Santos Limited v Fluor Australia Pty Ltd [2016] QSC 129

In January 2011, Santos and Fluor entered into an EPC contract in connection with the GLNG Project in Gladstone. The facts are complex, but under the contract, Fluor was entitled to be paid its actual costs for performing works. 

There was a cost overrun of $1.8 billion above the target budget estimate, and Santos sought to use its contractual power to have access to Fluor’s records to determine whether the costs Fluor had claimed included “Excluded Costs” which were not recoverable by Fluor.

The parties exchanged correspondence over several months, but could not agree on Santos getting access to Fluor’s records.  Three months after this, Santos applied to court for access. 

The contract contained a reasonably detailed dispute resolution process under which a notice of dispute had to be served, and the parties were to meet to try to resolve the issue.  If that failed, the dispute could then be referred to senior representatives of the parties.  If the dispute still remained unresolved, either party could refer it to litigation, unless they agreed to use another method of dispute resolution. 

The parties had not followed this dispute resolution process, and Fluor applied to the Supreme Court of Queensland asking for Santos’s action to be delayed until the parties had done so. 

Santos argued that enough information had already been exchanged between the parties outside that process, and that the dispute resolution process would be futile.  The parties had already had several other disputes on similar issues relating to access to Fluor’s records, had followed the process in the contract, and had failed to resolve those disputes.

Fluor responded that just because earlier attempts to use the dispute resolution process were not successful in resolving similar disputes, it did not mean that there was no point in following it now.  The parties had succeeded in compromising such disputes in the past, and Fluor argued that maybe using it now would “more precisely define the scope of the dispute or otherwise narrow the issues to be determined by the Court.”¹

Santos replied that the issue only involved a matter of the proper construction of the clause permitting access to Fluor’s records was unlikely to be settled and was “therefore much better suited to being determined speedily in court rather than by agreement of the parties.”²

Decision

The Supreme Court ordered that the proceedings be put on hold until the parties attempt to resolve the dispute in accordance with the dispute resolution procedure under the contract.

The judge took into account that there had been no explanation for the delay between the date on which the dispute arose and the date Santos made it application.  As this period was almost 3 months the dispute resolution process could easily have been followed and completed by this time.   

The Court said that using the contractual dispute resolution process did not deprive Santos of the right to have its claim determined in court later, and may advance the public interest in obliging the parties to adhere to their agreement.  That public interest lies in avoiding the potentially unnecessary use of court time and reducing the costs of civil litigation to both the public and litigants. 

Take home lessons

If you enter into a contract that sets out how disputes should be addressed (and most construction contracts do), you should expect to have to use that process, no matter how well it has worked in the past. 

This reinforces the fact that dispute resolution processes are not mere “boilerplate” clauses, but must be carefully considered and negotiated, so that they are appropriate for the project, the works and the parties involved.  This is especially important on longer term projects, such as major infrastructure projects or operation and maintenance works. 

Contract administrators should also take care to follow the contractual dispute resolution process, even where its success rate has been low.  In those situations, however, parties may consider trying other means to resolve the dispute at the same time as working through the contractual process.

If you would like to discuss any of the issues raised in this article, please contact us. 


¹[2016] QSC 129, 136 at [15]

²[2016] QSC 129, 136 at [17]

AuthorsSuzy Cairney & Leeanne Klan

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Suzy Cairney, Partner
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