Upper Hunter County District Council v Australian Chilling & Freezing Co Ltd

High Court of Australia|1968-03-08|Before: Windeyer JJ

High Court of Australia Barwick C.J. McTiernan, Kitto, Menzies and Windeyer JJ. Upper Hunter County District Council v Australian Chilling & Freezing Co Ltd [1968] HCA 8

ORDER Appeal allowed with costs. Order of the Supreme Court of New South Wales (Court of Appeal Division) set aside and in lieu thereof order that the questions set out in the special case be answered as follows:

If the answer to (1) is No upon the facts as found was I entitled to hold that the Supplier's costs had varied in the respects contemplated by and within the meaning of the said clause?

If the answer to (1) is No am I entitled to make the findings of fact which I originally made prior to the said answers of the said Court of Appeal namely that the Council was entitled under cl. 5 of the agreement to increase the energy charge to the Complainant to 2.3125d. per kilowatt hour as from the 1st day of September 1963?

The Council of the Upper Hunter County District (the Council), a statutory corporation set up by and under the authority of the Local Government Act, 1919 N.S.W., obtained a supply of electricity in bulk successively from each of two generating sources, namely, Muswellbrook Coal Co. Limited and Mepco Pty. Limited at Muswellbrook. It subsold electricity in bulk as well as reticulating it in the municipal areas of Muswellbrook, Scone and Aberdeen. It also carried on some trading activities associated with the use of electricity. The Australian Chilling and Freezing Co. Limited (the Company) desiring a supply of electricity in bulk at its works in Aberdeen, entered into an agreement on 18th December 1959 with the Council for such a supply. The Council thereby bound itself as from the date of the agreement until 1st October 1973 to supply at a point designated in the agreement or otherwise mutually agreed three phase alternating current at a given frequency and voltage with certain permissible tolerances. The supply was to be continuous and in such quantity as the Company might from time to time require, with an agreed minimum quantity. The price to be paid by the Company was stipulated in clauses which have given rise to disputes between the Company and the Council which form the basis of the present proceedings. Consequently, it is as well that I set them out in full:

The price to be paid by the Purchaser to the Supplier for electricity so supplied to the supply point shall be calculated as follows:

(a) A demand charge of eight pounds five shillings (£8 5s. 0d.) per annum per kilovolt ampere of the maximum demand hereinafter defined.

(b) An energy charge of one decimal seven eight two five (1.7825) pence per kilowatt hour provided that such energy charge shall be increased or decreased by decimal 0025 (0.0025) of a penny per kilowatt hour in respect of each complete shilling by which the Basic Wage as hereinafter defined is greater or less than twelve pounds one shilling (£12 1s. 0d.) per week and shall be increased or decreased by decimal 015 (0.015) of a penny per kilowatt hour in respect of each complete shilling by which the price of large coal to Muswellbrook Coal Co. Pty. Limited or Mepco Pty. Limited at Muswellbrook is greater or less than 51/9½d. per ton such increase or decrease to apply for the same period or periods as the increase or decrease of the Basic Wage and the price of large coal respectively shall operate.

For the purpose of interpretation of Clause 2 hereof:

(a) Maximum demand shall mean the average rate of supply measured at monthly intervals in manner hereinafter provided over a thirty minute period in any one month during which such average rate of supply is at its maximum. The maximum demand so indicated shall be taken as the maximum demand for the period of twelve months computed from the commencement of the month in which such demand is indicated unless an equal or greater demand shall be indicated in any subsequent month during such period of twelve months in which case the demand previously indicated shall be taken up to the end of the previous month and such equal or greater demand shall thereupon become the maximum demand for the period of twelve months computed from the commencement of the month in which such greater demand shall be indicated or until the commencement of a month in which an increased demand shall be indicated as hereinbefore provided.

(b) Basic Wage shall mean the Federal Basic Wage as defined by the Conciliation and Arbitration Act of the Commonwealth of Australia and shall be that amount which is assigned to be the Basic Wage under the retail price index figures issued by the Commonwealth Court of Conciliation and Arbitration applicable within the Municipality of Muswellbrook.

(c) The price of large coal shall mean the price for the time being fixed by the Joint Coal Board or any other person or Authority empowered to fix the price of coal in the State of New South Wales for large coal sold and delivered by either Company at Muswellbrook or in the event of the price of coal not being fixed as aforesaid the price for the time being received by the Company from its principal customer The Commissioner for Railways for the State of New South Wales for large coal delivered free on rail at Muswellbrook.

(a) In each month after the date hereof the Purchaser shall pay to the Supplier a minimum charge calculated on the basis that the Purchaser has received 400 kilovolt amperes of electricity in that period whether in fact the Purchaser has received that amount of electricity or not.

(b) In each year after the date hereof the Purchaser undertakes to use not less than 100,000 kilowatt hours of electricity and if in any year a lesser quantity is used to pay to the Supplier such additional sums of moneys as when added to moneys paid during the year for electricity supply will equal the cost calculated in manner hereinbefore provided of 100,000 kilowatt hours of electricity.

It is agreed that during the term of this agreement if the Supplier's costs shall vary in other respects than as has been hereinbefore provided the Supplier shall have the right to vary the maximum demand charge and energy charge by notice in writing to the Purchaser given not less than 14 days before the commencement of any month after the date hereof such varied rates to take effect from the commencement of that month.

The agreement in cl. 18 provided for arbitration in the event of any dispute or difference arising. The clause was in the following terms:

In the event of any dispute or difference arising between the Supplier and the Purchaser in regard to the construction of this Agreement or any other question matter or thing arising hereunder such dispute or difference shall be referred to Arbitration in accordance with the provisions of the Arbitration Act 1902 as amended and the decision of the Arbitrator or Arbitrators shall be final and binding on the parties hereto.

Quite clearly, this clause was wide enough to cover any dispute or difference arising between the parties as to any variation in the initial charges which the Council at any time claimed to be entitled to make.

On 9th August 1963 the Council served upon the Company a notice claiming that its costs had varied in other respects than had been provided for in the supply agreement and notifying a variation of its charges, both demand charge and energy charge, the specific increased levies to take effect from 1st September 1963. The Company disputed the Council's right to vary the charges at all and in any case the propriety of the levels to which it proposed to raise its charges. It required the dispute or difference thus arising to be referred to arbitration under cl. 18 of the agreement. An arbitration followed. During its course a consultative opinion of the Supreme Court of New South Wales was sought upon a case stated by the arbitrator pursuant to s. 19 of the Arbitration Act, 1902 N.S.W.. The Supreme Court (Court of Appeal Division) unanimously advised the arbitrator that cl. 5 of the agreement was meaningless and void for uncertainty. This Court refused to entertain an appeal sought to be brought to it from that expression of opinion by the Supreme Court on the ground that it was not a judgment decree and order which affected rights, being consultative only and not binding on the parties or upon the arbitrator: see Council of the Upper Hunter County District v. Australian Chilling and Freezing Co. Ltd. (22nd August 1966, unreported). The arbitrator has since concluded the arbitration and has made his award in the form of a stated case. He thereby sought answers to the following questions:

(2) If the answer to (1) is No upon the facts as found was I entitled to hold that the Supplier's costs had varied in the respects contemplated by and within the meaning of the said clause?

(3) If the answer to (1) is No am I entitled to make the findings of fact which I originally made prior to the said answers of the said Court of Appeal namely that the Council was entitled under cl. 5 of the agreement to increase the energy charge to the Complainant to 2.3125d. per kilowatt hour as from the 1st day of September 1963?

He made alternative awards according to whether the first question was answered affirmatively or negatively. If the first question was answered in the negative and the other two questions in the affirmative, he awarded (1) that the Council was not entitled to increase its demand charge at all and (2) that the Council was entitled to increase its energy charge to the Company as from 1st September 1963 from 1.9025d. to 2.3125d. per kilowatt hour and he made an award as to the costs of the arbitration. But if the first question were answered in the affirmative, he awarded that the Council was not entitled to increase either its demand charge or its energy charge.

Upon this stated case coming before the Supreme Court, it unanimously affirmed the opinion it had formerly expressed as to the uncertainty of cl. 5 and its reasons for that opinion. It answered the first question in the affirmative. In that event the further questions did not arise and were unanswered. Consequently the arbitrator's award appropriate to that situation, namely, that the Council was not entitled to increase its energy charge at all became effective. But the Council appealed to this Court which it was then entitled to do as the Supreme Court's decision upon the stated case now bound the parties and determined their rights.

Clause 2 of the agreement provides for an automatic variation of the energy charge according to a formula related to changes in the basic wage and the price of coal to the Council's generating source of supply of electricity. Though not expressly said in the agreement to be so, it is to my mind abundantly clear that the assumption of cl. 5 is that the price to the Council of bulk electricity from its generating sources of supply will vary according to changes in the basic wage and the price of coal. Indeed, it would be a reasonable inference that the clause assumes that the price to the Council will vary according to the application of the same formula as in cl. 2 (b): but such an inference need not be drawn in order to determine the answers to the arbitrator's questions. The alteration in its price of the bulk electricity to the Council, however quantified, is quite clearly treated by cl. 5 as a variation in the Council's costs of supplying electricity to the Company.

Clause 5 speaks of the supplier's costs varying "in other respects". To my mind that cannot be a reference to the variations for which cl. 2 provides nor to the changes in price of electricity to the Council which cl. 5, as I think, assumes will also and perhaps correspondingly take place. The validity and meaning of cl. 5 must be approached, in my opinion, on the footing that it refers to variations in the Council's costs of supplying electricity other than variations in the price it pays for its supply from its then generating source. Whether or not a variation in the price of obtaining a bulk supply resulting from the need to seek it during the currency of the agreement from some other generating source would come under cl. 5 need not presently be considered. Nor need I consider whether a variation in the price of bulk electricity to the Council from its then generating source of supply, not deriving from changes in the basic wage or the price of coal, is included in such other respects. It is sufficient for present purposes that at least the Council's costs of supplying electricity to the Company other than variations in the price it pays to one of the named suppliers for the bulk supply to it are included in the operation of cl. 5.

It is surely indisputable that the Council would incur other costs than the price of the bulk electricity in order to supply the Company as agreed, e.g. as a minimal item, the cost of bringing the supply from the point at which the Council received the current to the point of its delivery to the Company, such as maintenance of poles, switchgear, etc. But no doubt the identification of all its other items of cost were and the quantification of them must be uncertain in the sense that no single answer to the questions of what and how much they were must necessarily be given no matter whose opinion or judgment is sought. It was uncertainty of this kind which denied validity to a prices regulation order purporting to fix a price according to or by reference in any respect to cost or costs because the Commonwealth Regulations required a price to be fixed: see Vardon v. The Commonwealth [1] ; King Gee Clothing Co. Pty. Ltd. v. The Commonwealth [2] ; and Cann's Pty. Ltd. v. The Commonwealth [3] .

(1943) 67 C.L.R. 434. 2. (1945) 71 C.L.R. 184. 3. (1946) 71 C.L.R. 210.

But a contract of which there can be more than one possible meaning or which when construed can produce in its application more than one result is not therefore void for uncertainty. As long as it is capable of a meaning, it will ultimately bear that meaning which the courts, or in an appropriate case, an arbitrator, decides is its proper construction: and the court or arbitrator will decide its application. The question becomes one of construction, of ascertaining the intention of the parties, and of applying it. Lord Tomlin's words in this connexion in Hillas & Co. Ltd. v. Arcos Ltd. [1] ought to be kept in mind. So long as the language employed by the parties, to use Lord Wright's words in Scammell (G.) & Nephew Ltd. v. Ouston [2] is not "so obscure and so incapable of any definite or precise meaning that the Court is unable to attribute to the parties any particular contractual intention", the contract cannot be held to be void or uncertain or meaningless. In the search for that intention, no narrow or pedantic approach is warranted, particularly in the case of commercial arrangements. Thus will uncertainty of meaning, as distinct from absence of meaning or of intention, be resolved.

(1932) 147 L.T. 503, at p. 512. 2. [1941] A.C. 251.

I do not think there is any uncertainty or for that matter ambiguity in the expression "supplier's costs" in cl. 5, however wide may be the area of possible disagreement as to its denotation in a particular case. A contract to build a bridge at cost could not, in my opinion, be held void for uncertainty: it could not properly, in my opinion, be said to be meaningless: nor is it, in my opinion, ambiguous. Endless might be the arguments pro and con as to whether or not in marginal cases some item of expenditure is as claimed a cost, or as to how much of an expenditure is a cost, of the particular activity. But to my mind, generally speaking, the concept of a cost of doing something is certain in the sense that it provides a criterion by reference to which the rights of the parties may ultimately and logically be worked out, if not by the parties then by the courts. There are no elements in the circumstances of this contract to deprive the concept of that certainty. The obiter dictum in York Air Conditioning and Refrigeration (A/asia) Pty. Ltd. v. The Commonwealth [3] may provide an instance where an attempt to limit the concept of a cost may have robbed the concept of its certainty and have introduced uncertainty incapable of resolution by construction.

In this case the contract itself provided the means of the resolution of any question as to what items constituted supplier's costs, namely, by the decision of an arbitrator whose judgment as to whether or not there had been a variation in items of expenditure which were embraced in what he found to be the supplier's costs was agreed to be final and binding, subject of course to the terms of the Arbitration Act, and thus to the possibility of a case stated for the opinion of the Court. Of course, if the words "supplier's costs" were meaningless, the presence of the arbitration clause would not save the clause. But, as I have said, cl. 5 provides a certain criterion by reference to which the differences of the parties as to the propriety of an increase in charges could be resolved. In this respect, the circumstances of this case are, in my opinion, stronger than those in Foley v. Classique Coaches Ltd. [1] .

It is said in the judgments below that a provision whereby the Company agreed to pay the amount of an increased charge fixed by the Council, without having any right to a reduction should the Council's costs fall was so improvident that only the clearest words would suffice to warrant a construction in that sense. But it should be remembered that so far as appears the Council was the statutory body through whom the supply of electricity must come, there being then no other enfranchised source of supply in the area of the Company's premises at Aberdeen. Then there was an arbitration clause which denied both arbitrariness and finality to the Council's decision to increase its charges. But perhaps most importantly, what clearer words could be used than those in cl. 5 to relate the permissible increases in charges to variation in the Council's costs of supplying the electricity. No doubt a list of items of cost and of the means of determining whether or not a variation of an item has taken place or even a formula for determining what fraction of the variation of an item of expenditure should be included as an addition to the charges would make the application of the expression "variation in supplier's costs" both easier and less controversial. But if parties are unable or unwilling to engage in such particularity, the expressions chosen in cl. 5 to my mind clearly indicate what they intend. In my opinion, the answer given by the Supreme Court to the first question should be reversed and the question answered in the negative. The further questions asked in the stated case must then be answered.

The arbitrator found that a statement prepared by the Council showing items of expenditure and dissecting the same in the light of the Council's different activities was correct. He also found, no doubt upon those statements and dissections, that the cost of supplying electricity to the Company had increased by an amount which would justify an increase of the energy charge from 1.9025d. to 2.3125d. I have perused these statements and dissections: there were, in my opinion, no items of expenditure included in the calculations upon which the arbitrator's findings were based which could not be regarded as items of supplier's costs within the meaning of that expression in cl. 5 of the agreement. Consequently, in my opinion, the further questions should be answered in the affirmative.

The appeal should be allowed, the Supreme Court's answer to the first question reversed and the further questions answered in the affirmative.

I agree in the judgment of the Chief Justice and the answers he proposes to the questions in the special case.

I am unable to agree in the view of the Supreme Court that cl. 5 of the supply agreement is void for uncertainty. The costs referred to as "the supplier's costs" are necessarily its costs of carrying out the contract on its part, and are capable of ascertainment by an application of ordinary business concepts; "vary" is plain enough without an express statement of a standard; "in other respects than as has been hereinbefore provided" are words of specific exclusion, and none the less so because earlier provisions of the agreement may need to be construed in order to decide whether a particular variation in costs is within the exclusion; and the right to vary the maximum demand charge and energy charge is obviously subject to the implied limitation that the variation of charges shall not be more than is required to reflect the variation in costs. I need not discuss the matter in greater detail, for I have had an opportunity of reading the judgment of the Chief Justice and I agree in the reasons it contains for allowing the appeal.

In an award in the form of a special case an arbitrator asked, inter alia, whether cl. 5 of a contract between the appellant and respondent was void for uncertainty. The Court of Appeal of the Supreme Court of New South Wales formally answered this question in the affirmative. In doing so the Court merely followed an earlier decision, which it had given with elaborate reasons, when it answered in the negative a question submitted by the arbitrator for the opinion of the Court to the effect whether he, the arbitrator, was entitled to make the finding of law that cl. 5 was not void for uncertainty. The explanation for the somewhat elaborate procedure that has been followed in bringing the substance of the matter before this Court is to be found in the decision of this Court in The President of India v. The Moor Line Ltd. [No. 2] [1] .

The first question for this Court is therefore whether cl. 5 of the agreement is void for uncertainty.

It is agreed that during the term of this agreement if the Supplier's costs shall vary in other respects than as has been hereinbefore provided the Supplier shall have the right to vary the maximum demand charge and energy charge by notice in writing to the Purchaser given not less than 14 days before the commencement of any month after the date hereof such varied rates to take effect from the commencement of that month.

On its face the clause seems plain enough but it is said that it is full of latent ambiguity. It is claimed that upon examination, in the light of the rest of the agreement, the statement of the circumstances entitling the supplier to give the purchaser a notice of variation is found to be meaningless; particular reliance is placed upon the ambiguity of the phrase "the Supplier's costs". The supplier does not itself generate electricity; it purchases it from one or other or both of two companies at Muswellbrook that is Muswellbrook Coal Co. Pty. Limited and Mepco Pty. Limited. Earlier in the agreement (cl. 2) provision is made for an increase or decrease in an energy charge of 1.7825d. per kilowatt hours.

by decimal 0025 (0.0025) of a penny per kilowatt hour in respect of each complete shilling by which the Basic Wage as hereinafter defined is greater or less than twelve pounds one shilling (£12 1s. 0d.) per week and shall be increased or decreased by decimal 015 (0.015) of a penny per kilowatt hour in respect of each complete shilling by which the price of large coal to Muswellbrook Coal Co. Pty. Limited or Mepco Pty. Limited at Muswellbrook is greater or less than 51/9½d. per ton such increase or decrease to apply for the same period or periods as the increase or decrease of the Basic Wage and the price of large coal respectively shall operate. It is clear I think that the variations referred to in cl. 2 are treated as variations in "the Supplier's costs". Of course in one sense they fall outside this description, because, the supplier does not pay the wages for the labour nor pay for the coal used in the generation of the electricity supplied. Reference however to the agreement between the supplier and the generating companies discloses the existence of like clauses. In consequence an increase or decrease in the basic wage or the cost of coal to the generating companies automatically affects both the price that the supplier pays for electricity and the price that it charges the purchaser. In a real sense, and, in the sense of the agreement, cl. 2 does relate to "the supplier's costs". It is apparent, therefore, that what the agreement does is to provide (1) for the automatic variation of charges, in the event of specific changes in the basic wage and specific changes in the price of coal paid by the generating companies; and (2) for the right of the supplier to vary charges if its costs of carrying out its contract with the purchaser should vary in other respects in the course of its doing so. This latter provision may in certain circumstances give rise to problems. The right of the supplier to vary charges is not in terms limited to passing on increased or decreased costs. It may be, although this is unlikely, that any variation in unidentified costs during the period of the contract, would give the supplier an unrestricted right to vary charges. Recognition that there are questions of construction implicit in cl. 5, and, that in agreeing to it in the form in which the clause appears the purchaser may have been improvident, does not mean that the clause is meaningless, nor, does recognition that, in particular circumstances, there may be more than one view about the true effect of the clause. Ambiguities of the sort that I have been discussing, do not however involve that kind of uncertainty which defeats the intention of the parties to make a binding contract; viz., the use of language which, as a matter of construction and not mere speculation, cannot be given any one meaning rather than another.

In the event therefore, and without finding it necessary to put a particular construction upon cl. 5, I find myself in disagreement with the Court of Appeal that the clause is meaningless and void.

This brings me back to the award. The questions raised are as follows: -

(2) If the answer to (1) is No upon the facts as found was I entitled to hold that the Supplier's costs had varied in the respects contemplated by and within the meaning of the said clause?

The Court of Appeal answered the first question Yes and did not answer questions 2 and 3.

Following the aforesaid questions the special case continued in these terms: -

If the Council does not set this Award in the form of a Special Case down for hearing within six weeks from this date or if it sets down the said case and the Court answers either question (1) in the affirmative or either or both questions (2) or (3) in the negative, then in either of such events I award and direct as follows: -

A. That the Council was not entitled as from the 1st day of September 1963 to increase its demand charge to the Complainant from £8 5s. 0d. to £8 8s. 0d. per annum per kilovolt ampere or at all.

B. That the Council was not entitled to increase its energy charge to the Complainant as from the 1st day of September 1963 from 1.9025d. to 2.3125d. per kilowatt hour.

C. That the Council do pay to the Complainant its costs of the Arbitration on a party and party basis and the costs of this my Award such costs in default of agreement to be taxed by the proper officer of the Court.

If the Council sets this award in the form of a Special Case down for hearing within six weeks from this date and if the Court answers question (1) in the negative and question (2) and question (3) in the affirmative then I award and direct as follows: -

D. That the Council was not entitled as from the 1st day of September 1963 to increase its demand charge to the Complainant from £8 5s. 0d. to £8 8s. 0d. per annum per kilovolt ampere or at all.

E. That the Council was entitled to increase its energy charge to the Complainant as from the 1st day of September 1963 from 1.9025d. to 2.3125d. per kilowatt hour.

F. That the Company do pay to the Council three quarters of the Council's costs of the Arbitration on a party and party basis and three quarters of the costs of this my Award such costs in default of Agreement to be taxed by the proper officer of the Court.

From what has been stated it is apparent that it is not sufficient merely to substitute the answer "Yes" for the answer "No" given by the Court of Appeal to question (1). It is clear that the award cannot operate unless answers are also given to questions (2) and (3), and, by its notice of appeal, the appellant seeks to have question (1) answered in the negative and questions (2) and (3) answered in the affirmative.

(i) The word "costs" in cl. 5 does not mean the price paid by the Council for its bulk supply.

(ii) The Council incurred the expenditures for the Council's financial year ended 31st December 1959 as appearing in its Statement of Electricity Works Trading Fund Revenue Account and Schedule No. 23 tendered in evidence before me and being part of Exhibit "G".

(iii) The Council incurred the expenditures for the Council's financial year ended 31st December 1962 as appearing in its Statement of Electricity Works Trading Fund Revenue Account and Schedule No. 23 tendered in evidence before me and being part of Exhibit "H".

(iv) The items stated as "total costs of Electricity" and "Private Installations, Appliances and Service", appearing in the respective Schedule No. 23 part of Exhibits "G" and "H" were arrived at by apportioning certain of the total trading expenditures of the Council between such items.

(v) The items stated as "total cost of Electricity" as appearing in the respective Schedule No. 23 part of Exhibits "G" and "H" were further dissected as appearing in the document tendered in evidence before me and marked Exhibit "J".

(vii) In Exhibit "J" interest, depreciation, bad debts and salaries of the County Clerk, Deputy County Clerk and Chief Engineer were included. A properly estimated apportionment of these items between the cost of supplying electricity on the one hand and the cost of "Private Installations, Appliances and Services" on the other would not have resulted in any reduction in the energy charges which the Council made.

(viii) Council's costs per unit of electricity sold increased by 0.410 of a penny on a comparison between the calendar years 1959 and 1962.

(ix) The Council was not entitled to increase its demand charge to £8 8s. 0d. per kilovolt ampere or at all.

The arbitrator therefore decided that the Council having served the requisite notices on 9th August 1963 was entitled to increase its energy charge as from 1st September 1963 from 1.9025d. to 2.3125d. per kilowatt hour.

It seems to me that as it was open to the arbitrator to find that the supplier's costs - in respects other than those due to increased prices paid by it for electricity due to variations in the basic wage and the price of coal to the generating companies had varied to an ascertained extent, he was entitled to hold that the supplier's costs had varied in respects "contemplated by and within the meaning of the said clause" and that he was also entitled to find "that the Council was entitled under cl. 5 of the agreement to increase the energy charge to the Complainant to 2.3125d. per kilowatt hour as from the 1st day of September 1963".

The circumstance that the arbitrator limited the increase in charges which he allowed to his estimate of the actual increase in the costs of the supplier, excuses me from considering whether increases in charges unrelated to increases in cost, could have been awarded.

In my opinion the three questions in the special case should have been answered No, Yes, Yes and the appeal should be allowed and these answers substituted for those given by the Court of Appeal.

I agree entirely in what the Chief Justice has said. I would allow the appeal and answer the questions as he proposes.

At a glance

Court

Decision date

Before

Source

Judgment (69 paragraphs)

Parties