Sample Contract law Assignment

Introduction

The key question is whether Cecil can be relieved of his obligation to pay the expenses he is liable for, under an implied term or the doctrine of frustration.

Implication of a Term

The term that needs to be implied is categorised as a term implied in fact¹. The Australian authority on this implication is Codelfa Constructions Pty Ltd v State Rail Authority of NSW². In this case, the parties had a common understanding that Codelfa would be working 3 shifts per day 7 days per week. However, an injunction prevented them from working these hours and Codelfa became unable to complete the contract in the specified time, which subsequently cost them more money. Codelfa failed in trying to get a term implied in their contract for the defendants to pay their extra expenses. The court applied the test of BP Refinery (Westernport) v Hastings³ to assess whether a condition could be implied. All five points must be satisfied for the court to imply a term, which they were not in Coldefa Constructions Pty Ltd v State Rail Authority of NSW. The following is an application of these points to the facts as set out in this case.

1. It must be reasonable and equitable to imply the terms

Although the contract may not be fair, or work as the parties intended it too, the court will still not imply a term. Here, Loose Cannon Pty Ltd had a contract with Cecil for Cecil to do excavation work, and there was no provision in the contract for Loose Cannon Pty Ltd to pay extra expenses in the event of a delay due to unforseen circumstances. It was not part of the original contract, and it would not be equitable or reasonable for the court to imply such a term, even if this results in a detriment to Cecil.

2. Is necessary to give the contract business efficacy

The contract in this case works perfectly well without the implied term. The parties can still fulfil their obligations under the existing contract, even if it will cost more time and money. In Byrne v Australian Airlines Ltd⁴ the court found that it was not necessary to imply a clause into the contract to make the contract work, as the contract worked fine without.

3. Must be so obvious that it goes without saying

This is not an obvious term to be implied. There were no statements or actions by either party which may have indicated that this was in fact the intention of the parties.

4. It must not contradict an express term

This proposed implied term does contradict an express term. The parties agreed for the excavation work to be completed at a cost of $300,000, and if the implied term is to be included, it would contradict this agreement.

5. It must be capable of clear expression.

The proposed term is not capable of clear expression.

In Coldefa Constructions Pty Ltd v State Rail Authority of NSW, by applying this test the court found that implying the term would entitle Codelfa to additional reward for what they were already bound to do. Here, the parties had a contract for excavation work at a price of $300,000. There is nothing to suggest that Loose Cannon should pay Cecil's expenses in regards to the application of the above test, and thus the term should not be implied.

Frustration

"Frustration occurs whenever the law recognises 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"⁵. There are two issues applicable to this case in relation to frustration. These are the impact of the delay, and what effect the changed circumstances has had on the performance of the contract.

Delay is when events occur to seriously delay the performance of a contract. In National Carriers Ltd v Panalpina Ltd⁶, the plaintiffs leased a warehouse to the defendants for 10 years, however, the street to the warehouse was blocked for 20 months and the defendants refused to pay ret, claiming frustration. The court found that the blockage was a temporary interruption to the defendant's business and was not enough to render the lease frustrated - it was a very short delay compared to the duration of the contract. If this case is to be interpreted using these principles, than the contract will not be found to be frustrated, as the terms the parties agreed to are still in tact, they have only been delayed. However, the courts have said that it is also useful to compare the probable length of delay with the length of the contract. This contract was supposed to be fulfilled in 6 weeks, but the delay has put the performance off for 18 weeks - three times the amount of time and money Cecil put aside and predicted. So it appears that, as the court stated as obiter in National Carriers v Panalpina, the delay is too long for the contract to remain in tact, and must be frustrated according to this principle.

The second test is regarding the change in the state of the affairs essential to performance. That is, is what the parties contracted to do radically different to what the performance of the contract would be under the changed circumstances, and would the parties have intended to be bound in the changed circumstances. In Codelfa Constructions Pty Ltd v State Rail Authority of NSW the court agreed that the injunction was a radical change and therefore frustrated the contract. The event fundamentally changed what the parties agreed to do, and there was no alternative way for the parties to fulfil their obligations as stated in the contract. The court found the same result in Krell v Henry⁷, where the use of a room to watch the King's coronation procession was the foundation for the contract, so when the procession was cancelled, the contract was frustrated. On the other hand, in Tsakiroglou & Co Ltd v Noblee Thorl GmbH⁸ the court found the opposite. This case involved a contract for the sale of goods to be shipped to Hamburg. The ship could not go through the Suez Canal because there was a war, and instead had to go through the Cape of Good Hope, which took much longer. The court found that this event did not radically change the performance of the contract (unlike Coldelfa), as there was an alternative open to them - ie. to go through the Cape of Good Hope. In this case, the facts are very similar to both these cases. There is a change in circumstances, a delay, which the parties did not expressly provide for in the contract, such as in a force majeure clause⁹. It appears that due to the length of time, the delay does radically change the performance of the contract, since a great amount of time and money would be wasted by Cecil. So due to the increase in cost, the performance of the contract is fundamentally different to what the parties agreed on, and it is unlikely that Cecil would have intended to be bound in these changed circumstances.

The frustrating event was not self-induced by either party and it was not one which the parties could have reasonably foreseen. In Davis Contractors Ltd v Fareham Urban District Council the court found that a lack of skilled labour which resulted in the construction of buildings taking longer than expected was reasonably foreseeable by the parties, and rejected the claim of frustration. On the other hand, in Simmons Ltd v Hay¹⁰ the court frustrated a contract on the grounds that an employer could not have reasonably foreseen that his employee would become permanently incapacitated. Here, the parties expected that the rock would be soft, but certainly did not contemplate human remains or ancient artefacts being found on the site. This was quite an obscure occurrence, and it was not a seriously probable event. Thus the decision of Simmons Ltd v Hay should be followed.

Conclusion

A term cannot be implied into this contract, as it is not so obvious it goes without saying, it is not capable of clear expression, and it is not fair an equitable to the other party. The proposed term does contradict the implied terms of the existing contract in regards to the price of the excavation and the term is not necessary to give the contract business efficacy, as despite the delay, the parties still can fulfil their obligations. However, as in Codelfa Constructions Pty Ltd v State Rail Authority of NSW, this delay has resulted a situation which is fundamentally different to what the parties stipulated in the contract. An unforeseeable event occurred which has radically disrupted the performance of the contract. What the parties expressly agreed to in the contract is now not possible, due to the delay. So despite Cecil not being able to have a term implied in the contract to have Loose Cannon Pty Ltd pay their expenses, the contract should be frustrated.

Bibliography

• Clarke, P, Gamble, R, and Brebner, J. Contract Law. Second Ed., NSW, Australia, Butterworths, 2000.
• Carter, J.W and Harland, D.J. Case and Material on Contract law in Australia. Third Ed., NSW, Australia, Butterworths, 1998.
• Carter, J.W. Breach of Contract. Second Ed., Sydney, NSW, The Law Book Company Limited, 1991.
• Concise Australian Legal Dictionary. Second Ed., Australia, Butterworths, 1998.

Reference

¹ J.W. Carter and D.J. Harland, Case and Material on Contract Law in Australia, Third Ed., NSW, Australia, Butterworths, 1998, p 238.
² Codelfa Constructions Pty Ltd v State Rail Authority of NSW [1982] 149 CLR 337.
³ BP Refinery (Westernport) v Hastings [1977] 180 CLR 266.
⁴ Byrne v Australian Airlines Ltd [1995] 185 CLR 411.
⁵ Davis Contractors Ltd v Fareham Urban District Council [1956] AC 696 at 723.
⁶ National Carriers Ltd v Panalpina Ltd [1981] AC 657.
⁷ Krell v Henry [1903] 2 KB 740.
⁸ Tsakiroglou & Co Ltd v Noblee Thorl GmbH [1962] AC 123.
⁹ Concise Australian Legal Dictionary, Second Ed., Australia, Butterworths, 1998, p.181.
¹⁰ Simmons Ltd v Hay [1964] 81 WN (Pt 1) (NSW) 358.