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Thiess Contractors v Placer Granny Smith

THIESS CONTRACTORS PTY LTD V PLACER (GRANNY SMITH) PTY LTD [2000] WASCA 102

Supreme Court of WA – 14 April 2000

FACTS

Placer was the owner of the Granny Smith gold mine and in 1989 engaged Thiess to carry our open cut mining at the mine site.

The original contract was a schedule of rates contract; latent conditions lead to Thiess making windfall profits.

In 1991, Placer therefore proposed that the parties enter into a partnering arrangement with the parties to share the risk of cost fluctuations, the parties working in good faith on all matters relating to the contract, and the contract providing for a fixed profit for Thiess.

Placer terminated the contract in March 1995 and relied upon a clause that stated that Placer could terminate the contract at any time and for any reason.

Thiess issued legal proceedings claiming that the termination of the contract was unlawful.

Placer counterclaimed for damages from a breach of contract alleging that Thiess had not acted in good faith by providing an initial incorrect estimate of its genuine costs according to which Thiess was to be paid.

ISSUES

Did alleged representations by Placer that the contract would remain in place for the life of the mine lead to Placer being estopped from terminating the contract?

Did Thiess fail to act in good faith and breach the contract in that it misrepresented that its rates were genuine estimates of its costs?

FINDING

Placer only showed an intention to retain Thiess for the life of the mine. The contract always had the termination clause and it was not removed from the contract despite the requests of Thiess.

Thiess had provided incorrect estimates of its genuine costs and had breached its contractual duty to act in good faith when providing the estimates. However Placer had failed at the trial to provide proper evidence of the damages it suffered and the Court awarded nominal damages of $100.00 to Placer.

QUOTE

Ipp, Steytler & Wheeler JJ said:

“There are several provisions in the contract itself which indicate that the parties intended that mining be carried on by Thiess pursuant thereto for the life of the mine. But that intention was always subject to the termination clause.

This is apparent from the terms of the contract itself.”

IMPACT

The Court’s judgment suggests that partnering agreements will be interpreted using the usual rules of construction.

However the Court also showed a willingness to enforce contractual obligations of good faith when one party to the contract misrepresented its position to the other party.

Thiess Contractors v Placer Granny Smith

THIESS CONTRACTORS PTY LTD V PLACER (GRANNY SMITH) PTY LTD (2000) 16 BCL 130

Supreme Court of Western Australia – 16 April 1999

FACTS

Placer (Granny Smith) Pty Ltd (“Placer”) entered into a contract with Thiess Contractors Pty Ltd (“Thiess”) whereby Thiess would carry out mining operations for Placer at rates based on genuine estimates of the cost of its operation, plus an agreed profit margin of 5%. Placer terminated the contract on the basis that the cost of continuing with Thiess under the existing contract was substantially higher than prices otherwise available on the market. Clause 1.1.5 of the contract required that Thiess and Placer act in good faith.

Thiess commenced action against Placer alleging wrongful termination and alternatively, Placer acted in bad faith in terminating the contract.

Placer counterclaimed, alleging that it had overpaid Thiess because, in breach of the contract and despite its obligation of good faith, Thiess had deliberately inflated its estimates of costs to be incurred in carrying out the contract work.

ISSUE

Whether Thiess breached duty of good faith.

FINDING

The Court found that Thiess had breached its duty of good faith. This decision was affirmed by the High Court of Australia.

QUOTE

Templeman J said:

“These provisions are typical of many contained in section B which do not define rights and obligations with any precision.

Their implementation clearly requires goodwill and co-operation on the part of both parties. “Good faith” must include those matters.

In addition, I think that the obligation of good faith requires the parties to deal honestly with each other. For example, in relation to carrying out the works: if Thiess sought to nominate mining equipment in accordance with cl 2.1.6, it would be required to provide an honest justification to Placer in demonstrating that the proposal resulted in the lowest overall unit costs and achieved the required mining selectivity. In relation to the derivation of rates, cl C 2.1.3 provides for hourly operating costs of equipment to be formulated which are based on “relevant historical data”. Those are Thiess’ data. Hence the necessity for the “open book” negotiations. That being so, good faith, I think, would require Thiess to formulate plant rates which were honestly based on the relevant historical data.

I construe the obligation of good faith as requiring the parties to act honestly with each other and to take reasonable steps to co-operate in relation to matters where the contract does not define rights and obligations or provide any mechanisms for the resolution of disputes…

In relation to the interpretation of the Contract, the obligation of good faith is more difficult to define. I think it requires the parties to construe or give effect to general provisions in such a way as to promote the contractual objectives which are to be gleaned either from the contract as a whole or from the provision in particular.”

IMPACT

This case stands for the proposition that good faith involves goodwill, co-operation and honesty between the parties and this extends to the reasonableness and fairness in pricing.