ORDERING A SPLIT TRIAL ON PRELIMINARY ISSUES: A CAUTIONARY TALE

In Larkfleet -v- Allison Homes Eastern Limited [2016] EWHC 195 (TCC) Mr Justice Fraser made some important observations about the need for total clarity when a court orders the trial of a preliminary issue of law.

‘Preliminary points of law are too often treacherous short cuts’. The dangers are all the greater where, as here, the preliminary issues are set in motion in a casual and unstructured way”;

“The undesirability of hearing and deciding preliminary issues where the wording of the issues themselves is not only not agreed or ordered by the court, but the approach to the issues is different, is obvious”

KEY POINTS

• The court, and the parties, should give careful consideration to the issues to be determined when making an order for a split trial.
• It is useful to use the judge’s distillation of the relevant principles:

1. The outcome of the appeal in that case was “attributable in large part to the parties’ failure to use the procedure for determining preliminary issues properly”;

2. The claim was highly fact-sensitive but no attempt had been made to establish the factual premise for the issue of law on which the judge was invited to rule;

3. “As Lord Scarman observed in Tilling v Whiteman [1980] AC 1, 25: ‘Preliminary points of law are too often treacherous short cuts’. The dangers are all the greater where, as here, the preliminary issues are set in motion in a casual and unstructured way”;

4. The right approach to preliminary issues should be (inter alia) that the questions should usually be questions of law and should be decided on the basis of a schedule of agreed or assumed facts.

THE CASE

The claimant brought an action alleging negligence and breach of contract in relation to the construction of properties based on a contract made in 2001.  The defendant alleged that the action was statute barred and applied to strike out the action. The judge ordered that there be a trial of preliminary issues.

THE JUDGMENT ON THE PRACTICALITY OF AN ORDER FOR A TRIAL ON A PRELIMINARY ISSUE

“Section B of the pleading states that practical completion of the properties occurred more than six years prior to the issue of the Claim Form, and that the properties were registered with the NHBC on 21 January 2002, more than ten years prior to the issue of the Claim Form. So far as the claim for negligence is concerned, the defendant maintains that the claimant had the necessary knowledge to bring an action by 4 February 2011 at the latest, which is more than three years before the issue of the Claim Form. Accordingly, it is said, the claimant cannot rely upon section 14A of the Limitation Act 1980.

1. On 8 October 2015 the defendant issued an application to strike out the claim, alternatively sought summary judgment on its defence, supported by a witness statement from Mr Grewal of its solicitors, also dated 8 October 2015. That witness statement explained that no response had been received to Section B of the Defence, and that the claims both in contract and in tort were time barred. The claimant served a witness statement in response from Mr Hick dated 27 November 2015 opposing the application and explaining the commercial purpose of the bespoke amendment, namely clause 2.5.5. I will deal with the contents of this and the other statements below in Section D “The Factual Background”.

2. The defendant’s interlocutory application came before His Honour Judge Raeside QC sitting as a Judge of the High Court on 7 December 2015. Mr Thompson, who appeared on that application for the defendant, explained that due to the regrettable and incomplete Particulars of Claim, the approach was adopted on that occasion that is set out in the Order of 7 December 2015 made by the Judge. This was to give both parties general permission to amend their pleadings on later dates in December, starting with an amended Particulars of Claim to be served one week after that hearing, with the following then to occur as set out in paragraphs 5 and 6 of the Order:

“5. There shall be a Preliminary Issues hearing at 10.30am on the first available date after 12 January 2016 on the issue of whether the Claimant’s case is statute barred. The time estimate for this hearing is one day.

6. The parties shall prepare for the Preliminary Issues hearing in accordance with the Technology and Construction Court Guide.”

1. It does not appear that draft pleadings were available at the hearing of 7 December 2015. It must have been intended by the learned Judge, when he made that order, that the parties would either agree the facts, or prepare a Schedule of Assumed Facts. This is for two reasons. Firstly, no directions were given for service of evidence by either party. Also the Technology and Construction Court Guide which is expressly referred to in the Order makes it clear in paragraph 8.2.2 that if issues are to be dealt with as preliminary issues “there would be either no or relatively limited oral evidence”. No orders were made for any disclosure.

2. Secondly, in McLoughlin v Jones [2002] QB 1312 the Court of Appeal made clear what the approach should be in terms of ordering, and hearing, the trial of preliminary issues. That case concerned a claim brought by Mr McLoughlin against his solicitors for breach of contract and negligence. Those solicitors had represented him on criminal charges of robbery and causing grievous bodily harm, for which he was initially convicted and sentenced to four years imprisonment. He explained to his solicitors prior to his trial that he had been wrongly identified and instructed them to seek witnesses to the incident in question, which they failed to do. After he was convicted and imprisoned, he himself advertised for witnesses in the local newspaper and by this means found a witness who had not appeared at the trial. Three months after his conviction, upon being told about this fresh evidence, the Court of Appeal quashed his conviction and ordered a retrial. At that second trial he was acquitted. He brought proceedings against his first firm of solicitors, based upon the serious consequences he had experienced as a result of his conviction and imprisonment, including the serious psychiatric reaction and breakdown he had suffered. On the trial of a preliminary issue as to whether the defendants owed Mr McLoughlin a duty to protect him from any foreseeable psychiatric illness, the judge at first instance held this was not a reasonably foreseeable consequence and struck out his claim. This decision was reversed on appeal, in the course of which comment was made by the Court of Appeal on the use of preliminary issues. David Steel J stated the following which I have distilled from the points made by him in paragraphs 61 to 66 of the judgment:

1. The outcome of the appeal in that case was “attributable in large part to the parties’ failure to use the procedure for determining preliminary issues properly”;

2. The claim was highly fact-sensitive but no attempt had been made to establish the factual premise for the issue of law on which the judge was invited to rule;

3. “As Lord Scarman observed in Tilling v Whiteman [1980] AC 1, 25: ‘Preliminary points of law are too often treacherous short cuts’. The dangers are all the greater where, as here, the preliminary issues are set in motion in a casual and unstructured way”;

4. The right approach to preliminary issues should be (inter alia) that the questions should usually be questions of law and should be decided on the basis of a schedule of agreed or assumed facts.

(emphasis added)

1. In that case the actual order for the preliminary issues had been in the following terms, as set out in the judgment of David Steel J in paragraph 64: “The questions of limitation and foreseeability shall be tried as preliminary issues before a High Court judge”. The similarity in wording between those issues, and the wording of the order in this case which the parties invited the judge to make, are obvious. Paragraph 8.4.1 of the Technology and Construction Court Guide expressly refers to the potential pitfalls of having limitation issues dealt with by way of preliminary issues.

2. Following the service of the amended Particulars of Claim, amended Defence and amended Reply, substantial issues of fact between the parties remain and it does not appear that any effort has been made by the parties to agree a Schedule of Assumed Facts. As well as the evidence that had already been served for the strike out application, the parties served other witness evidence exhibiting large numbers of documents. The defendant served a statement from Mr Colm Crowley, the Technical Director, dated 12 January 2016, who is a chartered engineer. He was not involved at the time but provided the result of his views about when the foundations must have been designed. The claimant served a second witness statement from Mr Hick dated 14 January 2016 and also served what was called an expert report from Mr Christopher Madge dated 13 January 2016, that gentleman being a chartered civil engineer. The defendant objected to the claimant’s reliance on that latter document, as no permission had been given for any expert evidence.

3. Quite apart from the fact that Mr Crowley’s statement could itself be said, potentially, to contain opinion evidence, there had been no directions for service of any evidence for the hearing of the preliminary issues in any event, either factual or expert. This is doubtless because of the points above explained in paragraphs 11 and 12. Had either party made it clear to the learned judge on 7 December 2015 that such evidence would be required, he would doubtless not have contemplated making an order for any preliminary issues in the way he did.

4. The claimant brings its claim in both contract and tort. Neither party sought to call oral evidence on the hearing of the preliminary issues. Two rather important facts, that are directly relevant to the tort claims, are in issue between the parties, and hotly contested. These are the date the damage to the foundations occurred; and the date upon which the claimant had the relevant knowledge for the purposes of section 14A(5) of the Limitation Act 1980. That provides the starting date for reckoning the period of limitation under section 14A(4)(b), if that period expires later than the period contained in section 14A(4)(a) which is six years from the date on which the cause of action accrued.

5. There was correspondence between the parties prior to the preliminary issues hearing that made it clear there was something of a gulf between them about how the matter should proceed at the hearing. The claimant took the view, understandably, that if there were important disputed facts, the matter could only proceed on the assumption that the facts pleaded by the claimant were true. The defendant disagreed with this. At the hearing itself, the defendant’s counsel Mr Thompson expressly invited the court to make findings of facts on the written material before it (including the contemporaneous documents) without hearing any oral evidence, either factual or expert, because he said that was the proportionate way to proceed. This was objected to by Mr Hargreaves QC, who appeared for the claimant before me but had not appeared before the Judge on 7 December 2015.

6. The parties were also not agreed about the terms of the preliminary issues to be decided. Competing versions were proposed; the claimant proposed four, two dealing with the point of contractual construction of clause 2.5.5 and two dealing with the date of accrual of the cause of action in tort. The defendant proposed one, dealing with the point of construction of clause 2.5.5 and the effect of that clause upon causes of action both in contract and in tort. In my view, inadequate consideration had been given by the parties to the difference between a strike out/summary judgment application, which is a summary interlocutory process, and the hearing of preliminary issues, which are part of the trial process, can involve the calling of evidence (so it can be tested in cross-examination) and which provide binding findings at first instance. Given the lack of agreement between the parties on the two key facts for the cause of action in tort, namely the date of damage and the date of knowledge for the purposes of section 14A(5) of the Limitation Act 1980, the court cannot in a summary way make findings on disputed issues concerning the relevant dates for limitation purposes of the cause of action in tort. I am not prepared to make binding findings of fact on the documents, particularly in the light of opposition from the claimant to doing so, and without hearing any evidence. There is an additional difficulty which is the absence of the Acquisition Agreement. The court could potentially consider the scope of the duty of care of Swallow to the claimant, but in the absence of any legal detail concerning the way any of Swallow’s duties were passed to the defendant it cannot consider the position of the defendant to the same level, or any level, of detail.

7. It is however possible (and indeed desirable) to resolve the points of construction between the parties concerning the meaning and effect of clause 2.5.5. Such a point is suitable for determination as a preliminary issue and requires only limited evidence of fact, which does not appear to be controversial. However, such an issue or issues should have been agreed by the parties in advance of the order being made, and certainly in advance of the hearing. The hearing therefore proceeded with each party contending for differently worded issues.

C: The Preliminary Issues for determination

1. The claimant proposed two preliminary issues dealing with the point of construction, which were developed during the hearing and in their final form are as follows:

“Issue 1: When does the claimant’s cause of action under clause 2.5.5 for breach of the obligation to accept responsibility for defects accrue?

Issue 2: When does the claimant’s cause of action under clause 2.5.5 for expense incurred due to defective work accrue?”

It can be seen that these two issues presuppose the existence of two separate causes of action arising under clause 2.5.5.

1. The defendant proposes a single preliminary issue. This is as follows, and although I term it Issue 3, that is for identification, as it is really an alternative to Issues 1 and 2:

“Issue 3: Does clause 2.5.5 of the Building Contract operate to preclude claims for defects (whether in contract or in tort) from being brought against the defendant after expiry of the 10 year NHBC warranty period?”

1. The undesirability of hearing and deciding preliminary issues where the wording of the issues themselves is not only not agreed or ordered by the court, but the approach to the issues is different, is obvious. I will analyse and decide the points of construction of clause 2.5.5 and answer the issues above, so far as is possible, on the basis of that analysis. Issue 2 above on the claimant’s formulation only arises if there are two separate causes of action. Issue 1 on the claimant’s formulation is simply a different way of wording the same points concerning contract as the defendant’s issue, although the latter issue includes reference to the cause of action in tort as well.