State Rail Authority (NSW) v Codelfa Construction Pty Ltd

High Court of Australia|1982-05-11|Before: Brennan JJ, Wilson JJ, Ash J, Street J, Brennan J, Yeldham J

High Court of Australia Mason, Wilson and Brennan JJ. State Rail Authority (NSW) v Codelfa Construction Pty Ltd [1982] HCA 51

This is an application by the State Rail Authority of New South Wales ("the Authority") for an order vacating certain of the orders made by this Court in a judgment delivered on 11 May 1982 (Codelfa Construction Pty. Ltd. v. State Rail Authority of New South Wales [1] ). The orders in question were made in part determination of appeals from two decisions of the Court of Appeal of the Supreme Court of New South Wales. One appeal related to the determination of questions raised by an Award of the Arbitrator stated in the form of a case stated, proceedings which in this Court are numbered 71 of 1981 ("the Arbitration proceedings"). The second appeal related to proceedings commenced in the Supreme Court of New South Wales and heard in the first instance before Ash J. who stated a case for decision of the Court of Appeal. In this Court these proceedings are numbered 72 of 1981 ("the frustration proceedings").

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

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

The litigation to which this application relates, described elsewhere as an "ocean of litigious controversy" (see Codelfa [2] ), arose generally out of a contract wherein the respondent ("Codelfa") agreed to construct for the Authority a segment of the mass transit railway in Sydney known as the Eastern Suburbs Railway. Codelfa began work under the contract in 1972. It was contemplated by the contract that certain of the work would be performed by a continuous three shift a day operation six days a week. However, on 28 June 1972, the Supreme Court of New South Wales (Street J., as he then was) held that such an operation constituted a nuisance at law and Codelfa was restrained from working more than two shifts each day. Further injunctions followed in the ensuing months. A description of the manner in which the construction of the works then proceeded and of the subsequent history of the contract is contained in the reasons for judgment of Brennan J. in Codelfa . It suffices to say, for the purposes of providing the background to this application, that when arbitration proceedings were instituted in 1976 Codelfa in its points of claim raised both the question of an implied term or alternatively of frustration in an effort to protect itself from the adverse economic effect of the injunctions on the performance of the works. Declaratory proceedings were undertaken in the Supreme Court directed to clarifying the course of the arbitration. One outcome of those proceedings was a declaration by Yeldham J. to the effect that the Arbitrator did not have jurisdiction to entertain a claim that the contract was frustrated and that he did not have power to consider a claim by Codelfa for remuneration on a quantum meruit basis in respect of work performed subsequently to the alleged frustrating event. That decision of Yeldham J. was not the subject of any appeal; indeed, both at the time of the hearing of the appeals in this Court last November and at the time of delivery of judgment in May 1982 no order had been extracted and the decision remained to be perfected.

The reasons for judgment of Yeldham J. were not included in the materials presented to this Court before it delivered judgment. Although the precise character of the proceedings before his Honour was not made entirely clear by those materials, the suggestion now made by the Authority that the Court was under the erroneous impression that his Honour made the order in the exercise of a consultative jurisdiction is incorrect.

The arbitration proceeded on the basis that the Arbitrator had no jurisdiction to deal with Codelfa's claim based on frustration. On the conclusion of the proceedings before him he stated his award in the form of a case stated, incorporating therein two sets of questions as submitted separately by the parties. The principal issue was whether a term was to be implied in the contract designed to protect Codelfa from the effect of the injunctions. The Arbitrator found in Codelfa's favour on this issue, and was upheld in this regard both by Ash J. and by the Court of Appeal, although at each stage some change was made to the wording of the term. Codelfa was not satisfied with the form of the implied term as found by the Court of Appeal and appealed to this Court both on that question and other matters related to the case stated by the Arbitrator. The Authority cross appealed on the grounds, inter alia, that no term should be implied.

Having found that a term should be implied in the contract, it was unnecessary for the Court of Appeal to consider the questions raised in the case stated in the frustration proceedings. Those proceedings were dismissed. Codelfa appealed to this Court from that dismissal.

It is clear from the history of the matter that the decision of Yeldham J. on the question of the Arbitrator's jurisdiction with respect to frustration was allowed by both parties to determine the future course of the arbitration proceedings. The Arbitrator was not asked to make a finding on frustration. In any event, there was no occasion for him to do so or to consider a quantum meruit claim because he found in favour of Codelfa on the implied term issue.

In 1978, following Yeldham J.'s decision on jurisdiction, Codelfa, as a matter of precaution, instituted proceedings in the Supreme Court claiming frustration and consequent relief. On the publication of the Award, Codelfa amended the claim in those proceedings so as to incorporate those findings made by the Arbitrator on the basis of which he had formulated an implied term. Furthermore, it made it clear that its frustration claim was based on the findings made by the Arbitrator, which findings were claimed by Codelfa to create an issue estoppel.

In this Court the appeals in both proceedings were heard together. Codelfa argued for the implication of a term in the contract in a form more favourable to it than the form determined by the Court of Appeal. The Authority argued that no term at all should be implied. In the alternative, Codelfa argued that if no term was to be implied there should be a finding by the Court that the effect of the injunction on 28 June 1972 was to frustrate the contract. Neither party suggested that perhaps the Arbitrator might after all have jurisdiction to deal with the frustration issue, and no such possibility was suggested by any member of the Court. The argument proceeded on the basis that the decision of Yeldham J. was correct. That assumption involved the consequence that, if Codelfa succeeded in persuading the Court that the contract had been frustrated, the frustration proceedings would be returned to the Supreme Court for consideration of a quantum meruit remuneration of Codelfa. Both in oral and written submissions the Authority argued forcefully that, not only was the contract not frustrated, but that even if such an outcome was arguably correct Codelfa had made a final election between inconsistent rights and remedies by continuing with the arbitration and obtaining an award on the basis that the contract remained on foot. The Authority further argued that the Award itself estopped Codelfa from now seeking to have the Award remitted to the Arbitrator with a direction to limit his Award to claims which had accrued prior to the frustrating event.

Notwithstanding these submissions of the Authority, the Court by majority (Stephen, Mason, Aickin and Wilson JJ., Brennan J. dissenting) favoured a conclusion that the contract was frustrated on 28 June 1972. It considered that the decision of the Privy Council, Hirji Mulji v. Cheong Yue Steamship Co. [3] , which Yeldham J. had rightly felt obliged to follow, could not be supported and that the proper conclusion was that the Arbitrator was seized of jurisdiction to determine Codelfa's claim that the contract was frustrated. It also considered that the arbitration clause in the present contract was adequate to arm the Arbitrator with authority in the event of a finding of frustration to proceed to determine the claim of Codelfa for quantum meruit remuneration. It is convenient, before coming to a consideration of the grounds upon which the present application is based, to set out the relevant passages from the judgments of the Court. Mason J. said [4] :

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

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

It is the stated case in action No. 12577 of 1978 that presents the issues relating to frustration. In that action Codelfa sought relief against the Authority on the footing that the contract had been frustrated. The action was commenced on 23rd May 1978 after Yeldham J. had ruled on 9th September 1976, following the Privy Council's decision in Hirji Mulji v. Cheong Yue Steamship Co. [5] , as he was bound to do, in preference to the conflicting decision of the House of Lords in Heyman v. Darwins Ltd. [6] , that the Arbitrator had no jurisdiction to entertain a claim based on frustration. The Arbitrator's Award was not delivered until 15th April 1980. Shortly after Codelfa amended its statement of claim in the action so as to plead some of the findings made by the Arbitrator in his award. The stated case was subsequently filed in the action on 26th August 1980. It asks the following questions:

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

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

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

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

The problem of issue estoppel is complicated by the circumstance that the decision of Yeldham J. dictated the future course of the proceedings. In the result the total controversy between the parties became fragmented. There seems to be no reason why this Court, now that it is seized of the case, should not decide the conflict between Heyman [7] and Hirji Mulji [8] . Indeed, the jurisdiction of the Arbitrator and the use to which his findings can be put in relation to frustration depends upon a resolution of the conflict.

Sub-clause (1) [of cl. G. 46] refers to "all disputes arising out of the Contract", an expression wider than "disputes under the Contract", the expression which Lord Wright in Heyman was inclined to think sufficient to confer jurisdiction on the Arbitrator with respect to frustration, had the question arisen in that case. The sub-clause was plainly wide enough to embrace a dispute arising out of a claim by Codelfa for remuneration on a quantum meruit based on frustration of the contract.

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

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

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

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

Aickin J. said [9] : Having applied that test I am satisfied that the contract between the Authority and the Contractor was frustrated by the grant of the injunction prohibiting work on the tunnels between the hours of 10 p.m. and 6 a.m.

In my opinion the grant of the injunction produced frustration in the true sense of that term. It had become unlawful to perform the work in a manner which would have complied with the requirement of the contract, a requirement well known to both parties.

His Honour went on to say [10] : Although the question was not the subject of an appeal (if one were available) from the decision of Yeldham J. in the Supreme Court, or argued before us, I am of opinion that we should now decide whether in Australia the decision of the Privy Council in Hirji Mulji v. Cheong Yue Steamship Co. [11] should still be followed in preference to the later decision of the House of Lords in Heyman v. Darwins Ltd. [12] . In the resolution of that conflict I agree with the view expressed by Mason J. in his reasons for judgment that the latter case should be followed in Australia and should be applied by this Court in the resolution of the matters in dispute in this appeal. This will require that the question must be remitted to the Arbitrator for decision. Its resolution by him should not involve significant delay.

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

Wilson J. said [13] : I have had the advantage of reading the reasons for judgment of my brethren Mason and Aickin. I agree with their Honours that in the circumstances of this case the correct conclusion is not that a term must be implied in the contract but that the grant of an injunction on 28 June 1972 restraining the contractor in the manner of execution of the work may well have frustrated the contract, and that a finding as to frustration and its consequences lie within the jurisdiction of the Arbitrator. I respectfully adopt the reasons advanced by each of their Honours in support of those conclusions. It follows that because of cl. G. 46(5) of the contract (the " Scott v. Avery " clause), the Supreme Court did not have jurisdiction to deal with the frustration claim. Stephen J. agreed with Mason and Aickin JJ. 1. [1926] A.C. 497. 2. (1982) 149 C.L.R., at pp. 362-364; 366-367. 3. [1926] A.C. 497. 4. [1942] A.C. 356. 5. [1942] A.C. 356. 6. [1926] A.C. 497. 7. (1982) 149 C.L.R., at pp. 380, 383. 8. (1982) 149 C.L.R., at pp. 391-392. 9. [1926] A.C. 497. 10. [1942] A.C. 356. 11. (1982) 149 C.L.R., at p. 392.

It is against this background that the present application must now be considered. The case for the Authority is that the orders which remitted the award to the Arbitrator to determine whether the contract has been frustrated and Codelfa's claim in that event to a quantum meruit and the striking out of the frustration action for want of jurisdiction were not sought by either party and were not within the scope of the orders sought by either party. In substance, it is argued for the Authority that (a) the orders were made in breach of the audi alterem partem rule of natural justice because the Authority was not given the opportunity of being heard; (b) the orders were in effect made by the Court of its own motion, and are therefore void as being ultra vires the judicial power of the Commonwealth; (c) the orders are contrary to binding declarations of right made by Yeldham J. in 1976; and (d) further questions upon which the Authority was not heard are involved, namely, (i) whether the Scott v. Avery clause was waived in the frustration action thereby ensuring that the Supreme Court did have jurisdiction; and (ii) considerations touching the competence of a court, in proceedings on an award in the form of a special case, to entertain a question not raised before the Arbitrator.

Counsel for the Authority referred the Court to many cases to establish the jurisdiction of the Court to entertain the present application. We have no doubt that such a jurisdiction exists: Rajunder Narain Rae v. Bijai Govind Sing [14] . See also Venkata Narasimha Appa Row v. Court of Wards [15] ; In re Harrison's Share Under a Settlement [16] . Nevertheless, it is a power to be exercised with great caution. There may be little difficulty in a case where the orders have not been perfected and some mistake or misprision is disclosed. But in other cases it will be a case of weighing what would otherwise be irremediable injustice against the public interest in maintaining the finality of litigation. The circumstances that will justify a rehearing must be quite exceptional. In Rae's Case, Lord Brougham said, in words which the Authority claims are apposite to the present case [17] :

It is impossible to doubt that the indulgence extended in such cases is mainly owing to the natural desire prevailing to prevent irremediable injustice being done by a Court of the last resort, where by some accident, without any blame, the party has not been heard, and an Order has been inadvertently made as if the party had been heard. In Venkata's Case [18] , Lord Watson, delivering the opinion of the Judicial Committee of the Privy Council, referred to Lord Brougham's words in Rae's Case and continued: Even before report, whilst the decision of the Board is not yet res judicata great caution has been observed in permitting the rehearing of appeals. In the last case to which we were referred, that of Hebbert v. Purchas [19] , where a litigant alleged, before report and approval, that he had been disabled by want of means from appearing and maintaining his case, the Lord Chancellor said: - "Having carefully weighed the arguments, and considering the great public mischief which would arise on any doubt being thrown on the finalty "[sic]" of the decisions of the Judicial Committee, their Lordships are of opinion that expediency requires that the prayer of the petitions should not be acceded to, and that they should be refused." There is a salutary maxim which ought to be observed by all Courts of last resort - Interest reipublicae ut sit finis litium. Its strict observance may occasionally entail hardship upon individual litigants, but the mischief arising from that source must be small in comparison with the great mischief which would necessarily result from doubt being thrown upon the finality of the decisions of such a tribunal as this. 1. (1839) II Moo.Ind.App. 181 [18 E.R. 269]. 2. (1886) 11 App.Cas. 660. 3. [1955] Ch. 260. 4. (1839) II Moo.Ind.App., at p. 220 [18 E.R., at p. 284]. 5. (1886) 11 App. Cas., at pp. 663-664. 6. (1871) L.R. 3 P.C. 664.

Central to the Authority's application is the argument (a) that the issue of frustration was for this Court alone to determine on the basis of the materials in the stated case and not otherwise; (b) that the Court did not make an actual finding of frustration; and (c) that it was not open to the Court to remit the issue to the Arbitrator or even to the Supreme Court. The elements of this argument need to be placed in perspective. The judgments of the members of the Court on the issue of frustration were delivered after a consideration of oral and written submissions presented by the parties. A reading of the judgments makes it plain that the majority thought that, on the findings made by the Arbitrator, frustration had actually occurred. Aickin J. specifically said so. Mason J., who discussed the question in the context of an exercise of jurisdiction by the Arbitrator, said that on the Arbitrator's findings frustration had occurred, subject only to the Arbitrator's consideration of the question whether performance of the contract in the changed circumstances was substantially different from the performance contemplated by the contract, a question effectively withdrawn from the Arbitrator by the judgment of Yeldham J. Mason J.'s comment on the point, contained in the passage from his judgment which we have quoted, indicates that on the view which he took of the Arbitrator's findings frustration had occurred and that, in consequence, it was to be expected that the Arbitrator would share that view.

This conclusion disposes of the suggestion that this Court held that on the materials set forth in the stated case Codelfa failed to make out a case of frustration and that in the result this Court should so declare or that it should re-hear the frustration issue in the stated case. There is therefore no substance in the Authority's reliance on the following statement set out in the case stated by Ash J.:

The facts upon which the Plaintiff relies to establish frustration are contained in and limited to the pleadings and the findings of the Arbitrator If any of the questions are answered adversely to the Plaintiff the Plaintiff will not rely upon its ordinary right to apply to amend the Statement of Claim in order to plead a case of frustration substantially independent of issue estoppels to support its opposition to any application by the Defendant for judgment in the action. In passing we note that Codelfa's undertaking not to amend would not prevent it from pleading facts additional to the Arbitrator's findings, so long as it did not "plead a case of frustration substantially independent of issue estoppels".

We have discussed this aspect of the matter at some length for two reasons: first, to reaffirm what the judgments and orders of the Court have already stated, namely, that the issue of substance, whether the contract was frustrated, has been argued and decided adversely to the Authority on the very basis on which the parties presented it to the Court for decision and, secondly, to make the associated point that by remitting the issue of frustration to the Arbitrator the Court did no more than give to the Arbitrator jurisdiction which it considered him to possess, in lieu of deciding the question on a case stated by the Supreme Court in the exercise of jurisdiction mistakenly assumed in compliance with Hirji Mulji [20] . The consequence is that, by leaving the Arbitrator to proceed to complete his Award by making a finding of frustration, the Court has not exposed the Authority to an adverse finding on the substantial issue of frustration on a legal basis neither contemplated nor foreseen by the parties.

The remission of the Award to the Arbitrator on frustration is therefore to be seen as a procedural order giving effect to a substantive decision of the Court, flowing naturally out of the issues debated in the proceedings and reflecting a view of the Arbitrator's jurisdiction which the Authority does not now wish to contest.

Although the question whether we should follow Heyman in preference to Hirji Mulji was not debated in argument before this Court, counsel for the Authority has fairly conceded that it would not have been concerned to argue that Hirji Mulji should be followed. He would, however, have wished to argue that there was no jurisdiction in the Arbitrator to determine a quantum meruit claim, as this question was not foreclosed by the speeches in Heyman . But, as Mason J. observed in Codelfa [21] , once it is determined that a claim of frustration falls within the jurisdiction of the Arbitrator as being a claim to recover money "for or in respect of any matter or thing arising out of" the contract, it is a short step in circumstances such as these to find the claim for a quantum meruit consequent on a finding of frustration within the contemplation of the arbitration clause. The other members of the majority agreed that this was so. The same approach was taken by Sellers J. in Government of Gibraltar v. Kenney [22] , citing in support the comments of Viscount Simon L.C. and Lord Macmillan in Heyman [23] .

(1982) 149 C.L.R., at p. 366. 2. [1956] 2 Q.B. 410 at pp. 422-423. 3. [1942] A.C., at pp. 366-367, 374.

In this situation the reasons for refusing to vacate the orders to allow argument on a question, not of substantive right or liability, but of forum, namely whether the claim for a quantum meruit should be litigated before the Arbitrator or in the Supreme Court appear to be overwhelming. The view that the Arbitrator has jurisdiction is supported by English authority and is, we think, an inevitable consequence of the Heyman [24] approach to arbitral jurisdiction when the submission to arbitration extends to claims "arising out of" the contract and the claim to a quantum meruit arises out of frustration. To hold that the parties intended that the Arbitrator should decide the issue of frustration - a complex legal question - but not the quantum meruit arising out of it would say much for their eye for a philosophical distinction and little for their commonsense.

As we see it, the Authority's strongest point is that the judgment of Yeldham J. gave rise to res judicata or issue estoppel on the issues of frustration and quantum meruit and that the orders made have denied the Authority an opportunity to argue it. R. v. Middlesex Justices; Ex parte Bond [25] stands as authority for the proposition that the doctrine of res judicata or issue estoppel applies to an issue of jurisdiction. But we cannot think that on this ground it would be right to vacate the orders made. First, a majority of the Court proceeded on the footing that the judgment of Yeldham J. was binding on the parties and not merely consultative or interlocutory. Secondly, in Middlesex Justices the court held to have jurisdiction was a court which in law possessed jurisdiction to decide the case. Here it is sought to apply the doctrine so as to compel a party to commence proceedings in a court whose jurisdiction cannot be properly invoked unless an arbitral award is obtained. Yeldham J. was bound to follow Hirji Mulji [26] . Only this Court or the Judicial Committee itself was in a position to decide authoritatively the issue of jurisdiction. True it is that Codelfa might have applied for special leave to appeal to this Court from the decision of Yeldham J. But the institution of a High Court appeal at an early stage of this litigation would no doubt have entailed even further delay in the resolution of the substantial controversy between the parties. Certainly it seems to be common ground that Codelfa was anxious to have the entire controversy determined by the Arbitrator. There is nothing to indicate that Codelfa waived the Scott v. Avery clause. It raised frustration in its points of claim in the Arbitration proceedings. The institution of the subsequent proceedings in the Supreme Court in respect of frustration was dictated wholly and solely by the decision of Yeldham J.

To these factors two additional factors should be added. The first is that the application of the doctrine here, if it were to result in litigation of the frustration issue in the Supreme Court, might well result in the relitigation of matters already canvassed before the Arbitrator. This result would not conform to the policy which underlies res judicata and issue estoppel - the avoidance of the further litigation of issues which have already been determined between the parties. Whether the litigation of the quantum meruit claim would have similar consequences is uncertain - we do not know enough of the details of the proceedings before the Arbitrator. But there must be a strong possibility that in the event of the Supreme Court continuing to exercise jurisdiction it would order that the issues be remitted to arbitration in accordance with s. 15 of the Arbitration Act 1902 N.S.W., as amended.

The second factor is the obvious advantage of upholding the true legal effect of the submission of arbitration with the consequent litigation of the entire controversy before the Arbitrator. It will avoid further fragmentation of that controversy and thereby avoid additional expense and delay. It will result in a disposition of the controversy in the manner provided for by the parties in their contract. If it becomes necessary for Codelfa to proceed in the Supreme Court to enforce the award of the Arbitrator, the form and practical effect of the orders which have been made by this Court removes any objection to the enforcement of the Award that might have been thought to arise from the decision of Yeldham J.

The Court, in framing the orders which have been challenged by the Authority in this application, had in mind the general questions which we have dealt with in this judgment, though argument has enabled us to see them in somewhat sharper focus. But in the end our conclusion is that no persuasive reason has been shown for vacating the orders. They are a procedural consequence of the resolution by this Court in favour of Codelfa of the substantive issue of frustration and they facilitate the determination of the entire controversy between the parties in the manner for which they provided in their contract, free from the fragmentation which would otherwise inevitably follow with the further delay and expense that this would entail.

For these reasons we would dismiss the application.

To understand the nature of this application, it is necessary to recall briefly the history of the litigation which gave rise to the appeals to this Court and to identify the issues which the parties litigated at various stages. Before the Arbitrator, Codelfa claimed amounts in addition to the sums due to it under the contractual schedule of rates. It made the claim on alternative bases: either a term entitling it to additional amounts should be implied in the contract or, alternatively, it should be held that the contract was frustrated and that Codelfa was entitled to payment upon a quantum meruit for work done after the contract was frustrated. The alternative bases were stated in the points of claim which it delivered in the proceedings before the Arbitrator. The Arbitrator found an implied term which entitled Codelfa to an additional amount. In the Supreme Court of New South Wales, Ash J. and the Court of Appeal also found an implied term entitling Codelfa to an additional amount, though the terms respectively found by the Arbitrator, Ash J. and the Court of Appeal were not the same. Finally, this Court reversed that finding, holding that no term of that kind was to be implied: see Codelfa Construction Pty. Ltd. v. State Rail Authority of N.S.W. [27] .

(1982) 149 C.L.R. 337, at pp. 345, 356, 392, 406-407.

The alternative basis of Codelfa's claim, namely, frustration and quantum meruit, was litigated in a different forum. The Authority (or rather its predecessor, the Public Transport Commission) obtained a declaration by Yeldham J. in the Supreme Court on 9 September 1976 that "the arbitrator has no jurisdiction to determine whether the Contract was frustrated, or the claim for a quantum meruit, based upon such an allegation, as set out in par. 5(i) of the Points of Claim". In consequence, had the Arbitrator refused to find an implied term, he would have been constrained nevertheless to abstain from making any finding as to frustration or as to the additional amount to which Codelfa might have been entitled on a quantum meruit for work done after frustration of the contract. In order to preserve its alternative basis of claim, Codelfa sued in the Supreme Court alleging frustration and claiming on a quantum meruit. To establish frustration in those proceedings, Codelfa relied upon the findings of fact made by the Arbitrator, though a recital to his award asserted that it had been determined by the Supreme Court that the submission to arbitration did not include an issue as to whether or not the contract had been frustrated. The Arbitrator's findings necessarily stopped short of an express finding of frustration. Indeed, the term which the Arbitrator had held to be implied in the contract was inconsistent with frustration of the contract. And so it appeared that Codelfa had been impaled or had impaled itself on the horns of a dilemma: the Authority submitted that in so far as Codelfa's case depended on an implied term, no term should be implied; in so far as its case depended on frustration, no finding of actual frustration had been made by the Arbitrator upon which Codelfa might rely to establish frustration for the purposes of the action in the Supreme Court.

This Court upheld the former proposition. In considering the latter proposition, the majority of this Court were led to consider the conflict between the decision of the House of Lords in Heyman v. Darwins Ltd. [28] and the decision of the Privy Council in Hirji Mulji v. Cheong Yue Steamship Co. [29] , and held that the reasoning in Heyman should be preferred to the reasoning of Lord Sumner in Hirji Mulji : see Codelfa [30] . The jurisdiction of the Arbitrator and the use to which his findings could be put were held to depend upon the resolution of that conflict (see Codelfa , per Mason J. [31] ). The preference for Heyman led to the conclusion that the Arbitrator had power to determine whether the contract had been frustrated, and that that power was vested in the Arbitrator alone. He had not exercised the power, and the Supreme Court had no jurisdiction to determine the frustration action. The majority of this Court, favouring a conclusion that the contract had been frustrated, therefore remitted the award to the Arbitrator to make a decision on the frustration claim and "in the event of a finding that the contract was frustrated to resolve the claims of the parties in relation to work performed subsequently to that frustration". The power of the Arbitrator to determine the claim on quantum meruit consequent upon a determination of frustration arose from the breadth of the Scott v. Avery clause to be found in cl. G. 46(5) of the contract: cf. Government of Gibraltar v. Kenney [32] . Hereafter I refer to the issue of frustration and the claim on quantum meruit remitted by this Court's order as "the relevant issues".

[1942] A.C. 356. 2. [1926] A.C. 497. 3. (1982) 149 C.L.R. at pp. 345, 365, 392. 4. (1982) 149 C.L.R. at p. 364. 5. [1956] 2 Q.B. 410.

Application is now made by the Authority, prior to the passing and entering of the judgment of this Court, seeking rescission of the order remitting the relevant issues to the Arbitrator for determination. Although this Court can no longer be constituted as it was constituted when its orders were made, there is, in my opinion, jurisdiction to recall the order remitting the relevant issues if appropriate grounds are shown. That jurisdiction inheres in this Court as a final court of appeal to prevent irremediable injustice being done by a Court of last resort, but the occasions of its exercise must be rare indeed. The principle developed in the Judicial Committee and in the House of Lords was expressed by Sir James Colvile in Maharajah Pertab Narain Singh v. Maharanee Subhao Koer; Ex parte Trilokinath [33] and should be applied in this Court:

The jealousy with which this tribunal regards any attempt to question the finality of one of its judgments, particularly after its confirmation by an Order in Council; the very rare instances in which such an order has been allowed to be reopened or varied; and the peculiar grounds upon which, if at all, this can be permitted, are elaborately considered in Lord Brougham's judgment in the case of Rajunder Narain Rae v. Bijai Govind Sing [34] ; and in the more recent case of Ex parte Kisto Nauth Roy [35] . It results from these authorities that the thing cannot be done unless by some accident, without any blame, and without any default on the part of the party himself, he has not been heard, and an order has been inadvertently made as if he had been heard. The last sentence in this passage recites Lord Brougham's statement in Rajunder Narain Rae v. Bijai Govind Sing [36] as to the grounds upon which the Judicial Committee might extend what his Lordship described not as a right but as an "indulgence" to allow a case to be reheard. The description is appropriate: Venkata Narasimha Appa Row v. Court of Wards [37] ; In re Transferred Civil Servants (Ireland) Compensation [38] . 1. (1878) L.R. V Ind.App. 171, at p. 173. 2. (1839) 1 Moo. P.C. Cas. 117 [12 E.R. 757]; II Moo. Ind.App., at p. 214 [18 E.R., at p. 282]. 3. (1869) L.R. 2 P.C. 274; 6 Moo. P.C.(N.S.) 360 [16 E.R. 762]. 4. (1839) II Moo. Ind.App. 181, at p. 220 [18 E.R. 269, at p. 284]. 5. (1886) 11 App.Cas. 660, at p. 663. 6. [1929] A.C. 242, at p. 252.

It was submitted that Lord Brougham's words were applicable to the present case where the parties, conducting the argument on appeal in conformity with the declaration made by Yeldham J., had not addressed themselves to the possibility of an order remitting the relevant issues to the Arbitrator. The submission falls to be considered in the light of the questions argued on appeal and the conclusion at which the majority arrived on those questions. There is no doubt that the questions whether the contract had been frustrated and whether the Arbitrator's findings might be relied on by Codelfa to establish that the contract had been frustrated were argued on the appeal. Both of these questions were decided in favour of Codelfa. The reasons for judgment of Mason and Wilson JJ. on this application make it clear that "the majority thought that on the findings made by the Arbitrator frustration had actually occurred".

In the course of reaching that conclusion, the majority came to the view that Codelfa's right to relief did not depend upon the Court's finding of frustration; their Honours held that the Scott v. Avery clause in the contract denied the jurisdiction of the Supreme Court to entertain the frustration action. Their Honours held that an Arbitrator's award, finding frustration and assessing the claim in quantum meruit, was a condition of Codelfa's right to sue to recover what might be due to it. That view followed from the approval of Heyman and the rejection of Hirji Mulji . Consequent upon that view, as Mason and Wilson JJ. state, "remission of the Award to the Arbitrator on frustration is therefore to be seen as a procedural order giving effect to a substantive decision of the Court, flowing naturally out of the issues debated in the proceedings". Counsel for the Authority concedes frankly that the Authority would not wish to argue that Hirji Mulji was correctly decided.

Thus it appears that each of the links in the majority's chain of reasoning which led to the order remitting the relevant issues to the Arbitrator was forged after argument upon the question concluded except in one instance where there was no argument but a view was formed as to the authority of Heyman [39] and Hirji Mulji [40] and that view is not now challenged. These considerations would warrant a refusal of the "indulgence" to permit the reopening of the order if it were not for the existence of the final declaratory judgment of Yeldham J. The judgment, standing unreversed, declares that the Arbitrator has no jurisdiction to determine the relevant issues, and would deny effect to a determination of those issues by the Arbitrator.

When the order remitting the relevant issues was made, it was not thought that the declaration made by Yeldham J. stood in the way of the remittal. His Honour's judgment was not in the appeal books, though the fact that his Honour had made a declaration appeared and was referred to in the reasons for judgment in this Court. Indeed, the judgment embodying the declaration made by Yeldham J. was passed and entered only recently, apparently in order to show on this application that a final judgment of the Supreme Court had denied the jurisdiction of the Arbitrator upon the relevant issues. It is true that, in making the declaration, Yeldham J. followed Hirji Mulji , as he was bound to do, and the foundation of his judgment cannot now be supported; but it is immaterial to the effect of the declaration that error in the reasoning which led to its making has now been disclosed: res judicata pro veritate accipitur. The rule of res judicata depends not upon the correctness of the judgment but upon its existence (Meyers v. Casey [41] ). Unless the judgment is reversed or set aside, it binds the parties and determines their rights and liabilities according to its tenor. It is unnecessary to repeat citations of the authorities to which I had occasion to refer in Port of Melbourne Authority v. Anshun Pty. Ltd. [No. 2] [42] .

(1913) 17 C.L.R. 90, at pp. 114-115. 2. (1981) 147 C.L.R. 589, at pp. 608-609.

The declaration made by Yeldham J. relates to the jurisdiction of the Arbitrator to determine precisely those issues which the order of this Court would remit to him for decision. The relevant issues are those which Codelfa submitted to his arbitration; they are not issues which first arose in or were to be determined in the frustration action, nor are they issues for determination by this Court. They are the issues which the declaration made by Yeldham J. required the Arbitrator to leave undetermined. Before the Arbitrator can effectively determine the relevant issues which the order of this Court would remit to him for decision, the judgment of Yeldham J. must be set aside. That judgment can be set aside only on appeal. No appeal was instituted, but application was made on behalf of Codelfa in the course of argument on this application for special leave to appeal to this Court against that judgment and for the necessary extension of time. In my view, that application ought to be granted so that, assuming the success of the appeal, the order of this Court might have its intended operation and the need to recall that order might be avoided.

Perhaps the course of argument on the appeals in this Court would have been different if the judgment of Yeldham J. had not been standing unreversed; perhaps the course of the litigation would have been much different if its fragmentation had not been dictated by the judgment. Nevertheless the argument upon issues which the actual course of litigation threw up resulted in a chain of reasoning leading to the order to remit and the only, albeit substantial, ground validly advanced for recalling that order is the continued existence of the judgment. To reconsider the questions which led to the making of the order is plainly to be avoided, not because the Court cannot be reconstituted as it was before, but because those questions were decided by the deliberate judgment of the Court. The present case was not a case of a decision given inadvertently without hearing a party. I would grant special leave to appeal from the judgment of Yeldham J., and stand the present application over until that appeal is disposed of with a view to its dismissal.

Solicitor for the applicant, F. S. Park . Solicitors for the respondent, Ebsworth & Ebsworth .

At a glance

Court

Decision date

Before

Source

Judgment (62 paragraphs)

Parties