In a recent Queensland Supreme Court judgment, the Court affirmed the long held view that dispute resolution clauses in contracts should not be ignored except in exceptional circumstances.
Santos Limited (energy) and Fluor Australia (engineering and construction) entered into a contract for the Gladstone Liquefied Natural Gas Project. The terms of the contract are not relevant here except in regard to the dispute resolution clauses.
Due to significant over payments to Fluor, Santos sought to exercise it auditing rights and sought access to Fluor documents. The parties, through correspondence, failed to resolve the disclosure of documents to the satisfaction of Santos. Santos then filed an application that the requested documents to be provided and Fluor, in reply, sought a stay of the proceedings as the parties had not worked through the dispute resolution process as set out in the contract.
A detailed dispute resolution (ADR) clause was included in the contract which was to have been complied with prior to any litigation. It included that there be meetings between senior representatives of Santos and Fluor.
Santos did not comply with the ADR process. The basis for skipping the ADR process, as argued by Santos, was that, amongst other things:
- the correspondence made it clear that the meetings would not resolve the dispute;
- the ADR process did not assist in resolving two previous disputes; and
- given the previous two disputes were litigated and this would likely go the same was, staying these proceedings would further delay the resolution of the dispute.
Fluor, on the other hand argued in part, that the ADR process should be complied with as the matter may well have resolved and in any event, the meeting may have assisted in defining or narrowing the scope of the dispute between the parties.
Decision and lessons
The Court agreed with Fluor and ordered a stay of the proceedings until the parties fulfilled their obligations as set out in the ADR clause of the contract.
Further, the Court was of the view that Santos failed to demonstrate that the Court should exercise its discretion to not enforce the ADR process as Santos could not demonstrate any exceptional circumstances for non-compliance.
The Court in Santos Limited v Fluor Australia Pty Ltd reinforced the long held view that ADR provisions in contracts should not be ignored except in exceptional circumstances.
An ADR agreement will be enforceable and parties must consider, when entering into any agreement, whether the proposed ADR process will suit the needs of the parties through the life of the agreement.
If you need assistance with a contractual dispute, contact a member of our dispute resolution team today.