No Estoppel by Prior Judicial Review of SOPA Arbitration

Where final judgment is entered in a proceeding, a party to that proceeding may be barred from initiating subsequent proceedings against the other party or from raising a question of fact or law in subsequent proceedings against the other related party to the definitively determined procedure. problems.

However, in Gemcan Construction Pty Ltd v Westbourne Grammar School (Enforcement of arbitration award) [2022] CSV 6 (the Gemcan case), the Supreme Court of Victoria held that an arbitrator was not precluded from ruling on a matter of material breach, in circumstances where the validity of a notice of withdrawal alleging material breach had been considered in the context of a ‘a prior judicial review of a decision made under the Security of Payments in the Building and Construction Industry Act 2002 (vic) (the SOP law).

Background

In July 2016, Gemcan Construction Pty Ltd (Gemcan) and Westbourne Grammar School (Westbourne) entered into an employment contract on the Newport campus for approximately $1.7 million (the contract).

Between February and April 2017, Westbourne purported to serve three show cause notices on Gemcan. Each of the show cause notices alleged that Gemcan was in material breach of contract. On each occasion, he also subsequently sent a notice to Gemcan with the intention of removing all remaining work from Gemcan’s hands. In response, Gemcan claimed that the show cause notices were invalid and when Westbourne alleged that Gemcan was trespassing, Gemcan demobilized and claimed to accept Westbourne’s repudiation.

In May 2017, Gemcan submitted a payment request to Westbourne claiming approximately $430,000. Westbourne responded with a “nil” payment schedule. Gemcan filed for arbitration under the SOP Act and the arbitrator determined that Westbourne should pay Gemcan approximately $241,000 (the arbitration decision).

Westbourne sought judicial review of the arbitration decision in the Supreme Court of Victoria. Robson J discovered (among other things) that Westbourne’s third cause and effect opinion (the third show cause notice), alleging material breach by Gemcan, was valid. This meant that there was no record date for Gemcan’s demand for payment and the arbitration decision was made without jurisdiction and was overturned.

In October 2019, Gemcan served a Notice of Dispute on Westbourne claiming approximately $486,000 and referred the dispute to arbitration under the contract (which Westbourne unsuccessfully challenged in the Supreme Court of Victoria). The arbitrator found (among other things) that it was not time-barred from rendering a decision on the issue of material breach by Gemcan. The arbitrator determined that Gemcan had made no material breach of contract and awarded Gemcan approximately $318,000 plus interest (the arbitration award).

Westbourne appealed to the Supreme Court of Victoria (the tribunal) for an order setting aside the arbitral award pursuant to Article 34 of the Commercial Arbitration Act 2011 (vic) (commercial arbitration law) on the grounds that it was contrary to the public order of the State. Westbourne argued that the dispute arose because Judge Robson’s ruling on the arbitration award meant the arbitrator was estopped from finding that Gemcan was not in material breach of contract.

Gemcan separately asked the Court to order enforcement of the arbitration award. The Court heard and decided both motions together.

Estoppel by judgment

When a final judgment has been rendered, four finality rules may apply to subsequent proceedings between the same parties:

  1. Res Judicata, which merged (and therefore extinguishes) any right or obligation which is the subject of the judgment, which means that the plaintiff’s only right is to enforce the judgment or order;
  2. Cause of action estoppel, which prevents a party from asserting a right or obligation the existence (or non-existence) of which has been determined by judgment in the proceeding ultimately determined;
  3. Issue estoppel, which prevents a party from raising a final question of fact or law, which has been resolved in the final judgment; and
  4. Anshun estoppel, which prevents a party from raising a question of fact or law in a subsequent proceeding, where it was unreasonable for that party not to have raised that question of fact or law in the proceeding finally determined.

Supreme Court of Victoria decision

In the Gemcan case, the Court considered:

  • whether by effect of issue estoppel or Anshun estoppel, the arbitrator was unable to conclude that Gemcan was not in material breach of contract; and
  • if the answer to (a) was that an estoppel operated, did the arbitrator’s error mean that the arbitral award was in conflict with, or contrary to, the public policy of the State?

Issue the estoppel

The Court determined that no issue of estoppel arose from Justice Robson’s decision. In reaching this decision, the Court adopted the approach taken by the High Court of Australia in Hoysted v Federal Commissioner of Taxes (1921) 29 CLR 537, at 553 to determine that the question posed (and decided by Robson J) was Assuming Gemcan has committed a material breach of contract, Was the third show cause invalid because it was served after Westbourne had already removed the work from Gemcan? » (emphasis added).

The Court observed that since the arbitrator had determined that the show cause notices given by Westbourne were invalid for technical reasons (rather than lack of material breach on the part of Gemcan), it was neither necessary nor appropriate for Robson J is considering whether Gemcan committed a material breach of contract in the judicial review of the arbitration award. The Court also observed that none of the material before Judge Robson on judicial review required the judge to consider the issue of material breach by Gemcan and that neither party raised any issue or argument regarding that question.

Anshun Estoppel

The Court concluded that no Anshun the estoppel arose because it was not unreasonable for Gemcan to avoid arguing during judicial review that the show cause notices were invalid on the basis that there was no material breach of contract on its part .

The Court observed that the purpose of the SOP Act is to ensure prompt “pay now and chat later” approach through the adjudication process and that disputes over the amounts ultimately due would be resolved later by a court or other agreed dispute resolution procedure. The Court observed that the extent of interlocutory steps required to resolve the issue of substantial breach by Gemcan would be similar to those required for a full trial (rather than judicial review) and “driving the proverbial ‘B-double’ through the legislative scheme” established by the SOP law.

Conflict with public order

To cover the possibility that its findings on estoppel were erroneous, the Court also considered whether an arbitrator’s error on estoppel could lead to a conflict between the arbitral award and public policy. The Court held that there was no conflict. In arriving at this decision, the Court considered TCL Air Conditioner (Zhongshan) Co Ltd v Federal Court of Australia Judges (2013) 251 CLR 533, in which the Federal Court of Australia held that public order should be interpreted narrowly, such that it was “limited to fundamental principles of justice and morality” which meant that a court would only exercise its power with respect to an arbitral award if there was “real practical injustice or real injustice…”.

Impact of the Gemcan affair

The Gemcan case sheds light on the principle of finality (in particular, issue estoppel and Anshun estoppel) in circumstances where proceedings are instituted as a result of judicial review of a decision made under the SOP Act.

It is now clear that a party cannot be prevented from raising a substantive question of fact or law in subsequent proceedings, where that question was not explicitly dealt with (or could not be properly dealt with) in as part of a prior judicial review of an SOP Law Arbitration Determination.

Going forward, parties at all levels of the procurement chain will need to consciously consider the issues of fact and law raised in an application for judicial review under the SOP Act, for strategic reasons. . The introduction or limitation of questions of fact and law may affect the available scope of subsequent proceedings due to questions of estoppel.