Maddocks’ Construction and Projects team acted for Gemcan Constructions Pty Ltd (Gemcan) in recent Supreme Court proceedings in which Gemcan was successful in:

• resisting an application by Westbourne Grammar School (WGS) to set aside an arbitral award made in Gemcan’s favour (Award); and
• obtaining orders for the enforcement of that Award.

In Gemcan Constructions Pty Ltd v Westbourne Grammar School [2022] VSC 6 (Enforcement Proceedings), the Court considered the circumstances in which an issue estoppel may arise from a judicial review of an adjudicator’s determination under the Building and Construction Industry Security of Payment Act (2002) VIC (SOP Act) and made some important observations about the circumstances in which failure by an arbitrator properly to apply an issue estoppel might render an arbitral award in conflict with the public policy of the State.

“Issue estoppel” is a long-established principle of law which prevents a party to a proceeding attempting to relitigate an issue of fact or law previously determined in legal proceedings. An Anshun estoppel is a form of issue estoppel which operates to prevent a party from bringing a claim in proceedings which should have been (but was not) brought in earlier proceedings.

Background

Gemcan and WGS were parties to a building contract under which Gemcan undertook refurbishment works at WGS' Williamstown campus (the Contract). In 2017, Gemcan obtained an adjudication determination in its favour in respect of a payment claim under the SOP Act (the Determination). WGS sought judicial review of the Determination in the Supreme Court of Victoria and was successful in having the Determination quashed (Judicial Review Proceeding).^[1] In the Judicial Review Proceeding, His Honour Robson J held that the Adjudicator had committed jurisdictional error in finding that a notice from WGS purporting to take works remaining to be performed under the Contract out of the hands of Gemcan (the Take Out Notice) was invalid because it had not been validly served on the Builder.

The Arbitration

In subsequent proceedings between the parties in 2020,^[2] the Supreme Court made orders that the Contract contained a valid arbitration agreement and for the appointment of an arbitrator pursuant to section 11 of the CAA, following which Gemcan commenced arbitration proceedings against WGS.

One of the arguments raised by Gemcan in the arbitration was that the Take Out Notice was invalid on the basis that Gemcan was not in substantial breach under the Contract. WGS argued that Gemcan was precluded from making that argument (“estopped”) because the validity of the Take Out Notice had already been determined by Robson J in the Judicial Review Proceeding.

An award was made in the Arbitration in favour of Gemcan on 20 July 2021 (the Award). In the course of determining Gemcan’s entitlement in the Award, the Arbitrator concluded that the decision of Robson J in the Judicial Review Proceeding was limited to considering whether the Adjudicator had erred in determining that the Take Out Notice had been validly served, and that Gemcan was not estopped from arguing in the Arbitration that the Notice was otherwise invalid on the basis that it was not in substantial breach of the Contract. The Arbitrator went on to find that WGS was not in substantial breach of its obligations under the Contract as a consequence of which the Take Out Notice was invalid in substance and that WGS had not, therefore, validly taken the work out of Gemcan’s hands.

Enforcement proceedings

In the Enforcement Proceedings, the Court considered an application by Gemcan for enforcement of the Award and an application by WGS to have the Award set aside on the basis that it was in conflict with the public policy of the State. This conflict was said to arise from the fact that, as a result of the Judicial Review Proceeding, the Arbitrator was estopped from finding that Gemcan was not in substantial breach of contract. WGS argued that the principles of res judicata and issue estoppel are fundamental principles of Australian law as a consequence of which a failure to give effect to those principles would offend against the public policy of the State.

The Enforcement Proceeding was heard by his Honour Justice Riordan. Two main issues arose for the Court to consider:

• whether an issue estoppel had in fact arisen (or, alternatively, an Anshun estoppel)
• if so, whether the Award should be set aside because the failure by the Arbitrator to apply the issue estoppel or Anshun estoppel rendered it contrary to the public policy of the State.

Issue 1: the doctrines of issue and Anshun estoppel

Justice Riordan concluded that the issue considered by Robson J in the Judicial Review Proceeding was whether the Notice was invalid because it was served after the Principal had already taken the works out of the Builder’s hands and that Robson J’s determination that the adjudicator had erred in finding that the Take Out Notice invalid was made solely in respect of the procedural requirements for service of the Take Out Notice. It followed that Robson J did not make any finding in relation to the substantive content of the Take Out Notice – specifically, whether Gemcan was in substantial breach of the Contract. In the circumstances, Justice Riordan found that no issue estoppel had arisen so as to preclude the Arbitrator from finding that Gemcan was not in substantial breach of the Contract and that the Take Out Notice was therefore invalid.^[3]

Justice Riordan also found that an Anshun estoppel did not arise because Gemcan’s failure to contend before Justice Robson in the Judicial Review Proceeding that there was no substantial breach of contract entitling WGS to issue the Take Out Notice was not unreasonable. To find otherwise would be contrary to the objectives of the SOP Act, which is designed to ensure prompt payment and cashflow through a quick adjudication process, subject to final determination of disputes at a later time. Requiring parties to raise complex substantive matters during adjudication or on judicial review of an adjudication determination would defeat the purpose of the legislative scheme.^[4]

Issue 2: public policy exception to enforcement of arbitral awards

Despite finding that an estoppel did not arise, Riordan J went on to consider whether an error by the Arbitrator in finding no estoppel could result in the Award being in conflict with the public policy of the State.

Noting that the public policy exception is to be construed narrowly, and otherwise having regard to the approach of minimum curial intervention in arbitral proceedings enshrined in the Act, Riordan J nonetheless found that a failure by an arbitrator to apply an issue estoppel was capable of engaging the public policy ground but that, applying the principles enunciated in TCL Air Conditioner (Zhongshan) Co Ltd v Castel Electronics Pty Ltd,^[5] that ground would not be engaged unless there had been a real practical injustice or real unfairness in the conduct of the reference or in the making of the Award.

His Honour concluded that, on the facts of this case, even if he had found the Arbitrator was in error, there had been no real practical injustice or unfairness because the issue of whether Gemcan had committed a substantial breach of the Contract had not been considered or determined by Robson J. His Honour also had regard to the context of the Judicial Review Proceeding, noting that a determination under the SOP Act does not finalise the rights between the parties, and it had been agreed under the Contract that disputes would be finally resolved by Arbitration. Notably, his Honour observed that ‘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.'^[6]

Key takeaways

An error by an Arbitrator to apply an issue estoppel in an award may give rise to a claim pursuant to sections 34(2)(b)(ii) or 36(1)(b)(ii) that the award be set aside or is unenforceable on the basis that it is in conflict with the public policy of this State. In determining such a claim the Court will have regard to the facts of the case to establish whether there has been real unfairness or practical injustice, such that the Award should be set aside or be found to be unenforceable.

Where the earlier proceeding was a judicial review of an adjudicator’s determination under the SOP Act, it is unlikely a Court will find there has been real unfairness and practical injustice. A determination under the SOP Act does not finalise the rights between the parties, and in most cases the parties will have agreed a final dispute resolution mechanism under the relevant building contract.

The Court has also recognised that there are good reasons why parties should be discouraged from raising disputes requiring lengthy hearings, evidence and cross-examination, in a judicial review of an adjudication determination under the SOP Act. Requiring parties to litigate whole substantive matters within a judicial review proceeding so as to avoid a potential issue estoppel arising would defeat the purpose of the SOP scheme.

^{[1] Westbourne Grammar School v Gemcan Constructions Pty Ltd [2017] VSC 645
[2] Gemcan Constructions Pty Ltd v Westbourne Grammar School [2020] VSC 429
[3] Gemcan Constructions Pty Ltd v Westbourne Grammar School (Enforcement of Arbitral Award) [2022] VSC 6 at [59]-[61].
[4] Gemcan Constructions Pty Ltd v Westbourne Grammar School (Enforcement of Arbitral Award) [2022] VSC 6 at [62]-[65].
[5] (2014) 232 FCR 361 at 394 [111].
[6] Gemcan Constructions Pty Ltd v Westbourne Grammar School (Enforcement of Arbitral Award) [2022] VSC 6 at [79]-[84].}