HELILOGGING LTD (in receivership and liquidation) v CIVIL AVIATION AUTHORITY OF NEW ZEALAND [2019] NZHC 1641

HELILOGGING LTD (in receivership and liquidation) v CIVIL AVIATION AUTHORITY OF NEW ZEALAND[2019] NZHC 1641 [12 July 2019]IN THE HIGH COURT OF NEW ZEALANDWELLINGTON REGISTRYI TE KŌTI MATUA O AOTEAROATE WHANGANUI-A-TARA ROHECIV-2014-485-11204[2019] NZHC 1641BETWEEN HELILOGGING LIMITED (in receivershipand liquidation)First PlaintiffMARK WAYNE FORD (as trustee of theWESSEX TRUST)Second PlaintiffAND CIVIL AVIATION AUTHORITY OF NEWZEALANDDefendantHearing: 11 July 2019Appearances: P J Dale QC and L E Steel for PlaintiffsL J Taylor QC and G E Richards for DefendantJudgment: 12 July 2019JUDGMENT OF COOKE J(Split trial)[1] In these proceedings the plaintiffs bring claims of deceit and misfeasance in apublic office against the defendant. In short, the plaintiffs allege these torts werecommitted when the defendant denied the plaintiffs' application for statutoryapprovals to engage in helicopter based logging transportation, which were necessaryto engage in a business based around those activities. The plaintiffs seek damages forthe loss of profits in the sum of approximately $56 million together with other claimsfor relief. The trial is set down for seven to eight weeks commencing 23 September2019.[2] By notice of interlocutory application dated 4 July 2019 the defendant seeksorders under r 10.15 of the High Court Rules 2016 that the scheduled trial deal withliability only, and that any issues of causation and damages be dealt with at asubsequent hearing. Alternatively the defendant seeks that the trial be adjourned. Theapplication is supported by an affidavit of John Parnell dated 4 July 2019. The ordersare opposed by the plaintiffs.[3] I heard argument on the application on 11 July 2019. As I indicated at thattime, it is desirable that I issue a decision on the application as soon as possible so thatthe 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 wasconscious that if I did not issue a judgment quickly, other commitments might lead toa delay in issuing a judgment.[4] In the circumstances I am able to issue a judgment with some reasons. It is notas elaborate than might otherwise be the case, but nevertheless it captures the essentialreasons for my decision. It does not, however deal with all points raised in argumentby the parties.Relevant rules[5] Rule 10.15 relevantly provides:10.15 Orders for decisionThe court may, whether or not the decision will dispose of theproceeding, 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 thoughtnecessary, the statement of a case.[6] The principles applied by the Court under the rule are well established. Thereis a strong presumption against split trials, particularly because of the inherentcomplexities such orders can create. In Haden v Attorney-General Kós J stated:11 Haden v Attorney-General (2011) 22 PRNZ 1 (footnotes omitted).[46] The Court has a general discretion under r 10.15. Each case must beconsidered individually. But one must start with at least a moderatepresumption against splitting trial. That presumption is borne out in practice:applications under r 10.15, where contested, fail more frequently than theysucceed. 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 issueare to be determined in one trial because that would normally be the mostexpeditious and efficient manner for dealing with a proceeding: ClearCommunications Limited v Telecom Corporation of New Zealand Limited3 at334. Consequently the burden of displacing the presumption rests on the partycontending for split trials. The burden has been described as "heavy" or "notinsignificant": Clear Communications v Telecom Corporation of New ZealandLimited at 335 and KPMG New Zealand v Gemmell4 at [20].[11] Criteria that have been taken into account in other cases to decidewhether 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 separatequestions 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 publicinterest in shortening litigation as against any disadvantagesasserted by parties opposing a split trial.f) Demarcation difficulties in defining issues to be addressed atthe first trial.g) Resulting difficulties of issues estoppel.h) Inadvertent disqualification of a Judge who has expressedviews at the first trial on matters for decision at the second trial.i) Inadvertent findings at the first trial upon matters that are forfull 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 PRNZ333 (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 andamended pleadings following the first trial.n) Rostering difficulties in ensuring that the same Judge isavailable for the second hearing.[12] The number and nature of these criteria reinforce the judicial warningsemphasising the risks involved in ordering split trials: Windsor RefrigeratorCo Limited v Branch Nominees Limited5 at 396, Tilling v Whiteman6 at 25,Esso Resources Canada Limited v Stearns Catalytic Limited7 at 560 and TepkoPty 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 applicationis that the plaintiffs have delayed in particularising their claim for damages, and havealso recently filed an amended statement of claim that adds new elements to theallegations on liability. The delays in the provision of details concerning damages inparticular gives rise to the argument that the defendants are unfairly prejudiced inpreparing a defence to the claim because of the amount of time and work that isrequired to respond to the calculation of losses. In addition the new allegations inrelation 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 notbe able to be completed within the current fixture. Accordingly the application is madeto manage these two related issues.[9] The application for an adjournment, whilst formerly made, was not trulypressed 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 claimhave been, and how the delays in the proceedings overall had caused enormousstresses for the plaintiffs. Equally for the defendant the allegations made by theplaintiffs will be hanging over them. It is in the interests of all parties that progress bemade. 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 whetherthere is unfair prejudice to the defendant arising from the matters which have led tothe application, and accordingly whether orders for a split trial appropriately respondto 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 tomanage 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 difficultiesin responding to the plaintiffs' claims at the scheduled trial:(a) A series of new allegations had been added in the fourth amendedstatement of claim that are substantial in nature, will require significantwork to respond to, and which will require further evidence at trial.(b) Notwithstanding earlier directions given that the plaintiffs particularisetheir loss last year, it was not until a model was provided on 2 May2019 and evidence was provided at approximately the same time thatthe basis for the damages claim was properly identified. The defendantsays 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 acceptMr Dale's submissions that a defendant should be able to deal with changes of thiskind before a trial starting in September this year. It is true that the amendments moresquarely criticise the conduct of individuals other than the former Director of CivilAviation who has always been at the centre of the allegations, and that other decisionsaffecting the plaintiffs have been added. But the plaintiffs have always made broaderallegations against the "Civil Aviation Authority" which were not limited to the"Director", so the conduct of other officials was always indirectly in issue, albeitwithout the individuals being identified. Changes are also not unusual in complexlitigation of this kind, and a defendant would be expected to deal with them in thenormal way as litigation evolves.[13] I do accept Mr Taylor's point that the new allegations, particularly thoserelating to the prosecution against Mr Ford for breach of the Civil AviationRegulations, and the challenges to the prohibition notice pursuant to s 21(2) of theCivil Aviation Act 1999 and the revocation of the Part 137 Agricultural AircraftOperators Certificate, may add to the evidence at trial. This is legitimately consideredin terms of whether the current fixture length can address all issues. But by themselvesthese matters would not warrant the adjournment of the trial, and because they relateto 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 theplaintiffs' claims on quantum.[15] On 6 June 2018 the Court directed that a fully particularised claim on damagesbe provided by the plaintiffs by 29 June 2018. An amended statement of claim wasfiled on 3 August 2018 with an updated bottom line damages figure, but with noparticulars 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 aspreadsheet identifying a damages claim of approximately $49.5 million, but theassumptions and inputs into the claim were still not identified. An updated model wasprovided on 2 May 2019 increasing the claim to $56.2 million. But the evidencesupporting the underlying calculations was only provided in the statements ofevidence 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 neveractually got going, and accordingly the model was required to formulate what theplaintiffs' business operations would have been effectively from scratch, without anyexisting business operation to rely on to assess how the business would haveperformed. There are a number of inputs, or assumptions that are involved in thatassessment. That includes all elements associated with a helicopter logging businessinvolving many details, such as the availability of contracts to undertake helicopterlogging work, the number of flights that a helicopter could perform, the marginalprofitability of the flights, and other related matters. Mr Dale emphasised that it hadbeen an extremely detailed, and difficult exercise to engage in.[18] But the results of the analysis are undeniably late, and equally complex for thedefendant 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 numberof important inputs. It will require CAA to respond to technical anddetailed expert evidence on forestry, helilogging operations, revenueand expense structures and accounting evidence on the 10 years of lostprofits claimed.22. An initial approach was made to Deloitte on 5 June 2019 in respect ofquantum issues. Their appointment remains subject to the engagementof appropriate experts as part of the input required for their analysis.Some of the likely experts will be from overseas. CAA has not yet beenable to identify and confirm the appointment of these experts.23. In addition to locating and instructing experts it is likely that detailedanalysis will need to be made of the financial and operational recordsof 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 thatthat there is no prospect of it being able to fully and properly prepareits 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 stepsto engage in this kind of briefing before now, as it was always apparent that theplaintiffs' claim would be based on the business that it would have engaged in but forthe 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 whatthe plaintiff was claiming before any detailed work could be done in response. I acceptthere is force in this point.[20] Accordingly I accept that it would be unfair to the defendant to expect them torespond to this detailed case on quantum in such a short space of time before trial incircumstances where the plaintiffs have said it has been an extremely complicated anddifficult exercise to calculate their claim in the first place. Moreover the plaintiffshave failed to meet Court orders requiring them to do so earlier. The plaintiffs cannotnow insist upon the defendant responding to their case within a period of time thatthey were unable to meet themselves.[21] For that reason I accept that the issue of quantification, and the evidentialquestions going to what the assumptions and inputs into the model should not beaddressed at the trial this year, and will need to be addressed at a subsequent trial ifthe plaintiffs succeed. I also have some concerns about ensuring the trial will becompleted within the fixture that is allocated, and accept that the new allegations onliability will lengthen the evidence required at trial. Mr Taylor took me through abreakdown of the expected length of trial given the issues of liability, what has beencalled "regulatory causation" and damages. I accept that there would be considerabledifficulty in completing the trial including the damages element within the timeallocated.[22] As a consequence of these issues, I accept that the defendant's applicationshould be granted.[23] But there is a remaining issue relating to the demarcation between what willbe determined at the trial later this year, and any subsequent hearing on quantum. Asindicated above, the question of demarcation has been an important issue in decidingon split trial applications.The demarcation[24] The parties disagreed on where the dividing point between the liability andquantum should be drawn if any split trial was ordered. The defendants say that thetrial should deal solely with the question of liability, and that all issues relating toquantum should be addressed only at a later trial. The plaintiffs say that the liabilityhearing should deal with some of the causation issues. In particular the plaintiffs saythat the Court should not only determine liability, but should also determine the extentto which the plaintiffs' applications for statutory permission would have been grantedbut for the wrongdoing. The issue that they would then leave to the later hearing isthe quantification of the loss that would arise, including all causation issues apart fromthose associated with the statutory authorisation.[25] Mr Taylor argued that dealing with "regulatory causation" was not necessaryfor the plaintiffs' case on liability, and that questions going to whether statutorypermission should have been forthcoming on its merits were irrelevant to liability. Theonly issue was what decisions were made at the time, and the information available tothe 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 ithad 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 suchevidence may not be totally irrelevant to liability, and that this is a difficultdemarcation point. If the plaintiffs can demonstrate a highly compelling case that itsoperations should have been approved under the legislative provisions as a matter ofsubstance, inferences might be able to be drawn that the applications were declinedfor bad reason. I say no more than this point is arguable, as the focus will need to beon the information available to the Director at the time. But the line drawing exerciseon what is, or is not relevant, is difficult.[27] Mr Taylor sought to deal with this issue by suggesting that the plaintiffs wouldbe allowed to use affidavit evidence that had been filed in the earlier summaryjudgment applications, and would be able to put that evidence to witnesses during thecourse of the trial, but the defendant would not need to call evidence responding towhat was in these affidavits. With respect I see that as a complex, and somewhatunsatisfactory halfway house. The proposal itself reflects the difficulty in drawing theline 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 regulatoryapproval, to be more clear cut. It also reserves for the later hearing the issue that hascaused the problem here — it is the evidence relating to the inputs and assumptions inthe model used to calculate the damages claim that the defendant cannot be expectedto respond to. What it can be expected to respond to is the suggestion that but for thewrongdoing the plaintiffs' applications would have been granted, or at the very leastthat the plaintiffs lost the chance of them being granted.[29] I mention that last point because as Mr Taylor clarified the plaintiffs' claimcurrently involves an allegation that they lost the chance of obtaining regulatoryapproval. Mr Dale confirmed this. As I understand it, the plaintiffs say that even ifthey do not prove that they would have been granted regulatory approval but for thewrongdoing, they at least contend they lost the chance of doing so. Whether that is anappropriate basis upon which to calculate damages is an issue that would be alive atthe liability trial as it relates to the regulatory causation point. In some respects thisfactor demonstrates that there is a degree of desirability in having such questionsdetermined before any damages are assessed.[30] Finally on the question of the demarcation point, I understood Mr Taylor'sassessment of the witnesses that would need to be called by the plaintiffs and defendanton both liability and regulatory causation could be addressed within the scheduledtrial.[31] A final matter addressed at the hearing was the complication concerningpotential appeals arising from the first trial. I accept Mr Taylor's submission that themost appropriate course is simply to deal with those implications at the time, ratherthan trying to predict in advance how that might be most efficiently dealt with. It maybe appropriate to push on to a quantum hearing if the plaintiffs succeednotwithstanding an appeal by the defendant. Equally it is unlikely to be appropriateto proceed to assess damages if the plaintiffs fail. But these implications should simplybe 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 splittrial. The liability trial will deal with liability, and what the regulatory outcome wouldhave been, or could have been but for the wrongdoing. The question of the businessconsequences, and calculations that would arise from any such findings on liabilityare 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 tobe discussed at the next judicial telephone conference. The parties also have leave tofile 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 successon each side. The defendant's application has been granted, but with respect to thedemarcation point suggested by the plaintiffs. I am inclined to the view that the costsof this application should be dealt with later as costs in the cause. But I am preparedto receive memoranda if either party wishes to suggest otherwise (withoutencouragement).Cooke JSolicitors:Neilsons Lawyers Ltd, Auckland for PlaintiffsDarroch Forrest Lawyers, Wellington for Defendant