Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337
Contract; contents; terms implied ad hoc; frustration.
Facts: Codelfa Construction agreed to build two tunnels in Sydney for the State Rail Authority for an agreed price. When contracting, both parties believed that nothing could prevent construction from continuing 24 hours a day. In particular, they thought that state legislation protected Codelfa against the possibility of injunctions for nuisance. However, the high levels of noise disturbed the local residents who managed to obtain an injunction placing limits on the hours during which Codelfa could work. Having to do the work more slowly would cost Codelfa extra money. Codelfa therefore claimed extra payment from the State Rail Authority. On these facts different issues arose.
1. Terms implied ad hoc
Issue: Was a term implied into the contract in the circumstances, obliging the State Rail Authority to pay Codelfa for extra costs associated with the limited construction hours?
Decision: Applying the principles laid down by the Privy Council in BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266, the court held that no such term was implied.
Reason: Because the parties had believed when contracting that nothing could prevent the construction from continuing 24 hours a day, it could not be inferred that they intended to include a term in the contract regarding extra costs caused by limited work hours. Nor was it clear what particular provision the parties might have agreed on in the changed circumstances. Further, the necessity for implied terms must be inferred from the expressly agreed terms and not from any extrinsic evidence. Brennan J said (at [17], [18], [20]):
"...where the term propounded is said to be implied in a contract, that term must inhere in its express terms, and reference to extrinsic circumstances is permissible only to construe the contract and to understand its operation... The meaning and operation of the express terms, thus established, are the sole foundation for implying a term which the parties have not expressed. ... [The case of] BP Refinery should not be regarded as authorizing an extension of the role of extrinsic evidence..."
2. Frustration
Issue: Had performance of the contract become frustrated by the changed circumstances in which construction now had to take place?
Decision: In a majority decision, the court held that performance as originally agreed had become frustrated.
Reason: It was clear, from what was said when negotiating the contract, that both parties believed Codelfa would be able to work continuously. The unforeseen injunction made performance possible only in a way that was fundamentally different (and much more expensive) than what was originally contemplated. The court took the view that it would be unfair to enforce the original agreement in these changed circumstances and the contract was discharged by frustration. Codelfa was therefore not obliged to do the work for payment as originally agreed and it was open to the parties to negotiate a new agreement.