New South Wales Local Government, Clerical, Administrative, Energy, Airlines & Utilities Union v Bega Valley Shire Council

Industrial Relations Commission (NSW)|2013-08-27|Before: Boland J

DECISION 1On 10 October 2012, the New South Wales Local Government, Clerical, Administrative, Energy, Airlines & Utilities Union ("USU" or "Union") notified the existence of an industrial dispute with the Bega Valley Shire Council ("the Council"). The dispute concerned what the USU alleged was the unilateral termination by the Council of a number of agreements between the Union and the Council causing loss to employees, members of the Union. 2Then followed extensive conciliation before the Commission in an endeavour to resolve the dispute, but those efforts ultimately proved unsuccessful and a certificate of unsuccessful conciliation was issued on 21 June 2013. 3It was agreed between the parties that the Commission should arbitrate on the question of the status of a document entitled "Heads of Agreement". The USU conceded that if it could not establish the status of the Heads of Agreement as being legally enforceable, the Union would not proceed with any application to recover monies pursuant to the Dispute Notification filed on 10 October 2012. 4This decision concerns whether the copied document tendered in the proceedings entitled "Heads of Agreement" and signed for on behalf of the Council, the USU and the Electrical Trades Union of Australia, NSW Branch ("ETU") is legally enforceable.

Evidence 22For the applicant statements and supplementary statements were filed by Gary John Pearce, a Council employee covered by the Water/Wastewater Agreement, Mark Anthony Wheatley, a former organiser for the USU (now retired), David George Jesson, formerly the General Manager of the Council (now retired), Joseph Gerard Bateman, an employee of the Council covered by the Water/Wastewater Agreement and Robert Douglas Sweeney, an employee of the Council covered by the Technical Services Agreement. 23For the Council, an affidavit of Mr Adam Dansie, was filed along with statements of Mr Jim Collins, Water and Sewer Manager for the Council. 24All of those who gave statements or an affidavit were required for cross-examination

Relevant Facts 25The relevant facts to be derived from the evidence may be summarised as follows: (1)the Council and the USU are parties to the Local Government (State) Award ("the Award"); (2)the Award provides for the making of Council Agreements, the terms of which, subject to certain limitations, supersede the provisions of the Award; (3)the Council and the USU were parties to two Council Agreements known as the Technical Services Agreement and the Water/Wastewater Agreement. The Agreements supplemented the Award by providing for certain employment conditions, including annualised salaries for certain employees of the Council. It was common ground these two agreements were applicable in 2002 and 2003; (4)in 2002, Council took a decision to outsource its sewerage operations in conjunction with the commissioning of a new and upgraded sewerage plant(s). The decision was strongly opposed by the USU and its members employed by the Council leading to industrial action. The industrial dispute was notified to the Commission; (5)the Commission chaired conciliation proceedings over many months in an endeavour to resolve issues between the parties over the outsourcing of Council operations. The conciliation proceedings led to a proposal for a Heads of Agreement; (6)prior to the idea of a Heads of Agreement being floated a great deal of discussion and negotiation took place during the conciliation proceedings regarding guaranteed ongoing employment for employees affected by the outsourcing; (7)in conciliation proceedings on 6 November 2011 the Council's representative advised the Commission that the parties were examining the terms of an agreement to deal with the various industrial issues that had arisen out of the Council's decision to outsource; (8)on 17 December 2002, the Commission was advised that the parties had prepared a "'Heads of Agreement' which summarises all of the guarantees and commitments that the council have made in respect of employees up to today..."; (9)the dispute next came before the Commission on 24 March 2003. It is apparent there remained a number of significant differences between the parties. Negotiations were to continue. Various drafts of the Heads of Agreement were the subject of negotiations; (10)the dispute next came before the Commission on 27 May 2003. A Heads of Agreement document was handed to the Commissioner and the Council's representative indicated all matters had been resolved and, accordingly, applied to have the proceedings discontinued. The Union's representative stated: I can report to you that a vote of our membership was held yesterday in regard to the draft heads of agreement document and a majority vote in favour of 19 to six was found, and our members have voted in favour of that document. (11)the Union's representative opposed discontinuance. The Commissioner left matters on the basis that the file would remain open for three months and that the parties were to send him a signed copy of the Heads of Agreement; (12)according to the evidence of Mr Bateman, he conceded the Heads of Agreement upon which he voted on 26 May 2003 is different in some respects to the document tendered in proceedings, which is a copy of the signed Heads of Agreement; (13)important considerations for the Council in determining its position in negotiations with the unions were: maintenance of goodwill with employees; avoidance of industrial action; and to have certainty because of the urgency of the project and the costs involved; (14)the Heads of Agreement provided to certain named employees in Schedules 1 and 2 extraordinary benefits including, inter alia, guaranteed ongoing employment, ensuring that existing gross pay was protected, continuation of the Water/Wastewater and Technical Services Agreements to the extent those Agreements remained relevant and were not superseded, no undue hardship to be suffered by an employee as a result of redeployment, and protection of existing leave and superannuation entitlements; (15)the Heads of Agreement commenced to be effective on the joint signing by the parties and was to remain in place for the period of the contract with Tenix. The Heads of Agreement was subject to annual review, although that never occurred; (16)subsequent to the signing of the Heads of Agreement in 2003 the Technical Services and Water/Wastewater Agreements were varied by agreement from time to time; (17)the Council decided in 2011 to commence negotiations with relevant unions to terminate expired Council Agreements, including the Technical Services Agreement and the Water/Wastewater Agreement. There was an objection to this course by employees and the USU based on concerns that if this were to occur employees would suffer a drop in income and a loss of other benefits. Reliance was placed on the existence of Heads of Agreement as being a barrier to termination of the Technical Services Agreement and the Water/Wastewater Agreement; (18)the USU notified the existence of an industrial dispute to the Commission. Protracted attempts to resolve the dispute in conciliation were unsuccessful. 26With the unsuccessful attempts to resolve the dispute by conciliation and a certificate of unsuccessful conciliation having been issued, the dispute is to be dealt with by arbitration: s 135 of the IR Act. As I earlier indicated, it has been agreed that I should determine whether or not the Heads of Agreement is legally enforceable. If it is not, the USU has conceded it would not proceed with any application to recover monies.

Case for the applicant 27The applicant relies on s 175 of the IR Act as the Commission's source of power to arbitrate. The main elements of its case may be summarised as follows: (a)The Heads of Agreement was entered into on the basis of seeking to establish legal relations and created binding obligations on the parties. (b)There was never any consent to a revocation or variation in the Heads of Agreement. (c)The factual circumstances in operation up to and including 31 March 2012 supported a continuing role for the Heads of Agreement. (d)The applicant was a party principal to the Heads of Agreement and has a right to enforce the Agreement. (e)In the alternative, the applicant acted as agent for the affected employees. The affected employees are clearly identified within the terms of the document and, therefore, there is not a question of unidentified agency and principal considerations. (f)The Heads of Agreement deal with current not future rights. (g)In terms of consideration, the benefit to the Council or forbearance borne by the applicant was that in return for the Heads of Agreement there would be no industrial action undertaken by the Union (h)Alternative instruments such as a Council Agreement or registered enterprise Agreement were unsuitable given the Heads of Agreement had a life span of 10 years or more. (i)Ryan (Receiver & Manager of Homfray Carpets Australia Pty Ltd) v Textile Clothing & Footwear Union Australia [1996] 2 VR 235; (1996) 130 FLR 313; (1996) 66 IR 258 ("Homfray Carpets"), which is relied upon by the Council, was concerned with a completely different factual scenario and should not be followed. (j)Michael Lahodiuk v Vincent Pace and Prid Pty Ltd [2013] NSWSC 512 is relied upon by the applicant. (k)In the alternative, if the Heads of Agreement is to be regarded as mere Council policy, such policy is incorporated by reference into the contract of employment of the affected employees and reliance is placed upon Nikolich v Goldman Sachs J B Were Services Pty Ltd [2006] FCA 784. (l)Further and in the alternative, that the Council if it offended such a policy instrument i.e. breached the Heads of Agreement, it would be breaching its contractual obligations to the affected employees by reference to the principles of good faith and confidence espoused in the matter of Barker v Commonwealth Bank of Australia [2012] FCA 942.

Case for the Council 28The Council's case may be summarised as follows: (a) the Heads of Agreement falls within the definition of an unregistered collective agreement set out in Homfray Carpets, namely, a "collective agreement that [has] not been certified or registered under Federal or State legislation dealing with industrial relations"; (b) the intention of the parties in making the heads of Agreement was to provide a safety net for the employees named in the Agreement at a time when Council's operations were being contracted out to external organisations; (c) the intention of the parties was not to create legal obligations, but rather the Heads of Agreement is "consistent with the making of an arrangement that was to have industrial as opposed to legal consequences": Homfray Carpets at 272; (d) the circumstances giving rise to the making of the Heads of Agreement cannot be distinguished from the decision in Homfray Carpets; (e) under the terms of the Heads of Agreement no consideration moved from the union signatories or from individual employees in return for the Council's promises as set out in the Heads of Agreement; (f) the words of the Heads of Agreement do not provide any express promise by the Union to do or refrain from engaging in specific industrial action, so as to amount to proper consideration. Nor may any such promise be implied; (g) the terms of the Heads of Agreement are not sufficiently certain and complete; (h) there was no evidence the union parties who are signatories to the Agreement had the capacity within their rules to enter into the Heads of Agreement as agents for the employees; the employees were not signatories to the Agreement; (i) the terms of the Heads of Agreement were facilitative at best, and contemplated that further arrangements, that is, the making of other industrial instruments, namely Council Agreements; (j) in the alternative, even if the Heads of Agreement was considered to be capable of being legally enforceable, by its own terms, it includes a qualification that existing Council Agreements "continue to be operative....to the extent that they remain relevant or are superseded by revised Agreements." The Technical Agreement and Water Agreement have been terminated and are no longer relevant; (k) in the alternative, even if the Heads of Agreement was considered to be capable of being legally enforceable; to provide the Aggrieved Employees more favourable working conditions over any other employee working in the same teams and performing the same duties in Eden, Merimbula and Bermagui (who are paid in accordance with the Local Government (State) Award 2010), is simply inequitable and causes operational and resourcing difficulties for the Council; (l) further, in the alternative, even if the Heads of Agreement was considered to be capable of being legally enforceable, by its own terms, it was intended to apply for the duration of the particular industrial context out of which it arose in 2003. If it was intended to continue in operation from year to year, the Heads of Agreement would have been subject to annual review and amendment to reflect changing circumstances, as provided for in the 'Term of Agreement' clause. There is no evidence of any annual review or amendment ever being undertaken. Accordingly, the Heads of Agreement provided only for the maintenance of "existing gross pay entitlements" which the Respondent says are frozen in time, and refer to the entitlements of the Aggrieved Employees as at the relevant time, being 2003; (m) the authority of Michael Lahodiuk v Vincent Pace and Prid Pty Ltd [2013] NSWSC 512 relied upon by the USU concerns a completely different factual matrix easily distinguishable from the unique circumstances of an industrial dispute between union representatives, employees and employers; (n) the Heads of Agreement served a purpose, to provide for employment security in unique industrial circumstances at a time when the Council was taking steps to contract out its sewerage treatment plants. That there may have been a "legitimate expectation of the parties [that the Heads of Agreement would be followed at the time] does not mean that the parties are to be taken as contemplating that those expectations were to be capable of enforcement by resort to the courts"; Commissioner for Public Employment v The Public Service Association of SA [2001] SAIRC 12 at [31] following Homfray Carpets.

Homfray Carpets 29Homfray Carpets was an appeal from a single judge of the Victorian Supreme Court. The appeal examined the legal status and enforceability of over-award collective industrial agreements. 30Relevantly, in 1991 Homfray Carpets Pty Ltd had made four collective agreements with unions dealing with redundancy. In 1993, employees were made redundant and paid redundancy pay in accordance with the federal Textile Industry Award. As the overaward agreements specified redundancy payments in addition to those prescribed by the federal Award, the unions sought the payment of these additional monies to their members. The receivers and managers applied to the Supreme Court for directions about the effect of these agreements and the priority, if any, which ought to be accorded to them. The unions intervened in the proceedings and contended that their members were entitled to the additional redundancy payments. 31At first instance, O'Bryan J held the unregistered collective agreements were contracts of employment and legally enforceable. On appeal, the court (Brooking, Tadgell and Hayne JJA) found in favour of the receiver and manager and held that the agreements did not constitute contracts of employment. 32Hayne JA gave the main judgment. Having found the agreements were not "industrial instruments" for the purpose of the Corporations Law, his Honour considered whether the agreements were contracts of employment. In doing so, his Honour considered the unions' argument that in making the agreements they were acting as agents for their members employed by the company and, in the alternative, the unions themselves were parties to the agreements. 33On the question of agency, after describing the terms of a proposed agreement arrived at in negotiations, Hayne JA observed at 263: The proposal was put to employees at a stop work meeting held on 16 September 1991 and was approved "overwhelmingly". Company records reveal that 18 union members were absent from work on that day. Further, there was evidence below that suggested that of two boiler attendants at the factory (the two being the only members of one union at Homfray), only one would attend meetings (the other tending the boilers during meetings). The meeting on 16 September was held (as were other meetings) to coincide with the change of shifts at the factory and there was evidence that about 150 or 160 employees (out of about 190 employed at Homfray) attended the meeting. 34After the meeting approved the proposal, letters incorporating the terms of agreements were prepared and signed on behalf of Homfray Carpets and on behalf of each of the four unions involved. 35Hayne referred to evidence given by the union officials who were involved in the negotiations to the effect that they intended the agreements which they had made with Homfray Carpets, to be legally binding. In respect of the evidence of one union official, that he considered the agreements to be legally binding, Hayne JA stated at 265: In my view that evidence was inadmissible. It did no more than describe the deponent's view of the effect of the arrangements that had been made. That is, it was evidence of the apparently uncommunicated subjective belief or opinion of the witness about the legal consequences to be attached to the transactions. Such subjective beliefs (uncommunicated to the opposite party to the transaction) do not assist in determining whether the parties are to be taken as intending legal consequences to attach to that conduct. That enquiry is principally, if not entirely, an enquiry about the objective effect of the words and conduct of the parties; it is not an enquiry about the beliefs each may have secretly harboured about what was the effect of those words or that conduct. 36At 266, Hayne JA stated that the question whether the parties intended to be legally bound by the arrangement that they made could not be answered in isolation. In particular, his Honour said, it could not be answered without identifying the parties to the arrangement and without identifying what the arrangement was. His Honour further stated: Nothing in the various subjects under discussion (redundancy payments, payment of wages, redundancy procedures or shift arrangements) and nothing in the way in which the parties acted or spoke suggests that they did not intend a result that would inure to the benefit of at least some (if not all) employees of Homfray. But in deciding whether parties were to be bound in a way that would permit the opposite party to enforce rights at law, and not be confined to securing performance of the opposite party's promises only by industrial means, much may turn upon who are the parties and what it was that was agreed. 37On the question of parties, Hayne JA stated that any conclusion that the union (or its officers) was acting as agent rather than as principal confronted a number of insuperable obstacles in the way of accepting the proposition. His Honour observed that the arrangement was one that would operate in the future; it was not an arrangement dealing with an existing problem. Further that although there had been some redundancies that had provoked the negotiations, the arrangement that was reached was one that would govern redundancies in the future and the parties negotiated the arrangement without confining their attention to any identified employees or classes of employee who were about to be made redundant. 38In this last respect, Hayne JA observed: On no view of the evidence did all employees of Homfray vote in favour of the proposal that was put to the meeting. Some employees were absent from the meeting. It may be that some who were present at the meeting did not vote in favour of it. A conclusion that the union was acting only for those employees who voted in favour of the proposal leads to strange and difficult results. The agreements which the unions and the employer executed were cast in general terms. There was nothing in them to suggest that only some employees were to benefit. No record was made at the meeting of who voted in favour of the proposal and thus there was no record of who, on this analysis of the matter, was to benefit from the arrangement. If the union were to be treated as acting as agent not only for those who voted in favour of the proposal but for some wider class of employees of Homfray, such as all union members or all present and future union members employed at Homfray, other difficulties arise. Leaving to one side whatever problems there might be about contracting on behalf of unascertained future employees, and dealing only with present employees, by what right does the union act for absent or dissenting employees? By hypothesis, the agreement that is struck is reached between individual employees and the employer. If that agreement is enforceable as a contract, those individual employees have provided consideration for the promise of the employer. By what right does the union agree on behalf of dissenting or absent employees to provide consideration to the company in return for its promise to provide specified redundancy benefits? Nor should the question of providing consideration be dismissed as some legal technicality. Thus if the union had purported to offer a promise of no further industrial action for a time, would persons who were later employed at the factory be bound at law not to take industrial action and thus be liable to an action for damages if they did? Or if the union had agreed that there would be no further claims for changes in the terms and conditions of employment for a period of (say) two years, could the employer seek an injunction restraining employees who had voted against the proposal, or who first came into its employment after the agreement was made, from prosecuting such a claim? By what right does the union offer such promises on behalf of persons who have not assented to their being proffered? 39Hayne JA addressed the alternative argument that each of the four unions, as principal, made an agreement with the employer. In doing so, his Honour asked rhetorically at 269: But what consideration can be identified for the employer's promise to pay redundancy benefits? What was the right, interest, profit or benefit accruing to the employer or forbearance, detriment, loss or responsibility given, suffered or undertaken by the union? 40His Honour found that not only was there no express promise by the union to do or refrain from doing something, but no such promise could be implied. 41At 273 Hayne JA stated: It is desirable to draw together the three questions of intention to create legal relations, parties and consideration for, as I have said, I do not think that they can be considered as three separate and isolated questions. In my opinion the true analysis of what was said and done in relation to Homfray is that the arrangement that was struck was struck between union and employer and, the union having provided no consideration for the employer's promise no contract was made. Because the union gave no consideration for the promise of the employer, the parties did not make a bargain of the kind that could be enforced in a court and in my view their conduct is to be taken as demonstrating that they did not intend to do so. 42Brooking JA also addressed the question of consideration at 249-250. His Honour said in part: The Homfray agreements were reached in settlement of an industrial dispute. Doubtless the employer, the unions and the unionists expected that they would be carried into effect. As regards consideration, there is no doubt that, as a matter of industrial reality, the agreements were arrived at by a process of collective bargaining. Common sense and fairness require that the court strive to uphold them as legally enforceable. But, as has often been observed by writers on labour law, legal doctrines may at times seem inadequate to cope with the realities of industrial relations. I have considered each of the formulations by Mr Haylen of the suggested implied term, along with a number of other versions, and have in the end concluded that no such term can be implied as can stand as consideration moving from the union. The matter of certainty is important in two respects. No term will be implied unless it can be expressed with sufficient certainty to be enforced; and a promise cannot constitute good consideration unless it is sufficiently certain to be enforced. I have anxiously considered whether it is possible to formulate, and to imply, a sufficiently certain promise on the part of the union, whether in relation to all the matters the subject of the Homfray agreement or in relation to one or more of those matters, but have decided that the attempt must fail. One of the obstacles to the implication of a sufficiently certain promise on the part of the union is the circumstance that the first part of the Homfray agreement is concerned only with benefits which the employees are to receive: so it cannot be said that the union promises by implication that its members will perform, or promises by implication to do its best to ensure that its members will perform, their part of an industrial bargain. Another difficulty, already mentioned, concerns the distinction between promising that members will perform and promising to endeavour to ensure that they will perform their part.

Commissioner for Public Employment v The Public Service Association of SA 43Commissioner for Public Employment v The Public Service Association of South Australia [2001] SAIRC 12; (2001) 122 IR 161 was an appeal from single judge of the Industrial Relations Court of South Australia answering a question of law from the South Australian Industrial Relations Commission. It concerned a Memorandum of Understanding (MOU) reached between the Premier and Minister of Industrial Affairs on behalf of South Australian government agencies and the United Trades and Labor Council (UTLC) on behalf of various unions. One of the agencies was the Lotteries Commission. The MOU provided for "a base of conditions of employment" to be recognised by the parties for the duration of the MOU (i.e., from 1 January 1997 to 31 December 1998). 44The question of law referred to the single judge was: Does the Memorandum of Understanding as extended in its operation to October, 2001 apply to the Lotteries Commission? 45The judge answered in the affirmative. However, the Full Bench of the Court held the question was not a question of law and the Court had no jurisdiction to answer it. Relevantly, the Full Bench held that even if the question was within jurisdiction the MOU did not create a legally binding arrangement. 46Relevantly the Full Bench stated: Did the MOU create any legally binding arrangement? As Hayne JA (as he then was) explained in Ryan v Textile Clothing and Footwear Union of Australia and Another [1996] VicRp 67; [1996] 2 VR 235 at 266 "That question (whether the parties intended to be legally bound by the arrangement that they made) cannot be answered in isolation. In particular it cannot be answered without identifying what the arrangement was." It now becomes necessary for us to embark upon the type of analysis that Hayne JA undertook in Ryan. ... [30] If the UTLC was not acting as agent, was it acting as principal? If it was, what consideration did it provide? An analysis of the MOU reveals that the UTLC was not expressly required to do anything itself. Applying the principles relating to the implication of terms to a contract, no such implication requiring the UTLC to do anything can be implied. Like the union in Ryan, the UTLC had not suffered or undertaken any forbearance, detriment, loss or responsibility: Ryan (supra) at 271. [31] None of this is to suggest that the MOU does not carry with it important industrial, as opposed to legal, consequences. Doubtless the MOU reflects an expectation that the parties to it would abide by its terms. To use the words of Hayne JA in Ryan at 272, "But the fact that that may have been a legitimate expectation of the parties does not mean that the parties are to be taken as contemplating that those expectations were to be capable of enforcement by resort to the courts". [32] It might be said in response to this that if the arrangement is not legally enforceable what then was the point of it. We adopt the answer provided by Hayne JA:- "In my view the argument asserting apparent disappointment of legitimate expectations is much weakened (if not wholly answered) when it is recalled that the agreements could have been rendered enforceable by resort to these provisions. [ie those relating to the approval or certification of agreements] The fact that the parties did not register the agreements may owe much to the judgments which they then made about what was or was not to their advantage ... But that does not mean that the expectations of enforceability which the parties (be they the unions and the employer or the employees and the employer) may have had are to be understood as expectations of enforceability in the courts. Nor does it mean that the expectations (however large they may have been) are properly classed as legitimate expectations of enforceability otherwise than by industrial means of persuasion when there was available to the parties readily accessible means of ensuring enforceability which they did not adopt." (Ryan at 272 - 273). [33] In the end, His Honour concluded at 273: "Because the union gave no consideration for the promise of the employer, the parties did not make a bargain of the kind that could be enforced in the court ...". The same is true here. The MOU is not, of itself, enforceable at law. That being so, on the face of it, whether or not the parties recommitted to its terms is a question of fact not a question of law.

Lahodiuk 47Michael Lahodiuk v Vincent Pace and Prid Pty Ltd [2013] NSWSC 512 concerned a Heads of Agreement involving the sale to the plaintiff of a factory, plant and equipment, business name, signage and telephone number. The defendants sought an order for specific performance of the Heads of Agreement. The question arose as to whether the Heads of Agreement was binding. 48In discussing the relevant legal principles, Sackar J relevantly observed: [13]...Whether or not the parties here intended the agreement to be immediately binding is to be determined objectively having regard to the language contained in the Heads of Agreement. The High Court has repeatedly affirmed this proposition (Allen v Carbone (1975) 132 CLR 528; Taylor v Johnson (1983) 151 CLR 422; Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165; Byrnes & Anor v Kendle (2011) 243 CLR 253). [14] The Heads of Agreement must of course be read in the light of the surrounding circumstances [reference made to Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451; International Air Transport Association v Ansett Australia Holdings Ltd (2008) 234 CLR 151]... ... [18] If the terms of such a document indicate that the parties intended to be bound immediately, effect must be given to it. Construction of a document may make it sufficiently clear that the parties were content to be bound immediately by the terms to which they had agreed, notwithstanding they contemplated further documentation (Masters v Cameron (1954) 91 CLR 353 at 360; Anaconda Nickel Ltd v Tarmoola Pty Ltd (2000) 22 WAR 101 at 110 per Ipp J). A relevant consideration in relation to the parties being immediately bound may be that the agreement was reached in the context of a mediation on relation to outstanding litigation (Geebung Investments Pty Ltd v Varga Group Investments No 8 Pty Ltd (1995) 7 BPR 14,551 at 14,570-14,571). 49Sackar J held as follows: [22] The document signed by the parties was described as a "Heads of Agreement", which is itself an indication that the parties purported to enter into an agreement (A W Ellis Engineering Pty Limited and Ors v Malago Pty Limited and Ors [2012] NSWSC 55 at [116]). The language used in the Heads of Agreement was drafted by or under the supervision of legal practitioners acting for both sides after lengthy negotiations and consideration. The specificity of the language used also suggests the parties intended to be bound. For example, the Plaintiff is obliged to pay a certain sum ($245,000), by a specific date (31 December 2012), for a specified acquisition (plant and equipment and office equipment "used in the business", the telephone number, the business name and the remaining interest in the factory). The final clause above the parties' signatures is significant, and provides that the Heads of Agreement is in "complete settlement" of the proceedings inclusive of costs. The proceedings are identified by a court-provided case number at the top of the page. [23] It is true that the parties clearly contemplated that further documents would be necessary to effect completion. However, as noted in the authorities, this of itself does not detract from the immediately binding effect of the Heads of Agreement. This is not a case where entry into the contract is said to be as a result of any oral or written misrepresentation made at the mediation (Phiga Pty Ltd and Others v Roche and Others (2011) 278 ALR 209). [24] There is clearly a factual dispute between the parties as to the state of the business and its equipment as sold, but again, this does not go to the existence of the contract. The Plaintiff's decision not to inspect the premises or to obtain an inventory list prior to entering into the agreement was perhaps a deficiency in the due diligence process that would normally be undertaken prior to entry into an agreement to acquire a business. Alternatively, the Plaintiff could have managed that risk by including a term in the Heads of Agreement making the settlement conditional on a satisfactory outcome of its due diligence process to be conducted after entry into the agreement. The factual dispute as to the state of the equipment used in the business does not of itself affect the validity of the agreement. The factual dispute may, depending on the evidence, ultimately be one which gives rise to other remedies for the Plaintiff, but I am obviously not in a position to comment on this, nor again is it relevant to the issue before me. [25] The Plaintiff's emotional condition or state of mind, as described in the psychologist report attached to his affidavit, certainly does not go as far as to vitiate the contract, and in any event, the relevance of the report is doubtful as it mainly relates to a period of time well before the Plaintiff signed the Heads of Agreement. [26]Having reviewed the Heads of Agreement and the relevant authorities it seems to me to be clear that Heads of Agreement is indeed binding on the Plaintiff and the Defendants. [27] Accordingly, I would grant order for specific performance of the Heads of Agreement. I order that the Plaintiff pay the Defendants' costs of the notice of motion and separate determination.

Consideration 50The Heads of Agreement was the product of lengthy and complex industrial negotiations between the Council, the USU and the ETU and involved industrial action. It developed out of conciliation proceedings in the Commission. The Heads of Agreement dealt with working arrangements and conditions of employment of 25 employees of the Council named in Schedules 1 and 2 to the Agreement. It was designed to assure the employees as to their job security and maintenance of employment conditions in circumstances where the Council proposed to contract out the design, construction, operation and maintenance of sewage treatment plants. 51The Heads of Agreement was struck against the background of a State Award binding on the parties as well as Council Agreements made pursuant to that Award, including the Technical Services Agreement and the Water/Wastewater Agreement. The Heads of Agreement provided that these two Council Agreements would continue to be operative to the extent they remained relevant or were superseded. The Heads of Agreement stated: The parties commit to the negotiation of revised Agreements where necessary, to reflect the changed work circumstances and to ensure that existing gross pay is protected. 52It was not in issue that the Heads of Agreement came into operation after it was signed in 2003, although the existence of the Agreement seemed to have been lost sight of and it was only when the Council decided that as part of a rationalisation process in 2011 it would discontinue the Technical Services Agreement and the Water/Wastewater Agreement that the Heads of Agreement again became relevant in the minds of a few employees. During the period of its operation no negotiations occurred to review or revise the Heads of Agreement. 53The Heads of Agreement went through various iterations. One version was the subject of a meeting of 25 employees on 26 May 2003 when 19 employees voted in favour of the version and 6 voted against. The identity of the employees voting is not known other than Mr Bateman and Mr Pearce who indicated they had voted in favour of the version. The version voted on was not the same as the version eventually signed by the parties. The version signed did not have attached Schedules 3 and 4. 54The Union contended that the Heads of Agreement was contractually binding on the Council and the USU (as well as the ETU). However, it appears the USU puts in the alternative that it was acting as its members' agent in making the Heads of Agreement. Before dealing directly with those contentions it is necessary to note that the USU sought to rely on the views of certain individuals about the intention of the parties in the making of the Heads of Agreement. Whether the Heads of Agreement has contractual force will depend upon an assessment of the intentions of the parties judged objectively and not the subjective views of parties: Ermogenous v Greek Orthodox Community of South Australia Inc [2002] HCA 8; (2002) 209 CLR 95 at [25]. 55In Goldman Sachs JB Were Services Pty Ltd v Nikolich [2007] FCAFC 120; (2007) 163 FCR 62 Black CJ, in dealing with the question of intention to be bound by a representation, stated at [23]: [23] ... It is well established that if a reasonable person in the position of a promisee would conclude that a promisor intended to be contractually bound by a particular statement, then the promisor will be so bound. This objective theory of contract has been repeatedly affirmed as representing Australian law by the High Court. Thus, in Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 51; (2004) 219 CLR 165, 179, the Court said: It is not the subjective beliefs or understandings of the parties about their rights and liabilities that govern their contractual relations. What matters is what each party by words and conduct would have led a reasonable person in the position of the other party to believe. References to the common intention of the parties to a contract are to be understood as referring to what a reasonable person would understand by the language in which the parties have expressed their agreement. The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean. That, normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction. 56Dealing with the argument that the USU is a party principal to the Heads of Agreement and that the Agreement is binding on the USU and the Council, in Homfray Carpets the critical question considered by the Victorian Court of Appeal was consideration: What was the right, interest, profit or benefit accruing to the employer or forbearance, detriment, loss or responsibility given, suffered or undertaken by the union? 57In the present case, the USU contended there were a number of benefits flowing to the Council by virtue of resolving industrial issues through the making of the Heads of Agreement, namely: that the Council was able to proceed with urgent works that were basic to the community's needs; that the Council would achieve cost savings of millions of dollars by undertaking the works; that further delay in commencing the works was avoided thus avoiding additional costs and environmental damage; and that the USU "did forego its rights to continue the existing industrial action or to take further industrial action including threatened dismissal claims". 58It seems to have been put this way: that there were benefits accruing to the Council by virtue of the USU's agreement to the Heads of Agreement and forbearance undertaken by the Union by it foregoing "its rights to continue the existing industrial action or to take further industrial action including threatened dismissal claims". 59The first thing to be said about the Union's proposition is that the words of the Heads of Agreement do not provide any express promise by the Union to do or refrain from doing anything. Specifically, there is no promise by the Union that in return for the Heads of Agreement, ratepayers and the environment would benefit and the Council would save money. Nor could there have been: the Union was in no position to make such a promise or deliver on it. If the sewage works proceeded it may follow that the community and environment would benefit and the Council would save money, but not because of any promise made by the Union to the Council. 60Nor was there any express promise by the Union in the Heads of Agreement to engage in or refrain from engaging in industrial action if the Agreement was made and executed. It was contended that such a promise may be implied from the history of the matter before the Commission. In that respect, when the matter first came before O'Neill C on 3 July 2002, the Commissioner recommended that there be no further industrial action. Based on that recommendation, the Union representative indicated to the Commissioner there would be a recommendation put to union members the following day that there be a return to work. That recommendation appears to have been adopted by the workforce. 61The next occasion on which the issue of industrial action arose was in conciliation proceedings before O'Neill C on 6 November 2002. The Council referred to a ban on discussions with the Council regarding workplace reform. The Commissioner recommended the employees give consideration to the ban being lifted and the union representative indicated "okay". That particular ban appears to have been lifted. However, in further conciliation proceedings on 17 December 2002, the Council's representative referred to another ban that employees do not assist any prospective contractors. The Union's representative appeared to confirm such a ban was in place but nothing more was said about it. 62The next occasion industrial action was mentioned was in conciliation proceedings on 24 March 2003 when the Union's representative indicated he could not guarantee union members would not take further industrial action over superannuation issues that remained outstanding. Then on 27 May 2003, which was the last conciliation conference before O'Neill C, the Council's representative indicated the industrial dispute was resolved. One can assume from this there was no ongoing or threatened industrial action at that time. However, no mention was made of any commitment by the Union as to the taking of industrial action in the future. Indeed, the Union's representative did not want the Commission's file on the dispute closed because there were still outstanding clauses in the draft Heads of Agreement to be addressed and "it could well be that there are a number of disputes arise from the actual document itself." 63The test to be applied to whether there was an implied term in the Heads of Agreement that the Union would forego "its rights to continue the existing industrial action or to take further industrial action including threatened dismissal claims", was laid down in BP Refinery (Westernport) Pty Ltd v Hastings Shire Council [1977] HCA 40; (1977) 180 CLR 266 at 283, where it was held that for a term to be implied the following conditions must be satisfied: a) it must be reasonable and equitable; (b) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (c) it must be so obvious that "it goes without saying"; (d) it must be capable of clear expression; and (e) it must not contradict any express term of the contract. 64The Union's claim that a term should be implied in the Heads of Agreement that it would forego "its rights to continue the existing industrial action or to take further industrial action including threatened dismissal claims" does not meet either test in (b) or (c) above. The Heads of Agreement is effective without implying the term claimed by the USU. Moreover, the claimed term is not so obvious that "it goes without saying". There is no indication at all in any of the evidence, including the conciliation proceedings, that the Union intended, as a term of the Heads of Agreement, to forego any right to take industrial action. If that had been the intention it would have been a simple matter of saying so in the Heads of Agreement in the form of a "no extra claims clause" or other provision prohibiting industrial action. 65Even if a commitment could be implied into the Heads of Agreement that there would be no industrial action, the question remains as to what would be the terms of that commitment. Would it be a complete ban on any industrial action for the term of the contract, or a ban for say 12 months, or a ban in respect of only those matters dealt with in the Heads of Agreement, or a ban only on industrial action by employees affected by the Agreement? As Brooking JA observed in Homfray Carpets, no term will be implied unless it can be expressed with sufficient certainty to be enforced. 66Mr Barnes for the USU was asked why, if it had been the parties' intention to make the Heads of Agreement legally binding, they did not adopt the simple, non-technical procedure under the Award for making a Council Agreement or, as suggested by O'Neill C at one stage, an Enterprise Agreement under the Industrial Relations Act 1996. Mr Barnes indicated that because of the lengthy duration of the contract with Tenix it would not have been appropriate to make agreements with a limited life such as a Council Agreement or Enterprise Agreement. 67That left the parties with two options in my opinion. The first option, and in my experience the most commonly employed, was a non-legally binding agreement that relied on the industrial parties observing the terms of the Agreement as a matter of honour and good faith, importantly with the option open to either party of seeking the Commission's assistance by conciliation and/or arbitration if there was any breach or non-compliance with the Agreement. The second option was a formal, legally binding contract. There could be doubt, in my view, that the parties were aware of their options and if they had chosen the second option would have consulted lawyers to ensure the contract was properly drafted and binding. 68The Heads of Agreement was loosely drafted - far removed from the language of a formal contract - and not under seal. It contained no promise by the USU or the ETU that benefited the Council, nor did it contain any obligation on the Union to refrain from taking industrial action. 69Whilst there was a legitimate expectation of the parties at the time that the terms of the Heads of Agreement would be observed, that "does not mean that the parties are to be taken as contemplating that those expectations were to be capable of enforcement by resort to the Courts": Commissioner for Public Employment v The Public Service Association of SA at [31]. Access to the Industrial Relations Commission was readily available and any expectation that the Agreement would be followed could be fulfilled using the processes available in the Commission. 70I find the Union gave no consideration for the promises of the Council that are reflected in the terms of the Heads of Agreement. Therefore, the parties did not make a bargain of the kind that could be enforced in a court. 71I turn to whether the Union was an agent of the employees concerned. There was no evidence of an express agreement between the employees concerned and the USU that the USU would act as agent for the employees in negotiating the Heads of Agreement (further, there was no evidence regarding the Union's rules and its capacity to act as an agent for its members). Nor was there evidence of an agreement that individual union officials were acting in the capacity of agent, which in any event seems highly unlikely given that the Heads of Agreement was made between the Council, the ETU and the USU as principal parties. 72I have considered whether it may be implied there was an agency agreement between the employees and the Union. It appears from the evidence there was a meeting of employees on 26 May 2003 whereby the employees, by a majority of 19 to 6, voted in favour of accepting a version of the Heads of Agreement that had been provided to them to vote on. Even if one accepts the Union was acting as the agent for those who voted in favour of the version submitted to the meeting, the version of the Agreement voted upon was not the version that was later signed off by the Council and the unions in July/August 2003. There was no evidence of any subsequent vote or acceptance of the later signed version by the employees concerned. However, it may be arguable that, as the signed Agreement was implemented, implementation demonstrated tacit agreement. 73What is fatal to the agency argument is, again, the absence of consideration. There is nothing in the Heads of Agreement showing any right, interest, profit or benefit accruing to the employer or forbearance, detriment, loss or responsibility given, suffered or undertaken by the employees. The Agreement is all one way. As the Preface indicates, the Agreement is about working arrangements and terms and conditions of employment for certain staff and providing "unsurpassed conditions" to "obligate potential contractors to maintain terms and conditions of employment for Council employees...". These were benefits accruing exclusively to the employees. In respect of industrial action, for the earlier reasons given there was no express or implied undertaking by the employees or any one of them that they would refrain from taking industrial action. 74In respect of Lahodiuk, I think the Council is correct in submitting that it concerned a different factual scenario, that being a Heads of Agreement derived as a result of mediation between parties to a commercial dispute. The Heads of Agreement in that case was drafted by legal representatives in sufficiently clear and certain terms that suggested the parties intended to be bound, requiring one party to pay another party a specifically identifiable sum of money for a one half share of a factory located in Regents Park on a certain date (that date being "on or before 31 December 2012").

Conclusion 75I find that the Heads of Agreement the subject of these proceedings is not binding at law.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 30 August 2013

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