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Australian Woollen Mills Pty Ltd v The Commonwealth

High Court of Australia (1954) 92 CLR 424

Overview

Sheep

This case turned on the issue of consideration. As part of a scheme to encourage the purchase of wool in the aftermath of World War II, the government offered a subsidy for manufacturers purchasing wool for use in local manufacture.

The plaintiff purchased wool and used it for this purpose and received some payments. The Government subsequently stopped payments. The plaintiff claimed the subsidy, arguing that there was a contract to pay the subsidy.

A key issue was whether buying the wool consideration for a promise of a subsidy or merely a necessary condition for the entitlement to a subsidy?

A further issue arose about whether or not there was an intention to create legal relations.

The plaintiff's claim failed. The Court held (in a joint judgment) that there was no consideration; buying wool was merely a condition precedent to the entitlement of a subsidy. The Court further held that there was no intention to create legal relations.

 

Facts

In June 1946 the Commonwealth Government announced that it would pay a subsidy to manufacturers of wool who purchased and used it for local manufacture after 30 June 1946. The Plaintiff purchased and used wool for local manufacture between 1946-48 and received some payments. The Government subsequently stopped its subsidy scheme and the Plaintiff sued the Government for subsidies it claimed it was due.

 

Plaintiff's arguments

(1) There was a contract between it and the Government under which Commonwealth promised to pay subsidies if wool was bought for domestic consumption/manufacture.

(2) The plaintiff made purchases of wool pursuant to the agreement.

Held (High Court)

Dixon CJ, Williams, Webb, Fullagar and Kitto JJ

There was no contract. 

On the issue of consideration

The statement made by the Commonwealth was not offered as consideration for the plaintiff buying the wool. The Court stated that in cases such as this:

‘… it is necessary, … that it should be made to appear that the statement or announcement which is relied on as a promise [here the subsidy statement] was really offered as consideration for the doing of the act, and that the act [buying and using the wool as directed] was really done in consideration of a potential promise inherent in the statement or announcement.’

There must be a relationship of quid pro quo between the statement and the Act.  Here there was no promise offered in consideration of doing an act.

Buying the wool was merely a condition precedent to entitlement to the subsidy. It was not intended as the consideration for a promise to pay the subsidy.  In this respect the Court also noted that there was no offer or request or invitation to purchase wool or anything else suggesting that ‘payment of subsidy and the purchase of wool were regarded as related in such a way that the one was a consideration for the other.’ 

On intention to create legal relations

The Court also concluded that there was no intention on the part of the government to create legal relations; it was instead a government scheme to promote industry. In this respect the Court noted that ‘It is of the essence of contract … that there is a voluntary assumption of a legally enforceable duty. … it is necessary that what is alleged to be an offer should have been intended to give rise, on the doing of the act, to an obligation. …’