Sydney Water Corporation Ltd and Another v Industrial Relations Commission of NSW and Another

[2004] NSWCA 436

Reported Decision: 61 NSWLR 661

Court of Appeal

CITATION:	SYDNEY WATER CORPORATION LTD & ANOR v INDUSTRIAL RELATIONS COMMISSION OF NSW & ANOR [2004] NSWCA 436
HEARING DATE(S):	21, 22 September 2004
JUDGMENT DATE:	1 December 2004
JUDGMENT OF:	Mason P at 1; Hodgson JA at 75; McColl JA at 79
DECISION:	Declare that s 106 of the Industrial Relations Act 1996 does not permit the granting of relief unless the contract or arrangement otherwise falling within that section is, or is found to have become, an "unfair contract" as defined in s 105 thereof.
CATCHWORDS:	Industrial Relations Act 1996, s 106 - unfair contract - administrative law relief - Industrial Relations Commission of New South Wales - whether Reich v Client Server Professionals of Australia Pty Ltd wrongly decided - scope of Commission's jurisdiction under s106 - whether s106 covers unfairness arising from conduct in breach of contract - whether contract itself must be found to be unfair - prohibition - whether jurisdictional error involved - declaratory relief (D)
LEGISLATION CITED:	Industrial Relations Act 1996, 106 Supreme Court Act, s48(1)(a)(ii), (2)(e) Aronson, Dyer & Groves, Judicial Review of Administrative Action 3rd ed, 2004, p695.
CASES CITED:	Anisminic Ltd v Foreign Compensation Commission [1969] 2 AC 147 Brown v Rezitis (1970) 127 CLR 157 Coal and Allied Operations Pty Ltd v Australian Industrial Relations Commission & Ors (2000) 203 CLR 194 Connor v Sankey [1976] 2 NSWLR 570 Coulton v Holcome (1986) 162 CLR 1 Craig v South Australia (1995) 184 CLR 163 Ex parte Hebburn Ltd; Re Kearsley Shire Council (1947) 47 SR(NSW) 416 Ex parte Thomas; Re Arnold [1966] 2 NSWR 197 Forster v Jododex Australia Pty Ltd (1972) 127 CLR 421 Incitec v Industrial Court of New South Wales (1992) 45 IR 155 Minister for Youth & Community Services v Health and Research Employees' Association of Australia, NSW Branch (1987) 10 NSWLR 543 Mitchforce Pty Ltd v Industrial Relations Commission of New South Wales & Ors (2003) 57 NSWLR 212 QSR Ltd v Industrial Relations Commission of NSW & Ors [2004] NSWCA 199 Re Media, Entertainment and Arts Allience; Ex parte Arnel (1994) 179 CLR 84 Reich v Client Server Professionals of Australia Pty Ltd (2000) 49 NSWLR 551 Rookes v Barnard [1964] AC 1129 Rothmans Distributions Services Ltd v Full Court of the Industrial Court of New South Wales (1994) 53 IR 157 Solution 6 Holdings Ltd and Ors v Industrial Relations Commission of New South Wales & Ors [2004] NSWCA 200 Stevenson v Barham (1977) 136 CLR 190 The Queen v Gray; Ex parte Marsh (1985) 157 CLR 351 Truelove v Sydney Water Corporation Ltd & Anor [2004] NSWIR Comm 298 Truelove v Sydney Water Corporation Ltd & Anor [2004] NSWIRComm 115 Uniting Church in Australia Property Trust (NSW) v Industrial Relations Commission of NSW in Court Session & Anor [2004] NSWCA 183 Walker v Industrial Court of New South Wales (1994) 53 IR 121 Whisprun Pty Ltd v Dixon [2003] HCA 48
PARTIES :	SYDNEY WATER CORPORATION LTD & ANOR v INDUSTRIAL RELATIONS COMMISSION OF NSW & ANOR
FILE NUMBER(S):	CA 40666/04
COUNSEL:	Claimant(s): J West/ R Crow Opponent(s): A Searle
SOLICITORS:	Claimant(s): Workplace Law Opponent(s): Saggacious Legal Pty Limited

LOWER COURTJURISDICTION:	Industrial Relations Commission
LOWER COURT FILE NUMBER(S):	IRC 5850/96
LOWER COURT JUDICIAL OFFICER :	Marks J

CA 40666/04

MASON P
HODGSON JA
McCOLL JA

Wednesday 1 December 2004

SYDNEY WATER CORPORATION LTD & ANOR v INDUSTRIAL RELATIONS COMMISSION OF NSW & ANOR

HELD per Mason P (Hodgson and McColl JJA agreeing):

1. The correctness of Reich v Client Server Professionals of Australia Pty Ltd

(2000) 49 NSWLR 551

· Reich holds that the Commission may find contractual unfairness in particular cases based on no more than conduct in breach of contract, even if it attracts adequate remedy under the general law.

· s 106 does not go this far, it treats the finding that the contract is unfair as the necessary pre-condition to the remedial options.

· Reich was wrongly decided. The relief which s 106 contemplates is relief flowing from the contract found unfair on the evidence and not merely any unfair conduct, which may or may not demonstrate the unfairness of the contract under review.

Per Mason P (McColl JA agreeing):

· It cannot be said that a contract allows or fails to prevent conduct that is in contravention or a fundamental breach thereof.

· A contract is not unfair whenever it leaves the employee to remedies under the general law. There would need to be a finding that those remedies were relevantly “unfair” in regard to the contract at hand before the Commission’s remedial jurisdiction would be enlivened, assuming that such a finding is within the contemplation of the section. It is doubtful that it is, although it is unnecessary to resolve that matter finally.

Per Hodgson JA:

· The occurrence of unfair conduct in breach of contract could in some circumstances go towards supporting a finding that the contract was unfair, because it might help to demonstrate that the contract was itself unfair in lacking provisions that could have rendered such conduct less likely or in failing to provide adequate remedies for breach.

2. Relief

· The application of the central principle in Reich would involve an error of jurisdictional nature and so prohibition could issue.

· However, a grant of declaratory relief is proposed which is not bounded by the need to find jurisdictional error – this case involves a matter of significant importance in the current jurisprudence of the Commission

ORDER

1. Declare that s 106 of the Industrial Relations Act 1996 does not permit the granting of relief unless the contract or arrangement otherwise falling within that section is, or is found to have become, an “unfair contract” as defined in s 105 thereof.

CA 40666/04

MASON P
HODGSON JA
McCOLL JA

Wednesday 1 December 2004

SYDNEY WATER CORPORATION LTD & ANOR v INDUSTRIAL RELATIONS COMMISSION OF NSW & ANOR

JUDGMENT

1 MASON P: On 23 May 1996 the second opponent (Mr Truelove) was summarily dismissed from his employment as Finance Director of the second claimant, Australian Water Technologies Pty Ltd (AWT). Initially he had been employed by the first claimant (Sydney Water Corporation) under a written Contract of Employment dated 12 January 1995. With his concurrence, his services were transferred to AWT on 1 July 1995 in circumstances amounting to a novation of contract. AWT acts as a commercial trading arm of Sydney Water Corporation.

2 AWT dismissed Mr Truelove after investigating serious allegations of breaches of the employer’s Code of Conduct, basing itself upon express contractual powers of dismissal without notice for serious or persistent breaches of the Contract or grave or serious misconduct.

3 In November 1996 Mr Truelove commenced proceedings in the Industrial Relations Commission against the claimants, seeking relief pursuant to s106 of the Industrial Relations Act 1996 (the Act). The nature and ambit of his claim appear from the Amended Summons for Relief filed on 20 December 2001 in the Commission seeking the following orders :

1. An order declaring void in whole or in part or varying in whole or in part either from its commencement or from some other time the contract, arrangement or collateral arrangement (“the Contract”) between the Applicant and the First and Second Respondents under which the Applicant performed work in an industry except to the extent that the Applicant received remuneration and benefits from the First and Second Respondents or became entitled to receive such remuneration or benefits.
2. An order that the Contract between the Applicant and the First and Second Respondents under which the Applicant performed work in an industry was unfair, harsh and unconscionable and contrary to the public interest.
3. Further, in addition, an order varying the contract between the Applicant and the First and Second Respondents from its commencement so as to include the following terms:
“(a) Upon termination of the Contract by the First and/or Second Respondent [in circumstances which are harsh, unjust or unreasonable] the First and Second Respondents shall either:-
(i) Pay to the Applicant a sum equivalent to two years notice of termination; or in the alternative (whichever is the greater benefit);
(ii) Pay to the Applicant the sum (calculated at the Applicant’s total remuneration package rate) for the period from the date of termination until 31 December 1999 plus any bonus the Applicant might reasonably have been expected to receive for the year in which such termination occurs.
(b) For the purposes of sub-paragraph (a) above the payment shall be calculated by reference to the total value of all benefits the Applicant received under the Contract.”
4. Further, in the alternative, an order that the First and Second Respondents jointly and severally pay to the Applicant such amount of money in connection with the contract so voided or varied as may appear to be just in the circumstances.
5. An order that the First and Second Respondents jointly and severally be liable to pay to the Applicant interest on such amount of money as is ordered to be paid to the Applicant in connection with the contract as voided or varied at such rates and for such time as this Honourable Commission considers appropriate.
6. An order that the First and Second Respondents be liable to pay the Applicant’s costs of these proceedings.
7. Such further order or other orders as this Honourable Commission considers appropriate.

4 The proceedings were heard in the Commission by Marks J over five days in March and April 2004. During the hearing, the claim in par 3 of the Amended Summons was further amended by deleting the words "in circumstances which are harsh, unjust or unreasonable" shown in square brackets above.

5 The written submissions in the Commission reveal the issues fought there at first instance. Mr Truelove’s submissions included the following:

7. In the case of Mr Truelove, the only basis for termination advanced by the respondents is that he committed acts of serious misconduct that justified summary dismissal.
8. It is submitted that the evidence before this honourable Court does not establish this proposition.
…
Summary of allegations
51. In summary, the only conduct that the respondent(s) could legitimately take issue with is in relation to the use of the mobile telephone by Ms Lyn Truelove and the use of the AWT Hire Pantech.
52. In the circumstances of each, on the one hand an admitted error of judgment caused by concern for his partner’s well-being, and the other being no more than either an oversight or misunderstanding, there is no basis for the respondent(s) summarily terminating the employment of the applicant.
53. In these circumstances, substantive unfair [sic] has been established which warrants the intervention of this honourable Court.

6 The submissions of the respondents (the present claimants) took various objections to the orders sought, including:

6. The artificiality of Order A3 flows from the applicant’s attempt to convert a claim for damages for breach into a claim under s106. The applicant wants money, whether damages or compensation, for the respondents’ termination of his contract, which he says was wrongful or unjustified. He believes he had a fixed term contract that was terminated wrongfully by the respondents, and he wants an amount equal to the damages he would get at common law for that breach.
…
7. Properly characterized, the applicant’s case is that conduct of the respondent in breach of the contract has made the contract unfair. In Reich v Client Server Professionals of Australia Pty Ltd [(2000) 49 NSWLR 551] , the Commission found that s106 permitted such a case. However, in Mitchforce Pty Ltd v Industrial Relations Commission of New South Wales and Others [(2003) 57 NSWLR 212 at 233[93]] , Spigelman CJ doubted the correctness of Reich .
8. The respondents formally submit that Reich should not be followed. The applicant has dressed in the clothes of s106 a case that, on its true characterization, is only a claim for damages for breach. The contract is not made unfair by reason only of a breach of it by the respondent. The jurisdictional fact of an unfair contract does not exist. The application should be dismissed. The applicant should pursue his remedy at common law.

7 Marks J dismissed the summons (see Truelove v Sydney Water Corporation Ltd & Anor [2004] NSWIRComm 115). He held that no relevant unfairness attended the summary dismissal. In reaching this conclusion, his Honour examined the procedures adopted by the employer and made findings as to the misconduct, which related to the breaches of duties of fidelity.

8 Marks J proceeded to his conclusions on the basis that a finding of unfairness of contract was a pre-condition for exercise of any power under s106 of the Act (see his reasons at pars [51]-[54]). However, his Honour found no unfairness and he expressly avoided the issue of the correctness of Reich that Spigelman CJ had reserved in Mitchforce (see reasons of Marks J at [49]).

9 On 4 June 2004 Mr Truelove filed an Application for Leave to Appeal and Appeal to the Full Bench of the Commission (No 3271/04). He requires leave to be able to appeal (s188). The Application identifies the questions raised, the grounds of appeal and the relief claimed. It contends that the matter is of such importance that, in the public interest, leave should be granted (cf s188(2)).

10 On 21 July 2004 this Court delivered judgment in Solution 6 Holdings Ltd and Ors v Industrial Relations Commission of New South Wales & Ors [2004] NSWCA 200. Spigelman CJ referred to what he said in Mitchforce about Reich, but found it unnecessary to consider the validity of the proposition that a contract can be found to be unfair because of conduct which is in breach of contract (at [20]). Handley JA (with whose reasons I agreed) said (at [162]-[164]):

Mr Douglas QC did not challenge the jurisdiction of the Commission to uphold the opponents’ claim that the Share Sale Agreement was unfair because it “permitted” Solution 6 Holdings to commit a breach of contract. The Commission held by majority in Reich v Client Services Professionals of Australia Ltd (2000) 49 NSWLR 551 that a contract can become unfair because of conduct in breach of its terms. The Chief Justice has again left open the validity of this proposition. I wish to express grave reservations about it.

I raised this matter with Mr West QC towards the end of his argument and he did not attempt to defend the proposition. The common law “permits” every party to every contract to commit a breach of its terms. Such conduct although unlawful (see Rookes v Barnard [1964] AC 1129, 1201, 1206-7) in one sense is ”permitted” because the ordinary remedy for breach of an executory contract is an award of damages, not specific enforcement. The common law also “permits” a party to a contract that has otherwise been fully performed to breach its terms by failing to pay the contract debt on time. Even where equity would directly enforce a contract by specific performance or injunction breaches will normally have occurred and those contracts too will have “permitted” those breaches.

Accordingly the principle that a contract can become unfair because of a breach produces the remarkable result that all contracts are unfair because all contracts permit a breach. Despite the general principle that the question of unfairness is a matter for the Commission and not a Court with purely supervisory jurisdiction, it is not at all clear that the Commission has jurisdiction within the Hickman principles to find that a contract which it has held to be otherwise fair is nevertheless unfair because it has been breached. The acts or omissions which constitute a breach of contract are of course unfair but that does not make the contract unfair. It may be a perfectly fair contract.

11 These proceedings were commenced on 13 August 2004 when the claimants filed a Summons seeking the following relief:

1. A declaration that the First Opponent is without jurisdiction to hear or determine proceedings No IRC 3271 of 2004.
2. An order that the First Opponent is prohibited from taking any steps to further exercise, or purport to exercise, its power under s106 of the Industrial Relations Act 1996 in Industrial Relations Commission of NSW proceedings No IRC 3271 of 2004.
3. An order that the Second Opponent pay the Claimants' costs.

12 The parties joined issue in this Court as to the character of the relief being claimed before the Full Bench. The Outline of Submissions filed on 26 July 2004 by Mr Truelove in support of his appeal is in evidence, together with the draft Submissions of the present claimants. These documents identify the matters raised in the pending proceedings in the Commission.

13 In this Court, the claimants submit that Mr Truelove is effectively seeking damages for wrongful dismissal. Such a claim, if upheld pursuant to s106, would necessarily involve the acceptance and application of Reich. Since the remarks of Spigelman CJ in Mitchforce and of Handley JA in Solution 6 are obiter dicta there is no certainty that the Full Bench would depart from its considered position in Reich. If this occurred, there would be jurisdictional error. Because the possibility that it could occur is real and because such a decision by the Full Bench would or might attract the protection of s179 of the Act (“the privative clause”), prohibition should issue according to the principles discussed in Solution 6. Alternatively, declaratory relief addressing the Reich issue is sought.

14 The claimants’ position is aptly summarised in the affidavit of their solicitor, Ms Calderone as follows:

1. The second opponent has applied to the first opponent for the making of orders under s106 of the Industrial Relations Act 1996 on the sole ground that the conduct of the claimants in terminating the second opponent’s employment on 23 May 1996 was unjustified and unlawful and therefore this caused his contract of employment to become an unfair contract within the meaning of s105 of that Act.
2. The matters alleged by the second opponent in support of that ground, if accepted by the first opponent, can establish only a breach of the said contract of employment. They can have no effect on the fairness of the contract itself. Indeed, the contractual terms themselves are not alleged to be unfair.
3. A claim in respect of a breach of a contract otherwise not alleged to be unfair is not a claim within the jurisdiction of the Industrial Relations Commission of NSW under s106 of the Industrial Relations Act .
4. The decision of the majority of a Full Bench of the first opponent in Reich v Client Server Professionals of Australia Pty Ltd (2000) 49 NSWLR 551 (per Wright, Walton and Hungerford JJ, eg at paras 27 and 28) is wrong and should not be followed.
5. The second opponent in proceedings No IRC 3271 of 2004 is seeking not merely leave to appeal but, in the event that such leave is granted by the Full Bench of the first opponent, for that Full Bench to proceed to decide for itself the merits of the appeal and the merits of the substantive application in matter No IRC 5850 of 1996.
6. The defect in this jurisdiction of the first opponent, as identified above, is clear, and convenience would be advanced by the exercise of the discretion of the Court of Appeal to order relief of the type sought in the Summons herein.

15 The claimants point out that the relief claimed from the Full Bench no longer seeks the variation of the Contract of Employment as a step towards monetary relief. It is acknowledged that there is one claim (par 2) that appears to engage the Commission’s powers to avoid or vary the Contract (cf s106(1), (3)). This however is a device or smoke-screen, according to the claimants, who point to the written submissions and contend (with justification, in my view) that Mr Truelove’s foreshadowed case before the Full Bench is (or includes) that he was wrongfully dismissed having regard to the existing terms of his Contract of Employment.

16 Mr Truelove denies that his pending appeal to the Full Bench should be characterized as a claim necessarily depended on the correctness of Reich. Mr Searle, who represents him here and in the Commission, submits that the appeal to the Full Bench is capable of succeeding by invocation of an entirely non-controversial approach to s106. This submission is based in part upon an interpretation of the majority reasons in Reich that is disputed by the claimants.

17 Mr Searle further argued that it is open to his client to frame the case on appeal, in part at least, as a claim that the Commission make real or notional amendments to the Contract (eg by prescribing more detailed disciplinary procedures, by restricting rights of summary dismissal in way designed to ensure greater fairness, and by providing contractual entitlements to lump sum payment referable to the future notwithstanding summary dismissal). Such an approach would not involve any version of the contested Reich principle.

18 These submissions prompted the claimants to argue that the latter approach would not be open in the appeal to the Full Bench having regard to the way that the matter had been fought before Marks J (cf Coulton v Holcome (1986) 162 CLR 1, Whisprun Pty Ltd v Dixon [2003] HCA 48 at [51]-[52]). The claimants further argued (as they had done before Marks J) that these alternative routes were no more than a superficial invocation of the Commission’s powers under s106 and a step towards the monetary orders that alone are pressed. The substance remained that Mr Truelove is seeking nothing more than damages for wrongful dismissal and/or that his claim (at least in part) is based on the assertion that it was the employer’s conduct in breach of contract and not the Contract itself that was unfair.

19 I should indicate at once that it is neither fruitful nor appropriate for this Court to explore the outer boundaries of the issues raised in the appeal to the Full Bench. It is for the Full Bench to decide the extent to which Mr Truelove may formulate and re-formulate his claim for relief on appeal. But, for reasons explained below, it remains clear to me that some of the ways in which that claim was advanced before Marks J and is to be advanced before the Full Bench invoke the Reich principle as analysed and criticised by me below.

20 This Court reserved judgment on 22 September 2004. Liberty was reserved to the claimants to apply for interim relief, if necessary. At that stage, the proceedings before the Full Bench were listed for directions hearing on 24 September 2004, with the hearing before the Full Bench fixed for 14 October 2004. This Court was anxious to avoid having to deal with the important issue raised in this summons on an interlocutory basis. But it was not in a position to conclude its deliberations by 14 October. On 8 October the parties were so informed. The Full Bench subsequently vacated the 14 October hearing date (see Truelove v Sydney Water Corporation Ltd & Anor [2004] NSWIR Comm 298).

The principle adopted in Reich and its correctness

21 In Reich, the majority (at 570[32]) answered in the affirmative each of the following two questions (set out at 554[2]):

(i) whether an action is properly within s106 and as attracting relief thereunder where a respondent employer breached a contract of employment by repudiating a term or condition thereof so as to enable an action to be brought at common law for damages for breach of contract; and
(ii) whether unfair conduct of itself by the respondent employer could establish a relevant ground of unfairness that the contract of employment was unfair under s106 so as to attract relief thereunder.

22 The Commission held (by majority) that a contract can be found to be unfair because of conduct which is in breach of contract. The availability of an action for breach of contract at common law did not preclude relief under s106. The key reasoning is in the joint judgment of Wright J (President), Walton J (Vice-President) and Hungerford J at 567 [26]-[32]. The passages in the dissenting judgment of Glynn and Schmidt JJ are at 603 [166] -[177] and 608 [187].

23 Mr Searle submitted that Reich is authority only for the proposition that conduct that is unfair and also in breach of contract may, depending on the circumstances, enliven the jurisdiction conferred on the Commission by s106. This is too narrow a reading of Reich, as I shall endeavour to explain.

24 The Commission has always adopted a robust, non-formalistic approach to jurisdiction under s106 and its predecessors. This is amply justified by the industrial context, the mischief to which the legislation is addressed and the extended definition of “contract”. Section 105 of the Act defines “contract” (for present purposes) to mean:

any contract or arrangement, or any related condition or collateral arrangement, but does not include an industrial instrument.

25 Section 106(2) states in the plainest of terms that a contract may become unfair, so as to attract the jurisdiction of the Commission, because of post-contract conduct of the parties. But it is the “contract” that is to be held unfair, and not the conduct, in the final analysis. Unfairness may of course stem from what the contract fails to provide, for example as regards termination procedures.

26 The Commission may examine not merely the terms of the contract (or arrangement) as originally negotiated, but also the manner in which it has ultimately “worked out and operates as between the parties to it” (Walker v Industrial Court of New South Wales (1994) 53 IR 121 at 133-4 per Kirby P. See generally Walker at 145-9, Rothmans Distributions Services Ltd v Full Court of the Industrial Court of New South Wales (1994) 53 IR 157 at 160).

27 Walker and Rothmans were cited by the majority in Reich (see the passages from earlier Full Bench decisions set out in Reich at 563[21], 565-6[23] and 567[28]). However, these Court of Appeal authorities do not, in my view, provide the support for the principle expounded by the majority in Reich. I shall give my reasons below, but return to my general analysis of s106.

28 Much of the reasoning in Reich is at pains to confirm (correctly) that the remedies provided in s106(3) and (5) are available even though applied after termination and/or against a party to the contract who has acted in breach or repudiation of its terms (see at 566[25]-[26]). It is equally clear that, when the Commission takes the remedial knife to a contract found to be unfair, the Commission may craft remedies that include orders for the payment of money due under the contract originally formulated by the parties as well as under the contract as reformulated by the Commission (Reich at 566[25], citing Brown v Rezitis (1970) 127 CLR 157 at 164-5). The availability of alternative remedies under the general law or statute is not a jurisdictional answer to a claim under s106.

29 These principles are not in doubt. But they all proceed from and in consequence of a finding by the Commission that the contract (or arrangement) is or has become relevantly unfair. To repeat Kirby P’s generalisation in Walker (at 133-4), they stem from a finding that the contract as it ultimately worked out and operates as between the parties was or has become unfair (emphasis added). See also Minister for Youth & Community Services v Health and Research Employees’ Association of Australia, NSW Branch (1987) 10 NSWLR 543 at 560B per McHugh JA.

30 Where the Commission erred in Reich, in my respectful view, was in the statement by the majority (at 567[27], emphasis added) that:

It logically follows , in our view, that Mr Fernon’s submission, as earlier quoted, that ‘unfairness in a contract is demonstrated by unfair conduct that is consistent with the contract’ is only partly correct but to which should be added ‘unfair conduct that is inconsistent with the contract’. We accept Mr Murphy’s approach to this aspect, namely, as he said, ‘conduct by an employer which is unfair and which breaches the employment contract, even though not permitted by the terms of that contract… would nevertheless render such contract unfair and amenable to relief. Such approach is entirely consistent with the language of s106(2)’.

31 In my view, this proposition did not follow logically from the premise stated in the preceding paragraph (at 567[26]) which referred to the power to vary an unfair contract as against a party in breach or repudiation. Indeed, the reasoning is fallacious and inconsistent with the language and structure of s106, which treats a finding that the contract is unfair as the necessary pre-condition to the remedial options. The passage goes beyond stating that the availability of an action for breach of contract does not preclude relief under s106. The word “would” that I have emphasised states the fallacious conclusion that unfair conduct that is a breach necessarily renders the contract unfair, thereby engaging the remedial jurisdiction.

32 A contract of employment may be found unfair because, in the words of Sheller JA (with whom Meagher JA agreed) in Walker (at 149):

[it] permitted termination which, in the circumstances, was unfair and discriminatory. By so permitting the contract was or became unfair.

33 Sheller JA was using the term “permitted” in the sense of that which the contract did not proscribe. Absence of proscription in the relevant particular meant that a party was at liberty to act unfairly without the general law’s sanctions for breach of contract. A contract may “permit” certain conduct either by sanctioning it expressly or by failing to prohibit it. In either circumstance the other party has no contractual remedy to prevent that conduct. Either type of “permission” may properly lead to an appropriate remedy in the Commission, if the Commission finds that the contract is unfair. If that finding is made, the remedies open to the Commission extend to declaring the contract wholly void or partly void, or varying the contract, with appropriate accompanying orders for the payment of money (s106(3) and (5)).

34 In Reich the majority said (at 567[28]):

What a contract of employment does is set the terms and conditions to govern the employment relationship; the contractual relationship is another term which may be readily used to describe it. If a party in the course of operation of the employment relationship were to act in contravention of the contract of employment, particularly by committing a fundamental breach thereof, then that may only mean that the contract otherwise was unfair in so allowing or not preventing such unfair conduct or, indeed, in failing to make adequate provision in the event occurring. In any of those situations, we think it clear that s106 could be called in aid by the aggrieved party to obtain relief.

Once again this passage illustrates central reasoning of the Commission in such a way as to enable me to explain why I cannot accept it.

35 I am unable to conceive how a contract allows or fails to prevent conduct that is in contravention or a fundamental breach thereof, whether or not that contract is unfair. To be contravening or repudiatory the conduct must be in defiance of the contract, exposing the party at fault to a range of adverse consequences under the general law.

36 I have less difficulty with the second alternative contemplated in this passage, ie where the contract fails to make appropriate provision for addressing the consequences of conduct that is or is arguably in breach. But, as I indicate below, the Commission would have to conclude that the remedies of the general law were unfairly deficient in their application to the contract at hand before this issue would squarely present itself in a jurisdictional challenge in this Court. This was not the matter that the Commission was adverting to in Reich in the paragraphs quoted above or the answers to the two questions set out at 554[2]. The Commission correctly observed that it may be open for it to include a provision that the terms of a contract will be strictly complied with and not observed in the breach and/or for liquidated damages for a fundamental breach thereof, such as repudiation of its terms (at 567[26]). But on my reading of the Act these remedies must flow from a finding of unfairness that was properly made.

37 Nor is this inquiry into the deficiencies of the common law the path presently flagged by Mr Truelove.

38 Furthermore, I have reservations whether such a broad-ranging jurisprudential enquiry lies within the statutory concept of unfairness as defined in s105. These are explained below.

39 If contractually prohibited conduct occurs, the innocent party is armed with a quiver of remedies under the general law. These include remedies for the payment of money due and for compensatory damages that are available as of right. If the guilty party’s conduct is repudiatory or involves a breach of a substantial nature, the innocent party may elect to be discharged from further performance. Discretionary remedies such as injunction and orders for specific performance may be available in particular circumstances. Restitutionary orders may follow. The remedies involve regard for the position of the guilty party as well, including rights of counter-restitution for value conferred.

40 Section 106 is available to a party whether or not in breach of contract, and whether before or after termination has been effected. Walker makes this clear in the reference (at 149) to a contract being unfair because of the limited or discriminatory rights conferred in the particular case on an employee at the stage of his or her dismissal. (See also per Kirby P at 134 and Incitec v Industrial Court of New South Wales (1992) 45 IR 155 at 156-7 per Gleeson CJ.) But it simply does not follow that a contract of employment is unfair because or whenever it leaves the employee to remedies under the general law. There would need to be a finding that those remedies were relevantly “unfair” generally or in regard to the contract at hand before the Commission’s remedial jurisdiction would be enlivened, assuming that such a finding is within the contemplation of the section. I doubt that it is, although it is unnecessary to resolve that matter finally.

41 Courts construe strictly statutes that undercut fundamental common law principles. The general law of contract is a closely worked out corpus of legal principle, not claiming perfection, but representing the accumulated wisdom of the judges and Parliament as to a just and fair balancing of the rights of those who enter into contracts.

42 The question that arises is whether s106(2) expresses an intention that the fairness of legal principles is itself cognisable in the Commission under s106. The issue is a difficult one that it is presently unnecessary to resolve. I doubt whether this is the type of unfairness committed to the Commission by s106, but find it unnecessary to determine it in the present case. On the one hand, it could be said that this is an aspect of the single and unified common law of Australia that the constitutional role of the High Court of Australia confers on that Court in the final analysis. Is it therefore conceivable that the Parliament intended fundamental common law principles relating to the law of contract to be amenable to a finding of unfairness by a specialist tribunal that is not subject to any appellate review and that has always been limited in amenability to judicial review? On the other hand, one can envisage arguments about the unfairness of non-statutory employment law that permits dismissal without procedural fairness or that enables the “innocent” party to be discharged from future performance entirely in certain circumstances. From this standpoint, the idea that the Commission could find a particular contract of employment unfair because it did not contain a positive regime of fair investigation pre-dismissal becomes less problematic, with the consequence that it is easier to envisage that Parliament may have committed such inquiry to the Commission by s106.

43 It is not clear to me whether the majority in Reich contemplated this type of jurisprudential exercise. Their Honours did not say that damages for wrongful dismissal were an inadequate remedy generally or even in the particular case (Reich was a case of constructive dismissal: see 558[13]). Nor did they hold that the courts of general jurisdiction with power to award such relief were unable to deal with the issues fairly. (I am not implying that such a holding would necessarily have been determinative. Section 106 is not repelled merely by pointing to alternative remedies.)

44 Reich goes beyond this issue that I have flagged. As indicated already, it holds that the Commission may find contractual unfairness in particular cases based on no more than conduct in breach of contract, ie even if it attracts an appropriate and presumably adequate remedy under the general law. Thus, Reich would hold that an employee who is entitled to damages for wrongful dismissal could, apparently without more, invoke s106 and (having obtained a consequential finding that the contract was unfair) claim the statutory remedies available to the Commission, presumably whether or not they are practically coincident with damages for wrongful dismissal.

45 In my view, s106 does not go this far.

46 I agree generally with the reasoning of the minority justices in Reich (Glynn and Schmidt JJ). I would particularly endorse their Honours’ statements that:

(i) Section 106(2) is concerned with conduct of the parties which reveals how it is that the contract in question is unfair, either when entered or subsequently. It has not, however, done away with the need for a relevant finding of unfairness, so far as the contract in question is concerned.

Section 106 does not give the Court power to make any orders if the contract in question is not demonstrated on the evidence to be unfair, as defined. That is what the section is concerned with. (603[169]-[170]


(ii) Had the legislature intended that unfair conduct of itself would be sufficient to warrant the grant of relief under s106(5) of the Act, it is to be expected that the section would have said so expressly. It does not. (605[173])

47 I therefore conclude that Reich was wrongly decided and that the relief which s106 contemplates is (in the words of Glynn and Schmidt JJ at 605[176]) ”relief flowing from the contract found unfair on the evidence and not merely any unfair conduct, which may or may not demonstrate the unfairness of the contract under review”.

48 In Solution 6, Handley JA (with whose reasons I agreed) stated in the passage quoted above “that the principle that a contract can become unfair because of a breach produces the remarkable result that all contracts are unfair because all contracts permit a breach”.

49 On reflection, this proposition is not correct. It would be more accurate to say that the principle would produce the remarkable result that all contracts are potentially unfair because all contracts permit breaches, in the sense that such breaches may occur notwithstanding the terms of the contract.

50 Another strand in the majority reasoning in Reich was advertence to s106’s scope extending beyond contracts to arrangements and related conditions or collateral arrangements. The majority said (at 568[29]) that it would make little sense in depriving jurisdiction as to a strict contract but permitting for an arrangement. I fail to see the relevance of this observation in the present context. The extended definition of “contract” has plenty of work to do in its sphere of operation. Indeed, in that sphere, the absence of the gamut of remedies for breach of contract under the general law may well sustain a finding of unfairness. But a contract is a contract and an arrangement is an arrangement. If and to the extent that the parties encased their relationship in contract (as in the present case), then the standard remedies in that regard come with the package. I would respectfully endorse the view of Glynn and Schmidt JJ (dissenting) in Reich at 603[67] that in an application brought in relation to an employment contract there is no basis for application of principles concerning wider, non-contractual arrangements. Mr Searle agreed that this case does not involve such an arrangement (CA Tr p39).

Does Mr Truelove intend to invoke the Reich principle in the pending appeal to the Full Bench?

51 The parties joined issue in this Court as to whether the pending appellate proceedings in the Commission will engage the Reich principle.

52 Mr Truelove’s submissions were coloured to a degree by what I have indicated was a misconception of the proposition apparently established by Reich. I have already addressed this matter. Alternatively, it was submitted that the claim for relief in the Commission can be and always has been framed in a variety of jurisdictionally-acceptable ways.

53 Mr Truelove submits, and the claimants accept, that it would be open to the Commission to frame relief in a hypothetical case on the basis of a finding that a contract of employment is or became relevantly unfair because it lacked stipulations for fair pre-dismissal investigative procedures or because it deprived a legitimately dismissed employee of appropriate entitlements.

54 According to Mr Truelove, this is the, or at least one, basis for relief being claimed in the pending Commission proceedings. Reference was made to prayers for relief in the Amended Summons in the Commission and propositions advanced in support of the appeal to the Full Court that do not proceed on the basis of alleging that the contract was unfair because it was breached by the employer.

55 In particular, it is contended that the procedure for investigating the allegations made against Mr Truelove was flawed and unfair. The complaints referable to these allegations are that the “permitted” conduct occurred, leading to summary dismissal. Had the Contract prohibited such conduct or prescribed a detailed regime inconsistent with it, Mr Truelove would have had a remedy under the Contract. This is an example of the type of allegation that might well ground a proper claim within s106 if the Full Bench allowed it to go forward and found contractual unfairness accordingly. But other parts of the appeal to the Full Bench are not of this character.

56 As indicated, the claimants submit that the nub of the unfairness relied upon is conduct said to involve a breach of express terms of the contract of employment sounding in damages or as on wrongful dismissal. The claimants point to paragraphs in the Outline of Submissions recently filed by Mr Truelove in the Full Bench of the Commission that demonstrate that all or a substantial part of the relief claimed is based upon the assertion that the (mis)conduct that was established did not justify summary dismissal and/or that the purported dismissal was otherwise in breach of the existing terms of the novated Contract (see esp pars 4(vi)-(viii), 6, 17, 20, 64-5, 85-6). For example, pars 85-6 state:

Conclusion
85. The evidence is clear that the level of the performance of duties by the appellant was never questioned or at issue. The issues in the proceedings went to whether the conduct the appellant complained of justified the summary termination of employment. In this regard, the respondents bore the onus of proof.
86. For the reasons set out above, it is submitted that by operation of law, either as a matter of general principle or in the circumstances of this case, the respondents could not or did not discharge the onus upon them and that no justification for summary termination has been established. Consequently, the termination was unjustified, was unlawful and therefore the contract was or became relevantly unfair .

(The emphasis is mine.)

57 The amount claimed in par 88 of the document is the equivalent of contractual entitlements for the balance of the Contract. Despite there being no allowance for likelihood of reemployment it is, in essence, a claim for damages as on a wrongful dismissal. This in itself might not be fatal, if the termination stemmed from or was based upon unfair provisions of the Contract. But the claim obviously goes beyond this. In part at least it treats the employer’s conduct in breach of the existing terms of the Contract itself as the basis for unfairness attracting the broad monetary remedy referred to above.

58 These paragraphs establish to my satisfaction that Mr Truelove proposes, if necessary, to invoke that aspect of Reich that I have concluded is fundamentally flawed. The claimants have established that some (probably much) of the submissions for the forthcoming appellate proceedings in the Commission would, if accepted, involve application of the Reich principle. It is an incomplete answer to their concerns that the Full Bench might refuse leave or dismiss the appeal on non-Reich grounds, eg because of the findings made by Marks J, because of absence of any relevant unfairness, because of the way that the case was fought before Marks J or for other reasons.

59 In my view, this establishes an entitlement in the claimants to an appropriate remedy. In so holding, I have not presumed in any way that the Commission would regard itself free to depart from a legal proposition clearly established by this Court. Nor have I found it more probable than not that Reich would come to be invoked in the forthcoming appeal (cf Truelove v Sydney Water Corporation Ltd & Anor [2004] NSWIR Comm 298 at [10]). I have, however, assumed that the Commission would follow Reich unless persuaded to reconsider it in the absence of a positive ruling by this Court or the High Court that Reich was wrongly decided.

Would following the Reich principle involve jurisdictional error? Is it in any event appropriate for this Court to grant a remedy?

60 Mr Searle submitted that, if Reich is wrongly decided, the error of following it (though one of law) would be non-jurisdictional. It followed that this Court had no authority to issue prohibition.

61 Mr Searle pointed to authoritative statements to the effect that the issue of unfairness of a contract “whereby a person performs work in any industry” (cf s106(1)) is a matter entirely for the Commission. He particularly relied on the following passage in the joint judgment of Mason and Jacobs JJ in Stevenson v Barham (1977) 136 CLR 190 at 201:

It follows, then, that if the contract is one which leads directly to a person working in any industry it has the requisite industrial character – it is a contract ‘whereby a person performs work in any industry’. This is the relevant jurisdictional fact which needs to be established. An error of law whereby the Commission assumes or declines jurisdiction may be corrected by the Supreme Court, but once the jurisdiction is established the Industrial Commission is the final arbiter both on matters of law and on matters of fact. Its decision cannot, except by way of appeal to the Commission in court session pursuant to s14, be challenged, appealed against, reviewed, quashed, or called in question by any court on any account whatsoever (s84).

62 The concluding sentences in this passage reveal that the reasoning turns in part upon the effect of the then privative clause on a decision of the Commission already made in favour of an applicant. In the present case, as in Solution 6, this Court is addressing the issue in a context prior to the extended privative clause now in place (s179) having any application. Nevertheless, the Court should not make an order in the nature of prohibition unless satisfied of a threatened jurisdictional error (see Aronson, Dyer & Groves, Judicial Review of Administrative Action 3rd ed, 2004, p695).

63 It is however open to this Court to frame relief in such manner as to allow the Commission to exercise its jurisdiction to determine, subject to the grant of leave to appeal, whether or not the Contract was or became unfair for the purposes of s106. This, as stated in Stevenson (at 201 per Mason and Jacobs JJ) and in Mitchforce (at 246[169] per Handley JA), is the very jurisdictional question committed to the decision of the Commission. The claimants ultimately sought no more than relief directed at precluding the Commission from giving effect to the Reich principle, which the claimants submit involves either jurisdictional error or a significant misapplication of the Act. This Court has power to issue a partial prohibition (or prohibition quoad) (see Ex parte Thomas; Re Arnold [1966] 2 NSWR 197, Re Media, Entertainment and Arts Allience; Ex parte Arnel (1994) 179 CLR 84). Alternatively, declaratory or injunctive relief with similar effect could issue, in a proper case, without the need to find threatened error of a jurisdictional nature (see Connor v Sankey [1976] 2 NSWLR 570 at 595-3, 622-3, Forster v Jododex Australia Pty Ltd (1972) 127 CLR 421).

64 The granting of limited relief in this Court also allows the Commission to address any costs issues referable to the Commission proceedings relating to the claimants’ delay in raising in this Court the point they have pressed.

65 A court or tribunal may lawfully enter upon a particular inquiry, but so conduct itself as to misconstrue the nature of its power in such a way as to constitute jurisdictional error. In Uniting Church in Australia Property Trust (NSW) v Industrial Relations Commission of NSW in Court Session & Anor [2004] NSWCA 183, I said (at [54]):

The distinction between jurisdictional and non-jurisdictional error remains a fundamental part of Australian administrative law ( Craig v South Australia (1995) 184 CLR 163). Anisminic Ltd v Foreign Compensation Commission [1969] 2 AC 147 does not represent the law in Australia. But one insight stemming from Anisminic is that it is now more clearly understood than previously that “an error of law may amount to a jurisdictional error even though the [decision-maker that] made the error had jurisdiction to embark on its inquiry” (per Gibbs CJ in The Queen v Gray; Ex parte Marsh (1985) 157 CLR 351at 371. See also Coal and Allied Operations Pty Ltd v Australian Industrial Relations Commission & Ors (2000) 203 CLR 194 at 227-8 per Kirby J).

66 Frequently encountered statements that all questions of fairness are for the Commission alone (eg my reasons in QSR Ltd v Industrial Relations Commission of NSW & Ors [2004] NSWCA 199 at [58]) must be understood to mean that a decision as to fairness or otherwise made otherwise without jurisdictional error is not amenable to judicial review in this Court. But it could not possibly be the case that (speaking hypothetically) a Commission that reasoned that “this is unfair because the employee has red hair” would be jurisdictional. In Jordan CJ’s memorable aphorism, there are mistakes and mistakes (Ex parte Hebburn Ltd; Re Kearsley Shire Council (1947) 47 SR(NSW) 416 at 420).

67 In my view, the application of the central principle in Reich (if it occurred) would involve an error of this jurisdictional nature.

68 However, lest I be wrong or my views not be shared by my colleagues, I propose the grant of declaratory relief, a remedy not bounded by the need to find jurisdictional error. The case is in my opinion apt for a declaration.

69 The claimants recognise that as a matter of general principle, this Court would not wish to preclude the Commission from considering whether its appellate jurisdiction is properly invoked. Nor could there be any basis for prohibition or declaratory relief to preclude the Full Bench from investigating (at least, subject to the restraints of appellate review: cf Whisprun) whether relief could be afforded consistent with avoidance of what in my view is the (erroneous) Reich principle.

70 This Court has jurisdiction to grant declaratory relief in a proper case in relation to issues that arise in the Commission (see Supreme Court Act, s48(1)(a)(ii), (2)(e)). Section 179 of the Act has not been engaged because there is no relevant decision or purported decision of the Commission.

71 Neither of the contending parties in these proceedings suggested that this Court lacked the jurisdiction or power to issue a declaration on the present issue, although Mr Searle submitted at one stage that declaratory relief should not go unless a threatened error of law were jurisdictional. I would reject the latter submission. It was also common ground, and undoubtedly correct, that there could be no suggestion that such a declaration would lack utility because it would have no bearing on the possible rights of the parties (however much they disagreed as to the extent to which the Reich principle was actually engaged). It was also common ground, and again undoubtedly correct, that such a declaration would in turn provide an undoubted jurisdictional basis for the High Court of Australia itself to consider the correctness of the Reich principle (if minded to do so).

72 In my view, this is a proper case for a declaration to issue. Whether or not the Reich principle is jurisdictional, it involves a matter of significant importance in the current jurisprudence of the Commission. It is an issue on which strong opposing views were voiced within the Commission prior to Reich and on which the Full Bench of the Commission in Court Session was closely but firmly divided. For reasons set out above, I am satisfied that Mr Truelove intends to invoke that principle if necessary.

73 I favour making no order as to the costs of these proceedings. I have regard to the proceedings being in the nature of a test case, the delay of the claimants and the fact that the claimants have not obtained the absolute relief they sought in the Summons.

74 I propose the following order:

1. Declare that s106 of the Industrial Relations Act 1996 does not permit the granting of relief unless the contract or arrangement otherwise falling within that section is or is found to have become an “unfair contract” as defined in s105 thereof.

75 HODGSON JA: I agree with the orders proposed by Mason P, and with pars [1] to [33] and [44] to [74] of his reasons.

76 As regards pars.[34] to [43], I think that the occurrence of unfair conduct in breach of contract could in some circumstances go towards supporting a finding that the contract was unfair, because it might help to demonstrate that the contract was itself unfair in lacking provisions that could have rendered such conduct less likely or in failing to provide adequate remedies for breach.

77 As to the former possibility, a contract cannot absolutely prevent a party acting in breach of it; but it is possible that, for example by laying down clear procedures to be followed before an employee is to be dismissed, a contract could make dismissal in breach of contract less likely. I accept that it would be a large further step from this to say that the contract was unfair because it lacked such provisions; but I would not say that this is inconceivable.

78 As to the latter, it would require a finding that the common law remedies for breach were inadequate, and perhaps also, in the case of wrongful dismissal, that the additional remedies under Part 6 of the Act were inadequate. It would then require the large further step of saying that the contract was unfair because it did not provide additional remedies. Again, although this seems unlikely, I could not say it is inconceivable.

79 McCOLL JA: I agree with Mason P.

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Last Modified: 12/15/2004