Setting aside an arbitral award under the UNCITRAL Model Law: When is the tribunal functus officio?

Introduction

In CBI Constructors Pty Ltd v Chevron Australia Pty Ltd [2023] WASCA 1, the Court of Appeal in Western Australia upheld a decision to set aside an arbitral award on the basis that the tribunal was functus officio with respect to the issues it purported to decide. This decision is a rare example of a court at the seat exercising its set aside power under Article 34(2)(a)(iii) of the UNCITRAL Model Law.

The dispute

In 2011, Chevron Australia Pty Ltd (Chevron) engaged CBI Constructors Pty Ltd and Kentz Pty Ltd (CKJV) to provide construction and related services on the Gorgon offshore oil and gas project, one of the world’s largest liquefied natural gas projects. CKJV agreed to provide craft labour and staff labour to carry out work in Western Australia, South Korea, China and Indonesia.

A dispute arose over whether CKJV was entitled to be paid for staff labour against contractual rates, or at cost.

The arbitration

CKJV commenced UNCITRAL arbitration proceedings against Chevron seated in Perth, Western Australia. The tribunal granted CKJV’s application to bifurcate the arbitration into separate liability and quantum stages ordering a first hearing on ‘all issues of liability’ followed by a second hearing on ‘all matters outstanding…including all quantum quantification issues not dealt with’ in the first hearing.

The tribunal delivered its first interim award rejecting CKJV’s arguments regarding staff labour. It rejected the argument that the parties had agreed to change CKJV’s entitlement from actual costs to contractual rates, and (by majority) that Chevron was estopped from asserting otherwise.

KJV amended its case to assert that, for staff, it was entitled to payment of specific allowances allegedly provided for in the contract between the parties, rather than actual costs incurred. Chevron objected on the basis that the tribunal was functus officio on issues of liability and that CKJV was estopped from re-agitating issues of liability.

When the tribunal delivered its second interim award, a majority dismissed Chevron’s objections, concluding that CKJV was not foreclosed from running its case on specific allowances. The dissenting arbitrator found that CKJV should not be entitled to re-open a liability issue after such issues had been determined in the first interim award. On the merits of the amended case, the tribunal decided in favour of CKJV.

Chevron’s set-aside application

Chevron applied to the Supreme Court of Western Australia, the court at the seat of the arbitration, to set aside the second interim award under s.34(2)(a)(iii) of the Commercial Arbitration Act 2012 (WA). Section 34(2)(a)(iii), which reflects the equivalent article of the UNCITRAL Model Law, provides that an arbitral award may be set aside if the party making the application furnishes proof that:

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;…’

Chevron acknowledged that even if a tribunal concludes wrongly that a party is not precluded from advancing claims by reason of cause of action estoppel, issue estoppel or Anshun estoppel, that would be an error of law not bearing against the tribunal’s jurisdiction. However, notwithstanding this acknowledgement, Chevron submitted that once the tribunal delivered the first interim award it became functus officio on all issues of liability and therefore its second interim award went against the ‘terms of the submission to arbitration’, or ‘beyond the scope of the submission’ for the purposes of s 34(2)(a)(iii).

The Supreme Court agreed with Chevron. The judgment of Kenneth Martin J, delivered on 28 September 2021, held that a contention of functus officio can, as a matter of principle, fit within the criteria for setting aside in s.34(2)(a)(iii), and that a court at the seat determines afresh whether an arbitral tribunal is functus officio without deferring to the tribunal’s views. Applying that principle, Martin J arrived at the same conclusion as the dissenting arbitrator, namely that CKJV’s case on specific allowances did not raise an issue of quantum but instead raised an issue of liability, upon which the tribunal was functus officio following its first interim award. Martin J found that although the court has discretion as to whether to set aside under s.34(2), a set aside order in the circumstances of this case should be ‘virtually automatic’.

CKJV’s appeal

In October 2021, CKJV appealed to the Court of Appeal. CKJV relied on four grounds, of which the first three were related:

1. That functus officio is not a self-supporting doctrine that can apply without cause of action estoppel, issue estoppel or Anshun estoppel.
2. That to find the tribunal was functus officio, the court needed to displace the tribunal’s findings that there was no cause of action estoppel, issue estoppel or Anshun estoppel, which, even if wrong, were errors of law not bearing against the tribunal’s jurisdiction.
3. That, to find the tribunal was functus officio, the court needed to displace the tribunal’s construction of the phrase ‘all issues of liability’ in its own procedural orders, or its characterisation of the case on special allowances as not raising an issue of liability, which, even if wrong, were errors of law not bearing against the tribunal’s jurisdiction.

The Court of Appeal dismissed these grounds, holding that there was nothing unusual ‘in the court intervening where findings have been made purporting to sustain jurisdiction when there is no jurisdiction properly analysed, but not intervening where findings are made within jurisdiction, even if in each case the findings pertain to a question of the finality of an earlier order or award’.

CKJV’s fourth ground of appeal was that its case on special allowances did not fall within the expression ‘all issues of liability’ under the earlier procedural orders. However, the Court of Appeal also dismissed this ground, finding that ‘[t]here was nothing in the First Interim Award, or in the preceding procedural orders, to indicate that the Tribunal reserved for further consideration any issue as to CKJV’s entitlement to, or Chevron’s contractual liability for, Staff costs, beyond the specific pleas on which Chevron's counterclaim was advanced and CKJV’s alternative plea was predicated’.

Consequences for parties and arbitrators

This case offers a cautionary tale about what happens when an arbitration is split into liability and quantum phases and the importance of the parties and tribunal understanding the significance of this decision (and the words used to define the scope of those phases).

Norton Rose Fulbright acts for Chevron in this matter. In February 2023, CKJV applied for special leave to appeal the Court of Appeal’s decision to the High Court of Australia. The High Court’s decision on that application is pending.