The High Court has confirmed the power of Courts to intervene in commercial arbitrations, and pursuant to a commercial arbitration statute. It means that parties that submit themselves to private arbitration do not, by taking that step, agree to the arbitral tribunal exceeding its authority to decide the specified matters. In this case, the arbitral tribunal had decided “all issues of liability” at a bifurcated hearing but later purported to decide additional issues of liability – the High Court held that the arbitral tribunal lacked jurisdiction in relation to the additional issues. 

In CBI Constructors Pty Ltd & Anor v Chevron Australia Pty Ltd [2024] HCA 28, a majority of the High Court answered two key questions: 

1. whether the Supreme Court of Western Australia had the power to set aside an arbitral award under s.34(2)(a)(iii) of the Commercial Arbitration Act 2012 (WA) (Arbitration Act) (which mirrors the UNCITRAL Model Law on International Commercial Arbitration (Model Law)); and
2. if the Supreme Court had the power to review the tribunal’s award, what is the standard by which it is to exercise that power?

The High Court upheld the decision of the Western Australian Courts that the Supreme Court has power under s.34(2)(a)(iii) of the Arbitration Act to set aside an award of the arbitral tribunal, if the Supreme Court determined de novo that the tribunal was functus officio (which in this case, it did). The arbitral tribunal had itself considered the challenge to its jurisdiction (that is, its authority to decide), but the tribunal’s own order (that it had jurisdiction) cannot be used by the tribunal to expand its own jurisdiction. This decision could invite increased curial interventions in arbitrations, which arguably would cause Australia to be a less attractive seat for international arbitrations where the parties wish to engage in an arbitration that is final and binding and will not expose the participants to judicial intervention, and the potential for media attention and public scrutiny.

The Model Law 

The Model Law article 34(2)(a)(iii) and s.34(2)(a)(iii) of the Arbitration Act provide: 

(2) An arbitral award may be set aside by the Court only if —(a) the party making the application furnishes proof that — (iii) 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…

The Model Law is designed to expressly limit the ability for a Court to intervene in arbitral proceedings, and the ability for a court to set aside an award is limited to the narrow circumstances in article 34. 

Background: Chevron v CKJV

Chevron Australia Pty Ltd (Chevron) contracted for CKJV (comprising CBI Constructors Pty Ltd and Kentz Pty Ltd) to provide craft labour and staff to carry out work at Chevron’s Gorgon Project. Chevron contended that CKJV had been paid for amounts beyond what was agreed, while CKJV argued that Chevron owed further payments to CKJV. Arbitration was commenced by CKJV in 2017 under the Arbitration Act. 

The arbitral tribunal made orders to bifurcate (that is, split) the arbitration into two stages, the split being between issues of liability, and a determination of quantum and quantification issues such as damages. Following a first hearing, the tribunal issued an award regarding liability. CKJV subsequently repleaded its case, as it attempted to explain the basis on which it sought a reimbursement of its staff costs from Chevron. Chevron objected, arguing CKJV was seeking to run new arguments concerning liability, even though the second hearing was only intended to address quantum. As a result, the tribunal issued a second award where the majority found that the tribunal was not functus officio on matters of liability (that is, that it had not discharged its authority to decide the further issues raised by CKJV) and that CKJV was not precluded from arbitrating its repleaded case. 

Chevron applied to the Supreme Court under s.34(2)(a)(iii) of the Arbitration Act for an order that the tribunal’s second interim award be set aside. The Court found in favour of Chevron, that the issue was really one of liability, which should have been raised by CKJV during the first hearing. The judge found that given the arbitrators had already given their award on “all issues of liability”, the tribunal was functus officio and the second interim order should be set aside. CKJV then appealed the decision to the WA Court of Appeal, who dismissed the appeal. CKJV appealed again and in November 2023 the High Court granted special leave for the matter to be heard, with oral arguments occurring on 16 April 2024.

Findings of the High Court

CKJV submitted that s 34(2)(a)(iii) of the Arbitration Act operates where a tribunal exceeds its authority by deciding matters beyond its ambit reference, that the conclusions of the tribunal were within the scope of the parties’ submission to arbitration, and that bifurcation by an arbitral tribunal of an arbitration into separate phases does not limit the scope of the parties’ submission to arbitration. CKJV also argued that the concept of functus officio is a distraction as it is “not a legal principle or doctrine” but merely a description of an end result: that is, the exhaustion of power or authority to decide. 

Chevron argued that the first award in the arbitration decided all issues of liability, leaving the tribunal functus officio subsequently, and so unable to “reopen the first award” and decide further matters of liability. Chevron also argued that review by a Court under s.34(2)(a)(iii) of the Arbitration Act is a fresh determination, not one requiring the Court to give absolute or substantial deference to the views of the tribunal.

The majority of the High Court agreed with Chevron. It found that the first award by the tribunal was “final and binding”. The High Court also found that the Court of Appeal had determined that the first award had determined all issues of liability, that aspects of the second award also attempted to determine issues of liability and that those findings by the Court of Appeal were not challenged in the appeal to the High Court. The unchallenged findings of the Court of Appeal were said to “compel the conclusion” that the Supreme Court was empowered to consider Chevron's application under s.34(2)(a)(iii) of the Arbitration Act to set aside the second award.

As to the appropriate standard of review to be applied, the High Court accepted that it is to be a de novo (that is, fresh) review in which the Supreme Court applies a "correctness" standard of intervention, and that “substantial deference” to the arbitral tribunal’s decision that it was not functus officio was not required. The High Court looked at the language of article 34 and the surrounding articles in the Model Law to reach this conclusion. The High Court observed that one purpose of the Model Law is to promote uniformity of its application on an international scale and cited international cases which had adopted the correctness standard: for example, the Ontario Court of Appeal in United Mexican States v Cargill Inc (2011) 107 OR (3d) 528 and the Hong Kong Court of Final Appeal in C v D (2023) 26 HKCFAR 216. 

Guidance and next steps

This decision highlights that care must be taken when bifurcation is ordered: parties must ensure that all relevant matters of liability are properly articulated when required by the tribunal, or a party may find that the tribunal had, but no longer has, authority to decide. 

The High Court’s decision may affect the desirability of Australia as an arbitration seat, in that it may be perceived as a jurisdiction in which courts are more likely to intervene. The High Court observed: “[c]urial intervention is, however, sometimes necessary. This is one of those cases.”