Note: An appeal pursuant to s.604 (C2010/4352) was lodged against this decision - refer to Full Bench decision dated 6 August 2010 [[2010] FWAFB 6021] for result of appeal.
[2010] FWA 4880 |
|
DECISION |
Fair Work Act 2009
s.426 - Application to suspend protected industrial action, significant harm to a third party
Woodside Burrup Pty Ltd & Kentz E & C Pty Ltd
v
Construction, Forestry, Mining and Energy Union
(B2010/3147 and B2010/3150)
DEPUTY PRESIDENT MCCARTHY |
PERTH, 2 JULY 2010 |
Industrial action on the Pluto LNG Project - suspension of protected industrial action.
The Parties and the Industrial action
[1] These are written reasons for a decision I made late on Wednesday 30 June 2010. I was requested to issue my written reasons for my decision urgently and I have endeavoured to comply with that request. As a consequence I have examined the Transcript for the hearing on 30 June 2010.
[2] The applications concern protected industrial action being undertaken by employees of Mammoet Australia Pty Ltd (Mammoet) at the Pluto Liquid Natural Gas Project on the Burrup Peninsula (the Project). The application is made pursuant to s.426 of the Fair Work Act (the FW Act) seeking Fair Work Australia (FWA) to suspend protected industrial action.
[3] Woodside Burrup Pty Ltd (Woodside) is the majority owner and operator of the Pluto LNG Project near Karratha in Western Australia.
[4] Kentz E & C Pty Ltd (Kentz) is a contractor engaged by Woodside on the Project to complete electrical works.
[5] United Group Resources Pty Ltd (United) is a contractor engaged by Woodside on the Project to complete mechanical works.
[6] Mammoet is a supplier of heavy lifting and transport services to the construction industry. Mammoet has been engaged since September 2008 to lift and position the pre-assembled modules and major equipment on the project. This involves heavy crane lifts and transportation of modules and equipment for installation.
[7] Foster Wheeler Worley Parsons (Pluto) Joint Venture (FWW) is the Engineering, Procurement and Construction Management (EPCM) for the Project.
[8] Employees who are members of the Construction, Forestry, Mining and Energy Union (CFMEU), employed by Mammoet as crane drivers and forklift drivers (telescopic boom) (the Employees), commenced a period of industrial action on 28 April 2010. Industrial action has continued since that date. Initially the industrial action was employee claim action. Following the employee claim action there was a period of employer response action. Currently the industrial action is being undertaken by employees either as further employee claim action or as employee response action. The Employees are currently engaging in industrial action pursuant to a notice of a period of protected industrial action (a 28 day work stoppage) which commenced on 24 June 2010.
The Project 1
[9] The Project involves the extraction and processing of gas from the Pluto and Xena gas fields located in the Carnarvon Basin, about 190 kilometres north-west of Karratha, into either LNG or condensate for export.
[10] The Project includes the construction of an offshore platform in 85 metres of water, connected to 5 sub-sea wells on the Pluto gas field. This gas will then be piped in a 180 kilometre trunk line which is 36 inches in diameter (which needs to be laid) leading to the onshore facility on the Burrup Peninsula, Western Australia, approximately 25 kilometres from the township of Karratha and 2.5 kilometres from the Port of Dampier. The onshore facility is an LNG processing plant, and the plant and associated land infrastructure will cover approximately 80 hectares.
[11] Onshore infrastructure includes a single LNG processing train with a forecast production capacity of 4.3 million tonnes a year. The LNG train is being built in Thailand and shipped to site in 264 modules and supporting structures. Storage and loading facilities at the plant include two LNG tanks with a combined capacity of 120,000 cubic metres, three smaller condensate tanks and an LNG and condensate export jetty.
[12] Mammoet was awarded a contract from Woodside to perform the heavy lift and transportation of the pre-assembled LNG train modules. These modules are built in Thailand in a steelwork frame, and then shipped to the Port of Dampier. Mammoet then transports them 2.5 kilometres from the port to the site, before positioning the modules in the appropriate position on the Project for installation.
[13] Mammoet uses SPMTs, Prime Movers and conventional trailers to transport the modules from the port to site, and also on-site to place the module to where it is to be installed. Mammoet utilises large cranes to install the equipment and uses smaller cranes and ancillary equipment to assist in the necessary preparation and installation.
[14] Mammoet has been engaged on the Project site since September 2008. The original contract of Mammoet was due to have all equipment installed by the end of February 2010 and Mammoet cranes removed in March 2010. This has not occurred and at this stage, Mammoet still has approximately 4-6 weeks’ worth of work involved on the Project, pursuant to the contract. The majority of modules and equipment have been installed and only two large cranes, one of which is being mobilised, are required for the completion of the contracted work.
[15] The terms and conditions of employment of non-staff employees of Mammoet on the Project are regulated by the Mammoet Australia Proprietary Limited Pluto Project Greenfields Agreement 2008 (the 2008 Agreement). The 2008 Agreement is an employer greenfields agreement approved under the provisions of the Workplace Relations Act 1996 and has a nominal expiry of 18 September 2009.
[16] Mammoet is one of approximately 60 or so contractors performing work on the Project for the performance of specific packets of work. Almost all of the contractors engaged on site have a current enforceable employee collective agreement. Each of these agreements covers the relevant contractor for its period of contracted works on the Project with most of the terms expiring in 2014. These agreements collectively provide for the same terms and conditions to apply consistently across the Project, and they substantially reflect the contents of the agreement. Indeed, the pay scales, rates and allowances are uniform among all agreements on the Project, which is not unusual for large infrastructure projects of this type.
[17] Works that are currently being undertaken at the Project involve the onshore infrastructure for a single LNG processing train. It is hoped, if not expected, that a further one or two trains will be built for the project. Works for any further trains are hoped to begin in 2011 and would most likely take a further two or three years.
The Protected Industrial Action
[18] On 20 April 2010 the Australian Electoral Commission (the AEC) issued a Declaration of Results of a protected action ballot (the Ballot Declaration) undertaken in April. The Ballot Declaration shows that there were 12 employees eligible to vote and that eight employees did vote. The Ballot Declaration shows that there were five forms of industrial action authorised to be able to be taken ranging from two hour stop work meetings to 28 day stoppages of work which could be engaged in for consecutive periods.
[19] On 21 April 2010 the CFMEU notified Mammoet of industrial action to be taken involving a 28 day stoppage of work commencing on 28 April 2010.
[20] On 27 April 2010 Mammoet notified the CFMEU and relevant employees with a notice of industrial action involving a lockout of employees for a period of 28 days commencing on 26 May 2010.
[21] On 20 May 2010 Mammoet applied to FWA for an order under section 425 of the FW Act suspending the industrial action. The lockout commenced on 26 May 2010. I heard the application on 28 May 2010 and on 2 June 2010 issued a decision refusing that application. I issued written reasons for that decision on 14 June 2010.
[22] On 8 June 2010 Mammoet provided notice of its intention to end its employer response action on 9 June 2010, with a return to work to occur on 10 June 2010.
[23] On 9 June 2010 the CFMEU gave notice to Mammoet of the Employee's intention to commence employee response action under the FW Act. The nature of the intended industrial action was specified in the notice as a stoppage of work beginning on 10 June 2010 and ending on 23 June 2010. The Employees did not return to work on 10 June 2010 and have not attended for work pursuant to that notice since that date.
[24] By letter dated 18 June 2010 the CFMEU gave notice to Mammoet of the Employees' intention to commence industrial action under the FW Act. The nature of the intended industrial action is specified in the notice as a 28 day stoppage of work beginning on 24 June 2010.
The Contentions of Woodside and Kentz
[25] Woodside and Kentz assert that they are directly and adversely affected by the industrial action.
[26] Woodside asserts that the industrial action is preventing and disrupting, and, including with the further industrial action, threatens to continue to prevent and disrupt, work being performed by major contractors Woodside has engaged to perform significant work on the Project.
[27] Kentz asserts that the industrial action is causing or threatening to cause significant harm to Kentz as delays by Mammoet in performing its contracted works cause delays to Kentz' work on the Project. This is because Mammoet are unable to carry out their heavy lifts on the Project, which in turn means that the mechanical and structural tie in work to the LNG train cannot occur which in turn means that the electrical and instrumentation works to be earned out by the Applicant cannot commence.
Effect on Mammoet
[28] Mammoet assert that they have been and continue to be unable to fulfill its contractual obligations to Woodside to complete its work on the Project during the period of industrial action including the industrial action.
Effect on Woodside
[29] It is asserted that the period of industrial action, including the industrial action, has delayed, continues to delay, and threatens to further delay, work on the Project, including in that it has prevented and disrupted the work that would have been completed by Mammoet, which:
1. Has delayed work that is due to be completed by United; and
2. In turn, has delayed work that is due to be completed by Kentz; and
3. Is threatening to affect further work on the Project.
[30] It is further asserted that the industrial action by the Employees will further delay work on the Project which:
1. Is threatening timely completion of the Project;
2. If the Project is not completed on schedule this will have significant financial implications, including:
a. Additional costs associated with the Project running over schedule;
b. Delay in production and loss of revenue; and
c. Significant delay to the completion of the Project could adversely impact upon Woodside's reputation.
Effect on Kentz
[31] It is asserted that the industrial action threatens to reduce Kentz' capacity to fulfill its contractual obligations to Woodside, in that:
1. The industrial action is a further continuation of a period of industrial action that first commenced on 28 April 2010, has continued since that date, and it likely to continue until at least 24 July 2010;
2. Kentz is contracted to undertake significant electrical works on the Project including relating to the installation of the modules; and
3. The critical work Kentz is required to complete on the LNG train is dependent upon the completion of work done by United Group and by Mammoet.
Effect on United
[32] The work United is required to complete on the LNG train is dependent upon the completion of work done by Mammoet and is said to be critical.
[33] United asserts that they are unable to commence work on the upper level south side of the LNG processing train until Mammoet has completed its module lifts. They say that as a result of the delays Mammoet's scope of work has now become a critical path and they are unable to perform some of its critical path activities. United assert that they are also prevented from performing other mechanical works because certain pieces of equipment have not been moved into position and that the industrial action is also impacting their access to the LNG train south side as a Mammoet crane is partially blocking the access road.
The Contentions of the CFMEU
[34] Essentially the CFMEU argued that there was a right to take industrial action and the employees concerned were exercising that right in accordance with the FW Act. They argued that the exercising of those rights had already had the effect of narrowing the differences between the parties and that there was more likelihood of an agreement being reached if the protected industrial action continued than if it were suspended further.
[35] The CFMEU assert that any harm being caused is not significant and that the exercising of the right to take protected industrial action should not be interfered with.
Consideration
Standing
[36] The FW Act provides at s.426 that certain parties can make applications to FWA for orders suspending protected industrial action. For Woodside and Kentz to be able to make applications they must be an organisation, person or body directly affected by the protected industrial action other than a bargaining representative for the agreement.
[37] The agreement is obviously the agreement the employees of Mammoet are trying to make with Mammoet. For Woodside and Kentz to be bargaining representatives they would either have to be an employer that will be covered by the agreement or appointed by Mammoet as its bargaining representative. Neither Woodside nor Kentz will be covered by any agreement that is made nor has Mammoet appointed either as its bargaining representative. Woodside and Kentz are also both directly affected by the protected industrial action.
[38] Both therefore may make the applications.
Adverse effect on Mammoet
[39] Mr Malcolm Robinson, the Senior Project Manager for Mammoet, gave evidence. He stated that when Mammoet's employees began their industrial action on 28 April 2010 that there was about four to six weeks works left for Mammoet to complete. Mammoet were already behind schedule at that time having been originally expected to complete their works by March 2010. As at 20 May 2010 Mammoet had a non staff workforce of 43 employees on the Project. Of those, 12 employees were, and are, involved in the industrial action. All but three of the non-staff, non-striking employees had been transferred or dismissed from their employment. Some staff employees have also been dismissed. Some of the employees dismissed appear to have found employment elsewhere.
[40] Mammoet is considering terminating the employment of further employees as there is little useful work they can perform. The industrial action is clearly adversely affecting Mammoet. Indeed the CFMEU has contended that the very purpose of the industrial action is to have an adverse effect on Mammoet.
Significant harm to a third party
[41] I have already found above that neither Woodside nor Kentz are bargaining representatives nor will they be covered by the agreement. United is also in that category. The question for me to determine is whether any or all of those parties are under threat of having significant harm caused to them.
[42] Potential other classes of persons who significant harm could be caused to includes other employees of Mammoet who will not be covered by the agreement including and employees of other contractors whose employment may be under threat of being terminated. The CFMEU asserted that I should not have regard to those classes of persons as it would be overly speculative. Whilst I consider that it could be appropriate to include those classes of persons in my considerations, at least those of United and Kentz, but it is not necessary for me to do so and I make no concluded view as to whether it is appropriate to consider the effects on those classes of persons.
[43] The issue therefore for me to consider is whether Woodside, Kentz and United (the Third Parties) are under threat of significant harm being caused to them by the protected industrial action. The Third Parties contended that they had been harmed which was caused by the industrial action that had occurred and that there was a threat of further harm being caused. They contended that the harm was significant and that significant harm is threatened.
[44] The CFMEU disputed that there was a threat of significant harm being caused to any of the Third Parties.
[45] The Third Parties did not contend that there was a threat to their ongoing viability. The Third Parties did assert that the protected industrial action threatened to disrupt the supply of goods or services to their enterprises and cause economic loss. Kentz and United also asserted that they were under threat of having a reduced capacity to fulfil their contractual obligations.
Woodside
[46] Mr Brennan, the onshore area project manager for Woodside for the Pluto LNG Project, gave evidence about the nature of the works on the Project, the status of Mammoet’s works, the importance of sequencing and the impact of the delays. He stated that the work stoppage (which has prevented the remaining specialty lifts being completed) has directly affected the construction of the LNG processing train. This is because a number of the modules/equipment making up sections of the LNG processing train must be installed to allow follow on work by other contractors (United and Kentz) to proceed. Modules are currently sitting on the ground. When the coolers and pigtail and penthouse modules are lifted and installed into position on the LNG processing train, United will complete all the interconnecting pipe work.
[47] United is also reliant on the installation of other heavy equipment by Mammoet, such as the nitrogen cold box, to allow United to proceed with its work on the LNG processing train. The nitrogen rejection unit is a self-contained module, which forms part of the LNG train. The nitrogen cold box, which is some 40-50 metres tall, needs to be lifted and placed adjacent to the nitrogen rejection unit. Once it is in place, United (and then Kentz) will need to do all the connection work.
[48] Kentz' work includes all the cabling and terminations for electrical equipment such as electric motors and associated instrumentation work. Kentz will perform that work once United has completed its work in an area of the LNG processing train. If the Mammoet employees had not stopped work on 28 April 2010, all of the lifts should now have been completed.
[49] As a result of the delays caused by the work stoppage, United has not been able to commence its follow on work in a number of areas including on the LNG processing train. In turn, Kentz has not commenced any of its work in those areas.
[50] Mr Brennan stated that the work on the LNG processing train on the Project must be done in sequence. In part, this is to ensure contractors and their workers have sufficient physical access to the section of the plant they are working on, without competing for access with another workforce.
[51] He also referred to the implications for the commissioning phase of a project. When a gas plant is started up, construction must finish in a particular order to allow the commissioning team to start up the plant in the correct sequence to ensure a safe, timely start up. The commissioning team will need to test systems from end to end to see if the process is complete and functioning. Most system start ups are not geographically limited to sections of the plant. For example, a piping system cannot be tested in one section of the LNG train - it needs to be tested across the whole train. For this reason, sequencing is critical.
[52] He stated that Woodside cannot re-sequence critical work on the LNG processing train (i.e. to avoid the work dependent upon the heavy lifts) because it would have a potential knock-on effect on the commissioning works.
[53] Mr Brennan had examined the potential for an alternative contractor to perform but concluded that it was not a viable option due to the limited number of organisations that perform that type of work and the start up time delays if another organisation was contracted to perform it.
[54] Mr Brennan stated that the work done and the rate of progress achieved by United and Kentz on the LNG processing train will determine when the Project will be completed. At this point in time United and Kentz are the most critical contractors on the Project as success of the Project from a schedule point of view rests on United and Kentz completing their work on schedule.
[55] The Project is due to be completed in late February 2011 in order for production to commence. The mechanical and electrical and instrumentation works cannot be handed over to the FWW commissioning team until United and Kentz complete their work. Only when FWW have completed the commissioning can they hand over to the Woodside production start up team. If United and Kentz are delayed in performing their work, the FWW commissioning team and Woodside production start up team will be delayed in performing their work.
[56] In the event that the Project is delayed beyond the expected completion date Woodside will incur costs.
[57] If United and Kentz are able to substantiate a basis for contractual claims in relation to their losses, Woodside may have to grant them an extension of time and associated costs in which to complete their contracts, or pay for additional resources to be brought in to finish the work within the original contracted dates.
[58] Mr Brennan said that Woodside has a strong reputation for delivering LNG projects on schedule, and for reliable production and supply of LNG. This is very important in the international market. Any damage to that reputation is not readily quantifiable but would be significant. Woodside is concerned about its reputation with its shareholders and joint venture partners if the Project is delayed. If the Project is delayed to the extent that Woodside does not meet its projected first production of LNG in early 2011, then the significant additional costs and reduced production could cause damage to its reputation including its reputation as a reliable supplier of Australian LNG.
Kentz
[59] Mr Kheng Guan Wee gave evidence that Kentz was at risk of being unable to perform work. He outlined the impact of the industrial action including the inability to comply with the construction program as a consequence of the industrial action, their potential exposure for liquidated damages against Kentz, the impact on their efficiencies, the need to maintain its workforce which, he said, was in jeopardy and the limited capacity to mitigate against any losses.
[60] He stated that the industrial action has caused delay to Kentz and it has been unable to fulfill its contractual obligations under their contract. He stated that if the industrial action continues it is also likely that Kentz will be unable to fulfill its contractual obligations under their contract.
United
[61] Mr Kevin Neylon, the project Director for United for the Project, gave evidence. United has a contract with Woodside for mechanical works for the Project. United have completed about 44% of their works and are completing further works at the rate of about 8% per month. United employs about 900 employees on the Project. United is reliant on Mammoet performing lifts and installing equipment for United to be able to perform its works.
[62] The industrial action by Mammoet employees means United has been unable to perform some of its work and it is adversely affecting its critical path activities .United is behind schedule as a consequence. United has not terminated the employment of employees as it wishes to retain its workforce but it underutilising them. They say there are serious inefficiencies as a consequence and significant costs being incurred as a result of those inefficiencies. United is considering its options if the industrial action continues. There is a likelihood of employees being stood down or their employment terminated.
[63] Mr Neylon stated that United's expected completion date to be in the third week of January 2011 (not accounting for the Christmas break) on the basis of delays, including delays caused by the industrial action. That completion date is contingent on Mammoet's employees returning to work immediately and completing the remaining lifts on the LNG processing train that United is reliant on within 4 weeks.
[64] Mr Brennan also gave evidence that he had been advised by United on 2 June 2010 that within 10-14 days (by around 12-16 June) United would have limited ability to open up further work fronts on the Project to keep their employees productively employed. He was then advised on 21 June 2010 that United is directly impacted by the delays, because:
1. United is unable to perform some of its critical path activities;
2. United is building up a backlog of work on the LNG processing train, which should have commenced by now; and
3. United cannot perform other mechanical works on the Project because Mammoet has not lifted a number of key pieces of equipment into position e.g. the nitrogen cold box.
The CFMEU
[65] Kevin Sneddon, an Industrial Officer for the CFMEU, gave evidence. Mr Sneddon has been involved in the negotiations with Mammoet. He outlined the history and current status of the negotiations. With respect to the effect of the industrial action he disputed that United is likely to stand down employees. He stated that:
“Having talked to our members employed by UGL on the Pluto Project it is my understanding that they have been given assurances by the company that their employment is safe and that there will be no standing down or termination of employees. I have been provided with a notice given out by UGL at their prestart site meetings on 29 June 2010 showing that they have the intention of holding a full UGL Induction on site on 03 July 2010.”
[66] He also disputed that Kentz was likely to stand down employees stating that:
“I have also been told by members working on site that Kentz have at least one new electrician undertaking a site induction today in readiness for starting and that other employees of Kentz have been verbally assured that there will be no redundancies or terminations in the foreseeable future.”
[67] Mr Sneddon’s view was that protected industrial action has significantly focused Mammoet on reaching an agreement and any suspension of the industrial action would only be to enable Mammoet to finish their work on the Project.
[68] No other evidence was called by the CFMEU.
Conclusions
[69] In the context of s.426 of the FW Act I consider protected industrial action to be "threatening" to cause harm if I consider that harm is likely to occur. The meaning of threatening in the context of s.426 I take to mean that the protected industrial action is likely to injure or be a source of danger to a third party being harmed. The threatening harm also needs to be significant. Indeed the primary argument of the CFMEU was not so much that harm was not occurring, nor that it was not likely. Their main contention was that any harm would not be significant.
[70] The Macquarie Dictionary defines significant as being of important or of consequence. The Explanatory Memorandum to the Fair Work Bill 2008 states, in respect of s.426, that:
“The purpose of this clause is to provide FWA with a means to address significantly serious impacts that industrial action is having on the welfare of third parties. It allows for a respite from industrial action which is causing them significant harm. The harm to the third party would need to be significant, that is a more serious nature than merely suffering of a loss, inconvenience or delay. Therefore, it is anticipated that FWA would suspend industrial action on this basis only in very rare cases.”
[71] In this matter I consider the harm to be serious. The project is large, there are interdependencies between contractors and the sequential nature of the work deriving from those interdependencies are critical and complex. Those interdependencies and the evidence relating to those interdependencies were summarised by Mr Meehan as:
1. The relevant United work cannot commence until completion of the relevant work by Mammoet; 2
2. Kentz work cannot commence until completion of the relevant work by United; 3
3. Commissioning and start up work cannot commence until completion of the relevant work by Mammoet, United and Kentz. 4
[72] The CFMEU endeavored to portray any potential losses as not being substantial or significant. The potential losses in my view are substantial and appear to me to have a chain reaction effect. The more each aspect of delays impacts on the interdependencies between the third parties.
[73] I am also satisfied from the evidence that the threatening harm is more than an inconvenience. The incapacity to perform some works at all, the rescheduling of works and the lack of efficient utilization of labor goes far beyond being an inconvenience and goes to the capacity to perform important and critical works. The delays likely to be caused are also not insignificant or ordinary ones particularly because of the interdependencies between the contractors.
[74] The extent of the harm to the supply of services and the capacity to fulfill contractual obligations are substantial. It is difficult to make any assessment of the extent of economic losses, particularly as it is unclear as to who would be liable for any of those losses given the contractual relationships between the third parties. Suffice for me to say that I consider the economic losses likely to be incurred to be significant regardless by whom they would eventually be borne by.
[75] I find that the supply of goods or services to the enterprises of Kentz and United is threatening to be disrupted and that the extent of disruption threatened is substantial. I also find that economic loss is threatened to be caused to most likely all of the third parties and that the extent of the economic loss is likely to be substantial. I also find that the protected industrial action is threatening to cause Kentz and United to have a reduced capacity to fulfil their contractual obligations and that the extent of that reduced capacity is substantial.
[76] I therefore find that as a consequence of the protected industrial action significant harm is threatening to be caused to Woodside, Kentz and United.
[77] I do not consider that the issuance of an order suspending the protected industrial action would be contrary to the public interest. I have had regard to the objects of the FW Act and the fact that there has been nothing unlawful or improper in the actions of the employees or the CFMEU and its officials in their conduct to date. However the extent of and significance of the harm that is threatened to be caused to the third parties is significant and in my view causes it to be appropriate to issue an order suspending protected industrial action
[78] I therefore am of the view that the requirements of s.426 have been met.
[79] I considered the term of the suspension and, in particular, whether the suspension should be confined to the period of the protected industrial action currently being taken. In considering that I also had regard to the taking of the employer response action by Mammoet. However having taken those matters in the context of the history of the negotiations and the nature of the project with the interdependencies and critical path timelines I decided that the term sought by the applicants’ was appropriate, namely three months. I have however provided a liberty for any party to seek to have the order varied.
DEPUTY PRESIDENT
Appearances:
Mr H Dixon SC and Mr S Meehan, for Woodside Burrup Pty Ltd
Mr D Pearson, for Kentz E & C Pty Ltd
Mr G McIntyre SC, for the Construction, Forestry, Mining and Energy Union
Hearing details:
2010.
Perth:
June, 25 and 30.
1 See Decision of 14 June 2010 [2010] FWA 4389
2 Exhibit W1 at 32, Exhibit W3 at 10
3 Exhibit W1 at 33
4 Exhibit W1 at 58
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