC) at the Tawisakale Plant Site, a decline linking underground 28 Level Adit and 40 Level Adit and an overland conveyor between the 40 Level Adit and the Tawisakale grinding mill. The expansion during Stage 4A enabled the mine to produce 8,000 tonnes of ore per day. This stage was completed in approximately September, 1993.

64. Stage 4B consisted of optimising the existing facility. Additional oxygen producing capacity was provided and an additional SAG and ball mill were installed. The milling capacity was increased to 16,500 tonnes per day. Stage 4B started in late 1994 and was estimated to take eighteen months to construct."

59 That description was elaborated upon by Arthur Hood (Hood) who had been employed by Placer in a variety of managerial positions during the development and operation of the mine. In relation to those various stages of construction, he identified the need for the use of explosives in the performance of that work, for example, in relation to the Tawisakale plant site that was situated at the location of "a hill that had to be drilled and blasted and excavated to create the basis, the foundations of that plant site" (T110.25).

60 Hood also identified construction works in relation to a structure described as the "ICI Building" as an explosives plant, part of Stage 1.

61 The reference to Status Report 64 in the 1992 endorsement reflected the fact that from time to time the PJV provided Munich Re with a status report for the project. The status reports, so provided, confirmed the construction of an explosives facility at the site as part of Stage 1 and, as referred to later in these reasons, also disclosed that ICI Dulux Papua New Guinea Pty Ltd (ICI) was a contractor to the project as an explosives supplier.

62 The principal significance of the endorsements, as a matter of construction, of the endorsed policy, is to be found in the extension of the cover under the 1992 and 1994 endorsement to an "operational "all risks"" cover in respect of completed Stages 1, 2 and 3, until completion of Stage 4 as under the 1992 endorsement, and to the provision of such a cover in respect of Stages 1, 2, 3 and 4(a), until completion of Stage 4(b) under the 1994 endorsement.

63 It has been submitted on behalf of Niugini Insurance that, by recourse to extrinsic evidence, this extended cover is not to be given its natural and ordinary meaning and is to be construed as a simple extension of the phased handover clause of the policy. Niugini Insurance sought no relief by way of rectification. The extrinsic evidence to which reference is made is that of Hettler as follows:

"82. "All Risks" is the term used in such policies for the Material Damage cover. The policy definition of Property Insured in the Section 1, the Material Damage section, reflects that the cover afforded was for "Works", the existing adit and Nebilyer to Porgera access road, and Mining Plant and Equipment, subject to exclusions for tunnelling works and galleries (exception (m)) and actual mining works (other than the adit, new drive and ventilation shaft - exception (o)).

83. The Phased Handover General Condition of the policy reflects the continuation of the cover afforded by the policy with respect to phases and sections of the works after their construction has been completed and they have become operational. In later discussions and documentation with the broker about the cover under the policy, this aspect of the cover was separately classified and referred to as the operational cover under the policy, or as the "Operational All Risks" cover. Once part of the works covered by policy was completed, it ceased to be classified on an EAR (Erection All Risks) basis and was then rated on the Operational All Risks basis. These classifications were relevant not only for premium purposes but also to the cover and time deductible applied under Section III."

64 That material was admitted over objection on the basis that it provided evidence of the meaning of the term "all risks" as a term of art where used in the Section I cover and, as to paragraph 83, as evidence of the commercial background to the "PHASED HANDOVER" clause of the policy. That clause was in the following terms:

"PHASED HANDOVER

Notwithstanding the progressive handover and/or occupation of phases or sections of the works the cover provided by this policy shall continue in full force and effect with respect to the whole of the works until handover of the last phase or section of the works."

65 It was submitted on behalf of Niugini Insurance that the extended cover under the endorsed policy was merely a revised expression of the phased handover condition of the policy resulting from the extension of the construction period to 66 months under the 1992 endorsement and to 81 months under the 1994 endorsement.

66 The use which Niugini Insurance seeks to make of the evidence of Hettler, in my view, is impermissible. The evidence simply established the sequence of events leading up to the provision of the extended cover and could not be regarded as admissible to place some restricted meaning upon the natural and ordinary meaning of the terms of the extended cover.

67 To equate the operational cover to the nature of the cover contemplated under the phased handover condition of the policy is plainly wrong on any view of the meaning of the terms of the extended cover under the endorsed policy. Plainly, all that the phased handover clause affects is the retention of the material damage cover in respect of all stages of construction involved in the insured property until completion of the last stage. It says nothing about an operational cover.

68 If that construction of the operational clause was correct, it fails to explain the absence of such a provision with the 1990 endorsement.

69 Furthermore, the mere extended time for completion of the four stages would not require any endorsement other than a confirmation that the phased handover condition applied to the extended time for construction of the various stages. What in fact was provided, was an "operational all risk insurance" for an additional premium of several million dollars.

70 In my view, the extended cover under the endorsed policy covered risks involved in the operation of stages 1, 2 and 3 under the 1992 endorsement and stages 1 to 4(a) under the 1994 endorsement. A consequence of that construction is that works such as the explosives plant would enjoy the benefit of an operational all risks cover until completion of stage 4.

71 Clearly, on that construction of the endorsed policy, an explosives contractor to the project or an explosives supplier on site of the project would fall within the definition of the insured.

72 In relation to the operation of the explosives facility, there is no warrant for the construction advanced on behalf of Niugini Insurance that that operational cover should be construed as limited to operations in connection with the performance of the works in stage 4, all other stages having been completed at the time of the inception of the endorsed policy. Implicit in that view is a recognition that the exclusions in Section 1 of the endorsed policy do not operate to exclude the open pit operations forming part of the project.

73 I think the evidence established that there was present on site throughout the performance of stages 1 to 3, an explosives plant operated by ICI. That operation ceased as at 15 November 1992 when ICI was replaced by Dyno. The evidence also established that the ICI operation had been engaged in connection with the construction of works falling within the description of property insured under the policy. The evidence further established that as at the time of the 1992 endorsement, stages 1 to 3 had been completed. It was Niugini Insurance's case that that marked the end of ICI's association with the construction of insured property.

74 However, as at the 1992 endorsement, there still remained to be performed stage 4A. That stage included "a decline linking underground 28 Level Adit and 40 Level Adit ...". I think it is common ground that Stage 4 works fell within the description of property insured, notwithstanding exceptions m) and o). In that context I note that under the policy, 'property insured' included the "Existing Adit" which I construe to be the level 28 adit. I do not think the evidence specifically addressed the identification of the "new drive and ventilation shaft" which, on the proper construction of the policy, fell within the definition of property insured. In the absence of that specific evidence, I think the drive referred to in stage 4 should be treated as the "new drive" referred to in the proviso to exception o) in Section I of the policy. I do not understand it to be suggested that the connecting drive had not formed part of the original Stage 4 and hence part of the works falling within the description of property insured in Section I of the policy.

75 I think it is reasonably clear that ICI was associated, as contractor and supplier on site, with the performance of Stage 4(a) to the extent that it involved construction of the connecting drive. I think the extended cover under the endorsed policy clearly covered the explosives facility as part of the completed stages of the insured property and covered the operation of the facility under the operational all risks cover, together with contractors or suppliers on site engaged in the operation of the explosives facility in connection with the project.

76 In my view, an operational all risks cover could not sensibly have any other operation given the full understanding by the parties of the project as one consisting of the development and operation of the mine by the PJV as owner, developer and miner: hence the perceived need for exclusions m) and o) in Section I of the endorsed policy.

77 Coincident with the inception of the 1992 endorsement, which was dated 16 November 1992, there occurred a change in the operation of the Stage 1 explosives plant with the substitution of Dyno for ICI as the explosives contractor-supplier on site, effective from 15 November 1992.

78 In order to understand the nature of the operation of the explosives plant, I think it is necessary to have some knowledge of the materials used in the making of explosives and of the nature of the processing of those materials for use as explosives in connection with the project.

79 The type of explosives differ according to whether their use is required in dry or wet conditions and also depending upon the nature of the explosion produced. Explosives are capable of producing two types of energy known respectively as "shock energy" and "gas energy", the latter being of most utility in fractured block where the gas energy can explore the faults and loosen the surrounding rock. By contrast, shock energy is of most use in the cracking of more sound rock material. For the most part, gas energy explosives were used in connection with the Porgera project.

80 Another category of explosives is known as cap sensitive explosives, distinguishing them from explosives which, in addition to a detonator, usually require a primer to produce an explosion. A further categorising of explosives emerges from classifications recognised by the United Nations and various codes published under the auspices of the Standards Association of Australia.

81 The following is a simple dictionary of some of the principal substances used in the making of explosives:

(a) Fuel phase: This is a mixture of oils, possibly waxes, a surface active agent and emulsifiers.

(b) Matrix or emulsion: An oxidised solution, usually consisting of nitrates, namely ammonium nitrate plus fuel phase mixed in a blender to produce a continuous phase of the oil.

(c) EP Gold: A form of emulsion.

(d) Powergel gold: A sensitised emulsion.

(e) DP 400: Emulsion using a mainly hot ammonium nitrate solution.

(f) Emulite: A cap sensitive explosive made by sensitising hot emulsion by the addition of "Q-cells" or "micro balloons" and which is cooled and packaged into 'sausage' type cartridges under pressure. A wax substance is included at an elevated temperature so that on cooling it solidifies and holds the Emulite in a packaged form.

(g) Amex: A granular explosive consisting of 94 per cent ammonium nitrate in a prilled form and six per cent fuel oil requiring a primer to effect explosion.

(h) Amex LD: A member of the Amex family to which is added polystyrene beads to reduce its density, and hence strength, per unit of volume. The "LD" suffix derives from the words "lower density".

(i) ANFO: A similar product to Amex.

(j) ANFOPS: A similar product to Amex LD.

(k) Detonator: An initiator for explosive charges consisting of a base cap, base charge, priming charge, a delay element and a signal tube attached through a plug at the top of the detonator which could be crimped into position by a crimper.

82 The ICI operation was carried out from the explosives plant on site. Most of the explosive materials were transported by road and air to Porgera with some preparation of explosives being performed within the site plant. The ammonium nitrate and emulsion was shipped to Lae in containers and, from there, were transported by truck to the site plant.

83 The trucks usually travelled in convoy to guard against any belligerent elements in the local population. Cartridged explosives or detonators were also shipped to Lae and from there sent to an ICI storage facility in the vicinity of Lae. From that point they were transported by air to Porgera and the unloading supervised by ICI and the explosives and detonators placed in underground stores at the site.

84 Emulsion was stored in twenty tonne capacity iso-tanks placed adjacent to the plant. For most of the period that ICI was one site, the storage was limited to two such tanks with some additional storage located around the perimeter of the plant boundary. Towards the end of ICI's contract with the PJV, in anticipation of significantly increased mine production, the storage capacity was increased to twelve or thirteen iso-tanks so providing a capacity in the order of 250 tonnes.

85 Peter Charles Smith (PC Smith) was an employee of ICI Australia Operations Pty Ltd (also referred to as ICI) stationed at Lae and responsible as production superintendent for overseeing the operations of the Porgera plant. He gave evidence to the effect that had the ICI contract been renewed with the PJV in 1992, then ICI would have commenced manufacture of matrix on site as:

".... above a certain level of usage ICI would invariably put a manufacturing facility in themselves. The economics of putting in a manufacturing plant for small quantities doesn't ... justify it. If the quantities were going to get bigger ... then the probability is that ICI might have put in a manufacturing plant to provide it. In other words, I think it is unlikely that we would have stored there four times the quantity."

(T1557.55-1558.7)

86 The materials constituting the Amex and Amex LD explosives were mixed on site using what is known as a coxan mixer. Powergel was prepared on site at the plant in a mobile mixer which resembled a concrete mixing truck. The EP Gold emulsion was pumped from an iso-tank and micro balloons were tipped into the mixing drum from a forklift platform. Although Hood described powergel as cap sensitive, I think for practical purposes it was not.

87 I think the key technical evidence relating to the handling of emulsion is that of the report of Eva Gunnarson of Nitro Nobel (the Gunnarson report), namely:

"Pumping of emulsion explosives can be extremely hazardous and should be regarded as the critical part of the process.

Pumping of matrix (not sensitized emulsion) should be performed with the same safety arrangements as pumping of explosives. The reason is that accidents has occured (sic) in matrix-pumping, probably by unwanted and unknown sensitizing.

To make an explosive detonate you must add a certain amount of energy. It is enough to raise the energy above the critical value in a very small volume of the explosive to start the de-composition, which can start the deflagration/detonation. This procedure can occur very fast and if the explosive is included, as in a pump, the reaction goes even faster."

I think the above suffers somewhat from the translation of the original report and I think the word "included" probably refers to confinement of the matrix.

88 The contract with Dyno for the manufacture and supply of explosives and explosives accessories was that between Placer, as "manager" of the PJV, and Dyno dated 25 March 1993 with a date of commencement of 15 November 1992 (the Dyno contract). Under the Dyno contract, Dyno leased to Placer:

" (a) an Emulsion manufacturing plant;

(b) a plant for assembling nonel ® detonators;

(c) a bulk explosives delivery unit for direct discharge of Explosives into open pit blast holes and;

(d) a Mercedes 6 x 6 truck on which the bulk explosive unit is to be mounted"

89 That equipment was defined under the Dyno contract as the "leased equipment" and it is so referred to in these reasons. Emulsion was defined to mean:

"... liquid substance manufactured by Dyno ... to be mixed with ammonium nitrate to make heavy ANFO"

90 Dyno warranted that the leased equipment was, inter alia, "suitable for manufacturing and supplying Explosives and Accessories in accordance with the requirements of the (Dyno contract)". In addition, Dyno covenanted to "maintain the Leased Equipment in good working condition and ... (to) be responsible for maintenance and replacement costs of (certain) mobile equipment" while Placer was to "be responsible for the maintenance and replacement of the ... (existing plant and facilities used for explosive supply and delivery)". Placer was to be responsible for the insurance of the equipment last referred to.

91 Payment for the explosives, in the case of bulk explosives, was to be upon delivery into the blast hole while other packaged explosives, detonators and accessories were to be paid for upon delivery into the magazine.

92 Dyno also covenanted to operate the leased equipment only with personnel "skilled and experienced at their respective trades and callings". Placer had the power to direct Dyno to remove an employee for misconduct or where proven to be incompetent. It was part of the Dyno contract that Dyno would provide technical advice and information to Placer. It was Dyno's obligation to obtain all necessary permits, approvals and licences for the performance of the Dyno contract and Dyno undertook to comply with all laws, ordinances, rules and regulations of any statutory authority having jurisdiction over that performance.

93 Cl 12.1 of the Dyno contract contained a warranty by Dyno that its employees would "at all times carry out their work with the highest regard for the safety of all personnel in and around the Porgera Operations".

94 Dyno and Placer exchanged indemnities. In the case of Dyno it indemnified Placer against "all injury, loss or damage whatsoever to any property real or personal of Placer or of other persons including Dyno ... its employees and agents; and ... all personal injury or death of any person whatsoever; which may arise from any act ... of negligence or misconduct of Dyno ...". I regard that as an indemnity that extended to a third party liability of Placer arising out of Dyno's negligence. Placer's indemnity was expressed in like terms.

95 Cl 15 of the Dyno contract is, I think, of particular importance in relation to the insurance issues raised in these proceedings and accordingly it is set out in full below:

"15.0 INSURANCE

15.1 Dyno Wesfarmers shall take out, maintain and meet the cost of the following insurances;

(a) Workers compensation insurance as required by statute in respect of any of its employees or agents or other persons employed under this Agreement including common law cover of not less than K2,000,000 for any one occurrence; and

(b) Public liability insurance for an amount of not less than K2,000,000 for any one occurrence arising out of the execution of Dyno Wesfarmers rights and obligations under the Agreement in the event of death or injury to any person who is not at the time of the occurrence engaged in the service of Dyno Wesfarmers and damage to property not belonging to or in the care of Dyno Wesfarmers.

15.2 Placer shall take out, maintain and meet the cost of the following insurances;

(a) A Contract Works Material Damage and Public Liability insurance Policy covering the Leased Equipment. Such coverage does not include the Dyno Wesfarmers constructional plants, machinery, tools, equipment, temporary buildings, motor vehicles, personal effects of their employees or material and property in the course of manufacture off-site.

(b) Placer shall arrange on behalf of itself and Dyno Wesfarmers a marine transit insurance policy covering the Leased Equipment and other goods supplied by Dyno Wesfarmers pursuant to the Agreement whilst the Leased Equipment and other goods are in transit between Townsville and Porgera.

(c) Motor Vehicle Third Party insurance covering Placer vehicles which may be used by Dyno Wesfarmers personnel for an amount of not less than Two Million Kina

[(the cl 15.2 insurance)]

The above insurances shall provide coverage for losses caused through civil unrest. Placer will provide upon request a summary of the coverage in place Dyno Wesfarmers shall be responsible for the amount of the excesses specified in the above mentioned policies and shall indemnify Placer against all losses, claims and demands up to the amount of such excesses.

The effecting and keeping in force of insurance by Placer in favour of Dyno Wesfarmers shall not in any way limit the responsibilities, obligations and liabilities of Dyno Wesfarmers under other provisions of the Contract."

96 There was a force majeure clause.

97 If Dyno is an insured under the policy or the endorsed policy, it raises no issue as to the ambit of the terms of the cl 15.2 insurance as one complying with Placer's obligation to raise an insurance for the benefit of Dyno under cl 15.2 of the Dyno contract. Section I of the endorsed policy is capable of providing a wider indemnity than that covering the "Leased Equipment". The public liability cover contemplated by the cl 15.2 insurance falls within the operational all risks extended cover provided under the endorsed policy.

98 For the purpose of the performance of the Dyno contract, Dyno utilised the facilities previously used by ICI. In relation to that layout, Ian Taylor Smith (IT Smith), held the designated position of General Manager, International with Dyno between 1988 and 1995. His principal duties involved the managing of Dyno's depot plants and marketing. He described the layout of the Dyno plant at the Porgera site in the following terms:

"(Dyno) had inherited from ICI the site which consisted of a shed, a compressor, the store, a truck and a few other things such as ancillary machinery etc. As ICI had imported the majority of its explosives and hadn't engaged in manufacturing on site apart from the manufacture of ANFO and heavy ANFO, it was necessary for (Dyno) to ship to Porgera Mine the emulsion plant, the emulite plant and the nonel plant as well as most of the bulk stores shown down the right hand side of the site map. Otherwise the layout of the site was generally in accordance with the previous ICI layout."

That description was inaccurate to the extent that it omitted reference to ICI's manufacture of powergel on site.

99 Some better understanding of the plant referred to by IT Smith may be obtained from the general layout plan and from the flow sheet relevant to the emulsion and emulite plants, schedules "1" and "2" respectively to these reasons.

100 In relation to the Schedule 1 layout plan (Dyno's layout) and the flow sheet, there are some features that might be conveniently dealt with at this stage which gain greater significance in the consideration of some of the insurance issues raised in these proceedings. Whereas ICI had transported matrix to the site, Dyno prepared that emulsion on site in the emulsion plant.

101 The significance of the distances shown between various elements in the plant on the layout plan lies in the exposure of those elements to damage as a result of mishaps in other elements of the Dyno plant. Of particular significance is the "EMULITE PACKAGING" operation in which the equipment, shown on the flow sheet as "Emulite packaging mono pump", was used.

102 The preparation and packaging of emulite under conditions of applied heat and pressure through the mono pump is at the centre of issues relating to the mechanics of the explosions.

103 Sensitising of emulsion was carried out by ICI at the plant. Dyno performed a similar operation in mobile mixing units, known as "3T trucks", at the blast hole site in the open cut mining.

104 That operation was described by IT Smith as follows:

"The matrix as stored in the tanks is transferred into trucks ... 3T trucks. They combine ammonium nitrate with fuel oil with the matrix in an auger in the truck and deliver it in a bore hole, or blast hole, just prior to detonation in an open cut mining environment."

(T440.37)

105 He contrasted that with emulite production as follows;

"In the Emulite production, not only are the Q-cells added but there is a wax substance that is also included which is at an elevated temperature, so when it cools to ambient temperature, or is quenched, the wax is solidified and hold the explosives in a packaged form."

(T440.50)

106 The operator skill required in the two operations was described by IT Smith as follows:

"Q. The reason I ask, I am wondering whether a person who is skilled in the manufacture of emulsion you would expect to be skilled in the manufacture of Emulite?

A. He would have a good working knowledge of the plant process, the additions. But it is nor fair to say that it is exactly the same because cap-sensitive is a - handling cap-sensitive is an inherent increase, or is a larger increase in the risk exposure than it is in matrix, or non-cap-sensitive explosives.

Q. Does it follow from that though that the selection that would be appropriate to select a person skilled in the manufacture of emulsion to go on to the process of manufacturing Emulite?

A. That's normally how it progresses. That somebody will manufacture bulk products before they go on to the cap process."

(T440.58-441.18)

107 Both the setting up and method of operation of the ICI and the Dyno plants were subject to the approval of the Papua New Guinea Department of Mines and Energy (the Mines Department).

108 Under the proper construction of the 1992 endorsement cover, Dyno was both a contractor and a supplier on site for the project and, in my view, fell within the definition of 'the insured' within the terms of the endorsed policy.

109 I am also of the view that the endorsed policy was one which satisfied the obligations of Placer to effect a contractors all risk "Contract Works Material Damage and Public Liability... policy" pursuant to cl 15.2 of the Dyno contract.

110 The Dyno contract was entered into by Placer as manager of the PJV. I have construed the contract as one entered into by Placer as agent for named principals, namely the PJV.

111 The Dyno contract arose out of negotiations with the PJV, which also involved ICI, for the maintenance and supply of explosives for the project from November 1992 when ICI's contract term ended. In early negotiations it was contemplated that preparation of explosives on site would follow similar lines to that of the ICI operation. Dyno's proposal of 27 April 1992 opened up the prospect of further manufacturing processes on site for the preparation of matrix and of the assembly of detonators on site. The Mines Department was introduced to the negotiations in mid 1992 with the objective of obtaining approval of detonator assembly, explosives manufacture, the plants and chemicals proposed to be used and of the manner and means of transport of the various materials. Those matters involved the Mines Department's chief inspector of mines, John Kennedy Twaddle (Twaddle), who visited Australia for the purpose of inspection of Dyno's plant. Both the nonel plant and the emulsion plant were plants previously used by Dyno and were situated at the time of negotiations in Queensland, where they were inspected by Twaddle. The emulsion plant was "water tested" there.

112 ICI remained under consideration as a future supplier until September 1992, up to which point ICI was proposing the continuation of their existing approach to the preparation and supply of explosives for the project with further provision of additional emulsion tank storage on site, with a capacity of 120 tons. By mid September 1992, approval had been given by the PJV to replace ICI with Dyno. Draft agreements were exchanged in September 1992, in terms which reflected the terms finally agreed upon in the Dyno contract. Revisions of drafts continued into November 1992 to a point where sufficient level of agreement had been reached so as to permit the commencement of manufacturing and supply of explosives on site by Dyno on 15 November 1992.

113 It is common ground that the explosions were initiated by an explosion in the emulite package line and that the stored emulsion later exploded with devastating effect as an aftermath to the emulite explosion. The parties have reached agreement on numerous quantum issues arising out of the effect of the explosions.

114 There is no dispute that the mill, part of the ore processing plant referred to below, was shut down for 4.8 days and that underground mining was halted for a period of two days and did not get back to full production until 15 August 1994. In the case of the open pit operation, it was shut down for two days and did not resume full operation until 22 August 1994 with the resumption of blasting. Some waste mining had been performed during that period.

115 It was an extraordinary achievement to have the interruption to the operation limited in the manner outlined above when the extent of the tragedy is fully appreciated. While the parties have been able to reach substantial agreement as to the extent of the interruption to the mining operations, the financial consequences of that interruption have been the subject of considerable dispute.

116 Hood gave evidence of the general nature of the mine operations. Open cut and underground mining took place simultaneously as separate operations, with production from the open cut going to a surface primary crusher when the ore was of sufficiently high grade, otherwise the ore was trucked to stock piles with waste material going to one of two dumps referred to, respectively, as the SDC and Kogai dumps. The low grade stockpile ore was trucked from stockpile to the primary crusher to mix with other ore being served directly to that crusher from the open pit from time to time.

117 In the case of underground mining, the ore produced from that operation was crushed at a primary crusher below surface and from there conveyed to the surface. The higher grade ore from the primary crusher from the open pit was fed to the coarse ore stockpile, as was the underground mining production, and from there it went to the SAG mill and then to the concentrator and to a leeching and refining process for the production of Dore gold bars.

118 The PJV makes a business interruption claim against Dyno in the PJV's own right (the business interruption claim), as the loses so sustained did not fall for indemnification under the endorsed policy as a consequence of the waiting period limitation imposed under Section III of the endorsed policy. The PJV has brought a further claim in its own right against Dyno in respect of material damage, the amount of which has been agreed (the material damage claim). There is a further material damage claim brought by the PJV against Dyno (the subrogation claim), the amount of which has been agreed as between Dyno and Niugini Insurance, except as to a claim in relation to the leased equipment which was destroyed in the explosion.

119 Dyno also makes a material damage claim against Niugini Insurance, under sec I of the endorsed policy in respect of material damage suffered by it (sec I claim). Dyno also seeks to pass on to Niugini Insurance any liability Dyno may have to the PJV (sec II claim).

120 The business interruption claim and the material damage claim are made in tort and under the Dyno contract, as is the subrogation claim which is brought by the PJV on behalf of Niugini Insurance, although not expressly so pleaded. It is brought by the PJV pursuant to a deed (the settlement deed) entered into in October 1996 between Niugini Insurance, the PJV and other related companies as the "named insureds" (the insureds).

121 Under the settlement deed, the PJV settled claims under Section I of the endorsed policy, including a claim in relation to the leased equipment. Under the deed the insureds accepted the sum of US$11,765,811, in consideration of which it was provided as follows:

"... the insureds in relation to loss and damage so far discovered or identified by them hereby wholly release and discharge (Niugini Insurance) from any further claim, suit, action or demand under Section I of the Policy, and agree to make no further claim or demand under Section I in their own names (whether on their own account or on behalf of any other person or company)."

122 In relation to the leased equipment, it was provided as follows:

"The Insureds further agree that the consideration for this Deed includes an amount to be paid by the Underwriters with respect to loss and/or damage to the Leased Equipment, and that such amount is in full and final satisfaction of all claims with respect to such loss and damage, now or hereafter available to or claimed by the Insureds, Dyno ... or any other party having an interest in the Leased Equipment, and the Insureds accordingly warrant:

(i) that they will indemnify the Underwriters against any claim (including the costs and expenses therefor) made by the Insureds, Dyno ... and/or any associated, subsidiary or parent companies thereof; and

(ii) that there are no other parties having or claiming an interest of any kind whatsoever in the Leased Equipment."

123 Under cll 4, 5 and 6, the insureds agreed to assist Niugini Insurance in a variety of ways as follows:

"4. Duty to Assist

The Insureds agree to co-operate and assist the Underwriters (at the Underwriters' expense) in any investigations of the circumstances of the Explosions and the prosecution or defence of any claim by any other party arising out of the Explosions, and the Insureds shall use their reasonable best endeavours in the following:

procuring the co-operation and assistance from any persons from whom the Underwriters or their representatives wish to obtain a statement, information, opinion, report, documents or investigative material relating to the conduct of the Facility and/or to the Explosions;

providing all information, documents, opinion, investigations or other materials or intelligence with respect to the conduct of the Facility or to the Explosions; and

arranging for the Underwriters and/or their representatives interviews with any persons within the control or influence of the Insureds (or any of them) to obtain statements, information, opinions, reports, documents, investigations or other intelligence with respect to the conduct of the Facility or to the Explosions.

5. Proceedings to Recover Losses

It is acknowledged by the parties that the Joint Venturers have commenced proveedings (sic) in the Supreme Court of New South Wales against Dyno ... claiming damages for the losses suffered by the Joint Venturers including losses paid out by the Underwriters to the Insureds under the Policy, including the consideration for this release ("the Subrogated Claim") and for other losses suffered by the insured's ("the Other Claim"). It is further noted that Dyno ... claims to be entitled to indemnity from Underwriters under section II of the Policy in respect of such liability.

6. The Insureds agree to permit the Subrogated Claim to be added and included in the proceedings for the other Claim upon the following conditions:

(i) the Underwriters shall pay and be responsible for any additional costs reasonably incurred by the Insureds' solicitors occasioned by the addition and inclusion of the Subrogated Claim in the proceedings for the other Claim;

(ii) the Underwriters' lawyers will be entitled to monitor the progress of such proceedings and for that purpose shall be entitled to such information as the Underwriters would be entitled to as an insurer subject to any rights or interest of the Insureds which may arise from the dispute as to the entitlement of Dyno ...;

(iii) to avoid the potential for conflict of interest and/or duplication of costs, the Underwriters' lawyers shall wherever possible draft and/or provide any documents, correspondence or parts thereof relevant to the Subrogated Claim so that the Insureds' solicitors can include such documents, correspondence or parts thereof in their own conduct of the proceedings;

(iv) the Insureds' solicitors shall from time to time render accounts to the Underwriters via the Underwriters' lawyers in a form which sets out:

(b) the precise work performed or expenditure incurred with respect to such costs;

(c) the rates and times with respect to each item of such work; and

(d) the reason that such work is claimed from the Underwriters rather than from the Insureds;"

124 It was in those circumstances that the subrogation claim was brought and Niugini Insurance only became involved in the proceedings under the cross claim brought against it by Dyno. When Niugini Insurance raised a 'party' point as a defence to the Dyno cross-claim, on the basis that Dyno was not a named party to the endorsed policy, the PJV sought to amend its summons to join Niugini Insurance. It was clear that the PJV was faced with little alternative when seen in the context of Dyno's cross-claim against the PJV for breach of the covenant to provide the cl 15.2 insurance.

125 That amendment was opposed by Niugini Insurance, inter alia, on the ground that the bringing of proceedings by the PJV against Niugini Insurance in respect of Dyno's claims against Niugini Insurance was in breach of the PJV's obligations under the settlement deed. The amendment was allowed and, in the course of a directions hearing related to that amendment, I pointed out to senior counsel for Niugini Insurance that the construction sought to be placed upon the settlement deed by Niugini Insurance involved the proposition that the insurer and named insureds had agreed to defeat the interest of a co-insured in the event that it was found that Dyno was an insured within the meaning of the endorsed policy.

126 Niugini Insurance initially raised certain defences to that amended claim by the PJV, based upon its construction of the settlement deed. That representation or estoppel case has not been pressed.

127 In so far as the settlement deed provided for payment in respect of the leased equipment, the PJV and Dyno entered into a further deed in November 1996 (the Dyno settlement) under which it was recited that Dyno had assessed the loss and damage to the leased equipment in the sum of A$3,517,807 and that the PJV had made a claim under the policy which included a claim for loss and damage to the leased equipment. It was agreed under the Dyno settlement as follows:

"Upon receipt of the said sum of A$3,517,807 under the Policy the (PJV) shall pay it to (Dyno) and the receipt of that sum by (Dyno) is hereby acknowledged."

128 Dyno provided the following indemnity:

"(Dyno) hereby indemnifies the (PJV) ... against any liability ... arising from any claim by (Dyno) or any other person in respect of the loss or damage to the Leased Equipment."

[the Dyno settlement indemnity]

129 It is common ground that the proper law of the endorsed policy is the law of Papua New Guinea. In relation to that law, by schedule 2.2(1) of the Papua New Guinea Constitution (the Constitution), it is provided as follows:

"(1) Subject to this Part, the principles and rules that formed, immediately before Independence Day, the principles and rules of common law and equity in England are adopted, and shall be applied and enforced, as part of the underlying law, except if, and to the extent that -

(a) they are inconsistent with a Constitutional Law or a statute; or

(b) they are inapplicable or inappropriate to the circumstances of the country from time to time; or

(c) in their application to any particular matter they are inconsistent with custom as adopted by Part 1."

130 The date of independence in Papua New Guinea was 16 September 1975 which is treated as the "cut-off date" in relation to the reception of English law. However, the notion of a cut-off date is misleading as it is clear from judicial consideration of schedule 2.2 of the Constitution that regard will be had to post 1975 English decisions, particularly of the House of Lords in making declaratory pronouncements of the law. That has given rise to a distinction between those types of decisions of the House of Lords and decisions of the House of Lords in a law-making role. A broader distinction has been drawn between English law as at the date of the Constitution and post Constitution English decisions: one school of thought in relation to that distinction being as follows:

"It seems clear enough that that provision (referring to Schedule 2.2(1)) adopts, subject to the important exceptions and limitations therein, as a residuary law, the great body of judge-made law as it stood, and was applied, in the courts in England on 16th September, 1975. That date was fixed for purposes of certainty. Judicial creativity thereafter is a matter for the courts of this country, and no other: Constitution Sch. 2.4. In the light of the clear constitutional intention, no Blackstonian theory that "judges do not make law, but only declare what has always been the law", can be relied upon to support the adoption under Constitution Sch. 2.2.(1) of rules of the common law in England first enunciated after Independence." (State v Allan Woila [1978] PNGLR 99 at 103 per Kearney J.)

131 Kearney J qualified that neat division in the State v Bisket Uranguae Pokia [1980] PNGLR 97 at 99, 100 by recognising that a post 1975 English decision reversing a pre Constitution English decision as erroneous law would gain recognition under the Constitution. Robin Stanley O'Regan QC (O'Regan QC) gave evidence of the law of Papua New Guinea. He held high qualifications to do so. After reviewing the above and other authorities on this subject, he expressed the following opinion:

"It is clear from the above cases that decisions of the English courts decided after Independence in 1975 are not binding in Papua New Guinea. They do not form part of the body of common law and equity which applied in England at that time and which was then adopted in Papua New Guinea. Nor do decisions of the Australian Courts. However, there are two important ways in which such decisions may impair or destroy the authority of common law precedents thought to have been received in 1975. Firstly a decision post-1975 may as in Bisket Uranguae Pokia's case decide that what was thought to be the law in 1975 was not the law at all. Secondly the reasoning in post-1975 decisions in England and Australia may dispose a court in Papua New Guinea to decide that the doctrine embodied in earlier English cases and thought to be the law received in 1975 is so unjust, anomalous or inconsistent with the trend of modern authorities in other common law jurisdictions as to be considered inapplicable to the circumstances of Papua New Guinea and therefore no longer in force. As Miles J. suggested in Vian Guatal's case at p.244 the court would in that event hold that the discredited doctrine was not part of the underlying law and then formulate a new more appropriate rule for Papua New Guinea based on modern precedents in England, Australia and elsewhere.

I have no doubt that now more than twenty years after Independence the judges of the superior courts in Papua New Guinea (the great majority of whom are Papua New Guineans) would find very unattractive the notion that they are obliged to follow a pre-1975 decision of a foreign court, even the House of Lords, long abandoned elsewhere. In those circumstances they would in my view apply the qualifications referred to in the preceding paragraph and hold either that the precedent was never good law or that it was inapplicable in Papua New Guinea and that a new doctrine should be developed in its place. In this task they would readily consult and if considered appropriate then apply post-1975 authorities from England, Australia and other common law jurisdictions.

This is the approach Papua New Guinea courts are likely to take in considering foreign precedents including English precedents. It is to be noted that The Constitution provides in s.158(2) that "in interpreting the law the courts shall give paramount consideration to the dispensation of justice" and the term "law" is defined in Schedule 1 as including the underlying law."

132 I think the principal point of relevance of those legal analyses lies in the view this Court should take of the applicability of the principles applied by the majority decision of the High Court of Australia in Trident General Insurance Co Ltd v McNiece Bros Pty Ltd [1988] HCA 44; (1988) 165 CLR 107. After referring to a decision of the Supreme Court of Canada on modifying the application of the privity of contract doctrine, O'Regan QC expressed the following opinion:

"I think a court in Papua New Guinea would take account of all these developments in common law jurisdictions throughout the Commonwealth. It would in my view find the reasoning in Trident particularly persuasive and note the capacity of the strict rule of privity to work injustice by denying effect to the common intention of the contracting parties to benefit others. See especially the remarks of Mason C.J. and Wilson J. at pp. 121, 122 of their joint judgment.

It would be very likely to hold that this rule, at least in the public liability insurance context, is not now applicable to the circumstances of Papua New Guinea and should not be applied. Instead acting under Schedule 2.3 to The Constitution it would fashion an appropriate rule for Papua New Guinea based upon the legislation and case law of other common law countries which have abrogated the privity rule or substantially mitigated its unjust and anomalous effects.

As I stated in my Opinion concerning reception of the common law the Papua New Guinea courts do not slavishly follow pre-Independence decisions of the courts in England, even decisions of the House of Lords. They refer to precedents in other common law jurisdictions as well as England and apply those which in their view contains a formulation of the common law most appropriate for application in their country.

The result of this in the instant case would be that the court would follow Trident and hold that (Dyno) as an "insured" under the policy would be entitled to enforce an indemnity."

133 The difficulty I have in giving effect to that opinion, the reasoning of which I find attractive, lies in the invitation to state what a court in Papua New Guinea would decide in construing the enforceability of the endorsed policy by an unnamed insured by having regard to what was the likely approach of the court to the application of the privity of contract doctrine. I see that judicial exercise as being significantly different from stating on the basis of expert evidence what the law of Papua New Guinea is in relation to the principle of privity of contract. The matter is not made any less simple by recourse to what has occurred in England in more recent years in grappling with the commercial unreality of the rigid application of privity of contract principles in insurance law.

134 The dilemma is captured in the opinion of the Privy Council in The Mahkutai [1996] AC 650. In that case the Privy Council was concerned with the operation of a Himalaya clause in a bill of lading which extended the carrier's benefit of "exemptions, limitations, provision, conditions and liberties" to "every servant, agent or subcontractor of the carrier ... as if such provisions had been expressly made for their benefit".

135 In construing that clause, their Lordships considered the leading judgment of Lord Wilberforce in each of The Eurymedon [1974] UKPC 1; [1975] AC 154 and The New York Star [1981] 1 WLR 138 in which the Privy Council was concerned with the operation of a like clause and held stevedores to be entitled, in each case, to the benefit of it. In each case the efficacy of the Himalaya clause for the benefit of third parties was supported by recourse to the law of principal and agent, by construing the clause as one entered into by the carrier as agent for the stevedores.

136 I have set out below a long extract from the judgment of Lord Goff of Chieveley in The Mahkutai as I think it represents the modern approach in English law to the strict application of privity of contract doctrine where such an application would defeat the commercial objectives of the parties: and by as reflecting its discouragement of "a search for fine distinctions" which would have the effect of defeating those legitimate commercial objectives.

137 That passage to which I refer begins with a reference to the judgment of the Judicial Committee delivered by Lord Wilberforce in The New York Star and is in the following terms:

"The judgment of the Judicial Committee was again given by Lord Wilberforce. In the course of his judgment, he stressed, at p. 143:

"It may indeed be said that the significance of Satterthwaite's case lay not so much in the establishment of any new legal principle, as in the finding that in the normal situation involving the employment of stevedores by carriers, accepted principles enable and require the stevedore to enjoy the benefit of contractual provisions in the bill of lading."

He continued, at p. 144:

"Although, in each case, there will be room for evidence as to the precise relationship of carrier and stevedore and as to the practice at the relevant port, the decision does not support, and their Lordships would not encourage, a search for fine distinctions which would diminish the general applicability, in the light of established commercial practice, of the principle."

Lord Wilberforce in particular expressed the Board's approval of the reasoned analysis of the relevant legal principles in the judgment of Barwick C.J., which in his opinion substantially agreed with, and indeed constituted a powerful reinforcement of, one of the two possible bases put forward in the Board's judgment in The Eurymedon [1974] UKPC 1; [1975] A.C. 154. In his judgment in the court below (the High Court of Australia), Barwick C.J. saw no difficulty in finding that the carrier acted as the authorised agent of the stevedores in making an arrangement with the consignor for the protection of the stevedores: see [1979] 1 Lloyd's Rep. 298, 304-305. By later accepting the bill of lading the consignee became party to that arrangement. He could not read the clauses in the bill of lading as an unaccepted but acceptable offer by the consignor to the stevedores. However, the consignor and the stevedores were ad idem through the carrier's agency, upon the acceptance by the consignor of the bill of lading, as to the protection the stevedores should have in the event that they caused loss of or damage to the consignment. But that consensus lacked consideration. He continued, at p. 305:

"To agree with another that, in the event that the other acts in a particular way, that other shall be entitled to stated protective provisions only needs performance by the doing of the specified act or acts to become a binding contract. ... The performance of the act or acts at the one moment satisfied the test for consideration and enacted the agreed terms."

Such a contract Barwick C.J. was prepared, with some hesitation, to describe as a bilateral contract.

Critique of the Eurymedon principle

In The New York Star [1981] 1 W.L.R. 138, 144, Lord Wilberforce discouraged "a search for fine distinctions which would diminish the general applicability, in the light of established commercial practice, of the principle." He was there, of course, speaking of the application of the principle in the case of stevedores. It has however to be recognised that, so long as the principle continues to be understood to rest upon an enforceable contract as between the cargo owners and the stevedores entered into through the agency of the shipowner, it is inevitable that technical points of contract and agency law will continue to be invoked by cargo owners seeking to enforce tortious remedies against stevedores and others uninhibited by the exceptions and limitations in the relevant bill of lading contract. Indeed, in the present case their Lordships have seen such an exercise being legitimately undertaken by Mr. Aikens on behalf of the cargo owners. In this connection their Lordships wish to refer to the very helpful consideration of the principle in Palmer on Bailment, 2nd ed. (1991), at pp. 1610-1625, which reveals many of the problems which may arise, and refers to a number of cases, both in England and in Commonwealth countries, in which the courts have grappled with those problems. In some cases, notably but by no means exclusively in England, courts have felt impelled by the established principles of the law of contract or of agency to reject the application of the principle in the particular case before them. In others, courts have felt free to follow the lead of Lord Wilberforce in The Eurymedon [1974] UKPC 1; [1975] A.C. 154, and of Lord Wilberforce and Barwick C.J. in The New York Star [1981] 1 W.L.R. 138; [1979] 1 Lloyd's Rep. 298, and so to discover the existence of a contract (nowadays a bilateral contract of the kind identified by Barwick C.J.) in circumstances in which lawyers of a previous generation would have been unwilling to do so.

Nevertheless there can be no doubt of the commercial need of some such principle as this, and not only in cases concerned with stevedores; and the bold step taken by the Privy Council in The Eurymedon [1974] UKPC 1; [1975] A.C. 154, and later developed in The New York Star [1981] 1 W.L.R. 138, has been widely welcomed. But it is legitimate to wonder whether that development is yet complete. Here their Lordships have in mind not only Lord Wilberforce's discouragement of fine distinctions, but also the fact that the law is now approaching the position where, provided that the bill of lading contract clearly provides that (for example) independent contractors such as stevedores are to have the benefit of exceptions and limitations contained in that contract, they will be able to enjoy the protection of those terms as against the cargo owners. This is because (1) the problem of consideration in these cases is regarded as having been solved on the basis that a bilateral agreement between the stevedores and the cargo owners, entered into through the agency of the shipowners, may, though itself unsupported by consideration, be rendered enforceable by consideration subsequently furnished by the stevedores in the form of performance of their duties as stevedores for the shipowners; (2) the problem of authority from the stevedores to the shipowners to contract on their behalf can, in the majority of cases, be solved by recourse to the principle of ratification; and (3) consignees of the cargo may be held to be bound on the principle in Brandt v. Liverpool, Brazil and River Plate Steam Navigation Co. Ltd. [1924] 1 K.B. 575. Though these solutions are now perceived to be generally effective for their purpose, their technical nature is all to apparent; and the time may well come when, in an appropriate case, it will fall to be considered whether the courts should take what may legitimately be perceived to be the final, and perhaps inevitable, step in this development, and recognise in these cases a fully-fledged exception to the doctrine of privity of contract, thus escaping from all the technicalities with which courts are now faced in English law. It is not far from their Lordships' minds that, if the English courts were minded to take that step, they would be following in the footsteps of the Supreme Court of Canada: see London Drugs Ltd. v. Kuehne & Nagel International Ltd. (1992) 97 D.L.R. (4th) 261 and, in a different context, the High Court of Australia: see Trident General Insurance Co. Ltd. v. McNiece Bros. Pty. Ltd. [1988] HCA 44; (1988) 165 C.L.R. 107. Their Lordships have given consideration to the question whether they should face up to this question in the present appeal. However, they have come to the conclusion that it would not be appropriate for them to do so, first, because they have not heard argument specifically directed towards this fundamental question, and second because, as will become clear in due course, they are satisfied that the appeal must in any event be dismissed."

(at 662-665)

138 Just as much as the Privy Council declined to "face up" to the question of recognising a "fully-fledged exception to the doctrine of privity of contract, thus escaping from all the technicalities with which courts are now faced in English law", I think that it would be inappropriate for me to state what the court in Papua New Guinea would decide if it "faced up" to this question: assuming that such an exercise is open to me.

139 I think the following may be drawn from The Mahkutai when considering English authorities on the question of the operation of the privity of contract doctrine, while not unmindful of the fact that these observations were made by the Law Lords sitting as Privy Councillors:

(1) The rigid application of the privity of contract principles has a potential to have unacceptable commercial consequences.

(2) In appropriate cases the court will strive to avoid those consequences and to give effect to the obvious intention of contracting parties, by resort to the concept of principal and agent.

(3) In such cases, the parties to such a contract would not be encouraged to "search for fine distinctions which would diminish" the court's ability to give effect to the parties' intention.

(4) In particular classes of cases, English courts may treat those cases as falling within an exception to the privity of contract rule, "thus escaping from all the technicalities with which courts are now faced in English law".

140 Richard Aikens QC (Aikens QC) gave evidence in the Niugini Insurance case as an expert in English law. He was eminently qualified to do so. Presumably, he was the Mr Aikens who appeared on behalf of the cargo owners in The Mahkutai who was seen as "legitimately" undertaking the task of invoking "technical points of contract and agency law" to defeat the application of agency principles in that case.

141 In his opinion of 10 July 1998, Aikens QC offered the following expert evidence on English law:

"15. The General Rule

For over 100 years before 1975 there had been a "fundamental principle" of the English law of contract that only a party to a contract who had provided consideration could sue on it. The House of Lords confirmed the rule in Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd [1915] UKHL 1; [1915] AC 847. This basic rule has been reaffirmed subsequently ... Since 1975 there has been no change in the basic law, even though the House of Lords and the Privy Council have often commented on the problems that the "privity rule" creates and the artificial means that have been adopted by courts to circumvent it. (See: eg. Woodar Investments v Wimpey [1980] UKHL 11; [1980] 1 WLR 277 at 291; 297 - 8 and 300 (HL); The Pioneer Container [1994] UKPC 5; [1994] 2 AC 324 at 335 (PC) and most recently: The Mahkutai [1996] AC 650 (PC) at 664 - 5 per Lord Goff of Chieveley).

16. Evasion of the General Rule

The English Courts have used a variety of methods to evade the "privity rule". Two are relevant to the present case. The first method is the principle of agency; the second is the principle of the "trust" of a benefit for a third party. These mechanisms were recognised before 1975 and have been confirmed as legitimate (in appropriate circumstances) since then.

17. Agency: It is a well - established rule of English law that a person (the principal) may be made a party to a contract by another person (the agent) agreeing with the third party (the other party to the contract) that the principal should be bound to the contract. But there will be difficulties in applying agency principles when a contract is made in the first place between identified parties who are clearly principals (say A and B) and the question is whether other, unidentified parties, can adhere to the contract ...

18. There is a recognised agency mechanism in English law which enables another party to adhere to a contract that exists between two identified principals. The requirements were summarised by Lord Reid in a celebrated passage in his speech in Midland Silicones Ltd v Scruttons Ltd [1961] UKHL 4; [1962] AC 446 at 474. This analysis has been accepted and applied (or considered) by the Privy Council in several subsequent cases: New Zealand Shipping Co Ltd v AM Satterthwaite & Co Ltd ("The Eurymedon") [1974] UKPC 1; [1975] AC 154; Port Jackson Stevedoring Pty Ltd v Salmond and Spraggon (Australia) Pty Ltd ("The New York Star") [1981] 1 WLR 138; "The Mahkutai" [1996] AC 650.

19. Those cases all involve attempts by persons who were not originally parties to a contract to take advantage of terms of the contract. In the first two cases they were stevedores who wished to have the benefit of exemption clauses in bills of lading. In the last the shipowner, who was not an original party to the bill of lading (which had been issued by the charterers of the ship), wished to take advantage of an Exclusive Jurisdiction Clause in the bill of lading. But this principle has also been evolved in the context of insurance contracts, particularly marine insurance. This is clear from a number of cases in the nineteenth century which culminate in the House of Lords decision of Boston Fruit Co v British & Foreign Marine Insurance Co [1906] A C 336. The correctness of this decision has never been doubted and it was followed recently in the Court of Appeal (in a case concerning a Shipbuilders All Risks type policy) in Stone Vickers Ltd v Appledore Ferguson Shipbuilders Ltd [1992] 2 Lloyd's Rep 578; see particularly at 584. The principles were summarised by Colman J in the case which is regarded in England as the leading modern authority on the question of whether a person may claim to be a co - assured under a policy in which it is clear that unidentified persons might be regarded as co - assured: National Oilwell (UK) Ltd v Davy Offshore Ltd [1993] 2 Lloyd's Rep 582; see the summary at 596 - 7.

20. There are four requirements (in English law) that must be fulfilled before it could be said that Dyno became a party to the contract in this way.

(1) In circumstances where there is a contract between A and B, then a third person (C) could only become a party to that contract as well if A and B agree. This agreement would either have to be in the wording of the contract or from some other, further agreement between A and B ...

(2) Secondly there must be a mechanism whereby one party to the contract can act as the agent of a third party to bind the third party to the contract. If the named parties to the contract contemplate that another party will be able to adhere to it through the mechanism of agency, then this would also have to be agreed by both named parties. Once again this could either be apparent from the wording of the contract itself or from some other agreement between the two original parties ...

(3) The third requirement is that the party to the contract (in this case the named insured) has the authority of the potential principal (ie. Dyno, who is the third party that wishes to adhere to the contract) to bind Dyno to the contract ...

(4) In principle, if a named insured does not initially have the authority of the potential adherent to bind it to the contract, then it could still become bound if the adherent ratifies the unauthorised act of the named Insured: Boston Fruit Co v British and Foreign Marine Insurance Co [1906]AC 336. But an undisclosed principal (as opposed to an unnamed one) may not ratify the act of a previously unauthorised agent: Keighley Maxsted & Co v Durant [1901] AC 240 (House of Lords). Furthermore, the Court of Appeal has now made it clear that if, on the wording of the policy, a person is unidentified or incapable of being identified as a potential principal at the time that the principal contract is concluded, then such a person cannot subsequently ratify the contract. This was held to be so, even if the person falls into a class of persons that is identified in the contract as being persons that might adhere to the contract. The reason given in that case was that the agency mechanism can only work if it is clear that the contract contemplates that it can be adhered to by identified parties or particular persons capable of identification. See: Stone Vickers Ltd v Appledore Ferguson Shipbuilders Ltd [1992] 2 Lloyd's Rep 578 especially at 584 - 5 per Parker LJ. In England if there is an issue about who can sue on a contract of insurance, then the court will consider extrinsic evidence apart from the policy itself to determine whether it was the intention of the principal insured that another party (who falls within the general definition of insureds) should be a party to the insurance. (This point was analysed extensively in the National Oilwells case (supra) at 593 - 6).

(5) I should point out that in the National Oilwell (UK) case (supra), Colman J stated (at 597) that on the facts of that case it was unnecessary for him to deal with the position where:

"at the time when the contract of insurance was entered into, the alleged co - assured could not be ascertained as a member of the class referred to in the policy, but only qualified for membership at a later stage or where at the time of the policy it was only intended to insure all persons in the class or who might in future qualify as members of the class, although it would have been impossible to identify the alleged co - assured as such. These are difficult points considered in Arnould, Marine Insurance 16 Ed. para 243. I express no view on whether privity of contract could be established in such cases".

The situation contemplated by Colman J was, in fact, the one that had to be considered by the Court of Appeal in the Stone Vickers case (supra). In that case the Plaintiffs, Stone Vickers, were the suppliers of a propeller to an oceanographic research vessel that was being built by the Defendants, Appledore Ferguson Shipbuilders Ltd. The Defendants had declared the risk represented by the shipbuilding project under a Shipbuilders All Risks policy in April 1982. But Stone Vickers did not contract to supply the propeller until mid May 1982. The Court of Appeal found, as a fact, that at the time that the declaration was made in April 1982, Stone Vickers was not contemplated as a supplier. It also held, as a matter of construction of the policy documents, that it was not intended that:

"all sub-contractors, unidentified and incapable of identification at the time [of the declaration] were automatically covered. It can only mean that declarations naming or properly describing sub - contractors would be accepted". [See page 584 right hand column and page 585 right hand column].

(6) The Court of Appeal expressly considered whether, on the facts they had found, Stone Vickers could invoke Lord Reid's analysis of the "agency mechanism" so as to become a party to the contract of insurance. It concluded that this was not possible because the first two requirements (considered in (1) to (3) above) were not fulfilled. It therefore found it unnecessary to consider further the issues of ratification or consideration. (It was conceded that Appledore did not have authority from Stone Vickers to contract on their behalf at the time that the risk was declared in April 1982). But it follows from the Court's reasoning that it considered ratification could only be invoked to utilise the "agency mechanism" if the contract of insurance made it clear that it intended to apply to the particular sub - contractor who was nominated after the declaration under the policy was made.

(7) This analysis accords with the House of Lords' decision in Keighley Maxted & Co v Durant [1901] AC 240 that an unauthorised agent cannot ratify for an undisclosed principal. In Boston Fruit Co v British and Foreign Marine Insurance Co [19061 AC 336 at 343, Lord Atkinson pointed out that the doctrine established in marine insurance cases that an "underwriter ... was held to have insured those whom the person who dealt with him intended should be insured, though that intention was never communicated to [the underwriter]" could not long survive the Keighley Maxted decision. The issue that is discussed at para 243 of Arnould on Marine Insurance (16 Ed) is whether, at the time that the contract of marine insurance is concluded, it is necessary (i) simply that the agent (ie. the person named in the contract, eg the cargo owner/seller) should have intended that anyone who came within an identified class (eg. buyers of the cargo) could be a party to the contract; or (ii) that the agent intended a particular person could become a party to the contract, in either case if the person became interested in the subject matter of the insurance. Arnould (16 Ed original para 243) argues that the wider rule represents English law. But the Stone Vickers case seems to confirm that the narrower rule represents English law. The Court of Appeal's analysis appears to be accepted in Arnould (16 Ed) volume 3 at para 241 - 2.

(8) The fourth requirement is that consideration must move from the third party: ie Dyno in this case. The consideration can be in the form of a benefit to another or a detriment to Dyno ... In "The Mahkutai" Lord Goff said that when a third person becomes a party to a contract through an agent, the problem of consideration is "solved" by the subsequent performance of the new parties' duties: see page 664F of the report ... But in English law the question of whether consideration has been given will be an issue of fact to be determined at the trial."

142 As a general comment on that evidence, I have some considerable discomfort with Aikens QC's analysis of Woodar Investments, The Pioneer Container and The Mahkutai as illustrations of cases in which "the House of Lords and the Privy Council have often commented on the problems that the "privity rule" creates and the artificial means that have been adopted by courts to circumvent it". (emphasis added)

143 Rather than regarding the means invoked by recourse to principles of agency as being artificial, it seems to me to be clear from the authorities to which I have been referred by Aikens QC, that any artificiality lies in the "fine distinctions", to adopt Lord Wilberforce's phrase, and the "technical points of contract and agency law", to adopt Lord Goff's phrase, invoked to avoid the application of principles of agency for the benefit of third party contracts.

144 I think the heading, "Evasion of the General Rule" by which Aikens QC introduced his analysis of the application in English law of the privity of contract doctrine, illustrates a conceptual approach which I think is at odds with those cases.

145 I would contrast Aikens QC's paraphrasing of those decisions with what Lord Goff said in The Mahkutai which I repeat for convenience of reference:

"Here their Lordships have in mind not only Lord Wilberforce's discouragement of fine distinctions, but also the fact that the law is now approaching the position where, provided that the bill of lading contract clearly provides that (for example) independent contractors such as stevedores are to have the benefit of exceptions and limitations contained in that contract, they will be able to enjoy the protection of those terms as against the cargo owners."

I see nothing artificial in that approach.

146 The second matter of significant difficulty that I have in accepting the analysis of Aikens QC, lies in his resort to Stone Vickers for the propositions referred to in the passages from his opinion evidence quoted above. The decision of Stone Vickers, in my view, is of very little, if any, assistance in resolving the construction issues raised in these proceedings. The matters in respect of which Aikens QC cites Stone Vickers must be read in the context of the facts and the terms of the policy under consideration in Stone Vickers and which, I think, are significantly different from the facts of this case and the terms of the endorsed policy.

147 In Stone Vickers, the respondent Appledore Ferguson Shipbuilders Ltd is referred to in the judgment as AS. It was a subsidiary of British Shipbuilders Ltd, which is referred to in the judgment as BS. The insurance provision with which Stone Vickers was concerned, is set out in the judgment of Lord Justice Parker, as follows:

"At all material times AS was a subsidiary of British Shipbuilders Ltd. (BS). That company had many other subsidiary or associated or member companies which were separately insured under different policies but it desired to cover all insurance protection which it required for itself and its subsidiary and associated and member companies by means of one open cover policy and declarations thereunder.

Prior to the date of the main contract this objective had not yet been achieved and there were in force two relevant open covers. The first of these was a BS open cover for the period Nov. 1, 1981 to Mar. 31, 1983 sometimes referred to as the B.S. Marine Contract or Package Policy 1981-83. The immediately relevant provisions of this policy were:

ASSURED British Shipbuilders their Associated Subsidiary and Member Companies and/or as required by contract for their respective rights and interests as attached ...

ON (A) CONSTRUCTION and/or COVERSION RISKS and/or BUILDERS INTEREST in respect of vessels ... and/or any interests as may be declared.

Declarations hereunder ... to be agreed by Leading Lloyd's Underwriter and the Leading Company Underwriter and to be binding on all remaining Underwriters hereon.

The second open cover was an AS open cover (Policy No. MN10025A) covering the same period as the BS open cover last mentioned, the immediately relevant terms of which were:

ASSURED:

This Policy insures Appledore Shipbuilders Ltd. and/or Appledore Shiprepairers Ltd. and/or British Shipbuilders Ltd. for their respective rights and interests and liabilities hereinafter referred to as the "Assured".

Agreed include Associated and Subsidiary Companies and/or Sub-Contractors as additional Co-assured for their respective rights and interests. Without recourse against any Co-assured.

It is further agreed that, in respect of additional (Co-)Assured named or referred to herein, this Policy will discharge any liability that it would bear if each of the Assured named or referred to herein was separately insured and in the event of any act or omission on the part of one Assured in respect of which Underwriters exercise their right to avoid the Policy the remaining Assured (including those named in the first paragraph of this Clause) for whom this Policy remains in full force shall not be prejudiced thereby.

This policy also dealt inter alia with construction risks and incorporated certain sets of standard clauses to which I shall later return.

On Apr. 7, 1982 A.S. made a declaration in respect of the construction of the Charles Darwin (also known as A.S. 138) which was duly presented to and accepted by underwriters. As so accepted it was in the following terms:

BRITISH SHIPBUILDERS

MARINE CONTRACT 1981 - 1983

APPLEDORE SHIPBUILDERS LIMITED

POLICY NO. MN 10025

SECTION (A) - CONSTRUCTION

Agreed accept:

ASSURED APPLEDORE SHIPBUILDERS LIMITED and/or BRITISH SHIPBUILDERS NATURAL ENVIRONMENTAL RESEARCH COUNCIL and/or MORGAN GRENFELL LIMITED for their respective rights and interest.

VESSEL No. AS 138 (Oceanographic Research Vessel)

PERIOD To be advised (Commencement of erection March 1983-

Delivery February 1984)

...

As to the declaration the Judge observed:

It was ... made and accepted by underwriters under Policy MN10025 in relation to Section A as contemplated by and provided for in the BS Marine Contract or Package Policy for 1981-83.

The BS open cover, the AS policy MN10025A and the accepted declaration are the foundation of SV's claim to have been co-assured."

(at 581-582)

148 SV was the respondent Stone Vickers which had contracted with Appledore as subcontractor for the supply to Appledore of a single screw controllable pitch propeller and ancillary equipment in connection with the shipbuilding contract the subject of the Appledore declaration of 7 April 1982. That contract was dated 8 April 1982. Stone Vickers did not tender for the subcontract works until 19 April 1982 and on 17 May 1982 its tender was accepted. The subcontract contained cross indemnity provisions but no provision requiring Appledore to effect any insurance on behalf of Stone Vickers.

149 In dealing with the question whether Stone Vickers was a co-assured, Parker LJ expressed the following reasons for concluding that it was not an insured under the AS policy as follows:

"Were SV co-assured?

This is, as I have said, the crucial question because, if they were not, the appeal must succeed. I approach this question, first, as a matter of construction.

In Boston Fruit Company v. British and Foreign Marine Insurance Co., [1906] A.C. 336, the appellants had chartered a vessel from owners who had taken out an insurance on it -

... as well as in their own name as for and in the names of all and every other person or persons to whom the subject matter of this policy shall appertain in part or in all.

The policy contained a collision clause. The appellants having had to pay damages to the owners of another vessel in respect of a collision with the insured vessel sought to recover from the insurers. The charter-party provided that the owners should pay for insurance on the vessel. It was held that the appellants were not entitled to sue on the policy. Dealing with the question of the intention of the owners at the time of effecting the policy Lord Macnaghten said at pp. 340-341:

There is not the slightest evidence of intention on the part of the owners to protect the charterers by insurance unless such intention can be inferred from the mere fact of the existence of the policy taken in connection with the language of the charter ... it seems to me that the conclusion must be that when the owners proposed to insure, acting as they did without any communication with the charterers, the charterers cannot be regarded as persons within the contemplation of the proposal.

It is clear from that case that for the purposes of ascertaining intention one may look not only at the policy documents but also at the contract between the assured and the alleged co-assured.

In the present case (i) there was no communication with regard to insurance between AS and SV either prior to the BS main contract, the AS policy MN10025A, or the declaration expressly made under both those documents, or indeed at any material time thereafter; (ii) whatever may have been expected or intended as to SV becoming the sub-contractor for the propeller it was uncertain whether they would be such. They had not yet tendered at the time the declaration was agreed and accepted by underwriters; (iii) the main contract did not provide that SV should be sub-contractors for the propeller; (iv) the sub-contract when entered into did not provide for AS to insure in the joint names of themselves and SV; (v) SV insured for the benefit of AS with specific mention of the liability under the reciprocal indemnity clause. All these matters together with the guarantee and defects liability clause are in my judgment inconsistent with any intention on the part of AS to insure for the benefit of SV

As to the insurance documents themselves:

(i) BS Marine Contract 1981 - 1983 included, outside BS and their subsidiary, associated and member companies only such other parties required by contract. There was no contractual requirement to include SV

(ii) Policy No. MN10025A names as assured only AS and/or Appledore Ship Repairs Ltd. and/or BS for their respective rights and interests.

The words following:

... agreed include Associated and Subsidiary Companies and/or Sub-contractors as additional co-assured for their respective interests ...

cannot in my judgment mean that all sub-contractors unidentified and incapable of identification at the time were automatically covered. It can only mean that declarations naming or properly describing sub-contractors would be accepted.

(iii) The following provisions of MN10025A indicate that sub-contractors in general were not intended to be covered.

(a) General Condition 4

Main Engines and/or other interests built by members of BS insured hereunder when attaching from delivery to Shipyard monthly rate only to apply.

(b) Section I. Construction Risks. Clause 11:

OUTSTANDING TO SUB-CONTRACTORS IF TOTAL LOSS:

It is understood and agreed that where component parts scheduled for inclusion in the completed Vessel are being build by Sub-Contractors, then, in the event of a claim for Total Loss of the building at the main contractor's yard being settled, Underwriters will indemnify Sub-Contractors of component parts up to the value of these parts.

(iv) The declaration of Apr. 7 named as assured only AS, BS, NERC and Morgan Grenfell Ltd. There was no mention of Appledore Ship Repairers Ltd., who were named in policy MN10025A or of any specific sub-contractor or class of sub-contractors.

(v) Read as a whole, including the incorporated clauses, the policy was not intended to cover and did not cover losses or expenses arising from the rectification of design faults.

In the light of all the above matters I conclude that as a matter of construction SV were not intended to have and did not therefore have the benefit of the AS insurance and were not co-assured."

(at 584-585)

150 Of that decision I observe that the subject policy was an open policy: it purported to cover the named insured and a group of unidentified "associated and subsidiary companies of the named insured and/or Sub-Contractors" presumably of each or all of those named and unspecified companies.

151 Further, the insured identified in the declaration made under the policy was identified as Appledore and two other entities, referred to respectively as Research Council and Morgan Grenfell Ltd. At the time of the inception of the policy, one assumes that the subject shipbuilding contract was not in contemplation and further that at the time of the declaration under the policy, Stone Vickers was not in contemplation. Those circumstances are to be distinguished from project-specific, contractors' all risks policy and operational all risks policy entered into, in the case of the endorsed policy, at a time when the named insured was under a contractual obligation to effect the cl 15.2 insurance indemnifying Dyno as contractor and supplier under the contract. I think that was so under the 1992 extended cover, and it was certainly so, in my view, under the 1994 endorsement.

152 Stone Vickers, I think, may be safely left to rest with its special facts.

153 In my view, the four requirements for the enforcement of the endorsed policy by Dyno as identified by Aikens QC, are satisfied, by the terms of the endorsed policy and those of the Dyno contract, in particular, the obligation of Placer under that contract to effect the cl 15.2 insurance. No question of ratification, as discussed by Aikens QC, arises.

154 In reaching that conclusion by recourse to the terms of the Dyno contract, I note in the quoted passage from the judgment of Parker LJ in Stone Vickers his Lordship's reliance upon Boston Fruit Co v British and Foreign Marine Insurance Co [1906] AC 336 as authority for the proposition that "for the purposes of ascertaining intention (of the named insured to effect insurance on behalf of the third party) one may look not only at the policy documents but also at the contract between the assured and the alleged co-assured."

155 In this case, I also have the benefit of the evidence of John Bagnall, who was company secretary and in-house counsel for Dyno in 1992, to the effect that, in negotiations leading up to the execution of the Dyno contract and in discussions immediately preceding the inception of the 1992 extended cover, it was clearly understood that the PJV would "have their insurance cover also protect Dyno's interests and risk of the operation" to avoid duplication of cover. I think there is very little room for conjecture as to the intention of Dyno and the PJV that Dyno was to be covered by the endorsed policy. I do not understand there to be any serious question concerning the insurable interest of Dyno. The policy provided for an indemnity in respect of the respective interests of the insured in relation to the project. The authorities, as explained by Aikens QC, clearly demonstrate the "pervasive interest" each of the insured had in the project and in particular the insured property.

156 Objection had been taken to the evidence of Alfred John Steeden (Steeden) by Niugini Insurance on the basis that his evidence did not go to any issue between Dyno and Niugini Insurance. I can find no record where that objection was disposed of, although I had given an indication as to its admissibility. As to the objection to the whole of the statement, that cannot be sustained as the material referred to below, in my view, is admissible and relevant to the commercial nature of a contractors all risks policy.

157 Steeden had been involved in the insurance industry for over fifty years, initially being involved in the London broker market. He came to Australia in 1971 and obtained prominence in the broking industry. He described the commercial background to the contract works insurance as follows:

"Contract works insurance came into the London insurance market in about the late 1930s when the British Institute of Architects recommended to their members that building contracts should contain clauses requiring all parties to be jointly covered against physical loss or damage to contract works. The advantage of this type of insurance was that all contractors and subcontractors on site could be covered by the same policy and any claims under that policy would only have to be adjusted once rather than involving a multiplicity of insurers in each claim. The complications caused by having more than one insurer is that the terms and conditions of each of the policies may differ and excesses may vary. It also has the effect of having multiple loss adjusters involved in such claims. The policies were most often used in large civil engineering projects where a number of contractors and/or subcontractors could be involved and it is common practice for the Principal in such projects to arrange insurance in one policy on behalf of all parties on site."

158 I find utility in that material as evidencing the nature of the benefit to both insured and insurer in a specific project contract works policy which, in my view, lends weight to the commercial objective of the parties to the policy and the endorsed policy, and is consistent with the imputation of an intention of the PJV to act as agent for Dyno in effecting the endorsed policy.

159 Where one has a contractors all risks policy, and in this case combined with an operational all risks policy, for a specific project, for a defined time, expressed to cover named insured and others by characterising them as contractors or suppliers to the named insured, the intention is plain that the policy cover contemplated is for the benefit of those satisfying that description engaged from time to time in the project in the manner defined.

160 Where that policy is effected pursuant to a contractual obligation to the contractor or supplier to insure, as is the case of the endorsed policy, then no question of ratification, in my view, arises, nor any question as to the authority of the named insured to act as agent for the unnamed insured in effecting that policy. The necessary consideration to support such a contract of insurance on behalf of an unnamed insured is to be found in the terms and performance of the Dyno contract by Dyno.

161 I have not found it necessary to consider the application of the trust mechanism as a means for enforcement of the endorsed policy for the benefit of Dyno, nor the application of the principles relating to the enforcement of contracts for the benefit of third parties as expressed in Beswick v Beswick [1967] UKHL 2; [1968] AC 58. I prefer not to express any view on those two avenues of enforcement of the endorsed policy in favour of Dyno other than to observe that Beswick was concerned with the specific enforcement of a promise to pay a sum certain to a specific person, who was not a party to the subject agreement. I have been referred to no authority where Beswick has been applied in obtaining specific performance of an indemnity in favour of an unnamed beneficiary of the indemnity.

162 It then remains to be considered whether the PJV, really Niugini Insurance, may bring the subrogation claim against Dyno. Clearly, in my view, it may not. I think that result flows from the authorities cited by Aikens QC and, in particular, from Petrofina (UK) Ltd v Magnaload Ltd [1984] 1 QB 127 at 140. Lloyd J, in that case, expressed the principle as being based on a concept of circuity of action which his Honour considered in the following way:

"That brings me to the last question: does the fact that the defendants are fully insured under the present policy defeat the insurer's right of subrogation? In the Commonwealth Construction Co. case and in the American cases there referred to, it was assumed that it followed automatically that the insurers could have no right of subrogation. In the Commonwealth Construction Co. case it was described as being a "basic principle." In one of the American cases it was said that the rule was too well established to require citation. In none of the cases is there any discussion as to the reason for the rule, except for a brief reference in the Commonwealth Construction Co. case to Simpson and Co. v. Thomson (1877) 3 App. Cas. 279 as follows, at p. 561:

"The starting point of that submission is the basic principle that subrogation cannot be obtained against the insured himself. The classic example is, of course, to be found in Simpson and Co. v. Thomson, 3 App.Cas. 279. In the case of true joint insurance, there is, of course, no problem; the interests of the joint insured are so inseparably connected that the several insureds are to be considered as one with the obvious result that subrogation is impossible. In the case of several insurance, if the different interests are pervasive and if each relates to the entire property, albeit from different angles, again there is no question that the several insureds must be regarded as one and that no subrogation is possible."

The question whether there is a fundamental principle of the law of insurance that insurers can never sue one co-insured in the name of another came up in The Yasin [1979] 2 Lloyd's Rep. 45. In that case I said that I was not satisfied that there was any such fundamental principle as had been suggested: the reason for the rule seemed to me to rest on ordinary principles of circuity. This idea has since been adopted by the current editors of MacGillivray & Parkington on Insurance Law, 7th ed. (1981), para. 1214. In paragraph 1215 the editors say:

"The crucial question, therefore, in any case involving joint assured is whether the liability of one co-assured to the other is one of the matters covered by the policy."

Thus where a bailee is insured against liability to the bailor, and the bailor is insured under the same insurance, it is obvious that the insurer could not exercise a right of subrogation against the bailee: circuity would be a complete answer. But in The Yasin I went on to contrast the position where the bailee had insured, not his liability to the bailor, but the goods themselves. Now that the matter has been argued again, I have come to the conclusion that the contrast I was seeking to draw is fallacious. Whatever be the reason why an insurer cannot sue one co-insured in the name of another, and I am still inclined to think that the reason is circuity, it seems to me now that it must apply equally in every case of bailment, whether it is the goods which the bailee has insured, or his liability in respect of the goods. The same would also apply in the case of contractors and sub-contractors engaged on a common enterprise under a building or engineering contract. Even if I still had reservations of the kind which I tried to voice in The Yasin, I would feel obliged to bury them in the light of the decision of the Supreme Court of Canada in the Commonwealth Construction Co. case, a decision which was not cited in The Yasin and for the reference to which in the present case I am very grateful to counsel."

(at 139-140)

163 In National Oilwell (UK) Ltd v Davy Offshore Ltd [1993] 2 Lloyd's Rep. 582, Colman J preferred to uphold a defence to a subrogation action against a co-assured on the basis of an implied term in the policy of insurance. The difficulty I have with these decisions is that as matters of strict pleading go, on the face of pleadings in a subrogation action, there would be no issue raised as to the identity of the true plaintiff and the concept of circuity, while a practical basis for resisting a claim in subrogation against a co-assured, is not readily expressed in terms of legal principle. However that may be, the English authorities, I think, are clear to the effect that such a claim by way of subrogation against a co-assured will be defeated either on grounds of circuity of action or as being brought in breach of an implied or express term of the underlying policy of insurance.

164 In this case there exists a promise on the part of Placer to effect the cl 15.2 insurance on behalf of Dyno. The bringing of a subrogation claim by PJV against Dyno as a co-insured would appear to run counter to that obligation under the Dyno contract. However, I prefer not to dispose of the subrogation claim on the basis that it is one brought in breach of any implied obligation of Placer under the Dyno contract. I reject the subrogation claim as one involving a circuity of action or, alternatively, as one brought in breach of the terms of the endorsed policy. As to those terms, it is noted that, in relation to the Section II cover, the cross-liability clause earlier quoted provided that Niugini Insurance waived all rights of subrogation which it may have or acquire against any of the insured parties.

165 Before examining the quantum issues, it is preferable, I think, to dispose of some threshold insurance questions raised by Niugini Insurance against the claims by Dyno under Sections I and II of the policy. It is Niugini Insurance's case that, if Dyno is an insured under the policy, Niugini Insurance was entitled to, and did, avoid the policy for material non-disclosure as notified by letter of 5 April 1995 which was in the following terms:

"Contract Works Policy - Porgera Joint Venture

Your Client - Dyno Wesfarmers Limited

We refer to your facsimile dated 27 March 1995.

While not in any way limiting the grounds upon which we may rely in the event of litigation we now advise that the following are the major reasons for our client's decision to reject all claims by your client:

1. Our client maintains that your client is not an insured under its policy.

2. Even if your client were insured under the policy (which is denied):-

(a) Your client undertook an increase in risk that was not contemplated

by the policy due to processing of explosives on site and doing so in a dangerous and unlawful manner; and

(b) Your client has been in breach of the due care clause;

3. As mentioned above our client denies that your client is an insured under its policy. Even if your client were considered an insured (which is denied) our client would by this letter avoid the policy as against your client only, on the grounds of lack of good faith and material non-disclosure of risk as our client was not aware that your client was processing explosives on site.

We do not intend to correspond with you further on this matter and we confirm that any proceedings issued by your client will be strenuously defended to trial."

166 I doubt if anything turns on the distinction drawn in that letter between a non-disclosure of an increased risk and material non-disclosure of a risk other than in terms of the construction placed on the policy, the 1992 endorsement and the 1994 endorsement. In each case the central basis for the avoidance lies in the risk associated with the conduct of explosives processing on-site. It was not a distinction pressed in final submissions on behalf of Niugini Insurance.

167 What the distinction does emphasise is the primary position taken by Niugini Insurance that the policy did not respond to risks associated with the manufacture and storage on site of explosives: the policy being a "contract works policy." Pars 10 and 11 of Niugini Insurance's contentions in its defence to the second cross-claim are in the following terms:

"10. In further answer to the whole of Dyno's claim, NIC says that if (which is denied) Dyno was entitled to be indemnified under the Insurance policy, NIC was entitled to and has avoided the Insurance Policy as against Dyno by reason of material non-disclosure, namely the failure to disclose to NIC the fact that Dyno was manufacturing and assembling and/or storing bulk and/or cap-sensitive explosives and detonators in close proximity on a remote site in Papua Niugini using primarily national unskilled labour.

11. In further answer to the whole of Dyno's claim, NIC says that if (which is denied) Dyno was a party entitled to be indemnified under the Insurance Policy, NIC is not liable to indemnify Dyno, because Dyno's activities as referred to in the foregoing paragraph materially and substantially altered the risk from that which was insured under the Insurance Policy."

168 As stated earlier in these reasons, I regard Niugini Insurance's construction of the endorsed policy, upon which that defence is founded, as erroneous. That approach to the policy is, in my view, the key to the resolution of the "non-disclosure" insurance issues in these proceedings.

169 Niugini Insurance has concentrated on Dyno's operation on site by comparison with that of ICI as conducted up to 15 November 1992. That approach tends to cloak the significance of the failure of Niugini Insurance to appreciate that the endorsed policy included an operational all risks cover which, by its terms, covered the operation of the explosives plant.

170 It is common ground that Niugini Insurance was aware that an explosives facility of some kind was on site. I do not understand it to be disputed that, had it been appreciated by Niugini Insurance that the endorsed policy covered the risk associated with the explosives supply operation on site, the assessment of that risk would have been referred to the Property and Fire department of Munich Re. That is the clear effect of the evidence. Whether "the processing of explosives on site" was that conducted by ICI or Dyno, disclosure of the risk associated with that operation was clearly material to any determination by Niugini Insurance to grant or continue to provide cover under the policy, or more particularly, the endorsed policy.

171 It is useful, I think, to approach the non-disclosure issue through Niugini Insurance's case that Dyno's operation represented an increased risk when compared with the pre-15 November 1992 operation of ICI.

172 Niugini Insurance identified eight changes in the operations of Dyno when compared with those of ICI, namely:

(1) There was a change in the form of explosives from Amex series to ANFO which were mixed on site. It is not suggested that that represented a material change.

(2) The presence on the site of an emulsion plant and the preparation of emulsion on site was not reflected in any part of the ICI operation.

(3) The presence on the site of the emulite plant and the preparation of emulite on site was not matched by anything performed by ICI.

(4) Similarly, the nonel detonator plant and preparation of detonators on site formed no part of ICI's operation.

(5) Matrix was pumped into a mixer into which a sensitiser was added by ICI at the plant to produce powergel, while Dyno carried out a similar operation, at the mine face in the production of DP 400.

(6) There was difference in the volume of emulsion and related material, such as fuel phase and AN liquor, stored or used on site under the operations of ICI and Dyno.

(7) Dyno introduced two steam generators to the site.

(8) Dyno's workforce was larger than that of ICI.

173 Niugini Insurance conceded that the change referred to in paragraph 1 was not material and submitted that there was no material difference in the nature of the operations referred to in paragraph 5. However, in respect of the latter activity, I think the evidence disclosed that the performance of that operation at the plant by ICI carried a greater risk than Dyno's mixing of the DP 400 at the mine face in the mobile mixer.

174 The matters of difference referred to in paragraphs 7 and 8, I think, were inconsequential. The assembling of detonators involved a comparatively simple attachment of a tube and plug by crimping. The significance of the separation distance of this plant from the explosives plant is examined elsewhere in these reasons. As to paragraph 6, the evidence established that, towards the end of the ICI contract, there was a considerable volume of emulsion stored on site in the vicinity of the plant. At the same time it had not been necessary for ICI to store AN liquor and fuel phase which Dyno had as part of its operation.

175 It is Niugini Insurance's case that there was a greater quantity of emulsion and related materials stored by Dyno in the vicinity of the plant when compared with the storage of like material under the ICI operation. I am far from satisfied that that is the case. The evidence of Hood was that, towards the end of the ICI contract, one month's emulsion requirement was stored on site, consisting of about 400 to 500 tonnes, compared with 100 tonnes stored by Dyno.

176 During cross-examination, Hood confirmed this evidence in the following way:

"A. ... When the ICI contract finished, we had four or 500 tonnes of emulsion phase on site. With the increase in operations - with the increased scale of operations that were going to happen in the open pit we would have had to increase the storage area and the amount of emulsion phase that was stored on site considerably, so, by manufacturing the emulsion phase on site we were able to keep the amount that we had to store on site at any one time at a maximum of 90 to 100 tonnes.

Q. When you say "increased considerably", that is four to 500 tonnes, is it?

A. Sorry, in my answer that I have just made to you?

Q. Yes.

A. Yes, that's correct.

Q. When you say increased considerably to what approximate amount?

A. At the time, I suppose we were mining about 60 to 70,000 tonnes a day in the open pit - I can't remember the exact figures - and we were going to go up to 140 or more thousand tonnes a day, so we might have had to double that figure to maintain our inventory levels."

(T145.38-146.6)

177 PC Smith's evidence in cross-examination confirmed the correctness of information given by him to Harry Douglas (Douglas), a consultant, who had been retained by Niugini Insurance's loss assessor and to whom PC Smith reported on 18 October 1994. Part of Douglas' retainer was to make an assessment "whether the risk of an explosion of similar consequences (to that of 2 August 1994) would have been likely during ICI's contract period for the supply of explosives to the Porgera Joint Venture". As a preface to his report, he made the following observation:

"As the manufacturing site used by ICI was basically the same as that used by (Dyno) on 2 August 1994, the consequences of a detonation, assessed from quantity/distance criteria, are common and therefore the risk exposures (viz the product function of accident rate, the probability of detonation and the consequence of detonation) are more readily compared."

178 Douglas had been selected on behalf of Niugini Insurance for his pre-eminence in the field. He had a long and impressive history in relation to the use of explosives in association with mining, spending most of his professional life as an employee in the Western Australian Department of Mines: for fifteen years as a chemist and research officer - his formal qualifications were in chemistry - and for the remaining twenty-four years in turn as inspector, deputy chief inspector, and as chief inspector and director of explosives and dangerous goods. For some nine years after leaving the department he had operated a consultancy business specialising in advice on explosives, and possessing accreditation by New South Wales and Western Australian governments as such an expert.

179 His report is particularly significant, I think, by reason of the fact that it was the result of a retainer on behalf of Niugini Insurance effected at a time close to the event. As part of the process in preparing his report, Douglas interviewed various representatives of Dyno, including IT Smith, and obtained details of the Dyno operation. He carried out a similar interview process with representatives of ICI, including PC Smith. His notes of the latter interview disclose much of what I have earlier outlined about the use of materials by ICI under its contract with the PJV.

180 In relation to the storage of matrix by ICI, he noted as follows:

"ISO tanks (20 tonne capacity) were used for the transport and storage of EP Gold ... Five of these tanks were normally stored at the manufacturing plant (that is at the ICI explosives plant). (At the end of the ICI contract 12 to 13 ISO tanks had accumulated due to on-going supplies of the delivery contract)."

181 When questioned about Douglas' report on this aspect, PC Smith gave the following evidence:

"Q. On the bottom of page 18 of his report he refers to the storage of matrix in 20 tonne capacity iso-tanks. He says five of those tanks were normally stored at the manufacturing plant but at the end of the ICI contract 12 to 13 iso-tanks had accumulated?

A. Yes.

Q. In your statement I think you refer to the fact that there was an increase in storage towards the end of the contract period?

A. Yes.

Q. Can we assume that matrix was stored in the 12 to 13 iso-tanks that were referred to?

A. Yes.

Q. So the total matrix storage which may have taken place up until November 1992 could have been 12 - could have been almost 250 tonnes of matrix stored at the plant?

A. At the end of the ICI contract it was of that order, yes.

Q. I take it that the increased storage of matrix was caused by an increase in the requirements of the PJV for product?

A. Well, it was caused by an increase in their forecast requirements. In fact they didn't - they weren't using it at the rate they had forecast. That resulted in the build-up.

Q. If one was making a comparison of these two operations, the ability of Dyno to manufacture matrix on site was something which was obviously different to the capabilities that ICI had?

A. Well, yes, certainly.

Q. The emulsion was the fundamental or was a fundamental component of the final product?

A. Yes.

Q. If one was to meet the needs of the PJV for explosives, it was necessary to have the relevant quantity of matrix on site at all times?

A. Well, that was - yes, that was our obligation to do that based on their forecast.

...

Q. If one was to assume that by October - sorry, by August 1994, the requirements of the PJV was four times the requirements as at November 1992 we can assume that it may have been necessary for ICI to have had up to four times the amount of matrix it had on site at November 1992?

A. Well, the assumption is sort of false, really, because above a certain level of usage ICI would invariably put a manufacturing facility in themselves. The economics of putting in a manufacturing plant for small quantities doesn't sort of - it doesn't justify it. If the quantities were going to get bigger and bigger and bigger, then the probability is that ICI might have put in a manufacturing plant to provide it. In other words, I think it is unlikely that we would have stored there four times the quantity."

(T 1556.26 - 1558.7)

182 He gave further evidence in re-examination as follows:

"MR FORSTER: Q. You were asked some questions about the storage of matrix at the Porgera site during ICI's time there.

A. Yes.

Q. And you gave evidence that towards the end of ICI's occupation of the site some 12 to 13 iso-tanks were kept?

A. Yes.

Q. Or were there. Firstly, do you recall until that end period, when there were up to 13 such tanks, normally how many such tanks were at the overall Porgera site?

A. From memory, four or five.

Q. And I think in your statement you say that only two or three of those tanks were stored near the processing plant?

A. That's correct.

Q. And they were the 20 tonne containers?

A. Yes.

Q. And what happened with the rest of them, if there was more than two or three at Porgera?

A. If there were more than a couple they would be stored around the perimeter of the plant. I think possibly sometimes they would still be down in the PJV lay down, but there could be two or three around the perimeter of the plant, up to.

Q. For how long were there 12 to 13 iso-tanks at the plant, that is, before ICI vacated the site?

A. Well, it was a gradual build-up. It was a gradual build-up from memory for about two to three months. We were using about 1,000 tonnes a year, about one tank per week, so it would have taken some time for that to build-up."

(T 1572.41 - 1573.21)

183 Although the evidence is not entirely satisfactory, I think the effect of it was that, in terms of quantity of emulsion and related materials kept on site by Dyno, there was no material difference in the quantities of matrix kept on site by ICI towards the end of its contract.

184 Douglas described the aim of his report as follows:

"...to investigate in detail the process used by (Dyno) for the supply of both packaged and bulk explosives to the minesite and compare that with the ICI process and make an assessment of the respective risks and consequences of a detonation occurring of similar magnitude to that which occurred at the process site."

185 He assessed the safety of the two operations by reference to the proximity of the various elements of plant to each other in terms of industry recommendations and concluded as follows:

"If one calculates the separation distance required by the quantities of explosives approved to be present in the (Dyno) and ICI manufacturing operations ... neither company has provided sufficient separation to comply with the Q/D (Quantity/Distance criteria as recommended by the United Kingdom's Explosives Storage and Transport Committee) criteria applied by Australian statutory authorities."

186 In relation to the EP Gold emulsion used by ICI, he observed that it had been "authorised for use in the manufacture of POWERGEL explosives".

187 Douglas took into account the risks associated with that part of the ICI operation which involved the transport of matrix by road and detonators by air to Porgera. Of that aspect of the activity he observed as follows:

"It is universally accepted that the risk of explosives detonating in the process of manufacture is greater than in transport and the risk of explosives detonating in transport is greater than in storage ... that explosives manufacture has five times the risk of transport and transport has twice the risk of storage."

188 He summarised the two operations as follows:

" * (Dyno) manufactured packaged Emulite explosives.

* (Dyno) manufactured bulk AN emusion (sic) explosives using a mobile manufacturing unit at the open pit mining site.

* (Dyno) assembled a maximum of 1000 Nonel detonators within an assembly plant located some 15 metres from the process plant.

* ICI manufactured bulk AN emulsion explosives using a mobile manufacturing unit at the process site."

189 He assessed the "risk exposure of the ICI and (Dyno) operations ... as similar". In reaching that opinion, he assumed that ICI maintained storage of 100 tonnes of EP Gold adjacent to the process plant which "in a conflagration" could have detonated the matrix "with consequences equal to that of the (Dyno) explosion". He further observed that "the likelihood of an explosion occurring within the ICI process plant area was significantly increased due to the manufacture of ... Powergel". In relation to that likelihood, he expressed the further opinion that "the process site manufacture of this explosive had a risk factor equal to the manufacture of Emulite".

190 Douglas concluded "that there was an equal possibility of a similar incident (as the explosions) occurring, during ICI's contract period, with consequences equal to that of the (Dyno) explosion." He expressed his reasoning as follows:

"... the risk from the ICI operations would have been significant since ANFO type explosives were manufactured in the process plant adjacent to the 100 tonnes storage of AN emulsion matrix and an explosion in the ANFO operations could have resulted in a conflagration and ultimate detonation of 100 tonnes of AN emulsion matrix with consequences equal to that of the (Dyno) explosion."

191 I have earlier referred to the report of the Gunnarson report on the dangers inherent in the pumping of non-sensitised matrix. With that in mind, it is not difficult to understand Douglas' opinion of the comparability of the ICI operation with that of the Dyno operation in terms of risk. However, I think the evidence is clear that the packaging of emulite under conditions of heat and pressure as occurred in the emulite packaging line carried a higher propensity for inadvertent initiation of an explosion than existed in the pumping of matrix in the ICI operation. Further, there is some doubt as to the actual number of twenty tonne containers containing emulsion in use by ICI and which were adjacent to the explosives site.

192 While those matters bear upon the validity of Douglas' opinion, I place considerable value upon it as an opinion given to the assessors for Niugini Insurance: one not prepared for the purpose of these proceedings, and one made by an expert who had excellent qualifications in the field. I think his approach, in general terms, is preferable to the highly detailed hindsight analysis presented in these proceedings on behalf of Niugini Insurance.

193 In his statement of 11 May 1998, Douglas lent further support to the conclusions reached in his report. He gave further opinion evidence concerning the proximity of the facilities in use by Dyno and ICI in terms of the recommended separation distances under the Australian Standards publications.

194 In his oral evidence he elaborated upon that matter as follows:

"Q. I rather gathered from your earlier answers that you considered that there were aspects of the Porgera site that bore upon the application of the standards; is that so?

A. That is indeed so.

Q. What were they?

A. I think --

Q. What were those features?

A. Well, you have a high mountainous terrain in the Porgera area. The ability of flat areas for a process site is extremely limited and I can well imagine the statutory authority would have to give special consideration in the location of an explosives manufacturing site and, in those considerations, I could well imagine that he would agree to a lessening of the requirements or recommendations, I should say, of the Australian Standard."

(T751.19-751.38)

195 Of the manufacture of ANFO type explosives, in which there would be included the Amex series used by ICI, he stated:

"The ANFO type explosives were being manufactured in the process building. That's the ammonium nitrate fuel type explosives, yes, they were manufactured and process mixed there in a coxan mixer, and part of my concern was that coxan mixer, prior to the time ICI was manufacturing those explosives, was the subject of a hazard alert issued by the chief inspector of explosives in New South Wales, Phil Butt. He issued that hazard alert because of a previous incidence (sic) involving explosions in coxan mixers, in the manufacture of ANFO type explosives."

(T753.35-753.46)

196 Douglas described explosives such as ANFO and Amex as a classified 1.1D explosive, "a cap-sensitive explosive". I have some difficulty with that as an unqualified statement. It is clear from the evidence of Hood that in given drilling situations, Amex or ANFO is capable of detonation without a primer. However I think the evidence of Douglas and of Hood should be regarded as a significant practical approach to the comparative assessment of the safety of the two operations respectively conducted by Dyno and ICI.

197 Further, I think Douglas' approach to the comparative evaluation of risk of the ICI and Dyno operations finds support in the Gunnarson report on the pumping of non-sensitised emulsion explosives as being "extremely hazardous", a view that was shared by IT Smith and by Hans Perlid of Nitro Nobel in his report entitled "Pump Safety Tests Regarding Emulsion Explosives"(the Perlid report). The relevant portion of that report was summarised in submissions on behalf of Niugini Insurance as follows:

"Further, a similar view was expressed by Hans Perlid of Nitro Nobel who indicated that in his opinion, in the handling of emulsion explosives pumping is the key operation. He continued by saying that a number of serious accidents had shown that pumping can be a risky operation and should be carefully considered and investigated."

198 Although the manufacture of emulsion on site, as performed by Dyno, was not replicated in the ICI operation, the real point of difference, in my view, between the performance of the ICI and Dyno contracts lay in the sensitising of emulsion and the preparation of emulite by Dyno. While Douglas balanced that activity with ICI's preparation of powergel at the plant, I think the evidence established that emulite and its method of processing under conditions of pressure and heat raised significantly different safety factors than those involved in ICI's operations. However, that has to be kept in context. Hood, in cross-examination, explained the situation from the engineer's viewpoint as follows:

"Q. Do you recall during the operation of the mine prior to August 1994 that there were some difficulties experienced with the use of the Emulite product?

A. Yes.

Q. And that one of the reactions to try and get over this was to increase its sensitivity?

A. Yes. Was that referring to Emulite or heavy ANFO? I think that was the case. Emulite was used primarily underground but there were a number of issues involved with the Emulite manufacture and its sensitivity.

Q. And the way in which the sensitivity was increased was by increasing the addition of the Q-cells, was it not?

A. That would do that, up to a certain point, yes.

Q. And you know that in the months leading up to mid-1994 that process was undertaken in an attempt to improve the performance of Emulite, don't you?

A. I believe that to be the case.

Q. And one of the consequences of that sensitising process would be to render the product more easy to detonate?

A. That's correct.

Q. And, therefore, in a safety sense, more dangerous?

A. No, I don't like the term "dangerous".

Q. Because it is a rather uncertain term?

A. Well, we don't - when you operate the mine you do not do things that are dangerous, or you should not do things that are dangerous. It has a greater sensitivity to initiation, you are correct in that.

Q. So that the Emulite that was developed by increasing its sensitivity was more sensitive to detonation than standard Emulite, if I can put it that way?

A. If it has - if it has had its sensitivity increased then yes, it is more sensitive to detonation.

Q. And I think you have agreed with me that in the period prior to the explosions steps were taken to make the Emulite more sensitive?

A. There were - I am aware of various things that were going on at the time regarding sensitivity of the explosives, yes.

Q. And Emulite, itself, with or without these steps, is more sensitive than the ANFO or ANFOPS mixtures that you refer to in paragraphs 69 and 70?

A. As a general rule, yes.

Q. Although I think you say steps can be taken to sensitise those products also?

A. That's correct."

(T132.47-133.53)

199 IT Smith, when cross-examined on the comparative safety of the Porgera plant in relation to other Australian explosive plants of Dyno, gave the following evidence:

"Q. The Porgera site involved greater risk than any of the Australian sites; would you agree with that?

A. I would agree it had the potential ... to have a greater risk or consequence because of the Emulite manufacture. But that is not to say that that in itself posed a greater risk."

(T454.58-T455.14)

200 The conclusion I have reached is that the nature of the risk associated with explosives processing on site, whether by ICI or Dyno, was such that it was required to be disclosed at the inception of the policy.

201 Dyno and Niugini Insurance have adduced a significant body of expert opinion evidence in their respective cases, upon the materiality of disclosure of the risk associated with the operation of the explosives plant by Dyno, which tended to concentrate attention on perceived differences between the operation of the explosives plant by Dyno and by ICI. Whereas, I think the question for closer consideration is the materiality of the risk inherent in the ICI operations and the implications of any disclosure in relation to the ICI operations to underwriters prior to 1992.

202 That question is linked with the facts, as I have found, that the re-insurers proceeded upon a false premise in regarding the operation of the explosives plant by a contractor or supplier on site as a risk not covered by the policy or by the endorsed policy and as one performed by a contractor or supplier on site who did not fall within the definition of the insured under the policy or the endorsed policy. That resulted in Niugini Insurance's failure to evaluate the risk of the operation of the explosives plant in a way which the underwriting experts called on behalf of Niugini Insurance say would have been undertaken had there been disclosure of the risk associated with Dyno's performance under the Dyno contract - they making the assumption that no such disclosure had been made.

203 Dyno relied on the evidence of Douglas and also of Brian William Butler (Butler) as experts in relation to underwriting issues. Butler had a long association with the insurance industry, dating back to 1960. He had an electrical engineering background and had been for thirteen years with Queensland Insurance Co Ltd as engineering surveyor and then as chief engineering surveyor and deputy chief engineer responsible for underwriting and claims handling in relation to engineering contract works. For a further twenty-two years, he was with Australian Re-insurance Co Ltd and established within it an engineering department to underwrite all classes of engineering business, although not limited to contract works.

204 The statements of evidence-in-chief of Butler were not expressed in terms of the opinion of a prudent underwriter in evaluating risk. That was cured in his oral evidence-in-chief in which he equated the opinions expressed in his written statements to those of a prudent underwriter.

205 The approach adopted by Butler made assumptions not dissimilar to those made by Douglas, the most notable amongst which was his assumption that ICI stored between 400 and 500 tonnes of emulsion on site and his equating of powergel with emulite. He also took into account off-site risks in transporting explosive materials which, I think, had a tenuous connection with the risk, with which the endorsed policy was concerned, although a significant practical commercial consideration. I note in that regard that he assumed that ICI would be transporting emulite to Lae by ship and then by road to the Porgera mine. That clearly was not the case. It was emulsion that was so transported.

206 The approach to be adopted by an underwriter in assessing risk was described by Butler as follows:

"This type of policy, particularly on a large project such as that which existed at Porgera, leaves the insurer/underwriter with relatively little control over the contractors and subcontractors working on the site and falling within the scope of the policy. Accordingly, the insurer/reinsurer is largely dependent upon the skill, efficiency and professionalism of the principal/project manager to ensure that the project is run in a proper and workmanlike manner and without increasing the likelihood of losses being incurred under the policy. The track record and reputation of the principal/project manager is therefore one of the main considerations of the underwriter/insurer at the time that consideration is being given to whether to provide cover. Consistently with this, there is generally no obligation in such policies for the principal/project manager to notify the insurer/underwriter of the particular contractors or subcontractors who will be on the site at any time. The policy issued in the present case was not specific as to which contractors or subcontractors would be covered, nor was there any obligation to notify of new subcontractors or any alterations to existing subcontractors ... (A)n underwriter would not generally have wanted or expected to be notified of the identity of each of the subcontractors or suppliers at the mine from time to time."

207 He then expressed the following opinions:

"(A prudent underwriter) would not have considered there to be any relevant change in the risk at the mine if Dyno had taken over from ICI as the supplier of explosives. This opinion is based on the following factors:

(a) Explosives were a necessary part of an operating mine and ammonium nitrate based explosives were used all over the world;

(b) The change in supplier was recommended by Placer. Placer was a manager of mines throughout the world and (a prudent underwriter) would have anticipated that it had acted prudently in deciding to change suppliers;

(c) Dyno Wesfarmers was a large multinational corporation supplying and manufacturing explosives all over the world and (a prudent underwriter) would have had no reason to believe that their proposed activities at the mine were out of the ordinary;

(d) The activities at the mine were regulated by the local mine inspectors who would not have approved any activity which was likely to increase the risk exposure;

(e) On the face of it the process of manufacturing on site as proposed by Dyno appeared to have significant advantages over the previous system in that Emulite and detonators were not required to be trucked 750 kms from Lae to the mine and the amount of Emulite which was required to be stored at the mine at any one time was significantly reduced;

(f) The value of the manufacturing plant which was in the order of $US 2 million was largely insignificant compared to the overall value of the project;

(g) The presence of Dyno's facility at the mine would have had no relevant effect on the EML which had already been established at the time of providing the original cover.

...

Based on the assumptions above and for the reasons expressed in the answer to Question 1, I would not have considered there to be any material change in the risk at the mine caused by the change in the supplier of explosives and accordingly I would not have refused to underwrite the project from November 1992 onwards nor would I have sought to exclude DWL from the benefit of the policy."

208 Where he refers to EML, that is an acronym for estimated maximum loss. I do not regard his equating of powergel, that being sensitised emulsion, with emulite as undermining the force of those conclusions.

209 It was clear from his cross-examination that his opinion on the immateriality of the difference in the operations of Dyno and ICI was based upon the view that appropriate "control features" would have been introduced and for that assumption one would depend upon the commercial standing of the principal contractor, in this case the PJV. I think the cross-examination also exposed the fact that he had no regard to any departure from the Australian Standards which recommended separation distances of elements within the explosives plant.

210 In re-examination he considered that questions of safety relating to separation distances between elements in the explosives plant would be covered by approval of responsible government authorities with jurisdiction over the works. The explosives plant, layout and operation had been, in fact, the subject of approval by the Mines Department.

211 The essential approach adopted by Hettler to the nature of the risk which Munich Re was being asked to consider was expressed, I think, in his evidence in the following way:

"169. I would have no difficulty with covering the construction of an explosives facility, but the operation of an explosives facility would be a major concern. As subsequent events showed, the operational risk included risk of loss (which might be catastrophic) through explosion. This is not the type of risk that would normally be covered under a contract works policy, nor underwritten by an engineering underwriter.

170. Accordingly, had it been put to me that the risk included the operation of an explosives manufacturing facility, I would have consulted with MR's Property and Fire Department with respect to the risk it posed to other insured property or to the insured's liability exposure. This is what I did with the new DWL facility. That Department has underwriters who are experienced in assessing the risk of loss from fire and explosion. I would not and could not have accepted as a lead underwriter for the London Engineering Market the operational risk of an explosives manufacturing facility under a contract works policy. I would have told the broker that he would have to seek such cover from the Fire and Property Market on a separate basis.

171. From my knowledge and experience, within MR, fire and explosion risks arising out of operational activities - particularly those relating to mines which might involve the potential loss, damage or closure of the whole mine - are normally underwritten, if at all, by the Property and Fire Department. Whereas the Engineering Department might write a big line (perhaps 20% or more) of an engineering risk, the Property and Fire Department would not normally write such a big line on a risk involving the possibility of a catastrophic loss."

212 Those paragraphs had been objected to. However, I admitted them as admissible and relevant to the non-disclosure issues. I think the evidence also went to the issue of good faith raised against Niugini Insurance by Dyno. What is clear from that evidence is that Munich Re, acting for Niugini Insurance, had understood that the operation of the explosives plant formed no part of any cover under the policy or the endorsed policy, whereas the view I have reached is that it did. ICI had been on site for several years prior to 1992 operating the explosives plant as contractor to the PJV and as supplier on site of explosives.

213 It has not been submitted that the nature of the explosives processing on site conducted by either ICI or Dyno was in any way unconventional - having regard to the remote and geographically hostile environment in which the Porgera mine was located. That is given emphasis by the evidence of PC Smith that, had ICI successfully negotiated a fresh contract with PJV in November 1992, it, too, would have manufactured matrix on site rather than transport to site and store huge quantities of emulsion to match the planned increase in mine production.

214 It is not in dispute that the operation of the explosives plant was performed by a contractor or a supplier on site as part of the construction of the various stages of works which formed part of the insured property. It is certainly true of stages 1, 2 and 3 and, I think, it is probably true of stage 4.

215 In his approach to the operation of the policy, I think Hettler placed some reliance upon his dealings with Robertson. While I admitted a significant amount of evidence of Hettler's dealings with the broker, in my view, that evidence of his understanding of the construction of the policy and of the endorsed policy was relevant to the good faith issue raised against Niugini Insurance in relation to its refusal to recognise Dyno as an insured, its rejection of Dyno's claim and its avoidance of the policy on grounds of a non-disclosure which had been the subject of waiver by Niugini Insurance as against the PJV.

216 I think it is unnecessary to give detailed consideration to the evidence of the dealings between Munich Re and Robertson beyond considering the non-disclosure and good faith issues as no question of rectification of the policy or of the endorsed policy arises.

217 Hettler presented as a careful recorder of events, as he saw their significance, which comprised the circumstances in which Niugini Insurance went on risk, extended cover from time to time and, after the explosions, the manner in which the claims were dealt with leading up to the settlement deed. He was clearly convinced of the correctness of his understanding of the operation of the policy and of his entitlement to pay heed to matters conveyed to him in that regard by Robertson and others.

218 On the underwriters' side, he was not alone in that approach to the policy. I think it was evident from his evidence in the witness box that he found the PJV's endeavours to enforce benefits under the endorsed policy in favour of Dyno as both distasteful and, I think, unjust: factors which I think imposed considerable strains upon him in a situation which was not assisted by the need to evidence the position of the insurer in a foreign court in proceedings conducted in a foreign language. It is not disputed that in the course of some of the meetings leading up to the settlement deed, statements were made by representatives of the PJV which reinforced Hettler's belief that Dyno was not an insured under the endorsed policy. Statements of that kind were attributed to Jonathan Russell of Placer Dome in the company of Robertson and others at a meeting of 19 August 1994.

219 As earlier noted in these reasons, no representation or estoppel case is persisted in by Niugini Insurance. However, that material remains relevant to the good faith issue.

220 The importance of Munich Re's approach to the construction of the policy and the endorsed policy, I think, is fundamental to the understanding of the disclosure of risk issue. By way of illustration, I think it is clear from the evidence I have quoted above from the statement of Hettler that, had the insurer appreciated the full extent of the cover as I have found it to be, other steps would have been taken, than those followed by Munich Re, and, in particular, the risk of the operation of the explosives plant would have been referred to Munich Re's Property and Fire department.

221 I should add that the experience of Hettler as a head underwriter acting on behalf of Munich Re is extensive and one should have due regard to his expert evidence on underwriting, save only for the following matters. I have referred to the strong impression created by Hettler of his complete identification with the interests of Munich Re. Also, I think there were one or two examples where language difficulties and that identification of interests resulted in a particular approach to the facts that may not have found favour with me. His general reliability, I think, may be measured against the extensive contemporaneous notes which he kept and which were available for these proceedings. I cannot recall any cross-examination of him which caused me to doubt the reliability of his contemporaneous notes. I regarded him as an honest witness whose reliability was only qualified by his close identification with the interests of the underwriters and unfamiliarity with foreign legal processes.

222 The reality is that, in the feasibility study, the involvement of an explosives plant in the construction of the insured works was disclosed to Munich Re. Further, the evidence disclosed that in site inspections, in which Hettler took part, the ICI plant was identified as an "explosives plant", and on one such occasion, it was drawn to his attention that the plant was exposed to the possible threat of slippage in the site vicinity.

223 Moreover, the status reports provided to Munich Re identified, during the performance of stages 1, 2 and 3, the presence of ICI as an explosives supplying contractor. Hettler gave evidence that the full extent of the explosives plant as outlined in the feasibility study was not persevered with. There has been no direct evidence of that which I recall. However, I think the costings submitted to Munich Re by the PJV subsequently to the feasibility study, including the costings in the projected implementation plan of June 1990, support that evidence of Hettler. He also gave evidence of his understanding of the presence of storage facilities on site. However, I think it is inescapable that in a project of this magnitude and having regard to its isolation, it would be inevitable that extensive processing of explosives in an explosives plant of some kind or another would be essential and obvious for the execution of the project.

224 Consequently, I think Hettler's comparative disregard for the nature of the ICI operations was due, not to any particular understanding of a changed operation from that contemplated in the feasibility study, rather it was due, probably entirely, to his mis-understanding of the nature of the cover being provided by Niugini Insurance. For example, there was no suggestion that following the receipt of the feasibility study and the extensive provision within that document for the operation of an explosives plant that any reference of that facility was made by Munich Re to its property and fire department for risk assessment. I think the reason for that lay entirely with Munich Re's understanding that the cover under consideration and upon which it went on risk did not extend to the disclosed explosives operation and, consequently, its understanding that the explosives contractor was not covered by the policy or the endorsed policy.

225 The position of Hettler was shared by other underwriters associated with the inception of the risk by Niugini Insurance. It is almost axiomatic, from the evidence of Hettler and the other underwriters, that had it been appreciated that ICI was a contractor or supplier on site and as such an insured under the policy in its operation of the explosives plant, the material provided by the PJV with the feasibility study, and subsequently through status reports and site inspections, would clearly have prompted the sort of enquiry that Hettler evidenced would have taken place on disclosure of the Dyno operation.

226 Utz Groetschel (Groetschel) was a member of the executive management of Munich Re, who, at the time of the inception of the policy, was an underwriter in Munich Re's engineering department. As such he was involved in the "original phases of underwriting in 1988". In that capacity he received, amongst other information, the feasibility study. It was clear from his evidence that he disregarded references in the feasibility study, and presumably any other information provided on behalf of the PJV relating to the operation of an explosives plant, regarding them as irrelevant. The subject policy, as he understood it, excluded operational cover for a mining operation. Clearly, he did not advert to the fact that the explosives plant would be operated for the construction of stages of the insured works and that the operator of such a plant, under contract to the PJV, would be a contractor falling within the description of the insured under the proposed policy: nor, did he place any reliance upon the extension of the endorsed policy to an operational all risks cover.

227 He gave evidence of his site inspection in 1993 at which the inspection of an explosives facility in operation did not form part. He described the view he would have taken had he been aware that the operation of the explosives plant could have been regarded as falling within the proposed cover as follows:

"From my point of view, since (Munich Re) did not intend to cover mining operations, but only construction phases, a facility for the described purpose of manufacturing slurries for the ongoing mining operations would not fall within what I understood to be covered. If operational facilities were to be covered, a different type of policy would be required. I would not have seen the operation of such a facility as part of the construction project. There was, pursuant to the Phased Handover clause, cover for facilities completed (and therefore operational) until the last phase of construction was completed. However, the explosives facility was not included in this cover because the cover was exclusively for the ore processing plant and facilities described in the project information, which excluded the mining operation.

If my attention had been drawn to this proposal for an explosive slurry facility, I would have ascertained in detail to what extent such facility or its operation could be included under the policy and, whether included or not, what potential risk would result from its existence to other property on site. However, there is no reference on file to suggest that this issue was ever drawn to (Munich Re's) attention."

228 There are a number of matters there which purport to evidence the intention of the insurer and the insurer's construction of the policy which, as such, is inadmissible. However, that material was admitted as relevant to the understanding of the insurer and relevant to the good faith and material disclosure issues.

229 Clearly, in my view of the policy and, particularly, of the endorsed policy, Groetschel's view of the insurer's exposure to indemnify the PJV and, in particular, the contractor or supplier involved in the provision of explosives was erroneous. It is clear that had he been of the understanding of the operation of the policy as I have found it to operate, then he would have undertaken a valuation of the risk associated with that operation.

230 I am satisfied that the information provided by the PJV was ample to put on notice the possible risk associated with the operation of an explosives plant on site and that by reason of the erroneous construction placed upon the policy and the endorsed policy, Niugini Insurance failed to follow up that information in the manner which it is now said it would have done.

231 I find the stand taken by the underwriter in relation to the endorsed policy extremely difficult to accept. Essentially what is said is that the operation of the explosives plant was exclusively for the benefit of the mining operations and as such the operation fell outside the terms of the operational all risks cover.

232 However, it is clear that the operation of the explosives plant involved works falling within stage 4, for example, in relation to the construction of the connecting drive. Whether damage to that work was excluded under exception o) to Section I of the cover, (I am inclined to the view that such damage was not excluded), it still remains that Dyno was engaged as contractor and supplier on site of explosives for the performance of those works which, even on Niugini Insurance's construction of the policy, would place it as a contractor and/or supplier within the meaning of "the Insured" under the endorsed policy. That remains the case whether exception o) applies to damage to that connecting drive or not.

233 Groetschel's explanation for not following up the explosives plant information as set out in the feasibility study was that the cost of that plant had not appeared in the actual summary of sum insured. I challenge that having regard to the material referred to earlier in these reasons which, in my view, clearly disclosed the explosives plant as forming part of the Stage I construction of the works which, on any view of it, was part of the proposed property to be insured.

234 The extent of Groetschel's misunderstanding of the operation of the policy I think was exposed in cross-examination where he expressed the view that the explosives plant building itself was not covered. Clearly those works were part of the staged construction works as to which there was no issue as to them being part of the insured property. In fact, the destruction of that plant building was the subject of indemnity under Section I of the policy in the payment effected pursuant to the settlement deed.

235 I think it was highly significant that, for the purpose of the preparation of his evidence-in-chief, as to his understanding of the lack of operational cover under the policy, Groetschel had not been shown the 1992 and 1994 endorsements (T1792.15) and that for the purpose of his statement he had not checked the detail of the endorsements (T1792.42).

236 Hans Gfeller (Gfeller) is the head of the engineering section of Swiss Re in Zurich and a member of its senior management responsible for underwriting in Asia and Australia. He is the lead reinsurance underwriter for the Sydney Olympic site. He had been approached by Robertson to go on risk in relation to the Porgera project. He lost out on that underwriting to Munich Re. He gave evidence which, in substance, contested the views expressed by Butler. However, in cross-examination I think he exposed the consequence of the underwriter's misconstruction of the cover provided by the policy and especially the endorsed policy.

237 It was Gfeller's opinion in his evidence-in-chief that the provision of "an explosives facility on site clearly and significantly altered the underwriters' exposure". He was "not aware that any explosive factory would have to be covered on the site or next to the site" (T1852.55). In relation to the ICI operations, he said that at the time of giving his statement he "learned that explosive manufacturing took place (which at) the time of the underwriting ... was not disclosed" (T1853.23). He had referred to the feasibility studies prior to going on risk (T1853.52). The following evidence, I think, has some bearing on this issue:

"Q. So you do not know, one way or the other, Mr Gfeller, do you, whether or not it was disclosed to Munich Re that there would be a plant for the manufacture of bulk explosives built as part of this project?

A. I do not know, but I would assume, as an underwriter, if it was such a major change then that should be made known to all underwriters, not only to the lead. That's my opinion.

Q. When you say "a major change", Mr Gfeller, a major change from what?

A. From the status on which basis the risk has been underwritten.

Q. If the status upon which the risk had been underwritten included an intention to construct an explosives manufacturing plant then obviously there would be no change that had to be notified to underwriters, would there?

A. If it was disclosed, you are correct."

(T1854.15-T1854.35)

238 It is common ground that such an intention was conveyed in the feasibility study provided to the insurer. That was followed by further cross-examination which I think exposed the real basis of the failure of the eventual underwriters to act on the information provided by the PJV in relation to the explosives plant. The evidence I refer to is as follows:

"Q. Have you given any consideration to the respective risks which applied during ICI's period as explosives supplier to the Porgera Mine prior to November 1992 and the position after that when Dyno Wesfarmers became explosives supplier?

A. Very difficult question, because I was involved in the underwriting at the beginning while I was stationed in Swiss Re in England. Later on, I assumed different responsibilities and it was handled by a colleague of mine. That was as from mid-91.

Q. Mr Gfeller, am I right in thinking that --

HIS HONOUR: I don't think you've got an answer to that question, Mr Gyles.

MR GYLES: Q. Mr Gfeller, would you answer the --

HIS HONOUR: Q. I will have that last question read out to you, Mr Gfeller: the question was have you given any consideration to the respective risks which applied during ICI's period as explosives supplier to the Porgera Mine prior to November 1992 and the position after that when Dyno Wesfarmers became explosives supplier. Could you answer that question?

A. Not really, your Honour. Since the basis was that this disclosure in respect of explosive manufacturing was never done. So I was of the opinion whatever is used as explosives will be transported in but not manufactured on site, so I had a different basis. What happened then later on, switching to another supplier or producer, I was - then I was no more involved in this risk."

(T1854.37-1855.14)

239 In further cross-examination by senior counsel on behalf of the PJV, Gfeller gave the following evidence:

"Q. Let me ask you this question: had you been told before considering whether you would underwrite the risk which you were asked to consider underwriting that an explosives plant would be built at Porgera for the manufacture of slurries, explosives, that is in the form of slurries, would that piece of information have enabled you to institute necessary inquiries about the possibility of explosives risks?

A. I would say yes.

Q. That piece of information to you, as an experienced underwriter, would have caused warning signals to flash in your mind, wouldn't it?

A. I would say so.

Q. You underwrote part of the risk on behalf of Swiss Re at the premium set by Mr Hettler, didn't you?

A. Yes. Well, we - yes, we wrote the share. We accepted the share, the following share.

...

Q. If you, as an experienced underwriter, had visited the site of the project before deciding to underwrite the risk, and you had been told during your site inspection by somebody guiding you around "That building over there is an explosives plant", and it was part of the mine project - do you follow me?

A. Yes, I do.

Q. That would have caused you - would that have caused you to make some inquiries?

A. Oh, sure. Sure, yes.

Q. The same sort of inquiries, if you were a competent underwriter, that you would have made if one of the files provided to you for the purpose of considering whether you would underwrite contained a statement that an explosives plant would be built at Porgera for the manufacture of slurries; you would agree?

A. Yes."

(T1865.25-1866.29)

240 It is reasonably clear from that evidence that the underwriters wrongly assumed that the policy, as worded, did not extend to a contractor or supplier on site who supplied explosives or processed explosives at the explosives plant for the purpose of the construction of the stages described in the policy as part of the property insured. Whereas, in my view, ICI in that role clearly was covered. But for that misconception it is equally clear that the underwriters would have carried out the task of examining the risk of explosive production at the plant for the purpose of going on risk under the policy and particularly under the endorsed policy which extended cover to an operational all risks cover.

241 For those reasons I am satisfied that there has been no failure on the part of the PJV to disclose the risk associated with the operation of the explosives plant by ICI and then, in turn, by Dyno: the mere change in the identity of the supplier, itself being, in my view, a matter of indifference, given the dependence by the insurer upon the expertise of the PJV in the selection of its contractors for the project.

242 In my view, the evidence of James Patrick Gleeson, who was called in the Niugini Insurance case, did not advance that case in relation to the non-disclosure issue. He was the departmental manager of the claims department of Munich Re at its United Kingdom branch back in London. His involvement arose after notification of the claim by the PJV. He was cross-examined about the significance of information provided to the insurer prior to going on risk as follows:

"Q. Did Mr Hettler ever tell you that when he first visited the site in 1989 that an employee of the Porgera Joint Venture pointed out a building and said that that is the explosives plant?

A. I do recall him saying that to me. The words he used to me were not "explosive plant" but it was pointed out to him as the "explosives storage area". That's my best recollection.

Q. Mr Hettler has told us in sworn evidence that he was told that it was the explosives plant?

A. Right. As I said, my best recollection is he said, "explosives storage". It's not something which I recall seeing any notes on. It was a verbal thing which Mr Hettler advised me. Whether he used the words "plant" or "storage" to myself, when relaying that situation, I couldn't specifically recall.

Q. Well, if you had been told by him that in fact he had been told it was an explosives plant, as a native born English speaker you would immediately recognise that as having some connotation of manufacture?

A. Not necessarily.

Q. Really. Perhaps then --

A. It's possible.

Q. Have you ever heard anyone in English describe a storage place as a "plant"?

A. No, no, I can't recall that."

(T1959.10-T1959.41)

243 Along similar lines was the further cross-examination as follows:

"Q. ... if Ekke Hettler had told you that while he was considering whether to underwrite the risk he had read a document provided to him by the potential insured PJV in which specific reference was made to the erection of a plant for the manufacture of slurries, would that have been an important piece of information to you in considering what to do about Dyno? Would that not have been an important piece of information to you if Ekke Hettler had vouchsafed it to you?

A. It would have been important and also it would have been --

Q. It would have been material information, wouldn't it?

A. I think the word "erection" would also be fairly critical in that description of the plant.

Q. The erection of a plant for the manufacture of slurries, would that have been a material piece of information if it had been given to you at the time when you were considering whether or not to indemnify Dyno?

A. My answer again is --

Q. Well, the answer can be "yes" or "no" sir. Is it "yes" or is it "no"?

A. The answer is yes."

(T1968.14 - 42)

244 A further related issue has been raised by the PJV and Dyno, namely that any non-disclosure of risk relating to the operation of the explosives plant had been waived by Niugini Insurance's election to pay the PJV's claim under Section I of the policy, included in that being a claim in respect of the explosives plant and the leased equipment. The conclusion I have reached is that that waiver of non-disclosure, had there been any non-disclosure, operated for the benefit of Dyno, in the sense that Niugini Insurance was precluded from avoiding the policy as it purported to do on the ground of non-disclosure.

245 In reaching that conclusion, I accept the expert evidence of Aikens QC that in English law the policy would be recognised as a composite policy. However, I think there are compelling reasons why Niugini Insurance is precluded from relying upon non-disclosure in purporting to avoid the policy as against Dyno only. In the first place, Niugini Insurance has pocketed and retained the very substantial premium paid under the policy and the endorsed policy. As at August 1994, those premiums, as payable by the PJV, were in excess of US$25,000,000. Some portion of that premium must be allocated to the risk represented by the operation of the explosives plant.

Niugini Insurance has purported to avoid the policy without disgorging any part of the substantial premium which must be deemed to have been taken under the policy by the insurer, in relation to the cover relating to the explosives facility.

246 Further, the evidence is compelling that the major consideration in the insurer's acceptance of the PJV claim, notwithstanding the insurer's stance on non-disclosure, lay in the consequence of rejecting the claim of a) refunding premiums or relinquishing entitlement to premiums in the vicinity of $30,000,000 and b) alienating an extremely powerful commercial group of companies from whose continuing and future business enterprises could be expected to emerge substantial insurance business.

247 In those circumstances, I am reasonably confident that it is not open to the insurer to do so. In a sense, Niugini Insurance is hoist on its own petard in relying upon the 'party point' to resist the enforcement of the policy by Dyno.

248 I accept that the effect of non-disclosure by one co-assured is that stated by the English Court of Appeal in New Hampshire Insurance Co v MGN Ltd [1997] LRLR 24 at 57-58, where the following passage appears in the judgment of Staughton LJ:

"Issue G:

Whether, in the light of the answer to issue (F) above and on a true construction of the contracts of insurance and Chubb policies, any non-disclosure or misrepresentation, breach of the duty of the utmost good faith or breach of any other obligation by any one assured in itself: - (i) constitutes a non-disclosure, misrepresentation, breach of the duty of the utmost good faith or breach of such obligation by all or any other Assured: and/or (ii) in the event and to the extent that it entitles insurers to avoid the contracts of insurance and/or Chubb to avoid the Chubb Policies as against that Assured, also entitles Insurers to avoid the Contracts of Insurance and/or Chubb to avoid the Chubb Policies as against all or any other Assureds.

In the light of our conclusion on issue F, the answer to this question is in our judgment, No. Technically one ought to enquire whether for each layer in each year there was one contract, or as many contracts as there were companies insured. And if the former, can a contract be avoided for non-disclosure as against one or some of the insured, but not against others? We feel that we are relieved from the need to answer those questions by the authority of the House of Lords, in the passage already quoted from P. Samuel & Co. Ltd. v. Dumas. That, it is true, was not a case of non-disclosure but of wilful misconduct by one of two persons insured. But in our opinion the principle that the innocent party can still recover if it is a separate insurance must equally apply.

Mr. Justice Potter had a proviso or caveat in answering this question. He felt that there were likely to be situations "whereby an officer of Company A, as well as exercising functions in Company B, would also have had knowledge of the affairs of Company C and/or the actions or intentions of its officers, of such a kind that he would have been under parallel duties of disclosure and/or obligations of good faith in respect of all three". We were not addressed on that point, and the Judge's observations on it should stand.

Issue H:

Whether, in the light of the answer to issue (F) above and on a true construction of the Contracts of Insurance and the Chubb Policies, a loss: - (i) resulting from a transfer of assets from one Assured to another Assured; is capable of constituting a loss falling within the terms of the Contracts of Insurance and/or the Chubb Policies. [Part (ii) of the question was withdrawn].

If by a peril insured against one of the companies insured is deprived of money, securities or other property, which is received by another of the companies insured, that is in our judgment a loss covered by the policy. The answer flows from the view that we have reached on issue F."

249 However, that decision does not address the purported avoidance of the policy as against one co-assured by an insurer who elects to retain the premium which it accepted in providing indemnity for the works the subject of the avoided policy. There is a more fundamental distinction from the circumstances examined in New Hampshire in the facts of this case. Inferentially, New Hampshire was concerned with separate, disparate obligations of disclosure and, on that basis, the court was able to isolate the entitlement of an insurer to avoid a composite policy as against one co-assured for that co-assured's non-disclosure, the rationale being that that non-disclosure did not touch the integrity of the policy in place with the other co-assured.

250 In this case there is one source of disclosure, that is the duty of disclosure placed upon the PJV as agent for Dyno in effecting and maintaining the cover. In that respect PJV's duty of disclosure was co-extensive with that of Dyno.

251 It is my view that there is no room for exploiting the composite nature of the policy in the circumstances of this case to maintain the policy in place with the PJV for selfish commercial reasons by waiving entitlement to rely upon non-disclosure of the explosives risk, and at the same time, purporting to avoid the policy against the co-assured, Dyno, for non-disclosure of the very same risk.

252 For the purpose of considering the issue of non-disclosure, I have adopted the reasoning of the majority in Pan Atlantic Insurance Co Ltd v Pine Top Insurance Co Ltd [1995] 1 AC 501 as to which I think it is sufficient to state the tests of materiality in the form addressed in the headnote of that report as follows:

"Held, dismissing the appeal, (1) (Lord Templeman and Lord Lloyd of Berwick dissenting) that under section 18 of the Marine Insurance Act 1906, which was applicable by analogy in a non-marine case, a "material circumstance" was one that would have an effect on the mind of the prudent insurer in estimating the risk and it was not necessary that it should have a decisive effect on his acceptance of the risk or on the amount of premium demanded ...

(2) That before an underwriter could avoid a contract for non-disclosure of a material circumstance he had to show that he had actually been induced by the non-disclosure to enter into the policy on the relevant terms ...

Berger v. Pollock [1973] 2 Lloyd's Rep. 442 approved.

Container Transport International Inc. v. Oceanus Mutual Underwriting Association (Bermuda) Ltd. [1984] 1 Lloyd's Rep. 476, C.A. overruled in part."

253 The circumstances of waiver are not in issue, nor are the principles of waiver in issue. Shortly stated, the principles are that an election is made, if the party against whom the election is asserted uses words or engages in conduct which is consistent only with the exercise of one of two sets of rights and inconsistent with the exercise of the other: it has to be communicated to the other party in clear and unequivocal terms: it must be irrevocable and it must be made with full knowledge, the facts which would give rise to the right to take the course open to that party.

254 I do not understand there to be an issue as to the full knowledge of the facts on the part of Niugini Insurance in electing to affirm the policy and satisfying the PJV's claim under it by means of the settlement deed. Nor is there any issue that such an election was inconsistent with the rights to avoid the policy for non-disclosure. The only question is whether that inconsistency may be restricted to rights of avoidance for non-disclosure as against the PJV. But even that question requires to be further distilled to the question, whether that inconsistency may be restricted to its right of avoidance as against the PJV for non-disclosure by PJV, acting in its own right and not as agent. I am satisfied, in the circumstances of this case that the election may not be so restricted. The duty of disclosure in this case of the PJV was that of principal and agent and, so far as was relevant, that duty was co-extensive and, I think, indivisible.

255 Niugini Insurance raised a further insurance issue under the due care clause of the endorsed policy which provided as follows:

"The Insured shall take all reasonable precautions to prevent loss, damage or liability."

256 I think it is common ground between the parties that the test to be applied in the construction of such a clause is that laid down by the English Court of Appeal in Fraser v BN Furman (Productions) Ltd [1967] 1 WLR 898 at 905-6 where Diplock LJ commented on the proper construction of that clause in the following terms:

" "Reasonable" does not mean reasonable as between the employer and the employee. It means reasonable as between the insured and the insurer having regard to the commercial purpose of the contract, which is inter alia to indemnify the insured against liability for his (the insured's) personal negligence. That, too, is established by the case which I have cited. Obviously, the condition cannot mean that the insured must take measures to avert dangers which he does not himself foresee, although the hypothetical reasonably careful employer would foresee them. That would be repugnant to the commercial purpose of the contract, for failure to foresee dangers is one of the commonest grounds of liability in negligence. What, in my view, is "reasonable" as between the insured and the insurer, without being repugnant to the commercial object of the contract, is that the insured should not deliberately court a danger, the existence of which he recognises, by refraining from taking any measures to avert it. Equally, the condition cannot mean that, where the insured recognises that there is a danger, the measures which he takes to avert it must be such as the hypothetical reasonable employer, exercising due care and observing all the relevant provisions of the Factories Act, 1961, would take. That, too, would be repugnant to the commercial purpose of the contract, for failure to take such measures is another ground of liability in negligence for breach of statutory duty. What, in my judgment, is reasonable as between the insured and the insurer, without being repugnant to the commercial purpose of the contract, is that the insured, where he does recognise a danger should not deliberately court it by taking measures which he himself knows are inadequate to avert it. In other words, it is not enough that the employer's omission to take any particular precautions to avoid accidents should be negligent; it must be at least reckless, that is to say, made with actual recognition by the insured himself that a danger exists, and not caring whether or not it is averted. The purpose of the condition is to ensure that the insured will not, because he is covered against loss by the policy refrain from taking precautions which he knows ought to be taken."

(Emphasis added.)

257 In association with that due care case, it has been submitted on behalf of Niugini Insurance that the due care clause is a condition precedent to the indemnity and that the onus of satisfying compliance with that condition rests solely with Dyno: always assuming that it is an assured under the policy and one which Niugini Insurance is not entitled to avoid for non-disclosure. There is nothing in Furman to support the submission on behalf of Niugini Insurance that the onus for satisfying compliance with the due care clause rests with Dyno. Quite the contrary, Diplock LJ expressed the onus as being that of the insurer and his judgment was the leading judgment in Furman with which the rest of the Court agreed.

258 I have been referred to no other English authorities to support the propositions advanced on behalf of Niugini Insurance. I have been referred to several Australian decisions which are to the contrary of the view expressed in Furman. However, I fail to see what relevance those authorities have in the context of these proceedings. In any event, the issue is not one resolved by recourse to onus. In my view, the evidence disclosed a responsible approach by Dyno to safety issues. Consistently with that conclusion I am satisfied that standards of care by operators at the site fell below a reasonable standard of care in relation to the processing of emulite in the mono-pump packaging line.

259 I have no doubt that the isolation of the mine represented a significant challenge to the implementation, supervision and maintenance of appropriate safety standards in the operation of the explosives plant by Dyno. In particular, in a number of respects the way in which malfunctions of the mono-pump in the emulite packaging line was addressed in the several months prior to the explosion left something to be desired in the application of appropriate measures.

260 It was also submitted on behalf of Niugini Insurance that once breach of the due care clause had been established, it is unnecessary to show that the breach had a causative effect on the occurrence giving rise to the claim of indemnity. I have not been referred to any English authorities on this question and it has not been explained to me why one would have regard to Australian cases on the question other than as a 'Commonwealth' decision. Nothing turns on that question given the firm conclusion I have reached that there has been no breach of the due care clause.

261 As a general observation about the due care issue, there is something, I think, quite unrealistic about an attack on the general standard of operations of Dyno when it is appreciated that, every step along the way, its establishment, method of operation and performance of its tasks were subject to the approval and supervision of the Mines Department whose approval was in fact obtained. In the course of performance of the operation no suggestion was made nor any requirement imposed by the Mines Department that would lend support for the very serious imputations implicit in Niugini Insurance's case.

262 In saying that, I am not unmindful of the evidence relating to the operation of the nonel plant concurrently with emulsion processing. Niugini Insurance seemed to lose sight of the serious implications in its case when regard is had to the obvious consequences of recklessness in an operation of this kind.

263 Far from any evidence of such a lackadaisical approach to the project, I think IT Smith and others demonstrated a considerable concern for matters of safety and the protection of staff and property and acted upon these reasons. In my view, there is something abhorrent in the proposition that such men acted with reckless indifference to safety matters in full knowledge of the consequences of that indifference. IT Smith, in particular, impressed me considerably as a person with a keen sense of responsibility and diligence in the performance of his duties with Dyno: and he, it will be remembered, was the person primarily responsible for the putting in place of appropriate safety measures within Dyno.

264 The breach of the due care clause was categorised by Niugini Insurance as falling into the following:

"(1) Failure adequately to address problems with the Emulite pack-out monopump

(2) Failure to provide a system of preventative maintenance

(3) Failures disclosed by the HAZOPS Study and the ISRS Baseline Audit

(4) Failure to provide procedures manuals and adequately trained staff

(5) Failure to observe the prohibition against the simultaneous operation of the emulsion manufacturing plant and the detonator assembly plant

(6) Failure to provide adequate separation of the various components of the plant"

265 As to the level of knowledge of Dyno relevant to consideration of the due care clause, it is clear from Furman that the operation of the clause is not concerned with vicarious liability but with conscious behaviour of the insured. Niugini Insurance has submitted that knowledge of senior management is relevant for the purposes of examining the operation of the due care clause and in that respect identified IT Smith and William Huntley Garson III (Garson) as representing management at sufficient level to fix Dyno with relevant knowledge. I accept that contention with the qualification that the primary level of responsibility lay with IT Smith and that Garson's change in responsibilities in 1994 resulted in his last site visit being in April 1994.

266 Garson was the international operations manager of Dyno between 1992 and 1994, in the latter year becoming special projects manager for Dyno. He, with IT Smith, attended the inspection by Twaddle and Hood of Dyno's proposed plant when it was located in Queensland on the occasion of the recommissioning of the plant. He evidenced the fact that in relation to the plant site commissioning and the locating of the plant at the ICI site, there was "no other alternative" available to Dyno for that location decision. That was a product of security requirements in a potentially hostile social environment and the geographical hostility of the area which left extremely limited areas available for works and operations required to support the project. I do not understand there to be an issue that the ICI plant and, in turn, the Dyno plant, was the subject of approval by the Mines Department in the commissioning siting and operation stages.

267 Garson gave evidence of the method of staff selection which clearly showed a high level of appreciation of the need for the employment of skilled persons suitable for the tasks. He also evidenced the way in which expatriate staff were "multi-skilled". He explained the necessity for this as the "fly in" system often meant that it was necessary for expatriates whose specialisation was in one area to be able to "cover" for other skill areas. Such staff were the subject of considerable "time and effort" put in by the other Dyno employees to ensure that appropriate skills were acquired. He emphasised the concern that he gave expression to in obtaining an "appropriately skilled expatriate workforce". He pointed out that the process of selection was such that it also required the approval of the PJV and that this method of obtaining and approving of staff was an ongoing process at the time of the explosion.

268 In relation to individuals of Dyno's staff who were killed in the explosion at Porgera, he gave evidence of their personal qualities as employees and those descriptions varied between "an excellent employee (with a possession of) a good range of skills"; "a very good employee and talented individual"; possession of "specialised skills"; and management skills at the same level as Garson, in the case of Phil Knuckey.

269 The processing of the employment of nationals was conducted at site level, but in all cases with the assistance of the PJV as there were significant security issues to be taken into account. Garson, himself, inspected the site frequently when he would discuss matters of management with Dyno's managers, the quality of product, security issues and the performance of the staff. He was aware of the regular visits to the site of representatives of the Mines Department and of maintenance programs put in place by Dyno. He gave the following description:

"Whilst I was International Operations Manager, the maintenance program at the explosives facility at Porgera consisted of:

* a maintenance agreement with Boroko Motors with respect to the mobile fleet (ie, the TTT truck and chassis, the cantor delivery truck and the forklift). This was a comprehensive maintenance agreement which included such things as analysis of oil from the drivetrain from the mobile fleet;

* other pieces of equipment which made up the explosives manufacturing facility (such as pumps, motors, etc), were serviced at regular intervals as per the appropriate manuals which accompanied the relevant pieces of machinery. Brad Givney did general maintenance around the facility and Brad Givney kept with him on site documentation with respect to maintenance, works and systems carried out by him as well as maintenance manuals on site. I believe such documentation was destroyed by the explosion of 2 August 1994;

* in addition, all the expatriate staff members had maintenance skills in their particular areas and were directed to use those skills to ensure that the production facility continued to operate to meet the mine requirements;

* there were regular visits and training by DWL contractors, such as Peter Hume (from Capricorn Steel) and Fred Agius (electrical contractor);

* maintenance was also carried out by Mike Riley and Harley Bradbury of Tradestar, who also trained the DWL staff at the Porgera site."

270 He was also aware of inspection of the project by the PJV "loss prevention officer/health and safety officer". As in the case of IT Smith, Garson presented as a highly responsible, diligent executive of Dyno.

271 IT Smith had close involvement in the setting up of the plant, from the time that it was located and tested at Queensland to the time it went to site. He evidenced the constraints imposed by security and terrain and the ultimate commissioning of the plant facility being subject to the approval of the Mines Department.

272 He, too, regularly visited the project to confer with Hood as the mine manager, to visit the open pit and underground mine, to inspect the Dyno facility and to meet with management of Dyno. He recalled seeing nothing on any of these visits which gave rise to any concern.

273 He also evidenced the high level of care invoked by Dyno in its selection of both expatriate and national employees. He said of their combined operation that from his "observations on site and from (his) knowledge of the PJV operation it seemed to (him) that the PJV had developed a style of working with the indigenous people that was appropriate for the mine". He further evidenced the fact that the "head national" had been supplied by the PJV to Dyno, and that he had worked on the project since the commencement of the ICI operation and had built a national team around him. He remained in Dyno's employment until the explosion. He evidenced the existence of an ongoing training grant for Dyno employees at the mine and spoke of his own knowledge of the skills of the Dyno staff.

274 Of particular significance is his evidence concerning the establishment of an internal auditing system that was put in place, known as the ISRS, which is an acronym for International Safety Rating System which is a system accredited by DNV (Det Norske Veritas). That internal audit was carried out in May 1994 and he was instrumental in assigning tasks to implement remedial steps arising out of that audit.

275 Of the results of that audit, he gave evidence that he :

"considered that the resolution of the problems raised by the audit were a high priority for management and it was important to ensure that such standards were then maintained. I considered that it would be beneficial if certain Dyno managers had a regular and continuing involvement in the audit process by attending at the mine at least once each year for the purpose of an annual review ... I was also concerned myself to monitor the progress of the remedial measures which were being put in place as a result of the audit findings and requested that such material (be) included in the monthly mine reports."

276 He gave further evidence of his concern with safety procedures. He added:

"I wanted to ensure that safety procedures were followed and people had the draft procedures to ensure that the operations under their control were being performed in accordance with safety procedures."

277 In my view, these witnesses were transparently honest and reliable. Evidenced through IT Smith were several memoranda, of which he was the author, which showed a continuing attention to and recognition of the importance of safety procedures for implementation at the Porgera project.

278 Considerable emphasis has been placed by Niugini Insurance upon the contents of two studies, namely the "Hazard and Operability Study Report" conducted by consulting risk engineers for Dyno in respect of its Porgera plant (the HAZOP study) and the "quality assurance baseline audit" of 11 May 1994 (the baseline audit) conducted internally by Dyno. The HAZOP study was commissioned by Dyno in late 1993 and the initial stage was completed on 10 December 1993. The final stage was completed on 10 January 1994. Under the HAZOP study, 260 items were recorded as calling for some action. In the case of the baseline audit, that, as I understand it, took the form of classifications which accorded with an international standard and was preparatory to an external ISRS audit.

279 Much has been made of the contents of these reports and the suggested delay in obtaining them. I suppose it really comes down to a matter of perspective, but far from supporting the case of the insurer, the very existence of these reports as commissioned by Dyno fly in the face of a case that seeks to throw at Dyno an allegation of reckless indifference to the lives and property of others.

280 The HAZOP study runs for several hundred pages and I note its recommendations give little comfort to the Niugini Insurance case. The recommendations were expressed as follows:

"From this Hazop study there are a number of recommendations that we would make. They are as follows:

1. An external audit review should be undertaken to ensure that all of the Hazop action items contained in this report are completed to ensure they have all been satisfactorily actioned.

2. The issue of different options available for solving a particular problem to that identified in this Hazop study should be carefully considered. Should a different solution be devised for solving a problem to that already documented, it should be reviewed in a Hazop format to ensure that it has not introduced any other operability or safety issues."

If there was substance in the case of Niugini Insurance that the conduct of Dyno's management should be characterised as reckless, then one would expect to find it in such recommendations.

281 I am not disposed to examine the detail of the criticisms offered by Niugini Insurance in relation to the implementation of the subject matter of these reports. The evidence of IT Smith is clear that the reports were seriously taken up and it was a matter of ongoing implementation following upon the publication of the report. It was clear from his evidence that constraints of time and place took their toll in frustrating the immediate implementation of all recommendations, but the evidence, I think, is beyond argument that there was a responsible and genuine response by management to the study and that there was an ongoing exercise in place to implement those matters reported upon.

282 As a further general observation, I see nothing in the least daunting in the deficiencies identified in the study or the audit report, in so far as it is in the nature of the animal that such a report will be critical. Referring back to the six failures identified by Niugini Insurance as evidencing a breach of the due care clause: I propose to address issue one later in these reasons.

283 As to issue 2, failure to provide a system of preventative maintenance: the thrust of the evidence was that plant maintenance was effected on an as required basis as distinct from periodic scheduled maintenance. Generally speaking, there was, in my view, ample attention to maintenance on an as required basis. At the same time it is clear that preventative maintenance was preferable and I think, in particular, significant in relation to the emulite packaging line to which I will refer under issue 1.

284 I think the evidence of Bradley Givney, who was appointed by Dyno as its international technician in April 1993, demonstrated that commitment of Dyno to the maintenance of its plant and equipment. He had worked on the commissioning of the Dyno plant in preparatory work in Queensland during 1992. His first visit to the Porgera project was in about September 1993 where he prepared a daily checklist of matters for the plant. In October 1993, he again visited Porgera and conducted maintenance of the plant during that visit. In addition to maintenance, he trained staff in relation to ongoing maintenance matters. He visited Porgera again in November 1993 for the carrying out of maintenance of the plant. He had been involved in the installation of the mono-pump being part of the emulite packaging unit. He assisted in the preparation of the HAZOP study. He described that as a study of "worst case scenarios". He worked full time at Porgera from 8 January 1994 until July 1994 with responsibilities for implementing the recommendations of the HAZOP study. As part of that task, he performed routine maintenance and provided executive management with summaries of actions taken. He was also involved in implementing the recommendations of the baseline audit. It was his general evidence that he had completed the majority of the items referred to in the audit.

285 In relation to the emulite mono-pump, he said that on a "regular basis of intervals of approximately three to four days, [he] physically checked by hand, the drive motor, heat tracing and pump condition". Notwithstanding some shortcomings in the standards of maintenance and operations, in fact, implemented by the operations staff, I think the evidence to which I have referred negates a charge of recklessness on the part of Dyno in installing and implementing appropriate measures of maintenance and operation of the plant.

286 As to issue 3, failures disclosed by the HAZOP study and the ISRS baseline audit: criticisms were offered as to the lateness of introducing this study, of the priority given to Australian sites over the Porgera site, of the possibility that implementation of shortcomings may have been implemented more quickly on the basis of which it was submitted that "Dyno knowingly courted the risks expected to be revealed by those studies without taking the appropriate steps to avert the same by the timely completion of those studies and by the timely rectification of the shortcomings that they came to reveal". I doubt if I need to comment further on that submission beyond what I have said in terms of the genuine efforts of Dyno to provide a safe plant and operation at Porgera.

287 As to issue 4, failure to provide procedures, manuals and adequately trained staff: I have had something to say about the staff. There was a comparatively isolated example of a complaint of lack of training with regard to the manner of selection of staff and the evidence of the level of skills of the principal staff members. I think this criticism lacks substance. It is further dealt with in relation to issue 1.

288 As to issue 5, operation of the emulsion manufacturing and detonator assembly: the Mines Department required that these activities not be carried out concurrently. The evidence established that they were. I think Garson's evidence is to be accepted that the concurrent operations of those two plants took place at times of inspection by officers of the Mines Department without objection by those officers. There is a conflict of evidence as to the safety implications of that concurrent operation. The evidence being that with concurrent operations, there was a prospect of detonators being deliberately or accidentally introduced into the emulsion manufacturing activity. However, I tend to think that is somewhat fanciful and that Garson's evidence is to be accepted that no measurable risk arose out of the two operations being performed concurrently. In any event, the practice fell far short of any concept of reckless indifference to standards of care that might be expected of Dyno in the operation of the plant.

289 Issue 6, failure to provide adequate separation distances in location of plant components: this complaint, in my view, fails to pay any heed to the dictates of carrying out such an operation within the restricted confines of the mountainous region in which the project was situated and ignores the approval of the operation by the Mines Department. I have dealt with that issue earlier in these reasons.

290 The prescription of separation distances for materials and elements in an explosives plant is neither inflexible nor mandatory in its application to the Porgera explosives plant. The standards on which reliance has been placed by Niugini Insurance admit of modification by reference to local conditions. A salient feature of the Porgera explosives plant installation is the fact that it was the subject of approval by the Mines Department in respect of its layout and operation, in the case of both ICI and Dyno. Further, both ICI an Dyno were forced to operate within the parameters dictated by a potentially hostile social environment and significantly restricted by the topography of the site. Subject to those observations, I see no substance in this criticism of Dyno's operation.

291 My final observation on this aspect is a reference to the evidence of IT Smith in cross-examination as follows:

"Q. As you understood it the PJV was looking to Dyno for Dyno's advice as to how this plant ought to be configured?

A. In relation to the manufacture of explosives, that's correct.

Q. As you understood it, the PJV was looking to Dyno to ensure that the manufacturing process was a safe one?

A. Yes, sir.

Q. Did you yourself give any consideration of the proximity - to the proximity of the matrix to the manufacturing plant?

A. I gave a great deal of consideration to the overall layout of the plant including that aspect of it."

(T431.51-432.9)

292 The next is issue 1, problems with the emulite packout mono-pump: the significance of this issue lies in the fact that I am satisfied that a malfunction in the emulite packaging mono-pump was the cause of the initial explosion which led to the explosion in the adjacent emulsion tanks and that the site operators had forewarning of some malfunction.

293 I have made reference earlier to the Gunnarson and Perlid reports. Clearly, special care was demanded in the pumping process involved in the packaging of the emulite. I think that is common ground. Certainly IT Smith did not quarrel with that approach. Indeed, he acknowledged an awareness of explosions which had occurred throughout the world and which had been associated with the pumping of emulsions. When account is taken of the process involved at the Porgera Dyno plant, namely the pumping of emulsion which was sensitised and subjected to conditions of pressure and heat, the imperative of having adequate safety procedures in place is quite obvious.

294 Michael Cechanski (Cechanski) was a chemical engineer on Dyno's staff with over twenty years experience in the explosives industry. He held Master of Science degrees in chemical engineering and chemical technology. He had been involved in the devising of an appropriate formula for the bulk emulsion and sensitised emulsion to be used in the project. In July 1993 he attended the project site to review the manufacturing operation with the aim of "ensuring product quality and provide training to...operators in the area of Emulite and emulsion manufacturing." He returned to the site in September 1993 "to assist in the manufacture of the regular formulation of Emulite 100 which had not been previously manufactured...also to oversee the general operation of the modified plant and to review product performance."

295 Each of those visits was the subject of a report to Garson. The July report included the following recommendations:

"* Heat tracing and insulation of fuel lines starting with fuel tank and continuing all the product line up to Mono pump. It is advisable to improve the insulation on fuel tank to protect the system from congealing in case of stoppages, break-downs further down the line.

* Install pressure gauges (line pressures)

* Install automatic pressure cut-out sensors.

* Install temp. cut-out sensors on fuel tank.

* Install temp. cut-out sensors on product line

Low - to prevent pumping cooled product

High - to prevent overheating

* Install a 2nd nozzle or an efficient cartridging unit (type Autoflex or other type)

The latter would improve the yields and quality of the final product.

* Still we have to remember that long pumping distance (different from NPI, Kalgoorlie, Bajool) builds up pressures, which we'd rather like to avoid. This will remain to be a difficulty from operational and safety point. Pumps must never be allowed to go dry. Re-starting must only be permitted for a cleaned out product line.

* The firmer product will put more strain on the whole plant and operation. The high processing temperatures will follow the product all the way through to the plastic film. Consequently, ambient cooling will be required before inserting cartridges in the boxes.

* No steel scrapers should be used when cleaning product line. Supply adequate tools from Australia.

* Site should be provided with a buffer of spares, type:

- pumps, motors

- rotameters

- pressure / temp. gauges

- additional water heater for new fuel line"

296 The September report contained the following:

"3. * Heat tracing and insulation worked OK and kept the product's temperature within the range.

* It is suggested that Emulite 100 should not be pumped if its temperature is bellow (sic) 80C.

* The product can be kept hot over some time, however it is recommended to have each produced batch packed out during the same day.

* Hydraulically regulated and independently (sic) set up doubble-nozzle (sic) system should facilitate a more efficient filling and packing operation.

* Temperature and pressure gauges should be installed on the pumps used for product."

297 It appears that the recommendations for the provision of pressure and temperature gauges were responded to and those gauges were delivered to the site in November 1993. However, it required a malfunction of the mono-pump on 9 February 1994 to cause the gauges to be installed.

298 The incident involving the emulite plant mono-pump on 9 February 1994 was the subject of a report by an investigating committee comprising Messrs Pitt, Wynne, Pledger and Dyer. Although Wynne and Dyer were killed in the explosion, and as earlier noted, Pitt was removed from the site prior to the explosion, the evidence disclosed that Pledger was employed with a related corporation of Dyno in New Zealand at the time of the hearing. Neither Pitt nor Pledger were called to give evidence, a matter upon which counsel for Niugini Insurance has commented adversely in relation to Dyno's case on the due care issue. There is no suggestion that either was unavailable to give evidence. However, I think the absence from the witness box of those two witnesses has to be viewed separately in considering, respectively, the due care issue and the negligence case brought by the PJV against Dyno. The significance of the absence of these two men from the witness box is addressed later in these reasons.

299 In reporting on the 9 February 1994 incident, the investigating committee described the incident as follows:

"The emulite pack out monopump was inadvertingtly (sic) activated and allowe (sic) to run for approx 3 hours. Smoke was seen to be coming from pump. There was no product in the hopper."

(Exhibit D2-1 Document 11)

Having in mind the technical papers earlier quoted in these reasons stressing the dangers of the preparation of emulsion under pressure and Cechanski's stricture that "Pumps must never be allowed to go dry." The investigating committee's description of the occurrence should be treated as an alarming one.

300 For the better understanding of this evidence concerning the likely mechanics of the explosions there was admitted into evidence a photograph in cross-section of the mono-pump (schedule 3 to these reasons); a photograph in cross-section of the rotor head section (schedule 4) and a sketch of the hopper and mono-pump (schedule 5). Different experts were not adverse to using interchangeable words of description for the same elements in the emulite mono-pump.

301 A simple description of the operation of the emulite packaging plant may be useful in addressing the evidence relating to the mechanics of the explosions.

302 The sensitised emulsion known as emulite was fed via a hopper system to an inlet which is described as the suction port, element 5 in the photograph, schedule 3. The emulite has a viscosity likened to that of toothpaste and required the application of pressure and heat to facilitate its passage through the packaging line by a rotation of the flexishaft, which is element 4 in the photograph. That rotation in turn caused the rotor section and the rotor shaft to revolve, they being elements identified as 6 and D, respectively. The rotor shaft or rotor scroll revolved within the stator, which is element 3.

303 Although schedule 4 is not a particularly well exposed photograph, viewed in conjunction with the photograph in schedule 3, it gives a better understanding of the operation of the rotor in the vicinity of elements 6 and C where shown in schedule 3.

In schedule 4 the section shown as the rotor head, or rotor boss, which is really an extension of the rotor scroll, is the area shown as a U shaped black section marked as section 6 and "C" on schedule 3. The flexishaft in schedule 3 is covered in a black "elastomeric polymer" to a point where the flexishaft becomes embedded within the rotor section. That can be seen in both schedules. The way in which the elements are locked together in the rotor section is comparatively simple. The "U" of the rotor head fits snuggly over the t-shaped section known as the rotor adaptor.

304 The flexishaft fits into the rotor adaptor. This is effected by having a narrowing tapered inlet in the adaptor which conforms in shape with the tapered steel end of the flexishaft. In schedule 3 there can be seen a flexishaft bolt. That bolt is located in a space formed between the head of the adaptor and the bottom of the U in the rotor head. That space is known as the rotor head cavity. That bolt is shown as passing through a washer and threaded into the hollow threaded end of the flexishaft. By tightening the bolt, the flexishaft is drawn into an immovable position within the adaptor and in turn within the rotor head. Internal screws bind the end of the U legs of the rotor head to the T element of the adaptor so that the flexishaft, the adaptor and the rotor head are as one unit.

305 In schedule 3 seals are shown in the joint at the end of the legs of the rotor where they join the adaptor T-section. There is a similar seal identified in Schedule 4 as an O ring and another seal identified in schedule 4 as the flange gasket.

306 The configuration of these elements and the various seals are designed to exclude material from the interior of the rotor section, in particular, from the rotor head cavity and the adjacent cavity, known as the flexishaft cavity. The seals are also designed to preclude the intrusion of compounds under the polymer covering so as to avoid corrosion of the flexishaft.

307 It is axiomatic that malfunctioning can lead to increased pressure which in turn converts into increased temperature, both of which may be viewed as highly undesirable developments in the operation of packaging emulite. The investigating committee's report outlined the steps taken by Dyno's operators after the 9 February 1994 incident as follows:

"The pump was turned off & cooled with water.

Approx 5 hours later, pump was disasemble (sic) and inspected. There was (sic) no visible signs of any damage to rotor or stator. Seals appeared to be intact."

308 I do not think it is suggested that each of the elements joining the rotorshaft and the flexishaft into one unit should have been completely dismantled. Nevertheless, the severity of the malfunction was such as to require, in my view, a most thorough examination of the emulite packaging plant. Given the presence of smoke during the malfunction, one would immediately think of extreme temperatures, distortions to the metal in the rotor section and damage to the various seals. The investigating committee's report on causation was in the following terms:

"IMMEDIATE CAUSE:- 1) IN SITU CONTROL VALVE HAD MAKESHIFT

HANDLE WHICH COMRISED OF A PAIR OF VICE

GRIPS LOCKED ONTO VALVE SHAFT.

2) MAIN CONTROL VALVE ON PANEL IN DISCUSSION REVEALED THAT WHEN HYDRAULIC POWER SOURCE ACTIVATED ON SOME PREVIOUS OCCASIONS, THE SECONDARY CONTROL VALVE HAD TURNED ITSELF ON.

BASIC CAUSES:- 1) PLANT IS AN "OLD PLANT" THAT HAS BEEN

RECOMMISSIONED. VALVING WAS NOT REPLACED

DURING RECOMMISSIONING.

2) PLANT HAS NOT BEEN CORRECTLY MAINTAINED SINCE BEING RECOMMISSIONED. ONLY MAKESHIFT REPAIRS HAVE BEEN CARRIED OUT.

3) NO SAFETYINTERLOCKS FOR HIGH TEMPERATURE OR PRESSURE IN SYSTEM.

4) NO PROCESS HAZOPS CARRIED OUT PRIOR TO

PLANT START UP. (A PROCESS HAZOPS HAS RECENTLY BEEN CARRIED OUT BUT RECOMMENDATIONS TOT YET IMPLEMENTED)

5) NO PROCEDURES FOR OPERATIONS IN PLACE.

6) NO FORMAL OPERATOR TRAINING IN PLACE

RECOMMENDATIONS

1) REPAIR/ PLACE ALL VALVING SO THAT ON/OFF & FLOW CONTROLLERS WORK CORRECTLY BY 10.3.94

2) PUT IN PLACE A PROCEDURE TO ENSURE THAT

a) ALL HYDRALIC (sic) CIRCUITS ALL CLOSED PRIOR TO ACTIVATING HYDRALIC (sic) PACK

b) CHECK THAT NO CIRCUITS HAVE BEEN INADVERTANTLY ACTIVATED DURING START UP..."

309 It is not underestimating the seriousness of this incident to say that the recommendations of the investigating committee, in my view, suffered from overstatement and were, in some respects, selective when it is borne in mind that the temperature and pressure of valves which had been provided by Dyno in November 1993 as a result of the Cechanski report had not been installed prior to this malfunction in February 1994.

310 Pitt's description of the plant as "an old plant" I think should not be taken too seriously. The plant had been properly recommissioned, water tested, and subjected to inspection and approval of the Mines Department. Further, I find it difficult to understand how Pitt could be heard to say that the plant had not been correctly maintained since being recommissioned given his sphere of responsibility.

311 I think my earlier findings as to the maintenance procedures in place are sufficient to place in context the substance of the investigating committee's comments on maintenance procedures.

312 I think a favourable overall impression may be gained as to the concern of Dyno management with safety and product quality standards in relation to the Porgera Dyno operations from the evidence of Scott Bartlett, an employee of Dyno with a background as a research chemist. He had visited the Porgera site on four occasions prior to the explosion, the last being on 2-8 May 1994. Although his expertise lay primarily in product quality, he was also involved in the training of expatriate employees involved in product manufacture at Porgera and in implementation of safety procedures arising out of the HAZOP study and the baseline audit. In the performance of his duties, he gained a familiarity with the competence of the Dyno staff at the plant and I think it is clear from that evidence that Dyno's selection of staff resulted in the employment of a high level of skills and competence in their respective roles.

313 He gave the following general evidence of his observations:

"My overall impression of the Dyno operation at Porgera based upon my site visits and many dealings with Bill Garson III and those on site, was that everyone wanted to achieve the ISRS accreditation and to remedy any problems with the plant. The team up there was a fairly close knit unit and I always had the impression that they wanted to do their respective jobs as well as they could. I know from conversations I had with Phil Knuckey who was running the Plant at the time of the explosion that he was very anxious to sort out all of the problems identified in the ISRS Audit and to achieve the quality accreditation so that a new Plant Manager could be employed and he could return to Cairns. I was involved in working with Phil in that process and I spent a lot of my time between May and August 1994 attempting to achieve those objectives."

314 At the same time the "makeshift" method of operating the control valve and the attendant capacity of the secondary control valve to self-engage were clearly matters of serious moment having regard to the importance of the control of flow of the emulite through the packaging system.

315 In May of 1994 there was a further malfunction with the pump in that a foot control switch failed and the needle on the pressure gauge had to be put back in place on several occasions. I think those incidents are of no particular significance apart from a possible indication of the need for a higher level of maintenance to prevent those occurrences.

316 However, there was a series of incidents in the month preceding the explosions which are of particular concern. A number of discs on the mono-pump ruptured within a space of twelve hours with five discs rupturing over a two to three day period. The discs were actually designed to rupture under conditions of excessive pressure within the mono-pump. The discs, in fact, were known as "burst disks". It also appears that no new replacement discs were available until the week prior to the explosions. In the meantime, a "temporary disk" had been used.

317 The incident in February 1994, and the rupturing of the discs in July 1994 were the subject of a post-explosion inquiry by one D A Abrahams, an employee of Dyno, on 26 October 1994. On that date he had a telephone conversation with Pledger concerning the operation of the mono-pump and his file note of that conversation was as follows:

"NOTE TO FILE: CRAIG PLEDGER

Rang Craig 26th October 1994 10.45 hrs to discuss Pack-out Mono Pump incident.

Gave Craig an overview of findings.

Asked Craig what he could tell me regarding the Mono Pump incident which occurred in February.

Pump running for 2 hours plus

70m nozzle connected, steam coming out end of nozzle.

Removed 70m nozzle started to flush with water into and over discharge end and pumped water through hopper into the other end

Pump left to cool down, was not stripped down that day.

Went back on truck. Brad examined it the next day with Trevor. No parts changed. Sure Brad [Givney] was there.

Removed end plate to check if any damage to stater rather than the rotar (sic) or flexi shaft. Duncan [Wilson] was on field-break.

DA: Are you aware of anybody doing anything to the Mono Pump after the incident in February ?

CP: After the temperature and pressure gauges were fitted, no.

Definitely not to my knowledge.

DA: Are you sure that Duncan or Merv [Wynne] did not compleltely (sic) strip the Mono Pump ?

CP: No, No, nothing like that was done to my knowledge.

CP: Could the problem with the burst discs have anything to do with it ?

DA: I don't know, it is still to early to say at this stage.

Metalurgical (sic) analysis are still being conducted.

Can you tell me about the 5 burst discs going in 12 hrs ?

Craig over 2 - 3 days.

DA: Were there any other incidents ?

CP: No, not to my knowledge. Merv fitted a temporary disc which held.

DA: What can you tell me about the burst discs suddenly going ?

CP: Burst discs went for several reasons.

Product going hard over smoko breaks.

Nozzle not cleaned out at end of shift.

Pump rotation not set to correct speed 70m V 30m

Untrained and new employees.

DA: The new burst discs arrived on 28 July, PJV Store withdrawn on 29 July by someone from DWL. Would they have been fitted ?

CP: Yes, definitely. Merv was not happy about running the pump with the temporary disc."

318 Just dealing with the record of Pledger stating that neither Wilson nor Wynne had completely stripped the mono-pump after the 9 February 1994 malfunction: it is not particularly easy to reconcile that with the report of the investigating committee of that incident nor of the evidence of Garson. According to his evidence he took the following action:

"February 1994 Incident

40. On 9 February 1994, I recall that the DWL site manager at Porgera informed me that the monopump in the emulite packaging line had overheated. He told me that a large amount of smoke or steam had been observed billowing out of the pump. I further recall that he told me that personnel on site had shut the pump down and put water on it to cool it. He said the pump had probably been running for about four to five hours at a low rpm. I said to Trevor Pitt words to the following effect: "I want the whole pump totally stripped and inspected and any damaged parts replaced." Following this, I immediately informed the General Manager, International, Ian Smith and Phil Knuckey, of the incident. At this time I also instructed Phil Knuckey to advise the PJV Mine Manager of the incident."

Perhaps the difference lies in the emphasis of the question, whether Wilson or Wynne had "completely" stripped the mono-pump.

319 There was the further evidence of Givney that it was he who installed the mono-pump in the emulite packaging line in 1993 and oversaw the installation of the temperature and pressure gauges in February 1994. He had been informed of the overheating of the mono-pump in that incident when he was in Australia, and on his return to Porgera on 21 February 1994 he discussed the matter with Pitt who informed Givney that he and Wynne had "pulled the pump down but found no damage to the rotor or stator". After the 9 February 1994 incident Givney also had a conversation with Wynne in which he was informed that it was he who "actually dismantled the pump" and told Givney that "there had been no damage to the rotor or the stator".

320 Givney gave evidence of the experience of Wynne and Pitt in respect of the pump and he was prepared to accept the reliability of the information given to him in that way concerning the malfunction of the pump. He gave the following further evidence:

"35. I also believe it was steam rather than smoke due to the low rpm and the amount of water in the DNAP products. I closely observed the operation of the pump in the following weeks. There was no observable change in the operation of the pump or its output and the pump appeared to be operating satisfactorily. This, in my opinion, confirmed that the pump had not been damaged.

36. On a regular basis of intervals of approximately three to four days, I physically checked by hand, the drive motor, heat tracing and pump condition.

37. I left the site on 9 July 1994 and Duncan Wilson was nominated as the mechanical tradesman on site. There was a list of daily checks to be carried out and part of that was visual inspection of all plant and equipment. See document "BG7". This was a summary of the daily check lists I have devised together with a list of work to be completed."

321 It appears that Givney left the site prior to the incidents in late July when the five burst discs failed. I think the correct conclusion to reach is that there was some dismantling of the pump following the 9 February 1994 incident, the extent of which is imprecise, and that it did not amount to a complete dismantling of the emulite packaging elements.

322 Notwithstanding the favourable impression I gained from Givney as a witness who was direct and responsive in answers in cross-examination, I have serious reservations as to the adequacy of the response to the 9 February 1994 incident given the seriousness of Cechanski's stricture in relation to the pump being allowed to run dry and the conventional wisdom in the industry as to the danger of processing explosives materials under pressure.

323 I accept the evidence of Givney that he continued to observe the operation of the emulite plant after the 9 February 1994 incident and that he was satisfied that there was no malfunction. However, I think adverse inferences should be drawn against Dyno arising out of its failure to call witnesses to evidence the precise remedial steps taken by Dyno in the aftermath of malfunctions to the emulite packaging plant in February, May and July 1994. While that may not be so in the due care case, vis-a-vis Niugini Insurance, I think that it is a reasonable observation in the negligence case between Dyno and the PJV.

324 Some force I think is given to that criticism when regard is had to the seriously irregular operation of the packaging plant a matter of days prior to the explosion. It may well be that the rupturing of the burst discs demonstrates the function of those fittings but to have five rupturing in the space of two days or so and the resort to some home made replacement pending receipt of new discs reflected a significant malfunction of the machine in the packaging line and, in my view, an inappropriate response to it by its operators.

325 It is common ground that the initial explosion occurred in the emulite packaging plant and I have no doubt that a cause of that ultimate failure lay in a defect in the emulite packaging process which may or may not have had an association with the effects on the plant of the 9 February 1994 incident, but which was manifested in the rupturing of the burst discs shortly prior to the explosion, and which, in my opinion, received no adequate attention on site.

326 In my view, there should be no underestimating the seriousness of the underlying cause of the rupturing of the discs. It may be a matter of no consequence that a burst disc will rupture very occasionally. However, to have several discs rupture in a short space of time, clearly, I think, indicated a malfunction in the mono-pump packing line that required investigation.

327 The fact is that site personnel did not convey this malfunction to Garson or IT Smith prior to the explosions. While the conduct of site personnel, I think, left something to be desired, a charge of recklessness against Dyno on the basis of the conduct of IT Smith or Garson is not warranted. I have been invited to reject Garson's evidence that he was not informed of the rupturing of the discs prior to the explosions. It was not put to him that he had been so informed and, in any event, I have no reason to disbelieve Garson or IT Smith in any aspect of their evidence.

328 For those reasons, I am satisfied that Dyno was not guilty of a breach of the due care clause of the endorsed policy. I am satisfied that there was a genuine and high level of concern for safety and maintenance procedures on site as evidenced by the commissioning of the baseline audit and the external HAZOP study, by the very substantial response by Dyno to the latter, and by Dyno's rectification of the vast majority of the items referred to in that study by mid 1994. The fact remains, however, that the maintenance procedures and responses on site to malfunctions in the emulite packaging unit were deficient.

329 It is not entirely surprising having regard to the complete devastation of the plant that a public inquiry into the causes of the explosions resulted in an inconclusive report. In these proceedings, while there has been acceptance of the fact that the explosion occurred in the emulite packaging line the experts called in the respective cases of Niugini Insurance and Dyno have been unable to offer a definitive analysis explaining the initiation of the explosion. The debate has been more one of a difference of opinion as to the precise area of initiation within the packaging line, with Dyno's expert locating it in the rotor head cavity. Niugini Insurance's expert places it in the packaging line outside of the rotor head.

330 Dyno called in its case Robert Collins Barnes (Barnes), the principal of Robert Barnes & Associates, Forensic Consultants. His disciplines lay in the fields of metallurgy, engineering and chemistry. He had extensive experience in the investigation of explosions. In his statement of evidence he explained the detail of his investigation of the explosion following his retainer by Dyno on 7 October 1994 which resulted in a report of 21 December 1994. He described the various tests which he caused to be carried out during the course of that investigation and excluded causes of the explosion in various segments of the plant, as to which there was no dispute. Nor is there any dispute as to his conclusion that the explosion was initiated in the emulite packaging line and, in particular, in the mono-pump.

331 Where the experts are at issue is in the opinion expressed by Barnes that there was a crack defect in the interior of the mono-pump which permitted an explosion of emulite within the pump to "propagate to the emulite contained around the scroll of the pump" from which all other detonations or explosions emanated.

332 His opinion of the anatomy of the explosion within the mono-pump is strongly challenged by Dr John William Howard Price (Price), an expert with impeccable qualifications in chemical engineering. Shortly after the explosions, he was retained by Mono Pumps (Australia) Pty Ltd (Mono) to provide mechanical engineering and metallurgical support for their investigations into the explosions. As part of that retainer he participated in a series of explosion tests on a mono-pump of a similar type to that in use at Porgera. It was his role to ascertain whether the cause of the explosions was due to some design or manufacturing fault or defect within the mono-pump.

333 No expert suggests otherwise than that there are dangers associated with the process of packaging explosive material such as those of emulite under pressure and in conditions of applied heat. Neither is it disputed that a build up of pressure may give rise to increased temperatures within the packaging line.

334 While experiments conducted by Price on behalf of Mono experienced considerable difficulty in causing emulite to explode under conditions of extreme heat, I am reasonably satisfied that the seat of the explosion is to be found in the undetected increased temperature of the atmosphere in the emulite packaging line, probably the result of a dangerous increase of pressure in the mono-pump. Price's difficulty in replicating the explosion may well be explained by irregularity in the level of sensitivity of the emulite actually involved in the explosion. There is nothing to dissuade one from those views by the evidence that in May 1994 the needle on the pressure gauge had fallen off "on a number of occasions" which had "resulted in an over pressure state not being recognised by the alarm system..."

335 Although considerable evidence was adduced of a technical nature through experts called in the respective cases of Dyno and Niugini Insurance, I have not felt compelled to examine that evidence in detail, principally because Dyno and Niugini Insurance seemed more intent on disputing the mechanics of the explosions rather than exposing the cause of the explosions.

336 While it is not possible to state precisely what caused the explosions, there is little doubt in my mind that Dyno operators had been given serious forewarning of a malfunction in the emulite packaging line only a matter of days before the explosions. I am satisfied that the malfunction was neither reported to senior management nor made the subject of any adequate investigation and rectification.

337 The nature of that malfunction was such, in my view, as to strongly indicate a connection with the circumstances of the explosion: evidencing, as it did, a persistent and significant recurrence of an undetected pressure increase and consequent raising of temperature in the emulite processing. Except for Price's difficulty in initiating an explosion of emulite by the application of heat, I would have little problem in finding that the irregularity in pressure build-up in the packaging line with attendant application of excessive heat was sufficient explanation for the explosions. On the balance of probabilities I remain of that view notwithstanding that particular evidence of Price.

338 If it was necessary to find another factor to reconcile my finding with that evidence of Price, it is to be found in the likely presence of an irregularly high level of sensitivity in the emulite arising from insufficient control over the sensitising process: a factor which would have facilitated the igniting of the emulite under the conditions of unplanned pressure and temperature build up. That is the very circumstance referred to in the Gunnarson report in warning of the "extremely hazardous" nature of the "pumping of emulsion explosives" evidenced by accidents which probably also involved "unwanted and unknown sensitizing."

339 The PJV's case against Dyno in respect of the material damage and business interruption claims is one of res ipsa loquitur. Upon the evidence as presented by the PJV I think it is such a case. Niugini Insurance's primary submission in its 'due care' case postulated that satisfaction of the due care clause is a condition precedent to its liability under the policy and that it is sufficient to show breach unrelated to the subject loss. Notwithstanding, the Court was invited to make a finding on causation that "on the balance of probabilities (the first explosion) was caused by a malfunction in the Emulite pack-out mono pump." The submissions recited the principal failures of the mono-pump mentioned earlier in these reasons. In respect of those earlier malfunctions it was submitted that Dyno failed "adequately to address the problem with the pump." To the extent as found in these reasons I agree with that contention. In that context Niugini Insurance relied upon the Gunnarson report and the evidence of Trevor Anthony Cowper (Cowper). He was an expert with special qualifications in chemistry and metallurgy. He had spent forty years with ICI in which he gained considerable experience in explosives and attendant safety features in handling. He participated at committee level in working groups responsible for the formulation of Australian standards and codes relating to storage and transporting of explosives. He was clearly very well qualified to give expert evidence on the subject of the handling of the emulite on site by Dyno. He criticised the layout of the Dyno plant in respects that I think have been adequately addressed earlier in these reasons.

340 During re-examination he offered the following expert evidence, which I think is consistent with my earlier findings on the cause of the explosions and puts into context Price's evidence of testing to replicate an explosion of emulite:

"<RE-EXAMINATION BY MR FORSTER :

MR FORSTER: Q. Mr Cowper, at one stage in your cross-examination by my learned friend, you were asked something to the effect of whether the introduction of heat may have some safety factor in the manufacturing process?

A. Yes

Q. I think you said in answer to one question something to the effect of "there is a little bit more to it than that"?

A. Yes.

Q. Do you remember saying that?

A. Yes.

Q. Could you explain to the court what you wanted to add to the answer you gave at the time?

A. Well, certainly a cold emulsion is more difficult to pump than a hot emulsion. When you go to apply heat to an emulsion, one of the problems is that the emulsion is a very poor conductor of heat, so if your method of applying heat is such that you can get a high temperature localised heating, you are introducing a hazard that way, so you need to introduce heat in such a way that there is an inbuilt maximum temperature that can be achieved by that heating method.

You have to bear in mind that it is very difficult to agitate and it is quite possible that where you are applying the heat, the temperature is quite different to where you are measuring the temperature of the matrix.

Q. If that uniformity of heat is not maintained what consequences might follow?

A. If you overheat, the matrix can start to decompose. If you, say, pump into a dead head, nothing is going through the pump, the hotter the matrix the less time you have to switch the pump off.

Q. Is there anything else, or is that the answer to the question?

A. That is the answer to the question.

Q. Thank you. You were also asked some questions --

HIS HONOUR: Q. Just to understand; what is the consequence of it (sic)

decomposition?

A. Under confinement, if you keep putting the heat in, you generate gases and something will go. It will either explode, blow bits of pipe everywhere or worst case it could detonate, which is more violent."

(T 1601.23-1602.22)

341 As to the proper standard of care to be applied in the PJV's negligence case, the parties appear to be in agreement that the test is that stated in Burnie Port Authority v General Jones Pty Ltd [1994] HCA 13; (1994) 179 CLR 520: the relevant principle being stated as follows:

"...a person who takes advantage of his or her control of premises to introduce a dangerous substance, to carry on a dangerous activity, or to allow another to do one of those things, owes a duty of reasonable care to avoid a reasonably foreseeable risk of injury or damage to the person or property of another. In a case where the person or property of the other person is lawfully in a place outside the premises that duty of care both varies in degree according to the magnitude of the risk involved and extends to ensuring that such care is taken." (at 556-557)

342 The private international law rules to be applied to the PJV's cause of action in negligence has not been the subject of controversy in this case as I understand the submissions presented by the parties. In any case, whether the rule in Phillips v Eyre (1870) LR 6 QB 1, as applied in Boys v Chaplin [1971] AC 356 at 389, or as applied in the High Court of Australia in Breavington v Godleman [1988] HCA 40; (1988) 169 CLR 41 at 110; McKain v R.W. Miller & Co (SA) Pty Ltd [1991] HCA 56; (1991) 174 CLR 1 at 39, and Stevens v Head [1993] HCA 19; (1993) 176 CLR 433 at 453, is the correct judicial approach in this case, has no significance.

343 However, I am unaware of any evidence or submissions relating to the law of torts as applied in the lex loci actus namely, that of Papua New Guinea. On that premise I have proceeded on the presumption that the law of Papua New Guinea does not differ from the law of this State.

344 The application of the principle in Burnie leaves me in no doubt that the standard of care required of Dyno was such that the "magnitude of the risk" demanded a very high standard of care, bordering upon an absolute duty to ensure that an explosion was not initiated in the emulite packaging line.

345 It should be clear from my earlier findings that such a standard of care was not met by Dyno's site operators of the plant. In consequence I have not found it necessary to consider any liability of Dyno to the PJV in contract, or in nuisance.

346 Niugini Insurance has invited an approach to the explosions which involved distinguishing between the two explosions: the first explosion being that of the emulite in the mono-pump packaging line: the other the explosion of the adjacent tanks of emulsion under the effect of the fire initiated by the first explosion.

347 The principal reason for dissecting the mechanics of the explosion in this way, lay in the case presented by Niugini Insurance that the layout of the plant did not conform to industry standards: the corollary being that, had those standards been observed, the distance of the emulsion tanks from the emulite packaging line would have minimised the risk of a second explosion. I think I have adequately dealt with the Niugini Insurance case based upon that criticism of Dyno's layout. In brief, I think that criticism lacked reality by a) its failure to recognise that the standards are neither mandatory nor peremptory - they are flexible and may be departed from; b) its failure to pay any sufficient regard to the evidence of severe topographical restrictions within which Dyno was required to accommodate its plant layout; c) its failure to recognise or give sufficient effect to the role of the Mines Department in approving the plant, its layout and supervising the Dyno operation.

348 The PJV's material damage claim has been the subject of agreement as to quantum. The extent of that agreement may have to be clarified so far as that claim comprised a category described as "Revised Schedule 2: Miscellaneous", part of the PJV's submissions. It was stated by counsel for the PJV during submissions on 25 May 1999 as follows:

"[MR JACKMAN:] Can I hand to your Honour, and distribute to my friends, a revised schedule 2 and schedule 3. The revised schedule 2 sets out the figures which were agreed in the document I handed up in the second or third week of the trial as agreed between Dyno and the plaintiffs, and the interest has been updated to 30 June 1999. Schedule 3 sets out the figures in Mr Weldon's report with the interest he calculated up to 30 June 1999."

(T1993.18-T1993.26)

349 Dyno has reached agreement with the PJV in respect of its material damage claim as follows:

"B. The material damage claim brought by the PJV on its own behalf

B.1 Dyno and the PJV have agreed that if Dyno is found liable in negligence or

nuisance (which is denied), the PJV's damages will include the following

amounts:

Item Kina Amount USD

Amount (converted at the Kina/US dollar exchange rate applicable

at the date

of payment)

Workers compensation payments

(item 1, K30,325 USD25,897

schedule 2)

Evacuation costs (item 2, schedule 2) K132,634 USD130,929

Blast investigation costs (item 3, schedule K59,848 USD57,444

2)

Temporary offices and power costs (item K100,107 USD89,804

4, schedule 2)

Lost Property (item 5, schedule 2) K59,235 USD51,376

Payments to villagers for third party K174,125 USD158,888

buildings and shipping containers (item 7,

schedule 2)

Payments to contractors for loss of income K80,647 USD65,475

(item 8, schedule 2)

Damage to property/vehicles owned by K63,963 USD58,373

contractors on site (item 9, schedule 2)

Total K700,88 USD638,186

B.2 The only outstanding issues in relation to quantum of the material damage claim brought by the PJV on its own behalf are as follows:

(a) whether any judgment awarded against Dyno should be in Kina or US dollars;

(b) whether the PJV is entitled to recover the amount of USD1,032,995 or its kina equivalent at the date of expenditure in respect of the cost of reinstatement of the building owned by the PJV at the Dyno site, being the amount paid over and above the amount of USD808,235 which was paid by NIC in respect of the destroyed building;

(c) whether the PJV is entitled to recover an amount for overheads above the 10% already paid in respect of the items which have been paid by the NIC;

B.3 It is assumed that the amount of USF808,235 was paid by NIC to the PJV in respect of the Dyno building at the Dyno site and that the balance of the claim for which the PJV has the responsibility of proving is for an amount of USD1,032,995."

350 The agreed schedule of "miscellaneous" items in schedule 2 of the submissions was as follows:

" Revised Schedule 2: Miscellaneous

Description

US$

Workers compensation payments

$25,897

Evacuation costs

130,936

Blast investigation

57,444

Temporary offices/power

89,804

Lost property

51,376

Loss of use of land at the SDC dump

0

Payments to villagers for personal injury/property damage

158,888

Payments to contractors for loss of income

65,475

Damage to property / vehicles owner by contractors on site

58,373

Damage to shipping containers on site

0

Overhead

57,351

Total

695,544

Interest to 30.6.99

370,601

351 During oral submissions on behalf of the PJV the item, "Temporary officers/power", was treated as follows:

"[MR JACKMAN:] The next item, on the previous page, page 3, paragraph 8 deals with an issue which was at one time raised concerning temporary offices and power costs. If your Honour would put a line through paragraph 8, that issue no longer arises in light of the agreement between us and Dyno as to the amount owing - or the amount properly claimed for temporary offices and power costs. So paragraph 8 can be deleted in its entirety."

(T 1994.21-T1994.29)

352 While the schedules produced by Dyno and the PJV included an amount in respect of this item in the sum of US$89,804 I have treated that item as one which should be omitted. If I have misunderstood the agreement between the parties, that is a matter that may be brought to my attention prior to entry of judgment.

353 In addition to the revised schedule 2 items, the PJV seeks recovery of the cost of rebuilding the explosives facility buildings over and above its recovery from Niugini Insurance in respect of the loss of those facilities. The claim is for US$1,154,798 (the betterment claim). The PJV also seeks the inclusion of a component for overheads of 16%. Where the PJV has recovered an overhead component in respect of the items the subject of the subrogation claim under the settlement deed, the PJV has allowed that as a set off, but claims against Dyno the balance unpaid. The PJV overheads were paid by Niugini Insurance at the rate of 10%. Further issues arise out of quantification of the PJV's claim in US dollars and an interest claim on any judgment to which it may become entitled, calculated at the interest rates currently contained in Schedule J to the Supreme Court Rules 1970.

354 In respect of the material damage claim, Dyno has raised a defence based upon a construction of the Dyno contract that, stated briefly, would limit the PJV's entitlement to damages to the recovery of losses under the cl 15.2 insurance and those covered by the cl 15 indemnity. I think it is not doing an injustice to the argument by limiting my rejection of it to the observation that such a construction would require the clearest of limitation words, whereas the Dyno contract is silent. It may be noted that Dyno accepts that the endorsed policy is in terms which satisfy the PJV's obligation to effect the cl 15.2 insurance.

355 As to the betterment claim: there is a further discrepancy in the amount said to be in issue as identified in the submissions of the PJV and of Dyno. However, I understand the parties to have reached agreement as to quantum and assume that the figure of US$1,154,798 is the agreed figure. The parties should correct that position before entry of judgment if my understanding is incorrect.

356 The betterment claim arose out of the construction of a new explosives facility in a relocated area of the site described as being "on the side of Mount Waruwari"and to standards required by the Mines Department which involved additional facilities, in particular, fire suppression and lightning protection systems and a raw material store. I think the evidence is clear that the relocation was at the behest of the Mines Department and I do not understand there to be any issue that the standards of construction were those required by the Mines Department. So much I think is the effect of the evidence of Alan Carpenter (Carpenter) who was the contracts and insurance administrator for the PJV. The real issue between the parties arises out of the contention of Dyno that the relocation would have been forced upon the PJV, probably within a year of the explosions. It was submitted that any damages should be limited to one of the following bases:

"(a) the opportunity cost of incurring the expense in 1994/1995 rather than at some later

stage;

(b) a percentage reduction giving effect to the prospect that the cost would have been

incurred in any event at some future stage;

(c) a general discount be applied for the benefits to the Plant and the Mine arising from

the enhancements."

357 The circumstance which may have given rise to a relocation of the explosives facility consisted in the possible encroachment of the open pit operation to a point where its proximity to the explosives facilities posed a safety issue. The strongest evidence in support of that position was that of Twaddle whose evidence was to the effect that from the outset of the Dyno operation "the PJV was in the process of finding an alternative site [for the explosives facility]. It would have been necessary to move the facility by about mid 1995, even if the explosion of the 2nd August 1994 had not occurred. This was due to the expansion and growth of the open-cut mine." (Ex D1 - 40)

358 It was his evidence that the likely move would have been to the location where Placer relocated the facility after the explosions. Hood's evidence was less dogmatic on this subject and was in the following terms:

"24. The site of the original Dyno facility has always been, and is still today, located outside the 'blast guard position' which is the 500 metre safety zone around the open pit. Annexed and marked "M" and "N" are two maps of the Porgera mine site showing the location of the Dyno facility relative to the safety zone. I am not aware of any fly rock ever having landed in close proximity to the site of the original Dyno plant as at May 1998. As at August 1994 I was not concerned about fly rock presenting a danger around the Dyno plant. Nor was I aware of any other safety concern existing which dictated that the Dyno facility had to be moved, in 1995 or in the immediate future.

25. I recall that the new Dyno facility was sometimes referred to as 'temporary' in its Phase 1 position pending formal approval of its location by the PNG Department of Mines. However it became the permanent location.

26. I recall that at some time during 1994 I considered the issue of moving the Dyno facility to the general location of the SDC dump site. This suggestion did not progress any further. I never did a costing or sought Joint Venture Committee approval for the proposal, nor do I recall discussing this possibility with any person from Dyno.

27. The Dyno plant was relocated to the Starter Dump C ("SDC") dump site as a result of the explosions. The Department of Mines required that the Dyno plant be relocated after the explosions. We had to use the SDC dump site because it was the only suitable flat area which was close to the open pit and relatively stable.

28. There existed no Phase 2 design which dictated that the Dyno facility would be moved anywhere else."

(Exhibit G)

359 The location maps evidenced by Hood show the safety zones in relation to the open pit excavation as at the end of August 1994 and as at the end of October 1997: in the latter case where the open pit had reached stage 3. The old location of the explosives facility appears to be well clear of the "blast guard position", a situation which Hood noted was still the case as at the date of his statement of evidence of 8 July 1998. It was his evidence that there had been no reported incident of fly rock landing in proximity to the site of the old explosives facility.

360 I think it is a safe conclusion from Hood's evidence that it was not within the foreseeable program of the mining operation and relocation of the explosives facility on safety grounds would have been required. Garson was cross-examined on this subject. I think the effect of that evidence lends further support to the conclusion to be drawn from the evidence of Hood. Garson's evidence was as follows:

"MR FORSTER: Q. During the period 1993/1994 were you contemplating that the

Porgera plant would need to be moved from where it was then sited?

A. No, sir.

Q. Were you aware of any suggestion that the mine move - that the mine might move

closer to the plant requiring its relocation?

A. Yes, sir.

Q. Was it anticipated that it would happen in the next year or so?

A. It was a revolving target, sir. I don't have a specific date.

Q. Was there an expectation, at least on your part, that it would be very likely that the

plant would have to move?

A. Sir, things change in mines all the time. I had no idea whether or not 100 per cent of

that site would be moved or not.

Q. I am not asking for a 100 per cent assurance. I was merely asking for your belief as

to whether you anticipated it was likely to happen?

A. It could have happened, sir, and it could not have happened. That wasn't in my

control. He mentioned that it possibly could move.

Q. Did you give any thought to what would be involved, so far as Dyno was concerned,

in moving the site?

A. No, sir.

Q. Did you give some thought as to whether a new plant would be required to be

shipped to Porgera for that purpose?

A. I didn't give it any thought, sir.

Q. But you were the Operations Manager International, were you not?

A. Sir, mines change their plans on numerous times before they have a final plan. Even when a final plan comes about it changes. So I didn't make any attempts to do any design change or make any modifications or do anything for additional plants because I didn't have anything to say when or what the time line was to move the plant.

Q. Being a person with significant responsibilities, do you tell the court that you did not

even give any thought to how such a move might be accomplished?

A. I didn't give it any serious thought, let's put it that way.

Q. Was it your usual practice to give matters that might or might not happen - I

withdraw that. In your view it was certainly more than a vague possibility that it

may be necessary to move the plant; would you agree with that?

A. It was a vague possibility that we may have to move the plant.

Q. I suggest it was more than a vague possibility?

A. No, sir."

(T633.18-T634.29)

361 I am of the view that it would be unjustified to place any value on what was seen as a vague possibility of relocation in August 1994, particularly where, in the events that have occurred, no such change would have been dictated by the expansion of the open pit operation. For those reasons I think the PJV is entitled to the betterment claim as one caused by the explosion and as imposed upon the PJV by the requirements of the Mines Department. I do not think it is a case where some offset for intangible benefits should be brought to account.

362 The issues raised concerning the currency in which any judgment should be expressed, the rate of interest to be applied to any such judgment, and the allowance for overheads, in the material damage claim are dealt with later in these reasons save for the 6% overheads claim.

363 The circumstances giving rise to this claim are such that if a basis may be legitimately found for its rejection that opportunity should not be lost. In making that observation I am satisfied that the PJV's overheads are at 16% as examined later in these reasons. The claim comes about as a result of the acceptance by the PJV of a rate of 10% in dealing with Niugini Insurance's assessors in resolving the sec 1 claim under the endorsed policy. It would not be reasonable to treat that acceptance as an admission by the PJV of what constituted a reasonable rate for overheads. It was a compromise arrangement. However, having regard to a) the obligation of the PJV to effect the cl 15.2 insurance, b) the waiver of the subrogation clause in the endorsed policy, I think the allowance of the 6% overheads claim would lead to injustice as against Dyno and Niugini Insurance.

364 I regard the bringing of the 6% overheads claim as one precluded by the provision of cl 15.2 of the Dyno contract. In my view it would lead to no different result if the PJV declined to make a legitimate claim under the endorsed policy for no valid commercial or legal reasons. The PJV could not be heard to say that, nevertheless, it is entitled to look to Dyno for recovery of such a claim. Whether that flows from a construction of cl 15.2 or from the importation of an implied term in the Dyno contract to give efficacy to cl 15.2 is a matter of small moment, in my view.

365 It is a claim which, on the evidence of the PJV would have been validly recovered under sec 1 of the endorsed policy. In my view it should have been pursued, given the PJV's insurance obligations under the Dyno contract. Its failure to do so may not be used as a basis for seeking recovery of it against Dyno. Clearly the efficacy of the cl 15.2 insurance obligation is only as good as the PJV's enforcement of its rights under that insurance. Its failure to do so may be regarded as a breach of its implied obligation to do all things necessary to give effect to such an insurance, including the making of disclosures, claims and the like in accordance with the requirements of the subject policy. Alternatively the PJV's failure to press its overheads entitlement against Niugini Insurance may be regarded as a novus actus interveniens.

366 There were surprisingly few facts in issue in the quantification of the PJV's business interruption claim. It was the interpretation of those facts by the experts respectively retained by the parties in which dissent prospered and philosophies in approach were markedly different. The evidence of Peter George Hazelwood Weldon (Weldon) was the centrepiece of the PJV case. He is a principal of Lindquist Avey Macdonald Baskerville Company (referred to in various reports as "LAMB"), a company of "Forensic & Investigative Accountants". He possessed formal qualifications as an engineer and as a chartered accountant. His expertise lay in the assessment of business losses, with particular emphasis on mining enterprises conducted in various parts of the world. He has considerable experience in the assessment of losses sustained by gold mining ventures in North America, Australia and Asia. His evidence was a model of expert analysis and presentation. It has formed the basis of my assessment of the PJV's loss. His evidence was attacked in submissions on behalf of the defendants for its lack of impartiality and for its selective use of figures to suit the case of the PJV. He left me in no doubt that he had thoroughly examined the available material and had presented it as favourably for the PJV as professional integrity permitted. I saw no vice in that and considered that the PJV was entitled to just such an analysis without visiting any unfairness on the defendants. That is not to say that I found no virtue in the expert evidence adduced in the defendants' cases as appears from the reasons that follow.

367 Niugini Insurance posed in its submissions what it described as a "fundamental problem" in Weldon's evidence in that it "begs a fundamental question: was there any loss at all?" Elaborating upon that conundrum, it was submitted that the "evidence adduced [could] not satisfy the court that any member of the PJV other than Placer [had] suffered financial loss as a result of any loss of or interruption to production" of the mine. Dyno supported that position. There was no direct evidence of the marketing practices of each of the members of the PJV nor was there any real attempt by the defendants to prove any of the practices save for some cross-examination.

368 Andrew John Paton (Paton), the treasurer of Placer Pacific Limited, gave evidence of the general way in which the precious metals produced by this project were marketed as follows:

"1. The last stage of production at the mine consists of 25 kg Dore bars comprising approximately 90% gold and 8% silver.

2. The bars are shipped to refiners with whom the PJV has refining agreements.

3. Upon receipt of refining agreements the bars the refiners credit provisionally, in

ounces, the respective joint ventures share of the gold and silver represented by the

shipment; with a final settlement after refining.

4. The joint venturers sell the gold and silver standing to their accounts, the sales

taking place in United States currency. Each joint venture maintains a United States

currency revenue account into which the proceeds of sale are credited. The timing

and terms of the sale are matters for each of the joint venturers."

369 In cross-examination Paton agreed that mining houses do engage in forward selling and related hedging practices and that he could only comment, in that respect, from Placer's point of view. However, he gave evidence of a general marketing practice of the joint venturers as follows:

"[MR DOUGLAS:] Q. In paragraph 11 you say:

The business interruption losses arising out of the explosions on 2 August 1994 are loses which flow from a disruption of a US dollar revenue stream from the sale of gold and silver produced at the Porgera Mine.

...There is an assumption - would you agree with me that there is an assumption underlying that question that once the refiner has given each of the joint venture partners its credit in ounces for its share in gold and silver to its metals account that that gold and silver is immediately sold.

A. Is immediately sold? There is that assumption. I am basing that on what would be normal practice and what I understand the partners would be doing individually.

...

Q. You refer in that sentence in paragraph 11 to the US dollar revenue stream; do you

see that?

A. Yes, I do. All I am trying to say there is that, again, it is normal practice, and my

understanding is that all the partners were physically selling their gold for US dollar proceeds.

...

Q. MR DOUGLAS: Q. Assuming a delay of 6.8 days in the milling of ore at the mine, you would not wish to suggest that that in turn would lead to a 6.8 day delay in the sale of credited gold and silver and the receipt of US dollars for that sale?

A. I guess my statement is merely pointing out that if there is a disruption to production then obviously there would be a delay in making a physical sale because you can only sell physically once that production is received by each partner. So if the delay was 6.8 days, then there would be a delay in receiving that production, and therefore a delay in making the sale.

Q. If the strategy of the individual joint venture partner was to retain the physical gold, that conclusion would not follow?

A. Well, if you had a strategy of holding onto gold, then the delay would be irrelevant.

Q. Secondly, if in fact the gold had already been sold forward in the way in which we discussed earlier in your evidence, that delay would also be irrelevant.

A. In terms of selling forward you would still make any gain, or suffer any loss of those hedge contracts which would need to be closed out, but the underlying physical production would still be subject to that delay.

Q. But in relation to --

A. You would be able to - I am sorry?

Q. I interrupted you. You complete your answer.

A. I was just going to reiterate that in terms of the forward sale you could still settle or close out that contract by buying gold physically on the market, so the gain or loss, whichever way your particular forward sale worked out, would still be enjoyed or suffered by the partner, but it would still have missed out or been delayed in terms of the physical underlying sale."

(T409.10-T409.18...T409.25-T409.35... T409.51-58...T410.16-58)

370 I think it is sufficient to say that conjecture and hypothesis are no answer to legitimate overwhelming inferences that the PJV members would have marketed their gold entitlement as expeditiously as practicable in order to generate the most favourable cash flow for their respective business enterprises. Whether any of those members engaged in forward selling, or hedging, one does not know, I would add, nor want to know - the calculation of loss, as it was evaluated by the experts was complicated enough. I think one may safely approach the quantification of business interruption loss in accordance with the general marketing practice evidenced by Paton.

371 The estimation of business interruption loss falls into two stages:

1) an estimate of lost throughput and production of the mill and an estimate of lost production from underground and open pit mining which required an evaluation of the likely grade of ore either mined or milled:

2) an estimate of loss to the PJV that flowed from that lost production. The loss could not be equated with the August 1994 value of that lost production. The loss was more in the nature of one flowing from a delayed production and cash flow. In the case of the underground mining the delayed production was traced through the years of underground mining that followed the explosions up to the closure of the underground mining operation in December 1997. That involved transposing the effect of lost production from month to month under actual prevailing conditions of planned and unplanned shutdowns or interruptions and variations in grade encountered. It was at that point of underground mine closure that the loss represented by the delay in underground production was crystallised.

372 In the case of the lost open pit production, it was treated as irrevocably lost. The justification for this was a pragmatic one. Whereas the underground mining operation was a finite one at the time of hearing, the open pit operation was continuing and had an indeterminate expiry date. Accordingly, the method of evaluating the loss represented by the interruption to underground mining was not available to the experts.

373 The two stage process involved the following:

1. an estimate of the lost throughput of the mill. This required recourse to operating records of the mill and invited a selection of a representative period of mill operation. This was a matter of opinion.

2. an estimate of the lost production of the mill. This involved a determination of the likely feed characteristics; in particular the source and grade of feed ore. The estimate of a representative grade of ore based on the PJV's records called for the exercise of expert judgment of what records were representative. Opinions differed.

3. lost production from underground and open pit mining. This had to be calculated from the mine records and required the selection of a representative period based upon expert evaluation of the mine's operation to determine a rate of production and likely grade of ore. Experts were in disagreement as to the records which were representative of the period of lost production.

374 The rationale in the methodology of Weldon is, I think, compelling, and fully supported by the evidence of Hood. It proceeded, in the case of underground and open pit production, on the basis that the extraction of the higher grade ore was given priority in mine planning and that there was no practicable scope for increased production to overcome the shortfall occasioned by the August 1994 lost production. I have some doubt about the validity of the latter proposition in relation to the open-pit operation where there are less physical constraints which would limit an increase in resources of workforce and equipment aimed at making up for the shortfall. I do not doubt the validity of the approach in relation to the underground mining.

375 The evidence of Hood was unequivocal to the effect that the underground mine operated to full capacity and with resources of workface and equipment which would not be effectively increased to make up for the lost production. This, I think, is notoriously the consequence of the extremely limited workforce and access associated with underground mining.

376 In any event I think one would start with the premise that any abnormal increase in resources, prima facie, would be for the benefit of the party injured by the tortious conduct giving rise to the loss. Subject to considerations of mitigation of loss, the injured party is under no duty to confer benefits on the wrongdoer by passing over the fruits of abnormally increased commitments of resources. By contrast, where the operation is performing, for example, at undercapacity and where it would be reasonable to utilise that unused production capacity, then, prima facie, the injured party would be expected to overcome the loss suffered at the hands of the wrongdoer by taking advantage of under-utilised capacity. That was not the case of the underground mining and I am satisfied that it operated at full economic capacity save for the inevitable inefficiencies associated with all areas of human endeavour.

377 Hence, the methodology adopted by Weldon, if not the only reliable approach, was one which, in my view, was clearly capable of producing a highly reliable estimate of loss and one which should be adopted.

378 In evaluating the evidence of Weldon and that of the experts called in the cases of the defendants, I think it is necessary to keep in mind that their calculations, while having demonstrable, accurate, mathematical veracity, are no more than the product of an expression of opinions upon which different minds may legitimately differ and, as such, as best estimates, albeit, mathematically derived.

379 The essential judicial exercise is to divine where reliability lies in the approaches adopted by the various experts. In this case that task has presented me with fewer difficulties that one might expect as a result of the highly favourable view I have formed both of Weldon and his work which, in substance, was fully supported by the PJV witnesses of fact.

380 Weldon estimated the lost mill throughput as a result of the explosions to be 48,232 tonnes based on the agreed period of shut down of 4.8 days: in my view a remarkably short time having regard to the devastation, loss of life, and havoc occasioned by the explosions. The task of marshalling fit and available members of the taskforce and required equipment, alone, would have been no easy matter. The effect of the explosions on those people can only be imagined - that goes for both staff and labour. That shortness of mill down time, is itself, a factor that should not be lost sight of in measuring lost production. If it demonstrated nothing else, it showed a highly commendable effort on the part of the PJV to get back into stride as quickly as practicable when time was likely to be accruing to the account of Dyno and Niugini Insurance.

381 Weldon's estimate was based upon mill throughput figures fourteen days either side of the explosions. For this he has been criticised by the defendants' experts. One of the principal criticisms, is the apparently inconsistent databases that Weldon adopted for his various analyses. I think it is a useful introduction to the competing contentions of the experts to identify those apparent inconsistencies and to examine the reliability of Weldon's approach in the light of the evidence of the defendants' experts. That part of the defendants case was led by the following: Murray Leslie Rowley (Rowley) a chartered accountant and loss assessor with GAB Robins Australia Pty Ltd (GAB Robins) with considerable experience, thirty years in the adjusting of claims with an international flavour in the "mining and downstream processing industries." While I had reason to prefer the analysis of Weldon in most respects, I found Rowley to be an expert with considerable practical experience and whose evidence was of assistance in evaluating the business interruption claim. Like Weldon his skill and experience extended to the ability to pitch his evidence at a level designed to attract the Court's attention. Gregory Charles Kerr (Kerr) a chartered accountant and partner in the firm of Kerr & Holland, who specialised in commercial insurance, including claims for business interruption and material damage losses. His experience, while less orientated to mining operations than either Weldon or Rowley, has been extensive. I found him to be extremely able and informed, although inclined to be insurer orientated in his thinking processes: Merrick Kingsbury Hall (Hall), a mining engineer and managing director of MineConsult, mine management consultants. His expertise, in my assessment, consisted in the ability to carry out computer modelling of a mining operation. He christened his modelling technique the "Mining Replication Schedule Process" and described it as follows:

"10.2.1 A Mining Replication Schedule involves the following tasks:

a) defining an accurate picture of the open cut mine, underground mine,

stockpile, mill and any other key areas just prior to the Incident

b) collecting site data on all aspects that would have influence the mining

operation in August 1994 and surrounding months. This includes, but is by no means limited to:

i) geological model sections and plans

ii) geotechnical data on each rock type

iii) drill stock reserves by the various ore and waste categories

iv) blast stock reserves by the various ore and waste categories

v) historical performance of all major and support equipment

vi) detailed stage plans of open cut and underground operations

vii) predicted excavator productivity per ore category

viii) haul route profiles per ore category and waste

xi) haul route characteristics such as rolling resistance, behaviour when wet

x) equipment performance parameters such as bucket fill factors and pass configuration, truck queuing, truck presentation

xi) waste dump stope schedules

xiii) underground stope schedules

xiv) ground support requirements

xv) detailed milling rates per ore type

xvi) mill performance parameters, eg, gold recovery

xvii) stockpile layout plans

xviii) climate conditions

...

c) Calibrating scheduling parameters by creating a detailed schedule of events prior to the Incident and comparing it to actual results to calibrate all parameters to reflect the Porgera operation.

d) Preparing the detailed Mining Replication Schedule, including a detailed examination of material movements from the open cut and underground mines for August 1994 and surrounding months assuming the Incident had not taken place. The material is also scheduled through the mill to determine gold production and revenues.

e) Comparing the Mining Replication Schedule with actual mine performance to assess the impact of the Incident."

(Exhibit D1-43)

382 It was his recommendation that such a model should have been prepared on the basis of the following reasoning:

"10.1.3 MineConsult recommends the preparation of a Mining Replication Schedule to accurately determine performance of the open cut, underground, stockpiles and mill and the various interfaces thereof."

His report concluded with the following:

"10.2.2 Notwithstanding the recommendation for a Mining replication Schedule MineConsult considers it appropriate to note the following negative aspects of undertaking the Mining Replication Schedule in 1999:

a) current availability of detailed, relevant data, plans and schedules

b) access to personnel with detailed knowledge and recollection of circumstances surrounding the Incident

c) relatively high cost of such a study

10.2.3 In other words, the Mining Replication Schedule should have been contemplated by the PJV immediately following the Incident in order to properly assess and quantify any claims that might have been due."

383 The practical experience of Hall was evidenced as follows:

"[MR JACKMAN:] Q. Now, you said yesterday that you have got no experience of any significance in mining in Papua New Guinea; that was correct, wasn't it?

A. Yes, that is correct.

Q. You have never been to Porgera?

A. No.

Q. Your career in mining engineering has been in consulting, hasn't it?

A. Largely.

Q. Well, yesterday, I think you said that before you were at MineConsult you were with a consulting firm in Brisbane; is that right?

A. I was based in Sydney but the consulting firm was headed out of Brisbane; that is correct."

(T1385.7-1385.23)

384 In the absence of MineConsult's Mining Replication Schedule I found very little assistance in Hall's opinion evidence which, in my view, foundered on the bar of impracticality. An illustration may suffice. He expressed an opinion that the explosions could have resulted in an improvement in mine production for reasons that he stated as follows:

"Q. Could you also then give us your opinion on the effect which a catastrophe such as

this would in a general way have on production on a mine such as Porgera?

A. It is difficult to be specific because this is obviously quite a unique occurrence, and fortunately I can say I have not been involved in a similar situation. What is quite normal in lessor catastrophes, where, for example, a man may be killed or something like this, it is not unusual for the workforce to in fact go back to work with increased vigour, if you like for two reasons.

One is, I think, they are vary conscious that there has been some lost production, but quite often also they go back to work the next shift, in effect, and contribute that shift's pay to the widow or the affected families.

I believe it is difficult now, years after the event, to predict what would have happened, but I believe that there was scope that people may have put a bit more effort in.

Q. But also it could have had an effect upon it, are you not discounting that?

A. Oh, no, not at all. I appreciate there was a catastrophe there and I am sympathetic

to that and the effect on the whole mine, yes.

HIS HONOUR: Q. Those observations that you have just made in terms of contributions to the relatives, and renewed desire for increased production, does that apply to the indigenous work force in Papua New Guinea?

A. I can't comment on that, your Honour.

Q. I suspect it doesn't.

A. Possibly correct.

Q. You made a comment, I made some observations, but I have some very, very significant difficulties in equating this interruption with an unscheduled interruption to a project where you have several people killed in horrendous circumstances, and in a circumstance that I would have expected would have undermined the morale of people who had to work with explosives. So much so that we are being told that people left the site, didn't want to work on it any further. So it seems to me that any realistic appraisal of the loss has to face up to the reality of the devastated site and I think involving some little time to get back into gear. Do you have any comment on that?

A. I would agree with you. I would agree with you on the aspect of there would be a significant effect on the operations.

Q. Are you aware that they were collecting body pieces from all over the site?

A. Yes, I was aware.

Q. In days to follow?

A. Yes.

Q. It just seems to me to be running in the face of reality to think that people put on their helmets and picked up their picks and started digging vigorously?

A. Yes. I believe that the comments in the MineConsult report, that we are not promoting that there was no effect on production or no loss of production. I suppose the main drift of our comments was along the lines of commenting on a more reasonable estimate of the projection. We tended not to delve into the detail day-to-day effect, if you like. Perhaps my comment previous to you interceding was implying at Porgera that they may have got back to work the next shift or so. I suppose I was talking in general terms. But, notwithstanding that, it is rather site specific, and your comment on the indigenous peoples I am sure is correct.

But I think that at another site it may well have been that some of the expatriates, or the Australians, may have got back into work faster than other places. I can't comment. I don't believe that's affected our estimate of a reasonable projection."

(T 1361.17-1362.49)

385 As may appear from that transcript I was unimpressed with that expression of opinion. I was no more impressed with Hall's opinion evidence that the lost underground mining production could have been overcome by the PJV within two years of the explosions. He gave evidence of the PJV's capacity for "catch-up" as follows:

"MR DOUGLAS: Q. There has been considerable evidence also in relation to the

possibility of catching up underground production as prior to December 1997, when the mine was exhausted as compared to open pit production. I wonder if you could just tell us - give us your opinion as to the differences which exist between underground and open pit production in that regard, and the ability to catch up underground production on a site such as Porgera?

A. Yes. If I may firstly just briefly pick up a little bit more on the open cut. There is

one difference perhaps with the underground that is particularly relevant to the open cut on the possibility of catch-up or make-up, is that we have heard various bits of evidence about the Porgera Mine operating 365 days a year, 24 hours a day with a set fleet of mining plant, if you like, and there was absolutely no possibility of make-up.

In theory, I can abide by that. In practice, I have some problems, because the truck fleet, it is my understanding, and I could be corrected on this, but the truck fleet at Porgera typically runs at 75 to 80 per cent availability, which is once again, I believe, it is an all up utilisation factor which is of 365 days times 24 hours a day less lunch breaks. You have 75 to 80 per cent of that time when the truck is available to do useful work.

Similarly with the excavators, about 80 to 85 per cent. If we are talking about 19,000 tonnes of high grade ore catch-up, and Mr Douglas established with Mr Hood that that related to about 10 hours of an excavator productivity, one way that I see that we can catch up is that on the routine scheduled service breaks, if you like, of the excavator, which is 250, 500, 1,000 type service breaks where you might put in 40 man-hours on one of these excavators. Then one area I can see potential is that you could pay some of your maintenance personnel overtime and maybe you could complete that regular 1,000 hour service in 30 hours rather than 40 hours. Suddenly you have picked up 10 hours.

So I believe that there are opportunities for catch-up in the open cut albeit the mine is running pretty flat out, and I understand Mr Weldon's comment if it is working 365 days a year it is not easy to bring in new equipment or whatever.

In relation to the underground, I think obviously not being privy and having close knowledge of the underground at Porgera, it is difficult to be definitive. The reason we plotted those graphs for underground production and underground development, which were previously MFI 7, I didn't catch the new name.

Q. Exhibit D1-48.

A. That Exhibit D1-48 consists of two graphs, your Honour. One a measure of

underground development reported at metres of development on a month-by- month basis out to June '97. The other one reporting underground ore mined reported in tonnage from December 1992 to June 1997. The reason we did not take that graph out to December 1997 is we didn't have consistent adequate data.

My interpretation of particularly the graph representing underground ore mined is that somewhere in there I would have thought it is not unreasonable that there would have been an opportunity during that downward trend in production, particularly from mid 1995 through to the end of the graph in mid-1997, that there may have been an opportunity to recoup some of the purported losses in August 1994 because, and unfortunately we did not have data on stope schedules and production schedules for the underground, but I did have access to a stope schedule for 1995, and it would appear that during that period there was still a large number of stopes in activity with tonnage available at a very large range of grades, from 6 grams a tonne I think up to 40 grams a tonne, in that order.

It wasn't a case of only operating one stope or two stopes. So without being definitive that me, as an outsider, not visiting the site and being there at the same time, saying "you definitively should have been able to catch-up" I thought it was a reasonable assumption, in two years, particularly with the downward trend and the underground ore mined, there would have been scope to catch-up."

(T1363.54-1365.37)

386 I regard that analysis to be contrary to the evidence of Hood and in the nature of hypothesis that was untried and unproven.

387 In relation to lost mill throughput Hall adopted a figure of 36,557 tonnes. This was calculated from a 'trend line' of mill production from January 1993 to December 1995. I regard that selection to be a seriously distorted basis of evaluation of actual lost production in August 1994. Clearly, in my view, for that exercise, one has to look at the immediately surrounding level of production, take into account such matters as planned shut downs and, perhaps, make an allowance for vicissitudes.

388 Rowley's approach was more acceptable in that he limited the source data to the production for the calendar year in one exercise and, in an alternative approach, used the period of four months preceding and following August. The first exercise yielded a calculation of lost throughput of 36,232 tonnes and, the second, a figure of 34,860 tonnes.

389 Although the selection of source records for the calculation of lost mill throughput involves a question of degree, Rowley's calculation of lost throughput suffers from distortions as, I think, was revealed in his cross-examination as follows:

"[MR JACKMAN:] Q. Can I ask you to turn to page 12. I am focusing now on the first paragraph on page 12. One of the key integers in your estimate of shortfall tonnage of 36,000-odd tonnes was an estimate of average daily throughput of 8,760 tonnes; is that correct?

A. Correct.

Q. And that is fundamental to calculating lost mill throughput of 36,232 tonnes?

A. Correct.

Q. I want you to take the figure of 8,760 tonnes per day and apply it to the 4.83 days of actual shutdown of the mill. That, I suggest to you, would lead to a loss of 42,310 tonnes in the shutdown period.

A. Correct.

Q. That is 6,078 tonnes higher than your estimated loss of 36,232 tonnes?

A. Yes, it is.

Q. That shows, doesn't it, that you regard there as having been a - I withdraw that. Implicit in that analysis is the proposition that there was a catch-up of lost production of 6,078 tonnes in the remainder of August after the mill resumed operation?

A. Yes. My methodology works on the basis that I look at the whole of the August period not just the 4.8 days.

Q. Yes, but it is implicit in your conclusion, isn't it, that there was a catch-up of lost production of 6,078 tonnes in the remainder of August after the mill resumed operation?

A. That is what the figures show."

(T1477.52-1478.31)

390 The justification for this apparent anomaly of improved post-explosions throughput was expressed in Rowley's evidence-in-chief as follows:

"13. Our experience is that quite often immediately after resuming from a stoppage,

milling rates tend to better so we are not surprised that this occurred with PJV. This is often due to checks and minor adjustments that are made during the opportunity provided by the stoppage and the psychological effect on employees that due to an earlier stoppage, post production needs to be maximised as far as possible. This is consistent with the post resumption benefits identified in the MineConsult report in their paragraph 4.2.10."

(Exhibit D2-17)

391 Rowley's views on this matter were explored in cross-examination as follows:

"Q. You accept, don't you, tonnes not processed through the mill during interruption can't be recouped?

A. In the short-term there are much higher levels of - and this is the nub of this whole

measurement consideration - you need to look at a longer term period, and 4.8 days could be totally unfair to PJV. If there's a ramp-up requirement in the next few days, they are not getting the normal tonnes they would have, so it is a double-sided coin, looking beyond the immediate shutdown period.

Q. Your opinion as to a recoupment of this lost 6,078 tonnes, even on your estimate, in

the balance of August is based on the assumption, is it, that the mill ran more efficiently than normal after the interruption; do you agree with that?

A. Well, it certainly appeared on the numbers to have run very well, yes, I agree.

Q. It is based on the assumption the psychological effect of the explosion was beneficial?

A. For the reasons that I've stated there were improvements achieved.

Q. And if those assumptions are wrong, then it would follow, wouldn't it, that your

method of calculating lost mill throughput has underestimated the lost mill throughput by 6,078 tonnes; do you agree?

A. Not necessarily.

Q. Well, why do you say that?

A. Because I am looking at a long-term average in terms of the base, and I've always

accepted the fact that the numbers appeared to be higher immediately after. But most claims that I am involved with, that is a fairly usual phenomena.

Q. You have thought of number of a different ways of calculating this. I think the latest version, correct me if I am wrong, is on the question of lost mill throughput is that contained in D2-18, entitled "Comments on determination of a fair base or yardstick for comparing with the actual achievement within the disrupted period"?

A. It is.

Q. In that document you no longer have an average daily mill throughput of 8,760, what you have is an average of 8,716; is that right?

A. That is the way the numbers calculate.

Q. If you multiply 8,716 by 4.83 you get 42,098 tonnes?

A. Yes.

Q. Take away what you - you now say, don't you, there was lost mill throughput of 34,860 tonnes, don't you.

A. Yes.

Q. Leading to a balance of a difference of 7,238 tonnes?

A. I accept your maths.

Q. And implicit in that calculation is the assumption, isn't it, 7,238 tonnes of lost production during the period of interruption must have been caught up in the remainder of August after the mill resumed operation; correct?

A. The same argument applies as to the earlier figure.

Q. If the assumptions to which you earlier referred as to the mill operating more efficiently and the psychological effect being beneficial aren't valid, then you have underestimated the lost mill throughput by that method, haven't you?

A. In your words."

(T1481.17-1482.40)

392 I have earlier expressed my view about the applicability of those considerations to the magnitude of the devastation and on-going restoration and clean-up that was associated with the explosions and their aftermath.

393 In relation to lost underground production of ore as a result of the explosions Weldon estimated that 29,177 tonnes had been lost and not made up until closure of the underground operation. For this calculation, Weldon used as source material the underground operation records for the two months preceding and following the closure caused by the explosions. Rowley used the records from the 1994 calendar year. Hall's calculation I think may be disregarded. Rowley's calculation of 4,204 tonnes of lost production per day may be compared with Weldon's 4,292 tonnes per day. Rowley's calculation resulted in a total loss of production in August 1994 of 20,929 tonnes while Weldon estimated that 29,177 tonnes had been lost.

394 As in Rowley's approach to the estimate of lost mill throughput, this calculation of lost ore production has the corollary that, in the second half of August there was, in effect, a recovery of lost production of several thousand tonnes. That result was explored in the following cross-examination of Rowley:

"[MR JACKMAN:] Q. All right. Do you accept that if underground production could not be caught up between 15 and 31 August to the tune of 7,127 tonnes, then you have underestimated the tonnage of ore from the underground mine that was lost in August?

A. I don't believe I've underestimated, because I have applied a reasonable average over a large number of months in obtaining a standard, and then taking away the actual for the full month of August. If that, by your calculations, presents a $7,000 catch-up in your terms, I have no problem with that.

Q. And you have no problem with that. But it depends, doesn't it, upon the validity of your assumption that the underground mine was able to catch-up 7,127 tonnes between 15 and 31 August, doesn't it?

A. That is how the numbers have fallen out of the figures.

Q. You agree with me, I think?

A. Subject to the limitation that I just expressed.

Q. Yes. And do you accept Mr Hood is in a far better position than you to say whether it was possible to catch up tonnage production in the underground mine in any period but specifically including 15 to 31 August?

A. I have the greatest respect for Mr Hood as a mining engineer but I have to deal with what the figures tell me, and the figures are showing that is what happened in the month of August. Whether it is catch-up in your terms of just the way the tonnes rolled through, I have no difficulty with it.

Q. Do you agree with my proposition?

A. Subject to the conditions I have made.

Q. Just to complete this, can we have a look at the new figures you have got for lost underground production?

A. Yes.

Q. They are set out in exhibit D2-18 entitled "Comments on determination of a fair base or yardstick et cetera". And in paragraph 13 you say "Underground mine tonnes per day"?

A. Yes.

Q. 4,217?

A. Correct.

Q. If you multiply 4,217 by 12.59 you get 53,092. Do you accept that?

A. Give me the figures again.

Q. 4,217 times 12.59 days lost?

A. Yes.

Q. Equals 53,092 tonnes?

A. Yes.

Q. If one takes away the actual production from the underground in that period of 24,872 tonnes?

A. Yes.

Q. You get lost production of 28,220 tonnes?

A. You do.

Q. You now say in attachment A, or annexure A to D2-18, that you estimate 21,283 tonnes were lost from the underground in that period?

A. I do.

Q. And you are implicitly assuming that 6, 937 tonnes were caught up in the period 15 to 31 August; correct?

A. Those are your words. I believe that using my methodology of looking at the whole month of August, rather than focussing on the 12.59 days, my basis is fair and reasonable. This is a system that I use every week of my life. I run around the world measuring these claims and the basis - I am leaving tomorrow to go to Kennecott Copper, in Utah, and I will be using exactly those bases.

Q. And your clients in those cases are insurers, aren't they?

A. In this case, yes, I am working for insurers. I am not always working for insurers.

Q. Usually?

A. Usually, yes."

(T1485.25-1487.4)

395 The reference to the D2-18 is a reference to an alternative calculation offered by Rowley based upon records for the period of four months either side of August 1994. I think it is useful to state the way Rowley offered an alternative calculation of lost underground production of ore, namely:

April - July (122 days) total production 481, 827 tonnes

September - December (122 days) total production 547, 227 tonnes

Daily Average (481,827 + 547,224) ÷ 244 = 4, 217 tonnes

Projection for August 31 x 4217 = 130, 740 tonnes

Actual August 109, 457 tonnes

Lost Production 21, 283 tonnes

396 In the absence of anything more reliable, that analysis would fall within a broad acceptable approach. I think it is pertinent in that context to note the principles upon which Rowley stated such an estimate should be made, namely, as including the following:

"1. The aim is to try to establish as equitably as possible the appropriate performance during a disrupted period if the particular event had not taken place.

2. With regard to plant performance it is necessary to have a sufficiently long enough period involved to obtain a good data sample.

3. Normal accepted practice is to examine the actual performance before and after the loss.

4. Too short a period can produce a standard which is distorted either way: too high or too low. Short term periods can have some real aberrations.

5. No matter how short the disruption due allowance has to be still recognised in the benchmark for unscheduled stoppages and breakdowns. Strikes or idle days also need to be allowed for.

6. Planned maintenance need to be considered within the calculations. This can be achieved by either deducting from the standard data the period when production was stopped or curtailed due to maintenance or alternatively by ensuring that in the month being reviewed there is inclusion of equivalent maintenance days in the month or period

being reviewed.

7. Due regard needs to made (sic) for the number of days in each calendar month in establishing the appropriate daily rate.

...

9. The actual performance immediately after the disrupted period should be considered as being excluded from the standard and included in the actual for two reasons: (a) Ramp up that has to occur before full production rates are attained (b) Make up that can quite often occur due to the benefit achieved from adjustments/maintenance carried out during the shutdown."

(Exhibit D2-18)

397 Of those observations I have expressed my views of the matters falling within par 9. In relation to par 6, on the evidence of Hood, that factor called for no adjustment to the Weldon estimate.

398 I think Weldon's estimate was reliable in relation to the period of recorded production to which he had recourse. I prefer it over the estimate of Rowley for a number of reasons, including the following:

1. In my view both calculations of Rowley suffer from a distortion created by recourse to material, in part, too far removed from the time of the explosions. I have commented on that.

2. The Weldon estimate has the additional merit of adjustment to take account of the evidence of mine operations given, in particular, by Hood. The adjustment was referred to in the submissions on behalf of Niugini Insurance as an exercise in 'massaging' the figures. I regard the methodology as producing a more reliable estimate.

399 Kerr, in a supplementary report challenged Weldon's allowance of additional overhead costs in the extended period of underground mining, in December 1997, namely 6.8 days. Kerr expressed the qualification he held about the reliability of Weldon's allowance as follows:

"LAMB have calculated the marginal cost of the 6.8 days additional fixed overheads in December by assuming 6.8 days worth of "fixed" overheads applicable to the underground mine in the period January - December 1994. If the assumption of underground deferral to December 1997 is valid, I believe that LAMB should have carefully analysed what actually happened in the closure phase of the open pit mine (say during the last six months to December 1997). Such an analysis would have to demonstrate what the practical reality was with the way the selected fixed costs actually behaved in this closure period to prove the validity of the significant deduction from the underground credit of US$418,784 caused by the additional fixed costs. The US$418,784 deduction calculated by LAMB reduces directly proportionately if the 6.8 days production period is reduced"

(Exhibit D1-59)

400 I think Weldon did pay sufficient regard to the conditions of underground mine closure in his estimate. In any event, in the absence of a more reliable estimate of the overhead components of loss, I see no reason for rejecting the Weldon analysis.

401 Lost open pit ore production was estimated by Weldon to affect 73,880 tonnes made up of 19,055 tonnes, the result of lost mill throughput, and the balance of 54,825 tonnes being an estimate of the amount of stockpiled ore from the open pit being milled in the absence of available ore from the open pit mining which would have been the subject of direct feed to the mill. Implicit in that approach was the assumption that the PJV practice in open pit mining was to feed the higher grade ore directly to the mill and to stockpile the lesser grade production. This assumption was well founded in the evidence of Hood.

402 Hall's comment on Weldon's methodology was expressed as follows:

"6.1.2 The LAMB Report claims a total of 73,880 tonnes of open pit direct mill feed ore was permanently lost to production between the period 2 August to 22 August, 1994.

6.2 Comments on LAMB Methodology

6.2.1 The LAMB Report Schedule A9 details the methodology in this regard.

MineConsult accepts there was a period of open pit shutdown resulting from the Incident, but MineConsult does not accept that all of the production loss claimed by LAMB was solely in consequence of the Incident and have fundamental problems with the approach and assumptions adopted in the LAMB Report. Further, the average daily production of open pit feed in the period September, 1994 to February, 1995 is not an appropriate guide to the open pit feed production which would have been achieved but for the Incident.

6.2.2 This approach adopted by LAMB:

a) does not account for significant catch-up mining in September.

Following the Incident and prior to the first blast on 22 August 1994, mining did not cease, it merely re-focussed. This period should have been used to undertake a number of activities in preparation for resumption of high grade ore mining, including:

i) ore drilling

ii) grade control sampling

iii) face clean up

iv) bench preparation and mark up

v) drill pattern surveys

vi) road maintenance

vii) waste mining

The completion of such preparation work establishes the platform for accelerated ore mining, as evidenced by September's ore production tonnes being 38% higher than that of the two months immediately prior the Incident.

Also, it is MineConsult's experience that often following an interruption to gold output, higher grade ore zones are subsequently targeted in the mine to make up for lost gold ounces. The use in the LAMB Report of the September, 1994 higher grade recovery rates skews the results higher than what was likely to have been achieved had the Incident not occurred."

(Exhibit D1-43)

403 Hall was cross-examined on those passages as follows:

"[MR JACKMAN] Q. Go, if you would, please, to paragraph 6.2.2(a). Do you agree that they involve matters as to the detailed day-to-day effect of the incident in August 1994?

A. Yes.

Q. You haven't delved into the matters concerning the day-to-day incident in August 1994, have you?

A. No.

Q. They also concern matters that are specific to the site, don't they?

A. Yes.

Q. You haven't looked at matters specific to the site other than what you read in the mine manager's reports; isn't that right?

A. Yes. And some additional information that was provided to us?

Q. What was that additional information?

A. I believe that was provided in the source of material document that was handed around this morning.

Q. I see. You recognise, don't you, that Mr Hood is in a much better position than you to say whether there was a benefit during the incident from undertaking the kinds of tasks which are set out in 6.2.2(a)?

A. No, I am not prepared to accept that statement.

Q. In light of your answers, these are matters concerned with detailed day-to-day effects of the incident, and matters concerning questions which are specific to the site. Why is it that you don't recognise that Mr Hood is in a far better position than you to comment on whether those matters had a beneficial effect on production after the incident?

A. The basis for that opinion is that I have some concern in reconciling what is actually planned and forecast at the Porgera Mine, in order to maximise rate of return, as being stated as the driver at the Porgera Mine, with what actually happens at the Porgera Mine. And the two, as indicated I believe in one of my graphs, do not coincide very often, and would imply that perhaps there were opportunities for optimising some of these areas that I refer to in 6.2.2(a). Perhaps in the optimisation of those areas, albeit they are very site specific areas, there could have been more focus applied in those areas.

Q. Now you have used the word "perhaps" twice in that answer. All you are doing - is this right - all you are doing is saying, " Here are some possibilities which might have arisen or might not"?

A. Yes. Yes.

Q. Could the witness please be shown --

HIS HONOUR: Q. Before you leave that, does that explain - looking at paragraph 5.2.1(d), in that paragraph you express the view that the September figures may reflect the catch-up culture; do you see that?

A. Yes, I see that.

Q. Then in 6.2.2(a) you refer to what seems to be a fact that the Lamb approach does not account for significant catch-up mining in September. You seem to have gone from a possibility to a statement of fact.

A. I am just trying to follow. In figure 5.2.1(d) I not only talk about catch-up culture which on hearing the evidence of Mr Hood appeared to not necessarily be the case. I also refer to support activities undertaken in August in preparation of subsequent ore production. I believe I touched on that in relation to the waste mining aspects. I am not quite following where you say I am going from an opinion to a fact.

Q. Expressing opinion about a possibility in 5.2.1(d) where you say that the trend may reflect a catch-up culture and in 6.2.2(a) you are referring to the fact or significant catch-up mining in September.

A. Yes.

Q. It seems to be a different approach. I am wondering where you stand?

A. I suppose I would rather 6.2.2(a) to be more an opinion rather than a fact, your Honour.

Q. Of a possibility?

A. Yes."

(T1390.13-1391.53)

404 As with most of his report, I think Hall's evidence is more in the nature of speculation rather than expert opinion based upon the actual experience of the Porgera mining operation as evidenced, principally, by Hood.

405 Nevertheless, the open pit production loss claim posed, in my view, a particularly difficult quantification of loss: not so much in relation to the lost mill throughput of 19,055 tonnes. Rather the problem lay in quantifying any loss associated with the use of 54,825 tonnes of stock piled ore.

406 On behalf of Niugini Insurance it was submitted that this part of the PJV claim should be limited to the loss associated with the 19,055 tonnes lost mill feed and that no allowance was justified for the forced use in August of lower grade stockpile ore in lieu of higher grade direct feed from the open cut which was unavailable due, inter alia, to insufficiency of explosives supply.

407 This contention was advanced principally on two bases: 1) that a recourse by the PJV after August 1994, to greater proportions of direct feed ore to open pit stockpile when compared with the proportions of that mill feed pre August 1994, resulted in a recovery of the gold which would have been milled but for the forced use of open pit stockpile in August 1994: 2) that the methodology adopted by Weldon was erroneous and inapplicable to a situation where there was no loss of throughput to the mill: where the loss was represented in the reduced grade of feed.

408 Weldon's process involved calculating the reduced mill production in August associated with this lower grade open-pit stockpile-feed and to treat that reduced gold production as 'lost' on the basis of Hood's evidence that, in effect, a miner cannot, in practical terms, 'cherry pick' grades of ore to mine higher grades in the open pit: that the PJV resources and method of operation left no room for 'catch-up' of the lost gold and that the open pit ore production, post August 1994 was not evidence of 'catch-up', but of an increased grade of ore being mined.

409 It was not practical to mirror the exercise carried out in relation to lost underground ore production to calculate the loss represented by deferred ore recovery from the open cut. As earlier stated, the underground operation was a finite one which ended in December 1997 and permitted a calculation, albeit an extremely painstaking one, of the loss associated with the deferred underground production: whereas, the life of the open pit was indeterminate. It had been extended to 2016 and it is reasonable to infer that further extensions will occur.

410 The short argument advanced on behalf of Niugini Insurance was that all one was concerned with was, not a loss of mill throughput, rather a use of reduced grade in the mill feed. Consequently, any loss could be reduced by increasing the proportion of direct feed to stockpile ore from the open cut post August 1994 to make up for the August lower grade feed.

411 However the approach adopted by Weldon has found acceptance in the following North American authorities: Continental Oil Co v SS Electra [1970] USCA5 1219; (1970) 431 F 2d 391; Pembina Resources Ltd v ULS International Inc (1989) 28 FTR 180 and National Steel Corp v The Great Lakes Towing Co [1978] USCA6 232; (1978) 574 F 2d 339.

412 The view I have formed is that the approach of Weldon is to be preferred. I have commented on Hall's approach upon which heavy reliance was placed by Kerr. In assessing this element of the claim, Kerr adopted as an assumption the following:

"Assumption 5:

To the extent that Open Pit production was deferred in consequence of the Incident and not other factors, the deferred Open Pit production would have been made up in the month of September 1994 or at least before 12 months elapsed after the Incident.

4.2.3 Essentially our position is that the loss consequent upon an irretrievable loss of mill throughput of 36,557 tonnes per should be calculated by reference to the Open Pit stockpile feed as any deferred U/G and Open Pit direct feed would have been made up within the two years following the Incident. The two year period following the Incident is relevant to our assessment because the average monthly price of Gold per ounce was, for some 21 months of this period, above the US$380.48 used by LAMB to calculate the Item 1 claim. During this two year period the average price of Gold per ounce per month reached a high point of US$404.76 per ounce in February 1996 and a low point of US$376.64 in February 1995 (source LAMB Report Schedules D1.1 - D1.7).

Lost Gold Production

Ore not milled due to mill closures (tonnes) 36,557

Head grade (grams/tonne) 4.30

Gold content (grams) 157,195

Conversion factor - grams to ounces 0.03215

Gold ore (ounces) 5,054

Recovery % - head grade 70.3%

Gold production lost - ounces 3,553

Revenue Lost

Gold production lost (ounces) 3,553

Average gold price per ounce (US$) $380.48

Gold revenue lost $1,351,845

Silver production lost (ounces) 426

(12% of lost gold production)

Average silver price per ounce (US$) 5.20

Silver revenue lost $2,215

Total revenue lost (US$) $1,354,060

Less: Variable costs avoided due to lost

production of milled ore

Assumption - variable expenses avoided per

tonne equate to open pit direct feed costs of

K6.01 per LAMB Schedule A4 plus stockpile

costs of K0.57 per tonne of ore as follows:

Kina

Costs avoided - open pit feed/tonne 6.02

Ore rehandling costs 0.57

Total costs avoided 6.59

Exchange rates (US$ per Kina) 1,059

Costs avoided - US$/tonne (1.059 x K6.59) $6.98

Tonnes not milled 36,557

Total costs avoided (36,557 x $6.98) $255,168

$1,098,892"

(Exhibit D1-57)

I think that assumption is fallacious and is contrary to the evidence of Hood.

413 Rowley accepted that "there was a reduction tonnage of Open Pit Direct feed to the mill which can never be caught up." (Exhibit D2-16). It was Rowley's evidence as follows:

"10. It is normal when establishing an average head grade, to consider the long term future average rather than past grades for ore which has already been processed. (Most operations use up the high grade material first to enhance early cash flow receipts.)"

(Exhibit 2-18)

414 On that basis Rowley used the "four months post August ...for establishing the Open Pit Direct Feed average head grade" (Exhibit D2-18), which he assessed at "6.20 g/t". However Rowley distinguished between lost grade and lost tonnage in the following way:

"4. On the other hand, tonnage and grade are different concepts. It is our view that it is incorrect and inequitable for no recognition to be given for the flow through impact of the abnormal feed allocation in August 1994 on the subsequent months - the so called "ripple effect" - when assessing the true loss to the PJV.

5. In our opinion, the figures for production and processing show that PJV had considerable flexibility in the manner in which they sourced material for each month's production. Furthermore, a percentage analysis of the relationship between low grade material taken from stockpiles compared with the Open Pit direct for April - July 1994 confirms that there was a correlation between the two feed sources in relation to the total feed processed. It is our view that such a correlation would have persisted from August to December 1994."

(Exhibit D2-19)

415 Based upon that approach Rowley carried out the following comparisons of proportions of open pit direct feed to stockpile feed for the four months pre-August and the four months post August:

"...for the four months immediately prior to August 1994...the low grade ore from stockpiles represented 14.7% of the total feed. In the same period the Open Pit Direct feed represented 38.4%...

...for the month of August...the percentage of low grade stockpile sourced ore has increased substantially to 38.4%... Conversely the Open Pit Direct ore has fallen to only 13.6%...

...for the four post August months...the stockpiled ore [feed]...has fallen to 7.0% whilst...the Open Pit Direct ore...increased to 43.5%."

He offered the opinion that "this is not only related to, but in fact a direct consequence of, the over-allocation of feed from stockpiles in August 1994."

In conclusion Rowley opined that:

"In our opinion the above statistics are not the result of coincidence or aberration and they justify our conclusion that the only Open pit claim gold loss that can be considered relates to the permanent failure to mill 19,055 tonnes of open pit ore. There is no additional los (sic) for loss of grade."

(Exhibit D2 -19)

416 There may have been an element of validity in Rowley's analysis were it not for the evidence of Hood whom I regarded as a frank witness. He was cross-examined on Rowley's figures of open pit ore feed as follows:

"[MR McDOUGALL]...Q. In August 1994, accepting Mr Weldon's projection of what would have gone to the mill but for the explosion, open pit direct feed would have contributed 36 per cent.

A. Okay.

Q. In the following month, September, open pit direct feed actually contributed 43 per cent. In October 44 per cent. In November 32 per cent. And in December 53 per cent.

A. Yes.

Q. If you accept those figures, does that suggest to you that PJV management was making a conscious attempt in the four months following the explosion to maximise open pit direct feed to the mill?

A. We would always try to maximise open pit direct feed to the mill providing it didn't displace higher grade underground feed.

Q. I want you to accept also that the average of the total tonnes fed through the mills for the month of September, October, November, December 1994 was some 9,000 tonnes less than Mr Weldon's projected figure for August, but that the open pit direct feed tonnages for each of those months was some 16,000 tonnes more than the projected figure for August.

A. Yes.

Q. Would you agree with me again - I withdraw the word "again" - would you agree with me that that indicates a conscious attempt on the part of the mine's management to make up in September to December the open pit direct feed that was lost in August?

A. No.

Q. You say, do you, assuming those figures are correct, that's simply what would have happened anyway?

A. I can't picture all the figures in my mind. We would endeavour each day at the operation to maximise the gold produced from the operation. So we would do whatever is appropriate to maximise gold production. If that means higher or lower proportions of open pit direct feed or stockpile feed, then so be it. It's a function of endeavouring to maximise our gold production each day.

Q. What I want to suggest to you is that the ore production that I have put to you, assuming that the figures are correct, reflects in part the preparatory work that was able to be carried out in August whilst the mill was closed down and the underground and open pit mines were closed down?

A. I don't think that any preparatory work that was carried out during those 20 days, or whatever, would follow through for several months. It's more a function of the stage 1 pit getting further into the ore body, I would think."

(T1075.57-1077.3)

417 I have no reason to doubt the accuracy of that evidence which lends support for the Weldon analysis.

418 On the evidence of Hood I think the record of ore production from the open pit post August 1994 should be treated as reflecting no more than a full exploitation of the resource which the PJV was entitled to do and which in no way represented a conscious or unintended recovery of the lost gold production from the open pit in August 1994.

419 As a matter of principle I think it is clear that Rowley accepts the validity of the pragmatic approach to lost production from the open pit adopted by Weldon, while maintaining that the PJV had the ability to recover the lost gold production by selective mining of the open pit and a selective proportion of feed stock to the mill.

420 In any event I am satisfied, in the absence of a more reliable tool, that the Weldon approach to this assessment of loss is reliable and should be acted upon. Weldon's estimate of grade in the lost ore production was 6.28 g/t. He reached that estimate via a route not dissimilar to that of Rowley and his estimate, in my view, should be accepted.

421 Rowley's evidence explaining his calculation was as follows:

"[MR JACKMAN] Q. And your figure that you come to for projected head grade is 6.2 grams per tonne, isn't it?

A. That is based on the four months average for that period, yes.

Q. So you are not saying by reference to December 1997 that the 6.28 grams per tonne is too high?

A. I was originally saying that I believed that it should be as low, at 5.16, which is the total feed, but I am, on the basis of my overall concept of the four months before and after principle, prepared to live with 6.20 as the head grade in relation to the open pit feed lost.

(T1513.2-T1513.14)

422 The PJV mads a further claim associated with the cost of handling the open pit stockpile ore that was used as mill feed in August 1994 when, if it had been available, direct feed from the open pit would have been used. In my view the likelihood is high that at some stage that cost would have been incurred in the exhausting of the stockpile. I think the claim should be treated as costs which the PJV would incur regardless of the effect of the explosions.

423 An additional claim is made in respect of extra costs incurred in the longer haulage of mined material which resulted from a forced change in the location of stockpile sites following the explosions. This claim is related to the requirement of the Mines Department following the explosions that the explosives plant facilities be relocated to a generally unstable area in what had been designed for use as the SDC dump. The instability of the SDC dump interfered with its orderly, continuous use as a dump. I have dealt with the change in the location of the explosives plant and found that the change should not be said to be one likely to have been made independently of the effect of the explosions. The consequence of this loss of space for dumping material was the forced move to a dump site known as the Lower Kogai dump to which the haul time was much greater than that to the SDC dump. This involved open pit production losses due to haulage truck constraints until additional trucks were put into service on 29 March and 4 April 1995. The order for those trucks was not placed until the first week in January 1995. It was part of Dyno's case that usage of the SDC dump up to March 1995 was inconsistent with the PJV claim of forced usage of Lower Kogai.

424 However, Hood's cross-examination on this subject made it clear, I think, that the actual use of the SDC dump in that period was the maximum usage available, due to the soil conditions peculiar to that area. It was not submitted that additional trucks should have been ordered prior to January 1995. I raised that matter with Weldon as follows: in the course of arranging joint reports by the experts for the respective parties:

"[His Honour] Q. Is there any issue about the optimum use of trucks? For example, inadequate supply of trucks or of a capacity to increase the number of trucks to --

A. I don't think --

Q. -- to take away the dump material.

A. I don't think there is an issue about a truck constraint. I think some of the other experts believe that the truck constraint was aggravated by a number of unrelated issues.

Q. Yes. That is fine.

A. My own view on that is that if there is other issues which existed, and the truck constraint was particularly severe at the time, then any additional problem caused by the explosion must more directly have led to the operational problems that we are going to talk about. In terms of whether there is an issue on the timing of purchase of trucks, I am not aware of any issue on that."

(T888.3-T888.25)

425 It was submitted on behalf of Niugini Insurance that this head of claim is too remote: that the Mines Department's direction to relocate the explosives plant was an unforeseeable event. I do not agree.

426 Weldon's analysis is based upon the proposition that the pit production was truck dependant. That contention does not appear to be challenged. Rowley's opinion was that the claimed interference with production of ore was irrelevant as the critical factor was the mill capacity which, on production figures, he considered was fully utilised. Weldon's counter was that the loss was not measured against under utilisation of the mill - that it was based upon the retarding of direct feed to the mill of the higher grade open cut ore and the consequent loss of gold production.

427 It was submitted on behalf of Niugini Insurance that there was no evidence to support that lost production of ore. That submission overlooks the evidence of Hood (Ex AC) in which he verified the following statement:

"11.1 Equipment In addition to increased operating costs, which are dealt with Constraints below, the longer haul took more time - there were less cycles per day. The capacity to produce from the pit was truck limited, and this situation was aggravated by the need to assign trucks to the Lower Kogai. This truck shortage persisted until the end of March 1995."

(Exhibit X)

428 The calculation by Weldon of reduced production, I think, is the only reliable attempt to assess the value of a significant constraint on open pit production. Accordingly, I think the Weldon analysis of lost production should be adopted. I have been invited to discount the claim on the basis that "there were many other circumstances that could have contributed significantly to any truck constraint." Although I think the assessment is at the top end of an estimate of the loss, I think any "substantial reduction in the amount claimed", would be arbitrary.

429 Associated with the Lower Kogai dump, the PJV has calculated the increased cost of the longer hauls to that dump when compared with the hauls to the SDC dump. The Weldon calculation, in my view, is completely reliable and supported, in substance, by the evidence of Hood. The only qualification I have in accepting that quantification, lies in the reliability of Hood's evidence as to the haul distances involved in Weldon's calculation. Hood's initial description of haul distances used a map "showing the relative distances of hauls to the SDC and Kogai dump sites" It did not support Hood's calculations, as demonstrated by Hall. However, I think Hood's oral evidence explaining the discrepancy and supporting his calculations by his observations and experience on site should be accepted.

430 Weldon was criticised for his adjustment of costs in the estimate of increased haulage costs to accommodate changes in cost accounting adopted by the PJV in 1996 and which he described as follows:

"[MR WELDON] A. I think that MineConsult's view is that one would look at the costs over 1994, 1995 and 1996 and get an inflation adjusted sample of those costs and apply that over the entire period such that the 1996 costs do in fact have some influence over the entire loss period. But I don't know that I think that's quite the right way to apply that calculation.

I prefer to apply the costs year-by-year and then I run into a difficulty in doing that because we don't have the right information for 1996.

The information in 1996 is clearly categorised in a very different way and does not appear to include all of the information or even aggregate all of the information which was provided for prior years for trucking costs. So it seems that the 1996 data is incomplete when you are trying to determine the actual costs of operating a truck in 1996.

For that reason, we omitted 1996 from our costs calculations because it appeared to be misleading."

(T1152.12-T1152-37)

431 I accept that explanation by Weldon evidencing a reasonable approach in his method of costing this aspect of the PJV's claim.

432 The extent of the PJV's overhead and labour costs recoverable under its business interruption claim was assessed by Weldon without allowance for any such costs that were recovered from Niugini Insurance in the PJV's material damage claim under sec 1 of the endorsed policy. It was the opinion of Kerr and Rowley that there was an overlap in the two claims for material damage and business interruption, respectively.

433 The PJV's position on this issue, in my view, is barely tenable. In brief, the PJV contends that the business interruption claim is one in general damages, not special damages with the consequence that recovery does not depend on proof of pecuniary loss. As authority for that proposition the PJV relied upon The Mediana [1900] AC 113 and that line of authority which recognised the right to recover compensation in respect of services provided gratuitously to the injured party. Neither line of authority supports the PJV's position, in my view.

434 In The Mediana, the House of Lords was concerned with the assessment of damages following a collision which put out of commission the plaintiff's lightship. As part of its claim the plaintiff sought recovery of damages representing the loss of the use of its vessel. The House of Lords held that the plaintiff was so entitled. Of significance in that case was the fact that the plaintiff covered the loss of use of its lightship by putting into service a spare lightship which it kept for just such an emergency. Clearly, the plaintiff suffered a 'loss' in the sense that it carried the expense of providing a substitute vessel about all year round. That fact clearly played a significant role in the reasoning of the House of Lords. In the speech of Lord Halsbury his Lordship distinguished the Privy Council decision in the City of Peking v Compagnie des Messageries Maritimes (1890) 15 App Cas 438 which also concerned a claim for the loss of the use of the plaintiff's damaged vessel during a period in which a replacement vessel was employed. However, the distinguishing feature of that case, as observed by Lord Halsbury, was that the substitute vessel's costs were to the account of the defendant. To allow damages for loss of use of the plaintiff's ship would visit a duplication of damages upon the defendant. In The Mediana, the plaintiff's loss included the loss of use of its lightship and it could be of no avail to the wrongdoer that the plaintiff had incurred an expense in having available a replacement vessel.

435 Lord Brampton expressed the compensation entitlement of the plaintiff in the following way (at pp 122-123):

"One word however, I desire to say with regard to the Orion, which was the substituted vessel in this case. She had been built by the respondents and was maintained by them at great expense in order that as between themselves and the public they might have ready means at their command to obviate the great danger and inconvenience which might arise from such a misfortune as befell the Comet by the negligence of the appellants ; but as between themselves and the wrongdoer causing the damage to the Comet they were under no obligation whatsoever to use the Orion at all. They might have use a hired vessel had they so pleased, in which case the liability for the hire would have been clear. But the respondents prudently, having a vessel suited for the purpose lying idle, thought it right in their discretion to use her instead of hiring perhaps a less efficient substitute for the Comet. The services of the Orion, however, were valuable, and why should the appellants claim to have them gratuitously, including the wages of the men who might have been employed on board her? They might equally claim gratuitously to have the services of skilled workmen - engineers hired by the year and paid by the respondents - who happened at the time to be idle, or to have no particular work in hand. That cannot be, and in my judgment is not, the law."

436 The Mediana and the gratuitous services cases are illustrations of loss in which the wrongdoer, as a matter of policy, is not entitled to take advantage of benefits bestowed upon the injured party.

437 In this case the evidence calls for an examination of the PJV's claim as a whole to ensure that there is no duplication of recovery. No point has been taken on the basis that recovery by the PJV of its material damage claim was affected, in substance, under the endorsed policy against the insurer and not directly against Dyno: the subject of that recovery under sec 1 of the endorsed policy being the subrogation claim which I have disallowed.

438 Clearly, in my view, there is an element of overlap in the material damage recovery and the business interruption claim. The extent of that overlap is not capable of a precise definition. No detailed evaluation was undertaken by any party. That is not to say that the material damage claim was not meticulously recorded by the PJV, including its particular overhead component. Clearly, not all overheads in the period of overlap in the two claims would be recouped under the material damage claim. Kerr's approach acknowledged that the material did not enable him "to form an accurate opinion as to the percentage of... wages costs [in the material damage recovery] which were fixed and which were abnormal." He "assumed that all of the overhead [recovered under the material damages claim] was a fixed cost." Rowley adopted a more conciliatory approach in his evidence in chief expressing the opinion that the labour component and half the overhead component of the material damage recovery should be allowed as a credit in the business interruption loss. Rowley's reason for adjusting the overhead component credit to half the amount recovered in the material damage claim was intended to cover both unrecovered labour and overhead costs of the PJV as appeared from the following cross-examination:

"Q. Now, once production resumes after the period of shutdown I am asking you to assume that if those people and other overheads had not been used to repair or replace damaged items then they would have been fully occupied in their day-to-day work in the productive business of the mine, do you understand that?

A. Yes. I understand very well.

Q. And that is a reasonable assumption, isn't it?

A. I understand the assumption.

Q. It is a reasonable assumption, isn't it, or don't you know?

A. All I know is that after these sort of events people have to live with the greater workload, and I know that the insured, that is the PJV, bill their time within their material damage claim in recovery. The flow-through effect in terms of monetary terms on the business is not in any way recorded, and it is impossible to measure it.

Q. Yes. Thank you.

A. And that is part of the reason why, in my methodology, I have recognised a 50 per cent credit.

Q. And that reflects incremental costs in overheads, does it?

A. It represents those things."

(T1521.5-T1521.36)

439 It was submitted on behalf of the PJV that had the PJV chosen to employ contractors to perform the recovery work no question of duplication of loss would arise. In substance, I think that is correct. However, in my view, where the party whose business has been interrupted and whose property has been damaged, carried out rectification work with its own labour and claims that labour and overheads associated with that work, and where that labour is employed and those overheads incurred during the period of business interruption, it is necessary to ensure that any component of labour and overheads costs in the business interruption claim do not represent duplication of claims against the wrongdoers. The recovery of the gratuitous services cases has no application to that exercise, in my view.

440 In this case I am satisfied that there is some overlap. The path I have chosen is to allow a credit as assessed by Rowley and which amounts to US$947,650.

441 Two related issues concern the currency in which the PJV's damages should be expressed and the rate of interest to be allowed in respect of those damages. There is little doubt that the damages should be expressed in United States dollars. Virtually all aspects of the commercial relationship amongst the parties and the manner in which the PJV set up and operated the mine and the currency in which the mine's production of ore was expressed, credited and sold, all point to the applicability of that form of currency.

442 As between the PJV and Niugini Insurance the only currency usage was United States currency. As between the PJV and Dyno, the Dyno contract was similarly orientated. In terms of a claim against Dyno under the Dyno contract, I doubt if there could be any argument against the expression of such a claim in United States dollars. I fail to see how the position should be any different when the claim arising out of that contractual relationship is founded in tort.

443 The evidence of Paton I think fully supports that approach to the assessment of damages. Furthermore, I think it was no coincidence nor act of capriciousness that resulted in the expression of the financial dealings amongst the parties in United States dollars. Presumably, that was a deliberate commercial decision aimed at selecting a standard and stable currency as the context for their commercial dealings.

444 I think it is a matter of little or no relevance that in the operation of the mine and in the performance of rectification work that resort to funding with Kina or Australian dollars was necessary.

445 The expression of damages in United States dollars, I think, carries with it the corollary that the applicable interest rate should be associated with that economic system in which the United States dollar operates rather than interest rates referable to s 94 of the Supreme Court Act 1970. Ideally that rate would reflect the cost of replacement in that economic system of the dollars lost by reason of the damages sustained as a result of the explosions. There is no direct evidence of that rate. I note that the feasibility study in 1988 considered the project's feasibility on both an equity funded basis and a 75% bank funded basis. In the latter case a 9% interest rate was used. The defendants have evidenced "52-week Treasury Bills" rates for the years 1994 to 1999. They were mostly around the 5-7% mark in 1994 and 1995: around 5.5% in 1996 and 1997 and 4.5% to 5% in 1998-1999. The defendants rely upon the Treasury bill rates in the absence of evidence of the funding and investment practices of the members of the PJV whose domiciles include Australia and North America. Niugini Insurance, on that basis, proposed an average rate of 5% dating from September 1994. I think an average rate of 6% dating from September 1994 is appropriate, as one more likely to reflect the cost of replacing the lost dollars within the economic system applicable to the United States currency. I think it does that by reflecting a margin over Treasury bill rates and by carrying an in-built adjustment in favour of the PJV by applying the rate from September 1994: that represents a favourable rate having regard to the timing of losses incurred in the business interruption claim.

446 Dyno's claim as an insured against Niugini Insurance consists of its sec II claim in respect of the PJV's material damage and business interruption claims and Dyno's sec I claim in respect of its own material damage suffered as a result of the explosions.

447 Niugini Insurance and Dyno have reached agreement on the quantum of Dyno's claim against Niugini Insurance as follows:

"C. Dyno's claim for its unrecovered losses

C.1 Dyno and NIC have agreed the quantum of the claim brought by Dyno in

respect of its unrecovered losses as follows:

Description USD Amount Interest

Property not paid by NIC but forming USD119,785 From date claim

part of the Leased Equipment submitted

(16/3/95)

Overheads on the Leased Equipment USD269,742 From date claim

amount paid by NIC to PJV plus the submitted

amount not paid by NIC but claimed in (16/3/95)

item 1 above.

Claim for consigned raw materials USD253,109 From date claim

submitted

(16/3/95)

Amount not passed on by the PJV due USD42,721 From date claim

to a currency conversion loss when submitted

being paid (16/3/95)

Interest on the Leased Equipment From date claim

payout submitted to the date Leased Equipment

payout was paid to Dyno

TOTAL USD685,357 Interest on the amounts referred to above"

448 Niugini Insurance denies liability in respect of Dyno's sec II claim on the basis of exception (e) to sec II which excludes:

"claims which are the subject of indemnity under Section I of this policy or which would have been the subject of indemnity under Section I but for the application of the deductible(s) thereunder."

449 Neither Dyno's sec I claim nor its sec II claim fall into that category, with the possible exception of the PJV betterment claim. However, while the PJV was indemnified in respect of replacement costs of the explosives facility, the betterment claim was not the subject of indemnity. Nor could it be said that the PJV would have been indemnified but for the 'application of the deductibles'. For those reasons, in my view, the exclusion has no application to Dyno's sec II claim.

450 Niugini Insurance also resisted liability in respect of Dyno's sec II claim on the following basis:

"8.4 To the extent that Dyno's liability arises from causes not involving property damage to PJV's property, such liability does not fall within the insuring clause of section II of the policy, which is directed to liability arising out of personal injury or property damage. Liability for the following would not fall within the insuring clause of section II:-

· losses due to shortage of explosives or low morale of staff;

· losses due to truck constraints or longer hauls to the Kogai dump;

· additional rehandling costs;

· costs of a blast investigation which occurred regardless of whether there was property damage; and

· payments due to the necessity to maintain peace with locals and contractors by compensating them for their losses irrespective of the legal liability to do so."

451 However that submission pays no, or insufficient regard to the ambit of the Sec II insuring clause which provided as follows:

"INSURING CLAUSE

The insurers will, subject to the exceptions and conditions hereinafter mentioned:

(a) indemnify the Insured for all sums which the Insured shall become legally

liable to pay in respect of or arising out of:

(i) Bodily injury or illness (including death at any time resulting therefrom) suffered or alleged to have been suffered by any person or persons.

(ii) Damage to or destruction of property including the loss of use thereof

iterruption (sic), denial of access, loss of trade or other deprivations.

happening during the Period of Insurance in connection with the project and caused by an occurrence.

for the purpose of this Insurance the word 'occurrence' means an event including injurious exposure to conditions, which unexpectedly or unintentionally results in bodily injury or property damage or any consequential losses arising therefrom."

(emphasis added)

452 The business interruption elements in Dyno's sec II claim all fall within "the loss of use [of property] iterruption (sic), denial of access, loss of trade or other deprivations": an extension of the meaning of "damage to or destruction of property." In any event, that part of Dyno's sec II claim, in my view, also falls within a loss in respect of or arising out of the unextended meaning of "Damage to or destruction of property".

453 I also think that the items the subject of the agreed quantum schedule of the PJV's claims are each capable of falling within a legal liability of Dyno "in respect of or arising out of ...damage to or destruction of property including the loss of use thereof [interruption], denial of access, loss of trade or other deprivations." The effect of the evidence of Carpenter was that the payments were both reasonable and necessary to minimise the loss arising out of the interruption to the works or the "loss of trade or other deprivations" caused by the explosions. In some instances the payments were condoned by Niugini Insurance . The 'investigation' costs I regard as a necessary concomitant of the explosions and of the destruction of property and lives and, to that extent, capable of falling within both sub-paragraphs (i) and (ii) of the insuring clause.

454 Dyno's Sec II losses are also denied indemnification on the basis that they fall within exception g) which excluded the cover from "liquidated damages fines or penalties payable by the Insured or any sum payable by the Insured by way of damages for breach of contract." In my view, none of the losses should be so categorised in view of the findings made earlier in these reasons.

455 Niugini Insurance relies upon exception b) to sec II of the endorsed policy. Par b) provided as follows:

"b. liability for loss of or damage to property owned by or in the care, custody or control of the insured other than loss of or damage to:

i) the personal possessions including vehicles and their contents of Directors, Partners, employees or Visitors of the Insured.

ii) premises and their contents not owned, leased or rented to the Insured but which premises are temporarily occupied by the Insured for the purposes of the project."

456 Given the quantum agreement, which had the effect of limiting the PJV's material damage claim, there is no part of Dyno's sec II claim to which this exclusion could apply, in my view. The explosives facility building which was the subject of the betterment claim was not a building "owned by or in the care, custody or control" of Dyno. If I am wrong, in that view, then to the extent that it might be regarded as being in Dyno's control, I think it fell within the description of "premises ...temporarily occupied by [Dyno] for the purposes of the project".

457 In relation to Dyno's sec I claim, Niugini Insurance has declined liability on the basis of exception l) which precludes recovery of loss of "catalysts and chemicals, ...fuel, oil etc. unless such loss is the direct consequence of insured damage to other parts of the works covered under this policy."

458 Part of Dyno's sec I claim is for loss of "consigned raw materials". Niugini Insurance claims that the loss so described related to the stored emulsion and related components of explosives. As I understood the argument of Niugini Insurance, it was necessary for Dyno to show that the loss was connected with damage to the property of Dyno insured by the endorsed policy. I do not agree with that construction and bring back to mind the 'pervasive' interest of Dyno in the whole of the property insured. In any event, Dyno had an insurable interest in the leased equipment sufficient to satisfy Niugini Insurance's test.

459 In so far as Dyno's sec I claim includes claims related to the leased equipment, Niugini Insurance relies upon cl 3 of the settlement deed which is repeated for ease of reference:

"3. The Leased Equipment

The Insureds further agree that the consideration for this Deed includes an amount to be paid by the Underwriters with respect to loss and/or damage to the Leased Equipment, and that such amount is in full and final satisfaction of all claims with respect to such loss and damage, now or hereafter available to or claimed by the Insureds, Dyno Wesfarmers Ltd or any other party having an interest in the Leased Equipment, and the Insureds accordingly warrant:

(i) that they will indemnify the Underwriters against any claim (including the costs and expenses thereof) made by the Insureds, Dyno Wesfarmers Ltd and/or any associated, subsidiary or parent companies thereof; and

(ii) that there are no other parties having or claiming an interest of any kind whatsoever in the Leased Equipment."

460 This clause should be read in conjunction with the terms of the Dyno release which were as follows:

"THE PARTIES AGREE AND DECLARE AS FOLLOWS:

1. Upon receipt of the said sum of A$3,517,807 under the Policy the Joint Venturers shall pay it to DWL and the receipt of that sum by DWL is hereby acknowledged.

2. DWL warrants that it is the sole legal and equitable owner of the Leased Equipment and that no other party has or claims an interest of any kind in it.

3. DWL hereby indemnifies the Joint Venturers and the Manager and each of them against any liability (including any and all liability for the costs and expenses of investigating, defending or prosecuting any claim) arising from any claim by DWL or any other person in respect of the loss or damage to the Leased Equipment."

461 Niugini Insurance also relies upon the general release given to it by the PJV in relation to the sec I payout under cl 1 of the settlement deed and to the provision in cl 4 imposing a duty on the PJV to assist Niugini Insurance in defence of such a claim as that made by Dyno.

462 That only adds to the validity of a defence of circuity of action which I think is available to Niugini Insurance in respect of each of the items in Dyno's sec I claim "in respect of the loss or damage to the Leased Equipment". That would include the claim for overheads.

463 In the case of the overheads component in Dyno's sec I claim, Dyno makes no claim for overheads in relation to "consigned raw materials".

464 Legal costs are the subject of an agreed statement. Under sec II of the endorsed policy, the insurance clause extended the indemnity to cover the following:

"(c) ...

(i) All expenses incurred by or with the permission of Insurers for investigation, negotiation and defence of claims and suits

(ii) All expenses incidental to the appeal from any judgement (sic) against the Insured subject to the consent of the Insures (sic)

(iii) All expenses in connection with any other court actions or legal proceedings arising out of an occurrence insured against hereunder."

465 It is argued by Dyno and Niugini Insurance that Dyno incurred legal costs and expenses in relation to an inquiry appointed on 4 August 1994 under s 59 of the Mining (Safety) Act (PNG) Ch.195A established to ascertain the causes of the explosions. It was completed by 18 January 1995.

466 On 6 February 1995 the Mines Department lodged an administrative appeal under the Mining (Safety) Act (PNG) - It did not proceed as a result of the pending hearing of charges against Dyno in the District Court. On 8 February 1995 Dyno successfully challenged that decision not to proceed, the appeal being upheld on 10 February 1995. In July 1995 an originating summons was lodged in the National Court to enforce, in effect, a hearing of the administrative appeal by having the National Court conduct a judicial review. That tactic was successful in that the Mines Department decided that it had sufficient funds to carry out the administrative appeal.

467 On 8 January 1996 there was a procedural hearing in the administrative appeal and on 12 February 1996 an interlocutory application was heard. In March 1996 Twaddle brought down his decision in the appeal overturning the finding of the statutory inquiry.

468 Dyno has been engaged in litigation with Rodney Dugmore in respect of personal injuries suffered as a result of the explosions. Dugmore's solicitors have submitted a statement of accounts which are to Dyno's account but which are not agreed to by Niugini Insurance.

469 In my view, costs so incurred by Dyno fall within insuring clause par (c)(iii) in the case of the public inquiries and under par c (i) or c (iii) in relation to Dugmore's claim.

470 The basis of entitlement is not limited to costs necessarily incurred. It extends to costs reasonably incurred although not necessarily incurred. The level of entitlement is on the basis of an indemnity. I doubt if the evidentiary onus of Dyno in proving its costs would prove a difficult task having regard to the failure of Niugini Insurance to indemnify Dyno under the endorsed policy.

471 By its third and fourth cross claims Niugini Insurance seeks contribution respectively from Vesta Forsikring A/S (Vesta) and General Accident Insurance Asia Ltd (GAC) in respect of its payout under sec II of the endorsed policy : each of GAC and Vesta having provided public liability cover to Dyno for the period covering the explosions. Each has denied liability.

472 It is accepted by Niugini Insurance that any entitlement to contribution is limited to the indemnification of Dyno's public liability risks.

473 In the case of Vesta, it relied upon cl 7.5 of its policy which provided as follows:

"7. Limitations of Vesta's liability

The insurance does not cover liability:

....

7.5 For claims to such extent as compensation is paid out under mandatory or other liability insurance policies taken out by the Insured or co-insured, under a Builders All Risk policy or under other insurance held by the principal or any other party."

474 The policy wording is unambiguous and applied literally would require its application as an excess or second layer of insurance. Evidence was adduced in Vesta's case that the English wording of the Vesta policy was taken from the Norwegian language form of its standard policy clauses: that in the case of cl 7.5 the words "paid out" are the English translation of the Norwegian "erstattes" which, more accurately translated, means "indemnifiable". I think that is the meaning in which the phrase "paid out" is used, in any event, in cl 7.5. I have treated this reliance upon extrinsic material as falling within the principles of statutory interpretation referred to in the reasons that follow.

475 Niugini Insurance accepts that Norwegian law is the proper law of the Vesta policy. However, its claim for contribution is not one founded in contract, but is in the nature of an equitable right to contribution arising out of a case of double insurance.

476 There is no dispute that if the law governing the Niugini Insurance's entitlement to contribution was that of New South Wales, s 45 of the Insurance Contracts Act 1984 would avoid cl 7.5, so far as it purported to apply to the endorsed policy.

477 Vesta adduced in its case the evidence of Erling Christie Hjort (Hjort), an expert in Norwegian law, to the effect that Norwegian Law is based upon statutory material consisting of a Constitution Act of 1814, statutes of Norway's Parliament and subordinated legislation and regulations. Statutory interpretation embraced construction of the terms of the statutory instrument; resort to reports in the nature of explanatory memoranda; judicial decisions; practice of government authorities; custom; learned texts and a principle of interpretation aimed at achieving a just result.

478 In relation to custom and the justice of the case it was Hjort's evidence that a:

"...Norwegian court applying Norwegian law would take the following matters into account in interpreting an insurance policy in the appropriate circumstances:

(1) The wording of the actual clause in the policy;

(2) The policy's other provisions;

(3) Oral and written negotiations leading up to the placement of the policy;

(4) The parties' intended understanding of the clause if such understanding

deviates from the wording of the policy;

(5) Industry practice in Norway."

479 He evidenced the insured's right under Norwegian law to sue Vesta as follows:

"4.1 Under Norwegian law, contracting parties are entitled to sue each other pursuant to the provisions of the Civil Procedures Act of 13 August 1915 No 6 Sections 53 and 54.

The grounds for such litigation might be a claim for the fulfilment of a contract or for damages resulting from the breach of it by the other contracting party. The underlying principle is that agreements shall be adhered to ("pacta sunt servanda") which has been recognised in Norwegian law since time immemorial. The present authority for this rule is found in King Christian V Norwegian Statute ("Norske Lov") of April 15th 1687 book 5, article 2.

In the present time Norwegian law on agreement is found in the Contract Act of May 31st 1918 No 4, which contains provisions regarding how agreements are made, under what circumstances they may become valid etc."

480 As evidence of practice, Hjort stated that cl 7.5 was a clause known in the industry as a "local insurance clause" or "subordination clause". Its use in the insurance industry related to the provision of 'global' cover to insureds engaged in international commerce and which was 'subordinate' to 'local' insurance. In that form it operated as a form of 'excess' insurance. He gave examples of that practice. Hjort expressed the opinion that "the relevant law and custom to which [he had referred led] to the conclusion that Clause 7.5 excludes the operation of the Vesta policy until the NIC policy has been exhausted." Although not specifically objected to, I have some doubt about the admissibility of that opinion, at least in that form.

481 However, if not explicitly stated, I think it should be concluded from Hjort's evidence that Norwegian law would enforce a "local insurance clause" such as cl 7.5. If that be so, and Norwegian law is the applicable law of contribution, then Niugini Insurance would have no right to contribution from Vesta.

482 However, it is submitted on behalf of Niugini Insurance that the applicable law is that of New South Wales. That submission is founded on a number of alternative bases. It is contended that the evidence of Hjort falls short of proving Norwegian law as to contribution and fails to prove the factual bases upon which a Norwegian Court would construe cl 7.5.

483 Certainly, the form of the evidence is unsatisfactory. It went in without objection and was not the subject of cross-examination. Evidence of industry practice might be expected to emanate from an insurance underwriter. Hjort is a highly qualified lawyer. Still his expertise is also based upon the following:

"1.5 I have a wide experience in international trade law and I have particular experience in insurance, banking and shipping law. My experience in insurance matters includes, but is not limited to, advising insurers in claims matters and appearing for them in litigious matters. I presently hold, and have for the last five years held, the position of Chairman of the Board of Directors of Oslo Reinsurance Company ASA which is a company listed on the Oslo Stock Exchange and which was previously known as UNI Storebrand International Insurance Company AS. Oslo Reinsurance Company ASA has no involvement or interest in the claim which is the subject of these proceedings."

(Exhibit XD-1)

484 In my view, there is sufficient evidence of the Norwegian insurance practice relating to subordinate or local insurance clauses to justify the finding that cl 7.5 is such a clause and enforceable as such under Norwegian law. It was Niugini Insurance's further contention that Norwegian law was irrelevant to the question of contribution: that right being founded in equity, not in contract. That the entitlement arises ex-contract is uncontroversial. In R.P. Meagher, W.M.C. Gummow and J.R.F. Lehane, 'Equity Doctrines & Remedies' (3rd ed 1992) at par 1000 et seq the learned authors trace the development of the doctrine at law and in equity and identify the doctrine as one founded in the concept of "natural justice."

485 The rationale behind Niugini Insurance's submission was the subject of analysis by McLelland J in United States Surgical Corporation v Hospital Products International Pty Ltd [1982] 2 NSWLR 766 at 796 et seq.

486 McLelland J's reasoning did not call for consideration on appeal in either the Court of Appeal or in the High Court. However, his Honour's reasoning was reviewed in association with other authorities on the subject in Paramasivam v Flynn [1998] FCA 1711; (1998) 160 ALR 203 at 214 et seq., a decision of the Full Court of the Federal Court of Australia. Clearly there is no entrenched rule, in my view, which compels the application of the lex fori in a case such as this.

487 I have some difficulty in applying New South Wales law in the circumstances of this case where the effect of Niugini Insurance's submission would be to avoid cl 7.5 as a clause struck down by the provisions of s 45 of the Insurance Contracts Act 1984 (Cth). The difficulty I have lies in the striking down of a clause in a Norwegian contract of insurance, which would be enforceable under Norwegian law, in a claim for contribution by an insurer under a contract of insurance of which the proper law is that of Papua New Guinea. While there has been no attempt to prove the law of contribution in Papua New Guinea, I think there is something bizarre in applying s 45 to the Vesta policy in those circumstances and where the clear intention of the parties under Norwegian law was to provide subsidiary insurance to a group of corporations trading internationally. In my view, recognition should be given to the enforceability of such a clause under Norwegian law which it is conceded is the proper law of the contract.

488 GAC's policy contained the following endorsement:

"It is understood and agreed that the following Papua New Guinea Jurisdiction Endorsement is attached to and forms part of this policy, replacing and cancelling any other jurisdiction clause contained within the policy.

PAPUA NEW GUINEA JURISDICTION

ENDORSEMENT

"The indemnity expressed in this policy shall not apply to or include compensation for damages in respect of judgement (sic) not in the first instance delivered by or obtained from a Court of competent jurisdiction within Papua New Guinea or costs and expenses of litigation recovered by any claimant from the insured which are not included in or recoverable in Papua New Guinea"."

489 It was submitted on behalf of GAC that the endorsement had the effect of limiting GAC's liability to damages under a judgment in Papua New Guinea obtained at first instance. I do not think that is the true construction of the clause, which, in any event, is not free from ambiguity.

490 In the first instance the endorsement cannot be read literally to limit any liability of GAC to indemnify Dyno to "compensation for damages in respect of judgment... in the first instance delivered by or obtained from a Court of competent jurisdiction within Papua New Guinea". For example, the obligation to indemnify Dyno independently of any such judgment for "compensation for damages" is recognised by condition 3 which entitles GAC to discharge its liability to indemnify by paying out under the policy to the limit of the indemnity or a lesser sum by way of settlement without such judgment being given in the first instance in Papua New Guinea. Second, the limitation is concerned only with "compensation for damages" whatever the precise meaning of that phrase may be. Third, the phrase "or recoverable in Papua New Guinea" where used within the clause recognises a liability to indemnify where the liability of the insured is "recoverable in Papua New Guinea." It is enough that the liability of the insured is one "recoverable" in Papua New Guinea, at least not at first instance. It is plain why this should be so. The liability to indemnify Dyno was expressed to be "in connection with the Business carried on at and from any Place specified in The Schedule." The schedule identified the business as "Supply and Manufacturer of Explosives" and the place of business, "Anywhere in Papua New Guinea Excluding NSP."

491 The construction advanced on behalf of GAC would leave Dyno at the mercy of the injured party in whose hands lay the power to choose whatever forum was available to it outside of Papua New Guinea. Such a construction leads to an absurdity and one that should be avoided if a reasonable construction may be found which gives expression to the true intention of the parties, namely to limit liability to indemnify, in respect of a damages claim against the insured, to damages assessed by the application of the law of Papua New Guinea. In that context I note that the clause is described as a "jurisdiction clause".

492 In my view, the phrase "recoverable in Papua New Guinea" should be read as applying to "damages for compensation" and "costs and expenses". That construction is more readily accommodated when the phrase preceding the phrase "recoverable in Papua New Guinea" is scrutinised. The phrase "which are not included in" is meaningless unless that part of the limitation on indemnity is understood to mean "cost and expenses of litigation which are...included in a judgment obtained in the first instance in Papua New Guinea."

493 So understood the concluding phrase "or recoverable in Papua New Guinea" should be read distributively, in my view, to apply to both "compensation for damages" and "costs and expenses of litigation" which in the first instance would be recoverable in Papua New Guinea.

494 Had I been unable to reach such a construction of the clause I would have been driven to treat it as void for uncertainty on the basis that the phrases "indemnity...[for] compensation for damages in respect of judgment" and "costs and expenses of litigation recovered by any claimant from the insured which are not included" are meaningless. In those circumstances I fail to see why the Court should lend its assistance to give some operation to the clause as contended for on behalf of GAC which would lead to an absurdity of construction and defeat the equity underlying a right of contribution.

495 On the basis of these findings the parties are agreed that the appropriate basis for contribution should be:

As between GAC and Niugini Insurance: As to the limit of GAC's liability, contribution should be equal;

As between Vesta and Niugini Insurance: This does not arise.

496 It is not necessary to determine whether the value of the subrogation claim needs to be brought to account in any determination of the quantum of contribution by GAC.

497 As with the PJV judgment, the judgment to which Dyno is entitled should be expressed in United States currency and interest should be allowed on Dyno's sec I claim at the rate of 6% from September 1994 on the same reasoning as interest was calculated in the case of the PJV's entitlement. I am mindful that Dyno in Appendix D to its submissions sought a calculation of interest from 16 March 1995. However, consistently with that, I have taken a rate of interest which is to be calculated from September 1994 in order to reflect the appropriate rate of interest which should be applied. Had I allowed interest from the later date, it would have been at a higher rate of interest than 6%.

498 Having regard to the findings reached in these reasons, it will be necessary for the parties to bring in short minutes of order including appropriate orders as to costs together with outline submissions in the event of there being any residual areas of contention. I direct that short minutes be exchanged amongst the parties by 5pm 2 February 2000 and that, in the event of agreement being reached, short minutes be forwarded to my associate by 5pm 4 February 2000. In the event of disagreement, each party in dispute is to forward to my associate by 5pm 8 February 2000 the short minutes of order for which it contends and outline submissions in support of those contentions. The matter will be listed for the making of final orders on 11 February 2000.

499 In summary, the PJV's claim by way of subrogation is to be dismissed as should be its action against Niugini Insurance and the first, third and fifth cross-claims. The PJV is to have judgment against Dyno in respect of its business interruption entitlement as found, together with the agreed amount of its material damage claim and its betterment claim. The business interruption claim is to be calculated on the basis as assessed by Weldon save for the claim for rehandling costs and the overheads not recovered under the settlement deed, each of which has been disallowed, and subject to the allowance of the credit for labour and overheads found to overlap in the business interruption and other claims of the PJV. The judgment is to be expressed in United States currency and to attract interest from 1 September 1994 at the rate of 6% per annum.

500 Dyno is entitled to judgment in respect of its sec I and sec II claims under the second cross-claims in accordance with my published findings. Dyno is also entitled to a declaration of entitlement to legal costs and expenses indemnified under the policy on an indemnity basis in accordance with these reasons. The judgments are to be expressed in United States currency and, in respect of the Sec I claim, is to attract interest at 6% per annum from 1 September 1994. The contribution entitlement of Niugini Insurance under the fourth cross claim is to be calculated as agreed between the parties.

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LAST UPDATED: 13/01/2000