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Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337

Updated: Jul 20, 2021

Contract, Construction, Extrinsic materials

Facts; The State Rail Authority of New South Wales entered into a contract with Codelfa Construction for the excavation of tunnels for the new Eastern Suburb’s railway line in Sydney. Under the contract, these works were to be completed within 130 weeks, so Codelfa immediately commenced working 24 hours per day, seven days per week. Following complaints and litigation about the noise from the construction, injunctions for granted confining Codelfa to excavating 16 hours per day, six days per week. Codelfa claimed additional payment from the Authority in respect of lost profit and additional costs incurred asserting that the contract contained an implied term that the Authority would indemnify Codelfa if any injunctions were granted against it. Additionally, Codelfa claimed that the contract has been frustrated. Codelfa was unsuccessful before the Supreme Court of New South Wales and only partly successful before the court of appeal, and appeal to the High Court.

Application; The difference [between implication and rectification] is that with rectification the term which has been omitted should have been included it was actually agreed upon. Whereas, with implication the term is one which it is presumed that the parties would have agreed upon how they turn their minds to it – it is not a term they have actually agreed upon Mason J at 345.

The true rule is that evidence of surrounding circumstances is admissible to assist in the interpretation of the contract if the language is ambiguous or susceptible of more than one meaning. But it is not admissible to contradict the language of the contract when it has a plain meaning. Generally speaking, facts existing when the contract was made will not be receivable as part of the surrounding circumstances as an aid to construction

, unless they were known to both parties, although as we have seen, if the facts are notorious knowledge of them will be presumed…

Consequently when the issue is which of two or more possible meanings is to be given to a contractual provision we look, not to the actual intentions, aspirations or expectations of the parties before or at the time of the contract, except in so far as they are expressed in the contract, but to the objective framework of facts, within which the contract came into existence and the parties presumed intention in this setting. We do not take into account the actual intentions of the parties and for the very good reason that an investigation of those matters would… Tend to give too much weight to these factors at the expense of the actual language of the written contract (at 352).

Holding; The High Court found that the contract contained no implied term that the authority would indemnify Codelfa against loss suffered because of injunctions; however it did find the contract has been frustrated by the injunctions (although the case is more often remembered for its dicta on implied terms rather than on frustration). As to the implied terms point, the court found that although it was legitimate to have regard to the surrounding circumstances of the negotiations (i.e. that the parties shared an assumption that the works would be 24/7 and the authority would indemnify Codelfa in the event of injunctions, it did not follow that it was necessary to imply such a term in order to give business efficacy to the contract (applying BP refinery the Hastings 1977 180 CLR)

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