Australia’s dispute resolution reputation on the line following long-running legal saga

Santos Pty Ltd (Santos) opened proceedings in its long-running construction dispute with Fluor Australia Pty Ltd (Fluor) almost nine years ago. Santos was seeking to recoup more than A$1.4 billion dollars (approx. US$907.7 billion), which it identified as having been incorrectly paid to Fluor under a reimbursable cost contract after the project’s completion.

The court decided to adopt a report prepared by three referees of the parties’ dispute about cost overruns on the construction of a coal-seam gas project in Gladstone, Queensland, save for some minor variations and qualifications. The decision is a green tick for the referral process in Australia, but also calls into question whether parties who elect not to include arbitration agreements in their contract can still reasonably expect their disputes to be heard justly and fairly in a court.

Australia’s international reputation as a safe space to do business may have also been disrupted by the 845-page decision.

In February 2021, the court ordered that the bulk of the substantive dispute be referred to three referees – a process available under the Uniform Civil Procedure Rules 1999 (Qld) as a means of easing the judicial system’s increasing workload.

Despite Fluor’s objections to the referral and following a 62-day hearing as part of the referral process, the referees delivered a draft report in March 2023, followed by their finalised report in July 2023. The referees’ report found largely in favour of Santos, upholding its claims for overpayments in the order of more than A$660 million to Fluor.

In April 2023, following the delivery of the draft report, Fluor applied for orders that the original referral order be set side or, alternatively, that the report be rejected, alleging that the reference process was affected by apparent bias and by a lack of procedural fairness, and had become a miscarriage of justice. Santos applied to have the final report adopted by the court.

Although it rejected Fluor’s apprehended bias and lack of procedural fairness claims, the court recognised that some of the comments made by the referees in their report took a stance that was gratuitous and showed aversion to Fluor, its legal team and witnesses.

Despite this, and unfortunately for Fluor, the court also ruled that a fair-minded and reasonable observer would consider the comments as the result of a long, voluminous and hard-fought battle, and would not apprehend bias. The comments did not indicate that the referees had made any decisions affecting the respective parties’ interests prior to going into that battle, according to the court.

The decision highlights the difficulty in bringing claims for procedural fairness and bias. 

Those involved in the referral process need to be mindful that their litigation pain may not end following the delivery of the referee’s report, with the court’s decision whether to adopt the report or otherwise potentially coming at considerable further time and cost.

In this long-running dispute, the hearing of the parties’ respective applications as to whether the court should adopt the report involved over 1,100 pages of written submissions and a further 43 sitting days for the hearing in what had already been described as “monumental” litigation.

Those delivering construction projects need to be wary of reimbursable contract models - as distinct from cost-plus contract-models - and the ability of principals to recoup payments following any auditing process, while ensuring there is close scrutiny of payment certification regimes and audit rights.

Co-written by Lauren Cruickshank of Pinsent Masons.