Industrial Relations Commission New South Wales Medium Neutral Citation: HSU east and Director-General, Department of Finance and Services [2012] NSWIRComm 112 Hearing dates: 8 August 2012 Decision date: 15 October 2012 Before: Walton J Vice-President; Staff J; Tabbaa C Decision: Section 146C of the Industrial Relations Act 1996 and the Industrial Relations (Public Sector Conditions of Employment) Regulation 2011 operate in respect of cost savings achieved after 20 June 2011 Catchwords: AWARD - application by HSU for variation to 22 awards to increase salaries by 6 per cent - jurisdictional question - whether "employee-related cost savings" that were agreed and implemented prior to date of regulation precluded as "employee-related cost savings" from award making by the Regulation - consideration of the purpose and effect of s 146C of the Industrial Relations Act 1996 - consideration of the purpose and effect of the Industrial Relations (Public Sector Conditions of Employment) Regulation 2011 - held - s 146C and the Regulation when read as a whole operate in respect of cost savings achieved after 20 June 2011 being operative date of Regulation - s 146C of Industrial Relations Act 1996 - Industrial Relations (Public Sector Conditions of Employment) Regulation 2011, cl 6, cl 7, cl 8 and cl 9 Legislation Cited: Industrial Relations Act 1996 Industrial Relations Amendment (Public Sector Conditions of Employment) Act 2011 Industrial Relations (Public Sector Conditions of Employment) Regulation 2011 Interpretation Act 1987 Public Sector Employment and Management Act 2002 Public Sector Employment and Management Amendment (Ethics and Public Service Commissioner) Act 2011 (repealed) Cases Cited: Australian Education Union v Department of Education and Children's Services [2012] HCA 3; (2012) 285 ALR 27 Board of Bendigo Regional Institute of Technical and Further Education v Barclay [2012] HCA 32 Director-General, Department of Premier & Cabinet v HSUeast [2012] NSWCA 111 Health Employees Conditions of Employment (State) Award and other Awards [2011] NSWIRComm 129 Public Service Association and Professional Officers' Association Amalgamated Union of NSW v Director of Public Employment [2011] NSWIRComm 143 Re Crown Employees (Public Sector - Salaries 2011) Award (No 3) [2011] NSWIRComm 104 Category: Separate question Parties: HSU east (Applicant) Director-General, Department of Finance and Services (Intervenor) Australian Salaried Medical Officers' Federation (NSW) (First Respondent) Director-General, Ministry of Health (Second Respondent) Representation: Mr J Murphy (Applicant) Mr A Britt (Intervenor) Mr J Nolan (Intervenor) Mr M Easton (Respondent) HSU east (Applicant) Crown Solicitor's Office (Intervenor) Australian Salaried Medical Officers' Federation NSW (First Respondent) Director-General, Ministry of Health (Second Respondent) File Number(s): IRC 90 of 2011 DECISION 1On 2 February 2011, the HSU east (now known as the Health Services Union NSW) ('HSU') filed an application to vary 22 specified health awards to provide increases in salaries of 6 per cent ('the original application'). 2On 17 June 2011, the Industrial Relations Amendment (Public Sector Conditions of Employment) Act 2011 received assent ('the Amendment Act'). This Act amended the Industrial Relations Act 1996 ('the IR Act') by inserting s 146C. 3Section 146C required this Commission to give effect to, when making or varying awards or orders, any government policy on public sector employment that was declared by regulation to be an aspect of government policy that is required to be given effect to by the Commission. 4The Industrial Relations (Public Sector Conditions of Employment) Regulation 2011 ('the Regulation') commenced operation on 20 June 2011. The Regulation declared, for the purposes of s 146C of the IR Act, aspects of government policy concerning public sector employment. In particular, the Regulation provided that public sector employees may be awarded increases in remuneration or other conditions of employment that did not increase employee-related costs by more than 2.5 per cent per annum. Increases in remuneration and other conditions that increased employee-related costs by more than 2.5 per cent per annum could be awarded, but only if sufficient employee-related cost savings had been achieved to fully offset the increased employee-related costs. 5Some features of the provisions of s 146C of the IR Act were discussed in Public Service Association and Professional Officers' Association Amalgamated Union of NSW v Director of Public Employment [2011] NSWIRComm 143 ('PSA') at [15]: [15]The following features of the Amendment Act and the Regulation made under s 146C should, as submitted by the Attorney, be noted : First, it only applies to awards or orders affecting employment of "public sector employees", that is, employees who are paid out of public funds; Second, it "does not apply to the Commission in Court Session", ie the Industrial Court; Third, it applies to pending and future proceedings; Fourth, it requires that the Commission give effect to any policy declared, directly or indirectly, by the regulations to be an aspect of government policy that the Commission is required to give effect to, and it prevents any award or order which is "inconsistent with this obligation" having legal effect. Fifth, the Regulation provides for: "paramount policies" being certain guaranteed minimum conditions of employment (Clauses 5 and 7) and equal remuneration for men and women doing work of equal or comparable value; "other polices" declared, but subject to paramount policies, in effect requiring " increases in remuneration or other conditions of employment that do not increase employee-related costs by more than 2.5% per annum" unless "sufficient employee-related cost savings have been achieved to fully offset the increased employee-related costs" (Clause 6); and finality (Clause 6(1)(d)). 6On 22 June 2011, the Government of New South Wales issued the New South Wales Public Sector Wages Policy 2011 ('the Policy'). However, the Policy is not a policy declared for the purposes of s 146C. The Policy is neither referred to nor set out in the Regulation. 7On 1 July 2011, the HSU filed 20 new applications to vary 22 health awards to provide increases in rates of pay and allowances of 2.5 per cent. Amended applications were subsequently filed on 16 August 2011. 8On 26 August 2011, the Commission heard submissions in respect of the amended applications and its ability to grant (and the appropriateness of granting) an interim increase in salaries of 2.5 per cent effective from 1 July 2011. 9On 27 September 2011, the Commission published its decision in that respect. The Commission determined it was entitled to grant interim increases in salaries of 2.5 per cent: Health Employees Conditions of Employment (State) Award and other Awards [2011] NSWIRComm 129. A challenge to the decision in the Court of Appeal was unsuccessful: Director-General, Department of Premier & Cabinet v HSUeast [2012] NSWCA 111. 10On 28 September 2011, the Commission issued a notice of listing to the parties allocating three days for conciliation before Boland J, President, and seven days to hear the evidence and submissions in respect of the original application before a Full Bench (Boland J, President; Haylen J; Ritchie C). Arising out of the conciliation, the Director-General, Ministry of Health, raised four threshold issues which were set out in a letter to the Associate to the President dated 4 November 2011. The four threshold issues were as follows: 1.On a proper interpretation of the Regulation made pursuant to s 146C "employee-related cost savings" can only be savings achieved after the advent of that Regulation. 2.All of the various "employee-related cost savings" relied upon by the HSU are "existing savings" within the meaning of Clause 9(1)(c) of the Regulation. 3.All the matters relied upon by HSUeast, namely changes since 1 July 2007, are in any event not to be taken into account applying the long-standing industrial principle that the commission will not permit double-counting of matters which have already been paid, for since to do so would be contrary to the MOU reached between the parties. 4.Pursuant to the Regulation the Commission cannot award any further increase before 1 July 2012. The argument in that regard, in summary, is: while the Commission has determined that it has power to award an interim increase and then hear the balance of the claim, it cannot grant a claim for a further increase that would take effect before 1 July 2012. That is because the words "the term of award or order" in 6(1)(d) should be read, in this case, to mean the 12 month period that started on 1 July 2011. 11The threshold questions were referred to this Full Bench for determination. 12Mr A Britt of counsel appeared for the Intervenor, Director-General, Department of Finance and Services (he was given leave to change his appearance from the Director-General, Department of Premier and Cabinet); Mr M Easton of counsel appeared for the Director-General, Ministry of Health; Mr J Murphy of counsel appeared for the HSU and Mr J Nolan of counsel was granted leave to intervene on behalf of the Australian Salaried Medical Officers' Federation (NSW) ('ASMOF'). 13At the commencement of the proceedings, Mr Britt submitted that it was not appropriate for questions 2 and 3 to proceed as threshold questions because there did not exist the necessary evidentiary foundation for the Commission to deal with those questions. Mr Britt submitted, however, that questions 1 and 4 were capable of being dealt with as threshold questions. The other parties to the proceedings agreed with these contentions. 14Upon further questioning by the Full Bench, all counsel ultimately accepted that questions 2, 3 and 4 could not be determined, as threshold questions, because there was an absence of evidence to properly answer those questions. That, of course, left question 1 in respect of which the parties accepted a reformulation of that question as follows: 1.On a proper interpretation of the Regulation, and for the purposes of cl 6(1)(b) of the Regulation, are "employee-related cost savings" that were agreed and implemented prior to 20 June 2011 (the operative date of the Regulation) precluded as employee-related costs savings from award making by the Regulation? Section 146C 15Section 146C is in the following terms: 146CCommission to give effect to certain aspects of government policy on public sector employment (1)The Commission must, when making or varying any award or order, give effect to any policy on conditions of employment of public sector employees: (a)that is declared by the regulations to be an aspect of government policy that is required to be given effect to by the Commission, and (b)that applies to the matter to which the award or order relates. (2)Any such regulation may declare a policy by setting out the policy in the regulation or by adopting a policy set out in a relevant document referred to in the regulation. (3)An award or order of the Commission does not have effect to the extent that it is inconsistent with the obligation of the Commission under this section. (4)This section extends to appeals or references to the Full Bench of the Commission. (5)This section does not apply to the Commission in Court Session. (6)This section extends to proceedings that are pending in the Commission on the commencement of this section. A regulation made under this section extends to proceedings that are pending in the Commission on the commencement of the regulation, unless the regulation otherwise provides. (7)This section has effect despite section 10 or 146 or any other provision of this or any other Act (8)In this section: award or order includes: (a)an award (as defined in the Dictionary) or an exemption from an award, and (b)a decision to approve an enterprise agreement under Part 2 of Chapter 2, and (c)the adoption under section 50 of the principles or provisions of a National decision or the making of a state decision under section 51, and (d)anything done in arbitration proceedings or proceedings for a dispute order under Chapter 3. conditions of employment - see Dictionary. public sector employee means a person who is employed in any capacity in: (a)the Government Service, the Teaching Service, the NSW Police Force, the NSW Health Service, the service of Parliament or any other service of the Crown, or (b)the service of any body (other than a council or other local authority) that is constituted by an Act and that is prescribed by the regulations for the purposes of this section. The Regulation 16The explanatory note to the Regulation states that the object of the Regulation is to declare the Government's public sector policies for the purposes of s 146C of the IR Act. The explanatory note states that the section requires the Commission to give effect to such policies when making or varying awards or orders relating to the remuneration or other conditions of employment of public sector employees. Central to the present argument are cls 6, 8 and 9 of the Regulation, which are in the following terms: 6Other policies (1)The following policies are also declared, but are subject to compliance with the declared paramount policies: (a)Public sector employees may be awarded increases in remuneration or other conditions of employment that do not increase employee-related costs by more than 2.5% per annum. (b)Increases in remuneration or other conditions of employment that increase employee-related costs by more than 2.5% per annum can be awarded, but only if sufficient employee-related cost savings have been achieved to fully offset the increased employee-related costs. For this purpose: (i)whether relevant savings have been achieved is to be determined by agreement of the relevant parties or, in the absence of agreement, by the Commission, and (ii)increases may be awarded before the relevant savings have been achieved, but are not payable until they are achieved, and (iii)the full savings are not required to be awarded as increases in remuneration or other conditions of employment. (c)For the purposes of achieving employee-related cost savings, existing conditions of employment of the kind but in excess of the guaranteed minimum conditions of employment may only be reduced with the agreement of the relevant parties in the proceedings. (d)Awards and orders are to resolve all issues the subject of the proceedings (and not reserve leave for a matter to be dealt with at a later time or allow extra claims to be made during the terms of the award or order). However, this does not prevent variations made with the agreement of the relevant parties. (e)Changes to remuneration or other conditions of employment may only operate on or after the date the relevant parties finally agreed to the change (if the award or order is made or varied by consent) or the date of the Commission's decision (if the award or order is made or varied in arbitration proceedings). (f)Policies regarding the management of excess public sector employees are not to be incorporated into industrial instruments. (2)Subclause (1)(e) does not apply if the relevant parties otherwise agree or there are exceptional circumstances. 8 Meaning of employee-related costs For the purposes of this Regulation, employee-related costs are the costs to the employer of the employment of public sector employees, being costs related to the salary, wages, allowances and other remuneration payable to the employees and the superannuation and other personal employment benefits payable to or in respect of the employees. 9 Meaning of employee-related cost savings (1) For the purposes of this Regulation, employee-related cost savings are savings: (a) that are identified in the award or order of the Commission that relies on those savings, and (b) that involve a significant contribution from public sector employees and generally involve direct changes to a relevant industrial instrument, work practices or other conditions of employment, and (c) that are not existing savings (as defined in subclause (2)), and (d) that are additional to whole of Government savings measures (such as efficiency dividends), and (e) that are not achieved by a reduction in guaranteed minimum conditions of employment below the minimum level. (2) Savings are existing savings if they are identified in a relevant industrial instrument made before the commencement of this Regulation (or in an agreement contemplated by such an industrial instrument) and are relied on by that industrial instrument, whether or not the savings have been achieved and whether or not they were or are achieved during the term of that industrial instrument. Contentions of the Parties 17Mr Murphy, who was supported in his submissions by Mr Nolan, submitted that savings achieved prior to 20 July 2011 were available to support a wage increase above 2.5 per cent as long as those savings had not been previously relied upon to support a wage increase, and otherwise met the definition of "employee-related cost savings" in cl 9(1) of the Regulation. In this regard, the applicant relied upon the definition of "existing savings" in cl 9(2) of the Regulation. 18Mr Murphy also submitted that "employee-related cost savings", as defined in cl 9(1)(c), excluded "existing savings". Savings are "existing savings" and, therefore, excluded from consideration, if, counsel submitted, "they are identified in a relevant industrial instrument made before the commencement of this Regulation (or in an agreement contemplated by such an industrial instrument) and are relied on by that industrial instrument whether or not the savings have been achieved and whether or not they were, or are achieved, during the term of that industrial instrument". 19This definition of "existing savings" was, in reality, so it was submitted, no more than an elaborate restatement of the well accepted principle that employees who have benefited from a wage increase negotiated or awarded on a particular basis were not entitled to use the same basis to support a claim for a subsequent increase. 20Mr Murphy contended, therefore, that the Regulation obligated the Commission, when identifying and excluding from its consideration "existing savings", to look at industrial instruments made before 20 June 2011 (for example, the 2008 Memorandum of Understanding ('MOU')), for the purpose of ascertaining what savings were identified in, and relied on, by that industrial instrument. It followed, so the argument went, previously achieved "employee-related cost savings" which were not identified and relied on by an industrial instrument made before 20 June 2011 were not existing savings and were not to be excluded from consideration as "employee-related cost savings" by the Commission when dealing with a claim such as the one presently before it. Counsel submitted none of the savings relied upon by the applicant in this matter had been identified in the MOU (or any previous MOU), or any award, or award variations, made as a consequence of the MOU. 21It was accepted by Mr Britt that, prima facie, the definition of "existing savings" in cl 9(2) could be thought to extend savings to those actually made prior to the enactment of the Regulation. However, when the Regulation was read as a whole, it was submitted, it became clear that employee-related cost savings made prior to the Regulation being enacted could not fund an increase beyond 2.5 per cent. There was no indication in the other relevant clauses of the Regulation of a legislative intention to have cl 6(1)(b) operating retrospectively, but, rather, the language used in the Regulation, in particular cl 6, suggested the future operation of employee-related cost savings post-dating the enactment of the Regulation. That interpretation of the subclause was also consistent, it was submitted, with the legislative purpose of the Amendment Act, identified in that Act's Second Reading Speech, to maintain fiscal restraint via the Policy issued on 22 June 2011. (Further, cl 7.3.3 of the Policy referred to "employee-related cost savings" and stated that they should not include: "savings that were realised prior to the commencement of this Policy, or during the period covered by an industrial instrument made prior to the commencement of this Policy".) If employee-related cost savings could pre-date the Regulation, it was submitted, there was the potential for a blow out of unfunded public sector wage increases occurring and no protection provided to the budget bottom line. 22In was contended by Mr Britt that, properly understood, cl 9(2), when read together with cls 6 and 8, operated to exclude "existing savings" identified before, but made since, the enactment of the Regulation where those savings were identified in, and relied upon by, a relevant industrial instrument (or in an agreement contemplated by such an industrial instrument) made before the commencement of the Regulation. 23Mr Murphy submitted that statements of government policy made outside the framework established by s 146C of the IR Act could not bind the Commission in the task of construing an Act or the Regulation. Furthermore, Mr Murphy submitted that, in particular, cl 7.3.3 of the Policy was inconsistent with cl 9.2 of the Regulation. 24Counsel submitted that the Commission was obliged to examine previous industrial instruments in order to determine whether or not they identified and relied on cost savings, so as to bring those savings within the definition of "existing savings". Principles of Statutory Construction 25At the outset, it may be recorded that the joint position of the parties was that the correct approach to statutory construction was that which was set out by the Full Bench in Health Employees Conditions of Employment (State) Award and other Awards at [27] - [28] and [47] - [48] where the Full Bench stated: [27]It was submitted for the DPE that the issue of construction was to be determined by the ordinary and grammatical meaning of the words of the provision. Reference was made to the frequently cited cases laying down the proper approach to statutory construction such as K & S Lake City Freighters Pty Ltd v Gordon & Gotch Ltd [1985] HCA 48; (1985) 157 CLR 309 at 315; (1985) 59 ALJR 658; (1985) 2 MVR289; (1985) 3 ANZ Ins Cas 60-653; (1985) Aust Torts Reports 80-323; BC8501100; Mills v Meeking [1990] HCA 6; (1990) 169 CLR 214 at 235 and 242-243; (1990) 91 ALR 16; (1990) 91 ALR 16; (1990) 64 ALJR 190; (1990) 10 MVR 257; (1990) 45 A Crim R 373; BC9002951 and Project Blue Sky Inc v Australian Broadcasting Authority [1998] HCA 28; (1998) 194 CLR 355 at 318-382; (1998) 153 ALR 490; (1998) 72 ALJR 841; [1998] 8 Leg Rep 41; BC 9801389. The submission accepted that, in accordance with the judgment in Project Blue Sky , the construction of the statute must be "purposive" and referred to the joint judgment of McHugh, Gummow, Kirby and Hayne JJ in the following terms: Conflicting statutory provisions should be reconciled so far as is possible [69] The primary object of statutory construction is to construe the relevant provision so that it is consistent with the language and purpose of all the provisions of the statute. The meaning of the provision must be determined "by reference to the language of the instrument viewed as a whole". In Commissioner for Railways (NSW) v Agalianos, Dixon CJ pointed out that "the context, the general purpose and policy of a provision and its consistency and fairness are surer guides to its meaning than the logic with which it is constructed". Thus, the process of construction must always begin by examining the context of the provision that is being construed. [70] A legislative instrument must be construed on the prima facie basis that its provisions are intended to give effect to harmonious goals. Where conflict appears to arise from the language of particular provisions, the conflict must be alleviated, so far as possible, by adjusting the meaning of the competing provisions to achieve that result which will best give effect to the purpose and language of those provisions while maintaining the unity of all the statutory provisions. Reconciling conflicting provisions will often require the court "to determine which is the leading provision and which the subordinate provision, and which must give way to the other". Only by determining the hierarchy of the provisions will it be possible in many cases to give each provision the meaning which best gives effect to its purpose and language while maintaining the unity of the statutory scheme. [71] Furthermore, a court construing a statutory provision must strive to give meaning to every word of the provision. In Commonwealth v Baume Griffith CJ cited R v Berchet to support the proposition that it was "a known rule in the interpretation of Statutes that such a sense is to be made upon the whole as that no clause, sentence, or word shall prove superfluous, void, or insignificant, if by any other construction they may all be made useful and pertinent". [28]Reference was also made to the joint judgment of McHugh A-CJ, Gummow and Hayne JJ in Network Ten Pty Limited v TCN Channel Nine Pty Limited [2004] HCA 14; (2004) 218 CLR 273 at [11]; (2004) 205 ALR 1 at 11; (2004) 78 ALJR 585; (2004) 59 IPR 1; (2004) AIPC 91-973; [BC200400864]: In Newcastle City Council v GIO General Ltd [1997] HCA 53; (1997) 191 CLR 85 at 112, McHugh J observed: [A] court is permitted to have regard to the words used by the legislature in their legal and historical context and, in appropriate cases, to give them a meaning that will give effect to any purpose of the legislation that can be deduced from that context. His Honour went on to refer to what had been said in the joint judgment in CIC Insurance Ltd v Bankstown Football Club Ltd . (1977) 187 CLR 384. There, Brennan CJ, Dawson, Toohey and Gummow JJ said (at 408): It is well settled that at common law, apart from any reliance upon s15AB of the Acts Interpretation Act 1901 (Cth), the court may have regard to reports of law reform bodies to ascertain the mischief which a statute is intended to cure. Moreover, the modern approach to statutory interpretation (a) insists that the context be considered in the first instance, not merely at some later stage when ambiguity might be thought to arise, and (b) uses "context" in its widest sense to include such things as the existing state of the law and the mischief which, by legitimate means such as those just mentioned, one may discern the statute was intended to remedy. Instances of general words in a statute being so constrained by their context are numerous. In particular, as McHugh JA pointed out in Isherwood v Butler Pollnow Pty Ltd if the apparently plain words of a provision are read in the light of the mischief which the statute was designed to overcome and of the objects of the legislation, they may wear a very different appearance. Further, inconvenience or improbability of result may assist the court in preferring to the literal meaning an alternative construction which, by the steps identified above, is reasonably open and more closely conforms to the legislative intent. ... [47]These issues raise another aspect of statutory construction that may be of use in resolving the present issue. In Cole v Director-General of Department of Youth and Community Services and anor (1987) 7 NSWLR 541 at 546, Mahoney JA stated: It is, of course, proper to test a construction by the consequences of it: Dreyfus (Camille & Henry) Foundation Inc v Inland Revenue Commissioners [1956] AC 39; Inland Revenue Commissioners v Plummer [1980] AC 896 Pearce and Geddes, Statutory Interpretation in Australia, 4 th ed (1996) at 2.36 noted the caution that might attend such an approach, nevertheless, in Cooper Brookes (Wollongong) Pty Ltd v Federal Commissioner of Taxation [1981] HCA 26; (1980-1981) 147 CLR 297 at 320-321, Mason and Wilson JJ were moved to state: [22]There is a similar problem with the related so-called "golden rule" of construction. There are statements of the rule which would confine the courts to the ordinary grammatical sense of the words used unless that produces an absurdity or inconsistency. It is to be noted that Dixon J. in Broken Hill South Ltd. v. Commissioner of Taxation (N.S.W.) [1937] HCA 4; (1937)l; 56 CLR 337 at p 371 observed that departure from the ordinary grammatical sense is not legitimate unless there is "some obscurity or some inconsistency", though it may be that "obscurity" was intended to be a reference to "absurdity". For the reason already given in the discussion of the literal rule, departure from the ordinary grammatical sense cannot be restricted to cases of absurdity and inconsistency. (at p320) [23]In some cases in the past these rules of construction have been applied too rigidly. The fundamental object of statutory construction in every case is to ascertain the legislative intention by reference to the language of the instrument viewed as a whole. But in performing that task the courts look to the operation of the statute according to its terms and to legitimate aids to construction. (at p320) [24]The rules, as D. C. Pearce says in Statutory Interpretation, p. 14, are no more than rules of common sense, designed to achieve this object. They are not rules of law. If the judge applies the literal rule it is because it gives emphasis to the factor which in the particular case he thinks is decisive. When he considers that the statute admits of no reasonable alternative construction it is because (a) the language is intractable or (b) although the language is not intractable, the operation of the statute, read literally, is not such as to indicate that it could not have been intended by the legislature. (at p230) [25]On the other hand, when the judge labels the operation of the statute as "absurd", "extraordinary", "capricious", "irrational" or "obscure" he assigns a ground for concluding that the legislature could not have intended such an operation and that an alternative interpretation must be preferred. But the propriety of departing from the literal interpretation is not confined to situations described by these labels. It extends to any situation in which for good reason the operation of the statute on a literal reading does not conform to the legislative intent as ascertained from the provisions of the statute, including the policy which may be discerned from those provisions. (at p320) [26]Quite obviously questions of degree arise. If the choice is between two strongly competing interpretations, as we have said, the advantage may lie with that which produces the fairer and more convenient operation so long as it conforms to the legislative intention. If, however, one interpretation has a powerful advantage in ordinary meaning and grammatical sense, it will only be displaced if its operation is perceived to be unintended. (at p321) That statement of principle may be read with the statements as to a purposive construction made in Project Blue Sky Inc as referred to in [11] and in the Network Ten Pty Ltd case. [48]In State of New South Wales v Macquarie Bank Ltd (1992) 30 NSWLR 307 at 319, Kirby P dealt with the principles of general application to the construction of legislation. In the course of reciting those principles, his Honour stated: The Court will not lightly ascribe to Parliament an intention to produce a clearly unjust result by the operation of legislation; see Tickle Industries Pty Ltd v Hann (1974) 130 CLR 321 at 333. In fact, courts will generally impute to Parliament a purpose of acting fairly. 26However, it is necessary to have regard to some recent authorities of the High Court of Australia regarding statutory interpretation. In Australian Education Union v Department of Education and Children's Services [2012] HCA 3; (2012) 285 ALR 27, French CJ, Hayne, Kiefel and Bell JJ stated at [26] - [28]: 26. The disposition of this appeal turns upon the correct construction of s 9(4). The process of construction begins with a consideration of the ordinary and grammatical meaning of the words of the provision having regard to their context and legislative purpose. According to the construction adopted by the IRC and the Full Court of the Supreme Court, the power conferred by the subsection extended to the appointment of persons as teachers. On the construction for which the Union contends, the power did not extend to such appointments. 27. There are textual and purposive indicators to be considered in determining the preferred construction. Also applicable is s 22(1) of the Acts Interpretation Act 1915 (SA) which relevantly provides: "where a provision of an Act is reasonably open to more than one construction, a construction that would promote the purpose or object of the Act (whether or not that purpose or object is expressly stated in the Act) must be preferred to a construction that would not promote that purpose or object." 28. The reasoning in the IRC was informed by the view that it was desirable that the Minister have flexibility in the appointment of teachers and that Pt III of the Act might be "unnecessarily prescriptive" in its application to the ad hoc appointments of relief teachers in diverse circumstances. This approach, with respect, emphasised a judicially constructed policy at the expense of the requisite consideration of the statutory text and its relatively clear purpose. In construing a statute it is not for a court to construct its own idea of a desirable policy, impute it to the legislature, and then characterise it as a statutory purpose. The statutory purpose in this case was to be derived from a consideration of the scheme of the Act as a whole, the respective functions of Pts II and III of the Act, and the regulatory requirements of Pt IV of the Act. 27In Board of Bendigo Regional Institute of Technical and Further Education v Barclay [2012] HCA 32, French CJ and Crennan, Gummow and Hayne JJ, generally agreeing in a separate joint judgment, observed at [41]: The question of why an employer took adverse action against an employee is a question of fact arising from the operation of interdependent provisions of the Fair Work Act. These provisions must be construed together in accordance with the principles of statutory construction established by this Court, which must begin with a consideration of the text of the relevant provisions and may require consideration of the context including the general purpose and policy of the provisions. 28In addition, we have borne in mind ss 31(1) and 34 of the Interpretation Act 1987 as to the use of extrinsic material in the interpretation of a statute and, in particular, the provisions of ss 2(e), 2(f) and 2(h) respectively as to any explanatory note or memorandum and the speech made to a House of Representatives by a Minister moving that the Bill be read a second time. Consideration 29Section 146C directs the Commission to give effect to certain government policies on the conditions of employment of public sector employees. The Regulation sets out the matters which are, for the purposes of s 146C, to be aspects of government policy which are to be given effect by the Commission when making or varying awards or orders setting conditions of employment: PSA at [64]. The requirements of such a policy are, thus, mandated by s 146 of the Act and not the Regulation, per se: PSA at [65]. 30The provisions of s 146C and the Regulation consist of interdependent provisions and, in accordance with the principles of statutory construction to which we have referred, must be considered as a whole. 31The question, as to whether employee-related cost savings which arose (or were made or agreed) prior to 20 June 2011 or which were reached prior to that time but did not form part of a relevant industrial instrument, are excluded as employee-related cost savings for the purposes of award adjustments above 2.5 per cent under cl 6 of the Regulation, must be undertaken in this light beginning with textual considerations. 32Clause 6 of the Regulation declares a policy which, in effect, requires that increases in remuneration or other conditions of employment do not increase employee-related costs by more than 2.5 per cent unless "sufficient employee-related cost savings have been achieved to fully offset the increased employee-related costs": PSA at [15]. 33The provisions of cl 6 exhibit, in our view, an intention that only employee-related cost savings achieved after the passage of the Regulation should be treated as employee-related costs. This is because the text of that provision suggests the intention of the drafter was for the future operation of employee-related cost savings, that is, savings achieved after the enactment of the Regulation. 34When read in the context of the surrounding words of cl 6(1)(b), the words "have been achieved" appearing in the preamble to cl 6(1)(b) (and elsewhere in the clause) should, in our view, be construed as having operation in the present in the sense of 'recently' or 'lately' rather than indicating a period from the past to the present. We agree with the submission of Mr Britt that the use of the words "per annum" appearing in the preamble to cl 6(1)(b) (and cl 6(1)(a)) and "fully offset" (appearing in the preamble to cl 6(1)(b)) support this conclusion. 35A similar conclusion may be reached by reference to the terms of cl 6(1)(b)(ii) which provide that increases may be awarded before the relevant savings "have been achieved", provided that such amounts are not paid "until they are achieved". 36These provisions tend to indicate that the savings must be achieved in a period or at a time corresponding with any wage adjustment made in conformity with the Regulation (reached by consent or adjudication) and, hence, after the inception of the Regulation. We note that in industrial parlance the expression 'fully offset' means that a given wage increase would be matched by cost savings or other savings having the effect of neutralising the cost of the adjustment after the commencement of its operation (which would normally be prospective). 37Similarly, when read in the context of cl 6 as a whole, the requirement of cl 6(1)(c) that, for the purposes of achieving employee-related cost savings, "existing conditions of employment of the kind but in excess of the guaranteed minimum conditions of employment may only be reduced with the agreement of the relevant parties in the proceedings" would tend to indicate a current transaction, thus producing the relevant saving after the passage of the Regulation (particularly, again, when read in conjunction with the requirement for the adjustment to be considered 'per annum'). 38We do not consider that cl 8 of the Regulation adds significantly to the discussion of this question, except that it does not detract from the textual approach to cl 6. 39Reliance was placed by HSU upon the provisions of cl 9(2) of the Regulation. Its primary contention was that the provisions of the subclause drew a delineation between savings recognised under relevant industrial agreements and those otherwise arising prior to the commencement of the Regulation. It was contended that, in this respect, the legislature had only recognised the past industrial convention that prior savings which had been paid for under an industrial instrument cannot be brought to account to support applications to increase remuneration under an award (that is, double counting must be avoided). Otherwise, savings arising prior to the Regulation's commencement were available. 40The provisions of cl 9(2) are unclear. On one view, the provision does seem to draw a distinction between existing savings which are found in an award and those which are not. However, we consider that an alternative and preferable interpretation of the text is available. 41Clause 9 provides the meaning of the expression 'employee-related cost savings' for the purposes of the Regulation. Clause 9(1) provides that definition by means of delineating between those items which do constitute savings and those which do not. Clause 9(1)(c) is an example of the latter. In that sense, cl 9(2) defines 'existing savings' for the purposes of cl 9(1)(c). The provision is, therefore, designed to identify a particular class of savings which may not be counted towards increases in remuneration above 2.5 per cent for the purposes of the Regulation and, in particular, for the purposes of cl 6(1)(b). 42However, cl 9(2) also needs to be understood in the light of the provisions of cl 9(1)(a) (and cl 6) of the Regulation. It is conceivable, on the face of cl 9(1)(a) (absent the provisions of cl 6), that a saving of the kind described in that subclause may arise from an award or order of the Commission made before the Regulation but which is carried into effect or achieved after the passage of the Regulation. In our view, the terms of cl 9(2) serves (given cl 9(1)(c) is cojoined to cl 9(1)(a) by the word 'and') to prohibit savings derived from instruments made prior to the Regulation being taken into account as employee-related cost savings, notwithstanding that the savings may materialise at a later point in time (after the Regulation commenced). The words "made before the commencement of this Regulation (or in an agreement contemplated by such an industrial instrument) and are relied on by that industrial instrument" are designed to effect that restriction. We consider that the closing words of cl 9(2) are to a similar effect. 43This approach to the interpretation of cl 9 conforms with the provisions of cls 6 and 8 of the Regulation and is consistent, as we will discuss below, with the purpose of the provisions of s 146C when read in conjunction with the Regulation. It follows that we do not consider that the distinction drawn around existing savings in cl 9(2) ultimately has the consequence contended for by the HSU in these proceedings. 44The purpose of the Amendment Act and the Regulation was discussed in two recent Full Bench decisions. 45In Re Crown Employees (Public Sector - Salaries 2011) Award (No 3) [2011] NSWIRComm 104 at [34], a Full Bench of the Commission observed that the intention of the legislature, in amending the IR Act to include s 146C and in promulgating the Regulation, was to limit employment costs in the public sector. The Commission further observed: ... Increases in employee-related costs are to be limited to 2.5 per cent per annum. ... If employee-related costs savings cannot be achieved to fully offset any increase in employee-related costs in any one year beyond 2.5 per cent, on the face of the Regulation there can be no increase in remuneration for employees beyond that amount. 46In Health Employees Conditions of Employment (State) Award, the Full Bench considered the policy and purpose of s 146C and how that may assist in understanding the operation of cl 6(1)(d) of the Regulation. The Full Bench observed, after referring to a number of authorities, at [49], [51] and [54]: [49]The approach encapsulated in these decisions necessarily leads to a consideration of the policy and purpose of the amendment and how that may assist in the determination of the operation of cl 6(1)(d) of the Regulation. Reference to the Minister's second reading speech demonstrates a Government concern, in the prevailing economic conditions, for the level of its public sector wages bill and how a "highly skilled and effective public sector" can be built with wage increases made available each year to "hard-working public sector employees" while maintaining "fiscal restraint" via the Government's wages policy. At the heart of the provisions to give effect to that policy is the availability of 2.5 per cent per annum as a reflection of the median point of expected cost of living increases and the requirement that anything over 2.5 per cent requires costs off-sets equal to the increases sought before any increase can be granted by the Commission in salaries, wages, allowances and conditions involving employee-related costs. ... [51]The remaining provisions of cl 6 are mechanisms to ensure adherence to the primary policy. Government policy has committed itself to making available a 2.5 per cent increase in salaries each year for public sector employees: it can matter nought to the Government nor its policy when an arbitration is conducted for higher rates than the 2.5 per cent base allowable each year. This is because the employees themselves, by means of cost offsets equal to the increases that may be granted, must pay for any increases over 2.5 per cent. The policy operates in such a manner that it matters little, if anything, to the Government and its requirement for fiscal restraint in public sector wages, whether small or very large additional increases are granted, as all such increases shall be paid for by the employees by way of equal off-sets. ... [54] Finally, it may be stated that an analysis of the Amendment Act and Regulation and the Minister's second reading speech discloses no intention to prohibit the granting of interim increases up to 2.5 per cent where the full claim envisages obtaining increases above 2.5 per cent, but in accordance with the wage policy. The following matters appearing in the Minister's second reading speech support this conclusion: the key elements of the policy were said to be the 2.5 per cent assured wage increases and the requirement for employees to provide full costs off-sets for any increases above that figure. This policy was said to ensure an appropriate balance between public sector wage increases and the availability of funds for delivery of Government commitments for New South Wales. Those aims are not compromised by the continuing ability to grant an interim wage increase as proposed in these applications; it was said that the amendments include "very specific words" to ensure that the Government's intentions may not be subverted, with reference being made to s 10 and s 146 or any other section of the Act. The Commission would be left in "no doubt" about the matters to which it should give effect when making or varying awards. Again, it is to be noted that no reference is made to s 16(4) although any increase available under that provision would be capped at 2.5 per cent in accordance with the Amendment Act and the Regulation. Having regard to the way in which s 16(4) may operate within the policy guidelines, the omission of a reference to that section is a strong indicator that interim awards may be made in keeping with the Government policy. There are no "very specific words" restricting the availability of s 16(4); ... the Minister referred to the amendment being made to ensure that the Government's fiscal strategy was not rendered ineffective, but there is nothing about a 2.5 per cent interim increase in these present cases that would have that effect. 47Paragraph [54] of that decision encapsulates certain aspects of the second reading speech for the Amendment Act. The purposive construction we are now undertaking will be assisted by setting out fully some of those passages below. 48In moving that the Bill be read a second time, the Hon Greg Pearce, Minister for Finance and Services and Minister for the Illawarra, stated (see New South Wales Legislative Council, Parliamentary Debates (Hansard), 24 May 2011 at 889): I am pleased to introduce the Industrial Relations Amendment (Public Sector Conditions of Employment) Bill 2011. The New South Wales Government has made a commitment to its citizens to rebuild the economy, return quality services, renovate infrastructure, restore accountability, and protect the local environment and communities. We are rebuilding a strong New South Wales economy through lower taxes and supporting businesses to grow and create jobs. The Government is returning quality services in areas such as health, transport, education and community safety. This includes 900 additional teachers under the Literacy and Numeracy Action Plan and opening 1,390 beds and providing 2,475 extra nurses under the Better Hospitals and Healthcare Plan. The Government is building the infrastructure that will make a difference to both the economy and people's lives including the commencement of work on planning and budgeting for the North West Rail Link. The Government is deeply committed to its core purpose of delivering the high-quality front-line services that New South Wales citizens deserve by a highly skilled and effective public sector. To this end we have announced the establishment of the Public Sector Commission to provide advice on public sector reform. In order to deliver on this plan and ensure that the commitments will be funded, action needs to be taken to control government expenditure. Employee-related costs are the largest component of government expenditure, accounting for almost half of government expenses. In 2010-2011 approximately half of government expenses will be employee-related and are projected to be $28 billion. Managing this expenditure is a major challenge, given that front-line services such as education, health care and policing are labour intensive. Each 1 per cent increase in wages permanently increases government expenses by around $277 million per annum. Underpinning the need for fiscal restraint is the Government's wages policy. The policy was first introduced by the previous Labor Government in 2007, but that Government failed to implement it. The New South Wales Coalition Government will continue the key provisions of the wages policy introduced by the former Labor Government. However, the Coalition Government has proposed changes to the way the wages policy operates to ensure that the key requirements of the wages policy are actually followed. Our policy and legislative response will ensure that wage increases of 2.5 per cent are available each year to our hard-working public sector employees. Increases in excess of 2.5 per cent are available but will be required to be funded through employee-related savings. ... The commission will be left in no doubt about the matters to which it must give effect when it makes or varies awards or orders relevant to public sector employment. For example, where a public sector union has filed a wages claim in the commission and seeks that the commission conciliate and/or arbitrate to achieve an outcome, the commission will be bound to ensure that, in accordance with the declared wages policy, any increase in excess of 2.5 per cent will only be awarded where employee-related savings sufficient to fund such an increase have been both identified and implemented. ... The intent of the amendment is to ensure that the wages policy or the Government's fiscal strategy is not rendered ineffective by decisions of the Industrial Relations Commission. The proposed amendments will ensure that the commission makes decisions that properly take account of and give effect to wages policy, so minimising pressure on the State's budget. Honourable members may be aware that several public sector unions filed claims in the Industrial Relations Commission in the dying days of the previous Government. Proposed subsection (6) ensures that the new section 146C requirements will apply to all matters pending before the commission. This will include appeals from any matters already decided. In other words, the amendment is intended to have immediate effect on commencement in relation to all matters not yet concluded before the commission. When considering the proposed amendments to the Industrial Relations Act it is important to note that the Industrial Relations Commission will continue to play an important role in the ongoing need for public sector workplace reform, promoting efficiency and productivity in the economy of the State, providing for the resolution of industrial disputes by conciliation and encouraging and facilitating cooperative industrial relations. Under the proposed amendments the commission will continue to assist New South Wales public sector agencies and unions to identify and reach agreement on wage outcomes, albeit within the confines of the Government's wages policy. This discretion will include determining the quantum of wage increases, consideration of changes to conditions of employment, ensuring the corresponding level of employee-related savings has been achieved, and identifying future workplace reform. (emphasis added) 49Reference might also be made to the explanatory memorandum accompanying the Bill for the Amendment Act. That explanatory note stated: The object of this Bill is to amend the Industrial Relations Act 1996 to require the Industrial Relations Commission to give effect to aspects of government policy declared by the regulations relating to NSW public sector conditions of employment. 50The Amendment Act was enacted and the Regulation made as a component of economic reform introduced by the New South Wales Government, central to which was the concept of fiscal restraint. The Regulation achieves that aim by creating mechanisms which control employee-related costs; restricting those costs to the equivalent of the mid point of the Reserve Bank's target range for inflation for each yearly period. The mechanisms adopted, in this respect, were the imposition of limits upon the Commission's discretion under s 10 of the IR Act to make or vary awards in relation to the wages and conditions of public sector employees beyond the designated limit for such adjustments of 2.5 per cent. Variations above that level were made conditional upon the adjustment effectively being made cost neutral by means of offsets in the form of employee-related cost savings. 51The construction contended for by the HSU and ASMOF would permit a class of employee-related cost saving, which originated before the commencement of the Regulation (whether implemented before or after that date), to be brought to account (in the sense of offsetting or making cost neutral wage or conditions of employment adjustments above 2.5 per cent) in satisfaction of the requirements of cl 6(1)(b) of the Regulation (in the period after its commencement). We do not consider this approach conforms with the purpose of the provisions of s 146C or the Regulation. 52The construction proposed by the unions has the effect of breaking the nexus between the provisions of cls 6(1)(a) and 6(1)(b) in a manner inconsistent with the purpose of the Regulation we have described above. That nexus consists of both substantive (by regulating employee-related costs via the mechanisms for, and limits imposed upon, wage and conditions of employment adjustments) and temporal (in determining the period over which such adjustments may occur) elements. The objective of fiscal control is maintained by the regulation of the cost of wages and conditions around an axis of a 2.5 per cent adjustment in wages and conditions in a 12 month period. 53The construction proposed by the HSU and ASMOF severs the nexus by creating a disconnect from the wage and conditions setting formula in cl 6, both in process and time. On the proposed construction, employee-related cost savings may be established and brought to account independently of negotiations or applications for a 2.5 per cent increase in wages and/or conditions (or any greater amount) thereby creating what may be described as a 'substantive difference' from the scheme of the Regulation (in the sense that the savings emanate from different wage fixation arrangements) and temporally break from the Regulation (in the sense that they arise before the Regulation was established). 54The consequences of the construction proposed by the unions is not inconsequential and adversely impacts upon the fiscal aims of the legislation and Regulation. Apart from introducing a significant element of uncertainty in the operation of the regulatory scheme, the capacity to satisfy cl 6(1)(b) by pre-Regulation savings results in the establishment or acquisition of employee-related cost savings remotely from the process of fixing wages and conditions of employment within the parameters of the Regulation. In contrast, the purpose of the Regulation of fiscal restraint is achieved by drawing together these processes so as to make cost assessments or cost controls coincidental with, and an essential part of, wage and conditions of employment fixation. The aim of the Regulation made under s 146C, in that respect, is that a fresh and more rigorous set of controls would be imposed to restrict wage and conditions movements in order to manage employee-related costs. The construction proposed by the unions will necessarily undermine that process and, in consequence, the outcomes flowing from it (both as a matter of logic and experience). 55Our view is that s 146C of the IR Act and the Regulation, when the scheme is read as a whole, operate in respect of cost savings achieved after 20 June 2011. Employee-related cost savings of the kind contemplated by the Regulation would not be achieved if increases for salaries after 20 June 2011 could be offset by employee-related cost savings prior to 20 June 2011. 56In our view, whether the question is in the amended form agreed during the hearing of this matter or in the original form of question one of the four proposed questions, an affirmative response should be provided. Hence, we answer 'yes' to the question posed. 57Within 14 days of the date of this decision, the parties shall file written submissions as to the further disposition of these proceedings in the light of this ruling. ********** 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: 15 October 2012