Commerciality and contractual interpretation

A basic principle of contract law is that there has to be mutuality.  A can only enforce a promise by B if A is bound to give something in return.

In Parkinson v Mackay Sugar [2018] QSC 168, Holmes CJ had to consider the standard form of agreement used by Mackay Sugar Ltd to buy cane from canegrowers in the Mackay region.  The agreement provided that Mackay Sugar could amend the price-setting mechanism “in consultation with” the bargaining representative for a grower, but what did the agreement mean by “in consultation with”?

The canegrowers argued that the requirement to consult was effectively a requirement to reach agreement, since anything less effectively let Mackay Sugar alter the price it would pay for sugar cane whenever it liked.  Mackay Sugar argued that it could act unilaterally once it had consulted and, implicitly, that the results of the consultation did not constrain its power to alter the price-setting mechanism.

Holmes CJ held that the words “in consultation with” were ambiguous.  In resolving the ambiguity, her Honour noted that the requirement to amend “in consultation with” suggested a temporal connection between the consultation and the exercise of the amendment power.  Importantly, Her Honour also accepted the canegrowers’ argument that a reasonable person would not regard the idea that one party to a contract could unilaterally set the price as being a sensible commercial outcome.

Those factors, amongst others, led her Honour to conclude that the requirement to amend the price-setting mechanism “in consultation with” the growers, meant that the amendment had to be by agreement.

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