With the increase in convoluted and complex disputes in the construction field, it has become more and more popular to refer disputes to alternative dispute resolution methods such as expert determination or arbitration – rather than be litigated in court. A key advantage of alternative dispute resolution is the ability of the parties to set their own rules on how the proceeding should be conducted. One such procedural rule which has the potential to save the parties substantial time and cost is the bifurcation of the proceedings into two separate stages; the first stage dealing with liability issues and the second stage dealing with quantum. In circumstances where both parties to the dispute have large claims against each other, an early decision on liability will significantly narrow the quantum issues which need to be decided. For this reason, it is not unusual for a party to seek an order for bifurcation at an early stage.
The recent decision in Chevron Australia Pty Ltd v CBI Constructors Pty Ltd [2021] WASC 323 highlights the potential risks of a liability/quantum bifurcation of proceedings.
If a party does not properly ventilate the liability issues at the relevant time, they can find themselves barred from raising these issues before the expert or arbitrator in the future.
Background
The proceedings stemmed from a contractual dispute between Chevron and joint venture contractors, CBI Constructors Pty Ltd and Kentz Pty Ltd (CKJV), on the Gorgon Project. Prior to the proceedings, the parties had referred their dispute about alleged overpayments made to CKJV under the Contract to arbitration.
CKJV sought, and was successful in obtaining, an order that the arbitration proceedings be bifurcated into a separate hearing for ‘all issues of liability’ (a phrase which would subsequently be of vital importance) and a separate hearing for quantum issues. After the first hearing on liability issues, the arbitrators issued an interim award which was broadly in favour of Chevron.
CKJV then sought to alter its case on quantum, and in doing so, raised new issues which Chevron contended ought to have been dealt with during the separate liability hearing.
The arbitrators dealt with this issue in its second interim award, and the majority of the arbitrators decided that CKJV was permitted to alter its case on quantum.
Chevron sought relief from the Supreme Court of Western Australia pursuant to the court’s powers under the Commercial Arbitration Act 2012 (WA) to set aside an arbitral award due to the lack of jurisdiction by the arbitrators.
Why was bifurcation sought in this case?
The dispute between Chevron and CKJV was about how much CKJV was entitled to be paid by Chevron for the supply of labour and staff under the Contract. Though the Contract was stated to be cost-reimbursable, CKJV had claimed (and been paid by Chevron) its labour and staff using rates which were higher than CKJV’s actual costs. Chevron sought to recover the amount it contended it overpaid CKJV above CKJV’s actual costs. CKJV said that it was entitled to charge its labour and staff on a rates-basis and cross-claimed for additional amounts which it said Chevron was liable for.
The advantages of bifurcation can be clearly seen in this case. Each party’s case hinged on the determination of the question about whether CKJV’s labour and staff were to be claimed on a cost-reimbursable or a rates-basis. If this question of liability was determined in advance, one half of the large and complex quantum dispute would fall away. This would significantly reduce the time and cost of the arbitration.
The arbitrators’ decision on liability and CKJV’s new quantum case
In its first interim award, the arbitrators decided that there was no agreement between the parties for labour and staff to be charged on a rates-basis. This resulted in the bulk of CKJV’s claims being ruled out.
CKJV submitted an amended pleading which accepted that Chevron was only liable to CKJV for CKJV’s ‘actual costs’, but that ‘actual costs’ included allowances and other items above and beyond that which CKJV had actually paid to its personnel. Chevron objected to CKJV’s amended pleading and said that CKJV was reagitating a liability issue which the arbitrators no longer had jurisdiction to consider. In the arbitrators’ second interim award, the majority of the arbitrators agreed that CKJV could proceed with its new case on the interpretation of the term ‘actual costs’, as this related to quantification of CKJV’s claim and the quantum cases of each party had not been articulated at the time of the first hearing.
Supreme Court sets aside the second interim award
The Supreme Court disagreed with the arbitrators and found that, though the interpretation of ‘actual costs’ did impact on quantum, it was really a question about the costs which Chevron would be liable for. It was a liability issue which had to be raised by CKJV at the time of the first hearing. Because the arbitrators had already rendered their award on ‘all issues of liability’, the arbitrators also had no further authority to consider CKJV’s new case. The Supreme Court set aside the arbitrators’ second interim award on grounds of a lack of jurisdiction.
Takeaway
There are clear and material benefits to the bifurcation of the liability and quantum issues in a complex construction dispute. Nevertheless, Chevron v CKJV illustrates the risks which can arise when bifurcating proceedings. Parties must be confident they will be able to clearly and precisely identify the liability issues which are relevant to the dispute before seeking an order for all liability issues to be determined in advance of quantum. A failure to do so can result in key aspects of the party’s case being barred from being brought before the decision- maker.
*As a disclaimer, the content does not constitute legal advice and should not be relied upon as such. Appropriate legal advice should be obtained in actual situations. Feel free to contact us should you require any assistance in resolving a legal dispute.
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