defendant. The defendants obtained judgment under r 293 on the specified parts of Santos’ claim and Santos was ordered to pay their costs of those parts, including the application.
Key principles
Under UCPR r 293, a defendant may obtain summary judgment on part of a claim where the plaintiff has no real, as opposed to fanciful, prospect of succeeding and there is no need...
On the proper construction of this EPC, clauses 23.3(i) and 23.5 did not extinguish Fluor’s right to payment of Contract Price for Work performed, including Actual Costs incurred...
Clause 23.3(i) applies when a notice or claim was required or available in the circumstances and Fluor failed to give it. It did not apply merely because no notice or...
The time-related costs at issue were part of the Contract Price calculated under Schedule 3. They were not Excluded Costs on the grounds pleaded and were not shown to fall...
Issues before the court
Whether Santos had a real prospect of recovering the MC Delay Costs under the EPC by relying on clauses 23.3(i) and 23.5.
Whether the MC Delay Costs were Excluded Costs or were not Actual Costs.
Plain English Summary
Santos had paid Fluor for costs associated with completing project facilities after the contractual completion dates. Santos tried to recover those payments by arguing the EPC barred them because Fluor had not given delay notices or extension-of-time claims. The court held that the relevant clauses were about claims for additional losses caused by a Delay Event, not the agreed payment for work actually performed. Since Santos’ pleaded case did not establish that the costs were excluded or improperly incurred, the court ended that part of the claim without a trial and awarded the defendants their costs.
AI-generated legal information, not legal advice. Zoe can make mistakes. Check the cited source, and for advice about your situation consult a qualified Australian lawyer.
Deep Dive
2,466 words · generated 28/09/2026
What happened
Santos was developing the GLNG Project, involving coal seam gas facilities in the Surat Basin. Under an Upstream EPC Contract, Fluor Australia Pty Ltd agreed to engineer, procure and construct facilities, including water-production systems and hub-compressor facilities at Hubs 2, 4 and 5. Fluor Corporation, Fluor Australia’s ultimate holding company, had separately entered into a Guarantee with Santos. Santos said the Guarantee covered relevant payment obligations and losses. The judgment records those arrangements at [3]–[5].
Whether summary judgment was appropriate despite the usual opportunity to have a claim tried.
Cited legislation
No linked legislation citations have been extracted yet.
The dispute concerned payments associated with work continuing after the dates set for Mechanical Completion. Santos alleged that it had paid Fluor time-related overhead costs for work needed to complete the relevant facilities after those dates. It calculated the claimed amount at about $475 million ([2], [72], [76]). Santos characterised the sum as costs caused by the additional time taken to finish the work, rather than costs directly dependent on the amount of work performed ([73]–[75]).
Santos pleaded that the costs were recoverable as overpayments under the EPC. Its routes included that the costs were “Excluded Costs”, were not “Actual Costs”, or were otherwise not payable because Fluor had failed to meet completion dates and had not submitted Delay Notices or Extension of Time Claims ([81]–[83], [92]–[94]). It also sought corresponding relief against Fluor Corporation under the Guarantee.
The Fluor parties applied for summary judgment on this part of the claim. Bradley J treated the relevant factual allegations as capable of being proved by Santos, including late completion, the absence of notices or claims, continued work after the relevant dates and payment of time-related costs ([85]–[87]). The application therefore turned principally on whether those assumed facts, together with Santos’ proposed construction of the EPC, could support recovery.
The court granted summary judgment under UCPR r 293. It ordered judgment for the defendants on the claims for repayment of those costs and on the corresponding Guarantee claim. Santos was ordered to pay the defendants’ costs of those parts, including the application ([164]).
Why the court decided this way
The court began with the summary judgment threshold. Under r 293, judgment may be given to a defendant on part of a claim if the plaintiff has “no real prospect of succeeding” and there is “no need for a trial” of that part ([18]). These are separate inquiries: a claim may lack real prospects, and a trial may also be unnecessary because the key issue can be resolved without factual evidence being tested ([19]). The court noted the ordinary caution against depriving a party of a trial, while also recognising the purpose of avoiding unnecessary delay and expense ([20]).
The central question was contractual construction. The court treated the EPC as a commercial agreement and applied the approach that its words mean what reasonable business people in the parties’ positions would have understood them to mean, considering the commercial purpose, background and context ([31]). It considered the contract’s payment structure, which made the Contract Price comprise Actual Costs, the Fee and applicable Incentives ([36]). Schedule 3 set out the mechanisms for reimbursing several categories of costs, including indirect home-office services, indirect field costs and owners’ costs ([40]–[59]).
The court distinguished payment for carrying out the Work from additional claims for losses caused by delay. The EPC required Fluor to perform the Work and defined it broadly to include the work and activities needed to complete and hand over the Facilities ([34]–[35]). Fluor’s remuneration for that performance was determined through the agreed Contract Price and Schedule 3 mechanisms ([36], [40]–[43]). The court regarded the time-related costs claimed by Santos as costs associated with performing the Work, not as a separate claim Fluor had made for delay-related loss ([123], [131]).
Clause 23.3(i) did not operate simply because Fluor had not given a Delay Notice or Extension of Time Claim. Bradley J read the clause in its contractual context. Clause 23.2 required a Delay Notice where Fluor considered that it had been or was likely to be delayed in specified ways; clause 23.3 dealt with claims for extensions of time following a Delay Event ([98]–[103]). The court concluded that Fluor could fail to give a notice only where the circumstances required it, and could fail to give an extension-of-time claim only where the circumstances entitled it to make one ([103]).
That mattered because Santos did not allege a Delay Event of the kind that could trigger the extension-of-time provisions. The EPC’s definition excluded an event that would not have occurred but for Fluor’s breach, negligence or act or omission ([69], [113]). Santos’ case was instead that Fluor had failed to complete on time and had not submitted the relevant notices or claims ([137]). On that pleaded case, the contractual machinery did not establish that Fluor had lost the right to payment for Work performed.
The court also rejected Santos’ proposed reading of the phrase “arising out of, or in connection with” in clause 23.3(i). Santos argued that the provision could capture any claim for payment connected with work carried out during a delay. The court considered the consequences of that construction across different scenarios, including delay caused by Santos and delay caused by Fluor ([118]–[120]). It concluded that Santos’ reading could deprive Fluor of payment for work even where Fluor had no contractual duty to make the relevant notice or claim. In the court’s view, that result was disproportionate to the purpose of the notice and extension-of-time provisions and did not reflect the EPC’s commercial context ([120]–[122]).
Clause 23.5 did not produce a different result. Its purpose, as the court understood it, was to constrain additional claims arising from a Delay Event, while encouraging Fluor to seek an extension of time when entitled to do so. The clause did not serve that purpose by removing Fluor’s right to be paid for Work performed under Schedule 3 when Santos caused delay ([127]–[133]). The court summarised the arrangement as allowing payment for Actual Costs, including costs incurred after a completion date, while separately providing for Delay Costs, extensions of time and liquidated damages ([135]).
Nor did Santos’ alternative labels for the costs make the claim viable. The pleaded bases for treating them as Excluded Costs were clauses 23.3(i) and 23.5. Because those clauses did not preclude Fluor from claiming payment for the relevant work costs, the pleaded exclusion did not apply ([142]–[146]). The Actual Costs argument depended on the same allegations of late completion and absent notices. Santos did not allege that Fluor had not incurred the costs, or that they were unreasonable on some other factual basis ([150]–[155]). The assumed facts therefore did not require a trial on whether the costs were Actual Costs.
Finally, although Santos said some overlapping costs might be pursued on another basis, the extent of any resulting trial evidence was not developed on the application ([157]–[159]). The court considered it contrary to the procedural objective of resolving real issues efficiently to require the parties to gather evidence and expert material about a claim that had no real prospect of success ([160]–[162]).
Before and after state of the law
The judgment did not purport to create a general rule that contractors are always entitled to payment for costs incurred after contractual completion dates. Its conclusion was expressly grounded in the wording and structure of this EPC, including the Work definition, Contract Price provisions, Schedule 3 payment mechanisms, delay provisions and liquidated-damages provisions ([31]–[43], [61]–[71]).
The procedural framework applied was also established rather than novel. The court stated the r 293 test by reference to the “real, as opposed to a fanciful” prospect of success formulation and emphasised that prospects and the need for trial are separate considerations ([18]–[20]). It also recognised the caution required before ending proceedings summarily, while explaining that a pleading should not survive where its legal premise cannot support a cause of action ([23]–[28]).
The judgment’s contribution is its application of those principles to this contract. In particular, it separates contractual payment for work performed from claims for additional delay-related loss. On this EPC, the court read clauses 23.3(i) and 23.5 as limiting claims associated with a Delay Event, rather than as eliminating the price payable for Work under Schedule 3 ([131]–[135]). That reasoning depends on the language and commercial scheme before Bradley J; it should not be detached from that context.
The EPC also contained a capped liquidated-damages regime for failure to meet Mechanical Completion dates. The damages were capped at $15 million and described as a genuine pre-estimate of likely loss; the contract made them Fluor’s sole liability and Santos’ exclusive remedy for the specified failure ([62]–[63]). Those provisions informed the court’s rejection of a construction that would impose a much broader financial consequence through the notice provisions ([120]–[121]).
Key passages with plain-English translation
At [19], the court described the prospects test as whether there is “a real, as opposed to a fanciful, prospect of success”. In plain English, a claim does not have to be certain to survive summary judgment, but it must have a genuine basis rather than a merely theoretical one. The court separately asked whether a trial was needed, because factual disputes or the need to test evidence may justify trial even where prospects are considered separately ([19]).
At [103], Bradley J said Fluor would fail to give a notice only where circumstances required one, and would fail to give a claim only where circumstances entitled Fluor to make one. This means that the mere absence of a notice was not enough to activate the clause. The contract first had to create a duty or opportunity to give the relevant notice or claim.
At [124], the court construed a claim arising from the delay and Delay Event as a loss, damage or right that Fluor could assert because of the delay and to which it had no entitlement otherwise, including under the EPC. In practical terms, the provision was directed to additional rights or losses generated by delay, not ordinary payment for contracted work that the EPC already required Santos to pay.
At [133], the court said the parties’ agreement to exclude liability for and bar a Claim did not alter Fluor’s right to be paid the Contract Price for performing the Work. This is the central contractual distinction in the judgment: payment for carrying out the scope of work was separate from a claim for additional delay-related compensation.
At [135], the court summarised the scheme. Fluor could be paid Actual Costs for work performed after a completion date; delay could also give rise to extensions, Delay Costs and liquidated damages under their respective provisions. The court did not treat the completion-date obligation as cancelling the agreed payment mechanism for work actually performed.
What fact patterns trigger this precedent
The judgment is most relevant where a contract contains distinct provisions for payment for work performed, extensions of time, delay-related costs and liquidated damages, and a party argues that non-compliance with a notice regime removes the contractor’s underlying right to payment. The analysis is especially pertinent where the relevant clause operates only after a specified event or where the contract defines which delay events qualify.
The decision is also relevant where a claimant seeks summary judgment to end part of a claim that depends mainly on contract construction. Here, the defendants did not have to disprove every factual allegation. Bradley J assumed several allegations could be proved and asked whether they could support the pleaded legal conclusions ([85]–[87]). A legal construction that cannot carry the claim may therefore be decisive even where some surrounding facts are disputed.
The case should not be treated as deciding that all post-deadline costs are payable, or that contractual notice provisions are generally ineffective. The outcome turned on this EPC’s language, including the requirement that a Delay Event occur, the limits on when notices and claims were required or available, the Schedule 3 cost-recovery arrangements and the separate liquidated-damages regime ([97]–[103], [127]–[135]). Different wording, a different pleaded Delay Event, or a different contractual allocation of costs could affect the analysis.
How later courts have treated it
The supplied judgment contains no account of later decisions considering or applying Santos Limited v Fluor Australia Pty Ltd & Anor (No 1). It was delivered on 15 December 2020, and the text supplied here identifies authorities considered by Bradley J but does not provide later case treatment. Accordingly, later adoption, distinction or qualification cannot be established from this source alone.
The judgment itself relies on earlier authorities for the summary judgment and pleading principles, and on authorities concerning commercial contract construction. For example, it cites Queensland University of Technology v Project Constructions for the real-prospect test ([19]), Agar v Hyde and Batistatos for caution about summary termination ([23]–[24]), and Electricity Generation Corporation v Woodside Energy Ltd and Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd for commercial contract interpretation ([31]). Those citations explain the legal framework Bradley J applied; they are not evidence of how later courts treated this judgment.
Still-open questions
The supplied decision leaves the position under differently worded contracts open. It decides the effect of this EPC’s provisions, rather than the effect of every clause barring claims made without notices or extensions of time. A later court would need to examine the actual wording, the defined triggering events, the payment mechanism and the relationship between any delay regime and the underlying price obligation.
The judgment also does not decide a claim based on a pleaded Delay Event that was actually caused by Santos or another event outside Fluor’s control. Bradley J noted that Santos did not allege such an event in support of this claim ([137]–[139]). The reasoning describes how the clauses might operate in that setting, but the application did not require a final determination of a fact pattern involving an established Delay Event.
Nor did the court decide the merits or calculation of any other overlapping costs claim Santos might pursue. Santos said some costs could be recoverable on another basis, but the application did not establish how much evidence would remain necessary or how that alternative case would be pleaded and proved ([157]–[159]). The ruling was confined to the MC Delay Costs Claim described in the orders.
Finally, the decision does not determine every possible question about whether particular items would qualify as Actual Costs under different evidence or contractual provisions. Santos’ pleaded case did not allege that Fluor had failed to incur the costs or provide another factual basis for saying they were unreasonable ([150]–[155]). The court therefore resolved the pleaded challenge before it, not all possible disputes about individual cost items under the EPC.
This is general legal information, not legal advice. Zoe can make mistakes. Before you act on this, rely on it, or use any draft, have a qualified Australian lawyer check it.
Catchwords
PROCEDURE – CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS –ENDING PROCEEDINGS EARLY – SUMMARY DISPOSAL –SUMMARY JUDGMENT FORDEFENDANT OR RESPONDENT: STAY OR DISMISSAL OF PROCEEDINGS – where theplaintiff and first defendant enteredinto a contract by which the firstdefendant agreed to engineer, procure and construct certain facilities for theplaintiff –where the first defendant failed to achieve mechanicalcompletion of certain of the facilities by the date for mechanical completionunder the contract – where the first defendant was paid costs it incurredperforming work to complete the facilities, includingcosts incurred after therelevant dates for mechanical completion, by the plaintiff – where theplaintiff claims that it overpaidthe first defendant sums attributable to theadditional time taken to achieve mechanical completion of the facilities, on thebasesthat those sums were “Excluded Costs” and/or not “ActualCosts” under the contract – where the defendantssay that, on theproper construction of the contract, the first defendant was entitled to be paidthe costs it incurred performingwork to complete the facilities, whether or notincurred after the relevant date for mechanical completion – where thedefendantsapplied for summary judgment on the plaintiff’s“Mechanical Completion Delay Costs Claim” – whether theplaintiffhas real, as opposed to fanciful, prospects of proving the claim attrialUniform Civil Procedure Rules 1999 (Qld), r 5, r 171, r 293Agar v Hyde [2001] HCA 41(2000) 201 CLR 552, citedBatistatos v Roads andTraffic Authority (NSW) [2006] HCA 27(2006) 226 CLR 256, citedDey v VictorianRailways Commissioners (1949) 78 CLR 62, citedElectricityGeneration Corporation v Woodside Energy Ltd [2014] HCA 7(2014) 251 CLR 640,citedGeneral Steel Industries Inc v Commissioner for Railways(NSW) [1964] HCA 69(1964) 112 CLR 125, citedGray v Morris [2004] QCA 5[2004] 2 Qd R118, citedHalford v Price (1960) 105 CLR 23, citedLee vAbedian [2016] QSC 92[2017] 1 Qd R 549, citedMount Bruce Mining Pty Ltd v WrightProspecting Pty Ltd [2015] HCA 37(2015) 256 CLR 104, citedQueensland University ofTechnology v Project Constructions (Aust) Pty Ltd (in liq) [2002] QCA 224[2003] 1 Qd R259, citedWilliams & Humbert Ltd v W & H Trade Marks (Jersey) Ltd[1986] 1 AC 368, cited
Judgment (328 paragraphs)
[1]
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 plaintiff and first defendant entered into a contract by which the first defendant agreed to engineer, procure and construct certain facilities for the plaintiff - where the first defendant failed to achieve mechanical completion of certain of the facilities by the date for mechanical completion under the contract - where the first defendant was paid costs it incurred performing work to complete the facilities, including costs incurred after the relevant dates for mechanical completion, by the plaintiff - where the plaintiff claims that it overpaid the first defendant sums attributable to the additional time taken to achieve mechanical completion of the facilities, on the bases that those sums were "Excluded Costs" and/or not "Actual Costs" under the contract - where the defendants say that, on the proper construction of the contract, the first defendant was entitled to be paid the costs it incurred performing work to complete the facilities, whether or not incurred after the relevant date for mechanical completion - where the defendants applied for summary judgment on the plaintiff's "Mechanical Completion Delay Costs Claim" - whether the plaintiff has real, as opposed to fanciful, prospects of proving the claim at trial
Williams & Humbert Ltd v W & H Trade Marks (Jersey) Ltd[1986] 1 AC 368, cited
[14]
G A Thompson QC, with J Baartz and B Kabel, for the defendants
[15]
[1] The defendants (the Fluor parties) seek summary judgment against the plaintiff (Santos) on part of the claim (the MC Delay Costs Claim). Alternatively, the Fluor parties apply for an order striking out the paragraphs in which Santos pleads the basis for the MC Delay Costs Claim.
[2] Santos commenced this proceeding on 13 December 2016. In it, Santos seeks various kinds of relief. Amongst them Santos seeks orders that the Fluor parties pay Santos an amount that includes the equivalent of about $475 million (the MC Delay Costs).[1] As an alternative,[2] Santos proposes to pursue declarations: that Fluor was not entitled to be paid the MC Delay Costs; that, subject to Santos taking certain steps, Fluor is required to repay the MC Delay Costs to Santos; and that, as guarantor of Fluor's obligation, Fluor Corp is required to pay the same amount to Santos. These parts are referred to as the MC Delay Costs Claim.
[16]
[3] Santos was the proponent of a project to extract coal seam gas from the Fairview and Roma fields in the Surat Basin and supply it for commercial sale or for conversion to liquefied natural gas (the GLNG Project).
[4] On 13 January 2011, Santos agreed with the first defendant (Fluor) that Fluor would engineer, procure and construct the upstream facilities for the GLNG Project. These facilities included three new gas compression plants (Hub 2, Hub 4 and Hub 5), modifications to existing gas compression facilities, new drill-ready surface locations and associated infrastructure, roads, lay-down areas, high voltage transmission lines and other facilities. Later, Santos and Fluor agreed the terms and conditions of this agreement were those set out in an Upstream EPC Contract (the EPC) attached to a deed dated 26 August 2011.[3]
[5] The second defendant (Fluor Corp) is the ultimate holding company of Fluor. On or about 26 January 2011, Santos, Fluor and Fluor Corp executed a separate deed (the Guarantee). Santos contends that, by the Guarantee, Fluor Corp guaranteed the payment by Fluor of certain money, including sums claimed by Santos in this proceeding, and that Fluor Corp also indemnified Santos against certain losses, including the loss of those claimed sums.
[6] In 2015, after the GLNG Project was completed, Santos exercised a right to conduct audits of Fluor's accounts, records, data and information comprising or relevant to Fluor's work on the GLNG Project and its compliance with the EPC.[4]
[17]
[7] On 31 October 2018, Santos filed the second amended statement of claim (SASOC).[5] On 11 February 2019, in response, the Fluor parties filed a second amended defence and counterclaim. On 14 April 2019, Santos filed an amended reply and answer.
[8] On 12 February 2019, the solicitors for the Fluor parties wrote to the solicitors for Santos seeking clarification of the basis of the MC Delay Costs Claim. They followed up their unanswered request in further correspondence of 4 and 13 March 2019.
[9] On 18 March 2019, the solicitors for Santos responded. Amongst other matters, they advised Santos proposed to amend the SASOC in a minor respect.[6]
[10] On 31 October 2019, the Fluor parties informed Santos that they intended to apply for summary judgment on the MC Delay Costs Claim.
[11] On 11 November 2019, the Fluor parties filed the foreshadowed application and an affidavit of Mr Fleming. The application was listed for hearing on 19 February 2020. Directions were made for the filing of any further evidence and an exchange of written submissions.
[12] On 20 December 2019, the Fluor parties filed written submissions.
[13] On 6 February 2019, Santos filed written submissions in response.
[14] On 11 February 2020, Santos filed two affidavits. One was by Mr Stephenson, a solicitor, exhibiting documents passing between the parties, including a response by Santos to the Fluor parties' request for further and better particulars of some parts of the statement of claim. The other was by Mr Rae, a chartered quantity surveyor engaged by the solicitors for Santos. Mr Rae exhibited a report he had prepared regarding delay cost categories. It was dated 5 February 2020.
[15] The Fluor parties filed written submissions in reply, dated 16 February 2020.
[16] The application was heard on 19 February 2020.
[17] At the hearing, Santos advised the Fluor parties that it proposed another amendment to SASOC [19].[7] Where relevant, I have considered the application on the basis of the proposed amendments,[8] as well as on the formal state of the proceeding.
[18]
[18] The court may give judgment for a defendant against a plaintiff for part of the plaintiff's claim if satisfied the plaintiff has "no real prospect of succeeding" on that part and "there is no need for a trial" of that part of the claim.[9]
[19] A plaintiff's prospects of success and the need for a trial are separate topics. For summary judgment, the first has been formulated as: whether there exists a real, as opposed to a fanciful, prospect of success.[10] The second is not so constrained, as the need for a trial may arise for various reasons. Where material facts are disputed, ordinarily there should be a trial to determine those facts. The matters in issue may be such that the court should determine them only after the parties have an opportunity to complete interlocutory steps, adduce evidence, and test the evidence of witnesses in the usual way. Where summary judgment is sought on part of a claim, the court may assume a trial will occur in any event; so the extent of saving of the resources of the parties and the court may need to be assessed.
[20] The history of the power to summarily determine a claim or a defence was explained by Williams JA in Deputy Commissioner of Taxation v Salcedo.[11] The court's power to give summary judgment for a defendant relevantly arises from and is to be exercised according to the clear language of r 293.[12] The court is to apply the rule with the objective of avoiding undue delay, expense and technicality and facilitating the just and expeditious resolution of the real issues at a minimum of expense.[13] The just resolution of the real issues is understood against the historical framework in which it is "well accepted" that ordinarily "a party is not to be denied the opportunity to place his or her case before the court in the ordinary way, and after taking advantage of the usual interlocutory processes".[14]
[19]
[21] The ways in which a party may challenge an opponent's pleading under r 171, and their derivation, were explained by Jackson J in Callide Power Management Pty Ltd v Callide Coalfields (Sales) Pty Ltd.[15]
[22] The Fluor parties submit the paragraphs pleading the MC Delay Costs Claim do not disclose a reasonable cause of action,[16] because they are not capable in law of giving rise to an entitlement to the relief Santos claims or proposes to claim.
[23] The power to strike out a pleading is used "sparingly and only in clear cases"[17] with a view to not improperly depriving a party of the opportunity for a trial.[18] As the majority observed in Agar v Hyde:[19]
[20]
"a court whose jurisdiction is regularly invoked in respect of a local defendant ... should not decide the issues raised in those proceedings in a summary way except in the clearest of cases".
[21]
[24] To justify summary termination of the proceedings, there must be "a high degree of certainty about the ultimate outcome of the proceeding if it were allowed to go to trial in the ordinary way".[20]
[25] It has also been said that "once it appears that there is a real question to be determined whether of fact or law and that the rights of the parties depend upon it", the power to strike out cannot be exercised.[21] However, the court should not shrink from striking out a pleading which does not disclose a reasonable cause of action.[22] The court may do so even if prolonged argument is necessary in order to expose the defect in the pleading.
[22]
The court's power to strike out a pleading is discretionary. The factors that tend in favour of its exercise include that striking out may make a trial unnecessary or may substantially reduce the burden of preparing for a trial or the burden of the trial itself.[23]
[23]
[27] As in other respects, the court is to avoid undue technicality. A pleading affected by a formal defect, omission or inaccuracy may be healed by amendment. When a defendant's challenge to such a pleading is successful, the court must consider whether allowing the plaintiff to deliver a new or amended pleading in its place facilitates the just and expeditious resolution of the real issues at a minimum of expense. When a pleading is struck out, the court would ordinarily give leave to replead, where adding missing elements or amending erroneous ones seems possible.
[28] Where the material before the court does not suggest that the party could plead a reasonable cause of action, leave to replead would ordinarily be refused. Indeed, a logical consequence may be to give summary judgment for the defendant on the claim or the relevant part.[24] The time, resources and opportunities available to such a plaintiff, as well as the extent of care and skill required to formulate a properly pleaded case, may be relevant to this consideration.
[24]
[29] The MC Delay Costs Claim is a debt claim for about $475 million. Santos alleges the amount is due and owing by Fluor to Santos under the EPC; and by Fluor Corp to Santos under the Guarantee as an unpaid debt of Fluor.
[30] In the application, no party pressed any separate point about the obligation of Fluor Corp under the Guarantee. Santos relies upon its contentions about the proper construction of certain provisions in the EPC to make out the MC Delay Costs Claim.[25] Both the Fluor parties contend Fluor has no obligation under the EPC to pay or repay Santos the MC Delay Costs.
[31] The transaction between Santos and Fluor was commercial in nature. The principles for the interpretation of such a contract are well-settled.[26] The clauses in the EPC mean what a reasonable business person in the position of Santos and Fluor would have understood them to mean. The commercial purpose or objects to be achieved by the transaction inform such an understanding. An appreciation of the purpose or objects is facilitated by understanding the genesis of the transaction, its background and context, and the market in which the parties were operating. The court is entitled to assume the parties intended to produce a commercial result which makes commercial sense and to avoid making commercial nonsense or working commercial inconvenience.
[25]
[32] The EPC consists of terms and conditions, set out over 164 pages, as well as 27 schedules, set out over many hundreds of pages. It is not necessary to refer to all or even most of these for the purposes of this decision.
[33] By cl 4 of the EPC, the parties agreed on the overall bargain as to the work to be performed by Fluor and the remuneration for that work to be paid by Santos.
[34] The work to be performed by Fluor is the subject of cl 4.1:
[26]
(a) [Fluor] must execute the Work in accordance with:
[27]
(1) all design, engineering, supply, procurement, fabrication, construction, erection, installation, Pre-Commissioning, and assistance, advice on and participation in Commissioning and Performance Testing of the Facilities necessary or incidental to provide and complete the Work and the Facilities (and each Part); and
[28]
(2) all superintendence, labour, transport, Temporary Works and all other things, whether of a temporary or permanent nature required for the execution, performance and completion of the Work and the Facilities (and each Part) or which is required to perform and complete any obligation of [Fluor] arising from the [EPC]."
[29]
[35] In cl 1.1, the parties defined the expression Work as:
[30]
"all the work which [Fluor] is required to execute under the [EPC] (including as set out in the Scope of Work)[27] so as to comply with its obligations under the [EPC] to design, engineer, procure, fabricate, supply, construct, erect, install, pre-commission, assist with, advise on and participate in Commissioning and Performance Testing, and complete and hand over the Facilities and each Part, and includes:
[31]
the supply and delivery of all Materials and Equipment;
the supply and delivery of all Temporary Works;
all work to interface the Work with the Related Work, Company's Early Works, Concurrent Operations or other work including tie-ins to and interfaces with those works as applicable;
the design of the Facilities and the completion of all Design Documents and As Built Drawings;
the delivery of all plans, procedures and policies and other Documents required to be delivered under the [EPC];
the supply and delivery of the Commissioning Spares and Capital and Operating Spares (to the extent required by the [EPC]);
any Variation and remedial work; and
all other work and activities which [Fluor] may be required to perform or which can be reasonably inferred from the [EPC] by a prudent, competent and experienced contractor performing work similar to the Work."
[32]
[36] The parties' agreement about the payment by Santos to Fluor for performance of the Work is the subject of cl 4.2, relevantly:
[33]
(a) In consideration of [Fluor] properly carrying out all its obligations and undertakings under and in accordance with the [EPC], [Santos] must pay [Fluor] the Contract Price in accordance with the [EPC].
[34]
(1) the Actual Costs calculated in accordance with Schedule 3;
[35]
(3) any Incentives payable in accordance with the [EPC].
[36]
(c) Any fixed lump sum or any fixed rates set forth in the [EPC] will be deemed to include all work incidental and ancillary to the subject matter of the applicable lump sum or rates, except where expressly excluded.
[37]
(g) [Fluor] acknowledges and agrees that the Contract Price represents its full and complete payment for:
[38]
(1) all matters and things necessary for the performance, delivery and completion of the Work and the Facilities (and each Part) in accordance with the [EPC]; and
[39]
(2) the performance of all of [Fluor's] obligations under the [EPC]."
[40]
[37] No issue arises in this application about the Fee or the Incentives as elements of the Contract Price.
[38] The parties defined Actual Costs in cl 1.1 as:
[41]
"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."
[42]
[39]Excluded Costs are relevantly defined in cl 1.1 as:
[43]
"any costs, expenses, damages, liabilities or other amounts arising out of or as a consequence of:
[44]
(subject to clause 23.6) a breach of the [EPC] by [Fluor] Personally;[28]
breach by [Fluor] of a subcontract or any other contract between [Fluor] and any third party;
breach of any Law by [Fluor] or [its] Personnel;
[45]
(vi) which [Fluor] is precluded from claiming under the [EPC] or which the [EPC] expressly provides are to be incurred at the cost of [Fluor]; and
[46]
(vii) expressly excluded under any other provision of the [EPC]."
[47]
[40] In Schedule 3, the parties described "the payments to be made to [Fluor] by [Santos] in consideration of the performance by [Fluor] of the Work under the [EPC]". Schedule 3 is in two parts. In Schedule 3.1, the parties set out the terms of compensation.
[41] In section 2.0 of Schedule 3.1, the parties defined "Actual Costs", for the purposes of Schedule 3.1, to mean:
[48]
"costs properly and reasonably incurred by [Fluor] directly in the performance of the Work without mark-up, profit or overheads."
[49]
[42] This differs from the definition in cl 1.1 of the EPC: see [38] above. 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).
[43] By section 3.0 of Schedule 3.1, the parties agreed Fluor would be reimbursed for six items "in accordance with the mechanisms set out in the relevant sections of this Schedule". The parties dealt with the mechanisms for the six items in sections 4.0 to 9.0 of schedule 3.1. The six items are:
[44] According to Santos, the MC Delay Costs Claim does not include a claim for any amount paid for Direct Field Costs, the Fee or the Advance Payment. It is only necessary to consider the Indirect Home Office Services, the Indirect Field Costs (Construction Management Services), and the Owners Costs.
[57]
[45] By section 5.1.2, dealing with Indirect Home Office Services, the parties agreed that Fluor would be reimbursed for the work hours actually expended by a member of Fluor's Personnel directly in the performance of the Work, where a timesheet has been submitted to Santos. By section 5.1, they agreed that Fluor could only engage a person to perform work with Santos' prior written consent, and that Fluor could not claim reimbursement for any of its personnel whose engagement had not been so approved.
[46] The job classifications for such personnel in table 5.1 include:
[58]
"Country HR Director, Estimating Director, Architecture Director, Design Engineering Director, IT Consulting Director, Management Services Director, Process/Specialty Engineering Director, Project Controls Director, Software Applications Director, Upstream Facilities Engineering Director, Validation Director, Accounting Director, Audit Director, Communications Director, Construction Quality Control Director, Construction Support Director, Contract Management Director, Finance Director, Human Resources Director, Industrial Relations Director, IS Audit Director, Licensing Director, Material Management Director, O&M Director, Office Services Director, Project Business Services Director, Project Finance Director, Quality Assurance Director, Security Director, Site Services and Administration Director, Tax Director, Training/Project Automation Director, Project Information Management Director, Environ Eng or Sciences Director, General Construction Manager, HSE Director, Project Operations Manager, Project Director, Project Manager ...",
[59]
as well as many other technical and administrative staff positions.
[60]
[47] The parties set out the hourly rates of reimbursement payable to Fluor for these staff at offices in Houston (USA), Farnborough (UK) and Brisbane in table 5.2. The parties also included in that table hourly rates for an "Expat Supervision (coach)", "Senior OCN" and engineering design office staff at Manila in the Philippines.
[48] The parties agreed these hourly rates were to be escalated, annually on 1 March, in accordance with the average annual salary increase for each office. By section 5.1.3, the agreed hourly rates are deemed to include fifteen items, being employment-related costs and entitlements, as well as "Overhead".
[49] By section 5.2, the parties agreed Fluor would be reimbursed for the mobilisation of staff in Brisbane, Camberley (UK) and Manila and for demobilisation at prescribed rates in table 5.3.
[50] By section 5.3, Santos agreed to pay a monthly charge for each month a relocated member of Fluor's personnel was engaged in the performance of the Work. The monthly charge was to be at a rate that included a number of costs, amongst them: a relocation living allowance; the cost of rental accommodation; ground transport costs; storage costs in a home country; payroll and human resources maintenance charges; home leave allowance; home maintenance allowance; hypothetical home country tax equalisation; and host country tax liability.
[51] The parties did not use the expression "Actual Costs" in sections 5.1 to 5.3 of Schedule 3.1. Instead they described the payments Santos was to make to Fluor as "agreed hourly rates", "rates set out in the table below" and as a "monthly charge".
[52] It is only in , dealing with "Other Reimbursable Costs", that the parties agreed Fluor would be reimbursed for the business travel, monthly office costs for the approved project office, other expenses and minor subcontractor expenditure at Actual Cost (as defined in
[61]
Indirect Field Costs (Construction Management Services)
[62]
[54] By section 6.1, the parties agreed Fluor's entitlement to be paid for Indirect Field Costs (Construction Management Services) was at the hourly rates set out in table 5.2. This payment was for work hours expended by members of Fluor's Personnel in the performance of the Work "at the agreed hourly rates" set out in the table. They also agreed Fluor could only engage a person to perform work with Santos' prior written consent, and Fluor could not claim reimbursement for any of its personnel whose engagement had not been so approved.
[55] By section 6.1.3, they agreed that those hourly rates included the same fifteen items, being employment-related costs and entitlements, as well as "Overhead".[29]
[63]
[56] For Owners Costs, the parties agreed Fluor would be reimbursed at rates set out in table 7.1 plus "a markup of 6%" or "at Actual Cost plus 6% where no rate is included" in the table. These Owners Costs are described as costs:
[64]
"such as provision of office space at project office and site locations for client personnel, provision of accommodation and messing at field construction camp locations, and the like".
[65]
[57] Fluor was to obtain the prior written approval of Santos before committing to or incurring such expenses.[30]
[58] The costs the parties included in table 7.1 with a USD rate include an hourly rate for a Manila dedicated Santos Administration Assistant, HR support for Santos personnel that "[t]ypically includes housing location services, visa and meet & greet services", a weekly rate per person for computers, software and office supplies in Brisbane and Manila, and a rate for Santos office space in Manila for twelve personnel. The costs with no rate include accommodation, meals and office expenses for Santos personnel, and school fees for dependents of Santos' personnel.
[59] As well, the parties agreed that the costs of permanent camps and construction offices, camp costs and temporary power were to be reimbursed "at Actual Costs plus 6%".
[60] The parties agreed on the mechanism for the payment by Santos to Fluor by cl 29 of the EPC, which is relevantly in these terms:
[66]
(a) ... [Fluor] must submit a payment claim to [Santos] in accordance with this clause 29.1 on the fifth (5th) Business Day of each Month commencing in the Month following the Month in which the Commencement Date occurs (Payment Claim).
[67]
(b) Payment Claims submitted by [Fluor] under clause 29.1(a) must be:
[68]
(1) for the amount that [Fluor] is entitled to be paid, calculated in accordance with clause 29.2, for the Work completed in the Month prior to the Month in which the Payment Claim is submitted ...;
[69]
(3) accompanied by substantiating records of actual man-hours worked (if applicable) ... and such other evidence of Actual Costs as [Santos] reasonably requires (including time sheets ... and expenses as applicable); and
[70]
(4) in the form required by [Santos] and include the documents set out in clause 29.3.
[71]
(c) [Fluor] must provide any further information and assistance reasonably requested by [Santos] for the purposes of assessing a Payment Claim under clause 29.4.
[72]
(c) in respect of any Work ... the Actual Costs actually incurred and paid by [Fluor] during the relevant Month for Work performed to the date of the Payment Claim;
[73]
(f) any Delay Costs which [Santos] has assessed as payable in accordance with clause 23.6;
[74]
(i) any other costs to which [Fluor] is entitled to [sic] under the [EPC].
[75]
With each Payment Claim, [Fluor] must submit a statutory declaration in a form approved by [Santos], signed by an authorised employee of [Fluor] ...
[76]
29.4 Payment Certificate to be issued by [Santos]
[77]
(a) Within ten (10) Business Days of receipt of the Payment Claim provided under and in accordance with clause 29.1, [Santos] must issue a payment certificate to [Fluor] which identifies the Payment Claim to which it relates and sets out [Santos'] determination as to:
[78]
(1) the amounts claimed that are payable to [Fluor] in accordance with the [EPC];
[79]
(4) the amount of the Payment Claim then payable by [Santos] to [Fluor]; and
[80]
(5) if the amount under clause 29.4(a)(4) differs from the amount claimed by [Fluor] in the Payment Claim, the reasons for the difference (including, if applicable, the reasons for retaining, withholding or setting off any amount),
[81]
(b) [Santos] may, at any time, issue a Payment Certificate to [Fluor] under clause 29.4(a) (including after the time allowed in clause 29.4(a)):
[82]
(2) including for the purpose of correcting any error discovered in a previous Payment Certificate or identified in any inspection or audit under clauses 41.1(e) or 41.2,
[83]
and if [Santos] does, [Fluor] or [Santos] (as the case may be) must pay the amount set out in such Payment Certificate in accordance with clause 29.6.
[84]
... [Santos] or [Fluor] (as the case may be) will pay to the other Party the amount stated in the Payment Certificate within [certain time periods].
[85]
Any Payment Certificate or payment of moneys under clause 29.6 is not:
[86]
(a) evidence of the value of work or that work has been satisfactorily carried out in accordance with the [EPC];
[87]
(c) approval by [Santos] of [Fluor's] performance or compliance with the [EPC]."
[88]
[61] The contractual obligations of Fluor with respect to Mechanical Completion relevantly included:
[89]
(b) perform the Work with due expedition and without delay and so as to, in respect of each Part, achieve Mechanical Completion by the Date for Mechanical Completion.
[90]
(3) in respect of each Part, achieve Mechanical Completion by the Date for Mechanical Completion and in accordance with the EPC Program and the Execution Plan.
[91]
(a) If [Fluor] has not achieved Mechanical Completion by the relevant Date for Mechanical Completion, [Fluor] must pay liquidated damages to [Santos] in an amount calculated at the Liquidated Damages Rate specified in Item 10 of Schedule 1 (Mechanical Completion Liquidated Damages)."
[92]
[62] By cl 24.2(a), the parties agreed to cap the Mechanical Completion Liquidated Damages at a maximum amount of $15 million.[31] The parties agreed these damages represent Santos'
[93]
"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 for Mechanical Completion".[32]
[94]
[63] Subject to rights arising in circumstances not alleged to have occurred, the Mechanical Completion Liquidated Damages are Fluor's sole liability and Santos' exclusive remedy for any failure by Fluor to achieve Mechanical Completion of a Part by the relevant Date for Mechanical Completion.[33]
[64] Clause 23 is comprised of seven sub-clauses, most with multiple sub-paragraphs. Each deals with a related aspect of time and delay: the commencement and progress of the Work; delay in the same; claiming an extension of time to complete any part of the Work; Santos' unilateral right to extend any time for completion; the limit on Fluor's remedies for delay; the payment of costs caused by reason of such a delay; the relationship of such costs to elements of the Contract Price; and Santos' right to request the acceleration of Work.
[65] Part of cl 23.1 is set out above. By cl 23.2, the parties relevantly agreed:
[95]
If [Fluor] considers that it has been or is likely to be delayed in:
[96]
(c) achieving Mechanical Completion by the relevant Date for Mechanical Completion,
[97]
[Fluor] must promptly give [Santos] a Notice setting out the nature, cause and likely extent of the delay (Delay Notice)."
[98]
[66] By cl 23.3, the parties agreed on ten matters concerning delays and extensions of time.
[67] The first, in cl 23.3(a), is about delays caused by a Delay Event:
[99]
(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:
[100]
(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
[101]
(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:
[102]
(A) provides details of the Delay Event and the other facts on which the claim is based;
[103]
(C) includes evidence demonstrating that the Work has been delayed as required by this clause 23.3 and the extent of such delay,
[104]
(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 ...".
[105]
[68] The ninth of those matters is in cl 23.3(i). It provides:
[106]
"(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:
[107]
(1) [Santos] is not liable for, or in connection with, any Claim by [Fluor]; and
[108]
(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),
[109]
arising out of, or in connection with, the relevant period of delay and the Delay Event."
[110]
[69] The parties defined a Delay Event in cl 1.1. For present purposes it is sufficient to say that a Delay Event is an event that may or does delay the Work, including a delay caused by Santos, a force majeure event, a variation, a change of law, or the discovery of a latent defect, archaeological artefacts or a pre-existing hazard or contamination, and a delay caused by a Native Title determination. An event is not a Delay Event if it would not have occurred but for a breach of the EPC by, or the negligence or any act or omission of Fluor (or its Personnel), or an event or circumstance the risk of which has been accepted by Fluor.
[70] They defined a Claim in cl 1.1 as:
[111]
"any claim, action, suit, demand, proceeding, notice, litigation, investigation or judgment whether based in contract, tort (including negligence), statute or otherwise."
[112]
[71] Some other provisions in cl 23 are of relevance:
[113]
... [Santos] may, at its absolute discretion extend ... any Date for Mechanical Completion:
[114]
(a) at any time that [Santos] directs a Variation; or
[115]
(b) at any other time that [Santos] decides to be appropriate,
[116]
notwithstanding that [Fluor] has not submitted an Extension of Time Claim or may not be entitled to any extension of time.
[117]
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:
[118]
(a) [Fluor] will not be entitled to any adjustment to the Target Budget Estimate or Fee;
[119]
(b) [Santos] is not liable for, or in connection with, any Claim by [Fluor]; and
[120]
(c) [Fluor] is not entitled to make and is absolutely barred from making any Claim,
[121]
arising out of, or in connection with, the Delay Event or any delay and disruption to the progress of the Work.
[122]
(a) Where [Fluor] has been granted an extension of time under clause 23.3:
[123]
(1) [Santos] will pay to [Fluor] its Actual Costs incurred by reason of the relevant Delay Event (Delay Costs); and
[124]
(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)."
[125]
[72] By the MC Delay Costs Claim, Santos seeks the repayment[34] of amounts it has calculated (or perhaps estimated) as "time related overhead costs" incurred by Fluor in performing this work which Santos has paid.[35] As its written submissions make clear, the MC Delay Costs Claim proceeds on the basis that Fluor incurred the MC Delay Costs. So no issue arises in that respect.
[73] Drawing on the SASOC and Mr Stephenson's affidavit, in their written submissions Counsel for Santos described the MC Delay Costs in this way:
[126]
"the costs covered by [the MC Delays Costs Claim] are a function of the additional time that it took to complete the work; and are not directly dependent on the amount of work that was performed. They comprise expenses associated with Fluor being in a position to continue to perform work required to mechanically complete the Hub facilities, rather than amounts directly incurred in performing that work. They, therefore, comprise only part of the total costs incurred by Fluor (and paid by Santos) to mechanically complete the Hub facilities in the period after the Dates for Mechanical Completion had passed."[36]
[127]
[74] Elsewhere, they refer to the MC Delay Costs as "Prolongation Costs" on the basis they were sums:
[128]
"attributable to the additional time taken to achieve mechanical completion of certain facilities (not the costs of actually performing the work to complete the Hubs)."[37]
[129]
[75] The MC Delay Costs is a concept defined by Santos in SASOC [16](b). No such costs were separately claimed by Fluor or certified for payment by Santos during the life of the GLNG Project. In the EPC, the parties did not provide for them to be identified or separately claimed or certified. The parties used no such term in the EPC.
[130]
[76] Santos has calculated that these costs are the equivalent of about $475 million. To give this amount some context, the original Target Budget Estimate of the amounts to be paid to Fluor for the Work under the EPC was about $3.576 billion and the total of all the sums claimed by Santos in the proceeding exceeds $1.4 billion.
[77] Santos relied on Mr Rae's report to show that:
[131]
"a delay to the completion of construction activities would lead to additional time-related costs being incurred which would not have been incurred had there been no delay".
[132]
[78] In his report, Mr Rae explained a number of things about the effect of delay on a contractor's costs for a major construction project, including the following:
[133]
"2.3 Contractor Costs in Circumstances of Critical Delay
[134]
There are broadly two categories of costs incurred by a contractor in performing a construction project. I refer to these categories as 'direct costs' and 'indirect costs'. The terms 'direct' and 'indirect' in this context are commonly used in the construction industry in reference to the categories of cost discussed. I adopt these terms merely for convenience, and do not use them in any legal context.
[135]
Direct costs comprise costs of labour, plant and materials required to perform the construction of the permanent works.
Examples of direct costs are contained in Figure 2-2 below.
[136]
Indirect costs are variously referred to as 'site overheads', 'general costs' or 'preliminaries.' Indirect costs are those costs which are not directly related to the construction of the permanent works but are incurred in supporting and facilitating the construction of the permanent works.
[137]
2.3.2 Time Related / Non Time Related Indirect Costs
[138]
Indirect costs can be further categorised into time related (or recurring) costs, and non-time related (or fixed) costs.
[139]
Time related costs are those costs that are incurred periodically, such as monthly rental costs for site offices.
Examples of time related indirect costs are shown in Figure 2-4 below.
[140]
The longer the duration of a construction project, the more time related costs will be incurred. For example, (all other things being equal) the total monthly rental cost of modular site offices used by a contractor's project management team would be expected to be in the order of three times greater for a project duration of eighteen months compared to that of six months duration.
[141]
Non-time related costs are those costs that are generally incurred once, such as costs of initial mobilisation to site, or paid for on some basis that is not a function of time (e.g. sometimes construction waste disposal is paid for on a volume basis, in which case it would be considered to be a non-time related cost.)
[142]
Save for inflationary increases, non-time related costs generally do not increase in line with a project's duration ...
[143]
2.3.3 Critical Delay - Effect On Time Related Indirect Costs
[144]
If the critical path duration of a project increases due to a delay event, then (all other things being equal) there will be corresponding increase in time related indirect costs. ...
In most cases, where a construction project suffers critical delay, the additional costs[38] incurred by a contractor will normally (and primarily) consist of time related indirect costs. ...
[145]
2.3.4 Critical Delay - Effect On Non-Time Related Indirect Costs
[146]
As a general rule ... a contractor is unlikely to incur additional costs in this category in circumstances of critical delay. ...
[147]
As a general rule (save for inflationary costs) a contractor will not incur additional direct costs (such as the cost of labour or activity related plant and materials) where a project suffers critical delay.
[148]
One common exception to this rule is where the cause of delay also causes the work to be performed less efficiently than would otherwise be the case or causes resources to become idle for a period of time. This scenario is usually referred to as disruption - or a disturbance to the general progress of the work. Such disruption can occur whether or not there is a delay to the critical path.
Where construction activities have been disrupted there may be an increase in labour manhours (and possibly plant and equipment hours) required to complete the work affected, which in turn could give rise to additional direct costs. However, all things being equal, unless disruption has occurred, a critical delay will not normally result in additional direct costs.
[149]
A contracting organisation will typically have a head office, the function of which is to facilitate the management and operation of the contracting business as a whole. Typical head office costs include office rental, salaries for head office staff (tendering and estimating, accounts, legal, human resources, clerical, marketing, company directors, etc) and general business development costs.
It is common practice for a contractor to recover its head office costs by way of a percentage addition or mark-up incorporated into its tender prices for construction work. Should those tenders be successful, the payments received for performing the construction work will, by dint of the tender mark-up, include a percentage contribution towards the contractor's head office overhead costs.
A contractor is unlikely to incur additional head office overheads as a result of delay on a given project. This is because, in most cases such overhead expenditure would have been incurred in any event. It may be, however, that where a delay to a project results in a contractor's key resources being retained on a project, the contractor may be unable to utilise those key resources on other projects. In such circumstances a contractor may have lost an opportunity to earn a contribution from those key resources towards its head office overhead costs.
On large construction projects, particularly those undertaken in remote locations, a contactor may have a project team based in a head office, albeit dedicated to supporting the remote site based project team. In these circumstances the head office based dedicated team would be treated as being an extension to the site based team, rather than as a head office overhead cost. Therefore, any critical delay to the project could potentially result in increased costs of the dedicated head office team.
[150]
As with head office overheads, the retention of key resources on a project that is delayed, may result in a contractor losing the opportunity to earn profit from those key resources on other projects.
[151]
A contractor will incur financing costs usually in the form of interest payments (or equivalent) to fund the overall construction work. To the extent that a delay results in the contractor incurring additional time related indirect costs, the contractor may also incur additional cost of financing those costs.
[152]
Where delay results in work being performed later than would have been the case, a contractor may incur additional cost through inflation."
[153]
[79] Adopting Mr Rae's descriptions, the following may be posited. The MC Delay Costs include time-related indirect costs of the kind identified by Mr Rae in Figure 2-4. They may include the costs of a dedicated project team based at the Fluor head office and inflationary costs. In the absence of a relevant exclusion of entitlement and limitation of liability, Fluor would be entitled to claim payment in respect of such costs and Santos would be bound to pay for them as part of the Contract Price calculated in accordance with Schedule 3.1.
[80] In Mr Rae's schema, the MC Delay Costs do not include any direct costs, including any costs of disruption. They do not include any amount for Fluor head office overheads, as distinct from the costs of a dedicated project team. They do not include any amount for loss of profit or finance charges incurred by Fluor. This is because it is common ground that Fluor had no right under cl 4.2 (and Schedule 3.1) to claim for such costs and did not do so.
[154]
[81] The MC Delay Costs Claim is summarised in SASOC [9](b)(i)(A):
[155]
"9 In the premises set out in Parts B to D of this second amended statement of claim:
[156]
(b) [Santos] is entitled to recover under the [EPC], moneys which [Fluor] claimed and was paid, which exceeded its entitlement pursuant to the [EPC], being:
[157]
(A) costs which [Fluor] was precluded from claiming under the [EPC] as a result of delays to achieving Mechanical Completion (as that term is defined in clause 1.1 of the [EPC]) of certain parts of the Work in the following amounts:
[158]
The material facts upon which [Santos] relies are set out in paragraphs 10 to 19 of this [SASOC]."
[159]
[82] The MC Delay Costs Claim is pleaded in SASOC [10] to [19]. Santos also relies on some other paragraphs of the SASOC as premises for allegations in these paragraphs.
[83] The key parts of the SASOC impeached by the Fluor parties in this application are the following, found in SASOC [5](b)(i) and (e), [10](b), (i), (j) and (k), [11], [16], [17], [18] and [19]:
[160]
(b) in consideration of [Fluor] properly carrying out its obligations under the [EPC], [Santos] was required to pay [Fluor] (Contract Price):
[161]
(i) the actual costs properly incurred by [Fluor] in performing the Work calculated in accordance with Schedule 3 of the [EPC], but excluding (except where provided otherwise in Schedule 3) profit, overheads and Excluded Costs (as that term was defined in clause 1.1 of the [EPC]) (Actual Costs);
[162]
(e) the Actual Costs payable to [Fluor] under the [EPC] did not include (the Excluded Costs):
[163]
(i) any costs, expenses, damages, liabilities or other amounts arising out of or as a consequence of:
[164]
(A) breach of the [EPC] by [Fluor] 'Personally' (as that term was defined in clause 1.1 of the [EPC], the contents of which are incorporated into this [SASOC] as if set out verbatim (Personally)); or
[165]
(B) breach by [Fluor] of a subcontract or any other contract between [Fluor] and any third party; or
[166]
(A) for which [Fluor] is entitled to be and is reimbursed by a third party (including an insurer or subcontractor); or
[167]
(B) which [Fluor] is precluded from claiming under the [EPC]; or
[168]
(C) which the [EPC] expressly provides are to be incurred at [Fluor's] cost; or
[169]
(D) expressly excluded under any other provision of the [EPC].
[170]
The definitions of 'Actual Costs' and 'Excluded Costs' in clause 1.1 of the [EPC].
[171]
(b) [Fluor] was required to achieve Mechanical Completion (as that term was defined in clause 1.1 of the [EPC]) of the following Parts (the Guaranteed Parts) in accordance with the EPC Program and the Execution Plan by the following dates (the Guaranteed Dates):
[172]
Clauses 20.1, 21.1 and 23.1 of the [EPC]; the definitions of 'Mechanical Completion', 'Date for Mechanical Completion' and 'Part' in clause 1.1 of the [EPC] ...
[173]
(i) if [Fluor] was granted an extension of time under clause 23.3 of the [EPC], [Santos] was required, as part of the Contract Price, to pay [Fluor's] Actual Costs incurred by reason of the relevant Delay Event (Delay Costs).
[174]
(j) if [Fluor] did not serve a Delay Notice or an Extension of Time Claim (as those terms were defined in clause 1.1 of the [EPC]) in the manner required by clauses 23.2 or 23.3 of the [EPC], [Fluor] could not make, and [Santos] was not liable for, any claim or demand by [Fluor] arising out of or in connection with the relevant period of delay and Delay Event.
[175]
Clause 23.3(i) of the [EPC], the definitions of 'Claim', 'Delay Notice' and 'Extension of Time Claim' in clause 1.1 of the [EPC].
[176]
(k) subject to any entitlement under clause 23.6 to be paid Delay Costs, or obtain an extension of time or adjustment to the TBE and Fee pursuant to the [EPC], [Santos] was not liable for or in connection with, and [Fluor] was absolutely barred from making any claim or demand against [Santos] arising out of or in connection with any Delay Event or any delay and disruption to the progress of the Work.
[177]
In the premises pleaded in paragraphs 5(e), 10(b), 10(i), 10(j) and 10(k) above, on the proper construction of the [EPC], if:
[178]
(a) the progress of the Work required to be completed in order to achieve Mechanical Completion of each of the Guaranteed Parts by each of the Guaranteed Dates was delayed; and
[179]
(b) [Fluor] did not submit a Delay Notice (as defined in clause 1.1 of the [EPC]) or an Extension of Time Claim (as defined in clause 1.1 of the [EPC]) in relation to such delay that complied with all aspects of clause 23.2 and/or 23.3 of the [EPC],
[180]
all costs and expenses incurred by [Fluor] arising out of or as a consequence of the delay to achieving Mechanical Completion of a Guaranteed Part by a Guaranteed Date:
[181]
(c) were amounts which [Fluor] was precluded from claiming under the [EPC], and accordingly were Excluded Costs;
[182]
(d) further or alternatively, were not otherwise amounts properly incurred by [Fluor] in performing the Work, and accordingly were not Actual Costs which [Fluor] was entitled to be paid under the [EPC].
[183]
During the period after each of the Guaranteed Dates:
[184]
(a) [Fluor] continued to perform Work required to be completed in order to achieve Mechanical Completion of each of the Guaranteed Parts; and
[185]
(b) [Fluor] claimed from [Santos] under clause 29 of the [EPC] and [Santos] paid to [Fluor], the following time related overhead costs incurred by [Fluor] in performing the Work described in the preceding paragraph:
[186]
The calculation of the Mechanical Completion Delay Costs is set out in Schedule 2 to this [SASOC].[39]
[187]
The Mechanical Completion Delay Costs pleaded in paragraph 16(b) above:
[188]
(a) do not include direct costs incurred by [Fluor] in performing the Work described in paragraph 16(a) above; and
[189]
(b) would not have been incurred by [Fluor] if the Guaranteed Parts had achieved Mechanical Completion by the Guaranteed Dates.
[190]
In the premises pleaded in paragraphs 10 to 17 above:
[191]
(a) [Santos] was not liable under the [EPC] to pay the Mechanical Completion Delay Costs to [Fluor];
[192]
(b) further or alternatively, [Fluor] was not entitled under the [EPC] to make any claim against [Santos] for payment of the Mechanical Completion Delay Costs;
[193]
(c) further or alternatively, [Fluor] was absolutely barred under the [EPC] from making any claim against [Santos] for payment of the Mechanical Completion Delay Costs.
[194]
In the premises set out in paragraphs 5(b)(i) and 10 to 18 above, the Mechanical Completion Delay Costs were:
[195]
(b) further or alternatively, not otherwise costs properly and reasonably incurred by [Fluor] in performing the Work under the [EPC], and therefore were not Actual Costs which [Fluor] was entitled to be paid under the [EPC]."[40]
[196]
[84] In SASOC [5](b)(i) and (e), and [10](b), (i), (j) and (k), Santos pleads what it alleges is the effect of specific provisions of the EPC. In SASOC [11], Santos pleads conclusions about the proper construction of the EPC based on the alleged effect of those provisions. The Fluor parties deny these allegations and the conclusion, asserting they are inaccurate. Each of these matters turns on the proper construction of the EPC.
[85] In SASOC [12], [13], [15] and [16], Santos alleges facts that are either denied or not admitted by the Fluor parties.[41] The Fluor parties led no evidence to contest any of these factual matters. For the purposes of the application, the court may assume that Santos has real prospects of proving each of these factual allegations at a trial. Relevantly, the facts alleged are that:
[197]
(a) Fluor failed to complete each of the Guaranteed Parts by the relevant Guaranteed Date: SASOC [12]-[13];
[198]
(b) Fluor did not achieve Mechanical Completion of any of the Guaranteed Parts by any of the Guaranteed Dates: SASOC [14](a);
[199]
(c) The progress of the Work required to achieve Mechanical Completion of each Guaranteed Part by the Guaranteed Date was delayed: SASOC [14](b);
[200]
(d) Fluor did not submit a Delay Notice or an Extension of Time Claim in relation to any of that Work: SASOC [15];[42]
[201]
(e) Fluor continued to perform the Work required to achieve Mechanical Completion of each Guaranteed Part after each relevant Guaranteed Date: SASOC [16](a); and
[202]
(f) Fluor made Payment Claims and Santos certified for payment and paid the time related overhead costs incurred by Fluor in performing that Work after each relevant Guaranteed Date: SASOC [16](b).
[203]
[86] In SASOC [17], Santos pleads two conclusions. These depend upon a combination of the alleged facts, the effect of provisions in the EPC, and the calculation by Santos of the MC Delay Costs. The Fluor parties deny each of the conclusions, relying on their defence to the alleged facts and the alleged effect of the EPC, and believing them to be untrue on the basis the MC Delay Costs are estimates and were not the subject of specific claims or of amounts paid in respect of any specific claim under the EPC, and the methodology used to calculate the amounts is deficient.
[87] There is no issue that the figures Santos has included in the total of MC Delay Costs were not the subject of separate or specific Payment Claims, certificates or payments. Whether the MC Delay Costs are estimates and whether any methodology Santos used is deficient are factual questions. The Fluor parties adduced no evidence with a view to the court being able to conclude those factual allegations have no real prospect of success. It follows that the court may assume, for present purposes, that Santos has real prospects of proving the factual allegations about the calculation at a trial.
[88] In SASOC [18] and [19], Santos pleads conclusions based on earlier allegations about the effect of provisions in the EPC and the alleged facts. These are the principal conclusions on which Santos relies. These are also denied by the Fluor parties.
[89] Formally, Santos pleads that the conclusions in SASOC [18] follow from "the premises" pleaded in SASOC [10] to [17]. In its solicitors' correspondence, Santos clarified that the conclusions were in fact based on the matters alleged in SASOC [10](j) and (k) and [11].[43]
[90] Santos proposes to plead that its conclusions in SASOC [19] are grounded in the premises set out in SASOC [5](b)(i) and [10] to [18].
[91] If, as the Fluor parties contend, Santos has no real prospect of succeeding in the MC Delay Costs Claim, it is because Santos has at best only fanciful prospects of establishing the conclusions alleged in SASOC [18] and [19].
[204]
SASOC [18]: Liability, entitlement and barring of claims
[205]
[92] Santos pleads three conclusions in SASOC [18]:
[206]
(a) Santos was not liable under the EPC to pay the MC Delay Costs to Fluor;
[207]
(b) Fluor was not entitled under the EPC to make any claim against Santos for payment of the MC Delay Costs; and
[208]
(c) Fluor was absolutely barred under the EPC from making any claim against Santos for payment of the MC Delay Costs.[44]
[209]
[93] At the hearing of the application, Counsel for Santos explained these conclusions were put on three separate bases:
[210]
(a) first, that the MC Delay Costs are excluded by cl 23.3(i) and cl 23.5 of the EPC, which Santos contends bring those costs within items 5(vi) and (vii) of the definition of Excluded Costs;
[211]
(b) secondly, that the MC Delay Costs are costs attributable to Fluor's breaches of its own sub-contracts and so within item 2 of the definition of Excluded Costs; and
[212]
(c) thirdly, that the MC Delay Costs are not Actual Costs within the meaning in Schedule 3 of the EPC because they are not costs properly and reasonably incurred by Fluor.
[213]
[94] Santos contends for these conclusions on the basis that a claim or demand by Fluor to be paid the MC Delay Costs is a Claim for which the parties agreed Santos would not be liable and Fluor would not be entitled to claim, and that Fluor would be deemed to have waived its right to make against Santos, by cl 23.3(i). Santos also relies upon cls 23.5 and 23.6.
[214]
[95] As noted at [68] above, the text of clause 23.3(i) is as follows:
[215]
"If [Fluor] fails to give a Delay Notice or Extension of Time Claim in the form or within the time prescribed under clause 23.2 or 23.3:
[216]
(1) [Santos] is not liable for, or in connection with, any Claim by [Fluor]; and
[217]
(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),
[218]
arising out of, or in connection with, the relevant period of delay and the Delay Event."
[219]
[96] Four elements of the clause are material to its proper construction.
[220]
[97] By the chapeau, the parties limited the circumstances in which sub-paragraphs (1) and (2) apply to those when Fluor "fails to give" a notice or claim "in the form or within the time prescribed" by the relevant clause. Santos contends that Fluor will fail to give a notice or claim, within the meaning in cl 23.3(i), simply by not giving one. Santos contends Fluor fails to give a notice or claim even when the circumstances do not call for or entitle Fluor to do so. I reject that contention.
[98] By cl 23.2, the parties prescribed the circumstances in which Fluor must give Santos a Delay Notice, requiring, as to time, that it be given "promptly" and, as to form, that it set out "the nature, cause and likely extent of the delay".
[99] Fluor must give Santos a notice when Fluor "considers that it has been or is likely to be delayed" in one of the ways set out in sub-paragraphs (a), (b) and (c) of cl 23.2. The provision is not in terms that: Fluor must give a Delay Notice whenever a delay has occurred or is likely to occur; nor that Fluor must give a Delay Notice whenever Fluor itself has delayed progress of the Work or is likely to have done so.
[100] Where Fluor "has been or is likely to be delayed" by Santos or by some factor outside Fluor's control or responsibility,[45] Fluor may claim its entitlement to an extension of time under cl 23.3(a). In contrast, if Fluor causes a delay in progress of the Work, and, as a result, Fluor fails to achieve Mechanical Completion by a relevant date, then Fluor is not entitled to an extension of time and may be obliged to pay liquidated damages to Santos.
[101] In the context of the related provisions in cls 23 and 24, which deal with alterations to relevant Dates for Practical Completion and their consequences, the language the parties 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 otherwise by some factor outside the control or responsibility of Fluor. In other words, the purpose of cl 23.2 is to provide an early warning to Santos of a possible Delay Event and so of a possible Extension of Time Claim.
[102] By cl 23.3(a), the parties prescribed the circumstances in which Fluor may claim its entitlement to an extension of time. Fluor may do so by giving Santos an Extension of Time Claim. Fluor may not give a claim unless a Delay Event occurs. If Fluor causes a delay, it is not a Delay Event and Fluor is not entitled to an extension of time. In short, Fluor cannot give Santos an Extension of Time Claim when Fluor is the cause of the delay. The claim is to be given within 40 business days of Fluor becoming aware that a Delay Event has occurred. Until there is a Delay Event, the time prescribed for giving Santos the claim cannot expire; so Fluor cannot fail to give Santos an Extension of Time Claim where there is no Delay Event.
[221]
[104] A Claim is the object of each of sub-paragraphs 23.3(i)(1) and (2). The parties defined it in cl 1.1 of the EPC, so the provision is to be construed by reading the words of the definition into the operative text in the sub-paragraphs.[46]
[105] The defined meaning of Claim is plainly very broad. It is apt to describe the assertion of a right in a formal legal process, in the nature of a cause of action or a statutory right. Santos relied on part of the reasons in Baulderstone Hornibrook Engineering Pty Ltd v Gordian Runoff Ltd.[47] As Einstein J acknowledged, that passage itself arises from the following part of the reasons of Carr J in Bray v F Hoffman-La Roche Ltd:[48]
[222]
"The noun 'claim' has a wide range of meaning. Relevantly it includes a demand for something as being due and also a statement of one's right to something - see The New Shorter Oxford English Dictionary, p 409, The Macquarie Dictionary (2nd ed), p 332. That is, a demand for a payment or other relief and a statement of the basis upon which that demand is made.
[223]
In my opinion, the word 'claim' is not to be construed as limited to 'cause of action'. It should be construed as including a cause of action, in the sense of a (stated) basis of one's right to something, and also a demand for what is due by virtue of that right, whether it be damages, an injunction or any other relief."
[224]
[106] Santos contends "Claim" is broad enough to capture a non-curial claim or a demand by Fluor, including an assertion by Fluor of an entitlement to be reimbursed its costs or paid for them under the EPC.
[107] The combination of the expansive language agreed by the parties in the definition of Claim and the qualifications - one in the chapeau (noted above) and two in the concluding phrases (dealt with below) - is such that it is not appropriate to narrow the scope of Claim. It is sufficient for present purposes to conclude that a Claim is the assertion of a right with some lawful basis as well as an underlying legal right.
[108] For cl 23.3(i) to operate, it must have a relevant subject matter, in the form of an asserted or underlying legal right of Fluor against Santos.
[225]
"to the extent [Santos] is prejudiced or damaged by such delay or Delay Event"
[226]
[109] As Santos accepts, the qualifying phrase - expressed in parenthesis at the end of sub-paragraph (2) - should be read as also operating in respect of sub-paragraph (1). There is no difficulty with construing the phrase in accordance with its ordinary meaning, so that sub-paragraphs (1) and (2) operate to the extent Santos has been prejudiced or damaged by a delay or a Delay Event.
[110] As Mr Rae observed, where the intended permanent works have a commercial purpose, as they evidently do here, a delay in completion would likely delay the commencement of commercial operations resulting in a loss of revenue or a delay in its receipt.[49] There is little doubt Santos would be prejudiced or damaged by a delay in completion.
[111] This qualifying phrase also confines the operation of the clause to where there has been a relevant delay or Delay Event.
[227]
"arises out of, or in connection with, the relevant period of delay and the Delay Event"
[228]
[112] By the final phrase in cl 23.3(i), the parties agreed that Santos' liability and Fluor's entitlement and waiver are effected for a Claim that "arises out of or in connection with the relevant period of delay and the Delay Event".
[113] In this way they tethered a Claim the subject of cl 23.3(i) to a particular period of delay and a Delay Event. They defined a Delay Event as expressly excluding:
[229]
"any events which would not have occurred but for ... a breach of the [EPC] by, or the negligence of, or any act or omission of, [Fluor] or [Fluor's] Personnel".
[230]
[114] A claim or demand by Fluor against Santos is not a Claim of this kind, if it arises out of or in connection with an event that would not have occurred but for Fluor's breach of the EPC. The exclusion of liability, the bar on making a Claim and the deemed waiver in cl 23.3(i) would not operate in respect of such a claim or demand.
[115] The phrase "arising out of or in connection with" includes two relational concepts. The first is plainly a causal relationship where the Claim springs, originates or results from the delay and the Delay Event as a cause or motive or effect of, or by reason of them,[50] or comes into being, originates, results or proceeds from them as a source, ground or cause.[51]
[116] As to the second relationship "in connection with", although made in respect of a statute, the following observations are of assistance:
[231]
"The words 'connected with' are capable of describing a spectrum of relationships ranging from the direct and immediate to the tenuous and remote. As Sheppard and Burchett JJ observed in Australian National Railways Commission v Collector of Customs (SA) [(1985) [1985] FCA 312; 8 FCR 264 at 275], the meaning of the word 'connection' is wide and imprecise, one of its common meanings being 'relation between things one of which is bound up with, or involved in, another': Shorter Oxford English Dictionary. Although the words of the statute are construed according to their ordinary English meaning, that does not mean that their application to a set of facts is simply described as the matching of that set of facts with a factual description. There is necessarily a selection process involved. The range of relationships to which the words apply for the purpose of the Act depends upon a judgment about that purpose."[52]
[232]
[117] The proper construction of the provision, including the final qualifying phrase, requires consideration of the context and the purpose of the clause.
[118] Santos submitted the clause should be construed so that part of the sum claimed by Fluor for payment of the Contract Price for the Work undertaken during a period of delay is a Claim that arises out of, or in connection with, a relevant period of delay and a Delay Event. As Mr Doyle QC, who appeared with Ms Schneider for Santos, put it, there is nothing that precludes a construction to the effect that Fluor cannot "make a claim for anything, a claim, a demand, a notice under a contract or, indeed, on any other basis" where no Delay Notice or Extension of Time Claim has been given.[53]
[119] The construction promoted by Santos may be tested in the four circumstances that, so construed, cl 23.3(i) might operate.
[233]
(a) If Santos caused a delay in the progress of any part of the Work (i.e. a Delay Event), and Fluor gave Santos both a Delay Notice and an Extension of Time Claim, then Santos would be liable to pay Fluor (and Fluor would be entitled to claim) the relevant part of the Contract Price for the Work performed during the delay.[54]
[234]
(b) If Santos caused the same Delay Event, but Fluor did not give Santos both a Delay Notice and an Extension of Time Claim, then Santos would be discharged from its liability to pay Fluor for the Work performed during the delay. Fluor would lose its right to claim payment of that amount from Santos and would be deemed to have waived it.[55]
[235]
(c) If Fluor caused a delay and gave Santos a Delay Notice and an Extension of Time Claim (to which it would not be entitled), then Santos' liability to Fluor to pay the Contract Price for the Work performed during the delay would be unaffected as would Fluor's right to claim for payment for the Work.[56]
[236]
(d) If, having caused the delay, Fluor did not give Santos a Delay Notice or an Extension of Time Claim, then Santos would be discharged from its obligation to pay Fluor for the Work performed during the delay. Fluor would lose its right to claim payment of that amount from Santos and would be deemed to have waived it.
[237]
[120] Construed in this 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).[57] It might be unconscionable, in light of the absence of any contractual obligation on Fluor to make a claim, the limited legitimate interest of Santos in Fluor making a claim when Fluor is entitled to do so, due to the right of Santos to unilaterally extend time; the absence of any legitimate interest on the part of Santos in Fluor making a claim when Fluor has no entitlement to an extension; the protection of Santos by the provision for Fluor to pay liquidated damages for delay; and the agreement of the parties that the periodic and event-based amounts for Liquidated Damages,[58] capped at $15 million, represent Santos' genuine pre-estimate of the damages likely to be suffered by it as a result of a delay in achieving Mechanical Completion by a relevant date.
[121] So construed, cl 23.3(i) would be a secondary obligation imposing a detriment on Fluor for not giving a Delay Notice whether 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. It would not be a provision protective of a legitimate interest of Santos. It might have no purpose other than to punish Fluor.[59] It happens that parties agree to include penalty provisions in contracts. It is less likely where the parties are large, with extensive experience in contracts of this kind, and are well-advised. The relevant factual matrix, including the particular parties, and the evident commercial purpose of the EPC are against the construction advanced by Santos.
[122] I reject Santos' construction as contrary to what a reasonable business person in the position of Santos and Fluor would have understood the provision to mean.
[123] If progress of the Work is delayed, then on Mr Rae's evidence, Fluor is likely to incur costs in the nature of loss of opportunity, financing costs and inflationary costs. Fluor may only recover such costs to the extent they are within the scope of Delay Costs and if Fluor is granted an extension of time. The other costs Mr Rae identified (e.g. the indirect time related costs in Figure 2-4) are within the Contract Price for the Work Fluor has agreed to perform and which Santos has agreed to pay at agreed rates or on an agreed basis. Santos is liable to pay those costs under the EPC. Unless Fluor's right to be paid the Contract Price is affected by the construction alleged by Santos, Fluor would not suffer any loss or damage by incurring those costs during a period of delay.
[238]
[127] The language in cl 23.5 is slightly different to that in cl 23.3(i). The parties' respective rights affected by cl 23.5 are their rights about a Claim "arising out of, or in connection with, the Delay Event or any delay and disruption to the progress of the Work". As in cl 23.3(i), a claim arising out of or in connection with a breach by Fluor is not a Claim excluded or barred by cl 23.5, because it does not arise out of or in connection with a Delay Event. The express reference to "delay and disruption" accords with Mr Rae's evidence of the potential effects of critical delay on a contractor's direct costs. In the context of the balance of cl 23 and the EPC as a whole, the relevant "delay and disruption" is that associated with a Delay Event. It follows that the effect of cl 23.5 is consistent with and no different to the effect of cl 23.3(i) in confining Fluor's rights in respect of a Delay Event.
[128] The evident purpose of cl 23.5 is to encourage Fluor to claim an extension of time when Fluor is entitled to do so. This facilitates Santos granting an extension and so preserves Santos' right to claim liquidated damages in the event of another delay caused by Fluor. The purpose is not served by taking away Fluor's right to be paid for performing the Work (in accordance with Schedule 3.1) when Santos causes Fluor to be delayed.
[129] When a delay is caused by Santos (or by an event beyond the control of Fluor), Santos has (or may have) a liability arising out of or in connection with the period of delay and the Delay Event. On the evidence of Mr Rae, to the extent that Fluor incurs delay and disruption costs that are not paid by Santos as part of the Contract Price, it may have a claim against Santos to be paid them. According to Mr Rae, Fluor may suffer a loss of opportunity to earn a contribution from deploying its key resources on other projects, and incur additional financing costs and inflationary costs. A claim by Fluor against Santos for these things would be a claim that arises out of, or in connection with, the delay and the Delay Event. Fluor has (or may have) an entitlement to make a Claim against Santos for these costs and losses and so a right it could waive. In those circumstances, cl 23.3(i) can operate in combination with cls 23.3(a) and 23.3(e) to give Fluor a remedy in the form of an extension of time and with cl 23.5 to prevent Fluor asserting these other claims that arise out of or in connection with the delay and Delay Event.
[239]
(a) When a Delay Event occurred, Fluor could claim its entitlement to an extension of time (or Santos could unilaterally extend time).[62]
[240]
(b) Fluor's sole remedy for a Delay Event was Fluor's entitlement to an extension of time, Santos' obligation to pay Delay Costs and Fluor's entitlement to an adjustment to the Target Budget Estimate or the Fee.[63]
[241]
(c) These remedial matters did not preclude Fluor from claiming payment for Actual Costs (calculated in accordance with Schedule 3) incurred after the Date for Mechanical Completion, including where Mechanical Completion was achieved after that date as extended by Santos.[64]
[242]
(d) Fluor's entitlement to be paid Actual Costs was not affected by whether or not Fluor gave a Delay Notice or Extension of Time Claim.
[243]
(e) The consequence of Fluor failing to achieve Mechanical Completion by the Date for Mechanical Completion was that Fluor might be liable to pay Santos liquidated damages.[65]
[244]
(f) The parties agreed liquidated damages were Fluor's sole liability and Santos' exclusive remedy for such a failure.[66]
[245]
(g) The failure on the part of Fluor to achieve Mechanical Completion by a relevant date did not affect its entitlement to be paid Actual Costs for any Work performed, including after the relevant date.
[246]
[136] Santos has no real prospect of succeeding with respect to its conclusions pleaded in SASOC [18], because they are not open on the proper construction of the EPC.
[137] First, Santos does not allege that, at any relevant time, Fluor considered it had been or was likely to be delayed in a relevant way by Santos (or by an event beyond Fluor's control) and Santos does not plead that any Delay Event occurred.[67] Santos does not allege and seek to prove circumstances in which it could be concluded that Fluor failed to give a relevant notice within the meaning of cl 23.3(i).
[138] Second, the MC Delay Costs claimed by Santos are not costs that were the subject of any Claim arising out of or in connection with a period of delay and a Delay Event. No Delay Event is alleged. Fluor had no entitlement to claim costs of disruption, additional head office overheads, loss of profit and additional finance charges or inflationary costs from Santos. Fluor did not make a Claim for any such costs. As a result, Santos did not pay them. Santos has expressly excluded such costs from the MC Delay Costs Claim.
[139] Third, the MC Delay Costs are sums Santos was obliged to pay Fluor for the performance of the Work under the EPC. They are part of the Contract Price calculated in accordance with Schedule 3. Neither the liability of Santos to pay the MC Delay Costs nor the right of Fluor to make a Claim for payment of them was affected by cl 23.3(i) or cl 23.5. Fluor also did not waive its right to make such a claim.
[247]
[140] The two conclusions pleaded (or proposed to be pleaded) in SASOC [19] are:
[248]
(a) that the MC Delay Costs were Excluded Costs; and
[249]
(b) that the MC Delay Costs were not otherwise costs properly and reasonably incurred by Fluor in performing the Work under the EPC, and therefore were not Actual Costs which Fluor was entitled to be paid under the EPC.[68]
[250]
[141] In its solicitors' correspondence, Santos clarified the bases for these conclusions.[69]
[251]
[142] As to the conclusion in SASOC [19](a), the solicitors' letter advised:
[252]
"... Santos' principal case is that the [MC] Delay Costs are excluded costs because:
[253]
(a) they are amounts [Fluor] is precluded from claiming under the [EPC] (item 5(vi) of the clause 1.1 Excluded Costs definition);
[254]
(b) further or alternatively are amounts expressly excluded under the [EPC] (item 5(vii) of the Excluded Costs definition)."
[255]
[143] The relevant parts of the definition of Excluded Costs are set out at [39] above. In short, they are:
[256]
(vi) which [Fluor] is precluded from claiming under the [EPC] or which the [EPC] expressly provides are to be incurred at the cost of [Fluor]; and
[257]
(vii) expressly excluded under any other provision of the [EPC]."
[258]
[144] The only pleaded bases for preclusion or exclusion are cl 23.3(i) (and the definitions of "Claim", "Delay Notice" and "Extension of Time Claim" in cl 1.1) in SASOC [10](j) and cl 23.5 in SASOC [10](k). This is consistent with Santos' pleading that the conclusions in SASOC [19] are alleged "[i]n the premises set out in paragraphs 5(b)(i) and 10 to 18" of the SASOC. For the reasons set out at [127] to [135] above, Santos' allegations about the proper construction and effect of cls 23.3(i) and 23.5 are rejected; as are those about the definition of Claim in cl 1.1.
[145] Fluor is not precluded from claiming the amounts for time-related MC Delay Costs under the EPC. Those costs are not amounts which the EPC expressly provides are to be incurred at the cost of Fluor. Nor are they expressly excluded under any provision of the EPC identified by Santos in the proceeding. It follows that the MC Delay Costs are not within the scope of item 5(vi) or (vii) of the definition of Excluded Costs, as Santos has alleged in SASOC [19](a).
[146] Santos has no real prospects of success for the conclusion it pleads in SASOC [19](a).
[259]
[147] In its solicitors' letter, Santos sought to clarify the grounds on which the conclusion pleaded in SASOC [19](b) - that the MC Delay Costs were not otherwise costs properly and reasonably incurred by Fluor in performing the Work under the EPC - is advanced:
[260]
"As Santos made clear in paragraphs 18 and 19 of its pleading, the grounds on which Santos says that these amounts were not properly and reasonably incurred are that they are amounts arising out of or in connection with the pleaded facts summarised under the heading 'Material facts' above, namely:
[261]
[Fluor's] failure to meet its contractual obligation to achieve Mechanical Completion of the Guaranteed Parts by the Guaranteed Dates;
[Fluor's] failure to submit a compliant Delay Notice or Extension of Time Claim in relation to the delays in the progress of the Work required to achieve Mechanical Completion of those Parts by the contractual Dates.
[262]
In the premise, the Mechanical Completion Delay Costs are not amounts that were properly and reasonably incurred and claimed by [Fluor] in performing the Work as they are inconsistent with the contractual scheme and were incurred in circumstances where [Fluor] was in breach of its contractual obligations."
[263]
[148] The matters in paragraphs 1 and 2 of the above extract are pleaded in SASOC [12], [13], [14] and [15]. In addition to those matters, the other matter summarised in the solicitors' letter, under the heading "Material facts", was:
[264]
"After each of the Guaranteed Dates, [Fluor] continued performing Work required to achieve Mechanical Completion of each of the Guaranteed Parts and claimed (and was paid) time related overhead costs for this Work. Those time related overhead costs are identified in paragraph 16 of Santos' pleading and are referred to as the "Mechanical Completion Delay Costs". The Mechanical Completion Delay Costs do not include any direct costs incurred in performing the Work and are comprised entirely of amounts that would not have been incurred if the Guaranteed Parts had achieved Mechanical Completion by the Guaranteed Dates."
[265]
[149] As the solicitors noted, the matters in the first sentence of this extract are pleaded in SASOC [16]. The final sentence is pleaded in SASOC [17].
[150] It follows that the conclusion pleaded in SASOC [19](b) is not premised on any factual allegation to the effect that Fluor did not incur those costs in performing the Work, or that it improperly incurred those costs, or that it unreasonably incurred those costs.
[151] At the hearing, Counsel for Santos explained that the contention the MC Delay Costs were not properly and reasonably incurred (and so not Actual Costs) relied on:
[266]
(a) Fluor's failure to meet its contractual obligation to achieve Mechanical Completion of the parts by the relevant dates; and
[267]
(b) Fluor's failure to submit a compliant Delay Notice or Extension of Time Claim in relation to the delays.
[268]
[152] Reading the parts of the SASOC Santos proposes as the premises for the conclusions pleaded in SASOC [19], consistently with its solicitors' clarification and the submissions by its Counsel, it is clear that the conclusion alleged in SASOC [19](b) is based on the alleged effect of cls 23.3(i) and 23.5 pleaded in SASOC [10](j) and [10](k).
[153] Santos' case about the proper construction of those clauses has no real prospect of success, for the reasons set out above.
[154] Mr Doyle submitted there was a factual question to be resolved as to whether any of the MC Delay Costs were not properly and reasonably incurred.
[155] As noted above, Santos does not contend that Fluor did not incur any of the MC Delay Costs. Nor is it alleged that the costs were unreasonably incurred, on any basis other than: that each of the Guaranteed Parts was not completed by the relevant Guaranteed Date; and that no Delay Notice of Extension of Time Claim was submitted by Fluor. It follows no factual enquiry is called for to determine whether Santos has made out its MC Delay Costs Claim.
[156] I am satisfied that there is no need for a trial. Santos has no real prospect of succeeding on the balance of the MC Delay Costs Claim based on the conclusions in SASOC [19], because its case in contrary to the proper construction of the EPC.
[269]
[157] On 11 December 2019, Santos advised the Fluor parties that the "claim set out in paragraphs 16 to 19 of the [SASOC] is made in the alternative" and, if the Fluor parties were to be successful in their summary judgment application, "this will not affect the quantum of [Santos'] claim, the volume of the evidence required or the duration of the trial".
[158] At the hearing, Mr Doyle sought to explain this contention.
[270]
"... if we fail on mechanical completion delay, we will still have a claim for costs ... covering the same period which largely overlap ... which will need to go to a trial.
[271]
They are alternative means of recovering the sums which add up to the total overpayment claim. They are not wholly alternative claims. They are intended to be part of the overpayments claim captured by schedule 37. Now, that's either presently the position or it should be made clear by the amendment that we've proposed."[70]
[272]
[159] From this, it appears Santos alleges some of the same costs are recoverable on a different basis. If Santos persists with the different claim, those common costs may be the subject of evidence as to their calculation. This may reduce the effect on a trial of summary judgment on the MC Delay Costs Claim. The extent of reduction was not the subject of any detailed submission or evidence in this application. The court can do no more than note that the removal of the present claim from the trial may not comprehensively eliminate evidence and submissions on the topic of these costs.
[273]
[160] The exercise of the discretion to grant summary judgment is informed by the objective that a claim should proceed in a timely way and that the rules are to be applied with the objective of avoiding undue delay, expense and technicality and to facilitate the just and expeditious resolution of the real issues.[71] It would be contrary to that objective to require the parties to gather and consider factual evidence and obtain and lead expert evidence about the MC Delay Costs Claim, including all of the costs within it, when the claim has no real prospect of success. There is no reason for a trial of the part of Santos' claim that is based upon the conclusions pleaded in SASOC [18] and [19].
[161] Santos has had many years to formulate its claims, including this one. It has availed itself of the right to amend its pleading a number of times. It had several months' notice of the application by the Fluor parties for summary judgment. It has been assisted by very able and experienced Counsel and solicitors.
[162] These considerations lead to the conclusion that the discretion should be exercised to grant the Fluor parties summary judgment against Santos on this part of the claim.
[163] The Fluor parties have succeeded in their application. There appears to be no reason costs should not follow the event.
[274]
[164] For the reasons set out above, orders should be made to the following effect:
[275]
(a) Summary judgment for the Fluor parties against Santos, pursuant to r 293, on the parts of Santos' claim that:
[276]
(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
[277]
(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.
[278]
(b) Santos pay the Fluor parties' costs of the application.
[279]
[1] Or such other sum as the court finds due and owing under the EPC (as defined at [4] of these reasons). Santos claims this relief in paragraphs A and A.1 in its prayer for relief.
[280]
[2] At the hearing of the application, Santos informed the court it proposes to amend the SASOC to insert a new paragraph A.1A in the prayer for relief in these terms as an alternative to the relief sought in paragraph A and A.1. It is convenient to consider the application as if it had been amended in this way.
[281]
[3] In these reasons, a reference to a clause is to a clause of the EPC unless otherwise specified.
[282]
[5] Since the hearing, Santos filed a third (on 30 July 2020), fourth (on 15 September 2020), fifth (on 28 October 2020) and sixth (on 7 December 2020) amended statement of claim. None of the subsequent pleadings amend the MC Delay Costs Claim or plead it differently to the SASOC.
[283]
[6] Santos advised the Fluor parties that it had inadvertently omitted the words "and reasonably" from SASOC [19](b).
[284]
[7] Santos proposes to amend so that in the chapeau to SASOC [19] Santos relies on "the premises set out in paragraphs 5(b)(i) and 10 to 18".
[285]
[8] Including the earlier amendment to SASOC [19](b) proposed on 18 March 2019.
[10]Queensland University of Technology v Project Constructions (Aust) Pty Ltd (in liq)[2002] QCA 224; [2003] 1 Qd R 259 at 265 [7] (Holmes J, Davies JA and Mullins J agreeing).
[12]LCR Mining Group Pty Ltd v Ocean Tyres Pty Ltd[2011] QCA 105 at [30] (White JA, Wilson AJA and Ann Lyons J agreeing); Gray v Morris[2004] QCA 5; [2004] 2 Qd R 118 at 133 [46] (McMurdo J, McPherson JA agreeing). See also Equititrust Ltd v Gamp Developments Pty Ltd & Ors[2009] QSC 115 at [12] (McMurdo J).
[18]Coley v Nominal Defendant [2004] 1 Qd R 239 at [23] (McMurdo P, Jerrard JA agreeing), citing General Steel Industries Inc v Commissioner for Railways (NSW)[1964] HCA 69; (1964) 112 CLR 125 at 130 (Barwick CJ).
[20]Batistatos v Roads and Traffic Authority of New South Wales[2006] HCA 27; (2006) 226 CLR 256 at [46] (Gleeson CJ, Gummow, Hayne and Crennan JJ), quoting Agar v Hyde at 576 [57]. See also at [25], [53], [71].
[27] The Scope of Work comprised a 49 page "Scope of Facilities" and a 65 page "Scope of Services", both in Schedule 2 to the EPC.
[303]
[28] In the EPC, the parties distinguished acts and omissions by Fluor "Personally" from those of any unrelated "person to whom a part of the Work is sublet by, or on behalf of, [Fluor] or any subcontractor" (a Subcontractor); and so they distinguished the costs suffered or incurred by Fluor "Personally" from those of any unrelated Subcontractor. The parties also dealt separately with Fluor's "Personnel".
[304]
[29] As they had done in section 5.1.3 using the same rates for Indirect Home Office Services.
[305]
[34] Or a declaration that, in certain events, it is entitled to be repaid that amount.
[306]
[35] These are set out in schedule 2 to the SASOC.
[307]
[36] Plaintiff's submissions filed 6 February 2020 (Santos submissions) at [28].
[308]
[38] Mr Rae describes these additional costs as "costs that would ordinarily be expected to be incurred as a result of a delay event".
[309]
[39] In response to a 28 September 2017 request by the Fluor parties for further and better particulars of SASOC 16(b), Santos stated that the "time related overhead costs" are overhead (i.e. indirect) costs which are a function of time. The term is used in distinction to "direct costs", "work-related overheads", "fixed overheads" and "profit". See exhibit AJS-1 to the affidavit of Mr Stephenson at 1.
[310]
[40] The underlined parts of these extracts of the SASOC identify the proposed amendments to the pleading Santos has foreshadowed up to and including at the hearing of this application.
[311]
[41] The Fluor parties do not admit SASOC [16](a) on the basis it is lacking in particularity.
[312]
[42] Santos does not allege that Fluor considered the relevant work had been delayed or was likely to be delayed, which is the pre-condition in cl 23.2 of the EPC for Fluor to be obliged to give a Delay Notice. Santos does not allege that any of the delays to which the MC Delay Costs Claim relate was caused by a Delay Event. On the contrary, on Santos' case, there was no Delay Event and Fluor was not entitled to make an Extension of Time Claim.
[313]
[43] Letter from Corrs Chambers Westgarth to Jones Day dated 18 March 2019 (exhibited at 237-240 of exhibit SWF-1 to the affidavit of Mr Fleming filed on 11 November 2019) at 2.
[314]
[44] The contention in each of (b) and (c) is pleaded "further or alternatively" to its predecessor(s).
[315]
[45] Such as any of the matters within the definition of Delay Event in cl 1.1.
[54] Subject to the conditions in cls 23.3(c) and (d), Fluor would also be entitled to an extension of time for completion. The delay is understood to refer to the period after the relevant Date for Mechanical Completion.
[321]
[55] Although Fluor would not have claimed an extension of time, Santos would not be entitled to liquidated damages for the period of delay, because Santos would have prevented Fluor progressing the Work in that time: Peak Construction (Liverpool) Ltd v McKinney Foundations Ltd(1970) 1 BLR 111. If Santos exercised its unilateral power to extend the time for completion, under cl 23.4, and so preserved its right to claim liquidated damages for any delay caused by Fluor beyond the extended date for completion, then there would be no relevant delay and cl 23.3(i) would have no operation.
[322]
[56] Presumably, Santos would refuse the claim for an extension of time.
[323]
[57] As noted above, the MC Delay Costs are calculated by Santos to be in excess of $450 million.
[324]
[59]Paciocco v Australia and New Zealand Banking Group Ltd (2016) 258 CLR 525 per Kiefel J at [27] (French CJ agreeing), Keane J at [270] and Gageler J at [142]-[143], [164], [166].
[325]
[60] To the extent that any part of them might be included in the Contract Price, Fluor could not claim them again as Delay Costs.
[326]
[67] These omissions might be remedied by amendment to the SASOC to plead either or both allegations.
[327]
[68] The second contention in SASOC [19](b) is pleaded "further or alternatively" to the first in SASOC [19](a).
[328]
[69] Letter from Corrs Chambers Westgarth to Jones Day dated 18 March 2019 at 2-3.
Parties
Applicant/Plaintiff:
Santos Limited
Respondent/Defendant:
Fluor Australia Pty Ltd & Anor
Cases Cited (11)
(2000) 201 CLR 552
(2006) 226 CLR 256
(1949) 78 CLR 62
(2014) 251 CLR 640
(1964) 112 CLR 125
(1960) 105 CLR 23
(2015) 256 CLR 104
(2010) 241 CLR 118
(2003) 130 FCR 317
(1993) 43 FCR 280
(2016) 258 CLR 525
AI Analysis
Outcomedefendant
Disposition:
The defendants obtained judgment under r 293 on the specified parts of Santos’ claim and Santos was ordered to pay their costs of those parts, including the application.
[53] By section 5.4.2, the parties agreed Santos was to pay Fluor the running costs of its approved project office in Brisbane for each month during the performance of the Work "in accordance with table 5.5". In the table, the parties set out monthly rates for floor space, car parks, bike racks, cleaning, rubbish removal, miscellaneous expenses, furniture, telephone, printers, a computer server and network, router and firewall and similar maintenance. Those rates totalled about $108,000 per month. The parties described the payment at these rates as being for Actual Costs incurred by Fluor. They also agreed Fluor was to have invoices and back-up information to substantiate these amounts available on request by Santos.
[103] Clauses 23.2 and 23.3 are part of the context relevant to the proper construction of cl 23.3(i). They indicate the expression "fails to give" calls for more than a mere absence of a notice or a claim. Fluor will fail to give a notice only when the circumstances require it and Fluor does not do so. Fluor will fail to give a claim only when the circumstances entitle it to do so and Fluor does not.
[124] In this context, and in light of the purpose of the various provisions in cls 23 and 24, cl 23.3(i) should be construed so that a Claim arises out of, or in connection with, the period of delay and the Delay Event if it is a loss, damage or right Fluor may assert as a result of the delay and to which Fluor has no entitlement otherwise, including under the EPC.
[125] Santos also submits the final phrase in cl 23.3(i) should be construed so that the words "the relevant period of delay and the Delay Event" are to the effect of "the relevant period of delay or the Delay Event". Such a construction, Santos contends, would allow the provision to apply when there is a relevant period of delay, but no Delay Event. Santos submits there is no reason to read this part of the clause as confining the operation of sub-paragraphs (1) and (2) to when a Delay Event has occurred. Santos submits that "to do so would be inconsistent with the breadth of the opening words" of cl 23.3(i), where the two failures to give notice are linked by "or" instead of "and".[61]
[126] Like its case about the other elements in cl 23.3(i), by this submission Santos seeks to construe the provision so as to give it an operation whenever there has been a delay in progress of the Work and either Fluor has not given a Delay Notice, regardless of whether there has been a Delay Event, or Fluor has not given Santos an Extension of Time Claim, regardless of whether Fluor is entitled to do so. It is rejected on the same basis.
[130] When Fluor causes a delay, no new liability on the part of Santos arises out of, or in connection with, the period of delay and there is no Delay Event. Fluor has no corresponding entitlement to make a Claim against Santos and so has no Claim to waive. There is no work for cl 23.5 (or cl 23.3(i)) to do.
[131] Under the EPC, Fluor is paid for the time-related indirect costs as part of the Contract Price calculated in accordance with Schedule 3. A delay or Delay Event does not give rise to any separate claim by Fluor for such costs.
[132] The construction of cl 23.5 proposed by Santos is not as a reasonable business person in the position of Santos and Fluor would have understood the words used by the parties in the context of the EPC. It serves no commercial purpose and does not produce a commercial outcome.
[133] As a matter of construction, in the context of the EPC as a whole, the parties' agreement in clauses 23.3(i) and 23.5 to exclude liability for and bar a Claim does not alter the right of Fluor to be paid the Contract Price calculated in accordance with Schedule 3 for performing the Work. It only affects any right Fluor might otherwise have to recover from Santos for additional costs incurred because of a Delay Event, such as those identified by Mr Rae.
[134] The common operation and common language in cls 23.3(i) and 23.5 call for a consistent construction of the two provisions. By cl 23.5, the parties agreed that Fluor's sole remedy in respect of a Delay Event would be its entitlement (if any) to an extension of time. Having confined Fluor's remedy in that way, the parties agreed Fluor is not entitled to make (and is absolutely barred from making) a Claim "arising out of, or in connection with, the Delay Event or any delay and disruption to the progress of the Work". Properly construed in this context, the provisions operate to limit liability for, exclude entitlement to and bar claims for the disruption costs (for idle resources), head office costs (for resources unable to be used on other projects and the consequent loss of the opportunity to earn a contribution to overhead or profit), and financing costs or inflationary costs (that are not included in the Actual Costs calculated in accordance with Schedule 3), which are incurred by Fluor by reason of a Delay Event or delay and disruption to progress and for which Santos would otherwise be liable and Fluor would otherwise be entitled to claim.