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

Background

This case concerned an appeal from a judge’s decision to set aside an award of an arbitral tribunal under s 34(2)(a)(iii) of the Commercial Arbitration Act 2012 (WA). That section provides that a Court may set aside an arbitral award only if:

“(iii) the award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or contains decisions on matters beyond the scope of the submission to arbitration, provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the award which contains decisions on matters not submitted to arbitration may be set aside;”

The primary judge held (primary decision at [70]) that there were three issues to determine:

“1. Whether Chevron’s functus officio arguments could, as a matter of principle, properly fit within the criteria of s 34(2)(a)(iii) of the Act. [the primary judge held that it could, and this finding was not appealed]

2. Secondly, if the functus officio arguments could properly engage s 34(2)(a)(iii) of the Act, whether substantively Chevron had established the merits of its case that the Arbitral Tribunal was functus officio. [discussed below – see “Principal dispute”]

3. Even if the first two issues were resolved in Chevron’s favour, whether as a matter of residual discretion the court should grant relief under s 34(2) of the Act.” [the primary judge held that once it is established that the Tribunal was functus officio, the discretion to set aside was “virtually automatic” and this finding was not appealed]

Principal dispute

The principal dispute in issue in the arbitration was Chevron’s liability (and the quantum of that liability) to pay the appellants (CKJV) for services rendered to Chevron on the Gorgon project.  Essentially, Chevron argued it had overpaid for the services it received and CKJV argued that it had been underpaid for delivering those services. 

The parties agreed to bifurcate their arbitration into two parts, namely: liability and quantum.  Relevantly, the Arbitrator’s Procedural Order 14 stated “there shall be heard first all issues of liability in respect of [CKJV’s] claim and [Chevron’s] Counterclaim…”.

Subsequently, Procedural Order 15 provided that the First Hearing would concern all issues of liability only and that all issues excluded from the first hearing would be issues relating to quantum and quantification of the claims.  The order provided that an award would be issued following the first hearing

After the first award on liability was issued in the arbitration, CKJV sought to advance an alternative liability argument.  The Tribunal’s second award addressed this and, by a majority of 2:1, found that CKJV could advance the alternative liability argument, that CKJV was not estopped and that the Tribunal was not functus officio as a result of its first award. 

Chevron succeed in having the second award set aside in the  Supreme Court of Western Australia on the basis that the Tribunal did not, after the first award, have jurisdiction in respect of liability issues. The judge, at first instance, held that the court could determine the functus officio issue and held that, after the first award, the Tribunal no longer had jurisdiction over any remaining liability issues.   

CKJV appealed to the Court of Appeal on the following grounds (paraphrased for brevity):

• Grounds 1-3: That the primary judge erred by:
  1. failing to require that an error going to jurisdiction attached to the majority decision of the Tribunal that it had jurisdiction and that there was no res judicata, issue estoppel or Anshun estoppel that prevented it from considering what had been described as CKJV’s ‘Contract Criteria Case’; 
  2. treating the functus officio doctrine as self-standing, independent of any estoppel; and
  3. disregarding the majority tribunal view that “all issues of contractual liability” did not include the Contract Criteria Case (on the basis that this was a mere error of law not going to jurisdiction).
• Ground 4: that the primary judge erred in finding that CKJV”s Contract Criteria Case fell within the expression “all issues of liability” and setting aside the award on the basis of the functus officio doctrine.

Outcome

In the Court of Appeal, the Court stated (at [92]) that an arbitral tribunal has authority to rule on its own jurisdiction under s 16(1) of the Act. However, it has no conclusive authority to determine its jurisdiction and the court, in an application under s 34(2)(a)(iii) of the Act, is required to review for itself the question of jurisdiction. 

The first instance decision was upheld by the Western Australian Court of Appeal.  Relevantly, the Court emphasised that:

• there was nothing unusual in the Court intervening where there is no jurisdiction for the Tribunal; as opposed to intervening where there is jurisdiction and a mere error;
• the Court will examine the question of jurisdiction de novo without the need to establish error; and
• the primary judge was correct in deciding that the majority of the arbitral tribunal had erred in concluding that: (i) Chevron’s contract criteria case was one of quantum (rather than liability); and (ii) that the Procedural Orders had not required all issues of contractual liability to be determined in the First Award.

Takeaway

Bifurcation is a common and useful tool in the arbitrator’s toolkit.  However, parties must be conscious of what they have agreed to and the impacts of the functus officio doctrine.   

The decision supports the finality of arbitration, which is a cornerstone to its attractiveness to commercial parties.