Gemcan Constructions Pty Ltd v Westbourne Grammar School (Enforcement of Arbitral Award)
[2022] VSC 6
•20 January 2022
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
ARBITRATION LIST
S ECI 2021 03220
BETWEEN:
| GEMCAN CONSTRUCTIONS PTY LTD (ACN 159 790 904) | Applicant |
| - and - | |
| WESTBOURNE GRAMMAR SCHOOL (ACN 004 363 035) | Respondent |
S ECI 2021 03523
BETWEEN:
| WESTBOURNE GRAMMAR SCHOOL (ACN 004 363 035) | Applicant |
| - and - | |
| GEMCAN CONSTRUCTIONS PTY LTD (ACN 159 790 904) | Respondent |
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JUDGE: | Riordan J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 22 November 2021 |
DATE OF JUDGMENT: | 20 January 2022 |
CASE MAY BE CITED AS: | Gemcan Constructions Pty Ltd v Westbourne Grammar School (Enforcement of Arbitral Award) |
MEDIUM NEUTRAL CITATION: | [2022] VSC 6 |
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ESTOPPEL – Issue estoppel – Application for certiorari by principal against adjudication determination in favour of builder under the Building and Construction Industry Security of Payment Act 2002 (Vic) – Order quashing adjudication determination for want of jurisdiction – Builder did not raise alternative ground for jurisdiction based on there being no substantial breach of the building contract – Whether builder estopped from alleging no substantial breach of the building contract at subsequent arbitration.
ESTOPPEL – Issue estoppel – Whether the principles of issue estoppel apply to an issue assumed, agreed or overlooked in an earlier proceeding – Hoysted v Federal Commissioner of Taxation (1925) 37 CLR 290 considered.
ESTOPPEL – Anshun estoppel – Whether unreasonable for builder not to contend no substantial breach of the building contract on the application for certiorari.
ARBITRATION – Application to enforce award under s 35 of the Commercial Arbitration Act 2011 (Vic) – Cross application to set aside award under s 34 on the ground that it is in conflict with the public policy of this State – Whether enforcement of award would give rise to any real practical injustice or real unfairness – Order to enforce award.
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APPEARANCES: | Counsel | Solicitors |
| For the Applicant in S ECI 2021 03220 and the Respondent in S ECI 2021 03523 | Mr L J Connolly | Maddocks |
| For the Respondent in S ECI 2021 03220 and the Applicant in S ECI 2021 03523 | Mr M Dempsey SC with Mr A R Morrison | Champions Lawyers |
Contents
Background
Issues for determination
Application before Robson J
Arbitration
Relevant statutory provisions
Was the Arbitrator precluded, by the doctrine of issue estoppel or Anshun estoppel, from finding that Gemcan was not in substantial breach of the Contract?
Submissions
Westbourne’s submissions
Gemcan’s submissions
Principles relating to issue estoppel and Anshun estoppel
Conclusion with respect to issue estoppel
Conclusion with respect to Anshun estoppel
Effect of s 47 of the SOP Act
Submissions
Westbourne’s submissions
Gemcan’s submissions
Conclusion
Does such error mean that the Award is in conflict with, or contrary to, the public policy of this State?
Submissions
Westbourne’s submissions
Gemcan’s submissions
Principles of public policy
Conclusion
Orders
HIS HONOUR:
These two proceedings were initiated respectively by the following originating processes:
(a)An originating application filed 3 September 2021 in proceeding S ECI 2021 03220, in which the applicant (‘Gemcan’) seeks an order pursuant to s 35 of the Commercial Arbitration Act 2011 (Vic) (‘the Act’) to enforce the First Partial Award dated 20 July 2021, as amended on 15 August 2021 (‘the Award’), in the arbitration between the parties.
(b)An originating application filed 27 September 2021 in proceeding S ECI 2021 03523, in which the applicant (‘Westbourne’) seeks an order pursuant to s 34 of the Act to set aside the Award.
Background
On or about 25 July 2016, Gemcan and Westbourne entered into a contract headed ‘Westbourne Grammar School, Alterations and Additions 67 The Strand’ (‘the Contract’) in which Gemcan agreed to perform specified construction work for Westbourne at its campus in Newport, Victoria, for a fixed price of $1,704,818.35.
The Contract included the following relevant terms:
(a)Clause 39 which, in summary, provided as follows:
(i)If Gemcan committed a substantial breach of the Contract, Westbourne could give it a written notice to show cause.
(ii)The show cause notice was to state, among other things, that Gemcan was required to show cause by a specified date and time, why Westbourne should not exercise a right conferred by sub-cl 39.4.
(iii)Under sub-cl 39.4, if Gemcan failed to show reasonable cause by the specified date and time, Westbourne could, by written notice:
(1)take out of Gemcan’s hands the whole or part of the work waiting to be completed and suspend payment to Gemcan until such payment became due and payable pursuant to sub-cl 39.6 (being, in substance, when the work had been completed); or
(2)terminate the Contract.
(b)Clause 42 which outlined the dispute resolution process and relevantly provided as follows:
(i)If a difference or dispute between the parties arose in connection with the subject matter of the Contract, then either party could give a written notice of dispute, adequately identifying and providing details of the dispute.
(ii)Within 14 days of receiving a notice of dispute, the parties were to confer at least once to resolve the dispute, or agree on methods of doing so.
(iii)If the dispute had not been resolved within 28 days of service of a notice of dispute, the dispute would be referred to arbitration.
On 14 February 2017, Westbourne purported to serve Gemcan with a show cause notice, alleging that Gemcan was in substantial breach of the Contract by failing to proceed with the work with due expedition and without delay (‘the First Show Cause Notice’). On 27 February 2017, Westbourne served Gemcan with a written notice taking the whole of the remaining work to be completed out of the hands of Gemcan (‘the First Takeout Notice’).
Gemcan asserted that the First Show Cause Notice was not validly served. Subsequently, on 24 March 2017, Westbourne purported to serve Gemcan with a second show cause notice in similar terms (‘the Second Show Cause Notice’). On 3 April 2017, Westbourne served Gemcan with a second purported takeout notice (‘the Second Takeout Notice’).
By letter dated 3 April 2017 to Westbourne’s solicitors, Gemcan’s solicitors contended that technical deficiencies in the form of both the First Show Cause Notice and the Second Show Cause Notice rendered them invalid. Specifically, Gemcan argued that the Second Show Cause Notice was invalid because:
(a)it was not properly served in accordance with the Contract;
(b)it did not state the time by which Gemcan was to show cause; and
(c)it did not give sufficient time for Gemcan to respond.
On 3 April 2017, Westbourne informed Gemcan that they were now trespassing, and directed them to leave and not return to the site. On the same day, Gemcan demobilised from the site.
On 4 April 2017, Westbourne purported to serve Gemcan with a third show cause notice (‘the Third Show Cause Notice’). The Third Show Cause Notice was in similar terms to the earlier notices, but did specify a date and time by which Gemcan was required to show cause. On 12 April 2017, Westbourne served Gemcan with a third takeout notice (‘the Third Takeout Notice’).
By letter dated 10 April 2017 to Westbourne’s solicitors, Gemcan’s solicitors alleged that the Third Show Cause Notice was invalid because Westbourne had already taken all of the works out of Gemcan’s hands, and stated:
In the circumstances, it is not entitled to issue a further ‘show cause’ notice. The further ‘show cause’ notice is invalid and is not capable of curing the defects in the earlier ‘show cause’ notices and on the basis of which the School unlawfully took the works out of our client’s hands.
On 2 May 2017, Gemcan served Westbourne with a payment claim under the Building and Construction Industry Security of Payment Act 2002 (Vic) (‘the SOP Act’) titled ‘Claim No 8 (Westbourne Grammar School)’, claiming $430,229.69. On 3 May 2017, following a request from Westbourne’s solicitors, Gemcan provided another version of the payment claim, which included a variation breakdown page.
On 16 May 2017, Westbourne served Gemcan with a payment schedule pursuant to s 15 of the SOP Act, which stated that the amount Westbourne proposed to pay was nil.
On 30 May 2017, Gemcan applied for adjudication pursuant to s 18(1)(a)(i) of the SOP Act. By Adjudication Determination dated 7 July 2017, as amended on 14 July 2017, the adjudicator determined that Westbourne should pay Gemcan $241,973.33.
By notice dated 8 September 2017, Gemcan purported to accept Westbourne’s repudiation arising from the direction to leave the site and not to return.
On 26 October 2017, Robson J determined that the Adjudication Determination was made without jurisdiction and should be quashed.[1]
[1]Westbourne Grammar Schoolv Gemcan Constructions Pty Ltd [2017] VSC 645 (‘Robson J decision’).
By notice of dispute dated 25 October 2019 and served pursuant to cl 42.1 of the Contract, Gemcan claimed $486,581.39 as owing to it under the Contract.
By letter dated 22 November 2019 to Westbourne’s solicitors, Gemcan referred the dispute to arbitration pursuant to cl 42.2 of the Contract.
Westbourne disputed the reference to arbitration. However, on 21 July 2020, Lyons J found that:
(a)clause 42.2 of the Contract constitutes a valid agreement to refer the dispute to arbitration; and
(b)Mr Shnookal QC (‘the Arbitrator’) should be appointed as the arbitrator pursuant to s 11 of the Act.[2]
[2]Gemcan Constructions Pty Ltd v Westbourne Grammar School [2020] VSC 429, [77].
The arbitration hearing commenced on 7 December 2020 and the Arbitrator delivered the Award on 20 July 2021.
After delivery of the Award, Westbourne refused to pay the amounts awarded to Gemcan, and:
(a)Gemcan applied for an order pursuant to s 35 of the Act to enforce the Award; and
(b)Westbourne applied for an order pursuant to s 34 of the Act to set aside the Award on the basis that the Award is contrary to the public policy of this State,
as referred to in paragraph 1 above.
It is common ground that the applications cannot both succeed, and that if one does, the other necessarily must fail.
Issues for determination
Westbourne contends that the Award should be set aside because it is in conflict with the public policy of this State. The conflict is said to arise from the fact that, as a result of Robson J’s decision, the Arbitrator was estopped from finding that Gemcan was not in substantial breach of the Contract.
Accordingly, these proceedings will be resolved by answering the following questions:
(a)Was the Arbitrator precluded, by:
(i)the doctrine of issue estoppel; or alternatively
(ii)the doctrine of Anshun estoppel,
from finding that Gemcan was not in substantial breach of the Contract?
(b)If yes to part (a), does such error mean that the Award is in conflict with, or contrary to, the public policy of this State?
Application before Robson J
By amended originating process filed 31 July 2017, Westbourne applied for an order by way of certiorari quashing the Adjudication Determination on grounds including that the adjudicator committed jurisdictional error in failing to take into account the Third Show Cause Notice and the Third Takeout Notice.
With respect to the adjudication, Robson J noted the following:
(a)The adjudicator had assumed jurisdiction on the basis that the payment claim was referrable to a reference date, being 30 April 2017.[3]
(b)The adjudicator found that the reference date arose because the Second Show Cause Notice and the Third Show Cause Notice,[4] under cl 39 of the Contract, had not suspended the right to payment, for the following reasons:
(i)Clause 39.4 of the Contract was void pursuant to s 48 of the SOP Act.[5]
(ii)The Second Show Cause Notice was invalid because it did not specify the date and time for showing cause.[6]
(iii)The Third Show Cause Notice was invalid because, by the time it was served, Westbourne had already purported to take the work out of Gemcan’s hands.[7]
(c)The adjudicator had concluded:
Whether because clause 39.4 of the contract was void by virtue of section 48 of the Act, or because Westbourne did not validly suspend Gemcan’s entitlement to payment under the contract, a further reference date arose for the purposes of the Act on 30 April 2017 and Gemcan’s payment claim dated 2 May 2017 was not invalid for want of a reference date.[8]
[3]Robson J decision [2017] VSC 645, [21].
[4]Westbourne did not press the validity of the First Show Cause Notice or the First Takeout Notice in the application before Robson J.
[5]Robson J decision [2017] VSC 645, [37].
[6]Ibid [80].
[7]Ibid [109].
[8]Ibid [106].
Robson J noted the four grounds pressed by Westbourne as follows:
First, Westbourne contends that the adjudicator committed jurisdictional error, or alternatively erred in law, in determining that clause 39.4 of the contract was void pursuant to s 48 of the Act.
Second, that the adjudicator committed jurisdictional error, or alternatively erred in law, in finding that the second show cause notice was invalid and that therefore even if clause 39.4 of the contract was effective, Westbourne was not entitled to suspend payment under clause 39.4, and therefore a further reference date arose for the purposes of making a payment claim under the Act on 30 April 2017.
Thirdly, that the adjudicator committed jurisdictional error, or alternatively erred in law, in failing to take into account the third show cause notice and the third take out notice.
Fourthly, that the adjudicator erred in law in including in the adjudication determination amounts for variations which were disputed and therefore excluded amounts under s 10B of the Act.[9]
[9]Ibid [25]-[28].
Robson J’s findings with respect to the four grounds were, in summary, as follows:
(a)Section 48 of the SOP Act was not engaged and the adjudicator erred in law in finding that it was.[10]
(b)The Second Show Cause Notice was invalid and the adjudicator did not fall into error in so finding.[11]
(c)The Third Show Cause Notice was valid because, at the time it was served, it ‘still had work to do in that it could validate Westbourne taking out of Gemcan’s hands the works remaining to be completed, enliven Westbourne’s right to suspend payment or to terminate the contract’.[12]
(d)It was not necessary to consider the fourth ground.[13]
Accordingly, he concluded that Gemcan’s payment claim was invalid as it did not relate to a reference date;[14] and quashed the Adjudication Determination.[15]
[10]Ibid [76].
[11]Ibid [95].
[12]Ibid [113].
[13]Ibid [118].
[14]Ibid [117].
[15]Ibid [119].
Relevantly for present purposes, with respect to the Third Show Cause Notice and the Third Takeout Notice, Robson J concluded as follows:
Assuming Westbourne had earlier purported to take out of Gemcan’s hands the whole or part of the work remaining to be completed, it still had not exercised the right to suspend payment until it became due and payable pursuant to subclause 39.6, or to terminate the contract. Further, if it had unlawfully taken out of Gemcan’s hands the work remaining to be completed, then in my opinion the third show cause notice could validate Westbourne’s right to take the whole works remaining to be completed, out of Gemcan’s hands.
In any event, what is clear, is that the third show cause notice still had work to do in that it could validate Westbourne taking out of Gemcan’s hands the works remaining to be completed, enliven Westbourne’s right to suspend payment or to terminate the contract.
As it is, as a result of the valid third show cause notice, Westbourne did validly take out of Gemcan’s hands the works remaining to be completed, and suspend payment until it became due and payable pursuant to subclause 39.6 of the contract.
The adjudicator did not address the exercise of these rights under the contract and in my opinion, erred in finding, as, by implication, he did, that the third show cause and take out notices were invalid.
I therefore find that the adjudicator erred in law.
As discussed above, as the right to payment was suspended on 12 April 2017, the previously contractually determined reference date of 30 April 2017, was thereby extinguished, or the reference date did not accrue on 30 April 2017. When the payment claim was lodged, be it 2 or 3 May 2017, it was invalid as it did not relate to an accrued reference date and no moneys were due for payment to Gemcan to which the Act could apply.[16]
[16]Ibid [112]-[117].
Arbitration
The arbitration was initially heard over five days commencing on 7 December 2020. It resumed on 22 March 2021 for one day to hear final submissions. The Award addressed 29 questions compiled by the parties, which included, as question 8:
Is Gemcan estopped from challenging the validity of the Third Show Cause Notice/Third Take Out Notice?
The Award addressed each of the questions compiled by the parties, except those relating to costs, and made the following award:
a)[Westbourne] shall pay [Gemcan] the sum of $318,588 plus GST on the claim.
b)[Westbourne] shall pay [Gemcan] the sum of $62,853 as interest on the claim up to 20 July 2021.
c) The counterclaim is dismissed.
The Arbitrator relevantly concluded as follows:
(a)No issue estoppel arose from Robson J’s decision on the question of whether or not Gemcan was in substantial breach of the Contract at the time any of the show cause notices were issued.
(b)Gemcan had not committed any of the four substantial breaches of the Contract, as alleged by Westbourne, being:
(i)the failure to comply with the construction program;
(ii)the failure to achieve practical completion by the adjusted dates;
(iii)the failure to deliver notices of delay and extension of time claims; and/or
(iv)the failure to proceed with diligence and without delay.
Relevant statutory provisions
In pt 1A of the Act, it is noted that:
Sections of this Act that contain a reference to the ‘Model Law’ in the heading are substantially the same as the provisions of the UNCITRAL Model Law on International Commercial Arbitration (as adopted by the United Nations Commission on International Trade Law on 21 June 1985 with amendments as adopted by that Commission in 2006) so as to be as uniform as possible with the UNCITRAL Model Law.
Apart from repealing the Commercial Arbitration Act 1984 (Vic), s 1AA of the Act notes that the purpose is ‘to improve commercial arbitration processes to facilitate the fair and final resolution of commercial disputes by arbitration without unnecessary delay or expense’.
Section 1AC sets out the paramount object of the Act as follows:
(1)The paramount object of this Act is to facilitate the fair and final resolution of commercial disputes by impartial arbitral tribunals without unnecessary delay or expense.
(2) This Act aims to achieve its paramount object by—
(a)enabling parties to agree about how their commercial disputes are to be resolved (subject to subsection (3) and such safeguards as are necessary in the public interest); and
(b)providing arbitration procedures that enable commercial disputes to be resolved in a cost effective manner, informally and quickly.
(3)This Act must be interpreted, and the functions of an arbitral tribunal must be exercised, so that (as far as practicable) the paramount object of this Act is achieved.
(4)Subsection (3) does not affect the application of section 35 of the Interpretation of Legislation Act 1984 for the purposes of interpreting this Act.
With respect to the extent of court intervention (cf Model Law art 5), s 5 of the Act provides:
In matters governed by this Act, no court must intervene except where so provided by this Act.
With respect to an application for setting aside as exclusive recourse against an arbitral award (cf Model Law art 34), s 34 of the Act provides:
(1)Recourse to the Court against an arbitral award may be made only by an application for setting aside in accordance with subsections (2) and (3) or by an appeal under section 34A.
Note
The Model Law does not provide for appeals under section 34A.
(2) An arbitral award may be set aside by the Court only if—
…
(b) the Court finds that—
…
(ii)the award is in conflict with the public policy of this State.
With respect to recognition and enforcement of awards, pt 8 of the Act provides as follows:
(a)With respect to recognition and enforcement (cf Model Law art 35), s 35(1) of the Act provides:
An arbitral award, irrespective of the State or Territory in which it was made, is to be recognised in this State as binding and, on application in writing to the Court, is to be enforced subject to the provisions of this section and section 36.
(b)With respect to the grounds for refusing recognition or enforcement (cf Model Law art 36), s 36(1) of the Act relevantly provides:
Recognition or enforcement of an arbitral award, irrespective of the State or Territory in which it was made, may be refused only—
…
(b) if the Court finds that—
…
(ii)the recognition or enforcement of the award would be contrary to the public policy of this State.
Relevantly, s 47 of the SOP Act provides:
(1)Subject to section 48, nothing in this Part affects any right that a party to a construction contract—
(a) may have under the contract; or
(b) may have under Part 2 in respect of the contract; or
(c)may have apart from this Act in respect of anything done or omitted to be done under the contract.
(2)Nothing done under or for the purposes of this Part affects any proceedings arising under a construction contract (including any arbitration proceedings or other dispute resolution proceedings), whether under this Part or otherwise, except as provided by subsections (3) and (4).
Was the Arbitrator precluded, by the doctrine of issue estoppel or Anshun estoppel, from finding that Gemcan was not in substantial breach of the Contract?
Submissions
Westbourne’s submissions
Westbourne submitted that the issue estoppel arose because the necessary elements of issue estoppel were satisfied, being:
(a)the question before the Arbitrator, being the validity of the Third Takeout Notice, was the same question that had been decided by Robson J;
(b)the decision of Robson J was final; and
(c)the parties to the decision of Robson J were the same persons as the parties to the arbitration proceeding in which the estoppel was raised.
With respect to the first element, Westbourne submitted as follows:
(a)The conclusion regarding the validity of the Third Takeout Notice was legally indispensable to Robson J’s decision because:
(i)a valid reference date depended on the antecedent question of whether the Third Takeout Notice was valid; and therefore
(ii)the Court needed to decide, as a ‘jurisdictional fact’, whether the Third Takeout Notice was invalid.
(b)It was a strategic choice by Gemcan to limit its arguments at trial to the effect at law, if any, of Westbourne having taken possession of the site prior to issuing the notice. The case of Henderson v Henderson[17] is authority for the proposition that the fact that a party does not take a point, does not affect the scope of the issue estoppel generated by the decision.
(c)Parties are bound not only by decisions on the issues which they expressly litigate, but also on any implied decisions which are ‘legally necessary to the success or failure of a claim or defence’.[18] Because the validity of the Third Takeout Notice was an essential element in the Court’s reasoning, it cannot detract from the binding nature of Robson J’s decision that Gemcan might have brought to bear (but did not) different evidence on the validity of these notices.
[17](1843) 3 Hare 100; 67 ER 313.
[18]Cachia v Isaacs (1985) 3 NSWLR 366, 387 (McHugh JA), citing Hoystead v Federal Commissioner of Taxation [1926] AC 155, 165, 170.
With respect to the second element, Westbourne submitted as follows:
(a)The weight of authority in Australia is that an issue estoppel may arise from an application for judicial review. Westbourne referred specifically to the decision of the Full Federal Court in Taylor v Ansett Transport Industries Ltd,[19] which held that decisions of an administrative character would generate an issue estoppel provided the decision-maker had jurisdiction to finally determine the matters in question.
(b)On an application for judicial review, it is the responsibility of the reviewing court to determine whether the ‘jurisdictional facts’ on which the adjudicator’s jurisdiction depends have arisen. The court’s findings in that regard are final.
[19](1987) 18 FCR 342 (Northrop, Fisher and Ryan JJ).
The third element was not disputed.
Alternatively, it was submitted that Gemcan had not contended before Robson J that, in the event that the notices under cl 39 were valid, the purported suspension was nonetheless ineffective because Gemcan had not committed a substantial breach of the Contract. Accordingly, on the application of the principles of Anshun estoppel, Gemcan should be precluded from making this assertion before the Arbitrator. This issue was so connected with the subject matter of the proceeding before Robson J as to make it unreasonable for the issue not to have been raised in the earlier proceeding. The unreasonableness arose from the fact that Gemcan made a strategic choice not to agitate the issue, despite the fact that:
(a)the affidavit filed on behalf of Westbourne in the proceeding before Robson J exhibited statutory declarations (which had been before the adjudicator), in support of the contention that there had been a substantial breach; and
(b)Gemcan, in reply submissions before Robson J, stated that it disputed the allegation of substantial breaches.
Gemcan’s submissions
Gemcan contended that the Arbitrator had correctly concluded that an issue estoppel did not arise because Robson J considered the procedural requirements for a valid notice but did not consider the substantive content of those notices. Even if a proceeding for judicial review of an adjudication determination could give rise to an issue estoppel, it cannot extend to cover matters that do not fall within consideration in the judicial review proceeding.
Gemcan further submitted as follows:
(a)If a party were required to litigate judicial review proceedings of an adjudication determination under the SOP Act on the basis that any factual findings made in that proceeding would affect the final rights under the construction contract in a manner contrary to s 47 of the SOP Act, it would be inconsistent with the legislative scheme to ensure that progress claims are dealt with and paid promptly.
(b)An Anshun estoppel could not arise because, in an application for judicial review of an adjudication under the SOP Act for an interim payment, where the parties had agreed that any disputes should be finally determined by arbitration, it would be inconsistent with the scheme of the SOP Act to require parties to put forward complex arguments relating to breaches of the construction contract.
Principles relating to issue estoppel and Anshun estoppel
There are four rules of finality that can apply once there is a final judgment on the merits by a court of competent jurisdiction. Although the principle of finality underlines all of them, the four rules should be kept separate.[20]
(a)Res judicata describes the effect of a final judgment that finalises a dispute between the parties as to the existence of a right or obligation. Such right or obligation no longer has an independent existence because it merges into that final judgment.[21] After judgment, the successful plaintiff’s only right is to enforce the judgment or order.[22]
(b)Cause of action estoppel (or claim estoppel) precludes the assertion in a subsequent proceeding of a right or obligation which has been determined by a judgment in an earlier proceeding. It is of little utility when a plaintiff has succeeded in establishing a legal right because the judgment can be enforced in accordance with the principles of res judicata.[23] However, if it has been decided that a right does not exist, there is nothing to merge into the final judgment; and cause of action estoppel will preclude the subsequent assertion by the unsuccessful plaintiff of any right, which has been determined not to exist.[24] Cause of action estoppel does not require that the rights asserted in each proceeding be identical. It is sufficient if ‘the rights are of substantially equivalent nature and cover substantially the same subject matter’.[25] For example, a common law right to damages for negligent misstatement has been held to sufficiently correspond to a statutory right to damages for misleading and deceptive conduct.[26]
(c)Issue estoppel precludes a party in a subsequent proceeding from raising the ultimate issue of fact or law which was necessarily resolved as a step in reaching the determination made in an earlier judgment.[27]
(d)Anshun estoppel operates to preclude the assertion of a claim or the raising of an issue of fact or law, if that claim or issue was so connected with the subject matter of the earlier proceeding as to make it unreasonable for that claim not to have been made or the issue not to have been raised in the earlier proceeding. This is sometimes referred to as the ‘extended principle’ in Henderson v Henderson.[28] The extended principle is truly an estoppel and should not be confused with res judicata in its strict sense.[29]
[20]Clayton v Bant (2020) 385 ALR 41, 53 [50] (Gordon J), 57 [65] (Edelman J).
[21]Tomlinson v Ramsey Food Processing Pty Ltd (2015) 256 CLR 507, 516 [20] (French CJ, Bell, Gageler and Keane JJ).
[22]Preston v Nikolaidis [2021] NSWSC 36, [219] (Williams J).
[23]Tomlinson v Ramsey Food Processing Pty Ltd (2015) 256 CLR 507, 517 [22] (French CJ, Bell, Gageler and Keane JJ).
[24]Clayton v Bant (2020) 385 ALR 41, 58 [67] (Edelman J); Preston v Nikolaidis [2021] NSWSC 36, [220].
[25]Clayton v Bant (2020) 385 ALR 41, 49 [34] (Kiefel CJ, Bell and Gageler JJA).
[26]Ibid.
[27]Tomlinson v Ramsey Food Processing Pty Ltd (2015) 256 CLR 507, 517 [22] (French CJ, Bell, Gageler and Keane JJ).
[28]Ibid.
[29]Rogers v The Queen (1994) 181 CLR 251, 275 (Deane and Gaudron JJ); Tomlinson v Ramsey Food Processing Pty Ltd (2015) 256 CLR 507, 517-18 [22] (French CJ, Bell, Gageler and Keane JJ).
For the doctrine of issue estoppel to apply, the requirements are:
(a)the same question has been decided in an earlier proceeding;
(b)the judicial decision, which is said to create the estoppel, was final; and
(c)the parties to the judicial decision or their privies were the same persons as the parties to the proceeding in which the estoppel was raised or their privies.[30]
[30]Carl Zeiss Stiftung v Rayner & Keeler Ltd (No 2) [1967] 1 AC 853, 935 (Lord Guest), quoted with approval in Kuligowski v Metrobus (2004) 220 CLR 363, 373 [21] (Gleeson CJ, McHugh, Gummow, Kirby, Hayne, Callinan and Heydon JJ).
Parties are bound not only to the final conclusion but also to findings made which were necessary to the final conclusion. The classic statement of issue estoppel was made by Dixon J in Blair v Curran, who said:
Nothing but what is legally indispensable to the conclusion is thus finally closed or precluded. In matters of fact the issue-estoppel is confined to those ultimate facts which form the ingredients in the cause of action, that is, the title to the right established. ... But in neither case is the estoppel confined to the final legal conclusion expressed in the judgment, decree or order. … [T]he 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. Matters cardinal to the latter claim or contention cannot be raised if to raise them is necessarily to assert that the former decision was erroneous.[31]
[31](1939) 62 CLR 464, 532.
Issue estoppel will apply only to prevent the assertion in later proceedings of the precise matter of fact or law that has already been necessarily and directly decided in the earlier decision.[32] Issue estoppel will only arise if the determination of the issue was indispensable in the sense that it was so fundamental that the decision cannot stand without it.[33]
[32]Ramsay v Pigram (1968) 118 CLR 271, 276 (Barwick CJ), quoted with approval in Kuligowski v Metrobus (2004) 220 CLR 363, 379 [40] (Gleeson CJ, McHugh, Gummow, Kirby, Hayne, Callinan and Heydon JJ).
[33]Re State of Norway’s Application (No 2) [1990] 1 AC 723, 743 (May LJ), 752 (Balcombe LJ), 771-2 (Woolf LJ) (an appeal to the House of Lords was allowed on different grounds: see [1990] 1 AC 723, 783-812); Murphy v Abi-Saab (1995) 37 NSWLR 280, 288 (Gleeson CJ, with whom Kirby P and Rolfe AJA agreed); K R Handley, Spencer Bower and Handley: Res Judicata (LexisNexis, 2019) 121 [8.24].
Whether a question of fact or law not considered in the earlier proceeding, because it was admitted, assumed or overlooked, would give rise to an issue estoppel or an Anshun estoppel is not so clear.
In Hoysted v Federal Commissioner of Taxation,[34] the Privy Council decided that the Commissioner of Taxation was estopped from denying, in a later proceeding, that the taxpayers did not have the necessary status to claim a deduction, after that fact had been admitted or assumed in an earlier proceeding.
[34](1925) 37 CLR 290 (Lords Shaw, Sumner, Phillimore, Darling and Salvesen) (‘Hoysted’s case’). Also reported as Hoystead v Commissioner of Taxation [1926] AC 155.
In reaching its opinion, the Privy Council adopted and applied the extended principle of issue estoppel,[35] as explained by Wigram V-C in Henderson v Henderson as follows:
I believe I state the rule of the Court correctly when I say that, where a given matter becomes the subject of litigation in, and of adjudication by, a Court of competent jurisdiction, the Court requires the parties to that litigation to bring forward their whole case, and will not (except under special circumstances) permit the same parties to open the same subject of litigation in respect of matter which might have been brought forward as part of the subject in contest, but which was not brought forward, only because they have, from negligence, inadvertence, or even accident, omitted part of their case. The plea of res judicata applies, except in special cases, not only to points upon which the Court was actually required by the parties to form an opinion and pronounce a judgment, but to every point which properly belonged to the subject of litigation, and which the parties, exercising reasonable diligence, might have brought forward at the time.[36]
[35]Hoysted’s case (1925) 37 CLR 290, 303.
[36](1843) 3 Hare 100, 115; 67 ER 313, 319.
In New Brunswick Railway Co v British and French Trust Corporation Ltd, Lord Maugham LC noted that Wigram V-C, in stating the extended principle in Henderson v Henderson, had qualified the rule by the exception of ‘special circumstances’.[37] He quoted with approval (although he said it may have been ‘a little too widely expressed’) the following statement of Willes J in Howlett v Tarte:
[N]obody ever heard of a defendant being precluded from setting up a defence in a second action because he did not avail himself of the opportunity of setting it up in the first action.[38]
[37][1939] AC 1, 21.
[38]Ibid, quoting Howlett v Tarte (1861) 10 CBNS 813, 827; 142 ER 673, 679.
In Carl Zeiss Stiftung v Rayner & Keeler Ltd (No 2),[39] Lord Reid observed that the decision in Hoysted’s case had given rise to some difficulties and said that:
[T]here may well be a difference between a case where an issue was in fact decided in the earlier case and a case where it was not in fact decided because the earlier judgment went by default or was founded on an assumption. Indeed, I think that some confusion has been introduced by applying to issue estoppel without modification rules which have been evolved to deal with cause of action estoppel, such as the oft-quoted passage from the judgment of Wigram V.-C. in Henderson v. Henderson.[40]
[39][1967] 1 AC 853 (Lords Reid, Hodson, Guest, Upjohn and Wilberforce).
[40]Ibid 916 (citations omitted).
Lord Upjohn agreed with Lord Reid and stated:
[T]here may be many reasons why a litigant in the earlier litigation has not pressed or may even for good reason have abandoned a particular issue. It may be most unjust to hold him precluded from raising that issue in subsequent litigation … All estoppels are not odious but must be applied so as to work justice and not injustice and I think the principle of issue estoppel must be applied to the circumstances of the subsequent case with this overriding consideration in mind.[41]
[41]Ibid 947.
In Yat Tung Investment Co Ltd v Dao Heng Bank Ltd,[42] the Privy Council considered that the extended principle in Henderson v Henderson applied when it would be ‘an abuse of process to raise in subsequent proceedings matters which could and therefore should have been litigated in earlier proceedings’.[43] With respect to the application of the extended principle in Henderson v Henderson, it was said:
The shutting out of a ‘subject of litigation’ – a power which no court should exercise but after a scrupulous examination of all the circumstances – is limited to cases where reasonable diligence would have caused a matter to be earlier raised; moreover, although negligence, inadvertence or even accident will not suffice to excuse, nevertheless ‘special circumstances’ are reserved in case justice should be found to require the non-application of the rule.[44]
[42][1975] AC 581 (Lords Morris, Cross and Kilbrandon).
[43]Ibid 590. This abuse of process analysis was specifically rejected in Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589, 601-2 (Gibbs CJ, Mason, and Aickin JJ).
[44]Yat Tung Investment Co Ltd v Dao Heng Bank Ltd [1975] AC 581, 590 (Lords Morris, Cross and Kilbrandon).
In Brisbane City Council v Attorney-General for Queensland,[45] the Privy Council held that the true basis of the extended principle in Henderson v Henderson was the prevention of abuse of process and opined:
[I]t ought only to be applied when the facts are such as to amount to an abuse: otherwise there is a danger of a party being shut out from bringing forward a genuine subject of litigation.[46]
[45][1979] AC 411 (Lords Wilberforce, Hailsham, Russell, Keith and Sir John Pennycuick).
[46]Ibid 425.
In Port of Melbourne Authority v Anshun Pty Ltd,[47] the plurality of the High Court observed that the Privy Council in Hoysted’s case had applied the extended principle in Henderson v Henderson ‘to shut out litigation of an issue which could and should have been litigated in the earlier proceedings.’[48] The plurality also observed that, in Brewer v Brewer, Fullagar J had stated that, in Hoysted’s case, the Commissioner was seeking to raise a point which, although not considered in the first appeal, would, if successful, result in an order in direct conflict with the earlier order.[49]
[47](1981) 147 CLR 589 (Gibbs CJ, Mason, Murphy, Aickin and Brennan JJ) (‘Anshun’s case’).
[48]Ibid 598 (Gibbs CJ, Mason and Aickin JJ). This is inferred from the fact that plurality said that the quoted principle was applied in two of four cited cases, being Hoysted’s case (1925) 37 CLR 290; Yat Tung Investment Co Ltd v Dao Heng Bank Ltd [1975] AC 581; Kok Hoong v Leong Cheong Kweng Mines Ltd [1964] AC 993; Brisbane City Council v Attorney-General for Queensland [1979] AC 411. The principle was only applied in the first two mentioned cases.
[49]Anshun’s case (1981) 147 CLR 589, 603, discussing Brewer v Brewer (1953) 88 CLR 1, 15 (Fullagar J, with whom Dixon CJ agreed).
As the law of Australia since Anshun’s case recognises Anshun estoppel as distinct from issue estoppel, it would appear that it is the principles applicable to Anshun estoppel that should be applied to an issue that is admitted, assumed or overlooked, for the following reasons:
(a)This analysis recognises that there will be cases where it is appropriate for a party not to raise an issue of fact or law in an earlier proceeding. The application of Anshun estoppel in circumstances where an issue is admitted, assumed or overlooked, would mean that a party would only be precluded from raising such an issue in a later proceeding if the Court finds that it was unreasonable for that issue not to have been raised in the earlier proceeding.
(b)In my opinion, for the reasons set out in paragraphs 622 to 64 below, applications for judicial review under the SOP Act (such as the present case) may give rise to circumstances where it is appropriate for a party not to raise an issue. The proposition that issue estoppel should not apply to issues assumed, but not actually litigated, was accepted by the majority of the High Court in Hoysted v Federal Commissioner of Taxation.[50]Knox CJ and Starke J noted that in the United States, an issue estoppel only applied to ‘the point or question actually litigated and determined in the original action’;[51] and quoted with approval the following statement of the Supreme Court of the United States:
[V]arious considerations, other than the actual merits, may govern a party in bringing forward grounds of recovery or defence in one action, which may not exist in another action upon a different demand, such as the smallness of the amount or the value of the property in controversy, the difficulty of obtaining the necessary evidence, the expense of the litigation, and his own situation at the time. A party acting upon considerations like these ought not to be precluded from contesting, in a subsequent action, other demands arising out of the same transaction.[52]
Higgins J, in dissent,[53] held that an issue estoppel would arise if the issue was overlooked or adjudged by consent or confession;[54] but not if it had been simply assumed for the purposes of the earlier case.[55] Interestingly, the majority decided the issue estoppel question on the basis that, at least constructively, the issue of joint ownership had been assumed for the purposes of the earlier case, and stated:
In short, the issue or controversy submitted in fact to the Court was: Assuming that the taxpayers are joint owners, are they holders of original shares within the Land Tax Assessment Act?[56]
(c)The application of Anshun estoppel in cases where an issue is admitted, assumed or overlooked would be consistent with the statement of Edelman J in Clayton v Bant that ‘[a]n issue that has not been considered cannot be the subject of an issue estoppel’.[57]
[50](1921) 29 CLR 537, 553 (Knox CJ and Starke J, Higgins J dissenting). The Privy Council allowed an appeal but, as noted in paragraph 51 above, that was by the application of the extended principle in Henderson v Henderson, now referred to as Anshun estoppel: see Hoysted’s case (1925) 37 CLR 290.
[51]Hoysted v Federal Commissioner of Taxation (1921) 29 CLR 537, 553-4, quoting Cromwell v County of Sac, 94 US 351, 353 (1876).
[52]Hoysted v Federal Commissioner of Taxation (1921) 29 CLR 537, 553, quoting Cromwell v County of Sac, 94 US 351, 356 (1876).
[53]With whom the Privy Council later agreed: see Hoysted’s case (1925) 37 CLR 290, 305.
[54]Hoysted v Federal Commissioner of Taxation (1921) 29 CLR 537, 562.
[55]Ibid 561-2.
[56]Ibid 555.
[57](2020) 385 ALR 41, 63 [84].
Conclusion with respect to issue estoppel
In my opinion, the precise matter of fact or law which was necessarily and directly decided by Robson J, was that the Third Show Cause Notice was not invalid by reason of it being served after Westbourne had already taken the works out of Gemcan’s hands. Adopting the approach of the majority of the High Court in Hoysted v Federal Commissioner of Taxation,[58] the issue or the controversy submitted in fact to the Court was: ‘Assuming that Gemcan had committed a substantial breach of the Contract, was the Third Show Cause Notice invalid by reason of it being served after Westbourne had already taken the works out of Gemcan’s hands?’
[58](1921) 29 CLR 537, 553 (Knox CJ and Starke J).
I make this finding for the following reasons:
(a)As Robson J found, the adjudicator only asserted jurisdiction on the basis that the purported suspension of payments under the Contract was invalid by reason of technical deficiencies in the form and service of the notices.
(b)The adjudicator did not assert jurisdiction on the ground that the purported notices under cl 39.2 were ineffective because Gemcan had not committed a substantial breach of the Contract; and no issue or argument was raised before Robson J on that question.
(c)Accordingly, having found that the adjudicator had erred in finding the basis for his jurisdiction, it was not necessary or appropriate for Robson J to make findings on other matters on which the adjudicator could or could not have founded his jurisdiction. In short, Robson J’s decision to quash the Adjudication Determination was able to stand without reference to other grounds on which the adjudicator could have assumed jurisdiction.
(d)Although Robson J did say that ‘[a]s it is, as a result of the valid third show cause notice, Westbourne did validly take out of Gemcan’s hands the works remaining to be completed’,[59] in the context of the case before him, he was only deciding that the adjudicator erred in finding the Third Show Cause Notice to be invalid on the ground alleged.
(e)In the proceeding before Robson J, neither the fact that:
(i)Westbourne filed an affidavit that exhibited statutory declarations provided to the adjudicator relating to whether there were substantial breaches; or
(ii)Gemcan, in reply submissions, stated that it disputed the allegation of substantial breaches,
necessitated Robson J dealing with that substantive issue. It is plain that he did not deal with the issue which, as demonstrated by the arbitration, would have required detailed evidence and cross-examination of witnesses over many days.
[59]Robson J decision [2017] VSC 645, [114].
Accordingly, I find that the Arbitrator was not precluded, by the doctrine of issue estoppel, from finding that Gemcan was not in substantial breach of the Contract.
Conclusion with respect to Anshun estoppel
I reject Westbourne’s submission that an Anshun estoppel arose from the fact that Gemcan failed to contend before Robson J that the adjudicator had an alternative ground for jurisdiction on the basis that there was no substantial breach of the Contract. It may have been possible for Gemcan to so contend before Robson J;[60] but, in my opinion, it was not unreasonable for Gemcan not to so contend, for the following reasons:
[60]See, eg, Luck v University of Southern Queensland (2018) 265 FCR 304, 308 [14] (Mortimer J).
(a)The provisions of the SOP Act, and in particular s 3, demonstrate that the Act was designed to ensure prompt payment through an adjudication process that would ensure that the cash flow in the construction industry was maintained and that disputes over the amount finally due as between parties to a contract would be finally determined by a court or other agreed dispute resolution procedure at a later time.[61] As Vickery J observed in Hickory Developments Pty Ltd v Schiavello (Vic) Pty Ltd:
[61]See Hickory Developments Pty Ltd v Schiavello (Vic) Pty Ltd (2009) 26 VR 112, 120-1 [42] (Vickery J), discussing and quoting New South Wales, Hansard, Legislative Assembly, 12 November 2002, 6541-4 (Morris Iemma).
The principle that the respondent to a payment claim for a progress payment ‘should pay now and argue later’ is given full effect under the Act. This regime promotes the object of the Act, being to facilitate timely payments between the parties to a construction contract and to provide for the rapid resolution of disputes arising in respect of progress claims under construction contracts.[62]
(b)As was said by the New South Wales Court of Appeal in TFM Epping Land Pty Ltd v Decon Australia Pty Ltd:
The basal purpose of the Act is to create a speedy determination pro tem to ensure that progress claims are dealt with and paid promptly. An essential aspect of that regime is that the rights created under it are enforceable as if there had been a final determination by a court, save only for the fact that they do not create a res judicata or any issue estoppels.
…
True it is, as the Developers submitted, that s 32 of the Act alters the quality of a judgment obtained pursuant to the regime established by the Act in important ways. In particular, s 32 makes it clear that the judgment gives rise to no res judicata or issue estoppels.[63]
(c)To determine whether there had been a substantial breach, it would have been necessary to adopt the ordinary procedures for determining such a question, akin to a full trial, being the exchange of pleadings, discovery, full evidence in admissible form and cross-examination.If the Court was required to undertake such a process, for the purposes of case management, efficiency and costs, it would normally be more appropriate for the Court to deal with the entirety of the disputes arising out of the Contract between the parties once and for all on a final basis. The adoption of such a process would drive the proverbial ‘B-double’ through the legislative scheme.[64]
[62](2009) 26 VR 112, 121 [44] (citations omitted).
[63][2020] NSWCA 118, [78], [82] (Bell P, Macfarlan and Leeming JJA).
[64]Abergeldie Contractors Pty Ltd v Fairfield City Council [2017] NSWCA 113, [47] (Basten JA, with whom Beazley ACJ and Meagher JA agreed) with reference to the prospect of the Court being required to consider when practical completion had been achieved, rather than when an appropriate certificate had been issued.
In Watpac Constructions Pty Ltd v Collins & Graham Mechanical Pty Ltd, I doubted whether, on an application under the SOP Act, a court should allow a challenge to an adjudicator’s finding of jurisdiction based on a party’s repudiation of a construction contract, and stated:
If a party does apply to conduct a fully blown trial in a future application under [the SOP] Act, it may be necessary for the Court to consider whether, in exercising its residuary discretion in a judicial review proceeding, it should refuse such an application.[65]
[65][2020] VSC 414, [44]. See also Saath Pty Ltd v Seascape Constructions Pty Ltd [2021] VSC 358, [115] (Stynes J).
The fact that certiorari is a discretionary remedy is well established.[66] Of course, although each application would need to be considered on its merits, in my opinion, the fact that a challenge to jurisdiction would effectively defeat the purpose of the SOP Act in the manner described above, would be a powerful consideration for the Court to take into account in the exercise of its discretion.
[66]See Re McBain; Ex parte Australian Catholic Bishops Conference (2002) 209 CLR 372, 394 [21] (Gleeson CJ), 410 [80] (Gaudron and Gummow JJ), 415-23 [95]-[112] (McHugh J), 454-5 [224] (Kirby J), 465-6 [260]-[265] (Hayne J). I note that McHugh J rejected the proposition, as stated in Yirrell v Yirrell (1939) 62 CLR 287, 301 (Latham CJ), 304 (Rich J), 309 (Starke J), 313 (McTiernan J), that the Court has no discretion if the lack of jurisdiction appeared on the face of the record: at 415-16 [95]. See also Victoria Legal Aid v County Court of Victoria (2004) 9 VR 686, 691 [9] (Chernov JA, with whom Warren CJ and Dodds-Streeton AJA agreed); Mark Aronson, Matthew Groves and Greg Weeks, Judicial Review of Administrative Action and Government Liability (Thomson Reuters, 6th ed, 2017) 1018-20 [17.50].
Accordingly, I find that the Arbitrator was not precluded, by the doctrine of Anshun estoppel, from finding that Gemcan was not in substantial breach of the Contract.
Effect of s 47 of the SOP Act
Submissions
Westbourne’s submissions
Westbourne submitted that s 47(2) of the SOP Act did not apply to Robson J’s decision because an application for judicial review is not something ‘done under or for the purposes of’ pt 3 of the SOP Act, for the following reasons:
(a)The power to seek judicial review does not arise under the SOP Act but is an exercise of the Court’s supervisory jurisdiction over exercises of public power. The purported determination under the SOP Act merely provides the subject matter for the exercise of the Court’s power.
(b)There is no reason why a determination as to a jurisdictional fact by a court on an application to review an adjudication should not have finality on that issue in subsequent proceedings.
Gemcan’s submissions
Gemcan submitted that an application for judicial review is something ‘done under or for the purposes of’ pt 3 of the SOP Act, for the following reasons:
(a)A judicial review proceeding must be considered in the context in which it is made, being an application for judicial review of an adjudication determination made under the SOP Act.
(b)The courts have consistently recognised the demarcation between the interim statutory rights determined by the SOP Act and the final rights of parties.
Conclusion
In Façade Designs International Pty Ltd v Yuanda Pty Ltd, I observed with concern that a final determination on a judicial review of an adjudication determination, after a trial on the merits, ‘may well give rise to an issue estoppel’.[67]
[67][2020] VSC 570, [55](f).
As I have found that no estoppel arises in this case, I do not consider it necessary or appropriate to determine whether s 47(2) of the SOP Act prevents an estoppel arising on an application for judicial review of an adjudication determination.
Does such error mean that the Award is in conflict with, or contrary to, the public policy of this State?
In the event that I am wrong in concluding that the Arbitrator was not in error in finding no estoppel, I propose to consider the question of whether such an error would result in the Award being in conflict with, or contrary to, the public policy of this State.
Submissions
Westbourne’s submissions
Westbourne accepted the general proposition that the public policy ground is to be construed narrowly; but contended that a contravention of res judicata or issue estoppel nevertheless falls within the public policy ground for the following reasons:
(a)There is no international consensus on the question. In particular, in the ‘ILA Final Report on Res Judicata and Arbitration’, the authors stated:
If a party raises res judicata in the further arbitration, but is overruled by the arbitral tribunal, it will be up to the reviewing domestic court to assess whether this amounts to one of the grounds for setting aside or for refusal of enforcement under the rules applicable in that court.[68]
Accordingly, it is open for the Court to, and the Court should, treat the failure of an award to apply res judicata or issue estoppel arising from an earlier judgment of the Court, as a matter engaging the public policy ground.
(b)Res judicata and issue estoppel are founded in Australia on principles of public policy. Both doctrines embody fundamental conceptions of justice under Australian law, enlivened by both the public interest in ‘finality’ of disputes and ‘fairness’ to litigants in protecting litigants from re-litigation of decided issues. Accordingly, to the extent that ILA reports have expressed doubts about the universality of the public policy underpinnings of res judicata, those doubts do not apply in the Australian context.
(c)The working papers to the New York Convention make plain that the public policy ground was intended to incorporate a res judicata challenge. Although a clause, which specifically provided for a failure to apply principles of res judicata or issue estoppel as a ground for setting aside an award, was not included in the article approved at the New York Convention, it was withdrawn on the basis that it was encapsulated within the public policy ground. The minutes noted:
Mr. MATTEUCCI (Italy) observed that in the Working Party he had withdrawn his proposal to the effect that recognition and enforcement of an arbitral award might also be refused if the competent authority in the country where recognition and enforcement were sought considered that the arbitral award was incompatible with a judgement applying to the same parties and the same subject matter rendered in the territory of the State where the sentence was relied upon, on the understanding that it was covered by the term ‘public policy’ in sub-paragraph (b).[69]
(d)The weight of international authorities favours treating the contravention of res judicata as a matter that falls within the public policy exception. Westbourne relied upon decisions from the courts of China,[70] India,[71] Russia,[72] and Switzerland,[73] in support of the proposition that a failure to apply principles of res judicata has resulted in awards being set aside on the public policy ground.
[68]Filip De Ly and Audley Sheppard, ‘ILA Final Report on Res Judicata and Arbitration’ (2009) 25(1) Arbitration International 67, 82.
[69]Summary Record of the 17th Meeting, UN ESCOR, UN Doc E/CONF.26/SR.17 (12 September 1958) 15.
[70]Cited by Westbourne as: Intermediate People’s Court of Shangdong Province, Jinan, 27 June 2008 (Hemofarm DD, et al. v. Jinan Yongning Pharmaceutical Co. Ltd) YB Comm Arb XXXIV (2009); Intermediate People’s Court, Taizhou City, 2 June 2016 (Wicor Holding v. Taizhou Haopu Investment Co., Ltd.) YB Comm Arb XLII (2017).
[71]Cited by Westbourne as: K.C. Mehra V. Satish Mehra & Ors. Omp 167/1999 [2009] INDLHC 2412.
[72]Cited by Westbourne as: Federal Arbitrazh Court, Urals District, 12 October 2005 (O & Y Investments Ltd. v. OAO Bummash) Yearbook XXXIII (2008); Judgment of 27 August 2012, Ciments Francais v. OAO Holding Co. Siberian Cement, Case No. VAS - 17458/11 (Highest Arbitrazh Court of the Russian Federation) [CLOUT case 1407]; Arbitrazh Court, Moscow District, 11 December 2015 (Core Carbon Group ApS v. Rosgazificazia OJSC) Yearbook XLI (2016).
[73]Cited by Westbourne as: Docket No. 4A 633/2014 (29 May 2015).
Gemcan’s submissions
Gemcan submitted that, even if an issue estoppel did arise, it does not give rise to the public policy ground contemplated by ss 34(2)(b)(ii) or 36(1)(b)(ii) of the Act, for the following reasons:
(a)The limited role of curial intervention in arbitral proceedings, as enshrined in s 5 of the Act, is well established and courts have actively discouraged dissatisfied parties to arbitrations from attempting to manufacture pathways to court.
(b)With respect to s 34 of the Act, the explanatory memorandum to the Commercial Arbitration Bill 2011 (Vic) states:
Section 19 of the Commonwealth Act declares that, for the purposes of the application of the Model Law by that Act, an award is in conflict with public policy if the making of the award was induced or affected by fraud or corruption or a breach of the rules of natural justice occurred in connection with the making of the award.[74]
The italicised wording does not naturally encompass the type of complaint being alleged here.
(c)Australian authorities are to the effect that the public policy ground under ss 34 and 36 of the Act should be given a narrow meaning and require the demonstration of real practical injustice or real unfairness in the conduct of the reference or in the making of the award.
[74]Emphasis added by Gemcan.
Principles of public policy
In TCL Air Conditioner (Zhongshan) Co Ltd v Judges of the Federal Court of Australia, Hayne, Crennan, Kiefel and Bell JJ observed:
It is the consensual foundation of arbitration which underpins the general rule, settled since the middle of the nineteenth century, that an award is final and conclusive and cannot be challenged either at law or in equity on the ground that the arbitrator has committed an error of fact or of law.[75]
[75](2013) 251 CLR 533, 568 [81].
The policy of minimum curial intervention in arbitral proceedings is recognised in art 5 of the Model Law (s 5 of the Act) and numerous statements of the highest authority. As Sundaresh Menon CJ delivering the judgment of the Singapore Court of Appeal said in AKN v ALC:
A critical foundational principle in arbitration is that the parties choose their adjudicators. Central to this is the notion of party autonomy. Just as the parties enjoy many of the benefits of party autonomy, so too must they accept the consequences of the choices they have made. The courts do not and must not interfere in the merits of an arbitral award and, in the process, bail out parties who have made choices that they might come to regret, or offer them a second chance to canvass the merits of their respective cases. This important proscription is reflected in the policy of minimal curial intervention in arbitral proceedings, a mainstay of the Model Law and the [International Arbitration Act, cap 143A, 2002 rev ed].[76]
[76][2015] SGCA 18, [37].
However, this policy is subject to ss 34 and 36 of the Act, which provide that the Court may set aside an award or refuse to enforce an award if (among other things) respectively the award is in conflict with, or would be contrary to, the public policy of this State.
In TCL Air Conditioner (Zhongshan) Co Ltd v Castel Electronics Pty Ltd, the Full Federal Court conducted a comprehensive review of the public policy ground under arts 34(2)(b)(ii) and 36(1)(b)(ii) of the Model Law.[77]
[77](2014) 232 FCR 361 (Allsop CJ, Middleton and Foster JJ) (‘TCL Air Conditioner’).
The Full Court concluded that public policy should be construed narrowly, such that it was ‘limited to the fundamental principles of justice and morality’.[78] As a result, the Court would only exercise the powers under arts 34(2)(b)(ii) and 36(1)(b)(ii), if satisfied that there was ‘real practical injustice or real unfairness in the conduct of the reference or in the making of the award’.[79]
[78]Ibid 383-4 [74]-[76].
[79]Ibid 394 [111].
The Full Court quoted with approval the statements of Bokhary PJ in Hebei Import & Export Corporation v Polytek Engineering Company Ltd:
In my view, there must be compelling reasons before enforcement of a Convention award can be refused on public policy grounds. This is not to say that the reasons must be so extreme that the award falls to be cursed by bell, book and candle. But the reasons must go beyond the minimum which would justify setting aside a domestic judgment or award. …
Before a Convention jurisdiction can, in keeping with its being a party to the Convention, refuse enforcement of a Convention award on public policy grounds, the award must be so fundamentally offensive to that jurisdiction’s notions of justice that, despite its being a party to the Convention, it cannot reasonably be expected to overlook the objection.[80]
[80]Ibid 385-6 [79], quoting Hebei Import & Export Corporation v Polytek Engineering Co Ltd (1999) 2 HKCFAR 111, 122-3 (Bokhary PJ).
Conclusion
Westbourne’s submission that the doctrines of res judicata and issue estoppel are founded on the twin policies of ensuring finality in litigation and fairness to litigants may be accepted. However, I reject the contention that, as a consequence, the failure by an arbitrator to apply the doctrine of res judicata or issue estoppel would per se render the award in conflict with the public policy of this State. Similarly, in TCL Air Conditioner, the Full Court accepted that ‘[t]he rules of natural justice are part of Australian public policy’;[81] but rejected the contention that minor or technical breaches of the rules of natural justice would suffice for the setting aside or non-recognition or non-enforcement of an international commercial arbitration award unless the award would result in ‘real unfairness or real practical injustice’.[82]
[81]TCL Air Conditioner (2014) 232 FCR 361, 394 [111].
[82]Ibid 403 [153].
Counsel for Westbourne took the Court to numerous international authorities in which courts have considered whether an erroneous application of the principles of res judicata or issue estoppel caused an award to be in conflict with the public policy of that state. In my opinion, these cases are fact specific and demonstrate that, although an erroneous application of the doctrine of res judicata or issue estoppel may form the basis for the setting aside of or refusal to enforce an award, it will only be if real unfairness or real practical injustice is suffered as a result.
Reference to one such international case demonstrates the point. In K. C. Mehra v Satish Mehra,[83] the New Delhi High Court considered an application to set aside an arbitral award under art 34 of the Model Law (being s 34 of the Arbitration and Conciliation Act 1996 (India)). The facts were as follows:
(a)The petitioner and the respondents had resolved a dispute over the partition of certain property; and the Court had entered a compromised decree.
(b)Subsequently, an arbitral award was registered which was adverse to the interests of the petitioner.
(c)The petitioner was given no notice of any hearings.
(d)The arbitrator had a personal interest in the subject matter.
(e)The award derogated from the compromise decree passed by the Court.
[83](Unreported, High Court of Delhi, Vipin Sanghi J, 1 July 2009).
Unsurprisingly in that case, the Court set aside the award on a number of grounds including that ‘[t]he award … is clearly opposed to the Public Policy of India which is to uphold the sanctity of a decree passed by a Court of competent jurisdiction inter parties’.[84] In such circumstances, it can be readily accepted that the effect of enforcing the award would have resulted in real unfairness or real practical injustice.
[84]Ibid [35].
In my opinion, if the decision of Robson J did give rise to an estoppel, the enforcement of the Award would not give rise to any real unfairness or real practical injustice, for the following reasons:
(a)The issue of whether Gemcan had committed a serious breach of the Contract was never considered, nor determined, by the Court. At its highest, the issue was assumed for the purposes of the hearing before Robson J.
(b)The Adjudication Determination was never intended to finalise the rights between the parties. Under the Contract, the parties had agreed that disputes would be finally resolved by arbitration.
(c)For the reasons set out in paragraphs 62 to 64 above, in many instances there are good reasons why parties should be discouraged from raising disputes, which would require protracted proceedings, in the judicial review of an adjudication determination under the SOP Act.
Accordingly, if contrary to my finding, the Arbitrator was precluded by the doctrine of issue or Anshun estoppel from finding that Gemcan was not in substantial breach of the Contract, the Award nonetheless does not conflict with the public policy of this State.
Orders
I propose to order as follows:
(a)In proceeding S ECI 2021 03220:
(i)Pursuant to s 35 of the Act, the Award be enforced.
(ii)Westbourne pay Gemcan’s costs, to be assessed on a standard basis in default of agreement.
(b)In proceeding S ECI 2021 03523:
(i)The originating application filed 29 September 2021 be dismissed.
(ii)Westbourne pay Gemcan’s costs, to be assessed on a standard basis in default of agreement.
I will hear the parties on the form of final orders.
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