Bifurcation in international arbitration and the scope of the functus officio principle

A recent decision of the Supreme Court of Western Australia has set aside an interim arbitral award on the basis that the three member tribunal was functus officio. The functus officio doctrine in arbitration means that once a tribunal has performed its duty by rendering an award regarding the issues submitted, the arbitrator’s mandate or jurisdiction is at an end. This may lead to disputes where interim or partial awards are issued (such as where bifurcation is ordered) if one party asserts that certain issues have not been addressed and remain within the tribunal’s jurisdiction.

Chevron Australia Pty Ltd v CBI Constructors Pty Ltd

Chevron Australia Pty Ltd (“Chevron”) engaged a joint venture between CBI Constructors Pty Ltd and Kentz Pty Ltd (“CKJV”) to provide construction and other related services for Chevron’s Gorgon offshore oil and gas project off the north-west coast of Western Australia.

Following commencement of arbitration proceedings between CKJV (as claimant) and Chevron (as respondent and counter-claimant), a three-person arbitral tribunal was constituted comprising Mr Philip Greenham, the Honourable Christopher Pullin QC and Sir Robert Akenhead as chair.

The underlying dispute in the arbitration concerned labour costs whereby Chevron contended that it had overpaid CKJV. Conversely, CKJV argued that that it was owed more than it had been paid.

On the second such application by CKJV, the tribunal issued a procedural order to ‘bifurcate’ the arbitration into two separate stages. Liability issues would be determined first (the “First Hearing”), and quantum issues would be dealt with at a subsequent hearing (the “Second Hearing”).

After the First Hearing, the tribunal made an interim award with the effect that CKJV was only partially successful (“First Interim Award”).

CKJV subsequently submitted a further pleading asserting an amended case on quantum.

Chevron objected to CKJV’s further pleading and applied to strike out the pleading on the basis that the new pleading was, in substance, a fresh case upon liability for labour costs. Chevron relied upon res judicata (cause of action estoppel), issue estoppel or Anshun estoppel (a type of estoppel which, if applicable, prevents a party from raising claims that ought to have been pursued in earlier proceedings), and also asserted that the tribunal was functus officio in relation to all issues of liability.

The tribunal then made procedural orders which, in effect, referred the strike out application to the Second Hearing.

After the Second Hearing, by a further interim award (“Second Interim Award”), the majority of the tribunal (Sir Robert Akenhead and Mr Phillip Greenham) held that CKJV was not prevented from advancing the additional liability arguments regarding labour costs (whether by res judicata, issue estoppel or Anshun estoppel, or as a result of the tribunal being functus officio in relation to liability).

The Supreme Court judgment

Chevron’s applications relied upon section 16(9) of the Commercial Arbitration Act 2012 (WA) (“CAA”) and section 34(2)(a)(iii) of the CAA.

Section 16(9) of the CAA

Section 16(9) of the CAA permits a party to request, within 30 days after receiving a ruling by the tribunal (as a preliminary question) that it has jurisdiction for the Court to decide whether the tribunal does in fact have jurisdiction.

Martin J dismissed Chevron’s application under section 16(9) of the CAA on the basis that the tribunal did not rule against Chevron’s objection that the tribunal was functus officio as a “preliminary question”; this issue was resolved in the Second Interim Award.

In reaching this conclusion, the Court agreed with the UNCITRAL explanatory note that where a jurisdictional ruling by a tribunal has been combined with a merits award, curial recourse is only available via Article 34 or Article 36 of the Model Law (analogues CAA s 34 and s 36) which is a view that is also supported internationally by the Singapore High Court decision in AQZ v. ARA.

Section 34(2)(a)(iii) of the CAA

Section 34(2)(a)(iii) of the CAA empowers the Court to set aside an arbitral award if “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 wider legal arguments that had been before the tribunal based on estoppel were narrowed to arguments that only concerned whether the tribunal was functus officio when heard by the Court, although the Court acknowledged that these wider legal challenges “display an overlapping foundation with the functus arguments”.

The Court found that a set aside application arising out of an assertion that a tribunal is functus officio falls within the parameters of section 34 (2)(a)(iii) of the CAA because the functus officio doctrine engages with the phrases “not falling within the terms of the submission to arbitration” or “decisions on matters beyond the scope of the submission to arbitration”. This conclusion was reached in reliance on the Singapore Court of Appeal decision of CRW Joint Operations v. PT Perusahaan Gas concerning an arbitral tribunal exceeding its ‘authority’ when the tribunal improperly decided matters that had not been submitted to it.

As to whether it is the Court or the tribunal that decides whether a tribunal is functus officio, the Court referred to both local and international cases in holding that ultimately, it will be a matter for the Court to decide. The Court referred to the Supreme Court of England and Wales decision of Dallah Real Estate v. Ministry of Religious Affairs, Government of Pakistan where it was observed that the tribunal’s own view of its jurisdiction had no legal or evidential value.

The Court evaluated the merits of the assertion that the tribunal was functus officio and (save for matters requiring minor corrections or clarifications) largely accepted the dissenting reasons of Arbitrator Pullin in the Second Interim Award that the tribunal was functus officio upon all issues of liability following the publication of the First Interim Award. The Court’s reasons included that all liability issues had been “unquestionably dealt with” in the First Interim Award, the further claims by CKJV were freshly articulated contractual liability issues and that the opportunity to raise them was at an end after the publication of the First Interim Award.

Finally, on the question of residual discretion, the Court concluded that, notwithstanding its observations on minimal curial intervention, a set aside order under the present circumstances should be “virtually automatic”.

Implications

Whilst a Court may only intervene in the arbitral process in specific circumstances permitted by the legislation, where the tribunal has become functus officio, an arbitral award purportedly issued by the tribunal in respect of issues which have been previously dealt with ought to be set aside. This is a question purely for the Court and the tribunal’s own view of the matter is of no legal or evidential value.

The concept of finality is crucial to the arbitral process. As noted by the Court, an approach which seeks to take “multiple bites at the cherry” cannot be accepted.

For parties involved in arbitral proceedings, the decision demonstrates the critical importance of ensuring its written and/or oral submissions to a tribunal address any issues that the tribunal is likely to deal with on a final basis before the relevant interim (or final) award is rendered. This will of course require careful consideration of, and adherence to, procedural orders throughout an arbitration. That is particularly so where it is clear that some issues will be dealt with finally prior to the final award, given that the tribunal must not revisit issues once they have been finally determined.

References:

CRW Joint Operations v. PT Perusahaan Gas [2011] SGCA 33

Dallah Real Estate v. Ministry of Religious Affairs, Government of Pakistan [2011] 1 AC 763

AQZ v. ARA [2015] SGHC 49

Chevron Australia Pty Ltd v CBI Constructors Pty Ltd [2021] WASC 323