Parties involved
In this case there are two parties involved, they include, the Council of Upper Hunter District which is a statutory company for supplying electricity and a firm by the name Chilling and Freezing Co Limited located at Aberdeen.
The Council of Upper Hunter District was created under the Local Government Act, 1919 (N.S.W), and it recives bulk electricity supply from two successively producing sources, they include, Mepco Pty Limited and Muswellbrook Coal Co Limited located at Muswellbrook.[1] It reticulated the electricity to some of the municipal areas of Aberdeen, Scone, and Muswellbrook and further did bulk sub-selling of electricity. Besides, it involved some of the activities associated with the trading of electricity.
Facts of the contract
A company by the name Chilling and Freezing Co Limited located at Aberdeen made an intent to get electricity in bulk supply. The fact was that on 18th December 1959, the company made a contractual agreement with the Council for the supply.[2] The Council guaranteed to supply electricity to the designated point as from the time the agreement was made up to October 1st, 1973 or make alternating current phases at a certain voltage or frequency with some allowance of tolerance as agreed mutually. The supply of electricity was to be on a continuous sequence with the quantity required by the company at a given time within an established minimum quantity.[3]
The civil matter between the contracting parties
However, there were disputes based on the payment price of the electricity between the Council and the Company and these prices were set on clauses. The issue of concern was about the price variations of electricity charges that the Council had made by sending a notice to the Company. The company had to file a complaint to the Australian High court for a hearing. The claims made by the company was in conjunction with the agreement made previously with the Council that the new electricity charges were not part of the agreement. The clauses complied to in this case were clause 2, 5 and 18 of the arbitration act. This is a civil matter that involves court proceedings for the claims on wrongful act caused by the Council and as well as confining the company to executes its legal duties as stipulated on the original agreement.
Main legal issue
On August 9th, 1963, the Council issued a notice to the Company claiming that the costs are varying, as a result, various aspects that are not related to the agreement made on supply and therefore provided notification of the changing charges both on energy and demand charges.[4] Also, the increased specific levies will be implemented from September 1st, 1963 and will take effect immediately. The company was against the right expressed by the council about the variation of the charges and the company proposed to refer to clause 18 regarding agreement arbitration. The New South Wales’ court was contacted for a consultation to sought a stated case by the arbitrator pursuant concerning the arbitration act of 1902, s19 (N.S.W). The supreme court gave a solid response about the arbitrator by referring cl.5 that the contract was void and meaningless for uncertainty.[5] The court rejected the opinion expressed by the Supreme because it didn’t belong to the judgment decree and any form order that will alter the rights by only being consultative and neglecting to bind upon the arbitrator or the parties. The arbitrator, therefore, had made a stated case conclusion from his award, hence he sought to provide answers to the questions:
- Is clause 5 annulled for uncertainty?
- If the given answer to number one is No in relation to the facts found would I be entitled to justify that the costs of the supplier had changed in relation to the contemplations contained within the definition of the clause?
- If the given answer to number one is No and am I allowed to make the conclusions of fact that I had made originally before the offered answers by the supreme court (court of appeal) concerning the councils’ entitlement within cl. 5 to vary or increase charges to the plaintiff to 2.3123d. for every kilowatt from September 1st, 1963.
Alternative awards were offered depending on how the first questions were answered negatively or affirmatively. Instances where the first question is responded to negatively and the other two affirmatively, therefore, the court awarded (1), the Council was not under the law support to increase the charge demand at all and secondly, it was as well as awarded (2), the council was allowed to raise its charges in September 1st, 1963 as from 1,9025d to 2.3125d for every kilowatt. However, if the response to the first questions was responded to affirmatively, the award in this regard will be that the council was not allowed to increase its charge of demand or energy charges.
Barwick CJ
According to Barwick, the case before the supreme court affirms that the opinion was expressed formerly in the context of uncertainty of clause 5 and the intent of the opinion.[6] The first question was answered affirmatively and in the event subsequent questions were unanswered. Consequently, there was no entitlement for the Council to raise its charges at all. The council decided to make an appeal for further hearing of the same based on the decisions made by the court that had gone contrary to the expectations of the council.
According to cl.5 that states supply costs can vary as per other aspects, Barwick CJ in his mind thought it cannot be referred to cl.2 that provides a different dimension of variation and as well as the changes of electricity price. In addition, the meaning and validity of cl.5 can be viewed from the aspect of footing by the council’s electricity supply costs rather than taking the view of price variations that it claims for payment in accordance to the incurred costs of generating electricity from its source. The price variation of receiving bulk electricity that results from the urge to get it during agreement that is based on currency from a different generating source can be considered under cl.5.
Therefore, the contract created between the Company and the Council provides resolution for any kind of question regarding the constitution of the Council’s supply cost, such as the arbitrator’s decision whose judgement regarding on whether there was any change in the expenditure on the items which were incorporated. However, it was found that the agreement on the supply cost was binding and final according to the conditions contained in the Arbitration Act.[7] Consequently, if the cost of supply was meaningless, the then clause on arbitration will not be saved. But cl.5 provides a particular criterion upon which the part’s difference based on the price variation in the propriety charges increase can be solved.[8]
The court’s decision
As stated in the judgement that the company made an agreement not to pay for the increased fixed charge and had no mandate to lower the Council’s costs which was considered as improvident in that only feasible words would serve a structure in that context. It should be noted that despite the fact that the council is a statutory firm that supplies electricity and there is no any other enfranchised source that supplies electricity within the locality of Aberdeen premises, then it can be concluded that the arbitration clause denied both finality and arbitrariness on the decision made by the council to raise charges.
Barwick CJ further held that it remains undeniable that the council may incur other costs besides the one incurred in the supply, i.e. costs incurred from the reception point of the electricity to the destination intended for delivery. Thus the quantification of all these costs should remain uncertain. However, this does not guarantee its invalid for uncertainty. If the Council will provide the court with a capable meaning the court will treat it as a proper construction. Construction in this context refers to ascertaining and implementing the parties’ intentions. According to Lord Wright, the language was so unclear and unqualified of any precise and definite meaning, so that there will be no attributions of any intention to any of the parties that will be annulled of uncertainty.[9]
Barwick further asserts that the term ‘Supply cost’ may lead to various specific difficulties, however, in this sense they are certain. He also added that a contract that is built on a cost bridge may not be annulled for uncertainty or ambiguous or meaningless. There will be many arguments that may tend to justify of whether certain items may be included in the cost, but the term cost is certain in that, it provides a criterion by referring the rights of the parties entering into a contract, and if this is not done by the parties then it will be done by the court. In the context of this case, the contract gave means for having a solution for uncertainty by using the arbitrator as the reference. Therefore, if the terms had no meaning, it follows that the procedures for arbitrations may not give room for the agreement.
Significance of the court decision
The company was able to get a bulky supply of electricity with no extra charges that might arise from the changes of electricity supply from the source. In addition, the court decision expressed the legal rights of the contracting parties by engaging various clauses to come up with a substantive decision.
- Promissory estoppel
The doctrine of promissory estoppel in contract law is concerned with situations whereby the contracting party makes promises that are at variance to the existing original contractual terms and when the other party terminates the contract in reliance on a certain promise. In this context, it follows that promissory estoppel bars an individual capability from going back to make another inducement regarding signing a new contract. secondly, the principle affects certain binding promises even if they might have not been given considerable support.[10]
Promissory estoppel is better illustrated in the case of Metropolitan Railway v Hughes (1877) case 439. Six months were offered to a tenant by his landlord to do a property repair or else have a forfeiture risk. During the six months, bargaining conversations were initiated between the tenant and the landlord concerning the sale of the lease. The conversations failed and the tenant failed to execute his obligation after the six months of negotiations. The landlord opted to enforce the forfeiture. The court decided that the landlord controlled the conduct of the tenant to believe that the forfeiture risk will not be enforced.[11]
According to the case of High Tree House Ltd, the landlord made a promise of receiving half the ground for renting from the tenant on the rationale that it was very difficult to find tenants during the period of war. After the war, the houses were occupied, subsequently, the landlord had outstanding arrears in the war period that led him to be sued. The court applied the principle of promissory estoppel. The court had found out that the landlord had no entitlement for any arrears dung the wartime.[12]
When there is a contractual relationship between parties agreeing, promissory estoppel is prevalently being used in this context. That is if the relationship is legal between promisor and promise. There has been a concern about whether the doctrine of promissory estoppel is applicable in pre-contractual relationships. According to Lord Denning in the case of Carr V Brinkom Investments (1979), he asserted that promissory estoppel can emerge from promises made the contracting parties. A similar expression was given by Donaldson in the case between Michael Jackson and Durham Fancy Goods (1969) QB 839 whereby, the court justified that contractual relationship is inappropriate in the existence of a legal relationship which would consequently lead to circumstances associated with an increase of penalties and liabilities.
The doctrine of promissory estoppel works within a certain range of requirements, the first one being, the promisor must provide an unambiguous and clear statement that there will be no legal rights enforcement. The promise might take the dimension of implied or express.
Secondly, the promise made must be acted upon by the promisor to the promisee. The doctrine of promissory estoppel emerges in instances where the promisee in-dependence suffers damages based on a certain promise made by promisor as in Briscoe V Ajayi (1964) or instances where the promisee alters his position due to dependence on the actual promise, especially where there is no damage. Therefore, promissory estoppel plea to succeed, the promisee circumstance must change.
Thirdly, the promissory estoppel requires that there should be enforced against the promisor. It follows that it can only be used as based on defense and cannot be used as a tool or to specific as a sword. In the case Combe v Combe (1951), the court concluded that promissory estoppel should not be applied as underpinning action but rather looking at the basis under which contracts are being formed will be a relevant aspect. Promissory estoppel is used as evidence against the promisor from avoiding the statement truth on which the promise was based. However, in some situations, the promissory estoppel can be the cause of action rather than being used as defense such as in the case of Guildford City AFC V Evenden (1975) QB 917.[13]
In the application of the promissory estoppel, its arguable that, if the promisee does not rely on the promise then it may not be reasonable for the promisor going back to his actual promise.
The promisor’s rights may be permanently get extinguished and further claims may be made of a lump sum. According to Lord Denning in the case Ress v Builders (1965) QB 617, he asserted that the promisor may not be given a chance to return to his legal rights as authorized within the doctrine of promissory estoppel if the promisee was aware and had comprehended the promise, therefore this would lead to final denial to severe legal rights.
- Contract mistakes
Contract mistake is a mistaken belief perceived by both or one of the parties to a given contract during the time of agreeing. contract mistake can prevail in three different ways: mistake due to the kind of transaction or the subject matter, mistake grounded in the contract terms and lastly based on personal identity to whom the contract is established. Instances, where a party wants to withdraw or avoid a given contract, can only be executed through the court of law.[14] The court has two approaches to handling issues related to contract mistake, they include:
Rescission: contract rescission refers to the cancellation of a contract between two parties by restoring their initial position or status before entering into a contract. This kind of approach is normally applied if the party claiming to be in the position of not committing the mistake was aware or may have known about the unilateral mistake.[15]
Reformation: in this aspect, the written agreement is readjusted or reconstructed to depict the original intent of entering a contract. Reformation is allowed especially when one party lacks awareness that the written agreement is not the actual agreement of the contract.[16]
3.1 Types of contract mistakes
There are three types of contract mistakes recognized by the common law and the English law, they include, common mistake, mutual mistake, and unilateral mistake.
3.1.1 Common mistake
A common mistake in a contract occurs when two parties operate within a shared belief of misguide or misapprehension associated with a given fact or law.[17] In other words, both parties must have made an agreement that is wrong due to confusion based on a given assumption of the subject matter. A good illustration of this kind of mistake can be seen in the case between Hastie v Couterier (1856) 5 hl Cas 673. The accuser merchants made a cardo shipment of Indian corn and sent a lading bill to their agent based in London. The agent had employed the defendant to sell the cargo. The defendant sold the cargo on credit to Challender on 15th May 1848. The ship started its journey on 23rd February, however, the cargo carried by the shape became fermented and heated to the extent it doesn’t fit to be sold. Challender had to reject the contract on 23rd May 1848 by sending a notice to the Plaintiff simply because, at the time of sale, there was no existence of the cargo. The plaintiff took legal actions against the defendant on the claim to recover the price used to purchase the cargo. The court ruled that at the time of sale, the corn did not exist meaning there was no delivery of the corn and to the fact that it had been sold the plaintiff should not recover. The House lords affirmed this jurisdiction action.
3.1.2 Mutual mistake
Mutual mistakes in a contract occur when some misguided facts are in the agreement terms between two parties entering into a contract or in other words it refers to a misunderstanding between the contracting parties on a material fact.[18] The validity of the contract can be affected if the mistake is key to the extent it can nullify the consent of a contract. Parties can void as a result of mutual mistake since the intent of the two parties is conflicting to the agreement of the contract. In the first place, there is no agreement ascertained by both parties. An illustration of this scenario is the case between Scarth v Wood (1858) 1 F&F 293. The perpetrator provided a written suggestion to offer a pub to the Accuser at a cost amounting to £63 pa. After bargaining with the perpetrator’s clerk, the accuser made an acceptation through a letter agreeing with the defendant on the proposed payment of £63 pa under tshis contract. The defendant also suggested that the amount can also be paid by making a premium payment of £500 hoping that the client will pass the information to the Plaintiff regarding this aspect. The defendant failed to comply and to complete the agreement. The accuser had to take action against the defendant on a specific performance. The court rejected the order based on specific performance, however, the defendant was to compensate for the damages incurred by the plaintiff.
3.1.3 Unilateral mistake
Unilateral mistake prevails when there is misguidance of one party in contracting terms. Therefore, in this case, one party is mistaken based on the contract terms. In this context, the other party must be aware of the mistake to avoid the contract. A subjective test will be offered by the court that will involve the mistaken party’s point of view of agreeing.[19] This kind of mistake can be seen in the case between Edridge Merret v King’s Norton Metal (1897) TLR 98. Goods were ordered from King’s Norton by a rogue named Wallis on a written paper that has a title (Hallam & Co). The payment was done through a cheque offered by Hallam & Co. Another letter was received from Hallam & Co contending to come having a request for price quotations for goods. King’s Norton made a reply by quoting the prices. Subsequently, Hallam & Co ordered some goods which were delivered to them. Payment of the good delivered was not done. Fraudulently, Wallis received the goods and further sold the goods to Edridge Merret which were bought on bona fide. King’s Norton took action against Wallis for the recovery of damages caused by goods conversion.[20] The Court of Appeal made a stand that if there is an induced false pretences of a person contracted with Wallis to sell goods and delivery of goods is initiated, Wallis would offer good title upon disaffirmation of the contract to the purchaser of bona fide for value. The accuser wanted to enter into a contract with the party writing the letters. If there was a different identity known as Wallis and another one is known as Hallam & Co the case would have been similar to that of Lindsay v Cundy. However, the court decided that the accuser was in a contract with the writer of the letters upon which the property was delivered to him. In this regard, one entity was involved in trading.
References
City, P. V, Charlottesville, O. F., Rationale, R., & Removal, F. O. R. (2018). Virginia law review online. 145(17), 45–57. http://scholarship.law.cornell.edu/facpub/1137/
Edgeworth, S. B., & Healey, D. (2013). Athlete Endorsement Restrictions as Unreasonable Restraints of Trade. 1–215. https://doi.org/10.4324/9781843140979
Foulke, R.R., 1911. Mistake in the Formation and Performance of a Contract. Colum. L. Rev., 11, p.197.https://scholarship.law.berkeley.edu/cgi/viewcontent.cgi?article=2313&context=facpubs
Hatzis, A. N. (2002). Having the cake and eating it too: Efficient penalty clauses in Common and Civil contract law. International Review of Law and Economics, 22(4), 381–406. https://doi.org/10.1016/S0144-8188(02)00111-4
Kull, A., 1991. Mistake, Frustration, and the Windfall Principle of Contract Remedies. https://repository.uchastings.edu/cgi/viewcontent.cgi?article=3049&context=hastings_law_journal
Kull, Andrew. “Rescission and Restitution.” The Business Lawyer (2006): 569-588. https://www.researchgate.net/publication/254137462_Rescission_and_Restitution
Rasmusen, E. and Ayres, I., 1993. Mutual and Unilateral Mistake in Contract Law. The Journal of Legal Studies, 22(2), pp.309-343. https://ideas.repec.org/a/ucp/jlstud/v22y1993i2p309-43.html
Slawson, W.D., 1996. Binding promises: The late 20th-century reformation of contract law. Princeton University Press. https://www.worldcat.org/title/binding-promises-the-late-20th-century-reformation-of-contract-law/oclc/700688699
Weitzenböck, E. M. (2012). English Law of Contract: Promissory Estoppel. (February).
[1] Edgeworth, S. B., & Healey, D. (2013). Athlete Endorsement Restrictions as Unreasonable Restraints of Trade. 1–215. https://doi.org/10.4324/9781843140979
[2] Case Fact 1: The Upper Hunter County District Council (appellant) entered into an agreement for the supply of bulk electricity to the respondent purchaser.
Link: https://restrictivecovenants.files.wordpress.com/2016/08/1968-03-08-upper-hunter-cdc-v-australian-chilling-freezing-co-interpretation-of-contractual-intention.docx
[3] Case Fact 2: The agreement stated the price to be paid per kilowatt hour, with provision for that rate to be increased or decreased, according to certain formulae set out in the agreement, for certain wage rates and prices for coal.
[4] Fact 2: The council served on the purchaser a notice varying its charges. The purchaser required he matter to be referred to arbitration under cl 18
[5] See clause 5: “if the Supplier’s costs shall vary in other respects than has been herein before provided the Supplier shall have the right to vary the maximum demand charge and energy charge …”. link : https://iclg.com/practice-areas/international-arbitration-laws-and-regulations/australia
[6] cl 5 provided: it is agreed that during the term of this agreement if the supplier’s cost shall vary in other respects than as has been herein before provided the supplier have the right to vary the maximum demand charge and energy charge by notice in writing to the purchaser…
Link: https://iclg.com/practice-areas/international-arbitration-laws-and-regulations/australia
[7] Hatzis, A. N. (2002). Having the cake and eating it too: Efficient penalty clauses in Common and Civil contract law. International Review of Law and Economics, 22(4), 381–406. https://doi.org/10.1016/S0144-8188(02)00111-4
[8] City, P. V, Charlottesville, O. F., Rationale, R., & Removal, F. O. R. (2018). Virginia law review online. 145(17), 45–57. http://scholarship.law.cornell.edu/facpub/1137/
[9] Lord Wright in G Scammel & Nephew Ltd v Ouston, ‘so long as the language employed by the parties…is not ‘so obscure and so incapable of any definite or precise meaning that the court is unable to attribute to the parties any particular contractual intention’, the contract cannot be held to be void or uncertain or meaningless
Link: https://en.wikipedia.org/wiki/G_Scammell_%26_Nephew_Ltd_v_Ouston
[10] E. Cooke, The Modern Law of Estoppel, OUP, 2000, pp. 1-2; “Promissory estoppel is derived from equity: It is one of several kinds of estoppel all of which can be said to be “mechanisms for enforcing consistency” https://www.trans-lex.org/111050/_/-cooke-elizabeth-the-modern-law-of-estoppel-2000/
[11] Hughes v. Metropolitan Railway Co. (1877), as per Lord Cairns: “It is the first principle upon which all Courts of Equity proceed, that if parties who have entered into definite and distinct terms involving certain legal results – certain penalties or legal forfeiture – afterwards by their own act or with their own consent enter upon a course of negotiation which has the effect of leading one of the parties to suppose that the strict rights arising under the contract will not be enforced, or will be kept in suspense, or held in abeyance, the person who otherwise might have enforced those rights will not be allowed to enforce them where it would be inequitable having regard to the dealings which have thus taken place between the parties”.
Link: https://www.revolvy.com/page/Hughes-v-Metropolitan-Railway-Co
[12] Note: These principle was applied in Central London Property Trust Ltd. v. High Trees House Ltd. (1947) by Denning J. (as he then was) to found the modern doctrine of P.E. Denning J. was attempting to arrive at a fair solution to the problem of part payment of debt, and, in doing so, to circumvent precedent created by Foakes v. Beer (1884).
Link:https://en.wikipedia.org/wiki/Central_London_Property_Trust_Ltd_v_High_Trees_House_Ltd
[13]See: Weitzenböck, E. M. (2012). English Law of Contract: Promissory Estoppel. (February).
Link: https://docplayer.net/21132151-English-law-of-contract-promissory-estoppel.html
[14] See: Eisenberg, M.A., 2009. The Role of Fault in Contract Law: Unconscionability, Unexpected Circumstances, Interpretation, Mistake, and Nonperformance. Michigan Law Review, 107(8), pp.1413-1430. https://www.academia.edu/10030564/An_analysis_of_English_law_of_contractual_interpretation_from_comparative_perspective
[15] See: Kull, Andrew. “Rescission and Restitution.” The Business Lawyer (2006): 569-588. https://www.researchgate.net/publication/254137462_Rescission_and_Restitution
[16] See: Slawson, W.D., 1996. Binding promises: The late 20th-century reformation of contract law. Princeton University Press. https://www.worldcat.org/title/binding-promises-the-late-20th-century-reformation-of-contract-law/oclc/700688699
[17] See: Foulke, R.R., 1911. Mistake in the Formation and Performance of a Contract. Colum. L. Rev., 11,p.197.https://scholarship.law.berkeley.edu/cgi/viewcontent.cgi?article=2313&context=facpubs
[18] Kull, A., 1991. Mistake, Frustration, and the Windfall Principle of Contract Remedies. Hastings LJ, 43, p.1.
Link:https://repository.uchastings.edu/cgi/viewcontent.cgi?article=3049&context=hastings_law_journal
[19] Rasmusen, E. and Ayres, I., 1993. Mutual and Unilateral Mistake in Contract Law. The Journal of Legal Studies, 22(2), pp.309-343. https://ideas.repec.org/a/ucp/jlstud/v22y1993i2p309-43.html
[20] See: GOODS—RE-SALE, C.S.O. and SELLER—BUYER’S, B.U., 271 cannot stand with King’s Norton Metal Co., Ltd. v. Edridge, Merrett Sf Co., Ltd. (1897) 14 TLR 98. Here the contract was not void but voidable in equity as the parties acted under a common fundamental misapprehension as to the facts and B. was not at fault. The equitable remedy for innocent misrepresentation was.
Link: https://www.lawteacher.net/cases/kings-norton-metal-v-edridge.php
