Commonwealth of Australia v Cockatoo Dockyard Pty Ltd - [2006] NSWCA 322

NEW SOUTH WALES COURT OF APPEAL

CITATION: Commonwealth of Australia v Cockatoo Dockyard Pty Ltd [2006] NSWCA 322

FILE NUMBER(S):
40789/04
40124/05

HEARING DATE(S): 30 May 2006, 31 May 2006,1 June 2006

DECISION DATE: 23/11/2006

PARTIES:
Commonwealth of Australia
Cockatoo Dockyard Pty Limited

JUDGMENT OF: Giles JA Santow JA Tobias JA

LOWER COURT JURISDICTION: Supreme Court

LOWER COURT FILE NUMBER(S): SC50165/01

LOWER COURT JUDICIAL OFFICER: McDougall J

COUNSEL:
A: P T Taylor SC / D Caspersonn
R: T G Parker SC / B F Katekar

SOLICITORS:
A: Australian Government Solicitor, Sydney
R: Allens Arthur Robinson, Sydney

CATCHWORDS:
ESTOPPEL – dispute arising after arbitration – res judicata – Anshun estoppel – issue estoppel – cause of action estoppel – principles – effect of a deed of settlement – whether estoppel “available” under a deed of settlement – whether special circumstances within meaning of Arnold v National Westminster Bank PLC [1991] 2 AC 93 – CONTRACT – contract with Commonwealth – whether contractual obligations subsisted after the expiry of a contract – PROCEDURAL FAIRNESS – whether denial of procedural fairness – whether primary judge searched for and found an estoppel substantially different than that alleged – TORTS – NEGLIGENCE – liability – whether conduct gave rise to liability – WORKERS’ COMPENSATION – ENTITLEMENT TO AND LIABILITY FOR COMPENSATION – persons liable to pay compensation – whether Commonwealth liable to reimburse a company for workers’ compensation costs pursuant to a contract – whether conduct of contractor gave rise to a liability to pay for costs itself – whether reimbursement for such costs capable of including a fee for profit margin

LEGISLATION CITED:
Administrative Law Act 1978 (Vic)
Arbitration Act 1979 (UK)
Commercial Arbitration Act 1984 (NSW)
Commercial Arbitration Act 1984 (Vic)
Dried Fruits Act 1928–1935 (Cth)
Local Government Act 1989 (Vic)
Supreme Court Rules 1970 (NSW)

DECISION:
Appeal dismissed with costs

JUDGMENT:

IN THE SUPREME COURT
OF NEW SOUTH WALES
COURT OF APPEAL

CA 40789/04
CA 40124/05
SC 50165/01
GILES JA
SANTOW JA
TOBIAS JA
Thursday 23 November 2006

COMMONWEALTH OF AUSTRALIA v COCKATOO DOCKYARD PTY LTD

Facts

Cockatoo Dockyard Pty Ltd (Codock) occupied and used a Naval Dockyard on Cockatoo Island pursuant to a series of agreements made with the Commonwealth of Australia from 1 March 1933 to 31 December 1992. Asbestos products were used at the Dockyard throughout that time in pipes and equipment as well as in operations involving the fitting of ships. As a result, many of Codock’s employees contracted asbestos related diseases and commenced actions against Codock for damages.

Codock alleged that the Commonwealth was liable for such damages pursuant, inter alia, to the terms of a trading agreement and lease that were entered into in 1972, and varied in 1976 and 1987. Together with some subsequent amendments, this document was referred to as the “1972 TAL”. The 1972 TAL adopted the Commonwealth’s Standard Conditions for the Determination of the Costs of Contracts and contained a provision that any dispute arising between the Commonwealth and Codock should be referred to arbitration. Clause 2(3) of the 1972 TAL provided that Codock was entitled to be reimbursed by the Commonwealth for “indirect costs or expenses” which were accepted as “overhead” within the meaning of that term in that sub-clause.

In June 1990, the Commonwealth announced its decision to decommission the Dockyard. Accordingly, Codock ceased occupation of the Dockyard when the 1972 lease (and 1972 TAL) expired on 31 December 1992. At this point, a number of disputes arose from the Commonwealth’s announcement that it intended to allocate some work to another dockyard.

Codock also made a claim for the cost of defending, settling and paying damages in relation to common law claims made by its former employees for asbestos related injuries. These amounts were referred to as “Workers Compensation Costs”, and Codock maintained that they constituted “overhead expenses” for which it was entitled to be reimbursed by the Commonwealth to the extent to which they had not been wholly or partially paid by Codock’s insurers. The Commonwealth denied any liability in relation to the claims and the disputes were submitted to arbitration in late 1992.

Codock’s Points of Claim in the arbitration alleged that the Workers Compensation Costs were ongoing costs recoverable, inter alia, pursuant to cl 2(3) of the 1972 TAL, and that the Commonwealth was obliged to pay Codock the amount of those costs plus 7.5% profit. Codock’s Points of Claim also pleaded that the Commonwealth was in breach of that obligation as it had refused to indemnify Codock against the Workers Compensation Costs, to accept liability for such costs and to pay to Codock the amount necessary to make provision against them in the future.

The Arbitrator’s reasons were delivered in December 1995. The Arbitrator concluded, inter alia, that the Commonwealth was liable to indemnify Codock in relation to Workers Compensation Costs incurred both before and after the termination of the 1972 TAL. The Arbitrator also made an interim award in the amount of $10,864,240 together with interest of $5,315,355.

However, this award did not resolve all the matters of dispute between the parties. Codock and the Commonwealth agreed to a compromise in May 1997, and entered into a Deed of Settlement under which the Commonwealth agreed to pay Codock $4,960,000. This sum included mutual releases in respect of the subject matter of the arbitration, although it was agreed that the releases would not extend to certain future claims by Codock and any related defences available to the Commonwealth. With the consent of the parties, the Arbitrator made a final award in which he dismissed all remaining claims on 15 May 1997.

On 13 October 2001, Codock instituted proceedings in the Commercial List of the Equity Division of the Supreme Court seeking an order that judgment be entered against the Commonwealth in the amount of $3,021,557.21 together with consequential orders. Codock asserted that the Commonwealth had refused to reimburse Codock for Workers Compensation Costs arising after 31 October 1995 and sought full reimbursement of all such costs incurred until 30 June 2003. Codock again maintained that such costs were overhead costs within the meaning of the 1972 TAL.

In its defence, the Commonwealth denied that the Workers Compensation Costs were overhead costs, and denied that the Commonwealth bore any continuing obligation to Codock. In reply, Codock argued that the Commonwealth was estopped from denying that the obligation was ongoing and that the Workers Compensation Costs were overhead within the meaning of the relevant agreements.

The parties agreed on a Statement of Issues which raised a series of questions relating to whether the Commonwealth was obliged to reimburse Codock. These were ultimately determined in Codock’s favour in an interlocutory judgment and the Commonwealth now appeals against that judgment. The Commonwealth required leave to appeal against those aspects of the judgment that were determined contrary to its interests, and leave was granted by this Court on 24 October 2005.

This appeal now raises seven issues:

1. The negligence issue: was the Commonwealth estopped from arguing that the Workers Compensation Costs were incurred in such a way that Codock’s underlying conduct gave rise to a liability for it to pay those costs itself?
2. The expiration issue: did the Commonwealth have subsisting contractual obligations to Codock after the 1972 TAL expired?
3. The risk issue: did Codock bear the risk of the Workers Compensation Costs because the insurance premiums against risks of personal injury were reimbursed by the Commonwealth?
4. Clause 4(b) of the Deed of Settlement preserved some rights for each of the parties. The Commonwealth argued that the effect of this clause was to make each of its defences “available” to it. Was Codock therefore precluded from relying on any issue estoppel because of the Deed of Settlement?
5. Whether Codock is estopped from recovering a 7.5% fee under the terms of the Deed of Settlement.
6. Whether there were special circumstances in this case within the meaning of Arnold v National Westminster Bank PLC [1991] 2 AC 93.
7. Whether the primary judge denied the Commonwealth procedural fairness by searching for and finding an estoppel substantially different from that alleged in the Statement of Issues.

Held, dismissing the appeal with costs:

The negligence issue

1. Where several available factual grounds are determined in favour of the party who ultimately succeeds on the main issue, the individual detailed findings will be regarded as collateral findings, not properly founding an estoppel: [227]; Spencer Bower, Turner and Handley, “The Doctrine of Res Judicata” (3rd ed, 1996) cited.

2. An estoppel that arises from an issue advanced in support of a cause of action (as distinct from a defence) can only arise from findings on that issue that were essential to the success or failure of the cause of action: [238].

3. In this case, the evidentiary issues upon which Codock succeeded before the arbitrator gave rise only to collateral findings. As such they did not give rise to an issue estoppel in respect of Codock’s defences to the Commonwealth’s arguments on the appeal: [235], [239]; Rogers v The Queen (1994) 181 CLR 251 referred to.

4. Given that one of the purposes of estoppel is to work justice between the parties, there may be an injustice in holding that a party was estopped from raising a defence if that issue was rejected in prior proceedings on the sole basis that the relevant party had failed to specifically plead it as a defence: [250]; Arnold v National Westminster Bank PLC [1991] 2 AC 93 referred to.

5. Where two issues are true alternative bases for a decision, insofar as each is capable of supporting the ultimate decision in its own right and neither is merely ancillary to the other, each issue is capable of giving rise to an issue estoppel: [209]; Mitsubishi Motors Australia Ltd v Harbord (1997) 69 SASR 75, Blair v Curran (1939) 62 CLR 464, Glen Eira City Council v Kingston City Council [2001] VSCA 150; (2001) 116 LGERA 292 discussed.

6. In this case, the arbitrator’s conclusion that the 1972 TAL conferred a right upon Codock to recover against the Commonwealth was fundamental to the award that was made in Codock’s favour. A clear cause of action estoppel therefore arose from the grant of the award: [228].

7. Further, whether or not the arbitrator’s award was appealable, it was one of the fundamental elements of his decision that the relevant costs were part of “overhead expenses”, and so gave rise to an issue estoppel: [263].

8. Accordingly, the Commonwealth was bound by the arbitrator’s award in favour of Codock on the issue of the recoverability of Workers Compensation Costs and is estopped from raising the negligence issue in defence of Codock’s claim. The question is a fortiori a question of construction that was determined in favour of Codock by the arbitrator: [279].

The expiration issue

9. A point or issue may be in controversy in litigation even if it is not specifically pleaded or not argued properly: [309]; Hoysted v Federal Commissioner of Taxation (1921) 29 CLR 537 referred to.

10. A point that is not ultimately argued may still give rise to an issue estoppel in the strict sense if it is put in issue by one of the parties and finally determined by the decision maker: [311]; Kuligowski v Metrobus (2004) 220 CLR 363 followed.

11. In this case, even though the expiration issue was not ultimately argued before the arbitrator, the issue was raised in Codock’s claim and addressed in the Commonwealth’s defence and the arbitrator’s acceptance of Codock’s argument was fundamental to the arbitrator’s determination that Codock was entitled to recover Workers Compensation Costs from the Commonwealth incurred after the termination of the 1972 TAL: [311]–[312]; Kuligowski v Metrobus (2004) 220 CLR 363 applied.

12. Accordingly, an issue estoppel prevents the Commonwealth from raising the expiration issue in these proceedings: [312].

The risk issue

13. It has generally been accepted that a party will be estopped from advancing an argument which would result in a judgment conflicting with an earlier judgment if it succeeds: [375]; Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589 referred to.

14. Such an inconsistency may arise in relation to a claim for costs which are different from those sought in an earlier action where the legal basis for the claim is the same: [382].

15. In this case, the defences on the risk issue raised by the Commonwealth would, if established, constitute a complete defence to Codock’s present claim for the reimbursement of Workers Compensation Costs. Such an outcome would contradict the Arbitrator’s judgment notwithstanding that the particular costs claimed are different from those awarded in the arbitration: [382].

16. The Commonwealth is therefore estopped from raising the defences arising from the risk issue: [382].

17. Moreover, it is unnecessary and inappropriate to form a final view on the merit of defences that are not directly in issue, and leave on this point should not therefore be revoked: [391].

Issue estoppel under the Deed of Settlement

18. The Deed of Settlement was not intended to release the parties from any aspects of the arbitrator’s decision which may give rise to an issue estoppel: [407].

19. If the Commonwealth is disentitled from maintaining a defence by virtue of the operation of an issue or Anshun estoppel, it must follow that that defence is not “available” to it within the meaning of the Deed of Settlement: [408].

20. Accordingly, Codock is not precluded from relying on any issues estoppel because of the terms of the Deed of Settlement: [408].

Recovery of a fee under the Deed of Settlement

21. The notion of “reimbursement” would not normally extend to the garnering of a profit margin on an expense. However, the word must be construed in context: [409]–[410].

22. In this case, the 1972 TAL did not use the term “reimbursement” to differentiate between a cost component as distinct form a profit component. As such, claims for reimbursement were capable of including a profit element and Codock is not estopped from recovering a 7.5% fee under the terms of the Deed of Settlement: [414]–[417].

Arnold special circumstances

23. It is not necessary or appropriate in this case to resolve the question of whether Arnold is part of the law of New South Wales: [487]; Arnold v National Westminster Bank PLC [1991] 2 AC 93 referred to.

24. The Arnold special circumstances exception is created by the absence of a right of appeal where the absence of such a right would prevent the correction of an error of law in circumstances where that error was plain on the face of the relevant award and possibly corrected in other proceedings: [451].

25. Moreover, for the purposes of issue estoppel, special circumstances will not be constituted by merely establishing that there is some doubt as to the correctness of an earlier decision: [461]–[463]; Arnold v National Westminster Bank PLC [1991] 2 AC 93 discussed, Kingston City Council v Monash City Council [2001] VSC 41 not followed.

26. In this case, the absence of a right of appeal from the decision of the arbitrator does not, in and of itself, give rise to a special circumstance within the meaning of Arnold: [452], Arnold v National Westminster Bank PLC [1991] 2 AC 93 discussed.

27. Further, Codock’s abandonment of any form of declaratory relief with respect to costs not yet incurred in the arbitration does not give rise to an Arnold special circumstance; nor do any of the other circumstances alleged by the Commonwealth: [456], [458], [475], [483]–[486].

Procedural fairness

28. The primary judge did give consideration to the question of Anshun estoppel, and the Commonwealth could not have been under any misunderstanding that that was the case. Accordingly, there was no denial of procedural fairness: [494]–[496].

IN THE SUPREME COURT
OF NEW SOUTH WALES
COURT OF APPEAL

CA 40789/04
CA 40124/05
SC 50165/01
GILES JA
SANTOW JA
TOBIAS JA
Thursday 23 November 2006

COMMONWEALTH OF AUSTRALIA v COCKATOO DOCKYARD PTY LTD

Judgment

GILES JA: I have had the privilege of reading the reasons of Tobias JA in draft. I agree with them, and with the orders his Honour proposes.
SANTOW JA: I agree with Tobias JA.
TOBIAS JA: On 25 February 2005 McDougall J formally answered four questions, and one further question in part, in favour of the respondent, Cockatoo Dockyard Pty Ltd (Codock). His Honour had made an order under Pt 31 r 2 of the Supreme Court Rules 1970 (the Rules) that these questions be determined separately from the balance of some 11 issues contained in a Statement of Issues agreed between the parties and dated 23 July 2004: [2004] NSWSC 841; [2005] NSWSC 11. Each of the questions relevant to this appeal raised issues of estoppel: in particular, whether the appellant, the Commonwealth of Australia (the Commonwealth), was estopped from maintaining certain defences in proceedings between it and Codock.
Because the primary judge’s answers to the separate questions constituted an interlocutory hearing, the Commonwealth required this Court’s leave to appeal so much of his Honour’s determinations of the separate questions as had been answered contrary to its interests. This Court granted such leave on 24 October 2005. Essentially, the appeal raises questions both of issue estoppel in its strict sense and what was referred to in the course of argument as issue estoppel in its extended sense, and which is better known as Anshun estoppel: Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589.
The Commonwealth’s challenges in this appeal are numerous and complex. Accordingly, I will commence by setting out the context for this appeal, including the factual background, the origins of the dispute and the manner in which those disputes were determined in the original arbitration between the parties. I will then turn to the proceedings that were instituted in the Commercial List of the Supreme Court and the Statement of Issues arising in those proceedings that was then agreed upon between the parties. In the second half of the judgment, I will consider the substantive issues raised on the appeal, addressing, in turn, the pleadings relating to the three issues referred to as the negligence issue, the expiration issue and the risk issue. Finally, I will consider whether either party was estopped from proceeding on any other basis, and will also deal with the issue of procedural fairness said to arise out of the manner in which the primary judge dealt with the separate questions which he was required to answer.
Introductory observations on procedural fairness
It is appropriate to begin with a brief reference to the procedural fairness issue, which was one of the Commonwealth’s primary contentions on the appeal. It was asserted that the primary judge denied the Commonwealth procedural fairness as a consequence of the manner in which he answered the first of the four separate questions referred to above. It was alleged that he had done so by depriving the Commonwealth of the opportunity to make submissions with respect to the questions contained in the Statement of Issues which were not the subject of the order made under Pt 31 r2.
However, whether or not the Commonwealth was denied procedural fairness in the manner alleged, it has now taken the opportunity to make submissions with respect to those findings of the primary judge. Accordingly, it will be convenient to consider the Commonwealth’s primary contentions with respect to procedural fairness in conjunction with my determination of the parties’ substantive submissions with respect to the estoppel issues. These issues underlie not only the matters in which the Commonwealth denies it was accorded procedural fairness, but also all the questions that the primary judge answered adversely to the Commonwealth and in respect of which it has been granted leave to appeal.

In this respect it is to be noted that the Commonwealth’s allegations that it was denied procedural fairness generally arose out of complaints it had made about Codock’s pleadings in the current proceedings and the manner in which it conducted its case before the primary judge with respect to the type of estoppel upon which it relies to resist certain of the Commonwealth’s defences in those proceedings. However, to understand the Commonwealth’s primary contentions with respect to its procedural fairness ground, it is appropriate to state those contentions before considering the substantive issues.
Background to the appeal
(a)The origins of the dispute between Codock and the Commonwealth
For more than 59 years, from 1 March 1933 to 31 December 1992, Codock occupied and used the Naval Dockyard on Cockatoo Island (the Dockyard) pursuant to a series of agreements made with the Commonwealth or a statutory body representing the Commonwealth.
For many of those years asbestos products were used in the operations carried on by Codock at the Dockyard. Many of those operations involved the fitting and refitting of naval and non-naval ships. Asbestos was used to lag pipes such as steam lines as well as other equipment, especially in the ship’s engine rooms. Furthermore, there were other facilities at the Dockyard such as the turbine and boiler shops where asbestos products were also used extensively in the lagging of pipes and other plant equipment.
As a consequence of Codock’s employees being exposed to asbestos products during the course of their employment, many contracted diseases associated with that exposure which, typically, took many years to manifest. When this occurred, the employee made a claim against Codock seeking damages for his or her injuries.
Codock was either uninsured or only partly insured for the purposes of some of those claims. As a consequence of the terms of the agreements with the Commonwealth (to which I refer below), Codock claimed that it was entitled to be indemnified by the Commonwealth in respect of those uninsured or partly insured claims. The parties came into dispute when the Commonwealth denied that it was liable to so indemnify Codock.
(b) The history of the agreements between the parties
On 3 February 1933 an agreement (the 1933 Agreement) was entered into between, inter alia, the Commonwealth and Codock whereby the Dockyard would be leased to Codock for a term of 21 years commencing on 1 March 1933. A lease giving effect to that agreement was entered into on 16 February 1935 (the 1935 Lease). Codock entered into occupation of the Dockyard pursuant to the 1933 Agreement as and from 1 March 1933 and continued in occupation until 31 December 1992.
In 1941, during a time of war, the Commonwealth took substantial control of the Dockyard. For that purpose, the Commonwealth entered into an agreement with Codock on 20 November 1941 (the Wartime Agreement). This agreement took effect on 1 March 1940 and remained in force until 30 June 1954, and altered the trading arrangements under which the Dockyard had previously operated.
On 19 February 1954 the Commonwealth leased the Dockyard to Codock for a further term of 20 years and eight months commencing on 1 March 1954 (the 1954 Lease). A new agreement was also entered into between the parties on 16 May 1956 (the 1956 Agreement), which replaced the Wartime Agreement with effect from 1 July 1954. This agreement varied the existing trading arrangements between the Commonwealth and Codock for the operation of the Dockyard and remained in force until 31 October 1962.
On 31 July 1963 an agreement (the 1963 Agreement) was entered into between the Commonwealth and Codock which took effect on 1 November 1962 and remained in force until 31 December 1971. That agreement replaced the 1956 Agreement with a new trading agreement.
On 14 January 1972 the Commonwealth leased the Dockyard to Codock for a further term of 21 years (the 1972 Lease) commencing on 1 January 1972 and expiring on 31 December 1992. On 14 February 1972 an agreement (the 1972 Trading Agreement) was entered into between the parties whereby certain further provisions were made for Codock to perform its operations at the Dockyard. That agreement replaced the 1963 Agreement. Together, the 1972 Lease and the 1972 Trading Agreement were known as the “1972 Trading Agreement and Lease” or the “1972 TAL”.
By agreement between Codock and the Commonwealth effective 1 January 1976, variations were made to the 1972 TAL (the Substituted Mode of Performance Agreement). By further agreement dated 2 September 1987 (the Advance Agreement), the parties agreed as and from 1 July 1987, to vary the 1972 TAL as modified by the Substituted Mode of Performance Agreement. I shall hereafter refer to the 1972 Trading Agreement and the 1972 Lease as varied by the Substituted Mode of Performance Agreement and the Advance Agreement together as “the 1972 TAL”.
The 1972 TAL also adopted the Commonwealth’s Standard Conditions for the Determination of the Costs of Contracts issued in August 1971 (the 1971 Standard Conditions). These established the basis upon which Codock was to charge the Commonwealth for the “cost plus profit” work it performed at the Dockyard. The 1971 Standard Conditions were replaced by the Standard Conditions for the Determination of the Cost of Contracts issued in May 1984 (the Standard Conditions).
In June 1990, the Commonwealth announced its decision to decommission the Dockyard. The 1972 Lease expired on 31 December 1992 whereupon Codock ceased occupation of the Dockyard. The 1972 TAL also expired or terminated on that date.
(c) The disputes between the parties leading to the arbitration
It was a term of the Wartime Agreement, the 1956 Agreement and the 1963 Agreement that if any dispute or difference arose between the Commonwealth and Codock, it should be referred to arbitration. The 1954 Lease and the 1972 TAL contained a similar provision.
A number of disputes arose between the parties upon the expiry of the 1972 TAL on 31 December 1992. These arose from the Australian Government’s announcement that it intended to sell Cockatoo Island and allocate the refitting of two of the Navy’s submarines, HMAS Onslow and HMAS Otama, to the Garden Island Dockyard. Codock contended that this decision gave rise to its main contractual claim against the Commonwealth because of its incompatibility with an alleged collateral agreement whereby, in consideration of Codock’s entry into the 1972 TAL, the Commonwealth had undertaken to place orders with Codock for the carrying out by it of all refits of Oberon Class submarines until the completion of any program for such refits.
Codock also made an unrelated claim against the Commonwealth in which it sought to recover monies it had paid, up to and in October 1995. Those monies were said to have arisen out of common law claims made by Codock’s former employees in respect of asbestos-related injuries they had suffered and which arose out of their employment at the Dockyard (the Claims). Codock maintained that these amounts (to the extent to which they had not been wholly or partially paid by its insurers) constituted “overhead expenses” in respect of which it was entitled to be reimbursed by the Commonwealth.
The expression “overhead expenses” was alleged to encompass the indirect costs attributable to the work Codock had undertaken for the Commonwealth where those expenses were attributable to what was known as “costs-plus work” performed by Codock for the Commonwealth and which constituted the predominant operations of Codock at the Dockyard. Relevantly, those costs were said to include not only the costs of defending and settling personal injury actions by former employees of Codock where those injuries were asbestos related (such as asbestosis and mesothelioma) but also the net amount of damages paid to those ex-employees in respect of which Codock had not been indemnified either in whole or in part by its insurers.
The principal basis upon which this claim was propounded by Codock was founded upon the terms of the 1972 TAL. In particular, Codock relied upon cll 2(3) and 2(4) of the 1972 TAL which provided as follows:
“2(3)The Commonwealth shall pay the Company for work ordered under this Agreement on the price basis specified in each order. … Where payment under any order is calculated on a cost plus profit or incentive basis, costs shall not include rent and the profit for work done on a cost plus basis shall be 5% of the cost of direct labour, direct material, direct expense (including subcontracts) and overhead. In this clause, ‘cost’ or ‘costs’ shall mean and shall be the cost as determined in accordance with the Department of Supply Standard Conditions Applicable to Contracts on a Cost Plus Profit Basis, as revised from time to time.
2(4)The Company shall not increase the overhead rate as agreed from time to time chargeable to cost plus profit or cost incentive price orders without the prior approval of the Commonwealth.”
Codock claimed that cl 2(3) in particular of the 1972 TAL entitled it to be reimbursed by the Commonwealth for “indirect costs or expenses” which were accepted as “overhead” within the meaning of that term in that sub-clause.
(d) The arbitration
As required by the various agreements, including the 1972 TAL, the disputes between the parties were submitted to arbitration. Codock’s Notice of Dispute was dated 23 December 1992 and the first version of its Points of Claim was filed on 8 March 1993. The arbitration commenced on 4 February 1993 before the Arbitrator, Mr J N West QC, and relevantly concluded when he published his reasons and an interim award on 8 December 1995.
Both before and after 1 January 1993, Codock incurred certain costs as a result of the claims. Those costs were referred to in par 24 of version 5 of Codock’s Points of Claim (the Points of Claim) in the arbitration as “Workers Compensation Costs”, and Codock alleged in par 41 that it would continue to incur such costs in the future. These costs comprised compensation payments, medical costs and legal costs resulting from the Claims (Common Law Costs) together with the excess payable on Claims covered by Codock’s insurance (Excess Costs) and the costs of administering and defending the Claims (Ancillary Costs). When I refer to those costs in these reasons, I do so on the basis of the meaning or definition adopted in par 24.
By par C26B of the Points of Claim, Codock alleged that it was a term of “the Contract” that the Commonwealth would reimburse Codock for indirect costs or “overhead” attributable to Commonwealth cost-plus work performed by it on the basis, relevantly from 1 July 1987 onwards, of those costs plus 7.5% profit.
The expression “the Contract” was defined in par 25 of the Points of Claim to include all the agreements and the Standard Conditions referred to in [13] to [18] above “supplemented or varied by warranties, representations, modifications, collateral agreements and other agreements between the parties from time to time”.
Codock alleged in par 43 of the Points of Claim that the Workers Compensation Costs were, and are, “overhead” costs as defined in par 26B and were, therefore, recoverable pursuant to, inter alia, cl 2(3) of the 1972 TAL. Consequently, it was asserted in par 46(a) of the Points of Claim that the Commonwealth was obliged to accept any Workers Compensation Costs incurred from 1 January 1993 onwards into what was referred to in par 26C(b) of the Points of Claim as the “Dockyard Overhead” as at 31 December 1992, and to pay Codock the amount of those costs plus 7.5% profit.
Codock’s Points of Claim then pleaded in par 47 that the Commonwealth was in breach of that obligation as it had refused to indemnify Codock against the Workers Compensation Costs, to accept liability for such costs and to pay to Codock the amount necessary to make provision against them in the future.
In his reasons in support of his interim award, the Arbitrator concluded that the Commonwealth was, inter alia, liable to indemnify Codock in relation to the asbestos-related common law claims, that is, the Workers Compensation Costs as defined in Codock’s Points of Claim. He found that this was so in respect of such costs incurred both before and after the termination of the 1972 TAL on 31 December 1992. In this context, it was accepted that the word “incurred” referred to an item of expense that Codock had paid or which it became liable to pay in respect of a claim under a judgment or compromise. It was not used by the Arbitrator to relate back to the circumstances that gave rise to the liability to pay. The latter had clearly occurred prior to 31 December 1992.
The Arbitrator’s interim award obliged the Commonwealth to pay Codock the sum of $10,864,240 together with interest of $5,315,355. Of the amount so awarded, some $810,162 (before interest) related to Workers Compensation Costs. Of that amount, some $555,181 was for such costs incurred by Codock after 31 December 1992. I shall return to the Arbitrator’s reasons for his award when dealing with the substantive issues.
The Arbitrator’s interim award did not resolve all the matters of dispute between the parties. The Commonwealth sought unsuccessfully to challenge the interim award in circumstances to which I refer below. However, ultimately, Codock and the Commonwealth agreed to a compromise on 14 May 1997. They entered into a Deed of Settlement on that day (the Deed) under which the Commonwealth agreed to pay Codock $4,960,000. This sum included mutual releases in respect of the subject matter of the arbitration. However, the parties agreed that the releases would not extend to certain future claims by Codock and any defences available to the Commonwealth in relation to those claims. The limits of that exception was one of the issues debated before the primary judge.
With the consent of the parties, on 15 May 1997 the Arbitrator made a final award in which he dismissed
“[a]ll claims made in this arbitration which were not disposed of in my interim awards”.
Proceedings in the Commercial List of the Supreme Court
(a) Codock’s Summons
On 13 October 2001, Codock instituted proceedings by way of summons in the Commercial List of the Equity Division of the Supreme Court seeking an order that judgment be entered against the Commonwealth in the amount of $3,021,557.21 together with consequential orders. In its Second Further Amended Summons filed on 26 October 2004 (the Summons), Codock asserted in pars A2 and A3 that the nature of its dispute with the Commonwealth was that, under the contractual arrangements governing Codock’s work at the Dockyard, the Commonwealth reimbursed it for overhead costs incurred as a result of operating the Dockyard. Codock also alleged that, since the late 1980s, Codock had incurred costs arising from personal injury claims made principally by former employees at the Dockyard as a result of their exposure to asbestos.
These paragraphs further asserted that although the Commonwealth initially reimbursed Codock for personal injury claim costs from former employees for the period up to 31 October 1995, it then refused to make any further reimbursement. Accordingly, Codock sought judgment for the full reimbursement of the Workers Compensation Costs it had incurred to 30 June 2003.
Under the heading “Issues Likely to Arise”, par B1 of the Summons relevantly alleged that one of the issues was whether Codock was precluded from obtaining reimbursement for outstanding personal injury claim costs “on the basis of res judicata or Anshun principles arising from the award” in the arbitration.
After reciting the history of the agreements between the parties in paras C1 to C22 of the Summons (to which I have already referred), the Summons asserted at par C23A that Codock had incurred, and continued to incur, indirect costs attributable to work it had undertaken in the course of its operation of the Dockyard (thereafter referred to as “Overhead Costs”). This paragraph generally mirrored par 26B of the Points of Claim in the arbitration.
Next, par C24 asserted that Codock had incurred Workers Compensation Costs, which were defined in the same terms as in par 41 of the Points of Claim, since May 1987. Paragraph C26 alleged that
“It was a term of the 1972 Trading Agreement as varied by the Substitute Mode of Performance and the Advance Agreement, that the [Commonwealth] would reimburse to [Codock] all Overhead Costs incurred from 1 July 1987 onwards ... plus a fee of 7.5%.”
Particulars of the term included cl 2(3) of the 1972 TAL. The equivalent of par C26 of the Summons is to be found in paras 26B and 26E of the Points of Claim.
The Summons then asserted in par C27 (in essentially the same terms as par 43 of the Points of Claim) that the Workers Compensation Costs were Overhead Costs referring by way of particulars to pars 4.49–4.51, 1.5, 1.16 and 2.4 of the Standard Conditions. After reciting in par C31 that the Commonwealth had refused to reimburse Codock in full for incurred Workers Compensation Costs since November 1995, it claimed payment of $3,021,557.21. This figure comprised $2,810,750.87 for the cost of meeting the Claims and allowed for a profit margin of $210,806.34.
(b) The Commonwealth’s defence to the Summons
Under Part B of its defence to the Summons headed “Issues likely to arise” (the Defence), the Commonwealth indicated its disagreement with Codock’s statement as to the issues likely to arise although it accepted that those issues might arise. It then set out what it alleged would be the “fundamental issues” likely to arise in the proceedings. Relevantly, those issues included the following:
”21.Whether the costs or any of them claimed by [Codock] in the Summons ‘could have been avoided or reduced by the exercise of reasonable standards of skill, care and efficiency, to the extent that such could have been avoided or reduced’, and thus are not part of ‘contract cost’ pursuant to sub-clause 3.11 of the 1984 Standard Conditions.
…
23.Whether the insurance premiums paid in respect of the personal injury claims referred to in the Summons were allowable as ‘contract cost’ pursuant to sub-clause 4.41 of the 1984 Standard Conditions, and therefore the personal injury claims costs were not ‘risks in respect of which the conditions of the contract provide that the Commonwealth accepts liability for loss or damage’ pursuant to sub-par 4.41(b)(iv) of the 1984 Standard Conditions but rather were premiums or ‘risk carried by the [Commonwealth] (provided any loss is to be borne by the [Commonwealth]’ pursuant to par 4.42(b) of the 1984 Standard Conditions.
…
25.Whether any obligations between the parties, and if yes, what, continue beyond:-
…
(b)the termination of the 1972 Trading Agreement as varied; or
(c) 31 December 1992.
…
30.Whether any issue estoppels between the parties arise from the previous arbitration proceedings.” (Emphasis added.)
In Part C of the Defence, under heading “Plaintiff’s contentions”, the Commonwealth:
(a)In par C16 denied the facts alleged in par C26 of the Summons insofar as the allegation concerned costs incurred by Codock after 31 December 1992;
(b)In par C17 denied the facts alleged in par C27 of the Summons, namely that Workers Compensation Costs were and are Overhead Costs;
(c)In par C24 alleged that any agreement between the parties had expired;

(d)In par C31 denied that the Commonwealth had any subsisting contractual obligations to Codock;

(e)In par C29(a) and (c) alleged that the costs claimed by Codock in the Summons arose out of its failure to exercise appropriate standards of skill and care at the Dockyard in not providing a safe system of work and that the parties had agreed that the Commonwealth would not be responsible for any costs arising out of that failure; particulars of this allegation refer to cl 3.11 of the Standard Conditions;

(f)In par C30 alleged that by virtue of cll 4.41(b)(iv) and 4.42(b) of the Standard Conditions, any loss incurred by Codock arising from personal injury claims in respect of which it had paid insurance premiums which had been reimbursed by the Commonwealth as “overhead” under the 1972 TAL, had been agreed between the parties to be borne by Codock.

(c) Codock’s Reply to the Commonwealth’s Defence

In its Reply under the heading “Issue Estoppel Arising from Previous Arbitration Proceedings” (the Reply), Codock relevantly pleaded as follows:
”7.It was determined in previous arbitration proceedings that:
(a)It was a term of the 1972 Trading Agreement, as varied by the Substituted Mode of Performance and the Advance Agreement, that the Defendant would reimburse to the Plaintiff all Overhead Costs (within the meaning of par 23A of the Plaintiff’s Conditions) less a credit calculated by reference to commercial work undertaken by the Plaintiff in the course of its occupation of the Dockyard, plus a fee of 7.5%.
(b)Workers’ Compensation costs (within the meaning of par 24 of the Plaintiff’s Contentions) were and are Overhead Costs.
(c)The Plaintiff had a contractual entitlement to reimbursement of all Workers’ Compensation costs plus 7.5%.
PARTICULARS
Reasons and Interim Award of Mr John West QC, dated 8 December 1995.
8.Consequently, by reason of the previous arbitration proceedings:
(a)the Defendant is estopped from denying pars 26 and 27 of the Plaintiff’s Contentions; and
(b)the denial and non-admission in par 16 of the Defence (as that paragraph relates to par 26 of the Plaintiff’s Contentions) and the denial in par 21 of the Defence of any subsisting contractual obligations and the pleas in pars 16, 17, 21, 24, … 29, 30 … of the Defence are not maintainable.”
(d) The parties agree on a Statement of Issues
In light of the issues raised in the Commonwealth’s Defence and Codock’s Reply, the parties agreed to a Statement of Issues of which Issues 1, 2, 5, 7 and 8 were the subject of the order of the primary judge made under Pt 31 r2 of the Rules. However, as the question of whether the Commonwealth was estopped from relying on the defences encapsulated in Issues 3(a), (g) and (h) was raised both before the primary judge and this Court, it is appropriate to include them in the list of issues relevant to the appeal which I will set out below.
It is necessary to begin by setting out the following definitions contained in the Statement of Issues:
“Summons” is the Further Amended Summons filed 5 Jul 2004;
“Defence” is the proposed Amended Defence to Further Amended Summons, leave to file which was granted on 19 July 2004;
“Reply” is the Reply filed 2 April 2002;
“Workers’ Compensation Costs” are costs associated with personal injury claims made against Codock in respect of activities at the Dockyard during the period 1 March 1933 to 31 December 1992 (as more fully defined in par 24 of the Summons);
“Commercial Case Award” means the award in the Arbitration dated 8 December 1995;
“Deed of Settlement” means the Deed between the parties dated 14 May 1997.
Under the heading “Right of Reimbursement under 1972 Trading Agreement and Lease” the following issues in the Statement of issues are presently relevant:
“1.Subject to 2, is the Commonwealth barred, by reason of an issue estoppel arising from the Commercial Case Award, from denying that it is obliged to reimburse to Codock [all] Workers compensation Costs plus (subject to 9) a 7.5% fee?
(Reply par 7)
2.Is Codock precluded from relying upon any such issue estoppel by reason of pars 3 and 4 of the Deed of Settlement?
3.Subject to 1 and 4, is the Commonwealth obliged to reimburse to Codock [the] Workers compensation Costs [claimed in the Summons] plus (subject to 9) a 7.5% fee, by reason of the provisions of the TAL (as modified by the Substituted Mode of Performance and the 1987 Advance Agreement)?
(Summons pars 26, 28; Defence pars C16, C17)
or:
(a)did the expiration of the TAL on 31 December 1992 terminate any obligation the Commonwealth might otherwise have had to make such reimbursement?
(Defence pars C21, C24)
…
(g) is Codock not entitled to such reimbursement to the extent that such Costs could have been avoided by the exercise by Codock of reasonable standards of skill and care in providing a safe system of work?
(Defence par C29(a))
(h)is Codock not entitled to such reimbursement to the extent that (the Commonwealth contends) the risk of such Costs was carried by Codock by reason of insurance premiums against risks of personal injury claims having been reimbursed by the Commonwealth?
(Defence par C30)
…
Partial Defences and Quantum
8.Is Codock estopped from recovering a 7.5% fee by reason of pars 3 and 4 of the Deed of Settlement?
(Defence par C33).”
Although Issues 5 and 7 were litigated before the primary judge, his Honour’s answers to the questions raised by those issues were not the subject of challenge on the appeal and can therefore be omitted.
(e) The Commonwealth’s procedural fairness contentions
The Commonwealth contends that it was denied procedural fairness by the primary judge. Its submissions on this point may be summarised as follows:
               (a)          The penultimate version of the Statement of Issues was agreed upon on 23 July 2004. The   primary judge had encouraged the parties to prepare this document on the first day of the   hearing on 19 July 2004.
(b) On 26 July the final version of the Statement of Issues, which did not differ in any relevant way from the penultimate version, was handed to the primary judge. His Honour then made an order under Pt 31 r2 of the Rules for the separate determination of Issue 1 but, relevantly, made no such order with respect to any of the sub-issues of Issue 3.
               (c)          Accordingly, the only issue estoppel question before the primary judge at the first hearing was   that asserted in Issue 1, although it had been accepted by the Commonwealth that if that issue   was determined in favour of Codock, then a number of the sub-issues of Issue 3 would fall                 away.
               (d)          His Honour answered Issue 1 in the first judgment in the negative.
               (e)          As a consequence of (c), it was not open to the primary judge to qualify his negative answer to   Issue 1 in the first judgment by finding an issue estoppel with respect to Issues 3(a) and (g).
               (f)           Furthermore, Codock had not asserted in its pleadings or in its submissions before the primary   judge at the first hearing that the Commonwealth was barred from raising the defences   encapsulating Issues 3(a) and (g) as defences to Codock’s claim in the Summons by reason of   an issue estoppel.
               (g)          In any event, in par 8(b) of the Reply, Codock had not pleaded that the Commonwealth was   barred by issue estoppel (either in its strict sense or in its extended Anshun sense) from   maintaining the defences pleaded in pars C16, C17, C21, C24, C29 and C30 of the Defence.
               (h)          It was therefore not open to the primary judge to “search for and find an estoppel   substantially different from that alleged” in Issue 1. Accordingly, as Codock had neither   pleaded nor otherwise contended for an issue estoppel (whether in its strict sense or Anshun                  sense) in respect of any of the sub-issues of Issue 3, the Commonwealth was denied   procedural fairness in that it was denied a proper opportunity to lead relevant evidence with   respect to the negligence issue and the expiration issue. These were the two issues (3(a) and   (g)) that were determined by the primary judge as an exception to his negative answer to Issue                 1.
(i)           So far as Issue 3(h) was concerned, although the primary judge found in the second judgment   that the Commonwealth was barred from asserting the defence encapsulated in that issue by   virtue of an Anshun estoppel, no such estoppel had been pleaded in the Reply and no   submission based on Anshun had been made to his Honour at the second hearing.
               (j)           Accordingly, the Commonwealth was also denied procedural fairness in the second hearing in   that it did not have the opportunity of arguing against an Anshun estoppel. This would have                   included eliciting evidence to establish that it was not unreasonable for it not to have raised   Issue 3(h) before the Arbitrator.
(f)           The relationship between the pleadings and the Issues
To fully understand the questions arising from these paragraphs of the Statement of Issues, it is necessary to have further regard to the paragraphs of the pleadings to which they refer. The whole thrust of Codock’s claim in the Summons is that the Commonwealth is obliged to reimburse it with respect to Workers Compensation Costs plus a profit margin or fee of 7.5%. That obligation was alleged in par C26 of the Summons, which I have set out in [41] above. The Commonwealth’s response in par C16 of the Defence was to deny the facts alleged in par C26 with regard to those costs incurred by Codock after the expiration of the 1972 TAL on 31 December 1992.
It is to be noted that Issue 3 in the Statement of Issues contains 11 sub-issues expressed as an alternative to what was referred to in argument as the “overarching” issue set out in the first part of Issue 3. This was the question of whether the Commonwealth was obliged to reimburse to Codock the Workers Compensation Costs claimed in the Summons by reasons of the provision of the 1972 TAL. It would thus appear from the terms of Issue 3 taken as a whole that the parties regarded the answers to the sub-issues, whether taken severally or jointly, as providing the answer to the “overarching” issue stated in what I might refer to as the chapeau to Issue 3. This must be so given that the word “or” introduces the sub-issues and was thus clearly intended to provide an alternative subset of issues which, depending on how they were answered, would automatically provide the answer to the “overarching” issue.
In one sense, this construction was confirmed by the Commonwealth in its additional written submissions in reply on the procedural fairness issue where (in par 20.2) it accepted that most of the sub-issues in Issue 3 would have been removed as issues if the primary judge had found in Codock’s favour on Issue 1. In other words, if Issue 1 had been answered in the affirmative, the sub-issues (or at least a number of them) in Issue 3 would not have arisen.
On the other hand, affirmative answers to one or more of the sub-issues of Issue 3 would have resulted in an automatic negative answer to the “overarching” issue in the first part of Issue 3. Furthermore, that part of Issue 3 is subject to Issue 1. Accordingly, an affirmative answer to Issue 1 would have resulted in an affirmative answer to the first part of Issue 3. This is certainly so if the references in those issues to Workers Compensation Costs are read as a reference to those costs as a class. That this is so is confirmed by the word “all” in Issue 1 and the words “the” and “claimed in the Summons” in the first part of Issue 3 being in brackets. There could be no doubt that even if such costs were recoverable by reason of the provisions of the 1972 TAL as a class, costs in individual cases might not be reimbursable if they were not “reasonable” within the meaning of clause 1.16(d) of the Standard Conditions: see Issue 3(c). So much was acknowledged by the primary judge as will be seen.
In my opinion, therefore, there is a close relationship between Issue 1 and some of the sub-issues of Issue 3: in particular, Issues 3(a), (g) and (h). An affirmative answer to any of those issues would result in a negative answer to the first part of Issue 3 unless the Commonwealth was precluded from raising those sub-issues. If it is, then the result would be an affirmative answer to Issue 1 at least insofar as it related to Workers Compensation Costs as a class. Accordingly, notwithstanding that only Issue 1 expressly raises an estoppel against the Commonwealth, each of Issues 3(a), (g) and (h) implicitly or potentially raised an estoppel issue as a sub-set of Issue 1. As will appear (see [112] below), this is how the matter was approached by the primary judge and, in my opinion, he was justified in doing so.

In the context of the foregoing observations, I return to the relationship between the pleadings and the Statement of Issues. Thus, par C16 of the Defence, which denies any liability by the Commonwealth to reimburse Workers Compensation Costs incurred by Codock after 31 December 1992, is reflected in Issue 3(a) which, inter alia, denies that the Commonwealth “has any subsisting contractual obligations to” Codock. This issue was referred to in argument as “the expiration issue”.
Issue 3(g) raises a broader issue that is unrelated to the date upon which Workers Compensation Costs were incurred and is directed at Codock’s underlying conduct that gave rise to its liability to pay such costs to its ex-employees. Its source is par C29 of the Defence which I have summarised in [43] above. Particulars of this defence were directed to cl 3.11 of the Standard Conditions. As this provision loomed large in the arguments before this Court, I shall refer to it in greater detail later in these reasons in a more appropriate context. I shall refer to this issue, as the parties did in argument, as “the negligence issue”.
Issue 3(h) has its source in par C30 of the Defence which I have also summarised in [43] above. Particulars to par C30(c) refer to cll 4.41(b)(iv) and 4.42(d) of the Standard Conditions. This issue was referred to in argument as “the risk issue” and I shall adopt the same description.
Issue 8 is sourced in par C33 of the Defence, which asserts that Codock was estopped from claiming the fee of 7.5% by reason of cll 3 and 4 of the Deed of Settlement entered into on 14 May 1997 between the parties. Whether or not this is so involves a consideration of the construction of those provisions.
Finally, it should be observed that pars 7 and 8 of the Reply raised questions of estoppel against the Commonwealth. That is reflected expressly in the terms of Issues 2, 5 and 8 (as well as Issue 4 which was not before the primary judge for determination as a separate question). Anshun estoppel was expressly raised against Codock in Issues 7 and 9 of which only Issue 7 was before the primary judge for separate determination.
As I have already observed, neither the “overarching” part of Issue 3 nor its sub-issues were expressly framed in terms of estoppel. Nevertheless, they were treated as questions of estoppel by the primary judge. Furthermore, Codock submitted that Issues 3(a), (g) and (h) raised the question of whether the Commonwealth could maintain the pleas in pars C21 and C24 of the Defence to which Issue 3(a) was directed, the plea in par C29 to which Issue 3(g) was directed and that in par C30 to which Issue 3(h) was directed. Paragraph 8(b) of the Reply, it was contended, expressly raised the question of whether those pleas could be maintained by the Commonwealth by reason of the Arbitrator’s determination as set out in par 7 of the Reply.
Codock contended that the only basis upon which those pleas could not be maintained by the Commonwealth would be that it was estopped from asserting them by reason of the issues determined by the Arbitrator as set out in his reasons and interim award. Although the words “estopped”, “estoppel”, “issue estoppel” and “Anshun estoppel” were not used in par 8(b) of the Reply, this was no doubt because the more general assertion that the pleas were “not maintainable” was used instead.
Contrary to the Commonwealth’s submission in its procedural fairness contentions, in my opinion this expression was wide enough to extend to issue estoppel in the strict Blair v Curran sense, Anshun estoppel and cause of action or res judicata estoppel. Codock reminded the Court that the Commonwealth did not seek particulars as to the legal basis upon which it was alleged that the pleas referred to in par 8(b) of the Reply were “not maintainable”. Nor did the Commonwealth apply to strike out the whole or any part of par 8(b) of the Reply on the ground that it was embarrassing, prejudicial or did not disclose a reasonable answer to the Commonwealth’s defences or pleas: cf Pt 15r26(1) of the Rules.
As noted above, Codock suggested that the Commonwealth had not sought particulars of pars 7 and 8 of the Reply. This was not strictly correct. By letter dated 12 April 2002, the Commonwealth sought particulars of pars 7 and 8 of which the following request is presently relevant:
“16.Paragraphs 7 and 8 of the Reply (particularly 7(b) and 8(a)) appear not to make any pleas of issue estoppel in relation to Third Party Compensation Costs. Is this correct? If so, can we assume that the challenge to various paragraphs of the Defence, pleaded in sub-paragraph 8(b) of the Reply, are not to be read as challenging those various paragraphs insofar as they are confined to the [Codock’s] claim for third party compensation costs.”
Codock replied to this request on 26 April 2002 in the following terms:
“Item 16
It is not contended that, insofar as Codock contends the Third Party Compensation Costs were and are Overhead Costs, that there is an issue of estoppel binding the Commonwealth. However, if it is established that Third Party Compensation Costs were Overhead Costs the Codock will rely on the issue estoppel pleaded in relation to paragraph 7(a) in relation to such Costs.”
The Commonwealth submitted that its request for particulars with respect to pars 7 and 8 of the Reply
“focussed on issue estoppel in the strict sense, not Anshun estoppel, because of the reliance in the reply upon matters which were ‘determined’ rather than upon matters which should have been raised”
and that
“the answers of Codock gave no hint of reliance upon Anshun estoppel”.
However, I have some difficulty in acceding to that submission. In my view there can be no doubt that par 8(a) of the Reply raises an estoppel against the Commonwealth denying pars C26 and C27 of the Summons which, for all intents and purposes, contain the same assertion as is pleaded in pars 7(a), (b) and, for that matter, (c) of the Reply.
As pars C26 and C27 when read together refer exclusively to Workers Compensation Costs, as does par 7 of the Reply, I can only assume that the assertion by the Commonwealth in the first sentence of par 16 of its letter requesting particulars was intended to ascertain whether the estoppel clearly relied on by Codock in par 8(a) of the Reply was being advanced as an issue estoppel, a cause of action estoppel or giving rise to res judicata.
I also have some difficulty with the first sentence of Codock’s response. It seems inconsistent with the second sentence. In any event, it seems only to answer the first two sentences of par 16 of the Commonwealth’s request for particulars. It certainly asserts, as I understand it, that if Codock establishes the facts alleged in par C27 of the Summons (that Workers Compensation Costs were and are Overhead Costs) Codock will assert that the Commonwealth is estopped from denying (as it has in par C27 of the Defence) the facts so alleged in par C27 of the Summons. The reference in Codock’s Reply to reliance upon “the issue estoppel pleaded in relation to par 7(a)” again seems to be an assertion that Codock will rely on issue estoppel arising out of the Arbitrator’s determination pleaded in par 7(a) (which may be an error for par 7(b)) of the Reply that Workers Compensation Costs were and are overhead costs.
The point is that, on one view of it, Codock did not answer the last sentence of par 16 of the Request for Particulars. If this was so, it was incumbent upon the Commonwealth to seek clarification of the matter. It did not do so. If the answer to that sentence is to be found in the second sentence of Codock’s reply to that request then, if anything, it goes to the conclusion that the Commonwealth could not make the assumption in question. In my opinion, the latter is probably the case as there could be no doubt that Codock was challenging the Commonwealth’s entitlement to plead the various paragraphs of its defence identified in par 8(b) of the Reply as an answer to Codock’s claim in the Summons for Workers Compensation Costs.

I can understand that the Commonwealth was dissatisfied with Codock’s response but, with respect, there is a deal of ex post facto rationalisation in the Commonwealth’s submission that the request for particulars focussed on issue estoppel in the strict sense and not Anshun estoppel for the reasons it articulated. In my view, the Commonwealth has no proper basis to complain that it was, in effect, misled by par 8(b) in the reply to assume that Codock was asserting that the pleas identified in par 8(b) of the Reply were “not maintainable” on the sole basis of issue estoppel in the strict sense.
As I will discuss further in the context of the risk issue encapsulated in Issue 3(h), an estoppel arising out of that issue could only be an Anshun estoppel and the Commonwealth must have realised that fact.

(g)Some preliminary observations with respect to the primary judge’s first judgment of 17 September 2004

The primary judge in his first judgment determined (at [12]) that the issues which were the subject of the Pt 31 r 2 order relevantly fell into two groups. The first was issue estoppel which related to Issue 1 and the second was the effect of cll 3 and 4 of the Deed which governed the answer to Issues 2, 5 and 8.
The amount claimed by Codock in the Summons was, as his Honour noted (at [14]), for reimbursement for the costs of the personal injury claims incurred from 1 November 1995 to 30 June 2003. Such costs (obviously incurred after 31 December 1992) were the subject of the Arbitrator’s interim award, which included reimbursement of $555,181 for costs incurred after 31 December 1992 and to the end of October 1995. Whether this amount was reflected in the Deed under which the Commonwealth agreed to pay Codock a total of $4,960,000 is not known. However, for present purposes, that fact is immaterial as the relevant issues were debated upon the basis of the Arbitrator’s interim award which included the costs of asbestos-related common law claims incurred by Codock between 31 December 1992 and 30 October 1995.
The primary judge commenced his determination of Issue 1 by comparing Codock’s claim for Workers Compensation Costs in the Summons with that in the Points of Claim that were the subject of the arbitration. He noted that the Commonwealth had submitted that no relevant issue estoppel arose out of the Arbitrator’s decision because the contract upon which Codock sued in respect of Workers Compensation Costs in the arbitration was different to that upon which it based its claim for such costs in the Summons. His Honour observed (in [22]) that the claim for recovery of Workers Compensation Costs as “overhead” was that those costs were payable by the Commonwealth to Codock pursuant to the contract pleaded in par 25 of the Points of Claim as an item of overhead cost. The primary judge also noted that the contract included the entirety of the sources from which the contractual relationship and obligations of the parties might be ascertained from time to time.
His Honour then observed (at [23]) that the claim advanced by Codock in the Summons, insofar as it dealt with reimbursement of overhead costs incurred after 31 December 1992, differed from the claim advanced by Codock in the arbitration in two ways. The first was that the claim in the arbitration was limited to costs of the relevant kind “to the extent that those costs are not covered by Codock’s insurance” whereas the claim in the Summons was not so limited. Second, in the arbitration, Codock’s claim was brought under a contract “that included the pre-1972 agreements as well as the 1972 TAL” whereas its primary claim in the Summons was based only on the 1972 TAL.
The primary judge then summarised (at [25] to [42] of the first judgment) the relevant findings of the Arbitrator relating to Codock’s claim for reimbursement as overheads of Workers Compensation Costs incurred by it since 1 January 1993. Before referring to those findings and their bearing upon the estoppel issue raised by Issue 1 of the Statement of Issues, it is necessary and convenient at this point to refer in some detail to the relevant legal principles relied upon by his Honour in determining the matter before him as supplemented by the parties’ submissions with respect to those principles advanced on the hearing for the purposes of the appeal.
However, two preliminary observations may be made. First, it is tolerably clear that although Codock relied in the arbitration on the pre-1972 agreements as well as the 1972 TAL in respect of its entitlement to reimbursement of the various indirect costs it then claimed, those claims extended well beyond Workers Compensation Costs which formed only part of the total costs claimed in the arbitration but which also comprised the whole of those claimed in the Summons.
Second, so far as the claim for Workers Compensation Costs in the arbitration was concerned, par 41 of the Points of Claim makes it clear that it was limited to costs Codock had incurred since 1 January 1993. Further, as will become apparent, the sole contractual basis upon which those costs were so claimed and awarded by the Arbitrator was sourced solely in cl 2(3) of the 1972 TAL.
(h)The principles of law relating to issue estoppel as expressed by the primary judge
The primary judge set out the relevant principles relating to issue estoppel at [43]–[52] of the first judgment. These statements do not appear to be in dispute. Relevantly for present purposes, the essential or basic principles set out by his Honour in may be summarised as follows:
(a)A judicial determination directly involving an issue of fact or of law disposes once and for all of that issue so that it cannot afterwards be raised between the same parties or their privies: Blair v Curran (1939) 62 CLR 464 at 531–532;
(b)However, issue estoppel covers only those matters which the prior decision necessarily established as the legal foundation or justification for that decision: in other words, the matter in issue must have been “necessarily decided” by the prior decision: Blair v Curran.
(c)Further, what is closed or precluded is only that which is “legally indispensable to the conclusion” of the prior decision maker. Thus, where a number of ingredients or ultimate facts are essential to a claim, such that the absence of any one would cause the claim to fail, the estoppel covers only the actual ground upon which the existence of the right was negatived. However, any matter which was necessary to decide and which was actually decided as the basis of the decision would be included. Such matters have been referred to as the “matters cardinal” to the point in issue: Blair v Curran.
(i)The authorities referred to in relation to issue estoppel before the primary judge
Of particular relevance to the present case is the following statement in Spencer Bower, Turner and Handley, “The Doctrine of Res Judicata” (3rd ed, 1996) at 105 [202] (Spencer Bower) under the heading “How to Distinguish the Fundamental from the Collateral”. The learned authors, referring to the judgment of Dixon J in Blair v Curran at 533, stated the relevant principles as follows (omitting citations):
“‘The difficulty in the actual application of these conceptions’, continued Dixon J, ‘is to distinguish the matters fundamental or cardinal to the prior decision or judgment, or necessarily involved in it as its legal justification or foundation, from matters which, even though actually raised and decided as being in the circumstances of the case the determining considerations, yet are not in point of law the essential foundation or groundwork of the judgment’. In order to make this distinction one has to inquire whether the determination was so fundamental to the decision that the latter cannot stand without it. Even where this condition is met, it is suggested by Dixon J that there is another test to pass, viz. whether the determination is the ‘immediate foundation’ of the decision or merely ‘a proposition collateral or subsidiary only, i.e. no more than part of the reasoning supporting the conclusion’. A mere step in the reasoning is insufficient. What is required is a determination fundamental to the decision.
One test which has been suggested is: was it possible to appeal against the determination? This will not decide the question in all cases; but is often a useful test. There are many determinations which cannot effectively be challenged on appeal. If there can be no effective appeal against a particular determination it is not fundamental to the judgment. But this is not the only test; the inquiry must always be – is the determination such that without it the judgment cannot stand?”
The Commonwealth particularly relied upon par 205 of this learned work, which is in the following terms (omitting citations):
“A decision of fact or law against the party who succeeded will not found an estoppel because it cannot be fundamental to the decision. It would be unjust to make such a decision the foundation of an estoppel, for no appeal is available to the person against whom it was given. A similar argument applies where several factual grounds are advanced as alternative bases for a cause of action and the court finds more than one in favour of the party who succeeds. No estoppel can be founded on any of the separate findings, for the party failing on such issues cannot appeal any of them separately. To succeed on appeal he must succeed on all the issues, and if the finding on one is good, this will be fatal. There will be a cause of action estoppel, but the separate issues will not ground issue estoppels because none was fundamental to the decision.” (Emphasis added.)
It is immediately apparent that the first two sentences of the above statement have no application to the present case as the estoppel alleged by Codock is against the Commonwealth who failed before the Arbitrator. As such, particular reliance is placed upon that part of par 205 that I have emphasised.
At the end of par 205, the learned authors cited the following authorities , presumably to support the statement in the text: namely, Penn-Texas Corpn v Murat Anstalt (No 2) [1964] 2 QB 647 at 660; James v Commonwealth (1935) 52 CLR 570 at 584, 590–591; Lake v Lake [1955] P 336; Talyancich v Index Developments Ltd [1992] 3 NZLR 28. One can put aside the reference to Lake v Lake which was a case of a finding of adultery against a wife. In that case, the husband’s petition was dismissed because of condonation and, as the wife had succeeded, she had no basis upon which she could appeal against the finding of her adultery. I shall refer to the other cases cited later in these reasons.
At this point it is helpful to refer only to two other decisions on the issue. The first, the decision of this Court in Murphy v Abi-Saab (1995) 37 NSWLR 280, was heavily relied upon by the Commonwealth. In that case, Gleeson CJ, with whom Kirby P and Rolfe AJA agreed, noted (at 286) the public interest in the finality of litigation and
“the law’s concern with the injustice involved in permitting a litigant to be twice vexed with the same claim”.
That concern is reflected, inter alia, in the principle of issue estoppel.
At [288] the Chief Justice referred to what Dixon J had said in Blair v Curran at 532–533, namely, that issue estoppel precludes what is legally indispensable to the conclusion. In the case of matters of fact, the issue estoppel is confined to the ultimate facts which form the ingredients in the cause of action and which are facts fundamental to the decision. After citing from the judgment of Dixon J, the Chief Justice continued:
“The difficulty is to distinguish between decisions of fact or law fundamental or cardinal to the judgment and other decisions. One thing, however, is clear. Only a decision about a matter which it was necessary to decide can create an issue estoppel. It is, therefore, essential to approach reasons for judgment which are said to create an estoppel with an accurate understanding of what the author of the reasons was required to decide.
A practical test of whether a decision is fundamental is to ask whether it is possible to appeal against the finding: Spencer Bower & Turner, The Doctrine of Res Judicata 2nd Ed (1969) at 182 [now par 202 in the 3rd ed]; Talyancich v Index Developments Ltd [1992] 3 NZLR 28. Since finality of litigation is a primary object in the principle underlying issue estoppel, it would be incongruous if the doctrine operated so as to force a litigant to appeal in order to displace part of the reasoning of the Court whilst having no intention, perhaps no hope, of displacing the judgment: Landco Ltd v Lynch [1995] 1 NZLR 37.”
The second decision to which I wish to refer is that of the High Court in Kuligowski v Metrobus (2004) 220 CLR 363. In the joint judgment of Gleeson CJ, McHugh, Gummow, Kirby, Hayne, Callinan and Heydon JJ, reference was first made (at 379 [40]) to the following statement by Barwick CJ in Ramsey v Pigram (1968) 118 CLR 271 at 276:
“Long standing authorities, in my opinion, warrant the statement that, as a mechanism in the process of accumulating material for the determination of issues in a proceeding between parties, an estoppel is available to prevent the assertion in those proceedings of a matter of fact or of law in a sense contrary to that in which that precise matter has already been necessarily and directly decided by a competent tribunal in resolving rights or obligations between the same parties in the same respective interests or capacities, or between a privy of each, or between one of them and a privy of the other in each instance in the same interest or capacity. The issue thus determined, as distinct from the cause of action in relation to which it arose, must have been identical in each case.” (Emphasis added.)
Of course, the difficult question in the present case is: what matter of fact or law has already been necessarily decided by the Arbitrator resolving rights or obligations between Codock and the Commonwealth? That requires, as will later appear, a determination of the level of abstraction at which, for the purposes of applying the relevant principles of issue estoppel, the court should identify the precise matter necessarily and directly decided by the Arbitrator in resolving Codock’s rights and the Commonwealth’s obligations and whether that precise matter is also the subject of the Summons.
The joint judgment later continued at 386 in these terms (omitting citations):
“60… A failure to find a matter alleged does not establish the truth of the contrary of that which is alleged. There are many general statements about the operations of issue estoppel, approved in this Court, which require more than non-satisfaction to establish an estoppel in later proceedings.
61For example, in Jackson v Goldsmith, Williams J approved a passage from Halsbury's Laws of England including the following:
‘A party is precluded from contending the contrary of any precise point which, having been once distinctly put in issue, has been solemnly found against him.’
Much here turns upon what is involved in the phrase ‘solemnly found’. The form of the first proceeding, particularly the issues joined or admitted on any pleadings, will be important. In Hoysted v Federal Commissioner of Taxation, Higgins J said:
‘A point or an issue may be actually controverted, may be in actual controversy, in actual litigation, although it is not argued, or argued properly. A point may be in controversy although counsel may address no arguments to it, or may overlook certain aspects.’
62An issue admitted on pleadings or other formal process or otherwise conceded at a hearing may, from the nature of the outcome, necessarily have been decided. But what of other questions arising in the first proceeding? In Blair v Curran, Dixon J observed that a ‘judicial determination concludes, not merely as to the point actually decided, but as to a matter which it was necessary to decide and which was actually decided as the groundwork of the decision itself, though not then directly the point at issue’. His Honour went on to distinguish findings concerning only ‘evidentiary facts’ not the ’ultimate facts’ which formed the very title to rights in dispute. This analysis, with the emphasis on decision-making, would require more than non-satisfaction.”
(j)The application by the primary judge in the first judgment of the above principles
Returning to the first judgment of the primary judge, his Honour, after referring to Abi-Saab, observed (at [50]):
“Again, whether there are alternative factual grounds to support a cause of action and the court finds more than one in favour of the successful party, there can be no estoppel based on any of the separate grounds because an appeal against any one of them cannot displace the judgment appealed from. None of the issues can be regarded as fundamental to the decision.”
The Commonwealth submitted before the primary judge (and repeated in its submissions to this Court) that Codock’s claim as “pleaded” in the arbitration differed from that “pleaded” in the Summons. Moreover, the Commonwealth submitted that no element of the cause of action pleaded in the latter had been decided in the arbitration. In particular, it submitted that a number of issues which it had sought to raise before the Arbitrator were not decided or were not decided in a manner that gave rise to an estoppel. Accordingly it was submitted that the issue of the recoverability of Workers Compensation Costs incurred after 31 December 1992 had been abandoned by Codock in the arbitration.
On the other hand, Codock submitted to the primary judge (and repeated on the appeal) that although its claim in the arbitration had been pleaded as one based on a “contract” that embraced a number of agreements made over a number of years, the principal claim that was argued (that is, the claim relating to Workers Compensation Costs) had been upheld by the Arbitrator, since it had been a claim for reimbursement made solely under the 1972 TAL. Codock thus submitted that the legal basis on which it had sought reimbursement of those costs in the Summons was identical to the legal basis on which it had succeeded in recovering such costs in the arbitration.
In his analysis of the competing contentions on this issue, the primary judge noted that some of the Workers Compensation Costs in respect of which Codock sought and obtained reimbursement in the arbitration were incurred after 31 December 1992. The Commonwealth had submitted by way of defence that neither the 1972 TAL nor the earlier agreements which, together, were said to constitute the contract, gave Codock a right of reimbursement for costs incurred after 31 December 1992. However, the primary judge observed that the Arbitrator had held that Codock was entitled to reimbursement of the relevant costs incurred after that date and that that entitlement arose only under the 1972 TAL.
The primary judge then concluded in these terms (at [57]):
“In my judgment, it was essential to the arbitrator’s decision on this point that Codock retained its right of indemnity notwithstanding the expiry, by effluxion of time, of the 1972 trading agreement and lease. A determination that the right of indemnity survived expiry of the agreement under which it was granted was fundamental to the entitlement. A decision the other way must have meant that Codock’s claim in the arbitration failed. In the words of [Spencer Bower] at [202], that determination was ‘fundamental to the decision’. In other words, the decision was not merely a step in, or the process of, the arbitrator’s reasoning; it was essential to the conclusion … it was a condition to be fulfilled before Codock could succeed.”
Further, his Honour observed (at [60])
“that the Arbitrator had made it clear that the claim for common law expenses was upheld
(1) under the 1972 TAL;
(2) regardless of whether the expenses were incurred before or after 31 December 1992; and
(3) regardless of when – so far as it could be ascertained – the original events occurred that gave rise to the claim.”

It was common ground, acknowledged by the primary judge in [47] of the first judgment, that an arbitral award may give rise to an issue estoppel. As such, and as his Honour recognised, there was no right of appeal from the Arbitrator’s interim award by reason of the provisions of s38 of the Commercial Arbitration Act 1984 (NSW). Nevertheless, as his Honour found (at [77]) that the consensual adoption of arbitration by the parties was their means of resolving their disputes. That fact, Codock submitted, could not necessarily amount to a special circumstance such as to negate the operation of an issue estoppel merely on the ground that there was no general right of appeal from the Arbitrator’s interim award.
Codock thus submitted that the primary judge’s approach on this issue was correct, given that otherwise the restriction on the right of appeal created under the Commercial Arbitration Act 1984 (NSW) would negate the operation of an issue estoppel arising from an arbitration conducted under the auspices of that statute.
In my opinion there is substance in that submission. Furthermore, in Arnold itself the relevant special circumstance was that further material relevant to the correct determination of the issue involved in the earlier proceedings had subsequently become available and could not have been adduced by reasonable diligence in those proceedings. It is true that in Tiufuno Handley JA cast doubt upon whether the existence of later material relevant only to a question of law could be a special circumstance. However, he did so upon the basis that there was a right of appeal on questions of law from the earlier decision in that case, and noted that there was no such right in Arnold.
In other words, a special circumstances is not created by the absence of a right of appeal. Rather, the key is that the absence of any such right would prevent the error of law relied upon to found the issue estoppel from being corrected in circumstances where that error was not only plain on the face of the award but possibly one which had been corrected in later or other proceedings.
In this case, and subject therefore to the question of whether the Arbitrator’s determination of Issues 3(a) and (g) was plainly wrong, the fact that there was no right of appeal from his decision with respect to those issues, except with leave of the court and then subject to the limitations in s38(4) and (5) of the Commercial Arbitration Act, does not in my opinion of itself give rise to a special circumstance within the meaning of Arnold. There is nothing in Arnold or any of the cases which have applied it which suggests to the contrary.
The second special circumstance advanced by the Commonwealth (at least on the appeal) was that the parties did not intend for the arbitration to govern the recoverability of future Workers Compensation Costs incurred by Codock after 31 December 1992. As I have already noted, during final addresses before the Arbitrator, Codock abandoned any claim for relief of a declaratory or other nature in respect of future incurred costs. At the time of that abandonment, Codock submitted to the Arbitrator (recorded in his reasons at 159) that it was only seeking the reimbursement of costs incurred up to that point (and which included costs incurred after 31 December 1992) as it anticipated that their recovery would set a precedent which would make any further litigation in the matter unnecessary. If it did become necessary, it would simply institute proceedings at a later stage and “have the argument again when more costs are incurred.”
The Commonwealth latched onto this last statement as indicating that Codock was prepared to litigate the various issues in new proceedings when further costs had been incurred. As such, it was argued that it would be unfair to apply an issue estoppel arising out of the Arbitrator’s decision where such proceedings had been instituted in respect of “the very issue [the subject of those proceedings which] was withdrawn from determination”. By this I understand the Commonwealth to be submitting that Codock had intentionally withdrawn the issue that it was entitled to recover costs not yet incurred by it after 31 December 1992 when the 1972 TAL expired, leaving that issue to be determined in later proceedings after the relevant costs had in fact been incurred.
In my view there is no substance in this submission. The argument is tantamount to saying that by withdrawing its claim for relief for costs incurred after what was referred to by the primary judge (at [130]) as the “cut off date”, being the date after which costs had not then been incurred, Codock was abandoning, in effect, any later reliance upon the Arbitrator’s decision to accede to its claim for costs actually incurred after 31 December 1992 as raising an issue estoppel in any later proceedings that Codock might institute in relation to such costs.
The fact is that Codock’s entitlement to recover the costs it incurred after the 1972 TAL expired was raised by the Commonwealth as an issue before the Arbitrator, who then decided it in Codock’s favour. As Codock submitted to the Arbitrator, the precedent was thereby set. I do not regard its abandonment of any form of declaratory relief with respect to costs not yet incurred as constituting a special circumstance justifying the rejection of the issue estoppel created with respect to the Arbitrator’s finding that Workers Compensation Costs incurred by Codock after the expiration of the 1972 TAL were recoverable.
The third and final special circumstance relied upon by the Commonwealth was that the Arbitrator’s decision as to the construction of cl 3.11 of the Standard Conditions was not only attended with doubt but, indeed, was clearly wrong. This question of construction was the subject of an application for leave to appeal which was rejected by Bainton J and to which I have referred in [267] and [268] above.
As I have observed, Bainton J did not consider that the Arbitrator’s construction of cl 3.11 revealed any manifest error of law within the meaning of s38(5)(b)(i) of the Commercial Arbitration Act. His Honour considered that within the meaning of s38(5)(b)(ii) of that Act, there was “not strong evidence of any error of law” in those pages of the Arbitrator’s reasons which included his construction of cl 3.11 as being confined to the conduct of litigation with respect to a claim rather than Codock’s underlying conduct, which gave rise to the claim.
By raising the issue of the proper construction of cl 3.11 of the Standard Conditions as a special circumstance, the Commonwealth effectively sought to re-argue the construction question. Its reasons for contending that the Arbitrator’s construction of the clause was wrong are set out in [65]–[73] of the Commonwealth’s written submissions on the appeal (Orange 33–35). For present purposes it is unnecessary to deal in detail with those submissions. They were made before the Arbitrator and rejected by him.
The issue in Arnold was whether later decisions, including those of the Court of Appeal which had held that the construction of the relevant rent review clause by Walton J was plainly wrong, constituted a special circumstance in respect of which justice required that the party suffering from the wrong decision should not be shut out from reopening that issue when it arose in later proceedings between the same parties. What is apparent from Lord Keith’s speech in Arnold is that, at least on the facts of that case, Walton J had not only made a mistake but a “very egregious mistake”.
Further, a later judgment of the Court of Appeal in a case between different parties but involving a similar rent review clause had overruled Walton J’s decision. In my opinion, there is nothing in Arnold, or any of the cases in which it was applied, that supported the Commonwealth’s submission that it was sufficient to demonstrate that the decision in the earlier proceedings was arguably wrong as distinct from patently wrong. Or to put the matter a different way, for the purposes of issue estoppel “special circumstances” will not be constituted by merely establishing that there is some doubt as to the correctness of the earlier decision.
In my opinion, it follows that Gillard J was in error when in Kingston City Council v Monash City Council [2001] VSC 41 at [108], he observed that one of the important facts in Arnold, which was held to constitute a special circumstance was that the decision of Walton J, “was attended with doubt”. On the contrary, it was held to be “plainly wrong”. His Honour, with respect, repeated this error when (at [137]) he opined that a plea of issue estoppel “could in rare cases cause an injustice where there is doubt as to the correctness of the issue decided.”
In my opinion mere doubt as to the correctness of the earlier decision is insufficient to constitute special circumstances. To hold otherwise would be inconsistent with his Honour’s apparent acceptance (at [139]) that special circumstances only arise to preclude the application of the plea of issue estoppel in “rare cases”. Thus his Honour was correct when he observed in the same paragraph that it was
“important to confine the category of special circumstance otherwise it would defeat the very object of issue estoppel which is to bring litigation to an end and avoid repetitious litigation.”
Although, as stated by Sir Nicholas Browne-Wilkinson V-C in Arnold at first instance ([1998] Ch 63 at 70–71), a change in the law subsequent to the earlier decision is capable of bringing the case within the exception to issue estoppel upon the basis that otherwise injustice would flow from such change, it is not sufficient to merely cast doubt upon the correctness of the earlier decision that is otherwise arguably correct. To characterise such a situation as a special circumstance would be contrary to the public policy of the finality of litigation which is the underlying principle upon which issue estoppel and res judicata or cause of action estoppel are based.
In particular, if no more can be advanced than that the earlier decision was open to doubt, but could not be said to be plainly or manifestly wrong, then the circumstances in which issue estoppel could be avoided would no longer be “special” or “exceptional” or “rare” in the required sense. Furthermore, in a case such as the present, it would permit in practice a right of appeal against the Arbitrator’s decision after extensive argument where no such appeal otherwise existed by reason of the agreement between the parties as to the mode of resolving their disputes.
I am prepared to accept for present purposes that the Commonwealth’s construction of cl 3.11 of the Standard Conditions which it advances in its submissions is at least arguable. On the other hand, so also are Codock’s contentions which were accepted by the Arbitrator in his reasons at 164–165.
It is true that litigation costs, including costs incurred in defending actions brought by third parties against Codock on matters associated with its contract with the Commonwealth, were allowable as part of the “contract cost” by virtue of cll 4.49 and 4.51 of the Standard Conditions. The qualification as to the permissibility of such costs in cl 3.11 is that they could not have been avoided or reduced by the exercise of reasonable standards of skill, care and efficiency. As the Commonwealth correctly submitted, there is no inconsistency between cl 3.11 in its application by way of qualification to the recovery of litigation costs and cll 4.49 and 4.51 of the Standard Conditions.
But it does not follow from that fact that cl 3.11 is, as a matter of construction in the context of the contract as a whole, also applicable to the underlying conduct of Codock that gave rise to its entitlement to recover as litigation costs those incurred in defending actions brought by third parties with respect to that conduct.
Further, as the Arbitrator observed (at 165), considerable difficulties would arise where a claim against Codock (by an ex-employee or, for that matter, by any other third party) is compromised. Certainly, it may well be that cl 3.11 would require Codock to exercise reasonable standards of skill, care and efficiency in compromising any such claim in order to qualify the amount of the compromised claim as an allowable overhead. But the Commonwealth’s construction in such a case would require a mini trial or enquiry as to whether the circumstances out of which the claim arose (and which may have been many years in the past) could have been avoided by the exercise of a reasonable standards of skill, care and efficiency by Codock, which itself could give rise to the incurring by both Codock and the Commonwealth of significant further costs which, in the case of Codock, would be subject to cl 3.11 for them to be reasonable.
In this respect it is important to remember that cl 3.11 of the Standard Conditions is a general provision and, on the construction advanced by the Commonwealth, would be applicable to any claim by a third party said to arise out of some conduct or other on the part of Codock or those for whom it was legally responsible which could have been avoided by the exercise of reasonable standards of care, skill and efficiency.
Furthermore, as the Arbitrator observed, it may well be that litigation costs in defending such a third party claim would not be recoverable until the end result of any particular individual case was determined. If such a claim was the subject of a settlement, so that there was no finding by a competent tribunal of any failure by Codock to exercise reasonable standards of skill and care in the circumstances, then the difficulties of determining in the administration of a contract such as the 1972 TAL whether any particular costs fell within “overhead” or not, would create impracticable, if not insuperable, difficulties. The purpose of the foregoing observations is merely to demonstrate that no justifiable basis exists to support the Commonwealth’s assertion that the Arbitrator’s construction of cl 3.11 was plainly or unarguably wrong.
As was pointed out in the joint judgment of Peter Gibson LJ and Sir Martin Nourse in Coflexip SA v Stolt Offshore MS Ltd (2004) 60 IPR 202 at 234 [158], Arnold was a case decided on exceptional facts in which Walton J, in holding that in a dispute on a rent review under a lease an arbitrator was wrong in his construction of the rent review clause, had himself plainly erred, as decisions of the Court of Appeal later demonstrated, and had not himself permitted the point to be taken on appeal.
The circumstances of the present case are very different from those in Arnold in which Lord Keith made it clear that the special circumstances exception to issue estoppel was limited: see Coflexip at 231 [146]. In my opinion the Commonwealth’s submissions relating to the construction of cl 3.11 fall well short of demonstrating the existence of special circumstances in the Arnold sense.
The Commonwealth also raised the question of special circumstances with respect to the expiration issue. It was submitted, firstly, that the Arbitrator’s decision to extend the Commonwealth’s obligation to indemnify Codock with respect to Workers Compensation Costs incurred after 31 December 1992 was “plainly wrong”; secondly, that the claim in respect to future costs was abandoned and, thirdly, there was no appeal available from the Arbitrator’s interim award with respect to that issue.
In my view, there is no substance in the Commonwealth’s submissions. The matters relied upon do not amount to “special circumstances” in the Arnold sense. I have already dealt with each of the matters relied upon with respect to the lack of appeal and the claim for future costs being abandoned. Neither detract from the fact that the Arbitrator determined that costs incurred after 31 December 1992 were recoverable from the Commonwealth.
As to the submission that the Arbitrator’s decision with respect to Workers compensation Costs incurred by Codock after 31 December 1992 is concerned, the Commonwealth submitted that such costs as claimed in the Summons were not recoverable as they cannot be charged to the 1972 TAL nor are they “associated with the TAL”. Reliance was belatedly placed upon the failure of the Arbitrator to consider the effect of the decisions of the High Court in McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457, 476–477 and Westralian Farmers Ltd v Commonwealth Agricultural Service Engineers Ltd (1936) 54 CLR 361, 375, 379–380, notwithstanding that they were not referred to him by the Commonwealth.
Furthermore, it was submitted that neither the Arbitrator nor the primary judge dealt with the expiration issue “in terms”. In particular, although the Arbitrator rejected the Commonwealth’s argument that because Common Law Costs arose out of events prior to 1972 and were, therefore, unrelated to the 1972 TAL, he did not provide any separate reasoning to support his undoubted finding that such costs incurred by Codock after the expiration of the 1972 TAL were recoverable from the Commonwealth.

The difficulty with the Commonwealth’s submission that the Arbitrator’s decision on the expiration issue was “plainly wrong”, is that on its own case it concedes that in the arbitration it neither pleaded nor argued that the expiration of the 1972 TAL was a bar to Codock succeeding in its claim with respect to costs incurred after the 1972 TAL expired so that the matter was not, so it submitted, “distinctly put in issue”. In fact the Commonwealth relies on that circumstance as being “special” in the Arnold sense.
There is therefore an inconsistency between asserting that the Arbitrator’s decision on the expiration issue was wrong on the one hand and asserting that the Commonwealth did not raise the issue for determination on the other. How can it now be heard to criticise as wrong a decision of the Arbitrator on an issue upon which it did not advance a contrary argument at the time?
Even if it be supposed that the decision was wrong (a matter upon which I express no opinion), it can hardly constitute special circumstances in the Arnold sense to resist a plea of issue estoppel (if otherwise established) on the expiration issue where, knowing that Codock was claiming in the arbitration Workers Compensation Costs incurred by it after 1 January 2003, the Commonwealth failed to advance before the Arbitrator the argument it now seeks to assert as to why that issue should have been determined in its favour.
As Handley JA observed extracurially in an article entitled “A Closer Look at Henderson v Henderson” based on a lecture given by him to the Chancery Bar Association and the Institute of Advanced Legal Studies on 6 December 2001,
“[a]n issue estoppel prevents an issue litigated for one cause of action being re-litigated for another, and unless displaced by the [Arnold] exception, it bars evidence and arguments whether they were raised in earlier proceedings or not.”
As is already apparent, one issue litigated before the Arbitrator was Codock’s claim that it was entitled to recover Workers Compensation Costs incurred by it after the 1972 TAL expired on 31 December 1992. That issue was decided in its favour. It now seeks in the Summons to recover such costs incurred by it after December 1995. The issue raised bars the Commonwealth from raising Issue 3(a) whether or not it was expressly raised by it in the arbitration. However, as I have observed, the Commonwealth claims special circumstances because it neither pleaded nor argued in the arbitration that the expiration of the 1972 TAL was a bar to Codock succeeding in its claim with respect to costs incurred after the 1972 TAL expired. However, it does not necessarily follow, as the Commonwealth submitted, that the point was not “distinctly put in issue”.
As I have already found (at [302] above), I do not accept that the Commonwealth did not join issue with Codock’s claim in pars 26E and 46 that it was entitled to be reimbursed Workers Compensation Costs incurred by it from 1 January 1993 onwards in its defence to the Points of Claim in the arbitration. While it is true that the Commonwealth did not argue the expiration point in final addresses (see [304] above), that does not mean that the Commonwealth is not barred from now raising the argument even though it did not ultimately argue it before the Arbitrator. That fact does not, as I have indicated, amount to a special circumstance in the Arnold sense. Accordingly, the issue of whether the Arbitrator’s finding in the expiration issue was right or wrong is irrelevant to the question of special circumstances.

Finally, the Commonwealth also raised special circumstances with respect to the risk issue encapsulated in Issue 3(h). In so doing it relied on the same considerations as it had advanced with respect to the negligence and expiration issues. Having found that there were no special circumstances which were relevant to those issues, the same result follows with respect to the risk issue.
More relevantly, there is no room for the application of the Arnold special circumstances exception to the risk issue. The estoppel relied on with respect to that issue is of the Anshun type. The Anshun doctrine provides for its own circumstantial test: see Anshun at 602–604. Arnold applies only to issue estoppel in the strict sense. The Commonwealth’s reliance on Arnold special circumstances with respect to the risk issue is, therefore, misconceived.
It thus follows that in my opinion the Commonwealth has failed to demonstrate that there were any special circumstances in the Arnold sense which would preclude Codock from maintaining in pars 7 and 8(b) of the Reply that the Commonwealth was estopped (in one form or another) from relying on those defences to Codock’s claim in the summons encapsulated in Issues 3(a), (g) and (h) of the Statement of Issues.
In these circumstances it is neither necessary nor appropriate to resolve the question raised by Codock’s amended Notice of Contention of whether Arnold is part of the law of New South Wales.
Was the Commonwealth denied procedural fairness by the primary judge in either the first or second hearings?
The propositions advanced by the Commonwealth in support of the submission that it was denied procedural fairness by the primary judge are set out in [50] above. In essence, they raise the following questions:

(a)Whether the Commonwealth was denied procedural fairness by Codock’s failure to specifically plead in par 8(b) of the Reply that the Commonwealth was estopped from maintaining its defences to the Summons encapsulated in Issues 3(a), (g) and (h) and to identify whether it was relying on issue estoppel in the strict sense or issue estoppel in the extended Anshun sense.

(b)Given that Issue 3 was not one of the issues the subject of the order made by the primary judge under Pt 31 r2 of the Rules, whether his Honour denied the Commonwealth procedural fairness when he determined in the first judgment that the Commonwealth was estopped from asserting the defences to the Summons encapsulated in Issues 3(a) and (g).

(c)Whether the Commonwealth was denied procedural fairness in the second hearing because Codock did not rely either in par 8(b) of the Reply or in its written and oral argument before the primary judge that it was asserting an Anshun estoppel with respect to Issue 3(h).

With respect to question (a), in my opinion par 8(b) of the Reply was framed in terms (discussed in [61] and [62] above) which alleged that the Commonwealth was estopped from maintaining the pleas encapsulated in Issues 3(a), (g) and (h).
As to question (b), the written and oral submissions made to the primary judge during the first hearing (and referred to in [340]–[348] above) that Codock asserted before the primary judge that he should determine, given the form of Issue 1, that the Commonwealth was issue estopped in the strict sense for relying upon its defences to the Summons encapsulated in the expiration issue (Issue 3(a)) and the negligence issue (Issue 3(g)). In my opinion there can be no doubt as to the basis upon which the first hearing proceeded, whereupon it was clearly open to his Honour to determine that his negative answer to Issue 1 was subject to the exception that the Commonwealth was estopped with respect to those issues.
As to question (c), it must have been clear to the Commonwealth, as it was to his Honour, that any estoppel with respect to Issue 3(h) could only be a Henderson or Anshun type estoppel as it was common ground that the risk issue had been neither pleaded, argued nor the subject of a finding by the Arbitrator. Accordingly, par 8(b) of the Reply, insofar as it asserted that the Commonwealth’s plea in par C30 of the Defence was “not maintainable”, could only have been understood upon the basis that it was not so maintainable because the Commonwealth was Anshun estopped from relying upon it.
Furthermore, the written and oral argument during the second hearing and, in particular, the exchanges between the Commonwealth’s counsel and his Honour to which I have referred in [358]–[363] above, made it tolerably clear that the estoppel being relied upon by Codock with respect to Issue 3(h) was a Henderson or Anshun extended estoppel.
The form of the consent order made by the primary judge on 22 October 2004 raised for determination whether the findings of his Honour in the first judgment in relation to issue estoppel should be extended to, relevantly, Issue 3(h).
Although the Commonwealth submitted that the only findings of his Honour in that judgment were confined to issue estoppel in the strict sense, it is clear from that judgment that his Honour gave consideration, at least with respect to Issue 7, to the question of an Anshun estoppel. Further, it was common ground that Anshun estoppel was an extended form of issue estoppel in the strict sense. Given that the risk issue was not raised in the arbitration, it followed that the only issue estoppel which could be raised with respect to it was of the Anshun variety. The Commonwealth could not have been under any misunderstanding that that was so and, in any event, as the exchange in [367] above makes clear, the question of an Anshun estoppel was put fairly and squarely to the Commonwealth’s counsel during the course of the second hearing.
It follows from the foregoing that in my opinion, the Commonwealth was not denied procedural fairness in either the first or second hearings.
Conclusion
The Commonwealth‘s challenges to the primary judge’s findings with respect to Issues 1, 2, 3(a), (g) and (h) and 8 as well as the general challenge to his decisions on the ground of a denial of procedural fairness, have raised a number of complex issues. Having addressed each of these, my opinion is that each of those challenges should be rejected. I therefore propose that the Commonwealth’s appeal be dismissed with costs.

**********

LAST UPDATED: 24/11/2006