Queensland Construction, Dualcorp Issue Estoppel and the Prevention Principle.

The recently decided case of Karam Group Pty Ltd atf The Karam (No 1) Family Trust v HCA Queensland & Ors [2023] QSC ventilated principles relevant to the construction law field that serve to clarify their application in Queensland. 

Pursuant to a construction contract formed in July 2020 for design and construction of a $38,000,000 apartment complex in Coorparoo, HCA Queensland Pty Ltd (HCA) lodged four progressive applications for adjudication under the Building Industry Fairness (Security of Payment) Act 2017 (Qld) (BIF Act) in relation to works performed between April 2022 and May 2023.

The case was brought during the course of the fourth adjudication application by Karam Group Pty Ltd (Karam), the respondent to the applications, who sought either a declaration or injunctive relief restraining HCA from pursuing a claim disentitling Karam for liquidated damages that had previously been adjudicated, and from pursuing their final adjudication application.

Karam also sought to seek relief against the Adjudicator for apprehended bias. 

The main concept considered in the case was the relevance of Dualcorp issue estoppel in Queensland, which Karam sought to rely on to prevent HCA from reagitating an argument for the prevention principle in their adjudication applications.

Prevention principle

The prevention principle is a long-standing legal maxim that states that a party cannot take advantage of its own wrongdoing while enforcing rights under a contract. It was considered in a construction law context in Spiers Earthworks Pty Ltd v Landtec Projects Corp Pty Ltd (No 2) (2012) 287 ALR 360 where Mclure P stated that the essence of the prevention principle is that a “party cannot insist on the performance of a contractual obligation by the other party if it itself is the cause of the other party’s non-performance.”  In a construction contract, it will typically arise in circumstances where the principal contributes to the delay in reaching practical completion by requesting variations. 

Probuild Construction (Aust) Pty Ltd v DDI Group Pty Ltd [2017] NSWCA 151 (Probuild) explored the prevention principle in detail to determine a contractor’s liability in such circumstances. There, Probuild directed works be performed after the date for practical completion, and then tried to rely on DDI Group’s failure to comply with time bars for an extension of time to claim liquidated damages for late completion. Probuild were not successful, as they were required to act with an implied duty of good faith. It was held that the application of the principle is grounded in fairness and reasonableness but could be displaced or modified according to a contract’s extension of time provisions.

Dualcorp issue estoppel

The principle of issue estoppel as accepted in Australia was addressed in Kuligowski v Metrobus [2004] HCA 34, where the judgment from the full bench quoted Lord Guest from, Carl Zeiss Stiftung v Rayner & Keeler Ltd (No 2), stating that issue estoppel required:

  1. That the same question has been decided;
  2. That the decision was a final decision; and
  3. That the parties to the decision were the same as the parties in which the estoppel is raised.

The concept of an issue estoppel arising from an adjudicator’s decision pursuant to security of payment legislation arose in Dualcorp Pty Ltd v Remo Construction Pty Ltd (2009) 74 NSWLR 190. The consideration there was whether an adjudicator’s decision under the New South Wales security of payment legislation had the character of a conclusive, final decision by a tribunal and if so, could it apply to prevent an applicant pursuing an adjudication for a payment claim on identical terms as a previous claim. After considering the relevant sections of the Building and Construction Industry Security of Payment Act 1999 (NSW), Macfarlan JA determined that an issue estoppel can arise on a security of payment adjudication.

The above arose on considerations of the NSW legislation, and it was not accepted as good law in Queensland until it was considered by Jackson J in Wiggins Island Coal Export Terminal Pty Ltd v Monadelphous Engineering Pty Ltd [2016] QSC 96, where his Honour determined that Dualcorp issue estoppel is equally applicable into adjudications under the BIF Act.

Submissions against estoppel in Karam

HCA progressed an argument that the approval of the estoppel in Wiggins was decided before the inclusion of section 84(2)(a)(ii) into the BIF Act, which requires an adjudicator to decide whether an application is frivolous or vexatious prior to commencing an adjudication. HCA submitted that, as this task requires the adjudicator to make a decision that is consistent with what is required to be made by a court when considering a claim that is being re-agitated, then the legislative requirement supersedes the common law rule in Dualcorp. As such, HCA submitted that Dualcorp estoppel should not be considered on its claims, but rather the adjudicator should make a decision as to whether its claim was vexatious instead.

The Court dismissed the argument, stating that the provision in section 84 was a ‘blunt weapon’ that has no finesse in its use, but serves as a threshold test to dismiss an entire application if the adjudicator believes a claim to be vexatious. Dualcorp issue estoppel serves to prevent an applicant from reagitating a claim without the requirement of dismissing the entire application, and therefore both concepts had equal application.

Was the prevention principle estopped from being considered

HCA submitted that, even if Dualcorp estoppel was applicable in Queensland that it would have no application in the case. They argued that there was no estoppel as there was no final decision as to whether the prevention principle applied to preclude liquidated damages and could therefore be submitted in subsequent claims. HCA argued that the principle was not raised in its second application and was only referred to in its third application, and because the reference did not have the character of a final determination then it could be considered.

The court found that the principle had in fact been considered and subject to final determination in the second application, and HCA was estopped from raising it. In its second adjudication application, HCA progressed an argument asserting the prevention principle should be applied to limit the liquidated damages that Karam was entitled to. HCA argued that Karam had breached its obligations under the contract in enforcing liquidated damages in circumstances where it had contributed to the delays through an array of design issues that resulted in consistent variations, and its failure to properly coordinate elements of the design which resulted in the errors and inconsistencies in the design. The adjudicator agreed with Karam’s submissions in the adjudication response that HCA was not entitled to any further extensions of time, and any such extensions would be time barred regardless. 

As a consequence of finding that HCA was estopped from raising the prevention principle again, the court found in favour of Karam as to the Dualcorp estoppel (but declined to find in favour of the apprehended bias), and made orders to hear from the parties as to the most suitable remedy, whether an injunction or a declaration, was most appropriate.

Conclusion

The case serves to reinforce the position of Dualcorp issue estoppel as an applicable maxim in Queensland construction adjudications, however it also contains a warning to construction entities seeking to rely on legal principles in adjudication to protect their rights.  It is better to engage proactively in contract administration procedures while works under a contract are on foot than to progress legal arguments in adjudication. Had HCA actively filed extensions of time under the contract while the delay events were occurring it would have been in a better position to dispute the quantum of liquidated damages. Instead, it was left with a liability for liquidated damages that, even capped at 10% of the contract price, was almost $4 million.

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