In CBI Constructors Pty Ltd v Chevron Australia Pty Ltd [2024] HCA 28, the High Court of Australia set aside an arbitral award under s 34(2)(a)(iii) of Commercial Arbitration Act 2012 (WA) (Arbitration Act) on the basis that the tribunal exceeded its jurisdiction in the bifurcated proceedings.

While bifurcation of liability and quantum issues in a complex dispute can aid in the efficient resolution of issues, parties should be aware that a tribunal will have exceeded its jurisdiction if it makes a secondary award concerning issues that were, or ought to have been, determined in an earlier award. This may result in the award being set aside.

The decision highlights why parties should approach bifurcated proceedings with caution. Parties should ensure:

• they have sufficiently crystallised their position prior to hearing to avoid being barred from raising further claims at a later time; and/or
• the relevant procedural orders allow for flexibility in the second hearing through the terms of the bifurcation.

Parties may wish to incorporate some flexibility in any bifurcation orders by considering, for example, a precisely defined preliminary issue hearing on discrete points of liability, with all remaining liability and quantum issue to be determined in the subsequent hearing.

Background to the decision

The contract and dispute

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

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

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

The arbitration

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

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

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

Following the first hearing, CKJV repleaded its case by advancing an argument that, on the proper construction of the contractual provisions, it was entitled to recover a cost determined by reference to certain contractual provisions (referred to as the 'Contract Criteria Case').

Chevron objected to CKJV's Contract Criteria Case, contending that the Tribunal had determined all issues of liability in the first hearing and the Tribunal was functus officio (unable to hear, consider or determine any further liability issues), or alternatively, that CKJV was precluded from advancing it by reason of res judicata, issue estoppel, or Anshun estoppel.

In the second award (the quantum award), the Tribunal by majority rejected Chevron's objections, determining that it was not functus officio from hearing CKJV's Contract Criteria Case. The arbitrator in the minority held that CKJV was precluded from advancing its Contract Criteria Case on the basis that all issues of liability had been determined in the first award (the liability award).

The Supreme Court of Western Australia

Chevron applied to the Supreme Court of Western Australia to set aside the quantum award under section 34(2)(a)(iii) of the Arbitration Act, or alternatively, to have the question of the Tribunal's jurisdiction determined pursuant to section 16(9) of the Arbitration Act.

At first instance, Kenneth Martin J held that Chevron was unable to make an application under section 16(9) because the Tribunal had not made a jurisdictional ruling as a preliminary question. Nonetheless, Chevron was entitled to have the Court consider afresh its objections under section 34(2)(a)(iii). His Honour concluded that the Tribunal had been functus officio: the Contract Criteria Case was a liability issue and all issues of liability had been determined by the liability award. CKJV appealed this judgment.

CKJV's appeal was ultimately unsuccessful in the Court of Appeal, which upheld Kenneth Martin J's conclusion that the Tribunal had been functus officio. The Court of Appeal considered that, after the liability award was made, there was 'no residual issue for determination' regarding CKJV's reimbursement. 

The High Court of Australia: two issues

CKJV sought special leave for the High Court to determine two issues:

• Where a tribunal determines its first award in bifurcated proceedings did not finally dispose of a claim, is that determination subject to review by a court under section 34(2)(a)(iii) of the Arbitration Act?
• If it is subject to review under section 34(2)(a)(iii), what is the standard of review to be applied?

On 14 August 2024, the High Court delivered CBI Constructors Pty Ltd v Chevron Australia Pty Ltd [2024] HCA 28 comprising two judgments.

By majority (Gageler CJ, Gordon, Edelman, Steward and Gleeson JJ), the High Court dismissed the appeal, holding that the Supreme Court had power under section 34(2)(a)(iii) to set aside the award if it determined on de novo review that the Tribunal was functus officio. Jagot and Beech-Jones JJ wrote a joint dissenting judgment, concluding the appeal should be allowed.

The Model Law and the principle of party autonomy

The majority approached the two issues for determination by reference to the UNCITRAL Model Law on International Commercial Arbitration (Model Law), which is given force in Australia in respect of domestic arbitrations through the Arbitration Act and its equivalents in other Australian jurisdictions.

The Model Law is premised on the foundational principle of party autonomy. The parties, through the arbitration agreement, agreed that any dispute would be finally settled by arbitration and that any award would be final and binding upon them.

Once a tribunal makes an award, the tribunal no longer has the agreement of the parties to revisit the issues determined by the final award.

Was the Tribunal's determination subject to review by the Court?

Curial intervention is available through the Arbitration Act, including through section 34(2)(a)(iii), which empowers a court to set aside an award if it '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'.

As to the first issue for determination, the majority held that the liability award was final and binding on the parties in accordance with the arbitration agreement and determined all issues of liability between the parties.

Following the making of the first award, the tribunal ceased to have authority, jurisdiction or capacity – or became functus officio – in relation to issues of liability.

As the Tribunal no longer had jurisdiction to consider issues of liability, the Tribunal exceeded its authority or jurisdiction in determining the Contract Criteria Case in the second award (the quantum award).

While an arbitral tribunal may rule on its own jurisdiction (referred to as the principle of 'competence-competence'), this right is not unfettered. A tribunal cannot erroneously create or expand its own jurisdiction: in such cases, curial intervention under section 34 of the Arbitration Act would be appropriate.

What was the standard of review to be applied?

As to the second issue for determination, the majority held that the standard of review to be applied is a de novo review of the Tribunal's decision on jurisdiction (confirming the approach taken by the primary judge, Kenneth Martin J).

Bifurcation: Practical implications

While bifurcation can have benefits in the resolution of complex disputes, arbitrators and parties should proceed cautiously when formulating bifurcation orders.

Some disputes are more amenable to bifurcation than others. For example, where there is a potential overlap of evidence between liability and quantum, the dispute may not be easily amenable to bifurcation. In construction disputes that involve rates contracts as opposed to lump sum, it may be more difficult to bifurcate given the inherent overlap of evidence between liability and quantum.

Unless issues of liability and quantum can be clearly separated, parties may wish to incorporate some flexibility in any bifurcation orders by considering, for example, a precisely defined preliminary issue hearing on discrete points of liability, with all remaining liability and quantum issue to be determined in the subsequent hearing.

Careful and precise drafting of the terms of any preliminary issues or bifurcation orders should be undertaken, clearly defining which issues will be the subject of the first award and which issues will be the subject of the subsequent award.

Where proceedings have been bifurcated between liability and quantum, parties should ensure all arguments are fully presented at the relevant time in the proceedings.

While complex disputes can benefit from bifurcating liability and quantum, if a party fails to fully plead its case at the appropriate time in bifurcated proceedings, it will likely be barred from pleading those further matters later in the proceedings. The High Court's judgment provides a cautionary reminder of ensuring all arguments are raised at the appropriate time in bifurcated proceedings.

Please feel free to reach out at any time to discuss how this judgment could impact you.