FEDERAL COURT OF AUSTRALIA
B W Offshore Ltd v Anzon Australia Limited (ABN 46 406 771) [2009] FCA 1133
VID 113 of 2009
RYAN J
7 OCTOBER 2009
MELBOURNE
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IN THE FEDERAL COURT OF AUSTRALIA |
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VICTORIA DISTRICT REGISTRY general division |
VID 113 of 2009 |
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B W OFFSHORE LTD Applicant
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AND: |
ANZON AUSTRALIA LIMITED (ABN 46 107 406 771) First Respondent
BEACH PETROLEUM LIMITED (ABN 20 007 617 969) Second Respondent
CIECO EXPLORATION & PRODUCTION (AUSTRALIA) PTY LTD (ACN 107 688 148) Third Respondent
SOJITZ ENERGY AUSTRALIA PTY LTD (ACN 129 690 740) Fourth Respondent
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JUDGE: |
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DATE OF ORDER: |
7 OCTOBER 2009 |
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WHERE MADE: |
MELBOURNE |
THE COURT ORDERS THAT:
1. The applicant provide, by 13 November 2009, in a form acceptable to the District Registrar of the Court, the amount of AUD$550,000 by way of security for the costs of the respondents up to and including the first day of trial.
2. The applicant’s notice on motion dated 7 May 2009 be refused.
3. The costs of and incidental to each of the motions herein be costs in the cause.
4. Each party have liberty to apply on not less than 48 hours’ notice in writing to each other party.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
The text of entered orders can be located using eSearch on the Court’s website.
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IN THE FEDERAL COURT OF AUSTRALIA |
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VICTORIA DISTRICT REGISTRY general division |
VID 113 of 2009 |
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BETWEEN: |
B W OFFSHORE LTD Applicant
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AND: |
ANZON AUSTRALIA LIMITED (ABN 46 107 406 771) First Respondent
BEACH PETROLEUM LIMITED (ABN 20 007 617 969) Second Respondent
CIECO EXPLORATION & PRODUCTION (AUSTRALIA) PTY LTD (ACN 107 688 148) Third Respondent
SOJITZ ENERGY AUSTRALIA PTY LTD (ACN 129 690 740) Fourth Respondent
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JUDGE: |
RYAN J |
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DATE: |
7 OCTOBER 2009 |
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PLACE: |
MELBOURNE |
REASONS FOR JUDGMENT
The Dispute
2 By an application filed 18 February 2009, the applicant, B W Offshore Ltd (“B W Offshore”), applies under s 9 of the Admiralty Act 1988 (Cth) and the Federal Court of Australia Act 1976 (Cth) (“the Federal Court Act”) for recovery of a debt owed under, or damages for breach of, a contract in relation to the alteration and equipping of a ship.
3 B W Offshore is a company incorporated under the laws of Bermuda with its head office in Norway. It is in the business of converting oil tankers for use as floating processing, storage and offtake facilities to be used in exploiting offshore oil and gas fields. The four respondents, each of which is incorporated in an Australian State, are participants in the “B M G Joint Venture”, which has been formed to develop and exploit the Basker Manta Gummy oil and gas field, located in the Bass Strait off the coast of Victoria.
4 The dispute has arisen, so the statement of claim recites, because:
“7. In or [sic] late June or early July 2008, the respondents informed BWO that, subject to the satisfactory conclusion of contractual negotiations, it was their intention to award BWO a contract:
(a) to modify a vessel for use as an FPSO in respect of the BMG Project, and
(b) for the provision and operation of the FPSO
8. Pending the contractual negotiations referred to above, on or about 4 July 2008 BWO signed a letter of intent (the LOI) with the defendants jointly and each of them severally, pursuant to which BWO agreed to perform preliminary work in respect of the design and construction of an FPSO facility to be used for the purposes of the BMG Project.”
5 The substance of what is alleged in the statement of claim is that, acting in reliance upon the LOI, B W Offshore entered into various agreements with suppliers for the supply of “long lead items”, such as, for example, steam turbine generators, gas compression modules, safety risk management consultant services, and cargo and ballast pumps. By various means which it is not presently necessary to describe in detail, Anzon Australia Ltd, the first respondent (“Anzon”), on behalf of the respondent joint venturers, sought to terminate the LOI before any contract had been concluded between the parties.
6 B W Offshore therefore claims, pursuant to paragraph 10 of the LOI, the “Company Termination Cost” in the sum of US$90,152,378.00, referred to in its letter of demand. In the alternative, B W Offshore seeks that sum as reasonable remuneration for internal costs and third party liabilities which it has incurred.
74. During the course of the [May – July 2008 negotiating period for the LOI], the Cross Respondent represented to the Cross Claimant that:
74.1 it understood that the security issue was critical for the participants in the BMG Joint Venture;
74.2 it understood that the Applicant would rank for security purposes behind each of the Cross-Claimant’s and Second Respondent’s banks, that the liability of the Joint Venture Parties was several, and that the Applicant’s security was limited to a charge over the Cross Claimant’s 40% interest in the BMG Joint Venture, a charge over the Second Respondent’s 30% interest in the BMG Joint Venture and parent company guarantees from the parent company of each of the Third Respondent and the Fourth Respondent limited to their respective, several, 20% and 10% interests in the BMG Joint Venture; and
74.3 the security for which the Contract was to provide had been resolved.
…
75. By making the representations referred to in paragraph 74, the Cross Respondent further represented that in the course of finalising the Contract it would not seek or insist on security materially different to that referred to in Attachment 5 to the LOI.
76. The representation referred to in paragraph 75 was a representation as to a future matter within the meaning of s 51A of the Trade Practices Act 1974 (Cth).
77. The representation referred to in paragraph 75 was in trade or commerce within the meaning of the Trade Practices Act.
78. In reliance upon the representation referred to in paragraph 75, the Cross Claimant entered into the LOI and entered into contracts for the provision of drilling rigs and incurred other outgoings in connection with the proposed transactions contemplated by the LOI.
…
79. The representation referred to in paragraph 75 was misleading and deceptive within the meaning of s 52 of the Trade Practices Act.
…
80. As a result of the misleading and deceptive conduct of the Cross Respondent the Cross Claimant has suffered loss and damage.
8 Although it is both unnecessary and inappropriate at this stage to descend into greater detail about the dispute between the parties, it is plain that the issues between them are complex. However, as noted later in these reasons, those issues arise from a very narrow sub-stratum of facts. After that preliminary observation, it is convenient now to consider the first of the motions before the Court, the Security for Costs Motion.
The Security for Costs Motion
9 The substance of this motion has been indicated at [1] above. The respondents move the Court for orders, so far as is relevant:
“1. That pursuant to Order 28 of the Federal Court Rules and/or section 1335 of the Corporations Act 2001 (Cth) that the Applicant provide security for the costs of the Respondents in the amount of A$800,000 or such other amount as the court may determine by way of payment into court or a bank guarantee from a licensed Australian trading bank or such other manner as the court may determine;
2. That the Proceeding be stayed against the Applicant until security is provided in accordance with Order 1…”
10 In support of the Security for Costs Motion the respondents rely on an affidavit of Gordon Thomas Grieve, of the respondents’ solicitors, sworn 24 April 2009. In that affidavit, Mr Grieve sets out the following chronology of events;
On 12 March 2009, solicitors for the respondent wrote to solicitors for B W Offshore, reserving rights to apply for security for costs expended before the filing of draft consent orders, which became the orders of the Court on 13 March. On 2 April, the respondents’ solicitors again wrote to B W Offshore’s solicitors pressing for security in the sum of $800,000 for costs up to, but not including, the first day of trial. That letter, after reserving rights to make application for further security, sought particulars of B W Offshore of any assets held within the jurisdiction. There was then correspondence between solicitors about the break-down or particularisation of the projected costs. That controversy had not, at the time of Mr Grieve’s swearing his affidavit, been resolved.
11 Mr Grieve then deposes to his search of the various company records of B W Offshore which, it is to be remembered, is incorporated in Bermuda and has its operational head office in Norway. After exhibiting a note of a search of B W Offshore’s Interim Fourth Quarter and Preliminary Results (“the 4Q Results”), Mr Grieve’s affidavit continues:
“27. From my review of the 4Q Results:
(a) the Applicant reported a pre-tax loss of US$273M; an EBITDA loss of $US43.2M and a net financial items loss of US$44.9M in the fourth quarter of 2008; and
(b) the preliminary results for 2008 state that the Applicant had an operating loss of US$429.5M; the net financial items result was a loss of US$87.9M and the result before tax was a loss of US$517.4M.”
12 Finally on this aspect, Mr Grieve deposes, first, to land title searches conducted in Queensland, New South Wales, Victoria, South Australia, the Northern Territory and Western Australia, which reveal that B W Offshore does not hold any real property in any of those jurisdictions. Secondly, Mr Grieve points to a matter to which it will be necessary to return, that is that there are significant obstacles to enforcing, in either Bermuda or Norway, judgment against B W Offshore.
13 In an affidavit filed in response and sworn 30 April 2009, Andrew Jon Stephenson, of B W Offshore’s solicitors, contends in opposition to the provision of security:
“9. The Grieve affidavit does not distinguish between preparation necessary to defend the applicant’s claim, and preparation necessary to prosecute the first respondent’s cross-claim. In my opinion, the majority of the work contemplated in the Grieve affidavit relates either to the preparation of the cross-claim; or quantum.
10. The applicant resists providing security for the respondents’ costs.
11. If the Court determines that this is an appropriate case to exercise its discretion to order that the applicant provide security for costs, the quantum of security sought by the respondents ($800,000) is, in my view, excessive…”
14 In essence, Mr Stephenson’s contention, which was amplified extensively at the hearing of these motions, is that the pleadings tend to show that only one party to this litigation will ultimately be successful. In other words, the counterclaim is inherently defensive and does not disclose a “free-standing” cause of action for which judgment could be entered for the respondents notwithstanding the recovery by B W Offshore of a substantial judgment on the cause of action articulated in its statement of claim. On the other hand, B W Offshore objects to providing security to meet a liability for costs which may, in part, be incurred by the respondents in prosecuting as “aggressors” one or more of the causes of action raised by the cross-claim. It is therefore necessary to review in some detail the costs projections set out in Mr Grieve’s affidavit of 24 April 2009.
Mr Grieve’s analysis of the respondents’ costs
“56.1 Stage 1 – finalisation of pleadings;
56.2 Stage 2 – discovery and production;
56.3 Stage 3 – taking and reviewing of evidence
56.4 Stage 4 – intensive preparation for final hearing…”
16 Work carried out to date, Mr Grieve deposes, has included analysis of the statement of claim, seeking further particulars, taking instructions in relation to factual issues raised by the statement of claim, and various communications and conferences, including with clients and counsel.
17 Mr Grieve also deposes to the structure of the respondents’ legal “team”, which consists of senior counsel, junior counsel, two partners of Piper Alderman, one employed solicitor, and one law graduate or clerk. He tabulates the costs of work performed by each so far as follows:
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Phase 1 – Work done to date |
Total $ (excl GST) |
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Counsel |
$15,781.82 |
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Piper Alderman |
$92,691.45 |
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Work done to date subtotal |
$108,473.27 |
Those figures reflect the following rates (excluding GST) charged by different members of the respondents’ team: senior counsel at $16,000 per day or $1,600 per hour; junior counsel at $5,600 per day or $560 per hour; one partner of Piper Alderman at $570 per hour and the other at $440; the employed solicitor at $310 per hour and the law graduate or clerk at $160 per hour.
18 Mr Grieve then descends to some detail about work still to be done in phase 2 described at [15] above and adds to the items in that phase the likely costs of interlocutory costs referable to subpoenas and notices to produce, and the costs of any mediation.
19 The net result of Mr Grieve’s projections, on a time-billing basis, is that, of the work remaining to be done, finalisation of the pleadings is projected to cost $80,750, and discovery and production of documents by the respondents $367,700. Further production of documents, presumably upon notices to produce or subpoenas, is projected to cost $71,775 and taking and reviewing evidence a further $380,825. Stage 4 of Phase 2, “Intense preparation for the final hearing” is then described as comprising:
“81.1 reviewing discovered documents and witness statements;
81.2 preparing objections to evidence;
81.3 analyzing (to the extent that it has not already been done) relevant legal issues and undertaking related legal research;
81.4 issuing any further subpoenas and/or issuing and answering notices to produce;
81.5 attending conferences with representatives of the Respondents’, senior and junior counsel and lay witnesses;
81.6 preparing bundles of documents relevant to each witness;
81.7 liaising with the Respondents’ lay witnesses regarding the giving of evidence;
81.8 preparing for cross examination the Applicant’s witnesses;
81.9 preparing bundles of documents for tender;
81.10 preparing chronologies;
81.11 attendance at direction hearings and a callover; and
81.12 various document management tasks.”
The cumulative cost of undertaking that work is estimated at $401,275.
20 In the result, Mr Grieve has estimated that the respondents’ total legal professional costs to the eve of trial will amount to $1,410,798.27, a figure he describes as “reasonable given the following factors”:
“88.1 based on my experience as a senior litigation practitioner;
88.2 the issues raised are legally and factually complex;
88.3 it is not presently clear how many documents may be made relevant by the issues raised in the proceedings.”
21 Finally, Mr Grieve identifies a series of disbursements, which he estimates at $5,000 to $10,000 per month, so as to take his estimate of the respondents’ total liability for their costs to the eve of trial to an amount in excess of $1.5 million.
22 Mr Grieve’s estimates are disputed by B W Offshore which relies in response upon an affidavit of Margaret Cairns Gourlay sworn 18 May 2009. Ms Gourlay arrives at estimates of the respondents’ actual and projected costs which differ significantly from those calculated by Mr Grieve. It is therefore necessary to subject her evidence to similar scrutiny.
Ms Gourlay’s Costs Breakdown
23 Ms Gourlay, like Mr Grieve, is an experienced solicitor. She is currently employed as the Manager of the Law Institute of Victoria Costing Service, having practised exclusively in connexion with the taxation of costs since 1980. Her experience includes work in that area with several firms of solicitors.
24 In her affidavit sworn 18 May 2009, Ms Gourlay frames her response to Mr Grieve’s affidavit and its underlying assumptions in this way:
“8. The respondents seek security for costs in the amount of A$800,000 or such amount as the Court may order. The amount sought is based on the hourly rates of Piper Alderman legal practitioners engaged and working in the Sydney office excluding GST. The rate for Counsel is based on the current daily and hourly charge out rates of Counsel currently retained in the matter excluding GST.
9. The Costs estimated and contained in Mr Grieve’s affidavit do not reflect the fact that costs in Federal Court matters are awarded on the Federal Court scale. The estimate relates to the possible costs of defending the claim as described in paragraphs 33-44 of the affidavit and also the costs of maintaining the Cross-claim as described in paragraph 45.
10. The affidavit does not differentiate between the estimated costs of the defending the claim [sic] and running the cross-claim. It appears from the estimate of costs of Mr Grieve that a significant proportion of the work detailed… relates to the cross-claim, for matters such as proving those contracts detailed in paragraphs 68 of the defence, quantifying the losses which flow from them, proving the allegations in paragraphs 72 – 80 and the claim for damages of the cross-claim. I estimate that in the order of half of the costs relate to the cross-claim, however, it is not possible to estimate the amount precisely, as Mr Grieve does not provide a sufficiently detailed breakdown of the work and costs.”
25 The deficiencies Ms Gourlay identifies, then, are two-fold: first, Mr Grieve’s estimates are based on Piper Alderman’s actual professional rates (and the actual professional rates of Counsel), not on the Federal Court scale or the rates likely to be allowed on a party and party taxation; secondly, Mr Grieve’s estimates do not disentangle, sufficiently or at all, the costs of defending the claim from the costs of prosecuting the counterclaim. Ms Gourlay also points out that Mr Grieve’s affidavit does not take account of the likelihood of this matter being referred to mediation before the filing and service of witness statements. If an order for mediation is made, Ms Gourlay predicts, costs will be incurred in preparation of position papers and briefing counsel, to which should be added a mediator’s fee for a two day mediation unless the mediation is conducted by a Registrar of the Court.
26 Ms Gourlay then, applying Mr Grieve’s assumptions as to time, makes the following estimates of costs likely to be recovered on a party and party taxation in this Court:
|
Daily rate allowing 7.5 hours per day |
No of days |
Total $ |
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Senior Counsel |
7000.00 |
16.5 |
115,500 |
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Junior Counsel |
4,660.00 |
54.5 |
253,970 |
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Partner |
2,160.00 |
38 |
82,080. * |
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Senior Associate |
2,160.00 |
42 |
90,720 * |
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Associate |
2,160 |
135 |
291,600 * |
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Graduate |
450.00 |
88 |
39,600 * |
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* Loading for care skill and attention @ 15% |
75,600 |
||
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Total |
374 |
949,070 |
27 Ms Gourlay then deposes that:
“25. In my experience, it is typical for one-third of the charged attendances in a matter of this nature to be taxed off, as not being necessary and proper for the preparation of the case. Appling a one-third reduction of the figure of $949,070 gives a total or $632,713.33. Based on the assumptions in Mr Grieve’s affidavit, I consider this to be a realistic estimate of the party party costs that the respondents would recover, if successful in defending the claim and prosecuting the cross-claim, for work from now to the door of the Court.”
28 Having set out the basis upon which security has been sought, it is now convenient to review briefly the circumstances in which the Court will exercise its discretion to order security for costs, and then to consider how that discretion should be exercised in this case.
Security for Costs
29 This Court’s power to make an order for security for costs is derived from the Federal Court of Australia Act 1976 (Cth), s 56, and, in turn, O 28 of the Rules of this Court. The power is exercisable in the unfettered discretion of the Court with, as the authorities emphasise, an eye to all the circumstances of the case: see Allstate Life Insurance Co v ANZ Banking Group Ltd (1996) 134 ALR 187 per Lindgren J at 197-201. The fact that B W Offshore in incorporated outside the jurisdiction and that it holds no assets in the jurisdiction will normally weigh heavily in the exercise of the discretion: see Barton v Minister for Foreign Affairs (1984) 2 FCR 463 per Morling J, esp. at 469.
30 The general principle applicable to the exercise of the discretion in a case like the present has been explained in these terms by McHugh J in Chelleram v China Ocean Shipping Co (1991) 102 ALR 321, at 323;
“To make or refuse to make an order for security for costs involves the exercise of a discretionary judgment. That means that the court exercising the discretion must weigh all the circumstances of the case. The weight to be given to any circumstance depends not only upon its own intrinsic persuasiveness but upon the impact of the other circumstances which have to be weighed. A circumstance which may have very great weight when only two or three circumstances have to be weighed may be of minor significance when many circumstances have to be weighed. However, for over 200 years, the fact that a party, bringing proceedings, is resident out of the jurisdiction and has no assets within the jurisdiction has been seen as a circumstance of great weight in determining whether an order for security for costs should be made. Indeed, for many years the practice has been to order such a party to provide security for costs unless that party can point to other circumstances which overcome the weight of the circumstance that that person is resident out of and has no assets within the jurisdiction.”
31 Accordingly, in the absence of some particularly weighty special circumstance or set of circumstances, or countervailing factor, the incorporation of an applicant company overseas and the absence of any assets owned by it in the jurisdiction will ordinarily dispose a Court to exercise the discretion by requiring the provision of security for costs. Incorporated under the laws of Bermuda and with its headquarters in Norway, B W Offshore prima facie attracts the application of that approach. The question then becomes, is there any special circumstance or countervailing factor of great weight in this case?
32 Mr O’Keefe QC, who appeared with Mr M Scott of counsel for B W Offshore, contended primarily that there should be no order for security because it is impossible to distinguish between the respondents’ costs of defending the claim and of prosecuting their cross-claim. Reference was made to Energy Drilling Inc v Petroz NL (1989) 11 ATPR 40-954, where Gummow J reiterated the discretionary nature of the power to order security, but noted at 50,422 that an applicant’s residence outside the jurisdiction “does not necessarily invite an exercise of discretion in favour of ordering security, the question being how justice will best be served in the particular case.”
33 I have not been persuaded by the arguments advanced on behalf of B W Offshore. I can discern nothing in the circumstances of the case, as so far revealed, or the respective positions of the parties, to outweigh the general practice to which McHugh J referred in Chelleram. That is not to say that the general practice should be elevated to something higher than an assumption or a guide as to how the discretion to order security for costs is to be exercised. No doubt there will be cases in which the fact of a defendant body’s incorporation overseas and the fact of its holding no assets in the forum jurisdiction will not be determinative as to the making of an order for security. However, the combination of foreign incorporation and a lack, or a paucity, of local assets, as I said in James v Nolmont Pty Ltd (Subject to a Deed of Company Arrangement) (No 2) [2009] FCA 697 at [3], will be a “potent factor” in the exercise of that discretion. Attached to that factor is the considerable difficulty which I infer would confront the respondents in enforcing an order for costs overseas particularly in light of the evidence adduced by Mr Grieve about B W Offshore’s financial performance during 2008. Accordingly, I do not regard this as one of the rare cases in which a countervailing factor, or a combination of such factors militating against the provision of security should prevail.
34 It then becomes necessary to quantify the security which should be ordered at this stage of the proceedings. The parties have advanced widely disparate estimates of the costs for which security is sought. Those estimates, I accept, have been made in good faith and are informed by a wealth of specialised expertise. However, they proceed on quite different assumptions and a divergent understanding of the costs for which an order in the exercise of the relevant discretion can be framed to provide security.
35 A sum ordered by way of security need not be a precise estimate of the costs, actual or projected, of the party in whose favour the order is to be made. It should be an amount likely to satisfy an order for party and party costs to the relevant point in the litigation but is not conceived as providing an indemnity in respect of that party’s costs: see Brundza v Robbie & Co (No 2) (1952) 88 CLR 171 per Fullagar J, at 175, ordinarily so far as costs are expended up to the first day of trial. Too great a degree of precision is not necessary or, in all likelihood, helpful or even possible. As Lindgren J said in Allstate Life Insurance Co, supra, at 197:
“The amount is in the discretion of the court and should be such sum as the court thinks just, having regard to all the circumstances of the case. Obviously, a factor of prime importance will be the amount of a respondent's costs which an applicant, if unsuccessful, will be ordered to pay to the respondent if the proceeding continues to a determination by the court. But the estimation of that amount involves many factors, some of them imponderable. Generally speaking, it cannot be assumed that a failure by an applicant will be on any particular basis. Moreover, the course of events down to and during the trial may be relevant to the particular order for costs to be made. The assessment of the work which will be done in the respondent's interests is also difficult.”
36 In my view, “all the circumstances” of the present case includes a consideration of which party, in substance, is the true “aggressor” in the proceeding. In other words, it is necessary to have regard to what, on the pleadings, is the primary case advanced. From my presently limited acquaintance with the case, I am persuaded that B W Offshore, having by its statement of claim defined most of the issues in dispute between the parties, is properly to be characterised as the “aggressor” or moving party. However, paragraphs 75-80 of the current cross-claim filed on 17 April 2009, most of which are reproduced at [7] above, allege that the making by B W Offshore of a representation on which Anzon relied and to which s 51A or s 52 of the Trade Practices Act 1974 (Cth) (“the TPA”) applies. That claim is made in relation to the pre- LOI negotiations which have been put in issue by the statement of claim and the defence. Minds may differ as to whether the cross-claim is “genuinely defensive” (see Interwest Ltd v Tricontinental Corporation (1991) 5 ACSR 621 per Ormiston J, at 627-8ff), but it is not necessary to come to a concluded view on that question. It is enough to notice that it is a claim which has been erected upon the same sub-stratum of facts as the claims made in the statement of claim.
37 That consideration militates against an attempt, at this stage, to isolate the respondent’s costs of defending B W Offshore’s claim from Anzon’s costs of prosecuting its cross-claim. That is not to say that some allowance or discount from the amount of security should not be made to take account of the presence of the cross-claim. The principal difficulty in quantifying the amount of security flows from the complexity of the litigation and the unpredictability of the extent to which various members of the respondents’ legal team will be involved in what is likely to be a myriad of interlocutory and preparatory activity before the trial commences. However, that difficulty cannot justify the Court in declining to exercise the discretion at all. Doing the best I can, and taking an appropriately “broad-brush” approach to the task, I consider it reasonable to order that B W Offshore provide security in the sum of AUD$550,000 for the respondents’ costs up to and including the first day of trial.
The Split Trial Motion
38 As I indicated at the outset of these reasons, B W Offshore, by its motion on notice, seeks an order that the issues of liability raised by the pleadings be heard and determined before and separately from the issues going to the quantum of damages. The order is formulated in these terms in B W Offshore’s notice of motion:
“1. Pursuant to Order 29 rule 2 of the Federal Court Rules, questions of liability in respect of the claim and the cross claim be heard and determined separately from, and prior to, the determination of questions of quantum.”
The substantial “time and cost saving” said by counsel for B W Offshore to result from the proposed order for split trials is predicated on the proposition that, were such an order made, only the party which succeeds on the issue of liability would be put to the expense of preparing and proving a claim for damages. The foundation for the claimed saving of costs has been laid by two affidavits by Mr Stephenson, respectively sworn 30 April and 15 May 2009. In the first of those affidavits, he deposes:
“32. In my view, there is no prospect that the claim and the cross-claim will simultaneously succeed. On that basis, if liability were determined separately, only one party would be put to the expense of preparing its quantum evidence.
33. The quantum of each of the claim and the cross-claim arises out of contractual relationships with internationally-located counterparties. Taken in totality, those contractual relationships are, in comparison to the facts upon which liability will turn, complex. Establishing the quantum of the claim and cross-claim is in my view likely to require considerably more preparation than will questions of liability.”
39 This Court’s power to make an order for a split trial is discretionary, and is conferred in these terms by in O 29 r 2(a) of the Rules of the Court:
Order for decision
2. The Court may make orders for -
(a) the decision of any question separately from any other question, whether before, at or after any trial or further trial in the proceedings; …
40 The principles governing the exercise of the power conferred by O 29 r 2(a) have been conveniently set out by Branson J in Reading Australia Pty Ltd v Australian Mutual Provident Society (1999) 217 ALR 495 (“Reading Australia”) at 498-9, where her Honour said, at [8]:
The principles that govern the circumstances in which an order will be made under O29 r2 are relatively well established. They may be summarised as follows:
(a) the term "question" in O29 r1 includes any question or issue of fact or law in a proceeding. The distinction in the rule between an "issue" and a "question" is the distinction between that which, when resolved, will result in an adjudication in favour of one party or the other, being an "issue", and less decisive matters of dispute being "questions" (Landsal Pty Ltd (in liq) v REI Building Society (1993) 113 ALR 643 at 647);
(b) a question can be the subject of an order for a separate decision under O29 r2 even though a decision on such a question will not determine any of the parties' rights (Landsal Pty Ltd (in liq) v REI Building Society at 647);
(c) however, the judicial determination of a question under O29 r2 must involve a conclusive or final decision based on concrete and established or agreed facts for the purpose of quelling a controversy between the parties (Bass v Permanent Trustee Co Ltd [1999] HCA 9 at [45]);
(d) where the preliminary question is one of mixed fact and law, it is necessary that the question can be precisely formulated and that all of the facts that are on any fairly arguable view relevant to the determination of the question are ascertainable either as facts assumed to be correct for the purposes of the preliminary determination, or as agreed facts or as facts to be judicially determined (Jacobson v Ross [1995] 1 VR 337 at 341, referring to Nissan v Attorney-General [1970] AC 179 at 242-243 per Lord Pearson; Bass v Perpetual Trustee at [53]);
(e) care must be taken in utilising the procedure provided for in O29 r 1 to avoid the determination of issues not "ripe" for separate and preliminary determination. An issue may not be "ripe" for separate and preliminary determination in this sense where it is simply one of two or more alternative ways in which an applicant frames its case and determination of the issue would leave significant other issues unresolved (CBS Productions Pty Ltd v O'Neill per Kirby P at 606);
(f) factors which tend to support the making of an order under O29 r2 include that the separate determination of the question may -
(i) contribute to the saving of time and cost by substantially narrowing the issues for trial, or even lead to disposal of the action; or
(ii) contribute to the settlement of the litigation (CBS Productions Pty Ltd v O'Neill (1985) 1 NSWLR 601 per Kirby P at 607);
(g) factors which tell against the making of an order under O29 r2 include that the separate determination of the question may -
(i) give rise to significant contested factual issues both at the time of the hearing of the preliminary question and at the time of trial (GMB Research & Development Pty Ltd v The Commonwealth [1997] FCA 934;
(ii) result in significant overlap between the evidence adduced on the hearing of the separate question and at trial - possibly involving the calling of the same witnesses at both stages of the hearing of the proceeding (GMB Research & Development Pty Ltd v The Commonwealth; Arnold v Attorney-General for Victoria [1995] FCA 727). This factor will be of particular significance if the Court may be required to form a view as to the credibility of witnesses who may give evidence at both stages of the hearing of the proceeding; or
(iii) prolong rather than shorten the litigation (GMB Research & Development Pty Ltd v The Commonwealth).
[9] Ultimately the issue for the Court to determine when consideration is being given to the making of an order under O29 r2 is whether it is "just and convenient" for the order to be made (Arnold v Attorney-General for the State of Victoria). There are classes of proceedings in which it is commonly recognised that it is just and convenient for an order under O29 r2 to be made. One such class is proceedings concerning intellectual property rights where an applicant can not be compelled to make an election as between damages and an account of profits at least until all of the evidence has been received so that, if an order has not been made separating the determination of the issues of liability and relief, the parties will have to call evidence to deal with both damages and an account of profits (Dr Martens Australia Pty Ltd v Bata Shoe Company of Australia Pty Ltd (1997) 75 FCR 230). Another class is proceedings in which an application in the nature of a demurrer is appropriately made. An application of this kind assumes the truth of the pleaded facts. In a case in which it is clear that the pleadings contain all of the relevant facts but one party contends that the pleading does not disclose a cause of action, or a defence or a matter of reply, as the case may be, an application in the nature of a demurrer will have obvious utility (Bass v Permanent Trustee Co Ltd at [50]).”
See also, for example, Waste Recycling and Processing Corporation v United Resource Management Pty Ltd [2006] NSWSC 1140 and Owners, Strata Plan 50946 v Multiplex Constructions (NSW) Pty Ltd [2007] NSWSC 1308. It is rarely possible, however, as Branson J recognised in Reading Australia, at 500, for issues going respectively to liability and quantum of damages to be confined in completely separate compartments. Presumably, it was a recognition of that feature of civil litigation which led Kirby and Callinan JJ, in Tepko Pty Ltd v Water Board (2001) 206 CLR 1, to caution, at 55:
“Both Mason P and Fitzgerald JA were critical of the course of limiting the issues to be tried that the primary judge adopted. In Perre v Apand Pty Ltd [(1999) 198 CLR 180]attention was drawn to difficulties that can be caused when that course is adopted. In light of the experience in this case, what was there said should be restated with emphasis. The attractions of trials of issues rather than of cases in their totality, are often more chimerical than real. Common experience demonstrates that savings in time and expense are often illusory, particularly when the parties have, as here, had the necessity of making full preparation and the factual matters relevant to one issue are relevant to others, and they all overlap.”
41 It is not helpful, however, to consider questions like this, particularly of a procedural kind, at a high level of abstraction. As French J pointed out in Olbers Co Ltd v Commonwealth (No 3) [2003] FCA 651, at [8], “the overarching consideration informing the discretion to make an order under O 29 r 2 is efficient case management”. Will this case, then, be managed more efficiently if the issues of liability and determined before and separately from issues going to the quantum of any damages which may have been suffered?
42 The argument outlined on behalf of B W Offshore in favour of a split trial is that, compared with the assessment of damages, determination of liability will be simple and straightforward. It turns, so it is said, on the interpretation of the terms of the LOI and its application to the parties’ course of conduct. It is also acknowledged on behalf of B W Offshore that questions necessary for the determination of liability include whether any and which of the respondents are jointly and severally liable to B W Offshore and whether there was an implied term of the LOI about reasonable remuneration. As well, it seems, the Court, in resolving the issue of liability, may have to consider whether some estoppel has arisen in favour of the first respondent out of the negotiations between the parties and whether that respondent is entitled to relief under ss 51A or 52 of the TPA. Another question which counsel for B W Offshore recognised as possibly necessary to decide in resolving the issue of liability is whether a claim on a quantum meruit can be established independently of the terms of the LOI.
43 However, Mr Crutchfield of Counsel, who appeared for the respondents, contended in his written submissions that “even on the applicant’s own pleading”, these matters, in addition to those identified by counsel for B W Offshore would arise in the course of a separate determination of liability:
(a) “whether the agreements entered into with suppliers of long-lead items were approved by the Respondents;…
(b) evidence relevant to the existence of the alleged implied term pleaded in paragraph 13 of the Statement of claim;…
(c) the quantum meruit claim, which would appear to require evidence from at least the people referred to in the particulars to paragraph 17 of the Statement of claim;
(d) the actual cost incurred by the Applicant in terminating the contracts entered into by it. (In that regard, it is noted that the amount claimed by the Applicant has already been reduced from US$85,810,000 to US$69,545,265: see the third affidavit of Gordon Grieve sworn 25 May 2009); and
(e) evidence concerning the negotiation of the LOI and the background facts known to both parties.”
44 It would only be in exceptional circumstances that the Court would dictate to a party how that party should seek to prove an assertion advanced in its pleadings. I am not persuaded that any such circumstances have been demonstrated in support of B W Offshore’s motion. On the contrary, I am left with the clear impression that complex and inter-related question of fact and law may attend the determination of liability in this case. I have also been influenced against acceding to the Split Trial Motion by the likelihood that some of the same witnesses will be called to testify about the quantum of damages as well as about one or other of the questions going to liability. That is not to say that, after the matters in dispute between the parties have been further crystallised or illuminated by discovery or further particulars, it may not be desirable to identify for separate and preliminary resolution a narrower question, particularly one as to the construction of the LOI. Against that possibility and the conceivable need to revisit my order for provision of security for costs, I shall reserve liberty to apply which may also be invoked by the respondents to seek a stay of the proceedings should security for costs not be provided in accordance with my orders.
Conclusion
45 For the reasons which I have endeavoured to explain, there will be an order that B W Offshore provide, by 13 November 2009, in a form acceptable to the District Registrar of the Court, security in the sum of AUD$550,000 for the respondents’ costs of this proceeding up to and including the first day of trial. The Split Trial Motion will be refused. There will be liberty to any party to apply on not less than 48 hours’ notice in writing to the other parties and an order that the costs of all parties of and incidental to each motion be costs in the cause.
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I certify that the preceding forty-five (45) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Ryan. |
Associate:
Dated: 7 October 2009
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Counsel for the Applicant: |
Mr B S J O'Keefe QC with Mr M R Scott |
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Solicitor for the Applicant: |
Clayton Utz |
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Counsel for the Respondents: |
Mr P Crutchfield |
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Solicitor for the Respondents: |
Piper Alderman |
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Date of Hearing: |
28 May 2009 |
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Date of Judgment: |
7 October 2009 |
