FEDERAL COURT OF AUSTRALIA

Lion-Dairy & Drinks Pty Limited v Jacobs Group (Australia) Pty Ltd (No 4)

[2014] FCA 896

THE COURT ORDERS THAT:

1.    The interlocutory application dated 13 June 2014 be dismissed.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

1    By an interlocutory application dated 13 June 2014, the applicants seek an order in the following terms:

There be a separate hearing in these proceedings of all questions of damage, which are to be heard separately from and after all other questions, if necessary.

2    The proceedings were commenced more than 12 months ago, on 5 July 2013. They have reached a point where the applicants have said that they have filed all their lay evidence on liability but, to date, no expert evidence on liability has been served by them, nor any evidence on damages. It might be noted at this point that the applicants’ lay evidence includes affidavits sworn by Mr Eric Hand and another by Mr Allan Stevenson. I draw attention to those affidavits because one of the issues is whether the credit of those two witnesses may be challenged and another issue is the possibility that one or other of them may also be required to give evidence on damages.

3    In support of the interlocutory application, the applicants rely on two affidavits which were sworn by their instructing solicitor, Mr Andrew Salgo. The first affidavit is dated 13 June 2014, and the second, which is in reply, is dated 28 July 2014.

4    The respondent (whom I shall refer to as Jacobs) opposes the application. It relies on two affidavits by its instructing solicitor, Mr Andrew McAdam.

5    It is convenient to outline the relevant evidence and summarise the parties’ submissions.

Outline of applicants’ affidavits

6    Mr Salgo gave evidence of a request for proposal (RFP) which was issued by Jacobs on 17 February 2012 relating to the upgrade of the Smithfield plant. The existing plant was constructed between 2008 and 2010, which involved events which underpin the substantive proceeding brought by the applicants against Jacobs. Seven proposals were received in the period March-April 2012 in response to the RFP, which was intended to produce a solution to problems which had emerged with wastewater processing at the plant. Under each of the proposals, the wastewater treatment plant would be expanded and require additional equipment. Jacobs acted as a consultant to the applicants in relation to the plant upgrade up until May 2012 when it withdrew on the basis of a conflict.

7    Mr Salgo described further steps taken in early 2013 to have a company called Nalco Pty Limited (Nalco) investigate improving the Smithfield plant by using the existing structure at the site with a view to meeting Sydney Water’s requirements and without any further capital costs. He described in general terms steps taken by Nalco to investigate that possibility, which resulted in a report dated 6 January 2014. Nalco concluded that there was no short term solution to treat the full flow and that new infrastructure and reactors would be required to fully upgrade the Smithfield plant. Mr Salgo explained that no further action had been taken in respect of Nalco’s involvement.

8    Mr Salgo also gave evidence on information and belief that another company, whom he referred to as “Microvi”, could provide wastewater treatment at the site using “microvi biocatalysts” to remove pollutants from the wastewater at the site. He described this as a potentially cheaper long-term solution to increase the capacity of the wastewater treatment plant when compared with the 2012 proposals. Mr Salgo also gave evidence on information and belief that he had been informed by Mr Allan Stevenson that three alternative proposals were being considered during 2014, including microvi bacteria, conventional anaerobic upgrade and waste capture. Mr Salgo gave evidence of his belief, as at 13 June 2014, that a five month trial involving microvi bacteria was planned to commence between August and October 2014. This means that the trial would not conclude until the period January-March 2015.

9    Mr Salgo gave further evidence that, if the microvi trial proceeded, a decision by the applicants to proceed with microvi or some other anaerobic solution or a waste capture alternative was not expected until the first half of 2015.

10    Taking into account these multiple alternative possibilities and the costs and work involved with each of them, the applicants seek to have the trial split. This would have the consequence of deferring the time by which evidence is to be filed on questions of damages until after March 2015, by which time the microvi trial could be expected to have concluded (assuming that it takes place at all).

11    As noted above, Mr McAdam swore two affidavits in opposition to the interlocutory application. In broad terms, his evidence went to the following issues:

(a)    the likelihood that during the trial the Court would be required to form a view as to the credibility of key witnesses to be called not only by the applicants, but also by Jacobs;

(b)    witnesses would be required to give evidence on damages and other questions, including liability; and

(c)    splitting the trial would prolong rather shorten the litigation.

12    Mr McAdam pointed to the affidavits sworn by Messrs Hand and Stevenson as giving rise to issues of credibility. He also identified five witnesses whom he said Jacobs would call to give evidence on issues of both liability and damages.

13    Mr McAdam disputed any suggestion that Mr Stevenson was not involved in the process of upgrading the Smithfield plant. He pointed to numerous discovered documents which he said revealed Mr Stevenson’s ongoing involvement in that exercise.

Outline of parties’ submission

14    Mr Pike SC, who appeared for the applicants, made the following broad submissions in support of his clients’ interlocutory application. First, he contended that separating damages from other issues would contribute to a saving of time and cost and could result in settlement of the litigation. He noted that his clients pleaded breaches of contractual, tortious and statutory duties (i.e. s 52 of the Trade Practices Act 1974 (Cth) (TPA)). He identified the heads of damage claimed by the applicants as including:

    charges from Sydney Water since April 2010 because treated wastewater discharged into Sydney’s sewers did not have a specified level of BOD or less;

    employee time in conducting and assisting in the investigation of and the causes and possible solutions relating to the failure to meet the BOD requirements after April 2010;

    loss and wastage of costs of some work done or equipment supplied at the Smithfield site; and

    costs and expenses to improve the Smithfield facility to enable it to meet Sydney Water’s requirements.

15    Mr Pike SC explained that while various alternatives had been explored since 2010 to find alternate ways in which the applicants could upgrade the facility to meet the relevant requirements, all of the proposals received in 2012 involved the expansion of the Smithfield plant and utilisation of additional equipment. He explained that if any of those proposals was to proceed renewed pricing would have to be obtained in view of the passage of time. He said that the applicants had not yet committed to any proposal to upgrade the facility and that other alternatives were being considered, including the possibility of proceeding with a microvi solution, which would involve a five month trial. Mr Pike SC explained that the applicants were seeking a split hearing to avoid a delay in the hearing of the proceedings until after a decision had been made on the rectification of the site (which was not likely to be finalised until mid-2015). The applicants were interested in proceeding to an earlier hearing on liability.

16    Mr Pike SC acknowledged that there was a possibility that Mr Stevenson could be called by the applicants as a witness on damages, but he said that this was outweighed by other considerations which favoured the trial being split. Those factors included a submission that Mr Stevenson had not had an operational role or a significant decision-making position in relation to upgrading the Smithfield plant since 2012 and that no decision had yet been taken by the applicants as to the nature of any upgrade. He submitted that there was nothing to suggest that Mr Hand’s evidence would be contentious. Mr Pike SC also disputed Mr McAdam’s evidence that splitting the trial would prolong, rather than shorten, the litigation. In particular, he highlighted that if the trial was split and Jacobs succeeded on liability, that would be the end of the matter. On the other hand, he submitted that if the applicants were successful on liability then the prospects of a settlement would be very high.

17    As to the particular difficulties created in proceedings which include a claim under s 52 of the TPA, where damages are the gist of the action, Mr Pike submitted that that was no absolute impediment to splitting the trial.

18    Mr Margetts QC and Mr Connolly appeared for Jacobs. Their submissions in opposition to the splitting of the trial may be summarised as follows. First, they submitted that the applicants’ affidavit material simply revealed that the applicants’ loss and damages case was currently uncertain and that resolution of the issue of liability would not necessarily contribute to a substantial narrowing of the issues for trial or resolve the litigation. Indeed, they submitted that a further lengthy trial could be required on the issue of determining a reasonable method of rectification.

19    Secondly, they emphasised the considerable overlap in the proceedings of issues of breach, causation, reliance and damages. In particular, they submitted that the applicants’ case based on misleading or deceptive conduct meant that issues of liability and damages could not be wholly separated. The applicants had to prove damages as an element of those claims, as well as a causal connection (including reliance). They drew the court’s attention to a long line of cases which have cautioned against splitting issues of liability and damages in such proceedings (including Reading Australia Pty Ltd v AMP Society (1999) 217 ALR 495 (Reading) and Instyle Contract Textiles Pty Ltd v Good Environmental Choice Services Pty Ltd (No 2) [2010] FCA 466 (Instyle).

20    Thirdly, they drew attention to the fact that witnesses would likely be called by either the applicants or Jacobs to give evidence on both liability and damages and that issues of credibility were likely to arise in respect of such witnesses.

21    Fourthly, they submitted that, although the applicants have received numerous proposals since 2012 in relation to upgrading the Smithfield plant, the applicants have still not yet committed to any particular solution and a decision was not expected until the first half of 2015.

22    Finally, they contended that in a case such as this, it is unnecessary to know at the time of trial what rectification works are required to overcome allegedly deficient work or design (citing Bellgrove v Eldridge (1954) 90 CLR 613).

Consideration

23    Rule 30.01 of the Federal Court Rules 2011 provides for separate questions on questions. It is in the following terms:

30.01    Application for separate trials

(1)    A party may apply to the Court for an order that a question arising in the proceeding be heard separately from any other questions.

(2)    The application must be made before a date is fixed for trial of the proceeding.

    Note 1:    The Court may order that a party state a case and the question for decision.

Note 2:    The Court will give any directions that are necessary for the hearing of the separate question.

30.02    Disposal of proceedings after hearing separate questions

If a decision on a question substantially disposes of the proceeding or renders any further trial of the proceeding unnecessary, a party may apply to the Court for:

    (a)    judgment; or

    (b)    an order dismissing the whole or any part of the proceeding.

24    The current provision is in substantially similar terms to O 29 r 2 of the earlier rules (although the earlier provision defined “question” to include a question or issue in any proceeding).

25    The relevant principles relating to such an application are well settled. I consider that authorities on the earlier rule continue to provide guidance to an application under rule 30.01.

26    The leading authority remains Justice Branson’s decision in Reading. It is convenient to set out [6]-[9] of her Honour’s reasons for judgment:

O29 r 2 gives to the Court wide powers to regulate the procedures to be adopted for the hearing and determination of a proceeding.

Ordinarily all issues of fact and law in a proceeding will be determined at the one time by the Court following a trial (O 32). However, the authorities show that O 29 r 2 has been relied on to support the making of orders that have modified this general rule in the following ways:

(a)    by requiring that certain questions, formulated by the order, be decided separately from (and presumably, before) any other questions in the proceeding on the basis of a special case stated in accordance with O 50 r 1 (see, for example, Chippendale Printing Co Pty Ltd v Commonwealth (1995) 17 ACSR 328 );

(b)    by requiring the determination of a preliminary issue of law in circumstances in which it was unnecessary for any facts to be stated or evidence to be adduced (see, for example, Blurton v Minister for Aboriginal Affairs (1991) 29 FCR 442 );

(c)    by requiring the determination of certain preliminary questions of law as to the competence of the case of the applicant on the basis of certain agreed facts (see, for example, Pritchard v Racecage Pty Ltd (1996) 64 FCR 96 and on appeal, (1997) 72 FCR 203; South Pacific Air Motive Pty Ltd v Magnus (1998) 157 ALR 443 );

(d)    by requiring the separate trial “as a preliminary issue” of certain of the claims made by the applicant (see, for example, Comite Interprofessionnel des Vins des Cotes de Provence v Bryce (1996) 69 FCR 450 );

(e)    by requiring that the question of the respondents' liability be tried separately, and that any question as to the quantum of any damages to be paid by the respondents, or any of them, to the applicants, or as to the taking of any account of the respondents' profits, be tried separately and at a dated to be fixed after the determination of the question of liability (see, for example, Rhone-Poulenc Agrochimie SA v UIM Chemical Services Pty Ltd (1985) 10 FCR 567 ).

The principles that govern the circumstances in which an order will be made under O 29 r 2 are relatively well established. They may be summarised as follows:

(a)    the term “question” in O 29 r 1 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 O 29 r 2 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 O 29 r 2 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 para 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 para 53);

(e)    care must be taken in utilising the procedure provided for in O 29 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 r 2 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 O 29 r 2 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).

Ultimately the issue for the Court to determine when consideration is being given to the making of an order under O 29 r 2 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 O 29 r 2 to be made. One such class is proceedings concerning intellectual property rights where an applicant cannot 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 para 50).

27    It might also be noted that her Honour attached particular significance to the fact that the applicant in Reading sought relief under ss 82 and 87 of the TPA in respect of an alleged contravention of s 52 of the TPA (as is also the case here). Her Honour made the following pertinent observations at [12]:

Thirdly, the applicant seeks relief under s 82 and s 87 of the TP Act. Relief is available under those sections only where a court finds, in the case of s 82, that a person has suffered loss or damage or, in the case of s 87, that a person has suffered, or is likely to suffer, loss or damage. It is not possible in respect of these claims for determination of the issues of liability and damages to be wholly separated. The same is likely to be the case in respect of the applicant's claim that the respondents are estopped from denying the existence of the Lease Agreement. To establish the alleged estoppel the applicant will be required to show, amongst other things, that it has suffered detriment. There is a risk that is seeking to do so, questions touching on the applicant's claim for damages will arise.

28    Reading has been applied in numerous subsequent cases, including Instyle, Nunagan Holdings Pty Ltd v Evertop Investments Pty Ltd (No 2) [2010] FCA 1228 per McKerracher J and Andrews v Australia and New Zealand Banking Group Limited [2011] FCA 388 per Gordon J.

29    Applying those principles I would reject the applicants’ interlocutory application for the following reasons.

30    First, the general principle is that all issues should be determined at the one time, but the Court has a discretion to depart from that approach, particularly having regard to its wide ranging power of case management and the overarching requirement imposed by s 37M of the Federal Court of Australia Act 1976 (Cth). I accept that there are appropriate cases in which the early determination of some issues may substantially narrow the issues to be determined at trial or even possibly lead to the partial or total settlement of the proceeding, but I am not persuaded that this is such a case, particularly where the likely outcome of a trial on liability cannot be predicted.

31    Secondly, it is uncontroversial that the party seeking to have a separate determination bears the onus of demonstrating that there should be a departure from the ordinary course (see, for example, Liberty Financial Pty Ltd v Scott [2003] FCA 226 at [35] and University of Sydney v ResMed Limited (No 5) [2012] FCA 232 at [42] per Stone J).

32    Thirdly, the weight of authority indicates that in representation cases, such as here, it is often unwise to separate liability and quantum.

33    Fourthly, I accept Mr McAdam’s evidence which is to the effect that, at least to some extent, there is likely to be an overlap of witnesses on issues of liability and quantum and that issues of credibility may arise for determination, particularly in respect of Mr Stevenson. As I indicated during the course of the hearing, if it proved necessary to make adverse findings on credibility in respect of any witness who gave evidence on liability, this could create an impediment to my also hearing a subsequent trial on damages. Depending on the nature and extent of the adverse credibility findings, it might be necessary to have another judge hear and determine issues of damage. This would add to the strain on the Court’s resources and is best avoided by not splitting the trial.

34    Fifthly, splitting the trial raises the possibility of additional costs and delay, particularly if there is an appeal on liability. This raises the prospect of creating a multiplicity of ongoing proceedings which, as McKerracher J observed in Nunagan at [32], achieved “exactly the opposite objective of the statutory purpose underlying s 37M FCA”.

35    Finally, another matter which has weighed with me is the applicants’ delay in making this application and, more particularly, the somewhat unsatisfactory state of its evidence as to why no final decision has yet been made on rectification. The amended statement of claim pleads various causes of action against Jacobs relating to events dating back as far as May 2007. The alleged deficiencies in the Smithfield plant were well known by at least mid-2010. Various proposals have been considered by the applicants since then with a view to addressing those deficiencies. While it is apparent that some consideration is being given to a solution involving microvi bacteria, Mr Salgo could not be certain that the mooted five month trial of this product would in fact take place. Mr Pike SC acknowledged in oral address that, based on his current instructions, he could take the matter no further.

36    In all the circumstances, I do not consider that a case has been made out for the trial to be split. I would dismiss the interlocutory application. It is difficult to see why costs would not follow the event as is the usual course but I will now hear any oral submissions on that matter.

37    Directions need to be made for the filing of all evidence on liability and other issues. As noted above, the applicants say that their lay evidence on liability has all been filed. The parties should seek to agree directions for the filing of all remaining evidence prior to the next directions hearing, which is scheduled for 2 September 2014.

Associate:

Dated:    22 August 2014