You only get one bite of the cherry in arbitration: CBI Constructors Pty Ltd v Chevron Australia Pty Ltd

The High Court has handed down judgment in CBI Constructors Pty Ltd v Chevron Australia Pty Ltd [2024] HCA 28.  This decision has important implications for arbitration in Australia.

Introduction

Chevron and CBI became embroiled in a construction dispute which was referred to arbitration.  The tribunal made orders bifurcating the dispute, with issues of liability to be heard at the first hearing and issues of quantum at the second hearing.  After the tribunal issued an award following the first hearing, CBI sought to raise a new argument as to liability at the second hearing.  Chevron objected, effectively contending that, given CBI’s new argument was about liability and not quantum and the tribunal had issued an award for the first hearing, the tribunal could no longer deal with the new argument.  The tribunal disagreed, so Chevron applied to the Supreme Court of Western Australia set aside the tribunal’s decision.  The Supreme Court, Court of Appeal, and now the High Court, all agreed that the decision of the arbitrators should be set aside.

This note explains why the court was willing to set aside the tribunal’s decision, places the decision in context, and offers guidance on its ramifications for practitioners and in-house counsel.

The background

Under a contract, CBI agreed to provide staff for work on the Gorgon gas project and Chevron agreed to reimburse CBI for the costs of the staff.  CBI commenced an arbitration contending that Chevron had underpaid it for staff costs.  In effect, CBI submitted it could recover costs on the basis of “rates” rather than actual costs.  As a result of various factors, CBI applied to the tribunal for orders bifurcating the arbitration.  Eventually, the tribunal agreed.  It made orders that there would be two hearings.  The first would address “all issues of liability” (First Hearing).  The second would then address “all matters outstanding”, including quantum (Second Hearing).

At the First Hearing, the tribunal effectively rejected CBI’s argument that staff costs should be calculated on the basis of “rates” (First Interim Award).  After this, the tribunal ordered CBI to replead its case on quantum.  CBI did so, claiming its entitlement to staff costs should be calculated using the “Staff Costs Contract Criteria” (Contract Criteria Case).  Chevron contended that CBI was precluded from making this argument.  In effect, Chevron contended that the Contract Criteria Case was properly characterised as an argument as to Chevron’s liability for those costs, and was not an issue of quantum.  Consequently, Chevron contended that the argument should have been dealt with at the First Hearing.  Since CBI had failed to raise the Contract Criteria Case at the First Hearing, (i) CBI was estopped from bringing the claim (by reason of res judicata, issue estoppel or Anshun estoppel) and (ii) the tribunal had no authority to hear the claim because it was functus officio.  But the tribunal disagreed.  Following the Second Hearing, the tribunal (by majority) held that it was not precluded from hearing CBI’s new Contract Criteria Case and, in effect, accepted CBI’s new arguments (Second Interim Award).

Chevron applied to the Supreme Court seeking to set aside the tribunal’s decision pursuant to section 34(2)(a)(iii) of the Commercial Arbitration Act 2012 (WA) (Arbitration Act).  Section 34(2)(a)(iii) (and equivalent provisions in other jurisdictions) permits a court to set aside an arbitral award if “the party making the application furnishes proof that… 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”.  The WA Supreme Court, and subsequently the Court of Appeal, allowed Chevron’s application and set aside the tribunal’s decision.  The High Court has now affirmed the decisions of the WA Supreme Court and the Court of Appeal.

The High Court decision

In the High Court, CBI effectively made two arguments:

• First, there is a difference between (i) an error of law within jurisdiction and (ii) an error of jurisdiction.  Section 34(2)(a)(iii) only permits a court to set aside a tribunal decision for an error of jurisdiction, not an error within jurisdiction.  In other words, if the tribunal decides something which it never had authority to decide, then a court may intervene.  Otherwise, the court must accept a tribunal’s conclusion.  Here, the tribunal’s decision on the Contract Criteria Case was within the tribunal’s jurisdiction, so the court should not have intervened.
• Second, in considering an application under section 34(2)(a)(iii), the court must have significant deference to the arbitrator’s decision.

The High Court rejected both those arguments.^[1] 

The Court reasoned that arbitral tribunals derive their authority from the parties’ voluntary agreement.  Under the terms of the parties’ arbitration agreement and the UNCITRAL Rules, the First Interim Award was “a final and binding determination of the issues with which it dealt”.  It was final and binding on the arbitral tribunal (which cannot subsequently modify the award), the parties (who are bound by the findings of the award) and the courts (who, subject to limited exceptions, cannot set aside the award). 

If a tribunal makes a final award, it has two consequences:^[2]

• it creates an estoppel between the parties; and
• it means the tribunal has exhausted its authority to decide the subject matter of the award (and no longer has authority to decide those issues).

If the tribunal makes a finding about such an estoppel, then that finding is immune (with limited exceptions) from being set aside by a court.  But any tribunal findings about the tribunal’s own authority can be set aside.  In the High Court, there was no challenge to the Court of Appeal’s finding that the First Interim Award dealt with “all issues of liability” and that the Contract Criteria Case was about liability, not quantum.  Accordingly, the tribunal had no authority to hear the Contract Criteria Case and it could be set aside.

The Court also rejected CBI’s second argument that a court should give significant deference to the arbitrator’s decision on jurisdiction. The High Court held that the correct standard was a de novo review.  This means that the matter is heard afresh and a decision given on the evidence presented to the court, including new evidence not before the tribunal.  No deference need be accorded to the tribunal’s decision on matters of jurisdiction.  This standard of review is distinct from (i) a rehearing, where the court would give primacy to the materials before the tribunal and the factual findings made by the tribunal, and (ii) a review of the ruling of the tribunal, akin to a strict appeal or judicial review.  A hearing de novo is the most interventionist option.

Significance

The High Court’s decision is relevant to the drafting of arbitration clauses, commencing and conducting arbitration, and attempts to challenge arbitrations. 

The following points emerge from the decision:

• In certain situations, Australian courts have significant powers to set aside arbitration decisions.  If a tribunal’s jurisdiction is challenged in court, the court is not required to defer to any decision of a tribunal on its own jurisdiction.
• But not every tribunal decision is vulnerable.  Only awards which go to fundamental issues of the tribunal’s jurisdiction can be set aside by a court under section 34(2)(a)(iii) of the Arbitration Act (and equivalent sections of similar legislation).  Ordinarily, this means the parties’ substantive arguments about liability are difficult to challenge.
• It is important for parties to identify all pertinent arguments at all stages of the arbitration.  If CBI had pleaded its Contract Criteria Case before the First Hearing, it would have saved a lot of time, pain and money.
• Parties should craft procedural orders carefully.  Sometimes it is not practical to fully articulate all possible arguments at every stage of a dispute.  If so, there are still ways to protect your ability to bring future claims.  In this case, the orders bifurcating the hearing said that “all issues of liability” were to be dealt with at the First Hearing.  If the bifurcation orders had been more narrowly drafted, then they may not have prevented CBI from bringing its Contract Criteria Case.^[3]
• If you are challenging the tribunal’s jurisdiction in court, then make sure to adduce all relevant evidence.  In conducting a de novo review, the court is not limited to the matters that were before the tribunal.
• Australia remains an attractive arbitration jurisdiction.  There has been concern from some quarters that this decision is anti-arbitration because on matters of jurisdiction, the court is not required to defer to a tribunal.  Although reasonable minds can differ on this point, the High Court made detailed reference to international case law and held that those cases were consistent with the High Court’s reasoning.  If a similar issue arose in another jurisdiction, the courts there may well reach the same conclusion.