SA Water Corporation v United Water International Pty Ltd - [2009] SASC 383

SUPREME COURT OF SOUTH AUSTRALIA
(Civil: Application)
SA WATER CORPORATION v UNITED WATER INTERNATIONAL PTY LTD
[2009] SASC 383
Judgment of The Honourable Justice Anderson
15 December 2009
PROCEDURE - SUPREME COURT PROCEDURE - SOUTH AUSTRALIA - PROCEDURE UNDER RULES OF COURT - OTHER MATTERS ARISING BEFORE TRIAL
PROCEDURE - COURTS AND JUDGES GENERALLY - JUDGES - POWER TO CONTROL PROCEEDINGS - MISCELLANEOUS POWERS
APPLICATION FOR SPLIT TRIAL - Rule 211
Application by defendant that trial be split into separate trials on liability and quantum - whether general rule that all issues be dealt with in a single trial should be departed from as a matter of discretion.
Held: The general rule should not be departed from - direcretionary factors are not in favour of a split trial - trial not to be split into separate trials on liability and quantum - application refused.
APPLICATION FOR URGENT TRIAL - Rule 119
Application by defendant that the trial be heard on an urgent basis - whether defendant will suffer detriment if trial not expedited - whether expedited trial practical.
Held: Defendant may suffer some detriment if trial not expedited - expedited trial practical to some extent - special case management program to be established for the action - application granted.
Trade Practices Act 1974 (CTH) s 52, s 82 and s,87; Fair Trading Act 1987 (SA) s 84 and s 85; Misrepresentation Act 1972 (SA) s 7; Supreme Court Civil Rules 2006 r 115, r 119 and r 211; Limitation of Actions Act 1936 (SA) s 48, referred to.
Abigroup Contractors Pty Ltd v Hardesty & Hanover International LLC [2008] SASC 369; Rivers v Rivers [2002] SASC 197; Duke Group Ltd v Alamain Investments Ltd (No 2) [2006] SASC 33; City of Onkapapringa v Hassell Pty Ltd [2007] SASC 163; Reading Australia Pty Ltd v Australian Mutual Provident Society (1999) 217 ALR 495, applied.
Wardley Australia Ltd v Western Australia (1992) 175 CLR 514, discussed.
CBS Productions Pty Ltd v O'Neill (1985) 1 NSWLR 601; Fleming's Nurseries Pty Ltd v Hannaford [2008] FCA 591; Liberty Financial v Scott [2003] FCA 226, considered.

SA WATER CORPORATION v UNITED WATER INTERNATIONAL PTY LTD
[2009] SASC 383
Civil
ANDERSON J.
Introduction

The plaintiff, South Australia Water Corporation (“SA Water”) took out a summons and filed its statement of claim on 31 August 2009. The defendant, United Water International Pty Ltd (“United”), filed its defence on 18 September 2009.
SA Water alleges a breach of contract, misleading and deceptive conduct in contravention of s 52 of the Trade Practices Act 1974 (Cth) and s 84 of the Fair Trading Act 1987 (SA), and a claim under the Misrepresentation Act (1972). SA Water seeks damages for breach of contract, damages pursuant to s 82 of the Trade Practices Act, damages pursuant to s 84 of the Fair Trading Act and damages pursuant to s 7 of the Misrepresentation Act. SA Water seeks to set aside the contract under s 87 of the Trade Practices Act and s 85 of the Fair Trading Act.
This matter was assigned with a special classification pursuant to r 115 of the Supreme Court Civil Rules 2006, and I have been assigned as the judge to supervise conduct of the action to the point of trial.
The parties requested an urgent hearing before me to dispose of two interlocutory applications taken out by United. The first of these is for an urgent trial pursuant to r 119 of the Rules. The second is pursuant to r 211 requesting that the action be split so that the issues of liability and issues of quantum are heard separately.
I indicated to the parties at the conclusion of the hearing that I would give a decision as quickly as possible because of the suggested urgency, and that I would publish reasons which are necessarily brief.
Affidavits were filed by both parties, supported by oral argument. Mr Whitington QC appeared for United and Mr Hoffmann QC appeared for SA Water.
SA Water seeks an extension of time pursuant to s 48 of the Limitation of Actions Act (1936).
Background
On 18 December 1995 the parties entered into a contract in which United agreed to provide certain services for which SA Water agreed to pay. The payments included amounts referred to in the contract as lump sum charges and were to be calculated annually and payable by monthly instalments.
There were three pricing periods nominated in the contract, being the five and a half years ending 30 June 2001, the first subsequent pricing period ending 30 June 2006 and the second subsequent pricing period ending 30 June 2011.
Clause 10.2 of Schedule E of the contract requires the parties to negotiate the lump sum charges for the next period of the contract. This process is required to be commenced at least six months prior to the commencement of the next period.
The parties commenced their negotiations to review the lump sum charges in December 2000. Following the review, an agreement was reached in April 2003 for the new prices, and since that time invoices have been rendered on a monthly basis by United and paid for by SA Water.
SA Water claims that the contract required United to exclude in its profit margin calculations the costs of services described in the contract as Part B services, as well as the overhead costs associated with services other than the services defined in the contract. SA Water alleges that United in fact included such proscribed items in the lump sum costs for its profit margin calculations. These items included research, business and industry development costs relating to Part B of the contract, as well as all of United’s corporate overhead costs, including those which related to its other operations interstate and in New Zealand.
SA Water claims these items should have been excluded from United’s profit margin calculations, and that the declared profit margin for the initial pricing period of the contract was less than the true margin. The profit margin provided by United for the initial pricing period was 1.2% of lump sum costs. This figure is much smaller than the tender bid profit margin of 15.4% of lump sum costs.
SA Water then agreed to increased lump sum charges for the first subsequent pricing period of the contract. The contract with United was accordingly varied with a new agreement signed in April 2003. The 2003 contract therefore increased the lump sum charges payable to United, and SA Water now claims that this new contract was signed on the basis of what amounts to a breach of contract and misrepresentations by United.
SA Water presents its case on the basis that the profit margin was to be calculated excluding both the costs of services described in the contract as Part B services and the overhead costs.
There were three key documents relied upon by United during the review. The first was United’s 2001 statement of position dated 14 March 2001. Then there was a letter from Price Waterhouse Coopers dated 15 April 2001 and finally a letter dated 3 May 2001 from SA Water.
Mr Whitington referred to these documents in support of his submission that the manner in which the profit margin was understood in the negotiations was abundantly clear. He submitted that the calculations were straightforward. In addition, he submitted that an examination of the way in which the negotiations proceeded shows how simple the liability case is and why that should be determined as a separate issue.
I was taken to an analysis of the various figures contained in the accounts submitted during the negotiations to show how the profit margin was derived. Mr Whitington used the analysis to show the apparent strength of United’s case but also to support the claim for a split trial because of the simplicity of the liability case.
Whilst it may appear to be simple on Mr Whitington’s analysis, the matter will ultimately involve expert accounting evidence, and I suspect it will not be a simple exercise on the limited understanding I have at this stage.
Mr Hoffmann submitted that quantification of the Part B costs and the overhead costs would involve a complicated exercise by an expert which, although it would be the subject of the proposed quantum trial, nevertheless has also to be addressed in the liability trial. The issues of relevance and causation relating to the alleged misrepresentations mean that SA Water will have to show how it would have proceeded had it known the true lump sum costs and profit margin. It was submitted that the hypothetical exercise will be an important part of any liability trial.
The submissions relating to the need for a split trial
(a) United’s submissions
Mr Whitington relied principally on an affidavit of Roxanne Kylie Smith which outlined the way in which the first part of the trial, dealing only with liability, could be handled. He submitted that if, of course, the defendant was successful in that first part of the trial, then that would dispose of the action entirely. The first part of the trial as proposed by the defendant involves making determinations as to whether statements made by United were in fact misrepresentations or whether they were misleading and deceptive or likely to mislead or deceive.
In addition, questions of reliance on the statements would be determined at that stage. A decision as to the appropriate relief sought, namely, whether an order setting aside the 2003 contract or whether there would be an assessment of damages pursuant to the Trade Practices Act, the Fair Trading Act and the Misrepresentation Act, would then be made in the event of a finding favourable to SA Water.
In the event that the 2003 contract was set aside, the court would determine the lump sum charges for the first subsequent pricing period by making an assessment of what would have been agreed had it not been for the misleading statements. In the alternative there would be an assessment by the court of what an independent expert would have determined if that procedure were availed of pursuant to the terms of the contract.
The proposed liability determination would also involve a decision as to whether there is a methodology within the contract requiring the actual profit margin to be calculated in a specific manner, and in particular whether it should be calculated excluding the costs of Part B services and the overhead costs for operations other than those required to perform Part B services.
Questions of waiver would also be involved in this proposed first stage of the trial. Mr Whitington submitted in his written submissions that the defendant might succeed at that first stage for a number of reasons, including whether SA Water should be granted an extension of time. He seemed, however, to accept before me that the limitations point would be part of the second stage, namely, the quantum trial. He submitted that any one of a number of possible combinations resulting in success for United would mean great savings of both time and money and that they were all realistic possibilities.
Mr Whitington, as I have already discussed, analysed in detail the relevant terms of the contract and how it would be argued by United that SA Water knew and understood the exact methodology by which the profit margin was calculated. In the time available and without the assistance of any expert, it is impossible for me to form any view as to how simple or complicated that process might be. As I have said, I believe it is not likely to be straightforward.
Mr Whitington further pointed to the authorities supporting the proposition that, even if the split trial could not completely resolve the matter, it may nevertheless be significant in contributing to a settlement of the matter: see CBS Productions Pty Ltd v O’Neill (1985) 1 NSWLR 601 at 607 and Fleming’s Nurseries Pty Ltd v Hannaford [2008] FCA 591 at [25] per Kenny J.
(b) SA Water’s submissions
Mr Hoffmann submitted that there was no adequate reason to depart from the basic rule that all issues should be dealt with normally in one trial. He submitted that “there is an inevitability of significant overlap in the issues arising on the proposed liability and quantum trials”. He argued that therefore “the overlap in issues is such that there will be a commonality of lay witnesses, in circumstances where the reliability and credibility of their evidence will likely be in dispute”.
Mr Hoffmann argued that the question of the Part B costs and overheads and the way in which they were treated by the parties in their negotiations is not simple, as claimed by Mr Whitington He submits that they cannot be understood in the vacuum which he suggests would be created by the split trial. Once again I make the point that I am not in any position to judge on this on the information contained in the affidavits. Mr Hoffmann further points out that in determining the questions of causation and reliance, it would not be possible to do that without knowing the extent of any impact which the quantum of those costs may have had in the negotiations.
Mr Hoffmann submitted that his expert accountant, Mr Morris, would be a witness both on liability and on quantum. He was a further witness who, in addition to those involved in the negotiations for each party, would have to give evidence twice.
He next pointed to the factual disputes which have to be resolved between the witnesses where it is likely that findings of credibility will be important. He submitted that it was undesirable to have credit findings in relation to witnesses who, at a later date, come to give evidence again.
Mr Hoffmann next pointed to the realistic prospect of an appeal. If United does not succeed in its case on liability, assuming for the moment that there is a split trial, then there is a likelihood of an appeal. Likewise if United does succeed, which would result in SA Water being out of court, it is likely that SA Water would appeal. The effect of an appeal would be to delay the matter substantially and result in extra time and cost with a delay of some months. In the event that United is the appellant and is unsuccessful then the matter has to be prepared for trial again on the basis of an assessment of the quantum of the plaintiff’s loss.
Mr Hoffmann submitted that this is not a case where there is an isolated question involving the construction of a particular clause in the contract, but rather, complicated questions of both fact and law involving the evidence of a number of witnesses.
Mr Hoffmann submitted that the defendant has not done enough by merely asserting that there is to be a saving of time and costs. He relies on Liberty Financial v Scott [2003] FCA 226 to the effect that there must be cogent evidence put before the court. He says such evidence is missing in this matter. He submitted that the affidavit of Ms Smith does not really assist the court with any material of evidentiary weight on the question of costs savings.
Mr Hoffmann relied upon the fact that an extension of time point needs to be determined. He suggested that the point cannot properly be determined using the discretion under s 48 of the Limitation of Actions Act without regard to the overall circumstances, including questions of quantum.
For the claim in contract and under the Misrepresentation Act, the time can be extended either because of the ascertainment of a material fact within twelve months and where the justice of the case requires it, or where the failure to institute proceedings resulted from representations or conduct of the defendant and the justice of the case requires such an extension.
With the misleading and deceptive conduct claim, the only criterion for granting an extension is the consideration of what is required in the overall justice of the case.
The High Court in Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 warned of the danger in deciding limitation questions except in “the clearest of cases”, and “generally speaking, in such proceedings, insufficient is known of the damages sustained by the plaintiff and of the circumstances in which it was sustained to justify a confident answer to the question”: see Mason CJ, Dawson, Gaudron and McHugh JJ at 533.
Consideration of argument
In broad terms I am faced with Mr Whitington’s assertion that there would be much saving of time and expense if the trial was split. He argued that this was because there was a relatively easy division to draw between the issues of liability and quantum. He argued that there were relatively few witnesses on the issue of liability and that a decision one way or the other on the question of liability would, in all likelihood, lead to the parties attempting to resolve the matter.
Mr Hoffmann, on the other hand, argued that it was not so simple. He argued that there may well be an appeal and that therefore the matter would take longer by the time the appeal on liability was resolved and then the resumption of the trial on quantum commenced. He relied also on the onus on United to show how this matter should be an exception to the general rule against splitting trials.
I raised the question of credit findings with counsel, and Mr Whitington indicated that in the event of an adverse credit finding against any witness of United who gave evidence in the liability part of the trial and who was later to be called in the quantum part of the trial, no point would be taken by United as to the disqualification of the judge.
It seems to me that it is not as easy as that and the judge would be placed in an impossible position if, having made adverse credit findings against a witness on liability, that witness re-emerged as an important witness on the question of quantum. This is one very good reason for not splitting a trial.
I am of the view that Mr Whitington has not discharged the onus upon him to show that the ordinary rule should not prevail, namely, that all issues should be determined at the one time.
In relation to the discretionary matters referred to by Mr Hoffmann, I am of the view that these fall in favour of not granting United’s application. Of significance are the common witnesses on whom credit findings must be made, the likelihood of an appeal with the resultant fragmentation of the trial, and the desirability of resolving the question of an extension of time by a consideration of all issues, so that the justice of the case can be properly assessed. These are not the only discretionary factors which are relevant but are, in my view, influential in deciding against a split trial.
The legal principles involved
The principles governing the making of an order for a split trial are the same as those that applied under the 1987 rules: see Abigroup Contractors Pty Ltd v Hardesty & Hanover International LLC [2008] SASC 369 per Anderson J at [61] and White J at [92].
It is generally accepted that the starting point is that all issues should generally be dealt with in a single trial. The question as to whether there should be a departure from that general rule is, of course, a matter of discretion: see Rivers v Rivers [2002] SASC 197, Duke Group Ltd v Alamain Investments Ltd (No 2) [2006] SASC 33 and City of Onkaparinga v Hassell Pty Ltd [2007] SASC 163.
I discussed the relevant principles in Abigroup at [57] to [63]. This matter involves questions of mixed law and fact.
Both counsel referred to and analysed several authorities from other jurisdictions relating to the way in which the discretionary exercise should be approached. I mention only Reading Australia Pty Ltd v Australian Mutual Provident Society (1999) 217 ALR 495 at [8] per Branson J. Her Honour’s summary of the relevant considerations was accepted by both counsel as covering the way in which the discretionary exercise should be carried out. I agree with respect that it is a helpful summary, and relevant here even though Her Honour was dealing with the powers of the Federal Court under its rules. The considerations are the same. All of the authorities referred to are decisions on the facts and circumstances peculiar to that matter.
Urgent trial

As I have said, this is a special classification matter and it is now being judge-managed. The managing judge has the role of supervising the conduct of the action up to the point of trial, including dispensing with any steps in the normal interlocutory process if the judge thinks that is appropriate.
Under r 119, the court can make an order for the urgent determination of a proceeding.
Mr Whitington’s main argument in relation to an urgent trial related to a proposed timetable for the renegotiation of the contract in which he submitted that May 2010 is a critical date. He submitted that incorrect and damaging statements in the media made by the Treasurer make it important to dispose of the hearing well before that time. He therefore suggested that the trial in all probability would have to be held in February or March to enable a decision to be made well in advance of the crucial May date, as he termed it.
Mr Hoffmann does not accept that the May date is essential. He submitted that the matter has only just been discussed in terms of the likely timetable and who is likely to be invited to bid. He further submits that there is not sufficient evidence of actual harm suffered or imminent harm about to be suffered.
On the question of detriment, should the matter not be disposed of urgently, Mr Whitington relied on the public statements made by the Treasurer relating to the alleged conduct of United. It is accepted by both counsel that the Treasurer has made some mistakes of fact. Those statements were published in the media in radio interviews on 1 September 2009.
In these radio interviews, the Treasurer claimed that United had overcharged the State government since the beginning of the contract in 1995-96. He claimed that the contract related to the sale of water assets to SA Water. In fact the alleged overcharging relates to the lump sum charges for the second pricing period commencing in 2001 for water and waste water services and economic development. These statements are potentially damaging for United and are incorrect.
Mr Whitington submitted that these errors are not the main concern of United but rather the Treasurer’s claim of misleading and deceptive conduct and that the people of South Australia had been “ripped off” by United. These are provocative comments and again potentially damaging for United.
Mr Whitington submits that because of these mis-statements and because of the potential damage done in the ongoing administration of United, not the least of which is the morale of the workers, the Treasurer’s statements are a good reason why the trial should be heard urgently, so that any detriment is minimised. He added that there is also the potential for an adverse impact on United’s operations interstate and in New Zealand.
As I indicated during the argument, I do have some sympathy for this point of view because it does make the burden on United somewhat more difficult than it would be in normal circumstances. The fact is that statements have been made by the Treasurer which are incorrect. The statements were made prior to the service of the proceedings and were published by various media outlets.
As a matter of practicality, I cannot see how, at the stage the matter has now reached, a trial, urgent or otherwise, split or otherwise, could be successfully prepared for trial by February in any event. That is not to mention the availability of a judge of the court to hear the matter in that timeframe.
As the judge managing the matter, I will ensure that the matter is kept moving. I will impose strict time limits on the parties for the filing of various documents and for the finalising of the various interlocutory steps. With the best of intentions and with that regime in place, I cannot conceive of a trial in this matter prior to April at the earliest and more likely May. That, in the scheme of things, is certainly an expedited hearing and that is where this matter should be heading, in my view.
To the extent necessary therefore, I agree that there should be an urgent determination of this proceeding, and pursuant to r 119(1) I make an order for the urgent determination of these proceedings. Pursuant to r 119(5)(a) I will hear the parties in relation to establishing a special case management program for the action.
I refuse the application for a split trial. I will hear the parties on costs.