CBI Constructors Pty Ltd v Chevron Australia Pty Ltd [2023] WASCA 1

Tom French  | Penny Bond | Alicia Harries

Key takeout

• In bifurcated proceedings, a tribunal will exceed its jurisdiction if it makes an award concerning issues that ought to have already been decided in an earlier award.

• Bifurcation is where proceedings are split into separate hearings and can have benefits in the resolution of complex disputes, but arbitrators and parties should proceed cautiously when formulating bifurcation orders.

• Bifurcated proceedings can be a double edged sword: when an arbitration is bifurcated, the parties must understand what can (and cannot) be raised at the relevant hearing, and ensure all arguments are presented at the relevant time.
  
  
• This decision was appealed and on 14 August 2024 was upheld by the High Court in CBI Constructors v Chevron [2024] HCA 28. We cover the High Court decision in High Court judgment: Dangers of bifurcated arbitration proceedings – Technical update – MinterEllison.

Facts

Chevron Australia Pty Ltd (Chevron) entered into a contract with CBI Constructors Pty Ltd and Kentz Pty Ltd (as a joint venturers) (CKJV) for CKJV to provide construction and related services at Chevron’s Gorgon gas project in Western Australia. The contract provided for CKJV be paid on a reimbursable basis.

A dispute arose between Chevron and CKJV relating to payment: CKJV claimed Chevron had underpaid it, and Chevron counterclaimed that it had overpaid it.

The contract between Chevron and CKJV contained an arbitration agreement. The payment dispute was referred to arbitration before a tribunal composed of three arbitrators (Tribunal).

The Arbitration

On application from CKJV (opposed by Chevron), the Tribunal made orders bifurcating liability and quantum, which provided for all issues of liability to be determined first, followed by a second hearing to determine quantum.

In the first hearing (the liability hearing), the Tribunal considered the basis for CKJV’s reimbursement and whether the reimbursement was to be on a rates basis or an actual costs basis.

In the first interim award, the Tribunal held that CKJV had failed to establish that it was entitled to recover remuneration of staff by reference to contract rates, however, it was entitled to raise in its defence its actual costs incurred.

Following the first hearing on liability, CKJV advanced an argument that on the proper construction of the contractual provisions, it was entitled to recover a cost determined by reference to certain contractual provisions (Contract Criteria Case).

Chevron objected to CKJV’s Contract Criteria Case, contending that the Tribunal had determined all issues of liability in the first interim award and as such, the Tribunal was functus officio (unable to hear, consider or determine any further liability issues).

In the second interim award the Tribunal by majority determined that it was not functus officio from hearing CKJV’s Contract Criteria Case, despite the first interim award. The arbitrator in the minority held that that CKJV was precluded from advancing its Contract Criteria Case on the basis that all issues of liability had been determined by the First Interim Award.

Decision in the Supreme Court of WA 2021

While the arbitration remained afoot (ie the awards were interim), Chevron applied to set aside the second interim award under section 34(2)(a)(iii) of the Commercial Arbitration Act 2012 (WA) (Arbitration Act), or alternatively to have the question of the Tribunal’s jurisdiction determined pursuant to section 16(9) of the Arbitration Act.

In Chevron Australia Pty Ltd v CBI Constructors Pty Ltd [2021] WASC 323, Kenneth Martin J upheld Chevron’s application and set aside the award, holding that the Tribunal had been functus officio.

In deciding the section 16(9) jurisdiction issue, his Honour noted that section 16(9) enables a party to apply to a court if the arbitral tribunal rules as a preliminary question that it has jurisdiction. The Tribunal had not, in fact, made such a ruling and as such Chevron did not have any recourse to the court under section 16(9).

The UNCITRAL explanatory note provides that where a tribunal has made a jurisdictional ruling combined with a merits award (as the Tribunal had in this case), recourse to a court is only available via the Arbitration Act sections 34 and 36.

In deciding the section 34(2)(a)(iii) award issue, Kenneth Martin J considered he was required to resolve three issues in relation to the second interim award:

• Whether Chevron’s functus officio arguments can fit within the criteria of section 34(2)(a)(iii)?
• If so, whether Chevron had made good its functus officio arguments on the merits?
• If so, whether the court should exercise its discretion under section 34(2) in the circumstances?

On the first issue, his Honour considered that section 34(2)(a)(iii) could be engaged for the purpose of a court addressing a lack of authority issue vis-à-vis a functus officio condition, whether arising from a final or interim award.

On the second issue, it was pivotal whether or not the Contract Criteria Case was in fact a quantum issue, or if it was a liability issue, as Chevron contended. Kenneth Martin J considered it was in fact a liability issue and, as all issues of liability had been determined in the first hearing, it was ‘too late to raise more liability issues later’.

On the final issue, being the court’s discretion under section 34(2), his Honour concluded that given the Tribunal’s jurisdictional deficiency, a set aside order was appropriate.

CKJV appealed that decision.

Decision by the Court of Appeal 2023

The Court of Appeal dismissed CKJV’s appeal, upholding Kenneth Martin J’s judgment. In reaching the decision, the court considered authorities dealing with the arbitration process, issue estoppel, res judicataand the functus officio principle.

Functus officio is a ‘self-supporting’ doctrine

CKJV contended that the primary judge erred in finding the Tribunal was functus officio, without an anterior finding of ‘preclusionary estoppels’. To generalise, findings of preclusionary estoppel are made when a party has exhausted their right to litigate an issue that has been resolved. The Tribunal found those preclusionary estoppels not to exist, and did not consider themselves functus officio.

However, the Court of Appeal distinguished that preclusionary estoppels are separate to the functus officio principle. Therefore, preclusionary estoppels are not a prerequisite for a finding of functus officio, and functus officio is a ‘self-supporting’ doctrine.

Tribunal functus officio on issues of liability

Through close examination of the procedural orders’ wording (ordering the bifurcation of the proceedings), the Court was satisfied there was nothing to suggest that any arguments about liability remained within the Tribunal’s jurisdiction after issuing the first interim award.

The Tribunal’s procedural orders specified that ‘[t]he First Hearing will concern all issues of liability only. All issues relating to the quantum…of [claims] shall not be heard at the First Hearing’.

The Court of Appeal formed the view that CKJV’s Contract Criteria Case was about liability, and not quantum. Therefore, the Court found the Tribunal was functus officio regarding determinations of liability, after having issued the first interim award, and the second interim award was invalid.