Placer Development Ltd v The Commonwealth

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.

The appeal was dismissed.