CBI Constructors Pty Ltd v Chevron Australia Pty Ltd

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HIGH COURT OF AUSTRALIA

GAGELER CJ,
GORDON, EDELMAN, STEWARD, GLEESON, JAGOT AND BEECH‑JONES JJ

CBI CONSTRUCTORS PTY LTD & ANOR  APPELLANTS

AND

CHEVRON AUSTRALIA PTY LTD  RESPONDENT

CBI Constructors Pty Ltd v Chevron Australia Pty Ltd

[2024] HCA 28

Date of Hearing: 16 April 2024
Date of Judgment: 14 August 2024

P22/2023

ORDER

Appeal dismissed with costs.

On appeal from the Supreme Court of Western Australia

Representation

J C Sheahan KC with B Yin for the appellants (instructed by Clayton Utz)

S L Doyle KC with S J Davis and D C McKimmie for the respondent (instructed by Norton Rose Fulbright)

Notice:  This copy of the Court's Reasons for Judgment is subject to formal revision prior to publication in the Commonwealth Law Reports.

  1. GAGELER CJ, GORDON, EDELMAN, STEWARD AND GLEESON JJ. An arbitral tribunal in Western Australia, in a domestic commercial arbitration governed by the UNCITRAL Model Law on International Commercial Arbitration ("the Model Law")[1] and the UNCITRAL Arbitration Rules ("the UNCITRAL Rules"),[2] issued an award that decided all issues of liability. The arbitral tribunal then issued a subsequent award in which the tribunal decided a new issue of liability. This appeal concerns whether the Supreme Court of Western Australia had the power under s 34(2)(a)(iii) of the Commercial Arbitration Act 2012 (WA) ("the Arbitration Act") to set aside that subsequent award on the grounds that the tribunal's authority ceased when it issued the earlier award, and the tribunal was then functus officio. And if the Supreme Court had that power, by what standard was the Supreme Court to exercise it?

    [1]UNCITRAL Model Law on International Commercial Arbitration (1985) as amended by the United Nations Commission on International Trade Law on 7 July 2006, given force of law in Australia by the International Arbitration Act 1974 (Cth) and, relevantly, applying to domestic commercial arbitrations as modified by the Commercial Arbitration Act 2012 (WA).

    [2]Arbitration Rules of the United Nations Commission on International Trade Law, initially adopted in 1976 (General Assembly resolution 31/98) and revised in 2010 (General Assembly resolution 65/22).

  2. For the reasons that follow, the Supreme Court had power under s 34(2)(a)(iii) of the Arbitration Act to set aside the subsequent award if the Supreme Court determined de novo that the tribunal was functus officio.

    Background

  3. The arbitration arose from a dispute concerning a Contract in relation to an offshore oil and gas project conducted by the respondent ("Chevron"), known as the Gorgon Project. The governing law of the Contract was that of Western Australia.[3] Under the Contract, the appellants (collectively, "CKJV") provided staff to work at certain construction sites and Chevron reimbursed CKJV for the cost of the staff ("Staff Costs"). CKJV contended that Chevron had underpaid it for Staff Costs. Chevron alleged (by counterclaim) that it had been overcharged by, and had overpaid, CKJV.

    [3]Subject to some express exclusions which are not relevant to the resolution of the appeal.

  4. The Contract provided that "any dispute or controversy arising out of" the Contract, including "any…

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Details
Case
[2024] HCA 28
Decision Date

CaseChat Overview and Summary

The appeal concerned an application to set aside an interim arbitral award. The dispute arose from a contract between CBI Constructors Pty Ltd and Kent Projects Pty Ltd (collectively, CKJV) and Chevron Australia Pty Ltd (Chevron) concerning an offshore oil and gas project. CKJV claimed Chevron had underpaid it for staff costs, while Chevron counterclaimed that it had been overcharged and overpaid. The parties had agreed to resolve disputes through binding arbitration under the UNCITRAL Rules, with awards to be final and binding.

The arbitral tribunal issued a first interim award determining issues of liability, finding that CKJV was entitled to recover actual staff costs incurred, not contractual rates, and that Chevron's counterclaim regarding overpayment was also subject to certain adjustments. CKJV subsequently repleaded its case on quantum, which Chevron objected to on grounds of *res judicata*, issue estoppel, *Anshun* estoppel, and that the tribunal was *functus officio*. The tribunal rejected Chevron's objections and issued a second interim award. Chevron then applied to the Supreme Court of Western Australia to set aside this second award under section 34(2)(a)(iii) of the *Commercial Arbitration Act 2012* (WA), arguing the tribunal lacked authority. The primary judge set aside the award, finding the tribunal was *functus officio*, and the Court of Appeal dismissed Chevron's subsequent appeal.

The High Court of Australia considered whether the Court of Appeal erred in holding that the Supreme Court had the power to set aside the second interim award under section 34(2)(a)(iii) of the *Commercial Arbitration Act 2012* (WA) and whether the standard of review applied by the Supreme Court was a *de novo* review. The Court determined that section 34(2)(a)(iii) permits a court to set aside an award if it deals with a dispute not contemplated by or falling within the submission to arbitration, or contains decisions beyond the scope of that submission. The Court affirmed that the question of whether an arbitral tribunal has exceeded its jurisdiction, including by becoming *functus officio* in relation to issues already determined, is a matter that a court can review *de novo* under section 34(2)(a)(iii). The Court found that the first interim award had finally determined the issues of liability, and the subsequent repleaded case on quantum by CKJV related to those same issues, thus falling beyond the scope of the tribunal's authority after the first award.

The High Court dismissed the appeal, upholding the decision of the Court of Appeal. The Court concluded that the Supreme Court had the power to review the tribunal's decision *de novo* and correctly found that the tribunal had acted *functus officio* in issuing the second interim award, thereby exceeding the scope of the submission to arbitration. Consequently, the second interim award was properly set aside.

Orders

Orders of the court

Appeal dismissed with costs.

Background

Background to the litigation

For the reasons that follow, the Supreme Court had power under s 34(2)(a)(iii) of the Arbitration Act to set aside the subsequent award if the Supreme Court determined de novo that the tribunal was functus officio.Background The arbitration arose from a dispute concerning a Contract in relation to an offshore oil and gas project conducted by the respondent ("Chevron"), known as the Gorgon Project. The governing law of the Contract was that of Western Australia.[3] Under the Contract, the appellants (collectively, "CKJV") provided staff to work at certain construction sites and Chevron reimbursed CKJV for the cost of the staff ("Staff Costs"). CKJV contended that Chevron had underpaid it for Staff Costs. Chevron alleged (by counterclaim) that it had been overcharged by, and had overpaid, CKJV. [3]Subject to some express exclusions which are not relevant to the resolution of the appeal. The Contract provided that "any dispute or controversy arising out of" the Contract, including "any dispute or controversy regarding the existence, construction, validity, interpretation, enforceability or breach" of the Contract, would "be exclusively and finally settled" by arbitration, that the arbitration would be administered using the UNCITRAL Rules, and that any award would "be final and binding". The Contract had the effect that the terms of the arbitration agreement were enforceable under the Arbitration Act, that any disputes relating to, or in connection with, the enforceability of the arbitration agreement would only be brought in the Supreme Court of Western Australia, and that CKJV and Chevron consented to the exclusive jurisdiction of that Court for that purpose. CKJV commenced arbitration proceedings against Chevron in February 2017. In general terms, CKJV contended, on a number of bases, that it was entitled to recover Staff Costs on the basis of contractual "rates", rather than actual costs, whereas Chevron contended (by way of its counterclaim) that it had overpaid CKJV for amounts beyond what was contractually agreed based on actual costs. In May 2017, the arbitral tribunal fixed the substantive hearing for November 2018. About three months before the November hearing, Chevron provided amended particulars of its counterclaim, which included a methodology for calculating the alleged overpayment. In order to allow CKJV an opportunity to respond to the particulars, and to preserve the November hearing, the arbitral tribunal issued a series of procedural orders bifurcating the proceedings between issues of liability and issues of quantum. The November hearing dealt with "all issues of liability" under the Contract in respect of CKJV's claimed entitlement to reimbursement of Staff Costs and Chevron's liability for reimbursing CKJV for those costs, as well as Chevron's counterclaim in respect of its alleged overpayment. The November hearing, relevantly, excluded "all quantum and quantification issues arising out of [Chevron's] Counterclaim". In December 2018, the arbitral tribunal issued an interim award ("the First Interim Award"). CKJV failed in its primary case that it was entitled, on the proper construction and operation of the Contract, to recover Staff Costs by reference to contractual rates. The First Interim Award relevantly held that there was no binding agreement between the parties to convert the price for staff from actual costs to rates and there was no estoppel to that effect. In substance, the First Interim Award held that "CKJV's entitlement was to be paid actual costs". The arbitral tribunal also held, in response to Chevron's counterclaim, that CKJV was entitled to bring to account amounts for costs actually incurred but for which it had not billed Chevron.

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

GAGELER CJ, GORDON, EDELMAN, STEWARD AND GLEESON JJ JAGOT AND BEECH-JONES JJ
Significantly, the Court recorded in a footnote[68] that it would face a "different issue" if other "gateway matters", such as whether the parties had a valid arbitration agreement at all, were in issue because they were "presumptively for courts to decide" such that "[a] court may ... review an arbitrator's determination of such a matter de novo absent 'clear[] and unmistakabl[e]' evidence that the parties wanted an arbitrator to resolve the dispute". [68](2013) 569 US 564 at 569, fn 2.Conclusion For those reasons, the appeal should be dismissed with costs. The appeal should be allowed. Whether or not the First Interim Award precluded the arbitral tribunal from entertaining and upholding the appellants' repleaded case in the Second Interim Award was a matter within that tribunal's jurisdiction to decide. It was not a matter to be considered by a court hearing an application to set aside the Second Interim Award under the statutory equivalent of Art 34 of the UNCITRAL Model Law on International Commercial Arbitration ("the Model Law").[69] [69]UNCITRAL Model Law on International Commercial Arbitration (1985), as amended by the United Nations Commission on International Trade Law on 7 July 2006 ("Model Law"); Commercial Arbitration Act 2012 (WA) ("Arbitration Act"), s 34.Background The appellants, CBI Constructors Pty Ltd and Kent Projects Pty Ltd ("CKJV"), entered into a contract with the respondent, Chevron Australia Pty Ltd ("Chevron"), to supply construction and other services for Chevron's offshore oil and gas project on Barrow Island. The parties agreed that the law of Western Australia governed their contract and relationship. They agreed to submit any dispute regarding the contract's enforcement or breach to be "exclusively and finally settled" by direct negotiations, and if that failed, by mediation, and if that failed, by "binding arbitration". The parties agreed to arbitration using the UNCITRAL Arbitration Rules ("the UNCITRAL Rules")[70] and agreed that "any award shall be final and binding". The UNCITRAL Rules expressly empower an arbitral tribunal to "make separate awards on different issues at different times".[71] The parties also agreed that any disputes relating to or in connection with the enforceability of their "arbitration contract" were to be "brought only" in the Supreme Court of Western Australia. [70]Arbitration Rules of the United Nations Commission on International Trade Law, initially adopted in 1976 (General Assembly resolution 31/98) and revised in 2010 (General Assembly resolution 65/22) ("UNCITRAL Rules").[71]UNCITRAL Rules, Art 34(1). A dispute arose in relation to CKJV's entitlement to the reimbursement of its costs of supplying staff and other services to Chevron under the contract. The dispute was referred to arbitration. Arbitral proceedings commenced in February 2017 before a three-person arbitral tribunal. CKJV claimed that it had been underpaid because it was entitled to recover costs on the basis of contractual rates that had been agreed or which Chevron was estopped from denying. Chevron counterclaimed that CKJV was only entitled to recover staff costs that it had actually incurred. Chevron sought to recover what it contended was an overpayment, being amounts paid in excess of the costs actually incurred by CKJV. In response to Chevron's counterclaim, CKJV contended that it was entitled to set off the actual costs CKJV had incurred but not yet invoiced to Chevron against the amount claimed by Chevron. Chevron contended that such a set‑off was precluded by a separate agreement between the parties.

Ratio Decidendi

Legal Principle Established

Established by: GAGELER CJ, GORDON, EDELMAN, STEWARD AND GLEESON JJ, JAGOT AND BEECH-JONES JJ

At the level of the courts, s 34 of the Arbitration Act, drawn from Art 34 of the Model Law, provides that recourse to a court against an arbitral award may only be made by an application for setting aside an award in limited circumstances.[23] The first set of circumstances is where the party making the application "furnishes proof" of one of the following:(1)a party to the arbitration agreement was under some incapacity, or the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication in it, under the law of Western Australia (s 34(2)(a)(i)); (2)the party making the application was not given proper notice of the appointment of an arbitral tribunal or of the arbitral proceedings or was otherwise unable to present the party's case (s 34(2)(a)(ii)); (3)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 (s 34(2)(a)(iii)); or (4)the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of the Arbitration Act from which the parties cannot derogate, or, failing such agreement, was not in accordance with that Act (s 34(2)(a)(iv)).The second set of circumstances is where the court finds that: (1) the subject matter of the dispute is not capable of settlement by arbitration under the law of Western Australia (s 34(2)(b)(i)); or (2) the award is in conflict with the public policy of Western Australia (s 34(2)(b)(ii)).Ground 1 – Chevron's application to set aside the Second Interim Award under s 34(2)(a)(iii) of the Arbitration Act[23]Or by an appeal on a question of law: Arbitration Act, s 34A. See also Model Law, Art 5 (cf Arbitration Act, s 5). As has just been explained, the First Interim Award was final and binding. But what did it resolve? Determining the scope of the issues that an arbitral tribunal resolved finally and conclusively is answered by primarily focusing on what the tribunal said and concluded in the award.[24] The Court of Appeal undertook that analysis[25] and found that, by the First Interim Award, the arbitral tribunal determined all issues of liability and that the Contract Criteria Case determined in the Second Interim Award was a case on liability. As already noted, those findings were not challenged in this Court.[26] [24]See, eg, ONGC [2023] SGHC 197 at [35].[25]See [12]-[13] above.[26]See [13] above. In Fidelitas Shipping Co Ltd v V/O Exportchleb,[27] Diplock LJ distinguished the effect of a "final award" on an arbitrator from its effect as an issue estoppel on the parties. Diplock LJ said that "the arbitrator himself becomes functus officio as respects all the issues between the parties" and that the effect of an "interim award" was that "the arbitrator is functus officio as respects the issues to which his interim award relates".[28] Diplock LJ thus considered that where the award is an interim award, such an award "creates an issue estoppel or issue estoppels between the parties and the arbitrator is functus officio as respects the issues to which his interim award relates".[29] While Fidelitas was decided under the Arbitration Act 1950 (UK) in the procedural context of an interim award having been made in the form of a case stated, a procedure which has no equivalent under the Model Law, the reasoning of Diplock LJ in the respect above has been accepted in Australian and English courts.[30] It has been adopted by leading commentaries as authority for the general proposition that if an award is an interim award, "the arbitrator still has authority to deal with the matters left over, although he is functus officio as regards matters dealt with in the award".[31] And the Court of Appeals of New York has held that "partial determinations may be treated as final awards where the parties expressly agree both that certain issues submitted to the arbitrators should be decided in separate partial awards and that such awards will be considered to be final" with the result that the arbitral tribunal lacks "authority to reconsider the resulting partial final award".[32] This international treatment confirms the approach of Diplock LJ described above and informs the intended meaning of Art 34(2) of the UNCITRAL Rules. [27][1966] 1 QB 630 at 644.[28][1966] 1 QB 630 at 644.[29][1966] 1 QB 630 at 644.[30]ABB Service Pty Ltd v Pyrmont Light Rail Company Ltd (2010) 77 NSWLR 321 at 337 [70], 341-342 [93]-[97]; Discovery Beach [2011] QSC 306 at [68]; Emirates Trading Agency LLC v Sociedade de Fomento Industrial Private Ltd [2016] 1 All ER (Comm) 517 at 526 [26], 527-528 [33], [35]-[36]. See also Alvaro v Temple [2009] WASC 205 at [67]. [31]Mustill and Boyd, The Law and Practice of Commercial Arbitration in England, 2nd ed (1989) at 405. See also Sutton, Gill and Gearing, Russell on Arbitration, 24th ed (2015) at 297 [6-016], 352 [6-166]. [32]American International Specialty Lines Insurance Company v Allied Capital Corporation (2020) 149 NE 3d 33 at 38.