Upper Hunter County District Council v Australian Chilling and Freezing Co Ltd

118 CLR 429

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(Decision by: Menzies J)

Upper Hunter County District Council
v Australian Chilling and Freezing Co Ltd

Court:

Judges: Barwick CJ
McTiernan J
Kitto J

Menzies JWindeyer J

Subject References:
Contract
Construction
Uncertainty
Whether capable of meaning

Hearing date: 7 November 1967; 1968 November 1967; 8 March 1967
Judgment date: 8 March 1968

Sydney

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Decision by:
Menzies J

In an award in the form of a special case an arbitrator asked, inter alia, whether cl. 5 of a contract between the appellant and respondent was void for uncertainty. The Court of Appeal of the Supreme Court of New South Wales formally answered this question in the affirmative. In doing so the Court merely followed an earlier decision, which it had given with elaborate reasons, when it answered in the negative a question submitted by the arbitrator for the opinion of the Court to the effect whether he, the arbitrator, was entitled to make the finding of law that cl. 5 was not void for uncertainty. The explanation for the somewhat elaborate procedure that has been followed in bringing the substance of the matter before this Court is to be found in the decision of this Court in The President of India v The Moor Line Ltd [No. 2] ^[F8] .

The first question for this Court is therefore whether cl. 5 of the agreement is void for uncertainty.

Clause 5 is as follows:

"5. It is agreed that during the term of this agreement if the Supplier's costs shall vary in other respects than as has been hereinbefore provided the Supplier shall have the right to vary the maximum demand charge and energy charge by notice in writing to the Purchaser given not less than 14 days before the commencement of any month after the date hereof such varied rates to take effect from the commencement of that month."

On its face the clause seems plain enough but it is said that it is full of latent ambiguity. It is claimed that upon examination, in the light of the rest of the agreement, the statement of the circumstances entitling the supplier to give the purchaser a notice of variation is found to be meaningless; particular reliance is placed upon the ambiguity of the phrase "the Supplier's costs". The supplier does not itself generate electricity; it purchases it from one or other or both of two companies at Muswellbrook that is Muswellbrook Coal Co Pty Limited and Mepco Pty Limited. Earlier in the agreement (cl. 2) provision is made for an increase or decrease in an energy charge of 1.7825d. per kilowatt hours.

"by decimal 0025 (0.0025) of a penny per kilowatt hour in respect of each complete shilling by which the Basic Wage as hereinafter defined is greater or less than twelve pounds one shilling (PD12 1s. 0d.) per week and shall be increased or decreased by decimal 015 (0.015) of a penny per kilowatt hour in respect of each complete shilling by which the price of large coal to Muswellbrook Coal Co Pty Limited or Mepco Pty Limited at Muswellbrook is greater or less than 51/91/2d. per ton such increase or decrease to apply for the same period or periods as the increase or decrease of the Basic Wage and the price of large coal respectively shall operate".

It is clear I think that the variations referred to in cl. 2 are treated as variations in "the Supplier's costs". Of course in one sense they fall outside this description, because, the supplier does not pay the wages for the labour nor pay for the coal used in the generation of the electricity supplied. Reference however to the agreement between the supplier and the generating companies discloses the existence of like clauses. In consequence an increase or decrease in the basic wage or the cost of coal to the generating companies automatically affects both the price that the supplier pays for electricity and the price that it charges the purchaser. In a real sense, and, in the sense of the agreement, cl. 2 does relate to "the supplier's costs". It is apparent, therefore, that what the agreement does is to provide (1) for the automatic variation of charges, in the event of specific changes in the basic wage and specific changes in the price of coal paid by the generating companies; and (2) for the right of the supplier to vary charges if its costs of carrying out its contract with the purchaser should vary in other respects in the course of its doing so. This latter provision may in certain circumstances give rise to problems. The right of the supplier to vary charges is not in terms limited to passing on increased or decreased costs. It may be, although this is unlikely, that any variation in unidentified costs during the period of the contract, would give the supplier an unrestricted right to vary charges. Recognition that there are questions of construction implicit in cl. 5, and, that in agreeing to it in the form in which the clause appears the purchaser may have been improvident, does not mean that the clause is meaningless, nor, does recognition that, in particular circumstances, there may be more than one view about the true effect of the clause. Ambiguities of the sort that I have been discussing, do not however involve that kind of uncertainty which defeats the intention of the parties to make a binding contract; viz., the use of language which, as a matter of construction and not mere speculation, cannot be given any one meaning rather than another.

In the event therefore, and without finding it necessary to put a particular construction upon cl. 5, I find myself in disagreement with the Court of Appeal that the clause is meaningless and void.

This brings me back to the award. The questions raised are as follows: "(1) Is cl. 5 void for uncertainty? (2) If the answer to (1) is No upon the facts as found was I entitled to hold that the Supplier's costs had varied in the respects contemplated by and within the meaning of the said clause? (3) If the answer to (1) is No am I entitled to make the findings of fact which I originally made prior to the said answers of the said Court of Appeal namely that the Council was entitled under cl. 5 of the agreement to increase the energy charge to the Complainant to 2.3125d. per kilowatt hour as from the 1st day of September 1963?"

The Court of Appeal answered the first question Yes and did not answer questions 2 and 3.

Following the aforesaid questions the special case continued in these terms:

"If the Council does not set this Award in the form of a Special Case down for hearing within six weeks from this date or if it sets down the said case and the Court answers either question (1) in the affirmative or either or both questions (2) or (3) in the negative, then in either of such events I award and direct as follows:

A.

That the Council was not entitled as from the 1st day of September 1963 to increase its demand charge to the Complainant from PD8 5s. 0d. to PD8 8s. 0d. per annum per kilovolt ampere or at all.

B.

That the Council was not entitled to increase its energy charge to the Complainant as from the 1st day of September 1963 from 1.9025d. to 2.3125d. per kilowatt hour.

C.

That the Council do pay to the Complainant its costs of the Arbitration on a party and party basis and the costs of this my Award such costs in default of agreement to be taxed by the proper officer of the Court.

If the Council sets this award in the form of a Special Case down for hearing within six weeks from this date and if the Court answers question (1) in the negative and question (2) and question (3) in the affirmative then I award and direct as follows:

D.

That the Council was not entitled as from the 1st day of September 1963 to increase its demand charge to the Complainant from PD8 5s. 0d. to PD8 8s. 0d. per annum per kilovolt ampere or at all.

E.

That the Council was entitled to increase its energy charge to the Complainant as from the 1st day of September 1963 from 1.9025d. to 2.3125d. per kilowatt hour.

F.

That the Company do pay to the Council three quarters of the Council's costs of the Arbitration on a party and party basis and three quarters of the costs of this my Award such costs in default of Agreement to be taxed by the proper officer of the Court."

From what has been stated it is apparent that it is not sufficient merely to substitute the answer "Yes" for the answer "No" given by the Court of Appeal to question (1). It is clear that the award cannot operate unless answers are also given to questions (2) and (3), and, by its notice of appeal, the appellant seeks to have question (1) answered in the negative and questions (2) and (3) answered in the affirmative. In his award the arbitrator found:

"(i)

The word 'costs' in cl. 5 does not mean the price paid by the Council for its bulk supply.

(ii)

The Council incurred the expenditures for the Council's financial year ended 31st December 1959 as appearing in its Statement of Electricity Works Trading Fund Revenue Account and Schedule No. 23 tendered in evidence before me and being part of Exhibit 'G'.

(iii)

The Council incurred the expenditures for the Council's financial year ended 31st December 1962 as appearing in its Statement of Electricity Works Trading Fund Revenue Account and Schedule No. 23 tendered in evidence before me and being part of Exhibit 'H'.

(iv)

The items stated as 'total costs of Electricity' and 'Private Installations, Appliances and Service', appearing in the respective Schedule No. 23 part of Exhibits 'G' and 'H' were arrived at by apportioning certain of the total trading expenditures of the Council between such items.

(v)

The items stated as 'total cost of Electricity' as appearing in the respective Schedule No. 23 part of Exhibits 'G' and 'H' were further dissected as appearing in the document tendered in evidence before me and marked Exhibit 'J'.

(vi)

Exhibit 'J' is correct in all respects.

(vii)

In Exhibit 'J' interest, depreciation, bad debts and salaries of the County Clerk, Deputy County Clerk and Chief Engineer were included. A properly estimated apportionment of these items between the cost of supplying electricity on the one hand and the cost of 'Private Installations, Appliances and Services' on the other would not have resulted in any reduction in the energy charges which the Council made.

(viii)

Council's costs per unit of electricity sold increased by 0.410 of a penny on a comparison between the calendar years 1959 and 1962.

(ix)

The Council was not entitled to increase its demand charge to PD8 8s. 0d. per kilovolt ampere or at all."

The arbitrator therefore decided that the Council having served the requisite notices on 9th August 1963 was entitled to increase its energy charge as from 1st September 1963 from 1.9025d. to 2.3125d. per kilowatt hour.

It seems to me that as it was open to the arbitrator to find that the supplier's costs-in respects other than those due to increased prices paid by it for electricity due to variations in the basic wage and the price of coal to the generating companies had varied to an ascertained extent, he was entitled to hold that the supplier's costs had varied in respects "contemplated by and within the meaning of the said clause" and that he was also entitled to find "that the Council was entitled under cl. 5 of the agreement to increase the energy charge to the Complainant to 2.3125d. per kilowatt hour as from the 1st day of September 1963".

The circumstance that the arbitrator limited the increase in charges which he allowed to his estimate of the actual increase in the costs of the supplier, excuses me from considering whether increases in charges unrelated to increases in cost, could have been awarded.

In my opinion the three questions in the special case should have been answered No, Yes, Yes and the appeal should be allowed and these answers substituted for those given by the Court of Appeal.