From rocks to riches: Unravelling the mining exclusion and notice requirements to pull security under the QBCC Act

A recent decision by the Supreme Court of Queensland has made clear the mining exclusion in the Queensland Building and Construction Commission Act (the Act) relieves a party to a contract for "construction work in mining" from complying with requirements under the Act.  

In Sun Engineering (Qld) Pty Ltd v Ravenswood Gold Pty Ltd [2024] QSC 68, the Court found that construction work as part of the expansion of a gold mine fell within the mining exclusion and that the regulatory scheme did not apply. The relevant test is whether the work to be completed under the contract is 'an essential part of the process of mining'.

The Court also clarified the significant issue as to when notice before drawing on security under section 67J of the Act was required, ultimately finding that notice is only required when a party seeks to have recourse to the security to secure 'an amount owed under the contract'.

Notice is not required where a party draws on security to recover other amounts, such as unliquidated claims.  Accordingly, where a contract contains a broad right of recourse for claims or unliquidated sums, there is no requirement to issue a notice as a prerequisite to drawing down.  

Background

Sun Engineering (Qld) Pty Ltd (Sun) and Ravenswood Gold Pty Ltd (Ravenswood) entered into a contract where Sun agreed to build and upgrade existing structures used for the crushing, grinding and leaching circuits of the mine as part of the wider expansion of the gold mine near Townsville, North Queensland.  

Some of the structures included buildings that housed pumps and electrical components, including simple structures to protect equipment and to allow maintenance to be carried out under shelter.  The contract required Sun to provide security for the performance of its obligations under the contract in the form of bank guarantees.

Ravenswood asserted that it had overpaid Sun and that Sun was liable to repay the overpaid amount.  The amount demanded was not paid by Sun.  As a result, on 18 October 2023, Ravenswood advised Sun that it continued to hold the second guarantee and that it intended to have recourse to the security in full to partially satisfy the demanded repayment amount of $10,027,865.14.

The first issue the Court considered was whether the work to be completed was 'construction work in mining', such that it fell within the mining exclusion.  This issue turned on both the meaning and scope of the exclusion and the factual circumstances of the case.  

Ultimately, the question was whether upgrades to structures used for crushing, grinding and leaching circuits as well as the construction of structures to protect equipment were all essential to the mining process.  

Sun submitted that to fall within the mining exclusion, the construction work had to be 'integral' to the activity of mining, rather than simply enabling mining to take place.  Sun contended the mining exclusion only applies to work that is 'integral to the activity of removing the mineral from the ground'.

Ravenswood adopted a broad and practical interpretation, contending that the work under the contract fell within the mining exclusion in that:

• the work was performed at an operational mine covered by a mining lease;
• the purpose of the work was to expand the mine; and
• the work involved the construction of infrastructure used in the process of extracting gold from the ore that was removed from the ground on the mine site.

If the mining exclusion did not apply, the second issue for the Court was whether notice was required to be given before drawing on the security.  

Supreme Court's decision

Was the Work “construction work in mining”?

The Court adopted a broad and practical interpretation of the mining exclusion.  

The test was whether the work to be completed under the contract was an essential part of the mining process.  

Applegarth J found that upgrades to structures used for crushing, grinding and leaching circuits as well as the construction of structures to protect equipment and to allow maintenance to be carried out were an essential part of the process of mining.  

This was because the structures were integral to the process of extracting gold from the rock or ore.

Without the work, Ravenswood would simply have been extracting rock, not mining gold.  

The process of extracting material from the ground and extracting gold from it was an integrated process that occurred on a mining site and on mining leases.  

Therefore, the work fell within the mining exception and the contract was not subject to the Act.

Does s 67J effect recourse to security in relation to an amount that is not “an amount owed under the contract”?

The Court considered that if the mining exception did not apply to the contract (which the Court found it did), then Ravenswood was not required to give notice advising of their proposed use of security and of the amount owed under the contract.  

The notice requirement is only engaged when a party seeks to have recourse to security to secure 'an amount owed under the contract'.  Section 67J did not govern Ravenswood’s contractual entitlement to use the security for its claim for overpayment because the claim was not for an 'amount owed under the contract'.

Outcome

Ultimately, Ravenswood was entitled to call upon the security for the overpaid amount of $10,027,865.14 and was not required to give a section 67J Notice because the mining exclusion applied.

Key takeaway

When considering whether a construction contract falls within the mining exclusion the following question needs to be asked – is the project or infrastructure that is to be constructed an essential part of the mining process?  If the answer is yes, then the contract falls within the mining exception.  The following factors should be considered:

• How close is the infrastructure to the mining operation?  Is the infrastructure going to be situated within the mine site? If the infrastructure is going to be built close to the mining operations, then it is more likely to be considered essential to the mining process.
• What is the impact to the mining operation if the infrastructure is not constructed?  Is the infrastructure critical to obtaining gold, gas, coal or any other mineral?  For example, without crushing, grinding and leaching circuits, as was constructed in Sun, there would only be dug up rock rather than mined gold.

This decision has clarified the scope and meaning of the mining exclusion.  The test to be applied is whether the work to be completed is an essential part of the mining process.  Ultimately, whether the mining exception applies depends on the facts and circumstances of the case.

This decision also clarified that a party intending to draw on security under a building contract is only required to give notice to the other party where the security is to secure 'an amount owed under the contract' and not for other unliquidated claims.

Where a contract sets out broad and unfettered rights to recourse to security, it is unlikely that a section 67J notice is required to be issued.

Authors

Andrew Kelly | Partner | +61 7 3338 7550 | akelly@tglaw.com.au

Will Lyons | Law Graduate

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