Placer Development Ltd v Commonwealth

Judges: Kitto J
Taylor J
Menzies J

Windeyer JOwen J

Subject References:
Contract
Uncertainty
Promise to pay money
Amount payable

SYDNEY

Judgment by:
Windeyer J

WINDEYER J. The New Guinea Timber Agreement was expressly made subject to the approval of Parliament. Until it was approved, it was to have no force or effect and not to be binding on either party. It was approved by the New Guinea Timber Agreement Act 1952. It appears as a schedule to the Act. The Act further provided (s. 5) that:

"There is payable out of the Consolidated Revenue Fund, which is appropriated accordingly, for the purpose of meeting the liabilities of the Commonwealth arising under or out of the Agreement, the sum of Five hundred thousand and one pounds."

This statutory approval of the Agreement has I consider several important consequences. At one period, 1953 to 1957, the Commonwealth paid the timber company sums by way of which were equivalent to the total amount of duty it had paid on the importation of its products into Australia. Clause 14 of the Agreement was taken to authorize this. If it were not for the statutory backing of the Agreement, I would gravely doubt whether the Commonwealth would have been justified in reimbursing the company in this way. I do not think that the Government could, without statutory authority, validly promise a person that he would be released from any taxes or duties levied by Parliament. Whether the dispensation was to be by not collecting the tax or by returning to the taxpayer the amount collected the promise would, I think, be equally improper in a constitutional sense. Lord Justice Scrutton's reminder to the London County Council of the fate of James II comes to mind: R. v London County Council; Ex parte Entertainments Protection Association ^[F17] , at p. 229. However, Parliament, by its approval of the Agreement, has prevented any doubts arising on that score.

The statute also makes irrelevant in this case the general propositions in cases commencing with Churchward v The Queen ^[F18] , which were considered by this Court in New South Wales v Bardolph ^[F19] . And it disposes, I think, of any idea that the Agreement was not intended by the parties to create a relationship giving rise to obligations enforceable by law.

That such an intention is of the essence of a valid contract has been asserted in English cases for a long time past, certainly since Lord Atkin, then Atkin L.J., said so in Balfour v Balfour ^[F20] , at p. 578, and in Rose and Frank Co v J. R. Crompton and Bros. Ltd ^[F21] , at p. 293. Recent examples of acceptance of the doctrine and the repetition of the phrases in which it has been expounded are to be found in Jones v Padavatton ^[F22] and Ford Motor Co Ltd v Amalgamated Union of Engineering and Foundry Workers ^[F23] . I may mention here that in the former of these two cases Danckwerts L.J. said that the principles involved are very well discussed in Cheshire and Fifoot on Contract, 6th ed. (1964), at pp. 94-96, and that leads me to mention that I have found helpful the corresponding passages in the second (1969) Australian edition of that work by Messrs. J. G. Starke and P. F. P. Higgins, pp. 189-196. Professor Williston has criticized the idea that a common intention of the parties to create legal relations is a necessary element in the formation of a contract. I may add that another distinguished American writer Professor Corbin, in his work The Law of Contracts (revised ed. 1963), vol. 1, p. 137, put the matter as follows:

"In order to make an enforceable contract, it is not necessary that the parties should consciously advert to legal relations, but it is necessary that they should not express an intention to exclude legal relations."

In this Court in Australian Woollen Mills Pty Ltd v The Commonwealth ^[F24] , at p. 457, Dixon C.J., Williams, Webb, Fullagar and Kitto JJ. in a joint judgment spoke of "a principle which is fundamental to any conception of contract", saying, "It is of the essence of contract, regarded as a class of obligations, that there is a voluntary assumption of a legally enforceable duty". I venture to say, despite some statements in other cases, that whether there was a voluntary assumption of a legally enforceable duty in a particular case is not to be decided by asking whether or not the parties had expressed or exhibited an actual and positive intention that their agreement was to result in legal obligations. It depends rather on an inference to be drawn from the subject matter and nature of their agreement, and other circumstances to which I referred in what I wrote in South Australia v The Commonwealth ^[F25] , which I refrain from repeating. Social engagements and domestic arrangements are outside the realm of contract law, simply because the parties to them must be regarded as intending that their mutual promises, whether kept or broken, are not to land them in Court. The principle has been extended in England to arrangements not involving purely social engagements of an ordinary character, but which were nevertheless taken to have been intended by the parties not to create obligations enforceable by law: e.g., Coward v Motor Insurers' Bureau ^[F26] , at p. 271. Agreements made between an individual and the Government are sometimes said to be in the same position. But I think that they are outside the class of legally enforceable contracts for a rather different reason. There is there a reflection of the rule that historically promises made by Government were not justiciable and enforceable against the Crown by the ordinary processes of an action at law. This is not because they are not obligations meant by the parties to be binding, or which are not "binding in moral equity and conscience", but historically they "want the `vinculum juris' ", to use the expressions which Tindal C.J. used in the old case of Gibson v East India Co ^[F27] , at p. 1110]. But in Australia today these considerations have disappeared. The Commonwealth can sue and be sued in the courtsin ordinary actions in contract and in tort. In the present case it seems to me unnecessary to ask whether the Commonwealth and the plaintiff intended the Agreement to create legal rights and obligations. I think that obviously they did. But proof of a common intent seems to me to be not required. Parliament's approval of the Agreement and the appropriation by Parliament of funds to meet it, when added to its essentially commercial character and its language, are enough I consider to rescue it from the unenforceability which a purely political arrangement has, and to give it a contractual character. It is worth noticing that in the Australian Woollen Mills Case ^[F28] , where the opposite conclusion was reached as to the subsidy scheme there in question, the Court said ^[F29] :

"If there was an intention on the part of the Government to assume a legal obligation, one would certainly have expected statutory authority to be sought."

Here it was sought and given.

The result can, I think, be best described in the words of Dixon J. in P. J. Magennis Pty Ltd v The Commonwealth ^[F30] . His Honour was in that case a dissentient from the majority of the Court, but the passage I am about to quote is I think of a general character, with particular application to the present case. His Honour said ^[F31] :

"A legislative authority of this kind removes possible objections based on such authorities as Commercial Cable Co v Government of Newfoundland ^[F32] , and The Commonwealth v Colonial Ammunition Co Ltd ^[F33] ; it puts beyond doubt the authority of the signatory to execute the instrument on behalf of the Commonwealth; and it secures for the executive government parliamentary approval of the transaction. But it goes no further. It does not otherwise change the legal character of the instrument or of the transaction it embodies."

The question thus becomes simply one of the proper construction of cl. 14 of the Agreement. It is to be read as one term in a contract valid as a whole. And it is to be read bearing in mind a statement of Griffith C.J.: "I do not know of any ground in reason or authority for applying different canons to the construction of contracts between the Crown and a subject and contracts between subject and subject": O'Keefe v Williams ^[F34] , at p. 193. My view of the meaning and effect of the clause accords, generally speaking, with that which my brother Menzies takes in his judgment which Ihave read: but, as I diverge at one point to follow a somewhat different path from his, I shall state my reasons for myself.

Clause 14 as I read it embodies a positive promise by the Commonwealth to pay to the timber company a subsidy upon the importation into Australia of its "plywood, veneers, logs and other products" (which I take to mean other products of a like kind). A condition precedent of this obligation is that customs duty is paid on such products and not remitted. The subsidy is to be "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". It is apparent that, for reasons of Government policy approved by the Parliament, it was thought desirable to alleviate by means of a subsidy the burden of customs duties. But, although the payment of customs duty was made the occasion and condition for the payment of subsidy, there is no promise that the subsidy to be paid must be the monetary equivalent of duties paid-quite the contrary: the only stipulation is that the subsidy must not be more in amount than the amount of duty paid. What it was to be was to be determined by the Commonwealth from time to time.

The discretion given to the Commonwealth to determine the quantum of subsidy is said to make the Commonwealth's promise "illusory", or, as it was also said, to make cl. 14 an "illusory contract". Very distinguished writers on the law of contracts have adopted these terms as categorematic. Nevertheless I have the temerity to question the terminology in its application to this case. The expression an illusory promise is not, as I understand it, here used to mean an illusion that there was a promise: it means a real promise but one which is devoid of legal consequence. It is illusory, not because it is not a promise, but because it deceptively creates the illusion of a contract where there is none. By an illusory contract, on the other hand, what is meant is a bilateral transaction having some semblance to a contract, but not in truth a contract because not capable of creating legally enforceable rights and obligations. The proposition that the undertaking by the Commonwealth to pay a subsidy is "illusory", and the promise therefore ineffectual in law, has as its basis that the amount of the subsidy is to be whatever amount the Commonwealth determines.

In Loftus v Roberts ^[F35] , at p. 534, Vaughan Williams L.J. said:

"Wherever words which by themselves constituted a promise were accompanied by words which showed that the promisor was to have a discretion or option as to whether he would carry out that which purported to be the promise, the result was that there was no contract on which an action could be brought at all. The doctrine was an old one. In Leake on Contracts, 3rd. ed., p. 3, it was expressed thus:`Promissory expressions reserving an option as to the performance do not create a contract'. "

This statement is unquestionable. But it seems to me that it does not fit this case. Clause 14 does not reserve to the Commonwealth any option as to whether it will perform the promise it there made. It was for it to determine what should be the amount of the subsidy it would pay: but its promise was to determine an amount and to pay it: it had no discretion to do or not to do this: its discretion was only as to the amount to be paid. It is however said that the result of this discretion to determine the amount of a subsidy amounts to a discretion to pay nothing at all. For this a long line of decisions in cases between master and servant is referred to by way of analogy. In the first of them, Taylor v Brewer ^[F36] , an employer was to pay a man for his work "such remuneration as should be deemed right". Lord Ellenborough C.J. said ^[F37] :

"This was throwing himself upon the mercy of those with whom he contracted; and the same thing does not unfrequently happen in contracts with several of the departments of government."

Lord Ellenborough's allusion to the weakness of contracts with departments of government is not as forceful now as it was then: and, as I have said, it has no application in this case. But the governing principle of the decision of the King's Bench in that case has been followed in similar cases between master and servant. The question, which is one of construction and intention in each case, is whether the employer is to decide whether any remuneration at all shall be paid, in which case his decision is a condition precedent to any claim by the employee: or whether, on the other hand, he has merely a right to decide the amount of the remuneration to be paid, in which case the employee is entitled to be paid a reasonable sum. The cases are numerous. The latest of which I am aware is Powell v Braun ^[F38] , a decision of the Court of Appeal. The defendant there had written to his secretary stating that, instead of increasing her salary, he proposed to pay her each year a bonus calculated by reference to the net trading profit of the business. The letter included the following ^[F39] : "I, therefore, propose to ... pay you an amount according to the trading results of the previous financial year. ... I cannot say at this juncture what the amount will be, but I am sure you will not be disappointed with it from year to year."

The plaintiff replied to the letter saying that she appreciated the offer. Bonuses were paid to her for six years. Then the defendant refused to pay on the grounds that there was no firm promise to pay anything and that any promise was too vague and general to be enforced.

The Court of Appeal, reviewing the circumstances, held that the defendant had bound himself to pay something, provided there were profits. The amount to be paid would, Lord Evershed said, and with this Romer L.J. agreed, be "a reasonable sum, that is, a sum arrived at so as to bear a reasonable relationship to the trading profit" ^[F40] . Denning L.J. expressed it as "an amount within his" (scilicet the defendant's) "reasonable discretion, that is, it would be the amount which a fair and just man would pay in the exercise of a reasonable discretion" ^[F41] . The actual amount to be paid was treated by the court in that case as equivalent to a quantum meruit by way of additional remuneration above the plaintiff's fixed salary. An amount was agreed between the parties and judgment given accordingly. The approach resembled in some respects that taken by the House of Lords in Way v Latilla ^[F42] . The Tasmanian case of Ikin v Cox Bros. (Aust.) Ltd ^[F43] can usefully be compared.

When an agreement produces a liability to pay some sum of money, and the amount is not determined by the agreement, there is ordinarily no obstacle to saying that a reasonable sum was intended: and, if what is a reasonable sum can be determined by a court, a judgment for that amount can be given. If what has to be determined is a reasonable price for a thing sold or a quantum meruit for services rendered a jury can determine it. It is not in such cases a precise sum, but any sum which lies within what a court considers the limits of reason. That is trite. But the principle necessarily depends upon there being some criteria by which reasonableness can be measured or tested. The market place and what was paid in other cases may provide a measure, and fix an amount which reason requires be thus ascertained "It is perfectly true", said Bowen L.J. in Davies v Davies ^[F44] , at pp. 392, 393 "... that in many contracts where you want a measure to be applied to a particular subject matter, you leave the measure to be supplied by reason. There is many a contract for example which, instead of fixing the particular time for payment, provides that the time is to be fixed by what is reasonable in the trade or in the business".

But when there is no trade or business, market or experience to which to refer, a difficulty arises: a jury cannot say what is a reasonable sum if there be no weight or measure they can apply, and which a court could use to test whether their verdict is or is not within the bounds of reason. A court could not say whether any sum which the Commonwealth determined to pay the timber company was or was not a reasonable subsidy. There are no objective criteria of the reasonableness of a subsidy. A court could not say on what basis or with what considerations in mind the Commonwealth should determine the subsidy it promised by cl. 14. That would be to make a contract for the parties different from that which they made by which the decision was to rest with the Commonwealth. It would mean "transferring to the court the exercise of a discretion vested in the respondents" (here the Commonwealth), to use the words of the Privy Council in Kofi Sunkersette Obu v A. Strauss & Co Ltd ^[F45] , at p. 250. But to my mind it does not follow that because the court cannot take over the discretion which the Commonwealth undertook to exercise, the Commonwealth is released from its undertaking.

For these reasons I am not prepared to say that the provisions of cl. 14 do not amount to a contract. In my opinion they do. But it is not a contract which the timber company can enforce; for it was not a party to the contract. Indeed it was not even in existence when the contract was made. The contract was between the plaintiff, then known as Bulolo Gold Dredging Ltd , and the Commonwealth. The plaintiff could in my opinion enforce it by an action for damages if it be broken, or perhaps by proceedings for specific performance: cf. Beswick v Beswick ^[F46] . It may be that neither remedy would produce any substantial advantage for the plaintiff, or indirectly for the timber company. Nevertheless, when the elements of offer and acceptance and resulting promise supported by consideration be present, I prefer to say there is a contract, albeit, in some cases, one for the breach of which damages cannot be quantified. The contractual obligation of the Commonwealth to the plaintiff was to decide what sum in its discretion it considered, having regard to all considerations which weighed with it, commercial and political, it would bereasonable to pay the timber company by way of subsidy; and, having decided it, to pay it. I base this conclusion simply on the words of cl. 14, not by any attempt to match them against words which were in question in any other cases.

Whatever may have been the position in early nineteenth century times when contract law was still influenced by recollections of assumpsit , we can I think take our stand on broader ground today. An often quoted sentence from Lord Tomlin's judgment in Hillas & Co Ltd v Arcos Ltd ^[F47] , at p. 512, will bear quotation once again:

"The problem for a court of construction must always be so to balance matters, that without violation of essential principle the dealings of men may as far as possible be treated as effective, and that the law may not incur the reproach of being the destroyer of bargains."

I do not think that the view I take of the meaning of cl. 14 involves me in any violation of essential principle, although I appreciate that other members of the Court do not share it, and this has made me hesitate.

A basic assumption of our law is that bargains are to be kept. This applies today to the contracts which the Crown makes with a subject as forcefully as it does to contracts between subject and subject. That a court cannot determine the amount to be paid as subsidy is, in my view of the case, no reason for the Commonwealth not performing its promise to do so. If it does not exercise the discretion it contracted to exercise the plaintiff might recover no more than nominal damages. But I do not think that means that, using the language of question 4 (b), the Commonwealth has under cl. 14 an absolute discretion "to determine a subsidy of a nominal amount or rate". If that means a sum which is so small and insignificant that it does not answer the description of a subsidy, the answer to that question must I think be "No".

A subsidy, by its derivation from the Latin subsidium means an aid or help. The word is no longer used in its early legal sense of a grant to the Crown. It ordinarily means today not aid given to the Crown but aid provided by the Crown to foster or further some undertaking or industry. A subsidy was defined in America fifty years ago as "a legislative grant of money in aid of a private enterprise deemed to promote the public welfare": Shumaker and Longsdorf, Cyclopedic Law Dictionary. This I take to be, broadly speaking, the sense in which the word is currently used in Australia, as for example in the Nitrogenous Fertilizers Subsidy Act 1966 (Cth). A merely nominal sum, not of any value at all to the timber company, would I think belie the word subsidy: it would be illusory in a true sense of that word. But, apart from that, the amount to be paid under cl. 14 of the Agreement is an amount which the Commonwealth considers in all the circumstances to be reasonable. As to this its discretion is absolute, unfettered and not questionable in legal proceedings. The amount which the Commonwealth determines as a subsidy may be large or small. But I cannot agree that an undertaking to pay something is met by paying nothing or some trifling sum such as a dollar or a cent.

The contracts which the Crown makes can only be fulfilled if Parliament appropriates moneys necessary for their performance. Therefore, in the present case, if the appropriation by the Act of 1952 has been exhausted, a further appropriation would be necessary to provide whatever sums the Commonwealth, pursuant to cl. 14 of the Agreement, determined should be paid. But that is not a condition of the validity of the contract: New South Wales v Bardolph ^[F48] .

I would answer the questions as follows: 2. No; 3. No; 4. (a) In the conditions stated in cl. 14 the Commonwealth was obliged to determine a subsidy and pay the amount determined; 4. (b) Yes, an absolute discretion to determine the subsidy: but not a discretion to determine an illusory subsidy; 4. (c) Unnecessary to answer.

R. J. Ellicott Q.C. and R. P. Meagher, for the plaintiff

W. P. Deane Q.C. and C. S. C. Sheller, for the defendant.

Solicitor for the plaintiff, J. G. Palmer.

Solicitor for the defendant, H. E. Renfree, Crown Solicitor of the Commonwealth of Australia.