Codelfa Construction Pty Ltd v State Rail Authority of New South Wales

What happened?

Codelfa contracted to excavate tunnels for the Eastern Suburbs Railway, and had priced and programmed the work on the basis of three shifts a day, seven days a week. Residents obtained an injunction restraining work at certain times as a nuisance. The job could no longer be done the way it had been planned, and Codelfa sought either an implied term covering the extra cost and time, or a finding that the contract was at an end.

What did the Court decide?

No term could be implied — the parties had simply not addressed what would happen, and a term is not implied merely because it would have been reasonable to include one.

The contract was frustrated, four judges to one, and the remittal is not evidence otherwise. Four months later, when the Authority applied to have the orders vacated, the Court said so: "[a] reading of the judgments makes it plain that the majority thought that, on the findings made by the Arbitrator, frustration had actually occurred. Aickin J. specifically said so" (State Rail Authority of NSW v Codelfa Construction Pty Ltd (1982) 150 CLR 29 at 40, Mason and Wilson JJ).

Aickin J's conclusion is at [28], at 380: "[h]aving applied that test I am satisfied that the contract between the Authority and the Contractor was frustrated by the grant of the injunction prohibiting work on the tunnels between the hours of 10 p.m. and 6 a.m." Mason J, approaching it through the arbitrator's jurisdiction, held the findings "go a long way towards a conclusion that the contract has been frustrated" while stopping short of a formal finding, and remitted the matter "so that he can exercise the jurisdiction which has hitherto been denied him" ([65]–[66], at 366), adding that the remaining question would not cause the arbitrator "much difficulty". Stephen J agreed with both ([3], at 345), as did Wilson J (at 392). Brennan J dissented: "Codelfa cannot establish that the granting of the injunction was a frustrating event" ([34], at 409–410).

Order 3 remits the Award "(a) to make a decision on the frustration claim" and provides for consequences "in the event of a finding that the contract was frustrated" — "a procedural order giving effect to a substantive decision of the Court" (150 CLR 29 at 41).

Why does this case matter?

It is the case students most often meet twice. The frustration holding is one half; the other is Mason J's account of when extrinsic evidence may be used to interpret a written contract, which governed Australian interpretation for decades and is cited far more often than the frustration point. Know which half a question is asking about.

It is also a useful warning about pleading in the alternative. Codelfa ran an implied term and frustration together, and the two pull against each other — the harder you argue the parties would obviously have provided for something, the harder it is to say the event was outside their bargain altogether.

Exam and application relevance

Start by describing precisely what was promised, then what performance now requires, and ask whether the difference is fundamental — a change in the significance of the obligation, not merely in its cost. Do not overstate that as kind against degree: Aickin J is explicit that Lord Radcliffe's formulation "necessarily involves questions of degree" (at 380). The threshold is qualitative; deciding whether it has been crossed is a matter of degree. Cost, delay and difficulty almost never suffice on their own. And check the contract first: a risk the parties allocated, however badly, is not a risk that frustrates.

Check your understanding

The injunction made Codelfa's work far more expensive and much slower. Why is that not enough on its own — and why is the order remitting the question to the arbitrator not a sign that the Court left it undecided?