Contract – Implied terms – Frustration – Injunction – Extrinsic evidence of intention

Codelfa Construction Pty Ltd v State Rail Authority of NSW [1982] HCA 24; (1982) 149 CLR 337 (11 May 1982).

“Contract – Construction – Implied terms – Frustration – Contract to carry out excavations for rail authority – Completion required by certain date – Contractor working three shifts seven days per week – Injunction granted to third party restraining contractor from working at certain times – Whether implied term of contract that authority would grant reasonable extension of time and indemnify contractor against additional costs occasioned by grant of injunction – Whether injunction frustrated contract – Extrinsic evidence of intention.
Arbitration – Jurisdiction to entertain claim that contract frustrated – Power to award interest on award – Compound interest – Supreme Court Act 1970 (N.S.W.), s. 94(1).”

Codelfa contracted with the State Rail Authority’s predecessor, the NSW Commissioner for Railways, to perform the excavations on Sydney’s Eastern Suburbs railway. It was agreed that Codelfa would perform three shifts per day over a fixed period, but they were unable to meet this requirement because of injunctions brought by local residents.

Codelfa sought damages from the SRA on two grounds: (1) that there was an implied term that if they were restrained by injunctions the SRA would extend time for completion or would indemnify Codelfa for any losses caused by the injunctions; in the alternative, (2) that the contract was frustrated by the injunctions.

Mason J at 352 observed that the “true rule” regarding the admission of evidence of the surrounding circumstances is that such evidence is admissible if the language of the contract is ambiguous or capable of more than one meaning but is not admissible to contradict the language which has a plain meaning.

The court held that there was no implied term. Even if a term needed to be implied to give efficacy to the contract, the was not a term “so obvious it goes without saying”. The court referred with approval to its earlier decision in Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd [1979] HCA 51; (1979) 144 CLR 596.

Codelfa was nevertheless successful with the court holding that the contract was frustrated because “the performance of the contract in the events which have occurred is radically different from performance of the contract in the circumstances which it, construed in the light of surrounding circumstances, contemplated”.


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