[2014] FWC 9456

The attached document replaces the document previously issued with the above code on 24 December 2014.

The document is amended at paragraph 34 to include the word ‘not’ immediately before the phrase “no change to its operation”, which was omitted from the original decision.

Associate to Commissioner Johns

Dated: 21 January 2015

[2014] FWC 9456 [Note: An appeal pursuant to s.604 (C2015/1312) was lodged against this decision - refer to Full Bench decision dated 14 July 2015 [[2015] FWCFB 1770] for result of appeal.]

FAIR WORK COMMISSION

DECISION

Fair Work Act 2009
s.739 - Application to deal with a dispute

Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union and Automotive, Food, Metals, Engineering, Printing and Kindred Industries Union
v
Viva Energy Refining (Australia) Pty Ltd
(C2014/948 and C2014/4735)

COMMISSIONER JOHNS

SYDNEY, 24 DECEMBER 2014

Alleged dispute concerning work arrangements on RDOs following the commencement of the 2013 Maintenance Employees EA.

Introduction
[1] This decision involves two applications, in identical terms, brought by the Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union (ETU) and the Automotive, Food, Metals, Engineering, Printing and Kindred Industries Union (AMWU) (collectively, the Applicant Unions) under section 739 of the Fair Work Act 2009 (FW Act).

[2] The Respondent is Viva Energy Refining (Australia) Pty Ltd (formerly Shell Refining (Australia) Proprietary Limited) (Respondent).

[3] The parties are covered by the Shell Geelong Refinery Enterprise Agreement 2013 - Maintenance Employees (2013 Agreement). The 2013 Agreement was approved by the Commission, as presently constituted, on 19 November 2013. It has a nominal expiry date of 19 November 2017.

[4] The dispute arises out of the operation of clause 5.7 of the 2013 Agreement; it deals with working on a rostered day off (RDO). However, also relevant is the interrelationship between clause 5.7 and clause 4.7; it deals with additional hours, Maintenance Service Allowance and overtime.

[5] The applications were listed for hearing on 30 July 2014.

The hearing

[6] At the hearing the AMWU was represented by Mr J Wieladek, an AMWU (Victorian Branch) Industrial Officer. With permission, pursuant to section 596(2)(a) of the FW Act, Mr Wieladek also represented the ETU. Mr Wieladek called Paul Towart, employed by the Respondent as a qualified tradesman electrician, to give evidence (Exhibit A1).

[7] At the hearing the Respondent was represented, with permission pursuant to section 596(2)(a) of the FW Act, by Mr R Bunting, from Ashurst. Mr Bunting called Anna Murray, Central Maintenance Manager, Geelong Refinery, to give evidence (Exhibit R1).

[8] Neither party sought to cross-examine the other party’s witness.

Further submissions

[9] On 8 August 2014 the Federal Court of Australia handed down the decision in Transport Workers’ Union of Australia v Linfox Australia Pty Ltd (Linfox). 1In short summary that decision concerned the principles relevant to the interpretation of an award and the historical considerations of the award. Accordingly, the Commission invited the parties to make further submissions concerning the application of Linfox. The parties filed their supplementary submissions on 19 August 2014.

[10] In October 2014 a Full Bench of the Commission heard an appeal in The Australian Meat Industry Employees Union v Golden Cockerel Pty Limited (Golden Cockerel). 2 In short summary the appeal concerned the principles relevant to the interpretation of an agreement. Consequently, a decision in this matter was held over pending the handing down of the decision in Golden Cockerel; that occurred on 27 November 2014. In the interests of ensuring that the parties were afforded procedural fairness, the Commission then invited the parties to make further submissions concerning the application of Golden Cockerel. The parties filed their further supplementary submissions on 11 December 2014. The Respondent then filed submissions in reply on 18 December 2014.

Background

[11] The following matters were either common ground between the parties or not otherwise contested:

a) The Respondent operates an oil refinery in Geelong.

b) As part of the workforce at the refinery the Respondent engages electricians, instrument technicians, fitters, a boilermaker and store men.

c) Employees work a 35 hour week. They have done so since the arbitration of the Standard Hours (Oil Companies) Award 1974 (1974 Award).

d) In 2003 the Australian Industrial Relations Commission (as it then was) replaced the 1974 Award with the Standard Hours (Oil Companies) Award 2003 (2003 Award). The 2003 Award retained the 35 hour week.

e) The Respondent’s maintenance employees work 9 x 7.78 hour days. This equates to a 70 hour fortnight, and a 35 hour week. Consequently, one day per fortnight is a RDO (usually every second Monday).

f) Immediately before the 2013 Agreement the agreement that applied to maintenance employees was the Geelong Refinery Enterprise Agreement 2009 – Maintenance Employees (2009 Agreement).

g) Clause 5.7 in the 2013 Agreement is identical to clause 5.7 in the 2009 Agreement. Relevantly, it provides;

The provision of the Standard Hours (Oil Companies) Award 2003 shall continue to regulate the operations of the 35 hr week for all employees covered by this award with the addition that, when requested to work on an RDO, the employee can choose to be paid at the single time rate and take an alternative paid (single time) day in lieu prior to the next scheduled RDO.

h) Part 4 of the 2013 Agreement and 2009 Agreement both deal with Annualised Salary and Related matters. As between the two agreements:

i. Clauses 4.1 and 4.2 in each agreement are substantially identical in terms.

ii. Clause 4.3 in the 2009 Agreement (Annualised Salary – Salary Components) became clause 4.6 in the 2013 Agreement, but was substantially amended, in particular with the advent in the 2013 Agreement of the Maintenance Service Allowance (MSA);

iii. Clause 4.4 in the 2009 Agreement (Spilt of Flexible Hours Allowance (FHA) Hours) was removed from the 2013 Agreement;

iv. Clause 4.5 in the 2009 Agreement (Annualised Salary – Salary Conventions), in similar terms, became clause 4.3 in the 2013 Agreement;

v. Clause 4.6 in the 2009 Agreement (Annualised Salary - Supplementary Rate), in similar terms, became clause 4.4 in the 2013 Agreement;

vi. Clause 4.7 in the 2009 Agreement (Annualised Salary – Disciplinary Matters), in similar terms, became clause 4.5 in the 2013 Agreement;

vii. Clause 4.8 in the 2009 Agreement (Call Ins) was removed from the 2013 Agreement;

viii. Clause 4.9 in the 2009 Agreement (Work Not Comprehended in the Flexible Hours Allowance), was removed from the 2013 Agreement;

ix. Clause 4.10 in the 2009 Agreement (Review Procedures), was substantially replaced by clause 4.7.8 (MSA Review Procedures);

x. Clause 4.11 in the 2009 Agreement (Allowances Comprehended), in similar terms, became clause 4.8 in the 2013 Agreement;

xi. Clause 4.12 in the 2009 Agreement (Allowances Not Comprehended), in similar terms, became clause 4.9 in the 2013 Agreement;

xii. Clause 4.13 in the 2009 Agreement (Base Rate Remuneration), amended for rates, became clause 4.10 in the 2013 Agreement.

i) In essence MSA is the pre-payment of overtime.

j) When overtime is worked, the time each employee works is deducted from their pre-paid bank of MSA hours. 3

k) Once the bank of MSA hours is exhausted, then any hours of work in addition to the 35 hours of work are paid at the prevailing overtime rates. 4

l) Up until this dispute was notified to the Commission in June 2014 there had been three times when employees (with a MSA bank) had been scheduled to work additional hours on a RDO under the 2013 Agreement:

i. 9 December 2013;

ii. 28 April 2014; and

iii. 12 May 2014.

m) After the two employees who worked their RDO on 9 December 2013 applied to reschedule their RDO they were told by the Respondent that they could not do so. They were told that the 11 hours of additional time that they worked would be deducted from their MSA bank.

n) One employee who worked their RDO on 28 April 2014 had the 13 hours of additional time they worked deducted from their MSA bank without complaint.

o) Another employee who worked their RDO on 28 April 2014 had 1 hour deducted from their MSA bank (which exhausted their MSA bank) and then had the option of choosing to be paid as normal and receive a day in lieu.

p) In May 2014 the issue of how clause 5.7 of the 2013 Agreement operates (following the commencement of the 2013 Agreement) came into conflict when employees refused to make themselves available to work their RDO unless they were offered an alternate RDO. The Respondent asserted that the refusal to work the RDO (on this conditional basis) amounted to unprotected industrial action and that employees would not be paid.

Issue in dispute

[12] As can be seen from the analysis of the 2013 Agreement when compared with the 2009 Agreement, the major change as between the two agreements was the replacement of the FHA (from the 2009 Agreement) with the MSA (in the 2013 Agreement).

[13] In about December 2013 the Respondent sought to implement a change in the way that clause 5.7 in the 2013 Agreement was to be applied having regard to the implementation of the MSA.

[14] While both parties agree that the implementation of the MSA was to change how clause 5.7 in the 2013 Agreement was to operate (when compared with how it operated under the 2009 Agreement), 5 there is a dispute about the extent of that change.

[15] In summary the Applicant Unions contend that the MSA adds to the operation of clause 5.7 (the Coexistent Argument).

[16] In summary the Respondent contends that clause 5.7 does not begin to operate until an employee’s MSA is exhausted (the Subservient Argument).

[17] The question for the Commission to answer is “Does the Coexistent Argument or the Subservient Argument prevail?”

Evidence

Applicant Unions

[18] Mr Towart gave evidence for the Applicant Unions. Mr Towart is a dual trade technician. He has worked for the Respondent since 2004. He is a member of the ETU and has been a shop steward since 2005. Mr Towart’s evidence was that,

a) Prior to December 2013,

“whenever a maintenance employee was asked by management to work on their RDO, they could either,

claim it as overtime (either paid double time or through deducting their annualised overtime bank); or

… reallocate their RDO to another day prior to their next RDO, and get single time for the day they worked” 6

b) From December 2013 the Respondent had told maintenance employees that,

“… [if they] have outstanding MSA hours in [their] bank, there is no choice for an employee to either work an RDO and claim a deduction of MSA hours, or work an RDO and have it reallocated. [The Respondent says] that when an employee works an RDO, they have to have it claimed from their MSA hours.” 7

[19] Mr Towart was a member of Unions’ negotiating team for the 2013 Agreement. He said,

“At no point in the negotiations did anyone from [the Respondent’s] negotiating team say that the company wanted to change:

a. How we worked on RDOs;

b. How we reallocated our RDOs when we worked on them; or

c. The make up or arrangement of the 35 hour week. 8

Simply, the issue of clause 5.7 of the 2013 Agreement, and how we worked the RDO, was never raised by [the Respondent] in negotiations.” 9

[20] Mr Towart gave evidence about the how the FHA was replaced by the MSA,

“Most of the discussions in the negotiations was about how the workforce was going to implement an annualised salary with an annualised overtime component. In the past before the 2013 Agreement, the workforce worked part of their overtime through ‘Flexible Hours Agreement’ or ‘FHA’. This involved an allowance to be paid to employees to work these hours. It was a complex system because not all work done outside of ordinary hours would fall under it.” 10

“In the end the unions and [the Respondent] agreed on ‘Maintenance Service Agreement’ hours or ‘MSA’ hours, which was also an allowance-based bank of prepaid overtime. It did, however, apply to all types of work – this is why in the negotiations [the Respondent] inserted the work ‘unrestricted’ next to the hours set in clause 4.7.3 of the 2013 Agreement. This contrasted the situation to what happened under the FHA system, where the type of work sometimes determined the payment or credit an employee received.” 11

Respondent

[21] Ms Murray gave evidence that “she [has] limited knowledge of the treatment of Rostered Days Off prior to the [2013] Agreement.” 12 Her evidence was confined to what happened on the RDOs that followed the commencement of the 2013 Agreement.

Principles of construction of agreements

[22] A recent Full Bench of the Commission has gone to great lengths to set out the relevant principles. In Golden Cockeral, the Full Bench set out the relevant authorities,

General approach

[19] The general approach to the construction of instruments of the kind at issue here is set out in the judgment of French J, as he then was, in City of Wanneroo v Australian Municipal, Administrative, Clerical and Services Union 13 (Wanneroo):

“The construction of an award, like that of a statute, begins with a consideration of the ordinary meaning of its words. As with the task of statutory construction regard must be paid to the context and purpose of the provision or expression being construed. Context may appear from the text of the instrument taken as a whole, its arrangement and the place in it of the provision under construction. It is not confined to the words of the relevant Act or instrument surrounding the expression to be construed. It may extend to ‘...the entire document of which it is a part or to other documents with which there is an association’. It may also include ‘... ideas that gave rise to an expression in a document from which it has been taken’ - Short v FW Hercus Pty Ltd (1993) 40 FCR 511 at 518 (Burchett J); Australian Municipal, Clerical and Services union v Treasurer of the Commonwealth of Australia (1998) 80 IR 345 (Marshall J).” 14

[20] To this we add the oft-quoted observations of Madgwick J in Kucks v CSR Limited 15 that a narrow pedantic approach to interpretation should be avoided, a search of the evident purpose is permissible and meanings which avoid inconvenience or injustice may reasonably be strained for, but:

“. . . the task remains one of interpreting a document produced by another or others. A court is not free to give effect to some interiorly derived notion of what would be fair or just, regardless of what has been written into the award. Deciding what an existing award means is a process quite different from deciding, as an arbitral body does, what might fairly be put into an award. So, for example, ordinary or well-understood words are in general to be accorded their ordinary or usual meaning.” 16

[21] Although their Honours were each dealing with the proper interpretation of an award, the same principles are apt to apply to the interpretation of enterprise agreements 17. For example, similar observations were made in Amcor Limited v CFMEU18 (Amcor):

“Clause 55.1.1 must be read in context. It is necessary, therefore, to have regard not only to the text of cl 55.1.1, but also to a number of other matters: first, the other provisions made by cl 55; secondly, the text and operation of the Agreement both as a whole and by reference to other particular provisions made by it; and, thirdly, the legislative background against which the Agreement was made and in which it was to operate.” 19

[22] The fact that the instrument being construed is an enterprise agreement is itself an important contextual consideration. As French J observed in Wanneroo:

“It is of course necessary, in the construction of an award, to remember, as a contextual consideration, that it is an award under consideration. Its words must not be interpreted in a vacuum divorced from industrial realities - City of Wanneroo v Holmes (1989) 30 IR 362 at 378-379 and cases there cited. There is a long tradition of generous construction over a strictly literal approach where industrial awards are concerned - see eg George A Bond and Co Ltd (in liq) v McKenzie [1929] AR (NSW) 498 at 503-504 (Street J). It may be that this means no more than that courts and tribunals will not make too much of infelicitous expression in the drafting of an award nor be astute to discern absurdity or illogicality or apparent inconsistencies. But while fractured and illogical prose may be met by a generous and liberal approach to construction, I repeat what I said in City of Wanneroo v Holmes (at 380):

“Awards, whether made by consent or otherwise, should make sense according to the basic conventions of the English language. They bind the parties on pain of pecuniary penalties.” 20

Use of extrinsic material as an aide to interpretation

[23] As is often the case in disputes that involve the construction of an enterprise agreement, parties will seek to place reliance of a variety of extrinsic material as an aide to interpreting the provisions of an agreement in issue. The use to which extrinsic material of the surrounding circumstances may be put to assist in the interpretation of an instrument is set out in the judgement of Mason J in Codelfa Construction Pty Ltd v State Rail Authority of New South Wales 21 (Codelfa). In Codelfa his Honour said:

“The true rule is that evidence of surrounding circumstances is admissible to assist in the interpretation of the contract if the language is ambiguous or susceptible of more than one meaning. But it is not admissible to contradict the language of the contract when it has a plain meaning. Generally speaking facts existing when the contract was made will not be receivable as part of the surrounding circumstances as an aid to construction, unless they were known to both parties, although, as we have seen, if the facts are notorious knowledge of them will be presumed. It is here that a difficulty arises with respect to the evidence of prior negotiations. Obviously the prior negotiations will tend to establish objective background facts which were known to both parties and the subject matter of the contract. To the extent to which they have this tendency they are admissible. But in so far as they consist of statements and actions of the parties which are reflective of their actual intentions and expectations they are not receivable. The point is that such statements and actions reveal the terms of the contract which the parties intended or hoped to make. They are superseded by, and merged in, the contract itself. The object of the parol evidence rule is to exclude them, the prior oral agreement of the parties being inadmissible in aid of construction, though admissible in an action for rectification.Consequently when the issue is which of two or more possible meanings is to be given to a contractual provision we look, not to the actual intentions, aspirations or expectations of the parties before or at the time of the contract, except in so far as they are expressed in the contract, but to the objective framework of facts within which the contract came into existence, and to the parties’ presumed intention in this setting. We do not take into account the actual intentions of the parties and for the very good reason that an investigation of those matters would not only be time consuming but it would also be unrewarding as it would tend to give too much weight to these factors at the expense of the actual language of the written contract.” 22

[24] Although Justice Mason’s reasoning in Codelfa has commonly been applied as meaning that ambiguity in an instrument must first be identified before extrinsic material may be admitted as an aide to interpretation, this has not been universally accepted. So much is apparent from the following discussion of Codelfa by Nicholson J in BP Australia Pty Limited v Nyran Pty Limited: 23

“In Ray Brooks Pty Ltd v NSW Grains Board [2002] NSWSC 1049 Palmer J said the effect of dicta from the majority in Royal Botanic is to leave it to inferior Courts to puzzle out whether the decision in Codelfa is consistent or inconsistent with the contextual approach adopted in West Bromwich. Palmer J had earlier drawn a distinction between `the two competing schools of thought’ as to the point in time at which the Court may look at extrinsic evidence in order to construe a contract. One, `the literal approach’, gives primacy to the words of the document so that the starting point in the task of construction is always the text. The competing approach he described as `the contextual approach’ which holds that the words of a document, being no more than symbols of language, can never be reliably understood in isolation from the context in which the words were used. After analysing the reasoning of Mason J in Codelfa , Palmer J concluded that the approach of Mason J would be in complete sympathy with the contextual approach promoted by Lord Hoffman in West Bromwich. He said at par [59]:

`His Honour is not saying: evidence of surrounding circumstances is admissible only if it first appears that the language of the contract is ambiguous. His Honour is saying: evidence of surrounding circumstances is admissible only for the purpose of explaining ambiguous language in the contract and not for the purpose of changing the meaning of clear words.’

On the issue of the point of time in the exercise of construction at which reference to extrinsic evidence is permissible, Palmer J was of the view that Mason J agreed with Lord Wilberforce’s approach in Prenn v Simmonds [1971] 1 WLR 1381 and in Reardon Smith Line Ltd v Yngvar Hansen-Tangen (The Diana Prosperity) [1976] 1 WLR 51, the pith of which he considered was that the time has passed when contracts are isolated from the matrix of facts in which they were set and interpreted purely on internal linguistic considerations. Palmer J also referred to the trend of authority on the issue in New Zealand which he considered showed an endorsement and application of the approach in West Bromwich: cf. DW McLauchlan, `A contract contradiction’, Victoria University of Wellington Law Review, vol 30, 1999, p 175.

I am unable to agree with Palmer J that Codelfa and the passages in West Bromwich can be viewed as entirely consistent. That is not the way in which I understand the relevant portions of Codelfa have been understood and applied in relation to the issue of whether ambiguity is not to be found until the contract in issue has been considered in the matrix of facts in which it is set. In LMI Australasia Pty Ltd v Baulderstone Hornibrook Pty Ltd [2003] NSWCA 74 the New South Wales Court of Appeal accepted that Australia had kept while England had discarded the concept that ambiguity is necessary to be shown before one looks at the surrounding circumstances: per Young CJ in Eq, Meagher JA and Hodgson JA agreeing. Academic writing has regarded Codelfa as falling far short of Lord Wilberforce’s apparent position in Prenn on the issue of admission of surrounding circumstances to determine ambiguity: H King, `The admissibility of extrinsic evidence as an aid to contract interpretation: pushing objectivity to absurd limits’, Corporate and Business Law Journal, vol. 6(2), 1994, p 187. Yet the law on this is arguably not clear-cut given that in Maggbury Pty Ltd v Hafele Australia Pty Ltd [2001] HCA 70; (2001) 185 ALR 152 at 155 at par [11] Gleeson CJ, Gummow and Hayne JJ relied upon the statement by Lord Hoffman in Investors Compensation at 912 that the interpretation of a written contract involves `the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract’ and referring by footnote in that context to the reasons of Mason J in Codelfa at 350-352 and Lord Bingham in Bank Credit at 739. Furthermore, it has been said by one Australian text author that `the practice of the courts is to have regard to surrounding circumstances in the form of the factual matrix in virtually all cases’ on the ground that most English words are susceptible of more than one meaning so that difficulty of interpretation is sufficient for that reference to be made: JW Carter, Carter on Contract, Butterworths looseleaf, 2002 at p 28,096 at 12-050.

In LMI the Court of Appeal accepted, however, that the Codelfa doctrine appeared `to be not only that a court uses the surrounding circumstances to aid its interpretation and to put itself in the armchair of the parties to look to see what each knew when it was making the contract, but also that inferences can be drawn from the surrounding circumstances virtually to add terms’: at par [45] citing Codelfa at 353. Of such circumstances the Court of Appeal stated at [44] that `the approach in the Royal Botanic Gardens case itself shows that there is, in fact, a tendency to glean much more from negotiations as surrounding circumstances in Australia than would be permitted in England.’ It may be that there is good reason for the approach in Codelfa to be re-examined both in terms of the appropriateness of the approach and in the light of developments in other common law jurisdictions on the issue. However, given the unequivocal statement by the majority in the High Court in Royal Botanic and the factors I have just referred to, I consider I should proceed on the basis there is not consistency between Codelfa and West Bromwich.” 24

[25] His Honour then summed up the relevant principles to be distilled from Codelfa as follows:

“At the risk of repeating what is said in Codelfa, it follows that the issues arising in this matter should be approached in the following manner. It is necessary firstly to determine whether the contract has a plain meaning or contains an ambiguity. If the contract has a plain meaning, evidence of `surrounding circumstances’ will not be admissible to contradict the language of the contract. If the language of the contract is `ambiguous or susceptible of more than one meaning’ evidence of `surrounding circumstances’ is admissible to assist in the interpretation of the contract. The concept of `surrounding circumstances’ is to be understood to be a reference to `the objective framework of facts’. It will include evidence of prior negotiations so far as they tend to establish objective background facts known to both parties and the subject matter of the contract. It will also include facts so notorious that knowledge of them is to be presumed. Additionally it will include evidence of a matter in common contemplation and constituting a common assumption. From the evidence of that setting the parties’ presumed intention may be taken into account in determining which of two or more possible meanings is to be given to a contractual provision. What cannot be taken into account is evidence of statements and actions of the parties which are reflective of their actual intentions and expectations. Objective background facts can include statements and actions of the parties which reflect their mutual actual intentions. That is, evidence of the mutual subjective intention of the parties to a contract may be part of the objective framework of facts within which the contract came into existence. It is the mutuality which makes the evidence admissible.” 25

[26] That the view of Nicholson J about the proper application of Codelfa and its binding of authority was correct seemed to be confirmed by the High Court of Australia in its refusal to grant special leave to appeal in Western Export Services Inc v Jireh International Pty Ltd 26 (Jireh). The decision in Jireh concerned an application for special leave to appeal. In refusing special leave the High Court said:

“The primary judge had referred to what he described as "the summary of principles" in Franklins Pty Ltd v Metcash Trading Ltd. The applicant in this Court refers to that decision and to MBF Investments Pty Ltd v Nolan as authority rejecting the requirement that it is essential to identify ambiguity in the language of the contract before the court may have regard to the surrounding circumstances and object of the transaction. The applicant also refers to statements in England said to be to the same effect, including that by Lord Steyn in R (Westminster City Council) v National Asylum Support Service.

Acceptance of the applicant's submission, clearly would require reconsideration by this Court of what was said in Codelfa Construction Pty Ltd v State Rail Authority of NSW by Mason J, with the concurrence of Stephen J and Wilson J, to be the "true rule" as to the admission of evidence of surrounding circumstances. Until this Court embarks upon that exercise and disapproves or revises what was said in Codelfa, intermediate appellate courts are bound to follow that precedent. The same is true of primary judges, notwithstanding what may appear to have been said by intermediate appellate courts.

The position of Codelfa, as a binding authority, was made clear in the joint reasons of five Justices in Royal Botanic Gardens and Domain Trust v South Sydney City Council and it should not have been necessary to reiterate the point here.” [Endnotes omitted] 27

[27] However, more recently in Electricity Generation Corporation (trading as Verve Energy) v Woodside Energy Ltd 28 (Woodside) the High Court made the following observation in relation to the construction issue before the Court:

“Both Verve and the Sellers recognised that this Court has reaffirmed the objective approach to be adopted in determining the rights and liabilities of parties to a contract. The meaning of the terms of a commercial contract is to be determined by what a reasonable business person would have understood those terms to mean. That approach is not unfamiliar. As reaffirmed, it will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract. Appreciation of the commercial purpose or objects is facilitated by an understanding ‘of the genesis of the transaction, the background, the context [and] the market in which the parties are operating’. As Arden LJ observed in Re Golden Key Ltd, unless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption ‘that the parties ... intended to produce a commercial result’. A commercial contract is to be construed so as to avoid it ‘making commercial nonsense or working commercial inconvenience’.” 29 [Endnotes omitted]

[28] A Full Court of the Federal Court of Australia in Stratton Finance Pty Limited v Webb 30 (Stratton) very recently considered whether there was any inconsistency between Jireh and Woodside. In so doing the Full Court said:

“The above reasons are presupposed upon legitimate contextual surrounding circumstances being available for consideration in the process of contractual construction and interpretation before ambiguity is demonstrated from the words of the agreement alone. That proposition was denied as legally permissible by three justices of the High Court in remarks in the disposition of an application for special leave in Western Export Services Inc v Jireh International Pty Ltd [2011] HCA 45; 86 ALJR 1. In those remarks, criticism was made of the reasons in Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407; 76 NSWLR 603, and in particular the reasons at [14]-[18] concerning the lack of need for ambiguity before resort to legitimate surrounding circumstances in the above-mentioned task. The articulated criticism was that the Court in Franklins (and the courts in the other intermediate appellate decisions referred to at [16] in Franklins) had failed to follow the judgment of Mason J in Codelfa Construction Pty Ltd v State Rail Authority of New South Wales [1982] HCA 24; 149 CLR 337, especially at 352.

As the reasons in Franklins stated, the conclusion that ambiguity need not be discovered before any resort to legitimate surrounding circumstances in the relevant task was drawn only from existing High Court authority: Maggbury Pty Ltd v Hafele Australia Pty Ltd [2001] HCA 70; 210 CLR 181 at 188 [11]; Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; 218 CLR 451 at 461 [22]; Zhu v Treasurer of the State of New South Wales [2004] HCA 56; 218 CLR 530 at 559 [82]; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; 219 CLR 165 at 179 [40] and International Air Transport Association v Ansett Australia Holdings Ltd [2008] HCA 3; 234 CLR 151 at 160 [8] and 174 [53]. The Court’s view was reached in the light of the totality of Sir Anthony Mason’s judgment in Codelfa, and considering the clear words of those later binding High Court authorities. After Jireh, and until this year and the publishing by the High Court of reasons in Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; 306 ALR 25; 88 ALJR 447, there was a degree of uncertainty as to whether courts (trial courts and intermediate appellate courts) should follow a clearly articulated position expressed by a number of intermediate courts of appeal around the country as to the proper content and significance of binding High Court authorities, or the view ofthreejustices of the High Court in remarks on a special leave application. In 2013, McLure P called it a “heated controversy” in Cape Lambert Resources Ltd v MCC Australia Sanjin Mining Pty Ltd [2013] WASCA 66; 298 ALR 666 at [107]; and see also the remarks of Pullin JA in McCourt v Cranston [2012] WASCA 60 at [14]- [22], and the article by the Hon K Lindgren: ‘The ambiguity of “ambiguity” in the construction of contracts’ (2014) 38 Australian Bar Review 153. In the notice of appeal, Stratton relied, in effect, on the essential proposition from Jireh: see para 3. This was confirmed at a directions hearing. Jireh however, played no substantive part of the argument, because the question, by the time of submissions being filed, had been settled by the High Court in Woodside. This most recent statement by French CJ, Hayne, Crennan and Kiefel JJ of the principles of contractual construction and interpretation was as follows at [35]:
Both Verve and the Sellers recognised that this Court has reaffirmed the objective approach to be adopted in determining the rights and liabilities of parties to a contract. The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean. That approach is not unfamiliar. As reaffirmed, it will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract. Appreciation of the commercial purpose or objects is facilitated by an understanding ‘of the genesis of the transaction, the background, the context [and] the market in which the parties are operating’. As Arden LJ observed in Re Golden Key Ltd, unless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption “that the parties ... intended to produce a commercial result’. A commercial contract is to be construed so as to avoid it ‘making commercial nonsense or working commercial inconvenience’. (Footnotes omitted)

Recently, in Mainteck Services Pty Ltd v Stein Heurtey SA [2014] NSWCA 184, the New South Wales Court of Appeal (Leeming JA, with whom Ward JA and Emmett JA agreed) expressed the view (at [71]) that [35] of Woodside was inconsistent with Jireh. We agree with that conclusion, and with the reasons in elaboration at [72]-[86], and in particular with the comments concerning Codelfa at [78]-[80]. The resolution of this issue, in the terms of [35] of Woodside, may not, however, resolve all issues as to what are legitimate surrounding circumstances: see, for example, the argument dealt with in QBE Insurance Australia Ltd v Vasic [2010] NSWCA 166 at [20]- [35]; and the comments in Kimberley Securities Ltd v Esber [2008] NSWCA 301 at [4]- [5].” 31

[29] As is apparent from the above, the Full Court in Stratton concluded that Woodside was inconsistent with Jireh at least to the extent that Jirah supports the proposition that ambiguity can be evaluated without regard to the surrounding circumstances and the commercial purpose or objects of the instrument being constructed. In doing so, the Full Court expressly endorsed the explanation of Codelfa by the NSW Court of Appeal in Mainteck Services Pty Ltd v Stein Heurtey SA. 32 It is worthwhile therefore to set out that explanation below:

“To the extent that what was said in Jireh supports a proposition that ‘ambiguity’ can be evaluated without regard to surrounding circumstances and commercial purpose or objects, it is clear that it is inconsistent with what was said in Woodside at [35]. The judgment confirms that not only will the language used “require consideration” but so too will the surrounding circumstances and the commercial purpose or objects. Although the High Court in Woodside did not expressly identify a divergence of approach, Jireh was notoriously controversial in precisely this respect. In Cape Lambert Resources Ltd v MCC Australia Sanjin Mining Pty Ltd [2013] WASCA 66; 298 ALR 666 at [107] McLure P referred to the “heated controversy” created by Jireh; see further Kevin Lindgren’s analysis in ‘The ambiguity of “ambiguity” in the construction of contracts’ (2014) 38 Aust Bar Rev 153 at 161-167. It cannot be that the mandatory words ‘will require consideration’ used by four Justices of the High Court were chosen lightly, or should be ‘understood as being some incautious or inaccurate use of language’: cf Fejo v Northern Territory [1998] HCA 58; 195 CLR 96 at [45].

The general issue is important, such that it may be useful to state the position in some little detail. First, in principle, every legal text requires legal interpretation, in order to ascertain its legal meaning, although there is no real scope for dispute about the interpretation of many legal texts. Professor Wigmore long ago wrote that ‘the process of interpretation, then, though it is commonly simple and often unobserved, is always present, being inherently indispensable’: JH Wigmore, A Treatise on the Anglo-American System of Evidence in Trials at Common Law (3rd ed 1940, Little Brown & Co, Boston), Vol 9 p 180; see now §2459 Chardourne Revision, 1981. Lord Steyn said, in the first John Lehane Memorial Lecture, that ‘it is a universal truth that words can only be understood in relation to the circumstances in which they are used’: J Steyn, ‘The Intractable Problem of The Interpretation of Legal Texts’ [2003] SydLawRw 1; (2003) 25 Syd L Rev 5 at 5. His Lordship regarded this as a ‘fundamental principle of linguistic jurisprudence and legal logic’. I do not think there is any understatement in that statement. McHugh J made substantially the same point in Manufacturers’ Mutual Insurance Ltd v Withers (1988) 5 ANZ Ins Cas 60-853 at 75-343: ‘Until a word, phrase or sentence is understood in the light of the surrounding circumstances, it is rarely possible to know what it means.’

Lord Hoffmann, in a passage adopted by the joint judgment in Marley v Rawlings [2014] UKSC 2; [2014] 2 WLR 213 at [20], had said in Kirin-Amgen Inc v Hoechst Marion Roussel Ltd [2004] UKPC 6; [2005] 1 All ER 667 at [64] that:

‘No one has ever made an acontextual statement. There is always some context to any utterance, however meagre.’ Secondly, very often, language when considered in its context will have a single, clear meaning. Very often, there is no dispute as to the ordinary grammatical or literal meaning of a sentence, and no dispute that that is the legal meaning. Very often, nothing in the context will come close to displacing the ordinary grammatical meaning of the legal text. ‘But not always’: Project Blue Sky v Australian Broadcasting Authority [1998] HCA 28; 194 CLR 355 at [78]; Taylor v Owners - Strata Plan No 11564 [2014] HCA 9 at [65]. The legal meaning may diverge from its literal or grammatical meaning, especially in the (self-selectingly contestable) cases that reach courts. Words do not have a ‘natural’ meaning that can be determined in isolation. As Lord Hoffmann said in Charter Reinsurance Co Ltd v Fagan [1997] AC 313 at 391, approved in Campbell v R [2008] NSWCCA 214; 73 NSWLR 272 at [48] (Spigelman CJ, Weinberg AJA and Simpson J agreeing) and Dale v The Queen [2012] VSCA 324 at [73] (Weinberg, Harper and Whelan JJA): ‘[I]n some cases the notion of words having a natural meaning is not a very helpful one. Because the meaning of words is so sensitive to syntax and context, the natural meaning of words in one sentence may be quite unnatural in another. Thus a statement that words have a particular natural meaning may mean no more than that in many contexts they will have that meaning. In other contexts, their meaning will be different but no less natural.’ What is the legal meaning of a promise to sell ‘my Dürer drawing’, if the vendor’s wife owns a Dürer drawing which is on display in their home, and the vendor keeps another secretly in his study? What is the meaning of a gift ‘to my niece Eliza Woodhouse during her life’ in a will, if the testator had no such niece, but a grandniece of that name, and another grandniece, who was illegitimate, who lived with him: cf In re Fish; Ingham v Rayner [1894] 2 Ch 83? What is the meaning of cl 7 of the Wild Dog Destruction Regulation 1999, which provided ‘The Wild Dog Destruction Regulation 1994 is repealed’? Contracts, wills and statutes are very different legal texts, to the process of ascertaining whose legal meaning different rules apply, yet all are based on language, and language is unavoidably contextual. If I may repeat what I wrote of the uncertain meaning of the Wild Dog Destruction Regulation in Resolving Conflicts of Laws (Federation Press 2011), p 13, ‘The meaning of even the seemingly clearest legal text can be unclear, hence the importance of attending to context in the first instance.’ For those reasons, to say that a legal text is “clear” reflects the outcome of that process of interpretation. It means that there is nothing in the context which detracts from the ordinary literal meaning. It cannot mean that context can be put to one side; otherwise the three legal texts mentioned in the previous paragraph would be “clear”. Thirdly, I would not regard anything in the foregoing as inconsistent with the passage in Mason J’s reasons in Codelfa Construction Pty Ltd v State Rail Authority (NSW) [1982] HCA 24; (1982) 149 CLR 337 at 352 (which was the focus of Jireh):‘The true rule is that evidence of surrounding circumstances is admissible to assist in the interpretation of the contract if the language is ambiguous or susceptible of more than one meaning. But it is not admissible to contradict the language of the contract when it has a plain meaning.’ There is no inconsistency because whether contractual language has a ‘plain meaning’ is (a) a conclusion and (b) a conclusion which cannot be reached until one has had regard to the context. That accords with what was said by Allsop P in Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407; 76 NSWLR 603 at [17]: ‘the phrase used by Mason J in Codelfa Construction (at 352) ‘if the language is ambiguous or susceptible of more than one meaning’ does not mean that the susceptibility of the language to more than one meaning must be assessed without reference to the surrounding circumstances ...’ Mason J was indicating that there are very real limits to the extent to which grammatical meaning can be displaced by contextual considerations. However, in order to determine whether more than one meaning is available, it may be necessary first to turn to the context. Fourthly, what I have called “context” was formerly described as the ‘surrounding circumstances’, and then, influenced by Lord Wilberforce in decisions such as Prenn v Simmonds [1971] 1 WLR 1381 at 1384 and Reardon Smith Line Ltd v Yngvar Hansen-Tangen [1976] 1 WLR 989 at 997, as the ‘matrix of facts’. See Byrnes v Kendle [2011] HCA 26; 243 CLR 253 at [98]- [100] (Heydon and Crennan JJ) and J Carter, The Construction of Commercial Contracts (Hart Publishing, 2013), pp 8-9. Although Lord Hoffmann in Investors Compensation Scheme Ltd v West Bromwich Building Society [1997] UKHL 28; [1998] 1 All ER 98 at 114 referred to a ‘fundamental change’ in the approach espoused by Lord Wilberforce, the “modern” contextual approach had nineteenth century precursors, at least in relation to commercial contracts. Without seeking to be exhaustive, the Earl of Selborne had deprecated and rejected the ‘extreme literalism’ in the mercantile contract construed in McGowan v Baine [1891] AC 401 at 403 (contrast the (dissenting) speech of Lord Bramwell, who had required ‘necessity, or [something] approaching to it’ in order to displace the ‘primary and natural meaning of the words’: see at 409). To the same effect was Lord Herschell’s rejection of a process of construction by reference to dictionary meaning, and insistence that contractual language must be ‘construed in a business fashion’ and “interpreted in the way in which business men would interpret them” in Southland Frozen Meat and Produce Export Company Ltd v Nelson Brothers Ltd [1898] AC 442 at 444. The approach adopted by Lords Selborne and Herschell anticipated what was popularised by Lord Wilberforce in the following century. Professor Carter has examined the evolutionary process at pp 17-20 of his book referred to in the previous paragraph.  Fifthly, the approach endorsed in Woodside avoids the difficulty of identifying what is meant by ‘ambiguity’, itself an ambiguous term, whose perception ‘differs from one judicial eye to the other’: B & B Constructions (Aust) Pty Ltd v Brian A Cheeseman & Associates Pty Ltd (1994) 35 NSWLR 227 at 234. The various meanings of ‘ambiguity’ in this context are described by M Walton, ‘Where now ambiguity?’ (2011) 35 Aust Bar Rev 176 and D Wong and B Michael, ‘Western Export Services v Jireh International: Ambiguity as the gateway to surrounding circumstances?’ (2012) 86 ALJ 57 at 67-69. Sixthly, the approach to construction of written commercial contracts reflected in Woodside at [35] accords with what had been said in familiar passages in Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; 218 CLR 451 at [22] (construction “requires consideration, not only of the text of the documents, but also the surrounding circumstances known to Pacific and BNP, and the purpose and object of the transaction”); Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; 219 CLR 165 at [40] (‘The meaning of the terms ... normally requires consideration not only of the text but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction’); and the endorsement in Wilkie v Gordian Runoff Ltd [2005] HCA 17; 221 CLR 522 at [15] of the proposition that ‘Interpreting a commercial document requires attention to the language used by the parties, the commercial circumstances which the document addresses, and the objects which it is intended to secure’. It means also that the Australian approach mirrors that adopted in England, New Zealand, Singapore and Hong Kong: Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38; [2009] 1 AC 1101; Vector Gas Ltd v Bay of Plenty Energy Ltd [2010] NZSC 5; [2010] 2 NZLR 444; Zurich Insurance (Singapore) Pte Ltd v B-Gold Interior Design & Construction Pte Ltd [2008] SGCA 27; 3 SLR(R) 1029 (where the Court’s reasons delivered by V K Rajah JA for the Court survey much of the English decisions and academic literature); Fully Profit (Asia) Ltd v Secretary for Justice [2013] HKCFA 40; 6 HKC 374. Seventhly, although evidence of context and purpose expands the scope of the litigation, none of the foregoing should be seen as opening the door to lengthy litigation in commercial causes. As will be seen below, the evidence of ‘surrounding circumstances’ sought to be relied on by Mainteck was lengthy, contested, vague, and divorced - by many months in time, and a markedly different commercial position - from the execution of the Second Consortial Agreement. This makes it quite distinct from evidence which is apt to assist the process of construction. Indeed, I would infer that the primary reason for adducing the evidence was to support Mainteck’s (now abandoned) misrepresentation case, rather than so as to assist in construction. 33

[30] Regard may therefore be had to evidence of the surrounding circumstances before the existence of ambiguity in an agreement is identified as an aide to interpreting the agreement for the purposes of determining whether an ambiguity exists. If thereafter ambiguity is not identified extrinsic material cannot be used to contradict the language of the instrument. If ambiguity is identified the material may be used as contextual material to aide in the interpretation of the instrument. In this context we would make the observation that the law in relation to the interpretation of commercial contracts (Codelfa; Metcash and Stratton) has now aligned with the approach to the construction of awards and enterprise agreements as espoused by Burchett J in Short v FW Hercus Pty Ltd 34 and confirmed by French J, as he then was, in Wanneroo.

Application of the Acts Interpretation Act 1901 to enterprise agreements approved under the Act

[31] Both at first instance and before us the Appellant maintained that the Agreement must be interpreted in accordance with the Acts Interpretation Act 1901 (AI Act). That proposition is made on the basis that an enterprise agreement is an agreement that is made by the Commission pursuant to a power conferred by the Act to make the agreement. 35 To make good the proposition the Appellant at first instance relied on the following passage from the judgement of French J in Wanneroo:

“The interpretation of legislative instruments is dealt with in the Legislative Instruments Act 2003 (Cth). Awards and agreements made under the Act are declared, by s 7(1) of the Legislative Instruments Act, not to be legislative instruments – see Item 18 in the table set out in s 7(1). This leaves such awards and agreements within s 46 of the Acts Interpretation Act 1901 (Cth) which provides, inter alia:

‘(1) If a provision confers on an authority the power to make an instrument that is neither a legislative instrument within the meaning of the Legislative Instruments Act 2003 nor a rule of court, then, unless the contrary intention appears:

(a) this Act applies to any instrument so made as if it were an Act and as if each provision of the instrument were a section of an Act; and

(b) expressions used in any instrument so made have the same meaning as in the enabling legislation; and

(c) any instrument so made is to be read and construed subject to the enabling legislation, and so as not to exceed the power of the authority.

An award is an instrument made by an authority, in this case the Australian Industrial Relations Commission, and so attracts the application of the Acts Interpretation Act for the purposes of its interpretation.” 36

[32] The decision in Wanneroo does not support the proposition contended by the Appellant. In Wanneroo Justice French was concerned with the construction of an award under the Workplace Relations Act 1996 (WR Act) and not an enterprise agreement made under the Act. Relevantly, the award in question was an instrument that was not a legislative instrument but was an instrument made by the Australian Industrial Relations Commission pursuant to a power under the WR Act to make the instrument. Consequently French J concluded that the award was “an instrument made by an authority, in this case the Australian Industrial Relations Commission, and so attracts the application of the Acts Interpretation Act (AI Act) for the purposes of its interpretation”. 37

[33] The Appellant also relied on a decision in Cape Australia Holdings Pty Ltd v Construction, Forestry, Mining and Energy Union 38 (Cape Australia). In Cape Australia the issue whether the AI Act applied was not in contention and the parties proceeded on the basis that the AI Act applied.39

[34] Similarly in DP World Brisbane Pty Ltd v Maritime Union of Australia 40 a Full Bench of the Commission made obiter observations based on the parties’ acceptance that the AI Act applied to the relevant agreement. The Full bench observed that if the AI Act applied it would allow the consideration of particular extrinsic material, but ultimately proceeded to decide the construction question without regard to the AI Act as no relevant extrinsic material had been identified.41

[35] It follows that the question of whether the AI Act applies to the interpretation of enterprise agreements has not been the subject of a previous Full Bench decision in which the issue has been contested and determined. It is also relevant to observe that the two Full Bench decisions to which we have referred were decided prior to the recent decision of the Full Court of the Federal Court in Toyota Motor Corporation Australia Limited v Marmara 42. We refer to that decision later.

[36] It seems to us that the Act does not confer a power on the Commission to make an enterprise agreement. An enterprise agreement is made in the circumstances described in sections 172 and 182, which are reproduced below;

172 Making an enterprise agreement

Enterprise agreements may be made about permitted matters

(1) An agreement (an enterprise agreement) that is about one or more of the following matters (the permitted matters) may be made in accordance with this Part:

(a) matters pertaining to the relationship between an employer that will be covered by the agreement and that employer’s employees who will be covered by the agreement;

(b) matters pertaining to the relationship between the employer or employers, and the employee organisation or employee organisations, that will be covered by the agreement;

(c) deductions from wages for any purpose authorised by an employee who will be covered by the agreement;

(d) how the agreement will operate.

Note 1: For when an enterprise agreement covers an employer, employee or employee organisation, see section 53.

Note 2: An employee organisation that was a bargaining representative for a proposed enterprise agreement will be covered by the agreement if the organisation notifies the FWC under section 183 that it wants to be covered.

Single-enterprise agreements

(2) An employer, or 2 or more employers that are single interest employers, may make an enterprise agreement (a single-enterprise agreement):

(a) with the employees who are employed at the time the agreement is made and who will be covered by the agreement; or

(b) with one or more relevant employee organisations if:

(i) the agreement relates to a genuine new enterprise that the employer or employers are establishing or propose to establish; and

(ii) the employer or employers have not employed any of the persons who will be necessary for the normal conduct of that enterprise and will be covered by the agreement.

Note: The expression genuine new enterprise includes a genuine new business, activity, project or undertaking (see the definition of enterprise in section 12).

Multi-enterprise agreements

(3) Two or more employers that are not all single interest employers may make an enterprise agreement (a multi-enterprise agreement):

(a) with the employees who are employed at the time the agreement is made and who will be covered by the agreement; or

(b) with one or more relevant employee organisations if:

(i) the agreement relates to a genuine new enterprise that the employers are establishing or propose to establish; and

(ii) the employers have not employed any of the persons who will be necessary for the normal conduct of that enterprise and will be covered by the agreement.

Note: The expression genuine new enterprise includes a genuine new business, activity, project or undertaking (see the definition of enterprise in section 12).

Greenfields agreements

(4) A single-enterprise agreement made as referred to in paragraph (2)(b), or a multi-enterprise agreement made as referred to in paragraph (3)(b), is a greenfields agreement.

Single interest employers

(5) Two or more employers are single interest employers if:

(a) the employers are engaged in a joint venture or common enterprise;

(b) the employers are related bodies corporate; or

(c) the employers are specified in a single interest employer authorisation that is in operation in relation to the proposed enterprise agreement concerned.

Requirement that there be at least 2 employees

(6) An enterprise agreement cannot be made with a single employee.

182 When an enterprise agreement is made

Single-enterprise agreement that is not a greenfields agreement

(1) If the employees of the employer, or each employer, that will be covered by a proposed single-enterprise agreement that is not a greenfields agreement have been asked to approve the agreement under subsection 181(1), the agreement is made when a majority of those employees who cast a valid vote approve the agreement.

Multi-enterprise agreement that is not a greenfields agreement

(2) If:
(a) a proposed enterprise agreement is a multi-enterprise agreement; and

(b) the employees of each of the employers that will be covered by the agreement have been asked to approve the agreement under subsection 181(1); and

(c) those employees have voted on whether or not to approve the agreement; and

(d) a majority of the employees of at least one of those employers who cast a valid vote have approved the agreement;

the agreement is made immediately after the end of the voting process referred to in subsection 181(1).

Greenfields agreement

(3) A greenfields agreement is made when it has been signed by each employer and each relevant employee organisation that the agreement is expressed to cover (which need not be all of the relevant employee organisations for the agreement).

[37] An application to the Commission for the approval of an enterprise agreement must be made within the period specified in section 185(3) or (4) of the Act. The period within which an application is made is reckoned only after the agreement is made. The Commission’s role is in approving, subject to satisfaction of the statutory criteria, the enterprise agreement already made but there is no power conferred on the Commission by the Act to make an enterprise agreement.

[38] Where the statute intends to confer power on Commission to make an instrument it expressly so provides. 43 The power conferred on the Commission by the Act is limited to approval of agreements that have already been made. Although enterprise agreements made under the Act rely for their legal enforceability on the Commission’s approval, this is not the same as the Commission having power to make the enterprise agreement. An enterprise agreement is therefore not an instrument of a kind described in s.46 of the AI Act.

[39] As mentioned earlier this issue was recently considered by a Full Court in Toyota. Relevantly the Full Court said the following:

“Toyota’s final argument on the construction of cl 4 of the Agreement (ie aside from those that were interwoven with its case on the repugnancy point) was based on the provision of the Agreement that made it an objective to attain cost structures similar to those of other members of the Toyota group worldwide. It was contended that, pursuant to ss 46 and 15AA of the Acts Interpretation Act 1901 (Cth) (“the AI Act”), an interpretation of the Agreement which would best achieve that objective is to be preferred to each other interpretation. We do not, however, accept the premise from which this argument proceeds. Section 46 of the AI Act applies where ‘a provision confers on an authority the power to make an instrument’. There is no provision of the FW Act which confers on the Commission the power to make an enterprise agreement. Such an agreement is made by the employer and the relevant employees under ss 172(2) and 182(1). We consider, therefore, that the constructional questions which arise for resolution in this appeal must be addressed without assistance from the AI Act.” 44

[40] It follows that an enterprise agreement approved by the Commission must be interpreted without recourse to the AI Act.

Summary

[41] From the foregoing, the following principles may be distilled:

1. The AI Act does not apply to the construction of an enterprise agreement made under the Act.

2. In construing an enterprise agreement it is first necessary to determine whether an agreement has a plain meaning or contains an ambiguity.

3. Regard may be had to evidence of surrounding circumstances to assist in determining whether an ambiguity exists.

4. If the agreement has a plain meaning, evidence of the surrounding circumstances will not be admitted to contradict the plain language of the agreement.

5. If the language of the agreement is ambiguous or susceptible to more than one meaning then evidence of the surrounding circumstance will be admissible to aide the interpretation of the agreement.

6. Admissible evidence of the surrounding circumstances is evidence of the objective framework of fact and will include:

(a) evidence of prior negotiations to the extent that the negotiations tend to establish objective background facts known to all parties and the subject matter of the agreement;

(b) notorious facts of which knowledge is to be presumed;

(c) evidence of matters in common contemplation and constituting a common assumption.

7. The resolution of a disputed construction of an agreement will turn on the language of the Agreement understood having regard to its context and purpose.

8. Context might appear from:

(a) the text of the agreement viewed as a whole;

(b) the disputed provision’s place and arrangement in the agreement;

(c) the legislative context under which the agreement was made and in which it operates.

9. Where the common intention of the parties is sought to be identified, regard is not to be had to the subjective intentions or expectations of the parties. A common intention is identified objectively, that is by reference to that which a reasonable person would understand by the language the parties have used to express their agreement.

10. The task of interpreting an agreement does not involve rewriting the agreement to achieve what might be regarded as a fair or just outcome. The task is always one of interpreting the agreement produced by parties.

[23] The Commission, as presently constituted, adopts the reasoning of the Full Bench in Golden Cockerel and the authorities it refers to.

Submissions

[24] In the present matter there is a dispute between the parties as to the operation of clause 5.7 following the introduction of the MSA. Although the wording of clause 5.7 did not change between the 2009 Agreement and the 2013 Agreement, it is common ground between the parties that the MSA was to impact upon the operation of clause 5.7. 45 The dispute is about the scope of that impact.

Applicant Unions

[25] The Applicant Unions submit that:

a) “The 2013 Agreement anticipates employees being requested to work on their RDOs.” 46

b) “Clause 5.7 has two parts to its operation. Firstly it states that the 2003 Award applies. Secondly, it creates a new, additional right - ‘the employee can choose to be paid at the single time rate and take an alternative paid (single time) day in lieu prior to the next scheduled RDO’ (‘Additional RDO Right).” 47

c) “In interpreting this clause, the Commission must first examine the 2003 Award. The 2003 Award states that all work undertaken by an employee on his or her RDO is deemed to be overtime: see cl 9.1 of the 2003 Award. Further, certain other provisions relating to the RDO are provided for in cl 4 of the 2003 Award.” 48

d) “So, absent the Additional RDO Right, an employee who works their RDO at [the Respondent] could only be paid overtime or have an appropriate MSA hours deduction for their work (as the individual case may be). This is logical because it constitutes work in excess of the 70 hours of ordinary time that each employee works per fortnight.” 49

e) “But the [2013] Agreement confers upon the employee the Additional RDO Right. This part of the clause allows an employee to choose - the choice is only conferred upon the employee, and the exercise of the employee’s choice is unfettered. No condition or requirement may be read into ... the employee’s discretion as its terms are clear.” 50

f) “Reading clause 5.7 in light of the established interpretive principles, as well as the natural and ordinary meaning of the words, leaves the reader with the conclusion that when an employee is required under cl 4.7 to work additional hours, and those additional hours fall on an RDO, then the employee may choose to either:

Have the work considered overtime, and have the appropriate MSA deduction or overtime payment made (as follows from the 2003 Award); or

Be paid single time on the RDO and have the RDO rescheduled to a day prior to the next scheduled RDO.” 51

g) “Clause 5.7 and 4.7 work together, and not to each other’s exclusion; their subject matter is different. Indeed, in cl 4.14.2 of the Agreement, cl 5.7 is clearly referred to as being coextensive with the operation of cl 4 of the [2013] Agreement.” 52

[26] Following the decision in Linfox the Applicant Unions submit that:

a) “The Linfox Case is significant because it held that past practices (the ‘mutual understandings ascertained from the parties’ behaviour’) can override the express terms of an enterprise agreement in certain circumstances.” 53

b) “In the present matter, the Commission need not go so far. The express terms of the [2013] Agreement are not at ‘odds’ with the practice of the parties. The Applicants submit that the express terms of the [2013] Agreement can be properly assigned a meaning (without straining the language of the clauses set out in the Applicants’ primary submissions) that accords with the long standing practice at the refinery.” 54

[27] Following the decision in Golden Cockerel the Applicant Unions submit that:

a) “The Applicants have previously submitted that the terms of the Agreement are unambiguous and no recourse to extrinsic material is necessary.” 55

b) However, if the Commission is of a view that ambiguity is identified in the terms of the [2013] Agreement subject to dispute, then the Applicants submit as follows.” 56

c) “The extrinsic evidence contained in Mr Towart’s statement is evidence of the ‘genesis of the transaction’ - being the making of the [2013] Agreement by the employees of the Respondent and the Respondent. Further, Mr Towart’s statement contains exactly the type of evidence described in sub-paragraph [41].6 of Golden Cockerel.” 57

d) The Applicants submit that each of the following examples of evidence (which constitute the statement of Mr Towart) fall within the categories identified in sub-paragraph [41].6:

The ‘pre-contractual’ understanding and practices as to how RDOs are worked (‘common assumptions’ and ‘notorious facts’); and

The negotiations which preceded the making of the [2013] Agreement (‘evidence of prior negotiations’).” 58

e) The [Applicant Unions’] submissions ... should be analysed by the Commission in light of (a) the silence of the Respondent during the course of the negotiation, and (b) that the Act, through the operation of s.180(5), requires the Respondent to explain the operation of the terms of the [2013] Agreement to the employees. When the provisions regarding RDOs are not discussed in the process of discharging the obligation imposed by s.180(5), it can be safely assumed that the Respondent intended not to alter the RDO practice, i.e. ‘situation normal’.” 59

f) “To conclude otherwise, the Commission would have to find that the Respondent, at the time the [2013] Agreement was made, believed it could require RDOs to be worked in the manner it now contends for, kept that understanding secret from its employees, and consequently fail to discharge its duty under s.180(5).” 60

Respondent

[28] The Respondent submits that particular regard is to be had to the following extracts from Part 4 of the 2013 Agreement:

a) “…. The salary comprehends all remuneration entitlements for all purposes and displaces any previous or other entitlements under the Shell Geelong Refinery Engineering Employees Award 2001 except as outlined in clause 4.7.9.” (clause 4.2)

b) “Subject to the terms of this Part 4, all existing entitlements to penalty payments are comprehended in the new salary. Accordingly, there should be no claim by or additional payments to an employee for the work performed on the basis of the required task, except as permitted by this Part 4.” (clause 4.3.1)

c) “The MSA Allowance is paid at the rate prescribed in Attachment 1. It comprises …. An annualised salary component that captures a portion (as described in clause 4.7) of pre-paid additional hours worked.” (clause 4.6.3)

d) “The working of MSA hours as listed in 4.7.3 is subject to the conditions and principles listed below … An employee will not receive overtime until the annual obligation of MSA hours has been worked (with the only exception as per clause 4.7.4(v) and (vi)).” (clause 4.7.4)

e) “Any additional hours expressly authorised by Shell that are worked by an employee and are not considered to be MSA as defined above, will be paid as overtime.” (clause 4.7.9)

[29] The Commission, as presently constituted, observes that:

a) Clause 4.2 referred to above is substantially the same in the 2013 Agreement as it was in the 2009 Agreement;

b) Clause 4.3.1 referred to above is substantially the same in the 2013 Agreement as it was in clause 4.5.1 of the 2009 Agreement;

c) Clause 4.6.3 referred to above is new to the 2013 Agreement;

d) All of clause 4.7 referred to above is new to the 2013 Agreement.

[30] The Respondent further submits that:

a) “Scheduling an employee in receipt of MSA to work on an RDO involves additional hours as contemplated in clause 4.7.1(iv)2. If the work arose in the manner of a call-in, it would be additional hours as contemplated within clause 4.7.1(iv)3 of the Agreement.” 61

b) “Accordingly, the work in question – i.e. working additional hours on an RDO – is prepaid in full by the Maintenance Service Allowance, unless certain limits have been reached. It is work, in respect of which “there should be no claim … except as permitted by this Part 4” – see clause 4.3.1 of the Agreement.” 62

c) “The Applicants contend that, notwithstanding the clear and comprehensive words of Part 4 of the Agreement, an employee working additional hours on an RDO should have the choice of either to work those hours at single time with no debiting of MSA hours or payment of overtime and have a day off in lieu, or just be paid the overtime or have the MSA hours debited as normal.” 63

d) “There is nothing whatever in Part 4 to support this. Neither is there any warrant in the terms of clause 5.7 for this interpretation.” 64

e) “Clause 5.7 operates and can only operate in circumstances where Maintenance Service Allowance has not already paid for the work in question.” 65

f) “The notion that an employee may have been prepaid for an amount of assumed overtime work through a Maintenance Salary Allowance, operating as part of an annualised salary, is foreign to … clause 5.7.” 66

[31] Following the decision in Linfox the Respondent submitted that:

a) “The Linfox case is an application of the principles [which the Respondent has suggested apply], not a departure from them.” 67

b) “[The facts in Linfox] contrasts greatly with the situation at hand.” 68

[32] Following the decision in Golden Cockerel the Respondent submitted that:

a) The decision in Golden Cockerel “confirm[s] that the [Respondent’s] construction is to be preferred.” 69

b) “This is a case where the clear words are used in the context of a new agreement, which the Commission knows from the background matrix of facts, was designed to create a whole new system for the operation of the maintenance service allowance and MSA hours. The new system was intended to be entirely different from the prior FHA system under the predecessor agreement.” 70

c) “… the construction advanced by the [Applicant Unions] is simply unavailable under the terms of clause 5.7 and could only be implemented by, impermissibly, re-writing the [2013] Agreement. It would undermine the MSA system which was the central feature of the bargain struck in the [2013] Agreement.” 71

d) “There is a clear meaning arising from the words used which is fully explicable on the face of the [2013] Agreement and by reference to the parties’ joint statement about the outcome of the negotiations (see Summary of Shell’s Offer of Settlement dated 3 December 2012 and the buy-out of prior terms – see pages 17 to 20 of Attachment A to [Exhibit R2].” 72

Consideration

[33] Both parties contend that the Commission should have regard to the plain and ordinary meaning of the words in the 2013 Agreement. However, in doing so, conflicts arise between the operation of part 4 and clause 5.7 e.g:

a) clause 4.7 (“an employee will not receive overtime until the annual obligation of MSA hours has been worked”); and

b) clause 5.7 (“the provisions of the [2003 Award] shall continue to regulate the operations of the 35 hr week for all employees…” (i.e. the overtime provisions in the 2003 Award).

[34] That conflict could have been easily resolved during the drafting of the 2013 Agreement. For example clause 5.7 could have read “Subject to the operation of the MSA in clause 4.7, the provisions of the [2003 Award] shall continue to regulate...” That is what I think was intended. Sadly the drafters chose not to amend clause 5.7 at all. In explaining the 2013 Agreement the Respondent indicated that there was no change to clause 5.7. However, it is evident that this meant “no change to the words”, not “no change to its operation”.

[35] The Applicant Unions say that, absent express words confining the operation of clause 5.7 which make it subservient to the operation of the MSA, the clauses can happily coexist. I do not agree. There is a tension between the operation of MSA and clause 5.7.

[36] It is necessary therefore to apply the Golden Cockerel principles.

1. The AI Act does not apply to the construction of an enterprise agreement made under the Act.

[37] The AI Act is not to be and has not been applied to the Commission’s interpretation of the 2013 Agreement.

2. In construing an enterprise agreement it is first necessary to determine whether an agreement has a plain meaning or contains an ambiguity.

[38] While the words in each of Part 4 and clause 5.7 have plain and ordinary meanings, when read together a conflict arises which infects the 2013 Agreement as a whole with ambiguity.

3. Regard may be had to evidence of surrounding circumstances to assist in determining whether an ambiguity exists.

[39] The parties decided to lead very little evidence before the Commission. Only Mr Towart’s evidence touched upon the negotiations for the 2013 Agreement.

[40] However, the Commission also had before it Attachment A to Exhibit R2 which contained detailed information of events preceding the conclusion of the 2013 Agreement.

[41] It is evident from the material before the Commission that no party to the 2013 Agreement expressly addressed the impact that the MSA would have on clause 5.7. The surrounding circumstances therefore resulted in the ambiguity that has infected the 2013 Agreement.

[42] Having regard to all of the surrounding circumstances, it is evident that, had the question been asked, it would have been explained to employees that, as the MSA was intended to be compensation for a pre-payment of overtime, that clause 5.7, while continuing to operate, would not do so until MSA hours were exhausted.

[43] In one sense it is surprising that the Applicant Unions press the Coexistent Argument. They are sophisticated industrial players who were closely involved in the protracted and hard bargaining that led to the 2013 Agreement. The email dated 22 October 2012 from the delegates which had attached to it the summary of the Respondent’s Offer of Settlement, makes clear that,

“the salary shall comprehend all remuneration entitlements for all purposes and shall displace any previous entitlements. As such the total remuneration package covers any and all claims for penalties or allowances for any work completed under either the service agreement or any additional overtime worked.”

[44] Under heading 4 in the Respondent’s Offer of Settlement how the MSA is to operate is made clear. It expressly says, “an employee would not receive overtime until their annual bank of hours are worked (only exceptions see points 3 & 4).” The continued operation of clause 5.7 is not an exception. However, it would have been desirable if the impact of MSA on clause 5.7 had been stated expressly.
4. If the agreement has a plain meaning, evidence of the surrounding circumstances will not be admitted to contradict the plain language of the agreement.

[45] This principle is not relevant because the Commission, as presently constituted, has found the 2013 Agreement (as a whole) is ambiguous.

[46] The Commission, as presently constituted, attaches significant weight to Attachment A to Exhibit R2. It was attached to the Respondent’s submissions and not otherwise tended as evidence. However, the Applicant Unions took no objection to the Commission receiving it. Attachment A assists in the interpretation of the 2013 Agreement because it makes clear that:

a) As between the 2009 Agreement and the 2013 Agreement the introduction of the MSA was a radical revision. MSA was an entirely new scheme of pre-paid overtime. Therefore, meaning must be given to the common intention of the parties to the 2013 Agreement to institute the MSA.

b) Clause 4 was intended to be a comprehensive statement of the compensation to be paid for “additional hours”. This includes work on a RDO. There are only two exceptions contained in clause 4.7.4. Allowing clause 5.7 to coexist with the operation of clause 4 would create another exception and it therefore goes against the common intention of the parties that was behind the MSA.

6. Admissible evidence of the surrounding circumstances is evidence of the objective framework of fact and will include:

a. evidence of prior negotiations to the extent that the negotiations tend to establish objective background facts known to all parties and the subject matter of the agreement;

b. notorious facts of which knowledge is to be presumed;

c. evidence of matters in common contemplation and constituting a common assumption.

[47] Attachment A to Exhibit R2 evidences the prior negotiations and how they were concluded.

7. The resolution of a disputed construction of an agreement will turn on the language of the Agreement understood having regard to its context and purpose.

[48] The language of clause 4 and its comprehensiveness (including the institution of the MSA) gives context to how the 2013 Agreement is to be interpreted. Its purpose was clear i.e. to implement a system that entirely replaced and operated differently to the FHA system.
8. Context might appear from:

a. the text of the agreement viewed as a whole;

b. the disputed provision’s place and arrangement in the agreement;

c. the legislative context under which the agreement was made and in which it operates.

[49] The parties in their submissions would have the Commission focus separately on the language in the clause that lends weight to their respective submissions. This is a flawed process. It is necessary and the Commission, as presently constituted, has considered the 2013 Agreement as a whole. It is the only way to give meaning to the change implemented through the MSA.
9. Where the common intention of the parties is sought to be identified, regard is not to be had to the subjective intentions or expectations of the parties. A common intention is identified objectively, that is by reference to that which a reasonable person would understand by the language the parties have used to express their agreement.

[50] The Commission, as presently constituted, has not had regard to the subjective intentions or expectations of the parties. It is evident from all the surrounding circumstances that the objective intention of the MSA system was that it be comprehensive in its compensation for pre-paid overtime.
10. The task of interpreting an agreement does not involve rewriting the agreement to achieve what might be regarded as a fair or just outcome. The task is always one of interpreting the agreement produced by parties.

[51] No rewriting of the 2013 Agreement has been undertaken in coming to the decision in this matter. The Commission, as presently constituted, has interpreted the agreement produced by the parties that, in 2013, contained a considered and agreed revision to include the MSA.

Conclusion

[52] Having considered all that has been submitted in these proceedings and the relevant authorities, for the reasons set out above, the Commission, as presently constituted, has determined that the Subservient Argument (of the Respondent) prevails.

[53] Therefore, until such time as an employee has exhausted their MSA hours they are not entitled to the benefit of clause 5.7 of the 2013 Agreement.

COMMISSIONER

Appearances:

Mr J Wieladek, a AMWU (Victorian Branch) Industrial Officer for the Applicant Unions.

Mr R Bunting, from Ashurst for the Respondent.

Hearing details:

Melbourne.

30 July.

2014.

Final written submissions:

Filed by both sides on 11 December 2014 and the Respondent’s submissions in reply on 18 December 2014.

1 [2014] FCA 829.

2 [2014] FWCFB 7447.

3 Clause 4.7 of the 2013 Agreement.

4 Clause 4.7.3(iii) of the 2013 Agreement.

5 See PN32-33 (Unions) and PN110-112 (Respondent).

6 Exhibit A1, para 10.

7 Exhibit A1, para 19.

8 Exhibit A1, para 29.

9 Exhibit A1, para 30.

10 Exhibit A1, para 31.

11 Exhibit A1, para 32.

12 Exhibit R1, para 4.

13 (2006) 153 IR 426.

14 Ibid at 438.

15 (1966) 66 IR 182.

16 Ibid at 184.

17 See Swire Cold Storage Pty Ltd v TWU [2008] AIRCFB 397 at [29] and AMWU v Silcar Pty Ltd [2011] FWAFB 2555 at [11].

18 (2005) 222 CLR 241.

19 Ibid at 253 per Gummow, Hayne and Heydon JJ.

20 (2006) 153 IR 426 at 440.

21 (1982) 149 CLR 337.

22 Ibid at 352.

23 [2003] FCA 520.

24 Ibid at [28]-[31].

25 Ibid at [32]-[34].

26 [2011] HCA 45 per Gummow, Heydon and Bell JJ.

27 Ibid at [2]-[4].

28 [2014] HCA 7.

29 Ibid at [35].

30 [2014] FCAFC 110.

31 Ibid at [36]-[41].

32 [2014] NSWCA 184.

33 Ibid at [71]-[85].

34 (1993) 40 FCR 511 at 518.

35 See section 46 of the AI Act.

36 (2006) 153 IR 426 at 438 [52].

37 Ibid.

38 [2012] FWAFB 3994.

39 [2012] FWAFB 3994 at [10].

40 (2013) 237 IR 180.

41 Ibid at 191.

42 [2014] FCAFC 84.

43 See for example 157(1)(b) which provides that the Commission may make a modern award, s.243 which provides that the Commission must make a low-paid authorisation in particular circumstances and s.269(1) which provides that the Commission must make a bargaining related workplace determination in particular circumstances.

44 [2014] FCAFC 84 at [58].

45 See PN32-33 (Unions) and PN110-112 (Respondent).

46 Exhibit A2, para 25.

47 Exhibit A2, para 26.

48 Exhibit A2, para 27.

49 Exhibit A2, para 28.

50 Exhibit A2, para 29.

51 Exhibit A2, para 30.

52 Exhibit A2, para 31.

53 Applicant Unions’ Supplementary Submissions (19 August 2014), para 5.

54 Applicant Unions’ Supplementary Submissions (19 August 2014), para 6.

55 Applicant Unions’ Further Supplementary Submissions (11 December 2014), para 3.

56 Applicant Unions’ Further Supplementary Submissions (11 December 2014), para 4.

57 Applicant Unions’ Further Supplementary Submissions (11 December 2014), para 5.

58 Applicant Unions’ Further Supplementary Submissions (11 December 2014), para 6.

59 Applicant Unions’ Further Supplementary Submissions (11 December 2014), para 7.

60 Applicant Unions’ Further Supplementary Submissions (11 December 2014), para 8.

61 Exhibit R2, para 12.

62 Exhibit R2, para 13.

63 Exhibit R2, para 14.

64 Exhibit R2, para 15.

65 Exhibit R2, para 16.

66 Exhibit R2, para 17.

67 Respondent’s Supplementary Submissions (19 August 2014), para 3.

68 Respondent’s Supplementary Submissions (19 August 2014), para 3.

69 Respondent’s Further Supplementary Submissions (11 December 2014), para 4.

70 Respondent’s Further Supplementary Submissions (11 December 2014), para 5.

71 Respondent’s Further Supplementary Submissions (11 December 2014), para 9.

72 Respondent’s Further Supplementary Submissions (11 December 2014), para 10.

Printed by authority of the Commonwealth Government Printer

Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union and Automotive, Food, Metals, Engineering, Printing and Kindred Industries Union v Viva Energy Refining..

[2014] FWC 9456

24 DECEMBER 2014

DECISION