KEYWORDS: STAY PROCEEDINGS; SETTLEMENT OF DISPUTES; DISPUTE RESOLUTION CLAUSES

KEY TAKEAWAY

There is a heavy onus on a party to prove it does not have to comply with contractual dispute resolution clauses.

Background

Santos Limited (Principal) engaged Fluor Australia Pty Ltd (Contractor) on a project which involved coal seam gas being extracted, processed and exported in its liquefied form from Curtis Island near Gladstone. The contract originally commenced in early 2011. Later that year it was amended and converted into a costs reimbursable contract subject to various conditions.

At the completion of the project the Principal was concerned that the Contractor had claimed costs which were excluded under the contract and to which it was not entitled. The Contractor had claimed and been paid $5.43 billion, which was an overrun of $1.854 billion from its target budget estimate.

Facts

In May 2016, the Principal exercised its rights under the contract by applying to access the Contractor's records to ensure the Principal had not been charged or paid excluded costs. The Contractor opposed this and sought to stay the application pending compliance with the contract's dispute resolution clauses which the Principal had not followed.

Decision

Douglas J held that the dispute resolution procedures were undoubtedly enforceable. This was so even though the Principal had argued similar disputes had not been resolved using the dispute resolution clauses.

Douglas J confirmed there was a heavy burden on the Principal to persuade the Court to allow the dispute resolution clause not to be followed and so allow the action to proceed.1 His Honour
determined that staying proceedings was not sufficient to make reference to the contractual procedure "obviously futile" or "so slight as not to justify enforcing the agreement". 2 This was because:

  • the parties had succeeded in compromising similar disputes in the past, even if this was not until litigation commenced, and the formal process of negotiation commonly helps parties settle;3
  • Santos was not deprived by the dispute resolution clause of having their claim judicially determined;4 and
  • it was in the public interest to avoid potentially unnecessary costs and use of court time.5

In addition, Douglas J noted that while the case generated a legal point suitable for the Court's determination, the commercial reasons for parties entering into dispute resolution agreements are significant.6

Accordingly, the proceedings were stayed pending the performance of the parties' obligations under the dispute resolution clauses of the contract.

http://archive.sclqld.org.au/ qjudgment/2016/QSC16-129.pdf

Footnotes

1 See also Zeke Services Pty Ltd v Traffic Technologies Ltd [2005] 2 Qd R 563 at 569
2 At [28]
3 At [31]; Downer EDI Mining Pty Ltd v Wambo Coal Pty Ltd [2012] QSC 290 at [29]
4 At [28]
5 At [28]
6 At [26] and [29]; Cable & Wireless plc v IBM UK Ltd [2002] EWHC 2059 (Comm)

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