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[1973] HCA 36
appellant. Appeal allowed with costs. Declaration and order of the Supreme Court set aside and in lieu thereof order that the suit be dismissed with costs.
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The ABC and the performing rights society signed a 1964 deal allowing the ABC to broadcast music in return for yearly fees worked out by multiplying a set number of pence per head of Australia's population by the latest population figure. For the first few years the pence rate rose each year, but from 1966 it was locked at 2.3 pence and the only yearly change came from comparing the consumer price index for each December with the previous December; that percentage movement was then added to or subtracted from the 2.3 pence before multiplying by population. The ABC paid on that basis and the society banked the cheques without complaint for years. In 1972 the society said the adjustment should be cumulative so that each year's new higher (or lower) rate became the starting point for the next year's percentage. The trial judge agreed with the society, thinking the overall purpose must have been to keep the real value steady. The High Court majority said the written words were clear and did not say "cumulative"; each December-to-December movement had to be applied to the unchanging 2.3 pence base. Because the contract was unambiguous the court could not rewrite it to produce a more inflation-proof result even though the literal reading produced odd outcomes in times of steadily rising prices. The appeal succeeded, the declaration was cancelled and the society's claim was dismissed.
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2,285 words · generated 24/04/2026
The Australian Broadcasting Commission and the Australasian Performing Right Association Ltd executed a formal written licence agreement on 8 December 1964. Under that agreement the Association, as owner or authorised agent of the performing rights in a large repertoire of musical works, granted the Commission the right to broadcast or televise those works over its national networks. In return the Commission agreed to pay a single global annual licence fee calculated on a per capita basis.
Clause 2 set out the precise formula. Sub-clauses (a) to (c) stipulated rising per capita rates of 1.99, 2.1 and 2.2 pence for the financial years beginning 1 July 1963, 1964 and 1965 respectively, each multiplied by the Commonwealth population as at the preceding 31 December according to the Commonwealth Statistician's report. Sub-clause (d) fixed the per capita rate at 2.3 pence for the year beginning 1 July 1966, again multiplied by the December 1966 population. Sub-clause (e) continued that same 2.3 pence rate for every subsequent financial year, multiplied by the population as at 31 December of the year in question. A proviso then attached to both (d) and (e):
"provided that the payments referred to in (d) and (e) abovementioned shall be subject to: (i) rise or fall by a percentage equal to the percentage movement in the cost of living in each financial year. For the purpose of assessing any variations, the movement in the cost of living is to be taken to mean the percentage movement in the consumer price index issued by the Commonwealth Statistician and this shall be taken for the December quarter in a financial year and compared with the previous December quarter, then where a variation is evident such variation shall be applied to determine the rate applicable for the whole of the then current financial year."
For the years after 1966 the Commission calculated the fee by multiplying 2.3 pence by the current December population figure and then increasing or decreasing that product by the percentage change shown by the consumer price index between the December quarter of the current year and the December quarter of the immediately preceding year. The Association received and accepted those payments without objection or reservation for several years.
In mid-1972 the Association asserted that the calculations had been incorrect. It contended that the proviso required cumulative adjustment: the percentage movement for each year after 1966 was to be applied to the already-adjusted per capita rate produced for the preceding year, not to the original 2.3 pence base. On that footing the Association sued in the Equity Division of the Supreme Court of New South Wales seeking a declaration that, on the true construction of clause 2, the per capita liability for each financial year after 1966 rose or fell by reference to the cumulative percentage movement in the consumer price index since December 1965.
Street C.J. in Eq. made the declaration sought. His Honour acknowledged "strong textual support" for the Commission's literal reading but concluded that the overall contractual intention, deduced from the whole of clause 2 and the commercial context, was to produce a cumulative adjustment that would more closely track the depreciation in the value of money.
The Commission appealed to the High Court. By majority (Barwick C.J. and Stephen J., Gibbs J. dissenting) the appeal was allowed with costs, the Supreme Court declaration was set aside, and in lieu thereof the suit was dismissed with costs. The majority held that the language of the proviso was unambiguous and required the annual percentage movement to be applied each year to the fixed 2.3 pence base, not cumulatively to a progressively revised base.
The majority reasoning begins and ends with the text. Barwick C.J. observed that the parties had deliberately moved from a pattern of increasing the base per capita rate each year (sub-clauses (a)-(c)) to a fixed base of 2.3 pence from 1966 onwards, with the only variable thereafter being the annual CPI movement ascertained by a December-to-December comparison. That comparison was expressly stated to be "symptomatic" of the movement for the whole financial year; the words "such variation shall be applied to determine the rate applicable for the whole of the then current financial year" referred to the percentage itself, not to a compounded per capita figure. To read the proviso as requiring a cumulative base would, in Barwick C.J.'s view, involve a "radical change" to the language the parties had chosen.
Stephen J. reached the same conclusion after a close grammatical analysis. He noted that clause 2 repeatedly speaks of a "per capita payment of" a stated number of pence, not of a rate from which a total is derived. The proviso makes those individual payments "subject to rise or fall by a percentage equal to the percentage movement in the cost of living in each financial year". The method of ascertaining that percentage is spelled out with precision; the concluding words about applying the variation "to determine the rate" are satisfied by treating the variation as producing an adjusted number of pence (2.3 plus or minus the percentage) which is then multiplied by population. No ambiguity existed, and the formal, legally-assisted document could not be rewritten by reference to an "overwhelming probability" of commercial purpose.
Both majority judges emphasised the termination provisions in clauses 10 and 11. The agreement continued after 30 June 1967 only until terminated on six months' notice expiring on 30 June in any year, and either party could invoke an early review if any significant unanticipated variation occurred in repertoire, usage or any other factor. These mechanisms reduced the imperative to strain the adjustment language to achieve perfect inflation protection.
Gibbs J. dissented on the question of ambiguity. He considered the opening words of the proviso inapt for both sub-clause (d) and sub-clause (e), found the phrase "determine the rate applicable" suggestive of a further computational step, and thought the notorious prospect of continuing inflation, the pattern of increasing base rates in the early years, and the irrationality of applying each year's percentage always to the original 2.3 pence supplied sufficient context to resolve the ambiguity in favour of cumulative adjustment. The majority, however, held that the text was not open to two constructions and that context could not override unambiguous language.
The citations to Shore v. Wilson, Cohen & Co. v. Ockerby & Co. Ltd., Reid v. Coggans and Adamastos Shipping reinforced the settled principle that courts do not remake contracts. The result, though perhaps commercially imperfect in an inflationary environment, was the one produced by the words the parties had used.
Prior to this decision Australian and English authority was clear that contractual intention is to be ascertained from the words the parties have chosen. Coleridge J. in Shore v. Wilson (cited by Barwick C.J.) had warned against supplying unexpressed intentions. Isaacs J. in Cohen & Co. v. Ockerby & Co. Ltd. and the House of Lords in Reid v. Coggans and Adamastos had reiterated that unambiguous language must be applied even if the outcome appears unreasonable. The judgment applies those authorities directly to a commercial escalation clause.
The decision did not change the pre-existing law; it illustrated its rigorous application to a long-term licence containing an indexation mechanism. After the decision it remained the case that, where language is clear, a court cannot substitute a cumulative indexation method simply because inflation has eroded real value or because a different drafting choice might have been wiser. The case stands as an example that even "surprising results" (to use Gibbs J.'s phrase) must be accepted if they flow from the text. The majority's insistence that clauses 10 and 11 provided an exit valve reinforced the principle that parties are expected to use termination or renegotiation rights rather than invite judicial rewriting.
Barwick C.J. at the conclusion of his analysis:
"it is no part of the function of a court by some process of divination as distinct from construction of the language employed to attribute to parties an intention to do something for which their express words do not provide."
Plain-English translation: Judges must stick to what the contract actually says. They cannot guess what the parties probably wanted and then rewrite the document to match that guess.
Later, Barwick C.J. on the meaning of "rate":
"The reference to 'the rate', in my opinion, is clearly not a reference to the per capita figure or to the result of multiplying that figure by the population."
Plain-English translation: When the proviso speaks of applying the variation "to determine the rate", it means the percentage movement itself, not a new compounded per-head amount that will be used in future years.
Stephen J. on the character of the document:
"This agreement is one in which, in my view, two corporations have determined, in unambiguous terms and in a formal document obviously prepared with legal assistance, their quite complex contractual relationship for a considerable term of years into the future. The approach of courts to the construction of such documents, when they contain no ambiguity nor any other patent error or omission, cannot be other than that of an uncritical rendering of the meaning of the text."
Plain-English translation: This is a carefully drafted commercial contract between two sophisticated organisations. Where the words are clear, the court simply reads them and applies them; it does not start looking for hidden meanings or better commercial outcomes.
Gibbs J. (dissenting but stating the orthodox rule the majority applied):
"If the words used are unambiguous the court must give effect to them, notwithstanding that the result may appear capricious or unreasonable, and notwithstanding that it may be guessed or suspected that the parties intended something different. The court has no power to remake or amend a contract for the purpose of avoiding a result which is considered to be inconvenient or unjust."
Plain-English translation: Even if the literal reading produces strange or unfair-looking results, the judge cannot change the contract to fix it. The words rule.
The decision is triggered whenever parties have used clear language in a written escalation or indexation clause and one later contends that commercial purpose or the overall bargain requires a different, usually more generous, method of calculation. Typical triggers include:
The precedent applies with particular force where the parties have deliberately altered their drafting pattern (as here, moving from increasing base rates in early years to a fixed base thereafter), making it difficult to assert that the fixed base was meant to be ignored.
The judgment itself records that the principles it applies were already settled in the authorities it cites; the majority simply refused to depart from those principles. Barwick C.J. and Stephen J. treated the earlier decisions (Shore v. Wilson, Cohen, Reid v. Coggans, Adamastos) as directly applicable and binding on the question of unambiguous language. Gibbs J., although dissenting on the result, expressly accepted the same authorities and restated the orthodox rule that unambiguous words must be given effect even if capricious. The decision therefore stands as a straightforward application rather than an extension or distinction of prior doctrine. No later treatment is discussed in the text because the judgments are contemporaneous; the case illustrates the continuing vitality of the plain-meaning rule in Australian contract law at the time it was decided.
The judgments leave open the precise boundary between ambiguity and clarity when an indexation clause uses both the language of "each financial year" and the language of "the rate applicable for the whole of the then current financial year". Gibbs J. considered those phrases inapt and therefore ambiguous; the majority did not. Future cases must therefore still examine the entire clause to decide whether the textual awkwardness rises to the level of genuine ambiguity permitting reference to commercial purpose.
The decision does not explore how far surrounding clauses (such as the termination provisions in clauses 10 and 11) can be used to resolve ambiguity when ambiguity is found; it simply notes their existence as reducing the need to strain the adjustment language. The weight to be given to such exit rights in an otherwise ambiguous clause remains open on the face of the text.
The judgments also leave untouched the situation where the index chosen never falls and the literal construction produces a steadily declining real return. While the majority accepted that outcome on the present wording, the text does not address whether a more explicit "floor" or "cumulative" formula would be required to achieve a different result, nor whether evidence of pre-contractual negotiations could ever be admitted to illuminate the meaning of "rate" in the proviso. Those questions are not answered by the language or reasoning set out in the delivered judgments.
For the reasons that I have given, I have reached the conclusion that the proviso is ambiguous. When regard is had to the fact that it is contemplated by the agreement itself that the agreement may endure indefinitely, and that during the years specified up to that ending on 30th June 1967 the per capita payment would constantly increase, and to the notorious fact that the cost of living would be likely to continue to rise thereafter, and to the irrational consequences of applying the percentage increase each year to a fixed per capita payment, in my opinion sufficient indications exist to resolve the ambiguity by holding that the percentage movement from the previous December to the December in the year in question is to be applied to the percentage movement that has already occurred from the starting date contemplated by the contract - 31st December 1965. The result is to bring about a cumulative increase in the percentage by which the per capita payment of 2.3 pence is to be affected. The appellant submitted that such a construction would mean that the proviso would not apply equally to sub-cll. (d) and (e). With respect, I cannot agree. In the case of any year the per capita payment of 2.3 pence is to be adjusted by the total percentage movement that has occurred from 30th December 1965 to the December in the year in question. The proviso thus applies consistently to both sub-clauses.
For these reasons I am of the opinion that the construction placed upon the contract by the learned trial judge was correct. I would dismiss the appeal.
This is an appeal from a decision of Street C.J. in Eq. in proceedings in which the plaintiff (the Association) sought a declaration concerning the true construction of an agreement made between it and the defendant (the Commission). By that agreement the Commission agreed to make annual payments to the Association in consideration of the grant to it of a licence to use for performance certain musical works of which the Association is either the owner or agent for the owner. The point of construction in issue and which the Association sought to have resolved by declaration of the Court concerns the effect of a provision by which rises and falls in the cost of living influence the amount of certain of the annual payments.
This provision appears as a proviso to cl. 2 of the agreement; that clause, including the proviso, is set out in full in other judgments. Sub-clauses (a), (b), (c) and (d) of the clause are in identical form save that they each deal with a different financial year and provide for an ever-increasing per capita payment which is, in each case, related to the population of the Commonwealth as at 31st December in that year. Sub-clause (e) relates to financial years after that dealt with in sub-cl. (d) and provides for a fixed per capita payment but again related to population figures as at 31st December in each financial year. Then follows the proviso relating to rise and fall.
Reference should also be made to cl. 10, which describes the term of the agreement as a period terminating on 30th June 1967 the end of the financial year to which sub-cl. (d) of cl. 2 relates, but then provides that subject to cl. 11 the term of the agreement shall continue thereafter until determined by six months, notice in writing given by either party to expire on 30th June in any year. Clause 11 enables either party to give to the other six months, notice in writing of intention to terminate the agreement and negotiate a fresh agreement if any "significant variation not presently contemplated" should arise in certain specified factors, such notice to expire on 30th June in any year; no notice has been given under either of these clauses. The learned primary judge has succinctly described the problem of interpretation presented by the proviso when stating the rival contentions of the parties before him. He said:
For the Association it is contended that the annual movement in the consumer price index is to be aggregated cumulatively in the years from and after the financial year commencing 1st July 1967, and applied to what is said to be a base rate of 2.3 pence. For the Commission, on the other hand, it is contended that the proviso requires an annual determination of the variation from one December to the immediately preceding December, and that the amount of this variation upwards or downwards is to be applied simpliciter to the base figure of 2.3 pence. Despite what his Honour described as the "strong textual support" for the defendant's contention, he found himself able, by means of inferences drawn from the agreement as a whole, to give effect to what he regarded as the "almost overwhelming probability of the intention of the parties to tie the licence fee, or the base figure from which the same is to be deduced, to movements in the consumer price index". He concluded that the parties had sufficiently expressed an intention that variations in the index in years after the year ended 30th June 1967 should be cumulative the one upon the others and that the accumulated variation should then be applied to the per capita figure of 2.3 pence. On this basis his Honour made a comprehensive declaration so as to give effect to what he found to be the intention of the parties as expressed in the agreement, construed in the light of the inferences which he found himself able to draw.
Clause 2, in each of its sub-clauses, speaks of a per capita payment of a specified number of pence. Each annual payment, the making of which is stipulated for in the opening words of the clause, is not expressed to be an amount calculated at a rate of so much per capita but rather as a per capita payment of a number of pence. On each occasion when the Commission is required to pay moneys they will thus consist of as many of these payments of amounts of pence as there are then persons comprized in the population of the Commonwealth. It is these individual payments of amounts of pence that are, by the proviso, made subject to rise or fall in respect of the 1966/1967 and subsequent years. Accordingly in the 1966/1967 year each payment of 2.3 pence is to be subject to rise or fall by a percentage ascertained by the method specified in the proviso. That method is clearly expressed; any rise or fall is to be a percentage of 2.3 pence, the specified amount of pence, equal to the percentage movement in the cost of living in each financial year, as ascertained by a direct comparison of that year's December quarter consumer price index figure with the index figure for the previous December quarter.
The above states the effect of all but the last phrase of the proviso, which states that when a variation, that is to say, as I construe it, the percent measure of a rise or fall in the per capita payment, is "evident" it is to be applied to determine "the rate applicable for the whole of the current financial year". This is the first reference to any rate; the lettered sub-clauses are, as I have mentioned, expressed in terms of an agglomeration of multiple payments and not of one payment calculated at a specified rate. However, since the number of these payments is dictated by population figures, it is not inappropriate to describe their total as consisting of the application to those figures of a rate of pence, the rate being the amount of pence resulting from the addition to or subtraction from the sum of 2.3 pence of the percent figure thrown up by any movement in cost of living.
I can discern no ambiguity in the wording of the clause as a whole or of its proviso viewed in isolation. The operation of the proviso is, of course, curious; instead of reflecting in a cumulative way changes that occur in the cost of living it does no more than ascertain the percent change in cost that has occurred with the passing of a year and apply this to the sum of 2.3 pence per head of population. The result is that the percent change each year is always applied to one and the same base figure and the result in no way reflects, in a time of inflation, the falling purchasing power of the payments to be made under the agreement.
The learned primary judge concluded that the words of the second sentence of the proviso were susceptible of two possible meanings. Were I of the same view I would have little hesitation in choosing that meaning which his Honour preferred; however, with great respect to his Honour's conclusion, I have been unable to give to that sentence any meaning other than the one which I have already described.
This agreement is one in which, in my view, two corporations have determined, in unambiguous terms and in a formal document obviously prepared with legal assistance, their quite complex contractual relationship for a considerable term of years into the future. The approach of courts to the construction of such documents, when they contain no ambiguity nor any other patent error or omission, cannot be other than that of an uncritical rendering of the meaning of the text.
Australian Broadcasting Commission
A/asian Performing Right Association Ltd
High Court of Australia Barwick C.J. Gibbs and Stephen JJ. Australian Broadcasting Commission v A/asian Performing Right Association Ltd [1973] HCA 36
Appeal allowed with costs. Declaration and order of the Supreme Court set aside and in lieu thereof order that the suit be dismissed with costs.