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Santos Limited v Fluor Australia Pty Ltd[2021] QCA 204

Santos Limited v Fluor Australia Pty Ltd[2021] QCA 204

SUPREME COURT OF QUEENSLAND

CITATION:

Santos Limited v Fluor Australia Pty Ltd & Anor [2021] QCA 204

PARTIES:

SANTOS LIMITED

ABN 80 007 550 923

(appellant)

v

FLUOR AUSTRALIA PTY LTD

ABN 28 004 511 942

(first respondent)

FLUOR CORPORATION

(second respondent)

FILE NO/S:

Appeal No 335 of 2021

SC No 12939 of 2016

DIVISION:

Court of Appeal

PROCEEDING:

General Civil Appeal

ORIGINATING COURT:

Supreme Court at Brisbane – [2020] QSC 372 (Bradley J)

DELIVERED ON:

24 September 2021

DELIVERED AT:

Brisbane

HEARING DATE:

7 May 2021

JUDGES:

McMurdo and Mullins JJA and Davis J

ORDERS:

  1. Appeal allowed.
  2. Set aside the orders made on 15 December 2020.
  3. Refuse the application filed on 11 November 2019.
  4. Order the respondents to pay the appellant’s costs of the appeal and of that application.

CATCHWORDS:

CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – CONSTRUCTION AND INTERPRETATION OF CONTRACTS – INTERPRETATION OF MISCELLANEOUS CONTRACTS AND OTHER MATTERS – where the appellant and first respondent entered into a contract by which the first respondent agreed to engineer, procure and construct certain facilities – where the first respondent failed to achieve mechanical completion by dates prescribed under the contract – where the first respondent was paid costs it incurred in completing the facilities, including costs incurred after the relevant dates for completion under the contract – where the appellant commenced proceedings for the recovery of those, and other, costs – where the primary judge struck out parts of the appellant’s Claim because those claims were not open on the proper construction of the contract – whether the primary judge erred in construing the contract

PROCEDURE – CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS – ENDING PROCEEDINGS EARLY – SUMMARY DISPOSAL – SUMMARY JUDGMENT FOR DEFENDANT OR RESPONDENT: STAY OR DISMISSAL OF PROCEEDINGS – where the primary judge found, on the construction of the contract, that the appellant had no real prospects of success for part of the claim – whether the primary judge was correct in striking out parts of the appellant’s Claim

COUNSEL:

P L O'Shea QC, with C A Schneider, for the appellant

D B O'Sullivan QC, with J P O'Regan, for the respondents

SOLICITORS:

Corrs Chambers Westgarth for the appellant

Jones Day for the respondents

  1. [1]
    McMURDO JA:  The appellant (Santos) was the proponent of a project (now completed) to extract coal seam gas from the Surat Basin, partially treat the gas and then send it by pipeline to Gladstone.  Before the gas is put into the pipeline to Gladstone, it is compressed in what are called hubs.
  2. [2]
    The dispute which is the subject of this appeal arises from a contract between Santos and the first respondent (Fluor), by which Fluor agreed (among other things) to engineer, procure and construct three hubs, and associated infrastructure (the contract).  The second respondent is the ultimate holding company of Fluor, and it guaranteed the payment by Fluor of certain money, including the sums which Santos claimed against Fluor in this proceeding.  It also indemnified Santos against losses, including the loss of those claimed sums.
  3. [3]
    By a claim and statement of claim filed in 2016, Santos sought extensive relief, of which the dispute in this Court is only a part.  The dispute here involves what Santos describes as MC Delay Costs.
  4. [4]
    The contract between Santos and Fluor was, for the most part, a cost plus contract.  By cl 4.2, it required the Company (Santos) to pay to the Contractor (Fluor) a contract price comprised of three components.  One was a fee, in an amount of $210 million (subject to adjustments).  Another was described as “Incentives”, which were bonuses for early completion, cost savings incentives and a performance bonus.  Neither of those components is part of the present dispute.  The third component of the price was described as:[1]

“[T]he Actual Costs calculated in accordance with Schedule 3”.[2]

  1. [5]
    Fluor was obliged to “achieve Mechanical Completion by the Target Date for Mechanical Completion”[3] in respect of each part of the works.  It is apparently undisputed that, for each hub, Fluor failed to achieve Mechanical Completion by the due date.
  2. [6]
    After the dates for Mechanical Completion had passed, Fluor continued to perform work necessary to complete the hubs, and incur costs for which it then sought payment under the contract.  On Santos’s case, those costs, incurred after the dates for Mechanical Completion, are of two kinds.  The first kind were costs which would have been incurred whether or not Fluor had achieved Mechanical Completion by the due dates.  The second kind were costs which would not have been incurred if Fluor had completed the hubs by the due dates.  This second category are the MC Delay Costs.  They were not a function of the volume of work performed.  They were overhead costs, which were incurred, after the date for Mechanical Completion, by Fluor and its subcontractors so as to be in a position to continue to perform and complete the work.  Santos describes them as time-related overhead costs, in that they increased with the passage of time until the work was completed.  Costs of this kind, Santos says, ought not to have been incurred, because they would have been avoided had Fluor performed the contract by achieving Mechanical Completion by the due dates.
  3. [7]
    Santos contends that the MC Delay Costs were not within the “Actual Costs” which comprised part of the Contract Price, so that it did not have to pay them.
  4. [8]
    In 2015, after the project was completed, Santos exercised a contractual right to conduct audits of Fluor’s accounting records.  From that information, Santos considered that it had been wrongly charged for, and had incorrectly paid, the MC Delay Costs, and that Fluor should repay them.  The amounts claimed by Santos on this basis, as the MC Delay Costs, were comprised of amounts of AUD$431,374,798, USD$31,265,789, GBP£355,971 and EUR€213,668.
  5. [9]
    The respondents applied, under r 293 of the Uniform Civil Procedure Rules, for summary judgment on this part of Santos’s case.  For the purposes of their application, the respondents did not challenge any of the factual allegations pleaded by Santos.  Their argument was that, on the proper interpretation of the contract, the MC Delay Costs were properly claimed by and paid to it, as Actual Costs.  Their argument was upheld, and it is against that judgment[4] that Santos appeals.

The definition of Actual Costs

  1. [10]
    Clause 4.2(a) obliged Santos to pay Fluor the Contract Price.  As noted already, this was comprised, in part, of “the Actual Costs calculated in accordance with Schedule 3”.
  2. [11]
    The expression “Actual Costs” was defined in cl 1.1 of the contract.  There was also a definition of “Actual Costs” in Schedule 3 of the contract.  The two were not identical.  Santos said that the definition in Schedule 3 did not matter for present purposes, but the primary judge held otherwise.  Santos argues that this was an error.
  3. [12]
    Clause 1.1 defined Actual Costs as:

“actual costs properly incurred by [Fluor] in the performance of the Work but excluding (except where provided otherwise in Schedule 3) profit, overheads and Excluded Costs.”

  1. [13]
    Schedule 3 defined Actual Costs, “for the purposes of this Schedule 3.1”, to mean:

“costs properly and reasonably incurred by [Fluor] directly in the performance of the Work without mark-up, profit or overheads.”

  1. [14]
    The significant difference between the two definitions was that the definition in Schedule 3 made no reference to “Excluded Costs”.
  2. [15]
    Excluded Costs were relevantly defined in cl 1.1 as:

“any costs, expenses, damages, liabilities or other amounts arising out of or as a consequence of:

  1. (subject to clause 23.6) a breach of the Contract by [Fluor] Personally;
  2. breach by [Fluor] of a subcontract or any other contract between [Fluor] and any third party;
  3. breach of any Law by [Fluor] or [its] Personnel;
  4. amounts payable to third parties in respect of any negligent act or omission of the Contractor or the Contractor’s Personnel;
  5. any amounts:
  1. (i)
     for which [Fluor] is entitled to be and is reimbursed by a third party (including an insurer or Subcontractor);
  1. (ii)
     by which costs and expenses may be rebated, refunded or discounted;
  1. (iii)
     relating to items covered by or deemed included in, or items of work which [Fluor] has allowed for or is required to allow for in the rates or prices set out in Schedule 3;
  1. (iv)
     which [Fluor] may be obliged to pay [Santos] under or in connection with the Contract including under any indemnity;
  1. (v)
     in respect of any liability of [Fluor] for GST or any amount incurred by [Fluor] for which an input tax credit is available to the [Fluor] or would be available if [Fluor] had done all things necessary to obtain an input tax credit and was otherwise entitled to an Input Tax Credit;
  1. (vi)
     which [Fluor] is precluded from claiming under the Contract or which the Contract expressly provides are to be incurred at the cost of [Fluor]; and
  1. (vii)
     expressly excluded under any other provision of the Contract.”
  1. [16]
    On this point, the primary judge said:

[41] In section 2.0 of Schedule 3.1, the parties defined “Actual Costs”, for the purposes of Schedule 3.1, to mean:

“costs properly and reasonably incurred by [Fluor] directly in the performance of the Work without mark-up, profit or overheads.”

[42] This differs from the definition in cl 1.1 of the [contract]…. By cl 4.2(b)(1), the parties agreed the Actual Costs are to be calculated in accordance with Schedule 3. It follows that the Actual Costs (as defined in section 2.0 of Schedule 3.1) plus any profit, overheads and Excluded Costs to be added according to Schedule 3.1 become the Actual Costs (as defined in cl 1.1) and so part of Fluor’s remuneration in accordance with cl 4.2(b)(1).”

(Emphasis added.)

  1. [17]
    What, if any, were the Excluded Costs which, according to the schedule, were to be added?
  2. [18]
    Schedule 3 specified categories of costs and the ways in which costs in each category would be calculated.  In several instances, it provided for a calculation in terms that Fluor would be reimbursed for its Actual Costs.  In effect, the primary judge held that if a certain cost was an Actual Cost, as defined by and for the purposes of Schedule 3, it would be an amount which would form part of the Contract Price and payable under cl 4.2, although the cost was an Excluded Cost as defined.  In other words, what was excluded, according to cls 1.1 and 4.2 of the contract, became included by the terms of Schedule 3.  In my respectful opinion, that interpretation should not be accepted.
  3. [19]
    The term Excluded Costs did not appear within Schedule 3.  There was no provision that any Excluded Costs, by that description, would be included in the calculation of Actual Costs in cl 4.2.
  4. [20]
    Further, there was no provision in the schedule that costs, described in the terms of any of the categories within the definition of Excluded Costs,[5] were to be included in that calculation of Actual Costs.  Take the case of the second category of Excluded Costs, namely costs arising out of, or as a consequence of a breach by Fluor of a subcontract or any other contract between Fluor and a third party.  There was no provision within Schedule 3 which referred to costs by that description and which provided, in any circumstance, that they would be included in the calculation of Actual Costs.
  5. [21]
    His Honour referred to parts of Schedule 3 in which some overhead and profit components were to be included in the calculation of Actual Costs.[6]  But there was no similar provision for a kind of cost which was an Excluded Cost as defined in cl 1.1.
  6. [22]
    Where a cost was of a kind described in the definition of Excluded Costs, it was not to become an Actual Cost included by Schedule 3 simply because, absent its defined nature as an Excluded Cost, it met the description of a recoverable cost in the Schedule.  For example, the Schedule provided that Fluor would be reimbursed costs invoiced by Fluor’s subcontractors.  That would not override the exclusion of a cost because it arose from a breach by Fluor of the subcontract.
  7. [23]
    For these reasons, nothing in Schedule 3 “provided otherwise”, to include any Excluded Cost within the costs for which Fluor was to be paid under the Contract.

The exclusions relied upon by Santos

  1. [24]
    Santos pleaded alternative bases for its case to recover MC Delay Costs.  The first was that they fell within items 5(vi) and/or 5(vii) in the definition of Excluded Costs.  The second was that, in the terms of the definition of Actual Costs in cl 1.1, these costs were not “properly incurred”, for the reason that they were costs which had to be incurred only as a result of Fluor’s failure to perform its contract.
  2. [25]
    The first of those bases depends upon the proper interpretation of cl 23 of the contract.

Clause 23

  1. [26]
    By cl 23.1, Fluor was required to achieve Mechanical Completion by the date for Mechanical Completion.
  2. [27]
    Clause 23.2 was as follows:

23.2 Delay

If [Fluor]considers that it has been or is likely to be delayed in:

  1. (a)
     performing any Work;
  1. (b)
     achieving Mechanical Completion by the relevant Target Date for Mechanical Completion; or
  1. (c)
     achieving Mechanical Completion by the relevant Date for Mechanical Completion,

[Fluor] must promptly give the Company a Notice setting out the nature, cause and likely extent of the delay (Delay Notice).”

  1. [28]
    Clause 23.3 permitted Fluor to make a claim for an extension of time in certain circumstances.  Clause 23.3(a) was as follows:

23.3 Extension of Time Claim

  1. (a)
     If a Delay Event occurs, subject to clauses 23.3(c) and 23.3(d), and [Fluor] is or will be delayed in achieving Mechanical Completion: …
  1. (2)
     by the relevant Date for Mechanical Completion,

by that Delay Event and [Fluor]:

  1. (3)
     gives Notice to [Santos] within five (5) Business days of the date [Fluor] became aware that the Delay Event had commenced with an initial assessment of the likely impact of the Delay Event; and
  1. (4)
     within forty (40) Business Days of the date [Fluor] became aware that the Delay Event had commenced, gives [Santos] a written claim for an extension of time to the relevant … Date for Mechanical Completion … which claim:
  1. (A)
     provides details of the Delay Event and the other facts on which the claim is based;
  1. (B)
     sets out the extension of time claimed; and
  1. (C)
     includes evidence demonstrating that the Work has been delayed as required by this clause 23.3 and the extent of such delay,

(Extension of Time Claim) then, subject to clauses 23.3(c), 23.3(d) and 23.3(i), [Fluor] will be entitled to an extension of time pursuant to clause 23.3(e) to the relevant … Date for Mechanical Completion …”.

  1. [29]
    The term “Delay Event”, in cl 23.3, was extensively defined in cl 1.1.  In effect, it was an event resulting in a delay, which was not caused by Fluor.  On the case for Santos, there was no Delay Event, so that Fluor was not entitled to claim an extension of time for achieving Mechanical Completion.  That was a critical circumstance for the question of whether cl 23, or any part of it, was engaged in this case.
  2. [30]
    Clause 23.3(b), (c), (d), and (e) were engaged only if there was a Delay Event.  Clause 23.3(f), (g) and (h) are of no present relevance.
  3. [31]
    Clause 23.3(i) was as follows:

“(i) If [Fluor] fails to give a Delay Notice or Extension of Time Claim in the form or within the time prescribed under clauses 23.2 or 23.3:

  1. (1)
     [Santos] is not liable for, or in connection with, any Claim by [Fluor]; and
  1. (2)
     [Fluor] is not entitled to claim and will be deemed to have irrevocably waived any right to make any Claim against [Santos] (to the extent [Santos] has been prejudiced or damaged by such delay or Delay Event),

arising out of, or in connection with, the relevant period of delay and the Delay Event.”

  1. [32]
    Clause 23.3(i) was engaged where Fluor failed to give a Delay Notice or an Extension of Time Claim in the form or within the time prescribed under cl 23.2 or cl 23.3.  The trial judge held that there was no failure by Fluor to give that Notice or that Claim.  He held that the purpose of cl 23.2 was to “provide an early warning to Santos of a possible Delay Event” and thereby, “of a possible Extension of Time Claim”.[7]  He said that in the context of provisions in cl 23, as well as cl 24 (which provides for liquidated damages for delay), the language used in cl 23.2 “should be construed as referring to the circumstance where Fluor has been or is likely to be delayed by Santos or … by some other factor outside the control or responsibility of Fluor”.[8]
  2. [33]
    Santos submits that this was an error by the judge, and that Fluor was obliged to give a Delay Notice regardless of the cause of the delay.  It submits that a Delay Notice could serve a further purpose than merely providing a warning of a likely Extension of Time Claim.  It submits that a delay in achieving completion, whatever its explanation, could have caused Santos to forego revenue that would otherwise have been derived if the facilities had been completed, and their commercial operations had commenced, on time.
  3. [34]
    The submission for Santos should be accepted.  Clause 23.2 did not refer to a Delay Event.  It was engaged in any circumstance in which Fluor considered that it had “been or was likely to be” delayed in (relevantly) “achieving Mechanical Completion by the relevant Date for Mechanical Completion”.  Notably, the requirement for Fluor to give a Delay Notice is found in a provision (cl 23.2), separate from cl 23.3, which is headed Extension of Time Claim.  According to its text and context, and having regard to the evident commercial purposes which would be served by such a Notice, even in the absence of a likely Extension of Time Claim, cl 23.2 should be interpreted as Santos argues.  Consequently, upon the facts pleaded by Santos, Fluor failed to give a Delay Notice as cl 23.2 required.
  4. [35]
    The question then is whether that was a failure to give a Delay Notice which engaged cl 23.3(i).  It was a further thing to say that Fluor’s failure to give a Delay Notice, absent the occurrence of a Delay Event, engaged cl 23.3(i).
  5. [36]
    Clause 23.3(i) was in the context of the contractual regime, the subject of several preceding provisions within cl 23.3, by which Fluor could obtain an extension of time.  That regime availed Fluor only where a Delay Event had occurred.  Necessarily, the occurrence of a Delay Event would have engaged cl 23.2, requiring Fluor to give a Delay Notice.  The question is whether cl 23.3(i) was engaged only by a failure to give a Delay Notice in the absence of a Delay Event.
  6. [37]
    Where cl 23.3(i) was engaged, it had two consequences.  The first was that Santos was not liable for, or in connection with, any “Claim” by Fluor “arising out of, or in connection with, the relevant period of delay and the Delay Event”.  The second was that Fluor was not entitled to claim, and was deemed to have irrevocably waived, any right to make any “Claim” against Santos, “arising out of or in connection with the relevant period of delay and the Delay Event”, to the extent “Santos had been prejudiced or damaged” by such delay or Delay Event.
  7. [38]
    The word “Claim” was defined in cl 1.1:

“any claim, action, suit, demand, proceeding, notice, litigation, investigation or judgment whether based in contract, tort (including negligence), statute or otherwise.”

The primary judge had accepted a submission for Santos that a Claim is the assertion of a right with some lawful basis, as well as meaning an underlying legal right.[9]

  1. [39]
    Under each alternative in cl 23.3(i), what was affected was a Claim “arising out of or in connection with, the relevant period of delay and the Delay Event.”  The use of the word “and”, rather than “or”, in that description of a Claim which is affected by this clause, is against Santos’s argument.  It strongly indicates that it was only a Claim which was made, or which might have been made, by Fluor which arose out of or in connection with a Delay Event which was affected by this clause.  That limitation is supported by the context, in which, as I have said, this provision appears.  The better view is, as the primary judge held, that cl 23.3(i) would be engaged only where a Delay Event had occurred.  The evident purpose of cl 23.3(i) was to prevent Fluor from being paid for the consequences of a Delay Event, where it had not given a Delay Notice of an Extension of Time Claim in the form or within the time prescribed under cls 23.2 and 23.3.  That was not this case.
  2. [40]
    At this point, something should be said about a part of the Judgment in which his Honour reasoned that, on Santos’s construction of cl 23.3(i), the clause would have operated as a penalty.[10]  In his Honour’s view, this fortified his conclusion to reject that construction.  For Santos, it is argued that it was denied procedural fairness on this point, of which it had no notice either by an argument for Fluor or from the judge during the hearing of the application.  Santos further argues that his Honour’s characterisation of the provision as a penalty, if construed according to its argument, was erroneous.
  3. [41]
    His Honour said that “[c]onstrued in [that] way, the remedy stipulated as a consequence of a failure to give the notice and claim is out of all proportion to the legitimate interest of Santos in the enforcement of Fluor’s obligation to give a Delay Notice (in certain circumstances) and Fluor’s right to claim an extension of time (in certain circumstances)”.[11]  He considered that “[s]o construed, cl 23.3(i) would be a secondary obligation imposing a detriment on Fluor for not giving a Delay Notice whether was Fluor was obliged to do so or not, and for not making an Extension of Time Claim whether it was entitled to do so or had no such right” so that “[i]t would not be a provision protective of a legitimate interest of Santos …[and] … might have no purpose other than to punish Fluor.”[12]
  4. [42]
    Santos argues that this reasoning was erroneous, because there was no “secondary obligation imposing a detriment on Fluor” for not giving a Delay Notice and for not making an Extension of Time Claim.  Rather, on Santos’s argument, cl 23.3(i) imposed a precondition to the accrual of a right, and a bar on making a claim, but that it would not result in any forfeiture of an existing contractual entitlement, so that the penalty doctrine is not engaged.[13]  That submission has considerable force.  However it is unnecessary to reach a concluded view about it, because of the construction of cl 23.3(i) which, regardless of this point, should be preferred.
  5. [43]
    Clauses 23.5 and 23.6 were relevantly as follows:

23.5 Sole remedy

Subject to clause 23.6, [Fluor] acknowledges that any entitlement of [Fluor] to an extension of time in respect of any Delay Event and any relief allowed under clause 23.2 will be [Fluor’s] sole remedy in respect of that Delay Event, and, except as provided in clauses 17 and 23:

  1. (a)
     [Fluor] will not be entitled to any adjustment to the Target Budget Estimate or Fee;
  1. (b)
     [Santos] is not liable for, or in connection with, any Claim by [Fluor]; and
  1. (c)
     [Fluor] is not entitled to make and is absolutely barred from making any Claim,

arising out of, or in connection with, the Delay Event or any delay and disruption to the progress of the Work.

23.6 Delay Costs

  1. (a)
     Where [Fluor] has been granted an extension of time under clause 23.3:
  1. (1)
     [Santos] will pay to [Fluor] its Actual Costs incurred by reason of the relevant Delay Event (Delay Costs); and

  1. (b)
     The Parties acknowledge that nothing in this clause 23.6 or item 1 of the definition of “Excluded Cost” set out in clause 1.1 precludes [Fluor] from claiming Actual Costs incurred after the Date for Mechanical Completion (including where Mechanical Completion is achieved after the Date for Mechanical Completion).”
  1. [44]
    Clause 23.5 referred to “any relief allowed under clause 23.2”.  That is evidently a mistaken reference.  Clause 23.2 made no provision for any relief.  (Possibly, this could be understood as a reference to cl 23.3(h), which preserved Fluor’s rights to damages for a failure to grant an extension of time to which it was entitled.)  Be that as it may, it is clear that the part of cl 23.5, which ends with the second reference to “that Delay Event”, could apply only where there was a Delay Event.  However there was the further part of cl 23.5, which exempted Santos from liability and precluded a Claim being made by Fluor, “arising out of, on in connection with the Delay Event or any delay and disruption to the progress of the Work.”
  2. [45]
    The primary judge held that the “delay and disruption to the progress of the Work” was a delay and disruption “associated with a Delay Event”.  Consequently, he held, cl 23.5 confined Fluor’s rights only where there had been a Delay Event.[14]
  3. [46]
    Santos argues for a different construction of cl 23.5.  It contends that if the parties had intended the clause to be confined to Delay Events, those additional words would not have been added.
  4. [47]
    Fluor’s argument points to the use of the definite article “the”, in the expression “the Delay Event”, as indicating a reference to the Delay Event which is referred to earlier in the clause.  That may be accepted, but the question is whether the alternative circumstance of “any delay and disruption to the progress of the Work” included a delay and disruption occasioned by something other than the occurrence of the Delay Event.
  5. [48]
    Fluor also argues that the word “Claim”, when used in cl 23.5, has a certain meaning, which would not extend to demands by Fluor for reimbursement of a cost under the contract.  I have set out earlier the definition of the word “Claim”.[15]  As I have said, the primary judge accepted a submission for Santos that a claim is the assertion of a right with some lawful basis, as well as meaning an underlying legal right.[16]  As Santos submits, the defined meaning of “Claim” is very broad and is apt to include a claim for reimbursement of costs under the contract.  The question then is whether the defined meaning of the word was altered by a displacing context or contrary intention.[17]  That question is to be considered in the context of the contract as a whole.  But if it was the case that the word had something other than its defined meaning in another provision of the contract, it would not follow that its defined meaning was displaced in this provision.  In my view, there is no good reason to displace the defined meaning where the word is used in cl 23.5.
  6. [49]
    It is evident that clauses 23.5 and 23.6 had a combined operation.  The former was an acknowledgment by Fluor that it was not entitled to make a claim upon Santos arising out of, or in connection with, a Delay Event or any delay and obstruction to the progress of the work.  The latter provision gave Fluor, when granted an extension of time, the entitlements specified in cl 23.6(a).  Relevantly, the first of those entitlements was to the payment by Santos of Fluor’s Actual Costs incurred by reason of the relevant Delay Event.  The entitlement granted by cl 23.6 was narrower than the acknowledged disentitlement under cl 23.5.  The combined effect of the provisions was to confine Fluor’s remedies, arising out of or in connection with a delay to the progress of the work, to where there had been a Delay Event.  In that case, Fluor’s remedies were limited to an extension of time and (relevantly) the payment of the so-called Delay Costs.
  7. [50]
    At the hearing before the primary judge, there was evidence in the form of a report from a Mr Rae, in which there was an explanation of, amongst other things, the nature of the costs which constituted the MC Delay Costs.  Mr Rae also identified the other potential consequences for Fluor from a delay, such as a loss of opportunity to earn a contribution from deploying its key resources on other projects, and the burden of additional financing costs and inflationary costs.  The primary judge said that a claim by Fluor against Santos for those things would be a claim that arose out of, or in connection with, the delay and the Delay Event.[18]  The judge held that Fluor might only recover such costs to the extent that they were within the scope of “Delay Costs”, as defined in cl 23.6.[19]  In his Honour’s view, time related indirect costs, such as the MR Delay Costs the subject of this appeal, would not be Delay Costs, but would be recoverable instead as Actual Costs which Santos was liable to pay under the contract.
  8. [51]
    I am unable to accept that interpretation.
  9. [52]
    Delay Costs were Actual Costs of a certain kind, namely those incurred by reason of a relevant Delay Event.[20]  That is a description which would accommodate the MC Delay Costs in this case (if there had been a Delay Event).  Time related indirect costs, incurred only because of a delay in the achievement of Mechanical Completion, would be Actual Costs incurred by reason of the relevant Delay Event.  It may be accepted that, as the judge said, costs in the nature of loss of opportunity, financing costs and inflationary costs would also be costs which had the necessary causal nexus with a Delay Event, under cl 23.6(a)(1).  However they were not the only costs which might have met the description in this provision.
  10. [53]
    Clause 23.6(b) must then be considered.  The parties there acknowledged that nothing in cl 23.6 or item 1 of the definition of Excluded Costs in cl 1.1 precluded Fluor from claiming Actual Costs incurred after the date for Mechanical Completion (including where Mechanical Completion was achieved after the date for Mechanical Completion).  There is no reason to consider that the term Actual Costs in this context had something other than its defined meaning.  Consequently, it did not include Excluded Costs.  Clearly, the other items in the definition of Excluded Costs could still apply to affect what constituted the Actual Costs in this context.  In this provision, the parties merely acknowledged that the timing of the incurring of an Actual Cost, being after the date for Mechanical Completion, would not matter if the cost was otherwise to be reimbursed.
  11. [54]
    Returning to cl 23.5, the better view is that the exclusions described in (a), (b) and (c) were those with the requisite connection with a Delay Event, or any delay and disruption to the progress of the Work whether or not a Delay Event had occurred.  That accords with the text of cl 23.5.  Its evident purpose was to confine Fluor’s remedies, for the effect of a delay, to where those had been a Delay Event.  As Santos submits, cl 23.5 was a negative stipulation precluding Fluor from claiming a reimbursement of costs which were incurred by reason of a delay and disruption to the progress of the Work where no extension of time could have been claimed and granted.

Clause 24

  1. [55]
    The primary judge held that the sole consequence of Fluor failing to achieve Mechanical Completion by the due date was that it might be liable to pay Santos liquidated damages under cl 24 of the contract.[21]
  2. [56]
    Clause 24.1(a) provided that if Fluor did not achieve Mechanical Completion by the relevant date, Fluor had to pay liquidated damages to Santos in an amount calculated by the application of certain rates set out in item 10 of Schedule 1 of the contract.  The rates were expressed as certain monetary amount amounts per day for the relevant period of delay.  In no sense were the damages to be quantified by reference to the extent to which Fluor’s costs, to be reimbursed by Santos, had increased by reason of the delay.  By cl 24.2 and item 12 of Schedule 1, liquidated damages for a delay in achieving Mechanical Completion were capped at an amount of $15 million.
  3. [57]
    By cl 24.5, Fluor acknowledged that the liquidated damages represented Santos’s genuine pre-estimate of the damages likely to be suffered by Santos as a result of Fluor failing to achieve Mechanical Completion by the relevant date, and that the liquidated damages would not be construed as penalties.  It was further agreed that if Fluor’s liability to pay liquidated damages was deemed to be, or became void, voidable or unenforceable in any way, then Santos would be entitled to recover from Fluor damages suffered by Santos, although subject to the same cap.
  4. [58]
    Clause 24.7 relevantly provided:

24.7 Sole remedy for failure to achieve Mechanical Completion

  1. (a)
     Subject to clause 24.7(b), the Parties agree that Mechanical Completion Liquidated Damages are [Fluor’s] sole liability and [Santos’s] exclusive remedy for any failure by [Fluor] to achieve Mechanical Completion of a Part by the relevant Date for Mechanical Completion.”
  1. [59]
    Santos submits that cl 24.7 limited its remedy, and Fluor’s corresponding liability, for Fluor’s failure to perform a contractual obligation, and that the clause said nothing Fluor’s entitlement to be paid its costs for the performance of the work.  It submits that the relevant part of its claim is not to enforce a remedy for a breach of contract.  Rather, Santos is seeking to recover monies paid as a result of an error discovered in previous Payment Certificates, which is a remedy provided by cl 29.4 of the contract.
  2. [60]
    Further, the respondents have pleaded that the whole of cl 24 was void for uncertainty.  That is disputed by Santos.  But if the respondents succeeded, Santos submits that cl 24.7 could not have the effect which the judge attributed to it.
  3. [61]
    The principal argument for Santos should be accepted.  If the MC Delay Costs did not have to be paid by Santos, that did not represent a remedy which Santos enjoyed and a liability with which Fluor was burdened.  Rather, it was a reduction of the contract price by the operation of the pricing terms of the contract.  The burden of these costs, which were incurred through the fault of Fluor, was to remain with Fluor.  On Santos’s case, Fluor has a liability to repay these monies.  But that is not a liability for a failure to achieve Mechanical Completion.  It is a contractual liability, or alternatively a restitutionary liability, arising from payments mistakenly made upon an erroneous Payment Certificate or Certificates.  Consequently, cl 24.7 provided no bar to the present claim.
  4. [62]
    Nor, more generally, does the existence of that remedy affect the proper interpretation of the pricing provisions.  The remedy of liquidated damages was expressly intended to represent an estimate of the damages likely to be suffered by Santos as a result of a failure by Fluor to complete Mechanical Completion by the relevant date.  It was not expressed to be an estimate of the damage likely to be suffered as a result of having to pay a higher price for the work, because of that delay.

The exclusions

  1. [63]
    Santos pleaded that the MC Delay Costs were excluded by items 5(vi) and 5(vii).  Only the former need be considered.
  2. [64]
    Upon what I see as the correct interpretation of cl 23.5, and upon the premise of the facts pleaded by Santos, Fluor’s claim for the MC Delay Costs was precluded under the contract, because that was a claim arising out of, or in connection with, some delay and disruption to the progress of the work.  The causal nexus between the delay and the costs was more direct, because on the premises of Santos’s pleading, these were costs which were wholly attributable to the delay, and which increased according to the extent of that delay.
  3. [65]
    Consequently, the respondents should not have been given summary judgment for this part of Santos’s claim.

“Properly incurred” costs

  1. [66]
    The alternative plea was that these were not costs which were “properly incurred”, in the terms of the definition of Actual Costs in cl 1.1.  Because of my conclusion in favour of Santos on its first argument, this point may be discussed briefly.
  2. [67]
    In paragraph 19 of the pleading,[22] it was pleaded that in certain premises set out earlier in the pleading, the MC Delay Costs were not costs properly incurred, and therefore were not Actual Costs which Fluor was entitled to be paid under the contract.  At the hearing before the primary judge, counsel for Santos said that it was proposed to amend paragraph 19, by adding some further paragraphs to those which were the stated premises for the allegation in paragraph 19, and by adding the words “and reasonably” after the word “properly”.  (That second foreshadowed amendment was apparently inspired by the definition of Actual Costs in Schedule 3.1, which I have set out earlier at [13].)
  3. [68]
    As to the factual premises of this allegation, they were the facts pleaded in the advancement of Santos’s primary case that, for one or more reasons, the MC Delay Costs were Excluded Costs and on that basis, not recoverable by Fluor.  Yet the allegation that they were not costs properly incurred by Fluor in performing the work was made “further or alternatively” to the allegation that they were Excluded Costs.  Understandably, the judge thought that this called for some explanation.  Counsel then appearing for Santos informed the judge that, for this alternative claim, Santos relied upon Fluor’s failure to meet its contractual obligation to achieve Mechanical Completion by the relevant dates and Fluor’s failure to submit a compliant Delay Notice or Extension of Time claim in relation to the delays.[23]  That was a case based upon a suggested interpretation of cl 23.3(i) which, I have agreed with the primary judge, was to be rejected.  Unsurprisingly, the judge observed that there was no plea that the costs were unreasonably incurred, on any basis which would require a factual inquiry at a trial.
  4. [69]
    In this Court, this alternative case is described differently.  It is submitted that they were not properly incurred costs, because they were amounts which Fluor should not have had to incur, and would not have been incurred if Fluor had not breached its obligation to achieve Mechanical Completion by the relevant dates.
  5. [70]
    The respondents argue that this is not a basis for concluding that the costs were not properly incurred.  They submit that costs which had to be incurred, were properly incurred.  Fluor may have been late in completing the work, but after the due dates for Mechanical Completion had passed, the work still had to be completed and these costs had to be incurred to achieve that result.
  6. [71]
    As should appear, the parties prescribed, at some length, the categories of costs which were to be excluded from those which could be recovered by Fluor as part of the contract price.  Many of them are costs, of which it could be said, that Fluor should not have had to incur.  This makes it less apparent that it was intended that costs of that kind should also be excluded by the words “properly incurred” in the definition of Actual Costs.  Rather, by that definition, it was apparently agreed that costs of that kind would be “actual costs properly incurred”, unless they were Excluded Costs.  The better view would seem to be that Fluor’s interpretation should be accepted.

The judge’s dismissal of other claims

  1. [72]
    The primary judge relevantly ordered as follows:

“Summary judgment for the Fluor parties against Santos, pursuant to r 293, on the parts of [Santos’s] claim that:

  1. (i)
     Santos is entitled to recover under the EPC from Fluor or that Fluor is required to repay to Santos the time-related overhead costs incurred by Fluor in performing the work required to be completed in order to achieve Mechanical Completion of the water production system and the Hub-compressor facility for each of Hubs 2, 4 and 5; and
  1. (ii)
     The amount of such costs forms part of the Guaranteed Money that Fluor Corp is liable to pay to Santos under the Guarantee or is a loss against which Fluor Corp has indemnified Santos under the Guarantee.”
  1. [73]
    The respondents agree that this went further than the order which was sought by their application.  The respondents sought an order that they be given judgment in respect of the claims made by Santos in paragraph 9(b)(i)A and paragraphs 16, 17, 18 and 19 of the pleading.  They were the parts which pleaded the case for the MC Delay Costs.
  2. [74]
    The MC Delay Costs comprised only some of the “time-related overhead costs incurred by Fluor” in relation to work on the hubs.  Some of the time related overhead costs incurred by Fluor related to work completed before the contractual dates for Mechanical Completion and were the subject of separate claims by Santos in other parts of its pleading.  The recovery of those amounts is sought by Santos upon grounds which include that they were costs incurred by Fluor because of its breach of subcontracts, and were therefore Excluded Costs within the scope of item 2 of the definition of that term.
  3. [75]
    The respondents conceded that the appeal should be allowed on this basis, to confine the judgment to the terms of their application, and they provided a draft judgment to that effect.  I would allow the appeal, refuse the application for summary judgment, so that this point might appear to be of no present relevance.
  4. [76]
    However, in my view it did provide a further reason for why the application for summary judgment, limited as it was, ought to have been refused.  If Santos is correct in saying that a substantial part of the time-related costs incurred by Fluor was the subject of these other parts of its pleading, and that its principal ground for recovering them from Fluor is that they fell within item 2 of the definition of Excluded Costs, at least some of the questions of the interpretation of the contract, which are discussed in this judgment, would be relevant.  A conclusive determination of issues, within this application, might bind the parties in the litigation of the same issues in relation to other parts of the claim, if the determination of those issues was essential to the outcome of the present application.  It would have been undesirable that only some parts of Santos’s case, but which were affected by those issues, to be the subject of a final decision ahead of the determination of the other relevant parts of the case.  Alternatively, if there could have been no issue estoppel, it would have been undesirable to determine issues within this application which might have to be re-litigated.

Orders

  1. [77]
    I would order as follows:
  1. Appeal allowed.
  1. Set aside the orders made on 15 December 2020.
  2. Refuse the application filed on 11 November 2019.
  3. Order the respondents to pay the appellant’s costs of the appeal and of that application.
  1. [78]
    MULLINS JA:  I agree with McMurdo JA.
  2. [79]
    DAVIS J:  I agree with McMurdo JA.

Footnotes

[1] Clause 4.2(b).

[2] Clause 4.2(b)(1).

[3] Clauses 20.1(a)(3); 21.1(b); 23.1(b).

[4] Santos Limited v Fluor Australia Pty Ltd & Anor (No 1) [2020] QSC 372 (Judgment).

[5] See above at [15].

[6] Judgment [48], [55], [56] and [59].

[7] Judgment [101].

[8] Judgment [101].

[9] Judgment [107].

[10] Judgment [119]-[121].

[11] Judgment [120].

[12] Judgment [121].

[13] Citing Interstar Wholesale Finance Pty Ltd v Integral Home Loans Pty Ltd (2008) 257 ALR 292 at 316-319.

[14] Judgment [127].

[15] At [38].

[16] Judgment [107].

[17] Perpetual Custodians Ltd v IOOF Investment Management Ltd (2013) 304 ALR 436 at 437 per Leeming JA (McColl and Gleeson JJA agreeing).

[18] Judgment [129].

[19] Judgment [123].

[20] Clauses 1.1; 23.6(a)(1).

[21] Judgment [63].

[22] The second amended statement of claim filed by Santos on 31 October 2018.

[23] Judgment [151].

Close

Editorial Notes

  • Published Case Name:

    Santos Limited v Fluor Australia Pty Ltd & Anor

  • Shortened Case Name:

    Santos Limited v Fluor Australia Pty Ltd

  • MNC:

    [2021] QCA 204

  • Court:

    QCA

  • Judge(s):

    McMurdo JA, Mullins JA, Davis J

  • Date:

    24 Sep 2021

Appeal Status

Please note, appeal data is presently unavailable for this judgment. This judgment may have been the subject of an appeal.

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