Placer Development Ltd v Commonwealth
121 CLR 353(Judgment by: Kitto J)
Placer Development Ltd v Commonwealth
Court:
Judges:
Kitto JTaylor J
Menzies J
Windeyer J
Owen J
Subject References:
Contract
Uncertainty
Promise to pay money
Amount payable
Judgment date: 27 June 1969
SYDNEY
Judgment by:
Kitto J
KITTO J. An Agreement made in 1952 between the Commonwealth and the plaintiff company, providing for the formation by the plaintiff of a company (referred to in the Agreement as the Timber Company) to produce plywood and other timber products in the Territory of Papua and New Guinea, contained a cl. 14 in these terms:
"14. If customs duty is paid upon the importation into Australia of the plywood, veneers, logs and other products of the Timber Company, and is not remitted, the Commonwealth will pay to the Timber Company a subsidy upon the exportation of these products from the Territory for entry into Australia of an amount or at a rate determined by the Commonwealth from time to time, but the amount of subsidy paid shall not exceed the amount of customs duty paid and not remitted."
The timber company was duly formed. Between 1st July 1959 and 30th June 1963 it imported into Australia certain plywood which it had produced in the Territory, and paid in respect of the importation customs duty which was not remitted. The Commonwealth has not paid the timber company any subsidy upon the exportation of the plywood from the Territory in those years, nor has it determined any amount or rate of subsidy in respect thereof. In these circumstances the plaintiff sues the Commonwealth in this Court for a clarification of the meaning of cl. 14, and by a case stated the parties submit for decision certain questions which reflect the respective contentions of the parties.
Question 1 relates only to the relevance of certain facts, and the parties withdrew it during the hearing.
Question 2 is whether by virtue of the Agreement the Commonwealth is obliged (i.e., is under a legal obligation owed to the plaintiff company though not to the timber company) to determine an amount or a rate of subsidy which will recoup to the timber company all the customs duty paid by it (and not remitted) on the importation of its plywood into Australia. The answer is obviously No. Language could hardly make it clearer than it is made by cl. 14 that equality of subsidy with duty paid and not remitted was not necessarily to be observed. The duty paid and not remitted was made the upper limit of the subsidy, but the lower limit was left to be determined by the Commonwealth.
Question 3 is whether by virtue of cl. 14 the Commonwealth is obliged (again, to the plaintiff company) to pay to the timber company a subsidy which will recoup to the timber company all the customs duty paid by it on the importation of its plywood into Australia and not remitted. Again, the answer must be No. The Commonwealth has plainly retained a right to review and vary the amount or rate of subsidy, and such a reservation, as the Court observed in Australian Woolen Mills Pty Ltd v The Commonwealth [F1] , at p. 464 "cannot be reconciled with the conception that the Crown has promised to pay a subsidy of definite amount".
Question 4 (a) is asked on the assumption that both questions 2 and 3 are answered No. It is whether the Commonwealth is obliged by the Agreement to pay to the plaintiff a subsidy. The answer to the question as framed must necessarily be No, because the Agreement does not provide for the payment of any subsidy to the plaintiff. Presumably, however, "the plaintiff" in the question is a mistake for the timber company, and the question may be treated as if it were amended accordingly. Questions 4 (b) and (c) arise only if question 4 (a) be answered Yes, but to recite them will indicate some of the difficulties in the way of so answering question 4 (a). Question 4 (b) is whether the Commonwealth has an absolute discretion to determine the amount of a subsidy, including a discretion to determine a subsidy of a nominal amount or rate; and question 4 (c) is, in effect, on what basis, if the Commonwealth has not such a discretion, the amount or rate of subsidy should be calculated.
Cases in which a party's liability to make a payment is expressed as depending upon an exercise of discretion by that party have most often been cases of service agreements. The question there is usually whether the intention of the agreement is that the employer shall be entitled to decide whether any remuneration at all shall be paid and if so how much, or is that he shall be bound to pay at all events a reasonable remuneration. In other words, it is whether, on the one hand, the service is intended to be honorary unless the employer otherwise decides, or, on the other hand, a promise to pay a reasonable amount is to be implied. As may be seen from the case of Bryant v Flight [F2] , in which Parke B. dissented from the decision of the Court, it is not always an easy question to decide; but the general principle is established which Vaughan Williams L.J. in Loftus v Roberts [F3] , at p. 534, expressed in words that were subsequently adopted by Lord Wrenbury, as Buckley J., in Broome v Speak [F4] , at p. 599. It is that wherever words which by themselves constitute a promise are accompanied by words showing that the promisor is to have a discretion or option as to whether he will carry out that which purports to be the promise, the result is that there is no contract on which an action can be brought at all. The succinct statement of the principle in Leake on Contracts, 3rd ed., p. 3: "Promissory expressions reserving an option as to the performance do not create a contract" was approved by the Lord Justice, as it was later by Lord Wright in Hillas and Co Ltd v Arcos Ltd [F5] , at p. 517.
In some cases, even of employment agreements, though it is clear that the employee is not intended to render his services gratuitously, the conclusion that "an option as to the performance" is reserved to the employer in respect of remuneration is inevitable because the employer's promise is limited to paying remuneration of such a kind that the concept of reasonableness cannot be applied because of the absence of any agreed basis of calculation. Such a case came before the Privy Council in Kofi Sunkersette Obu v A. Strauss & Co Ltd [F6] , where the terms of the agreement showed plaintly enough that the services of the employee were intended to be remunerated, but stipulated that the remuneration was to consist in part of a monthly allowance of fixed amount and in part of a commission which was left to the discretion of the employer without any indication of either basis or rate. The Judicial Committee held that a court could not award more than the fixed allowance without transferring to itself the exercise of the discretion as to commission which the agreement had vested in the employer.
The present case is not dissimilar. A promise of a governmental subsidy is meaningless in the absence of a specification of some amount or some basis of calculation. It carries no implication that at least a reasonable subsidy shall be paid, for there is no general standard of reasonableness with respect to the quantum of a subsidy. The expression in cl. 14 of the Agreement before us, "a subsidy ... of an amount or at a rate determined by the Commonwealth from time to time", indeed reflects the fact that a governmental or legislative determination of quantum is of the essence of a subsidy. The Commonwealth's promise is, in substance, a promise to pay such subsidy if any as may be decided upon from time to time by or under the authority of the appropriate repository of Commonwealth power, namely the Parliament. It therefore does not create any contractual obligation.
The plaintiff sought some support for a contention to the contrary by reference to the fact that the Parliament of the Commonwealth approved the agreement by Act No. 40 of 1952; but the approval merely fulfilled a condition precedent which the Agreement itself set to its binding operation, and nothing in the Act exhibits an intention to impose upon the Commonwealth any more extensive legal obligation than the terms of the agreement themselves provided. It is to be observed that whereas s. 5 appropriated PD500,001 out of the consolidated revenue fund for the purpose of meeting "the liabilities of the Commonwealth arising under or out of the Agreement", there was no general appropriation in the Act on the footing that cl. 14 imposed a legal liability upon the Commonwealth.
In my opinion the questions should be answered:
2. No;
3. No;
4 (a). No;
4 (b). Does not arise;
4 (c). Does not arise.