Contract—Construction and interpretation—Vague, uncertain or illusory promise—Promise to pay money—Amount not specified but to be fixed in promisor's discretion—Whether duty to consider and fix amount payable—Promise by Commonwealth to pay subsidy of amount or at rate to be determined by itself.
Decisions
June 27. The following written judgments were delivered: - 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." (at p354)
2. 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. (at p355)
3. Question 1 relates only to the relevance of certain facts, and the parties withdrew it during the hearing. (at p355)
4. 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. (at p355)
5. Question 3 is whether by virtue of cl. 14 the Commonwealth is obliged (again, to the plaintiff…
Grounds of appeal
[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.
[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.
[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.
Consideration
[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.
[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.
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Details
AGLC
Placer Development Ltd v The Commonwealth [1969] HCA 29
Case
[1969] HCA 29
Decision Date
CaseChat Overview and Summary
Placer Development Ltd (the appellant) brought an action against the Commonwealth of Australia (the respondent) concerning a contract under which the Commonwealth had agreed to pay a subsidy to the appellant. The dispute centred on the interpretation of a clause in the contract that stipulated the Commonwealth would pay a subsidy of an amount or at a rate to be determined by the Commonwealth itself. The High Court of Australia was required to determine the enforceability of this promise.
The central legal issue before the High Court was whether the Commonwealth's promise to pay a subsidy, the amount or rate of which was to be fixed at its own discretion, constituted a legally binding contract. Specifically, the court had to consider whether such a promise was too vague, uncertain, or illusory to be enforceable at law, or whether there was an implied duty on the Commonwealth to consider and fix the amount payable.
The High Court, by a majority, held that the promise was unenforceable. The reasoning was that a promise to pay an amount that is left entirely to the discretion of the promisor is illusory. There was no obligation on the Commonwealth to pay any subsidy at all, as it retained complete freedom to determine whether or not to pay, and if so, how much. The court applied the principle that for a contract to be valid, there must be a promise that is sufficiently certain to be enforceable, and a promise that is entirely discretionary lacks the necessary certainty.