The concept of arbitration in unfair dismissals explained
The Fair Work Commission is not a court. It is an administrative body or an arbitral body. It is exists not to declare the law but to make law, thus in the exercise of its arbitral or arbitration functions it creates rights not declares what they are. This is a trick subject and I can recall trying to master the notion in constitutional law at university some decades ago.
The following extract from a recent case explains the issue quite well.
“The background facts in this matter are not in dispute. Nor is there any dispute as to the nature of the relief being sought. It is accepted that an administrative tribunal like the Commission cannot exercise the Commonwealth’s judicial power. Re Cram; Ex parte Newcastle Wallsend Coal Co Pty Ltd (1987) 163 CLR 140 and authorities referred to therein. The ascertainment, declaration or enforcement of legal rights is the exercise of judicial power. If opinions are formed about such matters in the course of arriving at a conclusion about what rights should exist in the future, the functions can legitimately fall within the arbitral power conferred on the Commission Ranger Uranium Mines Pty Ltd; Ex parte FMWU (1987) 163 CLR 656. These concepts have been stated and applied in various High Court decisions.
The Ranger Uranium Case concerned a consideration of the Commission’s predecessor’s powers to order reinstatement of dismissed employees. The High Court said:
“17. It is clear that reinstatement may be claimed as a legal right or as a remedy for breach of a legal obligation. S.5 of the Act is illustrative of situations in which reinstatement is a curial remedy for the breach of a legal obligation. A dispute as to the existence or enforcement of a legal right to reinstatement or as to the breach of a legal obligation properly remedied by an order for reinstatement is a dispute which necessarily involves the exercise of judicial power. In conformity with s.71 of the Constitution (which reposes the judicial power of the Commonwealth in Chapter III Courts), the Commission is not endowed with judicial power, and hence has no jurisdiction to entertain disputes as to the existence or enforcement of legal rights or obligations: see Re Cram; Ex parte Newcastle Wallsend Coal Co. Pty. Ltd.  HCA 29; (1987) 61 ALJR 407, at pp 408 and 413;  HCA 29; 72 ALR 173, at pp 175 and 183.
18. However, the creation of legal rights and obligations is a function which may be performed in the exercise of arbitral power. This is so even if the function is performed in settlement of a dispute relating to past transactions, events and conduct: Re Cram; Ex parte Newcastle Wallsend Coal Co. Pty. Ltd., at p 409; p 176 of ALR.
22. Ordinarily, in industrial tribunals empowered to order reinstatement, the criterion for the making of an order for reinstatement is that the dismissal was harsh, unjust or unreasonable, although more recently the tendency has been to express the test in terms of unfairness. See In re Loty and Holloway and Australian Workers’ Union (1971) AR.(N.S.W.) 95. In the present case the Union and the Society each claimed that the dismissals which gave rise to their claim were harsh, unjust and unreasonable. Accordingly it was said that the resolution of the dispute necessarily involved the determination of whether the dismissals were harsh, unjust or unreasonable – a determination which, it was argued, required the Commission, in the context of the award, to determine whether the employer was in breach of the obligation contained in cl.7(d)(vi). This, it was contended, necessarily involved an assumption of the judicial power of the Commonwealth, for it involved the Commission in precisely the same task as would be undertaken by a Court in the event that proceedings were taken pursuant to s.119 of the Act alleging breach of cl.7(d)(vi) of the Award.
23. It is well settled that functions ‘may be classified as either judicial or administrative according to the way in which they are to be exercised’: The Queen v. Hegarty; Ex parte City of Salisbury  HCA 51; (1981) 147 CLR 617, per Mason J., at p 628. See also Federal Commissioner of Taxation v. Munro  HCA 58; (1926) 38 CLR 153 per Isaacs J., at p 177; The Queen v. Spicer; Ex parte Australian Builders’ Labourers’ Federation  HCA 81; (1957) 100 CLR 277, per McTiernan J., at p 293 and Kitto J., at p 305; Re Cram; Ex parte Newcastle Wallsend Coal Co. Pty. Ltd., at p 413; p 184 of ALR. A finding that a dismissal is harsh, unjust or unreasonable involves the finding of relevant facts and the formation and expression of a value judgment in the context of the facts so found. Although findings of fact are a common ingredient in the exercise of judicial power, such findings may also be an element in the exercise of administrative, executive and arbitral powers: see The Queen v. Trade Practices Tribunal; Ex parte Tasmanian Breweries Pty. Ltd.  HCA 8; (1970) 123 CLR 361, per McTiernan J., at p 371 and The Queen v. Hegarty; Ex parte City of Salisbury, per Murphy J., at p 631. So too with the formation and expression of value judgments.
24. In our view the fact that the Commission is involved in making a determination of matters that could have been made by a court in the course of proceedings instituted under s.119 of the Act does not ipso facto mean that the Commission has usurped judicial power, for the purpose of inquiry and determination is necessarily different depending on whether the task is undertaken by the Commission or by a court. The purpose of the Commission’s inquiry is to determine whether rights and obligations should be created. The purpose of a court’s inquiry and determination is to decide whether a pre-existing legal obligation has been breached, and if so, what penalty should attach to the breach.
25. The power of inquiry and determination is a power which properly takes its legal character from the purpose for which it is undertaken. Thus inquiry into and determination of matters in issue is a judicial function if its object is the ascertainment of legal rights and obligations. But if its object is to ascertain what rights and obligations should exist, it is properly characterized as an arbitral function when performed by a body charged with the resolution of disputes by arbitration.
26. Inquiry into and determination of facts for the purpose of ascertaining what rights and obligations should be brought into existence in settlement of an industrial dispute does not cease to be an exercise of arbitral power merely because, in the course thereof, the Commission may form an opinion as to the existing legal rights and obligations of the parties. As was pointed out in Re Cram; Ex parte Newcastle Wallsend Coal Co. Pty. Ltd., at p 409; p 176 of ALR, the formation of an opinion as to legal rights and obligations does not involve the exercise of judicial power, at least if it is ‘a step in arriving at the ultimate conclusions on which (is based) the making of an award intended to regulate the future rights of the parties’. For, as was there made clear, ‘the formation of such an opinion does not bind the parties and cannot operate as a binding declaration of rights.’”
An example of the application of these principles is the case of CPSU v Tenix Solutions Pty Ltd. PR940630. In that case the Full Bench said:
“The second ground on which it is contended that the appeal is incompetent is that what the applicants sought from Commissioner Simmonds was an exercise of judicial power. The argument, in essence, is that the Agreement was not made with Tenix but with Tenix’ predecessor in the business. Accordingly Tenix has not consented to the dispute resolution provision in the Agreement. In substance the applicants sought a determination that Tenix was bound by the Agreement as a successor pursuant to s.170MB of the WR Act.
A determination that Tenix is bound by the Agreement as a successor pursuant to s.170MB(2) requires the exercise of the judicial power of the Commonwealth. The judicial power of the Commonwealth can be exercised only by a Court constituted under Chapter III of the Constitution. The Commission is not a Chapter III Court and is precluded from exercising judicial power in the context of this case.
The substance of the applicants’ response to the second ground of objection to competency is that Parliament has power to legislate for the making and certification of agreements and it has done so. Parliament also has power to pass laws directed to maintaining the agreements so made and certified. Section 170MB of the WR Act is a law of that character. It maintains the Agreement by ensuring that the agreement and its benefits and obligations pass to any successor in business. Tenix, the applicants contend, is a successor to the business to which the Agreement applied. The employer obligations under the Agreement, including the obligation to submit unresolved disputes to arbitration, transmitted to Tenix when it succeeded to the business. Consequently, Tenix is bound by the operation of s.170MB and the Agreement to submit to arbitration and no issue of judicial power arises.
We think there may be substance in the second ground upon which Tenix contends that the appeal is incompetent. However, as with the first ground, it is appropriate that we address this ground also in the context of the appeal as a whole. We proceed with that course.
It will be recalled that the Commissioner found that he did not have jurisdiction to deal with Ms McCallum’s application because what was sought was an exercise of judicial power in the nature of a declaration. It is not strictly necessary that we deal with the correctness of that finding, since we have already concluded that there was no dispute over the application of the Agreement for the purposes of s.170LW and cl.32 of the Agreement. In case it should become important, however, we think it right that we express our conclusion.
Whether an application invites the use of judicial power depends upon the circumstances. As was said in Re Geelong Grammar School:
‘There is no doubt that the Commission may, without exercising judicial power, decide questions which ‘are not necessarily foreign to judicial power.’ [For an analogous case concerning a local coal authority under the Coal Industry Act 1946-1957 (Cth) see R. v Lydon; Ex parte Cumnock Collieries (1960) 103 CLR 15 at 22] Whether the Commission purports to exercise judicial power will depend upon the facts of the case and in particular upon whether the decision which is sought to be impugned is in truth an attempt to ascertain, declare or enforce existing rights [Waterside Workers Federation of Australia v JW Alexander Ltd (1918) 25 CLR 434 at 463] or only a step in the proper exercise of the powers conferred upon the Commission by the Parliament.
“[But] there is no substance in the suggestion that an industrial tribunal cannot interpret laws, awards and other legal instruments. A tribunal could not discharge its arbitral functions if it were unable to form an opinion on a matter of interpretation. The formation of views and opinions on matters of interpretation in arbitral proceedings does not in itself amount to a usurpation of judicial power: Cessnock Collieries, at p.22; The Queen v. The Commonwealth Industrial Court; Ex parte The Australian Coal and Shale Employees’ Federation (1960) 103 CLR 171, at p 174; Key Meats, at pp 596-597. Indeed, a tribunal may find it necessary to form an opinion as to the existing legal rights of the parties as a step in arriving at the ultimate conclusions on which the tribunal bases the making of an award intended to regulate the future rights of the parties: Aberdare Collieries, at p.44.” [Re Cram; Ex parte The Newcastle Wallsend Coal Co. Pty Ltd (1987) 163 CLR 140 at 149]
While this passage analyses the issue by reference to statutory powers of arbitration, the principles apply equally to the exercise of statutory powers such as those conferred by dispute resolution provisions in certified agreements pursuant to s.170LW. The Commission may find it necessary to form an opinion as to the existing legal rights of the parties as a step in arriving at the conclusions on which it bases a decision resolving a dispute over the application of a certified agreement.
 Whether a particular decision should be so described depends to a great extent, if not entirely, upon the circumstances of the particular case.’ (2002) 123 IR 216, -.
Because we agree with the Commissioner that the only real issue before him was whether Tenix was bound by the Agreement, it cannot be said that the decision on that issue was a necessary preliminary step in the process of settling a dispute about the application of the Agreement. On that basis it is clear that what was sought was in truth a bare declaration of rights. Such a declaration would have involved a purported use of judicial power. The Commissioner was correct in that finding also.”
A similar argument was advanced in relation to a right of entry dispute in Police and Nurses Credit Society Ltd v FSU. (2003) 132 IR 13. In that case the Full Bench said:
“ We think it is clear from the terms of the notification and the exchange of correspondence between the parties which is referred to earlier in this decision, that there is an ‘industrial dispute about the operation of Division 11A’. In particular, there is clearly a dispute about the FSU having access to the appellant’s premises pursuant to s.285C of the WR Act.
 In our view the appellant’s characterisation of the matter before the Commissioner is erroneous. The FSU was not seeking a declaration and enforcement of its right to enter the appellant’s premises pursuant to s.285C. It was seeking an order pursuant to s.285G to settle an industrial dispute about the operation of Division 11A.
 In substance the dispute between the parties was about the appellant’s refusal to allow FSU permit holders to enter its premises for the purpose of holding discussions with members or persons eligible to be members. In resolving this dispute the Commissioner was entitled, as an incidental step in the proper exercise of its jurisdiction, to form an opinion about the legal effect of the 2001 Agreement vis-à-vis the 2001 Award, and the consequent effect on the FSU’s rights under s.285C. Re Cram; Ex parte Newcastle Wallsend Coal Co Pty Ltd (1987) 163 CLR 140, 149.12
 It is also relevant to note that the power in s.285G has been conferred on the Commission and may be said to take its character from the tribunal in which it is to be exercised.
 Further, we are not persuaded that general considerations of industrial fairness did not form part of the Commissioner’s consideration of the matter. In this regard we note that the course of his submissions in the proceedings below Mr Logan, representing the FSU, made reference to considerations relating to ‘freedom of association’ and characterised the appellant’s conduct as ‘an attempt to construct a way of keeping unions out …’. Such policy considerations are not suggestive of the exercise of judicial power.
 Nor do we think that the terms of the order made assist the appellant. The fact that the order is largely a restatement of some of the provisions of s.285A, s.285C and s.285D is unsurprising when regard is had to the fact that s.285G(1) provides that any order made must not confer powers ‘that are additional to, or inconsistent with, powers exercisable under [the] Division’.
 We have also had regard to the consequences of upholding the appellant’s contention. In our view it would lead to the emasculation of the powers conferred by s.285G. An employer could avoid the jurisdiction by the simple expedient of only contesting a union’s right to enter its premises under Part IX rather than disputing the manner in which such a right is to be exercised.
 We consider that the matter before the Commissioner called for the resolution of a dispute, not by the determination of what the existing rights and obligations of the parties are, but the ascertainment of what rights and obligations should exist. Contrary to the appellant’s submissions the Commission’s order involved the exercise of arbitral not judicial power.”
The principles in the Ranger Uranium Case apply to the current case. The Police and Nurses Case was found to involve considerations of fairness and the dispute was not characterised by the Commissioner or the Full Bench as a declaration and enforcement of the right of the organisation to enter premises under the Act. Hence the case is distinguishable from the present case. We propose to apply the Ranger Uranium Case to the matter before us.”
Construction, Forestry, Mining and Energy Union v BHP Billiton Nickel West Pty Ltd (2017) FWCFB 217 delivered 16 January 2017 per Watson VP, Bull DP and Cribb C