FEDERAL COURT OF AUSTRALIA

Regional Express Holdings Ltd (ACN 099 547 270) v Clarke [2007] FCA 957

PRACTICE AND PROCEDURE – appeal from Industrial Division of the Magistrates’ Court of Victoria to a single judge

EMPLOYMENT LAW – certified agreement – contract and certified agreement contained provisions relating to training and termination – construction – contractual provision required payment of a training bond on voluntary termination by employee – priority given to certified agreement in cases of inconsistency

COSTS – s 347 of the Workplace Relations Act 1996 (Cth) – relevant principles – whether proceeding issued “vexatiously or without reasonable cause”

Federal Court of Australia Act 1976 (Cth) s 25

Workplace Relations Act 1996 (Cth)

Amcor Ltd v Construction, Forestry, Mining and Energy Union(2005) 214 ALR 56 cited

Amcor Ltd v Construction, Forestry, Mining and Energy Union [2003] FCAFC 57 cited

Automotive, Food, Metals, Engineering, Printing and Kindred Industries Union v Ardmona Foods Ltd [2006] FCA 1039 cited

Automotive, Food, Metals, Engineering, Printing and Kindred Industries Union v Nestle Australia Limited (2005) 146 IR 379 referred to

ACTEW Corporation Ltd v Pangallo (2002) 127 FCR 1 referred to

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

Commonwealth Bank of Australia v Finance Sector Union of Australia (2007) 157 FCR 329 referred to

Construction, Forestry, Mining and Energy Union v Gordonstone Coal Management Pty Ltd (1997) 78 FCR 437 referred to

Council of Kangan Batman Institute of Technology and Further Education v Australian Industrial Relations Commission (2006) 156 FCR 275 applied

Hatchett v Bowater Tutt Industries Pty Ltd (No.2) (1999) 28 FCR 324 applied

Josephson v Walker (1914) 18 CLR 691 referred to

Kidd v Savage River Mines (1984)6 FCR 398 cited

McLennan v Surveillance Australia Pty Ltd (2005) 142 FCR 105 applied

R v Spicer; Ex parte Truth and Sportsman Ltd (1957) 98 CLR 48 cited

Spotless Services Australia Limited v Marsh SDP [2004] FCAFC 155 cited

Textile, Clothing and Footwear Union of Australia v Givoni Pty Ltd (2002) 121 IR 250 cited

Transport Workers’ Union of Australia v Graham Meyrick Lee [1998] FCA 756 referred to

United Firefighters’ Union of Australia v Country Fire Authority [2007] FCA 853 distinguished

Yango Pastoral Company Pty Limited v First Chicago Australia Limited (1978) 139 CLR 410 distinguished

REGIONAL EXPRESS HOLDINGS LTD (ACN 099 547 270) v MATTHEW CLARKE

VID 86 OF 2006

GORDON J

29 JUNE 2007

MELBOURNE

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	VID 86 OF 2006

BETWEEN:

REGIONAL EXPRESS HOLDINGS LTD (ACN 099 547 270)

Appellant

AND:

MATTHEW CLARKE

Respondent

JUDGE:	GORDON J
DATE OF ORDER:	29 JUNE 2007
WHERE MADE:	MELBOURNE

THE COURT ORDERS THAT:

1. The order of Hawkins M of the Industrial Division of the Magistrates’ Court of Victoria of 1 March 2006 is set aside.

2. The Appeal is otherwise dismissed.

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

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	VID 86 OF 2006

BETWEEN:

REGIONAL EXPRESS HOLDINGS LTD (ACN 099 547 270)

Appellant

AND:

MATTHEW CLARKE

Respondent

JUDGE:	GORDON J
DATE:	29 JUNE 2007
PLACE:	MELBOURNE

REASONS FOR JUDGMENT

INTRODUCTION

1 Matthew Clarke (“Mr Clarke”) was a pilot employed by Regional Express Holdings Ltd (“REX”) under the Regional Express Pilots’ Certified Agreement 2002 (“the Certified Agreement”). Prior to Mr Clarke commencing employment with REX, he received and signed a written offer of employment which was conditional on him accepting the information contained in an attachment to the offer entitled “Pilot Training Bond Declaration” (“the Training Bond”). By the Training Bond, Mr Clarke agreed to pay $7,500 to REX if he left REX’s employment within a specified time. Mr Clarke did leave within that time and he did not pay the $7,500.

2 This is an appeal from the Industrial Division of the Magistrates’ Court of Victoria. I heard the appeal as a single judge of the Federal Court pursuant to s 25(5) of the Federal Court of Australia Act 1976 (Cth).

3 The issue on appeal was whether the Magistrates’ Court was correct to conclude that the Training Bond was unenforceable.

4 REX submitted that the Training Bond was enforceable because it was not made with the purpose of avoiding an obligation imposed by the Certified Agreement and it was not one that the Workplace Relations Act 1996 (Cth) (as it stood prior to 27 March 2006 (“the Workplace Relations Act”)) expressly or impliedly prohibited.

5 Mr Clarke contended that the Training Bond was unenforceable because of its inconsistency or conflict with a statutory instrument (the Certified Agreement) and that where there was such an inconsistency or conflict, the statutory instrument (the Certified Agreement) prevailed. The inconsistency or conflict was said to arise because the Training Bond and the Certified Agreement provided differently for the same ‘matters’. In the present case, the ‘matters’ relied upon were training and termination.

6 For the reasons that follow, I would dismiss the appeal. These reasons are structured as follows:

(1)               Jurisdiction of the Federal Court;

(2)               Facts;

(3)               Reasoning of the Magistrate;

(4)               Grounds of Appeal;

(5)               Legislative Framework;

(6)               Analysis; and

(7)               Costs.

(1) JURISDICTION OF THE FEDERAL COURT

7 Jurisdiction to hear this appeal is given to the Federal Court by Pt XIV of the Workplace Relations Act. Section 412(1) of Pt XIV of the Workplace Relations Act provides that:

“The Court has jurisdiction with respect to matters arising under this Act in relation to which:

…

(d) appeals lie to it under section 422; …”

The ‘Court’ is defined as the Federal Court of Australia: s 4 of the Workplace Relations Act.

8 Section 422(1) of the Workplace Relations Act provides that:

“An appeal lies to the Court from a judgment of a court of a State or Territory in a matter arising under this Act.”

9 The phrase “matter arising under this Act” is not to be given a narrow meaning and, in this context, extends to include whether or not the Certified Agreement rendered the Training Bond unenforceable so as to prevent REX recovering the $7,500: see Transport Workers’ Union of Australia v Graham Meyrick Lee [1998] FCA 756 citing Dixon CJ in R v Spicer; Ex parte Truth and Sportsman Ltd (1957) 98 CLR 48 at 53. The view that the phrase “matter arising under this Act” extends to include the issues in this appeal is reinforced by other provisions of the Workplace Relations Act including, but not limited to, s 413A in Division 1 of Part XIV that the Court may give an interpretation of a certified agreement on application by the Minister, an organisation or person bound by the certified agreement or a person whose employment is subject to the certified agreement.

(2) FACTS

10 The hearing before the Industrial Division of the Magistrates’ Court of Victoria proceeded on agreed facts. Set out below is a summary of those facts.

11 The Certified Agreement was an agreement made under Part VIB of the Workplace Relations Act. It was certified by the Australian Industrial Relations Commission on 10 January 2003 pursuant to s 170LT of the Workplace Relations Act. REX was a party to the Certified Agreement. I will return to consider the provisions of the Certified Agreement later in these reasons.

12 By letter dated 19 December 2003, REX made an offer of employment to Mr Clarke (the “Letter of Offer”). The Letter of Offer stated, inter alia:

“OFFER OF EMPLOYMENT [REX]

I am pleased to offer you employment with [REX] on the terms set out in this letter.

Commencement	12 January 2004
Position	SAAB (SF340) First Officer
Department	Flight Operations
Location	Sydney
Reporting to	Chief Pilot
Employment Status	Full time
Annual Salary	$27,000 per annum plus Superannuation

Position and Conditions of Employment

In accordance with the [Certified Agreement].

You must act in accordance with any directions given to you from time to time, including any policies or procedures notified to you by [REX] as varied from time to time.

Payment of wages will be on a fortnightly basis in arrears to a bank account nominated by you, on or around Thursday of each second week.

Employment is conditional on the acceptance of the information contained in Annexure 1 (attached)

Annual Leave

You will accrue Annual Leave per year of service, to be accrued and taken in accordance with [REX] policy.

Sick Leave

Sick leave accrues, and must be taken, in accordance with [REX] policy. Sick leave with-pay will be allowed for a maximum of three single days in any one year of service without the production of a medical certificate. All other sick leave must be supported by satisfactory medical evidence.

…

Superannuation

[REX] will make contributions to a company approved Superannuation Fund on your behalf in accordance with Federal Superannuation Legislation (currently 9% of gross normal time earnings). …

Probationary Period

This employment is offered subject to a 3-month probationary period from commencement. At any time during the probationary period the giving of two week’s notice may terminate this contract. The company may extend the probationary period for a further 3 months if your performance conduct is considered not to be of a sufficient standard.

Termination of Employment

[REX] may immediately terminate your employment at any time without prior notice if you commit an act of serious and wilful misconduct. Serious and wilful misconduct may include but is not limited to:

· refusal or neglect to perform your duties or to comply with any reasonable direction;

· …

[REX] may suspend you on full pay from part or all of your duties at any time, including during any period of notice of termination of your employment.

You or [REX] may terminate your employment at any time by giving written notice in accordance with the Workplace Relations Act 1997 (sic).

…

Accepting this offer

…

Please read these terms carefully, and if you wish to accept this offer, please confirm your acceptance of the position by signing the enclosed copy of this letter where indicated and returning with the attached payroll related forms …

I, Matthew Clarke, have read and accept the terms and conditions of employment by [REX] on the basis set out in this letter. …”

13 Annexure 1 was in the following terms:

“[REX]

PILOT TRAINING BOND DECLARATION

ANNEXURE 1

As a full-time Pilot employed by [REX], I hereby Agree to enter into a Training Bond of $15,000.00 with the following terms and conditions.

1. The Training Bond has a currency of 24 months from the date of employment;

2. Should I leave of my own accord during this period I agree to pay [REX] the unexpired portion of the Training Bond. The Training Bond payable is $15,000.00 if I leave prior to one year of my commencement date and $7,500.00 if I leave after 12 months service but prior to 24 months of service from my commencement date. The amount owing shall be payable to [REX] 28 days from the day notice is given of my intention to resign. Severance pay may be used to contribute to the amount owed’ (sic)

3. Should I be terminated or retrenched for any reason during this period, the Training Bond is not payable, nor is it payable if I am forced to cease flying for health reasons validated by an Aviation Medical Practitioner.”

14 Mr Clarke signed both the Letter of Offer and the Training Bond on 23 December 2003. On 12 January 2004, Mr Clarke commenced work with REX as a First Officer (a Pilot) and resigned with effect from 20 April 2005.

15 As the Letter of Offer expressly provided, the Certified Agreement was applicable to Mr Clarke’s employment. The whole of the Certified Agreement was relevant. It contained 67 terms or sections and comprised some 50 pages. The matters covered by the Certified Agreement included but were not limited to duty and flight time records, access to personal records, payment of salaries, training, leave of absence, rostering, superannuation, uniforms, accommodation, sign on times and salary packaging.

16 The Certified Agreement came into force from 10 January 2003 and remained in force until 23 July 2005: cl 4.2. It was binding upon REX, the Australian Federation of Air Pilots and all pilots employed by REX (subject to exceptions not presently relevant): cl 4.1. It bound Mr Clarke.

17 The primary objectives of the Certified Agreement were expressly stated to be to “contribute to the development of [REX] as a new, unified, viable and profitable full service airline from the acquisition and merger of Kendell and Hazelton airlines, and [to] preserve as many Kendell and Hazelton airline jobs in the new airline as possible”: cl 1.1.

18 The Certified Agreement was stated to be a:

“...comprehensive agreement … [which] replace[d] all awards and industrial agreements that would otherwise apply to the employees to whom the [Certified Agreement] applie[d], save that it [did] not exclude State laws dealing with occupational health and safety, workers compensation, apprenticeship, traineeships and long service leave”: cl 5.

There are, however, other provisions of the Certified Agreement which are relevant to the question of the comprehensive nature of the agreement. First, within seven days of commencement in employment, a pilot was to be provided with a letter of employment confirming the pilot’s terms of employment: cl 8.4. In this case, it was the Letter of Offer. Secondly, cl 61 headed “No Extra Claims” provided that the parties undertook for the duration of the Certified Agreement not to pursue any extra claims. Mr Clarke was not a party to the Certified Agreement. REX was a party.

19 Subject to clauses which are presently not relevant, cl 8.5 of the Certified Agreement provided that the employment of a pilot engaged on a full-time basis was terminable either:

“8.5.1 by [REX] or the pilot giving four weeks’ written notice except:

(a) where the pilot has completed less than twelve months continuous service, in which case two weeks’ written notice will apply or;

(b) in the case of termination by the employer, an additional week’s notice shall be provided if the pilot is aged 45 years or over and has at least 2 years’ continuous service at the time notice is given.

8.5.2 by payment to the pilot or forfeiture by the pilot from salary due, of an amount equal to the amount of salary otherwise payable to the pilot during the notice period, provided that a period of notice may be reduced or waived by mutual agreement in which case salary will be paid up to and including the last day of work.”

20 Other provisions of the Certified Agreement dealt with the pilot’s duties and training. Clause 11 headed “Pilot Duties” provided that “Pilots must undertake operational and other duties, as reasonably directed by [REX] in accordance within their respective levels of skill, competence and training...” Clause 23 headed “Training” provided, in part, that:

“23.1 [REX] will be responsible for arranging facilities to enable pilots employed on permanent hire to reach and maintain proficiency in such ground courses and such aeronautical skills as are required by [REX].

23.2 Where [REX] requires a pilot to obtain any licence, rating, endorsement, initial instrument rating or type endorsement, subject to clause 23.3, [REX] will pay all costs associated with obtaining and for renewing such rating or endorsement. This will include all licensing fees and Civil Aviation Safety Authority charges.

23.3 Where [REX] arranges or provides for a pilot who is not currently in [REX’s] employ, training of a type mentioned in clause 23.2 on the understanding that such training will qualify the pilot to commence employment with [REX], [REX] will be deemed for all purposes of [the Certified Agreement] to be the pilot’s employer as from the date of commencement of such training if the training is carried out by [REX], with the exception of ground schools. Provided that where the aircraft used for such training is not one operated by [REX], the Pilot will pay the training costs in full and the pilot’s employment will commence subsequent to completion of training.

23.4 No pilot will be required by [REX] to obtain any subsequent aircraft endorsement to their licence or instrument rating in their own time or at their own expense where such endorsement or rating is required of the pilot by [REX]. [REX] will pay all costs associated including licence fees associated with obtaining and/or renewing such rating or endorsement, including Civil Aviation Safety Authority charges.”

21 Finally, cl 62 headed “Salaries” set out the base salaries that were to apply. It provided, in part, as follows:

“62.1 SAAB 340 METRO 23 FIRST OFFICERS

First Officers	Effective 01/10/2002 Salary ($p.a.)	Effective 23/07/2004 Salary ($p.a.)	Effective 24/07/2005 Salary ($p.a.)
Year of Service
Training [S]alary	$27,000	$27,810	$28,644
1^st Year	$37,000	$38,110	$39,253
2^nd Year	$39,400	$40,582	$41,799
3^rd Year	$43,000	$44,290	$45,619
4^th Year	$43,250	$44,548	$45,884
5^th Year	$43,500	$44,805	$46,149
6^th Year	$43,750	$45,063	$46,414
7^th Year	$44,250	$45,578	$46,945
8^th Year	$44,500	$45,835	$47,210
9^th Year	$45,000	$46,350	$47,741
10^th Year	$45,500	$46,865	$48,271

(3) REASONING OF THE MAGISTRATE

22 The issue before the Magistrates’ Court (Hawkins M) was whether the Training Bond was enforceable. Mr Clarke submitted that the money owed under the Training Bond was not payable because the Training Bond was inconsistent with the terms of the Certified Agreement. REX advanced a number of arguments in support of the contention that the Training Bond was enforceable. Many of those arguments were not pursued on appeal.

23 Her Honour concluded that the Training Bond was not enforceable. For present purposes, three aspects of her Honour’s decision are relevant. First, REX submitted that the Certified Agreement had no operation as it could only apply to matters that pertained to the relationship between the employer and the employee and that the Training Bond only became payable after Mr Clarke had ceased employment with REX. In dealing with that submission her Honour concluded that the Training Bond was pertinent to the issue of training, that a requirement that a pilot be suitably trained was clearly a “matter which pertain[ed] to the relationship between an employer and its employees” and that the terms of the Training Bond required payment of the bond 28 days from the day notice was given of intention to resign, the same day that employment ceased under cl 8.5.1 of the Certified Agreement.

24 Secondly, in relation to a further submission by REX that cl 23 of the Certified Agreement did not prohibit the performance of the Training Bond and did not intend to codify the issue of training for pilots covered by the Certified Agreement, her Honour after referring to cll 5, 8 and 61 of the Certified Agreement, dealt with cl 23 and cl 8 as follows:

“Clause 23 exhaustively deals with the costs of training in a variety of circumstances in clear and unambiguous terms. It places the obligation for payment of the costs associated with training on the employer, except in very narrow and specific circumstances. Clause 8.5, dealing with termination of employment does not similarly create a right to seek repayment of a training bond.

It is not logically possible for the employer to be required to bear all the costs associated with training, as is the case under the [Certified Agreement], and for that obligation to be passed to the employee in accordance with the terms of the Training Bond. I am not satisfied that the terms of the [Training Bond] can co-exist with the [Certified Agreement], they are clearly inconsistent.

The terms of the [Certified Agreement] clearly prevail over inconsistent contractual terms. (I was referred to Josephson v Walker (1914) 18 CLR 691 on this point).”

25 Finally, her Honour referred to and followed the decision of the Full Court of this Court in McLennan v Surveillance Australia Pty Ltd (2005) 142 FCR 105 which considered an Australian Workplace Agreement (“AWA”) and held a training bond that was inconsistent with an AWA was unenforceable. I will consider this decision further later in these reasons.

(4) GROUNDS OF APPEAL

26 This appeal raised three questions relevant to the question of the enforceability of the Training Bond and, in particular, the ability of REX to recover $7,500 from Mr Clarke:

(1) the proper construction of the Training Bond and, in particular, whether it was inconsistent with the Certified Agreement and therefore unenforceable;

(2) whether the decision of the Full Court in McLennan was distinguishable;

(3) whether her Honour fell into error in “failing to recognise that, once [REX had] discharged its onus of proof (on the balance of probabilities) by proving that [Mr Clarke had breached] the Training Bond, the onus of proof shifted to [Mr Clarke] to prove his defence (on the balance of probabilities) that the Training Bond was inconsistent with any and which part of the Certified Agreement and, to that extent, was invalid and unenforceable”.

As will become apparent, these questions and the answers to them are interrelated.

(5) LEGISLATIVE FRAMEWORK

27 It is necessary to turn to consider the provisions of the Workplace Relations Act dealing with certified agreements. Certified agreements are a creature of statute. The relevant provisions are primarily to be found in Pt VIB of the Workplace Relations Act (ss 170L to 170NI). However, other parts of the Workplace Relations Act are relevant including Pt VIE (the no-disadvantage test), Pt VIII (compliance) and Pt XV (matters referred by Victoria).

28 The object of Pt VIB of the Workplace Relations Act is to “facilitate the making, and certifying by the Commission, of certain agreements, particularly at the level of a single business or part of a single business”: s 170L. That object is consistent with the overall object of the Workplace Relations Act: see s 3 and in particular, para 3(e). The term “single business” is defined in s 170LB, so far as is relevant, as “a business, project or undertaking that is carried on by an employer”. Section 170LB(2) provides that if two or more employers carry on a business, project or undertaking “as a joint venture or common enterprise”, the employers are taken to be one employer. In the present case, s 170LB(2) applies.

29 Division 2 of Pt VIB sets out the requirements that must be satisfied for applications to be made to the Commission to certify an agreement. Critically, “there must be an agreement, in writing, about matters pertaining to the relationship between” an employer and all persons who (at the time the agreement is in operation) are employed in the single business of the employer: s 170LI. As Black CJ and Moore J noted in McLennan at [42] and [43] when considering the analogous provision in relation to AWAs (s 170VF of the Workplace Relations Act), it is clear that not only does the certified agreement need not deal in a comprehensive way with terms and conditions of employment, it is not expected to do so.

30 There are two types of certified agreements – agreements between employers and an organisation of employees (s 170LJ) and agreements between employers and employees (s 170LK). We are concerned with the former.

31 Under Div 4 of Pt VIB, the Commission must certify an agreement unless it is satisfied that the requirements of s 170LT are not met: s 170LT(1). The agreement must pass the no-disadvantage test set out in Pt VIE: s 170LT(2). An agreement passes the no-disadvantage test if “it does not disadvantage employees in relation to their terms and conditions of employment”: s 170XA(1). Subject to a number of provisions which are presently not relevant, s 170XA(2) provides that an agreement disadvantages employees in relation to their terms and conditions of employment only if its approval or certification would result, on balance, in a reduction in the overall terms and conditions of employment of those employees under, in this case, relevant awards. The relevant award is determined in accordance with s 170XF. It was not in dispute that the relevant award in this case was the same award considered by the Full Court in McLennan at [11].

32 The effect of certified agreements is dealt with by Divs 5 and 6 of Pt VIB. A certified agreement comes into operation when it is certified and, subject to other sections which are presently not relevant, remains in operation at all times afterwards: s 170LX(1). It binds the employer and all persons whose employment is, at any time when the agreement is in operation, subject to the agreement: s 170M(1). The Letter of Offer expressly provided that Mr Clarke’s position and conditions of employment were “in accordance with the [Certified Agreement]”. It also bound the Australian Federation of Airline Pilots (“the AFAP”) who made the agreement with REX: s 170M(2).

33 Variations to certified agreements were provided for in Div 7 of Pt VIB. A certified agreement cannot be varied except by one of the means specified in s 170MD(7). One method of varying a certified agreement is in writing by agreement between the employer and the AFAP: s 170MD(1). However, any variation has no effect unless the Commission approves it (s 170MD(2)) and the Commission must not approve the variation unless it is satisfied that the variation passes the no-disadvantage test: s 170MD(3)(b). The manner in which both certified agreements and variations to them are negotiated is prescribed by Div 8 and Div 9 of Pt VIB.

34 Compliance with a certified agreement is dealt with in Pt VIII of the Workplace Relations Act. Section 178(1) provides, so far as is relevant, that:

“Where an organisation or person bound by … a certified agreement breaches a term of the … agreement, a penalty may be imposed by the Court or by a court of competent jurisdiction.”

35 A penalty for a breach of a term of a certified agreement may be sued for and recovered by, inter alia, an employee whose employment is subject to the agreement: s 178(5A). As the balance of Pt VIII makes clear, the nature of the term of the certified agreement breached or alleged to be breached is not limited to questions of pay: ss 178(2), (5A), (6A) and 179.

36 For the sake of completeness, it is necessary to refer to Pt XV of the Workplace Relations Act. It extends provisions of the Act, and includes additional provisions in the Act, as a result of the referral by Victoria of certain matters to the Commonwealth: s 488. In general terms, the effect of s 506(2) was to ensure that any common law contract that did not comply with a prescribed minimum term or condition was taken to have effect as if it did comply. It is common ground that this and related provisions were not directly applicable to the issues in these proceedings because of the existence of the Certified Agreement, an agreement which had already passed the no-disadvantage test: s 507.

(6) ANALYSIS

37 Before proceeding to consider the question of the proper construction of the Training Bond and its enforceability, it is necessary to consider a submission by REX that it was not open to Mr Clarke to contend that the Training Bond was unenforceable unless he had commenced proceedings in the Magistrates’ Court of Victoria by way of counterclaim for breach of the Certified Agreement consistent with Pt VIII of the Workplace Relations Act. That contention should be rejected on at least four bases.

38 First, Mr Clarke did not at any time contend that there had been a breach of the Certified Agreement. His submission was and remained that the Training Bond was unenforceable because, consistent with long standing authority, it was inconsistent with the Certified Agreement, a statutory instrument. I consider that argument below. There was no basis, legal or factual, for Mr Clarke to seek to recover a penalty for breach of the Certified Agreement because there was no alleged breach.

39 Secondly, the decisions of Josephson v Walker (1914) 18 CLR 691; Construction, Forestry, Mining and Energy Union v Gordonstone Coal Management Pty Ltd (1997) 78 FCR 437 and ACTEW Corporation Ltd v Pangallo (2002) 127 FCR 1 relied upon by REX do not support the submission that Mr Clarke was limited to relief under Pt VIII of the Workplace Relations Act and, in particular, was required to commence any proceedings by way of counterclaim. Each of the decisions is authority for the proposition that the remedy provided by the Workplace Relations Act for breach of a statutory instrument (including a certified agreement) (s 178) is exclusive: Josephson at 701; Gordonstone at 441 and ACTEW at 18. That proposition is irrelevant to the disposition of this appeal. Neither the Magistrates’ Court nor this Court was required to, or asked to, consider a breach of the Certified Agreement or to make a declaration of right in relation to it.

40 In this context, REX’s reliance upon two further decisions was misplaced. In United Firefighters’ Union of Australia v Country Fire Authority [2007] FCA 853 esp at [32], the Court considered the effect of an act done in breach of particular clauses of the relevant award and the relevant certified agreement. As I have said, this appeal was not concerned with an act done in breach of the Certified Agreement. The issue considered by Gray J did not arise in these proceedings.

41 The other decision on which REX relied was Yango Pastoral Company Pty Limited v First Chicago Australia Limited (1978) 139 CLR 410. That case concerned s 8 of the Banking Act 1959 (Cth) which prohibited a body corporate from carrying on any banking business in Australia unless it was in possession of an authority to do so. The provision went on to impose a penalty for each day of contravention. The first respondent in that case, First Chicago Australia Limited (“First Chicago”), had granted a mortgage which incorporated a guarantee given by the appellants. There was default and First Chicago sued on the guarantee. The appellants pleaded illegality on the basis that the mortgage and the guarantee was illegal and void because of s 8 of the Banking Act 1959 (Cth) or, that by reason of s 8, a court would not assist the respondent to give effect to the transaction. The Court rejected the contention. Gibbs ACJ outlined four ways in which the enforceability of a contract may be affected by a statutory provision which renders particular conduct unlawful: at 413. In my view, the High Court decision does not assist the disposition of this appeal because, as was ultimately conceded by Counsel for REX, no provision of the Workplace Relations Act could be identified which rendered conduct of REX unlawful or, in particular, which precluded REX and Mr Clarke entering the Letter of Offer incorporating the Training Bond.

42 Thirdly, REX’s submission ignores the express terms of the statutory instrument – the Certified Agreement – which contains a specified “Dispute Resolution Procedure” (cl 34) not dissimilar to that invoked in Automotive, Food, Metals, Engineering, Printing and Kindred Industries Union v Ardmona Foods Ltd [2006] FCA 1039 at [44]. The existence of the specified “Dispute Resolution Procedure” runs directly counter to the contention that Mr Clarke was limited to commencing proceedings by way of counterclaim and limited to relief under Pt VIII of the Workplace Relations Act.

43 Finally, the submission is contrary to the fact that the Workplace Relations Act recognises, and the authorities establish, that a certified agreement not only need not deal in a comprehensive way with terms and conditions of employment, it is not expected to do so: see s 170LI of the Workplace Relations Act and McLennan at [42] and [43].

44 Although it is not possible to contract out of a statutory instrument (Josephson at 700; Kidd v Savage River Mines (1984)6 FCR 398 at 409-410; Byrne v Australian Airlines Limited (1995) 185 CLR 410 at 421; Textile, Clothing and Footwear Union of Australia v Givoni Pty Ltd (2002) 121 IR 250 at [23] to [33] and McLennan at 125), that does not prevent an employment contract conferring additional benefits upon an employee over and above those conferred by a statutory instrument: Givoni at [29] to [35] and the authorities referred to. These latter cases were concerned with awards, however the same principles apply to certified agreements: see Ardmona Foods Ltd at [16] and [31]; Amcor Ltd v Construction, Forestry, Mining and Energy Union (“CFMEU”) [2003] FCAFC 57 at [34] and Amcor Ltd v CFMEU (2005) 214 ALR 56 at [144] per Callinan J.

45 In the present case, the issue was not whether additional benefits were conferred by the employment contract. The issue was whether the employment contract, and in particular, the Training Bond, which imposed an obligation on Mr Clarke to pay $7,500 to REX if he left REX’s employment within a specified time, was enforceable.

46 The Certified Agreement satisfied Division 2 of Pt VIB – it was in writing and it contained “matters pertaining to the relationship between” an employer (REX) and all persons who (at the time the agreement is in operation) were employed in its business including Mr Clarke: s 170LI. The ‘matters’ it pertained to included training and termination.

47 The question was not whether the Certified Agreement was comprehensive – it clearly was not. The question was whether the term of the Training Bond, by which Mr Clarke agreed to pay $7,500 to REX if he left REX’s employment within a specified time, was a matter pertaining to the relationship between REX and the pilots that the Certified Agreement dealt with and if so, whether that term effectively altered or varied the rights and obligations concerning that matter or those matters in the Certified Agreement to the disadvantage of Mr Clarke? If the answer is yes, then consistent with the decision of the Full Court in McLennan it was not open to REX to seek to recover $7,500 from Mr Clarke because “… [b]y clear implication, the [Workplace Relations] Act prohibits the alteration of such rights or obligations which might disadvantage the employee by means other than those provided in the Act and renders ineffectual any agreement which purports to do so”: McLennan at [48].

48 Mr Clarke submitted that the term of the Training Bond by which Mr Clarke agreed to pay $7,500 to REX if he left REX’s employment within a specified time was referable to two matters pertaining to the relationship between REX and the pilots covered by the Certified Agreement – training and termination. I agree. So much was made abundantly clear by the express terms of the Letter of Offer incorporating the Training Bond. However, that of itself is not sufficient. The question is whether that term of the Training Bond effectively altered or varied the rights and obligations concerning that matter or those matters in the Certified Agreement to the disadvantage of Mr Clarke. That requires a comparison between the relevant term or terms of the Certified Agreement and the specified term of the Training Bond.

49 In relation to the ‘matter’ of training, under cl 23 of the Certified Agreement, REX was not only responsible for arranging facilities to enable Mr Clarke to reach and maintain proficiency in such ground courses and such aeronautical skills as were required by REX (cl 23.1) but it was obliged to “pay all costs associated with obtaining and for renewing such rating or endorsement” (cl 23.2). The Training Bond altered or varied that matter to the disadvantage of Mr Clarke – at a price of $7,500. That view is reinforced when one recalls that the Commission was required to assess the Certified Agreement against the terms of the relevant award: (see par [31] above) and, under cl 19.1 of that award, “all facilities and other costs associated with attaining and maintaining those qualifications [were] the responsibility of the employer”: McLennan at [11].

50 Even if the Letter of Offer and the Training Bond did not alter or vary the ‘matter’ of training to the disadvantage of Mr Clarke, it did alter or vary the ‘matter’ of termination to the disadvantage of Mr Clarke. Under the Certified Agreement, the employment was terminable by Mr Clarke giving four weeks’ written notice. Under the Letter of Offer incorporating the Training Bond, the employment was terminable by Mr Clarke giving four weeks’ written notice and incurring a debt of $7,500 payable to REX on the same day that the employment terminated.

51 The facts in this case may be characterised in a variety of ways - the Training Bond effectively altered or varied the rights and obligations concerning a matter dealt with by the Certified Agreement to the disadvantage of Mr Clarke by means other than those imposed by the Workplace Relations Act; the Training Bond imposed an additional burden on Mr Clarke by means other than those imposed by the Workplace Relations Act; the Training Bond was an attempt to contract out of the Certified Agreement. Adopting any one of those characterisations, the Training Bond was unenforceable.

52 In McLennan, the Full Court considered a similar issue but in the context of another statutory instrument – an AWA. The Court considered the training bond inconsistent with an AWA and therefore unenforceable. During the course of argument, Counsel for REX submitted (but subsequently abandoned the submission) that the decision of the Full Court was plainly wrong. It was not. On 11 August 2005, the High Court refused Special Leave to appeal on the basis that (without endorsing all of the reasoning of the Full Court) the conclusion reached by the Full Court was correct: Surveillance Australia Pty Ltd v McLennan [2005] HCATrans 603 (11 August 2005).

53 REX also submitted that the decision in McLennan was distinguishable because it dealt with a different statutory instrument and because there were some factual differences. In my view, that submission should also be rejected. The differences in statutory instrument relied upon by REX (that the AWA is an employment agreement between an employer and an individual employee as opposed to a collective instrument such as the Certified Agreement, that the variation to the AWA was made between the same parties whereas the variation by the Letter of Offer was not and that under AWAs the employee loses the safety net completely) did not provide any basis for distinguishing McLennan. In relation to the last matter referred to by REX, although an AWA (but not a certified agreement) applies to the exclusion of any award that would otherwise apply (s 170VQ(1)), a certified agreement does prevail over them to the extent of any inconsistency (s 170LY(1)) and does prevail over State awards and State industrial agreements to the extent of any inconsistency (s 170LZ(1)).

54 Moreover, the statutory architecture and express provisions of Pt VIB (dealing with certified agreements) and Pt VID (dealing with AWAs) are not significantly different and do not lead to adifferent result. Adopting what the Full Court said in McLennan at [47]:

“Having regard to [the] protective legislative framework, it is unlikely that the legislature intended that the parties to [a certified agreement] could reach agreement under the umbrella of that protection about matters pertaining to the employment relationship, obtain [certification from the Commission] thereby removing protection which might be afforded by an award (made under the Act or a State award) or afforded by State law, and thereafter bargain without similar protection to reach a collateral agreement (enforceable under the common law) imposing additional burdens on an employee in relation to matters dealt with by the [certified agreement]. Indeed it is for this reason (and probably one other) that the [Workplace Relations] Act contains procedures with that protection for parties to [a certified agreement] to reach, and obtain approval for, a variation agreement. The other reason would be to allow the parties to [a certified agreement] to add to the [certified agreement] provisions concerning a matter not then dealt with by the [certified agreement].”

55 As I have noted earlier, Div 7 of Pt VIB provides that a certified agreement can only be varied by one of the means specified in s 170MD(7). One of these methods is in writing by agreement between the employer and the AFAP: s 170MD(1). However, even then, any variation has no effect unless the Commission approves it (s 170MD(2)) and the Commission can not approve the variation unless it is satisfied that the variation passes the no-disadvantage test: s 170MD(3)(b); see also Commonwealth Bank of Australia v Finance Sector Union of Australia (2007) 157 FCR 329 at [172]-[174] and [228].

56 In adopting and applying the language of the Full Court in McLennan at [48], where a certified agreement deals with a particular matter pertaining to the relationship between an employer and an employee, then the parties to and those bound by the certified agreement can only alter their rights and obligations in relation to that matter in a way which might disadvantage the employee, by entering into and obtaining approval for the variation agreement in the manner presented by the Workplace Relations Act: see also McLennan at [50].

57 Similarly, none of the factual differences between the decision in McLennan and the facts of this case assist REX. The facts of the present case are, if anything, more compelling than the facts in McLennan in one critical respect. Unlike the AWA in McLennan,cl 23.2 of the Certified Agreement obliged REX to “pay all costs associated with obtaining and for renewing such rating or endorsement. This will include all licensing fees and Civil Aviation Safety Authority charges.” No similar provision existed in McLennan: see [15].

58 For these reasons, the Appeal should be dismissed.

(7) COSTS

59 REX also submitted that her Honour erred when, on 1 March 2006, she ordered costs against REX on the basis that the complaint was a proceeding instituted in the Magistrates’ Court “without reasonable cause” under s 347 of the Workplace Relations Act.

60 Section 347 of the Workplace Relations Act provides:

“A party to a proceeding (including an appeal) in a matter arising under this Act (other than an application under section 170CP) shall not be ordered to pay costs incurred by any other party to the proceeding unless the first-mentioned party instituted the proceeding vexatiously or without reasonable cause.”

(Emphasis Added)

61 The principles relevant to the application of this section were summarised by the Full Court in Council of Kangan Batman Institute of Technology and Further Education v Australian Industrial Relations Commission (2006) 156 FCR 275 at [60] in the following terms:

“The question therefore arises whether, as contended by counsel for Ms Hart, the plaintiff instituted the proceeding vexatiously or without reasonable cause. A party does not institute proceedings without reasonable cause merely because that party fails in the argument put to the Court: R v Moore; Ex parte Federated Miscellaneous Workers’ Union of Australia (1978) 140 CLR 470 per Gibbs J at 473. The section reflects a policy of protecting a party instituting proceedings from liability for costs, but that protection may be lost. Although costs will rarely be awarded under the section and exceptional circumstances are required to justify the making of such an order (see Heidt v Chrysler Australia Ltd (1976) 26 FLR 257; 13 ALR 365 per Northrop J), a proceeding will be instituted without reasonable cause if it has no real prospects of success, or was doomed to failure: see Kanan v Australian Postal and Telecommunications Union (1992) 43 IR 257 per Wilcox J; see also Bostik (Australia) Pty Ltd v Gorgevski (No 2) (1992) 36 FCR 439; and Nilsen v Loyal Orange Trust (1997) 76 IR 180.”

62 The issue for her Honour to determine was whether at the time the proceeding was instituted it had “no real prospects of success, or was doomed to failure”. That is required to be determined as a matter of objective fact: Automotive, Food, Metals, Engineering, Printing and Kindred Industries Union v Nestle Australia Limited (2005) 146 IR 379 at [4] citing Spotless Services Australia Ltd v Marsh SDP [2004] FCAFC 155 at [13].

63 As the Full Court said in Kangan ” at [63] “[i]t is a matter of judgment, sometimes of fine judgment, in all the circumstances of a particular case whether a proceeding is brought without reasonable cause. The phrase “vexatiously or without reasonable cause” was described by von Doussa J in Hatchett v Bowater Tutt Industries Pty Ltd (No.2) (1999) 28 FCR 324 at 327 as “similar to the one applied by a court on an application for the exercise of summary power to stay or strike out proceedings”.

64 In the present case, I have not been provided with the material (if any) provided to her Honour in support of the application for costs or with her Honour’s reasons for decision. In any event the question remains whether, objectively determined, when the proceeding was instituted it had no real prospects of success or was doomed to failure. In other words, was the claim by REX for recovery of the Training Bond “so obviously untenable that it [could] not possibly succeed”, or “manifestly groundless” or “bad beyond argument”: Hatchett at 327.

65 The issue is finely balanced. As I have sought to explain, the actions of REX seeking to recover the Training Bond were, in my view, contrary to the statutory object of certified agreements in Pt VIB of the Workplace Relations Act and the decision of the Full Court dealing with analogous provisions in McLennan. The attempts to distinguish McLennan failed. However, in the circumstances of this case, I am not persuaded that the proceeding was commenced vexatiously or without reasonable cause. I would set aside the costs order of the Industrial Division of the Magistrates’ Court of Victoria of 1 March 2006.

66 The respondent sought costs of the appeal and on an indemnity basis. That application is refused. This is an appeal to which s 347 of the Workplace Relations Act applies: see para [60] above. I am not persuaded that the appeal was instituted vexatiously or without reasonable cause. There will be no order as to costs in relation to the appeal.

I certify that the preceding sixty-six (66) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gordon.

Associate:

Dated:

Counsel for the Appellant:	Mr N Green QC with Mr R Dalton

Solicitor for the Appellant:	Trindade Farr & Pill Lawyers

Counsel for the Respondent:	Mr J Snaden

Solicitor for the Respondent:	Peter Hull & Associates

Date of Hearing:	18 June 2007

Date of Judgment:	29 June 2007

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