While this case did turn very much on the particular factual circumstances of the relationship between the parties, it is a useful reminder of the need to use clear contractual language that reflects the intentions of the parties to minimise the risk that a Court may construe the contract in a way in which one or more parties may not have intended.
The standard form agreement in this case governed the supply of cane by cane growers to mills operated by Mackay Sugar Ltd (Mackay Sugar), which was an incorporated entity owned exclusively by cane growers. Mackay Sugar was expressly empowered to vary “operational” parts of the agreement, including the price setting mechanism, “in consultation with” the growers’ bargaining representatives.
Due to financial problems, Mackay Sugar had amended the price (by imposing a levy) by deed poll. The growers successfully argued the decision had not been made “in consultation with” the grower representatives because, while Mackay Sugar may have consulted with them, the grower representatives had not actually agreed to the amendment.
In finding that an amendment required the agreement of the bargaining representatives (rather than just consultation without fettering the power to amend), Holmes CJ looked at both the language of the agreement and the nature and history of the relationship between the parties and held that:
- the words “in consultation with” were ambiguous. The use of the preposition in rather than after suggested a temporal connection between the consultation and the amendment, i.e. that they occur in combination;
- other clauses of the agreement shed light on the correct construction. Other clauses which required Mackay Sugar to consult with the bargaining representatives before finalising a payment program and gave Mackay Sugar the right to end crushing operations after consultation with the bargaining representatives were unambiguous and showed an intention that consultation and decision making take place as distinct events in a sequence. Further, while another clause did permit Mackay Sugar to decide whether there had been a material change of circumstances requiring an immediate amendment “in consultation with” the bargaining representatives, nothing could result from the decisions alone (rather Mackay Sugar was then required to get the consent and signature of the other parties);
- a reasonable business person would not regard it as commercial for a party to agree that the other party could unilaterally determine the price to be paid for its produce;
- the co-operative history of the relationship and the fact that there were only 2 bargaining representatives for 851 growers (which allowed for a streamlined process for agreeing the amendment) also favoured a commercial construction of agreed amendment; and
- a term requiring both parties act in good faith and reasonably in the amendment process was properly implied in the context of the agreement.