Santos Limited v Fluor Australia Pty Ltd 
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
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
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
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.
This publication does not deal with every important topic or
change in law and is not intended to be relied upon as a substitute
for legal or other advice that may be relevant to the reader's
specific circumstances. If you have found this publication of
interest and would like to know more or wish to obtain legal advice
relevant to your circumstances please contact one of the named
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Warranties can be risk-shifting mechanisms when the party giving the warranty is not the party at fault for the defect.
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