Australian Court clarifies the doctrine of functus officio in the context of bifurcated arbitration proceedings

Dispute arises in relation to claims of functus officio and issue estoppel 

The appellants (the Contractors) entered into a joint venture to provide construction services to the respondent, Chevron Australia (Chevron).

The Contractors commenced an arbitration against Chevron for underpaying their management staffing costs. Chevron’s position was that the Contractors were only entitled to recover the “actual cost” of their staff. However, the Contractors alleged that the parties had later amended the contract to allow it to bill at specified charge-out rates. 

The arbitration was bifurcated, with an interim decision on all issues of liability and a final decision on quantum. The liability phase proceeded as follows:

• In its first interim decision, the tribunal determined that the contract had not been amended.  Therefore, Chevron was only liable to reimburse the Contractors for the “actual cost” of their staff. 

• The Contractors sought to amend their pleadings to include a claim that the term “actual cost” was defined under the contract as including costs determined by reference to certain contractual criteria.

• Chevron objected to the Contractors’ amended pleading, arguing that the Contractors were prevented from pleading its new case by issue estoppel, Anshun estoppel, and res judicata (together, the preclusionary estoppels), as well as the doctrine of functus officio. The Contractors argued that neither party had pleaded the definition of the term “actual cost”, such that it was a fresh issue.

• In a second interim decision, a majority of the tribunal found that none of the preclusionary estoppels applied and that it was not functus officio.

Chevron successfully applied to the Supreme Court of Western Australia to have the second interim decision set aside for lack of jurisdiction. The Contractors appealed the Supreme Court’s decision. 

Award set aside due to finding of functus officio

Before the Court of Appeal, the Contractors made the following arguments:

• The principle of functus officio is not a “self-supporting” doctrine, as it could not apply in the absence of a finding that one of the preclusionary estoppels applied.

• The tribunal had made findings that none of the preclusionary estoppels applied. In order for the functus officio principle to apply, the trial judge needed to first displace the tribunal’s findings on these points. But these findings could only be errors of law and were not matters of jurisdiction.

• Alternatively, in order for the functus officio principle to apply, it was necessary for the Court to find that the tribunal had erred in its construction of the phrase “all issues of liability”. If so, this was also a mere error of law.

• In the further alternative, the Contractors argued that the tribunal was not in fact functus officio because the tribunal did not intend to resolve the interpretation of “actual cost” in the first phase. The Court of Appeal disagreed with the Contractor’s submissions, and dismissed the appeal. There were three key factors behind the Court’s decision.  

The Court of Appeal disagreed with the Contractor’s submissions, and dismissed the appeal. There were three key factors behind the Court’s decision.

First, the Court held that the functus officio doctrine is a separate and distinct doctrine to the preclusionary estoppels. The preclusionary estoppels bar a party from advancing arguments that have been (or should have been) determined in previous proceedings. In contrast, the doctrine of functus officio acts as a check on the tribunal’s jurisdiction, preventing it from re-determining an issue. This meant that the Court did not need to re-visit the question of whether the preclusionary estoppels applied.

Second, the Court held that when determining a tribunal’s jurisdiction, a court does not engage in appellate review. Rather, although the court might consider the tribunal’s own view of jurisdiction, the court makes its own fresh determination on jurisdiction. On that basis, the first three grounds of appeal fell away.

Third, the Court held that the tribunal was clearly functus officio. The Court found that the Contractors’ amended pleadings advanced a fresh case on liability. There was nothing in the first interim decision that indicated that the tribunal had reserved the question of “actual cost” for a later hearing.  

Comment

In addition to clarifying the Australian position concerning the doctrine of functus officio, the decision provides some useful practical lessons for parties dealing with bifurcated proceedings. 

First, the decision provides a reminder of the importance of advancing one’s full case at the earliest appropriate opportunity. Although there may be strategic reasons to hold an argument “in reserve”, doing so runs the risk of missing the opportunity to advance that argument. 

Second, although the distinction between functus officio and preclusionary estoppels may seem legalistic at first glance, in this case it had a very real consequence. In the course of its decision, the Court accepted that the tribunal’s findings on the preclusionary estoppels were mere errors of law that would not support an appeal. 

Third, in a challenge to a tribunal’s jurisdiction, the Court will make its own determination of jurisdiction, rather than being limited to the tribunal’s reasons. Thus, although a close examination of a tribunal’s decision can be informative, it is important not to let a focus on those reasons distract from the overall factual context behind the tribunal’s jurisdiction.