Codelfa Construction Pty Ltd v State Rail Authority

High Court of Australia Stephen, Mason, Aickin, Wilson and Brennan JJ. Codelfa Construction Pty Ltd v State Rail Authority (NSW) [1982] HCA 24

1. Appeal allowed in part. Cross appeal allowed in part.

2. Order of the Court of Appeal set aside and in lieu thereof order as follows: -

Appeal allowed in part. Cross appeal allowed in part. Order of Ash J. set aside and in lieu thereof answer the questions in the case stated by the Arbitrator as follows: -

Q. Whether the term implied by the Arbitrator as set forth in par. 20 hereof can in law be implied either on the basis of the proper construction of the Contract, business efficacy or otherwise.

Q. Whether upon the proper construction of Clause G. 28 of the Contract the "value of the uncompleted portion of the Contract" in sub-cl. (3) and (5) of the said Clause should be calculated at the respective unit prices set out in the Schedule of Rates and not otherwise.

Q. Whether the Arbitrator is erroneous in law in his finding and determinations that at the time when the formula in sub-cl. (3) or the formula in sub-cl. (5) of Clause G.28 comes to be applied it operates upon a value of the uncompleted portion of the Contract which is not calculated at tender rates except for the first variation under either of such sub-clauses after the date of tender but which is calculated after such first variation at rates which increase in a compound manner so that the second application of either formula operates upon rates into which there has been compounded the effect of the first application of either formula and thereafter each application of either formula operates upon rates which have been progressively increased in such compound manner upon each and every application of either formula.

(Question added by consent during the hearing at first instance.)

Q. Whether upon the proper construction of Clause G.28 of the Contract additional sick leave entitlements under the Engineers, etc. (State) Award, the Carpenters, Joiners, etc. (State) Award and the Transport Industry (State) Award fall within the operation of sub-cl. (3) thereof.

In respect of the First, Second, Third, Fifth, Sixth and Seventh Issues:

Q. Whether the Arbitrator is entitled in law to award interest upon interest prior to the date of his Award in respect of the monetary sums awarded under the First, Second, Third, Fifth, Sixth and Seventh Issues.

Q. Whether upon proper construction of the Contract ESR 1005 and Clause G.46 (particularly sub-cl. (5) and (6) thereof) the Arbitrator is entitled in law to award any interest in respect of the monetary sums awarded under the First, Second, Third, Fifth, Sixth and Seventh Issues.

A. Yes. The Arbitrator has power to award simple interest.

Q. Whether upon the proper construction of Clause G.28 of Contract ESR 1005: -

(1) there is to be taken into account for the purpose of calculations thereunder the effect on the cost to the contractor of executing the works of -

(vii) (Added by consent during hearing) accident make-up pay.

A. No, except to the extent that the awards mentioned in sub-cl. (3) provide for the inclusion of accident make-up pay in the computation of the ordinary hourly rate.

It is unnecessary to answer the remaining questions in the stated case.

(b) to make calculations in accordance with the answers given to the questions raised in the case stated by him and generally to recalculate and re-assess the claims made by the parties in relation to work performed under the contract, and

(c) in the event of a finding that the contract was frustrated to resolve the claims of the parties in relation to work performed subsequently to that frustration.

4. The respondent pay 70 per cent of the appellant's costs of the proceedings before Ash J., and the appeals to the Court of Appeal and to this Court.

1. Set aside the order of Ash J. and the order of the Court of Appeal.

I have had the considerable advantage of reading the judgments of a number of the members of the Court. In consequence I am able to confine myself to the expression of my agreement with what has been written by others.

Five distinct matters were canvassed in this appeal. As to the first, concerned with the implication of a term in the contract between the parties, I agree with all that my brother Mason has said.

The second matter concerns the doctrine of frustration. As to it, I agree with what has been said concerning it by each of my brothers Mason and Aickin. On the question of the rise and fall clause I agree with Aickin J. and, on the matters of the power to award interest and the power to award compound interest, I agree with Mason J.

I have had the advantage of reading the reasons for judgment prepared by Brennan J. in which the relevant facts and questions are comprehensively set out.

In this ocean of litigious controversy there is one large island of agreement between the parties. It is common ground that their contract consists of the agreement dated 21 March 1972 and the various documents which it incorporates. The appellant does not suggest that dehors the agreement and the incorporated documents there is to be found a term actually agreed upon by the parties which together with the contract documents stands as the true contract or which stands in its own right as a collateral contract. Nor does the appellant suggest that there is a case for rectification arising from the existence of such a term on the footing that it was inadvertently omitted from the contract documents. The appellant's case is that a term has to be implied in the contract to give it business efficacy, to make it workable. Consequently, there is no contest as to what constitutes the contract; rather the contest is as to its meaning and effect.

When we say that the implication of a term raises an issue as to the meaning and effect of the contract we do not intend by that statement to convey that the court is embarking upon an orthodox exercise in the interpretation of the language of a contract, that is, assigning a meaning to a particular provision. Nonetheless, the implication of a term is an exercise in interpretation, though not an orthodox instance.

Of course, I am speaking of an implied term necessary to give business efficacy to a particular contract, not of the implied term which is a legal incident of a particular class of contract, of which Liverpool City Council v Irwin [46] is an example. The difference between the two categories of implied term was mentioned by Viscount Simonds in Lister v Romford Ice and Cold Storage Co. Ltd [1] , where he referred to the search for the second category of implied term as being based "upon more general considerations", a comment endorsed by Lord Wilberforce in Irwin [2] .

1. [1977] A.C. 239. 2. [1957] A.C. 555, at p. 576. 3. [1977] A.C., at p. 255.

The implication of a term is to be compared, and at the same time contrasted, with rectification of the contract. In each case the problem is caused by a deficiency in the expression of the consensual agreement. A term which should have been included has been omitted. The difference is that with rectification the term which has been omitted and should have been included was actually agreed upon; with implication the term is one which it is presumed that the parties would have agreed upon had they turned their minds to it - it is not a term that they have actually agreed upon. Thus, in the case of the implied term the deficiency in the expression of the consensual agreement is caused by the failure of the parties to direct their minds to a particular eventuality and to make explicit provision for it. Rectification ensures that the contract gives effect to the parties' actual intention; the implication of a term is designed to give effect to the parties' presumed intention.

For obvious reasons the courts are slow to imply a term. In many cases, what the parties have actually agreed upon represents the totality of their willingness to agree; each may be prepared to take his chance in relation to an eventuality for which no provision is made. The more detailed and comprehensive the contract the less ground there is for supposing that the parties have failed to address their minds to the question at issue. And then there is the difficulty of identifying with any degree of certainty the term which the parties would have settled upon had they considered the question.

Accordingly, the courts have been at pains to emphasize that it is not enough that it is reasonable to imply a term; it must be necessary to do so to give business efficacy to the contract. So in Heimann v The Commonwealth [3] Jordan C.J., citing Bell v Lever Brothers Ltd [4] , stressed that in order to justify the importation of an implied term it is "not sufficient that it would be reasonable to imply the term. It must be clearly necessary". To the same effect are the comments of Bowen L.J. in The Moorcock [5] ; Lord Esher M.R. in Hamlyn & Co. v Wood & Co. [6] ; Lord Wilberforce in Irwin [7] ; Scrutton L.J. in Reigate v Union Manufacturing Co. (Ramsbottom) [8] .

1. (1938) 38 S.R. (N.S.W.) 691, at p. 695. 2. [1932] A.C. 161, at p. 226. 3. (1889) 14 P.D. 64, at p. 68. 4. [1891] 2 Q.B. 488, at pp. 491-492. 5. [1977] A.C., at p. 256. 6. [1918] 1 K.B. 592, at pp. 605-606.

The basis on which the courts act in implying a term was expressed by MacKinnon L.J. inShirlaw v Southern Foundries (1926) Ltd [9] in terms that have been universally accepted: "Prima facie that which in any contract is left to be implied and need not be expressed is something so obvious that it goes without saying "

The conditions necessary to ground the implication of a term were summarized by the majority in B.P. Refinery (Westernport) Pty. Ltd v Hastings Shire Council [10] : "(1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that "it goes without saying"; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract."

In the present case the New South Wales Court of Appeal placed much emphasis on the speeches of Lord Wilberforce in Prenn v Simmonds [11] , and in Reardon Smith Line v Hansen-Tangen [12] . Their Honours, though acknowledging that his Lordship's remarks were directed not to the implication of a term but to the application of the parol evidence rule, for in each of the two cases the issue was one of orthodox construction of a contract, thought that the remarks had significance for the implication of a term in a contract. With this I agree. But there is a question whether these two cases and other authorities support the Court of Appeal's view that it is legitimate to take into account the common beliefs of the parties as developed and manifested during their antecedent negotiations.

1. [1971] 1 W.L.R. 1381, at pp. 1383-1385; [1971] 3 All E.R. 237, at pp. 239-241. 2. [1976] 1 W.L.R. 989, at pp. 995-997; [1976] 3 All E.R. 570, at pp. 574-576.

The broad purpose of the parol evidence rule is to exclude extrinsic evidence (except as to surrounding circumstances), including direct statements of intention (except in cases of latent ambiguity) and antecedent negotiations, to subtract from, add to, vary or contradict the language of a written instrument (Goss v Lord Nugent [13] . Although the traditional expositions of the rule did not in terms deny resort to extrinsic evidence for the purpose of interpreting the written instrument, it has often been regarded as prohibiting the use of extrinsic evidence for this purpose. No doubt this was due to the theory which came to prevail in English legal thinking in the first half of this century that the words of a contract are ordinarily to be given their plain and ordinary meaning. Recourse to extrinsic evidence is then superfluous. At best it confirms what has been definitely established by other means; at worst it tends ineffectively to modify what has been so established.

1. (1833) 5 B. & Ad. 58, at pp. 64-65 [110 E.R. 713, at p. 716].

On the other hand, it has frequently been acknowledged that there is more to the construction of the words of written instruments than merely assigning to them their plain and ordinary meaning - see, for example, the remarks of Knox C.J. in Life Insurance Co. of Australia Ltd v Phillips [14] . This has led to a recognition that evidence of surrounding circumstances is admissible in aid of the construction of a contract. So Lord Wilberforce in L. Schuler A.G. v Wickman Machine Tool Sales Ltd [15] was able to state the broad thrust of the rule in this way:

The general rule is that extrinsic evidence is not admissible for the construction of a written contract; the parties' intentions must be ascertained, on legal principles of construction, from the words they have used. It is one and the same principle which excludes evidence of statements, or actions, during negotiations, at the time of the contract, or subsequent to the contract, any of which to the lay mind might at first sight seem to be proper to receive. His Lordship noted that evidence of surrounding circumstances is an exception to the rule, but he had no occasion to discuss its scope for there it was not, as it is here, a critical question. 1. (1925) 36 C.L.R. 60, at p. 69. 2. [1974] A.C. 235, at p. 261.

However, as Lord Wilberforce had earlier pointed out in his speech in Prenn , a speech in which four other members of the House of Lords concurred, the English rule forbidding recourse to extrinsic evidence is not as strict as some have thought. The issue in Prenn was whether the word "profits" meant the separate profits of R.T.T., a company controlled by the appellant, or the consolidated profits of the group of companies consisting of R.T.T. and its subsidiaries. It was held that, although evidence of prior negotiations and of the parties' intentions, and a fortiori the intentions of one of the parties, ought not to be received, evidence restricted to the factual background known to the parties at or before the date of the contract, including evidence of the "genesis" and objectively of the "aim" of the transaction, was admissible. Considered in the light of this evidence "profits" meant "consolidated profits".

The time has long passed when agreements, even those under seal, were isolated from the matrix of facts in which they were set and interpreted purely on internal linguistic considerations. There is no need to appeal here to any modern, antiliteral, tendencies, for Lord Blackburn's well-known judgment in River Wear Commissioners v Adamson [17] provides ample warrant for a liberal approach. We must, as he said, inquire beyond the language and see what the circumstances were with reference to which the words were used, and the object, appearing from those circumstances, which the person using them had in view. Moreover, at any rate since 1859 (Macdonald v Longbottom [18] ) it has been clear enough that evidence of mutually known facts may be admitted to identify the meaning of a descriptive term. 1. [1971] 1 W.L.R., at pp. 1383-1384; [1971] 3 All E.R., at pp. 239-241. 2. [1877] 2 App.Cas. 743, 763. 3. (1859) 1 E. & E. 977 [ 120 E.R. 1177].

His Lordship went on to assert that the well-known decision of Cardozo J. in Utica City National Bank v Gunn [19] "followed precisely the English line" [20] . There extrinsic evidence of the circumstances in which a guarantee was executed and of its object was received for the purpose of giving the words "loans and discounts" the looser meaning of "renewals". Lord Wilberforce quoted with evident approval the comment of Cardozo J. [21] that surrounding circumstances may "stamp upon a contract a popular or looser meaning" than the strict legal meaning, certainly when to adopt the latter would make the transaction futile.

1. (1918) 118 N.E. 607. 2. [1971] 1 W.L.R., at p. 1384; [1971] 3 All E.R., at p. 240. 3. (1918) 118 N.E., at p. 608.

In Macdonald it had been held that the defendant's contract to buy "your wool" included not only wool which the plaintiffs had on their own farms, but also wool which they had bought in from other farms, one of the plaintiffs having stated before the contract in a conversation with the defendant's agent that he had wool from those two sources. This decision was followed in Bank of New Zealand v Simpson [22] . Lord Davey [23] quoted with approval the remarks of Lord Campbell in Macdonald [24] :

I am of opinion that, when there is a contract for the sale of a specific subject-matter, oral evidence may be received, for the purpose of shewing what that subject-matter was, of every fact within the knowledge of the parties before and at the time of the contract. Lord Campbell, after referring to the conversation relating to the sources of the plaintiffs' wool continued: The two together constituted his wool; and, with the knowledge of these facts, the defendant contracts to buy "your wool." There cannot be the slightest obection to the admission of evidence of this previous conversation, which neither alters nor adds to the written contract, but merely enables us to ascertain what was the subject-matter referred to therein. It is apparent that the principle on which the Judicial Committee acted in Simpson is that where words in a contract are susceptible of more than one meaning extrinsic evidence is admissible to show the facts which the negotiating parties had in their mind. 1. [1900] A.C. 182. 2. [1900] A.C., at pp. 188-189. 3. (1859) 1 E. & E., at pp. 983-984 [ 120 E.R., at p. 1179].

Later, in Great Western Railway and Midland Railway v Bristol Corporation [25] , Lord Atkinson [26] and Lord Shaw [27] stated that evidence of surrounding circumstances was inadmissible except to resolve an ambiguity, that is, where the words are susceptible of more than one meaning, and that Lord Blackburn was dealing with just such a case in River Wear Commissioners . Their Lordships took the view that evidence of surrounding circumstances was not admissible to raise an ambiguity for in their opinion that would be to contradict or vary the words of the written document, the assumption being that in the overwhelming majority of cases the written words will have a fixed meaning. Lord Wrenbury [28] thought otherwise, stating that in every case of construction extrinsic evidence is receivable to raise and resolve an ambiguity.

1. (1918) 87 L.J. Ch. 414. 2. (1918) 87 L.J. Ch., at pp. 418-419. 3. (1918) 87 L.J. Ch., at pp. 424-425. 4. (1918) 87 L.J. Ch., at p. 429.

Lord Wilberforce in Prenn did not discuss these competing views, perhaps because the difference between them is more apparent than real. However, I doubt whether English and United States use of extrinsic evidence for the purpose of interpretation is quite as uniform as his Lordship appeared to think.

Lord Wilberforce returned to the same theme in Reardon Smith [29] . In a speech concurred in by a majority of the members of the House of Lords he acknowledged that it is legitimate "to have regard to "the surrounding circumstances" " [30] . He went on to say [31] :

In a commercial contract it is certainly right that the court should know the commercial purpose of the contract and this in turn presupposes knowledge of the genesis of the transaction, the background, the context, the market in which the parties are operating. 1. [1976] 1 W.L.R. 989; [1976] 3 All E.R. 237. 2. [1976] 1 W.L.R., at p. 995; [1976] 3 All E.R., at p. 574. 3. [1976] 1 W.L.R., at pp. 995-996; [1976] 3 All E.R., at p. 574.

After discussing Utica , Prenn [32] and Wickman [33] , his Lordship continued [34] :

It is often said that, in order to be admissible in aid of construction, these extrinsic facts must be within the knowledge of both parties to the contract, but this requirement should not be stated in too narrow a sense. When one speaks of the intention of the parties to the contract, one is speaking objectively - the parties cannot themselves give direct evidence of what their intention was - and what must be ascertained is what is to be taken as the intention which reasonable people would have had if placed in the situation of the parties. Similarly when one is speaking of aim, or object, or commercial purpose, one is speaking objectively of what reasonable persons would have in mind in the situation of the parties. His Lordship thought that this approach was supported by the speeches in Hvalfangerselskapet Polaris Aktieselskap v Unilever Ltd [35] and Charrington & Co. Ltd v Wooder [36] . He expressed the conclusion to be drawn from them in this way [37] : what the court must do must be to place itself in thought in the same factual matrix as that in which the parties were. All of these opinions seem to me implicitly to recognise that, in the search for the relevant background, there may be facts which form part of the circumstances in which the parties contract in which one, or both, may take no particular interest, their minds being addressed to or concentrated on other facts so that if asked they would assert that they did not have these facts in the forefront of their mind, but that will not prevent those facts from forming part of an objective setting in which the contract is to be construed. 1. [1971] 1 W.L.R. 1381; [1971] 3 All E.R. 237. 2. [1974] A.C. 235. 3. [1976] 1 W.L.R., at p. 996; [1976] 3 All E.R., at p. 574. 4. (1933) 39 Com. Cas. 1. 5. [1914] A.C. 71, esp. at pp. 77, 80, 82. 6. [1976] 1 W.L.R., at p. 997; [1976] 3 All E.R., at p. 575.

In D.T.R. Nominees Pty. Ltd v Mona Homes Pty. Ltd [38] , Stephen and Jacobs JJ. and I, following Prenn , in a joint judgment said:

A court may admit evidence of surrounding circumstances in the form of "mutually known facts" "to identify the meaning of a descriptive term" and it may admit evidence of the "genesis" and objectively the "aim" of a transaction to show that the attribution of a strict legal meaning would "make the transaction futile" And in Secured Income Real Estate (Australia) Ltd v St. Martins Investments Pty. Ltd [39] in a judgment concurred in by other members of the Court I not only accepted and applied the statement in the majority judgment in B.P. Refinery [40] of the conditions necessary to support the implication of a term, but I also accepted and applied Lord Wilberforce's different treatment, for the purpose of construing a contract, of evidence of surrounding circumstances on the one hand and of the parties' intentions on the other hand. Having considered the topic in more detail on this occasion I see no reason to qualify what I then said. 1. (1978) 138 C.L.R. 423, at p. 429. 2. (1979) 144 C.L.R. 596, at pp. 605-606. 3. (1977) 52 A.L.J.R. 20.

The true rule is that evidence of surrounding circumstances is admissible to assist in the interpretation of the contract if the language is ambiguous or susceptible of more than one meaning. But it is not admissible to contradict the language of the contract when it has a plain meaning. Generally speaking facts existing when the contract was made will not be receivable as part of the surrounding circumstances as an aid to construction, unless they were known to both parties, although, as we have seen, if the facts are notorious knowledge of them will be presumed.

It is here that a difficulty arises with respect to the evidence of prior negotiations. Obviously the prior negotiations will tend to establish objective background facts which were known to both parties and the subject matter of the contract. To the extent to which they have this tendency they are admissible. But in so far as they consist of statements and actions of the parties which are reflective of their actual intentions and expectations they are not receivable. The point is that such statements and actions reveal the terms of the contract which the parties intended or hoped to make. They are superseded by, and merged in, the contract itself. The object of the parol evidence rule is to exclude them, the prior oral agreement of the parties being inadmissible in aid of construction, though admissible in an action for rectification.

Consequently when the issue is which of two or more possible meanings is to be given to a contractual provision we look, not to the actual intentions, aspirations or expectations of the parties before or at the time of the contract, except in so far as they are expressed in the contract, but to the objective framework of facts within which the contract came into existence, and to the parties' presumed intention in this setting. We do not take into account the actual intentions of the parties and for the very good reason that an investigation of those matters would not only be time consuming but it would also be unrewarding as it would tend to give too much weight to these factors at the expense of the actual language of the written contract.

There may perhaps be one situation in which evidence of the actual intention of the parties should be allowed to prevail over their presumed intention. If it transpires that the parties have refused to include in the contract a provision which would give effect to the presumed intention of persons in their position it may be proper to receive evidence of that refusal. After all, the court is interpreting the contract which the parties have made and in that exercise the court takes into account what reasonable men in that situation would have intended to convey by the words chosen. But is it right to carry that exercise to the point of placing on the words of the contract a meaning which the parties have united in rejecting? It is possible that evidence of mutual intention, if amounting to concurrence, is receivable so as to negative an inference sought to be drawn from surrounding circumstances. See Heimann [41] .

The importance of this evolution of the law as it affects the construction of contracts is that it centres upon the presumed, rather than the actual, intention of the parties. Once it is accepted that in the construction of the contract account is taken of the presumed intention of the parties it naturally follows that account should also be taken of their presumed intention when the court is called upon to decide whether a term is to be implied. The existence of the remedy of rectification and the purpose which it serves makes it obvious that the actual intention of the parties cannot constitute the basis of an implied term.

However, it is equally obvious that in making the inquiry whether a term is to be implied the court is no more confined than it is when it construes the contract. For the implication of a term is an illustration of the process of construction, though differing from the more orthodox ascertainment of the meaning of a contractual provision.

There are, of course, older authorities which support a more restricted approach to the implication of a term. One example is the statement of Jordan C.J. in Heimann [41] which confines recourse to the intention manifested by the express terms of the contract. It was later approved by Latham C.J. in Scanlan's New Neon Ltd v Tooheys Ltd [42] . These statements reflect an unduly restrictive approach to construction, an approach which is outmoded or "antiquated", to use the expression favoured in Wigmore on Evidence, 3rd ed. (1940), vol. ix, par. 2465 (p. 214). Indeed, they do not accord with the approach taken by the majority of this Court in Scanlan's - see McTiernan J. [43] and Williams J. [44] .

1. (1938) 38 S.R. (N.S.W.), at p. 695. 2. (1943) 67 C.L.R. 169, at p. 195. 3. (1943) 67 C.L.R., at pp. 206, 209-215, esp. at pp. 214-215. 4. (1943) 67 C.L.R., at pp. 221-225.

The implication of the term found by the Court of Appeal rests on findings made by the Arbitrator based on circumstances surrounding the making of the contract, including evidence of the discussions between the parties which preceded entry into the contract. Thus the Arbitrator found that there was a common understanding (described as a "belief" by the Court of Appeal) that the works would be carried out on a three shift continuous basis six days per week and without restriction as to Sundays. He also found that the Authority had represented to Codelfa, and that it had accepted, that no injunction would be granted in relation to noise or other nuisance. He further found that the works could not be carried out in accordance with methods and programmes agreed between the parties unless Codelfa worked three shifts a day for six days a week.

The first question is whether, in the light of the principles as I have explained them, it was legitimate to look to this material on the issue of implication of a term. I think it was. The discussions which generated these findings were not negotiations about the terms of the contract. The terms of the contract documents had been determined in advance by the Authority. By lodging its tender Codelfa accepted the Authority's contract documents. The relevant discussions were therefore directed to the question of price. Their object was to enable Codelfa to inform itself of what was involved in the work and to cost it so as to arrive at a price for inclusion in its tender. The consequence is that the discussions did not have the character of negotiations in the course of which the parties gradually evolved the terms of a bargain ultimately embodied in written form. Had the discussions been of that kind then, as we have seen, recourse to them would have been prohibited for the purpose of interpreting the contract by reference to the parties' actual intentions as expressed before entry into the contract. As it was, the relevant discussions reflect neither the preliminary consensus that merged into the written contract, nor statements made during the course of negotiations indicative of the unilateral intentions of each party. Instead the evidence revealed a matter which was in the common contemplation of the parties yet was not a contractual provision actually agreed upon for the simple reason that it was a matter of common assumption.

To say that the maintenance of three eight hour shifts a day for six days a week was a matter of common contemplation between the parties is not enough in itself to justify the implication of a term. Lord Atkin's example of the sale of a painting believed by both seller and buyer to be the work of an old master (Bell ) [45] is a striking illustration. It must appear that the matter of common contemplation was necessary to give the contract business efficacy and that the term sought to be implied is so obvious that it goes without saying.

In this case the problem, as I see it, lies not so much in saying that the implication of a term is necessary to give business efficacy to the contract, as in concluding that the particular term to be implied is so obvious that "it goes without saying".

However, before I examine this question in detail I should reject the Authority's invitation to apply the decision of the House of Lords in Thorn v Mayor and Commonalty of London [46] . There it was held that a person calling for tenders on the basis of plans and specifications setting the work to be executed does not impliedly warrant that the work can be successfully executed according to such plans and specifications. That, so it seems to me, was a very different case. Plans and specifications required the building of Blackfriars Bridge by means of caissons designed by the defendants' engineer. The caissons as designed were not strong enough to withstand the pressure of the river with the consequence that work done was wholly lost and additional work had to be undertaken. The contractor's case based on an implied warranty failed, there being some indications in the contract inconsistent with the existence of such a warranty. Lord Cairns L.C. [47] acknowledged that the contractor might have a claim on a quantum meruit for the additional work performed and that he might perhaps have refused to go on with the contract on the ground that the new work was "additional or varied work, so peculiar, so unexpected, and so different from what any person reckoned or calculated upon".

1. (1876) 1 App.Cas. 120. 2. (1876) 1 App.Cas., at p. 127.

Lord Chelmsford [48] thought that "in the exercise of common prudence" the contractor before tender ought to have informed himself of "all the particulars connected with the work, and especially as to the practicability of executing every part of the work contained in the specification, according to the specified terms and conditions". As a canon of commonsense this statement cannot be faulted. But it cannot be elevated into an absolute rule of law - its value and force necessarily depends on the relationship between the parties and the arrangements which they make.

Even so, there remains an insurmountable problem in saying that "it goes without saying" that had the parties contemplated the possibility that their legal advice was incorrect and that an injunction might be granted to restrain noise or other nuisance, they would have settled upon the term implied by the Court of Appeal or that implied by the Arbitrator and by Ash J. at first instance. I doubt whether the fiction of treating the parties as reasonable and fair makes the problem any the less difficult. This is not a case in which an obvious provision was overlooked by the parties and omitted from the contract. Rather it was a case in which the parties made a common assumption which masked the need to explore what provision should be made to cover the event which occurred. In ordinary circumstances negotiation about that matter might have yielded any one of a number of alternative provisions, each being regarded as a reasonable solution.

The difficulty which I have with the implication of a term here is much the same as the difficulty that Lord Reid had in Davis Contractors Ltd v Fareham Urban District Council [49] in accepting that the doctrine of frustration rests on an implied term [50] . It is greater because in many situations it is easier to say that the parties never agreed to be bound in a fundamentally different situation which has unexpectedly emerged than it is to assert that in a like situation the parties have impliedly agreed that the contract is to remain on foot with a new provision, not adverted to by them, governing their rights and liabilities.

1. [1956] A.C. 696. 2. [1956] A.C., at pp. 719-721.

My reluctance to imply a term is the stronger because the contract in this case was not a negotiated contract. The terms were determined by the Authority in advance and there is some force in the argument that the Authority looked to Codelfa to shoulder the responsibility for all risks not expressly provided for in the contract. It is a factor which in my view makes it very difficult to conclude that either of the terms sought to be implied is so obvious that it goes without saying.

Accordingly, my conclusion is that, if Codelfa is entitled to any relief in respect of the changed circumstances, that relief is more appropriately founded on the doctrine of frustration than on the implication of a term. I therefore have no need to consider other arguments advanced by the Authority based on specific provisions in the contract against the implication of a term, although cl. S.8(2)(c) of the specification, a provision which I consider later in connexion with frustration, would require careful consideration before implying the term found by the Court of Appeal.

In Brisbane City Council v Group Projects Pty. Ltd [51] , Stephen J. discussed the authorities. The more recent authorities, National Carriers Ltd v Panalpina (Northern) Ltd [52] and Pioneer Shipping v B.T.P. Tioxide [53] , do not call for any revision of that discussion. I agree with Stephen J.'s acceptance of the approach adopted by Lord Reid and Lord Radcliffe in Davis Contractors. Lord Reid said that the task of the court is to determine "on the true construction of the terms which are in the contract read in light of the nature of the contract and of the relevant surrounding circumstances", "whether the contract which they did make is wide enough to apply to the new situation: if it is not, then it is at an end" [1] . Later he described frustration as "the termination of the contract by operation of law on the emergence of a fundamentally different situation" [2] .

1. (1979) 145 C.L.R. 143, at pp. 159-163. 2. [1981] A.C. 675. 3. [1982] A.C. 724. 4. [1956] A.C., at pp. 720-721. 5. [1956] A.C., at p. 723.

frustration occurs whenever the law recognizes that without default of either party a contractual obligation has become incapable of being performed because the circumstances in which performance is called for would render it a thing radically different from that which was undertaken by the contract. It was not this that I promised to do. His Lordship, noting that special importance attaches to an unexpected event, observed "There must be as well such a change in the significance of the obligation that the thing undertaken would, if performed, be a different thing from that contracted for". 1. [1956] A.C., at p. 729.

It is implicit, if not explicit, in the judgment of Stephen J., as in the speeches of Lord Reid and Lord Radcliffe in Davis Contractors, that to express a preference for this view of frustration as against the theory of the implied condition and other suggested bases is not to cast doubt on the authority of earlier decisions. This is of critical importance because the earlier cases provide many illustrations of the proposition that a contract will be frustrated when the parties enter into it on the common assumption that some particular thing or state of affairs essential to its performance will continue to exist or be available, neither party undertaking responsibility in that regard, and that common assumption proves to be mistaken - see, for example, F.A. Tamplin Steamship Co. Ltd v Anglo-Mexican Petroleum Products Co. Ltd [4] (charter party of a vessel requisitioned in time of war); Denny, Mott & Dickson Ltd v James B. Fraser & Co. Ltd [5] (trading agreement between timber merchants affected by prohibition under legislative authority of continued trading in time of war). Two objections may be urged to the width of the proposition I have stated.

The first is that the common assumption must be found in the contract itself. The answer to this objection is that, granted that the assumption needs to be contractual, in the case of frustration, as with the implication of a term, it is legitimate to look to extrinsic evidence in the form of relevant surrounding circumstances to assist us in the interpretation of the contract, unless its language is so plain that recourse to surrounding circumstances would amount to no more than an attempt to contradict or vary the terms of the contract. Cases such as Krell v Henry [6] demonstrate the point. There the contract was for the hire of a flat for two particular days, the unexpressed common assumption being that the flat was hired for the purpose of viewing the Coronation processions. The Court of Appeal held that the taking place of the processions was the foundation of the contract and that the rent was not recoverable on the processions being cancelled due to the King's illness. The correctness of that decision was questioned by Lord Finlay L.C. in Larrinaga & Co. Ltd v Société Franco-Américaine des Phosphates de Medulla, Paris [7] on the ground that the parties may have contracted in the expectation that a particular event would happen, each taking his chance, but not making the happening of the event the basis of the contract. In Maritime National Fish Ltd v Ocean Trawlers Ltd [8] Lord Wright referred to Lord Finlay's comment, remarking that Krell v Henry was an authority not "to be extended". This comment is not so much a criticism of the reception of the extrinsic evidence in that case as an adverse reflection on its capacity to negate the possibility that each party was taking his chance on the outcome.

1. [1903] 2 K.B. 740. 2. (1923) 29 Com.Cas. 1, at p. 7. 3. [1935] A.C 524, at pp. 528-529.

Krell v Henry was strongly criticized by Latham C.J. in Scanlan's [9] , but much of his Honour's criticism appears to be founded on the outmoded view, rejected by McTiernan and Williams JJ., that it was not legitimate to take extrinsic evidence into account. Even so, his Honour was disposed to concede that Krell v Henry could be more readily understood as a contract which was subject to a condition or as a conditional contract [10] . It is not without significance that the parol evidence rule has never been applied so as to exclude evidence of a condition, non-fulfilment of which goes to the existence or validity of the contract. In any event McTiernan and Williams JJ. took a more favourable view of Krell v Henry , demonstrating that it was consistent with the later cases and that the views expressed by Vaughan Williams L.J. in that case conformed to the doctrine of frustration as it was subsequently elaborated [11] . Of course, we need to read the judgments in Scanlan's in the light of the more recent statements as to the theoretical basis of the doctrine. However, in my view they do not affect the point now under discussion, except to reinforce the reception of extrinsic evidence of relevant surrounding circumstances. So, Lord Radcliffe in Davis Contractors [12] quoted with approval the remarks of Lord Wright in Denny, Mott & Dickson [13] :

The data for decision are, on the one hand, the terms and construction of the contract, read in the light of the then existing circumstances, and on the other hand the events which have occurred. And, as we have seen, Lord Reid was of the same opinion. 1. (1943) 67 C.L.R., at pp. 188-194. 2. (1943) 67 C.L.R., at p. 193. 3. (1943) 67 C.L.R., at pp. 210-216, 220-225. 4. [1956] A.C. at p. 729. 5. [1944] A.C., at pp. 274-275.

The second objection is that the proposition does not sufficiently acknowledge the fact that the event which generally, if not universally, works a frustration, is an event which supervenes after the making of the contract, viz. a change in the law which makes it impossible for the parties to execute the contract. It is not surprising that the cases commonly throw up situations of supervening impossibility caused by a change in the law - they are the more common instances of the unforeseen or unexpected occur rence. But in principle there is no reason why a mutual assumption arising from a mistaken view that an activity is immune from injunctive relief should not attract the principle of frustration. No doubt it is more difficult in such a case to show that the grant of injunctive relief was not foreseen or could not reasonably have been foreseen, but if that can be shown then the doctrine of frustration should apply. The injunction is a supervening event though it does not stem from any alteration in the law.

An unusual element in the present case is that the parties appear to have received, accepted and acted on erroneous legal advice that the contract work could not be impeded by the grant of an injunction to restrain noise or other nuisance, advice which was based on an erroneous interpretation of s. 11 of the City and Suburban Electric Railways Act 1915 NSW. One might have expected the parties and their advisers to have had reservations about the correctness of the advice and to have given consideration to the possibility that, despite the advice, an injunction might be granted. However, the findings do not reflect the existence of any reservations; indeed, they record Codelfa's acceptance of the representations made by the Authority. Codelfa is a wholly owned subsidiary of an Italian company and this may explain Codelfa's willingness to accept and act on the representation made by the Authority.

The doctrine of frustration is closely related to the concept of mutual mistake. However, in general, relief on the ground of mutual mistake is confined to mistakes of fact, not of law. If the common contractual assumption is of present fact it is a case of mutual mistake; if the assumption is of future fact it is a case of frustration (Bell [14] , per Lord Atkin), the distinction being that in one case the contract is void ab initio and in the other it is binding until the assumption is falsified. Here the mistake is not one of present fact; it is either a mistake as to future fact or a mistake of law. Even if it be a mistake of law, this is not, I think, fatal to the application of the doctrine of frustration. The unsatisfactory distinction between a mistake of fact and one of law has not so far been carried over into frustration and I see no reason to further complicate the doctrine by invoking this distinction.

The critical issue then is whether the situation resulting from the grant of the injunction is fundamentally different from the situation contemplated by the contract on its true construction in the light of the surrounding circumstances. The contract itself did not require that the work be carried out on a three shift continuous basis six days a week without restriction as to Sundays. But it required completion of the works within 130 weeks. And Codelfa with its tender had submitted a construction programme which involved a three shift continuous basis six days a week. By cl. S.6 of the specifications Codelfa was required to submit a revised programme of work to the Engineer for his determination within thirty calendar days of the issue of a notice to proceed under the contract. This Codelfa did. Again it made provision for the method of operation already mentioned. It was accepted by the Engineer.

It is in this contractual setting that the findings of the Arbitrator have special significance. The relevant findings are set out in pars. 14, 15, 16, 18 and 19 of his award.

14. The Parties to Contract ESR 1005 each entered into such Contract on the common and mutual understanding and on the basis that:

(a) the works the subject of the Contract should and would be carried out by the Contractor on a 3-shift continuous basis six days per week and without restriction as to Sundays, and

(b) the work to be performed was inherently of a noisy and disturbing nature and the work or substantial parts thereof was to be carried out in close proximity to areas of residential neighbourhood, and

(c) no Injunction or other Restraining Order could or would be granted against the Contractor in relation to noise or other nuisance arising out of the carrying on of the said works on such basis.

15. The matter mentioned in paragraph 14(c) was represented by the Principal to the Contractor and was accepted as the situation by the Contractor prior to and at the time of entering into the Contract.

16. The said works could not in fact be carried out by the Contractor in accordance with methods and programmes agreed to by the parties and in accordance with the contractual stipulations as to time of performance unless the works were carried out on the basis mentioned in paragraph 14(a) hereof.

18. Restraining Orders and Injunctions were in fact issued by the Court on grounds of noise and other nuisance arising out of the carrying out of the works by the Contractor on the basis mentioned in paragraph 14(a) hereof the effect of which was (inter alia) to prohibit and preclude the works from being carried out by the Contractor on the said basis and to cause the Contractor to incur additional cost in the carrying out of the works.

19. The said works could not in fact be carried out by the Contractor in accordance with methods and programmes agreed to by the parties without substantial noise and other disturbances arising therefrom or in connection therewith by reason of the inherently noisy and disturbing nature of the work.

The submission of the proposed programme of work with the tender, its supersession by the revised programme pursuant to cl. S.6 of the specifications, together with the very provisions of cl. S.6 itself dealing with the construction programme, provide a link between the contract and the antecedent discussions so as to enable us, subject to a consideration of specific provisions in the specifications, to say that the contract contemplated that completion would be achieved within the time stipulated by the method of work already mentioned, it being assumed that it could not be disturbed by the grant of an injunction.

I reject the Authority's argument that cl. S.6 is inconsistent with the notion that the contract looked to this method of work as the mode by which the work was to be completed. Certainly cl. S.6(5) envisaged that a major change to the work diagram as determined by the Engineer might be required by "revisions to the programme". It seems that the responsibility for initiating such a change lay with Codelfa. But I do not think that this is necessarily inconsistent with Codelfa's case on frustration nor do I think that cl. G.44(7) of the contract, which provides for the grant of an extension of time in case of delays "owing to causes beyond the control or without the fault or negligence of the Contractor", covers the position. Delay due to the grant of an injunction on the ground of nuisance committed by Codelfa scarcely answers this description, even though it results from performance of the work in the only manner which will enable completion to take place within the time stipulated.

Clause S.8(2)(c) however, poses a greater obstacle. It provides:

The operation of all plant and construction equipment shall be such that it does not cause undue noise, pollution or nuisance. This may require the use of sound insulated compressors and air tools, silencers on ventilating fans and restrictions on the working hours of plant or such other measures as approved by the Engineer. The Contractor shall not be entitled to additional payment if the Engineer requires that measures be taken to reduce noise and pollution. Once the injunctions were granted the Engineer gave notices reflecting the provisions of the injunctions, restricting the hours of work so as to prohibit work at night and thereby inhibited Codelfa from continuing with its three shift operation under the contract.

The first paragraph of cl. S.8(2)(c) contains a promise by Codelfa that it will not operate plant and equipment so as to cause a nuisance. The second specifically looks to the possibility of a restriction on working hours of plant. And the third denies additional remuneration if the Engineer requires measures to be taken to reduce noise and pollution.

Do these provisions support the view that Codelfa was undertaking in any event to perform the contract work, even though the method contemplated by the parties might prove to be unlawful or impossible by reason of its amounting to a nuisance and its being restrained by injunction? I do not think that cl. S.8(2)(c) has such a wide-ranging effect. It involves no subtraction from the language of the provisions to say that it is quite consistent with the contemplated method of work being an essential element of the contract. Indeed, there would be no inconsistency between these provisions and an explicit provision for termination of the contract in the event that the method of work was restrained by injunction. There was plenty of scope for an exercise of the Engineer's power under the second paragraph so long as it did not displace the continuation of that method of work.

I come back then to the question whether the performance of the contract in the new situation was fundamentally different from performance in the situation contemplated by the contract. The answer must, I think, be in the affirmative. Paragraphs 14, 15, 16, 18 and 19 of the Arbitrator's award go a long way towards establishing this answer. The finding contained in par. 16 proceeds on the footing that the contract work could not be carried out as contemplated by the contract once injunctions were granted, the effect of which was to prohibit the continuous three shift a day operation six days a week. Performance by means of a two shift operation, necessitated by the grant of the injunctions, was fundamentally different from that contemplated by the contract.

There is, of course, no inconsistency between the conclusion that a term cannot be implied and the conclusion that events have occurred which have brought about a frustration of the contract. I find it impossible to imply a term because I am not satisfied that in the circumstances of this case the term sought to be implied was one which parties in that situation would necessarily have agreed upon as an appropriate provision to cover the eventuality which has arisen. On the other hand I find it much easier to come to the conclusion that 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.

It is the stated case in action No. 12577 of 1978 that presents the issues relating to frustration. In that action Codelfa sought relief against the Authority on the footing that the contract had been frustrated. The action was commenced on 23 May 1978 after Yeldham J. had ruled on 9 September 1976, following the Privy Council's decision in Hirji Mulji v Cheong Yue Steamship Co. [15] , as he was bound to do, in preference to the conflicting decision of the House of Lords in Heyman v Darwins Ltd [16] , that the Arbitrator had no jurisdiction to entertain a claim based on frustration. The Arbitrator's award was not delivered until 15 April 1980. Shortly after Codelfa amended its statement of claim in the action so as to plead some of the findings made by the Arbitrator in his award. The stated case was subsequently filed in the action on 26 August 1980. It asks the following questions:

(i) Whether the Arbitrator's findings in the Award or any of them give rise to issue estoppels which can be relied upon in this action.

(ii) Whether the Arbitrator's findings in the Award which give rise to issue estoppels establish in law that the Contract ESR 1005 was frustrated on or about 28th June 1972.

(iii) Whether the Arbitrator's findings in the Award are capable of giving rise to issue estoppels having regard to the conclusions reached by the Court in its judgment on the Stated Case, arising for determination in this Division in proceedings numbered 11653 and 11793 of 1980.

(iv) Whether the Plaintiff by obtaining the Award made a final election between inconsistent remedies and/or rights, and is now precluded from alleging in this action that the contract was frustrated on or about 28/6/72.

It also contains the following paragraph: The facts upon which the Plaintiff relies to establish frustration are contained in and limited to the pleadings and the findings of the Arbitrator under the reference to arbitration the subject of proceedings number 2933 of 1976. If any of the questions are answered adversely to the Plaintiff the Plaintiff will not rely upon its ordinary right to apply to amend the Statement of Claim in order to plead a case of frustration substantially independent of issue estoppels to support its opposition to any application by the Defendant for judgment in the action. 1. [1926] A.C. 497. 2. [1942] A.C. 356.

The problem of issue estoppel is complicated by the circumstance that the decision of Yeldham J. dictated the future course of the proceedings. In the result the total controversy between the parties became fragmented. There seems to be no reason why this Court, now that it is seized of the case, should not decide the conflict between Heyman and Hirji Mulji. Indeed, the jurisdiction of the Arbitrator and the use to which his findings can be put in relation to frustration depends upon a resolution of the conflict.

Hirji Mulji decided that an arbitrator had no jurisdiction under an arbitration clause in a charterparty when the charterparty was terminated by frustration because the arbitration clause was brought to an end with the contract of which it formed part. In Heyman the House of Lords decided that an arbitration clause, which provided that any difference or dispute which might arise "in respect of" or "with regard to" or "under the" contract should be referred to arbitration, applied to a dispute arising out of a claim by one party that liability under the contract had been discharged by reason of repudiation which had been accepted.

In Heyman their Lordships drew a distinction between a contract void ab initio, in which event there is no valid submission to arbitration, and a valid contract which is subsequently repudiated, where acceptance of the repudiation leaves the contract, including the arbitration clause, on foot for the purpose of enforcement, though performance under the contract is at an end. Viscount Simon L.C. [17] , Lord Wright [18] and Lord Porter [19] thought that the effect of frustration was similar to that of repudiation which has been accepted by the innocent party, with the consequence that the arbitration clause is left on foot. Although Lord Wright and Lord Porter did not express a concluded opinion upon the question, they nevertheless expressed reasons for arriving at a result contrary to that reached in Hirji Mulji. As might be expected, emphasis was given to the need to construe the relevant arbitration clause so as to ensure that it comprehends the particular dispute or difference which has arisen between the parties. In this action the Lord Chancellor expressly left open the effect of a Scott v Avery clause.

1. [1942] A.C., at p. 367. 2. [1942] A.C., at p. 383. 3. [1942] A.C., at p. 395.

Lord Macmillan [20] , who spoke for Lord Russell of Killowen as well, in putting cases of frustration to one side, expressed doubt as to the correctness of some of the views enunciated by Lord Sumner in Hirji Mulji. Nothing in Lord Macmillan's speech is inconsistent with the proposition that frustration does not put an end to a submission to an arbitration clause so expressed as to confer jurisdiction on an arbitrator to decide a dispute relating to frustration. Indeed, the emphasis which his Lordship gave to the special nature and purpose of arbitration clauses suggests that he would have come to the same conclusion upon the point as that reached by the Lord Chancellor.

In my opinion, the reasoning of the House of Lords in Heyman is to be preferred to that of Lord Sumner in Hirji Mulji [21] . In its application to an arbitration clause the distinction between a contract which is void ab initio and a contract which is valid but subsequently repudiated is well taken. Lord Sumner was in error in holding that the acceptance by an innocent party of the repudiation of a contract brings the contract, including an arbitration clause, to an end for all purposes. I agree with the House of Lords that the case of frustration is to be assimilated for relevant purposes to the determination of a contract by breach or by acceptance of repudiation. The fact that the Lord Chancellor proceeded on the implied term theory of frustration does not in my view affect the reasoning by which he arrived at his conclusion.

The relevant clause in the contract in the present case, cl. G.46, contains a Scott v Avery [22] clause. Clause G.56, so far as is relevant is in these terms:

(1) Except as otherwise specifically provided in the Contract all disputes arising out of the Contract during the progress of the works or after completion or as to any breach or alleged breach thereof shall be decided by the Commissioner.

(4) Submission to arbitration shall be deemed to be a submission to arbitration within the meaning of the New South Wales Arbitration Act 1902 or any statutory modification thereof.

(5) No action or suit shall be brought or maintained by the Contractor or the Commissioner against the other of them to recover any money for or in respect of or arising out of any breach or alleged breach of this Contract by the Contractor of the Commissioner or for or in respect of any matter or thing arising out of this Contract unless and until the Contractor or the Commissioner shall have obtained an award of an Arbitrator appointed under this clause for the amount sued for

Sub-clause (1) refers to "all disputes arising out of the Contract", an expression wider than "disputes under the Contract", the expression which Lord Wright in Heyman was inclined to think sufficient to confer jurisdiction on the arbitrator with respect to frustration, had the question arisen in that case. The sub-clause was plainly wide enough to embrace a dispute arising out of a claim by Codelfa for remuneration on a quantum meruit based on frustration of the contract.

To my mind the fact that sub-cl. (5) is a Scott v Avery clause does not diminish the jurisdiction of the Arbitrator. Indeed, once the conclusion is reached that the submission to arbitration is broad enough to include the dispute, even though it relates to frustration, sub-cl. (5) operates to condition curial jurisdiction on the existence of an award. There may be a problem with that part of the sub-clause that requires the Contractor to proceed with the work during arbitration proceedings, but we have no need to grapple with that problem.

The true position, as it seems to me, is that the Arbitrator had, and has, jurisdiction to deal with this issue and that the parties by cl. G.46(5) effectively conditioned their right to sue, whether on the contract or in quasi-contract, on the existence of an award. In this situation it is not possible to determine the rights of parties on the footing that the findings already made by the Arbitrator give rise to issue estoppels which amount to a finding of frustration. Instead we should follow the course of remitting the matter to the Arbitrator so that he can exercise the jurisdiction which has hitherto been denied him.

Earlier I expressed the view that the findings so far made by the Arbitrator go a long way towards a conclusion that the contract has been frustrated. Naturally they stop short of that because the issue was taken from him by the decision of Yeldham J. Consequently, he did not consider whether performance of the contract in the changed circumstance was fundamentally different from the performance contemplated by the contract. That is something that remains for him to consider, although, having regard to the view I have taken of his findings, I cannot think that it will cause him much difficulty.

The history of the matter does not suggest that Codelfa made a final election against frustration by obtaining an award on the basis that the contract remained on foot after 28 June 1972. At all times Codelfa has sought to maintain its claim based on frustration as an alternative to the relief sought on the footing that there was an implied term.

There may be a question, assuming frustration, as to whether the contract was frustrated on 28 June 1972. The first injunction was granted on that day. It did not restrict the hours of working; it restrained blasting of such intensity that rocks were propelled into surrounding residential areas. However, it also restrained Codelfa from detonating explosives in such a way as to cause or permit to be emitted from the site vibrations or noise to such a degree as to occasion to the plaintiff a nuisance or annoyance. The judgment expressly rejected Codelfa's claim of immunity based on s. 11 of the City and Suburban Electric Railways Act. It therefore destroyed the common belief of the parties that no injunction could be granted to restrain noise or other nuisance on the part of Codelfa in the construction of the works and it effectively resulted in a situation, confirmed by the later injunctions, where the work could not be continued on the footing of a continuous three shift operation a day for six days a week. However, the matter is for the Arbitrator to decide.

I am in agreement with what Aickin J. has written on this topic.

The Authority's argument is that this Court's decision in Government Insurance Office of New South Wales v Atkinson-Leighton Joint Venture [23] is to be distinguished on the ground that the contract here contains a Scott v Avery [24] clause - cl. G.46(5). The consequence is that no cause of action arises prior to the making of the arbitral award. It is then submitted that there is no "period between the date when the cause of action arose and the date when the judgment takes effect" within the meaning of s. 94(1) of the Supreme Court Act 1970 NSW which authorized the Court to order the inclusion in the sum for which judgment is given of " interest at such rate as it thinks fit on the whole or any part of the money for the whole or any part of the period between the date when the cause of action arose and the date when the judgment takes effect."

1. (1981) 146 C.L.R. 206. 2. (1865) 5 H.L.C. 811; [ 10 E.R. 1121.]

As it happened the insurance policy in Atkinson-Leighton contained a Scott v Avery clause, but no argument was directed to it. The decision in that case therefore does not foreclose the question now raised.

The effect of cl. G.46(5) is to prevent the bringing of an action on the contract for damages for breach of contract before an award is made by an arbitrator. The making of the award is a condition precedent to the existence of the cause of action Anderson v G.H. Michell & Sons Ltd [25] ; South Australian Railways Commissioner v Egan [26] .

1. (1941) 65 C.L.R. 543, at p. 550. 2. (1973) 130 C.L.R. 506, at p. 519.

There is a well recognized difference between an ordinary submission to arbitration and a submission containing a Scott v Avery clause. With the former, but not with the latter, the action may be brought before an arbitral award is made.

The principle to be extracted from this line of authority is that, subject to such qualifications as relevant statute lay may require, an arbitrator may award interest where interest would have been recoverable had the matter been determined in a court of law. What lies behind that principle is that arbitrators must determine disputes according to the law of the land. Subject to certain exceptions, principally related to forms of equitable relief which are of no present relevance and which reflect the private and necessarily evanescent status of arbitrators, a claimant should be able to obtain from arbitrators just such rights and remedies as would have been available to him were he to sue in a court of law of appropriate jurisdiction. 1. (1981) 146 C.L.R., at p. 235.

In a judgment with which Murphy J. agreed I said [28] :

Although s. 94 is expressed in the form of an authority of the court, its effect is to alter the antecedent principle of law regulating the payment of interest on moneys included in judgments between the date when the cause of action arose and the date when the judgment takes effect. The parties' submission to arbitration of all their differences is to be construed in the light of the new principle of law regulating the payment of interest enshrined in s. 94. There is to be implied in the submission an authority in the arbitrator to award interest conformably with s. 94 because the Supreme Court is given by the Arbitration Act a supervisory function in relation to an arbitration and because an award of an arbitrator is enforced as if it were a judgment or order of the court (s. 14). 1. (1980) 146 C.L.R., at p. 247.

Accordingly the Court of Appeal was correct in saying that s. 94 should be regarded as defining the powers of an arbitrator with such variations as the nature of the circumstances requires, subject of course to any specific provision in that behalf which may be contained in the contract constituting the submission to arbitration. The terms of s. 94 are necessarily modified when they are imported into the submission in order to take account of those characteristics which distinguish an arbitration from court proceedings. For the purpose of exercising his implied authority to award interest the Arbitrator proceeds on the footing that the arbitration and the award are to be assimilated to court proceedings and to a curial judgment respectively. The hypothesis is that his award which determines the dispute or difference is the equivalent of a judgment which determines a cause of action.

Does this mean that when the submission is pursuant to a Scott v Avery clause the Arbitrator has no power to award interest because the making of the award coincides with the arising of a cause of action which can be sued to judgment? An affirmative answer depends on a definition of the arbitrator's power in the very terms of s. 94, allowing only for the substitution of "award" for "judgment" and for a reading of "proceedings" so that it applies to an arbitration. The point on which the affirmative answer hinges is an insistence that an implied authority of the Arbitrator to award interest relates to a period beginning with "the date when the cause of action arose", notwithstanding the need to modify the language of s. 94 in order to meet the characteristics of an arbitration. This result conforms to the policy manifested in s. 94 that the power to award interest is confined to the period which begins with the emergence of the cause of action.

The obverse of this picture is that the parties by arming the Arbitrator with implied authority to award interest have recognized that the arbitration has taken the place of court proceedings. The statutory power is therefore to be moulded so that it is expressed in terms appropriate to, and capable of being exercised in, an arbitration. It should be read accordingly as authorizing the Arbitrator to award interest for the period from the date when the dispute or difference arose to the date when the award became effective for the award settles the dispute or difference, not the cause of action.

To conclude otherwise would be to deny any power to award interest in arbitrations pursuant to a Scott v Avery [29] clause, a very common form of arbitration. Indeed, if the Authority's argument were correct, it would constitute a ground for saying that in such a case no authority to award interest should be implied, contrary to the decision in Atkinson-Leighton, rather than a ground for saying that there is an implied authority in such a case, but that there is nothing to which it can relate.

Another matter to be noted is that the object of a Scott v Avery clause is to force the parties to arbitration, to deny them the option of suing in court before an arbitration takes place. The Arbitration Act 1902 NSW has largely overcome the disadvantages associated with suing on the award as a preliminary to enforcing it by enabling the award to be enforced as if it were a judgment (s. 14). In this situation there is no injustice in empowering the Arbitrator to award interest as if his award settling the dispute or difference were a judgment determining a cause of action.

Codelfa submitted that the Arbitrator had power to award compound interest. The submission is quite without substance. The Court of Appeal correctly pointed out that s. 94(2)(a) provides that the section does not authorize the giving "of interest upon interest" and that compound interest necessarily involves the giving of interest on interest.

Codelfa sought to overcome this by relying on the dissenting judgment of Lord Denning M.R. in Tehno-Impex v Gebr. Van Weelde Scheepvaartkantoor B.V. [30] . There the claim was for compound interest on late payment by charterers for demurrage. Lord Denning expressed the view that the power of an arbitrator to award interest stems, not from statutory authority, but from a discretion which he possesses under the general law dating back at least to 1819 [31] . The true position, according to his Lordship, is that when a creditor has suffered real damage by being kept out of his money, and the debtor has made a gain by keeping it, the Arbitrator is able "to award damages in the shape of interest - for the period during which debt or damages has been withheld" [31] .

1. [1982] 1 Q.B. 648. 2. [1982] 1 Q.B., at p. 664. 3. [1982] 1 Q.B., at p. 664.

The Master of the Rolls [32] then went one step further in saying that the Arbitrator had a discretion to award interest with yearly or half-yearly rests, the statutory limitation in s. 3(1)(a) of the Law Reform (Miscellaneous Provisions) Act 1934 U.K., the counterpart of s. 94(2)(a) of the New South Wales Act, having no application because the power of the Arbitrator had its origin, not in the statute, but in the general law as it applied to arbitrators.

However, the members of the majority were of a different mind. Oliver L.J. thought that neither s. 3(1)(a), the common law nor the admiralty jurisdiction conferred or enjoyed power to award interest in the circumstances of the case. Watkins L.J., though of opinion that neither s. 3(1)(a) nor the common law conferred such power, considered that the Arbitrator could exercise the equitable power which the Admiralty Court possessed to award interest on principal already paid and interest upon interest by way of damages [33] . The majority decision denied any common law power in the Arbitrator to award interest on interest. It acknowledged the existence of such a power in admiralty cases. That, of course, is of no relevance here where no element of admiralty jurisdiction intrudes.

The Arbitrator's power to award interest in the present case, as Atkinson-Leighton [34] decided, is referable to s. 94. As such it is circumscribed by s. 94(2)(a) and it does not extend to the making of an award for compound interest.

In the result in appeal No. 71 of 1981 I would allow the appeal in part, and the cross-appeal in part and otherwise dismiss the appeal and the cross-appeal. I would set aside the order of the Court of Appeal and the order of Ash J. and in lieu thereof I would answer the questions in the stated case in the manner set out in the formal order of this Court. In appeal No. 72 of 1981 I would set aside the order of Ash J. and that of the Court of Appeal; I would strike out the action for want of jurisdiction.

The material facts, and the history of the various proceedings, upon which this appeal and cross-appeal depend are set out in other judgments and I do not repeat them here. I find it necessary however to set out in full certain provisions of the contract documents.

In these reasons I refer to Codelfa Construction Pty. Ltd (the appellant) as "Codelfa" and to the State Rail Authority of New South Wales (the respondent and cross-appellant) as "the Authority". Not all the issues which have arisen in the course of the various proceedings below are still in dispute. It will be convenient to deal with the matters which are still in dispute under separate headings.

For the purpose of proceedings before Ash J. in the Supreme Court of New South Wales the Arbitrator made certain "Findings of Primary Facts" to which he refers in his award.

The first issue with which he dealt was whether there were any implied terms. His findings on this point were:

14. The Parties to Contract ESR 1005 each entered into such Contract on the common and mutual understanding and on the basis that:

(a) the works the subject of the Contract should and would be carried out by the Contractor on a 3-shift continuous basis six days per week and without restriction as to Sundays, and

(b) the work to be performed was inherently of a noisy and disturbing nature and the work or substantial parts thereof was to be carried out in close proximity to areas of residential neighbourhood, and

(c) no Injunction or other Restraining Order could or would be granted against the Contractor in relation to noise or other nuisance arising out of the carrying on of the said works on such basis.

15. The matter mentioned in paragraph 14(c) was represented by the Principal to the Contractor and was accepted as the situation by the Contractor prior to and at the time of entering into the Contract.

He then set out the evidence to which he had regard in making that finding. It is sufficient for present purposes to quote only pars 16, 17 and 19 which were as follows:

16. The said works could not in fact be carried out by the Contractor in accordance with methods and programmes agreed to by the parties and in accordance with the contractual stipulations as to time of performance unless the works were carried out on the basis mentioned in paragraph 14(a) hereof.

17. In view of the foregoing neither party foresaw the likelihood or possibility of any restrictions being imposed on the carrying out of the works on the basis mentioned in paragraph 14(a) by reason of Injunctions or Restraining Orders issued by the Court on grounds of noise or other nuisance arising out of the carrying out of the works.

19. The said works could not in fact be carried out by the Contractor in accordance with methods and programmes agreed to by the parties without substantial noise and other disturbances arising therefrom or in connection therewith by reason of the inherently noisy and disturbing nature of the work.

He then found that there was to be implied a term as follows:

to the effect that upon the issuing of the Restraining Orders and Injunctions referred to in paragraph 18 the Principal would grant to the Contractor a reasonable extension of time for the completion of the works and would advise the Contractor of the fact of the grant of the extension of time within a reasonable period after the issuing of the Restraining Orders and Injunctions became known to the Principal or ought to have become known to the Principal.

In the course of his award, the Arbitrator said that at the request of the Authority he stated the matters (in addition to the contract documents)

to which I have had regard in making the above Findings namely, to certain evidence (summarised in my Findings of Primary Facts) as follows: -

(a) Evidence of general tunnelling practice and of particular examples of such practice including that followed by a joint venture of which the Contractor was a member on another section of the Eastern Suburbs Railway (Contract ESR 1002).

(b) Evidence that the nature and extent of the works anticipated by Contract ESR 1005 were such that completion within the time specified in the Contract suggested a three shift operation.

(c) Evidence as to matters including but not limited to (a) and (b) above which was part of the background against which the Contract was entered into pointing to the Contractor and Principal each accepting and assuming that the work was to be carried out on a three shift basis and would be immune from interference from restraining orders and injunctions.

It was on the basis primarily of those findings that the Arbitrator found that there was to be implied into the contract the term which I have quoted above.

The Arbitrator felt precluded by law from considering the question of frustration. He rightly regarded himself as bound by the decision of the Privy Council which had established that frustration was not within the jurisdiction of an arbitrator, notwithstanding the existence of a later House of Lords decision to the contrary. No complaint is made of the Arbitrator's failure to deal with frustration or about the decision of Ash J. that he also was obliged to follow the decision of the Privy Council.

In the result the Arbitrator did not consider frustration and the Court of Appeal of the Supreme Court of New South Wales did find it necessary to consider that question. Ash J. considered frustration but concluded that the contract had not been frustrated. Both the Arbitrator and Ash J. thought that a term should be implied in the contract which excused the Contractor from performance in accordance with the terms of the contract in the events which happened. They differed somewhat as to the form of the term which was to be implied but in my opinion the differences are not really material.

Logically the question whether there is to be a term implied into the contract must be dealt with before the question of possible frustration can arise. Accordingly I must first deal with the term implied by the Court of Appeal. One approach to this question has been to postulate the presence of the "officious bystander" who is present throughout the negotiations and intervenes before their conclusion. This has been the formula used since MacKinnon L.J. introduced it in Shirlaw v Southern Foundries (1926) Ltd [35] . It is not always a helpful or useful process and there are particular problems in applying the traditional approach to cases of building or construction contracts. I note in passing that Lord Denning's attempt to "kill off" the officious bystander in Liverpool City Council v Irwin [36] did not commend itself to the House of Lords in the same case [37] . However it seems no longer the exclusive means of approaching the question.

1. [1939] 2 K.B. 206, at p. 227. 2. [1976] 1 Q.B. 319. 3. [1977] A.C. 239.

The first problem is that the manner in which the officious bystander formulates his question will often determine the answer which the parties will give. In the present case if the question put was "What will be the position if the Authority's legal advice about immunity is wrong?", the answer would be very different from that which might be received to the question "What will happen if an injunction is granted?". Yet it seems to me with respect that the former question is equally, if not more, appropriate. One may formulate a further query - must the officious bystander be satisfied with the first response or may he pose a second question, and if not, why not?

The second problem, which does not seem to have been expressly adverted to in the authorities is the manner in which the doctrine of implied terms should be applied in the case of "contracts of adhesion" where the terms are not the result of negotiation (except as to price) but are provided in a standard form designed by one party upon which the other must tender. In the present case the only questions for negotiation were the price and one aspect of the mode of performance of part of the work.

It does not however follow that there is no room for implied terms in the case of standard form contracts, but undoubtedly it will be more difficult to imply the existence of unexpressed terms in such cases. The calling for tenders by a government authority upon its own standard form of contract suggests that it contains the only terms on which it is prepared to contract, and that a tender on the basis of different terms would be instantly rejected. It must however remain possible that there is some matter to which neither party has adverted but to which both would readily assent if it were brought to their attention. In the case of standard form contracts however it seems much more likely that, although neither party had considered the point raised, they might not have readily agreed upon a common solution to the new problem. They must however be considered to be "reasonable men" and not subject to such human failings as pride of authorship or sudden caution induced by a possibility which they had not contemplated. It would seem likely that the response to the question which I have posed would be "You must obtain your own legal advice" rather than "We are completely confident that our advice is right but you will be fully compensated if it turns out to be wrong and an injunction is granted".

The possible answers to the officious bystander seem to me to be a matter for speculation and are not a matter about which I can feel sufficient certainty to warrant the implication of a term.

The Arbitrator expressed the implied term in the terms of the very event which happened, i.e. the grant of an injunction restraining work on the night shift. That is, to concentrate on the particular event which happened rather than upon the nature of the term to be implied in advance in order to cover contingencies which had not occurred to either party. The question must however be considered as at the date of the contract and with reference to the significance of possible events.

Ash J. found an implied term which he expressed in more general terms and more in accordance with what the parties might have formulated in advance if they had adverted to the possibility that the Authority or its legal advisers were wrong in saying that the Contractor would be protected from injunctions and any other legal action in respect of nuisance. In the Court of Appeal the implied term was expressed in a slightly different manner but not so different as to require the view that difficulty of expression made it either impossible or unusually difficult to imply a term. If a term were to be implied I would prefer the version adopted by the Court of Appeal subject to the insertion therein of the words "any losses or damages thereby suffered including" after the word "against" and before the words "any additional costs".

I turn therefore to the question of frustration. The Contractor's argument was that the grant of the injunction had such a drastic effect upon its construction programme, both physically and financially, that it was transformed into an obligation radically different from that which it had undertaken on the common erroneous understanding.

It was argued for the Contractor that the completion of the works within the contract period specified became impossible. That impossibility arose on the one hand from the nature of the work to be performed and the contract period within which it was required to be completed, and on the other hand from the injunctions which prevented the tunnelling work being performed on a three-shift basis with freedom to work on Sundays, in the manner which the Arbitrator found was contemplated by the parties: see the Arbitrator's findings, pars 14-19, which are quoted above.

This produced the result that it was unlawful to complete the works in the manner contemplated and within the time required by the contract because the only manner of operation which could produce that result was prohibited by the injunction. The completion of the works within the contract time was, to the knowledge of both parties, dependent upon working three shifts continuously and on Sundays when thought desirable. That mode of operation was prohibited by the Court order.

The manner in which the doctrine of frustration is generally expressed has undergone some change, though it has not been suggested that its content has changed. When it was first developed it was usual to express it as arising from an implied term: see, for example, F. A. Tamplin Steamship Co. Ltd v Anglo-Mexican Petroleum Products Co. Ltd [38] , per Lord Loreburn, Scanlan's New Neon Ltd v Tooheys Ltd [39] , where Latham C.J. adopted this view, but the other two members of the Court adopted a view much closer to that now prevailing. See also British Movietonews Ltd v London and District Cinemas Ltd [40] . The doctrine is now generally expressed as depending on changes in the significance of the obligations undertaken and the surrounding circumstances in which the contract was made. This development was explained by the House of Lords in Davis Contractors Ltd v Fareham Urban District Council [41] ; see especially per Lord Reid [42] , and per Lord Radcliffe [43] . It is convenient to quote part of what Lord Radcliffe said [44] :

Lord Loreburn ascribes the dissolution to an implied term of the contract that was actually made. This approach is in line with the tendency of English courts to refer all the consequences of a contract to the will of those who made it. But there is something of a logical difficulty in seeing how the parties could even impliedly have provided for something which ex hypothesi they neither expected nor foresaw; and the ascription of frustration to an implied term of the contract has been criticized as obscuring the true action of the court which consists in applying an objective rule of the law of contract to the contractual obligations that the parties have imposed upon themselves. So long as each theory produces the same result as the other, as normally it does, it matters little which theory is avowed (seeBritish Movietonews Ltd v London and District Cinemas Ltd [45] , per Viscount Simon). But it may still be some importance to recall that, if the matter is to be approached by way of implied term, the solution of any particular case is not to be found by inquiring what the parties themselves would have agreed on had they been, as they were not, forewarned. It is not merely that no one can answer that hypothetical question: it is also that the decision must be given "irrespective of the individuals concerned, their temperaments and failings, their interest and circumstances" (Hirji Mulji v Cheong Yue Steamship Co. Ltd [46] ). The legal effect of frustration "does not depend on their intention or their opinions, or even knowledge, as to the event." [1] . On the contrary, it seems that when the event occurs "the meaning of the contract must be taken to be, not what the parties did intend (for they had neither thought nor intention regarding it), but that which the parties, as fair and reasonable men, would presumably have agreed upon if, having such possibility in view, they had made express provision as to their several rights and liabilities in the event of its occurrence" (Dahl v Nelson [2] per Lord Watson).

By this time it might seem that the parties themselves have become so far disembodied spirits that their actual persons should be allowed to rest in peace. In their place there rises the figure of the fair and reasonable man. And the spokesman of the fair and reasonable man, who represents after all no more than the anthropomorphic conception of justice, is and must be the court itself. So perhaps it would be simpler to say at the outset that frustration occurs whenever the law recognizes that without default of either party a contractual obligation has become incapable of being performed because the circumstances in which performance is called for would render it a thing radically different from that which was undertaken by the contract. Non haec in foedera veni. It was not this that I promised to do.

There is, however, no uncertainty as to the materials upon which the court must proceed. "The data for decision are, on the one hand, the terms and construction of the contract, read in the light of the then existing circumstances, and on the other hand the events which have occurred" (Denny, Mott & Dickson Ltd v James B. Fraser & Co. Ltd [3] , per Lord Wright). In the nature of things there is often no room for any elaborate inquiry. The court must act upon a general impression of what its rule requires. It is for that reason that special importance is necessarily attached to the occurrence of any unexpected event that, as it were, changes the face of things. But, even so, it is not hardship or inconvenience or material loss itself which calls the principle of frustration into play. There must be as well such a change in the significance of the obligation that the thing undertaken would, if performed, be a different thing from that contracted for.

1. [1944] A.C. 265, at pp. 274-275.
   1. [1916] 2 A.C. 397, at pp. 403-404.
   2. (1943) 67 C.L.R. 169.
   3. [1952] A.C. 166, at p. 184.
   4. [1956] A.C. 696.
   5. [1956] A.C., at pp. 719-721.
   6. [1956] A.C., at pp. 727-729.
   7. [1956] A.C., at pp. 728-729.
   8. [1952] A.C., at p. 184.
   9. [1926] A.C. 497, at p. 510.
   10. [1926] A.C., at p. 509.
   11. (1881) 6 App.Cas. 38, at p. 59.
   12. [1944] A.C. 265, at pp. 274-275.

In his judgment in Brisbane City Council v Group Products Pty. Ltd [4] Stephen J. (with whom Murphy J. agreed) considered the question of frustration and reviewed many of the cases in a manner with which I respectfully agree. Apart from the above more extensive quotation from Lord Radcliffe's speech, I cannot do better than refer to and adopt all that Stephen J. said at pp. 159-163.

Since the judgment of Stephen J. was delivered there have been two further decisions of the House of Lords which I should mention. The first was National Carriers Ltd v Panalpina (Northern) Ltd [5] . The primary question in that case was whether the doctrine of frustration could be applied to a lease. A majority of their Lordships decided that it could, but "hardly ever". Lord Hailsham L.C. discusses the doctrine generally and the leading cases at pp. 687-689. He sets out the five theories of frustration which have been propounded and indicates a preference for the formulation by Lord Radcliffe in Davis Contractors [6] which I have quoted above. Lord Wilberforce said of the doctrine of frustration [7] :

Various theories have been expressed as to its justification in law: as a device by which the rules as to absolute contracts are reconciled with a special exception which justice demands, as an implied term, as a matter of construction of the contract, as related to removal of the foundation of the contract, as a total failure of consideration. It is not necessary to attempt selection of any one of these as the true basis: my own view would be that they shade into one another and that a choice between them is a choice of what is most appropriate to the particular contract under consideration. One could see, in relation to the present contract, that it could provisionally be said to be appropriate to refer to an implied term, in view of the grant of the right of way, or to removal of the foundation of the contract - viz. use as a warehouse. In any event, the doctrine can now be stated generally as part of the law of contract; as all judicially evolved doctrines it is, and oght to be, flexible and capable of new applications. 1. [1981] A.C. 675. 2. [1956] A.C. 696. 3. [1981] A.C., at p. 693.

Frustration of a contract takes place when there supervenes an event (without default of either party and for which the contract makes no sufficient provision) which so significantly changes the nature (not merely the expense or onerousness) of the outstanding contractual rights and/or obligations from what the parties could reasonably have contemplated at the time of its execution that it would be unjust to hold them to the literal sense of its stipulations in the new circumstances; in such case the law declares both parties to be discharged from further performance. 1. [1981] A.C., at p. 700.

The most recent decision is Pioneer Shipping Ltd v B.T.P. Tioxide Ltd [9] . Lord Diplock [10] said that there were two questions and that:

[T]he other was the question of frustration which, as was held unanimously by this House in Tsakiroglou & Co. Ltd v Noblee Thorl G.m.b.H. [11] , is never a pure question of fact but does in the ultimate analysis involve a conclusion of law as to whether the frustrating event or series of events has made performance of the contract a thing radically different from that which was undertaken by the contract; however closely that conclusion of law may seem to follow from a commercial arbitrator's findings as to mercantile usage and the understanding of mercantile men about the significance of the commercial differences between what was promised and what in the changed circumstances would now fall to be performed. Lord Roskill [12] said that the decision in National Carriers showed that the House of Lords had approved the "now classic statement of the doctrine by Lord Radcliffe" in Davis Contractors [13] which he set out and added - It should therefore be unnecessary in future cases, where issues of frustration of contracts arise, to search back among the many earlier decisions in this branch of the law when the doctrine was in its comparative infancy. The question in these cases is not whether one case resembles another, but whether applying Lord Radcliffe's enunciation of the doctrine, the facts of the particular case under consideration do or do not justify the invocation of the doctrine, always remembering that the doctrine is not lightly to be invoked to relieve contracting parties of the normal consequences of imprudent commercial bargains. Lord Fraser of Tullybelton, Lord Russell of Killowen and Lord Keith of Kinkel each agreed with both Lord Diplock and Lord Roskill. Thus for the United Kingdom the problem of formulating the proper test for the application of the doctrine of frustration has been laid at rest. 1. [1982] A.C. 724. 2. [1982] A.C., at p. 738. 3. [1962] A.C. 93. 4. [1982] A.C., at p. 751-752. 5. [1956] A.C. 696.

There is one further comment to be made on the judgment of Stephen J. in the Brisbane City Council Case. He quoted from Lord Radcliffe the following passage: " it is not hardship or inconvenience or material loss itself which calls the principle of frustration into play. There must be as well such a change in the significance of the obligation that the thing undertaken would, if performed, be a different thing from that contracted for", and after further comment, said: "His Lordship's emphasis upon change in obligation is, I think, to be understood in the context of the factual situation under discussion in the Davis Contractors Case" [14] . I do not take his Honour to use the expression "change in obligation" in a sense different from that in which Lord Radcliffe used the expression "change in the significance of the obligation". It was in my opinion that formulation which led his Lordship to say [15] :

There must be as well such a change in the significance of the obligation that the thing undertaken would, if performed, be a different thing from that contracted for. That formulation necessarily involves questions of degree. 1. (1979) 145 C.L.R., at p. 161. 2. [1956] A.C., at p. 729.

We are of course not bound by the decisions of the House of Lords but the decisions in Davis Contractors, National Carriers [16] and Pioneer Shipping [17] provide valuable guidance on the present topic. The fact that their Lordships have now firmly adopted a basis for the application of the doctrine of frustration which departs from that adopted in earlier decisions of the House of Lords and from the manner in which the doctrine was expressed in this Court by Latham C.J. in Scanlan's New Neon Ltd v Tooheys Ltd [18] presents no reason why we should not now apply the doctrine adopted by their Lordships in those cases if we think that it is right.

1. [1981] A.C. 675. 2. [1982] A.C. 724. 3. (1943) 67 C.L.R. 169.

For my own part I would with respect adopt the reasons of the House of Lords in those three cases as being preferable to the other bases which have been suggested from time to time. Their test has the advantage of being flexible and capable of application to a wide range of circumstances and lacks the degree of unreality involved in the implied term theory. I would, like Stephen J. in the Brisbane City Council Case [19] , prefer to express my conclusion in the present case on the basis of Lord Radcliffe's formulation.

Having 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.

Normally the parties to a contract proceed upon the assumption, usually implicit rather than explicit, that the contract works can be lawfully completed within the period provided by the contract or made appropriate by the nature and extent of the work to be done, or, if one prefers it, within a reasonable time. The possibility that such completion might become unlawful, in the sense that it became impossible for the amount of work to be done in the time required by the contract by the use of normal methods and in lawful working time, was not present to the minds of the parties to this contract. It may be that in other circumstances the parties might have made some express provision for possible legal action, especially in the light of the location of the site in a heavily populated residential area, or at least taken it into account in arriving at or considering the tender price. The erroneous belief entertained by the Authority and communicated to and accepted by the Contractor clearly led to that possibility not being contemplated by either party.

It is plain on the findings of the Arbitrator that both parties proceeded upon the assumption that the works could be lawfully completed within the specified time by continuous work on a three-shift basis for six days a week. The situation became one in which it was impossible to perform the contract in accordance with its terms, impossible because court orders restrained the mode of performance, which was held to constitute a nuisance, but which was critical to the completion of the works within the time allowed.

It is a different situation from that in which one party has been prevented from completing the contract work within the specified time because of shortage of labour or shortage of materials, or both. Those cases are not cases in which the completion of the work in the contract period is rendered impossible because injunctions have prevented the work being done in a manner and at times which, from the outset, both parties knew were essential to completion on time.

This situation does not appear to be the subject of any decided cases. It bears a superficial resemblance to two of the "Suez Canal cases" but an examination of those cases shows that they are significantly different. The first was Tsakiroglou & Co. Ltd v Noblee Thorl G.m.b.H. [20] . In that case there was a contract by which the sellers agreed to sell to buyers Sudanese ground nuts for shipment c.i.f. Hamburg during November/December 1956. On 2 November the Suez Canal was closed but the goods could have been shipped round the Cape of Good Hope. That route was more than twice as long and much more expensive. The sellers did not ship the goods. In arbitration proceedings the sellers were held to be in default. It was held that there was no implied term that shipment was to be by Suez or by the customary route at the date of the contract and the sellers' obligation was to ship the goods to their destination by a reasonable and practicable route if available. It was also said that although the route via the Cape involved a change in the method of performance, it was not such a fundamental change as to bring about frustration. An important feature of the case however is that there was no evidence that the buyers attached any importance to the route, i.e. there was no time fixed by which delivery was required to be made and the longer journey round the Cape, though more expensive, would not involve any failure to deliver in accordance with the contract. To the same effect was The Eugenia [21] where the blocking of the Suez Canal was held not to bring about "so fundamentally different a situation" as to frustrate a charter party. Lord Denning M.R. [22] said that the parties foresaw the possibility that the canal might be closed but were unable to agree on what provision should be made for it. He said that it was therefore possible to argue for frustration as the parties had made no provision for the event which happened. Lord Denning referred to the fact that there was no special reason for early arrival and the only effect was that the voyage was longer and more expensive. Donovan L.J. also referred to the negotiations between the parties, saying that they had considered the contingency of the canal being closed but, although suggestion had been made for a clause to deal with that question, the parties were unable to agree on what the provision should be. Donovan L.J. also drew attention to the fact that there was no evidence that early arrival of the cargo was of particular importance. Danckwerts L.J. agreed with both judgments.

1. [1962] A.C. 93. 2. [1964] 2 Q.B. 226. 3. [1964] 2 Q.B., at p. 239.

The fact that there was no time fixed for completion of the voyage in each case is an important part of the reasoning and provides a significant difference between those cases and the present case.

It is also significant to note that in The Eugenia both Lord Denning M.R. and Donovan L.J. referred to the negotiations between parties which led up to the contract. That was treated, without the need for express comment, as part of the surrounding circumstances to be taken into account.

However in the present case the Contractor was obliged to complete the work within a specified time, subject only to extensions required to be granted by the Authority or its Engineer in accordance with the terms of the contract. The Arbitrator took the view that more than a mere extension of the time for doing the work was involved. He found that the whole programme of the work was disrupted and would have had to be restructured. The Contractor then had an apparently absolute obligation (subject to questions of extension of time in accordance with other provisions of the contract) to complete the works by the original contract date in a situation in which it was impossible for that obligation to be performed lawfully.

In my opinion the grant of the injunction produced frustration in the true sense of that term. It had become unlawful to perform the work in a manner which would have complied with the requirement of the contract, a requirement well known to both parties. The fact that both parties to the contract had an understanding of the law which led them to believe that the performance of the contract on the three-shift basis could not be interfered with by any private or public litigant seeking to restrain a nuisance caused by the performance of the work, does not prevent the application of the doctrine of frustration.

The situation presents a close analogy with the requisition of a ship or the issuing of restraining orders under war-time regulations which prevent the construction of a dam, rather than an analogy to the Suez Canal Cases.

We are not in exactly the position of Lord Radcliffe in Davis Contractors [23] , nor in the same position as Lord Roskill in Pioneer Shipping. In each case their Lordships regarded the conclusion reached by the Arbitrator as not capable of being challenged. Lord Roskill [24] said:

The required informed judgment must be that of the tribunal of fact to whom the issue has been referred. That tribunal, properly informed as to the relevant law, must form its own view of the effect of that delay and answer the critical question accordingly. Your Lordships' House in Tsakiroglou & Co. Ltd v Noblee Thorl G.m.b.H. [25] decided that while in the ultimate analysis whether a contract was frustrated was a question of law, yet as Lord Radcliffe said at p. 124 in relation to that case "that conclusion is almost completely determined by what is ascertained as to mercantile usage and the understanding of mercantile men." We have however the benefit of the facts as found by the Arbitrator and the conclusions reached by Ash J. on those findings, most if not all of which are relevant to the question of frustration as well as to an implied term. 1. [1956] A.C. 696. 2. [1982] A.C., at p. 752. 3. [1962] A.C. 93.

There were in dispute between the parties a number of items relating to the operation of the "rise and fall clause". In the course of argument some were abandoned, leaving only the major question whether the "value of the uncompleted portion of the contract" was subject to the clause and the position as to "sick leave", "accident make-up pay" and "shift allowances". On the view which I have taken on the question of frustration, there is very little scope for the operation of this clause but it is, in the circumstances, desirable that I should express my view on its meaning and operation. It may affect the amount payable on a quantum meruit basis in respect of work done after frustration occurred. The rise and fall clause was as follows:

(1) If after the date of closing of the Tenders the cost of the Contractor of executing the works at the aforesaid date would be varied by reason of a direct and binding obligation upon the Contractor under any Act of Parliament of the Commonwealth or of a State, or any regulation under any Act, or any award, judgment, determination, order or rule of any competent Court, Board, Commission or other statutory tribunal prescribed for general application by any calling or callings throughout the industry covered by the said award, judgment, determination, order or rule and is not limited to work being carried out in pursuance of the City and Suburban Railways (Amendment) Act 1967, causing a change in:

(a) the minimum rate of wages prescribed to be paid to persons employed on the site by the Contractor for work under the Contract, or

(b) the hours of labour to be worked by those persons, or

the Contract Price shall be varied by the application of the formula provided in subclause (3).

(2) Excepting as provided in subclause (1) of this clause if after the date of closing of the Tenders the cost to the Contractor of executing the works at the aforesaid date would be varied by reason of a direct and binding obligation upon the Contractor under any award, judgment, determination, order or rule of any competent Court, Board, Commission or other Statutory tribunal causing a change in:

(a) the minimum rate of wages prescribed to be paid to persons employed in the Commonwealth by the Contractor for work under the Contract, or

(b) the hours of labour to be worked by those persons, or

the Contract Price shall be varied to the extent only of seventy-five per cent of the amount calculated by the application of the formula provided in subclause (3).

(3) For each one cent increase or decrease in the average weekly wage (as hereinafter defined), or alteration in marginal rates of pay, or the equivalent variation due to alteration of standard working hours, there shall be charged against or allowed to the Department's account as the case may be a sum representing 0.008 per cent of the value of the uncompleted portion of the Contract as at the date of any such variation. For the purpose of this clause the expression "Average Weekly Wage" shall mean the ordinary hourly rate of pay payable under each award converted to 40 hours per week. The average of the weekly wage shall be calculated from the proportioned list of trades shown below and this average shall be deemed to be the weekly wage on which variations are solely computed.

General Construction and Maintenance, Civil & Mechanical Engineering etc. (State) Award. Tunnel Miner 45% Cement Gun Operator - Wet - Underground 25% General Labourer Grade 1 10% Engineering Construction on Site (State) Award 5% Fitters Carpenters, Joiners, Bricklayers Construction (State) Award Carpenters 10% Transport Industries (State) Award Driver 24 ton 5%

The value of the uncompleted portion of the Contract shall not include the whole or any part of any amounts included in the Tender Price in respect of contingency sums, monetary sums, prime cost items and sums and provisional sums. The value of the uncompleted work shall be determined from time to time by the Engineer.

(4) For purposes of this clause minimum rates of wages shall include all allowances prescribed by any of the relevant awards.

If after the date of closing of the Tenders the cost to the Contractor of executing the works at the aforesaid date would be varied by reason of any change in the payments payable by the Contractor which are computed or levied on wages of persons including but not necessarily limited to Workers' Compensation Insurance Premium and Payroll Tax, and the change is caused by a direct and binding obligation upon the Contractor under any Act of Parliament of the Commonwealth or of a State, the Contract Price shall be varied by the application of the following formula.

For each change of 1 per cent in the rate of Pay Roll Tax or Workers' Compensation Insurance the Contract Price shall be varied by a sum representing 0.4 per cent of the value of the uncompleted portion of the Contract as at the date of any such change.

(6) The Contractor shall when required by the Commissioner, produce for inspection by the Engineer original policies, cover notes, correspondence, receipts and other documents and records relating to the securing of Workers' Compensation Insurance and shall permit the Engineer to inspect the books and other records and to make such enquiries of the Contractor of his employees as the Engineer thinks fit. If required by the Commissioner, the Contractor shall make a statutory declaration as to the correctness of all information produced by him. Any information obtained by the Commissioner in accordance with the provisions of this clause shall be confidential and used only for the purposes of the Contract.

(7) Variations will not be made for increases occurring after the date of completion of the Contract, as adjusted by authorised variations, unless approved in writing by the Commissioner.

There is an initial problem of construction in that cl. G.28(1) appears to provide that where there is a change in the minimum rate of wages (as defined), in the hours of work or in the conditions of employment of the workers there referred to, then the entitlement to variation of the contract price is to be calculated by reference to a formula which is set out in cl. G.28(3) but which on its face appears to be directed to a narrower and different topic.

Clause G.28(3) provides for a formula which uses the ordinary hourly rate specified in the awards referred to for six different categories of workers, not necessarily those working on the site or employed elsewhere in Australia on the project. The Court of Appeal took the view that there must be two factors operating before a change can arise under cl. G.28(3). There must be a variation in accordance with the requirements of cl. G.28(1), including changes produced by cl. G.28(4), or of the requirements of cl. G.28(2), and secondly there must be an increase which arises under the formula in cl. G.28(3). I agree with that construction, but there are other questions which arise under this clause.

Sub-clause (3) contains the "formula". It operates first on increases or decreases on three items - (1) the average weekly wage, (2) alteration in marginal rates of pay, (3) equivalent variation due to alteration of standard working hours in the awards and in respect of the trades specified. In such cases there is to be a calculation of 0.008 per cent of the "value of the uncompleted portion of the contract as at the date of such variation". The term "average weekly wage" is defined to mean "the ordinary hourly rate of pay" payable under each of the awards specified, converted to 40 hours per week. It then provides that "the average of the weekly wage shall be calculated from the proportionate list of trades shown below and this average shall be deemed to be the weekly wage on which variations are solely computed". It is then provided that the value of the uncompleted portion of the contract is not to include certain items such as prime cost items. Sub-clause (5) contained a special provision dealing with changes in the rates of payroll tax and workers' compensation insurance upon which nothing currently turns.

Some assistance in the application of these clauses may be obtained from the definition of the expression "contract price" which is set out in cl. G.26(1) which is as follows:

Subject to the terms of the Contract, the price payable by the Commissioner for the works shall be an amount calculated at the respective unit prices set out in the Schedule of Rates for the quantities of the respective items of work actually performed under and in accordance with the provisions of the Contract, together with the lump sum amounts shown in the said Schedule for the items of work to which they are applicable actually performed under and in accordance with the provisions of the Contract. It should be added that the expression "value of the uncompleted portion of the contract" (the "VUPC") was not defined, nor was any means of ascertaining it expressly specified. It may however properly be assumed that it bears the same meaning as the expression "the value of the uncompleted work" used in cl. G.28(3). It may also be assumed that, as this is a "schedule of rates contract", the VUPC will be calculated by ascertaining the remaining amount of work to be completed under each of the scheduled items, and at the scheduled rates, leaving aside for the moment the question of rise and fall of the scheduled rates. It would also include any of the fixed cost items not yet supplied.

It is also important to bear in mind that cl. G.28(1) is concerned both with increases and decreases in the average weekly wage or in the minimum rate of labour or conditions. It follows that a decision in relation to the operation of the clause must be considered in the light of possible increases and possible decreases in the value of the VUPC. If one considers the application of the clause in the case of both increases and decreases in cost it will be seen that it operates favourably to the Contractor where there are increases but favourably to the Authority where there are decreases.

I see no reason why this should not represent the contractual intention, however unlikely it may have appeared at the date of the contract that reductions in wages would occur. In the end it is a matter of construction of the words used, not to be influenced by the financial consequences of the factual situation which has arisen. The clause is on its face directed to both sets of circumstances and the fact that in one case it may act favourably to one party and in the converse case favourably to the other provides no basis for departing from the ordinary meaning of the words used. It is difficult to see to what the expression "value of the uncompleted portion of the contract" can refer other than that which would be paid to the Contractor if he were then and there to complete all the outstanding work. If that is its meaning it is quite plain that it would have to be calculated at the actual rates then current (including the increase in question) and that what the Contractor would have to pay for the completion of the work on that hypothesis would be the wage rates then prevailing, i.e. the wage rates which were the cumulative result of a series of previous increases. There would be no other means of calculating the value of the uncompleted work, for future changes in wages or other variable items in the calculation would be incapable of prediction. The expectation in this particular instance would be that the figure would continue to rise, i.e. to rise proportionately in respect of each item of uncompleted work from time to time. In my opinion the operation of the clause requires that the rates must be "updated" on each occasion by the operation of the rise and fall clause, increases being cumulative. This will result in the VUPC being updated as to the content of the uncompleted work by an appropriate allowance for that which has been completed since the previous calculation and equally updated by the change in the rates, i.e. the reduction of the value by the amount of the "value of the newly-completed work" and increased by the operation of the increase in the rates applicable to the work still to be done. Thus this calculation will be reflected in the "amount to be debited to the Department's account" under cl. G.28(3). In my opinion the various calculations that have been put forward do not assist in the construction of the clause.

I note that the Court of Appeal stated that "the decreases theoretically postulated by the clause were omitted from any exposition of its possible meaning" but I regard that as a matter relevant to the proper construction of the clause. I should however add a reference to the definition of the term contract price in cl. G.26(1) which distinguishes between the price payable by the Authority and the Contractor's tender price. I agree that the contract price payable as defined in cl. G.26(1) relates to quantities of specified kinds of work actually performed and in that respect it differs from the price tendered which is calculated by reference to estimated quantities of work. I note that in the Court of Appeal it was said that the tender price contains none of the amounts referred to in the penultimate sentence of cl. G.28(3) but that seems to do no more than indicate the use of the Authority's standard form in a case to which that particular clause has no application. This is not an uncommon occurrence in the case of the use of an elaborate standard form such as the present form, though it sometimes causes problems of construction because of the interaction of one clause with another.

Clauses of this general kind are to be found in the reports concerning other construction contracts. Thus there was a similar clause in the contract considered in Lewis Construction (Engineering) Pty. Ltd v Southern Electric Authority of Queensland [26] but in that case there was no dispute as to the operation of the clause and it was not referred to in the judgment of the court. In T.C. Whittle Pty. Ltd v T. & G. Mutual Life Society [27] the rise and fall clause required a percentage calculation based on the uncompleted portion of the contract but the clause itself directed that that value should not include certain specified items or "previous rise and fall adjustments". In Max Cooper and Sons Pty. Ltd v Sydney City Council [28] there was an express provision that the value of the uncompleted portion of the contract was not to include any sum for which a separate rise and fall clause was included. But that would not necessarily produce the result sought by the Authority in the present case because the phrase differs from that in either of the previous cases. These cases are of no direct significance beyond demonstrating that it is a question to which contractors and building owners engaged in large projects have directed their minds in some instances so as to exclude rise and fall of the VUPC, a course which the Authority, whose document this is, did not see fit to take in the present case. If the construction were doubtful the provision should be construed contra proferentum.

1. (1976) 50 A.L.J.R. 769. 2. (1977) 52 A.L.J.R. 173. 3. (1980) 54 A.L.J.R. 234.

I agree with the Court of Appeal's observation that:

There is in our belief no reason for excluding from the VUPC escalations previously awarded under G.28(3) which relate to unperformed work. Such a construction creates no disharmony when considered together with clauses G.14, G.15, G.21, G.26 and G.31. It reflects an intention which the words of the clause considered in their context most readily yield. It is an intention consistent with the business appreciation of both parties that the value of the outstanding work is that sum which the contractor is entitled to receive for performing it and the principal who provides for having it performed. and I would add to the final sentence in that quotation the words "calculated as at each occasion when the rise and fall clause is to be applied".

It is necessary also to refer to the argument in which it was said for the Authority that this basis of calculation involved an absurdity. This argument involved the proposition that the VUPC had to be determined on the very day of the variation and therefore it was necessary to have regard to costs as escalated by the variation taking place on that very day and that this required an infinite regress of diminishing adjustments. Even if this does not involve the fallacy of the hare and the tortoise it departs from common sense. It seems to be clear enough that the calculation is to be made upon the operative date of the variation based upon the amount of the work outstanding as at the end of the previous day.

The next question relating to cl. G.28 is the determination of the kinds of variation to which the formula applies and those to which it does not apply. There were originally seven items in dispute and the Arbitrator raised in his case stated a question whether any and which of them were to be taken into account. The Authority appealed against four items and the Contractor against the decision as to the remaining three items. However in this Court there remained only two items in dispute. I should add that no question arises as to shift allowances because they are not provided for in the awards by reference to which the calculation is to be made.

The formula in sub-cl. (3) which is brought into operation by sub-cl. (1) is not directly related to the factors in sub-cl. (1) itself. The latter operate only as a "trigger". What sub-cl. (3) requires is a calculation related to the "average weekly wage" as defined, or an "alteration in marginal rates of pay" or "standard working hours". That list of items is not necessarily identical with sub-pars (a), (b) and (c) of sub-cl. (1) although there is some overlap. The actual alteration triggered by the occurrence of any of the events referred to in sub-cl. (1) requires an examination first of all of the "average weekly wage". The term "average weekly wage" is defined and is to be ascertained by a wholly artificial calculation set out in sub-cl. (3). The allowances made by "charging against or allowing to" the Authority's account (i.e. the increase or decrease in the amount to be paid for the outstanding work) are not related to the increases referred to in sub-cl. (1); they are merely occasioned by the events referred to in sub-cl. (1). What is then to be calculated is the alteration in the average weekly wage as defined (or alteration in marginal rates or standard working hours as established by the formula) which relates only to average weekly wages and not to the other factors which may bring about the increase. In the "definition" of "average weekly wage" the expression "each award" must be taken to mean the awards referred to in sub-cl. (3).

For ascertaining the "average weekly wage", the artificial calculation set out in sub-cl. (3) is the only calculation to be used and at that stage the operation of the formula departs from the events which trigger its operation. It does not seem to me that the clause is unworkable and when it is remembered that the clause is intended to provide for increases in the cost of materials as well as wages, though not triggered by movements in the cost of materials, the somewhat arbitrary nature of the calculation bears a less surprising appearance.

The definition of "minimum rates of wages" in sub-cl. (4) appears to me to operate only for the purposes of sub-cl. (1) and to expand the notion of, or more precisely to define, the "triggering event" and "the relevant awards". It must mean those which cause the changes referred to in sub-cl. (1) and not those listed in sub-cl. (3).

I return now to the question whether the remaining two items in dispute require adjustment under this clause. In my opinion the short answer in relation to each of those items is that, if they are included in the weekly payments required to be made under one or more of the awards referred to in cl. G.28(3), they must be included as part of the "ordinary hourly rate of pay payable under each award". They should also be included in the "minimum rate of wages prescribed" within the meaning of sub-cl. (1)(a) so as to operate the "trigger". If it is borne in mind that cl. G.28(1) is only a triggering mechanism and that cl. G.28(3) prescribes the calculation to be made when a trigger is pulled, most of the problems of construction disappear and the application of the clause to the remaining specific items in dispute is rendered somewhat easier. The application of sub-cl. (3) to these items will depend entirely upon the terms of the four awards, the provisions of which enter into the calculation required under sub-cl. (3). If any of these amounts or categories of allowance are prescribed in those awards then these items will necessarily enter into the calculation because they all contribute to what may properly be described as the "wage" or the "weekly wage" as calculated from the "ordinary hourly rate of pay". If those awards provide for hourly rate which includes a figure in respect of either of those items, then they are to be taken into account. If those awards do not contain an "ordinary hourly rate", as distinct from marginal or supplementary payments, then there would be no reason for excluding any of the amounts which are paid in respect of a 40-hour week from being included. In the end this will be a matter for the Arbitrator to deal with in respect of the period up to the occurrence of the frustrating event in the light of the precise terms of those awards, if the parties are unable to agree. It may become a factor for consideration in the post-frustration period in the calculation on a quantum meruit basis.

Jurisdiction of Arbitrator in relation to Frustration.

Although the question was not the subject of an appeal (if one were available) from the decision of Yeldham J. in the Supreme Court, or argued before us, I am of opinion that we should now decide whether in Australia the decision of the Privy Council inHirji Mulji v Cheong Yue Steamship Co. [29] should still be followed in preference to the later decision of the House of Lords in Heyman v Darwins Ltd [30] . In the resolution of that conflict I agree with the view expressed by Mason J. in his reasons for judgment that the latter case should be followed in Australia and should be applied by this Court in the resolution of the matters in dispute in this appeal. This will require that the question must be remitted to the Arbitrator for decision. Its resolution by him should not involve significant delay.

I should add that I agree with Mason J. that it is unnecessary to decide the question whether the Arbitrator's findings on the issue of implied term operate as an issue estoppel on the question of frustration.

The next question which arises concerns the jurisdiction of an arbitrator to award interest in an arbitration under a Scott v Avery clause. I am in agreement with the views which Mason J. has expressed on this question in his reasons for judgment. I also agree with Mason J. that the Arbitrator had no jurisdiction to award compound interest, or "interest on interest" if that term be preferred.

In the result I would allow the appeal in part and allow the cross-appeal in part. The respects in which I would allow the appeal and the cross-appeal and the manner in which I would deal with costs appear from the order of the Court.

I have had the advantage of reading the reasons for judgment of my brethren Mason and Aickin. I agree with their Honours that in the circumstances of this case the correct conclusion is not that a term must be implied in the contract but that the grant of an injunction on 28 June 1972 restraining the contractor in the manner of execution of the work may well have frustrated the contract, and that a finding as to frustration and its consequences lie within the jurisdiction of the Arbitrator. I respectfully adopt the reasons advanced by each of their Honours in support of those conclusions. It follows that because of cl. G.46(5) of the contract (the Scott v Avery [31] clause), the Supreme Court did not have jurisdiction to deal with the frustration claim.

I also agree with Mason J. on the question of interest.

With regard to the proper construction of the rise and fall clause, I agree with Aickin J. that cl. G.28(3) provides for what has been described as compounding escalation. I also agree that variations in shift allowances, sick pay and accident pay are not to be taken into account in ascertaining the "average weekly wage" save in so far as the awards mentioned in the sub-clause include loadings for sick pay and accident pay within the ordinary wage structure, thereby accommodating such loadings within "the ordinary hourly rate of pay". Subject to the two comments which I now make, I agree with the reasons which led his Honour to those conclusions.

First, it was urged for the contractor that the combination in cl. G.28(3) of the concepts of "average weekly wage" and "marginal rates of pay" together satisfied the description of the "minimum rate of wages" in cl. G.28(1); it therefore included shift allowances, by reason of cl. G.28(4). I agree with the Court of Appeal in rejecting the argument for the reason that the relevant awards associate marginal rates of pay with the basic wage to form the applicable hourly rate, which when multiplied by forty leads to the average weekly wage. I am unable to discern any basis on which to import cl. G.28(4) into the construction of cl. G.28(3).

Secondly, although the clause requires each successive variation to proceed on the basis of a determination of "the value of the uncompleted portion of the contract", a determination which necessarily has regard to all earlier variations, I am unable to agree that it is a necessary consequence of such a construction that the scheduled rates themselves are subject to adjustment with each variation. Clause G.28(3) requires that, in the case of a rise in wage costs of the stipulated kind, the variation be effected directly and in a global way by simply charging a sum against the Department's account. I do not think it is necessary or appropriate to translate that sum into a percentage increase to each of the scheduled rates. Those rates will remain the same. When the contractor becomes entitled to a further escalation, the clause requires the Engineer to determine "the value of the uncompleted work". This figure must represent the total sum to which the contractor would become entitled if it completed the work immediately prior to the further adjustment. The Engineer will determine it by estimating the quantity of work that remains to be done, assessing its initial value by applying the scheduled rates, and then adjusting the figure by adding as a lump sum that proportion of all previous rises which corresponds to the quantity of work that remains to be done. The resultant figure will represent the updated value of the uncompleted work to which the new escalation is to be applied.

I would strike out the frustration action for want of jurisdiction. In the case stated by the Arbitrator, I would allow the appeal in part and allow the cross-appeal in part.

The Commissioner for Railways ("the Commissioner"), a corporation created by an Act of the New South Wales Parliament, was appointed as the constructing authority for the Eastern Suburbs Railway in Sydney, the construction of which was authorized by the City and Suburban Electric Railways (Amendment) Act 1967 NSW. The Commissioner let contracts for the performance of the work in stages. These proceedings are concerned with the work which was to be performed under a contract designated "ESR 1005". The contract required the excavation of two single track tunnels, commencing at Edgecliff and running through Woollahra to Bondi Junction, an open cut excavation at the site of the Woollahra Station, an underground excavation at the site of the Bondi Junction Station, the concrete lining of tunnels and some escalator shafts and the construction of the concrete roadbed.

The Commissioner called tenders for the work, and an Italian corporation, Codelfa Costruzioni del Favero S.p.A., submitted a tender which, subject to certain amendments, the Commissioner was willing to accept. The amendments to the tender were agreed. The tender was accepted. The Italian corporation caused the appellant ("Codelfa") to be incorporated in New South Wales and sought the Commissioner's approval to the substitution of Codelfa as the contracting party. The substitution was agreed to.

An agreement was executed by the Italian corporation, Codelfa and the Commissioner on 21 March 1972. It recited that the contract was constituted by the acceptance of the tender. The Italian corporation agreed to indemnify the Commissioner if Codelfa should default in its obligations under the contract. However, Codelfa's execution of the agreement must be taken to have the same effect as if it, as contractor, had executed the contract constituted by the acceptance of the tender. This appears to be the effect of one of the recitals and, in any event, it is common ground that Codelfa should be taken to be bound by the contract in precisely the same way as its parent corporation would have been bound if the acceptance of its amended tender had bound it rather than Codelfa. The Commissioner's successor in statutory function is now the respondent State Rail Authority of New South Wales ("the Authority") and it is common ground also that the Authority should be taken to be and to have been bound by the contract in precisely the same way as the Commissioner was bound. It is appropriate then to speak of Codelfa and the Commissioner as though they were the only persons concerned in the negotiation and performance of the contract.

The contract incorporated the several documents which had been brought into existence in connexion with the calling of tenders: the specification and drawings, the general conditions of contract, the conditions of tendering, the tender, and sundry correspondence.

The specification described the works which were to be constructed and completed in accordance with the specification, the drawings and the general conditions of contract. The price to be paid for the works described in the contract, including all extra work, additions, substitutions or variations ordered by the Commissioner in accordance with the provisions of the contract, was to be calculated at the unit prices set out in the schedule of rates contained in Codelfa's tender (cl. G.26), subject to a rise and fall clause (cl. G.28). The contract price was payable for all work included in the schedule of rates regardless of its difficulty. The contractor was to provide at his own cost everything that was necessary for the proper completion of the contract, including labour, materials, plant, tools and equipment, and he was deemed to have informed himself fully of the conditions affecting his carrying out of the works (cl. G.4(1)(b)). If he did not inform himself fully of those conditions, he was not thereby to be relieved of the responsibility "for satisfactorily performing the works as required regardless of their difficulty" (cl. G.4(2)(b)). Codelfa was required to commence work within 60 days after being given notice to proceed. It was further required to complete certain stages of the work by particular dates and to complete all work within 130 weeks of the date of the notice to proceed. A programme of construction had to be prepared and subject to approved revisions it had to be adhered to. It was provided that time should be of the essence of the contract, but cl. G.44(7) gave a measure of protection to Codelfa if it should be delayed in performing the contract. That sub-clause provided:

(a) The Commissioner shall not be entitled to cancel the Contract or to take part of the works out of the Contractor's hands or to recover from the Contractor any liquidated damages, because of any delays in the completion of the works or the separable parts thereof owing to causes beyond the control or without the fault or negligence of the Contractor if:

(i) the Contractor shall notify the Engineer in writing of the cause of any such delay or default within ten days of the beginning thereof or within such further period as the Engineer shall grant for the receipt of such notice; and

(ii) on receipt of such notice from the Contractor under this sub-clause, the Engineer shall ascertain the facts and the extent of the delay, and extend the time for completing the works when, in the opinion of the Engineer, the findings of fact justify an extension.

(d) The Engineer's findings of fact shall be final, conclusive and binding on the Contractor.

The notice to proceed was given on 7 March 1972 and Codelfa commenced work, operating three shifts a day. The work generated considerable noise and vibration. On occasions, stones and debris were blasted out of the works area. On 24 May 1972 an injunction was sought by a resident of Woollahra. In the following months similar relief was sought by another resident and by the Council of the Municipality of Woollahra. Codelfa raised in defence the provisions of s. 11 of the City and Suburban Electric Railways Act 1915 NSW which provided:

Notwithstanding any provision in any Act to the contrary, it shall not be necessary for the Constructing Authority to give any notice of his intention to blast any rock, nor shall he be liable to have an injunction issued to restrain him from causing or continuing to cause any nuisance by such blasting or by any other operation necessary or proper in connection with the construction of the said work. Though the Commissioner supported that submission before the Supreme Court, it was held that Codelfa was outside the statutory immunity. Injunctions were granted, including an interim injunction restraining Codelfa from performing construction work on the site between 10 p.m. and 6 a.m. each day. The first injunction was granted on 28 June 1972. On 27 November 1972 Codelfa undertook in settlement of the litigation not to carry out any work above a certain noise level between 10 p.m. and 6 a.m. It gave certain undertakings as to the type of work which it was permitted to perform at various times, including, amongst other things, an undertaking that it would not carry out any excavation work or cart any spoil on any Sunday.

Codelfa, being restrained from working three shifts per day for six days a week and from working on the seventh day, claimed from the Commissioner an amount additional to the price payable under the contract in respect of the additional costs which it incurred and the profit which it did not earn by reason of the change in working methods it was constrained to adopt. The claim was put on alternative bases: either a warranty should be implied in the contract for breach of which Codelfa should recover damages, or the contract should be held to have been frustrated by the issue of the injunctions and Codelfa should recover on a quantum meruit an amount which, assumedly, would be more than the price payable under the contract. The claim was resisted by the Commissioner and the dispute was submitted to arbitration.

The Arbitrator found certain facts for the purpose of stating a case for the opinion of the court during the course of the arbitration. The matter was heard by Yeldham J. in the Supreme Court of New South Wales who held that the Arbitrator had no power to decide the issue of frustration. That basis was no longer pursued before him. The Arbitrator stated his award in the form of a special case pursuant to s. 9 of the Arbitration Act 1902 NSW. He found that the work to be performed was "inherently of a noisy and disturbing nature and the work or substantial parts thereof was to be carried out in close proximity to areas of residential neighbourhood". The contract had made specific provision in respect of the minimization of noise, pollution and nuisance. Clause G.39 provided:

The Contractor shall take all reasonable measures possible to avoid noise and nuisance to the public, particularly, nearby residents and users of public roads, streets and areas, and to minimise atmospheric pollution originating from his operation. A similar clause, perhaps more stringent, was contained in the specification (cl. S.8(1)(c)). The specification also governed blasting operations and the general conditions required measures to be taken to minimize vibration and shock. The Arbitrator nevertheless found that, although noise and disturbance were concomitants of the work, the Commissioner and Codelfa entered into the contract "on the common and mutual understanding and on the basis that the works the subject of the Contract should and would be carried out by the Contractor on a three-shift continuous basis six days per week and without restriction as to Sundays". He found that prior to and at the time of entering into the contract the Commissioner had represented to Codelfa, and Codelfa had "accepted as the situation", that no injunction or other restraining order could or would be granted against Codelfa in relation to noise or other nuisance. He further found that in fact the contract works could not be carried out in accordance with methods and programmes agreed between the Commissioner and Codelfa unless Codelfa worked three shifts per day for six days a week. Neither party, in the Arbitrator's opinion, foresaw the likelihood or possibility of restrictions being imposed on the hours of work.

The effect of the injunctions was subsequently summarized by the Court of Appeal:

The Arbitrator found that the effect of the injunctions was to prevent the Contractor from working on the basis of three continuous shifts each day for six days each week as it had initially proposed, and as it was doing at the time the various proceedings for injunction commenced. The consequence of this restriction was to cause delay in the progress of the works and thus to imperil the Contractor's capacity to satisfy the interim and final dates for completion. This in turn made the Contractor vulnerable to the liability for liquidated damages for delay provided for in cl. S5 of the specifications. Moreover, the Arbitrator found that the necessity for the Contractor to make substantial alterations in his program in order to accommodate the prohibition upon working at night involved it in significant additional cost.

Correspondence between the Contractor and the Principal concerning an extension of time and the Contractor's claim for financial compensation passed between September 1972 and the end of November 1974. Ultimately, on 20th December 1974, the Principal granted the Contractor an extension of time of about twelve months to absorb the effects of the injunctions; and we should add that the Arbitrator found that this period was in all the circumstances reasonable. The Principal, however, rejected the Contractor's claim for compensation.

Allowances made for all extensions of time to which the Contractor became entitled for any reason under the contract brought the date for final completion to the 13th May 1976. The works were not finally completed at that date and on the 19th August 1976 the Principal validly cancelled the contract.

When the Arbitrator found that the contract had been entered into on the common and mutual understanding and on the basis that no injunction or other restraining order could or would be granted against the contractor in relation to noise or other nuisance arising out of the carrying on of the contract works, he must be understood as having found that the parties to the contract shares an erroneous view of the scope of the immunity conferred by s. 11 of the City and Suburban Electric Railways Act. There could be no other basis for an understanding that no injunction would be issued by a court to restrain a public nuisance.

The contract works inevitably caused noise and other disturbances, but the injunctions were granted on the footing - and this must be taken to be the fact - that the noise and other disturbances exceeded what was justifiable having regard to the enterprise on which Codelfa was engaged. Indeed, Street J. (as he then was) in the injunction proceedings said:

The defendant is entitled to have its conduct assessed with due acceptance that it is building a railway under the authority of a statute, and that the construction work would inevitably occasion noise and disturbance. The Arbitrator did not appreciate perhaps that the degree of permissible noise and disturbance was assessed in the way stated by Street J. Although Codelfa must be taken to have generated excessive noise and other disturbances, and thereby to have exposed itself to the liability to be restrained by injunction, the Arbitrator held that a term should be implied in the contract - "to the effect that upon the issuing of the Restraining Orders and Injunctions referred to in par. 18 the Principal would grant to the Contractor a reasonable extension of time for the completion of the works and would advise the Contractor of the fact of the grant of the extension of time within a reasonable period after the issuing of the Restraining Orders and Injunctions became known to the Principal or ought to have become known to the Principal." The Arbitrator found that the Commissioner did not within a reasonable time grant and advise Codelfa of the grant of a reasonable extension of time, and as a result Codelfa "incurred loss and damage in and about the carrying out of the works". He assessed the loss and damage in the sum of $956,000. In holding that the term should be implied, the Arbitrator had regard to evidence of general tunnelling practice, evidence that a three-shift operation was suggested by the nature and extent of the works anticipated by Codelfa and evidence "pointing to the Contractor and Principal each accepting and assuming that the work was to be carried out on a three shift basis and would be immune from interference from restraining orders and injunctions".

Codelfa and the Commissioner each issued a summons out of the Supreme Court of New South Wales seeking determination of the questions stated in the special case. At the same time, the alternative basis of Codelfa's claim - quantum meruit consequent upon frustration of the contract - was again brought up for consideration. When Yeldham J. had ruled that the Arbitrator had no power to determine the issue of frustration, Codelfa had commenced proceedings in the Supreme Court alleging frustration of the contract, a request by the Commissioner to continue the work, an implied promise to pay a reasonable sum for the work done and a failure to pay such sum. "A reasonable sum less the amounts received" by Codelfa was claimed. After the Arbitrator had made his award, a case was stated in what I shall call the frustration action, incorporating the award and stating that the only facts upon which Codelfa would rely to establish frustration were those contained in the pleadings and the findings of the Arbitrator. The case stated in the frustration action raised three questions, but the appeal against the dismissal of the action can be disposed of upon a consideration of only one of them. Assuming that Codelfa might rely upon the Arbitrator's findings and that it had not precluded itself from alleging frustration by electing to obtain an award (the two questions to be put aside), do the Arbitrator's findings establish that the contract was frustrated?

The questions raised by the special case stated by the Arbitrator and by the special case in the frustration action were heard and determined by Ash J. His Honour's judgments in those proceedings were challenged on appeal. The Court of Appeal varied his Honour's answers to some of the questions raised in the special case stated by the Arbitrator and affirmed his Honour's dismissal of the frustration action. Codelfa now appeals against some of the Court of Appeal's answers to the questions raised in the special case stated by the Arbitrator and against the dismissal of its appeal in the frustration action. By cross appeal the Authority challenges certain answers given by the Court of Appeal in the former of those proceedings. The issues for determination in these appeals fall into four categories: whether a term relating to the granting of the injunctions should be implied in the contract, whether the granting of the first injunction frustrated the contract, the construction of the rise and fall clause (cl. G.28), and the allowance by the Arbitrator of interest upon the sum found due.

In answering the questions in the special case stated by the Arbitrator, Ash J. held that evidence extrinsic to the contract was admissible to support the implication of a term in the contract and that the Arbitrator was entitled in law to imply the term set out in his award. Ash J. went further, holding that the following addition should be made to the term which the Arbitrator found to be implied:

that the works, the subject of the contract, could be carried out by the contractor on a three-shift continuous basis six days per week and without restriction as to Sunday and that no injunction or other restraining order would or could be granted against the contractor in relation to noise or other nuisance arising out of the carrying out of the said works on such basis. His Honour ordered the award to be remitted to the Arbitrator for reassessment of damages. Consequent upon these determinations, the frustration action was dismissed.

The Court of Appeal agreed that a term should be implied in the contract, but it held that the term should be different from those found by the Arbitrator and by Ash J. The term found by the Court of Appeal to be implied was:

If the Contractor is prevented from executing the works on the basis of a three shift continuous operation six days per week without restriction as to Sundays by the terms of an injunction granted to restrain any nuisance caused by the inherently noisy or disturbing nature of any work performed in accordance with the Contract (including any requirements made by the Engineer pursuant to cl.S.8(2)(c) thereof) the Commissioner within a reasonable period thereafter shall grant and notify to the Contractor a reasonable extension of time in respect of any delays in the completion of the works thereby occasioned and shall indemnify the Contractor against any additional costs or expenses thereby reasonably incurred. The Court ordered that the Award be remitted to the Arbitrator to make assessments and calculations in accordance with the answers given by the Court.

The question of an implied term was raised by Codelfa in the arbitration. It has not sought rectification of the contract. The implication of a term thus falls to be considered upon the terms of the written contract. The meaning of a written contract may be illuminated by evidence of facts to which the writing refers, for the symbols of language convey meaning according to the circumstances in which they are used. "The time has long passed", Lord Wilberforce said in Prenn v Simmonds [32] , "when agreements, even those under seal, were isolated from the matrix of facts in which they were set and interpreted purely on internal linguistic considerations". Both the internal and extrinsic context in which a word or phrase is used may throw light upon the meaning with which the parties must be taken to have used it, though an extrinsic fact known to only one of the contracting parties can shed no light upon the meaning with which that word or phrase was used by the other or others.

1. [1971] 1 W.L.R. 1381, at pp. 1383-1384; [1971] 3 All E.R. 237, at pp. 239-240.

When the court picks up a written contract in order to construe the writing, it must "place itself in thought in the same factual matrix as that in which the parties were" as his Lordship said in Reardon Smith Line v Hansen-Tangen [33] . But, having construed the writing, the court cannot take its pen and add a clause merely because it thinks the addition would be reasonable or fair or prudent. Though the parties are assumed to be reasonable and that hypothesis governs the construction of the express terms on which they have agreed, their hypothetical reasonableness warrants no alteration in their contractual rights by imputing to them an agreement to an additional term to which they have not agreed in fact and which is not implicit in the terms to which they have agreed.

1. [1976] 1 W.L.R. 989, at p. 997; [1976] 3 All E.R., at p. 575.

The necessary foundation for the creation of contractual rights and obligations is the agreement of the parties, and their agreement is equally necessary to vary those rights and obligations prior to discharge. A term implied in a contract is stamped with a contractual character because it is a part of the contract. It cannot derive that character from extrinsic circumstances which do not evidence a contract. It would be inconsistent with the foundation of contractual obligations to find an implied term in facts extrinsic to a written contract unless the contract stands in need of rectification. Of course, where a collateral contract is propounded, or where a written contract is said to require rectification, the circumstances in which the principal contract is made frequently furnish the evidence of a collateral contract or of a term to be included in the rectified contract. But 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 principle is stated in the judgment of Isaacs, Gavan Duffy and Rich JJ. in Purcell v Bacon [34] :

Any words or expressions if unequivocal speak for themselves; if they are words of doubtful or double signification, that may be settled, where necessary, by first ascertaining the circumstances in reference to which they are used (Charrington & Co. Ltd v Wooder [35] , which is simply finding the appropriate business dictionary where their meaning is given. When, however, the true meaning of the words themselves is ascertained, and the subject matter settled in reference to which they are used, the intention of the parties must be gathered by construing their own words as they stand, applying them to the given subject matter. For those preparatory purposes the Court places itself in the position of the parties. But it cannot place itself in their position for the purpose of finding what words they intended to use and have not used. That would be making a contract for them, and surrounding circumstances are not admissible for any such purpose: Inglis v Buttery [36] The principle is unaffected by the judgment of the Privy Council in that case which allowed an appeal from the judgment of this Court [37] . On the hypothesis that the contract contains the true consensus of the parties, how could a reference to extrinsic facts reveal a term additional to those already expressed? Only the express agreement could stamp a contractual character upon a propounded term, and an unexpressed term bears that character only if it is necessarily to be implied from what the parties expressly agree. The correct approach was stated by Lord Wilberforce in Liverpool City Council v Irwin [38] : In my opinion such obligation should be read into the contract as the nature of the contract itself implicitly requires, no more, no less: a test, in other words, of necessity. 1. (1914) 19 C.L.R. 241, at p. 265. 2. [1914] A.C. 71. 3. (1878) 3 App.Cas. 552, at p. 577. 4. (1916) 22 C.L.R. 307. 5. [1977] A.C. 239, at p. 254.

Although the necessity for the term to be implied must appear from and in the express terms of a contract, not from extrinsic circumstances, those circumstances may aid in ascertaining the meaning of the express terms and in identifying the matters to which they relate. 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 relationship between the construction of express terms and the implication of a term is stated by Jordan C.J. with his accustomed lucidity in Heimann v The Commonwealth [39] :

In order to justify the importation into a contract of an implied term which is not to be found in the express language of the contract when properly construed, and is not annexed by some recognised usage, or by statute or otherwise, it is essential that the express terms of the contract should be such that it is clearly necessary to imply the term in order to make the contract operative according to the intention of the parties as indicated by the express terms. It is not sufficient that it would be reasonable to imply the term: Bell v Lever Bros. Ltd [40] . It must be clearly necessary. And the test of whether it is clearly necessary is whether the express terms of the contract are such that both parties, treating them as reasonable men - and they cannot be heard to say that they are not - must clearly have intended the term, or, if they have not adverted to it, would certainly have included it, if the contingency involving the term had suggested itself to their minds 1. (1938) 38 S.R. (N.S.W.) 691, at p. 695. 2. [1932] A.C. 161, at p. 226.

The cases which, in recent times, have countenanced a reference to extrinsic facts are cases where the reference is made in order to understand the meaning and operation of the express terms of a contract; no case in this Court has approved an examination of extrinsic facts in order to find in them a promise to be implied: see L.J. Hooker Ltd v W.J. Adams Estates Pty. Ltd [41] , especially per Stephen J. [42] ; D.T.R. Nominees Pty. Ltd v Mona Homes Pty. Ltd , [43] per Stephen, Mason and Jacobs JJ.

1. (1977) 138 C.L.R. 52. 2. (1977) 138 C.L.R., at pp. 74-75. 3. (1978) 138 C.L.R. 423, at p. 429.

In B.P. Refinery (Westernport) Pty. Ltd v Hastings Shire Council [44] there are some passages in the majority judgment which suggests that their Lordships went further and sought to derive from the matrix of facts in which the contract was made the implication of a contractual term. If their Lordships went further thanPrenn v Simmonds [45] would permit - and it is by no means clear that their Lordships intended to do so, for Prenn v Simmonds was cited - then I should not think that the majority judgment would accord with sound principle. Clearly the minority judgment looked to the contract itself as the source of the term to be implied. B.P. Refinery should not be regarded as authorizing an extension of the role of extrinsic evidence, nor as permitting the implication of a term other than what is necessary "to make the written contract work or, conversely, in order to avoid an unworkable situation", to quote a phrase from the minority judgment in that case. If it appears from the written contract that a term is to be implied, there are conditions which any proposed term must satisfy. They were stated by the majority judgment in B.P. Refinery [46] and adopted by Mason J. with the concurrence of the other members of this Court in Secured Income Real Estate v St. Martin's Investments Pty. Ltd [47] . Those conditions are:

(1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that "it goes without saying"; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract.

1. (1977) 52 A.L.J.R. 20. 2. [1971] 1 W.L.R. 1381; [1971] 3 All E.R. 237. 3. (1977) 52 A.L.J.R., at p. 26. 4. (1979) 144 C.L.R. 596, at p. 606.

Looking at the contract in the present case, in the matrix of the facts in which it was made, I see no necessity for the implication of a term, nor can I find that the criteria set out in B.P. Refinery are satisfied by any of the terms proposed respectively by the Court of Appeal, Ash J. and the Arbitrator.

The contract required Codelfa to perform the works described in the specification, taking all reasonable measures possible to avoid noise and nuisance, and providing whatever labour, materials, plant, tools and equipment were necessary for the proper completion of the contract, for a price calculated at the unit prices set out in the tendered schedule of rates adjusted in accordance with the rise and fall clause. Codelfa had promised to complete the works within 130 weeks of the date of the notice to proceed or such extended time as the engineer might allow on account of causes beyond the control of Codelfa and to perform those works regardless of their difficulty. The simple fact was that Codelfa was unable lawfully to perform the works within the promised time. It was entitled to seek an extension of time from the engineer and it did so. The reason given for seeking the extension is that Codelfa could not complete the contract works within the promised time unless it worked three shifts a day and that had been found to cause an actionable nuisance.

The contract reveals no lacuna which must be filled to make it work. It works perfectly well. It is a case of a contractor who promised to complete work within a time which was too short having regard to the hours during which it was lawful to work and the speed at which the construction team was capable of working. It was not an express term of the contract that Codelfa would work three shifts a day and, having regard to the environment in which the works were to be performed, Codelfa could not lawfully have promised that it would do so. Codelfa's promise to complete the works was a promise to do so lawfully. It was not an express term of the contract that Codelfa would not be restrained by injunction if it committed an actionable nuisance. The Commissioner could not have promised that the courts would not intervene if Codelfa committed an actionable nuisance. No doubt the Commissioner and Codelfa shared a mistaken belief that Codelfa would be able to work three shifts a day lawfully, or at least without liability to restraint by injunction, because they mistakenly believed that s. 11 of the City and Suburban Electric Railways Act conferred an immunity upon Codelfa. That mistake could not give rise to an implied term. If, at the time when the parties were signing the contract, the officious bystander had asked what did they intend in the event of the issue of an injunction restraining work during the night shift, they would have replied: "We have thought of that. It cannot happen." They cannot be presumed to have agreed upon a term inconsistent with their common belief.

Each of the terms which the Court of Appeal, Ash J. and the Arbitrator respectively held to be implied would entitle Codelfa to additional reward for doing what the contract required to be done at the prices therein specified, or would relieve Codelfa of a liability for failing to complete the contract works within the time therein specified. The only provision for extending time is that contained in G.44(7), but Codelfa sought the implication of a term which would work an extension of time apart from G.44(7) or would affect the financial consequences of its failure in timely performance. Perhaps the divergence of opinion as to the form which an implied term should take points to error in the attempt to imply a term. At least it suggests that the term is not so obvious that "it goes without saying".

Of the five conditions stated in B.P. Refinery [48] , the only condition which is arguably satisfied by any of the propounded terms is that it must be fair and reasonable. Yet that condition does not take its content from the circumstances in which a contract is to be performed: what is fair and reasonable has regard to what the parties have expressly agreed. No term fulfils that criterion if it is inconsistent with the express terms of the contract, and each of the terms proposed is inconsistent with the provisions of the contract governing the time for completion and payment for the work performed.

The present case is analogous to Thorn v Mayor and Commonalty of London [49] where the Corporation of London entered into a contract for the rebuilding of Blackfriars Bridge and the specifications proposed that it be built in a manner which proved to be impractical. No warranty that the proposed manner would be practical was implied. One of the reasons advanced for rejecting the contractor's claim that the Corporation had warranted that the bridge could be built in the manner proposed was that the contractor ought to have informed himself of all the particulars connected with the work (per Lord Chelmsford [50] ). In the present case, Codelfa agreed that it should be deemed to have informed itself fully of conditions affecting the carrying out of the works and any failure to do so was not to relieve it of its contractual responsibility.

1. (1876) 1 App.Cas. 120. 2. (1876) 1 App.Cas., at p. 132.

The Court of Appeal were led to imply a term by their conclusion that

in order to determine whether a term is to be implied it is legitimate to take account of material external to the contract from which the presumed intention of the parties may be ascertained and their aim or commercial purpose objectively established. The statement by Jordan C.J. in Heimann [51] which seems to restrict recourse to the intention manifested by the express terms of the contract is not, we think, consistent with the later authorities to which we have referred. Their Honours' conclusion owes much to their interpretation of B.P. Refinery. For the reasons stated, the passage above cited from the judgment of Jordan C.J. should be accepted as undiminished in its authority. It was adopted with approval by Latham C.J. in Scanlan's New Neon Ltd v Tooheys Ltd [52] and it has not since been doubted. 1. (1938) 38 S.R. (N.S.W.), at p. 695. 2. (1943) 67 C.L.R. 169, at p. 195.

The refusal by the courts to go outside the four corners of a contract to find a term implied therein may be productive of hardship in particular cases. But the remedy is not to apply some general and inevitably imprecise notion of what is fair or reasonable in order to alter what the parties have agreed. The court simply gives effect to their agreement, and leaves in their hands the arrangements which must be made for their respective protection. The parties in the present case made no provision to alter the consequences of their agreement if their common understanding as to the immunity of Codelfa from injunction should prove to be, as it was, erroneous. Whether they would have reached agreement if they had so negotiated is both impossible and irrelevant to say. It is not for the court to alter the consequences of applying the terms of the contract to the events to which those terms clearly refer. No implied term can be found.

The findings of the Arbitrator upon which Codelfa relied to establish an implied term suggest that its real complaint is that the Commissioner represented and promised that it would be immune from injunction and the representation was false and the promise was broken. Those were not the bases on which Codelfa pursued its claims, though I do not suggest that either basis would have been more fruitful than the bases of the proceedings now under consideration.

The alternative basis of Codelfa's claim for remuneration in excess of the contract price requires Codelfa to establish at the outset that the contract was frustrated. If the work performed by Codelfa was performed pursuant to the contract, it can recover no more than the contract price. Codelfa alleged that the contract was frustrated on 28 June 1972 when the first interim injunction was granted. The significance of the granting of the injunction, it was submitted, "was that it destroyed the concept of immunity of the project around which the contracat had been constructed". But it cannot be said that when the parties discovered that Codelfa was amenable to the ordinary jurisdiction of the court to restrain a public nuisance a fundamentally different situation was created to which the contract did not apply. The correction in the minds of the parties of their common legal error produced no new situation either in fact or in law: it merely revealed to the parties the mistake under which they laboured when they entered into the contract. The discovery of a mistake as to a legal restriction which at all material times affects the manner in which a contract might be performed is a different thing from a supervening circumstance which arises in the course of its performance and affects the circumstances in which the contract is to be performed.

It was not contended by Codelfa that that mistake affected the formation of the contract. Codelfa contended that the granting of an injunction on 28 June 1972 was a supervening frustrating event. It is well to recall the limits upon the doctrine of frustration. In British Movietonews Ltd v London and District Cinemas Ltd [53] Viscount Simon said:

It is of the utmost importance that the action of a court, when it decides that in view of a supervening situation the rights and obligations under a contract have automatically ceased, should not be misunderstood. The suggestion that an "uncontemplated turn of events" is enough to enable a court to substitute its notion of what is "just and reasonable" for the contract as it stands, even though there is no "frustrating event," appears to be likely to lead to some misunderstanding. The parties to an executory contract are often faced, in the course of carrying it out, with a turn of events which they did not at all anticipate - a wholly abnormal rise or fall in prices, a sudden depreciation of currency, an unexpected obstacle to execution, or the like. Yet this does not in itself affect the bargain they have made. If, on the other hand, a consideration of the terms of the contract, in the light of the circumstances existing when it was made, shows that they never agreed to be bound in a fundamentally different situation which has now unexpectedly emerged, the contract ceases to bind at that point - not because the court in its discretion thinks it just and reasonable to qualify the terms of the contract, but because on its true construction it does not apply in that situation. Frustration occurs, as Lord Radcliffe said in Davis Contractors Ltd v Fareham Urban District Council [1] : whenever the law recognizes that without default of either party a contractual obligation has become incapable of being performed because the circumstances in which performance is called for would render it a thing radically different from that which was undertaken by the contract. Non haec in foedera veni. It was not this that I promised to do. 1. [1952] A.C. 166, at p. 185. 2. [1956] A.C. 696, at p. 729.

To apply this test, it is necessary to refer to the contract to ascertain what Codelfa was bound to perform and then to inquire whether performance in the changed situation affected by the supposed frustrating event is within the contractual promise. Codelfa was bound to complete the contract works within the time agreed or extended in accordance with cl. G.44(7), and it is clear that the three-shift basis for doing the work could not lawfully be persisted in once the noise and vibrations attendant upon the excavations began. Yet Codelfa had agreed to perform the contract according to its terms irrespective of its difficulty. On what supervening circumstance could it rely to say "non haec in foedera veni"?

The injunction was not a supervening alteration of the law which made illegal the further performance of the contract in the manner stipulated therein. The circumstances in which Codelfa was bound to perform the contract works did not change on 28 June 1972. Prior to that time - though the parties may not have known it to be so - Codelfa was required to avoid the commission of an actionable nuisance in performing the contract, and the injunction required it to avoid the commission of an actionable nuisance in performing its contract after that time. The circumstances in which performance was called for were no different from those which affected the performance of the contract from the time when it was made. The injunction limiting working hours did no more than enforce judicially a limitation by which Codelfa was already legally bound.

The test may be put in ways other than that stated by Lord Radcliffe, for there are various juridical bases of the doctrine of frustration: see, for example, the review by Latham C.J. of the bases suggested in Scanlan's New Neon Ltd v Tooheys Ltd Though Lord Radcliffe's judgment has found favour both here (Brisbane City Council v Group Projects Pty. Ltd [2] ) and in England (Pioneer Shipping Ltd v B.T.P. Tioxide Ltd [3] ) there is much to be said in favour of Lord Wilberforce's view that the various theories "shade into one another and that a choice between them is a choice of what is most appropriate to the particular contract under consideration" (National Carriers Ltd v Panalpina (Northern) Ltd [4] ).

1. (1979) 145 C.L.R. 143, at pp. 160-161. 2. [1982] A.C. 724. 3. [1981] A.C. 675, at p. 693.

Whichever juridical basis is selected as appropriate to the present contract, Codelfa cannot establish that the granting of the injunction was a frustrating event. The case falls within what Latham C.J. in Scanlan's New Neon Ltd v Tooheys Ltd [5] called "the general rule":

a man who makes a promise is bound to perform it or to pay damages if he fails to do so, and that he cannot excuse himself by relying upon circumstances dehors the contract for the purpose of showing that he did not mean what he clearly said, or that he should be excused from performance because the contract did not work out in the manner expected by one or even by both of the parties. After 28 June 1972 Codelfa's work was done in performance of the contract and it was entitled to remuneration in accordance with its terms. The appeal in the frustration action was rightly dismissed. 1. (1943) 67 C.L.R., at pp. 191-192.

The remuneration to which Codelfa is entitled for the work performed by it is the contract price prescribed by cl. G.26 adjusted in accordance with the provisions of the rise and fall clause (G.28). Clause G.26 reads:

(1) Subject to the terms of the Contract, the price payable by the Commissioner for the works shall be an amount calculated at the respective unit prices set out in the Schedule of Rates for the quantities of the respective items of work actually performed under and in accordance with the provisions of the Contract, together with the lump sum amounts shown in the said Schedule for the items of work to which they are applicable actually performed under and in accordance with the provisions of the Contract.

(b) The Contractor shall not be entitled to any allowance above the unit prices set out in the Schedule of Rates by reason of any amount or none of the work being required under such items, and all work for which items are included in the Schedule of Rates shall be done at the unit price set out therefor in the Schedule of Rates, regardless of its difficulty

(1) If after the date of closing of the Tenders the cost to the Contractor of executing the works at the aforesaid date would be varied by reason of a direct and binding obligation upon the Contractor under any Act of Parliament of the Commonwealth or of a State, or any regulation under any Act, or any award, judgment, determination, order or rule of any competent Court, Board, Commission or other statutory tribunal prescribed for general application by any calling or callings throughout the industry covered by the said award, judgment, determination, order or rule and is not limited to work being carried out in pursuance of the City and Suburban Railways (Amendment) Act 1967, causing a change in:

(a) the minimum rate of wages prescribed to be paid to persons employed on the site by the Contractor for work under the Contract, or

(b) the hours of labour to be worked by those persons, or

the Contract Price shall be varied by the application of the formula provided in subclause (3).

(2) Excepting as provided in subclause (1) of this clause if after the date of closing of the Tenders the cost to the Contractor of executing the works at the aforesaid date would be varied by reason of a direct and binding obligation upon the Contractor under any award, judgment, determination, order or rule of any competent Court, Board, Commission or other statutory tribunal causing a change in:

(a) the minimum rate of wages prescribed to be paid to persons employed in the Commonwealth by the Contractor for work under the Contract, or

(b) the hours of labour to be worked by those persons, or

the Contract Price shall be varied to the extent only of seventy-five per cent of the amount calculated by the application of the formula provided in subclause (3).

(3) For each one cent increase or decrease in the average weekly wage (as hereinafter defined), or alteration in marginal rates of pay, or the equivalent variation due to alteration of standard working hours, there shall be charged against or allowed to the Department's account as the case may be a sum representing 0.008 per cent of the value of the uncompleted portion of the Contract as at the date of any such variation. For the purpose of this clause the expression "Average Weekly Wage" shall mean the ordinary hourly rate of pay payable under each award converted to 40 hours per week. The average of the weekly wage shall be calculated from the proportioned list of trades shown below and this average shall be deemed to be the weekly wage on which variations are solely computed.

General Construction and Maintenance, Civil and Mechanical Engineering etc. (State) Award Tunnel Miner 45% Cement Gun Operator - Wet - Underground 25% General Labourer Grade 1 10% Engineering Construction on Site (State) Award Fitters 5% Carpenters, Joiners, Bricklayers Construction (State) Award Carpenters 10% Transport Industries (State) Award Driver 24 ton 5%

The value of the uncompleted portion of the Contract shall not include the whole or any part of any amounts included in the Tender Price in respect of contingency sums, monetary sums, prime cost items and sums and provisional sums. The value of the uncompleted work shall be determined from time to time by the Engineer.

(4) For purposes of this clause minimum rates of wages shall include all allowances prescribed by any of the relevant awards.

The factors in the formula in sub-cl. (3) are the variation in the "average weekly wage", marginal rates of pay or standard working hours, 008 per cent and the "value of the uncompleted portion of the Contract" (VUPC) as at the date of the variation. It may be expressed mathematically: Variation × .008 × VUPC = Amount (in dollars) (in cents) 100 (in dollars) to be charged or allowed. Codelfa submitted that the VUPC changes not only in accordance with the work that remains to be done from time to time - and that is not disputed - but in accordance with variations in the contract price which, it was contended, are effected by changes in the average weekly wage from time to time.

Clause G.26 defines the price for work included in the schedule of rates. The price in cl. G.26 is the product of multiplying the units of work by the appropriate item in the schedule of rates. Clause G.28(1) provides for a variation in "the Contract Price", that is the price fixed in accordance with cl. G.26 in the first instance, by adding an amount to be "charged against" the Commissioner or by deducting an amount to be "allowed to" him. As cl. G.26 is introduced by the words "Subject to the terms of this Contract", the amount of the liability imposed upon the Commissioner ("the price payable by the Commissioner") under that clause becomes subject to the variation for which cl. G.28 provides, that is to say, the amount which is established by cl. G.26 as the basis of "the Contract Price" is subject to a variation calculated by application of the formula in cl. G.28(3). The schedule of rates is not itself adjusted by operation of that formula.

On the first variation which attracts the operation of the formula, the VUPC must be calculated by multiplying the units of work remaining to be done at the time of the variation by the appropriate items in the schedule of rates. Codelfa's case was that the VUPC is the amount which the Commission would be liable to pay to have the remaining work done and that, on the second and subsequent variations, the contract price, having been varied by previous applications of the formula, is the factor to be brought into the calculation. But the contract price is not a series of amounts earned or to be earned from time to time. It is the amount which the Commissioner is to pay "for the works", that is, for the whole of the materials supplied and work done pursuant to the contract. The amount established by cl. G.26 as the basis of the contract price is a price payable for the whole of the works and it is subject to variation by adding or subtracting amounts calculated by application of the formula. Indeed, the contract price is ascertainable only when the basic price (G.26) is adjusted by adding or subtracting the variations calculated under cl. G.28 and deducting, pursuant to cl. G.27, all costs, damages and expenses for which Codelfa might be liable to the Commissioner under the contract. The contract price is not ascertainable at the times when calculations of amounts in accordance with the formula are to be made. The contract price is not, nor could it be, a factor to be brought into the calculation.

Clause G.28(3) provides that the VUPC is to be determined from time to time by the Engineer. Clearly enough he is required to form an estimate of the units of work remaining to be done and to multiply the units of the respective classes of work by an appropriate rate. Whence does the Engineer derive the rates which he is to use? There is, of course, the schedule of rates in the contract which he must apply on the occasion of the first variation. There is no other schedule of rates available for application. Unless the contract provides for a variation of that schedule, the several rates therein prescribed must be applied on the occasions of subsequent variations. The contract does not provide for variation of the scheduled rates, and the VUPC must therefore be calculated on those rates.

Codelfa sought to place some reliance upon cl. G.31 which provides for payment by the Commissioner during the progress of and upon completion of the works. That clause, it was said, provided for progress payments for "the estimated value of the work done" including the escalated value of work calculated in accordance with the formula. If the value of completed work should reflect past escalations, it was argued, why should the VUPC not reflect those escalations? What is reflected in a progress payment under cl. G.31 is not accurately described as an escalation, but as a payment on account of the amount to be charged against the Commissioner under cl. G.28(3) and ultimately to be included in the contract price. It can be predicated of completed units of work that they will attract to Codelfa's credit in the final contract price not only the amount calculated at the scheduled rates but a proportion (calculated upon those units) of the amounts to be credited in accordance with past applications of the formula. It cannot be predicated of uncompleted units that the application of the formula to them will attract any sum in addition to or in diminution of the amount calculated at the scheduled rates. Future variations in the average weekly wage, marginal rates of pay or standard working hours determine whether any and what amount is to be charged against or allowed to the Commissioner in respect of units of work yet to be completed. Payment for work already done can be calculated by reference to past variations; the future cost of work cannot. Clause G.31 does not provide any reason for increasing VUPC above the amount arrived at by reference to the schedule of rates.

We were furnished with sample calculations by both parties which were intended to demonstrate the reasonableness of the contending views as to the meaning of the VUPC. Interesting though they were, the construction of cl. G.28(3) in this respect is not so uncertain as to be aided by examples of its operation if one or other construction be adopted.

The other factor in the formula is variation "in the average weekly wage (as hereinafter defined), or alteration in marginal rates of pay, or the equivalent variation due to alteration of standard working hours". It is unnecessary to consider variations of standard working hours as no variation in standard working hours occurred during the course of the contract.

Codelfa submitted that the meaning and operation of sub-cl. (3) is affected by its context, and particularly by the provisions of sub-cll. (1), (2) and (4). It submitted that similar terms used in the first four sub-clauses of cl. G.28 might be used interchangeably. "Average weekly wage" or "average weekly wage" coupled with "marginal rates of pay" in sub-cl. (3) was said to be the same as "minimum rate of wages" in sub-cl. (1). If the terms are synonymous, sub-cl. (4) brings all allowances into account so that increases in allowances - particularly shift allowances - would be an "increase in the average weekly wage" or "an alteration in marginal rates of pay" within the meaning of those phrases in sub-cl. (3), entitling Codelfa to charge an additional sum against the Commissioner in accordance with the formula. That construction of cl. G.28 was said to be required in order that the clause may operate as it was intended to do. Unless the terms are used interchangeably, it was said, there can be no assurance that a change in the minimum rate of wages will result in a variation of the contract price, a result which is provided for by the concluding words of sub-cll. (1) and (2). Those sub-clauses provide that, if a change in minimum rates of wages, marginal rates of pay or standard working hours occurs by reason of the events to which those sub-clauses respectively refer, the contract price should be varied by the application of the formula provided in sub-clause (3).

It was submitted that it would be incongruous if there were an increase in, say, a shift allowance and thus a change in the "minimum rate of wages" so that sub-cll. (1) and (2) would require a variation in the contract price, yet the formula would not take account of this change and would yield no addition to the contract price. The argument repeats the observations made by the Court of Appeal that within clause G.28 itself there is "an unquestionable assumption that changes in rates of pay and hours of work are to produce variations in the contract price". No doubt there is an assumption that a change in a minimum rate of wages, hours of labour or conditions of employment would result in a variation of the contract price, but that is not to say that any such change bears a direct relationship to the variation or to any factor used in calculating it. The changes to which sub-cll. (1) and (2) refer are actual cost increases, increases in what Codelfa is obliged to pay persons it employs on the site (sub-cl. (1)) or elsewhere in the Commonwealth (sub-cl. (2)). On the other hand, the "average weekly wage", "marginal rates of pay" and "standard working hours" mentioned in sub-cl. (3) are, in a sense, notional figures. They are the wage, marginal rates and standard working hours of classes of workmen who may or may not be employed by Codelfa at the time when it incurs an actual cost increase. The figure used in calculating the adjustment under the formula, the notional figure, is not necessarily related to actual costs. For example, an increase in the allowances payable to a clerk or accountant employed in Codelfa's office upon contract ESR 1005 would increase "the cost to the Contractor" and thereby enliven sub-cl. (2), but the formula could not reflect that increase: the classes of employees mentioned in sub-cl. (3) do not include clerks or accountants. Conversely, an increase in the marginal rates of pay of, say, a driver of a 24-ton vehicle, would require a new factor to be used in subsequent calculations under the formula even though Codelfa may not be employing a driver of a 24-ton vehicle at the time. Whatever meaning is attributed to "minimum rate of wages" in sub-cl. (2) in such cases, there could be no correspondence between that term and the average weekly wages of the classes of workmen mentioned in sub-cl. (3).

Sub-clauses (1) and (2) identify the occasions when a calculation in accordance with the formula is to be made, namely, whenever by reason of changes in awards, etc., Codelfa incurs an increase in its liability to its employees in respect of the minimum rate of wages or the allowances to which they are entitled (sub-cl. (4)), the hours they work or their conditions of employment. On each occasion of a cost increase falling within sub-cl. (1) or sub-cl. (2), the formula must be applied in order to determine whether any and what adjustment to the contract price is to be made. On the other hand, a variation in the average weekly wage or margin or standard working hours of a workman in a class referred to in sub-cl. (3) does not require a calculation in accordance with the formula to be made in order to adjust the contract price unless that variation occasions, or is contemporaneous with, an increase in Codelfa's actual costs falling within sub-cl. (1) or sub-cl. (2). No doubt such a variation would ordinarily occasion an increase in Codelfa's actual costs, but it does not follow that every increase in actual costs falling within sub-cl. (1) or sub-cl. (2) would be occasioned by a variation in the wages, margins or hours of employees of the classes mentioned in sub-cl. (3).

It follows that an adjustment to the contract price is not necessarily a consequence of an actual increase in costs unless a calculation then made in accordance with the formula yields an amount to be added or subtracted. As sub-cl. (3) has a different function from sub-cll. (1) and (2), there is no reason why the extended meaning given to "minimum rates of wages" by sub-cl. (4) - which applies to sub-cll. (1) and (2) - should be applied to the different terms appearing in sub-cl. (3).

Nevertheless, putting sub-cl. (4) to one side, the minimum rate of wages for the classifications of workmen specified in sub-cl. (3) is equivalent to the average weekly wage of those workmen under the respective awards, or equivalent to their average weekly wage plus marginal rates of pay. "Average weekly wage" is defined to mean "the ordinary hourly rate of pay payable under each award converted to 40 hours per week", an amount which represents the minimum rate of wages payable in respect of the ordinary working week to workmen in those classifications. Some loadings or allowances are incorporated into the ordinary rate of pay in the awards specified in sub-cl. (3), so that an application of the formula consequent upon a cost increase with respect to employees in those classes would ordinarily throw up an amount to be added to or subtracted from the contract price.

Section 59 of the Industrial Arbitration Act 1940 NSW, the Act under which the relevant awards are made, provides for the fixing of a minimum wage for adults in excess of the basic wage. Reference to the awards shows that there is in fact a correspondence between a minimum rate of wages and the average weekly wage, or between a minimum rate of wages and the average weekly wage plus marginal rates of pay. In the General Construction and Maintenance, Civil and Mechanical Engineering &c (State) Award ("the General Construction Award") the minimum rate of wages payable to an employee (other than an employee of a Government Department or Quasi-Government Body) is a composite of the basic wage, margins and a loading in lieu of holidays and sick leave (cl. 2(xii) and (xiii)); in the Engineers, &c. (State) Award ("the Engineers Award") the minimum rate of wages payable to an employee is a composite of the basic wage and a margin (cl. 2); in the Carpenters and Joiners and Bricklayers, Construction (State) Award ("the Carpenters Award") the minimum rate of wages payable to a carpenter is a composite of the basic wage, a margin, loadings to provide for sick leave, holidays, excess travelling time, a tool allowance and an industry allowance (cl. 3(i)); and in the Transport Industry (State) Award ("the Transport Award") the minimum rate of wages payable to a driver of a 24-ton vehicle is a composite of the basic wage and a margin (cl. 3). The actual phrase "minimum rate" is used in the Engineers Award (cl. 3(c)), though it is there used in reference to a junior employee), and in the Transport Award (cl. 3) to describe an ordinary rate of pay.

The rates prescribed by the General Construction Award in respect of a tunnel miner, cement gun operator-wet-underground and general labourer are hourly rates; the rate prescribed by the Engineers Award for fitters is a weekly rate and the ordinary hours of work are forty hours a week (cl. 7); the rate prescribed by the Carpenters Award for carpenters is an hourly rate arrived at by dividing the weekly rate by 40; and the rate prescribed by the Transport Award for a driver of a 24-ton vehicle is a weekly rate and the ordinary hours of work are forty hours a week (cl. 4). The "average weekly wage" is thus ascertainable by reference to the rates prescribed for each class of workman by the award applicable to his calling.

Codelfa sought to bring into average weekly wage in sub-cl. (3) three classes of pay and allowances: shift allowances, sick leave and accident pay. They are not brought in by sub-cl. (4). Are they brought in by the awards? The answer depends upon the provisions of the respective awards. If the relevant award provides for the particular item to be paid to the members of the relevant class of workmen generally for doing the ordinary work done by workmen in that class during ordinary working hours, then the item is properly to be regarded as included in the ordinary rate; but if the item is to be paid only to workmen in the relevant class who perform some special service or who are called upon to work in conditions which are more arduous or unusual than the conditions covered by the rate generally payable, or at times different from the ordinary working hours, the item cannot be said to be included in the ordinary rate. As the formula is not tied to actual cost variations but is merely a formula by which adjustments to the contract price are made when cost variations occur, the "ordinary rate" payable under the respective awards is not necessarily the rate to which particular employees of Codelfa may be entitled for the work they do. The ordinary rate is what would be payable to a workman if he were not entitled to any loading or allowance for performing a special service or working in conditions which are more arduous or unusual than the conditions covered by the rate generally payable, or at times different from the ordinary working hours. An award provision for payment of an additional sum is an indicator that the sum is compensation for extraordinary service or working conditions or working hours.

Shift allowances are provided for by cl. 4 of the General Construction Award. Afternoon and night shifts are to be paid for at a higher rate than the rate payable for work done during "ordinary working hours" (cl. 4(vi)(a) and (b) and cf. cl. 4(vii)). Under the Engineers Award, a loading is added to the "ordinary rate" for shift work (cl. 8(f)). The Carpenters Award provides a higher rate for shift work than "the ordinary hourly rate" (cl. 12(v) and cf. cl. 3). The Transport Award provides for special allowances for all shift workers "in addition to the rates prescribed for their respective classifications" (cl. 13(iv)). In each case the shift allowance is additional to the ordinary rate. It is paid to those who are required to work in shifts after the hours which attract the ordinary rate. In no case is a shift allowance part of the ordinary rate payable to a workman in a classification specified in cl. G.28(3).

Sick leave is provided for in cl. 10 of the General Construction Award but private employers were exempted from payment for sick leave (and for the holidays prescribed by cl. 9) and were bound "in lieu thereof" to "pay an additional amount of 9.5 cents per hour for all purposes" (cl. 2(xiii)). This amount was payable to employees generally, and their entitlement to it was not dependent upon their performing a special service or upon their working in conditions more arduous or unusual than the conditions covered by the rate generally payable or at times different from ordinary working hours. Similarly, the Carpenters Award included in the "ordinary hourly rate of wages of a carpenter" a loading for sick leave (cl. 3(i)(a)). Neither the Engineers Award nor the Transport Award provided in their ordinary rates of pay for a payment to be made in lieu of or in respect of sick leave for a fitter or driver employed under those respective awards. It appears that, at some time after the date of the closing of tenders, workmen employed under the General Construction and Carpenters Awards lost their entitlement to a loading for sick pay in their ordinary rates of pay, gaining, however, an entitlement to sick leave if they should be absent from work on account of personal illness or personal incapacity (see the General Construction Award of 11 December 1973, cl. 20(ii), the Carpenters Award of 7 April 1975, cl. 27). Although the burden of the new obligation upon an employer may have been no lighter than before, the nature of the burden changed. Thereafter the employer did not discharge his burden by the payment of an ordinary rate of pay: his burden was to be discharged by payment of an amount to his employee if the employee should suffer from illness or incapacity. A contingent liability to pay sick pay does not fall within "ordinary rates", but payments which are within "ordinary rates" do not lose that character because part of them represents a payment in lieu of a liability to pay sick pay.

Accident pay, that is, pay representing the difference between an injured workman's award rate for a forty-hour week and his entitlement to payment under the Workers' Compensation Act 1926 NSW is provided for in some of the awards. Like sick pay, it is a contingent liability discharged by payment to injured employees who qualify under the respective award provisions. For a time, however, an employer could discharge his liability in respect of accident pay by paying a loading to his employees. Under the General Construction Award from 26 June 1972 until the beginning of the first pay period to commence on or after 23 December 1975, all workmen other than employees of Government Departments and Quasi-Government Bodies were entitled to a flat rate loading on their respective ordinary hourly rates for accident pay which was to be "regarded as part of the employee's wage rate for all purposes" (cl. 10A in the Award of 26 June 1972, cl. 20(iii) in the Award of 11 December 1973), but the employer's obligation was "deemed to have been complied with" if he paid the accident pay when an employee suffered a compensable injury. Payment when an employee suffered a compensable injury was a mode of discharging an obligation which was defined as an obligation to pay a flat rate loading on ordinary hourly rates. The nature of the obligation shows that the primary manner of discharging it was to pay a flat rate loading as part of the workman's ordinary rate, although the employer was entitled to elect to discharge the obligation in a different way. However, employers lost the right to elect between the modes of discharging their obligation on 22 December 1975, and thereafter their liability was contingent to be discharged by payment to employees if they should qualify under the award provisions. Thereupon the flat rate loading was deleted from the ordinary rate of wages of workmen employed under the General Construction Award. Similar provisions were to be found in the Building Trades - Injuries Award (which applied to carpenters employed under the Carpenters Award) between 21 May 1971 and 28 June 1973, and in the Transport Award between the first pay period to commence on or after 9 February 1972 and 30 November 1973, but there were no comparable provisions in the Engineers Award.

The "ordinary hourly rates of pay" for the purposes of cl. G.28(3) therefore include the loadings for sick pay and for accident pay when those loadings were or were regarded as part of the ordinary pay to which workmen of the respective classes mentioned in that sub-clause were entitled, but otherwise shift allowances, sick pay or accident pay did not form part of ordinary hourly rates of pay and are not to be taken into account in ascertaining the "Average Weekly Wage" for the purposes of applying the formula.

This conclusion appears to differ from the conclusion in T.C. Whittle Pty. Ltd v T. & G. Mutual Life Society Ltd [6] where sundry allowances, loadings or entitlements were held to affect the amount of an "average award weekly wage" which was a factor in a rise and fall formula bearing a resemblance to the formula in cl. G.28(3). The difference between the formulae, however, requires a different conclusion. "Average Weekly Wage" in cl. G.28(3) is a weighted average of the ordinary hourly rate of pay payable to workmen in the specified classifications under the respective awards converted to forty hours per week. In T.C. Whittle's Case "average award weekly wage" was defined as "the average of the 40 hour rate of pay for the listed workmen" whose classifications and awards were listed without any weighting of the classifications, and a document was incorporated in the contract which revealed that the average award weekly wage for the purposes of the rise and fall clause as at the date of the closing of tenders was composed of basic wage, tradesman's margin, follow the job and sick leave allowances, travelling time, tool allowance, industry allowance and special allowance in the appropriate industrial awards. In the present case, the average weekly wage is defined as a multiple of the ordinary hourly rate of pay of workmen in the respective classifications. The definition of the relevant term is different. In the present case, as in T.C. Whittle's Case, a notional figure is brought into the calculation, but in the present case the notional figure is obtained by seeking in the respective awards the amounts which answer the description of ordinary hourly rate of pay.

In the course of argument, counsel for Codelfa abandoned a submission that long service leave, overtime, crib time and wash and change time should be taken into account in ascertaining average weekly wage for the purposes of cl. G.28(3).

The Arbitrator awarded interest upon the several sums which he found due to Codelfa, to be calculated on quarterly rests. The special case asks whether he was authorized to do so.

In Government Insurance Office of New South Wales v Atkinson-Leighton Joint Venture [7] , this Court held by a majority that under the law of New South Wales an arbitrator is armed with the same authority to award interest up to the date of his award upon a sum found due as is the Supreme Court. The authority is conferred by the submission to arbitration and follows the terms, mutatis mutandis, of the statute which confers the power upon the Supreme Court. Stephen J. said [8] :

The principle to be extracted from this line of authority is that, subject to such qualifications as relevant statute law may require, an arbitrator may award interest where interest would have been recoverable had the matter been determined in a court of law. What lies behind that principle is that arbitrators must determine disputes according to the law of the land. 1. (1981) 146 C.L.R. 206. 2. (1981) 146 C.L.R., at p. 235.

The majority held that the law of the land includes s. 94 of the Supreme Court Act 1970 NSW, sub-s.(1) of which provides:

In any proceedings for the recovery of any money (including any debt or damages or the value of any goods), the Court may order that there shall be included, in the sum for which judgment is given, interest at such rate as it thinks fit on the whole or any part of the money for the whole or any part of the period between the date when the cause of action arose and the date when the judgment takes effect. The way in which the section operates when differences are submitted to arbitration was stated by Mason J., with whom Murphy J. agreed [9] : Although s. 94 is expressed in the form of an authority of the Court, its effect is to alter the antecedent principle of law regulating the payment of interest on moneys included in judgments between the date when the cause of action arose and the date when the judgment takes effect. The parties' submission to arbitration of all their differences is to be construed in the light of the new principle of law regulating the payment of interest enshrined in s. 94. 1. (1981) 146 C.L.R., at p. 247.

Counsel for the Authority did not seek to challenge the majority judgment in Atkinson-Leighton but to distinguish it upon a ground that was not argued in that case though it was open upon the terms of the policy there considered. The ground is that where a contract contains a clause of the kind considered in Scott v Avery [10] , no cause of action arises prior to the making of the award and accordingly there is no period "between the date when the cause of action arose and the date when the judgment takes effect". The argument does not assert that an arbitrator lacks authority to award interest but rather that s. 94 creates no entitlement to interest where the contract contains a Scott v Avery clause. A similar argument was upheld by Connolly J. in Chalet Homes Pty. Ltd v Kelly [11] .

1. (1856) 5 H.L.C. 811 [10 E.R. 1121]. 2. [1978] Qd.R. 389.

No action or suit shall be brought or maintained by the Contractor or the Commissioner against the other of them to recover any money for or in respect of or arising out of any breach or alleged breach of this Contract by the Contractor or the Commissioner or for or in respect of any matter or thing arising out of this Contract unless and until the Contractor or the Commissioner shall have obtained an award of an Arbitrator appointed under this clause for the amount sued for and when work under the Contract has not been completed the Contractor shall, if reasonably possible, diligently proceed with the work as directed by the Commissioner during arbitration proceedings and no payment due or payable by the Commissioner shall be withheld on account of proceedings unless authorised or required by the Arbitrator. This clause is similar to the clause considered in South Australian Railways Commissioner v Egan [12] and, if it is a true Scott v Avery clause, it prevents the bringing or maintaining of an action upon a claim for work done and materials supplied under the contract or a claim for damages for breach of contract unless and until an award is obtained. The obtaining of an award is then a condition precedent not to the bringing or maintaining of an action but to the arising of a cause of action, [13] per Gibbs J. The effect of such a clause was stated by this Court in Anderson v G.H. Michell & Sons Ltd [14] : an agreement which in point of expression makes arbitration a condition precedent, not to the liability or cause of action, but to the right to bring or maintain an action, is construed as affecting, not the jurisdiction or remedy, but the obligation: See Board of Trade v Cayzer, Irvine & Co. Ltd [15] ; Swanson v Board of Land and Works [16] . If such a clause were construed as affecting merely the remedy, it would fail in its intended purpose for it would purport to oust the jurisdiction of the court. In Spurrier v La Cloche [17] the Judicial Committee adopted what Maule J. had said during the argument of Scott v Avery in the Exchequer Chamber [18] : There is no decision which prevents two persons from agreeing that a sum of money shall be paid upon a contingency; but they cannot legally agree, that, when it is payable, no action shall be maintained for it. 1. (1973) 130 C.L.R. 506. 2. (1973) 130 C.L.R., at p. 519. 3. (1941) 65 C.L.R. 543, at p. 550. 4. [1927] A.C. 610. 5. [1928] V.L.R. 283. 6. [1902] A.C. 446, at p. 451. 7. (1853) 8 Ex. 497, at p. 499 [155 E.R. 1447, at p. 1448].

When a contract contains both a promise to pay expressed in absolute terms and a clause in a Scott v Avery form, it is necessary to construe the promise as creating an obligation to pay conditional upon the making of an award or to hold the purported Scott v Avery clause void or, as in Collins v Locke [19] , to hold theScott v Avery clause applicable only to limited classes of claims arising under the contract. If the Scott v Avery clause be void or inapplicable, the promise to pay gives rise to a cause of action according to the tenor of the promise; if the Scott v Avery clause be valid and applicable, no cause of action arises prior to the making of the award. By construing the contract, the application of a Scott v Avery clause to a promise found elsewhere in the contract is determined.

In the present case, cl. G.31 provides for the making of progress payments (the prompt payment of which is no doubt of importance in facilitating continuity in the performance of the contract works) and cl. G.46(5) requires the Commissioner not to withhold during arbitration proceedings payments which are "due and payable". Though cl. G.31 is in unqualified terms, I would not construe that clause as conferring upon Codelfa a right to payment unaffected by cl. G.46(5). It does not give rise to a debt which is "due and payable". Where liability to make a progress payment is not disputed, however, the condition precedent to liability to make the payment is waived and the amount of the progress payment then becomes due and payable. On the other hand, where such liability is disputed, there is no reason why cl. G.46(5) should not be held to affect the arising of a cause of action. There is no reason to read down cl. G.46(5) in order to accommodate cl. G.31 or to give some operation to the words "due and payable" in cl. G.46(5). The latter part of that subclause relating, inter alia, to payments due and payable, has particular work to do. If the Commissioner should seek an award of a sum against Codelfa which he would be entitled to set off against a payment which is due and payable by him to Codelfa, cl. G.46(5) empowers the arbitrator to authorize the Commissioner to defer that payment until the award is made and thereby to permit the setting off of the sum awarded against the amount due and payable. Neither the terms of cl. G.46(5) nor its context require the subclause to be denied effect as creating a condition precedent to obligations arising under other clauses of the contract. It is a true Scott v Avery clause. Unless a party to the contract waives the condition precedent which it creates, it prevents the arising of an obligation enforceable against that party before an award is made.

The operation of a Scott v Avery [20] clause upon other provisions of the contract does not require or permit the arbitrator to attribute a different meaning or effect to those provisions from the meaning or effect which ought otherwise to be attributed to them. A claim which is submitted to arbitration under a Scott v Avery clause is a claim to the benefit of a legal obligation, albeit the obligation is qualified by the non-fulfilment of the condition precedent imported by the clause. An arbitrator is not concerned with the qualification.

Nevertheless, when the arbitrator comes to apply s. 94 of the Supreme Court Act to the sum which he proposes to award to a party, he cannot find that that sum or any part of it has been due at a time before his award is made or that a cause of action has arisen which would have entitled a party to commence proceedings for its recovery. As Viscount Cave L.C. pointed out in Board of Trade v Cayzer, Irvine & Co. [21] , a submission to arbitration pursuant to a Scott v Avery clause " is not the case of an ordinary submission to arbitration, nor is it the case of a dispute arising under the common clause in a contract providing for the submission to arbitration of all disputes arising under the contract." An ordinary submission to arbitration takes the place of an action at law, but an arbitration under a Scott v Avery clause is, as Lord Phillimore [22] said in the same case "a necessary step towards an action at law". The distinction is critical, for s. 94 can operate only after a cause of action has arisen, when the principal sum upon which interest is to be charged is due.

1. [1927] A.C. 610, at p. 614. 2. [1927] A.C., at p. 629.

The difference between the two kinds of arbitration clause is well illustrated by the difference between Board of Trade v Cayzer, Irvine & Co. where time under the Statute of Limitations was held not to run before the award was made and two other cases where arbitrators were held bound to permit a defence under a Statute of Limitations when time had expired before the arbitration was commenced. In Ramdutt Ramkissendass v F.D. Sassoon & Co. [23] the Judicial Committee held that arbitrators should give effect by analogy to the Indian Limitation Act which limited the time for commencing a suit for compensation for breach of contract though the Act was not expressed to limit the time for commencing an arbitration. In a passage subsequently adopted by the House of Lords in Namlooze Vennootschap Handels en Transport Maatschappij Vulcaan v A/S J. Ludwig Mowinckels Rederi [24] Lord Salvesen said [25] :

Although the Indian Limitation Act does not in terms apply to arbitrations, they think that in mercantile references of the kind in question it is an implied term of the contract that the arbitrator must decide the dispute according to the existing law of contract, and that every defence which would have been open in a Court of law can be equally proponed for the arbitrator's decision unless the parties have agreed (which is not suggested here) to exclude that defence. Where it otherwise a claim for breach of a contract containing a reference clause could be brought at any time, it might be twenty or thirty years after the cause of action had arisen although the Legislature has prescribed a limit of three years for the enforcement of such a claim in any application that might be made to the law courts. 1. (1929) L.R. 56 Ind.App. 128. 2. (1938) 43 Com. Cas. 252, at p. 258. 3. (1929) L.R. 56 Ind. App., at p. 136.

In the latter two cases the arbitrators were exercising their authority under ordinary submissions to arbitration. In Board of Trade v Cayzer, Irvine & Co. the obligation of the arbitrators to apply the law was no less binding, but no cause of action arose at law and time did not run. Similarly, under an ordinary submission to arbitration a cause of action may be found to have arisen prior to the arbitrator's award so that interest might be allowed; but under a Scott v Avery arbitration no cause of action arises prior to the arbitrator's award and no interest can be allowed. The arbitrator's award of interest cannot stand. It follows that Codelfa's claim to compound interest also fails.

It remains to translate these conclusions into the orders which I would make to dispose of the appeals and cross appeal. Codelfa would succeed in having payment in lieu of sick leave and the flat rate loading in respect of accident make-up pay taken into account in determining what is the "average weekly wage" under cl. G.28(3) during a part of the period relevant to the operation of the subclause. Otherwise it would fail upon the issues argued on the appeal in the proceedings arising out of the arbitration. The authority would succeed on all other issues and on the appeal in the frustration action.

In Appeal No. 71 of 1981, I would set aside the order made by the Court of Appeal in the proceedings on the special case stated by the Arbitrator. I would order that the appeal to the Court of Appeal be allowed, the order of Ash J. be set aside and that in lieu thereof I would order that the following questions in the case stated by the Arbitrator be answered as follows:

Q. Whether the term implied by the Arbitrator as set forth in par. 20 hereof can in law be implied either on the basis of the proper construction of the Contract, business efficacy or otherwise.

Q. Whether it is open to me to find and determine that there is to be implied the term found and determined by me or a term to the like effect, and if a term to the like effect what term.

Q. Whether upon the proper construction of Clause G.28 of the Contract the "value of the uncompleted portion of the Contract" in sub-cl. (3) and (5) of the said Clause should be calculated at the respective unit prices set out in the Schedule of Rates and not otherwise.

Q. Whether the Arbitrator is erroneous in law in his finding and determinations that at the time when the formula in sub-cl. (3) or the formula in sub-clause (5) of Clause G.28 comes to be applied it operates upon a value of the uncompleted portion of the Contract which is not calculated at tender rates except for the first variation under either of such sub-clauses after the date of tender but which is calculated after such first variation at rates which increase in a compound manner so that the second application of either formula operates upon rates into which there has been compounded the effect of the first application of either formula and thereafter each application of either formula operates upon rates which have been progressively increased in such compound manner upon each and every application of either formula.

Q. Whether upon the proper constructions of Clause G.28 of Contract ESR 1005 and particularly sub-cl. (3) of such Clause shift allowances under the Awards in the said sub-cl. (3) are part of the average weekly wage as defined in the said sub-cl. (3).

A. Shift allowances, sick pay and accident make-up pay are not part of the average weekly wage as defined in sub-clause (3) of Clause G.28 of the Contract except to the extent that

(i) cl.2(xiii) of the General Construction and Maintenance, Civil and Mechanical Engineering, &c (State) Award provided for an additional amount in lieu of payment for sickness prescribed in cl. 10 of that Award for a loading for sick leave; and cl.3(i)(a) of the Carpenters and Joiners and Bricklayers, Construction (State) Award provided in the ordinary hourly rate of wages for sick leave;

(ii) cl.10A(i) of the General Construction and Maintenance, Civil and Mechanical Engineering, &c (State) Award of 26 June 1972, cl.1 of the Building Trades - Injuries Award of 21 May 1971 and cl. 13(i) of the Transport Industry (State) Award of 9 February 1972 provided for an additional flat rate lost time loading in respect of accident pay.

6. Paragraph 63, Fifth Issue (1): (question added by consent during the hearing at first instance)

Q. Whether upon the proper construction of Clause G.28 of the Contract additional sick leave entitlements under the Engineers, etc. (State) Award, the Carpenters, Joiners, etc. (State) Award and the Transport Industry (State) Award fall within the operation of sub-clause (3) thereof.

A Additional sick leave entitlements do not fall within the operation of sub-clause (3) of Clause G.28 except to the extent stated in the answer to question 5.

Q. Whether upon the proper construction of Clause G.28 of Contract ESR 1005: -

(1) there is to be taken into account for the purpose of calculations thereunder the effect on the cost to the contractor of executing the works of -

(vii) (added by consent during hearing) accident make-up pay.

A. No, except to the extent in the answer to question 5.

8. Paragraph 63, First, Second, Third, Fifth, Sixth and Seventh Issues, B:

Q. Whether upon the proper construction of the Contract ESR 1005 and clause G.46 (particularly Sub-Clause (5) and (6) thereof) the Arbitrator is entitled in law to award any interest in respect of the monetary sums awarded under the First, Second, Third, Fifth, Sixth and Seventh Issues.

9. Paragraph 63, First, Second, Third, Fifth, Sixth and Seventh Issues, A:

Q. Whether the Arbitrator is entitled in law to award interest upon interest prior to the date of his Award in respect of the monetary sums awarded under the First, Second, Third, Fifth, Sixth and Seventh Issues.

I would further order that the matters referred to the Arbitrator be remitted to the Arbitrator for reconsideration in accordance with the answers given to the questions raised in the case stated by him.

In Appeal No. 72 of 1981, I would dismiss the appeal against the judgment of the Court of Appeal dismissing the appeal from the judgment of Ash J. in the frustration action.

As these orders are not the orders to be made in accordance with the judgments of the majority of the Court, it is unnecessary for me to frame an order as to costs.