Domenico Cucinotta and Yan Zhang look at a recent landmark case in Australia that highlights the limits of an arbitral tribunal’s jurisdiction – and the important lessons it holds, including for disputes elsewhere.

Arbitration is often chosen by parties seeking to resolve disputes privately, efficiently, and cost-effectively. But there are limits on the decisions a tribunal can make – in legal terms, its jurisdiction.

In August 2024, the High Court of Australia handed down a decision that is a timely reminder of those limits. In CBI Constructors Pty Ltd v Chevron Australia Pty Ltd[1] (CBI v Chevron) the High Court held that the tribunal exhausted its jurisdiction and completed the job assigned to it by the disputing parties (it was functus officio – more on that below).[2] The tribunal had already decided on issues of liability; its attempt to make a subsequent interim award determining further liability issues during the ‘quantum’ phase of the proceedings was set aside.

The High Court’s decision in CBI v Chevron sends a warning flare to arbitrators and arbitration practitioners to ensure that all issues are identified with clarity and precision, raised as early as possible and resolved at appropriate phases to ensure resulting awards are not challenged.

Want to know more about the case? See our related piece, You only get one bite of the cherry in arbitration: CBI Constructors Pty Ltd v Chevron Australia Pty Ltd.

What was the dispute behind the case – and what awards did the tribunal make?

Chevron engaged CBI and Kent Projects Pty Ltd (CKJV) to provide staff and services to Chevron’s offshore oil and gas project. A dispute arose after CKJV complained that they were underpaid because they were entitled to recover costs based on contractual rates, rather than actual costs.[3]

The contract provided for resolution of disputes by arbitration.[4] CKJV commenced arbitration proceedings which the tribunal ultimately bifurcated into two phases:

• the first to determine questions of liability, and
• the second to determine questions of quantum.[5]

Bifurcation of arbitral proceedings is a common procedural mechanism used by arbitral tribunals to determine separate questions. The rationale for bifurcation includes potential time and cost savings by resolving certain questions first, avoiding argument on issues that might ultimately be irrelevant. For example, if the tribunal determined that there was no liability at all, the parties would have avoided the time and cost of adducing expert evidence on quantum as part of an overall merits phase.

CBI v Chevron: a timeline

• Dec 2018: Chevron obtained a First Interim Award in its favour, apparently closing the liability phase of the arbitral proceedings.[6]
• May 2019: Later, the tribunal ordered CKJV to replead their case, including a new claim based off certain criteria in the contract (Contract Criteria Case).[7]
• Sep 2020: The Contract Criteria Case was heard as part of the quantum phase of the arbitral proceedings, with the majority of the tribunal upholding the Contract Criteria Case in a Second Interim Award.[8]
• Sep 2021: Chevron successfully applied to the Supreme Court of Western Australia to set aside the Second Interim Award pursuant to s 34(2)(a)(iii) of Commercial Arbitration Act 2012 (WA) (Arbitration Act),[9] on the basis that the tribunal was functus officio when purportedly determining the Contract Criteria Case.[10]
• Jan 2023: CKJV’s appeal to the Court of Appeal of Western Australia was dismissed.[11]
• Nov 2023: By special leave, CKJV appealed to the High Court.[12]
• Aug 2024: By a 5:2 majority, the High Court dismissed the appeal holding that the tribunal acted outside of its jurisdiction in rendering the Second Interim Award. The Second Interim Award was set aside because it purported to deal with an issue of liability (being CKJV’s Contract Criteria Case) in circumstances where the tribunal had exhausted its jurisdiction on all issues of liability and so was in a state of functus officio in respect of those issues.[13]

What is ‘Functus Officio’?

Functus officio is a Latin phrase that describes the completion or exhaustion of the authority of a decision-maker to decide a matter.[14] The concept is not unique to arbitration and has been used in other contexts to describe the state where an exercise of power, or a performance of a function or duty, is complete and the person has no power left to exercise, or no function or duty left to perform.[15]

The concept of functus officio arises in the context of arbitration in the circumstances where a tribunal has rendered an award and fulfilled the function assigned to it by the parties as part of their agreement to submit disputes to arbitration.[16] Generally speaking, there are limited exceptions to the doctrine of functus officio. For instance, a tribunal may correct errors in computation and any clerical or typographical errors in an award.[17]

The doctrine of functus officio is widely recognised in international arbitration and addressed in most arbitration legislation (including Model Law jurisdictions).[18] The central question is whether a tribunal has exhausted its jurisdiction to adjudicate or take further actions. The authority to adjudicate, once exhausted, cannot be exercised again absent further agreement.[19] For instance, the United States Court of Appeals for the Second Circuit held that an arbitral tribunal, after having delivered a partial final award on liability, was functus officio with respect to questions of liability, notwithstanding the subsequent reconstitution of the tribunal to replace an arbitrator who had passed away.[20]

By contrast, if a tribunal has power but exercises it in an incorrect way, no question of functus officio would arise. This was the approach taken by the Court of First Instance of Hong Kong (HKCFI) in SC v OE 1 and another,[21] in which the tribunal was found not to have acted beyond jurisdiction when issuing an addendum after the award had been delivered. The HKCFI determined that the tribunal had the power to act as it did pursuant to Article 33 of the Model Law.[22]

How the majority of the High Court approached Functus Officio

CKJV’s appeal to the High Court rested on two arguments:

• it is within the tribunal’s exclusive jurisdiction to determine whether the First Interim Award precluded advancement of the Contract Criteria Case and resultingly there should be no permissible curial intervention under s 34(2)(a)(iii) of the Arbitration Act,[23] and
• it is incorrect to take a de novo review (that is, re-examining the case afresh) in a set aside application under s 34(2)(a)(iii) of the Arbitration Act.[24]

Both arguments were rejected by a majority of the High Court.

In rejecting CKJV’s first argument, the majority concluded that:

• The principle of party autotomy compels an arbitral tribunal to, amongst other things, apply the rules of procedure chosen by the parties, which includes rules applicable to the making of an award.[25]
• The UNCITRAL Arbitration Rules 2010 (UNCITRAL Rules) which were selected by the parties as the relevant arbitral rules, along with the arbitration agreement empower the tribunal to “make separate awards on different issues at different times”,[26] all of which would be final and binding.[27]
• It follows that the First Interim Award is final and binding on the issues that it has dealt with.[28]
• There is domestic[29] and international jurisprudence[30] recognising that once a final and binding award is made a tribunal has no further jurisdiction or power to determine the subject matter of the award (being in a state of functus officio). It would be impermissible for a tribunal to have a second bite at the apple (as it were) since doing so would be beyond the tribunal’s authority because the tribunal had already completed the task assigned to it by the parties.[31]
• The unchallenged finding of the Court of Appeal that all issues of liability had been determined in the First Interim Award (which was final and binding) and that the Contract Criteria Case is a case on liability[32] means that the tribunal acted outside its jurisdiction in determining the Contract Criteria Case as part of the Second Interim Award.[33]
• While a tribunal has authority to rule on its own jurisdiction (commonly known as the kompetenz-kompetenz principle),[34] a court has supervisory power to intervene if the tribunal has exceeded its authority.[35]
• The court’s scrutiny of the jurisdictional limit of a tribunal is distinct from that of a decision made by the tribunal within its jurisdiction.[36] Thus, the fact that the tribunal also dismissed Chevron’s estoppel arguments and proceeded to make the Second Interim Award did not preclude the Court from examining the authority of the tribunal in set aside proceedings.[37]

In rejecting CKJV’s second argument, the majority confirmed that the standard of review to be applied in a set aside application is a de novo review.[38]

A different approach by a minority of the High Court

In a partial dissenting judgment, Jagot and Beech-Jones JJ concluded that it was within the tribunal’s jurisdiction to determine whether the First Interim Award precluded it from determining the Contract Criteria Case.[39]

Their Honours noted that a critical step in the decisions below was “the conclusion that the arbitral tribunal was functus officio in relation to the subject matter of the First Interim Award”.[40] That conclusion, in their Honours’ view, was erroneous because:

• The absence of a final award means that the tribunal’s mandate has not been exhausted.[41]
• A proper understanding of the authorities relied upon by the courts below reveals that the state of being functus officio is a result of the operation of preclusive estoppels.[42] That means a question of functus officio goes to, adopting the minority’s characterisation, admissibility (rather than jurisdiction) against which there lies no recourse to intervention by a domestic court.[43]
• There is no basis to impose a procedural jurisdictional limitation on the tribunal such as to allow the court to closely monitor the conduct of the pleadings, particulars and procedural orders.[44] As a result, the question of whether an issue should have been raised at certain stage falls to be determined by the tribunal.[45]

The effect of the dissenting opinion would be to entrust arbitral tribunals to conduct the arbitration proceedings as they see fit until a final award is rendered, limiting court intervention if the tribunal determines that certain matters should be resolved during different phases of the proceedings. The extent to which questions of bifurcation and conduct of the proceedings go to the tribunal’s jurisdiction or are merely procedural may not always be clear-cut.

Practical impacts

Whilst CBI v Chevron was decided under the domestic commercial arbitration legislation of Western Australia, it has a potentially broader application to arbitration conducted in other States and to international arbitration under the International Arbitration Act 1974 (Cth), since all of Australia’s domestic and international arbitration statutes are based on the UNCITRAL Model Law on International Commercial Arbitration.

Following CBI v Chevron, there is little doubt that a court will approach a jurisdictional challenge de novo. The decision also suggests that interim or partial awards are able to be enforced and set aside pursuant to Australia’s arbitration legislation.

Notwithstanding the reasoning of the dissenting opinion, the majority judgment makes clear that arbitrators and arbitration practitioners alike should remain vigilant to ensure that all issues are raised as early as possible and resolved during the appropriate phase of the proceedings. Procedural orders giving effect to bifurcated proceedings should be drafted with clarity and care. Parties ought to consider resolving only specifically isolated and identified issues, rather than leaving the proceedings open-ended, fractured and potentially ineffective.

No doubt it is a paradoxical experience for the parties that a procedural mechanism like bifurcation – which is intended to provide time and cost savings to the parties – has, instead, resulted in lengthy and costly set-aside proceedings all the way to the High Court of Australia.

 

[1] [2024] HCA 28.

[2] At [28], [50] (Gageler CJ, Gordon, Edelman, Steward and Gleeson JJ).

[3] At [53] (Jagot and Beech-Jones JJ).

[4] At [4] (Gageler CJ, Gordon, Edelman, Steward and Gleeson JJ).

[5] At [5].

[6] At [6]-[7].

[7] At [8].

[8] At [56] (Jagot and Beech-Jones JJ).

[9] Section 34(2)(a)(iii) of Commercial Arbitration Act 2012 (WA) provides that An arbitral award may be set aside by the Court only if (a) 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, 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;.

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

[11] CBI Constructors Pty Ltd v Chevron Australia Pty Ltd [2023] WASCA 1.

[12] CBI v Chevron (n 1) at [59] (Jagot and Beech-Jones JJ).

[13] CBI v Chevron (n 1) at [50] (Gageler CJ, Gordon, Edelman, Steward and Gleeson JJ).

[14] CBI Constructors Pty Ltd v Chevron Australia Pty Ltd [2023] WASCA 1 at [86] per Quinlan CJ, Murphy JA and Bleby AJA.

[15] See Minister for Indigenous Affairs v MJD Foundation Ltd (2017) 351 ALR 270, 305 at [155] per Mortimer J.

[16] See for instance Fidelitas Shipping Co. Ltd v V/O Exportechleb [1966] 1 Q.B. 630, 644 per Diplock L.J.

[17] Article 33 of the UNCITRAL Model Law on International Commercial Arbitration.

[18] Born, International Arbitration: Law and Practice (Third Edition), Chapter 15: International Arbitration Awards: Legal Framework, p.361; see also Blackaby, Partasides et al., Redfern and Hunter on International Arbitration (Seventh Edition), ‘9. Award’, paras 9.19, 9.24 and 9.192.

[19] Blackaby, Partasides et al., Redfern and Hunter on International Arbitration (Seventh Edition), ‘9. Award’, paras 9.192.

[20] Trade & Transport, Inc. v. Natural Petroleum Charterers Inc. 931 F.2d 191, 195.

[21] [2020] HKCU 3016.

[22] SC v OE 1 and another [2020] HKCU 3016 at [54], [56]-[57] (Mimmie Chan J).

[23] CBI v Chevron (n 1) at [50] (Gageler CJ, Gordon, Edelman, Steward and Gleeson JJ).

[24] At [14].

[25] At [16].

[26] At [17].

[27] At [17]-[19].

[28] At [19], [25].

[29] At [22], citing TCL Air Conditioner (Zhongshan) Co Ltd v Judges of the Federal Court of Australia (2013) 251 CLR 533, 568 [81].

[30] Including, for example, Fidelitas Shipping Co Ltd v V/O Exportchleb [1966] 1 QB 630, 644; Mustill and Boyd, The Law and Practice of Commercial Arbitration in England, 2nd ed (1989), 404-405; ONGC [2023] SGHC 197 at [33].

[31] CBI v Chevron (n 1) at [26]-[28] (Gageler CJ, Gordon, Edelman, Steward and Gleeson JJ).

[32] At [25].

[33] At [33], [40].

[34] At [31].

[35] At [29]-[30], [32].

[36] At [35]-[36].

[37] At [34]-[36].

[38] At [42]-[49].

[39] At [51] (Jagot and Beech-Jones JJ).

[40] At [71].

[41] At [73]-[74].

[42] At [77]-[81].

[43] At [81].

[44] At [87]-[88].

[45] At [87].