20 There is nothing expressed in the MOU that limits the quantum of agency employee cost offsets to 0.5 per cent or less. Nor, in my view, could such a limitation be implied, based on the tests enunciated in BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266 at 283.
21 It is arguable, however, that the MOU is ambiguous given there are rival contentions by the parties as to its proper interpretation: Printing & Kindred Industries Union v Davies Bros Ltd (1986) 18 IR 444 at 449; Spargo v Repatriation Commission (2001) 116 FCR 304 at [13]. To resolve the ambiguity regard may be had to extrinsic material. There is also the issue of whether there was some underlying agreement between the parties of a limit on agency level cost offsets of 0.5 per cent.
22 In considering the question of whether there was an underlying agreement imposing a cap of 0.5 per cent or whether there was ambiguity in the MOU, it is permissible to have regard to surrounding circumstances, one of which is the Commission's Recommendation of 17 September 2008 from which the MOU derived.
23 There is no doubt that on 15 September 2008 representatives of the DPC put on the negotiating table the concept of a cap on agency level savings. That was obviously designed to place pressure on the PSA to deliver more savings through centrally negotiated reforms. It was clearly the case that the Commission's concern expressed at [3] of the Recommendation related to the change in the Department's position represented by the cap of 0.5 per cent at the agency level imposed unilaterally by the respondent. In the Commission's view, given the progress that had been made up to that point, that was a retrograde step and raised the question whether the respondent was bargaining in good faith.
24 By 16 September, after a very long period of difficult negotiations between the parties, with an extended arbitration imminent before the Full Bench, it is evident from the terms of what the Commission said in its Recommendation that the Commission was seeking to break the deadlock, namely, that the PSA would not agree to any further cost saving measures through centrally negotiated reforms and the DPC adopting a position that only 0.5 per cent of savings could be negotiated at the agency level and the remainder had to be achieved through central reforms. The Commission understood that a number of central reforms had been largely agreed and to the extent of that agreement, that it offset part, but not all, of the cost of the difference between the 4.0 per cent offer by the Government and the 2.5 per cent funded element of a wage increase. To the extent there was agreement on central reforms this was reflected in the Recommendation.
25 The mechanism proposed by the Commission to resolve the impasse was that the parties should 'negotiate outcomes at the agency level that will produce cost savings to fund the difference between what has been achieved under the Commission's Recommendation and what is necessary to fund the remainder of the 4.0 per cent increase.' The scope of matters to be negotiated at the agency level had been agreed between the parties and it was unnecessary for the Commission to make any recommendation that differed in that respect.
26 It is inconsistent with the Recommendation that there be a cap of 0.5 per cent on employee cost offsets at the agency level. The Commission was aware of the fact that only a proportion of the 1.5 per cent that needed to be found was fundable by the central reforms that had been agreed and that the parties had exhausted their efforts in being able to agree on any further central reforms. The idea that the Recommendation was envisaging a cap of 0.5 per cent for agency bargaining does not fit at all with the recommendation that the parties 'negotiate outcomes at the agency level that will produce cost savings to fund the difference between what has been achieved under the Commission's Recommendation and what is necessary to fund the remainder of the 4.0 per cent increase.' There was no suggestion or evidence that what could be 'achieved under the Commission's Recommendation' amounted to 1.0 per cent, leaving 0.5 per cent to be negotiated at the agency level.
27 Moreover, it is clearly the case that the Commission was seeking to find a mechanism that would fund the difference between the funded increase of 2.5 per cent and the 4.0 per cent on offer. Part of that difference could be filled by the central reforms proposed in the Recommendation, but on the information available to the Commission that part could not have constituted 1.0 per cent in savings. For the Recommendation to be regarded as imposing a cap of 0.5 per cent on agency level savings would have meant that the Commission was limiting the ability of the parties to negotiate reforms that would enable the potential for cost savings to be achieved to fund the whole of the difference between 2.5 per cent and 4.0 per cent. That is not what the Commission intended nor what the Recommendation states in [6] and [7].
28 As for the underlying agreement, whilst the DPC did, on Cabinet Committee authority, propose a cap in the negotiations and did not at any stage indicate that position was withdrawn, the concept of a cap was clearly overtaken by the Commission's Recommendation and a reasonable bystander would have understood that to be the case. That the PSA continued to believe the cap remained because the DPC did not expressly indicate otherwise, such a subjective belief is no basis to find that there was an underlying agreement regarding the application of a cap.
29 The remaining issue concerns whether a department or agency is entitled to negotiate employee-related cost savings to the full extent of 1.5 per cent notwithstanding the Commission's Recommendation acknowledged that acceptance of the Recommendation would mean that 'the government will have achieved cost savings to fund, in part, the increase above 2.5 per cent.'
30 The PSA submitted that the Recommendation and the parties contemplated that it was only the residual, that is, what was left (up to a cap of 0.5 per cent) given the cost savings achieved from the central reforms, that would need to be found from 'agency level improvement initiatives'. Further, that it was not and could not have been envisaged that the PSA would come to negotiate 'agency level improvement initiatives' for any particular department and agency and be required to identify 'agency level improvement initiatives' which would satisfy the whole of the cost of the salary increases for employees in that department or agency (above 2.5 per cent per annum).
31 The DPC's position was that a department or agency was entitled under the MOU to negotiate agency level improvement initiatives up to 1.5 per cent if the central reforms were of zero or negligible value for that department or agency.
32 At [7] of its Recommendation the Commission stated:
[7] ... In other words, as far as the Commission is concerned agencies will be entitled to negotiate and implement improvement initiatives that, at a minimum, will produce cost savings to fund the difference between what has been achieved under the Commission's recommendation and what is necessary to fund the remainder of the 4.0 per cent increase.
33 That statement has to be seen against the attempt by the Commission in its Recommendation to facilitate, in a fair and reasonable way, the opportunity for the parties to achieve employee-related cost offsets that would fund the difference between 2.5 per cent and 4.0 percent across the whole of the public sector that was the subject of the claim. That objective would be thwarted if a department or agency were prevented from pursuing offsets that would deliver savings of 1.5 per cent. Given the size of the Department of Education and Training, if it were not able to pursue 1.5 per cent of cost offsets (either through agency level bargaining or a combination of agency level bargaining and the central reforms) the potential for the Government to achieve the necessary savings to fund the wage increase across the board would be made impossible.
34 The answer to Question 1 is that the MOU was not agreed on the basis that there was a limitation on the quantum of agency employee cost offsets to 0.5 per cent or less. Further, that a department or agency is entitled to pursue agency level employee-related cost savings that would fund a wage increase of 1.5 per cent, either through agency level bargaining or a combination of agency level bargaining and the central reforms.
Question 2