Boucaut Bay Co Ltd (In Liquidation) v Commonwealth

40 CLR 98

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(Judgment by: Isaacs ACJ)

Between: Boucaut Bay Co Ltd (In Liquidation)
And: Commonwealth

Court:

Judges:
Isaacs ACJGavan Duffy J
Powers J
Rich J

Subject References:
Contract
Commonwealth
Audi alteram partem
Penalty or liquidated damages

Hearing date: 24 May 1927; 25 May 1927; 26 May 1927; 27 May 1927; 1 June 1927; 2 June 1927; 23 June 1927; 25 October 1927; 26 October 1927;
Judgment date: 26 October 1927

Melbourne

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Judgment by:
Isaacs ACJ

ISAACS A.C.J. In this case three points only have been argued. The first is whether the Minister could under clause 15 of the contract terminate it for the cause assigned without a prior opportunity being given to the appellant to satisfy his mind on the subject. The second point is whether the Minister had in fact a reason for believing as he did. The third is whether the sum of PD250, which was held as security, had been lawfully forfeited.

As to the first point I can see no doubt that the Minister had power to determine the contract without giving the appellant an opportunity of being heard if in fact he had reason to believe and did believe as he stated in his notice. The Minister was the official representative of the Commonwealth with regard to the contract, the Commonwealth being a party to the contract; and he therefore stood in the position of a party and not of a person unconnected with the contract. It was one of the terms of the contract itself that the Minister should have power to terminate the contract in any of the events enumerated in clause 15. Now, in interpreting that clause, the surrounding circumstances have to be considered. The services contracted for had to be performed in a part of the Commonwealth remote from the Seat of Government, sparsely settled and with poor means of communication, and with not improbable necessity for emergent action. The Minister, as was well known, would be dependent in most cases on departmental officers. He would call for inquiries and they would send him their reports. He could be trusted to act impartially and honourably, and therefore there is nothing improbable in giving to the powers of the Minister under clause 15 the practically unchallengeable character contended for on behalf of the respondent. I personally cannot assent to the implication Mr. Ham suggests-an implication that the Minister's function was not purely administrative but was of a quasi-judicial nature which required an inquiry. In my opinion, if at any time the Minister in the natural and ordinary course of his official duties acted on information of his trusted officers and formed a belief in the general terms mentioned in the latter part of the first paragraph of clause 15 that the contract was not being fairly carried out, he had power to terminate the contract without the formality of an inquiry. The one condition of his action is that he had reason to believe, and that implies actual belief. I would add that the provision at the end of that first paragraph providing for one calendar month's notice determining the contract aids in the construction of the clause as containing no such implied further notice as is contended for.

The second point is as to whether the necessary reason to believe existed. Without doing more than refer generally to the evidence of Sir George Pearce and Mr. Urquhart and the written communications between the appellant and its agent Green, I agree thoroughly with what my brother Starke has said, namely, that there was ample reason for the Minister to believe that the contract was not being carried out in accordance with its terms.

Then there is the last point as to the PD250. The ground upon which this portion of the appeal rests is the contention that clause 19 of the contract makes the PD250 a penalty and not liquidated damages, and therefore that as no liquidated damages were proved the whole of that sum should be repaid to the appellant. Now, there is no doubt from the cases cited that a distinction is made by the Court between penalty and liquidated damages. So far as this case is concerned I think the distinction may be stated in these terms: To recover in an action for breach of contract damages more than nominal, those damages must be proved unless they are admitted. If they are admitted there is an end of it. But they may be admitted by a pre-assessment; and if a contract is produced in which a sum is named and that is relied on as a pre-assessment or pre-estimation of damages, the contract is looked at to see whether it really is so in order to satisfy the rule that damages must be admitted or proved. The mere fact that the sum is stated to be forfeitable on the happening of various events is not conclusive as to its being a penalty; nor is it conclusive even if it is stated to be liquidated damages, because what the Court has to do is to determine whether the intention of the parties was that it should constitute liquidated damages. Therefore all the elements and circumstances are looked at. As the case of Pye v British Automobile Commercial Syndicate Ltd ^[[1]] shows, even if a sum is lodged as a deposit and there is a provision enabling the party to declare it forfeited, that is not conclusive, although it is an element in determining the intention. In this case, looking at all the circumstances, I am satisfied that the PD250 was not a penalty but was treated by the parties as liquidated damages pro tanto. There is, first of all, the smallness of the sum lodged as security, and then we have to regard the nature of the events to which par. 2 of clause 19 applies. Those events include the opinion of the Minister as to a breach. His opinion may be that the breach is very large or very small. And then there is the provision, under which this case arises, that the Minister may terminate the contract if he has reason to believe, not that there has been a specific breach, but that there has been a general want of conformity with the spirit of the agreement. That is not measurable or at least is not easily measurable. It might be very hard to prove if that were taken as the breach upon which the respondent's liability was to depend. Having regard to these considerations and to the further consideration of the express words of par. 2 of clause 19, I have come to the conclusion, without doubt, that the parties intended that the PD250, at all events pro tanto, was to be liquidated damages. I say "at all events" because the paragraph says that the declaration of forfeiture is to be without prejudice to any other right of action for damages under the agreement, so that the rights of the Commonwealth to recover damages for breach of the contract were preserved even if the power of forfeiting the PD250 had been exercised. For these reasons I think the third point fails also. In my opinion the appeal should be dismissed.