OOh!

Media Roadside Pty Ltd (Formerly Power Panels Pty Ltd) V Diamond Wheels Pty
Ltd & Anor

(Supreme Court of Victoria – Court of Appeal 28 April 2011; [2011] VSCA 116)

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

The facts

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

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

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

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

[6] Permitted use was defined to mean:

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

[7] Licensee’s Property was defined to mean a Sign:

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

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

[9] [Inter alia] Clause 11 of the licence agreement provided that, if:

(a) …..

(b) …..

(c) the Site becomes unsuitable for the Permitted use for any
reason outside the reasonable control of the Licensee

the Licensee may terminate this Agreement by 7 days written notice

to the Licensor.

Permits were defined to mean

all permits, approvals and authorities from any government, municipal

statutory, public or other authority or body at any time having jurisdiction
over the Land or any part of the Land or the Permitted use, necessary for the
installation or maintenance of the Sign or the conduct of the Permitted use.

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

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

[15] When the licence agreement was entered into in 2005, the intersection of King Street
and Flinders Street was overpassed by a road and tramway bridge which carried the traffic
running east west along Flinders Street above the traffic running north south along King
Street, and there was an open car park at the southwest corner of the intersection (‘the
Northbank land’). [16] In or about 2006, an application was filed for a permit for
construction of the Northbank Office Tower on the Northbank land, and in September 2006
the permit was granted. Construction began some months later. [17] On 29 September 2008
the appellant wrote to the respondents, purporting to terminate the licence agreement,
pursuant to clause 11(c), as follows

As you are aware, a building is currently under construction and nearing

completion directly opposite to the building on which the sign is installed,
and that new building has substantially reduced the visibility of the sign. In
particular, the sign is no longer visible from Kings Way while travelling into
Melbourne, until adjacent to the development and looking upward.
 As a consequence of the reduced visibility of the sign, revenue attributable to
the sign has reduced by over 86% since the sign became obscured. The
reduction in revenue received from the sign has not been caused or
contributed to by any factor other than the obstruction of the sign by the
building under construction. oOh!media is entitled to terminate the
Agreement for the reason that the sign has become unsuitable for the purpose
of displaying advertising. It is the nature of outdoor advertising that it must
be visible to serve any useful purpose, and it is implied in the Agreement that
the advertising and therefore the Site must be substantially visible.

We acknowledge that the sign is visible to the public from certain positions.
However, the fact that the sign is capable of being seen from certain angles is,
again, insufficient to remove oOh!media’s termination right. Clause 11(c)
clearly states that oOh!media may terminate the Agreement if the Site is
unsuitable for the display of advertising. The positions from which the sign
are visible are not suitable for outdoor advertising [as] passing traffic now
need[s] to look skyward to see it when virtually adjacent to the sign. The
obstruction to the Site is substantial and sufficient for the exercise of
oOh!media’s termination right.

[18] The respondents treated the letter as repudiating the licence agreement and accepted the
repudiation. [19] Following termination of the licence agreement, the respondents retained
project managers to relet the Site but could not attract any interest. Eventually, the
respondents entered into a licence agreement with Bilmor Holdings Pty Ltd for a period of
six months commencing on 1 November 2009.

The proceeding below

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

[22] The judge found that [23] the appellant was not entitled to terminate the licence
agreement pursuant to clause 11(c) or at all, and that the licence agreement had not been
frustrated.

[24] As to clause 11(c), her Honour determined that ‘unsuitable’ bore its ordinary meaning
of something not fit for the Permitted use and that, despite the construction of the
Northbank Office Tower, the Site remained suitable for the ‘Permitted use’ of the display of
advertising and promotional material. [25] The judge rejected the existence of the putative
implied term on the basis that it was not necessary to give business efficacy to the
agreement and not so obvious as to go without saying.

[26] As to frustration, the judge said that she was not satisfied that construction of the
Northbank Office Tower resulted in a radical or fundamental change in circumstances or
the wholesale destruction of the value of the Site.
Ground 1: Construction of clause 11(c) of the licence agreement

[27] Counsel for the appellant contended that the judge erred in her construction of clause
11(c). [28] It was not in issue that the clause was properly to be construed by reference to
what reasonable persons in the position of the parties would have understood it to mean at
the time of entry into the licence agreement, and that was to be ascertained objectively
according to the text of the document read in light of the background facts and the
surrounding circumstances known to the parties and the purpose and object of the
transaction. Counsel for the appellant submitted, however, that it was important to keep in
mind that the Sign was first erected in 1967, and intended to function as a ‘roadside
advertising Sign’ which derived its essential value from its visibility to northbound traffic
on Kings Way.

[29] It was, moreover, not to the point, counsel said, that the Sign may have been visible
also to pedestrians. [30] It followed, counsel argued, that the definition of ‘Permitted use’ in
the agreement should be understood as meaning ‘use of the Site for the display of outdoor
advertising and promotional material to motor vehicle traffic approaching the Melbourne CBD
north along Kings Way’. Hence, clause 11(c) should be understood as conferring on the
appellant an express right to terminate the licence agreement when and if the Site became
unsuitable ‘for the display of outdoor advertising and promotional material to motor
vehicle traffic approaching the Melbourne CBD north along Kings Way’, for any reason
beyond the reasonable control of the appellant.

[31] Alternatively, in counsel’s submission, clause 11(c) was drafted in such broad terms
that it should be understood as meaning that the appellant had a right to terminate the
licence agreement if, in the appellant’s opinion, the Site became unsuitable for the display
of outdoor advertising and promotional material. [32] Counsel submitted, it was not to the
point that the judge found that the ‘sign remains visible and can be used to display
advertising material’, and that it is ‘fit for the purpose of displaying outdoor advertising’.
For regardless of whether her Honour was right or wrong about that, counsel said, it
remains that the appellant was of opinion that the Site had become unsuitable for its use
following construction of the Northbank Office Tower and, therefore, that the appellant
was entitled to terminate the agreement as it purported to do.

[33] In my view, those contentions should be rejected. So far as the facts and circumstances
in 1967 are concerned, Codelfa 1 makes clear that they are of relevance to the construction of
the licence agreement only to the extent that they are shown to have been known to both
parties at the time of entry into the licence agreement. Although it may be that the facts
and circumstances in 1967 were known to the original licensor at that time, there is no
evidence as to what was known to Twenty-Five King Street at the time of entry into the
licence agreement in 2005. Still less is there reason to suppose that the controlling minds of
Twenty-Five King Street had knowledge of or expertise in the outdoor advertising industry.

[34] No doubt, exposure of the Site to King Street Bridge north bound traffic would have
been thought of as a valuable attribute of the Site. But, in the absence of evidence as to
what the directors of Twenty-Five King Street had in mind, it is not open to say that they
knew or believed that the visibility of the Site to pedestrians and others on the south bank

1 Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337, 347–352
(Mason J); Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165, 179 [40].
of the Yarra or to passengers travelling on trains between Flinders Street Station and
Spencer Street Station was regarded by billboard advertisers as lacking any real value.

[35] The idea that ‘unsuitable’ in clause 11(c) of the agreement should be read as ‘unsuitable
in the opinion of the licensee’ is even more unlikely. In effect it would mean that the licence
agreement was terminable at the will of the licensee. Absent some compelling indication to
the contrary, common sense dictates that an ordinary reasonable licensor would not be
prepared to subject itself to that sort of risk, or that an ordinary reasonable licensee would
imagine that the licensor was prepared to contract on that basis. Given that clause 11(c) is
to be construed in accordance with the principle of objectivity affirmed in Pacific Carriers Ltd
v BNP Paribas and Toll (FGCT) Pty Ltd v Alphapharm Pty Limited, 2 the judge was surely right
to hold that ‘unsuitable’ meant unsuitable according to an objective determination.

Grounds 2, 4, 5 and 7(c): Frustration

[61] Under Ground 2, counsel for the appellant submitted that the situation created by the
construction of the Northbank Office Tower was so fundamentally or radically different to
that which was contemplated when the licence agreement was entered into in 2005 that the
agreement was frustrated and automatically discharged upon the construction of the tower.
Counsel contended that the judge was in error in rejecting that submission.

(i) Test for frustration

[63] In Codelfa, 3 a majority of the High Court rejected the implied condition theory 4 of
frustration in favour of the test propounded by Lord Radcliffe in Davis Contractors Ltd v
Fareham Urban District Council: 5

The legal effect of frustration ‘does not depend on [the parties] intention or
their opinions, or even knowledge, as to the event.’. 6 On the contrary, it
seems that when the event occurs ‘the meaning of the contract must be taken
to be, not what the parties did intend (for they had neither thought nor
intention regarding it), but that which the parties, as fair and reasonable men,
would presumably have agreed upon if, having such possibility in view, they
had made express provision as to their several rights and liabilities in the
event of its occurrence’ (Dahl v. Nelson) 7 … frustration occurs whenever the
law recognizes that without default of either party a contractual obligation
has become incapable of being performed because the circumstances in which
performance is called for would render it a thing radically different from that
which was undertaken by the contract. Non haec in foedera veni. It was not
this that I promised to do.

2 (2004) 218 CLR 451, (2004) 219 CLR 165.

3 Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337,
(Stephen J); 357 (Mason J); 380 (Aickin J).
4 And other earlier suggested bases of frustration.
5 [1956] AC 696, 728–9.
6 [1926] AC 497, 509.
7 (1881) 6 App Cas 38, 59 (Lord Watson).
 The court must act upon a general impression of what its rule requires. It is
for that reason that special importance is necessarily attached to the
occurrence of any unexpected event that, as it were, changes the face of
things. But, even so, it is not hardship or inconvenience or material loss itself
which calls the principle of frustration into play. There must be as well such a
change in the significance of the obligation that the thing undertaken would,
if performed, be a different thing from that contracted for.

[64] Codelfa was preceded, however, and to a large extent informed by Stephen J’s analysis
of frustration in Brisbane City Council v Group Projects Pty Ltd. 8 In a passage which Mason
and Aickin JJ later endorsed in Codelfa, Stephen J observed that, although Lord Radcliffe
spoke in Davis Contractors in terms of a ‘change in obligation’, his Lordship was not to be
understood as saying that there can be no frustration without a change in obligation. The
emphasis on obligation was the result of the factual situation with which his Lordship was
concerned. Thus, in some cases it has been said to be enough to engage the doctrine of
frustration that events have given rise to a ‘fundamental commercial difference’ between
contemplated and actual performance 9 or to a ‘fundamentally different situation’ arising for
which the parties made no provision ‘so much so that it would not be just in the new
situation to hold them bound to its terms’. 10

[65] In a similar vein, other judges and commentators have expressed the view that
frustration is a ‘flexible doctrine’, unconstricted by ‘arbitrary formula’ 11 which is ‘apt to
vindicate justice wherever owing to relevant supervening circumstances the enforcement of
any contractual arrangement in its literal terms would produce injustice’ 12 and ‘to give
effect to the demands of justice, to achieve what is reasonable and fair and as an expedient
to escape from injustice…’ 13

[66] One difficulty with general conceptions of that kind is that they do not provide much
guidance as to the degree or extent an event must overturn expectations, or affect the
foundation upon which the parties contracted, or how unjust and unreasonable a result
must follow, or how radically different from that originally undertaken must a contract
become, before the contract is taken to be frustrated. As Stephen J noted in Brisbane City
Council, they ‘provide little more than single instances of solutions to these questions’. 14

[67] A more structured approach, however, is evident in the observations of Dillon LJ in

Notcutt v Universal Equipment Ltd that: 15

8 (1979) 145 CLR 143.

9 Albert D Gaon & Co v SIOFA [1960] 2 QB 318, 347.
10 The Eugenia [1964] 2 QB 226, 238.
11 Cricklewood Property and Investment Trust Ltd v Leighton’s Investment Trust Ltd [1945] AC 221,
241 (Lord Wright); National Carriers Ltd v Panalpina (Northern ) Ltd [1981] AC 675, 700
(Lord Simon of Glaisdale).
12 Edwinton Commercial Corporation & Anor v Tsavliris Russ (Worldwide Salvage & Towage Ltd
(The ‘Sea Angel’) [2007] 2 Lloyd’s Rep 517, 532 [86].
13 J Lauritzen AS v Wijsmuller BV (The Super Servant Two) [1990] 1 Loyd’s Rep 1, 8 (Bingham LJ).
14 Brisbane City Council v Group Projects Proprietary Limited (1979) 145 CLR 143, 162 (Stephen J).
15 [1981] 1 WLR 641, 647.
 I do not for my part see that these reference to justice or injustice introduces
any further factor. If the unexpected event produces an ultimate situation
which, as a matter of construction, is not within the scope of the contract or
would render performance impossible or something radically different from
that which was undertaken by the contract, then it is unjust that the
contracting party should be held to be still bound by the contract in those
altered circumstances.

[68] Still more precisely, in Codelfa, 16 Mason J identified the close relationship between the
doctrine of frustration and the concepts of common contractual assumption and mutual
mistake. As his Honour explained: if parties enter into a contract on the basis of a common
contractual assumption as to a future fact, it is a case for frustration; and, if they enter into
a contract on the basis of a common contractual assumption as to an existing fact, it is a case
of mistake. The essential criterion of frustration is thus a:

common assumption that some particular thing or state of affairs essential to

[the contract’s] performance will continue to exist or be available, neither
party undertaking responsibility in that regard. 17

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

[70] I approach this case on that basis. Consistently with Codelfa, I take the law to be that a
contract is not frustrated unless a supervening event:
a) confounds a mistaken common assumption that some particular thing
or state of affairs essential to the performance of the contract will
continue to exist or be available, neither party undertaking
responsibility in that regard; and
b) in so doing has the effect that, without default of either party,
a contractual obligation becomes incapable of being performed
because the circumstances in which performance is called for would
render it a thing radically different from that which was undertaken by
the contract.

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

(ii) Foreseeability of obstruction

16 (1982) 149 CLR 337, 360.

17 (1982) 149 CLR 337, 357.
[72] Where a supervening event is not only foreseeable but actually foreseen at the time of
entry into a contract, it is more difficult to conceive of the parties as having entered into the
contract on the basis of a common understanding that the event could not occur during the
life of the contract. Where, however, a supervening event, although foreseeable, was not
foreseen at the time of entry into the contract, the fact that it was foreseeable may not be of
much significance unless the degree of foreseeability is particularly high.

[73] Consequently, as later cases demonstrate, it is important to be precise about the nature
and degree of foresight. So far as foreseen events are concerned, the parties to a contract
may have foreseen an event but not foreseen the nature or extent of it. Cheshire and Fifoot’s
Law of Contract 18 suggests that in some cases it may also appear that, ‘Failure to provide
expressly for an event that was foreseen [is] due to … a deliberate decision to leave matters
to be sorted out by the parties, or by the law’.

[74] In the case of foreseeable but unforeseen events, the nature and extent of foreseeability
is critical. Since most events are foreseeable in one sense or another, the parties to a
contract will not ordinarily be taken to have assumed the risk of an event occurring during
the life of the contract unless the degree of foreseeability of that event is very substantial.
Hence, as the position is summarised in Chitty on Contracts: 19

Much turns on the extent to which the event was foreseeable. The issue
which the court must consider is whether or not one or other party has
assumed the risk of the occurrence of the event. The degree of foreseeability
required to exclude the doctrine of frustration is … a high one:
‘foreseeability’ will support the inference of risk-assumption only where the
supervening event is one which any person of ordinary intelligence would
regard as likely to occur or… ‘one which the parties could reasonably be
thought to have foreseen as a real possibility’. 20

[75] It is not suggested that the parties in this case foresaw that the line of sight from the
northbound carriageway of Kings Way to the Sign would be blocked or obscured to the
extent that it has been. But there was a dispute before the judge as to whether the fact of
blockage or obstruction was foreseeable. The appellant conceded that it was foreseeable
‘that sites can be built out in the Central Business District’. 21 But counsel for the appellant
argued that partial or complete obstruction of the line of sight was not foreseeable, because
it was not foreseeable that a building would be constructed on the Northbank land.

[76] In my view, the judge was correct to reject that argument. In reality, there were and are
any number of ways in which the line of sight from the north bound carriageway of Kings
Way to the Site could be blocked or obstructed. The relevant question was whether it was
foreseeable that the line of sight could be blocked or obstructed in any of those ways, and
the evidence was clear. As the judge recorded, it revealed that the whole area, including
Docklands, had changed significantly in the last 14 years. Southbank had been developed.

18 Seddon and Ellinghaus 9th ed [19.12].

19 Chitty on Contracts 30th Ed, [23-060].
20 Citing Treitel, Frustration and Force Majeure 2nd Ed 2004, 13-012, in turn citing Mishara
Construction Co Inc v Transit-Mixed Concrete Corporation 310 NE 2d 363 (1974), 367; see also
Carter, Peden and Tolhurst, Contract Law in Australia 5th Ed, [33]–[38].
21 Reasons, [168].
The Casino had been constructed. Apartment towers had gone up and the Aquarium had
been erected. 22 It was obvious from the CBD location of the Site that the skyline was
constantly changing and that, as a result, the line of sight could be blocked in any number
of ways by the construction of buildings or other structures either on the Northbank land or
on any of the three buildings fronting Kings Way between Flinders Lane and the building
on which the Sign is erected, or in other ways.

[77] The possibility of a site being built out in a CBD location was well understood in the
advertising industry. [80] It seems to me that it was plainly foreseeable at the time of entry
into the licence agreement in 2005 that the line of sight from the Kings Street Bridge north
bound carriageways to the Sign was at risk of being partially or completely obstructed
during the course of the licence agreement. That being so, the fact that the appellant did not
seek the inclusion of a reduction-in-visibility clause tends to support an inference that the
appellant assumed the risk of line of sight obstruction. 23 [84] The question was not whether
it was foreseeable that the building could be constructed on the Northbank Site. It was
whether it was foreseeable that the line of sight from the north bound carriageway of Kings
Way to the Site could be obstructed wholly or partially by the construction of a building or
other structure within the area. Based on the evidence, it is plain that it was highly
foreseeable. [85] The final complaint concerning the judge’s findings as to foreseeability was
that her Honour erred in failing to attribute what was said to be the knowledge of Twenty–
Five King Street to the respondents. Counsel for the appellant argued that it was
incumbent on the respondents to call Twenty-Five King Street to rebut the suggestion that
Twenty-Five King Street was likely to have known that the appellant entered into the
licence agreement on the basis that the line of sight would not be obstructed. Thus, as I
understood the argument, because of the respondents’ failure to call Twenty-Five King
Street, the judge ought to have inferred that both parties to the licence agreement entered
into it on the basis of that assumption.

[86] In my view the argument is misconceived. There was nothing to imply that Twenty-
Five King Street was ‘in the camp’ of the respondents. 24 There was no reason, therefore, to
expect that the respondents would call that company. The issue of common understanding
was something which the appellant essayed to establish and consequently upon which it
bore the burden of adducing sufficient evidence to prove the point. If anyone were to be
expected to have called Twenty-Five King Street, it was the appellant and, even if that were
not so, the failure to call Twenty-Five King Street would have implied only that anything
which Twenty-Five King Street had to say on the subject would not have assisted the
respondents. In the absence of any evidence as to what Twenty-Five King Street’s state of
mind might have been, the effect of Twenty-Five King Street’s absence from the witness box
would have been essentially neutral. 25

22 Reasons, [76].
23 Counsel for the appellant also argued that the judge erred in her finding as to foreseeability
by taking the Second Reading Speech and Explanatory Memorandum relating to the
Melbourne (Flinders-Street) Act 2003 into account in a manner which was impermissible. While
the court agreed there was force in this contention, they concluded that it did not make any
difference to the outcome of the case.
24 Payne v Parker [1976] 1 NSWLR 191, 201–2; Davies v Pyke (2004) 10 VR 339, 344 [16]–[17].
25 Brandy v Mingot (1976) 12 ALR 551, 559–560; Berrigan Shire Council v Ballerini (2005) 13 VR
111, 138 [66].
(iii) Performance not rendered radically different

[87] I turn to the judge’s conclusion that that the construction of the Northbank tower (even
if not foreseeable) did not render performance of the licence agreement ‘a thing radically
different from that which was undertaken by the contract’, or as the judge put it, did not
constitute ‘a radical and/or fundamental change in circumstances and a wholesale
destruction of the value of the Site’. 26

[88] Counsel for the applicant submitted that the individual case which provided the
greatest support for the appellant’s claim of frustration was the decision of the English
Court of Appeal in Krell v Henry. 27 It involved a contract for the hire of a flat for two days
which, it was said, was entered into on the basis of an unexpressed common assumption
that the flat was being hired to view the coronation procession of King Edward VII. The
Court of Appeal held that the procession taking place was the foundation of the contract so
that, when the procession was cancelled due to the King’s illness, the contract was
dissolved and the rent was not recoverable. Counsel for the appellant contended that, in
the same way here, the unexpressed common assumption on the basis of which the original
parties entered into the licence agreement was that motor traffic travelling north over King
Street bridge would have an uninterrupted view of the Sign. Thus, once the view was
impeded by the construction of the Northbank Office Tower, the agreement was dissolved
and rent for the Site ceased to be payable.

[89] The majority of the court in Scanlan’s New Neon, McTiernan and Williams JJ, considered
that Krell v Henry was correctly decided in accordance with the principle that a contract
may be frustrated where ‘the underlying object’ of it is rendered impossible of
achievement 28 or where there is cessation or non-existence of an express condition or ‘state
of things going to the root of the contract, and essential to its performance.’ 29 Mason J
approached it in the same way in Codelfa.

[90] Perhaps the better view of Krell v Henry is that it was rightly decided because it was
apparent on the particular facts of the case that the occurrence of the coronation procession
on the appointed dates was the basis of the contract and that neither party contemplated
the possibility that the procession might be cancelled.

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

[92] I do not consider that either case supports the appellant’s claim. In Krell v Henry there
was substantial evidence of surrounding circumstances that the parties entered into the
agreement on the basis of a common assumption that the hiring of the flat was for the

26 Reasons, [185].
27 [1903] 2 KB 740.
28 Ibid 215 (McTiernan J).
29 Ibid 222 (Williams J).
purpose of viewing the coronation procession. [93] In Codelfa, it was plain from the
evidence of surrounding circumstances that the parties entered into the construction
agreement on the basis of a common assumption that the appellant would be able to carry
out the contract works operating three shifts per day, six days a week, and could not be
restrained by injunction from proceeding in that fashion. [94] Contrastingly, in this case,
there was nothing in the evidence of surrounding circumstances which suggested that the
parties shared an understanding at the time of entering into the licence agreement in 2005
that the Site was being let for the sole purpose of displaying advertising and promotional
materials to motor traffic travelling north over King’s Street Bridge. Nor was there
anything to suggest that the owner of the Site believed or represented to the licensee that
the view from parts of the northbound carriageway might not one day be blocked or
obscured by the construction of one or more buildings in the line of sight.

[97] Counsel stressed the commercial purpose for which the sign board was leased, and
cited the observations of Mahony JA in Liberty Investments Pty Ltd v Sakatik Pty Ltd 30 as
support for counsel’s submission that the commercial purpose of the licence agreement had
been frustrated by the obstruction of the line of sight from the northbound carriageway of
Kings Way [however] [98] I do not think that assists the appellant’s case. The question in
this appeal is whether the judge was right to reject the contention that the change in
circumstances caused by the obstruction to the line of sight from the north bound
carriageway of Kings Way to the Sign was ‘fundamental’. That was a question of fact and
degree about which views may legitimately differ. 31 It depended on the terms of the
contract and the facts of this case. Its resolution was not assisted by knowing what might or
might not have been regarded as ‘fundamental’ in relation to a different contract according
to the facts of a different case.

[101] Authority is clear that the doctrine of frustration is not lightly to be invoked and is to
be kept within narrow bounds. 32 As Lord Simon of Gladesdale said in National Carriers Ltd
v Panalpina Ltd, 33 in order to frustrate a contract, a supervening event must radically alter
the nature, not merely the expense or onerousness, of the performance of contractual
obligations. [106] There are similarities between this case and Scanlan’s New Neon Ltd v
Tooheys Ltd, 34 where an equivalent wartime prohibition on the night time illumination of
signs was held not to have frustrated a contract for the installation and hiring of a neon
sign. [108] Looked at objectively, therefore, it can hardly be supposed that an honest and
reasonable licensor entering into a long term licence of a valuable advertising site would
have been prepared to accept the risk of the agreement coming to an end

30 [1996] NSWCA 326.

31 Pioneer Shipping Ltd v BTP Tioxide Ltd (The Nema) [1982] AC 724, 752 (Lord Roskill).
32 Bank Line Ltd v Arthur Capel & Co [1919] AC 435, 459; Davis Contractors Ltd v Fareham Urban
District Council [1956] AC 696, 715, 727; Pioneer Shipping Ltd v BTP Tioxide Ltd (The Nema)
[1982] AC 724, 752; J Lauritzen A/S v Wijsmuller [1989] EWCA Civ 6, Lloyds Rep [1990] 1
Lloyds Rep 1, 8.
33 [1981] AC 675, 700; see also J Lauritzen A/S v Wijsmuller [1989] EWCA Civ 6, Lloyds Rep
[1990] 1 Lloyds Rep 1, 9 (Bingham LJ).
34 (1943) 67 CLR 169.
whenever and if the line of sight from the northbound carriageway of Kings Way was in
some way be obstructed. To adopt and adapt the words of Williams J in Scanlon’s New Neon
Ltd v Tooheys Ltd, it would not be reasonable for the licensee as a ‘fair dealer’ to expect the
licensor to make such a contract.

[109] Possibly if not probably, the construction of the Northbank Office Tower was
productive of financial hardship; and, doubtless, there may come a point at which hardship
turns to frustration. It is a question of fact and degree dependent on the facts and
circumstances of each case. But, given the facts and circumstances as they existed in this
case at the time of entry into the licence agreement, I do not accept that such economic
hardship as may have resulted from the construction of the tower on the Northbank land
amounted to frustration. [110] In my view, the judge was right to reject the claim that
construction of the Northbank Office Tower rendered performance of the licence agreement
radically different. [111] I would dismiss the appeal.

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

[114] When regard is had to the extent of the development in that area of the city precincts,
the risk was plainly foreseeable that visibility could be reduced in the future. If it was
foreseeable, it is difficult for the disadvantaged party to contend that its non-occurrence
was an assumption on which the parties based their agreement. The appellant must be
regarded as having implicitly assumed the risk of the occurrence of the supervening event,
not expressly mentioned in the contract, as there was a reasonable possibility that it was
likely to occur. The appellant cannot be excused from performance because the contract did
not work out in the manner it expected. 35

[116] The appellant also relied upon the concept of ‘economic frustration’, submitting that
when the ‘driver of the price which was being paid is removed, there is a radical change
from the circumstances contemplated by the parties.’ That submission misconceives what it
is that must be shown to be radically different. Commercial impracticability because
performance has become excessively and unreasonably onerous, or which alters the
economic equilibrium of the agreement, will not enable a party to avoid its obligations,
unless the supervening circumstance has fundamentally changed or is radically different
from the nature of the performance agreed upon. 36 It has not been shown that her Honour
erred in concluding that there had not been a wholesale destruction of the site. Neither was
it demonstrated that any loss of profitability by the appellant established a ‘fundamental
commercial difference’ to the licence agreement as contemplated by the parties. [117] The
appeal should be dismissed.

WEINBERG JA: [118] I have had the considerable advantage of reading, in draft, the
reasons for judgment prepared by Nettle JA. I agree that this appeal should be dismissed.
[120] Outdoor advertising is an increasingly large component of the world wide advertising
market which includes other media such as television, radio, the internet and the press.

35 Scanlan’s New Neon Ltd v Tooheys Ltd (1943) 67 CLR 169.

36 Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337; Davis
Contractors Ltd v Fareham Urban District Council [1956] AC 696; British Movietoners Ltd v
London & District Cinemas Ltd [1951] 2 TLR 571.
[121] It should be obvious to anyone engaged in such advertising that licence agreements of
the kind that featured in this case should be drawn with utmost care. [123] It seems
extraordinary to me that, where unimpeded and long range visibility is critical to the
financial viability of an agreement to license a billboard site for outdoor advertising and
promotional display purposes, the relevant agreement would not deal specifically, and in
terms, with the consequences that should flow from a material reduction in visibility, such
as that which may occur with a significant build out. [124] Clause 11(c) of the relevant
agreement was, in my view, drafted in terms which failed to provide the protection that a
licensee might perhaps expect. I see no reason why a clause dealing with the consequences
that are to flow from a material reduction in visibility should not have been included. This
is all part of normal risk management, and can be reflected in the price agreed by the
parties.