FEDERAL COURT OF AUSTRALIA

Finance Sector Union of Australia v Commonwealth Bank of Australia

[2001] FCA 335

INDUSTRIAL LAW – relevance of extrinsic evidence in interpreting industrial awards and certified agreements – where clause in award and certified agreement referred to extrinsic material setting out system for assessing performance of employees – distinction between interpretation of general statutory instrument and enterprise award – interpretation to give meaning to provisions of award and certified agreement

INDUSTRIAL LAW – whether system referred to in award and contained in extrinsic material may be unilaterally altered by party

WORDS AND PHRASES – “extrinsic material”, “interpretation of award”

Workplace Relations Act 1996 (Cth) ss 170LJ, 413, 413A

Short v FW Hercus Pty Ltd (1993) 40 FCR 511 cited

Australian Municipal, Administrative & Services Union v Treasurer of Commonwealth of Australia (1998) 82 FCR 175 cited

Minister v Dey (1919) 18 AR (NSW) 19 cited

Hunt v Commissioner for Railways (1936) 35 AR (NSW) 73 cited

Con-stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd (1986) 160 CLR 266 cited

Sportsvision Australia Pty Ltd v Tallglen Pty Ltd (1998) 44 NSWLR 103 cited

Wright v T.I.L. Services Pty Ltd (1956) 56 SR (NSW) 413 cited

Medcraft v City of Box Hill [1959] VR 768 cited

Sobania v Nitsche (1969) 16 FLR 329 cited

Dainford v Smith (1985) 155 CLR 342 cited

Conagra International Fertilizer Company v Lief Investments Pty Ltd (1997) 141 FLR 124 cited

Lief Investments Pty Ltd v Conagra International Fertilizer Company [1998] NSWSC 481 cited

BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266 cited

Hawkins v Clayton (1988) 164 CLR 539 cited

Barlow v Qantas (1997)72 IR 194 cited

Pickard v John Heine & Son (1924) 35 CLR 1 cited

City of Wanneroo v Holmes (1989) 30 IR 362 cited

Byrne v Australian Airlines Ltd (1995) 185 CLR 410 cited

Finance Sector Union of Australia v Commonwealth Bank of Australia [2000] FCA 1468 referred to

Finance Sector Union of Australia v Commonwealth Bank of Australia [2000] FCA 1372 referred to

Southern Foundries (1926) Ltd v Shirlaw [1940] AC 701 applied

Ansett Transport Industries (Operations) Pty Ltd v Commonwealth (1977) 139 CLR 54 referred to

FINANCE SECTOR UNION OF AUSTRALIA v COMMONWEALTH BANK OF AUSTRALIA ACN 123 123 124

N 639 OF 2000

N 640 OF 2000

GYLES J

SYDNEY

2 APRIL 2001

THE COURT ORDERS THAT:

The proceedings be adjourned for orders to be made giving effect to these reasons.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

REASONS FOR JUDGMENT

1                     These are two applications, one for interpretation of the Commonwealth Bank of Australia Employees’ Award 1999 (Print R 8409) (“the Award”) under s 413 of the Workplace Relations Act 1996 (Cth) (“the Act”) (“the First Application”) and the other for interpretation of the Commonwealth Bank of Australia Enterprise Bargaining Agreement 1998 (“the Agreement”) pursuant to s 413A of the Act (“the Second Application”) which give rise to a similar question and which have been heard together.  I will deal first with the application in relation to the Award.

THE award

2                     Clause 16.1 of the Award is as follows:

“16.1   General Classification (GC)

            An employee who permanently performs duties in a general classification position will be paid not less than the annual salary rate for the relevant classification and performance level as set out in clause A1.1 of Schedule A.”

That clause appears in Pt 4 entitled “Salaries and Allowances” and Div 1 of Pt 4 entitled “Salary and Wages”.  Clause 17 is entitled “Performance Payment” but deals with employees “on Assistant Manager and Manager classifications”.

3                     Clause A1.1 of Schedule A is as follows:

“A1.1  General classification (Subclause 16.1)

4                     In cl 3.22 “PDR” is defined to mean:

“the Bank’s performance appraisal assessment viz Performance Development Review.”

5                     The First Application claims the following declarations:

“1.      That on a proper interpretation of clauses 3.22 and A1.1 of Schedule A of the Commonwealth Bank of Australia Employees’ Award 1999 (Print R 8409) (“the Award”), the Performance Development Review (PDR) ratings/appraisals contemplated are required to be undertaken by reference to the 10 point scale annexed hereto and marked “1”.

2.                 That on a proper interpretation of clause 16.1 of the Award, the “performance level” is required to be determined by reference to the 10 point rating scale annexed hereto and marked “1”.

3.                 That on a proper interpretation of clause A1.1 of Schedule A of the Award, the expression “full PDR” is a reference to the annual or final performance development rating for each “general classification” award employee arrived at by averaging separate ratings for relevant “key result areas” and relevant “skills and qualities” for each “general classification” award employee’s job, with those separate ratings being determined only by reference to other 10 point rating scales derived from and consistent with the rating scale annexed hereto and marked “1”.

4.                 That on a proper interpretation of clause A1.1 of Schedule A of the Award, the expressions “exactly three to less than six” and “exactly six and above” refer to the rating scale annexed hereto and marked “1”.

5.                 That on a proper interpretation of clause 16.1 and clause A1.1 of Schedule A of the Award, the Respondent employer is not entitled to set or vary the incremental salary rates for “general classification” award employees save in accordance with the rating scale that is annexed hereto and marked “1” and/or in accordance with such other 10 point rating scales derived from and consistent with that scale.

ANNEXURE 1

*        “all” equals almost without exception

                                                  **      “most” equals significant majority”

6                     It is apparent that the portions of the Award to which reference is made in the application are not self explanatory.   The applicant’s primary case is that the gap is filled by incorporating the performance scale as set out in Annexure 1 (“the 10 point scale”).  It puts other alternatives, principally that the respondent’s Performance Development Review (“PDR”) system from time to time is incorporated and that this at all times did (and must) include the 10 point scale.

7                     The respondent contends that no case is made for incorporation of any documents, including the 10 point scale,  that the 10 point scale in any event is not self explanatory or able to be operated on its own,  and that if any performance appraisal assessment system is incorporated it is capable of unilateral change by the respondent.  It is put that the applicant is seeking rectification of the Award or arbitration under the guise of seeking interpretation.  It is also put that relief is discretionary and ought not be granted.

8                     The evidence which has been led traces the history of the Award, including the predecessor award, with particular emphasis on development by the respondent of a performance appraisal assessment known as PDR.  This history includes what was put to various arbitral tribunals, what was done in practise and the Agreement which is the subject of the Second Application and that which led to it.  There is little dispute as to the primary facts relevant to the present debate.  However, there is considerable dispute as to use which can be made of those facts.

9                     The applicant’s counsel argued for an expansive view of the relevance of extrinsic material, citing a good deal of authority including Short v FW Hercus Pty Ltd (1993) 40 FCR 511 and Australian Municipal, Administrative & Services Union v Treasurer of Commonwealth of Australia (1998) 82 FCR 175.  He submitted that evidence as to custom and usage is also relevant and applicable in the present case (Minister v Dey (1919) 18 AR (NSW) 19;  Hunt v Commissioner for Railways (1936) 35 AR (NSW) 73;  and Con-stan Industries of Australia v Norwich Winterthur Insurance (Australia) Ltd (1986) 160 CLR 266 at 236-238).  He also submitted that the result of the respondent’s position is that the portions of the Award referred to in the application are meaningless, a result which the Court would strain to avoid (Sportsvision Australia Pty Ltd v Tallglen Pty Ltd (1998) 44 NSWLR 103).  As to incorporation of documents, counsel for the applicant referred to Wright v T.I.L. Services Pty Ltd (1956) 56 SR (NSW) 413 at 421-422;  Medcraft v City of Box Hill [1959] VR 768;  Sobania v Nitsche (1969) 16 FLR 329;  Dainford v Smith (1985) 155 CLR 342 at 345;  Conagra International Fertilizer Company v Lief Investments Pty Ltd (1997) 141 FLR 124;  and, on appeal sub nom, Lief Investments Pty Ltd v Conagra International Fertilizer Company [1998] NSWSC 481).  He also submitted that any gaps could be filled by the implication of terms, referring to BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266 at 283;  Hawkins v Clayton (1988) 164 CLR 539 per Deane J at 573;  and Barlow v Qantas (1997) 72 IR 194.

10                  Counsel for the respondent submits that given the public nature of an award there is only limited scope for the admission of extrinsic evidence as an aid to construction (citing, among other cases, Pickard v John Heine & Son (1924) 35 CLR 1 and City of Wanneroo v Holmes (1989) 30 IR 362) and that there are limitations upon incorporation of other documents as shown by an analysis of the authorities cited on that point by the applicant.  It was also submitted that there is only limited scope for incorporation of custom or usage (Byrne v Australian Airlines Ltd (1995) 185 CLR 410 at 423 and 440) and none in the circumstances here.

11                  The starting point of analysis of the issue is that, in my opinion, the Award speaks from the date it was made, and is to be construed in relation to the matrix of facts existing then.  Although it may have been, in effect, a variation of an earlier award, it stands on its own feet.  This means that it is not necessary to resolve the issue debated between the parties as to the extent to which (if any) subsequent conduct can be considered in construing an award.

12                  It is then relevant to note that the Award relates to an enterprise rather than to a wider group such as an industry.  I do not think that an enterprise award can be regarded as simply a private commercial contract and construed accordingly.  It has a statutory basis and is the result of a process different to that which applies in the case of a commercial contract.  However, for the purposes of interpretation, an award related to an enterprise is not to be viewed as a form of general statutory instrument, in relation to which there would be obvious difficulty in having regard to extrinsic material which is not known to or available to all concerned.  There is much common ground in the matrix of facts applicable to a particular enterprise, and the making of an award involves negotiation and often, to a greater or lesser extent, agreement.

13                  The Award was made on 24 August 1999.  As I have said, those parts of the Award which are referred to in the First Application (and which are set out above) are plainly not capable of being applied as they stand.  The Award does not, in terms, include a performance appraisal assessment procedure.  At that time, there was in fact a performance appraisal assessment procedure operating within the respondent known as the PDR system.  It is identified most particularly in the evidence of Mr Raue but is also described in the evidence of Mr Riordan.  This accords with the definition in cl 3.22.  However, by August 1999 the respondent had announced an intention to replace the PDR system with a new system known as Performance Feedback and Review, or PFR, and had taken some steps to implement the change in relation to some groups of employees.  It is not suggested that by August 1999 a change had been effected in relation to all employees covered by cl 16 of the Award.  It is that proposed change which, amongst other matters, provides the context for this application.  I have already dealt with another aspect of the matter (see Finance Sector Union of Australia v Commonwealth Bank of Australia  [2000] FCA 1468) as has another judge (see Finance Sector Union of Australia v Commonwealth Bank of Australia [2000] FCA 1372).

14                  On the evidence, there is no dispute that the PDR rating system utilised a performance scale in accordance with the substance of Annexure 1 of the Award, or that the PFR system involves a different 5 point scale.  The evidence deals in detail with the PDR system as it was in early 1999, but not in such detail with the PFR system.  It is apparent that the difference in scales is not the only difference between the systems.

15                  Having considered the submissions, I find that the PDR system identified in the evidence is that referred to in cl 3.22 of the Award, that the scale referred to in cl 16.1 of the Award and cl A.1.1 of Schedule A to the Award is that which forms part of the PDR system and is, for practical purposes, the 10 point system.  In my opinion “Full PDR” means a performance rating worked out in accordance with the PDR.  Furthermore, it is clear enough that there has been no relevant alteration to the PDR system as such since August 1999.  On the evidence, however, use of the PDR system has been phased out by the respondent in favour of the PFR without the consent (indeed, over the protests) of the applicant, such phase out being well advanced by the time of commencement of these proceedings.  When the matter is analysed in this way, the real question is whether the respondent can alter the PDR system and, if so, to what extent and with what effect.  This necessitates a closer examination of the notion of incorporation of material into an award by reference.

16                  In my opinion, there is no difficulty with incorporating by reference a system or procedure which varies from time to time, provided that at any one time such a system or procedure can be identified.  In the present case, for example, cl 3.22 could be interpreted as referring to the PDR as it exists from time to time.  On that basis, there would be much to be said for the respondent’s contention that the content of the PDR system is entirely a matter for the respondent, and that variations to it are at the discretion of the employer.  To refer to an external system in an award is not sufficient, by itself, to convert that system into an award provision capable of variation only in accordance with provisions governing variation of the award.

17                  The issue here, however, arises because of the mandatory provisions of cl 16.1 which incorporate cl A1.1 of Schedule A.  At the time the Award was made, columns 2 and 3 of     cl A1.1 plainly referred to the 10 point scale in the respondent’s PDR system as it then stood.  On that basis the headings to columns 2 and 3 can be given context and meaning.  For these clauses to have any continuing operation, there must be a PDR system and it must have more than 6 points on the scale.  If there were no PDR system with more than a 6 point scale then the Award provision would have no content and could not be given any effect.  The provisions of cl 16 are of central importance in relation to a significant group of employees.  The Award would not lightly be interpreted to lead to such a result.

18                  There is a principle of contract law which, in my opinion, is apt to apply by analogy in these circumstances.  Where the operation of an agreement assumes the existence of a state of affairs then no party can unilaterally alter that state of affairs (Southern Foundries (1926) Ltd v Shirlaw [1940] AC 701 particularly per Lord Atkin at 717, cited by Aickin J in Ansett Transport Industries (Operations) Pty Ltd v Commonwealth (1977) 139 CLR 54 at 102).  In my opinion the Award should be interpreted accordingly.  Although this line of authority was not referred to in submissions, the essence of the argument was put.  It reflects, in any event, the result of interpreting the words of cl 16.  This does not make the PDR system a part of the Award in the strict sense, so that it is an award provision.  It is incorporated by reference in order to give effect to cl 16.  The effect of this interpretation of the Award is that, in relation to employees covered by cl 16, the PDR system referred to in it is that which I have held to be effective as at 24 August 1999, unless varied by agreement with the applicant. 

19                  The consequence of this interpretation is that, in relation to such employees, the PDR system cannot be varied (otherwise than by consent) without a variation to cl 16.  This does not have the consequence that, for purposes other than cl 16, the respondent may not alter the PDR system.  It has operation beyond cl 16 and is unaffected by it.  However, the PDR which applies by virtue of cl 16 cannot be altered without agreement.  These consequences, or effects, of interpretation are incidental to the task of interpretation pursuant to s 413 and do not alter the character of that task.

20                  Even if there is a discretion to refuse relief, I can see no reason to do so.  I have held (Finance Sector Union of Australia v Commonwealth Bank of Australia [2000] FCA 1468) that the issue is live, and the proceedings bona fide.  I will hear the parties further as to the orders to be made to give effect to these reasons.

the agreement

21                  The Agreement was certified pursuant to s 170LJ of the Act on 2 April 1998. 

22                  Clause 9 included:

“… Appendix A of the Agreement provides a Schedule of Salaries … in accordance with the above increases.”

23                  Appendix A commences:

“1.       Salaries

1.1              From the beginning of the first pay period to commence on or after the certification of this Agreement:

                                                    When PDR is

Then follows a series of tables for later periods, with the same headings, but adjusted dollar amounts.

24                  Clause 38 is as follows:

“38.     Leave Reserved

38.1          This clause provides Leave Reserved for the Bank to negotiate changes with the FSU to the Award and to this Agreement as a consequence of the Bank deciding to review and change –

·                    the Performance Development Review (PDR) system;

·                    the manner in which Award level jobs are classified and evaluated.

38.2          the Bank will discuss the review with the FSU prior to finalising the outcomes of any review of the above systems.”

25                  “PDR” is defined (in cl 3) as:

“means the Bank’s performance assessment system namely, Performance Development Review.”

26                  The Second Application claims the following relief:

“On the grounds stated in the accompanying Affidavit, the Applicant claims a declaration:-

1.                  That on a proper interpretation of clauses 3 (the definition of PDR) and Appendix A clause 1 of the Commonwealth Bank of Australia Enterprise Bargaining Agreement 1998 (“The Agreement”), the Performance Development Review (PDR) ratings/appraisals contemplated are required to be undertaken by reference to the rating scale annexed hereto and marked “1”.

2.                  That on a proper interpretation of clause 9 and Appendix A clause 1 of the Agreement, the expression “PDR” is a reference to the final annual performance development review rating for each general classification employee arrived at by averaging separate ratings for relevant “key result areas” and relevant “skills and qualities” for each general classification award employee’s job, with those separate ratings being determined only by reference to rating scales derived from and consistent with the rating scale annexed hereto and marked “1”.

3.                  That on a proper interpretation of clause 9 and Appendix A clause 1 of the Agreement, the expressions “exactly 3 to less than 6” and “exactly 6 and above” refer to the ratings scale annexed hereto and marked “1”.

4.                  That on a proper interpretation of clause 9 and Appendix A clause 1 of the Agreement, the Respondent employer is not entitled to set or vary the incremental salary rates for general classification employees save in accordance with the rating scale that is annexed hereto and marked “1” and/or in accordance with such other 10 point rating scales derived from and consistent with that scale.

5.                  That on a proper interpretation of clause 38 (Leave Reserved) of the Agreement, the Respondent employer is not permitted to rate general classification of employees for performance development review purposes other than by reference to the rating scale annexed and marked “1” and/or in accordance with other 10 point rating scales based on and consistent with that scale.

ANNEXURE 1

*        “all” equals almost without exception

                                                  **      “most” equals significant majority”

27                  The evidence is that the PDR system had been in operation prior to 2 April 1998 and continued thereafter.  Changes in matters of detail were made from time to time.  Indeed, the copy of the relevant manual produced in evidence by the respondent is in looseleaf form, with dates of changes noted.

28                  The approach which I have outlined in relation to interpretation of the Award is also applicable to interpretation of the Agreement.  Indeed, the consensual nature of the Agreement underlines the appropriateness of that approach in this context.  I am satisfied that the one PDR system is referred to in the Agreement and the Award, and therefore the same system is referred to in each instrument as at the time of making the applications and as at the present time.  I do not see that the words “full PDR” in the table in the Award differ in substance or effect from the words “PDR” in the table in the Agreement.  Each requires that a level be ascertained according to the system.

29                  Clause 38 requires consideration.  On the one hand, it seems to be assumed that changes to the PDR system would require changes to the then award (being the Commonwealth Bank of Australia Officers Award 1990) and to the Agreement which would need to be negotiated (and so agreed) with the applicant.  On the other hand, cl 38.2 seems to contemplate that the respondent can finalise the outcomes of any review subject only to discussion with the applicant.  This apparent inconsistency is explained by appreciating that the PDR system had wider ramifications than merely affecting the tables in this Agreement (and the then award) but recognising that no change could be made which affected the application of cl 16 of the Agreement without the agreement of the applicant.  This is consistent with the view that I have expressed in relation to the Award.  This matter will also stand over to enable the settling of orders to give effect to these reasons.

Associate:

Dated:              2 April 2001