Cockatoo Dockyard v Commonwealth of Australia

Supreme Court of NSW|2004-12-16|Before: McDougall J, Dougall J

CITATION : Cockatoo Dockyard v Commonwealth of Australia [No 2] [2005] NSWSC 11

CATCHWORDS : ESTOPPEL - where interim and final arbitral awards delivered - issue estoppel - whether Commonwealth estopped from arguing that items of cost should not be taken into overhead concluded in interim award - res judicata - Anshun estoppel - relationship between res judicata and issue estoppel - whether Commonwealth estopped from raising a defence in later proceedings that could be expected to have been raised in arbitral proceedings - confession and avoidance - whether Commonwealth estopped in later proceedings from raising a defence by way of confession and avoidance that could have been, but was not, raised in arbitral proceedings

Henderson v Henderson (1843) 3 Hare 100 (67 ER 313) Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589 CASES CITED : Arnold v National Westminster Bank plc [1991] 2 AC 93 Humphries v Humphries [1910] 2 KB 531 Cooke v Rickman [1911] 2 KB 1125

Cockatoo Dockyard Pty Limited (Plaintiff) PARTIES : Commonwealth of Australia (Defendant)

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

Allens Arthur Robinson (Plaintiff) SOLICITORS : Australian Government Solicitor (Defendant)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION COMMERCIAL LIST

50165/01 COCKATOO DOCKYARD PTY LIMITED v COMMONWEALTH OF AUSTRALIA [No 2] JUDGMENT

1 On 17 September 2004, I gave reasons for judgment dealing with a number of preliminary issues: [2004] NSWSC 841. One of those (issue 1) asked whether the Commonwealth was barred, by an issue estoppel arising from an award in earlier arbitration proceedings between it and Codock, from denying that it was obliged to reimburse to Codock certain expenses. I answered that question "no", but pointed out that there were particular issues that the Commonwealth could not maintain by way of defence (para [166], which in turn referred to paras [57] and [62]). 2 As the result of an order that I had made pursuant to Pt 31 r 2, there are a number of other issues that require to be determined. Codock wished to argue that some of those remaining issues likewise raised questions of estoppel. I therefore heard argument on that point. In these reasons, I deal with the application of the doctrine of issue estoppel to those issues. Issue 3(b) 3 This issue (slightly paraphrased) asks:

(3)(b) Is Codock not entitled to reimbursement of the costs in question (Costs) on the ground that such costs are: (i) Not costs which can be charged to the TAL in accordance with sound accounting principles, pursuant to cl 1.16(a) of the 1984 Standard Conditions; or (ii) Not costs associated with the TAL in accordance with cls 4.49 and 4.51 of those Standard Conditions? 4 Codock's submissions in relation to issue 3(b)(i) were based upon what it perceived to be the Commonwealth's argument on the application of "sound accounting principles". That perception was derived from a report prepared by Mr Paul Carter, a chartered accountant and partner in PricewaterhouseCoopers, who had made a report for the Commonwealth dated 13 May 2004. (I should make it plain that, although the report has been prepared and served, verified by an affidavit that Mr Carter has sworn and that has also been served, the Commonwealth had not read the affidavit or tendered the report.) 5 In para 12 of his report, Mr Carter said that he had been asked "to consider, from an accounting point of view, whether certain costs incurred by Codock in respect of personal injury claims made against it [could] be considered to be part of the overhead of the Dockyard, and therefore whether they should be included within the calculation of the overhead rate and included within the contract cost payable by the Commonwealth under the cost plus arrangements." 6 In para 14, Mr Carter said that the costs in question would satisfy the definition of an indirect expense if they had been incurred, and if they satisfied the accounting recognition criteria for the recognition of expenses, and if they were not specifically excluded by the Standard Conditions. He said that, for accounting purposes, recognition of the expense should occur on one of two bases. For current claims, recognition should occur at the time the claim is made and once its cost can be reliably measured. For future claims, recognition should occur at the time that it is considered probable that the claim will arise and would succeed and when its cost could be reliably measured. 7 Thus, Mr Carter said in para 15, a cost would be part of overhead and included within the contract cost payable by the Commonwealth if, among other things, recognition of the cost occurred during the period of the agreement between Codock and the Commonwealth. 8 It followed, Mr Carter said among other things in para 16, that costs incurred after 31 December 1992 that were not recognised in the accounts of Codock before that date were not part of overhead, and were not chargeable to the Commonwealth on sound accounting principles under the 1972 Trading Agreement and Lease. 9 Codock submitted that this argument was not one that was available having regard to paras [56] to [61] of my earlier reasons. I there said that it was essential to the arbitrator's decision, in relating to costs incurred after 31 December 1992, that Codock retained its right of indemnity notwithstanding the expiry, by effluxion of time on that date, of the 1972 Trading Agreement and Lease. That determination was fundamental to at least two aspects of the award and has not been reversed, set aside or varied. I therefore concluded that the Commonwealth was estopped from arguing, in these proceedings, that its obligation to indemnify Codock did not extend to costs incurred after 31 December 1992. (With the benefit of hindsight, and of Mr Carter's report, I should perhaps add "and that were not recognised in the accounts of Codock prior to that date".) 10 It seems to me that, if the Commonwealth does intend to put its case on this issue in the manner suggested by Mr Carter's report, then there may be very real obstacles in its path. That, however, would mean either that the report (or the relevant paragraphs of it) would be rejected, or that the claim would be rejected notwithstanding Mr Carter's views on the appropriate accounting principles and their application. 11 Nonetheless, I do not think that this is a basis for holding that the Commonwealth is estopped from arguing that there are items of cost that, in accordance with sound accounting principles, should not be taken into overhead. At most, it is a basis for saying that some of those arguments may fail. But it cannot be said that the Commonwealth is unable to raise any argument in relation to any particular item of cost based on any application of what it contends are sound accounting principles. 12 I therefore conclude that the Commonwealth is not in principle estopped from arguing issue 3(b)(i). Whether it is estopped from pursuing particular arguments under that issue is a matter to be determined at final hearing. Indeed, I think, in submissions in reply Mr T G R Parker of Counsel (who appeared with Mr B F Katekar of Counsel for Codock) effectively conceded as much. 13 Codock's position in relation to issue 3(b)(ii) was excited by certain particulars furnished by the Commonwealth. However, Mr Parker conceded in submissions in reply that the issue was grounded in para 34(b) of the Commonwealth's defence to Codock's second further amended summons. In those circumstances, he did not press for a determination as to issue 3(b)(ii) and I do not need to pursue the point. Issue 3(h) 14 This issue (slightly paraphrased) asks:

Is Codock not entitled to reimbursement of Costs to the extent that (the Commonwealth contends) the risk of such Costs was carried by Codock because insurance premiums against the risks of personal injury claims were reimbursed by the Commonwealth? 15 The Commonwealth's argument is based on certain clauses of the 1984 Standard Conditions that deal with the acceptance into overhead of certain kinds of insurance premium. The Commonwealth wishes to argue that, where those premiums were accepted into overhead, the clauses on their proper construction impose on Codock responsibility for the costs of the risks insured by those policies. Thus, the Commonwealth wishes to argue, where premiums for policies insuring Codock against its liabilities under the Workers Compensation Acts 1919 or 1987 and at common law have been accepted into overhead, the cost to Codock of those liabilities (to the extent that they are not borne by the relevant insurer) are not to be taken into overhead and, therefore, are not payable or reimbursable by the Commonwealth to Codock. 16 Codock submits that this was an argument that would have been an answer to significant parts of its claim in the arbitration. It submits that the amount awarded to it by the arbitrator included substantial amounts for which the Commonwealth, if its present construction of the relevant clauses of the 1984 Standard Conditions were correct, would not have been liable. Thus, Codock submitted, there was an issue estoppel. 17 The Commonwealth's primary submission was that, having regard to my earlier reasons, it was not open to Codock to take this point (or, indeed, the point taken - to the extent that it continued to be pressed - in relation to any of the other issues with which these reasons are concerned). Mr P T Taylor SC, who appeared with Mr D A Caspersonn of Counsel for the Commonwealth, submitted that I had dealt with the estoppel issue in my earlier reasons and that I had there defined the extent to which the doctrine of issue estoppel should apply. 18 I do not accept that submission. I answered the general question as to issue estoppel (issue 1) "no". That was because, on any basis, there were particular defences available to the Commonwealth - if only, as to the quantification of particular elements of the current claim. Mr Taylor accepted that this was so (T 8.38). At the same time, I made it clear that there were particular issues - more accurately, particular defences - that the Commonwealth was estopped, by issue estoppel arising from the arbitrator's award, from raising. When I referred to those in my reasons, I did not intend to give an exhaustive list; nor do I think it is a fair inference from what I said that I was attempting to do so. I therefore think that it is open to Codock to submit, as it has done, that the doctrine applies to other defences sought to be raised by the Commonwealth. 19 As I noted in para [2] of my earlier reasons, Codock was either uninsured or only partially insured for some of the claims brought against it by workers. Its case, both before the arbitrator (in relation to workers' compensation claims up until the final cut off date to which the award extended) and in these proceedings (for such claims after that cut off date), was that the costs of such claims, to the extent that they were uninsured, should be accepted into overhead. The consequence, Codock said and says, is that it was and is entitled to be indemnified for those costs to the extent that they were uninsured. 20 It is, I think, clear that Codock's claim in the arbitration, in so far as it related to overhead, included a claim for costs of the relevant kind over and above the amount of indemnity (if any) recovered by Codock from insurers pursuant to relevant policies of insurance. The Commonwealth did not, in its defences to the claim for overheads made against it in the arbitration, raise a defence of the kind now propounded by issue 3(h). 21 In Henderson v Henderson (1843) 3 Hare 100 (67 ER 313), Sir James Wigram V-C at 115 (319) dealt with the situation where a party to litigation had failed to bring forward its whole case, and sought in subsequent litigation to open a matter that could have been brought forward in the earlier litigation. He said that the court required parties, except under special circumstances, to bring forward their whole case; and that the plea of res judicata (sic) would apply not only to points actually decided by the Court but to points which could have been brought forward but were not: "[W]here 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 same time." 22 That statement of principle was analysed in Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589. At 598-599, Gibbs CJ and Mason and Aickin JJ noted that the application of the principle "to cases of issue estoppel is to be treated with caution". 23 Their Honours reviewed the authorities and, at 602 to 604, stated the following principles:

(1) There will be no estoppel unless the matter relied upon as a defence in the second action was so relevant to the subject matter of the first action that it would have been unreasonable not to rely on it.

(2) Generally speaking, it would be unreasonable not to plead a defence where, having regard to the claim and its subject matter, one would expect the defendant to raise the defence so as to enable the relevant issues to be determined in the one proceeding.

(3) Nonetheless, there are a variety of circumstances, including expense, importance of the particular issue and even reasons extraneous to the litigation, which might justify a party in refraining from litigating an issue in one proceeding but litigating it in later proceedings.

(4) A party will be estopped from bringing an action which, if it succeeds, will result in a judgment in conflict with an earlier judgment.

(5) "Conflicting" judgments include judgments which are contradictory even though they are not pronounced on the same cause of action; they will be in conflict if they appear to declare inconsistent rights in respect of the same transaction.

(6) The principle will apply even though the defence relied upon is not one that, under the old rules of pleading, would have been covered by a general or particular traverse but was required to be specially pleaded. 24 The arbitrator held that Codock's entitlement to be indemnified for overheads included overheads comprised of the cost of workers' compensation claims in excess of insurance recoveries (if any) in respect of those claims. The issue now raised, if successful, would have been a complete answer to that component of Codock's claim in the arbitration. If it were raised in the present proceedings and succeeded, it would result in the establishment of inconsistent rights in respect of the same contractual provisions. There has been no explanation of the Commonwealth's failure to raise the issue before the arbitrator; it does not appear whether it was as the result of a deliberate or considered decision or through "negligence, inadvertence, or even accident". Given the significance of this part of the overhead claim, it is something that the Commonwealth would be expected to have raised, as an answer, in the arbitration. 25 I therefore conclude that the Commonwealth is estopped, by application of the "Henderson" or "Anshun" extended doctrine of issue estoppel, from raising this issue in the present proceedings. 26 The decision of Gibbs CJ and Mason and Aickin JJ in Anshun at 604 makes it clear that the conclusion, that a party is estopped from raising a point by application of the extended doctrine of issue estoppel, requires a balancing of all "relevant factors". I take this to indicate that there is some discretionary element, although not, perhaps, a discretion of the kind described by the House of Lords in Arnold v National Westminster Bank plc [1991] 2 AC 93, discussed in paras [69] and following of my earlier reasons. I have already dealt with the discretionary factors (as it is convenient to call them) that I understand, based on the reasoning of the majority in Anshun to be applicable. If, however, it were necessary to go further and look at the question in "Arnold" terms, I would come to the same conclusion, and for substantially the same reasons. 27 In addition, if the matter is to be considered by reference to the decision in Arnold, I think that it would be appropriate to have regard to the strength of the suggested defence. Given the view to which I have come, I do not think that it is necessary for me to discuss this at length. It is sufficient to say that I find it very difficult to see how, on an application of the ordinary principles of construction to the contractual provisions on which the Commonwealth relies, one could reach the conclusion for which it contends, and which is summarised in issue 3(h). Approaching the exercise of discretion on the wider basis apparently authorised by Arnold, I would take this as an additional factor supporting the conclusion to which I have come. Issue 3(j) 28 Codock indicated, at the commencement of submissions, that it did not press for a determination on this issue. Issue 3(k) 29 This issue (slightly paraphrased) asks:

Is the Commonwealth entitled to deduct from any such reimbursement of Costs a proportion of the Costs calculated by reference to the commercial work undertaken by Codock at the Dockyard? 30 This issue arises under cl 1 of the Substituted Mode of Performance. That clause allowed to the Commonwealth a rebate of overhead on the basis of the number of hours of commercial work performed by Codock at the Dockyard in any one year. The rebate was a percentage of overhead. It took into account the product of the number of hours of commercial work actually undertaken and one of two specified percentages (the applicable percentage depended on the number of hours of commercial work undertaken). The commercial purpose was to allow Codock the right of use of the Dockyard for work other than Commonwealth work. The benefit to the Commonwealth was a possible reduction in its liability for overhead. The benefit to Codock was that it was able to quote for commercial work (for which it usually if not always quoted on a fixed price basis) knowing what its overhead would be. 31 The Commonwealth sought to raise this issue before the arbitrator. It did so late in the arbitration, after the arbitrator had given the parties a draft award and invited submissions on it. The issue had not been raised by the Commonwealth in its defence in the arbitration, and it did not seek to amend its defence so as to raise it. 32 It is apparent that the submission related to overheads both up to 31 December 1992 and afterwards. What the Commonwealth suggested was that there should be a rebate of 17% of overhead, said to be a reflection of the average over some 13 years of that proportion of total overheads at the Dockyard that related to commercial work. 33 The arbitrator dealt with this at pp 231 to 232 of his award. He said at p 232 that this was "a new matter". He made the following points:

(1) The issue should have been dealt with in the hearing.

(2) If it were a live issue it should have been dealt with in submissions.

(3) If it had been overlooked, it should have been raised with a request to reconvene the hearing.

(4) It was "not satisfactory to have matters of contest raised in this fashion and on … such a makeshift basis".

(5) It was "more than a matter of moulding the arithmetic " (the arbitrator's emphasis).

(6) It was a matter that should have been pleaded or, at the very least, raised in the hearing if it were a matter to be taken into account.

I interpose that the arbitrator's reference to "moulding the arithmetic" was a reference to an agreement between the parties that, after the draft findings were given to them, they were to "mould the arithmetic" (p 231). 34 The arbitrator concluded: "I regret to say that I think that it is not appropriate to enliven such a fresh dispute now. It is too late. The matters which have otherwise been dealt with by me after the provision of my draft reasons were each issues which were expressly anticipated would be dealt with or, in the case of estoppel when everything was before me and the parties consent to my disposing of that matter. This issue is not in that category. I reject it." 35 Accordingly, the amount awarded by the arbitrator contained no amount for a commercial work rebate of the kind sought by the Commonwealth then and now. 36 Codock submits that this matter was raised before and dealt with by the arbitrator. It therefore submits that it is an issue that is no longer available to the Commonwealth. If the Commonwealth had been permitted to argue the issue before the arbitrator, and had succeeded, the award would have been reduced to 83% of the figure found by the arbitrator (before interest). Likewise, if the Commonwealth were permitted to argue the issue in these proceedings, the amount of any entitlement to overhead found in favour of Codock would be reduced to 83% of the total figure (before interest). 37 The Commonwealth submitted that the doctrine of issue estoppel could not apply to issues that were not raised before the arbitrator and were not the subject of decision. It referred to Spencer Bower, Turner & Handley, The Doctrine of Res Judicata (Butterworths, 3rd edition, 1996) at 97 [192]. 38 The decision of Sir James Wigram V-C in Henderson, as explained in Anshun, establishes that a judicial determination may decide not only matters that were expressly in issue between the parties but also matters that could have been, but were not, put in issue. The paragraph from The Doctrine of Res Judicata on which the Commonwealth relies states that this principle will not apply where there was no "duty" to raise an issue, or where to do so would have involved some detriment to a party's legal position. Further, that paragraph, and the cases cited in it, refer to a distinction between matters in confession and avoidance on the one hand, and matters in conflict with a traversable allegation on the other: "Generally, the failure of a party to plead matters in confession and avoidance which would not have conflicted with any traversable allegation does not make a general adverse judgment a decision negativing that affirmative matter." 39 In Anshun, Gibbs CJ and Mason and Aickin JJ discussed the distinction, between failure to traverse an allegation and failure to plead affirmative matters not in conflict with a traversable allegation, at 599 and following. It is, I think, a fair summary of their Honours' view that the distinction should no longer be regarded as critical. Nonetheless, I think, in the present context it is a relevant matter to take into account. In other words, I think, that it is a relevant factor to take into consideration in analysing whether or not there is an estoppel (cf their Honours' approach at 604). 40 The issue raises a defence that is in the nature of a plea of confession and avoidance. The starting point is that the Commonwealth is (or is held to be) liable to reimburse Codock for some or all of the claimed overhead expenses. The defence operates in reduction of that liability. In this, it may be contrasted with (for example) the defence that the Commonwealth had no liability at all for expenses incurred after 31 December 1992. 41 Ordinarily, it would be reasonable to expect a defendant to raise a defence that impeached the right asserted by the plaintiff. For example, in an action by a landlord for rent, one would ordinarily expect the tenant to raise (if the facts justified it) a defence that the lease was unenforceable. If the defendant did not do so then a judgment in favour of the plaintiff is rightly to be regarded as concluding, in favour of the plaintiff, the enforceability of the lease for the purpose of any subsequent proceedings: see Humphries v Humphries [1910] 2 KB 531 and Cooke v Rickman [1911] 2 KB 1125, referred to in para [58] of my earlier reasons. But it is difficult to see why the same considerations should require the defendant to plead, upon pain of estoppel otherwise, a defence that admits the right asserted but raises matters in confession and avoidance. I do not think that the general ability to plead in the alternative necessarily detracts from the force of this consideration. 42 In short, I do not regard the arbitrator's decision as necessarily concluding, in favour of Codock, this issue. 43 I therefore conclude that the Commonwealth is not barred, by the doctrine of issue estoppel (including in its extended form), from raising this issue. It is therefore unnecessary to consider the alternative submissions of Codock and the Commonwealth, directed to the question whether (assuming that I concluded the Commonwealth were estopped) I should nonetheless, in the exercise of whatever "Arnold" discretion may be available, allow it to rely on this defence. Conclusion 44 The only order that I make is to stand the proceedings over to the Directions List on Friday 11 February 2005. If the parties wish to put submissions as to either further orders that should be made consequent upon the publication of these and my earlier reasons, or as to costs, I will hear them on a date to be arranged with my associate.

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