Home » Bite your Tongue During Contract Negotiations

A mine operator has paid a heavy price for statements made by its employees during negotiations with an underground drilling contractor.

Background

Newmont Phajingo Pty Ltd (Newmont) entered negotiations with Tomac Enterprises Pty Ltd (Tomac) to engage it as an underground drilling contractor. During the negotiations, Newmont representatives made various statements about Tomac being at the mine 'for years' and 'for a long time, and that there were 'more metres here than Tomac could ever drill'. Despite these statements, the agreement related to only 30,000 metres of drilling, which Tomac completed within a matter of months. The engagement continued afterwards for 10 months and 79,000 metres of drilling was completed.

Tomac purchased a new drill to carry out the work. Newmont requested that Tomac also operate a second drill (that was already on-site) 'for the short term'.

After drilling more than 30,000 metres, Tomac expressed concern to Newmont that the existing agreement did not reflect a long-term arrangement. Newmont said that it would issue a letter of intent to prolong the work. Newmont sent a draft letter of intent to Tomac and asked it to provide proposed changes. Tomac suggested that the drilling rate be increased. In response, Newmont advised Tomac that it had decided to go out to tender for the drilling. Shortly after, Newmont advised Tomac that its tender was unsuccessful, indicating that it had concerns over Tomac's performance, including its safety record.

Application

Tomac applied to the Queensland Industrial Relations Commission under section 276 of the Industrial Relations Act 1999 (Qld) (the Act), alleging that the contract between itself and Newmont was unfair, and seeking various payments, including for loss of profits. Section 276 is comparable with the better-known s106 of the Industrial Relations Act 1996 (NSW) and has not been widely used in the past.

A person can apply under s276 provided that its 'annual wage' does not exceed the statutory cap (currently $90,400). Given that (unlike employees) most contractors are not paid an 'annual wage', there is effectively no statutory cap for contractors.

Decision

The Commission held that the contract became unfair because of the following conduct:

• Newmont's representatives led Tomac to believe that it was entering into a long-term relationship:
  • through the various statements made during negotiations; and
  
  
  • when it encouraged Tomac to look at establishing a workshop facility in Charters Towers;


• Newmont knew, or should have known, that the amount of work given to Tomac would need to justify its decision to purchase the drill;


• Newmont knew that Tomac intended to purchase the drill at a significant cost, in reliance on the representations about a long-term relationship. Newmont's representatives encouraged Tomac to purchase the drill;


• the lower drilling fee paid to Tomac reflected a long-term arrangement;


• the arrangement included Tomac providing a service crew and other equipment at the mine, for which it made no profit. This action suggested that neither Tomac nor Newmont expected the relationship to be short term;


• Newmont requested Tomac to operate the second drill so that Tomac could drill as many metres as it could, as quickly as possible. This suggested that Newmont had ample work and that the relationship was long term;


• Tomac was allowed to continue drilling when it exhausted the initial 30,000 metres;


• six months elapsed between Tomac requesting Newmont to clarify future work opportunities and Newmont issuing the letter of intent. Tomac was disadvantaged by Newmont's inaction because it had difficulty retaining skilled labour. Further, Newmont ignored Tomac's requests to talk about Tomac's safety performance and operational problems that were affecting Tomac's drilling rate;


• if Newmont had concerns about Tomac's safety performance and the cost of metres drilled, it had an obligation to discuss these with Tomac. That it did not do so suggests that either the concerns were only raised after the event, that the matters were not really a serious concern, or that Newmont believed that it was under no obligation to talk to Tomac;


• the whole tender process was a farce and the outcome appeared to have been predetermined;


• Tomac was given only two weeks to remove itself from site, which was unreasonable; and


• contrary to Newmont's undertakings that Tomac would be at the mine for a long time, Tomac was forced to leave the site after just 13 months. Tomac was left with a specialist drill, and the potential for work elsewhere was limited, if not impossible. Further, Tomac had lease commitments approaching $14,000 a month. Newmont knew, or should have known, that Tomac would suffer considerable losses.

Remedy
The Commission concluded that the contract should be amended to provide Tomac with 120,000 metres of drilling or a total of two years' drilling (which reflected the intended long-term nature of the arrangement), whichever occurs first. Further, Newmont was to reimburse Tomac for any lease payments it may incur on the drill in the event that it becomes idle because the 120,000 metres of drilling is completed before the expiry of two years. The Commission then calculated that these amendments entitled Tomac to a payment from Newmont of $414,250.

Implications

Tomac may have been able to bring a claim against Newmont in the courts, arguing breach of contract, misrepresentations or misleading and deceptive conduct. However, the Commission's unfair contract jurisdiction provides a more flexible, expedient and cost-effective avenue for claimants.

Employers outsourcing work, thinking that they are limiting their exposure by avoiding the unfair dismissal jurisdiction, should carefully consider the risk of an unfair contract claim. This is particularly so given that there is no cap on the damages that can be awarded in an unfair contract claim (compared to the maximum six months' wages that can be awarded to a successful unfair dismissal applicant).