Helilogging Limited (in receivership and liquidation) v Civil Aviation Authority of New Zealand
[2019] NZHC 1641
•12 July 2019
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE
CIV-2014-485-11204
[2019] NZHC 1641
BETWEEN HELILOGGING LIMITED (in receivership and liquidation)
First Plaintiff
MARK WAYNE FORD (as trustee of the WESSEX TRUST)
Second Plaintiff
AND
CIVIL AVIATION AUTHORITY OF NEW ZEALAND
Defendant
Hearing: 11 July 2019 Appearances:
P J Dale QC and L E Steel for Plaintiffs
L J Taylor QC and G E Richards for Defendant
Judgment:
12 July 2019
JUDGMENT OF COOKE J
(Split trial)
[1] In these proceedings the plaintiffs bring claims of deceit and misfeasance in a public office against the defendant. In short, the plaintiffs allege these torts were committed when the defendant denied the plaintiffs’ application for statutory approvals to engage in helicopter based logging transportation, which were necessary to engage in a business based around those activities. The plaintiffs seek damages for the loss of profits in the sum of approximately $56 million together with other claims for relief. The trial is set down for seven to eight weeks commencing 23 September 2019.
HELILOGGING LTD (in receivership and liquidation) v CIVIL AVIATION AUTHORITY OF NEW ZEALAND [2019] NZHC 1641 [12 July 2019]
[2] By notice of interlocutory application dated 4 July 2019 the defendant seeks orders under r 10.15 of the High Court Rules 2016 that the scheduled trial deal with liability only, and that any issues of causation and damages be dealt with at a subsequent hearing. Alternatively the defendant seeks that the trial be adjourned. The application is supported by an affidavit of John Parnell dated 4 July 2019. The orders are opposed by the plaintiffs.
[3] I heard argument on the application on 11 July 2019. As I indicated at that time, it is desirable that I issue a decision on the application as soon as possible so that the parties know where they stand in preparing for trial. I indicated that, if necessary, I would issue a results only judgment with reasons to be provided later. I was conscious that if I did not issue a judgment quickly, other commitments might lead to a delay in issuing a judgment.
[4] In the circumstances I am able to issue a judgment with some reasons. It is not as elaborate than might otherwise be the case, but nevertheless it captures the essential reasons for my decision. It does not, however deal with all points raised in argument by the parties.
Relevant rules
[5]Rule 10.15 relevantly 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.
[6] The principles applied by the Court under the rule are well established. There is a strong presumption against split trials, particularly because of the inherent complexities such orders can create. In Haden v Attorney-General Kós J stated:1
1 Haden v Attorney-General (2011) 22 PRNZ 1 (footnotes omitted).
[46] The Court has a general discretion under r 10.15. Each case must be considered individually. But one must start with at least a moderate presumption against splitting trial. That presumption is borne out in practice: applications under r 10.15, where contested, fail more frequently than they succeed. The burden lies on the applicant, and is “not insignificant”.
[7]Similarly in Turners and Growers v Zespri Group Ltd White J indicated:2
[10] The starting point therefore is the assumption that all matters in issue are to be determined in one trial because that would normally be the most expeditious and efficient manner for dealing with a proceeding: Clear Communications Limited v Telecom Corporation of New Zealand Limited3 at
334. Consequently the burden of displacing the presumption rests on the party contending for split trials. The burden has been described as “heavy” or “not insignificant”: Clear Communications v Telecom Corporation of New Zealand Limited at 335 and KPMG New Zealand v Gemmell4 at [20].
[11] Criteria that have been taken into account in other cases to decide whether to order a split trial include -
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.
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.
2 Turners and Growers v Zespri Group Ltd HC Auckland CIV-2009-404-004392, 5 May 2010.
3 Clear Communications Limited v Telecom Corporation of New Zealand Limited (1998) 12 PRNZ 333 (HC).
4 KPMG New Zealand v Gemmell HC Auckland CIV-2008-404-4288, 27 March 2009.
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.
[12] The number and nature of these criteria reinforce the judicial warnings emphasising the risks involved in ordering split trials: Windsor Refrigerator Co Limited v Branch Nominees Limited5 at 396, Tilling v Whiteman6 at 25, Esso Resources Canada Limited v Stearns Catalytic Limited7 at 560 and Tepko Pty Limited v Water Board8 at 55.
The present application
[8] The present application is somewhat unusual as the proceedings have been on- foot for some time and the trial is imminent. The trigger for the defendant’s application is that the plaintiffs have delayed in particularising their claim for damages, and have also recently filed an amended statement of claim that adds new elements to the allegations on liability. The delays in the provision of details concerning damages in particular gives rise to the argument that the defendants are unfairly prejudiced in preparing a defence to the claim because of the amount of time and work that is required to respond to the calculation of losses. In addition the new allegations in relation to liability have added to the matters that will need to be addressed at trial, which the defendant says gives rise to a risk that a trial addressing all matters will not be able to be completed within the current fixture. Accordingly the application is made to manage these two related issues.
[9] The application for an adjournment, whilst formerly made, was not truly pressed by the defendant. The reality is that neither party wants the fixture adjourned. Mr Dale QC for the plaintiffs stressed how difficult the events giving rise to the claim have been, and how the delays in the proceedings overall had caused enormous stresses for the plaintiffs. Equally for the defendant the allegations made by the plaintiffs will be hanging over them. It is in the interests of all parties that progress be made. For that reason I conclude that an adjournment of the trial should not occur.
5 Windsor Refrigerator Co Ltd v Branch Nominees Ltd [1961] 1 CH 375.
6 Tilling v Whiteman [1980] AC 1 (HL).
7 Esso Resources Canada Ltd v Stearns Catalytic Ltd (1991) 77 DLR (4th) 557.
8 Tepko Pty Ltd v Water Board [2001] HCA 19, (2001) 206 CLR 1.
[10] In the circumstances of the present case a primary consideration is whether there is unfair prejudice to the defendant arising from the matters which have led to the application, and accordingly whether orders for a split trial appropriately respond to address that prejudice. There are inherent difficulties, and risks in splitting a trial. Mr Taylor QC submits, however, that it is necessary to take this step in order to manage an already compromised situation, at least if the fixture is to be kept.
Has prejudice been caused to the defendant?
[11] The defendant raises two matters that it says leads to it having real difficulties in responding to the plaintiffs’ claims at the scheduled trial:
(a)A series of new allegations had been added in the fourth amended statement of claim that are substantial in nature, will require significant work to respond to, and which will require further evidence at trial.
(b)Notwithstanding earlier directions given that the plaintiffs particularise their loss last year, it was not until a model was provided on 2 May 2019 and evidence was provided at approximately the same time that the basis for the damages claim was properly identified. The defendant says it cannot respond to that in time for trial on those issues, particularly given that its own evidence is due on 26 July 2019.
New liability claims
[12] In terms of the new allegations in relation to liability, I broadly accept Mr Dale’s submissions that a defendant should be able to deal with changes of this kind before a trial starting in September this year. It is true that the amendments more squarely criticise the conduct of individuals other than the former Director of Civil Aviation who has always been at the centre of the allegations, and that other decisions affecting the plaintiffs have been added. But the plaintiffs have always made broader allegations against the “Civil Aviation Authority” which were not limited to the “Director”, so the conduct of other officials was always indirectly in issue, albeit without the individuals being identified. Changes are also not unusual in complex
litigation of this kind, and a defendant would be expected to deal with them in the normal way as litigation evolves.
[13] I do accept Mr Taylor’s point that the new allegations, particularly those relating to the prosecution against Mr Ford for breach of the Civil Aviation Regulations, and the challenges to the prohibition notice pursuant to s 21(2) of the Civil Aviation Act 1999 and the revocation of the Part 137 Agricultural Aircraft Operators Certificate, may add to the evidence at trial. This is legitimately considered in terms of whether the current fixture length can address all issues. But by themselves these matters would not warrant the adjournment of the trial, and because they relate to liability, they are only indirectly relevant to the application to split the trial.
Quantum issues
[14] I see far greater substance, however, in Mr Taylor’s argument concerning the plaintiffs’ claims on quantum.
[15] On 6 June 2018 the Court directed that a fully particularised claim on damages be provided by the plaintiffs by 29 June 2018. An amended statement of claim was filed on 3 August 2018 with an updated bottom line damages figure, but with no particulars indicating how it was calculated. That did not meet the Court’s orders.
[16] On 29 May 2019 a third amended statement of claim was filed with a spreadsheet identifying a damages claim of approximately $49.5 million, but the assumptions and inputs into the claim were still not identified. An updated model was provided on 2 May 2019 increasing the claim to $56.2 million. But the evidence supporting the underlying calculations was only provided in the statements of evidence that were served at the end of April/early May.
[17] Mr Dale explained just how difficult it had been to formulate the plaintiffs’ claim for damages. A substantial reason for this is that the plaintiffs’ business never actually got going, and accordingly the model was required to formulate what the plaintiffs’ business operations would have been effectively from scratch, without any existing business operation to rely on to assess how the business would have performed. There are a number of inputs, or assumptions that are involved in that
assessment. That includes all elements associated with a helicopter logging business involving many details, such as the availability of contracts to undertake helicopter logging work, the number of flights that a helicopter could perform, the marginal profitability of the flights, and other related matters. Mr Dale emphasised that it had been an extremely detailed, and difficult exercise to engage in.
[18] But the results of the analysis are undeniably late, and equally complex for the defendant to respond to. In his affidavit Mr Parnell puts it in the following way:
20.The damages claim is based on a complex model which has a number of important inputs. It will require CAA to respond to technical and detailed expert evidence on forestry, helilogging operations, revenue and expense structures and accounting evidence on the 10 years of lost profits claimed.
…
22.An initial approach was made to Deloitte on 5 June 2019 in respect of quantum issues. Their appointment remains subject to the engagement of appropriate experts as part of the input required for their analysis. Some of the likely experts will be from overseas. CAA has not yet been able to identify and confirm the appointment of these experts.
23.In addition to locating and instructing experts it is likely that detailed analysis will need to be made of the financial and operational records of the plaintiffs and at least one of the plaintiffs’ experts on quantum.
24.This evidence is currently due by 26 July 2019. The CAA believes that that there is no prospect of it being able to fully and properly prepare its defence to the quantum claim in the time available before trial.
[19] I put to Mr Taylor that I was surprised that the defendant had not taken steps to engage in this kind of briefing before now, as it was always apparent that the plaintiffs’ claim would be based on the business that it would have engaged in but for the alleged wrongdoing. He accepted that work could have been commenced earlier, but submitted that in the end it was necessary to have a detailed understanding of what the plaintiff was claiming before any detailed work could be done in response. I accept there is force in this point.
[20] Accordingly I accept that it would be unfair to the defendant to expect them to respond to this detailed case on quantum in such a short space of time before trial in circumstances where the plaintiffs have said it has been an extremely complicated and difficult exercise to calculate their claim in the first place. Moreover the plaintiffs
have failed to meet Court orders requiring them to do so earlier. The plaintiffs cannot now insist upon the defendant responding to their case within a period of time that they were unable to meet themselves.
[21] For that reason I accept that the issue of quantification, and the evidential questions going to what the assumptions and inputs into the model should not be addressed at the trial this year, and will need to be addressed at a subsequent trial if the plaintiffs succeed. I also have some concerns about ensuring the trial will be completed within the fixture that is allocated, and accept that the new allegations on liability will lengthen the evidence required at trial. Mr Taylor took me through a breakdown of the expected length of trial given the issues of liability, what has been called “regulatory causation” and damages. I accept that there would be considerable difficulty in completing the trial including the damages element within the time allocated.
[22] As a consequence of these issues, I accept that the defendant’s application should be granted.
[23] But there is a remaining issue relating to the demarcation between what will be determined at the trial later this year, and any subsequent hearing on quantum. As indicated above, the question of demarcation has been an important issue in deciding on split trial applications.
The demarcation
[24] The parties disagreed on where the dividing point between the liability and quantum should be drawn if any split trial was ordered. The defendants say that the trial should deal solely with the question of liability, and that all issues relating to quantum should be addressed only at a later trial. The plaintiffs say that the liability hearing should deal with some of the causation issues. In particular the plaintiffs say that the Court should not only determine liability, but should also determine the extent to which the plaintiffs’ applications for statutory permission would have been granted but for the wrongdoing. The issue that they would then leave to the later hearing is the quantification of the loss that would arise, including all causation issues apart from those associated with the statutory authorisation.
[25] Mr Taylor argued that dealing with “regulatory causation” was not necessary for the plaintiffs’ case on liability, and that questions going to whether statutory permission should have been forthcoming on its merits were irrelevant to liability. The only issue was what decisions were made at the time, and the information available to the decision-makers who made them. Evidence going to whether the plaintiffs’ applications in fact met the statutory criteria for permission would not be relevant if it had not been put before the decision-maker at the time.
[26] I accept that that is strictly correct. But I also accept Mr Dale’s point that such evidence may not be totally irrelevant to liability, and that this is a difficult demarcation point. If the plaintiffs can demonstrate a highly compelling case that its operations should have been approved under the legislative provisions as a matter of substance, inferences might be able to be drawn that the applications were declined for bad reason. I say no more than this point is arguable, as the focus will need to be on the information available to the Director at the time. But the line drawing exercise on what is, or is not relevant, is difficult.
[27] Mr Taylor sought to deal with this issue by suggesting that the plaintiffs would be allowed to use affidavit evidence that had been filed in the earlier summary judgment applications, and would be able to put that evidence to witnesses during the course of the trial, but the defendant would not need to call evidence responding to what was in these affidavits. With respect I see that as a complex, and somewhat unsatisfactory halfway house. The proposal itself reflects the difficulty in drawing the line at this point.
[28] I see the line drawing exercise separating the remaining issue of quantum, including all causation issues other than those relating to the grant of regulatory approval, to be more clear cut. It also reserves for the later hearing the issue that has caused the problem here — it is the evidence relating to the inputs and assumptions in the model used to calculate the damages claim that the defendant cannot be expected to respond to. What it can be expected to respond to is the suggestion that but for the wrongdoing the plaintiffs’ applications would have been granted, or at the very least that the plaintiffs lost the chance of them being granted.
[29] I mention that last point because as Mr Taylor clarified the plaintiffs’ claim currently involves an allegation that they lost the chance of obtaining regulatory approval. Mr Dale confirmed this. As I understand it, the plaintiffs say that even if they do not prove that they would have been granted regulatory approval but for the wrongdoing, they at least contend they lost the chance of doing so. Whether that is an appropriate basis upon which to calculate damages is an issue that would be alive at the liability trial as it relates to the regulatory causation point. In some respects this factor demonstrates that there is a degree of desirability in having such questions determined before any damages are assessed.
[30] Finally on the question of the demarcation point, I understood Mr Taylor’s assessment of the witnesses that would need to be called by the plaintiffs and defendant on both liability and regulatory causation could be addressed within the scheduled trial.
[31] A final matter addressed at the hearing was the complication concerning potential appeals arising from the first trial. I accept Mr Taylor’s submission that the most appropriate course is simply to deal with those implications at the time, rather than trying to predict in advance how that might be most efficiently dealt with. It may be appropriate to push on to a quantum hearing if the plaintiffs succeed notwithstanding an appeal by the defendant. Equally it is unlikely to be appropriate to proceed to assess damages if the plaintiffs fail. But these implications should simply be addressed when the full implications are known at the time.
Result
[32] For these reasons I grant the defendants application under r 10.15 for a split trial. The liability trial will deal with liability, and what the regulatory outcome would have been, or could have been but for the wrongdoing. The question of the business consequences, and calculations that would arise from any such findings on liability are to be addressed at a later hearing if the plaintiffs succeed.
[33] It is important that the parties are clear about the demarcation point. This is to be discussed at the next judicial telephone conference. The parties also have leave to file memoranda in any event in the case of any uncertainty.
[34] On the question of costs of this application, there has been a measure of success on each side. The defendant’s application has been granted, but with respect to the demarcation point suggested by the plaintiffs. I am inclined to the view that the costs of this application should be dealt with later as costs in the cause. But I am prepared to receive memoranda if either party wishes to suggest otherwise (without encouragement).
Cooke J
Solicitors:
Neilsons Lawyers Ltd, Auckland for Plaintiffs Darroch Forrest Lawyers, Wellington for Defendant
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