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Placer Development Ltd v Commonwealth [1969] HCA 29; (1969) 121 CLR 353 (27 June 1969)

CATCHWORDS

HEARING

DECISION

"14. If customs duty is paid upon the importation into
Australia of the plywood, veneers, logs and other products of
the Timber Company, and is not remitted, the Commonwealth
will pay to the Timber Company a subsidy upon the
exportation
of these products from the Territory for entry into
Australia of an amount or at a rate determined by the
Commonwealth
from time to time, but the amount of subsidy paid
shall not exceed the amount of customs duty paid and not
remitted." (at p354)

2. The timber company was duly formed. Between 1st July 1959 and 30th June 1963 it imported into Australia certain plywood which it had produced in the Territory, and paid in respect of the importation customs duty which was not remitted. The Commonwealth has not paid the timber company any subsidy upon the exportation of the plywood from the Territory in those years, nor has it determined any amount or rate of subsidy in respect thereof. In these circumstances the plaintiff sues the Commonwealth in this Court for a clarification of the meaning of cl. 14, and by a case stated the parties submit for decision certain questions which reflect the respective contentions of the parties. (at p355)

3. Question 1 relates only to the relevance of certain facts, and the parties withdrew it during the hearing. (at p355)

4. Question 2 is whether by virtue of the Agreement the Commonwealth is obliged (i.e., is under a legal obligation owed to the plaintiff company though not to the timber company) to determine an amount or a rate of subsidy which will recoup to the timber company all the customs duty paid by it (and not remitted) on the importation of its plywood into Australia. The answer is obviously No. Language could hardly make it clearer than it is made by cl. 14 that equality of subsidy with duty paid and not remitted was not necessarily to be observed. The duty paid and not remitted was made the upper limit of the subsidy, but the lower limit was left to be determined by the Commonwealth. (at p355)

5. Question 3 is whether by virtue of cl. 14 the Commonwealth is obliged (again, to the plaintiff company) to pay to the timber company a subsidy which will recoup to the timber company all the customs duty paid by it on the importation of its plywood into Australia and not remitted. Again, the answer must be No. The Commonwealth has plainly retained a right to review and vary the amount or rate of subsidy, and such a reservation, as the Court observed in Australian Woollen Mills Pty. Ltd. v. The Commonwealth [1954] HCA 20; (1954) 92 CLR 424, at p 464 , "cannot be reconciled with the conception that the Crown has promised to pay a subsidy of definite amount". Question 4 (a) is asked on the assumption that both questions 2 and 3 are answered No. It is whether the Commonwealth is obliged by the Agreement to pay to the plaintiff a subsidy. The answer to the question as framed must necessarily be No, because the Agreement does not provide for the payment of any subsidy to the plaintiff. Presumably, however, "the plaintiff" in the question is a mistake for the timber company, and the question may be treated as if it were amended accordingly. Questions 4 (b) and (c) arise only if question 4 (a) be answered Yes, but to recite them will indicate some of the difficulties in the way of so answering question 4 (a). Question 4 (b) is whether the Commonwealth has an absolute discretion to determine the amount of a subsidy, including a discretion to determine a subsidy of a nominal amount or rate ; and question 4 (c) is, in effect, on what basis, if the Commonwealth has not such a discretion, the amount or rate of subsidy should be calculated. (at p356)

6. Cases in which a party's liability to make a payment is expressed as depending upon an exercise of discretion by that party have most often been cases of service agreements. The question there is usually whether the intention of the agreement is that the employer shall be entitled to decide whether any remuneration at all shall be paid and if so how much, or is that he shall be bound to pay at all events a reasonable remuneration. In other words, it is whether, on the one hand, the service is intended to be honorary unless the employer otherwise decides, or, on the other hand, a promise to pay a reasonable amount is to be implied. As may be seen from the case of Bryant v. Flight [1839] EngR 34; (1839) 5 M & W 114 (151 ER 49) , in which Parke B. dissented from the decision of the Court, it is not always an easy question to decide ; but the general principle is established which Vaughan Williams L.J. in Loftus v. Roberts (1902) 18 TLR 532, at p 534 , expressed in words that were subsequently adopted by Lord Wrenbury, as Buckley J., in Broome v. Speak (1903) 1 Ch 586, at p 599 . It is that wherever words which by themselves constitute a promise are accompanied by words showing that the promisor is to have a discretion or option as to whether he will carry out that which purports to be the promise, the result is that there is no contract on which an action can be brought at all. The succinct statement of the principle in Leake on Contracts, 3rd ed., p. 3 : "Promissory expressions reserving an option as to the performance do not create a contract" was approved by the Lord Justice, as it was later by Lord Wright in Hillas and Co. Ltd. v. Arcos Ltd. [1932] UKHL 2; (1932) 147 LT 503, at p 517 . (at p356)

7. In some cases, even of employment agreements, though it is clear that the employee is not intended to render his services gratuitously, the conclusion that "an option as to the performance" is reserved to the employer in respect of remuneration is inevitable because the employer's promise is limited to paying remuneration of such a kind that the concept of reasonableness cannot be applied because of the absence of any agreed basis of calculation. Such a case came before the Privy Council in Kofi Sunkersette Obu v. A. Strauss & Co. Ltd. (1951) AC 243 , where the terms of the agreement showed plaintly enough that the services of the employee were intended to be remunerated, but stipulated that the remuneration was to consist in part of a monthly allowance of fixed amount and in part of a commission which was left to the discretion of the employer without any indication of either basis or rate. The Judicial Committee held that a court could not award more than the fixed allowance without transferring to itself the exercise of the discretion as to commission which the agreement had vested in the employer. (at p357)

8. The present case is not dissimilar. A promise of a governmental subsidy is meaningless in the absence of a specification of some amount or some basis of calculation. It carries no implication that at least a reasonable subsidy shall be paid, for there is no general standard of reasonableness with respect to the quantum of a subsidy. The expression in cl. 14 of the Agreement before us, "a subsidy . . . of an amount or at a rate determined by the Commonwealth from time to time", indeed reflects the fact that a governmental or legislative determination of quantum is of the essence of a subsidy. The Commonwealth's promise is, in substance, a promise to pay such subsidy if any as may be decided upon from time to time by or under the authority of the appropriate repository of Commonwealth power, namely the Parliament. It therefore does not create any contractual obligation. (at p357)

9. The plaintiff sought some support for a contention to the contrary by reference to the fact that the Parliament of the Commonwealth approved the agreement by Act No. 40 of 1952 ; but the approval merely fulfilled a condition precedent which the Agreement itself set to its binding operation, and nothing in the Act exhibits an intention to impose upon the Commonwealth any more extensive legal obligation than the terms of the agreement themselves provided. It is to be observed that whereas s. 5 appropriated 500,001 pounds out of the consolidated revenue fund for the purpose of meeting "the liabilities of the Commonwealth arising under or out of the Agreement", there was no general appropriation in the Act on the footing that cl. 14 imposed a legal liability upon the Commonwealth. (at p357)

10. In my opinion the questions should be answered : 2. No ; 3. No ; 4 (a). No ; 4 (b). Does not arise ; 4 (c). Does not arise. (at p357)

TAYLOR AND OWEN JJ. The questions raised by the case stated are concerned with the meaning and effect of cl. 14 of the Agreement of 20th May 1952, made between The Commonwealth of Australia and Bulolo Gold Dredging Ltd. whereby it was agreed, inter alia, that a timber company, to be known as Commonwealth-New Guinea Timbers Ltd., should be formed and that the shares in the proposed company should be held by the contracting parties in the proportions specified. The objects of the timber company were to include the acquistion of timber rights in the Territory of Papua and the Territory of New Guinea and the harvesting of logs, the sawing and milling of timber, the peeling of veneer and the manufacture of plywood in the Territories. (at p358)

2. The manner in which the timber company was to be formed and controlled is set out in the Agreement which is an annexure to the case stated, and the facts relating to its formation and subsequent activities are as set out in the latter instrument. It is sufficient here to say that the plaintiff, formerly known as Bulolo Gold Dredging Ltd., seeks declarations concerning its rights under cl. 14 of the Agreement and, there being no dispute as to the facts, the case has been stated raising questions for the decision of this Court. (at p358)

3. Clause 14 is as follows:

"If customs duty is paid upon the importation into Australia
of the plywood, veneers, logs and other products of the Timber
Company, and is not remitted, the Commonwealth will pay
to the Timber Company a subsidy upon the exportation of
these products from the Territory for entry into Australia of
an amount or at a rate determined by the Commonwealth
from time to time, but the amount of subsidy paid shall not
exceed the amount of customs duty paid and not remitted." (at p358)

4. It is the plaintiff's primary contention that the effect of this clause is to subject the Commonwealth to an obligation to the plaintiff to pay to the timber company a subsidy, or subsidies, equal to the amount of customs duty paid by it upon the importation into the Commonwealth of the commodities referred to in cl. 14 less the amount of duty remitted. Alternatively, it claims that the Commonwealth became bound to the plaintiff to fix, from time to time, an amount or rate of subsidy and, thereupon, to pay a subsidy or subsidies to the timber company accordingly. On the other hand the Commonwealth denies that it is under any obligation to fix or pay any amount by way of subsidy. (at p358)

5. It may be noticed that in the four years from 1st July 1953 to 30th June 1957 the timber company paid customs duty on all of its products which were imported into Australia and received by way of subsidy sums the total amount of which equals the duty that had been paid. No duty was remitted during this period. During the next two years it did not pay duty on all of its products so imported. Apparently owing to an alteration in the appropriate customs tariff about two-thirds of its products were imported into the Commonwealth free of duty and, in respect of the balance, it paid duty amounting approximately to $312,602 and received by way of subsidies $280,000. During the remaining four years with which the case stated deals - from 1st July 1959 to 30th June 1963 - over seventy-five per cent of the timber company's products were imported into the Commonwealth free of duty and it paid customs duty on the balance. There was no remission of any part of this duty and no payments by way of subsidy were made in respect of the goods upon which duty had been paid. Whatever obligations, if any, cl. 14 might be thought to have imposed upon the Commonwealth one thing is, we think, certain. It is that there is no ground whatever for asserting that it was obliged to pay in subsidies amounts equal to the amount of customs duty paid by the timber company and not remitted. To give to the clause a construction having this effect would be directly in face of the plain wording of the clause for it is obvious that no subsidy was to be paid until after importation and payment of customs duty and the clause expressly provides that the amount of the subsidy paid shall not exceed the amount of customs duty paid and not remitted. (at p359)

6. It was sought to support this primary submission of the plaintiff by the contention that cl. 14 contemplates the determination, from time to time, of an amount or rate in advance of projected importations or series of importations and that the concluding words of the clause were merely intended to ensure that payment in accordance with such determinations should not, in the ultimate result, exceed the amount of duty paid and not remitted. But we can see nothing in the clause which purports to require that anticipatory determinations shall be made. Nor, even if this proposition were to be accepted, would its acceptance enable a construction to be adopted which would oblige the Commonwealth to pay subsidies equal to the amount of customs duty paid and not remitted. No doubt the clause was framed as it is bearing in mind that changing circumstances - including, as happened in this case, tariff changes - might render the payment of subsidies no longer appropriate. Further, we add that if it had been intended that the Commonwealth should be obliged to pay subsidies equal to the amount of duty paid and not remitted this could, and, no doubt, would have been expressed in simple language. (at p359)

7. The alternative submission, in substance, asserts that the clause creates two separate obligations. First of all, it is said, it casts an obligation upon the Commonwealth to consider and fix an amount or rate from time to time and, thereupon, an obligation to pay subsidies in accordance with the determination. But a promise to pay an unspecified amount of money is not enforceable where it expressly appears that the amount to be paid is to rest in the discretion of the promisor and the deficiency is not remedied by a subsequent provision that the promisor will, in his discretion, fix the amount of the payment. Promises of this character are treated by Pollock (Principles of Contract, 12th ed. (1946), pp. 38, 39) not as vague and uncertain promises - for their meaning is only too clear - but as illusory promises and he gives as illustrations Taylor v. Brewer [1813] EngR 265; (1813) 1 M & S 290 (105 ER 108) and Roberts v. Smith [1859] EngR 317; (1859) 4 H & N 315 (157 ER 861) . In the first of these cases the plaintiffs failed in their claim for remuneration for their assignor's services where he had performed work upon the basis ; (1813) 1 M & S 290 (105 ER 108) : ". . . that any service to be rendered by him should be taken into consideration, and such remuneration be made as should be deemed right." In the second case the plaintiff failed in his claim for remuneration for services rendered where the terms upon which he was engaged provided that (1859) 4 H & N, at pp 320, 321 (157 ER, at p 863) : "It is distinctly agreed and understood that if the company is not formed and carried out, that part of your letter which alludes to your salary be null and void, and that at the expiration of three months it is entirely left to me" (the employer) "to give unto you such sum of money as I may deem right as compensation for labour done in the event of the company not being carried out." The first-mentioned case was referred to by Cussen J. in Beattie v. Fine [1925] VicLawRp 47; (1925) VLR 363 , where he had to consider the rights of a lessee under a clause in a lease which provided for an option of renewal for a further term of five years "at the rental to be agreed upon by the lessor". His Honour regarded the clause as illusory and rejected the submission that he should treat it as containing two separate promises (1925) VLR, at p 368 :

". . . one of which gave the lessee the right to exercise the
option without naming any rental, and that, in the absence
of agreement by the lessor, the result would be that the
lessee would be entitled to retain possession of the land and
be under an obligation to pay as rent either (1) the amount
which a jury or the Court should fix as reasonable, or (2) the
amount which a jury or the Court should fix as that which
the lessor, acting bona fide, would or ought to have agreed
to."

". . . the authorities seem to show that no contractual
obligation at all attaches to the lessor in such a case as this.
The matter is discussed under the heading 'Illusory promises'
in Pollock on Contracts, 9th ed., at p. 49, where several cases
are cited, and the weight of authority seems to be against
there being any such obligation."

8. We would answer the questions 2, 3 and 4 (a) raised by the case stated in the negative. (at p361)

MENZIES J. This special case is concerned with the meaning and application of cl. 14 of the New Guinea Timber Agreement between Placer Development Ltd. (formerly Bulolo Gold Dredging Ltd.) and the Commonwealth of Australia dated 20th May 1952. (at p361)

2. The Agreement is obviously one which was intended to create legal rights and obligations. Thus cll. 1 and 2 are as follows :

"1. This Agreement shall have no force or effect and shall
not be binding on either party unless and until it is approved
by the Parliament of the Commonwealth.
2. This Agreement shall commence and come into full
force and effect upon the date upon which it is so approved."

3. In cases where it might be thought that something less than a definite legal commitment on the part of the Commonwealth was intended the appropriate language was used to indicate the character of the obligation. Thus, for instance, by cl. 9 (2) the Commonwealth undertook to do no more than use its best endeavours to do something. Similarly by cl. 7 the Commonwealth undertook to take all necessary steps and do all in its power to ensure the grant of forest permits. By cl. 11 the Commonwealth undertook to "look favourably" upon proposals for the use of replanted forest. In cl. 12 the Commonwealth undertook to "take all necessary steps and do all in its power" to ensure the grant of forest permits. Where no commitment was intended this was made clear so in cl. 13 it was provided that "The Commonwealth does not enter into any commitment with the Company" regarding certain timber "but will consider any proposal for that timber to be harvested under a further permit". (at p362)

4. The particular clause with which we are concerned is as follows :

"14. If customs duty is paid upon the importation into
Australia of the plywood, veneers, logs and other products
of the Timber Company, and is not remitted, the
Commonwealth
will pay to the Timber Company a subsidy upon the
exportation of these products from the Territory for entry
into Australia of an amount or at a rate determined by the
Commonwealth from time to time, but the amount of subsidy
paid shall not exceed the amount of customs duty paid and
not remitted."

5. Four questions were submitted for answer by the Court but the first question was abandoned leaving the following questions for consideration :

"2. Whether the defendant is obliged by the terms of the
said Agreement from time to time to determine an amount
or rate of subsidy which will recoup the Timber Company all
customs duty paid by it (and not otherwise remitted) upon
the importation into Australia of plywood produced by the
Timber Company?
3. Whether the defendant is obliged by virtue of Clause 14
of the said Agreement to pay to the Timber Company a subsidy
of such an amount, or computed at such a rate, as will recoup
the Timber Company all customs duty paid by it (and not
otherwise remitted) upon the importation into Australia of
plywood produced by the Timber Company?
4. (a) If the answer to question 2 and to question 3 is "No"
was the defendant obliged by the terms of the
agreement
to pay to the plaintiff a subsidy?
(b) If the answer to (a) is "Yes" has the defendant an
absolute discretion to determine the amount of
subsidy including a discretion to determine a subsidy
of a nominal amount or rate?
(c) If the answer to 4 (a) is "Yes" and to 4 (b) is "No"
on what basis should the amount or rate of such
subsidy be calculated?" (at p363)

6. The plaintiff's principal contention was that cl. 14 requires the Commonwealth, when customs duty is paid upon the importation of the company's product into Australia and that duty is not remitted, to pay a subsidy equal to the duty so paid and not remitted. This contention is clearly untenable and needs no further discussion. How can a clause which provides that the amount of subsidy shall not exceed a particular amount be read as requiring a subsidy to equal that amount? Had the result for which the company contended been intended it could easily have been stated. I have no doubt that questions 2 and 3 must be answered "No". (at p363)

7. Question 4 raises problems of greater difficulty. The language is plainly that of legal obligation. The conditions giving rise to obligation upon the Commonwealth are precisely stated ; it is provided that "the Commonwealth will pay . . . a subsidy . . . of an amount or at a rate determined by the Commonwealth from time to time" ; and an upper limit to the subsidy is fixed. (at p363)

8. It appears to me that two interpretations of the clause are open. First that it creates no legal obligation at all because what it provides is an illusory promise on the part of the Commonwealth. The second is that it does create an obligation when the conditions stated are fulfilled (1) to determine a subsidy within the limit and (2) to pay the subsidy determined. (at p363)

9. According to the former interpretation, if the Commonwealth were to determine a subsidy upon imported products it would still be under no obligation to pay the subsidy so determined ; according to the latter the Commonwealth's obligation is both to determine what the subsidy is to be and then to pay it. (at p363)

10. The latter interpretation is the one which commends itself to me. It is true that the Commonwealth is at large in determining the subsidy from time to time but it seems to me that the character of the provision would have been no different had it gone on to require the Commonwealth to take specified considerations into account in determining the subsidy. In such a case the form and amount of the subsidy would still be in the discretion of the Commonwealth. The essential question seems to me to be whether a promise to make a determination does, in the circumstances, give rise to an obligation to do so. (at p364)

11. There are, of course, cases such as Taylor v. Brewer [1813] EngR 265; (1813) 1 M & S 290 (105 ER 108) and Roberts v. Smith [1859] EngR 317; (1859) 4 H & N 315 (157 ER 861) , where promises have been regarded as too illusory to support proceedings. These cases are, however, distinguishable. In the former the plaintiff, who had no more than a resolution "that any service to be rendered by him should be taken into consideration, and such remuneration be made as should be deemed right", failed in assumpsit to recover compensation for work done because, it was held, that the resolution imported that the committee were to judge whether any remuneration was due. In the latter, in an action for work and labour done, the plaintiff failed because he had agreed that any work which he did in the circumstances which occurred should give him no right to salary and that in such an event it should be left entirely to the other party to give such sum as he may deem right as compensation for labour done. The decision of the court was no more than that the plaintiff had failed to make out that the defendant was indebted to him. Furthermore, to refuse to accord any legal consequence to cl. 14 would seem to me to be flatly opposed to Bryant v. Flight [1839] EngR 34; (1839) 5 M & W 114 (151 ER 49) , where Abinger C.B. and Alderson B. - true it is against the dissent of Parke B. - decided that money was recoverable under the following promise : "I hereby agree to enter your service as a weekly manager, commencing next Monday, and the amount of payment I am to receive I leave entirely for you to determine." (at p364)

12. In my opinion, however, the questions which we have to determine are not to be decided by reference to authorities such as those referred to above. What we are concerned with is the meaning of cl. 14 in the context of the whole Agreement. To my mind the clause does require the Commonwealth to fix a subsidy and then to pay the subsidy fixed. Here we are not concerned with whether the Commonwealth is under any obligation to pay money in the absence of a determination fixing it and I would not, of course, decide that if the Commonwealth did not fix a subsidy that a reasonable subsidy, or indeed any subsidy, became payable. Where, however, the question is whether cl. 14 does impose a contractual duty upon the Commonwealth to fix a subsidy in the circumstances stated so that the obligation to pay would thus arise, the problem is substantially one of interpretation and, in my opinion, the answer should be "Yes". I cannot understand the parties, at the time of making the Agreement, attributing any different meaning to it. Nor, either on principle or authority, is it necessary to decide the clause as so understood is illusory. I do not regard a promise by the Commonwealth to determine a subsidy, not exceeding a specified amount, if and when certain events occur, as illusory. The whole point of the clause is to require the Commonwealth to determine what subsidy it will pay in the circumstances stated. When the language of legal obligation has been used, as is the case here, it is only stern necessity that would persuade me that it is worthless. Neither in principle nor in authority do I find that necessity. If the right to obtain a discretionary determination were illusory there would be a substantial reduction in the use of the writ of mandamus. To my mind the promise of the Commonwealth to determine what subsidy should be paid was both significant and valuable and was not a mockery. (at p365)

13. I do find some difficulty in the actual terms of question 4, and, for my own part, I would answer the question generally by saying that the answers to questions 2 and 3 being "No" the Commonwealth is obliged by the terms of the Agreement with the plaintiff (a) to determine what subsidy it will pay to the timber company upon the importation into Australia of the products referred to in the clause when duty is paid upon such importation and is not remitted, and (b) to pay to the timber company the subsidy so determined subject to parliamentary appropriation for that purpose. (at p365)

WINDEYER J. The New Guinea Timber Agreement was expressly made subject to the approval of Parliament. Until it was approved, it was to have no force or effect and not to be binding on either party. It was approved by the New Guinea Timber Agreement Act 1952. It appears as a schedule to the Act. The Act further provided (s. 5) that :

"There is payable out of the Consolidated Revenue Fund,
which is appropriated accordingly, for the purpose of meeting
the liabilities of the Commonwealth arising under or out of
the Agreement, the sum of Five hundred thousand and one
pounds." (at p365)

2. This statutory approval of the Agreement has I consider several important consequences. At one period, 1953 to 1957, the Commonwealth paid the timber company sums by way of subsidy which were equivalent to the total amount of duty it had paid on the importation of its products into Australia. Clause 14 of the Agreement was taken to authorize this. If it were not for the statutory backing of the Agreement, I would gravely doubt whether the Commonwealth would have been justified in reimbursing the company in this way. I do not think that the Government could, without statutory authority, validly promise a person that he would be released from any taxes or duties levied by Parliament. Whether the dispensation was to be by not collecting the tax or by returning to the taxpayer the amount collected the promise would, I think, be equally improper in a constitutional sense. Lord Justice Scrutton's reminder to the London County Council of the fate of James II comes to mind : R. v. London County Council ; Ex parte Entertainments Protection Association (1931) 2 KB 215, at p 229 . However, Parliament, by its approval of the Agreement, has prevented any doubts arising on that score. (at p366)

3. The statute also makes irrelevant in this case the general propositions in cases commencing with Churchward v. The Queen (1865) LR 1 QB 173 , which were considered by this Court in New South Wales v. Bardolph [1934] HCA 74; (1934) 52 CLR 455 . And it disposes, I think, of any idea that the Agreement was not intended by the parties to create a relationship giving rise to obligations enforceable by law. (at p366)

4. That such an intention is of the essence of a valid contract has been asserted in English cases for a long time past, certainly since Lord Atkin, then Atkin L.J., said so in Balfour v. Balfour (1919) 2 KB 571, at p 578 , and in Rose and Frank Co. v. J.R. Crompton and Bros. Ltd. (1923) 2 KB 261, at p 293 . Recent examples of acceptance of the doctrine and the repetition of the phrases in which it has been expounded are to be found in Jones v. Padavatton (1969) 1 WLR 328 and Ford Motor Co. Ltd. v. Amalgamated Union of Engineering and Foundry Workers (1969) 1 WLR 339 . I may mention here that in the former of these two cases Danckwerts L.J. said that the principles involved are very well discussed in Cheshire and Fifoot on Contract, 6th ed. (1964), at pp. 94-96, and that leads me to mention that I have found helpful the corresponding passages in the second (1969) Australian edition of that work by Messrs J.G. Starke and P.F.P. Higgins, pp. 189-196. Professor Williston has criticized the idea that a common intention of the parties to create legal relations is a necessary element in the formation of a contract. I may add that another distinguished American writer, Professor Corbin, in his work The Law of Contracts (revised ed. 1963), vol. 1, p. 137, put the matter as follows:

"In order to make an enforceable contract, it is not necessary
that the parties should consciously advert to legal relations,
but it is necessary that they should not express an intention
to exclude legal relations."

"If there was an intention on the part of the Government
to assume a legal obligation, one would certainly have expected
statutory authority to be sought."

5. The result can, I think, be best described in the words of Dixon J. in P. J. Magennis Pty. Ltd. v. The Commonwealth [1949] HCA 66; (1949) 80 CLR 382 . His Honour was in that case a dissentient from the majority of the Court, but the passage I am about to quote is I think of a general character, with particular application to the present case. His Honour said (1949) 80 CLR, at p 410 :

"A legislative authority of this kind removes possible
objections based on such authorities as Commercial Cable Co.
v. Government of Newfoundland
(1916) 2 AC 610
, and The Commonwealth v.
Colonial Ammunition Co. Ltd.
[1924] HCA 5; (1924) 34 CLR 198
; it puts beyond doubt the
authority of the signatory to execute the instrument on behalf
of the Commonwealth ; and it secures for the executive
government parliamentary approval of the transaction. But
it goes no further. It does not otherwise change the legal
character of the instrument or of the transaction it embodies." (at p368)

6. The question thus becomes simply one of the proper construction of cl. 14 of the Agreement. It is to be read as one term in a contract valid as a whole. And it is to be read bearing in mind a statement of Griffith C.J.: "I do not know of any ground in reason or authority for applying different canons to the construction of contracts between the Crown and a subject and contracts between subject and subject" : O'Keefe v. Williams [1910] HCA 40; (1910) 11 CLR 171, at p 193 . My view of the meaning and effect of the clause accords, generally speaking, with that which my brother Menzies takes in his judgment which I have read : but, as I diverge at one point to follow a somewhat different path from his, I shall state my reasons for myself. (at p369)

7. Clause 14 as I read it embodies a positive promise by the Commonwealth to pay to the timber company a subsidy upon the importation into Australia of its "plywood, veneers, logs and other products" (which I take to mean other products of a like kind). A condition precedent of this obligation is that customs duty is paid on such products and not remitted. The subsidy is to be "of an amount or at a rate determined by the Commonwealth from time to time, but the amount of subsidy paid shall not exceed the amount of customs duty paid and not remitted". It is apparent that, for reasons of Government policy approved by the Parliament, it was thought desirable to alleviate by means of a subsidy the burden of customs duties. But, although the payment of customs duty was made the occasion and condition for the payment of subsidy, there is no promise that the subsidy to be paid must be the monetary equivalent of duties paid - quite the contrary : the only stipulation is that the subsidy must not be more in amount than the amount of duty paid. What it was to be was to be determined by the Commonwealth from time to time. (at p369)

8. The discretion given to the Commonwealth to determine the quantum of subsidy is said to make the Commonwealth's promise "illusory", or, as it was also said, to make cl. 14 an "illusory contract". Very distinguished writers on the law of contracts have adopted these terms as categorematic. Nevertheless I have the temerity to question the terminology in its application to this case. The expression an illusory promise is not, as I understand it, here used to mean an illusion that there was a promise : it means a real promise but one which is devoid of legal consequence. It is illusory, not because it is not a promise, but because it deceptively creates the illusion of a contract where there is none. By an illusory contract, on the other hand, what is meant is a bilateral transaction having some semblance to a contract, but not in truth a contract because not capable of creating legally enforceable rights and obligations. The proposition that the undertaking by the Commonwealth to pay a subsidy is "illusory", and the promise therefore ineffectual in law, has as its basis that the amount of the subsidy is to be whatever amount the Commonwealth determines. (at p369)

9. In Loftus v. Roberts (1902) 18 TLR 532, at p 534 , Vaughan Williams L.J. said :

"Wherever words which by themselves constituted a promise
were accompanied by words which showed that the promisor
was to have a discretion or option as to whether he would
carry out that which purported to be the promise, the result
was that there was no contract on which an action could be
brought at all. The doctrine was an old one. In Leake on
Contracts, 3rd. ed., p. 3, it was expressed thus : - 'Promissory
expressions reserving an option as to the performance do not
create a contract'."

"This was throwing himself upon the mercy of those with
whom he contracted ; and the same thing does not
unfrequently
happen in contracts with several of the departments
of government."

10. The plaintiff replied to the letter saying that she appreciated the offer. Bonuses were paid to her for six years. Then the defendant refused to pay on the grounds that there was no firm promise to pay anything and that any promise was too vague and general to be enforced. (at p371)

11. The Court of Appeal, reviewing the circumstances, held that the defendant had bound himself to pay something, provided there were profits. The amount to be paid would, Lord Evershed said, and with this Romer L.J. agreed, be "a reasonable sum, that is, a sum arrived at so as to bear a reasonable relationship to the trading profit" (1954) 1 All ER, at p 486; (1954) 1 WLR, at p 405 . Denning L.J. expressed it as "an amount within his" (scilicet the defendant's) "reasonable discretion, that is, it would be the amount which a fair and just man would pay in the exercise of a reasonable discretion" (1954) 1 All ER, at p 486; (1954) 1 WLR, at p 406 . The actual amount to be paid was treated by the court in that case as equivalent to a quantum meruit by way of additional remuneration above the plaintiff's fixed salary. An amount was agreed between the parties and judgment given accordingly. The approach resembled in some respects that taken by the House of Lords in Way v. Latilla (1937) 3 All ER 759 . The Tasmanian case of Ikin v. Cox Bros. (Aust.) Ltd. (1929) 25 Tas LR 1 can usefully be compared. (at p371)

12. When an agreement produces a liability to pay some sum of money, and the amount is not determined by the agreement, there is ordinarily no obstacle to saying that a reasonable sum was intended : and, if what is a reasonable sum can be determined by a court, a judgment for that amount can be given. If what has to be determined is a reasonable price for a thing sold or a quantum meruit for services rendered a jury can determine it. It is not in such cases a precise sum, but any sum which lies within what a court considers the limits of reason. That is trite. But the principle necessarily depends upon there being some criteria by which reasonableness can be measured or tested. The market place and what was paid in other cases may provide a measure, and fix an amount which reason requires be thus ascertained. "It is perfectly true", said Bowen L.J. in Davies v. Davies (1887) 36 Ch D 359, at pp 392, 393 ". . . that in many contracts where you want a measure to be applied to a particular subject matter, you leave the measure to be supplied by reason. There is many a contract for example which, instead of fixing the particular time for payment, provides that the time is to be fixed by what is reasonable in the trade or in the business". (at p372)

13. But when there is no trade or business, market or experience to which to refer, a difficulty arises : a jury cannot say what is a reasonable sum if there be no weight or measure they can apply, and which a court could use to test whether their verdict is or is not within the bounds of reason. A court could not say whether any sum which the Commonwealth determined to pay the timber company was or was not a reasonable subsidy. There are no objective criteria of the reasonableness of a subsidy. A court could not say on what basis or with what considerations in mind the Commonwealth should determine the subsidy it promised by cl. 14. That would be to make a contract for the parties different from that which they made by which the decision was to rest with the Commonwealth. It would mean "transferring to the court the exercise of a discretion vested in the respondents" (here the Commonwealth), to use the words of the Privy Council in Kofi Sunkersette Obu v. A. Strauss & Co. Ltd. (1951) AC 243, at p 250 . But to my mind it does not follow that because the court cannot take over the discretion which the Commonwealth undertook to exercise, the Commonwealth is released from its undertaking. (at p372)

14. For these reasons I am not prepared to say that the provisions of cl. 14 do not amount to a contract. In my opinion they do. But it is not a contract which the timber company can enforce ; for it was not a party to the contract. Indeed it was not even in existence when the contract was made. The contract was between the plaintiff, then known as Bulolo Gold Dredging Ltd., and the Commonwealth. The plaintiff could in my opinion enforce it by an action for damages if it be broken, or perhaps by proceedings for specific performance : cf. Beswick v. Beswick [1967] UKHL 2; (1968) AC 58 . It may be that neither remedy would produce any substantial advantage for the plaintiff, or indirectly for the timber company. Nevertheless, when the elements of offer and acceptance and resulting promise supported by consideration be present, I prefer to say there is a contract, albeit, in some cases, one for the breach of which damages cannot be quantified. The contractual obligation of the Commonwealth to the plaintiff was to decide what sum in its discretion it considered, having regard to all considerations which weighed with it, commercial and political, it would be reasonable to pay the timber company by way of subsidy ; and, having decided it, to pay it. I base this conclusion simply on the words of cl. 14, not by any attempt to match them against words which were in question in any other cases. Whatever may have been the position in early nineteenth century times when contract law was still influenced by recollections of assumpsit, we can I think take our stand on broader ground today. An often quoted sentence from Lord Tomlin's judgment in Hillas & Co. Ltd. v. Arcos Ltd. [1932] UKHL 2; (1932) 147 LT 503, at p 512 , will bear quotation once again :

"The problem for a court of construction must always be
so to balance matters, that without violation of essential
principle the dealings of men may as far as possible be treated
as effective, and that the law may not incur the reproach of
being the destroyer of bargains."

15. A basic assumption of our law is that bargains are to be kept. This applies today to the contracts which the Crown makes with a subject as forcefully as it does to contracts between subject and subject. That a court cannot determine the amount to be paid as subsidy is, in my view of the case, no reason for the Commonwealth not performing its promise to do so. If it does not exercise the discretion it contracted to exercise the plaintiff might recover no more than nominal damages. But I do not think that means that, using the language of question 4 (b), the Commonwealth has under cl. 14 an absolute discretion "to determine a subsidy of a nominal amount or rate". If that means a sum which is so small and insignificant that it does not answer the description of a subsidy, the answer to that question must I think be "No". (at p373)

16. A subsidy, by its derivation from the Latin subsidium means an aid or help. The word is no longer used in its early legal sense of a grant to the Crown. It ordinarily means today not aid given to the Crown but aid provided by the Crown to foster or further some undertaking or industry. A subsidy was defined in America fifty years ago as "a legislative grant of money in aid of a private enterprise deemed to promote the public welfare" : Shumaker and Longsdorf, Cyclopedic Law Dictionary. This I take to be, broadly speaking, the sense in which the word is currently used in Australia, as for example in the Nitrogenous Fertilizers Subsidy Act 1966 (Cth). A merely nominal sum, not of any value at all to the timber company, would I think belie the word subsidy : it would be illusory in a true sense of that word. But, apart from that, the amount to be paid under cl. 14 of the Agreement is an amount which the Commonwealth considers in all the circumstances to be reasonable. As to this its discretion is absolute, unfettered and not questionable in legal proceedings. The amount which the Commonwealth determines as a subsidy may be large or small. But I cannot agree that an undertaking to pay something is met by paying nothing or some trifling sum such as a dollar or a cent. (at p374)

17. The contracts which the Crown makes can only be fulfilled if Parliament appropriates moneys necessary for their performance. Therefore, in the present case, if the appropriation by the Act of 1952 has been exhausted, a further appropriation would be necessary to provide whatever sums the Commonwealth, pursuant to cl. 14 of the Agreement, determined should be paid. But that is not a condition of the validity of the contract : New South Wales v. Bardolph [1934] HCA 74; (1934) 52 CLR 455 . (at p374)

18. I would answer the questions as follows : 2. No ; 3. No ; 4. (a) In the conditions stated in cl. 14 the Commonwealth was obliged to determine a subsidy and pay the amount determined ; 4. (b) Yes, an absolute discretion to determine the subsidy : but not a discretion to determine an illusory subsidy ; 4. (c) Unnecessary to answer. (at p374)

ORDER

Questions 2, 3 and 4 (a) raised by the case stated answered as follows: -

2. No.
3. No.
4 (a). No.

Order that the plaintiff pay the defendant's costs of and incidental to the case stated.