Construction, Forestry, Mining and Energy Union v State of Victoria
[2013] FCA 445
•17 May 2013
FEDERAL COURT OF AUSTRALIA
Construction, Forestry, Mining and Energy Union v State of Victoria [2013] FCA 445
Citation: Construction, Forestry, Mining and Energy Union v State of Victoria [2013] FCA 445 Parties: CONSTRUCTION, FORESTRY, MINING AND ENERGY UNION v STATE OF VICTORIA File number: VID 1097 of 2012 Judge: BROMBERG J Date of judgment: 17 May 2013 Catchwords: INDUSTRIAL LAW – s 340(1) of the Fair Work Act 2009 (Cth) – whether respondent took adverse action against employees of independent contractor because those employees had a workplace right – whether the employer of the employee’s was an “independent contractor” with whom the respondent was “proposing to enter into a contract for services” within the meaning of Item 4 of s 342(1) – meaning of “independent contractor”, “proposing to enter” and “contract for services” – whether respondent took adverse action by threatening to refuse to engage independent contractor or make use of its services – meaning of “refuse to engage” – meaning of “threatening to take action” in s 342(2)(a) – whether threat capable of being made in the context of an agreed process – whether prohibition imposed by s 340 may be avoided by contract, waiver or estoppel – whether adverse action taken because the employees were entitled to the benefit of an industrial instrument – meaning of “entitled to the benefit” of a workplace instrument – consideration of s 361 and onus of proof.
CONSTITUTIONAL LAW – Melbourne Corporation limitation – whether ss 340-342 of Fair Work Act 2009 (Cth) exceed the Constitutional legislative capacity of the Commonwealth by imposing limitations upon the capacity of a State to select a contractor to provide major infrastructure.
PRACTICE AND PROCEDURE – s 21 of the Federal Court of Australia Act 1976 (Cth) – whether declaration may be made in the absence of a justiciable controversy.
Legislation: Acts Interpretation Act 1901 (Cth) ss 2C(1), 15AA
Conciliation and Arbitration Act 1904 (Cth) ss 5, 5(1A), 9(1), 132(4), 132A
Constitution ss 51, 51(xxxvii), 109
Fair Work Act 2009 (Cth) s 12, 23, Pt 2-4 ss 172(1), 194, Pt 3-1 ss 336, 340, 340(1), 340(1)(a)(i), 341, 341(1), 341(1)(a), 341(1)(c)(ii), 342, 342(1), 342(2), 342(2)(a), 343, 346, 357, 358, 359, 360, 361, 361(1), Pt 3-2
Fair Work (Commonwealth Powers) Act 2009 (Vic)
Fair Work (Registered Organisations) Act 2009 (Cth)
Federal Court of Australia Act 1976 (Cth) s 21
Independent Contractors Act 2006 (Cth) ss 4, 11
Industrial Relations Act 1988 (Cth) ss 4(1A), 127A, 127A(1), 127B, 127B(1), 127C, 195(1A), 334, 334(2), 334(7A), 336
Industrial Relations Legislation Amendment Act 1992 (Cth)
Project Development and Construction Management Act 1994 (Vic) s 3
Workplace Relations Act 1996 (Cth) s 4(1A), 4(2), Part XA ss 298K, 298K(1), 298K(2), 298L, 298L(1), 298L(1)(c)(i), 298L(1)(m), 298B(5), s356, Pt 10 ss 515(g), 515(h) Pt 16 ss 792, 792(1), 792(5), 793
Workplace Relations Amendment (Work Choices) Act 2005 (Cth)
Workplace Relations and Other Legislation Amendment Act 1996 (Cth)
Workplace Relations and Other Legislation Amendment Act 1997 (Cth)
Workplace Relations Regulations 2006 (Cth)Cases cited: Melbourne Corporation v Commonwealth (1947) 74 CLR 31
Construction, Forestry, Mining and Energy Union v McCorkell Constructions Pty Ltd (No 2) [2013] FCA 446
Informax International Pty Ltd v Clarius Group Ltd (2012) 207 FCR 298
AB v Western Australia (2011) 244 CLR 390
Commissioner for Railways (NSW) v Agalianos (1955) 92 CLR 390
Barclay v Board of Bendigo Regional Institute of Technical and Further Education (2011) 191 FCR 212
Kelly v Construction, Forestry, Mining and Energy Union (No.3) (1995) 63 IR 119
Australian Municipal, Administrative, Clerical and Services Union v Greater Dandenong City Council (2000) 101 IR 143
National Union of Workers v Qenos Pty Ltd (2001) 108 FCR 90
Construction, Forestry, Mining and Energy Union v Pilbara Iron Co (Services) Pty Ltd (No 3) [2012] FCA 697
Waugh v Kippen (1986) 160 CLR 156
Stevens v Brodribb Sawmilling Co Pty Ltd (1986) 160 CLR 16
Neale v Atlas Products (Vic) Pty Ltd (1955) 94 CLR 419
On Call Interpreters and Translators Agency Pty Ltd v Commissioner of Taxation (No 3) [2011] FCA 366
Ready Mixed Concrete (South East) Limited v Minister for Pensions and National Insurance [1968] 2 QB 497
Queensland Stations Pty Limited v Federal Commissioner of Taxation (1945) 70 CLR 539
Quarman v Burnett (1840) 6 M & W 499 [151 ER 509]
Scott v Davies (2000) 204 CLR 333
Leichhardt Municipal Council v Montgomery (2007) 230 CLR 22
Roads and Traffic Authority v Scroop (1998) 28 MVR 233
Kondis v State Transport Authority (1984) 154 CLR 672
Burnie Port Authority v General Jones Pty Ltd (1994) 179 CLR 520
Murphy v Brentwood District Council [1991] 1 AC 398
S v Secretary, Department of Immigration and Multicultural and Indigenous Affairs (2005) 143 FCR 217
Moore v Doyle (1969) 15 FLR 59
ATS (Asia Pacific) Pty Ltd v Dun Oir Investments Pty Ltd [2012] FCA 1004
Dowling v Fairfax Media Publications Pty Ltd (2008) 172 FCR 96
Wallace-Smith v Thiess Infraco (2005) 218 ALR 1
Maritime Union of Australia v Burnie Port Corporation Pty Ltd (2000) 101 IR 435
Fletcher v Fraser Corporation Australia Limited (1996) 70 IR 117
Burnie Port Corporation Pty Ltd v Maritime Union of Australia (2000) 104 FCR 440
Community and Public Sector Union v Telstra Corporation Limited (2001) 107 FCR 93
Gietzelt v Craig-Williams Pty Ltd (No 1) (1959) 1 FLR 456
Gietzelt v Craig-Williams Pty Ltd (No 2) (1959) 1 FLR 465
Community and Public Sector Union v Telstra Corporation Limited (2000) 99 IR 238
Community and Public Sector Union v Telstra Corporation Limited (2000) 101 FCR 45
Construction, Forestry, Mining and Energy Union v Bengalla Mining Company Pty Ltd (No 2) [2013] FCA 362
Metropolitan Health Service Board v Australian Nursing Federation (2000) 99 FCR 95
Textile, Clothing and Footwear Union of Australia v Givoni Pty Ltd (2002) 121 IR 250
Ace Insurance Limited v Trifunovski (2011) 200 FCR 532
Greater Dandenong City Council v Australian Municipal, Administrative, Clerical and Services Union (2001) 112 FCR 232
Board of Bendigo Regional Institute of Technical and Further Education v Barclay (2012) 86 ALJR 1044
Patrick Stevedores Operations No 2 Pty Ltd v Maritime Union of Australia (No 3) (1998) 195 CLR 1
David’s Distribution Pty Ltd v National Union of Workers [1999] FCA 1108
National Tertiary Education Union v Royal Melbourne Institute of Technology [2013] FCA 451
General Motors-Holdens Pty Ltd v Bowling (1976) 51 ALJR 235
R v Hush; Ex parte Davanny (1932) 48 CLR 487
Re Australian Education Union; Ex parte Victoria (1995) 184 CLR 188
State of Victoria v Commonwealth of Australia (1996) 187 CLR 416
Austin v Commonwealth of Australia (2003) 215 CLR 185
Clarke v Commissioner of Taxation of the Commonwealth of Australia (2009) 240 CLR 272
Queensland Electricity Commission v Commonwealth of Australia (1985) 159 CLR 192
Commonwealth v Tasmania (1983) 158 CLR 1
State of Victoria v Riordan (Unreported, Industrial Relations Court of Australia, Wilcox CJ, Lee and Madgwick JJ, 330/1996, 26 July 1996)
Williams v Commonwealth (2012) 86 ALJR 713
Direct Factory Outlets Pty Ltd v Westfield Management Limited (2003) 132 FCR 428
Re Judiciary and Navigation Acts (1921) 29 CLR 257
Fencott v Muller (1983) 152 CLR 570
Abebe v Commonwealth (1999) 197 CLR 510
Truth About Motorways Pty Ltd v Macquarie Infrastructure Management Ltd (2000) 200 CLR 591Date of hearing: 19, 20, 26, 27 March 2013 and 24 April 2013 Place: Melbourne Division: FAIR WORK DIVISION Category: Catchwords Number of paragraphs: 284 Counsel for the Applicant: Ms R Doyle SC with Mr M Harding Solicitor for the Applicant: Slater & Gordon Lawyers Counsel for the Respondent: Mr M Wheelahan SC with Mr P Willis and Mr P O’Grady Solicitor for the Respondent: Ashurst Australia
IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
FAIR WORK DIVISION
VID 1097 of 2012
BETWEEN: CONSTRUCTION, FORESTRY, MINING AND ENERGY UNION
ApplicantAND: STATE OF VICTORIA
Respondent
JUDGE:
BROMBERG J
DATE OF ORDER:
17 MAY 2013
WHERE MADE:
MELBOURNE
THE COURT DECLARES THAT:
1.In contravention of s 340(1)(a)(i) of the Fair Work Act 2009 (Cth), between 19 November 2012 and 5 April 2013, the respondent took adverse action against employees of Lend Lease Project Management & Construction (Australia) Pty Limited (“Lend Lease”) by threatening to refuse to engage or make use of the services of Lend Lease for the construction of the New Bendigo Hospital because the employees were entitled to the benefit of the Lend Lease Project Management & Construction/CFMEU Joint Development Agreement Mark 8 2012-16.
AND THE COURT ORDERS THAT:
2.On or before 24 May 2013 the parties consult and file with the Court minutes of proposed orders addressing the filing and service of outlines of submissions in relation to the applicant’s claim for the imposition of a penalty upon the respondent.
3.The matter be listed for further hearing on a date to be fixed.
Note:Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
FAIR WORK DIVISION
VID 1097 of 2012
BETWEEN: CONSTRUCTION, FORESTRY, MINING AND ENERGY UNION
ApplicantAND: STATE OF VICTORIA
Respondent
JUDGE:
BROMBERG J
DATE:
17 MAY 2013
PLACE:
MELBOURNE
REASONS FOR JUDGMENT
Part 2-4 of the Fair Work Act 2009 (Cth) (“the FW Act”) provides a scheme by which employees may collectively bargain with their employer for collective industrial agreements known as enterprise agreements. Once made, enterprise agreements that are approved by the Fair Work Commission (“the FWC”) are given legal effect by the FW Act. Part 3-1 of the FW Act includes s 340 which, broadly speaking, prohibits the taking of, or threatening of, adverse action by one person because another person has a workplace right. One of the workplace rights protected is the entitlement of a person (such as an employee) to the benefit of an enterprise agreement made under the FW Act.
This proceeding raises some interesting and novel issues in the context of a potential clash between the application of the policies of a State and the operation of a Federal enactment. That context has raised a Constitutional challenge that I deal with later. However, the primary question raised is whether in contravention of s 340 of the FW Act, the State of Victoria (“the State”) threatened to take adverse action against particular employees because those employees were entitled to the benefit of an enterprise agreement.
The background is the development and construction of the New Bendigo Hospital in the regional Victorian city of Bendigo (“the Project”). The new facility will become Victoria’s largest regional hospital. The development and construction of the hospital requires substantial investment from the State. The State has conducted a tender process to select a consortium to build the new facility and provide facility management and maintenance services once it is constructed.
Lend Lease Project Management & Construction (Australia) Pty Limited (“Lend Lease”) is a large construction company that operates nationally. It focuses on large scale construction projects and is often engaged on government funded projects. Lend Lease is a member of a consortium of corporations called the Exemplar Consortium (“Exemplar”), that participated in the tender process for the contract to build the New Bendigo Hospital and provide the other services the subject of the tender. In Exemplar’s bid, Lend Lease is the corporation put forward as the prospective builder of the new facility.
Lend Lease employs employees to perform construction work. On 13 September 2012, the FWC approved an enterprise agreement made between Lend Lease and its employees and known as the Lend Lease Project Management & Construction/CFMEU Joint Development Agreement Mark 8 2012-16 (“the Lend Lease Enterprise Agreement”). The Agreement also covers the Construction, Forestry, Mining and Energy Union (“the CFMEU”).
The CFMEU is an organisation of employees registered under the Fair Work (Registered Organisations) Act 2009 (Cth). The CFMEU has members who are employed by Lend Lease and is entitled to represent their industrial interests. The CFMEU’s standing to bring this proceeding was not in issue at trial.
The claim made by the CFMEU arises from the alleged application by the State upon Lend Lease and its employees of industrial relations policies adopted by the State. Those policies are contained in the Victorian Code of Practice for the Building and Construction Industry (“the Code”) and the Implementation Guidelines to the Victorian Code of Practice for the Building and Construction Industry (“the Guidelines”). The Guidelines include provisions which proscribe the inclusion in industrial agreements of provisions dealing with specified matters including provisions dealing with certain employee entitlements. The State has assessed the Lend Lease Enterprise Agreement as non-compliant with the Code and Guidelines because it contains provisions that deal with subject matter proscribed by the Guidelines. In its capacity as a purchaser of building and construction services, the State has sought compliance with the requirements of the Code and Guidelines from those tendering and contracting for State Government building and construction work.
The CFMEU claims that in that context, the State threatened to refuse to engage or use the services of Lend Lease to construct the New Bendigo Hospital because of the entitlements of the Lend Lease employees to the benefits of the Lend Lease Enterprise Agreement. That is the claimed contravention at the heart of this proceeding.
For the reasons that follow, I have determined that in contravention of s 340(1)(a)(i) of the FW Act, between 19 November 2012 and 5 April 2013, the State took adverse action against employees of Lend Lease by threatening to refuse to engage or make use of the services of Lend Lease for the construction of the New Bendigo Hospital.
In arriving at that conclusion I have, for the reasons that follow, determined that:
(i)Lend Lease is an “independent contractor” within the meaning of Item 4 of s 342(1) of the FW Act; and
(ii)The State and Lend Lease were, in the period from 19 November 2012 to 5 April 2013, “proposing to enter into a contract for services” within the meaning of Item 4 of s 342(1) of the FW Act.
Those findings together with my finding that the State threatened to refuse to engage or make use of the services of Lend Lease on the Project, have led to my conclusion that the State took “adverse action” within the meaning of s 340(1) of the FW Act. The State did not contest that, if adverse action was taken, it was taken against the employees of Lend Lease because those employees were entitled to the benefit of the Lend Lease Enterprise Agreement.
I have rejected the State’s contention that if ss 340-342 of the FW Act sustain a contravention by the State of the kind I have determined occurred, those provisions would exceed the legislative capacity of the Commonwealth by reason of the limitation explained in Melbourne Corporation v Commonwealth (1947) 74 CLR 31. I have also determined that it is neither necessary nor appropriate that I consider the CFMEU’s claim for a declaration that the Code and Guidelines are an invalid exercise of the State’s executive power.
I should also indicate by way of introduction that this proceeding was listed for hearing as an expedited trial and heard in conjunction with another proceeding which raised similar issues. My reasons for judgment in the related proceeding have also been published today as Construction, Forestry, Mining and Energy Union v McCorkell Constructions Pty Ltd (No 2) [2013] FCA 446. Evidence in each matter was received separately. Some of the legal submissions received addressed issues in both matters. These reasons for judgment have been crafted so that they stand alone and need not be read with the reasons for judgment in the other matter. I first reserved my judgment in this matter on 27 March 2013. On 24 April 2013 I granted each of the parties leave to re-open its case to tender further evidence and make additional submissions. The reasons for that will later become apparent.
THE FACTS
The Code and Guidelines
In 1997, the Commonwealth Government, in conjunction with State and Territory Governments, established the National Code of Practice for the Construction Industry (“the National Code”). The National Code was intended to set down general principles that businesses must meet to be eligible for Commonwealth Government funded building and construction work. The National Code expressly sets out “the principles which Commonwealth, State and Territory Governments agree should underpin the future development of the construction industry in Australia”.
The National Code acknowledges that the State and Territory Governments will develop their own codes and that the National Code will constitute a set of “core principles” which establish a minimum level of compliance to guide practices and initiatives in each jurisdiction. It was envisaged that State and Territory codes would supplement, but remain consistent with, the core principles set out in the National Code.
Relevantly, the industrial relations core principles set down in the National Code include the following:
Awards and Legal obligations relating to employment
All parties must comply with the provisions of applicable:
•awards and workplace arrangements which have been certified, registered or otherwise approved under the relevant industrial relations legislation; and
• legislative requirements.
Workplace Arrangements
Workplace arrangements which reflect the needs of the enterprise are important elements in achieving continuous improvement and best practice.
The content of the workplace arrangements are a matter for the parties to those arrangements, subject to them meeting legislative requirements. However they may encompass:
• improved OHS and rehabilitation practices;
• training and skill formation strategies;
• multi skilling; and• flexible work practices, for example in relation to working time.
A party must not, directly or indirectly, pressure or coerce another party to enter into, or to vary or to terminate a workplace arrangement. Nor may they pressure or coerce them about the parties to and/or the contents or the form of their workplace arrangements. This does not prevent action sanctioned by relevant industrial relations legislation.
As envisaged by the terms of the National Code, in about March 1999, the State of Victoria established the Code. The Code specifically incorporates the National Code and supplements its terms with provisions relating to processes for initiating projects, selecting contractors and consultants, contract administration and enforcement of the Code. On the issue of industrial relations, the Code states only that:
The Industrial Relations elements of the National Code shall apply to all Victorian and Commonwealth Government construction projects.
The Code, which has remained in force since 1999 without amendment, applies to all parties involved in “public construction” as defined in s 3 of the Project Development and Construction Management Act 1994 (Vic).
Neither the National Code nor the Code are legislative instruments. Both documents set out a range of policies, standards and expectations which the respective governments have adopted.
In April 2012 the Code was supplemented by the Guidelines. The Guidelines have no legislative foundation. The Guidelines state that they apply to all public building and construction work that is the subject of an expression of interest or request for tender on or after 1 July 2012. The Guidelines were amended in December 2012. The Guidelines incorporate a range of very specific provisions regulating industrial practices of parties engaged in building and construction activities. In many respects those provisions travel well beyond what was envisaged by the National Code or the Code and, although said to be complimentary, some of the Guidelines’ provisions arguably conflict with the respective codes. In particular, it is difficult to reconcile the aspirations of the National Code and the Code that parties should be free to make their own workplace arrangements with the provisions of the Guidelines which seek to dictate what may or may not be included in such arrangements.
In the introduction page, the Guidelines state:
[The Guidelines] have been developed to further assist in the achievement of the objectives of the [Code] and in particular, the industrial relations, OHS&R and workforce reform elements as adopted from the National Code.
These Guidelines reflect the Victorian Government’s commitment to greater flexibility and productivity within the State’s building and construction industry and to ensure that the Victorian Government maximises value for money on its spending on infrastructure projects.
The contents of the Guidelines identify that they have been formulated in furtherance of workplace and other industry reform objectives being pursued by the State. Whilst many of the provisions of the Guidelines may be intended to provide value to the State as a purchaser of building and construction services, the stated objectives have a wider purpose. In that respect, the Guidelines may be fairly characterised as a policy initiative of the State to exert influence through capital investment in building and construction, to promote conduct by building and construction industry participants consistent with State policies, in particular industrial relations policies.
A number of clauses in the Guidelines identify non-compliance with the Code and Guidelines by reference to the content of industrial instruments including enterprise agreements. Some clauses in the Guidelines do so directly by listing subject matters that if included in an industrial agreement, render the agreement non-compliant with the Code and Guidelines. Examples of this can be found in cl 4.4 which prohibits terms that constrain the use of independent contractors and cl 5.5 which prohibits terms considered to restrict the efficient performance of work or productivity improvements. Further, a number of other clauses either require or restrict particular practices. The inclusion in an agreement of provisions permitting prohibited practices or the omission from an agreement of required practices, also results in non-compliance. In these respects, an evident purpose of the Guidelines is to regulate the content of industrial agreements applicable to the building and construction industry in Victoria.
The Guidelines are broad in their application. They are said to apply to any party that responds to an invitation for expressions of interest for public building and construction work in Victoria, from the date they first express interest in, or tender for a contract to perform the work. Further, a party required to comply with the Guidelines for public work will also be required to do so in relation to privately funded work, as will the related entities of such a party. “Privately funded building and construction work” is defined in the Guidelines to mean “building and construction work in Victoria that is not public building and construction work”. The term “related entity” is also broadly defined so that the application of the Code and Guidelines extends to any entity “connected with the tenderer” (a term defined to include an entity with the capacity to materially influence a tenderer’s activities).
The Guidelines further require that a party to whom the Guidelines apply must “actively ensure compliance… by any party with whom it contracts, or enters into an arrangement, to undertake public building and construction work”.
In order to monitor and enforce compliance with the Code and Guidelines, the State has established the Construction Code Compliance Unit (“CCCU”) within the Victorian Department of Treasury and Finance. While the Minister for Finance has overall responsibility for the implementation of the Guidelines, the CCCU is tasked with a range of monitoring and compliance functions including site visits, site inspections and audits.
Sanctions for non-compliance with the Guidelines applicable to entities not associated with the State (ie non-governmental entities) include but are not limited to:
• a formal warning that a further breach will lead to severe sanctions;
•referral of a complaint to the relevant industry organisation for assessment against its own professional code of conduct and appropriate action;
•reduction in tendering opportunities at either agency or government-wide level, for example, by exclusion of the breaching party from tendering for government work above a certain value or for a specified period (this sanction may only be imposed by the Minister for Finance in consultation with the responsible Minister);
• reporting of the breach to an appropriate statutory body; and
• publicising the breach and the identity of the party.The CCCU is responsible for investigating and determining whether a party has complied with the Code and Guidelines. The Guidelines require the CCCU to report “all proven breaches” to the Minister for Finance. The Minister is then responsible for determining the appropriate sanction.
The legal basis which the State relies upon to require and enforce compliance with the Code and Guidelines is contractual. To that end, the Department of Treasury and Finance has published model clauses and contract documentation (including model tender documents) which require parties to comply with the Code and Guidelines and to undertake to ensure their related entities and subcontractors also comply with the Code and Guidelines (“the Model Clauses”). Certain Model Clauses must be included in tender and contract documentation for building and construction work to which the Code and Guidelines apply. A number of these Model Clauses were included in the Project documentation including the draft Project Agreement. Examples of their content are described at [49] and [50] below.
In addition to requiring tendering parties to agree to contractual terms mandating compliance with the Code and Guidelines, the State has made clear through a number of public announcements, that parties that fail to comply with the Code and Guidelines, will be excluded from tendering for State Government funded work. Upon the introduction of the first iteration of the Guidelines in April 2012, the then Premier of Victoria Ted Baillieu stated at a press conference:
[T]he bottom line for the construction industry is that if contractors wish to contract and tender into State Government projects in Victoria, they will have to comply with these guidelines. If contractors don’t comply with these guidelines, then they won’t be working on State Government projects, and we believe that that’s an important step – these guidelines will restore the balance.
At that same press conference, the Treasurer for the State of Victoria Robert Clark reiterated the Premier’s comments. After referring to the abolition of the Australian Building and Construction Commissioner and the need to “fill the gap that’s been created by the failures of the Commonwealth Government”, Mr Clark went on to say:
[The Guidelines] are using the Victorian Government’s power and purchasing strength as a major acquirer of building and construction work here in Victoria, to make clear, as the Premier has indicated, that companies that wish to tender to undertake public construction work here in Victoria, have to commit to comply with those Guidelines. And, ultimately, if firms fail to do that, they face the sanction of being restricted or, indeed, ultimately totally excluded from future Victorian Government and public sector construction work.
The New Bendigo Hospital Project
Bendigo is a regional city in Victoria. It has a large public hospital and other health facilities located on two discrete sites. The Project involves an investment of some $630 million in developing and constructing what will become Victoria’s largest regional hospital. The Project is one of twenty-two ‘Partnerships Victoria’ projects currently in existence in which the State is investing in new infrastructure through public/private partnerships. The twenty-two projects concerned, involve around $11.5 billion of capital investment. The State has a program of investment in capital projects that involves some $29 billion of investment. In the 2012-2013 financial year, capital expenditure by the State is expected to total around $8.6 billion.
The State has and continues to conduct, a tender process to select a consortium to deliver the Project. A large number of documents related to the tender process (“the Project documentation”) were tendered. In these reasons, unless the context otherwise suggests, capitalised terms are the defined terms used in the Project documentation.
As initially structured, the tender process involved three stages: first an Expressions of Interest phase (“the EOI phase”), the purpose of which was to select a short-list of Respondents; then a Request for Proposal phase (“the RFP phase”), the purpose of which was to select the Preferred Respondent from the Short-listed Respondents; thereafter, it was envisaged that the tender process would move to a Negotiation and Completion phase, the purpose of which was to negotiate with the Preferred Respondent and to otherwise finalise and complete contractual arrangements.
The EOI phase commenced on 1 September 2011 with the State issuing invitations for expressions of interest. The document inviting expressions of interest (“the EOI document”) is a comprehensive document by which the State outlined (in a preliminary way) the nature, purpose and intended objectives of the Project. The intended process contemplated that upon the selection of a successful tenderer, a project specific entity (described in the document as “Project Co”) will contract with the State to deliver the Project. Whilst the EOI document included reference to the evaluation methodology and criteria by which Respondents were required to demonstrate their capabilities, no part of the evaluation criteria expressly referred to employment or industrial relations practices. However, the EOI document identified that the Victorian Government had announced in June 2011, that it would review the industrial relations principles as they applied to the Code. The document stated:
The Government wishes to promote compliance, productivity and broader cultural change across the Victorian building and construction industry. Project Co will be required to comply with these new principles.
In describing the Procurement Process for the Project, the EOI document stated that in the RFP phase, Short-listed Respondents would be required to submit “fully costed binding offers based on the requirements outlined in the RFP”. The EOI document also expressly stated that it was the State’s preference to select a single Preferred Respondent with whom to negotiate in the Negotiation and Completion phase and that the State preferred “not to employ a Best and Final Offer (BAFO) or other extended procurement phase”. As events transpired, and in the circumstances which I will outline, a BAFO phase was required.
The EOI document also identified the indicative scope of the Project. There are two distinct requirements sought from the successful tenderer. The first is the construction of buildings and other works referred to in the Project documentation as the Works. The second is the provision of a range of ongoing facility management and maintenance services to the New Bendigo Hospital referred to in the Project documentation as the Services. It is envisaged that the Services will include building management services such as ongoing maintenance and facilities management services including security, cleaning, catering, laundry, waste management, grounds and gardens maintenance, utilities, pest control and car parking as well as the provision of retail outlets complimentary to the health facilities provided at the hospital.
The scope of the Works envisaged by the State for the Project was described in the EOI document as follows:
• the design and construction of:
o a new acute hospital on the Barnard Street Site with 372 acute inpatient beds, 80 acute same day beds, 80 psychiatric inpatient beds and 10 operating theatres;
o a new integrated regional cancer centre on the Barnard Street Site with 26 chemotherapy places (included in the 80 acute same day beds listed above), 4 radiotherapy bunkers expandable to 6 should this be required in the future, and 5 consulting rooms;
o a satellite dialysis facility with 16 places (included in the 80 acute same day beds listed above);
•the refurbishment of the existing facilities on the Lucan Street Site as necessary to facilitate the continued use of those facilities for administration and education purposes; and
•the design and construction of commercial opportunities, including retail development, in the Bendigo Health Precinct.
The EOI document also identified the contractual framework the State intends will be put in place for the Project. Project Co will enter into a Project Agreement with the State which will be the primary legal document that sets out the rights and obligations of the parties for the delivery of the Project. In addition, the anticipated contractual structure includes agreements between the State, Project Co and the Builder that will construct the Works as well as the State, Project Co and the Service Provider that will provide the Services. The EOI document described the proposed Builder Direct Deed as the contract that will govern the relationship between the State and the Builder. While Project Co will be a party to the Builder Direct Deed, it is envisaged that a separate contract called the Construction Contract will be made between Project Co and the Builder relating to the construction work to be carried out by the Builder.
The EOI process resulted in two consortia being short listed for participation in the RFP phase. One of the two successful consortia was Exemplar, of which Lend Lease is a member, and for which Lend Lease was identified as the prospective Builder. The other Short-listed Respondent was a consortium known as InteCare.
In or about early February 2012, each of the members of Exemplar including Lend Lease, executed a Deed Poll in favour of the State. The Deed dealt with a range of matters related to the tender process including the discretions reserved to the State in the Procurement Process which included the State’s right to require one or more of the competing consortia to make a best and final offer.
The RFP documentation was released to the successful short-listed consortia in May 2012. In announcing the release of the RFP documentation, the Minister for Health was quoted in a media release as having stated, “The tender documents also require bidders to comply with the Victorian Government’s new [Guidelines].”
The RFP documentation provided detailed information and instructions to the two Short-listed Respondents and invited them to submit their Proposal. In a section dealing with key project and commercial issues, reference was made to the Code and Guidelines. The Guidelines were stated to reflect the Victorian Government’s commitment to greater flexibility and productivity within the State’s building and construction industry and were said to be designed to ensure that the Victorian Government maximises value for money on its spending on infrastructure projects.
Detailed evaluation criteria for evaluating Proposals across a wide range of topics were set out in the RFP documentation. The criteria included “Evaluation Criterion H6: Workplace Relations Management Plan”. By that criterion the State indicated that it would evaluate the approach of Respondents to workplace relations and workplace safety and the extent of a Respondent’s compliance with the Code and Guidelines. That would involve evaluating whether a Respondent’s Workplace Relations Management Plan (“WRMP”) complied with the requirements of the Code and Guidelines. The criterion stated that a Respondent must provide a draft WRMP “which complies with the Guidelines as published in April 2012”. By an addendum to that Evaluation Criterion issued at the request of the CCCU on 22 September 2013, the RFP required that a Respondent provide a signed Compliance Schedule in the form of an appendix. By completing the Compliance Schedule and submitting an expression of interest or tender response, the tenderer:
·acknowledged that the Code and Guidelines applied to the Project;
·undertook that it and its related entities (including the Builder) would comply with the Code and Guidelines on the Project and on any other privately or publicly funded Victorian building and construction work in which they are involved, on and from the date of submitting the tender response;
·confirmed that it and its related entities have complied with the Code and Guidelines on all of its other projects to which the Guidelines apply or have applied, as well as all applicable legislation, court and tribunal orders, directions and decisions, and industrial instruments; and
·consented to the State (including the CCCU) monitoring compliance with the Code and Guidelines on the Project site, as well as on any private construction site of Project Co or its related entities, investigating any alleged breaches of the Code and Guidelines and imposing sanctions in respect of any breaches.
The Compliance Schedule also identified sanctions for non-compliance. The sanctions identified mirror the sanctions set out in the Guidelines.
The RFP documentation identified the governance structure for the Procurement Process including that a Steering Committee had been established to oversee the Project and make decisions as required. A Project Board comprising senior officials from relevant State Departments was established to advise Government on significant decisions, as requested. The Secretary of the Department of Health was identified as the person to make formal recommendations on the Project to the Minister for Health and the Victorian Government. The Secretary would be advised by the Steering Committee but could recommend a different course of action from that proposed. The RFP documentation indicated that the Victorian Government would ultimately make key decisions on the Project, such as the selection of the Preferred Respondent. In making those decisions the Victorian Government would be informed by advice from the Secretary, the Project Board, the Steering Committee and others including the Department of Treasury and Finance.
Drafts of various contracts were circulated during the RFP phase. The draft Project Agreement contemplates that the State will contract with Project Co and that Project Co will be obligated to undertake the Works and provide the Services. The draft further contemplates that Project Co will engage the Builder under a Construction Contract. However, as might be expected, the State does not intend to contract with a newly created entity with no commercial history or experience without appropriate protections. The draft contractual provisions suggest that a range of controls over the Builder and other entities chosen to provide the requisite services are intended to be put in place. The draft Project Agreement requires Project Co to obtain the State’s agreement to and/or consent to make or alter key arrangements of Project Co which extend to:
·the appointment of Key Subcontractors, including the Builder, which Project Co must employ to provide the Works and perform the Services;
·the appointment of Key Personnel to be charged with managing the delivery of the Works and Services;
·the terms of the Construction Contract between Project Co and the Builder; and
·the control and ownership of Project Co.
Additionally, by way of the anticipated Builder Direct Deed made between the State, the Builder and Project Co, the Builder will be required to grant to the State rights in relation to the Construction Contract it will make with Project Co. Those rights include the right of the State to insist on performance by the Builder of its obligations under the Construction Contract and the right (in defined circumstances of default by Project Co) to “step-in” and exercise Project Co’s powers and obligations under the Construction Contract to the exclusion of Project Co. Where the State’s step-in rights crystallise, the contemplated Builder Direct Deed will provide the State with the power to novate the Construction Contract so as to assume the obligations of Project Co and take the rights and benefits of Project Co under the Construction Contract. These provisions are addressed in more detail later.
The draft Project Agreement sets out the obligations of Project Co to comply with both the National Code as well as the Code and Guidelines. The draft Project Agreement was amended at the request of the CCCU on 22 September 2012 to incorporate the Model Clauses relating to Code compliance released by the Department of Trade and Finance to which reference has already been made. In respect of the Code and Guidelines, Project Co will be required to comply with and meet any obligations imposed by the Code and Guidelines; notify the CCCU of any alleged breaches of the Code or Guidelines; and not appoint or engage or permit the appointment or engagement of another party where the appointment or engagement would breach a sanction imposed on the other party in connection with the Code or Guidelines. The draft Project Agreement contains clauses dealing with the maintenance of adequate records of compliance with the Code and Guidelines and the rights of the Victorian Government (including the CCCU), to enter, inspect and investigate compliance with the Code and Guidelines. A draft clause also deals with sanctions and requires Project Co to warrant that, as at the date the Project Agreement is made, neither it, nor any of its related entities (as defined in the Guidelines), are subject to a sanction in connection with the Code or Guidelines that would preclude them from tendering for work to which the Code and Guidelines apply.
Project Co will also be required to acknowledge that if it does not comply with or fails to meet obligations imposed by the Code or Guidelines, sanctions may be imposed upon it. Project Co will further be required to acknowledge that in relation to any non-compliance leading to a sanction, the State is entitled to take the sanction into account in the evaluation of any future expressions of interest or tender responses that may be lodged by Project Co or its related entities in respect of work to which the Code and Guidelines apply. Project Co will also be required to ensure that the Construction Contract and relevant sub-contracts made by the Builder will require the Builder and relevant subcontractors to perform obligations and provide acknowledgments and warranties equivalent to those to be provided by Project Co under the Project Agreement in relation to the Code and Guidelines. Further, Project Co will be required to ensure that the Builder and its subcontractors comply with the Code and Guidelines and otherwise act consistently with the obligations, acknowledgments and warranties to be provided by Project Co in relation to the Code and Guidelines.
The Lend Lease Enterprise Agreement
The Lend Lease Enterprise Agreement came into operation on 20 September 2011, has a ‘nominal’ expiry date of 31 March 2016 and will continue in force at least until that time unless varied or terminated in accordance with the FW Act. It covers Lend Lease and all employees of Lend Lease employed as construction workers in all States and Territories as well as covering the CFMEU. It is a comprehensive agreement providing for pay and a wide range of terms and conditions of employment.
There is no issue that the Lend Lease Enterprise Agreement is a valid industrial instrument enforceable under the FW Act, and that each of the terms of the Agreement are terms permitted to be included in an enterprise agreement made under Pt 2-4 of the FW Act. In that respect, the FW Act identifies “permitted matters” (s 172(1)), “unlawful terms”
(s 194) and mandatory terms (Div 5 of Pt 2-4).
Alleged non-compliance and the selection process
Three days before the Lend Lease Enterprise Agreement was approved by the FWC, Mr Hadgkiss, the Director of the CCCU, wrote to Lend Lease. Mr Hadgkiss stated that it had come to his attention that Lend Lease was seeking approval from the FWC for an agreement with the CFMEU. He noted that the proposed agreement contained clauses which he described as “seriously non-compliant with the Guidelines”. His expressed purpose for writing was to remind Lend Lease that contractors negotiating agreements made after 1 July 2012 must ensure that their agreements comply with the Guidelines.
Contact was made by Mr Hadgkiss with the Director, Capital Projects and Service Planning in the Department of Health (“the Director”) sometime prior to 3 October 2012. On that day, the Director advised the Secretary of the Department of Health that Mr Hadgkiss had raised a potential issue for the Project in relation to Lend Lease and its involvement as a member of one of the two consortia preparing bids for the Project. The Secretary of the Department of Health was informed that the CCCU believed that Lend Lease had entered into an industrial agreement that was non-compliant with the requirements of the Code and Guidelines. The Director noted that if not resolved, the issue had potential to impact on the Project.
A meeting between the CCCU and Lend Lease to discuss the Lend Lease Enterprise Agreement was scheduled for 16 October 2012. For the purposes of that meeting, the CCCU provided Lend Lease with a table setting out the CCCU’s assessment of those clauses of the Lend Lease Enterprise Agreement which the CCCU had assessed as non-compliant with the Guidelines. The table included a brief indication of the clauses of the Guidelines in question and the nature of the non-compliance.
I will briefly identify the Lend Lease Enterprise Agreement clauses in question and the nature of the difficulties suggested in the CCCU table (“the Table”).
Clause 4.3 of the Lend Lease Enterprise Agreement deals with the application of the Agreement and includes an exception where a client of Lend Lease imposes “tender conditions that are different from those contained herein”. However, the clause qualifies the operation of the exception. It states that “where such tender conditions are to apply employees will not be disadvantaged compared to the terms of this Agreement”. The Table alleges, for reasons not apparent to me from the terms of the Guidelines, that the clause imposes “restrictions on labour” and provides for site allowances in a manner which contravenes the Guidelines.
Clause 8.2 expresses a qualified commitment by Lend Lease to use its own employees (where possible) and not to use contracting or labour hire arrangements in a way designed to undermine the job security of those employees. Clause 27 also deals with the use of contractors and supplementary labour and requires Lend Lease to consult with its potentially affected employees and the CFMEU and, when engaging additional labour, to do so on terms and conditions no less favourable than those provided by relevant CFMEU enterprise agreements or by the Lend Lease Enterprise Agreement. Clause 22 of Appendix F requires that all Gatemen on new Lend Lease projects in Victoria must be Lend Lease employees. The Table alleges that these provisions offend requirements of the Guidelines which prohibit restrictions on the use of independent contractors and or prohibit restrictions on the use and the terms and conditions of employment of employees who are not parties to the industrial instrument concerned. The Table also asserts that the consultation provision in cl 27 contravenes a prohibition contained in the Guidelines on the names of new staff or contractors or subcontractors being provided to a union. Further, the Table suggests (for reasons not apparent to me) that cl 27 also offends provisions in the Guidelines restricting the making of ‘project agreements’.
Clause 16 deals with time, facilities and access to union training and union meetings to be provided to elected employee representatives. It also provides for those representatives to be given an opportunity to address new employees about the benefits of union membership and to place union information on a noticeboard. The Table asserts that this provision offends the Guidelines’ prohibition on the names of employees being given to a union and other ‘freedom of association’ restrictions such as a prohibition on practices which imply union membership is anything other than a matter of individual choice. It also asserts a breach of the prohibition on the involvement of union representatives in site induction processes. A ‘freedom of association’ contravention is also alleged in relation to cl 20 of Appendix F, by which Lend Lease has agreed to fly a CFMEU flag on its cranes.
The Guidelines restrict the provision of site allowances to those approved by specified industrial instruments. The Table asserts that clauses 11 and 12 of Schedule 1 of the Lend Lease Enterprise Agreement infringe that requirement by allowing the Panel Chairperson of the Victorian Building Industry Disputes Panel to determine the site allowance to apply to a particular project where the parties have failed to reach agreement.
Clause 19.1 of the Lend Lease Enterprise Agreement deals with conflict resolution and provides for a procedure which contemplates that a union official will be given access to a worksite for the purpose of representing employees involved in the conflict resolution process. The Table asserts that the proposed access to be provided to the union official infringes prohibitions in the Guidelines limiting the access of union officials to worksites.
The conflict resolution procedure provided by cl 19 also nominates the FWC and other dispute resolution bodies as institutions to which an unresolved dispute may be referred. The Table asserts that this provision breaches the requirements of cl 8.5 of the Guidelines. Clause 8.5 requires that any agreement containing a dispute settlement procedure and providing for a third party to arbitrate or otherwise settle a dispute, must contain an express limitation that any outcome determined by the third party cannot be inconsistent with the Code or Guidelines.
The assertions made by Mr Hadgkiss and the CCCU that the Lend Lease Enterprise Agreement contravened the Code and Guidelines was not a matter with which Lend Lease agreed. In the course of October and November 2012, Lend Lease made a number of representations on this issue to the CCCU and to the Victorian Government to which I will return.
Whilst that was occurring, preparations for the RFP evaluation process were under way. On 22 October 2012, the Steering Committee met to consider a final Evaluation Plan. The plan noted that the objective of the RFP evaluation process was to evaluate each of the Proposals against the Evaluation Criteria and to select a Preferred Respondent with whom to engage in the Negotiation and Completion phase. The plan noted the preferred process that the Evaluation Panel nominate a single Preferred Respondent, although the possibility that it may be necessary to undertake negotiations with the two Respondents concurrently was also acknowledged. The plan indicated that a Preferred Respondent was to be identified based on the evaluation and ratings contained in the Evaluation Report prepared by the Evaluation Panel. The plan stated that in determining an overall rating for each Evaluation Criterion, the Evaluation Panel was to have regard to the ratings assigned to each Evaluation Sub-Criterion and the relative importance of each Evaluation Sub-Criterion. The evaluation methodology recognised that some Evaluation Criteria should have a high relative importance compared with other Evaluation Criteria and that each criteria had been given a star rating. One star indicated the criteria as comparatively less important. Three stars indicated that the criteria was of the highest importance.
The Steering Committee noted media reports that Lend Lease had entered into an industrial agreement with the CFMEU which contravened the Code. The Steering Committee considered it unlikely that any action would occur in relation to that matter prior to the receipt of bids on 1 November 2012. It determined that as such, the evaluation of both Proposals would be undertaken as initially proposed and in accordance with the Evaluation Plan. It was also noted that the Evaluation Criteria dealing with a Respondent’s approach to workplace relations and workplace safety and the extent of compliance with the Code and Guidelines was a one star weighted criteria.
Prior to a meeting with Mr Hadgkiss scheduled for 23 October 2012, Lend Lease provided the CCCU with a document outlining its explanation of the clauses in the Lend Lease Enterprise Agreement which had been impugned by the CCCU. The detailed explanation contended that the Agreement was compliant with the Code and Guidelines. It argued that in relation to some clauses, the view taken by the CCCU was misconceived and that in relation to the other clauses, cl 4.3 of the Agreement had the effect that the clause in conflict would have no application given the tender requirements for the Project.
By letter of 31 October 2012, Lend Lease wrote to Mr Hadgkiss confirming a number of matters that had been raised at their meeting. Lend Lease maintained its view that the Lend Lease Enterprise Agreement complied with the Code and Guidelines. However, Lend Lease indicated a preparedness to follow a process to vary the Lend Lease Enterprise Agreement to ensure its compliance. Lend Lease offered to give an undertaking that during the variation process, Lend Lease would apply the Code and Guidelines in relation to the Project and all subsequent public and private work in which it was engaged. Lend Lease noted that its bid for the Project included such an undertaking. The letter urged upon Mr Hadgkiss the importance to Lend Lease that it not be excluded from any bid whilst the intended process to obtain a new enterprise agreement was underway.
A copy of the WRMP submitted by the tenderers was provided by the Department of Health to the CCCU for its assessment. In response and on 9 November 2012, officials within the Department of Health with responsibility for the Project were advised by the CCCU that the Lend Lease Enterprise Agreement could not operate in a way that is compliant with the Code and Guidelines. The CCCU advised that attempts by Lend Lease to vary the Agreement would require the agreement of other parties and that Lend Lease could not guarantee an outcome within a particular period of time, if at all.
On 14 November 2012, Lend Lease wrote to the Victorian Attorney-General and Minister for Finance. The letter referred to discussions that had been held on 7 November 2012 and the undertaking offered by Lend Lease to comply with the Code and Guidelines in relation to all public and private building and construction work that is or was the subject of an expression of interest or request for tender on or after 1 July 2012. The Minister was referred to cl 4.3 of the Lend Lease Enterprise Agreement and Lend Lease’s commitment given in the letter of 31 October 2012 to pursue a process for the variation of the Agreement. On the basis of Lend Lease’s proposed undertaking and commitment, Lend Lease requested that whilst it was working to implement the variations, Lend Lease not be assessed as non-compliant with the Code and Guidelines. Lend Lease also requested that its current tenders with the Victorian Government be assessed on the basis that the Lend Lease Enterprise Agreement is deemed to be compliant with the Code and Guidelines.
On 19 November 2012, Mr Hadgkiss wrote to Lend Lease. He stated that he had considered Lend Lease’s proposed undertakings and the arguments put forward by Lend Lease as to how the Lend Lease Enterprise Agreement could be applied in a manner that was Code compliant. Mr Hadgkiss advised that he was unable to agree that the Lend Lease Enterprise Agreement, even when read in conjunction with the proposed undertakings, was compliant with or was capable of being applied in a way that was fully consistent with the Code and Guidelines. Accordingly, Mr Hadgkiss stated that the CCCU was not in a position to advise that Lend Lease was compliant with the Guidelines whilst the Lend Lease Enterprise Agreement continued to cover Victorian employees in its current form. Mr Hadgkiss indicated that he would be pleased to reconsider the position upon Lend Lease varying the Lend Lease Enterprise Agreement to exclude Victorian employees from its coverage and entering into a new enterprise agreement covering Victorian employees that complied with the Code and Guidelines.
On the same day, the CCCU advised the Department of Health that Lend Lease was not compliant with the Code and Guidelines whilst the Lend Lease Enterprise Agreement continued to cover Victorian employees in its current form.
On 21 November 2012, the Department of Health forwarded to the CCCU a letter in which Lend Lease had set out how its WRMP could comply with the Code. The CCCU responded that there was nothing in that letter that required any change to the conclusion reached by Mr Hadgkiss on 19 November 2012.
Meanwhile, the Evaluation Panel met to consider the two competing Proposals. Sometime prior to 17 December 2012, the Evaluation Panel presented a detailed report to the Steering Committee which, on that day, considered the report and made its recommendations. Parts of the report of the Evaluation Panel, together with other information about the assessment made by the Evaluation Panel, is subject to a suppression order made by me on 21 March 2013. Whilst I have taken that evidence into account, I will avoid reference to it so as not to reveal its content. There is evidence that I can refer to which, for current purposes, gives a sufficient account of the considerations of, and recommendations made by, the Evaluation Panel.
The Evaluation Panel assessed the tender submitted by Exemplar as the superior tender. It ranked the Exemplar Consortium’s proposal as “materially ahead” of the other proposal “across most of the evaluation criteria, including net present cost, functionality/health planning and overall value for money”.
The report of the Evaluation Panel addressed the WRMP submitted with the Exemplar Consortium’s Proposal. It regarded the WRMP as broadly compliant with the requirements and noted that “the Respondent has a good track record of delivering projects on time and on budget”. However, the report recorded a concern that there are contradictions between the WRMP and the Lend Lease Enterprise Agreement and that the CCCU had determined that the Agreement does not comply with the Code.
As the agenda papers considered by the Steering Committee noted and as other evidence confirmed, the evaluation required of the Evaluation Panel did not call for the WRMP of each Respondent to be assessed on a pass or fail basis. The WRMP was to be assessed consistently with the one-star weighting accorded to the “H6-WRMP” criterion. As the agenda papers noted, that criterion consequently formed a “minor part” of the Evaluation Panel’s overall assessment of each Proposal.
The agenda papers record the recommendation of the Evaluation Panel that in view of the significant gap between the overall assessment of the two Proposals, it would be inappropriate to continue to progress the inferior tender. The Evaluation Panel recommended that the Exemplar Consortium be notified that the State is prepared to grant it an exclusive negotiation period of 6 weeks in order to allow that consortium to address all outstanding material issues to the satisfaction of the State. At the end of that period, the Evaluation Panel proposed that it and its Sub-Panels be reconvened to assess and report on the outcome from that process and consider whether to recommend the formal appointment of Exemplar as the Preferred Respondent.
On 17 December 2012, the Steering Committee endorsed the ratings and rankings determined by the Evaluation Panel and recommended that the results of the evaluation be forwarded to the Project Board for its consideration. The Steering Committee did not expressly endorse the Evaluation Panel’s recommendation that Exemplar be given a six week exclusive negotiation period, but instead recommended the forwarding of the results of the evaluation to the Project Board for its consideration.
The Project Board met on 21 December 2012. The Project Board noted that the proposal from the Exemplar Consortium was ranked ahead of that from the InteCare Consortium across most of the evaluation criteria. It also noted that the evaluation had indicated a range of outstanding issues associated with both proposals and that the CCCU considered the Exemplar Consortium’s Builder as being unable to comply with the requirements of the Code and Guidelines. Subject to the relevant Minister’s approval, the Board endorsed the use of a six week Best and Final Offer (“BAFO”) process during which both Respondents would be given the opportunity to address specific issues within their Proposals as noted by the Evaluation Panel. The Project Board further noted that at the end of the BAFO process, the Evaluation Panel and Sub-Panels would reconvene to evaluate the Revised Proposals.
Despite the three phase process originally preferred for the Procurement Process, on the approval of the Minister for Health, the tender proceeded to the additional BAFO phase as recommended by the Project Board.
On 24 December 2012, the Victorian Minister for Health wrote to the then Victorian Premier and also to the Victorian Treasurer informing them of his endorsement of the Procurement Process proceeding to a BAFO phase. In those letters the Minister for Health advised that the evaluation had indicated a range of outstanding issues associated with both Proposals and that the Exemplar proposal was generally rated ahead on most of the Evaluation Criteria but the CCCU had issued a letter to Lend Lease indicating that the Lend Lease Enterprise Agreement was not compliant with the Code and Guidelines. The recommendation made by the Project Board for the tender to proceed to a BAFO phase was communicated. It was noted that the proposed BAFO phase would likely delay the completion of the Procurement Process by up to two months and may jeopardise the 2016 completion date for the Project. An indicative timeline was set out in the correspondence which provided for the issue of ‘revised and retender’ packages, the receipt of Revised Proposals, the evaluation of those Proposals, consideration by the Steering Committee and the Project Board of those Proposals and final selection and announcement of the Preferred Respondent by 16 April 2013.
It is of some importance to note that a number of high level officials of the State were concerned as to what the State would do if the leading bidder for the Project was assessed to be the Exemplar Consortium in circumstances where the Lend Lease Enterprise Agreement was considered not to comply with the Code and Guidelines. In particular the Project Director, Mr Anthony Lubofsky of the Department of Health, had discussions with the CCCU in mid December of 2012 in which he expressed the view that the Victorian Government did not have the legal right under the agreed tender process to exclude the Exemplar Consortium on the basis of an assessment as to its compliance with the Code and Guidelines. In a briefing note addressed to the “Secretary” (which I would infer was communicated to the Secretary of the Department of Health), Mr Lubofsky repeated those concerns. His briefing note concludes with the following warning:
In summary therefore, if Government was to award the contract to a party that was not the party whose tender was ranked highest by the Evaluation Panel, there is a very real risk the decision could be challenged in the courts. Should that occur, it is considered more likely than not that the Courts will find against Government, the consequences of which would be severe:
•Government will be liable for loss of profits for the aggrieved consortium (financiers, builder, facility manager, architects etc)
•There will be significant delay (which could be exacerbated to the extent the aggrieved tenderer was able to obtain injunctive relief)
•In addition to the loss of profits, Government will bear any additional costs associated with the tender it selected (which will be more expensive), and would also be in a significantly reduced competitive position in finalising the contract / design with that tenderer
•There is a real risk aggrieved Bendigo Health stakeholders will air their grievances in the media
•Perception regarding the integrity of any Government tender process will be compromised, which may jeopardise future tenders.
•BH [Bendigo Hospital] end up with a hospital that will not be as well designed and operationally efficient as it otherwise might have been.
It is not apparent from the evidence whether Mr Lubofsky’s concerns were communicated to the Minister for Health. On 27 December 2012, the Minister for Health issued a media release in which he announced that a decision had been made by the Victorian Government to enter into a BAFO phase with the two short-listed consortia. The Minister’s statement referred to the Code and the Guidelines and stated that the tender documents required bidders to comply with the Code and Guidelines.
By letter of 21 January 2013, the Chief Executive Officer for Construction and Infrastructure Australia within the Lend Lease Group (“the Lend Lease CEO”) wrote to the Victorian Minister for Finance. He requested that the Minister for Finance exercise his authority, as contemplated under the Guidelines, to put in place a transitional arrangement that would grant Lend Lease provisional or deemed compliance with the Guidelines for a transitional period to 30 June 2013. The letter referred to a letter dated 17 December 2012 from the Director of the CCCU, the contents of which were described as making it clear that the CCCU’s position was that Lend Lease was ineligible to tender for new State funded work because the Lend Lease Enterprise Agreement did not comply with the Code and Guidelines. The letter identified Lend Lease’s intent to take steps to modify the Lend Lease Enterprise Agreement through discussion and agreement with its employees and the CFMEU. It noted the existence of this proceeding and the claims made by the CFMEU in it and suggested that it was likely that the CFMEU would oppose steps taken to modify the Lend Lease Enterprise Agreement. Lend Lease indicated a preparedness to give a number of specified undertakings in relation to what it described as the nine concerns identified by the CCCU with the Lend Lease Enterprise Agreement. In essence, Lend Lease offered to apply the impugned clauses in a manner consistent with the Code and Guidelines. It further offered to support its commitment by agreeing to the imposition of financial penalties should it be found to have breached its undertakings in a material respect. Lend Lease agreed to forfeit to the State $10,000 in respect of each such breach, up to an aggregate amount of $500,000. In support of that financial obligation, Lend Lease offered to provide a bond in the amount of $500,000.
The letter also urged the Minister to agree to the transitional arrangement suggested on the basis of a range of what were described as public interest grounds. The matters relied upon by Lend Lease included its contention that the strict application of the Guidelines upon Lend Lease would:
·lead to delays in infrastructure development to the detriment of the State;
·lessen competition in the construction sector;
·cause significant harm to subcontractors relying on Lend Lease’s business (noting that Lend Lease supports approximately 500 subcontractors and had injected approximately $450m into the Victorian economy through its subcontractors in the financial year ended June 2012);
·would impact upon cash injection in Victoria (noting that Lend Lease has spent approximately $500m in Victoria in the financial year ended June 2012); and
·result in loss of jobs and future employment opportunities (noting that Lend Lease alone employs approximately 250 employees in Victoria).
On 29 January 2013, the Chief of Staff to the Minister for Finance sent an email to the Lend Lease CEO, which gave the Minister’s response to the letter of 21 January 2013. The email relevantly said:
I have been directed by the Minister to inform you that the arrangements proposed by Lend Lease in the 21 January draft letter are not acceptable to the Government. The suggested performance bond is not an appropriate solution and could not be contemplated. Otherwise, the position previously expressed to Lend Lease by the Construction Code Compliance Unit remains the position of the Government.
In accordance with the process delineated for the BAFO phase, both of the Short-listed Respondents submitted a Revised Proposal on 28 February 2013. As part of its Revised Proposal, the Exemplar Consortium provided a response to a question posed by the State in relation to Evaluation Criterion H6. In that response it was stated on behalf of Exemplar that:
[The Exemplar Consortium] intends to and will be compliant with the Victorian Code and Implementation Guidelines (Code) at Contract Close.
Following a reference to this proceeding and the need for the Exemplar Consortium to be careful not to “exacerbate or unduly prejudice the proceedings”, the response went on to state:
We are also currently engaged with the CCCU to agree to the extent of modification required to the [Lend Lease Enterprise Agreement] to enable the CCCU to assess it as Code and Guideline compliant. Once we have the necessary information from the above matters, and depending upon the outcome, we propose to address any remaining concerns through negotiation of the agreement with our employees or, if required, augmenting the consortium (within the Lend Lease group) and amending the proposed Workplace Relations Management Plan to ensure compliance with the Code.
In correspondence and in meetings between each of the State and Lend Lease’s external solicitors occurring between February and April 2013, Lend Lease proposed a number of changes to the Lend Lease Enterprise Agreement and sought instructions from the CCCU as to whether, on the basis of those changes, the CCCU would assess the proposed amended agreement as being compliant with the Code and Guidelines. Lend Lease’s solicitors expressed that it was important for its client to understand the scope of the required changes before approaching its employees and their representatives to seek to vary the Lend Lease Enterprise Agreement, to maximise the chances of a successful outcome. In response, the solicitors for the State advised that according to the CCCU, Lend Lease’s proposed amended enterprise agreement remained non-compliant with the Code and Guidelines and gave an indication of the clauses that continued to be non-compliant.
In parallel with these consultations, and as part of the Evaluation Panel’s assessment of the Revised Proposals, the WRMP of each consortium was sent to the CCCU for assessment. On 14 March 2013, the CCCU responded indicating that the Exemplar Consortium’s WRMP remained non-compliant with the Guidelines.
By 28 March 2013 the Evaluation Panel had completed its evaluation of the two Revised Proposals. A Revised Evaluation Report was prepared comprising the original Evaluation Report marked to show amendments arising from the BAFO process. In relation to Code compliance, a marked-up comment appeared under the heading “Issues/Concerns” which stated that the CCCU still considers that Lend Lease does not comply with the Code. No change was made to the overall assessment of the Exemplar Consortium’s bid and the Evaluation Report concluded that the Exemplar bid “has been evaluated as delivering better value for money to the State”.
On 2 April 2013 the Project Steering Committee met and endorsed the ratings and rankings determined by the Evaluation Panel. At that meeting the Steering Committee noted the Revised Proposal of the Exemplar Consortium was ranked ahead of its competitor, including in relation to “net present cost, functionality/health planning and overall value for money”. The agenda papers together with the minutes note that the BAFO process had not resulted in any changes in relation to Code compliance issues and that Lend Lease continued to be assessed by the CCCU as non-compliant with the Code and Guidelines.
On 3 April 2013, the Project Board endorsed the rankings of the Evaluation Panel and recommended that the Minister for Health be briefed on the outcome of the evaluation process so that he could provide a recommendation to the Victorian Government. The Project Board also noted that Exemplar’s Builder had been assessed by the CCCU as non-compliant.
On 4 April 2013, the Minister for Health made a submission to a Cabinet Committee dealing with the tender process. That Cabinet Submission is subject to a suppression order made by me on 24 April 2013. I have had regard to the Cabinet Submission but will not here refer to its contents.
The following day, in a joint media release from the Victorian Premier and the Minister for Health, the Exemplar Consortium was announced as the “preferred bidder” for the Project.
This announcement and many of the events I have just described occurred following the last scheduled hearing date of 27 March 2013, when I first reserved my judgment in this matter. On the joint application of both parties on 24 April 2013, I gave the parties leave to re-open their cases for the purpose of receiving further documentary evidence which largely related to events which had arisen following the end of the trial. Upon re-opening, the State proffered an undertaking to the following effect:
·in the course of the Negotiation and Completion phase, the State will not refuse to agree to contractual documents;
·having agreed the contractual documentation for the Project, the State will not fail to satisfy preconditions to completion; or
·having achieved contractual and financial close, the State will not allege any breach of contractual documentation for the Project,
because of non compliance of the Lend Lease Enterprise Agreement with the Code and/or Guidelines.
As a result of that undertaking, the CFMEU acknowledged that there was no longer a foundation for a finding that the State had “refused to engage” Lend Lease because of the workplace rights of its employees. The CFMEU no longer pressed its claim for an injunction to prevent Lend Lease from being excluded from the tender process. However, the CFMEU maintained its claim that the State had taken adverse action by having threatened to refuse to engage or make use of the services of Lend Lease.
RELEVANT STATUTORY PROVISIONS
The provisions of the FW Act pursuant to which allegations of adverse action are made against the State are contained in Pt 3-1, which is entitled “General Protections”.
The objects of Pt 3-1 are set out in s 336 which is in the following terms:
336 Objects of this Part
(1) The objects of this Part are as follows:
(a) to protect workplace rights;
(b) to protect freedom of association by ensuring that persons are:(i) free to become, or not become, members of industrial associations; and
(ii) free to be represented, or not represented, by industrial associations; and
(iii) free to participate, or not participate, in lawful industrial activities;
(c) to provide protection from workplace discrimination;
(d) to provide effective relief for persons who have been discriminated against, victimised or otherwise adversely affected as a result of contraventions of this Part.
(2) The protections referred to in subsection (1) are provided to a person (whether an employee, an employer or otherwise).
The CFMEU alleges that the State has contravened s 340. That section is as follows:
340 Protection
(1) A person must not take adverse action against another person:
(a) because the other person:
(i) has a workplace right; or
(ii) has, or has not, exercised a workplace right; or
(iii)proposes or proposes not to, or has at any time proposed or proposed not to, exercise a workplace right; or
(b) to prevent the exercise of a workplace right by the other person.
Note: This subsection is a civil remedy provision (see Part 4-1).
(2)A person must not take adverse action against another person (the second person) because a third person has exercised, or proposes or has at any time proposed to exercise, a workplace right for the second person’s benefit, or for the benefit of a class of persons to which the second person belongs.
Note: This subsection is a civil remedy provision (see Part 4-1).
Pursuant to s 340, the CFMEU claims that “adverse action” was taken by the State against members of the CFMEU employed by Lend Lease because they have a “workplace right”, namely an entitlement to the benefit of a workplace instrument, being the Lend Lease Enterprise Agreement.
A “workplace right” is defined in s 341(1) as follows:
Meaning of workplace right
(1) A person has a workplace right if the person:
(a)is entitled to the benefit of, or has a role or responsibility under, a workplace law, workplace instrument or order made by an industrial body; or
(b)is able to initiate, or participate in, a process or proceedings under a workplace law or workplace instrument; or
(c) is able to make a complaint or inquiry:
(i)to a person or body having the capacity under a workplace law to seek compliance with that law or a workplace instrument; or
(ii) if the person is an employee—in relation to his or her employment.
The dictionary in s 12 of the FW Act contains definitions of “workplace instrument” and “workplace law”. The FW Act itself is a workplace law. An instrument made under or recognised by a workplace law, and concerning the relationships between employers and employees, is a workplace instrument. The parties to these proceedings do not dispute that the Lend Lease Enterprise Agreement is such an instrument.
Section 342(1) contains a table setting out circumstances in which a person takes adverse action against another person for the purposes of s 340. The adverse action relied upon by the CFMEU is that set out in Item 4 of the table as amplified by s 342(2), namely, that the State is a person proposing to enter into a contract for services with Lend Lease and has threatened to refuse to engage or make use of the services of Lend Lease. While this case primarily concerns Item 4, the entire table is extracted below because the interpretation of Item 4 is assisted by consideration of its terms in their context.
Meaning of adverse action Item Column 1
Adverse action is taken by ...Column 2
if ...1 an employer against an employee the employer:
(a) dismisses the employee; or(b) injures the employee in his or her employment; or
(c) alters the position of the employee to the employee’s prejudice; or
(d) discriminates between the employee and other employees of the employer.
2 a prospective employer against a prospective employee the prospective employer:
(a) refuses to employ the prospective employee; or
(b) discriminates against the prospective employee in the terms or conditions on which the prospective employer offers to employ the prospective employee.
3 a person (the principal) who has entered into a contract for services with an independent contractor against the independent contractor, or a person employed or engaged by the independent contractor the principal:
(a) terminates the contract; or(b) injures the independent contractor in relation to the terms and conditions of the contract; or
(c) alters the position of the independent contractor to the independent contractor’s prejudice; or
(d) refuses to make use of, or agree to make use of, services offered by the independent contractor; or
(e) refuses to supply, or agree to supply, goods or services to the independent contractor.
4 a person (the principal) proposing to enter into a contract for services with an independent contractor against the independent contractor, or a person employed or engaged by the independent contractor the principal:
(a) refuses to engage the independent contractor; or
(b) discriminates against the independent contractor in the terms or conditions on which the principal offers to engage the independent contractor; or
(c) refuses to make use of, or agree to make use of, services offered by the independent contractor; or
(d) refuses to supply, or agree to supply, goods or services to the independent contractor.
5 an employee against his or her employer the employee:
(a) ceases work in the service of the employer; or
(b) takes industrial action against the employer.
6 an independent contractor against a person who has entered into a contract for services with the independent contractor the independent contractor:
(a) ceases work under the contract; or
(b) takes industrial action against the person.7 an industrial association, or an officer or member of an industrial association, against a person the industrial association, or the officer or member of the industrial association:
(a) organises or takes industrial action against the person; or
(b) takes action that has the effect, directly or indirectly, of prejudicing the person in the person’s employment or prospective employment; or
(c) if the person is an independent contractor—takes action that has the effect, directly or indirectly, of prejudicing the independent contractor in relation to a contract for services; or
(d) if the person is a member of the association—imposes a penalty, forfeiture or disability of any kind on the member (other than in relation to money legally owed to the association by the member).
Further, the draft Project Agreement which had been issued in May 2012 included provisions which made clear the State’s intent that the Construction Contract would require that the Builder be compliant with the Code and Guidelines. It was apparent from the terms of the draft Project Agreement, that the State intended that only a Code compliant contractor could be awarded the Construction Contract.
To summarise, as at 19 November 2012, the State had communicated a position likely to be understood as requiring that:
·The tenderers for the Project and their related parties (which included Lend Lease) had to be compliant with the Code and Guidelines.
·The Builder to be appointed under the Construction Contract (which Exemplar proposed would be Lend Lease) would have to be compliant with the Code and Guidelines.
·Non-compliance by the proposed Builder would result in the exclusion of that contractor from being contracted to provide the Works. That would occur either because the consortium of which the Builder was a member would be excluded from selection or because the contractor (Lend Lease) would be ineligible to be awarded the Construction Contract.
·Lend Lease was not compliant with the Code and Guidelines whilst the Lend Lease Enterprise Agreement applied in its current form to employees in Victoria.
There can be no issue that each element of that position had been communicated to Lend Lease by 19 November 2012. On that basis, I am satisfied that as at 19 November 2012 the State had communicated to Lend Lease its intent to refuse to engage or make use of the services of Lend Lease to provide the Works for the Project so long as the Lend Lease Enterprise Agreement applied to Victorian employees and was assessed by the State as non-compliant with the Code and Guidelines.
The threat in existence as at 19 November 2012 was capable of being resiled from by the State.
In my view, between 19 November 2012 and 5 April 2013, the State did not resile from any of the elements which constituted the threat which I have described at [244]. To the contrary, two events occurred which confirmed the State’s stated position. First, the Minister for Finance issued a media release on 27 December 2012 which stated that the tender documents for the project required bidders to comply with the Code and Guidelines. Second, on 21 January 2013, Lend Lease wrote to the Victorian Minister for Finance. Lend Lease offered to give the undertakings to which I have already referred and requested that the Minister exercise his authority, as contemplated under the Guidelines, to grant Lend Lease provisional or deemed compliance with the Guidelines for a transitional period to 30 June 2013. Whilst the exemption sought was not limited to the Project, it obviously included it. On 29 January 2013, the proposal made by Lend Lease was rejected as being not acceptable to the Victorian Government. Lend Lease was informed that the position expressed to it by the CCCU remained the position of the Government.
Of course, it was always possible that the State would not carry out its threat and resile from its stated position. It might be said that the State showed some equivocation in its resolve to require compliance with the Code and Guidelines by not excluding Exemplar from the tender process from shortly after 19 November 2012. However, that conduct would not have been perceived as negating the threat. It would probably have been regarded as the result of the further representations and negotiations taking place directly between Lend Lease and the State and also through their lawyers, as to how compliance may be excused or achieved.
The deliberations of the Evaluation Panel, Steering Committee, Project Board and others involved in the Evaluation Process were not matters which the evidence suggests were known to Lend Lease, at least until the trial. Until made public, those matters had no capacity to alter the perceptions otherwise created by the State’s conduct.
In my view, it was not until the announcement made by the State on 5 April 2013 that the Exemplar Consortium was the Preferred Respondent, that the threat was effectively negated. With that announcement, the State communicated its intent to finalise contractual negotiations with Exemplar, knowing that this involved the appointment of Lend Lease as the Builder that would provide the Works. In that context, it could no longer be said that the State was threatening to refuse to engage or make use of the services of Lend Lease to provide the Works.
In its written submission of 19 April 2013, the State raised the contention that the communications between the CCCU and Lend Lease concerning compliance with the Code and Guidelines were of general application and separate to the Evaluation Process for the Project. It contended that the communications “relate to the fact of non-compliance with the Code and Guidelines” and do not constitute a threat to exclude Lend Lease from the Project.The contention takes a blinkered approach. It may well be correct to say that the assessment of non-compliance by the CCCU on its own did not constitute a threat. However when combined with each of the other elements I have identified at [244], I am satisfied that the totality of the conduct of the State did constitute “threatening to take action” within the meaning of s 342(2).
WAS THE THREATENED REFUSAL BECAUSE THE EMPLOYEES OF LEND LEASE HAVE A WORKPLACE RIGHT?
The “workplace right” that the CFMEU relies upon is the right of employees of Lend Lease to the benefits of the Lend Lease Enterprise Agreement. It is not only the fact of the existence of that enterprise agreement but also the content of that enterprise agreement that may constitute a “workplace right” within the meaning of that expression in s 341(1) of the FW Act. As the CFMEU contended, the proper approach to the words “entitled to the benefit” in s 341(1)(a) is that they protect against conduct motivated by the fact that an industrial instrument or order applies to the person against whom “adverse action” is taken, as well as where the motivation to engage in the “adverse action” arises because of the content of the instrument or order: Greater Dandenong City Council v Australian Municipal, Administrative, Clerical and Services Union (2001) 112 FCR 232 (“Greater Dandenong City Council”) at [80] (Wilcox J); [123]-[131] (Merkel J); and [212] (Finkelstein J).
By its Statement of Claim, the CFMEU alleged that the State threatened to refuse to engage or make use of the services of Lend Lease for the Project because members of the CFMEU employed by Lend Lease were entitled to the benefit of the Lend Lease Enterprise Agreement. Once an allegation is made that the respondent has taken action for a prohibited reason, s 361 creates a presumption that the impugned action was taken for that reason. The onus is then cast on the respondent to prove otherwise: Board of Bendigo Regional Institute of Technical and Further Education v Barclay (2012) 86 ALJR 1044 at [1] (French CJ and Crennan J); Patrick Stevedores Operations No 2 Pty Ltd v Maritime Union of Australia (No 3) (1998) 195 CLR 1 at [123] (Gaudron J); David’s Distribution Pty Ltd v National Union of Workers [1999] FCA 1108 at [109] (Wilcox and Cooper JJ); National Tertiary Education Union v Royal Melbourne Institute of Technology [2013] FCA 451 at [19]-[24] (Gray J).
To displace the presumption, the respondent must show that its conduct was not motivated in whole or in part by the prohibited reason: Kelly v CFMEU at 130 (Moore J); Greater Dandenong City Council at [91] (Wilcox J) and [176] (Merkel J); Australian Municipal, Clerical and Services Union at [35] (Madgwick J). Generally, this will be extremely difficult if no direct testimony is given by the decision-maker acting on behalf of the respondent: Barclay at [45] (French CJ and Crennan J); and see General Motors-Holdens Pty Ltd v Bowling (1976) 51 ALJR 235. As Gray J said in National Tertiary Education Union at [20], what the party seeking to rebut the presumption must do is to establish on the balance of probabilities that the alleged improper reason was not a reason for taking the action. A failure to displace the presumption enables the allegation by an applicant of a prohibited reason or purpose to stand as sufficient proof of the fact: David’s Distribution at [109] (Wilcox and Cooper JJ); Australian Municipal, Clerical and Services Union at [37] (Madgwick J); and see R v Hush; Ex parte Davanny (1932) 48 CLR 487 at 507 (Dixon J).
In this case, as the submissions of the State acknowledge, no attempt was made by the State to discharge the onus. In the circumstances, section 361 operates to create a presumption that the action of the State, namely its threat to refuse to engage or make use of the services of Lend Lease, was taken for reasons including the reason that the employees of Lend Lease were entitled to the benefit of the Lend Lease Enterprise Agreement. On the basis of that presumption and the findings I have made, and assuming the constitutional validity of ss 340-342 (an issue to which I will next turn), the CFMEU has established that the threat to refuse to engage or use the services of Lend Lease for the Project was adverse action taken against the employees of Lend Lease because those employees had a workplace right to the entitlement of the benefits of the Lend Lease Enterprise Agreement.
DOES THE FAIR WORK ACT EXCEED THE CONSTITUTIONAL LEGISLATIVE CAPACITY OF THE COMMONWEALTH, BY REASON OF THE MELBOURNE CORPORATION LIMITATION?
The State contended that if, in selecting the consortium to design, build and operate the New Bendigo Hospital, the State would contravene ss 340-342 of the FW Act, the FW Act (to that extent) exceeds the constitutional legislative capacity of the Commonwealth by reason of the Melbourne Corporation limitation.
The Melbourne Corporation limitation has been the subject of consideration by the High Court in a number of judgments dealing with the predecessors to the FW Act including Re Australian Education Union; Ex parte Victoria (1995) 184 CLR 188 and State of Victoria v Commonwealth of Australia (1996) 187 CLR 416 (“the Industrial Relations Act case”). More recently, the Melbourne Corporation limitation has also been extensively considered in Austin v Commonwealth of Australia (2003) 215 CLR 185 and Clarke v Commissioner of Taxation of the Commonwealth of Australia (2009) 240 CLR 272.
In Austin at [115], Gaudron, Gummow and Hayne JJ observed that the scope and content of the limitation is difficult to articulate other than in negative terms and at a high level of abstraction. With that reservation, their Honours at [115] expressed the limitation as being:
[T]hat the Commonwealth’s legislative powers do not extend to making a law which denies one of the fundamental premises of the Constitution, namely, that there will continue to be State governments separately organised.
The Melbourne Corporation limitation is an implication drawn from the federal structure of the Constitution. As Hayne J explained in Clarke at [95]:
The root of the relevant principle is found in the proposition, often quoted from the reasons of Dixon J in Melbourne Corporation, that "[t]he foundation of the Constitution is the conception of a central government and a number of State governments separately organised. The Constitution predicates their continued existence as independent entities." This proposition, and particularly the reference to the continued existence of independent polities, must be understood in the context of the reasons as a whole.
[Footnote omitted.]It had been the view that the Melbourne Corporation limitation consisted of two limbs or elements as follows:
(i)the prohibition against discrimination which involves the placing on the States of special burdens or disabilities; and
(ii)the prohibition against laws of general application which operate to destroy or curtail the continued existence of the States or their capacity to function as governments.
See Queensland Electricity Commission v Commonwealth of Australia (1985) 159 CLR 192 at 217 (Mason J).
The modern view as expressed by Gaudron, Gummow and Hayne JJ in Austin at [124] is that there is “but one limitation, though the apparent expression of it varies with the form of legislation under consideration”. Their Honours continued at [124]:
The question presented by the doctrine in any given case requires assessment of the impact of particular laws by such criteria as “special burden” and “curtailment” of “capacity” of the States “to function as governments”. These criteria are to be applied by consideration not only of the form but also “the substance and actual operation” of the federal law. Further, this inquiry inevitably turns upon matters of evaluation and degree and of “constitutional facts” which are not readily established by objective methods in curial proceedings.
[Footnote omitted.]
At [168] Gaudron, Gummow and Hayne JJ emphasised that any curtailment or interference to the exercise of a State’s constitutional power needed to be significant for the limitation to be engaged. Their Honours said:
There then is posed the “practical question” identified by Starke J in Melbourne Corporation. This, in the end, is whether, looking to the substance and operation of the federal laws, there has been, in a significant manner, a curtailment or interference with the exercise of State constitutional power.
[Footnote omitted.]
The State’s argument that the FW Act exceeded the Commonwealth’s constitutional power relied primarily on the application of the limitation by the majority (Mason CJ, Brennan, Deane, Toohey, Gaudron and McHugh JJ) in Re AEU at 232-233 as follows:
At this point it is convenient to consider South Australia’s argument based on impairment of a State’s “integrity” or “autonomy”. Although these concepts as applied to a State are by no means precise, they direct attention to aspects of a State’s functions which are critical to its capacity to function as a government. It seems to us that critical to that capacity of a State is the government's right to determine the number and identity of the persons whom it wishes to employ, the term of appointment of such persons and, as well, the number and identity of the persons whom it wishes to dismiss with or without notice from its employment on redundancy grounds. An impairment of a State's rights in these respects would, in our view, constitute an infringement of the implied limitation. On this view, the prescription by a federal award of minimum wages and working conditions would not infringe the implied limitation, at least if it takes appropriate account of any special functions or responsibilities which attach to the employees in question. There may be a question, in some areas of employment, whether an award regulating promotion and transfer would amount to an infringement. That is a question which need not be considered. As with other provisions in a comprehensive award, the answer would turn on matters of degree, including the character and responsibilities of the employee.
In our view, also critical to a State’s capacity to function as a government is its ability, not only to determine the number and identity of those whom it wishes to engage at the higher levels of government, but also to determine the terms and conditions on which those persons shall be engaged. Hence, Ministers, ministerial assistants and advisers, heads of departments and high level statutory office holders, parliamentary officers and judges would clearly fall within this group. The implied limitation would protect the States from the exercise by the Commission of power to fix minimum wages and working conditions in respect of such persons and possibly others as well. And, in any event, Ministers and judges are not employees of a State.
[Footnote omitted.]The State’s contention was initially put in two ways. The first was that ss 340-342 of the FW Act would significantly interfere with the State’s capacity to choose the identity of the consortium which the State wishes to engage to deliver major public health infrastructure, by constraining the factors which the State could take into account in determining the best ‘Value for Money’ proposition and by controlling the terms and conditions determined by the State to be necessary and appropriate in the public interest for that purpose. As the argument developed, the State’s sole reliance on a broader approach (not dependent upon the capacity of the State to pursue value for money considerations) became apparent. Whilst the State accepted that not every function of government is protected by the Melbourne Corporation limitation, the State contended that critical to the State’s capacity to function as a government, is its capacity to determine how it goes about providing major public health infrastructure of the scale and significance of the New Bendigo Hospital and in particular, the terms on which it selects the major provider of that infrastructure. In support of that proposition, the State submitted that there is a “direct analogy” between the protection from Commonwealth legislative dictation of the identity and terms and conditions of senior public servants, judges, Ministers and advisors of the State (Re AEU at 233) and the protection from Commonwealth control of the identity and the terms and conditions which are to apply to an entity to be selected by the State to deliver major infrastructure.
The State contended that the selection of a corporation to design, construct and then facilitate the operation of a major hospital for a period of up to 25 years, is to be seen in the same light as the identification for selection of, and the terms and conditions of, the class of public officials described in Re AEU as at the ‘higher levels of government’. It was said that the same sorts of considerations are brought to bear and that it is the essence of the function of government to select the corporation in the same way as it is to select senior government employees. The passage in Re AEU at 233 was said to apply a fortiori.
In the case of those persons employed by a State at the ‘higher levels of government’, Re AEU decided that it was critical to a State’s capacity to function as a government that the State have an ability to determine the “number and identity of those it wishes to engage” and “the terms and conditions upon which those persons shall be engaged”. This was an application of the Melbourne Corporation limitation, not an expression of it. There is no direct analogy to be drawn between this application of the limitation and that for which the State contends.
The Re AEU application of the limitation was, as the majority expressly identified, based on the Court’s part-acceptance of the contention made by South Australia in that case, as explained in the following passage at 231:
The Solicitor-General for South Australia contended that the implied limitation protects the integrity or autonomy of a State. In this respect he drew a distinction between external services (not protected) and internal services (protected). Internal services were said to include policy formulation, reporting to Parliament, the collection and administration of government revenue and the provision of services to Parliament and the judiciary. It was claimed that the protection would embrace, among others, the Treasury, the Attorney-General’s Department, court staff and the police. It was conceded that the content of an award was a relevant consideration. Thus the Commission could regulate remuneration and disputes about remuneration and other payments to employees but it could not prescribe employment qualifications, eligibility and termination procedures. The latter, so the argument runs, would impair the integrity or autonomy of the State. It will be convenient to deal a little later with this argument which, in our view, has some force.
South Australia’s argument was (as the majority further confirmed at 232, in the passage already cited), an argument based on the impairment of a State’s “integrity” or “autonomy” which directed attention to the State’s “capacity to function as a government”. The Re AEU application of the limitation was not based on the protection of a State’s capacity to exercise government functions. Such a basis for the limitation, on the facts of that case, was expressly rejected at 228-230.
The argument which the majority in Re AEU accepted and that which it rejected draws attention to a distinction often drawn between an interference with a State’s capacity to function as a government and an interference with a function which a State government may undertake. Thus, in Commonwealth v Tasmania (“The Tasmanian Dam Case”) (1983) 158 CLR 1 at 139, Mason J said:
It is then suggested that the prohibition strikes down a Commonwealth law which inhibits, impairs or curtails any governmental function of a State in a material way. But this is to rewrite the principle. What it does is to prohibit impairment of the capacity of the State to function as a government, rather than to prohibit interference with or impairment of any function which a State government undertakes. As Stephen J pointed out in Koowarta, the implication is derived from the federal nature of the Constitution and it is designed “to protect the structural integrity of the State components of the federal framework, State legislatures and State executives”.
To fall foul of the prohibition, in so far as it relates to the capacity of a State to govern, it is not enough that Commonwealth law adversely affects the State in the exercise of some governmental function as, for instance, by affecting the State in the exercise of a prerogative. Instead, it must emerge that there is a substantial interference with the State’s capacity to govern, an interference which will threaten or endanger the continued functioning of the State as an essential constituent element in the federal system.
[Footnote omitted.]In Queensland Electricity Commission at 216-217, Mason J referred to his judgment in the Tasmanian Dam Case and also to that of Brennan J and reinforced the distinction between an impairment of the capacity of the State to function as a government, and an impairment of any function which a State Government undertakes.
Those judgments were relied upon by Gaudron, Gummow and Hayne JJ in Austin at [146]:
Some guidance as to the content of the limited State immunity is provided by the later decisions in this Court. In The Tasmanian Dam Case, Mason J and Brennan J pointed out that the concern was with the capacity of a State to function as a government rather than interference with or impairment of any function which a State government may happen to undertake. Later, in the Native Title Act Case, it was said in the joint judgment of six members of the Court that the relevant question for the application of the Melbourne Corporation doctrine was not whether Commonwealth law effectively restricted State powers or made their exercise more complex or subjected them to delaying procedures. Their Honours continued:
“The relevant question is whether the Commonwealth law affects what Dixon J called the ‘existence and nature’ of the State body politic. As the Melbourne Corporation Case illustrates, this conception relates to the machinery of government and to the capacity of its respective organs to exercise such powers as are conferred upon them by the general law which includes the Constitution and the laws of the Commonwealth. A Commonwealth law cannot deprive the State of the personnel, property, goods and services which the State requires to exercise its powers and cannot impede or burden the State in the acquisition of what it so requires.”
Later in that judgment, their Honours distinguished between a federal law which impaired capacity to exercise constitutional functions and one which merely affected “the ease with which those functions are exercised”.
[Footnotes omitted.]The asserted impairment contended for by the State in this case, is an impairment of a function of the State of Victoria, namely, its function of providing major public health infrastructure. Even if such an impairment was made out, an impairment of that kind is not concerned with the capacity of a State to function as a government. The ‘higher levels of government’ application of the Melbourne Corporation limitation which the majority in Re AEU expressed, was directly concerned with the capacity of a State to function as a government. It was concerned with the machinery of government and in particular the critical personnel a State requires to function as an autonomous body politic. In my view, there is no analogy to be made between an impairment of a State’s capacity to identify the vital personnel a State requires to function as an autonomous body politic and the capacity of a State to identify a private provider that will facilitate the provision of a government service, whether major or not.
Sections 340-342 of the FW Act are laws of general application. Neither by their terms nor by their operation, do those provisions single out or impose any special burden upon a State which is not imposed on persons generally. Insofar as ss 340-342 impair the selection of a contractor which a State wishes to engage to provide governmental services to the general public, any such impairment is not likely to be directed to the capacity of the State to function as a government. The operation of the law in the context of the facts raised by this case, does not deprive the State of the services it requires to exercise its powers or otherwise curtail or interfere in a significant manner with the exercise of the State’s constitutional power.
The evidence in this case does not establish any detrimental operational impact of the application of ss 340-342 to any functions of the State, whether governmental functions or not. In particular, the State’s capacity to select the best available provider of the services it seeks is unaffected. The only detrimental operation of ss 340-342 upon the State which is suggested by the evidence, is upon the State’s capacity to apply its preferred industrial relations policy. That a federal law has impinged upon a state policy which is in conflict with it, is not (of itself) an impairment or detriment for which the Melbourne Corporation limitation provides an immunity.
Whilst every case will need to be considered on its facts, the notion that the proscription of discrimination or other forms of adverse action on grounds like those dealt with by s 340 could, in the context of selection processes, impair the capacity of the State to govern is unappealing: State of Victoria v Riordan (Unreported, Industrial Relations Court of Australia, Wilcox CJ, Lee and Madgwick JJ, 330/1996, 26 July 1996) at 21 (the Court); Greater Dandenong City Council at [182] (Merkel J); Australian Municipal, Administrative, Clerical and Services Union at [120] (Madgwick J).
For those reasons, I reject the State’s contention that the FW Act exceeds the constitutional legislative capacity of the Commonwealth by reason of the Melbourne Corporation limitation.
I have reached that view without it being necessary to fully consider the additional argument relied upon by the CFMEU that a complete answer to the contention of the State is provided by the fact that the State has, by the Fair Work (Commonwealth Powers) Act 2009 (Vic), referred to the Commonwealth its power in relation to a broad range of industrial and employment subject matters upon which the enactment of ss 340-342 of the FW Act is based. Whilst I doubt the referral of power provides a complete answer, because each head of power in s 51 of the Constitution (including s 51(xxxvii)) is granted “subject to this Constitution”, the referral may well be relevant to determining whether any law based upon it, can be said to impermissibly burden the referring State. Given the conclusion I have already reached, it is not necessary that I determine the additional argument raised by the CFMEU.
ARE THE CODE AND THE GUIDELINES AN INVALID EXERCISE OF STATE EXECUTIVE POWER?
By its Reply, the CFMEU pleaded that the Code and Guidelines are beyond the executive power of the State and accordingly are invalid and of no effect. By consequential amendment to its Application, the CFMEU sought a declaration to that effect.
An interesting argument is raised by the pleading which does not appear to have received prior judicial attention. The argument appears to have two limbs. By the first limb, the CFMEU contends that the Code and Guidelines seek to regulate industrial relations in Victoria generally via the exercise of the State’s executive power and in the absence of any legislative underpinning. The regulation of industrial relations is sought to be achieved, so it is said, by criteria that are legislative in character (if not in form), including by punishing those who offend. Punishment, so the CFMEU contends, is a matter exclusively in the realm of the legislature and in the absence of any legislative underpinning, the attempt to regulate must fail.
The second limb contends that by its executive power the State cannot achieve ‘by the backdoor’ that which it could not legislate to achieve. In relation to bargaining for and the making of industrial agreements, the CFMEU contends that the law in Victoria is contained in Pt 2-4 of the FW Act. That law applies to the State because it has been made under Victorian legislative capacity referred by Victoria to the Commonwealth. Section 109 of the Constitution ensures that the FW Act is paramount in Victoria in respect of a field upon which it operates. In that circumstance and in reliance upon statements made by members of the High Court in Williams v Commonwealth (2012) 86 ALJR 713, the CFMEU contended that if the State could achieve by promulgation of policy what it could not achieve by legislation, the operation of s 109 would be subverted. Accordingly, the CFMEU contended that the promulgation of the Code and Guidelines was beyond the executive power of the State.
Whilst the point raised may be interesting, the occasion for its determination does not arise. It is not clear to me how the CFMEU relies upon the argument as a shield against the Melbourne Corporation limitation case put against it by the State. Insofar as the argument is relied upon to that end, given the conclusions I have already reached, that reliance is unnecessary and I need not determine the issue. Insofar as the issue is relied upon to support the declaration sought, the CFMEU has failed to establish that the Court’s power to make the declaration sought has been enlivened.
Section 21 of the Federal Court of Australia Act 1976 (Cth) confers power on the Court to make “binding declarations of right”. The Court’s power to grant declaratory relief depends upon the existence of a justiciable controversy as to some immediate right, duty or liability to be established by the Court’s determination: Direct Factory Outlets Pty Ltd v Westfield Management Limited (2003) 132 FCR 428 at [16] (Cooper J) citing Re Judiciary and Navigation Acts (1921) 29 CLR 257 at 265 and 266-267 (Knox CJ, Gavan Duffy, Powers, Rich and Starke JJ); Fencott v Muller (1983) 152 CLR 570 at 603 (Mason, Murphy, Brennan and Deane JJ); Abebe v Commonwealth (1999) 197 CLR 510 at 524 (Gleeson CJ and McHugh J), 555 (Gaudron J), 570 (Gummow and Hayne JJ) and 585 (Kirby J); Truth About Motorways Pty Ltd v Macquarie Infrastructure Management Ltd (2000) 200 CLR 591 at [43], [48]-[50] (Gaudron J) and [154]-[155] (Kirby J).
The only right which the CFMEU could identify which it or those it represents has in relation to which a controversy has arisen is the right to the protection conferred by s 340 of the FW Act. However the right to the protection conferred by s 340 which the CFMEU asserts for employees of Lend Lease is not dependent upon the validity of the Code and Guidelines or any part or parts thereof. The absence of a justiciable controversy which engages the validity of the Code or Guidelines would defeat the CFMEU’s claim for a declaration at the outset and makes it unnecessary to determine the contention raised in support of this claim.
RELIEF
In the light of the findings I have made, I will make a declaration that in contravention of s 340(1)(a)(i) of the FW Act, between 19 November 2012 and 5 April 2013, the State took adverse action against employees of Lend Lease by threatening to refuse to engage or make use of the services of Lend Lease for the construction of the New Bendigo Hospital because those employees were entitled to the benefit of the Lend Lease Enterprise Agreement.
That leaves for further hearing and determination the orders sought by the CFMEU that a penalty be imposed upon the State for its contravention of s 340 of the FW Act. To facilitate the penalty hearing, I will direct the parties to consult and file with the Court minutes of proposed orders which address the filing and service of written submissions in advance of that hearing.
I certify that the preceding two hundred and eighty-four (284) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Bromberg. Associate:
Dated: 17 May 2013
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