York Air Conditioning & Refrigeration (A/asia) Pty Ltd v Commonwealth - [1949] HCA 23 - HCA 1949 case summary — Zoe

CTHHCA

York Air Conditioning & Refrigeration (A/asia) Pty Ltd v Commonwealth

[1949] HCA 23

High Court of Australia|1949-07-01|Before: Williams J, Webb JJ

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Court

High Court of Australia

Decision date

1949-07-01

Before

Williams J, Webb JJ

Source

Original judgment source is linked above.

Judgment (98 paragraphs)

[1]

High Court of Australia Williams J. Latham C.J. Rich, Dixon, McTiernan and Webb JJ. York Air Conditioning & Refrigeration (A/asia) Pty Ltd v Commonwealth [1949] HCA 23

[2]

July 1 Williams J . delivered the following written judgment: -

[3]

In this action the Commonwealth is suing the defendant to recover certain moneys alleged to have been overpaid in respect of eight contracts entered into between the parties in the period 21st October 1942 to 14th March 1944. They can be identified as Marn 59, Marn 1384, Marn 1389, Marn 1472, Marn 21, Mon 2196 and Mon 3144. The total amount alleged to have been overpaid on the eight contracts is £18,183 13s. 9d. but the plaintiff admits that there is a sum of £2,781 6s. 9d. short-paid on another contract A105 Marn 1523 which should be set off against this sum so that the plaintiff's claim is for the balance, that is to say £15,402 7s. In the statement of defence the defendant denies that it is liable to repay any part of the sum of £18,183 13s. 9d. on a number of grounds and counterclaims for payment of the sum of £2,781 6s. 9d. The eight contracts in suit were made on behalf of the plaintiff by the Board of Area Management, New South Wales, of the Department of Munitions and were for the supply of refrigeration equipment required by the plaintiff for the defence of the Commonwealth. Each of the contracts contains an agreement by the plaintiff to pay a fixed price for the goods supplied and also an agreement that the price is subject to check by the Director of Finance or his representative, and if the profit margin on ascertained costs in accordance with "Standard Conditions" exceeds ten per cent the price may be reduced to a figure which would include a profit margin of not less than ten per cent. The standard conditions (Exhibit B) incorporated in the contracts are stated to be applicable to contracts on a cost plus profit basis and provide for payment to be made to the contractor for the performance of the contract of the sum of (a) production cost as therein defined (b) the remuneration or profits as agreed upon. The standard conditions contain nine paragraphs. Production cost is defined in par. 2. I shall not set out the text of the various items except that of overhead expense. The items are divided into (a) direct material cost; (b) direct labour cost; (c) direct expense; and (d) overhead expense. Overhead expense is defined as "any other cost or expense attributable to the contract which is not conveniently chargeable directly to the product or process and which is not a cost or expense disallowed by these conditions." Paragraph 3 defines certain items which shall be credited to production cost. Paragraph 4 defines items which shall be excluded from production cost. The items include (b) remuneration of directors, officers and other employees to the extent that such exceeds amounts which are reasonable, taking into consideration the size and character of the contractor's business, the nature of the services rendered and the remuneration usually paid for such services in businesses of a similar nature; (e) premiums for insurance (iii) against risks which are not customarily covered by insurance; (i) provision for any contingency to the extent that such contingency is beyond reasonable expectation; (m) any expense that, in the opinion of the Minister, could have been avoided or reduced by the exercise of reasonable and usual care and diligence or the calling of competitive tenders by the contractor, to the extent that such could have been avoided or reduced. Paragraph 5 defines certain expenses which shall not be included in production cost except with the approval of the Minister. Paragraphs 6 and 7 contain provisions relating to the keeping of accounts. Paragraph 8 provides that the Commonwealth shall not be liable to pay for the cost of faulty material, workmanship and fittings rejected by it in excess of a reasonable allowance, but the Minister shall have the power to decide whether, having regard to all the circumstances, the cost or any part thereof of such excess faulty materials, workmanship and fittings ought to be allowed to the contractor. Paragraph 9 provides that any dispute or difference between the parties shall be referred to the Minister whose decision shall be final. None of the contracts contains provision for progress payments but in the course of the work such payments were made and in connection therewith the defendant entered into certain undertakings. In the case of contracts other than Marn 21, Mon 2196 and Mon 3144 the plaintiff paid the defendant the whole of the fixed price and the defendant undertook in consideration of such payment to afford all facilities to enable costs to be ascertained in accordance with the terms of the contracts and to refund to the Commonwealth any amount found to have been overpaid. In the case of contract Marn 21 the defendant entered into a similar undertaking in consideration of the payment of £148,000, but the plaintiff only paid the defendant 87.4 per cent of this sum. In the case of contracts Mon 2196 and Mon 3144 the defendant entered into a similar undertaking in consideration of progress payments equal to ninety per cent of the fixed price, but the plaintiff only paid the defendant 86.9 per cent and 87.8 per cent of these sums. The defendant kept proper accounts of its expenditure and gave the plaintiff every facility to investigate its accounts. As a result of investigations the plaintiff alleges that the fixed prices in all eight contracts are in excess of the costs of production plus ten per cent profit and claims the right to exercise its option to reduce these prices accordingly. On 20th March 1946 the plaintiff wrote to the defendant and gave details of the excesses in the case of all contracts except Marn 21. On 17th July 1946 the plaintiff wrote to the defendant repeating these details and giving the excess in the case of Marn 21. After making certain adjustments the plaintiff claimed that the defendant had been overpaid to the extent of £15,871 14s. The amount claimed as overpaid in the statement of claim is £15,402 7s. but it is common ground that nothing turns on this discrepancy.

[4]

The defendant did not at first dispute the accuracy or validity of the plaintiff's claim but sought relief from repayment on certain grounds of hardship. These were rejected by the plaintiff and on 21st October 1946 the Acting Crown Solicitor wrote to the defendant stating that he had received instructions to demand payment from the defendant of the sum of £15,402 7s. due to the Commonwealth and if necessary to take legal action to recover this sum. The letter stated that the defendant received payment for the supply of certain items to the Commonwealth under contracts which provided that should price checks reveal that the defendant's profit margin exceeded ten per cent of its production costs the company would refund the excess. It also stated that this sum represented refunds payable on the eight contracts less certain credits and that, unless this sum was paid or some satisfactory proposal for its liquidation made by 31st October 1946, legal proceedings for its recovery would be taken without further notice. On 30th October 1946 the company wrote in reply a letter containing the following paragraphs: - "2. It is correct that contracts entered into by this company with Department of Munitions provided that should a cost investigation reveal the Company's profit margin to exceed ten per cent, the Department of Munitions may call for refund of such excess profits. As discussed with Officers of the Department of Munitions at that time, any refund claimed would depend on circumstances and conditions at some future date. We have set forth in various correspondence to the Department of Munitions the fact that termination of war-time contracts in September 1945, and the subsequent reconversion to peace time trading has been achieved at such expense to the Company as would justify the writing off of this alleged liability. 3. The statements of account submitted to this Company by the Cost Investigation Branch of the Department of Munitions covering the various contracts enumerated in your letter are not disputed as to correctness. 4. Negotiations in respect of the claim by the Department of the sum of £15,402 7s. have to date been conducted by correspondence and there is still one letter addressed to Department of Munitions by this Company remaining unanswered. We suggest that an amicable settlement of these disputed claims could probably be arrived at in short time were it possible for responsible officers of the Department of Munitions to meet in conference with the writer in the near future. 5. In view of the foregoing, we suggest that any action on this matter be deferred by your Department for the time being and that you might endeavour to arrange the conference as suggested in the last paragraph. The presence of a senior officer of your Department at this conference would be welcomed."

[7]

(1) It was faintly suggested that the standard conditions in evidence could not be the conditions the parties had in contemplation because they are stated to be applicable to contracts on a cost plus profit basis, and the eight contracts are not such contracts but contracts for a fixed price. But the very purpose of the option is to give the Commonwealth the right to elect to convert a contract for a fixed price into such a contract and I have no doubt that the standard conditions in evidence are embodied in all eight contracts. The main ground on which it was contended that the parties were not ad idem as to the option or alternatively that the option was too uncertain to be enforced was that the standard conditions do not contain any directions as to the manner in which the total overhead of the contractor is to be apportioned between the contracts incorporating the standard conditions and his other business and that in the absence of such a direction it is quite uncertain how the overhead should be apportioned. I was referred to several cases on contracts and also to some recent decisions of this Court where price-fixing orders under the National Security (Prices) Regulations which prescribed formulae for ascertaining prices were held void because the meaning of the word "cost" was uncertain. Of the cases on contracts cited I need only refer to: (a) In re Vince; Ex parte Baxter [1] . There a loan was made to a trader and it was provided that the trader should pay a certain sum for interest half-yearly and that in case he should be unable to pay the interest by reason of the deficiency of profits "then and upon every such occasion a due allowance shall be made by the lender to the borrower in respect of the same in a fair and reasonable manner." The Court of Appeal reversed the decision of the Divisional Court and held that the agreement was void as it was expressed in such vague and uncertain terms that it was impossible to say in what mode the "due allowance" in diminution of the interest was to be ascertained (b) May & Butcher v. The King [2] . There the suppliants agreed to purchase from the Controller of the Disposals Board the total stock of old tentage. The agreement provided that "the price or prices to be paid shall be agreed upon from time to time between the Commission and the purchasers as the quantities of said old tentage become available for disposal and are offered to the purchasers by the Commission." The House of Lords held that there was no concluded contract between the parties unless they could agree on the price. Since the agreement did not provide for the payment of a reasonable price an essential term of the contract had still to be determined and there was no contract at all. Lord Dunedin said "to be a good contract there must be a concluded bargain, and a concluded contract is one which settles everything that is necessary to be settled and leaves nothing to be settled by agreement between the parties. Of course it may leave something which still has to be determined, but then that determination must be a determination which does not depend upon the agreement between the parties" [3] . (c) Scammell and Nephew Ltd. v. Ouston [4] . There the respondents agreed to purchase from the appellants a new motor van but stipulated that "this order is given on the understanding that the balance of purchase price can be had on hire purchase terms over a term of two years." It was held that this stipulation was so vague as to the hire purchase terms intended that no precise meaning could be attributed to it, and consequently there was no enforceable contract between the parties. Viscount Simon L.C. held that the stipulation was so vaguely expressed that it could not standing by itself be given definite meaning. It therefore required further agreement to be reached between the parties before there could be a complete consensus ad idem [5] . Viscount Maugham held that the agreement was void for uncertainty. He said that "in order to constitute a valid contract the parties must so express themselves that their meaning can be determined with a reasonable degree of certainty. It is plain that unless this can be done it would be impossible to hold that the contracting parties had the same intention; in other words the consensus ad idem would be a matter of mere conjecture" [1] . Lord Russell of Killowen and Lord Wright thought that the respondents, in the words of Lord Russell were faced with a fatal alternative, namely, "either (1) this term of the alleged contract is quite uncertain as to its meaning, and prevents the existence of an enforceable contract, or (2) the term leaves essential contractual provisions for further negotiations between the parties, with the same result" [2] . (d) Bishop & Baxter Ltd. v. Anglo-Eastern Trading & Industrial Co. Ltd. [3] . There sellers of goods accepted an order from intending buyers "Subject to war clause." In fact, war clauses took many forms. Held, that as there was no evidence that the parties had any particular form of clause in mind there was no consensus ad idem, and therefore no completed contract. Scott L.J., delivering the judgment of the Court of Appeal, referring to the word "clause," said [4] that it was undefined and demanded consensual definition to make it an effective term of the agreement between the parties. Referring to Scammell and Nephew Ltd. v. Ouston [5] he said that the grounds of the decision were "both that the condition was too vague to carry contractual force and that "the parties never in intention nor even in appearance reached an agreement" on it. in the case before us the phrase in controversy gave no clue of any sort to indicate what particular war contingencies affecting performance were intended to apply. The stipulation necessarily remained wholly vague till the parties could agree on some particular war clause" [6] .

[10]

If the court comes to the conclusion that parties intended to make a contract, it will if possible give effect to their intention no matter what difficulties of construction arise. In Scammell and Nephew Ltd. v. Ouston [2] Lord Wright said "the object of the court is to do justice between the parties, and the court will do its best, if satisfied that there was an ascertainable and determinate intention to contract, to give effect to that intention, looking at substance and not mere form. It will not be deterred by mere difficulties of interpretation it is a necessary requirement that an agreement in order to be binding must be sufficiently definite to enable the court to give it a practical meaning. Its terms must be so definite, or capable of being made definite without further agreement of the parties, that the promises and performances to be rendered by each party are reasonably certain." In Hillas & Co. Ltd. v. Arcos Ltd. [3] Lord Tomlin, referring to the words "of fair specification" said "that is something which if the parties fail to agree can be ascertained just as much as the fair value of a property." Lord Thankerton said "I am affected by the consideration that the contract is a commercial one and that the parties undoubtedly thought that they had concluded a contract" [4] . Lord Wright referred to "the legal implication in contracts of what is reasonable, which runs throughout the whole of modern English law in relation to business contracts it is unnecessary, in my judgment, to multiply illustrations of this principle, which goes far beyond matters of price. After all, the parties being business men ought to be left to decide what degree of precision it is essential to express in their contracts, if no legal principle is violated" [1] . In the present case it is clear that the parties believed that they had made a concluded and enforceable contract and the provisions of the standard conditions are in my opinion sufficiently definite to enable the court to give them a practical meaning. There is no objection to parties agreeing that the ascertainment of some fact in the performance of the contract shall be a matter of "estimation, approximation and apportionment." A contract which states that the price is to be a reasonable price is a valid and enforceable contract (May & Butcher Ltd. v. The King [2] ; Hillas & Co. Ltd. v. Arcos Ltd. [3] ; Way v. Latilla [4] ) where however the House of Lords held the contract sued on not to have been made. In Milnes v. Gery [5] Sir W. Grant M.R. said "the case of an agreement to sell at a fair valuation is essentially different. In that case no particular means of ascertaining the value are pointed out: there is nothing therefore, precluding the Court from adopting any means, adapted to that purpose." In R. v. Ivanhoe Gold Corporation Ltd. [6] the plaintiff was engaged to improve the poor extraction of gold from a mine on the terms that "if the extraction is still the same at the end of July, the Ivanhoe Company will pay you handsomely, but you will have to take the risk of the extraction being all right then and payment will depend on results" and this was held to be a valid contract. It was held that in an action for damages for breach of contract the proper measure of damages would be to ascertain what would under ordinary circumstances be fair remuneration for the actual services rendered, and to increase that amount by what is reasonable to make it "handsome payment." Ikin v. Cox Bros. (Aust.) Ltd. [7] in the Full Court of Tasmania, is a case of the same kind. In Australian Can Co. Pty. Ltd. v. Levin & Co. Pty. Ltd. [8] an option to purchase for a named sum in accordance with certain conditions and "all such conditions and agreements as may in view of the National Security Regulations become necessary" to be embodied in the contract was held to be a completed agreement between the parties giving the lessee the right to purchase the property. Lowe J., on behalf of Herring C.J. and himself, said "We think the fair meaning of the words relied upon is that any provision which the National Security Regulations make it necessary to insert in a contract of sale must be incorporated in the contract of the parties. Whether there are any such provisions or what they are may require some investigation, but so far as the parties are concerned their agreement is complete. Id certum est quod certum reddi potest. " [1] . Fullagar J. said "What is "necessary in view of" the regulations is a matter capable of being determined by the Court, if the parties disagree about it" [2] . It is clear from the evidence that there are a number of methods by which the administrative expenses of a business can be apportioned, and the standard conditions do not specify which of these methods is to be adopted. But the parties have agreed that one item in the production cost shall be "overhead expense" and this means to my mind that a reasonable allowance is to be made in respect of any cost or expense attributable to the contract which is not conveniently chargeable directly to the product or process and which is not a cost or expense disallowed by the conditions. The problem of calculating the sum to be allowed as overhead in accordance with the definition is a similar problem to that of calculating a reasonable price. The parties have agreed that the calculation of a reasonable amount (subject to par. 9) shall be left to the Court and the Court can adopt any means adapted to that purpose. It is a similar problem to that which Atkinson J. had to solve in Edwards v. Saunton Hotel Co. Ltd. [3] . There a hotel company agreed to pay the plaintiff a fixed salary and also a commission of twenty per cent on the sum available for distribution by the company at the end of each year. The parties disagreed as to the manner in which the commission of twenty per cent was to be calculated, and this had to be determined by the Court. A question arose as to the proper method of calculating depreciation. His Lordship pointed out that there are two methods which may be adopted: "one is called the reducing value method, by which you deduct the same percentage every year but calculated on the reduced value, and the other method is called the original cost method or straight line method, where you deduct the same percentage every year from cost and write off the value of the assets in that way." [4] . His Lordship decided to adopt the former method. In Rishton v. Grissel [5] there was an agreement that the plaintiff should act as manager of the plaintiff's works and receive in each year seven and one-half per cent of the profits of the business. In taking the accounts to ascertain the plaintiff's share of profits the parties disagreed as to many items, but it was not suggested that there was not a concluded agreement between the parties (see also L. C. Ltd. v. G. B. Ollivant Ltd. [6] ). Similar questions as to depreciation arose in assessing compensation for the acquisition of ships under the National Security (General) Regulations before me in James Patrick & Co. Pty. Ltd. v. Minister of State of the Navy [1] reported in fragments but not on this point, and before Dixon J. in Minister of State for the Navy v. Rae [2] . Dixon J. said: "What system of depreciation is to be employed in a given case is in a great measure a question of suitability depending on the facts. The law prescribes none of the systems commonly used in commercial or accountancy practice to the exclusion of the others. It is a matter of what is appropriate to be judged as a matter of fact" [3] . Applying these principles I am of opinion that the reference to overhead expense is sufficiently definite to make the promises and performances to be rendered by each party reasonably certain. It is a case where the parties have agreed to leave something which has still to be determined, but the determination does not depend upon the agreement of the parties. The issue is one of fact capable of being determined by the Court if the parties disagree about it.

[15]

(2) The defendant does not advance this ground in the case of the five contracts which were paid in full on condition that any overpayments should be refunded. Accordingly it only applies to contracts Marn 21, Mon 2196 and Mon 3144 where the express promises to refund are conditional upon progress payments which were not made in full. As payments were not made in full the plaintiff does not claim that it can enforce these promises. The progress payments were made in reduction of the plaintiff's liability under the contracts, but the contracts make no provision for progress payments and the plaintiff was not in law liable to pay for the goods until they had been delivered. It was submitted for the defendant that the plaintiff was entitled to waive its rights under the contract and make progress payments if it liked, but if it paid more than it was eventually liable to pay the overpayments were a waiver of its contractual rights to reduce the fixed prices to cost plus ten per cent. It was contended that if the plaintiff made any mistake it was a mistake of law and not of fact, and the overpayments could not be recovered. Passages in the judgment of Wynn-Parry J. in Re Diplock; Diplock v. Wintle [1] on appeal [2] were particularly relied upon. A mistake in the construction of a contract is a mistake of law and payments made under a mistake of law cannot be recovered in an action for money had and received. But I cannot agree that the progress payments were made under a mistake of law. Such payments are simply payments made on account of what the contractor might eventually be entitled to recover from the purchaser (Lamprell v. Billericay Union [3] ; Tharsis Sulphur & Copper Co. v. M'Elroy & Sons [4] ). In the last-mentioned case Lord Cairns L.C. said: "the payments made under those certificates were altogether provisional, and subject to adjustment or readjustment at the end of the contract" [5] . In Calvert v. London Dock Co. [6] the owner had overpaid the contractor for the work done without the consent of the sureties It was held that the sureties were released. Lord Langdale M.R. said: "And the company, instead of keeping themselves in the situation of debtors become creditors to a large amount, without any security" [7] . Such overpayments are made under a mistake of fact and not of law. In the present case the undertakings clearly indicated an intention on the part of the plaintiff to exercise its right to substitute a price fixed on cost plus ten per cent for the fixed price if the former price was found on a price check to be less than the latter. At the time of the progress payments it was not known which would prove to be the lower price, or whether, if cost plus ten per cent proved to be the lower price, the progress payments would exceed this price. There were therefore outstanding questions of fact. The payments were premature and the plaintiff could have waited for further information before making them, but the plaintiff clearly did not intend to pay more than it finally became liable to pay and it did not pay the money intending to part with it whether it was liable or not. In this respect there is an analogy between the present case and Kerrison v. Glyn, Mills, Currie & Co. [1] . The judgment of Hamilton J. (as Lord Sumner then was), after being reversed by the Court of Appeal, was restored by the House of Lords [2] . In Morgan v. Ashcroft [3] Scott L.J. said of this case that "it was definitely decided by Hamilton J. and by the House of Lords that the plaintiff was entitled to recover a payment made to the defendants for the purpose of meeting an anticipated liability although he then knew that no actual liability had yet attached to him." The mistake of fact, in the words of Scott L.J. in the same case "must be in some aspect or another fundamental to the transaction" [4] . But money paid in anticipation to discharge a liability for an uncertain amount which has not crystallized is in my opinion money paid under such a mistake if it eventually turns out that the creditor has been overpaid. Money paid under such circumstances is paid in the words of Lord Sumner in Sinclair v. Brougham [5] "upon a notional or imputed promise to repay." It is therefore unnecessary finally to decide whether the fact that the plaintiff had a right to reduce the price from the fixed price to a price based on cost plus ten per cent if the latter price proved to be less than the former does not necessarily imply that in this event a contractor who has been paid on account of the fixed price more than the latter price would refund the excess. But, as at present advised, I am of opinion that there is such an implication. The progress payments must in such circumstances be subject to adjustment or re-adjustment at the end of the contract and the letters of 21st October and 30th October 1946 indicate that the parties so intended.

[16]

(3) The contracts do not contain any express provision limiting a time within which the plaintiff must exercise the option. But the defendant contends that it should be implied from the terms of the contracts and the surrounding circumstances that the option must be exercised within a reasonable time. The power of the Court to imply particular terms in contracts has been discussed in many cases and recently by Lord Wright in Luxor (Eastbourne) Ltd. v. Cooper [1] . The presumption is against the adding to contracts of terms which the parties have not expressed. The material words in the present contracts are that the price is subject to check and if the profit margin on ascertained costs exceeds ten per cent the price may be reduced to a figure which would include a profit margin of not more than ten per cent. If there is an implication that the option must be exercised within a reasonable time, it would presumably have to be exercised within a reasonable time after the goods had been manufactured and delivered because until then the cost could not be finally ascertained. If the goods were partly manufactured, as they were in this case, by sub-contractors it might not be possible to ascertain the cost of the sub-contracts for some considerable time after delivery. All sorts of investigations might have to be made to ascertain the costs. Overhead expenses could probably not be ascertained and apportioned until the end of the financial year. The option is contained in the general conditions and is presumably embodied in a large number of contracts. What would be a reasonable time would vary in the case of each contract because it would depend upon the circumstances of each particular case. It is essential to bear in mind that the implication, if made, is of a term that the Court presumes represents the intention of both parties (Peters American Delicacy Co. Ltd. v. Champion [2] ). It is impossible to my mind to presume that the plaintiff could have intended to bind itself by such a nebulous condition. Further, adapting the remarks of Jordan C.J. in Heimann v. The Commonwealth [3] the contractor may well have been content to rely on the self-interest of the Commonwealth as a sufficiently compelling motive to claim the reduction at an early date (Re Railway and Electric Appliances Co. [4] ). No such implication should therefore be made and it is unnecessary to discuss whether the options were exercised in a reasonable time.

[17]

(4) The statement of defence alleges that the moneys were paid in purported satisfaction of the plaintiff's obligations under the contracts and not otherwise and with the intention that the defendant should receive and deal with them as its own exclusive property and the defendant received the moneys accordingly and has dealt with the same as its own exclusive property, and has otherwise altered its position to its detriment upon the footing that the moneys were due to it under the contracts and that the defendant might treat them as its own exclusive property. But the defendant was fully aware that the plaintiff was examining its accounts to ascertain whether the profit exceeded ten per cent and the undertakings to repay any excess into which it required the defendant to enter as a condition of making progress payments gave ample warning that the plaintiff had not elected to forego the option. Holt v. Markham [1] was relied on. That was a case where an officer of the Royal Air Force was overpaid on demobilization. More than a year afterwards and before notice of the mistake he spent the money. In an action to recover the excess as money paid under a mistake of fact the Court of Appeal held that the mistake, if any, was one of law and that, as the defendant had been led by the plaintiff's conduct to believe that he might treat the money as his own and in that belief had altered his position by spending it, the plaintiffs were estopped from alleging that it was paid under a mistake. This case was discussed and distinguished in Weld-Blundell v. Synott [2] . It has no application to the facts of the present case because there is no evidence that the defendant was misled by the plaintiff into any belief that it might retain any surplus over cost plus ten per cent. It could only have reasonably believed to the contrary. Further there is no evidence that the defendant has spent the money, and certainly none that it was induced to do so on the faith of such a representation.

[19]

I am therefore of opinion that all four defences fail, and it becomes necessary to consider the plaintiff's claim. It was contended for the plaintiff that the defendant was liable to the plaintiff for the £15,402 7s. claimed on an account stated. The evidence relied on to support an account stated is the letter of demand from the acting Crown Solicitor of 21st October 1946 and the defendant's reply of 30th October, 1946. The law of accounts stated is discussed in Halsbury's Laws of England, 2nd ed., vol. 7, pp. 294, 295. I was also referred to Firm Bishun Chand v. Seth Girdhari Lal [3] . But the admission of the liability and of the amount due must be absolute and I cannot read the defendant's letter of 30th October 1946 as such an admission. The plaintiff must therefore rely on its rights under the eight contracts. The issue of fact relates to the production cost in accordance with the standard conditions of the goods manufactured under the eight contracts. The item in dispute is the amount to be allowed for overhead expense. The actual overhead expenses of the defendant for the years ended 30th June 1943, 1944 and 1945 were £13,258 18s. 9d., £17,292 2s. 3d. and £21,756 17s. 5d. totalling £52,307 18s. 5d. But these expenses include items excluded by the standard conditions, and if these items are excluded the overhead expenses for the three years were £12,889, £16,524 and £19,532 totalling £48,945. The plaintiff contends that the proper method of apportioning the overhead expenses of the defendant between the eight contracts and the other business of the defendant is as a percentage of direct labour cost whereas the defendant contends the proper method is as a percentage of sales. As a percentage of direct labour on total overhead expenses of £48,945 the apportionment to the eight contracts would be £17,256, as a percentage of sales on total overhead expenses of £52,308 the apportionment to the eight contracts would be £26,624, a difference of £9,368 and the defendant claims that to this difference there should be added profit of ten per cent and two and one-half per cent royalty payable to the American company. The defendant therefore contends that, subject to all other defences raised in the pleadings, the claim of the plaintiff should be reduced by £10,561.

[20]

There is no dispute that the items which were excluded from the actual overhead expenses of the defendant to reduce the total amount for the three years from £52,308 to £48,945 were properly excluded in accordance with the standard conditions. Accordingly I am of opinion that the only overhead expenses that can be taken into account in order to find the sum which should be apportioned as overhead expenses of the eight contracts are the sums of £12,889, £16,524 and £19,532 totalling £48,945. The way in which the defendant carries on its business is to manufacture air conditioning and refrigeration equipment pursuant to orders received for particular equipment. The defendant has a factory but does very little manufacturing itself and lets out most of this work to sub-contractors, so that the factory is used mainly for assembly. The apportionment of overhead expenses on behalf of the plaintiff on the basis of direct labour cost was done by Mr. V. J. Murtagh who is now in practice as a consulting accountant but during hostilities was employed in the Department of Munitions as a cost investigator. Mr. Murtagh holds amongst other qualifications that of an Associate of the Australasian Institute of Cost Accountants. He was emphatic, and he was fully supported in this emphasis by Mr. Scott who is amongst other qualifications a Fellow and President of the Australasian Institute of Cost Accountants and practises as a cost accountant, that the method of apportioning overhead based on sales adopted by the defendant cannot be a satisfactory method under any circumstances. I accept this evidence. The cross-examination of Mr. Murtagh and Mr. Scott showed that the method of apportioning overhead on the basis of direct labour may not be satisfactory where most of the manufacturing is done by sub-contractors so that the amount of direct labour contributed by the contractor is small, and Mr. Scott's evidence left me with the impression that perhaps the fairest method in such a case, and therefore in the present case, would be to apportion the overhead on the basis of cost of sales. I therefore invited the parties to work out an apportionment on this basis, but the invitation was not accepted by either side. No expert witness was called by the defendant to support its method of apportionment. Mr. Gollan, the accountant of the defendant, said that during the investigation of its accounts the method of apportioning overhead on the basis of direct labour was objected to. But it is a remarkable fact that, despite the initial objection, during the whole of the period between 20th March 1946 when the defendant was first notified of the reduced prices under seven of the contracts and about June 1947, no further objection was taken to the plaintiff's method of apportionment. Indeed I find it difficult to read the third paragraph of the defendant's letter of 30th October 1946 as other than as assent to this method. Accordingly if I had thought that the contracts were originally too uncertain to be enforced because the method of apportionment had not been defined, I would have had seriously to consider whether after this letter the uncertainty had not been removed by the subsequent conduct of the parties (Oxford v. Provand [1] ). This paragraph is at least evidence that the method of apportionment adopted by the plaintiff is reasonable (Waring & Gillow Ltd. v. Thompson [2] ).

[23]

All payments on account of all the contracts were made by the plaintiff to the defendant in the years ended 30th June 1944 and 30th June 1945, and none were made in the year ended 30th June 1943. The total amount paid was £276,006 which includes the sum of £18,183 which the plaintiff alleges was overpaid, and of this sum £213,711 was paid in the year ended 30th June, 1944 and £62,295 in the year ended 30th June 1945. This led Mr. Hooke, junior counsel for the plaintiff, to contend that the years to take into account in order to make a reasonable apportionment of overhead expense between the eight contracts and the other business of the defendant should be the years ended 30th June 1944 and 30th June 1945, and that the year ended 30th June 1943 should be excluded. He contended that if this was correct (1) the sales method must be unreasonable because on this basis the eight contracts would be apportioned twelve per cent of the overhead as against 6.7 per cent for the rest of the company's business; (2) that the figure of £17,256 is substantially correct. Mr. Hooke handed in an analysis of the figures prepared by the defendant to illustrate his argument, which is with the papers, and his analysis assists me to find that the sum of £17,256 is a reasonable allowance. I am also assisted in this finding by an examination of the details in exhibit T. These show that the percentages of overhead expense allowed in the prices range from eighteen per cent to sixteen per cent in the case of the five small contracts and from five per cent to seven per cent in the case of the three large contracts. The total overhead allowed for all the contracts is of course £17,256. The total price allowed for all the contracts is £258,289. The percentage of overhead is therefore about 6.7 per cent. If the profits £23,269 are excluded, as they probably should be, the percentage of overhead in the cost of production is about seven per cent. It would appear that some part of the administrative expenses of the eight contracts must have been incurred in the year ended 30th June 1943. In this year the percentage of overhead expense on sales calculated in accordance with the standard conditions was 6.7 per cent. Some part of these administrative expenses must also have been incurred in the year ended 30th June 1945 when the percentage was 17.6 per cent. But in this year there was only one contract still incomplete after October 1944, and the bulk of these administrative expenses must have been incurred in the year ended 30th June 1944 when the percentage was 6.5 per cent. The apportionment in exhibit T would not therefore appear to be unreasonable.

[41]

Exhibit B is a document headed "Standard Conditions applicable to Contract on a Cost Plus Profit Basis." This document was proved as a document containing standard conditions applied by the Munitions Department to its contracts. It is now suggested that the document was not sufficiently identified as containing the Standard Conditions. It is true that objection was taken to the admission of the document in evidence, but that objection was based upon the ground that the document was described as conditions applicable to a contract on a cost plus profit basis and that the contracts in question were fixed price contracts, so that those Standard Conditions could not be applicable to them. The case before the learned trial judge proceeded on the basis that Exhibit B did contain the Standard Conditions to which reference was made in clause 1 (a) of the General Conditions, and there was no evidence to suggest that there were any other Standard Conditions to which clause 1 (a) could apply. I therefore proceed to consider the case upon the footing that Exhibit B does represent the Standard Conditions. The Standard Conditions, as I have already stated, are described as standard conditions applicable to contracts on a cost plus profit basis. The contracts in question were contracts for the supply of articles at fixed prices and not on the basis of cost plus profit. But I agree with the learned trial judge that the express provision that clause 1 (a) of the General Conditions, which has already been quoted, should be applicable to the orders given means that, if the profit margin on the basis of the fixed price turns out to be greater than ten per cent of ascertained costs in accordance with the Standard Conditions, the price may be reduced upon a cost (that is, such ascertained costs) plus ten per cent basis. In other words, the inclusion of clause 1 (a) does enable the Commonwealth to choose, if the Commonwealth thinks proper, a cost plus ten per cent basis as the means of determining the prices to be paid instead of the prices fixed in the contracts. Otherwise the express incorporation of clause 1 (a) would have no meaning whatever.

[46]

The Standard Conditions deal with the ascertainment of production costs. They provide that production costs shall be the sum of (a) direct material cost (defined); (b) direct labour cost (defined); (c) direct expense (defined); (d) "Overhead expense - any other cost or expense attributable to the contract which is not conveniently chargeable directly to the product or process and which is not a cost or expense disallowed by these conditions." This provision is followed by a statement that certain items (trade discounts, rebates &c.) are to be credited in ascertaining production cost, and that certain items are to be excluded from production cost - e.g. taxes, remuneration of directors, officers and other employees to the extent that such exceed amounts which are reasonable, certain premiums for insurance &c., and provision for any contingency to the extent that such contingencies are beyond reasonable expectation. As to these and other provisions, it was contended that they were uncertain in that they did not provide for the fixation of a precise amount or provide means for the ascertainment of such amount. I agree with the learned trial judge that there is no difficulty (as the parties before this litigation also agreed) in an ascertainment of amounts under all of the relevant heads by the Court itself; for example, under the last-mentioned exception, if the parties were in controversy on this subject it would be for the Court to determine whether a particular contingency was in the circumstances beyond reasonable expectation. When the parties have shown by their conduct that they understand and can apply the terms of a contract without difficulty, a court should be very reluctant indeed to pay no attention to such conduct by holding that the terms of the contract are unintelligible by reason of uncertainty. It is true that a court might require some explanation of some of the terms of the contract before it could interpret and apply them. I take as an example the exclusion from production costs of premiums for insurance "against risks which are not customarily covered by insurance." Before the Court could apply such a provision as this it would be necessary to hear evidence. But where the parties have already applied provisions containing such a term and have agreed upon the result a court would be departing from all business reality if it were to hold that such a clause was so uncertain as either to make the whole contract, under which some hundreds of thousands of pounds had been paid, void, or at least to be void itself.

[57]

The named prices of the eight contracts amounted in the aggregate to £315,002 18s. 5d. But of this sum three contracts accounted for £311,330 19s. 7d. the named prices of the remaining five aggregating only £3,671 18s. 10d. While the contracts were in course of performance arrangements were made for progress payments. With respect to the five small contracts the Ministry agreed to, and did, pay the full price named, and the appellant company agreed to refund any amount found to have been overpaid on an investigation of costs. With respect to one of the large contracts the Ministry agreed to pay up to £148,000 in progress payments, the named contract price being £168,769 16s. 1d. The Ministry appears to have requested an undertaking to refund which probably was meant to cover a reduction of price under the clause of the general conditions, but the undertaking given in the case of this contract does not seem to have been expressed to cover that event. The payments made in the event fell a little short of £148,000. In the case of the two other large contracts, the appellant company undertook to refund any amount found to be overpaid in consideration of progress payments amounting to ninety per cent of the value of the respective orders. The amount of the progress payments actually made did not reach ninety per cent of the face value of the orders. The total amount paid with respect to all eight contracts was £276,005 9s. 10d. The Cost Investigation Branch of the Ministry of Munitions conducted an investigation of the costs of the execution of the eight contracts and finally in March 1946 the results led to a demand upon the company by the Ministry for a very large amount. It is not clear whether figures for more than seven contracts were stated at that date, but in a letter from the Ministry to the appellant company of 17th July 1946 it appears that the claim of the Ministry was that on all eight contracts £18,183 13s. 9d. had been overpaid, that is paid in excess of cost plus ten per cent profit.