Victoria Police/Chief Commissioner of Police v Police Federation of Australia
[2013] FWCFB 5400
•6 AUGUST 2013
[2013] FWCFB 5400 |
FAIR WORK COMMISSION |
DECISION |
Fair Work Act 2009
s.604 - Appeal of decisions
v
Police Federation of Australia
(C2013/4598)
SENIOR DEPUTY PRESIDENT O'CALLAGHAN | ADELAIDE, 6 AUGUST 2013 |
Appeal against decision [2013] FWC 2649 of Deputy President Smith at Melbourne on 10 May 2013 in matter number C2012/3824 - interpretation of agreement - reimbursable costs - goods and services tax on construction costs.
[1] The Chief Commissioner of Police (Victoria Police) has appealed against a decision 1 issued by Deputy President Smith.
[2] In that decision the Deputy President dealt with a dispute between Victoria Police and the Police Federation of Australia (the Police Federation) about the operation of clause 90 of the Victoria Police Force Enterprise Agreement 2011. 2 This clause provides for the reimbursement of prescribed relocation expenses in the event of a transfer of an officer. The specific provisions in dispute state:
“90.14 Purchase costs will not be reimbursed until an employee has sold the residence at the old location and received reimbursement for sale costs as specified in sub-clause 90.11. This provision does not apply to employees who are vacating a required to occupy residence.
90.15 The employee must purchase or enter into a contract to purchase a residence, land on which to build a residence, or build a residence within four years from the date of notification of the transfer in the Police Gazette.
90.16 An employee may be reimbursed the costs associated with the purchase of a residence for an employee’s permanent occupation at the new location, up to a maximum price as specified in Schedule C, including:
(a) professional costs and disbursements paid to a solicitor; and
(b) all other costs incurred (including but not limited to stamp duty and registration fees on the transfer and any mortgages, valuation fees but not a procuration fee associated with a mortgage).”
[3] The issue before the Deputy President related to whether or not these provisions allow for the reimbursement of Goods and Services Tax (GST) associated with the construction of a residence in the event of the transfer of a police officer.
[4] The Deputy President summarised the position of the parties in the following terms:
“[5] It is argued by the PFA that the GST component is a cost associated with constructing their residential homes. It is submitted that whilst there is a discretion contained in clause 90.16 that discretion must be exercised reasonably [see Pulle v. Commonwealth of Australia [2011] FWA 7462].
[6] Victoria Police submitted that the clause provided a discretion as to whether or not to reimburse an employee for GST costs associated with the purchase of a residential property and that Victoria Police had decided that it would not exercise its discretion at any stage to reimburse the GST component.
[7] The second aspect of the argument was that GST was not covered by the clause because the examples given in clause 90.16(b) did not include GST. Victoria Police also rejected the argument that Victoria Police had accepted that GST was a cost associated with the purchase of a residential property as this was done on a misunderstanding of the proper operation of clause 90.16.”
[5] The Deputy President noted that Victoria Police had met a number of GST claims for building costs before it concluded that these were being met in error. He also noted that the dispute arose because some nine officers had claimed reimbursement of GST costs associated with building homes and these claims had been rejected. He did not, however deal with the specific details or circumstances of these claims, but, rather, addressed the GST issue generally.
[6] The Deputy President concluded that:
“[14] There is no reason, in my view, to read clause 90.16 narrowly. Applying the language of the clause in a way which uses the ordinary and natural meaning of a “cost associated” would mean that the GST can properly be considered a cost associated with the purchase of a residence including the alternatives referred to in clause 90.15. It can be seen that Clause 90.16(b) contains examples after the words “including but not limited to”. This is not a constraining provision indeed it is the reverse.
[15] However, I am now presented with a problem. Victoria Police take the view that it will never exercise its discretion in favour of paying the GST component and the PFA have the expectation that it will always be paid. Both positions are inconsistent with a discretionary judgement which must admit of a yes or no answer in particular circumstances—some guidance may be obtained when consideration is given to how the discretion is exercised in the matters contained in 90.16(a) and (b).
[16]I do not comment on the cases of the specific Officers at this stage but prefer instead to refer the parties into conference now having the benefit of this decision so that consideration can be given to each claim.”
[7] Victoria Police assert that the Deputy President erred in concluding that GST costs were "associated with the purchase of a residence" so as to fall within the meaning of the clause. Victoria Police assert that the application of the proper principles of construction mean that the concept of “costs associated with the purchase of a residence” refers to costs related or connected to the cost or price of the purchase of a residence. Victoria Police assert that such a construction establishes that the clause is inherently limited to costs associated with the residential purchase rather than the actual costs of that residence. Victoria Police assert that GST costs applied to the construction of a residence rather than transaction costs. As such, Victoria Police argued GST costs are properly called a tax on the seller rather than a buyer cost. Victoria Police assert that construction is consistent with the purpose of the clause as a whole so that it compensates the employee for the transactional costs associated with the employee's move.
[8] Victoria Police assert that the Deputy President's conclusion that the GST costs associated with building a residence provided for an unfair gain for an officer who built a residence rather than one who purchased an existing residence. Further that the approach adopted by the Deputy President would mean that, if Victoria Police met GST construction costs, these would be regarded as fringe benefits such that a corresponding Fringe Benefit tax would be incurred.
[9] The Police Federation argue that the decision relied on the proper principles of interpretation and that the decision disclosed no error of an appealable nature in that the Deputy President was entitled to reach this particular conclusion. Further, that the decision fell within a reasonable exercise of discretion.
[10] The Police Federation asserts that the GST is properly regarded as a transactions tax and hence it is a cost associated with the purchase of a residence in the same way as stamp duty costs operate and hence, should be reimbursed in the same way.
[11] The Police Federation asserts that the obligation to reimburse GST costs associated with building a residence were known when the agreement was negotiated and that a sustainable basis for a departure from this approach has not been made out.
Findings
[12] The dispute resolution provisions of the Agreement 3 provide that permission to appeal is required. Section 604 of the Fair Work Act 2009 requires that the Commission grant permission to appeal a decision if it is satisfied that this is in the public interest. In this matter, we are satisfied that the public interest is enlivened. The matter in dispute has potential application to parties well beyond the nine instances identified to date and potentially gives rise to issues of equitable treatment of employees. Permission to appeal is granted on this basis.
[13] The practical effect of the Deputy President's decision is not immediately apparent. No order was issued, only the most general findings of fact were made with respect to the claims made on behalf of named individual police officers, and the dispute was referred into a further conciliation conference. Nevertheless, we have concluded that the Deputy President decided firstly that claims for reimbursement of GST associated with the construction of a house are claims that fall within clause 90.16, and secondly that if Victoria Police refuses to grant such claims as a matter of discretion this would be an unreasonable and improper exercise of the discretion available to it under the clause.
[14] On the approach adopted by the High Court in Coal & Allied Operations Pty Ltd v AIRC 4 the appeal must proceed by way of a rehearing. However, for us to exercise our powers on appeal, error on the part of the Deputy President needs to be established.
[15] In his decision the Deputy President referred to the reasonable exercise of discretion in the context addressed by Lawler VP in Pulle v Commonwealth of Australia. 5 In that decision Lawler VP set out a useful summary of various decisions dealing with the reasonable exercise of a discretionary power. When the Deputy President's decision is applied consistent with that general approach the decision must be read as meaning that the general refusal of GST claims would be unjust or unreasonable.
[16] Both parties in this matter agree that certain GST costs agreed to be reimbursable have been and continue to be met by Victoria Police. There is limited information available to us in this respect and we understand that limited information was similarly available to the Deputy President below. Clearly, both the Deputy President and this Full Bench are being asked to determine this matter without reference to the full range of circumstances associated with the transfer of a Police Officer. We are concerned at the outset that the specific circumstances which may apply to an officer could well be relevant to a decision to reimburse GST and that care should be taken to avoid a globally prescriptive answer which does not take into account the relevant particular circumstances. In this respect the matter at issue here appears to us to be analogous to the observations made by Ross J in Health Services Union Tasmania No 1 Branch v Liviende Inc 6 where his Honour stated:
“.... It seems to me that the resolution of factual considerations relating to the actual duties and responsibilities of the employees in question may well be relevant to the determination of the question to be referred. It is appropriate that such factual matters be resolved before the determination of the question of law posed by the applicant.”
[17] The Police Federation asserted that Victoria Police is estopped from pursuing this matter because the issue of GST was known to the parties at the time the agreement was negotiated and Victoria Police only changed its position relative to the reimbursement of GST when it became aware that this practice would result in the application of a fringe benefit tax liability.
[18] We do not accept that an estoppel arises. Whilst it is clear that Victoria Police has changed its position we consider that a legitimate dispute has been referred to the Commission and that there is no basis upon which the Commission should properly refuse to address it. That dispute cannot be simplistically resolved by the assertion that, because Victoria Police initially met GST construction costs, it must continue to do so. This conclusion reflects the approach adopted before Deputy President Smith and, in this regard we adopt the same position.
[19] We have applied an approach to the interpretation of the agreement consistent with that detailed by the High Court in Amcor Ltd v Construction, Forestry, Mining and Energy Union: Minister for Employment and Workplace Relations. 7 In that decision Gummow, Hayne and Heydon JJ stated:
“30 Clause 55.1.1 must be read in context. It is necessary, therefore, to have regard not only to the text of cl 55.1.1, but also to a number of other matters: first, the other provisions made by cl 55; secondly, the text and operation of the Agreement both as a whole and by reference to other particular provisions made by it; and, thirdly, the legislative background against which the Agreement was made and in which it was to operate.”
[20] Kirby J stated:
“94 I do not say that the contextual considerations are overwhelming. However, certified agreements such as this commonly lack the precise drafting of legislation. As appears from a scrutiny of the provisions of the Agreement, it bears the common hallmarks of colloquial language and a measure of imprecision. Doubtless this is a result of the background of the drafters, the circumstances and possibly the urging of the preparation, the process of negotiation and the omission to hammer out every detail — including possibly because such an endeavour would endanger the accord necessary to consensus and certification by the Commission.
95 An indication that this is so can be seen in the apparently interchangeable references in the Agreement to the redundancy of "a position" and the redundancy of "an employee". The Agreement does not maintain a strict differentiation between the two notions, a point remarked upon by the Federal Court. Moreover, in providing for various circumstances where an employee or a position may be redundant, the Agreement mentioned four possibilities, although it is conceivable that three of them might overlap.
96 The nature of the document, the manner of its expression, the context in which it operated and the industrial purpose it served combine to suggest that the construction to be given to cl 55.1.1 should not be a strict one but one that contributes to a sensible industrial outcome such as should be attributed to the parties who negotiated and executed the Agreement. Approaching the interpretation of the clause in that way accords with the proper way, adopted by this Court, of interpreting industrial instruments and especially certified agreements. I agree with the following passage in the reasons of Madgwick J in Kucks v CSR Ltd, where his Honour observed:
"It is trite that narrow or pedantic approaches to the interpretation of an award are misplaced. The search is for the meaning intended by the framer(s) of the document, bearing in mind that such framer(s) were likely of a practical bent of mind: they may well have been more concerned with expressing an intention in ways likely to have been understood in the context of the relevant industry and industrial relations environment than with legal niceties or jargon. Thus, for example, it is justifiable to read the award to give effect to its evident purposes, having regard to such context, despite mere inconsistencies or infelicities of expression which might tend to some other reading. And meanings which avoid inconvenience or injustice may reasonably be strained for. For reasons such as these, expressions which have been held in the case of other instruments to have been used to mean particular things may sensibly and properly be held to mean something else in the document at hand."”
[21] Callinan J stated:
“131 An industrial agreement has a number of purposes, to settle disputes, to anticipate and make provision for the resolution of future disputes, to ensure fair and just treatment of both employer and employees, and generally to promote harmony in the workplace. It is with the third of these that cl 55 of the Agreement is particularly concerned. It is important to keep in mind therefore the desirability of a construction, if it is reasonably available, that will operate fairly towards both parties. In this connection it is not without significance that the primary judge adopted a construction which he thought to be not only arguably absurd, but also potentially unjust to the appellant.”
[22] In Codelfa Construction Pty Ltd v State Rail Authority of NSW 8 Mason J stated:
“The true rule is that evidence of surrounding circumstances is admissible to assist in the interpretation of the contract if the language is ambiguous or susceptible of more than one meaning. But it is not admissible to contradict the language of the contract when it has a plain meaning. Generally speaking facts existing when the contract was made will not be receivable as part of the surrounding circumstances as an aid to construction, unless they were known to both parties, although, as we have seen, if the facts are notorious knowledge of them will be presumed.
It is here that a difficulty arises with respect to the evidence of prior negotiations. Obviously the prior negotiations will tend to establish objective background facts which were known to both parties and the subject matter of the contract. To the extent to which they have this tendency they are admissible. But in so far as they consist of statements and actions of the parties which are reflective of their actual intentions and expectations they are not receivable. The point is that such statements and actions reveal the terms of the contract which the parties intended or hoped to make. They are superseded by, and merged in, the contract itself. The object of the parol evidence rule is to exclude them, the prior oral agreement of the parties being inadmissible in aid of construction, though admissible in an action for rectification.
Consequently when the issue is which of two or more possible meanings is to be given to a contractual provision we look, not to the actual intentions, aspirations or expectations of the parties before or at the time of the contract, except in so far as they are expressed in the contract, but to the objective framework of facts within which the contract came into existence, and to the parties' presumed intention in this setting. We do not take into account the actual intentions of the parties and for the very good reason that an investigation of those matters would not only be time consuming but it would also be unrewarding as it would tend to give too much weight to these factors at the expense of the actual language of the written contract.”
[23] In applying these principles to our consideration of the terms of clause 90.16 we have taken into account that Victoria Police reimbursed construction GST costs for an undefined time and that it seems that this position changed only after Victoria Police became aware that this practice then resulted in the imposition of Fringe Benefits Tax. In the current circumstances this custom and practice represents only a limited aid to the interpretation of the agreement.
[24] We have concluded that, to the extent that the Deputy President's decision requires the reimbursement of GST incurred as a consequence of an officer's election to build a house rather than buy an established home, the decision is in error. We have set out our reasons for this conclusion.
[25] Clause 90 sets out reimbursement arrangements associated with the purchase of a property when a Police Officer is required to relocate.
[26] Clauses 89 and 90 of the agreement deal with relocation expense entitlements. Clause 90.1 states:
“An employee who, because of a transfer from one position to another and in the opinion of the employer, is reasonably required to change an ordinary place of residence, is entitled to relocation expenses in accordance with the provisions of this clause.”
[27] Clause 90.6 deals with the reimbursement of conveyance costs to a new location. Commencing at clause 90.7 the agreement identifies the costs associated with the sale of a residential property consequent on a transfer. These provisions make it clear that the reimbursement is limited to the costs associated with the actual sale. In this same context we think that clauses 90.14, 90.15 and 90.16 must be read as restricting the reimbursement of purchase costs to expenses that are directly related to the actual purchase of a residence.
[28] The GST applicable to building a house is a building cost. As such it is a cost which is generally borne by any house builder. It then becomes embedded in the sale value of that house. Had clause 90.16 referred to any costs associated with the purchase of a residence, the discretionary decision to build a house rather than buy an established house may more readily attract the reimbursement. However, on its plain words, the clause comprehends the reimbursement of costs specific to relocation costs which, were they not to be reimbursed by Victoria Police, would leave the relevant Police Officer financially disadvantaged as a consequence of the relocation requirement. GST costs associated with the construction of a house do not fall into this category.
[29] Both parties have provided information about the structure and the operation of the GST. 9 We accept that the GST is properly described as a broad based consumption tax. Leaving aside the capacity for input credits to impact on the application and amount of the tax, which we need not consider here, it is a tax applied on the provision of goods and services which is ultimately met by the consumer of those goods and services. In the case of construction of a house, the GST is applied to various elements of the land and improvements and that GST is then payable by the purchaser. That GST cost component is then absorbed into the value of the house and is, subject to the sale price, then recovered when the house is sold. In this respect the GST obligation is akin to the cost of a particular room or component of the house in that the decisions of the building owner about overall costs determine the amount payable but in any event those costs are part of the building cost. In contrast, the only identifiable GST costs that would apply to an established home would relate to the GST on transaction services such as conveyancing services. We do not understand that there is any argument that Victoria Police meets those costs.
[30] The reimbursement of GST on construction costs would thus enable a Police Officer building a home to be reimbursed for a proportion of the value of the home which is ultimately further recognised when the residence is sold. In this respect, the purpose of clause 90.16 operates such that the discretionary election to build a house must explicitly involve recognition that there are corresponding GST obligations.
[31] In contrast, stamp duty, which also represents an indirect tax based on the value of a property sold, is a cost imposed on each home purchase transaction. It is a recurring cost not incorporated into the purchase cost of a home. Thus every time a Police Officer is required to buy a house consequent on a relocation, stamp duty will apply. If a Police Officer buys land, the Stamp Duty may be less than that which would apply if an existing residence is purchased, but in either case, the costs would be met by Victoria Police.
[32] We do not accept that because lower stamp duty costs may be associated with the purchase of land, these can then properly be increased by the GST associated with building a home. That approach again ignores the reality that GST costs are embedded in the house and land value on subsequent sale. The GST component of the costs associated with the construction of a house are just that, in that they are costs associated with building a residence, recoverable on the sale of that residence and are not readily capable of characterisation as transaction costs. For example, if a Police Officer bought a home and then elected to modify it so as to make it more suitable, GST costs would be incurred, but these could only be described as the costs of extending a residence, rather than relocation costs.
[33] Clause 90.16 must be read as limited to purchase related costs in a manner which means that the requirement for a Police Officer to relocate is achieved on a cost neutral basis. The adoption of an interpretation which enables a Police Officer to achieve a financial gain from a discretionary election appears inconsistent with the purpose of the clause.
[34] We have reviewed our interpretation of the agreement provisions in the context of the approach applied by Victoria Police since the agreement came into effect. That approach may affect consideration of individual cases but it appears to us to be inconsistent with the provisions of the clause now in dispute. Indeed, the very fact that Fringe Benefits Tax is applicable in the event of reimbursement of GST construction costs accords with our conclusion that those GST construction costs are an element of the residence cost. Hence, reimbursement of those costs effectively amounts to a form of subsidisation of the house cost beyond the effect of clause 90.16.
[35] Once again, we reiterate that these findings cannot be finally determinative in the abstract. Specific situations could arise whereby certain GST costs might be successfully argued to be reimbursable. However, as a general rule, we think the election, by a Police Officer, to build a house represents a discretion which involves a GST element which would not generally be reimbursable under clause 90.16. In this respect we disagree with the approach adopted by the Deputy President. Irrespective of this issue, a reimbursement decision or a refusal of such a request might well be a proper exercise of discretion by Victoria Police having regard to all the circumstances of each case. However, again, before such a decision is made, the facts concerning each application for reimbursement have to be determined, and proper regard must be had to them.
[36] Consequently, we uphold the appeal and, to the extent necessary, quash the decision of the Deputy President. It is our view that the circumstances of the nine Police Officers should be considered in the context of this decision. We remit the matter back to Deputy President Smith for this purpose.
SENIOR DEPUTY PRESIDENT
Appearances:
J Bourke counsel for Victoria Police/Chief Commissioner or Police.
C Kennedy appearing for the Police Federation of Australia.
Hearing details:
2013.
Melbourne:
July 16.
1 [2013] FWC 2649
2 AE889678
3 Clause 11.11 of the Victoria Police Force Enterprise Agreement 2011
4 (2000) 203 CLR 194
5 [2011] FWA 7462
6 [2013] FWC 4435
7 (2005) 222 CLR 241; [2005] HCA 10
8 (1982) 149 CLR 337, 352
9 see CCH Australian Master GST Guide
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