Get it Right First Time

Sometimes with the best will in the world, the parties to agreements fail to adequately express their intentions in the words on the page. And if there is not agreement on what that intention was later on, then it often leads to litigation.

This is what occurred when a mining company adopted a simple clause to deal with its superannuation obligations. The agreement stated that the superannuation levy would apply to “gross earnings” but that term itself was not defined elsewhere in the agreement. So, it was argued by the union, it must include everything, including overtime.

But the clause also said that “The conditions applying to superannuation will be determined by Company policy, the Superannuation Guarantee Act and the rules of the fund”. A basic rule of superannuation is that it does not apply to overtime earnings. Herein lay the ingredients of the dispute.

The Fair Work Commission found that since the term “gross earnings” was not defined, then the proper construction was to take the normal and ordinary meaning of the words. This led the commission to agree with the union’s argument that it included overtime.

On the other hand, FWC said, the clause also anchored the whole issue of superannuation against the legislation, company policy and the rules of the fund, which meant that overtime was not included.

The commission came to the view that an uncertainty existed, namely, what amount should the super levy be applied to? The FWC then had to determine, what was the intention of the parties at the time the agreement was made? It concluded that the words referring to company policy were most instructive, because at the time the agreement was made that policy was clear: superannuation was paid on projected ordinary time rosters, not additional, overtime shifts.

The commission varied the agreement to clear the matter up, the union appealed to a full bench but the appeal was rejected. The lesson from this case is obvious; care must be taken drafting all clauses of agreements. Otherwise unintended consequences can just as easily become unintended costs.

Fosterville Gold Mine Pty Ltd [2011] FWA 316 (24 January 2011)