Nichols Constructions Pty Ltd v Elphick

[2015] NSWSC 1732

Supreme Court

New South Wales

Medium Neutral Citation:	Nichols Constructions Pty Limited v Elphick [2015] NSWSC 1732
Hearing dates:	18 November 2015
Date of orders:	23 November 2015
Decision date:	23 November 2015
Jurisdiction:	Common Law
Before:	McCallum J
Decision:	That the questions raised by paras 28 to 40 and 47 to 48 of the cross claim and paras 20 to 26 of the defence be decided separately from and after all other issues in the proceedings.
Catchwords:	CIVIL – practice and procedure – separate question – whether appropriate – whether breach issues should be separated from all other issues
Legislation Cited:	Civil Procedure Act 2005 (NSW), ss 56-60; Contracts Review Act 1980 (NSW) National Credit Code 2011, s 79 Uniform Civil Procedure Rules 2005 (NSW), rr 1.21; 28.2
Cases Cited:	Caltex Refineries (Qld) Pty Ltd v Stavar [2009] NSWCA 258; 75 NSWLR 649 CH v Bermingham [2013] NSWSC 1218 Codelfa Construction Pty Limited v State Rail Authority of New South Wales (1982) 149 CLR 337 Commonwealth Bank of Australia v Clune [2008] NSWSC 1125 Integral Home Loans Pty Limited v Interstar Wholesale Finance Pty Limited [2006] NSWSC 1464 New South Wales v Lepore [2003] HCA 4; 212 CLR 511 Nichols Constructions Pty Limited v Elphick [2015] NSWSC 940 Owners Corporation Strata Plan 61288 v Brookfield Multiplex [2012] NSWSC 1219 Southwell v Bennett [2010] NSWSC 1372 Tepco Pty Ltd v The Water Board (2001) 206 CLR 1 Wardley Australia Ltd v Western Australia (1992) 175 CLR 514
Category:	Procedural and other rulings
Parties:	Nichols Constructions Pty Limited (plaintiff) Vickie Maree Elphick (defendant)
Representation:	Counsel: R M Smith SC, D M Macfarlane (plaintiff) S E Gray, M Kalyk (defendant)   Solicitors: Wilson & Co Lawyers (plaintiff) HWL Ebsworth Lawyers (defendant)
File Number(s):	2014/333687
Publication restriction:	None

Judgment

1. HER HONOUR: Almost two years ago, Mrs Vicki Elphick borrowed $4.2 million to buy a waterfront property at Cronulla in which she and her husband now reside. The loan was secured by a mortgage over the property. The term of the loan was two years expiring on 16 December 2015. No repayments of either interest or capital have ever been made.

2. Over a year ago, the lender, Nichols Constructions Pty Limited, commenced proceedings seeking judgment for possession of the property and for the money sum outstanding, then alleged to be $6,388,030. No defence was filed within the time allowed under the rules and default judgments were entered. However, those judgments were subsequently set aside by Harrison AsJ in July 2015: see Nichols Constructions Pty Limited v Elphick [2015] NSWSC 940. In due course, Mrs Elphick filed a defence and a cross-claim seeking declaratory relief the effect of which would be to absolve her of any liability under the loan agreement and to set aside the mortgage, allowing her to retain the property unencumbered.

3. On 18 September 2015, Nichols Constructions filed a defence to the cross-claim together with a notice of motion seeking orders for the expedited hearing and separate decision of certain questions. This judgment determines that application.

Power to order the decision of a separate question

4. The court has discretionary power under r 28.2 of the Uniform Civil Procedure Rules 2005 (NSW) to make orders for the decision of any question separately from any other question in the proceedings. In exercising the power, the court must seek to act in accordance with the guiding principles stated in ss 56 to 60 of the Civil Procedure Act 2005 (NSW) and have regard to the mandatory considerations identified in those provisions.

5. The term “question” is not defined for the purpose of the rule. Elsewhere in the rules, it is defined to include any question or issue in any proceedings, whether of fact or law or partly of fact and partly of law, and whether raised by the pleadings, agreement of parties or otherwise: r 1.21 (dealing with the removal of proceedings into the Court of Appeal). There is no reason to think that the scope of the power under r 28.2 is more narrowly confined: cfSouthwell v Bennett [2010] NSWSC 1372 at [15](a) per Hallen AsJ (as his Honour then was).

Separation of questions proposed by the applicant

6. The separate questions proposed by Nichols Constructions are framed by reference to the pleadings and contemplate the separate decision of all issues other than those raised by specified paragraphs of the pleadings. The issues sought to be excluded from the expedited hearing were referred to by the parties as the “earthworks issues”. In order to explain why the proposed order is framed in exclusionary terms, it is necessary to explain the issues raised by Mrs Elphick’s defence and cross-claim.

7. By her defence filed 31 July 2015, Mrs Elphick admits that Nichols Constructions lent her the sum of $4.2 million and that she signed a written loan agreement and the mortgage.

8. The loan arose out of dealings between Mrs Elphick’s husband, Mr Ken Elphick, and the principal of Nichols Constructions, Mr Les Nichols. Nichols Constructions owned 102 subdivided lots and other land also proposed for subdivision at Laidley in Queensland. During 2013, Nichols Constructions entered into commercial arrangements with companies associated with Mr Elphick involving the sale and development of the Laidley lots.

9. The terms of those arrangements are in dispute. Mr and Mrs Elphick contend that a company controlled by Mr Elphick, Point Corp Pty Limited, was engaged by Nichols Constructions to work “in conjunction with” Nichols Constructions to promote and market the Laidley lots and to project manage the construction of houses on those lots. Nichols Constructions denies that characterisation of the arrangements.

10. Mr Elphick was the sole director of Point Corp and Mrs Elphick was its sole shareholder. The loan to Mrs Elphick was proposed and negotiated by Mr Elphick on her behalf. In an affidavit sworn in support of the application to have the default judgments set aside, Mr Elphick said that, after Point Corp had procured the sale of a number of the Laidley lots, he asked Mr Nichols whether Nichols Constructions would lend Mrs Elphick $4 million for the purchase of the property (against a valuation of $4 million) together with an amount of $250,000 for legal costs and stamp duty. Mr Elphick told Mr Nichols that he would repay the loan from commission and fees due to Point Corp on the sale of the Laidley lots and fees from building contracts for the construction of houses on those lots.

11. In a second affidavit, Mr Elphick deposed to a further conversation shortly before the loan agreement was signed as follows:

Mr Elphick:   So, what will happen is that Point Corp will have the ability to call upon Nichols Constructions to release land for the purpose of it being sold to third parties. That land will be sold for $110,000.00, whereby Point Corp will pay $10,000.00 of that amount and the third party purchaser will pay the remaining $100,000.00 of that amount to Point Corp to pass to Nichols Constructions. Point Corp will recover its $10,000.00 by performing constructions works for the third party purchaser and building the $10,000.00 into the construction costs. Each time a sale is made Point Corp will pay to Nichols Constructions the $100,000.00 purchase price that it receives from the third party and $10,000.00 which will come out of Point Corp’s pocket, but which Point Corp will recover through the construction price. In making the payment of $100,000 Point Corp will pay over its commission of $28,500 for each sale from Nichols Construction from April 2014. We will be aiming to do 10 a month. Nichols Constructions will keep that amount so that a total of $4,684,000.00 is paid by Vickie for the loan. The extra $484,000 on top of the interest and initial principal will be for the 44 earlier lots which have been sold at $99,000 instead of $110,000.

Mr Nichols:   Agreed.

12. The funds were advanced on 17 December 2013. The amount advanced by Nichols Constructions was the whole of the purchase price plus expenses; Mr and Mrs Elphick put in no funds of their own. The loan was documented by a loan agreement dated 17 December 2013 and a mortgage, each executed by Mrs Elphick. The loan agreement referred to a “principal sum” of $4.2 million and a “final principal sum” of $4.684 million, evidently so as to provide for the payment of an additional $484,000 by way of back-payment for the proceeds of sale of 44 lots that had previously been sold, as contemplated in the conversation set out above.

13. The loan agreement included a covenant by the mortgagor “to repay to the mortgagee the principal sum on the day and in the manner specified in the schedule hereto and otherwise in accordance with the provisions of this agreement”. The schedule, in turn, stated (albeit in the clause dealing with the rate of interest) “the Mortgagor will make the payment in accordance with the attached spreadsheet”. The spreadsheet contemplated the repayment of the final principal sum of $4.684 million by monthly repayments of $285,610 commencing in April 2014. The timing of those payments (including a lower amount for the last payment) saw repayment of the final principal sum by September 2015; importantly, the spreadsheet did not address the repayment of interest.

14. Interest was to be calculated and charged by monthly instalments at the rate of 12% per annum unless instalments were paid “on the due dates” in which case the lower rate of 8% per annum applied. The schedule stated that interest was to be calculated and charged monthly in advance but expressly specified that the first interest payment was to be made on 16 January 2014 (which was one month after the execution of the loan agreement). In any event, interest was not paid on that date or on any date thereafter. Nichols Constructions conducted the application before Harrison AsJ on the premise that the monthly interest payment due on 16 January 2014 was $28,000 (T28.15; T30.26). That assumes interest was not payable on the additional sum; it is the application of the lower rate of 8% to the “principal sum” of $4.2 million, not the “final principal sum” of $4.684 million.

15. The schedule included the following term as to the repayment of principal and interest:

5. The Mortgagor will pay to the Mortgagee the amount of $4,684,000.00 (“the final principal sum”) together with interest and any other moneys owing hereunder on or before 16 December 2015 from the date hereof (sic).

16. Mrs Elphick contends that, in addition to those express written terms, there was an express oral term of the loan which was agreed in conversations between Mr Elphick and Mr Nichols before the written agreement was entered into. So far as the evidence relied upon at the default judgment application reveals, the relevant conversations are those set out above. It is not clear from the pleading whether any further conversation is relied upon. Alternatively, Mrs Elphick contends that the term arose by implication and that there was also a separate implied term of the loan agreement.

17. The alleged additional terms are pleaded in paragraph 10 of the cross-claim filed 17 August 2015. Paragraph 10(a) pleads an additional term which would qualify the covenant to repay principal “on the day and in the manner specified in the schedule”. The additional term, alleged to be either express or implied, is that Mrs Elphick “was to repay principal and interest in accordance with the schedule and the spreadsheet attached to the loan agreement document (the spreadsheet) when the subdivided lots were sold and contracts for the construction of dwellings on those sold lots were entered into such that the amounts identified in the spreadsheet were achieved” (emphasis added). The clear import of the pleading is to assert that such payments were not due until the subdivided lots were sold and the construction contracts entered into. The pleading implicitly accepts that no such deferment of the obligation to pay instalments is allowed on the proper construction of the written terms.

18. Paragraph 10(b) of the cross-claim pleads the spearate implied term that Nichols Constructions was “to use all reasonable endeavours to carry out the subdivision work with reasonable care and skill and in a proper and workmanlike manner to ensure that the sales and construction amounts identified in the spreadsheet were achieved”. For convenience, I will refer to the additional terms as the “deferred payment term” and the “reasonable endeavours term” respectively.

19. In the case of the implied terms, the implication is said to arise in each case from the written and oral parts of the loan agreement and from circumstances relating to Mrs Elphick (pleaded in paragraphs 12 to 25 of the cross-claim). The circumstances relating to Mrs Elphick allege, broadly, that she was a housewife with no employment and no source of income other than the dividends she received from Point Corp; that she had no control over Point Corp or its dealings with Nichols Constructions and that she signed the loan agreement and mortgage without reading them or comprehending their terms and without the benefit of independent legal or financial advice. Mrs Elphick also relies upon the fact that, while the sum advanced for the purchase of the property was $4.2 million, the “final principal sum” due in accordance with the loan agreement included an additional $484,000 never received by her. On the strength of the conversation between Mr Elphick and Mr Nichols set out above, that appears to be an amount that was payable by Point Corp or some other entity associated with Mr Elphick. Implicitly, Mrs Elphick appears to accept (as I think she must, since she became the registered proprietor of the property) that she received the benefit of the $4.2 million.

20. The reasonable endeavours term is also alleged to be implied by reason of the additional fact that Nichols Constructions was responsible for subdividing the Laidley land from which Point Corp would generate the profits identified in the spreadsheet.

21. The issues sought by Nichols Constructions to be separate (that is, excluded from the proposed expedited hearing) are those raised by paras 28 to 40 and 47 to 48 of the cross-claim (and the equivalent parts of the defence). Paragraphs 28 to 40 of the cross-claim allege, under the heading “intervening conduct”, that Nichols Constructions failed to carry out earthworks and bitumen works in the subdivision in a satisfactory manner, causing sever drainage issues and uneven bitumen and that, as a result of those failings, the sales and construction amounts identified in the spreadsheet (upon which Mrs Elphick relied in order to repay the loan) were not achieved.

22. The same allegations (failure to carry out the earthworks and bitumen works in a satisfactory manner) are relied upon to sustain an alternative claim in negligence pleaded in paras 41 to 48 of the cross claim. The order for separate decision sought by Nichols Constructions would see the question whether a duty of care was owed (paras 41 to 46) determined at the proposed expedited hearing but the allegation of breach of duty (which is based wholly on the “intervening conduct” allegations) and causation of loss excluded from the expedited hearing (paras 47 and 48).

23. Thus the issues sought to be excluded are those concerning alleged failings in the manner in which Nichols Constructions carried out the earthworks and bitumen works in the subdivision of 129 lots of land in Queensland; its alleged failure to use reasonable endeavours to resolve the problems caused by those failings; the impact of those failings on Point Corp’s ability to sell and develop the lots and, in turn, the impact of those matters on Mrs Elphick’s capacity to repay the loan. The excluded parts of the cross-claim also include allegations that it would be unconscionable, in the circumstances, to allow Nichols Constructions to benefit from its breaches of the loan agreement (its failure to carry out the earthworks and bitumen works in a satisfactory manner or to use reasonable endeavours to resolve the problems caused by those failings) (paras 33 and 39).

24. For completeness, it should be noted that Mrs Elphick further alleges that the mortgage is unjust within the meaning of the Contracts Review Act 1980 (NSW) and s 79 of the National Credit Code 2011 “and/or unconscionable”. Separately, she alleges that the proceedings amount to an abuse of process, since Nichols Constructions commenced the proceedings without complying with the requirements of the National Credit Code. Nichols Constructions does not seek to exclude the determination of any of those contentions from the proposed expedited hearing. The earthworks issues relate only to the claims in contract and tort.

25. It may be seen that the burden of the contractual argument (the two alleged additional terms) is that, on either of the additional terms, Mrs Elphick has no enforceable obligation to repay the loan unless and until funds are received from the sale of lots and contracts for the construction of houses in accordance with the payment spreadsheet.

Grounds on which the order is sought

26. Nichols Constructions put forward two principal reasons for separating the decision of questions in these proceedings. First, it was submitted that the Court’s determination as to the terms of the contract will have “a decisive effect” upon the resolution of the claims in contract and negligence and that, upon analysis, the earthworks issues are moot. There is force in that submission, for the following reasons.

27. Mrs Elphick’s case (if I have understood the cross-claim correctly) is that, if the deferred payment term pleaded in para 10(a) is a term of the contract, it qualifies the covenant to pay whereas, if the reasonable endeavours term pleaded in para 10(b) is a term of the contract, the covenant to pay would be unenforceable because it would be unconscionable to allow Nichols Constructions to enforce payment.

28. The deferred payment term would hold that the obligation to repay did not arise until lots were sold and building contracts entered into such that the profits identified in the spreadsheet were achieved. If that term is found to exist, there was no obligation to pay until lots were in fact sold and building contracts in fact entered into. On the case as pleaded, the reason such sales and contracts were not achieved is irrelevant.

29. As already noted, the deferred repayment term is alleged to be either express or implied. Probably in either case and certainly as an implied term it faces the obvious difficulty that indefinite deferral of the obligation to pay would be inconsistent with the covenant in clause 6(a) of the loan agreement to repay the principal sum of $4.2 million on or before 16 December 2015. In any event, the point is that, on that analysis, the earthworks issues do not arise.

30. Alternatively, if the deferred repayment term is not found, the reasonable endeavours term would also not be found (so it was submitted) as it would be inconsistent or at least in tension with the express terms of the agreement (including, on that premise, an unqualified covenant to pay in accordance with an agreed schedule of instalments). Further, as submitted on behalf of Nichols Constructions, the reasonable endeavours term would on that premise probably also fail the other tests for the implication of terms stated in Codelfa Construction Pty Limited v State Rail Authority of New South Wales (1982) 149 CLR 337; it is not necessary to give business efficacy to the agreement, not obvious and not reasonable. Nichols Constructions submitted that, if neither additional term exists, the earthworks issues will be irrelevant to the contractual claim.

31. It was further submitted that, if neither additional term is found, the duty of care would also be unlikely to be found. In particular, it was submitted that the duty of care alleged is a novel duty to avoid pure economic loss and is accordingly one which must be tested for the presence of any of the “salient features” identified in the judgment of Allsop P (as his Honour then was) in Caltex Refineries (Qld) Pty Ltd v Stavar [2009] NSWCA 258; 75 NSWLR 649. One of the features listed by his Honour is that a duty in tort should not be inconsistent with the terms of any contract.

26. As noted by Nichols Constructions, there is no suggestion that the earthworks issues arise in respect of the claim for statutory relief or the abuse of process argument.

27. The second principal reason put forward by Nichols Constructions for separating the decision of the earthworks issues was that the preparation of that issue for trial will involve delay and irrecoverable expense. Mrs Elphick noted that the affidavit in support of the application provided no detail as to the time and cost likely to be spent on the earthworks issues (compared, for example, with the detailed evidence put before McDougall J when his Honour ordered the separate determination of the question of the existence of a duty of care in Owners Corporation Strata Plan 61288 v Brookfield Multiplex [2012] NSWSC 1219 at [21]-[22]).

28. In my view, the issues speak for themselves. Unless there is no contest, Mrs Elphick assumes the burden of proving, as to 129 lots of land, that Nichols Constructions failed to carry out earthworks and bitumen works in a satisfactory manner, causing sever drainage issues and uneven bitumen and that, as a result of those failings, the sales and construction amounts identified in the spreadsheet (upon which Mrs Elphick relied in order to repay the loan) were not achieved. If the scope of those issues is narrower than it sounds, Mrs Elphick could herself have adduced evidence on that issue.

29. It is possible that there will be no contest as to the standard of the earthworks and bitumen works: in its defence to the cross-claim, Nichols Constructions responds to the allegations of failure to carry out works in a satisfactory manner by admitting that it has proceedings on foot against the subcontractor (suggesting a risk of duplication if the same issues are litigated in this Court). But even if there is no contest as to the standard of the works, Mrs Elphick will still have to prove (according to the pleading) that those failings caused each of 129 sales and building contracts not to proceed such that she was prevented from paying each of the 17 monthly instalments identified in the spreadsheet.

30. In the meantime, Mrs Elphick claims to have no capacity to repay the loan. She is evidently so short of funds that, leaving aside the earthworks problems, she has not been able to afford to make even a single interest payment. Accordingly, it seems likely that, if the cross claim fails, Nichols Constructions will not recover its costs.

Grounds on which the order is opposed

37. Mrs Elphick opposed the making of an order for the decision of any separate question.

38. By way of general submission, she noted that the usual position is that all issues should be determined in the one trial and that the ordering of questions for a separate determination remains “an exceptional course”, citing Commonwealth Bank of Australia v Clune [2008] NSWSC 1125 per Johnson J at [6]. If is informative to consider the relevant passage in full:

It has been observed that, since the Civil Procedure Act 2005, the Court should take a more interventionist role in identifying and separating important issues which can resolve significant parts of litigation expeditiously: Integral Home Loans Pty Limited v Interstar Wholesale Finance Pty Limited [2006] NSWSC 1464 at [6]. Although trial courts will probably be more disposed nowadays to order separate questions than they might have been in the past, it remains the case that separate determination is an exceptional course to be contrasted with the ordinary course of deciding a case in its totality: Street v Luna Park Sydney Pty Limited [2007] NSWSC 697 at [5].

39. Importantly, it is clear that his Honour was not purporting to state a qualification on the broad discretionary power conferred by r 28.2, but only to observe that the separate decision of questions is the exceptional case rather than the norm. In the portion of the decision in Integral Home Loans Pty Limited v Interstar Wholesale Finance Pty Limited [2006] NSWSC 1464 cited, Brereton J said at [6]:

While much has been said against the resolution of separate questions in Courts of high authority, nonetheless, since the (NSW) Civil Procedure Act 2005, it is my view that the Court should take a more interventionist role in identifying and separating important issues which can resolve significant parts of the litigation expeditiously.

40. I would respectfully share that view.

41. Mrs Elphick further submitted (with underlining) that a separation of questions should only occur in the “clearest of cases” or “when their utility, economy, and fairness to the parties are beyond question”. The submission was put as a statement of the law on the authority of the decisions of the High Court in, respectively, Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 at 533 and Tepco Pty Ltd v The Water Board (2001) 206 CLR 1 at [170] per Kirby and Callinan JJ.

42. Wardley was not concerned with the circumstances in which the decision of separate questions should be ordered. The decision under appeal was an interlocutory judgment in respect of an amendment to a statement of claim. The amendment had been struck out on the basis that it pleaded a cause of action outside the limitation period. In the remarks of the plurality cited by Mrs Elphick, their Honours expressed the strong view that it is undesirable to decide limitation questions of the kind there under consideration in interlocutory proceedings, “except in the clearest of cases”.

43. Mrs Elphick’s reference to that decision in the present context was explained by a footnote citation of the decision of Button J in CH v Bermingham [2013] NSWSC 1218. That was a case in which the defendants sought the decision of a limitation question as a separate question. His Honour said at [26]:

“in Wardley Australia Ltd v Western Australia [1992] HCA 55; (1992) 175 CLR 514 at 533, the High Court emphasised that limitation questions should not be decided in interlocutory proceedings, "except in the clearest of cases". Although the cause of action and subject matter in that case were markedly different from those here, the principle is one of general application”.

44. The burden of the submission was that, taken together, Wardley and CH v Bermingham provide authority for the existence of a principle that the decision of a separate question should only be ordered in the “clearest of cases”. That is not what those cases say; the submission overlooks the distinction between an interlocutory decision and the decision of a separate question, not to mention the fact that each case was concerned specifically with limitation questions. With great respect to the author of the submission, whose argument was earnest and comprehensive, it is dangerous to treat a descriptive phrase used in a specific context as a statement of principle of general application. It is not even clear to me what “the clearest of cases” means. Rule 28.2 does not articulate any such qualification of the power to order the separate decision of any question.

45. Tepko was a case involving the determination of a separate question as to whether the Water Board owed a duty of care to the plaintiffs. The remarks in the dissenting judgment of Kirby and Callinan JJ cited by Mrs Elphick emphasise “the difficulties that can be caused when that course is adopted”. Their Honours would have held that a duty of care was owed; the majority held that the Water Board owed no duty (arguably vindicating the approach taken). I would nonetheless accept that great care must be taken when an application seeks to separate questions of duty and breach, or breach and damages; the risk that the issues will prove inappropriate for separation is manifest and must be considered closely: New South Wales v Lepore [2003] HCA 4; 212 CLR 511 at 575, [177] per Gummow and Hayne JJ.

46. The need for a careful approach is recognised in many authorities. A thorough and helpful survey is contained in Southwell v Bennett at [15], as follows:

I take the principles that apply in determining whether to make an order for the separate determination of a question under the rule to be:

The rule speaks of “questions” and not “issues” and does not differentiate between questions of fact, or law, or partly of fact and partly of law.

The judicial determination of a “question” must involve a conclusive, or final, decision based on concrete and established, or agreed, facts, for the purpose of quelling a controversy between the parties: Bass v Permanent Trustee Co Ltd [1999] HCA 9; (1999) 198 CLR 334, at [45] and [51].

The rule permits the Court to hear and determine the separate question at any point before, at, or after, any trial or further trial in the proceedings, rather than only as a preliminary question.

Whether such an order should be made is a matter for the court’s discretion, which discretion must be exercised judicially, but cannot otherwise be fettered: Dunstan v Simmie & Co Pty Ltd [1978] VR 669, at 670; Idoport Pty Ltd v National Australia Bank Ltd [2000] NSWSC 1215 at [7].

As a general rule, the discretionary power to order separate determination of a question should be approached with caution: Perre v Apand Pty Ltd [1999] HCA 36; (1999) 198 CLR 180 at [436], per Callinan J; Tepko Pty Limited v The Water Board [2001] HCA 19; (2001) 206 CLR 1, at [168]–[170] per Kirby and Callinan JJ: Commonwealth Bank v Clune [2008] NSWSC 1125 at [6], per Johnson J; Bailey and Bailey v Director-General Department of Energy Climate Change and Water and Ors [2010] NSWSC 979 at [4] per Studdert AJ.

In exercising its discretion, the overriding purpose of the Civil Procedure Act 2005, namely the just, quick and cheap resolution of the real issues in the proceedings (s 56) must be given effect.

Generally, all questions of fact and law should be determined at the one time: Tallglen Pty Ltd v Pay TV Holdings Pty Ltd (1996) 22 ACSR 130 at 141-42; SPI Spirits (Cyprus) Ltd v Diageo Australia Ltd [2006] FCA 14. If the Court is to depart from that position, the party seeking the separate determination of a question must satisfy the Court that it would be ‘just and convenient’ for that order to be made: Reading Australia Pty Ltd v Australian Mutual Provident Society [1999] FCA 718 at [8]-[9], see also Energy Australia v Australian Energy Limited [2001] FCA 1049.

While it may appear attractive, superficially, to order the trial of a separate question, experience often shows that it will not be so, for example, because of the complications that can arise in relation to appeals, or to overlapping factual issues, or to questions of credit, if the same witnesses have to give evidence in relation to a question that is separated and those questions that are not: Idoport Pty Ltd v National Australia Bank Ltd [2000] NSWSC 1215 at [7(6)] per Einstein J.; Owners Corporation Sp 70672 v Trustees of Roman Catholic Church [2010] NSWSC 946 at [16] per Ball J.

The experience of courts suggests that the separation of proceedings often does not result in the quicker and cheaper resolution of proceedings, but often has the reverse effect. It sometimes happens that it turns out to be productive of the disadvantages of delay, extra expense, appeals and uncertainty of outcome which it is intended to avoid: Idoport Pty Ltd v National Australia Bank Ltd; Tepko Pty Limited v The Water Board at [168].

Before a question is to be separately determined, it must be possible to clearly see that it will facilitate the quicker and cheaper resolution of the proceedings: Tallglen v Pay TV Pty Ltd at 142, per Giles CJ in Comm D; Parramatta Stadium Trust v Civil and Civic Pty Ltd; Century Medical v THLD (NSWSC, 27 August 1996, unreported).

Where findings as to the credit of a witness is, or of witnesses are, or may be, involved in the consideration of the evidence relevant to the question, it is inappropriate to order a separate trial: ABB v Freight Rail [1999] NSWSC 1037.

Often, a separate question is heard on the basis of:

agreed statements of fact;

a narrow point to be determined; and

a hearing that is able to be conducted within a short time (or a short time relative to the total length if the hearing of the separate question were not to be dealt with).

Factors that tend to support the making of an order, include that the separate determination of the question may:

contribute to the saving of time and cost by substantially narrowing the issues for trial, or even lead to disposal of the proceedings: Tallglen v Pay TV Holdings;

contribute to the settlement of the litigation (CBS Productions Pty Ltd v O’Neill (1985) 1 NSWLR 602 per Kirby P at 607).

It may be appropriate to determine a separate question, even if it will not resolve all the issues, provided that there is a strong prospect that the parties will agree upon the result when the core of the dispute has been decided, or if the decision will obviate unnecessary and expensive hearings of other questions: City of Swan v Lehman Brothers Australia Ltd [2009] FCA 784; (2009) 73 ACSR 86 at [27] per Rares J. The determination of the one question should enable a sensible reassessment of litigation risks, which is generally likely to encourage some form of settlement discussions.

Relevantly, one factor that may tell against the making of an order would be where there is likely to be a significant overlap between the evidence adduced on the hearing of the separate question and at trial — possibly involving the calling of the same witnesses at both stages of the hearing of the proceeding: Reading Australia Pty Ltd v Australian Mutual Provident Society at [8]. There is always a risk of inconsistent findings arising from determination of separate questions.

Whilst the decision is ultimately one for the court to determine, it will have regard to the attitude of the parties: TVW Enterprises Limited v Duffy (Federal Court of Australia, 28 March 1985, unreported) Toohey J.

It is a relevant consideration to weigh the time likely to be taken in the hearing of a separate question and the availability of hearing dates for that purpose, against the time and expense of a substantive hearing and the length of time likely to elapse before such a hearing will take place: TVW Enterprises Limited v Duffy at pp 4-5.

Each case will have its own dynamics that dictate the relative importance of various factors to be considered in exercising the discretion conferred.

It is necessary that there be precision, both in formulating the question, and in specifying the facts upon which it is to be decided: Jacobson v Ross [1995] 1 VR 337 at 341.

47. Mrs Elphick identified three specific factors militating against the making of an order. First, it was submitted that there is a real possibility of different assessments of credibility by different judicial officers, since Mr Nichols, Mr Elphick and Mrs Elphick are all likely to be required to give evidence on the questions proposed for separate decision and on the earthworks issues. Secondly, it was submitted that there is a real possibility of overlapping issues and evidence in the two proceedings. The third was the submission which I have already addressed as to whether the hearing will be delayed or involve significant cost if the order is not made.

48. I have given close consideration to the specific concerns outlined in the plaintiff’s written submissions. Two issues are of particular concern. The first is that it does seem likely that, if the order is made, Mr Nichols, Mr Elphick and Mrs Elphick will each have to give evidence twice. While that is undoubtedly a factor militating against making the order, I do not think it is necessarily determinative. Courts can and sometimes do deal with such complexities, perhaps more commonly in criminal proceedings (such as when trials of multiple offences or multiple offenders are split or an offender gives evidence at trial and again on sentence) but not exclusively. There is a logical division in the issues to which the witnesses’ evidence would be addressed in the present case; the issues for the proposed expedited hearing are concerned with events leading up to the making of the loan; the earthworks issues concern the period after the loan was made.

49. The appropriateness of ordering a course which could see the three principal witnesses give evidence twice must be assessed having due regard to the unique circumstances of this case. The earthworks issues raised in the cross claim introduce what is, in effect, a large building case relating to a development in another state. This is not a case like Lepore where the content of any duty of care was uncertain and the issues of duty, breach and damage were inherently likely to inform each other. The duty alleged in the present case (“to use all reasonable endeavours to carry out the subdivision work with reasonable care and skill and in a proper and workmanlike manner to ensure that the sales and construction amounts identified in the spreadsheet were achieved”) is one of relatively straightforward content; the complexity lies, rather, in determining whether such a duty arose (by agreement or at common law) in the case of a lender/mortgagee so as to qualify the operation of a clear written loan agreement.

50. The second issue that concerns me is the risk adverted to in a number of the cases summarised in Southwell v Bennett that the apparent attraction of the course proposed may prove illusory and that the issues may be more complex than they were made to sound by the compelling submissions put on behalf of Nichols Constructions.

51. Whilst these words may return to haunt me, a careful consideration of the pleadings has persuaded me that this is a case which warrants the “interventionist approach” commended by Brereton J in Integral Home Loans of “identifying and separating important issues which can resolve significant parts of the litigation expeditiously”. The prospect of an ambitious claim in tort being litigated on the purse of the mortgagee as alleged tortfeasor did not arise in Tepko or Lepore. As noted by senior counsel for Nichols Constructions, there is no perfect course; the mandate of the Civil Procedure Act is to seek to achieve the least unhappy course in the face of difficult, competing considerations. In my view, the course proposed by Nichols Constructions accords with the dictates of justice in this case.

52. For those reasons, I have determined that the order sought by Nichols Constructions should be made.

53. As to the application for expedition, the degree of expedition that may be appropriate will turn, to an extent, on the estimate for the hearing. A tentative estimate was suggested during argument but it was one which may warrant closer examination. It will be necessary to hear the parties further on that question.

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Decision last updated: 23 November 2015