Consideration
56 The Republic submitted that the Preamble clearly delineated itself from the operative terms - by reference to its title and also its content - and that, whilst recitals can be used as an aide to construction of an operative provision in an agreement, the recitals are not themselves operative. Where the express term of a provision is clear and unambiguous, a recital cannot cut down the operative words.
57 The Republic continued that the Preamble was not a term and could not properly be described as a "Preamble term" as was done by Mr Scarati. The Preamble imposed no obligation on Mr Scarati or the Republic. Underpinning this position was the use of the title "Preamble" and the fact that the Preamble referred to the "following terms and conditions", which were described as the terms and conditions to which Mr Scarati "declare[d] to agree entirely".
58 Mr Scarati submitted that the Republic's submissions regarding the Preamble should be rejected as they did not grapple with what the Preamble sought to achieve, namely "it constructs an architecture obligation by incorporating by reference certain other instruments/documents which, in their language, impose their own clear obligations on the parties".
59 Mr Scarati further contended that the Court should not determine the meaning and significance of the words used in a contract by simply "relying on some form of taxonomical nomenclature deployed by the parties". Mr Scarati submitted that the Preamble performed a critical function and it would be erroneous for the Court to construe it as a "mere recital".
60 In relation to recitals, Mr Scarati referred in oral submissions to the comments made by Lord Esher, MR in Ex parte Dawes. In re Moon (1886) 17 QBD 275, where it was said (at 286):
Now there are three rules applicable to the construction of such an instrument. If the recitals are clear and the operative part is ambiguous, the recitals govern the construction. If the recitals are ambiguous, and the operative part is clear, the operative part must prevail. If both the recitals and the operative part are clear, but they are inconsistent with each other, the operative part is to be preferred.
61 The words in question appear at the beginning of the contract under the heading "Preamble". Whether called "preamble" or "recitals", typically, this first section of an agreement exists to provide context and may outline the parties' intentions or purpose in forming the agreement. For that reason, where there is ambiguity in a term of the contract, the contents of that section may provide a guide to resolve ambiguity. Conventionally, operative terms of a contract are not usually to be found in the preamble or recitals section.
62 Of course, the effect of the words used under the heading "Preamble" and what impact they have on the terms of the Melbourne Contract depends upon the text of the Melbourne Contract considered within that document as a whole. To that end, the "taxonomical nomenclature" chosen by the parties (whether it be "Recital" or "Preamble") is not decisive in its own right. It may, however, contribute to an understanding of the words used.
63 Words used in the documents said to be incorporated into the contract are not relevant to this threshold question. They do not go directly to the question of whether there is clear language in the main agreement (in this case the Melbourne Contract) which clearly indicated an intention to incorporate an external document and whether it could be objectively concluded from the language used that the parties intended the document to be incorporated as part of the main agreement.
64 The words used in the Preamble to the Melbourne Contract were, "[i]n compliance with", and, "with particular reference to". In the Preamble to the Perth Contract the words "in particular the" were used instead of "with particular reference to".
65 It is important to consider both of those phrases to determine the intention which was evidenced by the text of the Melbourne Contract.
66 Many of Mr Scarati's arguments centred on the apparent "intention" revealed by the phrase "[i]n compliance with". Mr Scarati referred to the definition of "compliance" as being "the act of obeying an order, rule or request" or "conformity in fulfilling official requirements". Mr Scarati submitted that the expression "[i]n compliance with" made plain the parties' intention: that the Republic, as a foreign state, would comply with any promise or obligation contained in these other documents as to the employment of Mr Scarati (which Mr Scarati identified as the 1967 Presidential Decree - with particular reference to the 2000 Legislative Decree - and the 2006 DFAT Agreement).
67 Mr Scarati submitted that the introductory words "[i]n compliance with" evidence a mechanism used by the parties with the aim to ensure that Mr Scarati, an employee of the Republic, "was to be treated in a manner substantially similar to (with parity) local Australian employees working for their government in a foreign service department". Mr Scarati submitted that the Preamble performed a critical function - it was in effect a declaration by the Republic in at least two critical respects:
(a) it contains a promise of compliance with the contents of certain documents/instruments extraneous to the [Melbourne] written contract; and
(b) it operates as a mechanism to set minimum terms that must be observed under the contract - the setting of a floor as it were. The Republic guarantees to the locally employed person that he will be paid congruent with local terms and conditions; that all [locally] favourable entitlements will be made available to … that employee. This is what the Legislative Decree requires.
(italics in original; footnote omitted)
68 Mr Scarati submitted that the parties:
established a certain compliance architecture to be applied by the [Melbourne Contract]: the contract must comply with the Republic's own legislative decree(s) bearing upon such employment on foreign places. And the point of parity or minimum obligation was set in the relevant [local] DFAT Agreement. The parties achieved this outcome by incorporating by reference certain promises/obligations from these other documents.
69 Mr Scarati referred to the decision in Riverwood International Australia Pty Ltd v McCormick (2000) 177 ALR 193; [2000] FCA 889 (Riverwood) at [103] where the language in a letter of appointment to an employee, that "you agree to abide by" certain policies, was treated as creating enforceable contractual obligations as to payments contained in the policy documents. Mr Scarati submitted that, in this case, the parties recorded "a promise that the Republic would act "in compliance with" obligations in other extraneous documents" (italics in original), which was "clearly synonymous" with the phrase "to abide by".
70 In my view, those phrases differ in their content, emphasis and context. The words "[i]n compliance with" have no preceding words such as "agree to act" or "will act". Use of the same context would be to compare "complying with" with language such as "abiding by" or, on the other hand, "agree to comply with" with "agree to abide by". Comparison with the phrase "you agree to abide by" does not, in my view, assist with the interpretation of the words "[i]n compliance with" in the context in which they appear in the Melbourne Contract.
71 It is important to focus on the particular text. The phrase "in compliance with" suggests a recognition of adherence to a rule or regulation or standard and is in broad terms a general statement of conformity. A phrase such as "agree to act in compliance with" suggests a promise or agreement. This is because the words "agree to act" suggest a positive obligation.
72 The words "[i]n compliance with", when referring to the 1967 Presidential Decree, are in the nature of a declaratory statement that the arrangements were concluded (and so the terms of the conditions are) in compliance with Italian law, namely the 1967 Presidential Decree.
73 This conclusion is supported by the use of the words "with particular reference to". The Preamble opens with "[i]n compliance with the provisions under sub-section II, section title VI of Decree No. 18 of 05.01.1967 - by the President of the Italian Republic and subsequent amendments and inclusions", which is followed by, "- with particular reference to Legislative Decree No.103 of 07.04.2000, as well as the [Australian n.d.t.] Department of Foreign Affairs and Trade Certified Agreement 2006-2009". Whilst the document is not well, or clearly, drafted, it would seem that the words "with particular reference to" refer to the 2000 Legislative Decree and also the 2006 DFAT Agreement.
74 Both the 1967 Presidential Decree and the 2000 Legislative Decree are laws in place in the Republic of Italy. As mentioned earlier, the parties agreed that the Republic was "bound to observe" both Decrees.
75 It was not asserted (nor is it the case) that the fact a party is bound to observe certain legislation results in that legislation being incorporated as a term (or terms) of the relevant agreement.
76 So far as is relevant to these proceedings, the 2000 Legislative Decree replaced the 1967 Presidential Decree (as stated by section 1 of the 2000 Presidential Decree).
77 The 2000 Legislative Decree altered the previous position as to employment of locally engaged staff in Consular offices. This issue is touched on in Mr Scarati's affidavit dated 29 August 2022. The 2000 Legislative Decree notes in section 154 that the contract fell under local laws and the "local legal system shall be referred to any dispute which may arise from the application of this decree". Section 154 continued that there must be consultation with the local union representative and "the contract [must be] compatible with local laws and legislations and that the most favourable conditions are applied in favour of the employee". The section provided that the conditions of contract "must guarantee and incorporate all favourable entitlements".
78 As to remuneration, section 157 of the 2000 Legislative Decree prescribed that:
The base annual salary is established on the basis of each individual contract and must consider the local labour market, the cost of living, and above all, the salaries paid by the Diplomatic Missions, consular offices, and cultural institutions of other countries, particularly UE countries, and International organizations. Also any indication given annually by Union Organizations will be taken into account. The remuneration must be congruent and adequate to guarantee the incorporation of all favourable elements.
79 As to salary review, section 157 provided that "[t]he base annual salary [was] susceptible to revisions based on the terms of the above paragraph and the living trend".
80 Adopting the language used in the Preamble, section 157 set out matters to which the Republic must have reference (or must consider, to adopt the term used in the 2000 Legislative Decree) in determining the salary.
81 I conclude that the purpose of this section of the Preamble was to record the background that, in compliance with the provisions of the 1967 Presidential Decree, with particular reference to the 2000 Legislative Decree (which altered the position as it applied under the 1967 Presidential Decree and included in section 157 a list of factors which were considered) and the 2006 DFAT Agreement (which was considered with the other factors), the Republic appointed Mr Scarati to his role at the Melbourne Consulate.
82 The Preamble continued that "the Italian Consulate General in Melbourne appoints Mr. Antonio SCARATI … on the following terms and conditions to which Mr. Antonio SCARATI declares to agree entirely".
83 It is significant that the Preamble referred to the terms and conditions which follow and to which Mr Scarati declared to agree entirely. Those words distinguished the Preamble from the terms and conditions which followed.
84 The words used set out the background (that the appointment was in compliance with the relevant legislation and consideration had been given to relevant factors), the parties' intentions, and the purpose of the Melbourne Contract, which was to appoint Mr Scarati on terms and conditions (which are said to follow) with which Mr Scarati "declare[d] to agree entirely".
85 Neither of the phrases "[i]n compliance with" or "with particular reference to" suggest the parties intended that the reference to the 2006 DFAT Agreement operated as a mechanism to set minimum terms that must be observed under the contract - the setting of a floor. There was no clear language (or indeed any language at all) to that effect.
86 Mr Scarati submitted that the following words which appear in the 2000 Legislative Decree were critical:
(a) "[t]he conditions of contract must guarantee and incorporate all favourable entitlements"; and
(b) "[t]he remuneration must be congruent and adequate to guarantee the incorporation of all favourable elements".
87 Mr Scarati submitted that these words conveyed an obligation or promise and that the 2000 Legislative Decree was clear in its intent and the imposition of an obligation on the Republic when it employs persons in foreign locations. That conclusion may be correct insofar as it refers to obligations which arise independently under the 2000 Legislative Decree. Any determination based on, or as to, that obligation is not before the Court in these proceedings.
88 The parties have agreed that the Republic was bound by the requirements of the 2000 Legislative Decree. There was no need to incorporate it into the contract to impose its requirements. It is not persuasive as to whether the parties intended that external documents be incorporated in the Melbourne Contract.
89 To identify the effect of the Melbourne Contract, the primary focus is to consider the words used in the document itself to determine whether the text of that document is obligatory or promissory in nature by reference to the documents which were asserted to be incorporated. As I have already said, it does not assist to consider what is said in the allegedly incorporated document.
90 The language of the Preamble is different from, and can be contrasted with, the language used in cases where the Court has found that relevant instruments were incorporated in the primary contract by reference.
91 In Riverwood, a letter of offer dealing with various key terms of employment was signed by the employee. This letter included the words: "You agree to abide by all company policies and practices currently in place, any alterations made to them, and any new ones introduced". North J (in the majority) concluded (at [107]-[108]) that the clause was intended to oblige the employee to comply with the obligations outlined in the policies.
92 In Goldman Sachs JBWere Services Pty Ltd v Nikolich (2007) 163 FCR 62; [2007] FCAFC 120, the employee was required to read and sign various forms contained within a lengthy document entitled "Working with us" which was handed to the employee. The Court held that certain sections of the document were incorporated into the employment contract. Significant to the Court's conclusion was the fact that the employee was required to sign certain of those sections, and the obligatory language that was used, for example, that "[the employer] will take every practicable step to provide and maintain a safe and healthy work environment for all people".
93 In Romero, the employee was asked to read and sign a company policy and the letter of engagement contained a statement that all "policies are to be observed at all times". The Full Court held (at [56]) that this language made it clear that there was "an expectation by the company that there [would] be mutual obligations".
94 In each case, the parties exhibited, through their conduct and also the express language used in each agreement, that they objectively intended to incorporate the external documents into the contract of employment.
95 In this case, the Preamble did not contain the mandatory or promissory language which would lead me to a conclusion that mutual obligations were being created. There was no mandatory language that the Republic must comply with the 2006 DFAT Agreement, it was not attached to the Melbourne Contract, there was no acknowledgment of either party having read the 2006 DFAT Agreement, and the 2006 DFAT Agreement was not initialled or signed.
96 One of the terms and conditions of the Melbourne Contract dealt with "remuneration" (Article III) as follows:
(a) the base annual salary is specified as Euro 33,960.15;
(b) the annual base salary is said to be established "according to the criteria and the limits set out in the first paragraph of section 157 of the [1967 Presidential Decree]"; and
(c) the annual base salary is subject to revision according to the second paragraph of section 157 of the 1967 Presidential Decree.
97 The terms of Article III are clear and unambiguous. They do not refer to the 2006 DFAT Agreement and the salary requirements are not connected with the 2006 DFAT Agreement in any way. There was no reason for the parties to incorporate external documents when the terms of the primary document are clear and unambiguous.
98 Considering the Melbourne Contract as a whole, there are other terms which are inconsistent with those contained in the 2006 DFAT Agreement. For example, the Melbourne Contract deals clearly with reimbursement for work-related travel, allowances for annual leave and rostered days off, sick leave and disciplinary measures (including possible withholding of salary) in ways which are not consistent with the provisions contained in the 2006 DFAT Agreement. The parties cannot have intended to create inconsistencies within the framework of the terms and conditions of employment.
99 Viewed objectively, a reasonable person in the position of each of the parties would have understood that the terms and conditions of employment, including as to remuneration, were those contained in the Articles of the Melbourne Contract.
100 Mr Scarati contended that his construction was informed by certain surrounding circumstances. In dealing with the surrounding circumstances, Mr Scarati pointed to the fact that he had previously worked for the Republic in Perth under the Perth Contract, which was close to identical to the Melbourne Contract with which he would later be provided by the Republic. Mr Scarati noted that his starting salary under the Perth Contract was slightly higher than the pay rates for an Australian Public Service [APS] Level 6 employee under the then current DFAT Agreement. He also pointed to his earlier employment in the APS prior to 2002. Mr Scarati asserted that these circumstances were part of "a certain provenance" to the Melbourne Contract.
101 Mr Scarati noted that, as early as June 2004, he made a claim in writing to the Republic that he was not being accorded the same rights and entitlements of those persons entitled to the terms and conditions of the then current DFAT Agreement. Mr Scarati submitted this evidenced he considered that the written terms of the Perth Contract entitled him to pay parity or equivalence with locally employed Australian public servants covered by the 2006 DFAT Agreement. Mr Scarati again made a request for pay parity with local conditions in December 2004.
102 Of course, Mr Scarati's subjective view is not a factor to be taken into account.
103 The communications between the parties were as follows.
104 On 10 June 2004, Mr Scarati communicated with the Italian Ministry of Foreign Affairs (the Ministry), the Ambassador of Italy in Canberra and the Consul of Italy in Perth. The communication arose, as explained by Mr Scarati in his affidavit dated 29 August 2022, because of a concern by Mr Scarati that his contract did not provide the same benefits as other colleagues who were locally employed, but whose contracts were based upon Italian law, having been entered into prior to the 2000 Legislative Decree.
105 The communication (as translated into English) included the following:
…
having regard to
[the fact] that my contract (PREAMBLE) has been drawn up in accordance with:
a. Presidential Decree 05 January 1967 No.18 Part II Title VI as amended;
b. Legislative Decree of 07 April 2000 No. 103;
as well as the
c. Workplace Relations Act 1996;
d. Certified Agreement 2002-2003 of the Australian Department of Foreign Affairs and Trade (DFAT); and,
notwithstanding
Article 157 paragraphs 2 and 3 of Legislative Decree 07 April 2000 No. 103 states that:
(ii) The annual base salary is subject to revision in relation to changes in the terms of reference referred to in the preceding paragraph and to the trend in the cost of living.
(iii) The annual basic salary shall be determined in a uniform manner. by country and by homogeneous tasks [Read: employment level]. Exceptionally, a different remuneration may be allowed in the same country for those places where there is a particularly wide difference in the cost of living.
there are
inequalities for homogeneous tasks in clear conflict with Article 154 above,
I hereby request
that my contract be aligned all in all with that currently in force for local employees governed by Italian [employment] law.
Alternatively,
As per provisions of Art. 154 of the aforementioned Law 103/00 "… the application of local legislation more favourable to the employee …" I request that I be accorded the same rights and criteria of employment as those provided for employees of the Australian Department of Foreign Affairs, as per the "Certified Agreement" and the "Workplace Relations Act 1996" referred to above.
…
(bold and italics in original)
106 The Ministry's reply was received by Mr Scarati on 23 November 2004. In the reply, reference was made to the difference in conditions between local employees employed under the 2000 Legislative Decree and those local employees employed before that time.
107 The reply (as translated into English) concluded:
Mr. Scarati's contract of employment conforms to the draft prepared on the basis of the elements supplied by that Embassy [Canberra] and approved by this Ministry.
In view of the foregoing, it is considered that there is no violation of Article 157 of Presidential Decree 18/67 on the subject of unequal pay between employees with similar duties serving within the same country, and that the remuneration paid to Mr. Scarati was correctly fixed in accordance with the regulations in force.
…
108 On 2 December 2004, Mr Scarati again communicated with the Ministry, the Ambassador of Italy in Canberra and the Consul of Italy in Perth as follows:
…
In drafting the above contract it is clear that the Embassy of Italy in Canberra has included the then existing Certified Agreement (read national collective agreement) 2002 - 2003 of the [n.d.t Australian] Department of Foreign Affairs and Trade (DFAT) since in compliance with the privacy of individuals and the confidentiality of employers, to attain reliable information for the purposes satisfying of the terms and conditions referred on the first paragraph of Art. 157 Presidential Decree 18/67 is an exercise to the limit of the impossible.
In absence of a transparent and official salary benchmark of a remunerative and professional nature that does not give ground to incompatibility with local regulations and does not give grounds to disputes, in order to satisfy the criteria set out in the first paragraph of the aforementioned Art. 157 and in compliance with the provisions laid down for the stipulation of contracts to be carried out on locally hired personnel, the Embassy of Italy in Canberra has appropriately referred to the conditions of employment envisaged and the remuneration paid to an employee of the Department of Foreign Affairs and Trade who carries out similar administrative duties to those of a level B2 employee of the Ministry of Foreign Affairs. In this case, a level 2 Public Affairs Officer (PA0-2) [APS 6 - reference to pay point DFAT agreement 2002 -2003];
It is in my opinion that theses contrary to the foregoing would contradict the inclusion of the rules and parameters of the "DFAT Certified Agreement" in my employment contract.
…
I hereby request;
that the superior Ministry apply, with retroactive effect on to the date of my employment, the full implementation of the following local regulations which are an integral part of my individual contract, of which a copy is attached:
1. "Workplace Relations Act 1996"
2. Certified Agreement 2002-2003 of the Department of Foreign Affairs and Trade" and subsequent updates as a result of Sec. 170LX 2.a and 2.b of the Workplace Relations Act 1996
…
(italics and errors in original)
109 On 21 July 2005, Mr Scarati received a reply from the Ministry:
In regards to the application in question, we shall point out that, after careful examination of the documents in on file at this Office, Mr Scarati's contract of employment appears to be in conformity with local legislations, while [Mr. Scarati's] request does not appear to be sufficiently substantiated.
We would be grateful if you would invite the employee in question to indicate expressly the local rules which have not been applied in his contract.
…
(errors in original)
110 Mr Scarati was asked about these communications in cross-examination and re-examination.
111 In cross-examination it was put to Mr Scarati that the Ministry rejected the complaint (by way of the communication of 21 July 2005). Mr Scarati agreed.
112 Mr Scarati did not agree, however, that the response from the Ministry was a rejection of an assertion that the 2006 DFAT Agreement should have governed the position. His comment was: "So the ministry has not come back - if you - if you have read the ministry's reply, there is no mention about DFAT agreement. So your statement that the ministry has said, no, it does not apply".
113 Mr Scarati's cross-examination then continued as follows:
[MR TIERNEY]: Did you have any reason at the time of signing the Melbourne contract - - -?---Yes.
- - - to think that the ministry would entitle you to benefits under the DFAT agreement?---No. The preamble was more or less the same thing, the - the same text that it was in Perth.
Yes?---And my priorities at the time, I was just going through a very contentious divorce issue and I had children, so for me the priority back then was to secure a job here in Melbourne where my ex-wife had moved with three children under the age of five, rather than disputing what it is in there, so yes.
Sorry. Yes to what, Mr Scarati?---Yes, I - I knew what it - what it said, the - the preamble.
Yes?---And I accepted it. Yes, sir.
Yes. And you accepted that contract on that understanding?---Absolutely. Yes, sir.
And so it's correct, isn't it, that when you signed that agreement you understood that the DFAT agreement did not form part of your employment contract?---No, no. It was part of the preamble. It doesn't say it is - it doesn't apply. That's what - - -
Okay. So you maintained your legal argument - your belief that legally you had that entitlement; is that what you're saying?---Reading the Italian - the - the document in Italian, yes, sir.
But that was in spite of what you had been told by the ministry about the previous preamble?---As I said, the ministry didn't got into the discussion of the DFAT agreement, sir.
114 The matter was also dealt with in re-examination. Mr Scarati was asked: "So is it fair to say in that context - and we're going back to 2003 or '04 here, 2004 - you never accepted the ministry's position on these matters, did you?" Mr Scarati's answer was: "No, sir".
115 The questioning revealed what might have been Mr Scarati's subjective impression.
116 Counsel on behalf of Mr Scarati acknowledged that "subjective understandings are not admissible", but submitted that part of the case remains that the surrounding circumstances in which the contract is signed can be admissible. Counsel continued: "Not subjective in tense, but the surrounding circumstances, in my submission, ultimately will be for the Melbourne contract is a contract that was entered some years earlier over in Perth with the same employer and there was a, sort of, almost an identicality of the preamble - whatever that is - at the time".
117 I do not think that the circumstances identified in relation to the discussions which were taking place at the time the Perth Contract was in place, and before the Melbourne Contract was entered into, assist Mr Scarati. Insofar as background circumstances may be relevant as surrounding circumstances in which the Melbourne Contract was executed, the background circumstances make it clear that the particular interpretation advanced by Mr Scarati in relation to the Preamble to the Perth Contract was not accepted by the Republic. The response from the Ministry was that Mr Scarati's request was not sufficiently substantiated. It was rejected.
118 It cannot be said, based on the surrounding circumstances identified, that there was any mutual intention that the 2006 DFAT Agreement would be incorporated into the Melbourne Contract.
119 The Melbourne Contract was entered into after this exchange of communications had taken place. Mr Scarati knew of the view taken by the Republic at the time he signed the Melbourne Contract which, he acknowledged, was in almost identical terms to the Perth Contract.
120 The surrounding circumstances identified by Mr Scarati do not support the conclusion that the parties intended that the 2000 Legislative Decree and the 2006 DFAT Agreement be incorporated into the contractual arrangements between the parties.