Kingston City Council v Monash City Council [2001] VSC 41

18. Each agreement is in similar terms but there are some differences.

21. Each agreement contained an arbitration clause. The clause required each party to use their best endeavours to settle a dispute or difference by negotiation and if this failed, within 21 days after a dispute notice was given the dispute or difference was to be settled by an arbitrator in accordance with the Act "and the dispute notice is to be taken to be the reference of the dispute or difference to arbitration."

24. On 17 March 2000 a notice of dispute was given by Greater Dandenong to the applicant, on 22 March 2000 a notice of dispute was given by Monash to the applicant, on 3 April 2000 the applicant gave a notice of dispute to Bayside and on 26 May 2000 the applicant gave a notice of dispute to Glen Eira.

27. The applicant suggested Mr Gregory Meredith, a partner in Ferrier Hodgson Melbourne be appointed arbitrator. Glen Eira did not agree. It stated a lawyer should be appointed.

30. Hence, the issue of the originating motion on 2 August 2000.

33. The applicant invokes the jurisdiction given to the court by s.10 of the Act.

36. Section 10 provides -

"10. General power of the Court to fill vacancy. Where there is a vacancy in the office of arbitrator or umpire (whether or not an appointment has previously been made to that office) and -

(a) neither the provisions of the arbitration agreement nor the provisions of this Act (other than this section) provide a method for filling the vacancy;

(b) the method provided by the arbitration agreement or this Act (other than this section) for filling the vacancy fails or for any reason cannot reasonably be followed; or

(c) the parties to the arbitration agreement agree that, notwithstanding that the provisions of the arbitration agreement or of this Act (other than this section) provide a method for filling the vacancy, the vacancy should be filled by the Court -

the Court may, on the application of a party to the arbitration agreement, make an appointment to fill the vacancy."

43. Each agreement entered into between the parties did not provide any mechanism for the appointment of an arbitrator. However, the term "arbitrator" was defined by clause 1 of each agreement as follows -

"'Arbitrator' means the person appointed as arbitrator pursuant to clause 13, and who is a partner in a 'major accounting firm' meaning a company or partnership

(a) devoted wholly or mainly to the profession or calling of accounting; and

(b) which during the period between 1 July 1993 and 30 June 1994 rendered gross billings of not less than FIVE MILLION DOLLARS ($5,000,000)."

50. In the agreement with Monash the figure for gross billings is $50M.

53. Glen Eira object to the appointment of Mr Meredith on the ground that there are reasons to believe by reason of him preparing a report for the government, that he may not be a disinterested or impartial arbitrator. The submission is put that the appearance of impartiality is vital and accordingly he should not be appointed.

56. Glen Eira also submit that the court should not appoint an accountant because of the issues likely to arise in an arbitration and the court should appoint a lawyer. Eminent former judges' names were mentioned.

59. Glen Eira makes a more substantial and fundamental answer to the application. It contends that the appointment of an arbitrator would be futile because of two reasons.

62. First, it asserts that by reason of a decision made by Beach J on 16 December 1999, the very issues that the arbitrator will have to decide were already decided and accordingly the applicant would be estopped from re-litigating the issues. In other words, the principles of issue estoppel apply.

65. In the alternative it is asserted that even if issue estoppel is inapplicable, this court should construe the agreement between the parties and conclude that there are in fact no issues between them with respect to the matter in dispute.

68. If issue estoppel arises or the court determines that there is no issue between the parties because of the construction of the agreement, it would be unnecessary to have an arbitration and the application to appoint an arbitrator should be dismissed.

71. The issue in question only relates to the applicant and Glen Eira. The other respondents were represented in court and briefly informed the court in relation to each respondent's attitude to the appointment of a particular arbitrator. It must follow that even if Glen Eira is successful in its defence to the application, nevertheless the other three arbitrations would continue. It was the view of all the parties, including Glen Eira, that if Glen Eira failed in its opposition, there should be four separate appointments of an arbitrator and that the same arbitrator should be appointed in respect to each dispute.

74. If that course was followed, whether or not the arbitrations should be heard together would be a matter for further consideration hereafter.

77. It follows that the most convenient course to adopt is to consider and determine the defences raised by Glen Eira to the application.

80. Before considering the questions of issue estoppel and construction of the agreement between the applicant and Glen Eira it is necessary to summarise the facts.

85. On 1 July 1994 the Acting Minister for Local Government required the Local Government Board to conduct a review under Part 10B of the Local Government Act 1989 with respect to the most appropriate local government structure for areas comprising the municipal districts of Melbourne and the immediate surrounds. As a result the Local Government Board submitted a final report and on 13 December 1994, by order in council, many former municipalities ceased to exist and new councils were formed including the applicant and the four respondents.

88. In order to give effect to the amalgamation and creation of new city councils it was necessary for the councils to enter into agreements to provide, inter alia, a mechanism for the adjustment et cetera of property income, assets, staff and to settle other matters.

91. On 28 April 1995 the applicant and Greater Dandenong entered into an agreement, on 3 May 1995 the applicant and Glen Eira entered into an agreement, on 15 May 1995 the applicant and Monash entered into an agreement and on 17 May 1995 the applicant and Bayside entered into an agreement.

94. Because the issues were raised between the applicant and Glen Eira it is necessary to concentrate on their agreement.

97. For many years prior to the date of amalgamation, employees of municipalities and the municipalities made contributions to the Local Authority Superannuation Fund ("the fund") which was governed by the Local Authority Superannuation Act 1988. Staff from the former municipalities of Mordialloc, Moorabbin, Oakleigh and Springvale were members of the fund which was administered by the Local Authority Superannuation Board ("the board").

100. It had been realised prior to amalgamation that there were long term unfunded liabilities of the fund and accordingly the board addressed this concern by requiring a payment of a 4% surcharge by the employer municipalities which made up part of the employer contribution paid by the municipalities to benefit the members of the fund. That arrangement had been in place since 1989 and ultimately ceased on 30 June 1997.

103. The amalgamation agreement between the applicant and Glen Eira required the valuation of all liabilities owed by a former council, Moorabbin City Council, as at 14 December 1994. Liabilities included contingent liabilities. These terms were defined by the agreement.

106. In July 1997, as a result of some amendments to the Local Authority Superannuation Act the board circularised local city councils, inter alia, including the applicant and Glen Eira, with notices of what it called "unfunded super liability estimates". The amounts involved were substantial.

109. The board advised each new council that it had calculated the unfunded liability of the fund as at 1 July 1993 to be $321M, that the unfunded liability was to be reduced by the 4% surcharge contributions made during the period from 1 July 1993 to 30 June 1997, that there was to be added to the unfunded liability the retrenchment increment and that the financial experience of the fund during the period 1 July 1993 to 30 June 1997 would be taken into account in determining the fund's unfunded liability as at 1 July 1997.

112. The board went on to inform the applicant and the respondents that - "each authority's share, plus contributions tax, is payable by 30 June 2007 unless otherwise agreed by the board."

115. The applicant and the respondents entered into discussions with respect to adjusting liabilities of former councils pursuant to the agreements between the parties as at 14 December 1994 and adjustments were also required to be made in relation to staff changes. Disputes arose between the parties as to how the agreements were to apply and ultimately the government stepped in and appointed Mr W.E. Walker of William M. Mercer Pty Ltd as a board of inquiry pursuant to s.9 of the Local Government Act 1989. Mr Walker was appointed to inquire into and determine the amount that the various councils had to pay or allow each other in respect of the unfunded superannuation liabilities (including the retrenchment increments) as a result of the restructuring of the local councils.

118. On 17 June 1999 Mr Walker delivered his report.

121. He required Glen Eira to take up a liability of the applicant in the sum of $2,343,166.

124. Glen Eira was aggrieved by the report and on 16 July 1999 made application to the court pursuant to the Administrative Law Act. The respondents to the application were the Board of Inquiry, namely, Mr Walker, and Kingston. The matter came on for hearing before Beach J in the Practice Court on 1 December 1999 and His Honour reserved his decision.

127. Mr J. Gobbo QC appeared on behalf of Kingston and informed the court that Kingston did not seek to participate in the proceeding and did not oppose the orders sought by Glen Eira as applicant. Mr Stephen O'Bryan of counsel appeared for Glen Eira.

130. On 16 December 1999 Beach J published his reasons and ordered that the order nisi granted by the Master be made absolute and the decision of Mr Walker be quashed.

133. The authenticated order of the court was expressed as follows -

"The order nisi granted by Master Evans on 27 August 1999 is made absolute and the decision is quashed."

137. The order nisi states that the decision which was the subject of the proceeding was the determination made by Mr Walker that a liability of $2,343,166 should be transferred. By referring to Mr Walker's report the decision is, that the applicant Kingston transfer the liability to Glen Eira.

140. Numerous grounds are specified in the order nisi but for present purposes it is noted that the grounds cover allegations that Mr Walker made errors of law in construing the agreement between the applicant and Glen Eira and further that Mr Walker failed to observe the rules of natural justice in making his decision.

143. Beach J in his reasons addressed both these contentions.

146. His Honour observed with reference to the order to review made by the Master that it was "made on two broad grounds, firstly that the tribunal had made errors of law in its interpretation of the amalgamation agreement of 3 May 1995 and secondly that in making the determination it did, the tribunal failed to observe the rules of natural justice."

149. His Honour noted that Kingston was a party to the proceeding, and by letter dated 11 October 1999 Kingston's solicitors informed Glen Eira's solicitors that its client had taken the position that it did not intend to make any submission when the matter came on for trial and "would abide by the decision of the court."

152. As I have already stated Mr J. Gobbo QC appeared at the hearing but did not make any submissions to the court.

155. His Honour then made the following statement -

"Having considered the material relied upon by Glen Eira it is my opinion that not only did the tribunal make a number of errors of law in its interpretation of the amalgamation agreement but it did not observe the rules of natural justice insofar as Glen Eira was concerned."

159. His Honour then stated that in order to demonstrate an error of law it was necessary to look at the agreement between the parties and he set out clause 4. He noted that "liabilities" was defined and included "contingent liabilities". The latter phrase was also defined by the agreement.

162. "Contingent liabilities" was defined to mean "those not otherwise included as liabilities as recorded in the former council's financial accounts that relate to a condition existing at 14 December 1994". The reference to "former council" is to Moorabbin City Council.

"The question which must be determined therefore is what was owed by Moorabbin actually or contingently as at 14 December 1994? If I could turn then to the unfunded superannuation liability of Moorabbin."

"But clause 4.2 of the amalgamation agreement limited the liability adjustment to liabilities owed as at 14 December 1994 and clause 11.1 required settlement balances of debits or credits to be determined as at 30 June 1995."

173. His Honour then made reference to the Local Authority Superannuation Act 1988 and then concluded as follows -

"It follows therefore that there was no obligation upon Moorabbin to contribute any liability to the fund, its only obligation was to pay to the board a proportion of salaries payable to employees and to ensure that there was no shortfall under Commonwealth legislation. What the tribunal appears to have done is to notionally construct a liability as if an actuary had in the past been given the task of re-assessing an amount which Moorabbin ought to have been paying to the board. In my opinion the tribunal had no power to make such a notional reconstruction of liability. What the amalgamation agreement intended to adjust was legal liabilities whether contingent or otherwise actually in existence as at 14 December 1994. It was in those respects that I consider the tribunal made errors of law in the matter." (paragraphs 32-34 of the reasons).

177. His Honour then went on to consider the grounds concerning a denial of natural justice and concluded that there had been a denial.

"In the light of those conclusions I declare that the decision of the first defendant made on or about 17 June 1999 whereby he recommended that a liability of $2,343,166 be transferred from Kingston City Council to Glen Eira City Council within the Local Authority Superannuation Board effective 1 July 1997 is invalid."

184. Mr O'Bryan, counsel for Glen Eira, submits that His Honour found that Moorabbin owed no liabilities as at 14 December 1994 to the fund in respect of unfunded superannuation liability which as the evidence revealed arose in the future, namely, in mid 1997. Mr O'Bryan submits that the issue has been decided in a proceeding between the applicant and Glen Eira and accordingly issue estoppel arises and the matter cannot be re-litigated. It follows that it would be futile to appoint an arbitrator where there is no dispute between the parties, the dispute having been resolved by the findings made by Beach J.

187. The court order in the administrative law proceeding prompted the applicant to issue an originating motion on 20 December 1999 against Mr Walker and Bayside, Monash and Greater Dandenong City Councils seeking orders that decisions made whereby liabilities were transferred between various council made by Mr Walker be quashed as invalid. The parties negotiated a settlement and it was agreed between them that each of the decisions made by Mr Walker transferring liabilities between the applicant and Bayside, Monash and Great Dandenong City Councils be quashed. The settlement was on the basis that Mr Walker had denied natural justice. The decision was not quashed on alleged errors of law.

190. In the present proceeding Monash, Greater Dandenong and Bayside City Councils have no objection to the appointment of an arbitrator in respect to each of the arbitrations between the applicant and them, and Monash and Greater Dandenong City Councils do not object to Mr Meredith being appointed. Bayside did object and suggested another arbitrator.

193. The real contest in the present proceeding is between the applicant and Glen Eira and the main dispute was whether issue estoppel applied to the findings made by Beach J with respect to his construction of the agreement and his finding that Moorabbin owed no liability at the relevant date for unfunded superannuation payments.

198. On 26 May 2000 the applicant served a dispute notice on Glen Eira pursuant to clause 12 of the agreement between them.

201. The recital noted in paragraph E as follows -

"The councils are dispute [sic] as to the amount that Glen Eira City Council should pay to Kingston City Council in respect of the unfunded superannuation liabilities and redundancy costs of the former City of Moorabbin".

205. The operative part of the notice described the dispute as follows -

"4(b) Pursuant to clause 12.2(b) of the amalgamation agreement, the dispute will be referred to the arbitrator to inquire into and determine the amount that Glen Eira City Council should pay to Kingston City Council in respect of the unfunded superannuation liabilities and redundancy costs of the former City of Moorabbin, such determination to effect a fair and equitable apportionment as between the councils and so that, so far as it [sic] possible, no party is disadvantaged over the other in respect to the apportionment."

209. That is the dispute which has been referred to arbitration.

212. Mr O'Bryan on behalf of Glen Eira submits that the issues raised by the dispute have already been decided by Beach J.

215. The first question for the arbitrator is to construe the agreement and determine whether or not Moorabbin had a liability in respect of unfunded superannuation liabilities and redundancy costs as at 14 December 1994.

"4. Non-fixed assets and all Liabilities 4.1 The newly constituted council (Kingston) agrees to credit respectively the neighbouring council (Glen Eira) an amount equivalent to 45.0% of the book value of all non-fixed assets which were, as at 14 December 1994, vested in the former council (Moorabbin). 4.2 The newly constituted council (Kingston) agrees to debit the neighbouring council (Glen Eira) an amount equivalent to 45.0% of the value of all liabilities (other than to the loan liability value in clause 4.3) which was, as at 14 December 1994, owed by the former council (Moorabbin). 4.3 The loan liability value to be distributed under clause 4.2 will be discounted by $2.19M."

"1.1 In this agreement, unless the context or subject matter suggests otherwise, ... 'Contingent liabilities' means those not otherwise included as liabilities as recorded in the former council's financial accounts that relate to a condition existing at 14 December 1994. ... 'Liabilities' includes current, non-current and contingent liabilities."

226. The agreement went on to provide a settlement date as follows -

"11. Settlement Date 11.1 If, as a result of this agreement, either party is required to (a) credit or debit the other; or

(b) account to or make payment to the other the settlement balance will be determined as at

(i) 30 June 1995; or (ii) such other date or dates as is or are, agreed by the parties. 11.2 If, as a result of the determination of the settlement balance, one party is indebted to the other party, the party which is indebted to the other party must discharge that indebtedness by making payment to the other party within seven (7) days of the settlement balance being determined."

234. These will be the main clauses which the arbitrator will have to construe.

237. It has also been suggested that clause 6 may be relevant to the question in dispute but I accept the submission of Mr O'Bryan that it is not directly relevant to the matter in dispute in any future arbitration.

240. Mr Walker as the board, construed the agreement and came to the conclusion that the agreement required Glen Eira to take over liabilities from Kingston in respect to the unfunded superannuation liabilities and redundancy costs.

243. In the application made to Beach J, it was submitted that Mr Walker had made an error in law in construing the agreement and that on a proper construction there was no liability in Moorabbin at the relevant time and it followed that the agreement had no application to the unfunded superannuation liabilities and redundancy costs which arose as a result of decisions made in 1997.

246. The term "issue estoppel" was attributed to Higgins J in Hoystead v Federal Commissioner of Taxation [1921] HCA 56; (1921) 29 CLR 537 at 561. However, there is nothing new about issue estoppel and the doctrine can be traced back to the Duchess of Kingston's case (1776) 2 Smith LC (13th ed.) 644 at 645. See Arnold v Natwest Bank Plc (1991) 2 AC 93 at 105.

249. The principle underlying the doctrine was stated by Dixon J in Blair v Curran [1939] HCA 23; (1939) 62 CLR 464 at 531 when he said -

"A judicial determination directly involving an issue of fact or of law disposes once for all of the issue, so that it cannot afterwards be raised between the same parties or their privies."

253. His Honour went on to state the principles of issue estoppel and to draw the distinction between it and res judicata.

"The estoppel covers only those matters which the prior judgment, decree or order necessarily established as the legal foundation or justification of its conclusion, whether that conclusion is that a money sum be recovered or that the doing of an act be commanded or be restrained or that rights be declared. The distinction between res judicata and issue estoppel is that in the first the very right or cause of action claimed or put in suit has in the former proceedings passed into judgment, so that it is merged and has no longer an independent existence, while in the second, for the purpose of some other claim or cause of action, a state of fact or law is alleged or denied the existence of which is a matter necessarily decided by the prior judgment, decree or order." (Emphases added.)

260. His Honour then considered the matters which have to be established to ground the estoppel. He said at p.532 -

"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. Where the conclusion is against the existence of a right or claim which in point of law depends upon a number of ingredients or ultimate facts, the absence of any one of which would be enough to defeat the claim, the estoppel covers only the actual ground upon which the existence of the right was negatived. But in neither case is the estoppel confined to the final legal conclusion expressed in the judgment, decree or order. In the phraseology of Coleridge J in R v Inhabitants of the Township of Hartington Middle Quarter, the judicial determination concludes, not merely as to that point actually decided, but as to a matter which was necessary to decide and which was actually decided as the groundwork of the decision itself, though not then directly at a 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. In the phraseology of Lord Shaw 'a fact fundamental to the decision arrived at' in the former proceedings and 'the legal quality of the fact' must be taken as finally as conclusively established. But matters of law or fact which are subsidiary or collateral are not covered by the estoppel. Findings, however deliberate and formal, which concern only evidentiary facts and not ultimate facts forming the very title to rights give rise to no preclusion. Decisions upon matters of law which amount to no more than steps in a process of reasoning tending to establish or support the proposition upon which the rights depend do not estop the parties if the same matters of law arise in subsequent litigation. The difficulty in the actual application of these conceptions is to distinguish the matters fundamental or cardinal to the prior decision, judgment, decree or order or necessarily involved in it as its legal justification or foundation from matters which even though actually raised and decided as being in the circumstances of the case the determining considerations, yet are not in point of law the essential foundation or groundwork of the judgment, decree or order." (Emphases added.)

264. In a recent House of Lords decision of Arnold v Natwest Bank Plc, supra, at p.105 Lord Keith of Kinkel said -

"Issue estoppel may arise where a particular issue forming a necessary ingredient in a cause of action has been litigated and decided and in subsequent proceedings between the same parties involving a different cause of action to which the same issue is relevant one of the parties seeks to re-open the issue. This form of estoppel seems first to have appeared in Duchess of Kingston's case (1776)."

268. In the present application, the court is concerned with the plea of issue estoppel. Mr O'Bryan disavowed relying upon the doctrine of res judicata.

271. It follows that the court may look at any materials properly admissible, to determine what particular issue was decided by Beach J.

274. In Jackson v Goldsmith [1950] HCA 22; (1950) 81 CLR 446, at 467 Fullagar J said -

"Where the plea is of res judicata, only the actual record is relevant. Where the plea is of issue estoppel, any material may be looked at which will show what issues were raised and decided. Reasons given for the judgment pronounced are likely to be particularly important for this purpose."

278. See also R v Humphrys (1977) AC 1 at 41; Rogers v R (1994) 181 CLR 251 at 263.

281. The decision by the House of Lords in Arnold is important because it confirmed that the plea of issue estoppel was not a complete bar to later litigation or an inflexible rule and that in special circumstances the estoppel may not operate. What are special circumstances were considered in that case and it will be necessary to refer to what the House of Lords held.

284. It is a necessary ingredient of the plea that the prior litigation was between the same parties or their privies.

287. Whether this condition is satisfied is usually established by examining the respective records of the two pieces of litigation.

290. In the present case the applicant and Glen Eira were parties to the proceeding before Beach J and will be the two parties in the arbitration. Indeed no argument was advanced by Mr Maclean, counsel for the applicant, that it did not involve the same parties.

293. Mr O'Bryan submits that applying the principles of issue estoppel it is clear that the issues raised by the arbitration are facts fundamental to the decision arrived at by His Honour who considered and determined the very issues which are to be decided in the arbitration. He submits therefore that the plea of issue estoppel is a complete bar and the decision of Beach J would bind the parties in the arbitration and stop the issues being re-litigated.

296. Mr Maclean of counsel on behalf of the applicant submits that the plea of issue estoppel does not arise.

299. At the outset it is important to note a number of matters concerning the hearing before Beach J and the decision.

302. First, the proceeding was heard without any opposition. A decision was made by the lawyers for the applicant not to oppose the order sought and no doubt that decision can be justified and understood when it was appreciated that there was a clear denial of natural justice. In other words it was a foregone conclusion that the decision had to be quashed.

305. Secondly, because the proceeding in effect was undefended, no argument was put to Beach J in opposition to the submission that the agreement was clear and beyond argument. In particular, no argument was put that the factual matrix and surrounding circumstances would be relevant to the construction of the agreement and the court did not have the evidence before it. As the cases well establish, the days of construing a contract in a vacuum are long since past. Although the cases also emphasise that the primary source of the common intention is the words used in the agreement, where there is ambiguity or uncertainty as to meaning the court is permitted to look at the surrounding circumstances. See Prenn v Simmons (1971) 1 WLR 1381 and Codelfa v The New South Wales Rail Commission [1982] HCA 24; (1986) 149 CLR 337 at 352.

308. Finally, Beach J was provided with affidavit material relating to the factual matters and many exhibits. However, whether His Honour had all the factual matters which bore upon the issue which he was considering is not clear. In the present application no evidence was called as to what was placed before Beach J. The court called for the court file and there was no opposition to the court looking at the file.

311. There was one affidavit in support of the order nisi and it dealt with the factual matters concerning the allegations of a denial of natural justice. The only reference to the construction of the agreement is in paragraph 45 of the affidavit which stated -

"45. Further the applicant contends that the first respondent appears to have made significant errors of law in the interpretation of the amalgamation agreement, being Exhibit 'MD2' hereto, as summarised in sub-paragraph (3) of the draft order."

315. There does not appear to be any evidence of the circumstances surrounding the entry into the agreement and the object of same. The onus is on Glen Eira which has raised the plea of issue estoppel to precisely identify the issues before Beach J in what can be described as the first proceeding. The evidence adduced in the present application does not set out what factual matters were before His Honour concerning the entry into the amalgamation agreement.

318. A reading of the affidavit in support of the order nisi leads to the conclusion that the main attack on Mr Walker's decision was a denial of natural justice.

321. As Glen Eira has raised the plea of issue estoppel, it has the burden of establishing it. The important element to prove is that the issues in both proceedings are identical.

324. In Turner v London Transport (1977) ICR 952 at 964 Browne LJ said -

"The essential foundation of a plea of issue estoppel must be that the issue or issues raised in the first proceedings, and the issue or issues raised in the second proceedings are identical. It is for the party who seeks to rely on the estoppel to establish this identity." (Emphasis added.)

328. In order to successfully establish the plea of issue estoppel Glen Eira has to prove the following -

(i) That the parties in the previous litigation were the same as the parties in the present litigation. There is no dispute in relation to this element of proof.

(ii) That the particular issue of fact and/or law which is sought to be litigated in the later proceeding has already been litigated and decided in the first proceeding. It is essential to establish that the issue or issues decided are identical. It is essential that the actual issue decided in the first proceeding "be ascertained with some degree of precision" per Lane LJ in Turner v London Transport, supra, at 966.

334. In Co-Ownership Land Development Pty Ltd v Queensland Estate Pty Ltd (1973) 47 ALJR 519 Walsh J at 522 said -

"In order that the principle of issue estoppel may apply it ... must be possible to assert without doubt that the issues are identical."

(iii) That the court or tribunal in the first proceeding actually decided the fact or point of law which was directly in issue in the case and was a ground of the judgment. The determination must be necessary to the decision and fundamental to it. - see Black v Curran, supra, at p.532.

341. It is clear that the determination which will support an issue estoppel may be of law, fact or mixed fact and law.

344. But it is important that the decision of fact or law in the first proceeding was fundamental to the ultimate determination in that proceeding.

347. It follows that a decision on a question of fact or law against the party who actually succeeded in the first litigation will not found an estoppel because it could not possibly be fundamental to the decision for the simple reason that no appeal is available to the person against whom it was given. Equally, where a court considers several factual grounds as alternative bases for a cause of action and the court finds more than one to support its conclusion, no estoppel arises on any of the separate findings for the simple reason that the party failing on such issues could not in a practical sense, appeal any of them separately. To successfully appeal he must be able to show error in respect of all the findings.

350. It is well established that an appeal is against the judgment or order made by the lower court or tribunal. An appeal is not against the findings made which led to the order made, nor is it against the reasons for judgment. An appellant carries the burden of establishing error which would result in the setting aside of the judgment or order. Unless the appellant succeeds on all issues he will fail. It follows that although there would be a cause of action estoppel the separate issues will not support issue estoppel because none was fundamental to the decision. See Spencer Bower Turner and Handley, Res Judicata, 3rd ed. at paragraph 206.

353. In Penn-Texas Corporation v Murat Anstalt (No. 2) (1964) 2 QB 647 Lord Denning MR said at 660 -

"One of the tests in seeing whether a matter was necessary to the decision, or only incidental to it, is to ask: could the party have appealed from it? If he could have appealed, and did not, he is bound by it ... If he could not have appealed from it (because it did not affect the order made) then it is only an incidental matter, not essential to the decision, and he is not bound." See Murphy v Abi-Saab (1995) 37 NSWLR 280 at 288.

357. Issue estoppel applies not only to points actually decided but also to points that could have been raised. See Hoystead v Commissioner of Taxation (1926) AC 155 at 170.

360. Further, it is well established that there may be special circumstances which exclude the operation of the plea of issue estoppel.

363. This is made clear by what Wigram VC said in Henderson v Henderson [1843] EngR 917; (1843) 3 Hare 100 at 114-15. The statement of principle of Wigram VC was quoted with approval by the judicial committee in Hoystead v Commissioner of Taxation, supra, at p.170 and it is quite clear from what Wigram VC said that there may be special circumstances which preclude the application of the plea.

366. The House of Lords considered the question of "special circumstances" in Arnold v National Westminster Bank plc, supra. At p.109 Lord Keith who delivered the principal speech said -

" ... there may be an exception to issue estoppel in the special circumstances that there has become available to a party further material relevant to the correct determination of a point involved in the earlier proceedings, whether or not that point was specifically raised and decided, being material which could not by reasonable diligence have been adduced in those proceedings. One of the purposes of estoppel being to work justice between the parties, it is open to courts to recognise that in special circumstances inflexible application of it may have the opposite result ... " (Emphasis added.)

370. What constitutes special circumstances will vary from case to case. It is important to confine the category of special circumstances otherwise it would defeat the very object of issue estoppel which is to bring litigation to an end and avoid repetitious litigation. Two of the important facts relied upon by the House of Lords in Arnold's case were the absence of an effective right of appeal from the judge who decided the matter at first instance and the decision at first instance was attended with doubt.

373. With those principles in mind it is now necessary to consider their application to the proposed arbitration between the applicant and Glen Eira. The first question to consider is to ascertain and identify the particular factual and/or legal decision in the first proceeding and compare it with the issues to be determined in the arbitration. It has to be identified with a degree of precision.

376. Further, the issues must be identical. There must be no doubt with respect to this question.

379. In New Brunswick Railway Company v British and French Trust Corporation (1939) AC 1, Lord Maugham LC said at pp.19-20 -

"The doctrine of estoppel is one founded on considerations of justice and good sense. If an issue has been distinctly raised and decided in an action, in which both parties are represented, it is unjust and unreasonable to permit the same issue to be litigated afresh between the same parties or persons claiming under them; but in my view the doctrine cannot be made to extend to presumptions or probabilities as to issues in a second action which may be, and yet cannot be asserted beyond all possible doubt to be, identical with those raised in the previous action." (Emphases added.)

383. The application made by Glen Eira in the first proceeding before Beach J was pursuant to the Administrative Law Act 1978. In accordance with the Act and the Rules of Court the initial application was made ex parte to a Master of the court supported by affidavit material. The Master granted an order nisi calling upon Mr Walker and Kingston to show cause why the decision made by Mr Walker whereby he ordered that the liabilities should be transferred to Glen Eira should not be reviewed. The order nisi set out a substantial number of grounds one of which alleged that Mr Walker as the Board made errors of law "in its interpretation of the amalgamation agreement dated 3 May 1995 between the plaintiff (Glen Eira) and the second defendant (Kingston)". Thereafter appear some eight alleged errors of interpretation.

386. The material before the court on the present application concerning the first proceeding comprises the affidavit in support of the application under the Administrative Law Act 1978, Mr Walker's report, the order nisi made by the Master which set out the grounds and the Judge's reasons. The issues before Beach J are to be identified from this material. The absence of pleadings do not assist the task. The court must focus on the substance of the proceeding - see Murphy v Abi-Saab, supra at pp.287-8.

389. I have already summarised the affidavit which did not set out any factual matters concerning the entry into the agreement or construction of same, but merely produced the amalgamation agreement to the court.

392. Turning to the grounds in the order nisi, the first ground is a general ground which asserts that Mr Walker was wrong in treating the unfunded superannuation liability as being a liability owed by the City of Moorabbin and asserted at no time was there any such liability. The other seven grounds raised separate and precise errors of construction of the agreement.

395. Mr O'Bryan on behalf of Glen Eira relies upon the finding made by Beach J which is set out in paragraph 32 of his reasons.

"It follows therefore that there was no obligation upon Moorabbin to contribute any liability to the fund, its only obligation was to pay the board a proportion of salaries payable to employees and to ensure that there was no shortfall under Commonwealth legislation."

402. What led Beach J to that conclusion is not clear from his reasons. As the authorities establish, the onus is on Glen Eira to identify the particular factual and/or legal questions decided in the proceeding with a degree of precision and show that they are identical to the issues which are to be litigated in the arbitration.

405. His Honour observed that it was necessary to show an error of law. He stated that it was necessary to look at the agreement between the applicant and Glen Eira and he referred to clause 4 and the definitions of "contingent liabilities" and "liabilities".

408. His Honour considered the report of Mr Walker to determine how he went about his task.

411. He observed that Mr Walker had set out to determine what the liabilities were as at 14 December 1994 and came to the conclusion that there was a pre-existing liability from an actuarial point of view and that it was a contingent liability. Mr Walker then went on to say that since there was no actuarial valuation at the relevant date he used the actuarial estimate made at 1 July 1993, adjusted it up to 14 December 1994 and then further adjusted it as at 1 July 1997. His Honour concluded that by reason of clause 4.2 and clause 11.1 the liability had to be determined as at 14 December 1994 and clause 11.1 required settlement as at 30 June 1995. Whilst His Honour did not expressly say so, he concluded that this constituted an error of law - see paragraph 33 of his reasons.

414. His Honour then went on to find a second error of law, namely, that Mr Walker had allowed interest and there was no provision in the agreement which dealt with interest. His Honour then considered the provisions of the Local Authority Superannuation Act 1988, in particular ss.23 and 47G(1) which do not appear logically to lead to any conclusion and it is in that context that His Honour concluded that Moorabbin had no obligation in paragraph 32.

417. His Honour summarised his thinking in paragraph 33 when he said -

"33. What the tribunal appears to have done is to notionally construct a liability as if an actuary had in the past been given the task of re-assessing the amount which Moorabbin ought to have been paying to the board. In my opinion the tribunal had no power to make such a notional reconstruction of liability. What the amalgamation agreement intended to adjust was legal liabilities whether contingent or otherwise actually in existence as at 14 December 1994. 34. It was in those respects that I consider the tribunal made errors of law in the matter."

421. It is impossible to state with precision what issues of law and fact His Honour considered and determined to reach the conclusion expressed in paragraph 32. It is clear from the fair reading of His Honour's judgment that Mr Walker made errors of law in his approach to determining the liability and the amount but it is impossible to say what factual and legal questions His Honour considered and determined which led him to the conclusion set out in paragraph 32.

424. What was before His Honour was an application under the Administrative Law Act and His Honour was considering and determining whether the decision maker had made errors of law and if he did whether His Honour should set aside the decision.

427. As I have already noted there were some seven separate grounds set out in the order nisi and His Honour dealt with two identifiable grounds in reaching his decision but did not explain his reasoning which led to the conclusion in paragraph 32 of the reasons. Mr O'Bryan submitted that His Honour's reasons were a very much truncated response to the lengthy affidavit material, written submissions and oral submissions heard by His Honour on a busy day in the Practice Court. His Honour delivered short reasons because the matter was unopposed. In other words, the reasons were responsive to the need at hand. Mr O'Bryan's observations may be correct but they do not obviate the need for precision in identity of the factual and legal issues decided.

430. At the moment it is impossible to say with precision what issues will be before the arbitrator. An arbitrator has not been appointed and no documents have been prepared which will define the real issues between the parties. But one can say with some confidence that the arbitrator will have to construe the agreement to determine whether or not it did apply to the unfunded superannuation liability and in so doing will take into account, inter alia, the purpose of the agreement and the surrounding circumstances. He will also have to consider the facts constituting the surrounding circumstances and once having construed the agreement also consider the facts to determine whether there was any liability by Moorabbin at the relevant date.

433. The arbitrator will be considering a claim in contract by the applicant against Glen Eira seeking to enforce the agreement.

436. Beach J heard an application by an aggrieved party under the Administrative Law Act 1978 who had the decision made by Mr Walker affecting Glen Eira set aside on grounds that Mr Walker had made errors of law in reaching his decision and also had denied natural justice. The errors of law identified and determined by Beach J do not support the conclusion expressed by His Honour in paragraph 32 and the findings of law and/or fact which led him to the conclusion are not identified. It follows that in the absence of a precise identification of the issues actually decided to reach the conclusion expressed in paragraph 32, it is impossible to conclude that His Honour's decision was a judicial determination directly involving and disposing once and for all the issues which Kingston wished to raise in the arbitration.

439. It follows that the issues to be decided by the arbitrator were not considered and determined by Beach J. Accordingly, issue estoppel does not stand in the way of the applicant in the arbitration.

442. Further, the finding in paragraph 32 was not essential to the decision made by Beach J and for this reason also cannot amount to an issue estoppel. His Honour's judgment could be supported not only because he identified and decided that Mr Walker had made a number of errors of law but also on the ground of the denial of natural justice.

445. Whether or not a party can appeal a decision is an appropriate test to determine whether or not the decision could support a plea of issue estoppel.

448. In Concha v Concha (1886) 11 App Cas 541, Lord Herschell said at p.552 -

"This point in the judgment of the Probate Court was not open to appeal because it was not essential to the decision; how then can it be said that it was a matter which bound the parties?"

452. See also Penn-Texas Corporation v Murat Anstalt (No. 2), supra at p.660, James v Commonwealth [1935] HCA 38; (1935) 52 CLR 570 at 584 and 590-1 and Murphy v Abi-Saab, supra at p.288.

455. The applicant could not have appealed the judgment and orders made by Beach J in the Administrative Law application because His Honour made an order quashing the decision made by Mr Walker on two general grounds. Whilst it was theoretically open to Kingston to institute an appeal, the reality was that Kingston could not have argued the appeal because the order of Beach J could be supported by the finding of a denial of natural justice. There was no contest on this issue and once Kingston consented to the setting aside of the decision in the later proceeding it was not open to it to argue that Beach J's order quashing the decision was wrong. See also Murphy v Abi-Saab (1995) 37 NSWLR 280 at 291-2.

458. It follows applying the no appeal practical test, the finding by Beach J at paragraph 32 of his reasons for judgment was not essential to the order to quash the Board's decision and accordingly that is another reason why issue estoppel does not arise.

461. Finally, in my opinion there are special circumstances which preclude the application of the plea. A court may refuse to apply the plea where there are special circumstances and to do so would produce an injustice. This is established by the judgment of Sir James Wigram VC in Henderson v Henderson (1843) 3 Hare 1000 at 114-115 and adopted by the House of Lords in Arnold. Doubts have been expressed in Linsley v Petrie (1998) 1 VR 427 at 441 and 449. But in my respectful opinion the plea could in rare cases cause an injustice especially where there is doubt as to the correctness of the issue decided.

464. The special circumstances are constituted by the facts, first, that the Administrative Law proceeding was uncontested before Beach J and whilst as a general rule this is no answer when a party sits by and does nothing, the fact was that the setting aside of the decision was a foregone conclusion because of the denial of natural justice and hence the decision not to contest the proceeding was a reasonable one in the circumstances in order to save time and expense; secondly, that His Honour's reasons do not enable the court to precisely determine how His Honour arrived at the conclusion found in paragraph 32; thirdly, that it would appear that His Honour gave no consideration to the factual matters surrounding the execution of the agreement which would be relevant and hence his conclusion is attended with some doubt, and finally, realistically, there was no avenue of appeal open to the applicant to appeal the order made by Beach J.

467. In my opinion this is one of those rare cases where there are special circumstances which would preclude the application of the plea of issue estoppel.

470. Mr Maclean of Counsel for the applicant further submitted that in any event a plea of issue estoppel could not arise out of what in effect were judicial review proceedings. There are a number of cases in England which provide some support for that conclusion. See R v Secretary of State for the Environment (1983) 1 WLR 524 at pp.537-39; R v Secretary of State for the Environment (1984) 1 WLR 592 at pp.602 and 606; and Wade and Forsyth Administrative Law 7th ed. pp.282-3.

473. In Australia it has been recognised that issue estoppel can arise out of judicial review-type proceedings. See Taylor v Ansett Transport Industries Ltd (1987) 18 FCR 342 and Halsbury's Laws of Australia, Vol. 12 paragraph 190-105.

476. It is unnecessary for me to determine whether or not an issue estoppel could arise out of judicial review-type proceedings. However, I doubt the reasons relied upon in the English cases would apply in Australia. I refer to Res Judicata by Spencer Bower Turner and Handley, supra, at paragraph 357 and respectfully agree with the observations made in the last paragraph at p.200..

481. Mr O'Bryan submitted that if issue estoppel did not arise, the court should nevertheless follow Beach J's decision that there was no obligation on the City of Moorabbin at the relevant date. He referred to what Dixon J said in Blair v Curran, supra, at p.531.

"Apart, therefore, from any issue of issue estoppel there is much to be said for our taking the course of following the decision of Street J as a matter of authority. It is a decision upon a question of interpretation which certainly cannot be said to be clearly wrong, and it was given 32 years ago, and to depart from it would cause an incongruity."

488. Of course if Beach J's decision had passed the test of time and been relied upon by others then there would be a very strong argument for following it. However, the truncated reasons given by Beach J does not lead to the conclusion that it is clearly right, nor has it stood the test of time.

491. As a general proposition it is unwise for a judge to construe an agreement in a vacuum and without having the benefit of a full consideration of the facts surrounding the negotiation and execution of the agreement. In my opinion it would be most inappropriate for me sitting in an application such as the present to conclude that I should follow Beach J's decision, especially bearing in mind the difficulty of understanding how he arrived at the conclusion expressed in paragraph 32.

496. Mr O'Bryan further submitted that if the court was against him on the issue estoppel and precedent questions that nevertheless the court should construe the agreement as Beach J had and come to the conclusion that it was clear beyond doubt that there was no liability owing by Moorabbin at the relevant date which could be imposed on Glen Eira.

499. In my opinion the court should not attempt to construe the agreement on an application such as the present. The court does not have all the facts available to it and to attempt to construe a contract in a vacuum based purely and simply on the wording and no more would be fraught with danger and could easily cause an injustice. I decline the invitation.

504. All parties before the court agreed that in the event of Glen Eira failing to persuade the court that the court should not appoint an arbitrator, then an arbitrator should be appointed for each of the four arbitrations and further, that the same arbitrator should be appointed for all four arbitrations.

507. Mr O'Bryan on behalf of Glen Eira submitted that the court should appoint a lawyer as arbitrator because the important issues for consideration and determination involved the construction of an agreement and a lawyer would be far better equipped to make a decision than an accountant.

510. The difficulty with pursuing that course is that although the agreement does not provide any mechanism for the appointment of an arbitrator, it does provide that arbitration should take place to resolve disputes between the parties and secondly, defines the qualifications of the arbitrator.

513. The parties in their respective agreements have defined the qualification of an arbitrator and in the absence of any legal reason, their bargain must be upheld by the court. Mr O'Bryan did not argue that there was any legal reason why full force and effect should not be given to the bargain between the parties and further was unable to refer to any legal basis for the court ignoring the clear agreement of the parties.

516. The court raised the question of whether s.10(b) could possibly give the court power to ignore what the parties agreed to but after some discussion it was accepted that s.10(b) did not empower the court to ignore the bargain of the parties.

519. Section 10(a) in fact is the provision relied upon by the applicant, namely, that the provisions of the arbitration agreement do not provide a method for the appointment of an arbitrator and accordingly s.10(b) could not apply. That is clearly so.

524. Three of the five parties before the court submitted that Mr Meredith should be appointed as arbitrator. Whilst his firm at the relevant time did not have billings of not less than $50M counsel for Monash did not raise any objection to his appointment. It is in the definition of "arbitrator" in the agreement with Monash that the major accounting firm referred to had to have gross billings of not less than $50M.

527. Bayside objected to the appointment of Mr Meredith.

530. Glen Eira objected to his appointment and did so on grounds raising the issue of impartiality.

533. There is no doubt that the rules of natural justice apply to an arbitration. One of those rules is that the decision maker must be impartial and have no interest in the proceeding.

536. Whilst I am quite satisfied that there is no evidence that Mr Meredith would not perform his task in an impartial and proper manner, there is evidence which raises doubts that Mr Meredith would appear to be an impartial arbitrator.

539. The evidence revealed that Mr Meredith when the issue of the unfunded superannuation liabilities arose in 1997 was engaged by the government to provide to the Minister for Finance a report concerning the issues raised. He reported to the Minister on 29 May 1997.

542. When Mr Meredith was approached to give his consent to act as an arbitrator he did refer to the report in his response.

545. He wrote in a letter dated 5 September 2000 the following -

"You may note in the attachment, a reference to me being the principal author of a report dated 29 May 1997 to the Minister for Finance on the Local Authority Superannuation Board. Briefly preparation of this report involved a review and assessment of the financial position of the Local Authority Superannuation Fund, and analysis of and modifications to the proposed solution to address the financial position of the fund."

549. The solicitors acting for Glen Eira have expressed concern as to what Mr Meredith put in his report and what views he may have formed at the time. Accordingly a subpoena for production of the report was filed addressed to Mr Meredith requiring him to produce a copy of the report and the Victorian Government Solicitor responded on behalf of Mr Meredith informing the solicitors for Glen Eira that the report belonged to the State of Victoria. It was asserted by the Victorian Government Solicitor that it was a Cabinet document and if the subpoena was pressed, application would be made to set it aside on the ground of public interest immunity. The solicitors acting for Glen Eira took the position that the enforcement of the subpoena could result in a hearing before the court with consequential substantial expense and hence has not pressed the enforcement of the subpoena.

552. Mr O'Bryan submits that in all the circumstances there is an appearance of bias and accordingly Mr Meredith should not be appointed.

555. In the absence of knowing what Mr Meredith actually reported, there is sufficient evidence to raise doubts about his impartiality and in my opinion he should not be appointed as arbitrator.

558. As has been said often in the past, not only must justice be done but must be seen to be done. The appearance of justice is as equally important as justice itself.

561. Counsel for the applicant provided a list of suitable persons who are qualified to act as arbitrators pursuant to each agreement. The parties made submissions in relation to the persons named. There was an objection to some of the persons on the list by some parties.

564. I can say that each of the persons put forward would in my opinion be suitable as an arbitrator.

567. Without in any way reflecting upon any of those named, in my opinion Mr Colin Wight of Ernst & Young Melbourne Office should be appointed as arbitrator.

570. I propose to appoint him as arbitrator for each arbitration and the question of the arbitrations being heard together will be a matter for future application.

575. In the written submissions on behalf of the applicant, the applicant seeks a declaration that the judgment and orders of Beach J dated 16 December 1999 do not prevent or estop the applicant from in effect enforcing its contractual rights in the arbitration.

578. I am not prepared to make such a declaration. The application before the court is an application for the appointment of an arbitrator pursuant to s.10 of the Commercial Arbitration Act 1984.

581. I have in these reasons expressed the view that on the material before the court there is no issue estoppel arising from the judgment and orders of Beach J which estops the applicant from seeking to enforce its rights under the amalgamation agreement between it and Glen Eira.

584. Subject to submissions from counsel I propose to make the following orders -

(i) Mr Colin Wight is appointed as arbitrator to determine the arbitration between Kingston City Council and Greater Dandenong City Council commenced by notice of dispute dated 17 March 2000;

(ii) Mr Colin Wight is appointed as arbitrator to determine the arbitration between Kingston City Council and Monash City Council commenced by notice of dispute dated 22 March 2000;

(iii) Mr Colin Wight is appointed as arbitrator to determine the arbitration between Kingston City Council and Bayside City Council commenced by notice of dispute dated 3 April 2000;

(iv) Mr Colin Wight is appointed as arbitrator to determine the arbitration between Kingston City Council and Glen Eira City Council commenced by notice of dispute dated 26 March 2000;

(v) Liberty to apply generally is reserved to all parties on 48 hours' written notice to all other parties.

590. I will hear the parties on the question of costs.