Case name: Upper Hunter County District Council v Australian Chilling & Freezing Co Ltd
- Citations: [1968] HCA 8; (1968) 118 CLR 429
- Decision Date: 8 March 1968
- Court: High Court of Australia
- Judges: Barwick C.J., McTiernan, Kitto, Menzies and Windeyer JJ.
- Areas of law: Contract terms; Certainty and vagueness
Case Background (Upper Hunter County District Council v Australian Chilling & Freezing Co Ltd)
The Upper Hunter County District Council supplied electricity in bulk. The Australian Chilling & Freezing Co Ltd entered into a contract on 18 December 1959 with the Council for a bulk supply of electricity at its works in Aberdeen.
The contract had provisions for automatic price adjustments based on changes in coal prices and basic wages (Clause 2). Clause 5 allowed the Council to vary charges if its costs changed “in other respects than as has been hereinbefore provided” (i.e., outside of wages and coal prices).
In 1963, the Council issued a notice to increase charges under Clause 5. The Company disputed this and invoked arbitration (as permitted under the agreement, Clause 18).
The arbitrator initially accepted the Council’s cost variation but referred a legal question to the Supreme Court of NSW.
The Supreme Court of NSW held Clause 5 void for uncertainty, meaning the Council couldn’t use it to increase prices. The case was appealed to the High Court of Australia.
Key Legal Issue
Was Clause 5 too vague or uncertain to be enforceable?
The exact wording of Clause 5 …………
“It is agreed that during the term of this agreement if the Supplier’s costs shall vary in other respects than as has been hereinbefore provided the Supplier shall have the right to vary the maximum demand charge and energy charge by notice in writing to the Purchaser given not less than 14 days before the commencement of any month after the date hereof such varied rates to take effect from the commencement of that month.”
High Court’s Judgment in Upper Hunter County District Council v Australian Chilling & Freezing Co Ltd
The High Court of Australia unanimously reversed the Supreme Court’s decision, holding that Clause 5 is not void for uncertainty.
While it may lack detailed precision, the term “supplier’s costs” is sufficiently clear and constitutes a workable and meaningful standard which is common in business contracts. The clause can be interpreted to mean variations in operational and other supply-related costs beyond wage and coal price changes. In other words, the phrase “supplier’s costs” referred to the costs identifiable of supplying electricity, including operational and maintenance costs, and could be reasonably assessed.
Commercial contracts should not be invalidated due to difficulty in precise interpretation if general meaning is clear.
Further, in the given case, there were mechanisms (like arbitration) to resolve disputes.
Barwick C.J. quoted as under:
“…………. a contract of which there can be more than one possible meaning or which when construed can produce in its application more than one result is not therefore void for uncertainty. As long as it is capable of a meaning, it will ultimately bear that meaning which the courts, or in an appropriate case, an arbitrator, decides is its proper construction: and the court or arbitrator will decide its application.” (at p437)
Findings and Orders
The arbitrator was right to find that the Council’s costs had increased in valid ways.
The Council was therefore entitled to raise the energy charge from 1.9025d to 2.3125d per kWh as of September 1, 1963.
However, the demand charge increase was not justified.
The appeal was allowed, and the arbitrator’s original findings were upheld.
References:
https://www.austlii.edu.au/cgi-bin/viewdoc/au/cases/cth/HCA/1968/8.html
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