Century Medical v THLD

Supreme Court of NSW|2000-02-03|Before: Rolfe J

Introduction 1 By its Further Amended Summons the plaintiff, Century Medical Inc, for which Mr L.G. Foster of Senior Counsel appeared, has sued seven defendants, for which Mr T.J. Walker of Counsel appeared. The plaintiff seeks damages; damages in the nature of interest; an order that the defendants compensate it for expenses it has incurred and indemnify it for expenses it may incur in the future, as a result of defects in the first to fifth defendants' products distributed by it pursuant to a Distribution Agreement; an order that the defendants refund certain moneys paid by the plaintiff; a declaration that the first to fifth defendants jointly carried on the business of manufacturing, packaging and supplying the "Telectronics Pacing Systems" brand heart pacemaker products; a declaration that the sixth and/or seventh defendants controlled the business operations of the first to fifth defendants; interest pursuant to s.94 of the Supreme Court Act and costs. 2 The defendants' application is that as the liability of the sixth and seventh defendants, if there be any, as pleaded in the Further Amended Summons, will only arise if it is held that the first to fifth defendants are liable to the plaintiff, the case against the sixth and seventh defendants should not be heard until it has been determined that the first to fifth defendants are liable to the plaintiff. It was submitted that until the plaintiff enjoys that measure of success, it could not succeed against the sixth and seventh defendants and that, accordingly, a proper exercise of discretion required that until that occurred those defendants should not be put to the trouble and expense of defending the proceedings. 3 The submission continued that there would be no prejudice or difficulty, once the plaintiff achieved that goal, in having the proceedings as between it and the sixth and seventh defendants heard subsequently. 4 The plaintiff opposed the application on the grounds, essentially, that:- (a) it has joined the sixth and seventh defendants in the proceedings and is entitled to have an adjudication on all the issues it has raised at one hearing, so that the proceedings at first instance could be determined in totality; (b) it would be inconvenient in the prosecution of the litigation, for a number of reasons, to have proceedings heard firstly between the plaintiff and the first to fifth defendants and, depending on their ultimate result, proceedings heard between the plaintiff and the sixth to seventh defendants, and, further, that the hiving off of a determination as between the plaintiff and the sixth to seventh defendants would lead to a multiplicity of litigation; (c) there is at least one witness, and perhaps more, who is or are common to the proceedings between the plaintiff and the first to fifth defendants and those between the plaintiff and the sixth and seventh defendants, so that if any findings as to his or their credibility is made in proceedings cast in the form for which the defendants contend, it would, in all probability be necessary for another Judge, who would not have knowledge of the earlier proceedings, to hear the proceedings between the plaintiff and the sixth to seventh defendants: Australian National Industries Limited v Spedley Securities Limited (In Liquidation) (1992) 26 NSWLR 411; (d) the division of the proceedings has the capacity to lead to very real difficulties in the preparation and conduct of the case, in the first instance between the plaintiff and the first to fifth defendants, particularly in respect of discovery and inspection of documents, and the addressing of documentary and/or oral evidence and the making of rulings in the absence of the sixth and seventh defendants. This could well lead to problems in proof of essential matters. Conversely, if it became necessary to hear the proceedings against the sixth and seventh defendants similar difficulties would arise by reason of the absence of the first to fifth defendants with the same consequences; and (e) the order suggested by Mr Walker did not overcome those difficulties. Rather, it was submitted, the perceived necessity to agree to such an order pointed up the obvious problems which a separation of the hearings would create. The suggested order is:- "Subject to final determination by the Court of all issues of fact and law raised between the plaintiff and the first five defendants by the allegations made in paragraphs 1-180 and 212-218 (incl) of Pt C of the plaintiff's further amended summons, and the giving of final judgment and/or making of final orders at or after trial of such issues both in respect of liability and final relief, and the exhaustion of all rights of appeal therefrom, the sixth and seventh defendants agreed to be bound by findings of fact and conclusions of law which found such judgment and/or orders." 5 Mr Foster submitted that an order in these terms gave rise to as many problems as it sought to solve. He pointed to the potentiality for argument about what findings of fact and conclusions of law "found" such judgment and/or orders, and to the possible difficulty of proving certain matters against the sixth and seventh defendants in the proceedings by the plaintiff against the first to fifth defendants. In making that submission he was saying that the suggested order may preclude or at least render more difficult the proof of such matters, because of differences in the issues and discovery and inspection relating to those issues, and differences in the permissible range of cross-examination in relation to them and matters of credit. 6 The principles, which are relevant to a consideration of the defendants' application, are basically those to which regard must be had in determining whether to order that certain issues be heard separately from other issues: Part 31 rule 2.

An Analysis Of The Pleadings 7 In describing the nature of the dispute in the Further Amended Summons, the plaintiff has asserted that it conducted a business of distributing medical products in Japan for many years prior to 1991 and, as at 1991, it was and remains part of its business to distribute high quality medical products and to provide a comprehensive after sales service to its customers, which were primarily hospitals and sub-distributors in Japan. Prior to 1991 the plaintiff did not distribute heart pacemaker products but, in that year, it negotiated to acquire them from "the Telectronics Group of Companies" in response to an inquiry made of it by the seventh defendant. 8 From 1992 until May 1995, the plaintiff distributed these products. It alleges that because of their deficiencies and defects it has suffered loss and damage under a number of heads, which it seeks to recover on the bases that the products were defective; that there were specific breaches of a Distribution Agreement; that the defendants were negligent and made negligent misrepresentations; pursuant to the Trade Practices Act; and for breach of implied warranties under the Sale of Goods Act 1923 (NSW). 9 Paragraph 9 asserts:- "CMI seeks to recover this loss and damage from the defendants individually, jointly and severally and justifies its claim against the various defendants on several alternative groupings as follows: (a) against all of the first to fifth defendants (inclusive) jointly on the grounds that they jointly carried on the business of supplying Telectronics brand heart pacemaker products as part of the Telectronics group of companies using the name 'Telectronics Pacing Systems'; (b) against Telectronics Holdings (the first defendant) on the grounds that it was the party to a written distribution agreement; (c) against the second to fifth defendants (inclusive) on the grounds that they too were or became parties to or bound by the distribution agreement; (d) against TPLC Inc (the fifth defendant) on the basis that it manufactured Telectronics brand heart pacemaker products distributed by CMI; (e) against the second, third and fourth defendants on the basis that those defendants supplied the Telectronics brand heart pacemaker products to CMI; (f) against the fourth defendant on the basis: (i) that it procured the fifth defendant to manufacture the Telectronics brand heart pacemaker products as its agent; and (ii) that it was involved in the administration and management of the recall of Telectronics brand heart pacemaker products and thereby accepted and assumed responsibility for the defects; and (g) against Nucleus and Pacific Dunlop (the sixth and seventh defendants) on the basis that those companies owned, controlled and oversaw the operations of the first to fifth defendants (inclusive)."

This makes clear that damages are sought against all the defendants in respect, essentially, of the same causes of action, and that there are certain discrete claims against some of the defendants, so that, for example, the fourth defendant may be found liable on grounds different from those applying to other defendants. None-the-less, all the claims are closely related and there is an intertwining of a number of issues. 10 It was submitted on behalf of the defendants that the claims against the first to fifth defendants could, generally and sufficiently for present purposes, be described as the manufacture, packaging and supply of products, whereas the claim against the sixth and seventh defendants was in relation to a derivative liability dependent upon liability being shown in the first to fifth defendants and arose from the ownership, control and overseeing of the operations of the first to fifth defendants by the sixth and seventh defendants. Whilst that is a way of describing the claims made, a careful consideration of the pleadings does not support the clear demarcation for which the defendants contend. It does not accommodate the allegation that the sixth and seventh defendants acted in the way pleaded and thus, on one view of the pleadings, were involved in the operations of the first to fifth defendants in a far more direct way than one which would give rise to merely derivative liabilities. 11 The issue, accordingly, is whether it is appropriate to order that the case against the first to fifth defendants should go forward prior to that against the sixth and seventh defendants on the basis that if the plaintiff does not succeed against the former, it cannot have any cause of action against the latter. Whilst this was not substantially in issue, it was not conceded by the plaintiff, essentially for the reasons to which I have referred, that the case it seeks to make against the various defendants will not impact on that it seeks to make against the others, such that a division of the hearings will lead to the potentiality for prejudice to it. As I have said, an analysis of the pleadings shows, at least at the level of pleading, that this may well be so. 12 Mr Walker submitted that the case propounded against the sixth and seventh defendants commenced, relevantly for present purposes, at paragraph 181, although he noted that in paragraph 9(g) the basis of the claim against those defendants was propounded. His submissions traced the allegations of share ownership, the overseeing by the Nucleus Management Board, the position of Mr Thomas, the Chairman and Chief Executive Officer of Nucleus, and the nature of the sixth defendant's organisation and operations. The relationship of the sixth and seventh defendants was then pleaded and, in paragraph 191, it is alleged that at all material times Nucleus exercised significant control over the first to fifth defendants and, in paragraph 192, that the sixth defendant, as a direct subsidiary of the seventh defendant:- ".. was at all material times a direct parent, principal and/or alter ego of one or more of the first to fifth defendants". 13 The position of the seventh defendant is pleaded, commencing at paragraph 193, it being alleged in paragraph 195 that it exercised significant control over the first to sixth defendants and, in paragraph 196, that it:- ".. was/is the indirect parent, principal and alter ego of the first to sixth defendants (inclusive)." 14 In paragraph 192 it is pleaded that the sixth defendant participated in the first to fifth defendants' day-to-day operations and the management and strategic planning of their business segments; that it, in effect, conducted business through those defendants and, by way of example, noted that Mr Thomas served as Executive Officer of the seventh defendant during a certain period and that "similarly" Ms Livingstone occupied positions with the sixth defendant and the third defendant. 15 So far as the seventh defendant is concerned it is pleaded, in paragraph 196, that it used the other defendants to conduct business relevantly "throughout the world". 16 The particulars set out the position of the seventh defendant and allege that it participated in the day-to-day operations of the first to sixth defendants; participated and controlled their business plans, budgets and accounting practices and required its approval of them; and required its approval of their operating expenditures. It is also pleaded that the seventh defendant provided the first to sixth defendants with strategic planning and a central treasury function for the business segments and arranged financing and cash management. The pleading continued that it effectively participated in the management and planning of the activities of those defendants:- "… and communicated with health authorities, including the Australian Department of Community Services and Health and the FDA concerning Telectronics brand heart pacemaker products and other matters."

It is pleaded that it established a $40m reserve account for the costs associated with patient monitoring and explanation of the Telectronics brand heart pacemaker products for the other defendants. It is alleged that the seventh defendant was actively involved in determining the amount of the other defendants' product liability insurance and acquiring such insurance, and provided indemnification to certain suppliers of raw materials incorporated in the Telectronics brand heart pacemaker products. Thus, the position of the seventh defendant, having regard to its position qua the other defendants, could be extremely relevant to the issues of liability and damages of the first to fifth defendants. 17 The structure of the various companies is further pleaded and, in paragraph 203, it is asserted that the seventh defendant, directly and/or through the sixth defendant, or, in the alternative, the sixth defendant exercised various controls including:- "(h) communicated with officers of the FDA, in USA, and officers of the Department of Community Services and Health in Australia, concerning problems with the products, and represented that Pacific Dunlop was responsible for the recall of the products and the patient management plan." 18 In paragraph 204 it is pleaded that the seventh defendant "and its alter egos, agents and instrumentalities" including the sixth defendant and the third defendant, engaged in common research and development of the products, their supposed refinement and the ultimate decision to initiate a campaign to inform physicians, hospitals and ultimately the recipients of the problems associated with the products. 19 It is further pleaded that the seventh defendant participated in the defence of claims made by patients against one or more of the defendants in several jurisdictions, including Canada, Australia and the United States, and in the negotiations relating to the settlement of those claims. 20 In paragraph 211 it is pleaded:- "As a result of, inter alia, the common management, officers and board members, and the central treasury function of Pacific Dunlop, the significant exercise of control by Pacific Dunlop, and the day-to-day involvement of Pacific Dunlop and Nucleus in the other defendants' affairs , Pacific Dunlop and Nucleus are both liable to CMI, as the alter egos and principals of the other defendants for the defects of the Telectronics brand heart pacemaker products and the loss and damage that CMI has suffered, and will continue to suffer, as a result of the defects of the Telectronics brand heart pacemaker products." (My emphasis.) 21 This fairly brief analysis of the pleadings discloses, in my opinion, that the relationship between the first to fifth defendants and the sixth and seventh defendants is far more intertwined than the defendants' submissions acknowledge, it appearing that the sixth and seventh defendants were closely involved in the activities of the other defendants, at least in the way in which the matter is pleaded, so that there is not, on the pleadings, the clear demarcation between the various bases for liability on which the defendants rely. 22 Mr Walker conceded that Mr Thomas would, in all probability, be a witness in the proceedings against the first to fifth defendants and in the proceedings against the sixth and seventh defendants but, save for that, it was his submission that there would be no commonality of witnesses.

The Evidentiary Basis For The Application 23 In his affidavit of 22 October 1999 the principal solicitor for the defendants, Mr Peter John Holloway, a partner of Freehill Hollingdale & Page, stated, in paragraph 7, that based on his experience of litigation of the magnitude of the present, it is his opinion that the separation out of the issues between the plaintiff and the sixth and seventh defendants would produce real savings in terms of convenience to the Court and expense to the parties. He said his reasons for holding that opinion were that the issues identified by the plaintiff as arising between it and the sixth and seventh defendants arose only consequentially upon the Court's finding that one or other of the first to fifth defendants is liable to the plaintiff. That, as an assertion, may well be correct but, in my opinion, it overlooks the various ways in which the creation of the liabilities are alleged to have arisen. 24 He then dealt with the "derivation" issue, and continued that he was instructed that many issues raised in the Further Amended Summons would call for extensive discovery of documents and extensive preparation for trial, all of which would be rendered wholly unnecessary if the Court determined that the first to fifth defendants are not liable to the plaintiff, or are not liable to the extent for which it contends. He said that he was also instructed that there would be witnesses, who will be required to be called to give evidence as to the allegations against the sixth and seventh defendants and who are no longer employed by any of the defendants, and he estimated that there would be a considerable saving of Court time if the issues involving those defendants "are separated out". He said that the length of the trial would, in his opinion, be considerably shortened. Any shortening of the trial is to be encouraged, but it has to be considered in the light of the possibility of further hearings. In my opinion, the prospects of overall lesser hearing time, both at first instance and on appeal, is far more likely if the whole of the proceedings are dealt with at the same time at first instance, rather than if various parts of the proceedings are fragmented leading to the potentiality of several hearings, several appeals, and the necessity for much of the same material to be considered twice, and perhaps by another Judge, even if the order suggested by Mr Walker were made. 25 In cross-examination Mr Holloway said that he received his instructions from Mr Hudson, the seventh defendant's General Counsel, and that those instructions stated that discovery would be extensive and voluminous, and that the task would be burdensome in terms of costs. He identified certain other matters in respect of which he received instructions and said that he had not turned his mind to the possibility, knowing what he knows about Mr Gough's role in the matter, that he may be required as a witness in the case against the first to fifth defendants, in addition to Mr Thomas. He agreed that the same solicitors and counsel would, as he presently understands the matter, represent all defendants. 26 Mr Holloway, in re-examination, expressed the view that in his opinion it would be beneficial if the proceedings were split as between the two sets of defendants. He gave me various answers at Tp.7 in relation to the discovery and inspection of documents. 27 It is quite obvious that at this stage of the litigation, and I do not say this critically, a full appraisal has not been undertaken of documents which have to be discovered relating to the first to fifth defendants, and those which may have to be discovered relating to the sixth and seventh defendants. Nor can it be said, at this stage, that there will not be a commonality of witnesses other than in relation to Mr Thomas and, perhaps, Mr Gough.

The Law To Be Applied 28 The parties agreed that a determination of the matter depended upon my making an order pursuant to Part 31 rule 2. The making of such an order is essentially a discretionary matter and has been considered in many different contexts. In Dunstan v Simmie & Co Pty Limited [1978] VR 669 Young CJ and Jenkinson J said, at p.670:- "Again, although the discretion to grant leave cannot be fettered, leave is only likely to be given in a case where the determination of the preliminary issue puts an end to the action or at least to a clearly defined issue or where to use the language of the Full Court in Darrell Lea (Vic) Pty Limited v Union Assurance Society of Australia Limited [1969] VR 401, substantial injustice would result from allowing the order, which it is sought to impugn, to stand." 29 At p.671 their Honours stressed that the power was to be exercised "with great caution", and continued:- "Nevertheless, although every case must depend upon its own facts, it will as a general rule only be appropriate to order that a preliminary issue be isolated for determination before trial where the determination of the issue in favour of the plaintiff or the defendant will put an end to the action or where there is a clear line of demarcation between issues and the determination of one issue in isolation from the other issues in the case is likely to save inconvenience and expense." 30 In CBS Productions Pty Limited v O'Neill (1985) 1 NSWLR 601 Kirby P, in considering the question of a preliminary issue, said, at p.606:- "Care must also be taken in utilising the procedures now available for the determination of preliminary points to avoid such determination in cases which are not ripe for this treatment. A matter is 'ripe' for separate and preliminary determination where it is a central issue in contention between the parties, the resolution of which will either obviate the necessity of litigation altogether or substantially narrow the field of controversy. Thus, where a plaintiff sues contending breach by the defendant of his duty to the plaintiff as an invitee, determination of this issue as a preliminary point would rarely, if ever, be appropriate if the plaintiff had in reserve, alternative counts framed in the duty owed to a licensee or an entrant as of contractual right or in negligence generally. To determine the one matter would leave other issues unresolved and render the preliminary procedure a needless and expensive fatuity." 31 I have, on various occasions, refused to make orders for separate issues. In ABB Engineering Construction Pty Limited v Freight Rail Corporation (1999) NSWSC 1037, I set out a number of considerations which militated, in my opinion and viewing the matter as an exercise of discretion at the trial Judge level, against the making of such orders. My experience is that the making of such an order usually leads to a proliferation rather than a truncation of litigation, which is a highly undesirable result. This, if I may say so with great respect, fully justifies the caution expressed in the judgments to which I have referred. However, there is no absolute rule. Every case must be treated on its own merits.

How The Discretion Should Be Exercised In The Present Case 32 The defendants have not satisfied me that there is such a differentiation between the case and the issues as between the plaintiff and the first to fifth defendants, and as between the plaintiff and the sixth and seventh defendants, that this is an appropriate case in which to make an order for a separate determination. The reasons I am not satisfied, in addition to those to which I have referred, are:-

(a) It is by no means clear that in the preparation of the case it will not emerge that there are more witnesses, who will be common to both sets of proceedings, and, more importantly in my view, that it will not appear that a number of documents held by the sixth and seventh defendants are relevant, in a legal sense, to the proceedings as between the plaintiff and the other defendants. The pleaded relationship between the various defendants supports each of these views. Certainly that relationship does not justify the view that there is likely to be a clear demarcation between witnesses and documents to be discovered. (b) In so far as there is a commonality of witnesses there is the difficulty to which I have referred arising from Spedley and, it not being in issue that there will be some, I think it desirable that one Judge in the context of the one proceeding determines all issues relating to that witness or those witnesses, that Judge having an over-view of the whole case. This is the more so when the witnesses are senior officers of the parties. It would also, in my opinion, be quite wrong to allow a situation to arise at trial where a witness in the case between the plaintiff and the first to fifth defendants could not be cross-examined on issues as between the plaintiff and the sixth and seventh defendants, other, perhaps, than on the question of credit, and the trial Judge would be placed in a position of difficulty in ruling on the admissibility of such evidence. Because of the pleaded relationship evidence should be admissible not only on the issue of credit, but on the issues. For the reason I have suggested this may not happen if I accede to the present applicaton. (c) A similar position relates to the discovery of documents and, in a case where it is quite obvious that all the defendants have a reasonably close relationship, I think that it is undesirable that difficult questions in relation to discovery and inspection should arise by virtue of the splitting of the proceedings. This would, at least potentially, lead to difficult and time consuming interlocutory applications. (d) It is not clear to me that the method of trial proposed by the defendants will, in any event, lead to any greater efficiency or to a saving of cost. A situation could well arise where the trial Judge may find that the first to fifth defendants are not liable, but where that finding is over-ruled on appeal. The matter may then have to be the subject of a new trial. While that is occurring the position the sixth and seventh defendants would remain outstanding, which could lead to great inconvenience in the conduct of the proceedings. In such circumstances, and I appreciate there may be many variations on that theme, it seems an inefficient expenditure of time and resources for the Court to be hearing two cases where one would determine, both at first instance and on appeal, all the relevant issues. (e) I am acutely aware of the additional cost which will have to be expended, but in the case where the amount claimed is very substantial, as it is in this case, I consider that that becomes of far less significance than in a case where a smaller amount of money is involved. 33 In my opinion the orderly progressing of the litigation will be advanced, rather than hindered, by the plaintiff proceeding against all the defendants it has elected to join. No difficulties will arise because of a commonality of witnesses and of the issues between the parties for the purposes of all interlocutory proceedings, and a determination at the hearing will take place in circumstances where the position of the parties is certain. 34 In the result, the defendants have not satisfied me that the requirements of the authorities, to which I have referred, have been met, nor that the other relevant discretionary considerations favour the making of the order they seek.

Orders 35 I order that the defendants' Notice of Motion filed on 28 October 1999 be dismissed with costs. ******

Last Modified: 09/25/2000 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.

CITATION : Century Medical v THLD [2000] NSWSC 5 CURRENT JURISDICTION: Equity Division Commercial List FILE NUMBER(S) : SC 50042/1998 HEARING DATE(S) : 28/10/99 and 08/12/99 JUDGMENT DATE : 3 February 2000

COUNSEL : Mr L.G. Foster SC - Plaintiff Mr T.J. Walker - Defendants SOLICITORS : Blake Dawson Waldron - Plaintiff Freehill Hollingdale & Page, Melbourne - Defendants CATCHWORDS : Application by defendants for separate hearing of proceedings as between the plaintiff and the first to fifth defendants and the plaintiff and sixth and seventh defendants: application refused. - Consideration of Part 31 rule 2 and the discretionary matters applicable. CASES CITED : Dunstan v Simmic & Co Pty Limited [1978] VR 669; CBS Productions Pty Limited v O'Neill (1985) 1 NSWLR 601 and ABB Engineering Construction Pty Limited v Freight Rail Corporation (1999) NSWSC 1037 followed. DECISION : Notice of Motion filed on 28 October 1999 dismissed with costs.

At a glance

Court

Decision date

Before

Source

Judgment (10 paragraphs)

Parties

Legislation Cited (1)

Cases Cited (4)