Plaintiff v Defendants

2 The defendants have filed a summons seeking, as an altered mode of trial, the determination of nine questions on liability alone. That is, they ask the Court to 'split' the case and determine separately, and sequentially, the question of the defendants' alleged liability to the plaintiff and then, depending on that outcome, to determine measure and quantum of damages. The application is brought under rule 47.04 or alternatively under the inherent jurisdiction of the Court. That rule states that the Court may order that -

(a) any question in a proceeding be tried before, at or after the trial of the proceeding, and may state the question or give directions as to the manner in which it shall be stated;

(b) different questions be tried at different times or places or by different modes of trial.

Under the rules, 'question' means 'any question, issue or matter for determination by the Court, whether fact or law or a fact and law, raised by the pleadings or otherwise at any stage of a proceeding by the Court, by any party ...'

3 There are many authorities in State courts and in the Federal Court concerning the discretionary considerations to be applied by the Court for applications under this rule.[1] In exercising its powers according to those considerations, this Court must also seek to give effect to the overarching purpose of the Civil Procedure Act to facilitate the just, efficient, timely and cost effective resolution of the real issues in dispute. For present purpose, I can put to one side considerations applicable to those cases where there truly is a preliminary question isolated for determination. In those cases, the question is preliminary because there is something about the claim which agitates a legal question the determination of which would dispose of the whole or a substantial part of proceeding. Problems exist notoriously in the proper formulation of such dispositive questions. Where the determination of that question might involve the application of facts, there is the added consideration that the preliminary question procedure should only be embarked when the facts are not in dispute or are capable of ready judicial determination. Thus, the suitability of a case for a preliminary question attracts its own special considerations, and extreme caution, and can be disregarded for the defendants here do not seek the determination of a preliminary question. Although the plaintiffs have posed nine questions, I am approaching this application as no different to an application for an order that there be a separate trial of all issues of liability prior to any trial, if necessary, for all issues of quantum of damages and/or account of profits or any other remedy. The nine questions are consonant with the pleadings and the legal elements of the causes of action and, as I see them, purport to identify the issues for determination on liability. The split is opposed.

4 The commencement elementary point is that the norm of litigation is for the Court to determine in the one trial all issues of fact and law at the one time. In the conventional trial, the parties have the opportunity, in the course of evidence, of bolstering their case substantially or forensically from the evidence of any witness called by any party on any issue. That is why one of the apprehensions in ordering a split trial is that there may be, one way or another, evidence on liability which might in some way be applicable or permeate into issues of quantum. So much depends on the case.

5 Despite the ordinary rule or expectation of conventional trial, in modern commercial litigation there is nothing unusual in allowing questions of liability to be determined separately from questions as to quantum of damages. It happens in intellectual property cases and building cases where generally speaking the bulk or greater burden lies in determining the legal relationships, the attendant legal obligations, and the application of the relevant law of the obligations or the alleged wrongdoing. And for the purposes of the instant case, it may be generalised that in commercial litigation involving a question of assessing a disgorgement of gains or an accounting of profits under the fiduciary principle, then depending on the scale of the litigation or the ambit of the expectable evidence, it is seen as just and convenient to order a separate trial of the quantification of damages, especially if there is a prospect of the appointment of an assessor or a special referee to conduct some part of the task involving detailed financial or trading evidence or what is sometimes referred to as 'bean-counting'. I shall expose the elements of this case later - correctly described by the defendants' counsel as a 'difficult' case - but the case certainly involves the fiduciary principle and an account of profits and an assessment of equitable compensation according to trading in the building and construction industry.

6 It has to be accepted, as was urged by plaintiffs' counsel, that an order for the splitting of a trial should be approached with great caution and only in a clear case.[2] That is because 'the advantages of trying separate questions for one party may unfairly disadvantage another party, including because the questions will be determined without the benefit of all the evidence relevant to the proceeding.'[3] Another source of inhibition to making a separate trial is the risk of a significant overlap between evidence concerning liability and evidence concerning quantum. A good example is litigation based on tortious actions or contraventions of statutory laws against misleading and deceptive conduct where damages are the gist of the action, necessarily meaning that proof of damage is inextricable from establishment of liability. That is why courts look for a clear line of demarcation between the issues concerning liability and the issues concerning determination of damages and remedy. Other authorities have warned that the splitting of a trial, as a technique of efficient trial management, may prove to be illusory or may have the indirect disadvantage of prolonging the litigation where a dissatisfied party may appeal the liability determination and put the damages trial on hold.[4]

7 I think the authorities on the question, the influence of the Civil Procedure Act, and the application of experience, leads to applying the caution of saying that splitting a trial should be done when the utility, economy and fairness to the parties of doing so is beyond question. Even then, such words really involve matters of judgment. I think implicit in all authorities is the meaningful test of asking if the split is just and convenient.[5]

8 This case will soon be three years old. Since the writ was filed on 3 October 2014, progress of the case has been retarded by pleading amendments and disputes over discovery. Avoiding copious reference to dates and underlying circumstances, it is sufficient to say that in August 2016, the plaintiff filed its third amended statement of claim. In February this year, the plaintiff filed its amended reply. Adopting an apposite word used in argument, the pleadings have been 'evolving'. From about April last year, the defendant has, I think with justification, been taking exceptions to the sufficiency of the composition of the statement of claim given the seriousness of the claim. At the same time, as strike-out applications were brooding, the plaintiff was on the attack about the adequacy of the defendants' discovery as it sought to 'drill down', as the accountants say, to the trading activities and profits of the defendants' business. Orders were made requiring a supplementary affidavit of documents to be filed, but there still exists a lingering summons dated 3 March 2016 for particular discovery from the defendants plaintiff which has attracted a growing resistance by them on the ground of intolerable invasiveness. Added to that was a complaint by the plaintiff that sworn statements on behalf of the defendants that documents had been lost or destroyed required further verification. It is discernible, and I have had it confirmed in court, that there is a high degree of tension in this case referable to the alleged wrongdoing in the case and the termination of a joint venture, which has been exacerbated it seems now that the disputants themselves are in competition in the same market in the building and construction industry.

9 The point of referring to those features of the case is to make the point that it has been visited with procedural instability for two and a half years and the brooding discovery dispute all largely to do with quantum does not look like shrinking. Whilst the simmering disputation over discovery on largely quantum issues cannot on its own be a justification for splitting a trial, in my assessment, the advancement of this case depends very much on the question of liability. It is to the question of the legal relationship and its legal incidents that will account for a large part of the evidence, and a determination of those questions will come to inform the remedy and the type and scope of damages. Thus, in those conditions the question about splitting a trial is attracted sensibly.

10 An additional incentive to split the case has been the difficult nature of the plaintiff's case. By 'difficult' I do not for one moment wish to be taken to be remarking on its merits or sustainability. By difficult I mean the alleged relationship between the disputants, the legal obligations within that relationship, identifying the law attaching to those obligations, surveying the alleged breaches of any obligations, and from there discerning the available remedies. In that regard, a little more has to be said about the plaintiff's case. What follows is very much a basic exposition.

11 The plaintiff says that parties agreed to enter into a joint venture to provide kitchen cabinetry and stone products to residential and commercial customers. This is not small scale business. It involves major housing developments. One would expect business like written arrangements but the joint venture agreement is alleged to be partly oral and partly to be implied. The oral content is all based upon conversations, the particulars of which speak in the uneasy conclusory terms: 'it was agreed'. The implication is said to arise, formulaically, 'to give effect to the presumed intention of the joint venture parties'. There are other circumstances alleged but the important point is that for this substantial alleged joint venture there is no deed or solemn written form of a joint venture agreement. Thus the case attracts the difficulty of seeing if an agreement can be inferred. Then, it is alleged that by reason of reposing trust and confidence in the defendants, the defendants owed fiduciary obligations to the plaintiff. Then it is said, in breach of the joint venture agreement, the defendants ordered stone products from suppliers other than the plaintiff for whom, the plaintiff alleges, the joint venture agreement gave them the entitlement to the exclusive supplier of stone products. It is also alleged that the defendants not only ordered stone products from other suppliers but commenced to manufacture and supply their own stone products to the joint venture clients. From there the allegation is that the defendants, as the plaintiff's fiduciaries, breached the no conflict rule and the no profit rule under the law of fiduciary obligations. It is also alleged that two of the individuals involved and another corporation 'knew of, condoned or participated in the breaches of fiduciary duties'.

12 The next step of the plaintiff's case is to allege that the defendants' wrongful conduct amounted to a repudiation of the joint venture agreement, which the plaintiff accepted. Despite the termination of the joint venture agreement, the plaintiff alleges that the fiduciary duties survived the termination of the joint venture agreement. The allegation is squarely made that as the (unwritten) agreement was an agreement of indefinite duration. That is, it was perpetual. The plaintiff's claim is for the net profit 'which it expected to make and would have made had the joint venture agreement been performed' presumably in perpetuity. Further or alternatively, by reason of the alleged breaches of the fiduciary duties, the plaintiff claims an account of profits. That is, it alleges that as the defendants were its fiduciaries, they were liable to account to the plaintiff for any amounts derived by them or profits derived by them from their breaches of fiduciary duty. An alternative claim is made for equitable compensation. There is an ancillary claim concerning some unlawfully detained equipment which I shall put to one side as a relatively minor part of the case.

13 What does the defence say? In essence, the defendants acknowledge discussions occurred for entering into a joint venture agreement but say those discussions ended without a concluded agreement being reached. Their defence has the mantra that 'no concluded agreement was ever reached'. That is a domineering issue. Nor, the defence says, did the parties discuss the duration of any proposed agreement. Then an alternative case is put. If an agreement was made, then, the defendants say, such an agreement would have been terminable upon reasonable notice. As for the fiduciary obligations, that is squarely denied. The defendants say there was no basis for the plaintiff to repose trust and confidence if that be the hallmark of a fiduciary relationship, for all that occurred was that a defendant Mr Crocitti was given a management power. Pausing there, just because a relationship is called a joint venture does not therefore give rise to a fiduciary obligation. This is no occasion for a disquisition on the subject, but it is enough to say that there is a real and major issue here whether the joint venture agreement was a contractual joint venture, or, one which attracted fiduciary obligations. But, that depends upon the content and structure and terms of the agreement which in this case is based upon discussions and implications which the defendants say did not result in a concluded agreement.

14 The defendants acknowledge they did order stone products from the suppliers other than the plaintiff but say they were entitled to do so. But in any event, on the plaintiff's own case, the joint venture agreement terminated (but fiduciary obligations allegedly did not) on 21 January 2014 when the defendants ceased ordering stone products from the plaintiff. Ultimately, the defendants, as part of their panoply of defences, say that even if there was a joint venture agreement which gave rise to fiduciary duties, and even if there were breaches, the damages are limited to the period between the date when they ceased ordering product, and the date for which reasonable notice could have been given to terminate the joint venture agreement.

15 In its amended reply, the plaintiff raises an estoppel. The plaintiff pleads that the defendants are estopped from denying the joint venture agreement on which the plaintiff's claim is predicated. The species of estoppel is a common law estoppel in pais to prevent an unjust departure by one person from an assumption adopted by another person as the basis of some act. If established, the estoppel requires the person to abide by the assumption because it formed the conventional basis on which the parties entered into mutual relations, or, because that person directly made representations upon which the other person founded the assumption. The estoppel seems to extend to a case based upon silence and acquiescence. In its reply the plaintiff obligations does not derogate from that position that its right for which it seeks damages endure in perpetuity. It claims in the alternative that the joint venture agreement could only be terminated after it had been operating for a reasonable time and even then, only after giving a reasonable period of at least six months' notice. But, for as long as the plaintiff maintains that its rights are perpetual, I can see as reasonably based the defendants apprehensions that the discovery obligation is taken by the plaintiff to be effectively operating up to the minute in 'real time'.

16 On the pleadings therefore, there are substantial and cardinal questions concerning legal relationships and obligations. The foundation agreement is to be implied, based upon discussions and circumstances and implications and presumed intentions. Much will turn on the calibre of witnesses, conversations and implications from dealings. If the relationship was not a fiduciary one, then the case is in contract which means different obligations and different measure and assessment of damages.

17 A number of grounds for resistance to the application for a split were made by the plaintiff, which in substance, were as follows. The first, as stated in an affidavit of the plaintiff's solicitor, Alexander Bannister, amounts to saying that time and energy and expense has already been incurred in conducting this case on issues relating to both liability and quantum, including the briefing of a forensic accounting expert to advise on quantum. This was said to enable the plaintiff to be in a better position to settle all matters at mediation once it had a better understanding of the quantum of its claim.

18 My examination of the file shows that another Associate Judge made an order in May 2015 for a mediation to be finished by August 2015. That was later extended to November 2015. But it has never occurred because, as I have exposed, the case became riddled with pleading and discovery problems. But, it has to be accepted that one of the factors affecting the decision whether to split a trial is the effect on a possible settlement of the litigation. If I am to split this case between quantum and liability, it is said that the prospects of a mediated settlement will substantially reduce because the plaintiff will be insufficiently informed about the ambit of its claim without extensive pre-trial preparation and accounting analysis over the profits gained by the defendant, for which the plaintiff says the defendants are accountable under the fiduciary obligation. In my mind there is the problem.

19 The elements or the amplitude of the plaintiff's claim, as pleaded, make it highly likely in my judgment that the prospect of a settlement really will not turn on figures at the threshold, but with prolific questions concerning whether an agreement was made in the first place, its terms, and the law of obligations which attaches to the relationship between the parties. I cannot see a mediation advancing if there is a serious question about whether an agreement was made in the first place, especially when it is said to be based upon conversations and implications. Moreover, I cannot see a mediation advancing where the primary position of the plaintiff is that its rights under such an agreement operate in perpetuity.

20 If mediation in commercial matters is set to turn on figures or commercial judgments according to figures, then I cannot, frankly, see how a mediation can advance at all even if figures are available for as long as there are threshold questions about liability. Such threshold questions of liability are not capable of being 'mediated' at least not readily. Therefore, I will discount the mediation question as a matter going against the splitting. To the contrary, I would think that a judicial determination of whether an agreement ever existed and if so its legal incidents, is what will be needed to create conditions propitious for a settlement to then be pursued.

21 The second ground of resistance is that there will be a significant overlap between the evidence on the questions of liability and damages. I accept that is a factor to be taken into account especially if it involves a calling of the same witnesses for both quantum and liability. But, I could see no clear basis for saying this was going to be a problem in this case. It was submitted that there was a necessary overlap in proving the breach as part of the liability case and the profits that flowed from that breach for which the defendant is accountable to the plaintiff under the fiduciary principle. I am not convinced that is so; or at least, not convinced that the overlap is there to a degree that overcomes the other factors in support of the splitting of the trial. In essence, the plaintiff contends that the defendants, as its joint venture fiduciary, breached their exclusivity obligations by purchasing stone products from other suppliers or manufacturing stone products themselves. The defendants 'admit that Kitchen Innovations and Stone Innovations ordered stone products from suppliers other than Paz Stone' and say that the development of any in-house capability to manufacture and supply stone products occurred after a termination of the relationship in January 2014. I have already made prescriptive orders requiring the defendants to give discovery of all purchase orders and such documents to show what the purchases were. Thus, without having to descend copiously into the course of evidence to be expected on proof of breach, there is to my mind a distinction between proving the breach by showing the defendants purchases of stone elsewhere, and from there, asking a court to assess the profits made by the defendants on business done from those purchases. Judging by the amplitude of the plaintiff's claim, I can foresee substantial factual and meticulous questions concerning transactions and profitability, and having to make allowances and distinctions between profits made by the defendants on putative joint venture business and other non-joint venture business. That only strengthens the case for a separate trial, and as I said earlier, the prospect of the appointment of a special referee.

22 I can accept that, in the way this case has been conducted, money has been spent by the plaintiff on the accountant to investigate the magnitude of damages according to the pleaded case. But a splitting of the trial will not mean such expenditure has been wasted. The work done comes to be used depending on the liability findings.

23 I can see the point made by the plaintiff that this case has travelled now for three years and the splitting of the case comes too late. In other words, a momentum has already built up based upon litigation of both issues. Much time has passed but as I said at the outset, that is a result of an unstable course of pleadings in a difficult case and problems over discovery. The plaintiff's amended reply which added a case in estoppel based not only on representations, but on silence and acquiescence was filed in March this year, and the Court had to take the unusual step of allowing the defendants to file a rejoinder, a step which has been eclipsed by this application. To my mind, this all intensifies the point that there are prolific questions of liability before one gets to damages. Accordingly, I would hold that the passage of time in this case of itself is not a disqualifying factor. I would also hold that there has been a belated crystallisation or elucidation of the plaintiff's case recently to reasonably, I think, arouse the utility of a split trial.

24 A third point, connected with the interstices of the evidence, concerns a grievance by the plaintiff that documents for which the defendant were ordered to give discovery concerning purchase orders have been destroyed or are incapable of being found. I have made orders requiring in depth explanations from the defendants about that, and explanations have been given. As part of the submission that there was an overlap between liability and quantum, Mr Mukherjea urged that questions may arise about the document unavailability under Division 9 of the Evidence (Miscellaneous Provisions) Act 1958. I do not think this point carries enough weight to make it unjust to split the trial. The Court cannot predict the course of evidence but it is safe to say that the defendants' witnesses may be cross-examined in the course of a liability trial about the destruction or disappearance of any relevant documents. The documents in question concern purchase orders and that will go to the question of breach, which is part of the liability case. Accordingly, I do not see sufficient to reach a conclusion that the degree of overlap between quantum of liability makes a splitting of the trial unjust and inconvenient.

25 For those reasons, I think it just and convenient that there be a splitting of the trial. I think it is the only way this case is going to advance for as I see it, pre-trial orders can now be made for the liability case.

26 The plaintiff's summons identified nine questions. I am disinclined to couch the principal order for a split trial as self-contained according to stipulated questions. I think the better course is to make an order, as I have seen in some authorities in this form[6] -

There be decided at a separate trial all issues of liability in the proceedings, prior to any trial, if necessary, in respect of all issues of quantum of damages and/or account of profits or equitable compensation or any other relief or remedy arising out of findings of liability.

27 Then, I think use could be made of the plaintiff's nine questions by not so much posing them as questions in the imperative for determination but using them to identify the issues for determination on the liability trial, according to the pleadings. They will give some measure of flexibility for the trial judge. Accordingly, I have in mind an ancillary order to say something like this -

Subject to any further amendments or directions of the trial judge, the issues for determination on the trial of the defendants alleged liability are those as identified in the annexed statement of issues.

28 I ask that counsel reach a consensus on transforming the questions posed into issues for determination to be attached to an order to be made for a splitting of the trial.

29 Accordingly, I would allow the application. The Court shall await a proposed order as formulated by counsel. On the question of costs, I am bound to hear any argument but it seems to me that subject to argument this matter is all directed to the adjudication of the merits of the dispute and therefore costs of the application ought be costs in the proceeding.

30 To bring matter to order, my Associate shall make contact with the parties' solicitors with some dates for a directions hearing to finalise this order and consider orders for the trial of quantum. I sense the parties view mediation as unlikely to be productive, but at that hearing I expect to have some dates for judicial mediation if the parties want it.

[1] See Williams, Civil Procedure Victoria, Vol 1 [47.04.0] - [47.04.60].

[2] See Murphy v Victoria [2014] VSCA 238; (2014) 45 VR 119, [28].

[4] See Hyder Consulting (Victoria) Pty Ltd v CGU Insurance Limited [2001] VSC 448 and Tepko Pty Ltd v Water Board (2001) ALR 634, [168]-[170].

[5] See Reading Australia Pty Ltd v Australian Mutual Providence Society (1999) FCA 718 and Fleming's Nurseries Pty Ltd v Hannaford (2008) FCA 591.

[6] See Fleming's Nurseries Pty Ltd v Hannaford [2008] FCA 591.