Barrister and mediator Sydney Jacobs considers the impact of COVID-19 on the frustration of contracts with reference to judgments in past cases. You can hear more from Sydney on this topic at his recently recorded Deconstructing Construction Contracts: Critical Takeaways webinar where he looks at the latest approach of the High Court and key issues.
Introduction: Frustration of contract is a cloak of many colours
There has been a lot of talk recently about whether COVID-19 can found an argument that a contract has been frustrated or can fall within a force majeure clause.[1] Frustration warrants consideration where something occurs that renders performance under a contract radically more onerous on one of the parties, than anticipated (e.g. a ship having a deviate from the Suez canal, around the Cape of Good Hope, due to war or hostilities [2]), being an event not contemplated by the contract. However, like the story of Joseph,[3] frustration involves a coat of many colours , and extends to other scenarios including supervening illegality (e.g. storage of gunpowder in the barn on Whiteacre is legal as at the date of contract of bailment but the zoning laws change afterwards); and to the coronation cases like Henry v Krell [1903] 2 KB 740, which articulated the doctrine of frustration of purpose (the purpose of the renting of Mr Krell’s chambers so as to view the procession along Pall Mall for the coronation of King Edward VII and Queen Alexandria).
In light of all the recent “chatter” about frustration and force majeure clauses, I thought it opportune to pen a note on a 1972 case, tucked away amongst the hard copy unreported judgments in the Bar Library , which led to the famous reported HC decision in Codelfa a decade later.
Jagged shards of rock
The case most associated with the doctrine of frustration in Australia is,of course, Codelfa Construction v State Rail Authority (1982) 149 CLR 337 . It is drummed into every lawyer as the “go to” case when considering the doctrine of frustration, and also as to whether a term can be implied ad hoc. It is still, quite often, in the spot light for an additional reason: what is the “true rule” as to the approach to ambiguity of contract: can one look only at the contract only to demonstrate ambiguity (and then to resolve same, go to surrounding circumstances?); or can one take a facially clear-as-crystal contract, and refer to background circumstances, for the purpose of demonstrating ambiguity? [4]
Which brings me to the little bit of history I wish to delve into in this article—one of the unreported decisions, obtainable only with the assistance of a sympathetic librarian [5], which led first to the State Rail Authority of NSW v Codelfa Construction Pty Ltd, NSWCA 11/8/81[6] and then to the decision of the High Court in 1982.
In 1972 Codelfa Construction commenced its work on the eastern suburbs railway line in three shifts each day for seven days a week. However, the noise generated by their underground drilling and blasting led the Fishers and Council to seek an injunction. In June 1972, Mr and Mrs Fisher, residents of Weerona Ave in Woollahara, supported by the Council and other residents, brought a 2 lb, jagged shard of rock to the Equity Division and tendered it in aid of an injunction against State Rail Authority and its contractor, CODELFA , against their 24/7 blasting schedule for the eastern suburbs railway line.
It must have travelled over 150 feet from the site of the explosion to the garage of Mrs Reynolds, a resident. As HH observed, it was fortunate that this did no more damage than breaking roof tiles.
It was a powerful case in nuisance, according to Street J, having regard to the flying stones and debris, vibrations which damaged property and ongoing noise . There was evidence of homes shaking, pictures flying off walls, crockery shaken out of kitchen cupboards and disrupted sleep.
The case for Codelfa was that it had taken all reasonable care and moreover, they needed to proceed with the minimum of delay in this important project. Citing from Street J in the unreported injunction decision:
“It is not extravagant to say that none of the defendant’s evidence effectively answers the silent, but compelling, evidence of the dangerous -looking stone recovered by Mrs Reynolds from her garage roof, and brought by her to this Court … the minimum of delay does not import a licence to disregard the safety, comfort and convenience of persons, … in the vicinity of this construction work to the degree that the evidence proves to have taken place in this case.”
In masterful understatement, Street J observed that the previous experience of the engineer who gave evidence for Codelfa, had been on the Snowy Mountains Hydro Electric scheme.
HH gave short shrift the attempt by Codelfa to seek refuge in the privative clause in the legislation, saying it applied only to the Commissioner of Railways, and did not extend to their independent contractor (e. Codelfa). In so doing, HH commented on the moral obligation of the State; words seriously worth reading.
Street J granted the injunction as sought, restricting the blasting schedule, leading Codelfa to incur significantly additional costs to complete within the contractual timeframe and additionally, as is clear from the 1981 NSWCA judgment (above), exposed it to significant liquidated damages.
The question of frustration arose because under the contract, Codelfa was bound to complete all works within 130 weeks. On the basis of legal advice the parties believed that the work would be exempt from injunction and that they had Crown immunity (by reason of s 11 of the City and Suburban Electric Railways (Amendment) Act 1967 (NSW).
If the rebel Dick the Butcher in Henry VI had had his ironic way, and the first thing was to kill all the lawyers, then who would there be to stand between citizen and State when jagged shards of rock are blasted through the air?
[1] A quick search via Google shows recent articles on the impact of Covid on force majeure clauses and frustration by Norton Rose ,Piper Alderman , Ashurst, Stack Law; also on Lexology, and by Paul Weiss in the USA (to name just a few).
[2] Examples of the Suez cases are Societe Franco Tunisienne D’Armemet v Sidermar S.P.A. [1960] 3 WLR 701; Tsikiroglou & Co Ltd v Noblee Thorl GmbN [1962] AC 93
[3] Genesis 37:3
[4] That debate, which awaits authoritative resolution by the High Court, is addressed in my recent seminar for Legalwise Seminars, Deconstructing Construction Contracts (July 2020). A further paper of mine that provides associated context addresses the intersection of planning law and nuisance. It consider the recent UK decision of Fen Tigers and its implications for Australian cases and is available on my website.
[5] My thanks to the NSW Bar Librarians for assisting me on the archeological dig for these cases.
[6] Apparently also reported as (1981) NSW ConvR 55-038, as per hand note on the unreported judgment.
Sydney Jacobs obtained his Masters Degree in Law from Cambridge and practices in the areas of commercial / equity including real property , partnership disputes and building and construction law. Many contracts he is called to advise on, have mediation / arbitration clauses.
He has acquired in -depth experience in the area of property law including eg sales of property “off the plan”, challenging notices to complete, issuing notices to perform, obtaining easements via applications under Sec 88 K of the NSW Conveyancing Act , advising and drafting papers in applications to remove easements as being obsolete and seeking interim and permanent injunctions against interference with easements. His arbitration experience includes being a NSW Bar accredited arbitrator, appearing in arbitrations and technical references, and being part -author of what is understood to be the definitive loose -leaf arbitration service in Australia, published by ThomsonReuters.
He is the sole author of two other major services for ThomsonReuters , Commercial Damages and Injunctions: Law & Practice
Prior to being called to the Bar, Sydney was a commercial litigator with a construction law focus, at a Minter Ellison and Deacons James & Graham (now Norton Fullbright).
For a full list of his cases, articles and Thomson Reuters publications , feel free to view
You may connect with Sydney via email sjacobs@13wentworth.com.au or LinkedIn
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