CODELFA CONSTRUCTION PTY LTD V/S STATE RAIL AUTHORITY OF NEW SOUTH WALES(1982) 149 CLR 337 

INTRODUCTION 

The case of Codelfa Construction Pty. Ltd. v/s State Rail Authority of New South Wales,1982 is significant in the realm of Australian contract law. The case centers upon the issue of doctrine of frustration and implication of a term in the contract executed between the appellant and the respondent owing to a construction programme. The appellant , relying upon faulty advice, presumed that the respondent had impliedly agreed that no restriction would be imposed against the construction work undertaken by them despite its disturbing nature. However an injunction was granted, having a considerable impact on their remuneration. Accordingly, they seek indemnity from the respondents to cover the loss incurred by them. However, the respondents claim that no such term was implied by them neither prior to nor at the time of entering into the contract. Hence, the case is preferred before the High Court of Australia. 

FACTS

– In this case, The State Rail Authority of New South Wales (the respondent) issued a project for the construction of two single track railway tunnels from Edgecliff to Bondi junction in Eastern Suburbs Railway in Sydney. A tender owing to the project was proposed by Codelfa Construction Pty. Ltd.(the appellant) which was accepted by the respondent and a contract was executed between the two parties. 

– According to the stipulated terms of the contract the appellants had to complete the entire construction work within the duration of 130 weeks pertaining to which the work was carried out by them on a continuous basis in three shifts a day and 6 days a week (without any restriction on Sundays). 

– Notably, the contract was subject to a common assumption by the parties that no injunction would be imposed on the construction work, despite any 

noise/disturbance. 

– However, due to the disturbing nature of the work it caused inevitable noise and annoyance in the nearby residential area(s) and as a result an injunction was granted. – And the appellants were allowed to work only two shifts a day alongside no work on Sundays. This had a considerable impact on their construction programme due to reduction in the working hours. 

– Therefore, the appellants claim that either they should be entitled to damages owing to the implied term of the contract (that if the work would be subject to injunction, they shall be indemnified by the respondent) or they should be entitled to quantum meruit in lieu of the frustration of contract. 

– Consequently, the matter was referred to the Court of Arbitration, followed by trial court and Court of appeal but no remedy could be sought. 

– Hence, the matter is placed before the High Court of Australia for consideration. ISSUES 

1) Whether any implied term can be inferred from the contract.

 2) Whether the injunction had led to the frustration of the contract. 

CONTENTIONS 

APPELLANT

1) The appellant contended that the parties had mutually agreed at the time of stipulating the contract that the work would be carried on a three day shift basis on a day and six days in a week(including Sunday). But the duration was reduced due to the injunction. 

2) Also, the respondent had agreed prior to the execution of the contract that no injunction would be granted despite any disturbance or annoyance. 

3) It was further contended that the work could not be completed unless it was carried out in accordance with the stipulated terms of the contract, agreed between the parties. 

RESPONDENT 

1) It was contended that they did not ensure as to the fact that no restriction would be imposed during the excavation process via an implied term of the contract. 2) Furthermore, no party had anticipated the imposition of any injunction in between the construction work. 

3) Moreover, the injunction was granted by the Supreme Court of New South Wales on the basis of an application filed by the habitants of the nearby residential area(s). 

OBSERVATION BY: 

Mason,J. 

1) Justice Mason stated that so far the meaning of “implied term” is concerned, it can be construed as a term which the parties to the contract are presumed to have agreed upon, which they may not have actually agreed. 

2) In case of an implied term, the parties do not expressly stipulate their presumed intentions (which causes problems in case the parties have different intentions in their mind). 

3) Therefore, the more detailed the contract is, the less the chances are of the possibility that parties may have failed to address their intention(s). 

4) While implying a term it must be considered that implication of such term is necessary to give business efficacy,i.e. the term is so obvious as to the fulfillment of the contract that it goes even without being expressly mentioned. So was held in Shirlaw v Southern Foundries ,1926 Ltd 1939 2 KB.

5) The court further referred to the case of : BP Refinery (Westernport) Pty. Ltd. v. Hastings Shire Council,1977, HCA 40. 

6) In the light of the above case, Justice Mason expressed his reluctance to imply any term in the contract on the premise that the respondent had expected the appellant to take accountability for any/all the happening that takes place, including the possibility of injunction. Simultaneously, the term was neither negotiated nor was it essential to give business efficacy. 

7) As to the issue of frustration, he observed that frustration means termination of a contract by operation of law on occurrence of an unexpected event, beyond the control of either of the parties. Imposition of injunction was one such event, not expected/foreseen by either of the parties. 

Aickin,J. 

1) He affirmed that implication of a term cannot be ascertained from the contract. 2) Pertaining to doctrine of frustration, he was of the view that the contract was frustrated by the injunction that rendered the performance of contract impossible. 

Wilson,J. 

1) He concurred with Mason,J. and Aickin,J. on the point of implied term as well as doctrine of frustration. 

Stephen,J. 

1) He agreed with the decision of Mason,J. and Aickin,J. on both the issues. Brennan,J. 

1) He too concurred with the decision of the Honourable judges on the issue of implied term. 

2) However, dissenting on the issue of doctrine of frustration he said that there was no frustration of contract because even prior to imposition of injunction the appellants were required to perform the construction by avoiding any sort of noise/disturbance. Injunction was only a judicial limitation on the work which the appellants were already bound to adhere to.

JUDGEMENT 

1) It was unanimously held that there was no implied term in the contract. 2) It was held that the contract was frustrated (Brennan, J. dissented). 

CONCLUSION 

In entirety, the above case involved a meticulous interpretation of the expression ‘implied term’. A term that relates to the presumed intentions of the parties for which no express provision is made in the contract yet it plays a significant role in a contractual relationship. While addressing the issue of doctrine of frustration it was asserted that performance of contract on account of an unexpected event should be fundamentally different from what has been actually stipulated in the contract. 

REFERENCES 

1) https://www.australiancontractlaw.info/cases/database/codelfa-constructions 

This article is written by Nandini Sharma, student of Shambhunath Institute of Law; intern at Legal Vidhiya

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