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Codelfa Construction Pty Ltd V State Rail Authority (NSW)

149 CLR 337
41 ALR 367



(Judgment by: BRENNAN J)

Between: Codelfa Construction Pty Ltd
And: State Rail Authority (NSW)

Court:
High Court of Australia

Judges:
Stephen J

Mason J

Aickin J

Wilson J

Brennan J

Subject References:
Contract

Judgment date: 11 May 1982

Canberra


Judgment by:
BRENNAN J

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

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

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

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

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

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

(i)
 the Contractor shall notify the Engineer in writing of the cause of any such delay or default within ten days of the beginning thereof or within such further period as the Engineer shall grant for the receipt of much notice; and
(ii)
 on receipt of such notice from the Contractor under this sub-clause, the Engineer shall ascertain the facts and the extent of the delay, and extend the time for completing the works when, in the opinion of the Engineer, the findings of fact justify an extension.

(b)...

(c)...

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

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

"Notwithstanding any provision in any Act to the contrary, it shall not be necessary for the Constructing Authority to give any notice of his intention to blast any rock, nor shall he be liable to have an injunction issued to restrain him from causing or continuing to cause any nuisance by such blasting or by any other operation necessary or proper in connection with the construction of the said work."

Though the Commissioner supported that submission before the Supreme Court, it was held that Codelfa was outside the statutory immunity. Injunctions were granted, including an interim injunction restraining Codelfa from performing construction work on the site between 10 p.m. and 6 a.m. each day. The first injunction was granted on 28 June 1972. On 27 November 1972 Codelfa undertook in settlement of the litigation not to carry out any work above a certain noise level between 10 p.m. and 6 a.m. It gave certain undertakings as to the type of work which it was permitted to perform at various times, including, amongst other things, an undertaking that it would not carry out any excavation work or cart any spoil on any Sunday.

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

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

"The Contractor shall take all reasonable measures possible to avoid noise and nuisance to the public, particularly, nearby residents and users of public roads, streets and areas, and to minimise atmospheric pollution originating from his operation."

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

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

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

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

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

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

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

"The defendant is entitled to have its conduct assessed with due acceptance that it is building a railway under the authority of a statute, and that the construction work would inevitably occasion noise and disturbance."

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

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

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

(1) Implied Term

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

"... that the works, the subject of the contract, could be carried out by the contractor on a three-shift continuous basis six days per week and without restriction as to Sunday and that no injunction or other restraining order would or could be granted against the contractor in relation to noise or other nuisance arising out of the carrying out of the said works on such basis."

His Honour ordered the award to be remitted to the Arbitrator for reassessment of damages. Consequent upon these determinations, the frustration action was dismissed.

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

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

The Court ordered that the Award be remitted to the Arbitrator to make assessments and calculations in accordance with the answers given by the Court.

The question of an implied term was raised by Codelfa in the arbitration. It has not sought rectification of the contract. The implication of a term thus falls to be considered upon the terms of the written contract. The meaning of a written contract may be illuminated by evidence of facts to which the writing refers, for the symbols of language convey meaning according to the circumstances in which they are used. "The time has long passed", Lord Wilberforce said in Prenn v. Simmonds (1971) 1 WLR 1381 , at pp 1383-1384; [1971] 3 All ER 237 , at pp 239-240 , "when agreements, even those under seal, were isolated from the matrix of facts in which they were set and interpreted purely on internal linguistic considerations". Both the internal and extrinsic context in which a word or phrase is used may throw light upon the meaning with which the parties must be taken to have used it, though an extrinsic fact known to only one of the contracting parties can shed no light upon the meaning with which that word or phrase was used by the other or others.

When the court picks up a written contract in order to construe the writing, it must "place itself in thought in the same factual matrix as that in which the parties were" as his Lordship said in Reardon Smith Line v. Hansen-Tangen (1976) 1 WLR 989 , at p 997; (1976) 3 All ER, at p 575. But, having construed the writing, the court cannot take its pen and add a clause merely because it thinks the addition would be reasonable or fair or prudent. Though the parties are assumed to be reasonable and that hypothesis governs the construction of the express terms on which they have agreed, their hypothetical reasonableness warrants no alteration in their contractual rights by imputing to them an agreement to an additional term to which they have not agreed in fact and which is not implicit in the terms to which they have agreed.

The necessary foundation for the creation of contractual rights and obligations is the agreement of the parties, and their agreement is equally necessary to vary those rights and obligations prior to discharge. A term implied in a contract is stamped with a contractual character because it is a part of the contract. It cannot derive that character from extrinsic circumstances which do not evidence a contract. It would be inconsistent with the foundation of contractual obligations to find an implied term in facts extrinsic to a written contract unless the contract stands in need of rectification. Of course, where a collateral contract is propounded, or where a written contract is said to require rectification, the circumstances in which the principal contract is made frequently furnish the evidence of a collateral contract or of a term to be included in the rectified contract. But where the term propounded is said to be implied in a contract, that term must inhere in its express terms, and reference to extrinsic circumstances is permissible only to construe the contract and to understand its operation. The principle is stated in the judgment of Isaacs, Gavan Duffy and Rich JJ. in Purcell v. Bacon (1914) 19 CLR 241 , at p 265 :

"Any words or expressions if unequivocal speak for themselves; if they are words of doubtful or double signification, that may be settled, where necessary , by first ascertaining the circumstances in reference to which they are used (Charrington & Co. Ltd. v. Wooder [1914] AC 71 , which is simply finding the appropriate business dictionary where their meaning is given. When, however, the true meaning of the words themselves is ascertained, and the subject matter settled in reference to which they are used, the intention of the parties must be gathered by construing their own words as they stand, applying them to the given subject matter. For those preparatory purposes the Court places itself in the position of the parties. But it cannot place itself in their position for the purpose of finding what words they intended to use and have not used. That would be making a contract for them, and surrounding circumstances are not admissible for any such purpose: Inglis v. Buttery (1878) 3 AppCas 552, at p 577... "

The principle is unaffected by the judgment of the Privy Council in that case which allowed an appeal from the judgment of this Court (1916) 22 CLR 307 . On the hypothesis that the contract contains the true consensus of the parties, how could a reference to extrinsic facts reveal a term additional to those already expressed? Only the express agreement could stamp a contractual character upon a propounded term, and an unexpressed term bears that character only if it is necessarily to be implied from what the parties expressly agree. The correct approach was stated by Lord Wilberforce in Liverpool City Council v. Irwin [1977] AC 239 , at p 254 :

"In my opinion such obligation should be read into the contract as the nature of the contract itself implicitly requires, no more, no less: a test, in other words, of necessity."

Although the necessity for the term to be implied must appear from and in the express terms of a contract, not from extrinsic circumstances, those circumstances may aid in ascertaining the meaning of the express terms and in identifying the matters to which they relate. The meaning and operation of the express terms, thus established, are the sole foundation for implying a term which the parties have not expressed. The relationship between the construction of express terms and the implication of a term is stated by Jordan C.J. with his accustomed lucidity in Heimann v. The Commonwealth (1938) 38 SR (NSW) 691, at p 695 :

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

The cases which, in recent times, have countenanced a reference to extrinsic facts are cases where the reference is made in order to understand the meaning and operation of the express terms of a contract; no case in this Court has approved an examination of extrinsic facts in order to find in them a promise to be implied: see L.J. Hooker Ltd. v. W.J. Adams Estates Pty. Ltd. (1977) 138 CLR 52 , especially per Stephen J. (1977) 138 CLR, at pp 74-75 ; D.T.R. Nominees Pty. Ltd. v. Mona Homes Pty. Ltd., (1978) 138 CLR 423 , at p 429 per Stephen, Mason and Jacobs JJ.

In B.P. Refinery (Westernport) Pty. Ltd. v. Hastings Shire Council (1977) 52 ALJR 20 there are some passages in the majority judgment which suggests that their Lordships went further and sought to derive from the matrix of facts in which the contract was made the implication of a contractual term. If their Lordships went further than Prenn v. Simmonds (1971) 1 WLR 1381 ; (1971) 3 a11 ER 237 would permit - and it is by no means clear that their Lordships intended to do so, for Prenn v. Simmonds was cited - then I should not think that the majority judgment would accord with sound principle. Clearly the minority judgment looked to the contract itself as the source of the term to be implied. B.P. Refinery should not be regarded as authorizing an extension of the role of extrinsic evidence, nor as permitting the implication of a term other than what is necessary "to make the written contract work or, conversely, in order to avoid an unworkable situation", to quote a phrase from the minority judgment in that case. If it appears from the written contract that a term is to be implied, there are conditions which any proposed term must satisfy. They were stated by the majority judgment in B.P. Refinery (1977) 52 ALJR, at p 26 and adopted by Mason J. with the concurrence of the other members of this Court in Secured Income Real Estate v. St. Martin's Investments Pty. Ltd. (1979) 144 CLR 596 , at p 606. Those conditions are:

"(1) it must be reasonable and equitable;

(2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it;

(3) it must be so obvious that 'it goes without saying';

(4) it must be capable of clear expression;

(5) it must not contradict any express term of the contract."

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

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

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

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

Of the five conditions stated in B.P. Refinery (1977) 52 ALJR 20 , the only condition which is arguably satisfied by any of the propounded terms is that it must be fair and reasonable. Yet that condition does not take its content from the circumstances in which a contract is to be performed: what is fair and reasonable has regard to what the parties have expressly agreed. No term fulfils that criterion if it is inconsistent with the express terms of the contract, and each of the terms proposed is inconsistent with the provisions of the contract governing the time for completion and payment for the work performed.

The present case is analogous to Thorn v. Mayor and Commonalty of London (1876) 1 AppCas 120 where the Corporation of London entered into a contract for the rebuilding of Blackfriars Bridge and the specifications proposed that it be built in a manner which proved to be impractical. No warranty that the proposed manner would be practical was implied. One of the reasons advanced for rejecting the contractor's claim that the Corporation had warranted that the bridge could be built in the manner proposed was that the contractor ought to have informed himself of all the particulars connected with the work (per Lord Chelmsford (1876) 1 AppCas, at p 132 ). In the present case, Codelfa agreed that it should be deemed to have informed itself fully of conditions affecting the carrying out of the works and any failure to do so was not to relieve it of its contractual responsibility. The Court of Appeal were led to imply a term by their conclusion that "in order to determine whether a term is to be implied it is legitimate to take account of material external to the contract from which the presumed intention of the parties may be ascertained and their aim or commercial purpose objectively established. The statement by Jordan C.J. in Heimann (1938) 38 SR (NSW), at p 695 which seems to restrict recourse to the intention manifested by the express terms of the contract is not, we think, consistent with the later authorities to which we have referred." Their Honours' conclusion owes much to their interpretation of B.P. Refinery. For the reasons stated, the passage above cited from the judgment of Jordan C.J. should be accepted as undiminished in its authority. It was adopted with approval by Latham C.J. in Scanlan's New Neon Ltd. v. Tooheys Ltd. (1943) 67 CLR 169 , at p 195 and it has not since been doubted.

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

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

(2) Frustration

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

It was not contended by Codelfa that that mistake affected the formation of the contract. Codelfa contended that the granting of an injunction on 28 June 1972 was a supervening frustrating event. It is well to recall the limits upon the doctrine of frustration. In British Movietonews Ltd. v. London and District Cinemas Ltd. [1952] AC 166 , at p 185 Viscount Simon said:

"It is of the utmost importance that the action of a court, when it decides that in view of a supervening situation the rights and obligations under a contract have automatically ceased, should not be misunderstood. The suggestion that an 'uncontemplated turn of events' is enough to enable a court to substitute its notion of what is 'just and reasonable' for the contract as it stands, even though there is no 'frustrating event,' appears to be likely to lead to some misunderstanding. The parties to an executory contract are often faced, in the course of carrying it out, with a turn of events which they did not at all anticipate - a wholly abnormal rise or fall in prices, a sudden depreciation of currency, an unexpected obstacle to execution, or the like. Yet this does not in itself affect the bargain they have made. If, on the other hand, a consideration of the terms of the contract, in the light of the circumstances existing when it was made, shows that they never agreed to be bound in a fundamentally different situation which has now unexpectedly emerged, the contract ceases to bind at that point - not because the court in its discretion thinks it just and reasonable to qualify the terms of the contract, but because on its true construction it does not apply in that situation."

Frustration occurs, as Lord Radcliffe said in Davis Contractors Ltd. v. Fareham Urban District Council [1956] AC 696 , at p 729 :

"... 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."

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

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

The test may be put in ways other than that stated by Lord Radcliffe, for there are various juridical bases of the doctrine of frustration: see, for example, the review by Latham C.J. of the bases suggested in Scanlan's New Neon Ltd. v. Tooheys Ltd. Though Lord Radcliffe's judgment has found favour both here (Brisbane City Council v. Group Projects Pty. Ltd. (1979) 145 CLR 143 , at pp 160-161 ) and in England (Pioneer Shipping Ltd. v. B.T.P. Tioxide Ltd. [1982] AC 724 ) there is much to be said in favour of Lord Wilberforce's view that the various theories "shade into one another and that a choice between them is a choice of what is most appropriate to the particular contract under consideration" (National Carriers Ltd. v. Panalpina (Northern) Ltd. [1981] AC 675 , at p 693 ).

Whichever juridical basis is selected as appropriate to the present contract, Codelfa cannot establish that the granting of the injunction was a frustrating event. The case falls within what Latham C.J. in Scanlan's New Neon Ltd. v. Tooheys Ltd. (1943) 67 CLR, at pp 191-192 called "the general rule":

"... a man who makes a promise is bound to perform it or to pay damages if he fails to do so, and that he cannot excuse himself by relying upon circumstances dehors the contract for the purpose of showing that he did not mean what he clearly said, or that he should be excused from performance because the contract did not work out in the manner expected by one or even by both of the parties."

After 28 June 1972 Codelfa's work was done in performance of the contract and it was entitled to remuneration in accordance with its terms. The appeal in the frustration action was rightly dismissed.

(3) Rise and Fall Clause

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

"G.26 CONTRACT PRICE

(1)
 Subject to the terms of the Contract, the price payable by the Commissioner for the works shall be an amount calculated at the respective unit prices set out in the Schedule of Rates for the quantities of the respective items of work actually performed under and in accordance with the provisions of the Contract, together with the lump sum amounts shown in the said Schedule for the items of work to which they are applicable actually performed under and in accordance with the provisions of the Contract.
(2)(a)
 ...
(b)
 The Contractor shall not be entitled to any allowance above the unit prices set out in the Schedule of Rates by reason of any amount or none of the work being required under such items, and all work for which items are included in the Schedule of Rates shall be done at the unit price set out therefor in the Schedule of Rates, regardless of its difficulty"

Clause G.28 reads:

"G.28 CHANGES IN WAGE RATES AND HOURS OF WORK

(1)
 If after the date of closing of the Tenders the cost to the Contractor of executing the works at the aforesaid date would be varied by reason of a direct and binding obligation upon the Contractor under any Act of Parliament of the Commonwealth or of a State, or any regulation under any Act, or any award, judgment, determination, order or rule of any competent Court, Board, Commission or other statutory tribunal prescribed for general application by any calling or callings throughout the industry covered by the said award, judgment, determination, order or rule and is not limited to work being carried out in pursuance of the City and Suburban Railways (Amendment) Act 1967, causing a change in:
(a)
 the minimum rate of wages prescribed to be paid to persons employed on the site by the Contractor for work under the Contract, or
(b)
 the hours of labour to be worked by those persons, or
(c)
 the conditions of employment of those persons, the Contract Price shall be varied by the application of the formula provided in subclause (3).
(2)
 Excepting as provided in subclause (1) of this clause if after the date of closing of the Tenders the cost to the Contractor of executing the works at the aforesaid date would be varied by reason of a direct and binding obligation upon the Contractor under any award, judgment, determination, order or rule of any competent Court, Board, Commission or other statutory tribunal causing a change in :
(a)
 the minimum rate of wages prescribed to be paid to persons employed in the Commonwealth by the Contractor for work under the Contract, or
(b)
 the hours of labour to be worked by those persons, or
(c)
 the conditions of employment of those persons, the Contract Price shall be varied to the extent only of seventy-five per cent of the amount calculated by the application of the formula provided in subclause (3).
(3)
 For each one cent increase or decrease in the average weekly wage (as hereinafter defined), or alteration in marginal rates of pay, or the equivalent variation due to alteration of standard working hours, there shall be charged against or allowed to the Department's account as the case may be a sum representing 0.008 per cent of the value of the uncompleted portion of the Contract as at the date of any such variation. For the purpose of this clause the expression 'Average Weekly Wage' shall mean the ordinary hourly rate of pay payable under each award converted to 40 hours per week. The average of the weekly wage shall be calculated from the proportioned list of trades shown below and this average shall be deemed to be the weekly wage on which variations are solely computed.

General Construction and Maintenance, Civil and Mechanical Engineering etc. (State) Award

Tunnel Miner 45%

Cement Gun Operator - Wet - Underground 25%

General Labourer Grade 1 10%

Engineering Construction on Site (State) Award

Fitters 5%

Carpenters, Joiners, Bricklayers Construction (State) Award

Carpenters 10%

Transport Industries (State) Award

Driver 24 ton 5%

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

(4)
 For purposes of this clause minimum rates of wages shall include all allowances prescribed by any of the relevant awards.
(5)
 ...
(6)
 ...
(7)
 ..."

The factors in the formula in sub-cl. (3) are the variation in the "average weekly wage", marginal rates of pay or standard working hours,.008 per cent and the "value of the uncompleted portion of the Contract" (VUPC) as at the date of the variation. It may be expressed mathematically:

Variation X.008 X VUPC = Amount (in dollars) (in cents) 100 (in dollars) to be charged or allowed. Codelfa submitted that the VUPC changes not only in accordance with the work that remains to be done from time to time - and that is not disputed - but in accordance with variations in the contract price which, it was contended, are effected by changes in the average weekly wage from time to time.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

This conclusion appears to differ from the conclusion in T.C. Whittle Pty. Ltd. v. T. & G. Mutual Life Society Ltd. (1977) 52 ALJR 173 where sundry allowances, loadings or entitlements were held to affect the amount of an "average award weekly wage" which was a factor in a rise and fall formula bearing a resemblance to the formula in cl. G.28(3). The difference between the formulae, however, requires a different conclusion. "Average Weekly Wage" in cl. G.28(3) is a weighted average of the ordinary hourly rate of pay payable to workmen in the specified classifications under the respective awards converted to forty hours per week. In T.C. Whittle's Case "average award weekly wage" was defined as "the average of the 40 hour rate of pay for the listed workmen" whose classifications and awards were listed without any weighting of the classifications, and a document was incorporated in the contract which revealed that the average award weekly wage for the purposes of the rise and fall clause as at the date of the closing of tenders was composed of basic wage, tradesman's margin, follow the job and sick leave allowances, travelling time, tool allowance, industry allowance and special allowance in the appropriate industrial awards. In the present case, the average weekly wage is defined as a multiple of the ordinary hourly rate of pay of workmen in the respective classifications. The definition of the relevant term is different. In the present case, as in T.C. Whittle's Case, a notional figure is brought into the calculation, but in the present case the notional figure is obtained by seeking in the respective awards the amounts which answer the description of ordinary hourly rate of pay.

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

(4) Interest

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

In Government Insurance Office of New South Wales v. Atkinson-Leighton Joint Venture (1981) 146 CLR 206 , this Court held by a majority that under the law of New South Wales an arbitrator is armed with the same authority to award interest up to the date of his award upon a sum found due as is the Supreme Court. The authority is conferred by the submission to arbitration and follows the terms , mutatis mutandis, of the statute which confers the power upon the Supreme Court. Stephen J. said (1981) 146 CLR, at p 235 :

"The principle to be extracted from this line of authority is that, subject to such qualifications as relevant statute law may require, an arbitrator may award interest where interest would have been recoverable had the matter been determined in a court of law. What lies behind that principle is that arbitrators must determine disputes according to the law of the land."

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

"In any proceedings for the recovery of any money (including any debt or damages or the value of any goods), the Court may order that there shall be included, in the sum for which judgment is given, interest at such rate as it thinks fit on the whole or any part of the money for the whole or any part of the period between the date when the cause of action arose and the date when the judgment takes effect."

The way in which the section operates when differences are submitted to arbitration was stated by Mason J., with whom Murphy J. agreed (1981) 146 CLR, at p 247 :

"Although s. 94 is expressed in the form of an authority of the Court, its effect is to alter the antecedent principle of law regulating the payment of interest on moneys, included in judgments between the date when the cause of action arose and the date when the judgment takes effect. The parties' submission to arbitration of all their differences is to be construed in the light of the new principle of law regulating the payment of interest enshrined in s. 94."

Counsel for the Authority did not seek to challenge the majority judgment in Atkinson-Leighton but to distinguish it upon a ground that was not argued in that case though it was open upon the terms of the policy there considered. The ground is that where a contract contains a clause of the kind considered in Scott v. Avery (1856) 5 HLC 811 (10 ER 1121) , no cause of action arises prior to the making of the award and accordingly there is no period "between the date when the cause of action arose and the date when the judgment takes effect". The argument does not assert that an arbitrator lacks authority to award interest but rather that s. 94 creates no entitlement to interest where the contract contains a Scott v. Avery clause. A similar argument was upheld by Connolly J. in Chalet Homes Pty. Ltd. v. Kelly (1978) QdR 389.

Clause G.46(5) of the contract provides:

"No action or suit shall be brought or maintained by the Contractor or the Commissioner against the other of them to recover any money for or in respect of or arising out of any breach or alleged breach of this Contract by the Contractor or the Commissioner or for or in respect of any matter or thing arising out of this Contract unless and until the Contractor or the Commissioner shall have obtained an award of an Arbitrator appointed under this clause for the amount sued for and when work under the Contract has not been completed the Contractor shall, if reasonably possible, diligently proceed with the work as directed by the Commissioner during arbitration proceedings and no payment due or payable by the Commissioner shall be withheld on account of proceedings unless authorised or required by the Arbitrator."

This clause is similar to the clause considered in South Australian Railways Commissioner v. Egan (1973) 130 CLR 506 and, if it is a true Scott v. Avery clause, it prevents the bringing or maintaining of an action upon a claim for work done and materials supplied under the contract or a claim for damages for breach of contract unless and until an award is obtained. The obtaining of an award is then a condition precedent not to the bringing or maintaining of an action but to the arising of a cause of action, (1973) 130 CLR, at p 519 per Gibbs J. The effect of such a clause was stated by this Court in Anderson v. G.H. Michell & Sons Ltd. (1941) 65 CLR 543 , at p 550 :

"... an agreement which in point of expression makes arbitration a condition precedent, not to the liability or cause of action, but to the right to bring or maintain an action, is construed as affecting, not the jurisdiction or remedy, but the obligation: See Board of Trade v. Cayzer, Irvine & Co. Ltd. [1927] AC 610 ; Swanson v. Board of Land and Works (1928) VLR 283." If such a clause were construed as affecting merely the remedy, it would fail in its intended purpose for it would purport to oust the jurisdiction of the court. In Spurrier v. La Cloche [1902] AC 446 , at p 451 the Judicial Committee adopted what Maule J. had said during the argument of Scott v. Avery in the Exchequer Chamber (1853) 8 Ex 497, at p 499 (155 ER 1447, at p 1448):

"There is no decision which prevents two persons from agreeing that a sum of money shall be paid upon a contingency; but they cannot legally agree, that, when it is payable, no action shall be maintained for it."

When a contract contains both a promise to pay expressed in absolute terms and a clause in a Scott v. Avery form, it is necessary to construe the promise as creating an obligation to pay conditional upon the making of an award or to hold the purported Scott v. Avery clause void or, as in Collins v. Locke (1879) 4 App Cas 674 , to hold the Scott v. Avery clause applicable only to limited classes of claims arising under the contract. If the Scott v. Avery clause be void or inapplicable, the promise to pay gives rise to a cause of action according to the tenor of the promise; if the Scott v. Avery clause be valid and applicable, no cause of action arises prior to the making of the award. By construing the contract, the application of a Scott v. Avery clause to a promise found elsewhere in the contract is determined.

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

The operation of a Scott v. Avery (1856) 5 HLC 811 (10 ER 1121) clause upon other provisions of the contract does not require or permit the arbitrator to attribute a different meaning or effect to those provisions from the meaning or effect which ought otherwise to be attributed to them. A claim which is submitted to arbitration under a Scott v. Avery clause is a claim to the benefit of a legal obligation, albeit the obligation is qualified by the non-fulfilment of the condition precedent imported by the clause. An arbitrator is not concerned with the qualification.

Nevertheless, when the arbitrator comes to apply s. 94 of the Supreme Court Act to the sum which he proposes to award to a party, he cannot find that that sum or any part of it has been due at a time before his award is made or that a cause of action has arisen which would have entitled a party to commence proceedings for its recovery. As Viscount Cave L.C. pointed out in Board of Trade v. Cayzer, Irvine & Co. [1927] AC 610 , at p 614 , a submission to arbitration pursuant to a Scott v. Avery clause "... is not the case of an ordinary submission to arbitration, nor is it the case of a dispute arising under the common clause in a contract providing for the submission to arbitration of all disputes arising under the contract." An ordinary submission to arbitration takes the place of an action at law, but an arbitration under a Scott v. Avery clause is, as Lord Phillimore (1927) AC, at p 629 said in the same case "a necessary step towards an action at law". The distinction is critical, for s. 94 can operate only after a cause of action has arisen, when the principal sum upon which interest is to be charged is due.

The difference between the two kinds of arbitration clause is well illustrated by the difference between Board of Trade v. Cayzer, Irvine & Co. where time under the Statute of Limitations was held not to run before the award was made and two other cases where arbitrators were held bound to permit a defence under a Statute of Limitations when time had expired before the arbitration was commenced. In Ramdutt Ramkissendass v. F. D. Sassoon & Co. (1929) LR 56 IndApp 128 the Judicial Committee held that arbitrators should give effect by analogy to the Indian Limitation Act which limited the time for commencing a suit for compensation for breach of contract though the Act was not expressed to limit the time for commencing an arbitration. In a passage subsequently adopted by the House of Lords in Namlooze Vennootschap Handels en Transport Maatschappij Vulcaan v. A/S J. Ludwig Mowinckels Rederi (1938) 43 Com Cas 252, at p 258 Lord Salvesen said (1929) LR 56 Ind App, at p 136:

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

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

The orders to be made

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

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

1. Paragraph 63, First Issue, A:

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

A. No.

2. Paragraph 64(f):

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

A. No.

3. Paragraph 63, Fifth Issue(a):

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

A. Yes.

4. Paragraph 63, Fifth Issue(c):

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

A. Yes.

5. Paragraph 63, Fifth Issue(g):

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

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

(i)
 cl.2(xiii) of the General Construction and Maintenance, Civil and Mechanical Engineering, etc (State) Award provided for an additional amount in lieu of payment for sickness prescribed in cl. 10 of that Award for a loading for sick leave; and cl.3(i)(a) of the Carpenters and Joiners and Bricklayers, Construction (State) Award provided in the ordinary hourly rate of wages for sick leave;
(ii)
 cl.10A(i) of the General Construction and Maintenance, Civil and Mechanical Engineering, etc (State) Award of 26 June 1972, cl.1 of the Building Trades - Injuries Award of 21 May 1971 and cl.13(i) of the Transport Industry (State) Award of 9 February 1972 provided for an additional flat rate lost time loading in respect of accident pay.

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

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

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

7. Paragraph 64, Fifth Issue (k):

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

(1)
 there is to be taken into account for the purpose of calculations thereunder the effect on the cost to the contractor of executing the works of -
(i)
 shift allowance;
(ii)
 wash and change time;
(iii)
 crib time;
(iv)
 overtime;
(v)
 long service leave;
(vi)
 changes in shift allowance;
(vii)
 (added by consent during hearing) accident make-up pay.

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

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

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

A. No.

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

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

A. No.

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

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

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

Case Judgement
Table of contents
  Order
  Judgment by STEPHEN J
  Judgment by MASON J
  Judgment by AICKIN J
  Judgment by WILSON J
  Judgment by BRENNAN J


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