Judgment
Title: | Weavering Macro Fixed Income Fund Ltd (In Liquidation) -v- PNC Global Investment Servicing (Europe) Ltd |
Neutral Citation: | [2012] IESC 60 |
Supreme Court Record Number: | 86 & 157/12 |
High Court Record Number: | 2011 127 COM & 2009 6385 P |
Date of Delivery: | 12/04/2012 |
Court: | Supreme Court |
Composition of Court: | McKechnie J., Clarke J., MacMenamin J. |
Judgment by: | Clarke J. |
Status: | Approved |
Result: | Allow And Set Aside |
 | |
| Judgments by | Link to Judgment | Concurring | Clarke J. | | McKechnie J., MacMenamin J. | |
|
THE SUPREME COURT
[Appeal Nos: 86/2012
157/2012]
McKechnie J.
Clarke J.
MacMenamin J.
Between/
Weavering Macro Fixed Income Fund Limited (in liquidation)
Plaintiff/Appellant
and
PNC Global Investment Servicing (Europe) Limited
(now known as BNY Mellon Investment Servicing (International) Limited)
Respondent/Defendant
Judgment of Mr. Justice Clarke delivered the 4th December, 2012.
1. Introduction
1.1 These proceedings arise out of a commercial arrangement entered into between the parties. The plaintiff/appellant ("Weavering") is a Cayman Islands company which is now in liquidation. Weavering was an investment vehicle into which investors placed monies in return for redeemable shares. The monies were invested with a periodic valuation of the net assets of the company (described as net asset value or "NAV") being carried out so as to permit investors who wished to withdraw their monies to be paid their appropriate share of the invested funds based on the NAV valuation. The respondent/defendant ("PNC") provided a very wide range of administrative services to Weavering such that, in substance, the entire running of Weavering was, it would appear, conducted by PNC.
1.2 The parties' relationship was largely governed by an agreement termed an "Administration and Accounting Services Agreement" ("the Administration Agreement") which agreement had initially been entered into between Weavering and a predecessor of PNC being PSPC International Limited. Certain other documents which passed between the parties from time to time are also said to influence the legal rights and obligations of those parties. Nothing turns on the detail of those matters for the purposes of this judgment.
1.3 In circumstances which it will be necessary to address in a little more detail, and which are, in truth, still very unclear, it transpired in 2009 that there were no substantial assets available to Weavering notwithstanding the fact that the NAV valuation produced from time to time by PNC seemed to disclose very substantial net assets indeed. It would appear that a principal feature of the investments made was in interest rate swap transactions to which the counter-party was Weavering Capital Fund Limited (BVI) ("WCF"). The court understands that, in the aftermath of the collapse of Lehman Brothers, investors sought to withdraw their funds from Weavering in significant amounts. After a period it became clear that there were insufficient funds to pay such investors the amounts to which they would appear to have been entitled on the basis that the NAV calculations were correct.
1.4 As a consequence Weavering went into liquidation on the 3rd April, 2009. As of that date the reported NAV as computed by PNC was US$506,307,034.56. As part of that calculation a value of US$637,121,093.48 was attributed to the interest rate swaps to which reference has already been made. The value of the swaps amounted, in substance, to funds apparently due to Weavering from WCF on foot of a calculation deriving from interest rate movements by reference to the London Interbank Rate (Libor). However, it is suggested that the assets of WCF as of the 31st December, 2008 were under US$77 million so that whatever theoretical liability there may have been from WCF in favour of Weavering, the vast majority of the money owed was, in practical terms, incapable of being recovered and the true value of the swaps was, therefore, significantly overstated.
1.5 In these proceedings generally Weavering asserts that PNC is liable to it for damages for breach of contract, breach of duty and misrepresentation and claims damages which appear to exceed €300 million. This judgment is not, however, concerned with the substance of that claim. Rather it is concerned with an appeal brought by Weavering to this court against an order made in the High Court (Charleton J.) directing a modular trial. In order to understand the issues which arise on this appeal it is necessary to turn to the application made by PNC which resulted in the order of Charleton J. now under appeal. It is also necessary to consider the precise terms of the modular trial directed by Charleton J.
2. The Application in the High Court
2.1 The application to the High Court for directions as to the mode of trial of this case was heard by Charleton J. on the 12th, 13th and 17th of January 2012. In that application PNC sought to have a number of legal questions decided as “discrete issues”, in what, it submitted, was an attempt to secure the completion of the litigation in as expeditious and cost effective a manner as possible. Twelve issues were identified in the grounding notice of motion. However, PNC later withdrew issues numbered 5, 6 and 7. As to the remaining proposed issues it was submitted that if issues 1 and 2, relating to the available causes of action by reference to time limits, were determined in favour of PNC, same would amount to a complete defence to the proceedings. Issues 3, 4 and 8, relating to the effect of related Cayman Islands proceedings on these proceedings, were said to have the potential to significantly restrict the issues which would have to be determined at the main trial. Finally, it was contended that the early resolution of issues 9, 10, 11 and 12, relating to the interpretation of certain clauses of the Administration Agreement and, perhaps, their application to the facts, would have the potential to determine the entire proceedings or narrow significantly the issues to be addressed at the main trial.
2.2 On the 26th January, 2012, Charleton J. delivered his judgment on the application. The trial judge refused to include issue 8, which related to the liability of the directors of the Weavering for any loss and damage arising, in any first stage of a modular hearing. This question was held to be one of the central factual issues in the dispute and, it was determined, should be left over to the main hearing. The trial judge did acknowledge that this particular issue had not been pressed in argument by PNC. In respect of the eight remaining issues (numbers 1 - 4 and 9 - 12), Charleton J. directed that it was appropriate to direct a modular hearing. It should be noted that Weavering had already accepted that it was appropriate to have issue 1(b) tried in advance of the main hearing. The eight issues, in respect of which a modular trial was directed, as set out in the original notice of motion, are as follows:
1. “Is the Plaintiff’s claim in the proceedings limited to (a) any alleged causes of action and/or claims which arose within 12 months of the date of issue of the proceedings on 30th June 2009 or (b) any alleged causes of action and/or claims which arose within 12 months of the date of service of the proceedings on the 5th July 2010?
2. When did each of the causes of action relied upon by the Plaintiff in these proceedings occur for the purposes of Clause 14(d) of the Administration Agreement?
3. Whether the acts and/or omissions of the directors of the Plaintiff as determined by the findings in the Cayman Judgment and/or as contended for and/or accepted by the Plaintiff in the Cayman Proceedings are attributable to and bind the Plaintiff in these proceedings and whether the Plaintiff herein can otherwise seek to litigate any findings in these proceedings.
4. Whether the Plaintiff is vicariously liable in respect of the acts and/or omissions of the Directors of the Plaintiff referred to in Issue 4
5. Whether the Plaintiff can maintain any claim other than a claim for wilful misfeasance, bad faith, gross negligence or reckless disregard of duties against the Defendant in the proceedings whether pursuant to a claim based on the Administration Agreement or otherwise
6. If the answer to Issue 9 is “no”, which (if any) of the Plaintiff’s claims in the proceedings can be maintained against the Defendant
7. Whether the Plaintiff’s claim for damages involves in whole or in part a claim for consequential, special or indirect losses or damages.
8. If the answer to issue 11 is “yes”, whether the Defendant is liable for such consequential, special or indirect loss or damage.”
2.3 Against the background of that history it is next necessary to analyse the judgment of Charleton J. to which I now turn.
3. The High Court Judgment
3.1 Following a brief identification of noticeable trends in litigation practices which have resulted in litigation becoming increasingly unwieldy and expensive, Charleton J then referred to the creation of the commercial list and introduction of new rules to allow for the benefits of improved case management. After reviewing the relevant case law on modular trials, which is again analysed in detail later in this judgment, the trial judge identified modular trials as “one of the essential instruments at a court’s disposal for the proper structuring of a complex trial”. In deciding whether to order a modular trial, the court will assess the balance between “a diffuse and lengthy trial hearing on multiple issues or choosing instead a preliminary and much shorter hearing on particular central questions which may be determinative of the ultimate issues of trial or which, at the least, will introduce focus and concision to the trial process.”
3.2 Having considered each of the issues raised and having analysed the contractual provisions in dispute, the trial judge was in agreement with PNC that issues 1 - 4 and 9 - 12 were all issues which could conveniently be decided in advance of the main trial without prejudice being suffered by Weavering. It was held that each of these issues, if decided in a certain manner, has the potential to dispose of a large portion of trial, resulting in substantial time and cost efficiencies
3.3 It seems to me to be appropriate to turn next to a brief analysis of the issues identified in the order directing a modular trial.
4. The Modular Trial – The Issues
4.1 An analysis of the issues which have already been quoted in full suggests that there are, in substance, four sets of issues with two issues arising under each heading. Three of those sets of issues stem from specific provisions in the Administration Agreement. The three relevant clauses are in the following terms:-
"14(d)No party may assert a cause of action against [the defendant] or any of its affiliates that allegedly occurred more than 12 months immediately prior to the filing of the suit (or, if applicable, commencement of arbitration proceedings) alleging such cause of action.
14(a) [The defendant] shall be under no duty hereunder to take any action on behalf of the fund except as specifically set forth herein or as may be specifically agreed by [the defendant] and the fund in a written agreement. [The defendant] shall be obligated to exercise care and diligence in the performance of its duties hereunder and to act in good faith in performing services provided for under this agreement. [The defendant] shall be liable only for any damages arising out of [the defendant’s] failure to perform its duties under this agreement to the extent such damages arise out of [the defendant’s] wilful misfeasance, bad faith, gross negligence or reckless disregard of such duties.
14(c) Notwithstanding anything in this agreement to the contrary, neither [the defendant] nor its affiliate shall be liable for any consequential, special or indirect losses or damages, whether or not the likelihood of such laws and/or damages was known by [the defendant] or its affiliates.”
4.2 Those three clauses form the backdrop to, respectively, issues 1 and 2, issues 9 and 10 and issues 11 and 12. In each case PNC alleges that the relevant clause imposes a limitation on the type of claim which can be asserted by Weavering in these proceedings. Clause 14(d) is said to limit the claim to causes of action arising within the time timeframe specified in that clause. Clause 14(a) is said to limit liability to circumstances where it can be established where there was "wilful misfeasance, bad faith, gross negligence or reckless disregard". Clause 14(c) is said to exclude consequential special or indirect loss or damage. As can be seen from the issues in respect of which a modular trial has been directed one of each of the pairs of issues identified earlier in this judgment raises the question of the interpretation of the respective clauses cited. The other of each such pair seems to raise the question of the application of each respective clause to the facts of the case.
4.3 The other two issues are concerned with the consequences of parallel proceedings which have been brought by Weavering against its two former directors which proceedings have been the subject of a judgment of Jones J. in the Grand Court of the Cayman Islands. At the time of the hearing before this court it would appear that an appeal against that judgment of Jones J. had been heard but not yet determined.
4.4 In substance the allegations made by Weavering against its former directors, Hans Ekstrom and Stefan Peterson, were to the effect that both had acted in wilful neglect of their duties as directors to exercise independent judgment, to exercise reasonable care, skill and diligence and to act in the interests of the company, causing Weavering substantial financial loss. In the main those allegations were made out in that Jones J. found as follows at para. 51 of his judgment:
“In my judgment the evidence in this case leads, unequivocally, to the conclusion that both of these Directors are guilty of wilful neglect or default because they consciously chose not to perform their duties to the Macro Fund, or at least not in any meaningful way. Given their business backgrounds and experience, they must have known that the directors of an investment fund whose shares were listed on the Irish Stock Exchange, would be expected to act in a businesslike manner and that they could not discharge their duty by signing whatever documents were put in front of them (including standard from minutes of meetings) without reading them, or if they did read them, without applying their minds to the content. They claim to have appreciated that they had a high level supervisory duty, yet never once, in six years, asked any of those whom they were supposedly supervising to give them a written report or attend a board meeting to provide them with an oral report. Every board meeting took the form of a board meeting with Mr. Magnus Peterson and no one else. There were no agenda and there is no record of discussion. The board minutes were created by Mr. Magnus Peterson, but they are standard from documents intended to constitute a “note” for the file and create the impression that the Directors were reviewing the affairs of the company on a regular quarterly basis, whereas there is no evidence that any real business was ever in fact conducted at these meetings. It is clear that these Directors consistently signed financial statements, management representation letters, side letters and other documents without making any enquiry whatsoever. In 2007 they signed sham investment management and advisory agreements either without reading them or, if they did, knowing the agreements would never be acted upon. The modus operandi was so firmly entrenched that not even the bankruptcy of Lehman Brothers and the ensuing financial crisis was sufficient to prompt them into convening board meeting or reading the Q3 Quarterly Report which contained damning information about the identity of the IRS counterparty. This failure cannot be treated as an error of judgment or negligence, because Mr. Ekstrom subsequently signed minutes which falsely asserted that a meeting did take place and that they did review the administrator's report.”
4.5 Obviously those findings may or may not be disturbed on appeal. In order to understand the relevance of the Cayman Island proceedings to the issues which arise in these proceedings, it is important to note the position of the relevant directors. Mr. Hans Ekstrom and Mr. Stefan Peterson are relatives of Mr. Magnus Peterson, the controller of Weavering Capital (UK) Ltd, Weavering’s principal investment manager. Mr. Stefan Peterson is the brother of Magnus Peterson and Mr. Hans Ekstrom is their stepfather. It is alleged that both were appointed by Mr. Magnus Peterson in an attempt to meet the minimum legal requirements as to directors without burdening himself with an active and independent board of directors.
4.6 It is clear from the pleadings in these proceedings that amongst the points made by PNC is a contention that the true cause of any losses suffered by Weavering was the actions of those directors for which, it is said, Weavering is vicariously liable. On that basis PNC seeks to place reliance on the findings of the Cayman Islands' courts and suggests that Weavering is not entitled to seek to place before the courts in this jurisdiction any contrary case to that which was successfully maintained in the Cayman Islands' courts. Those issues form the backdrop to issues 3 and 4 in the proposed first module. In the light of that analysis it is next necessary to turn to two aspects of the legal framework which underlies this appeal. It is first necessary to consider the extent to which it is appropriate for this court, on appeal, to interfere with discretionary decisions of a judge of the High Court as to how a trial is to be conducted, and in particular, a decision, such as that which is under scrutiny in this case, as to the conduct of a modular trial. Thereafter it will be necessary to turn to the legal principles which are applicable to a consideration of whether a modular trial should be ordered.
5. The Role of this Court
5.1 In Dowling v Minister for Finance [2012] IESC 32, this court was asked to consider, inter alia, the scope of the Supreme Court’s jurisdiction to interfere with case management orders made by the High Court. The appellant’s case was that orders made by Kearns P. relating to the timescales within which they had to comply with procedural directions were unfairly prejudicial to their ability to present their case and, thus, created a real risk of an unfair trial. Paragraph 3.5 of my judgment in Dowling sets out the general principle to be applied in appeals of this nature:
“…this Court should only intervene if there is demonstrated a degree of irremediable prejudice created by the relevant case management directions such as could not reasonably be expected be remedied by the trial judge (or at least where the chances of that happening were small) and where therefore, unusually, the safer course of action would be for this Court to intervene immediately to alter the case management directions.”
5.2 Similarly in P.J. Carroll & Co. v. Minister for Health and Children [2005] 1 IR 294, this Court (per Geoghegan J.) observed:
“It is, I think, generally accepted that the Commercial Court is already proving to be a successful institution. An integral part of that success is case management. Most orders by way of case management in the Commercial Court are, to some extent, of a discretionary nature and in practice most of them would be unappealable. I would take the view that as a general rule this court should be slow to interfere with case management type orders in the Commercial Court unless there is a clear error of law involved or the managing judge has clearly not exercised his or her discretion correctly."
5.3 In substance it is clear, therefore, that this court should be very slow to interfere with case management directions and that the test for the exercise by this court of its appellate role is as set out in Dowling. However, P.J. Carroll is, as was pointed out in Dowling, an example of a case where this court was prepared, notwithstanding the general reluctance which properly applies in such cases, to allow an appeal. It is, perhaps, of some importance to note that what was in issue in P.J. Carroll was a highly significant decision which had the effect of, in substance, excluding the State defendants in that case from leading expert evidence. There can be little doubt but that the far reaching nature of the order under appeal in P.J. Carroll was a significant factor in the court deciding to consider interfering with the decision of the High Court in that case. It follows that one of the factors that this court ought properly take into account in deciding whether to review the discretion exercised by a judge of the High Court in a case management process is the extent to which the order under appeal might be said to have a potentially fundamental impact on the proceedings.
5.4 The range of orders which can be made in a case management process varies significantly. Orders can, at one end of the spectrum, involve the imposition of time limits for taking steps, or purely procedural directions as to how a trial is to be conducted. At the other end of the spectrum there can be decisions which have the potential to have a very significant impact on how litigation is to progress. There will, of course, be many types of orders which fall somewhere between those two extremes. Following on from the principles identified in Dowling it seems to me that it is unlikely that this court would consider it appropriate to interfere save in cases which are at the end of the spectrum where the consequences of the case management order under appeal have the potential to significantly affect the litigation. It is difficult to see how, except in very unusual circumstances, case management orders which did not have consequences of such a nature could be said to be irremediable.
5.5 It is next necessary to turn to the jurisprudence in respect of modular trials.
6. Modular Trials
6.1 The principles to be applied in respect of modular trials have been the subject of a number of recent decisions. In Cork Plastics Manufacturing v. Ineos Compound UK Ltd [2008] IEHC 93, the earlier authorities in respect of modular trials were reviewed in the following terms:-
“2.1 In P.J. Carroll & Company Limited v. Minister for Health and Children [2005] 3 I.R. 457, Kelly J. observed as follows:-
“The Plaintiffs accept however that there is an inherent jurisdiction which would enable the Court to make an order of the type sought in an appropriate case. In making that concession I believe the Plaintiffs are correct. There is a jurisdiction inherent in the Court which enables it to exercise control over its process by regulating its proceedings, by preventing the abusive process and by compelling the observance of process. It is a residual source of power which the Court may draw upon as necessary wherever it is just inequitable to do so”. (At p. 466).
The issue with which Kelly J. was concerned was not a split or modular trial but nonetheless the general principle advanced seems to me to be applicable to the question of the Courts jurisdiction in this matter.
2.2 In Millar v. Peeples, [1995] N.I. 6, the Court of Appeal in Northern Ireland accepted that a jurisdiction existed to direct a split trial where it was just and convenient. The Court noted that a broad and realistic view of what is just and convenient should be taken, assessing, as appropriate, questions of the avoidance of unnecessary expense and the need to make effective use of Court time. It was also noted that the Court should balance the advantages or disadvantages to each party and take into account the public interest that unnecessary expenditure of time and money and a lengthy hearing should not be incurred. The Court also noted that undue weight should not be allowed to any tactical advantage which might accrue to either party by the presence or absence of a split trial.
2.3 … However the conduct of complex litigation in a modular fashion is not the same thing as the formal separation of preliminary issues. Rather it involves the Court exercising its inherent jurisdiction as to how a single trial of all issues is to be conducted. Is the whole trial to be conducted at one go, or should the Court proceed to hear and determine certain issues in advance of others? Dealing with the single trial in such a modular fashion is simply the exercise by the Court of its inherent jurisdiction to order the manner in which a trial is conducted…
2.5 At the level of principle, I am, therefore, satisfied that I have jurisdiction to direct the way in which both the principal action and the Floplast proceedings are to be tried. I am persuaded that the reasoning of the Court of Appeal in Northern Ireland in Millar –v- Peoples represents the broad approach which should be taken to any such consideration. The Court should determine what is just and convenient by reference to a broad and realistic view which should include the avoidance of unnecessary expense and the need to made effective use of Court time. The Court should accord, in its considerations, due weight to the public interest and should not place over regard on perceived tactical advantages or disadvantages of the parties concerned.”
6.2 In Cork Plastics I acknowledged that the default position is for “a single trial of all issues at the same time”, but then went on to consider when it was appropriate to depart from this general rule. After identifying “the length and complexity of the likely trial” as the most obvious factor to be taken into account, I then enumerated a number of other potentially relevant factors:
“3.9 A second important factor can, in an appropriate case, stem from the need to insulate a party, who is involved with only some of a wide range of issues, from the expense and time of having to attend a lengthy trial, much of which is of no relevance to the issues which involve the party concerned.
3.10 A third and potentially relevant factor, concerns cases where there are a range of approaches to the calculation of damages depending on the basis upon which liability may be established. In many simple (and even some not so simple) cases the question of the approach to the calculation of damages will be fairly clear if liability is established. However, that will not always be the case. Where there are a range of bases upon which liability may be, in whole or in part, established, and where the whole approach to the proper calculation of damages may differ significantly dependent on how liability is made out and the way in which various issues of defence raised may be resolved, then there is an added downside to the unitary trial. The unitary trial will require the plaintiff to present its evidence on quantum against a whole range of theoretical possibilities. In such a case the advantage of a modular trial is that, assuming liability to be established, the basis of the courts approach to damages will also be clear and the parties will be absolved from the necessity of addressing all of the other theoretical bases upon which damages might have been calculated in the event that liability was established in some other way, or aspects of the defence on liability (or, indeed, causation in an appropriate case) might have been successful.
3.11 A further factor which will frequently need to be assessed is the likely relative length and complexity of the respective modules which might be proposed. Again taking the simple division between liability and quantum as an example, it would seem unlikely that any sufficient advantage could be found in a modular trial where the quantum issues arising in the event that liability were established would be straightforward and unlikely to occupy a very great deal of court time. On the other hand a case which involved only a very net issue on liability but was complex in relation quantum would, prima facie, be a particularly appropriate candidate for such a modular trial. In truth it is likely that the length and complexity of subsequent modules (in the above example the quantum hearing) is the issue which is likely to weigh most heavily in the courts consideration of the basic advantage of the modular hearing. This is because what is saved by the modular hearing is the risk that an unnecessary quantum hearing will have to take place. If that later hearing would not be lengthy or complex, then the possibility that it might turn out be unnecessary would not weigh very heavily in the balance. That is not to say that, in an appropriate case, the length and complexity of the earlier module (such as a liability module in the example with I have given) may not also weigh heavily.
3.12 In addition the question of the extent to which there might be significant overlaps in the evidence or witnesses that would be relevant to all modules needs to be taken into account…
3.13 Finally, it is important to note that the courts should place significant weight on any real suggestion that true prejudice (rather than a perceived tactical prejudice) might occur by the absence of a unitary trial. If there were established to be a real risk that the courts view on earlier modules might legitimately be influenced by evidence which would more properly arise in a later module, or conclusions to be reached in relation to such evidence, then it would be difficult to envisage that the court could countenance a modular trial. Obviously the extent to which it can be said that any such risk exists needs to be realistically assessed.
3.14 There may well, of course, be a whole range of other special or unusual circumstances that may arise on the facts of any individual case and may need to be given all due weight.”
6.3 In McCann v Desmond [2010] 4 IR 554 at p.558, Charleton J. identified a number of questions which a court might address in considering whether a modular trial is to be directed:
“(1) Are the issues to be tried by way of a preliminary module, readily capable of determination in isolation from the other issues in dispute between the parties? A modular order should not be made if the case could be characterised as an organic whole, the taking out from which of a series of issues would tear the fabric of what the parties need to litigate, so that the case of either of the plaintiff or the defendant would be damaged through being seen in the isolated context of a hearing on a number of limited issues.
(2) Has a clear saving in the time of the court and the costs that the parties might have to bear been identified? The court should not readily embark on a modular hearing simply because of a contention that a saving in time and costs has been identified, but rather it should view that factor in the context of the need to administer justice in the entire circumstances of the case.
(3) Would a modular order result in any prejudice to the parties? If, for instance, the issue as to what damage was occasioned by reason of the wrong alleged by the plaintiff was so intricately woven in to the proofs that were necessary to the proof of liability for the wrong, so that the removal of the issue of damages would undermine the strength of the plaintiff's case, or the response which a defendant might make to it, then the order should not be made.
(4) Is a motion a device to suit the moving party or does it genuinely assist the litigation by being of help to the resolution of the issues? I return to the idea that a judge should always be aware that tactical decisions are made, often out of an abundance of enthusiasm, by parties to litigation, who may seek to put the other party at a disadvantage through the obtaining of an order under the Rules of the Superior Courts 1986, or one capable of being made within the inherent jurisdiction of the court. Obvious examples of pre-trial motions that may merely be tactical are motions to strike out proceedings as being vexatious or frivolous or to seek an order for security for costs under s. 390 of the Companies Act 1963. Other instances include the lengthy arguments that can sometimes ensue in relation to discovery. If the removal of issues to a modular hearing is likely to disadvantage the proper process of pre-trial preparation that discovery orders, notices for particulars and notices to admit facts involve, then such a motion should be refused as resulting not from a genuine process that will assist the trial but for tactical reasons related to wrong footing the other party.”
6.4 In Atlantic Shellfish v Cork County Council [2010] IEHC 294, the defendants sought to have the plaintiff’s entitlement to litigate damage to the fishery prior to 1996 determined in a modular trial. Laffoy J. concluded at para. 7.10:
“7.10 As I understand it, in seeking to have the issue as formulated on their notice of motion treated as the first episode in a modularised trial of the action, the State parties are proposing that that episode should involve a determination on the issue on the basis of the assumption as to the factual situation reflected in their notice of motion and that it is not intended to have the preliminary issue tried on oral evidence. It is on the basis of that understanding that I have concluded that the State parties are not proposing a modular approach to the hearing at all….
7.12 A finding by the Court that, as a matter of fact and law, the conduct of Cork County Council and the State parties after the coming into effect of the 1996 consent did not amount to a repudiation of the 1996 consent which entitled the plaintiffs to treat it as being at an end, so that the claims in these proceedings which are posited on the 1996 consent being at an end could not be pursued by the plaintiffs, would undoubtedly result in a saving of preparation time, of court time and of costs in the prosecution and defence of the plaintiffs’ action. However, given that the claims arising from the alleged breach of the 1996 consent would remain in the action in that event, it is difficult to form a view as to how significant the saving of time and costs would be proportionately to the overall time and costs involved in prosecuting and defending the action. I think that the likelihood is that the greatest saving would be in the area of the quantification of the plaintiffs’ pre-1996 losses. While adopting a modular approach, as was adopted in the Cork Plastics case, whereby the liability issue would be dealt with in the first module, would have more potential to be time and cost effective, I am not convinced that, even if the issue as formulated, which Cork County Council and the State parties propose should be tried first, were tried in a truly modular fashion on oral evidence, there would be a significant saving of time and costs.”
6.5 The inherent jurisdiction of the court was re-iterated in Dowling where this Court stated:
“… the court can, in the exercise of its inherent jurisdiction to maintain control over the conduct of trials before it, direct a modular trial where some of the issues are separated out and tried before others. A common example is where, in plenary proceedings, issues of liability and causation are tried first with questions concerning the calculation of damages being left over.”
6.6 It seems to me that the principles which can be derived from that case law are as follows:-
(i) There is a jurisdiction in the court, as part of its inherent jurisdiction to regulate the manner in which trials are conducted, to direct a modular trial as a result of which some issues are determined ahead of others.
(ii) There is distinction between the trial of a preliminary issue, as identified in the Rules of the Superior Courts, Orders 25 and 34, on the one hand, and the modular trial of all issues on the other hand. As the author's of Delaney and McGrath (3rd Edition) point out at paras.14-03 and 14-04:-
“Issues of law may arise in pleadings which lend themselves to being determined by means of the trial of a point of law as a preliminary issue. Provision for the determination of a point of law as a preliminary issue is made in two separate orders. Order 25, rule 1 provides that, by the consent of the parties, or by the order of the court, on application of either party, any point of law may be set down for hearing and disposed of at any time before the trail. Order 25, rule 2 goes on to provide that if in the opinion of the court, the decision on this point substantially disposes of the action, or any distinct cause of cause, ground of defence, counterclaim or reply, the court may dismiss the claim or may make such other as may be just. Accordingly, if a party contends that the determination of a point of law in his or her favour will dispose of the proceedings, the correct approach is to apply for the trial of that point of law as a preliminary issue rather than to bring an application to strike out the proceedings on the basis that they are bound to fail on this basis.
Order 34, Rule 2 further provides that if it appears to the court that any question of law arises which it would be convenient to have decided before any evidence is given of any question or issue of fact is tried, it may direct such question of law to be raised for the opinion of the court, either by special case or in such other manner as the court may deem expedient and such further proceedings as the decision of law may render unnecessary can be stayed. In McDonald v Bord nag Con Lavery J stated these two rules “cover the same ground”. In his view, the only relevant difference between them is the Order 34, rule 2 expressly provides that it should appear to the judge to be convenient to have the particular issue decided before any evidence is given or any question of fact tried, whereas Order 25, rule 2 is more general in its terms. However, in R.N. v Refugee Appeals Tribunal, Denham J suggested that the procedure under Order 25, rule 2 might be more appropriate for the trial of preliminary issues than that under Order 34, rule 2.”
Order 25 was analysed by Ó Dálaigh C.J. in Kilty v. Hayden [1969] I.R. 261 at p.265, where he stated:
“When Order 25 is contrasted with Order 36 it becomes clear that Order 25 is not providing for the separate trial of issues which are partly of fact and partly of law, but for the separate trial of a net point of law dissociated from issues of fact, that is to say, the point of law must arise on the basis of the facts being as the opposing party of the pleadings alleges them to be.”
This interpretation, highlighting the necessity for there to be an agreed or accepted set of facts, was reaffirmed by Lynch J. in McCabe v. Ireland [1999] 4 I.R. 151. Lynch J. was of the view that the facts “may be agreed for the purposes of the preliminary issue of law only without prejudice to the right to contest the facts if the actual determination of the preliminary issue should not dispose of the matter”. In Ryan v. Minister for Justice[2008] I.L.R.M. 289, the Supreme Court per Murphy J, again accepted the proposition that a defendant can accept the facts as alleged by the plaintiff in his pleadings and replies to particulars for the purposes of a trial of preliminary issue of law only.
As is clear from those authorities the trial of a preliminary issue under the rules is concerned with circumstances where it is possible to separate out a legal issue which can be determined on the basis of facts agreed either generally or for the purposes of the preliminary issue. It is also possible, under O.35, to have an issue of fact tried where the case will almost completely depend on a resolution of that factual question. What is, however, clear from all of the authorities is that the trial of an issue, formally separated out as a preliminary issue in the sense in which that term is used in the rules, is a practice which is to be adopted with great care by virtue of the experience of the courts that "the longest round is often the shortest way home". Where issues, such as the question of liability and/or causation, are tried first in a modular trial then the court is simply hearing all matters relevant to those issues, be it fact or law, and coming first to a conclusion on those issues. It is, of course, the case that if, while hearing such a module, the court comes to the view that it cannot safely reach a final conclusion on some or all of the issues to be determined in that module without also entering into evidence and legal argument relevant to some issue originally intended to be tried at a later stage, then the court can act in an appropriate way to ensure that no injustice is caused.
(iii) Where an application for a modular trial is brought there are a range of practical circumstances to which the court should have regard in determining whether, in reality, there is likely to be a net benefit in directing a modular trial. The factors to be taken into account have been variously described in cases such a Cork Plastics, McCann v. Desmond and Atlantic Shellfish. I do not see any material difference between the approaches described in those cases. The factors that may be important in determining where the balance lies may vary from case to case depending on all the relevant circumstances of the case in question.
6.7 Against the background of that analysis it is necessary to consider the specific issues which arise in this case.
7. Is a Modular Trial appropriate in this Case?
7.1 The starting point has to be to acknowledge the limited circumstances in which it is appropriate for this court to interfere with case management directions given in the High Court. As pointed out earlier many such directions are, in the words of Geoghegan J. in P.J. Carroll, virtually unappealable and even those directions which are towards the substantive rather than the purely procedural end of the spectrum (and which are, thus, at least in principle, appealable) should only be interfered with by this court in very clear cases. Otherwise, as has been pointed out, the benefits which attach to case management would be largely negatived.
7.2 It is, therefore, necessary to approach the issues which arise in respect of the modular trial direction in this case on the basis that this court's role in reviewing High Court decisions on such matters is limited and that this court should only interfere in very clear cases.
7.3 It is appropriate that the first question to be addressed is as to the significance for these proceedings of the modular trial direction under appeal. In most normal modular trial directions the court will decide to deal with liability (and perhaps causation) issues first. Except in unusual cases, where it may be said that there could be prejudice by such a direction (caused, for example, by connected credibility questions some of which might arise on liability and some on quantum) it is unlikely that the questions which a High Court judge may have to address in deciding whether to direct a modular trial will go beyond the purely practical or logistical sort of issues identified in the case law to which reference has been made. On balance is it more likely that a modular trial will be a more efficient and cost effective way of dealing with the case in question? On such issues, having regard to the much more detailed knowledge which a case managing judge is likely to have of the case, this court should be particularly slow to intervene.
7.3 However, the type of modular trial directed in this case is somewhat different from the usual. Specific issues have been identified which form only part of the questions which would be likely to arise as to any potential liability of PNC to Weavering. At least on one view the decision to strip out those issues for early determination may place the modular trial direction in this case at the more substantive end of the spectrum. In that context it is, perhaps, appropriate to turn to what seemed to me to be the principal complaint made on behalf of Weavering at the appeal hearing. It is said that Weavering does not really know what went wrong on the facts of this case.
7.4 That something went wrong seems almost certain. Weavering was in receipt of NAVs which suggested that its investments had been successful and that its shareholders had very significant asset value. When that proposition came to be tested, when those investors sought their money back, the picture painted by the NAVs proved to be wholly false. It seems clear, therefore, that something must have gone wrong. But Weavering argues that it is very difficult for it to tell precisely what went wrong. It does not, it says, have any of the working papers which might demonstrate how the NAV was calculated or the extent, if any, to which any checks were made to ascertain whether the real value of the interest swaps (dependent, as it appears to have been, on the ability of the counter party to pay) were as stated. Against that background Weavering argues that it would be placed in a very difficult position if the modular trial as directed were to go ahead.
7.5 In that context it should be noted that there was also before the court an appeal against a discovery order made in these proceedings in favour of Weavering by Kelly J. Further consideration of that discovery application has been postponed pending this judgment. The reason for that postponement is fairly obvious. Kelly J. confined discovery to those documents which appeared to him to be relevant to the issues to be tried in the first module. Indeed, that point in itself raises a further issue of contention to which it will be necessary to return being the suggestion that Kelly J. encountered some difficulty in interpreting the order of Charleton J. directing a modular trial. It is said that there was difficulty in attempting to identify precisely what issues of fact might arise which in turn would, of course, have informed any decision on the documents likely to be relevant to those facts.
7.6 However, at the core of Weavering's complaint about the modular trial order is the suggestion that proceeding in that way will deprive Weavering of an opportunity to obtain discovery of sufficient documentation to enable it to get a much clearer picture as to what actually did go wrong.
7.7 It is, of course, the case that such an argument is not necessarily decisive. There may well be circumstances where, for a variety of reasons, (the statute of limitations may be one) a party does not have an opportunity to run a case on the merits and where, consequently, such a party may not become entitled to discovery of documents relevant to issues which might have arisen had the barrier to being able to run the case on the merits not arisen.
7.8 However, it seems to me that a court must exercise significant care when directing a modular trial which takes, as its first module, some but not all of the issues which may be relevant to liability, to ensure that there are unlikely to be significant links between the issues which might arise in respect of other aspects of the liability question such as would render it unfair and/or inefficient to separate out the liability issues in the manner under consideration. That is not to say that there may not be cases where liability issues fall into clearly discreet and separate categories such that some can be tried without any reference to others and without any fear of injustice or inefficiency.
7.9 That leads to a consideration of the precise issues which have been directed to be tried as a first module in this case. Leaving aside issues 3 and 4 (the Cayman Islands proceedings issues) for the moment, the other contractual questions involve, as already pointed out, two different types of queries in each pair of issues.
7.10 Issue 1 is concerned with whether, as a matter of construction of the Administration Agreement, Weavering is limited to claiming in respect of causes of action which arose within 12 months of either (a) the date of issue of these proceedings, or (b) the date of service of same. However, issue 2 seems to raise the question of when any alleged cause of action might have arisen for the purposes of the relevant clause so as to determine whether any such alleged causes of action are barred by the provisions of the Administration Agreement which are at the heart of issue 1. Likewise issue 9 raises the question of whether the relevant clause in the Administration Agreement limits claims to those for "wilful misfeasance, bad faith, gross negligence or reckless disregard". However, issue 10 raises the question of whether any of Weavering's claims are, in effect, precluded from being maintained because of the clause in question. Finally, issue 12 is concerned with whether Weavering is confined to any claim which cannot be said to be for consequential, special or indirect loss or damage. However, issue 11 is concerned with identifying which of Weavering's claims might involve "in whole or in part" such arguably excludable heads of damage.
7.11 It thus follows that in each pair of issues there is a question which simply seeks to identify the consequences of a relevant clause in the Administration Agreement, at the level of principle. There is a second issue in each pair which seeks to apply such a clause to the facts of the case. It was in that context that Weavering suggested that Kelly J. encountered some difficulty in interpreting the precise form of modular trial intended by the order of Charleton J. Did it, as Kelly J. ultimately found, involve questions on the interpretation of the Administration Agreement alone or did it involve significant factual questions as to the application of the relevant provisions of the Administration Agreement (in whatever way they might be interpreted) to the facts of this case. It does not seem to me to be either necessary or appropriate for this court to attempt to interpret whether Kelly J. encountered any such difficulties. Nothing in any of the rulings delivered by Kelly J. could be interpreted as amounting to a finding that the order of Charleton J. was insufficiently precise. However, it does seem to me that it is appropriate for this court to give some consideration to the form of modular trial directed.
7.12 In that context it is appropriate to record that, in the course of the hearing, there was some significant debate with counsel for PNC as to the precise parameters of the modular trial which would be conducted in the event that this appeal is unsuccessful. To take but one example, it is clear that clause 14(a) of the Administration Agreement (already cited) does purport to confine liability to cases of ""wilful misfeasance, bad faith, gross negligence or reckless disregard". There may, or may not, be some basis put forward by Weavering in order to argue that the clause does not apply at all. However, assuming that the clause does apply, then the real question will be as to its application to the facts of this case. It is very difficult to see what guidance a judgment on a first module could give on that question without a detailed exploration of the precise factual circumstances which are asserted by Weavering as giving rise to its cause of action. In that context it is difficult to see what advantage there would be to an entirely theoretical question of interpretation being tried first. The real question is as to the extent, if any, to which the provisions of the clause in question may have a practical effect of limiting the types of claims which can successfully be maintained in these proceedings.
7.13 Similar considerations seem to me to apply in respect of the other two pairs of cases. There might be some point in deciding, in advance, whether the applicable date for the time limitation clause is that of the service of proceedings (as suggested in issue 1(b)) rather than the issue of the proceedings as suggested in issue 1(a). It was for that reason that counsel for Weavering accepted that issue 1(b) could properly be determined as a first module for it was accepted that, if Weavering could only claim in respect of causes of action arising within a year of the relevant date of the proceedings, the case would be at an end. It appears to be accepted that nothing happened in the year immediately preceding the service of the proceedings so that, if there is a valid limitation which precludes any claim being brought save for those which arose within that one year period, there could be no valid claim. On the other hand it is said on behalf of Weavering that, if the date of issue of the proceedings is the correct date then, even if the clause has the effect of limiting any claims outside a period referable to that date, the practical consequences of such a finding would not significantly reduce the issues which would be likely to arise at any subsequent hearing for it would be necessary to analyse in some detail the full sequence of events which passed between the parties to ascertain when any relevant cause of action might have arisen. There would, for example, be many complex issues that might arise under that heading. Would a failure on the part of PNC in respect of one NAV give rise to a completed cause of action such that the same failure being repeated in the context of a subsequent NAV would not give rise to a fresh and new cause of action? Such questions would, in my view, be impossible to answer without going into the facts in detail.
7.14 Likewise, while it might be possible to express a theoretical view on the limitation clause contained within the Administration Agreement which purports to restrict damages so as to exclude "consequential, special or indirect loss", it would be difficult to see the practical benefit of such a determination at a theoretical level unless a detailed analysis of the facts is to be engaged in.
7.15 It seems to me to follow that, under each of the three pairs of issues currently under consideration, the gain from a purely theoretical consideration of the terms of the contract would be of doubtful, and in any event of very limited, advantage, without a detailed consideration and analysis of the facts. However, it does not appear, certainly from the views expressed by Kelly J. in his interpretation of the order of Charleton J. and in the light of the submissions made by counsel for PNC at this appeal, that such an analysis of the facts is what is contemplated for the first module. However, it does, in my view, have to be said that reading the second of each of the pairs of issues to which reference has been made on its face, same do appear to require a drilling into the detailed facts.
7.16 On that basis alone, it seems to me that there is an error of principle. The first module is insufficiently precise and its parameters are open to legitimate debate. In addition if the first module is intended simply to answer abstract questions as to the meaning of the relevant clauses then it is difficult to see that there would be any great gain in such an exercise unless some guidance was to be given as to how those clauses might apply in practise in the context of the facts which arise in this case. It is difficult to see how that latter guidance could be given without a much more detailed consideration of the facts than that which seems to be currently contemplated. On the other hand, if a much more detailed consideration of the facts is what is truly contemplated then it is difficult to see the point in dividing up those liability issues directed to be tried in the first module from any other liability questions which might arise.
7.17 That leaves the two issues which are concerned with the effect of the Cayman Islands judgment. I will assume, for the purposes of this judgment, that the determination of Jones J. either stands, as a result of the appeal currently under consideration in the Cayman Islands, or that some equally clear set of factual findings emerge from the appellate process. To what extent is, therefore, Weavering bound by whatever final judgment may emerge from the Cayman Islands' courts. The answer given on behalf of Weavering by its counsel was that it was accepted that Weavering could not, without very good reason, seek to depart from the case which it made successfully to the courts in the Cayman Islands. However, it was suggested that there might be circumstances in which it would be legitimate so to depart. If, it was suggested, evidence were to emerge as a result of discovery or at trial in this case which suggested that the picture of the facts which Weavering (on its case to the best of its ability) presented to the Cayman Islands' courts was incomplete or even inaccurate, then, it was argued, the courts in Ireland might be persuaded to allow Weavering, perhaps on terms, to deviate from the case successfully made in the Cayman Islands.
7.18 It is not, of course, for this court in this judgment to express any view on that question. However, it seems to me that such analysis demonstrates that the question of whether there might be a legitimate basis for Weavering departing from the factual case made in the Cayman Islands might well, itself, be dependent on the evidence which could be presented to the Irish courts in these proceedings. It seems to me to follow that the Cayman Islands issues are subject to the same analysis as the three contractual terms issues. The matter can either be approached at a theoretical level which might well have little practical use or else it would require a much more detailed factual analysis which would take away much of the advantage of there being a modular hearing in the form proposed in the first place.
7.19 It seems to me to follow that this is one of those rare cases where it is appropriate for this court to intervene on an appeal against a case management direction. There is at least a significant risk that the case management direction in this case could have a very significant practical effect on the run of the case to the real (rather than tactical) detriment of one of the parties. It follows that this is a case where this court, while nonetheless affording significant weight to the views of the case management judge, must nonetheless consider whether, in all the circumstances, it is appropriate to let the case management direction under appeal stand. For the reasons set out I do not believe that a modular trial in the form proposed is sufficiently clear and precise. In addition it seems to me that if what is truly intended is a purely theoretical exercise it would run the risk of either achieving very little or creating the potential for injustice. If what is intended requires delving into the facts to any great extent then it is hard to see its advantage. In those circumstances I would allow the appeal and set aside the direction for a modular trial.
8. Consequences
8.1 In addition to making that order I feel it should be made clear that this judgment does not amount to a finding that, in all circumstances, a modular trial of any form is inappropriate in this case. I simply would hold that the particular form of modular trial directed is not appropriate in all the circumstances and at this stage. Whether, at a different time in the progress of these proceedings, it is appropriate to direct a modular trial on some basis which overcomes the difficulties identified in this judgment, is a matter to be decided at that time.
8.1 Finally, it seems to me that, if the High Court so directs, a trial of the question which arises in issue 1(b) can be determined at this stage as a stand-alone issue, for it seems clear, on the basis of the position adopted by counsel for Weavering, that if issue 1(b) is found against Weavering the entire case will come to an end. I would remit back to the High Court the question of whether that issue should be tried as a stand-alone issue on the date which, the court understands, currently stands fixed for a hearing of the first module which was the subject of the directions order now reversed by this judgment.
9. Conclusions
9.1 I would, therefore, make the following orders:-
9.2 In addition I would wish to make clear that this judgment should not be taken to be a barrier to an appropriate application for a modular trial at some stage in the future progress of these proceedings provided that any module then directed addresses the difficulties identified in this judgment.