1 This is an appeal from a judgment given in the County Court in favour of the respondents for damages for repudiation of a bill-board licensing agreement.

2 The building at 27-31 King Street, Melbourne is situate on the western side of King Street, three buildings north of Flinders Street. In or about 1967, a sign board was erected on the south facing roof of the building for the purpose of displaying advertisements and other promotional material, and it has remained there ever since. Within that time, the building has passed through several hands.

3 In or about November 2005 the predecessor in title to the respondents (Twenty-Five King Street Pty Ltd, as trustee for the 27 King Street Discretionary Trust ('Twenty-Five King Street')), as licensor, entered into an agreement ('the licence agreement') with the appellant (then called Power Panels Pty Ltd ('Power Panels'), as licensee, whereby it licensed Power Panels to use the 'Site' for outdoor advertising and promotional material display purposes including the erection of an advertising display structure on the Site and licensing the use of the Site to third parties for outdoor advertising and promotional material display purposes.[1]

4 The recitals to the agreement recorded that the licensor was the owner of the building at 27 King Street and wished to grant, and the licensee wished to take, a licence of the Site, (71 sq metres), for use by the licensee for outdoor advertising and promotional material display purposes including the erection of an advertising display structure (Sign) on the Site and licensing the use of the Site to third parties for outdoor advertising and promotional material display purposes.

5 By cl 4 of the agreement, Twenty-Five King Street licensed the Power Panels as licensee to use the Site for the Permitted use for a term of five years commencing on 1 January 2006 at a fee of $12,916.66 per month payable monthly in advance.

the installation or attachment of the Licensee's Property to the Site (if required by the Licensee) and use of the Site for the display of advertising and promotional material, effecting repairs and maintenance to the Licensee's Property and affixing and removing advertising and promotional material to and from the Site or the Licensee's Property at regular intervals as required by the Licensee.

installed in or attached to the Site by the Licensee for the display of advertising or promotional material and includes any footings, foundations, supports, lights or lighting, services, equipment, machinery, platforms and other things fixed to or associated with the sign.

any advertising display structure comprising any foundations and footings, a support pole, lights or lighting, installed or attached on the Site by the Licensee for the display of advertising or promotional materials and all Licensee's Property associated with the Sign**.**

9 Clause 11 of the licence agreement provided that, if:

(a) all necessary Permits for the Permitted use are not able to be obtained or maintained or are terminated or the Licensee is required by law to remove the Sign ...

(b) any Airspace Agreement for use of the Site cannot be obtained or is terminated for any reason; or

(c) the Site becomes unsuitable for the Permitted use for any reason outside the reasonable control of the Licensee (including the revocation or failure to obtain the renewal of any Permits for the Permitted use); or

(d) the Site is damaged by fire or other disabling cause so as to render the Site substantially unfit for the Permitted use;

the Licensee may terminate this Agreement by 7 days written notice to the Licensor. If any condition referred to sub-paragraphs (a), (b), (c) or (d) is temporary, the Licensee may at its discretion, elect to suspend the payment of Licence Fee until such time as the Site once again is able to be used for the Permitted use.

all permits, approvals and authorities from any government, municipal statutory, public or other authority or body at any time having jurisdiction over the Land or any part of the Land or the Permitted use, necessary for the installation or maintenance of the Sign or the conduct of the Permitted use.

11 Clause 20 of the licence agreement provided that:

This Agreement represents the entire agreement between the parties in respect of its subject matter.

12 In January 2007, the respondents purchased the land from Twenty-Five King Street for $4.65 million and on 19 January 2007 Twenty-Five King Street assigned its interest in the licence agreement to the respondents.

13 At relevant times, the owner of the majority of shares in Power Panels was Media Puzzle Pty Ltd. On 1 July 2007, Network Limited, which was a listed public company, purchased Media Puzzle Ltd. In and between April and June 2008 Network Limited re-branded itself and various of its subsidiaries with the oOh! Media name. Network Limited became oOh! Media Group Limited, Media Puzzle Pty Ltd became oOh! Media Lifestyle Pty Limited and Power Panels Pty Ltd became oOh! Media Roadside Pty Limited, as the appellant is now called.

14 The Sign is approximately 22.6 metres by 7.6 metres or 171 square metres. The standard size of an industry recognised billboard is 12.66 by 3.35 metres. Anything above that standard size is referred to as 'spectacular'.

15 When the licence agreement was entered into in 2005, the intersection of King Street and Flinders Street was overpassed by a road and tramway bridge which carried the traffic running east west along Flinders Street above the traffic running north south along King Street, and there was an open car park at the southwest corner of the intersection ('the Northbank land').

16 In or about 2006, an application was filed for a permit for construction of the Northbank Office Tower on the Northbank land, and in September 2006 the permit was granted. Construction began some months later.

17 On 29 September 2008 the appellant wrote to the respondents, purporting to terminate the licence agreement, pursuant to clause 11(c), as follows

As you are aware, a building is currently under construction and nearing completion directly opposite to the building on which the sign is installed, and that new building has substantially reduced the visibility of the sign. In particular, the sign is no longer visible from Kings Way while travelling into Melbourne, until adjacent to the development and looking upward.

oOh! Media is currently paying a licence fee of $12,916.66 per month under the Agreement for the right to use the sign.

As a consequence of the reduced visibility of the sign, oOh! Media has received an average calendar month sales revenue of $3,100 over the last five months (equating to approximately $37,200 per annum).

During the five months prior to the construction of the building the sign's sales revenue was an average $23,000 per calendar month (equating to approximately $276,000 per annum).

This revenue attributable to the sign has therefore reduced by over 86% since the sign became obscured.

The reduction in revenue received from the sign has not been caused or contributed to by any factor other than the obstruction of the sign by the building under construction. There are no market factors that have caused the diminution in revenue and oOh!media [sic] has been using its best efforts to secure advertisers for the sign. As you can understand, this has been difficult given the very low visibility (and therefore appeal to advertisers) of the sign.

As you know, oOh!media has approached the licensor (referred to as 'you' in this letter) in good faith seeking a reduction in the monthly rent payable for the sign. You have refused to agree to any reduction.

oOh!media is entitled to terminate the Agreement for the reason that the sign has become unsuitable for the purpose of displaying advertising. Under clause 11(c) of the Agreement, oOh!media may terminate the Agreement if 'the Site becomes unsuitable for the Permitted use for any reason outside the reasonable control of the Licensee...' The Permitted use includes 'use of the Site for the display advertising and promotional material'. It is the nature of outdoor advertising that it must be visible to serve any useful purpose, and it is implied in the Agreement that the advertising and therefore the Site must be substantially visible. This visibility must be commensurate with the licence fees being paid for the Site, and currently this is not the case. The fact that the Permitted use refers to 'use' of the Site for advertising indicates that the Site must be useful for that purpose (ie, have utility for that function). It would not serve the parties' intentions that a Site without use for advertising would satisfy the Permitted use.

While we acknowledge that the Site remains accessible and that oOh!media is still able to install, remove and replace advertising as contemplated by the Agreement, this alone is not sufficient to remove oOh!media's termination right under clause 11(c). The requirement under clause 11(c) is not whether 'the Site becomes incapable of being used for the Permitted use', but rather whether 'the Site becomes unsuitable for the Permitted use.'

We also acknowledge that the sign is visible to the public from certain positions. However, the fact that the sign is capable of being seen from certain angles is, again, insufficient to remove oOh!media's termination right. Clause 11(c) clearly states that oOh!media may terminate the Agreement if the Site is unsuitable (ie, not appropriate or fitting) for the display of advertising. Clearly, the Site may become substantially affected by an obstruction, despite the fact that the obstruction does not affect visibility from some angles. The positions from which the sign are visible are not suitable for outdoor advertising (given that the primary view from the Kings Way has been materially obstructed and passing traffic now need to look skyward to see it when virtually adjacent to the sign.

oOh!media's right to terminate under clause 11(c) would be beyond doubt if the Site was inaccessible or if the sign was entirely obscured. We acknowledge that, on the other hand, a minor or insubstantial obstruction affecting the sign would not be sufficient for the Site to be unsuitable for advertising. However, the obstruction to the Site is substantial and has caused a dramatic reduction in advertising revenue. This obstruction is sufficient for the exercise of oOh!media's termination right (and is precisely the kind of circumstance that clause 11(c) was intended to address).

18 The respondents treated the letter as repudiating the licence agreement and accepted the repudiation.

19 Following termination of the licence agreement, the respondents retained the project managers for the 27-31 King Street project, Simon Cleal and Travers Nuttall, to relet the Site. There was no advertising on the Site from 29 September 2008 until 1 November 2009. The respondents sought the engagement of every major large format advertising company in the country to sell the Site but could not attract any interest. Eventually, the respondents approached the proprietor of one of the nightclubs in King Street near the Site, Bilmor Holdings Pty Ltd, and on 7 October 2009 the respondents entered into a licence agreement with Bilmor Holdings Pty Ltd for a period of six months commencing on 1 November 2009.

20 The licence agreement with Bilmor Holdings Pty Ltd had an option to renew the licence for a further term of six months to be exercised by written notice not less than three calendar months before the end of the term of the licence. The licence fee was $38,500 plus GST for the full term, if paid on or before the commencement date, and otherwise $45,000 plus GST for the full term payable by equal monthly instalments. On 14 October 2009 Bilmor Holdings Pty Ltd paid the $38,500.

21 The respondents brought a proceeding against the appellant in the County Court seeking damages of $383,625 for loss of the benefit of the licence agreement. The appellant defended the proceeding on the basis that it was entitled to terminate the licence agreement pursuant to clause 11(c) or, alternatively, pursuant to an implied term of the agreement or, alternatively, on the basis that the construction of the Northbank Office Tower frustrated the licence agreement and thereby brought it to an end.

It is not disputed that the erection of the Northbank office development has to some extent obstructed the visibility of the sign to traffic travelling towards the city along Kings Way. There is a dispute between the parties as to whether the sign is visible to those vehicles entering the city from the southern end of the King Street Bridge. Having considered the whole of the evidence, I do not accept Dollison's evidence that the sign is not visible to passengers or drivers of vehicles travelling in a northerly direction along Kings Way. Danaher's evidence was that the sign was visible just prior to the rail bridge and 'then you get one more slightly impeded view as you get under the rail bridge'. The sign is also visible to northbound passengers and drivers stopped at the traffic lights at the intersection of Kings Way and Flinders Street. The visibility of the sign was conceded in the termination letter which states that 'passing traffic now need to look skyward to see it when virtually adjacent to the sign'.

I also find that the sign is visible to pedestrians walking along the Southbank Boulevard as indicated by the photographs of the sign taken by Nuttal in May 2009 from the corner of Flinders Street and King Street, from outside the Waterfront Restaurant at Southbank and from the pedestrian walkway at or about the entrance into the Crown Casino car park on the King Street bridge.

The defendant concedes that the document produced by the Department of Sustainability and Environment, entitled Southbank plan, which was published in October 2006 estimates that 20 million people per year visit Southbank. The estimated annual visitor numbers include:

'Crown entertainment complex'- 9 million;

'Southgate' - 7 million;

Arts Centre - 2.6 million;

Exhibition Centre - 1 million;

National Gallery - 0 .6 million.

I also find that the sign is visible to passengers travelling on the Pakenham line from Flinders Street Station to the Southern Cross Station.[2]

23 On that basis, her Honour held that the appellant was not entitled to terminate the licence agreement pursuant to clause 11(c) or at all, and that the licence agreement had not been frustrated.

24 As to clause 11(c), her Honour determined that 'unsuitable' bore its ordinary meaning of something not fit for the Permitted use[3] and that, despite the construction of the Northbank Office Tower, the Site remained suitable for the 'Permitted use' of the display of advertising and promotional material.[4]

25 The judge rejected the existence of the putative implied term on the basis that it was not necessary to give business efficacy to the agreement and not so obvious as to go without saying.[5]

26 As to frustration, the judge said that she was not satisfied that construction of the Northbank Office Tower resulted in a radical or fundamental change in circumstances or the wholesale destruction of the value of the Site.[6] Her Honour reasoned that:

In this case there is no evidence that there was a common understanding between the parties that the contract would be terminated if the view of the sign was obstructed by a building or development. Further the licensor did not make any representations to the licensee that there would be no buildings constructed to restrict the visibility of the sign to cars travelling down Kings Way.

I do not accept the defendant's submission that there has been a wholesale destruction of the value of the site. As set out in the above paragraphs the evidence indicates that oOh! Media was able to rent the site to national advertisers after March 2008, although at a lesser profit. During that period the site was sold to national advertisers such as Crazy Johns, Calvin Klein, Betstar and the Foster Group 'for money.' Further the site was taken from the national inventory in or around April 2008, and the site was not offered for sale through the open market, other than in distressed situations. A new site card was not made up which reflected the status of the view. Further, on 7 October 2009 the defendant leased the site to Bilmor Holdings Pty. Ltd.

I do not accept the defendant's submission that further proof of the wholesale destruction of the viability of the site was the fact that the site stood vacant for over twelve months after the defendant terminated the sign licence agreement. During that period there had been a slow down turn in the overall market for large formats which was acknowledged by the Outdoor Media Association. I accept the evidence of Dollison that the industry has been down 30 per cent over the last 12 months. There was a financial crisis in September 2008. Things went down considerably for six months, if not three quarters of the year for a period of time after that. It is picking up slowly. Further although the plaintiffs were unable to lease the sign for a 12 month period, they are not experts in leasing signs.[7]

Ground 1: Construction of clause 11(c) of the licence agreement

27 Under the heading of Ground 1, counsel for the appellant contended that the judge erred in her construction of clause 11(c).

28 It was not in issue that the clause was properly to be construed by reference to what reasonable persons in the position of the parties would have understood it to mean at the time of entry into the licence agreement, and that was to be ascertained objectively according to the text of the document read in light of the background facts and the surrounding circumstances known to the parties and the purpose and object of the transaction.[8] Counsel for the appellant submitted, however, that it was important to keep in mind that the Sign was first erected in 1967, when the view from the northbound carriageway of Kings Way to the Site would have been uninterrupted, and it was to be inferred that the Sign was intended to function as a 'roadside advertising Sign' which derived its essential value from its visibility to northbound traffic on Kings Way.

29 It was, moreover, not to the point, counsel said, that the Sign may have been visible also to pedestrians walking along the Southbank Boulevard or to passengers travelling on Pakenham line trains between Flinders Street Station and Southern Cross Station. For there was no evidence to support the notion that pedestrian and rail traffic had any relevance at the time of entry into of the licence agreement. To the contrary, there was positive evidence that, these days, train passengers and pedestrian traffic exposure hold no real value for billboard advertisers.

30 It followed, counsel argued, that the definition of 'Permitted use' in the agreement should be understood as meaning 'use of the Site for the display of outdoor advertising and promotional material to motor vehicle traffic approaching the Melbourne CBD north along Kings Way'. Hence, clause 11(c) should be understood as conferring on the appellant an express right to terminate the licence agreement when and if the Site became unsuitable 'for the display of outdoor advertising and promotional material to motor vehicle traffic approaching the Melbourne CBD north along Kings Way', for any reason beyond the reasonable control of the appellant.

31 Alternatively, in counsel's submission, clause 11(c) was drafted in such broad terms that it should be understood as meaning that the appellant had a right to terminate the licence agreement if, in the appellant's opinion, the Site became unsuitable for the display of outdoor advertising and promotional material. Hence, since there was no suggestion that the appellant had not formed the opinion that the Site had become unsuitable for the display outdoor advertising, there could be no suggestion that the appellant was not entitled to terminate the agreement.

32 In either circumstance, counsel submitted, it was not to the point that the judge found that the 'sign remains visible and can be used to display advertising material', and that it is 'fit for the purpose of displaying outdoor advertising'. For regardless of whether her Honour was right or wrong about that, counsel said, it remains that the appellant was of opinion that the Site had become unsuitable for its use following construction of the Northbank Office Tower and, therefore, that the appellant was entitled to terminate the agreement as it purported to do.

33 In my view, those contentions should be rejected. So far as the facts and circumstances in 1967 are concerned, Codelfa[9] makes clear that they are of relevance to the construction of the licence agreement only to the extent that they are shown to have been known to both parties at the time of entry into the licence agreement. And, as counsel for the respondents submitted, although it may be that the facts and circumstances in 1967 were known to the original licensor at that time, there is no evidence as to what was known to Twenty-Five King Street at the time of entry into the licence agreement in 2005. Still less is there reason to suppose that the controlling minds of Twenty-Five King Street had knowledge of or expertise in the outdoor advertising industry.

34 No doubt, exposure of the Site to King Street Bridge north bound traffic would have been thought of as a valuable attribute of the Site. But, in the absence of evidence as to what the directors of Twenty-Five King Street had in mind, it is not open to say that they knew or believed that the visibility of the Site to pedestrians and others on the south bank of the Yarra or to passengers travelling on trains between Flinders Street Station and Spencer Street Station was regarded by billboard advertisers as lacking any real value. Indeed, uninstructed in the ways of the advertising industry, one might well conclude on the basis of the many billboards which adorn railway stations and sidings, and the advertising hoardings which appear in pedestrian precincts and other areas not exposed to motor traffic, that advertisers regard them as very valuable.

35 The idea that 'unsuitable' in clause 11(c) of the agreement should be read as 'unsuitable in the opinion of the licensee' is even more unlikely. In effect it would mean that the licence agreement was terminable at the will of the licensee. Absent some compelling indication to the contrary, common sense dictates that an ordinary reasonable licensor would not be prepared to subject itself to that sort of risk, or that an ordinary reasonable licensee would imagine that the licensor was prepared to contract on that basis. Given that clause 11(c) is to be construed in accordance with the principle of objectivity affirmed in Pacific Carriers Ltd v BNP Paribas and Toll (FGCT) Pty Ltd v Alphapharm Pty Limited,[10] the judge was surely right to hold that 'unsuitable' meant unsuitable according to an objective determination.

36 The thrust of Ground 6 was that the judge erred in failing to accept expert evidence given by John Dollisson for the appellant. In his report, which was tendered without objection, Mr Dollisson opined that the visibility of the advertising Site to traffic approaching the City north along Kings Way had been materially reduced by the Northbank Office Tower; thus the Site had become unsuitable for the display of outdoor advertising material in general and, in particular, to traffic approaching the City north along Kings Way; and that the advertising value of the Site has been materially reduced by the reduction in the visibility of the Site. Similarly, in his oral evidence in chief Mr Dollisson said that:

... the sign has almost no visibility whatsoever. Certainly no complete visibility. You see the right side of the sign for a very short distance but the sign is actually completely invisible to a passenger in a car. Even when you get down to the bottom of the intersection the roof of the car stops any visibility of the sign. At the top the building blocks it and the best you get is a slight view of the right side, and of course people read from left to right so they don't know what's on the sign. So it's actually, from a motor vehicle it has absolutely no advertising value...

37 Counsel for the appellant submitted that the judge erred by failing to refer to Mr Dollisson's written opinion and by basing her rejection of his oral evidence on only some of the evidence given by another witness, Mr Danaher. In counsel's submission, the judge appeared not to have appreciated that the part of Mr Danaher's evidence on which her Honour relied related to Mr Danaher's inspection of the Site in May 2008, when the Northbank Office Tower was only partly constructed - and the view of the Site from Kings Way was only partly obscured - and that her Honour overlooked Mr Danher's evidence of his later inspection of the Site in September or October 2008, of which he said that:

The viewing [of the Site] was completely blocked out, in its - as its old form, there [was] no viewing whatsoever of the Sign.

38 Those criticisms are misplaced. It is true that the judge did not refer to Mr Dollisson's written report. But Mr Dollisson's written report was in substance no different to his oral evidence in chief, and the judge dealt with Mr Dollisson's oral evidence at length.[11] It is also true that the judge instanced Mr Danaher's evidence as representative of other evidence which contradicted Mr Dollison's assertions. But, as counsel for the respondents pointed out, Mr Danaher gave evidence that, according to his observations while traveling north on Kings Way in a car in March 2008, the sign was visible from a point just prior to the railway viaduct and 'as you get under the rail bridge [viaduct] then you get one more slightly impeded view' [which is to say just south of the intersection of King Street and Flinders Street]. The fact that Mr Danaher made those observation in March 2008, before completion of the tower, was irrelevant. The view from the points of which he spoke is unimpeded by the tower, even as fully constructed. At those points, the tower is away to the left of the northbound carriageway, and thus no longer in the field of view towards the signboard. All of that is obvious from the photographs taken from a car at those points, which were in evidence at trial.

39 Once that is understood, it will be seen that Mr Danaher's evidence and the photographic evidence were fundamentally opposed to Mr Dollissons' assertion that 'there was no viewing whatsoever of the Site'. The judge was correct to reach that conclusion.

40 Under cover of Grounds 7 and 8, counsel for the appellant contended that the judge erred in making findings of fact as to:

a) The visibility of the Sign to motor vehicle traffic - Counsel submitted that the finding was erroneous because it was based on her Honour's observations during a view which, counsel said, her Honour impermissibly treated as evidence (as opposed to an aid to comprehension of the evidence).

b) The weight to be accorded to Mr Dollisson's evidence - Counsel submitted that the judge erred in her assessment of Mr Dollisson's evidence by misconstruing the effect of Mr Danaher's evidence and by speculating that the Sign could be viewed from cars stopped at the intersection of Flinders Street and Kings Way.

c) The fact that 'all of the northbound traffic along Kings Way still had some visibility of the Sign once the northbound traffic passed the Northbank office development or passed under the Flinders Street rail bridge'. That finding was erroneous, it was said, because it too was based upon a misconception of the effect of Mr Danaher's evidence and on the judge's observations during the view.

41 In counsel's submission, the evidence was clear that motor vehicular traffic travelling north on Kings Way was the target audience for the Site and that, after the construction of the Northbank Office Tower, the Site was not visible to motor vehicle traffic travelling north along Kings Way. The point was really put beyond doubt, counsel argued, by the fact that, after the licence agreement was terminated, the respondents were unable to attract even one media agent to sell the Site and felt constrained to warn prospective users of the Site that it could not be viewed upon exiting from the tunnel on Kings Way.

42 Taking each of those points in turn, I do not accept that the judge based her findings on her observations during the view. It is clear from her Honour's reasons that she used the view as an aid to understanding the evidence[12] and based her findings on the evidence as so understood.[13]

43 Next, I have dealt already with the suggestion that the judge based her rejection of Mr Dollisson's opinion on a misconstruction of Mr Danaher's evidence and, for the reasons already given, I reject it. Equally, I see no basis for the assertion that the judge speculated as to whether the Site could be viewed from a car at the intersection of Flinders Street and Kings Way when stopped at the intersection. Mr Danaher's testimony and the photographic evidence are clear that the Sign can be viewed from a car in that position.

44 For the same reasons, I see no error in the judge's finding that 'all of the northbound traffic along Kings Way still has some visibility once it passes the Northbank tower or comes under the rail bridge'. That accorded with Mr Danaher's testimony and the photographic evidence, and indeed with the appellant's purported letter of termination in which it was stated that 'passing traffic now need to look skyward to see it when virtually adjacent to the sign'.

45 I accept that the effect of some of the evidence given by Mr O'Neill on behalf of the appellant was that the appellant regarded motor vehicular traffic travelling north on Kings Way as the bulk of the target audience for the Site and that the probability of that being so was supported by Mr Dollissons' opinion as to how the Site would be valued in the industry. I also allow that the effect of the evidence was that the construction of Northbank Office Tower significantly reduced the number of points on the northbound carriageway of Kings Way from which the Site can be seen by the occupants of north bound traffic. I do not doubt that the appellant thereby lost a significant part of what it regarded as the principal value of the Site. But, for the reasons already given, I am not persuaded that, at the time of entry into the licence agreement in 2005, Twenty-Five King Street regarded northbound traffic on Kings Way as the only or even an essential target audience for the Site, still less that it then knew or should be taken to have understood that the appellant believed that to be so.

46 In those circumstances, I do not think it to be of great significance that the respondents experienced difficulties in selling the Site in 2009 or felt constrained to warn potential lessees of the effects of the construction of the Northbank Office Tower on the visibility of the Site.

Grounds 9 and 10: Financial impact of the construction of the tower

47 Under the headings of Grounds 9 and 10, counsel for the appellant argued that the judge erred in her assessment of the effect of the construction of the Northbank Office Tower on the financial viability of the Site and thus in her assessment of whether the tower rendered the Site unsuitable for the Permitted use.

48 Counsel relied on financial information which was presented in the form of Exhibits D11 and D12 (Media Puzzle Income Statements) which showed that, before construction of the Northbank Office Tower, the appellant was leasing the Site at a rate of up to $35,000 per month; that, between January 2006 and April 2008, the average amount paid by advertisers to lease of the Site, not including installation costs borne by the advertiser, was about $21,500 per month; and that the Site was often booked many months, sometimes six months, in advance. Thus it operated at a profit. Contrastingly, after construction of the Northbank Office Tower, the appellant was unable to lease the Site for more than $7,500 per month; the average amount paid for the lease of the Site between May 2008 and October 2008, not including installation costs borne by the advertiser, was only about $3,416; and thus the Site ran at a loss from April 2008 until the licence agreement was terminated in September 2009.

49 In those circumstances, it was contended, the judge was wrong to conclude that the Site remained commercially saleable and useable as a roadside advertising Site, 'albeit at a reduced rate'[14] and 'although at a lesser profit'.[15] In counsel's submission, the reality was that there was a reduction of nearly 85% in monthly returns which rendered the Site demonstrably unprofitable and, therefore, untenable after April 2008.

50 Counsel for the respondents argued in their written submissions that the judge was right to ignore Exhibits D11 and D12 (the Income Statement) because, although they were tendered from the bar table on the fifth day of the trial, none of the appellant's witnesses attested that they were true or correct or otherwise spoke to them. Moreover, although they were intituled 'Media Puzzle Income Statement - 27 Kings Way', Mr Danaher conceded that he did not know whether the figures in them were accurate. They were not identified as business records; ex facie they appeared to be no more than summaries prepared for trial; and the appellant failed to produce the primary source documents even after being ordered to produce them during the course of the trial.

51 More doubt was thrown on the integrity of Exhibits D11 and D12, counsel submitted, by evidence that, as of April 2008, the Site card for the Site was withdrawn from the appellant's (and its parent company's) national inventory list and, thereafter, the Site was not offered to any of their customers except on a distress sale basis at a heavily discounted price.

52 Additionally, it was said, it was apparent from other evidence that the appellant was in the habit of bundling various of its sites throughout Australia and selling the bundles as package deals for an agreed fee. In the absence of source documents, it was impossible to say what value was attributable to the subject Site, as opposed to the other sites with which it was so bundled. The revenues attributed to the Site in Exhibits D11 and D12 were not necessarily an accurate reflex of the revenue generated by the Site as opposed to an arbitrary figure made up by Mr Danaher in his capacity as sales manager to ensure that each site met its budget.

53 During oral argument, senior counsel for the respondents said that he did not wish to press his submissions about the unreliability of Exhibits D11 and D12, at this stage of the proceeding. He told the court, however, that he did not resile from his written criticism of those exhibits and that, if the matter went to an assessment of damages, he intended there to press his objections. For the purposes of this appeal, he was content for the court to proceed on the basis that Exhibit D11 and D12 are sufficiently accurate to sustain the proposition that the amount for which the Site was capable of being let after the construction of the Northbank Office Tower was significantly less than was able to be achieved before construction of the building. But he maintained his criticism of the documents to the extent that, because of doubts about their accuracy and the accounting basis on which they were prepared, they are inadequate to sustain the conclusion that the construction of the building meant that the appellant could not run the Site otherwise than at a loss.

54 In my view, there is force in the respondents' criticisms of Exhibits D11 and D12. They are not a satisfactory basis for assessment of the income earning potential of the Site following the construction of the Northbank Office Tower. As matters stand, they appear to establish no more than that, after construction of the Northbank Office Tower, the Site was able to be let only at a 'lesser profit'.[16] Whether or not it was still profitable in the sense of covering variable costs, or in the sense of absorbing such a percentage of fixed overheads as to make other sites more profitable, was not able to be established.

Ground 12: Relevance of Site standing vacant for 12 months

55 Ground 12 was specifically directed to the way in which the judge dealt with the period of 12 months during which the Site was vacant following termination of the licence agreement. Her Honour said of that:

I do not accept the defendant's submission that further proof of the wholesale destruction of the viability of the Site was the fact that the Site stood vacant for over twelve months after the defendant terminated the sign licence agreement. During that period there had been a slow down turn in the overall market for large formats which was acknowledged by the Outdoor Media Association. I accept the evidence of Dollisson that the industry has been down 30 per cent over the last 12 months. There was a financial crisis in September 2008. Things went down considerably for six months, if not three quarters of the year for a period of time after that. It is picking up slowly. Further although the plaintiffs were unable to lease the sign for a 12 month period, they are not experts in leasing signs.[17]

56 Counsel argued that the 12 months' vacancy could not be explained away as her Honour had purported to do, for several reasons. To begin with, her Honour's finding that the Outdoor Media Association had acknowledged a 'slow down turn' in the large formats was not supported by the evidence. Secondly, the respondents conceded at trial that that none of the advertising companies which they approached to take a lease of the Site showed the slightest interest in it, and the respondents did not offer any evidence to support the idea that the lack of interest was due to factors other than the unsuitability of the Site. Thirdly, the passage of the judge's reasons which I have set out ignored:

a) evidence given by Mr O'Neill that: 'we are about line ball with last year, so we have written almost exactly the some numbers if not a little bit of growth, excuse me, year on year';

b) evidence given by Mr Hart that: 'the marketplace in the last 12 months has been down some 11 per cent on the year before, [however] our business is up some 13 per cent on the year before ... in relation to the whole of our business', and: 'in relation to the large format bill boards I think we certainly haven't gone backwards on the year before'; and

c) evidence given by Mr Danaher, that: 'The overall market for large format's down roughly by about nine per cent [but] we're up 12 per cent (indistinct) just for large format' and that: 'there was a minor slow down at the end of 2008, or a perceived slow down in terms of everyone saying that they thought the market was going to stop, [but] it didn't. As I said, for us it's been quite good'.

57 Further, counsel said, the judge was wrong to treat the fact that the respondents were able to re-lease the Site to Bilmor Holdings as a relevant indicator of the suitability of the Site for the Permitted use, because there was no comparison between the terms on which the appellant was able to let the Site before the construction of the tower and the terms on which the respondents were able to let the Site to Bilmor Holdings.

58 Counsel emphasized that, when the Site was under the appellant's control, the appellant was able to let the Site for 24 of the 28 months between January 2006 and April 2008, and worked on selling the Site for ten months of the year, which in fact occurred. The appellant's client base was made up of large scale media buying companies, who in turn acted for national or multinational companies with large advertising budgets. The appellant sold the Site to advertisers such as Calvin Klein, Sportsgirl, Channel 7, Cascade, Carlton United Breweries, Fosters, and Cue Design. In contrast, Bilmor Holdings was not a media agent, a media on-seller or advertising company, but a nightclub proprietor of 'all night' licensed premises adjacent to the King Street property at 20 King Street, Melbourne. The license fee payable under the Bilmor Holdings agreement was only $45,000 plus GST for the six months term or $7,500 plus GST per month, discounted to $35,000 plus GST or $5,833.33 plus GST per month if paid in advance, and Bilmor Holdings paid in advance to lease the Site for six months from 1 November 2009.

59 I do not accept those criticisms of her Honour's reasoning. Mr Dollisson's evidence was that the industry had been down over the 12 months period by 30 per cent, albeit that, at the time of trial, he said it was 'coming back pretty strongly'. Certainly, there were competing opinions. Mr Danaher's evidence was that, as at the time of trial, the 'overall market for large format's down roughly by about nine per cent'. There was also evidence given by Mr Hart that the marketplace in the last 12 months had been down some 11 per cent on the year before, and by Mr Danaher that the overall market for large format advertising signs is down roughly by about nine per cent. Mr O'Neil gave evidence that as an industry large format would probably be down 15 or 20 per cent. But the judge saw and heard the witnesses give their evidence. It was open to her Honour to prefer Mr Dollisson's views on the matter.

60 More fundamentally, the allegation that her Honour erred by treating the agreement with Bilmor Holdings as a relevant consideration appears as premised upon the misconception that the Permitted use of the Site was use for advertising at the sort of profits capable of being generated before the tower was constructed. For the reasons given when dealing with Ground 1, the Permitted use was not so confined - it was use for the display of outdoor advertising and promotional material, simpliciter. That being so, there can be no doubt that Bilmor Holdings' agreement to pay to advertise on the Site was relevant to, if not determinative of, the issue of whether the Site remained suitable for the Permitted use after the construction of the tower.

61 Under Ground 2, counsel for the appellant submitted that, if the Permitted use did not have the restricted meaning for which he contended, but meant use for the display of outdoor advertising and promotional material, simpliciter, the situation created by the construction of the Northbank Office Tower was nevertheless so fundamentally or radically different to that which was contemplated when the licence agreement was entered into in 2005 that the agreement was frustrated and automatically discharged upon the construction of the tower. Counsel contended that the judge was in error in rejecting that submission.

62 Additionally, under the heading of Grounds 4 and 5, counsel complained about what he said was the inadequate manner in which the judge dealt with evidence of what the appellant did and did not foresee; and, under Ground 7(c), counsel argued that the judge erred in failing to impute to the respondents the knowledge of Twenty-Five King Street at the time of entry into the licence agreement.

63 In Codelfa,[18] a majority of the High Court rejected the implied condition theory[19] of frustration in favour of the test propounded by Lord Radcliffe in Davis Contractors Ltd v Fareham Urban District Council:[20]

The legal effect of frustration 'does not depend on [the parties] intention or their opinions, or even knowledge, as to the event.'.[21] 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)[22] ... 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).[23] 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.

64 Codelfa was preceded, however, and to a large extent informed by Stephen J's analysis of frustration in Brisbane City Council v Group Projects Pty Ltd.[24] In a passage which Mason and Aickin JJ later endorsed in Codelfa, Stephen J observed that, although Lord Radcliffe spoke in Davis Contractors in terms of a 'change in obligation', his Lordship was not to be understood as saying that there can be no frustration without a change in obligation. The emphasis on obligation was the result of the factual situation with which his Lordship was concerned. Thus, in some cases it has been said to be enough to engage the doctrine of frustration that events have given rise to a 'fundamental commercial difference' between contemplated and actual performance[25] or to a 'fundamentally different situation' arising for which the parties made no provision 'so much so that it would not be just in the new situation to hold them bound to its terms'.[26]

65 In a similar vein, other judges and commentators have expressed the view that frustration is a 'flexible doctrine', unconstricted by 'arbitrary formula'[27] which is 'apt to vindicate justice wherever owing to relevant supervening circumstances the enforcement of any contractual arrangement in its literal terms would produce injustice'[28] and 'to give effect to the demands of justice, to achieve what is reasonable and fair and as an expedient to escape from injustice...'[29]

66 One difficulty with general conceptions of that kind is that they do not provide much guidance as to the degree or extent an event must overturn expectations, or affect the foundation upon which the parties contracted, or how unjust and unreasonable a result must follow, or how radically different from that originally undertaken must a contract become, before the contract is taken to be frustrated. As Stephen J noted in Brisbane City Council, they 'provide little more than single instances of solutions to these questions'.[30]

67 A more structured approach, however, is evident in the observations of Dillon LJ in Notcutt v Universal Equipment Ltd that:[31]

I do not for my part see that these reference to justice or injustice introduces any further factor. If the unexpected event produces an ultimate situation which, as a matter of construction, is not within the scope of the contract or would render performance impossible or something radically different from that which was undertaken by the contract, then it is unjust that the contracting party should be held to be still bound by the contract in those altered circumstances. I approach the facts of this case on the footing that the test to be satisfied is that explained by Lord Reid and Lord Radcliffe in the passages above set out.

68 Still more precisely, in Codelfa,[32] Mason J identified the close relationship between the doctrine of frustration and the concepts of common contractual assumption and mutual mistake. As his Honour explained: if parties enter into a contract on the basis of a common contractual assumption as to a future fact, it is a case for frustration; and, if they enter into a contract on the basis of a common contractual assumption as to an existing fact, it is a case of mistake. The essential criterion of frustration is thus a:

common assumption that some particular thing or state of affairs essential to [the contract's] performance will continue to exist or be available, neither party undertaking responsibility in that regard.[33]

69 To that to must be added, Mason J said, that 'the common assumption must be found in the contract', although, for the purposes of frustration, it is permissible to have regard to relevant surrounding circumstances to assist in the interpretation of the contract, and an event will not ordinarily be taken to have frustrated a contract unless that event supervenes after the contract has been made.

70 I approach this case on that basis. Consistently with Codelfa, I take the law to be that a contract is not frustrated unless a supervening event:

a) confounds a mistaken common assumption that some particular thing or state of affairs essential to the performance of the contract will continue to exist or be available, neither party undertaking responsibility in that regard; and

b) in so doing has the effect that, without default of either party, a contractual obligation becomes 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.

71 In this case, there is no question that the construction of the Northbank Office Tower supervened after the licence agreement was entered into in 2005. The issue is whether the original licensor and licensee are to be taken as having entered into the licence agreement in 2005 on the basis of a common contractual assumption that the line of the sight from the north bound carriageway of Kings Way between the Casino tunnel and the railway viaduct could not be blocked out or obstructed during the term of the agreement.

72 A number of the single instance decisions to which Stephen J referred in Brisbane City Council were concerned with application of the doctrine of frustration in circumstances where a supervening event was foreseeable or foreseen at the time of entry into the contract. As Lord Wright said in Maritime National Fish Ltd v Ocean Trawlers Ltd,[34] where a supervening event is not only foreseeable but actually foreseen at the time of entry into a contract, it is more difficult to conceive of the parties as having entered into the contract on the basis of a common understanding that the event could not occur during the life of the contract. Where, however, a supervening event, although foreseeable, was not foreseen at the time of entry into the contract, the fact that it was foreseeable may not be of much significance unless the degree of foreseeability is particularly high.

73 Consequently, as later cases demonstrate, it is important to be precise about the nature and degree of foresight. So far as foreseen events are concerned, the parties to a contract may have foreseen an event but not foreseen the nature or extent of it. In The Sea Angel, Rix LJ gave as an example, based on The Nema,[35] a case where the possibility of an industrial strike was foreseen, and actually provided for in the contract, but lasted so long as to go beyond the risk assumed under the contract. It was held to have frustrated the contract. Cheshire and Fifoot's Law of Contract[36] suggests that in some cases it may also appear that, 'Failure to provide expressly for an event that was foreseen [is] due to ... a deliberate decision to leave matters to be sorted out by the parties, or by the law'.

74 In the case of foreseeable but unforeseen events, the nature and extent of foreseeability is critical. Since most events are foreseeable in one sense or another, the parties to a contract will not ordinarily be taken to have assumed the risk of an event occurring during the life of the contract unless the degree of foreseeability of that event is very substantial. Hence, as the position is summarised in Chitty on Contracts:[37]

Much turns on the extent to which the event was foreseeable. The issue which the court must consider is whether or not one or other party has assumed the risk of the occurrence of the event. The degree of foreseeability required to exclude the doctrine of frustration is ... a high one: 'foreseeability' will support the inference of risk-assumption only where the supervening event is one which any person of ordinary intelligence would regard as likely to occur or... 'one which the parties could reasonably be thought to have foreseen as a real possibility'.[38]

75 It is not suggested that the parties in this case foresaw that the line of sight from the northbound carriageway of Kings Way to the Sign would be blocked or obscured to the extent that it has been. But there was a dispute before the judge as to whether the fact of blockage or obstruction was foreseeable. The appellant conceded below that it was foreseeable 'that sites can be built out in the Central Business District'.[39] But counsel for the appellant argued that partial or complete obstruction of the line of sight was not foreseeable, because it was not foreseeable that a building would be constructed on the Northbank land.

76 In my view, the judge was correct to reject that argument. In reality, there were and are any number of ways in which the line of sight from the north bound carriageway of Kings Way to the Site could be blocked or obstructed. The relevant question was whether it was foreseeable that the line of sight could be blocked or obstructed in any of those ways, and the evidence was clear. As the judge recorded, it revealed that the whole area, including Docklands, had changed significantly in the last 14 years. Southbank had been developed. The Casino had been constructed. Apartment towers had gone up and the Aquarium had been erected.[40] It was obvious from the CBD location of the Site that the skyline was constantly changing and that, as a result, the line of sight could be blocked in any number of ways by the construction of buildings or other structures either on the Northbank land or on any of the three buildings fronting Kings Way between Flinders Lane and the building on which the Sign is erected, or in other ways.

77 In addition to the photographs which were in evidence, Mr Luke Brett, the development and asset manager for the appellant, frankly conceded in answer to questions put to him in cross-examination that it was 'foreseeable ... that things could impede upon that visibility '; that 'it may well be the case that you could have a build-out situation whereby the Waterside Hotel[41] is developed' and 'turn into an office tower one day'; that 'it's foreseeable that that land could have been developed and caused an obstruction to the visibility of the signboard'; and that 'landscapes change'. Mr Dollisson added in the course of his cross-examination that the possibility of a site being built out in a CBD location was well understood in the advertising industry and something against which members of the Outdoor Advertising Association of Australia (of which the appellant was one) were advised to guard by means of appropriate contractual provisions.

78 Mr Dollisson had been the president of the Outdoor Advertising Association of Australia, of which he said the biggest concern was to attempt 'to protect the permits of outdoor advertising signs'. He recalled that the 'topic of build outs and rights ... in agreements because of build outs and reductions in visibility, was brought up in [the] association'. He explained that he had 'gone to some lengths to give advice on the topic within the association'. And he had given 'basic presentations to the major companies, talking with the development officers of the major companies that actually go out and talk to potential sign providers'. They included the appellant. 'The point [he said] was ... to make sure that they were protected ... for those sorts of things, to have those provisions in agreements, in case [of] reductions of visibility or reduction to market value...'. 'It's common practice within the industry for all of these agreements to have specific reference to exactly those sorts of things, that is reduction in visibility.' '... That was the recommendation' ... 'Provided ... the other party was happy to sign that, it gave them the right to terminate.'

79 The clause which Mr Dollisson recommended was as follows:

If at any time during the term, visibility or profile of advertising material displayed on the structure, for the time being erected on the premises, is materially reduced in any way whatsoever '[there was a right to terminate]'.

And '[t]he reason he was giving this sort of advice to the industry, [was] because it's a foreseeable thing'.

80 In face of that evidence, it seems to me that it was plainly foreseeable at the time of entry into the licence agreement in 2005 that the line of sight from the Kings Street Bridge north bound carriageways to the Sign was at risk of being partially or completely obstructed during the course of the licence agreement. At least, it presents as something which a person of ordinary intelligence would regard as likely to occur or something 'which the parties could reasonably be thought to have foreseen as a real possibility'. That being so, the fact that the appellant did not seek the inclusion of a reduction-in-visibility clause (of the kind to which Mr Dollisson referred in his evidence) tends to support an inference that the appellant assumed the risk of line of sight obstruction.

81 Counsel for the appellant argued that the judge erred in her findings as to foreseeability by taking the Second Reading Speech and Explanatory Memorandum relating to the Melbourne (Flinders-Street) Act 2003 into account in a manner which was impermissible. There is force in that contention.

82 In the course of final submissions, counsel for the appellant drew the judge's attention to the Melbourne (Flinders-Street) Act 2003 and suggested that, because of the way in which the Act dealt with the Northbank land, it was hardly foreseeable that a building would be constructed on it. Counsel did not refer to the Second Reading Speech or the Explanatory Memorandum and the judge did not say that she intended to do so. But it is apparent from her Honour's judgment that she later looked at both documents and concluded on the basis of the passages from the Second Reading Speech which are set out in her reasons that it was foreseeable that the Northbank land was to be redeveloped in accordance with the Yarra River precinct plan, as a matter of urgency, and that the government had a short list of proposals for development already under consideration. Thus her Honour reasoned that:

It seems strange that this level of development and legislative activity describe above escaped the defendant's notice. The defendant has argued that it did not see any potential for development, while at the same time it has noted that the defendant operated a substantial outdoor advertising business.

...

Having regard to the matters set out in the above paragraphs 149 to 178 [which included but were not limited to the second reading speech], I do not accept the defendant's submission that the obstruction of the sign by the Northbank Office Development was not a fair business risk.[42]

83 In my view, the judge should not have used the Second Reading Speech in that manner[43] without at least first giving the appellant notice of her intention to do so and affording the appellant's counsel an opportunity to make submissions on the conclusions open to be drawn from the document. To proceed as her Honour did, without giving the parties that opportunity, was a denial of procedural fairness sufficient to vitiate her Honour's finding.[44]

84 Having said that, however, I do not think that it makes any difference to the outcome of the case. For the reasons already given, the question was not whether it was foreseeable that the building could be constructed on the Northbank Site. It was whether it was foreseeable that the line of sight from the north bound carriageway of Kings Way to the Site could be obstructed wholly or partially by the construction of a building or other structure within the area. Based on the evidence to which I have referred, it is plain that it was highly foreseeable. The denial of procedural fairness could not have made a difference to that outcome.[45]

85 The final complaint concerning the judge's findings as to foreseeability was that her Honour erred in failing to attribute what was said to be the knowledge of Twenty-Five King Street to the respondents. Counsel for the appellant argued that it was incumbent on the respondents to call Twenty-Five King Street to rebut the suggestion that Twenty-Five King Street was likely to have known that the appellant entered into the licence agreement on the basis that the line of sight would not be obstructed. Thus, as I understood the argument, because of the respondents' failure to call Twenty-Five King Street, the judge ought to have inferred that both parties to the licence agreement entered into it on the basis of that assumption.

86 In my view the argument is misconceived. There was nothing to imply that Twenty-Five King Street was 'in the camp' of the respondents.[46] There was no reason, therefore, to expect that the respondents would call that company. The issue of common understanding was something which the appellant essayed to establish and consequently upon which it bore the burden of adducing sufficient evidence to prove the point. If anyone were to be expected to have called Twenty-Five King Street, it was the appellant and, even if that were not so, the failure to call Twenty-Five King Street would have implied only that anything which Twenty-Five King Street had to say on the subject would not have assisted the respondents. In the absence of any evidence as to what Twenty-Five King Street's state of mind might have been, the effect of Twenty-Five King Street's absence from the witness box would have been essentially neutral.[47]

(iii) Performance not rendered radically different

87 I turn to the judge's conclusion that that the construction of the Northbank tower (even if not foreseeable) did not render performance of the licence agreement 'a thing radically different from that which was undertaken by the contract', or as the judge put it, did not constitute 'a radical and/or fundamental change in circumstances and a wholesale destruction of the value of the Site'.[48]

88 Counsel for the applicant submitted that the individual case which provided the greatest support for the appellant's claim of frustration was the decision of the English Court of Appeal in Krell v Henry.[49] It involved a contract for the hire of a flat for two days which, it was said, was entered into on the basis of an unexpressed common assumption that the flat was being hired to view the coronation procession of King Edward VII. The Court of Appeal held that the procession taking place was the foundation of the contract so that, when the procession was cancelled due to the King's illness, the contract was dissolved and the rent was not recoverable. Counsel for the appellant contended that, in the same way here, the unexpressed common assumption on the basis of which the original parties entered into the licence agreement was that motor traffic travelling north over King Street bridge would have an uninterrupted view of the Sign. Thus, once the view was impeded by the construction of the Northbank Office Tower, the agreement was dissolved and rent for the Site ceased to be payable.

89 The decision in Krell v Henry has been criticised. In Larrinaga v Société Franco-Americaine des Phosphates[50] Lord Findlay, LC suggested that, although the parties in Krell v Henry may have contracted in the expectation that the procession would take place, it was difficult to see why the happening of the procession was the basis of the contract. Latham CJ took a similar view in Scanlan's New Neon Ltd v Tooheys Ltd.[51] On the other hand, the majority of the court in Scanlan's New Neon, McTiernan and Williams JJ, considered that Krell v Henry was correctly decided in accordance with the principle that a contract may be frustrated where 'the underlying object' of it is rendered impossible of achievement[52] or where there is cessation or non-existence of an express condition or 'state of things going to the root of the contract, and essential to its performance.'[53] Mason J approached it in the same way in Codelfa and described Latham CJ's approach as based on an outmoded view that it is impermissible to take account of extrinsic evidence in determining whether the parties entered into the contract on the basis of a mistaken common assumption that some particular thing or state of affairs would continue to exist or be available.

90 Perhaps the better view of Krell v Henry is that it was rightly decided because it was apparent on the particular facts of the case that the occurrence of the coronation procession on the appointed dates was the basis of the contract and that neither party contemplated the possibility that the procession might be cancelled. But as Lord Wright explained in Maritime National Fish Ltd v Ocean Trawlers Ltd:[54]

The authority [of Krell v Henry] is not one to be extended: it is particularly difficult to apply where, as in the present case, the possibility of the event relied on as constituting a frustration of the adventure (here the failure to obtain a licence) was known to both parties when the contract was made, but the contract entered into was absolute in terms so far as concerned the known possibility. It may be asked whether in such cases there is any reason to throw the loss on those who have undertaken to place the thing or service for which the contract provides at the other parties' disposal and are able and willing to do so... In a case such as the present it may be questioned whether the Court should imply a condition resolutive of the contract (which is what is involved in frustration) when the parties might have inserted an express condition to that effect but did not do so, though the possibility that things might happen as they did, was present in their minds when they made the contract.

91 The other decision on which the appellant placed substantial reliance was Codelfa itself, in which the High Court held that a contract for the construction of railway works was frustrated when the common underlying assumption of the parties, that the contractor would be free to work three shifts a day six days a week, was frustrated by the local authority obtaining an injunction which effectively restrained the contractor from working more than two shifts per day.

92 I do not consider that either case supports the appellant's claim. In Krell v Henry there was substantial evidence of surrounding circumstances that the parties entered into the agreement on the basis of a common assumption that the hiring of the flat was for the purpose of viewing the coronation procession. It included that the owner of the premises advertised the premises as windows to view the procession and that, when the hirer responded to the advertisement, he was told that the owner was willing to let the rooms for the purpose of seeing the Royal procession for both days, but not nights, of 26 and 27 June 1902. In substance, the agreement was a licence to use the flat for limited periods of time for the particular purpose of watching the procession and for no other purpose. In those circumstances, Vaughan Williams LJ concluded that:

... it cannot reasonably be supposed to have been in the contemplation of the contracting parties, when the contract was made, that the coronation would not be held on the proclaimed days, or the processions not take place on those days along the proclaimed route; and I think that the words imposing on the defendant the obligation to accept and pay for the use of the rooms for the named days, although general and unconditional, were not used with reference to the possibility of the particular contingency which afterwards occurred.[55]

93 In Codelfa, it was plain from the evidence of surrounding circumstances that the parties entered into the construction agreement on the basis of a common assumption that the appellant would be able to carry out the contract works operating three shifts per day, six days a week, and could not be restrained by injunction from proceeding in that fashion. The evidence included that the appellant tendered on the basis that it would complete the works using three shifts per day, six days a week; that it would have been impossible to complete the works in the required time using less than three shifts per day six days a week; and that the respondent had taken legal advice, which it passed on to the appellant with the intention that the appellant should rely on it (which the appellant did when tendering for the contract), that injunction could not go to restrain the appellant from working three shifts per day working six days a week. Thus, as Aickin J summarised the position:

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.[56]

94 Contrastingly, in this case, there was nothing in the evidence of surrounding circumstances which suggested that the parties shared an understanding at the time of entering into the licence agreement in 2005 that the Site was being let for the sole purpose of displaying advertising and promotional materials to motor traffic travelling north over King's Street Bridge. Nor was there anything to suggest that the owner of the Site believed or represented to the licensee that the view from parts of the northbound carriageway might not one day be blocked or obscured by the construction of one or more buildings in the line of sight.

95 Counsel for the appellant invoked the decision of the Western Australian Full Court in City of Subicao v Heytesbury Properties Pty Ltd[57] as support for his submission that, whether or not the parties entered into the licence agreement on the basis of a common understanding as to the circumstances which would obtain throughout the life of the agreement, the fact that it ceased to be possible to use the Sign for advertising to traffic on the northbound carriageway of Kings Way was enough in itself to frustrate the licence agreement.

96 In my view, Heytesbury does not support that conclusion. It was concerned with a change in the zoning of leased premises previously used for manufacturing. As a result of the change, it ceased to be permissible to carry on manufacturing activities. Heytesbury purchased the leases for the purpose and with the intention of redeveloping the land but claimed that the leases were frustrated by the change in zoning. White J rejected that contention and the Full Court upheld his Honour's decision. Ipp J, with whom Malcolm CJ and Wallwork J agreed, said that despite the change in zoning, the leasehold estate remained useable (in the sense that Heytesbury regarded the land as key to 'the viable redevelopment' of the area) and saleable (inasmuch as by the time of the proceeding Heytesbury had managed to sell the leasehold estates for $2.75 million). Ipp J reasoned that:

in the particular circumstances, the lease cannot be regarded as having been frustrated by the Town Planning Amendment merely because Heytesbury was thereby precluded from manufacturing. By then, the right to carry on a manufacturing business on the leased premises was regarded as very much of lesser importance when compared to the significance and value of the leasehold estate.[58]

97 Counsel stressed the commercial purpose for which the sign board was leased, and cited the following observations of Mahony JA in Liberty Investments Pty Ltd v Sakatik Pty Ltd[59] as support for counsel's submission that the commercial purpose of the licence agreement had been frustrated by the obstruction of the line of sight from the northbound carriageway of Kings Way:

In relation to frustration, it is important, in my opinion, that regard be had to what was undoubtedly the commercial basis of the case. At least it was so if Mr Van Dyke's evidence be accepted. The commercial basis of the case as known to all the relevant parties was that when the company, which was to take a lease of the premises came to enter upon possession of them, it was to have the fittings in question, the preparation room and the coolroom, and was to have those fittings from the date on which it took possession. It is proper to infer from the evidence, which the Judge accepted, that this was not merely an incidental matter; it was vital to the transaction from the point of view of the intended lessee and was known to be such by the intended lessor, that is in effect by Mr Tringas and Mr Van Dyke.[60]

98 I do not think that assists the appellant's case. What Mahony JA said accords with Stephen J's observation in Brisbane City Council that it is enough to engage the doctrine of frustration that events have given rise to a 'fundamental commercial difference' between 'contemplated and actual performance' or to a 'fundamentally different situation' arising for which the parties made no provision 'so much so that it would not be just in the new situation to hold them bound to its terms'. But for present purposes, that does not take the matter any further. The question in this appeal is whether the judge was right to reject the contention that the change in circumstances caused by the obstruction to the line of sight from the north bound carriageway of Kings Way to the Sign was 'fundamental'. That was a question of fact and degree about which views may legitimately differ.[61] It depended on the terms of the contract and the facts of this case. Its resolution was not assisted by knowing what might or might not have been regarded as 'fundamental' in relation to a different contract according to the facts of a different case.

99 Counsel for the appellant referred to the decision of WJ Tatem Ltd v Gamboa[62] as support for his contention that the appellant and the respondents should be seen to have entered into the licence agreement on the basis of a common assumption or understanding that visibility of the Site from the northern bound carriageway of the Kings Way was fundamental to the performance of the contract.

100 I do not view Tatem v Gamboa as having that effect. The case was concerned with a charterparty of one month's duration, at a very high rate of freight, limited to trade from the northern ports in the hands of the Republican Government of Spain to ports in France and which made plain that the specific purpose of the charter was the evacuation of the civil population from North Spain. After the completion of only one voyage, the ship was seized by the Nationalists and no more could be done with it. Goddard J held that it was obvious that the foundation of the contract had been destroyed as soon as the vessel was seized - because the charterer was unable to make use of it or return it to the owners. Thus the contract was frustrated from that time.

101 Tatem v Gamboa would have been a relevant comparator if the Site in this case had become incapable of being used for the permitted purpose of advertising. But it did not. The Site remained usable and it is still being used for the Permitted use of advertising. Certainly, it has ceased to be as profitable. But it does not follow that it was thereby frustrated. Authority is clear that the doctrine of frustration is not lightly to be invoked and is to be kept within narrow bounds.[63] As Lord Simon of Gladesdale said in National Carriers Ltd v Panalpina Ltd,[64] in order to frustrate a contract, a supervening event must radically alter the nature, not merely the expense or onerousness, of the performance of contractual obligations.

102 A more relevant comparator is the Suez Canal closure character-party cases in which, despite the closure of the canal, it was still possible to use the ship for the permitted purpose of the charter, albeit via another route, at greater cost and thus for less or no profit. It was held that it was not enough to invoke the doctrine of frustration that the venture would therefore yield far less profit or perhaps no profit at all.[65] Similar reasoning informs some of the more recent English cases concerned with the international sale of goods in which it was held that a supervening event did not frustrate the contract simply because it made performance more expensive and therefore less profitable.[66]

103 Counsel for the appellant prayed in aid the decision of Hamilton J in Lindsay-Owen v Associated Dairies Pty Ltd[67] as representative, he said, of the way in which a mere significant reduction in the commercial value of, or commercial return from, a contract may be enough in itself to frustrate the contract.

104 I do not think that Lindsay-Owen supports that conclusion. It was about a contract whereby the first defendant granted to the plaintiff rights of pre-emption over a dairy farming business comprised of the dairy farming activity carried on by the first defendant, the dairy farm on which that activity was carried on and the milk quota which was attached to the dairy farming activity. After the agreement was entered into, the milk quota scheme was abolished and the first defendant claimed that the abolition of the scheme had frustrated the contract. There was no way of telling from the evidence what effect the change in legislation would have on the profitability of the business. But having observed that was so, Hamilton J held that the contract had been frustrated because, upon the correct construction of the contract, an obligation was placed on the first defendant to retain all three elements of the business or only seek to dispose of them one at a time and, with the repeal of the quota scheme, that had become 'a quite different obligation'. His Honour's reasoning was that 'the whole market in which milk is sold in [New South Wales] is radically changed' and 'the obligation imposed by [the clause requiring retention of all three elements] in the context of the change, [is] radically altered'. The case was thus decided on the conventional basis that a supervening event had rendered performance of a contract obligation something radically different from that which was undertaken by the contract. Non haec in foedera veni.

105 This case is different. The situation here is more akin to that in Williams v Mercer,[68] in which there was an agreement for a licence for five years to erect and display a neon advertising sign on the wall of a building. It was a term of the agreement that, if the local authority required the sign to be taken down, removed altered or amended, the licensee would have the right to terminate the agreement. Subsequently, the promulgation of the Lighting Restrictions Order 1939 prohibited the illumination of the sign at night. The English Court of Appeal held that the effect of the order was not an alteration of the sign but a restriction on its use and, although it was a hardship on the licensee to have to continue to pay the licensor at the full contractual rate when its use was so restricted, he was bound to do so.

106 There are also similarities between this case and Scanlan's New Neon Ltd v Tooheys Ltd,[69] where an equivalent wartime prohibition on the night time illumination of signs was held not to have frustrated a contract for the installation and hiring of a neon sign.

107 Although the admissible evidence in this case may not have gone far enough to sustain the judge's conclusion that the possibility of development of the Northbank land was a 'fair business risk', it was plainly foreseeable that something might be developed somewhere along in the line of sight between the north bound carriageway and the Sign and, if it were developed, that it might so obstruct the line of sight as to lessen the number of advertisers who would be interested in the Site and the amount which they would be prepared to pay for its use. In my view, that was a 'fair business risk'.

108 Looked at objectively, therefore, it can hardly be supposed that an honest and reasonable licensor entering into a long term licence of a valuable advertising site would have been prepared to accept the risk of the agreement coming to an end

whenever and if the line of sight from the northbound carriageway of Kings Way was in some way be obstructed. To adopt and adapt the words of Williams J in Scanlon's New Neon Ltd v Tooheys Ltd, it would not be reasonable for the licensee as a 'fair dealer' to expect the licensor to make such a contract.

109 Possibly if not probably, the construction of the Northbank Office Tower was productive of financial hardship; and, doubtless, there may come a point at which hardship turns to frustration. It is a question of fact and degree dependent on the facts and circumstances of each case. But, given the facts and circumstances as they existed in this case at the time of entry into the licence agreement, I do not accept that such economic hardship as may have resulted from the construction of the tower on the Northbank land amounted to frustration.

110 In my view, the judge was right to reject the claim that construction of the Northbank Office Tower rendered performance of the licence agreement radically different. I reject Ground 1.

112 I have had the considerable advantage of reading in draft the most helpful reasons of Nettle JA with whom I entirely agree.

113 The trial judge was right to have concluded that the licence agreement was not frustrated. It was not established that a partial or wholesale obstruction of line of sight from the northbound carriageway of Kings Way prevented performance of the contract, or that there was a common assumption by the initial contracting parties that such an event would not occur. That conclusion is strengthened by the fact that

there was no clause, commonly included in such agreements, providing for a termination or variation of the agreement in the event that there was a reduction in visibility of the sign.

114 When regard is had to the extent of the development in that area of the city precincts, the risk was plainly foreseeable that visibility could be reduced in the future. If it was foreseeable, it is difficult for the disadvantaged party to contend that its non-occurrence was an assumption on which the parties based their agreement. The appellant must be regarded as having implicitly assumed the risk of the occurrence of the supervening event, not expressly mentioned in the contract, as there was a reasonable possibility that it was likely to occur. The appellant cannot be excused from performance because the contract did not work out in the manner it expected.[70]

115 The trial judge should not have taken account of the Second Reading Speech or the Explanatory Memorandum to the Melbourne (Flinders Street Land) Act 2003 without giving the parties notice that she intended to do so. But quite apart from this extrinsic material, as Nettle JA has shown, there was a highly persuasive body of evidence which inexorably led to the inevitable conclusion that such an event was a likely occurrence.[71]

116 The appellant also relied upon the concept of 'economic frustration', submitting that when the 'driver of the price which was being paid is removed, there is a radical change from the circumstances contemplated by the parties.' That submission misconceives what it is that must be shown to be radically different. Commercial impracticability because performance has become excessively and unreasonably onerous, or which alters the economic equilibrium of the agreement, will not enable a party to avoid its obligations, unless the supervening circumstance has fundamentally changed or is radically different from the nature of the

performance agreed upon.[72] It has not been shown that her Honour erred in concluding that there had not been a wholesale destruction of the site. Neither was it demonstrated that any loss of profitability by the appellant established a 'fundamental commercial difference' to the licence agreement as contemplated by the parties.

118 I have had the considerable advantage of reading, in draft, the reasons for judgment prepared by Nettle JA. I agree that this appeal should be dismissed.

120 Outdoor advertising is an increasingly large component of the world wide advertising market which includes other media such as television, radio, the internet and the press. It consists of advertising found outside the home and includes billboards of various sizes such as those found on buses, trains, trams, taxis and, of course, what is known as 'street furniture'. It is a highly sophisticated, and seemingly very lucrative, market.

121 It should be obvious to anyone engaged in such advertising that licence agreements of the kind that featured in this case should be drawn with utmost care. The evidence given by Mr Dollisson, a former President of the Outdoor Advertising Association of Australia, regarding the subject of 'build outs and reductions in visibility' was, in my opinion, very telling.

122 Nettle JA has set out the particular clause recommended by Mr Dollisson for inclusion in agreements of this kind. The licence agreement in this case did not include a provision to any similar effect.

123 It seems extraordinary to me that, where unimpeded and long range visibility is critical to the financial viability of an agreement to license a billboard site for outdoor advertising and promotional display purposes, the relevant agreement would not deal specifically, and in terms, with the consequences that should flow from a material reduction in visibility, such as that which may occur with a significant build out.

124 Clause 11(c) of the relevant agreement was, in my view, drafted in terms which failed to provide the protection that a licensee might perhaps expect when entering into a long-term arrangement of this kind. Other contingencies that might allow for termination, such as a 'fire or other disabling cause', were identified in the relevant agreement. I see no reason why a clause dealing with the consequences that are to flow from a material reduction in visibility should not also have been included. This is all part of normal risk management, and can be reflected in the price agreed by the parties.

125 I would only add that, in my opinion, the judge below should be particularly commended for the clarity with which she expressed her conclusions in her reasons for judgment.

[1] Signed License Agreement dated 22 November 2005.

[8] Codelfa Construction Pty Ltd v State Rail Authority of NSW [1982] HCA 24; (1982) 149 CLR 337, 352; Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451, 461 [22]; Toll (FGCT) Pty Ltd v Alphapharm Pty Limited [2004] HCA 52; (2004) 219 CLR 165, 179 [40].

[9] Codelfa Construction Pty Ltd v State Rail Authority of NSW [1982] HCA 24; (1982) 149 CLR 337, 347-352 (Mason J); Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165, 179 [40].

[10] [2004] HCA 35; (2004) 218 CLR 451, (2004) 219 CLR 165.

[18] Codelfa Construction Pty Ltd v State Rail Authority of New South Wales [1982] HCA 24; (1982) 149 CLR 337, (Stephen J); 357 (Mason J); 380 (Aickin J).

[19] And other earlier suggested bases of frustration.

[20] [1956] UKHL 3; [1956] AC 696, 728-9.

[21] [1926] AC 497, 509.

[22] (1881) 6 App Cas 38, 59 (Lord Watson).

[23] [1944] UKHL 3; [1944] AC 265, 274-275 (Lord Wright).

[24] [1979] HCA 54; (1979) 145 CLR 143.

[25] Albert D Gaon & Co v SIOFA [1960] 2 QB 318, 347.

[26] The Eugenia [1964] 2 QB 226, 238.

[27] Cricklewood Property and Investment Trust Ltd v Leighton's Investment Trust Ltd [1945] AC 221, 241 (Lord Wright); National Carriers Ltd v Panalpina (Northern ) Ltd [1980] UKHL 8; [1981] AC 675, 700 (Lord Simon of Glaisdale).

[28] Edwinton Commercial Corporation & Anor v Tsavliris Russ (Worldwide Salvage & Towage Ltd (The 'Sea Angel') [2007] 2 Lloyd's Rep 517, 532 [86].

[29] J Lauritzen AS v Wijsmuller BV (The Super Servant Two) [1990] 1 Loyd's Rep 1, 8 (Bingham LJ).

[30] Brisbane City Council v Group Projects Proprietary Limited [1979] HCA 54; (1979) 145 CLR 143, 162 (Stephen J).

[31] [1981] 1 WLR 641, 647.

[32] [1982] HCA 24; (1982) 149 CLR 337, 360.

[33] [1982] HCA 24; (1982) 149 CLR 337, 357.

[34] [1935] UKPC 1; [1935] AC 524, 529 (PC).

[35] Pioneer Shipping Ltd v BTP Tioxide Ltd (The Nema) (HL) [1982] AC 724.

[36] Seddon and Ellinghaus 9th ed [19.12].

[37] Chitty on Contracts 30th Ed, [23-060].

[38] Citing Treitel, Frustration and Force Majeure 2nd Ed 2004, 13-012, in turn citing Mishara Construction Co Inc v Transit-Mixed Concrete Corporation 310 NE 2d 363 (1974), 367; see also Carter, Peden and Tolhurst, Contract Law in Australia 5th Ed, [33]-[38].

[41] One of the three buildings fronting Kings Street between the Site and Flinders Street.

[43] As opposed to using it as an aid to construction in accordance with s 35A of the Interpretation of Legislation Act 1984.

[44] Ucar v Nylex Industrial Products Pty Ltd [2007] VSCA 181; (2007) 17 VR 492, 508 [42] and 519 [75]; R v Fisher [2009] VSCA 100; (2009) 22 VR 343, 348 [20].

[45] Ucar v Nylex Industrial Products, ibid [75].

[46] Payne v Parker [1976] 1 NSWLR 191, 201-2; Davies v Pyke [2004] VSCA 124; (2004) 10 VR 339, 344 [16]-[17].

[47] Brandy v Mingot (1976) 12 ALR 551, 559-560; Berrigan Shire Council v Ballerini [2005] VSCA 159; (2005) 13 VR 111, 138 [66].

[49] [1903] 2 KB 740.

[50] (1922) 29 Com Cas 1, 7.

[51] [1943] HCA 43; (1943) 67 CLR 169, 194.

[54] [1935] UKPC 1; [1935] AC 524, 529 (PC).

[55] [1903] 2 KB 740, 750.

[56] [1982] HCA 24; (1982) 149 CLR 337, 381.

[57] [2001] WASCA 140; (2001) 24 WAR 146.

[59] [1996] NSWCA 326.

[61] Pioneer Shipping Ltd v BTP Tioxide Ltd (The Nema) [1982] AC 724, 752 (Lord Roskill).

[62] [1939] 1 KB 132.

[63] Bank Line Ltd v Arthur Capel & Co [1918] UKHL 1; [1919] AC 435, 459; Davis Contractors Ltd v Fareham Urban District Council [1956] UKHL 3; [1956] AC 696, 715, 727; Pioneer Shipping Ltd v BTP Tioxide Ltd (The Nema) [1982] AC 724, 752; J Lauritzen A/S v Wijsmuller [1989] EWCA Civ 6, Lloyds Rep [1989] EWCA Civ 6; [1990] 1 Lloyds Rep 1, 8.

[64] [1980] UKHL 8; [1981] AC 675, 700; see also J Lauritzen A/S v Wijsmuller [1989] EWCA Civ 6, Lloyds Rep [1989] EWCA Civ 6; [1990] 1 Lloyds Rep 1, 9 (Bingham LJ).

[65] Ocean Tramp Tanker Corporation v V/0 Sovfracht (The Eugenia) [1964] 2 QB 226, 241 and 243-244.

[66] See, for example, CTI Group Inc v Transclear SA (The Mary Nour) [2008] 2 Lloyd's Rep 526 and the cases there cited.

[67] [2000] NSWSC 1095.

[68] [1940] 3 All ER 292.

[69] [1943] HCA 43; (1943) 67 CLR 169.

[70] Scanlan's New Neon Ltd v Tooheys Ltd [1943] HCA 43; (1943) 67 CLR 169.

[71] Ucar v Nylex Industrial Products Pty Ltd [2007] VSCA 181; (2007) 17 VR 492, 519.

[72] Codelfa Construction Pty Ltd v State Rail Authority of New South Wales [1982] HCA 24; (1982) 149 CLR 337; Davis Contractors Ltd v Fareham Urban District Council [1956] UKHL 3; [1956] AC 696; British Movietoners Ltd v London & District Cinemas Ltd [1951] 2 TLR 571.