In the recent decision of CBI Constructors Pty Ltd v Chevron Australia Pty Ltd [2024] HCA 28, the High Court considered the appeal provisions in Australia’s commercial arbitration legislation, and their application to a case where the arbitral tribunal, having made an award on liability in an arbitration with split liability and quantum hearings, was argued to have rendered itself functus officio with respect to any further liability issues raised during the quantum hearing. Consequently, parties to arbitration need to proceed with caution when bifurcating hearings.
The arbitration and the dispute
CKJV (a joint venture of CBI and Kent Projects Pty Ltd) contracted to supply Chevron with labour, in return for reimbursement by Chevron. A dispute arose over CKJV’s entitlements to reimbursement. CKJV claimed it had been underpaid, as a variation to the contract entitled it to payment at certain rates. Chevron counter-claimed that CKJV had been overpaid, as there was no such variation, and under the original contract CKJV was only entitled to reimbursement for its ‘actual costs’.
Pursuant to the parties’ contract, the dispute proceeded to arbitration. The arbitration hearing was “bifurcated” into separate hearings on liability and quantum. After the liability hearing, the arbitral tribunal made an interim award, which determined the key liability issues in Chevron’s favour.
In the following quantum hearing, CKJV advanced a new case regarding the proper interpretation of the contract as to the ‘actual costs’ it was entitled to (the ‘Contract Criteria Case’). Chevron objected that the Contract Criteria Case raised issues of liability, not quantum, and therefore: (1) the Contract Criteria Case was res judicata, issue, or Anshun estopped by the liability award; and (2) in making the liability award, the tribunal exhausted the authority conferred by the parties to determine liability issues, and hence had no remaining authority left to determine the Contract Criteria Case (i.e. it was functus officio). In its award on quantum, the tribunal rejected both objections.
Chevron applied to the WA Supreme Court under section 34(2)(a)(iii) of the Commercial Arbitration Act 2012 (WA) (CAA), which relevantly allows the Court to set aside an arbitral award that ‘contains decisions on matters beyond the scope of the submission to arbitration’. Both the WA Supreme Court,[1] and the WA Court of Appeal,[2] found that the quantum award should set aside, accepting Chevron’s argument that the Tribunal was functus officio with respect to the Contract Criteria Case.
The High Court’s decision
Before the High Court, CKJV did not challenge the findings of the Supreme Court and Court of Appeal that the Contract Criteria Case was regarding liability rather than quantum. Instead, it advanced two arguments:
The majority (Gageler CJ, Gordon, Edelman, Steward and Gleeson JJ), in a joint judgment, rejected both arguments. In dissent, Jagot and Beech-Jones JJ upheld Ground 1, but would also have rejected Ground 2.
The court generally agreed that for an award to be set aside under CAA section 34(2)(a)(iii), it must be established that the tribunal made a decision on a matter outside the authority or jurisdiction conferred on it by the parties. Establishing that the tribunal made a legal error when deciding a matter within its authority or jurisdiction is not sufficient.[3] Here, it was uncontentious that if the tribunal erred in determining Chevron’s estoppel arguments (estoppels being matters affecting ‘the capacity of litigants to litigate’, rather than the authority or jurisdiction of the tribunal), this would have been an error within authority, and therefore not a basis for setting the liability award aside under section 34(2)(a)(iii).[4]
The majority held that each of the UNCITRAL Rules (which the parties agreed to adopt for the arbitration), the parties’ arbitration agreement and the common law made it clear that interim awards (such as the liability award) were to be final and binding.[5] Having made the liability award, the tribunal had no authority from the parties to make any further decision on liability issues (including the Contract Criteria Case); it was functus officio with respect to those issues.[6] The question of whether the tribunal was functus officio, being entirely separate from the question of whether any estoppels precluded the Contract Criteria Case, was capable of consideration by the Supreme Court under CAA section 34(2)(a)(iii); otherwise, an arbitral tribunal would be permitted to ‘by its own [erroneous] decision create, expand or extend its own authority’.[7]
In dissent, Jagot and Beech-Jones JJ focused on the fact that the parties had agreed to submit their disputes to arbitration, not to the courts.[8] ‘[U]nequivocally clear language’ in the arbitration agreement would be required to conclude that the parties agreed that the tribunal, when making a final award, would lack authority to decide matters that a court (rather than the tribunal itself) determined to have been already decided by an interim award.[9] In their Honours’ view, the parties could not be taken, by agreeing generally that interim awards would be final, to have ‘intended that a court might closely inspect the entrails of the pleadings, the particulars, and the arbitral tribunal’s procedural orders’ to decide whether the tribunal’s authority to determine the Contract Criteria Case was exhausted by its liability award.[10]
Key takeaways
The WA CAA considered in this case has counterparts in each State and Territory, including South Australia (the South Australian counterpart being the Commercial Arbitration Act 2011 (SA)). This legislation, along with the International Arbitration Act 1974 (Cth) (which applies to international commercial arbitrations), is based on the UNCITRAL Model Law on International Commercial Arbitration.
The CAA (in both WA and SA) contains two provisions under which a party can apply to a court for an arbitral award to be set aside: section 34, and section 34A (which allows a party to ‘appeal’ on a question of law where several preconditions, including the parties having agreed to allow such appeals, are satisfied).
The majority acknowledged that a policy of ‘minimal curial intervention’ underlies the UNCITRAL Model Law.[11] Accordingly, their Honours described the grounds of review enumerated in section 34 as ‘limited’, and the s 34(2)(a)(iii) ground considered in this case as ‘narrow’ and unrelated to the merits of the tribunal’s decision.[12]
As illustrated by this case, international decisions on other jurisdictions’ UNCITRAL Model Law legislation are utilised by the courts when considering the CAA. The majority and minority judgments cited decisions from Hong Kong, Singapore, Canada and the United States.
Finally, the course of this dispute illustrates the difficulties that can arise from bifurcated liability and quantum hearings, in circumstances where the delineation between “liability” and “quantum” issues turn out to be less clear than initially anticipated. Here, the tribunal’s decision to bifurcate the hearing was made several months before what became the liability hearing, apparently so as to preserve the scheduled hearing dates while also giving CKJV time to respond to new particulars served by Chevron three months before the scheduled hearing.[13] The Contract Criteria Case which caused so much difficulty here was not known to the tribunal when it made that decision, as it was not raised by CKJV until after the liability award (in which CKJV was not successful) was handed down.
[1] Chevron Australia Pty Ltd v CBI Constructors Pty Ltd [2021] WASC 323.
[2] CBI Constructors Pty Ltd v Chevron Australia Pty Ltd [2023] WASCA 1.
[3] CBI Constructors Pty Ltd v Chevron Australia Pty Ltd [2024] HCA 28 at [30] (per the majority), [66] (per Jagot and Beech-Jones JJ).
[4] At [35], [39] (per the majority), [81] (per Jagot and Beech-Jones JJ).
[5] At [19], [26]-[28].
[6] At [22], [25], [33].
[7] At [32]-[38].
[8] At [83].
[9] At [84], [86].
[10] At [87].
[11] At [41]. See also at [63] (per Jagot and Beech-Jones JJ).
[12] At [24], [41].
[13] At [5].
