Channel Infrastructure NZ Limited v HJ Asmuss & Co Limited
[2022] NZHC 2905
•8 November 2022
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2021-404-1127
[2022] NZHC 2905
BETWEEN CHANNEL INFRASTRUCTURE NZ LIMITED
PlaintiffAND
HJ ASMUSS & CO LIMITED
First Defendant
NEWAY VALVE (SUZHOU) CO LTD
Second DefendantAND
SUNYU MECHANICAL & ELECTRICAL EQUIPMENT CO LIMITED
Third Party
CIV-2021-404-1132 BETWEEN
HJ ASMUSS LIMITED
PlaintiffAND
NEWAY VALVE (SUZHOU) CO LTD
Defendant
Hearing: 5 September 2022 Appearances:
Andrew Horne and J Hofer for the Plaintiff
Bruce D Gray KC and M G Smol for the Defendant Jeremy Bell-Connell for Neway
Judgment:
8 November 2022
JUDGMENT OF ASSOCIATE JUDGE C B TAYLOR
This judgment was delivered by me on 8 November 2022 at 3:00pm
pursuant to Rule 11.5 of the High Court Rules
…………………………. Registrar/Deputy Registrar
CHANNEL INFRASTRUCTURE NZ LIMITED v HJ ASMUSS & CO LIMITED [2022] NZHC 2905
[8 November 2022]
Introduction
[1] Channel Infrastructure NZ Ltd (Channel) applies for orders that the Court separately determine questions in this proceeding in advance of the substantive trial.
Background
[2] In 2017, Channel ordered an isolation valve (the Valve) from the first defendant, HJ Asmuss & Co Ltd (HJ Asmuss). HJ Asmuss, in conjunction with the third party, Sunyu Mechanical & Electrical Equipment Co Ltd (Sunyu) arranged for the Valve to be manufactured for Channel by the second defendant, Neway Valves (Suzhou) Co Ltd (Neway).
[3] In June 2018, Channel installed the Valve. It says it installed the Valve in a hydrogen gas line that was part of the hydrocracker unit (HCU) systems at its petroleum refinery at Marsden Point.
[4] On 25 June 2018, the Valve failed. Channel claimed the failure of the Valve resulted in a release of hydrogen gas, which required Channel to activate its site emergency plan, carry out an emergency depressurization of the HCU and shut down the HCU for 11 days. It says it incurred significant losses as a result. It has claimed against HJ Asmuss and Neway, both of which deny any liability to Channel.
[5] Channel has now applied under r 10.15 of the High Court Rules 2016 for a pre- trial hearing to determine the following questions:
(a)whether the Valve was manufactured in accordance with the requirements and specifications stipulated in the contract between Channel and HJ Asmuss;
(b)whether a valve manufactured in accordance with those requirements and specifications was suitable for the purpose for which Channel used it (in a hydrogen service); and
(c)whether the cause of the failure of the Valve was that it was not manufactured in accordance with those requirements and specifications.
[6]I will refer to these questions hereafter as the Valve Failure Questions.
[7]The defendants oppose Channel’s application.
Interlocutory application for orders for the decision of separate questions
[8]Channel seeks orders:1
(a)that the Court decide the following questions separately from any other Question, prior to any trial of the other issues in this proceeding:
(i)Whether Valve 74943-30-02 (the Valve) was manufactured in accordance with the requirements and specifications stipulated in the contract between Channel and the first defendant.
(ii)Whether a valve manufactured in accordance with the requirements and specifications referred to in (i) above was suitable for the purpose for which Channel used it, in a hydrogen service.
(iii)Whether the cause of the failure of the Valve was that it was not manufactured in accordance with the requirements and specifications referred to in (i) above.
(together, the Valve Failure Questions);
(b)that the Court makes any other orders regarding the formulation of the Valve Failure Questions as it may think fit;
(c)that a three day fixture is allocated and a timetable is set for the hearing and determination of the Valve Failure Questions; and
(d)for the costs of and related to this application.
The grounds on which the orders are sought are:2
(a)The Valve Failure Questions do not raise difficult demarcation questions between the first (mini) trial and any that would be left for a second trial. The Valve Failure Questions are discrete issues that may be determined on the basis of expert metallurgists’ evidence, with
1 Notice of interlocutory application by plaintiff for orders for the decision of separate questions dated 20 May 2022 at [1].
2 At [2].
only minimal evidence of fact (likely limited to proving the documents recording the contract specifications and the circumstances in which the Valve was, very briefly, in use before it failed). If any of that limited factual evidence was contested, the expert evidence could address the different factual assumptions, so that the experts would not have to give evidence at any second trial. There is little risk of a Judge becoming inadvertently disqualified from conducting a subsequent hearing as there will be little or no overlap of evidence.
(b)Resolving the Valve Failure Questions will likely bring the proceeding to an end:
(i)if the answers are unfavourable to Channel (i.e. if the Valve is found not to have been out of specification or not to have caused the failure), the decision will bring the proceeding to an end; or
(ii)if the answers are favourable to Channel, the remaining issues will largely be confined to causation and quantum of loss, which should assist the parties to achieve a negotiated resolution or else shorten and simplify any subsequent hearing.
(c)Resolving the Valve Failure Questions offers an opportunity for substantial savings in time and cost. The Valve Failure Questions are the central issues in the proceeding, yet they will require only a small proportion (Channel estimates three days) of the time and cost that will be required for a trial of all the issues (which the parties have jointly estimated will require a 20-day trial). The expense of discovery, inspection and briefing of witnesses of fact on the factually complex issues of causation and loss can be deferred and may be avoided.
(d)As the Valve Failure Questions will require a much shorter hearing than a full trial, it is likely that hearing time may be found much more quickly. A 20-day trial is unlikely to be set down until mid-2024.
(e)As the Valve Failure Questions are discrete from the other issues in the proceeding, there would be little or no duplication of evidence and little inefficiency arising from the need for counsel to reacquaint themselves with the case if a second trial was required.
(f)Appeals, while always a possibility, would be less likely as the primary issues for determination are evidential issues of expert evidence, rather than issues of interpretation of contract or law which are more susceptible to appeal. Any appeals would be limited in scope due to the limited scope of the Valve Failure Questions.
(g)Practical considerations favour the separate hearing of the Valve Failure Questions. They fall naturally for separate decision. They raise no novel areas of law and do not require consideration of a complex factual setting to determine. They would not require the same Judge to sit in a second trial. There will be no prejudice to the defendants.
The parties have all instructed expert metallurgists so the necessary evidence is already available.
Affidavit of Marcos Monguzzi dated 10 May 2022
[10] Mr Marcos Monguzzi, the Feedstock, Negotiation and Optimisation Manager for Channel, has made an affidavit in support of Channel’s application. He deposes that an event such as the failure of the Valve, which causes the refinery or a significant part of it to be subject to an unplanned shutdown, causes loss in ways that are challenging to calculate and demonstrate. He says such an event disrupts the carefully planned processing schedule and creates mismatches between customers’ feedback deliveries and their product expectations and requirements. He says calculating the financial consequences of an unplanned event is particularly complex when it comes after a planned maintenance shutdown, during which time customers may have had to import refined fuels directly from overseas. Accordingly, he says, a substantial amount of work was required to quantify the losses Channel suffered as a result of the Valve’s failure.3
[11] Mr Monguzzi says Channel’s losses relating to processing fees, fuel and hydrocarbon, and export residue will require a substantial amount of technical detail, processing forecasting, financial modelling and market data to prove and quantify. Evidence of a range of technical matters and interrelated events would be required, making the loss calculation exercise very complex. He deposes further that Channel will need to prove its claims relating to demurrage expenses, repair costs and the purchase price of other valves Channel ordered but was unable to use because of the risk that other valves would similarly fail. He says, given the complexity of all these issues, that a very substantial amount of work, time and cost will be required to collect all the necessary information and records, to calculate the loss, and to prove it.4
[12] Mr Monguzzi deposes he expects expert assistance will be needed, as the level of detail underlying Channel’s losses is extremely granular and interrelated. There will be significant room for debate at each stage of the calculations. Channel will need to explain all of its decisions to respond to the defendants’ assertion that it did not
3 Affidavit of Marcos Monguzzi in support of interlocutory application by plaintiff for orders for the decision of separate questions dated 10 May 2022 at [8]–[13].
4 At [14]–[22].
mitigate its losses. Mr Monguzzi says this additional dimension to the dispute will further complicate the assessment of the Valve failure, as it will require evidence of the options available to Channel and why it acted as it did.5
Affidavit of Jack Stewart dated 23 May 2022
[13] Mr Jack Stewart, the General Manager of Operations at Channel’s subsidiary company, has also made an affidavit in support of Channel’s application. He deposes he had responsibility for the operation and maintenance of Channel’s assets, including the HCU, when the Valve was installed. He subsequently assumed responsibility for the investigation into the Valve failure.6
[14] Mr Stewart deposes that a planned partial shutdown of the refinery for maintenance took place during May and June 2018. During that partial shutdown, globe isolation valves on the hydrogen quench line between Bed 1 and Bed 2 of a reactor in the HCU were replaced with valves, one of which was the Valve. He deposes Channel sourced the Valve from HJ Asmuss, which the company selected because HJ Asmuss was able to offer Shell-approved valves (a recognised industry standard) within the required timeframes for the planned maintenance, and because HJ Asmuss had previously supplied Channel with valves.7
[15] Mr Stewart says HJ Asmuss delivered the valves, including the Valve, in two consignments, which arrived on 3 April 2018 and 10 April 2018. The next month, Channel installed the Valve. It carried out testing and approvals in respect of the installation, including visual inspection; radiographic inspection; and magnetic particle inspection. From 15 June 2018 to 24 June 2018, he says, Channel commenced its restart of the refinery in stages. By 25 June 2018, it was in a position to bring the refinery back to normal operating levels.8
[16] Mr Stewart deposes that the Valve failed on 25 June 2018, causing a release of flammable hydrogen gas and other light hydrocarbons into the atmosphere, and
5 At [23]–[26].
6 Affidavit of Jack Watson Stewart in support of interlocutory application by plaintiff for orders for the decision of separate questions dated 23 May 2022 at [4].
7 At [6]–[14].
8 At [15]–[18].
causing hydrocarbon wax to settle on the top platform of one of the HCU’s reactors. He says Channel was forced to conduct an emergency depressurisation of the HCU, as the leak presented an immediate safety risk and could not be safely isolated while the HCU remained in operation. The failure of the Valve also required Channel to activate its emergency site plan, requiring the HCU to be shut down for an additional 11 days.9
[17] Mr Stewart deposes to Channel’s belief that the Valve failed because it was defective. Channel believes Neway failed to conduct post-weld heat treatment of the body-to-bonnet weld on the Valve, as was required under the specifications and standards of the relevant purchase order. He says Channel believes Neway’s failure to undertake the treatment caused the Valve to have a hardness exceeding the maximum permissible hardness limit according to the specifications and standards in the purchase order. He says this belief is based on expert evidence Channel has obtained from metallurgists who have examined and tested the Valve.10
Notices of opposition
HJ Asmuss’s notice of opposition
[18]HJ Asmuss opposes Channel’s application. The grounds of opposition are:11
(a)The proposed Valve Failure Questions create difficult demarcation issues between the issues to be addressed at the first trial, and those to be addressed at the second trial:
(i)The first question, "whether the Valve was manufactured in accordance with the requirements and specifications stipulated in the contract between Channel and [HJ Asmuss]" cannot be determined without addressing other issues, including the following issues identified by the parties in the joint memorandum dated 29 March 2022:
(1)the terms of the contract between Channel and HJ Asmuss under which the Valve was supplied; and
(2)the requirements and specifications that the Valve was required to meet.
9 At [19]–[21].
10 At [22]–[25].
11 Notice of opposition of HJ Asmuss & Co Ltd to plaintiff’s application for orders for the decision of separate questions dated 10 June 2022 at [3].
(ii)The second question, "whether a Valve manufactured in accordance with the requirements and specifications referred to in (i) above was suitable for the purpose for which Channel used it, in a hydrogen service" cannot be determined without addressing other issues, including the following issues identified by the parties in the joint memorandum dated 29 March 2022:
(1)the use to which the Valve was put by Channel (including the service in which it was used by Channel);
(2)the purpose (if any) for which the Valve was required to be fit and/or the use (if any) for which the Valve was required to be suitable; and
(3)how the Valve was manufactured, including the extent to which any post-weld heat treatment was required and carried out by Neway Valve (Suzhou) Co., Ltd (Neway), and the consequences of that manufacturing.
(iii)The third question "whether the cause of failure of the Valve was that it was not manufactured in accordance with the requirements and specifications referred to in (i) above" cannot be determined without addressing other issues, including the following issues identified by the parties in the joint memorandum dated 29 March 2022:
(1)the use to which it was put by Channel (including the service in which it was used by Channel); and
(2)the root cause of the Valve's failure.
(b)The proposed Valve Failure Questions will not necessarily bring the proceeding to an end. In addition to any issues of causation and loss, other decisive issues may remain extant between the parties, including the further issues set out at (a) above and:
(i)If the Valve was not manufactured in accordance with the agreed requirements and specifications (whatever they may be) but that was not the cause of failure, Channel may seek to determine other issues identified by the parties in the joint memorandum dated 29 March 2022, including:
(1)whether HJ Asmuss represented to Channel that the Valve would be manufactured to the requirements of the relevant specifications and standards or otherwise would be fit for the purpose for which it was used by Channel and, if so, whether those representations breached the Fair Trading Act 1986 (FTA);
(2)whether HJ Asmuss owed and breached a contractual requirement that the Valve would correspond with the
description provided by HJ Asmuss, if the Valve did not correspond with that description; and
(3)whether Neway is liable to Channel on the basis that it breached the FTA by representing to Channel that the Valve had been manufactured and tested in accordance with the contractual requirements.
(ii)If the answers are favourable to Channel, other liability issues identified by the parties in the joint memorandum dated 29 March 2022 will remain extant, including:
(1)the terms of the contract between Channel and HJ Asmuss under which the Valve was supplied, including:
A.whether Channel's terms and conditions, or HJ Asmuss' terms and conditions, were incorporated into the contract; and
B.whether HJ Asmuss’ liability is limited or excluded by the terms of the contract between Channel and HJ Asmuss;
(2)whether HJ Asmuss owed and breached any contractual warranties;
(3)whether Neway is liable to Channel in negligence on the basis of the way that it manufactured and tested the Valve; and
(4)the legal and factual issues in respect of HJ Asmuss' cross-claim against Neway, set out at paragraph 7 of the joint memorandum dated 29 March 2022.
(c)The proposed question does not offer any time savings, because:
(i)The Valve Failure Questions are legally and factually complex. It would take significant hearing time to determine the Valve Failure Questions. The issues set out at (a) above would likely require the majority of the estimated 20-day hearing time.
(ii)The substantial hearing time required for the Valve Failure Questions is such that a hearing on the Valve Failure Questions is unlikely to be accommodated much earlier than the first available date for a 20-day hearing.
(iii)Hearing time would be saved only if determination of the Valve Failure Questions brought an end to the proceedings (which may not occur for the reasons set out at (b) above). If determination of the Valve Failure Questions did not bring an end to the proceedings, total hearing time would exceed the current 20-day estimate given the fragmentation and inherent inefficiencies of two hearings.
(d)There is a risk of appeal whichever party succeeds in the Valve Failure Questions. Owing to the demarcation issues, any appeal would require a stay of the balance of the proceeding to avoid inconsistent judgments.
(e)The lack of demarcation creates practical difficulties, including that:
(i)Witnesses would need to be recalled for the second trial.
(ii)Counsel will unnecessarily duplicate preparation time.
(iii)Issue estoppel may arise between the hearings, as a result of inadvertent findings of fact at the first trial.
(iv)The Judge hearing the first trial will be at risk of inadvertent disqualification for the second trial.
(f)There is no benefit to the parties from the proposed decision of separate questions, and no significant urgency.
Affidavit of Garry Davies dated 10 June 2022
[19] Mr Garry Davies, manager in the valves division of HJ Asmuss, has made an affidavit in support of HJ Asmuss’s notice of opposition. He deposes that HJ Asmuss carries on business importing, merchandising and distributing steel, pipe, plastic, valves, fittings, and ancillary products. He says that on 23 August 2017, Channel requested from HJ Asmuss a quotation for three different types of valves. The request identified the valves by reference to the Shell Material and Equipment Standards and Code (MESC). He says there is a dispute between the parties as to exactly what those specifications and standards required in terms of the Valve, especially in relation to weld hardness.12
[20] Mr Davies deposes HJ Asmuss supplied the valves to Channel on its usual terms and conditions. He says Channel was aware that HJ Asmuss was doing no more than supplying valves manufactured by Neway. He says further that it appears to him that Channel installed the Valve on a “sour” service — an application for which it was not specified. The Valve was instead specified for a “steam” service. Accordingly, he says, HJ Asmuss believes the Valve fractured due to sulphide stress corrosion cracking caused by hydrogen sulphide in the process fluid.13
12 Affidavit of Garry Owen Davies in support of HJ Asmuss & Co Ltd’s opposition to the application for orders for the decision of separate questions dated 10 June 2022 at [4]–[8].
13 At [10]–[19].
Neway’s notice of opposition
[21]Neway also opposes Channel’s application, on the grounds that:14
aThe Court should not depart from the presumption that all matters in issue are to be determined in one hearing because that is the most expeditious and efficient manner for dealing with a proceeding.
bThere is insufficient demarcation between the issues Channel Infrastructure wishes to address at the first hearing (Valve Failure Questions) and those left for the second hearing, and the Valve Failure Questions do not capture all potential issues relating to liability (as identified by the parties in the joint memorandum dated 29 March 2022).
cIf the Valve Failure Questions are answered in Channel Infrastructure’s favour, that will not bring the proceeding to an end. In addition to complex issues of causation and loss, other important issues may remain extant between the parties (as identified by the parties in the joint memorandum dated 29 March 2022).
dIf the parties choose to participate in an alternative dispute resolution process, that can occur regardless of whether there is a separate hearing. If anything, an order for a separate hearing on the Valve Failure Questions could disincentivise early attempts to resolve the proceeding via alternative dispute resolution.
eChannel Infrastructure acknowledges the risk that, if the factual evidence is disputed, the parties’ experts would need to address different factual assumptions. It follows that any decision will need to be based – at least in part – on factual assumptions. There is a significant risk that findings made at the first hearing will have unintended consequences for the second hearing that could prejudice all parties.
fThe proposed first hearing will not save cost or time. To the contrary, this will unnecessarily complicate and delay the proceeding:
iChannel Infrastructure’s estimate that issues relating to the Valve Failure Questions can be addressed in a three-day hearing is unrealistic. Resolving these questions, and other related issues, would likely require the majority of the estimated 20-day hearing. Accordingly, a fixture date for the first hearing is unlikely to be found much earlier than the first available date for a 20-day hearing to determine all issues.
iiDiscovery is already in progress and includes documents that are relevant to the proceeding as a whole (not just documents that relate to the Valve Failure Questions). It will be complete by the time this application is determined but, in any event, to try to divide discovery into two tranches at this stage
14 Notice of opposition of second defendant to plaintiff’s application for orders for a separate hearing dated 10 June 2022 at [3].
(as suggested at para. 2(c) of the application) would increase costs.
iiiThe lack of demarcation between issues and the fact that the Valve Failure Questions do not cover all potential issues relating to liability creates practical difficulties, including that:
AWitnesses, including expert witnesses, may need to be recalled for the second hearing;
BDuplication of time involved in the Court and counsel ‘coming up to speed’ again for the second hearing; and
CThe Judge hearing the first hearing will be at risk of inadvertent disqualification for the second hearing.
ivThe risk of parallel and unsolved appeals cannot be discounted at this early stage of proceedings.
Channel’s submissions
[22] Mr Andrew Horne, for Channel, submits that the entire case turns upon the answer to the question of why the Valve failed. He says if the Valve was not defective then the claim fails and the parties need spend no more time or cost on it. But, he says, if the Valve was defective then the claim will succeed and the parties may then focus on how much the defendants should pay. That being so, he submits, Channel’s case will succeed or fail upon the Valve Failure Questions. He says these questions are discrete issues of fact that require only limited evidence. In contrast, the remainder of the case, relating to causation and quantification of Channel’s losses, will require extensive fact and expert evidence. Accordingly, separate determination of the Valve Failure Questions is the best means of securing the just, speedy and inexpensive determination of this proceeding.15
[23] Mr Horne submits there are no difficult demarcation questions between the issues to be addressed at the preliminary hearing and those left for the substantive trial. He says the issues on the pleadings split cleanly between the Valve Failure Questions and the causation and quantum questions. There is no evidential overlap between these issues and it is highly unlikely that the judge who determines the first hearing will be disqualified from conducting a subsequent hearing. In any event, he says, there
15 Synopsis of submissions for the applicant dated 19 August 2022 at [3]–[8].
is no requirement that the judge who decides a separate question must also preside at a subsequent trial.16
[24] Next, Mr Horne submits, the determination of the Valve Failure Questions is highly likely to bring the proceedings to an end. As already noted, if these questions are determined against Channel, its claim will fail. If they are determined in Channel’s favour, the likelihood of a negotiated settlement will be greatly increased. And, even if other issues remain extant following resolution of the Valve Failure Questions, the benefits of a separate hearing outweigh the possibility that the proceeding may not be resolved.17
[25] Mr Horne says there will be time efficiencies associated with the separate question determination. Channel estimates a hearing on the Valve Failure Questions will take three days and will involve straightforward evidence. By comparison, the issues to be determined at the proposed second hearing are comparatively complex and time-consuming. They would require Channel to adduce a substantial volume of factual and expert evidence, much of which will be highly technical and complex. The items of evidence to prove Channel’s losses will be granular, interrelated and reliant upon a large number of assumptions. To the extent a separate determination of questions will save the parties from this costly exercise, there will be efficiencies. But, even if the parties do not settle, the second hearing would nevertheless be reduced by the time spent at the first — there is no overlap between the issues. Mr Horne says this would come very close to a split trial of liability and quantum. And, he says, the present application having been made at an early stage, there would be no delay to the final resolution of the claim. The substantive proceeding is currently scheduled to begin on 15 July 2024.18
[26] As to appeals, Mr Horne stresses that the Valve Failure Questions primarily concern issues of expert evidence, which will be less susceptible to appeal than issues of substantive law. Even were there to be an appeal, it would be unlikely to delay resolution of the proceeding. A short hearing should be possible to obtain well before
16 At [14]–[20].
17 At [21]–[24].
18 At [25]–[32].
the trial in two years’ time. In any event, he submits, the possibility of an appeal does not count conclusively against a separate hearing on the remaining issues.19
[27] As a final point, Mr Horne notes the complex nature of the loss favours separate determinations of the Valve Failure Questions and the other issues. He says that where issues of quantum are complex, they may be best dealt with at a separate hearing. Determining Channel’s loss resulting from the Valve failure will likely be a complex exercise.20
[28] Concluding, Mr Horne says the case is fundamentally about the Valve and whether it was defective. Separate determination would allow the defendants to come before the Court and prove that their Valve was not defective. If they can do that, the litigation will be over. He says Channel respectfully requests the opportunity to prove the Valve was defective in a short initial hearing and thus avoid the substantial additional and unnecessary cost and delay that it would be obliged to incur in proceeding to a full trial.21
HJ Asmuss’s submissions
[29] Mr Bruce Gray KC, for HJ Asmuss, submits that the Valve Failure Questions are significantly more complex and intertwined with other issues in the proceeding than Channel suggests. He submits substantially more than a three-day hearing would be required for the Valve Failure Questions, effectively removing any potential time saving benefits that a separate determination might otherwise entail. He submits that resolving the Valve Failure Questions may not bring this proceeding to an end. Splitting the trials is likely to prolong the dispute, instead of expediting its resolution.22
[30] Mr Gray says the Valve Failure Questions give rise to difficult demarcation questions between the issues to be addressed at a first trial and those left for the second. He says the legal and factual issues involved in these questions are more complex and closely entangled with other liability issues than Channel suggests. He says they
19 At [33]–[35].
20 At [36].
21 At [37].
22 Synopsis of submissions of the first defendant in opposition to the application for orders for the decision of separate questions dated 26 August 2022 at [1.1]–[1.3].
would include the terms of the contract between Channel and HJ Asmuss; details of how the Valve was manufactured; the physical properties of the Valve; the use to which the Valve was put; and the root cause of the Valve’s failure. The evidence required to dispose of the relevant issues would be extensive, and inevitably some of it would also be relevant to liability issues not within the Valve Failure Questions.23
[31] Accordingly, Mr Gray submits, the Valve Failure Questions are not “relatively confined” questions that will turn primarily upon expert evidence, as Channel claims. They are bound up with, and connected to, various other issues in dispute. The split approach would inevitably complicate the proceeding, given the substantial differences between the parties on a range of issues.24
[32] Mr Gray submits that HJ Asmuss agreed with Channel’s assertion that a preliminary determination of the Valve Failure Questions against Channel would end the proceeding. But he says those questions may not be determined against Channel, or might not all be determined in the same party’s favour. He says it would only be if each of the Valve Failure Questions were determined against Channel that the proceeding would be brought to an end. In that event, HJ Asmuss’s cross-claim against Neway would also need to be determined.25
[33] Next, Mr Gray submits that Channel’s three-day hearing prediction fails to accommodate the complexity of the Valve Failure Questions. Multiple witnesses would be required, such that any first trial would require at least 10 days’ hearing time. He says it is unlikely that such a fixture would be available much earlier than July 2024, being the current provisional date for the substantive hearing. And, as any first trial might not bring an end to the proceeding, the overall resolution of the dispute could be significantly delayed if it is split into two hearings.26
[34] On appeals, Mr Gray says there is a risk of appeal irrespective of which party succeeds on the Valve Failure Questions. So, any purported benefit of split trials may be undermined by appeals on the findings of the first trial. As to other practical
23 At [4.1]–[4.16].
24 At [4.17]–[4.18].
25 At [5.1]–[5.3].
26 At [6.1]–[6.2].
considerations, Mr Gray submits that some witnesses would be required to give duplicative evidence, counsel will unnecessarily duplicate preparation time, and issue estoppel may arise between the hearings as a result of findings of fact at any first trial.27
[35] In conclusion, Mr Gray submits, HJ Asmuss opposes the separate determination of the Valve Failure Questions because this would require a hearing with complex and extensive factual and expert evidence. It would not resolve the other, intertwined liability issues that are in dispute. It might only prolong what has already been a lengthy dispute.28
Neway’s submissions
[36] Mr Jeremy Bell-Connell, for Neway, submits that Neway opposes Channel’s application on the basis that the Valve Failure Questions do not capture all issues relevant to liability; a separate hearing on such issues will not benefit the parties; a separate hearing will more likely lead to added complexity; significant practical difficulties and risks will arise if a separate trial is ordered; and a separate hearing might well significantly delay resolution of the proceedings.29
[37] Mr Bell-Connell submits that Neway, from initial discovery, has identified a large number of issues in relation to liability that the parties’ witnesses (including experts) will need to address. These issues go well beyond the Valve Failure Questions. Accordingly, the Valve Failure Questions do not capture all potential issues relating to liability. That fact would give rise to significant practical difficulties if an order were made for a split trial. He says some of these difficulties could be cured if the first hearing was ordered to include all issues relating to liability. But, he notes, there would be no utility in that approach either — it would require the majority of the estimated 20-day hearing time.30
27 At [8.1].
28 At [9.1].
29 Second defendant’s synopsis of submissions in opposition to plaintiff’s application for a separate hearing dated 26 August 2022 at [1.1]–[1.5].
30 At [3.1]–[3.4].
[38] Mr Bell-Connell highlights that the proceeding would only be brought to an end if the Valve Failure Questions are resolved in favour of the defendants. If those questions are answered in Channel’s favour, the proceeding will continue. Complex and important issues relating to causation, loss and liability will remain extant between the parties. Contra Mr Horne, Mr Bell-Connell says a separate hearing on the Valve Failure Questions would disincentivise early attempts to resolve the proceeding by alternative dispute resolution.31
[39] Like Mr Gray, Mr Bell-Connell submits Channel’s estimated three-day hearing for the Valve Failure Questions is unrealistic. He says resolving these questions, and other issues relating to liability, would require the majority of the estimated 20-day hearing. Accordingly, a hearing date is unlikely to be available much earlier than the current 20-day fixture set down for 15 July 2024. A split trial could therefore significantly delay the resolution of the proceeding.32
[40] On the issue of appeals, Mr Bell-Connell says the risk of parallel and unresolved appeals cannot be discounted. And practical considerations include that discovery is outstanding — the Court is being asked to order a separate trial before the facts are known.33
[41] In sum, Mr Bell-Connell submits, this case is about much more than just the Valve failure. It is also about how the Valve, which was manufactured for steam service, came to be installed on a sour line. The Court should not be prepared to consider a separate trial on questions that do not capture all liability issues. Even if the separate trial were to cover all those issues, it would be of little benefit and outweighed by the risk of unforeseen consequences. It is easy at this early stage of the proceeding to oversimply the issues that arise and to overlook the risk of evidential overlap.34
31 At [4.1]–[4.3].
32 At [5.1]–[5.2].
33 At [6.1]–[7.1].
34 At [8.1]–[8.3].
Legal principles
[42]Rule 10.15 of the High Court Rules 2016 provides:
10.15Orders for decision
The court may, whether or not the decision will dispose of the proceeding, make orders for—
(a)the decision of any question separately from any other question, before, at, or after any trial or further trial in the proceeding; and
(b)the formulation of the question for decision and, if thought necessary, the statement of a case.
[43] The underlying purpose of the rule is to expedite proceedings by limiting or defining the scope of the trial in advance, or to do away with the need for a trial altogether.35 It provides the Court a broad discretionary jurisdiction.
[44] The starting point assumption is that all matters in issue are to be determined in a single trial; that will ordinarily be the most expeditions and efficient manner of dealing with the proceeding.36 The onus rests on the party contending for the split trial.
[45] The main criteria to be taken into account in deciding whether to exercise the discretion are:37
a)The likelihood of delay in finally resolving the proceeding.
b)The probable length of the hearings if there is a split trial.
c)Whether a decision one way or the other on the separate questions would end the litigation.
d)The impact on the length of any subsequent hearing.
e)A balancing of the advantages to the parties and the public interest in shortening litigation as against any disadvantages asserted by parties opposing a split trial.
35 Innes v Ewing (1986) 4 PRNZ 10 (HC) at 18.
36 Turners & Growers Ltd v Zespri Group Ltd HC Auckland CIV-2009-404-4392, 5 May 2010 at [10]; Karam v Fairfax NZ Ltd [2012] NZHC 887 at [58]–[59]; and Clear Communications Ltd v Telecom Corp of New Zealand Ltd (1998) 12 PRNZ 333 (HC) at 334.
37 Turners & Growers Ltd v Zespri Group Ltd, above n 36, at [11].
f)Demarcation difficulties in defining issues to be addressed at the first trial.
g)Resulting difficulties of issues estoppel.
h)Inadvertent disqualification of a Judge who has expressed views at the first trial on matters for decision at the second trial.
i)Inadvertent findings at the first trial upon matters that are for full evidence and argument at the second hearing.
j)The need to recall some witnesses at the second hearing.
k)The duplication of time involved in the Court and counsel “coming up to speed” again for the second hearing.
l)The prospect of multiple appeals.
m)A second round of discovery or other interlocutories and amended pleadings following the first trial.
n)Rostering difficulties in ensuring that the same Judge is available for the second hearing.
[46]Or, cast in more general terms:38
(a)Will there be difficult demarcation issues between those issues to be addressed at the first trial and those left for the second?
(b)Will the separate question bring the proceedings to an end?
(c)What potential time saving does the separate question offer?
(d)How will appeals be dealt with?
(e)Are there any other practical considerations tending one way or the other?
Analysis
[47] The question to be answered in determining this judgment are those set out at [46](a)–(e) above, and I consider each of these in turn.
38 Haden v Attorney-General (2011) 22 PRNZ 1 (HC) at [50].
Will there be difficult demarcation issues between those issues to be addressed at the first trial and those left for the second?
[48] Mr Horne submits that the issues on the pleadings split clearly between the Valve Failure Questions (which are why the Valve failed, and whether this was because it did not satisfy the relevant contract and specification requirements) and causation/quantum issues (what happened as a result?). He submits there is no grey area of overlap between them.
[49] Mr Horne submits that HJ Asmuss’s objections to the split hearing are not valid, and deals with each of these in turn as follows:
(a)The terms of the contract between Channel and HJ Asmuss under which the Valve was supplied and the requirements and specifications it was required to meet
Mr Horne submits that this point is a simple matter of proving the terms of the written contract and is within the Valve Failure Questions in any event. Mr Horne submits that the contract was recorded in the exchange of correspondence and approximately six emails, and therefore will be easy to establish.
(b)The use to which Channel put the Valve and the purposes for which it was required
Mr Horne submits this point is straightforward and Channel has provided the essential elements of this evidence already.
(c)How the Valve was manufactured and the root cause of its failure
Mr Horne submits this point will primarily be for expert evidence, which will be the focus of the hearing.
(d)Representations made by HJ Asmuss and Neway to Channel
Mr Horne submits this point is factually straightforward, as these representations were made in writing.
(e)HJ Asmuss’s cross-claim against Neway
Mr Horne submits this point is not part of the Valve Failure Questions and is not Channel’s concern. To the extent that the defendants wish to resolve issues of liability between themselves, the cross-claim issues are factually straightforward. They involve issues of contract, the accuracies of certificates and test reports (for which the relevant evidence will be the same expert evidence as for the specifications Channel relies upon and which will be determined with the Valve Failure Questions) and representations in writing.
[50] Mr Horne submits there will be no evidential overlap between the Valve Failure Questions and the issues that would remain for a second hearing, which concern the consequences of the failure of the Valve for Channel, its costs and losses, causation and legal argument. Different factual witnesses will be required to attest to Channel’s losses.
[51] Finally on this point, Mr Horne submits that it is extremely unlikely a Judge will be inadvertently disqualified from conducting a subsequent hearing if one is required for the following reasons:
(a)given the lack of evidential overlap between the first and second hearing, there is little or no risk that the Judge will express views on matters that will require to be further addressed in the second hearing; and
(b)it is unlikely that witnesses giving evidence at the first hearing (primarily expert metallurgists) will be required to give evidence at the second. Mr Horne submits that even if a Judge makes a credibility finding against a witness of fact at the first hearing (which is unlikely as the factual evidence largely involves proving documents that cannot seriously be disputed), the Judge will not be precluded from presiding at the second hearing on causation and quantum issues. Mr Horne submits the expert metallurgists’ evidence in the first hearing will be
distinct from the refining and quantum expert evidence and evidence of fact in the second.
[52] Mr Gray, on the other hand, submits that the Valve Failure Questions give rise to difficult demarcation questions between the issues to be addressed at the first trial and those at the second. Mr Gray refers to considerations the Court will take into account when considering this issue as set out in Haden v Attorney-General:39
(a)What is pleaded?
(b)What issues arise on the separate question?
(c)What issues remain for the second hearing?
(d)In each case, what evidence is required to dispose of those issues?
What is pleaded and what issues arise on the separate question?
[53] Mr Gray submits the legal and factual issues involved in the Valve Failure Questions are more complex, and more closely entangled with other liability issues than Channel suggests. He submits it is not possible to identify discrete and straightforward questions, and it is not efficient to attempt to resolve some of the issues but not others. Attached to Mr Gray’s submissions is a comparative pleading document, comparing the parties’ positions under the statement of claim, statement of defence and statement of reply. Mr Gray submits that these comparative pleadings demonstrate that the issues put forward by Channel as straightforward in resolving the Valve Failure Questions, are not in fact straightforward. They involve much more complex issues than Channel proposes. In particular, Mr Gray sets out the following issues:
(a)There is a contract between Channel and HJ Asmuss, but its terms are not found in the assembled documents. The contract for the supply of the Valve was formed through the exchange of correspondence, formed
39 Haden v Attorney-General, above n 38, at [50].
with each party proposing different terms and conditions. A review of items 5 and 6 of the comparative pleadings document demonstrates there are much larger areas of dispute in relation to the terms of the contract than acknowledged by Channel.
(b)There is a dispute as to whether the Valve is required to be fit for a hydrogen service or a steam service. There is also a dispute as to whether HJ Asmuss’s terms and conditions apply (which exclude all conditions and warranties as to quality or fitness for purpose).
(c)Channel ordered the Valve by reference to the MESC, specifically MESC773472.255.1.
(d)There are questions relating to the specifications and standard to which Neway was required to manufacture the Valve, including:
(i)whether API STD 602 specified a maximum weld hardness for the Valve; and
(ii)whether Standard ISO 15761:2002 specified a relevant maximum weld hardness for the Valve.
(e)There are questions whether, and to the extent to which, Neway carried out post-weld heat treatment (PWHT) on the Valve.
(f)There are questions about the physical properties of the manufacture of the Valve, including whether the hardness of the Valve’s body-to- bonnet weld and associated heat-affected zone exceeded the maximum permissible hardness.
(g)There are questions about the use to which the Valve was put, including whether the Valve (which was specified for steam service) was installed in a hydrogen service or “sour” service.
(h)There are questions about the cause of the Valve’s failure.
[54] Mr Gray submits that the comparative pleadings document demonstrates these issues are not simple and straightforward.
What issues remain for the second hearing?
[55] Mr Gray submits that in addition to issues of causation and quantum, answering the Valve Failure Questions will leave legal and factual issues relevant to liability for the second hearing. In Mr Gray’s submission, these issues will include:
(a)The terms of the contract between Channel and HJ Asmuss under which the Valve was supplied, including:
(i)whether Channel’s terms and conditions and HJ Asmuss’s terms and conditions were incorporated into the contract; and
(ii)whether HJ Asmuss’s liability is limited or excluded by the terms of the contract between Channel and HJ Asmuss (which will also be relevant to the quantum of any liability).
(b)Whether HJ Asmuss made representations to Channel as to the manufacturing or fitness for purpose of the Valve, in breach of the Fair Trading Act 1986 (the FTA).
(c)Whether HJ Asmuss owed and breached any contractual warranties or any requirement that the Valve would correspond with the description provided by HJ Asmuss.
(d)Whether Neway is liable to Channel in negligence or on the basis that it made representations to Channel as to the manufacturing and testing of the Valve in breach of the FTA.
(e)Legal and factual issues in respect of HJ Asmuss’s cross-claim against Neway.
What evidence is required to dispose of those issues?
[56] Mr Gray submits as follows in relation to the evidence needed to resolve the issues identified:
(a)Terms of the contract
Relying on Bathurst Resources Ltd v L & M Coal Holdings Ltd,40 Mr Gray submits that when interpreting the contract between Channel and HJ Asmuss, the Court must consider both its written words, and its terms and evidence that will assist in its interpretation. He submits that the contract for the supply of the Valve was formed through an exchange of correspondence and forms. The contract was formed in a factual matrix that requires an understanding of HJ Asmuss, what it does, its small stake in the transaction for the supply of the valves, and why it is commercially impracticable for HJ Asmuss to be the underwriter of Channel’s maintenance programme. He submits the Court will need to hear evidence on the following Valve Failure Questions:
(i)the factual evidence on the operations of HJ Asmuss, the history of dealings between the parties, and Channel’s knowledge of HJ Asmuss’ operations;
(ii)the factual evidence on the sale and supply of the Valve, including the conduct and correspondence of the parties after the contract had been formed;
(iii)expert evidence about ordering by reference to the MESC; and
(iv)expert evidence about the specifications and standards referred to in the MESC.
[57] Mr Gray submits that inevitably some of the evidence on these issues will also be relevant to the liability issues that are not within the Valve Failure Questions,
40 Bathurst Resources Ltd v L & M Coal Holdings Ltd [2021] NZSC 85, [2021] 1 NZLR 696.
including the applicability of terms and conditions that apply to the contract and any representations made as to the Valve’s manufacturing or purpose.
(b)The manufacture of the Valve
[58] Mr Gray submits that for the Valve Failure Questions the Court will need to hear the following evidence in relation to the manufacture of the Valve:
(i)factual evidence on the manufacturing process, including the extent to which Neway carried out PWHT; and
(ii)expert evidence on the physical properties of the manufactured Valve.
[59] Mr Gray submits the evidence on these issues may also be relevant to the liability issues that are not within the Valve Failure Questions, including whether there are any representations in breach of the FTA and whether Neway is liable to Channel and/or HJ Asmuss.
(c)Failure of the Valve
[60] For the Valve Failure Questions, the Court will need to hear the following evidence in relation to the failure of the Valve:
(i)factual evidence on the installation and use of the Valve;
(ii)expert evidence on the use to which the Valve could be put; and
(iii)expert evidence on the cause of the Valve’s failure.
[61] Mr Gray again submits the evidence on these issues may also be relevant to liability issues that are not within the Valve Failure Questions, including whether there are any representations in breach of the FTA and whether Neway is liable to Channel and/or HJ Asmuss.
[62] Mr Bell-Connell makes submissions along similar lines to those of Mr Gray in respect of the issue of whether there will be difficult demarcation questions between those issues to be addressed at the first trial and those for the second. He submits that Valve Failure Questions do not capture all issues relevant to liability. In particular, he points to the following issues, which have been identified at this stage of the proceedings by Neway (discovery not yet being complete), as going well beyond the Valve Failure Questions:
(a)The design process adopted by Channel for the Valve, including the use to which the Valve was required to be fit and, if it was always intended for use in the hydrogen service, why Channel’s purchase order referred to the specifications, standards and descriptions that it did (noting in particular MESC 773472.255.1, which applies to valves for steam service only).
(b)The specifications, standards and descriptions that the Valve was required to meet. Embedded in this point are technical issues (and hence arguments) as to whether the specifications, standards and descriptions:
(i)were for valves suited to use in the hydrogen service (or a service which was used by Channel);
(ii)required the maximum weld hardness due to their design (including their internal detail); and
(iii)the extent to which any PWHT was required and the heat treatment limitations imposed by internal design details appropriate to the type of service.
(c)How the Valve was manufactured, including the extent to which any PWHT was carried out by Neway. This issue will require expert evidence on the interpretation of the contemporaneous documents relating to the Valve’s manufacture.
(d)Whether the technical information affixed to the Valve by Neway remained intact by the time it was delivered to Channel.
(e)The significance of the technical information when it was fixed to the Valve, and whether that should have been sufficient to put Channel on notice that the Valve was not suitable for use in a hydrogen service.
(f)Channel’s inventory and tagging procedures for new parts, and whether these were followed — including, for example, whether Neway’s notifications regarding the suitability of the Valve for steam use were registered and, if so, how the Valve nevertheless came to be installed in a line which could expose it to hydrogen or sour gas. This issue will potentially require a thorough understanding of the refinery/plant operation.
(g)How the Valve was installed and the service to which it was subject. Channel says it was hydrogen. However, HJ Asmuss has evidence that supports inclusion of sour gas service also, together with possibly other harmful and unspecified contaminants.
(h)The cause of the Valve’s failure.
(i)Whether the Valve would have failed if it were correctly used in the steam service.
Conclusion on this issue
[63] My conclusion on this issue is that Mr Gray has demonstrated the Valve Failure Questions are not confined questions that will turn primarily on expert evidence, as claimed by Channel. A good illustration of this is found in items 5 and 6 of the comparative pleadings table attached to Mr Gray’s submissions, which indicates that the dispute as to the terms of the contract for supply of the Valve is considerably more complex than the position submitted by Mr Horne. As summarised at [53]](b)–(h) above, the disputed areas which need to be determined in resolving the Valve Failure Questions are complex.
[64] I accept Mr Gray’s submission the Valve Failure Questions are intertwined with, and connected to, various other evidential issues in dispute. The evidence, when dealing with the Valve Failure issues, will inevitably overlap with other liability issues not within the Valve Failure Questions. Some of the issues will also overlap with issues as to quantum.
[65] Accordingly, in my view the Valve Failure Questions are not sufficiently demarcated from other liability issues and quantum issues to be able to be heard in a separate hearing.
Bringing an end to the proceeding
[66] Mr Horne submits that determination of the Valve Failure Questions is highly likely to bring the proceeding to an end. He submits that if the Valve Failure Questions are determined against Channel, its claim will fail (subject to any appeal). If the Valve Failure Questions are determined in Channel’s favour, the likelihood of settlement will be greatly increased, as there will have been a determination that the Valve failed because it was defective and it did not meet the required specifications. Mr Horne submits that liability would then be obvious, but any issue about whether the defendants were liable for breach of contract, misrepresentation or negligence would be straightforward issues of law which could be dealt with at the first hearing.
[67] Mr Horne submits that the remaining issues would be about how much Channel is entitled to be paid, and it is very likely that this would be resolved by negotiation and agreement rather than the parties incurring extensive additional costs to resolve them. Mr Horne submits that if the Valve Failure Questions are determined in Channel’s favour, while other issues such as causation and quantum issues remain, the benefits of a separate question hearing outweigh the possibility the proceeding may not be resolved.
[68] Mr Gray, on the other hand, submits that the Valve Failure Questions may not be determined against Channel, or might not all be determined in the same party’s favour. He cites, as an example, that this would occur if the Valve was not manufactured in accordance with the agreed specifications and standards (whatever they may be) but failed for unrelated reasons. Mr Gray submits that unless all the
Valve Failure Questions are determined against Channel, their resolution may not bring the proceeding to an end. He submits that Channel may seek determination of further issues, such as those listed at [55](a)–(e) above. In that event, HJ Asmuss’s cross-claim against Neway would also need to be determined.
[69]Mr Bell-Connell makes similar submissions to Mr Gray on this issue.
Conclusion on this issue
[70] My conclusion on this issue is that in circumstances where all the Valve Failure Questions are determined against Channel, there is a strong likelihood of the proceeding being brought to an end. In circumstances where some or all of the Valve Failure Questions are determined in favour of HJ Asmuss, the proceeding is likely to continue. Therefore, the prospect of bringing the proceeding to an end does not weigh with any significance in favour of granting a separate hearing for resolution of the Valve Failure Questions.
Time saving
[71] Mr Horne submits there are two aspects to this enquiry as to time saving. The first is whether any potential hearing time would be saved. The second is whether there is any potential delay to the final resolution of the whole proceeding and associated inefficiencies resulting from splitting the trial into two parts.
Potential hearing time saved
[72] Mr Horne submits that Channel estimates that the hearing of the Valve Failure Questions will take three days. He then advances the proposition that it is likely that this will be the only hearing time required, because if Channel fails the proceeding will end. If it succeeds, the parties will be incentivised to reach settlement on the amount payable. Mr Horne submits that the second hearing will deal with comparatively complex and time-consuming issues and/or will involve Channel producing a substantial volume of factual and expert evidence to prove both causation and the losses it claims. He submits that while some of the evidence of loss will be straightforward, a majority of the quantum evidence will be highly technical and
complex. This is because Channel will have to prove its lost revenue and additional costs arising from:
(i)the optimisation of its oil refinery, with its extremely complex and technical planning from a financial perspective (involving sophisticated computer modelling and interactions with customer demands, changes of requirements and input substitutions for Channel’s loss in production);
(ii)the calculation of Channel’s gross refinery margin as a tolling refinery with adjustments for factors referred to at (a) above, and changes in the market prices of relevant crude inputs and finished and output products; and
(iii)the plans and forecasts for the relevant period, as against the actual production following the Valve failure and the losses that Channel suffered as a result.
[73] Mr Horne submits that if the initial hearing resolves the proceeding all of this time and expense will be avoided. As well as the avoidance of the use of Court resources for the separate hearing, experts’ fees in the specialist fields of oil and gas refining and valuation, and expert accountants’ fees will be avoided by a separate hearing for determination of the Valve Failure Questions.
[74] Mr Horne also submits there will be no inefficiency because if the parties do not settle after the first hearing, the second hearing will be reduced by the time spent at the first.
No delay to final resolution of the claim
[75] Mr Horne submits that Channel’s application is made at an early stage of the proceeding. He submits the trial for this proceeding is currently scheduled to commence on 15 July 2024, so a separate hearing of the Valve Failure Questions will not delay it, particularly as Channel estimates that the hearing of the Valve Failure Questions may take three days.
[76] On the other hand, Mr Gray submits that a three day hearing prediction fails to accommodate the complexity of the Valve Failure Questions and the multiple issues that underlie those questions. He submits that multiple witnesses will be required for the evidence, as summarised at [56]–[60] above, and that the first trial would require at least 10 days of hearing time.
[77] Mr Gray further submits that such a 10-day fixture would be unlikely to be available much earlier than July 2024. Mr Gray is correct in this submission — the Court Registry is currently indicating a 10-day fixture would be allocated in September 2024. Further, as the first trial may not bring the proceeding to an end, the overall resolution of the dispute could be significantly delayed if there is a split into two hearings.
[78]Mr Bell-Connell makes similar submissions to Mr Gray on this issue.
Conclusion on this issue
[79] My view on this issue is that, as is demonstrated by Mr Gray’s comparative pleading document, Channel is over-simplifying the issues relating to the Valve Failure Questions. A three-day hearing to determine the Valve Failure Questions seems unlikely to be an accurate estimate. The estimate of the length of a hearing on the Valve Failure Questions, as submitted by Mr Gray, is 10 days. This estimate seems more realistic, given the issues in dispute. If the proceedings are not resolved by the first hearing, then it is likely the overall Court time from the two hearings will be longer than the current estimate of the 20-day trial set for July 2024.
[80] I am therefore of the view that a separate trial of the Valve Failure Questions will not save time unless the proceedings either cease after the first trial (where all the Valve Failure Questions are determined against Channel) or the proceedings otherwise settle after the first trial. As noted at [70] above, there is not a strong likelihood of settlement if some or all of the Valve Failure Questions are determined in favour of HJ Asmuss.
Appeals
[81] Mr Horne submits that while there is always the possibility of an appeal and resulting inefficiencies, an appeal of a decision on the Valve Failure Questions is relatively unlikely. They are primarily issues of expert evidence, decisions on which are less susceptible to appeal than issues of law or contract interpretation.
[82] Mr Horne further submits that even if there is an appeal, it is unlikely to delay resolution of the proceeding and enlarge the period between the preliminary hearing and the trial hearing of the remaining issues. He submits that any appeal is likely to be narrower in scope than the Valve Failure Questions and should therefore involve a short hearing. It would be possible to obtain such a hearing well before the trial, which is nearly two years away.
[83] Mr Horne also submits that the possibility of an appeal does not count conclusively against a separate hearing on the remaining issues, relying on Reynold v Finnigan.41
[84] Mr Gray submits that benefits of a split trial may be undermined by appeals on the findings of that first trial. In particular, the remainder of the issues in dispute may not be able to be resolved prior to the conclusion of any appeals to avoid inconsistent judgments.
Conclusion on this issue
[85] My conclusion on this issue is that, as demonstrated at [53](a)–(h) above, the issues involved in resolving the Valve Failure Questions are more complex than Channel contends. For example, the issue of the terms of the contract between Channel and HJ Asmuss involves questions of contract interpretation and issues of law. The Valve Failure Questions are therefore more susceptible to appeal than pure issues of fact would be.
41 Reynold v Finnigan [2021] NZHC 2668 at [22].
[86] Given the delay in obtaining a fixture of a realistic length for the first trial, and allowing the time of any appeals to be dealt with, my view is that the risk of appeals is a factor weighing against the separate trial of the Valve Failure Questions.
Are there any other practical considerations tending one way or the other?
[87] Mr Horne submits that the nature of the loss favours splitting the trial between the Valve Failure Questions and the other issues, which are primarily issues of causation and quantum. He submits that it is acknowledged that determining issues of quantum is likely to be a complex exercise and that those issues may be best dealt with at a separate hearing if necessary. In this respect, he cites NSK Ltd v General Equipment Co Ltd.42 Mr Horne submits therefore that a separate hearing on the complex issues of quantum is a practical reason for splitting the trial.
[88] Mr Gray submits, on the other hand, that splitting the trial will give rise to a range of practical issues including:
(a)some witnesses would be required to give overlapping evidence at two distinct trials;
(b)counsel will unnecessarily duplicate preparation time; and
(c)issue estoppel may arise between the hearings as a result of (inadvertent) findings of fact at any first trial.
[89] Mr Bell-Connell adds that discovery is still outstanding and that it is possible that competing discovery applications will be made by the parties. Upon completion of discovery, interrogatories may need to be administered. He submits, therefore, that the Court is being asked to order a separate question trial before all the facts are known.
Conclusion on this point
[90] My conclusion on this point is that there are practical considerations pointing in favour of not ordering a separate trial. In particular, I accept Mr Gray’s submissions
42 NSK Ltd v General Equipment Co Ltd [2016] NZHC 1424 at [112].
that there is likely to be overlapping evidence and also the possibility of inadvertent findings of fact in the first trial. The risk of issue estoppel in the second trial stems from the underlying problem identified earlier — that the demarcation of issues in the first trial is not as clear cut as presented by Channel.
Conclusion
[91]Because of the conclusions I have reached at [63]–[65], [70], [79]–[80], [85]–
[86] and [90] above, Channel’s application for a separate trial to determine the Valve Failure Questions is to be dismissed.
Result
[92]I make the following orders:
(a)Channel’s application for a separate hearing to determine the Valve Failure Questions pursuant to r 10.15 of the High Court Rules is dismissed.
(b)My preliminary view is that costs should be awarded to HJ Asmuss and Neway as the successful parties. Counsel are to endeavour to agree costs within 20 working days of the date of this judgment, failing which counsel for Channel is to submit a memorandum as to costs within five working days of the expiry of the 20 working days, and counsel for HJ Asmuss and Neway are to submit a memorandum as to costs in five working days of receipt of counsel for Channel’s memorandum.
…………………………….. Associate Judge Taylor
Solicitors:
MinterEllisonRuddWatts (Andrew Horne/Alex Church), Auckland, for the Plaintiff Buddle Findlay (David Broadmore), Auckland, for the First Defendant
Dentons Kensington Swan (David Campbell/Jeremy Bell-Connell), Auckland, for the Second Defendant
Counsel:
Bruce D Gray KC, Shortland Chambers, Auckland, for the First Defendant
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