Cbi Constructors Pty Ltd v Chevron Australia Pty Ltd
[2023] WASCA 1
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
TITLE OF COURT : THE COURT OF APPEAL (WA)
CITATION: CBI CONSTRUCTORS PTY LTD -v- CHEVRON AUSTRALIA PTY LTD [2023] WASCA 1
CORAM: QUINLAN CJ
MURPHY JA
BLEBY AJA
HEARD: 8 - 9 SEPTEMBER 2022
DELIVERED : 17 JANUARY 2023
FILE NO/S: CACV 95 of 2021
BETWEEN: CBI CONSTRUCTORS PTY LTD
First Appellant
KENT PROJECTS PTY LTD
Second Appellant
AND
CHEVRON AUSTRALIA PTY LTD
Respondent
ON APPEAL FROM:
Jurisdiction : SUPREME COURT OF WESTERN AUSTRALIA
Coram: KENNETH MARTIN J
Citation: CHEVRON AUSTRALIA PTY LTD -v- CBI CONSTRUCTORS PTY LTD [2021] WASC 323
File Number : ARB 8 of 2020, ARB 9 of 2020
Catchwords:
Arbitration - Dispute between principal and contractor - Referred to arbitration - Tribunal orders bifurcation of hearing - First hearing to address liability - Second hearing to address quantum - Arbitral tribunal delivers First Interim Award pursuant to bifurcation order - After delivery of First Interim Award contractor pleads 'Contract Criteria Case' - Principal objects to contractor running Contract Criteria Case as a further liability claim - Principal alleges arbitral tribunal functus offico on issues of liability - Majority of Tribunal determines contractor not precluded from running Contract Criteria Case at second hearing - Majority finds arbitral tribunal not functus officio with respect to Contract Criteria Case - Arbitral tribunal delivers Second Interim Award upholding, by majority, contractor's Contract Criteria Case
Arbitration - Application by principal to primary judge to set aside Second Interim Award - Section 34(2)(a)(iii) of Commercial Arbitration Act 2012 (WA) - Primary judge finds arbitral tribunal functus offico in relation to liability issues including Contract Criteria Case - Application granted
Arbitration - Appeal - Whether primary judge erred in law in setting aside Second Interim Award - Whether judge erred in finding arbitral tribunal functus officio with respect to contractor's Contract Criteria Case - Distinction between matters of admissibility and jurisdiction - Relationship between functus officio and res judicata estoppels - Nature of application under s 34(2)(a)(iii) of Commercial Arbitration Act - Role of deference - Court has final authority to determine jurisdiction
Legislation:
Commercial Arbitration Act 2012 (WA), s 16(1), s 34(2)(a)(iii)
Result:
Appeal dismissed
Category: A
Representation:
Counsel:
| First Appellant | : | J Gleeson KC & T N Owen |
| Second Appellant | : | J Gleeson KC & T N Owen |
| Respondent | : | S Doyle KC & S J Davis |
Solicitors:
| First Appellant | : | Clayton Utz |
| Second Appellant | : | Clayton Utz |
| Respondent | : | Norton Rose Fulbright Australia |
Case(s) referred to in decision(s):
ABB Service Pty Ltd v Pyrmont Light Rail Company Ltd [2010] NSWSC 831; (2010) 77 NSWLR 321
AKN v ALC [2015] SGCA 18
Alvaro v Temple [2009] WASC 205
APG Homes Pty Ltd v Primary Creations Pty Ltd [2009] WASC 227
AQZ v ARA [2015] SGHC 49
Badar Bee v Habib Merrican Noordin [1909] AC 615
Bass v Permanent Trustee Co Ltd [1999] HCA 9; (1999) 198 CLR 334
Bell Group NV (in liq) v Insurance Commission of Western Australia [2018] WASCA 179
Blaikie v Blaikie [1950] SASR 247
Blair v Curran [1939] HCA 23; (1939) 62 CLR 464
BTN v BTP [2020] SGCA 105
Cameron Australasia Pty Ltd v AED Oil Ltd [2015] VSC 163
Chevron Australia Pty Ltd v CBI Constructors Pty Ltd [2021] WASC 323
Codelfa Construction Pty Ltd v State Rail Authority of New South Wales [1982] HCA 24; (1982) 149 CLR 337
Consolidated Contractors Group SAL (Offshore) v Ambatovy Minerals SA [2017] ONCA 939
Corporacion Transnacional de Inversiones, SA de C V v STET International, SpA [1999] OJ No 3573
Dallah Real Estate and Tourism Holding Co v Ministry of Religious Affairs of the Government of Pakistan [2010] UKSC 46; [2011] 1 AC 763
Discovery Beach Project Pty Ltd v Northbuild Construction Pty Ltd [2011] QSC 306
Dobbs v National Bank of Australasia Ltd (1935) 53 CLR 643
Downer v Siegel 489 F3d 623 (5th Cir 2007)
Effem Foods Pty Ltd v Trawl Industries of Australia Pty Ltd (in liq) (1993) 43 FCR 510
Fidelitas Shipping Co Ltd v V/O Exportchleb [1966] 1 QB 630
Grand Pacific Holdings Ltd v Pacific Holdings China Ltd (in liq) (No 1) [2012] HKCA 200; [2012] 4 HKLRD 1; [2012] 3 HKC 498
Henderson v Amadio Pty Ltd (unreported decision of the Full Court of the Federal Court, 16 June 1995, BC9507270)
Hoysted v Federal Commissioner of Taxation (1921) 29 CLR 537
Hoysted v Federal Commissioner of Taxation [1926] AC 155; (1925) 37 CLR 290
Hui v Esposito Holdings Pty Ltd [2017] FCA 648; (2017) 345 ALR 287
IMC Aviation Solutions Pty Ltd v Altain Khuder LLC [2011] VSCA 248; (2011) 38 VR 303
Indian Farmers Fertiliser Cooperative Ltd v Gutnick [2015] VSC 724; (2015) 304 FLR 199
Lin Tiger Plastering Pty Ltd v Platinum Construction (Vic) Pty Ltd [2018] VSC 221; (2018) 57 VR 576
lululemon athletica canada inc v Industrial Color Productions Inc [2021] BCCA 428
Minister for Indigenous Affairs v MJD Foundation Ltd [2017] FCAFC 37; (2017) 250 FCR 31
Mountain v Parr [1899] 1 QB 805
O'Toole v Charles David Pty Ltd [1991] HCA 14; (1991) 171 CLR 232
Porzig v Dresdner, Kleinwort, Benson, N Am LLC, 497 F3d 133 (2d Cir 2007)
Quintette Coal Limited v Nippon Steel Co [1990] BCJ No 2241
R v Cripps; Ex parte Muldoon [1984] QB 686
S Co v B Co [2014] HKCFI 1440
Sino Dragon Trading v Noble Resources International PTE Ltd [2016] FCA 1131
SL Sethia Liners Ltd v Naviagro Maritime Corporation (The Kostas Melas) [1981] 1 Lloyd's Rep 18
TCL Air Conditioner (Zhongshan) Co Ltd v Judges of the Federal Court of Australia [2013] HCA 5; (2013) 251 CLR 533
The United Mexican States v Cargill [2011] ONCA 622; (2011) 107 OR (3d) 528
Tomlinson v Ramsey Food Processing Pty Ltd [2015] HCA 28; (2015) 256 CLR 507
Western Australia v Mineralogy Pty Ltd [2020] WASC 58
Woodbud Pty Ltd v Warea Pty Ltd (1995) 125 FLR 346
York International Pte Ltd v Voltas Ltd [2022] SGHC 153
Table of Contents
Overview of the background
The contractual dispute
The arbitration agreement
The referral to arbitration
Arbitration proceedings
First arbitral hearing and First Interim Award
Further procedural orders
Jurisdictional issue
Second Interim Award on the jurisdictional issue
Second Interim Award on the Contract Criteria Case
The primary decision
Grounds of appeal and submissions
Grounds of appeal
CKJV's submissions
Grounds 1 and 2
Ground 3
Ground 4
Chevron's submissions
Grounds 1 - 2
Ground 3
Ground 4
Principles
Arbitration
Res judicata and issue estoppel
Issues separately determined
Functus officio
Application under s 34(2)(a)(iii) of the Act
BTN v BTP
Disposition
The arbitration agreement
The parties' cases on liability
The question of a split hearing on liability
The First Interim Award
Appeal grounds 1 to 3
Appeal ground 4
Conclusion
Appendix - the course of the arbitration up to the conclusion of the First Hearing
CKJV's statement of claim dated 17 May 2017
Chevron's particulars dated 16 June 2017
Chevron's Defence and Counterclaim dated 28 July 2017
CKJV's reply and defence to counterclaim dated 13 October 2017
Chevron's response to CKJV's request for further and better particulars of defence and counterclaim dated 1 December 2017
CKJV's substituted reply to defence dated 15 December 2017
Chevron's further and better particulars of loss and damage dated 25 January 2018
CKJV's Defence to Counterclaim dated 16 February 2018
CKJV's first application for a split trial dated 16 March 2018
Chevron's Full Particulars of Counterclaim dated 22 June 2018
CKJV's second application for a split trial dated 16 July 2018
Chevron's amended full particulars of counterclaim dated 25 July 2018
The hearing of the second split application: 26 July 2018
Procedural Order 14, dated 29 July 2018
August 2018 - Chevron's proposal to adduce Mr Meredith's report and submissions on further interlocutory orders
Procedural Order 15, dated 21 August 2018
CKJV's response to Chevron's request for particulars, dated 24 August 2018
Procedural Order 15A, dated 10 September 2018
CKJV's further and better particulars dated 12 September 2018
Chevron's statement outlining evidence of Mr Meredith for the First Hearing, 14 September 2018
CKJV's submissions objecting to Mr Meredith's evidence for the First Hearing on issues of liability, 21 September 2018
Interlocutory hearing on 2 October 2018 and the parties' submissions
Procedural Order 17, dated 3 October 2018
CKJV's opening note for the First Hearing, dated 29 October 2018
CKJV's amended statement of claim dated 7 November 2018
Chevron's amended defence and counterclaim dated 12 November 2018
First arbitral hearing, November 2018
CKJV's closing note for the First Hearing dated 21 November 2018
Chevron's outline of closing submissions dated 21 November 2018
Day 12 of First Hearing, 23 November 2018
Parties' statements of issues for First Hearing
The First Interim Award dated December 2018
Issues summarised by Tribunal
Issues 1 - 3
Issue 5
The 'Award' in the First Interim Award dated December 2018
JUDGMENT OF THE COURT:
This is an appeal by the appellants (collectively, CKJV) against a decision by Kenneth Martin J in Chevron Australia Pty Ltd v CBI Constructors Pty Ltd[1] (primary decision).
[1] Chevron Australia Pty Ltd v CBI Constructors Pty Ltd [2021] WASC 323.
The primary proceedings involved certain applications by the respondent (Chevron) against CKJV under the Commercial Arbitration Act 2012 (WA) (Act) in respect of an arbitral award made in favour of CKJV. Chevron applied to set aside the award under s 34(2)(a)(iii) of the Act. Kenneth Martin J upheld Chevron's application and set aside the award. CKJV now appeals that order and an associated cost order.
The arbitration proceedings concerned a contractual dispute involving, relevantly, a claim by CKJV in respect of its alleged entitlement to the reimbursement of costs of 'Staff' and other services provided to Chevron in relation to Chevron's offshore oil and gas project known as the Gorgon project. Essentially the dispute arose over CKJV's contention that Chevron had underpaid it, and Chevron's contention (by counterclaim) that CKJV had overcharged it.
In general terms, Chevron had commenced the arbitration proceedings contending that in respect of Staff, CKJV was only entitled to recover costs actually incurred, whereas CKJV contended that it was entitled to recover costs on the basis of contractual 'Rates', rather than actual costs incurred. CKJV put its case on the bases that (1) the parties had varied or amended the Contract to convert its entitlement from a Cost‑based remuneration to Rates‑based remuneration or (2) Chevron was estopped from contending that CKJV was not entitled to Rates‑based remuneration. CKJV raised an alternative case, to the effect that even if it was only entitled to actual costs incurred for Staff as alleged by Chevron, it was nevertheless entitled to set‑off, against the amounts claimed by Chevron, actual costs incurred for which it had not yet billed Chevron. In response to that alternative case, Chevron alleged that a subsequent agreement between the parties referred to as the 'Letter of Agreement' (LOA), on its proper construction, precluded CKJV from raising such offsets.
The award that was set aside by the learned primary judge was dated 4 September 2020. It was the second of two interim awards (Second Interim Award). The earlier award, issued 14 December 2018 (First Interim Award) related to issues of liability in accordance with earlier interlocutory arbitral orders, including Procedural Order 14, the terms of which included:
1.[CKJV's] application for bifurcation is granted in the following terms:
(a)There shall be heard first all issues of liability in respect of [CKJV's] claim and [Chevron's] Counterclaim (the First Hearing). Such issues, for the avoidance of doubt, shall exclude all quantum and quantification issues arising out of [Chevron's] Counterclaim and the Set-Off issues raised in [CKJV's] Defence to Counterclaim (as set out in Appendices 1 and 2 thereto).
(b)The First Hearing shall take place between 5 ‑ 23 November 2018 …
(c)A further hearing (the Second Hearing) shall take place on a date to be fixed and shall address all matters outstanding in issue between the parties including all quantum qualification [sic] issues not dealt with in the First Hearing.
…
3.The Parties shall confer with a view to agreeing the terms of the formal order to reflect the decisions set out in Paragraph 1 above and to produce to the Tribunal, by close of business (WA time) 2 August 2018, a jointly agreed proposed order for the Tribunal to consider. If agreement cannot be reached then each party should submit by close of business (WA time) 3 August 2018 the order that it proposes and the Tribunal shall thereafter issue further directions.
In the First Interim Award, CKJV failed in its primary case that it was entitled, on the proper construction and operation of the Contract as varied, to recover remuneration for Staff by reference to contractual Rates. CKJV's claim based on an estoppel was also dismissed. However, the Arbitral Tribunal also determined that, on CKJV's alternative case, in response to Chevron's counterclaim, CKJV was entitled to raise matters going to show what the overall costs of the provision of Staff actually were. In that regard, the Tribunal found in effect that the LOA did not, on its proper construction, preclude CKJV from raising by way of defence amounts in respect of costs actually incurred but for which it had not billed Chevron.
The Second Interim Award addressed (in general terms):
1.whether CKJV was precluded (by issue estoppel, res judicata or Anshun estoppel) from litigating a case, and whether the Tribunal was by the principles of functus officio precluded from hearing a case, in which CKJV alleged, after the determination of the First Interim Award, that on the proper construction of the contractual provisions relating to reimbursement of Staff, it was entitled to recover not just the actual costs incurred, but a cost determined by reference to certain contractual criteria referred to in Attachment C of the Contract as amended by an amending agreement described as 'DSP4'[2] (CKJV's 'Contract Criteria Case'); and
2.if the Tribunal was not functus and CKJV was not so precluded, whether CKJV's Contractual criteria Case was correct on the proper construction of the contract.
[2] 'DSP' was an acronym for 'Decision Support Package'.
In the Second Interim Award, the Arbitral Tribunal by majority (Sir Robert Akenhead as Chairman and Mr P Greenham), found that the Tribunal was not functus and that CKJV was not precluded from arbitrating its Contract Criteria Case in respect of Chevron's liability for the cost of Staff and, in effect, upheld CKJV's case in that regard. The Arbitrator in the minority (the Hon C Pullin KC) found that CKJV was precluded from running such a case on the basis that the Arbitral Tribunal had ordered a split hearing with all issues of liability determined by the First interim Award. The Tribunal was accordingly functus officio in relation to liability issues, and had no jurisdiction in the Second Interim Award hearing to adjudicate CKJV's Contract Criteria Case. The learned primary judge accepted, in effect, that Arbitrator Pullin KC was correct to conclude that the Tribunal was functus officio.
The learned primary judge's conclusion that the Tribunal was functus officio when purportedly determining the Contract Criteria Case was, in our view, correct and the appeal should be dismissed for the reasons which follow.
Overview of the background
The contractual dispute
In general terms, the relevant contract, by Attachment C - Pricing Schedule, contained detailed pricing provisions for the costs of 'Staff' and the costs of 'Craft Labour'. In the First Interim Award, the Tribunal said that payment for 'Staff' was based on actual cost incurred, whereas 'Craft Labour' was to be paid by reference to contractual 'Rates'.[3] There was express provision in Attachment C - Pricing Schedule to the effect that the parties 'may mutually agree to convert Cost items into Rate items'.[4]
[3] First Interim Award, par 24; GB 569.
[4] First Interim Award, par 43; GB 575.
In 2016, CKJV and Chevron reached an agreement in principle to settle various disputes as well as to provide for various amendments going forward. The agreement was recorded in the LOA, in August 2016.[5]
[5] First Interim Award, par 33; GB 570.
Under a contractual audit scheme, Chevron conducted various 'Audit Inquiries' including, relevantly, Audit Inquiries 6, 7, 9 and 10, which identified an alleged overpayment of $88 million.[6]
[6] First Interim Award, par 34; GB 570.
In the following months, Chevron deducted or set‑off a total of $114 million from payments otherwise due to CKJV.[7]
The arbitration agreement
[7] First Interim Award, par 35; GB 570.
In the First Interim Award, the arbitrators noted that the arbitration proceedings to which the First Interim Award related were commenced pursuant to Article 21.2.1 of the Contract Conditions, which included the following provisions:[8]
[8] GB 562 - 563.
21.2Any Dispute shall be exclusively and finally settled as set forth hereafter.
21.2.1Failing settlement of the Dispute by direct negotiations …, either [CKJV] or [Chevron] may initiate mediation proceedings ... Should mediation fail to resolve the matter …, then either [CKJV] or [Chevron] may initiate binding arbitration by giving Notice to the other party.
21.2.2The arbitration will be administered by the Institute of Arbitrators and Mediators, Western Australian Chapter ('Institute') using the UNCITRAL rules. …
…
21.2.6The parties agree that the Dispute should be resolved as speedily as possible. …
21.2.7The arbitrator(s) shall give a reasoned award in writing and any award shall be final and binding. [CKJV] and [Chevron] expressly agree to exclude any right of appeal or (except for enforcement or confirmation) reference to any court[.] (emphasis added)
The referral to arbitration
In the First Interim Award, the arbitrators noted that by letter dated 10 February 2017, CKJV gave written notice pursuant to cl 21.2.1 of the Contract Conditions, as follows:[9]
[9] GB 564.
[CKJV] is initiating arbitration proceedings with [Chevron] in the matters including, but not limited to:
(a)the Dispute between the parties regarding purported setoff rights [by Chevron] said to arise from Audit Inquiries 6, 7, 9 and 10;
(b)the non-payment by [Chevron] of outstanding amounts due to [CKJV] in breach of the Contract;
(c)a breach of the [LOA] by [Chevron] [to] the extent that the purported set offs [by Chevron] related to matters settled by the LOA;
(d)indemnification from [Chevron] in favour of [CKJV] for all costs, expenses, losses and liabilities arising from or connected with [Chevron's] breach of the LOA;
(e)interest due on amounts due and owing by [Chevron].
[CKJV] seeks that [Chevron]:
(a)make payment to [CKJV] of an amount in excess of AUD $130,000,000; and
(b)make payment in full of all further [CKJV] invoices, free from any further deductions or set-off [by Chevron] in relation to Audit Inquires 6, 7, 9 and 10 respectively.
Arbitration proceedings
The course of the arbitration proceedings is referred to in more detail in the Appendix to these reasons. At this point it is convenient to note the following.
On 16 March 2018, CKJV filed an application to 'bifurcate' the arbitration into two specific stages in respect of liability and quantum. The application was dismissed on 27 March 2018.
On 16 July 2018, CKJV filed a second 'bifurcation' application after Chevron filed, on 22 June 2018, its 'Full Particulars of Counterclaim'.
On 20 July 2018, Chevron filed an expert report by Mr Meredith in relation to the quantification of Chevron's claimed entitlement (by counterclaim) to recover amounts for which it had allegedly been overcharged in relation to Staff.
CKJV's second 'bifurcation' application was heard on 26 July 2018 and was allowed. The tribunal made Procedural Order 14 on 29 July 2018 referred to in [5] above.[10]
[10] Primary decision [13]; GB 436 - 440.
Pursuant to Procedural Order 14, on 21 August 2018, the Tribunal made Procedural Order 15, which included the following orders:
9.The First Hearing will concern all issues of liability only. All issues relating to the quantum and quantification or calculation of:
(a)[CKJV's] Claim
(b)[Chevron's] Counterclaim, and
(c)the Set‑Off issues raised in [CKJV's] Defence to [Chevron's] Counterclaim (as set out in Appendices 1 and 2 thereto)
shall not be heard at the First Hearing.
…
20.The Arbitral Tribunal will issue any Award arising from the First Hearing as soon as reasonably practicable after the receipt of final oral or written submissions … Such award shall not, without the leave of the Tribunal, be registered as a judgment before publication of the Second Award.
Chevron foreshadowed that it would seek to adduce at the first hearing a report from its quantum expert, Mr Meredith. On 3 October 2018 the Tribunal issued Procedural Order 17 to the effect that Chevron would not be able to adduce the Meredith report 'at the liability hearing between 5 and 23 November 2018'.
First arbitral hearing and First Interim Award
The first hearing occurred in Perth in November 2018 (First Hearing). In the First Interim Award, the Arbitral Tribunal unanimously found that there was no binding agreement before 2 September 2014 by which the parties agreed to convert 'Staff costs' to 'Rate items'.[11]
[11] First Interim Award, pars 42 - 77; GB 574 - 589.
The Tribunal, by majority, also found that:
1.The LOA did not evidence or contain any agreement between the parties to convert the Price for Staff from Cost items to Rate items.[12]
2.There was no estoppel precluding Chevron from contending that the parties had not entered into an agreement to convert Cost items to Rate items.[13]
3.In relation to Chevron's counterclaim for the recovery of amounts in excess of costs actually incurred in respect of Staff, CKJV was entitled to defend the counterclaim on the basis of 'matters going to show what the overall cost of the provision of Staff … actually was'.[14] In that regard, CKJV could bring to account, by way of set‑off or defence, amounts which it claimed were Staff costs which, in effect, had not been billed at the relevant time and the LOA, on its proper construction, did not preclude CKJV from raising such claims.[15]
[12] First Interim Award, pars 78 - 89; GB 591 - 592.
[13] First Interim Award, pars 106 - 128; GB 597 - 599.
[14] First Interim Award, par 244(b); GB 631.
[15] First Interim Award, pars 231 - 252; GB 626 - 633.
There was no indication in the First Interim Award that CKJV was contending that Staff costs were to be determined by reference to the Contract Criteria Case for which it subsequently contended at the hearing of the proceedings the subject of the Second Interim Award.
Further procedural orders
Following the First Interim Award, there were further procedural orders in relation to quantum. On 24 May 2019, the tribunal ordered CKJV to replead its case in a fashion that would better respond to Chevron's further amended statement of defence and counterclaim, and to Chevron's further amended full particulars of counterclaim, both filed 7 May 2019.[16]
[16] GB 695 - 698.
CKJV repleaded its case on 28 May 2019. Paragraph 3.10.3 provided tabulated information regarding the basis upon which it sought reimbursement of its Staff costs in the aftermath of the First Interim Award.[17]
Jurisdictional issue
[17] GB 708 - 710.
Chevron objected to CKJV's amended pleading. By par 2 of Chevron's written objection, it contended:[18]
2.By this pleading, [Chevron] sets out its case as to why:
(a)[CKJV] are prevented from pleading or contending for the case identified as the 'CKJV Case' in the expert report of Mr David van Homrigh, dated 7 May 2019:
(i)by reason of estoppel per rem judicatam and/or issue estoppel arising out of the interim award dated 14 December 2018 (Liability Award); and/or
(ii)because the Tribunal, having made determinations inconsistent with the 'CKJV Case' in the Liability Award, is functus officio with respect to the 'CKJV Case' and does not have jurisdiction or authority to determine the 'CKJV Case'[.] (original emphasis removed)
[18] Primary decision [32].
Chevron also alleged Anshun estoppel. The primary judge observed:[19]
[34]Chevron's core objection was that CKJV, by the new pleading, was seeking to run (at the second arbitral hearing that was only to address quantum issues) what was in substance, a fresh case upon liability concerning CKJV's reimbursement entitlement for Staff costs. Chevron argued that such a course was no longer open to CKJV. The bar arose either on a basis of res judicata (cause of action estoppel), issue estoppel, or by Anshun estoppel. Furthermore, the Tribunal was, as Chevron put it, then functus officio upon all issues of liability (by [Procedural Order 14] and at the issuance of the first interim award).
…
[35]Chevron's formal objection to CKJV's amended case on quantum issues forms the basis underlying its present applications. Chevron's key contention is that the Tribunal, having determined by its [F]irst [I]nterim [A]ward all issues of liability on CKJV's claim as well as upon Chevron's counterclaim, had then exhausted its authority and its jurisdiction to render any further determinations upon liability issues - even if those issues had not been previously raised at the earlier arbitral hearing.
[36]Put another way, Chevron contends that there was no longer any valid submission by the parties to the arbitral Tribunal for it to hear, consider or determine any further liability issues. That functus officio contention forms the significant focus of Chevron's present applications to this Court.
[19] Primary decision [34] - [36].
Chevron's strike out application was listed for a second arbitral hearing in August 2020. The Tribunal dealt with Chevron's objection not as a preliminary issue but together with the merits of CKJV's Contract Criteria Case. In the Second Interim Award, the Tribunal effectively upheld CKJV's Contract Criteria case, having first (by majority) dismissed Chevron's objections to jurisdiction.
Second Interim Award on the jurisdictional issue
The findings of the majority (Sir Robert Akenhead and Arbitrator Greenham) included findings to the effect that:
1.CKJV had not pleaded the Contract Criteria Case for the purposes of the First Hearing.[20]
2.Prior to July 2018, neither party ran a case as to how 'actual cost in the context of Attachment C [of the Contract] was to be ascertained'.[21]
3.It was not clear on the pleadings prior to Procedural Order 14 what either party meant by 'actual cost'.[22]
4.There was no admission by CKJV on the pleadings as to how 'actual cost' was, contractually, to be ascertained.[23]
5.While the Contract Criteria Case had not been articulated prior to or at the First Hearing, it was 'commercially unrealistic to have required parties faced with the hearing on liability to raise every point that might … be made by them' and 'it might reasonably be inferred [that CKJV] had not had time to ascertain … whether the Contract Criteria Case (if it had thought about it) would make any real difference financially one way or the other'.[24]
6.Procedural Order 14 should be interpreted as meaning that the First Hearing would not resolve issues relating to quantum and quantification, which issues would include the basis of quantification of 'actual cost'.[25]
7.The First Interim Award did not 'decide how actual cost or Cost should be ascertained under the Contract'.[26]
[20] Second Interim Award, pars 6.8, 8.12, 8.17(f), 8.23(f), 8.23(g), 8.23(k), 9.12(b), 9.12(d), 10.5(b); GB 777, 783, 787, 790 ‑ 792, 795 ‑ 796, 798.
[21] Second Interim Award, pars 6.4 - 6.5; GB 776.
[22] Second Interim Award, par 6.6; GB 776.
[23] Second Interim Award, par 6.7; GB 777.
[24] Second Interim Award, par 6.8; GB 777.
[25] Second Interim Award, pars 6.9, 8.23(h)(iii); GB 777, 791.
[26] Second Interim Award, par 6.11; GB 777 (emphasis original).
Arbitrator Pullin KC dissented. The primary judge observed:[27]
[43]On the other hand, Arbitrator Pullin in dissenting reasons, concluded in effect, that Chevron was correct - and that all issues of liability under CKJV's claim and under Chevron's counterclaim had been the subject of the first interim award. Arbitrator Pullin assessed that CKJV's Contract Criteria Case was not just the raising of a quantum issue, but rather, that there was an anterior liability aspect to it - which was, by then, impermissible to run. …
[44]Arbitrator Pullin would have accepted Chevron's res judicata, issue estoppel and functus officio arguments (which effectively all dovetailed), thereby closing off any further consideration by the Tribunal at the second hearing of further issues of liability on all sides.
[45]However, this was the minority view. In light of the majority position effectively finding against functus officio, the Tribunal then proceeded to determine the merits of CKJV's Contract Criteria Case for Staff costs under the second interim award. In the end, the Tribunal decided in favour of CKJV.
Second Interim Award on the Contract Criteria Case
[27] Primary decision [43] - [45].
On the substantive merits of the Contract Criteria Case, based on the findings of the majority, the Tribunal 'declared decided and awarded' that:[28]
1.CKJV was entitled under the Contract to be paid for its Staff in accordance with the Staff Costs Contract Criteria as amended by DSP 4 as set out in Attachment 4 to the Second Interim Award;
2.Chevron's case on the correction of DSP 4 by construction as set out in pars 51 - 60 of Chevron's Amended Consolidated Response was dismissed; and
3.the parties, by the LOA on its proper construction, did not amend the Contract by providing, in effect, that CKJV was entitled to be paid for Staff on the basis of their actual approved costs and no more.
[28] Second Interim Award, par 19.1; GB 852.
The primary decision
The learned primary judge considered that there were, in substance, three issues for determination:[29]
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.
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.
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.
[29] Primary decision [70].
As to the first issue, his Honour accepted Chevron's submission that s 34(2)(a)(iii) on its proper construction empowered a court to set aside an award on the basis that the Arbitral Tribunal was functus officio.[30]
[30] Primary decision [74] - [107].
In relation to the second issue, his Honour summarised the majority opinion in the Second Interim Award.[31] His Honour accepted that the Arbitral Tribunal was functus officio in respect of the Second Interim Award insofar as it related to CKJV's Contract Criteria Case.[32] In that regard, his Honour effectively reached that view for the same reasons articulated by Arbitrator Pullin KC.[33]
[31] Primary decision [121(a) - (g)].
[32] Primary decision [187] - [215].
[33] Primary decision [190].
His Honour said that the majority incorrectly approached their consideration of the issue on the basis of whether the First Interim Award had addressed, and decided the Contract Criteria Case.[34] His Honour said:[35]
[193]With respect, I cannot accept that analysis. The focus is upon identifying issues determined by the first interim award. But respectfully, it omits to highlight that the first interim award had unquestionably dealt with all issues of liability on CKJV's claim and upon Chevron's counterclaim. The first interim award had done that as a matter of law, whether or not specific liability issues had been expressly identified and raised for determination or not. Consequently, it was not then to the point only to identify the specific issues explicitly dealt with under the reasons underlying the first interim award.
[194]Given that all issues of liability were resolved, it became too late to raise more liability issues later. That is simply the legal consequence of an engagement with the functus officio doctrine in this particular case. The circumstances could have been otherwise, if the parties had instead persuaded the Tribunal to direct the first phase of the arbitral hearing towards resolving only specifically isolated and identified issues - such as when a court determines a stated preliminary issue before the trial of an action. But that approach was not followed. Instead, all liability issues were resolved then.
[34] Primary decision [192] - [194].
[35] Primary decision [193] - [194].
His Honour also rejected the majority's observations to the effect that the Contract Criteria Case, although not articulated in CKJV's pleadings beforehand, in context fell into the category of quantification or calculation issues. His Honour said, in effect, that the Contract Criteria Case was a case concerning liability and that CKJV's opportunity to raise the case was at an end after the publication of the First Interim Award.[36]
[36] Primary decision [195] - [198].
His Honour also rejected the majority's view that there was 'some unfinished business' to be addressed later concerning the meaning of the term 'actual costs'.[37] His Honour said:[38]
[37] Primary decision [199] - [207].
[38] Primary decision [200] - [204], [207].
[200]At par 8.23(j) of the second interim award reasons, the majority arbitrators confront the issue of what was to occur, if CKJV proved unsuccessful on all its conversion to Rates arguments at the second arbitral hearing. They also identify a consolidated list of issues document appended to the first interim award and to which I have already referred. Significantly, that document had stated CKJV's position to be that (as articulated in par 16.25 of the second interim award reasons) that:
'... [CKJV] admit liability in respect of [Audit Inquiry 6, Audit Inquiry 10] and the Counterclaims in the sense that it admits that it has billed [sic] and been paid more than it has paid its Staff. The quantum of [Chevron's] claims in respect of Audit Inquiry 6, Audit Inquiry 10 and the Counterclaims, ie the proper calculation of [CKJV's] actual costs is in dispute.'
[201]Towards that admission of liability by CKJV at the time, the majority arbitrators said at par 8.23(j):
'… Taken together, this does not mean that [CKJV] was accepting that an actual cost or net actual cost basis, simpliciter, was being promoted. Instead, it was expressly stating, in the second sentence, that a proper calculation of those actual costs remained 'in dispute'. This cannot be taken as some implicit acceptance that everyone was proceeding upon the basis that it was to be a net actual cost basis as it was belatedly put forward by [Chevron] through its amended pleading on 25 July 2018 and particularised in Mr Meredith's report. (footnotes omitted)'
[202]Again, I must respectfully reject that analysis. After admitting 'liability' to Chevron, the last line of the quotation indicates that CKJV was reserving its position upon the eventualities in terms of 'a proper calculation of [CKJV's] actual cost'. What is not there identified by CKJV as being in dispute, is any argument over the proper construction of the term 'actual cost' (incurred) as found within the parties' Contract and its reimbursement provisions in Attachment C thereto. In particular, CKJV's position says nothing about how that term is to be deployed in par 1.2.8 of the Contract, in reference to the word 'Cost'.
[203]The precise reference as it appears from the Contract is:
1.2.8In this Attachment C - Pricing Schedules, unless otherwise stated:
•Cost (which may or may not be a Direct Cost) means an actual cost to the [CKJV] which, if reimbursement is sought, must be supported by documentary evidence. [CKJV] and [Chevron] may mutually agree to convert Cost items into Rate items ...
[204]Both CKJV and Chevron by their pleadings and submissions at the first arbitral hearing were content to use the terminology of 'actual cost'. There was no indication of a difficulty as to the meaning or future application of that phrase as being, or being likely to be, problematic.
…
[207]Simply put, the point is that up to and before the delivery of the first interim award reasons, Chevron's (literal) position upon actual costs meaning actual costs, had been stated. There is no hint then that these arbitrating parties were encountering any difficulty with an identification of what would be an actual cost incurred by CKJV in respect of Staff - for which it could legitimately seek reimbursement from Chevron, if it lost on its conversion to Rates claim for Staff costs. There could well be a dispute over how a final Staff reimbursement number amount was arrived at - either by a 'bottom up' approach of, adding up all overpayment amounts by Chevron severally, or by a 'top down' approach as seen attempted under Chevron's Meredith report exchanged prior to the [F]irst [H]earing. But these were only quantum ascertainment issues for another day. On the other hand, liability issues were not. They were all to be, and were concluded (whether articulated or not) on both CKJV's claim and [Chevron's] counterclaim at the time of publication of the first interim award on 14 December 2018.
His Honour also said that whilst the reasonableness of CKJV's conduct could be considered in the context of an Anshun estoppel, the distinct legal principles underlying the ascertainment of a condition of functus officio would mean that considerations such as CKJV's reasonableness would be irrelevant. His Honour accepted Arbitrator Pullin KC's observations in that regard.[39]
[39] Primary decision [208].
His Honour said that the conclusion that CKJV's Contract Criteria Case was essentially a liability issue was reinforced under the issues for determination referred to in Procedural Order 30, issues 3, 4 and 5. Those issues concerned CKJV's 'entitlement' in respect of Staff costs. The Contract Criteria Case was in truth an exercise in ascertaining Chevron's contractual liability and entitlements against CKJV under the Contract, rather than any more confined quantum or quantification calculation exercise.[40]
[40] Primary decision [209] - [210].
His Honour also said that the Tribunal's reasons accompanying Procedural Order 22 of 24 May 2019 confirmed that the Contract Criteria Case was really a new case on liability.[41] In the reasons accompanying Procedural Order 22, the Tribunal said:[42]
3.It is clear from the material provided by [CKJV] on 7 May 2019 that it seeks to advance two alternative cases on quantum, the first (which [Chevron] seeks to have struck out and is here referred to as 'the First Case') being by reference to what is said to be the contractually specified requirements for assessing or ascertaining Cost [ie, the Contract Criteria Case] and the second by reference to the 'Actual Cost' (these words in parentheses are not intended by the Tribunal to be a term of art).
[41] Primary decision [211] - [212].
[42] GB 697.
Finally, on the second issue, the judge said that CKJV's liability case at the First Arbitral Hearing was, in effect, a Plan A, B and C. Plan A was its primary conversion to Rates by alleged variation agreement. That failed. Plan B was to the same end except it was based on estoppel. That also failed. Plan C was for CKJV, on the failure of Plans A and B (as occurred) to nevertheless be allowed to issue further invoices to Chevron for its reimbursement for actual Staff costs it had not yet invoiced Chevron (given its reliance on Rates). The result of the First Interim Award was that, by majority, CKJV was allowed to have that fallback Plan C as regards quantum. Only later, in around May 2019, did a new Plan, Plan D, emerge, based on its Contract Criteria Case.[43]
[43] Primary decision [213] - [215].
In relation to the third issue, his Honour said that once it had been established that the Tribunal was functus officio, then any discretion to set aside should be 'virtually automatic' and that was his Honour's view.[44]
The Commercial Arbitration Act 2012 (WA)
[44] Primary decision [216] - [219].
The Act includes the following provisions:
2A.International origin and general principles (cf Model Law Art 2A)
(1)Subject to section 1C, in the interpretation of this Act, regard is to be had to the need to promote so far as practicable uniformity between the application of this Act to domestic commercial arbitrations and the application of the provisions of the Model Law (as given effect by the International Arbitration Act 1974 (Commonwealth)) to international commercial arbitrations and the observance of good faith.
(2)……….
(3)Without limiting subsection (1), in interpreting this Act, reference may be made to the documents relating to the Model Law of -
(a)the United Nations Commission on International Trade Law; and
(b)its working groups for the preparation of the Model Law.
…
16.Competence of arbitral tribunal to rule on its jurisdiction (cf Model Law Art 16)
(1)The arbitral tribunal may rule on its own jurisdiction, including any objections with respect to the existence or validity of the arbitration agreement.
…
(4)A plea that the arbitral tribunal does not have jurisdiction must be raised not later than the submission of the statement of defence.
…
(8)The arbitral tribunal may rule on a plea referred to in subsection (4) or (6) either as a preliminary question or in an award on the merits.
(9)If the arbitral tribunal rules as a preliminary question that it has jurisdiction, any party may request, within 30 days after having received notice of that ruling, the Court to decide the matter.
…
33.Correction and interpretation of award; additional award (cf Model Law Art 33)
(1)Within 30 days of receipt of the award, unless another period of time has been agreed on by the parties -
(a)a party, with notice to the other party, may request the arbitral tribunal to correct in the award any errors in computation, any clerical or typographical errors or any errors of similar nature; and
(b)if so agreed by the parties, a party, with notice to the other party, may request the arbitral tribunal to give an interpretation of a specific point or part of the award.
(2)If the arbitral tribunal considers a request under subsection (1) to be justified, it must make the correction or give the interpretation within 30 days of receipt of the request.
(3)The interpretation forms part of the award.
(4)The arbitral tribunal may correct any error of the type referred to in subsection (1)(a) on its own initiative within 30 days of the date of the award.
(5)Unless otherwise agreed by the parties, a party, with notice to the other party, may request, within 30 days of receipt of the award, the arbitral tribunal to make an additional award as to claims presented in the arbitral proceedings but omitted from the award.
(6)If the arbitral tribunal considers the request to be justified, it must make the additional award within 60 days.
(7)The arbitral tribunal may extend, if necessary, the period of time within which it may make a correction, interpretation or an additional award under subsection (2) or (5).
(8)Section 31 applies to a correction or interpretation of the award or to an additional award.
...
34.Application for setting aside as exclusive recourse against arbitral award (cf Model Law Art 34)
(1)Recourse to the Court against an arbitral award may be made only by an application for setting aside in accordance with subsections (2) and (3) or by an appeal under section 34A.
(2)An arbitral award may be set aside by the Court only if -
(a)the party making the application furnishes proof that -
(i)a party to the arbitration agreement referred to in section 7 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 this State; or
(ii)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; or
(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; or
(iv)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 this Act from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Act[.]
…
34A.Appeals against awards
(1)An appeal lies to the Court on a question of law arising out of an award if -
(a)the parties agree, before the end of the appeal period referred to in subsection (6), that an appeal may be made under this section; and
(b)the Court grants leave.
(2)An appeal under this section may be brought by any of the parties to an arbitration agreement.
(3)The Court must not grant leave unless it is satisfied -
(a)that the determination of the question will substantially affect the rights of one or more of the parties; and
(b)that the question is one which the arbitral tribunal was asked to determine; and
(c)that, on the basis of the findings of fact in the award -
(i)the decision of the tribunal on the question is obviously wrong; or
(ii)the question is one of general public importance and the decision of the tribunal is at least open to serious doubt;
and
(d)that, despite the agreement of the parties to resolve the matter by arbitration, it is just and proper in all the circumstances for the Court to determine the question.
(4)An application for leave to appeal must identify the question of law to be determined and state the grounds on which it is alleged that leave to appeal should be granted.
(5)The Court is to determine an application for leave to appeal without a hearing unless it appears to the Court that a hearing is required.
(6)An appeal may not be made under this section after 3 months have elapsed from the date on which the party making the appeal received the award or, if a request had been made under section 33, from the date on which that request had been disposed of by the arbitral tribunal (in this section referred to as the appeal period).
(7)On the determination of an appeal under this section the Court may by order -
(a)confirm the award; or
(b)vary the award; or
(c)remit the award, together with the Court's opinion on the question of law which was the subject of the appeal, to the arbitrator for reconsideration or, where a new arbitrator has been appointed, to that arbitrator for consideration; or
(d)set aside the award in whole or in part.
(8)The Court must not exercise its power to set aside an award, in whole or in part, unless it is satisfied that it would be inappropriate to remit the matters in question to the arbitral tribunal for reconsideration.
(9)Where the award is remitted under subsection (7)(c) the arbitrator must, unless the order otherwise directs, make the award within 3 months after the date of the order.
(10)The Court may make any leave which it grants under subsection (3)(c) subject to the applicant complying with any conditions it considers appropriate.
(11)Where the award of an arbitrator is varied on an appeal under this section, the award as varied has effect (except for the purposes of this section) as if it were the award of the arbitrator.
…
35. Recognition and enforcement (cf Model Law Art 35)
(1)An arbitral award, irrespective of the State or Territory in which it was made, is to be recognised in this State as binding and, on application in writing to the Court, is to be enforced subject to the provisions of this section and section 36.
…
36.Grounds for refusing recognition or enforcement (cf Model Law Art 36)
(1)Recognition or enforcement of an arbitral award, irrespective of the State or Territory in which it was made, may be refused only -
(a)at the request of the party against whom it is invoked, if that party furnishes to the Court proof that -
(i)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 the State or Territory where the award was made; or
(ii)the party against whom the award is invoked was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present the party's case; or
(iii)the award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it 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, that part of the award which contains decisions on matters submitted to arbitration may be recognised and enforced; or
(iv)the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties or, failing such agreement, was not in accordance with the law of the State or Territory where the arbitration took place; or
(v)the award has not yet become binding on the parties or has been set aside or suspended by a court of the State or Territory in which, or under the law of which, that award was made;
or
(b)if the Court finds that -
(i)the subject matter of the dispute is not capable of settlement by arbitration under the law of this State; or
(ii)the recognition or enforcement of the award would be contrary to the public policy of this State.
(2)If an application for setting aside or suspension of an award has been made to a court referred to in subsection (1)(a)(v), the Court may, if it considers it proper, adjourn its decision and may also, on the application of the party claiming recognition or enforcement of the award, order the party to provide appropriate security. (emphasis added to s 34(2))
Grounds of appeal and submissions
Grounds of appeal
CKJV's grounds of appeal are to the following effect:[45]
1.The judge erred in finding that the functus officio principle is a 'self‑supporting' doctrine that applied to the Arbitral Tribunal in the absence of a res judicata, issue estoppel or Anshun estoppel.[46]
2.The judge erred in law in failing to find, when he ought to have found, that for the functus officio principle to apply, it was necessary to displace the Tribunal's findings that there was no res judicata, issue estoppel of Anshun estoppel, which findings, if erroneous, were mere errors of law not bearing against the jurisdictional authority of the Tribunal.[47]
3.Further and alternatively to grounds 1 and 2, the judge erred in law in failing to find, when he ought to have found, that, for the functus officio principle to apply, it was necessary to find that the Tribunal erred in its construction of the phrase 'all issues of liability' in the early procedural orders, or in its characterisation of the Contract Criteria Case as not being a liability issue when, if any such error were made, it was merely an error of law not bearing against the jurisdictional authority of the Tribunal.[48]
4.Further and alternatively to grounds 1, 2 and 3, the judge erred in law and/or in fact in finding that CKJV's Contract Criteria Case fell within the expression 'all issues of liability' within the meaning of earlier procedural orders,[49] and in setting aside the Second Interim Award on the basis of that the Tribunal was relevantly functus officio.[50]
CKJV's submissions
Grounds 1 and 2
[45] WB 1.
[46] Primary decision [64], [194].
[47] Primary decision [63].
[48] Primary decision [193] - [194], [196] - [197].
[49] Primary decision [190] - [191], [193] - [194], [202] - [207], [209], [215].
[50] Primary decision [220].
CKJV submitted that grounds 1 and 2 concerned the judge's purported review of the majority's decision on res judicata, issue estoppel and Anshun estoppel.
CKJV submitted that the judge correctly accepted Chevron's submission below that where an arbitral tribunal has erroneously concluded that a party is not precluded from advancing certain claims by reason of the preclusionary estoppels, such an error will be an error of law. CKJV submitted that the judge was correct to find that such an error of law would not bear against the jurisdictional authority of the Tribunal. CKJV relied heavily on the Singapore Court of Appeal decision in BTN v BTP.[51] CKJV submitted that in that case, the Singapore Court of Appeal held that determinations by an arbitral tribunal on res judicata were decisions on matters of 'admissibility' not 'jurisdiction', and that the court could not review res judicata decisions on their merits.
[51] BTN v BTP [2020] SGCA 105 [71].
CKJV submitted, in effect having correctly accepted the above matters, that his Honour erred in treating functus officio as a 'self‑supporting' doctrine. Rather, it is not a self‑supporting doctrine. It describes a conclusion as to the legal authority of a person - that an exercise of power or performance of a function or duty is complete and that the person has no power left to exercise the function or duty left to perform.[52]
[52] Reference was made to Minister for Indigenous Affairs v MJD Foundation Ltd [2017] FCAFC 37; (2017) 250 FCR 31, 67 [155].
CKJV submitted that it is not possible to reach a conclusion that a Tribunal is functus officio without an anterior finding of res judicata, issue estoppel or Anshun estoppel, and that the majority in the Second Interim Award had made express findings on those subjects. CKJV submitted that whilst his Honour dealt with the unremarkable proposition that a court is empowered to reject an arbitral Tribunal's view of its jurisdiction,[53] his Honour failed to grapple with the 'different question' of whether the court, which cannot disturb the Arbitral Tribunal's findings on preclusionary estoppels, could nevertheless conclude that the Tribunal was functus officio in respect of the Contract Criteria Case because it had been 'dealt with'.[54] CKJV submitted that the judge's finding that the First Interim Award dealt with all issues of liability was 'no more or less than a finding of res judicata'.[55]
[53] Primary decision [98] - [108].
[54] Primary decision [193].
[55] CKJV's written submissions, par 50; WB 19 - 20.
CKJV submitted:[56]
It is important to note that, unlike other circumstances under s34(2)(a)(iii) of the Act … there is no question that the Tribunal here had jurisdiction to determine the matters referred to it by the parties under the Contract - including the meaning of 'Cost' and 'actual cost'. As the Majority noted, Chevron's application '(i)s not on analysis a jurisdictional challenge as such or at all and in any event the Tribunal has jurisdiction to decide the issue.' Equally, there can be no doubt that the Tribunal has not yet determined the meaning of those terms. The functus officio finding of his Honour rests on a conclusion that the jurisdiction that undoubtedly existed had been spent, not because the Contract Criteria Case had been heard and determined, but because it could only have been heard and determined at the [F]irst [H]earing. The Majority found otherwise and as this finding cannot be disturbed by the Court [and] the Second … Award cannot be set aside under 34(2)(a)(iii) of the Act[.] (original emphasis) (footnotes omitted)
[56] CKJV's written submissions, par 53.
CKJV submitted that the Tribunal had jurisdiction to hear the relevant issues, being the issues that emerged as a dispute about its ruling on its own procedural orders. This was not a true jurisdictional question. Reference was made to Consolidated Contractors Group SAL (Offshore) v Ambatovy Minerals SA.[57] Reference was also made to Born, International Commercial Arbitration (3rd ed, 2021) [3577], [3578], [3582]. Reference was also made to authorities to the effect that a high degree of judicial deference is required in respect of decisions of international arbitration tribunals and that the courts only interfere sparingly or in extraordinary cases.[58]
[57] Consolidated Contractors Group SAL (Offshore) v Ambatovy Minerals SA [2017] ONCA 939 [24], [29] ‑ [30], [43], [49] and [52], [54].
[58] Reference was made to Porzig v Dresdner, Kleinwort, Benson, N Am LLC, 497 F3d 133 (2d Cir 2007), 134, 139; Quintette Coal Limited v Nippon Steel Co [1990] BCJ No 2241; Corporacion Transnacional de Inversiones, SA de C V v STET International, SpA [1999] OJ No 3573; Downer v Siegel 489 F3d 623 (5th Cir 2007), 627.
As developed in oral submissions, the contention appeared to be in substance that whilst the court may review the question of jurisdiction under s 34(2)(a)(iii) of the Act, it could not review the underlying findings from which the Tribunal determined that that there were no res judicata estoppels and that it had jurisdiction. Having made such findings, the result was that the court had no power under s 34(2)(a)(iii) of the Act to take a different view of jurisdiction even if the underlying findings were incorrect.[59]
[59] Appeal ts 7 - 9, 59 - 61.
CKJV, in this context, distinguished a decision of Applegarth J in Discovery Beach Project Pty Ltd v Northbuild Construction Pty Ltd[60] on the basis that, in that case, the court had first addressed the issue of functus officio without any prior consideration of that issue by the arbitrator.[61]
Ground 3
[60] Discovery Beach Project Pty Ltd v Northbuild Construction Pty Ltd [2011] QSC 306.
[61] Appellant's written submissions par 46, footnote 10; appeal ts 79 - 80.
CKJV submitted that ground 3 concerned the judge's purported review of the majority's construction of its procedural orders and its finding as to whether the Contract Criteria Case was a liability issue. CKJV submitted that the merits analysis undertaken by his Honour was a matter pertaining to admissibility and not jurisdiction. CKJV submitted that the parties, by agreeing to arbitrate the disputes between them, agreed that the Tribunal was to make decisions on matters within the scope of the arbitration agreement. By agreeing to adopt the UNCITRAL Arbitration Rules, the parties agreed that the Tribunal was able to conduct the arbitration in such manner as it considered appropriate. The question of whether a particular claim or defence fell within the language of a procedural order effecting a case management technique was a question as to the implementation of the procedural order, and that was quintessentially a matter of admissibility.
CKJV submitted in oral submissions that there were two types of situation that may arise - first, where the arbitral tribunal must determine whether a claim sought to be litigated by a party is precluded by a preclusionary estoppel from litigating the claim in the arbitration, and secondly, where the arbitral tribunal is called to determine for itself whether it has conclusively dealt with such a claim. CKJV submitted that a determination of the first type went to 'admissibility' not 'jurisdiction', and that the second situation was an 'internal' functus issue. CKJV submitted that it would be a 'highly unusual' result if the validity of the tribunal's determination of its 'internal functus' issue was any different from its determination of a party's rights to bring a claim in the arbitration in the former situation.[62]
Ground 4
[62] Appeal ts 65 - 67.
CKJV submitted that when the Tribunal ordered that 'all issues of liability' were to be determined at the First Hearing, it did not, as the majority explained, objectively intend that the question of the meaning of 'Cost' (or 'actual Cost') was to be determined at the First Hearing. If CKJV lost in its arguments at the First Hearing that there had been an agreement or estoppel to convert Cost items to Rate items, then the way in which Cost was to be quantified remained to be determined. To conclude or assume that 'Cost' (or 'actual Cost') bore a literal meaning, which had not been determined by the Tribunal, was an erroneous approach and at odds with the majority's conclusions in the Second Interim Award.
CKJV submitted that the important point for present purposes is that while the Contract set up a dichotomy between 'Cost' and 'Rate', and defined 'Cost' as meaning 'actual Cost' in certain circumstances, in relation to Staff, the Contract did not limit the reimbursement to 'actual Cost' in the sense of 'bare costs' or 'out of the pocket' costs to CKJV. The quantification of 'actual Cost' for Cost of Staff required in some instances, percentage uplifts and allowances for matters such as leave burdens or site uplift. Those percentage uplifts and allowances may or may not reflect the actual amount paid by CKJV to its Staff, but the Contract (on its proper construction) treated those percentage calculations as 'actual costs'. It was clear that the Contract Criteria Case was accordingly, not necessarily or even sensibly characterised as a liability issue. The Tribunal, as the primary decision maker, was better placed to understand the pleadings and the case than an appeal court.[63]
[63] Reference was made by Bell Group NV (in liq) v Insurance Commission of Western Australia [2018] WASCA 179 [72]; Henderson v Amadio Pty Ltd (unreported decision of the Full Court of the Federal Court, 16 June 1995, BC9507270) (Davies J).
In oral submissions in chief, senior counsel for CKJV also raised three further points. It was submitted that it was open to conclude that at all material times up to the delivery of the First Interim Award:
1.CKJV had incorporated the Contract Criteria Case in its pleadings, and the primary judge and Arbitrator Pullin KC erred in finding that the Contract Criteria Case was a new point pleaded after the issue of the First Interim Award.[64]
2.Chevron had also pleaded, in effect, its own version of the Contract Criteria Case in which it claimed that CKJV's costs for Staff were not merely recoverable on the basis of the costs actually incurred by CKJV.[65] In this regard, CKJV referred to certain oral submissions by senior counsel for Chevron at the hearing before the primary judge which it said supported that contention.[66]
3.Embedded within Chevron's own version of the Contract Criteria Case was a pleading to the effect that, on the proper construction of the Contract, actual costs were subject to a cap so that if actual costs exceeded the contractual cap, then only actual cost up to the contractual cap would be reimbursable.[67]
[64] Appeal ts 16 - 23, 25, 31 - 32, 51 - 52.
[65] Appeal ts 16, 40 - 41, 51.
[66] Appeal ts 40, 41, with reference to GB 160 - 161.
[67] Appeal ts 16, 23 - 27, 42, 44 - 45, 50, 52 - 53.
In relation to the first of those three points, senior counsel for CKJV emphasised that 'Direct Costs' were defined in the Contract by reference to cl 1.2 of Attachment C of the Contract which, by cl 1.2.2 and 1.2.8, used the qualifier 'unless otherwise stated'. Senior counsel for CKJV submitted that cl 2.4 of Attachment C 'otherwise stated', and provided for amounts other than actual costs in respect of Staff. It was submitted that this was the 'battleground' on the pleadings.[68] Reference was made in that regard to the pleadings referred to in Appendix [1.1], [2.1], [2.3], [22.2], [22.4], [28.2], [28.6] and [34].[69]
[68] Appeal ts 10 - 13.
[69] Appeal ts 17 - 21.
In oral submissions in reply, CKJV raised what appeared to be a further iteration of the second and/or third points in [59] above. It emphasised that Chevron in its overpayment plea (Appendix [21]) pleaded that CKJV had charged it for allowances and burdens (1) to which Staff were not entitled under their employment contracts and (2) which CKJV had in fact not paid its Staff. CKJV submitted that this was a 'two‑pronged element' and it meant that, on Chevron's case, CKJV was merely entitled to recover the amounts actually paid to Staff or the amounts which it was legally obliged to pay to Staff, whichever was the lower. CKJV submitted that Chevron's claim thereby itself raised construction issues which had not been determined at the First Hearing.[70]
Chevron's submissions
Grounds 1 - 2
[70] Appeal ts 158 - 164.
Chevron submitted that once an arbitral tribunal has decided, including by way of interim award, that which the parties have submitted it to decide, it has performed its office and cannot reperform it or purport to perform it again in a different way. This follows from the nature of the jurisdiction being sourced in the agreement of the parties. The law recognises that the tribunal is then functus officio and that no case supports the proposition that, in order to conclude that an arbitral tribunal is functus officio, there must first be a finding of some preclusionary estoppel.
Reference was made to various texts and authorities, including Fidelitas Shipping Co Ltd v V/O Exportchleb;[71] Discovery Beach Project Pty Ltd v Northbuild Construction Pty Ltd;[72] ABB Service Pty Ltd v Pyrmont Light Rail Company Ltd;[73] Western Australia v Mineralogy Pty Ltd;[74] APG Homes Pty Ltd v Primary Creations Pty Ltd;[75] Woodbud Pty Ltd v Warea Pty Ltd[76] and Alvaro v Temple.[77]
[71] Fidelitas Shipping Co Ltd v V/O Exportchleb [1966] 1 QB 630, 644.
[72] Discovery Beach Project Pty Ltd v Northbuild Construction Pty Ltd [2011] QSC 306 [65].
[73] ABB Service Pty Ltd v Pyrmont Light Rail Company Ltd [2010] NSWSC 831; (2010) 77 NSWLR 321 [62] - [70], [93] ‑ [97].
[74] Western Australia v Mineralogy Pty Ltd [2020] WASC 58 [72], [76].
[75] APG Homes Pty Ltd v Primary Creations Pty Ltd [2009] WASC 227 [73].
[76] Woodbud Pty Ltd v Warea Pty Ltd (1995) 125 FLR 346, 354.
[77] Alvaro v Temple [2009] WASC 205 [67] ‑ [68].
Chevron submitted that insofar as the Tribunal had made findings in relation to the non‑existence of the estoppels, those particular findings:[78]
per se cannot be challenged directly in an application to set aside the award because they are not jurisdictional. This seems to follow from them operating inter partes and from the established definitions of each of the Estoppels … and was confirmed by the Singapore Court of Appeal in BTN v BTP … the Estoppels operate so as to entitle one party (or its privy) to raise an objection to the attempt by another party (or its privies) to relitigate, in any forum, an issue which has already been decided in the same or another forum …
But Chevron also argued a jurisdictional challenge - that the Tribunal was functus officio - and did so by disputing the Tribunal's conclusion as to what was the subject of the [F]irst [H]earing and the First Interim Award. An error by the Tribunal in relation to whether or not it was functus officio is a jurisdictional error which can be reviewed by the court and this is so even if the same factual matters bear upon both. (original emphasis)
[78] Chevron's written submissions, pars 25 - 26.
Chevron submitted that given that the challenge was made to the Tribunal's conclusion as to its jurisdiction, the judge correctly concluded that it was for the court to decide whether or not the Tribunal was wrong. Reference was made to various authorities to the effect that the court is the final arbiter of the tribunal's jurisdiction and is to make its own objective determination on the facts, whatever the tribunal's view of them may have been.
Chevron also referred to the observations of French CJ and Gageler J in TCL Air Conditioner (Zhongshan) Co Ltd v Judges of the Federal Court of Australia,[79] in which their Honours said that the grounds upon which a court could refuse to enforce an award under the International Arbitration Act 1974 (Cth) raised 'an objective question to be determined by the competent court on the evidence and submissions before it, unaffected by the competence of an arbitral tribunal to rule on its own jurisdiction'.
[79] TCL Air Conditioner (Zhongshan) Co Ltd v Judges of the Federal Court of Australia [2013] HCA 5; (2013) 251 CLR 533 [12].
Chevron submitted that the standard of the court's review of the Tribunal's jurisdiction in this context is correctness, not deference.
Ground 3
Chevron submitted that ground 3 presented a similar argument to the arguments underlying grounds 1 and 2, but in relation to the procedural orders. Given that the First Interim Award rendered the Tribunal functus in relation to the matters the subject of it, it was a necessary step in the court's consideration of the Tribunal's jurisdiction to identify just what was the subject of the First Interim Award. This step is likely to involve an assessment of factual matters and may well lead to a conclusion on matters of fact different from those of the Tribunal. The court must assess objectively and for itself the jurisdiction of the Tribunal.
Ground 4
Chevron submitted that, particularly in the light of the procedural history of the matter, the Contract Criteria Case raised a paradigm issue of liability as opposed to quantum.
In response to the first of the points raised by CKJV in oral submissions in [59] above, Chevron submitted, in effect, that (1) the Contract Criteria Case had never been pleaded by CKJV up to the issue of the First Interim Award, (2) even if it had been pleaded, it was not pressed at the hearing in relation to the First Interim Award, and (3) either way, the First Interim Award had determined finally any issue of liability in that regard.[80]
[80] Appeal ts 83.
In response to the second and third points raised by CKJV in [59] above, Chevron contended that it had never pleaded a version of the Contract Criteria Case, and had never pleaded that, on the proper construction of the Contract, CKJV was entitled to the lesser of actual costs or a contractual cap.[81] Chevron also objected to CKJV's submission in [61] above, on the basis that it was outside of the ambit of the appellant's case.[82]
[81] Appeal ts 85.
[82] Appeal ts 159.
Principles
Arbitration
In TCL Air Conditioner, Hayne, Crennan, Kiefel and Bell JJ said:[83]
In The Rule of Law, Lord Bingham of Cornhill described arbitration as involving:
'the appointment of an independent arbitrator, often chosen by the parties, to rule on their dispute according to the terms of reference they give him. This can only be done by agreement, before or after the dispute arises, but where it is done the arbitrator has authority to make an award which is binding on the parties and enforceable by the process of the courts.'
That description of private arbitration, and of the relationship between private arbitration and the courts, is as apt for Australia as it is for the United Kingdom and the United States of America. (footnotes omitted)
[83] TCL Air Conditioner [45].
By submitting their claims to arbitration, the parties confer upon the arbitrator an authority conclusively to determine them.[84] The arbitral award precludes recourse to the original rights the determination of which had been referred to arbitration. Any issue might be submitted to arbitration, and upon that issue, the award would be as conclusive upon the parties as an award upon the whole cause of action if that had been submitted.[85] In short, the foundation of arbitration is the determination of the parties' rights by the agreed arbitrators pursuant to the authority given to them by the parties.[86]
[84] TCL Air Conditioner [77].
[85] Dobbs v National Bank of Australasia Ltd (1935) 53 CLR 643, 653 ‑ 654.
[86] TCL Air Conditioner [9], [31].
The general rule is that an award made by an arbitrator pursuant to such authority is final and conclusive. The former rights of the parties are discharged by an accord and satisfaction. The accord is the agreement to submit disputes to arbitration; the satisfaction is the making of an award and fulfilment of the agreement to arbitrate.[87] The purposes for which an arbitral award is recognised as binding include the giving rise to a res judicata or issue estoppel.[88]
Res judicata and issue estoppel
[87] TCL Air Conditioner [78].
[88] TCL Air Conditioner [23].
The common law doctrines of res judicata (cause of action estoppel) and issue estoppel 'result' from the rendering of a final judgment in adversarial proceedings.[89] They operate upon the parties to preclude further litigation by the parties or their privies. They are doctrines informed by considerations of finality and fairness.[90]
[89] Tomlinson v Ramsey Food Processing Pty Ltd [2015] HCA 28; (2015) 256 CLR 507 [22].
[90] Tomlinson [21] - [22].
In Tomlinson, French CJ, Bell, Gageler and Keane JJ referred to the three kinds of estoppel in relation to judicial determinations. In relation to cause of action estoppel and issue estoppel, their Honours said:[91]
The first [estoppel] is sometimes referred to as 'cause of action estoppel'. Estoppel in that form operates to preclude assertion in a subsequent proceeding of a claim to a right or obligation which was asserted in the proceeding and which was determined by the judgment. It is largely redundant where the final judgment was rendered in the exercise of judicial power, and where res judicata in the strict sense therefore applies to result in the merger of the right or obligation in the judgment. The second form of estoppel is almost always now referred to as 'issue estoppel'. Estoppel in that form operates to preclude the raising in a subsequent proceeding of an ultimate issue of fact or law which was necessarily resolved as a step in reaching the determination made in the judgment. The classic expression of the primary consequence of its operation is that a 'judicial determination directly involving an issue of fact or of law disposes once for all of the issue, so that it cannot afterwards be raised between the same parties or their privies'. (footnotes omitted)
[91] Tomlinson [22].
With particular reference to issue estoppel, Dixon J in Blair v Curran[92] said:
A judicial determination directly involving an issue of fact or of law disposes once for all of the issue, so that it cannot afterwards be raised between the same parties or their privies. The estoppel covers only those matters which the prior judgment, decree or order necessarily established as the legal foundation or justification of its conclusion, whether that conclusion is that a money sum be recovered or that the doing of an act be commanded or be restrained or that rights be declared. The distinction between res judicata and issue estoppel is that in the first the very right or cause of action claimed or put in suit has in the former proceedings passed into judgment, so that it is merged and has no longer an independent existence, while in the second, for the purpose of some other claim or cause of action, a state of fact or law is alleged or denied the existence of which is a matter necessarily decided by the prior judgment, decree or order.
Nothing but what is legally indispensable to the conclusion is thus finally closed or precluded. … In the phraseology of Coleridge J in R v Inhabitants of the Township of Hartington Middle Quarter, the judicial determination concludes, not merely as to the point actually decided, but as to a matter which it was necessary to decide and which was actually decided as the groundwork of the decision itself, though not then directly the point at issue. Matters cardinal to the latter claim or contention cannot be raised if to raise them is necessarily to assert that the former decision was erroneous.
In the phraseology of Lord Shaw, 'a fact fundamental to the decision arrived at' in the former proceedings and 'the legal quality of the fact' must be taken as finally and conclusively established (Hoystead [sic] v Commissioner of Taxation). But matters of law or fact which are subsidiary or collateral are not covered by the estoppel. …
The difficulty in the actual application of these conceptions is to distinguish the matters fundamental or cardinal to the prior decision or judgment, decree or order or necessarily involved in it as its legal justification or foundation from matters which even though actually raised and decided as being in the circumstances of the case the determining considerations, yet are not in point of law the essential foundation or groundwork of the judgment, decree or order. (footnotes omitted)
[92] Blair v Curran [1939] HCA 23; (1939) 62 CLR 464, 531 ‑ 533.
The Hoysted decision referred to by Dixon J in Curran was the decision of the Privy Council[93] in an appeal from the High Court.[94] The background was that a testator died leaving (relevantly for present purposes) six children, on behalf of each of whom the trustees of the estate claimed a deduction of £5,000 under the relevant land tax legislation for the 1918/1919 tax year. To get the deduction, two conditions had to be met: (1) the beneficiaries had to be taxable as 'joint owners'; and (2) they had to be holders of 'original shares' within the meaning of the legislation.[95] The Commissioner allowed only one deduction of £5,000. The trustee on behalf of the children objected to the assessment, and the objection was referred to the High Court. The reference to the High Court asked two questions: (1) whether the shares of the joint owners, or of any and which of them, in the land were 'original shares' within the meaning of the statute; and (2) how many deductions of £5,000 should the Commissioner make. The High Court, by majority, held that the two questions should be answered as follows: (1) the shares of the six children surviving at the date of the assessment; and (2) six. Orders were then made to that effect.[96] In the following year, the same deductions were claimed. The Commissioner allowed only one deduction of £5,000. The trustee on behalf of the children contended that the Commissioner was bound by an issue estoppel in respect of the High Court's determination the previous year. The Commissioner disputed any issue estoppel and said, in effect, that (1) the earlier determination had proceeded (as was the case) on the basis that the children were 'joint owners', (2) as a matter of law the children were not 'joint owners', and (3) the issue of joint ownership had not been decided in the previous case.[97] The Privy Council upheld a dissent by Higgins J in the High Court[98] to the effect that the Commissioner was bound by an estoppel.[99]
[93] Hoysted v Federal Commissioner of Taxation [1926] AC 155; (1925) 37 CLR 290 (Hoysted (Privy Council)).
[94] Hoysted v Federal Commissioner of Taxation (1921) 29 CLR 537 (Hoysted 29 CLR 537).
[95] Hoysted 29 CLR 537 (559).
[96] Hoysted (Privy Council) (296).
[97] Hoysted (Privy Council) (297 - 298).
[98] Hoysted 29 CLR 537.
[99] Hoysted (Privy Council) (304 - 305).
In the High Court, Higgins J said:[100]
I fully recognise the distinction between the doctrine of res judicata where another action is brought for the same cause of action as has been the subject of previous adjudication, and the doctrine of estoppel where, the cause of action being different, some point or issue of fact has already been decided (I may call it 'issue-estoppel'). … But in the case of what I call 'issue-estoppel' it must appear that the precise issue was previously taken. … The distinction which I make in the present case is that, on the face of the objections (and therefore of the appeal) in the previous case, the point of joint ownership under the same Act and the same will was directly and specifically taken, and the decision of the point was necessary for the success of the trustees on the appeal. … In par 16 of the present special case it is stated there were no arguments as to joint ownership - that the parties treated the answers of the Full Court as covering the whole ground of the appeal, and that the learned Judge had not his attention directed to the question and did not 'in fact' decide it. But this means merely that the actual decision on the objections was given without the attention of the Judge being called to what it involved. A point or an issue may be actually controverted, may be in actual controversy, in actual litigation, although it is not argued, or argued properly. A point may be in controversy although counsel may address no arguments to it, or may overlook certain aspects[.] … If we are to take it that the Commissioner consented to the objection as to joint ownership being found against him, the estoppel applies; for a judgment by consent or confession operates as an estoppel as fully as a judgment based on an actual finding of the Court[.] …
I accept the position as stated by the Supreme Court of the United States in Cromwell v Sac County: - 'In all cases, therefore, where it is sought to apply the estoppel of a judgment rendered upon one cause of action to matters arising in a suit upon a different cause of action, the inquiry must always be as to the point or question actually litigated and determined in the original action; not what might have been thus litigated and determined. Only upon such matters is the judgment conclusive in another action.' My view is that the point as to joint ownership was, by virtue of the formal objections, and from the nature of the judgment thereon, 'actually litigated and determined' in the former proceedings; and that whether the judgment in its actual form was due to the Commissioner's consent or admission or to his neglect, he is bound by the finding of joint ownership which the judgment necessarily involves. (footnote omitted) (emphasis added)
[100] Hoysted 29 CLR 537 (560 ‑ 563).
Also at that hearing, Ms Ansell QC, for CKJV, submitted:[254]
[254] GB 500 - 501.
So [in] my submission that isn't relevant to [the First Hearing]. In [the First Hearing] all you have to determine, we say, is whether or not we were entitled to charge at rates, or it was actual, the contract was amended or it was actual costs, and then obviously there is the estoppel issue after that. Then the proper calculation of what actual costs in those circumstances means is a complicated calculation because it also involves taking into account set‑offs and all the other matters that the experts need to deal with. So all I say you have to determine at liability is the proper construction of the contract. The question of whether or not there has been breach, as [counsel for Chevron] refers to it, only arises if I lose on that construction. So he doesn't need [Mr] Meredith at this point at all because it is not going to help you work out whether or not the contract was amended …
I think what happens is that when you make a decision on the rates or actual cost point, as I call it, or the DSP 2, DSP 4 versus actual cost point on staff, what thereafter follows is the accounting exercise as to what that means as a matter of money we are entitled to under the contract. … What the Tribunal have to determine at the [F]irst [H]earing is whether or not we were entitled to payment on a rates basis or payments on a cost basis. That is the liability issue. Now, whether you say, well, if you have charged on a rates basis and we have found that you were only entitled to an actual cost basis, that means you are in breach of contract, it seems to me this goes to Sir Robert Akenhead's point that what we are looking at here is: what was the entitlement under the contract? And so whether you call it breach or entitlement under the contract it seems to me the issue that you are determining in the [F]irst [H]earing is simply what is the contractual basis under which we were entitled to be paid? Was it rates or was it actual cost? (emphasis added)
Procedural Order 17, dated 3 October 2018
On 3 October 2018, the Tribunal ordered, by Procedural Order 17,[255] that Mr Meredith's report need not and should not be adduced at the liability hearing in November 2018. In giving reasons, the Tribunal said:[256]
[255] GB 503 - 507.
[256] Procedural Order 17, reasons, par 4; GB 505 - 506.
Essentially, there are three prime areas of liability issues between the parties which might be properly summarised as follows: (i) whether or not there were binding agreements between the parties as represented by or in DSP 2 and DSP 4; (ii) if not, was there any effective estoppel acting to prevent [Chevron] from asserting otherwise, and (iii) whether there was any material mistake as pleaded at Paragraph 88 of [Chevron's] defence. (emphasis added)
Also, in its reasons, the Tribunal then in effect observed that Chevron had sought to adduce Mr Meredith's report on the basis that it proved its case of breach.[257] The Tribunal said:[258]
[257] Procedural Order 17, reasons, par 6; GB 506.
[258] Procedural Order 17, reasons, pars 7 - 8; GB 506.
7.In respect of the … point [as to breach] made by [counsel for Chevron], he accepted or at least did not challenge the obvious proposition that evidence of how much more was paid to [CKJV] over and above what its original contractual basis of payment was not relevant to the issue as to whether or not any binding agreement was found to arise out of or in relation to DSP 2 and DSP 4.
8.Although [Chevron in] the Defence and Counterclaim did not plead a case based on breach of contract in respect of [CKJV] claiming and securing payment on a Rates basis as per DSP 2 and DSP 4 rather than claiming and securing payment on the original contractual Cost basis and did not in the prayer for relief claim damages, such a case emerged in [Chevron's] Amended Full Particulars of Counterclaim served on 25 July 2018. However, [counsel for Chevron] accepted that there was an alternative basis of claim which was contractual repayment of any overpayment made. As the Tribunal has already ordered that all issues of quantum and quantification arising out of the Counterclaim are deferred to the Second Hearing in September 2019, the only way in which this damages for breach of contract claim could be established is by adducing quantum and quantification evidence, set out in detail in Mr Meredith's 20 July 2018 Report. In any event, the Tribunal would reassure [Chevron] that, if and to the extent that this damages for breach of contract claim relating to claiming and receiving a sum said to be in excess of [CKJV's] original contractual Cost entitlement is to be treated as a liability issue, that will be deferred to the Second Hearing. It is in any event unlikely to be other than of theoretical interest because it is accepted by [CKJV's] that, if it fails on its case that there were binding agreements arising out of or in relation to DSP 2 and DSP 4 and on its estoppel case, by one legal means or another any overpayment established by reference to the Cost entitlement under the Contract between the parties will be recoverable. (emphasis added)
CKJV's opening note for the First Hearing, dated 29 October 2018
By its opening note for the First Hearing dated 29 October 2018,[259] CKJV referred to Chevron's case based on actual costs.[260]
[259] GB 508 - 516.
[260] Opening note, par 5.1; GB 509.
CKJV reiterated that there was a clear distinction between Cost‑based prices and Rates‑based prices, and said, on the proper construction of the Contract, CKJV was entitled to payment for the costs CKJV can evidence it has in fact incurred, and the amounts that CKJV is deemed to have incurred on a Rates basis.[261]
[261] Opening note, pars 17, 18; GB 510.
CKJV referred to the neutral funding program involving the reconciliation of invoice costs against actual costs incurred.[262]
[262] Paragraphs 35.3, 80; GB 511 - 512.
At par 203 of CKJV's note, CKJV referred to Chevron's claim for actual costs as involving a claim where (1) Staff members were not entitled to the allowances and burdens charged by CKJV to Chevron, and/or (2) CKJV had not in fact paid to Staff or third parties the burdens and allowances charged to Chevron. CKJV submitted that Chevron was not entitled to recover on its Counterclaim because the parties agreed to move to Rates or Chevron was estopped from contending to the contrary.[263]
[263] Opening note, pars 203 - 206; GB 516.
CKJV's amended statement of claim dated 7 November 2018
CKJV's amended statement of claim dated 7 November 2018,[264] CKJV pleaded the alleged agreement from Cost items to Rate items in respect of Staff.[265] CKJV also pleaded that the effect of the LOA was that the parties agreed that CKJV was entitled to be reimbursed for Staff with respect to Rates.[266]
[264] GB 517 - 524.
[265] Amended statement of claim, pars 35 - 49; GB 517 - 521.
[266] Amended statement of claim, pars 70A ‑ 71; GB 524.
Chevron's amended defence and counterclaim dated 12 November 2018
By its amended defence and counterclaim dated 12 November 2018,[267] Chevron pleaded that there was no agreement as alleged to convert any Cost item to a Rates item, and alleged that CKJV was to be reimbursed on the basis of actual costs, and not on a Rates basis.[268]
[267] GB 525 - 529.
[268] Amended defence and counterclaim, par 64A, 65 - 77; GB 527 - 529.
First arbitral hearing, November 2018
The First Hearing occurred in Perth in November 2018.[269]
[269] Primary decision [9].
CKJV's closing note for the First Hearing dated 21 November 2018
In its closing note dated 21 November 2018 for the First Hearing,[270] CKJV made a number of submissions under the heading 'Common issue 1: has CKJV established its set-off claims and/or a right to set‑off any amounts due to them against Chevron's claims'. CKJV's submissions included:[271]
[270] GB 530 - 535.
[271] CKJV's closing note dated 21 November 2018, pars 472 - 477; GB 534 - 535.
472.If contrary to the submissions made above, the Tribunal should find that there was no agreement to convert the Staff … items from Costs to Rates, then the question that arises is whether CKJV is entitled to 'set‑off' the items identified in appendix 1 to [CKJV's Defence to Counterclaim].
473.Chevron's claims in respect of audit inquiry [6] and audit inquiry [10] and the Counterclaims (which all relate to Staff) are (as CKJV understands the position) claims for:
473.1sums due pursuant to the Contract … which provides that 'any overpayments, costs discrepancies or overcharges' identified in an audit conducted by Chevron/CKJV CKJV will be paid by CKJV to Chevron and/or … in the event an independent audit indicates or discloses an error … then CKJV shall pay 'any overpayments, costs discrepancies or overcharges' to Chevron; alternatively
473.2claims for damages for breach of contract.
474.In both cases, the measure of damages is the difference between the sums that CKJV has been paid in respect of the Staff salaries and the actual costs that CKJV has incurred. The value of the costs paid to CKJV will (or should be) a matter of record. The dispute, which will be the subject of expert evidence at the Second Hearing (should such a hearing be necessary), will concern the proper valuation of CKJV's actual costs.
475.The proper quantification of CKJV's actual costs requires the items identified in attachment 1 [of CKJV's Defence to Counterclaim] … to be taken into account as these were costs that were actually incurred by CKJV. The fact that these costs were not invoiced or billed to Chevron is irrelevant. They still form part of CKJV's actual costs and must therefore be taken into account when quantifying Chevron's claim because Chevron's claim, whether it is brought pursuant to the contract and/or as damages for breach of contract, is limited to the difference between the actual costs incurred by CKJV and the sums it was paid. In practice they represent adjustments to the Billing Sheet formulas to account for the fact that certain formulas undercompensated CKJV for the Staff costs it actually incurred. This is the natural consequence of Chevron's case that the Billing Sheet formulas should be adjusted to reflect the actual costs CKJV has incurred for Staff.
476.The waiver and release … [in the LOA] does not apply. CKJV is not making a claim for these costs or failing to release Chevron from a claim. This is a matter of quantification of Chevron's claim which has to be done by reference to the actual costs incurred by CKJV. …
477.The issue of 'set‑off' does not arise in respect of Chevron's claim based on the alleged 'mistake'. If the Tribunal finds that there was a mistake and rectifies the agreed Rate, then the issue of CKJV's actual costs does not arise. (emphasis added)
Chevron's outline of closing submissions dated 21 November 2018
In Chevron's outline of closing submissions dated 21 November 2018,[272] Chevron claimed in respect of counterclaims 1 to 5 that CKJV had charged it for amounts in respect of Staff in circumstances where (1) the Staff were not entitled to such amounts under their terms of employment and (2) CKJV had not in fact paid Staff or third parties the allowances and burdens charged to Chevron.[273]
[272] GB 536 - 540.
[273] Chevron's outline of closing submissions, par 274(a) - (b), 275(a) - (b), 277(a) - (b); GB 538 - 539.
Day 12 of First Hearing, 23 November 2018
At the hearing on 23 November 2018 senior counsel for CKJV, Ms Ansell QC, made a number of submissions in exchanges with the Tribunal, including the following:[274]
[274] GB 542 - 544, 550 - 555.
CHAIR: You do accept that if you lose on your DSP2/4 plus added letters and so on that follow, and … and you lose on the estoppel, then subject to quantum, the counterclaims are established?
MS ANSELL: LOA as well …
CHAIR: The LOA: yes.
MS ANSELL: … Yes, if I lose on the rates issue then they have the right to open up, effectively, because its actual cost. And that would mean that they have the right to go to actual cost … There is then a question of how you calculate actual cost and … [that is] a quantum issue.
…
So I do say it was two‑way process and at that point they were saying in terms of - that was the point, it was meant to be an actual cost reconciliation.
…
We say it is important not to conflate what the annual reconciliation is doing and what the audit is doing, because the annual reconciliation is obviously trying to take the billed costs with actual costs that we are entitled to under the contract, be that rates or costs, and the audit is obviously checking the processes.
…
… If I fail on costs to rates, then it must be right that they can audit me and they can go back in, but what they can then do - and we will come on to this in the question of set‑off - is what does that mean. I say all that means is they can get the delta between what they paid me and my actual costs, and I will deal with that in the set‑offs section.
…
Which then brings us to 'set‑offs' ... As I understand it, leaving aside the mistake, the claims that are brought … if I - obviously if I don't win on the rates points. Those claims are brought as sums due pursuant to the contract … this is how I understand the pleading … [where clauses] provide for repayment of any overpayment, or as damages in breach of contract.
In both cases, it seems to me that the correct measure or … the sum due pursuant to the contract is going to be the difference between the actual costs incurred and the costs that have been paid to CKJV, and it will be the same for a claim for damages for breach of contract, or breach of those warranties. If you did find there was a warranty and I was in breach of it, it would be the delta between the sum - the actual costs that we incurred and the costs that we were paid. So in either case the valuation is the same.
Now the value of the actual sum that we were billed shouldn't be a problem. I mean, that should be a matter of record, what we were billed and what we were paid. The calculation of additional cost is going to be - sorry, of actual costs is going to be a much more difficult exercise. So the question is: how do we value those actual costs?
…
There are two ways you can do it. Bottom up, I would say, if you like, using actual cost information, or you do it by a modelling exercise. They are the only two ways that you can do actual cost.
Now what is identified in 9.1 are errors, in effect, in the billing sheet rate that lead to an undervaluation of CKJV's actual costs. So they are not new costs; they are not unapproved costs; they are not a new claim for costs. These all go to how you value CKJV's actual cost which is what you need to do in order to quantify my learned friend's claim.
So in the same way, my learned friend says, in order to - because they now do it by model. They say in order to calculate your actual costs, we are going to make these assumptions in the model. I say, well, if you're going to do a modelling basis to calculate my actual costs, then you've got to make other amendments to make the model properly reflect my actual costs. So this is nothing to do with a set‑off claim properly so called.
…
The other side are saying that they have made an overpayment to me … The delta is what were my actual costs and what did I get paid … [a]nd when you calculate what my actual costs are, there are two options open to us, should you find against me on everything and we are back here next year. One is you work out the actual cost, bottom up, so we get all my payroll data and everything else. The other is that we use a modelling approach … [W]hat I'm saying is that if you try to calculate my costs on a model basis, you have to take these into account to properly model the actual cost.
…
MR PULLIN: Yes, I understand, it might well be your actual costs, but I am saying what about the release [in the LOA].
MS ANSELL: … it doesn't apply because its not about a claim. It is their claim against me …
MR GREENHAM: Can I put the question perhaps differently. You are saying it is their claim against you; [Chevron] are saying we are entitled to X dollars based upon an analysis of actual costs. … You are saying, no, you are not entitled to X dollars, you are entitled to something less than X.
MS ANSELL: Yes, because my actual costs were more.
MR GREENHAM: Is not your … argument that [Chevron] are entitled to something less than X vulnerable to being shut out by reason of the release in the [LOA]?
MS ANSELL: No …
MR PULLIN: Not only is it asserted there, there is a claim for relief. Seek a declaration. That's a claim.
MS ANSELL: But I am … saying it as I see it, that there is a claim and I can only put it like this: they have to prove that they have overpaid me … So in order to prove that they have overpaid me, they have to work out what my actual costs are … And the only way you can do that is you take my actual costs. (emphasis added)
Parties' statements of issues for First Hearing
CKJV and Chevron filed statements of issues for the purposes of the First Hearing. The statements of issues included the topic of what issues were to be dealt with if (in effect) CKJV failed in its claim with respect to Rates‑based remuneration and estoppel.[275]
[275] First Interim Award, par 37, Attachment 5; GB 573, 687 - 692.
Chevron advanced the issue in the following terms:[276]
[276] GB 687.
If the answer to 1 and 2 are 'no', [CKJV] concede that, subject to a LOA issue below, [Chevron] is entitled to succeed on its Staff claims.
CKJV advanced the issue as follows:[277]
[277] GB 687.
If the answer to 1, 2 and 3 are 'no', [CKJV] admits liability in respect of [audit 6, audit 10] and the Counterclaims in the sense that it admits that it has billed and been paid more than it has paid its Staff. The quantum of [Chevron's] claim in respect of [audit inquiries 6 and 10] and the Counterclaims, ie, the proper calculation of [CKJV's] actual costs is in dispute.[278] (emphasis added)
[278] GB 687.
The First Interim Award dated December 2018
Issues summarised by Tribunal
In the First Interim Award, the Arbitral Tribunal summarised and identified the issues to the following effect:[279]
[279] First Interim Award, par 38; GB 573 - 574.
1.Whether (as CKJV contended) there was a binding agreement before 2 September 2014 by which the parties agreed to convert 'Staff costs' to 'Rate items' (Issue 1).
2.Whether (as CKJV contended) there was, alternatively, an estoppel precluding Chevron from contending that the parties had entered into such an agreement (Issue 2).
3.Whether the LOA evidenced, or itself contained, any agreement between the parties to convert the Price for Staff from Cost items to Rate items (Issue 3).
4.Whether in relation to Craft Labour, the Contract should be rectified for common mistake, and whether there were breaches of contract by CKJV (Issue 4).
5.Even if there were no agreement or estoppel in respect of Rates (as CKJV alleged), whether CKJV could bring to account, by way of set‑off or defence to Chevron's counterclaim, the amounts particularised in Appendix 1 to CKJV's Defence to Counterclaim in respect of unbilled Staff costs (Issue 5).
Relevantly for present purposes, by majority, the Tribunal determined Issues 1, 2 and 3 adversely to CKJV and determined Issue 5 in its favour.[280]
[280] First Interim Award, 'Summary of Findings'; GB 635.
Issues 1 - 3
In relation to CKJV's contractual entitlement to recover from Chevron amounts in respect of Staff, the Tribunal unanimously made the findings in points 1 ‑ 4 below, and by majority (Arbitrators Pullin KC & Greenham) made the findings in points 5 ‑ 6 below:
1.In outlining the 'Background' to the disputes, referred to Attachment C of the Contract and said - evidently on the basis that the matter was not in dispute - that payment in relation to Staff was to be paid on an actual cost basis.[281]
[281] First Interim Award, pars 24, 50(c); GB 569, 580.
2.In its analysis of the meaning and effect of DSP 2 on CKJV's contractual entitlement to be paid in respect of Staff, had regard to mutually known background circumstances (in accordance Codelfa Construction Pty Ltd v State Rail Authority of New South Wales[282]), including:
[282] Codelfa Construction Pty Ltd v State Rail Authority of New South Wales [1982] HCA 24; (1982) 149 CLR 337, 352.
(a)that each party knew that the other party was well‑acquainted with (1) the difference between Rates and Costs as defined in the Contract, (2) the contractual provisions relating to invoicing by CKJV involving neutral funding invoices and reconciliation invoices, and (3) Chevron's right to examine CKJV's books to examine the amounts paid by CKJV for Staff, in order to compare the amounts paid to Staff with the payments made by Chevron to CKJV;[283]
[283] First Interim Award, par 50(b); GB 580.
(b)that the parties knew that when a price was described as a Cost, CKJV was to be 'reimbursed' for the cost of the item, and 'Cost' means an actual cost to CKJV which if 'reimbursement' was sought, had to be supported by documentary evidence;[284] and
[284] First Interim Award, par 50(c); GB 580 (emphasis added).
(c)that the obligation on CKJV to make records available for examination by Chevron did not extend to work being performed on a Rates basis.[285]
[285] First Interim Award, par 50(d); GB 580.
3.Found that there was no mutual agreement by DSP 2 to convert Cost items for Staff, and that, on the contrary, claims by CKJV for Staff were to be continued on a Cost basis.[286]
[286] First Interim Award, par 61; GB 582.
4.Found that there was no mutual agreement by DSP 4 to convert the price for Staff from Cost‑items to Rates‑items for reasons including:
(a)DSP 4 referred to 'actual price' of Staff, which would be inconsistent with any mutual agreement to convert Staff Cost items to Rate items;[287]
[287] First Interim Award, par 71(j); GB 587 (original emphasis).
(b)DSP 4 included provision to the effect that Staff Billing Sheets would ease recruitment and mobilisation problems to assist in the billing process 'to reimburse CKJV for actual cost of staff';[288] and
[288] First Interim Award, par 71(n); GB 588 (emphasis added).
(c)the final heading 'Billing' indicated that DSP 4 was concerned with invoicing by CKJV to allow it to obtain reimbursement for the 'actual cost of staff' and did not indicate a mutual agreement to convert Cost to Rates.[289]
[289] First Interim Award, par 71(o); GB 588 (emphasis added).
5.Found that the LOA did not constitute an agreement to convert Cost items to Rate items having regard to (inter alia) the language of (1) 'reimbursement' signifying 'repayment for expense … incurred' and (2) 'reconciliation' with respect to 'actual costs incurred'.[290]
[290] First Interim Award, pars 85 - 86; GB 591 - 592 (emphasis added).
6.Found that the matters referred to in pars (a) ‑ (c) of [83.2] above were inconsistent with the estoppel case pleaded by CKJV.[291]
[291] First Interim Award, pars 117 - 123; GB 597 - 598.
Issue 5
With respect to Issue 5, the Tribunal (unanimously) said that CKJV's set‑offs were 'expressly predicated' on the basis that if and to the extent that Chevron's counterclaim succeeded, then CKJV was entitled to set off certain 'unbilled amounts' in respect of (relevantly) Staff.[292]
[292] First Interim Award, par 232; GB 626 (emphasis added).
The Tribunal (unanimously) found that Issue 5 raised essentially two sub‑issues:[293]
[293] First Interim Award, par 244; GB 631 (emphasis added).
1.Whether the costs which CKJV sought to be brought to account if its primary case failed could, 'as pleaded', be pursued in principle.
2.Whether and to what extent it was open to CKJV, as a defence to Chevron's counterclaim, to raise matters going to show 'what the overall cost of the provision of Staff … actually was'.
As to the first of the sub‑issues, the Tribunal (unanimously) concluded that insofar as CKJV pleaded the costs which it sought to be brought to account as a 'claim', the plea was not capable of being pursued because the LOA (by Article B.3) precluded 'claims'.[294]
[294] First Interim Award, par 245; GB 631 (emphasis added).
With respect to the second sub‑issue, the Tribunal, by a majority (Sir Robert Akenhead and Mr Greenham), accepted that if such matters were not pleaded by CKJV as a 'claim', then the LOA would not preclude CKJV from asserting an entitlement to having those costs brought to account. The Tribunal introduced the topic as follows:[295]
[295] First Interim Award, pars 246 - 249; GB 631 - 632.
246.[T]he second [sub‑]issue is a broader issue because, on any sensible analysis of [Chevron's] Defence and Counterclaim, as finally particularised … what [Chevron] is itself claiming and asserting is that, on the assumption that no Rates were agreed in relation to Staff … costs, it has paid out to [CKJV] (substantially) more than cost as defined in the Contract. Put another way, [Chevron] is saying that, because [CKJV's] actual cost is (substantially) less than it has been paid for Staff and Supervision, it is entitled to be paid back by [CKJV] the overpayment. The second [sub‑]issue therefore involves determining, whether as a matter of construction of the LOA, [CKJV] is prevented or constrained from running any defence to this claim by [Chevron] to the effect that the total cost for Staff and Supervision is not as low as [Chevron] is asserting.
247.The matter is confused by the fact that, latterly in the pleading process, in particular by way of the Amended Full Particulars of Counterclaim, [Chevron] has put its case by reference to a report prepared by its accounting expert, Mr Meredith, which has identified only a limited number of elements of the total cost which, by way of his auditing process, suggest, [Chevron] asserts, that demonstrably [CKJV's] cost has been less than has been paid to it. This approach is one which proceeds on the assumption that all the other elements which go to make up the total overall Staff and Supervision cost were accurate.
248.Although [CKJV] has not yet submitted a detailed response to this latest particularisation of [Chevron's] Counterclaim and has not finalised any accounting expert's evidence on this, it would seek to assert that, in reality, its total cost, particularly looking at other elements of the Cost other than those examined by Mr Meredith and put forward by way of Counterclaim by [Chevron], is more than [Chevron] is now suggesting.
249.In substance, this second [sub‑]issue revolves around whether or not such a defence to [Chevron's] Counterclaim is available or has been excluded or limited by the LOA. (emphasis added)
The majority found that the LOA did not in principle preclude CKJV from asserting, by way of defence to Chevron's counterclaim, what its 'overall' cost of provision of Staff 'actually was' which had not been billed, and to bring it to account in assessing Chevron's counterclaim.[296]
[296] First Interim Award, pars 244(b), 251 - 252.
The 'Award' in the First Interim Award dated December 2018
In the First Interim Award, the Tribunal formally stated, relevantly:[297]
[297] GB 637.
We, Phillip Greenham, the Hon Chris Pullin and Sir Robert Akenhead, the duly appointed Arbitrators in this arbitration, do hereby declare, decide and award as follows:
1There was no binding agreement made between the parties whereby any Rates were agreed in relation to Staff and Supervision costs.
2By a majority of the arbitrators, there was no estoppel, in fact or in law, whereby the parties are to be treated as if any Rates were agreed in relation to Staff and Supervision Costs.
3By a majority of the arbitrators, the LOA did not evidence or contain any agreement between the parties to convert the Price for Staff and Supervision from Cost items to Rate items.
…
10.By a majority of the arbitrators, [CKJV] may bring into to account by way of defence, in these proceedings, the amounts particularised in Appendix 1 to its Defence to Counterclaim … and any other amounts of cost which it seeks to prove have not yet been accounted for in what it has been paid to it.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
JL
Associate to the Honourable Justice Murphy
17 JANUARY 2023
12
16
0