|CHEVRON AUSTRALIA PTY LTD v CBI CONSTRUCTORS PTY LTD  WASC 323|
|Court:||SUPREME COURT OF WESTERN AUSTRALIA|
|Case No:||ARB 8 of 2020; and,
ARB 9 of 2020
|Parties||BETWEEN : CHEVRON AUSTRALIA PTY LTD
CBI CONSTRUCTORS PTY LTD
KENTZ PTY LTD
|JUDGE:||KENNETH MARTIN J|
|DATE OF HEARING:||15 & 16 JUNE 2021|
|DATE OF JUDGMENT:||28 SEPTEMBER 2021|
|CASE MAY BE CITED AS:||Chevron Australia Pty Ltd v Cbi Constructors Pty Ltd  WASC 323|
|MEDIUM NEUTRAL CITATION:|| WASC 323|
|Catchwords:||Arbitration – Private arbitration – Three arbitrators – Contract dispute – Interim award addressing all issues of liability upon claim and counterclaim – Contract dispute – Attempt to raise new liability entitlement issue subsequent to first interim award – Jurisdictional objections on basis of res judicata, issue estoppel, Anshun estoppel and functus officio – Arbitrators divided on jurisdictional objection – Majority allowed new argument – Dissent by one arbitrator as to functus officio – Second interim award issued – Application by respondent to set aside second interim award|
|Judgment:||ARB 8 of 2020 is dismissed
Application to set aside second interim award upheld in ARB 9 of 2020
|Cases cited:||Alvaro v Temple  WASC 205
AQZ v ARA  SGHC 49
BTN v BTP  SGCA 105
CRW Joint Operation v Pt Perusahaan Gas  SGCA 33
CRW Joint Operation v PT Perusahaan Gas Negara (Persero) TBK  SGCA 33
CRW Joint Operation v PT Perusahaan Gas Negara  SGCA 33
Dallah Real Estate v Ministry of Religious Affairs, Government of Pakistan  1 AC 763
Discovery Beach Project Pty Ltd v Northbuild Construction Pty Ltd  QSC 306
Emirates Trading Agency Llc v Sociedade De Formento Industrial Private Ltd  1 All ER 517
Hebei Jikai Industrial Group Co Ltd v Martin & Ors  FCA 228; (2015) 324 ALR 268
Hui v Esposito Holdings Pty Ltd  FCA 648; (2017) 345 ALR 287
IMC Aviation Solutions Pty Ltd v Altain Khuder LLC (2011) 38 VR 303
Ivankovic v Western Australian Planning Commission  WASC 40
Lin Tiger Plastering Pty Ltd v Platinum Construction (Vic) Pty Ltd  VSC 221; (2018) 56 VR 576
LW Infrastructure Pte Ltd v Lin Chin San Contractors Pte Ltd  SGHC 264
Maersk Crewing Australia Pty Ltd v Construction, Forestry, Maritime, Mining and Energy Union  FCA 595
Michael Wilson v Emmott  EWHC 2684
Price & Anor v Carter (t/a Ian Carter Building Contractors  EWHC 1451
Sino Dragon Trading Pty Ltd v Nobel Resources International Pte Ltd  FCA 1131
Spaseski v Mladenovski (2019) WASC 65
TCL Airconditioner (Zhongshan) Co Ltd v Judges of the Federal Court of Australia (2013) 251 CLR 533
The State of Western Australia v Mineralogy Pty Ltd  WASC 58
Thoday v Thoday  P181
Tomlinson v Ramsey Food Processing Pty Ltd  HCA 28; (2015) 256 CLR 507
Venetian Nominees Pty Ltd v Weatherford Australia Pty Ltd  WASC 137
|Texts and articles:||N/A|
Plaintiff : Mr S Doyle QC & Mr S J Davis
First Defendant : Mr J Gleeson QC & Mr T N Owen
Second Defendant : Mr J Gleeson QC & Mr T N Owen
Plaintiff : Norton Rose Fulbright Australia
First Defendant : Clayton Utz
Second Defendant : Clayton Utz
REASONS FOR JUDGMENT
KENNETH MARTIN J:
- I am dealing with two applications made to this court pursuant to the Commercial Arbitration Act 2012 (WA) (CAA). Both applications were commenced by the same plaintiff, Chevron Australia Pty Ltd (Chevron) under its originating summonses, each of 2 October 2020 – against the first and second defendant, CBI Constructors Pty Ltd and Kentz Pty Ltd, respectively. For ease of reference, the two defendants are referred to in aggregate, as CKJV.
- The defendants are joint venturer contractors who entered a contractual relationship with Chevron by a written contract of 14 July 2011 (as subsequently amended by two further written agreements – namely DSP 2 and DSP 4 of 12 and 13 December 2013 respectively) (the Contract).
- The Contract (see the plaintiff’s Amended Hearing Bundle (AHB), tab 1) concerned CKJV’s provision of construction and other related services in furtherance of Chevron’s Gorgon offshore oil and gas project being undertaken off the north-west coast of Western Australia. Under the Contract, CKJV were required to provide Craft Labour and Staff to carry out work at the Gorgon Project site on Barrow Island, Henderson, Perth and at various yards in South Korea, China and Indonesia.
- Broadly speaking, the current proceedings stem from a contractual dispute between the parties over the true meaning of provisions of the Contract requiring Chevron to reimburse CKJV for their employment of labour.
- Chevron’s two applications to this court as ARB 8 and ARB 9 of 2020 seek relief pursuant to different provisions of the CAA. Under ARB 9 of 2020, Chevron seeks relief pursuant to CAA s 34(2)(a)(iii) to have an arbitral award dated 4 September 2020 set aside. Alternatively, under ARB 8 of 2020, Chevron seeks to have the question of the arbitral tribunal’s jurisdiction determined by this court, pursuant to CAA s 16(9).
- I propose to structure these reasons by first setting out the parties’ underlying contractual dispute and then explaining aspects of the arbitral hearings held and subsequent orders made, focussing especially on the first and second interim awards as came to be issued by a three-person arbitral tribunal. I then analyse and determine Chevron’s ARB 8 of 2020 set-aside application, followed by its ARB 9 of 2020 jurisdictional application. Within these analyses, I refer extensively to the reasons of the learned arbitrators as expressed in their first and second interim awards published on 14 December 2018 and on 4 September 2020 respectively.
Underlying contractual dispute
- The underlying arbitration was commenced by CKJV (as claimant) against Chevron (as respondent) during February 2017, pursuant to dispute resolution provisions in the parties’ Contract (see general contract condition (GTC) 21.2). Essentially, the parties were in dispute over Chevron’s contention that CKJV had overcharged Chevron, and Chevron had subsequently overpaid CKJV, for amounts beyond what was contractually agreed as regards CKJV’s reimbursement entitlement costs. CKJV disputed this and argued instead that Chevron owed it more money than it had paid. Thus, there arose a contractual dispute between Chevron and CKJV concerning CKJV’s contractual reimbursement entitlements for its engagement and employment of labour working in or around Chevron’s Gorgon project.
- After the dispute arose, Chevron proceeded to withhold from CKJV some reimbursement monies ultimately in excess of AUD$130 million – on the basis of unresolved audit findings and essentially as direct redress by Chevron to recover its contended overpayments to CKJV.
- The ensuing arbitration in respect of Chevron’s overpayment claims remains uncompleted. The arbitration was commenced in February 2017. A three-person arbitral tribunal was constituted in April 2017, comprising of Mr Phillip Greenham, the Honourable Christopher Pullin QC and Sir Robert Akenhead as chair (the Tribunal). To date, the Tribunal has published two significant interim awards and, in the process, issued over 29 procedural orders to facilitate two major arbitral hearings conducted in Perth so far – first in November 2018 and second during August 2020.
- On 16 March 2018, CKJV applied to the Tribunal for orders to ‘bifurcate’ the arbitration into two separate stages. The advocated bifurcation (which was rejected upon the first application of CKJV, but later granted on CKJV’s second application of 16 July 2018), sought to split the arbitral hearing – so that issues of liability arising in the parties’ contractual dispute would be dealt with at a first hearing by a first interim award. Thereafter, quantum and quantification issues would be dealt with at a subsequent hearing.
- CKJV’s second application seeking bifurcation orders was supported by an accompanying written submission (see AHB, tab 13). The submission said:
- This is the Claimant’s (second) application to bifurcate the arbitration so that the November 2018 hearing is limited to issues of liability underlying the Claimant’s Claim as more particularly identified in the proposed List of Issues included at Appendix 1 to these submissions.
- Whilst the Claimant never accepted that the proper quantification of the Counterclaim would be a simple issue and/or that the parties would be able to agree quantum if the Claimant lost on liability, it is, following the service of the FPCCL [an acronym referring to the respondent’s full particulars of counterclaim] now clear beyond doubt that there are ‘dramatic‘ and/or ‘real‘ issues about the quantum of the Counterclaim. There is a ‘dramatic‘ and/or ‘real‘ issue because the FPCCL comprises a fundamental change to the basis and methodology of the Respondent’s Counterclaim, meaning that it is no longer a case based on the actual costs that were incurred by the Claimant but is a case advanced by reference to a ‘model’ (or more accurately, a series of models) by which the Respondent has created a complex data set which it uses to ‘model’, i.e. arrive at, its Counterclaim figures. All of this gives rise to a large number of complex accounting issues
(further explanation added in square brackets).
- The second bifurcation application of CKJV was opposed by Chevron. The further application was heard on 26 July 2018. On 29 July 2018, the Tribunal issued procedural order (PO) No 14 that was supported by reasons – essentially granting CKJV’s second application to bifurcate at that time (see AHB, tab 17). Due to the importance of PO 14 in the present set aside application, I set out below the terms of orders 1 and 3 as it came to be issued.
- By PO 14, the Tribunal ordered on 29 July 2018:
- The claimant’s application for bifurcation is granted in the following terms:
(a) There shall be heard first all issues of liability in respect of the Claimant’s claim and the Respondent’s Counterclaim (the First Hearing). Such issues, for the avoidance of doubt, shall exclude all quantum and quantification issues arising out of the Respondent’s Counterclaim and the Set-Off issues raised in the Claimant’s Defence to Counterclaim (as set out in Appendices 1 and 2 thereto).
(b) The First Hearing shall take place between 5 – 23 November 2018 in Perth at the venue already arranged by the Parties. The 15 working days allowed shall be reviewed at a procedural meeting to take place by way of telephone conference on 2 October 2018.
(c) A further hearing (the Second Hearing) shall take place on a date to be fixed and shall address all matters outstanding in issue between the Parties including all quantum quantification issues not dealt with in the First Hearing.
- The Parties shall confer with a view to agreeing the terms of a formal order to reflect the decisions set out in Paragraph 1 above and to produce to the Tribunal, by close of business (WA time) 2 August 2018, a jointly agreed proposed order for the Tribunal to consider. If agreement cannot be reached then each party should submit by close of business (WA time) 3 August 2018 the order that it proposes and the Tribunal shall thereafter issue further directions.
- By the Tribunal’s reasons accompanying PO 14, they observed at par 4(e):
In essence, and reducing matters to their simplest form, the Respondent and its accounting expert appear to the Tribunal to have taken the rates upon which the Claimant was paid for much if not the whole of the contract period and adjusted those rates, usually downward, to reflect elements of those rates which are said to overestimate actual cost (which, it is argued, would otherwise have been payable under the contract between the parties). They have therefore not done an assessment working from the bottom up as to what the actual overall costs of and occasioned by employment were but a ‘top down’ analysis. It seemed to be common ground at least at the telephone hearing that this was not necessarily an inappropriate methodology and it was certainly accepted by Ms Ansell QC for the Claimant that what was disclosed within Mr Meredith’s 20 July 2018 report was significantly ‘better’ than anything which had come before.
- Paragraph 4(i) in those PO 14 reasons, added:
That leaves the detailed consideration as to whether or not the November 2018 hearing can be used sensibly. The Tribunal is, on balance, persuaded that there is and should be some real advantages in hearing and resolving what might be termed all liability and factual issues short of the quantification of the Counterclaim and the Set-Offs. For instance, if the Claimant succeeds in establishing that there were binding agreements by which it become entitled to payment at the rates at which it was actually apparently paid throughout much of the period of this Contract, there may be little left in the Counterclaim, which is predicated largely, if not entirely, on the basis that there were no such binding agreements and the contractual basis (as argued by the Respondent) of actual cost related recovery justifies (subject to proof) all or part of the Counterclaim. Accordingly, on that scenario (the rights or wrongs of which necessarily have not been considered yet by the Tribunal), substantial costs, resources and time would be saved. Similar considerations apply to the estoppel case. Clarification will be provided also by resolution of the rectification case advanced by the Respondent. (my emphasis in bold)
Procedural order 17
- Following the orders for the bifurcation of the parties’ liability and quantum issues, Chevron foreshadowed that it sought to adduce evidence from the Report of its quantum expert, Mr Meredith. This report of 20 July 2018 (Meredith Report) contained detailed analysis, modelling and expert opinions in respect of the quantum of CKJV’s entitlement to reimbursement costs for Staff.
- On 3 October 2018, the Tribunal issued PO 17, by which it ordered then that the Meredith Report would not be adduced by Chevron ‘at the liability hearing between 5 and 23 November 2018’ (see AHB, tab 29).
- In accompanying reasons to PO 17, the Tribunal said (at par 8):
… As the Tribunal has already ordered that all issues of quantum and quantification arising out of the Counterclaim are deferred to the Second Hearing in September 2019, the only way in which this damages for breach of contract claim could be established is by adducing quantum and quantification evidence, set out in detail in Mr Meredith’s 20 July 2018 Report … It is in any event unlikely to be other than of theoretical interest because it is accepted by the Claimant that, if it fails on its case that there were binding agreements arising out of or in relation to DSP 2 and DSP 4 and on its estoppel case, by one legal means or another any overpayment established by reference to the Cost entitlement under the Contract between the Parties will be recoverable. (my emphasis in bold)
First arbitral hearing
- The first arbitral hearing took place before the Tribunal over 12 hearing days during November 2018 in Perth, Western Australia. The hearing culminated in a first interim award that was issued by the Tribunal on 14 December 2018.
- CKJV’s contention at the November 2018 liability hearing was that the parties had entered into two additionalbinding (variation) agreements (represented by DSP 2 or DSP 4 or by the letter of agreement (LOA) dated August 2016) which had, in effect, amended and changed the earlier terms of the Contract relating to its reimbursement entitlements for labour costs. CKJV argued that the terms (as varied) allowed CKJV to recoup from Chevron its labour costs on a ‘Rates’ basis – not on an ‘actual costs incurred’ basis, as the Contract had previously stipulated.
- CKJV also advanced a further alternative argument in relation to a contended conventional estoppel – which would prevent Chevron from asserting otherwise as regards a ‘Rates’ regime of reimbursement for Craft Labour and for Staff costs (see PO 17’s accompanying reasons at par 4).
- On the other hand, Chevron’s opposing position was that there had been no perfected variation agreements amending the original reimbursement terms, as found in the Contract. Nor was there any estoppel. Chevron argued that it only had to reimburse CKJV for its incurred expenditures for Staff employees – referred to as CKJV’s ‘actual costs’.
- It argued that if CKJV’s position (based on agreed variations or an estoppel) as to a ‘Rates’ regime of reimbursement failed, then there could be no real resistance to Chevron’s argument that CKJV had overcharged Chevron. The only remaining issue was by how much.
First interim award determination
- Following the conclusion of the first hearing, the Tribunal came to deliver its first interim award on 14 December 2018 (AHB, tab 37). The award essentially resolved the issues around ‘Rates’ and CKJV’s Craft Labour costs – in favour of CKJV. However, the Tribunal proceeded then to reject all of CKJV’s variation arguments concerning CKJV’s claimed basis for a Rates reimbursement entitlement for Staff (see the first interim award’s ‘summary of findings’ – specifically the findings upon issues 1 and 3). By a majority, the Tribunal also rejected CKJV’s conventional estoppel arguments raised against Chevron for Staff costs.
- Relevantly, the identified issue 5 as it was stated in the first interim award (at page 80) had been:
… whether the Claimant may bring [into] to account, by way of Set-Off or defence, in these proceedings the amounts particularised in Appendix 1 to its defence to counterclaim if there was no agreement to convert the Price of Staff from Cost items to Rate items.
- The eventual finding by the Tribunal upon issue 5, was:
By majority, the Claimant may bring [into] to account by way of defence, in these proceedings, the amounts particularised in Appendix 1 to its Defence to Counterclaim … and any other amounts of cost which it seeks to prove have not yet been accounted for in what it has been paid.
- Hence, the Tribunal as seen, eventually allowed (by majority) CKJV to hold a fall-back position if it lost (as it did) on its primary conversion to Rates remuneration arguments for Staff costs reimbursement. That fall‑back would allow CKJV to change track away from Rates, and to invoice Chevron for Staff costs it incurred, but had not yet invoiced Chevron.
Further procedural orders
- After the first interim award, further procedural orders came to be issued by the Tribunal addressing the arrangements for the next hearing upon quantum issues. It is unnecessary to discuss these in detail, except to note that by PO 22 of 24 May 2019, the Tribunal ordered that CKJV was to replead its case (of 7 May 2019) on quantum issues – in a fashion that would (better) respond to Chevron’s further amended statement of defence and pleading counterclaim, and then to Chevron’s further amended full particulars of its counterclaim, both as filed by Chevron on 7 May 2019 (see AHB, tab 39).
CKJV’s amended case on quantum issues
- Following PO 22, CKJV submitted a further pleading. This was its amended case on quantum issues dated 28 May 2019 (AHB, tab 40). Of particular significance is par 3.10.3 therein – at which CKJV provides tabulated information (via contract term references) explaining the basis on which it seeks a reimbursement of its Staff costs from Chevron – in the aftermath of the first interim award.
- This CKJV plea became controversial. Upon its receipt, Chevron did two things. First, it objected to CKJV’s New Case on a basis that the Tribunal had already determined all conversion to ‘Rates’ arguments for Staff costs – adversely to CKJV. Secondly, Chevron applied to the Tribunal to have the plea struck out.
- Chevron’s formal objection to CKJV’s amended case is found in its written ‘first response to the Claimant’s amended case on quantum issues’ dated 18 June 2019 (AHB, tab 41).
- By par 2 of Chevron’s written objection, it then complained:
- By this pleading, the Respondent sets out its case as to why:
(a) the Claimants are prevented from pleading or contending for the case identified as the ‘CKJV Case’ in the expert report of Mr David van Homrigh, dated 7 May 2019:
(i) by reason of estoppel per rem judicatam and/or issue estoppel arising out of the interim award dated 14 December 2018 (Liability Award); and/or
(ii) because the Tribunal, having made determinations inconsistent with the ‘CKJV Case’ in the Liability Award, is functus officio with respect to the ‘CKJV Case’ and does not have jurisdiction or authority to determine the ‘CKJV Case’;
(my emphasis in bold)
- Other objections were also raised by Chevron, including by reference to so-called Anshun estoppel (see par 2(b) therein). The Chevron objections factually intersected to a large extent.
- Chevron’s core objection was that CKJV, by the new pleading, was seeking to run (at the second arbitral hearing that was only to address quantum issues) what was in substance, a fresh case upon liability concerning CKJV’s reimbursement entitlement for Staff costs. Chevron argued that such a course was no longer open to CKJV. The bar arose either on a basis of res judicata (cause of action estoppel), issue estoppel, or by Anshun Furthermore, the Tribunal was, as Chevron put it, then functus officio upon all issues of liability (by PO 14 and at the issuance of the first interim award).
Jurisdictional issue emerging
- Chevron’s formal objection to CKJV’s amended case on quantum issues forms the basis underlying its present applications. Chevron’s key contention is that the Tribunal, having determined by its first interim award allissues of liability on CKJV’s claim as well as upon Chevron’s counterclaim, had then exhausted its authority and its jurisdiction to render any further determinations upon liability issues
– even if those issues had not been previously raised at the earlier arbitral hearing.
- Put another way, Chevron contends that there was no longer any valid submission by the parties to the arbitral Tribunal for it to hear, consider or determine any further liability issues. That functus officio contention forms the significant focus of Chevron’s present applications to this Court.
Procedural Order 30 (July 2020)
- Faced with Chevron’s objections, the Tribunal fixed a directions hearing in July 2020 (on the papers) to deal with various matters
– including Chevron’s objection raised against the Tribunal determining what was proposed by CKJV for Staff costs. [This issue was referred to as CKJV’s ‘Contract Criteria Case’, or by Chevron’s nomenclature, CKJV’s ‘New Case on liability for Staff costs reimbursement’. For ease of reference, I will refer to this hereon in as CKJV’s Contract Criteria Case.] I note that by PO 30, Chevron’s strike out application was, in effect, referred to the second arbitral hearing to be held in August 2020.
Invocation of CAA s 16(8)
- Under s 16(8) of the CAA, an arbitral tribunal may make a discrete ruling (on a plea referred to it in s 16(4) and s 16(6)) that it does not have jurisdiction, or is exceeding the scope of its authority
– either as a preliminary question or in an award rendered on the merits. Where an arbitral tribunal does rule upon such an objection as a preliminary question (ie, not by issuing an award) then by CAA s 16(9):
… any party may request, within 30 days after having received notice of that ruling, the Court to decide the matter.
- By PO 30, the Tribunal did not rule upon Chevron’s jurisdiction and lack of authority objections as a preliminary question. Instead, it took the distinct course of resolving to deal with that objection issue in conjunction with its proposed determination of the merits of CKJV’s Contract Criteria Case (if the Chevron objection were to be dismissed
– as it eventually was by a majority ruling of the Tribunal) at the second arbitral hearing in August 2020. In other words, the Tribunal resolved to rule on Chevron’s objection, as s 16(8) permits, within its eventual award on the merits. The Tribunal’s end determination is found under their second interim award of 4 September 2020, published with 117 pages of accompanying reasons (see AHB, tab 49).
Second interim award determination (August 2020)
- I will set out aspects of the reasons provided underlying the second interim award later in these reasons. At this stage, I merely note that the second interim award accompanying reasons reveal a divided view as between the three arbitrators regarding the evaluation of Chevron’s functus officio objections raised against the authority or jurisdiction of the Tribunal.
- The majority arbitrators (Sir Robert Akenhead and Mr Phillip Greenham) came to reject Chevron’s authority and jurisdictional objections – concluding in effect that CKJV was not closed out by the earlier first interim award from running its Contract Criteria Case at the second arbitral hearing
- CKJV’s Contract Criteria Case, they reasoned, was a necessary part of working out what was meant by ‘actual costs’ for Staff costs within the parties’ Contract (ie, it was a part of the quantum and quantification exercise): see par 12.75 of the second interim award reasons. In the majority’s view, this did not constitute any re-run by CKJV of a fresh conversion to Rates argument upon liability – and hence could be validly pursued and argued.
- On the other hand, Arbitrator Pullin in dissenting reasons, concluded in effect, that Chevron was correct – and that all issues of liability under CKJV’s claim and under Chevron’s counterclaim had been the subject of the first interim award. Arbitrator Pullin assessed that CKJV’s Contract Criteria Case was not just the raising of a quantum issue, but rather, that there was an anterior liability aspect to it – which was, by then, impermissible to run (see second interim award reasons par 16.48).
- Arbitrator Pullin would have accepted Chevron’s res judicata, issue estoppel and functus officio arguments (which effectively all dovetailed), thereby closing off any further consideration by the Tribunal at the second hearing of further issues of liability on all sides.
- However, this was the minority view. In light of the majority position effectively finding against functus officio, the Tribunal then proceeded to determine the merits of CKJV’s Contract Criteria Case for Staff costs under the second interim award. In the end, the Tribunal decided in favour of CKJV.
- Having now provided this introductory overview of the parties’ underlying contractual dispute and previous arbitral proceedings, I can turn back to evaluate Chevron’s two applications made to this court.
Chevron’s ARB 8 of 2020 application
- Chevron’s ARB 8 of 2020 application is founded on an underlying premise that recourse to this court is open, via CAA s 16(9).
- Under s 16(9) of the CAA, a party, after receiving notice of a ruling by an arbitral tribunal as a preliminary question, may request that the Court decide the matter. However, the Tribunal in these arbitral proceedings did not ever render a ruling against Chevron’s functus officio objection as a preliminary question(as it otherwise might have via CAA s 16(8)). Instead, the Tribunal took a different path. It proceeded to resolve the objection along with further issues on the merits under the second interim award. Consequently, the opportunity for a limited avenue of recourse to a court via CAA s 16(9), was never engaged.
- That state of affairs effectively rings an early death knell to the fate of Chevron’s ARB 8 of 2020 application. Recourse to this court via CAA s 16(9) is not open – absent an affirmative determination by the Tribunal as to jurisdiction as a preliminary question(my emphasis in bold).
- A CAA s 16(9) gateway was only faintly advanced by Chevron in its first tranche of written submissions dated 1 April 2021, as amended on 9 June 2021 (see folio 30 at pars 210 – 221). Its written submissions (as amended) render it explicitly clear that Chevron’s primary arguments concerning CAA s 16(9) are advanced in the alternative upon Chevron’s parallel application under ARB 9 of 2020. I refer especially to par 221 of Chevron’s written submissions, which is jointly agreed between the parties.
- Accepting that a preliminary question ascertainment exercise should be viewed as a matter of substance and not form (see Michael Wilson v Emmott EWHC 2684 at ), CKJV’s written submissions of 17 May 2021 (as amended on 9 June 2021) support the rejection of any recourse to CAA s 16(9).
- At par 114 of CKJV’s written submissions as amended (folio 29), reference is made to an UNCITRAL explanatory note that accompanied some 2006 amendments to the Model Law (by reference to the analogue Article 16 of the Model Law which, in turn, is akin to the text of CAA s 16(9)). For clarity sake, the explanatory note is authored by the UNCITRAL Secretariat on the 1985 Model Law on International Commercial Arbitration, as amended in 2006. No objection was raised at the hearing as to this court being referred to such extrinsic material for the purpose of considering the possible ramifications of CAA s 16(9).
- The UNCITRAL explanatory note, as found extracted in CKJV’s written submissions (at par 95) provides:
Where the arbitral tribunal rules as a preliminary question that it has jurisdiction, Article [16(9)] allows for immediate court control in order to avoid waste of time and money … In those cases where the arbitral tribunal decides to combine its decision on jurisdiction with an award on the merits, judicial review on the question of jurisdiction is available in setting aside proceedings under Article 34 or in enforcement proceedings under Article 36. (footnotes omitted)
- I agree with the view as it is seen expressed in the UNCITRAL explanatory note ‑ that where a jurisdictional ruling by a tribunal has been combined with a merits award, a curial recourse is only available via Article 34 or Article 36 of the Model Law (and analogues CAA s 34 and s 36).
- That view, as CKJV’s written submissions explain, is well supported both internationally and locally by observations such as in the Singapore High Court in AQZ v ARA SGHC 49, and as well by Wigney J in Hebei Jikai Industrial Group Co Ltd v Martin & Ors  FCA 228; (2015) 324 ALR 268 at  – . I contrast that position with the facts of Lin Tiger Plastering Pty Ltd v Platinum Construction (Vic) Pty Ltd  VSC 221; (2018) 56 VR 576, where Croft J found there that the particular arbitrator had indeed rendered an affirmative preliminary decision concerning his jurisdiction – which was then capable of being, and was, duly reviewed by his Honour.
- Nevertheless, I must conclude that there was, in substance, never a preliminary question resolved by the Tribunal – so as to possibly engage affirmatively with CAA s 16(9) and to open the gateway to this Court. Consequently, Chevron’s ARB 8 of 2020 must be dismissed as itself jurisdictionally misdirected within this court.
Chevron’s ARB 9 of 2020 application
- I move then to deal with Chevron’s ‘primary application’ advanced as ARB 9 of 2020. This application seeks that the Tribunal’s second interim award of 4 September 2020 be ‘set aside’, on the basis of Chevron’s explicit invocation and reliance on s 34(2)(a)(iii) of the CAA.
Terms of CAA s 34(2)(a)(iii)
- It is helpful to see the terms of s 34 of the CAA (the local analogue to Article 34 of the Model Law), which provides in the following terms:
(1) Recourse to the Court against an arbitral award may be made only by an application for setting aside in accordance with subsections (2) and (3) or by an appeal under s 34A.
- CAA s 34 then continues, relevantly:
(2) An arbitral award may be set aside by the Court only if –
(a) the party making the application furnishes proof that –
(i) …; or
(ii) …; or
(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 …; or
(my emphasis in bold)
- Chevron directs a particular emphasis to the words within s 34(2)(a)(iii), namely ‘not falling within the terms of the submission to arbitration’, and then, to the following phrase ‘decisions on matters beyond the scope of the submission to arbitration’.
- Upon the present application by ARB 9 of 2020, Chevron fully accepts there is no available appeal or a ‘merits review’ (of any kind) to this court to be taken against the Tribunal’s second interim award of 4 September 2020.
- Instead, Chevron’s s 34(2)(a)(iii) application to set aside the second interim award is fundamentally grounded on the functus officio arguments – that would have been accepted under the dissenting reasons of Arbitrator Pullin – but were ultimately rejected by the majority Arbitrators (Sir Robert Akenhead and Mr Greenham) under the majority reasons accompanying the second interim award.
- For Chevron’s set aside application, it is noteworthy that par 196 of its written submissions (of 1 April 2021, as amended on 9 June 2021) render what is a significant concession. There Chevron acknowledges that where an arbitral tribunal has (erroneously) concluded a party is not precluded from advancing certain claims by reason of a cause of action (ie, res judicata) estoppel, an issue estoppel or an Anshunestoppel) that such an error will be an error of law. But significantly, Chevron accepts that any such error of law ultimately will notbear against the jurisdictional authority of the arbitral tribunal. To that end, see the authoritative observations of Diplock LJ in Thoday v Thoday  P 181 at 197 and later to the same effect by French CJ, Bell, Gageler and Keane JJ in Tomlinson v Ramsey Food Processing Pty Ltd  HCA 28; (2015) 256 CLR 507 at . See also BTN v BTP  SGCA 105 at .
- Consequently, it is accepted that such errors of law, even if established, will not assist Chevron upon a set aside application under CAA s 34(2). That leaves only one potential argument. Hence, the overwhelming focus of both its first written submissions (as amended) and of its responsive submissions and then, under the verbal submissions of senior counsel for Chevron, was directed at its argument that the Tribunal (by reason of PO 14 and then by the issue of the first interim award) became functus officio – upon all issues of liability in the arbitration, both under CKJV’s claim and as well, under Chevron’s counterclaim.
- Unlike for mere errors of law, the functus officio condition, if established, is contended to fully engage with the very limited ‘set aside’ parameters of s 34(2)(a)(iii) of the CAA. More specifically, Chevron argues that a functus officio condition is an arbitral condition that would go against the ‘terms of the parties’ submission to the arbitration’, or would be a dealing that is ‘beyond the scope of the parties’ submission’ to the arbitration itself (see again the terms of CAA s 34(2)(a)(iii)).
- As articulated by Mr Doyle QC, senior counsel for Chevron at the commencement of the hearing in this court (ts 38), the functus officio condition engages with the set aside criteria of s 34(2)(a)(iii), as follows:
… that language accommodates a contention the tribunal is functus officio, because there is no relevant submission to this tribunal a second time of issues of liability. The authority to decide the questions of liability came to an end, if we’re right about the contention of it being functus, when it delivered the first award, and there was no submission to it of a second bite of the cherry. There remains, of course, issues of quantum or quantification, but that is the scope of the surviving submission to arbitration.
- For the purposes of the present set aside application, I hold the significant benefit of having the detailed, considered and very comprehensive reasons of the Tribunal members underlying the second interim award – supporting their respective rival positions upon what I will refer to as the ‘functus officio issue’. At the time of the second interim award, the legal challenges had then, of course been wider before the Tribunal by Chevron – embracing its res judicata, issue estoppel and Anshunestoppel arguments. But in this court the focus has been necessarily narrowed to only functus officio arguments. I do however, note that aspects of the underlying basis for those other legal challenges to some extent conceptually intersect and display an overlapping foundation with the functus arguments.
- If Chevron’s functus officio grievance is open for this court to evaluate under s 34(2)(a)(iii) then, as respectful as this court is towards all of the expressed views of the learned arbitrators, this court must reach its own conclusion de novo (ie, afresh) regarding the exhaustion of jurisdiction challenge which is directed against the Tribunal by Chevron. I turn now to examine and evaluate this functus officio issue in greater depth.
Three key issues for determination
- The court’s essential task in conducting a s 34(2)(a)(iii) set aside evaluation exercise, ultimately distils to the three key issues raised against the second interim award (as conveniently synthesized by Mr Doyle QC in his opening for Chevron at the hearing in this court (see ts 38)).
- The three core issues are:
(a) Whether Chevron’s functus officio arguments can, as a matter of principle, properly fit within the criteria of CAA s 34(2)(a)(iii). For CKJV, Mr Gleeson QC’s verbal submissions at the hearing in this court seemed to be to the contrary, drawing my attention to a suggested lack of any direct case authority upon the present point.
(b) Secondly, if Chevron’s functus officio set aside arguments can fit under the parameters of s 34(2)(a)(iii), there then arises the substantive question of whether Chevron’s functus officio challenge can be made good on its merits, or not. Chevron’s position, of course, is that Arbitrator Pullin’s dissenting reasons underlying the second interim award (essentially accepting Chevron’s functus officio arguments) are (largely) the preferred analysis and conclusion – subject to some relatively minor corrections or inconsequential qualifications. Conversely, CKJV submits that the majority approach, reasoning and conclusion of Arbitrators Akenhead and Greenham was both open and correct upon the substance of the functus officio issue. CKJV focusses especially on the majority’s conclusion that if CKJV’s Contract Criteria Case did fall under the umbrella of an argument upon quantum or quantification, then there could be no exhaustion of the Tribunal’s jurisdiction – and Chevron’s functus officio arguments and present set aside application must fail.
(c) Even if issues (a) and (b) above were ultimately determined in Chevron’s favour, there still presents a residual issue of discretion for this court as to relief, grounded in the words of CAA s 34(2) – by its use of the word ‘may’. That text indicates a residual discretion in this court concerning any grant of setting aside relief (in alignment with the Article 34 of the underlying analogue Model Law). Therefore, a last question concerns if and how that discretion of the court should be exercised as regards setting aside the second interim award – in the event that Chevron is successful upon its functus officio arguments in this court.
- In summary, those are the three main issues for determination. More generally, CKJV also points to s 5 of the CAA, and to the often noticed admonition emanating from the Model Law towards minimum curial intervention. That, of course, is a concept aligned to another recognised principle, for courts to confer, a level of deference towards arbitral determinations.
- On the other hand, Chevron contends that where some underlying issue presents, convincingly indicating a lack of jurisdiction or authority in an arbitral tribunal to determine what are already decided issues – then by CAA s 34, a court is obliged to intervene and to set aside an award that is curially assessed as so blighted. That curial intervention, Chevron contends, is the required result of a deliberately constructed legislative regime which specifically envisages some residual scope for a curial intervention under extraordinary circumstances – limited as they will necessarily be.
- I turn next to afford some greater levels of consideration towards each of the three as identified key issues upon the present set aside application of Chevron.
First issue: can Chevron pursue a set aside recourse against the second interim award to this Court via s 34(2)(a)(iii)?
- As seen, the first question concerns whether Chevron’s contention as to the Tribunal being functus officio upon all issues of liability (after its first interim award) concerning CKJV’s claim and on Chevron’s counterclaim, is capable of engaging with the statutory criteria under CAA s 34(2)(a)(iii). As I will seek to explain below, that question must in the end be answered in the affirmative.
- There is little need to discuss at any length the condition of functus officio as the condition may be encountered by a court or a tribunal. It is a condition that arises as a matter of law, not by reason of the parties’ agreement: see generally my recent observations in The State of Western Australia v Mineralogy Pty Ltd  WASC 58 at .
- There is no doubt that the condition of functus officio is capable of being engaged (as regards an arbitral tribunal) not only by reason of the legal effect of a final arbitral award, but also as the consequences of an interim award. To that point, see for instance Murphy J’s (as his Honour then was) observations in Alvaro v Temple  WASC 205 at  –  where his Honour observed:
Once an arbitrator has published the award he or she is functus officio, subject to the operation of the ‘slip rule’ … and the extent to which the arbitrator’s jurisdiction is revived by court order: … If the award is an interim award, the arbitrator still, however, has authority to deal with the matters left over, although he or she is functus officio as regards matters dealt with in the interim award … (my emphasis in bold)
- To the same end, see observations by Applegarth J in Discovery Beach Project Pty Ltd v Northbuild Construction Pty Ltd  QSC 306 at . There his Honour had observed:
An arbitral award finally resolves the dispute referred to the arbitrator by the parties. This applies both for an interim award and a final award.
- Internationally, the impacts of an ascertained condition of functus officio (engaged under Model Law analogues) have been equivalently recognised, albeit under divergent terminologies employed by judges in different jurisdictions. For instance, in the Singapore High Court in LW Infrastructure Pte Ltd v Lin Chin San Contractors Pte Ltd  SGHC 264, Justice Belinda Ang Saw Ean used the expressions ‘complete its mandate’ and ‘capacity to act’, to describe that arbitral tribunal’s lack of authority – once it had rendered a final award. Her Honour also observed (at ) that where a tribunal:
… became ‘functus officio‘ – it had completed its mandate by making an award with res judicata effect. The functus officio doctrine is a time‑honoured one, and is one of the methods by which the law gives practical effect to the principle of finality.
- Similarly, in Emirates Trading Agency Llc v Sociedade De Formento Industrial Private Ltd 1 All ER 517, Popplewell J (at ) observed there, by reference to the concepts of ‘power’ and ‘authority’, that:
… There is a longstanding rule of common law that when an arbitrator makes a valid award, his authority as an arbitrator comes to an end and, with it, his powers and duties in the reference: he is then said to be functus officio … Otherwise the tribunal has no authority or power …
- I refer also to a leading text now edited by Sutton D, Gill J and Gearing M, Russell On Arbitration(24th ed, 2015) at par 6‑166. There the authors observe on the position of an arbitral tribunal’s jurisdiction and its authority to act after a final award is made. They note that such authority:
… ceases and the reference terminates. At this point therefore the tribunal has exhausted or concluded all that it had jurisdiction to deal with so far as the matters covered by the award are concerned. (footnotes omitted).
- Likewise, the editors Mustill and Boyd address a situation of functus officio for an arbitral tribunal by describing the arbitrator’s authority as coming to an end: see Mustill M J and Boyd SC, The Law and Practice of Commercial Arbitration in England(2nd ed, 1989) at pages 404 – 405, which says:
When an arbitrator makes a valid award, his authority as an arbitrator comes to an end and, with it his powers and duties in the reference: he is then said to be functus officio. This at least, is the general rule, although it needs qualification in two respects:
First, if the award is merely an interim award, the arbitrator still has authority to deal with matters left over, although he is functus officio as regards matters dealt with in the award.
Second, if the award is remitted to the arbitrator by the Court for reconsideration he has authority to deal with the matters on which the award has been remitted and to make a fresh award. (footnotes omitted).
- I refer also to Blackaby et al, Redfern and Hunter on International Arbitration(6th ed, 2015) at par [9.18], where the editors invoke the terminology of a cessation, as regards ‘any furtherjurisdiction’.
- As now may be seen from multiple sources, local and international, there is no real doubt, both for final and for interim arbitral awards, that the condition of functus officio will deliver a significant halting impact to a tribunal’s authority. That termination impact is variously discussed by reference to a termination of the arbitral tribunal’s ‘authority’, ‘mandate’, ‘capacity to act’, ‘authority or power’, ‘further jurisdiction’ or ‘no jurisdiction’: see also Price & Anor v Carter (t/a Ian Carter Building Contractors  EWHC 1451 at .
- The present question is whether this court (in a role tasked to it to set aside arbitral awards under CAA s 34(2)(a)(iii)) may intervene where it identifies the condition of functus officio – in circumstances where that arbitral tribunal has notwithstanding, proceeded on – to enter, resolve or determine further issues on their merits.
- Addressing that question, two sub-issues emerge. The first is whether the condition of functus officio engages with the text of s 34(2)(a)(iii) – specifically, 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’. Assuming sub-issue one is answered in the affirmative, then a second sub-issue arising is whether the court itself renders the functus officio assessment, or whether it ought to ‘defer’ to the views of the Tribunal. I turn to address each of these sub‑issues in turn.
Sub‑issue 1: does the functus officio condition engage s 34 (2)(a)(ii)?
- As to the first sub‑issue, the parties’ comprehensively framed written submissions had looked at first blush to be almost aligned in a mutual acceptance of the potential engagement of the functus officio condition with s 34(2)(a)(iii). I draw particular attention to what had looked on this topic to be CKJV’s acceptance of Chevron’s written submission (of 17 May 2021) at pars 88 – 93 and 97, which I will set out below.
- CKJV’s written submissions (of 9 June 2021, as amended) upon this issue said:
- Whether an 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 turns on the terms and scope of the submission. There is a difference between an excess of jurisdiction and a challenge really going to the merits of legal and factual question, but superficially characterised and cloaked as an excess of jurisdiction question [referring by footnote 89 to Mango Boulevard Pty Ltd v Mio Art Pty Ltd  1 Qd R 245;  QSC 87 at  per Jackson J and citing Sino Dragon Trading Ltd v Noble Resources International Pte Ltd  FCA 1131 per Jonathon Beach J at .
- The Singapore Court of Appeal set out the principles underlying the application of s 34(2)(a)(iii) in CRW Joint Operations v PT Perusahaan Gas  SGCA 33 at  – . There, the Court observed (inter alia) that the section ‘is not concerned with the situation where an arbitral tribunal did not have jurisdiction to deal with the dispute which it purported to determine. Rather, it applies where the arbitral tribunal improperly decided matters that had not been submitted to it … ‘ and that it ‘addresses the situation where the arbitral tribunal exceeded … the authority the parties granted to it … ‘ (at ).
- CRW Joint Operation v Pt Perusahaan Gas  SGCA 33 at  to  concerning an arbitral tribunal exceeding its ‘authority’ is, in my view, a significant and influential authority towards supporting the potential for a s 34(2)(a)(iii) engagement under functus officio encountered circumstances.
- Returning to CKJV’s written submissions on this issue, they advanced to contend:
- Born [referring to Born G, International Commercial Arbitration) (3rd ed, 2021) vol 3, ch 25 at 3575 – 3582] discusses the operation of article 34(2)(a)(iii) Model Law, including some international authorities where tribunals have purported to publish awards which (relevantly) contain ‘decisions on matters beyond the scope of the arbitration’. The common examples cited by Born from the international authorities include:
(a) where a tribunal grants relief which neither party has sought; or
(b) where an award is purportedly made against a non‑party to the arbitration; or
(c) where awards deal with issues or disputes which the parties have not submitted to the arbitral tribunal, or have not sought to press therein. (footnotes omitted).
- CKJV’s (as amended) written submissions, by reference again to the Born text, then contend towards what looks to be the very point at issue (at par 97):
Born also suggests that a tribunal may relevantly exceed its authority where it makes an award [after] becoming functus officio. [Footnote 93 referring to Born, vol 3, ch 25 at 3582.]
- It is helpful to see that complete citation from the Born text which reads (at par 3582):
An arbitral tribunal may also exceed its authority if it makes an award after becoming functus officio. Thus, a few courts have held that the arbitral tribunal exceeded its mandate where, after issuing a final award, it reopened the case and issued another award (recalling or revising its earlier award). As discussed above, however, many national arbitration statutes and institutional arbitration rules authorise corrections, interpretations, or supplementations of arbitral awards (thereby removing most questions regarding the arbitrators’ authority to take particular post award actions). Where such a mechanism does not exist, or is not applicable, however, a tribunal’s actions (and awards) after it has become functus officio will constitute an excess of authority. (my emphasis in bold) (footnotes omitted)
- CKJV’s written submissions then continued (at par 98):
Moreover, in the section concerning set aside applications under s. 34(2)(a)(iii), UNCITRAL Digest (2012), states the following proposition: ‘if the arbitral tribunal, after issuing another award, reopened the case by issuing another award, the effect of which was to recall or revise the earlier award, the latter award should be set aside since the mandate of the arbitral tribunal was terminated on the issuance of the final award.’ [citing at footnote 94, Introduction to the UNICITRAL 2012 Digest of Case Law on The Model Law on International Commercial Arbitration (1985, with amendments as adopted in 2006), at  p.153.]
- By my reading, the position as articulated under CKJV’s written submissions accepted at least conceptually, that s 34(2)(a)(iii) could be engaged for the purpose of a court addressing a lack of authority issue vis-à-vis a functus officio condition – arising from a final or interim award of an arbitral tribunal.
- Chevron’s reply written submissions of 8 June 2021 (folio 26) it seems took the same view – as to at least a conceptual concession upon this issue. See especially par 6 in which Chevron said relevantly:
Chevron’s application challenges an award for being made when the tribunal was functus officio, and it is not controversial that this is a matter of the tribunal’s authority, i.e. jurisdiction (see the CKJV submissions at  –  and [97).
- Nevertheless, under the verbal submissions of senior counsel for CKJV at the hearing on 15 and 16 June 2020, it appeared to me that CKJV was attempting to resile somewhat from the conceptual concession position under its written submissions. This was particularly so, by an emphasised verbal contention of Mr Gleeson QC that a court ought to ‘defer’ to the Tribunal’s stance where it had been expressed upon its alleged functus officio contention (see ts 160 – 162).
- Nevertheless, upon my ultimate view, a set aside application seeking to have a court address an authority or jurisdictional obstacle arising out of an asserted condition of functus officio, does engage the CAA s 34(2)(a)(iii) statutory parameters. Essentially, I agree with the view as is seen expressed by the Born text cited in the defendant’s written submissions, as well as the view expressed in CRW Joint Operation v PT Perusahaan Gas Negara  SGCA 33 at  –  as to the legal consequences of a tribunal’s authority being exceeded.
- I would independently conclude as well, that a decision taken by an arbitral tribunal may be viewed as beyond the terms of the parties’ submission to arbitration – under circumstances where the authority of the tribunal to resolve the parties’ dispute, or an aspect of the dispute, had come to an earlier end. That situation would engage with the words of s 34(2)(a)(iii), namely ‘beyond the scope of the submission to arbitration’. I accept that objectively viewed, reasonable commercial parties to an arbitral agreement may hardly be taken to have agreed to their chosen arbitral tribunal acting beyond the scope of its authority by varying or revisiting a final determination that was already the subject of an earlier published award. Such a ‘multiple bites at the cherry’ approach cannot be accepted. That would violate a cardinal policy of finality, recognised as essential to a coherent process of arbitral and, indeed, to curial decision making.
Sub‑issue 2: who decides upon functus officio?
- With the condition of functus officio accepted as falling within the textual scope of CAA s 34(2)(a)(iii), the second sub‑issue is whether it is the court who renders the determination upon a functus officio evaluation as against a tribunal – or whether such a decision ought be the subject of deference by the court to the views of the tribunal?
- Ultimately, my assessment is that this question must always be for the court itself to render its own objective determination on the issue.
- Supporting that conclusion, I mention first the observations of French CJ and Gageler J as rendered in TCL Airconditioner (Zhongshan) Co Ltd v Judges of the Federal Court of Australia(2013) 251 CLR 533 (TLC Airconditioner) at . I do note that those observations were made in the slightly different context of whether a court should refuse to enforce (pursuant to CAA s 36) an award under the International Arbitration Act 1974 (Cth). However, there is very close observable and acknowledged textual symmetry as between Model Law Article 34 and 36, reflected in the text of CAA s 34(2) and s 36(2) when compared. Accordingly, the observations in TLC Airconditioner by analogy, remain of force and as authority upon this issue.
- In TLC Airconditioner, French CJ and Gageler J had observed:
Whether one or more of those grounds is established is an objective question to be determined by the competent court on the evidence and submissions before it, unaffected by the competence of an arbitral tribunal to rule on its own jurisdiction under Art 16 of the Model Law. Arbitration in this way remains ‘the manifestation of parties’ choice to submit present or future issues between them to arbitration’, in that, without ‘specific authority’ to do so, arbitrators ‘cannot by their own decision … create or extend the authority conferred upon them’. (my emphasis in bold) (footnotes omitted),
- Reaching that view, French CJ and Gageler J were guided by the earlier observations of the Supreme Court of England and Wales in Dallah Real Estate v Ministry of Religious Affairs, Government of Pakistan 1 AC 763 (Dallah) at , ,  and .
- In Dallah,Lord Mance JSC (with whom Lords Hope, Saville and Clarke, agreed) had observed at :
The tribunal’s own view of its jurisdiction has no legal or evidential value, when the issue is whether the tribunal had any legitimate authority in relation to the Government at all. This is so however full was the evidence before it and how carefully deliberated was its conclusion. (my emphasis in bold)
- And towards the same end view for the State of Victoria, see IMC Aviation Solutions Pty Ltd v Altain Khuder LLC(2011) 38 VR 303. There, Hansen JA and Kyrou AJA essentially applied the same observations by Lord Mance and Lord Saville in Dallah: see ,  and .
- Likewise for the Federal Court of Australia, I note to a kindred approach, the observations by Colvin J in Maersk Crewing Australia Pty Ltd v Construction, Forestry, Maritime, Mining and Energy Union FCA 595. Applying TLC Airconditioner and Dallah, his Honour observed (at ):
Where an issue is raised about the extent of the arbitral authority conferred upon an arbitrator then it is appropriate for the arbitrator to form a view as to the extent of such authority. However, that view is not final and binding because arbitrators cannot by their own decisions create and extend their own authority. … It is an approach that reflects the fact that it is unlikely that parties submitting matters for arbitration will clothe an arbitrator with an unqualified mandate to determine whatever the arbitrator considers should be determined. (my emphasis in bold)
- See also to the same end, views expressed by Beach J in Hui v Esposito Holdings Pty Ltd  FCA 648; (2017) 345 ALR 287  and more generally, in the text Blackaby et al, Redfern and Hunter on International Arbitration(6th ed, 2015) at pars 5.104 and 10.42.
- Evaluating all those authorities, I conclude that it is open to Chevron on its present s 34(2)(a)(iii) ‘set aside application’ to seek to have this court examine afresh its arguments made as to functus officio concerning the Tribunal – arising out of the suggested force and effect of PO 14 and the first interim award of December 2018, as regards all issues of liability being closed off thereafter. If that is correct, then subsequent to the December 2018 first interim award, all further liability issues were outside the authority of the Tribunal – including at the time of the Tribunal’s second interim award at September 2020.
- With those issues concerning the engagement of CAA s 34(2)(a)(iii) now answered in the affirmative, I can turn to the second substantive and perhaps the most complex question – namely, this court’s required evaluation as to whether Chevron’s functus officio submission can be accepted. Of course, this same issue was fully argued before the Tribunal, but ultimately was rejected by majority Arbitrators Akenhead and Greenham. It was nevertheless accepted by Arbitrator Pullin under his dissenting reasons provided accompanying the second interim award.
Second issue: can Chevron’s functus officio challenge be upheld?
- As discussed, the context for this private arbitration was, at root, a contractual dispute as between the parties over money claimed on both sides. Chevron (the respondent and counterclaimant at the arbitration) had contended that it had been overcharged by CKJV and so, had overpaid to CKJV in respect of two categories of labour that had been engaged by CKJV to provide their services around Chevron’s Gorgon project. The first was the so‑called Craft Labour. The second was ‘Staff’ (as defined). Subsequently, Chevron had withheld funds otherwise payable to CKJV – so as to recover its alleged overpayments, effectively as a self help measure.
- CKJV’s position was that Chevron had been correctly charged for all such amounts and therefore had held no legal justification at all for withholding any funds from it – which were otherwise reimbursable to CKJV for Craft Labour or for Staff costs.
- Broadly speaking, that was the disputed position leading to the commencement of the arbitration and then to a number of the procedural orders issued by the Tribunal prior to the commencement of the first hearing and subsequently, to publication of the first and second interim awards of 14 December 2018 and 4 September 2020.
- I shall proceed from this point to evaluate the merits of Chevron’s functus officio arguments concerning the lack of jurisdiction in the Tribunal on further liability issues post 14 December 2018 – by first discussing the functus officio condition itself, and then, moving to summarise the position reached by the majority arbitrators. I will as well offer my own preliminary observations. As part of a de novo determination by this court as to Chevron’s functus officio contention, I will need to set out and examine some lengthy extracts from the Tribunal’s first and second interim award reasons. For ease of reference, the extracts from the first interim award will be incorporated as a schedule to these reasons.
- At an early stage, I noted that the Tribunal was split (2:1) on Chevron’s functus officio objections – and I will set out aspects of the divergent reasons to highlight the different perspectives that emerged at the second arbitral hearing. In the end, however, this issue of functus officio is for the court itself to determine.
- As now discussed, if substantively engaged, the condition of functus officio carries with it a deficiency in the scope of authority or jurisdiction of an arbitral tribunal. I would observe in this phase of my reasons that, as emerges from some of my previous reasons rendered within this court’s Arbitration List – namely Spaseski v Mladenovski (2019) WASC 65, Ivankovic v Western Australian Planning Commission  WASC 40, The State of Western Australia v Mineralogy Pty Ltd  WASC 58 and Venetian Nominees Pty Ltd v Weatherford Australia Pty Ltd  WASC 137 – that this court is fully alive to, and thoroughly supportive of, the principle of minimum curial intervention, as regards the force of arbitral awards delivered in both international and domestic arbitrations.
- Furthermore, by reference to CAA s 34 and its Model Law analogues in other jurisdictions, the court is fully cognisant that the recourse permitted to this court is not at all in the character of any appeal against the arbitral award: To that end see my reasons in Venetian Nominees Pty Ltd v Weatherford Australia Pty Ltd WASC 137 at  – .
- Accordingly, as demonstrated in the decisions just mentioned, arguments ‘manufactured’ so as to be presented as suggested infringements against natural justice or procedural fairness principles need to be scrutinised with a high level of cautionary oversight. That is required to prevent what is a legislatively mandated ‘hands off’ policy objective underlying arbitrations being too easily undermined by a disgruntled arbitration participant resorting to confected efforts to manoeuvre around the finality of an adverse award, or to halt or slow down progress towards enforcement so as to thwart the legislative objects for a speedy and effective arbitral regime of dispute resolution.
- To that cautionary end for courts, I respectfully embrace the observations of Jonathan Beach J in the Federal Court of Australia in Sino Dragon Trading Pty Ltd v Nobel Resources International Pte Ltd  FCA 1131 (Sino Dragon) at . There his Honour said:
Moreover, Sino Dragon’s arguments before me are little more than a confected attempt to run a merits challenge of the arbitral tribunal’s legal and factual analysis concerning the Pang email under the guise of an article 34(2)(a)(iii) challenge. Sino Dragon also, surprisingly, sought to invoke article 34(2)(b)(i), but its invocation fails for similar reasons …
- But by contrast to the factual circumstances presented in Sino Dragon, the present arguments of Chevron under its s 34(2)(a)(iii) set aside application are not grounded on procedural fairness or natural justice blemish grievances. Instead, they are of a jurisdictional or quasi jurisdictional character. They raise essentially legal arguments concerning the suggested affirmative engagement of this arbitral tribunal with the condition of functus officio – by reason of PO 14, coupled to the issuance of the first interim award and its accompanying reasons.
- In short, I assess that there is presently a legitimate potential engagement of s 34(2)(a)(iii) by Chevron over its functus officio contentions. Uniquely, this court holds the benefit of the considered reasons and rival views provided by each of the members of the Tribunal underlying the second interim award. As mentioned, this issue arose to be resolved by the Tribunal within the allied and intersecting context of wider legal arguments concerning as well res judicata, issue estoppel and Anshun estoppel considerations that are no longer live before this court.
- In summary the exchanged written submissions of the parties to this court upon the set aside application can be seen as Chevron seeking to vindicate what were dissenting views by Arbitrator Pullin found under the second interim award reasons. But the position of CKJV seeks, in effect, to vindicate the majority status quo position against any functus officio condition, as determined under the reasons of Arbitrators Akenhead and Greenham.
Summary of the Tribunal’s majority’s views rejecting functus officio
- Emphasising that my ensuing observations are only by way of an attempted synthesis (and are no substitute for what is found in the reasons as a whole), the essence of the majorities’ differing view upon functus officio and so, to the consequential preparedness of the Tribunal at the second arbitral hearing to allow CKJV to run its so‑called Contract Criteria Case, looks to have been reached because:
(a) Chevron’s attempted ‘characterisation’ of what had been determined under the first interim award as regards all issues of liability arising under the claim and under the counterclaim, was viewed as unduly ‘narrow’;
(b) the first interim award had essentially been focused upon resolving an in principle clash as between CKJV’s arguments seeking to establish an agreed Rates basis for its labour costs reimbursement ‑ put against Chevron’s resistance contention that CKJV was only entitled to be reimbursed under the Contract for CKJV’s actual costs. Accordingly, a late emerged CKJV issue over its argued true meaning of the term ‘actual cost’ in the Contract had never actually been considered or decided upon under the first interim award. Instead, the parties had simply picked up and repeated the contractual language of the Contract itself – without then giving further consideration to wider arguments over a conversion to a Rates basis of remuneration for CKJV.
(c) there was no bright line of clear demarcation point, as between liability and quantum issues in this dispute. The differentiation as between these issues was not as clear cut on liability issues as Chevron was contending;
(d) a residual quantum and quantification exercise as was always envisaged under the Tribunal’s bifurcation orders (commencing with PO 14) – was not inconsistent with the quantum phase determining CKJV’s freshly raised arguments upon the true meaning of ‘actual costs’ in the Contract, as advanced on CKJV’s Contract Criteria Case;
(e) even though CKJV’s Contract Criteria Case had not been earlier articulated, it was ‘commercially unrealistic’ for the arbitral parties to raise ‘every point that might conceivably be made by them, whether they were in practice or in fact germane to the outcome’ (see second interim award reasons at par 6.8) at the first hearing and before the first interim award;
(f) it was not ‘unreasonable’ for CKJV not to have raised what later had emerged as its Contract Criteria Case, before the first interim award was issued (see the majority’s reasons in par 6.10 concerning its rejection of any engagement with principles of Anshun estoppel); and
(g) there was a level of complexity in the parties’ underlying Contract as to the true meaning of the term ‘actual cost’, as used at attachment C to the Contract. This complexity carried ‘pointers’ to an adoption of various loadings concerning CKJV’s reimbursement of its staff costs for weekly hours and hourly uplifts, relevant to the exercise of ascertaining ‘actual cost’ as regards Staff (second interim reasons par 6.10). It had not been necessary to resolve such issues earlier.
- For essentially those reasons as provided by the majority arbitrators, an exercise in interpreting the true meaning of ‘actual costs’ as a basis of CKJV’s Staff cost reimbursement remained legitimately ‘on the table’ in the subsequent quantum and quantification phase of this arbitration (ie, at the second arbitral hearing). This majority view prevailed as the basis for rejecting Chevron’s functus officio arguments.
- For the reasons that follow, I respectfully disagree with that conclusion.
The First Interim Award
- The first interim award of 14 December 2018 is found at AHB, tab 38 (at page 81 therein).
- The first interim award issued and was published in the following terms:
We, Phillip Greenham, the Hon Chris Pullin and Sir Robert Akenhead, the duly appointed Arbitrators in this arbitration, do hereby declare, decide and award as follows:
- There was no binding agreement made between the parties whereby any Rates were agreed in relation to Staff and Supervision costs.
- By a majority of the arbitrators, there was no estoppel, in fact or in law, whereby the parties are to be treated as if any Rates were agreed in relation to Staff and Supervision Costs.
- By a majority of the arbitrators, the LOA did not evidence or contain any agreement between the parties to convert the Price for Staff and Supervision from Cost items to Rate items.
- In relation to Craft Labour there was a common mistake, as pleaded by the Respondent (DCC [88-91] and EPCCL [24-28]) but there was no common mistake in relation to how any rates relating to such mistake should be or should have been calculated.
- Rectification shall not be ordered in relation to the common mistake found to have occurred and as pleaded by the Respondent (DCC [88 – 91] and FPCCL [24 – 28]).
- In relation to Craft Labour and to the RDO-EBA issue running from September 2015 onwards arising out of Audit Inquiry 7, there was no breach of contract on the part of the Claimant, as pleaded by the Respondent (DCC  and FPCCL ).
- In relation to Craft Labour in relation to jury service, compassionate leave and stand down arising out of Audit Inquiry 9, there was no breach of contract on the part of the Claimant, as pleaded by the Respondent (DCC  and FPCCL ).
- In relation to Craft Labour, by a majority of the arbitrators, Rates were agreed between the parties for Craft Labour as from July 2021 onwards, which are not now impeachable or challengeable in these proceedings.
- In relation to Craft Labour, the Parties agreed Rates in relation to jury service, compassionate leave and stand down which are not now impeachable or challengeable in these proceedings.
- By a majority of the arbitrators, the Claimant may bring into to account by way of defence, in these proceedings, the amounts particularized in Appendix 1 to its Defence to Counterclaim (MSC.010.007.0001) and any other amounts of costs which it seeks to prove have not yet been accounted for in what it has been paid to it.
Observations upon the first interim award
- All issues as determined by the Tribunal concerning Craft Labour, are no longer controversial.
- The residual controversy prior to the second interim award had concerned only CKJV’s reimbursement for its actual costs incurred in engaging Staff. Consequently, the Craft Labour determinations as they are seen under award items 4 through 9, are only incorporated as matters of context.
- In relation to the success of Chevron in rebutting CKJV’s arguments concerning a conversion to a Rates basis of reimbursement for Staff costs and further, a non‑existence of any binding or perfected (variation) agreements and a failure by CKJV to make out a (conventional) estoppel, I refer to pars 1 – 3 of the first interim award (above). See especially the concluding reference ‘from Cost Items to Rate items’ at par 3.
- A capitalised reference to ‘Cost Items’ is of significance to the expressed view by the majority arbitrators – that terms were used in the award on a basis that they simply carried across from the parties’ (2011) Contract.
- For convenience, I have extracted parts of the reasons as were provided by the Tribunal underlying the first interim award at a schedule to these reasons. Along with these extracts, I have also provided at places some passing observations. Presently, it is only necessary to set out what was the ‘Summary of findings’ provided by the Tribunal at the conclusion of its reasons (see page 79) underlying the first interim award. They read:
Summary of findings
We, Phillip Greenham, the Hon Chris Pullin and Sir Robert Akenhead, the duly appointed Arbitrators in this arbitration, make the following findings (in relation to the issues set out at paragraph 38 above);
(i) Issue 1: Whether or not there was any binding agreement entered into between the parties by 2 September 2014 to convert the Price for Staff and Supervision from Cost items to Rate items.
Finding: There was no agreement entered into between the parties by 2 September 2014 to convert the Price for Staff from Cost items to Rate items.
(ii) Issue 2 Whether or not the Respondent is estopped from denying that there was such an agreement.
Finding The Respondent is not estopped from denying that there was such an agreement (by way of majority finding).
(iii) Issue 3 Whether or not the LOA evidenced, or itself contained, any agreement between the parties to convert the Price for Staff from Cost items to Rate items.
Finding: The LOA did not evidence or contain any agreement between the parties to convert the Price for Staff from Cost items to Rate items (by way of majority finding).
(viii) Further Findings:
Within the findings relating to Issues 4(i) – (iv), the Tribunal have also made findings that [sic] in respect of the agreement of Rates as follows:
(a) By way of majority finding, Rates were agreed between the parties for Craft Labour as from July 2012 onwards, which are not now impeachable or challengeable in these proceedings.
(b) The parties agreed Rates in relation to jury service/compassionate leave/stand down, which are not now impeachable or challengeable in these proceedings.
(ix) Issue 5 Whether the Claimant may bring into to account by way of Set-Off or defence, in these proceedings the amounts particularised in Appendix 1 (MSC.010.007.0001) to its Defence to Counterclaim if there was no agreement to convert the Price of Staff from Cost items to Rate items.
Finding: By majority, the Claimant may bring into to account by way of defence, in these proceedings, the amounts particularized in Appendix 1 to its Defence to Counterclaim (MSC.010.007.0001) and any other amounts of cost which it seeks to prove have not yet been accounted for in what it has been paid.
Two earlier procedural matters
- Having now laid out the terms of the first interim award, I can revert briefly to two aspects of the parties’ arbitral pleadings and to some earlier procedural orders – which provide context and are of relevance to the present functus officio and set-aside arguments of Chevron.
- On 21 September 2018, CKJV had filed submissions objecting to Chevron’s proposed expert evidence from Mr Meredith for the first arbitral hearing (see AHB, tab 27).
- At the time, CKJV’s written objection submission was expressed in terms (with some additional clarification provided in square brackets):
- Paragraphs 6 to 17 of the Respondent’s Statement all go to the same point: that most of the Meredith Report will be adduced by the Respondent to prove that the Claimant invoiced sums in excess of the ‘actual cost’ it incurred in relation to certain components of Staff payroll costs.
- Each of these paragraphs 6 to 17:
23.1 proceeds on the assumption that [Chevron] makes out its case that [CKJV] was only entitled to be paid the actual costs it incurred, as opposed to [CKJV’s] case that it was entitled to be paid on the basis of agreed Rates;
23.2 ignores that these underlying issues of liability must be determined (in [Chevron’s] favour) before the calculations in the Meredith Report become relevant. The calculations leading to the conclusion that [CKJV] charged in excess of its actual costs are not matters of liability or entitlement;
23.3 are outside the scope of PO15A, paragraph 9 because they relate to the quantum or quantification or calculation of the Respondent’s Counterclaim;
(c) this is the case in relation to each and every issue identified in paragraphs 6 to 17 of [Chevron’s] statement. They all concern Mr Meredith’s opinion on how certain Staff costs were calculated and how he considers they should be calculated if (and only if) [Chevron] makes out its case on entitlement/liability. In other words, they are all matters of quantum and excluded from the scope of the First Hearing;
(my emphasis in bold)
- Subsequently on 3 October 2018, the Tribunal issued its PO 17 (AHB, tab 29). By order 1, the Tribunal ruled:
The evidence of Mr Meredith shall not and need not be adduced at the liability hearing between 5 and 23 November 2018.
- The Tribunal provided brief reasons accompanying PO 17. That was just prior to the first arbitral hearing in November 2018.
- Importantly, par 4 of the accompanying reasons of the Tribunal had said this:
Essentially, there are three prime areas of liability issues between the parties which might be properly summarised as follows: (i)whether or not there were binding agreements between the parties as represented by or in DSP2 and DSP4; (ii)if not, was there effective estoppel acting to prevent the Respondent from asserting otherwise, and (iii)whether there was any material mistake as pleaded in Paragraph 88 of the Respondent’s Defence.
- The preceding reasons of the Tribunal, and those which follow concerning the LOA, illustrate that the focus of the first arbitral hearing was directed to the parties’ then fundamental disagreement. Specifically, the focus was directed at CKJV’s contention that either variation agreements or a conventional estoppel had emerged after the parties’ Contract – so as to allow CKJV (as regards its engagement of both Staff and Craft labour) to be reimbursed by Chevron on the basis of ‘Rates’, rather than by its ‘actual costs’.
- The resolution of this issue would, by that distillation, resolve all issues of liability, both under CKJV’s claim and on Chevron’s counterclaim (whether explicitly raised to be dealt with, or not).
- Essentially, the divide then was between CKJV’s attempt to move away from the stipulated Contract basis of its reimbursement for actual costs
– to an agreed variation basis (or get the same results on an estoppel basis), namely, that CKJV be reimbursed upon a basis of Rates charging to Chevron. ‘Rates’ reimbursement for CKJV may not equate to or be in alignment with the actual costs as incurred by CKJV towards the Staff it engaged and paid.
Paragraphs 78 to 89
- Next, I proceed to expose observations by the Tribunal towards a letter of agreement (the LOA) of 2016:
78 This part of this Award is concerned with whether the LOA itself constitutes an agreement to convert Cost items to Rate items.
79 The context of the LOA was that the parties were seeking to settle numerous issues which had arisen between themselves, primarily in relation to the period up to 31 December 2015 and with certain exceptions to settle all claims up to that date, even if ‘unknown’, that each may have against the other arising out of events or circumstances occurring before that date.
80 That can be seen in Paragraph B of the LOA in which CKJV’s Claims up to that date are settled (Paragraphs B.1) and B.3)) as are most of Chevron’s Claims (Paragraph B.2)a) and B.2)b)).
81 By its Amended SOC CKJV pleads as follows (ASOC [70B]):
70B Further and/or alternatively, by the LOA the Parties expressly agreed that:
(a) CKJV was and is entitled to be reimbursed for Staff for the period prior to 2 January 2016 at the Rates calculated by the “current DSP-0002/4 Master Billing Sheet[s] “;
(b) CKJV was and is entitled to be reimbursed for Staff for the period from 2 January 2016 at the Rates calculated by the “current DSP‑0002/4 Master Billing Sheet[s]” as adjusted by the actual salaries applicable from that date; and
(c) the Pricing Schedule 2 and 3 annual reconciliations for the periods (i) from 1 January 2014 to 31 December 2015; and (ii) from 2 January 2016 onwards, would be conducted in a manner consistent with the annual reconciliations for previous years, i.e. on the basis of the adjusted DSP-0002/4 Master Billing Sheet Rates.
82 Although Paragraph 70B does not expressly plead that the LOA itself contained a mutual agreement (as contemplated by Article 1.2.8 of the Pricing Schedule) to convert Cost items to Rate items in relation to Staff, it was asserted on behalf of the Claimant in Closing Submission that it was to be understood in that way. The Respondent understood it to be such a plea.
83 The Claimant’s closing written and oral submission made it clear that the mutual agreement was to be found in paragraph B.1)a) of the LOA. That paragraph read as follows:
“B. SETTLEMENTS AND AMENDMENTS TO THE AGREEMENT
This LOA shall apply with effect from the date this LOA is executed by Company and Owner and Contractor, and shall be applied as set out below:
1) Settlement of Claims. In full and final settlement of the issues listed in Attachment 1, Owner will pay Contractor the Settlement Amounts in accordance with the payment schedule in Attachment 1.
- a)Item 3 – Salaries:
The Settlement Amount for Salaries is full and final settlement of any Claim for effects to 31 December 2015 of unapproved salary increases and related salary issues.
(i) No additional salary or salary related increases are to be granted without prior Owner consent, provided that Contractor shall be entitled to be reimbursed from 2 January 2016 onwards at the current DSP 2/4 Master Billing Sheet Rates as adjusted by the actual salaries applicable as at 2 January 2016. An annual reconciliation will be conducted in a manner consistent with the annual reconciliations for previous years for the period from 02 January 2016.
84 The Members of the Tribunal differ on this issue. The majority view is set out first, followed by the dissenting view.
Majority View – Arbitrators Pullin and Greenham
85 The view of the majority of the Tribunal is that the LOA cannot be read as meaning that the parties agreed to mutually agree to convert the Price for Staff from Cost items to Rate items.
86 The reasons for the decision of the majority of the Tribunal on this issue are as follows:
(a) The LOA read as a whole is a document replete with expressions which require a knowledge of the background circumstance to give meaning to it. Thus Paragraph B.1)a) of the LOA contains two important words and an important phrase which when understood informs the clause and allows it to be properly construed. The words and phrase are as follows:
(i) the word ‘reimbursement‘.
In the context of Staff that word carried its ordinary meaning namely “to make repayment to for expense … incurred” (Macquarie Dictionary 2018);
(ii) ‘DSP 2/4 Master Billing Sheet Rates’
This was a phrase referring to what had been agreed in the process established to overcome the difficulties with the PAF process and mobilisation of Staff and without in any way restricting Chevron’s right to inspect CKJV’s salary records and to audit them (a process reduced to writing in DSP-0002 and DSP-0004 and a process the Tribunal has found to exist when deciding issue 1) (See paragraph 71(n) and paragraph 74 above);
This word when used in the phrase ‘annual reconciliation’ referred to the process, in relation to Staff, of reconciling cash call payments to actual cost incurred.
87 Therefore with those words and phrases so understood Paragraph B.1)a) of the LOA should be construed as a written confirmation of the process which the parties had put in place and which was in place at the moment the LOA was signed. That process was a process which involved Chevron paying CKJV in cash call invoices and monthly and annual reconciliation invoices at the DSP-0002/4 Billing Sheet Rates without any change to Chevron’s right to inspect CKJV’s salary records and to audit them.
88 In closing submissions counsel for CKJV placed great reliance on the presence of the word ‘Rates’ in the compound phrase ‘DSP-0002/4 Master Billing Sheet Rates’. Counsel acknowledged that if the capital ‘R’ had been a lower case ‘r’ the whole argument that there had been a conversion of Cost items to Rate items would go (TRA.500.012.0089 . To concentrate on the word ‘Rates’ in the compound phrase ‘DSP-0002/4 Master Billing Sheet Rates’ and not bear in mind the other important words and the meaning of the whole phrase in which the word appears offends the rule that a contract should be read as a whole and the rule that a contract should be read in the way in which commercial persons in the position of the parties would understand it.
89 The conclusion of the majority of the Tribunal is that the LOA cannot be read as meaning that the parties agreed to mutually agree to convert the Price for Staff from Cost items to Rate items. CKJV’s claim in para 70B of the ASOC is therefore dismissed.
- Clearly, there was a divide as between the three arbitrators at the first arbitral hearing, over the effect of what the parties had agreed upon by the 2016 LOA.
- The majority view expressed by Arbitrators Pullin and Greenham prevailed over a dissenting view of the presiding arbitrator (Arbitrator Akenhead).
Paragraphs 106 to 128
- The arbitrators then grappled with what they had identified as issue two, concerning conventional estoppel and Staff costs reimbursement to CKJV.
106 This section of the award deals with the issue of whether the Claimant’s claim in relation to estoppel has been made out.
107 In Chevron’s defence (DCC [61 – 64]) it is pleaded that DSP‑0002 and DSP-0004 did not create any rate or convert any cost-item into a rate item. In the SR CKJV pleaded that Chevron was “estopped” from making “those assertions” (SR [45 – 49]). This plea of estoppel was fleshed out in the Claimant’s Substituted Reply (SR [35 – 39] and [73 – 77]).
108 In SR , CKJV pleaded:
“in the alternative, even if the Claimant is wrong on the above points of interpretation (which is expressly denied), the Respondent is estopped from resiling from the agreed and common understanding between the parties regarding the assumed meaning and effect of DSPs 2 and 4.”
109 In SR [74(a)], CKJV pleaded:
“… the Parties mutually accepted and assumed that the DSPs converted Cost based items to Rate based items and the agreed DSP-0002/4 Billing Rates would be invoiced and paid without reconciliation to the actual costs incurred by the claimant “
110 In SR , CKJV pleaded:
“… the Claimant has relied to its detriment on the common understanding and approach that the Billing Rates do not have to be reconciled against actual costs incurred in implementing the Contract. If the Respondent were permitted to resile from this common understanding and approach then the claimant would suffer a detriment in the form of significant financial loss and damage.”
111 Chevron sought particulars of detriment suffered by CKJV and CKJV provided particulars which stated that:
“(CKJV) entered into the LOA in reliance on … the common assumption, promise and/or representation …”.
112 The Substituted Reply related the history of the difficulties with the PAF process, the exchanges between the parties about those difficulties, the 2012 audit and the entry into DSP-0002 and DSP-0004 (SR [35 – 39]. CKJV pleaded the letters and emails from Chevron to CKJV dated 25 March 2014, 8 July 2014 and 19 May 2014 referred to above (SR [73 – 77]).
113 In CKJV’s opening written submissions the principles applying to estoppel by convention and promissory estoppel were set out. However, there was no plea by CKJV of any material fact amounting to a representation by Chevron which would support the case of promissory estoppel. The pleading by CKJV that the parties ” … mutually accepted and assumed … ” that the ” … DSP’s converted Cost based items to Rate based items …” (SR [74(a)(i)]), had a ” … common understanding … ” (SR ) and a “common understanding and approach …” (SR ) is supportive only of reliance on the case of estoppel by convention[.]
114 The critical issue in the estoppel case is CKJV’s contention that there was a ” … common understanding … ” or a ‘… mutual acceptance” that DSP-0002 and DSP-0004 ” … converted Cost based items to Rate based items … “(SR [74(a)]).
115 The Members of the Tribunal differ on this issue. The majority view is set out first, followed by the dissenting view.
Majority View – Arbitrators Pullin and Greenham
116 Based on the testimony given by CKJV witnesses, there is no doubt that before the LOA was executed a view had formed within CKJV that there had been a conversion of Cost items to Rate items in relation to staff. The senior people who negotiated the LOA and instructed lawyers to document it (Mr Wigney and Mr Lichon) testified that they thought so. Mr. Wigney testified that he thought this was so not because anyone from Chevron told him but because CKJV told him that this was the situation (TRA.500.004.00170  [Wigney] and following).
117 On the other hand, the relevant Chevron witnesses testified that they did not hold any view that there had been a conversion of Cost to Rates in relation to staff.
118 What both parties thought does not establish the existence of an assumed state of facts to ground an estoppel. What is necessary is that each party has, to the knowledge of the other, expressly or by implication accepted an assumption as being true for the purposes of their dealings and that the proponent has acted upon the assumption to its detriment (Con-Stan Industries of Australia Pty Ltd v Norwich (1986) 160 CLR 226 at 224). In other words, the acceptance by both parties of a common assumption must manifest itself in some way.
119 It is important to keep in mind that the Contract was well understood by the Contract teams within Chevron and within CKJV. It was well understood by them that, if a Rate was established as the basis for payment for CKJV’s employees, then the actual salary paid to such employees would not be examinable by Chevron, in the reconciliation process, or in any inspection or audit process.
120 For any Price that was Rate based the parties both understood that all that Chevron would be entitled to do in the reconciliation process, inspection process or audit process would be to check time sheets and check that the correct Rate was charged in relation to the person whose time sheet was being examined. Payroll information would be of no relevance and could not be examined by Chevron.
121 The undisputed testimony is that, in all of the audits carried out, before the LOA was signed, payroll data was called for by Chevron and provided without protest by CKJV. In addition, in the first audit after the LOA was signed Chevron called for and, without protest, CKJV gave access to staff payroll information. Although the audit after the LOA was signed was an event occurring after the LOA, it shows continuing conduct inconsistent with any earlier assumption that staff were to be reimbursed on a Rates basis.
122 This conduct, that is the call for payroll data by Chevrons [sic] audit team and the provision of such information by CKJV, is entirely inconsistent with any mutually accepted assumption by the parties that there had been a conversion of Cost items to Rate items in relation to Staff.
123 This is because at the risk of repetition both parties knew that under the contract if a price was Rate based then Chevron had to right to call for that information.
124 In addition, Mr Wigney, the most senior CBI & I person involved in the negotiations leading to the LOA, well knew that although staff of CKJV told him that the Staff were compensated on a Rates basis, Chevron did not accept that.
125 The transcript of his cross examination reads as follows (TRAS.500.004.0170 [5 – 17] [Wigney]):
- But, in fact, from the materials available to hand there was every suggestion from Chevron, wasn’t there, that your understanding of the Rates base scheme was incorrect?
- Not in my view.
- Q. They had asserted it on two occasions prior to you signing the LOA?
- and we rejected that, so–
- and that was the view of the – – that I was getting from the project team was that this was rates based.
- So you relied on the project team, is that what you are saying?
- to a large extent. My view was that the Rates based nature of the contract was intact.
126 Finally, when the LOA was in its final stages the lawyer for Chevron proposed that there should be added to the draft LOA a provision stating that for the avoidance of doubt DSP-0002 and DSP-0004 billing rates were not Rates.
127 Mr Willoughby, the lawyer for CKJV, opposed the inclusion of this provision and it was withdrawn. CKJV’s counsel submitted that this was evidence supporting the estoppel claim. On the contrary it reveals the difference that each party had about the price for staff. The resolution of the dispute about the inclusion of this clause by withdrawing it cannot be viewed as an acceptance by Chevron that staff were to be compensated on a Rate basis. The withdrawal of the proposed clause in the LOA merely meant that CKJV would not concede what Chevron considered the position to be namely that CKJV was paid for staff on a Cost basis.
128 As a result, the majority of the Tribunal conclude that the estoppel claim by CKJV must be dismissed.
- Paragraphs 117 and 124 as regards the ‘Cost to Rates’ divide indicate the position was an ‘either/or’ outcome concerning CKJV’s alternate plea of conventional estoppel.
- I note that Chevron by the carrying out of audits, had obtained resort to the payroll information of CKJV. This was significant to the Tribunal’s rejection of the conventional estoppel argument. Ultimately, it was assessed by the majority as being inconsistent with Staff being reimbursed on a Rates basis (see first interim award reasons at par 121).
- That data as pressed for by Chevron highlighted the conceptual clash as between the moneys outlaid by CKJV towards Staff, as opposed to a different basis of reimbursement for CKJV, based on an agreed rate (which was not dependent upon whether the Staff person had actually been remunerated according to the level of the rate by CKJV).
- Commencing at par 133, the Tribunal addressed Craft Labour issues as they had identified previously at par 38 – in respect of the as identified issue 4. The position in respect of Craft Labour in contrast to Staff is no longer relevant. Accordingly, I omit further reference to them in this extract, with no disrespect intended.
Paragraphs 192 to 250
- Within this section, I set out the Tribunal’s conclusions concerning the parties divide over ‘Rates’ by reference to various aspects of Attachment C to the Contract.
- I refer to article 1.2.8 of the parties’ Contract, which defined ‘Rate’ on the basis of an ‘agreed unit price payable for a good or service which may not be the actual cost’ (see first interim award reasons at par 193).
- The following section provides a useful discussion of the Attachment C provisions of the Contract, as well as GTC provisions concerning Direct Costs in the context of Audit Inquiries 7 and 9:
Rates – Could the amounts the subject of Audit Inquiry 7 and Audit Inquiry 9 be ‘Rates’?
192 The Claimant asserts that the payments made in relation to the matters the subject of Audit Inquiry 7 and Audit Inquiry 9 were ‘Rates’. This assertion is made in SOC  in relation to Audit Inquiry 7 and in SOC  in relation to Audit Inquiry 9.
193 The expression ‘Rate’ is defined in the Contract at Article 1.2.8 of Attachment C. The expression is defined as follows:
“Rate means an agreed unit price payable for a good or service and may not be the actual cost.”
194 Given the definition of the expression ‘Rate’, it is possible for a ‘Rate’ to be agreed throughout the currency of the Contract.
195 The agreement of a ‘Rate’ is not an amendment of the Contract but rather the outcome of the utilisation of an administrative process provided for in the Contract. Given this, Article 2.1.1 of the GTC of Contract does not apply to such an agreement. It is not necessary for the relevant agreement to satisfy any formal requirements. All that is required is for it to be established that the parties have agreed to a ‘Rate’.
196 The Tribunal finds that an agreement as to the establishment of a ‘Rate’ could arise from the exchange of spreadsheets and other documents between the parties or through the administration of the Contract. It could even be agreed orally or by email, although reliable evidence would be required. Agreement can be inferred where the parties have acted on a basis which objectively demonstrates that they have agreed upon a ‘Rate’.
Rates – Does an ‘error’ prevent the crystallisation of a ‘Rate’?
197 The Respondent submits that an amount cannot be a ‘Rate’ if it has been incorrectly calculated (SR  and ROS  in respect of the EBA issue and ROS  in respect of the Pre September 2015 Issue).
198 The Respondent does not assert that there has been any fraud or misrepresentation as to the development or presentation of any of the amounts which the Claimant asserts have become ‘Rates’.
199 the Contract makes particular provision in relation to how ‘Rates’ are to be treated by the Contract. The Contract provides as follows:
GTC Article 3.9.4
… provided that the obligation to maintain and share cost information shall not extend to cost associated with … agreed Rates …
Attachment C Article 1.2.2
… Where a price is described as a Rate in this Attachment C – Pricing Schedule it shall be and is deemed to be, fully inclusive of all costs applicable to the item, matter, thing or activity it represents and fully inclusive of all costs and expenses to be incurred by Contractor in complying with its obligations under the Contract and shall constitute full and complete compensation due to the Contractor for that item, matter, thing or activity.
Attachment C Article 1.2.3
Unless otherwise stated in this Agreement Rates shall be applicable regardless of the extent, quantity, nature, difficulty, complexity or duration of the Work for which they are employed.
Attachment C Article 1.2.8
In this Attachment C – Pricing Schedules, unless otherwise stated:
Rule means an agreed with price payable for a good or service and may not be the actual cost. Where Contractor seeks to change an agreed Rate, until such change is agreed, the Rate shall cease to be an agreed Rate for the purposes of Article 3.9.4 of the General Terms and Conditions.
200 The Tribunal finds that, in the absence of fraud or misrepresentation, an amount may be a ‘Rate’ notwithstanding an error in the calculation of the ‘Rate’. Accordingly, the Respondent’s submission in this respect is not accepted. This finding is the finding of the Tribunal but subject to Arbitrator Pullin’s conclusion that the common mistake about hours meant that there was no agreed Rate for the period specified in paragraph 216 below.
Breach of Contract
201 The Respondent submits that the Claimant is in breach of the Contract by reason of or reference to the errors said to be embodied in each of the relevant rates the subject of Audit Inquiry 7 and Audit Inquiry 9. In relation to Audit Inquiry 7 this is pleaded at FPCCL . In relation to Audit Inquiry 9 this is pleaded at FPCCL .
202 The provisions of the Contract which it is submitted have been breached by the Claimant are GTC 4.2.3, Attachment C Article 1.1.7, Attachment C Article 1.2.4 and Attachment C Article 2.3.4. The provisions are as follows:
The Direct Costs to be paid by Owner to Contractor shall be only those necessary to perform the work in accordance with this Agreement including Article 10.1.1. Except to the extent provided in Attachment C – Pricing Schedule relating to Contractor’s variable overhead costs payable as Direct Costs, Contractor warrants that the rates, costs and amounts set out in Attachment C – Pricing Schedule applicable to the Direct Costs do not contain any element of, or component for, corporate overhead profit, risk or contingency for the Contractor, or any members of the Contractor Group (including any Affiliate engaged to perform any Work) and the Fixed Fee for Overhead, Profit and Risk contain any and all such amounts. The Direct Costs will be reduced by the amount of any credits, refunds or other reductions or savings Contractor receives in relation to VAT, goods and services tax, fuel tax credits, duties or other taxes or levies. For the avoidance of doubt, if Contractor recovers contrary to this Article.
Attachment C Article 1.1.7
Contractor represents and warrants that the rates and costs set out in this Attachment C – Pricing Schedules applicable to Direct Costs do not contain any element of, or component for, overhead risk or profit and that the mark-up for Variable Overhead and the Fixed Fees for Overhead, Risk and Profit contain any and all such amounts.
Attachment c Article 1.2.4
Contractor shall at all times use reasonable endeavours to minimise any amounts which Company shall be liable to pay Contractor for Work.
Attachment C Article 2.3.4
These Prices exclude any profit and overhead components, which are covered under Pricing Schedule 13 – inclusive as outlined in section 2.4 of this Attachment C – Pricing Schedule.
203 It is necessary to consider these provisions in the context of the entire Contract. Other provisions of the Contract which are relevant to the consideration of the provisions relied upon by the Respondent are as follows:
Attachment C Article 1.2.3
Unless otherwise stated in this Agreement Rates shall be applicable regardless of the extent, quantity, nature, difficulty, complexity or duration of the Work for which they are employed.
Attachment C Article 1.2.8
In this Attachment C – Pricing Schedules, unless otherwise stated:
Rate means an agreed unit price payable for a good or service and may not be the actual cost. Where Contractor seeks to change an agreed Rate, until such change is agreed, the Rate shall cease to be an agreed Rate for the purposes of Article 3.9.4 of the General Terms and Conditions.
204 The Respondent submits that the warranty contained in Article 1.1.7 of Attachment C was a continuing warranty which applied to Rates which might have been agreed after the Contract as well as the Rates set out in Attachment c at the time of execution (RCS [166(b)]).
205 The warranty has the potential to create tension with other provisions of the Contract in relation to ‘Rates’ (for example, the definition of ‘Rates’ in Article 1.2.8 of Attachment C). This tension does not arise if the warranty is confined to the Rates which appear in Attachment C as at the time of execution of the Contract.
206 The Respondent accepts that a ‘Rate’ should not be ” … re-opened … “ (RCS ) and that the Claimant is not limited to being ” … paid their actual costs for the provision of Craft Labour in circumstances where the parties have agreed a Rate for that labour … ” (RCS ).
207 Further, the Respondent rightly makes the following concession (RCS ):
” … if the Claimants’ [sic] actual costs are less than what it is compensated for by the Respondent because the actual cost hour is less than the Rate per hour, then, absent any actionable mistake in the build-up of that Rate, the Respondent accepts that it is not entitled to revisit or re-examine the Rate and claw back the difference between what it paid the Claimants’ (sic) and what their actual costs are … “
208 The Tribunal finds, that, on the plain wording of Article 1.1.7, the warranty only extended to the Rates in Attachment C at the time of the execution of the Contract. This finding is supported by the context in which Article 1.1.7 is found. It does not apply to changes to Craft labour rates agreed by the parties after the Contract was entered into.
209 In relation to the other provisions relied upon by the Respondent the Tribunal finds as follows:
(a) Article 1.2.3 of Attachment C does not entitle the Respondent to look behind a ‘Rate’ and the Claimant remains entitled to be paid on the basis of a ‘Rate’ notwithstanding that there may have been the opportunity for the relevant work to be undertaken at a lower cost; furthermore, no evidence of breach of this has been provided to show that CKJV failed to use reasonable endeavours to minimise amounts otherwise payable for Work; if, as the arbitrators have found, the relevant Rates were agreed, the Claimant was entitled to be paid at those Rates. In those circumstances the minimisation would primarily go to avoiding time being wasted or personnel being unnecessarily deployed, none of which has formed the basis of complaint.
(b) The warranties provided for in GTC 4.2.3 and Article 1.1.7 of Attachment C apply to the rates and costs set out in Attachment C and do not apply to any ‘Rates’ which may be agreed after the entering into of the Contract;
(c) the statement in Article 2.3.4 of Attachment C:
(i) only applies to Prices in respect of Staff and Supervisory Personnel (the reference to ‘Prices’ in Article 2.3.4 which is a reference back to ‘Prices’ in Article 2.3.3 and Article 2.3.3 deals with payment for Staff; and
(ii) does not entitle the Respondent or arbitrators to look behind a ‘Rate’;
(d) the Claimant is not, in relation to the relevant rates, in breach of the Contract as alleged by the Respondent.
210 Accordingly, the claims by the Respondent in relation to breach of Contract in respect of Audit Inquiry 7 and Audit Inquiry 9 are dismissed.
Rates – Were the payments the subject of AI7 and A19 the subject of a ‘Rate’ or an agreement relating thereto?
211 The circumstances giving rise to the disputes in connection with Audit Inquiry 7 and Audit Inquiry 9 are discussed in this award as follows:
(a) regarding the treatment of RDOs prior to September 2015, at Paragraphs 143 to 154 above, SOC [55 – 59] and FPPCL [20 – 25];
(b) regarding the treatment of RDOs after September 2015 is discussed at Paragraph 172 to 185 above; and
(c) regarding the treatment of stand down time, compassionate leave and jury duty is discussed at Paragraphs 186 to 191 above.
212 Given the matters identified in Paragraph 211 above, the utilisation of the relevant spreadsheets and the RFI procedure described in Paragraph 144(a) above by the Respondent for the purposes of the financial administration of the Contract, the Tribunal finds that:
(a) there was a binding agreement in relation to ‘Rates’ as alleged in Paragraph 58 of the SOC and that binding agreement continued after September 2015 (on the basis of relevant amended ‘Rates’), such agreement being evidenced within the Craft Labour Billing Matrices submitted and approved in October 2015 as referred to above; and
(b) there was a binding agreement in relation to ‘Rates’ as alleged in Paragraph 115 of the SOC, relating to standby hours, compassionate leave and jury duty.
Majority View – Presiding Arbitrator Akenhead and Arbitrator Greenham
213 There is disagreement between the arbitrators as to whether or not there were agreed Rates in relation to the Labour Matrices which are the subject matter of the Respondent’s mistake claim.
214 Given the matters identified at Paragraph 211 above and the other factual findings, the utilisation of the relevant spreadsheets and the RFI procedure described in Paragraph 144(a) above by the Respondent for the purposes of the financial administration of the Contract a majority of the Tribunal finds that there was an agreement in relation to ‘Rates’ as alleged in Paragraph 58 of the SOC.
Dissenting View – Arbitrator Pullin
215 I have previously noted as follows:
(a) following the publication of a new EBA in March 2012 and CKJV seeking to change the Craft Rates, there were no Craft Rates until an agreement was reached about the new Rates (Paragraph 164 above); and
(b) no new Rate has been agreed (Paragraph 169 above).
216 I agree with the reasoning in paragraphs 217 and 229 below and the finding in paragraph 230 subject to my view that the waiver and release in Paragraph B.2)a) of the LOA does not bar Chevron from auditing and recovering overpayment (if any) until there is an ‘agreed Rate’ for the period commencing with the date when CKJV sought to change Rates in 2012 up until new Rates were agreed as a result of the publication of the September 2015 EBA. That Rate can be and should be agreed. If there were any dispute about the data to be input then that could be resolved using the dispute resolution clause. That is no different from a dispute which may have arisen any time there was a new EBA and the need to agree new input data. No such dispute has been referred to this arbitral panel.
Claimant’s Set-Offs – Liability
231 This part of this Award is concerned with the ‘Set-Off’ pleaded by CKJV in its Defence to Counterclaim against the sums counterclaimed by Chevron.
232 The Set-Offs are expressly predicated upon the basis that, if and to the extent that the Counterclaim succeeds, then CKJV is entitled to set off certain ‘unbilled amounts’ in respect of Staff and Supervision Costs (estimated at AU$49.828 million) and in relation to Craft Labour Costs (estimated at AU$96.187 million).
233 The Set-Offs are pleaded as follows:
“3.2 Without prejudice to its primary case as set out therein, in the alternative, the Claimant is entitled to set-off the following amounts against any sums counterclaimed by the Respondent:
Staff and Supervision Costs
3.2.1 In the alternative, and in the event that the Staff costs are to be ascertained in accordance with the Respondent’s case as to the meaning and effect of DSP-0002/4 and the subsequent Staff Billing Sheet Rates and the LOA, then the Claimant has not invoiced sufficiently (or at all) for a number of items that it would otherwise be entitled to invoice and seek payment of in accordance with, on the Respondent’s case, the un-varied Contract.
3.2.2 These items were omitted on the basis that the Billing Sheet Rates comprised the Claimant’s all inclusive entitlement to final compensation (regardless of any errors and omissions in their constituent formulae), as indicated in the Respondent’s letter KJV- 1524 and evidenced by the parties’ conduct prior to the 2016 audit. The unbilled amounts were omitted from the build-up of the Rates invoiced during the Project on the basis identified above;
3.2.3 The Claimant is entitled to set-off these unbilled amount against the sums claimed by the Respondent in its counterclaim, in the estimated sum of $49,828,000 for such unbilled Staff costs; and
3.2.4 Further details of the unbilled Staff Costs are set out in Appendix 1 hereto.
Craft Labour Costs
3.2.5 In the alternative, and in the event that the Respondent’s is correct in its case that the Craft Labour Rates invoiced and paid during the Project were not agreed Rates as defined by the Contract as alleged at paragraphs 90 to 98 of the Respondent’s Defence and Counterclaim, then the Claimant says:
(a) an agreed Rate as defined by the Contract should entitle the Claimant to invoice and be paid for elements / items that were not included in the build-up of the allegedly incorrect Rates. These items were omitted on the basis that the latter comprised the Claimant’s all-inclusive entitlement to compensation (regardless of any errors and omissions in their constituent formulae); and
(b) any agreed Rate as defined by the Contract should correct all of the omissions and errors in the constituent formulae of the allegedly incorrect rates. This would include not only the alleged errors identified by the Respondent (which would operate to adjust a Rate in the Respondent’s favour), but also the matters / items which would operate in the Claimant’s favour, but were omitted from the build- up of the Rates invoiced during the Project on the basis identified above.
3.2.6 The Claimant is entitled to set-off such sums against the amounts claimed by the Respondent in its counterclaim, in the estimated sum of $96,187,000; and
3.2.7 Further details of the Craft labour omissions are set out in Appendix 2 hereto.”
234 Appendices 1 and 2 contained respectively 5 specific items of ‘Unbilled Cost’, each quantified and 16 items of ‘Unbilled Cost’ and ‘Rate Adjustments’. At Paragraph 4 of the Defence to Counterclaim the Claimant says the following:
“4 … the Claimant claims
4.2 The Claimant seeks a declaration that in accordance with the Claimant’s alternative case set out above, the Claimant is entitled to set-off the sum of $146,015,000 or such other sum as the Tribunal considers appropriate, against any amount owed by the Claimant to the Respondent’.
235 The Amended Reply to Defence to Counterclaim served on 7 September 2018 pleaded by way of amendment the following at Paragraph 5:
‘As to paragraphs 3 and 4.2 and Appendices 1 and 2 to the Defence to Counterclaim, the Respondent (without admitting that there is any merit in the Claimants’ set off claims pleaded in paragraph 3 thereof and Appendices 1 and 2 thereto (the Claimants’ Set Off Claim), or that the Claimants have incurred any of the “unbilled costs” referred to therein} says that:
(a) pursuant to Article B.3) of the Letter of Agreement dated 10 August 2016 (LOA), the Claimants have fully and finally waived and released the Respondent from any and all Claims, of every nature or kind, whether known or unknown, claimed or unclaimed arising from or in connection with any events or circumstances occurring on or before 31 December 2015 related to, inter alia, Direct Costs (except those referred to in Article B.3)(c)(i) and (ii) and (d)(i), (ii) and (iii));
(b) the Claimants’ Set Off Claims relate to Direct Costs allegedly incurred by the Claimants;
(c) in the premises pleaded in paragraph 5(a) above, the Claimants have fully and finally waived and released the Respondent from and are barred from claiming in the arbitration or at all, the Claimants’ Set Off Claims to the extent that they relate to Direct Costs:
(i) allegedly incurred on or before 31 December 2015; and
(ii) not falling within the exceptions referred to in Article B.3)(c)(i) and(ii) and (d)(i), (ii) and (iii) of the LOA.”
236 Although there is a general traversal of the Set-Offs, there has been no pleading as to detail and no investigation or evidence about them in the First Hearing.
237 Accordingly, the only issue for this Award is whether or not, and if so, to what extent Article B.3(c) and (d) of the LOA excludes or limits in principle any entitlements to the Set-offs as pleaded.
238 Article B.3) of the LOA states as follows:
‘3) Release by Contractor. Contractor hereby fully and finally waives and releases Company and Owner from any and all Claims, of ever nature or kind, whether known or unknown, claimed or unclaimed arising from or in connection with any events or circumstances occurring on or before 31 December 2015 related to any of:
- c)Direct Costs which have not been claimed as of the date of the LOA, except:
(i) Direct Costs of Subcontractors for Work performed on or before December 31, 2015 but which is claimed or invoiced by Subcontractor to Contractor after December 31, 2015; and
(ii) Direct Costs of Subcontractors associated with the disputed claims or invoices of Subcontractors set forth in Attachment 5;
- d)Direct Costs except those:
(i) identified as push back items and uncertified billing items as specified in Attachment 3 or 4, both of which will be resolved in the ordinary course; and trustees; and
(ii) specified in paragraph 3(c) above; or
(iii) identified as findings in the Pricing Schedule 2 and 3 annual reconciliation for the period from 1 January 2014 to 31 December 2015, which will be conducted in a manner consistent with the annual reconciliations for previous years; or … ‘
239 The relevant Contract definitions referred to in Article B.3) of the LOA are:
‘1.11 “Claim” shall mean any claim, liability, loss, demand, damages, Lien, cause of action of any kind, obligation, costs, royalty, fees, assessments, penalties, fines, judgement, interest and award … whether arising by law, contract, tort, voluntary settlement or otherwise.
‘1,25A ‘Direct Costs’ as defined in Attachment C – Pricing Schedule’
1.2.1 Direct Costs of the costs incurred by Contractor on resources used in performing the Work as detailed in this Attachment C – Pricing Schedule, Schedules 2 to 12′
1.2.2 Unless otherwise stated in this Agreement where a price is described as a Cost the Contractor shall be reimbursed for the cost of the item. Where a price is described as a Rate in this Attachment C – Pricing Schedule it shall be and is deemed to be, fully inclusive of all costs applicable to the item, matter, thing or activity it represents an [sic] fully inclusive of all costs and expenses to be incurred by Contractor in complying with its obligations under the Contract and shall constitute full and complete compensation due to the Contractor for that item, matter, thing or activity.’
240 Pricing Schedules 2 and 3 related to Staff and Supervisory Personnel was Pricing Schedule 4 related to Craft Labour.
241 The Claimant’s Senior Counsel argued in her final oral submissions (TRA.500.012.0125 and following) that essentially Chevron’s claims and counterclaims, particularly in relation to Staff, could be identified as a claim by Chevron that it had paid more than the true cost, as defined in the Contract, albeit that it had sought to particularise its Counterclaim by reference to selected elements of the overall sums claimed. She argued, in effect, that, properly analysed, CKJV was not claiming anything itself but simply defending itself against a claim by Chevron and the words of the LOA were insufficient to deny CKJV or excluded from putting forward any properly defence, including any defence which sought to assert that there was, overall, no or less overpayment against cost as a whole. The Claimant’s Senior Counsel conceded in her oral closing submissions (TRA.500.012.0132 to TRA.500.012.0133) that, if the Claimant was to succeed on the substantive Craft Labour issues, the Set‑Off in relation to Craft Labour would not arise.
242 The Respondent’s Senior Counsel argued that the wording of Article B.3) of the LOA was sufficiently wide to exclude, first of all, the Set-Offs as claimed and, secondly, to prevent CKJV from putting forward as a defence any assertion that the cost was greater than anything which it had claimed as the project proceeded. He pointed to the width of the definition of the word “Claim” and the breadth of the wording of Article B3.
243 Given the concession made by the Claimant’s Senior Counsel in relation to the Craft Labour Set-Off, and given that the Tribunal is deciding in favour of the Claimant in relation to Craft Labour issues, it is unnecessary to make any theoretical ruling on the Craft Labour Set-Off.
244 There are essentially two issues arising. They are:
(a) whether the Staff and Supervision Costs Set Off (Paragraph 3.2.1-3.2.4 and Appendix 1 to the Defence to Counterclaim) as pleaded can be pursued in principle; and
(b) whether and to what extent it is open to the Claimant as a defence to the Respondent’s Counterclaim matters going to show what the overall cost of the provision of Staff and Supervision actually was.
245 In relation to the first issue, the Tribunal considers that, on the basis pleaded in those paragraphs of the Defence to Counterclaim, the Claimant’s claim to Set-Off as pleaded cannot succeed. In simple terms the reason is that Clause B(3) and in particular sub-sub-clauses (c) and (d) thereto. The Set-Off, as pleaded, in particular at Paragraph 4.2 of the Defence to Counterclaim is pleaded and put forward expressly as a ‘claim’. The term “Claim” is defined very broadly (see above) and the Claimant is in this context purporting to make a Claim in respect of certain unbilled cost.
246 However, the second issue is a broader issue because, on any sensible analysis of the Respondent’s Defence and Counterclaim, as finally particularised in its Amended Full Particulars of Counterclaim dated 25 July 2018, what the Respondent is itself claiming and asserting is that, on the assumption that no Rates were agreed in relation to Staff and Supervision costs, it has paid out to the Claimant (substantially) more than cost as defined in the Contract. Put another way, the Respondent is saying that, because the Claimant’s actual cost is (substantially) less than it has been paid for Staff and Supervision, it is entitled to be paid back by the Claimant the overpayment. The second issue therefore involves determining, whether as a matter of construction of the LOA, the Claimant is prevented or constrained from running any defence to this claim by the Respondent to the effect that the total cost for Staff and Supervision is not as low as the Respondent is asserting.
247 The matter is confused by the fact that, latterly in the pleading process, in particular by way of the Amended Full Particulars of Counterclaim, the Respondent has put its case by reference to a report prepared by its accounting expert, Mr Meredith, which has identified only a limited number of elements of the total cost which, by way of his auditing process, suggest, the Respondent asserts, that demonstrably the Claimant’s cost has been less than has been paid to it. This approach is one which proceeds on the assumption that all the other elements which go to make up the total overall Staff and Supervision cost were accurate.
248 Although the Claimant has not yet submitted a detailed response to this latest particularisation of the Counterclaim and has not finalised any accounting expert’s evidence on this, it would seek to assert that, in reality, its total cost, particularly looking at other elements of the Cost other than those examined by Mr Meredith and put forward by way of Counterclaim by the Respondent, is more than the Respondent is now suggesting.
249 In substance, this second issue revolves around whether or not such a defence to the Respondent’s Counterclaim is available or has been excluded or limited by the LOA.
250 Members of the Tribunal differ on this issue. The majority view is set first, followed by the dissenting view.
- Particular attention should be directed to par 246, which contains a helpful synthesis of the position at the time of the reasons underlying the first interim award. I reiterate the relevant portion as follows:
Put another way, the Respondent [Chevron] is saying that, because [CKJV’s] actual cost is (substantially) less than it had been paid for Staff and Supervision, it is entitled to be paid back by the Claimant the overpayment.
- I also highlight that a phrase used vis-à-vis CKJV (at par 248) that ‘it would seek to assert that, in reality, its total cost, particularly looking at other elements of the Cost … is more than [Chevron] is now suggesting’.
Paragraphs 251 to 260
Majority View – Presiding Arbitrator Akenhead and Arbitrator Greenham
251 The majority of the Tribunal is of the view that what has not been excluded by the LOA is any proper defence which can be mounted by the Claimant to what the overall cost of the Staff and Supervision has been. It is not limited simply to defending what the Respondent says are relevant elements of the total cost. The reasons are as follows:
(a) The ‘Settlements and Amendments to the Agreement’ section of the LOA specifically addresses, first, settlement of Claims by CKJV (paragraph B.1), secondly, waiver and release of Claims by Chevron (paragraph B.2) and waiver and release of CKJV Claims (Paragraph B.3)).
(b) Primarily, the Respondent relies on Paragraph B.3 to argue that the Claimant cannot raise any arguments about the total cost of Staff and Supervision other than those which specifically go to the elements of cost relied upon by the Respondent to prove that the total cost was less than has been paid.
(c) However, although the definition of ‘Claims’ is broad (see above), what Paragraph B.3) is concerned with is Claims by the Contractor. There is nothing in Paragraph B.3) which involves any waiver or release of any proper or substantive defence (as opposed to Claim) which the Claimant may have against any Claim which the Respondent is permitted by the LOA to pursue.
(d) As a matter of commercial common sense as well as the matter of ordinary construction, clear wording would be required in the circumstances to exclude rights of defence to the Respondent’s Claims (to the extent that they can be pursued by the Respondent). There is no such clear wording or indeed any wording which suggests that any defences as to the Respondent’s Claims for overpayment of cost of Staff and Supervision are excluded or limited.
(e) A good example is the expressly reserved entitlement on the part of Chevron to recover amounts ” … arising out of or in connection with … “ the findings of Audit Inquiries 6 and 10 (amongst others), at paragraph B.2)c)(ii) of the LOA. The material background to the LOA in this context is that these Inquiries had not been resolved at the date of the LOA and it would be an extraordinary state of affairs if in the next contractual breath all rights on the part of CKJV to defend itself against any Claims to be made by Chevron again [sic] it were being excluded.
(f) It cannot have been within the contemplation of the parties at the time of the LOA that, in effect, Chevron could secure, simply by the way that it decided ultimately in later proceedings to limit its area of challenge to a relatively few elements of the overall cost, that the only defence available to CKJV to a Claim by it for overpayment in relation to cost could be by way of mounting challenges only to the few elements selected by Chevron. This would also, counter-intuitively, mean that CKJV could not challenge the underlying presumption in Chevron’s Counterclaim that, apart from those elements of cost which it had selected for review and challenge, the substantial remainder of the total cost paid was accurate and binding.
252 The majority of the Tribunal therefore finds that the Claimant may in principle bring into account by way of defence, in these proceedings, the amounts particularised in Appendix 1 to its Defence to Counterclaim (MSC.010.007.0001) and indeed any other amounts of cost which it seeks to prove have not yet been accounted for in what it has been paid.
- That view may be contrasted with a dissenting view of Arbitrator Pullin upon what was, in effect, issue 5 as stated by the Tribunal under the first interim award.
Dissenting view – Arbitrator Pullin
253 Unquestionably, absent Paragraph B.3) of the LOA, the exercise to be carried out in a reconciliation or in an audit would be for Chevron to determine what had been paid by Chevron and to compare that with what had been spent by CKJV on salaries.
254 In that process, if it were revealed that CKJV had overlooked claiming some Staff salary expense actually incurred it could claim for what had been overlooked.
255 There was an example of this given in the evidence to the tribunal. This occurred when an audit revealed that CKJV had overlooked $1.6 million of expenses. Chevron invited CKJV to make such a claim by raising an invoice, which it did.
256 However, Paragraph B.3) of the LOA now prevents that from happening. If at the date of the LOA CKJV could have, but had not claimed or invoiced for some item of expense (Direct Cost) than it had lost the right to do so. It ‘waived and released’ Chevron from any such claim. If the claims in Appendix 1 to the SOC (MSC.010.007.0001) arose out of circumstances before the LOA was signed then they have been waived and cannot be now raised in any audit conducted after the date of LoA [sic].
257 That result can be tested in this way. If CKJV had, on the day after the LOA was signed, produced an invoice claiming the $49 million it claims as a set off in Appendix 1 to the DCC (MSC.010.007.0001) CKJV’s waiver in the LOA could have been successfully set up as a defence to such claim. That is surely unarguable. It is therefore impossible to sustain CKJV’s assertion which is, in effect, that just because Chevron has decided to carry out an audit that the waived claim springs back to life and can be raised as a claim to defeat a part of the amount Chevron claims as an overpayment.
Counterclaims – Liability
258 In the Respondent’s Amended Defence and Counterclaim it alleges a number of errors or overpayments in relation to Staff. These are said to be described in a series of reconciliations (ADCC ).
259 Given the findings and dismissal of the Tribunal in relation to the absence of an agreement to convert Cost items to Rate items and in relation to the absence of an estoppel (refer to Paragraphs 61. 76, 77 and 89 above) in the context of Staff and Supervision, there is no impediment, by reason of such an agreement or estoppel, to the Respondent pursuing the claims set out in the ADCC.
260 The claims the subject of the ADCC, the quantification of those claims (and the ability of the Claimant to challenge the quantification of those claims, having regard to the finding in Paragraph 252) will be the subject of the second hearing.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
Associate to the Honourable Justice Martin
28 SEPTEMBER 2021