Neutral Citation: [2016] IEHC 599
THE HIGH COURT
COMMERCIAL
[2014 No. 2229 P.]
BETWEEN
JAMES ELLIOTT CONSTRUCTION LIMITED
PLAINTIFF
AND
KEVIN LAGAN
TERRY LAGAN
JOHN GALLAGHER
IRISH ASPHALT LIMITED
LAGAN CEMENT GROUP LIMITED
DEFENDANTS
JUDGMENT of Ms. Justice Costello delivered on the 2nd day of November, 2016
Introduction
1. This is an application brought by the plaintiff seeking an order pursuant to O.36, r.9 and/or O.63A, r.5 of the Rules of the Superior Courts or pursuant to the inherent jurisdiction of the Court directing that the issues of liability and quantum in these proceedings be tried separately. I have already given a number of judgments in relation to interlocutory motions in these proceedings and the facts are more fully set out in those judgments. The proceedings have been under case management for some time.
2. The plaintiff is a construction company and it purchased aggregate from the fourth named defendant which it says was contaminated by pyrite. The plaintiff says that it used the aggregate in 16 developments set out in the schedule to the pleadings and damage has either been caused, or it is anticipated will follow in respect of all 16 developments. The plaintiff sues the defendants for the tort of deceit in supplying the aggregate from the quarry operated by the fourth named defendant at Bay Lane, Co. Dublin. The plaintiff alleges that the other defendants were also guilty of fraud in supplying the material from the Bay Lane quarry to the plaintiff. The plaintiff claims €17,000 as the costs incurred in remediation works to date; €500,000 in respect of the costs of the purchase of defective material; an indemnity in respect of future claims which may arise in respect of the scheduled developments and consequential losses. The consequential losses are identified as €17,049,522 in respect of the impact on retained profit, €3,300,000 claimed in respect of inability to tender, and €20,000,000 in respect of the purchase of a new company, which would allow the plaintiff to re-enter the market. The plaintiff also seeks aggravated and exemplary damages.
3. The defendants deny all of the allegations and raise a number of preliminary points by way of defence. The defendants submit that the plaintiff is itself guilty of contributory negligence. They submit that the plaintiff is guilty of laches and acquiescence and that it has not come to court with clean hands, and therefore it is not entitled to any equitable reliefs.
4. On 15th June, 2016, I gave a judgment on the applications for discovery in the proceedings. The order was perfected on 28th July, 2016, and the plaintiff was ordered to make discovery of documents set out in Category 42 in respect of the fourth named defendant and Category 10 in respect of the other defendants within 4 months. These categories are very broad and relate to documents evidencing or relating to the losses claimed by the plaintiff. In addition to seeking the order for a split trial, the plaintiff also sought an order staying any obligation to make discovery of documents relating to these two categories of discovery until the issue of liability is finally disposed of.
The law
5. It was accepted by the parties that the Court has jurisdiction to make the order sought pursuant to the rules identified in the notice of motion and the inherent jurisdiction of the Court. It was also agreed that the relevant authorities were Cork Plastics (Manufacturing) & Ors. v. Ineos Compound UK Limited & Ors. [2008] IEHC 93, McCann v. Desmond [2010] 4 IR 554, and Weavering Macro Fixed Income v. PNC Global Investment [2012] 4 I.R. 681. I therefore do not propose to repeat or reproduce the principles set out in those judgments. It was agreed by the parties that the default or normal position is that there should be a unitary trial. A modular trial may be ordered if it is just and convenient or, in the words of O.63A, r.5.“as appears convenient for the determination of the proceedings in a manner which is just, expeditious and likely to minimise the costs of those proceedings.” It was also accepted that in deciding the issue, the Court must consider the interests of the plaintiff, the interests of the defendants and the interests of the administration of justice insofar as it is always desirable that scarce court resources should not be taken up by matters which would ultimately prove to be unnecessary. It was agreed that the burden of satisfying a court that a modular trial should be directed rested upon the moving party.
The plaintiff’s case
6. Much of the debate at the hearing of the motion related to the grounds upon which the defendants objected to the plaintiff’s motion. I shall return to these in due course. This should not distract from the fact that primarily the Court must first consider the case advanced by the moving party in support of the application. Two affidavits were sworn by solicitors on behalf of the plaintiff in the motion. Mr. Darragh O’Donovan, in his affidavit of 4th July, 2016, identified two grounds. At para.5, he identifies the order for discovery in respect of categories 42 and 10, referred to above, as providing the first of several reasons why splitting the issues of liability and quantum into separate trials makes good sense. He envisages the issues of liability and causation being dealt with in the first module, and the issue as to the extent of damage resulting from the use of the product sold to the plaintiff by the defendants, being dealt with in the second module. He states that the discovery sought in respect of categories 42 and 10 (the losses categories) will involve considerable time and expense. For this reason, the plaintiff also applied for a stay on the obligation to make this discovery until after the question of liability has been determined. He states that the saving of this time and expense is only one aspect of the cost of dealing with quantum and liability together.
7. Mr O’Donovan submits that if the trial were split there would be a potential of saving a great deal of time and resources of all of the parties concerned. He submits that the issue of the extent of the damage suffered by the plaintiff will give rise to considerable and extensive dispute between the parties and their experts, and that this reason alone provides a strong reason why a liability - quantum split trial ought to be considered by the Court. If the plaintiff were to fail in establishing liability, then all of the costs incurred in preparing the quantum aspects of the case on both sides will have been in vain.
8. Ms. Christian Carroll swore a further affidavit on behalf of the plaintiff on 14th September, 2016. She states that while it is difficult to be precise as to the estimate of the trial duration, she estimates that the liability trial will be lengthy and complex and the quantum trial will also take a number of weeks of additional court time which she believes may be approximately 3 weeks. She states this is a block of time and associated costs that will be saved if the order sought is granted.
9. In Counsel's submissions to the Court, it was argued that there was a public interest in the efficient use of court time and that the Court’s primary consideration on the motion is the administration of justice. This encompasses the efficient use of court time and potential saving of costs. It was submitted that the quantum issues would be complex, would require expert evidence from a number of witnesses, and what would be saved by a modular trial is the possibly unnecessary quantum hearing in the event that the plaintiff is unsuccessful both at first instance, and on appeal.
10. In reply to the submissions of the defendants, counsel for the plaintiff withdrew the request to postpone the plaintiff’s obligation to make discovery in respect of categories 42 and 10, the second relief sought in the notice of motion. This has two implications for the remaining matter for decision. One of the principal grounds advanced in the affidavits on behalf of the plaintiff to justify the order for a split trial no longer applies. Secondly, insofar as the defendants raise arguments that they would be prejudiced in the conduct of the liability module of the trial if they were deprived of the discovery documents captured by categories 42 and 10, such no longer applies.
11. In essence, the plaintiff’s application is based upon the fact that this is complex, lengthy commercial litigation and that there would be a considerable saving of court time and expense to the parties if the order sought was to be made. The court time is estimated to be three weeks, and the expense was the expense to be associated with the preparation of witness statements in relation to quantification of the plaintiff’s claim and the costs of a three week hearing.
The defendants’ case
12. In view of the fact that the plaintiff abandoned the request to put a stay on the order for discovery in respect of categories 42 and 10, I shall omit the arguments advanced by the defendants in relation to prejudice, which they say they would have suffered based upon the proposition that this discovery should be postponed until after the determination of liability in the proceedings.
13. The defendants’ principal argument is that they would be prejudiced by the making of the order and they would not receive a fair trial. Therefore, even if there was a saving of court resources and expenses, the Court ought not to order a split trial. Counsel relied upon passages from the Cork Plastics case and McCann v. Desmond. In the Cork Plastics case, Clarke J. at para 3.13 stated:
“3.13 Finally, it is important to note that the courts should place significant weight on any real suggestion that true prejudice (rather than a perceived tactical prejudice) might occur by the absence of a unitary trial. If there were established to be a real risk that the courts view on earlier modules might legitimately be influenced by evidence which would more properly arise in a later module, or conclusions to be reached in relation to such evidence, then it would be difficult to envisage that the court could countenance a modular trial. Obviously the extent to which it can be said that any such risk exists needs to be realistically assessed.”
14. In a similar vein in McCann v. Desmond, Charleton J. observed that the default position was that there should be a single hearing. At para.6 of the judgment he stated:
“Where prejudice might occur by reason of an order for a modular trial, then the court should return to the default position.”
At para. 7 he indicated that a court should consider matters including:
“(2) Has a clear saving in the time of the court and the costs that the parties might have to bear been identified? The court should not readily embark on a modular hearing, simply because of a contention that a saving in time and costs has been identified, but rather it should view that factor in the context of the need to administer justice in the entire circumstances of the case.
(3) Would a modular order result in any prejudice to the parties? If, for instance, the issue as to what damage was occasioned by reason of the wrong alleged by the plaintiff was so intricately woven in to the proofs that were necessary to the proof of liability for the wrong, so that the removal of the issue of damages would undermine the strength of the plaintiff’s case, or the response which a defendant might make to it, then the order should not be made.”
15. Counsel for the defendants emphasise that the credibility of Mr. Elliott, the principal of the plaintiff, is central to the case on both liability and quantum. They argue that this must be tested across all of his evidence. They argue that it would be the submission of all of the defendants that the claim for damages has been grossly inflated. They would wish to test his credibility by cross examination in relation to this aspect of the claim and therefore, they would be unfairly prejudiced in their defence of the liability module if they were not afforded an opportunity to cross examine him in relation to his quantum-directed evidence at the same time as he gave his evidence on liability. They state that if a court was persuaded that a witness was unreliable or gave exaggerated testimony in respect of one aspect of a claim, that it could colour the Court’s assessment of the balance of his or her evidence.
16. They submit that it would not be possible on the facts of this case to separate the actual proof of damage realistically from the quantification because of the nature of the loss claimed and therefore there should not be a split trial. In the words of Mr. O’Moore, S.C., the plaintiff is “seeking to separate the dancer from the dance”. In written submissions the plaintiff stated that:
“In order to establish liability and causation… the [p]laintiff will also have to satisfy the Court inter alia that it suffered consequential loss as a result, in particular that its capital was eroded and its ability to tender for projects ceased as a result of the purchase and use of the [d]efendants’ aggregate.”
17. At para. 6 of Ms. Carroll’s affidavit she states:
“The consequential loss aspect of quantum will involve the parties’ experts analyzing the historical finances and performance of the [p]laintiff, as well as the market for main contractor/construction companies.”
18. At para. 15 Ms. Carroll states that:
“… these 16 projects make up the substantial part of the [p]laintiff’s business. In this light, it is easy to conceptualise a circumstance where the [p]laintiff will establish that the [d]efendants deceitfully sold defective Clause 804 to the [p]laintiff, which it then used in 16 projects and this fact alone caused its business to grind to a halt and suffer grave loss.”
19. The defendants argues that it is clear based upon the plaintiff’s own case that the causation evidence which the plaintiff must lead in order to succeed in its claim must include evidence explaining why the supply of aggregate in respect of the 16 scheduled developments caused the destruction of the plaintiff’s business, rather than any other possible causes. They submit that it will be essential for the trial judge to assess whether or not the plaintiff ceased to operate in the market because of damage caused at these 16 projects, or because of any other development in which the plaintiff engaged or because of a lack of working capital or difficulty with finance or because of the worldwide crash and deterioration in the construction market.
20. They further submit that they would be prejudiced if the trial judge did not hear all of the evidence at once. They point to the fact that the defendants have expressly pleaded that the plaintiff does not come to court with clean hands, due to the manner it has dealt with material obtained by way of discovery or transcripts from other proceedings. They submit that the assessment as to whether or not a party is entitled to equitable relief needs to be considered as a whole, not piecemeal, and that the issue as to whether or not the plaintiff has presented a grossly inflated claim for damages is a matter which ought to be taken into account by a court making a determination on this issue.
21. They submit that a similar argument applies to the claim for aggravated and exemplary damages. They say it would be fundamentally unfair to deal with such an issue in a split trial, and that the judge making a determination as to whether or not an award of aggravated or exemplary damages should be made, and if so, for how much, must consider the totality of the case. If the trial is split there is likely to be a delay in the order of three years between the conclusion of the hearing by the High Court of evidence in relation to the first module before the second module could come on for trial, allowing time for what was agreed would be the almost inevitable appeal on liability by the losing party in this case. It would simply be impractical for a judge to determine at the end of the liability module that there should be an award of either aggravated or exemplary damages but to leave the assessment of the damages for a period of three years. It could be unfair to assess the level of such damages at the end of the first module (notwithstanding the fact that quantum was to be left until the second module) as the level of damages ultimately awarded to the plaintiff could be relevant to the assessment of these heads of damages. On the other hand, it could be most unsatisfactory to decide whether, and if so, how much a court should award, based upon evidence given in the first module.
22. The defendants submit that the saving of court time and expense suggested by the plaintiff is exaggerated. In view of the evidence which would have to be led in the liability module in relation to causation, they argue that in fact there would be little remaining in relation to the quantification of the consequential loss claim. They submit that the time taken to quantify the balance of the damages claim would not be extensive and therefore it would be preferable to dispose of the proceedings in one hearing.
23. The defendants submit that, contrary to the submissions of the plaintiff, there would be a considerable overlap of witnesses between the two modules. They place considerable emphasis on the evidence of Mr. Elliott. They also refer to the nature of the evidence that would have to be led to establish causation in respect of the consequential loss claim. They submit, based on the authorities, that this is a factor to be taken into account to be weighed against ordering a modular trial.
24. Finally, they argue that they would be prejudiced by not having the witness statements relating to quantum, as well as liability, in the normal way when they would come to consider the strategies of defence available to them. In particular, they referred to the fact that the normal part of a defendant’s armoury is the possibility of making a lodgment or sending a Calderbank letter. This argument was initially advanced on the basis that the plaintiff was seeking to postpone discovery of categories 42 and 10, relating to the claim for losses, as well as upon the absence of witness statements. The plaintiff withdrew its argument in relation to the postponement of making discovery in terms of categories 42 and 10, and this argument was maintained on the grounds of the non-availability of witness statements as to quantum alone.
Response of the plaintiff
25. Counsel for the plaintiff submits that in truth, when one examines the argument that the defendants would be prejudiced by a modular trial that this is not the case or it would apply to all cases. Insofar as it is urged that a modular trial would give rise to prejudice where there is a challenge to the plaintiff’s entitlement to equitable relief on the basis that it had not come to court with clean hands or where the plaintiff is seeking aggravated or exemplary damages, the arguments advanced mean that there could never be an order for split trial in circumstances where these issues arise. Likewise, all tort claims involve proof of causation of damage followed by proof of the quantum of that damage. He submits that the defendant’s argument that one could not disentangle causation from the quantification of the loss sustained would apply to all tort claims. He says that the submission applies likewise to the alleged prejudice in relation to the making of a lodgment or the sending of a Calderbank letter. He argues that in view of the fact that the discovery in respect of categories 42 and 10 was no longer to be postponed that this does not arise. He also states that there is no overlap in the evidence of the witnesses between the two modules proposed and emphasises that there would be a clear saving of court time and expense, though how much could only be estimated at this point in time. The plaintiff submits that this establishes a case for making the order and the objections raised were, when closely examined, not such as should dissuade a court from making what is otherwise an appropriate order in this complex and lengthy litigation.
Discussion
26. The authorities relied upon by the parties discuss a number of factors to be taken into account by a court considering an application such as this. These were not intended to be exhaustive lists of the matters which a court should consider to the exclusion of others. It would appear that some of the points raised by the defendants were raised in the previous cases but that the defendants also raise points which either had not been raised or did not apply in those earlier cases.
27. In assessing the application, the overriding consideration of the Court must be the administration of justice and, in particular, to ensure that the trial is a fair one. In some cases, this may require that there be a modular order made in order that potentially significant costs may not be incurred and court time saved. In other cases, it may require that the Court refuse the order sought and the proceedings are conducted in the normal way as a unitary trial.
28. In this case, I am satisfied that the proceedings are complex and that the trial is likely to be a lengthy one. While the evidence in relation to the quantum of damages claimed may take 3 weeks or may take less than 3 weeks, as asserted by the defendants, on balance, I am satisfied that the basic condition for considering a modular trial is present in this case.
29. If there exists the possibility that the order will result in a saving of court time and expenses, it is then appropriate to consider whether or not there are factors which mitigate against granting the relief sought. Primarily, the court should consider the question as to whether or not there is a risk that this would lead to an unfair trial from the perspective of one or other of the parties and, in particular, whether or not one or other of the parties will be prejudiced if the trial proceeds on a modular basis. I have come to the conclusion that it would not be possible to conduct a just and fair trial in this case if there is a split trial and that the defendants would be unduly prejudiced in the presentation of their case. I have reached this conclusion for a number of reasons.
30. The first is that the credibility of the witnesses in this case, both for the plaintiff and defendants, will be central, given the nature of the claims and the defences. This was the only argument advanced by the defendants which gave Clarke J. concern in the case of Cork Plastics. He confessed that he was not persuaded that there was any sufficient connection between the view that a court might take as to the credibility of the claim put forward by the plaintiff on quantum, which might affect the credibility of issues which arose in that case on liability to justify a finding that there would be a real risk of injustice and, therefore, he should refuse to order a modular hearing. However, he agreed in that case to defer a final decision on the issue until witness statements had been exchanged on the liability issues, on the basis that at that stage the court would be better able to assess the likelihood of credibility playing any significant role in the determination of liability and thus whether a modular trial in fact gave rise to a real risk of injustice. In the case of Cork Plastics, the defendants argued that the damages had been grossly exaggerated, as is argued in this case. Mr Justice Clarke did not believe that this was a sufficient reason to refuse to order a modular trial as he was of the opinion that there was an insufficient connection between the court’s assessment of the credibility of the quantum claim and its assessment of the credibility on liability.
31. The present case is quite different. While some aspects of Mr. Elliott’s testimony may be uncontroversial, it is clear that certain, crucial aspects of the proofs necessary to establish liability and causation in this case will depend upon his testimony and will be vigorously challenged. In those circumstances, I accept the arguments advanced on behalf of the defendants that they will be prejudiced in their ability to challenge his credibility on issues relating to liability if the issues in relation to quantum were to be removed from the first module when liability is to be determined.
32. I also accept that they will be prejudiced if a unitary trial is not held in relation to the dispute as to whether or not the plaintiff comes to court with clean hands and in relation to the claims for aggravated and exemplary damages. It is true, as submitted by the plaintiff, that the grounds of prejudice alleged in respect of these two points would apply to any case where these issues are raised. That does not mean that it is not a factor to be taken into account by a court in deciding whether to order a modular trial. It is to be borne in mind that the default position is that trials are unitary. A modular trial is the exception and should only be ordered in appropriate cases. It would appear that neither of these issues was raised in the authorities referred to by the parties. I am satisfied that they are additional factors which ought to be considered and, in this case, they are factors which weigh against granting the plaintiff the relief sought.
33. I am also of the view that given the nature of the claims in this case and, in particular, the claim as to consequential loss, that it will be very difficult to disentangle the evidence in relation to causation from that relating to quantum. Even where that can be done, it will result in the overlap of witnesses in both modules. This is so particularly (assuming for the purposes of the argument that the plaintiff succeeds in establishing as a fact that the fourth named defendant supplied defective aggregate to the plaintiff which, in turn, was used in the 16 scheduled developments) in regard to the plaintiff’s case that this was the sole cause of the destruction of the plaintiff’s business and the reason it effectively exited from the market. It is true, as was submitted by counsel for the plaintiff, that the argument advanced by the defendants could apply to all tort claims but it does not follow that it is not a valid basis in an appropriate case for rejecting an application for a modular trial. Of course, all tort claims involve a court determining whether or not a wrong has caused damage and then a separate assessment of the level of damage. The defendants’ argument in this case is directed to the particular nature of the claimed damage and the claimed loss. The fact that I have agreed with the defendants on this point does not imply that it is not possible to have a split trial in tort cases as was submitted on behalf of the plaintiff.
Conclusion
34. The cumulative effect of these factors mitigating against a modular trial are such that, while the order sought might be likely to minimise the costs of the proceedings, I am not persuaded that a just and fair trial would result. Accordingly, I refuse the relief sought.
