Cyclopharm Limited v Morcos (No 2)

[2023] NSWSC 1392

Supreme Court

New South Wales

• Amendment notes

Medium Neutral Citation:

Cyclopharm Limited v Morcos (No 2) [2023] NSWSC 1392

Hearing dates:

15 November 2023

Date of orders:

17 November 2023

Decision date:

17 November 2023

Jurisdiction:

Equity

Before:

Elkaim AJ

Decision:

See paragraph 32

Catchwords:

CIVIL PROCEDURE — Separate determination of questions — Where plaintiff seeks the questions of liability and quantum to be heard separately — Whether questions of liability and quantum can be separated — Whether separate hearing should be ordered as to liability and quantum.

CIVIL PROCEDURE — Parties — Addition of defendant — Where existing defendants opposed amendment on the basis of long-standing complaint that they had not been given proper particulars —Where plaintiffs consented to direction to provide further particulars — Whether joinder of new defendant through amendment of the statement of claim should be ordered.

Legislation Cited:

Corporations Act 2001 (Cth)

Cases Cited:

Hexiva Pty Ltd v Lederer [2006] NSWSC 318

Landsdale Pty Ltd v Moore [2009] WASCA 176

Category:

Procedural rulings

Parties:

Cyclopharm Limited (First Plaintiff)
Cyclomedica Australia Pty Ltd (Second Plaintiff)
Nabil Morcos (First Defendant)
HZM Pty Ltd (Second Defendant)
Charles Francis Buttigieg (Third Defendant)
Richard Frank Gotch (Fourth Defendant)
Midhael Jian Guo (Fifth Defendant)
Bjorn Altmann (Ninth Defendant)
Almedis Altman GmbH, USt.IdNr. DE220508930 (Tenth Defendant)
Vent-Medis GmbH, USt. IdNr DE315 789 316 (Eleventh Defendant)
Venti-Sys Oz Pty Ltd in its own capacity and as trustee for the Venti-Sys Oz Trust (Proposed Twelfth Defendant)

Representation:

Counsel:
Mr S Keizer (Plaintiff)
Ms S Andrews (Plaintiff)
Mr S O’Brien (Ninth, Tenth and Eleventh Defendants)

Submitting Appearance (Second and Fifth Defendants)

Ms E Boyce (Third Defendant)

Solicitors:
Webb Henderson (First and Second Plaintiffs)
Gadens (Ninth, Tenth and Eleventh Defendants)
Bartier Perry (Third Defendant)
Toomey Pegg Lawyers (Fifth Defendant)

File Number(s):

2019/298748

JUDGMENT

1. There are three notices of motion before the court:

1. a notice of motion filed on 5 May 2023 by the plaintiffs seeking a separation of liability from quantum;

2. an amended notice of motion filed on 8 September 2023 by the plaintiffs seeking leave to file a further amended summons and an amended statement of claim; and

3. a notice of motion filed on 8 September 2023 by the ninth, tenth and eleventh defendants seeking an extension of time for the filing of expert evidence and permission to rely upon a particular expert report.

2. The third notice of motion can be dealt with quickly. Although consent was not forthcoming, the plaintiffs did not object to the orders sought and did not identify any prejudice should the orders be made. I will therefore make the orders and make no order as to costs.

3. In respect of the motion seeking amendments to the summons and statement of claim, I note:

1. the proceedings were commenced by a summons. However, on 5 February 2020 an order was made directing the filing of a statement of claim. There is no need to amend the summons;

2. the first defendant is deceased. The action in respect of this defendant must be regularised, for example by substituting his estate as a defendant. The plaintiffs recognised this irregularity and indicated that it was proposed to be dealt with. A similar concern may arise with the second defendant, which I understand to be a company that was entirely owned by the first defendant;

3. in August 2023, the plaintiff settled its differences with the sixth, seventh and eighth defendants and notices of discontinuance were filed. The eighth defendant, in turn, filed a notice of discontinuance of its cross-claim; and

4. the application involves the joinder of a twelfth defendant (Venti-Sys Oz Pty Ltd in its own capacity and as trustee for the Venti-Sys Oz Trust). This company is owned by a separate corporate entity, in turn entirely owned by the third defendant. Although the solicitor for the third defendant had no instructions to act for the proposed twelfth defendant, the solicitor accepted that the twelfth defendant was aware of the hearing and the application to join it.

Some background

4. The first plaintiff is a German company. It owns the second plaintiff, a company incorporated in Australia. The plaintiffs’ business includes the manufacture and selling of a nuclear medicine device called a Technegas Generator.

5. The generator is used to produce a gas called Technegas. The gas is administered to patients undergoing medical imaging. The presence of the gas within the patient’s body, in particular their lungs, is identified by the medical imaging, in turn assisting a diagnosis of assorted conditions.

6. Central to the dispute are the technical specifications for a component of the generator called a crucible. The important question for the litigation is whether or not these specifications were confidential.

7. In addition, as a general statement, the defendants are persons or entities that have allegedly competed with the plaintiffs in breach of either their obligations as employees or, in the case of the companies, their equitable duties owed to the plaintiffs. There is also a claim of unlawful conspiracy alleged against all of the defendants.

Amendments to the statement of claim

8. The filing of the proposed document was eventually the subject of agreement during the hearing. As the orders below will reflect, the plaintiffs will have leave to file the document, but I will also make a direction as to the giving of particulars.

9. Despite this agreement it is necessary for me to say a little more about the application because of its relevance to costs.

10. The proposed pleading deletes the sixth to eighth defendants (consequent upon settlement with them) and adds a twelfth defendant. Other than asserting that the new defendant is a party to the unlawful conspiracy alleged by the plaintiffs, no new allegation is made against any of the existing defendants.

11. The objection to the motion was not so much derived from the form of the new pleading or the addition of another defendant; rather the motion was seen as an appropriate vehicle to raise a long-standing complaint held by the ninth to eleventh defendants that they had not been given proper particulars about the claim against them.

12. After some discussion the parties agreed with my proposal that the statement of claim be amended as proposed but there be a direction as to the supply of particulars.

13. When it came to costs, the plaintiffs submitted that they should be awarded costs because they ultimately succeeded in receiving leave to file the amended pleading. The ninth to eleventh defendants responded that the plaintiff’s only have leave because they have agreed to provide particulars and, in any event, they were seeking an indulgence from the court.

14. In my view there is merit in both arguments, but it nevertheless remains the case that the plaintiffs needed to seek the court’s indulgence to obtain the orders they have sought. In addition, I note that the application to amend the summons was entirely misconceived.

15. I think that the just way to approach costs is that the plaintiffs should pay the costs thrown away by the amendments but each of the plaintiffs and the ninth to eleventh defendants should pay their own costs of the hearing day of the notice of motion.

16. I note that as far as the other defendants are concerned, there is no order for costs in respect of the third, fourth and fifth defendants.

Splitting the hearing

17. The plaintiff’s submitted that all matters other than quantum should be heard together and then quantum heard, subject to liability orders, in a separate hearing.

18. The orders were opposed by the ninth to eleventh defendants. The other participating defendants neither consented nor objected to the proposal.

19. The plaintiffs relied upon an affidavit of Mr Andrew John Christopher dated 5 May 2023. Mr Christopher is an experienced solicitor and gives his reasons, in particular from [9], for a separate hearing. The ninth to eleventh defendants relied upon an affidavit of Ms Susan Goodman dated 1 June 2023. Ms Goodman, also an experienced solicitor, gives her reasons why she thinks Mr Christopher is wrong.

20. The plaintiffs’ case, on liability, was said to be fairly straightforward. The court would be faced with deciding on whether or not there had been any loss consequent upon the actions of the defendants or not. When it came to quantum however, there were a number of complications which included distinguishing between equitable compensation and tortious damages as well as the plaintiff’s being faced with electing to pursue either damages or an account of profits.

21. I was referred to the decision of Brereton J in Hexiva Pty Ltd v Lederer [2006] NSWSC 318 (“Hexiva”) where his Honour stated, from [59]:

“59. A further factor which significantly favours that course is that it would enable the plaintiffs to make an election as to their remedy at an appropriate time, and limit the evidence on any inquiry to that which is relevant to the particular remedy for which the plaintiffs might elect. The plaintiffs claim accounts, equitable compensation, and damages (including aggravated and exemplary damages). Damages and an account of profits are alternative remedies, and although a plaintiff can apply for damages and an account of profits in the alternative, it can obtain judgment only for one or the other: a double inquiry as to profits and damages is not maintainable, and once judgment has been given for one, any right to elect for the other is lost [Neilson v Betts (1871) LR 5 HL 1; De Vitre v Betts (1873) LR 6 HL 319; Weingarten Bros v Charles Bayer & Co (1905) 22 RPC 341; United Australia Ltd v Barclays Bank Ltd [1941] AC 1; LED Builders Pty Ltd v Eagle Homes Pty Ltd (No 3) 36 IPR 293; Acme Office Service Pty Ltd v Ludstrom [2002] NSWSC 277]. For this reason, a plaintiff is required to elect between remedies.

60. However, a plaintiff should in general not be required to elect, or be found to have elected, between remedies, unless and until it is able to make an informed choice, which involves the right to receive reasonable information as to its potential entitlement in the case of both alternative remedies [LED Builders Pty Ltd v Eagle Homes Pty Ltd (No 3)]. Thus, a plaintiff should not be required to elect, at least until all the evidence is complete, and if the trial is not split, the parties will have to call evidence addressing both damages and an account of profits, as would the respondents; whereas if the trial is split, so that there is a separate inquiry as to the quantum of compensation, then the issue does not arise until after liability has been determined, and the election is made before the inquiry as to quantum is embarked upon [Minnesota Mining & Manufacturing Co v C Jeffries Pty Ltd (1992) 37 FCR 294; Caterpillar Inc v Sun Forward Pty Ltd (1996) 37 IPR 41; LED Builders Pty Ltd v Eagle Homes Pty Ltd (No 3); Gentry Homes Pty Ltd v Diamond Homes Pty Ltd (1993) AIPC 91–008; Island Records Ltd v Tring International Plc [1996] 1 WLR 1256; Tang Man Sit (Representatives of) v Capacious Investments Ltd [1996] 1 AC 514; Brugger v Medicaid [1996] FSR 362; Dr Martens Australia Pty Ltd v Bata Shoe Company of Australia Pty Ltd 145 ALR 233; Acme Office Service Pty Ltd v Ludstrom].”

22. Further, submitted the plaintiffs, the parties had not yet put on any evidence about quantum although their liability evidence had been filed. Therefore, the liability case was almost ready for hearing and could proceed fairly soon.

23. The evidence on quantum would be necessarily complicated because, as pointed out by Mr Christopher, the damages claimed extended to equitable compensation, damages for breach of contract, damages for conspiracy and compensation under the Corporations Act 2001 (Cth).

24. Yet further, said the plaintiffs, the case would be easier to resolve once findings on liability had been made so that the scope of damages could be more accurately predicted.

25. The ninth to eleventh defendants put the contrary case on each point. They submitted that settlement was simply unrealistic absent evidence on quantum. They said that Hexiva should be distinguished because the present case involved an “intertwining” of equitable claims and conspiracy allegations. These claims required proof of loss which necessarily involved proving elements of quantum.

26. In addition, the ninth to eleventh defendants pointed out that two of the witnesses, a Mr McBrayer for the plaintiffs and a Mr Altmann (the ninth defendant, who lives in Germany) would be giving evidence going to both liability and quantum and there would be significant credit issues attaching to both witnesses. The question was posed about what would happen if strong credit findings were made in an initial hearing. Would the judge then have to be recused from the second hearing, a possibility that would involve a good deal of repetition if the matter was heard by a different judge.

27. I was taken to the decision of the Court of Appeal in Western Australia in Landsdale Pty Ltd v Moore [2009] WASCA 176 where, at [22] and [23] the possibility of unforeseen complications was discussed by Newnes JA (Buss JA agreeing):

“22. It is impossible to provide a comprehensive description of the circumstances in which it is appropriate for there to be separate trials of liability and damages.  The exercise of the discretion to make such an order will depend upon what is in the interests of justice in the particular case.  However, the separate trial of issues will generally only be appropriate in cases where there is a clear line of demarcation between those issues, and the determination of one in isolation from the other is likely to result in a substantial saving in time, inconvenience and expense:  Allen v Gulf Oil Refining Ltd [1981] AC 1001; Smith v Maloney (1998) 19 WAR 209, 223. Particular caution needs to be exercised in cases in tort. As Owen and Steytler JJ explained in Chenery v Conti [1999] WASCA 258:

The practice of splitting issues often leads to unforseen and unfortunate results. It is trite to say that a tort is not complete until damage has ensued. Matters of liability will, therefore, almost inevitably involve a consideration of damage. The question usually arises as to the wrong that a plaintiff says it has suffered (liability in the strictest sense), whether damage has ensued and whether the damage found to have been suffered was caused by the wrong done by the defendant (liability in an extended sense). The question that then follows is whether the damage found to have been suffered and to have been caused by the defendant can be quantified and compensated for in monetary terms. That is a question of remedy, not liability [64].

23. Similar views were expressed by Hayne and Callinan JJ in Dovuro Pty Ltd v Wilkins [2003] HCA 51; (2003) 215 CLR 317 as follows:

The difficulties of separating questions of liability for negligence from questions of damages are evident. Damage is an essential element of the tort of negligence. Proof of damage is essential to establishing liability. Further, assessing the standard of care to be met, by reference to the degree of probability of damage occurring, and the expense, difficulty, and inconvenience of taking alleviating action, will often be assisted by knowing what happened as a result of the alleged negligence. In a case like the present, where the negligence is said to have had financial consequences, knowing the extent of those consequences may be particularly important. Splitting trial of the issues of liability and damage may, therefore, achieve little real saving in time or expense. More significantly, by truncating or abbreviating the evidence led about, and attention given to, questions of damage at the trial of questions of liability, separation of the trial of the issues may distort the determination of questions of liability.” (footnotes omitted)

28. The competing arguments are all sound. However, I disagree with the plaintiffs that resolution is not possible until after a hearing on liability. The possibilities of the results on liability are as likely to encourage compromise as the extent of damages claimed. Further the mix of claims, together with the mix of types of compensation that might ultimately be awarded, makes the separation into two distinct categories of liability and quantum very difficult to envisage, let alone achieve.

29. I also agree with the defendants that in a case with the multiplicity of issues that exist here, the possibility of an appeal following a hearing of liability is likely to extinguish any saving of time that might be achieved by splitting the hearing.

30. I am therefore not persuaded that the orders sought by the plaintiffs in relation to separate trials should be made. The only cost consequence that can be envisaged on this result is that the plaintiffs pay the costs of the ninth to eleventh defendants.

31. Once again, I note that the third, fourth and fifth defendants played no part in the argument and there will be no costs orders in respect of any of them.

32. I make the following orders:

1. On the plaintiffs’ notice of motion filed on 5 May 2023, to have separate hearings:

1. The motion is dismissed.

2. The plaintiffs are to pay the costs of the ninth to eleventh defendants of the motion.

3. No order as to costs is made in respect of the third, fourth and fifth defendants.

2. On the plaintiffs’ amended notice of motion filed on 8 September 2023, to amend the statement of claim:

1. The plaintiffs are permitted to file an amended statement of claim in the form of Annexure B to the motion.

2. The Court directs the plaintiffs to provide full and proper particulars within 28 days precisely identifying the information alleged to be confidential and misused, being:

- The specifications allegedly used by Almedis to manufacture crucibles for use in Technegas generators;

1. That are alleged to be specifications developed by CYC;

2. That are alleged to be specifications which Almedis had obtained from CYC without CYC’s knowledge or consent; and

3. That are alleged to be information confidential to Cyclopharm and or Cyclomedica Australia; as comprised of and/or contained within the documents and/or evidence served to date.

- Information claimed to be confidential to Cyclomedica Australia and Cyclopharm as pleaded in paragraphs 89, 92, 102 and 103 of the Amended Statement of Claim (not including information identified in (b) above).

3. The plaintiffs are to pay the costs of the ninth to eleventh defendants thrown away by reason of the amendment.

4. Each of the plaintiffs and the ninth to eleventh defendants are to pay their own costs of the hearing date of 15 November 2023.

5. No order as to costs is made in respect of the third, fourth and fifth defendants.

3. On the ninth to eleventh defendants’ notice of motion filed on 8 September 2023, seeking orders in respect of expert evidence:

1. The time for the ninth, tenth and eleventh defendants to serve any expert evidence in respect of liability is extended to 6 September 2023.

2. The ninth, tenth and eleventh defendants have leave to rely upon the expert report of Dr Wolfgang Babeck in respect of liability, served on 6 September 2023.

3. No order as to costs in respect of this motion.

**********

Amendments

20 November 2023 - Blake Dawson Waldron changed to Gadens

"within 28 days" added to Order 2(b)

Decision last updated: 20 November 2023