Harris Daishowa (Australia) Pty Limited v Duncan's Holdings Limited

[1989] HCATrans 242

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IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Sydney No S94 of 1989

B e t w e e n -

LIMITED HARRIS DAISHOWA (AUSTRALIA) PTY

Applicant

and

DUNCAN'S HOLDINGS LIMITED

Respondent

Application for special leave to

appeal

MASON CJ
DEANE J

McHUGH J

Harris

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 13 OCTOBER 1989, AT 12.01 PM

Copyright in the High Court of Australia

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MR S.D. RARES:  May it please the Court, in that matter, I appear

with my learned friend, MISS S. EJ:.1METT, for the

applicant. (instructed by Barker Gosling)

MR R.A. CONTI, QC: May it please the Court, I appear with

MR F.G. LEVER, for the respondent. (instructed by

Holman Webb)

MASON CJ: 

Yes, Mr Rares.

MR RARES: 

If Your Honours please, in this application we say

there are two bases on which this Court would grant

special leave. First, in effect, the Court of Appeal
has held that notwithstanding an express term in a

contract for the sale of goods, that the parties are

to agree about future changes in price, which term we
say has been held by the House of Lords, correctly, to

negative the implication	the SALE OF GOODS ACT
makes of a reasonable price.	The presence of an

arbitration clause requires that implication to be made
in any event.

The second bas~s on which we say that the matter

is one for special leave is that the Court of Appeal

was bound, or ought to have been bound, to follow its

previous decision in ERIC J HART V DERMIDE. Your Honours,

could we hand up some copies of the materials that have

been referred to in the application, in case the Court

wishes to go to any of those matters, together with

some further cases?

MASON CJ: Well, Mr Rares, it is a special leave application.

MR RARES: Yes, I appreciate that, Your Honour. We have just

for abundant caution put all the cases that were

referred to in the application in, and I took it from

a remark that is reported of Your Honour the

Chief Justices about not going to ground.sin

applications. Your Honours, we say that the cardinal

error in the interpretation which the Court of Appeal-

or the approach	the Court of Appeal took to th~
construction of the contracts of this kind generally,	appear in the following passages, at page 22 down at
about line 19, Mr Justice Hope delivering the leading
judgment said:

With this background I shall go to the provisions

of clause 11 and of clause 4 of the Schedule

to consider whether, upon the true construction

of the agreement, a difference arising as a

result of a failure to agree upon the price at

an annual review was one which was, by the

agreement, referable to arbitration under
clause 11. First, it is well established that

where a contract provides that the parties

shall agree upon a matter such as price or

quantity, a failure to agree can be a

"difference" within the meaning of a clause such

as clause 11.

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And then there are references to two decision in the English Court of Appeal and the Court of

Appeal of New Zealand. Now, His Honour then went

on to say that the decision of this Court in

WHITLOCK V BREW, a case which we say and said in the

Court below was __ relevantly in point and not

distinguishable on the point of principle, was
distinguishable. That was a case in which a clause

in the contract, which is set out on page 23 by His Honour, provided for the sale of land and a

lease back upon, at line 22:

such reasonable terms as commonly govern

such a lease. In the event of any dispute

between the parties as to the interpretation

or operation of this clause such dispute

shall be referred to an arbitrator to be

appointed failing agreement as to an

arbitrator by the President for the time

being of the Law Institute.

Now, there you had an agreement. There was to be

some further agreement as to the terms of the lease

and there was an arbitration clause which picked up

disputes as to inter alia the interpretation and

operation. Now, the joint judgment of Justices Taylor,

Menzies and Owen in this Court is picked up by

His Honour on the next page, and it said:

The first question to be considered is

whether the contention that special

condition 5 is uncertain should be upheld.

The appellant asserts that it should not

and that, in effect, that clause simply

provides that in the event of their being

no agreement as to the terms of the

contemplated lease, including both

the period during which it is to subsist

and the rest to be paid, the parties shall

enter into a lease in the form settled by

an arbitrator.

Now that is what the Court of Appeal ultimately held

in this case as to a new contract for the supply of

goods for an indefinite term, and with no quantities

fixed in this particular case.

Of course if this were so the basis for

the contention that the clause is uncertain

would disappear. But the language of the

clause does not permit of this view.

The lease is to be "upon such reasonable terms

as commonly govern such a lease" and in the

event of a dispute "as to the interpretation
or operation" of the clause the dispute is to
be referred to arbitration. We are firmly of
opinion that the expression "upon such

reasonable terms as govern such a lease" is

not, in the contest in which it appears

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apt to refer to either the period

for which the contemplated lease is to

subsist or to the rent to be payable

thereunder. Nor do we think that

the further expression "as to the

interpretation or operation" of this

clause covers a dispute as to either

of those matters. We, therefore, are of

opinion that the clause is uncertain in

that it neither specified not provides

a means for the determination as between

the parties of the period for which the

contemplated lease shall be granted or

the rent which shall be payable thereunder."

Now, we say that His Honour then goes on to misapply

that, or misconstrue it, when he says

Thus the uncertain clause was held not to refer to rent, while clause 4 of the

Schedule -

in our case -

refers expressly, indeed only, to price.

Well, what Their Honours say is, it does not specify a

means for the determination of that matter. That is

obviously - "rent" and "term" are obviously matters

that cormnonly govern leases. That is part of the

essential foundation of leases, but we say, as in this

case - and I am sorry, perhaps I should have reminded

Your Honours of the precise terms that are to be

construed in this contract, but we do put this on the

basis that the court below proceeded on general

principles, as well as on interpreting the contract.

The contract begins on page 53 of the book, and the

important clauses are these:

2.      The Company agrees to buy -

that is my client -

and The Supplier -

the respondent -

agrees to sell during the period of supply

hereinafter defined at prices ascertained

as provided in Clause 4 of the Schedule

hereto (hereinafter called "The Schedule

Prices") pulpwood chips -

The second paragraph provides:

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The period of supply shall corrnnence on the

1st day of October, 1983 and shall continue

until the expiration of two (2) years from
the 1st of January next following notice of
termination given by one party to the

other in the manner hereinafter specified,

provided that if the parties cannot reach
agreement on any major variation to the

terms and conditions contained herein which

has been requested by one of the parties,

then on or after 31st December 1984 either

Party may give to the other not less than

twelve months' notice of termination of

this Agreement expiring at any time and on

the expiry of such notice the period supply

shall expire and this Agreement shall

terminate.

The third paragraph provides that:

Either party shall have the right to request a

review of any individual Clause ..... on an

annual basis -

and, that can be done three monthly. Paragraph 5 on

page 54 again reinforces that the prices are to be

calculated as set out in Clause 4 of the Schedule.

The arbitration clause is on page 56, Clause 11, corrnnencing with important qualificatory words in

construing the individual document, but not so far

as the point of principle is concerned:

Save as otherwise provided herein -

we say and said it was otherwise provided herein -

any dispute or difference which either the
Company or The Supplier considers arises out

of, or relating to this Agreement or the

breach thereof which cannot be settled

amicably by the parties, shall be settled

by Arbitration.

And Clause 4 of the schedule, appears on page 61: The price paid for chips shall be as agreed

upon by the Company and The Supplier.	The
price shall be reviewed anually and

discussions held between the Company and

The Supplier and any variation to the chip

price shall be applicable from the 1st of

January each year.

Clearly enough, one can say, "Well, this is an individual contract", but it is not something that

is unrecognized or foreign to very many corrnnercial

agreements between corrnnercial men, both in local,

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international and interstate trade. People enter

into supply agreements of commodities and they

say to themselves, "We want to have a long term

relationship. We want our relationship to be

governed under an agreement, but we do not want

to bind ourselves forever about prices, and for
that purpose we will, at some stage in the future,

need to agree about a variation in price, but that

is the thing we want to do about price: we want to

agree." If these parties and if parties to agreements
in similar form, of which we say there are man~ were

to be taken by saying, "We want, in the future, when

the time is opportune, to agree about a new price

which one shall pay and the other shall receive," that

simply because they have an arbitration agreement

within the contract they are to be taken as saying

at the same time, "But it will be an implied term of

this contract that if we cannot agree then the

arbitrator will decide what a reasonable price is."

That implication and that process of implication flies in the face of the express words of the agreement

because we say - the officious bystander, were he

standing next to these two businessmen,would say,

"Well, of course you mean to imply a term that the

arbitrator would fix the price if you cannot agree."

The officious bystander would be responded to, we say,

by both the parties saying, "No, we want control over

this. The price is very important to us in the way

we run our business." And that is the way the

Court of Appeal, and particularly Mr Justice Walsh as he then was, quoting Mr Justice MacFarlan, approached

the matter in the HART V DERMIDE case, which this

Court in the judgment under appeal said, if necessary,

it would have held was wrongly decided, but decided

not to follow it".

Now, Mr Justice Meagher put the same approach as Mr Justice Hope at page 39 of the book. He said:

In this regard, one of the submissions by

Mr Gyles QC on behalf of the respondent,

was that if a price were fixed by an

arbitrator it would not fall within

description of "a price agreed upon by"

the parties and allied descriptions but

would be a price foisted on the parties in the

event of their disagreement, the antithesis

of "an agreed price". There are, I think,
three things which must be said about the

submission. In the first place, in the

example I have given, the same argument

would invalidate the continuation of the

old price for which Mr Gyles also contended,

which would clearly not have been "agreed

upon". In the second place, it is contrary

to such well-established decisions in

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FOLEY V CLASSIQUE COACHES LIMITED and
ATTORNEY GENERAL V BARKER BROTHERS LIMITED.

In the third place, those cases and the present one illustrate that the parties'

agreement to the arbitration clause carries

with it the consequence that any arbitrated

price is, relevantly, an "agreed price".

Now, if that is put into ordinary everyday trade

and commerce, what are parties to do? As long ago

as the decision in MAY AND BUTCHER V R, which is in

the materials, Your Honour, the House of Lords

held that a similar and obviously individually

written contract providing for the parties to agree

about price, and an arbitration clause in the event of

disputes,was not a certain contract, but in fact did

not in it entitle either party to sue on it because

they said wnere the parties came to an agreement

that they would agree about prices, they were

negativing the SALE OF GOODS ACT, which ?rovides in

section 13 in this State for a reasonable price to

be applied.

Can I take Your Honours just briefly to those

provisions.	The SALE OF GOODS ACT is behind Tab 2,
section 13:

The price in a contract of sale -

of goods -

may be fixed by the contract, or may be

left -

and this is what we say has happened -

to be fixed in manner thereby agreed, or may be determined by the course of dealing -

Subsection(2)provides:

Where the price is not determined in

accordance with the foregoing provisions,

the buyer must pay a reasonable price.

So that you have by operation of law the implication

of reasonableness where the parties have not
contracted otherwise, and that was the view

Their Lordships took in MAY AND BUTCHER V R, which

is behind tab 6. I think I do not need to take

Your Honours to that, except to perhaps the speech of

Lord Warrington at page 22 of the report, where

His Lordship - - -

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DEANE J:  Mr Rares, am I correct that neither side contended

that if the parties were unable to agree on a price,
the contract simply ceased to operate on the following

1 January?

MR RARES:  That is so. We, for our part, because we said the

parties had agreed upon a price, and they had agreedon it

in a context in which -

DEANE J: Well, they had agreed on a price up until the next

1 January.

MR RARES:	No, they had agreed on a price under a contract in which they knew if they could not agree on a major
variation of the condition, they could terminate
on 12 months notice expiring at any time, and they
always had that to take into account whenever they
fixed a price.  Whenever they came to fix a price
one of the considerations that would be in their mind was, under their contract, in the event of
disagreement as to future prices, they were stuck with
that price unless and until they had terminated.

But every time they agreed a new price they

made a new contract, and it was a novated contract,

and that must, with respect, follow.

DEANE J:  I can see that is one approach. Another approach is

that a contractual obligation to review a price

annuallY,, if parties cannot agree, does not leave

the old price; it means there is no agreed price

any longer.	I can see the force of the way you put
it.

MR RARES: Well, we say that that would flow right against what

the actual contract in this case says, but that, of course, does not go to the point of general principle on which the

Court of Appeal decided the case.

DEANE J:  But it does exclude this case raising the question

whether the agreement - or rather the arbitration clause
has been interpretated as including the agreement rather

than the agreement interpreted as including the

arbitration clause.

MR RARES: Well, if one took that approach - exclude it - we would

say it was a wrong approach.

DEANE J: Yes, I follow.

MR RARES:	Can I take Your Honours to the ERIC J HART V DERMIDE
case, behind tab 1, which is the earlier decision of the Court of Appeal. That was a case of a supply
agreement - an agency agreement that went for a term
of five years. Your Honours, on page, which is numhered
at the top, 291, clause 5 sets out provision as to price
which was to be agreed on mutually. The agreement went

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for five years and the dispute arose when it was

sought to exercise the option to renew, that was

set out in clause 6, and clause 8 provides the

arbitration provision. Now, there was evidence on

page 292 that the price had stayed almost at the
same sum of one pound, eight shillings and

sixpence for almost the whole of the term of this

agreement until it recently changed, and then

Mr Justice Walsh, with whose reasons the other members

of the Court of Appeal agreed, said, at the foot of

that page:

"The foundation for the applicant's

argument was Clause 5. It was submitted

that the price to be paid for the goods was

an integral and indispensable part of the
agreement which the parties intended to make

and there was not in this document either a

firm agreement by the parties as to what
the price should be, or an agreement by them
as to a method of ascertaining it."

After some references to leading decisions, the learned Judge went on -

and His Honour's judgment is quoted, and about

point 3 on the page, His Honour says:

But an implication cannot be made when

the term which is sought to be implied

is inconsistent with what has been

expressed.

And then Their Honours go on to deal with the

submission that is identical to the way the Court of

Appeal handled this case, that:

che present appellant that in clause 5 the phrase "wholesale price" means "reasonable

price" and that the parties were obliged to

agree on this reasonable price. If they did then the arbitration clause could be invoked.

not -

At the bottom of the page Mr Justice MacFarlan

is quoted, again with approval:

"It is not necessary, however for the

purposes of this judgment that I should

express fully either my reasons for that conclusion, or state fully the extent of the obligations. I have mentioned this

point now because it is, in my opinion, a point of significance in interpreting

Clause 5. In my judgment, having regard

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to what this agreement was by its
terms intended to achieve, the parties

in Clause 5 made it clear that the price

was to be determined by them. In a case
where the seller was manufacturing goods,

I would think it unlikely that he would be

prepared to hand over the determination of

the price to an arbitrator, with whose

appointment and with whose judgment he might

not agree. The ascertainment of the price

is so fundamentally linked with the profitable

running of a factory that it is, I think, a matter

which the applicant would desire to keep under its

own control. Similar considerations, in my

opinion, apply to the situation of the respondent.

If the respondent is, as its counsel contends,

obliged to buy, and in a second period of five
years obliged to buy the whole of the output of
the applicant, it would be critical to the

success of its business operations that what it

was obliged to buy should be bought at a price
which it knew it could sell them for and show

a profit. I would think it highly unlikely that

the respondent in the circumstances of this case

would be willing to abdicate the determination of

that price to a person with whose appointment it

might not agree, and the determination of a
figure with which not only might it disagree

but which also, if it were obliged to pay, might

be disastrous in its effect upon the respondent's

business.

Now, we say, Your Honours, that those sorts of considerations apply to all of these contracts for the sale of goods, in the absence of some fairly

clear and express terms in them, and that the general

approach taken by the Court of Appeal following the

New Zealand decision in BARKER BROTHERS V THE ATTORNEY

GENERAL, and following the two English Court of Appeal

decisions, is the wrong approach, and, of course,

there, we say, is a direct collision between the

approaches that the earlier Court of Appeal took and

this present case. His Honour goes on, and the

subsequent pages talk about the fundamental importance

of price to an agreement of this kind, and in the

particular circumstances of this case, the Court of

Appeal just pay no attention to the fact that no

quantities are specified in this agreement and no means

of determining quantity are specified, so that when

the arbitrator fixes a reasonable price, so it is

said, how does he do it, on the basis that one party

will take and the other will supply X amount - maybe

a reasonable price in those situations is Y dollars.

If he is going to supply Y amount, or wants Y amount

a reasonable price might be less ·or more.

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Those matters are just not addressed and there

is no means of addressing them in the ordinary

arbitration clause. We say that this is, for

relevant purposes, an ordinary arbitration clause

in the approach is to principle which the Court of

Appeal took.

MASON CJ:	You said there are many agreements of this kind: you are not suggesting, are you, that there are many
agreements in this precise form?
MR RARES:	No, Your Honour.  It is the general approach that
Mr Justice Meagher summarizes very nearly at the
end of his judgment, simply saying that once you have
got an arbitration clause, and an agreement for the
sale of goods, and the parties have said, "Well, we will agree about price", that implies necessarily
being prepared to submit to arbitration that issue.
Your Honours,  we say that approach just flies in the
face of decisions such as WHITLOCK V BREW, and the
like.

What the Court of Appeal also said was, "Because

this contract was in force in the sense that the

parties had at one time, and on a number of subsequent

occasions, agreed upon a price and then acted under

the contract, that that distinguished it from HART's

case where it was found that there was no contract

at all, because notwithstanding they had all acted

under the words of the document, it was too uncertain

to give a meaning."

Now we say that the clause that relates to future

agreement as to price is not something that is

susceptible of enforcement in the courts, but that the

rest of the agreement is susceptible of enforcement.

he then was, in the case behind tab 10, called

A similar approach was taken by the English Court of

MALLOZZI V CARAFELLI, where there was a charter of a

parties to nominate a port and the Court of Appeal held	ship and there was an option on the part of one of the
that that clause could not be enforced but the rest of the contract could. Lord Justice Roskill, at page 414 at the
bottom of the second column at about point 5, sets out
the clause;

The relevant words here are:

First or second port to be agreed between

sellers and buyers on the ship passing the

Straits of Gibralter.

T~e~did·not agree. They made no attempt to agree.

The learned Judge, founding himself on HILLAS V ARCOS,
said that there was a breach of contract since

there was a failure or refusal to negotiate.

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That seems to me to be inconsistent with
the reasoning in COURTNEY's case, expressed

by Lord Denning, M.R., at the bottom of p.301

and by Lord Diplock ..... It is true, as

Mr Hallgarten pointed out, that in COURTNEY's

case this Court was concerned with whether the

two parties were ad idem and had reached an

enforceable binding contract. Here there is no

doubt at all that the parties had reached an

enforceable binding contract and that the
provision (to use a neutral word) with which

we are concerned appears in a contract otherwise

binding.	I do not think that can make any
difference in principle.	One has to look at

this clause and see whether or not, on its true

construction, in the context in which it appears

in this contract, it is susceptible of being an

enforceable provision a failure to comply with

which will sound in damages, whether nominal or

substantial. Looking at this clause, I do not

think it is susceptible of legal enforcement,

and for this reason: it simply provides that the

parties may agree on first or second port. It

does not provide that they must.

Now, here we say the parties cannot be compelled under

this agreement, and in the ordinary course of cormnerce

in such contracts cannot be compelled to agree upon a

price in ordinary contracts for sale of goods. It just

cannot be right, with respect, where they have said, "We

want to agree about this important matter."

The second basis, Your Honours, on which we seek to

say that a question for special ]eave has arisen is that

we say that the approach and reasoning in the HART case

was binding on the Court of Appeal.

MASON CJ:	But that cannot be a special leave point. What the
Court of Appeal does in relation to its previous decisions is a matter for the Court of Appeal, not for
this Court.
MR RARES: Well, we submit that it is not, and for the reason that

this Court has a duty to determine whether a Court of

Appeal in Australia has to follow its own decisions unless you get into the YOUNG V BRISTOL AEROPLANE

territory.

MASON CJ:	But if this Court was to do that, it is almost inevitable
that this Court would say, I should think, that the decisions.

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MR RARES:	There is a conflict of authority between the Full Court
in Western Australia in a case about 1908, and the
approach the Court of Appeal and the Court of Criminal Appeal in New South Wales have taken, to say that they
are not obliged to follow their previous decisions.
We would say that there are important reasons in policy,
and particularly when now appeals only lie by special
leave to this Court, why they ought so to be bound. This Court will not interfere - - -
MASON CJ:	I would have thought it would have counted in exactly
the opposite way.
MR RARES:	No, we would say, because there ought to be certainty
in a law and that - - -
MASON CJ:	I am told, Mr Rares, that this question has been
raised in a case that has been argued before the Court.
There would be little point in us granting special
leave in this case to raise this question for
reconsideration once again.  I cannot say, of course,
what is likely to happen to the question in the case
that has already been argued, but it would make little
sense now to grant special leave, with a possibility of
raising the point once again.

DEANE J: It is not central to the other case, actually, but it is

there.

MR RARES: Well, we would say that it is fairly fundamental to

this case because what you have is two different

courts of appeal saying, "These are the principles to apply

in contracts of this kind", and granted that all contracts

are special and you can construe each contract

according to its own terms - - -

MASON CJ: It can never be fundamental to- the case once it gets

to the High Court.

MR RARES:	No, but it must be important for the administration of
justice in New South Wales to know whether
the Court of Appeal is bound to follow its previous
decisions because that will promote certainty in the court. If it is not bound to follow its own decisions, then how do you advise clients when they
come to you and say, "Well, look, we have got such -

MASON CJ: That is a problem that lawyers always have. There is

always the prospect of the High Court granting special

leave to appeal which throws an element of uncertainty

into the advice that one gives to clients if one is

relying on a C.ourt of Appeal decision.

MR RARES:	Of ~u~~se, but~ wc'B.ld suhmit that the same reasons
that have favoured themselves in the House of Lords in
DAVIS V JOHNSON, for affirming the rule in YOUNG V
BRISTOL AEROPLANE apply with force in the Australian

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States' jurisdictions now that there is only an

appeal by special leave here, because if the

Court of Appeal decides on the facts of a particular case not to follow one of its previous decisions which would otherwise be binding, unless you can get

a point of general public importance, which this

Court thinks it wants to grant special leave about,
then wrong decisions can be perpetrated and

Courts of Appeal can really be at much more liberty

than we say they ought to be, and that this Court ought
to take this question up, which is obviously important

in this case.

McHUGH J:  What if the decision is wrong? I mean the Queensland

case is a good illustration of it - VAN LEEUWEN is the

case that the Chief Justice spoke about. There
the Queensland Full Court, which takes a strict view

of precedent,followed two previous decisions. Every

member of the Court thought that the decision was

wrong, and if my recollection is right, counsel for

the respondent, when he got up, conceded that

they were.

MR RARES:	And in those circumstances this Court would grant
special leave because it would say that this had
established a principle and that that principle ought
11Well, we are bound by our previous decision", this to be examined, because once a court starts saying,
Court when it is looking at that question would say, it can see a point of general public importance in the
application of law in that State.
MASON CJ:	But why would it do that? The Court does not
automatically concede that when a decision is wrong there is thereby a question of public or general
importance.
MR RARES:	No, but the perpetuation of error in that way is a matter which would attract - - -
MASON CJ:	Not necessarily.
MR RARES:	We would submit, Your Honour, that it would, and in circumstances where in previous times one had one and
perhaps two higher courts to go to when the Court of
Appeal gave a decision, it was not a matter of great
importance within the Australian jurisdiction that
intermediate appellant courts bound themselves to their prior decisions, because you could always get it
corrected, and as Your Honour the Chief Justice pointed
out a moment ago, the prior decision of the State
court would not have any effect on whether this Court came to the same conclusion or not in point of precedent, but now there is nowhere to go except to
make a special leave application, and we submit that for
those reasons the introduction of certainty into State
law with intermediate appellant courts being bound to

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follow their own decisions, and if you do get a

case such as the Queensland case, which

Justice McHugh just explained, where the members of the court say, "Well, we think this decision is wrong, but we are bound to follow it", in our

submission, Your Honours - - -

MASON CJ:	I think that is as far as you can take it, really,
Mr Rares.

MR RARES: If Your Honours please.

MASON CJ: The Court need not trouble you, Mr Conti. The

Court is of opinion that the outcome of the proposed appeal in this case would necessarily turn on the construction and the particular terms and conditions of the contract and it would be unlikely to result

in any elaboration of general principle. For those

reasons the application is refused.

MR CONTI:	We seek an order for costs, Your Honour.
MASON CJ:	You cannot resist that, Mr Rares.  The application is
refused with costs.

AT 12.32 PM THE MATTER WAS ADJOURNED SINE DIE

SlT7/15/FK	15	13/10/89
Harris