[2017] FWCFB 2600

The attached document replaces the document previously issued with the above code on 11 May 2017.

Correction made to appearances at [3] and to the appearances listed on the final page.

Patrick Barkachi

Associate to Vice President Catanzariti

Dated 11 May 2017

Fair Work Act 2009
s.604 - Appeal of decisions

Appeal against decision [2017] FWC 376 of Comissioner Bissett at Melbourne on 2 February 2017 in matter number C2016/4384.

[1] On 2 February 2017 Commissioner Bissett handed down a decision 1 in relation to an application by the Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australia (CEPU) to deal with a dispute in accordance with the dispute settlement procedure in the Kentz Pty Ltd Ichthys Onshore Construction Greenfields Agreement2 (Agreement).

[2] On 22 February 2017 a notice of appeal was filed by Kentz Pty Ltd (Appellant). The three grounds of appeal were that the Commissioner erred in interpreting cl.19(a) of the agreement in various respects. The Commissioner concluded that the Appellant can only comply with cl.19(a) by making the required payments into the insurance schemes described in cl.19(a), or by reaching agreement with the parties about a different scheme 3:

“[80] For the reasons given above, I have concluded that, in respect of clause 19 of the Agreement:

• “approved insurer”, in the context of clause 19(a) of the Agreement is an insurer offering the relevant income protection insurance specified in paragraphs (1), (2) or (3) of the clause;



• The intention of the clause is that the income protection insurance specified in clause 19(a) be the insurance taken out for the relevant class of employees for as long as it remains available;



• If no other income protection insurance is agreed between the relevant parties, the listed products are the default products for as long as they remain available and meet the requirements of clause 19 of the Agreement;



• Should the insurance no longer be available, the parties should confer with a view to reaching agreement as to an insurer/insurance product which is like the insurance that is no longer available;



• There is no prohibition on the parties agreeing to an alternative product that meets the requirements of clause 19(a) of the Agreement. The use of the phrase “such as” is permissive in this respect;



• The 1.4% cap on the cost of the policy is the maximum limit on the cost of the policy. The Agreement does not allow for additional contributions by employees;



• The cost of the employer contribution to the relevant Approved Worker Entitlement Fund and to the approved insurer is not part of the employee’s gross earnings for the purpose of clause 19 of the Agreement.”

[3] We heard the appeal on 2 May 2017 and reserved our Decision. At the hearing Ms. C Howell, of Counsel, and Mr. L Tiley, solicitor, sought permission to appear for the Respondent. Mr R Dalton, of counsel, and Mr J Parkinson, solicitor, sought permission to appear for the Appellant. Given the complexity of the matter, and having regard to s 596 of the Act, permission was granted to both parties to be represented. Written submissions were filed in accordance with directions, and the matter was listed before us for permission to appeal, and the appeal.

The Appeal

Authorities on appeal

[4] In House v The King, Dixon, Evatt and McTiernan JJ stated that:

“The manner in which an appeal against an exercise of discretion should be determined is governed by established principles. It is not enough that the judges composing the appellate court consider that, if they had been in the position of the primary judge, they would have taken a different course. It must appear that some error has been made in exercising the discretion. If the judge acts upon a wrong principle, if he allows extraneous or irrelevant matters to guide or affect him, if he mistakes the facts, if he does not take into account some material consideration, then his determination should be reviewed and the appellate court may exercise its own discretion in substitution for his if it has the materials for doing so. It may not appear how the primary judge has reached the result embodied in his order, but, if upon the facts it is unreasonable or plainly unjust, the appellate court may infer that in some way there has been a failure properly to exercise the discretion which the law reposes in the court of first instance. In such a case, although the nature of the error may not be discoverable, the exercise of the discretion is reviewed on the ground that a substantial wrong has in fact occurred.” 4

Authorities on interpreting an agreement

[5] We are guided by the most recent High Court authority on the interpretation of enterprise agreements, Amcor Ltd v. CFMEU which is binding on us. In that decision Gummow, Hayne and Heydon JJ considered the interpretation of an enterprise agreement and said: ⁵

“[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.”

[6] Kirby J said:

“[94] ... 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.

...

[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 Ltd⁶, 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.’” (references omitted)

[7] Callinan J said that there was substance in the observations of Madgwick J in Kucks v CSR Limited Ltd  (Kucks). He then said:

“[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. …”

[8] In Kucks, following the passage quoted above, Madgwick J went on to say:

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

[9] In AMIEU v Golden Cockerel Pty Ltd 7 (“Golden Cockerel”) a Full Bench of the Commission provided a useful summary of the authorities, which we follow8. It said:

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

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

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

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

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

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

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

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

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

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

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

8. Context might appear from:

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

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

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

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

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

Submissions

[10] Both parties filed detailed submissions, which we have considered. By way of a brief summary, the appellant submitted that the Commissioner’s decision was in error in a number of respects, including the distinction drawn between ‘insurer and ‘insurance’ and advanced its preferable construction of ‘approved insurer’ in clause 19(a). It took issue with the construction of the term ‘such as’ taken by the Commissioner, and submitted that the construction advanced by the respondent and Commissioner would mean that the agreement of all the parties to a policy product would be required. The respondent submitted that permission to appeal should not be granted because the Commissioner’s decision was correct and there was no arguable error, and other matters.

Consideration – Permission to Appeal

[11] The FWC will grant permission to appeal only if it is in the public interest to do so. 9

The test of assessing whether a matter is in the public interest is discretionary and involves a broad value judgement. 10 In GlaxoSmithKline Australia Pty Ltd v Colin Makin,11 the Full Bench summarised the test for determining the public interest as follows:

“[26] Appeals have lain on the ground that it is in the public interest that leave should be granted in the predecessors to the Act for decades. It has not been considered useful or appropriate to define the concept in other than the most general terms and we do not intend to do so. The expression ‘in the public interest’, when used in a statute, classically imports a discretionary value judgment to be made by reference to undefined factual matters, confined only by the objects of the legislation in question. [Comalco v O’Connor (1995) 131 AR 657 at p.681 per Wilcox CJ & Keely J, citing O’Sullivan v Farrer (1989) 168 CLR 210].

[27] Although the public interest might be attracted where a matter raises issues of importance and general application, or where there is a diversity of decisions at first instance so that guidance from an appellate court is required, or where the decision at first instance manifests an injustice, or the result is counter intuitive, or that the legal principles applied appear disharmonious when compared with other recent decisions dealing with similar matters, it seems to us that none of those elements is present in this case.”

[12] Alternately, the other grounds for granting permission to appeal is that the decision is attended with sufficient doubt to warrant its reconsideration or that substantial injustice may result if leave is refused. 12

[13] In determining whether permission to appeal should be granted we have reviewed and considered all material filed by the parties including all submissions, correspondence and relevant authorities.

[14] We consider it is in the public interest to grant permission to appeal. The Decision at first instance fails to consider all the relevant evidence admitted to the Commission and as a result, the Decision is attended with sufficient doubt to warrant its reconsideration.

Consideration – The Appeal

[15] An appeal under s.604 of the Act is an appeal by way of re-hearing, accordingly, we re-heard the submissions put by both parties, and have considered the evidence admitted by the Commission at first instance, but not relied upon in the Decision under appeal.

[16] The appeal turned on the interpretation of clause 19(a) of the agreement. That clause is contained in clause 19 which provides:

‘19 Income Protection

(a) The employer will take out income protection insurance for all Employees that provides cover for the Employee for any period of absence on leave without pay for illness, accident or injury, while it remains available, with an approved insurer such as.

(1) Energy Super Protection (ESP) – for electrical and instrumentation employees and Storepersons who are members of SPEC Super – ESP (a division of SPEC Super) or Australian Income Protection Pty Ltd.

(2) Wage Guard – for mechanical and fabrication employees, non-destructive testing employees and Storepersons.

(3) Chifley or Construction Income Protection Ltd – in respect of all classifications within the scope of the classification structure except those classifications listed above in sub-clauses 19(a)(1) and (2) and appropriate Storepersons.

(b) Provided that the cost of each such policy is no more than 1.4% (inclusive of GST and stamp duty) of the Employee’s gross earnings.

(c) During the period for which an Employee is in receipt of income protection insurance payments, the Employee shall not be entitled to any other accruals or payments under this Agreement.’

[17] Clause 19(a) is susceptible to a range of different interpretations. The clause refers to an ‘approved insurer’, but does not provide who approves the insurer or what determines the insurer to be ‘approved’, and the term ‘insurer’ is not defined. The Appellant interpreted the term ‘insurer’ as the party with whom the insurance contract is entered into 13. The Respondent interpreted the term in conjunction with other parts of the clause, to mean the agreed insurance policies which are listed, or other policies agreed upon by the parties14. The appellant interpreted the term ‘approved’ as approved by APRA15. The Respondent interpreted the term ‘approved’ as agreed by the trade union party or parties to the agreement. The term ‘such as’ was interpreted by the Appellant as examples of the kind of insurance policy offerings that may be taken out by Kentz16, while the Respondent interpreted the term as referring to insurers who were agreed on by the relevant parties17. There is something to be said for many of these interpretations, and overall the plain and ordinary meaning of the words, read properly in context, does not enable us to reach a conclusion as to the meaning of the clause. The clause is not a riddle, wrapped in a mystery, inside an enigma, although at some points in the proceedings it perhaps threatened to become so. It is fair to say that the parties and the Commission struggled to make sense of the ordinary meaning of the words. The clause is ambiguous.

[18] Given that the term is ambiguous, we have decided to refer to the evidence tendered by the respondent about the negotiations that led to clause 19(a), consistent with the guidance given in Golden Cockerel, which refers to the admission of evidence of the surrounding circumstances when the agreement was negotiated. Kentz made objections about this evidence, but did not elect to cross examine the witnesses called by the respondent, and did not call evidence itself. The evidence was admitted 18.

[19] Mr Peter Ong, Assistant Secretary of the CEPU (Electrical Division, Queensland and Northern Territory Divisional Branch) provided two witness statements, the first of which included the following:

“21. On the basis of the discussions that took place between the Unions and JKC I believed that JKC understood and accepted that the income protection provisions in the agreement would be applied prescriptively, that is, they agreed that employees who were members of SPEC (Energy) Super would have their income protection insurance premiums paid to ESP.

22. Further, it was my understanding that JKC would ensure that all sub-contractors signing onto the agreement would apply the agreement in the way in which it had been agreed between the parties.

23. In early 2013 the Union met with Kentz Australia Pty Ltd (Kentz Australia) to negotiate a Greenfield Agreement. During those discussions Chris Warlow, Regional Managing Director for Australasia, and Sheldon Jacka, a Director of Kentz Australia, represented Kentz Australia.

…

30. Prior to the dispute with Kentz Australia being arbitrated in the Fair Work Commission I also negotiated an agreement with Kentz Pty Ltd (Kentz). Because our members had raised issues about Kentz Australia refusing to pay income insurance into Energy Super during discussions with Mr Jacka I reinforced that company needed to pay income insurance to Energy Super.”

[20] In his second witness statement Mr.Ong stated:

“i. As I have stated in my earlier statement, I negotiated the Kentz Agreement with Mr Sheldon Jacka.

j. In their submissions at paragraphs 20 to 23 the respondent employer makes reference to the Insurance Act 1973.

k. During the negotiations for the Kentz Agreement Mr Jacka did not mention the Insurance Act.

l. I was not aware that there was an Insurance Act until an earlier dispute was before the Commission and the employer in that matter, Kentz Australia Pty Ltd, raised the Insurance Act.

m. I do not agree that the word “approved” in Clause 19 of the Kentz Agreement was meant to mean as “authorised”. When I negotiated the agreement with Mr Jacka I explained that “approved” meant approved between the parties. Mr Jacka indicated that he understood and agreed.”

[21] Mr Sheldon Jacka, HR Manager for the Berries Category of the Costa Group, who was present at the time of negotiations with Kentz, said::

“4. I have been asked by the Union to provide a statement about what occurred during the negotiations for the Kentz Pty Ltd Ichthys Onshore Construction Greenfields Agreement (the “Kentz Agreement”).

5. My responsibilities as the IR/ER Manager for Kentz Pty Ltd included negotiating with the Union for a Greenfield Agreement for the Ichthys Project.

6. I had previously been involved in negotiating an Agreement for Kentz Australia Pty Ltd for a Greenfield Agreement for the Ichthys Project. In both instances I was authorised to negotiate and sign off on the Agreement.

7. I negotiated both of these Agreements with Mr Peter Ong, the Assistant Secretary of the Union. The Agreements mirrored the Agreement that had been negotiated with JKC to apply across the site.

8. During the negotiations for the Kentz Australia Agreement Mr Ong raised clause 19 of the Agreement, the Income Insurance Clause. Mr Ong explained to me the importance of the income insurance premiums being paid into the Energy Super Income Insurance Scheme for employees who were members of Energy Super.

9. He explained that, unless the member advised Energy Super to stop, the income insurance premiums were automatically deducted from Energy Super members’ superannuation funds.

10. I asked him about the clause and said words to the effect of “What if Kentz want to use someone different for income insurance?”

11. Mr Ong replied with words to the effect of “If Kentz wants to use someone different, you would need to talk to me (or the other Unions) to see if we were happy to approve the income insurer you wanted to use and that would depend on what level of insurance was being provided”.

12. I understood that was the way the Agreement was to apply and I agreed on behalf of Kentz Australia.”

[22] The Appellant objected to this evidence. It submitted that Mr.Jacka’s and Mr.Ong’s evidence was “subjective understanding and expectations in prior negotiations”, hearsay, and other matters 19. The Appellant also submitted that the evidence was susceptible to other interpretations, and that there is no evidence as to the view of other unions which are party to the agreement.

[23] However the evidence of Mr.Ong and Mr.Jack was not tested in cross examination or by other evidence led by the employer. We see nothing implausible in the evidence on its face. On its face it is a statement as to the understanding of the parties about the operation of clause 19(a), and it is with respect relatively clear in nature. The evidence is limited to the understanding of Kentz and the respondent about the meaning of the clause, but this is of limited significance. There is no evidence from other unions to the contrary. In fact the respondent also announced an appearance on behalf of the AMWU, which is another party to the agreement. We are in the circumstances entitled to have regard to that evidence, and we do so.

[24] We conclude that the parties to the agreement referred to in the evidence understood while negotiating the agreement, that clause 19 provided that an employer had to take out income protection insurance using one of the insurance products referred to in clause 19(a)(1) – (3), unless agreement was reached between the parties to the agreement.

[25] We conclude that the proper interpretation of clause 19(a), which is ambiguous, is that the reference in clause 19(a) to ‘an approved insurer’ is a reference to an income protection insurance product of one of the named insurance bodies in clause 19(a)(1) – (3), or to another insurance product which is agreed between the parties to the agreement.

[26] We note that the Commission at first instance adopted a course of reasoning, based on the alleged ordinary meaning of clause 19(a), without reliance on the evidence of the surrounding circumstances when the agreement was negotiated. The decision does not clearly indicate that the clause is ambiguous and may have proceeded on the basis that it was not ambiguous, and that the meaning of the clause could be ascertained simply from consideration of the meaning of the words used 20. We respectfully disagree. We have not been able to adopt the reasoning taken at first instance. Further, the ultimate conclusions that we have reached are similar to those reached at first instance, but with respect we have not again adopted phrases such as ‘default products’, which are not used in the clause but is used in the decision under appeal. These are important differences, and we have decided that they are errors within House v. King.

[27] Finally, the problem of poor drafting of enterprise agreements is one that frequently occurs in Commission proceedings. The parties then quite naturally adopt interpretations which favour their interest, and a refusal to compromise leads to litigation of this sort. The evidence about negotiation of this agreement before us does not indicate that the obvious defects in drafting arose from difficult negotiations in which this was the last matter to be drafted, or where the parties attempted to paper over differences with language susceptible to mutually incompatible meanings, or some other similar explanation. Rather, the negotiations while genuine were, on the evidence before us, more in the nature of explanations of the meaning of an agreement clause or agreement which was a ‘pattern agreement’ applying to many employers in the industry. The parties to the agreement did not draft the clause for this enterprise but rather adopted it after discussions and explanation. The likely explanation for the poor drafting is that provided in Kucks as quoted earlier. It is perhaps regrettable that such an agreement is widespread in nature and that more attention was not focussed on clear drafting.

Conclusion

[28] Permission to appeal is granted. For the reasons given we quash the decision under appeal to the extent that it deals with clause 19(a).

[29] At appeal, we re-heard the material admitted by the Commission at first-instance and the submissions of both parties.

[30] We find that the reference to ‘approved insurer’ in clause 19(a), is a reference to an income protection insurance product of one of the named insurance bodies in clause 19(a)(1) – (3), or to another insurance product which is agreed upon by the parties to the Agreement.

VICE PRESIDENT

Appearances:

R. Dalton, of Counsel, for the Appellant

J. Parkinson, Solicitor, for the Appellant

C. Howell, of Counsel, for the Respondent

L. Tiley, Solicitor, for the Respondent

Hearing details:

May 2

2017

Sydney

 1   [2017] FWC 376.

 2   [2014] FWCA 6641.

 3   Ibid paragraphs 33-48, 80.

 4   (1936) 55 CLR 499 at pp 504-5.

⁵ (2005) 222 CLR 241.

⁶ (1996) 149 CLR 337.

 7   (2014) 245 IR 394.

 8   The Bench also departed from previous Full Bench decisions in SDA v. Big W Discount Store PR924556, Cape Holdings Pty Ltd v. Total Corrosion Control Pty Ltd [2012] FWAFB 3994.

 9   Fair Work Act (Cth) s 604(2).

 10   Esso Australia Pty Ltd v AMWU; CEPU; AWU [2015] FWCFB 210, [6].

 11   [2010] FWAFB 5343, [27].

 12   Esso Australia Pty Ltd v AMWU; CEPU; AWU [2015] FWCFB 210, [7].

 13   Appellant submissions paragraph 13.

 14   Respondent submissions paragraph 36.

 15   Appellant submissions paragraphs 24-28.

 16   Appellant submissions paragraphs 29-32.

 17   Respondent submissions paragraph 36.

 18   PN27-43.

 19   Objections to the applicant’s evidence, p.3.

 20   Ibid PN34-36.

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