30
[Extract from Queensland Government Industrial Gazette,
dated 14 January, 2005, Vol. 178, No. 2, pages 35-55]
QUEENSLAND INDUSTRIAL RELATIONS COMMISSION
Industrial Relations Act 1999 – s.276 – application to amend or void contract
Tomac Enterprises Pty Ltd AND Newmont Pajingo Pty Ltd (No. B782 of 2004)
DEPUTY PRESIDENT BLOOMFIELD 23 December 2004
Application for determination pursuant to s.276 – Drilling contract on mine site – Claim contractor was told would be on-site “for years” – Contractor on-site for 13 months – Reliance – Alleged breach of contract or collateral contract – Alleged unconscionable and unfair behaviour – Unfairness to be determined by a common sense approach – Contractor treated unfairly – Contract declared to be unfair – Any payment for unfairness to be appropriate to the circumstances of the case – Applicant awarded $414,250.
DECISION
The application
This decision relates to an application made by Tomac Enterprises Pty Ltd (Tomac) for a determination pursuant to s.276 of the Industrial Relations Act 1999 (the Act) that the contract between itself and Newmont Pajingo Pty Ltd (Newmont) is an unfair contract. Tomac seeks the following decision:
“2. (a) That there was an arrangement or understanding subsisting between Tomac and Newmont for drilling work to be carried out at the Newmont Pajingo mine site near Charters Towers (hereafter ‘the mine’) beginning on 8June 2002 whereby Tomac would be given longer term work if it went to the expense of obtaining from Sweden a new narrow vein ore body Atlas Copco 104/157 Simba drill (hereafter ‘the new drill’).
(b) That in the alternative to (a) there was a collateral contract to the contract between Tomac and Newmont, which latter contract was formed by the issue of Newmont purchase order 3000196346 of 13May 2002. That collateral contract consisted of an agreement that Tomac would be given longer term work if Tomac went to the expense of obtaining the new drill from Sweden.
(c) The arrangement or understanding or contract and collateral contract between Tomac and Newmont was unfair within the meaning of s.276(7) of the Act in that they were harsh, unjust and/or against the public interest or unconscionable.
…
(d) that the arrangement or contract and collateral contract be amended to include a term on considerations of fairness that on the expiration of the work covered by purchase order No. 3000196346 of 13May 2002 Tomac would be engaged by Newmont to do a further amount of work which would result in a total of a three year engagement.
(e) that Newmont pay to Tomac the sum of $575,807.98 or in the alternative $295,751.22 or in the further alternative $164,158.72.
Particulars
(i) Payments on idle drill $164,158.72 plus
Loss of profits $411,649.26 (being Tomac’s margin of 15.0% on $2,744,328.40) (see below)
Total (a) $575,807.98
or
(ii) Payment on idle drill $164,158.72 plus
Six months notice $131,592.50 (being Tomac’s margin of 15.0% on last six months invoices of $877,283.38)
Total (b) $295,751.22
(e1) that in the alternative to (e) and (e) (i) and e (ii) that this Honourable Commission amend the contract, arrangement or collateral arrangement so as to extend it for a period considered just in the circumstances of the case.
(f) in the alternative to (e) above that Newmont pay to Tomac an amount this Honourable Commission considers just in the circumstances of the case in the light of the period for which the contract, arrangement or collateral arrangement has been extended.”. [In his written submissions Dr Berwick, Counsel for Tomac, said an accountant’s report tabled by Newmont calculated Tomac’s loss, if the arrangement had been allowed to run for a further 2 years, as $1,052,287.].
Evidence on behalf of the applicant
Evidence was given on behalf of Tomac by Mr Steven Tomkins, who was its primary witness, and also by Mr Terry Welburn. Each witness is a director of Tomac.
Mr Tomkins
Mr Tomkins said he was contacted by Mr Stephen Price, a senior manager at the Pajingo Mine (the Mine), in early April 2002 about underground drilling work to be done at the Mine. Mr Price indicated the existing contractor was performing poorly and there was an opening for another contractor. He enquired whether Mr Tomkins was interested. A meeting was subsequently arranged to be held on 19April 2002. On that date Mr Tomkins and Mr Welburn met with Mr Don Russell, Manager Mining, Mr Simon Kusabs, Senior Production Engineer, Mr Alistair King, Drill and Blast Engineer and Mr Price, the Senior Mining Foreman. After preliminary greetings and some enquiries about Tomac’s background, Mr Russell is alleged to have said words to the effect “we are looking for a long term relationship with a small contractor”.
Later, Mr Kusabs took Mr Tomkins and Mr Welburn underground to inspect the drill drives and stoping areas. In one stope Mr Kusabs said words to the effect “we are very keen to drill it out as it (is) going 30 grams to the ton”. During the underground inspection Mr Kusabs showed them the drilling rig being used by the existing contractor. He commented it operated on a 415 volt system and Newmont required a 1,000 volt rig because the Mine was set up for 1,000 volt equipment. After completing the underground inspection Mr Kusabs asked whether Tomac had a drill that would do this job.
Mr Tomkins said he replied in words to the effect that Tomac did not, and, from enquiries he had made about the availability of drills to do this sort of work, there were none in Australia – either new or second hand. However, Atlas Copco had indicated there was a drill in Sweden which could be flown out if it was needed urgently. Mr Kusabs expressed his surprise that a drill could be air freighted and then indicated how “happy” he was that Tomac was prepared to put a new drill into service at Newmont. “It would be good to have a reliable drill on-site. A new drill will give you that reliability.”.
Mr Tomkins also said he told Mr Kusabs that Atlas Copco could provide an old, level development drill they could modify to drill long holes until the new rig arrived.
After this exchange Mr Kusabs said “There is a lot of work to be done but we will only give you 30,000 metres to drill at this stage. That will give us a chance to check on your performance and safety. If your performance is satisfactory, you will be drilling here for a long time.”.
Mr Tomkins said he told Mr Kusabs that 30,000 metres was not enough for Tomac to buy a brand new drill. He said Mr Kusabs said “don’t worry, there is a lot of drilling here. Our pre-drill stocks of ore are low. You’ll be alright.” (paragraph 17). The parties then started to discuss the metre rate for drilling.
Mr Tomkins said that after some toing and froing, Tomac accepted Mr Kusabs’ offer of $17.50 per metre. At about the time this offer was accepted Mr Tomkins said he told Mr Kusabs, in words to the effect, “30,000 metres is not enough to justify the purchase of a new drill rig. That only represents 5 months drilling. It will be a big step for Tomac to take.” (paragraph 21). In reply, Mr Kusabs said words to the effect “there is a lot of drilling to be done here. Pajingo’s pre-drill stocks of ore are low. You will be at Pajingo for a long time.” (paragraph 22). Mr Tomkins then told Mr Kusabs that Tomac would take on the work. “(Tomac will) purchase the new drill and get it freighted out to get (us) drilling as fast as possible.” (paragraph 23).
Mr Tomkins said that during the course of negotiations with Mr Kusabs, he and Mr Welburn adjourned several times to discuss the matter between themselves. During one such conversation they agreed that the rate they initially proposed, viz. $18.50 per metre, was low. However, after discussing how much work they had been led to believe was available and the length of time they thought they would be on-site, they agreed between themselves “it would be a really good opportunity”, “there would be heaps of drilling to do” and “it would be worth putting the new drill on site” (paragraphs 19A and 19C).
Mr Tomkins said a rate of $17.50 per metre would not normally be for a short term drilling contract. He also said Mr Kusabs told he and Mr Welburn, at some stage during the day, that the existing contractor had been on-site for 3 or 4 years.
After the drilling rate was agreed Mr Kusabs indicated that Newmont was under some pressure to use local contractors from the Charters Towers area and “it would be favourably looked upon” if Tomac established a workshop facility in Charters Towers. Mr Tomkins indicated he would check out this option. Mr Tomkins said he then raised the issue of a contract with Mr Kusabs who replied that he would organise one and send it my email. They then all shook hands (paragraph 27A).
After the meeting with Mr Kusabs, Mr Tomkins and Mr Welburn spoke with Mr Price in his office. Mr Tomkins told Mr Price they had concluded negotiations with Mr Kusabs and “Simon screwed us down to $17.50 per metre”. Mr Price indicated they should have hung out for $18.50 per metre. Mr Tomkins replied “we (will) make up the money, as there is a lot of work to do. It is a big step for us getting this new drill rig.”. Mr Price said words to the effect “You will be right. There is a shit load of drilling to do. You will be here for years. I am pleased you are buying a new rig. Mick Searle’s rig breaks down for up to three days at a time. Newmont had to take a drifter off (Newmont’s) Qasar drill to keep Mick Searle’s drill running. It will be good to have a new drill rig on-site.”.
Mr Tomkins also recalled a conversation with Mr Price on this same day where Mr Price said words to the effect “there are many thousands of metres of drilling to be done. Tomac will be here for years.”.
On 23April 2002 Mr Tomkins sent an email to Mr Kusabs referring to the recent site visit and the scope of work offered. The email said “Tomac are pleased to submit rate for long hole drilling of $17.50 per metre. Tomac for this rate will place a new 104/157 drill on-site, 2 x late model landcruisers, 1 x 20ft container and miscellaneous equipment to support the drill rig. I hope this meets your requirements …”.
On or about 10 May 2002 Mr Tomkins received an email from Mr Kusabs enclosing a contractor pre-qualification questionnaire. This was completed and returned.
A number of calls were subsequently made to Mr Kusabs regarding the whereabouts of the formal documents which would confirm Tomac’s work at the Mine. Mr Tomkins said Tomac needed this contract to raise finance for the new drill because the finance company wanted to see proof they had the work. Ultimately, towards the end of May 2002, Tomac received a purchase order (No. 3000196346 dated 13May 2002) by facsimile for “approximately 30,000 metres of 64mm up and down production holes (approximately 30% up and 70% down) utilising two 38 running gear with a leading guide tube”. The purchase order contained scope of work, Newmont’s safety requirements, the parties’ supply obligations, a schedule of rates – including mobilisation and standby rates for the rig and operators – and conditions of the purchase order. It ran to 5 pages in length.
Mr Tomkins said he noticed there was no provision for demobilisation in the purchase order, which further reinforced his conclusions – after his discussions with Mr Price and Mr Kusabs – that Tomac would be at the Mine for a long time.
A copy of Newmont’s purchase order was provided to the finance company, which then approved the finance. A purchase order was also placed with Atlas Copco for the new drill at a total cost of $575,000, excluding GST.
On 22May 2002 Mr Tomkins received an email from Mr Kusabs which indicated Newmont wished to have a second rig at the Mine “for the short term”. The email confirmed Newmont was agreeable to mobilising the second Atlas Copco rig and supplying it with one to 2 months’ drilling at the same dollars per metre rate as the new rig. The same purchase order would be used for that work.
Mr Tomkins said he and Mr Welburn went to the Mine again on 8June 2002 for site induction and to commence the work. When Tomac placed the order for the new drill with Atlas Copco, it informed Atlas Copco that it needed a fill-in drill until the new drill arrived. Atlas Copco made arrangements to truck this drill from Kalgoorlie and it arrived in Charters Towers on 16June 2002, with an Atlas Copco fitter to assist in its commissioning. Some problems were encountered and the old drill did not get onto the Mine until 1July 2002.
The new drill arrived at the Mine on 4July 2002.
Once the old and the new drills were drilling, Mr Tomkins and Mr Welburn had a meeting with Mr Kusabs in his new office about why the metres being drilled by the old drill should go on the same purchase order as the metres to be drilled by the new rig. Mr Kusabs said words to the effect “not to worry, there are more metres at Pajingo than Tomac could ever drill.”.
Mr Tomkins said he told Mr Kusabs that 2 drills would complete the purchase order faster. He said it was Tomac’s plan to get rid of the old drill as soon as the new drill was commissioned and up and drilling. Mr Kusabs said that Newmont wished the old rig to stay on-site as well and wanted Tomac to also man that drill.
Mr Tomkins said he had a conversation with Mr Kusabs, in the presence of Mr Welburn, in the Mine muster room where Newmont had performance scheduling and mine plans on display. Mr Welburn and he also looked over these plans in the presence of Mr Kusabs on a few occasions when discussing future drill horizons for the Tomac drills. On a number of those occasions Mr Kusabs said words to the effect “the planned areas for the Tomac drills could change very quickly. You should be prepared to be moved all over the Mine as priorities could change. The Mine is some 100,000 metres behind in pre-drill stocks of ore and we will always need a small contractor.”.